UDR Inc (UDR) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the UDR First Quarter Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions.

(Operator Instructions)

This conference is being recorded today, Wednesday May 6, 2009. I would now like to turn the conference over to Larry Thede, Vice President of Investor Relations.

Good morning and thank you for joining us for UDR's first quarter financial results conference call. Our first quarter press release and supplemental disclosure package were distributed yesterday and posted to 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'd 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'll now turn the call over to our President and CEO, Tom Toomey.

Thanks, Larry, and good morning, everyone, and thank you for joining us. We have a lot of ground to cover today, so I will jump right in. On the call with me today is David Messenger, our Chief Financial Officer, and Jerry Davis, our Senior Vice President of Operations. Additionally, we have Mark Wallis, Senior Executive Vice President overseeing acquisitions, dispositions, redevelopment and development. Warren Troupe, Senior Executive Vice President of capital markets and General Counsel for the question and answer session.

We are quite pleased with UDR's performance in such a volatile environment. We are focused on things that management can control to best position the Company performed today, and to be ready for capitalize on anticipated opportunities over time.

First, the Company generated positive same-store growth, which is a function of the change in the UDR's market mix and improvement in the quality of the communities resulting from our transferred portfolio, and an aggressive focus on operations, specifically managing our cost structure and exploiting the advances of our technology platform to lease apartments twenty-four seven. And in fact during this quarter, over 56% of our leases were originated over the internet.

Second, our balance sheet is solid. We have numerous sources of capital totaling $1.1 billion. This includes $912 million available on our credit facilities, $237 million of cash, as well as both our unencumbered asset pool of $3.2 billion and what we view as warehouse capital or property that can be sold if needed.

The GFE's continue to be another source of capital and they stand ready to continue to do business with UDR. And most recently, the government announced on May 1st that the TALF program will include CMBS assets, which should start to create capacity in the unsecured debt market.

Third, demand on the Company's near-term capital are deminimus. Our debt maturities in 2009 and 2010 are just $108 million and $348 million respectively. Lastly, funding of our $400 million development and redevelopment pipeline is nearly complete, with just $3.5 million of capital left to be expended. With that, I will now turn the call over to David.

Thanks, Tom. My comments today will focus on four topics; the first quarter's results, our long-term capital strategy, 2009 guidance for the balance of the year, and our dividend. Last night we reported $0.37 of FFO, which consists of $0.31 from our core operating and $0.06 from the gains on debt repurchases.

We have excluded the effect of adopting APB 14-1 from these results. Results in our operations for the first quarter were in line. Revenue was up 40 basis points on a year-over-year basis and income for occupied home was up 0.3%. We achieved the growth through an increase in the occupancy of the portfolio and continued improvement in our reimbursement income. We now have approximately 82% of our utilities billed back to our tenant base.

As our results demonstrate, we have continued to excel in our cost reduction and containment efforts. Due to our renegotiation efforts, combined with improved asset quality, we were able to reduce our repair and maintenance expenses in the first quarter by 9.2% compared to last year. We have maintained a streamlined staffing model and have pushed more of our traffic and leasing activity to the internet resulting in additional savings in administration and marketing.

We expect that our repair and maintenance savings will flow through and provide us with favorable comps through 2009. As far as staffing goes, we expect to see an uptick in personnel expenses as leasing season approaches and more demands are put on our site staff.

Real estate taxes and utilities, specifically water were our loan expense increases during the quarter, up 3.7% and 8.1% respectively. We expect our annual increase in real estate taxes to come down through the course of the year as we receive updated property assessments and appeals are filed.

Jerry will provide some more detail on our operating results in a moment. Our core FFO of $0.31 also includes flat G&A and a decrease in interest expense as a result of our tender and repurchase activity. We are pleased with our results for the first three months of the year, but are mindful that three months doesn't make a year.

Turning to our capital market strategy; during the first quarter we launched a tender offer for our June 2009 bonds. We were able to purchase almost 50% of the outstanding bonds, resulting in an interest savings of approximately $1.3 million. At the same time, we were active in the open market repurchasing our 2011 dated convertible bonds. We repurchased these bonds at an average 18% discount to par. As we watched the credit markets begin to find their footing and stabilize, we expect there to be further opportunities for us to execute. Our overall long-term capital market strategy has been a flexible one.

We currently have $1.1 billion of credit capacity, including cash in the bank. Having this capacity allows us to take advantage of the dislocation in the credit markets as it happens. This is evidenced by our common stock repurchase of 100,000 shares during the quarter. Our stock was trading below $8, credits spreads had tightened and we saw it as a wise alternative investment to our debt.

During the quarter, we also invested in some convertible debt securities. At that point in time our stock had traded up, spreads on our debt had again tightened and the supply of our bonds at an attractive price was scarce. Accordingly, we found some heavily discounted convertible debt that matches with UDR's future dated maturities. The investment is $32 million. This was a unique and advantageous opportunity that allowed us to take some of our future dated refinancing risk off of the table.

During the balance of 2009 as we stated in our February call, we expect to continue to be active in the debt markets if they continue to afford us the opportunity to strengthen our balance sheet. We are currently in discussions with the GFEs concerning a new secured credit facility that will also further those efforts and remove future refinancing risk.

