UDR Inc (UDR) 2008 Q4 法說會逐字稿

Welcome to the UDR fourth quarter 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). I would now like to turn the conference over to Larry Thede. Please go ahead.

Thank you, operator, and thanks, all of you, for joining us for UDR's fourth quarter financial results conference call. Our fourth quarter press release and supplemental disclosure package were distributed yesterday and they are posted on our website. In the supplement we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

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 are included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Let me now turn the call over to our President and CEO, Tom Toomey.

Thank you, Larry. As we are towards the end of earnings season and I see little benefit in taking up your time playing amateur economist, I have a few quick thoughts and then we'll turn the call over to the key executives for details. On the subject of the fourth quarter and 2008 performance in the face of challenging times, we were very successful on a number of fronts. We strengthened our portfolio with sales of $1.7 billion and acquisitions of nearly $1.1 billion in the right markets. We raised over $1 billion in capital with over $700 million raised in the fourth quarter alone. Our operating team delivered the second best NOI growth for the apartment REITs for the year and twice we reduced our cost structure to reflect changes in our portfolio and operating environment. We adjusted our development deliveries and redevelopment deliveries to reflect a slowdown in the fundamentals and I personally want to thank and express my appreciation to all our associates who worked very hard to deliver these results.

Let me now turn to 2009 and '10. Our guidance will be given in more detail by David and Jerry. Like you, we believe the business climate and volatility will remain challenging. We are extremely concerned over the rapidly eroding employment picture that has seen unemployment rise from 4.7% to 7.6% in just six months. We are skeptical that the government's efforts to restart the capital markets will show benefit during 2009. I will say, though, that our strategies will not change. I will continue to focus my efforts on increasing our financial flexibility and, in fact, in the first 40 days of 2009, we've increased our lines of credit by $240 million, bringing total cash and credit capacity to $1.2 billion. With that, let me turn the call over to Jerry.

Thanks, Tom, and good afternoon, everyone. In the fourth quarter of 2008, we saw increasing job loss and worsening economic conditions affect our business. Our revenue growth of 1.8% during the quarter was lower than we anticipated, as pricing power that we've enjoyed in our California and Pacific northwest markets for the first nine months of the year disappeared. Fourth quarter expense growth came in right where we expected it, at 6.8%. As we have communicated all year, our fourth quarter 2007 expenses were extremely low due to several favorable tax appeals, as well as very low insurance. Taxes and insurance make up 38% of our total expenses and they were up 20.6% for the quarter. The other operating expense categories, which make up the remaining 62% of our expenses were actually flat with the prior year.

On a sequential basis, our revenue fell 0.8%, marking the first drop in sequential revenue in the past 17 quarters. Our expenses were down 5% from our third quarter levels and the result was fourth quarter NOI was 1.2% higher than the third quarter. For the full year, our revenue increased 3.6%. Expenses were up 3.1% and the resulting NOI grew by 3.8%. In comparison to the apartment REITs that have reported full year results, that would place our revenue and our NOI growth second best in the sector. Beginning in late October and then continuing through the end of the year, we saw a strong shift in our pricing power throughout our portfolio, but most notably in our West Coast markets. While we have been able to keep occupancy at very stable levels, rental rates on new leases and most markets have retreated. In the fourth quarter, we continue to get modest increases on the 3600 lease renewals we did in the 1% to 2% range.

However, these were not enough to offset the average decline of 4% that we experienced on the 5000 new leases that we signed in the fourth quarter. Given the continuing job loss expectations in 2009, we see revenues decreasing by 1% to 3%. Our expectation is that the DC, Virginia, Northern California, Pacific northwest, and Texas markets, which represent 36% of our total revenue, will have positive growth, but they will be dragged down by deteriorating conditions in Southern California and Phoenix and a continued struggle in Florida. These markets represent 46% of our total revenue. We expect our 2009 expense growth will be in the 1.5% to 2.5% range. Real estate taxes and utilities, which account for almost half the total expenses, are expected to grow in the 4% to 5% range, while the other expense categories are projected to be flat on a cumulative basis. NOI is projected to be in the negative 3% to negative 5% range in 2009.

Occupancy for our same-store communities for the fourth quarter was 94.6% compared to 94.4% in fourth quarter '07. That's a 20-basis point increase. More recently, our occupancy in January was 94.5% compared to 94.1% last January. So far in 2009, we're seeing traffic at a slightly higher level than last year and our applications are flat. Turnover for the fourth quarter was 53.7%, which was up 40 basis points from last year's fourth quarter. Move-outs to home purchases were 14.1% in the quarter. That compares to 15.3% in the fourth quarter of last year. For the full year, 49.7% of our move-ins originated through the internet, as we continue to see the benefits of our industry best website. This is up from 40% in 2007. Our website, UDR.com, had almost 1.6 million unique visits this year. That's roughly double what it was in 2007.

We continue to develop enhancements to our website to keep it the best in the industry, as well as find other ways to connect with our customers through things like mobile websites and social networking. Not only have these enhancements driven our revenue, they have also enabled us to reduce our marketing costs over the last several years. These expenses for 2008 were down 18%. Now looking to the future, we see the same job loss projections as everyone else. Most of our markets will be affected. That being said, I would like to make four points. First, our properties are well located in markets where the price difference between renting and owning remains wide. Over three quarters of our apartment homes have average rents that are still less than 65% of the average mortgage payment on an entry level home. Second, we have a very experienced operating team running our properties. Our expectation is for our teams to outperform their peers in their individual markets.

