UDR, Inc. (UDR) September 16, 2026 Conference Transcript

Welcome to Bank of America's 2026 Global Real Estate Conference. I'm Yana Gallen, Biavay's Residential REIT Analyst, and we're pleased to have with us UDR's Chairman, President, and CEO, Tom Toomey, CFO, Dave Bragg, COO, Mike Lacey, and Investor Relations, Trent Trulio. I'll turn it over to Tom for opening remarks, and then we can get into Q&A.

Thanks, John. I appreciate that introduction, and you knocked off the first thing on my list, which was to introduce the team. From there, I want to make sure everybody's got a presentation. If you're online, you can just look under UDR.com presentation, and you'll be able to follow along should we reference that materials. Before I begin, thanks for your time today. Appreciate it. We've got about 30 minutes together. We'll make the best use of that and convey as much information as we can in that timeframe. So let me start off with kind of maybe three topics. A brief overview of UDR, you can see it if you already don't know, 54 years as a public company, $20 billion enterprise, S&P 500, about 60,000 apartment homes across 20 markets. So if you will, we are the remaining national apartment REIT. Second, kind of the apartment business. I have been at it for a number of years, probably over 35, so I'm looking around the room and saying I might be one of the more senior people in the room, and I've seen cycles. Where are we at? And the truth is, I like where we're at. I can unequivocally say I think 27 is going to be a better year than 26. as it references to the number of markets that are growing revenue next year over this year feels good. Second, why? Supply is finally abated. And when we build a 50-year high, it eventually gets absorbed. And we're seeing that inflection point across many of our markets and feel positive about that. And Mike would be glad to fill you in on more of those markets. Second, rent-to-income levels. I don't want to say they're at record lows, but they are below the norms, giving us pricing power and feeling that we can move rents, and our residents have the capability to pay those higher rents. And then affordability. Single-family ownership remains near its all-time lows, if you will, the affordability of alternative products. So we feel like those three drivers, coupled with what we would view as a robust economy, paints a good picture for the future, if you will. So let's come to more current events, talk a little bit about second quarter, third quarter, and what trends we're currently seeing. A reminder, second quarter was a beaten race that on a sequential basis, Mike and team produced number one, same-store revenue expense and NOI growth on a sequential basis. That's our primary leasing season at that window of time, so very good results. Something that we are very proud of and focus on is our relative performance by market, and Mike hit 70% winning percentage. I'm hopeful that my fantasy team wins that same percentage this year, but I'll take Mike's 70% over anything else. Second, looking towards the third quarter, it feels a lot like the same of the second. A very strong operational quarter coupled with a bottom line that feels pretty darn good. So we'll see where we are and finish up the quarter in the next 15 days. On the capital allocation, for a number of years, we've given you what we call our heat map, sources of capital, uses of capital. Where do we see that? Dave can go through. Clearly, we think the stock is very cheap at this point. And in fact, year to date, we've sold over $600 million of assets and repurchased over $400 million in stock. So we think that's our current highest and best use, but Mike would go through it more. I'm sorry, Dave will go through it more in detail. So with that, I'll stop and we can open it up to Q&A.

Thank you so much, Tom. Maybe turning it over to Mike first to kind of characterize, you know, how leasing season trended relative to his expectations, which markets maybe were a little bit better and worse. And then maybe just a little insight on how you're going to approach year-end in terms of occupancy versus rate.

