Greetings and welcome to UDR’s Fourth Quarter 2023 Earnings Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo. You may begin.

Welcome to UDR’s quarterly financial results conference call. Our press release, supplemental disclosure package, and related investor presentation were distributed yesterday afternoon and posted to the Investor Relations section of our website at ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. When we get to the question-and-answer portion, we ask that you be respectful of everyone’s time and limit your questions to one plus a follow-up. Management will be available after the call for your questions that did not get answered during the Q&A session today. I will now turn over the call to UDR’s Chairman and CEO, Tom Toomey.

Thank you, Trent, and welcome to UDR’s fourth quarter 2023 conference call. Presenting on the call with me today are President and Chief Financial Officer, Joe Fisher; and Senior Vice President of Operations, Mike Lacy; Senior Officers, Andrew Cantor and Chris Van Ens will also be available during the Q&A portion of the call. To begin, for this quarter’s call, we enhanced how we communicate our outlook for the year ahead. The volatility we have experienced over the last five years, combined with the supply-induced challenges our industry is expected to face in 2024, translate into a wider range of potential outcomes for this year versus our typical year. As such, in conjunction with our earnings release, we published an outlook presentation that highlights these potential outcomes and their drivers. Our prepared remarks aligned with the presentation, and those on our webcast should see the slides on your screen. We will resume our usual format of prepared remarks only on future earnings calls. Moving on, key takeaways from our press release and our 2024 outlook are summarized on Slide 4 of the deck. These are first, fourth quarter and full year 2023 FFOA per share and same-store results met the guidance expectations set forth on our third quarter call. Full year 2023 same-store NOI growth of 6.8% was particularly strong and one of the highest amongst our peer group. Second, based upon consensus estimates, we expect that economic growth and apartment demand will remain resilient in 2024, but historically high new supply will continue to place pressure on our core growth. Third, ongoing investments in innovation will continue to drive incremental NOI growth above the broader market in 2024. Mike Lacy will give you greater detail on this subject. Fourth, we are maintaining a capital-light strategy given our still elevated cost of capital, but we will take advantage of opportunities when appropriate. For example, in 2023, we executed roughly $1 billion of accretive deals through joint venture and operating partnership unit opportunities. We will continue to keep our eyes open for external growth and feed our cost of capital signals. And fifth, our balance sheet remains well positioned to fully fund our capital needs in 2024 and beyond. With that, I’ll turn the call over to Joe.

