UDR - NYSE

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

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.