UDR Inc (UDR) 2001 Q4 法說會逐字稿

Ladies and gentlemen, please remain on your line. Your United Dominion Realty Trust (Company: United Dominion Realty Trust; Ticker: UDI; URL: http://www.uniteddominion.com) conference call will begin momentarily. Once again, thank you for your patience and please remain on your line. Your conference call will begin momentarily. Thank you.

Good day ladies and gentlemen, and welcome to the United Dominion Realty Trust conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone. If anyone should disconnect and need to rejoin, please dial 1-888-413-4411. And as a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Miss Claire Koeneman of FRB/Weber Shandwick. Ma'am, you may begin.

Thanks. Thanks for joining us everyone in United Dominican Realty's fourth quarter and year-end call. We're assuming everyone got the release last night. If anyone didn't, please give my office a call at 312-266-7800. We'll send you another one.

Also, to let everyone know, we are hosting a Web cast of today's call which you can access at .com or UDRT.com. At this time management would like me to inform you that certain statements made during the call today, which are not historical, may contain forward-looking statements within the meaning of the Private Securities and Litigation Reform Act of '95.

Although United Dominion believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance its expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in last night's press release and from time to time in the company's filings with the SEC.

With that, I will stop talking with this voice and I'll turn the call over to Tom , President and CEO, who will begin and introduce the rest of management.

Thank you Claire and thank you for those on the call for taking the time to listen to United Dominion's fourth quarter earnings.

Joining me on the call today are Mark , Ella , Chris and Kevin . Management has prepared remarks, which should take about 25 to 30 minutes and then we will open it up to questions and answers.

I assume you read the press release and therefore will not read it back to you. Highlights for the quarter. It was a good quarter and frankly, a very good year. First, during the quarter, we met the street's consensus estimates of 40 cents a share representing eight percent growth over the prior year.

Same store sales results came in at 1.5 percent over the prior year, which is in line with our expectations and with over 70 percent of our markets delivering positive in a wide growth. Kevin will discuss our operations. In particular, I have asked him to focus on our operating trends looking at the third quarter, fourth quarter and our outlook for the first quarter of 2002.

Second, we've completed in excess of $500 million of capital transactions during the quarter raising $58 million in new equity, purchasing $46 million worth of assets, selling $7 million of land and closing a $400 million revolving credit facility. Mark and will discuss these in more detail.

Chris will discuss the one-time charge and non-recurring income as well as our 2002 outlook and earnings estimate. Let me back up and look at the overall landscape for a moment. Looking at the economy, I find it interesting that many people have declared the recession over. Some signs point to this, particularly growth domestic product reports for the fourth quarter showed a .2 percent growth.

Increased orders for durable goods. The Chicago Purchasing Manager's Index is up. Employment losses seem to have slowed. In fact, employment at -- unemployment at 5.8 down to 5.7 and despite no official stimulus package, our government is finding ways to spend money.

Offsetting all this good news on the national front would be that the AFC team won the Super Bowl and as history serves us, that forecasts a slowing economy. While I'm not going to , I can tell you that the picture for the multi-family group is not quite so clear.

The four key areas that I look at in looking at the landscape that we're going to operate in the near future are occupancies, construction starts, job growth and single-family homes. First, on the occupancy front, national wide vacancies are about 6 percent and are forecasted to remain at that level for 2002.

Second, the apartment market is not expected to improve until the labor market improves and with unemployment remaining unclear on where this number is headed, we've added cloudiness to our forecast.

Third, 2000 new starts were approximately 250,000 units, 2002 is forecasted to be between 175 and 200,000. If you adjust out the affordable apartment development pipeline, you will find in essence, construction is going to be down 40 percent in 2002.

Lastly, and probably troubling, is new home sales grew to almost 1 million units during 2001 and are expected to repeat that in 2002. Those four factors provide a very uncertain future for the overall multi-family group.

How are we dealing with this at United Dominion? I believe on this call you will listen to many of the steps we've taken, but as I stated in our second quarter earnings call, we saw this difficult -- this environment emerging and accordingly adjusted our operating strategies to deal with it.

We still believe this is a local business and that product and service make the difference. We believe our product is generally a B-class middle-market apartment, is the best during this environment and we also see our team emerging and strengthening itself and delivering above average performance.

I will now turn the call over to Mark.

Thanks Tom. What I'm going to be talking about this morning is briefly our current -- our current acquisitions and dispositions program and also I want to give an update of where we are with our development pipeline.

Now I'm going to start first with development. For the past year, we've really been working to minimize our development exposure and the reason for that is that we were -- we felt like we were entering the general economic slowdown and that would be appropriate.

And so now, at the beginning of this year, we only had 462 units under development and those will be completed by the second quarter of this year. Now we think our development group has done a very good job of bringing those units in on time and on budget. So where we go from here is we will continue to seek out development opportunities in our core markets and today are currently out seeking to raise equity with potential joint venture partners to start a new development program in 2002. Any starts would be towards the end of the year.

Now in our opinion, by the time we close in title and complete construction of any newly identified fact, the market fact will be back on the upswing in many of our major markets. However, our first priority will be create values through rehab and Phase II type opportunities within the existing portfolio.

Now related to that is our land inventory of undeveloped sites and we have sold about 12.7 million this year and most recently on sale was a site in the historical Cordoba area of Memphis which sold for 1.6 million. In addition, we sold a site in Frisco, Texas for 1.7 million in November.

Where that leaves us is we have about four undeveloped sites left that have a turning value of 13 million and we're at work on those sites for a combination of selling and putting those sites into development as is appropriate. So that's where we are on development.

