UDR Inc (UDR) 2002 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the United Dominion Realty Trust second quarter conference call. At this time, participants are in a listen-only mode. Following the formal presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star, followed by the zero.

As a reminder, this conference is being recorded today, Tuesday, July 23rd, of 2002. I would now like to turn the call over to Mrs. from V please go ahead mama.

Great thank you, welcome everyone to United Dominion conference call today, if any one on line did not receive a copy of the press release it is posted up on UDR's website as well as FRB's if you would like o go get a copy of that. We would also like to make you aware that we are hosting a web cast of today's call which can be accessed at CCBN.com or UDRT.com.

I am going to read a brief safe harbor before we begin. At this time management would like me to inform you that certain statements made during this call today which are not historical made be deemed forward looking statements within the meaning of the Privates Securities Reform Act of 1995. Although United Dominion Realty believe the expectations reflect in any forward looking statements are based on reasonable assumptions they can give no assurance that the expectations will be attained. Factors and risk that could cause actual results to differ materially from expectations are detailed in the press releases and from time to time with the companies filings with the FDC. I am now going to turn the call over to in a minutes to Thomas Toomey The CEO and President of the UDR how will make the introductions management with him and start his formal remarks. So Tom take it away.

Claire thank you for that introduction and welcome to the United Dominion Realty second quarter earnings conference call. Joining me on the call today are , , Christopher Genry, and and a number of our .

Let me begin with the way we view these earning conference calls, first is to report our results for the quarter, second to tell you how we se the business progressing. and what our prospect are for the future and third answer any of your questions. My entering comments will take about 25 minutes let me start with the high lights.

During the quarter we delivered 10 percent FFO growth over prior years, 12 percent AFFO growth over prior years we met first call consensus estimates, we delivered positive results which would place us near the top of the industry, completed $475 million of capital transaction and we earnings guidance for the balance of 2002 and 2003.

Before I turn the call over to the management team to discuss these areas in detail I would like to give you our view of the industry from a 40 foot prospective.

As we have stated in the past three major factors drive our business. We would like to given you our views on each of those areas in particular. Construction, first at this level being 250 to 270 thousand units on a annulled bases this is approximately 10 percent below the industry average of 300K a unit over the last 10 years. If you look further inside these numbers you will find the vast majority of the construction activity at a price point in a product that does not directly compete with United Dominion's middle market. In fact the vast majority of these start are at the class A construction level, or tax credit level again both do not directly with us. So we are not seeing that much of a impact from construction in the near term.

Competing housing alternatives is a different story if you look, every day there are releases of recorded home sales higher then the month before primary driven by the low interest rates. And most recently driven by leading practice that do not appear to be sound including no down payments, refinancing at defaulting leader, bowers and every on low floating rate death. In fact our operating personnel on the site continue to see a number of residents leave for single family homes. Most recently we have being paying attention to home builders particularly the publicly traded home builder forecast of there operating results for the balance of 2002 and 2003 and it hold well as a number of companies have started to cut there sales forecast over the time horizon. So I think some good news is on the horizon as we start to see some of these particular home builder reduce there forecast.

The third area's job household and immigration information. Unemployment appears to be bottoming out although there may be signs of a further weakling particularly out of the telecomm and telecommunications area. Immigration while no exits it certainly from a ground level that immigration is returning information continues to go strong and our long term remain unchanged as they are still very positive. In summary this economy is grinding it's way out of this recovery . Is there a full recovery yet I am not certain of that what we have certainly have seen is recovery in defense, spending, consumer spending and housing. While we continue to see softness in telecom, tourism and technology. While certainly it is too early to call it a recovery for a sector we are certainly at what we are seeing from a ground up level a Kevin will cover this in more detail. Later will the full recover come from the apartment group, frankly I don't believe it will come until we see job growth or a rise in interest rates, I have seen neither of those in the immediate future but I am hopeful for the long term that both these will occur.

Let me now turn the call over to who will discuss his operating results.

Thank you my goal for the next several minutes is to provide some colour related to three issues. Second quarter results from a year over year and sequential bases, talk about the performance in our markets and finally a preview for the third quarter for 2002.

Regarding the second quarter the economic environment provided a number of challenges from a operations prospects in the second quarter. growth of zero point three percent waste result of a zero point two percent increase in revenues and in other income and a zero point two percent increase in operating expense over the last year. Across the portfolio our occupancies rates of 93.4 percent for the second quarter was down from 94.1 percent in the second quarter of last year as well as down from the first quarters 93.5 percent.

On a sequential quarter bases we continue to see improvements and continued challenging. In we seen revenues decrease a negative one percent from the first quarter primary related to our slight decline expenses decreased negatively three point eight percent to zero point five percent sequential growth. Again on a sequential bases we where able to see some revenue increases in 32 of our 57 markets including , DC and and a decline in sequential expenses in certain markets such as Dallas, Huston, and . remains challenging but may be bottoming out giving the floating we saw from first quarter to seconded. Also to spite the slight deterring in we are encouraged by our ability to declines by the revenue increases at the unit by unit level.

