UDR Inc (UDR) 2008 Q2 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the UDR Inc. second quarter 2008 earnings conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be opened for questions. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today on Tuesday the 5th of August 2008.

I will turn the conference over to Larry Thede, Vice President of Investor Relations. Please go ahead. Please go ahead.

Thank you and thanks to all of you for joining us for UDR's second quarter financial results conference call. Our second quarter press release and supplemental disclosure package were distributed yesterday and posted to our website, www.udr.com. In the supplement we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. We'll begin the call with Management's comments 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 risks and risk factors are 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. I will now turn the call over to our President and CEO, Tom Toomey.

Thank you Larry. I'm joined on the call today by Mark Wallis, Warren Troupe, David Messenger and Jerry Davis. UDR had a very strong quarter on a number of fronts. I'll let the team fill you in on the details, but first let me cover some highlights. The operating team did a great job, in particular achieving our 16th consecutive quarter of revenue growth. Based on July's results, it looks like we are now on our way to 17. We performed well in a number of areas, but two stick out. We nearly reached 70% NOI margin and we are approaching average rents of $1200 a month. On the development and redevelopment front we delivered 1,000 homes at returns exceeding our underwriting. We've also provided enhanced disclosure in our earnings supplement to help investors understand the status of our activities. In the investment area, we continue to reap the benefits of our March 3rd portfolio sale. Since March 31st we have closed on $280 million of West Coast acquisitions, bringing us very close to completing our redeployment of sales proceeds. To improve transparency, we are now producing a quarterly portfolio update which details on each of our top 20 markets, which is available on our website.

On the capital front we also continue to enjoy a solid balance sheet. It's been great to be sitting on cash, especially during this very turbulent time. It has afforded us the chance to pick our spots and take advantage of market conditions. Now let me take a moment and share our views about the future. Reading countless economists' forecasts and listening to a number of earnings calls this quarter from our industry and others, I find that everyone has their theories on the economy for the balance of the year. Simply stated here at UDR see so many cross currents, it's hard to forecast trends. For the near term we believe that business is solid and that our capital flexibility will keep us safe during these highly volatile times. We intend to remain focused on what we can control, in particular our value creation, strategies and operations, development and redevelopment. Looking further out, we believe demographics, limited new supply and portfolio positioning will work in our favor. And we remain very optimistic about our long term prospects. Now I will like to turn the call over to the team. First Jerry Davis will discuss operations. Then Mark will cover development and redevelopment and David will cover our capital markets activity and then we will open it up for questions Jerry?

Thanks, Tom, and good afternoon everyone. Today I'd like to cover several topics. First our revenue and performance during the quarter, next our expense management, and finally our guidance for the remainder of the year. Because we are one of the last REITs to report, I won't spend time going over individual markets. We've heard what our peers have been telling you and generally we are in agreement with their views of the market. One of our primary goals as an operating team here at UDR is to lead the individual markets in year-over-year revenue growth. Over the past several quarters we've had great success doing this, primarily because of our superior locations at the right price point. Additionally we consistently look for ways to reinvest in our real estate with various revenue enhancing initiatives. Critical to our continuing success is the exceptional performance of our site and regional operating teams. I'd like the take this moment to personally thank all of my fellow associates here at UDR who are dedicated to keeping our performance at the top of the industry.

With most of the apartment REITs having reporting their second quarter numbers, through six months it looks like we are leading 63% of our markets in revenue grow and we are leading 74% in NOI. During the quarter, we had NOI growth of 7.1% over last year. This was fueled by revenue growth of 4.4% and a decline in expenses of 1.2%. This performance has driven same store operating margin in the second quarter up to 69.2%, an increase of 170 basis points. First on the revenue side. Our effective rents increased 3.4% during the quarter and average occupancy was 20 basis points higher than last year at 94.9%. Revenue per occupied home is now pushing $1,200. Looking at our markets, we saw growth in 19 of our 22 markets with declines coming only in the state of Florida. 17 of our 22 markets had sequential revenue growth, which drove our same-store revenue growth to 1.2% over the first quarter. This marks the 16th consecutive quarter of sequential revenue growth.

On the expense side, our expenses for the quarter were 1.2% under last year's second quarter. When I look at our expenses the categories of payroll, utilities, taxes, and repairs and maintenance that make up about 85% of total expenses grew by 3.9%. The remaining 15% of expenses, which is made up of insurance and administrative and marketing costs decreased 30%. I'd like to speak to these decreases. Insurance expense was again down due to lower third-party premiums compared to last year as well as much better loss experience. On the administrative and marketing cost side, we've come down primarily as a result of our continued elimination of print advertisement. We expect to totally be out of print at our stabilized properties by the end of this year. Since 2005, we've brought our marketing costs down from $155 per home per year to $95 per home. In the second quarter of 2008, 46% of our move-ins actually originated from internet sources. This is up 8% compared to the second quarter of 2007. With our recent web enhancements, we expect this trend to continue going forward.

