Greetings, and welcome to UDR's Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo. You may now 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 period, we ask that you be respectful of everyone's time and limit your questions to one plus a follow-up. 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 and CEO, Tom Toomey.

Thank you, Trent, and welcome to UDR's Second Quarter 2025 Conference Call. Presenting on the call with me today are President and Chief Investment Officer, Joe Fisher; and Chief Operating Officer, Mike Lacy. Chief Financial Officer, Dave Bragg, and senior officers, Andrew Cantor and Chris Van Ens will also be available during the Q&A portion of the call. The wind has been at our back in 2025, with employment and income growth exceeding consensus expectations, relative affordability squarely in the favor of apartments, and new supply pressures waning. This led to a healthy demand for apartments and record high absorption through the first 6 months of the year. This fundamental backdrop and our core operating strategies drove accelerating pricing power, higher resident retention, lower concessions and strong expense control. As a result, our second quarter and first half same-store revenue, expense and NOI growth all exceeded our initial guidance provided back in February. The factors that are in our control have been working in our favor, and these positive trends led us to raise our full year FFOA per share guidance while also increasing our same-store growth expectations in yesterday's release. Mike will provide additional details in his remarks. Moving on, we feel good about year-to-date results and the opportunities ahead of us in the second half of the year. Our strategy and operating tactics will continue to be influenced by our customers and items that are in our control as we drive total revenue growth. This includes: first, creating value from our customer experience project, listening and responding to our associates and residents shapes our long-term strategy, capital allocation decisions and enhances the UDR living experience. We continue to uncover actionable insight through the millions of daily touch points with existing and prospective residents, which we utilize to improve…

Thanks, Tom. Today, I'll cover the following topics: our second; quarter same-store results, our improved full year 2025 same-store growth guidance, including underlying assumptions, and expectations for operating trends across our regions. To begin, second quarter year-over-year same-store revenue and NOI growth of 2.5% and 2.9%, respectively, were better than expected and were driven by: first, 2.8% blended lease rate growth, which was a result of renewal rate growth of 5% and new lease rate growth of positive 30 basis points. Our blends accelerated 190 basis points compared to the first quarter, which is 70 basis points higher than our historical sequential acceleration between the first quarter and second quarter. As a result, our first half blended lease rate growth of 2% was 20 basis points above the high end of our guidance range. Second, annualized resident turnover was 420 basis points below the prior year period and more than 1,100 basis points better than our second quarter average over the last 10 years. This enabled us to accelerate renewal rate growth, which led to more favorable blended lease rate growth. Third, occupancy averaged 96.9%, which was 30 basis points higher than our historical second quarter average. Our strategic decision to build occupancy during the seasonally slower leasing period of the fourth quarter of 2024 and the first quarter of 2025 put us in a position of strength to drive revenue and NOI outperformance to start the year. And fourth, income growth from rentable items was 10%, 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 only 1.7% in the second quarter came in much better than expectations. These positive results were primarily driven by favorable real estate taxes and insurance savings, which collectively account for nearly…

Thank you, Mike. The topics I will cover today include our second quarter results and our updated full year guidance, a summary of recent transactions and capital markets activity and a balance sheet and liquidity update. Our second quarter FFO as adjusted per share of $0.64 exceeded the high end of our previously provided guidance. The $0.03 or 5% sequential FFOA per share increase was driven by a $0.02 increase from same-store NOI, with contributions from both higher- than-expected revenue growth and lower-than-expected expense growth, and a $0.01 contribution from the collection of previously unaccrued interest related to one of our former debt and preferred equity investments. Year-to-date results have exceeded our initial expectations, which led us to raise our FFOA per share guidance range. Our new full year 2025 FFOA per share guidance range is $2.49 to $2.55. The $2.52 midpoint represents a $0.02 per share or approximately 1% improvement compared to our prior guidance. Looking ahead, our third quarter FFOA per share guidance range is $0.62 to $0.64. The $0.63 midpoint reflects our expectation of stable sequential core results, with the $0.01 sequential decrease attributable to a difficult comparison from outsized debt deferred equity income recognized during the second quarter. Next, a transactions and capital markets update. First, during the quarter, we acquired the developer's equity interest and consolidated the apartment community in Philadelphia formerly known as 1300 Fairmount. Our investment in the community, now known as Broadridge, was previously reflected as a $183 million loan in our debt and preferred equity portfolio, which was on nonaccrual status. Upon acquisition, the developer paid a portion of previously unaccrued interest, which resulted in UDR recognizing approximately $4 million of income above and beyond the NOI generated from the apartment community during the quarter. Second, we received nearly $55 million…

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

It's Nick Joseph here with Eric. I was hoping if you could touch more on the blended lease assumption for the back half of the year. It sounds like from some of your peers, that the peak leasing season was a bit weaker than expected. So what gives you the confidence that you'll be able to achieve that rent growth that is embedded in guidance, just given the typically weaker fourth quarter?

