UDR, Inc. (UDR) March 3, 2026 Conference Transcript

The 2026 Global Property CEO Conference. I'm Eric Wolf with Citi Research, and we are pleased to have with us UDR and C.O. Tom Toomey. This session is for Citi clients only, and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions. Tom, we'll turn it over to you to introduce your team, give some opening remarks, and tell investors the top reasons to own your stock today. Yeah, and I think it's confusing because it has to be read, so I think you've got to press that button there.

Again, thank you for all attending this. We look forward to our conversations and the Q&A portion of it. Eric, a special thanks to you, the team. I'm thinking back that I might have been to 30 of these now, and you guys do a great job at that, so congratulations. So let me begin with introductions, and to my left is Dave Bragg, our CFO. To my right is Mike Lacy, who is COO, and Chris Van Enns, who does a lot of things. So we'll leave it at that for Chris. But all of you should have, if not, please raise your hand, our focus on our value creation mechanisms primarily through operations, continual innovation, and capital allocation. So where are we at in this part of the cycle? How do we see the business evolving and strategies? I think we'll get into more of it. But I think it can be summarized. You asked for three. We're in a company that lives in a data world, and we are on a mission to convert data to cash flow through better operations and better capital allocation decisions. And I'll stop there. and we'll open it up to Q&A.

So let's go with that because I think it's interesting. I think in the past you've talked about how a winner, sort of in a developed space, mature space, are those that control costs and expand their margins. But given that your margins are already high and your turnover is already very low, I guess the question is how much further can you push this, how much further can you push the data and to increase cash flow and margins?

All right, let me start with two elements. So I'll start with Mike covering the operations aspect of it, and then I'll ask Chris and Dave to talk about the capital allocation piece and how we're converting data to cash flow.

I think specific to operations, what I would point to is maybe page eight, where we've clearly demonstrated our ability to drive down turnover. And the way we think about it over the last couple years, you can see we've reduced our turnover by about 800 basis points. At the same time, our peer group has reduced it by about 400 basis points. So clearly, everybody's benefited from the affordability piece of the equation, but we're obviously doing something a bit different. Eric, there's not necessarily a certain number we're trying to get to as it relates to turnover. What we're trying to do is drive cash flow and continue to lean into those margins. So what you're going to see from us a little bit more going forward is how we can continue to push our rents, and you specifically you can see that in our renewal growth so for the first quarter my expectation is we're gonna average around plus or minus five percent what's going to be signed and then as we go into the second quarter we're actually pushing a little bit further so we're sending out between five and a half to six percent growth there and so the intention is to continue to try to lean into our customer experience project understand where our residents are in the lifecycle continue to drive turnover down where we can but we want to capture more on the rent growth side of the equation as well and so that's where we're at right now with that I guess what gives you the comfort to I'm

sorry go ahead just add a couple points I think first when you say 400 basis points improvement that's literally 12 to 14 million dollars manual cash flow which you're capturing other people can you go lower well Mike doesn't take enough credit for one of the critical elements about data is our customers are constantly giving us feedback we collect over a million pieces of data a day on what our customer is and from there we started this about three years ago we build out a sentiment score about how each customer feels about us and before we send a renewal we look at how we're improving that score and increase in the likelihood of a better pricing match with their sentiment so what's critical about that we have 40,000 residents that continually live with us we know the quality the profitability of those customers we also know where we're failing and where we can get better through that day-to-day feedback of how they feel about us so ask yourself is it cheaper to service a new customer increased margin or to get a new customer every new customer cost me at at least $5,000 to secure. Keeping the one is critical. So that's one aspect of converting data into actions that enhance cash flow and margin. So if we lead the industry in low turnover, we're gonna lead it in cash flow. Does that increase the pricing power for the new customer? Absolutely, I have less apartments to lease every day compared to the marketplace. place, so I can be more thoughtful about how I'm marketing, how I'm pricing that new product, and it will ultimately feed to stronger pricing power, which is what data is all about.

