UDR, Inc. (UDR) Q2 2026 Earnings Call Transcript

Greetings. Welcome to UDR's Second Quarter 2026 Earnings Call. 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 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 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 our 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 and 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 raise. 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 one apartment community and are under contract to sell three more. Estimated gross proceeds from these four 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 three 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 two 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 two communities in Portland and one in Los Angeles through our debt and preferred equity program. Thinking about these assets as a three-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 uses 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 uses 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 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?

There's been some questions and discussion from investors about UDR potentially being involved with AVB and EQR 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 how that overlays with how you think the business will change going forward?

Eric, I appreciate the question, and we received the same number of inquiries. What I'd start off with is I'm not going to respond to speculation. What I am going to focus on is that the Board and management team are focused on our strategy and acting in the best interest of our shareholders. We always weigh the options presented to 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. We think our strategy as laid out has great potential. We're excited about it, and we'll continue to execute on it.

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 update us on 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. 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, 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, which is 1.5% to 2%. We're seeing continued progress on lower turnover and better cost controls as we move forward. Our coastal markets 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 sustained blends in the Sunbelt markets where we have 25% of our NOI. As we previously discussed, we saw a little bit of pricing weakness during the second quarter that turned into about negative 2% blends. Month-to-date in July, it's a little bit better, around negative 1.5% versus that negative 2%, so slightly better. We're feeling good about where we're progressing and it's more of an elongated season. Specific to renewals, we are still sending out between 5% to 5.5% renewal notices. We're still negotiating around 100 basis points. 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, market rents today feel pretty good. When I look at market rents over the next 4 to 5 months considering normal seasonality, I expect we'll probably continue to see blends around that 2% range. Specific to new leases, you're probably looking at flat. In all regions, we could see flat new lease growth through September, which is a little more elongated than we originally thought when we came into the year.

Great. I guess just you keep reporting many of your peers this historically high retention rate. As we're thinking about the back half of the year, I appreciate all the color you just provided on renewals and outlook. But how should we think about where the cycle is now versus historic seasonality and historic operating conditions? It does seem like the supply pipeline is kind of working its way through the system, so maybe some bigger picture context of what you think 2027 and the next couple of years should look like given what the industry has gone through the last several years?

Jamie, it's Mike. I'll start and see if anybody else wants to jump in. Historically, we would typically see around 50% to 51% turnover, and that's more of a 2010 to 2019 timeframe. Since then, we've focused heavily on the customer experience to drive turnover down. Last year, we hovered around 38% to 39% turnover. Going into the year, we expected it to be roughly flat. Right now, it's trending to about 150 to 200 basis points better, so around that 37% to 38% range. That's significantly different than where we've been. We compare favorably to peers, outpacing them by about 400 to 500 basis points over the last couple of years. That has to do with the work we've done on the customer experience, understanding lifetime value versus transaction, and utilizing millions of data elements every day to tailor conversations and change that trajectory. That has led to reduced turnover, lower bad debt, and better pricing power across new leases and renewals. We're excited about what's coming next. When we think about a Phase 3, it's more around rent roll quality and where we're taking this. We still think there's more runway to drive turnover down and find opportunities to increase pricing. For example, our coastal blends at 3.8% indicate strong growth versus some coastal peers. The teams have leaned into best practices that are working for us. We've created about 40,000 touch points with our existing resident base, which is making a difference. Also, 4- and 5-star reviews are up 50% year-over-year, which improves our marketing and leasing effectiveness. All of this is creating reduced turnover, lower bad debt, and better pricing power.

Jamie, this is Dave. I would also provide a broader historical perspective for the industry that tells us subject to the economic landscape, higher turnover can be a good thing. If we look back to 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 due to strong 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 the following: a 50-year record-high supply, a good stable economy, competing product not affordable. The runway for the rental market looks very solid. Our business is driven by job growth and supply and how we operate. On the things that we control, thematically, we've invested heavily and built tools around data to cash flow conversion. Mike and Dave highlighted fundamentals around how we price the product and how we invest our capital. The refinement of those leads to excellence around operation, excellence around capital allocation, and that will garner a better cost of capital over time. We're excited about the overall simplicity of the strategy and the execution around it and the foundation we've built. I think we're well set up. I appreciate the question, and I want to dig into it more, but we need to move to the next question.