Finally as we mentioned during our first quarter call the later portion of the second quarter and the early part of the third presents the most challenging for us from a perspective giving seasonal markets such as Phoenix in and markets. However based on what we have seen through early July indications are that should be relatively flat thought third quarter. From a turn over perspective second quarter turn over of 73.8 percent was one point three percent higher than second quarter of last year. Markets where a turn over remained high by historical measures include concessions remain high by historical standards as well. On a year over year bases concession increased $1.4 million to four point five million for the quarter markets such as Orlando, continue to relief on concession. Additional on a sequential bases increased 13.9 percent which again indicate that we may still be bouncing around the bottom of the economic , however our recent efforts to evaluate concessions on unit by unit bases when over laid with unit numbers helped us in June and should insure that any excessive concession are from a expense stand point we continue to make progress although we continue to see significant turn over related expenses control help us to keep expenses flat with last year.

Payroll cost were reduced on a year over year basis by 1.1 percent and utilities declined 10.4 percent. These decreases offset a 3.2 percent increase in taxes, a 7.4 percent increase in insurance as well as an increase of 16.2 percent in repairs and maintenance expenses and a 4.1 percent increase in admin and marketing.

We touched briefly on a couple of markets. I thought I'd spend a couple of moments running through our expectations with regard to certain markets moving forward. Again not trying to predict the markets performance but rather our performance in our key cities. Those markets in which we expect growth conclude DC, Houston, Baltimore, and Richmond. Markets were we believe we will be managing too flat to slightly positive growth targets include Portland, Dallas, Orlando, and Tampa, and finally those markets were we have our work cut out for us to get the flat year over year growth includes Seattle, , The Bay Area, Charlotte, Nashville, and Atlanta.

In summary the second quarter was a tough one and even though we recognize the difficult market conditions I believe we can do better. We are seeing some positive signs. Margins increased on a year over year basis, bad debt levels remain flat on a year over year basis indicating that we are maintaining our resident profile. Occupancy appears to be flattening out, and we continue to see rent growth or be it slight rent growth. In response to comments made by other department briefs regarding deterioration we haven't seen that. Our revenue bottomed out in April and May based on increased concessions but June concessions declined which left to better revenue. Early indications for July from revenue prospective look better than June. The daily focus we are bringing to key metrics that drive our businesses are paying off. With that said we intend to drive deeper and add a more granular level to uncover both revenue, and expense opportunities. Although rent growth in certain markets may prove difficult we can do better job in analyzing opportunities at the unit level and in collecting various deeds. From an expense stand point pre bidding contracts and employing tighter controls will help. Finally choppy economic conditions have historically led companies to cutback on people, and on assets. We remain committed to both and will continue to try, and attract and compensate the best talent we can find as well as to invest the necessary resources to repair and maintain our properties. Our approach is long term in nature.

With all that said we expect the third quarter to continue to present challenges but believe that our continued focus on managing the downside, and the fact that we operate a middle market portfolio will lead to revenue growth in the zero to one percent range.

Expenses in the one and a half to two and a half percent range flat occupancy, turnover, and concession numbers all leading to same store sales growth in the zero to slightly positive range. Regarding take away I'd concur with Tom that I don't think we're ready to call it a turn around yet but I believe our team has done a good job. I think we can do better. In conclusion I'm encouraged by start. With that I'm turn the call over to .

Thanks Kevin. During the second quarter we continued to make meaningful progress through capital market transactions, and financing activities. The results of the activities are as follows. Our fixed charge coverage ratio was at 2.29, which is up 30 basis points from the 1.99 at June 30th of last year. Overall interest costs on our debt portfolio averages six point four one percent versus seven 11 this time last year.

Our level of float rate debt is down to 18.4 percent in total debt; we've reached our goals at not more than 10 percent of our total debt portfolio re-prices or matures in any one year expect for our one time investor put in '04 and we've successfully captained the unsecured debt market to raise $200 million. Taking each transaction individually lets discuss floating rate debt.

As you may recall at the end of the first quarter of this year our floating rate debt was at 38 percent of total debt, we where in the process of re-financing a large portfolio, this has now been reduced to 18 percent; we expect floating rate debt to be in this range to a floor of around 10 percent and the floor represents a pool of low floater bonds and an average outstanding usage of .

We believe that prudently managing your debt-returning schedule and reducing interest rate volatility prevents a predictable earnings stream and dividends security. It's important enough to off set the short plain profitability associated with today's low floating interest rates.

Two significant transactions occurred during the second quarter first we issued $200 million of senior unsecured debt under our existing shelf registration, these bonds bear interest at six and a halve percent annual with a state maturity in June 2009 that spread with 203 basis points over the then seven year treasury of four point 47 we hit a sweet spot in timing and the issuance was extremely well received by the market place, and in fact it was over subscribed from the originally planned $150 million in LA a couple of hours.

We used the proceeds to pay down our $375million revolving line of credit and in fact the balance on that line as of last Friday was about $60 million, which is 16 percent usage. This transaction was another significant factor in reducing our level of floating rate debt that I've just discussed.

Another transaction during the quarter was the re negotiation of an existing $200 million Fannie Mae credit facility, it's a credit facility that's part of our variable rate debt, it has a spread over the DMBF which is version of . The spread of 85 basis points re-priced every five years and this created a re-pricing risk to United Dominion in 2004 on this $200 million debt which exceeded our self imposed goal of 10 percent, I mentioned earlier, so we've successfully negotiated to reduce this spread to 55 basis points and we lost this spread to 2013 so we reduced our re-pricing risk and we reduced our annual interest cost by $600,000 a year, kind of a win-win on that transaction.