Thank you, Tom. The topics I will cover today include our fourth quarter and full year 2023 results, including recent trends and transactions, the 2024 macro outlook that drives our full year guidance, and the building blocks of our 2024 guidance. First, beginning with Slide 5. Our fourth quarter and full year FFO as Adjusted per share of $0.63 and $2.47 achieved the midpoint of our previously provided guidance ranges. On the bottom half of the slide, you can see that during the quarter, we shifted to a more defensive operating strategy and built occupancy going into 2024. Occupancy trended sequentially higher for each month during the fourth quarter, resulting in a 20 basis point sequential improvement versus that of the third quarter. As anticipated, this occupancy pivot resulted in lower blended base rate growth versus original 4Q expectations, but it was the right decision to place our portfolio in a position of strength given elevated new multifamily supply in 2024. For January, operating trends have improved. Market rent growth turned sequentially positive and is following normal seasonal patterns thus far. Blended lease rate growth improved to positive 0.2% with new lease rate growth of minus 3.6% and renewal lease rate growth of plus 4%. Concessionary activity continued to trend lower, and occupancy increased further to 97.2%. One month does not make a trend, but we are encouraged by these results. Moving on, as detailed on Slide 6, during the quarter, we executed a variety of transactions that both enhance our liquidity and set us up well for future accretive growth. These include: number one, our joint venture with LaSalle acquired a 262 home community in Suburban Boston, priced at approximately $114 million with an initial mid- to high 5% yield. Through platform initiatives and various fees, we expect the stabilized yield to be in the mid- to high 6% range for UDR. We continue to explore investment opportunities with LaSalle, which will provide scale-oriented efficiencies to our operations, expand our fee income and drive future earnings accretion and enhanced ROE for our shareholders. Number two, we sold $180 million of dispositions on properties. These are expected to be executed at a weighted average buyer cap rate in the mid-5% range and further enhance our already strong liquidity. And three, we assumed a DCP developer’s ownership interest in a distressed Oakland asset where a community appraised at $67 million or $387,000 per unit, resulted in a non-cash investment loss of approximately $24 million to UDR. The community is still in lease-up and a submarket of Oakland where two to three months of concessions are the norm. The initial yield on the assumed asset is in the mid-3% range. However, once stabilized, we expect the yield to be in the low 5% range. Turning to Slide 7 and our macro outlook. As in years past, we utilize top-down and bottom-up approaches to set our 2024 macro and fundamental forecast. Our 2024 market rent growth forecast of roughly 1% was informed by third-party forecasts and consensus expectations for a variety of economic factors that drive market rent growth. Our internal forecasting models combine this top-down forecast with a bottom-up growth estimate built by our regional teams as they best understand local supply and demand dynamics in their markets. Our 1% market rent growth forecast for 2024 is slightly conservative compared to prominent third-party forecaster estimates at 1.7% and is driven by stable to positive demand set against historically high multifamily deliveries and the expectation for continued elevated concessions. As Mike will discuss, the approximately 1% rent growth ties to our assumption for 2024 blended lease rate growth. Primary variables to our forecast include GDP growth, employment and wage growth, changes to the homeownership rate, supply, and its impact on pricing, economic uncertainty.

Thanks, Joe. Today, I’ll cover the following topics. How our 2023 results and other drivers factor into the building blocks of our full year 2024 same-store revenue growth guidance, an update on our various innovation initiatives, expectations for operating trends across our regions, and our outlook for same-store expense growth. Turning to Slide 15. The primary building blocks of our 2024 same-store revenue growth guidance include our embedded earn-in from 2023 lease rate growth, our blended lease rate growth expectations for full year 2024, and contributions from our innovation and other operating initiatives. Starting with our 2024 earn-in of 70 basis points or about half of our normalized historical average, the 20 basis point increase in average occupancy we achieved during the fourth quarter of 2023 came at the expense of some rate growth, which reduced our earnings by approximately 30 basis points versus what I spoke to on the third quarter call. We believe this is a prudent, defensive trade given the elevated new supply outlook in many of our markets. Next, portfolio blended lease rate growth is forecast to be approximately 70 basis points in 2024. Given a midyear convention, rate growth should add about 35 basis points to our same-store revenue growth this year. Our expectation is that blends will be lighter through the first half of 2024 before marginally improving during the second half of the year. This dynamic, if accurate, means that blended growth should have less of a positive impact on 2024, but more impactful to our 2025 growth. Underlying our blended rate growth forecast are our assumptions of approximately 3% renewal rate growth in 2024 and approximately negative 1.5% new lease rate growth. As a reminder, even during recessionary periods, we have seen approximately 2% renewal rate growth on average, which, combined with recent trends, provides support for those assumptions. Lastly, we expect the combination of occupancy and bad debt to be roughly flat in 2024.

