UDR Inc (UDR) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the United Dominion Realty Trust first quarter 2005 results conference call. 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 on Tuesday, April 19, 2005. I would now like to turn the conference over to Mr. Larry Thede, Vice President of Investor Relations at United Dominion Realty Trust. Please go ahead, sir.

Thank you, and thank you for joining us for United Dominion's first quarter financial results conference call. Our first quarter press release and supplemental disclosure package were distributed yesterday afternoon. And this morning we filed form 8K with the 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 and then click on the Investor Relations tab and then Press Releases. Click on the Supplement link when you pull up yesterday's release. And you will find the direct link to the supplemental data as well as a 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 met. 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 a duty to update any forward-looking statements. I would now like to turn the call over to our CEO and President, Tom Toomey.

Thanks, Larry. And joining me from the Company today are Mark Wallis, Martha Carlin, Chris Genry, Mike Kelly, Rod Neuheardt, [Erin Dido] and Scott Shanaberger. Who all will be available to answer questions after my comments. I would like to cover five topics today: First quarter performance, focusing on our operation results and trends, a look at the key drivers of continued revenue growth, our view of selected markets, acquisition sales environment and progress on our 2005 guidance and lastly balance sheet activities and strategy.

As UDR is the first apartment REIT to report quarterly results we thought it would be more useful to you to limit our comments to 10-12 minutes, at which time we will open it up to a longer and more thoughtful question and answer session. Let me get started. Turning to the first quarter results. I think the number one question that we are continually asked: Is revenue growth going to really happen this year? By examining the five major components of our revenue, we hope to answer this question. We will answer this question. First occupancy. The first quarter was 94.4%. Up sequentially and year-over-year. 138 of our communities or 63% of the portfolio, are above 94%. Only 14 communities or 5% of the portfolio, is at 90%. This signals to me that the national market is very strong and that our operating teams are doing a great job.

Looking ahead to April, the occupancy is 94.5%, a five year high. And the trends continue to look strong from all our traffic sources. Speaking of traffic, it was up 20% sequentially which is seasonal, and 7% year-over-year. In conclusion, occupancies are strong and with these traffic levels they should continue into - - through and the second quarter. We have all seen revenue spurts over the last four years in which occupancy increased to high levels but we are unable to increase rents, which leads me to the second point. Rent increases. Our rent per occupied home, what residents pay us, was up $7 or 1% sequentially and up $10 or 1.4% year-over-year. The largest increase in four years. 70% of our portfolio increased rents.

A key point to emphasize here. 20% of our leases expired during the first quarter. Therefore a $7 rent increase per occupied home actually translates to a $32 per month rent increase on all new leases. If you look at that on an average rent of $700 that is an annual run rate increase of 4.5%. Our third area. Reimbursements. We disclose our reimbursements for occupied homes separately from rent at $31 per month or approximately 5% of our rents. These increased 3.3% over prior years. We are today recovering 55% of all of our utilities. This is up from 50% prior years. This equates to an improvement of $0.01 per share in the run rate. We believe our portfolio could achieve 75% to 80% penetration which would equate to a $0.04 to $0.05 increase during the next few years.

Fourth, concessions. Concessions are down 40 basis points sequentially and 20 year-over-year. A measure that I focus on is our cost per move-in, which is at $388 this recent quarter, down from prior year's 401. And lastly fees. In a strengthening or weakening market fees like: applications, pet, redecorating are the first to increase or decrease. Our fee collection increased 7% during the first quarter. So to wrap up revenue: Is there revenue growth really going to happen in 2005? In a word, yes. During the first quarter, 7 out of 10 of our communities recorded positive revenue. And for the first time in four years all five revenue drivers are in positive territory for our portfolio.

The pace of growth for the balance of 2005 will vary with the best markets being what we call our four star markets. Those exhibiting positive revenue through higher occupancies, rents, reimbursement, concessions and fee income. The four market simply stated is the State of Florida. All our markets there are - - in that strong. D.C., southern California and some what of a surprise, Phoenix. Our three star markets again a surprise Portland and Charlotte. Two star markets, Nashville, Boston, Greensboro, Atlanta and Norfolk. And with no surprise here the one star markets are northern California, Houston, Dallas and Denver.

