UDR, Inc. Q2 FY2025 earnings call

• Tom Toomey noted healthy demand for apartments, accelerating pricing power, higher resident retention, lower concessions, and strong expense control. Highlighted initiatives like creating value from customer experience, executing on innovation, deploying capital for earnings accretion, and UDR being named Top Workplace Winner. Introduced new CFO Dave Bragg.
• Mike Lacy covered second quarter same-store results, improved full-year 2025 same-store growth guidance, including raising same-store revenue growth midpoint to 2.5% with a range of 1.75% to 3.25% and lowering same-store expense growth midpoint to 3%. Discussed regional performance with East Coast, West Coast, and Sunbelt markets.
• Joe Fisher talked about second quarter FFO results, updated full-year FFOA per share guidance to $2.49 to $2.55, third quarter guidance of $0.62 to $0.64, transactions and capital markets activity including acquisitions and proceeds from investments, and balance sheet and liquidity update with over $1.1 billion liquidity and strong leverage metrics.

Second quarter year-over-year same-store revenue growth was 2.5% and NOI growth was 2.9%. Blended lease rate growth was 2.8%, driven by 5% renewal rate growth and 30 basis points new lease rate growth. Occupancy averaged 96.9%, 30 basis points higher than historical second quarter average. Expense growth was 1.7%. Regional breakdown: East Coast (~40% of NOI) had 97.2% occupancy and 4% blended lease rate growth; West Coast (~35% of NOI) had 96.9% occupancy and 4.2% blended lease rate growth; Sunbelt (~25% of NOI) had 96.7% occupancy and blended lease rate growth improved by 200 basis points sequentially.

• Raised full-year 2025 FFOA per share guidance range to $2.49 to $2.55, with the $2.52 midpoint representing a $0.02 per share improvement.
• Third quarter FFOA per share guidance range is $0.62 to $0.64, with the midpoint reflecting stable sequential core results.
• Raised same-store revenue growth midpoint to 2.5% with a range of 1.75% to 3.25%, driven by earn-in, blended lease rate growth, occupancy and bad debt, and other operating initiatives.
• Lowered same-store expense growth midpoint to 3%, driven by year-to-date outperformance in insurance and real estate taxes.

• Risks related to DPE investments, including underwriting challenges, counterparty risks, and market dynamics affecting asset values. For example, challenges with certain DPE investments like 1300 Fairmount with macro factors like rate and cap rate changes, and market shutdown delays.
• Supply pressures in Sunbelt markets and potential challenges in certain regions due to lingering new supply and slower recovery.

Q: Nick Joseph from Citi asked about blended lease assumption for the back half of the year.

A: Mike Lacy responded that guidance raise is due to year-to-date execution, seasonality with third quarter blends likely higher than fourth, and regional differences with coast potentially lower and Sunbelt showing positive momentum.

Q: Jamie Feldman from Wells Fargo asked about markets with changed expectations.

A: Mike Lacy said West Coast has done better than expected year-to-date, while Sunbelt hasn't taken off as expected due to lingering supply.

Q: Sanketkumar Rajeshbhai Agrawal from Evercore ISI asked about external growth opportunities.

A: Joseph D. Fisher discussed transaction market health, DPE activity being quiet, development land market slow, and focus on joint venture acquisitions, DPE recaps, and development pipeline.

Q: Jana Galan from Bank of America asked about the Philadelphia property loan.

A: Joseph D. Fisher explained the history of the nonaccrual loan, acquisition, and recapture of cash, and Mike Lacy discussed the turnaround in occupancy at the property.

Q: Ami Probandt from UBS asked about trends in D.C.

A: Mike Lacy said D.C. is a high-growth market with 97% occupancy, 3.5%-3.6% blends, and 1.5 weeks concessions, with renewals holding in and new lease a bit softer.

Q: Austin Wurschmidt from KeyBanc Capital Markets asked about turnover and renewals.

A: Mike Lacy explained that renewal growth was dialed back due to market rent trends, comps in the back half, and retention expected to stay strong.

Q: Richard Allen Hightower from Barclays asked about expenses and DPE investments.

A: Mike Lacy discussed controllable expense drivers and Joseph D. Fisher talked about lessons learned from DPE investments, including scenario analysis and avoiding extension options.

Q: Adam Kramer from Morgan Stanley asked about seasonality and Sunbelt recovery.

A: Mike Lacy said historical blends expected, 3Q could be better, 4Q seasonality, and Sunbelt markets vary with Tampa showing positive momentum.

Q: John P. Kim from BMO Capital Markets asked about acquisitions and D.C.

A: Joseph D. Fisher discussed focus on LaSalle JV and Mike Lacy talked about D.C. performance relative to CoStar data.

Q: John Joseph Pawlowski from Green Street asked about development yields and FFO add-backs.

A: Joseph D. Fisher discussed development yields and FFO add-back policies related to legal, software, and casualty costs.

Q: Alexander David Goldfarb from Piper Sandler asked about DPE debt and tech.

A: Joseph D. Fisher talked about DPE investment targeting and Tom Toomey emphasized tech as an offensive and defensive capability.

Q: Haendel Emmanuel St. Juste from Mizuho Securities asked about Boston and turnover.

A: Mike Lacy discussed Boston's performance and turnover improvement across regions.

Q: Alex Kim from Zelman & Associates asked about West region rent growth.

A: Mike Lacy talked about San Francisco's strong performance and Joseph D. Fisher mentioned Monterey Peninsula constraints.

Q: Linda Tsai from Jefferies asked about turnover by region and trajectory.

A: Mike Lacy discussed turnover improvement across regions and expected trajectory in 3Q and 4Q.