So Dave, I wanted to go back to your commentary on the DPE book and the likely wind down and the earnings impact. I think you said it's about $0.01 dilution for each $100 million not redeployed into DPE. Is it right to think about a cumulative $0.04 annual impact to FFO that could hit at some point? From a timing standpoint, you have two years left to maturity on those investments. How should we think about that timing impact? And is there 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. To start, let's frame the journey 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 for three reasons. The market has become increasingly competitive and we've remained disciplined; we've enjoyed successful paybacks; and we've been able to gain control of some assets we like. We seek to focus on investments where we see upside. Our emphasis on operational excellence and our data-driven approach underpinned by Orion allows us to find opportunities that grow over time. By contrast, DPE returns are capped. To make the transition requires getting from here to there. For 2026, we're not providing guidance on future years, but to put parameters around it: we're going from an average DPE balance of about $550 million last year to an average balance in the $300 million to $350 million range this year. That couple hundred million dollar difference at the spread mentioned of 300 to 400 basis points depending on redeployment into buybacks or redevelopment results in about $0.01 per $100 million. We've contemplated that in our guidance for 2026. The path from $380 million at the end of Q2 to $250 million to $300 million is in guidance. Looking forward, maturities are staggered pretty equally over 2027 through 2031, so the book size will decline over that period. The near-term impact reflects redeploying into assets that may not have growth, but that earnings impact mitigates over time as new investments grow relative to the capped returns on DPE.

Mike, I wanted to touch on Sunbelt trends including your comments about momentum in Austin and Dallas being among the strongest markets across the region. But you really saw minimal new lease rate growth within those regions, even deceleration in the Southwest. Could you expand on the underlying market trends and whether the lower turnover is elongating the pressure on new lease rate growth across the Sunbelt?

Great question, Austin. Starting with Dallas, on an absolute basis blends and occupancy are still strong and it's an important market for us at about 9% of NOI. Today, we're seeing about 97% occupancy there and blends are in the plus or minus negative 1% range, so still feeling some pressure from supply. Notable demand drivers include corporate relocations: Public Storage moved its headquarters to Frisco, supporting up to 1,000 employees; Samsung is moving its headquarters to Plano, supporting about 1,000 employees; and AT&T's headquarters will be located near roughly 2,000 homes. These dynamics are encouraging. In Florida, which is about 10% of our NOI split between Orlando and Tampa, we're seeing momentum in both areas with occupancy around 97% today versus 96% in Q1 and blends around negative 1.5%, which is an improvement from negative 2.5% to negative 3% in the prior quarter. Nashville is a smaller market for us at 2.5% of NOI; occupancy is about 95.5% due to a building being down, causing some friction. Blends remain negative 2% to negative 3% given supply pressure. However, major employers continue to expand in Nashville—Amazon's towers, Oracle's campus, and the revitalization around the new Nissan Stadium are driving demand. If we can get through supply pressures, which we are starting to see, we expect upticks in market rents and renewal growth.

Mike, did you want to tie back to the earlier comment and the question on DPE and dilution about growth? Some color around what we mean by growth.

Yes, absolutely. Whenever we can get our hands on properties and start managing them, we often see a difference. For example, in San Francisco and Oakland, we had a DPE deal in Oakland that has been our best-performing asset in that market. In San Francisco, we had about 8% revenue growth; that Oakland deal saw 14% growth, driven by rents we're achieving—around 20% versus 13% across the rest of the MSA. Another example is Philadelphia: a deal in Center City is seeing about 8% growth compared to roughly 4% for the market. Those are top-line results, and there are significant cost control savings as well. Overall, these assets tend to perform well once transitioned onto our platform.

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

I think a few things stand out as leading indicators. Migration patterns show fewer people leaving MSAs: move-outs from the MSA are around 19% versus 23% last year. Move-ins into our portfolio are similar at around 26% versus 27% last year. We're not seeing doubling up; residents per home remain around 1.8. Rent-to-income ratios are low across our portfolio, around 21%. We have lower cancels and denials today than a year ago, down to about 35% to 37% from just above 40% previously. So applications are more sticky and people are moving in. It's a bit stronger than expected and more pronounced in coastal markets than the Sunbelt, but we are seeing momentum in July in some Sunbelt markets as well.

Michael, Ami, I appreciate the question. The biggest difference is supply and how it's being priced. We're examining renewals, how much is coming online, and seeing that abatement of supply has helped lengthen the leasing season. The backdrop is a solid employment picture across many of our markets, which sets up a better 2027 environment. We won't be facing the same element of supply we had to deal with before, and with continued robust job growth, the outlook is constructive.

Mike, I want to double-click on your comments around new lease trends. You mentioned you think new lease could be flat through September, which would imply about a 60 basis point acceleration versus Q2. Over the last few years, we've seen over 200 basis points of sequential deceleration into 3Q. How much visibility and confidence do you have that new lease can buck that trend this year? What feels different?

