UDR Inc (UDR) 2004 Q4 法說會逐字稿

Welcome to the United Dominion Realty Trust fourth-quarter 2004 results teleconference. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder this conference is being recorded today, Tuesday, February 1, 2005. I would like to turn the conference over to Mr. Larry Thede, Vice President of Investor Relations.

Thanks to all of you for joining us for United Dominion's fourth-quarter financial results conference call. Our fourth-quarter press release and supplemental disclosure package were distributed yesterday afternoon. This morning we filed Form 8-K with SEC. In the supplemental disclosure package we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy you can access the package at our website, www.UDRT.com, then click on the investor relations tab, and then press releases. Click on the supplements link when you pull up our January 31st release.

You'll find the direct link to the supplemental data as well as the link to the 2005 guidance details contained in the body of the press release as well. We will begin the call with management's formal comments after which we will open the call to your questions. I would like to note that statements made during this conference call which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions we can give no assurance that our expectations will be attained.

Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in yesterday's press release and are included in our filings with the SEC. We do not undertake nor intend to update any forward-looking statements. I would now like to turn the call over to our CEO and President, Tom Toomey.

Thank you, Larry. And just as a brief introduction, Larry did join us recently as VP of Investor Relations where he has extensive experience, most recently the last four years at two NASDAQ companies and prior to that four years as U.S. West (ph), VP of Investor Relations. Please feel free to call Larry with any follow-up questions from today's call and I know he looks forward to meeting all of you in the future. With that, joining me on the call today is Martha Carlin, Chris Genry, Mike Kelly, Rod Neuheardt and Scott Schanaberger, who will be available to answer questions. Chris and I will be the speakers on the call today.

I'd like to cover three topics with you. First, a look back at 2004; what did we set out to do and did we are accomplish it? Second, fourth-quarter performance in operations and acquisitions and sales. Third, our observations of certain key trends and questions. Then I'll turn the call over to Chris who will update you on the guidance for the first quarter of '05, the full year '05, and talk about our recent good fortune from the sale of our Rent.com investment to eBay and our thoughts on what we would like to do with this. First, 2004. Our goals were as follows. In the acquisition area, $500 million of asset acquisitions at a cap rate of the 6 to 6.5, and sold 200 million at a cap rate at 7 1/4. As of December 31st, we had closed on 1 billion in acquisitions at a cap rate of 5.8 and sold 277 million at a cap rate of 7.6.

On operations we achieved positive revenue growth of 0.5 percent, the first revenue growth since 2001. However, expenses increased 3.2 percent which was higher than forecasted resulting in NOI of a negative 1.2 for the year. This is slightly below our low range goal of a negative 1 to a positive 2 percent. On the balance sheet, we set out three years ago to get our mid-BBB rating back and in fact, during this year we did. Also in 2004 we were the first apartment REIT in 6 years to secure an upgrade from Moody's. We set out with many other goals which are not as visible to you but may be just as important in creating value.

One of these was associate turnover. We are at a four-year low of 42 percent with our key leadership positions of community director at 22 percent and service manager at 29 percent. In the asset quality area, we have built the team that helped us to manage our continued reinvestment in our assets including our kitchen and bath program in ROI, which in 2005 we forecast will be between 20 and 30 million. In addition we anticipate another 20 million in major renovation projects. Let me now turn my comment to the fourth quarter of 2004.

Year-over-year same-store NOI growth of 2.1 percent, consisting of revenue growth of 2 percent and expense growth of 1.7 percent. Strongest results in 12 quarters. Occupancy increased in prior years by 120 basis points. I will note that we have made a concentrated effort to increase our occupancy going into the critical first quarter which stands at 94.6 percent as of today, a four-year high. Also, I would like to note that during the fourth quarter 60 percent of our communities had average occupancy greater than 94 percent. The average rent per occupied home increased $3.00 or 0.4 percent.

On a sequential basis NOI increased 1.4 percent, consisting of revenue growth of 0.2 percent and expense decline of 2 present. Occupancy was relatively flat to the third quarter, and rent per occupied home increased $1.00 or 0.1 percent. All in all, the fourth-quarter operations were very solid. Second major activity during the fourth-quarter was the acquisition sales. Just to update you, we closed 529 million in acquisitions or 3,700 homes, and sold 112 million or 2,300 homes. These are detailed in the December 13th press release.