Nick, it's Mike. Maybe a couple of things here since you touched a little bit about seasonality blends and guidance. I'd say first and foremost, just considering the leasing season and expectations for the second half, but I'd tell you, first, the guidance raise has everything to do with the execution of everything we've done up until this point of the year. So as a reminder, we started the year with 97.2% occupancy with the intention of always driving our blends through the heart of the season. And we exceeded the top end of our first half blended rent growth with 2% growth compared to that 1.4% to 1.8% guide that we originally had. And at the same time, we've been successful in driving a lot of our initiatives, and you can see it in our other income growth growing around 10%. And I think another thing just to point to is our revenue growth at this point in the year is about 80% baked, and again, that's just over 80% through July. And so again, everything we've done up to this point is really leading to our 2025 number. How I think about the back half of the year? I'll tell you, first of all, what we're experiencing really starting in May was the industry started driving occupancy up, and you can see that in a lot of the third-party reports. Occupancy has moved up. With that, blends started to come down, which I mentioned during our Nareit conference. We started seeing actually the peak in May at that point. And so what this leads to and where we've really seen it is market rents being a little bit more muted over the last 30, 60 days. And typically what follows suit is renewal growth coming down. And so when I think about kind of the back half, based on what we're sending out through September, my expectation is renewal growth will be in that 4% to 4.5% range, which is about 100 basis points lower than what we have achieved over the last 3 or 4 months. And so we have visibility on what we're sending out. We typically achieve within 10 or 20 bps of what we send out. And so that leads me to believe that our blends are going to be slightly lower than what we originally said a few months ago.

That's very helpful. And then you touched on obviously the impact of supply starting to abate in the Sunbelt a bit. As you think about that blend for the back half of the year, would the range -- are you expecting the range between different markets or regions to start to narrow as we head into 2026 and the back half of this year?

Yes. Nick, we're seeing it today. And just to kind of size it a little bit, during the first quarter, the spread between the coastal markets and what we're experiencing in the Sunbelt was right around 450 basis points. And so I want to say our coast was plus or minus 2.5% and our Sunbelt was negative 2%. During the second quarter, our coastal blends were right around 4%, and the Sunbelt was starting to go relatively flat so right around 0%. Moving forward, my expectation is back half coast could come down a little bit, and the Sunbelt is still showing some signs of some positive momentum. That could be up a little bit from the first half of the year. So my expectation is that's going to continue to get better as we move throughout the year.

The next question is from the line of Jamie Feldman with Wells Fargo.

I guess sticking with the outlook for the back half of the year, which markets specifically would you say your expectation has changed the most? And can you talk about urban versus suburban in those markets?

Yes, Jamie, for us right now, the West Coast has done better than we would have expected year-to-date. And based on what I'm seeing at places like San Francisco, Seattle, even Orange County, for us, starting to see some positive trends throughout July. And so that's probably on the positive side. On the negative side, the Sunbelt just hasn't taken off like we would have expected, given supply coming down right now. You still have to work through that. And so expectations now are it's going to continue to improve on a quarter-over-quarter basis but maybe not to the level we would have expected at the beginning of the year.

Okay. And then Los Angeles and Southern California have been a hot topic this quarter in earnings. Can you talk more about what you're seeing on the ground in your portfolio and how it might be differentiated from some of the other stats we're seeing or portfolios we're hearing about?

Sure. It's always important to remind everybody that L.A. is a very small piece of our portfolio. We have about 3% of our NOI and it is located in the Marina del Rey area. We have a couple of assets that are joint ventures, 50-50 ownership downtown kind of Mid- Wilshire area, but our wholly-owned assets are specific to Marina del Rey. So we've seen maybe a little bit of a different picture than some of the peers and maybe some of the third-party data that people are looking at. But again, for us, during the quarter, we averaged 96% occupancy. Concessions were right around 1 week and blends were between 1% to 1.5% growth. I think over the last 30, 45 days, I've seen occupancy actually increase a little bit in L.A. to about 97%, but we are seeing a little bit more weakness on our rents. Concessions are closer to 1 to 1.5 weeks and blends are relatively flat. So a little bit of pressure just in terms of supply and demand there. But for us, we have a much different backdrop than some others.

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

This is Sanket on for Steve. We were just curious about what's the opportunity side you guys are seeing on the external growth front? Is it more on the acquisition front or is it more on the preferred equity program activity?

Sanket, it's Joe. Yes, I'll probably step back a little bit and just talk, first off, transaction market; secondarily, what we're seeing on the DPE side; and then thirdly on the development side and then what it means for us. On the transaction market, we do see a relatively healthy transaction market right now with plus or minus $30 billion trading each and every quarter. So the transaction market is pretty healthy. We've seen good stability in terms of cap rates overall. We're kind of in a plus or minus 5 cap world right now. If you have newer vintage, better positive trends from a trade-out perspective, less go-forward supply, you can go into the mid-4s. If you're kind of the inverse of that and typically a little bit more B and susceptible to the levered buyer, maybe you're in the mid-5s. But overall, pretty healthy transaction market. As it relates to DPE and what we're seeing on that front, not a lot on the traditional developer capital side, just given the lack of starts activity that we're seeing in the market. So not much activity on that in the pipeline within our recap space. We're seeing some activity and we're being pretty selective in terms of what we're trying to find there as we pivot that book of business to be a little bit more of the recap and a little bit more safety in terms of that business but still pretty quiet on that front. And then the development side, the land market, very slow right now. Developers are typically looking for kind of 6.25%, 6.5% current yields, which are tough to attain with rents not having moved up as much as we would have liked to see in the last year while construction costs still typically moving…

And as a follow-up to that, like on the funding side, how are you guys -- I think you guys have $175 million worth of that coming due in the second half and then I think $220 million borrowed on commercial paper program. How do you look to fund that in addition to whatever you do on the external growth front?

