UDR’s second-quarter results exceeded its expectations, leading the firm to raise its guidance for full-year 2026, according to the Highlands Ranch, Colorado-based REIT’s Q2 earnings report released July 27. UDR also announced plans to sunset its debt and preferred equity program.
Apartment industry fundamentals have been favorable in 2026. Employment growth has exceeded expectations, housing affordability remains in favor of renting relative to ownership and the supply of new apartments continues to abate, UDR Chairman, President and CEO Tom Toomey said on the firm’s July 28 Q2 earnings call.
“The apartment industry is strengthening, but what differentiates UDR is our data-driven capabilities, continuous innovation and disciplined execution,” Toomey said. “We're excited about what our strategy points to, which is operational excellence, capital allocation, as well as access to capital.”
Chief Operating Officer Mike Lacy said on the call that UDR reduced bad debt, in part because its centralized teams are doing more proof of income and ID verification as well as increasing deposits and credit screening, which boosted the quality of its rent roll.
“We're going to continue to lean in to not only drive our turnover down, but we're also looking for opportunities to bring our pricing up,” Lacy said. “The abatement of supply has helped us a lot to lengthen the leasing season, and the backdrop of that is a solid employment picture across a lot of our markets supporting it. So with that dynamic, you can see how it sets up for a better ‘27.”
BY THE NUMBERS
| Category | Q2 | YOY Change |
| Property revenues | $401.7 million | 1.8% |
| Net operating income | $275.6 million | 1.4% |
| Operating expenses | $126.1 million | 2.6% |
| Funds from operations | $0.60 | -1.6% |
| Rent per unit | $2,642 | 2% |
| Occupancy rate | 96.6% | -30 bps |
SOURCE: UDR
Regional matters
On the West Coast, San Francisco remained a standout market with the strongest revenue growth across UDR’s portfolio, according to Lacy. Orange County also produced attractive results, while Seattle remains “fundamentally resilient,” supported by private sector momentum in technology and biotech.
In the San Francisco area, low supply, return-to-office mandates, low rent-to-income ratios and revitalized shopping and dining are bolstering UDR’s performance, according to Lacy, and “even with rents moving as fast as they are, we have the ability to capture that today because those rents were so depressed from that COVID era.”
New York City and Philadelphia led the firm’s East Coast performance, while Dallas remained UDR’s strongest Sun Belt market.
Overall, momentum is growing in the Sun Belt, driven in part by new lease growth. New company headquarters are juicing apartment demand in Plano and Frisco in Texas, as are major employers that are expanding their presence in Nashville, per Lacy.
“My expectation is we're still going to be driving around, call it, 5% to 7% growth across our portfolio, being led by the Sun Belt,” Lacy said.
The Washington, D.C., region had a weaker performance in the quarter, with occupancy dropping slightly due to the loss of federal employment across the market. Nonetheless, in D.C. proper, the 14th Street Corridor outperformed UDR’s suburban assets, owing to the area’s strong health, biotech, defense and national security sectors, Lacy said.
UDR is building a 385-unit apartment complex in Northern Virginia next to one of its existing communities. It’s also constructing a ground-up development named 3099 Iowa with approximately 300 units in Riverside, California, CFO Dave Bragg said on the call. The firm also bought two communities in Portland and one in Los Angeles.
The REIT completed the sale of one apartment community in Q2 and is under contract to sell three more, with the gross proceeds from the four dispositions estimated at $295 million, according to Bragg.
UDR also formed a new joint venture with Carmel Partners, which acquired MetLife's 50% interest in UDR’s Columbus Square apartment communities in New York City, Bragg said. With the transaction, UDR funded a $50 million mezzanine loan for Carmel. UDR's economic interest and fee structure in the joint venture did not change, and UDR will continue to operate Columbus Square, which contains 710 apartments.
Financial moves
In the first quarter, UDR announced that it was switching to monthly dividends — the first major apartment REIT to do so — after its research “indicated an opportunity to diversify its investor base by appealing to a growing market segment that values frequent cash flow distribution,” according to Toomey. The firm plans to disburse its first monthly dividend this week.
“Since announcing our shift to a monthly dividend, we have extensively engaged with a number of new capital channels and have received positive feedback,” Toomey said.
UDR also recently expanded its share repurchase program to about 30 million shares, according to Bragg. In Q2, the firm bought approximately 5.5 million of its shares for $200 million at an average price of $36.49 per share.
Toomey said the firm’s data-driven process to determine best sources and uses of capital, visualized through a heat map, “led us to sell assets with proceeds used to repurchase our shares at sizable discounts to [net asset value].”
UDR has decided to let its debt and preferred equity book run off in the coming years, Toomey said on the call.
“Our focus on operational excellence and data-driven approach to identify investments with outsized growth led us to this choice,” Toomey said. “UDR is an industry leader operator, not a lender, and we do not plan to re-enter the debt and preferred equity business.”
Initially, the program functioned very highly because there was not a lot of competition, Toomey said. However, in the past few years, “there has been a competitive set of capital that is willing to take risks and go deeper into the stack at a price that doesn't make sense to UDR.”
That “led to the conclusion that that part of the business cycle has been flooded with capital in a way that is not attractive to us, and so why not move our capital to where we can get a higher and better return,” Toomey said.
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