UDR Stock

Greetings. Welcome to UDR Third Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo, you may begin.

Thank you, and welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website at ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

When we get to the question-and-answer portion, to be respectful of everyone's time and in an attempt to complete our call within 1 hour, we will limit questions to 1 per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call to address any questions that did not get answered during the Q&A session today.

I will now turn the call over to UDR's Chairman, President and CEO, Tom Toomey.

Thank you, Trent, and welcome to UDR's Third Quarter 2026 Conference Call. Presenting on the call with me today are Chief Operating Officer, Mike Lacy; Chief Financial Officer, David Bragg; and Senior Officer, Chris Van Ens, who will be available during the Q&A portion of the call.

To begin, I'm pleased to announce that our previously announced $2 billion joint venture with Apollo has closed. To use a baseball term, with this strategic partnership, UDR is hit for the cycle, a rare feat. With one transaction, we increased UDR's access to equity capital, reduced leverage, improved the asset quality of the wholly owned portfolio and drove earnings accretion. My sincere thanks go to the many UDR associates who made this a reality. Dave will provide more details in his prepared remarks.

Moving on to operations. UDR produced third quarter results that achieved the high end of our guidance expectations and led us to raise our full year same-store growth and FFOA per share guidance for the second time this year. This fall, the apartment sector has enjoyed a traditional leasing curve, a distinct improvement versus recent years. Mike will elaborate on how our data-driven capabilities, continuous innovation and disciplined execution allow UDR to capitalize on the apartment operating landscape.

Next, I'd like to welcome Scott McCallum to UDR as Chief Investment Officer. Scott joins us later this week and brings a wealth of investment experience and strategic insight and will work with us to further enhance UDR's access to capital and capital allocation acumen.

Additionally, last night, we published our eighth annual corporate responsibility report, detailing the efforts that led to UDR's recognition as a top workplace winner in the real estate industry for third consecutive year. I'm proud of all we have accomplished, and I look forward to sharing more successes in the years to come.

In conclusion, we are pleased with our year-to-date results across all 3 value creators, those being operational excellence, data-driven capital allocation and access to capital. As we look forward, we plan for more of the same, supported by our stronger balance sheet and team.

And with that, let me turn it over to Mike.

Thanks, Tom. Today, I'll cover our third quarter same-store results. Our increased full year 2026 same-store growth guidance, including underlying assumptions and recent operating trends as well as our strategic positioning. My prepared comments will focus on our same-store pool after the removal of the communities contributed to the Apollo joint venture. With that, third quarter results reflected better late quarter leasing trends as compared to recent years. Specific to the quarter, year-over-year same-store revenue growth of 1.8% was driven by 2% blended lease rate growth, which was similar to the second quarter, robust year-over-year innovation income growth of approximately 7%, healthy occupancy in the mid-96% range and delinquency of around 60 basis points, which is down 50 basis points year-over-year, reflective of our AI and data-enhanced approach to attract and retain creditworthy residents.

Additionally, resident retention of 52% represented an all-time third quarter high and was 370 basis points above the prior year period. Fewer move-outs supported blended lease growth and occupancy and kept same-store expense growth in check at only 2.2%. Beyond these revenue drivers, our third quarter rent-to-income ratio of 21% for new residents compares to the historical average of 23% and is reflective of the appeal of our communities to high-quality residents.

With these results, we have raised our full year 2026 same-store growth guidance for the second time this year. Same-store revenue growth was raised by 22.5 basis points at the midpoint to a new range of positive 1.4% to 1.8%. Improved revenue growth guidance reflects both year-to-date outperformance as well as higher quality portfolio after removing the apartment communities contributed to the Apollo partnership from our same-store pool. Recall that a year ago, we actively shifted approximately 25% of our fourth quarter lease expirations into higher demand leasing months. This strategic shift is paying off as compared to 2024 and 2025, we have experienced a stronger seasonal trend from the third quarter to the fourth quarter thus far this year with renewal rate growth expected to be higher in the fourth quarter than the third quarter. Accordingly, we expect fourth quarter blended lease rate growth to be in the range of 1.5% to 2%, which is consistent with the range we have achieved each quarter this year.

Moving on to same-store expense growth. We reduced our full year guidance midpoint by 35 basis points to 2.9% with a range of 2.7% to 3.1%. This was driven by constrained growth across repairs and maintenance, administrative and marketing, real estate taxes and insurance. Combining our improved revenue and expense growth guidance, we increased our same-store NOI growth guidance by 37.5 basis points at the midpoint to a range of positive 0.8% to 1.2%.

Looking ahead, the building blocks for 2027 same-store growth are coming into focus. Based on our team's strong execution that drove our revised outlook and our expectations for fourth quarter blended lease rate growth, we expect a 2027 same-store revenue earn-in of 80 to 100 basis points, which compares favorably to our 2026 earn-in of 0 basis points. Actual earn-in will depend on our results through the rest of the year, and we will provide 2027 guidance in February.

Turning to regional performance. Third quarter results were again led by our coastal markets, which delivered blended lease rate growth of approximately 3% on average as compared to negative 1.5% in the Sunbelt. More specifically, on the West Coast, San Francisco remains a standout market with the strongest revenue growth across our portfolio at 9%, driven by blended lease rate growth of approximately 13% and occupancy above 97%. Orange County, where we have a unique overweight exposure, also delivered attractive results with blended lease rate growth and same-store revenue growth of 3%.

New York and Philadelphia continue to lead the East Coast with weighted average same-store revenue growth of approximately 5%, driven by blended lease rate growth of 4.5% and occupancy above 97%. Dallas remained our strongest Sunbelt market, exhibiting positive revenue growth during the quarter. Despite continued new lease rate growth weakness, Austin showed strong positive momentum and was our only Sunbelt market to deliver positive year-over-year NOI growth for the quarter.

To conclude, we delivered third quarter results that exceeded our expectations and drove our full year guidance raise. Our ability to leverage real-time data to tactically adjust operation strategies continues to drive resident satisfaction and cash flow growth. Our teams across the country have delivered strong results, and I'm confident we will continue to innovate, expand operating margin and create memorable UDR resident experiences.

I'll now turn over the call to Dave.

Thank you, Mike. The topics I will cover today include our third quarter financial results and fourth quarter guidance, recent transactions and capital markets activity and a balance sheet and liquidity update. To begin, we produced third quarter FFO as adjusted per share of $0.65, which is at the high end of our previously provided guidance range. The $0.01 per share sequential increase was driven primarily by accretion from investment activity, including prior share repurchases and lower G&A. As year-to-date results have exceeded our prior midpoint expectations, we have raised full year 2026 FFOA guidance by $0.02 per share at the midpoint to $2.55. Looking ahead to the fourth quarter, our FFOA per share guidance range is $0.63 to $0.65. The $0.64 midpoint contemplates the operating environment that Mike discussed. The Apollo transaction, while accretive to 2027 FFOA is neutral to the fourth quarter due to the timing with which we will deploy the proceeds.

Next, capital allocation. This year has seen us take action on several fronts with the goals of derisking the enterprise, improving asset quality and enhancing the earnings outlook. My thanks to the finance, investment, legal and operations teams as we have executed on nearly $4 billion of year-to-date activity across acquisitions, dispositions, joint ventures and share repurchases.

Most recently, we announced our $2 billion strategic partnership with Apollo. UDR contributed 19 apartment communities totaling more than 7,000 apartment homes to this new joint venture. The average age of the communities is 39 years, which compares to 26 for our wholly owned portfolio and monthly revenue per home of $2,058 compares to $2,772 for the wholly owned portfolio. The Apollo portfolio is approximately 60% Sunbelt and 40% coastal with top markets, including Florida at 44%, California at 13% and Massachusetts at 13%. The portfolio was valued at a 6% cap rate.

In exchange for a 2/3 share in this portfolio, UDR received $1.34 billion of equity capital and retained a 1/3 interest in the venture. This transaction received permanent equity treatment from S&P and Moody's. We will continue to operate and manage the portfolio for an asset management fee. There are 2 important features of the joint venture that provide UDR optionality over time. First, we can substitute assets in and out of the venture in an effort to maximize the performance of our wholly owned portfolio. The rent growth outlook from our proprietary predictive analytics tool, Orion, will play a role in those decisions. And second, we have an option but not an obligation to repurchase Apollo's 2/3 interest in the venture at a 7.0% capped IRR to Apollo starting in year 5.

Next, as it relates to the redeployment of proceeds, approximately 1/3 of the $1.3 billion has been directed towards debt reduction. With the Apollo partnership in sight, we chose not to refinance a $300 million unsecured note maturity in September that would price around 6% today. The remaining 2/3 of the Apollo proceeds will fund wholly owned acquisitions and share buybacks. Post deployment of Apollo proceeds, debt-to-EBITDA will settle in the low 5x range, down from mid-5s at the end of the third quarter. We are equipped with a fortified balance sheet at a moment of capital markets volatility. The earnings accretion from this transaction is subject to our deployment execution, and we will provide details next quarter post deployment in conjunction with 2027 guidance.

Outside of our Apollo-related activities, we completed various additional transactions and capital markets activities during the third quarter and into the fourth. First, we completed the sale of 2 apartment communities and are under contract to sell a third for a total gross proceeds of approximately $250 million. This will result in 2026 wholly owned disposition activity of approximately $700 million at a mid-5% buyer cap rate. We selected these assets for sale based on the same criteria that we focus on when investing. With great attention to property level characteristics, these 8 dispositions comprise a wide range of markets but share commonalities of elevated CapEx profiles, margins that were optimized on our operational platform and relatively lower forecasted rent growth per Orion.

These apartment communities on average are 35 years old and have average monthly rents nearly $900 below that of our wholly owned portfolio, and they're expected to produce annual rent growth 100 basis points below the national average per Orion. Our operations team views them as maxed out in terms of margin potential. So their removal and the subsequent investment into our shares or acquisitions enhances the long-term cash flow growth prospects of the enterprise.

Next, we continue to execute on the previously announced strategic decision to run off our debt and preferred equity book or DPE. We utilized a portion of the disposition proceeds in a 1031 transaction to acquire a recently constructed lease-up property in the Inland Empire, California that was formerly part of the DPE portfolio. As an indication of the operational opportunity we see, under UDR's watch, the lease-up has accelerated to a rate of 30 homes per month. Additionally, we entered into an agreement with the same DPE partner to acquire a second lease-up apartment property also in the Inland Empire, and we anticipate that this one will close in the first half of 2027.

With these 2 transactions, in addition to our previously reported acquisition of a former DPE investment in Portland, Oregon at the beginning of the third quarter and a successful DPE repayment on an investment in Orlando, Florida, we are on track for our previously suggested DPE balance of approximately $250 million at the end of this year. The book will then decline to the low $200 million range in the first half of 2027. At that time, the DPE portfolio will consist only of stabilized assets and property level cash flow will allow for more than 2/3 of our contractual return to be paid current in cash.

Next, share buybacks. Apartment REIT stocks continue to trade at an unusually wide discount to private market apartment pricing. Since quarter end, we have acted upon this by repurchasing approximately 5.2 million shares for $185 million and at an average price of $35.48 per share. This brings total repurchase activity since September of last year to 16.7 million shares for approximately $603 million at an average price of $36.06 per share, equating to a mid-6% implied cap rate. Following this activity, we have approximately 20.3 million shares remaining on our repurchase program, which we expanded earlier this year.

Lastly, we grew our joint venture with LaSalle to approximately $958 million by contributing a 360-home apartment community in Nashville, Tennessee to the venture while simultaneously placing debt on both the newly contributed community and an existing community in the venture. As a result, this transaction brought approximately $103 million in proceeds to UDR.

Considering our year-to-date activity, we have updated our full year capital sources and uses guidance, the details of which are provided in our supplemental financial information. It is important to note that we do not guide to share repurchases, which we evaluate and execute on an opportunistic basis.

In all, our capital allocation and balance sheet management strategies remain rooted in our data-driven and collaborative process that drives long-term cash flow per share accretion. This includes our Orion analytics platform, our perspective on operating upside potential and CapEx and the ability to leverage our dynamic capital allocation heat maps to inform sources and uses of capital. And by expanding our access to capital, our investment-grade balance sheet remains highly liquid and fully capable of funding our capital needs.

With that, I will open up the call for Q&A. Operator?

[Operator Instructions] Our first question is from Eric Wolfe with Citibank.

Could you just talk through the fourth quarter trends that you're seeing thus far in terms of rent growth and occupancy? And as you look out to next year, do you think we need to see material better job growth for rent growth to accelerate from here? Or is the sort of lower supply, the very high retention that you're seeing enough to see that acceleration into next year?

Eric, it's Mike. Yes, I'd say, first, I want to start with, we're really pleased with our third quarter results and the strength has maintained into the fourth quarter. And so without getting into monthly ins and outs, I mentioned in my prepared remarks, we do expect 1.5% to 2% blend in the fourth quarter. And I feel good about it, and I'll tell you why there's a few stats that I'd like to point out. I think first, it starts with our strategy to lower our exposure during the weaker demand months, and we're now right around 15% of our leases expiring in the fourth quarter. So a strong backdrop as it relates to lease expirations.

Second to that, what I've noticed over the last 60 days is our market rent has actually increased by about 50 basis points and that compares to be down about 300 basis points the prior year. So again, much different backdrop as it relates to market rents today. And then the third thing that this is kind of translated into is we've got a loss to lease today, right around 2%, and that compares to a gain to lease last year of positive 2%. That's boding well for not negotiating on renewals. As I've mentioned previously, we did send out renewals higher into the fourth quarter. So we do expect that, that's going to allow us to drive our rents as well. And ultimately, this is leading to that earn-in of about 80 to 100 basis points this year. That compares to 0 last year and pretty significantly better than what we've experienced the last few years. So a much different backdrop, a lot of good positive signs.

And maybe the last thing I'd point out is, as we typically see going from the third quarter to the fourth quarter, blends usually drop approximately 200 basis points. Last year, they actually dropped nearly 300. If we hold in that 1.5% to 2% range as we expect, we're going to be in pretty good shape as we go into next year. And that's all while holding occupancy probably in that 96.5% to 96.7% range. So healthy occupancy as well.

And this is Dave, following up with a macro perspective on your 2027 question. And we'll follow up in February and provide guidance. What I'd leave you with for now is, no, we don't need material job growth improvement from here for rent growth to accelerate in 2027 based on how we see the landscape. As we look into 2027, we see an incrementally favorable supply outlook. We see sustained high homeownership costs, and we see residents continuing to stay in place, both for cyclical and structural reasons. So that will allow the rent growth outlook to skew disproportionately towards renewals away from new move-ins as has already been the case.

Our next question is from Jana Galan with Bank of America.

Congrats on the quarter. With about $900 million earmarked for acquisitions or share buybacks, could you talk about the opportunities in the transaction market and any variance in cap rates across your geographies?

Sure. Thank you for that question. And we are really intrigued by the opportunity to have capital to deploy here. The Apollo transaction closed last week. That leaves us with ample capital to work with. You alluded to a $900 million number for acquisitions and buybacks. I think that you're accurately capturing the first thing that we're doing, which is paying down debt. So think about that as about 1/3 of the uses of capital. And from there, we'll follow the heat maps and see what the opportunities bring us. You saw in our press release that even since we announced the Apollo transaction, we've bought back $185 million of shares. That has been consistent with the playbook we've been operating with since last September in terms of selling assets and buying back stock. That said, we're intrigued by the transaction market as well and might pick our spots.

What we're seeing over the last 60 days is that volume has declined. There's a wider bid-ask spread as buyers and sellers adjust to what is perceived as a new regime in terms of higher interest rates. As a result, where we have observed trades, cap rates are up and pricing is down. Every trade that's on the market, more or less right now is receiving an ask of a retrade. Some sellers do capitulate. And when they do, we're seeing pricing off in the 3% to 5% range, and that varies a bit by market and asset quality. And in other cases, sellers are pulling back and hoping for a better day.

Our next question is from Steve Sakwa with Evercore ISI.

I know you've got sort of Scott joining soon as CIO. But given the, I guess, the large discount to NAV, how should we just sort of think about kind of the capital allocation moving forward? Should it be kind of more of the same kind of these large joint ventures? Or do you think it's more kind of one-off asset sales into next year with additional share buybacks?

Steve, it's Dave. We're really excited for Scott to join. He'll be with us starting this week. He brings with him a wealth of experience as it relates to multifamily transactions. And so the marriage of that experience with our data-driven capabilities around investing are exciting for the team here. So no change as it relates to the focus on capital deployment. We'll continue to find -- follow the heat map. And to the extent that we just get better in terms of asset selection and finding opportunities out there on the market, that will be terrific.

Our next question is from Jamie Feldman with Wells Fargo.

I appreciate some of the color you gave before on specific markets, including Austin's pickup. As you think about the Sunbelt markets, can you talk us through which you think have bottomed and which you think have a ways to go?

Yes, Jamie, I'll jump on that, give you a little bit of color kind of how we're seeing it today. I think first, it's important just to kind of size Sunbelt for us, and then I can take a step back and give you a little bit more detail. But we're right around 20% of our NOI coming out of the Sunbelt. And what we saw during the quarter was negative 1.5% blends compared to negative 2% in the second quarter. So starting to see a little momentum. I've been talking about that for the past couple of months now. Still have a ways to go. And I think for us, specifically around Dallas, we've said that, that's been an outperformer all year long. That's nearly 10% of our NOI. So a lot of our Sunbelt exposure comes from Dallas. And we've experienced right around negative 1% blends for the last 2 quarters now, and we continue to see some positive momentum coming out of that part of the country.

I'd say specific to Austin, I think it's good to remind everybody, it's only 2% of our NOI. We're really in that Cedar Park area. Still dealing with a little bit of supply, but we have seen the most momentum coming from Austin in terms of blends on a quarter-over-quarter basis, going from negative 5% back in the second quarter, and we're close to around negative 1%, negative 2% today. And so you can see that rate of change is starting to pick up. We think that there's opportunity as we go into next year, just given what we're seeing with supply coming down in Texas.

And then Florida for us, it's less than 10% of our NOI at this point, mainly in Tampa compared to Orlando, given some of the properties we just put into the Apollo joint venture are coming from Orlando part of the country. And I'm seeing right around negative 1% blends in Florida today. That's far better than what we saw at the beginning of the year. And I'd say specific to occupancy in the Sunbelt, right around 97% today. So we feel like we have a good positioning just in terms of occupancy, lower lease expirations in the fourth quarter. We're going to try to lean in and see if we can't push rents a little bit as we go into next year. So we'll see when that inflection happens, but we do feel better today about the Sunbelt than we have in a while.

Our next question is from Adam Kramer with Morgan Stanley.

This is Derrick Metzler on for Adam. I believe you said in your opening remarks that you would give an update on the Apollo transaction accretion next quarter after the remaining proceeds are deployed. So I just want to confirm the timing that you expect to deploy the remaining proceeds in 4Q. And if I can add a part 2, can you share the contractual asset management fee percentage on Apollo's invested capital? And how should we account for the incremental fee economics in FFOA?

Okay. Great questions. I'll go a little bit out of order here. The asset management fee, you can think about that as about 1.3% on Apollo's equity contributed of $1.34 billion. As it relates to use of proceeds, we can tell you what we've done so far and provide some broad strokes in terms of what to expect going forward.

First of all, we paid down the line to $0. Typically, it's around $400 million. We're sitting on cash of about $400. We did not do a debt deal in September when we had a maturity of about $300 million. And then we've done buybacks of about $185 million. So that adds you up to approximately $1.3 billion in terms of the cash that came in the door last week.

As it relates to some math around the accretion that you could keep in mind, you have a $2 billion portfolio contributed at a 6% cap rate. So that's about $120 million of NOI. 2/3 of that goes to Apollo, that's $80 million. You have the management fee that I just mentioned. The reinvestment plan will be determined as we execute over the coming months. If you want to simplistically think about it in terms of 1/3, 1/3, 1/3, you could. You could think about debt repay down -- debt paydown of about 6% on the $300 million unsecured deal that we did not do, 4% payoff of a bit of the line. Then you have the acquisition market where pricing is moving in our direction, and we'll see what that brings. And then you have the share buyback.

So ultimately, this will be a consolidated joint venture. You will deduct Apollo's noncontrolling interest on an HLBV basis to arrive at our results, and that management fee will be eliminated in consolidation and show up as a lower noncontrolling interest deduction. And then lastly, we'd add back the proportionate share of depreciation to FFO. So hopefully, that's helpful in terms of management fee, use of proceeds, potential FFO impact, and we'll circle up with you in February after we've made progress on deployment.

Our next question is from Ami Probandt with UBS.

You maintained your blended spread guide despite removing the Apollo assets and that having a positive impact on blends in the second quarter -- or in the third quarter, sorry. Does that suggest that you're now expecting a softer 4Q than you were previously expecting? Or does that give you some cushion given some uncertainty in the macro?

No, I think originally, we had the 1.5% to 2% blends for the back half of the year. We did come in at 2% during the third quarter. We're still sticking to that 1.5% to 2% in the fourth quarter. We'll see how it transpires over the next, call it, 45 to 60 days. But like I mentioned in one of the previous questions, we feel really good about the backdrop just in terms of loss to lease, market rents and what we're sending out renewals. Just want to see how it kind of shakes out over the next month or 2.

Brad, your line is live.

Mike, you talked about all those really positive and counter seasonal trends that you've been seeing over the past few months. I guess what do you think is driving that? And is it broad-based? Or is it just driven by a few strong markets?

I think it's a few things. I think, obviously, you go around the horn and just go market by market and there's different dynamics. But overall, the supply coming down is definitely helping out. And so that's more of a macro piece of it that's helping us. But I think specific to what we're doing here at UDR, it comes down to a couple of things. I think first and foremost, it's pushing our rents in a period of time where we do have less exposure. I think that's a difference maker for us versus others. And so it allows us to get a little bit more aggressive. And I think you've been able to see that with some of the third-party data just in terms of market rents. We've kind of changed that trajectory over the last 4 to 6 weeks, and that allows us to limit how much we're negotiating on renewals. So send out higher renewals ideally don't have to negotiate on much of it. That's stickier. That's allowing us to drive our blends into a weaker period of demand, if you will.

And then aside from that, it's just the things that we're doing with the customer experience. I mean you can see again in this quarter, we were down another 300 to 350 basis points in turnover on a year-over-year basis. So we're doing something different than everybody else. It's allowing us to just need less leases, if you will, drive our rents all while maintaining a pretty high occupancy in that 96.5% to 96.7% range. So some of it's market, some of it's region. I think a lot of it has to do with what UDR is doing specifically.

Our next question is from Julien Blouin with Goldman Sachs.

Just on the Apollo JV, I was wondering if you don't exercise your option to repurchase the properties in year 5, does Apollo retain the option to force a sale and realize their 7% IRR?

Julien, thanks for the question. That's a topic that I'm going to get to. I want to just really go back to Tom's opening comments. They captured the benefits of the Apollo partnership so well and your question pertains to just one piece of it. First, we're able to access equity capital. It's attractive valuation for the assets that we contributed. We received equity treatment from Moody's and S&P. We've already strengthened the balance sheet at an opportune moment in the debt capital markets, and we're out there looking to play offense at a moment when asset pricing is attractive, both in the private market and as it relates to our shares. All of this can very importantly be done in a tax-efficient manner, which is particularly appealing about this transaction. And then we can add value during the life of the JV a couple of ways.

One is through the substitution opportunity. We can look at an asset in the JV and have a perspective perhaps from Orion about potential outperformance, and we can pull that back on to the wholly owned book. And then at the end -- not at the end, but during the year 5 to 10 window, there's a call option. And we are pleased to announce last night that the IRR has been set at 7.0%. And then that includes step-ups of 30 basis points at year 7 and another 30 basis points at year 9. So that gets you to a capped IRR for Apollo at a maximum of 7.6%. Buyers today of multifamily tend to underwrite 8% to 9% unlevered IRRs. We will enjoy all of the upside in terms of the value creation above Apollo's capped IRR. And then all of this, including asset management fee, allows it to be accretive to earnings.

So I talked about the call window that we have. And then beyond the call window, you get to year 10. After the call option expires, either party can choose to sell their interest with ROFO rights for the other party or the partners can agree to liquidate the JV. Either way, the return that both parties received is based on the market value of the assets at that time on a pro rata basis.

Our next question is from Rich Hightower with Barclays.

Just a follow-up on the last question. So in the hypothetical scenario where performance of the assets in sort of the, I guess, the moving -- always moving bucket of potential assets to go in it, if performance ever falters, what obligation does UDR have to make Apollo whole in terms of its IRR? And what would that -- what's the range of possible downside from a capital perspective or something else maybe we should be thinking of there?

Yes. This is Dave. I'll start and other team members might want to contribute. But Apollo has no put rights. So they have no right to convert into UDR equity. The 7.0% return, it's a target. It's not a guarantee. It's not a floor. They do have risk. That's part of the reason that this received equity treatment. And Apollo cannot compel UDR to provide a specific return. So if UDR does elect to exercise its call option and the conditions are favorable, Apollo may achieve the targeted return, but it's not assured. Then I would just add that there's no forced redemption scenarios that are outside of UDR's control.

Our next question is from Wes Golladay with Baird.

Looking at your acquisition platform, are there any markets really standing out on the platform? Or are the deals more likely to screen, hey, this is a good deal at the asset level or submarket level?

This is Dave. So it's really a bottom-up process, and it might be different than others view investing across apartments. But for each investment opportunity, first of all, we look at the heat map and see what the risk-adjusted return is on the use of capital. But then we look at 3 top criteria that are very much so asset level based, not market level based. You have the predictive analytics outlook for rent growth. What's this asset going to do in terms of rent growth relative to the national average over the course of the next 6 years? Second, what's the operating upside potential? And we just have story after story of an asset that we bought or brought on to the platform where Mike and team have been able to drive margins significantly higher. And then lastly, we're mindful of CapEx and directionally look for assets that require less CapEx than those that we have sold.

So as we think about investing, we approach it with that criteria in mind more so than a market level decision. The same thing applies to dispositions. We've sold 7 assets so far this year with [ one ] under contract. I'm pleased to report that the timing was very fortuitous. All 7 of those sales occurred before interest rates moved up. And those follow the same playbook. What we've sold tends to have a lower outlook for rent growth per Orion, the predictive analytics tool requires more CapEx and the operating team feels as though we've squeezed the juice out of them from a margin perspective.

Wes, this is Toomey. I'd just add, we're all entering this window with AI enabling our enterprises. And this is where I would congratulate the team. I mean we started on Orion, we had called it a lot of different things years ago, about 6 years ago and compiling data with respect to and back testing it over 25 years to really find the formula to identify assets. And that's the power of AI and our past data and our experiences to create predictive models towards the future. It's not 100% certain, but it sure narrows the risk bandwidth and creates that opportunity. I think businesses in the future that are able to demonstrate large data sets that are accurate, processing them to achieve higher cash flows are going to be winning formulas. And we're not market-oriented. We're asset-oriented in our decision-making. And I think that will lead to long-term outperformance.

Our next question is from Peter Abramowitz with Deutsche Bank.

You covered a lot today, but I just wanted to ask about Seattle. I'm curious how things feel on the ground there. I know there's kind of been a lot of conversation about AI job formation down in the Bay Area and kind of when it makes its way up the coast. Just curious if you could comment your latest thoughts on Seattle and just how demand feels on the ground.

Yes. I appreciate the question. I'll tell you how I'm looking at Seattle right now. It's really broken down a couple of ways. You look at the East side, we definitely do have some AI jobs that are helping with demand over there. And then I'd say more specific to the Pacific Northwest, aerospace hiring has anchored demand. So that's helped us to some degree as well. And then in addition to the demand side, relatively low supply across Seattle has helped out quite a bit for us. All that being said, blends are not what we're seeing down in San Francisco, right? We're seeing close to, call it, 12% to 13% blends in San Francisco. I'd tell you, Seattle is probably closer to 1% to 2%, but occupancy is still in the mid-96s. And I'm seeing probably more strength coming out of places like the U District, Renton and then Bellevue. But overall, Seattle is hanging in there.

Our next question is from Haendel St. Juste with Mizuho Securities.

My question was a bit of -- I guess, a bit of a follow-up to the last question from Peter there. Mike, the West Coast has been stronger in the last couple of years. San Francisco obviously has come rolling back. Seattle showed some improvement. But I'm curious if the pendulum could be shifting back to the East Coast as we think about '27. So I'm curious if you could share some color on the setup for your East Coast markets, New York City, Philly, D.C. and Boston, how that compares to San Francisco, Seattle and SoCal?

Yes, it's a really good question, Haendel. I'd tell you, there's a few ways to look at it. And I think maybe just sticking with the West Coast because I gave a little color on Seattle. I think it's important to really look at a place like San Francisco. And I mentioned, call it, 13% blends over the last couple of quarters. What I look at more right now is the continuation of low rent-to-income ratios. So we're still in that low 20% range, still have some room to grow there. There's still low supply coming for the foreseeable future. And the fact that we've been capped on some of our renewals there, we think we have another hit at it as we go into next year, just given what we see for loss to lease.

So I think San Francisco, obviously, they're going to have the highest earn-in for next year. So a really strong building block, if you will. But I still think they have a lot of room to grow, all else being equal, given what we're seeing with supply, demand and just people returning to office. And so I think San Francisco will still be the anchor for us out west.

And then when you kind of jump over to the East Coast, New York has been the anchor all year long. I think it's going to continue to do well as we go into next year. And I'd say to kind of frame it, I look at it in terms of earn-in again. They're going to have the second strongest earn-in across our portfolio as we go into next year. We're still seeing blends of plus or minus 4% to 5% even in kind of that lower demand period of time. We do have a little bit of supply just with conversions down in Manhattan, but it really hasn't impacted us to date, and we think that we're going to continue to drive rents out there.

So I think there's some pretty big anchors, both West Coast, East Coast, it all comes back to that earn-in and that starting point, if you will. We're going through our budget process right now. We'll assess kind of what we think we can get for rents, and that will be the other building block. And then I think what you've seen from us for years now is continued growth on that other income line. Quite frankly, you look at last year, we were growing other income by 9%. This year, it's growing this quarter alone by 7%. You're probably looking at mid-single digits as we go into next year again. So another strong building block, if you will, just based on us driving initiatives, getting the teams engaged and really producing that outsized revenue growth at the end of the day.