Yes. From a debt perspective, we're very comfortable with the balance sheet today in terms of our liquidity, investment-grade balance sheet, et cetera. We do not want to lever up in this environment. So any debt that's coming due, you should assume we basically go out there and refi that. So the $175 million of secured debt, that's either going to be refi-ed on balance sheet or through joint venture utilization of secured debt and pulling proceeds out of the joint venture as we lever up maybe some of those assets. And then on the CP that you referenced, we'll continue to roll out CP as we have done for years. So we do have the line of credit as a backdrop, which expires out in August of '28, but we'll continue to keep the CP outstanding at plus or minus at $250 million to $300 million range through the rest of the year.

The next question is from the line of Jana Galan with Bank of America.

Congrats, all, on a great quarter. Question for Joe on the Philadelphia property, the Fairmount Broadridge loan. Can you remind us, was there a $0.02 drag if you acquired the developer's interest in the initial guidance? I'm just curious if there was, is that being offset by the developer repaying some of that interest?

Jana, so maybe just a little history there because we did get some questions on that overnight as well. So just a reminder to the group, back in the fourth quarter was when we took the reserve of roughly $37 million on that. At that point in time, we went to nonaccrual on the mezzanine loan. So that started kind of the initial drag from a nonaccrual perspective. In first quarter, when the equity partner went into default, we exercised our rights to buy the senior loan during the first quarter. At that time, the par value was roughly $112 million but we had to pay $114.5 million or so, which included minimum interest guarantees as well as an exit fee. And so we have put that senior loan on nonaccrual in the first quarter so you had a cost of funding but a nonaccrual or nonearning asset in that senior loan. And then in the second quarter, I think as we talked about a little bit maybe last quarter, the intent was to consolidate that once we got control of the entity. So when we acquired the senior loan, we began to exercise our rights as the lender against the borrower. And we were able to recapture roughly $7 million of cash from them to pay either those acquisition costs for the senior loan and/or recognize prior nonaccruals. So we did factor in, in the initial guidance that initial nonaccrual during the first quarter and the first part of the second quarter. We had not factored in the recapture because we didn't know if we'd be able to get those proceeds in what timely manner we would be able to receive those. So that was the total economics so we had about $0.01 to the positive in 2Q. And then on a go-forward basis, we'll just be recognizing NOI, which Mike can give you a sense for what he's done from a takeover perspective in the last 30, 60 days.

Yes. I got to tell you, I'm incredibly proud of the team. Center City, obviously, in Philadelphia, were dealing with quite a bit of supply. But our team has jumped in there and they've already made a difference. I can tell you, upon takeover, we were right around 83% occupancy. And I'm happy to say today we are actually 97% leased with a 30-day trend of about 93%. So just in about 30 to 45 days, the team has gotten in there. They've gotten the leases we need, especially as it relates to just the student population at that property. And we are in a much better place today than we were 45, 60 days ago.

And then, Mike, maybe just on the blended lease spreads. Can you provide some detail on how much of the portfolio these leases capture and how you're comparing like-for-like term there?

Sure, yes. We actually were looking at that last night after some questions came in. And so just to let everybody know, we do capture all of our leases. And if we had to do something like a like-for-like, it would be about 88% of the leases, and we are basically within 10 or 20 bps, whether you look at like-for-like or all-in. So again, we like to capture everything because that's what builds our rent roll. And that's just a piece of the equation when you think about revenue but that's how we do it.

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

This is Ami on with Michael. I was hoping to dig in a little bit on the trends in D.C. It looked like renewals held in pretty well but new lease was a bit softer than the portfolio. So I was hoping that you could provide some commentary on what you're seeing on the ground.

Sure, yes. First, I'd say D.C. is our highest growth. When you think about our revenue and everybody can see it out there, right around 4.9% during the quarter. And just a reminder, this is one of our larger markets, 15% of our NOI. We do have a diversified portfolio and so we are 40% urban, 60% suburban. During the quarter, we did average around 97% occupancy. Our blends were still in that 3.5%, 3.6% range, which is consistent with the first quarter. And concessions right now across that MSA are right around 1.5 weeks. As I think about it and look at July trends, we're still hovering around 97% occupancy. Blends are still plus or minus 3%. We've seen a little bit of weakness on market rents, but we continue to put about 5% to 6% growth on renewals. And again, this is just a piece of the equation. We also have about 10% to 11% growth in our other income. So D.C. for us has still been a very strong market but it's also one that we continue to watch all those leading indicators just to make sure that we're pivoting our strategy as necessary.

Got it. And then kind of a bigger picture one. We've seen 2 years of market rent growth peaking early and pretty soft pricing power in the fourth quarter. So do you think that this could maybe represent a shift in seasonality that will be ongoing? Or do you remain pretty confident that the fourth quarter can kind of recover relative to some of the prior quarters and that we can keep seeing peak seasonality in July as we normally would?