So the two key metrics of financial performance that we focus on, six charge coverage ratio and un-encountered assets, we've made progress in improving the six-charge coverage ratio each of the five quarters performance of the new management team, and our level of un-encountered assets stands at two point three billion with 55 percent of our NLI coming from these un-encountered assets.

I wanted to take a moment to update you on a post second quarter activity, the company has been in the market buying back our common software in the last couple of weeks, last two weeks, going into the quarter we where authorized for three point two million shares under our previously approved pre-purchase program and we have purchased approximately 262,000 shares since July 12th at a weighted average price of 1408 per share; so given our estimate for '03 this would be a cap rate of about 10 point seven percent on these re purchases which makes this a very attractive investment in light of the fact that we're generating positive excess cash flow.

So in closing blended costs of debt is down sick charge coverage ratio continues to increase with a goal of 2.2 to 2.3 by year-end. Our maturity and re pricing schedule is balanced, our unencumbered asset pool is 2.3 billion, floating rate debts that are prude and level, and we successfully tap the unsecured debt market. These steps will improve our earnings predictability, and so now I turn it over to .

Thanks . I'm going to discuss the progress we're making on our portfolio repositioning strategy. We withdraw from Naples, Florida, Tucson, Las Vegas, and now only have one community left in Memphis. We've got over 5,100 units under contract for sale scheduled to close in the third quarter in August that will result in a complete withdrawal from the san Antonio, and Forth Worth markets, and will reduce the Dallas portfolio by 228 units. These transactions will reduce our total market counts from 62 to 55, so we're making steady progress in our long term goal repositioning the portfolio into a fewer number of markets that have higher growth. These assets being sold have a weighted average of 15 years with an average monthly rent of $575 and are selling at an average of approximately 44,200 per home. In addition I might mention our 96-unit community and district of California is under contract for sale of the 5.7 percent cap rate into the close in the third quarter. So we've completed 104 million in sales with an additional 224 million under contract. These sales result in an average cap rate of 8.3 percent. We compete that cap rate based upon actual 10 and 12 month .

On acquisitions we close on acquisitions that total to 171 million in this quarter and then 45 million under contracts scheduled to close in August. I discussed on our last quarter's call these acquisitions add to our markets in Northern Virginia, Seattle, Denver, Arlington, Texas, Raleigh, North Carolina, and Austin. As a side note we acquired 75 percent interest in park 33, and if a community are likening toward it we developed in our joint venture with . It's our intent to list that property for sale along with the place we own adjacent to it.

Our acquisitions total year to date amount to 185 million. These acquisitions have a weighted average of 11 years after taking into consideration major innovations, an average monthly rent of 865 per month, and have an average cost of 73,000 per home. For an average cap rate of 8.5 percent we compute that cap rate on four caps of next month . We've got an active shopping list today in excess of 400 million that will allow us to be selective in making additional acquisitions in the next 90 to 120 days. If our expectations about early fourth quarter are aggregate acquisitions for the year will be in the range of 350 to 400 million. So we still believe in our ability to reposition them with minimal dilution to earnings this year.

I believe it continues to be a very good time to sell in most of our markets. This demand for owning apartments continues to rise even though the overall market conditions are soft. We believe that this demand is a result of the dramatic spread of overall yield of multi family real estate over the historically low treasurer rates we see today. This is causing compression in cap rights that makes selling attractive. It does make buying more challenging when you just look at the going in cap rate, however, we believe that it's best to buy on a long-term core markets, that's the down swing of the market cycle and process in relation to replacement costs, they are a reason that can still be found in many markets.

The only market that's really overheated today is California, where demand for products is at an all time high and that while that's a market we certainly seek to add product we've avoided a being paid at this time, but we are working with possible answers with local developers in California that would provide opportunities for us to enter that market slowly through development.

In regards to development or activity, we'll continue to be regulated to small phase 2 additions and two or three possible new developments to be done on a joint venture with an institutional investor, so (inaudible, we're taking advantage of a favourable sales climate. Two, our acquisitions, our own target is worth a volume for the year and three, we have very little exposure to development. Now I'd like to turn the call over to .

Thanks Mark. I'd like to take a few minutes to address three primary areas, earnings guidance, recurring cap ex and our adjustment to , and our new financial disclosures. With regard to earnings guidance, as we stated in our press release, management has a firm guidance of a dollar 65 a share for over 2002 and a dollar 75 in 2003. But, the balance of 2002 we're projecting of 40 cents a share in the third quarter and 42 cents a share in the fourth quarter. The primary reasons for this sequential impact on FFO per share relate to three items.

First, there's a natural seasonality to the business. That always makes the third quarter the toughest quarter for us. Utilities costs tend to be higher, turnover tends to be higher in the related costs associated with that, and we're also impacted with lower occupancy in markets like Florida and Phoenix, Arizona. Second, although we're ahead of the game this year in our capital transactions, the third quarter will save the sale of a large portfolio in Texas and the subsequent reinvestment of those proceeds in the latter part of the third quarter and the fourth quarter, will recover us in the fourth quarter on that note. And then third, as noted, a lot of our debt converted from floating rates to fixed rates this quarter and we did a $200 million unsecured offering in June, so sequential interest costs in the third quarter compared to the second quarter will increase by approximately $1.7 million.

