The operator welcomes listeners to UDR's Third Quarter 2023 Earnings Call and introduces the host, Vice President of Investor Relations, Trent Trujillo. Trujillo provides a disclaimer about forward-looking statements and the company's expectations. He also reminds listeners to be respectful during the Q&A session and introduces UDR's Chairman and CEO, Tom Toomey, and other senior officers who will be presenting and available for questions.

In the third quarter, the multifamily industry saw stable demand and supply due to a resilient consumer, job and wage growth, and affordability. However, towards the end of the quarter and into the fourth, the slower leasing period and increased concessionary activity from new supply deliveries have put pressure on lease growth and occupancy. This has led to lower Same-Store and FFOA per share guidance for the full year. The company is focused on innovation, such as building-wide WiFi and enhancing customer experience, to increase revenue and improve retention.

UDR, a real estate investment trust, is expecting to drive cash accretion from the six Texas communities they acquired in the third quarter. They also anticipate growth in their joint venture partnership, which will result in increased fee income and operational efficiency. The company is actively working towards enhancing liquidity to take advantage of future growth opportunities. They are also recognized as a leader in environmental, social, and governance practices and have a strong balance sheet. The company's CEO, Tom, thanks the UDR team for their hard work and dedication.

In the third quarter, the company met its expectations for same-store revenue and NOI growth, with stable occupancy and improved revenue retention and renewal lease rates. However, since mid-September, there have been challenges such as weaker traffic and lower leasing volume, likely due to increased competition from new apartment deliveries. As a result, the company has lowered its full year same-store revenue and NOI guidance, but it still remains above the industry average. This is due to the high number of new apartment deliveries forecasted for the rest of 2023, which the company was already aware of in July.

In the fourth quarter, the consumer demand for B quality product increased, causing occupancy rates to be lower than expected. To compete, EDR has had to increase concessions, resulting in a lower revenue earn-in for 2024. Market conditions suggest that rent growth will be lower than average and expenses will be similar to 2023 levels. Additionally, there will be a difficult year-over-year comparison in the first quarter due to a one-time employee retention credit received in 2023.

The company is making progress on its innovation initiatives, including building community-wide WiFi installations and implementing a customer experience project to reduce turnover. They have analyzed data and identified controllable factors for turnover, and are working to improve retention. The company is seeing strong performance in Coastal markets like New York and Boston, which make up a significant portion of their NOI.

The paragraph discusses the performance of the real estate market in the West Coast and Sunbelt regions during the third quarter, highlighting factors such as minimal new supply, high demand, and pricing power. It also mentions the impact of concessionary activity in certain markets and the expectation of continued supply deliveries in the Sunbelt region. The speaker thanks their team for utilizing new tools and technology to drive long-term results. The topics to be covered include third quarter results, guidance for the fourth quarter and full year 2023, recent transactions and capital markets activity, and a balance sheet update.

UDR's third quarter FFO as adjusted per share met their previously provided guidance range and was supported by strong same-store NOI growth. However, due to elevated levels of supply, they have reduced their full year 2023 same-store growth and FFOA per share guidance ranges. In the fourth quarter, they expect stable sequential FFOA per share, driven by same-store NOI growth, additional lease-up NOI, and lower G&A expense, offset by near-term FFOA dilution from an OP unit transaction. During the quarter, they completed an acquisition of 1,753 apartment homes in Dallas and Austin, financed through UDR operating partnership units and debt assumption. This transaction is dilutive to FFOA per share in 2023 but is expected to drive future accretion.

During the quarter, the company repurchased 620,000 common shares at a discounted price, funded by proceeds from a joint venture. They also achieved occupancy stabilization on a development property and have a strong, investment-grade balance sheet with low debt and high liquidity. The company remains opportunistic in their capital deployment and uses a variety of strategies to drive accretion.

The speaker opens up for questions and the first question is about the deceleration in the company's growth in the third quarter compared to the second quarter. The speaker explains that while the Sunbelt region has the highest supply, all three regions have seen an increase in supply which has affected growth rates. The East Coast, with less supply, is doing slightly better. The speaker also mentions that there are no negative trends in terms of consumer behavior.

