The operator welcomes listeners to UDR's First Quarter 2024 Earnings Call and introduces the host, Vice President of Investor Relations, Trent Trujillo. Trujillo reminds listeners that the call is being recorded and introduces UDR's Chairman and CEO, Tom Toomey, as well as other senior officers who will be available for questions. Trujillo also mentions the availability of the company's press release and supplemental disclosure package on their website. Toomey then begins his presentation, joined by President and CFO Joe Fischer and SVPs Mike Lacy, Andrew Cantor, and Chris Van Ens. Overall, the company had a solid start to 2024.

The multi-family industry is experiencing positive fundamental drivers, including strong employment growth, high demand for apartments, and affordable rental rates. The company's operating strategies have led to positive momentum in key metrics, but they remain cautious about the impact of interest rates and new supply on pricing and concessions. Overall, the company is optimistic about the long-term growth prospects of the industry and their competitive advantages.

In the third paragraph, the speaker, Michael Lacy, covers the first quarter results for UDR, including same-store revenue and NOI growth, lease rate growth, resident turn, and occupancy. He also gives credit to Senior Vice President and Chief Investment Officer, Harry Alcock, who will be transitioning to a consulting role. Lacy then discusses the company's innovation initiatives and expectations for operating trends.

The company's properties in New York, Washington D.C., San Francisco, and Seattle had strong occupancy rates during the first quarter, and expenses were in line with expectations. In the second quarter, revenue metrics are exceeding expectations, with lease rate growth accelerating and retention rates improving. Occupancy remains high, and other income is also growing.

The company is pleased with their building-wide Wi-Fi initiative and reaffirms their full year 2024 same-store growth guidance. They are encouraged by strong macroeconomic indicators but remain cautious due to the volatile interest rate environment and peak supply deliveries. The East Coast has been the strongest region with high occupancy, lease rate growth, and revenue growth. The West Coast has also performed better than expected, with new lease rate growth improving in San Francisco and Seattle due to return to office mandates and increased office leasing activity from technology and AI companies.

The Sunbelt markets, which make up 25% of the company's NOI, have been performing as expected despite elevated levels of new supply. The company remains cautious about the Sunbelt in the near term but has been pleasantly surprised by recent progress. The company is also focusing on customer experience and retention, as their data has shown that positive experiences can improve retention rates by 5-10%. This could result in a $15-30 million increase in NOI. The company now tracks and scores every interaction with residents to capture this potential upside.

During the first quarter, UDR has shifted its focus from transactional business to the lifetime value of its customers. This has resulted in improved customer experiences and is expected to positively impact the company's financials. Joseph Fisher then discusses the company's first quarter results, updated guidance, recent transactions and capital markets activity, and balance sheet and liquidity. The company's FFO as adjusted per share achieved the midpoint of their guidance and was supported by same-store revenue and NOI growth. Looking ahead, the company expects a flat FFOA per share in the second quarter due to expected changes in NOI, interest expense, and G&A. UDR has reaffirmed its full-year same-store growth guidance ranges and will revisit them in the future.

In the first quarter, the company increased their full-year guidance for FFOA per share by $0.02 due to a successful refinancing of a senior construction loan at their DCP investment in Philadelphia. They have no remaining DCP senior loan maturities until 2025 and the majority of their DCP investments are performing well. The company made no new acquisitions, investments, or development starts during the quarter but remain active in evaluating potential deals. They completed construction of a townhome community in Dallas and sold a community in the Washington D.C. area. Their investment-grade balance sheet is well-positioned to fund their capital needs.

The company has nearly $1 billion in liquidity and a low debt maturity schedule, reducing future refinancing risk. Their leverage metrics are strong, with debt-to-enterprise value at 30% and net debt-to-EBITDAre at 5.7x. The first quarter same-store revenue was better than expected, with a 3.1% increase, driven by higher blends in April and May.

The company is currently experiencing a 1% increase in revenue, which equates to about $8 million. This is a positive trend and they are waiting to see how the next 30-60 days play out. Occupancy and other income are also higher than expected, with other income being 10% above last year. The success is attributed to the company's strategy of starting the year with high occupancy and pushing blends. The low turnover rate is also contributing to high retention, and there are no indications that this trend will change. Renewals for May and June are being sent out, and the company is not seeing any signs of increased turnover.