As for 2003, we presented the details over to you of our guidance assumptions in a recent presentation that management did in New York. The complete contents of that presentation are located on our website and are available for you to look at any time, so I won't rehash those. I would note that we are going to be watching trends and , occupancy and turnover during the third quarter as the leasing season winds down and we'll revisit our 2003 guidance during next quarter's call.

As for . We note in the press release that we've adjusted our capital expenditures budget to $435 per permanent home, an increase of 3.8 percent over last years $418. This has a two cent impact to our current year guidance, which was previously based on $400 a home. So our guidance is adjusted to a dollar and 39 cents for the year. As you know, from our press release, our turnover is up this year. We faced tremendous amount of competitive pressure in the market place, which has a spending more per turn on items like carpet, and appliance, which impacts this AFO number. We are assuming that turn over is going to remain.. Until the fourth quarter and so we have adjusted our CapEx program to meet those demands.

As for finical disclosures in our press release attachments you will note new disclosures related to interest rates on our , components of our common capitalized interest costs, our earning pool, performance of non mature prop ties and a market segmentation of our resident turn over sticks. There are two other items that I would like to particularly highlight discontinued operations and our CapEx. Discontinued operations January 01 of this year we adopted of 144 which requires serration of the operating results of our discontinued operations. Where the quarter ended June 30 this applies to the assets that we have sold this year that are itemized on attached eight to our press release as well as to the large portfolio of assets in Texas that is scheduled to close in the third quarter.

The results of operations related to theses assets are on one line in our income statement the non FFO piece of theses operating results are itemized on attachment two in our operations and the related liabilities for these assets are generated on our balance sheet on attachments three.

As for capital expender we the efforts of the research team for pressing the industry for disclosure encasements that will across the sector. This morning we posted on our website a over view of United Dominion's approach to accounting for the cost of development, improving, preserving our cost assets with cost information for each corporal expense and example of the kind of costs that are colour encoded into each of these areas there are two principal point that I would like to make.

First of whether we choose to capsize our item is based on it's use of life and it's impact of it's uses of life to beginners to which it . And the policy that we have is competent with principals.

The seconded point I would make is what is really a issue here is what we included in our verse what is not included as non routine, non reoccurring types of investments. Managements have established a 20 percent return hurdle for approving non development type projects that require a capital investment over and above our $435 per apartment home. Perhaps the best example of what is revenue enchasing verse what is reoccurring relates to washers and dryers a simple example. The initial instantiation of washers and dryers in units that previously did not have it any washer and dryers is a revenue enchasing type of expender that make the unit more attractive to our residents. This subsequent replacement of washes and dryers due to a break down is a reoccurring kind of and is therefore included in our charge. So I encourage you to go to the website and look at the presentation that we have put up there and call me at any time with questions related top those items.

The key takeaways from my presentation 40 sets in the third quarter 42 sets in the fourth quarter for a dollar 65 of FFO in 2002 and dollar 39 of FO in 2002 all this from a company that commentated and increased the transparent of it's numbers. I will give the presentations back to you .

Thank you Chris and thank you each off you for your comments at this time why don't we turn it over to questions and then I'll close after that with about two minutes of comments.

Thank you sir. Ladies and gentlemen, at this time we will begin the question and answer session, if you have a question please press the star followed by the one on your push button phone, if you would like to decline from the polling process press the star followed by the two, you will hear a three tone honk acknowledging your selection. Your questions will be polled in the order that they are received. If you are using speaker equipment you'll need to lift the handset before pressing the numbers, one moment please for the first question. The first question is from please state your company name followed by your question.

Hi it's Stan Openhine from Bank of America Securities, I wanted to touch on the issue of the stock by back, I was wondering if you would be more aggressive if the stock declined further and the highest price at which you've bought stock recently; and then the second question is a more broad issue, in terms of looking at '03, do you have any more concern about that given the economy right now where you still content with the presentation that you had a month ago?

This is Tom, , thanks for the question. First on the buy back what I'd say is that the stock's got a temporary softness, I mean we all are seeing unusual outflows, mutual funds et cetera, that have deterred it to a point which is just , your literally buying the real estate if you look through the company at almost 11 cap, that's a pretty good return in fact one better than you can get in a private market.

Our program currently has the following views; first we've got three point two million shares authorized that we could purchase, second we got positive case flow of nearly $40 million a year above paying all our expenses so we would probably end up continuing to buy at the current level which is approximately 10 percent below its' number and we see that as probably as a pretty good timing in a soft market to pick up those shares pretty cheap, looking at it on a long term basis we're certainly going to be conscious and aware of our leverage as well as our other long term commitments to repositioning the company.

We're a buyer of these soft prices, we believe the stock price will recover; specifically what we've bought, we've been a buyer really at the 14 to 1450 range reported a weighted average 1408, I'm looking at the vast majority of outlooks at about 1402 over the last two week period; we'll probably still be in the stock and buying it at those levels.