What could enhance or derail the positive revenue trend? Comes to mind first for us is fuel costs. While it might drive up construction costs it also takes away home pay, reduces it and increases our operating costs. But more importantly, it might reduce corporate profits leading to a slowdown in job growth. The second driver of this area is construction, which appears to remain in check today. Although I note in the commodity markets with a low cap rate environment and flush capital that a building cycle could materialize. Jobs, certainly the number of jobs being created we believe is higher than what is being reported. And we believe all sectors are benefiting from job growth with the exception of the insurance brokerage community. It appears to us that most of the jobs that are being generated fit the weight scale that fits our middle market product. And lastly home ownership and condos, still very strong with a high use of floating rate debt and we certainly see no sign in the weakness in condos as there is no buy downs or give aways yet.

Turning to expenses. Our expense forecast for the year was 2.5% to 3%. During the quarter expenses rose 1.1% over prior years. The positive surprise was utilities, which we had forecasted to increase 6% but in fact, decreased 2% due to milder than anticipated weather. All other expense categories are within the forecasted range for the first quarter. We are seeing a disturbing trend in the real estate tax area. Many appraisers are using condo conversion cap rates in their assessments. This most likely will result in more litigation but we believe it will be managed inside our expense growth numbers.

In summary, our operations exceeded our forecasts on a number of fronts. First, NOI growth of 3.8% should be near the top of the sector. Associate turnover in key positions of community director and service manager are at their lowest levels in five years at 7% and 10% annually. Resident turnover at 51 - - excuse me, 56%. The lowest in four years for the first quarter. These results show me that the team, lead by Martha Carlin and [Erin Dido] are hitting on all cylinders. And we have the critical momentum going into our second and third quarter leasing season.

Let me now turn to acquisition and sales environment. And are we going to hit our guidance for 2005? First the environment. Cap rates. For condos they are still falling. For all other assets we believe the cap rates have been bottomed and have arrived at a 5.25 cap rate for new product and a 6.5 for older commodity product. Our activities on the acquisition front: During the quarter we closed on another leg of the ESSEX transaction and have one more to go. We are looking at a pipeline of approximately $600 million but are not hopeful at these prices.

On the sales front, we closed on $69 million of our slowest growth assets in Houston and Phoenix. Representing a 5.5 cap rate or $37,000 per home. By the way, that is the same cap rate we paid for the ESSEX transaction. Our pipeline is very full in the sales area. With $100 million under contract at a 5.4 cap or $130,000 a home in southern California and another 3400 homes in Dallas and Charlotte currently being negotiated. For our guidance we still believe we are still going to execute within our 2005 plan.

Balance sheet. During the quarter we issued $100 million of unsecured debt at a rate of 5.17 with a maturity of ten years. While our floating rate increased in the last day of the quarter to 27%, you will find this will decrease through the balance of the year to the 22% to 24%. The transactions to accomplish this include $240 million in asset sales under contract or negotiation and a minimum of $100 million more in additional debt issuances. A couple points on the debt issuance. You will recall that our 2005 guidance was for $200 million at a 6.5 interest rate. We will do better than that. We continue to be surprised at the market volatility and will continue to take advantage of the dips in Treasuries which today is hovering around a 4.20 for the 10 year. Seems to be pretty consistent questions that we have received ahead of this call that we would like to address in addition to my comments.

First, on the ESSEX performance, of that acquisition. After five months we are meeting the underwriting even in the face of bad weather and a tornado. Martha will add more color to that later. In the condominiums, during the quarter, we realized profits of $500,000 on a sale of 11 homes in our Monterey area. Our strategy remains the same. To pick second tiered markets with small assets and we have a pipeline of approximately 750 homes that we are examining the alternatives for.

