UDR Inc (UDR) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the UDRT Inc. third quarter 2007 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded Tuesday, November 6, 2007. I would now like to turn the conference over to Larry Thede, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and thanks to all of you who are calling in for joining us for UDR's third quarter financial result conference call. Our third quarter press release and supplemental disclosure package were distributed yesterday afternoon. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Our press release is posted to our web site, www.UDR.com. To obtain the supplement, click on the supplement link in the body of the press release. We'll begin the call with brief comments from management and then open the call to your questions. I would like to note that statements made during this call, which are not historical, may constitute forward-looking statements. 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. A discussion of the risks and risk factors that could cause actual results to differ from those implied by forward-looking statements is detailed in yesterday's press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. With that I would like to now turn the call over to our President and CEO, Tom Toomey.

Thank you, Larry, and if I've got a little bit of creak in my voice, I'm getting over a cold, guys, but welcome to our call. Joining me on the call today are Mike Ernst, Martha Carlin, and Mark Wallis. I'm not going to spend much time on the press release, but will say that we are very pleased with another solid quarter in which our FFO grew better than 14% over prior years. I want to take a few minutes and discuss our progress for each of our strategies. The first, of course, is our sourcing low-cost efficient capital. Yesterday we announced the formation of a $650 million joint venture and earlier this quarter the renewal and extension of our $600 million line of credit. Mike will give you more color and detail on these shortly, but I do want to say Mike and his team did a great job in this market getting these transactions across the goal line. Our second strategy, strengthen our portfolio, success in this area sometimes comes through selling assets. Year-to-date we've sold over $720 million or 6400 homes at a blended cap rate in the low five's. And sometimes improving the portfolio quality takes time. As an example of this, we've been telling you for quite some time about our kitchen and bath upgrade program and how it creates net asset value. With the sale of the Atlanta and Denver portfolios, we can put a complete transaction as evidence. Just a reminder, in the case of the Atlanta portfolio, we invested $4.4 million in the program and an average of $8700 per home, upgrading 35% of the homes over a two-year period. These homes realized an average monthly rent 13.7% higher than the non-renovated homes. The company estimates that the kitchen and bath program produced $10.8 million of additional sales proceeds, resulting in $6.4 million of value creation. If you apply this concept to the 16,941 homes that we've invested over $155 million so far in, at a targeted return of 9%, capping that income at 5% to 6% equates to about $255 million of value, meaning $100 million for our shareholders. The third strategy is create value in RE3, our $2.5 billion development pipeline and $220 million of re-development are progressing nicely, with $460 million in deliveries during the next 12 months. Mark will give you some more detail on this shortly. The fourth strategy, innovate with operations 2.0. I want to express my appreciation to the entire operating team for delivering solid results, with same-store sales NOI of 8.5%, bringing the year-to-date to 7.1%, which is the midpoint of our original guidance. I will also point out that the 1.6% sequential revenue growth is our twelfth consecutive quarter of revenue growth. Just let me repeat, 1.6% sequential revenue growth is our twelfth consecutive quarter of revenue growth.

Looking to the future, we've been investing heavily in our technology for a number of years. In particular, focusing on four phases. The first phase is cost controls, where we've automated 100% of our backroom functions, including the processing of over 300,000 plus invoices annually, many of which we are converting just straight to electronic wires. And 100% of our HR functions. We've also automated the entire kitchen and bath upgrade program for ordering, scheduling and billing. These programs have reached full implementation in 2007. The second was to make it easier for our residents to do business with UDR, including automated pricing, call center support, auto payments, and work orders. These programs are coming online in 2008. The third stage, clearly the most visible, is where we believe we will distance ourselves. A year ago we turned our attention to driving the front end of our business and like you we have witnessed the airline's rental car agencies and hotels moving away from the internet as an information tool and into a self-service model where choice is key. Our strategy has been to build the best consumer-driven web site in the industry and to broaden our appeal by launching a fully translated Spanish web site with over 4,000 pages. What will this lead to? More instant feedback from our customers, improved ability to move our marketing dollars to more cost-efficient use, reduced cost of customer acquisition, and meet the changing customer decision process. The initial results look fantastic, with our traffic increasing 20% to 30% annually and we remain optimistic of achieving our goal to secure 90% of our leases via the internet. Today we're at 40%. The fourth stage is a combination of stages 1, 2, and 3, which we believe leads to a competitive advantage through service and cost structure, which in turn creates greater margin, leading to acquisition opportunities. Let me now move on to the subject of guidance. We believe the consensus estimates of $0.50 a share and FFO for the fourth quarter of 2007 is reasonable. We believe this reflects real estate results of $0.42 to $0.43 and $0.07 to $0.08 from RE3. While we are negotiating several transactions, which we feel they will close, given today's market, the exact timing is always tough to predict.

So, in summary, in UDR we believe we've built the company to take advantage of this turbulent dynamic time. Just such (adds) we're encountering today. Therefore, we intend to first we utilize the team we have in place to execute our strategic plan. The second is our journey towards improving the quality of our real estate is becoming more visible, with our same-store revenue pool at 970 a month, adding non-maturers at stabilization, this would be in excess of 1,000 a month, a far cry from 700 a month a few short years ago. And third, our recent capital activities ensure we will be able to take advantage of our development and redevelopment pipelines. With that let me turn it over now to Martha.

Thanks, Tom. Today I would like to cover our performance for the quarter, some regional and market highlights, progress on operations 2.0, and the outlook for the fourth quarter. Our operations team delivered another solid quarter of performance with 5.2% year-over-year revenue growth and 8.5% NOI growth. All markets, except those if Florida, had positive revenue growth for the quarter. We gained some occupancy momentum during the quarter, picking up three basis points of occupancy sequentially, and sequential revenue growth, while moderating, remains strong at 1.6%. We took a step forward in our move to a net effective rent pricing model, which better enables our internet marketing strategy. This resulted in a reduction in concessions for the quarter. Overall, expenses remained in check as we continued to migrate our advertising to low-cost, no-cost internet sources, which contribute to an over 25% decline in marketing and advertising costs year-to-date. Move-outs to home ownership declined 120 basis points to 15.5%, which helped to reduce repair and maintenance expenses on lower turnover of 230 basis points year over year. Further reductions in repair and maintenance were the result of the HBAC replacement program we undertook in 2006 and completed in early 2007. This reduced the need for overtime associated with emergency AC work over the summer and in lower repair expenses. We expect these costs to remain lower in future years as well. Additionally, more favorable experience on property and health insurance and some successful tax appeals helps solidify one of our best quarters from an expense control perspective.

