UDR Inc (UDR) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the UDR fourth quarter earnings conference call. During today's presentation, all participants are in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Tuesday, February 9 of 2010. At this time, I'd like to turn the conference over to Mr. Andrew Cantor, Vice President of Investor Relations. Please go ahead, sir.

Thank you for joining us for UDR's fourth quarter financial results conference call. Our fourth quarter press release and supplemental disclosure package were distributed earlier today and posted to our website at www.udr.com. In the supplement we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures 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 risk and risk factors are detailed in this evening's press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

When we get to the question-and-answer portion, we ask that you be respectful of everyone's time and limit your questions and follow-ups. Management will be available after the call for your questions that did not get answered on the call. I will now turn the call over to our President and CEO, Tom Toomey.

Thank you, Andrew and good evening, everyone. Welcome to UDR's fourth quarter conference call. With me today are Jerry Davis, Senior Vice President of Operations, and David Messenger, Chief Financial Officer who will be discussing our results, as well as Senior Executive Vice Presidents, Mark Wallis and Warren Troupe, who will be available to answer questions during the Q&A section of the call.

2009 was clearly a tough year. Even with all the challenges that we encountered, our results for the fourth quarter and for the year were very strong. Jerry and his operating team worked hard to implement an electronic platform for our residents requiring changes to all aspects of our business, while continuing to hold down operating expenses and while maintaining revenue.

Our same store operating results for 2009 were impressive, given the context of the environment with revenue decreasing 2% and expenses decreasing 1.6% and NOI down only 2.2%. In addition, occupancy remained strong ending the year at 95.4%. These results allowed us to maintain our margin at over 67%.

For the quarter, we reported FFO per diluted share of $0.28 and for the year, we reported $1.19 which were at the high end of our guidance range. David will provide additional details during his remarks. While there were many challenges in 2009, the dislocation in the capital markets provided us the opportunity to consummate numerous attractive capital market transactions that will provide benefits in 2010 and beyond.

In summary for the year, one, we purchased $277 million of our notes in convertible bonds at an average discount to par of 5%. Two, we repurchased $25 million of our preferred G shares at an average discount to their liquidation value of 14% resulting in an interest savings of approximately $1.7 million per year. Three, we secured a new ten-year $200 million secured facility with Fannie Mae at a weighted average interest rate of 5.28%. Four, initiated an ATM equity program in the third quarter, once the market recovered that allowed us to raise 6$8 million of equity proceeds in 2009 at an average net price of $15.20 per share, and an additional $5 million so far in 2010. Fifth we entered into a $450 million acquisition joint venture with Kuwait Finance House. And sixth, we refinanced or extended $993 million of debt including the $150 million unsecured debt offering last week, allowing us to reduce our remaining 2010 maturities to only $60 million.

We entered 2010 with a strengthened capital position and cautious optimism recognizing that we still have challenges ahead. We believe that the strength of the recovery will occur in 2011 and 2012 as the fundamentals of our business improve. In the interim, our growth in 2010 will come from first, the development and redevelopment pipelines. In 2010, we will deliver 1850 newly developed homes and 574 redeveloped homes. Second, we will benefit from additional NOI on the 3,124 homes that were completed in 2008 and '09. Third, our continued focus on our operating platform and driving our technology initiatives will continue to improve our operating margins.

In addition, our experienced acquisition and development teams will continue to scour our markets for favorable opportunities while continuing to remain disciplined. Second, we will continue to monitor our markets and be prepared to start any of our five redevelopments as the economy shows firm signs of recovery. And third, continue to work towards completing zoning and titlements on our other land sites. We believe that this focus for 2010 will mitigate the challenges of ongoing environment and best position UDR as the overall economy improves in the coming years.

In closing, I want to thank more than 1300 UDR associates for their hard work and dedication. 2009 was a challenging year, but thanks to all of you, UDR was able to pull through and I am confident that with the strength of our team we can continue our success. I will now pass the call over to David to discuss our financial results.

Thanks, Tom. My comments today will focus on the fourth quarter results and our 2010 guidance. Earlier this evening, we reported $0.28 of FFO which consists of $0.29 from our core operations and a $0.01 related to the prepayment of secured debt. Our core FFO's $0.29 compares to $0.28 last year. Jerry will provide detail on the operating results in a moment.

During the fourth quarter, we consolidated our three Bellevue joint ventures when we became the managing member. We subsequently signed a letter of intent to acquire an additional 49% interest from our partners for approximately $16 million. Following the acquisition, we will own 98% of the ventures. These communities are featured on the cover of our supplement. They consist of 440 class A homes with first and second floor retail. They also include a retail center that is currently 45% leased. G&A for the fourth quarter was down approximately 34% due to the one-time items recorded in the fourth quarter of 2008 and will remain flat in 2010 at approximately $39 million on an annual basis.

During the last quarter we have had several capital transactions. Our fourth quarter share count increased as we raised $34.6 million for the sale of 2.2 million shares at a weighted average price of $15.78 under out at-the-market equity offering program. During the first week of January, we raised an additional $5.1 million from the sale of 312,000 shares at a weighted average price of $16.20. After those sales, there are 10.23 million shares available for sale under the existing program. The proceeds of these sales were used to repurchase 998,000 shares of our 6.75% preferred G stock at an average price of $21.55 and a yield of 7.6%.