In 2008, we had the highest revenue growth in 9 of the 19 markets where we have REIT peers and we came in second in another three markets. Although 2009 will be a challenge for everyone, our expectation of market leadership remains the same. Third, we have focused much of our technology efforts on the front end of our business. We have the best website in the industry and we are constantly working to find new ways to drive more traffic to UDR.com. Lastly, we have and we will continue to invest in our real estate. We have a five-year CapEx plan for each one of our properties and our plan in 2009 is to spend $675 per apartment home on recurring CapEx. With private investors owning over 85% of the apartment stock in our country, we expect to see many of them starve their properties of capital over the next year.

Even though job loss will affect the entire apartment industry, we know that renters value a well-maintained community and they will seek out those places to call home. We believe this will enable us to better hold on to our existing residents, as well as attract new customers. In closing, I would like to thank my fellow associates for all of their dedication to making UDR a top performer in the REIT group. Now I would like to turn the call over to Mark.

Thanks, Jerry. In 2008, we completed $1.7 billion of dispositions and $976 million of acquisitions, making us a net seller of $724 million of assets in 2008. We believe this not only brought needed liquidity into the Company, but that the portfolio is better positioned for the long-term future of the Company. We do not have any planned acquisitions for 2009 other than one presell asset for $29 million that was put under contract a couple years ago. We have received offers on one of our recently completed developments in Houston and are evaluating a possible sale of that asset. On the development front we are wrapping up the completion of two communities in the next two months, leaving us six communities that we have under construction. While we are doing presale entitlement and design work on three land sites, we do not have any new construction starts planned for 2009.

In addition, we canceled a presale purchase committment for 2010 of $59 million and that is for a to be built development project in Orlando. We increased our development team three years ago. We decided to run a centralized operation out of our Dallas office and with a lean a staff as possible. As the market showed signs of weakness last year, we began trimming our development staff since early summer of 2008. Today, our development team consists of one SVP and one VP and a talented group of six development associates and seven construction associates. We believe that this is a right size group that can properly execute the six jobs under way and the planning for the future. That's a brief summary of the highlights in the investment area and I would direct you to supplemental schedules nine through 12, including the press release for more details. Now I'll turn the call over to Warren.

Thank you, Mark. I'll give a brief update on recent capital market activities. Through 2008, we closed five construction loans totaling $179 million at an average spread of 184 basis points over one month LIBOR, or approximately 2.3%. In January, we closed an additional construction loan with a spread of 250 basis points over one-month LIBOR at a floor of 4%. These loans have been through a number of strong regional banks. In addition, we've entered into commitments with Freddie Mac for two seven-year ARM mortgages on existing properties. We expect the loans to close in the first quarter with net proceeds of approximately $63 million and an all-in floating rate of approximately 4% with a cap of 7.5%. A summary of our capital activities is set forth in detail in the capital markets update in our press release. At the end of 2009, we expect to have access to $836 million of undrawn credit facilities. And at the end of 2010, we expect to have access to $487 million undrawn credit facilities.

Finally, we continue to take advantages of opportunities in the debt market. In the first quarter, we purchased $27 million of face amount of our outstanding debt at an average of 20% discount to par for a yield of 13%. In addition, we purchased $18 million of our 6.5% notes due in June, resulting in interest savings of approximately $495,000 in 2009. Now I'll turn the call over to David.

Thanks, Warren. My comments will focus on our 2009 guidance, dividend and disclosure enhancements. As Jerry discussed, we are forecasting occupancy of 94% to 95% and a decline in same-store revenue of 1% to 3%. On the expense side, we made a lot of progress in the fourth quarter renegotiating our contracts and pricing and expect to be able to limit our same-store expense growth rate to 1.5% to 2.5%. This equates to the same-store NOI forecast of negative 3% to negative 5%. Some of this decline will be offset by increased NOI from completed developments and redevelopments, as well as assets purchased in our lease-up stages in 2008. We expect to reduce our G&A expenses by 8% in 2009 as a result of our 2008 actions. We will continue to be active in repurchasing our debt and possibly our common and preferred stock. As we mentioned in our press release last night, we've repurchased $27 million of our debt for a $0.03 gain to FFO.

Weighing all these factors and utilizing a diluted share count of 160 million common share equivalents, we are forecasting our 2009 range of FFO to be $1.23 to $1.35. To simplify the range, take the fourth quarter of '08 and consider that a run rate of $0.30 to $0.31. Annualized you get $1.20. Add the $0.03 of debt transactions we've already done and you're at the low end of our range. It's an additional $0.12 to get to the top end. Assuming operations come in better than a 5% decline, I can pick up half that spread and the balance can be obtained through further debt repurchases. Turning to our dividend, in 2008 after restatement for our special dividend, we paid an annual recurring dividend of $1.22 per common share. Given our forecasted operations, the collection of our $200 million note receivable, and our current capital plan, we expect to generate taxable income of $1.00 to $1.20 per share. Based on those levels, we do not see any meaningful savings from reducing the dividend.

A final comment about our supplement. We have continued to add to our transparency. We've added additional disclosures in attachment four regarding our available credit facilities, as well as our debt maturities with and without extensions. This should give you a better picture of what we have coming due and the available facilities we can use to satisfy those maturities. We have also provided a home count reconciliation on attachment seven. This helps complete the picture of what our Company will look like as our non-mature assets become mature. Now I'll turn the call back over to Tom.

Operator, that's our prepared remarks. At this time would you please open it up for questions and we'll start that part of the call.

(Operator Instructions). Our first question comes from the line of Jay Habermann. Please go ahead.

Hi, Tom. How are you?

Doing great, Jay.

Question for you, I know you didn't want to be an economist or put yourself in that position, but could you comment a bit on just the government stimulus plan and obviously implications for what you think might be move-outs to single family throughout the year?