What I'd like to add is on the capital allocation front, as a long-time observer of the apartment space in UDR, when I arrived at UDR, I thought, like many of us do, that the focus should be in terms of optimizing a portfolio should be around market allocations and upon spending time with Chris and the model that he and his team have built I've come to appreciate the opportunity to play an asset level game I'll give you an example as we focus on our disposition efforts we put 1 billion dollars on the market at the end of last year purposely more than we ultimately thought that we would sell because we want to provide ourselves with optionality and remain disciplined sellers. That process of identifying the group of assets for sale was not driven by a perspective necessarily on a market from the top down or asset type. It was very granular and built from the bottom up and it was based on the predictive analytics tool's outlook for rent growth on a relative basis, Mike and team's operational perspective and the degree to which they've squeezed the juice out of an asset, as well as the team's outlook for the capex burden going forward. So when we stack up those three criteria and others and think about these sources of capital, we're pairing it up with a use of capital and seeking to drive cash flow accretion. Right now, a very attractive use of capital for us, of course, is the buyback. and Chris can talk about the intricacies of the model and how it resulted in an acquisition opportunity which is on page nine of our presentation from last fall that we think is differentiated it's it's blinking green I can hear you but yeah okay maybe you can't have all four at the same time there you go yeah so as we think about investment analytics you know we think about the opportunity set

when we use investment analytics so you know what we see and Mike was talking about margin expansion turnover going down etc but we see is that as you look at the top tercile of assets within markets you look at the bottom tercile of assets within markets and how they do on a forward rent growth basis that top tercile over time typically outperforms the bottom tercile by about 600 basis points on an annualized basis that is a huge opportunity to take advantage of obviously our tools are not perfect they don't capture 600 basis points but we do capture about 80% of that over time so we feel very good about that another thing that we talked about in analytics a lot is that we really are you know playing more of an asset level game of course identifying markets that are going to outperform or underperform is incredibly important but at the asset level that's actually two times more impactful to forward right growth identifying the right asset than identifying the right market and that's really what you know Dave was alluding to on page nine of our presentation you in the fourth quarter we bought the Enclave it's in DC it was a market that was out of favor for a number of reasons doge government shutdown etc but we really liked the sub market and we really liked the asset at the market level this was kind of a neutral to a neutral plus market DC was so this is southern suburban DC once again this asset had the characteristics that we said that generally leads to outsized rent growth going forward and you know we're not going to crow about two to three months of data so far but that's what we've seen you know as you look at these stats on the page blends 130 bps so far above our DC portfolio 80 bips above the same store portfolio then you get into the occupancy upside that Dave was talking about you know Mike has increased occupancy by a hundred basis points we've had expense efficiencies because we actually have an asset that truly is next door we can share resources other income and initiatives are ahead of schedule thus far and the CapEx profile is different so this is one of those assets that while it might not check the market box as far as an outperform it's an asset we thought would outperform it has the operational upside and has a great capex profile going forward and that's really what we're trying to do is we get into more capital recycling yeah yeah I have to admit that when I saw that I was like why are they buying in DC right now so you're but your point I guess is there a typical like to think about sort of why the assets specifically is a to understand that is more valuable than just you know picking the the right market what are the typical sources of upside that you normally see at an asset specific level that you can take advantage of we're gonna have to charge you if we tell you all that right that is a lot of the secret sauce but when you think about you know listen at the market level it's going to be your general economic factors right they may be manipulated in slightly different ways than what you would think but there's nothing that's like esoteric out there that we're finding these spurious correlations anything like that when you get down to the asset level you know it is going to be things like base rent level it's going to be unit mix it's going to be rent per square foot it's going to be growth over time it's going to be unit sizes there's certain characteristics of assets in certain micro markets and it's different all over the country or the 35 markets that we follow but if we can identify those It's not, you know, batting a thousand on it, but there is a much higher probability that you're going to generate better fundamental or intrinsic rent growth going forward than an asset that doesn't have those characteristics. And that's proven out over time.

And then maybe you could follow up on the pricing side. You said the renewals, you know, going out at over 5%. I guess we'll talk about sort of the details in a second. but one of the things that's interesting to me it seems like maybe the the way that you price renewals has changed a bit over the over the years can you just talk about sort of how you're pricing renewals now how you're pricing new leases now versus what that that that process looked like a year or two ago and then when you think about where it can go from here what would you like to see one to two years from now Eric I think it's important maybe to take a step back too because everything that we have experienced as of late has a lot to do with what we started doing a year ago and so our intention this time last year was to try to drive our