Last, how do we see the balance of this year playing out? Well, I've listened as our peers have told you over the last week that revenue growth will moderate during the second half of the year. We see the same deceleration occurring. For us, this will be caused primarily by lower job growth, higher prices at the pump as well as other consumer goods and lastly tougher revenue comparisons in the second half of the year. Since rents continued to grow at a good pace in 2007, a lot of the year-over-year growth in the first six months of this year was actually a result of rent increases achieved last year. With rent growth slowing over the last six to nine months, year-over-year comparisons will moderate. That being said, our revenue growth has remained strong throughout the first half of the year at 4.6%. We feel very good about our performance so far and our revenue guidance for the full year remains in the 4 to 4.5% range. We're about halfway through our summer leasing season. Traffic compares well to last year. When we look at our occupancy for same store properties, last week we stood at 95.4% physical occupancy. That's 30 basis points higher than we were the same week last year.

Although pricing power is challenging in all but our best markets, we do feel like we'd be able to push occupancy during the last half of the year. We also believe that we'll be able to continue to see sequential revenue growth for the remainder of 2008. Year to date, our expenses are 1% lower than they were last year, but we think the second half of the year will be higher. We began seeing favorable insurance loss experience both on the property and healthcare side in the second half of last year. We also had positive real estate tax accrual adjustments in the fourth quarter of 2007. Because of this, we expect that our third and fourth quarter expense comparisons will be more difficult than the first half of 2008. Our guidance for expense growth remains at 3 to 3.5% for the full year. Although we'll do everything possible to come in below that level, we do recognize that we are being compared to very low expenses last year. With that I'll turn the call over to Mark.

Thanks Jerry. I'm going to provide just a brief update of our acquisition, redevelopment and development activities for the quarter. First, on the status of our repositioning and the use of our 1031 exchange proceeds resulting from the $1.7 billion sale in March. Since our last call we've added 546 homes in California and 455 homes in Seattle using 1031 proceeds. We will complete the disbursement of the remaining proceeds by the end of this month. We will use two of our development presales as part of that exchange, the one in Peoria, Arizona and in Tampa, Florida. Those are listed on Exhibit 8 C. In addition we are negotiating a (inaudible) acquisition for $59 million, and we do expect to proceed on that purchase within the next few days. At that point, our exchange will be complete with around 4,300 homes purchased at an average cap rate of 5%. It's important to note that at least 72% of the assets we acquired are in targeted coastal market of California, metro Washington D.C., and Washington state. 80% of those assets will be less than ten years old and I want to point out the remaining 20% will be rehabbed by our very experienced redevelopment team.

Second, just a review where our development pipeline stands today. Exhibit A shows the pipeline at $2.6 billion. I want to break that down. It should be noted that $149 million of development and redevelopment projects have now been completed. The development projects are leasing up well and the redevelopment completions are now leased up and producing yields between 7 and 8%. Our in-house development and redevelopment teams have $885 million in active development. We have $541 million of the pipeline being run by third-party development groups under our JV and development presale programs. Then a little over $1 billion or 37% of this pipeline has not been started. We refer to these as our warehouse assets, of which approximately 80% produced income today. That's the quick overview yield of the portfolio repositioning and now I will turn the call over to David Messenger.

Thanks Mark. While the second quarter was relatively quiet in the capital markets area, we continue to make progress against our initiatives. We continue to execute on our share repurchase program and buying back 963,200 shares of our common stock at an average price of $23.65 per share, a 5.4% discount to yesterday's close. We also repurchased $35 million of debt at an average yield of 6.32. We took advantage of favorable floating rate and drew down the remaining capacity on two of our secured facilities for a total of $55 million, currently floating at 3%. We believe this will further insulate us from continued volatility in the capital markets in the GSEs. In addition, since the close of the second quarter we have closed on approximately $50 million of construction loans with another $100 million in process that we expect to close in the next 45 to 60 days.

