Michael D. Lacy
Senior Vice President, Operations at UDR
Thanks, Tom.
Today, I will cover the following topics, our third quarter same-store results and early fourth quarter results, including regional operating trends and our improved full year same-store growth guidance, including underlying assumptions.
To begin, third quarter year-over-year same-store revenue and NOI growth of 1.2% and 0.8%, respectively, were better than expected given difficult prior year comparisons. Our third quarter results were driven by, first, 1.8% blended lease rate growth, which was driven by renewal rate growth of over 5% and new lease rate growth of approximately negative 2%. Second, 55% annualized resident turnover was nearly 200 basis points below the prior year period and more than 600 basis points better than our 10-year average. This has enabled us to maintain healthy renewal rate pricing and led to more favorable blended lease rate growth.
Third, occupancy averaged 96.3%, which is lower than our historical third quarter average. This was strategic as we implemented enhanced AI screening and fraud identification tools used by our associates to enhance the overall credit quality of our residents and mitigate bad debt over the longer term. Healthy levels of traffic and leasing volume combined with higher revenue retention enabled us to increase occupancy in September, and we finished the quarter at 96.5%. And fourth, other income growth was approximately 5% and was driven by our continued innovation along with the delivery of value-add services to our residents.
Shifting to expenses. Year-over-year same-store expense growth of 2% in the third quarter came in better than expectations. These positive results were driven by favorable real estate taxes, insurance savings and constrained repair and maintenance expenses due to our improved resident retention.
Moving on. Core operating trends have remained resilient in October, and key metrics have largely followed typical seasonality. First, October blended lease rate growth is roughly flat. On a like term basis, which excludes the impact of short-term rentals, October blended lease rate growth is approximately positive 1%, which is slightly below September results and follows normal historical sequential rent growth trends. Given the heightened volume of short-term lease expirations in the September to October timeframe, we expect the impact of short-term rentals on our lease rate growth should ease through year-end. Effective new lease rate growth appears to have stabilized from September to October in the negative 5% range, while we have continued to have success executing renewal lease rate growth in the mid-4% range.
Regionally, the East Coast is showing the most strength with blended lease rate growth of approximately 2%. This is followed by slightly positive blends on average in our West Coast portfolio and the Sunbelt at approximately negative 3.5%. Based on current trends, we expect East Coast leadership to persist through at least early 2025. Second, resident retention continues to compare well against historical norms, and October represents the 18th consecutive month our year-over-year turnover has improved. Relative affordability compared to other forms of housing is a benefit to the apartment industry in total.
Given the level of home prices and mortgage rates the average cost of only a home across UDR markets is nearly $5,600 per month. By contrast, the average rent for an apartment at UDR is approximately 2,600 per month, thereby creating annual shelter cost savings of $36,000. This disparity has led to a record level of resident moving out to buy a home. We estimate that in order to return to historical average of relative affordability between renting apartment and buying a home. Mortgage rates would need to decrease approximately 150 to 200 basis points, all else equal. Furthermore, with the success of our ongoing customer experience project, our resident retention over the past year has improved by approximately 200 basis points relative to the peer group average. This is a testament to our team's focus and execution on our innovative data-driven approach to customer service.
Ultimately, improved retention should drive better pricing power, higher occupancy, increased other income, reduced expenses, lower capex and margin expansion. We remain in the early innings of capturing these benefits and believe the opportunity in 2025 and beyond is to capture $10 million to $25 million of incremental run rate NOI. Third, occupancy has trended higher to 96.6% on average in October, a 40 basis point improvement from our year-to-date low of 96.2% in June. Traffic is higher than the same time a year ago, and our 30-day availability is less than 4%, which supports our expectation of occupancy remaining in the mid-96% range through the remainder of 2024.
And fourth, other income is growing in the mid- to high single-digit range, slightly higher than what we achieved in the third quarter. As a reminder, other income constitutes roughly 11% of our total revenue. We remain pleased with the trajectory of our other income initiatives such as the rollout and penetration of building wide WiFi as these contribute significantly to incremental same-store revenue growth as well as our resident experience. When considering these factors and more moderate prior year comparisons as compared to the third quarter, we expect year-over-year same-store revenue and NOI growth to accelerate in the fourth quarter.
