The operator introduces the UDR's Second Quarter 2024 Earnings Call and turns it over to Trent Trujillo, Vice President of Investor Relations. Trujillo welcomes the participants and directs them to the company's press release and supplemental disclosure package. He also reminds them of the risks and risk factors involved in the company's forward-looking statements. Trujillo then introduces UDR's Chairman and CEO, Tom Toomey, and other senior officers who will be available for questions during the call.

The first half results for the company have exceeded expectations due to strong fundamentals and operating strategies. Employment and household income growth have driven demand for housing, and there has been a record number of apartment homes absorbed. Renting is more affordable than owning, and the company's tactics have led to revenue and expense growth. As a result, the company has raised its full year guidance and expects continued success in the second half of the year.

In the second quarter, UDR has seen a slight increase in same-store revenue and NOI growth, which exceeded expectations. This was due to a 2.4% increase in blended lease rates, driven by strong renewal and new lease rates. Additionally, resident turnover was lower than the previous year, resulting in improved retention rates. UDR also received recognition as a top workplace in the real estate industry, reflecting their strong culture and employee experience. Looking ahead, UDR remains optimistic about the long-term growth prospects of the multifamily industry and their unique competitive advantages.

The company has been able to increase renewal rate pricing and maintain strong occupancy rates due to healthy leasing volume and innovative services. Expenses have also been lower than expected, with reduced repair and maintenance costs and insurance savings. In July, the company has seen normal seasonal trends, with blended lease rate growth in the mid 2% range and strong resident retention. The East Coast is showing the most strength, followed by the West Coast and the Sunbelt. Overall, the company expects the East Coast to continue leading in the third quarter.

The relative affordability of apartments compared to other forms of housing is a major benefit to the apartment industry. This has led to a record low level of residents moving out to buy a home and improved resident retention. Occupancy remains high but has slightly trended lower due to new supply and seasonal trends. However, other income continues to grow at a steady rate.

The company is pleased with the growth of other income initiatives, such as building-wide Wi-Fi, which has contributed to incremental same store revenue growth. They have raised their full year 2024 same store growth guidance, but remain cautious due to potential economic volatility and increased supply deliveries. The primary factors contributing to the 2% midpoint include earning of 70 basis points, portfolio blended lease rate growth of 130 basis points, and a combination of occupancy and bad debt remaining flat year-over-year.

The company expects innovation and other initiatives to contribute to a 70 basis point increase in same store revenue growth by 2024. This growth will primarily come from property-wide Wi-Fi and other enhancements. The company also lowered its same store expense growth by 25 basis points and expects regional trends to be strongest on the East Coast, with Washington D.C. being the best-performing market. The East Coast had a weighted average occupancy of 97.1%, blended lease rate growth of 4.7%, and same-store revenue growth of 3.8% in the second quarter.

The West Coast region is expected to have strong performance for the rest of the year due to healthy demand and low supply. The Sunbelt markets have lagged behind, but the company is taking strategic actions to improve performance. The company's diversified portfolio allows for targeted operations in each market and continued innovation to drive revenue and NOI growth.

In this paragraph, Joe Fisher thanks the UDR associates for their dedication and then provides an update on the company's second quarter results and full year guidance. He also mentions recent transactions and capital markets activity, including the completion of a new community in Tampa. The company has raised their FFOA per share guidance twice and improved their same store guidance ranges. The third quarter guidance is expected to be flat.

The community is 40% occupied and exceeding expected yield. The company has no active development projects but is considering four potential starts in the next 12-18 months. They have also entered into a $35 million preferred equity DCP investment and received a $17 million paydown on a previous investment. Their investment grade balance sheet is strong with nearly $1 billion of liquidity and only $112 million of consolidated debt scheduled to mature through the end of the year.

The company has a strong balance sheet and liquidity, with low leverage metrics. The occupancy and pricing trends in coastal markets were stronger than in Sunbelt markets in June and July, and the company has pushed its rents higher. They are sending out about 5% of renewals through September and typically achieve between 20 and 30 basis points of what they send out.