The west, which makes up 31.8% of our NOI continues to be our strongest performing market, with revenue growth of 7.9% and NOI of 11.6. The region was led by Portland, Inland Empire, and San Francisco. We continue to have pricing power in the western market and expect some strengthening of occupancies in the San Diego market as displaced homeowners and construction workers seek rental housing during the clean up and rebuilding process. Several of our assets were in close proximity to the fires and two were evacuated. We experienced some smoke damage at one property and ash across the area, but do not expect significant costs associated with this clean up.

The southwest market, primarily in Texas, is continuing to perform well, with solid revenue growth at 5% and NOI at 10.5. Occupancy gained 30 basis points sequentially, and pricing power was strongest in the Austin market. The Phoenix market, which is less than 2% of NOI, has softened from oversupply in condos and single family homes, but job growth remains strong. In our Mid-Atlantic region, Charlotte and Raleigh have continued to perform well with 7.6% and 7.1% revenue growth, respectively. Move-outs to home ownership declined sequentially 560 basis points in Raleigh and 480 basis points in Charlotte. In metro D.C., move-outs to home ownership declined 230 basis points to one of the lowest in the portfolio, further strengthening occupancy in that market. Our pricing power remains strong inside the beltway.

The southeast, which primarily consists of Florida, continues to feel the pressure of oversupply and single family and condo units, being leased by investors looking to cover operating costs. Pricing power is largely a factor of sub market competition, where some assets have held up better than those competing with (failed) condo lease-ups. Some of our more challenging submarkets are those on the east coast of Florida. We're also seeing continued softening in Tampa as we move into the fourth quarter. Job growth continues at a good pace in Florida, which will help with absorption. However, single-family appraisals need to stabilize and lenders need to return to the business of lending before all the excess inventories can be absorbed. We expect another 12 months at a minimum, before Florida returns to a more normal level of inventory and pricing, but we look to start 2008 in a better position from an occupancy standpoint then 2007, which should offset some of the downside on the lack of pricing power. We're seeing increased leasing pace in the past two weeks in two of our redevelopment projects in the Orlando area.

Now let me turn to strategy for a moment. We continue to make progress in laying the foundation for operations 2.0. As Tom mentioned, we launched our new web site in June, which includes a more customer-focused design, mobile web, and other cutting edge technology, and we launched a full Spanish language version of our web presence this past month. Additionally, we completed our call center evaluation and are more than 60% through the yield star software rollout.

Finally, the outlook for the remainder of the year. This is the time of year when growth typically moderates as we have fewer leases expiring and traffic flows into the holiday's. We expect occupancies and pricing power, while moderating into the winter season, to continue to hold up fairly well in all but our Florida and Phoenix markets and remain comfortable with our prior NOI guidance of 6% to 8% for the full year. Before turning the call over to Mark, I want to thank our operations team again for their disciplined focus on results and delivering another strong quarter of performance. Mark?

Thanks, Martha. We continue to strengthen our portfolio and I'm pleased to report a successful execution of the sale of all of our assets in the Denver and Atlanta markets. We're very pleased with the price we got and by the value of creation realized as a result of our kitchen and bath upgrades done in that portfolio. We expect reaping future value benefits from the sales of assets of our kitchen and bath upgrades. Our rehab program continues to go well and we are leasing up at or above pro forma rents and are generating incremental cash on cash returns north of 9.5%.

I want to emphasize the scope of our rehab program. We're spending, on average, over $35,000 per home. That is a repositioning to an A-quality asset. This is distinctively different from the traditional $8,000 to $10,000 rehab, which is in effect a limited exterior freshening up of a middle market asset, but not a major repositioning. This limited rehab is often seen in the private sector with owners who have a more short-term view of the assets. On the acquisition side, we acquired a new fresh community in Jacksonville, Florida, at an attractive price and the location across the street from an existing UDR asset, and this will provide us more operational efficiency and it was an excellent use of available exchange fronts.

The development pipeline continues to make good progress. We are very pleased to announce the acquisition of a 255 home development site in the Dupont Circle neighborhood in Washington, D.C. We anticipate starting this development in the third quarter of 2008. I also want to note that we dropped a site we had under option to purchase in Rancho Cucamonga. And that was due to the city zoning officials there demanding an unreasonable amount of retail space in the master site plan that was not feasible. In late October, we achieved city council approval for the rezoning of 100 acre assemblage of older apartment homes in Addison, Texas. The approved master plan is very flexible, no height constraints, and with a mixed use allowance of up 500,000 square feet of office and retail, should we want and need that. We are pursuing the design of the first phase, which, we anticipate starting early next year. This is a multi-year opportunity that should provide us with significant value creation economics as we progress through the phases of this infield development. We also realized additional value creation in RE3 with the sale of a 400 home community in San Ramon, California, for a profit of $10.5 million. I want to commend our acquisition disposition group, who had a great quarter, executing sales of $281 million. And now, I'll turn the call over to Mike.

Thanks a lot, Mark. The details from the quarter are pretty clear in the press release and supplemental package, so I'm going to focus most of my comments this morning on capital markets activity. During the quarter, we bought back a little over 900,000 common shares at an average price of around $25, bringing our total shares bought this year to a little over 2 million shares out of our current 11 million share authorization. As we've discussed on prior calls, we're trying to balance buying back shares at today's very attract levels with maintaining maximum financial flexibility, in a challenging capital market environment. Now, that we've closed the Texas joint venture, we will probably use some of those proceeds to continue to buy more shares. Speaking of the Texas joint venture, we're very pleased to have closed this transaction, as outlined in yesterday morning's press release. We think this is a very important strategic initiative for the company and has the capacity to grow substantially over the next few years with a $300 million expansion feature that we hope to put to work in the near future. At a going-in price of over $88,000 per home and an economic cap rate that would be in the low to mid five's using our normal underwriting criteria, we believe that this is a very good execution for us and for our partner. In addition to the initial purchase price, we also have the ability to capture additional proceeds in the future based on achievement of certain IRR hurdles. With this closing, our run rate share of NOI from Texas is currently about 10%, down from close to 15% prior to the closing. We expect to reinvest some of the venture proceeds in properties in Texas, both with our partner and otherwise over the next year or so, so that number could go back up once we do that. We finance the venture with a seven year non-recourse mortgage at an average interest rate around 5.6% and a 70% loan to value and the initial funding was $232 million. Approximately $150 million of the sales proceeds will be reinvested in 1031 acquisitions to protect the very large tax gains that were generated by the sale. We'll also be providing a construction loan to the venture for the Lincoln Town Square II development. This loan will be paid off upon final completion with an additional funding of $22 million on the venture mortgage. This takeout is fully negotiated, rate has been locked at 5.55%, and is subject only to completion with no lease-up hurdles. Just to summarizes the sources and uses on this, we sold the properties to the venture for a little over $350 million, of which about $10 million of that is still to be funded on the Phase II development. We got in $232 million from the debt and about $80 million from our partners' equity. We then used those proceeds, $150 million funded the 1031 exchange accounts for acquisitions that will close in stages over the next five months and then about $175 million goes to pay down debt. And the remaining difference to balance it out is a combination of a lot of things, including return of our financing deposits, closing prorations, and then the fact that we made the construction loan to the venture. At this point we expect that at year end, we will have about $130 to $140 million drawn on our $600 million line of credit, and that will be after paying off about $85 million worth of secure debt that is either maturing or coming open to prepayment in the next couple of months. This provides us with more than enough funding capacity to meet all of our debt maturities in 2008.

