This year, Denver-based UDR is celebrating its 40th year as a REIT. Judging from CEO Tom Toomey’s commentary on today’s first-quarter 2012 earnings call, it’s hard to imagine many past years looking as good for the company as the one coming up.
In the first quarter, UDR saw same-store NOI increase 8.1 percent; same-store revenues move up 5.3 percent (comprising a 5.6 percent jump in rents and a 0.3 percent decline in occupancy); and same-store expenses drop 0.2 percent.
“All signs indicate that 2012 will be a better year than 2011,” Toomey said in the earnings call.
Like a number of REITs, UDR saw occupancy slide a bit (0.3 percent) in the first quarter as turnover jumped from 47 percent from 44 percent. But as of May, Toomey sees occupancy trending to 96 percent. He thinks high occupancy will set the stage for rent bumps, which contrasts with some of his competitors who say they’ve kept units vacant in hopes of securing higher rents during the peak spring leasing season.
“We spent a lot of the first quarter firming up occupancy that could drive growth in this peak leasing season,” Toomey says.
Some of that first-quarter occupancy decline was due to higher rents pushing people out. The company said San Francisco, Boston, and San Diego (which saw high move-outs due to military deployments) saw the most move-outs due to increased rents. Despite those renter losses, UDR’s rent-to-income levels didn’t move that much. Last year, the ratio was 17 percent; currently, it’s at 18 percent.
UDR continued its move toward deleveraging in the first quarter, and it plans to continue that strategy through adding new assets (that aren’t as highly leveraged as current ones). The firm has more than $600 million in dispositions in the pipeline and exited Fredericksburg, Va.; Phoenix; and Jacksonville, Fla., in an effort to improve its market mix and urbanize in core markets.
Toomey says some of his core markets, such as Washington, D.C.; Seattle; Austin, Texas; and San Jose, Calif., will face greater than average supply growth over the next couple of years. Orange County, Calif., and Orlando and Tampa, Fla., were some of the surprise stars of the first quarter, while Sacramento, San Diego, and Monterey, Calif., and Portland, Ore., were somewhat disappointing.
On the development front, UDR sees an opportunity to fill the equity gap out in the market by partnering with private builders. “We have a couple of developments in the pipeline with [Houston-based builder] Hanover and others that we’re looking at,” Toomey says.
UDR also completed a second joint venture with MetLife that consolidated seven properties from its first venture with the insurer, while also adding five new properties at a price tag of $630 million.
“We’re out there shopping for our own book, and we’re shopping for joint ventures, as well,” Toomey says.
Toomey is happy with UDR’s portfolio shuffling and really only sees one market that he thinks would fit well with the urban-centric portfolio he’s building. “Miami is a glaring hole in the portfolio as far as the urban product that would fit,” he says.