In the kitchen and bath front we completed 1300 homes during the quarter bringing the program to date to 7700. We have a pipeline of 8 to 10,000 homes and we believe as the economy improves that could grow to 30,000 homes. We are still continued to be pleased with how our kitchen and bath programs are being received in the marketplace. It is certainly a selling point and doing very well in helping us close leases. Lastly, Rent.com, we have detailed the use of the proceeds in our press release and our grateful for the job well well done by the Rent.com team. So with that we will open it up to questions. And I note we have some in the queue.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from Jordan Sadler with Smith Barney. Please go ahead with your question.

I had a question first just following up on the Rent.com issue. You said that is is fully described in the release. The reserve is fully in G&A for employee incentive programs? The balance of the $12 million that is not prepayment penalty?

Yes, Jordan. This is Chris, that's correct. Just to give a little color on that, we run the Company at about a $3.5 to $4 million G&A number every quarter before incentive comps. And as we have described before the incentive comp for the corporate team is heavily based on our performance against the peer group as well as the performance of our stock. So given that the shares are down 16% in the first quarter you can put a pencil to that and the incentive reserve would have been virtually nil in the first quarter without the Rent.com transaction. To getting into to the 7 million is reserving the Rent.com money.

Tom, could you maybe give a little bit of color in terms of the incentive program you are thinking about for the associates?

I think that would be premature. We are certainly looking at something that pays out over time or provides them an incentive to save for their own. Or that creates what we call switching costs in which they would earn out over time. So we don't see it as just a gift. We would see something that we would like to get a return on. And as a result we'll still talking internally with our own teams about what we would like to do that front. But it is not there for senior management. We think it is something we want to build on for our communities.

Like district manager and below? You're thinking?

Yes.

Okay. Just moving ton markets and your expectations. And I guess I will talk a little bit about or have questions on four star and one stars specifically. In Florida, do you think you will see a seasonal slow down in 2Q/3Q or should we continue to expect sort of the 7% to 10% year-over-year revenue growth that you are seeing the last couple of quarters?

We are still seeing strong growth in both Tampa and Orlando. We'll say in Orlando we are starting to see some of the hurricane units start to come back online. So there will be a little bit more supply in the market coming in this quarter. But demand is still very strong. So we don't anticipate that coming down much.

Okay. And.

I would add that I think Florida is going to be balanced 2005-2006 probably at the top of everybody's chart. By then I think you have got a couple of things that will weigh in on it. What is going to happen in the condo market there. They are taking a lot of units offline. When they come back as rentals, which they eventually will, will that soften it up. And there is a lot of construction that is in the planning phase down there and if that delivers you certainly look at and say opportunity for a high supply could weaken those markets but not until 2006. The other thing I would say is that you're going to probably see great job numbers because the tourist industry is back down there. And it is going very well and we'll - - we are interested to see what Disney has to say about its traffic counts and its operations there. Tut we sense that they are doing great this year so Jordan, I think it's - - in summary it is going to be a good 2005-2006 for Florida. And it going to be the place to be. But it should chill and it should come back a little bit in 2007 is our opinion.

Okay. And then switching to the one star markets. Any of those where you are starting to see any firmness yet or do you expect that all of those will show sort of flattish to negative revenue growth this year? It looks like the results, at least year over year in Houston were not so bad.

In Houston, we have seen a little bit of firming on the occupancy side. So what you are seeing there is primarily from occupancy. We are still seeing rents falling. So these are kind of bouncing along the bottom. But I don't see any immediate signs of dramatic improvement in those markets.

So then just switching over to some of the stuff you have listed or your marketing for sale; you mentioned that the portfolios in Dallas and Charlotte what should we expect on sort of a price print to work for those Thomas, maybe a cap rate?

Price per door on that - - those products are going to be about $41,000 a door. And the cap rate is going to be about a 6.7 but that is in conjunction with us taking back a note very similar to the transaction that we did last year where we will take back the note that will bleed off over a year period.

Okay. And so that 6.7 factors in sort of the rate on the note?

Very similar, yes.

Okay. And what is the rate on the note that you would expect?

We are still in the negotiation process on that.

Okay. Given sort of the conditions in some of these one star markets Tom, do you think you would look to market additional portfolios in some of these weaker markets?