I'm going to briefly comment on the debt markets, because they've been so crazy over the last few months. And while they're still weaker than they were six months ago, they've gotten a lot better in the last 30 to 45 days. The agency debt had widened out to 160 to 170 basis points for sort of a 70% LTV kind of a deal in the worst of the market in August. More recently we've been seeing those spreads settle back down in the 115 to 125 basis point range. And if you take into account the decline in treasuries, we're really kind of back to where we were six months ago in terms of the all in cost of borrowing. And in fact, at the more conservative levels, you might even be a little bit under where the borrowing cost was six months ago. The unsecured bond market probably got hit worse than any in the debt markets. UDR paper in August, we were probably getting indicative quotes in the 225 over range. More recently we've seen that in the 180 to 190 range, and that's for ten-year money. We still think 180 and 190 is very high, by historical standards. And are expecting that those spreads should continue to tighten a bit from where they are today. The bank financing market seems to be very solid still. On our last call we talked about the new line of credit that we closed in July. It was a great deal. Increased the commitment by $100 million, reduced pricing by 10 basis points, extended the term five years, got more flexible financing covenants. I think that deal, we might not get those exact terms today, but I think we'd stay pretty close to that and we're still seeing very good demand and capacity from our bank group. One final note on this topic, having spent the nine years prior to joining UDR as they reach CFO in the office business, I'm coming to appreciate the tremendous value and stability of having the agencies and what they bring to the capital markets for departments as asset class. I suspected CFO's in some of the other sectors probably have a somewhat less positive outlook on debt availability and asset price stability. So, it's very good to be in apartments.

There's one, sort of specific thing I want to comment on from the core. Several people have noted in their write-ups and have called, and asked me about why interest was up substantially this quarter. There's a lot of different things that go into it, but the biggest ones, if you look, interest is calculated off of average debt balances, so if you look at our ending debt balance, because we closed $281 million worth of sales in mid-September, the ending debt balance is a lot lower than the average balance. And if you then go back to the second quarter, the ending debt balance was actually higher than the average debt balance. It's a little misleading if you just use those ending balances to try to get to that. The other thing that happened is, as most of you remember, in August and September when the LIBOR pricing went kind of crazy and got up pretty close to 6% for LIBOR, which has now obviously dropped below 5%, so we had quite a bit of floating rate debt at that point in time, because we were anticipating the pay-down from the asset sales and clearly that hurt us during the quarter. So, anyway. Thought I'd explain that. I will turn the call back over to Tom for my closing comments.

Operator, we'll now open up the call open to questions and get to that phase of this, please.

Thank you, sir. Ladies and gentleman we will now begin the question and answer session. (OPERATOR INSTRUCTIONS) Our first question comes from Mark Biffert with Goldman Sachs. Please go ahead.

Good morning, everyone. My first question is for Martha. When you look at your operating expense, which were very good during the quarter, what do you expect going forward? Are a lot of the efficiencies that you guys have taken from these different operations 2.0 in place, or is there additional cost savings to come?

We anticipate, over the course of the remaining four years and the implementation of the long-term strategy, that there will be additional cost savings.

And do you have a more moderate growth rate going forward? Is it 2%, 3%, or you're not ready to give that yet?

I'm not ready to give you the 2008 growth numbers, but we are continuously focused on improving our margin and keeping our costs contained.

This is Tom Toomey. I might add, Mark, it's not just cost containment that our technology will pay off, it's really procuring a wider range of customers over the internet, which are much more what I would call decision-oriented customers. They make a decision right on the internet. I think we are going to capture a lot more traffic that way, you're going to be able to reduce your turnover by keeping those types of people. So, I think it's going to be some benefits also in the area of revenue, not just cost structure.

Okay. And then I guess a little more color, the Island Walk property that you had in Tampa, it was my understanding you were going to do condos on that project. Was that changed as a result of what's happening there?

This is Mark. No, we're still -- we phased that project out on purpose, so, we still have a phase that we are selling condos there in the process of holding at the prices that we originally set out. We haven't really changed anything there other than we've just have done a second phase and it was a -- tended to cautiously move that direction.

Some background -- make sure -- this is Toomey -- you had almost 1,000 apartment homes there. We took 150 of them, sold them two years ago, I guess, as condos. Four hundred of them we rehabbed and put into a rental program and those are performing very well. And then 300 we carved out for a Phase II condo play. The answer is, is we're selling them at a slow pace and the rest are in the rental pool and doing very well. So, it's a very good value add effort by the entire team on that community and if I were to phase any other future communities with 1,000, I would look at doing a similar game plan on them.

Okay. And related to the acquisition during the quarter, and I guess I see the benefits of buying it next to your other property, but when you look forward given the amount of money now that you have now in your 1031, what markets do you think you'd be looking at in terms of your appetite for acquisitions going forward, given the risk of potential rise in cap rates?

This is Mark, I mean, I think we look in markets like -- in northern Virginia and D.C. market. We looked in California, we look in Seattle, and then we look for good buys in the job growth markets like that we've seen in some of them even in Texas, but we focus first on those markets in California and D.C. that I mentioned.

Okay, so you don't plan on curtailing your acquisition for 2008? Instead of focusing on development?

Well, I think the acquisition market tends to be somewhat opportunistic. Long-term, we're obviously focused on development. That takes a very long-term focus as you get property and work through the entitlements, and so we're sticking with that program and that $2.5 billion we have to work on right now and then we look for ways to upgrade the portfolio every year. So, we're always in the market, but we don't have to -- we don't have money that we have to spend, if that's the angle of your question.

Okay.