Well, Jay, I think we're going to learn a lot about this plan over the next week, as everybody gets into dissecting it. Certainly a big part that we noticed was the $15,000 credit towards homeownership and I guess first, I'm for anything that gets this economy started. In the long run, our business will be positively impacted if they get there. The $15,000 credit, if you take a median home price or you take any of the home prices in our markets, let's say, you give people $15,000 down, they have still got to come up with anywhere between probably $20,000 and $35,000 [themself] and we think a lot of people, that's going to be a hard thing to come up with these days to buy a home. So I think it's not going to be that visible to us initially out of the gate in '09, but as the economy turns, it's probably going to be another threat to us in 2010. But again, I think it's going to be market by market, price point by price point, and I think in the future, as the clarity is provided, we may put some more in our road show materials about the direct impact in our markets.

Okay, and then I guess turning to guidance a little bit, can you just decipher a bit the expectations for West Coast? And I guess specifically NOI growth for California? It sounds like the deterioration was more than expected quarter over quarter.

I'll let Jerry take a lead and then I'll add some color.

Jay, I would tell you Southern California we would see Orange County as probably going to be negative 1% to negative 3% revenue growth. LA is probably going to be a hair worse than that. San Diego is looking to us that it could be flat to slightly down. Inland Empire is going to be very bad, probably revenue growth of negative 5% to negative 6%. As you move up the coast to Northern California, we think San Francisco, San Jose will be positive, slightly in maybe the 2% range. We think our Monterey portfolio is well positioned to perform well and could easily do 3% to 5% revenue growth.

Jay, this is Toomey. I think a couple things as I look at California. Certainly an unemployment rate for the state at 9% or better and probably going higher. When we've dissected it down to our individual submarkets, we think that unemployment is more at the 6.5% range. So I think we're going to do better than the totality of California will.

The second that concerns me a great deal is this budget deficit and I don't want to use the word bankrupt, but when you don't pay your bills, I don't know what you call it. So I'm worried a little bit about what California's going to do as a state fiscally and is that going to be higher taxes on a retail system already, on wages, prop 13 hasn't been attacked at this point. I think it would be hard for them to repel it, given it would take a populous vote to carry that. So I think we'll have to watch how California deals with it. Certainly nothing right on the immediate horizon points to a bright future or to a rebound. It points to more negative and that's our view in California.

And just final question from me, can you comment a bit just on the expense savings or quantify it, I guess, from the internet. Sounds like half of all move-ins and that's a positive trend that obviously expectations looking ahead.

I mean the savings are roughly -- historically over the last several years we've cut it by about $50 per unit, so that's $1 million, $1.5 million when you look back two or three years ago. It was down in 2008 versus 2007 by the 18%. We expect it to go down marginally going forward, but for the most part we've exited all print ads and we're predominantly in the internet right now. The savings rate will continue to get less as time goes on.

Jay, couple other things I would add about the internet. What's interesting is we're seeing the number of visits climb dramatically. It's up another 25% already this year. People are shopping properties much more. Where they were looking at three to five before, they are probably now looking at 10. So we've started moving our tracking of our traffic to really truly applications and what's been interesting out of that is the number of aps that we're taking in, in fact, is slightly climbing, so that gives us some confidence that we're going to be able to sustain our occupancy levels at today's rates, but -- and Jerry's got color, I think, more on what the pricing for renewals and new leases. He's provided that earlier. You can see that our rents are rolling down, but different than a lot of cycles. It appears that we're going to be able to sustain the occupancy number this time through.

Great, thanks.

Thank you. Our next question comes from the line of Rob Stevenson. Please go ahead.

Good afternoon, guys. Tom, can you talk about what your certainty is at this point about the $200 million notes payable being paid off as soon as the lockout period is over? If my memory is correct, it's about a 7.5% loan.

I'll let Warren talk a little bit about it. I mean, the legalities of it, he negotiated that contract and is best to respond to it.

Yes, it is 7.5% interest rate on that and it's -- we've had conversations with DRA and they have told us that that money has been reserved and set aside in the fund. They have $200 million and we have conversations with the lenders on that note and so we -- we have a lot of assurance that it's going to be paid and we're proceeding along that way.

Okay, so if 14 months or whatever it gets paid, it's not something that's going -- they are going to wait and see and sort of let it run until some time later in '09?

Well, under the loan agreement, it's a default it is not paid by June 1.

Oh, okay.

That's the loan agreement between them and Fannie Mae. Even then we have an absolute right to have it prepaid later in that year. But we have no indications that number discussed with them have no indications they are not going to pay.

Okay.

And Rob, you have got to understand, they are the advisory business and the capital accumulation business, and the last thing that I would think they would want to have is a mark out there with a public company that they have defaulted on a note due them. And so I think that would jeopardize their franchise, as well as their ability to raise future capital. So I wouldn't think that they would try to string it out or do anything other than pay us off.

Okay, and then Jerry, can you talk about what you're seeing in terms of credit quality over the last few months here? I mean saw that the losses drip down, but where are you expecting that to sort of peak out at over the next sort of 12 to 18 months and where did that peak out during the last recession for you guys?

Sure. It was steadily growing in the second half of the year. We ran most of 2008 at about a 0.4% of our gross potential we were writing off. By the end of the year, it was up to about 0.6% in December. It stayed a little -- probably is about 0.7% in January. That's an historical average for most portfolios. I can tell you when you look back in the last recession, I think our worst quarter of credit loss was 1.3%. That was in the fourth quarter of '01.

I would remind you, that was a portfolio that included much more B and C grade assets that the average rents were $800. We don't currently see bad debt going north of 1%, but are we going to be able to replicate what we did last year when it was 0.5%? I don't think so. And as far as credit quality of incoming prospects, our decline rate is comparable to what it was last year, where probably one out of every four aps either cancels or gets declined.

Okay, and then last question for you, Tom, what are you thinking in terms of the portfolio in '09? I mean is there a situation where you would think about selling a decent amount of assets to raise capital to take advantage of some buying opportunities?

