UDR (headquartered in Highlands Ranch, Colorado) reported second-quarter earnings on July 27 that beat expectations, prompting the company to raise its full-year 2026 guidance. Additionally, the company announced plans to wind down its debt and preferred equity financing program.

UDR Chairman, President, and CEO Tom Toomey said during the second-quarter earnings call on July 28 that apartment industry fundamentals are performing well in 2026: job growth has exceeded expectations, housing affordability continues to favor renting over buying, and new apartment supply continues to decline.

"The apartment industry is strengthening, but UDR's differentiation lies in our data-driven capabilities, continuous innovation, and disciplined execution," Toomey said. "We are excited about our strategic direction, which includes operational excellence, capital allocation, and access to capital."

Chief Operating Officer Mike Lacy said on the call that UDR reduced bad debt, partly due to its centralized teams strengthening income verification and identity checks, as well as raising deposit and credit screening requirements, which improved the quality of rent billing.

"We will continue to work not only to reduce turnover but also to seek opportunities to enhance pricing," Lacy said. "Reduced supply has greatly helped us extend the leasing season, supported by solid job growth in many markets. Under this dynamic, you can see it lays the foundation for better performance in '27 (2027)."

Data at a Glance

CategoryQ2YoY Change
Property Revenue$401.7 million1.8%
Net Operating Income$275.6 million1.4%
Operating Expenses$126.1 million2.6%
Funds From Operations (FFO)$0.60-1.6%
Rent per Unit$2,6422%
Occupancy96.6%30 bps

Source: UDR

Regional Performance

According to Lacy, on the West Coast, San Francisco remains the strongest revenue growth market in UDR's portfolio. Orange County also delivered solid results, while Seattle showed "resilient fundamentals," driven by private sector vitality in the technology and biotech sectors.

In the San Francisco area, low supply, return-to-office mandates, low rent-to-income ratios, and a revitalized shopping and dining environment supported UDR's performance. Lacy noted, "Even though rents are rising quickly, we can still capture opportunities because these rents had fallen significantly during the pandemic."

New York City and Philadelphia led East Coast results, while Dallas remains UDR's strongest market in the Sun Belt.

Overall, momentum in the Sun Belt is strengthening, partly due to growth in new leases. According to Lacy, new corporate headquarters in Plano and Frisco, Texas, as well as expansions by major employers in Nashville, are boosting apartment demand.

"My expectation is that we will still achieve portfolio growth of about 5% to 7%, with the Sun Belt leading the way," Lacy said.

The Washington, D.C. area was weaker this quarter, with occupancy slightly down due to federal job losses. However, in the urban core, the 14th Street corridor outperformed UDR's suburban assets, supported by the area's strong healthcare, biotech, defense, and national security industries, Lacy said.

UDR is building a 385-unit apartment project next to one of its existing communities in Northern Virginia. Additionally, the company is developing a new roughly 300-unit project called "3099 Iowa" in Riverside, California, according to CFO Dave Bragg on the call. The company also acquired two communities in Portland and one in Los Angeles.

The REIT completed the sale of one apartment community in the second quarter and has signed contracts to sell three more, with total proceeds from the four dispositions expected to be $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 community in New York City. In the transaction, UDR provided Carmel with a $50 million mezzanine loan. UDR's economic interest and fee structure in the joint venture remain unchanged, and it will continue to operate Columbus Square, which has 710 apartments.

Financial Initiatives

In the first quarter, UDR announced a switch to monthly dividends—becoming the first specialized apartment REIT to do so—according to Toomey, whose research "showed an opportunity to diversify the investor base by attracting a growing market segment that values frequent cash flow distributions." The company plans to pay its first monthly dividend this week.

"Since announcing the switch to monthly dividends, we have engaged extensively with multiple new capital channels and received positive feedback," Toomey said.

According to Bragg, UDR recently expanded its share repurchase program to approximately 30 million shares. In the second quarter, the company repurchased about 5.5 million shares for $200 million at an average price of $36.49 per share.

Toomey said the company uses a data-driven process (visualized through heat maps) to determine the best sources and uses of capital, "which led us to sell assets and use the proceeds to repurchase shares at a significant discount to net asset value."

Toomey said on the call that UDR has decided to wind down its debt and preferred equity portfolio over the next few years.

"Our focus on operational excellence and our data-driven approach to investment identification led us to this choice," Toomey said. "UDR is an industry-leading operator, not a lender, and we do not intend to re-enter the debt and preferred equity business."

Toomey noted that initially the program worked well because there was less competition. However, in recent years, "a group of competitive capital emerged that is willing to take risk and go deep into the capital structure, at prices that are not reasonable for UDR."

This "led us to conclude that this part of the business cycle has been flooded with capital and is no longer attractive to us, so why not move capital to where we can achieve higher and better returns," Toomey said.

Clickhereto subscribe and receive similar multifamily housing and apartment industry news in your inbox daily.