In response to a question about leasing trends, Michael Lacy explains that they have seen a 3.8% renewal rate through June and a 4.5% growth in July. They are trying to compress new and renewal rates and expect a 300-400 basis point difference in the second quarter. The company is seeing strength in their coastal markets, particularly on the West Coast and in New York, with D.C. also performing well.

The company is experiencing strong growth and positive trends in their market, with a 4% to 5% increase in blends. This is due to their aggressive approach to renewals and the sticky nature of their customer base. The Sunbelt region, which makes up 25% of their NOI, is also performing well, despite the looming threat of increased supply. The company is cautiously optimistic about the future, but is seeing record absorption and stronger job growth in the region. Concessions in Texas are currently at 1.5 weeks.

The speaker discusses the trends in the Sunbelt market, noting that there has been a significant improvement in concessions and occupancy rates. They also mention that blends (rent increases) are improving and other income has exceeded expectations. The speaker is cautiously optimistic about the future, despite the upcoming peak supply, as demand is also increasing. The questioner asks if the positive trends in the Sunbelt will continue given the high number of deliveries expected in the next year.

The company expects peak supply to hit in the next few quarters and plans to focus on controlling other income to drive results. Record absorption in the first quarter and strong job numbers in the Sunbelt provide a positive outlook, but the company is cautious due to past experiences with interest rate spikes and developer panics. They will continue to monitor the market on a month-by-month basis. As for capital deployment, the company is not happy with their stock price but may consider investments in DCP or land purchases for future developments.

The current opportunity set for the company is strong, with a solid balance sheet and potential for JV acquisitions and recap opportunities. The team is also evaluating potential development projects, but is waiting to see where market yields settle before starting any new projects.

The speaker discusses the company's positive outlook for the future and mentions the impact of the CARES Act on expenses. They explain that some markets, such as Seattle and Monterey Peninsula, saw higher expense growth due to factors like taxes and utilities. The speaker assures that they are aware of the expense growth and have plans in place to reduce it in the coming quarters through initiatives like automation and cost-saving measures.

The company has implemented initiatives to control expenses and is not concerned about the first quarter results being a recurring issue. Other income has seen a significant increase due to the rollout of bulk internet and the team's efforts in driving other initiatives. Class B properties have outperformed Class A properties by 50 basis points in terms of growth.

The Sunbelt region is performing better than expected, with underperforming areas improving. This is due to traditional supply dynamics. Florida and Texas, which make up a significant portion of the Sunbelt, are seeing positive trends in occupancy and concessions. Tampa and Orlando in Florida have similar numbers, while Dallas in Texas has higher concessions but improving occupancy. Overall, the Sunbelt is in a normal steady state with some areas doing better than others.

The speaker, Michael Lacy, discusses the performance of the Austin market, which makes up 2% of their NOI. Despite facing high supply and offering concessions, the market is still running at 96-97% occupancy. Lacy also mentions that there is a loss to lease of 2-2.5% currently, but this is expected to grow during the demand period. He then talks about the customer experience project and how they have captured millions of data points to improve their services.

The company has developed proprietary resident community-specific dashboards that chronologically align interactions in order to keep track of what is happening at any given time. This has been helpful in scoring each experience and improving the overall leading experience. Despite a decrease in home buying, the company has seen a 3% increase in effective rents on a year-to-date basis. Bad debts were assumed to be flat year-over-year in the company's guidance.

The company has been successful in managing their accounts receivable balances and has seen improvements in delinquent accounts and collections. They are currently ahead in terms of bad debt and are optimistic about the potential for reducing it even further through various actions such as implementing ID and income verification, utilizing AI tools, and raising thresholds for deposit and credit requirements. These efforts could potentially save the company around $50 million in costs.

The UDR portfolio has significant exposure to Orange County and Monterey in addition to Seattle and San Francisco. Seattle and San Francisco are performing better than expected due to unique factors such as not being located in the heart of the cities and the return of workers to Amazon and the opening of a new light rail. Seattle's occupancy is at 97% and San Francisco is 50-50 urban and suburban. The lack of supply in these markets has been beneficial for UDR.

The speaker discusses how concessions in the San Francisco and Orange County markets have decreased due to a return to the office and an increase in AI and biotech jobs. They also mention a focus on improving resident experiences and controlling factors such as trash, noise, and pest issues to increase revenue.

The company is making adjustments to improve their trajectory and expects to see continued progress in the coming year. They are implementing trainings and tests to drive further improvement. New lease growth is flat but expected to turn positive in May. The company does not revise same-store guidance in the first quarter.