Our next question is from John Pawlowski with Green Street.

My first is a follow-up on the Apollo JV. Dave, can you give us a sense for what percentage of the property cash flow actually flows to Apollo versus UDR in the first few years of the agreement and then how it might step up in subsequent years?

John, thanks for the question. We appreciate the continued dialogue. So the return is targeted to Apollo. It's not guaranteed, and they bear the risk that growth or exit values could fall short, and they can earn up to that capped return. So that's 7% and then it steps up to 7.3% and 7.6%, respectively, at year 7 and year 9 in the call window, but only if the portfolio performs. If it underperforms, Apollo could earn less. There's no coupon, no minimum distribution, no UDR guarantee.

As it relates to distributable cash flow, it's pro rata. It tracks the headline 67-33 ownership, so there's no coupon or minimum distribution. As it relates to partners' economics, I can say that vehicles like this, they can have mechanisms allowing for incremental cash flows to Apollo. They are variable. They're based on performance. They're not guaranteed. And then as that occurs, Apollo can get close to its return along the way, allowing UDR to enjoy the value creation opportunity on the back end.

Our next question is from John Kim with BMO Capital Markets.

For the DPE assets that you acquired this quarter or about to acquire next year, can you just comment on the expected yields that you think you'll get either year 1 or on a stabilized basis? And would you characterize these investments as long-term holds given they are new assets? Or are you really just looking to optimize your initial investment and they're not really representative of your portfolio?

John, it's Dave. So 2 development projects with one partner to whom UDR provided mezz back in 2022. So we have an extensive history with these assets. We know them very well. We underwrote them, financed them and now manage them. Once we made the strategic decision to exit the DPE business and run off the book that we announced last quarter. We saw mutually beneficial resolutions with this partner on these assets because we are interested in owning them long term. So taking control allows us to own high-quality newly built communities. It allows us to reduce the DPE book, which is a strategic objective. You can see that the balance is now around $250 million. That's what we told you last quarter, we would finish the year at. So we are at the year-end level already.

We're also able to convert what was a fixed return on that investment into owned NOI with upside on our operating platform. And Mike can speak to that now that he has them in his hands. Together, these assets screen well on a couple of things that are very important to us, operating upside potential and CapEx. There's a lease-up nature here of these assets. So we're looking for them to stabilize around the 5.

Yes, Dave, if I could just add a couple of things just since we've been able to get our hands on these. I think it's good just to look at the 4 deals we've taken over the last few months. When you look at that portfolio as a whole, we are actually exceeding our underwriting by about $1 million. And a lot of that comes from beats and controllable expense savings. Dave mentioned it, but the fact that we now have more scale and efficiency in places like Portland as well as in Inland Empire, we're able to drive our cost down. That's paying dividends today. And I'd say, in addition to that, we've been able to drive our occupancy up rather quickly, and we're getting that penetration up on some of these initiatives that are driving our other income. So that's led to that $1 million beat just over the last few months.

I think specific to the deal out in Inland Empire, what we're excited about is that controllable operating margin, it's expected to be right around 85% when we get stabilized. And that's about 200 basis points better than our current existing same-store deals in that market. So there's room to try to drive some efficiencies there, obviously, get that higher rent growth helps out. And I'd say, in addition to that, just the Portland deals, we were able to quickly get in there, get SmartRent established, do our self-guided tours. It's really helped with the funnel. And so getting demand through the door, it's allowed us to keep concessions down, occupancy high, and we feel good about that market today.

Our next question is from Alex Kim with Zelman & Associates.

This one maybe is for you, Dave, but you guys have emphasized reducing exposure to assets with higher capital requirements. And following the dispositions and Apollo transaction, how should we think about kind of the normalized run rate for recurring CapEx on the retained portfolio? And after accounting for UDR's ongoing capital obligations in the JV and the newly consolidated DPE assets, how much improvement should we expect in that conversion from FFOA to AFFO?

It's a great topic, something that is a focus here. And to answer your question, I really would focus on the dispositions that we've done this year because I think they're emblematic of not just the focus on CapEx, but the focus on operating upside potential and the signal from Orion. But let's dig in on CapEx.

So for these assets, I'm counting 8 here, including the one that's under contract. Average vintage is 1981, so that's 45 years old. CapEx as share of revenue for these communities is 18%. And that compares to about 11% is a decent estimate for the remaining portfolio. CapEx can be lumpy, variable. We have a redevelopment team that is able to find opportunities and create a lot of value. So in any given quarter or year, you're going to see up and down movement in CapEx. But I would tell you that directionally, we're very focused on enhancing the quality of the portfolio in various ways. One of them is through dispositions. And as we do that and then with those proceeds, primarily, we bought back the stock or with any selective acquisitions, such as the ones that we have done this year, you're enhancing the long-term cash flow prospects for the enterprise.

Our next question is from Alexander Goldfarb with Piper Sandler.

David, a question on the Apollo, sort of a 2-parter. One, are there any restrictions on you guys doing joint ventures with other private equity firms? And then two, on the fee income side, on one hand, it seems like a nice additive to earnings. On the other hand, it could be short term, whereas NOI usually receives a higher multiple. So sort of curious how you guys think about increasing fee income versus NOI. And then the first part of the question was if there's any exclusivity of Apollo for PE or if you can do other PE JVs?

Great questions. Thank you. The first one is easy. No, no restrictions on our ability to partner with others. As it relates to fee income, we're grateful to -- for the opportunity to drive earnings growth in various ways. So you're right that over the near term, via this vehicle, there's an opportunity for fee income. But we're also utilizing the proceeds in a manner that allows us to enhance the long-term growth rate of the enterprise well beyond any presumable life of the joint venture because we are paying down debt.

We are repurchasing shares, which are generally of higher quality than what we've sold this year, and then we'll be out looking for opportunities to acquire assets that check the boxes that I walked through earlier in terms of the signal from Orion operating upside and relatively low CapEx. So this is a transaction that is accretive on day 1, but also allows us to accomplish a number of strategic objectives, which both derisk the enterprise and enhance the long-term earnings outlook.

Our next question is from Rich Anderson with Cantor Fitzgerald.

So I understand and appreciate all the flexibility and the uniqueness of the Apollo deal. And so no debate there. But UDR in the past and just more distant past was unwinding joint ventures in the name of simplifying the story. So I'm curious how you balanced all of what we're talking about here, which is taking up most -- disproportionate amount of this conference call with just the lack of -- the more complexity that it brings to the table. And there is a value and simplicity. I think we can all agree with that. I'm just curious how you thought about that broader thought as it relates to getting involved in this $2 billion deal.

Rich, I think I'll have some comments if this is to me and also ask Dave to weigh in on it. I guess this, yes, a lot of time on Apollo. I congratulate the team on a very long, thoughtful process and a very good partner who thinks about real estate much like we do. And when I think through the past and mine is a long one, you're always trying to find the right capital partner who has the same philosophy you do. So I take, for example, Met, which has been an enterprise-level relationship at 16 years and thinks very much like real estate like we do. And we have gone from a $3 billion joint venture to build up to $8 billion together and now sits right around $2.5 billion. So I think always finding capital that matches your philosophical approach and skill set and we can get an outsized return for our shareholders is part of our job, okay? The capital markets in the public space come and go, but we also have to be able to play in the private capital world with a variety of skill sets that yield returns for our shareholders that are outsized.

So I think Apollo is that next step. They think about it in a long-term view and are trying to achieve a very straightforward objective, and they've given a lot of control and options to us to help them achieve that goal. And we are rewarded for 100% of the returns above 7%. That's a pretty big incentive in this world to drive not just their return, but our performance, and they're aligned. So our shareholders benefit immensely if we're able to achieve that. And we look forward to that type of relationship. And boy, you do this long enough. I will tell you, I think I'm excited about what Apollo can achieve for us. And I don't think we're done talking to them. Dave, anything else you'd add?

Sure. Yes, Tom, I agree. The top objective is creating value for existing shareholders, and we believe that we've done that here by driving earnings growth and reducing leverage, which reduces risk. At the same time, our cost of capital in the public market is subject to the whims of the public markets. And there are days and there will be days in the future in which that cost of capital allows us to go out and grow on balance sheet and create value for shareholders, but that's not every day. But what we do find every day is that there's private capital that is attracted to what UDR has to offer. We have a top operating platform and a data-driven focus on investments. And so that's what we've heard out in the marketplace for many years going back to the JVs that you've alluded to and especially most recently. So we'll continue to look at various opportunities with that same overarching goal of maximizing value for shareholders.

Our final question is a follow-up from Ami Probandt with UBS.

I was just wondering how does it work for UDR to substitute assets into and out of the Apollo JV? Is there a minimum amount of time for an asset to remain in the JV? Kind of thinking about how that could impact comparability of different periods when we're looking at same-store trends. And then in terms of proceeds redeployment timing, you already did $185 million of share repurchases in the past about 2 weeks. So how quickly could you complete share repurchases to the extent that you wanted to allocate capital there? Could you do, say, $400 million, $500 million by the end of the year?

Thanks, Ami. As it relates to substitutions, that opportunity is solely up to UDR, and we view it as an opportunity to play offense. Let's say, for example, that our data-driven process suggests that an asset will significantly outperform over the coming years. We have the ability to go in and get that asset based on replacing the cash flow and replace it with another asset that should meet the base case plan for the joint venture. So as we do that, we'll be sure to report on that with transparency there. And that's something that we'll keep an eye on and a dialogue with you on. As it relates to share buybacks, we simply just don't provide guidance as it relates to share buybacks. We're pleased to report the activity that we've had so far, and we'll follow up with you probably at the NAREIT conference and other opportunities to comment on buyback activity.

We have one more follow-up from John Pawlowski with Green Street.

I have a clarifying question on the distribution of cash flows in the Apollo JV. So Dave, you said it will be in line. So 65% of the property level cash flow goes to Apollo, roughly 35% UDR. Where does that percentage go beyond year 10 if the JV stays outstanding?

Beyond year 10, there is a slight adjustment to the cash flows in Apollo's favor.

Yes, John, it's basically the 67-33 split right now. I believe it goes up to about 70% in year 10 to obviously support those IRR step-ups that they get in year 7 and year 9 if the call option is not exercised.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mr. Toomey for closing remarks.

First, thank you for all your time and interest and support of UDR. We'll see many of you at upcoming NAREIT in a couple of weeks. And always reach out if we can answer any questions and help you understand our business and the progress the team is making. With that, take care.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Welcome to Bank of America's 2026 Global Real Estate Conference. I'm Jana Galan, BofA's residential REIT analyst, and we're pleased to have with us UDR's Chairman, President and CEO, Tom Toomey; CFO, Dave Bragg; COO, Mike Lacy; and Investor Relations, Trent Trujillo.

I'll turn it over to Tom for opening remarks, and then we can get into Q&A.

Thanks, Jana. I appreciate that introduction, and you just knocked off the first thing on my list, which was to introduce the team. From there, I want to make sure everybody has got a presentation. If you're online, you can just look under udr.com presentation, and you'll be able to follow along should we reference that materials.

Before I begin, thanks for your time today. Appreciate it. We've got about 30 minutes together. We'll make the best use of that and convey as much information as we can in that time frame. So let me start off with kind of maybe 3 topics. A brief overview of UDR. You could see it if you already don't know, 54 years as a public company, $20 billion enterprise, S&P 500, about 60,000 apartment homes across 20 markets. So if you will, we are the remaining national apartment REIT.

Second, kind of the apartment business. I have been at it for a number of years, probably over 35. So I'm looking around the room and saying I might be one of the more senior people in the room and I have seen cycles. Where are we at? And the truth is I like where we're at. I can unequivocally say I think '27 is going to be a better year than '26 as it references to the number of markets that are growing revenue next year over this year feels good.

Second, why? Supply has finally abated. And when we build a 50-year high, it eventually gets absorbed, and we're seeing that inflection point across many of our markets and feel positive about that. And Mike would be glad to fill you in on more of those markets. Second, rent-to-income levels. I want to say they're at record lows, but they are below the norms, giving us pricing power and then feeling that we can move rents and our residents have the capability to pay those higher rents.

And then affordability, single-family ownership remains near its all-time lows, if you will, the affordability of alternative products. So we feel like those 3 drivers, coupled with what we would view as a robust economy paints a good picture for the future, if you will. So let's come to more current events, talk a little bit about second quarter, third quarter and what trends we're currently seeing.

A reminder, second quarter was a beat and raise that on a sequential basis, Mike and team produced #1 same-store revenue, expense and NOI growth on a sequential basis. That's our primary leasing season at that window of time, so very good results. Something that we are very proud of and focused on is our relative performance by market. And Mike hit 70% winning percentage. I'm hopeful that my fantasy team wins that same percentage this year, but I'll take Mike's 70% over anything else.

Second, looking towards the third quarter, it feels a lot like the same as the second, a very strong operational quarter, coupled with the bottom line that feels pretty darn good. So we'll see where we are and finish up the quarter in the next 15 days. On the capital allocation, for a number of years, we've given you what we call our heat map sources of capital, uses of capital, where do we see that? Dave can go through.

Clearly, we think the stock is very cheap at this point. And in fact, year-to-date, we've sold over $600 million of assets and purchased -- repurchased over $400 million in stock. So we think that's our current highest and best use, but Mike will go through it more -- I'm sorry, Dave will go through it more in detail. So with that, I'll stop, and we can open it up to Q&A.

Great. Thank you so much, Tom. Maybe turning it over to Mike first to kind of characterize how leasing season trended relative to his expectations, which markets maybe were a little bit better and worse. And then maybe just a little insight on how you're going to approach year-end in terms of occupancy versus rate?

Great. It's a lot there, Jana, but I appreciate it. Maybe starting with Page 11, if I could direct your attention there and give you a little bit of color on where we've been, where we're going, cover some of the regions and also get into the strategy.

Before I do so, I do want to just mention that 1.9% blend that we had in the first half of the year was about 15 basis points higher than our midpoint and about 70 basis points higher than the peer average, given the diversified portfolio, very strong numbers, feel good about where that ended up. And to Tom's point, that translated into very strong sequential numbers and it set us up for the back half of the year.

So specific to where we're at and where we're going for a recent update, still good with that 1.5% to 2% blends in the back half of the year. Expectations are we'll probably still run in that 96.5% range, still looking to drive our other income in that 5% to 7% growth, so about 3x what we've been achieving on blends. Continue to see success as it relates to bad debt. And ultimately, this is leading to higher revenue growth and cash flow, which obviously we are very focused on.

I think specific to maybe some of the markers that we're seeing out there today, we always look at current occupancy, but even more importantly, is that leading indicator of our 30-day trend. And our 30-day trend, just to kind of give you a color on that, means if nobody else came in to rent another apartment today and I didn't get any more notices, we are at 96% 30 days out, and that compares to 95.5% a year ago.

So a bit stronger fundamentals as it relates to occupancy. That's led to market rents being about where we would expect this time of year. And just to size that for you, over the last 30 days, we've seen market rents come off about 50 basis points, which think about historically, what you see typically this time of year, they usually drop between 50 to 80 basis points. Last year at this time, they dropped 200 basis points.

And a lot of that has to do with the backdrop of occupancy. You can see the fundamentals are a little bit stronger today. It's leading to, I'd say, 1 to 1.2 weeks in terms of concessions, which is a bit better than last year, a bit more normalized, if you will, coupled with lower retention, we have a lot of positive signs today compared to last year. So I feel good about kind of that guidance and where we're going. Specific to strategy, I think typically, what you've seen from UDR is running a little bit hotter in terms of occupancy in the fourth quarter, first quarter, usually in the high 96s, to even 97% -- we're looking to run, again, closer to 96.5%, continue to test the market in terms of both market rents and renewals. And in fact, we're actually sending out renewals about 50 basis points higher in the fourth quarter compared to the third quarter. We want to test the waters. We have a little bit of a different backdrop, if you will.

And just as a reminder, we actually have lowered our lease expirations in the fourth quarter to around 15%, which is typically running between 20% to 23%. So we just don't need as many leases. We've set that up to be able to try to test the waters on rents, still have a healthy occupancy and ultimately drive our earn-in as we go into next year. We want to make sure the fundamentals, the foundation is set as we go into 2027. That's how we're thinking about it, Jana.

Very interesting kind of moving around your lease expiration schedules. Is that more now in that 2Q? Or how should we think where that percentage in 4Q moved?

Yes. So we effectively moved 5% out of the fourth quarter. I would say 2% went into the second quarter and about 3% into the third quarter. So we're running just over 30% expirations in 2Q and 3Q at this point in both quarters.

Great. Maybe if we could dive a little bit into the market performance?

Yes. I would start -- let's go regions. And then if you want to go into some individual markets, I'm happy to give some color. I would tell you that there's a couple of ways to look at it. You can look at it in terms of year-over-year and then also sequential. Right now, rate of change, the sequential momentum, there's a little bit more in the Sunbelt today. And so just to size it, 2Q, we had blends of about negative 2%. 3Q, we're looking at maybe negative 1.6%, negative 1.8%. So slightly better as we go into the third quarter.

The coast is coming off a little bit. And when I say a little bit, it's almost comical when you talk about San Francisco, where you had 13% blends in the second quarter, they're still 10% or 11%. They're still very strong, but they are starting to come down a little bit. So a little bit weaker maybe on some of the coastal markets, I'd characterize it as more sustainable in the Sunbelt. And then there's puts and takes within those regions. It's not going to surprise you.

I just mentioned that San Francisco is still our strongest market in the portfolio. New York is still doing very well on the East Coast. And then when you get down to the Sunbelt, places like Florida, outperforming Texas and Nashville today. So we like to think there's some winners in every region today.

Great. And then maybe jumping over to capital allocation, your heat map framework. You increased disposition guidance and you remain active on the share buybacks. Let us know how you're currently thinking about balancing dispositions, development, acquisitions and any additional buybacks?

Thank you, Jana. Great topic for us. We transparently provide what we're thinking. It's on Page 13. It's our heat map that depicts sources and uses of capital. So in terms of sources, certainly, the prioritization has been over the last year and continues to be the dispositions. We've successfully sold over $600 million of assets, and we have more on the market that we're considering selling. We tend to put more on the market than we need to sell to provide us with optionality and remain disciplined as sellers. Disposition pricing has been favorable relative to our expectations with cap rates in the mid-5% range.

Generally speaking, we are improving the quality of the portfolio as we do this. And what I mean by that is that we have 3 key criteria that we look at as we assess dispositions, but the same holds for acquisitions, although that's much less of a focus. First, we look at the proprietary signal from Orion, our predictive analytics platform, which looks out 6 years and assesses the relative rent growth potential, very importantly at the asset level, not the submarket level or the market level is not as much of a focus. It's an asset level exercise.

And we look at the operating upside potential that Mike and team see or lack thereof in the case of dispositions, they tend to suggest they've squeezed the juice out of an asset and that helps move it higher on the list. And then finally, CapEx and our perspective on that relative to buyers. So when we sell those assets that screen inferior on all 3 of those metrics, and then go buy back stock.

And as Tom said, we've been very active as a share repurchaser. We're generating that near-term accretion, but also very importantly, the long-term cash flow growth accretion as we improve the quality of the portfolio. So that playbook has been a focus over the last year and remains so today. So I would tell you that top source is disposition, top use would be the share buyback.

And I guess because you have been so active in the market, maybe if you can kind of comment on kind of cap rates and buyer profiles and breadth and depth of operating activity?

It's a pretty diverse group in terms of the buyer profile, and it certainly ranges by the type of asset that we're selling. For example, we've sold a 10-year asset in an urban area in Denver, and we've sold an asset in suburban Tampa Bay that is more than 50 years old. So you're going to get different buyer profiles depending on the asset. But in each case, we've received a favorable response.

The average age of the assets that we've sold is about 45 years old. And the rent level tends to be about 20% or so below that of the average for our portfolio. So those are just a couple of stats for you to paint the picture of the improvement in the quality of the portfolio. But it's an asset level exercise that we've taken and the buyer cap rates have been in the mid-5% range. More recently, as rates have moved, we've seen relatively stronger pricing for assets or markets, where there's positive rent growth momentum.

And you guys have also done a little bit of acquisitions and development you found your spots. Maybe if you can kind of let us know what was attractive about those deals relative to everything else reviewed.

Absolutely. So as it relates to development, we have a narrow focus with the starts that we have announced, and it is essentially projects that are adjacent to an existing operating asset that we know very well. And so a recent example would be in Alexandria, Virginia. There is a project of roughly 400 units adjacent to one of more than 900 units. So that allows for a few things, really good visibility in terms of underwriting the rents of the asset that we're developing as well as some synergies on the expense side with our existing assets.

So what we've done there, in our view, is really mitigate the risk associated with development -- and that's what you should expect us to the extent that we do new development starts, that's the criteria that we're focused on at this time. So limited activity in terms of development. And then in terms of acquisitions, I'd point you to a couple of deals in Portland, Oregon that we were able to gather from a DPE partner a few months ago.

And those checked all the boxes that I explained as it relates to dispositions, but in reverse, meaning that they had a very favorable rent growth signal from Orion, relatively low CapEx and Mike and team were salivating at the operating opportunity to get in there and maximize the upside there. So acquisition activity has been limited. But when we do it, those are the boxes that we seek to check.

And I guess maybe just some more comments on the DPE program, the decision to maybe wind it down I don't know, if recent rate activity has changed any of that, but it did serve as kind of a good way to get kind of more market intelligence, see more deals. Just kind of curious?

Yes. It has been. Over more than a decade, it has been a successful program in that regard and that it has allowed for market intelligence, some optionality in terms of grabbing some assets, as I cited with Portland and also generating nice income. There is a cyclical consideration and a structural consideration in terms of our decision.

Cyclically, on Page 16, we want to outline it for you. UDR has remained disciplined as it relates to DPE underwriting. The market has gotten more competitive. So we found ourselves over the course of the past year, looking at opportunities with higher LTVs, lower levels of current pay and lower rates than what we thought was appropriate for our capital. And we found ourselves in investment committee decisions looking at those opportunities and then looking, for example, at the stock buyback opportunity and deciding that the latter is a superior risk-adjusted return.

And so those are -- that's a cyclical consideration. I say that because this will change eventually, right? But then there's the structural consideration, which is that we pride ourselves on our ability as an operator, and we generally don't get to operate the DPE assets. We also believe that we're in a new paradigm ourselves at UDR in terms of our ability to identify opportunities with upside from an investment perspective, utilizing Orion and the process that we outlined.

And so in the DPE business, we're capped in terms of our return. And as we go deploy capital via acquisitions or redevelopment, we find that there's disproportionate upside, and we want to be able to enjoy that. So the path from $380 million as of the second quarter to about $250 million at the end of this year, that's already contemplated in our FFOA guidance. And then what we would suggest to you is over the course of '27 through '31, if you start '27 with a $250 million book and those proceeds come back and we redeploy at a rate that would be representative of the opportunity set on stock buybacks and acquisitions.

It would be for every $100 million that comes back to us is about $0.01 dilutive. So that's $0.025 to $0.03 or so over the course of 5 years. And finally, I would just mention that, that $0.01 is the maximum, meaning that you're going to continue to experience growth in whatever area we redeploy into.

Maybe just kind of turning it a little bit more big picture, 2026 job growth wasn't as great as people would have hoped. I don't know if we know really what it was with BLS revisions all the time. But you also had some headwinds in terms of immigration and H-1B visas.

I guess as you look out the runway with just a better supply outlook and then we keep reading headlines about how many young adults are living at home. How are you thinking about future household formation and a lot of that younger household formation tends to be renters?

Yes. Mike, why don't you take them through the building blocks towards '27 and how we stack up at this juncture, helpful?

I think the way we're looking at it, I think you have to look at foundationally, we talked a little bit about earn-in. And so the way that we would characterize 2027, the way it's shaping up right now, and we're going through the budget process. We're looking across all of our regions, all of our markets, and we're seeing green shoots. We think that there's some momentum there that all markets could show some positive momentum as it relates to total revenue growth. So how you get there is how we think about it.

Right now, if you think about the 1.5% to 2% blends in the back half of the year, simple math would tell you that our earn-in is between 60 to 100 basis points going into 2027. That compares to 0 for last year. And so we're already starting at a higher place just with that foundational building block of 50% of our rent roll.

Some markets, obviously, San Francisco, New York, they will have a better building block than others. But then we look at things like blends and when we see that trajectory turn positive or to what degree in that inflection point, that's what we're assessing right now through the budget process in addition to the plethora of ideas that we have in terms of other income, our initiatives, how we can continue to grow at plus 5% on that line item because at this point, it's 12% of our revenue, it makes up a big piece of the revenue. So we see positive signs everywhere, but I think it does start with earn-in.

I might address a couple of things because one, I would characterize every point. We don't know what jobs are, right? We get this number and it moves and immigration policy being a net negative, people having kids later. The whole mix in both of our underlying demand curve. I kind of look at it and say, it's a little bit like a wall of worry.

What really makes our business tick is jobs. And when we look at the quality of our residents showing up, we look at our existing resident, we don't see any sign of stress and I've been through enough cycles, you will have it. We don't see that. So our resident seems to be in a very good place. And yes, their wallet is getting squeezed in a lot of different ways and their alternatives for housing are even getting farther and farther away.

So you can see it in our #1, our average age of our residents is 37. So they're established in the career. They have the capability. They probably have some financial cushion to absorb things. That's a pretty healthy age professionally and economically. So we don't see it in our numbers. Second, I always do get a kick out of this conference. It seems to always climb a wall of worry.

We're all sitting here in September. And a year ago, it was AI was going to get everybody's job. And this year, I show up and it's AI is going to get humanity. I'm waiting for next year, what's AI going to get us next year. And yet, what we can tell you is our business is getting better, okay? And when we operate in 20-plus markets and we say every market feels better next year. What I can say is a lot of years at this, very seldom have I said all our markets are getting better.

Will they all be positive year-over-year? May not, but they're getting better sequentially. And that momentum seems to -- that's carrying through our optimism and the way we are looking at our business.

And I think most people are pretty positive on kind of go-forward operating fundamentals. So maybe if you can help us out with how you're thinking about this higher rate environment and what that means in terms of refinancing as well as other stuff of the portfolio, external growth?

Dave, why don't you...

Well, a few considerations, higher rates. So the first thing that comes to mind as you operate apartments is housing affordability becomes more challenged. So that's on the right side of Page 22 and fits it with the description of the outlook for the business that Tom and Mike were just walking through.

And by the way, just while I'm on that, other things that are supportive of the outlook for the sector despite the uncertainty on jobs that Tom mentioned would be the changes in lifestyle on the left side of Page 23 and the outlook for supply on the right side of 23. But anyway, back to rates, at a time of a sudden movement up in rates, you tend to see an exacerbated disconnect between public and private market valuations. So we look at that and we think, well, the playbook that we have been utilizing continues to work here.

It is an opportunity to continue to focus on selling assets and buying back stock. It also may be an opportunity over time to reduce leverage in this environment. So there are -- those are some considerations that come to mind as it relates to rising rates. But I think the one that is most notable for the apartment business would be back on operations and just the inability, unfortunately, of renters who want to buy homes to buy. It's well understood how much turnover has declined, as Mike has explained, but also the share of those that leave that buy a home is down to 5% from a peak of more than 20% and a long-term average in the 10% to 15% range. So we would expect more of the same there.

A couple of reminders about the apartment space. We do have the beneficiary of the GSEs and their ability to continue to financing. So there's always a question of rate and availability. And the GSEs are a little bit behind their budget. So you're going to see a little bit of tightening and you see creativity in the terms and floating caps, et cetera.

So that stability on availability of capital is almost as important as what rate you're getting charged. And it takes time for that rate to take hold of pricing. At the same time, you have to deal with what's the growth rate of the underlying assets.

So an example, I've seen a transaction go in San Francisco at a sub-4 cap. If you were to put leverage at 50%, you're at 5.25%. How do you take negative leverage? You raise the rents 15%. Somebody is going to get excited about that opportunity. So people pay for growth. We've seen it. They will take on negative leverage if they think the growth. And as we look out into '27, '28, you start to see the growth drivers are there for the NOI, will people be more interested in paying for that growth? And then what is borrowing cost?

That's a good point that I omitted that spreads, multifamily borrowing spreads are at one of their lowest levels in years and well below the long-term average. So that helps partly mitigate the increase in base rates that we've seen.

And some of your peers have kind of dabbled in townhome or BTR product? Curious kind of your views of that opportunity.

Well, I've seen a lot done a lot of these types of endeavors. And I always come back to it's a horizontal apartment or it's a vertical apartment. It is still focus on operational excellence, don't focus on the product and try to make that your winning point, okay? And you're going to see us and continue to refine our elements of data converted to cash flow.

And so my view of the future is going to be remain a diversified company because opportunities come and go. No one has the perfect market mix for any given moment in time. Second, data to cash flow is critical in all our lives. We're seeing it take over. And you've seen us with Orion our proprietary investment tool. We're not thematically interested in markets as much as we are individual assets. And just like you as investors, you're interested in the right spot to be.

And we think with Orion, it gives us that with respect to operations, what's critical. People forget, we have now arrived at a different baseline, if you will, for resident turnover. We're at an all-time low, and we see that continuing. So how do we price our product on a renewal versus new?

They're completely different customers, and they're completely different today, priced as one product. In the future, it's really going to be 2. And so how do you do that? You pile up a lot of data. And I think we're ahead of the curve, well ahead of the curve on those fronts. Companies that can act on data to convert it to cash flow with higher margins and more sustained growth.

I think you guys received some of the best kind of customer service retention review scores. I'm curious if, Mike, you want to talk to a little bit about how you collect this data and then how you kind of put it into your operations?

Sure. I think for this, if I could just have you go over to Page 6, I can give you a little bit of color here. And Tom kind of mentioned some of this, but just to give you a little bit more and elaborate on where we've been. First phase of the operating platform, become the most efficient operator. And you can see on the deck here, 43 homes per associate, about 20% more efficient than the peer average. That was the first phase.

