UDR's 2025 Q3 Earnings Call: Contradictions Emerge in Rent Growth, Sunbelt Challenges, and Strategic Moves

Guidance:

• Full-year 2025 FFOA guidance raised to $2.53–$2.55 per share (midpoint $2.54); Q4 FFOA guide $0.63–$0.65.
• Revised full-year same-store revenue growth midpoint to 2.4% (from 2.5%); same-store expense growth midpoint increased to 2.75% (up 25 bps).
• Reaffirmed full-year same-store NOI growth midpoint of 2.25%.
• 2026 same-store revenue "earn-in" currently forecast ~flat; formal 2026 guidance expected in February.
• Increased acquisition and disposition midpoints by ~$150M each due to a planned Northern Virginia acquisition; funding via dispositions/JV proceeds.

Business Commentary:

• Revenue and Earnings Growth:
• UDR reported FFO as adjusted per share of $0.65, exceeding previous guidance expectations by $0.02.
• The growth was primarily driven by NOI and benefits from an executive departure.

• The company raised its FFOA per share guidance range for the second time this year, with the new range at $2.53 to $2.55.

• Same-Store Revenue and Expense Trends:

• Same-store revenue and NOI growth for the third quarter were 2.6% and 2.3%, respectively.
• This was supported by 0.8% blended lease rate growth, despite a deceleration beyond typical seasonality due to economic uncertainty.

• Annualized resident turnover was nearly 300 basis points better than the prior year period, contributing to revenue and expense benefits.

• Capital Allocation and Acquisitions:

• UDR entered into an agreement to acquire a 406-apartment home community for $147 million, expected to close in the fourth quarter.
• This decision was based on insights from the company's predictive analytics platform and a positive outlook on future CapEx needs.

• The acquisition aligns with UDR's strategy to enhance long-term cash flow by leveraging proprietary analytics and operational perspectives.

• Shareholder Returns and Capital Management:

• The company repurchased approximately 930,000 shares at a weighted average share price of $37.70, totaling $35 million.
• Shares were bought at a discount to consensus NAV and at an approximate 7% FFO yield, reflecting UDR's commitment to shareholder value enhancement.
• UDR also extended its senior unsecured term loan by two years with a lower effective credit spread, further solidifying its investment-grade balance sheet.

Sentiment Analysis:

Overall Tone: Positive

• Management raised full-year FFOA guidance (new range $2.53–$2.55, midpoint $2.54) after Q3 FFOA per share of $0.65; reported Q3 same-store revenue and NOI growth of 2.6% and 2.3%, occupancy 96.6%, and reiterated strong liquidity (> $1B) and investment-grade balance sheet. Commentary emphasized data-driven operations, asset-level analytics, and opportunistic capital allocation (share buybacks, acquisitions).

Q&A:

• Question from Nicholas Joseph (Citigroup Inc.): Could you walk through the assumption for a flat earn-in for 2026 and what's assumed in the fourth-quarter guide?
  Response: Management assumes a roughly flat 2026 earn-in driven by Q4 blends around -1% to -2%; regional earn‑in expectations: East +40–70 bps, West +50–80 bps, Sunbelt -120–150 bps; near‑term figures remain in flux over the next ~60 days.

• Question from Sanketkumar Agrawal (Evercore ISI): What's driving variability within renewal rate growth quarter‑to‑quarter versus peers, and will this normalize?
  Response: Variability stems from differing regional dynamics—consumer sentiment, job trends, immigration policy and elevated Sunbelt supply; expect short‑term weakness and an occupancy‑first, property‑level response to maximize total revenue.

• Question from James Feldman (Wells Fargo Securities): UDR appears weaker on some lease metrics versus peers — is something unique to the portfolio?
  Response: On a total‑revenue, head‑to‑head basis UDR is competitive; weaker blends are concentrated in Sunbelt lease‑up markets while coastal markets remain strong; blends definitions vary, so focus remains on total revenue and maintaining occupancy.

• Question from Richard Hightower (Barclays): With board and management changes, what should we expect re: succession and bench depth?
  Response: Board refreshment is ongoing (added Rick Clark); management succession plans are maintained at the board level; finance and operating teams are experienced and viewed as deep and cycle‑tested.

• Question from Jana Galan (BofA Securities): Where are the most compelling capital allocation opportunities going forward?
  Response: Capital allocation is collaborative and leverage‑neutral; top priorities are operations, NOI‑enhancing CapEx and redevelopment; share buybacks have become a higher priority; funding via DPE paybacks, JV contributions and dispositions.

• Question from Austin Wurschmidt (KeyBanc): Is the softening in D.C. and Boston temporary/seasonal or likely to persist into 2026?
  Response: D.C. and Boston show some deceleration but remain high occupancy (~96–96.7%); suburban submarkets outperform urban cores; current softening seen as monitorable and partly temporary with active resident outreach underway.

• Question from Ami Probandt (UBS): Why did you realign fourth‑quarter lease expirations out of Q4 and is analytics indicating this will persist?
  Response: Lease realignment was tactical to address peak supply and seasonality (moved ~5% of expirations out of Q4 overall, ~7–8% in the Sunbelt) to protect occupancy and position for better pricing once supply pressure eases.

• Question from Adam Kramer (Morgan Stanley): What concessions are you offering across the portfolio and in the Sunbelt?
  Response: Portfolio‑wide concessions average ~1.5 weeks (up from ~0.7–1 week three months ago); elevated pressure in Texas, Florida, D.C., L.A. and parts of Seattle; markets like Baltimore, Boston, Nashville, Orange County and San Francisco remain under 1 week.