On the '03 guidance certainly the vast majority of our occupancy is really a pick up in the next three months, the in this business at the end of September, middle of October is pretty much worth going to be for the following six months. We'll have a better view of '03 when that period is over, we're encouraged by what we see in the July activities both in traffic, in our concession trends and our occupancies, so we're still very comfortable with '03, we want to revisit it at the end of the third quarter and all the other major assumptions seem very doable at this time.

Great, thanks very much.

Thank you Stan.

Thank you the next question is from , please state your company name followed by your question.

Thank you Salomon Smith Barney. Regarding capital expenditures, and I'm trying to get on your website as we speak, but I was asking a question anyway. Regarding the cash flow statement you have two more items in there, one revenue enhancing cap ex and the other being development of real estate assets and other major improvements, can you talk about what's in those that is not captured in what you refer to in the third line item in the cash flow statement being non revenue enhancing cap ex.

Sure, . You'll know from the presentation on our website...

We haven't been able to get it.

What you're able to pull that up.

That year-to-date and capital expenditures in real estate asset is approximately $21.3 million. Of that amount, 80 percent is in our charge and the other 20 percent are about 4.4 percent, $4.4 million dollars year-to-date relates principally to items like kitchen and bath upgrades, the addition of storage units at some of our communities that we lease out to residents and we've done some work on water wells in Houston to combat the high and increasing costs associated with water for irrigation, those sorts of things. The other line item in the cash flow statement is that development of real estate assets is exactly what it says. That's related to the hard and soft concept development, capitalized interest on development and the cost of our development .

, what I might add to that, is that you find that we generally front-load our capital replacement programs, that we try to do our paint jobs early in the year so we can get the maximum benefit out of rent increases, that we continue to find that it's more favorable to press at the beginning of the year capital replacement programs, both from a vendor costing standpoint and from a revenue standpoint so we front-load ourself quite a bit on the capital replacement side and on the revenue enhancement we're seeking a 20 percent on those investments and track them individually and probably we'll enhance our reporting on those as well.

So that 20 percent of the 21.3 million have to at lease satisfy a 20 percent hurdle for them to qualify.

That's what we seek.

OK. With regard to the increase in cap ex, the 435 versus the 418, the 17 dolllar difference, I assume, are new costs, not costs that were previously expensed.

That's correct.

Yeah.

What you're finding is, is with this high of a turnover number, which is higher than we thought, on top of it as we're turning more units, given the current price sensitive customer is that you've got to replace more carpets and so we're doing that ahead of time and it will pay off both for us in the short run in better occupancies and better capture rates and in the long run on, you know, reducing our cost in future years.

What items do you expense if you are capitalizing carpets and appliances.

You'll see that on the web presentation as well as the third page. It sort of itemizes the different kinds of costs that actually floats through our repairs and maintenance expense.

OK then.

For example, on carpets. The replacement of carpets is capitalized, the cleaning of dyeing of carpets to extend their lives is an expense item so there's a good list of that.

I will, I will.

...on the Web site as well.

Turning to your FFO growth. You're looking at something in the range of 11 to 12 percent growth this year, but when I look at the second quarter number same store was flattish, same store in a lot of growth and yet, you know, you did 10 percent FFO growth, can you tell us what closes the gap between the internal growth and bottom line growth, sort of break it down for us?

I think on an over view Chris would probably have more detail, I would look at it and say there's a reduction in the G&A costs of the company and on top of that the balance sheet that has put forth, those of you the two primary factors.

Certainly the balance sheet efforts are a large contributor to our success this year, as is our development program, the bringing on-line of units that was not mature in the prior year and you can see from the attachment five on our press release that our inner eye growth on non-mature properties is fairly strong. GNA, we've made some in rows in GNA as well, but those would be the primary factors that close that gap.

My comment, I enrich what we saw when we really stepped into the company 16 months ago was first we thought there was some operational improvement that would certainly be there and we found those and what I would say was the surprises is that the softening economy set back some of our progress on operations but at the same time we saw an interest rate environment that created a great number of opportunities that where not there day one, so we've kind of used the two to off set each other what I'm grateful for is that balance sheet strength that we've now got and the flexibility that has created, will service for many years to come and in fact will help our earnings predict ability down the road.

Last question, and just I missed a number, you said you have acquisitions currently in the pipeline expected to close in August of 144 million did I get that number right.

We have under contract to close in August of 45 million.

I'm sorry heard the number wrong, 45 million.

What I was studying based on our diligence shopping list today, we think that by fourth quarter in we would have hit at least 350 up to 400 million of acquisitions for the year.

And a lot of it being Northern Virginia, Seattle, Austin, and those types.

That is what has been so far and we're looking in other markets as well.

Such as?

We continue to look in Sacramento, we're looking, we will probably look at a profit to Richmond, Northern Virginia; there are also a possible pretty good vibes, emerging from next door opportunities in the Dallas market, now we're lightening up a bit in Dallas so we may have a opportunity to add that to the community there to still keep our totals home count the same.

Thank you very much.

Thank you the next question is from please state your company name followed by your question.

Hi I'm from Piper Jaffray, good morning, good afternoon, if I got this right your year over year property insurance increase was seven point four percent, which is a lot lower than the industry as a whole; when was your last property insurance contract renewed and what was the year over year increase?