Phase 2 was to really listen and understand our customer and drive our retention to levels that we're seeing today. And it's pretty interesting to see that we're about 500 basis points higher than the peer average there. And we just came off a quarter with the best retention in the industry. So most efficient operator, best retention, but how can we continue to leverage that and get better? We think there's still opportunity there.

So the third phase where we're looking at kind of the rent roll quality, how we price our assets, how we're thinking about our next pricing system, things of that nature to allow us to continue to not only bring retention up, but also lean into some of the pricing. And I already mentioned in the fourth quarter, you're going to start to see some of this. We're leaning in trying to drive our renewals even higher based on the willingness and ability of our residents to pay.

We think we have a differentiator here. We're going to continue to lean into that. And I think for us, Jana, we've seen what works for residents, what doesn't work for residents. But even more importantly, we have every resident on a time line in terms of the life cycle of their tenancy, and we understand when they're having a good experience or a bad experience. We can leverage our AI technology, but also put it in the hands of individuals, and we have about 7 of them now, who actually proactively reach out to residents, change the trajectory and try to get them to sign on the dotted line.

And so that's what's led to the highest turnover that we've seen in a long time. Our retention is at an all-time high. We think there's more room here, but I'm more excited about what we can do not only on renewal growth, but how this changes the dynamic on the new lease side. Because today, I'd tell you 60,000 apartment homes 40,000 are renewals. We're spending more time because more of our individuals actually stay with us longer. And then on the new lease side, you have 20,000 homes that you're dealing with.

How can you try to find individuals that have the attributes that do want to stay with you longer. We're looking at things like that. We're getting more aggressive on our screening. And so we're increasing our credit scores, our proof of income, our ID verification, trying to limit the bad actors, if you will, from ever coming through the front door, and that helps our bad debt, it helps our retention and ultimately drives our cash flow.

I'll make one last point and then come back to you. It's always found interesting in other asset classes is we always look at the underlying quality of the tenancy to create the value for the asset. Fair enough. But in multifamily, we just kind of gloss over it.

Well, I think we're building tools that we can look at the quality and durability of our cash flow down to the resident, which rolls up to the asset and ask ourselves, what is the achievable maximum optimal cash flow out of an asset? And is that worth more in our hands. And I think the answer is going to be, yes. And capital should look at it and say, it's not just margin, but it's durability of the cash flows that I'm buying here, what is that worth?

And so it's not just one aspect of this, but it's easier to connect with investors to say, how else do you value a data center? How do you value an office building or retail? It's the underlying tenancy. Same can be had now for apartments, and I think that model will be the future.

I guess with the data collection and the customer service aspect of it, you guys have been very successful in growing kind of that other revenue line item with services your residents value. Maybe if you could talk a little bit more about opportunities there.

Yes. I think you'll continue to see us growing other income in the mid-single-digit range. We often have multiple initiatives that we're working on, whether it's typically starting out on the West Coast, test it out and then we move it across the portfolio. We have built a culture around performance. And so typically, what you see is individuals from the site level all the way through the corporate level are coming up with ideas to try to drive that top line growth because ultimately, that's how a lot of the individuals get paid in terms of bonus.

It's how you do on a relative basis head-to-head within the markets. And so continue to see plus or minus 5% growth on that line item. I think we're getting more creative as it relates to door fees, how we're thinking about coupling things with our WiFi initiatives, more WiFi rollouts, more package lockers, parking, you name it, they're all hitting on all cylinders right now, and you're going to see more of the same.

Unfortunately, we're out of time, but I have 3 rapid fire questions. We're asking all the REITs at the conference. #1, if long-term rates stay higher for longer, which has the biggest impact on your sector's earnings? Is it higher refinancing costs, lower transaction activity or less new supply?

Supply.

Over the next 3 years, will third-party capital become a more important source of growth for public REITs than balance sheet capital? Yes or no?

Yes.

For your sector, I think you already answered this, but will 2027 same-store NOI growth be higher, the same or lower than 2026?

Higher.

Thank you so much. Appreciate the time.

Thank you for your time.

Thank you.

Greetings. Welcome to UDR's Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo. You may begin.

Thank you, and welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC.

We do not undertake a duty to update any forward-looking statements. When we get to the question-and-answer portion, to be respectful of everyone's time and in an attempt to complete our call within 1 hour, we will limit questions to 1 per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call to address any questions that did not get answered during the Q&A session today. I will now turn over the call to UDR's Chairman, President, and CEO, Tom Toomey.

Thank you, Trent, and welcome to UDR's Second Quarter 2026 Conference Call. Presenting on the call with me today are Chief Operating Officer, Mike Lacy; Chief Financial Officer, Dave Bragg; and Senior Officer, Chris Van Ens, who will be available during the Q&A portion of the call. To begin, the fundamentals of the apartment industry have been favorable in 2026, specifically employment growth has exceeded consensus expectations.

Housing affordability remains in favor of renting relative to homeownership and new supply of apartment homes continues to abate. This backdrop, combined with our execution across operations and capital allocation, produced second quarter results that exceeded our expectations. In turn, this led us to raise our full year same-store growth and FFOA per share guidance. Operationally, we performed exceptionally well. The apartment industry is strengthening, but what differentiates UDR is data-driven capabilities, continuous innovation and disciplined execution.

Mike will elaborate on our operating strategies and tactics employed to generate results that delivered more cash to our bottom line. As it relates to capital allocation, we follow a data-driven approach to risk-adjusted returns when determining sources and uses of capital, which we visualize through a heat map. This process led us to sell assets with proceeds used to repurchase our shares at sizable discounts to NAV. Furthermore, as our tools for evaluating risk-adjusted returns have advanced, we have made the strategic decision to let our debt and preferred equity book run off in the coming years.

Our focus on operational excellence and data-driven approach to identifying investments with outsized growth led us to this choice. UDR is an industry leader, operator, not a lender, and we do not plan to reenter the debt preferred equity business. Dave will further discuss this and our capital allocation activities in his remarks. Moving on, later this week, UDR will distribute its first monthly dividend.

Our history of delivering nearly $9 billion of dividends over 54 years demonstrates UDR's track record of stability, growth, transparency, liquidity and robust results. As we shared last quarter, our research indicated an opportunity to diversify our investor base by appealing to a growing segment of the market that values frequent cash flow distributions. Since announcing our shift to a monthly dividend, we have extensively engaged with a number of new capital channels and have received positive feedback.

Finally, I'm happy to report that UDR has recently named a top workplace winner in the real estate industry for the third consecutive year. This achievement extends our track record as a leader in corporate stewardship and reflects the engaging employee experience we have built while solidifying our stature as an employer of choice.

This is further evidenced by our associate turnover rate at only 19%, which is substantially better than the industry norm of 34%. In conclusion, we're pleased with our results in the first half of the year, which has set us up for a better-than-expected 2026. We are focused on excellence across operations, capital allocation and access to capital. This constant pursuit is underpinned by our innovative culture and approach to data. With that, I'll turn the call over to Mike.

Thanks, Tom. Today, I'll cover our second quarter same-store results, our increased full year 2026 same-store growth guidance, including underlying assumptions and recent operating trends as well as our strategic positioning. The second quarter exceeded our outlook as we leverage real-time data to drive total revenue and cash flow growth.

Specific to the quarter, year-over-year same-store revenue growth of 1.8% was driven by the following: blended lease rate growth of 2.1%, which accelerated by 50 basis points compared to the first quarter results and exceeded the high end of our 1.5% to 2% range; year-over-year innovation income growth in the mid-single-digit range, which continued to bolster our results; healthy occupancy that remained in the mid-96% range; and a 60 basis point contribution from improved delinquency, reflective of our focus on attracting and retaining high-quality residents.

Resident retention of 60% marked an all-time seasonal high and was 140 basis points better than the prior year. This not only supported occupancy and improved bad debt but also led to constrained same-store expense growth of only 2.6%. This demonstrates the value we created by delivering a high-quality customer experience as well as the scalability of our platform as evidenced by our industry-leading efficiency of 43 apartment homes managed per associate.

Based on our year-to-date results, we raised our full-year 2026 same-store growth guidance in conjunction with yesterday's release. Starting with same-store revenue growth, we raised our midpoint by 12.5 basis points, resulting in a new range of 0.75% to 2%. The increased midpoint is entirely driven by blended lease rate growth with first-half performance of 1.9%, exceeding our midpoint expectations of 1.75% as the spring and summer leasing season is elongated compared to our original expectations.

We continue to expect blended lease rate growth for the second half of the year will be between 1.5% and 2%, which means blended lease rate growth does not need to accelerate versus the first half for us to achieve our revenue growth guidance. In the event second half blended lease rate growth exceeds our expectations, that benefit would mostly accrue to 2027 since we have already completed the majority of our 2026 leasing activity.

Beyond blended rent growth, we expect to operate with occupancy in the mid-96% range for the rest of the year and generate mid-single-digit growth from innovation income. Moving on to same-store expenses. We improved our full-year midpoint by 50 basis points to 3.25%. This was driven by constrained growth across repairs and maintenance, real estate taxes and insurance. Combining the improvements to both our revenue and expense growth guidance, we increased our same-store NOI growth guidance by 50 basis points.

Turning to regional performance. Second quarter results were led by our coastal markets, which delivered blended lease rate growth of 3.8% on average as compared to negative 2% blends in the Sunbelt. More specifically, on the West Coast, San Francisco remains a standout market with the strongest revenue growth across our portfolio, driven by blended lease rate growth of approximately 13% and occupancy in the high 97% range.

Orange County also delivered attractive results with blended lease rate growth of more than 3%. The East Coast was led by New York and Philadelphia, with mid-single-digit blended lease rate growth and mid-97% occupancy in each market. Dallas remained our strongest Sunbelt market, while Austin showed the best momentum in blended lease rate growth, coupled with 97% occupancy.

Beyond market influences, we continue to differentiate ourselves from the peers by enhancing our revenue growth with services and amenities desired by our residents. To conclude, we delivered second quarter results that exceeded our expectations and drove our full-year guidance rise. Our team's ability to leverage real-time data continues to bear fruit and early third quarter results are tracking similar to the second quarter.

Demand for our high-quality apartments is outpacing supply and our ability to tactically adjust operating strategies tailored to each asset is a testament to the exceptional caliber of our teams across the country. We will continue to innovate, improve resident satisfaction and expand operating margin while positively impacting the communities we serve. I will now turn over the call to Dave.

Thank you, Mike. The topics I will cover today include our second quarter financial results and third quarter guidance, recent transactions and capital markets activity and a balance sheet and liquidity update. To begin, second quarter FFOA per share of $0.64 achieved the high end of our guidance range and exceeded consensus. The $0.02 per share increase versus the first quarter was driven primarily by higher NOI.

As year-to-date results have exceeded our initial midpoint expectations, we have raised full year 2026 FFOA guidance by $0.01 per share at the midpoint to $2.53. Looking ahead to the third quarter, our FFOA per share guidance range is $0.63 to $0.65. The $0.64 midpoint contemplates the operating environment that Mike discussed. Next, capital allocation. Our perspective on the risk-adjusted returns on sources and uses of capital as reflected in our capital allocation heat map continues to guide our strategy.

For much of the second quarter, our stock traded at an unusually wide discount to private market apartment asset pricing. This allowed us to take advantage of the public versus private market arbitrage opportunity to sell assets and repurchase our shares. Our data-focused and collaborative process, which includes our Orion Analytics platform as well as our perspective on operating upside potential and CapEx yields disposition assets that offer inferior cash flow growth prospects than the remaining portfolio.

As a result, the process of selling assets and repurchasing shares enhances long-term cash flow per share growth. As the discount on our stock narrowed, we stayed nimble and turned our attention to select development and opportunistic acquisitions. As such, we executed the following transactional and capital markets activity during the second quarter and thus far in the third quarter. First, we completed the sale of 1 apartment community and are under contract to sell 3 more.

Estimated gross proceeds from these 4 dispositions total approximately $295 million and would result in 2026 disposition activity of approximately $650 million at a mid-5% buyer cap rate on average. We selected these assets for sale based on property level characteristics with a focus on 3 criteria: one, the outlook for rent growth per our proprietary analytical tool named Orion; two, CapEx requirements; and three, potential operational upside or lack thereof.

This group of assets screens inferior to our retained portfolio on these metrics. Next, on share buybacks. We recently expanded our share repurchase program to approximately 30 million shares and during the quarter, we repurchased approximately 5.5 million shares for $200 million at an average price of $36.49 per share. This brings total repurchase activity since September of 2025 to 11.5 million shares for approximately $420 million at an average price of $36.34 per share, which equates to a mid-6% implied cap rate.

Then, we commenced development on a 385-apartment home community in Northern Virginia. This is a Phase 2 development located adjacent to an existing UDR apartment community, which enhances efficiencies and therefore, the stabilized yield we expect to achieve.

Sticking with development, our team also continues to impress on 3099 Iowa, our ground-up development in Riverside, California, which is now 2 quarters ahead of schedule for initial occupancy and 5% under budget. For both developments, we expect to achieve a mid-6% stabilized yield. Also, we opportunistically acquired 2 communities in Portland and 1 in Los Angeles through our debt and preferred equity program.

Thinking about these assets as a 3-property portfolio, it screens well on our primary investment criteria, namely our Orion Analytics platform signal for rent growth, CapEx and operating upside potential once transitioned to the UDR platform. Additionally, by adding more than 500 units in Portland, we do enhance our operating efficiencies in that market.

Lastly, we're pleased to have formed a new joint venture with Carmel Partners, who acquired MetLife's 50% interest in our Columbus Square assemblage in New York. UDR's economic interest and fee structure in the joint venture did not change. With the transaction, we funded a $50 million mezzanine loan to Carmel. This loan is unique in that we have been and will continue to be the operator of Columbus Square.

Also, the contractual return will be paid current in cash. Considering our year-to-date activity, we have updated our full-year capital sources and usage guidance. Included in this outlook is our expectation that the size of our debt and preferred equity portfolio will continue to decline from $380 million at the end of the second quarter to approximately $250 million to $300 million at year-end due to successful repayments, opportunities to gain control of assets and our disciplined underwriting where other capital usage offer superior risk-adjusted returns and growth.

As Tom touched on, UDR has better tools today than it did more than a decade ago when we entered the debt and preferred equity business. Our focus on operational excellence and our data-driven approach to investing underpinned by Orion increasingly allows us to find and execute on investments with outsized upside. By contrast, the returns on our debt and preferred equity or DPE, business are capped.

Upon consideration of these dynamics, we have made the strategic decision to let our DPE balance run off over the next several years as maturities occur and/or we gain access to assets for which we see upside potential. Going forward, as successful paybacks occur and/or we gain control of assets that we like out of the book, we think about the impact of deploying into alternative investments such as acquisitions or redevelopment as having an approximately 400 basis points lower yield than DPE.

This results in initial dilution of about $0.01 per share for each $100 million not redeployed into the DPE business. Over the long term, this impact narrows due to the growth we will see from these investments relative to the capped returns on DPE. In all, our capital allocation and balance sheet management strategies remain nimble as market conditions warrant.

What does not change is our emphasis on data-driven decisions that drive long-term cash flow per share accretion. And our investment-grade balance sheet remains highly liquid and fully capable of funding our capital needs with nearly $1 billion of liquidity. With that, I will open up the call for Q&A. Operator?

[Operator Instructions] Our first question is from Eric Wolfe with Citibank.

There's been some questions and discussion from investors about UDR potentially being involved with AVB and EQR, I think just based on some of the details in the merger proxy. I assume you don't want to comment on that specifically, but I was hoping to understand the process you go through and the Board goes through to gauge whether something strategic might make sense and, sort of, how that overlays with how you think the business will change going forward?

Eric, I appreciate the question, and we received the same number. And what I'd start off with is I'm not going to respond to speculation, okay? What I am going to focus on and what the Board and management team is on our strategy and acting in the best interest of our shareholders.

So we always weigh the options that are presented to us in front of us and also what we are capable of executing. We're excited about what our strategy points to, which is operational excellence, capital allocation as well as access to capital. And we think our strategy as laid out has great potential. We're excited about it, and we'll continue to execute on it.

Our next question is from Steve Sakwa with Evercore ISI.

I was wondering maybe, Mike, if you could provide just some July, maybe August, September trends in terms of renewal notices that you sent out. I look back at my notes from Nareit, and I thought you had maybe talked about a mid-4s kind of renewal. So maybe just kind of update us on kind of where you're trending on that? And anything around new lease growth in July would be helpful.

Yes, of course, Steve. I appreciate the question. I'd say, first and foremost, we're very pleased with our second quarter results and the continuation of that relatively strong leasing season that we've been talking about. Turning to current trends, specifically around your question on July and August. What I would tell you is it looks a lot like the last couple of months. What I'm seeing today is occupancy in the mid-96s, a sustained level of blends currently at the top end of our second half range.

And as a reminder, that's 1.5% to 2%. And we're seeing continued progress on lower turnover, better cost controls as we move forward. I think it's important to maybe give you a few observations on what we're seeing around some of our regions. I'd tell you our coastal markets, as a reminder, make up 75% of our NOI. And again, we had blended rent growth of 3.8% during the quarter. What I'm seeing in July is very similar.

So again, sustained blends in the Sunbelt markets where we have 25% of our NOI. And as we previously discussed, we saw a little bit of pricing weakness during the second quarter. That turned into about negative 2% that we experienced. Right now, I'd tell you month-to-date in July, it's a little bit better. So I'm seeing a little bit more momentum. There I'm seeing around, call it, negative 1.5% versus that negative 2%.

So again, slightly better, but we're feeling good about where we're progressing. And again, it's more of an elongated season. Specific to your question around renewals, we are still sending out between, call it, 5% to 5.5%. We're still negotiating around 100 bps. And so my expectation for the third quarter is we're probably going to see around plus or minus 4% moving forward. So still feel good about that as it relates to new lease growth, what I would tell you market rents today feel pretty good.

And when I look at market rents over the next, call it, 4 to 5 months just thinking about kind of normal seasonality, if you will, that trajectory we typically see on a sequential month-over-month basis, I expect we'll probably continue to see blends around that 2% range specific to new leases, you're probably looking at flat. And I think in all regions, we could see flat new lease growth through September, which, again, is a little bit more elongated than we originally thought when we came into the year.

Our next question is from Jamie Feldman with Wells Fargo.

Great. I guess just you keep reporting and many of your peers this historically high retention rate. And so as we're thinking about the back half of the year, I appreciate all the color you just provided on renewals and outlook. But, like, how should we think about where the cycle is now versus historic seasonality and historic operating conditions?

And as it does seem like the supply pipeline is kind of working its way through the system. Just maybe some bigger picture context of what you think '27 and the next couple of years should look like given what the industry has gone through the last several?

Jamie, it's Mike. I'll start and see if anybody else wants to jump in. I think for this one, it's good to give a little context. So historically speaking, we would typically see around 50% to 51% turnover. And when I quote that, that's more of a 2010, 2019-time frame. But since then, we've really put a lot of focus, and we've talked a lot about the customer experience and where we've leaned in to try to drive our turnover down. Last year, we hovered around 38% to 39% turnover, so significantly different.

Going into the year, we expected it to be roughly flat. And I'll tell you right now, it's probably trending to about 150 basis points to maybe 200 basis points better. And so around that 37%, 38% range. And so significantly different than where we've been, but I think it's important to talk a little bit about some of the things that make UDR different, how we compare to some of our peers. And when you look at our turnover, we're outpacing them by about 400 basis points to 500 basis points over the last couple of years.

And that has everything to do with the work that we've done with the customer, understanding that lifetime value versus transactional approach, utilizing the millions of data elements every day to have those conversations with individuals and change that trajectory. So that's led us to some pretty significant results. But what we're more excited about what's coming next.

And when we think about kind of that Phase 3, if you will, and it's more around the rent roll quality, where we're going to take this, we still think that there's gas left in this tank, and we're going to continue to lean in to not only drive our turnover down, but we're also looking for opportunities to bring our pricing up and I think you've seen that when I quote things like our blends in the coast being at 3.8% versus some of the other coastal peers that have recently reported.

We have strong growth coming out of those areas. In addition to that, the teams have really started to lean into some best practices, things that are really working for us, things that we believe will continue to drive turnover down and again, increase our renewals. Aside from that, we've created about 40,000 touch points with our existing resident base. That's making a difference. And I'd tell you one other thing I'd point to is our reviews.

When you look at 4-star and 5-star reviews, we're up 50% on a year-over-year basis. So really starting to make a difference on what you see when you go out to our websites. And again, this is -- it's creating reduced turnover, lower bad debt, you've seen that in our numbers, better pricing power across new and renewals and we think it's going to provide us a more effective marketing avenue as we go forward. So a lot of excitement here.

Jamie, this is Dave. I would also just provide a broader historical perspective for the industry that tells us that subject to the economic landscape, higher turnover can be a good thing. If we look back to, say, the middle of the 2000s, turnover was around 55% at that time with very high rates of move-out to buy, but apartment revenue growth was in the mid-single-digit range, thank you to great job growth at that time.

Jamie, you're catching the trifecta. I think all of us want to weigh in on such a nice open-ended question. My characterization would be along the following: one, 50-year record-high supply, a good stable economy, competing product, not affordable. I mean the runway for the housing rental market looks very solid.

And you think about what our business is driven off of is job growth and supply and then how we operate. And on the things that we control, thematically, you could see that we have invested heavily and built tools around data to cash flow conversion. And Mike's highlighted, Dave as well, is fundamentals around how we price the product and how we invest our capital.

And I think just the refinement of those leads to excellence around operation, excellence around capital allocation, and then that will garner a better cost of capital for us in the long run. So we're excited about the overall, I would say, simplicity of the strategy, but more importantly, the execution around it and the foundation that we've built. So I think we're well set up. I really appreciate the question. I really want to dig into it more and got to get moving on to the next question.

Our next question is from Nick Yulico with Scotiabank.

So Dave, I just wanted to go back to your commentary on the DPE book and the likely wind down there and the earnings impact. I think you said it's about $0.01 dilution for each $100 million not redeployed into DPE. So is it right then to think about there's like a cumulative $0.04 annual impact to FFO that could hit at some point?

And I guess from a timing standpoint, you have 2 years left to maturity on those investments. How should we think about that timing impact? And then also if there is any difference between taking back assets versus getting redeemed at par and redeploying into new investments that would change that math?

Nick, thank you for the question. So to start, let's frame the journey that we've been on over the last year, the DPE book balance has shrunk from a peak of about $725 million in the first quarter of last year to about $380 million at the end of the second quarter this year. And that's for 3 reasons. The market has become increasingly competitive, and we've remained quite disciplined. Also, we've enjoyed successful paybacks.

And third, we've been able to get a hold of some assets that we're really excited about. So what we seek to do is really enhance our focus on investments where we will see upside. We have a focus on operational excellence and also a data-driven approach to investing that's underpinned by Orion. That allows us to find opportunities that don't just produce a yield today, but one that grows over time.

By contrast, the returns on DPE are capped. So we're excited to narrow that capital allocation focuses and play for a higher quality and ultimately better growing stream of earnings over time. To make that transition, it does require us to get from here to there. And to put some parameters around it for you, first, I would touch on 2026 because we're not in a position to provide guidance on future years, but I can frame the size of it.

2026, we're going from an average balance of about $550 million to -- that was last year to an average balance in the $300 million to $350 million range this year. So that couple of hundred million difference at that spread that I mentioned of 300 basis points to 400 basis points depending on what we're redeploying into such as buybacks has been a big focus this year or potentially redevelopment. That would result in about $0.01 per $100 million.

So we've contemplated that already in our guidance for 2026, the path from $380 million at the end of the second quarter to the range of $250 million to $300 million that's in guidance. Then as we go forward, we think about the book having maturities that are staggered pretty equally over the course of 2027 through 2031.

And so the size of the book for 2026 is about $0.10 per share. And you could think about over the next several years, '27 through '31, the maturities occurring over that time to take us down. But that's a near-term impact because you're redeploying into assets that didn't have growth. So that earnings impact mitigates over time as we grow into our new investments.

Our next question is from Austin Wurschmidt with KeyBanc Capital Markets.

Mike, I wanted to go back and touch on the Sunbelt trends a bit including your comments about the momentum in Austin and Dallas being one of the strongest markets across the region. But you really saw minimal new lease rate growth within those regions, even deceleration in the Southwest. I was just hoping you could expand on the underlying, kind of, market trends and whether you think that the lower turnover is actually elongating the pressure on new lease rate growth across the Sunbelt.

Great question, Austin. I think specific to some of the markets within the region, I can give you a little bit of color, maybe starting with Dallas because on an absolute basis, when you look at blends and occupancy, it's still our best performing down there. And given that it's 9% of our NOI, it's an important market for us. Today, what I'm seeing is about 97% occupancy there. Blend is still in that plus or minus negative 1% range. So still feeling some of the pressure of supply there.

But I would tell you there's some notable things that are driving some of the demand that I think are important to note. A couple of them, Public Storage moved their headquarters to Frisco. We have a couple of thousand units in and around that area, and they can support up to 1,000 employees. So we're seeing a little bit of a benefit there. We see Samsung moving their headquarters to Plano. That's supporting about 1,000 employees. So that's beneficial to us.

And then also AT&T's headquarters will be located close to about 2,000 homes as well. So there's some strong dynamics coming out of the demand side in Dallas that we are looking forward to taking advantage of. Moving down to Florida. Florida is about 10% of our NOI split between Orlando and Tampa. And what I would tell you there is experiencing some momentum in both areas, running around 97% occupancy today compared to 96% during the first quarter.

And I'm seeing blends here around negative 1.5%, which is a bit of a change from what we experienced during the last quarter where we were between, call it, negative 2.5% to negative 3%. So strong momentum there. Maybe one other one, Nashville, only 2.5% of our NOI. So it's a relatively small market for us. Occupancy is in that 95.5% range, which it's mainly due to a building that's down. So we have some down units there. It's causing a little friction on our occupancy. Blends are still in the negative 2% to negative 3% range.

So we are still seeing some pressure from supply in different parts of Nashville. But what is promising is some of the major employers continue to expand their presence in Nashville, specifically, the key anchors such as Amazon's Towers down in the Nashville Yards, we've got Oracle's $1.2 billion campus, and the revitalization surrounding the new Nissan Stadium is really driving some demand, too. So again, if we can get through some of the supply pressures in these markets, which we're starting to see, we do think that there will be some uptick in some of our market rents as well as renewal growth as we go forward.

Mike, did you want to tie back to the earlier comment and question on DPE and dilution about growth?

Yes, absolutely.

Some color around what we mean by growth.

Happy to. I think -- I mean, first and foremost, whenever we can get our hands on these properties and start to manage them, we can definitely see a difference. And maybe to Tom's point, I can give a little bit of color on some examples. I think first and foremost, when you think about a place like San Francisco, everybody knows very strong growth there. But what's been interesting to see for us, you have a place like Oakland, and that's where we had one of these DPE deals that we took over.

That's been our best-performing asset in that market. And so when you think about San Francisco, we had 8% revenue growth. We had 14% growth at that deal in Oakland. And a lot of that's being driven by the rents that we're achieving there, which we're seeing around 20% versus 13% across the rest of the MSA. So strong performance coming out of there. I think maybe another example is just Philadelphia.

We've got a deal down in Center City, Philadelphia. We're seeing around 8% growth down in Center City today compared to the market in general being around 4%. So that's just on the top line, some of the results that we're seeing coming out of this book, and there's significant savings as it relates to cost controls, too. So they're performing well today.

Our next question is from Michael Goldsmith with UBS.

I'm here with Ami Probandt. It definitely looks like it's been much more like a normalized peak leasing season this year. So what do you think has changed from the perspective of demand that is driving that?

I think there's a few things. Maybe I can highlight some of the stats, things that we watch as leading indicators. But one of the big things I'd say is just some of the migration patterns. When you think about individuals that are leaving the MSA, what we're seeing today is it's around 19%, which is down from 23% last year. So not necessarily as many people leaving the MSA. And as it relates to people coming into our portfolio, it's rather similar. So right around 26% of our move-ins today, it was 27% last year.

So that's been pretty consistent. I think some of the other things that jump off the page to me is no doubling up. So we're still not seeing people double up. It's still around 1.8 residents per home. We still have low rent-to-income ratios across our portfolio, still in that 21% range. So that's been beneficial. And I think in addition to that, we have lower cancels and denials today than we did a year prior.

So we're hovering back in that 35% to 37% range. Previously, that was just above 40%. And so a little bit more stickier. People are taking those applications and they're moving in. And so it feels like it's just been a little bit stronger than we would have expected. I think I highlighted it's definitely more pronounced in some of those coastal markets today than maybe the Sunbelt, but it's nice to see some momentum as we go into July here in some of those markets as well.

Michael, Ami, I appreciate the question. This is Toomey. With respect to the biggest difference, I think it's supply in the way it's getting priced. And we're looking at it and seeing what people are sending out for renewals, how much is coming online. The abatement of supply has helped us a lot to lengthen the leasing season.

And the backdrop of that is a solid employment picture across a lot of our markets supporting it. So with that dynamic, you can see how it sets up for a better '27. We won't be facing that element of supply that we've had to deal with in the past. And with some luck, a robust job market continues.

Our next question is from Julien Blouin with Goldman Sachs.

Mike, I just want to double-click on some of those comments around new lease. I think I heard you mention that you think new lease could be flat through September. I think that would imply about a 60-bps acceleration versus the second quarter. And I was just looking over the last few years, it seems like we saw over 200 basis points of sequential deceleration in new lease into 3Q in those years. I just guess, like, how much visibility and confidence do you have at this point on new lease sort of bucking that trend this year? What sort of feels different?

The thing that I typically point to and one of the leading indicators that I find to be most beneficial is our 30-day trend. And today, when we're running closer to 96%, it does give us confidence that we can continue to try to test the waters as it relates to market rents. And so I'm looking 30 days out. I've got a pretty good idea of where July and August are going to shake out. And so that gives me confidence that we're going to continue to see a similar trend today.