Lastly during the fourth-quarter, we came close to completing the financing for our 2004 acquisitions with the sale of $112 million of assets at an 8.7 cap, $91 million of equity raised, 225 million of unsecured debt at an average rate of 56 percent, the assumption of $250 million of debt below 5 percent, and we currently have under contract 2,600 homes for 169 million or a 5.4 cap rate.

Let me now turn my attention to trends and key questions. First, how is January operations look? We are seeing an increase in occupancy, reduced concessions and increased traffic that I have not seen in many years. What is unique? First, across the entire 43 markets occupancy is up over 1 percent over January of 2003. Second, concessions are down 13 percent from December. Third, January traffic was a 13 month high. While it is too early to say we have pricing power I feel great about these signals. Which markets will do well in 2005, 2006? Looking forward we see our five star markets, markets in which we expect rent growth, occupancy growth and concessions declining leading to greater than 4 percent revenue growth year-over-year, to be Orlando, Tampa, Southern California and the D.C. market.

One star markets where we expect flat to no revenue growth in '05 are Houston, Dallas, Columbus and Denver. Third question, how is the Essex integration and acquisition performed? Well on the integration front I would like to say thanks to Martha Carlin, Jerry Davis and Mark Gephez (ph) and all the associates who contributed to that effort. It has gone very well. On the underwriting and how are we performing, we underwrote the portfolio at a 94.8 percent occupancy, and as of December, it has been at 95.2. The rent per home underwritten at 1,098, in fact is at 1,132. So we're meeting, if not exceeding, our targets.

Fourth, how have the overall acquisitions performed? I think it's important to tell you how we perform against our expectations. First, the 2003 acquisitions totaled 424 million. They were underwritten at a 6.7 cap rate and in fact they're delivering 7.2. I mentioned earlier that in 2004 we acquired 1 billion. Let me state that those acquisitions were underwritten at 5.8, and in fact are delivering in excess of a 6.0 cap rate. What are cap rates doing? In the market place we see that it remains very competitive, and in fact we believe cap rates will go lower during 2005.

What are we doing in this cap rate environment? Our strategies remain relatively the same, continue to look for assets that we can sell, redeploy the capital into better performing core markets, sell more assets in Texas and the Southeast, and purchase assets in the Pacific Northwest, Denver, California, Florida and the D.C. market places. Let me now to call over to Chris.

Greetings to everyone on today's call. I would like to briefly address three things before turning the call over to the operator for question and answers. First, an update on our balance sheet, then the potential impact of the announced eBay acquisition of Rent.com, and finally our earnings guidance for 2005. I would refer you to the press release narrative as well as Attachment 4 in the supplemental materials for detailed information about the specific transactions that were executed in the fourth-quarter, as well as the status of our balance sheet at year end. And we choose just to highlight on a couple of quick things.

First, we have continued to be opportunistic issuers of debt this quarter, taking advantage of market fluctuations to slot in future debt maturities in accordance with our stated goal of no more than 12 percent of our debt coming due in any one year, and with the combined benefit of averaging down our cost of debt each time we issue. Our weighted average cost on 2.88 billion of debt is now just 5.07 percent, our floating-rate debt exposure is down to 25.9 percent of total outstanding debt, and our unencumbered pool of assets now exceeds a $3.3 billion book value.

We completed the issuance of approximately 4.5 million shares of common stock and we also accelerated the marketing and sale of certain assets in Michigan, Houston and Phoenix substantially completing our financing plan or the acquisition of the Essex Fund 1 assets that we announced back in August. Also during the quarter, we continued our active dialogue with the rating agencies keeping them apprised of our strategies and plans and receiving their feedback. We remain confident that we will retain our existing ratings as we continue to navigate through significant asset repositioning activity.

A question many of you may be asking is, are we finished with identifiable improvements to our balance sheet? That is a great lead in question to my next topic which is the announced acquisition of Rent.com by eBay. As many of you are aware on December 16th, eBay announced it has entered into an agreement to acquire Rent.com, the developer of an Internet listing service for available apartment inventory. United Dominion was an early investor in a predecessor company to Rent.com, making a small investment to support building the product.

We remain an active customer, driving significant and growing rates of traffic to our properties through this Internet listing product. Based on the terms of the acquisition by eBay as we understand them today, we could potentially report a net gain of up to 8 to 10 cents per share depending on the final terms of the deal and the prices at which we can dispose of the eBay shares that we would receive. We are exploring opportunities to use this gain, offsetting the short-term, nonrecurring income with investments that would have long-term benefits for our investors.