The B-Quality Resident is sometimes choosing to pay more for A-Quality product due to increased concessions in some markets. Demand remains strong, but supply is a challenge. However, there are reasons to be optimistic for positive market rent growth in 2024, as overall housing supply decreases and rentership remains in a good position.

The speaker, Tom Toomey, is discussing the current state of the market and how it has been impacted by the pandemic. He mentions that there is a positive outlook for job and wage growth, but the supply picture and renewals remain "sticky." He also mentions that they are focused on driving relative performance and that the capital markets may start to improve. In response to a question, he talks about the unprecedented impact on B quality and how it is similar to what is happening in the self-storage industry.

The speaker believes that there is more to the current consumer behavior than just price shopping. They attribute this to the impact of the Internet and increased transparency in pricing, giving consumers more options. This has led to a trend of consumers trading up to higher-priced products rather than down. The company's Sunbelt markets have seen a decline in performance for B properties compared to A properties, which is different from what was expected in the second quarter.

In summary, the company's performance in the Sunbelt region was 300 basis points lower than expected on new leases. The CEO believes that supply pressure will peak in the first half of 2024 and then gradually dissipate, with 2025 potentially seeing more rational pricing. The company will still face challenges in the coming years, but 2024 is expected to be a slight improvement.

In July, the company confirmed their revenue growth guidance, which assumed normal seasonality and stable occupancy and pricing despite increased supply. However, recent developments have led to a change in this guidance, with increased supply and concessionary activity affecting performance in the second half of the year. The company had previously expected their properties in heavily supplied markets to continue outperforming, but this trend has since reversed.

The company expected easier comps and a 3.5% increase in revenue in the fourth quarter, but they are starting off with a 1% increase in October. This is a 2.5% divergence from their expectations, with two-thirds of it coming from supply issues and one-third from the AB phenomenon. The company is not happy about this, but they are still proud of their relative results compared to other companies.

The company has seen a decrease in blends compared to its peers, but this is due to their occupancy strategy and driving other income. The current blended rate growth assumption for the year is 2%, down from the previous estimate of 2.5%. For 2024, rent growth is expected to be slightly below the long-term average of 3%, but still a good starting point due to expected earn-ins and other income. Demand may be weaker next year while supply is slightly higher, resulting in blends being slightly below the long-term average.

The company has 75 days to assess the market and come up with guidance for the next year, but they do not expect above average revenue growth. They cannot predict which markets will have negative or positive growth yet. The company has been working to fill skips in the VIX and has seen some improvement, but there are still slightly more long-term delinquents than average in the portfolio.

The company is facing a challenge due to their elongated fiction processes, which results in a higher dollar exposure for individuals. However, their monthly collections have been strong, with 96.5% collected each month and additional collections bringing it to about 98%. This results in a 1.5% bad debt number, which has been stable in the last few quarters. The company expects this to remain stable in the coming year, with a possibility of a slight increase. The level of concessions currently is at 1.5 weeks, compared to half a week a few months ago. Places like Denver, L.A., and San Francisco have seen an increase in concessions, while the Sunbelt and Philadelphia assets have seen a consistent 1.5-2 week increase.

The speaker, Mike Lacy, discusses the growth of the company's other income line and its resilience in a downturn. He also mentions the success of various fees and programs, such as parking and smart homes, in driving this growth. The speaker, Joe Fisher, adds that the company is well-positioned with a strong balance sheet and liquidity, giving them flexibility in terms of funding developer capital programs and new development starts.

The company is planning to use their reserved dry powder for their joint venture and expects to transact at a mid- to high 5s cap rate. They are also focused on adding to their portfolio in the future and are waiting for more opportunities. Development is currently challenging and they would need to see a mid-6s current basis to consider new starts, but they may see some benefit from cost reduction over time.

The speaker discusses the current state of the market and how they are handling it. They mention the importance of being patient and building up options for when the market signals a need for more aggressive action. They also mention that while demand has been holding up, they have seen an increase in cancellations and negotiations for lease renewals. However, they are still maintaining a high occupancy rate.