I think we still do have some of the dynamics of market rents coming off pretty significantly in some areas last year, especially through the back half of the year. And so there may be some opportunity to anniversary off of that, but we're just not banking on it yet. I'm mainly going off of what's happening today, what's that sequential line item look like in terms of market rents. And again, where is our occupancy and where do we have the opportunity to push?

And so right now, it feels good. It feels like that plus or minus 0% on new leases is achievable. And then if we can get to that 4% to 4.5% achieved renewals, you're still in that top end of our 1.5% to 2% range that we're looking at for the back half of the year. Again, if we can beat that, we're going to take advantage of it. I do think a lot of that will accrue to 2027 versus '26, but we are looking to try to optimize as much as possible and drive as much cash flow as we can.

Our next question is from Anthony Paolone with JPMorgan.

You have Nahom on for Tony today. Maybe switching gears a little bit. Could you guys speak to the new JV with Carmel? It sounds like it came about in a unique way for MetLife selling their stake in Columbus Square. But is there any room or appetite for you or your partner to maybe expand this venture or if there's any more room to expand maybe some of your other ventures with LaSalle maybe as you guys wind down the DPE book?

Yes. I appreciate the question. This is Toomey. With regards to Carmel, exceptional, if not best-in-class Type A developer who has an exhaustive and experienced track record around New York in particular. And what drew us to them as a partner is as we look at the Upper West Side and our data from our resident profile and the supply picture, there is going to be a gap in a higher price point product. They have experience in both installing that and attracting the residents that fit that profile.

So we see the IRRs on this substantially improving with their help and their experience. And like any other company, you think you're good, know what you're good at. And when you think you can add other talent to the mix, certainly look at it. And I think the Carmel represents a great partner for us on this deal, and we're excited to see both our investments rewarded for that.

As it relates to any expansion beyond that, certainly, there's always a dialogue around us trying to optimize the value out of every asset and how does it fit. I think with our data, we're digging through a lot of those opportunities and see similar type circumstances with assets where we can partner with capital who can enhance the returns beyond our current scope. And we'll see how that plays out over time. But we're excited about Columbus Square and our joint venture with them, and we'll weigh in the future how that might expand on an opportunistic type of one-off basis.

Our next question is from Brad Heffern with RBC Capital Markets.

Dave, you talked in your prepared remarks about taking advantage of the public/private arbitrage during the quarter, but then shifting to development and acquisitions as that discount narrowed. Can you just talk about the relative attractiveness of the repurchase versus other capital uses as we sit here today at the current share price?

Sure, Brad. Thanks for the question. So as you noted, buybacks have been a top priority, $300 million repurchase year-to-date on top of about $120 million in the final 4 months of last year. This is the most in UDR's history around an episode of dislocation between public and private market values.

As it relates to future buybacks, we have not and will not provide guidance on buybacks, but we'll just point to that track record, including the average purchase price around what we measure to be a 20% discount to NAV. So it remains prominent in the capital allocation playbook. At the same time, we remain mindful given the dispositions that we've executed on tax gain capacity as well as some other opportunities that pop up at times.

Our next question is from Jana Galan with Bank of America.

Congrats on a great quarter. Mike, I really appreciate the details on your major markets. Can you comment on Greater D.C., how your communities are performing following the disruptions last year and then the decision to expand exposure there with the development in Northern Virginia?

Yes, of course. I think first, just to size it a little bit, D.C. is about 16% of our NOI. We are diversified across Virginia, Maryland and D.C. And to your point, we have seen demand a little bit weaker in that MSA with occupancy dropping right around 95% to slightly below that in the MSA in general due to federal employment across the market. But on a positive note, our markets are performing relatively well. And what we're seeing today is the D.C. proper 14th Street corridor outperforming our suburban assets today.

And a lot of that has to do with the health, biotech, and even the defense national security remaining at the region's list. And that's something that's driving some of that demand for us. So while it's been a little bit weaker for us, a little bit below the median, if you will, D.C. is performing for us. We're still around 96.5% to 97% for our portfolio against the market average and blends are right around that, call it, negative 1%, negative 2% today in general.

Our next question is from Rich Hightower with Barclays.

Just to continue the line of questioning, let's just keep going around the horn. Maybe some anecdotal comments, if you don't mind, on strength in the New York market and also in the Bay Area, just what are you seeing kind of on the ground? And anything about your expectations in either place?

Yes, of course, happy to give some color there. I think first with New York, again, 6% of our NOI, what we're hearing and seeing today is Manhattan is producing the highest growth. I think specific to tech remaining one of the city's strongest growth engines, that's driving a lot of it. We're also seeing wage growth in Manhattan, hovering in that 5% to 6% range. So that's allowing us to lean into some of the renewals and really attract some of that demand. But again, Manhattan is the strongest.

The other thing I'd point to is office leasing volume hit 9.5 million square feet in 1Q '26, and that's the strongest quarterly total since 2019. So New York has been probably our second-best performing market year-to-date. Jumping over to the West Coast, what I would tell you is, and it's not going to surprise you, San Francisco is definitely our strongest market in the portfolio. I think that's being led because there's very little supply to speak of across the region.

The return to office is definitely helping us out. We're seeing a revitalized shopping, dining experience. And we're also seeing low rent-to-income ratio. So even with rents moving as fast as they are, we have the ability to capture that today because those rents were so depressed from that COVID era. So seeing some strength there.

Maybe some of the things that I'm hearing, and I'd point to is office leasing is on pace to reach a 30-year high with nearly 6.4 million square feet leased year-to-date and tourism is also strengthening the market with 2026 visitor spending expected to exceed that pre-pandemic level. So again, it points to the strength of just people returning back to that area. I think there's more room to go here. I think I mentioned it in a previous remark; we're seeing blends of approximately 13%. So very strong growth out of the West Coast as well.

Our next question is from Adam Kramer with Morgan Stanley.

I just wanted to ask, and I recognize it's been touched on a few different times, maybe just ask a little bit differently. Just on new lease trends, I guess, in the Southeast and Southwest regions specifically, certainly recognize the supply impacts there and other pressures. But just looking at sort of the sequential move, I think Southeast was roughly flat sequentially. Southwest, I think, decelerated a bit sequentially from 1Q. So just wondering on sort of the new lease trend there. And then maybe just high-level what expectations are for those 2 regions in the second half.

Yes. What I would tell you, when you look at July today, and again, we're still working through July, there's not much left. But when I look at month-to-date trends, and I mentioned the Sunbelt starting to show some of that momentum, a lot of that is being driven by new lease growth. And so we have started pushing market rents a little bit.

And just to size it, when I think about the Sunbelt new lease growth in the second quarter, we were approximately negative 7% to negative 7.5%. Right now, we're probably closer to, call it, negative 5.5% to negative 6%. So that's where you're seeing some of that push. It's too early to tell, but we want to see if we can't sustain that through the back half of this leasing season. But today, it feels pretty good.

Our next question is from Peter Abramowitz with Deutsche Bank.

Just to go back to Mike's comments, I think you said some of the trends in terms of slowing out migration from some of your markets have been an uplift to demand. Wondering if you could just expand on that a little bit and talk about some of the markets where people leaving those markets has kind of slowed down the most and where you've seen the most benefit.

Yes, great question. I'd tell you probably 3 that jump out the most when I think about that stat. Boston is down around 8% to 10%. So we're closer to around 20% of those people moving out. Austin is also down around 8% to 10%. So that's, I want to say, between 15% and 20% today compared to last year.

And then San Francisco is another stat that points to that market still doing relatively well. That's down 5% on a year-over-year basis to around 25% of our move-outs leaving the MSA, which again is down on a year-over-year basis. Those are the 3 that jump out the most in terms of positive momentum.

Our next question is from Wes Golladay with Baird.

Can you comment on how the corporate housing program is doing?

Sure. Corporate housing is not necessarily a big piece of our business. And we have right around 5 to -- probably 500 to 600 leases today, and it's really spread out across many of our coastal markets. And the way that we think about it and the way that we manage it is how much exposure do we have at any given time and throughout the year.

And so we try to keep that to a small book of business for us because during the COVID era, we definitely were bit a little harder than we would have expected by having too much exposure here. And so probably the biggest markets, San Francisco, New York and maybe it's 1% to 2% of our homes that are corporate at this point. So relatively small book of business for us.

Our next question is from John Kim with BMO Capital Markets.

San Francisco, you mentioned stood out from a revenue and lease perspective. But I wanted to ask about expenses. It was up 12% on a same-store basis. Are you seeing cost pressures in this market specifically? Or is there some unique dynamic as you lease up this portfolio that would cause these expenses to go up? And how much of this is recurring?

Really great question, John. And I'll tell you that this one jumped out at us, too, and there's more of a unique situation going here. So when you look at San Francisco and you see that plus 12% growth there, that's mainly due to a property that went mature during the quarter, and that's that Oakland deal that I mentioned earlier.

We had a prior year appeal that was successful that's causing a higher growth rate this year. Aside from that, we're not seeing necessarily elevated expenses in that market. It's more specific to what happened with this given property and the success that we had on taxes.

Our next question is from Alexander Goldfarb with Piper Sandler.

So a question on the debt and preferred equity program. I understand that you're winding it down, but I guess 2 parts to that. One, I saw that you are making a $50 million mezz investment with Carmel, so sort of perspective on that. And second is, isn't it a way sort of if you think about funding development, if you fund a third-party developer who takes sort of all the development risk and then you come in at the end, so you earn a coupon along the way and then you get the project at the end. Isn't there some element of attraction on that?

Alex, this is Dave. I'll start on the first part. So as it relates to the Carmel deal, we have long operated it and we will continue to do so. As part of the transaction that was discussed earlier, there was an opportunity to provide the $50 million mezzanine loan. The important part here is that this was a very extensive process. This transaction was in the marketplace for much of last year and into this year. So our commitment on that was made a while ago, whereas the DPE runoff decision was made recently, hence, why we're communicating that to you now? Tom, you want to take the second part.

Yes, Alex, Toomey. With respect to the program, what I'd characterize is 13 years, the program functioned very highly at the beginning because there was not a lot of competition. And what we've seen over the last couple of years is the competitive set of capital and willing to take risks and go deeper into the stack at a price that just doesn't make sense to us.

And so that kind of led to the conclusion that, that part of the business cycle has been flooded with capital in a way that is not attractive to us. And so why not move our capital to where we can get a higher and better return and pivot more. And if you will, just follow the data and the easier path to success. So I think it's more both an opportunity, but also a discipline around our capital and our risk-adjusted returns that we see.

Our next question is from Haendel St. Juste with Mizuho Securities.

So it sounds like clearly, New York and San Francisco are doing very well. D.C. maybe a bit weaker. I was hoping to give a little color on your other large coastal markets like Boston, Seattle, L.A. Things there seem a little weaker. I'm wondering how they're performing versus your forecast and what your expectations are into the back half of the year. And on L.A. specifically, see you added an asset there this past quarter. Just curious on the thinking behind that given the headlines in L.A. and how you underwrote the IRRs or cap rates or IRRs on that asset.

Yes. I'll start with some of the market performance for some of these others that I haven't mentioned. I think, first of all, maybe starting out West, Seattle remains fundamentally resilient. I'd tell you, it's supported by private sector momentum in technology, biotech, even some of the major Eastside employers really driving some of that. So while it hasn't been our best-performing market across the portfolio, it's still relatively strong. And I'd say it's held up well through the leasing season.

Maybe jumping over to the East Coast, Boston, I didn't previously speak to, so I'll give you a little color there. Still seeing strong renter demand. Supply is definitely abating and the elevated homeownership is definitely allowing us to capture some of that renter demand as well. what I'm seeing in both those markets, Seattle and Boston is probably a little bit more of a tilt towards the urban core doing better than the suburban.

And I'd say, again, specific to Boston, downtown drawing from health care, education, technology, students. And so it's doing better than those suburban assets in the North Shore, South Shore today. But even with the suburban assets, I think people are seeking more space. So we're seeing elevated traffic come out there. We're seeing that lower relative housing costs, and it's convenient to get to a lot of these Boston employment centers. So Boston is still holding up relatively well for us. I think I covered most of the other markets throughout.

I could pivot over to the Santa Monica asset. So regarding that asset, it's a really intriguing asset in a terrific submarket in Santa Monica. It's a small asset. Mike and team can essentially operate it without staff.

That submarket had been affected by COVID and then supply on a disproportionate basis, but we're intrigued by the upswing that we can participate in as we get our hands on assets below replacement cost. And what we've seen from Mike and the team in the past as they've taken over assets in the Bay Area and Philadelphia is an ability to drive outsized growth on both a relative and absolute basis.

Very helpful. Any color on how you underwrote cap rate IRRs.

So as it relates to the yield on net assets, it's a bit depressed given the fact that it's been affected by COVID and new supply, but we're underwriting significant burn-off of concessions as well as operational margin synergies as it comes on to our platform.

Our next question is for John Pawlowski with Green Street.

I have a follow-up question on the $50 million mezz loan. Please forgive the multipart question. So can you let me know where it sits in the capital stack from a loan-to-value perspective? I'm confirming that it's secured by the real estate and not the OpCo. And then lastly, can you just give a little color if -- you highlighted Carmel's development capabilities. Are you expecting a big redev where NOI is going to come offline from this parcel of properties?

John, I appreciate the multi-question, and we'll forgive you for that. But to get to first, first lien first, this piece of paper second, and then equity is the stack. Third, we're going to turn units on -- rehab units on turn. So there won't be a degradation of the vacancy. They have experience in turning them pretty darn quickly. We're working with lease maturities on that, and we're debating the finishes as we go and adjusting. So -- but the lobby will get a major rework, the pool deck as well and the amenitization. And the Upper West Side is a pretty TAM-tight market. So we like it.

Okay. And from a loan-to-value perspective, where does this loan sit?

I don't have it in front of me. I think you would look at it as 40% to 50%.

Our final question is from Alexander Kim with Zelman & Associates.

I wanted to drill a little further into your assumptions for same-store revenue growth guidance for the full year. What do you have embedded for bad debt levels in the back half of the year relative to what we saw in the second quarter? And any additional detail on the forecasted mid-single-digit growth for the other income bucket would be appreciated as well.

Sure. I think first and foremost, we've seen a lot of success in the first half of the year as it relates to bad debt. And I think a lot of that can be attributed to what I spoke to earlier on that rent roll quality that we put into place. I think first and foremost, improving that process as it relates to our centralized teams. doing more proof of income, ID verification has really made a difference for us. In addition to that, we've been driving up our deposits as well as credit screening. And maybe just a couple of stats around that.

Average deposits are up 20%, so we're collecting around $760 versus $640. Credit screening is up 20 points or around 730 versus 710. So that's made a big difference. As it relates to the back half, our expectation is we're going to hover in that, call it, 99% to 99.1% collections, which is consistent and better than we would have expected to start the year, but we haven't really adjusted the back half of the year.

We want to see how this continues to play out. Maybe more specific to other income. We have seen some success here. We've actually seen success for multiple years on this line item. And my expectation is we're still going to be driving around, call it, 5% to 7% growth across our portfolio being led by the Sunbelt. We've seen more growth there than we have, say, in the coastal markets just given the regulatory backdrop. But we're definitely allowing us to drive our revenue growth.

And when you compare ourselves, and this is what we do against our peers on a market-by-market basis, we feel good about where we stand currently versus those that are reported in the coastal markets, and we think we're going to compare well against those that we'll report over the next few days. So overall, I'd expect to continue to see that plus or minus 5% to 7% growth in that other income line item going forward.

There are no further questions at this time. I would like to hand the conference back over to Chairman, President and CEO, Mr. Toomey, for closing comments.

First, let me just thank you for all your time, interest and support of UDR. Second, we're always available for a call, e-mail or anything that takes continue our communication with you. And with that, take care.

Thank you. This will conclude today's conference. You may disconnect at this time and thank you for your participation.

Greetings, and welcome to the UDR First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you. Mr. Trujillo, you may begin.

Thank you, and welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our refreshed website at ir.udr.com.

In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

When we get to the question-and-answer portion, to be respectful for everyone's time and in an attempt to complete our call within 1 hour, we will limit questions to one per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call to address any questions that did not get answered during the Q&A session today.

I will now turn the call over to UDR's Chairman, President and CEO, Tom Toomey.

Thank you, Trent, and welcome to UDR's First Quarter 2026 Conference Call. Presenting on the call with me today are Chief Operating Officer, Mike Lacy; and Chief Financial Officer, Dave Bragg; Senior Officer, Chris Van Ens, will also be available during the Q&A portion of the call.

To begin, 2026 is off to a solid start. Our first quarter results were in line with the expectations we provided at the beginning of the year, made possible by strong execution across operations and capital allocation. As it relates to operations, our revenue drivers all played out as anticipated and resident retention stands at an all-time high. Mike will elaborate on the strategies and tactics employed to generate these results. As it relates to capital allocation, we remain focused on taking advantage of the rare and likely fleeting opportunity to arbitrage a sizable gap in public and private market valuations. A data-driven and collaborative process led us to the decision to sell 4 assets.

Proceeds were utilized to repurchase our shares and acquire an asset we gained access to through our debt and preferred equity program. Dave will further discuss our capital allocation activities in his remarks. Staying on the topic, we continually evaluate opportunities to diversify our sources of capital. Our thoughtful and thorough research focused on investors of the future pointed to an opportunity to expand our reach to grow a segment of capital, namely high net worth investors, family office and institutional products who collectively value frequent cash distributions. As a result, yesterday, we announced the transition to a monthly dividend. UDR is the first residential REIT to do so.

The stability and growth of the apartment industry, coupled with UDR's operating and capital allocation acumen has led to 53 straight years of dividends totaling nearly $9 billion. We expect the reliability and transparency of the apartment industry and our robust track record to appeal to these investors who value frequent cash distributions. Stepping back, we feel good about 2026 thus far, but we have only completed the first 4 months of the year. Accordingly, we are maintaining our full year 2026 same-store and earnings guidance, which we will reassess next quarter.

From a big picture perspective, I remain optimistic about the long-term growth prospects of UDR. The fundamental outlook for the apartment industry is encouraging with resilient demand, a shrinking future multifamily supply pipeline and attractive relative affordability apartments versus other forms of housing. Our culture, strategy and proven team position UDR well to take advantage of these fundamental strengths.

Finally, I'd like to take a moment to recognize Katie Cattanach and Diane Morefield, who have decided not to seek reelection to our Board. Katie and Diane have been respected voices in our boardroom, and we are thankful for their stewardship and contribution to UDR.

With that, I'll turn the call over to Mike.

Thanks, Tom. Today, I'll cover our first quarter same-store results and recent operating trends as well as strategic positioning. 2026 is unfolding as we anticipated and first quarter results were in line with our expectations. We leverage real-time data to focus on total revenue and cash flow growth. In particular, we strategically started the year in a position of operating strength with occupancy of 97%, which enabled us to tactically adjust our revenue drivers to deliver year-over-year same-store revenue growth of positive 90 basis points.

Specific to the quarter, blended lease rate growth of 1.6%, occupancy in the mid-96% range and mid-single-digit innovation income growth, all came in as expected. Results were bolstered by resident retention that was 300 basis points higher than the prior year. This enabled us to achieve renewal rate growth of 5.2%, which was 70 basis points higher than a year ago and nearly twice as high as the fourth quarter of 2025. This strength is representative of our focus on attracting high-quality residents who value the UDR living experience. Rent income levels of our new residents are stronger than the long-term average, which suggests an encouraging outlook for renewal growth going forward.

Shifting to expenses. Same-store expense growth of 4.4% was elevated due to the impact of winter storms across our portfolio. If normalizing for the approximately $1.4 million of incremental expenses from items such as snow removal and higher utility costs, our same-store expense growth would have been approximately 100 basis points better or just below the midpoint of our full year expense guidance range.

As we start the second quarter, our revenue drivers are trending as anticipated. We continue to expect blended lease rate growth for the second quarter will be between 1.5% and 2%, with occupancy in the mid-96% range. Our regional leaders in the first quarter continued to perform well thus far in the second quarter. On the West Coast, San Francisco is a standout market with the strongest revenue growth across our portfolio, driven by blended lease rate growth of approximately 10% and occupancy in the high 97% range. The East Coast market of New York is also delivering strong revenue growth with blended lease rate growth of approximately 7% and occupancy above 98%. Dallas continues to show best momentum among our Sunbelt markets. Occupancy is approaching 97% and blended lease rate growth is now positive after improving by 570 basis points since the fourth quarter. In all cases, we have enhanced revenue growth due to our innovation income, which includes services and amenities desired by our residents such as community-wide WiFi and package lockers.

A glimpse at our dashboards forward indicators reveal continued strength in San Francisco and New York as well as positive momentum in Philadelphia and Southern California, particularly Orange County. Our overweight exposure to these markets uniquely position us to capture upside should these trends continue. The operations team continues to impress me with their data-driven approach to set strategies while remaining agile to adjust as market conditions warrant.

Two current examples are top of mind. First, having managed our lease cadence to place a higher percentage of expirations in the second and third quarter of 2026, we are well positioned for the spring and summer. Second, our customer experience project continues to result in sector high resident retention, which is tracking ahead of plan thus far in 2026. This allows for operating expense savings due to lower turnover, higher revenue growth, thanks to a blended lease rate growth more heavily weighted towards renewals, which combined results in better cash flow. We will continue to leverage real-time data as we focus on total revenue and cash flow growth. As a reminder, our full year 2026 guidance assumes first half blended lease rate growth will be the same as the second half at 1.5% to 2%. Said differently, we do not need blended lease rate growth to accelerate throughout the year in order to achieve our revenue growth guidance.

To conclude, we delivered first quarter results that were largely in line with expectations, and the second quarter is progressing according to plan. We continue to innovate, improve resident satisfaction and therefore, retention, which collectively improves our operating margin. I thank our teams across the country for your hard work, acting with purpose and creating a highly valuable UDR living experience for our residents.

I will now turn over the call to Dave.

Thank you, Mike. The topics I will cover today include our first quarter results and second quarter guidance, recent transactions and capital markets activity and a balance sheet and liquidity update.

To begin, first quarter FFO as adjusted per share of $0.62 achieved the midpoint of our guidance range. The $0.02 sequential FFOA per share decline versus the fourth quarter of 2025 was driven by the following items: a $0.03 decrease in NOI, primarily due to higher sequential expenses attributable to both normal seasonal trends as well as the impact of unusual weather that Mike discussed. This was partially offset by a $0.01 benefit from lower corporate expenses and G&A. And due to the timing, capital markets and transaction activity was neutral to earnings in the quarter as the benefit from share repurchases was offset by a lower debt and preferred equity investment balance. Looking ahead, our second quarter FFOA per share guidance range is $0.62 to $0.64. The $0.63 midpoint represents an approximately 2% sequential increase that is driven by higher sequential NOI and accretion from share repurchases funded by dispositions.

Next, on transactions. Our capital allocation heat map continues to guide our strategy. We then apply a data-driven and collaborative process to drive our execution. A key theme lately is the public versus private market arbitrage opportunity presented by an unusually wide disconnect in apartment asset pricing. This allows us to sell lower growth assets for 100 cents on the dollar on Main Street and buy back our shares, which represent a superior growth portfolio for $0.75 to $0.80 on the dollar on Wall Street.

Thus far in 2026, we have executed the following transactional and capital markets activity. First, we completed the sales of 4 apartment communities located in Baltimore, Denver, Seattle and Tampa for gross proceeds of $362 million. Our approach to selecting assets for disposition is not centered around trimming exposure to specific markets or urban and suburban locales. Rather, we study asset level characteristics such as the outlook for rent growth per our proprietary analytical tools, CapEx requirements and potential operational upside. This group of disposition assets screens inferior on these metrics relative to our retained portfolio. Therefore, utilizing proceeds from these asset sales is accretive on day 1, but increasingly so in the future due to the expected differential in forward cash flow growth between the sold properties and our in-place portfolio.

Second, we received proceeds of approximately $139 million from the successful and full repayment of 2 debt and preferred equity investments. Third, we repurchased $150 million of shares, bringing total repurchase activity since September to $268 million. Fourth, our debt and preferred equity program allowed us to gain access to 2 communities in Portland, Oregon through the same partner. The first is a 232 apartment home community acquired in April. The second acquisition will follow in the coming months. The assessment of these opportunities is similar to the disposition process described earlier. Our proprietary analytics tool suggests outsized rent growth for the market in these assets in the coming years. Their CapEx needs are low and the operating upside potential on the UDR platform is high. Another benefit is that our exposure to the Portland market is scaled to a more efficient level. We anticipate a high 5% stabilized yield on these communities.

Consistent with the expectations that we laid out on our last earnings call, the size of our debt and preferred equity portfolio has declined due to successful repayments, the opportunity to gain control of the Portland assets and our view that share repurchases offer superior risk-adjusted returns versus new debt and preferred equity deployment. As a final note on investment activity, thanks to the excellent work of our development team, I'm pleased to share that our ground-up development community in Riverside, California, known as 3099 Iowa is progressing ahead of schedule. We now expect initial occupancy to occur in the fourth quarter of 2026, which is earlier than our initial expectation of the first quarter of 2027. The project is also coming in under original budget.

Overall, our updated full year 2026 capital sources and uses guidance reflects the activity we have completed year-to-date. We have additional disposition assets in the market, and we remain disciplined sellers. We will update you on incremental dispositions and uses of that capital as the year progresses.

Finally, our investment-grade balance sheet remains highly liquid and fully capable of funding our capital needs. We have more than $1 billion of liquidity. In all, it has been a highly productive start to 2026. We continue to execute on our strategic priorities with an emphasis on data-driven decisions that drive long-term cash flow per share accretion.

With that, we will open it up to Q&A. Operator?

[Operator Instructions] Our first question is from Eric Wolfe with Citibank.

In terms of occupancy, I think you said that you expect mid 96% range in the second quarter. I guess, would you expect to drive that higher in the back half of the year? Or have you adjusted your full year occupancy targets a bit based on market conditions? Just curious what the strategy looks like for the next 3 to 6 months.

Eric, it's Mike. Yes, the way we typically do it is we let occupancy come down in the second and third quarter when we have more demand, more traffic coming through the door. And so we get a bit more aggressive on our rents at that period of time is typically what you can expect from us, especially what you're saying with the fourth quarter, drive it up a little bit higher. So if we're running, call it, [ 96.5% ] right now. We expect to continue to do that through about July, August time frame. And then we may inch it up just a little bit, but maybe 10 or 20 bps. Nothing necessarily significant.

Our next question is from Jamie Feldman with Wells Fargo.

I'm sorry if I missed it. Did you guys talk about April trends so far? And if not, can you talk about your new renewal and blended rate growth and any markets that stand out in terms of acceleration, deceleration versus your outlook?

Yes, Jamie, great question. There's a few of them there. So let me back up a little bit because I do think it's important to give kind of the whole picture here. As it relates to blends, though, what I would tell you is we are incredibly happy with the start to the year. The fact that we were able to push our blends about 370 basis points up from the fourth quarter to 1.6%. Very positive trend there. And I'm happy to report that it is the highest growth across the peer group on both a relative and an absolute basis.

I'd also point out, given our diversified portfolio, this is notable. Specific to April, I'd tell you, more importantly, the second quarter, the strength experienced during the first quarter has continued in that 1.6% range, and we are still on track with that 1.5% to 2% blend that we expect in the first half of this year. A few observations on the data is, I'd say, number one, our coastal regions, which make up about 75% of our NOI, continue to experience the highest growth, about 3.1% blends in April, which is an acceleration from 2.8% during the first quarter.

Specific to the Sunbelt, those markets experienced the greatest positive momentum from 4Q to 1Q, but we have seen some of those markets retreat slightly over the past 30 days, going from about negative 1.5% in the first quarter to negative 2.5% in April. All in all, what I would say is we feel good about how we started the year. Our strategy and focus on total revenue and cash flow is playing out as expected, and we're really diving into the lifetime value of our resident, continuing to drive low turnover and higher renewal growth.

Specific to the question that you had regarding what we're sending out and what renewals look like, I would tell you, again, just to reiterate, our first quarter was almost double what we achieved in the fourth quarter at 5.2%, a very healthy number. Through July at this point, we're still sending out between 5% to 5.5% on renewals and my expectation is we're going to sign within 100 bps of that.

So all in all, we're going to continue to lean into our customer experience project, drive down turnover even further as well as try to test the market on both new lease growth and renewal growth.

Our next question is from Steve Sakwa with Evercore ISI.

Could you maybe just talk about the debt and preferred book and what maybe future payoffs look like? I think maybe some of these happened a little bit sooner. Just trying to think through the cadence of that and what could or may not happen maybe over the course of '26, '27, '28.

Steve, it's Dave. Thanks for the question. So on the DPE book, as you know, this is a business that we've been in for more than a decade. It's one of several ways that we deploy capital, and it was established to allow us to utilize our expertise to earn income and/or gain access to assets that we like. This quarter, we're pleased to report, including today, that there are 2 assets in Portland that we're excited about gaining access to. That's a market that has moved up on the leaderboard internally from a predictive analytics tool perspective. And with the loans coming due with one operator relationship in that market, we looked at these and we considered the following criteria: operational upside, and Mike and team are excited about the meat on the bone there, the rent growth outlook through our proprietary tool and relatively low CapEx given the fact that they're new assets. This allows us to scale up in that market.

As it relates to the book going forward, that's one of the ways that it is on the decline this year, which is what we expressed last quarter. We have the Portland opportunity, we have successful paybacks that we reported for the first quarter. And then lastly, the other consideration is that the market is frankly just more competitive, and we have remained disciplined in our underwriting. And when we think about the heat map and the uses of capital, we gravitate towards the stock given the fact that it's temporarily and unusually attractively valued.

So directionally for you, if I was going to help you out with your modeling here, looking at the DPE balance in the high $300 million range at the end of the first quarter, I'd point you towards $300 million or so at the end of the year.

Our next question is from Jana Galan with Bank of America.

Congrats on the strong start to the year. Mike, I was wondering if you could share any trends you're seeing this spring between A versus B properties or urban versus suburban. And then maybe bigger picture, is this not the right way we should think about the portfolio given kind of this new -- not new, but this micro market focus and analytics that your team has developed?