Going forward we'll continue to assess the markets for share and bond repurchases and possible debt issuance. We are seeing a great deal of investor capital sitting on the side lines waiting to be put to work, often at very attractive rates. Consequently, even though we have funding capacity for all of our capital and debt obligations through 2010, we'll continue to evaluate opportunities to extend our current maturities and to continue to strengthen our balance sheet. As we have previously stated, the calculation on our special dividend will be completed after August 30th when the session 1031 time period expires. The amount of the special dividend remains in the range of $130 million to $190 million. Upon completion of the calculation, we'll review the current market, capital resources and share price to determine the dividend's components, cash, stock or a combination of both. As we head into the second half of the year, we have a solid balance sheet with $230 million in cash and substantial financial flexibility. While this may be causing some short-term dilution with cash invested at 2.5%, we believe it positions us well to fund our strategic objectives and to continue to deliver long-term value to our shareholders. Now I'll turn the call back over to Tom. Thanks, David. And operator, we're now ready for questions.

(OPERATOR INSTRUCTIONS) Our first question is from the line of Michael Bilerman. Please state your company name followed by your question.

This is David Tony here with Michael. A couple of quick questions to start with development. Have there been any changes to your underwriting relative to costs expected, stabilized yields and the timing?

This is Mark Wallis. No. There have not been any significant changes at this point. As you can see the pipeline remains fairly stabilized as far as volume. So nothing at this point. We try to underwrite those conservatively and so far that's held.

Great. And then relative to the shadow pipeline, it appears that it has increased in scale. Can you just provide some color on those additions?

Are you referring to -- I guess the last exhibit 8-F -- we moved -- I believe part of it is we moved the (inaudible) over there just because those are later phases, which have income producing assets on there. And in addition, we've moved Mission Viejo back there. That is a site we have that has entitlements, but we are refining those entitlements at this time and we would find that entry into development a little bit later than originally thought.

Okay. And then I joined the call a little bit late, but can you talk a little bit about the traffic and the price tolerance that you are seeing of incoming customers in June and July?

Traffic -- this is Jerry. Traffic is holding up pretty steady with last year. It's gone up just a hair and that's probably because we rolled out our level one call center at the end of -- or the middle, rather, of second quarter and that's helped push traffic higher, so we don't miss any phone calls any longer. Pricing, we have pricing strength up in the Pacific Northwest as well as Northern California. We are typically seeing 4 to 5% increases on either renewals or incoming people over what the prior resident was paying. I'd say for the rest of the country with the exception of Florida, Phoenix and the Inland Empire we are probably seeing in the 2% range and then when you get to Florida, Phoenix and the Inland Empire it's roughly flat.

Great. And then just lastly, I had a quick question on strategy which is probably going to require a longer answer. But could you just give us a sense of what your team is thinking relative to the growth focus today, now that you've gone through this significant transformation? Would you characterize your focus more as internal now? Do you still feel there are large scale external opportunities?

This is Toomey. At this point in time, I think what our view would be, first, interest rates is going to rise and interest rates rising usually indicates that asset pricing is going to fall. What's the timing of those two events, we think it's slowly easing into it. You look at spreads today and you look at base rates, there really doesn't seem to be a whole lot of pressure up and as a result you are not seeing a whole lot of pressure on asset pricing. So I think it's one of the cases where a lot of people are waiting around for assets to appreciably drop in value. We don't see that happening. We see a slight drop, probably another 5 to 10% more. It's not going to be a great feeding frenzy that it was in the '80s or '90s. By virtue, NOIs are pretty solid. There is no new supply. So I would tell you, I think from an external standpoint, we are going to continue to look and pick our spots in markets where we think we can add some value of redeveloping or operations, that our second growth strategy is to continue to focus on this development pipeline, which looks to be delivering $400 million to $500 million on an annual basis to 100 to 150 basis points over what we can get in the market. I think those are the primary growth strategies that we have at this time and see that if we play our capital prudently and be patient, that by the year 2010, you have a large demographic slope coming right at you, and you just have to be in the right market presenting the right product. And it still is going to come down to where the job markets are in 2010 and I think we've got our portfolio positioned right in those corridors where people are going to be getting jobs right out of college and those are a pretty good targeted group. So I think that is our strategy over the next three, four-year period.

Thanks for the call today.

Our next question is from the line of Michael Gorman. Please state your company name followed by your question.

Thanks, good afternoon. It's Credit Suisse. Could we just spend a little bit of time on your guidance. I guess I'm a little confused on the moving parts. It looks like your operational guidance is projecting a pretty significant fall-off in the second half, but if you look at the FFo guidance we actually need an acceleration in the quarterly run rate to get there from the second quarter. Can you just give us a little bit more break down on what is actually moving in and out of the guidance at this point?

Jerry had covered kind of the operations guidance for the balance of the year. From an FFO standpoint there are a couple of things that you are not seeing right now, which is, A, bought some assets that are in lease-up and you have a lot of redevelopment assets coming back on line as well as development coming. And so second half of the year we are forecasting those assets to generate more than they did this last quarter. Jerry?