The leading indicator I watch is our 30-day trend. When occupancy is closer to 96%, it gives us confidence to test market rents. I have a pretty good idea of where July and August will shake out, which gives me confidence we can continue a similar trend. Market rents fell significantly in some areas last year, especially in the back half, so there may be anniversary opportunities, but we're not banking on that yet. I'm focusing on current sequential trends in market rents, occupancy, and our ability to push. Right now, it feels good: plus or minus 0% on new leases is achievable. If we can get renewals to 4% to 4.5%, we're still in the top end of our 1.5% to 2% range for second half blended growth. If we beat that, we'll take advantage of it. Much of any additional benefit would accrue to 2027, but we'll optimize and drive as much cash flow as possible.

Maybe switching gears a little bit. Could you speak to the new JV with Carmel? It sounds like it came about from MetLife selling their stake in Columbus Square. Is there room or appetite for you or your partner to expand this venture or perhaps expand other ventures with LaSalle as you wind down the DPE book?

I appreciate the question. Carmel Partners is an exceptional, best-in-class Type A developer with deep experience in New York. Looking at the Upper West Side, our data on resident profile and the supply picture indicates a gap in higher price point product. Carmel has the experience to install that product and attract residents that fit the profile. We see IRRs improving with their expertise, and we welcome adding talent where it enhances returns. Regarding expansion beyond this JV, there's always dialogue about optimizing value from assets and how they fit. Our data uncovers opportunities where partnering with capital can enhance returns beyond our scope. We'll evaluate such opportunities opportunistically over time. We're excited about Columbus Square and our joint venture with Carmel.

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

Sure, Brad. Buybacks have been a top priority: $300 million repurchased year-to-date on top of about $120 million in the final four months of last year. This is the most in UDR's history around an episode of dislocation between public and private market values. Regarding future buybacks, we won't provide guidance, but our track record includes an average purchase price around what we measure to be a 20% discount to NAV, so buybacks remain prominent in our capital allocation playbook. At the same time, we're mindful of dispositions' tax gain capacity and other opportunities that pop up.

Congrats on a great quarter. Mike, I 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 the decision to expand exposure there with the development in Northern Virginia?

Yes. To size it, D.C. is about 16% of our NOI and we're diversified across Virginia, Maryland, and D.C. We have seen demand a little weaker in the MSA with occupancy dropping to around 95% due to federal employment effects. On a positive note, our communities are performing relatively well. The D.C. proper 14th Street corridor is outperforming our suburban assets, driven by health, biotech, and defense and national security demand in the region. While the MSA is a bit weaker generally, our portfolio is still around 96.5% to 97% occupancy versus the market average, and blends are roughly negative 1% to negative 2% today in general.

Continuing the line of questioning, could you provide anecdotal comments on strength in New York and the Bay Area? What are you seeing on the ground and what are your expectations in those places?

Yes, happy to. For New York, which is about 6% of our NOI, Manhattan is producing the highest growth. Tech is a strong growth engine and wage growth in Manhattan is around 5% to 6%, supporting renewals and demand. Office leasing volume hit 9.5 million square feet in Q1 2026, the strongest quarterly total since 2019, so New York has been one of our best-performing markets year-to-date. On the West Coast, San Francisco is our strongest market in the portfolio. There's very little supply across the region, return-to-office trends are helping, shopping and dining are revitalized, and rent-to-income ratios remain low. Even with fast rent increases, these rents were depressed during the COVID era, so there's room to capture growth. Office leasing in the region is on pace for a 30-year high with nearly 6.4 million square feet leased year-to-date, and tourism is strengthening, with 2026 visitor spending expected to exceed pre-pandemic levels. We're seeing blends of approximately 13% on the West Coast—very strong growth.

On new lease trends in the Southeast and Southwest specifically: the Southeast was roughly flat sequentially and the Southwest decelerated a bit sequentially from Q1. What are the sequential trends for new leases in those regions and what are expectations for the second half?

When I look at month-to-date trends in July, the Sunbelt is starting to show momentum, much of it driven by new lease growth. In Q2, Sunbelt new lease growth was approximately negative 7% to negative 7.5%. Right now, we're probably closer to negative 5.5% to negative 6%. We're seeing a push on market rents. It's too early to be definitive, but it feels constructive and we'd like to sustain that through the back half of the leasing season.

Mike, you mentioned trends in slowing out-migration from some of your markets have uplifted demand. Could you expand on the markets where people leaving has slowed the most and where you've seen the most benefit?

