UDR, Inc.

Greetings, and welcome to UDR's second quarter 2025 earnings call. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. 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 Lacey. Chief Financial Officer Dave Bragg and Senior Officers Andrew Kanter and Chris Van Enns 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 six 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 day 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 touchpoints with existing and prospective residents. which we utilize to improve retention, expand operating margin, and drive cash flow. Second, executing on our innovation. The initiatives that we've implemented continue to drive high single-digit growth from rentable items, which increases our same-store revenue and NOI results. With a robust pipeline of current and future initiatives, we expect to produce attractive growth for many years to come. And third, we continue to deploy capital to drive earnings accretion, including development, redevelopment, and debt and preferred equity investments. This activity is supported by our investment-grade balance sheet with substantial liquidity to fully fund our capital needs. This strength affords us the ability to pivot capital to the most attractive investment option among our wide range of value creation capabilities. Continuing on, I'm happy to report that UDR has recently named top workplace winner in the real estate industry for the second consecutive year. This achievement reflects the culture we have built, solidifies our stature as an employer of choice, and deepens our rich history as a leader of corporate stewardship. Finally, I'm excited to welcome Dave Bragg to UDR as our new chief financial officer. Dave started with us last week. and brings a wealth of industry experience and executive leadership to the team. We look forward to his ability to advance our strategic initiatives as well as grow the company. For a moment, stepping back and thinking about the big picture, housing is a needs-based business with favorable supply and demand dynamics that are tilted even more in our favor. I remain optimistic about the long-term prospects for the apartment industry and UDR's unique competitive advantages that should enhance our growth. We will continue to leverage factors in our control to improve the UDR living experience and the value proposition we offer to our associates and residents. This, in turn, will drive cash flow growth today, tomorrow, and in the future to the benefit of our investors. With that, I'll turn the call over to Mike.

Thanks, Don. 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 expect basins 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 45% of total expenses. Based on our year-to-day results, we raised our full year 2025 same-store growth guidance in conjunction with yesterday's release. Starting with same-store revenue growth, we raised our midpoint by 25 basis points, resulting in a new range of 1.75 percent to 3.25 percent. The primary building blocks to achieve the 2.5 percent midpoint include the following. First, our 2025 earn-in of 60 basis points. Second, a 90 basis point contribution from blended lease rate growth, which is unchanged versus our prior guidance. Our expectations for blended lease rate growth in the second half of the year have come down versus prior guidance, but outperformance in the first half of the year enables us to maintain the contribution to 2025 same-store revenue growth. For the full year, we now forecast blended lease rate growth to be approximately 2%. This implies blends in the second half of the year are comparable to the first half, and we assume typical seasonality with third-quarter blends that are higher than the fourth quarter. Our outperformance in the first half of the year mitigates potential variability in blends through the end of the year. To illustrate this, every 50 basis point deviation to our second half blended lease rate growth equates to approximately 10 basis points of same store revenue growth. Third, a 20 basis point contribution from the combination of occupancy and bad debt, which is an increase of 10 basis points versus our prior guidance. And fourth, an 80 basis point contribution from other operating initiatives and rentable items, which is an increase of 15 basis points versus our prior guidance. Moving on to same-store expense growth, we lowered our midpoint by 50 basis points to 3%. The improvement was primarily driven by the year-to-date outperformance across insurance and real estate taxes. Our expectations for expense growth in the second half of 2025 are slightly lower versus our prior guidance. Turning to regional results, our coastal markets have exceeded our expectations, while our Sunbelt markets have performed largely in line. More specifically, the East Coast, which comprises approximately 40% of our NOI, continued to exhibit strength with second quarter weighted average occupancy of 97.2%. in blended lease rate growth of 4%. Year-to-date same-store revenue growth of approximately 4.1% is slightly above the high end of our initial full-year expectations for the region. Healthy demand and relatively low proximate new supply completions support a favorable operating environment going forward. The West Coast, which comprises approximately 35% of rentals, has demonstrated the strongest positive momentum and performed better than expected year to date. Second quarter weighted average occupancy for the West Coast was 96.9%, and blended lease rate growth led all regions at 4.2%. Year to date, same store revenue growth of 3% is close to the high end of our initial full year expectation for the region. We continue to see particularly strong momentum in the San Francisco Bay Area and Seattle, which are now two of our top performing markets in terms of year-to-date NOI growth. Annual new supply completions are low at 1% to 1.5% of existing stock on average across our West Coast markets, which we expect will lead to a supply-demand dynamic remaining favorable 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. Positively, this supply continues to be met with demand and strong absorption. With supply pressures expected to decrease and forecasts for job growth remaining higher than our other regions, it is only a matter of time until pricing power returns. Second quarter weighted average occupancy for our Sunbelt markets was 96.7%. In blended lease rate growth, improved by approximately 200 basis points sequentially versus the first quarter. Year to date, same store revenue growth is slightly negative, which approximates the low end of our initial full year expectations for the region. Among our Sunbelt markets, Tampa continues to perform the best. To conclude, we delivered strong second quarter and first half 2025 results. Same store revenue, expense, and NOI growth were all better than expectations and near the high end of the respective full-year guidance ranges. We are encouraged by the resiliency of various demand indicators, such as year-to-date job and wage growth, which have outpaced consensus estimates at the onset of the year. In turn, this has supported strong demand and record high absorption of newly delivered apartment communities. Demand for apartments is outpacing supply across many markets, and the elevated cost of home ownership, coupled with a material undersupply of housing in the United States, should bode well for occupancy and pricing going forward. To close, our diversified portfolio and continued innovation enable us to tactically adjust our operating strategy for each market to maximize revenue and NOI growth, thereby leveraging the positive fundamentals we see across our industry. My thanks go out to our teams across the country your dedication to operating excellence, and ability to drive strong results. I'll now turn over the call to Joe.