Let me go to dispositions. We have been working with some of our assets in our and smaller markets and today we have assets under contract for sale totaling 105 million. Those assets are located in Tucson, Arizona; Naples, Florida; Las Vegas, Nevada; and Memphis, Tennessee.

In addition, we have a couple more assets listed for sale in Albuquerque, New Mexico. We have a portfolio that's been out for bid and we received bids on that portfolio and working through about nine bids at this point in time. That involves all of our apartment communities in San Antonio, and then five other communities located in both Dallas, Fort Worth and Houston.

We expect to complete the negotiation on these bids in the next few weeks. Now the obvious question is what are the terms of those sales? Now the nature of our current negotiations really prevent me from discussing in detail, but I want to -- in those offers, but I want to say this.

I expect the total sales volume could be in the $320 million range for all those I did discuss. This would indicate a cap rate of close to 8 percent based on less our historical capital expenditures. Timing would be we expect the closings to occur late in the second quarter. That's just a forecast. We'll have forecasts go off the Rams would win the Super Bowl, but we think that's fairly close timing.

I want to talk just a little bit about where we are on acquisitions. We're really actively in the market for replacement properties that will match up with our expected sales activities and these acquisitions will add to our core markets.

We are pleased to announce the completion of that acquisition of three newly completed communities from our development joint mutual partners . This adds a total of 794 newly completed units to two of our long-term core markets, Dallas and Phoenix. That was at a favorable acquisition price.

In addition, we just closed on a 400-unit community in North Arlington, Texas that costs from around 22 million. We already own three assets in this submarket, so this acquisition of a 10 year-old property cap rate fits very well into our strategy of adding assets next door to communities we already own that are improving markets.

We are currently negotiating other acquisition opportunities and are very optimistic we will be able to bring more deals to the closing table this quarter. And that will allow us to sell other assets in smaller, low-performing markets without incurring dilutions to earnings. That's my overview of the acquisition/disposition development area.

And now I'd like to turn the discussion over to Ella who will go over our current financing activities.

Thanks Mark. In the fourth quarter, we announced that we closed on a $400 million commitment for a Fannie Mae (Company: Fannie Mae; Ticker: FNM ; URL: http://www.fanniemae.com/) revolving facility. That facility today has about million thrown against it.

As we highlighted in our December press release about this facility, the use of these funds is going to be to refinance existing secured debt, about 31 loans. The Fannie facility can float at 60 basis points over the or could be at a spread of about 150 over the 10-year treasury.

These rates are contrasted with an average interest rate on the portfolio that we're refinancing those 31 loans of about 7.9 percent. So to emphasize that point, what this facility does is it takes 7.9 percent debt and fixes it at rates today that would be about 6.4. That's roughly 150 basis point reduction on that portfolio.

The compelling features of this new facility are lower interest rates, lower interest expense I just mentioned, an improved maturity schedule, average maturity on the portfolio that we're refinancing was about three-and-a-half years and we're going to fix it at 10.

Flexibility on substitutions, we had a slight pickup in unencumbered assets and overall improved earnings. Our fixed charge coverage ratio has improved by 30 basis points from December 31, 2000, to a ratio of 2.15 at the end of the year for 2001. We expect to see that ratio continue to improve throughout this year.

Our unencumbered assets stand at 2.3 billion, which is roughly 57 percent of NOI coming from those unencumbered assets. Our floating rate debt at year end, approximate balance is about 516 million, represented 25 percent of total debt. Although this is somewhat higher than some of our industry peers, it's not materially so.

And our plan is to begin converting some of this Fannie Mae floating rate debt to six throughout the first part of 2002. In fact, our goal is to basically be at 20 percent of total debt be floating by the end of the second quarter going into the third quarter.

We quite often get asked about our balance sheet strategy, so let me address that and to do so, we continue to work on a balance sheet that we inherited under the new management that really had little flexibility going into 2001. Fortunately, as a result of some of these opportunities, we did have some improvement in the last few months.

Right now, although we don't have any specific plans for additional refinancing this year, we'll continuously look for ways to improve earnings and increase shareholder value. That's our first priority.

To summarize, overall in the fourth quarter we started the refinancing of these 31 assets with this new Fannie facility. We made significant improvements in two key financial measures, level of unencumbered assets went up and our fixed charge coverage ratio improved.

These are two metrics that we believe to be an indication of our commitment to strengthening the balance sheet. We've always known this was going to take time, but we're certainly working to move in that direction.

Kevin?

Thanks . In looking back to the fourth quarter from an operations perspective and attempting to provide meaningful information to those of you on the call that either follow or invest in UDR, I think a couple of observations need to be shared.

First, as we analyze our performance on a year-over-year basis, we must consider that the operating environment has changed pretty dramatically. More importantly, comparisons to last year must also consider that we're a new management team employing a different operating philosophy.

So as Tom eluded to earlier and given these changes, I decided that instead of providing those details that describe the differences between the fourth quarters of 2000 and 2001, I would try and provide some clarity and color around what has happened on a consecutive quarter basis, beginning with the third and fourth quarters and preview the first quarter of 2002.

Starting with occupancy, across our portfolio, our fourth quarter occupancy of 94.2 percent was up 0.4 percent from the third quarter's 93.8. We attribute part of these gains to certain initiatives we put in place earlier in the year to help us operate more effectively in slowing economic conditions.

Specifically, our continued focus on reducing both maturity concentrations as well as our exposure to month-to-month leases has provided us with the ability to limit the number of leases needed in any given month. Additionally, our occupancy has been helped, we believe, by operating the B-class portfolio across a national platform, which helps us to overcome certain markets where we're struggling.