Next, I want to address our guidance for the balance of the year. Our 2009 guidance remains unchanged. As I've stated previously, we expected our same-store results to be positive on both the revenue and expense runs during the first quarter, but we expect those trends to deteriorate as the year progresses and we feel our annual guidance of same-store revenue down 1% to 3% and same-store expenses up 1.5% to 2.5% is still appropriate and should result in an overall (inaudible) wide decline of 3% to 5%.

Turning to our dividend; on April 30th we paid a cash dividend of $0.305 per share. As we have previously stated, at the midpoint of our guidance and based on a taxable income range of $1 to $1.20 per share, there's a $10 million to $15 million short fall in coverage. As we do every quarter, we'll provide our input to the board of directors. Each quarter the board evaluates our business and balance sheet along with the credit and debt markets to determine the appropriate dividend payout level.

One last item to mention; management has determined that changing the time of day in which we report our earnings and host our earnings webcast in call to after the close of market dovetails with our focus on best practices and will provide a better platform for dissemination of information. Accordingly, starting with our second quarter call, we will release our earnings after the market closed and have our call following the release. Now I'll turn the call over to Jerry.

Thanks, Dave. Good morning, everyone. I'm just getting over a cold, so I'd like to apologize up front for my voice. As Dave mentioned, during the first quarter our revenues increased 0.4% over the same quarter last year. This was fueled by two major drivers; first, our occupancy in 1Q'09 was 94.7%, which was 20 basis points higher than last year. Second, we're seeing the benefit of our commitment years ago to push more of the cost of resident-used utility and trash removal expense onto our residents. That has increased our utility reimbursements by almost 14% year-over-year.

Offsetting these two drivers was a reduction in rental rates of 0.3% and higher bad debt expense. Bad debt for the quarter was 0.6% of gross rents, this compares to 0.4% in 1Q'08, that's an increase of $288,000. Although rents for the quarter were only 0.3% lower than 1Q08, we anticipate this will worsen throughout the year. We were seeing rent growth throughout most of our portfolio through August of last year. Therefore, those leases entered into through the first eight months of 2008 enhance rent growth comparisons in 2009.

The new leases that we have signed in the first quarter of 2009 had rental rates that were 7.5% lower than what the prior renter was paying, where renewing residents averaged for an increase of almost 2%. These amounts varied throughout the markets, with Florida, Phoenix, Los Angeles, Orange County, and the Inland Empire experiencing the largest rate drops and our D.C. and Texas markets experiencing the lowest drops.

Our strategy in 2009 has been to drive occupancy up to higher levels to offset the lack of pricing power in our markets. The period of time from mid-November to the first quarter is typically a slower traffic season in our industry. In order to push occupancy up during this time, it is necessary to price more aggressively. Many of our peers employ the same strategy during this slow season.

Because of our technology advances, superior locations and consistent investment in our real estate, we were able to successfully drive occupancy up each of the last four months. During the quarter our occupancy averaged 94.7%, which was 20 basis points higher than both last year's first quarter as well as fourth quarter. In the last week of April we hit 96% occupancy for our same-store properties, with every area of our Company reporting well over 95%.

Many of our peers like to talk about how their traffic has held up compared to last year. We focus more on applications taken than on traffic. In today's age of internet leasing, traffic can easily be pushed higher due to the ease of the search. Also, with today's tough economic times, we are finding that our prospective renters are spending a lot more time looking at apartments. Instead of looking at two to three communities before making a rental choice, they're looking at five to ten communities.

While first quarter traffic is up more than 20% compared to last year, our applications have increased almost 8%. We attribute this to a couple of factors; first, during the first quarter of last year we began using a call center to answer our list calls, and then later in the year, we began using the call center to answer all prospect calls. This captured a significant number of calls that in the past would not have been answered either because our people were busy helping a customer or because the calls were coming in after office hours.

Secondly, we've continued to drive more and more of our traffic through the internet. The number of unique visitors to UDR.com in the first quarter was 46% higher than it was last year. During the quarter our same-store communities had 56% of all move-ins originate through an internet source which compares to 46% in the first quarter of 2008. We believe that having the best website, including our mobile website, gives us the competitive advantage to drive more traffic and ultimately more leases to UDR.

Our annualized resident turnover rate for 1Q'09 was 51.5% compared to 50.5% in 1Q'08. We saw significant declines in turnover in Florida, Phoenix and the Inland Empire. These were markets that were the first to feel the negative economic impact last year. We saw the highest increases of turnover occurred in some west coast markets as job losses mounted in the fourth and first quarters in places like the Bay area and Sacramento.

Move outs for home purchase continue to be at record lows in most of our markets. During the quarter, only 11.7% of our departing residents left to purchase a home. Home ownership remains out of reach for many of our residents, even after the unprecedented price declines, lower interest rates and tax incentives that have occurred over the past twelve months. Our rents are roughly 75% of an average monthly mortgage payment for an entry-level home in our markets. In places like Orange County, the difference is almost $800 per month versus rent, and in the Bay area it's over $1300.