This is Toomey. Andrew it's good to hear from you.

Thanks

On insurance the renewal is up in February and second why the increase was so small compared to everybody else was probably because we started with such a high number anyway.

Did you have terms that changed in the contract, like deductibles?

No we are...

Actually we lowered our deductibles.

Yeah.

From 100,000 to 25,000.

OK, a couple of quick questions on the operating side, some of your best markets on a sequential basis, one Q to 2Q in terms of revenue growth but frankly not what I anticipated including Seattle. You guys have mentioned it's probably going to get tough on a full year basis. Are there any markets where you feel is out performing the apartment industry as a whole?

That's a good question. I think that we are doing a very, very good job in the specific northwest as you alluded to. Dallas is a very, very difficult market. I put up our numbers in Dallas against, against anyone. Orlando I think we're holding our own. Those would be the markets that come to mind in terms of our performance.

, one thing we look at is as you know publishes head to head competition with our other peer groups, and looking at our self compared to the other 12 peers we're winning about 60 percent on revenue growth head to head. We're winning 58 percent of the time as it relates to concessions, and occupancy, so we pretty much seem to be wining six out of every 10 battles head to head on companies in those market's. If you'd like a summary of that we'd be glad to post it as well.

Yeah that'd be really helpful. A couple of other questions on numbers, the last time you guys gave your guidance the break down had essentially two cents a cushion in it before you got it to a buck 65. Is it safe to say that the current market conditions have gotten rid of that two-cents cushion?

We gave a range. We've always been staying at 1.65, and all we're doing is reaffirming the 1.65.

So you don't think there's any additional weakness that's brought down your numbers a little bit from what you may have been able to do on the offside.

Well I think we would rather be conservative, and ensure we deliver the results, and leave the upside for surprises.

Fair enough. Another quick housekeeping question, what was the from this I think it's 5,151 units that are sitting in discontinued operations but haven't been sold as of June 30th.

You have total income from discontinued operations for the quarter.

Right, but does that personally include assets you sold during the quarter. Should I try is do a forward .

OK.

I can call you offline.

Yeah, check with me offline for an exact number but the Texas portfolio that's being sold contributes approximately $1.8 million a month of .

Great.

so .

OK, and Tom I wanted to ask you a couple of macro questions before I get off the line. When you quote 250,000 multi family starts can you clarify the definition of that number. Is it five plus, is it 40 plus?

Five plus.

OK. I've been following the numbers as you went through, and I'm still getting numbers that are over 300,00.

I think it's the difference between starts and constructions, I'm glad to I frankly use you guys as the source.

Sure. OK, and second do you have any specific information on immigration flows that we can chew on, any data that you got?

from the offices and they frankly won't give you that information, and so what we've generally been doing is asking our people on the ground what are they seeing in traffic, and what is the resident feedback. As you realize on the 1990 sinus to the 2000 sense it was really shocking that 45 to almost 50 percent of immigration in America during that period occurred in five cities so it relative easy to tap those five cities and get the ground up knowledge. But there seems to be no static available, we have certainly done our part to search if you come across them we would be glad if you would share them with us.

Sure you bet, thanks a lot for the time you guys.

Take care

Thank you the next question comes from please state your company name followed by question.

Good afternoon guys it is from Morgan Stanley, looking at the resident credit loses as a percentage of gross potential there where flat on a year over yare bases but up sequentially what are you guys looking at for the back half of the year and what has being causing that sort of ?

Rob, this is Kevin. The zero point two percent was very, very low by historical standards typical the industry standard from a bad death standard perspective is between point five and point nine so where we are today at zero point seven we think is a much more manageable number thinking was the zero point two percent was probability the result of credit standards that where two tight that where probably costing us some residents. That good residents that would pay there rent I don't see us moving terrible far from that zero point seven percent going forward.

OK, next you would have talked before about the talk about the AFFO adjustments about kitchen and bath upgrade does that contribute to the same store in , I mean if you back it up do you go from positive to negative, there or is not that meaning full?

We haven't looked at it that way in my option doing it on the back of a envelope in my option it is just not that meaning full I would be $2 million weighed average for you know call it three months it's 20 percent of 500 thousand it would be a $125 thousand contribution.

OK I just wanted to ,make sure it wasn't some thing like where if you backed that out it was a meaning full change to the numbers.

No in one of the things we do to control program because I have had this experience in my life is that people go in and want to do the 300 units we do them in of 10. You do 10 the rent then come back to the well and get more money, we are not into just the property we want to see a return in those dollars cause we know people just like you and our share holders are looking at that and saying you 20 percent return we want to see it. We are very in this area and that is why we have enchased our disclosure cause it raises the quality of our numbers in our reporting.

OK and touching back on the G&A expense how much of seniors is being capital as part of the development project if any?

Zero.

OK and tow quick last questions first did you guys give this position guidance for the year?

Yes. Those sales guidance for the year let me go over that again. We closed on a 104 million and we have a additional million under contract. And so we take this step by step then we will look at our position stogie but our tactic has being sort of keep the aquatint slightly. That is where we are today under contract .

If the stock stays at the sort of levels and you know if it gets any cheaper would you guys seriously accelerating that in order to do the trade off.