Among those opportunities is the potential prepayment of several mortgage obligations which would be refinanced with unsecured debt, and also potentially issuing additional unsecured debt earlier in the year than we currently planned which would penalize 2005 earnings, but would improve earnings in subsequent years by up to 2 cents a share. Together these steps would result in a reduction of our secured debt ratio, further improvement of our unencumbered asset pool, and a reduction in our floating-rate debt accompanied by a slight improvement of our fixed charge ratio. Collectively a significant and positive step in the continued improvement of our balance sheet.

Given the uncertainty of the closing of the eBay transaction, and our ultimate monetization and utilization of its proceeds, we have not yet factored any impact of this transaction into our earnings guidance. Which leads to your next question, how have you modified your earnings guidance? In our October conference call we provided early guidance of a range of funds from operations for the year, $1.57 to $1.70 cents per share. Furthermore, we provided a detailed overview of the assumptions made in the derivation of that guidance range and we posted that on our website.

While our guidance range remains unchanged we have updated certain assumptions inherent in that guidance and this morning we have posted an updated worksheet on our website. I will briefly review those changes with you now. First, you will note from our supplemental disclosures released last night that during the quarter we converted and sold 24 town homes from a small community of 36 homes located in Salinas, California generating a gain of $1.2 million after taxes.

11 of the remaining 12 homes in that community are under contract and we expect the remaining 12 homes will close in the first quarter of 2005. These conversions were done using our existing in-house development staff and we are evaluating the near-term conversion or construction of an additional 500 homes located in four markets. This activity provides a nonrecurring income stream that we have now factored into our guidance at a range of 2 to 6 cents per share in 2005. Simultaneously we have increased our guidance for dispositions to a high of 375 million versus the previous 300 million allowing for the sale of eligible conversion properties to the tax paying entities that will undertake the conversion and sale of these homes.

As most of you know by now, when we see an opportunity to generate nonrecurring income we usually identify opportunities to offset that income to a large extent with expenses that will have longer-term benefits for our investors. This year will be no different. For example, we have a small panel of associates dedicated full-time to the development of enhanced site and district level operating processes incorporating the development of training and technology, which we believe will position us to be the most efficient operator of multitenant properties in the middle market space across a national platform.

This year we have expanded this team and our commitment to the technology development associated with the project. There are other examples of situations where we are investing dollars today in resources that will generate growing revenues and margins in future years resulting in short-term expenses that will offset some of the nonrecurring gain from these condo conversions. What is the net impact of all this contemplated nonrecurring activity? For 2005 we've now assumed we will net between 1 and 4 cents per share of gains from these short-term noncore activities.

Rather than increasing the topside of our guided range, we have trimmed our range of same community revenue growth to a 2.5 to 3.7 percent range and our same community NOI growth to a range of 2.2 to 4.3 percent. Although our assumptions about occupancy remain unchanged given the flatter than expected rent growth we experienced in the fourth quarter, we have trimmed the high end of our guidance for collections per occupied unit from $735 a home to $730 per home. As I previously indicated the net effect of these adjustments to our operating assumptions is zero and our 2005 FFO guidance range remains unchanged at $1.57 to $1.70 cents per share.

We see the first quarter of the year as our most challenging, so as Tom indicated our traffic and occupancy have been strong in the month of January and our expenses remain well within the target range. While we have undertaken a number of measures to focus our site teams on rent growth, and our collections per occupied home are indeed showing steady growth, we have yet to realize the significant bump that we are targeting. This will also be our first quarter of operations with the full impact of the recent stock issuance and the sale of the Michigan portfolio. Plus we expect to sell over 1,900 homes in Houston and Phoenix this quarter with no new acquisitions.

For all of these reasons and with the uncertain timing of the closing of the anticipated sales, we are providing a widened range of FFO guidance of 37 to 39 cents for the first quarter. In closing I give you three key takeaways. First, we continue to make improvements in our balance sheet and the eBay acquisition of Rent.com looks to be a another opportunity for us to make progress in this area. Second, while we are pursuing condo conversions on a limited scale we are also undertaking this activity with a view of using these gains at least to some degree, to fund investments and future operating capabilities and efficiencies in a manner that would not negatively impact our dividend coverage. And lastly, we remain on target to deliver 2005 funds from operations in the previously provided range of $1.57 to $1.70 cents per share. With that, I will turn the call over to the operator for questions and answers.

(OPERATOR INSTRUCTIONS). Jordan Sadler.

Citigroup. Hi guys. First question is just about the same store NOI change reduction. I'm just curious, what is it exactly you are seeing this early in the year that led you to trim by 100 basis points or so at the top end?