Now turning to expenses for the quarter; total expenses were down 2.7% for the quarter compared to 1Q'08. Real estate taxes increased 3.7%. Utilities were up 3.1% as large increases in water expense was somewhat offset by declines in gas rates. At the beginning of the fourth quarter of 2008, we began to renegotiating prices with the vendors that work at our properties. These efforts helped to drive down repair and maintenance expense significantly during the quarter by over 9%. In fact, even though our resident turnover is roughly flat compared to last year, we were able to reduce our turnover expenses by over 20%.

Personnel costs decreased about 7% due largely to lower associate health care claims in 2009, but also because we were able to keep non-critical positions open for much of the first quarter, which is typically one of our slowest times of the year for both leasing as well as resident turnover.

Over the past several years, we have been putting a lot of effort into technology. Initially, we focused on the fronts in advertising that would allow our prospective residents to more easily find us and transact with us through our website and mobile applications. For the past year we've been moving toward giving our residents what they want; twenty-four seven access to us and self-service.

At the beginning of this year, we began offering to all of our residents an internet portal that allows them to electronically communicate with us as well as pay their rent online via ACH. Just three months into the program, over 23% of our residents pay their rent by ACH in April. Properties to begin piloting the ACH program last year have driven their penetration to over 50%.

Additionally, during April 15% of our resident work orders were submitted through the resident portal. Currently, 40% of our residents are signed up to use the portal to conduct business with us electronically, ultimately giving our residents the self-service capability they want will allow us to redeploy our associate's time to tasks that make us money through sales and in service.

Our administrative and marketing costs decreased almost 14%. Again, some of this was done through renegotiating or eliminating vendor contract. The majority of it was done by reducing our marketing costs by 24% as we have continued to eliminate the use of print advertising.

I'd like now to talk a little about our redevelopment and development programs. If you refer to attachment nine in our earnings supplement, you will see that during the last year we have completed the redevelopment of eight communities containing 2,354 apartment homes. These properties have occupancies currently between 93% and 97% and are performing in line with our pro forma's.

We have also completed nine developments containing almost 2,000 homes. These properties were completed on time and on budget at just under $320 million. Lease up velocity has been very strong. For the most part we're getting our pro forma rents at the budgeting concessions.

I would like to point out that as our development and redevelopment assets reach stabilization, along with our recent acquisitions, our reliance on California, and in particular Orange County will begin to diminish and the metro D.C. market will gain prominence in our portfolio. In fact, D.C. will become our second-largest market and will account for over 12% of our NOI.

In closing, we are pleased with our first quarter results, but we know that the remainder of the year will be challenging as we are faced with mounting job losses in many of our markets. We also note that throughout the year we will continue to see new leases and most of our markets re-price at lower rates. That being said, we continue to believe that in our markets, we are strongly positioned near job and transportation centers where people want to live.

We also feel that the management teams that we have in place are the best in the industry. Our five area Vice Presidents, these are people who oversee regional portfolios between 7,000 and 12,000 homes have been with UDR an average of seven years. Our 22 District Managers who typically manage portfolios averaging 2,000 to 2,500 homes have an average tenure with UDR of almost ten years and our 145 Community Directors who run the day-to-day operations of our properties have been with the company on average over four years. This means they know what they're doing, and more importantly they understand what we want them to do.

Our primary focus at UDR is to continually outperform our peers in terms of revenue and NOI growth in our markets and we have historically done very well achieving this. Superior location at the right price point, operated by an experienced team makes this happen.

In closing, I'd like to thank all of my fellow UDR associates who work so hard in these challenging times to stay focused on the little things that make a huge impact on our prospects, our residents and mostly on our results. Thanks, Tom. Thanks and now back to you, Tom.

Thanks, Jerry, and I appreciate you toughing out being sick and getting through all of that information which was great results. Before completing my remarks, I'd like to discuss the hot industry topic; re-equitization. This phenomenon is very positive for our industry and for the companies that do not have the various capital markets avenues available to them that UDR has.

As mentioned earlier, our liquidity and our warehouse capital assets, as well as our pool of unencumbered assets put us in an enviable position. However, the outcome has not been lost on us and we are cognizant that re-equitization would further bolster our balance sheet. Overall we feel confident in our ability to navigate this challenging environment and want to keep in mind that we are in the business of providing housing, a basic necessity in any part of any economic cycle.

Obviously supply and demand will impact our results, but by positioning our apartment homes in high demand, high barrier to entry markets within the most desirable areas of the country, we have a competitive advantage. UDR's balance sheet is perhaps the best shape since my tenure as CEO and if the financial tsunami lingers into 2010 and 2011, we feel that we have the capital roadmap that both protects the enterprise today and allows UDR to act opportunistically at the appropriate time. And with that, operator, why don't we open it up to Q&A?

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session.

(Operator Instructions)

Our first question comes from the line of David Toti with Citigroup. Please go ahead.

Good morning, everyone. Michael is here with me as well. About 75% of your assets are in the same-store pool. Is it possible for you to characterize performance of the other 25% relative to revenue and expense growth in the first quarter?

It's really difficult to do that relative to growth over the prior year since most of them weren't stabilized last year and in quite a few of them we didn't even own yet.