I think we should always be looking at asset prices and as a source of capital. Right now our taxable income, as David indicated, is $1.00 to $1.20 a share, so any asset sales would require another special dividend or rolling money over for 1031 activity, so we're probably not going to pull a lot of triggers on the sell side and I don't think it's good business to be doing it, frankly, in -- at this point in the cycle. I think asset prices are down. I think they are going to stay down for '09. They may start rebounding as people play the rebound in 2010. That's where I see it.

Okay. Thanks, guys.

Thank you. Our next question comes from the line of Michael Bilerman. Please go ahead.

Hi, guys, it's David Toti on the line. Couple little questions. First of all, I hopped on a little bit late, so forgive me if I'm repeating. Did you talk about the shopping center acquisition in RE 3?

Mark?

Yes, I'll cover that. It is a property that's on the corner of our Vitruvian development located in Addison, Texas, and we have really been working on that since the beginning of that [assumage] of land. It gives us the corner. It gives -- it's a grocery, high end grocer in Dallas that anchors that center with a newly remodeled store. It's somewhat undermanaged, so it rounds out our long-term plan and gives us just a better overall master plan for the long-term. In the interim, we'll run it and we think we can improve it a little bit and it just rounds out that situation in Addison like we want.

I was just curious, making sure you weren't going into a new diversification direction.

Nice try, David. Yes, we're going to diversify. More apartments.

And then just moving over to the balance sheet a little bit, can you just talk about your comfort with the upcoming extensions and expansions and if there will be any material changes to terms once those are complete?

You are talking about with respect to the facility extension, expansion?

The facility, yes.

We've actually visited with Fannie Mae and we have the absolute right -- it's our right, not an option for the extension and so we've talked to them about the additional $415 million and with respect to terms, the pricing on those are, as you know, are done at the date that you pull down. One's at DMBS, which is an older product that Fannie has, not presently quoting, but if we do something on that, $140 would probably be in the 3.5% to 4% range. And on the other one, it's a 10-year pricing, interest-only where based on today we're looking at about a 5.9%, 6%.

Okay, great. And then my last question, just -- and touching on Florida, there's a lot of theories out there that some of these markets that have sort of hit the bottom have stabilized and I'm just wondering if you can give us some color on the dynamics that you're seeing in that market relative to stabilization versus further deterioration off of an already low base.

Sure. This is Jerry. In Tampa and Orlando it feels like we're hitting a bottom. We're not seeing as much rent deterioration. We're seeing occupancy going up and I can tell you our leasing activity over the last two to three months in Florida was second to none in our Company. We felt a pickup there. Jacksonville started to drop for us in the second half of last year and we anticipate Jacksonville this year is probably going to continue to see a decline in revenue probably in the, I don't know, 3% to 5% range.

The rest of Florida we think while it's going to be negative, there is a chance it could turn. A lot of the inventory issues that they had last year are getting filled up. So unless a lot of unannounced job losses hit Florida, Florida should not go a whole lot worse. It will still have negative revenue growth, but it's not going to -- the two markets I see, it will probably -- I'm the most gloomy about are probably Phoenix and the Inland Empire.

I think I'd add, this is Toomey, I think Florida might be a surprise up given everybody's expectations are so low. The other might be the military markets and we'll see whether policy confronts fact out of the White House and the troops start coming back. But our sense is, is that while we're not planning for it, that could be a nice surprise up. And the military markets for us represent San Diego, Seattle, North Fork, Virginia Beach marketplaces.

And Jacksonville.

And the other plus is probably going to be DC. It doesn't look like this housing bill or stimulus bill or the Treasury's plan, any of them involve shrinking government. Looks like that our corridor from Baltimore down to Richmond is probably going to benefit a great deal from the influx of people moving into those markets and I think your prior observations on some of our peers, Texas isn't so bad. So I mean I think you've got generally a tone, everybody's trying to be conservative about their forecast and not trying to find any bright spots. But I think there are a few to weigh. And the simple answer is in this marketplace and in this timing, there's no reason to show optimism until after the fact. But that's where I would point to if I were thinking there were going to be some surprises.

Great. Thank you for the detail.

Thank you. Our next question comes from the line of Michelle Ko. Please go ahead.

Hi. I just wanted to go back to the fact that you said that there could be positive revenue growth in San Francisco and Monterey. I was wondering if you could tell us what the occupancy and rental rate trends have been month to month from December, January and February. Has there been any deterioration in these markets for month to month?

Not really. (Inaudible) portfolio, we've had pretty good rent growth. That is a seasonal market. It's the agriculture business is up in -- our Monterey portfolio really caters more to the town of Salinas and this time of the year you'll see a decline, as there's no crops to pick. But that typically comes back strong in mid-March. Housing up there has not declined -- has not really increased and we don't see any job cuts in the agricultural business, so you really have a captive resident base without a whole lot of supply that we can set the rent.

So we have seen good rent growth there, although occupancy, when you look over the last three or four months has gone down as seasonal workers have left, but that's a normal case. San Francisco, occupancy, we did see a decline there in early November and it's continued to stay stable since then. It really hasn't fallen any further and quite a few of our places, especially in the San Jose market that initially went south in November have bounced back up and have occupancy levels. Really in San Francisco we're probably in the 96%, 97% range.

Okay, and also can you talk about renewals? Are the new residents being offered better deals than someone renewing at a similar unit?

Typically that's true. What we've really seen in the fourth quarter is our average new renewals in the fourth quarter across our portfolio paid an increase of 2.4%. Our new lease, when you compare it to what the previous resident was paying, was paying 4.3% less. So, yes, it is true that existing residents are paying more than new leasers. And that varies by, really by market.