Great. There's a lot there, Yana, but I appreciate it. Maybe starting with page 11, if I could direct your attention there and give you a little bit of color on where we've been, where we're going, cover some of the regions, and also get into the strategy. before I do so, I do want to just mention that 1.9% blend that we had in the first half of the year was about 15 basis points higher than our midpoint and about 70 basis points higher than the pure average. Given a diversified portfolio, very strong numbers feel good about where that ended up. And to Tom's point, that translated into very strong sequential numbers, and it set us up for the back half of the year. So specific to where we're at and where we're going for recent update, still good with that 1.5% to 2% blends in the back half of the year. Expectations are we'll probably still run in that 96.5% range, still looking to drive our other income in that 5% to 7% growth. So about 3x what we've been achieving on blends. Continue to see success as it relates to bad debt, and ultimately this is leading to higher revenue growth and cash flow, which obviously we are very focused on. I think specific to maybe some of the markers that we're seeing out there today, we always look at current occupancy, but even more importantly is that leading indicator of our 30-day trend. And our 30-day trend, just to kind of give you a color on that, means if nobody else came in to rent another apartment today and I didn't get any more notices, we are at 96% 30 days out. And that compares to 95.5% a year ago. So a bit stronger fundamentals as it relates to occupancy. That's led to market rents being about where we would expect this time of year. And just to size that for you, over the last 30 days, we've seen market rents come off about 50 basis points, which think about historically what you see typically this time of year, they usually drop between 50 to 80 basis points. Last year at this time, they dropped 200 basis points. And a lot of that has to do with the backdrop of occupancy. You can see the fundamentals are a little bit stronger today. It's leading to, I'd say, one to 1.2 weeks in terms of concessions, which is a bit better than last year, a bit more normalized, if you will, coupled with lower retention, we have a lot of positive signs today compared to last year. So feel good about kind of that guidance and where we're going. Specific to strategy, I think typically what you've seen from UDR is running a little bit hotter in terms of occupancy in the fourth quarter, first quarter, usually in the high 96s to even 97%. We're looking to run, again, closer to 96.5%, continue to test the market in terms of both market rents and renewals. And in fact, we're actually sending out renewals about 50 basis points higher in the fourth quarter compared to the third quarter. We want to test the waters. We have a little bit of a different backdrop, if you will. And just as a reminder, we actually have lowered our lease expirations in the fourth quarter to around 15%, which is typically running between 20 to 23%. So we just don't need as many leases. We've set that up to be able to try to test the waters on rents, still have a healthy occupancy, and ultimately drive our earning as we go into next year. We want to make sure the fundamentals, the foundation is set as we go into 2027. That's how we're thinking about it, Yana.

Very interesting, kind of moving around your lease expiration schedule. Is that more now than that 2Q, or how should we think where that percentage in 4Q moved?

Yeah. So, we effectively moved 5% out of the fourth quarter. I would say 2% went into the second quarter and about 3% into the third quarter. So, we're running just over 30% expirations in 2Q and 3Q at this point, both quarters.

Great. Maybe if we could dive a little bit into market performance.

Yeah. I would start – let's go regions, and then if you want to go into some individual markets, I'm happy to give some color. I would tell you that there's a couple ways to look at it. You can look at it in terms of year-over-year and then also sequential. Right now, rate of change, the sequential momentum, there's a little bit more in the Sun Belt today. And so just to size it, 2Q we had blends of about negative 2%. 3Q, we're looking at maybe negative 1.6, negative 1.8. So slightly better as we go into the third quarter. The coast is coming off a little bit. And when I say a little bit, it's almost comical when you talk about a San Francisco where you had 13% blends in the second quarter. They're still 10% or 11%. They're still very strong, but they are starting to come down a little bit. So a little bit weaker maybe on some of the coastal markets. I'd characterize it as more sustainable in the Sun Belt. And then there's puts and takes within those regions. It's not going to surprise you. I just mentioned that San Francisco is still our strongest market in the portfolio. New York still doing very well on the East Coast. And then when you get down to the Sun Belt, places like Florida outperforming Texas and Nashville today. So we like to think there's some winners in every region today. Great.

Thank you. And then maybe jumping over to capital allocation, your heat map framework, you know, you increased disposition guidance and you remain active on the share buybacks. Let us know how you're currently thinking about balancing dispositions, development, acquisitions, and any additional buybacks.