Well, how about in the sequential basis, or just since you've owned or delivered the assets?

No, I actually don't have that information with me right now. We can get back to you offline.

Okay.

I can tell you it's been growing. It has been growing sequentially as occupancy levels have continuously gone up, especially on the redevelopment and development properties. Quite a few of the assets we bought last year were in lease-up. So, you buy them at 30% and it's been consistently going up. I can tell you of all of our acquisitions last year, as well as our redevelopment properties, they are all operating in the 95% plus occupancy range, and you know rents are holding about where we thought they would.

Okay, so a lot of the top line results are relatively in line with your pro forma estimates?

Yes, I'd say that.

Okay, and then relative to Southern California, we've seen a bunch of your peers printing some pretty negative numbers out of a lot of those markets, but your results seems to be a little bit better. Can you quantify why you think that's the case? Is it your systems, your operations, the asset, some combination --

I think it's the assets and our locations for the most part. We have felt the pain. I think when you look at L.A. our numbers compared to our peers, most of our same-store assets in L.A. are more in East L.A. in the San Gabriel Valley, not West L.A. in the coastal markets that have been quite a bit harder. In San Diego, I think we've outperformed there predominantly because most of our properties are in North San Diego County which is reliant on Camp Pendleton and if the troops are in you do really well, if they are out, you don't. Lucky for us, for the last several quarters, they've been in and we've been able to outperform.

When you look at us in Orange County, we're mostly in the coastal markets, almost all the assets are west of the 405 freeway, they are probably B-grade assets, even though the rents are $1,400 to $1,500, that's not high-end in Southern California. So we have been able to capture people that were living in Irvine and places like that in A properties as they've traded down, they've come to us.

Great, and then just a question for Tom; I know that the environment is extremely uncertain and it's hard to pin any sort of assumptions about the future, but directionally, how do you see UDR towards the end of the year relative to the strategic focus. Is it more growth oriented? Is it really entirely operationally focused? Just, I guess, a sense of how your steering the company forward in this uncertain time would be useful.

Well, David, it's hard to pull out a crystal ball and say here's where I think we'll be, but maybe some thoughts. I mean our primary focus for the last six months has been the balance sheet, the prior six months was to complete the portfolio sale, and I would think that we have accomplished those two things. And for the next six months I think we're going to be watching the individual markets perform, asset pricing and capital availability and our primary job here is to garner capital, allocate it appropriately and try to generate a better return. I don't know where that's going to be.

It would -- typical cycles would indicate that acquisitions are a little premature, that asset prices haven't fully adjusted, that fundamentals are still weakening and it's going to take some time. So, it might be a period of being patient for the next six months with more and opportunities down in what I'd call 2010. That's how I think of it right now.

Okay, great. Thank you for the detail.

Thank you. Our next question comes from the line of Rob Stevenson with Fox-Pitt Kelton. Please go ahead.

Good morning, guys. Jerry, have you guys made any tweaks to your resident underwriting methodology over the last few months as some of these markets have softened?

No, we haven't. We've kept everything we do with our credit screening company same as it's always been. Our level of declines has actually stayed consistent over the last year at about 20% of our applicants get declined. We really haven't seen a change in that.

Okay.

And we've really been able to keep and grow occupancy without lowering our credit standards.

Okay. And you had mentioned the bad debt in first quarter versus a year ago, do you have the number of what it was in the fourth quarter?

I sure do. Our bad debt as a percent of GP was 0.6 in 1Q'09 it was 0.5 in 4Q'08. On an absolute dollars, our bad debt was about $150,000 more in 1Q than it was in 4Q.

Okay. And then a question for Mark; do you have any acquisitions (inaudible - background noise) which is currently under contract?

No, we do not at this time.

Okay, and then follow-up on that one; are you seeing any big land discounts out there from banks or other distressed sellers that -- where it might start to make sense to stockpile for 2010 backend or 2011 start?

We have not seen anything significant at this point. Land prices pretty sticky, I think [Ann Boley] well mentioned some condo, homeowner land maybe coming to market. We haven't seen anything that fits our markets that would be that compelling, so really nothing of note out there where we're looking in our markets.

Okay, thanks, guys.

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

Good morning. Jerry, first question for you, you mentioned that your occupancy, I think to date was roughly 96%, I'm just wondering what your rate has done over that period since the end of the quarter?

The rates have actually continued to go down. I said in the first quarter our average rates on new leases was down about 7.5% from what the previous resident staying, in April it was down about the same amount; 7% to 7.8%. And that occupancy I gave you, that 96% was as of the end of the month, it averaged for April in the mid-95s, so about 95.5%. And our goal going forward is to really run the portfolio in the 95% to 96% range.

Okay, and then you mentioned that in Southern California you had seen some people moving down from A to B properties, I'm just wondering if you've seen a lot of that in your other markets, like D.C. and the mid-Atlantic markets?

Really haven't seen a whole lot of that. In the D.C. markets it's whether you're inside the beltway or outside the beltway, and we've held up better inside the beltway than outside the beltway. And the other mid-Atlantic markets, Richmond; most of our product there I would tell you is B, we've held up very well there, especially given the job loss at Circuit City and Land America over the last three to four months. Felt a little softness recently, but not too much. There's not a whole lot of A product in Richmond.