As I mentioned in my narrative, Jordan, the key piece and what we are very focused on day-to-day in operations is driving rent growth. And although occupancy is taking upward we will be focused more and more on pushing rent. And although we are seeing steady growth in those collections, it's been minimal. As Tom said, up a dollar per home this last quarter. Absent the significant bump in rent that we were hopeful of seeing in the fourth quarter we think a more appropriate top end guidance range would be to come down about $5.00 a home.

When I licensed to your comments, Tom, I thought January sounded like you were seeing some excellent results. Were they just a little lighter than you had hope for?

I think what you've got is, it's a question of pace. January is a very strong month and you look at -- occupancy is the first thing that you need to have in rent growth. The second, you need to have continued jobs being delivered. And third, an ability to start pulling the concessions and then pushing rents. And then we've gone through individual communities and developed plans and I think there is a degree of being conservative in it, but I'll let Martha add her points.

One of the things when we looked at the fourth quarter, as Chris said, we were hoping to have more movement in the rents in the fourth quarter which we didn't see. Since the first half of 2004 we were still declining in a number of our markets. What you see is, we didn't get enough growth in the fourth quarter to have this favorable kind of comparison that we were hoping for in the first quarter. So we are still burning off some of those old blends from early in 2004.

You also have a continued decline in rents in the Texas markets which are a pretty significant piece of your portfolio, although we are selling (multiple speakers).

Could you run through the mechanism in which you'll use to sell the condos? You're transferring into a TRS at some rate I would imagine or some value, and then convert it?

That is Scott Schanaberger. That is correct. We transferred into a TRS at the then market value.

How is that determined?

Appraisals.

You're booking in FFO as a gain, net of taxes?

That is correct.

Were there any NOLs in the CRS?

No, sir, there are not.

Do you know what the net effective cap rate is on the sales to the individuals? Get a range of that?

I don't.

It's down sub 3, if you can even really look at a cap rate. Just maybe taking a second, Jordan, because I think it's worth us spending a few minutes. How are we thinking about the condo opportunity and what strategies do we see? I think there are three ways to take advantage of the condo situation in America. One, you can take your portfolio and manage off your second and third tier markets, smaller communities, and convert them and sell them. This is what I call a defensive posture where we're taking, for example, 36 apartment homes in Salinas that were town homes, putting some minimal capital enhancements in and turning around and selling them at a net profit of $50,000 (ph) after taxes and after the step up.

There's probably a handful of communities that are in there, probably 1,000 to 2,000 in the portfolio at somewhere between 30 and $60,000 a door, after-tax profit that we're looking at it. And there are markets like Portland, Oregon, Silver Springs, Maryland; Salinas, those types of markets where we know over time we are probably going to be selling some assets. This is a good way to monetize it. The second way is just to sell them to condo converters if you can find them in that second and third tier markets at heavy prices and then just redeploy the capital.

The third is make it an active part of your business and move significant amount of your inventory into selling it. We have assets in California, Florida, and D.C. now representing 50 percent of the Company that you could move into that mode. We haven't reached the second and third phase of that. We are evaluating it at this point in time. And what we are doing is continuing to manage the portfolio on an opportunistic basis. And we think these are relatively minimal. If you look at it, the size that we've outlined is less than 1 percent of the NOI of the enterprise. So it's not an active or a big part of our business. We are certainly looking at it and thinking about different ways to monetize it. Right now it's just a small infancy and very opportunistic and very small.

My last question is just on the Florida market. Obviously very robust for you guys just last quarter, some which I suspect is seasonal. Any of that do you believe to be attributable to the hurricanes that passed through there last quarter and tighter occupancies as a result of that? And to what extent do you think these types of growth rates are sustainable, 7 percent revenue growth year-over-year?

I would say a small amount of the impact in the occupancy is due to the hurricanes and the higher market there and it's slower to come back on line, maybe 1 percent, 1/2 percent. But in terms of rent growth we see the rent growth opportunity continuing to be strong. I use Tampa as an example. We had very little hurricane loss in Tampa and that's really one of our strongest markets. So we don't see if the hurricane units come back online, a significant change in that (indiscernible) opportunity.

What do you see as Florida next year, on revenue growth year-over-year?

I don't have the numbers right in front of me, but continuing in the 5 to 7 percent range depending on the pockets.