Mark -- Toomey, we don't have a target number saying we're going to sell X and we're going to buy Y. I think what we do, is -- like any other prudent investor, you list a lot of things for sale and you look at a lot of things that you would buy. And you stay active in the market. We've been looking at Florida at six caps, which is what it's trading in at now, as saying, well -- that's not a bad place to enter, particularly as you take Martha's comments. There's good job growth down there. The one bedrooms are staying very full. We just have to absorb our way out of the twos and the three bedrooms programs . And so I think it's a good market. And there's a lot of other situations like that. Mark's shopping 25 markets, that we look at a lot of deals and frankly it's one out of ten that are getting across the goal line these days

Okay. And added to that. I guess the land acquisition that you made in D.C., was that as a result of a failed condo developer or rental project?

No, it's not a failed condo developer. It is an entitled site. I think we hit an opportunity where a developer, maybe not having the access to capital we had, put that on the market in a short time frame and we had been tracking this asset and were able to buy it at a very good price. But it was -- it has been intended for rental from the start and it is an entitled site, with already some design development drawings in place.

Okay, great. Thanks, guys.

Our next question comes from Dustin Pizzo with Banc of America. Please go ahead.

Hey, good afternoon.

Yes.

Guys, as I try and reconcile Martha's comments of continued healthy growth, but moderating and the core FFO of what looks like $0.42 to $0.43 in the fourth quarter, which is an acceleration, can you just reconcile where that's coming from? That ramp-up quarter to quarter?

Yes. I think you have several things. We're going to get some benefit from lower rates in the fourth quarter with the decline that's happened in LIBOR. There is a reasonably substantial amount of fee income that will be coming in from the joint venture and then there's actually some accretion from the full quarter impact of the asset sales, because the cap rate was so attractive. So, those are the main factors. I'm sure there's a few other things on the margin.

Okay. And on the joint venture for the assets that you guys contributed, did you receive some sort of acquisition fee there?

We did not get an acquisition fee for the assets that we contributed. We did get a fee related to putting the financing together, because we're halfway through the construction, there were certain fees related to the development that we got to take sort of percentage of completion on and then we'll obviously have some property management fees for the couple of months in the quarter that we're running it.

Okay. And then for the $300 million of future potential acquisitions in the venture, are those purely going to be new acquisitions, or do you plan to contribute existing properties, additional existing properties and is it also restricted just to Texas, or are there going to be other markets that you're looking at as well for the venture?

The exclusivity rights that our partner has are focused on Texas. So, if we go to buy an asset that meets the investment criteria of the fund in Texas, we have an obligation to give them a first opportunity to look at it. Having said that, I believe if we brought them something in another market that had attractive characteristics, they would be interested and inclined in doing those transactions. My belief is that most of it will be outside third party acquisitions, but that doesn't mean there might not be some sale of assets currently in our portfolio to the venture. And on third party acquisitions, we do get paid acquisition fees for those.

Okay. And then lastly, I guess, Tom, I know it's been beaten to death over the past few weeks with all your peers, but would you say that your views on the current cap rate environment are kind of consistent with what everyone else is seeing as cap rates tick up anywhere from 25 to potentially 100 basis points depending on the asset quality and location?

We've talked internally as we've looked at a lot of number deals and listened to what other people have said. And I would summarize our take on it the following ways. It sure looks to us like business is moving back to the normal way business is done. Which is cap rates for good, located assets that have good growth prospects have stayed down and where growth is slowing, cap rates are moved out. And where you have poor quality assets, they've even moved farther out. So, I think that's the normal part of the business and rather you can draw conclusion about its 20 basis points or 12, there's just not a lot of data points. What I note is this. A lot of the multi-family asset prices are supported by what people can borrow and with the GSA's and with the treasuries where they are and the spreads, I think you'll see that multifamily will not widen out as much as everybody's forecasting, primarily because there's a lot of capital still available in the sector and there's decent growth prospects in a lot of markets. And we operate in 25 markets and we're seeing softness in five and five that are very much on fire and 20 that are normal and so I think there's a lot of over reading and frankly over guessing that number and certainly the share prices in the public markets, we absolutely believe are an over reaction. I think that's how we tend to think about it and I've mentioned Florida for example, move into a six. A year ago that was five, two years ago that was four and a half. Why? Primarily because the short-term growth prospects have softened in that market. And I think you'll see that same parallel play itself out in some of these over supplied markets and I think that's where an opportunistic buyer and operator and potentially a repositioned company like we are can pick up some good buys. That where I'm headed with this.

Fair enough. Thank you.

Our next question comes from Jonathan Litt with Citigroup. Please go ahead.

Good morning, Craig.

Hi, it's Craig, how you doing? I just wanted to follow up on the ramp in FFO from 3Q to 4Q. How much of the fee income is more one time in nature from setting up the JV versus the recurring, ongoing management fees?

I would say in the fourth quarter, you have a good chunk of that, most of it is from the financing fee related to the transaction at closing and the proration of the development fee on that one transaction. Now, we're not getting that much in the way of property management fees, which will obviously be higher in future quarters, but like we do expect to put the other $300 million to work and we expect there to be lots of future fees beyond just the property management fee.

So those non-recurring fees, is it $2, $4 million, just to get a ballpark?

No, it's less than a penny.

Less than a penny, okay. And can you talk about how October shaped up relative to the 3Q results? Particularly I am curious on how the revenue growth trended.

October is still on our plan, it has softened a little bit, as I said, it's motoring, but we still expect to be on our plan for the fourth quarter.

Okay, all right. Thank you.

Primarily in Florida. I had mentioned in the notes on the call that Tampa is softening quite a bit. So, we're still watching the Florida market as it's softening.

Our next question comes from Tai-Ben Kim from Credit Suisse. Please go ahead.

Hi, good afternoon. You mentioned earlier that there were several transactions within the RE3 that haven't closed yet. And, so, if those all closed, what could we expect in terms of RE3 gains?

I think our guidance says $0.07 to $0.08?

And that guidance incorporates all of the transactions that are currently in the pipeline?

No, its just -- whats our best guess is at this time.

Okay. And if you could comment on the position you had in the San Ramon. Can you just give a little more color regarding that asset. Like if it was a (inaudible) project or just an asset you held?

The asset was a new asset that we bought while it was under lease-up. We read the market that the asset would lease up and it gave us a going in price that was good, but we felt like once the asset was leased up, there would be value creation there. There are certain income restrictions in that market that we felt like could be properly managed and probably some people were misreading, so the asset leased up and we were able to sell it.