Thank you, Yannick. Great topic for us. We transparently provide what we're thinking. It's on page 13. It's our heat map that depicts sources and uses of capital. So in terms of sources, certainly the prioritization has been over the last year and continues to be the dispositions. We've successfully sold over $600 million of assets, and we have more on the market that we're considering selling. We tend to put more on the market than we need to sell to provide us with optionality and remain disciplined as sellers. Disposition pricing has been favorable relative to our expectations with cap rates in the mid-5% range. Generally speaking, we are improving the quality of the portfolio as we do this. And what I mean by that is that we have three key criteria that we look at as we assess dispositions, but the same holds for acquisitions, although that's much less of a focus. First, we look at the proprietary signal from Orion, our predictive analytics platform, which looks out six years and assesses the relative rent growth potential, very importantly at the asset level not the sub market level or the market level is not as much of a focused asset level exercise and we look at the operating upside potential that mike and team see or lack thereof in the case of dispositions they tend to suggest they've squeezed the juice out of an asset and that helps move it higher on the list and then finally capex and our perspective on that relative to buyers so when we sell those assets that screen inferior on all three of those metrics and then go buy back stock. And as Tom said, we've been very active as a share repurchaser. We're generating that near-term accretion, but also very importantly, the long-term cash flow growth accretion as we improve the quality of the portfolio. So that playbook has been a focus over the last year and remains so today. So I would tell you that top source is disposition. Top use would be the share buyback.

Thank you. And I guess because you have been so active in the market? Maybe if you can kind of comment on kind of cap rates and buyer profiles and breadth and depth of that bidding activity.

It's a pretty diverse group in terms of the buyer profile and it certainly ranges by the type of asset that we're selling. For example, we've sold a 10-year asset in an urban area in Denver and we've sold an asset in suburban Tampa Bay that is more than 50 years old. So you're going to get different buyer profiles depending on the asset. But in each case, we've received a favorable response. The average age of assets that we've sold is about 45 years old. And the rent level tends to be about 20% or so below that of the average for our portfolio. So those are just a couple stats for you to paint the picture of the improvement in the quality of the portfolio. But it's an asset-level exercise that we've taken, and the buyer cap rates have been in the mid-5% range. More recently, as rates have moved, we've seen relatively stronger pricing for assets or markets where there's positive rent growth momentum.

Thank you. And you guys have also done a little bit of acquisitions and development. You found your spots? Maybe if you can kind of let us know what was attractive about those deals relative to everything else that's reviewed.

Absolutely.

So as it relates to development, we have a narrow focus with the starts that we have announced. And it is essentially projects that are adjacent to an existing operating asset that we know very well. And so a recent example would be in Alexandria, of Virginia. There's a project of roughly 400 units adjacent to one of more than 900 units. So that allows for a few things. Really good visibility in terms of underwriting the rents of the asset that we're developing, as well as some synergies on the expense side with our existing assets. So what we've done there, in our view, is really mitigate the risk associated with development. And that's what you should expect us to the extent that we do new development starts. That's the criteria that we're focused on at this time. So limited activity in terms of development. And then in terms of acquisitions, I point you to a couple of deals in Portland, Oregon, that we were able to gather from a DPE partner a few months ago. And those checked all the boxes that I explained as it relates to dispositions, but in reverse, meaning that they had a very favorable rent growth signal from Orion, relatively low capex, and Mike and team were salivating at the operating opportunity to get in there and maximize the upside there. So acquisition activity has been limited, but when we do it, those are the boxes that we seek to check.

And I guess maybe just some more comments on, you know, the DPE program, the decision to maybe wind it down. I don't know if recent rate activity has changed any of that, but it did serve as kind of a good way to get kind of more market intelligence, see more deals, just kind of curious.