Some places where we're seeing positive rent growth on new leases are Monterey, the Salinas portfolio, Texas, and in San Diego. And we only had really two places where we didn't see positive growth on renewal rates. Those were Phoenix, which was negative, and the Inland Empire was flat. But typically if you said what's the difference between the rent on a unit where somebody renews and what a new resident is going to pay, it's probably in the 5% to 6% range.

Okay, great. And then just finally, I was just wondering, and you had commented a little bit on your dividend and that you would continue to pay it, but I was just wondering if -- just wanted to confirm if that would continue to be in cash or a combination of stock and cash.

This is Toomey. I've been watching with a great deal of curiosity the market's reaction to the stock versus cash dilemma and it seems to me that David pointed out that our current -- at the midpoint shortfall on the dividend is about $13 million, which is about 1% of our available debt capital capacity, so it seems like to me that if you've got the capital capacity in your Company and it's a temporary kind of market condition, that you would continue paying it in cash. I long ago believed that if the market sees the opportunity for growth on an accretive basis, that it will feed us capital and that hoarding capital is a dangerous sword to play with. So I'm more drawn to the cash. I think it's certainly something we plan on discussing with our board at length throughout the year as the market conditions continue to have more visibility to us. But at this present time, I would anticipate us paying it in cash.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Richard Anderson. Please go ahead.

It is that Rich? Sonny Anderson?

Excuse me?

Is that Rich, Sonny Anderson?

It's me. The exit of the condominium business all together, what happens if that market turns around? Is that something that you sort of been burned on, you don't want to go back to it, or would you be willing to go back to doing condo conversions if the market ever allowed it again?

Rich, this is Mark Wallis. The way I answer that is we keep our options open and we have not gotten rid of any condominium maps, even though we re-leased them up. And in fact, we still are pursuing maps on properties that we have no intention today of putting in the pipeline because we think that just enhances the value of that asset down the road. So the way I would answer is I think there's not enough visibility to really answer that question other than we haven't eliminated or removed any of our options at this point.

This is Toomey, Rich. I would just add to it that our job is to maximize the value out of our real estate and if that were to lead us to selling to a condo converter or doing one, yes, that's our job and we should weigh the risk of the downside of it and then you can see from our exercise in discipline over the last couple years that we took existing product, did quick turns, and in the end, we had two deals stall out that we've reverted back to the rental pool and seemed to be doing fine running them that way. So we didn't go out and build. We didn't go out and speculate on dirt. And I don't think that's where our business and our strike zone is.

I don't see any issue with the selling to a condo converter, but you kind of got into the condo conversion business directly a little bit late to the game. I was wondering if -- .

It didn't turn out to be too bad to us, did it?

Well -- .

Sometimes being that slow little tortoise but then again, it looked like Sonny was the guy who drove off into the sunset a little hot and got fired up and shot. Somehow I'm going to get you back to that whole thing.

Sonny, as in Sonny from the Godfather who got killed at the toll booth.

Yes.

Okay, got it.

That would be Rich Sonny Anderson.

Any issue with the facility in terms of your banks and their commitment to supporting the facility line?

No. This is Warren. No, absolutely not. You can see from the press release we've done some initial draws here, which we intend to pay back down, but all of our banks have participated.

Okay, and lastly, sort of in the aftermath of the big portfolio sale, have you guys looked at all how that has impacted you sort of pro forma for it not have happened, would you have been in a better position today in terms of the greater level of diversification you would have had, or are you in a better position today because it happened, if that makes sense?

Rich, this is Mark Wallis. I'll give you my first impression. I know Tom wants to add to it. I mentioned in my script that we were net sellers $720 billion. So the way I look at it simplistically, if the conventional wisdom is, well, assets have declined, pick a number, 15%, 20%. I'll just use 20% because it's easier for me to do in my head. I made $150 billion of value, if all the assets declined exactly the same. I would then argue that the $1.7 billion we've sold have declined much more dramatically than the assets we bought. So we look at it as a net gain. Tom may have a different take on that, but that's how I simplistically think about it because I ask that question of myself all the time.

Yes, I think we can always look in the rear view mirror and try to say, gosh, if I'd done this or that differently, you could come up with a lot of different answers. In the end, over the life of this Company and this portfolio positioning, I think we made the right choice. Surely would have liked to have sold it for more, but we didn't. We would have liked to paid less for the stuff we bought. We didn't. In the end, I can't rewrite history and neither can you and the simple answer is I thought it was a good strategic move for our shareholders. the board concurred with it, and I think in the long run, we'll look up three years from now and realize that that was the true benefit and you sometimes have to measure these things over a longer time horizon. But in the short-term, I thought it was a good choice. In the long-term, I think it will be a great choice.

Thanks, Toomey.

Okay.

Thank you. Our next question comes from the line of Mark Biffert. Please go ahead.

Good afternoon, guys. Tom or Mark, I was wondering if you could provide some color. I noted that your development yields range you gave was roughly 5.5% to 7%. Can you just talk about what projects -- I mean does that include redevelopment? Then what would your yield have to be to start a new project in this environment?

Well, back on that range, yes, at the upper end, one of our -- the presell I mentioned that we were scheduled to close later in 2009, that was in the 7 to 7.25 underwriting and actually it's owned by the developer now, but it's performing at pro forma. But most of the remaining redevelopment deals are going to be in the higher end of the range, the 5.5 was going to be more the Marina Delray type asset that is in the lower end of the range. So does that answer your question as far as on yields?

Yes, I mean what's kind of a targeted one that you would have to see--

Going forward?

-- looking ahead based on your current cost of capital?