Jordan, I think you're going to find Florida is going to be the hot market for 2005 and 2006. And with what they're taking off line on condos, the amount of construction jobs that are down there, the general economy, is it tough? It's tough to build down there. So I think you're going to find it a very strong market and we certainly feel that way about it. It will be the hot story for 2005.

Thank you.

Robert Stevenson.

Morgan Stanley. Martha, although it wasn't a big number on an absolute basis, bad debt expense was up double-digit percentage both year-over-year and sequentially. What is going on there?

What we had seen is a reduction or third party recovery. As an example, in 2003 we had a much higher percentage of third party recovery. People went to buy a home, and the mortgage company preferred they paid off those old debts and get their credit cleaned up. What we've seen throughout 2004 is a declining credit requirement from the mortgage company that they are no longer requiring people to pay off their apartment debt in order to get those mortgages. And so the vast majority of that decline is in our third party collection of our recovery.

Expectations, do you see that continue to climb for at least another couple of quarters?

We do.

Tom, what are you looking at these days in terms of expectations for returns on kitchen and bath models? And how many units do 20 to 30 million include for '05?

I think the kitchen and bath program, we're looking our return somewhere between 12 and 18. I think if you look at the 6,700 that we have done in the last couple of years, you'll find that we're probably at about 17 percent return. Program wise, during the fourth quarter we were averaging about 400 kitchens and baths a month, and now we've step that up in January to 500 a month. So you probably see us do 6 to 8,000 during the year. What we're looking at is the numbers I gave you, 20 to 30 is the weighted average capital deployed during the year. So by the end of the year we will put 40 to $50 million worth of kitchens and baths out there.

In terms of the -- you mentioned -- I didn't get the number, but there was another remodel slug that you were expecting to invest in 2005. What was that and what are the returns expected on that?

It's 20 million. Right now it's a project in Richmond so if any of you are down in the D.C. marketplace and you want to go out and see an asset under rehab it's in Richmond. It's English Hills and we have been working on it since about the third quarter. It should come online midpart of '05. It's a $20 million rehab. We've got a number of other communities under study and probably will be taking them offline and bringing them through rehabs. I might compliment Richard Gianotti and his team with respect to the rehab and asset quality effort. They've done a fabulous job. We are doing rehabs where we are only taking one or two buildings offline at a time and still keeping people renting the rest of the apartment homes. We are not losing that much NOI, but yet continually improving the quality of the portfolio.

I think maybe after the first-quarter we will have more report on future rehabs. We see it's a great upside in our portfolio, got a lot of great located assets that are in a kind of B category that we can get rent increases. Return-wise, you'll probably see us getting 10's out of those.

What was the -- what are you going to wind up having in this English Hills project after you put 20 million into it?

I don't have off the top of my head; I think it's a rather large 500-unit community. All-in, would probably be at about $42 million. The returns on it, probably got pretty good returns. We will have to check on it a little bit more and we will call you offline.

Thanks, guys.

Steve Swett.

On your growth expectations for 2005, the numbers that you've laid out there, are they essentially in line with your expectations for those markets or is that implied that you guys will, do you think, beat the market averages?

The range, we actually built up the range of guidance market-by-market studying the economic factors in each of our markets and the position of our portfolio in those markets. I think if you rolled up the aggregate expectations across the portfolio you would come to about the range we have laid out there.

On your sales expectations for 2005, would you anticipate most of those sales occurring early in the year?

This is Mike. Other than what we have under agreement right now, most of it will happen in the second part of the year from probably July on.

On the G&A, Chris, the large increase in the fourth quarter, what was that related to?

I think you guys have this pretty well pegged, just reading through the coverage this morning. But the significant increases quarter-to-quarter primarily are relating to incentive comp, some stocks related expense, but most of it was incentive comp.

The guidance for next year when it refers to the increases, is over the full year.

That is correct.

The last question on the notes, the mortgages that you guys are considering for repayment, can you give us any idea in terms of the average rate and the average term of those notes?

This is Rod. The average rate on the -- there's approximately 8 that are at a fixed-rate and the average rate on those is about six ninety-seven. And the weighted average maturity is approximately five years.

What is the total dollar volume?

Of the fixed component of it, it's around 80 to 90 million. Then we're also looking at a variable component that is around 71 million.

Thanks.

Carey Callaghan.

Goldman Sachs. You indicated you would take the opportunity to invest incrementally in your operating platform, is that --?

Carey? Lost you.

-- incrementally in your operating platform in '05. Is that going to be in terms of technology or people? Can you describe that more fully?