Yeah, it has been. Over more than a decade, it has been a successful program in that regard in that it has allowed for market intelligence, some optionality in terms of grabbing some assets, as I cited with Portland, and also generating nice income. There is a cyclical consideration and a structural consideration in terms of our decision. Cyclically, on page 16, we want to outline it for you. UDR has remained disciplined as it relates to DPE underwriting. The market has gotten more competitive. So we found ourselves over the course of the past year looking at opportunities with higher LTVs, lower levels of current pay, and lower rates than what we thought was appropriate for our capital. And we found ourselves in investment committee decisions, looking at those opportunities and then looking, for example, at the stock buyback opportunity and deciding that the latter is a superior risk adjusted return. And so that's the cyclical consideration. I say that because this will change eventually. Right. But then there's the structural consideration, which is that we pride ourselves on our ability as an operator and we generally don't get to operate the DPE assets. We also believe that we're in a new paradigm ourselves at UDR in terms of our ability to identify opportunities with upside from an investment perspective, utilizing Orion and the process that we outlined. And so in the DPE business, we're capped in terms of our return. And as we go deploy capital via acquisitions or redevelopment, we find that there's disproportionate upside and we want to be able to enjoy that. So the path from $380 million as of the second quarter to about $250 million at the end of this year, that's already contemplated in our FFOA guidance. And then what we would suggest to you is over the course of 27 through 31, if you start 27 with a $250 million book and those proceeds come back and we redeploy at a rate that would be representative of the opportunity set on stock buybacks and acquisitions, it would be for every $100 million that comes back to us. is about a penny dilutive. So that's two and a half to three cents or so over the course of five years. And finally, I'll just mention that that penny is the maximum, meaning that you're going to continue to experience growth in whatever area we redeploy into.

Thank you. Maybe just kind of Turning it a little bit more big picture, 2026, that job growth wasn't as great as people would have hoped. I don't know if we know really what it was with BLS revisions all the time, but, you know, and you also had some headwinds in terms of, you know, immigration and H-1B visas. I guess if you look out the runway with just a better supply outlook, and then we keep reading headlines about how many young adults are living at home, how are you thinking about future household formation and a lot of that younger household formation tends to be renters?

Yeah. Mike, why don't you take them through the building blocks towards 27 and how we stack up at this juncture?

Yeah, I think the way we're looking at it, I think you have to look at foundationally. We talked a little bit about earning. And so the way that we would characterize 2027, the way it's shaping up right now, and we're going through the budget process, we're looking across all of our regions, all of our markets, and we're seeing green shoots. We think that there's some momentum there that all markets could show some positive momentum as it relates to total revenue growth. So how you get there is how we think about it. Right now, if you think about the 1.5% to 2% blends in the back half of the year, simple math would tell you that our earn-in is between 60 to 100 basis points going into 2027. That compares to zero for last year. And so we're already starting at a higher place just with that foundational building block of 50% of our rent rule. Some markets, obviously San Francisco, New York, they will have a better building block than others. But then we look at things like blends and when we see that trajectory turn positive or to what degree in that inflection point, that's what we're assessing right now through the budget process. in addition to the plethora of ideas that we have in terms of other income, our initiatives, how we can continue to grow at plus 5% on that line item because at this point it's 12% of our revenue. It makes up a big piece of the revenue. So we see positive signs everywhere, but I think it does start with earning.

I might address a couple things because, one, I would characterize every point. We don't know what jobs are, right? We get this number and it moves, and immigration policy being a net negative, people having kids later. The whole mix and bowl of our underlying demand curve, I kind of look at it and say it's a little bit like a wall of worry. What really makes our business tick is jobs. And when we look at the quality of our residents showing up, we look at our existing resident, we don't see any sign of stress. and I've been through enough cycles, you will have it, we don't see that. So a resident seems to be in a very good place, and yes, their wallet's getting squeezed in a lot of different ways, and their alternatives for housing are even getting farther and farther away. So you can see it in our, number one, our average age of a resident's 37. So they're established in the career, they have the capability, they probably have some financial cushion to absorb things. That's a pretty healthy age, professionally and economically. So we don't see it in our numbers. Second, I always do get a kick out of this conference. It seems to always climb a wall of worry. We're all sitting here in September, and a year ago, AI was going to get everybody's job. And this year, I show up, and it's AI is going to get humanity. I'm waiting for next year's. What's AI going to get us next year? And yet, what we can tell you is our business is getting better, okay? And when we operate in 20-plus markets and we say every market feels better next year, what I can say is a lot of years at this, very seldom have I said, all our markets are getting better. Will they all be positive year over year? May not. But they're getting better sequentially. And that momentum seems to, you know, that's carrying through our optimism and the way we're looking at our business.