In December, we prepaid a $240 million term loan three months early. $100 million was sourced through a term loan provided by a group of six banks. The new term loan carries an interest rate of LIBOR plus 350 or 3.75 %. It was an attractive opportunity for us to extend the maturity from February 2010 to 2012. The remainder $140 million was drawn on our line of credit.

Last week, we announced the reopening of our 2015 medium term note and issued $150 million at 5.25%, yielding 5.375%. On the secure debt front, we drew on $89 million of a ten-year 5.16% secured Fannie Mae facility we announced this summer. The proceeds were used to prepay six secured mortgages that were maturing in 2010. We recorded a charge in the fourth quarter of $1 million related to those prepayments. The effect of all these transactions was that as of December 31, we had in excess $730 million of cash and credit capacity which will more than meet our debt maturity and development needs through 2011. This capacity allows us to manage our capital plan opportunistically and efficiently.

There are two accounting [synopsis] to discuss. First, FAS 141R requires all expenses related to the acquisition of operating assets to be expensed in the period incurred. As noted in our 2009 first quarter Form 10-Q, UDR adopted this standard and began expensing all costs during 2009. Accordingly, we do not expect this to have a significant impact on our trended G&A run rate in 2010. The impact to our 2009 G&A expense was immaterial.

The second pronouncement concerns our 2008 special dividend that was paid 90% in stock and 10% in cash. The stock portion of the special dividend will be treated as a new issuance. This has an immaterial impact on our 2009 numbers, but does reduce the share count for all prior periods presented, therefore, increasing our earnings and FFO per diluted share. The results in the press release will reflect the adoption of the standard.

Starting in 2010, we'll be changing our FFO definition to include the non-cash convertible debt accounting charge as a component of FFO. We will also include charges related to the write-off of preferred stock or subsequent gains from repurchases. Both of these changes are reflected in our 2010 guidance and will be reflected for all comparable periods being presented.

Let me turn to our 2010 guidance. Our business has become more stable, easier to forecast and easier to communicate as we have completed our major portfolio repositioning. Consistent with prior years, our guidance is driven by a bottoms-up approach with an experienced operations team. On average, our area directors, many of whom you know, have 25 plus years of experience managing multi-family communities. Our approach includes a review of the local economy including job, supply, current rent roles and leasing traffic. Additionally, we review the national economy and various forecasts in groups such as [Lead] and Economy.com, and use that as a gauge for our results.

Our same store guidance is predicated on a pool of 40,140 homes. This is an increase of 894 homes from the fourth quarter pool and an increase of 6,974 homes compared to the 2009 year-to-date same store pool or 87% of all homes. The second year of the recession is traditionally down more than the first as revenue is reset to already depressed levels. Accordingly, we anticipate a decline in same for revenue of 3% to 4.5% with 95% occupancy and expenses to be flat to up 2%. A combination of these components project NOI of down 4.5% to down 7.5%. We are not including the impact of any UDR acquisitions or dispositions in our guidance. While we are actively bidding on a number of assets, with (inaudible) the timing of those acquisitions will be market dependent.

Turning to capital. In 2010, we have maturities of $131 million with a weighted average interest rate of 6.2%. Last week we repaid $70.5 million and announced the issuance of $150 million of unsecured debt. No further debt issuance is assumed in our guidance. The non-cash component of the convertible debt interest charge is forecasted to be $3.9 million for 2010.

With respect to equity, earlier I mentioned that we sold 312,000 shares in January. Accordingly, the common share count for 2010 should be 155.8 million shares. Our guidance does not forecast any additional equity issuances.

On the development front. We have five projects that would deliver 1,415 homes during 2010 with additional investments of approximately $45 million to be funded with existing construction loans. Recurring CapEx. As we look at our portfolio, we continue to find opportunities to improve our assets and find revenue generating projects that are residents seek and are willing to pay for.

For 2010, we anticipate increasing the amount we spend per stabilized home from $675 to $1,000. This equates to $45.4 million being spent on 45,379 stabilized homes. This per home expenditure encompasses $725 of traditional recurring CapEx from our five-year capital plans for each community and $275 of other projects that were formally separately categorized as revenue generating. These include community specific projects such as HGTV, custom (inaudible) and business centers. When you add all of this together, you compute an FFO range of $1.00 to $1.07 per 1.07 per diluted share. Now I'll turn the call over to Jerry.

Thanks, David and good evening, everyone. In the fourth quarter, our NOI decreased by 5.1% as revenues fell 3.7% and were offset by a decrease in expenses of 0.7%. Our operating teams continued to execute our strategy of maintaining occupancy, reducing resident turnover, driving down operating expenses and automating our business. It appears that job losses are slowing in our markets as we have not yet began to see any meaningful hiring. Consequently, it is unlikely that we will see much of a change in operating results until we see jobs.