In looking at the first quarter of 2002, occupancies appear to be holding up thus far and we would expect to see rates continuing around 94 percent. From a revenue perspective, quarter-over-quarter for fourth quarter 2001 versus third quarter 2001, the company's revenue from rental and other income increased about 1 percent.

These revenue gains came in large part from properties located in the Midwest, the Mid Atlantic and North Carolina, but were offset somewhat by struggling markets like Atlanta, Memphis, San Francisco and Orlando. From a concession standpoint the portfolio's modest sequential quarter revenue gains were achieved despite increased concession, but perhaps surprisingly the $41,000 increase in concessions quarter-to-quarter would indicate some stabilizing after the big increases we have seen throughout 2001.

Additionally, concessions have in fact declined for us in some of our more challenging markets such as Raleigh, Nashville, Phoenix and Charlotte. In looking at January's performance, the stabilization that we saw during the latter parts of the fourth quarter with regard to concessions continued and should improve further as the quarter progresses.

With increases in traffic in a number of our markets, first quarter revenue growth should continue to improve modestly. From an expense standpoint, we recognize that our conscious decision to maintain our occupancy during these choppy conditions came at a price.

Operating expenses grew 1.5 percent on a consecutive quarter basis with share of these increases and repairs to maintenance expenses in admin and marketing including locator fees. Turnover remained very high in the fourth quarter at 82.6 percent, but down from the third quarter's 85.1.

Markets with very high levels of turnover in the fourth quarter included Dallas, Houston, Phoenix and San Antonio. That said, our turnover numbers in January are tracking back down to historical levels with all of our major markets reporting decreases in the annualized turnover figures from the fourth quarter.

With turnover improving, coupled with recent improvements in expense management on a number of key line items including repairs and maintenance, personnel costs, utilities and admin and marketing, we expect to see only slight increases in expenses in the first quarter.

With all that said, our grew 0.7 percent on a quarter-over-quarter basis. Although this represents a modest increase, the fact that we were able to show positive improvement on a consecutive quarter basis indicates that we continue to make progress from an operational perspective. Early indications from January show that bottom line progress continues to be made.

Let me recap a couple of things that I think are important in those comments. One, occupancy and concession all point to continued stabilization for the economy as a whole. Two, with regard to UDR's performance, we did show positive growth from the third quarter to the fourth quarter.

And finally, early indications from two months worth of revenue and one month's worth of expenses for the first quarter indicate we continue to make progress. Next, I'd like to spend just a couple of minutes providing a little clarity on what we're seeing in certain markets.

I'd like to point out that as we look at these markets, what must be considered is that with none of these markets comprising more than 6 percent of our total NOI, these observations truly are specific in UDR and our competitors may or may not share the same experience.

Houston is a market that's talked about quite frequently these days and is a market that comprises about 6 percent of our company's NOI. We saw solid performance in the fourth quarter, NOI growth of 8.3 percent on a year-over-year basis and occupancy of 95.1, up from 94.2 in the third quarter.

The market, approximately 41 percent of assets in Houston are offering concessions, citywide occupancy is 95.4 percent, both in line with where we are at UDR. As we look to Houston moving forward, we remain cautiously optimistic despite the uncertainties surrounding Enron (Company: Enron; Ticker: ENE; URL: http://.www.enron.com/) and the planned mergers that -- between H-P (Company: H-P; Ticker: HWP ; URL: http//www.hp.com) and Compaq (Company: Compaq; Ticker: CPQ; URL: http://www.compaq.com/), as well as any additional fallout from Continental Airlines.

As we look at permits, they trended up mildly in 2001, just over 6,000 remain low by recent historical standards and estimates on job growth total about 23,000, which we -- based on numbers we look at which create needed absorption. Again, we've got a great operating team in Houston and look for good growth in the fourth quarter.

Dallas, also a market where we were -- we've got about 5,000 units, was an outstanding market for us throughout most of 2001, but one in which the hardships and technology, telecom and travel really forced our operators to get very aggressive. Approximately 88 percent of assets are offering concessions in this market, up 78 percent from the third quarter and up from 58 percent in the second.

Citywide occupancy is 93.9, again versus our 94.8. As we look at Dallas, permits appear to be trimming down a little, to about 6,800 recent job growth estimates for 2002 to show about 14,000 new jobs. We are very on Dallas long-term, but we expect a very choppy market with very aggressive concessions in the near term.

That said, we've outperformed in this market in recent months and expect to do so going forward. Orlando's the market where we've got about 4,000 units comprised of about five percent of the company's NOI and continues to present challenges for us.

The fourth quarter occupancy of 91.4 was down from the third quarter of 93.3 and fourth quarter's NOI decreased by 3.7 percent year-over-year in Orlando. Concessions have increased in this market with 79.5 percent -- 79.5 percent of assets offering concessions, up from 56.2.

On a positive note, it appears that traffic has been trimming up in December and January. Again, Orlando continues to suffer from the over-building that took place in the late '90s. The permitting continues to decline and their estimates indicate about 6,900 predicted starts at 2002.

We continue to watch Orlando very carefully, continue to watch what Walt Disney's (Company: Walt Disney; Ticker: DIS; URL: http://www.disney.com/) reaction will be to the vacationers still not coming to pre-September 11 levels. And we hope to see improvement in the market by fourth quarter of this year or early first quarter.

With that, I'd like to turn -- turn the call over to Chris.