Well, I'll just reiterate what I already said. On the expense side, we kept guidance at 3 to 3.5%. It was based purely on tough comparisons to last year when we had very low insurance in the second half of the year as well as real estate tax adjustment. We are hopeful we can come in under that, but it's hard to tell. The one thing we do see is that revenue has slowed from the first half of the year. We don't see it decelerating at a great pace. July is right on plan with what we expected, but those are really what we see.

And one follow-up. What was the timing like on the 960,000 share repurchase? How much did that add to the quarterly results?

Minimal.

Thanks.

Our next question is from the line of Rob Stevenson. Please state your company name followed by your question.

It's FBK. Good afternoon, guys. When you are thinking about redevelopment, what -- how does the economic outlook play and from that standpoint what do you expect to start over the next 12 months or so in terms of new redevelopment?

I'll let Mark take a lead on that and I'll follow up.

You can see we've really finished a lot and we've moved then back into the fully leased stabilized status, and I think we did hit the market pretty well with several of those. Going forward, we are really tackling some deals that are a little bit harder and a couple of them are in California. So I think that range of homes that are being in production where they were at 4,000, based on working on permitting and entitlements, we may have more that we are working on, but actually in production it's going to be more like 1,500 homes give or take. That is what we see going forward. We like the business a lot. We've had very good returns there. So if the market changes in response, we have the ability to do more but that is what we see right now.

What is generally the thing that you start to see that causes you to say, hey, let's pull back on investing dollars in redevelopment because we are not going to get money out of the other end?

A lot of it is finding the right product frankly. We've done a lot of our product, and with our sale we did and repositioning now that we are down to 40,000 something homes, there is less to do that fit our criteria. So part of it is finding the right product. I mentioned a couple of our acquisitions do fit that criteria. So it's somewhat limited -- it's alway limited by overall market factors but then also finding the right product.

Okay.

A pull-back decision for us would be primarily driven around the rent structure. We think when we start one of these or we get a pretty good handle on it, we've got a good solid handle on the cost structure of it. What may ultimately weigh our decision is where do we see rents and that is where you see us moving towards the West Coast or the district in D.C. Those markets are still, as Jerry just said, where you have pricing power, you feel strong about the market and the prospects, and we think we can take assets offline there and bring them back and get the rents that are better than today's markets trended. So I think that is what we would really weigh us down, Rob. That's been our plan all along was to move toward the coast in our redevelopment strategy, and Mark's right in terms of the number of homes you see, but if you look at the net throughput of rents that we are deriving from those, it's about the same level of dilution on a consistent basis.

Okay. As a follow-up, when you take a look out there and you see what the reasons are for moving out and sort of the profile of your tenants, how much of an impact do you think it might have on closing the turnover -- the back door in terms of turnover from elimination of some of these down payment assistance programs on the single family side?

I think it's kind of difficult to tell right now. I think with the new laws out or the new homeowner assistance programs, it's obviously going to help some people jump into the first house, but you still have such a huge cost difference between leasing and owning and most of our markets especially out in the West Coast and D.C. area, it's not clear yet how much it's going to help.

This is Toomey. Additionally, I would add to that is the psychology of a purchase of a home is still very damaged, and once you get past the economics and the tax incentives would you invest in something that you knew the price was going to go down another 10%? Most rational people won't and we think that is going to prevail for sometime, and when it will reverse, you'll see it like anything else in this downturn. You'll see it in certain markets at certain price tags. We think the way we are positioned, California, the West Coast being 50% of the portfolio now, it's got a long way to go before those people get back into the game in our opinion.

What's the move-out of home purchases running this past quarter?

This quarter it was 13.5%. That's the same as it was in the first quarter but last year second quarter it was 16.7%. So it's down quite a bit.

Thanks guys.

Thank you. Our next question is from Dustin Pizzo. Please state your company name followed by your question.

Thanks. Banc of America. Was any of the positive impact from the debt repurchase or the common stock repurchase factored into guidance previously?

This is Toomey. The guidance that was given was really done at the beginning of the year in which we had contemplated significantly more share repurchases and no debt repurchases. And as the market has progressed, the share prices have risen to an attractive level but not to a point where we would buy them, and debt has presented an opportunity. And so in my calculus of looking at it, they're kind of -- the two are offsetting each other but it wasn't the original plan. It's more of the consequence of the environment.

So then as you look to the back half, can you comment on what you are currently thinking there as far as are there continued repurchases or continued activity on the debt side?

I think we'll be active in both depending on the price and based on your call notes and the results thereon.

Okay. And just thinking about it on the debt side, I guess first what was the coupon and the maturity date of the bonds that you repurchased?

The coupon was 5.5% and the maturity was 2014.