Average rents were 5.4% lower compared in 4Q '09 compared to 4Q '08, and down 1.6% sequentially. We have continued to see new leases priced at lower rates, but the rate of decline has slowed since the first quarter of 2009. It is beginning to feel like the bottom is forming in many of our markets. Rental rates on new leases that were signed in the fourth quarter of 2009 were 7.6% lower than what the prior resident was paying, on renewing residents average decreases of 0.7%. These amounts varied throughout our markets with Orange County, Monterey, Houston, Orlando and Seattle experiencing the largest rental rate decreases on new leases. As expected our DC, Baltimore and mid-Atlantic markets experienced the lowest rental rate drops on new leases.

Our strategy in 2009 was to run a high occupancy rate to compensate for lack of rent growth. We have met our plan. The same for occupancy increased 90 basis points to 95.5% from 94.6% in the fourth quarter of 2008. During the fourth quarter of 2009, all of our markets had occupancy rates over 94%. Because of the continued expansion of our technology platform, superior locations, the quality of our real estate, and focus on customer service, we were successful in maintaining occupancy levels that have averaged 95.4% for the full year. We expect to maintain occupancy in the 95% range over the first half of 2010 and we anticipate a tactical change if we begin to see year-over-year rent growth in our markets by the second half of 2010.

Today our physical occupancy is 95.7%. Having maintained this level of occupancy during the weakest season of the year gives us hope that as the prime leasing season begins this spring, we will have opportunities to selectively increase rents. In each of the last three months, we have seen improved pricing in our portfolio. New leases in January, repriced 6.2%, lower than expiring leases compared to 7.6% in the fourth quarter. And we renewed residences in January at flat rates compared to 0.7% reduction in the fourth quarter.

Our annualized turnover rate for 4Q '09 was 53%. That was slightly better than the 54% in fourth quarter of '08. For the year, turnover was 58% compared to 59% last year. Move outs for home purchase continue to be very low in most of our markets. During the quarter, 15% of our departing residents left to purchase a home. This compares to 14% in 3Q '09 and in 4Q '08 respectively. Markets with higher home prices such as Orange County, San Francisco, San Diego, and Monterey all had new rates for home purchase of 10% or less. These markets represent more than 30% of our same store NOI.

Now turning to expenses for the quarter. Total expenses were down 0.7% for the quarter compared to fourth quarter of '08. Real estate taxes decreased 6.6% as a result of favorable tax appeals in several markets. Utilities were up 4.3% due entirely to increases in water expense which were partially offset by lower natural gas prices and lower electricity expense. Repairs and maintenance expense increased 2.3% with roughly half of this increase being attributable to snow removal costs in our mid-Atlantic market in mid December.

Same store direct personnel cost were down 1% as we have been able to realize some staffing benefits as a result of automating the way we conduct our business. Total personnel were up 5% driven primarily by healthcare cost and other indirect personnel costs. Automating our business has been a key initiative for UDR over the past three to four years. We have developed a long-term plan in technology in recognition that our primary resident who is 25 to 35 years old is tied to technology. The expectation levels of our customers have been raised over the past several years as they become accustomed to transacting electronically with other industries such as banking, airline, car rentals and hotels.

During 2007 and 2008, we focused our efforts on Internet marketing. Our goal was to drive more traffic to our website which has gone through there major enhancements and in May 2010, will go through a fourth. This has resulted in over 61% of our 2009 move ins originating through an Internet source, up from 48% last year.

Additionally, the full year of 2009 we have experienced an increase in traffic to our website UDR.com of 33% year-over-year. During the year, we rolled out various mobile applications including apartment search apps for the iPhone and the Google Android unlimited reality app. During the fourth quarter, almost 10% of our Internet traffic came from mobile device.

Our focus in 2009 has been to deliver and encourage automation to our existing residents. Our customers want and expect 24/7 access to us and some service. Their preference and more importantly our customers of the future preference is to do business with us electronically.

Today, almost 90% of our residents have signed up to conduct business with us electronically through our customer portal. Over 62% of our residents paid their rent via ACH in December and almost 40% of resident service requests were submitted through the portal. Our customers have the ability to place a service request 24 hours a day, seven days a week and give us the detailed information we need to efficiently serve their needs.

Benefits are not just to increase NOI. Our customers expect us to be able to conduct business with them electronically. And by eliminating the add administrative tasks, our associates can spend more time on what they like to do, helping our customers. Lastly, our customers get quicker responses to their concerns regarding things such as how much their rent is this month and whether their service request is completed.

Now turning to our redevelopment and development progress. If you refer to attachment nine in our earnings supplement, you will see that we have completed the redevelopment of three communities containing 756 apartment homes at a total cost of $36 million that are not currently in our same store results. These communities have leased occupancies between 96% and 99% and are performing in line with their pro forma.

We have also completed nine developments, containing almost 2400 homes at a cost of almost $400 million. This [upsell velocity] has been strong at these properties. In fact, leased occupancy at these properties range from 91% to 97% for all properties except one, Residents At Stadium Village which is in the Phoenix submarket that began lease up during this past summer. Over the past two years, much of our investment has occurred in the metro DC Baltimore area and it is worth noting that this area now represents almost 18% of our 2009 NO, making it our largest market.