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 FFOs adjusted per share of $0.64 exceeded the high end of our previously provided guidance. The three penny or 5% sequential FFOA per share increase was driven by a two penny increase from same store NOI with contributions from both higher than expected revenue growth and lower than expected expense growth. And a one penny 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 two penny per share or approximately 1% improvement compared to our prior guidance. Looking ahead, our third quarter FFOA per share guidance range is 62 cents to 64 cents. The 63 cent midpoint reflects our expectation of stable sequential core results with the one penny sequential decrease attributable to a difficult comparison from outsized debt and preferred 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 non-accrual 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 in proceeds from the payoff of our preferred equity investment in a stabilized apartment community located in New York. Since UDR's $40 million commitment in July 2020, the company has received more than $72 million in investment proceeds. And third, as part of recapitalizations, we fully funded a total of approximately $39 million at an 11.5% weighted average contractual rate of return across preferred equity investments in two stabilized apartment communities, one each in San Francisco and Orlando. Positive property level cash flow allows for approximately two-thirds of our contractual return to be paid current in cash. 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 $1.1 billion of liquidity as of June 30th. Second, we have only $532 million or 10% total consolidated debt and approximately 2.5% of enterprise value scheduled to mature through 2026, thereby reducing refinancing risk. And third, our leverage metrics remain strong. Debt to enterprise value was just 28% at quarter end while net debt to EBITDA RE was 5.5 times. In all, our balance sheet and liquidity remain in excellent shape. We remain opportunistic in our capital deployment, and we continue to utilize a variety of capital allocation competitive advantages to drive long-term accretion. With that, I will open it up for Q&A. Operator?

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions from as many participants as possible, we ask you to please limit yourself to one question and one follow-up. If you have additional questions, you may re-queue, and time permitting those questions will be addressed. One moment, please, for our first question. Thank you. Our first question comes from the line of Eric Wolf with Citi. Please receive your questions.

Thanks. It's Nick Joseph here with Eric. I was hoping 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?

Hey, 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 rates 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 rank 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 were 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's moved up. With that, blends started to come down, which I mentioned during our May 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 three or four 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. Thank you. And then you touched on, obviously, the impact of supply starting to abate in the Sun Belt a bit. As you think about that blend for the back half of the year, are you expecting the range between different markets or regions to start to narrow as we head into 2026 in the back half of this year?

Yeah, 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 were experiencing in the Sun Belt was right around 450 basis points. And so I want to say our coast was plus or minus 2.5%, and our Sun Belt was negative 2%. During the second quarter, our coastal blends were right around 4%, and the Sun Belt 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 Sun Belt 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.