No, it's a great question and definitely one way that we look at it, but it's sometimes hard to explain just given the footprint we have. I think it's easier to talk about some of the regions and then dive into some of the markets and what we're experiencing there. So maybe to back up just a little bit, what we're seeing today, and it's not going to surprise you is the West Coast continuing to do better than, say, the East Coast, followed by the Sunbelt. I'd tell you all of them are on track, maybe a few markets doing a little bit better than we expected, as I mentioned in the prepared remarks, specifically San Francisco, New York and Dallas for us.

But as it relates to just kind of A, B, urban, suburban, it does vary by market. I'd tell you, for us, San Francisco is a good example where urban A is doing better because you have more supply that's impacting us as you move down the peninsula. But all in all, that entire MSA is doing well. And then you have a place like Boston, as an example. We're seeing a little bit more of an impact downtown urban A and less of an impact at our suburban B assets. So it's a little bit market-by-market specific on the A, B, urban, suburban piece of the equation. But again, we do have winners in each of our regions today, and we're off to a pretty good start.

Our next question is from Adam Kramer with Morgan Stanley.

Just wondering here, recognizing the dispositions that were done so far this year, I think 4 assets. Just sort of wondering, we've heard from some of your peers about sort of risk of shrinking the enterprise too much from dispositions. Wondering how you guys think about that, if that's sort of the right framework, if it's more market specific, if there's sort of other drivers of how you think about how many assets you can sell and I guess, sort of in what period and what period of time, presumably to generate proceeds to use for the buybacks that you've talked about?

Adam, this is Dave. I'll go ahead and start off with the answer here. So first of all, our disposition effort is centered around the playbook that has been in place since September. This is a point in time where there's an unusually wide disconnect between public and private market valuations. I've had the opportunity to follow the space over many years and have seen this a few times before. And my experience is that they proved to be fleeting. And so we are excited about the opportunity to recognize that, sell assets and then buy back stock in a manner that is accretive while also improving the quality of the portfolio.

So we can speak more about the dispositions that occurred in the quarter, but your question is more so around the go forward. What I would tell you is that the playbook will remain the same as long as the stock is as attractively valued as it is. We have more assets on the market, and we will remain disciplined sellers and utilize proceeds where we can to continue to buy back the stock.

Our next question is from Michael Goldsmith with UBS.

This is Ami on with Michael. Could you quantify approximately how much impact the portfolio lease realignment strategy may have on same-store revenue as we move forward? And I assume we wouldn't see any impact on blend, but let me know if you'd expect any impact there as well.

Yes. I think for us, what you could see, what I would point to, and I mentioned it when I covered the April answer, the fact that we had blends of 1.6% with a diversified portfolio, which was the highest amongst the peer group, I think that points to the strength. And so when we came out of 4Q, just to back up a little bit and talk strategy, our intention was to drive occupancy in that 97% to 97.2% range with the intention of driving our rents higher. For us, I can't speak specifically for everybody else, but every 1% of blends that we're able to achieve, that's about $7 million to the bottom line over the course of 12 months.

And so we think that we have a good start on the peers in the first quarter, and our intention is to continue to find those opportunities. It's a property-by-property and sometimes unit-by-unit level basis to find those opportunities to drive our blends going forward. And so our expectations, right now we're on track, but more to come, and I think we'll know a lot more when we get together at NAREIT.

Our next question is from Julien Blouin with Goldman Sachs.

I'm just wondering, is there any competitive disadvantage to you if consolidation among large peers occurs in some of your markets? And suddenly there being a player with greater scale, sort of give them sort of a data advantage in terms of informing their decisions in those markets. Is that piece meaningful at all? And I guess, separately, do you worry at all about a transaction potentially attracting regulatory or political scrutiny right now?

Julien, this is Toomey. I'll take a couple of parts of that question and ask the group to weigh in as needed. With respect to the regulatory environment on potential transactions and M&A, I won't comment. I can't speculate where the government is or where the government is going. And frankly, if you can get that crystal ball, but we can do really well at life, but I don't have that one.

With respect to kind of the industry, I'd say this. It's a very fragmented industry. There have been dominant players. I've been at it over 35 years, and there have been dominant players and yet everyone finds their space and their way to create value. I tend to think that we have uncovered ours over the years, and it's not requiring size to grow or create, if you will. I mean we kind of look at it and say excellence is the important thing to all successful companies and size is sometimes an advantage, sometimes not. And excellence, particularly in operations, in capital allocation and innovation.

And so I think we're focused on that path. Having large dominating companies in some other spaces has worked, but they generally ultimately relate to do they control the customer. In the case of you look at Simon Mall Company, they have a very good stranglehold on malls across the globe and are able to influence the customer or Prologis, where they have been able to influence logistics across the globe.

The apartment industry is awful fragmented for that. And I don't see that as being an achievable element where any of us are going to be able to control the customer segmentation/traffic, et cetera, et cetera. So I would always welcome input, how we can get better. We'll keep focusing on that. But I think you have a sense of where our head is.

Our next question is from John Kim with BMO Capital Markets.

I was going to ask that last question, but maybe I'll tie that into something else. But if you were a bigger company, would that attract a different shareholder base? And I wanted to tie that into the monthly dividend. From our perspective, it looks like a way to attract retail shareholders, maybe a bit of a gimmick. I'm sure that's not the way that you look at it. So maybe if you could just comment on your decision to go the monthly dividend route.

Yes, John, this is Toomey again. I'll ask team weigh in. I'm really excited about the monthly dividend. Why? Because this is a topic that came up on our radar almost 2 years ago when we were looking at diversifying our capital sources. And that includes diversifying our shareholder base that would end up being drawn to our stock. And really, what it really kicked into was how much is tied up in high net worth families, family office business. And also as we started talking more and more with Wall Street and large capital allocators, they were coming together with products and bring to the market, a monthly dividend became a selling point. And so for us, we see it as kind of shareholder of the future expansion opportunity. People are looking at what is the stream durability and record of your delivery of that cash flow and monthly is winning out over quarterly, over annually. So that was an important element in the decision.

And then it was -- as we got farther into the research, looking at the depth of it, what was striking to me was our track record of 53 years and nearly $9 billion in dividends paid out. So we have the record. We have the business model that furnishes that cash flow. I think everybody knows what the apartment industry is like across America and can relate to it. So it seems heck, let's give it a try. And I'm looking forward to the receptiveness of it. We think it will be very positive. And that's why we've done it. And I think it's a net-net positive for us.

I would just add -- this is Dave. I want to just add one angle here. The monthly dividend switch is part of a broader push on our behalf to appeal to retail shareholders. And what they'll see from us over time is a multifaceted game plan around that with a lot of outreach adjustments to our marketing, et cetera. And we're committed to sticking to that. So this is one maneuver that gets their attention, but you and especially those retail investors will see more from us over time. And we're optimistic. The apartment business is very relatable to that cohort. It's something that resonates with them in terms of the cash flow of the residents through us and then out to shareholders. So we look forward to seeing this play out.

John, was there another part to your question?

Yes. I mean if you have a large multifamily company that's doubling in size, does that attract a different shareholder base just given -- Tom, you alluded to Prologis. I think you might have mentioned Welltower as well or Simon. There are other large companies that may attract more general equity investors. And I'm wondering if that's something that's entered your mindset at all?

My guess is looking at it over time, certainly, you get re-indexed and you get a larger aspect of that. I think that's a net positive. Do you get other investors? I think active money is still trying to beat the index. And so they're going to move their money around to where they think the greatest growth and opportunities are. It's hard to grow a battleship as much as it is a light cruiser. So I think it just plays out where there's enough capital out there. If you're doing a good job, you'll find and match it up and you'll grow your company accretively. And I think that's the critical element that we all have to continue to focus on is growing accretively is critical, not size.

Our next question is from Rich Anderson with Cantor Fitzgerald.

By the way, the Anderson Family Office is thrilled with the monthly dividend. The question I have is on turnover. And when I started covering the space, annual turnover was 65%, 70%. You guys are at 29% as of the first quarter. And I probably have asked a question like this in the past, so I'll ask it again maybe differently. But is there an efficient frontier to the point where you could just have too low of turnover and maybe people are just not moving and that might help explain not just for UDR, but generally, why you're having such a tough time sort of digging out of the hole of negative new lease rate growth.

So I'm just curious if you think there's any sort of logic behind this idea that maybe turnover has just gotten too low and you're not at the efficient frontier from a rent growth perspective. So any comment on that, if you could?

Yes, Rich, and I'm glad to hear the Rich Anderson Family Office is eager about UDR. Here's a couple of things to think about. And what I'd characterize is you're right, turnover used to be a high number and you were looking at your business from the number of days occupied, who was paying rent, et cetera, et cetera. I think with the new data sets that we're seeing and when we start looking at our rent roll, what it turns out to be is high-quality residents over longer periods of time, generate more cash flow than a high turn resetting the market, et cetera.

So if you're in a cash flow business, you actually want low turnover taking rent increases. And then you ask yourself, what is the impact on your long-term business? Well, you're going to have greater cash flow. In our business right now, 60,000 apartment homes, the truth is annually, we only need to find 20,000 residents that are new. And I know everyone is focused on new rate. The question really is what's the capture rate of your renewals and what's the durability of that cash flow. And so now we're starting to endeavor into how do we move the quality of our rent roll up. Because ultimately, real estate is valued by virtue of what's the underlying quality of cash flow and the lease of that, and can we make a higher -- a better quality rent available. So I kind of covered a lot of different points there. Maybe Mike can clean me up a little bit.

Yes. A few points I would add. I think first and foremost, what's interesting, and you mentioned it, the way we think about it is, call it, 2012, 2019 turnover averaged about 51%. And so we've reduced that by about 1,200 basis points. And really, since we started getting into the customer experience project back in 2023, we've been able to improve turnover by about 800 basis points, which turns out to be about 400 basis points better than the peer average. So we've made a lot of strides. I can tell you, we're still learning a ton every day. And what's interesting when we went into the year, our expectation around turnover was it was probably going to be roughly flat on a year-over-year basis.

Turns out we're about 300 basis points better on a year-over-year basis. And where we've been leaning into as of late, and you can see it in our renewal growth is where can we start pivoting and trying to drive that number as well. And so happy to report that 5.2% growth in the first quarter is very strong. So overall, we've come a long ways. We're still learning. We still think there's opportunity on this front. And to Tom's point, there's a whole another iteration that's to come, and that's around how we think about pricing, how we think about marketing and how we truly drive that cash flow even higher.

Our next question is from Alexander Goldfarb with Piper Sandler.

Tom, certainly appreciate the focus and emphasis on the dividend. It's a big part of total return. But as you think about going after the retail crowd or the high net worth crowd, a few things come to mind. One is it seems like a lot of these private REITs or other similar products have higher dividend yields. They go after maybe more -- I don't want to say lower quality, but sort of more generic assets that have higher current income. The other is sales load commissions that private REITs pay. Clearly, you're not doing that.

So how do you think about getting your dividend -- apartment REITs tend to be pretty low dividend yields. How do you think about getting that competitive and also competing, you guys aren't paying commissions. So how do you sort of think about breaking into that high net worth and that whole distribution channel that the private REITs and those other structured products seem to enjoy for themselves?

Alex, it's Dave. Great topic, something that we've discussed internally extensively as we worked on this project. And Tom did say it's something that the team has been working on for some time and put a lot of thought into. Really, it's an opportunity for us in the broader REIT space to educate the marketplace on the virtues of REIT investing. And I thought that you covered it well, Alex. It's about the total return. The dividend yield is a part of that. And unfortunately, in some of these other products, sizable fees can eat into that.

So it's an opportunity in front of us, and we already have a nice schedule of appearances and conversations set up that will put us well on our way towards executing on that. We know that there's other products out there that are marketed in certain ways, but we believe that the numbers speak for themselves, and we look forward to educating that cohort on it.

Alex, this is Toomey. I'd just add. You're right with respect to the fee and yield trade-off. But one aspect that REITs have is liquidity and transparency, which a lot of these other products when we've talked with investors, they're like waiting on the appraisal. They don't know when their window can open or close. Here, you have a security that underlies that every day you understand what it's worth. It has liquidity, size and scope and you have transparency.

Our next question is from Austin Wurschmidt with KeyBanc Capital Markets.

Mike, I wanted to revisit your commentary around the Sunbelt lease rate growth moderating in April. And I was hoping you could provide some additional detail as to what's driving that softening. And if you think it's something temporary or seeing it persist into the -- into May and June? And was it also specific to any 1 or 2 markets or broad-based?

Yes. Great question, Austin. I think for us, I mean, what we're experiencing right now is, I think, more of a blip, if you will, because we do still expect that we could see more of an inflection in the Sunbelt this year at some point. And that's built into how we looked at our guidance for the year. Right now, I would tell you, it's a little bit more specific to, say, Florida than it is in Texas, and as well as even Nashville saw a little bit of a downtick, if you will.

I think some of it has to do with market rents just not moving up as much as we would have expected over the last, call it, 30, 45 days. And with that, you do have to negotiate a little bit more on your renewals. And so we were pretty aggressive with our renewals, as you could see with what we signed. I think we had to retreat a little bit in some of those Sunbelt markets. But my expectation is we're going to continue to work through the supply down there, and we could see market rents start to move back up throughout the summer, and that could help us continue to try to drive those markets as we go forward.

Our next question is from Haendel St. Juste with Mizuho Securities.

This is Mike on with Haendel at Mizuho. Our question is, how does UDR assess the risk to their Boston portfolio from the Massachusetts proposed statewide rent control measure on the ballot this upcoming November? And can you just remind us, is UDR spending additional advocacy costs within the guide? And what cap rate unlevered IRR would a Boston apartment trade at today?

Sure. This is Chris. I can take the initial ones. I don't think we're ready to handicap the risk yet, we're still very early in the process. As you probably know, we're actively engaged with local owner groups, including some of our large public peers, larger trade group partners to oppose the measure in Boston right now. And with regards to how that is proceeding, we'll provide updates as appropriate moving forward. There's just not really a great update to provide right now.

Fundraising is happening. We have contributed. I can let Dave talk to that or I'm happy to talk to the contribution part as well. That's probably in the neighborhood right now of around $0.5 million that we've given to the initiative. Most likely, we will go higher over the next couple of quarters. I will stress, though, that this is nothing compared to what was spent in California on the ballot initiatives. Massachusetts is obviously a much smaller market. So we feel that from a cost perspective, from a funding perspective, it will be a relatively smaller fraction than what we saw in California.

As far as pricing?

I can touch on that. So it's hard to generalize across the market. But what I would tell you is that this uncertainty has had an impact. We've seen less transaction volume. That makes it harder to decipher exactly where cap rates are, but our experience is directionally -- this uncertainty at this point in time has had an adverse impact on price.

This is Toomey. I just might add. It's one thing for us because we've talked and said, is it a buying opportunity given the market is frozen. And I think you have to be careful about that. But I think with our team and our insight with respect to how this is progressing, I wouldn't take it off the map. It screens well some of the markets and our analytics on a long-term basis, and it might be a good arbitrage window, but we'll keep looking at it.

[Operator Instructions] Our next question is from Alex Kim with Zelman & Associates.

I wanted to focus a little bit on San Francisco, which you highlighted as a standout market. Given some of the growing debate around AI CapEx sustainability, tech headcount plateauing and some federal deregulatory risk to tech market dynamics. Just curious if there's a kind of read-through that you've seen in terms of the recent macro noise in your leasing velocity or traffic? And what's your stress case look like for the market, I guess?

This is Mike. I'll start, if anybody else wants to jump in. I'd tell you right now, what we're seeing is just continued strength. And I think when you talk about AI and the jobs and everything that could happen there, I think you have to think of a few other points. And so for us in San Francisco, what I'm looking at and how I think about the market is very low supply, not only today, but also into the future. And so we have that backdrop. We do see the return to office. That's in effect right now. We're seeing more migration, people coming closer to the work. And so places like Soma and downtown, definitely seeing their fair share of traffic today. And that AI growth is more specific in that downtown Soma area as well. So we continue to see a lot of momentum, not only just on the traffic side, but also on our market rents, which leads to renewal growth as well.

In addition, that city is vibrant. We're seeing bars and restaurants start to open back up. We're seeing more retail return to that city. And at the end of the day, we have low rent-to-income ratios. And so there's a multitude of things that are playing as a positive in San Francisco. So our expectation is we're going to continue to see strength in that market for the foreseeable future.

Our next question is from Mason Guell with Baird.

Could you talk about how you're viewing potential development opportunities today and if you would look to start development on some of your land parcels in the near term?

Mason, this is Dave. Thanks for the question. And as we noted in the opening, we're really pleased with the progress on the asset that we do have under development. As it relates to the go forward, when we look at our land bank, we have a couple of existing sites that do fit comfortably in our strike zone, and I'll describe that. First, they're adjacent to existing operating assets. So they're essentially expansions in submarkets that we do know well. Second, they're stick-build or a podium. And third, the incremental returns -- the returns on incremental capital deployed through our lands would be above 6% if activated. So there is an opportunity to potentially activate these and deliver into a less competitive supply environment in '27 and '28. And if you were to see movement from us on that front, that's what would describe it.

Our next question is from John Pawlowski with Green Street.

I apologize if this has been asked. I joined the call late. Dave, could you share the cap rate -- range of cap rates on the 4 dispositions in the quarter as well as the, I guess, the effective cap rate on the Portland, Oregon asset you consolidated?

John, yes, thank you for the question. As it relates to the assets that we sold, 4 assets, I want to tell you a little bit about them because it puts in perspective. Average age, 38 years. Rent below the portfolio average, but that's not highly important. What's more important is that through our lens, the outlook for rent growth is inferior to the retained portfolio. And certainly, the CapEx needs are above average. So when we talk about these criteria for acquisitions and dispositions, this group of assets checks those boxes.

We saw a pretty deep and competitive bidding pools for these assets. Pricing came in within a few percentage points of our expectations, market cap rate in the mid-5% range. Then as we think about Portland and the opportunity that we're excited about there, I'd characterize that yield today is around the 5%. A lot of work for Mike and team to get in and stabilize it and work his magic from an operational perspective will get us to a stabilized yield in the high 5% range.

Our next question is from Brad Heffern with RBC.

Another question on Portland. You obviously mentioned it's moved up your ranking list and taking on a couple of assets there. At the same time, it is kind of a smaller market. It doesn't have a ton of exposure for the public REITs. And I think part of that is just it's been a relatively challenging regulatory environment at times. So I'm just wondering if you can talk about maybe the positive aspects that you see and how that balances out with the negative.

Brad, this is Chris. And maybe I'll start and then I'll throw it over to Lacy if he wants to say anything as well. To start at a high level, Portland does look right now like one of our better markets from a demand-supply perspective. I would tell you, 2026 job forecasts for the market have doubled since the beginning of the year. Wage growth acceleration is actually the best within our market footprint right now. On the supply side, similar to what Mike talked about in San Francisco, deliveries are way down. 2026 deliveries are only supposed to be about 0.7% of stock, similar in 2027. Both of those are well below what we saw in 2024, 2025. And importantly, most of those deliveries are concentrated away from these 2 assets.

But as you alluded to, our analytics obviously dig much deeper than the high level. And for these assets, our platform likes Portland as a market. It takes it on the upswing as we look across our broad set of variables. More importantly, for the assets themselves, it generally likes the demographics, it likes the psychographics, it likes the asset level characteristics, the micro location, new supply outlooks, all that kind of stuff for both of those assets. And obviously, when you combine all those things per our analytics, that should translate into outsized rent and cash flow growth moving forward beyond or instead of what Mike can also put on top of it, and I'll let him talk about some of that.

Yes. Thanks, Chris. I'll tell you how I think about the market as well as the opportunity we see at these sites. First, while it is a relatively small market for us, the team has always performed well here. I'll give you an example. The occupancy today is above 97%, and we're seeing blends in that 2% to 3% range. We view this opportunity to provide more scale. It does effectively double the size of the market for us. And so when we think about these properties specifically, we think we can drive that controllable operating margin between, call it, 300 bps to 400 bps over the next 12 to 18 months just through staffing efficiencies, vendor consolidation and other income opportunities. So we're looking forward to getting our hands on them.

Our last question comes from Omotayo Okusanya with Deutsche Bank.

I just wanted to go back to the regulatory front. You did discuss Boston, but just kind of curious in terms of some of the other headlines out there, the Senator Warren kind of asking a whole bunch of the residential REITs to kind of divulge more information about their business operations. Some of the stuff President Trump is trying to do to improve housing affordability. The news from Washington, D.C. the other day about MA being sued to kind of provide more insight into their rent structures and junk fees. I just -- I guess what you guys kind of think collectively from a regulatory perspective, are there kind of any real concerns that some of that stuff could impact how the business is run going forward? Or does it just kind of feel like a lot of noise and it should be business as usual at the end of the day?

This is Chris. I'll jump in and then let anyone else add as they want. I think it's honestly too early to talk about how some of those bigger picture pushes at the federal level might affect operations. I can tell you, once again, the things that we're focused on right now are really tenant-friendly initiatives or policy changes. We already spoke about Massachusetts. But for us, in particular, we're also looking at Salinas, California. We're looking at New York City. We're looking at more recently, D.C. proper.

Obviously, if any of those measures go through, they would have a tangible direct impact potentially to our assets in those areas. Once again, we formed ownership groups. We've contributed funds along with our peer partners. We're working with larger trade groups to defeat those measures. And I would tell you the positive for UDR is that we have a very in-depth governmental affairs team that monitors the federal level, the state level and the local level. And they keep all of our capital and operations teams apprised of any changes that should occur, whether the positive or the negative. And that's what we go off of, and we're able to handicap what we think is going to happen going forward. So that's what we're looking at right now.

Tayo, this is Toomey. I'd just add this. I'm proud of the industry pulling itself together and educating politicians on what good housing policy looks like. I think we want a thriving America, a thriving housing marketplace. And there are ways to get there without just pandering and stopping development or stopping rent growth. Capital makes better homes. And capital is not going to arrive at the space if it feels threatened. And I think politicians get that. And as we've educated them more and more, we see more of how do we work together to create thriving communities, and that's more of it.

So we're not just in this for a fight. We're in this to make a better place for all of us to prosper. And we found ways to do that and education is the great piece where it starts and then building coalitions around that. And we think as voters start to see more and more of the facts laid out, they'll understand that they want to live in a thriving community and what it takes to build that together. So it's not being ignored, it just takes a long time to bend the curve, if you will.

This now concludes our question-and-answer session. I would like to turn the floor back over to Tom Toomey for closing comments.

First, let me thank all of you for your time and interest and support of UDR. I thought it was a very productive call today and always welcome your insight, follow-up questions, and the team is always available for that. With that, what I'd say, we look forward to seeing you at many of the upcoming industry events over the next couple of months. And with that, finally, take care.

Ladies and gentlemen, that concludes. Thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

2026 Global Property CEO Conference. I'm Eric Wolfe with Citi Research, and we are pleased to have with us UDR and CEO, Tom Toomey. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC-26 to submit questions. Tom, we'll turn it over to you to introduce your team, give some opening remarks and tell investors the top reasons to own your stock today. And I think it's confusing because it has to be read. So I think you got to press that button there.

Again, thank you for all attending this. We look forward to our conversations and the Q&A portion of it. Eric, a special thanks to you and the team. I'm thinking back that I might have been to 30 of these now, and you guys a great job at that. So congratulations. So let me begin with introductions. And to my left is Dave Bragg, our CFO. To my right is Mike Lacy and our COO; and Chris Van Ens, who does a lot of things. So we'll leave it at that for Chris. But all of you should have, if not, please raise your hand -- focus on our value creation mechanisms primarily through operations, continual innovation and capital allocation. So where are we at in this part of the cycle? How do we see the business evolving and strategies? I think we'll get into more of it. But I think it can be summarized, you asked for 3. We're in a company that lives in a data world, and we are on a mission to convert data to cash flow through better operations and better capital allocation decisions. And I'll stop there, and we'll open it up to Q&A.

So let's go with that because I think it's interesting. And I think in the past, you've talked about how a winner sort of in a developed space, mature space are those that control costs and expand their margins. But given that your margins are already high and your turnover is already very low, I guess the question is how much further can you push this? How much further can you push the data and increase cash flow and margins?

Let me start with 2 elements. I'll start with Mike covering the operations aspect of it, and then I'll ask Chris and Dave to talk about the capital allocation piece and how we're converting data to cash flow.

Think specific to operations, what I would point to is maybe Page 8, where we've clearly demonstrated our ability to drive down turnover. And the way we think about it over the last couple of years, you can see we've reduced our turnover by about 800 basis points. At the same time, our peer group has reduced it by about 400 basis points. So clearly, everybody has benefited from the affordability piece of the equation, but we're obviously doing something a bit Eric, there's not necessarily a certain number we're trying to get to as it relates to turnover.

What we're trying to do is drive cash flow and continue to lean into those margins. So what you're going to see from us a little bit more going forward is how we can continue to push our rents. And specifically, you can see that in our renewal growth. So for the first quarter, my expectation is we're going to average around plus or minus 5%, what's going to be signed. And then as we go into the second quarter, we're actually pushing a little bit further. So we're sending out between 5.5% to 6% growth there. And so the intention is to continue to try to lean into our customer experience project, understand where our residents are in the life cycle, continue to drive turnover down where we can, but we want to capture more on the rent growth side of the equation as well. And so that's where we're at right now with that.

I guess what gives you the comfort to -- sorry, go ahead.

Just to add a couple of points, I think. First, when you say 400 basis points improvement, that's literally $12 million to $14 million of annual cash flow, okay, which you're capturing other people. Can it go lower? Well, Mike doesn't take enough credit for. One of the critical elements about data is our customers are constantly giving us feedback. We collect over 1 million pieces of data a day on what our customer is. And from there, we started this about 3 years ago, we built out a sentiment score about how customer feels about us. And before we send a renewal, we look at how we're improving that score and increasing the likelihood of a better pricing match with their sentiment.

So what's critical about that? We have 40,000 residents that continually live with us. We know the quality, the profitability of those customers. We also know where we're failing and where we can get better through that day-to-day feedback of how they feel about us. So ask yourself, is it cheaper to service a new customer, increase margin or to get a new customer. Every new customer cost me at least $5,000 to secure. Keeping the one is critical. So that's one aspect of converting data into actions that enhance cash flow and margin. So if we lead the industry in low turnover, going to lead it in cash flow.

Does that increase the pricing power for the new customer? Absolutely. I have less apartments to lease every day compared to the marketplace. So I can be more thoughtful about how I'm marketing, how I'm pricing that new product, and it will ultimately feed to stronger pricing power, which is what data is all about.

And then what I'd like to add is on the capital allocation front. As a long-time observer of the apartment space in UDR, when I arrived at UDR, I thought like many of us do, that the focus should be in terms of optimizing the portfolio should be around market allocations. And upon spending time with Chris and the model that he and his team have built, I've come to appreciate the opportunity to play an asset level game. I'll give you an example. As we focus on our disposition efforts, we put $1 billion on the market at the end of last year, purposely more than we ultimately thought that we would sell because we want to provide ourselves with optionality and remain disciplined sellers.

That process of identifying the group of assets for sale was not driven by a perspective necessarily on the market from the top down or asset type. It was very granular and built from the bottom up, and it was based on the predictive analytics tools outlook for rent growth relative basis, Mike and team's operational perspective and the degree to which they've squeezed the juice out of an asset as well as the team's outlook for the CapEx burden going forward. So when we stack up those 3 criteria and others and think about the sources of capital, we're pairing it up with a use of capital and seeking to drive cash flow accretion. Right now, a very attractive use of capital for us, of course, is the buyback. And Chris can talk about the intricacies of the model and how it resulted in an acquisition opportunity, which is on Page 9 of our presentation from last fall that we think is differentiated.

I'm happy to do that. Just checking, is this mike working?

It's blinking green. I can hear you, but -- maybe you can't have all 4 at the same time. There you go.

Sorry about that. Yes. So as we think about investment analytics, we think about the opportunity set when we use investment analytics. So what we see, and Mike was talking about margin expansion, turnover going down, et cetera. But what we see is that as you look at the top [indiscernible] of assets within markets and you look at the bottom [indiscernible] of assets within markets and how they do on a forward growth basis, that top [indiscernible] over time typically outperforms the bottom [indiscernible] by about 600 basis points on an annualized basis.

That is a huge opportunity to take advantage of. Obviously, our tools are not perfect. They don't capture 600 basis points, but we do capture about 80% of that over -- so we feel very good about that. Another thing that we talk about in analytics a lot is that we really are playing more of an asset level game. Of course, identifying markets that are going to outperform or underperform is incredibly important. But at the asset level, that's actually 2x more impactful to forward rent growth, identifying the right asset than identifying the right market.

And that's really what Dave was alluding to on Page 9 of our presentation. In the fourth quarter, we bought the Enclave. It's in D.C. It was a market that was out of favor for a number of reasons, doge, government shutdown, et cetera. But we really liked the submarket, and we really liked the asset. At the market level, this was kind of a neutral to a neutral plus market, D.C. was. So this is Southern suburban D.C. Once again, this asset had the characteristics that we said that generally leads to outsized rent growth going -- and we're not going to grow about 2 to 3 months of data so far, but that's what we've seen.

As you look at these stats on the page, blends, 130 bps so far above our DC portfolio, 80 bps above the same-store portfolio. Then you get into the occupancy upside that Dave was talking about. Mike has increased occupancy by 100 basis points. We've had expense efficiencies because we actually have an asset that truly is next door. We can share resources. Other income and initiatives are ahead of schedule thus far. And the CapEx profile is different. So this is one of those assets that while it might not check the market box as far as an outperform, it's an asset we thought would outperform. It has the operational upside and has a great CapEx profile going forward. And that's really what we're trying to do as we get into more capital...

Got it. Yes, I have to admit that when I saw that, I was like, why are they buying in D.C. right now? So -- but to your point, I guess, is there a typical -- like to think about sort of why the asset specifically is -- to understand that is more valuable than just picking the right market. What are the typical sources of upside that you normally see at an asset-specific level that you can take advantage of?