While 2009 has been challenging, 2010 will not be any easier with job losses affecting most of our markets, the overall demand for housing, with apartment and single family homes has been weak. We have maintained high occupancy and we are starting to see signs that rent has bottomed in some markets. We may have some opportunities to start moving rent as we move into our stronger leasing season. With our use of technology, commitment to maintaining our properties, focus on customer service, and properties located where people want to live, we feel good about the future of UDR.

I'd like to thank my fellow UDR associates for pushing forward on our initiatives this year while still staying focused on operating the communities at such a high occupancy level. Thank you and now back to you, Tom.

Thanks, Jerry. And now, operator, if you will, we are now ready for the Q&A part of the call.

Thank you, sir. (Operator Instructions). Our first question is from the line of David Toti with Citigroup. Please go ahead.

Hello, everyone. It's actually Eric [Wolfe] here with David. You touched this quite a bit in your comments, but I was wondering whether the stronger than expected occupancy you saw in the quarter -- what is typically your weaker season. Was this a result of you letting up on rates more than you expected? Or is the demand stronger than you thought and should we view as more defensive strategy than you originally anticipated?

This is Jerry Davis. We didn't pull back on rates any. Actually our rates decline was better in the fourth quarter than it had been in the third quarter. We use our yield management system to help us set rates.

I can tell you that it feels like -- it likes to keep us around the 95% range and we've run a little bit higher than that all year. We think again it's an indication of location and the way we drive traffic with the electronic platform. And I'll be honest with you, I think most of the rates in the public have done a better job in the markets in general because people -- a lot of the private owners haven't invested in the capital or in driving traffic through the Internet, and we have taken market share from those guys.

Great. Just on the that note, you talking about some of these technology initiatives that you have done and perhaps others have. Is there any way to quantify the impact that it's had on your property level income, whether in terms of margin or overall bottom line versus the investment that you had to make there? Just thinking about what the return has been on that investment.

I clearly think it's pushed our revenue up as we have turned more traffic that direction. I think on the expense side, as we've rolled out ACH payments and electronic service requests, we have seen some efficiencies in our staffing for the year. Our personnel costs were down about 1%. Last year we gave increases of about 3%. We've been able to drive headcount down 2% to 3% as we become more efficient on the administrative side.

It really is difficult to measure the impact on the revenue. When we look at how we compare to our peers in other markets, we are pleased with our revenue performance. It's not just the electronic platform. It's everything else that we have done in the past such as buying right, investing in our real estate and our people, but it has an impact. We do think it has helped drive our margin.

Just one last question. As far as the Western markets, clearly they've lagged a bit in this downturn and are showing their greater declines now relative to other markets. When you look at late 2010 and 2011, how strong do you think the inflection point would be there? Other markets that were early in the downturn are still trying to escape and haven't been able to see much of a strong influxion. Thinking about what are you looking to see how strong that turn might be.

We are looking at jobs. Right now we don't think there will be a whole lot more job loss in those Western markets going forward. Most of the hit happened early last year in the California markets and later in the year in Seattle. But when the job growth comes back and we do feel like job growth will start to come back later in the year in Northern California, when the tech industry turns, we think that there will be a balance.

But I can tell you we look at which markets we believe have a chance to turn positive revenue growth next -- in 2010, it's typically not the Western markets. We feel good about DC, Baltimore, that whole mid-Atlantic region that we are already starting to see signs that it will be positive. Revenue growth in the first quarter just as we were in fourth quarter. But California, our expectation -- we may get lucky in the fourth quarter, but it's more likely it will be a 2011.

Got you. Thank you for the detail.

One other thing. This is Toomey. I would add to Jerry's technologies. You have to look beyond the NOI on the investment. You have to think through this business and where it will be five years from now. The vast majority of our customer of our target age core are 20 to 35, are going to be on mobile platforms and want to do their business that way. Our business model is going to be there to service them. That's why we've published the statistics -- you can see how rapidly our customers have adopted to our technology, and we think is what they will seek in the future. It's not an NOI. It's actually meeting your customer of today and tomorrow. [Not many] other businesses have done it.

Thank you.

Thank you. Our next question comes from the line of Dave Bragg with ISI Group. Please go ahead.

Thanks for the extra info on guidance. I want to throw a couple of other metrics and hopefully get some numbers from you. The first is interest and other income.

In terms of interest and other income, we have budgeted -- or we have forecasted for 2010?

Yes.

Okay. Just over the same page here -- give me a second to walk through what we have for guidance in answer to your question. If you take the 2009, actual FFO of $1.24 and then to get to the mid-point of $1.035 to $1.04, with an estimate -- same store NOI decrease of 6%, we will lose about $0.13.

Then for the nonmature pool of the acquisitions not yet in the mature pool as well as developments of lease-ups including developments you are gain about $0.06. And the interest expense line item which would include about $0.025 from the convertible debt, you will lose $0.10. From share dilution, you will lose about $0.04 as well. In terms of fee income, tax benefit, overhead savings [through the income], you are going to pick up about $0.01. All that nets out -- that [PA] comes in there for about $0.01 and that gets you down to a $1.035 to $1.04.

Okay. I'll review those numbers then. I was looking for that one and also one thing I might have missed or you didn't mention is capitalized interest.