Okay. And then can you just quickly go reasons for move-outs, the percentages?

Yes, I can give you a couple. Move-outs for money reasons, either skipped, eviction, lost a job, is about 16%, 17%. Move-outs for home purchase is about 11%, which is, I think it's about 11.7%, it's the lowest it's been since we've been tracking this. The other reasons; not happy, rent increase, just things like that, the normal stuff. The two that you've seen swing are, over the last year, year-and-a-half, the number that move out because of money problems is offsetting the number that move out to purchase a home.

Okay. And then, and Mark, related to the development pipeline, what's the expectations, or maybe David could answer this too, your expectations for having to put in additional equity injections when you go to put secured financing on those assets?

One thing with (inaudible) or my answer, that would be speculation at this point. I will say this; we're fairly lowly leveraged in those assets today, 60%, 65%, so I don't -- we're not really planning on anything below that unless you develop just some extreme worst-case scenarios. I think we're pretty much set on that stuff and they're mini-perms too, so they've got some extensions on them. Do you have anything to add?

No, I agree, they're all 60% and most of them have two-year mini-perms, by that time we don't anticipate any additional (inaudible).

Okay. And in fact --

-- you might think also that given the Fannie and Freddy underwriting standards, it's not necessarily that you're going to be refinancing with a bank, you might show up on the GSE's doorsteps, and with their current lending you'd probably get more than just the construction loan out of it right now.

Okay, and I guess going back to your comments then, Tom, I'm just wondering what your views are the unsecured markets we've seen spread to come in a bit over the last couple of weeks. I'm just wondering what you're guys taste for that, and you've also seen increased interest in the convert market, just wondering your views on that market as well.

This is Toomey. Warren handles the capital markets for the company, and I'll let him speak about the pricing and what we're seeing in that marketplace, but certainly we're seeing the same thing a lot of tightening in pricing across the full spectrum of capital.

This is Warren. I think if we look at the unsecured markets, something we want to continue to be able to access, but in this point in time I guess our view is that we look at it as a spread over what we can do our secured debt and the feedback we're getting is that that market's still around 9%, somewhere like that and if our secured debt somewhere in the 5.5% range and you look at 150 basis points to 200, it's still not at the point that we would access that market.

Okay.

I don't think with the conversion that we're -- with the new accounting change, that's just strictly dead and we haven't seen very attractive pricing on a convert offering.

All right, thanks.

Thank you. Our next question comes from the line of Jay Habermann with Goldman Sachs. Please go ahead.

Hey, Good morning, guys. Tom, you mentioned not a lot of opportunities out there at the present, or at least not attractive pricing, but in your comments in terms of the re-equitization, it sounded like you were a little more open to taking capital today, and is that perhaps the case where you take capital and anticipate better deals in 2010, '11, '12?

Jay, it's a fair question and on a number of occasions over the years I've stated that my desire and philosophy is more around that the market will feed me capital when I can find accretive opportunities, and I've watched that through many cycles over the years and when that occurs, and it should occur like every other cycle sometime, we will probably then go out and find capital to do accretive work. I don't see it as accretive today and I think we've got a lot of other tools in our hands to manage our debt maturities as well as continue our efforts towards to de-levering this enterprise. So --

So, if you do participate in this re-equitization, it would be more for de-levering as opposed to transactions at this point?

I believe that's correct.

And just looking at the recovery now, I mean obviously economists are now projecting modest growth in the latter half of the year as well as into 2010. Can you give us a sense of where you see the west coast bottoming in this cycle?

We don't see it yet and to speculate would be just like throwing a dart or hiring an economist to give us the answer that we want. We just frankly at this time don't see a bottom in the west coast and I think next quarter we'll have a little bit more perspective three months under us, but right now rents are continuing to fall, the rate of decline is less, the rate of unemployment loss in the country is slowing as this morning's report. We're interested in seeing how that stacks up in our particular markets, but it's too early to be trying to pick a bottom right now.

Okay, but would you expect by the end of the year it will be below your average forecast for the year, in terms of the declines in NOI?

I think we've given ourselves plenty of room in our forecast to allow for continued job loss in those markets and so I don't see it threatening our forecast, we're just saying we don't see in '09 that it's going to bottom.

Okay, and then just lastly I know you mentioned As versus Bs in Southern California, but can you talk about price point, I guess one-bedrooms versus two-bedrooms.

Yes, I can, this is Jerry. It depends, you do see people doubling up, we're seen more transfers within our communities this year where you either have a couple that were living in a two bedroom moving down to a one, or two individuals that were living in a studio or a one moving into a two together, it goes both ways, but you are seeing much more price pressure of people trying to get the most out of their dollar.

Okay, and, Tom, just lastly back to the leverage issue. Do you have an optimal level in your mind? Where you think that could go, whether it's debt to EBITDA or debt to assets?