• Question from John Pawlowski (Green Street Advisors): What's the underwritten year‑1 NOI yield on the Northern Virginia acquisition and expected margin lift from adjacency?
  Response: Underwritten year‑1 NOI yield is about mid‑5%; adjacency to an existing asset and operational initiatives are expected to drive roughly 500 bps of margin expansion over 3–4 years (targeting ~85% margins).

• Question from Alexander Goldfarb (Piper Sandler): Could retention reverse as jobs/layoffs impact residents?
  Response: Not currently a major concern—turnover is down ~600 bps since early 2023 due to the customer experience program and ~30,000 additional proactive touchpoints; management expects turnover to remain lower year‑over‑year and sees continued benefit from improved reviews.

• Question from Julien Blouin (Goldman Sachs): Where does the LaSalle JV rank in capital allocation priorities given recent JV deployment issues?
  Response: LaSalle JV remains a high priority; working on balance‑sheet contributions to the JV to earn fees and deploy incremental buying power (~>$500M); expect further updates.

• Question from John Kim (BMO Capital Markets): Update on Columbus Square marketing and market strategy—why increase D.C. exposure while lowering New York exposure?
  Response: Columbus Square: JV partner is marketing its stake; UDR is not buying or altering its ownership and will continue to manage the venture; strategy emphasizes asset‑level recycling (individual asset buys/sells) rather than broad market shifts.

• Question from Alex Kim (Zelman & Associates): Can you detail other income growth contribution and any realized benefits from the funnel?
  Response: Other income (~11.5% of revenue) grew ~8.5% in the quarter (parking +11% ≈ $1.3M; Wi‑Fi +63% ≈ $1.5M; package lockers/pets up); the funnel provides operational transparency enabling quicker, data‑driven actions that reduce turnover.

Contradiction Point 1

Rent Growth Expectations for 2026

It involves differing expectations for rent growth in 2026, which is a critical factor for revenue projections and investor expectations.

How is the flat earn-in assumption for 2026 based on year-to-date rent growth, and what does the fourth quarter guidance assume? - Nicholas Joseph (Citigroup Inc., Research Division)

2025Q3: We've seen strong performance through the first 9 months. We're expecting a relatively flat earn-in for '26 if blends are around negative 1%. - Michael Lacy(COO)

Can you explain the blended lease assumption for the second half of the year? What factors support your confidence in achieving rent growth despite the weak fourth quarter? - Nicholas Gregory Joseph (Citigroup Inc.)

2025Q2: We expect to achieve the rent growth that we've guided for the year despite a moderation in market rents and renewal rate expectations compared to prior periods. - Michael Lacy(COO)

Contradiction Point 2

Challenges in the Sunbelt

It highlights differing perspectives on the challenges faced in the Sunbelt region, which can impact revenue growth and operational strategies.

Why has UDR had weaker occupancy and renewal rates compared to peers? - James Feldman (Wells Fargo Securities, LLC, Research Division)

2025Q3: The Sunbelt has continued to feel pressure from supply and pricing dynamics. - Michael Lacy(COO)

Can you elaborate on the fundamental market dynamics impacting the Sunbelt region? - Stacy Rasgon (Bernstein Research)

2025Q2: Occupancy remains strong, 96.5%. Sunbelt was at 96.2% in the second quarter, and the East Coast at 97.2%. - Michael Lacy(COO)

Contradiction Point 3

Strategic Acquisitions and Asset Sales

It involves changes in strategic decisions regarding acquisitions and asset sales, which can impact financial performance and market positioning.

Why are you increasing exposure to D.C. and reducing it in New York, and what's the status of Columbus Square? - John Kim (BMO Capital Markets Equity Research)

2025Q3: We continue to selectively evaluate potential acquisitions, recycling assets like Fairmount and sale-leasebacks, and pursuing strategic development opportunities. - Tom Toomey(CEO)

Can you provide an update on asset recycling and dispositions? - Stacy Rasgon (Bernstein Research)

2025Q2: We continue to focus on recycling individual assets, not necessarily overall markets. The recent D.C. acquisition aligns with our strategic focus on high-quality urban and suburban assets in targeted markets. - Tom Toomey(CEO)

Contradiction Point 4

Occupancy and Renewal Rates

It highlights differing perspectives on occupancy and renewal rates, which are crucial metrics for assessing a company's performance and growth potential.

How is the flat earn-in assumption for '26 based on year-to-date rent growth, and what assumptions are in the Q4 guidance? - Nicholas Joseph (Citigroup Inc., Research Division)

2025Q3: We are seeing strength across the portfolio, with March quarters occupancy in excess of 97%. Here, the renewal spread held in just over 2%. - Mike Lacy(COO)

What made you comfortable with the San Francisco recap deal despite recent DPE deal issues? - Ami Probandt (UBS Investment Bank, Research Division)

2025Q1: Occupancy is nearly 97%, and blends are in the mid-2% range. - Mike Lacy(COO)

Contradiction Point 5

Renewal Rate Growth Expectations

It involves differing expectations for renewal rate growth, which is crucial for understanding the company's revenue and occupancy strategies.

What is causing the variability in quarter-over-quarter renewal rate growth, and will this normalize moving forward? - Sanketkumar Agrawal (Evercore ISI Institutional Equities, Research Division)

2025Q3: Mike Lacy: Challenges include consumer sentiment, employment, immigration, and supply in Sunbelt. Expect some weakness in the short term, but we're focusing on individual residents to maximize revenue and cash flow. - Michael Lacy(COO)

Can you provide blended rate growth by region, especially comparing the Sunbelt to other portfolios? - Nicholas Yulico (Scotiabank)

2024Q4: First and foremost, the total company expects a blended lease rate growth of 2.5%. In the Sunbelt, it's expected to be closer to 60 to 90 basis points, while the East Coast is anticipated to be around 2.5% to 3%. The West Coast is expected to be around 1.5% to 2.5%. - Michael Lacy(COO)