The company's strategy to increase rent by 100 basis points in the second half of the year was influenced by their customer experience project, which resulted in fewer move-outs and lower turnover. This has allowed them to test their pricing strategy, which is currently working well. While occupancy has decreased slightly in the past 30-60 days, it has stabilized and is not a significant concern. The East Coast has a higher occupancy rate than the West Coast and Sun Belt regions. The company's guidance for the back half of the year is around 0.9%, which is in line with their original guidance and reflects a conservative approach.

The company's initial forecast for market rent growth was lower than what has actually been achieved due to better job and wage numbers, rational developer behavior, and increased affordability. The year-to-date market rent growth is 4%, which is 200 basis points higher than expected. The company is being conservative in its back half assumptions and is factoring in potential supply, economic, and election uncertainties. They will update their guidance as they gain more visibility and are currently seeing continued momentum with mid-2s blends, but are being cautious due to seasonal slowdown and unknown factors.

The operator introduces a question from an analyst regarding the increase in DCP funding guidance from $0 to $15 million. The company's CFO, Joe Fisher, explains that the $15 million is the net of a few different items, including a $35 million investment in a portfolio in Portland and a payback on a previous investment. He also mentions that there are no major discussions for future investments at the moment, but the company will likely be active in deploying capital next year. The company's COO, Andrew Kantor, adds that one of their DCP deals, Vernon, was originally funded in 2022 but was fully refunded at the time of redemption.

The company has invested $25 million in a completed and stabilized development, in addition to the $17 million that was refunded. This recapitalization is similar to the one in Portland, and about two thirds of the accrual will be paid current. The company has seen a deceleration in new lease rate growth in markets like Nashville, Dallas, and Tampa, but overall, there has been a stability in the market with a slight uptick in blends from May to July. The Sunbelt region has seen weaker growth, while the East and West coasts have seen stronger growth.

Joe Fisher discusses the occupancy numbers and the impact of fraud prevention efforts on the company's profits. He mentions that they have started to roll out new AI platforms to verify income and ID, as well as being more strict with credit scores for deposits. This has led to a temporary decrease in occupancy, but the company believes it will lead to better residents in the long term. They have not factored this into their guidance yet, but are currently trending ahead. Austin Wurschmidt asks about the impact of supply and concessions on July's numbers, and Mike Lacy responds that there has been a slowdown in traffic and an increase in concessions compared to last year.

The speaker discusses the health of the consumer and stats related to occupancy and rent-to-income ratios. They mention that they are able to push rents higher due to their platform initiatives and strong market dynamics, which has given them more confidence to be more aggressive with pricing renewals. They also mention their customer experience project as a factor in their ability to push rates.

The company has been working on improving their performance compared to their peers and have seen positive results in terms of turnover. They are confident in their pricing strategy and believe it will continue to drive value in the future. However, there is uncertainty due to external factors such as the election and consumer rates. The company is most conservative in their guidance for top line revenue, but they are feeling good about other areas such as turnover.

The company has been able to reduce expenses, both controllable and non-controllable, in the first half of the year. They have seen savings in real estate tax, insurance, and turnover costs. They expect to see continued savings in expenses and potentially even more in the future. The low level of housing starts and low interest rates may lead to a stronger market in 2026 and 2027.

Joe Fisher and Andrew Kantor discuss their company's approach to capital and investment in the current market. They believe that the cost of equity is not compelling and that external growth through acquisitions is not a good option due to high cap rates. They will continue their capital light strategy and focus on underwriting deals with their joint venture partner.

The market has bottomed out and cap rates are around 5%. Rates have normalized across different markets, with higher growth markets having lower rates and slower growth markets having higher rates. Investors are making decisions based on discount to replacement cost and there is increased activity in certain buyer groups. The gap in cap rates between higher and lower growth markets is around 60 basis points. There has been an incremental 60 basis points increase in rental rate growth compared to initial guidance, but no specific numbers were given for different regional exposures.