We've generally looked at leverage along the fixed charge element. And our fixed charge, as David highlighted, is up to 2.2, we've always been comfortable running the company at 2.0 or greater and so I tend to look at it from a maturity standpoint, from a concentration standpoint as well as a fixed charge, and not a loan-to-value because as you can see stock prices are extremely depressed and I don't think that's reflective of the value of the enterprise, so that's how I've looked at it and we'll continue to monitor and market for opportunities to use our capital to enhance that coverage ratio.

Great, thank you.

Thank you. Our next question comes from the line of Rich Anderson with BMO Capital Markets. Please go ahead.

Thanks, and good morning, everybody. I guess I still don't get it on the equity question, because when I first heard you, Tom, you sort of said it like you said, we don't need to do it but we might do it. Is that about right or I mean I'm confused as to where you stand on it still.

Rich, to try to put it more succinctly, I guess I'd say it the following ways and I don't believe it's a restatement, I think it's a re-characterization of it, if you will. First, we just got $200 million of cash in, we raised $200 million of equity in November of last year, so we have plenty of capital, we clearly outlined our capital availability to us as well as our needs. And with that said, our job should always be to look for opportunities in the marketplace and if we can find an accretive opportunity then we would probably look towards the equity markets to continue to advance the company and use capital in that way.

Okay.

Thank you.

Okay, because responding to an earlier question you said you would use equity to de-leverage and I didn't think that was --

No, I think that was Jay's point of view that you would use it, I'm sorry for providing that not clear enough. I think I've restated it appropriately.

Okay, good. The next question is on guidance and you mentioned there is plenty of room in your guidance for further declines, and every time I think about guidance I think that you have to remember that the guidance is coming from the same source that is issuing the results and so that could mean people haircut, or you could sandbag, I'm not suggesting you do that.

But if I say somebody I can bench press 40 pounds and I do 50, then I've outperformed, but that's not necessarily so good. So I'm curious as to where UDR stands in their theory behind guidance; I mean to you look at where you stand and haircut it 5% to give yourself wiggle room, how do you think about guidance because you were successful in maintaining your internal growth expectations so far this year.

It's a good question, Rich, and I think a lot of companies approach it different ways and ours succinctly is this; we approach it three ways, first up is the people on the ground who are leasing apartments for us who know the marketplace, the competition, build up their revenue forecast and we redo that at least twice a month. I mean we're constantly monitoring our rents but we utilize their forecast.

Second, Jerry, his leadership team, myself, we sit down and look at the economic drivers, the unemployment number, the housing prices, our traffic patterns and come up with our own estimate independent of theirs and thirdly we look at generally what peers are saying, both public and private about particular markets.

And those three combined usually drive us to a general consensus about how we feel about our portfolio and how it's going to perform over the next quarter and over the balance of the year and into next. So, we use that mechanism really to build up our guidance, and as you know the general aspect is most of our FFO is driven off our operating platform.

Okay. I just want to make sure I heard this right, did you say there was a 2% rent increase on renewals or was that a decrease?

Increase. That has been decelerating and I can tell you I think over the remainder of the year it's probably going to be more flat to slightly negative as we try to continue to retain more of our existing residents.

Okay. To David, can you go through quickly the dividend shortfall math for me again; you said there was a $10 million or $15 million shortfall in coverage, but if your taxable is $1 to $1.20, I guess and the $0.30 equates to about $1.20, I guess I'm confused how that shortfall math works.

I'd be happy to walk you through that after the call, but the real quick math of it that we went through in the fourth quarter call is that if you took the midpoint of the guidance at $1.29 and then you took a CapEx charge, when you took that CapEx charge out so you come up with an AFO number, that compared to the dividend at $1.22, the spread was, I believe somewhere around $0.06 so you came in at about $13 million as a shortfall when comparing the dividend to an AFO number.

Okay, maybe I'll revisit that with you later on.

That's fine, I'm around all day.

And finally, back to the guidance, last quarter you guys referenced some reasonable amount of debt gains in the full-year range, I was wondering if that debt-gain number has changed relative to your full year guidance?

It has changed in the sense that in February we said we had $0.03 already done.

Right.

Now we can say that we have $0.06 done. We prefer not to comment on future capital market or debt purchase activity that we might be doing through the balance of the year, but we have $0.06 in already plus if you look at Attachment four in the earnings release, we got another $40 million of debt that we repurchased at the first two weeks of April.

Okay, okay, but to get to the top end of the range requires some more above and beyond what you've done in April?

You get to the top end of the range, you need the improvement in the operations to come in on the good side of our guidance and be including the debt gains that we've already done through April, plus we have, I think we'd also disclosed previously $0.03 to $0.04 of tax benefit that would be including in those numbers.

Okay. Okay, thank you.

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

Hi, good morning. Sorry to beat the de-leveraging course issue. I just wanted a little clarification on your answer to Rich. You do not -- currently do not think, no plans to issue equity in order to de-lever, that would be more opportunistic in equity issuance and no asset sales teed up, so are there any other activities the Company's got planned in order to just bring down overall leverage, understanding that the liquidity position is good, just the overall leverage level of the Company?

Karin, I think there are obviously a number of ways you can de-leverage an enterprise. We continue to monitor all of them, and specifically you can sell assets, you could issue equity, you could cut the dividend; would be inherently the three quickest and easiest. You can continue to buy back debt, which we have been doing.

