The operator welcomes listeners to UDR's Fourth Quarter 2023 Earnings Call and introduces the host, Vice President of Investor Relations, Trent Trujillo. Trujillo provides information on where to find the company's financial results and reminds listeners of the risk factors involved in forward-looking statements. Chairman and CEO, Tom Toomey, introduces other members of the team who will be available for questions and mentions that the company has improved its communication on future outlook.

The company has faced volatility in the past 5 years and is expecting supply-induced challenges in 2024, leading to a wider range of potential outcomes for the year. They have published an outlook presentation and their prepared remarks aligned with it. Key takeaways from their press release and outlook are that they met their guidance expectations for the fourth quarter and full year 2023, expect economic growth and apartment demand to remain resilient in 2024, and will continue to invest in innovation for incremental NOI growth. They will maintain a capital-light strategy but will take advantage of opportunities when appropriate. Their balance sheet is well positioned to fund their capital needs in 2024 and beyond. Joe Fisher will now speak.

The speaker will cover several topics in this presentation, including the company's fourth quarter and full year results, the 2024 macro outlook and guidance, and recent transactions. They achieved the midpoint of their previously provided guidance ranges and shifted to a more defensive operating strategy to increase occupancy. Market rent growth has turned positive and occupancy has increased to 97.2%. The company also executed several transactions to enhance liquidity and set them up for future growth, including a joint venture acquisition of a 262 home community in Suburban Boston.

The company is exploring investment opportunities with LaSalle to improve efficiency and increase earnings for shareholders. They have also sold $180 million worth of assets and assumed ownership of a distressed property in Oakland. The company's 2024 market rent growth forecast is 1% based on a combination of top-down and bottom-up approaches, taking into account economic factors and local market dynamics. This forecast is slightly conservative due to high multifamily deliveries and expected concessions.

The primary variables that will impact our forecast include GDP growth, employment and wage growth, changes to the homeownership rate, supply and its effect on pricing, and economic uncertainty. Despite elevated multifamily deliveries in the next few years, there are positive factors supporting demand, such as resilient consumers, relative affordability, prime renter demographics, and a decline in starts activity. However, there may be supply slippage and continued elevated lease-up concessions in the near term.

The company's peak deliveries in the coming quarters are not expected to significantly exceed the levels seen in the second half of 2023 and early 2024. The market rent growth forecast will depend on when market level concessions shift in 2024. The Sunbelt region is expected to have higher supply growth than coastal markets in 2024. The company's 2024 guidance includes full year FFOA per share of $2.36 to $2.48 and a decrease in FFOA per share of 2% compared to the previous year. Factors contributing to this decrease include an increase in same-store revenue and lease-up income, offset by a decrease in same-store expenses and DCP activities. The potential impact of assuming ownership of a DCP development is also included in the guidance, but the company does not anticipate additional earnings risk from their DCP investments in 2024.

The paragraph discusses the building blocks of the company's 2024 same-store revenue growth guidance, including factors such as lease rate growth, innovation initiatives, and expected operating trends. It also mentions the company's strong balance sheet and liquidity.

In 2024, the company is expecting a 70 basis point earn-in, with a 20 basis point increase in occupancy and a 30 basis point decrease in earnings due to lower rate growth. Blended lease rate growth is forecasted to be 70 basis points, adding 35 basis points to same-store revenue growth. Blends are expected to be lighter in the first half of the year but improve in the second half. The company also expects flat occupancy and bad debt in 2024. Innovation and other initiatives are expected to add 45 basis points to same-store revenue growth, with the majority coming from property-wide WiFi, package lockers, improved retention, and less fraud. The company is also anticipating a 200 basis point decrease in resident turnover compared to 2023.

In 2023, there was an increase in long-term delinquent skips and evictions, but this is not expected to repeat in 2024. The company's customer experience project has shown early benefits in resident retention, which will improve their operating margin. Measures are being implemented to prevent fraud and bad debt. The company's 2024 same-store revenue guidance range is 0% to 3%, with a midpoint of 1.5%. The East Coast is expected to perform better than the Sunbelt region.

The company expects its East Coast markets to grow same-store revenue by 1-4%, with Boston, Washington, D.C., Baltimore, and Philadelphia showing the most growth. The West Coast is expected to have 0-3% growth, with Orange County, Los Angeles, and the Monterey Peninsula performing well. The Sunbelt markets are forecasted to have negative 2% to positive 1% growth, with Austin, Nashville, Denver, and Orlando seeing high levels of new supply. The company expects a 5.25% increase in same-store expenses, driven by real estate taxes, personnel, and insurance. The first quarter will have elevated expenses due to a one-time employee retention credit and costs associated with a property-wide Wi-Fi initiative. Normalized same-store expense growth is expected to be around 4%.