Thank you, Mike. And as summarized on Slide 18, when we consider our potential 2024 growth trajectory, I come back to the key components of running a successful business. First is to understand your customer. Our residents have healthy rent-to-income ratios, and relative affordability continues to favor apartments over other forms of housing. So we view the effect of elevated supply as transitory and expect that the demand versus supply dynamics will revert to our favor sometime after 2024. In terms of resident satisfaction, we can measure success through our customer experience initiatives and how they translate into greater retention, which has improved for nine consecutive months. We expect this trend to continue. The second component is the understanding of your associates. Through frequent discussions, surveys, and town halls, we have created an open dialogue and a culture that fosters engagement and innovation. UDR is proud to be a recognized leader in corporate responsibility as well. The third characteristic is listening to investors. We are highly engaged, conducting roughly 500 investor calls and meetings each year. We are confident that we have a good read on what investors think we are doing well and where we can improve. From these interactions, we have created a company we believe is a full cycle investment that maximizes value creation for our stakeholders regardless of the economic outlook. In 2024, we plan to focus on what we can control; namely, this means leaning into our operating platform and innovation, developing talent, and nimbly adjusting our operating strategy in the face of supply while taking a capital-wide approach to maintain liquidity and balance sheet flexibility. Taken together, we believe we can successfully navigate whatever macro environment we face moving forward. With that, I’ll open it up to Q&A.

Thank you. Our first question comes from Eric Wolfe with Citibank. Please go ahead with your question.

Hey, thank you. Can you walk us through the math on how you get to the $0.025 of dilution from taking ownership of the two DCP assets? And I think in the past, you’ve talked about a third asset that might see a similar outcome. So just help us understand if there is likely any incremental impact beyond what’s in the 2024 guide?

Hey, Eric. Good morning. It’s Joe. Maybe some quick math on the $0.025, and then I’ll kind of take you through some of that remaining DCP risk and how we approach that. So as I think we kind of mentioned upfront, there is a Philly asset that I’ll get into that has a binary outcome coming up in 2Q related to its refinancing, which right now is in process and discussing with lenders. But if that were to not be refinanced and we were to take ownership of that asset, we’d effectively be moving from a high-yield DCP investment to a lower yield acquisition, which naturally results in some dilution. So that’s about $0.02 of that number that shifts the whole range down, including at the midpoint. So if that refinancing did occur, in theory, the entire range would shift right back up by $0.02. The rest of that has to do with we took ownership of Modera Lake Merritt, as we mentioned there in the release; it has a little bit of dilution to it. In addition, we’ve got an assumption in there that we have roughly $75 million of payoffs in the back half as we have some of these deals that are opening into their prepayment window and it may make sense for them economically to go out and refinance with a cheaper cost of capital. And so you get a little bit of drag from that as well, offset by continued accruals on the rest of the portfolio. So that’s kind of the puts and takes on the $0.025. As it relates to getting into the rest of the portfolio, we walked through Modera Lake Merritt; everybody understands kind of what took place there. When we go into these deals, you really have three primary areas of risk that we’re trying to underwrite: One is the upfront kind of cost and delay and timing aspect of any development. Two is going to be the cash flow perspective, what’s going to take place on rents and the supply in any given market, and three, just the capital markets component, what happens with interest rates, cap rates, and capital availability. And so that’s kind of the three main areas we are trying to underwrite when we go into these. Clearly, any one of those factors is not going to be enough to drive distress on any of these deals, but when you kind of get a couple of them that stack up, you do run into a little bit more distress, which is really what happened with Modera Lake Merritt. Yes, I think everybody is pretty familiar with what happened in NorCal since pre-COVID, rents still being down and then downtown Oakland, perhaps one of the worst submarkets in that respect, with rents still down 30% plus. And so we did take the keys back on that asset as the developer didn’t want to continue to support the cash flow shortfalls. That said, as we continue through lease up and hopefully burn off the concessions in the next couple of years, you see it in the presentation, getting to a more palatable yield here in the next couple of years. As it relates to the Philly asset that I mentioned, a couple of those same risks, not to the same degree but a challenged market in downtown or City Center Philadelphia from a supply and concession perspective. And so that NOI has been a little bit weaker. We did have some delays coming through COVID on that development. But as I mentioned, that development partner is in process with a couple of different lenders, just trying to make sure that they can get it to the finish line on proceeds and terms, but we felt it prudent to take perhaps a more conservative approach and put the risk out there to the street. Beyond that, you mentioned what else is out there. So you kind of got 12 other assets, roughly $475 million of outstanding balance of those 12 when we go through the stress testing and scenarios, just three of those are what we would consider watchlist, and the balances on those three are plus or minus $50 million, so, only about 10% of the rest of the book. They don’t have the same degree of risk that the first two do, but they are on our watch list for varying reasons; they don’t have maturities coming up until ‘25 and ‘26. So we do have a little bit of time there unless, of course, the developer partner decides not to continue making payments. So if we did have to take those back, that’s really plus or minus $0.01 of risk over time. We don’t see all three, obviously having near-term and/or potentially even longer-term challenges. Beyond that, you get into the rest of the book of the business, the other $400 million plus that’s out there. Most of these are in their lease-up and/or stabilization process. So we’ve got pretty good visibility on rents and NOI, which, at this time, the rest of those are in line to above pro forma expectations. And so we feel pretty good about the rest of that book of business.