And I think most people are pretty positive on kind of go-forward operating fundamentals. But maybe if you can help us out with how you're thinking about this higher rate environment and And that means in terms of, you know, refinancing as well as other stuff to the portfolio, external growth.

Yeah, I mean, they monitor.

Well, a few considerations, higher rates. So the first thing that comes to mind as you operate apartments is housing affordability becomes more challenged. So that's on the right side of page 22 and fits with the description of the outlook for the business that Tom and Mike were just walking through. And, by the way, just while I'm on that, other things that are supportive of the outlook for the sector, despite the uncertainty on jobs that Tom mentions, would be the changes in lifestyle on the left side of page 23 and the outlook for supply on the right side of 23. But anyway, back to rates. At a time of sudden movement up in rates, you tend to see an exasperated disconnect between public and private market valuations. So we look at that and we think, well, the playbook that we have been utilizing continues to work here. It is an opportunity to continue to focus on selling assets and buying back stock. It also may be an opportunity over time to reduce leverage in this environment. So there are those are some considerations that come to mind as it relates to rising rates. But I think the one that is most notable for the apartment business would be back on operations. and just the inability, unfortunately, of renters who want to buy homes to buy. It's well understood how much turnover has declined, as Mike has explained, but also the share of those that leave that buy a home is down to 5% from a peak of more than 20% in a long-term average in the 10% to 15% range. So we would expect more of the same there.

A couple of reminders about the apartment space. we do have the beneficiary of the GSEs and their ability to continue to financing. So there's always a question of rate and availability. And the GSEs are a little bit behind their budget, so you're going to see a little bit of tightening. And you see creativity in the terms and floating caps, et cetera. So that stability on availability of capital is almost as important as what rate you're getting charged. And it takes time for that rate to take hold of pricing. At the same time, you have to deal with what's the growth rate of the underlying assets. So an example, I've seen a transaction go in San Francisco at a sub-four cap. If you were to put leverage at 50%, you're at five and a quarter. How do you take negative leverage? You raise the rents 15%. somebody is going to get excited about that opportunity. So people pay for growth. We've seen it. They will take on negative leverage if they think the growth. And as we look out into 27-28, you start to see the growth drivers are there for the NOI. Will people be more interested in paying for that growth? And then what is borrowing cost?

That's a good point that I've admitted that spreads, multifamily borrowing spreads, are at one of their lowest levels in years and well below the long-term average. So that helps partly mitigate the increase in base rates that we've seen.

And some of your peers have kind of dabbled in townhome or BTR product, various kind of your views of that opportunity.

Well, I've seen a lot done, a lot of these types of endeavors, and I always come back to it's a horizontal apartment or it's a vertical apartment, it is still focus on operational excellence. Don't focus on the product and try to make that your winning point, okay? And then you're going to see us and continue to refine our elements of data converted to cash flow. And so my view of the future is going to be remain a diversified company because opportunities come and go. No one has the perfect market mix for any given moment in time. Second, data to cash flow is critical in all our lives. We're seeing it take over. And you've seen us with Orion proprietary investment tool. We're not thematically interested in markets as much as we are individual assets. And just like you as investors, you're interested in the right spot to be, and we think with Orion it gives us that. With respect to operations, what's critical? People forget we have now arrived at a different baseline, if you will, for resident turnover. We're at an all-time low, and we see that continuing. So how do we price our product on a renewal versus a new? They're completely different customers, and they're completely different. Today, priced is one product. In the future, it's really going to be two. And so how do you do that? You pile up a lot of data, and I think we're ahead of the curve, well ahead of the curve on those fronts. It's companies that can act on data to convert it to cash flow with higher margins and more sustained growth.

I think you guys receive some of the best kind of customer service, retention, review scores. I'm curious if, Mike, you want to talk to a little bit about how you collect this data and then how you kind of put it into your operations.