The answer is yes. Certainly if weaken sales slow growth market real estate at eight caps, and we can buy you know a fast growing dynamic managed company at 11 cap I'm all for it.

Ok, and then.

I think it's going to have to stay down here for a while, and then the answer is I don't think that's stay there. We're you know we've got a good strategy on repositioning, it'[s one we should execute. That doesn't mean we wouldn't pick off more of our weaker performing assets, and do that if it stays down at this level.

OK, and then just one last question. Given your comments before about you know it's cheaper to buy assets via the companies rather than actual on off there in the private market. I know you probably don't want to comment specifically on, on M&A activity but have you guys gotten your operations to the point yet were you would feel comfortable doing, going through the sort of merger integration process with your operations people.

, to tell you the truth, no. We feel like there's plenty of upside lets in this portfolio, there is an operating system that we would like to have installed before burdening system. We certainly feel very good about the people we have. We'd like to spend more time getting the most out of them, and the assets we have, and you know I've just give you, that's my read of it right now. Something walked in tomorrow in the door real cheap we certainly would weigh that but I don't see that happening, and I'm not out seeking that opportunity I'm out focused with on operations.

OK, thanks guys I appreciate it.

Thank you.

Thank you the next question is from . Please state your company name followed by your question.

Good afternoon . Tom most of my questions have been asked already but let me just follow up with a couple of things. Are you seeing any change in terms of the buyers that your competing with you know in terms of the past say quarter or so. Any reduction from maybe the private guys in terms of interest in and new profit.

Well I think this is more. I think that we still see a number of profit players out there. I don't think there's really been a dramatic change in the last nine days, and the previous nine days. There's still a lot of demand for multi family ownership, and both, we see both the public and the private players showing up.

What I might add this that it seems that those players that are using a lot of leverage are betting at portfolio levels of what I'd call 250 million max, minimum 50. That seems to be their sweet spot in under riding management and banking support, so you know we've got a portfolio that fits that, and in addition moving and picking off on off market assets that are below the $50 million level that seem to be attracting the local buyer. We see very few transactions crossing the wire at greater than 250, and what we have looked at in that range very few competitors in that range as well.

OK. you mentioned the 10 percent loading rate debt goal. When would you target getting to that goal? Is that a 2002 thing? Is it a Q3 target?

What I was trying to was set parameters that we thought our floating rate debt would range in on an ongoing basis since it's at 18 percent now, and just saying that some level you have a floor of floating rate debt cause your have some outstanding balance on your line and you will have some portfolio of bonds, so floating would never would never go to zero we would kind a ten percent but it would be above that four that is just a

So that 10 percent applies on some tractions that you have got in the works that is just goal.

It's just to set the perimeter on the range it's no traction that would get it there.

And OK, Tom just a last question when you set up the operating structure for URD did you set it up based on 62 markets or your goal of 30?

Well both scales of the post what is most optimal in running I where you don't chew up people and you get the most out of assets and you day on the ground if you will it is 30, today that is part of what we see as the efficiently and frankly quality of life for the people who work for us it has reduced there stress and travel in the markets they run a business. They can support a 62 market organization but it works better on 30.

So going from 62 to 30 so you are pretty much built for 30 already and just bringing your number of markets down to that fits the mold that you built?

Correct.

OK thanks.

Thank you sir.

Thank you. The next question is from please state your company name followed by your question.

Tom I am just trying to understand this 20 percent return in the capex sheet you have here, the four point two million total expenders to date return of investment that is not on your AFFO chart? Correct?

That's correct.

And you expect to earn a 20 percent return have you look at on the 18 million spent of 2001 have you being tracking that are you that would imply a run rate of about three point six million of additional from those upgrades have you being tracking that or are you on that pace?

No, when we arrived there was not really a great deal of tracking capability in that and frankly you will see that it has dropped off from a $18 million number to four million this year. It is probably because we have put in more views on this that we are not going to include items like , is certainly a worth while expender and but it is not a revenue enchasing activity it's hard for me to go t o a residents and say please me 10 more dollar a month because I put a gate around you. So we cleared up the and frankly have pulled our self so we are going to get the information we are not going to look in the review mirror and try and justify we are going to get the reporting of the actuate of what was done and we are going to get measured against what we do today and what we do in the future.

OK so you are saying gating is that would still be in the four point two million even though it is not really revenue.

No it would not what I am saying it is in the 18 it is not in the four it would never be included in the four in the future. That is a example of a item.

OK, and I would assume in times like this when it is difficult to generate any revenues when revenues in general are declining that, that would practically explain the 18 million why wouldn't this number almost go to zero in today's?

Cause there are opportunities I mean one we have got very talent people out there for example how many people would be out there drilling water wells in Huston and we have told them if they had oil and gas call us back but frankly it's water rates are so high in that city it is almost cheaper to replace the soil than it is to water it, and we think some of that will continue market by market so there is a activity where I don't necessarily bill a resident a dollar but clearly I'm getting a very value oriented delivery return on my dollars, so you know there are garages, there are certainly car port installation were we're able to rent them for more. Still washer, and dryer installed are still out there, so we take them one at a time. We're trying to disclose the detail of what those activities are, and what are, and we given you kind of a return hurdle. WE certainly hope to exceed that.