We're going to have to charge you if we tell you all that, right? That is a lot of the secret sauce. But when you think about, let's say, at the market level, it's going to be your general economic factors, right? They may be manipulated in slightly different ways than what you would think, but there's nothing that's like esoteric out there that we're finding these spurious correlations, anything -- when you get down to the asset level, it is going to be things like base rent level. It's going to be unit mix. It's going to be rent per square foot.

It's going to be growth over time. It's going to be unit sizes. There are certain characteristics of assets in certain micro markets, and it's different all over the country or the 35 markets that we follow. But if we can identify those, it's not batting 1,000 on it, but there is a much higher probability that you're going to generate better fundamental or intrinsic rent growth going forward than an asset that doesn't have those characteristics. And that's proven out over time.

And then maybe I could follow up on the pricing side. You said the renewals going out at over 5%. I guess we'll talk about sort of the details in a second. But one of the things that's interesting to me, it seems like maybe the way that you price renewals has changed a bit over the years. Can you just talk about sort of how you're pricing renewals now, how you're pricing new leases now versus what that process looked like a year or 2 ago? And then when you think about where it can go from here, what would you like to see 1 to 2 years from now?

Eric, I think it's important maybe to take a step back, too, because everything that we have experienced as of late has a lot to do with what we started doing a year ago. And so our intention this time last year was to try to drive our expirations down in the fourth quarter of 2025. And a lot of that was in preparation of obviously, peak supply working through that in a period of where demand was coming down.

And so we prepared for that. What we didn't know was how much demand was going to impact us during that same period of time. So fortunate for us, we didn't need as many leases expiring. We're able to drive our occupancy up in the fourth quarter of last year, put us in a position of strength. So we ended the year right around 97%. What you've seen from us as of late, drive our occupancy down a little bit. We're closer to that 96.5% to 96.7% range and get more aggressive on our rents.

And so we've been pushing our market rents at the same time, we sent out renewals 60, 90 days ago. And at this point, we've sent them out through May. And a lot of that has to do with our strategy around lease as well as just our understanding of our customer. And so again, when we think about the customer experience, all the data that we've been able to capture, the fact that we've been able to bring our turnover down, we know a lot about the individuals. We know how long they've been with us. We know what attributes lead to more turnover.

And so what we've done is gotten a little bit more aggressive with some of these individuals where we're placing a little bit more of a bigger bet. And so right now, you're going to continue to see more of that, push on our renewals and at the same time, look at the quality of our resident. And so if we don't need as many individuals coming to the front door, we can also get more aggressive on our screening practices, our security deposits as well as just some of the other things that relate to the front door. And so if we can capture that and improve our bad debt, we're creating a better rent roll, if you will, for the future. And so we're going to continue to lean into the pricing decisions that make a better rent roll going forward.

And you mentioned that it's a lot more expensive to replace a tenant that leaves, you have the downtime, the lower occupancy, you have the expenses associated with it. And you also just potentially give up a resident that might stay into the future and absorb good increases. I guess what gives you the confidence to sort of boost your renewals at this point in time when demand seemingly feels like a little bit weak. I mean maybe you can correct me if I'm wrong, but it feels like the job market is somewhat weak right now. So what gives you that confidence? And at what point would you sort of pull back on that and say, we shouldn't be giving 5.5% renewals. We're seeing increased turnover and there's a cost with that.

Here's the thing. When you send out a renewal, you can always negotiate if people start coming to the door and they do have an issue and they want to have a conversation around it. You can't go back and increase that renewal. And so our intention is go out a little bit higher. We do feel like we have the data in place, and these are strategic and well-placed bets. We have a better understanding of that resident. And so we can see it happening in front of us today. I would tell you that back half of last year, we were negotiating on 40% to 45% of the renewals going out, and it was amounting to about 100 basis point degradation in what we sent. Today, we're negotiating on about 30%, and we're only negotiating on about 30 to 40 bps on what was sent out. So we're not negotiating as much as we are -- where we were at the back half of last year, which puts us in a position of strength. So we do feel like we've placed some pretty well strategic bets.

Can I add? Think about this. We have a centralized operation. We manage 45 apartment homes per employee. I think that leads the industry. What Mike is not pointing to that he should take more credit for that centralized team acts as a cohesive team with the people in the field. So the old days of the manager sending out a renewal and then their favorite resident walking in and negotiating it because they like them versus the inconsistency of the next resident, et cetera, is now standardized. And actually, a lot of our renewal activity is before the renewal notice goes out.

So we have an understanding of the sentiment that individual feels and we understand at that point, are they in a positive area, they're more likely to -- so we're focused way from the first day of your occupancy to that notice about keeping your score as high as possible that you'll take that. So we've seen a direct correlation. That's pretty common sense. What is intriguing is this is a small group in Denver that coordinates that pricing and then instantaneously gets feedback about customers if 40% of them are not happy with that renewal notice, was it a sentiment or a price point conversation, and that feedback is recorded in ours and then it generates another way of attacking the next renewal, okay? So it's a real-time adjustment by a centralized team that's aided by our data, our dashboards and our with that customer. So that's why we're going to be able to get more capture on the renewals.

And so at least from what I'm hearing thus far, it seems like most of the sort of better pricing power, if you will, better results in the early part of the year is really because of the decisions you made last year, your processes, sort of the alpha that you're generating above the market. I guess the question is, is the market overall getting better? Is demand getting a little bit better? Or is it still at those sort of low levels that we started to see, call it, around September of last year? Has the environment improved at all?

Let me start with that and ask Mike to clean it up a little bit. I'd say this, Mike mentioned his strategy starting last year. What we saw that was very unusual in what I'll call the late leasing season of '25 is a pattern that's been going on for the last 3 years, an abbreviated leasing season. And it really hinges around the May, June time frame. And what we've noticed in a pattern of the data was that our traffic from people that are 18 to 30 was literally evaporating, signaling to us recent college grads, some are internships were on the lane for the last 3 years. And we probably expect that to see in '26 as well, but we'll see how it plays out. We can adjust real time. So what's happened in the marketplace last summer was peak supply. Same time that you're not having a whole lot of traffic in that 18- to 30-year-old.

People cut price dramatically, 2, 3 months common -- 2, 3 months concession, and common -- so the question for this year was as we were building up our plan and thinking about it, what's going to happen to that customer who comes up on that 2-, 3-month renewal in August, September, they're going to probably be looking for a similar deal. The good news, we won't be facing new supply, but that customer is going to be pretty price sensitive in our view.

So we wanted to move our leases out of that window of time. Second, capture as much in an abbreviated leasing season as we could for pricing and then build our strategy in the back year, managing for occupancy, if you will. So I think that's where data starts to aid you in thinking further down the road by the pattern that has been occurring recently. We'll see how it plays out. If there is a job growth window, those people 18 to 30 show up this time again, and we'll be able to turn on to pricing power on new stronger than we have forecasted. But we'll see how that plays out.

A little unique, I think, for us compared to the peers, and Tom was referencing it is when you think about the guidance of 1.5% to 2% blends for the year, we are basing 1.5% to 2% in the first half and 1.5% to 2% in the back half, unlike others where expectations are that there could be a hockey stick, a recovery on what were muted growth numbers last year. We have a different take on that. We hope that it happens, and we'll be ready.

We've got the teams. We've got the resources in place to take advantage of it, but a little bit different approach going into the year. Specific to some of the regions and where we're seeing some strength, we've put it out there. Original expectations were for 1% blends in the first quarter. We're tracking closer to that plus 1.5% to a little bit higher. That's our expectation right now. So we are ahead right now on a lot of fronts, but it really comes down to a few anchors where we're beating our own internal expectations, probably not a big surprise to a lot of you in this room, but it does come down to San Francisco on the West Coast, New York on the East Coast and for us, Dallas down in the Sunbelt.

And just to kind of size that a little bit, when I think about Dallas today, our blends are close to flat, which is about a 200 to 300 basis point difference from what we're experiencing in Florida, Austin as well as Nashville. And so Dallas is leading the way for us down there. Specific to San Francisco, we're seeing blends of upwards of 8% today. Occupancy is still above 97%. So obviously, a big anchor for the West Coast for us. And then New York, we're seeing blends of plus or minus 6%. Occupancy is still close to 98%. And so that's been leading the charge for us out on the East Coast. So those 3 markets are above our expectations today, and that's what's led to have that positive inflection versus our original expectations.

Maybe tie a couple of things together. So in the last 6 years, the investment community, it's been pretty easy to follow, was making bets either on the coast recover or the Sunbelt would recover one way or the other. They may recall before that, it used to be markets moved independently, not regions. And so what you're going to find in the next couple of years is quickly, we're going to start seeing the number of markets that I'll call green shoots starting to spread out as supply job growth starts to move back to its normal, meaning specific markets move up, specific market down. I think a national company has a better chance of hitting more of those [indiscernible] that are moving up.

Second, with our investment analytics, we'll be able to move our capital more quickly than we have historically in being able to take advantage of those upswings as they occur. So I think the combination of data match with the investment with the number of markets recovery and growth give us a great platform for the future. I'm grateful we made the investment, more importantly, execute on.

Tom, you mentioned that last year, you saw the 18- to 30-year-old traffic sort of go down. Maybe you could just tell us sort of like how much, how noticeable it was. It sounds like it's too early in the year to really know whether it's coming back. But I guess my question is, do you just have to have that come back in order to get some of the sort of acceleration and other sort of bullish projections that many are predicting? Or is the supply coming down enough, you just don't need to see that same level of demand as you had, call it, 2 years ago?

I'll take a shot and ask the guys to weigh in. I think first and foremost, the supply aspect is a known factor. It is on the diminishing aspect. The question of the employment picture changing, I think we're relatively conservative and view it. When we meet with every investor, I'd ask this room, are you guys hiring in '26, hiring interns. The answer is probably no, we're going to see how it plays out a little bit.

And so you're a good indicator. So I think from my perspective, do I need it? No, my average customer is 37 years old. What happens is the general marketplace panics and those people don't show up, they start cutting price and they start pulling from my resident base into theirs for value. So the value shopper, if you will, will seek out a concession. So supply is down, the employment picture, let's just call it, half of last year, and that's our current forecast, seems like a prudent thing to be. If it does change, we'll adjust. We have the capability of doing so. I don't have enough data yet.

And then one concern that you saw this and how things traded, but after the block announcement was like, okay, well, we're starting to see this sort of replacement of white collar growth. And I don't expect anyone to sort of have an answer on it. People going to have very different opinions. But I guess my question is really like across any of your markets, do you see sort of evidence like you just talked about evidence of seeing less traffic from 18- to 30-year olds makes a lot of sense.

The unemployment rate there has gone up. They're not getting jobs at the same numbers as they were before. But do you see any evidence of sort of like white collar replacement, any type of fear among your tenants from layoffs that are yet to happen. Do you see any evidence of that? I'm guessing you know since your blends in San Francisco are 8%, and that's kind of the center of things, but I thought I'd ask.

So I can start out and share our thought process on drivers of demand. And we would categorize them as being in 1 of 3 buckets: cyclical, structural and to be determined. Let's take an example, immigration. Our view is that, that is cyclical. Our country has been built on immigration and the contributions that have been made to our economy.

We believe that, that will continue, but a political cycle could cause that to be disrupted temporarily, okay? AI, I think you're alluding to with your question. We would put that in the to-be-determined bucket because we're not experts, but we do have a point of view. Our point of view is informed by research that we've read and what we subscribe to is that the long history of humankind has been littered with examples of technological innovation that disrupted jobs and resulted in enhanced productivity and the creation of new jobs that did not exist before. 125 years ago, about half the people in the U.S. were associated with farming.

And so as we look at AI today, Mike is not sharing anecdotes of residents walking into his communities and saying that they lost their job last week due to AI, although we recognize that there is some near-term disruption that is occurring. And that's why it's critical that he and team have the tools that they have developed to help them identify and retain residents. And as we look over a multiyear time horizon, we think it will be a beneficial driver of our business.

And I guess switching to capital allocation. We touched on the sort of the -- where you're directionally moving with that process in terms of AI and asset sort of specific underwriting more than just trying to choose the right market. That all makes sense. I guess on the buyback side, can you help us sort of understand sort of the scale of what you're looking at, how aggressive you want to be with this opportunity, sort of how wide the sort of spread is between where you can sell assets today versus buy your stock? And then I guess I'll just layer on the very last piece of it, which is there's going to be some limitation based on asset sales, just given tax consequences? Are you willing to take up leverage at all just given the disconnect in your stock?

Yes. Great question, very much so on our mind, Eric. And so we recognized the opportunity in September of last year to sell assets for $100 on the dollar on Main Street and buy back the stock for approximately $0.80 on the dollar on Wall Street, and we moved forward with about $120 million of buybacks between September and December of last year. And that playbook still resonates with us, and we're back in the market after earnings buying the stock again. To fund it, we put $1 billion of assets for sale on the market, not with the intention of selling them all, but to create optionality so we can remain disciplined as sellers.

As we look at our guidance range for dispositions of $300 million to $600 million, I would suggest that we're more likely to hit the high end of the range than the low end of the range. And then we look across the potential uses for that capital. First, leverage. We actually did take leverage up a little bit in the fourth quarter to execute on the buybacks. Our overarching goal at this time is to remain relatively leverage neutral, although we're open-minded, and we'll evaluate that as we go. So that's a priority. Buybacks are a high priority.

We're back in the market -- and then as it relates to tax gain capacity, we are mindful of that. And as you look at our guidance, we suggested that there may be an acquisition and the purpose there would be a 1031 exchange to help us manage that tax gain capacity. But even with that asset, should we buy one, it would be something that we think stacks up really well as compared to the dispositions from a cash flow accretion opportunity. So as the stock gets back to a more normalized level over -- relative to NAV over time, we're excited about the opportunity to deploy the tools and the discipline and the collaboration that we have developed in the effort to recycle assets more often.

And any questions from the audience? I don't want to hog all thing. If anyone has a question coming up in the last couple of minutes, I was going to ask maybe one more before going to rapid fire. I guess you mentioned that you might be on the upper end of the sort of disposition guidance. I guess what's a good sort of cap rate to consider there? And is it similar to the acquisition side, is it less of a market sort of type of analysis that you're doing there? It's more you're going to be selling sort of asset-specific stuff that you think will result in that -- those assets specifically underperforming within those markets?

If we were to show you the entire disposition list, you would not notice a pattern as it relates to market or asset quality, and that's it was driven by that bottom-up approach. As it relates to a cap rate, we'll have more to share with first quarter earnings, but I would suggest a buyer cap rate in the mid-5% range and asset pricing on the whole has been only off our expectations by a few percent for the group of assets that we're likely to sell.

Got it. And would you say that -- I think debt spreads have come down a bit. Would you say that the sort of level of interest is similarly strong as last year, no change in the acquisition market?

Yes. Certainly, expectations for '26 rent growth are more moderate as compared to last year, but there's optimism around '27 and '28 and a nice offsetting factor would be the robust debt market.

Great. We have our rapid fire questions, the hallmark of the Citi conference, if there is one. What will same-store NOI growth be for the apartment sector in 2027?

I think '27 consensus estimates are 2.5%. I think that's a fair number for the group, I think we'll do better than that.

Got it. Will there be the same more or less apartment companies a year from now? This one is getting easier.

It's getting easier because it's been consistent for the last 5 years, fewer.

Great. Thanks for your time today.

Thank you.

Thank you.

Greetings, and welcome to UDR's Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you, sir. Please go ahead.

Thank you, and welcome to UDR's quarterly financial results conference call. Our press release, supplemental disclosure package and related investor presentation were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir.udr.com.

In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

When we get to the question-and-answer portion, to be respectful for everyone's time and in an attempt to complete our call within 1 hour, we will limit questions to one per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call to address any questions that did not get answered during the Q&A session today.

I will now turn the call over to UDR's Chairman, President and CEO, Tom Toomey.

Thank you, Trent, and welcome to UDR's Fourth Quarter 2025 Conference Call. Presenting on the call with me today are Chief Financial Officer, Dave Bragg; and Chief Operating Officer, Mike Lacy. Senior Officer, Chris Van Ens, will also be available during the Q&A portion of the call. In conjunction with our earnings release, we published a presentation that highlights the value proposition of UDR, our 2025 results and our outlook for 2026. Our prepared remarks align with the presentation, and those of you participating on our webcast should see the slides on your screen.

Let's begin. On Slide 4, we highlight the investment case for UDR. In short, our proven track record of generating attractive shareholder return is strengthened by our culture of continual innovation and disciplined capital allocation, which are further enhanced by a variety of AI tools. This combination leads to a data-driven and collaborative actions that translate into margin expansion and cash flow growth. These areas of strategic focus are supported by a strong balance sheet that enables multiple avenues to drive value creation.

To that end, and turning to Slide 5, data is increasingly at the center of every decision we make, and we have developed a heightened focus and skill set on converting data into actions that drive cash flow growth. One example is elevating our customer experience. Our approach to enhance resident satisfaction has already driven 1,000 basis points improvement in resident retention compared to historical levels, resulting in approximately $35 million of higher annualized cash flow.

In addition to our focus on customer experience, we are increasingly utilizing data to inform our investment and capital allocation decisions. While this effort continues to evolve, we are excited about the framework we have established that marries data-driven decisions with collaboration to drive resident, associate and shareholder value.

Next, key takeaways from our release and '26 outlook are summarized on Slide 6. These are: first, full year 2025 FFOA per share and our same-store revenue expense and NOI growth, results exceeded our initial guidance at midpoint. Additionally, fourth quarter 2025 same-store NOI exceeds expectations set last quarter.

Second, the positive operating momentum we achieved in the final months of 2025 has continued into 2026 with further acceleration in lease rate growth, coupled with high occupancy and outsized other income growth. Mike will provide additional color about operating results and recent trends in his remarks.

Third, we have entered a window of less competitive supply, which should bolster our growth profile.

Fourth, our flexible approach to capital allocation led us to repurchase nearly $120 million of our stock during 2025. We will continue to utilize our capital allocation heat map, which Dave will discuss to evaluate sources and uses.

Fifth, our balance sheet is well positioned to fund our capital needs into 2026 and beyond.

And sixth, ongoing investments in innovation, including advancing our customer experience project and the various ways we can integrate AI tools should continue to drive incremental NOI in excess of market level growth.

Finally, on behalf of the Board and management, I would like to formally welcome Ellen Goitia to UDR as a newest Board member. Ellen joined us a month ago and brings a wealth of accounting and corporate governance expertise, having served on senior leadership roles at KPMG and on several boards over the course of her career. Ellen's appointment follows Ric Clark's appointment in October. These additions were made in coordination with the departure of 2 long-tenured Board members in 2025 and reflect our continued effort to ensure the skills and perspectives of our Board properly align with our strategic priorities.

With that, I will turn the call over to Dave.

Thank you, Tom. The topics I will cover today include: first, our fourth quarter and full year 2025 results, including recent transactions; second, the 2026 macro outlook that drives our full year guidance; and third, the building blocks of our 2026 guidance.

To begin on Slide 7, with our fourth quarter and full year FFO as adjusted per share of $0.64 and $2.54, respectively, achieved the midpoints of our previously provided guidance ranges. Additionally, our same-store expense and NOI growth results beat expectations while same-store revenue growth met guidance. Our operation team's impressive navigation of a choppy fourth quarter in the apartment market reflected their preparation, agility and execution. This positions us well for 2026, as Mike will explain shortly.

During the fourth quarter, we completed the following transaction and capital markets activity. We completed the acquisition of the Enclave at Potomac Club, a 406 apartment home community located in Northern Virginia for $147 million. We identified this community based on insights from our predictive analytics platform, our assessment of future CapEx needs, our operations team's on-the-ground perspective, including the efficiencies that come with owning the property directly across the street. Early operational results indicate outperformance relative to the market as we expected.

Also, we contributed 4 apartment communities to expand our joint venture with LaSalle by approximately $230 million, which increased the size of the venture to roughly $850 million. And with more than $200 million in proceeds from that joint venture expansion, we repaid $128 million of consolidated secured property debt at maturity and repurchased approximately $93 million of common stock at a weighted average share price of $35.56, reflecting a sizable discount to NAV.

Turning to Slide 8 and our macro outlook. We utilize a top-down and bottom-up approach to set our 2026 forecasts. Our internal forecasting models are informed by our proprietary perspective on our portfolio as well as third-party forecast for economic factors that drive rent growth. Among the positive factors are inflationary growth for GDP and wages as well as continued declines in homeownership in part due to challenging affordability. Importantly, after a couple of years of outsized new apartment supply, this factor is now working in our favor.

On the other hand, we anticipate a more muted job growth environment relative to recent years, and we are mindful of regulatory risk, not just at the market level, but at the federal level, given continued uncertainty over tariffs, immigration and more. This has affected consumer confidence, which recently hit its lowest level in a decade.

Building on this, we turn to Slide 9, which dives a bit deeper into key tailwinds for our business. First, at the top left, our residents' financial health remains strong with the average rent-to-income ratio below the long-term average. This suggests that our residents can comfortably accept rent increases reflective of the value and exceptional living experience at a UDR apartment community.

Second, at the top right, the relative affordability of apartments remains decidedly in our favor and near all-time high levels of attractiveness versus homeownership due to sustained elevated home prices and mortgage rates. Then at the bottom left, we show that the largest U.S. age cohort remains in its prime renter years. This is supportive of demand for our apartments.

And fourth, at the bottom right, supply completions have meaningfully slowed across UDR's markets to a level below the long-term average and the outlook for 2027 is even more promising with completions 60% below that of 2025.

Combining these factors, we arrive at our 2026 guidance, which is summarized on Slide 10. Primary expectations include full year FFOA per share guidance of $2.47 to $2.57 and same-store revenue and expense growth expectations that translate to 0.125% year-over-year NOI growth at the midpoint.

Our full year 2026 FFOA per share guidance at the $2.52 midpoint represents a $0.02 or less than 1% year-over-year decline from the $2.54 achieved in 2025. As a reminder, 2025 featured $0.02 from items we do not expect to repeat in 2026, executive severance and the collection of previously unaccrued interest on a prior debt and preferred equity investment.

From there, key differences in 2026 versus 2025 FFOA per share include a $0.01 per share increase from accretive share repurchases executed in 2025, a $0.01 increase from lower G&A, which is expected to decline by approximately 5% year-over-year as we emphasize cost control throughout the organization. This is offset by 2 items: a $0.01 decrease related to dispositions as we expect to be net sellers in 2026 and a $0.01 decline from debt and preferred equity activities due to a lower average balance as we expect to reduce the size of the book as investments mature and are repaid.

Moving on to Slide 11. Our heat map reflects our priorities as it relates to capital. Currently, the uses of capital that we believe offer the best risk-adjusted returns include investment in our operating platform, share repurchases and NOI-enhancing CapEx. Conversely, JV capital and dispositions screen as relatively attractive sources of capital. At the same time, debt is significantly more attractive than equity.

As contemplated in our full year guidance, we plan to be a net seller of assets in 2026. We are actively marketing for sale numerous apartment communities, and we're generally pleased with the market's reaction. We look forward to sharing details on closings in the coming months.

Lastly, on Slide 12, we provide our debt maturity schedule and liquidity. 12% of our total consolidated debt matures through 2027, thereby reducing future refinancing risk. Combined with nearly $1 billion of liquidity at 2025's year-end, minimal committed capital and strong free cash flow, our balance sheet is in a strong position.

In all, 2025 was a highly productive year for UDR. We continue to execute on our strategic priorities with an emphasis on data-driven decisions that drive long-term cash flow per share accretion.

And with that, I will turn the call over to Mike.

Thanks, Dave. Today, I'll cover the following topics: the building blocks of our full year 2026 same-store revenue growth guidance, our 2026 outlook for same-store expense growth and recent operating trends as well as our strategic positioning for 2026.

Turning to Slide 13. The primary building blocks of our 2026 same-store revenue growth guidance include blended lease rate growth, contributions from our other income innovation and sustained occupancy and bad debt. The largest driver is blended lease rate growth, which we forecast to be between 1.5% and 2% on average in 2026. This is approximately 100 basis points higher than we achieved in 2025, which reflects a 35% year-over-year reduction in supply completions, coupled with a less certain employment outlook, as Dave touched on earlier.

We expect first half blended lease rate growth will be similar to the second half, each at 1.5% to 2% with the potential for upside as residual supply pressures lessen and market concessions burn off towards the end of the year. This dynamic means blended lease rate growth should contribute approximately 80 basis points to our full year 2026 same-store revenue growth and have a positive flow-through impact on 2027 earnings.

The other primary driver of revenue growth is innovation and other operating initiatives, which are expected to add approximately 45 basis points to our 2026 same-store revenue growth. This equates to approximately $10 million or nearly 5% year-over-year growth for this line item. The bulk of this contribution should come from the continued rollout of our property-wide WiFi and the delivery of value-added services to our residents.

Rolling this up, our 2026 same-store revenue guidance ranges from 0.25% to 2.25% with a midpoint of 1.25%. The 2.25% high end of the range is achievable through higher blended lease rate growth than our initial forecast, improved year-over-year occupancy and additional accretion from innovation. Conversely, the low end of 0.25% reflects the inverse scenario with full year blended lease rate growth closer to flat, some level of occupancy loss and delayed income recognition from our innovation initiatives.

Turning to Slide 14. We expect 2026 same-store expense growth of 3.75% at the midpoint. This is primarily driven by growth in 3 categories: First, real estate taxes, which comprise 40% of our total property expenses. We were successful with many tax appeals in 2025, which resulted in below-trend growth and created a tough year-over-year comparison. As such, we expect 2026 real estate tax growth will approximate the long-term average in the high 3% at the midpoint.

Second, repairs and maintenance, which comprises 20% of our total property expenses. With the success of our customer experience project and increased resident satisfaction, we dramatically reduced resident turnover in 2025, which led to less than 2% repair and maintenance growth, well below the long-term average. While this creates a difficult year-over-year comparison, we continue to effectuate actions that improve the UDR resident experience and lead to higher retention. Therefore, we see an opportunity for repairs and maintenance costs to be better than we currently forecast.

And third, administrative and marketing expenses, which comprise 8% of our total property expenses. Similar to 2024 and 2025, elevated growth of 8% would be halved if adjusting for our cost affiliated with our ongoing rollout of property-wide WiFi. This initiative is NOI accretive after considering the revenue benefits, and we would expect the growth rate of this category to normalize after installations are complete.

Moving on. On Slide 15, we highlight our 2026 operating successes. These results are a direct reflection of our team's data-driven preparation, agility and execution. Recall that in early 2025, we prepared for a weak fourth quarter by strategically shifting approximately 25% of our fourth quarter 2025 lease expirations into higher demand months in 2026. As we entered the late third quarter, demand weakened beyond typical seasonality, and we pivoted towards building occupancy, which increased to nearly 97%. Lease rate growth bottomed in October with new lease rate growth of negative 8% and renewals of positive 2%, leading to blended lease rate growth of negative 3%.

Operating from a position of occupancy strength and with fewer lease expirations than typical, we have been able to meaningfully accelerate lease rate growth over the last 4 months. Since the October lows, new lease rate growth has improved 550 basis points, renewals have increased 300 basis points and blended lease rate growth has improved by 400 basis points to positive 1%.

Our sequential monthly momentum suggests first quarter blended lease rate growth should be between 1.5% and 2%, which is nearly twice as strong as the first quarter of 2025. Additionally, we are accomplishing this rate growth while occupancy remains strong in the mid- to high 96% range. Other income continues to exhibit mid-single-digit growth and resident turnover continues to improve. I'm encouraged by these trends, which are a direct result of our team's data-driven preparation, agility and execution.

Turning to Slide 16. UDR has a strong culture of innovation that drives initiatives to enhance our growth profile. Historically, we have generated approximately 50 basis points of NOI growth per year from initiatives. Top areas of focus for innovation currently include elevating the customer experience, pricing and enterprise effectiveness. In the effort to maximize these opportunities, we are currently piloting AI initiatives. There are dozens of incremental AI-related ideas on our list to explore and execute on, and we look forward to providing updates as our journey continues. UDR is and has been an innovative company, and we believe these enhanced tools will further differentiate our innovation to create a lasting advantage.

To conclude, as summarized on Slide 17, our full year 2025 results across FFOA per share and same-store growth exceeded our initial guidance midpoints and fourth quarter same-store NOI exceeded expectations. The operating strategies we deployed in 2025 established the foundation for positive operating momentum in 2026, with accelerating blended rate growth and occupancy in the high 96% range.

This operating momentum, coupled with lessening supply pressures, sets the stage for favorable fundamentals as the year progresses. We are positioned to take advantage of external growth opportunities and we'll continue to utilize various sources of capital to accretively grow the company while heating cost of capital signals. And we continue to innovate with the intention of increasing revenue growth, improving resident retention and further expanding our operating margin over time. Our unique approach to converting data into actions that increase cash flow reinforces our stature as a full cycle investment that appeals to shareholders.

Finally, I give special thanks to our teams across the country for your hard work and ability to drive results. In 2025, our same-store revenue growth was at or above peer median across 13 of the 14 markets that we share with public peers. This is an accomplishment we have never seen before. When pairing this with constrained same-store expense growth, UDR generated the second highest year-over-year same-store NOI growth among the peer group in 2025. We set a commitment to win and executed at the highest level to achieve an exceptional outcome.

With that, I'll open it up for Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Eric Wolfe with Citi.

Can you just talk about your blended rate growth expectation for the full year? It's coming up a lot in the first quarter, and you talked about some of the reasons why, but then it's holding constant, it seems like for the rest of the year, maybe up a little bit and then down in the fourth quarter. It's just a bit different than that sort of normal seasonal pattern that you see. So I was hoping you could talk about why you're seeing that.

Yes. Maybe a few points on that. I think, first, we're cognizant of the past few years where we've actually experienced more of a downturn in the back half of the year. So that's one thing that we are looking at. In addition, I mean, we've got the teams in place. We have the systems in place. We think that if the market continues to do what it's doing today, we're going to take advantage of it. And then the other thing I'd point to is we're off to a better start than we would have expected. And so when you think about that 1% that we just achieved in January, that's about 50 to 75 basis points better than we originally thought.