Thanks Kevin. I'd like to spend just a few minutes talking about our 2002 outlook as well as a couple of what I'll call non-recurring or non-routine events that infected our financials in the fourth quarter.

As for 2002, the model that I'm using forecasting same store sales in the range of one-and-a-half to two percent increase. In addition to that, the company currently has about $285 million of real estate, but it's classified as non-mature, in looking at returns on those in the range of 7 to 7.3 percent in 2002.

As for dispositions, as Mark indicated, we're looking at 350 to $400 million of dispositions at cap rates in the low eights, projecting upon average about six months of dead capital in connection with that, reinvesting those proceeds again in the low eights.

As for floating rate debt, already talked to this that we intend to be back about 20 percent of total debt on a floating rate basis in mid 2000, with the short-term rate increasing 25 basis points a quarter during the year.

And our weighted average share accounts over 2002 should be approximately 4.2 million shares higher than it was in 2001, and that's sort of the way I look at it in getting to our $1.65 a share for 2002. As for non-recurring items, we discussed in our press release.

The company rated $15 million of new capital in the fourth quarter and should get them through the rollout of the product in their initial marketing. Our holdings are now in the -- roughly 4 percent of the company, valued at 1.3 million and so we took the write down of 2.2 million included in our FFO of 40 cents a share in the fourth quarter.

And I would point out to you that is our only remaining technology investment on our balance sheet today at $1.3 million. Partially offsetting that write down, we're pleased that we earned three of our five joint ventures with .

By bringing our projects in under budget on construction, we were able to earn construction cost savings bonuses, 75 percent of which flows through our P&L based on the third-party ownership of the joint venture. There were also, of course, some developer fees for these deals that were not realized by either party until the properties were ultimately sold.

On the two properties that remain in the joint venture, we still have approximately 400 to $450,000 of similar fees that will probably be earned in 2002, when those properties are sold out of the venture. That's for overhead.

The total overhead cost to run the company are reflected in two line items on our income statement, our property management, fees, as well as general and administrative expenses. Roughly, $1.3 million of those property management fees are third-party costs and the rest is internal.

And if you look at one overhead cost in the total, the run rate declined over the year from 2.7 million a month to under 2.6 million a month. in spite of including an extra four to four and-a-half million dollars in 2002 for incentive compensation, which makes us all very happy.

Our quarterly projection of those costs going into 2002 is that in total, the cost to run the company will be about 8 million per quarter before the third-party component. In the fourth quarter of 2001, our G&A expenses include approximately $3 million of increases to various balance sheet accruals for items like bonus compensation, medical general benefit insurance coverage, vacation accruals and state and local accruals.

Though there's roughly $3 million in fourth quarter G&A, that would be non-recurring type items as well. As Mark indicated, we're starting to see numerous deal opportunities for creative transactions and we're going to be taking advantage of those. We're beginning to close on some of those now.

In order to increase the tax efficiency of our acquisition and disposition activity, we're going to be doing a fair amount of 1031 exchange activity in 2002 and this is really made easier if the acquisitions gain is slightly .

So to feed that pipeline, we did issue roughly 4 million shares, 4.1 million shares, during the fourth quarter, raising approximately $60 million at a price that's within 3 percent of the high price of our shares for the last four years, $14.77 high on the day we effectively quoted this figure on this transaction and the stock last saw that price in December of 1997.

But even factoring in the new shares, our total return to shareholders since February 1 has now topped 38 percent. The total market cap during the fourth quarter increased roughly $70 million and that resulted in the inclusion in our share count for FFO per share in the fourth quarter of roughly 370,000 shares related to the out performance partnership program.

So with that, I'll turn it back over to Tom.

Well, at this time, I think we'll open it up to questions and answers and at the conclusion of that, I'll have my closing remarks. So if you will, we're ready to field questions.

Thank you sir. Ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you have a question at this time, please press the one key on your touch-tone telephone.

Our first question comes from Rob Stevenson from Morgan Stanley (Company: Morgan Stanley; Ticker: MWD ; URL: http://www.msdw.com/). Your question please?

Good morning guys. In terms of the -- on attachment 9, on the developmental stuff, what would have happened at Manor to drop the expected return from 13.4 percent in your third quarter supplemental to 10.1 today?

Rob, this is Kevin. I'll answer that. It looks like we incorrectly spent some expenses through Manor Three that should have been spent through Manor One and Two, so we had to re-class some utility expenses, some trash service expenses and some landscaping to allocate those to Manor Three which we did in the fourth quarter.

Rob, did you realize it's a multi-phase project and the counting between the phases was corrected during the fourth quarter? And we're still very happy with the return that we're going to receive on that Phase Three.

OK. I just wanted to make sure because of the size of it. The 10.1 still seems pretty decent, but you know, the differential, you know, dropping 350 basis points was just -- caused the red flag to go up.

There's an operation or an occupancy issue, it's internal. The total return on all three phases is about nine, nine-and-a-half. So you know, overall, it's a good development.

OK. And then you guys gave pretty detailed documents in terms of a disposition . Are you expecting to redeploy basically all of that back into acquisitions?

At this time, yes. We're finding plenty of opportunities that we're looking at, and particularly the theme of what we call the one next door. So Mark's got quite an active pipeline that he's pursuing in our target markets.

Chris's model for 2002 adds a degree of conservatism that assumes that that capital is down for six months before it's redeployed. And we certainly hope we can beat both of those, that the pace has quickened as well as the dead time will be shortened on that capital.

OK. And then what is the -- I mean, just in terms of a sort of a rough guesstimate in the terms of the developmental dollars in terms of starts in '02 here? What are you looking for there?