Especially at the time we bought it, there was a condo conversion opportunity in that marketplace, as the median price of a home is 700, we were in the deal at 225 a door. We thought that we could turn around and sell those as condos in the 450, 500 range. Looking ahead at the supply, that over a six-month period deteriorated to the point where we said that's not worth the risk taking, and as a result we turned our attention to what was the value as an apartment community and at the time it was an effective sale and I take my hat off to Mark and his team for executing that sale in a tough environment, but they got across the goal line and we realized a nice profit from it. I think that's part of the goal behind RE3 is to be in the marketplace as a private entrepreneur and look for those value creation opportunities that you normally wouldn't as a REIT. And they did a good job of identifying the number of range of outcomes, properly adjusted the risk of them and hit the button at the right time on a good sale.

Okay and just kind of a follow up on that, the projects you purchased, 2400 in the Dupont Circle, could you just give a little more detail behind it, your holding period expectations and possible returns that you're expecting?

Well, that asset is a development asset, so it will be a ground-up development that I mentioned will start next year. It's around 255 homes. We do all our development initially in RE3, but that does not mean it cannot become a core asset. It just gives us the option, should it be more prudent to exit the assets on it long-term, I think we view that as a high potential of a long-term asset and I think the acquisition price that we've got on the land, we were able to get that at a good buy and we see that that asset's going to yield us as we stabilize in the future, is going to be in the 6% range or above. So, when we stabilize that out, that's a good buy in D.C. and that market has long-term stable growth prospects.

Okay, thank you.

And, Mark's being quite humble. I mean his team, you got a local developer who is pressing this deal, has been working on it for a couple of years and when he came down to the time to get financing, the good news is that he couldn't find any because he was thinly capitalized and they've been talking, looking at that asset for some time. He ran into stress. We basically took him out of his position and we step into a situation which you've already got plans, you've already got a lot of the permitting situations and zoning already cleared and I think it's a great opportunity when you have a good, strong balance sheet to step into somebody who's a little bit weaker. Do it again tomorrow.

Great. Thanks.

Our next question comes from Alex Goldfarb with UBS. Please go ahead.

Good morning. Just touching on the JV, can you just provide a little more detail as far as the type of partner, whether this was an insurance entity or pension fund? Then also, what type of IRR hurdles you need to recognize the promotes and does it require sales of assets or can you recognize it as the entity continues ongoing?

We have certain restrictions in terms confidentiality that we've agreed to with our partners, so I am not going to get into a lot of detail on it, but it's a large, domestic institutional partner. Somebody most people on this call would recognize. As far as the promotes, they start at a 9% and they increase in percentage at various levels at higher IRR thresholds over time. So I think it's -- I don't think it's a -- it's a pretty typical deal for this kind of a structure in the market.

And do you need to sell any of the assets to realize that, or can you -- mark to market?

We don't -- well, in order to get the benefit of the back end part of the promote, you would have to sell the assets. Although if you go to that day, at a certain point either party has the right to initiate a sale and if we wanted to initiate a sale to realize the promote, there's probably a negotiation that goes on and the partner says, you know what, why don't you stay in the deal and we'll let you realize the promote today and we'll just go on from there. So, the literal interruption of the documents, you would have to sell it.

Okay. And then switching to the RE3, a number of REITs, not just in apartments, but across other sectors have been commenting. They've been reducing their expectations on some of the merchant build activity for either cap rate reversion or financing or take out partners, etc. What are you guys seeing as you look at your RE3 development schedule and your plans for that business?

I'll answer that. Tom may want to add to it too. But, as Mike has mentioned, the basic debt markets that people are acquiring a good institutional product is healthy. I think as far as people reducing their expectations quote on merchant building, first of all, everything we build, we build as if we would own it and would like to own it. But as Mike as mentioned the basic debt markets of people acquiring good institutional products is healthy. We haven't seen a dramatic move in cap rates. So, as far as multifamily product, are there going to be opportunities as we complete some of this if we choose to sell some of it, we don't see that prospect changing.

Hey Alex, a couple of things. One, I want to make sure Mike highlights -- comes back to you on the JV, in terms of there's two buckets to think about there. The first is the initial pool of assets and how they're treated and then the 300 and it's treated different in terms of hurdles and how we could potentially realize some of our back end sooner there. And on the RE3, I think Mark's right. Certainly on the building side. The other side of the business of RE3 is not just the focus on merchant building or condos or land it's to act and to be thoughtful about markets about where opportunities can be realized in a short range that you normally wouldn't inside of a REIT. And so, as we move through the cycle, you're going to hear people talk about people condo conversions that busted, you're going to hear about land inventory on home builders that became opportunities, reuse of sites. That typically part of the business cycle, is where I think RE3 will have advantages in the sense that we have the capital to move in find opportunities, whether they be repositioned in or one of those I've highlighted prior. So, I think of the business as continuing to look at market cycles, continuing to look at our value adds and saying how can we realize profits by using a higher return on capital activity. I think there's a secondary issue, which you're getting at, is how much of that should be in our earnings cycle as a public company and certainly you can see the market is not very receptive to the volatility associated with that, but does like the fact that the activity does create value. And add the dimension to the enterprise, which keeps us fresh in terms of talent and strategy. So, I like the strategy, I think it's good execution, I think it's going to be opportunistic, and I think it's going to be hard to predict. We may take more of a posture in the future of looking at how much it contributes to the earnings cycle, and de-emphasize it in our guidance, but still tell you what we're doing in the area. If you look at today, for example, the consensus is 180, $0.20 out of RE3, it's a 160 share. When I do my math, that's up 7% in the core business over prior years and at $1.60 a share, we're probably the lowest multiple in the sector. So, it's clearly weighing on our stock price, but again, I think it's a very smart activity to be undertaking as this business continues to evolve and go through its cycles. Let me loop back and ask Mike to give you a little bit more clarity on that $300 million and how the hurdles work in that.

The way the promotes are structured on the transaction is they're -- there's effectively two components. One is is a sort of asset by asset promote for each individual asset within the transaction and then there's another promote layer that is based on the success of the entire pool, so the first pool is the $350 million worth of assets that we sold to the venture. Because we were selling that off of our balance sheet, that is structured with a heavier emphasis on the the promote being driven by the performance of the entire package of properties, although there is a smaller piece of asset by asset promote. The 300 in the future is much more driven by the performance of each individual asset. And so, we have the ability in that deal to get in, get out probably more quickly and realize promotes more quickly and probably in some more significant size on that transaction.

Okay. Thank you very much.

Our next question comes from Rich Anderson with BMO Capital Markets. Please go ahead.

Hola, como estas?

(Laughter)

(speaking spanish)

Si.

Okay, enough of that. On some of your peers' comments, and I don't know why people cover up the names of your competitors at Camden, (inaudible) can say the name, talked about how you'll star as finding some chinks in the armor on a go-forward basis and since you use yield star and aren't fully rolled out yet but have maybe similar markets in some degree, are you seeing sort of the same type of forward weakness that they're seeing?