So I think we're just biting at that apple slowly and continuing to work at this way. I know one of our peers issued last night and many other people have re-equitized their companies during this timeframe, we're looking at the pricing of that, and it just doesn't seem to fit us and I think we can continue to work towards this effort slow and steady as we have over the last year. I don't think people realize we have been de-levering this enterprise over the last year and going at it very steadily and consistently and what I think we'll continue to do that.

That's helpful, and just one final one; the share repurchases that you guys did around the $8 level. Is that something you guys would potentially do again if the stock price dipped once again back down into the $8 range?

I think we'd be looking at what's the best use of our excess cash at the time and whether or not the share repurchase was a wise investment compared to our debt or other investments we may see out in the marketplace today.

Okay, so you're not -- you're still open to potentially buying back more equity despite the de-levering plans as well?

If there was nothing else out there, yes.

Okay, thank you.

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

Good morning. David or Warren, a question for you; you talked about another secure facility with Fannie Freddie, how much secured capacity do you have to put on the balance sheet right now before you start pushing up against your credit -- before your covenants as well as the rating agencies?

Well, with respect to our covenants, this is Warren, with respect to our covenants we could add approximately another $800 million. With respect with the rating agencies, it's probably a lesser number, we'd have to have specific conversations with them.

Okay, that's helpful then. You talked a little bit about the equity issuance. What amount of debt have you purchased subsequent to quarter-end and if you've done any share repurchases subsequent to quarter-end?

We haven't purchased any shares as of quarter-end and the debt we purchased was $41.5 million.

What was the coupon on that or discount?

Roughly, probably blended 10.25%, 11%.

Okay. Are there any plans to start any new redevelopments? I know you've probably have shelved development for the time being, but are there any plans to start any new redevelopments in the current year?

This is Mark Wallis. We only have one, which is our product we have out in the San Francisco Bay area, province of Marin, which we've owned for a long time -- we've been through a two-year titling process just to re-skin the building, so we've gotten that approval just this month, just in the last few days. So, our plan is to do that and we'll do the buildings one by one and units as they vacate, and we've had that in our plans. But other than that, other than what's listed, we do not.

On the last call I think you mentioned that you're looking at a possible (inaudible) down in Texas at one of your recently completed developments. Is that something that's still under evaluation?

We're still working on that, we've had a couple buyers looking at one of our developments in Houston and the way these transactions go these days it's going very slow, we'll see if they decide to go forward or not, but there is some interest but nothing I can speak to specifically.

Okay then finally, two general questions; in the past, in you supplements, you disclosed a pretty sizable predevelopment pipeline -- the different phases of Vitruvian Park as well as some land parcels. What does the predevelopment pipeline and total cost look like at this point? Are there any projects that you're considering writing off? Can you just give us a sense of what that predevelopment pipeline looks like today?

As far as a predevelopment pipeline, it's the same as is it's been I think if you look there's a footnote disclosure in there. We just collapsed that because nothing hit, had been changing. Let me just speak to Vitruvian quickly on how that works. We are building the first phase of a several phase development there. We operate a shopping center that has a high-end grocer, newly remodeled anchor store in there and over 1,000 apartments mutely adjacent to that.

There's a road that divides this development site with all the operating properties I mentioned on one side, our new development on the other. What's happening today is the City of Aspen has approved the park development we started working on that, they've approved funding on the -- starting this redevelopment of a tree-lined creek that runs through this area. So, what while we are looking at this, and if you look at the disclosure in there, half the lane is attributable to Vitruvian.

We will only start these phases as the market dictates. If you go out to this site, which I'd encourage you to see the first phase in the substantial building that has a high-rise element, it's right on the corner of the drive that goes to the center of property. It creates its own critical mass in our view. We're unique in that we already have walk able retail on the site, so we're not compelled to build a town sooner that some people might think we'd have to build in order to do it. So, we'll build that as we go. The funding is there for the city's part without us having to build more, it's not like we have a tip or something like that that's contingent upon us doing more work. So that's Vitruvian.

Then our other sites are what we've had; we have a site on Wilshire Boulevard in Los Angeles, 14th Street in Washington D.C., we've completed or continued our federalization of permitting and title work there, those titles do last some time. So, we're just doing that because it's prudent. We are seeing construction prices get much, much better. I think other people have talked about so the development yields are getting better, but obviously we're going to time those when the market looks good.

We have a site in California in [Mission Vehao] that's an old K-mart sub we've owned for some time and we're just waiting for the market there. Our (inaudible) value's still good there, so nothing is really changed other than we've -- our entitlements are more perfected and that means that we can start when the market comes back and we're looking towards that the 2011, 2012 timeframe as supply demand ratios there may be the best we've seen in 20 years, but it's too early to pull the trigger.

Thank you, that's helpful. And finally, Tom, question for you; on the past call you seemed pretty confident that there was not going to be any change in the dividend, you could maintain the dividend for the full year, now this quarter you mentioned that you're going to review it with the board and everything like that. Is there -- am I looking at that correctly, is there any kind of change on that or do you feel comfortable to maintain that dividend throughout the rest of the year?