Well, I think it's -- it is -- that's a tougher question to answer today. I said we don't anticipate any starts right now and I think the main reason, even though we see markets like DC that are very healthy, is where do the clouds clear on cost of capital. Today most things are underwriting in the mid-6s towards 7. You have to just evaluate whether you think the markets you're in, like a DC market's going to have long-term growth that justifies a little bit lower going in cap rate. So I think you got to get today -- we're not starting anything and it has to be at least north of 6.5. But I always hesitate to give that as a blanket answer because there are some markets where it might be a different answer.

Also, I might just mention on development, one thing that is happening right now I mentioned we're engaged in doing some design work, planning on a couple of sites and engaging with general contractors, prices for hard cost are dropping as fast as they have dropped in 20 years, I would say, maybe longer. Hard costs probably are at least 15% off on a first blush meeting from what we were 90 days ago. So how that plays out, how -- that's obviously making the yields get better and then depending on how the credit markets resolve what the cost of capital is, you may see yields get better because of that factor. That's a rambling answer, but it's tough to call right now. That's why we're not starting anything.

And Mark, Toomey, you also look at buying assets in a particular market and we're seeing, Mark, assets come across where expectation prices are in the 6 cap rates inside of DC, California, those types of markets. And so if you wanted a spread to the risk over what you could buy assets for, you're going to have to be talking about 7s or better. I just think it's something you just keep watching. Mark's right. It's not a discipline that you just abandon or start up and stop. We'll keep shopping it. If we start something, we'll be glad to defend the decision to our investors and to ourselves. But right now we're not seeing the numbers cross that make sense and you can't get out of that business. You got to keep plugging at it. And that's what we'll keep doing.

So how much dilution do you expect to be in your numbers in '09 as you lease up the current projects that you have from development?

I don't know. David, have you quantified it that way? I'm not trying to think of it as terms of dilution, because it is -- I've just looked at it and said here's what the NOIs are.

No, Tom's right, we haven't look at it like that. We look at it more in terms of adding pennies to FFO and to the bottom-line as opposed to any kind of dilution from the earnings picture.

Okay, and then one last accounting question related to maintenance CapEx for 2009, what's your projection per unit?

Our total recurring CapEx projection for 2009 is $675 a door. If you wanted to break that down to turn over CapEx, which is predominantly floor coverings, we expect that. A portion of the $675 (inaudible) would be $210.

Okay, thanks.

Sure.

Thank you. Our next question comes from the line of Michael Salinsky. Please go ahead.

Good afternoon. David, in the guidance range you provided, you indicated annualizing the fourth quarter running that forward, what is the range of nonrecurring tax benefit type gains and stuff that's included in that range?

If you're taking the fourth quarter, we've got about $0.02 in there from the tax benefit that we incurred in the fourth quarter. Going through my simple math example, where we're looking at about $0.01 a quarter.

$0.01 a quarter of tax benefits and $0.01 a quarter -- or tax-- .

Correct, on the tax benefit. Then as I said, we're going to keep evaluating the capital markets and keep watching operations to determine what else we go after in terms of debt repurchases or other capital activity.

Okay, but what is contemplated in guidance currently?

In guidance, we have the $0.03.

Just the $0.03.

At that gives you the low end, yes.

Okay. Secondly, in the same-store assumptions you've laid out, what are your unemployment assumptions and what is the sensitivity?

This is Toomey. Mike, I've kind of gotten a kick out of reading several of my peers trying to correlate a national unemployment number to their portfolio. And the simple answer is it's still a community-by-community, city-by-city business. And we haven't gotten so darn good that we can tell you the unemployment in the country is 7.6% and so our business is going to be X. We've built it three ways, which is bottom up and top down business plans by our assets and guarantee of the vast majority of our on-site community people don't look at the national unemployment picture. So I don't think it bears a lot of effort or brain power to do it. That's my answer.

Okay. Third, several of your peers have been rolling out ancillary income sources, bulk cable, improved billing and stuff. Is there any plans to do that in the coming year?

I can tell you, Mike, we've looked at a few of those and I'm just not confident when you look at things like Valley Waste, for example, that we looked at later in last year, that our residents are really to pay that extra amount of money for that right now. Plus it can drive up your expenses and if you're really not truly getting paid for it, you may fool yourself and think you are, but your base rent deteriorates further. On the cable, we just -- we believe our residents want the choice to pick what they want, so we really haven't gone to that level yet. We watch what some of our peers are doing, but to date we haven't committed to go that direction.

And I think you also have to look at those contracts. As I recall, a lot of them if the occupancy drops, you're still paying the same fixed costs. It's just a philosophical approach towards how we run it. I think it creates a window where you can advertise against that type of campaign, where if you move in and you say listen, do you want the NFL network for Sunday, you can't get it at XYZ property. At ours, you can. And I hate to say it, there's a lot of people who are 25 years old who think like that and I would rather get -- okay, Warren's holding his hand. He's 26. I think it's an important element of flexibility.

I would rather win on value of the asset and the service than by trying to force you to buy products from me. Last time I checked, I remember the internet and everybody was going to start selling clothes to the residents. That didn't work out too well either. So we'll see how it goes.

And finally, Tom, I know you're not an economist, but just having been through a couple downturns and up cycles, what's your feeling as to when we start to recover at this point?

I think this is what I have to see is I have to see a marked improvement in the lending and capital flow to get jobs started moving. And this lag is going to be -- when you start to see capital moving, it's going to take six months after that for a jobs picture to start looking a little bit brighter. I'm unconvinced by the actions taken to date or those indicated that those are job generators or even capital flow generators. They look like a lot of spending with not a whole lot of getting capital flowing. It seems to me they have missed their chance.

They should have shut down about half the banks, reopened them, and forced capital out the system that way. And what they are going to is some semi-privatization/we'll cover your losses game plan, which is going to be confusing and hard for capital to start flowing through that system. So I got very discouraged by what I just saw over the last week in terms of getting capital to flow, which has also pushed back my prospects for job growth to start to occur. So I hate to say it, I just washed '09 away in watching what's just occurred. And I think our guidance reflects that. I hope I'm wrong, but that's how I tend to think of it.