Well, first of all, I would point out that our implementation of yield star is not identical to Camden's. We did require some modifications to the software before we put it in. So, our experience will not be identical to theirs, nor is the way that we manage it identical to theirs. In the yield star product, we are seeing some softness in Florida, but if you look really at what Camden's talking about, their market mix is significantly different than ours. We are in some of the markets that they're in, but we're not in Las Vegas where they have a lot of softness. We have a much larger percentage in California where we have a lot of strength and on a head to head basis, we're leading every single market in California and we have all year. So, if you look as a whole, yes, we're seeing softness in Florida, but I believe that the way we manage the software package is slightly different than theirs. So, I also think as we roll it out we're going to see some benefit on the concession side that will offset some of that softness so we shouldn't see as big of a downdraft as Camden is going see maybe in the first part of the year over year.

They did indicate though that this might be less of a Camden issue and more of a industry issue. So you're telling me that you think it was more of a Camden issue and less of an industry issue?

I think it is to some degree and I think it's also more market mix. I also think if you look at the different companies that have adopted the LRO product, each one of those companies puts different parameters, there's 150 parameters in the LRO product. They're not all setting them the same way. So, you can't draw a specific analogy from the performance of one company to another, with these yield management systems.

I'm talking less about yield management, more general picture of what you're seeing out there, I guess. Anyway --

Rich, the bottom line is this, I think there's parsoness into two questions, which is how do we see the future. And Rich sees it as somewhat of a -- headed down and our attention is more of going back to the fundamentals of the business, which is first job growth. Clearly, most people are looking at next year and saying, okay, it's 100,000 or 120,000 a month and the answer might be, there's 120,000 jobs generated, thats probably 220,000 in the right market and 100,000 loss somewhere else. You have to parse it down to that element. The second element is supply. And clearly markets that were overbuilt in the single family arena is being Florida, Phoenix, and Vegas are going to suffer from an oversupply, although those markets have good economics and job growth prospects, it's going to take them a while to absorb their way out. I think that was a little bit of what you're hearing from some of these people on their specific market mix. And so our view of next year and we are not into the '08 guidance, and we are not trying to give it. But, first, we have a lot of leases that are already signed up, so we kind of know what our revenue number is, bye having a lot of leases already occupied. Second, a lot of this business in '08 will be defined by the period between February and May, your typical leasing period, and so it's a little early to call that weak when I don't think there's any evidence to support that at this time, so I tend to think that next year is a good, strong stable year in about five markets it's going to be an exceptional year, you can guess which five those are, and 20 its going to be pretty stable and five we are going to be down. And the five are going to be Florida, Phoenix, Vegas, and I think the markets that are going to surprise you next year are going to be the Texas markets, they have had three years of down to flat and with $80 to $100 a barrel in three of the top ten job markets, being in Texas -- Texas is going to be a surprise up. And I think the west coast, for a number of reasons, there's not a lot of guys who are writting scripts for Jay Leno, renting apartments from us, I think they are going to have good markets next year, and Seattle is on fire. So, we're very thoughtful about where we think next year is going to be, we just don't see it as soft as some other people do.

Okay. The other name, outside of your own, that had some interesting news this quarter, was Colonial, with their impairment charge related to their -- primarily their fourth sale residential development. I know your TRS business or your RE3 business is wildly different, but have you any concerns at all about an impairment charge in the future or are you well above that issue at this point?

Rich, we evaluate impairment every quarter. A big distinction is we're not, for the most part, doing ground-up development so our cost basis is lower in most cases. The stuff that we're in the market with today, we're still selling at a profit. We don't anticipate having any issues on that.

Okay. And then the last question, getting back to the Spanish web site, and just web traffic in general, you say that target for leasing is -- did you say 90%?

That is correct.

What percentage of your tenants are Spanish?

Well, I think you have to go back to a couple of things. One, we don't track our specific -- and that would be a bad thing trying to do is track your specific residents' nationality. That would get you in trouble with fair housing. But what we do see the greater growing number of Latino renters and you can look at any demographer and you can see that that pool is growing faster than any other pool in America and second it's an option for them them to find our communities. Do they seek it out? Our initial tests and studies prove that the site is very well received and that it does help us in garnering more traffic, which is the whole game that we're after. Take advantage of the demographic curve.

I think it's a fine strategy, just curious what impact it might have in the future. Thank you -- or I should say, Dinero?

You're hired.

Your next question comes from Karin Ford with KeyBanc Capital Markets. Please go ahead.

Good afternoon. Tom, can we take some of your comments earlier that on RE3, that the goal you set out on the investor day of RE3 being about 20% of FFO going forward, that you're sort of revisiting that number?

Well, a couple things to think about, Karin. We set that out as a long-term strategic point and anytime you launch into a business, you should make it very clear where you see it ultimately lying. At the present time, there's no question that the market has given us feedback that says we're not interested in seeing it -- that much of your enterprise at this point in the cycle. So, I think what you have to distinguish is it a good strategy? We believe it is, and the second aspect you have to say is that should it be a predominant piece of your earnings and I think the response is people see it as volatility and danger and as a result they punish the stock price. So, we would probably provide less emphasis on it as an earnings and continuing to focus on it, how much it creates NAV or how much it builds the franchise value of the team and it's range of opportunities they've seen. So, trying to be pointed about it, if I hadn't put it in this year's guidance, I think we'd trade better stock price. Is the answer.

Okay, fair enough. A question for Mark, just another one on the Dupont Circle land. Can you tell us -- obviously there's some allocation of purchase price there for the retail piece. Do you know approximately what price per door you paid for that?

On the to be developed land?

Yes.

While he's looking that up, Karen, why don't you move on to your next question.

Yes. Just final one, do you have an estimate, Martha, of how much, if any, of your revenue growth this quarter was due to kitchen and bath and rehab spending?

On the kitchen and bath front, while we continue to do those, the volume of kitchens and baths has dropped significantly in the third quarter. So, the year over year comparison on a year-over-year growth number is not that substantial when you also factor in the dilution for the units offline. So, we don't feel much, maybe 20 basis points when you take all those factors in. And on the rehab front, our same-store sales results do not have any stabilized rehab projects in there. The fourth quarter will have one project that has gone stabilized and will go into the same-store sales pool.

Okay. But 3Q had no rehab?

Yes.

Okay. Thanks.

Mark?

Karin, and I'm ballparking here, just the units themselves are going to be about 100 a door.

100 a door.

100, 105 a door.

Thank you. That's great. Thanks.

Our next question comes from Haendel St. Juste with Green Street Advisors. Please go ahead.

Good morning, guys.

Good morning.