We didn't mention anything specific but we do -- with the developments coming online and the $0.10 charge I just mentioned. Inside that you have about $0.06, $0.065 that will lose from the cap interest line item as the developments from the previous years all set to roll online and that pipeline comes to completion.

Thanks. One more question. You mentioned a change to the CapEx disclosure. I want to make sure we are looking at this correctly. You mentioned $1000 per door for 2010 I believe and if I add up the two different buckets and attachment 12 for the full year '09, I get to a little bit over $1200. Am I comparing those two correctly and therefore, is it correct that you are expecting that decline in 2010?

That's correct.

Thank you.

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

Hey, Rich?

Your line is now open. If you have your mute button depressed --

Put your shovel down.

We'll move to the next question which comes from the line of Jay Habermann with Goldman Sachs. Please go ahead.

Good afternoon. You guys talked about possibly pushing rents as you get to mid 2010. Can you give us some sense of what types of increases you might anticipate? I know we are still six months away from that timeframe, but what rate increases you are thinking for the latter half of the year?

This is Jerry. We'll push it really as much as the market will bear. As we go into prime leasing season, our yield management system, Yield Star, pretty much directs us how much you can push rents. And typically when you go in with a high occupancy like we're at today of 95.7% and we've been able to maintain that. It will push it again to the level that demand allows. I can tell you we have played with the system a little bit to put in some abnormal increases lately, just pushing an extra $10 to $20 here and there to see if it will have an impact on occupancies and closing rates, and we really haven't had a lot of resistance on that over the last 45 days.

Across how many markets would you seek to anticipate seeking to increase rents?

I would say probably half of them. It's difficult. Again the western United States, it's going to be tough to push rents much in 2010. But if opportunities arise, particular properties or particular floor plans, we'll push it wherever we can. We don't look at it really across the board. But I feel very good about being able to do it in the mid-Atlantic, I think at some point during the later half of the year, we'll be able to do it some in Florida and in Texas. I feel less confident as you move up to Seattle. And some of the California markets, it's hit and miss by sub-market and even by property.

And then lastly for Tom, you mentioned no acquisitions in terms of the guidance. Can you give us a sense of what you are seeing at this point whether for UDR wholly on balance sheet either/or for the fund?

Mark, do you want to talk about the acquisition environment and I'll add in?

This is Mark Wallis. I'll touch on that. What we have not done in guidance is set some target that probably would be advantageous to the number because this market is still evolving. And we are not in the business of just trying to make a guesstimate of that. We'll just comment on what we are seeing in the market.

There's been a few good deals come to market. There's been a pretty active bidding on those options. The price has surprised people. However, there's still in our view probably in relation to replacement cost, they are good deals. Our view is that what's over hanging in the market is a lot of debt maturities that the banks hold. I think other people share their view there and they're trying to figure out if some of those (inaudible) come to market, say at one time bunched together, that there may be some better deals after.

Our experience in this and our business --- looking at traded assets, we have trade the last three years, timing is very important. We've had pretty good timing and our strength has been in this kind of recession, early in the recession it can be too early. Doesn't mean that people haven't made decent deals with our fund that you mentioned. We are actively in the market. We are actively bidding. We think we'll be successful at some deals we are looking at at prices we think are starting to get in the middle of fairway.

That's generally how we are looking at acquisitions right now and for the rest of the Company, we are in the market every day. If we see a deal down the road, if these prices come in where they are really good process, we'll act on it and we'll announce it then. It's not (inaudible) to guess at that.

This is Toomey. If you think about it today's policy, the central regulators and the entire banking system is pretty relaxed. And at some point, it's already been communicated as the economy improves, they are going to tighten up around a lot of this loose policy. We think as that tightening occurs, a lot of banks will move to -- out of the extending mode to, let's move the asset to market and I think there will be a lot more listed.

Secondarily, as there's more visibility on NOI across all our markets, we think the buyers will spread out and there will be a lot less competitive than some of these auctions that are being run. Those are the two that we are looking for, and probably the second half of the year and into 2011, it will be a better acquisition environment for us.

What discount to replacement costs are you seeing in those attractive scenarios?

This is Mark. That's a deal-by-deal analysis. Some people would believe that they will have probably gotten discounts in the 20% range. Give or take, that's probably a pretty good rule of thumb.

Thank you.

Thank you. Our next question comes from the line of Jeffrey Donnelly with Wells Fargo. Please go ahead.

Good afternoon, guys. Tom, following up on an earlier line of question about technology infrastructure, I'm curious do you think that it improved your tenant retention at this point?

I'll add my thoughts and Jerry can. Obviously from the numbers, we are flat. And I think that was an accomplishment of both our team and the technology approach. Moving into the future, certainly we are going to deploy our technology around a renewal process that we think will enhance that.

Today's renewal process, if you will, 20 years ago, it was a letter on a door. Then it was a phone call and then it was 90 days early. Today's customer if you give them a valued proposition, use your call centers, these types of techniques in the future we will get that renewal rate down -- our turnover rate down. I think in the future as we deploy more technology in the area, we should be able to effect that number.

I would echo that. We've just started rolling out the piloting of the electronic renewals and I can tell you the feedback has been great on the ones we've got. It's such an easier process for the existing resident to go through. They don't have to take time off work to do it.