The company has seen a decrease in turnover and is achieving above 4% on renewals, despite negotiating slightly higher prices. The gap between A and B quality properties has decreased due to new supply and concessions, but it will be interesting to see if this trend continues once the concessions expire.

The speaker explains that the current focus is on upgrading for B quality consumers. The next question is about capital allocation and the speaker mentions that they did a buyback when they had a lower source of capital, but now the priority is finding JV opportunities instead. They will also look at exposing additional assets to the market to shore up liquidity and potentially redeploy into opportunities. The speaker believes that the final NOI yield or stabilized FFO yield between JV opportunities and buybacks is not that different, so they prefer to deploy with a JV partner in this environment.

The speaker is discussing the targeted yield of 6.5% for development and why it makes sense in the current market conditions. They mention that they are on pause for development and will reevaluate later in the year. They also mention that other markets have been a drag on lease growth rates, but there are no supply pressures in those markets.

John asks Mike about the supply of assets and if there is a specific market causing underperformance. Mike explains that in markets like Denver and Philadelphia, where there is a lot of supply, concessions have increased. John then asks about improving retention and how confident Mike is in being able to do so. Mike says he has a lot of confidence and that they haven't done a great job in the past, but with new strategies and tools in place, they expect to see improvements in retention rates.

The company plans to use data to improve performance in the coming years. They believe that addressing controllable factors such as resident experience and maintenance issues will lead to better retention rates. The bad debt reserve has increased by 10%, but the company does not disclose its full year '23 guide for bad debt.

The speaker explains that the $9 million in bad debt is a result of two inputs: gross accounts receivable and a reserve for uncollectible amounts. The net amount increased by $900,000 in the quarter due to a decrease in gross accounts receivable and a decrease in the reserve. The speaker compares this process to how banks handle delinquent mortgage loans and expects the trend to continue in a positive direction. The company's guidance for bad debt is expected to be around 98.5% collected for the full year, with the second half of the year being slightly better than the first half.

The speaker discusses the competitive environment in the rental market, noting that some developers are offering concessions to attract tenants. They also mention that these developers may be facing financial pressures and may be open to opportunities for distressed properties.

The speaker discusses the trend of apartment renters stretching their budgets to move from B to A apartments, and the surprise factor of this behavior. They also mention the lack of desperation from developers and the potential for interesting times when a market offers three months free. The questioner asks about the true loan-to-value ratio for deals in the developer capital program.

The situation with cap rates and borrowing costs is constantly changing, but most of the deals we have made have exceeded their initial expectations. There are some challenges with supply, but overall things are going well. We have some upcoming maturities in the next few years, but the only one due in 2024 is 1300 Fairmount, which we will discuss more next quarter.

The speaker was asked to provide an estimate of the number of projects that are causing concern due to rising interest costs and decreasing market rents. They declined to give a specific number but mentioned that most projects in the bottom two-thirds of the page are affected. They also mentioned that the GSEs are still providing liquidity and that there are currently no impairments or takebacks of assets. The company will continue to work with partners to address any potential issues. The question also touched on the company's approach to development in the current landscape.

The speaker discusses the impact of the guidance reduction on their underwriting and joint venture deals. They are pleased with their recent LaSalle JV deal and plan to meet the market in terms of cap rates. They note that there is a limited amount of transaction activity, but enough buyers and sellers to get deals done. Going forward, their underwriting will not change and they will focus on maximizing their operating platform with their partner.

UDR CEO Joe Fisher discusses the company's underwriting strategy and the mix of B and A products in their portfolio. He notes that their diversification has served them well in terms of cash flow and the ability to pivot sources and uses. They remain balanced in their approach and typically look for B properties to purchase, as they provide more opportunity for upside potential. The improvement in portfolio quality comes through their development arm. Chairman and CEO Tom Toomey thanks everyone for their time and interest in UDR and highlights the company's strong performance.

Mike has performed well compared to his peers in terms of revenue, expenses, and net operating income. This success is attributed to the efforts of his team and the platform they have in place for future growth. The company looks forward to attending upcoming events and wishes everyone a happy holiday. The conference call has now ended.

This summary was generated with AI and may contain some inaccuracies.