Mark, would you give us some color on what you're seeing in southern California? You guys reported results that were well ahead of what some other southern California apartment REIT's reported there and can you give any sort of perspective thoughts you may have on that region?

This is Martha. I think you addressed the question to Mark, but I think the question's for me from a performance perspective. Overall, our California assets, we have heard some of our competitors talking about softening Inland Empire, if I were just looking at that, our assets there, we're competing with some lease-up product last year. They're no longer competing with that and those assets have stabilized and they're seeing good growth. The San Diego area also had some strengthening occupancy and we expect that to continue, as I said, because of the rebuilding of the area there and single family homeowners who will be seeking temporary housing. Our Orange County experience continues to be strong. In fact, I think it's almost double our nearest competitor. The assets that we have there, I believe, are unique. We have tracked closely what's going on with the subprime lenders and the layoffs there and our customer base has not been affected by that. We continue to push on the internet, which is driving more traffic for us, and that's helped us keep our prices high and keep demand strong. All across southern California, we are still very optimistic about that market and not experiencing what some of our competitors are saying they're experiencing.

Haendel, listen to me, I think one other benefit we have is you're looking at a product that we have in orange county, you live there, it's the Santa Monica's of the world, it's those types of situations where people stay and rent from you for long periods of time. We've got a good medium priced product that will ensure, in my opinion, many multiple rent increases, because we're way below the affordability of any house. And our results probably mirror close to the Essex portfolio, that type of caliber of assets, and Mark and his team have done a good job of spending dollars in those portfolios to keep them fresh and move them up the food chain. So, I think it's positioning -- is really a big key and lastly, it's Martha's operating team is very seasoned down there and if you look back for the last four years, they've pretty much beat the market every quarter. They're a pretty solid group.

How much kitchen and bath activity do you have in southern California, or maybe more specifically, in Orange County?

Not as much as we'd like to go do.

If you give me a second, I can give you that.

Maybe in the meantime, I just had one or two follow-ups on your JV. You quoted a low to mid 5% cap rate on the assets that were -- that you guys contributed. What was the CapEx per unit for those assets?

Well, in that quote of low to mid fives, that would have a $600 a unit CapEx number consistent with what we're -- experienced on the portfolio.

Can you give me a general sense for your negotiation process? Did the terms -- I'm assuming the terms might have changed slightly during that negotiation period. Any color you could provide would be --

Yes, Mike started out at 6'9" and now he's beat down to about 6'3".

Yes. We -- during the dark months of August and September, particularly August, we did change the terms of the transaction, effectively had a disagreement on what the price was at that point. The resolution was that while we made a reduction on the price, we got the ability to recapture a pretty good-sized piece of that price reduction on the back end in the terms of additional return of capital above and beyond the promote levels. So, we think we will -- at a future point realize quite a bit of excess proceeds from that.

And on the Orange County kitchen and bath, we've done just over 250 year-to-date on a basis of 4,067 homes.

Okay? How do you like southern California? Glad to be out of New York, I suppose, right now Haendel?

Oh, yes, the weather's great. Hey Martha, can you tell me how that number compares to last year, the 250, the OC numbers you just gave me?

I don't have that in front of me, but I can tell you that the volume increased this year in Orange County over last year's number, but I can get that for you, but I don't have it in front of me.

Okay, we can follow up --

What is interesting about that market is, my guess, and I don't have it in front of me, is you are probably earning better than 15% on those.

Yes, that's what I'm trying to get to. Maybe we can follow up and talk more about that later.

Yes. I think we'll figure out.

Okay. Last question, I guess, for Mike. The RE3 gains that are on depreciated book?

Well there was really was not a lot of depreciation since that asset was treated and held for sale. I don't believe there was any depreciation. It's basically on the original cost.

Okay.

Next?

Our next question comes from Jim Keown with Morgan Stanley. Please go ahead.

Quick question for you. On the repair and maintenance, the HVAC repairs you guys made.

Yes.

Were those -- those were done last year?

A large part of the capital spending and installation was done in 2006. Some of that was completed in the early part of 2007.

So are those costs capitalized?

Yes.

So how much of your expense -- same-store expense performance is due to capitalizing some costs in prior years?

How much of the reduction in repair and maintenance is due to the fact that we spent capital earlier than we would have if we were just replacing them as they break, is that --

Yes, basically.

I don't have it broken down into that level of detail. We looked at the HVAC congresswomen on the portfolio and some changes that were coming down the pipe from a regulatory perspective and we made a preemptive move to change out a large portion of the HVAC equipment in our portfolio to preempt what would be a future cost that would have been probably 30% to 35% higher to replace that equipment. And we felt like it was a good call to make on the capital front.

So, the fact that it was capitalized instead of showing up in the same-store performance, potentially the higher interest cost is because it was fronted off of the line and maybe not translating down to the FFO line the way it should? I mean the 8% same-store NOI growth?

Well, I mean yes, there is certainly some amount of interest that is related to that. I don't remember with the dollar amount was for the HVAC, was it what, $30, $40 million maybe total? So, I mean, 5% times $30 million, $1.5 million, maybe, in interest.

Okay, thank you.

Jim, a couple other points you want to realize there, first is that the federal government was changing the law in terms of what AC units you were having to put into these particulars and the cost increase of those AC unit were going to be 30%. We went out and looked at our inventory and said, where do we think over the next three-year period we're going to have to replace AC units and accelerated that. The second element is that as you can see, there's a growing movement and that is going to become more than just a fad, which is green, and our residents absorbing their electrical usage, this is a big eater of that. We think that by making the investment, we, one, garner goodwill with our residents in terms of their maintenance servicing and the efficiency of their electrical bill; and second we think it leads down the road as more and more green initiatives are rolled around, that we can lay claim to the cost effectiveness we've made renting from UDR is greater than some of our competitors. So, it does play into how we believe marketing in the future will unfold. The good news is you can communicate that to your prospects and existing residents through a lot of our web technology. So, I think it's a unique investment. We thought it was a smart investment and we're doing it more as a long-term plan, both in response to the federal government and a changing dynamic in the marketplace.

I do want to clarify, too, that when we replace HVAC equipment, whether we were doing it going forward as equipment failed or as we did in a bulk program such as this, it would be capitalized either way.

Yes, I was just trying to -- I mean, you had the 1.8% same-store expense growth last year and you've been annualizing 1.2% this year and it just is a -- seems a real low number given kind of the environment in what most other guys have been reporting.

Repair and maintenance is one component of that. You'd find other things that Martha highlighted in her comments, for example, payroll, you'd find our utilities and you'd find other area where is marketing and admin are also where we're below the industry average, and it's not just because of capital, it's because of good, effective management.