expirations down in the fourth quarter of 2025 and a lot of that was in preparation of obviously peak supply working through that in a period of time where demand was coming down and so we prepared for that what we didn't know was how much demand was going to impact us during that same period of time. So fortunate for us, we didn't need as many leases expiring. We were able to drive our occupancy up in the fourth quarter of last year, put us in a position of strength. So we ended the year right around 97%. What you've seen from us as of late, drive our occupancy down a little bit. We're closer to that 96.5 to 96.7 range and get more aggressive on our rents. And so we've been pushing our market rents at the same time we sent out renewals 60 90 days ago and at this point we've sent them out through may and a lot of that has to do with our strategy around lease expirations as well as just our understanding of our customer and so again when we think about the customer experience all the data that we've been able to capture the fact that we've been able to bring our turnover down we know a lot about the individuals we know how long they've been with us we know what attributes lead to more turnover and so what we've done is gotten a little bit more aggressive with some of these individuals where we're placing a little bit more of a bigger bet and so right now you're gonna continue to see more that push on our renewals and at the same time look at the quality of our resident and so if we don't need as many individuals coming to the front door we can also get more aggressive on our screening practices, our security deposits, as well as just some of the other things that relate to the front door. And so if we can capture that and improve our bad debt, we're creating a better rent roll, if you will, for the future. And so we're going to continue to lean into the pricing decisions that make it a better rent roll going forward.

And you mentioned that it's a lot more expensive to replace a tenant that leaves. You have the downtime, the lower occupancy, you have the expenses associated with it, and you also just potentially gave up a resident that might stay into the future and absorb good increases. I guess what gives you the confidence to sort of boost your renewals at this point in time when demand seemingly feels like a little bit weak. I mean, maybe you can correct me if I'm wrong, but it feels like the job market is somewhat weak right now. So what gives you that confidence, and at what point would you sort of pull back on that and say, you know, we shouldn't be given 5.5% renewals. We're seeing, you know, increased turnover, and there's a cost with that.

Here's the thing. When you send out a renewal, you can always negotiate. if people start coming through the door and they do have an issue and they want to have a conversation around it. You can't go back and increase that renewal. And so our intention is go out a little bit higher. We do feel like we have the data in place, and these are strategic and well-placed bets. We have a better understanding of that resident. And so we can see it happening in front of us today. I would tell you that back half of last year, we were negotiating on 40 to 45% of the renewals going out and it was amounting to about a 100 basis point degradation in what we sent. Today we're negotiating on about 30% and we're only negotiating on about 30 to 40 bips on what was sent out. So we're not negotiating as much as we were at the back half of last year which puts us in a position of strength.

So we do feel like we've placed some pretty well strategic bets. there you go can I add think about this we have a centralized operation we manage 45 apartment homes per employee I think that leads the industry what Mike's not pointing to that he should take more credit for that centralized team acts as a cohesive team with the people in the field so the old days of the manager sending out a renewal and then their favorite resident walking in and negotiating it because they liked them. First, the inconsistency of the next resident, et cetera, is now standardized. And actually, a lot of our renewal activity is before the renewal notice goes out. So we have an understanding of the sentiment that individual feels. And we understand at that point, are they in a positive area? They're more likely to receive it. So we're focused way from the first day of your occupancy to that notice about keeping your score as high as possible that you'll take that so we've seen a direct correlation that's pretty common sense what is intriguing is is this is a small group in Denver that coordinates that pricing and then instantaneously gets feedback about customers if 40% of them are not happy with that renewal notice was it a sentiment or a price point conversation and that feedback's recorded in ours and then it generates another way of attacking the next renewal okay so it's a real-time adjustment by a centralized

team that's aided by our data our dashboards in our interaction with that customer so that's why we're going to be able to get more capture on the renewals and so at least from what I'm hearing thus far it seems like most of the sort of better pricing power if you will better results in the early part of the year is really because of the decisions you made last year your processes sort of the alpha that you're generating above the market I guess the question is is the market overall getting better as demand getting a little bit better or is it still at those sort of low levels that we started to see call it around

you know September of last year has the environment improved at all let me start with that mask Mike to clean it up a little bit I'd say this Mike mentioned his strategy starting last year what we saw that was very unusual in what I'll call the late leasing season of 25 is a pattern that's been going on for the last three years an abbreviated leasing season and it really hinges around the May June timeframe and what we've noticed in a pattern of the data was that our traffic from people that are 18 to 30 was literally evaporating signaling to us recent college grads summer internships were on the lane for the last three years and we probably expect that to see in 26 as well but we'll see how it plays out we can adjust real time so what's happened in the marketplace last summer was peak supply same time that you're not having a whole lot of traffic in that 18 to 30 year old people cut price dramatically two three months common two three months concession common occurrence so the question for this year was as we were building up our plan and thinking about it what's going to happen to that customer who comes up on that two three month renewal in August September they're going to probably be looking for a similar deal the good news we won't be faced new supply but that customer is going to be pretty price sensitive in our view so we wanted to move our leases out of that window of time second capture as much in an abbreviated leasing season as we could for pricing and then build our strategy in the back year managing for occupancy if you will so i i think that's where data starts to aid you in thinking farther down the road by the pattern that has been occurring recently we'll see how it plays out if there is a job growth window those people 18 to 30 show up at