Well, Michael, to be clear about it, the dividend is one of the things that you look at pretty consistently in these time frames and you look at it from a run rate of the enterprise where you think things are, the alternative uses of that capital and I think we're looking at looking at it again. And I don't contemplate being able to say a whole lot more than that right now.

Okay, thank you.

Thank you. Our next question comes from the line of Paula Poskon with Robert W. Baird. Please go ahead.

Thank you very much. Just to continue on the development theme. Can you give us an update on the progress at Signal Hill development and the Taylor Place redevelopment?

Signal Hill development is going very well. That site has a lot of topography to it, which required extensive land work, drainage work, retention ponds. We've now started our foundation work on the wrap parking garage. That project is going well, it just required a lot of work just on the site itself, which we obviously knew going in.

And then Taylor Place; we finished all the unit turns, the interior is done except for the lobby. If you go by that site today there's plywood up around the entrance of the lobby, although that's start to come down and the storefronts going in and the front lobby will be finished in the next 30 to 40 days. So that's project will be slowly done, it's 97% leased, hitting the numbers. It really is a radical change. Its amenity package is now up to speed with A product. Wood floors in the units, actually the original floors we brought back to their original look, so it's a good-looking project.

Do you think that the rental rate increase -- are you still assuming that you'll get a rental rate increase on it given the market conditions, and has that amount changed? Has your expectations changed?

I'll jump in on that one. We're actually getting the rents we expected to get. We had to concess a little heavier at the end of the year just because the repositioning got pushed back a few months, so we had quite a few units get delivered in our slower season, but the rental rates are up probably a couple-hundred bucks and we're getting them.

Okay, and then just keeping with the D.C. theme, you had mentioned in your earlier comments that you were seeing better strengths within the beltway than outside, not surprisingly. Can you just talk a little bit about what kinds of traffic you're seeing between those two demarcations, if you will, and also any new supply?

We're not seeing as much new supply as we were last year, especially within the beltway. There is still some that we're competing against, but second half of last year we were -- was very competitive in Arlington and Alexandria. As far as traffic, inside and outside, I tell you I can't give you a good answer on that. We look at the whole D.C. market as one big component. It has been up in total. Some of that suburban Virginia markets, Manassas, places like that have been a little bit slower, but we've done very well at Delancy and Sullivan Place and over house, everything within the beltway.

Okay, thanks very much.

Thank you. Our next question comes from the line of [Michael O'Dell] with MetLife. Please go ahead.

Thank you. Just going back to the tradeoff between unsecured and secured markets; you mentioned that the spread between the two is currently not appealing. Just given the limited room with the agencies, just curious whether the spread becomes less of an issue and you just decide to approach the unsecured market. What's your thoughts there?

This is Warren, I mean I think as Tom said we try to have a flexible capital structure and we have one advantage that we've been able to access a lot of different sources of capital, so it's not just the agency financing. As you've seen we've done a lot of construction financing, we still have two term sheets on one of our remaining construction loans, we have access to the unsecured market, we have access to the agencies and obviously if the price is right or we decided to move forward, we have access to the equity market. So we look at all of them and we don't think they're seeing limitations, just because of the $800 million on a secured debt basis.

This is Toomey, I'd just add one thing, I'm very interested to see when the June program of TALF gets in place by the feds what impact that has on the CMBS market. I would think it would be a positive and if the government holds true to its current template, which is they start a program and if it's not successful enough they throw more money at it. It would seem to me that we're going to see unsecured pricing come in even further, and so I'll be interested to watch how that happens in June and it's again, as Warren highlighted very carefully, is we continue to look at the full spectrum of available capital sources.

One last thing that I forgot to mention too is that the banks have also talked to us about additional unsecured capacity, so that's an additional capital source.

Okay, thank you.

Thank you. There are no further questions at this time. I would like to turn the call back over to Tom Toomey.

Well, thank you, Operator. And realizing that our time is about up for today. I know we'll see many of you at [May Reid] and we look forward to that. Wanted to thank our associates for a very good quarter and a lot of good efforts and we're appreciative of that.

Three key points I want to make as I've thought through the Q&A to clarify and make sure we're on top of them. This portfolio; if you were to take the un-stabilized assets, non-maturers and roll them in and say what does the stabilized portfolio look like a year from now, I think you'd be shocked to realize that D.C. will be our second largest market, Orange County will continue to be our first and San Francisco will be the third. Those three markets combined would represent over 35% of our NOI. We're very comfortable with those markets at those percentages and know that we have great product and we'll do well in those markets.

The second is our capital. We've clearly outlined our sources, uses, availability and you can see that we've taken care of and made a great deal of progress on that front and we'll continue to work and report our results, but we're excited about that. And operations; not many questions or thoughts, but carefully read through the transcripts of all the activity that Jerry has put through the organization using technology and how that's helping our margins, operate our assets better, staying service our customers better, but I think we're ahead on the technology front and the fruits of that effort and many years of investment are showing up in these results and in the years ahead. So, with that we all wish you a good day and take care.

Thank you, ladies and gentlemen, that does conclude the UDR First Quarter Earnings Conference Call. Thank you so much for your participation today. You may now disconnect.