Thank you very much. The next question is from the line of Jamie Feldman with Wells Fargo.

Please proceed with your question. Great. Thanks for taking the question. I guess sticking with, you know, the outlook for the back half of the year, which market specifically would you say your expectation has changed the most? And, you know, can you talk about urban versus suburban in those markets?

Yeah, J.B., 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 out of 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 Sun Belt 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, you know, 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 LA 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 assets that are joint ventures, 50-50 ownership down in 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 one 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 a one to one and a half 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.

Thank you. Our next question is from the line of Steve Sakowa with Evercore ISI.

Please proceed with your questions.

Hi there. This is Sanket on for Steve. We were just curious about what's the opportunities that 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?

Hey, Sanket. It's Joe. Yeah, 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's pretty healthy. We've seen good stability in terms of cap rates overall. We're kind of in a plus or minus five cap world right now. If you have newer vintage transactions, better positive trends from a trade-out perspective, less go-forward supply. You can go into the mid-fours 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-fives. 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 typically looking for kind of six and a quarter, six and a half 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 up plus or minus three plus percent. So it's a little bit of a synopsis on the market. In terms of what it means for us, we're still in that capital balanced approach where we're trying to be opportunistic when we can find opportunities. For us, that's going to be the joint venture acquisition market with our partner LaSalle. We're showing them a couple things right now, and hopefully we'll have more to talk about in the future. Trying to grow with that partnership. On the DPE front, we have maybe one or two more successful paybacks that we're looking at in the back half of this year, in addition to what we announced on paybacks here in the second quarter. So we're working on backfilling some of that activity with some of those recaps that I talked about, as well as the two that we already got done here in the first part of the year. And then we're trying to activate some of our development pipeline. We've got a land pipeline that supports a number of developments on a go-forward basis. And so in the next probably 9 to 12 months, we'll have a couple additional starts as we get those teed up and ready to go. And then beyond that, I'd say just spending more time on portfolio recycling. trying to think about how to utilize the team that we have in place, the resources that we have available, the operations team and the upside they typically see on acquisitions, and then our predictive analytics platform to rotate out of a little bit lower growth assets into something that could produce a little bit better cash flow going forward.

And as a follow-up to that, on the funding side, how are you guys? I think you guys have $175 million worth of that coming to you 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?

Yeah, from a debt perspective, we're very comfortable with the balance sheet today in terms of our liquidity, investment grade balance sheet, etc., 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 refied 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 that 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 that 250 to 300 million range through the rest of the year.

Thanks. That's it.

Thank you.

The next questions are from the line of Jane Galan with Bank of America. Please proceed with your questions.

Thank you, and congrats all on a great quarter. A question for Joe on the Philadelphia property, the Fairmount Broadridge loan. Can you remind us, was there a two-cent drag if you acquired the developer's interest in the initial guidance? And just curious if there was, is that being offset by the developer repaying some of that interest?

Hey, Anna. 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 non-accrual on the mezzanine loan. So that started kind of the initial drag from a non-accrual 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, but we had to pay $114.5 or so, which included minimum interest guarantees as well as an exit fee. And so we have put that senior loan on non-accrual in the first quarter, so you have the cost of funding, but a non-accrual or non-earning 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 then 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 non-accruals. So we did factor in the initial guidance. that initial non-accrual during the first quarter and the first part of second quarter. We had not factored in the recapture because we didn't know if we'd be able to get those proceeds and what timely manner we would be able to receive those. So that was the total economics. We had about one penny 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.

Yeah, I've got to tell you, I'm incredibly proud of the team. Center City, obviously, in Philadelphia, we're 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.

Thank you. 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. Yeah, 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're basically within 10 or 20 bips, 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.

Great. Thank you.

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

Hi, thanks. This is Amy. I'm with Michael. I was hoping to dig in a little bit on the trends in D.C. It looks 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. Yeah.

First, I'd say DC's the highest growth. When you think about our revenue, and everybody can see it out there, right around 4.9% during the quarter. And it's 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 one and a half 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 on our other income. So DC 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. Thanks. And then kind of a bigger picture one, we've seen two 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 a last year 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 when we move into the slower leasing period time during the fourth quarter.