So I guess how do you think about, given that we are in a pretty difficult debt environment here, you think the rates are probably rising in the future. You look at the yield to maturity of 63 that they were repurchased at versus the common. Should we take that to mean that you guys are assuming less than a 63% return on the common going forward here?

We didn't try to look at both. One, when you buy common considering a number of things, both your liquidity position, where you think your NAV is and where do you think your price will be in the future. The debt, we really looked at it and said it a trade. If we think today we can issue secured or unsecured debt inside of 6 and extend the maturities and the market gives you an opportunity to buy $35 million on a $3.2 billion debt, so you take advantage of it. It's not that big of a number. Kind of an interesting opportunity to buy at below par, we thought why not. It's a big deep market at that discount? Probably not. The shares you can pretty much look at where we've been buying them for the last year to date and gather about where we think our NAVs are and where we think a good discount is. So we bought 6 million shares, something like that, year-to-date inside of $24. Stock is trading at $26 today. We are probably not buying today.

Fair enough. Thanks.

Thank you. Our next question is from the line of Rich Anderson. Please state your company name followed by your question.

I'm with BMO. This question is for Toomey. I always wanted to say that.

Some day I'll be able to respond to you in Spanish too Rich.

Actually, I don't even know if this is for Toomey. But anyway, the question is n special dividend and I guess Mark it was you that said that once you finished some of these acquisitions that you have right on the immediate landscape that you'll be done with the redeployment process of the portfolio sale. But that doesn't -- you are saying that in addition to that you'll do another special dividend of about $150 million -- or a special dividend in the range of about $150 million. Is that right? It gets you to $150 million shy of the $1.7 billion?

Tell him, A, the range of your special dividend and the timing of that.

The range of the special dividend is still the 130 to 190. And that is contemplating the acquisitions that Mark is cueing up and closing over the course of -- from today through August 30th.

Okay. So then the other question is, if I'm right and I think you guys said this on your investor day, that you actually sort of looked at two and a half times the amount of acquisition that you would need to buy to eliminate some of the pressures that might come from people knowing that you are a buyer. And so have you given any thought to saying let's scrap the special dividend idea and let's go buy more assets?

This is Mark. Let me speak to that. We bought nearly 4,200 homes on $1 billion or so of acquisitions, and so -- and we have -- we did identify over two times in our assets that we have closed and gone through. We've traded one against the other as we've gotten through the closing. So we are just down to the, really, one asset. We have one competing with that and we think we pick the one we are going to pick, so in this last trade, I had two assets competing against each other. So we are just down at the end now. In other words, I don't have any -- what I have -- the assets that I have left that I've identified, I can think of a couple that on the surface look pretty good as far as market location but we can't get there on price. We just couldn't get -- they were out of the market pricewise.

This is Toomey. In addition to that, it will be one you are against the shot clock if you will. Our 1031 period expires at the end of August. Mark and his teams traded a number of assets hard and you get to a point where you say, wait a minute. We think cap rates are moving a little bit. If the sellers are not going to move their price, is it really serving a fiduciary duty to just pay up so that we don't have to pay a special dividend. And I just can't bring myself to do that, and I think that's been the discipline we've forced upon ourselves, is to say, that's why we gave you a range, 130 to 190. We didn't want to back ourselves into a corner and say all of a sudden we changed our mind, we wanted to buy more assets. That's because we thought we could get good prices. We didn't get good prices. We weren't going to buy the damn real estate and we've always thought about it that way. It's more discipline on our part than it is to try to do anything else.

Okay. The other question is with the stock up as high as it is at this point, I mean does that give you a sense to issue more in the way of a stock dividend or a cash dividend? It might be better for you as a company to issue the stock as a dividend but maybe investors wouldn't be as thrilled to get it at $26.50 as they might at $23.50.

Well, I think if we've talked to shareholders, a lot of them view it as a stock split so it's not diluted to them. They are just getting a pro rata share that they had before. And if they still elect to monetize it by selling, the company has got capital. If they were to fall, they view it as positive by virtue of people we would be able to jump in and support the stock if it hit a number. Other people have said just send me the cash. And right now we are waiting it out and saying what is the best thing both given the economic environment that we are dealing in, the stock price environment and the value of cash, and I'll tell you that I'm more driven by the long term value of the enterprise than one quarter of earnings or even the next six months of earnings. So we are going to play through that. We'll have a pretty darn good picture after August 31st. We finish the 1031 period. We get the auditors in here. We get the tax people in here to sign off on the tax calculation. And then we figure out exactly where the market is and we'll be very upfront with everybody about the rational behind whatever decision is ultimately reached.