Actually it is people, process and technology. We've had a small team dedicated to this effort inside our G&A for about a year now focused on redesigning our processes in the selling side of the business, as well as the service side of the business and turning now to the administrative management side of the business both at a site level and a district level. The technology piece is coming in here in the first-quarter of 2005. We are actually taking an existing product and tailoring it to fit our redesigned processes, so there's some development activity. So it's not a huge ramp up in expense. But we will be spending money in 2005 that is not in our run rate historically.

Yes, kind of a revenue impact. Does it affect the way you lease or anything like that?

It affects the way we do a number of things, the efficiency and pricing. There's going to be a little bit more centralized control and management of the process of evaluating the market and determining pricing. There's a little more centralized control over the billing and allocation of fees that are in the lease. There is a significant amount of revenue loss inherent in the business with site people who get enamored with our customer and waive fees and we're going to stem that leakage through the process. There's a number of different ways that we see the process improving revenues.

I think I heard you say that you might make acquisitions in Denver, but I think I had also heard Tom characterize that as one of the weaker markets. Is that because you anticipate a turn in that market?

Yes, I think this market is just about brushing bottom right now. You are seeing occupancy starting to firm. The building activity is certainly cut back to its norm and you're looking at about 4,000 homes under construction; that's done from the peak of 15,000. It's just a matter of time we get jobs that are going to fill up those. I think one thing to watch in this marketplace is the impact of the PeopleSoft merger and what that's going to do to those jobs. There's probably about 3 or 4,000 jobs that might get cut here in the Tech Center. So we're going to be keeping an eye on how does that ripple through that submarket and does it create a buying opportunity for us.

Do you lose an equity income stream through the sale of your stake in Rent.com?

No, we will not.

I just have a couple of quick questions. Just curious what happened in Washington, D.C. in the fourth quarter. Sequentially it looked like there was a little bit of slippage on the collections front?

There was a little bit of slippage on the collections front and a little more vacancy. I don't know what market data you are looking at but what I'm seeing is the projection for 2005, is that vacancies will be higher than what it had historically been running for the last two years. We've seen a lot of new construction going on which drove some higher concession in the fourth quarter to try to buy back that occupancy.

Generally speaking, in which markets are you seeing condos and single-family home sales (technical difficulty) toll on your rental portfolio?

Actually in total we were about flat year-over-year, but the biggest increase that we saw in terms of moveouts to condos and homes were in the East Coast of Florida, Jacksonville, Denver, Greensboro, Nashville, Atlanta. The two biggest ones were -- East Coast of Florida and Jacksonville were up almost 10 percent each. We did see improvement, fewer moveouts to condos in Baltimore, Portland, Charlotte and Southern California. But really if we look at the average condo home price. We are still in 8 of our 20 largest markets. We are above the entry-level condo payment and three more markets were within 9 percent of an entry-level condo payment. So really only in California, in Metro D.C. and Baltimore, are we're well outside the impact zone.

Thank you.

Chris Pike (ph). Mr. Pike?

Sorry about that.

Turn down the Super Bowl media day.

Quick question for you Tom. In terms of the rent.com sale, what implication do you think this has in terms of price discovery moving? You see some other industries that have gone to -- I don't want to say an auction-type situation, but do think this may have any negative implications from a price discovery perspective for prospective apartment renters?

Very good question. First, we really looked at what is eBay's strategy in terms of this space. And it's been interesting, looking at the eBay model, and what we find is they do not take possession of physical assets which has been some of the other business models of hotel.com, etc., where they took possession of inventory and then remarketed. EBay doesn't do that. Second, eBay has 45 million people that are looking at it every day and has had very little exposure to the rental market. So we think you're going to see a lot more people doing Internet shopping.

We have already seen that during '05. I think Martha will probably tell you a little bit more on that after I get off. Third, will it be a threat? My sense about it is this, watch in markets where there is a lot construction activity, commodity markets and see if people during lease-ups do not put product on eBay at best available prices and try to short-circuit the whole leasing process or the leasing locator process, and see if that doesn't -- that is where it will show up, if at all this business model has any legs or potential to take off.

Right now we don't see it. We don't see eBay changing its business model. And by virtue of the fragmentation of the industry we don't see a lot of owners all of the sudden clamoring together to develop a sub leasing market, if you will, or a discount market. Martha can give you some ideas on what we're on Internet traffic and thoughts in that area as well.