Thanks, Tom. Appreciate it.

Sure enough, Mike.

Thank you. Our next question comes from the line of [Roger Logg]. Please go ahead.

Good morning, or good afternoon, I should say. Most of my questions have been answered. Just a quick question on the dividend. Given your FFO forecast, to repeat, if you hit the low end and assuming it doesn't fall out, you're inclined to pay the dividend in cash. If it does fall out, Tom, would you be more inclined to just cut the dividend, but keep it in cash or pay a portion of it in stock?

Speaking personally, and that's a topic that is an executive level and board decision, but the way I look at it today is I think you cut the dividend versus trying to give people paper that they are just going to turn around and sell. And it appears that we'll watch as people do more and more of this stock versus cash element. I see the trend going negative on that, meaning more people will probably do it and the reaction to the street will be negative. But I think you cut the darn dividend instead of just handing out paper. I think of our equity very cautiously.

I agree with that and I would argue that even though I'm not one of them, most of your taxable investors would agree with that, too. Thank you.

Fair enough.

Thank you. Our next question comes from the line of Andrew McCullough, please go ahead.

Good morning. Question on the financing environment. Fannie announced yesterday their intention to move more towards a securitization model as opposed to being a balance sheet lender in the multifamily arena. How do you think that's going to affect the cost and availability of debt for you guys going forward?

My view on Fannie and Freddie, the GOC has always been that is where their best strike zone is, is an accumulator of paper, market and then offload it. The times where they have gotten to putting it on their balance sheet, they confuse their mission. So I applaud that move and direction, think it's a good policy decision, and will put our cost of money more in-line with what I think other securitized real estate sectors will be. So will it potentially go up? I think there's a uniqueness. The guarantee still appears to be evident and it's going to be applied and that's worth 50 to 75 basis points on the spread. And so I think we'll continue to enjoy that. We'll see what investors' appetites are in light of the single family paper getting remarked, multifamily getting more volume out there. I don't know what the, around the globe the response is going to be, but my indications would probably be rates go up versus go down.

Okay, and thanks for that. One question on guidance, you guys acquired a fairly healthy amount of assets in 2008, which will roll into the same-store pool at various quarters throughout this year. How different would your '09 same-store guidance be if all of the 2008 acquisitions were in the same-store pool starting January 1st?

Thinking about that, that's a good question.

That is a good question.

100 basis points better?

Yes, I would say 100 basis points better. Because when you look at it, quite a bit of that was -- our acquisitions were done in the DC market, the Texas markets, in Dallas and Austin, but the big one was in Dallas, Northern California and Seattle. So we bought one property in Southern California and we didn't buy anything in Florida or Phoenix. So, yes, I would say probably -- I don't know if I would say that one year's worth of acquisitions would have pushed it up 1 point, but it definitely would have pushed it higher.

And when you said 100 basis points, is that on revenue or NOI?

NOI.

Yes.

Great. Thanks, guys.

Thank you. Our next question comes from the line of Alexander Goldfarb. Please go ahead.

Good afternoon. Just going to your earlier comments, Tom, about your taxable income for the year, if you could sell individual assets, small assets while -- if there is market for those sorts of things, why not continue to sell and if you have to pay a special cash dividend, just go ahead and do that?

I'm not convinced the asset pricing today makes a lot of sense. I mean we'll be out there looking at our RE 3 assets, which we can sell without triggering a large tax liability. We'll see what they price, but it seems to me that you're selling assets probably at the bottom of asset valuations and last time I checked, that's never a good thing.

Okay, even if relative to your stock, if it's still a better trade?

Well, I think we'll keep watching the spread. I mean I notice where the stock's trading today, it's probably trading at about an 8.5 cap versus selling assets at a 7, you would probably start looking at that spread and saying that's probably worth the risk, even if you got to pay a little bit of tax to move on. So I think you're right, Alex.

At some point the spread does widen to a point that it makes sense to do so. I would hope that people realize that '08 we did shrink the size of our Company and we thought it was a good time to do so and we're not afraid to continue that process if it means something that's beneficial for our shareholders. So I just don't see it at this point. We'll continue to monitor it. If that spread stays that way, I'm certain it will enter into more of our active.

Okay, and then just going to the debt side for a minute, maybe you mentioned it earlier, but the repayment of the Fannie credit facility with the one-time prepayment penalty, what were the thoughts behind that? And then as you look to buying back debt, to buying back your debt, are you more focused on the maturity of the debt or the discount? Well, this is Warren, Alex. On the repayment it allowed us to take $139 million that was in 2010 and extend out to 2018, allows us to reduce the interest rate on that, which I think was around 6% to a 4.8%. So it made a lot of economic sense both from expand the facility, we had $400 million in facility, plus lowering the interest rate.

I think I'd also add that through a lot of technicalities, normally you would take that facility, the prepayment and roll it over to the new facility and amortize it over the remaining 10-year period. And the simple answer was is Warren and his team did such a great job of negotiating the terms that the accountants deemed it a complete reworking of the facility and not an extension and as a result, we just phased the accounting oddity of having to expense it. So either way, great decision when you lower it a couple hundred basis points over a 10-year piece of paper and got the expansion feature in play. So the second question is, is looking at our debt in terms of are we targeting discount or maturity? And there's no question about it. We're focused primarily -- first category is on the short-term maturities, but we're shopping the entire spectrum of our debts for discounts.