A quick one here. Any additional debt prepurchases in the current 2008 guidance?

No.

Okay. And then my last question. I need to just further understand the development pipeline and I know you said you moved some things from sort of the underdevelopment to the future development category, but can you explain how that happened mechanically? You had spent money up until the first quarter on these four assets that moved from the underdevelopment to the future development. So how do you account for that in terms of the money that has already been spent? Does it just sort of sit on the balance sheet because you expect to do it eventually or how does that work?

This is Dave. Those dollars are still good on the balance sheet in terms of it being capitalized cost. We are still going forward with it like Mark spoke to about Mission Viejo. We are in the process of getting the entitlement and zoning work down. We're just making the fine-tuning to it that causes us to move it from our current today being developed to a future development activity.

But is there any chance that any of these would be shelved completely?

No. I don't think so in that case. Now, some of these assets I guess if rent started growing at 14% in San Diego, which actually I guess is not totally out of the realm of possibility, it might delay you doing it, but no. All of these we feel like are good solid opportunities. I think we are trying to communicate to that we are trying to be prudent about when we bring these to the pipeline to match up market conditions, and that's where we are hoping to communicate there. But no. They are all in good solid shape, very good size.

Thanks.

The one Dave mentioned in Mission Viejo. We have entitlements today. We've got a window where we can better it. So we just felt like we had to do that. It just creates more value that way.

That's it for me.

This is Toomey signing off too.

Our next question is from the line of [Samir Apati]. Please state your company name followed by your question.

Samir Apati from FDR Capital Markets. Can you please talk a little bit about your thoughts on the GSE financing environment spreads and the overall availability?

Yes. This is Warren. In terms of the GSE we are still seeing very aggressive action in terms of their willingness to make secured loans and we have not seen any pullback. It's been -- in fact on the secured loan I think a couple of our peers noted that it's still 100 to 150 basis points less than some of the unsecured financing. So it's still attractive financing.

What's the rolling rate on a 5 or 7 or 10?

The rolling rate on 5 is still 5, 6. Somewhere in there.

I think the thing to recognize there is if you can get five-year money at a 5, 6, it will support cap rates about where they are at. If you have a positive NOI growth and you have a 5,6 debt number and you can get 70% proceeds, your return on equity on a levered basis moderate growth still going to be probably about 12. That's pretty attractive in this environment. So we think real estate is going to hold up.

Just another question. Your views on the Florida markets. You look at Tampa, it's negative. I think it's been a couple of quarters it's negative. What is your view going forward?

This is Jerry. Tampa does continue to be our worst market right now as far as growth. We think it's probably going to stumble along the bottom maybe for another 12 months. That's at least what we are hearing. There is a lot of speculator homes. There is a shadow market that's the rental pool. We do perform better I can tell you on our Pinellas County side than we do on our Hillsborough side. But Tampa it's tough to call a bottom. Hopefully we are in it and it's not going to get worse.

Is it getting any worse right now?

No, it's not really getting.

It's bottoming. It's kind of built along the bottom. So you ought to start anniversarying soft numbers and start being able to get some growth starting next year.

Yes.

Thanks guys.

Don't call it a recovery. Just call it bottoming.

Thanks.

Our next question is from the line of Mike Salinsky. Please state your company name followed by your question.

With RBC Capital Markets. Real quickly, your performance in South Carolina this year -- not South Carolina, but Southern California has been well above that of your peer group. To what do you attribute that to? Is it redevelopment? Is it people trading down from A assets to B assets? Is it market positioning? What is the driver behind that?

You just answered the question. It's actually a lot of that. In Orange County, we stated this before and we firmly believe it, we have great coastal locations. We are located west of the 405. We do think we are at the right price points so some of the people that lost their lending jobs have traded down to us. Our average rent in Orange County is in the $1,400 to $1,500 range. And people that were paying $2,000, $2,300 have come down to us. We've had an active kitchen and bath program there over the last several years that have helped prop us up and modernize some of our 1968 to 1972 product. And the other thing I think is we have a real stable operating team in Southern California and there's really, even though there's some new product popping up in Irvine as well as Anaheim in our more direct backyard of Newport Beach and Huntington Beach and Costa Mesa, we are really not seeing new product. That is the Orange County.

In the Inland Empire, we look great there but keep in mind we only have three properties. One is a development that we completed I think in 2006. We finished the lease-up there last year about mid-year. We were still heavily into concessions the first half of the year. As those burned off, we are anniversarying off high concessions and we eliminated concessions there around the third quarter so -- our other two assets are probably around break even and that one property that is in Rancho Cucamonga. I think I took you there. That one is doing extremely well. San Diego is also doing very well, and a lot of that is -- we own a lot in north San Diego County, and as the -- they cater a bit to the military market. And when the ship is in, we do well and we've done extremely well there.