this time again and we'll be able to turn on to pricing power on new stronger than we have forecasted but we'll see how that plays out a little unique i think for us compared to the peers and tom's referencing is when you think about the guidance of one and a half to two percent blends for the year we are basing one and a half to two in the first half and one and a half to two in the back half unlike others where expectations are that there could be a hockey stick a recovery on what were muted growth numbers last year we have a different take on that we hope that it happens and we'll be ready. We've got the teams, we've got the resources in place to take advantage of it, but a little bit different approach going into the year. Specific to some of the regions and where we're seeing some strength, we've put it out there. Original expectations were for 1% blends in the first quarter. We're tracking closer to that, plus 1.5 to a little bit higher. That's our expectation right now, so we are ahead right now in a lot of fronts, but it really comes down to a few anchors where we're beating our own internal expectations probably not a big surprise to a lot of you in this room but it does come down to san francisco on the west coast new york on the east coast and for us dallas down in the sun bill and just to kind of size that a little bit when i think about dallas today our blends are close to flat which is about a two to three hundred basis point difference from what we're experiencing florida austin as well as nashville and so dallas is leading the way for us down there specific to san francisco we're seeing blends of upwards of eight percent today occupancy still above 97 so obviously a big anchor for the west coast for us and then new york we're seeing blends of plus or minus six percent occupancy still close to 98 and so that's been leading the charge for us out on the east coast so those three markets are above our expectations today and that's what's led to have that positive inflection first our original expectations maybe tie a couple things together so the last six years the investment community it's been pretty easy to follow was making bets either on the coast we recover the sunbelt we recover one way or the other they may recall before that it used to be

markets moved independently not regions and so what you're going to find in the next couple years is quickly we're going to start seeing the number of markets, I'll call green shoots, starting to spread out as supply job growth starts to move back to its normal patterns, meaning specific markets move up, specific markets move down. I think a national company has a better chance of hitting more of those darts that are moving up. Second, with our investment analytics, we'll be able to move our capital more quickly than we have historically in being able to take advantage of those upswings as they occur. So I think the combination of data matched with the investment with the number of markets hitting recovery and growth give us a great platform for the future. And I'm grateful we've made the investment, more importantly, execute on the event.

Tom, you mentioned that last year you saw the 18- to 30-year-old traffic go down. Maybe you could just tell us how much, how noticeable it was. It sounds like it's too early in the year to really know whether it's coming back, but I guess my question is, do you just have to have that come back in order to get some of the sort of acceleration and other sort of bullish projections that many are predicting, or is the supply coming down enough you know you just don't need to see that that same level of demand as as you had call it two years ago i'll take a shot and ask the guys to weigh in i think first and foremost the supply aspect is a known factor it is on the diminishing aspect the question of the employment picture changing i think we're relatively conservative in view it when we

meet with every investor I'd ask this room are you guys hiring in 26 hiring interns the answer is probably no we're gonna see how it plays out a little bit and so you're good indicator so I think from my perspective do I need it no my average customers 37 years old what happens is the general marketplace panics and those people don't show up they start cutting price and they start pulling from my resident base into theirs for value so the value shopper if you will will seek out a concession so supplies down the employment picture let's just call it half of last year that's

our current forecast uh seems like a prudent thing to be if it does change we'll adjust we have the capability of doing so have enough data yet and then one concern that you know you saw this and how things traded but after the the block announcement was like okay well we're starting to see this sort of replacement of of white collar growth and I don't expect anyone to sort of have an I have an answer on it people gonna have you know very different opinions but I guess my question is really like you know across any of your markets do you see sort of evidence like You just talked about evidence of seeing less traffic from 18- to 30-year-olds. It makes a lot of sense. The unemployment rate there has gone up. They're not getting jobs at the same numbers as they were before. But do you see any evidence of sort of like white-collar replacement, any type of fear among your tenants from layoffs that are yet to happen? Do you see any evidence of that? I'm guessing no, since your blend's in San Francisco, or 8%, and that's kind of the center of things. But I thought I'd ask.