Yeah, Amy, this is Toomey. I might add some color from a longer lens. You know, 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 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, His Mike and team managed a total revenue and not just a leasing season per se. And I think he's done a fabulous job as the team and our numbers demonstrate. So that should continue. Whatever the backdrop, we're going to maximize revenue.

Thank you.

Our next question is from the line of Austin Wunderschmidt with KeyBank Capital Markets.

Please receive your questions.

Thanks. And hello out there. Mike, I think you referenced some change in the asking rate on renewals into the third quarter. But yet, you know, retention has been really strong. And so can you just add some more detail as to why, you know, you decided to dial back renewals and whether this strategy is to kind of build back the occupancy heading into next year or just, you know, 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 were moving into 2Q, we were coming off of pretty strong trends through January, February, March timeframe where market rents were actually moving up faster than we would have expected. And we were 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 timeframe, 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? Thanks.

Yeah, 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 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 two to three X 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 Sun Belt, and so expectations that 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 of 43% turnover last year. In the business plan, we had a reduction of 100 basis points. We have been consistently running between, call it, three 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 have a lot of things working in our favor. I think the team's 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.

Hey, 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 at mid-twos from a revenue perspective, which is very consistent with where we were at the first half of the year. So really leveling out at kind of that mid-twos 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-twos to wherever we go to next year.

Great. Thanks for all the thoughts. The next questions are from the line of Rich Hightower with Barclays.

Please proceed with your questions.

Good morning out there, guys, and a big congrats to our good buddy Dave Bragg. Looking forward to working with you again. So just on expenses, it looks like... you know, I guess on the controllable side, so looking at personnel and RNM, you know, you had kind of an uptick around 7% for the quarter. And then on the non-controllable side, you know, you were down significantly. So just help us understand some of the moving parts, you know, were there comp issues year on year, and what does that mean for, I guess, next year as well on the comp? Thanks.

Yeah, absolutely, Rich. There's a few things here on the controllable expense front. I'll tell you, first of all, Wi-Fi costs, 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 three 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 non-controllables, 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, you know, from the 1300 Fairmount investment, you know, whether it's related to underwriting or counterparty risk, just help us understand maybe what change is going forward as far as, you know, the DPE investments in general.

Hey, Rich. It's Joe. So I think first off, just stepping back and thinking about whether it's the Broadbridge asset there in Philly or a couple of the others that we had trouble with, 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 a lesson learned there is clearly more scenario analysis and thinking through the residual and the exit to a greater degree. The timeline aspect, a lot of these markets where we had challenges, be it downtown Philly or downtown LA 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 preference position to continue to accrue and eat the developer's equity and take away their economics. So the timeline 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 continue to kick down the road a little bit. I think what we've learned there is provide that initial five-year term but with no extension options. And so the recaps that you've seen year-to-date that we've done and that we did last year, making sure that they are definitely finite in time so that if things do go wrong, we have the ability to get access to the asset sooner, which, as Mike just talked about with Broadridge, the time we get our hands on it, that's when we really start to see the upside relative to what a third-party operator can do or what our equity partners could do. I think the other things, we've talked about the analytics business in the past and the area that Chris Van Enns runs in terms of really diving in, understanding not just which markets perform, but also which micro markets and which assets should perform on a go-forward basis. So leaning into that more heavily, leaning into supply outlooks and permanent activity a little bit more. And then we talked earlier in the call about just the recap focus, shifting the book from a little bit more of the high-risk, high-return developer equity program to more of the recap program, which gets us more current pay, lower LTVs, better underwriting on the rents and knowledge of the cash flow base. So we are pivoting that book to be a little bit more safe and ensure we put up the performance that we expect.

That's great. Thank you, Joe. The next question is from the line of Adam Kramer with Morgan Stanley.

Please proceed with your questions.

Hey, guys. 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 Amy's question, but just sort of what do you expect here for the second half sort of relative to the normal year, you know, kind of the difference between 3Q and 4Q performance in terms of release rate?