Second question. With the acquisitions you made around 5 cap here, I think you mentioned on the last call that you anticipated being pretty close or north of the 6 by the end of 2009. Is that still the case, given what you are seeing in the markets right now?

That's your call, Mark.

Can you repeat that?

On a previous call you had mentioned that while you were buying these assets at low cap rates, if you saw the growth opportunities were phenomenal that you could be north of a 6 probably by the end of 2009 at this point. Is that still the case given what you are seeing across the markets right now?

I think generally that is still the case, yes.

Okay. Third question. Fixed charge coverages continue to come down here over the past couple of quarters. Is that something that you are going to be able to grow into with the properties in lease-up that you are bringing on line or is it possible you could have to sell additional assets next year to fund continued capital spending and growth efforts?

We'll improve that as the assets come online second half of this year going into '09.

And we think we have the -- on the 2010 all our funding operations are already met. So we don't see the need for a capital raise. We see it as an opportunistic window. Market presents itself. There are things we do.

But you are not pushing up any -- close to any covenants or anything, correct?

No.

And then finally, just subsequent to quarter end have you repurchased any shares or bought back any additional debt?

No.

Thank you.

Operator are we done?

Our next question is from Alex Goldfarb. Please state your company name followed by your question.

UBS. Good morning out there.

Hi Alex.

Sorry. I hoped on late, so I apologize if already addressed some of this stuff. Just wanted to back on the special dividend and the on cash balance. Is the $190 million top end of the special dividend, is that what would happen if you did all the acquisitions that are planned? So said another way, if you don't do all the acquisitions that are planned and you get to that deadline on the 1031 money, then the special dividend could potentially exceed the $190 million?

No, it's the top level assuming we don't close anything in the next 29 days -- 28 days.

So if the cash in the 1031 account stays there, then that would get you to the $190 million?

That is correct.

From a modeling perspective or guidance, were you giving other income for the year, your expectations?

No. We haven't changed any of that. I believe at the beginning of the year we said no RE-3 income and still don't believe there is any.

Just the other stuff running through there is purely interest income?

Interest income. Correct.

And then development sites. One of your peers took some write-downs. I want to get a sense from you guys how comfortable you are with the land on your books the way it's penciling.

I don't think we bought any land with anticipation of building condos like some of our peers.

And what about any rental development?

No. You are talking about rental acquisitions?

Yes.

We are very comfortable with those, and I think Tom spoke to the fact that maybe that gets back to what our cap rate's doing. And they are steady right now and we've been pretty active in the market in several markets. So we feel very good about our acquisitions and at the rent growth that is in front of us on all of those and on our development sites, we are in very good position there in our per unit cost.

Okay. Thank you.

Our next question is from the line of [Paula Poskin]. Please state your company name followed by your question.

With Robert Baird. I just have an operational question for you. Generally speaking, what percentage would you say of your tenant base is enrolled in some sort of automated rent payment either from direct debiting of their checking account or to a credit card?

Currently it's pretty low. We are in the process of rolling out ACH payment throughout our portfolio. We are testing it at seven or eight locations right now. So it's a low percentage.

Thank you.

Our next question from the line of Anthony Paolone. Please state your company name followed by your question.

Thanks. JPMorgan. First question on the presales, can you give us an update to where you think those yields will come in at?

Well, I think we are still within the original range that we disclosed. As Tom mentioned, our acquisitions are at least 150 basis points better than what we can basically buy from the market today and those are probably more like 175, 180 basis points over. They're still in lease-up so we'll report how they come out, but we are still in a pretty good range there.

So for the assets like you said Phoenix, Tampa, Orlando being three of the four, there hasn't been a significant amount of diminution in maybe what the yield you are expecting is because of the markets?

We have a 7% plus yield on Phoenix, that might be more at a 7.0 versus a 7.5, but we just started lease-up there. So that is yet to be determined. Orlando we are actually 87% leased. I think we leased last month, we leased 35 homes. So that has been surprising, but we had pretty conservative underwriting on that when we did that a couple of years ago. So that's been actually better than expected given the Orlando market. And Tampa we have not turned any units yet. It's an infill location. Hyde Park area. We like that location. It's a true urban infill spot. So it will be a little bit different from the typical suburban markets that may be softer.

Offsetting that, you've got -- if those are at or slightly below and you have got pluses which would be Texas, California and Seattle, they are all probably going to do well.

Right. I might mention we have an asset -- we're in lease-up, a development, Phase II Lincoln and Town Square in Dallas. This is -- there's a still bit of activity to report in but we are over 50 leases at that project in July. Probably getting close to 60 when we finished the numbers this week. So Texas is pretty strong.