The company is assuming renewals will be around 4% for the back half of the year, which would result in a 60 bps increase. The Sunbelt region is seeing renewals around 3-3.5%, while the Coast is slightly higher. New lease rates have been negative 5-6% in the Sunbelt and are expected to worsen due to high supply and low demand. The Coast has been a positive surprise, with DC, San Fran, and Seattle driving the upside. DC has been outperforming due to the election and defense sector spending, but the company expects some normalization next year. DC is an important market, making up 15% of the company's NOI. The company has a 40% urban and 60% suburban split.

During the quarter, occupancy was at 97% and blends were at 5.9%, a strong performance for the DC market. However, there may be some pressure in the future due to increased supply in certain areas. It is too early to determine the impact of the election cycle on demand and job growth in DC. The CEO also mentioned that the July new lease rates were down 5-6% in Sunbelt markets and up 1-2% in coastal markets, with a slightly larger deceleration in the East Coast. Overall, there has been a decrease in new lease growth across the board.

Renewals are higher in the Sunbelt compared to May, while new leases are weaker. The company is considering four development starts over the next few years, with yields in the high 5s. They are cautious due to the spread between cap rates and their cost of capital. The company has a diverse platform to pivot and flex their investments.

The speaker discusses the current state of the company's DCP and acquisitions, noting that they are looking at returns on risk and allocating capital with a joint venture partner. They also mention that DCP is in a steady state and is more of a recycling piece. The next question from an analyst asks about the challenges ahead for the company, and the speaker responds by comparing the current market to last year, when there was a surge in concessionary activity and a drying up of capital availability. They note that the market is now in a different state and cap rates are potentially higher.

The current capital environment for developers is different from the past, with a better demand for assets and lower supply of deliveries. However, caution is still necessary due to potential macro risks. Looking ahead, the business is expected to face volatility and challenges, but having a diverse investment base and value creators will be beneficial. Interest rates are projected to stay around 5% and deficits will continue to be a financeable product for multifamily properties.

The speaker discusses their success in timing the market and their focus on operating better than competitors. They also mention the potential for growth in the future and their satisfaction with their current balance of coastal and Sunbelt properties. They mention their strategy of targeting cities with potential for growth in the new economy.

The company is always evaluating which markets to grow and shrink in the next three, five, and ten years. During a question and answer session, an analyst asked about the wider range of potential outcomes for same store revenue guidance in the second half of the year compared to previous guidance. The company's response was that there are certain factors, such as occupancy volatility and market rent growth, that could affect the results. They also mentioned wanting to be more conservative and avoid the surprises they experienced last year. The focus is on finishing the year strong, rather than constantly updating guidance.

The speaker is hopeful that they will be able to deliver strong results and discuss them on their third quarter call. They are focused on pushing renewals up and monitoring the return of pricing power in the Sunbelt. They do not have a calculation for same store revenue growth using the same accrual process as peers.

The speaker explains that their company has been consistent in their approach to managing AR and that they currently have a 50% reserve to cover non-collectible evictions. They have seen a decrease in long term delinquents due to improvements in screening and credit standards. They expect bad debt to continue to improve in the second half. The speaker also mentions that there is speculation about a double peak in the rental market, but their company is seeing different trends in different regions.

The speaker acknowledges that the percentages are close and that the fluctuations in occupancy and pricing are due to a strategic push for higher rents. They believe this is normal seasonality and not cause for concern.

Mike Lacy, speaking on behalf of the company, discusses the 300 basis points retention improvement achieved in the second quarter, with most regions seeing around a 50 basis points year-over-year improvement. He mentions that the West Coast was a little more flat, with Monterey Peninsula having higher turnover due to migrant workers. He attributes the overall decrease in turnover to the customer experience project and the decrease in people moving out to buy homes. He also mentions the company's plan to test rents and looks at different ways to drive growth. When asked about when Sunbelt markets might see new lease growth, he mentions that Austin will continue to see growth, but there may be inflection in places like Florida and possibly Tampa next year.

The speaker discusses the current state of the real estate market in Texas, Nashville, and Florida. They also mention their plans for preferred equity investments and the possibility of extensions for maturing investments. The speaker thanks the audience and invites them to upcoming events before ending the call.

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