Turning to regional trends. Our coastal results continue to exceed our expectations, while our Sunbelt markets have performed largely in line. More specifically, the East Coast, which comprises approximately 40% of our NOI, was our strongest region in the third quarter and Washington, D.C. was our best-performing market, driven by continued strength in Northern Virginia. Third quarter weighted average occupancy for the East Coast was 96.5%. Blended lease rate growth was nearly 4% and year-over-year same-store revenue growth was approximately 2.5%. With continued healthy demand and relatively low new supply, we expect this region to be our strongest through the rest of the year.
The West Coast, which comprises approximately 35% of our NOI, has performed better than expected year-to-date. Third quarter weighted average occupancy for the West Coast was 96.3%. Blended lease rate growth was slightly higher than 2%. And year-over-year same-store revenue growth was approximately 2%. Recent return to office mandates and increased office leasing activity in the Pacific Northwest has supported relative strength in our Seattle portfolio. While incremental public safety and quality of life improvements have led to improved leasing traffic and occupancy in San Francisco. Absolute levels of new supply remain low at less than 2% of existing stock on average across our West Coast markets, which we expect will lead to a favorable supply/demand dynamic in the coming quarters.
Lastly, our Sunbelt markets, which comprise roughly 25% of our NOI, continued to lag our coastal markets. Year-to-date revenue growth is largely in line with our original expectations and is supported by other income growth from our value-add initiatives. Third quarter weighted average occupancy for the Sunbelt was 96.1%, blended lease rate growth was negative 2% and year-over-year same-store revenue growth was negative 1.5%. Among our Sunbelt markets, lease rate growth in Florida is holding up the best while elevated new supply is negatively impacting our Texas portfolio.
While our Sunbelt markets broadly have more robust job growth than our coastal markets and absorption of new supply has been tremendous, it has come by the way of concessions and a deterioration of pricing power. Based on existing inventory, forthcoming supply and leasing activity trends, our analysis suggests pricing stability in Denver, Dallas, Tampa and Orlando in mid-2025. The timeline for Nashville and Austin are elongated, and we would expect supply/demand equilibrium in late 2025 and into 2026 in those markets. Based on our year-to-date results, we raised our full year 2024 same-store growth guidance for the second time this year in conjunction with yesterday's release.
Starting with same-store revenue growth, we raised our midpoint to 2.2% from 2.0%. The 20 basis point increase is driven by: first, a 10 basis point improvement in full year blended lease rate growth which we now forecast to be approximately 140 basis points. Using a midyear convention, our updated blended lease rate growth expectations should contribute an incremental 5 basis points to 2024 same-store revenue growth. Second, we expect the combination of occupancy and bad debt to contribute approximately 10 basis points to same-store revenue growth, an improvement compared to our prior expectations of flat. And third, a 5 basis point improvement in full year revenue contribution from innovation and other operating initiatives.
Moving on to same-store expense growth. We lowered our midpoint by 60 basis points to 4.4%. The improvement was driven by constrained insurance, repair and maintenance and real estate tax growth. As a reminder, same-store expense growth of 7.5% in the first quarter was elevated due to comping off a onetime $3.7 million employee retention credit we realized at the beginning of 2023. Absent this factor, we would expect same-store growth for the full year to be in the mid-3% range or approximately 80 basis points lower than our updated midpoint.
Looking ahead, the building blocks for 2025 same-store growth are coming into focus. Based on our revised outlook, we are forecasting a 2025 same-store revenue earn-in of approximately 60 to 70 basis points, which is in line with our 2024 earn-in and is approximately half of our historical norm. We will provide 2025 guidance in February, which will address our outlook for market rent growth, occupancy, bad debt contributions from other income and expense growth.
In sum, our diversified portfolio enables us to tactically adjust our operating strategy to maximize revenue and NOI growth while continued innovation sets us up well for further margin expansion. My thanks go out to the UDR associates nationwide for your steadfast commitment during a period of unprecedented new supply. Together, we've delivered attractive results and have positioned ourselves for future growth. Finally, a special thanks to our teams in Tampa and Orlando for their immense efforts during the recent hurricanes. You undertook tremendous preparation to ensure the safety of our residents and fellow associates, minimize downtime at our properties and promptly restored them to operable conditions. I have full faith that our people can continue to make a difference as we collectively work to return the vibrancy to these cities and improve the lives of many who have been affected by these storms.
I will now turn over the call to Joe.
