Q4 2024 Earnings Summary
- UDR is experiencing strong occupancy rates above 97%, with turnover down 500 basis points year-over-year in January, and positive leasing trends in early 2025, which positions them well for revenue growth. , , ,
- UDR has 4 to 5 projects that could be shovel-ready within the next 12 months, targeting yields in the high 5% to 6% range, offering potential for growth and value creation.
- UDR's focus on innovation and expanding high-margin other income streams, such as Wi-Fi with margins charging around $70 and costing around $20, and parking with huge margins, is contributing to strong revenue growth and enhancing cash flows, with 8% growth achieved last year and aiming to repeat in 2025. ,
- Potential cost increases due to tariffs and inflation may impact UDR's development projects. Joseph Fisher noted concerns about tariffs on lumber, mechanicals, and glass, and mentioned that costs for projects starting in the second half of the year are not locked in and are a little fluid, which could negatively affect development yields.
- Implementation of rent control measures in some of UDR's markets could limit rent growth potential. Michael Lacy discussed the new rent control in Monterey Peninsula and expressed concerns about potential rent control legislation in Washington state and California, which could impact revenue growth.
- Delays and uncertainties in investment maturities, specifically regarding the 1,000 Oaks investment. Joseph Fisher indicated that the equity partner is likely seeking a short-term loan extension, suggesting potential delays or challenges in realizing returns from this asset.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +2.3% (from $413.37M in Q4 2023 to $422.73M in Q4 2024) | The modest revenue increase reflects continued same‐store stability and accretive external investments from previous periods, albeit at a tempered pace compared to prior growth phases. |
Operating Income | –61.6% (declined from $172.3M in Q4 2023 to $66.29M in Q4 2024) | A sharp decline in operating income indicates pressure on core profitability; previous periods benefited from non‐recurring gains (such as elevated property NOI and joint venture impacts) that did not recur, while higher operating costs and expense pressures have adversely impacted margins. |
Net Income | Swing from +$36M in Q4 2023 to –$5.52M in Q4 2024 | The dramatic shift to negative net income is driven by margin compression and increased expenses (including higher SG&A and interest costs) that reversed the favorable profitability of previous periods. |
SG&A Expenses | +22% (from $20.8M in Q4 2023 to $25.47M in Q4 2024) | The rise in SG&A expenses stems from officer retirements, higher incentive and bonus accruals, and annual market adjustments; such cost increases were less pronounced in prior periods, contributing to current period margin compression. |
West Region Revenue | –24% (dropped from $109.31M in Q4 2023 to $82.35M in Q4 2024) | The West’s significant revenue decline is likely due to lower effective lease rates and tougher market conditions compared to previous periods that had benefited from stronger pricing power and better lease performance. |
Northeast Region Revenue | –50% (dropped from $72.64M in Q4 2023 to $36.05M in Q4 2024) | The nearly 50% drop in Northeast revenue suggests severe market headwinds and increased operating expense impacts relative to previous recovery phases, particularly in key markets like New York where earlier strong performance did not carry forward. |
Mid-Atlantic Region Revenue | +17% (increased from $71.09M in Q4 2023 to $83.01M in Q4 2024) | This improvement is driven by better-than-expected performance in Metropolitan DC and Baltimore, with higher occupancy and lease rate growth offsetting previous period stagnation. |
Southeast, Southwest, Non‑Mature/Other Segments Revenue | –29%, –39%, –75% respectively | These regions experienced multifaceted challenges: lower occupancy, muted revenue per occupied home growth, and, in Non‑Mature/Other, significant property dispositions and stabilization issues that reversed gains observed in previous periods. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Same-Store Revenue Growth | FY 2025 | no prior guidance | 1.25% to 3.25% (midpoint 2.25%) | no prior guidance |
Same-Store Expense Growth | FY 2025 | no prior guidance | 3.5% at midpoint | no prior guidance |
Same-Store NOI Growth | FY 2025 | no prior guidance | Midpoint 1.75% | no prior guidance |
Blended Lease Rate Growth | FY 2025 | no prior guidance | 2.5% | no prior guidance |
FFOA Per Share | FY 2025 | no prior guidance | $2.45 to $2.55 (midpoint $2.50) | no prior guidance |
Occupancy | FY 2025 | no prior guidance | Above 97% | no prior guidance |
East Coast Revenue Growth | FY 2025 | no prior guidance | 2% to 4% | no prior guidance |
West Coast Revenue Growth | FY 2025 | no prior guidance | 1.25% to 3.25% | no prior guidance |
Sunbelt Markets Revenue Growth | FY 2025 | no prior guidance | Flat to +2% | no prior guidance |
Innovation & Other Operating Initiatives | FY 2025 | no prior guidance | Expected to add 65 bps to same-store revenue growth | no prior guidance |
New Lease Rate Growth | FY 2025 | no prior guidance | 1% on average | no prior guidance |
Other Income Growth | FY 2025 | no prior guidance | 7% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Occupancy & Turnover Rates | In Q1 and Q2, occupancy remained around 96–97% with year-over-year turnover improving (Q1: 97.1% occupancy ; Q2: 96.8% occupancy, turnover -300 bps YoY ). | In Q4, occupancy stayed above 97%, and turnover reached record lows (sub-30%), with a -500 bps YoY decline. | Continued strong occupancy and further decline in turnover. |