Well, we expect any starts would be towards the end of the year. We'll be doing that in a joint venture format. My hope is that we would start in the nature of probably two projects of roughly 250 units each, so about 500 units towards the end of the year.

And your -- your representation on that would be what? About $10 million or so?

No, that would be total units for the total development if you take an average of say 75 to 100,000 units depending on what markets you're in and some of those might be in -- towards the west. You can extrapolate that number out that way.

OK.

But let me emphasize that our plan is to do that with some development between the venture partners we're talking to right now.

And in that case, you guys would probably be the minority?

That is correct.

OK. And then so basically you're looking at incremental net investments in 2002? If you're going to -- if you're going to match acquisitions, dispositions and then deploy some percentage of $50 million roughly of developments or so?

Yes. It'll be a net roller during 2002.

OK.

And I left out any -- we are looking at one particular Phase Two start would be 15 million. That would also be probably our third quarter start.

OK. Thanks guys.

Thank you.

Thank you Mr. Stevenson. Our next question comes from Dave Swett of Wachovia Securities (Company: Wachovia Securities; Ticker: WB; URL: http://www.wachovia.com/). Your question please?

Good afternoon. It's Steve at Wachovia Securities. Tom, a couple of questions.

First, did you guys repurchase any shares in Q4? And I know in the past, pretty recently, you guys have been actively purchasing. How does your view of the shares look now after selling some equity and now you're indicating, you know, I think a more aggressive look at acquisitions?

During the fourth quarter, there were no repurchases of shares. Chris highlighted that we had repurchased in the preceding three quarters approximately 3 million shares at a weighted average price of 13.20. So we see right now the shares seem to be fairly priced on an basis, on an FFO multiple basis, probably at the low end of our peers.

And I think as we progress through 2002, people will look at it and say that we've got a very predictive business model and some very predictive facts and that our multiples should expand.

OK. On the -- one of the adjustments you have to FFO, you're adding back the early extinguishment -- to the early extinguishment of debt. Was that related to, you know, just kind of the debt that you refinanced with your new facility? And given that you still have some capacity there, is that a charge we're going to continue to see for the next couple of quarters?

Steve, this is . And you're right. That was associated with that $400 million facility we closed in December. We were sort of phase funding that because it's a large transaction and it was a refinance of 31 loans. We refinanced about 31 million in the fourth quarter, and that was the prepayment penalties on that debt.

So yes, as we announced in our press release in December, depending on what the interest rates are at the time that we refinanced this debt, it's probably going to aggregate somewhere between 20 and 24 million. So as we repay those loans, you will see that debt.

All right. So this is -- this is the first part of that and you've still got, you know, another 20 million or so?

Right. And again, even after the repayment of those early extinguishment of debt, we're still looking at a positive net present value associated with the refinancing of those loans.

OK. And then just one last question. I just want to make sure I've got the numbers right. You stated that you have $105 million under contract to sell and you're looking at selling another 300 -- or you also mentioned the $320 million portfolio. I just want to be clear. Is -- does the 320 that you referenced include the 105, or is that an additional amount?

No. It includes the 105.

OK. So it's 320 total including the 105?

Correct.

OK. Thanks a lot.

Thank you.

Thank you Mr. Swett. Our next question comes from Rod Petrick of Legg Mason (Company: Legg Mason; Ticker: LM; URL: http://www.leggmason.com/). Your question please?

Good afternoon. Regarding G&A, you cut out on my . Can you give me what the run rate is for this year?

The run rate projected for 2002 for the components of overhead that will be in both property management and G&A is about eight million a quarter.

We find that cap ex, a big increase. Is that -- was your theme deferred in prior years or -- and do you look for 450 to $500 a unit on an annualized basis?

This is Tom.

Tom?

During the second quarter, the management team had been on the ground for a couple of months. We really concluded at that time we needed to develop five-year plans for each individual asset and so we spent the following two quarters going asset by asset, looking at our business plan on dispositions, acquisitions, as well as what we had in the pipeline.

And really concluded that the spending needed to be at about $400 a door per year and during the fourth quarter, we decided to one, work on our curb appeal, solve some of the deferred maintenance in the portfolio. So we really pushed the spending in the fourth quarter, but I think it's paying off in the first quarter by virtue of our traffic and what we've seen in leases.

So it was a conscious effort on our part to increase it in the fourth. We think on a -- we have a plan going forward for each individual asset that will encompass the next five years, and we think 400 this year will work. So that's our guidance and a very good question.

What is your turn costs on a unit? I mean, you say turnovers are up. What's the cost and how much -- how much is expense and how much is capitalized?

In the case of a turn cost, what I would define as just strictly cost spent to third parties. I don't throw vacancy in that because that varies quite a bit, but the cost for a commission, paint, carpet, cleaning, approximately $1,100 per turn on this portfolio.

Is there a part that's capitalized on that or no?

The only portion of it would be carpet and carpet, the $1,100 is probably the expense portion and on -- addition to that, you're going to find that carpet is going to run you about 550 a door.

And then finally, you know, with turnover that you've mentioned, out the back door, what percentage are you losing to home sales? And do you have any reference as to how that compares to prior quarters?

Obviously market -- my market is different. You know, in San Antonio, you would find your loss to home sales probably at 50 to 55 percent. This portfolio averages about 35 percent of our turnover related to residents moving into homes.

Great. Thanks.

Thank you.

Thank you sir. Our next question comes from Brian Legg of Merrill Lynch (Company: Merrill Lynch; Ticker: MER; URL: http://www.ml.com/). Your question please?