They can do it at their own time. I can tell you on the electronic payments as well as electronic service requests, remember 80% of the apartments around the country is privately owned. Most of those guys don't have the technology we have. We think the renter of the future will be so used to dealing with everybody electronically, we are going to have a huge benefit. We do think it will benefit us in the renewal rate.

Ask yourself this question. If your bank today that you probably pay a lot of your payments through on a recurring basis, and then all of a sudden you were to switch to a bank that didn't have that service, would you readily switch to it? That is the parallel that you have to draw.

That is where I was going with it. It is going to be easier to work with you guys. Not so much the process of renewing as it is the day-to-day access. Switching gears, you mentioned the move out to home purchases is about 15% which popped up in Q4 probably as people took advantage of tax incentives. Can you share what is happening with that if you know it offhand in January and even February, has it rolled back down or is it holding steady?

We really look at that information after the end of the month. I haven't seen the January data yet and obviously I haven't seen February yet, but my gut tells me it stayed about steady. It really differs market to market. The areas where you have seen the large increases to move ins to home purchase is -- the lower housing cost markets such as Nashville, Phoenix, Tampa and Houston. Those are all north of 20% than the West Coast markets where the spread between renting and buying is more than $500 or $600, such as Orange County, San Diego, San Francisco. The move out home purchases really is less than 10%.

Just one last question. As I think in Q3, you guys had mentioned that Florida and mid-Atlantic markets were seeing slowing rates of declining rents. But the handful of those areas, like Baltimore, Richmond, Orlando, Jackson actually saw accelerating sequential decline. Is that something you attribute to a bumpy landing in those regions or it is possible it is taking a little longer for those markets to find the bottom?

It's taken Florida a really long time to find the bottom. It will feel like it's finding a bottom, and then it will start falling again. Right now, I can tell you Tampa feels like it's looking for a bottom. Orlando is shakier for us than any other place in Florida right now. But, yes, it's hard to really call a bottom on anything today, except for I think DC and again we feel good about Baltimore.

Thank you.

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

Good evening. Can you tell us your gain to lease in the quarter or where it stands today and what the trend has been on that?

We really look more at what our gross potential is. I can tell you the gain to lease though has been -- I don't have the percentage off the top of my head so I'm not going to make one up. It has been going down. Our market rents over the last four, five months have been increasing. And so the gain has been going down, but not significantly.

Okay. Switching gears, there's been some talk that Prop 13 might make its way back on the ballot. You acquired most of California portfolio fairly recently, but have you looked at what the potential impact could be on a roll back on Prop 13?

David?

I would look at it this way. a lot of things are on the proposal out of California from rewriting the constitution to state income tax to Prop 13. It's just too early to speculate on what ultimately will arrive there. I think it's going to be debated by frankly the next governor and the next seating House of Representatives out there. It will be an issue that we'll be talking about in 2011. It's too early to speculate.

Thanks very much.

Thank you. Our next question comes from the line of [Ernest Swett] with BMO Capital Markets. Please go ahead.

This is Richard Anderson here. Technology challenged. Can you hear me?

Yes. We can hear you.

Okay. I need some help with technology (inaudible). When you mentioned the tactical changes for the second half that you might implement, I assume that means pushing rents. You alluded to that. But can you give a little more color on what that might -- what the impact of that might be from an occupancy standpoint? What are you willing to give up occupancy wide? What might we be looking for if that tactical change does start to take hold?

I'd be comfortable with occupancy going down to the 14.5 -- I mean 94.5%, sorry. 94.5% range. I think when you have the opportunities to raise rents, I would rather run at a lower occupancy. Last year, we had no ability to do that so we wanted to keep occupancy up.

The first step is going to be to get a little more aggressive on renewal increases. For the last six months, we've averaged flat to down 1% in renewals. We are starting to push renewals higher and then watch what we can get on new leases. But personally, if we got to the 94.5% to 95% range I am not going to be bothered. We ran most of this past year, especially after the first quarter in the upper 95%. I don't see us going down to 92% or 93% or anything like that.

Rich, I would key off of the renewal rates and how they are going. They will would be the first sign that you can push rents.

Okay. Just a conceptional question for you. You guys are so technology savvy, and yet the name of your website is UDRT.com which sounds fantastic to me, but to the common population I wonder. No offense. I am wondering if you thought about changing the name of your website to be more intriguing to the casual user of the Internet.

Believe it or not, people do not search for UDR or UDR Inc. or any aspect of that. What they search for is location, price point and key words. We've been very good over the last four years at continuing to adjust to the algorithm utilized by the ILSs and the other search engines to drive that traffic. And I think Jerry might have some statistics on how much their search engines have increased, but my guess is somewhere about 20% annually. That is not going to be because they are finding UDR. It's because either adjusting the key words, price point, and/or locations. And so that's how we get to the higher search engine optimization.

TomToomey.com?

We haven't tried that or we haven't tried Jacuzzi.com either.

Thank you very much.

Our next question comes from the line of Alexander Goldfarb with Sandler O'Neill.