Sure, I'll take it. I think, first of all, the way I look at it is maybe two ways. When you think about just what's happening across the industry, you definitely see people grabbing occupancy a little bit earlier than normal. So I think that's part of the equation. You also had last year's supply getting much more difficult in the back half of the year compared to this year it's significantly better as we kind of move forward. And so that's more just broadly speaking what's happening out there. Specific to UDR though, one thing I would point to is, as we were sitting on this call last year, my 30-day trend was right around 95%. Today, it's closer to 96%, 96.1%. And so for us, we are in a better position as a whole as we maneuver through kind of the rest of the leasing season as well as we -- when we move into the slower leasing period of time during the fourth quarter.

Yes. Ami, this is Toomey, I might add some color from a longer lens. I think you have to realize last couple of years have been a heavy supply picture. And different economic backdrops in every quarter, if you will, coupled with interest rates and the rise and then the steady and then everybody waiting for a cut, if you will. So I think that's influenced a lot of people's attitude about how to take occupancy and rate. And what's probably played out this year is everybody was sitting on the sideline, looking at their supply picture and saying, we expect a rate cut, let's fill it up, that rate cut didn't happen. And hence, they just grabbed occupancy. So I'm not sure it's a permanent trend. I think it's more of the dynamics across a broader spectrum of inputs and we'll see how it plays out. What I'd close with is Mike and team managed the total revenue and not just a leasing season per se. And I think he's doing a fabulous job as the team and our numbers demonstrate. So that should continue. Whatever the backdrop, we're going to maximize revenue.

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

Mike, I think you referenced some change in the asking rate on renewals into the third quarter, but yet retention has been really strong. And so can you just add some more detail as to why you decided to dial back renewals? And whether this strategy is to kind of build back the occupancy heading into next year or just a change in what you've seen for retention in either June or July.

Right, Austin, that's a good point. I'll tell you, when we are moving into 2Q, we were coming off of pretty strong trends through January, February, March time frame where market rents were actually moving up faster than we would have expected. And we're also seeing the success of our customer experience project with the fact that turnover was down. And so we got more aggressive on our renewals. And typically, the way I think about it is, we're sending out plus or minus $100 over market rent. We were doing a little bit more than that during the second quarter because we wanted to see if we could capture more of the positive trends we're seeing on retention. It played out just like we thought it would. But as we go kind of into that back half of the third quarter into the fourth quarter, with the simple fact that market rents just haven't moved up as much as we would have liked through at least that July time frame, we aren't as comfortable pushing our renewal growth as much as we were. And so we're just scaling back a little bit. We expect we're going to achieve what we sent out, but that's where it lays today.

That's helpful. And then can you just talk a little bit about the comps that you have in the back half of the year and whether those start to ease in any meaningful amount versus the first half? And then also, does the back half guidance assume any change in retention just based on what you saw play out in the first half of the year?

Yes, a couple of things. I think for us, as I think about what happened last year, and again, we were in a much different place with our occupancy trends, I think we averaged right around 96.3% occupancy in the third quarter of last year. Expectations are we're hovering closer to the high 96s as we maneuver through the rest of the third quarter this year. So our occupancy is in a much better place. And then what happened with rents last year, market rents trailed off about 2 to 3x what we would have historically thought they would trail off. And so yes, the back half of the year, we should have easier comps but we don't want to bank on that. And so we thought it was prudent to go in there and take a look at what we originally said of 3% blends in the back half, bring it down closer to what we've experienced through the first half of this year. Again, you're going to have some puts and takes there. My expectation right now is the coast is maybe a little bit lower than it was in the first half of the year. We're still seeing some positive momentum on the Sunbelt. And so expectations there could be a little bit better. And as it relates to retention, I mean for us, when we went into the year, we came off a 43% turnover last year. In the business plan, we had a reduction of 100 basis points. We have been consistently running between, call it, 300 to 350 basis points better this year. My expectation is that's probably going to stay very similar to that through the back half of the year. We just -- we have a lot of things working in our favor. I think the team has done a really good job going from that transactional approach to the lifetime value of our resident approach. We have a lot more data that's telling us who's likely to stay, who's not. And we're changing that trajectory every day by having interactions with our residents. So we're going to continue to lean into that, try to drive our retention up and ideally capture some of that on the rent growth, too.

Austin, just one thing to add there, too. A lot of focus on the inputs here on the back half of the year. But just in terms of the output, when you look at our guidance, we are expecting to be in mid-2s from a revenue perspective, which is very consistent with where we're at the first half of the year. So really leveling out of kind of that mid-2s as we move through the back half of the year, which we think is a pretty good spot when you consider the fact that supply next year should probably be off about 30% across all of our regions. So a good place to start to launch future performance from going from mid-2s to wherever we go to next year.

The next question is from the line of Rich Hightower with Barclays.