Development Pipeline & Yields | In Q1 and Q2, active projects were minimal, with 4 potential starts considered within 12–18 months, targeting yields in the high 5% range. | In Q4, 2–3 development starts are planned for 2025 with targeted 5–6% yields, factoring in inflation and cost uncertainties. | Pipeline planning advanced; yield targets remained consistent. |
Expansion of Other Income | In Q1, other income was 10% of revenue and grew 10% YoY ; in Q2, 11% of revenue with high single-digit growth. | In Q4, other income at 11.5% of revenue, growing 8%; key drivers include Wi-Fi adoption and amenity fees. | Steady expansion with new initiatives. |
Tariffs & Inflation | Not mentioned in Q1 or Q2. | In Q4, concerns about tariffs (e.g., lumber) and inflation affecting project costs emerged, although some cost items remain fluid. | Newly highlighted cost pressures. |
Rent Control | In Q1, rent control in NY was noted as manageable; no mention in Q2. | In Q4, Monterey Peninsula rent control caused a $2–3M revenue drag, with plans to install submeters for future recapture. | Grew in importance with added revenue headwinds. |
Delays in Investment Maturities | In Q1, DCP watch list assets had refinancing extensions and next maturity in 2025; in Q2, no major 2024 maturities. | In Q4, a short-term extension was needed for the 1,000 Oaks project, with management confident in valuation. | Limited maturities remain, but short-term extensions continue. |
Deceleration in New Lease Rates | In Q1, negative new lease growth but improving QoQ; in Q2, further deceleration in some Sunbelt markets. | In Q4, an occupancy-focused strategy reduced blended lease rate growth; new lease rates 1% expected in 2025. | Moderate rate growth remains under pressure. |
Elevated Apartment Supply | In Q1, peak supply was expected soon, hitting Sunbelt hardest; in Q2, occupancy dropped in high-supply Sunbelt markets. | In Q4, supply peaked in mid-2024 and remains elevated into early 2025, particularly in Sunbelt areas. | Continues posing a headwind, with gradual easing expected. |
Management Caution | In Q1, cautious guidance due to interest rates and late-year supply impacts; in Q2, concern over election uncertainty and macro volatility. | In Q4, regulatory and political risks remained a focus, prompting a range in guidance. | Ongoing cautious stance amid external risks. |
Balance Sheet & Liquidity | In Q1 and Q2, $1B of liquidity, low debt maturity exposure, and 3.4% weighted avg. interest rate. | In Q4, over $1B of liquidity and only 10% of debt maturities through 2026, maintaining a strong balance sheet. | Remains robust, allowing opportunistic capital use. |
-
Blended Rent Growth Outlook
Q: How will blended rent growth trend across regions?
A: Management expects total company blended rent growth of 2.5% , with the first half of the year around 1.4% to 1.8% and increasing to 2.8% to 3.2% in the back half. The East Coast is projected at blends of 2.5% to 3%, West Coast around 2.5%, and the Sunbelt at 60 to 90 basis points. This reflects their strategy to drive occupancy up and capitalize on historically low turnover. -
Investment and Capital Allocation
Q: Will you be a net seller or buyer this year?
A: The appearance of being a net seller is due to timing of sales slipping into early January, related to last year's funding. UDR plans to remain opportunistic with capital allocation, partnering with LaSalle to deploy capital. They expect 2 to 3 development starts this year, including one possible in the next quarter , focusing on development, redevelopment, and potential acquisitions. -
Concessions Trend Impact
Q: Where are concessions now, and where will they go?
A: Concessions are currently around one week in January and are expected to decrease to less than one week moving into the first quarter. Reducing concessions is part of their strategy to drive occupancy above 97% and focus on increasing rents. -
Sustainability of Other Income
Q: Will other income growth become a headwind?
A: UDR had 8% growth in other income last year and expects another strong year with 7% growth projected for 2025. Other income represents about 11.5% of revenue, approximately $180 million. Management believes there is potential for continued growth through innovation and customer experience initiatives , despite potential challenges. -
Supply Impact on Fundamentals
Q: Should we worry about supply affecting fundamentals?
A: Elevated supply could affect fundamentals in certain markets, but supply is expected to decrease significantly in '25 and further in '26. UDR anticipates that as supply declines, especially in the Sunbelt, pricing power will enhance throughout the year. -
Turnover Trends and Initiatives
Q: Can turnover decrease further from record lows?
A: Turnover continues to decline, with January turnover down another 500 basis points year-over-year. UDR believes turnover can decrease further due to customer experience initiatives and leveraging extensive data analytics. -
Management Changes Explained
Q: Why did the CFO become CIO; any strategic changes?
A: The change aims to improve the team and grow talent. Joe Fisher, as CIO, brings a fresh perspective to investments, and UDR expects continued success without significant strategic changes.
Research analysts covering UDR.