Good afternoon. First going to Dave's comments, thank you for including the converts and the preferred charges, et cetera in FFO for the coming year. That's helpful. Along the same lines, can you tell us what fourth quarter same store revenue and expense and NOI would have been if you had used the same full year '09 same store pool? Just to get a comparison how the quarter did relative to the year.

You are saying if I -- instead of using the year-to-date same store pool, had we used the larger home count? Instead of using 39,000.

I was going to go -- just to compare it because a number of the other companies were used -- they update it once a year. I want to know what fourth quarter same store number would have been if you had used the 33,000 same store count that you used in the full year.

I don't have that in front of me. I can get it though. We can take that offline.

That's cool. Second question is just going on your thoughts -- some of the refinancings that you have done recently. You reopened your five-year. If you were going to go out with an unsecured offering, is your preference -- what are you seeing out there? Is your preference still the five-year if you were to do a new one? Or do you think the seven or ten-year? Where do you think would be the optimum point right now?

We look at it in terms of laddering our maturities and what the most attractive financing so we look at both of those and make a decision based on that.

But the curve at seven to ten has a high break point, and you can see it. What is the five at [2.30%] today and the ten is at 3.60% and the break at seven years is right around 3.25%. It takes a heck of a brake after that. It seems like the bond market is very comfortable with the five-year window on the economy and grows greatly more skeptical between seven and ten.

Even though they are all in, is still pretty good on an historic basis, you are more focused on the break?

There's a couple things. There's a lot of rooms for spreads to compress which will absorb initially the Feds action of moving treasuries up if you will. The rate environment we are faced with today will probably be the rate environment through 2010. And what Warren and his team will look for is over reaction in the market, either in the Treasury or the spreads. And when those occur, we like to jump in and again price to our laddered maturity schedule.

The good news is we are down to about $60 million that we have to deal with in 2010. We'll start being opportunistic as we look at 2011 and 2012 and see what we can take out at the appropriate time. What we've always done with our balance sheet is try to remain flexible and opportunistic to the market when it over reacts. And you've been at it long enough, you know it will over react.

It's the beauty of the market. They tend to over react at the top and bottom. Going to Fannie Mae, your JV with them, is there anything recently coming out of Washington that would suggest they may have to exit your joint venture? If that were the case, is there a buy sell or first right of refusal or something like that in that arrangement?

We haven't gotten any indication. We deal with them on a weekly basis and they are pretty pleased with the joint venture. There is a buy sell. It's a standard one in there, but the more discussion with them, the more joint venture is operating very well (inaudible).

Okay. That's good to hear. Thank you.

Thank you. Our next question comes from the line of [Swara Giarva] with Morgan Stanley. Please go ahead.

Good afternoon. Jerry, last quarter you mentioned a 600 point spread between your new and existing lease renewals. This quarter it seems like that spread has increased slightly to under (inaudible). Do you see that trend converging as this year progresses? And if so, when?

It already has started. When we looked at our January numbers, as well as our February and again, February there's only a week's worth of data so I wouldn't quote that information. But in January, that spread already did compress. It was -- new leases was down about 6.5%, and renewals are basically at about 0.5%. Or actually they are about flat. It's roughly about 600 basis points spread still, but what you're seeing is both numbers are improving.

But I do expect to see it compress a little bit more. I think the new leases will continue to be negative at least for the next probably six months. I'm hopeful that we will start seeing renewal increases over the next two to three months. I won't be saying, it's flat or negative. I will be saying it's 1% or 2% up. We are already experiencing that in our mid-Atlantic markets and we are looking for opportunities to do it out West.

Fair enough. The other question I had was the revenue guidance. You mentioned the bottom has approached, but what employment projection, both nationally and at your market level, are you building into the guidance?

This is Dave. It is a positive approach where we rely on our management team to look at their assets, look and see what they see in their local economies, what do they have for lease traffic, what do they have for lease expiration currently and how they are managing the asset. We don't have a specific job number plugged into the model that says that if unemployment in Norfolk goes from X percent to Y percent, then accordingly your revenue and expenses move.

The same is true on the national level. When we aggregate all the property and all the numbers in the model, and we look again the reports our of REITs and on Economy.com, out of all the other sources that you see published that are almost on a daily and weekly basis, we bounce our numbers off of those publications to see is it reasonable, not reasonable, are we within a certain bandwidth. We don't have any specific job number plugged in there that would say that it will move the dollar one way or another.

Okay. That's very helpful. The last question is the iPhone app free?

Yes, it is.

Thank you. Our next question comes from the line of [Jordan Sherman with Perennial Real Estate]. Please go ahead.

A couple of technical questions and then a bigger picture question. I'll ask the bigger picture question first. Four other multi-family recently reported earnings and giving guidance for the full year all within a stone's throw of your mid-point on the revenue guidance of next year. On average down 5.5% fourth quarter, the same store revenues year-over-year with sequential declines at 2.1%.

You were substantially better on the year-over-year and better on the sequential. I'm just wondering why do you end up in the same category of revenue declines next year? Is it a timing -- these are broadly other REITs that are in your markets broadly speaking. How conservative are you being with your revenue guidance?

This is Jerry. I'll lay that out with four points. First, we do believe in the second year of a recession that you have embedded rents that continue to drive down the revenue. And typically revenue growth will be lower in the second year than the first. Secondly, just remember we ran our operations with very high occupancy by our standards this past year in the 95% to -- 95.5% to 96% range. We won't be able to get any increases in revenue through occupancy gains.