Big congrats to our good buddy, Dave Bragg. Looking forward to working with you again. So just on expenses, it looks like, I guess on the controllable side so looking at personnel and R&M, you had kind of an uptick around 7% for the quarter, and then on the noncontrollable side, you were down significantly. So just help us understand some of the moving parts. Were there comp issues year- on-year, and what does that mean for, I guess, next year as well on the comp?

Yes, absolutely, Rich. There's a few things here on the controllable expense front. I'd tell you, first of all, Wi-Fi cost, which we put into our original plan for the year, that's been a big driver of that, plus or minus 10% A&M growth without that $700,000 that hit us during the quarter, we would have been closer to 2% to 3% on our A&M. So that's one piece of the equation. The second piece as it relates to R&M, we did have about $400,000 that came through on things like water remediation across, call it, 15 properties. And so we've had to go in there and do some work on things that were kind of outside of what we expected to happen. But as it relates to just turnover, that's closer to flat on a year-over-year basis. And then the third thing I'd point to is personnel has been a little bit higher this year just because our first quarter performance was so strong as we sit back and we look at how we did against our peers within the markets. And so we had a little bit more incentive comp that we had to pay over the last 3 months or so. And so when you factor all those three things in there, that's been the driver of our controllable expenses. As we move forward, I think we've got a lot of things in place that are going to allow us to continue to drive our R&M costs down. And that's things like the customer experience project, the fact that we do believe turnover is going to continue to come down. And so back half of the year, expectations right now are the noncontrollables, things like real estate taxes, insurance, probably not going to be as good as what we experienced in the first half, but I do expect the controllables to come down a little bit compared to where they were in the first half.

Okay, great. That's a good explanation. And I guess my second question, just a little bit bigger picture on perhaps any lessons learned from the 1300 Fairmount investment, whether it's related to underwriting or counterparty risk. Just help us understand maybe what changes going forward as far as the DPE investments in general.

Rich, it's Joe. So I think first off, just stepping back and thinking about whether it's the Broadridge asset there in Philly or a couple of the others that we had trouble with, yes, there were some common themes, both from a macro perspective and also from an individual deal perspective. So from a macro perspective, you really had a couple of different things going on. One was, obviously, rates and cap rates going up materially during that period of time from the, call it, '21, '22 vintage to where we're at today. So that put a lot of stress from an asset value and equity perspective. So lesson learned there is clearly more scenario analysis and thinking through the residual and the exit to a greater degree. The time line aspect, a lot of these markets where we had challenges, be it downtown Philly, downtown L.A. or Northern California, they were kind of at the far end of the spectrum in terms of shutdowns. And so you had material delays in those markets, which were really out of ours and the developer's control. So that really allowed the senior loan and our prep for mez position to continue to accrue and eat the developer's equity and take away their economics. So the time line aspect was challenged on all of those. And then the other piece was those same markets had a lot of commonalities in terms of shutting down in terms of quality of life, bringing people back to the office. And so we kind of had on a macro side, those vintages, a number of challenges that were somewhat out of our control. In terms of what's in our control, there was extension options on a number of those that allowed the equity partner to exercise and…

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

Just wanted to ask about sort of the seasonality or expected seasonality in 3Q and 4Q, and I know it was touched on a little bit earlier in Ami's question, but just sort of what do you expect here for the second half sort of relative to the normal year, kind of the difference between 3Q and 4Q performance in terms of lease rate?

I would start with, historically, we would expect between 3.5%, 4% blends. And so going out there with that 2% at this point, we do believe 3Q could be a little bit better, say, plus or minus, the 2%. And then as you get into the fourth quarter, we do have some seasonality built in there. We do expect that to come down a little bit. But that's how we're looking at it today. And again, it's pretty different from historical norms.

Great. That's helpful. And then I think you guys have been really sort of clear and upfront and helpful in how you think about the Sunbelt, and I think you're pretty early in sort of calling out some of the supply risk there a number of years back. As you think about your Sunbelt markets and not asking for 2026 guidance here by any stretch, but just high level sort of sketching out. How do you think these markets will sort of recover, right? Obviously, delivery is going to be weighed down here by year-end. How do you sort of think about the pace of recovery, the pace of sort of return of lease growth, return of pricing power in these markets as we go through '26 or maybe it's even beyond?

Yes. It's a little early to get into '26 right now. We actually will start our process here over the next 30, 60 days as we think about next year. But what I would tell you is not every Sunbelt market is created the same. And so I've been talking a lot about Tampa as an example. We continue to see positive momentum in a place like Tampa. I see positive blends over the last few months, I'm still seeing it today. And so expectations are that's recovering a little bit quicker than, say, Orlando, when you think about the Florida market. Specific to a place like Texas, we've seen a greater rate of change in Austin. And just as a reminder, it's a small market for us, 2% to 3% of our NOI, mainly in the Cedar Park area, where we have faced a lot of supply over the last couple of years. That's starting to abate. And so that rate of change over the last couple of quarters, significant, call it, 400 to 500 bps, but it's still negative. And so expectations are Austin still going to feel the pressure from supply for the foreseeable future, Dallas is getting a little bit better than I'd say Austin is, but we still have a little ways to go before we probably see new lease growth turn positive there.

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

Welcome, Dave Bragg. On acquisitions, Joe, you mentioned focusing a bit more on the LaSalle JV. I was wondering if you anticipate more opportunities from developers, just given, it seems like developments have been slower to lease up.