Yeah. I just wanted to just follow up on the non-recurring items. Your revenues quarter-over-quarter increased $2 million and so did your other income. Were there any -- besides the 1.4 million in development fees that you mentioned in the press release, were there any other non-recurring items or are those good run rates?

Those are good run rates.

OK. And your cap rates on acquisitions, the 8 percent that you're talking about? Is that also after $400 cap ex number?

That was the disposition, was the 8 percent and that was post cap ex. Acquisitions, what we're seeing on deals that we've closed, nine percent post cap ex. So there's a positive spread that's occurring right now in the marketplace.

OK. But when you reinvest that 320 million, do you expect it to be back to the low eights?

We see ourselves at the eight-and-a-half range, probably on a weighted average basis. We'll try to do better but I think that, in essence, means that we do not see any dilution in our spread if you will. What we are is counting on some dead time for that capital.

OK. And that's after about $400 per unit? That's the assumption you're using?

On a newer product, we're running it at about $350 a door. On anything greater than 10 years, we're running it at $400 a door.

OK. And most of these acquisitions, will they be less than 10 years?

Yes.

OK. A lot like the nine year-old acquisitions?

That's what our target is. Again, we're trying to focus on the asset next door, not trying to exclude assets based on age. We're trying to find where our property management team can add value and we can create synergies in our operations. So we would like to buy younger, see that as a goal. But we're not excluding the opportunity by age.

OK. And a couple of questions about concessions and occupancies. With 94.2 percent, is that about the occupancy at the end of the quarter?

That was the weighted average occupancy during the quarter.

What would it be at the end of the quarter?

Ninety-four is what Kevin said.

And what would be the gap between the fiscal occupancy and economic occupancy?

We don't measure economic occupancy and I'm glad to field that question off line. But I don't believe it's a meaningful measure because it's contrived math if you will.

OK. And the 41,000 of concessions, the increase of quarter for quarter? Can you get that off the base?

Well, that's off the revenue base of $50 million.

Right. But what was the concessions? I mean, what was -- where did it go from, to in concessions?

It went from just under 4.1 million to just over 4.1 million.

OK. And you talked about traffic trends. Do you have any -- do you have any like definable trends in traffic if things picked up X percent since the beginning of the year, year over year versus a fairly dramatic slowdown from September 11 and end of 2001?

Again, I think comments in this -- in the third quarter conference call, we really don't track traffic on a numeric basis because traffic for us, you know, on a numeric basis depends on how many leases you get.

I'm talking strictly from a qualitative standpoint. Our operators down in Orlando say the traffic has improved. Phoenix they say the same thing. So it's more a qualitative observation.

OK. And ...

One thing to kind of point to that I think is relevant. I recently spoke on a panel and highlighted our concerns about Orlando and the softness there. And just to give you kind of data that we look at, for example, we live here in Colorado. And the traffic that they're seeing on tourists that are flying in and skiing, they're looking at it and it's right back to its normal level.

So that tells us a lot about what we should expect out of Florida in the near future by virtue of people are getting back on planes. They're going. They're taking vacations. And so, while you might have heard us two weeks ago, month ago, say we were concerned, it looks like things like that type of data help us point towards the future and help us plan a little bit towards our marketing strategies.

We're planning on having a good Orlando, turning around a little bit here.

OK. Along those lines Tom, you talked about your exposure to some of those troubled industries, giving airlines, travel, telecom, military bases, and so forth. Do you think most of the worst is behind you now?

That would be the overall tone I would add to this is that really the third and fourth quarter points to one thing on my mind, which is we've seen the worst. That early January, February kind of patterns seem to be coming back to normal, that we're out there working to keep our occupancy up.

We are having concessions, but the good news is, we're burning off the concessions immediately and charging them right to earnings. And so there won't be any lag or drag on our earnings in the future. So I would put the tone as the worst is behind us, that there are some markets that are still going to continue to struggle for the time being, Atlanta would be one, Charlotte work its way up.

But overall, we like the long-term of those markets and overall, we look at the portfolio, we think the portfolio is going to deliver one-and-a-half to two percent same stores for 2002. We strive to beat that, believe we will, but we're not hunkering down for a long dry spell. We really think its turned.

Yeah. I'm sorry. I just want to go back to the concessions again. The 4.1 million in the third quarter, what would be that number at sort of the beginning of the year?

Forecast for the first quarter?

No, I'm sorry. For like the first or second quarter of 2001? You said I could see the acceleration.

I can give you where it was in the fourth quarter of last year. That number was at about $2.1 million.

OK. So it's doubled. OK. Perfect. Thanks a lot guys.

Thank you.

Thank you Mr. Legg. Our next question comes from Elise Wolfgram of Waveland. Your question please?

Hi. Can you just comment on how you guys have been able to hold occupancy flat at 94 percent while your public opposers have seen markets of loss, you know, average of two to four percent and your rental rates are up while theirs is kept flat?

So can you talk about specifically whether it's the difference between your properties' locations and quality or it's just management and ...

I think each individual situation would have it's own individual story. Looking at it from 40,000 feet, my view is that you've got a national portfolio, no market more than six percent. We operate in 62 markets. Twenty of those markets represent 40 percent of the results.

What I would say the West coast has lost a point-and-a-half to two points of occupancy, but the East remains strong. Texas on balance is flat given Houston is up. Dallas is down. Austin is down. San Antonio is down. But on balance Texas is flat.

Florida pretty much flat. Orlando down but Tampa up. So the portfolio composition makes a lot difference in our ability to report flat occupancy.