Also roughly half of our portfolio is on the West Coast. We do expect the West Coast to perform worse than our Sunbelt and mid-Atlantic regions. You are going to have that anchor of half the Company pulling it down. And I can tell you, like Dave just said on his last response, we did a bottoms up. We looked at what the embedded rents were and what we thought the local economies were going to produce, and the range that we have given for guidance is where we fell out.

Fair enough. Secondly, just some technical points. The convert to preferred charges included in FFO guidance was how much?

In the guidance for 2010 is $3.9 million related to the convertible debt and then there is nothing in guidance for the preferred. We were amending the definition to include both.

And what's the $2.9 million -- what per share does that impact? My question on -- sorry?

$0.025 (inaudible).

Is that to your understanding in current consensus or excluded from current consensus type estimates, generally speaking?

Not up to me to determine everybody else's model to what goes in a consensus. I can only be responsible for my model.

Appreciate that, but my point is if you haven't included it before, it is unlikely to be included next year? Right? You haven't included it previously in your guidance.

There has been a disparity in practice, some included, some haven't included to where it [shaked out] in consensus. I can't speak to specifically. I would encourage you to call the guys that are responsible for the models that go into consensus.

Fair enough. I want to make sure that when we look at the guidance versus consensus, we get apples-to-apples number and not an unfair comparison, if you will. I'm sorry?

For 2010, it should be.

The interest expense, you said 10% hit year-over-year? I apologize. I didn't catch all of why it was a $0.10 hit year-over-year or how that worked out.

$0.10, not 10%. The two biggest components are $0.025 relate today convertible debt.

Which we talked about and the capitalized interest is the other?

And the other big component, yes.

Thank you very much.

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

Thanks very much. Just one question to follow up on your comments about the snow impact in the fourth quarter. Can you quantify what that was in operating expenses and also how you are trying to plan for that or budget for that or perhaps you are already over budget in the first quarter, given the realtime events that are happening?

Sure. Like I said in my comments, in December when the snow storm hit the East Coast it cost us about $125,000. We took that entire hit in the fourth quarter. The snow storms that hit this past weekend in DC and Richmond and that are hitting today, best guess we have right now is it will cost north of $200,000. We are having to bring in dump trucks right now with bobcats to take the snow off our property so that people can get around.

Did we budget for that? Honestly, not really. We had very little snow impact the last several years. It will cause us to be a little over budget in our East Coast operations and we will have to find a way to make up for it in the rest of the country.

Thanks. Feel free to send one of those down my driveway whenever you are ready.

(Operator Instructions). Our next question is from the line of Michelle Ko with Banc of America. Please go ahead.

I wonder if you can talk about your underwriting assumptions. If you were to do an acquisition, what cap rates you would purchase at versus what development yield you would require today.

This is Mark Wallis. I'll speak to that. I think there is -- right now in the talk about acquisition development, there's a lot of focus in the initial yield. In reality, you have to look at overall rate of return which we still do. Internal rate of return on most deals are unlevered, 10 to 12 today and we squeeze that up or down depending on the deal. There's always a question about spreads between an acquisition and development. Historically it's been 150 basis points give or take. Tighter in the Coastal market, wider in the sunbelt market.

What you are going to look at is when you underwrite these deals, there is a benchmark -- a replacement cost. People get nervous whether you properly value the land on that. We look at that, too, to make sure there's a proper correlation there. And then the go into yield -- the other thing that drives going into yield is -- let's say I buy something, a bobcat for once and it's a bad deal. It depends on the rent growth what you do with the property. If I can pop the rents $300 a month with appropriate cap on management and have a higher trajectory on rent growth over the next five years, the five cap looks good.

It's really hard for me to say you should buy at a 5.75% cap rate even though we tend to shortcut our conversation (inaudible) too. That's how we look at it. We look at replacement cost. We look at rent growth and then our cost to capital and we are -- what of dilution causes and -- we're going to live with that based on the rent growth we've got.

Thanks. That's helpful. Can you also tell us what markets you might be interested in increasing your exposure?

If you look at what we have done historically, we like DC -- still like that whole metro area. We look there. Long term we like -- we still like the West Coast. Today we probably like Northern California better than Southern California.

Another thing we are doing is in the markets we are in, which includes our sunbelt markets, we are finding that if we can buy at or close proximity to other assets, especially you get above 1000 (inaudible) a really efficient operating pod, especially aligning this to have more effective sales force on the site that can drive us to buy that -- we have see a lot (inaudible) because of that pod concept.

Okay. Great. Thank you.

Thank you. Gentlemen, there are no further questions at this time. I'll turn it back to you for any closing remarks.

Thank you all of you for your time today. We know that we appreciate it and value it a great deal. In summary, we thought we had a very good quarter ,and we like where our prospects are and where we are positioned for 2010. With that, we'll talk to more of you on the next earnings call. Take care.

Thank you, sir. Ladies and gentlemen that does conclude our conference for today. Thank you very much for your participation and for using ACT conferencing. You may now disconnect.