Yes. John, it's Joe. Yes, on the joint venture side, where we're focused there is probably a little bit more yield focused. So from a vintage perspective, more your '90s and early 2000s product, something with a little bit more value-added nature. So we're really trying to find a little bit more of the workforce housing with yield potential and upside over time from that component. So I wouldn't expect it for that portfolio. What we are evaluating with them is actually even contributing a couple more assets into that venture off of our balance sheet, so finding things that both of us like for the long term that could work for both sides. And so we're looking at growing the joint venture on that side. We have not been spending on the developer side much time on that front. You are seeing lender willingness to extend. And so we haven't seen, call it, that wave of maturities that was expecting to create some potential distress really create any distress at all. And so we're not seeing developers have to come to market and transact. And so not a big part of the market that we're seeing in terms of activity, nor that we're focused on that materially at this time.

Okay, that's helpful. Going back to D.C., if you look at the CoStar data and I don't know if you do, but if you look at the CoStar data, it shows for D.C. for UDR, it's showing a deeper deceleration in asking rents versus the market overall and versus some of your peers. I'm wondering if you see the same thing in your portfolio or if you can comment on how you look at yours versus CoStar. And also just going back to that new lease growth rate, it was pretty low versus other markets, and I was wondering if that was part of the D.C. demand overall.

Yes, John, that is definitely part of the equation. So when we think about third-party data or market rents, new lease growth, that is a component of it. And again, for us, we have had a lot of success within the D.C. market just increasing our renewal growth. And so I think year-to-date, we've been around plus or minus 5.5% to 6% renewals. And so I think that's part of it. We've probably gone a little bit more aggressive on renewals. We've seen a little bit more weakness on new lease. Our blend is still hovering around 3% today, and they've been around 3.5% in the first 6 months of the year. And so while that's a piece of it, I think the team has done a really good job as it relates to increasing our retention, driving our turnover down, holding occupancy still in that 97%-plus range, and driving our initiatives to show other income plus 10%. So there's a lot of other factors that bleed into that. And when you look at our total revenue growth and you just compare against some of our peers and others, you'll see that we are performing at a pretty high level as it relates to the total revenue growth.

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

Joe, for the few development starts you alluded to as potential starts, could you share the yield you'd be underwriting on current market rents?

John, so the couple we're looking at right now, that would probably be a first half start next year. One would be the Phase 2 deal that we've talked about out in Alexandria, Virginia, as well as a continuation of the Vitruvian product down there in Addison, Texas. So they'd probably be in the mid-5s on a current basis both through [ BE ] and design and focus on optionality up until we start those. But those are probably mid-5s. But that's really just a byproduct of that's legacy land that we have that was put in place in the prior market. And so I wouldn't say that's commensurate with where yields are in the marketplace today. Generally, you're going to be looking 6- plus percent if you're looking at new land today.

Okay. Maybe just to round that out, the mid-5% yield on current rents, you trade at an implied cap rate decently north of that. So in terms of the marginal dollar going out the door, is development really the highest and best use of funds right now?

Yes, I wouldn't say it's our highest and best. I think we got prioritization on DPE reload joint venture acquisitions and potential recycling. But when you do look at that development is on -- it includes the land basis. And so you got to -- if you look on just incremental yields, so incremental dollars deployed, you're going to be well above that mid-5s number. And so if you're developing on an incremental basis of additional funds funded, you're going to be 6%, 6-plus percent. And so that ends up being accretive in terms of future dollars deployed. In addition, I think there's a portfolio composition aspect. When you look at new assets, no CapEx or minimal CapEx relative to the assets that we'll source to fund that, which if we can do it accretive or neutral on FFOA but accretive on cash flow, I think we net-net win, and we continue to activate the land pipeline.

Okay. Last one for me. I'd love to hear your thought process, Joe, on the add-backs to FFO this year. It's about a little over $20 million of add-backs year-to-date from legal cost, technology, software transition costs, casualty charges. So I mean, I know these are episodic and lumpy but they're definitely recurring in nature over time. So how do you get comfortable adding back these pretty significant costs here to FFOA?

Yes. I'd say number one, our disclosure team and our policy committee look at this each and every year to look at what our add-back policies are and our disclosure policies. In addition, we do look at this relative to both peers and broader REITs, so understanding what others' policies are and the magnitude of add-backs that they have, what the categories are. And so we have been pretty consistent historically with what the peers and broader REITs have been. That said, this year is a little bit of an anomaly for a couple of reasons. So if you look at the big ones, you have legal and other costs there for $7 million year-to-date. That is related primarily to RealPage and the ongoing cost there. So we do view that as an episodic event even if it does occur over a couple of years. So that's related to that one, which is larger than typical. Software transition cost, I think we talked earlier this year, we are transitioning from our CRM that we had effectively internally developed in partnership with another company, to Funnel, which is going to be our CRM on a go-forward basis as well as support a number of other activities on the ops initiative side. As part of that, we needed to write off and accelerate depreciation for what we had previously built. So that's taking place over a 3- quarter period, which is why you see that elevated number there of roughly $3 million per quarter or $6 million year-to-date. The last piece is just casualty. That's our large claim activity related to episodic events around weather or floods or pipe bursts at properties. And so some of that's a little bit of this year's, but it's actually a little bit more related to prior year storms and just reclassification from what we had previously viewed as a capitalized number to an expense number as we reviewed prior capitalized versus expense numbers.