I would start with kind of 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, you know, I think you guys have been really sort of clear and upfront and you know, and helpful in how you think about the Sunbelt. And I think you're pretty early in sort of calling it some of the supply risk there, you know, a number of years back. As you think about your Sunbelt markets, you know, 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? You know, obviously delivery is going to be way 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?

Yeah, 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 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 years, that's starting to abate. And so that rate of change over the last couple quarters, significant, call it 400 to 500 bps, but it's still negative. And so expectations are Austin's 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.

Great. Thanks, Mike.

Our next questions are from the line of John Kim with BMO Capital Markets. Pleasure to see you with your questions.

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

Yeah.

Hey, John. It's Joe. Yeah. 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 add in 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 DC, 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 DC, for UDR, it's showing a deeper deceleration in asking rent versus the market overall 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 DC demand overall.

Yeah, 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 DC 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 still hovering around 3% today, and they've been around three and a half percent for six 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.

Okay. Thank you.

Our next questions are from the line of John Pulaski with Green Street. Please proceed with your questions. Thanks.

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

Yep. Hey, John. So the couple we're looking at right now, there'd probably be a first half start next year. One would be the phase two 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 fives on a current basis. So we continue to go through VE and design and focusing on optionality up until we start those. But those are probably mid fives. 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 six plus percent if you're looking at new land today.

Okay. Maybe just round that out. It's a mid-5% yield on current rents. You traded 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?

Yeah, 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 fund, it includes the land basis. And so if you look on just incremental yields, so incremental dollars deployed, you're going to be well above that mid-fives number. And so if you're developing on an incremental basis of additional funds funded, you're going to be six, six plus. 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 will 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 from me. Love to hear your thought process, Joe, on the add-backs to FFO this year. A little over $20 million of add-backs year-to-date from legal costs, technology, software transition costs, you know, 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? Yep.

I'd say, number one, Our disclosure team and our policy committee look at this each and every year to look at what our ad-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 ad-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 costs 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 three-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.

Okay. Thanks for taking the question.

Yep. Our next questions are from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.

Hey, good morning out there. And I did not prompt that prior question, but I definitely agree with it. So along those lines, Joe, you know, you guys have certainly been a standout over the years in tech spending, you know, tech initiatives, etc., We're all used to tech just getting more expensive. So as you look at the cost over time, you know, 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 it because certainly, you know, tech is with us and continues to, you know, new software, as you noted, continues to roll out.

Yeah, 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 prop tech 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 smart rent, 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 ideas. aspects to the business. So I think we'll remain committed to the prop tech 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 three to five 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 you know, we drive efficiency both at a corporate and operating level, but also drive upside down and why over time. Okay.

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 ways and look at this. I, 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.

Yeah, it makes, makes sense, Tom. And before I forget, uh, Dave, welcome back to REIT land. Uh, good to have you back. Uh, second question is, uh, Joe on the, on the, on the debt for 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, uh, 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?

Hey, 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, a billion dollars 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.

Thank you. Thanks, Alex. Our next questions are from the line of Handel St. Just with Mizuho Security. Pleasure to see you with your questions. Hey, Handel, check your mute button. Hey, guys, 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 denied it. 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 see 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. Pretty diversified portfolio for us. Hand out 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 zero. 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's still been a really strong performer for us. And to your point, one of the top two or three markets as it relates to total revenue growth this year.

Thank you. The next question is from the line of Alex Kim with Zellman Associates.

Please proceed with your questions.

Hey, guys. Thanks for staying after the bell here. And congrats to Dave. Looking forward to working together. Just a quick one from 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 a 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, retails coming back. And so it still has a little ways to go. It can get better. But it has improved tremendously over the last six to nine 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.

Hey, Alex, maybe just one thing to add there, too, because you all can't 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.

Got it. Okay. That's super helpful context. Thanks for the time.

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

Thanks for taking my question. A quick one. How did turnover improve How did turnover improvements vary between the East Coast, West Coast, and the Sun Belt, 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. 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 renewals that we sent out 75 days ago are seeing that there's a lot of value there. And I'll 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 this team's been doing on the ground.

What does 3Q and 4Q look like?

You know, it's early to tell right now, but 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 to clip that 200 to 300 basis points better.

Thank you.

Thank you. 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. We disconnect your lines at this time. Thank you for your participation. Have a wonderful day.