That’s very helpful. And then maybe just quickly, the Oakland property, Lake Merritt, I guess, why not just try to sell it, take the small loss? You mentioned some of the struggles in Northern California. So I guess the question is why sort of increase your exposure there versus just selling it today, putting it into more accretive uses in the near term?

Yes. So I think the valuation was a third-party appraisal there that dictated that non-cash impairment. But when you look at where we’re at today on that asset, we are taking it over, and we do think there is quite a bit of upside, be it through real estate tax resets, other income, obviously burning off concessions and getting it stabilized. So it’s probably better value in our hands than bringing it to the market right now, where, clearly, in Northern California as a whole and Oakland specifically from a transaction market perspective is pretty challenged given some of the risks out there. So I’m not sure you would optimize price and value by simply trying to liquidate. I think it’s better to keep it in our operations team’s hands for a couple of years and then evaluate down the road when the market is a little bit better.

Great. Thanks. Mike, you guys averaged 60 basis points of blended lease rate growth in the second half of last year. And you mentioned the 70 basis point lease rate growth assumption in guidance assumes lower growth in the first half of this year and then kind of picks up a little bit in the back half. Is it fair to say that you think that lease rate growth bottoms in the first half of ‘24, and we see continued improvement in the back half and then into 2025?

Hey, Austin, thanks for the question. Yes, I think what you can expect to see is the first half is going to look very similar to the back half of last year. So that 60 basis points first half is where we expect things to track today. As of right now, the second half is closer to 1% on blends. And I’ll tell you what we’ve been – we’ve promised to see the – where we’re at today just in terms of blends. If you look at December to January, you can see it in our deck. We went a 150 basis point increase, and a lot of that has to do with our strategy. You’ve heard us talk about this before, but we tend to operate closer to 96.5% to 97%, and we’re able to drive our occupancy closer to 97.2% in January. Again, that put us in a better position today to start driving our rents. We’re seeing some promising trends. We don’t want to call that things are significantly better as we have to get through some more of the leasing season. But to start the year, things are starting off a little better than we expected.

Hey, thanks, everybody. Occupancy in January was about 50 basis points above the ‘23 level, but guidance assumes flat occupancy. So I’m just curious is the expectation that you plan to trade that occupancy for rent growth in the spring? Or is that just a conservative assumption?

It’s a good catch, Brad. We’re starting to see that today. So again, we wanted to build our occupancy in a period of time where our lease expirations are the lowest. It allows you to just push your occupancy up. And then as you move into the leasing season, you can start to get more aggressive as leases start to turn. And so the 97.2% is probably a high mark for us. I think as we move through the quarter, we expect that to come down closer to 97%, maybe even the high 96% range and continue to test our blends. And from all you can see is that rate of change from December to January. Again, very positive momentum, a lot of that is on the new lease side. So we had negative 5.6% new lease growth in December. January was negative 3.6%. February, it’s only 7 days in. So it’s probably too early to call, but things are promising, and it looks like it’s trending upwards.

