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UDR, Inc. is a self-administered real estate investment trust (REIT) that specializes in owning, operating, acquiring, renovating, developing, redeveloping, disposing of, and managing multifamily apartment communities across the United States . The company generates revenue primarily from lease revenue, which includes rental payments and pass-through revenue from retail and residential leases, as well as other revenue from services provided to tenants and third parties . UDR's business strategy focuses on diversification across markets, price points, and product types to generate strong total shareholder returns .
- Same-Store Communities - Represents stabilized communities that contribute significantly to rental income and net operating income (NOI) .
- Non-Mature Communities/Other - Includes recently acquired, developed, or redeveloped communities that are not yet stabilized .
What went well
- UDR's customer experience project has effectively reduced resident turnover by approximately 300 basis points in Q2, leading to improved retention over peers and providing confidence to push rental rates higher. This initiative could potentially drive $15 million to $30 million in value over the next couple of years. ,
- UDR's data-driven approach to pricing and leasing strategies has allowed them to maintain strong occupancy at 96.8%, adjusting rental rates to find market equilibrium and achieving positive results despite market volatility. ,
- UDR maintains a strong balance sheet with nearly $1 billion in liquidity as of June 30, and is strategically positioned to capitalize on future development opportunities with up to four potential starts in the next 12 to 18 months, aiming for development yields in the high 5% range. ,
What went wrong
- UDR's aggressive rent increase strategy led to a loss in occupancy, indicating limitations in pricing power as they had to pull back rents to stabilize occupancy after the market reacted negatively. ,
- Deceleration in new lease rates across markets, including strong East Coast markets like New York, Baltimore, and D.C., where growth declined from 5%-6%, suggests weakening rental demand and potential revenue pressures.
- High levels of new apartment supply expected in upcoming quarters may increase competitive pressure, leading to potential occupancy challenges and the need for concessions, especially in Sunbelt markets where new lease rates are down 5%-6% in July. ,
Q&A Summary
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Rent Growth Guidance
Q: What's driving your blended rent growth guidance for the back half of the year?
A: Joseph Fisher explained that year-to-date market rent growth is up about 4%, nearly 200 basis points better than expected. For the last five months, they're assuming about 60 basis points in blended lease rate growth, incorporating conservatism due to supply and macro uncertainties. -
Occupancy and Pricing Strategy
Q: How are June and July trends in coastal markets versus the Sunbelt impacting your pricing strategy?
A: Michael Lacy noted that over the past 90 days, they averaged a 2.5% blended growth, 100 basis points over expectations. May's strong performance led them to push market rents by about 2% month-over-month, double the pre-COVID norm. While occupancy dipped slightly—stabilizing at around 96.5% on the East Coast and 96.2% in the West Coast and Sunbelt—they're adjusting their strategy accordingly. -
Impact of Supply and Concessions
Q: How are supply and concessions affecting July performance and absorption levels?
A: Michael Lacy stated that concessions are around half a week, consistent with pre-COVID levels, with the Sunbelt slightly higher and coasts next to nothing. The consumer remains healthy, with stable rent-to-income ratios at 22%, and no signs of doubling up in units. -
Operating Expenses and Upside
Q: Where do you see the most room for upside in your guidance?
A: Michael Lacy expressed confidence in expenses, both controllable and non-controllable, reducing their midpoint guidance from about 5.25% to 5%. Joseph Fisher added that real estate taxes could offer upside, potentially trending down to a 3–4% increase, below initial expectations. -
DCP Funding and Investment Strategy
Q: Can we expect more DCP funding in the back half of the year?
A: Joseph Fisher noted that the increased guidance to $15 million is net of recent activities, including a $35 million investment in a Portland portfolio and repayments. While no major discussions are underway for further deployments this year, they expect to be active next year as maturities approach.
- With elevated new supply impacting some of your markets and concessions beginning to increase, do you believe the challenges ahead are tougher than those you've faced previously, or have you already weathered the worst of the supply impact?
- Given your strategy to push renewal lease rate growth higher due to improved retention, how sustainable is this approach, and are you concerned that pushing rates too aggressively could lead to increased turnover in the future?
- You've mentioned that occupancy and blended lease rate growth have stabilized after some volatility; is this fluctuation simply normal seasonality, or are there specific market factors causing you concern about leasing trends?
- There appears to be a gap in cap rates between higher growth and lower growth markets; can you quantify this delta, and how does it influence your investment decisions across different regions?
- Previously, you lagged peers in resident turnover but have recently improved; how confident are you that you can maintain lower turnover compared to peers, and what steps are you taking to ensure this trend continues?