Well, we certainly have been reviewing the portfolio in detail for assets that are going to be hard to compete with in the future. And we will just keep you apprised as our pipeline grows. But it certainly at these cap rates it is a great time to be a seller in our opinion.

Our next question comes from Andrew Rosivach with Credit Suisse First Boston. Please go ahead with your question.

Good morning, guys. One quick dumb one. What is - - and you might have already said this, what is the total full year contribution that you anticipate from your condo conversion business?

Well, we see it in the second half of the year probably taking hold a little bit more. And you will probably find it is in the $0.04 to $0.05 range is what we gave in guidance in the beginning of the year and we still think that is a pretty reasonable number.

Okay. And that for the full year?

That is correct.

Okay. And then you know what and you went over in in detail, Tom but you had positive variance on the expense side. If I look your full - - the guidance you put out it looks like you are shooting for a full year expense growth of 3%. Are you going to - - is that where you are going to end up so we are going to see an uptrend in year-over-year the next few quarters?

I think with the better than expected utilities that we saw in the first quarter we should probably come in on a year-over-year basis less than what we were originally forecasting.

Is that going to set you up for upside relative to your guidance, then?

I think we will be at the low end of the guidance range on expense increases, Andrew.

Okay.

We're not changing it. Because again we look at it as a great market to be selling assets and fixing debt. And so with the upside in the operations, my strategy and view is to spend that out excess performance there probably working with Rod and helping fix more debt with Mike and selling more assets.

Okay. That is fair. And then last question Tom, with your stock down $3 you have got a great track record of catching your stock on dips and doing share buybacks. It looks like you are reporting a pretty clean quarter with your stock down. And you even had guidance implied that you might issue some equity. Where are you looking now in terms off issuing equity versus doing a share buyback? And what would have to change to potentially change your mind?

Well, I think our original guidance we had put in equity assuming that we were able to secure a significant acquisition. We don't think that today's pricing that really is out there. And so I wouldn't see us at all interested in issuing equity at this price. And in fact if I look at $21 a share I'm frankly buying stock back or would be buying stock back at 6.5 cap off next year's AFFO number. Or buying it at $78,000 a door. And so it strikes me that pendulum is swinging more towards our thought of buying back instead of issuance. And we think for a Company that has 50% of its NOI in California, Florida and D.C. buying a 6.5 cap is a steal.

And just to check you do have a buyback program in place if you wanted to do something now?

Absolutely.

Our next question comes from Ross Nussbaum with Banc of America Securities. Please get with your questions.

Hi, good afternoon. Here with Karen Ford. Tom, I've got a question. Your comments that you think that the job growth is better than we are seeing in the reported numbers, what gives you confidence in that statement?

The number of people that are knocking on our door renting apartments. When the traffic count is up 7% you look at the credit quality of the people knocking on the door and why they are walking in the door, it is new jobs. And that is different than what it has been historically which has been relocating and changes in household, lifestyles. So I mean our sense is is that there is more job growth and the statistical way that that information captured you know is very fraught with guess work in my opinion but we just think there are better jobs.

Second question on your same-store NOI growth how much of that would you attribute to the kitchen and bath upgrades? I mean if I'm thinking about that you are pouring 30 to 40 million into that a year and it is putting up a double digit return on investment; is it fair to say that a third of your same-store growth is coming from that area?

This quarter looking at it looks to be about 50 to 60 basis points of our revenue growth. In some of our markets, I'll use D.C. as an example, where we've done a little more than we have in other parts of the country it is about 150 basis points. So where we came in at 6.1 on the revenue side it would have been 5.6 without that program.

Okay. That is helpful. I think Karen has a question.

Your guidance on the G&A side was 1 to 2 million over last year. Is that still good considering the Rent.com associate bonus program?

No we will see G&A 3 to 4 million over last year assuming the share price recovers some this year and our performance versus the peer group is as solid as we think it is likely to be. We're thinking probably looking at a G&A target for the year of about 23 million.

Okay. And just wanted to ask about that tornado that Tom mentioned?

It's hard to imagine in southern, California.