Thanks.

Our next question comes from Ben Lints with Lasalle Investment Management

Hi, Ben.

Hey, how are you?

Great.

RE3 question for you, before the third quarter, was the NOI from San Ramon recorded in the consolidated NOI?

Yes, I believe it was.

Okay. How much of the gains recorded in 2007 were from assets that were producing NOI in the consolidated statements?

Well, Canyon Oaks, which sold earlier, was -- had -- that was the second quarter sales -- Mill Creek, obviously in the third quarter. And then most of the rest of it was condos, which probably weren't producing any NOI.

Okay, how much --

You points right, we've taken income-producing assets and sold them, but we do every day in terms of what we make decisions about the 720 million we sold this year.

Right. I'm just thinking about the gains in FFO versus what else is being recorded on the income statement. How many stabilized assets are in RE3 currently?

If you look at RE3, there's a few stabilized assets in there, but it's not that many. Most of it is stuff that is in the condo business or is land or assets that are intended to be land that just don't know it yet. There are a few stabilized assets in there, but most of it is situations like Canyon Oaks and Mill Creek where we bought something where we felt like there was an opportunity to get in and do a fairly short-term hold transaction.

Okay. And then the difference between the gain on San Ramon and the FFO number was like $600,000. Is that due to taxes, or was there a loss on the condos?

Condos showed, I would say, about half a penny gain and then the rest of it is taxes.

Okay. And then finally, the condo pipeline's down to three assets. Does that go to zero, or is that still a viable business?

This is Mark. I'll answer that. We see it as a viable business. It's a way to sell assets at a very good price. Obviously, we've cut our risk down there dramatically, but we also, every day, are out, especially in the California market, mapping properties. Because these markets come back. Especially in places where it's very difficult to afford a new home. So, we see it in certain markets as long term, but also we see it as something you need to to be cautious about, and that's the way we're proceeding.

So, maybe over the next year, year and a half we're going to see very few assets in there and it could ramp back up?

That could be possible.

Okay, thank you.

Our next question comes from Richard [Pelly] with ABP investments.

Hey, guys. Tom, thanks for hanging in there. I know your voice is kind of a little sketchy today. Just a follow up question on the rehab units. Martha, how many units this quarter were offline compared to last year? I know at some point there was a huge ramp-up and then were you stabilized in that?. How does that compare to last year? And then I have a follow-up question.

This is Mike. I don't have that exact unit count in front of me, but 2007 was a pretty big ramp-up year in the rehab pipeline. If you look at how much activity we've had this year, so there is -- I would guess there's an incremental $0.0075 of delusion versus the same quarter last year that were taken. Now in '08, we expect that to start to reverse itself, because we're going to start to see a lot of stuff start coming online and really see the NOI's ramp up on these properties as they come online. If you look if our supplemental package, I don't remember the exact number, but the difference between what we're earning this quarter on the eight or nine assets that are currently under rehab and what we expect to earn when they're up and stabilized is almost $3 million be a quarter increase in NOI. So, we think that will help us with our growth from next year as you see less dilution from that business.

What you speak of, is this all out of the same store or -- because I know there's the big rehabs and then there's kitchen and bath rehabs.

Generally speaking, the kitchen and baths are in same stores as long as they're in same-store assets. The rehabs, none of them are in same-store.

Right. And what I'm trying to ascertain is for the stuff that's in the same-store, following on Jim's question a little bit about expenses, how many units this year were being rehabbed versus last year in the same-store pool and then my follow up is what happens on turn costs because I presume a resident moves out, you fix the kitchen and bath. I would imagine that you paint and do the car -- I can't recall exactly what you do, but some of the ordinary turn costs that might be getting reflected and just normal operating expenses. Does that get capitalized when you're doing a whole kitchen and bath upgrade?

No, it doesn't, actually. The painting in the normal term costs gets expensed as it normally would.

Okay, okay. You don't have -- I could follow-up offline.

Yes.

As a general comment, last year we were doing 400 to 500 units a month of kitchen and bath. This year that number is probably down 35%, 40%. So, the pace of kitchen and baths is down.

So, you've transitioned more of your activities to the heavier lifting type activities?

Yes. And in 2006, we had a higher volume of kitchen and baths in Florida and we have tapered that off.

Okay. Last question. Hopefully a quick one. Do you guys have just an estimate -- I know Ben was asking a question and I got distracted, but for 4Q, the breakdown between what you see in the RE3 business as sort of condo conversion-related income versus the bigger asset sale -- land sale type gains. And then also maybe just a little visibility into early '08.

On the condo piece of it, I think a little bit unpredictable. We have a California property that will start to be in the market, still not sure what the numbers will be off of that. But I think most of that number is going to come from gains of things besides condos. And on '08, it's just premature to get too much into '08. We do a top-down, bottom-up. Our communities will finish their budgeting by the end of November and we'll come out sometime late this year, first part of next year with where we think '08's going to be. But we like our prospects for next year. To follow up on your question about dilution, this year we ate somewhere between $0.10 and $0.12 in the case of the redevelopment and the K&B program and in the condo program and we are certainly very conscious of trying to bring that number down next year. Not because it's not a good return, we just think we've completed a lot of the activity we want to perform in that area. This company's gone from 70,000 doors down to -- after this transaction we're in the low 60's. And so, the pool of assets that we have undertaken are smaller pretty much and so therefore the number of activities will shrink. What we hope is is through expansion of the JV and others, that we can identify opportunities where we can use leverage and other (inaudible) capital and get a greater return on our equity. So, I'm excited about where things are headed in '08, Rich. We're very optimistic about where things are headed. We think we've done a good job over a number of years repositioning this company and think we're in the right queue.

Thank you.

Our final question comes from Tai-Ben Kim from Credit Suisse. Please go ahead.

Just a quick question. In your (inaudible) project, the land you're holding, you converted it from on balance sheet to RE3. I was just wondering if you could give me some commentary behind that?

I think that was actually just a mistake, in the last quarter it was always in RE3 and for some reason in the last quarter I believe we had listed it in UDR. Either way, it's been on balance sheet, we own 100% of it so it's on the balance sheet.

Okay, thank you.

Well, I think we're done with the questions. Glad to at any time, should you want to pick up the phone, give us a call and in closing I'd just say I'm thankful for all the associates for a great third quarter. We think fundamentals in the business are still very solid and we think investing in UDR is a great platform in targeted markets with a team experienced at creating value. With that we thank you for your time and we'll talk to you next quarter. Take care.

Ladies and gentlemen, this does conclude the UDRT Inc. third quarter 2007 earnings conference call. You may now disconnect, and we thank you for using ACT teleconference.