The speaker asks about the company's policy of not adjusting guidance in the first quarter, despite outperforming their peers. The company's CFO explains that their policy is due to the volatility of the market and the potential for supply and macro factors to impact their performance. They prefer to stay conservative and only deliver good news as it comes throughout the year. They were surprised by the reaction of developers to higher rates and new supply last year.

The company has decided to decrease the level of detail provided in their annual review of disclosure practices, specifically in regards to new and renewal spreads in various markets. This decision was made after comparing their level of detail to other REITs and considering the potential volatility in smaller markets with fewer assets. The company wants to avoid repeating the surprise in guidance from last year and believes their current range is still accurate.

The company has decided to remove the level of detail on individual markets from their REIT report, but will still provide regional information. The DCP watch list remains at $50 million over three investments, including the successful refinance of the Philadelphia DCP. The company is pleased with the leasing trends and occupancy numbers at the Philadelphia DCP, but will continue to monitor the other three investments on the watch list, which have NOI yields in the 6-7% range.

The company hopes to see high-single-digit returns on their portfolio, but four deals have been affected by COVID, submarket challenges, and lower valuations. The rest of the portfolio is performing well and the company does not expect any negative outcomes from these four deals. The company has taken the downside risk from one of the deals out of their guidance. The next maturity for one of the deals is in January 2025, and the others are in mid-2026. If all four deals had to be bought back at a lower yield, it could result in a $0.03 loss, but the company expects upside in NOI in the next two years.

The speaker asks a high-level question about the relationship between job growth and apartment demand. The speaker explains that their initial guidance was based on a combination of factors, including GDP, wages, job growth, homeownership rate, and supply. The general rule of thumb is that a 1% increase in wages and job growth translates to a 1% increase in rents. The speaker notes that the current job and wage growth has been better than expected, which could lead to better performance in the apartment market.

The speaker discusses the current state of concessions in the real estate market and how they have decreased due to a rise in demand. They also mention the challenges faced by developers last year when demand was decreasing and interest rates were rising. The speaker is cautiously optimistic about the future of the market.

The speaker discusses the impact of debt service coverage ratios and recent changes to New York rent laws. They mention the possibility of financing third-party office to residential conversions and the potential for pruning certain buildings that may not meet luxury rent requirements. The speaker also notes that the company evaluates each opportunity based on its merits. They then mention the ongoing legislative sessions and the potential impact on their business.

The speaker discusses the potential negative impact of restricted rent control legislation on their business, but expresses confidence in their ability to continue generating growth and returns in areas with similar restrictions. They also mention concerns about a potential slippery slope, but overall feel okay about the current regulatory environment. The speaker also addresses the strong operating environment for their properties, attributing it to small businesses hiring and potential growth in corporate jobs.

The speaker, Michael Lacy, discusses the disconnect between the demand for apartments in New York City and other REIT sectors. He explains that the strong demand is due to people wanting to live in the city and experience the lifestyle it offers. He also mentions that occupancy rates are high and they expect this trend to continue throughout the summer. However, he notes that not all markets are equal and some, like San Francisco, are still facing challenges.

The speaker, Joseph Fisher, agrees with Alex that the sentiments about the demand for housing are similar across the board. He notes that while there is a lot of focus on the supply of multifamily housing, the majority of housing is actually on the single-family side. With a high demand for housing due to job growth, affordability is a key factor in the decision to rent rather than buy. The speaker also mentions that retention rates have improved by 400 bps from last year, which is consistent across the portfolio.

The speaker notes that historically, 20% of move-outs in the Sunbelt were due to people buying homes, but now it is closer to 10%. They also discuss the challenges of implementing automation and the need to sometimes add back customer service positions in order to improve retention. The speaker is asked about their views on the Sunbelt's ability to absorb new supply, and they mention strong absorption trends.

Joseph Fisher, a representative from UDR, discussed the company's peak delivery cycle over the next couple of quarters and the potential impact on their business. He mentioned that while there will be a drop off, it will take some time to work through the lease-ups of these deliveries. Looking ahead to 2025, deliveries are expected to be relatively normal, with the Sunbelt region seeing a slight decrease in new starts and permits. Fisher also highlighted the potential for a strong year in 2026 due to the lack of available housing. The call concluded with closing remarks from UDR's CEO, Tom Toomey, who thanked participants for their support and mentioned upcoming conferences where the company will be present.

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