While we've seen overall traffic increase, the largest increase has been in Internet traffic. In a couple of markets where we are testing some new approaches that the increase in percentage of Internet traffic has been as high as 40 percent. So, we hope to see that drive down our cost of getting a lease because the more traffic that we can drive through the Internet and drive down that overall cost, the better off we are.

I think that the real nut in this for eBay relates to their PayPal acquisition and that they are really focused on the massive amount of rent transactions that get processed in the United States and their ability to capitalize on that cash flow. I think that's really where the nut is.

We'll see how it plays out. It will be exciting and challenging.

Thanks a lot.

Ross Nussbaum.

Hi, it's Karen Ford, Banc of America. I wanted to ask about the 4.5 million shares that you sold. The October sale, I guess including the issue (ph), was 4 million. How did you sell the additional 500,000 shares. Was it just a DRIP?

About a year ago we did a filing on 5 million share DRIP plan for equity. And we did cap that for about half of one million shares in the fourth-quarter and that's where that difference comes in.

Second question, the notes that you are considering repaying with the Rent.com proceeds, do those have any prepayment penalties associated with them?

This Rod. Based on today's rates it would be around $8 million.

That's all I have, thank you.

Tony Palone (ph).

JPMorgan. With the increased disposition activity, any markets right now looking into '05 that you think you'll exit completely?

I think we'll be out of the Memphis market, will be one. That asset will probably go. We are certainly looking at, again, more assets probably in the Houston market and the Atlanta market. Whether they would be exits, I don't think so. But we would be trying to take some of those assets. Mike, anything you would add?

We'll be paring back in Texas and the Carolinas but not completely out of the individual markets.

Anything else Tony?

That is all I had.

(OPERATOR INSTRUCTIONS). Craig Leupold.

Greenstreet Advisers. Tom, I just wanted, if I could, go back through the condo activity one more time. I know on Attachment 2A it indicates that the gain is relative to the gross investment but I thought there was some comment about transfer pricing to the taxable REIT subsidiary. Is that purely to calculate your tax gain or are you indeed calculating the gain on condo sales versus the transfer price?

The latter part of your question there is the answer. We are tracking the differential between an outright sale, a normal sale versus breaking up and selling condos. We are recognizing the gain net of taxes on the incremental value that we're generating by breaking it up and selling it as condos.

But that is also the gain from an FFO prospective?

That is correct.

So Attachment 2A, that comment in there is incorrect or was it that way for the fourth-quarter?

I will have to go back and look at the wording.

The gain between the transfer price and the current book value just flowing through a gain on sale in the normal course. And then the actual gain on the sale of the condo to the third party buyer is calculated based on the difference between their purchase price and our current market value transfer price.

Okay. For the million 2, is the difference between the sale to the buyer and the transfer price.

That is correct, net of tax.

You indicated that was 24 town homes, so it looks like a gain of about 50,000 a unit. I know you had indicated that you expect maybe 2 to 6 cents per share of gains in '05. Let's take the midpoint of 4 cents. That will be about $6 million. I know previously Tom had said maybe 30,000 a unit in gains. That would imply that you might do 200 units versus, Chris, I think you had said 500? Does that imply that will continue to have this source of income into '06 and beyond at similar levels or greater?

We're looking a population of 500 units today. The question is how much gets delivered in '05 versus '06. I think your math is pretty good. You are probably looking at about 200 units in '05 and the balance leftover in '06.

Okay. Just wanted to clarify on Tom's comments earlier about the kitchen and bath remodel program. The 20 to 30 million, I think you said was actually a weighted average investment. And did you say that by the end of the year you would expect to complete 40 to 60 million total?

Yes. Martha is trying to correct me here. Martha.

The 20 to 30 million is kitchens and bath as well as some other exterior rehab projects that we are doing.

But that is a weighted average.

That is a weighted average so the higher number would be (indiscernible) a larger volume of the exterior rehab project not a higher volume in kitchen.

Okay, but for the full year you'd expect the gross investment for the full year from beginning to the end to be closer to 50 or 60 million?

That is correct.

Thank you.

Richard (indiscernible).

Hey, guys. Thanks for taking the time to answer all these questions.

They are good questions.

Let me ask you a question on the change in the guidance sheet. In the one that was issued in the fall, on the LIBOR you had operating data as of September at 2 percent LIBOR. And then your assumptions were up 50 and then up 100 on the low-end and the high-end. And now that 2 percent number comes out, because obviously LIBOR has gone up. I'm just trying to think where your guidance is baselined from. Are you now, from the December LIBOR rate and saying up 50 to up 100 from here, or is it still back to that 2 percent rate that was being used in the fall missive? I'm having a hard time. There wasn't much commentary on that.