Southern, California.

You know. But February there was one and obviously was covered with insurance but it is hard when you have to file a claim that says you were hit by a tornado in California and not an earthquake. They kept going where is the box, earthquake. All it took out was some parking garages. It didn't remove many units offline. And those now have all been fixed and restored. But it certainly disrupted all the weather in southern our occupancies there. It certainly slowed down the traffic.

Our next question comes from Rob Stevenson with Morgan Stanley. Please go ahead with your question.

Good afternoon, guys. Tom, what are your thoughts these days regarding development?

Well, I think development I will turn part of the question over to Mark. That in some markets it certainly looks like it is going to pay well. Where there's constraints on the building and there is strong job growth. And those are D.C., Florida and California in our opinion. Other markets I worry about the development pipelines that are being queued up in Dallas and Houston and Colorado is still building at 7,000 homes a year. So it is a market by market situation. As it relates to our strategy we have articulated in the past that we are not going to hire up and put a development arm in the Company. We are going to go out and use the expertise in the local market and use our relationships in getting that. Mark will tell you more about what we are going to do.

We are in active discussions with a couple of fairly well known development groups with a lot of experience. And we - - our strategy is to work towards a resale type arrangement where the developer takes the construction risk. And then we take the product on that completion and then there is participation later on down the road based on performance. So we have got a couple of opportunity there. And we see that being able to expand as we find the right market as Tom mentioned to go into.

And what is - - I mean at this point when you take a look obviously, you know, it would be awhile before some stuff starts. But what type of sort of stabilized basis are you guys thinking is appropriate within the Company? Is this $200 million a year of deliveries or could this wind up being bigger?

Well, I think, you know, $200 million would probably be a reasonable number at this point based on what we are seeing right now. And, you know that - - our experience with developers once you get trust and success then you can build and expand that program so we'll have to see how that goes. I think that is a decent number.

Okay. And then one last question. Tom, the same-store rent per home is 716. What is that for the entire portfolio as a whole? Given that you have recently acquired a bunch of stuff in California, et cetera?

It's about - -

It is 832.

732?

No, 832. If you include all the assets we bought into a same-store pool you would be at about 832. And on top of that you would probably add another $40 to $50 a month for reimbursements. And so you're at about an 850 to 870 number.

Our next question comes from Chris Brown with Banc of America Securities. Please go ahead with your questions.

Chris, you've already asked. You're coming back for doubles.

No, this is the fixed income side not the economic side.

Okay. I apologize.

I just wanted to ask. It seems - - when I go back over a year your coverage was about three times. And now you are down in the 2.5 times. And do I know that the agencies in their last writeups with respect to UDR credit mentioned that you were kind of on tenuous ground because of the acquisition last fall. So I was wondering if you could take a minute to kind of update us on where you're running the kind of leverage side of the business and you're kind of run rate.

The leverage side of the business we saw a little dip in the fixed charge in this quarter. It continues to stay. We stay consistent and it starts to ramp up into the year and then going into '06. We feel pretty comfortable where we are running the leverage right now. And this - - it is running inside the box that we have discussed with the agencies when we had our annual meeting. And we feel pretty good about it.

So at this point you feel that they are comfortable with where you are?

Yes, I think the feedback we get from the rating agencies is first and foremost is we have outlined a plan. And we've executed on that plan over the last four years. And that is a big part of the trust. Second, we said here is where we are today with respect to our fixed charge and we going to run inside of a triple B type level. What we focus on is the level of secure debt and the fixed charge and we are going to keep that fixed charge in the 2.3 to 2.5 range. We think as the economy improves and our NOI improves that those statistics will improve as well. So we have been very out there communicating our strategies and plans dealing with maturities. And I think you will look at the activity with what we did with Rent.com as a furtherance of strengthening the balance sheet and our commitment to that balance sheet and we feel good about it.

Thank you for the update. Appreciate that.

Our next question comes from Carey Callaghan with Goldman Sachs. Please go ahead with your question.