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

And I did not prompt that prior question but I definitely agree with it. So along those lines, Joe, you guys have certainly been a standout over the years in tech spending, tech initiatives, et cetera. We're all used to tech just getting more expensive. So as you look at the cost over time, is your sense that tech is just sort of a percent -- a set percent of the business? Meaning as revenue grows, the tech spending every year is X percent of the business? Or do you see it getting more expensive or less expensive? Just trying to understand because certainly, tech is with us and continues to, new software, as you noted, continues to roll out.

Yes. I think there's probably three levels to that question in terms of there's an operational component at the property level, there's an investment perspective in terms of the PropTech funds that we have, and then there's the tech that we invest in within our properties and the physical assets. And so the physical assets, clearly, we were a leader when it came to SmartRent, when it came to community- wide Wi-Fi and really trying to find win-wins for the residents as well as ourselves in terms of giving them a better experience, plus ourselves and our investors more NOI. So I think that's going to be a recurring part of the business. It becomes episodic, right, as you roll out Wi-Fi right now over a couple of year period, it has a useful life so you'll go through a lull for a period of time. But there are refresh aspects or useful life components on those physical assets. When it comes to PropTech, we have a commitment now of over $150 million to our various PropTech funds or PropTech investments. And so I think that's going to be part of our go- forward business. We make money on these investments, and when you look at those that we've closed out over time, we've got a 20- plus percent IRR on the investments we've closed out over time. So we're definitely making money for investors on those investments. But I think more importantly, they've lifted margin, lifted other income, constrained expenses, overall just driven cash flow, and that's really why we're in those is to find partners and new ideas and new innovative aspects to the business. So I think we'll remain committed to the PropTech world. And then you just get into the operational component of tech, which has definitely increased, be it what we look at to drive things like online leasing, look at what we're doing from a CRM perspective. And then you get over into the cybersecurity world, which has definitely increased over the last 3 to 5 years. It definitely feels like that will continue to increase. But we're trying to find ways to partner with the right firms and make sure, again, that we drive efficiency, both at a corporate and operating level but also drive upside to NOI over time. Yes, Tom.

Alex, just to add to that, and Joe gave a very thorough answer and I'm grateful for that. I think you have to step back a couple of ways and look at this. You look at our business, we think about our customer and how to, one, service them better. Second, you think about technology in this lens, we're all seeing the early innings of AI and the influence of it. But what we all know, it starts with data. And we put a lot of infrastructure in place to build up that mechanism of collecting the data and then learning from it. And I think businesses that haven't properly calibrated owning that data or the ability to translate it to cash flow are going to fall behind. So we see it not just an element of offense but an element of defense in terms if you aren't investing in your technology, you have a real challenge coming forward. Other people will. And I think you see it from our operating platform. You've seen enough of our demonstrations about how that integrates into our lower turnover, our CapEx spend. And then you have Joe who's moving it into our investment arena and where we allocate our capital. And with the help of the team that he's building there, you're going to see a more dynamic capability of an organization to use data to ultimately just get to better cash flow and returns. And then I think people think about the technology spend, I see it as an offensive capability of an organization. And if you aren't playing offense, you won't be around a lot.

Yes, makes sense, Tom. And before I forget, Dave, welcome back to REIT land. Good to have you back. Second question is, Joe, on the debt preferred equity going forward, just two things on that. One, are you only looking -- can you remind us, are you only looking at deals that you would actually potentially own, meaning that you have some sort of last licks, if you will? And second, is there some sort of percent of FFO that you're targeting for the DPE contribution to earnings?

Yes, Alex, generally speaking, we do try to target investments that we would own. It doesn't always end up being the case. You do have some outlier events there. And the reality is that a number of these, especially when we get into the recap space, the ultimate goal of these owners is to own a lot of these assets long term. And so I think as we do more and more recap versus traditional development, you may see a little bit of a pivot in terms of we may have access to a few, fewer assets than we've had historically. But as long as we get the right underwrite done, get the right cash flow and get the ultimate outcome of a good strong return, we're comfortable with that. As it relates to size of enterprise or size of FFOA, when you look at net contribution right now, it's about 2%, 2.5% of FFOA, which is pretty consistent with where we've been for a number of years now. I think we're very comfortable in that range. We don't want DPE to be a big piece of the story. We don't want to take that up to, let's say, $1 billion or 5% of enterprise or 5% of FFOA. That's not the goal. But we do think in moderation, it's additive to total return for the enterprise, gives us access to assets potentially over time and allows us to pivot to different uses as return profiles change.

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

Two quick ones for me here. I don't think you gave it but could you provide the July stats?

We have not provided July stats. What I would tell you is we just gave guidance for the back half of the year and I can tell you we're right on track. We feel pretty good about where we're at right now.