So I can start out and share our thought process on drivers of demand, and we would categorize them as being in one of three buckets, cyclical, structural, and to be determined. Let's take an example, immigration. Our view is that that is cyclical. Our country has been built on immigration and the contributions that have been made to our economy. We believe that that will continue, but a political cycle could cause that to be disrupted temporarily. AI, I think you're alluding to with your question. We would put that in the to-be-determined bucket because we're not experts, but we do have a point of view. Our point of view is informed by research that we've read. And what we subscribe to is that the long history of humankind has been littered with examples of technological innovation that disrupted jobs and resulted in enhanced productivity and the creation of new jobs that did not exist before. 125 years ago, about half the people in the U.S. were associated with farming. And so as we look at AI today, Mike is not sharing anecdotes of residents walking into his communities and saying that they lost their job last week due to AI, although we recognize that there is some near-term disruption that is occurring. And that's why it's critical that he and team have the tools that they have developed to help them identify and retain residents. And as we look over a multi-year time horizon, we think it will be a beneficial driver of our business.

And I guess switching to capital allocation, we touched on sort of where you're directionally moving with that process in terms of AI and asset sort of specific underwriting more than just trying to choose the right market. That all makes sense. I guess on the buyback side, you know, can you help us sort of understand sort of the scale of what you're looking at, how aggressive you want to be with this opportunity, sort of how wide the sort of spread is between where you can sell assets today versus buy your stock?

And then, you know, I guess I'll just layer on the very last piece of it, which is, you know, there's going to be some limitation based on asset sales just given tax consequences. you know are you willing to take up leverage at all just given the disconnect in your stock yeah great question very much so on our mind Eric and so we recognize the opportunity in September of last year to sell assets for a hundred cents on the dollar on Main Street and buy back the stock for approximately 80 cents on the dollar on Wall Street and we move forward with about a hundred and twenty million dollars of buybacks between September and December of last year and that playbook still resonates with us and we're back in the market after earnings, buying the stock again. To fund it, we put a billion dollars of assets for sale on the market, not with the intention of selling them all, but to create optionality so we can remain disciplined as sellers. As we look at our guidance range for dispositions of $300 million to $600 million, I would suggest that we're more likely to hit the high end of the range than the low end of the range. And then we look across the potential uses for that capital. First, leverage. We actually did take leverage up a little bit in the fourth quarter to execute on the buybacks. Our overarching goal at this time is to remain relatively leverage neutral, although we're open-minded and we'll evaluate that as we go. So that's a priority. Buybacks are a high priority. We're back in the market. and then as it relates to tax gain capacity we are mindful of that and as you look at our guidance we suggested that there may be an acquisition and the purpose there would be a 1031 exchange to help us manage that tax gain capacity but even with that asset that should we buy one it would be something that we think stacks up really well as compared to the dispositions from a cash flow accretion opportunity so as the stock gets back to a more normalized level over relative to NAV over time, we're excited about the opportunity to deploy the tools and the discipline and the collaboration that we have developed in the effort to recycle assets more often.

Any questions from the audience? I don't want to hog the whole thing. If anyone has a question coming up in the last couple of minutes, I was going to ask maybe one more before going into rapid fire. I guess you mentioned that you might be on the upper end of the disposition guidance, I guess, what's a good sort of cap rate to consider there? And is it similar to the acquisition side? Is it less of a market sort of type of analysis that you're doing there? It's more you're going to be selling sort of asset-specific stuff that you think will result in those assets specifically underperforming within those markets?

If we were to show you the entire disposition list, you would not notice a pattern as it relates to market or asset quality, And that's because it was driven by that bottom-up approach. As it relates to a cap rate, we'll have more to share with first quarter earnings, but I would suggest a buyer cap rate in the mid 5% range. And asset pricing on the whole has been only off our expectations by a few percent for the group of assets that we're likely to sell.

Got it. And would you say that, you know, I think debt spreads have come down a bit. Would you say that the sort of level of interest is similarly strong as last year, no change in the acquisition market?

Certainly expectations for 26 rent growth are more moderate as compared to last year, but there's optimism around 27 and 28, and a nice offsetting factor would be the robust debt market.

We have our rapid-fire questions, the hallmark of the city conference, if there is one. What will same-store NOI growth be for the apartment sector in 2027?

You know, I think 27 consensus estimates are two and a half. I think that's a fair enough for the group. I think we'll do better than that.

Will there be the same more or less apartment companies a year from now? This one's getting easier.

It's getting easier because it's been consistent for the last five years, fewer.

Great. Thanks for your time today. Thank you.