Hi, this is Dennis Maloney with Carey. Just wondering, in terms of the higher traffic counts that you're seeing, which you attributed to stronger than job - - you attributed it to job growth rather than anything else. I'm just wondering how much of that could be due to just folks being priced out of the single family housing market? And then related to what markets are you seeing the greatest move-outs and the lowest move-outs in single family homes?

Actually, move-outs this quarter on a percentage basis we still had a higher percentage of move-outs to single family homes but on a just raw numbers basis the move-outs to homes dropped by about 100 move-outs. In terms of markets, we only had two where move-outs to home ownership decreased and that was in Norfolk and Austin. So we had some pretty big increases in Phoenix, D.C., Salina and Houston from the fourth quarter to this quarter all went up between 15 and 25 percentage points. So we're still seeing a fair amount of activity of people moving out to home ownership. I don't think that the interest rates moved enough. But the talk of them moving is kind of getting that last hoorah of people trying to get out for that.

And then I know you guys are still formulating your long-term thoughts on the condo business but how much of that $0.04 to $0.05 you think could be sustainable in '06?

Well we've looked at the portfolio that is queued up and we feel pretty good about it through '06. Primarily because it is second tier kind of markets. You're looking at Salinas, Monterey. You're looking at Silver Springs Maryland, one in Tampa. Where the price between what we're trying to sell a condominium for and a home has a big gap. And the rent versus the price of a floating rate mortgage has still got some gaps. So there is a market there. And what I'm encouraged by, in that side of the business, is you don't see any condominiums doing the buy downs or give aways. And you don't see it in the single family. So we think they will remain competitive through the balance of this year and into next year. Because Americans have shown the propensity and willingness to borrow on a floating rate basis. And when that starts moving up and becoming painful you're going to see condominium and home builders starting to offer specials and you have it. I mean those are going to be the signals that we are going to look for that will change our outlook in this area.

But our strategy is it's nice way to prune up the portfolio. Case in point, in Salinas I think we've highlighted we bought those assets at 80,000 a door and put 25 into them. And we're turning around and selling them for nearly 400,000. We would never have gotten that price had we sold them to a wholesaler or condo converter. So, it's a quick way to round out a 36 unit town home. And that's the type of the stuff we're going to do. It is not going to be a big part of the business. But it's a neat way to round off the portfolio a little bit and take advantage of some of these second tier markets.

And then Carey has a question, thanks.

Hi Tom. Calpers is said to be selling a large apartment portfolio. Is that something that you would look at? I know you said - - pretty tough time - -

Yes. Mike knows a lot about that portfolio and he could probably fill you in on it.

They are liquidating their first fund with GID. I would imagine that half of those assets are going to go to converters in - - the three or four Florida assets, Chicago, Minneapolis. We are going to look at the assets that we are going to be competing against apartment pricing on. Some of those are in the D.C. market. Some of them are in other markets where we have good concentrations and good management people there. But I would imagine that at least half of that portfolio will go to condo converters.

But it is possible you would be interested in pieces of it then?

Yes.

We're always interested but at a price that makes sense.

As we have already bid on one of them that has where been out of the market. So yes, we are very active in reviewing those assets.

Our next question comes from Steve Swett with Wachovia Securities. Please go ahead with your questions.

Just a couple of questions. Most have been answered. But I just want to clarify that all of the debt designated to be repaid with the proceeds of the Rent.com gains, those have all been repaid in the first quarter?

Yes.

Okay. On the guidance I think I heard reference that $0.04 to $0.05 was the expectation for contribution from the condo sales in 2005. I guess my question is, was that within the range of the original guidance and is that a net gain number?

No, that was the original guidance and - -

Our original guidance calls for a net gain of $0.01 to $0.04 for the year.

Okay. And then on the same-store pool referenced in your release; was that your pool is going to be changing up. Just remind me, do you change the pool every quarter or is something that's changed once a year?

It changes every quarter.

So as the quarter goes along and you have more properties that will confirm then your reported same-store numbers should start picking up as your portfolio has changed?