Okay, fair enough, Mike. And then one more, maybe you could talk a little bit about Boston, your second largest market. It looks like it's doing pretty well. It was the second best same-store revenue market year-to-date after D.C. But there's been some noise, some concern about the market in light of some life sciences, market weakness, some political noise. So I guess I'm curious what you've seen on the ground real time and what's your expectation into the back half of the year.

Sure. You're right. Boston's second largest, 11.5% of our NOI. A pretty diversified portfolio for us, Haendel, worth 30% urban, 70% suburban. And it's playing out kind of as we expected. So when we started the year, the North Shore was leading the way and the South Shore was a close second. Right now, it's flipped. The South Shore is actually doing a little bit better because we don't have a lot of supply that we're facing with those assets. The North Shore, though, is where that is elevated. We're seeing about 4,000 units being delivered this year. It is impacting us to some degree. Not necessarily seeing it as much on the demand side today. It's more of an impact from supply and where you're located. But again, for us, we've been running right around 97% occupancy for the last few months. Concessions are basically 0, and our blends have been plus or minus 4% through 2Q. As I sit here and look at it today, occupancy is probably closer to 96.5%. And it is a seasonal market. I'm starting to see blends come down a little bit, but we're still hovering around 3.5%. So Boston has still been a really strong performer for us, and to your point, 1 of the top 2 or 3 markets as it relates to total revenue growth this year.

The next question is from the line of Alex Kim with Zelman & Associates.

Thanks for staying after the bell here, and congrats to Dave. Looking forward to working together. Just a quick one for me. It looks like in the West region, new move-in rent growth actually outpaced renewals in the second quarter. Could you talk about some of the drivers of that dynamic?

There's nothing better when you start to see your new lease growth exceed your renewal growth that you sent out. And I will tell you, San Francisco is probably the one that's leading the pack for us. And again, this is a fairly large market, 9% of our NOI. Again, another market that's very diversified. We're 50% urban, 50% suburban. And we are located downtown SoMa area all the way down along the Peninsula. The second quarter, we had 97.5% occupancy and our blends were actually 5.5%. So this was leading the way in terms of blends through the second quarter. Concessions have actually come down to about half a week, which is the best I've seen in years in San Francisco. And a lot of it has to do with just the return to office as well as the migration patterns within the MSA. I've spoken to this a little bit over the past few months, but we are seeing people go from say, the East side or down along the Peninsula. They're migrating back up towards SoMa and downtown, just back to the office. You're definitely seeing restaurants come back, retail is coming back. And so it still has a little ways to go. It can get better but it has improved tremendously over the last 6 to 9 months. And so as I think about a place like San Fran going forward, we're still seeing some strong momentum. I'm still seeing blends above 6% at this point. And that goes back to the point of market rents have been moving faster than we would have expected. And it's actually exceeded what we sent out for renewals 75 days ago. So we're going to continue to push on that market, but that is the one that's definitely leading the way for us specific to the West Coast.

Alex, maybe just one thing to add there, too, because you all can see the underlying drivers of the West region. There's also a constraint as it relates to Monterey Peninsula, and so that city council that existed prior to last year's elections had put in some pretty restraining renewal growth in terms of 75% of CPI. So we're capped on Monterey Peninsula right now at about 1.8%. The new city council is evaluating whether or not to rescind that and/or adjust it. And there is potentially a special vote that may happen. So we're keeping an eye on that but that does constrain that. So overall, if you take out Monterey Peninsula, that 4% renewal number that you see for the West region is actually quite a bit better than that.

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

A quick one. How did turnover improve -- how did turnover improvements vary between the East Coast, West Coast, and the Sunbelt? And then what does that trajectory look like in 3Q and 4Q?

We're seeing pretty strong benefit across our portfolio today when we look at turnover. I think for us, you can see it in the attachment here 8G, we did see a little bit more of an improvement in places like the Southwest region as well as the West region. And I think some of that goes along with what we're seeing in a place like San Francisco today. You just have a lot more strength. You have rents moving at a much faster pace. And so individuals that are getting renewal that we sent out 75 days ago are seeing that there's a lot of value there. And I would tell you, in addition to that, everything the team has done with the customer experience project to identify ways that they can change that trajectory, they've leaned into it. And so it's pretty interesting to see that this is playing out in even areas where supply has been elevated. And probably the best example I can give there is a place like Austin as an example. You would think with a high supply concession activity being as high as it is, you'd have more people jumping. We have a lot of people that are opting to stay with us. So a lot of this can be attributed to everything that the team has been doing on the ground.

What does 3Q and 4Q look like?

It's early to tell right now. But what my expectation is that it's going to continue to be in that, call it, 200 to 300 basis points better on a year-over-year basis just based on what we're seeing today. When we're sending out renewals, we watch things like TBDs and who's going on notice, how much negotiating we're having to do. And right now, I can just speak to kind of what's been sent out through September. It feels like we have a good trajectory in front of us. And so I think we're on pace to continue to clip that 200 to 300 basis points better.

We have reached the end of the question-and-answer session, and I'll turn the call over to Tom Toomey for closing remarks.

Thank you, all, for your time, interest and support of UDR. We look forward to seeing many of you in the upcoming conference season. And with that, we'll close by saying take care.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.