The second element, our team we monitor this almost down to a day-to-day basis. We're out there adjusting prices. We have people knocking on doors. It is really a business about sales and relationships. And we see ourselves as really focused on that. Have been since this management team arrived at trying to make sure we maintain an occupancy that shows the property well. As well as a team that shows it well.

So I think it's a combination of things. And you can see one point of occupancy difference in this portfolio represents about four cents of earnings. And so we are very conscious of that occupancy number. And believe that concessioning if you look at it and say we offer one month, average rent $700 to get a nine, 10 month lease that's $700 to get a new $8000 revenue stream. It's a very good investment.

And we see that we would continue doing that to maintain that occupancy level.

So you see going forward this year that you'll continue to relatively outperform your competitors on a .

That's the goal of this management team. We see ourselves as trying to beat the rest of our peers.

And let me define our peers for a moment. I mean first you realize that in the apartment universe there's 40 million renters in America. Twenty-five million are renting an apartment greater than five units. Of that 25 million, about 16 million are in our price range. That means we own less than 10 percent of the inventory.

Our competitors and our peers are frankly a lot of mom and pops. That's where we think our sophisticated systems, our talent can win. There are a lot of other talented management teams in this industry in the public companies. And I really try to tell our team don't worry so much about them, let's go beat mom and pop. There's a lot more of them to beat.

OK. Great. Thank you.

Thank you, Ms. Wolfgram. Our next question comes from Rich Anderson from Salomon Smith Barney. Your question, please.

Thank you. First, when do you expect that one time development fees associated with the other two to be booked in 2002? And how much?

Well Mark forecasted the you know St. Louis winning the Super Bowel so I can't ask him to really forecast that with any degree of accuracy.

I would also highlight that we're under no obligation to purchase these properties. So we really don't control the timing of that.

But our best guess is third quarter of 2002 and like I said earlier -- the remaining the first fee income is in the range of 440 to $450,000.

OK. Do you break out same store for some of your major markets for 2002, what you're looking for? Do you have a guesstimate?

We had previously provided that on prior calls. I'll ask Kevin to answer some of that as it relates to some of our top 10 markets.

I'll start off while Kevin thinks. A, we're seeing Dallas at probably a two percent growth. We've got a very good experienced team in Dallas. And I can't give them enough credit on this call. They have really been out there doing a fabulous job in a troubling market, but we still see two percent.

Houston, we're forecasting three or four. Orlando, we're flat but down two percent. Charlotte, Raleigh flat to down three percent. We're seeing the East coast DC area as up two to three percent. And the Bay area we're probably in the right product and price range there. We see ourselves holding our own at about two to three percent up.

And so that's how I would go market by market, but glad to put more meat on that bone later.

OK. The final question I have is I recall that you had in your expectations two to five cents of annual accretion tied to the 400 million facility. Where do you see that number now as it relates to your guidance for 2002?

I think we still feel comfortable with the contribution that's going to make for the $1.65. You know we had a pick up for a while there as it floated, but as convert to fixed you'll see that spread kick in between the existing rate and the refinance rate.

Our goal would be to get the floating rate debt down below 20 percent by the end of the year. And we'll probably do it sooner than later given the current environment.

But again, we're bound by certain contracts in the maturity scheduled. So that's been more of our overall rise in floating rate debt and why it will diminish this year.

I guess the question is you're not counting on five cents of accretion from that facility to get to your $1.65 number.

In the current year, yes. And then on a go forward basis. Here's the bottom line, you're going to refinance $400 million plus during the year that had a weighted average interest rate of 7.8. And we're going to have it all in fixed between six and six and-a-half.

OK. Fair enough. Thank you. OPERATOR: Thank you, Mr. Anderson. Our next question comes from Le Chalop from Bank of America (Company: Bank of America Securities; Ticker: BAC ; URL: http://www.bankamerica.com/). Your question, please.

Ken is here too. We have a couple of questions. The first if on the acquisition plan. You talked about cap rates on dispositions and acquisitions being similar.

I wonder if you could provide some more color on that given that the goal of the dispositions and acquisitions is upgrading the locations of the assets.

Well I mean what we're looking to do is get out of say a Memphis and redeploy in a market that has longer growth potential. And we're in a fortunate situation where it's a good time to sell. We feel like we can execute the acquisitions and cap rates that they aren't going to cause dilution.

Now that's still a deal by deal basis, but it's going well at this point in time.

Yeah, Le, if you look at it, you know if you get rid of three, $400 million if you sell at low eight, in San Antonio, Memphis, Tucson, Albuquerque. Would you rather have southern California, Seattle, Portland, Denver, at an eight?

Yes.

And that's the way we've looked at it. We're trying to get ourselves back to 20 to 30 markets. And if we can make the trade in markets that have historically grown one and two percent. The markets that look like they're going to go three to five, that's a positive net trade for us in the long-run.

That's before we take a look at are we adding value to operations and concentration opportunities?

And I don't disagree with the logic. I just would think it would be difficult to sell in Memphis and buy in Southern California at the same cap rate. That there would be a diluted spread there.

Well I think what we're reporting is that is exactly what we are doing. And you will see through the next several quarters us deliver on those statements. And all I can say is let's watch the performance.

OK. And then the second question, could you share with us your thoughts on current NAV?

You know the NAV is always a tough number. If you give me the cap rate and the growth rate, you'll notice on our published Web site, we in essence give you all of the detail. And give you the formulas. And you can calculate NAV for it.

Current management thought is at a nine cap two percent growth rate for 2002 less 385...

Four hundred dollars a door.