I think for this, if I could just have you go over to page six, I can give you a little bit of color here. And Tom kind of mentioned some of this, but just to give you a little bit more and elaborate on where we've been. First phase of the operating platform, become the most efficient operator. And you can see on the deck here, 43 homes per associate, it's about 20% more efficient than the peer average. That was the first phase. Phase two was to really listen and understand our customer and drive our retention to levels that we're seeing today. And it's pretty interesting to see that we're about 500 basis points higher than the pure average there. And we just came off a quarter with the best retention in the industry. So most efficient operator, best retention, but how can we continue to leverage that and get better? We think there's still opportunity there. So the third phase where we're looking at kind of the rent roll quality, how we price our assets, how we're thinking about our next pricing system, things of that nature to allow us to continue to not only bring retention up, but also lean into some of the pricing. And I already mentioned in the fourth quarter, you're going to start to see some of this. We're leaning in trying to drive our renewal even higher based on the willingness and ability of our residents to pay. We think we have a differentiator here. We're going to continue to lean into that. And I think for us, Yana, we've seen what works for residents, what doesn't work for residents. But even more importantly, we have every resident on a timeline in terms of the life cycle of their tenancy. And we understand when they're having a good experience or a bad experience. We can leverage our AI technology, but also put it in the hands of individuals. And we have about seven of them now who actually proactively reach out to residents, change the trajectory. and try to get them to sign on the dotted line. And so that's what's led to the highest turnover that we've seen in a long time. Our retention's at an all-time high. We think there's more room here, but I'm more excited about what we can do not only on renewal growth, but how this changes the dynamic on the new lease side. Because today, I tell you, 60,000 apartment homes, 40,000 are renewals. We're spending more time because more of our individuals actually stay with us longer. And then on the new lease side, you have 20,000 homes that you're dealing with. How can you try to find individuals that have the attributes that do want to stay with you longer? We're looking at things like that. We're getting more aggressive on our screening. And so we're increasing our credit scores, our proof of income, our ID verification, trying to limit the bad actors, if you will, from ever coming through the front door. And that helps our bad debt. It helps our retention. And ultimately, it drives our cash flow.

I'll make one last point and then come back to you. It's always found interesting, and I've done other asset classes, is we always look at the underlying quality of the tenancy to create the value for the asset. Fair enough? But in multifamily, we just kind of gloss over it. Well, I think we're building tools that we can look at the quality and durability of our cash flow down to the resident, which rolls up to the asset and ask ourselves, what is the achievable maximum optimal cash flow out of an asset? And is that worth more in our hands? And I think the answer is going to be yes. And capital should look at it and say it's not just margin, but it's durability of the cash flows that I'm buying here. what is that worth? And so it's not just one aspect of this, but it's easier to connect with investors to say, how else do you value a data center? How do you value an office building or retail? It's the underlying tenancy. Same can be had now for apartments. And I think that model will be the future.

I guess with the data collection and the customer service aspect of it, you guys have been very successful in growing kind of that other revenue line item that services your residents' value. Maybe if you could talk a little bit more about opportunities there.

Yeah, I think you'll continue to see us growing other income in the mid-single-digit range. We often have multiple initiatives that we're working on, whether it's typically starting out on the west coast test it out and then we move it across the portfolio we have built a culture around performance and so typically what you see is individuals from the site level all the way through the corporate level are coming up with ideas to try to drive that top line growth because ultimately that's how a lot of the individuals get paid in terms of bonus it's how you do on a relative basis head to head within the market and so continue to see plus or minus five percent growth on that line item. I think we're getting more creative as it relates to door fees, how we're thinking about coupling things with our Wi-Fi initiatives, more Wi-Fi rollouts, more package lockers, parking, you name it. They're all hitting on all cylinders right now, and you're going to see more of the same.

Thank you. Unfortunately, we're out of time, but I have three rapid-fire questions. We're asking all the reads at the conference. Number one, if long-term rates stay higher for longer, which has the biggest impact on your sector's earnings? Is it higher refinancing costs, lower transaction activity, or less new supply?

Supply.

Over the next three years, will third-party capital become a more important source of growth for public REITs than balance sheet capital? Yes or no? For your sector, I think you already answered this, but will 2027 same-story and why growth be higher, the same, or lower than 2026. All right. Thank you so much. Appreciate the time.

Thank you for your time.