So we're off to a really good start. A lot of that has to do with the strategy we deployed. And so our expectations are, again, that 1.5% to 2% in the first half should be very similar in the back half. If it happens to be better, we're going to be in a position to take advantage of it.

Our next question comes from the line of Jamie Feldman with Wells Fargo.

I wanted to dig a little deeper into your thoughts on occupancy. You think it's going to remain elevated. Just what are you thinking on retention here? What gives you comfort on that level, especially given all the push for affordable housing and everything we're going to see in the headlines this year? And whether things do or do not happen, but just wanted to get your big picture thoughts on retention.

Yes. A couple of things there, Jamie. I think first with occupancy, the way that we think about it is how we can be more efficient and how we can optimize it, we think in terms of vacant days. And in a lot of ways, what we're trying to accomplish is being more efficient as it relates to the turn process. And so how can we reduce those days? And then from there, how can we move people in faster, which typically doesn't have anything to do with touching rents. It's just being more efficient around those 2 items.

From there, we've been doing a lot with driving our occupancy up in the fourth quarter. We were upwards of 97% around October, November time frame. Since then, we've been really pushing the gas on our renewals. And what you're going to see from us going forward is sending out between, call it, 5.5% to 6% and our expectations are achieving somewhere close to that 5% range, at least through April.

And so when we think about turnover and where it can go, we're really focused on total cash flow as well as total revenue growth. And so you're going to see us continue to try to see what we can get on the renewals, also knowing that we want to try to reduce turnover even further, but it all comes back to cash flow and how we can continue to try to drive our operating margins.

Our next question comes from the line of Jana Galan with Bank of America.

Also a question for Mike, following up on your comments on the sequential monthly momentum. I was wondering if you could give us some detail on the variance across your regions, kind of call out which markets had kind of a stronger acceleration versus others?

Yes, Jana, good question. I think first, maybe high level, just to walk what we experienced because it was pretty impressive going from October to January. So when I think about total company blends, and I mentioned it in my prepared remarks, up around 400 bps. October was our low at negative 3%. November saw a little bit of improvement to negative 2.5%. And then December is when we really started to see it move, and it was closer to negative 50 bps. And then you heard what I said on January, we're in positive territory at 1%.

When I think about the regions, I've seen a little bit more of an inflection in the Sunbelt over the last couple of months. And I think for us, where we already had a really strong point on coastal, the growth is still there. It's just not seeing as much of an inflection to say, places like Dallas, where we've actually seen that market go positive more recently. So my expectation going forward is Sunbelt is going to continue to improve to some degree. But again, we haven't modeled much of an inflection in the back half of the year. We hope it happens, and we're going to be ready to push if it does. But right now, those back half are very similar to the first half.

Our next question comes from the line of Steve Sakwa with Evercore ISI.

Just maybe touching on the transaction market and the buyback, kind of putting those 2 together. You clearly are signaling being a net seller. I guess how much could you step on the gas on the dispositions this year without having maybe tax consequences for gains? And what does that mean for kind of volume of share buybacks in '26?

Steve, it's Dave. First, I'll start with some comments on the broader transaction market and then go into our experience and our plans. We find that debt is readily available at attractive terms. And as we enter the new year, the GSEs with new mandates in hand for 2026 are increasingly competitive with other lenders. And to do so, they've reduced spreads. And you've seen debt funds get more competitive in this space as well, stemming from the large amount of capital that have come into the credit space lately. So that's the debt landscape.

On the equity side, there's a lot of interest to explore opportunities. However, investors are selective, they're methodical and they're patient as it relates to executing. They have a heightened focus on the trajectory of rent growth and current or potential regulatory risk. So we have found a little bit of a bid-ask spread in the market of late. Cap rates vary widely based on the quality of asset and location, but they generally center around a 5% cap and buyers are really subscribing to the possibility of much stronger rent growth in 2027 and '28. And generally speaking, newer vintage assets with positive rent trends and a little competitive supply or pricing best as low as the low to mid-4% cap rate range, whereas B assets with competitive supply, less optimal submarkets can be a 6% cap or higher.

So that brings us to our experience. With our capital committee and our data-driven approach to selecting disposition candidates, we looked at a few criteria. First, the predictive analytics outlook for rent growth, also CapEx burden going forward and the operation team's perspective on the potential for the assets. That led us to a mix of assets to put on the market without a real specific concentration in market or age of asset, it's really an asset-level decision for us. And we started with about $1 billion.

We did pull one asset from that group. It was a large one in Boston, where heightened policy concerns affected interest. So that leaves us with about $700 million, and we're working that group hard. And we expect to close a first slug of them in the first quarter and then a second group in the second quarter. Generally, pricing is close to our expectations, and we look to sharing those details next quarter. And we're excited about the optionality that, that creates for us. The magnitude of discount to NAV that has persisted in the space just doesn't happen very often, and we are fortunate that we've taken advantage of it so far and plan to continue to do so as we execute on dispositions.

At the same time, as you alluded to, Steve, we're mindful of our tax gain capacity of a couple of hundred million dollars. So we've put into guidance an acquisition or 2 at the midpoint, that would be a 1031 exchange would allow us to manage that. So the midpoint of dispositions is something that we're comfortable executing on, and we'll see what the market brings us in terms of opportunities, and that could allow us to lean back into the investment market more.

Our next question comes from the line of Michael Goldsmith with UBS.

Following a really good 2025 contribution to same-store revenue from other revenues, the 2026 contribution is also strong. So can you kind of outline what are the factors that you expect to drive that this year?

Yes, of course. I think for us, what we're expecting is that mid-single-digit range after averaging about 8% over the last 2 years. A couple of the big ones that I'll reference right now is WiFi. We do expect that to contribute about 1% or $2 million in 2026. And then parking as well as package lockers, we're expecting mid- to high single-digit growth coming out of those 2 initiatives. And then we have some new ones that we've been working on.

And just to give you a little bit of an idea of how we're looking at this, it's really a win-win for us and our residents. One is storage. We're trying to figure out a way to optimize our storage. We're adding more lockers across our portfolio. And then we're also working with a third party to try to utilize that group and try to drive a little bit more income there. And then in addition to that, we're really looking into our pet rent, which believe it or not, makes up about $800,000 a month at this point. And we're leveraging our CRM and our maintenance platform to identify about 2,000 pets that have not been paying rent across the portfolio.

So we're leaning into that and driving that initiative. And I think what you've seen from us over the years is we typically come out with that mid-single-digit range growth. Our expectation is we're going to continue to lean into our innovation and try to drive that higher.

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Mike, how does the 1.5% to 2% lease rate growth assumption break out between Sunbelt versus coastal markets? And then kind of curious on the same question for the 100 basis points of acceleration, just how that breaks out as well.

Yes. When we look at the acceleration, I kind of mentioned it previously, we do expect a little bit more acceleration in Sunbelt in the second half versus the first half compared to the coast where it's pretty comparable, maybe a little bit lower today. But when I think about the East Coast, West Coast Sunbelt, I want to say we're probably closer to, call it, 2% to 2.5% in the coast, and we're closer to, call it, flat to maybe up 50 bps in the Sunbelt in terms of blends.

When I think about the other income contribution, what we've seen is the Sunbelt producing closer to high single digit, maybe even low double-digit growth over the last couple of years. My expectation is that's going to continue to be the case. And that's what has led to that outperformance. When you look at our market wins over some of the peers over the last couple of years, we're getting there in different ways. But my expectation is that the Sunbelt will continue to try to drive some of those initiatives to make a difference as it relates to total revenue growth.

Our next question comes from the line of Anthony Paolone with JPMorgan.

You guys have Nahom on for Tony. Maybe just on the debt and preferred investment book. It looks like you guys received some partial repayment after the quarter ended. Could you guys maybe talk about what you're expecting long term from this book? How much of an earnings contributor you're expecting it to be and maybe where you're targeting the book size?

Tony, this is Dave. So the DPE business is one that UDR has been in for more than 10 years. And we like the fact that it allows us to deploy our expertise and diversify our earnings stream. And it's one of the many uses of capital for us. And at times, it allows us to gain access to assets that we want to own. So as you know, our focus on underwriting has evolved, and we've shifted the book away from a relatively higher risk, higher return focus on development to recaps of cash flowing assets with more current pay. And we've also fortified the underwriting process with a highly data-driven and collaborative approach.

So as we consider that and the structure that works for us, such as 75% LTV top dollar and terms without extension options, we've found the market to be increasingly competitive. And our outlook for this year reflects continued successful paybacks and a range of possibilities around paybacks and deployments that gets the book to decline. Rough order of magnitude would be 10% to 25%. And we'll continue to assess opportunities, but remain mindful of potentially superior risk-adjusted manners in which we can deploy capital.

Our next question comes from the line of Rich Hightower with Barclays.

Question on expenses. And just hoping for maybe a little more color on the breakdown between controllable and noncontrollable for the year, personnel-related expenses versus nonpersonnel related. And what's the flex, I guess, that's kind of embedded in some of these elevated ranges for expense growth that I see?

Yes. Great question. I'd probably refer back to Slide 14 within our deck, and we can go through some of this in a little bit more detail. But I'd say, first and foremost, 2025 was a very strong year for us as it relates to cost control. Our original guidance, if you recall, was 2.75% to 4.25% with a midpoint of 3.5%. We exceeded the low point with 2.6% growth. So the teams really leaned in and they were able to control what they can control.

This year, we face those headwinds, and I mentioned in my prepared remarks, it really comes down to the rollout of WiFi costs as well as some of the prior year tax the success we've had around that. That's about a 50 basis point drag on our numbers. That being said, the teams are hard at work. They're looking at ways to try to exceed our plan again this year. And I'll give you an example of where we're really leaning into it. When you think about the customer experience project and where we've been able to take that over the years and just to kind of size it a little bit, we historically would run around 50%, 51% turnover. We ran at 38.5% this past year. So we've improved it by about 1,200 basis points.

This year in our plan, our expectations are that turnover stay relatively flat. And I'll tell you, looking at our January numbers, it was down another 200 bps on a year-over-year basis. So from that initiative alone, if we can continue to lean into that number, drive those initiatives, we think that there's a pickup rate there, and that will be a direct impact across R&M, across A&M and even our personnel expenses. So you're going to see that really shine through on our controllables.

Our next question comes from the line of John Kim with BMO Capital Markets.

Your fourth quarter blends came in roughly in line with what you indicated on the last call, but it's still surprising to see some of the large decreases in new lease rates in the fourth quarter. Can you just remind us how much of that was impacted by concessions in the fourth quarter and what your policy is on new lease rates?

Yes, John, I appreciate that. I think for us, 4Q did come in kind of where we've been communicating over the last 3 months or so, and that led to our earn-in coming in where we expected. Fortunately, for us, we were able to take advantage of lower expirations and drive our occupancy back up. And so that helped us a lot. I mentioned the cadence of the blends. And when you think about October was that low point, that's really when we started to experience less demand coming through the door. We saw concessions start to pick up.

And so we start to drive our occupancy back up. And from there, we're able to get more aggressive on our rents, and you're seeing it really play out in our strategy as you look at January. And really, based on what we're seeing in February, that's a good trend, too. For us, I think you're going to continue to see it play out in our renewals. And so I think I mentioned we're sending out between 5.5% and 6%. We typically negotiate on about 35% to 40% of our renewals. We typically achieve between 50 to 80 bps of what we send out. And so expectations are you're going to continue to see plus or minus 5% on our renewal growth going forward, at least through April, where we've priced those. And so it's playing out as expected. We feel really good about our positioning today.

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

So a question on the legal and advocacy costs. You did mention Boston impact on one of your assets. So I guess a 2-parter on this. One is, how have your rent expectations between limitations either through rent control or utility bill backs, et cetera? How have those changed in your markets? And second, what are you guys budgeting for legal, political advocacy, et cetera, for this year? It just seems like this is now sort of a permanent part of the business, not something that's every now and then.

Yes, Alex, maybe I can take a little bit of that, and Mike can chime in as well. I would say in the vast majority of our markets where we see rent control, it's not overly restrictive rent control for the type of asset we have. So I don't think we've seen a big restriction on where we can raise rents. In a place like Montgomery County, that can be a little bit different. That would be restrictive. You mentioned Massachusetts and the ballot measure there or at least referenced it. That would be some of the most restrictive rent control in the country.

So as we look at it, though, the coalition is formed there. We feel good about the group. We feel good about the plan. Ultimately, we feel good about succeeding with that. So we just don't really see those restrictions as we look across the country.

And then what was the second part of your question again? Advocacy. So as we think about advocacy, and Dave can jump in on this as well, I think it's too early to tell exactly what the costs are going to be this year. There's clearly going to be some costs associated with Massachusetts. And then for UDR more uniquely, there's some costs associated with Salinas as there's a ballot measure there to reinforce the City Council's decision to rescind the restrictive rent control out there.

I would tell you, as you think about sizing, though, we're not talking anything close to what was spent in California in any of the 3 last ballot measures. But once again, we're still focusing in on exactly what those costs are going to be, and we'll update you guys as we have more clarity going forward.

Our next question comes from the line of Wes Golladay with Baird.

Just like to follow up on the blend improvement from October to January. Was that -- I just want to clarify that it was maybe just UDR being less aggressive on a push to build occupancy and you weren't really seeing much in change of demand or concessions abating?

We are seeing concessions abate. And so when we go back to that October time frame where we saw the bottoming, we were seeing closer to 2 weeks on average across our portfolio. Today, we're closer to 1 week. And so you can see concessions are coming off pretty significantly across the portfolio. And one example I would give is a place like Dallas today where we've actually seen our blends go positive. We're just not seeing as much concession activity in a place like that. So that's helped in a lot of ways.

Our next question comes from the line of Haendel St. Juste with Mizuho Securities.

I was hoping you could talk a little bit more about your expectation for some of your key coastal markets. The near-term outlook for New York and San Francisco seem very strong, but the outlook for Boston, D.C., L.A., less so. So maybe some incremental color on your expectation for your assets in these key coastal markets and how they fit into your balanced view for the coastal markets this year.

Sure. Haendel, maybe I'll give you a little bit of color on what we're experiencing and how I think about Coast and Sunbelt. I think first and foremost, it's not a big surprise. The earn-in across the coast is better than the Sunbelt. And I would tell you, it's kind of 1A, 1B, but the West Coast right around 100 bps going into the year. East Coast was between 50 to 70 bps and then the Sunbelt was around negative 150. So that gives you a sense for how it's built and how we started the year.

As we think about where we're going now, our expectations are -- I mentioned it earlier, blends will be in that 2% to 2.5% range on the coast. Our expectations are Sunbelt will start to see an inflection and maybe see, call it, 0 to 50 basis points this year. And so that gives you a sense for a lot of the blocking and tackling. For us, you're going to continue to see that 96.5% to 96.8% occupancy across the entire portfolio.

And then it comes down to things like other initiatives, other income growth. Again, the Sunbelt is expected to see, call it, 5% to 10% growth. The coasts are probably closer to that 5%, 6%, 7% range. And really, when I think about some of the markets within the regions, we've got winners in every region. I think San Francisco is going to continue to be probably our strongest market across the portfolio and definitely on the West Coast. On the East Coast, New York has really performed well. I'm seeing concessions come down. We're still running around 98% occupancy. And so New York is still going to be a strong one out in the East Coast.

And then when we think about the Sunbelt, I've mentioned it a couple of times today, starting to see a little bit more positive momentum in place like Dallas, positive blends, occupancy back in that 96.5% range. So that's been a positive surprise to start the year.

And then specific to your comments around Boston, that's going to be a decent performer for us, maybe not one of the best markets in the portfolio, but it's still probably a top 5, top 6, 7 market in the portfolio. And in addition to that, I would tell you, Orange County, where we have a heavy weight compared to our peers, that one has done surprisingly well over the last year. And my expectation is it's going to continue to do well for us as we move throughout 2026.

So I feel pretty good about different markets within all of our regions today. And again, I think it comes back to the strategies that we've deployed and the initiatives that we have out there, they're going to continue to make a difference for us.

Our next question comes from the line of John Pawlowski with Green Street.

I have a follow-up question about the size of the debt and preferred equity program. Just given how liquid the credit markets are, help me think through like is there a significant prepayment risk? I know, Dave, maybe you mentioned you expect the book to decline by maybe 10% to 25%. But given the 2-year weighted average maturity and 10% contractual rate of return, is there a decent chance we see significant prepayments that would lead to a more precipitous decline in the size of outstanding this year?

John, it's Dave. We're in constant dialogue with our partners on the DPE book, and it's a thoughtful question. At this time, no, we don't see outsized prepayment risk. We see a methodical pace of successful paybacks over the course of the year, which frees up capital for us to deploy back into the DPE book at some rate should we find those opportunities or we could pivot to other attractive uses of capital such as the share buyback.

Our next question comes from the line of Linda Tsai with Jefferies.

On your employment outlook, you're expecting minimal year-over-year growth of 0% to 1%. Is there any distinction in terms of how you think about in the first half versus the second half of the year? And then are there any regions where you're seeing better or worse employment within your portfolio?

This is Dave. I'll start. Our employment forecast is -- really calls for about 30,000 jobs created per month equally over the course of the year. That's down from roughly 80,000 per month was the run rate over the course of 2025.

Chris, are there any comments you'd like to add at the market level?

No, I would say we're not economists. We follow consensus viewpoints. So if you think about the employment outlook, obviously, more often than not, Sunbelt markets are going to look a little bit better. Coastal markets are going to potentially look a little bit worse from a consensus viewpoint in 2026, but that is not uniform. You do have some Sunbelt markets like a Tampa or something like that, that could -- are expected to see a little bit of job loss going into 2026. So that's not uniform. But generally, Sunbelt, as you would expect, would be a little bit better, coastal a little bit worse.

Our next question comes from the line of Alexander Kim with Zelman & Associates.

I wanted to dive into the Seattle market a bit, which exhibited a kind of strong performance in 4Q with almost 4.5% revenue growth and negative year-over-year expense growth. Could you talk about what's driving the strength? And how do you think about the job outlook in that market when forecasting it out?

I'll give you a little color on what we're experiencing. I think first, it's helpful that we don't have any exposure to downtown Seattle. We are a diversified portfolio. We're about 6% of our NOI in that market. We're 60% urban, 40% suburban. And so for us, we did experience more growth down in that U district and followed by Renton and then Bellevue. And so we have had a mixed bag there. It is good to be diversified. What I'm experiencing today is around, call it, 96.8%, 97% occupancy. We have seen concessions come down in Seattle, which has been great. And that's led to positive blends in January compared to that negative call it, 2% to 3% that we experienced during the fourth quarter.

So it is good to see some positive momentum there. And then it does help that the fact that we're seeing supply come down across that market. In fact, we're seeing about 9,000 units compared to 13,000 units being delivered from a year ago. So that's helping. In terms of job growth, we're seeing positive momentum down in places like Bellevue. We do hear the news that there's some layoffs here and there, but we're not necessarily hearing it from our resident base, and we're not seeing it from our prospects. And again, that's led to concessions coming down and occupancy being stable.

Our next question comes from the line of Rich Anderson with Cantor Fitzgerald.

So really good stuff, but I have a basic question, and that is you have a reason why you're having the experience that you're having in terms of the sequential performance? Is it something systemic to the world around you? Is it a UDR sort of strategic shift of some sort that's citing better activity? I'm just curious if you can hazard a guess as to why you're seeing the improvements that you are? And if you need new lease rate growth to turn positive this year for this whole story to really truly have legs?

Yes, Rich, I think it's a combination of a lot of things, and we've been talking a lot about it today on the call. But I think it does go back to our strategy. The fact that we started about a year ago really getting in front of the fourth quarter and reducing our expirations, that put us in a strong position to get more offensive as it relates to rent growth. And so from there, what you were able to see is we started driving our market rents probably a little bit faster than others. And when you're able to do that, you can start leaning into things like your renewal growth. And we're typically sending out between 60 to 75 days in advance. You're seeing that play out in what we've sent as well as what we're achieving. And so that's just a part of the equation.

In addition to that, it's all the other initiatives, all the other income that we've been able to produce over the last couple of years. And again, that's been around 8% for 2 years running. Our expectations are we're still in that mid-single-digit range, and we're going to try to drive that higher through a multitude of initiatives, including some of the things that we're doing on the AI front. And so we think that we have the teams, we have the systems, and we execute at a high level.

Rich, this is Toomey. I might ask Mike to expand a little bit more about his AI programs because you've heard us for a number of years and it's blah, blah, blah, I get it with respect to -- we're piling on a number of initiatives, overall program related to data, culture, et cetera. But I think the next frontier really is this enablement of data to cash flow through our AI strategy and execution. And he's got a lot of good things. No one else asked about it. So I'm going to take some liberty and ask him to embellish a little bit on that.

I appreciate you teeing that up for me, Tom. The way we see it impacting a multitude of things right now is we see it across our customer experience. We're seeing it across human capital, and we're really leaning into how we think about CapEx. How we use it today, it is with our sales team, and we're using it to do a better job with screening upfront with our prospects. And I'll tell you, our data teams are using it every single day. How I think about it going forward, scalable ways AI can help us service our residents better, reduce friction and improve decision-making.

If I could just give you a few examples of the things that we're thinking about today. Again, it goes back to that customer experience and capital allocation. We're using AI. We're analyzing our risk console, and we're matching against our maintenance platform to identify opportunities to enhance our customer experience project. In addition to that, we look at it in how we work with our reimbursements as another example. We're using AI to analyze large recurring data processing files, and we're able to identify trends in real time. This covers abnormal usage, missing invoices and even rate changes that may require reimbursement billing changes. So that's been effective for us.

And then maybe one more example is how we think about renewals, how we think about our prospects, how we think about our current residents. We're utilizing AI to analyze resident payment history and eviction trends to identify at-risk leasing earlier, and this is allowing our teams to intervene more proactively as it relates to some of the eviction process going forward. So a lot of good things happening today. We've got a lot more on the list, and we're going to keep chipping away at this.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Toomey for any final comments.

Thank you, operator, and thank you for all of your interest and the support of UDR. Certainly, call any time or e-mail us, and we would look forward to always seeing many of you at the upcoming conference events.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, greetings, and welcome to the UDR Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, the Vice President of Investor Relations, Trent Trujillo. Please go ahead.

Thank you, and welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website at ir.udr.com.

In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

When we get to the question-and-answer portion, please be respectful of everyone's time and in an attempt to complete our call within 1 hour due to other earnings calls occurring after hours, we will limit questions to 1 per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call for your questions that did not get answered during the Q&A session today.

I will now turn the call over to UDR's Chairman, President and CEO, Tom Toomey.

Thank you, Trent, and welcome to UDR's Third Quarter 2025 Conference Call. Presenting on the call with me today are Chief Operating Officer, Mike Lacy; and Chief Financial Officer, David Bragg. Senior Officers, Andrew Cantor; and Chris Van Ens will also be available during the Q&A portion of the call.

A number of fundamental drivers of our business have been supportive of growth for much of 2025. Coupling this with our core operating advantages, resulting in an attractive same-store revenue, expense and NOI growth and enabled us to raise our full year FFOA per share guidance for the second time this year.

As we start the fourth quarter, and as it has been widely reported by various third-party publications, the apartment industry has experienced a broad deceleration in rent growth. Most of our markets face some combination of employment uncertainty, slower household formation, lower consumer confidence and high levels of recently completed supply. Collectively, these factors have contributed to rent growth that has been more measured than what we anticipated as recently as 45 days ago. Even with this backdrop, we are encouraged by various indicators that suggest our residents are resilient and appreciative of the value of renting at UDR.

From a long-term perspective, the United States remain structurally under-housed. Affordability of renting an apartment relative to home ownership is nearly at an all-time level of favorability. And the pipeline for future supply has materially decreased. UDR is a cycle tested, having delivered more than 10% average annual total shareholder return over the past 25 years. We will continue to focus on the items that are in our control to manage through the times of uncertainties, make opportunistic and accretive investments and deliver value to our shareholders.

Looking towards UDR's next 25 years, I'm excited about our process that harnesses data, measures outcomes, create actions and drives cash flow growth. Points to make around that. Our operating teams have executed a wide range of operating innovation for years with our latest example being our customer experience project. We continue to uncover actionable insight through the millions of daily touch points with existing and prospective residents that enable our teams to measure, map and orchestrate a superior UDR living experience. This influences our operating tactics from the market level all the way down to the individual apartment home. This approach has led to industry-leading improvements in resident retention, which enhances top line revenue, mitigates expense growth and drives margin expansion.

Elsewhere, our approach to capital allocation is increasingly data-driven and collaborative. Our sophisticated tools allow us to screen investment attractiveness at the asset level across more than 7 million apartment homes nationwide. We have recently executed on the insight from this platform and our teammates to identify an acquisition that holds both an attractive rent growth profile and comes with operational upside to drive yield expansion.

In addition to better informing our buy and sell decisions, we are leveraging our proprietary analytics platform and the wisdom of our teams to influence our NOI enhancing and redevelopment capital expenditures, which we expect will further enhance growth in the future. Collectively, we are enthused about the innovation we continue to deploy that drives resident, associate and shareholder value. The initiatives and the platforms we have built aligned with our long-term strategy, enhancing capital allocation decisions and drive cash flow accretion. When coupled with our investment-grade balance sheet and substantial liquidity, we have positioned ourselves to attractive results for years to come.

Moving on, we continue to build on our position as a recognized leader in corporate stewardship. With the release of our seventh annual corporate responsibility report 2 weeks ago, we detailed the efforts that we enabled UDR to become a more sustainable and resilient company, one that has been recognized as a top workplace winner in the real estate industry for the second consecutive year. Our achievements reflect the engaging employee experience we have built, solidifies our stature as an employer of choice and deepens our rich history as a leader in corporate stewardship. I'm proud of all we have accomplished, and I look forward to sharing more success in the years to come.

Finally, I and the other members of the Board of Directors are excited to welcome Rick Clark to UDR as our newest Board member. Rick joined us earlier this month, and his appointment is the latest move in the Board's refreshment process that also included the departure of 2 long-tenured directors earlier this year. Rick brings a wealth of real estate investment and capital markets experience, having served Brookfield in various senior leadership roles for over the course of nearly 4 decades, and we look forward to embracing his perspective as we advance our strategic initiatives.

In summary, UDR has an established history of innovation, a demonstrated track record of delivering attractive shareholder returns and a collaborative team with a deep bench to execute our strategy. I remain optimistic about the prospects of the apartment industry given favorable long-term fundamentals. And UDR will continue to harness data in an effort to make decisions that drive cash flow, enhance our value proposition and stature within the industry.

With that, I'll turn the call over to Mike.

Thanks, Tom. Today, I'll cover the following topics: our third quarter same-store results, our full year 2025 same-store growth guidance and expectations for operating trends across our regions.

To begin, third quarter year-over-year same-store revenue and NOI growth of 2.6% and 2.3%, respectively, exceeded consensus expectations and were driven by: first, 0.8% blended lease rate growth, which was a result of renewal rate growth of 3.3% and new lease rate growth of negative 2.6%. Blends began the quarter ahead of our expectations, but over the last 45 days have decelerated beyond typical seasonality, which we largely attribute to the economic uncertainty. This led to our third quarter blends being below our prior expectations of 2%.

Second, and more positively, annualized resident turnover was nearly 300 basis points better than the prior year period. This enabled us to unlock both revenue and expense benefits that resulted in NOI growth above consensus. Third, occupancy averaged 96.6%, which was 30 basis points higher than the prior year period. And fourth, other income growth remained strong at 8.5%, driven by continued innovation along with the delivery of value-add services to our residents.

Shifting to expenses. Year-over-year same-store expense growth of 3.1% in the third quarter came in better than expectations. This positive result was driven by favorable real estate tax growth, insurance savings and constrained repair and maintenance expenses. Collectively, expenses across these 3 categories, which account for nearly 2/3 of total expenses, grew a mere 1.9%. Based on our year-to-date results through the third quarter and recognizing the trends we have experienced thus far to begin the fourth quarter, we adjusted our full year 2025 same-store revenue growth guidance midpoint to 2.4% from 2.5% previously.

Occupancy, other income and bad debt have outperformed, which largely neutralized the impact of a lower contribution from blended lease rate growth through the end of the year. Positively, more moderate real estate tax and insurance growth led us to enhance our full year same-store expense growth midpoint by 25 basis points to 2.75%. Combined, we have reaffirmed our full year 2025 same-store NOI growth guidance midpoint of 2.25%. While the near-term operating environment presents some challenges, we have taken action to position ourselves well on a relative basis.

In our favor is the fact that we have only 15% of our annual leases expiring in the fourth quarter. We strategically shifted approximately 5% of our lease expirations out of the fourth quarter in anticipation of a more challenging leasing environment due to both seasonality and the sheer volume of units and lease-ups. This approach has benefited us as occupancy remains in the mid-96% range and aligns with our approach to maximize total revenue.

Looking ahead, the building blocks for 2026 same-store growth are coming into focus. Based on our revised outlook for blended lease rate growth, we are forecasting a 2026 same-store revenue earn-in that is approximately flat. This compares to our historical average of approximately 150 basis points and our 2025 earn-in of 60 basis points. Actual earn-in will depend on our results through the rest of the year, and we will provide 2026 guidance in February that will address our outlook for drivers of same-store revenue and expense growth.

Turning to regional results. Our coastal markets are performing near the high end of our same-store revenue growth expectations, while our Sunbelt markets have lagged. More specifically, the East Coast, which comprises approximately 40% of our NOI, continue to exhibit strength with third quarter weighted average occupancy of 96.7% and blended lease rate growth of 2%. Year-to-date, same-store revenue growth of approximately 4% is at the high end of our expectations for the region. New York has been our strongest market in this region, driven by continued healthy demand and relatively low approximate new supply completions. Boston and Washington, D.C. have had similar success year-to-date, though we have experienced some cautious indicators recently due to a slowdown in job growth among some of the largest employment sectors in these 2 markets.

The West Coast, which comprises approximately 35% of our NOI has demonstrated the strongest positive momentum and performed better than expected year-to-date. Third quarter weighted average occupancy for the West Coast was 96.7% and blended lease rate growth led all regions at 3%. Year-to-date, same-store revenue growth of 3% is close to the high end of our full year expectation for the region. We continue to see particularly strong momentum in San Francisco Bay Area, which delivered blended lease rate growth of 7% during the quarter. San Francisco, alongside Seattle are our 2 top-performing markets in terms of year-to-date NOI growth.