And it's also part of our investment strategy to target, and purchase under performing assets, and convert them to higher performing assets, and a lot of the costs that are associated with those activities flow through here as well.

And I'm just trying to get a sense of recurring, non and recurring items that . Would this 4.2 million be sort of a good ram raid for a happy year?

No I think you'll find it fluctuating as the portfolio composition changes, and I wouldn't definitely not double it. I'd look at it and say four to through to six months call it six million for the year.

OK.

It's certainly an area we would like to spend more at but we want to be more disciplined than just throwing dollars at it.

OK, and switching gears. Looking at your concessions I'm just trying to get a sense for concessions per month, per unit on average and trying to change the definition of the 3.1 percent of rented revenues. The 4.5 million that you quoted, I'm just doing the math, and the 76, 77,000 units does that imply about $20 per month, per unit of concessions.

That math's about right.

OK, and I'm sorry I missed the cap rates on the 210 million of acquisitions, and the dispositions so far, and how are you defining that. Is that an after cap ex, and how, what type of cap ex are assuming.

On the sales we're at 8.3 percent, and we do that based on the actual the . On the purchases to date 8.5 percent, and we do that based on the forecast of the next 12 months .

OK, and so and roughly how much cap ex per unit are you assuming in that number.

It depends, I think we've disclosed that in each of our separate press releases on the newer product it's less than the older product it's more, and also that depends on whether we're doing some renovation or they've already done it. But that's disclose din each separate press release.

OK, last couple of questions, Tom it sounds like you are out performing in your given markets. Do you attribute some of this to the B class apartments haven't been hurt nearly as hard as A class apartments? Did you hear about the ridiculous concessions on the newer developments, which in turn compete with the higher rent per unit properties, which have to offer competing concessions? Do you see that as sort of a trend that you kinds of.

It certainly a major factor is that one we don't have. We have very minimal development, most of that is the B market middle market range. The A's that we drive by, and look at you know I haven't been by a leased out property that doesn't have a sign out there that says one or two month free rent, and so I think it is a little bit of product, and frankly I'd take to the people we have on the ground. I mean they recognize it's a lease-by-lease, day-by-day business, and we're out there chasing it, so I think they're out hustling the competition right now, and I appreciate their efforts.

And last question, you had to expense stock option do you know what that number would be?

Thank you the next question is from please state your company name followed by you question.

... I think they are doing they are out hassling the right now and I appreciate their efforts.

I don't know it off the top of my head, if you give me a call I will give it to you, it is disclosed in our 10K from last year and the number that comes to mind is about $700 thousand I am not certain.

OK thank you.

I have a guess a follow up to the question I asked before regarding the I guess your cap ex policy with respect to turn costs to a certain extent I guess it would be fair to say that your numbers are enchased wide growth numbers are enchased compared to a read that those not expenses carpet and other items that are on the website that I have not yet looked at could you give us some idea of how much the amounts are related to them turn costs so we could actually the NOI growth rates?

the AFFO the short run.

Well the AFFO would be impacted by things like leverage and what have you in terms of AFFO growth ?

Pour year to date expedite on turn related is $8.2 million.

OK that is great , Tom I do like the idea for oil I mean water

It is good income.

Yeah thanks.

Thank you Mr Toomey there are no further questions at this time please continue.

Well while I have giving my closing comments I will see if there is any others that come up but when you reach the half way point of the year it is natural to look back upon the year and try to score keep it but frankly this company doesn't do that there are many success we are more of a company focused on the future and in fact that is critical in this type of environment, as well as the safety of our investments so there are four critical points I want to make in closing.

One we have our guidance for 02 we are very comfortable with the 40 cents and 42 cents for FFO in the third and fourth quarter and 165 for the year. We have factorized in operating environment in those numbers.

Second the 03 estimate we have our assumption are we certainly would like to those should the operating environment deter ate we think we have taken that into account so therefore are still comfortable with our 03 estimates.

Third the safety of the as well as the at $14 share price the is approximately 18 percent quite a god return on given today's environment. Today's we pay out 80 percent of our cash flow define cash flow that is after we pay for the maintained of our prop ties, our death service, our capital replacements in fact our so we have a aces of $38 million left over after paying ever bill in the company to absorbed operations should they .

seven percent to 87 percent before the would be is where it is safe and we will maintain that safety. Lastly certainly as a channeling operating environment but frankly it is no different than soft market cycles. This is stuff we have seen before and in fact when this management team was assembled each of us looked at each other and knew that we had experienced in dealing with this operating environment, certainly its' had its' twists and turns but we know what we're doing about this and therefore we've been able to sustain our operating performance even with the challenging times. We will continue to execute our operating philosophy, managing it a lease at a time, a property at a time. We will continue improving our balance sheet and we'll continue repositioning the company and its' investments, and mostly we continue to focus on creating shareholder value.

Thank you for your time today, and wish each of you to take care, and good luck in the future. Take care.

Thank you sir; ladies and gentlemen this concludes the United Dominion Realty Trust second quarter conference call. If you like to listen to a replay of today's conference call please dial 303-590-3000 or 800-405-2236 with access number 47-39-99. Once again if you would like to listen to a replay of today's conference call please dial 303-590-3000 or 800-405-2236 with access number 47-39-99. Thank you for participating you may now disconnect.