When you roll up all of this stuff it doesn't sound like it's too far off the mark.

That's how I would characterize it.

And same question. You commented about the move out to homeowner ship rate being down to 13%. By any chance do you happen to track where your tenants are coming from and whether there's been any meaningful trends on that front?

I don't have hard data on that. You are asking if we are getting it from foreclosure or are we getting people from suburban locations moving infill, we are feeling some that have, but I really can't quantify it with accuracy.

Whether it's a foreclosure or not, just the idea of homeownership rate coming down and maybe folks coming back in from a house if there's been any trend there that's indiscernible.

Nothing big that I've seen.

Okay. Thank you.

Thanks.

(OPERATOR INSTRUCTIONS) Our next question is from the line of Jeff Donnelly. Please state your company name followed by your question.

Wachovia. My first question is concerning the product you are seeing in the acquisition market. Are you seeing any noticeable shift in the mix of assets available for purchase such as more redevelopment projects and stabilized or maybe more product in second tier cities and 24/7 locations?

I think we, one, we are not really looking into those secondary markets so I really can't speak to that, although I don't think there's been any dramatic change in those markets. I do think there has been, which has been good for us, there's been more urban infill product that is on rail lines or near rail lines, rear urban retail and we've been able to take advantage of that. I haven't seen a lot of rehabbed product come to the market. As I mentioned we had a couple come that we wanted to do -- provide that expertise and do rehab work on, but there hasn't -- what we've seen, we haven't seen that a lot of that type product. It's been some newer developments in these more urban locations.

What was competition like I'm curious for the four assets you just acquired and maybe use that as a mechanism for talking about it how has competitive environment changed for acquisitions over the last six to 12 months? Have you seen it improve?

I think it has improved. I think this time, if you look at maybe the early summer last year when you are looking at assets before you get to the August/September time frame of last year, that in the top assets that you see that we bought here in Washington state and in California, there would be ten bidders and you would be invited to a best and final of maybe five to six of those bidders. And it was highly competitive. A lot of cap rate compression. I think on these higher end assets there's been improvement of maybe 25 to 30 basis points because what we saw, there were probably five real bidders versus ten. So it was a better environment to buy, but there still were competitive buyers out there but fewer. And we also stepped out and chased a couple of assets like Ireland Square that were completing their lease-up, and we were -- and that narrowed the number of bidders because we were confident we could finish that lease-up up.

I guess this is a follow-up then maybe to an earlier question on Tampa. Is your view as a company on markets like Vegas or Phoenix or Orlando similar in that they might reach a bottom in '09? What would it take for you to get more aggressive on allocating capital in some of those challenged markets over the next 12 to 18 months?

Jerry might speak to what he sees as far as bottoms, I think he's spoken to that. Probably Phoenix and Tampa and Orlando are close to bottom. As Tom mentioned, we'll look for opportunities and be opportunistic there. We don't see things compelling -- any trades compelling out there in those markets right now. Anything you want to add, Jerry?

I would agree with that. Tampa, Orlando have been trailing along the bottom. Phoenix over the last couple months did get quite a bit worse. Luckily we only own three properties there. But Phoenix did turn south this past quarter. We are hopeful in Florida at least 2009 things pop and '09 probably a little bit later trailing Florida I would think Phoenix comes back.

Just one last question. Does your 2008 guidance contemplate any common share repurchases through the remainder of the year?

We gave guidance at the beginning of the year. It had a significant amount of share repurchases of which we have not completed, and so it's really hard for us to look out the next five months and say gosh are we going to be able to execute any more share repurchases given where the stock is trading. We have -- you guys are as frustrated as we are by it. You see up 5% one day and down 7 the next. In these volatile periods it's hard for us to have any forecasting accuracy about what we are going to be able to do or not do. And so, yes, it was in our original guidance that is correct. We have not changed it. Our contemplation is to be responsive to the market and our thought is not to tie ourselves to the next quarter or the next earnings -- six months but to be prudent capital allocators and thoughtful about what now we're putting our capital to. So I think we're going to continue that posture. We don't see any material change and reason for changing our guidance.

Thanks guys.

Thank you.

There are no further questions at this time. I'll turn the call back to Mr. Toomey for any closing comments.

Operator and for everyone on the call we appreciate your time today and know that you have a few other calls. So we will say goodbye, wish you the best, and take care.

Ladies and gentlemen, this does conclude the UDR Inc. second quarter 2008 earnings conference call. You may now disconnect. Thank you for AT&T conferencing. Have a very pleasant rest of your day.