Great question. Three markets that jump out: Boston is down around 8% to 10%—we're closer to about 20% of move-outs leaving the MSA versus higher last year. Austin is also down around 8% to 10%, so between 15% and 20% today compared to last year. San Francisco is down about 5% year-over-year to around 25% of move-outs leaving the MSA, which is an improvement. Those are the three with the most positive momentum versus last year.

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

Corporate housing is a relatively small part of our business. We have around 500 to 600 corporate leases today spread across many coastal markets. We manage exposure carefully and try to keep it a small book because during COVID we had too much exposure. The largest concentrations are in San Francisco and New York, and corporate housing represents roughly 1% to 2% of our homes today, so it's not a material driver.

San Francisco stood out from a revenue and lease perspective, but expenses were 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 caused expenses to go up? How much of this is recurring?

Great question. That jumped out at us as well. The plus 12% growth in San Francisco is mainly due to a property that went mature during the quarter—it's the Oakland deal I mentioned earlier. We had a prior year tax appeal that was successful, which is causing higher year-over-year growth this year. Aside from that, we're not seeing elevated recurring expense pressures in the market; this is more specific to that property and the tax outcome.

A question on the DPE program. I understand you're winding it down, but I saw you are making a $50 million mezz investment with Carmel. Can you provide perspective on that? Also, isn't funding third-party developers with mezzanine and then coming in at stabilization an attractive way to fund development while taking less development risk?

Alex, this is Dave. On the Carmel deal, we have long operated Columbus Square and will continue to do so. As part of the transaction, there was an opportunity to provide a $50 million mezzanine loan. That commitment was made through an extensive process that was in the market for much of last year and into this year. The DPE runoff decision was made more recently, which is why we're communicating it now. Tom, do you want to add on the second part?

Alex, over 13 years the DPE program performed well early when there was less competition. Over the last couple years, more capital willing to accept deeper risk in the capital stack has made returns less attractive to us. That has led to our decision to move capital to areas with higher expected returns. It's a discipline around risk-adjusted returns and optimizing capital deployment according to our data.

It sounds like New York and San Francisco are doing very well while D.C. is a bit weaker. Could you provide color on other large coastal markets like Boston, Seattle, and L.A.? Things there seem a little weaker. How are they performing versus forecast and what are expectations into the back half? Regarding L.A., you added an asset this past quarter—what was the thinking behind that given the headlines in L.A., and how did you underwrite cap rates or IRRs on that asset?

I'll start with market performance. D.C. is about 16% of our NOI and while the MSA is a bit weaker, our portfolio is still holding up well. For other coastal markets: Boston, Seattle, and L.A. have different dynamics. Regarding L.A., the Santa Monica asset is in a terrific submarket. It's a small asset that Mike and team can operate without incremental staff. That submarket was affected by COVID and supply, but we're intrigued by the upswing and the opportunity to buy below replacement cost. We've seen the team drive outsized growth on similar assets in the Bay Area and Philadelphia. For underwriting, the yield on net assets is somewhat depressed due to prior impacts, but we're underwriting significant burn-off of concessions and operational margin synergies as it comes onto our platform.

I have a follow-up on the $50 million mezz loan. Where does it sit in the capital stack from a loan-to-value perspective? Is it secured by the real estate and not the operating company? And will there be a big redevelopment where NOI comes offline from this parcel of properties?

John, first lien would be first in the stack, mezzanine second, then equity. We'll turn units on with rehabs on turn, so there won't be major vacancy degradation; they turn them quickly. We're working with lease maturities and debating finishes. The lobby and pool deck will get major work and amenitization will be improved. The Upper West Side is a tight market and we like it. Regarding loan-to-value, I don't have the exact number in front of me, but you could think of it in the 40% to 50% range.

I wanted to drill further into assumptions for same-store revenue growth guidance for the full year. What do you have embedded for bad debt levels in the back half versus what we saw in Q2? And any additional detail on the forecasted mid-single-digit growth for the other income bucket would be appreciated.

We've seen a lot of success in the first half on bad debt, driven by improvements in rent roll quality and centralized processes including proof of income and ID verification. We've raised deposits and tightened credit screening. Average deposits are up about 20%, from roughly $640 to $760. Credit screening scores are up about 20 points, from 710 to 730. Those changes have improved collections. For the back half, we expect to hover around 99% to 99.1% collections, which is better than we expected at the start of the year, but we haven't adjusted the back half of guidance yet as we want to see how trends continue. For other income, we've seen multi-year success. Expect mid-single-digit growth—roughly 5% to 7%—led by the Sunbelt, where regulatory backdrops allow more growth. That other income helps drive overall revenue growth and we feel good about our position versus peers.

First, let me thank you for your time, interest, and support of UDR. We're always available for a call, email, or any further communication. With that, take care.

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