Annual new supply completions in 2026 are forecasted to be low at only 1% of existing stock on average across our West Coast markets, which we expect will lead to relatively favorable fundamentals in the coming quarters.

Lastly, our Sunbelt markets, which comprise roughly 25% of our NOI, still lag our coastal markets on an absolute basis due to the lingering effects of elevated levels of new supply combined with economic uncertainty. Positively, much of this supply continues to be met with strong absorption, though it has come with a general lack of pricing power. Third quarter weighted average occupancy for our Sunbelt markets was 96.5%, with blended lease rate growth of approximately negative 3%.

Year-to-date same-store revenue growth for our Sunbelt portfolio is slightly negative, which lags the low end of our full year expectations for the region. Among our Sunbelt markets, Tampa continues to perform the best, while Austin, Dallas, Denver and Nashville continue to work through elevated levels of lease-up inventory from recent supply deliveries.

To conclude, we delivered attractive third quarter results. Same-store revenue, expense and NOI growth were all better than expectations. Current leasing conditions are not as robust as we previously expected them to be, but we have taken action to position ourselves well on a relative basis. Longer term, the combination of a broad shortage of housing in America, a continued decrease in new supply across most markets and the elevated cost of homeownership should bode well for occupancy and pricing going forward. We will continue to tactically adjust our operating strategy for each market to maximize cash flow and leverage our innovative culture to drive initiatives that enhance our growth profile.

My thanks go out to our teams across the country for your hard work and ability to drive results across all market conditions.

I will now turn over the call to Dave.

Thank you, Mike. The topics I will cover today include my initial firsthand impressions of UDR, our third quarter results and our updated full year guidance, a summary of recent transactions and capital markets activity and a balance sheet and liquidity update. I'm delighted to be a part of the UDR team after following the company closely from the outside for about 20 years. I'd like to share a few of my initial impressions from the inside.

First, I'm honored to lead a high-caliber and experienced finance team that has allowed me to make a smooth transition. My 5 partners who comprise our finance leadership team and report directly to me have been with UDR for an average of 13 years, and they show up to win every day. Second, UDR's culture of innovation has carried over to the investment side of the house, where our analytics effort is increasingly informing our decisions on CapEx, redevelopment, acquisitions, development and dispositions. Our capital allocation process is highly collaborative as it draws on insight from across the organization. The team's priorities are encapsulated in the heat maps for both sources and uses of capital that we publish, and we are aligned on the goal of driving long-term cash flow growth for shareholders.

Third, operations. I have long respected the company's operational acumen, which I have witnessed in person on visits to dozens of UDR communities over the years. Now that I'm here, I appreciate the interplay between the corporate team in Denver and our colleagues in the field, and I am impressed by the team's ingenuity and tenacity as we navigate today's fluid operating environment. Overall, I'm inspired by the drive and camaraderie I've seen across the company and how innovation is embedded in our culture.

On to third quarter results. FFO as adjusted per share of $0.65 exceeded our previously provided guidance expectations. The $0.02 or 3% FFOA per share beat to our guidance midpoint was primarily driven by NOI and the benefit related to an executive departure. This beat led us to raise our FFOA per share guidance range for the second time this year. Our new full year 2025 FFOA per share guidance range is $2.53 to $2.55 per share. The $2.54 midpoint represents a $0.02 per share or approximately 1% improvement compared to our prior guidance. Looking ahead, our fourth quarter FFOA per share guidance range is $0.63 to $0.65.

Next, a transactions and capital markets update. First, we received more than $32 million in proceeds from the successful payoff of our preferred equity investment in a stabilized apartment community located in Los Angeles. Second, as part of recapitalizations, we fully funded a total of approximately $60 million at a 10.5% weighted average contractual rate of return across preferred equity investments in 2 stabilized apartment communities. One is located in Orlando, Florida; and the other in Orange County, California.

Positive property level cash flow allows for approximately 2/3 of our contractual return to be paid current in cash. This aligns with our approach to focus on investments with high current pay, lower LTV and that screen favorably within our investment analytics platform. This discipline enhances the safety and performance of these deals.

Third, subsequent to quarter end, we entered into an agreement to acquire a 406-apartment home community located in Northern Virginia for $147 million. The multipronged decision to acquire this asset was based on insights from our predictive analytics platform, our assessment of future CapEx needs and the operation team's on-the-ground perspective. In fact, the community is directly adjacent to an existing UDR property, which should drive efficiencies once placed on our operating platform. We are on track to close this deal in the fourth quarter and plan to fund it with dispositions currently in process. As a pair trade, we expect this transaction to enhance the long-term outlook for portfolio level cash flow. As a result, we have increased the midpoints of our full year 2025 acquisition and disposition guidance by approximately $150 million each.

Fourth, during the quarter and subsequent to quarter end, we repurchased approximately 930,000 shares at a weighted average share price of $37.70 for a total consideration of $35 million. These buybacks were executed at an average discount to consensus NAV of 20% and an approximate 7% FFO yield.

And fifth, during the quarter, we extended the maturity date of our $350 million senior unsecured term loan by 2 years to January 2029 with two 1-year extension options. We executed this extension at a 10 basis point lower effective credit spread compared to terms of the prior agreement. Concurrently, we entered into a swap agreement through October of 2027 for $175 million under the term loan at a fixed rate of 4%.

Finally, our investment-grade balance sheet remains highly liquid and fully capable of funding our capital needs. Some highlights include: first, we have more than $1 billion of liquidity as of September 30. Second, after we repay $129 million of secured debt at maturity at the beginning of November, we will have $357 million or 6% of total consolidated debt scheduled to mature in 2026. And third, our leverage metrics remain strong. Debt to enterprise value was just 30% at quarter end, while net debt to EBITDA was 5.5x, which is squarely in our target leverage range.

In all, it was a highly productive quarter for UDR. Our balance sheet and liquidity remain in excellent shape, and we are focused on capital allocation decisions that drive long-term cash flow per share accretion.

With that, I will open it up for Q&A. Operator?

[Operator Instructions]

We take the first question from the line of Eric Wolfe from Citi.

It's Nick Joseph here with Eric. I was hoping you could walk through how you're going to the assumption for a flat earn-in for '26 just based off of the rent growth that you've achieved year-to-date and then also what's assumed in the fourth quarter guide?

Nick, it's Mike. I'll kick it off here. And maybe a couple of points even before I get into earn-in just because we've gotten a few questions regarding deceleration to the back half of the year.

So I think first, it's important to talk a little bit about just how well we've done through the first 9 months of the year. And the fact that we're within, call it, 10 or 20 basis points of coastal peers in terms of total revenue growth, and basically beating every peer across our markets on a head-to-head basis as it relates to peer median wins. The team has done an incredible job. And just as a reminder, our focus is always on total revenue growth, and it's playing out as we would have expected.

I'd say secondary to that and more specific to what we experienced during the quarter and for the remainder of the year is a little bit lower demand after Labor Day in terms of traffic and a little bit more of a cautious resident was apparent to us. Going forward, we believe that we have a strategically set ourselves up to drive occupancy back into the high 96% range in the fourth quarter. And a lot of that has to do with our strategy to drive down our expirations. That's starting to play out in front of us. In addition to that, we're constantly focused on individual residents at the unit basis as well as the property basis. And so we'll continue to lean into that.

Specific to our earn-in, this will be in flux for the next 60 days or so as we navigate through the back part of 4Q. And as I mentioned in my prepared remarks, we do expect a relatively flat earn-in when it's all said and done, and that would assume that our blends are roughly negative 1%, negative 2% in the fourth quarter. And that earn-in of, call it, flat. It's not all across the board, across markets, regions. They're a little bit different.

And just to kind of size that for you. The East Coast, my expectation today is probably closer to that 40 to 70 basis point range. The West Coast is a little bit better, maybe in the 50 to 80 basis point range. And then in the Sunbelt today, we're expecting around negative 120 to 150 basis points, just given the supply backdrop and what we're dealing with there. So it gives you a sense for what we're seeing today. But again, that can change based on what happens with market rents.

Nick, this is Toomey. Just I think it's a great question. And I think Mike gave you a really good set of color points. Backing up and maybe looking at it from a high-level standpoint, I'd say this, we've mentioned a number of times the amount of data we're capturing on individual customers, traffic patterns, renewals, et cetera, literally on a daily basis. And what it's screening to us is a very cautious customer. And you can see that from the time we take -- send out a notice to the length of time it takes them to respond to the traffic patterns, how long they spend on our communities, at what price point our Internet traffic is.

And so with that backdrop of a cautious customer, I think you'd say, well, how have we actioned on that data. And you saw and you have -- our strategy is really an occupancy first, and we'll match the market on rate. But we think that sets us up for the future. If this cautious customer remains, then we've already captured our occupancy and then it's focused on renewals and cash flow growth. And if it ticks up, you're going to see our ability to pivot and price because we're full.

So I think you have to always look at these things not in a blend per se, what data are you looking at? What decisions are you making, how often and what are they driving towards? And in our case, it's maximize revenue, maximize cash flow. And there's a lot of things that go into that. But what I'm very proud of is how Mike's team has performed over a number of years, a number of cycles and in particularly, how we're set up right now.

We take the next question from the line of Steve Sakwa from Evercore ISI.

This is Sanket, on for Steve. Can you help explain what's driving so much variability within renewal rate growth quarter-on-quarter for you guys compared to your peers? And any specific things impacting that? And should we expect this to more normalize going forward? Or this is more related to seasonality and how you guys are responding to the demand you're seeing on the ground?

Yes, it's a really good question, and it kind of goes along with some of the prepared remarks and what we were just talking about a little bit is just some of the headwinds we're facing pretty much across the portfolio today, just in terms of consumer sentiment, what's happening with the jobs, immigration policy and then you add in the supply that we're facing down in the Sunbelt, and you have a different dynamic across the different regions.

And for us, expectations are that it's going to be a little bit weaker here in the short term. Tom mentioned it, we're driving our occupancy up. And it does take a real focus on that individual resident and looking at property by property to try to maximize both total revenue as well as cash flow. So again, expectations are we're kind of in the thick of it right now. This is that normal period of time where demand starts to fall off. We'll see what happens as we move into next year.

We take the next question from the line of Jamie Feldman from Wells Fargo.

I guess just sticking on the theme, I'm sure you've paid attention to what your peers in the sector have done in terms of occupancy change, new lease renewal rate. And it looks like across the board, UDR has had some of the weaker results. Is there something unique to the portfolio? I know you're starting from a higher occupancy level. And Tom, I appreciate your comments on occupancy being king. But is there something else you guys can point to or that we should kind of read from this data or not read from this data?

Jamie, it's a good question. We've been digging into this as well. And ultimately, the way I started the call was around our total revenue growth and how that performance relates back to some of the peers. You can look market by market and you look as a whole, we think that we've done a pretty tremendous job throughout the year. That being said, when you break it down and look at some of the metrics and specific to blends, during the quarter, we had, call it, 80 bps at the portfolio level. When you break it down and look at coast for Sunbelt, our coast was right around 2.3%. So still seeing relatively strong growth out of the coastal markets.

The Sunbelt has been a little bit weaker than we expected. I've been talking about this over the last couple of months. And even in the prepared remarks, we talked about being at the low end of our guidance here. We've just seen a little bit more of an occupancy-first approach through a lot of the lease-ups that are happening in and around our properties that put pressure on our rents. But when you look at that total revenue growth and again, compare us against some of the peers within these markets, we are handily winning on a head-to-head basis. And so it points to things we're doing with other income, how we're diving into the bad debt initiatives, We are driving significant total revenue growth, and I'm proud of the teams for their efforts, and I really think it's playing out.

Yes. Jamie, this is Chris. I would say one other thing that potentially clouds the waters a little bit is the definition of what blended lease rate growth is. So when Mike and team put it together, that's all of our leases. If you just did a like-for-like 12-month comparison, you'd obviously get different numbers. So you just got to make sure that as people are really myopically focused on blends that they're comparing apples-to-apples over time.

We take the next question from the line of Rick Hightower from Barclays.

So obviously, there's been movement in the management team and you hired -- you brought along a pretty high-profile Board member in Rick Clark. So just help us understand some of the bigger questions for the company around future succession, the depth of the bench, what changes might we expect from the outside given what's occurred?

Rich, I appreciate the question. I guess embedded in that is a number of different ones. First, let me start with the Board. Yes, Rick is a great guy. I look forward to adding his perspective to the boardroom. And clearly, it's part of our overall plan of refreshment of the Board. You saw 2 senior Board members step off earlier this year and bringing on Rick, and we continue that process as a collective group as a Board. And we'll continue to look at refresh candidates and that process. So that's just our normal course of business, and we're delighted to have Rick.

With respect to the second part, management and succession, you look at it and both Dave in his prepared remarks commenting on the seniority experience level and knowledge in the finance team, he's inherited a very strong capable group, and he stepped right into that and that has gone off just as planned, if not better than planned.

And with respect to the rest of the organization, succession obviously, at my level, a Board-level topic. We continue to have that on an ongoing basis and feel comfortable that we have a plan both in a range of outcomes and time frames, and we'll continue to refresh that as time evolves.

The rest of the team, very experienced group. You can see the number of people we've brought through the company that remain here, but also the success of those who have left and gone on to run other companies. So I tend to think of us as a talent producer, grower. And sometimes you can harvest that internally and sometimes it grows outside the envelope, but I'm very proud of both the depth the capability of the group and the cycle testing of this group. And we're currently in one of those cycles where it will test the group, and they've performed very well.

We take the next question from the line of Jana Galan from Bank of America.

Question on the capital allocation priorities. Recently, you've been doing a little bit of everything between the acquisitions, share buybacks and debt and PE investments. Can you maybe speak to where you're seeing kind of more compelling opportunities as you look forward?

Jana, this is Dave. Thanks for the question. And I'll start by talking about the capital allocation process itself because it is increasingly collaborative and data-driven. Our capital committee assesses each opportunity in a collaborative fashion, and these are our goals: match funding to remain leverage neutral, and that's one; and two is improving the portfolio's long-term cash flow growth prospects.

Therefore, when we think about the primary sources of capital, they tend to be 1 of 3 things: DPE paybacks; contribution of assets into JVs; or disposition of assets for which the capital committee has deemed that we have relatively low go-forward IRR potential. And then from there, we look at a menu of redeployment opportunities that we also show on our capital allocation heat map. Top priorities are consistently investing in the operations platform, NOI-enhancing CapEx and redevelopment.

What's recently moved up in terms of a priority and we executed on it would be share buybacks. And we find that to remain a compelling opportunity for us. And then at times, where opportunities present itself, as we've improved our disposition process, you may see us do some asset recycling into acquisitions or activate some of our land bank.

We take the next question from the line of Austin Wurschmidt from KeyBanc Capital Markets.

Mike, I was wondering if you could just speak a little more to the inflection that you've seen in some markets like D.C. and Boston, given it is about 1/4 of the portfolio. And I'm just wondering whether you think that the softening is a temporary phenomenon and seasonal or if you think these trends could continue to persist into 2026, given some of the indicators like job growth that you had referenced in your prepared remarks?

Sure. Austin. I think first, maybe specific to D.C., just to give a little bit of color here, 15% of our NOI, we are 40% urban, 60% suburban. So we do have a very diversified portfolio in D.C., and that's helped us produce the #1 total revenue growth against the peers year-to-date. And so I'm proud of the teams for their efforts there.

I think as you go out further from kind of D.C. Central, we've seen a little bit more growth. I mean, specific to places like Manassas, Woodbridge, even as you go out to Alexandria and Reston, we've seen upwards of 4.5% to 6% growth out in the suburban areas. You get down to that central D.C. area, we are still seeing about 2% to 3% growth. So still pretty strong, but a little bit weaker than the suburbs.

Overall, D.C., we have seen a little bit of a deceleration over the last 60 days or so just in terms of traffic, how that's translated into blends, a little bit more on the concession front, but we're still running about 96.5% occupancy. And we continue to assess and understand what's going on with our residents. And I'll give you an example. We have about 10,000 units in D.C., and we've had probably 70 to 80 residents that we are in open communication with right now just regarding the impact of the environment out there, how it's impacting them from a furlough standpoint and getting paid. And so we're going to continue to have those open and active conversations with them to make sure that we're working with them going forward.

Specific to Boston, to your point, it is another rather large market for us. It's about 11.5% of our NOI. We are more 30% urban, 70% suburban here, still seeing occupancy in that 96% to 96.5% range. A little bit more pressure in the North Shore for us because we've had more of a supply impact than a demand impact, seeing a little bit more strength coming out of places like the South Shore as well as downtown in Boston.

We take the next question from the line of Michael Goldsmith from UBS.

This is Ami, on with Michael. We were wondering why did you make the decision to realign the fourth quarter leases? We've now seen 2, 3 years of market rents peaking early and pretty soft pricing power in the fourth quarter. But is there anything in the analytics that's pointing to indicate that this is going to remain the case, and we won't shift back to a more pre-COVID demand trend?

Yes. For us, originally, it stemmed back to supply. And so when you think about the impact of supply and the peak of it coming in the middle of the year, our expectation was you're still going to have to lease up during the fourth quarter where demand typically falls off, and so we are trying to get in front of that. And so when you think about that 15% of our leases expiring in the fourth quarter, specific to the Sunbelt, it's probably closer to about 7% to 8% that we moved out of the fourth quarter into next year, where we do feel like once we get through this supply, we will be in a better place to start pushing rents again. And so originally, it was positioning ourselves based on supply, and it just so happens to help us out given the fact that demand has fallen off a little bit more than we expected as well.

The next question from the line of Adam Kramer from Morgan Stanley.

I just wanted to ask about concessions in markets. And I guess both what you guys are offering maybe on average across the portfolio and then specifically in maybe some of the Sunbelt markets and then also what you're sort of seeing more broadly in these markets outside of your portfolio in terms of concessions?

Sure. I'll provide a little color there, Adam. I think for us, portfolio-wide, what we're seeing today is about 1.5 week concession. That compares to about, call it, 0.07 to 1 week about 3 months ago. And so it has ticked up a little specific to some of our markets and regions, where I'm seeing a little positive activity is where it's less than 1 week. That's in markets like Baltimore, Boston, Nashville, Orange County and definitely San Francisco. Where I've seen a little bit more pressure over the last probably 2 months or so, it's in Texas, Florida, D.C., L.A. and even parts of Seattle today.

We take the next question from the line of John Pawlowski from Green Street.

Dave, could you share the underwritten year 1 NOI yield on the Northern Virginia acquisition? And then Dave or Mike, could you give us a sense how much margin lift you will get at the 2 adjacent or close to adjacent properties from potting operations versus if you just own 2 assets far apart in that market?

JP, thanks for the question. Happy to talk about The Enclave acquisition. And it really is an output of this collaborative and data-driven investment process. And so we'll tackle it as a team. I'll start with a few high-level thoughts. Chris, who has built an impressive investment analytics platform, he can speak to that, and then Mike can clean up with the operations perspective.

About your question directly, the year 1 yield that we're underwriting is about mid-5%. That's consistent with the opportunities that we observed in that market. In D.C., there are some questions about that market given the government shutdown. It's a serious situation, but we believe it will prove to be temporary as has been the case in the past.

And our investment decisions are made with a long-term perspective in mind. D.C.'s economy has been and will continue to be partly reliant on the federal government, but the share of jobs tied to the federal government has declined in recent decades as the local economy has diversified around other sectors, including tech, and we expect this to continue. And we're increasingly playing not a market level game, but an asset level game when we select assets, and Chris will get into that.

Before I hand it off to him, I just wanted to talk about the funding source, which is dispositions. As we assess dispositions, we consider several factors, including rent growth outlook, CapEx outlook per our team's intimate familiarity with our assets and then the operation team's perspective. And importantly, on this one, we're utilizing a reverse 1031 exchange to preserve tax capacity for buyback activity. Go ahead, Chris.

Yes, sure, Dave. Thanks. And before I get into the specific analytics around Enclave, maybe I'll take a quick step back just because I want to make sure everyone on the call knows what we're referring to when we speak to our investment analytics platform.

So we've really been working on our investment analytics platform for a number of years now. I would tell you, over the last year, 1.5 years, though, I think we've really supercharged our progress. That's through some investments in technology solutions, software solutions, dedicated headcount that are expanding and improving the platform. I'd tell you the first thing to probably know about the platform is that it is expansive. It covers 35 markets currently, including all of our markets. That's about 7 million apartment homes, utilizes a large amount of proprietary UDR data. Obviously, UDR has been around for a long time. We do have a lot of data use, which is great. But we also use a significant amount of third-party data often in quite unique ways, I think.

The second thing to know, I would say, is that it's highly predictive of future relative rent growth at the market, the micro market and the asset levels. But by no means, and I'd be the first one to tell everyone this, it's perfect. It's an important tool in our process, but it's definitely not the only tool, a lot of things like operational upside, which Mike can cover in a second CapEx opportunities, et cetera.

Specific to Enclave, I would tell you, as we look at the analytics, first off, D.C. is a neutral weighted market for us. That means we don't think it's going to necessarily outperform the portfolio or underperform the portfolio from a forward rent growth perspective over the next 6-plus years. Micro market around Enclave, somewhat similar, a little bit better than neutral, so maybe a little bit above average. But where the analytics really like the transaction is at the asset level. And that's very important to us because I kind of remind everyone, in case you've heard this before, but being right on the asset is about 2x more impactful to forward rent growth than being right on the market at the end of the day.

So the analytics, what do they like about Enclave? Well, they like things like unit size, they like things like unit mix, the rent level, the supply dynamic around that property, et cetera. So we feel good about it from an analytical perspective, and then Mike can fill in on what the operational upside is.

Yes. Thanks, Chris. A few things for me. I think, obviously, the first thing is the proximity. The fact that it's across the street from one of our assets today and arguably one of our better teams that we have out there. And so we're excited about that.

When we think about margin, when we look at a trailing 12 to where it could go over, call it, a 3-, 4-year period of time, we see about 500 basis points in expansion. And so we think we can get it up to about 85%, which is close to our D.C. average today. And we're going to do it through things like headcount reduction, parking initiatives, adding package lockers, doing some flooring ROIs, things of that nature. And I'd tell you, even in addition to that, we see low supply out there, average income of about $130,000. It's located just off of I-95, and this is the best-performing submarket in D.C. for us today.

We take the next question from the line of Alexander Goldfarb from Piper Sandler.

A question on retention. It's been the saving grace of apartments this year in terms of healthy renewal spreads and record low turnover. But I guess at some point, that probably stops or slows down and reverses. So are you guys concerned just with how jobs are looking, layoffs, all the sort of nervousness that you and other apartment REITs have talked about? Are you guys nervous that retention may start to slip and what has been the saver may start to be a headwind?

Alex, it's Mike. I'll kick it off and everybody else can jump in. I think for us, you point to some of the facts. And so you go from when we started really rolling out our customer experience project back in 1Q of '23, we have had the most improvement over the peer group since that period of time. We've been able to reduce our turnover by about 600 basis points since that period of time. We continue to see quarter-over-quarter declines in turnover.

I can point to what we see today for October as well as the rest of the fourth quarter. My expectation is that's going to continue to be down on a year-over-year basis. And a lot of that has to do with focusing on the process, focusing on the initiatives and really diving into the data to understand how we can change that trajectory. And it's truly going from that transactional to more of a transformational shift and focusing on the lifetime value of our customers.

So I think there's still room here. I think some of the things that we're working on right now that's going to allow us to continue to push our turnover down is just the touch points reaching out to our residents. In fact, we've had about 30,000 additional touch points this year to be more proactive versus reactive. That's paying dividends today. We're allocating resources to solve things on the move-in experience, callback tickets, even backlog issues, that's making a difference. We put in place playbooks that's around that move-in experience as well as just throughout their life cycle that works and what doesn't work. That's paying dividends.

And I think the biggest thing that we're leaning into right now is just the sheer volume of getting positive reviews. When we look at our website and we look at how people are deciding where to live and how long to stay somewhere, we've really been able to identify that 4- to 5-star review is very impactful. And for us, we've had about 5,000 year-to-date 4- to 5-star reviews. That compares to about 1,500 this time last year. And so we think that's going to continue to help us as we move forward, too. So at the end of the day, we still think there's a lot of room to lean in here and really to drive these results.

Alex, this is Toomey. Just to add on, certainly, housing policy in America has evolved as long as you've been in this industry in a number of ways. And right now, I'm more interested in seeing what happens in the Fannie, Freddie going public and what happens to mortgage rates because of that. And so there are positive things to look at.

You're right, our business is driven on the employment picture and ability for that. Certainly with the current unemployment number, if you take the accuracy of any number out of D.C. right now, bodes well. And we'll just see how this plays out. But I think the housing policy aspect, I don't see much of a major. I see it more of a tailwind than a negative. And on the employment picture, it's going to be played out.

And just to cap it off, I think Mike and team are really more responsive to the individual interactions and decisions just as Chris has highlighted the individual asset and the individual performance. And so this is really our overriding theme, which is how do we convert data to actions to increase cash flow at a higher velocity and stop trying to just ride the waves, but how do we get on top of it and stay there and be anticipatory of it.

So I think the company is built for a lot of different economic cycles. Management team has been through a lot of different ones. We'll manage the cards as they're dealt, so to speak.

We take the next question from the line of Julien Blouin from Goldman Sachs.

Dave, I was wondering what you make of the JV with LaSalle given some of the issues with deployments through that channel in recent quarters and whether that falls maybe lower on your list of capital allocation priorities?

Julien, thanks for the question. Actually, it's quite high on our list of priorities, the LaSalle JV is. And consistent with last quarter's update, we do continue to work on a contribution of assets from our balance sheet that fits mutual goals shared by them and by us. And this will allow us to earn fees and use proceeds to expand our portfolio with new investments that we find compelling. So I think that you'll see more news from us on that front soon. The incremental buying power in the JV is a bit over $500 million, and we're really excited to both explore these balance sheet contribution opportunities as well as external acquisitions as we grow that JV going forward.

We take the next question from the line of John Kim from BMO Capital Markets.

Thumbs up on the one question policy. I wanted to ask about your market strategy. So I'm trying to juxtapose increasing your exposure to D.C. at this time, just given the demand headwinds. I know you talked about that acquisition quite a bit. But juxtapose that with your decision recently to lower your exposure to New York. And if you could provide an update on the marketing of Columbus Square that your partner is doing and whether or not you plan to participate in that process?

Why don't I start off, this is Toomey. I'll ask Andrew to give you an update on Columbus and where that stands and then maybe I'll give some more color on the other aspects. So...

Thank you, Tom. This is Andrew. As everyone knows, our JV partner is marketing for sale. Its stake in the venture and is currently working through that process is what I would tell you. We are not either a buyer of that stake or changing our ownership position. And we will continue to manage the venture on a go-forward basis after the sales process and that is completed.

With respect to markets in D.C. and New York, you're going to see us, as Chris has pointed out, recycle individual assets. And so we have a number of assets in the marketplace. You may not follow them, but I think there's a total of 6. D.C. is part of that composition of what we're exposing to the market. And I think you'll see us less targeting markets or balancing the portfolio and looking at individual assets. We've got over 180, and we're trying to say what would that -- the worst one, if you will, or the one with the least amount of prospects in the future trade for versus something that we're excited about as you saw us just trade.

So we're looking at them in individual, not in an overall market type of communication, and that will happen both on the buy and the sell side of the equation.

Yes, John, I would just follow up real quick on the New York assets because they were a little bit unique as well, and Andrew can jump in with some of his thoughts if he wants to. But One William, it was in our New York bucket, but obviously, it was New Jersey. It was probably 30, 40 minutes outside the city. They had some rent control there that we were looking at the regulatory issues, and that potentially was going to change.

So that one was kind of an orphan in the New York. It was inefficient. We decided that the price made a lot of sense, and we were able to offload it at the beginning of '25. As far as the Brooklyn asset, that was 100% rent stabilized. So depending on what you think is going to happen going forward in New York City right now, that was a rather prescient, I would say, sale at the time. We obviously didn't know that this was going to happen either potentially, but we feel very good about that one. And yes, that was less a little bit about market than more about, "Hey, maybe these are not the most efficient assets in the portfolio."

We take the next question from the line of Alex Kim from Zelman & Associates.

I appreciate the time today and applaud the one question policy. Could you talk about your other income growth and provide some more detail on how it contributed to sequential same-store revenue growth? And as part of it, have you seen any realized benefits from funnel?

Sure. Specific to other income, it's always good to size it. And this typically makes up around 11.5% of our revenue. So roughly $175 million out of $1.5 billion. What we saw during the quarter was right around 8.5% growth across this line item. And some things were higher than others, and I'll give you a few examples. Our parking initiative was up around 11% or $1.3 million. WiFi has been a continuous rollout for us over the last 12 to 18 months. We saw about a 63% or $1.5 million increase during the quarter.

And then we saw things like our package lockers, pets, things like that, that were up in that double digit -- low double-digit range as well. On the slight negative, if I had to give you one, we are seeing some less activity on things like short-term furnished rentals, common area rentals, even some of our corporate exposure at this point has come down a little bit. So we've been able to offset that, obviously, still driving very high other income growth and going to continue to lean into those initiatives to drive outperformance into the foreseeable future.

Specific to funnel, where we're seeing a little bit more is transparency. So we are able to see what's going on at the property and vice versa with our centralized teams here. Everybody has one view on what's happening with our customers, our prospects. It's allowing us to be a little bit more nimble. It's allowing us to lean into some of those 30,000 touch points I mentioned earlier just because we have more data that's going to the system. It's allowing us to drive more and quicker decisions as it relates to the customer experience project. And so where it's paying dividends is really on that turnover.

There are no further questions in the queue. I'd just like to hand the call back over to the Chairman, President and CEO, Mr. Tom Toomey, for his closing comments.

I want to thank all of you for your time, interest and support of UDR. We look forward to seeing many of you in the upcoming events. And with that, take care.

Ladies and gentlemen, the conference of UDR, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.