The speaker concludes by acknowledging the current challenges in the operating environment but expresses confidence in the company's ability to innovate and improve revenue growth, resident retention, and operating margin. They thank their teams for their collaboration and turn the call over to another speaker. The speaker then discusses the company's potential for growth in 2024, emphasizing the importance of understanding customers, engaging with associates, and listening to investors. They believe that their company is well-positioned to create value for stakeholders regardless of economic conditions.

In 2024, the company plans to focus on what they can control, including their operating platform and innovation, developing talent, and adjusting their operating strategy in response to supply. They also plan to maintain liquidity and balance sheet flexibility. The company believes they can successfully navigate any macro environment in the future. During the Q&A session, an analyst asked about the $0.025 dilution from taking ownership of two DCP assets, and the company's CFO explained that there is also a third potential asset that could have a similar impact. He also mentioned a Philly asset that is currently being refinanced, and if it is not successful, it could result in an additional $0.02 dilution. The company recently acquired Modera Lake Merritt, which also has a small dilution impact.

The speaker discusses the factors that can lead to distress in their real estate deals, including upfront costs, cash flow, and capital markets. They specifically mention Modera Lake Merritt as an example of a deal that experienced distress due to a combination of factors, such as low rents and a difficult market. The company took back the property and hopes to improve its yield in the coming years.

The Philly asset's NOI has been weaker due to a challenged market and delays caused by COVID. Three of the remaining 12 assets are on watch list, but they don't pose significant risk. The rest of the book is in-line to above pro forma expectations. The analyst asks about selling the Oakland property to minimize losses.

During a conference call, Joe Fisher, a representative from a company, discussed the struggles in Northern California and why they chose to increase their exposure there instead of selling it. He mentioned that the valuation of the asset was determined by a third-party appraisal and that there is potential for upside in the future. The company plans to keep the asset in their hands for now and reevaluate when the market improves. In response to a question about lease rate growth, Mike Lacy, another representative, stated that they expect it to remain similar to the second half of last year in the first half of this year, but to pick up in the back half and into 2025.

The company has seen a 150 basis point increase in blends from December to January, which has put them in a better position to start driving rents. The lease rate growth is expected to improve in the second half of the year, especially in the East Coast and West Coast markets. The Sunbelt markets, which have been challenging for the company, are expected to see further deterioration due to higher supply, but the company is still performing well compared to its peers.

The speaker discusses the positive factors contributing to strong absorption and job growth, as well as the increase in other income for the Sunbelt portfolio. They also mention that occupancy in January was higher than expected, but they plan to trade it for rent growth in the spring.

In the month of January, the company's performance was negative 3.6%, but February is showing signs of improvement. The company plans to potentially shrink their book of assets due to redemptions and the potential loss of a key asset. However, they do not plan to continue shrinking and hope to reinvest in other opportunities. During the earnings call, an analyst asked about the company's guidance assumption for a 3% renewal rate growth in 2024.

The speaker is discussing the company's expectations for renewals and new leases in the upcoming months. They believe that renewals will be in the range of 3.5-4% and new leases will also improve with seasonality. There is not a big difference in performance between different regions, with renewals typically ranging from 2-5%. The company's playbook is around 3% for the year, with negotiations typically resulting in a 50 basis point range. They will continue to monitor market rent and may push rent renewals back up if possible.

Jamie Feldman asks about the visibility and guidance for markets with high supply, and Joe Fisher and Michael Lacy respond by discussing the current delivery schedule and results, as well as the positive signs of occupancy, pricing power, and concessions. They also mention finding a floor in these markets and feeling more confident about the future.

The company uses both a top-down and bottom-up approach to analyze data from the field and third-party sources to make projections for the upcoming year. They feel confident about the start of the year, but will continue to monitor the situation, especially as it relates to leasing. In terms of distressed and commercial real estate, the company believes that multifamily properties may be less affected due to the presence of Fannie Mae and Freddie Mac in the market. They anticipate some distressed developers, but overall there is still plenty of capital flowing into the multifamily sector.

The speaker discusses the potential impact of higher interest rates and cap rates on developers and their projects, but notes that there is still strong demand for multifamily properties. They also mention that their company's diverse investment strategies, including debt and preferred lending, allow them to weather potential distress in the market.

The company's investments have provided consistent returns and they will continue to pursue various forms of capital. There is some distress in the market, but larger players have the ability to handle it. The company will be cautious about going back into development and recapitalization, but will keep all options open. The pace of recovery in Northern California and Seattle is uncertain.

Mike Lacy, speaking on Slide 16, discusses the top and bottom growth markets on the West Coast. He notes that San Francisco and Seattle are both doing well, with San Francisco being 50% urban and 50% suburban and expected to have the highest total revenue growth. Occupancy is around 97%, concessions have decreased, and rents are starting to rise. Seattle is also doing well, with a lot of exposure to the Bellevue area, where TikTok is taking out office space. Traffic has also picked up in that area.

The speaker discusses a 250 basis point increase in blends from December to January in a specific region. They also mention a 100 basis point improvement in turnover from a customer experience project and potential further revenue generation and cost savings from data analysis and targeting employees with negative sentiment. This has already resulted in a 400 basis point improvement in turnover in the fourth quarter.