This is Rod. The assumptions that we have in there today are LIBOR starts the year at 250, it goes up 50 in Q1 and then 25 in Q2 and then 25 in Q3 for a total increase of 100.

Okay. And am I right in the sensitivity, every 100 basis points in short-term costs you about 3 cents a share on an annualized basis, as it currently stands now with your floating-rate exposure?

2.5, 3.

2.5, 3. Okay. Tom, I'm going to put you on the griddle a little bit here. If you have to express a confidence level at this point with respect to the guidance range, are you confident in the middle, at the low end, at the high-end, where do you feel best right now?

Well, I think we have always been very clear about our math and how we get to that range. What I look at in my heart and believe is, there is a lot of momentum that is occurring in the marketplace. That we have a very good workforce that I think will deliver industry-leading numbers by market. I'm a cheerleader for them. I think they've got the skills. I think they've got the people and the leadership to get there. I think the variables that I look at that I can control every day is the decision to sell assets, the decision to fix debt. And I am looking at it and saying our number is 20 to 25 percent floating-rate.

Rod and I on the balance sheet want to be very aggressive and try to fix as much debt. At the same time I look over at Mike and we're looking at prices in a 5.4 cap rate on $169 million of sales; that's pretty damn good pricing. The reason I go into a little bit more, Rich, on this is if operations deliver the range I think they will, and I've got a lot of confidence in them and feel they're doing a great job and the market is getting better, then I'll bring that number back down by either fixing more debt or selling more assets. I'm very focused on building the long-term value of this enterprise.

And I think it's very evident when we take money like the eBay gain and go fix more of the balance sheet and really help out the long-term growth of the dividend. I know no one talked about that and questioned us, but the dividend is what we are really working at and we think it's -- in the Board meeting in February later this month, we're going to get another dividend increase. That's what we are here trying to accomplish, shareholder value and dividend increases.

How much of using that eBay gain is related to just -- I don't want to use the negative connotation, but kind of appeasing the rating agencies with respect to your encumbered assets base? Because it sounds like some of what you are contemplating is paying down relatively short-term maturity debt and using that to offset the prepayment penalty of the gain. I'm not sure, I don't know if I see how the equity investors benefit by that maneuver?

I think in '06 you're going to get less exposure because you've got this higher debt that you are going to be refinancing earlier and locking into long-term debt at this level. We think '06, it helps the run rate by 2 cents. Second, it's going to help your dividend coverage because we're going to free up $1.5 million of principal (indiscernible) and the escrows which are another million and a half. I think the common shareholders do get a victory in this. The alternative is what would you do with $8 million of nonrecurring? It's too small to distribute.

Put it in rehab, 15 percent returns.

We certainly do not lack capital to put into rehabs. We will continue to do that. When we are running out of -- not the opportunity in that area. So, I'll go sell another asset of 5.4 and put it back in at 15 and make pretty good money. So, I think you have a fair question. We still continue to like the fact that we would bring our secured debt from 42 percent down to 36. It's a good win, I think it's a good transaction. I think it's a fair question for you as shareholders to continue to ask the rest of the teams. There are 6 or 7 other companies that are participating in this, how they plan on using it.

Thanks for answering the questions. Thanks.

At this time I show no further questions. I would like to turn the conference back over for any concluding comments.

In closing I would say this, the team is closing out its fourth year together. I want to thank them and all the associates for the efforts that have led to creating a quality organization that has delivered solid earnings and dividend growth both today and in the future. I might add we have some fun at it. The highlights I see is we think the Company is a great value right now. At $22 we're buying it basically at a 7 cap off forward 12 month NOI's. We traded at a 10 percent discount to our apartment pure average multiple. We've got 50 percent of the Company's NOI out of Florida, California and D.C. now. We've got a balance sheet of $2.8 billion of debt with an average rate up 5 percent. And lastly, a value-add enterprise. We've got a great operating team and we've got a value-add through rehabs and upgrades. With that, let me again thank you for your time and we're always open to questions. And we appreciate your inquiries today. Take care.

Thank you. Ladies and gentlemen this concludes the United Dominion Realty Trust fourth-quarter 2004 results teleconference. If you'd like to listen to the replay of today's conference you may dial 303-590-3000 or 1-800-405-2236. You will have to enter the access code of 1101-9477, followed by the # sign. Once again thank you for participating in today's conference. At this time you may now disconnect.