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NYC rent laws 'immaterial' to future earnings, UDR executives say

UDR Inc. expects new rent regulations in New York to be "relatively immaterial" to its future earnings, executives said.

The changes, which will restrict landlords' ability to raise rates in rent-stabilized properties, are expected to reduce 2019 net operating income by $300,000 to $500,000 in 2019 and by $500,000 to $1 million in 2020, President and COO Jerry Davis said in an earnings conference call. The estimates do not include potentially lower real estate taxes or any positive effect to rent growth in market-rate apartments, he added.

UDR is one of a handful of real estate investment trusts that own rent-stabilized apartment buildings in New York City, but its stabilized portfolio is smaller than those of competitors Equity Residential and AvalonBay Communities Inc., according to S&P Global Market Intelligence data.

Following a reclassification of some properties after a recent unfavorable court ruling, the company now says roughly 40% of its units in the New York metropolitan area are market-rate.

CFO Joseph Fisher said in the call that the new rent laws have not altered the company's view of New York as one of its most attractive markets for investments, based on analytic models. By altering developers' and lenders' return expectations, the new laws could depress competing new supply, boosting the company's pricing power on its existing market-rate units, Fisher said.

Executives at Equity Residential said the new laws will hurt revenue for 2019 but could be a boon over the long term.