I think naturally, you’re going to see a little bit of potential shrinkage. Embedded in guidance, we mentioned that binary outcome there with that Philadelphia asset, which if we were to take that back, that’s plus or minus $100 million balance. So that would bring it down to $475 million. And then we mentioned that we have about $75 million of assumed redemptions in the back half of the year. So you could see that balance flow down, which near-term is a little bit dilutive. That said, I don’t think there is any desire to continue to shrink beyond that. I think the hope is that as we get some of those paybacks, we find opportunities to continue to redeploy into either on the traditional DCP side or the recap side.

Thank you.

Jamie, this is Toomey. I might just add, what’s interesting, everybody can find one or two deals that have distress. And we highlighted the path that creates a lot of that distress. And you’ve gotten slightly a of repay in the last 90 days with rates coming down 100 basis points. That certainly helped. But when you say the scale of distress, what my experience is, is there is a lot of people with a lot bigger capital capabilities than ours and even in the public arenas to write large checks for significant signature bank, for example. Lot of distress inside of that entity with real estate. And it was never offered up, no one ever got a hard look at it. So the range of distress one, two deals in a market, yes, and they will get picked off, but in mass, no, because of Fannie and Freddie capability as a backstop. And then that leads to significant capital beyond ours that probably can reach and grab should it become entity-level-type distress.

I don’t think it makes us rethink the suite of options that we have. I think that’s one of the powers of the platform, obviously, in terms of diversification of markets but also diversification of ways we’ve been deploying capital. We’re really not a one-trick pony. And so I don’t think it changes at all our thoughts on what we continue to deploy into DCP-like investments. Those over time have provided solid returns for us. It’s a good way to pivot at certain points of time when other capital decisions may not make sense. So I really don’t see that being a pivot for us.

Sorry. Thanks Joe. Here, I am. So, I find it interesting that the blended number – excuse me, the renewal number is still 3% or 4% or whatever it is and people are sort of confident that they – even though they know they can get two months or three months free across the street, they are sticking around to avoid the inconvenience of moving. And that tells me something about what the swing factor is for your guidance going forward. It really is you got this blob of supply cholesterol on the system that perhaps will go away over time. But if we get an economy in the future that avoids any kind of material drop-off. Isn’t this guidance really sort of realistic in today’s present tense view, but also designed to be beaten if we get an economic picture into the middle part of this year that is resilient – continues to be resilient and so on. So, is that the swing factor here to the upside, pure economic activity and the demand side of the equation?

Hey Rich, this is Toomey. I think you nailed ahead – nailed it perfectly. It’s jobs, okay. We have seen a robust set of numbers and the revisions have been up. We are surprised at the strength of the job market, the people reentering the wage growth side of the equation. And if that were to continue, the absorption of what the supply picture is goes pretty darn smoothly.

Yes. And just from the insurance perspective, every single year when we go through our renewal, we obviously renew, taking a look at adequacy of limits across quick, name storm, water, whatever it may be. And so I feel we are appropriately covered at this point in time with the insurance program.

Yes. And thanks for the question. Specific to San Francisco, we were offering around three weeks during the quarter, during the fourth quarter. That’s actually come down to about half of that range over the last 30 days, and that’s where you see it translate into those blends that I mentioned, that 700 basis point, 750 basis point pickup from December. A lot of that is just concessions coming down in that market as well as market rents coming up.

Hey there. Two quick ones for me. Good afternoon. Mike, I wanted to follow up on your comments on San Fran and Seattle. I don’t think you mentioned it. So, perhaps can you share specifically what concessions you are seeing in those two markets today and what you are offering in your own portfolio?

Yes. So the valuation, obviously, a third-party appraisal there that dictated that non-cash impairment. But when you look at where we’re at today on that asset, we are taking it over, and we do think there is quite a bit of upside, be it through real estate tax resets, other income, obviously burning off concessions and getting it stabilized.

Thank you, everyone, for your time and attention.