That brings up, you know, a great point, Steve. One of the things that isn't evident from the historical disclosures is that the current same-store portfolio exhibited sequential revenue growth every single quarter in 2004. And that growth rate was at an increasing rate each quarter. So the portfolio changes that have been done over the last couple of years are having a more significant impact on our growth rate and our other kitchen and bath.

Yes. I just wanted to make sure that you guys will actually start reflecting that and it won't wait until 2006 when the same-store pool changes. My final question on the kitchen and bath business. Any rough numbers on how many units were out of service in the first quarter and how that out of service count changes through the rest of the year?

It is really not significant the length of time that they are out of service. If you look when they are doing them on turns, based on where our occupancies are, we can turn them around if we need to in 48 hours. On average it's a week to two weeks but that is well inside of our turn times so it is really not a financial impact.

Okay so there it no seasonality to that in terms of number of units that are actually out of service at any given time.

No. And we can accelerate that as we need to.

Thank you. Our next question comes from Tony Palone with J.P. Morgan. Please go ahead with your questions.

Given your outlook on the revenue side is pretty bullish why not maybe be more aggressive with paying down variable rate debt especially given the flatness of the curve at this point?

Well, it is a tradeoff. You can see that we are paying off 240 million with asset sales and fixed is another 100. That is 340 of the current balance of 800. If the operating trend continues to hold we may increase those numbers throughout the year. But again we price it against the earnings impact versus fixed charge impact. And we look at what we are selling assets for, what prices we could get and Rod is watching the curve. So while it's dropped to 420 on the 10, spreads moved from 95 to 115. So you have Ford and GM and the rest of the world stopped scaring the death out of us by saying they going to file bankruptcy those spreads would tighten in and we would probably be hitting the market sooner. So I think there is a lot in that. I hope what we have done is given you color that we are weighing it almost on a daily basis. And as we get more and more facts and more confident as the year goes through collecting more rent we will move on to it. It is certainly on the top of our agenda.

Okay. Just want to clarify on the condo conversion gains that in current guidance right now I just got confused on the last question. Is it $0.01 to $0.04 cents net that's in guidance now or is it the $0.04 to $0.05?

It is $0.01 to $0.04 net. And the offset in impact is in the 43 million G&A, which is higher than our historical run rate.

To get to the $0.01 to $0.04 that included some allocation of the higher of G&A?

That is in the G&A. So the comps $0.04 to $0.05 number is your raw income number. If you net some of the increased G&A out of it you get to the guidance that we gave 90 days of net $0.01 to $0.04 impact on 2005 P&L.

[OPERATOR INSTRUCTIONS.] Management at this time we have no further questions. Please continue with any further remarks that you would like to make.

Great. Thank you, operator and thank you for those questions. I thank all of the associates who are on the call today because their efforts really did create these results. And they created a quality organization that is delivering solid earnings and dividend growth. When I look at the Company at the current share price of $21 I'm struck that you are buying it at a 7 cap on forward NOI and a 6.5 on cash flow. I think it is a great buy. Second, I think we traded a pretty low multiple, in fact, the third lowest out of 15 apartment REIT's. For a Company that has 50% of its NOI coming out of California, Florida and D.C., that is a big discount. We have got a strong balance sheet. We have got $2.8 billion of debt.

We have got basically that at 5%. And we are working to continue to fix more debt every day. And that you have a value add enterprise, one that first you will see us lead people in operations. I think we got a great team there and they are doing it. We can also add value through our middle market product through quality upgrades. Our asset quality team is busy out there looking for rehab opportunities and upgrade opportunities and we will continue to deliver on that. So, it was a good quarter. It's going to be a good year and we certainly look forward to talking to you about the second quarter results in three months. And we thank you for your time and take care.

Ladies and gentlemen, this concludes the United Dominion Realty Trust first quarter 2005 results conference call. If you would like to listen to a replay of today's conference please dial in to 1-800-405-2236 or 303-590-3000 and use the access code of 11027221. Once again, if you would like to listen to a replay of today's conference please dial in to 1-800-405-2236 or 303-590-3000. And use the access code of 11027221. We thank you for your participation. You may now disconnect and thank you for using ATT teleconferencing.