I'm getting told $400 a door, that we would have an NAV of 1550.

Now are we going to be a nine cap? I believe so. Are we going to do better than two percent? We'd like to. Four hundred dollars is right.

So we think the NAV today conservatively is 1450. We think we can get that up as we improve operations and reposition the portfolio.

I think Ken has a question.

Sure. I just wanted to ask about the month-to-month leases, what you're down to at this point. And then also if you're doing anything to reduce the credit losses? Or if you're assuming that the economic recovery will take care of that?

From a month-to-month perspective, we are now down to 2.9 percent which I think last time we spoke we were in the four. So we continue to make progress on that.

Credit losses is a line item that we continue to watch. I mean the reality is that when folks lose their job, some just walk away and disappear. We are looking at our credit screen processes with their occupancies where they are.

We think that we can be selective in who we choose to rent apartments from us.

I think I would add that you know the fourth quarter was a spike. You caught a lot of fall out from September 11th. People vacating in October. We've seen the early December, January numbers come back to historical patterns which are sub one percent. And this portfolio with our process and resident base, we think that's probably the normal, to see it at about one percent or down about 0.8 range.

Thanks.

Thank you gentlemen.

Thank you, gentlemen. Our final question from Craig Leupolv from Green Street Advisors. Your question, please.

Good morning, Tom. This is Craig Leupolv at Green Street

Yeah, Craig.

I had I guess one question on a follow up to an earlier question on extraordinary charges related to the extinguishment of debt. I thought the answer was that there might be another 20 to $25 million of write offs coming.

But I'm noticing on your balance sheet that there's only $15 million of different finance cost. Is there -- are there other preferred cost in another line item? Or ...

Well pre payment penalties are not on the balance sheet.

Well I'm assuming that it -- that the -- oh I see. So the 20-25 million is pre paid in penalties not just the write off of deferred finance cost.

That's correct.

That's correct.

OK. Great. And...

And the 20 to 25 million is total including what we incurred in the fourth quarter of 2001.

OK. All right. Thanks for that clarification.

In terms of where you guys sit relative to the prior management team, it seems like a lot of the opportunities and a lot of the good work your guys have done has been on the revenue side. Do you see opportunities on the expense side as well? Or is it going to continue to be more top line growth as opposed to expense savings?

This is Tom. I think that you would look at historically this portfolio has been running between 28 and 29.50 a door on annual expenses. My experience says that this portfolio looks like it can run at about 28.50.

What we are probably more interested in doing instead of shaving 100 to $150 a door in expenses is probably repositioning those expenses into more cost effective areas. So we're probably going to increase areas like repairs and maintenance, marketing, and probably decrease areas like admin, utilities, taxes.

So I think the composition is more of what I've been focused on. I don't see any element that says overall there's you know three, $400 worth of expense savings in the company there aren't.

I think that we -- as we mature, get our operating teams glued to this idea we're going to see ourselves get it down to 28.50. Last year we did 29.60.

So I think there is time for that. It will take some time to deliver that. We have been, you're right, correctly focused on revenue. In a slowing economy protecting your occupancy and your resident turnover are the critical areas. The expense savings will be there for a long time to get.

OK. And then one final question, can you break out your revenue -- saving, revenue and expense assumptions for 2002? I know you gave an NOI number of one-and-a-half to two percent.

Yes, here is how I would look at it. You've got taxes which is 26 percent of our operating cost. We're currently forecasting that at a five percent increase. Payroll we are flat. As you recall last year in May we had a 10 percent staffing reduction. Redeloyed that to greater incentives. And gave base increases where we needed to. Payroll will be flat. That's approximately 30 percent of our cost structure.

Utilities, we see utilities flat. Last year was a very good high. Early results out of the fourth quarter indicated down five percent. That might be a pleasant surprise for us as we continue to move into better gas purchasing and conservation efforts.

Marketing I would look at up two percent. Repairs and maintenance, again we'll redeploy the dollars that we see it up three percent.

So overall we're looking at an expense number about a two percent increase.

On the revenue side, we will see an occupancy that's flat to down 50 basis points. Offset by revenue, on a per unit basis. And other income increasing which would be a revenue of about two percent.

Great. Thank you.

Thank you.

Thank you, sir. Gentlemen, at this point we have no further questions. Would you like to continue with any closing remarks?

Thank you, Operator.

In closing first I'd like to thank you for your time. I know there's many other things that you could be doing.

On a personal note, tomorrow is my one year anniversary with United Dominion. It's been a good year. It's been many positives. Some things that I would highlight is that I've hired a very skilled management team. That we have a very good operating group in the field.

That during the last year we've delivered shareholder return in excess of 40 percent. That we've improved our operations, fundamentally, philosophically. And we've increased our balance sheet flexibility.

Lastly to the retail shareholders and to all others, we've increased the dividend. Our intent to increase the dividend to $1.11 a share. That's a 7.8 percent yield on today's share price. lowering our pay off ratios to 67 percent FFO and 80 percent AFFO. So in essence we've made it a safer investment.

Looking towards the future, it appears the worst is behind us. The balance of 2002 will be a choppy operating environment but one that creates also opportunities.

And lastly, I'd like to confirm that we see ourselves meeting the Street's estimates for earnings in the first quarter of 40 cents per share FFO and $1.65 our own estimate for the balance of the year. This could relate to an overall growth of 11 percent over 2001.

I'm comfortable with the strategy, the management team, and our progress. And believe it will both grow in the future.

Lastly, I know many of our associates are on the call today. And I'd like to say thank you personally. You've made this year a great year.

All of you have a good day. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.