The company expects to see benefits from various programs in the coming years, such as a Wi-Fi rollout and improved fraud and bad debt detection. They are also focused on reducing expenses through measures such as vendor consolidation and personnel efficiencies. The company expects these efforts to have a positive impact on their financials.

The speaker asks about the sequential move in January versus December and blended rate growth, and how the drop-off in deliveries in the fourth quarter may have affected results. The speaker also asks about the further sequential improvements in February and the coming months, given the increase in deliveries in the second and third quarters. The response mentions the company's focus on driving occupancy up in the fourth quarter through higher retention rates, leading to a 97% occupancy rate in January which they are actively bringing down while testing rents. The speaker is most excited about the trajectory of the company's occupancy and retention rates.

The rate of change in the apartment rental market has improved from negative to positive, with new lease growth being a key factor. However, there is a spike in deliveries expected in the middle of the year, but it is not a significant number compared to the overall market size. The company is aware of the potential risks and is taking a balanced approach in their guidance. There is a bad debt reserve included in the guidance, but it is accounted for differently than other companies. The current state of bad debt and the assumption for the end of the year are not specified.

The company experienced high levels of delinquency in the first part of 2023, but the last six months of the year were more stable. They expect to collect 98.5% of their revenue in 2024, and have taken steps to prevent fraud and delinquency. They anticipate a flat year-over-year assumption for bad debt, but hope for upside in the future. The company expects a low 5% expense growth, with all Sunbelt markets being within 100 basis points of each other.

The speaker is discussing the current market conditions and how they are affecting the company's revenue. They mention that there is pressure on personnel due to supply issues, but they are seeing an offset in other income. The Sunbelt market has seen a doubling in ancillary income, which is expected to contribute to a negative 2% revenue growth for the region. The speaker also notes that despite competition offering free months, customers are still choosing to renew their leases due to the inconvenience of moving. The speaker suggests that the main factor affecting the company's guidance is the excess supply in the market, which may decrease over time. They also mention the possibility of a stable economy in the future.

The guidance provided by the company is based on the current economic situation, but it could change if the economy continues to be strong throughout the year. The key factor for an upside scenario is job growth, which has been stronger than expected. The company is hoping for this trend to continue, which could lead to better results. The concessions offered by some developers are only in certain distressed sub-markets, and not all residents have the opportunity to take advantage of them.

The lack of affordable housing and high cost of moving are causing renters to stay in their current apartments. There is also a trend of B renters choosing to stay in B locations rather than upgrading to A apartments. Camden's comment about more households choosing to rent is supported by the current market conditions, with home ownership rates decreasing and more renters staying in the rental pool. This trend is also reflected in the company's move-outs to buy activity, which is lower than in previous years.

The speaker is asking a question about the company's numbers and how they relate to the use of concessions in certain markets, particularly San Francisco and Seattle. The speaker also asks about the company's overall approach to capital deployment. The company responds by stating that they are seeing a decrease in concessions in San Francisco and do not offer them in Seattle. They also mention their conservative approach to capital deployment.

The speaker discusses the company's capital deployment strategy, which is currently focused on joint venture partnerships and acquiring new opportunities. They also mention the potential for DCP deployment and development projects, but these are not the main priority at the moment due to improved capital costs and a desire to reduce risk.

The speaker states that they will continue to evaluate when it is appropriate to start the DCP given the current supply levels. They also mention that the majority of these developments are on an accrual basis and will start paying cash flow when they become operational. They also clarify that the maturity dates for the preferred and mezzanine positions may differ from the senior loan maturity.

The company is exercising some of their extension rights, but there are not many senior maturities coming up. The current emergency in SoCal has not had a significant impact on the company's business, and their insurance coverage is adequate. The company is still expecting a contribution of $5 million to $10 million from innovation in 2024, consistent with their previous projections.

The company is constantly assessing initiatives to improve their NOI, with a list of 60 currently being evaluated. They expect to see around 50 basis points of incremental NOI growth, consistent with the past 5-6 years. A large portion of the expected $40 million lift in NOI comes from WiFi, but there are other opportunities in customer experience and fraud efforts that are not included in this estimate. These opportunities may not have a concrete timeline, but are expected to have a positive impact on occupancy, pricing power, expenses, and capital. The company believes there is potential for growth in 2024.

Mike mentioned that they captured a 1% reduction in customer turnover due to improved customer experience, which added about $3 million to their revenue in the past year. However, they believe there is still more opportunity to improve customer experience and reduce fraud, which could potentially bring in an additional $50 million in revenue. There has been some softness in the New York market, but the team has done well in maintaining top revenue in the area. Occupancy rates have remained high, but there has been a slight decrease in blends since the peak season.

The speaker is discussing the current state of the company and its potential for improvement. They are optimistic about the future and thank the listeners for their support. The call is now ending.

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