And we're finding sellers and we're going to continue to do that and it seems to me to be a good trade taking 10-year debt from Fannie and Freddie and buying up two-year maturities at 20% off, or 30% off. And I think we'll keep doing that. I think the market's dislocated enough that it's still there and probably will persist for some period of time. Although ironically, I do have to laugh a little bit at the most recent government's pitch, which is six months ago they wanted to tax the hedge funds and then make their comp transparent and now what they want to do is underwrite them and guarantee their returns. So what can happen in six months is bizarre to me.

We live in a great country. Thank you.

Go hedge fund, go.

Thank you. Our next question comes from the line of Karin Ford. Please go ahead.

Hi. I apologize if you covered this earlier in your remarks. I was jumping between calls. Just a clarification on the dividend, is the plan for 2009 to reduce the regular quarterly down from $0.33 per share in '08 down to $0.305 in '09?

We're not reducing the dividend. We consider it more of a restatement of the dividend that when we went through the stock -- the special dividend and had the stock issuance, we restated all of our prior year activities in all prior periods. So accordingly, that $0.33 dividend gets restated to $0.305.

Right, but going forward, a shareholder should expect for every share they are going to get $0.305?

Correct, and they also have more shares and still get paid. So the aggregate dividend they received would be the same or go up.

Okay. Thanks very much.

Thank you. (Operator Instructions). Our next question comes from the line of Paula Poskon, please go ahead.

Thank you. Could you review the terms and conditions under which you can exercise the extension options of the debt maturities this year and next? And further, could you tell us whether the later extension opportunities could be contingent upon extending the earlier ones? So for example, if you fully utilize all the ones available in 2009 and '10, does that impact your ability to utilize extensions in 2011 and beyond?

Well, this is Warren. I'm not sure that I understood all the question, but on the Fannie Mae facilities, we just have an absolute write-off extension. And they are separate facilities and we can add properties to them, pull down $275 million, or add properties and pull down the $140 million, they are not contingent on one being exercised before the other. With respect to the one such as the Marina Delray loan, which is in 2009, that's just an absolute extension right we have. It is two one-year extensions. And with all of our -- all the other construction loans, it's just an absolute right at our sole discretion.

Okay, thank you. And secondly, what are you seeing in terms of early lease terminations and correspondingly, an average length of stay?

I can tell you the lease terminations are roughly about what they were last year. I haven't seen a large variance. You'll see some people that have a job loss and break their lease. In some of those situations you just have to write-off the balance because they are not going to pay. Whereas in previous years, you would see people moving because of job relocations and their new employer would pay that lease break. But it's been fairly stable. As far as normal length of stay, we don't track that specifically, but I think most of our residents still tend to sign a nine to 12-month leases.

Thank you very much.

Sure.

Thank you. Our next question comes from the line of [Steve Plat], please go ahead.

Thanks very much. I think this is for Mark. Last quarter you had a, an attachment in the supplemental where you had some land positions identified and some operating communities you were looking at redevelop. And some of those have slid into the active pipeline, it looks like. But the other ones I don't see listed anymore in your supplemental. Are those still land positions you guys hold? Are you still capitalizing costs related to those?

They are still land positions that we do hold and I mentioned in my script that on three of those, we're still working entitlements and doing predevelop planning, so appropriately they have -- those costs are capitalized. So there's -- the -- there's no real significant change there other than we're trying to communicate from a volume commitment standpoint of new construction in the -- in cap requirements associated with that that may have been misinterpreted in the past that we are not -- we'll tell you we're going to start a deal, but those are not going to be started until the, as Tom mentioned earlier, the financial markets are in-line on the deal and it looks like the yield will be the appropriate yield. And as I mentioned, too, there's quite a dynamic market right now where costs are getting much better and we'll see how that plays out.

Okay, and then just second question for David, did you indicate how much the accounting adjustment on the exchangeable notes would be?

No, I didn't. You're referring to the 8B141?

Yes.

We have not. We're looking at that right now. For 2009, we estimate it's going to be between $0.04 and $0.05 for the year. We'll keep that broken out on the face of the income statement as a separate line item so people can easily see it and we don't try to mix up the interest expense.

Okay, and it's not in the guidance?

No, it is not.

Okay, thanks.

Thank you. Our next question is a follow-up question from the line of David Bragg. Please go ahead.

Hi, good afternoon. I know this was discussed, I just wanted to be clear. On the guidance range, the bottom end of the range, 123, that does include the 3% debt repurchase gain from the first quarter and it also assumes negative 5% NOI growth, is that correct?

Correct.

Okay, and then to get to the top end of the range, what does that assume? Does that assume negative 3% NOI growth and does it assume any other onetime items?

It's assuming we're more active in the debt markets and repurchasing our short and longer-term debt, as well as, yes, if the operations come in better than the 5%, 3% being on the high end of that range.

Okay and is there a quantifiable level of the debt repo gains that gets you to the $1.35?

No, as I said earlier, we are just saying that if you split it, it is $0.06 on each side. $0.06 from operations, you pick up another $0.06 from debt repurchases, that gets you the 12. You go from $1.23 to $1.35.

Got it, thanks. I missed that. And just lastly, what is -- what are you assuming for G&A for the year?

8% decrease, probably comes in somewhere around $35 million, $37 million.

Okay, thank you.

Thank you. At this time, we show no further questions. Please continue.

Well, I thank all of you. I know the call ran over a little bit, but I thought it was a good call. Lot of information going back and forth. Certainly would invite any questions that follow-up and clarifications. We think we're moving in the right direction. We think our business is well prepared for the current uncertainty in this environment and that you've got a team that's focused on knocking off its list and moving forward. So with that, we'll see many of you in the upcoming weeks at investor conferences and look forward to those meetings as well. Take care.

Thank you. Ladies and gentlemen, this concludes the UDR fourth quarter earnings conference call. Thank you for using ACT Conferencing. You may now disconnect.