UDR Inc (UDR) 2010 Q1 法說會逐字稿

Welcome to the UDR 2010 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, Monday, May 3rd, 2010.

I would now like to turn the conference over to Mr. Andrew Cantor. Please, go ahead.

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 earlier today and posted to our website, www.udr.com. In the supplement we have reconciled all nonGAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

I would like to note that statements made during the call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statement 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 up. Management will be available after the call for your questions that didn't 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 first quarter conference call. With me today are Jerry Davis, Senior Vice President of Operations, 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.

It's only been about 80 days since our year end earnings call and yet it feels like a completely different world. Eighty days ago we were still hearing of reports of significant job loss and an unemployment rate that was continuing to rise. The capital markets, while open, were not deep and there were minimal transactions in the market. Improvements in all aspects of our business came quicker than we had anticipated. Let me repeat. Improvements in all aspects of our business came quicker than we had anticipated. But I would classify this environment as slow and steady growth. Yes, we believe the best days still are ahead, but we realize jobs remain the biggest driver of our business and we will need them to return in order to materially improve our results. If we continue to believe that because of the location of our properties, our exposure to industries which will-- are well-positioned for job growth, the depth and experience of our team, our operating platform and capital structure that we are well positioned to take advantage of these changing market conditions. In summary, we the Management team are the most optimistic we have been since 2008.

Let me briefly discuss the four elements that essentially determine our results and success, our operations, assets, capital structure and people. Many of these will be covered in more detail by David and Jerry. First on operations front. Our first quarter results were undoubtedly ahead of our expectations from earlier this year. We have strong occupancy of 95% or greater in 20 of our 23 markets. As of last week, 21 of our 323 markets are currently achieving increases on renewal rates. And seven of our 23 markets are achieving increases on new leases. The combination of high occupancy and increasing renewal rates with minimal job growth has given us comfort that as jobs improve we will have pricing power for a number of years to come.

Second on the asset front. The acquisition remarket remains very competitive. We highlighted two quarters ago that there were over 40 buyers showing up at a bidding process for a five cap deal. This has only intensified with cap rates going down even further and competition to acquire assets becoming even tougher. In addition to the improvements in rent over the last six months, we have also seen construction costs begin to increase. Our experience shows that it make sense to begin development and redevelopment efforts when rents and construction costs appear to hit an inflection point, coupled with an extremely competitive acquisition market. Therefore, we started a new $69 million 352-home development at our Vitruvian site and we'll likely add another start during the second quarter in D.C. We also added a $30 million 288-home redevelopment in the San Francisco area.

Third, capital. During the first quarter we raised $225 million of capital approximately $75 million through the issuance of an additional 4.4 million shares under our ATM program. And as previously announced, issued $150 million in senior unsecured notes in February. We continue to view the second half of the year as the appropriate time to get ahead of our 2011 and 2012 maturity schedule and are exploring all options on that front.

Fourth, it's people. Through many years in the apartment business I've seen a few recessions and observed how they wear down our operations team. Two weeks ago we hosted our annual President's Club Awards Dinner, which we recognized the leading Property Management Teams and their spouse and guest as measured by their performance verse peers. At this year's event, the Executive Team certainly felt the energy, the enthusiasm from our teams. Why is this important? Remind you that they're on the front line making leases everyday for us, meeting our residents and servicing them, and when their enthusiasm and energy is up, it gives us a great deal of confidence that we've made the right decisions about continuing to investment in our people, in our asserts and our platform and that these will pay off in the future as the economy improved. I think we made the right bet. With that I'll pass the call over now to David to discuss our financial results.

Thanks, Tom. Earlier this evening we reported $0.28 of FFO for the first quarter of 2010, consisting of $0.27 from core operations which includes $650,000 of snow removal and insurance-related expenses, and $0.01 of other income related to a real estate tax accrual. Prior year real estate tax accrual was due to a conservative position we had established several years ago. In the first quarter we determined that we would not be required to pay the higher real estate taxes and have reversed the accrual. The first quarter, our same-store NOI declined 4.4% compared to the prior year and declined only 90 basis point sequentially. These figures include the full impact of the $650,000 of snow removal and insurance-related expenses, but do not include the benefit of the real estate tax adjustment I just mentioned. Jerry will provide greater details in a moment.

During the first quarter we completed the acquisition of our partners 49% interest in our Bellevue, Washington joint venture for approximately $15 million. We now own 98% of the venture and will report the results in our non-mature section. This joint venture consists of three assets. First, 989 Elements, a 166-home high-rise located in the central business district the Bellevue. Second, Elements Too, a 274-home community located next to 989 Elements and is directly across from Microsoft's new worldwide sales headquarters. And third, a retail center to be redeveloped in the future.

Last week our joint venture with Kuwait Finance House purchased the Portico at Silver Spring Metro, a 13-story high-rise home community with direct access to the metro rail station in Silver Spring, Maryland. The property was completed in 2009, has 151 homes and was acquired for $43 million or $285,000 per door, a 15% discount to similar assets currently under construction in that submarket. The purchase was financed with 4.5% five-year interest only secured mortgage from a non-GSE bank. This acquisition represents the continuation of UDR's effort to deepen its presents in high barrier to entry in urban markets, approximate to transportation, employment and into entertainment hubs.

G&A for the first quarter was flat compared to the first quarter of 2009, consistent with our plan. During the last quarter we executed a number of capital transactions. For our first share count increased as we raised $73.3 million from the sale of 4.4 million shares at a weighted average net price of $16.82 under our At The Market equity offering program. During the first week of April, we raised an additional $14.3 million from the sale of 786, 000 shares at an average weighted net price of $18.22. The proceeds of this equity raised were used to repay the $70.5 million 8% secured debt on our recently completed Elements Too community.

As discussed earlier this year, we re-opened our 2015 medium term notes program and issued $150 million at 5.25% interest yielding 5.375%. Today, we repaid $9.9 million of secured debt and as a result have no more debt maturing in 2010 that does not have an available extension option. We are now focused on addressing our 2011 and 2012 maturities. As of March 31st, we increased our cash and credit capacity to $787 million which will more than meet our debt maturity, development and redevelopment needs through 2011.

Let me talk about our guidance. Our results for the first quarter put us at the high end of the guidance range we previously provided after considering the effect of the first quarter equity issuances. We are beginning to have better visibility, however at this point we feel it's too early in the year to give a comprehensive update. We plan to give you a full briefing during our second quarter call. Now I'll turn the call over to Jerry.

Thanks, Dave and good afternoon, everyone. In the first quarter our NOI decreased by 4.4% as revenues fell 3.1% and were offset by a decrease in expenses of 0.3%. While these results exceeded my expectations, I'm enthused that market rents over the past six months have increased 3.2% or $34 per home. Looking deeper at some trends. We have gone from a gain to lease of 3.2%, or $33 per home, to a loss to lease of 1.4%, or $15 per home. While much of this growth in market rents has occurred in our Mid-Atlantic markets, it is worth noting that 19 of our 23 markets have had market rent growth over the past six months.

Rental rates on new leases that were signed in the first quarter of 2010 were 4.4% lower than what the prior resident was paying. And renewing residents averaged increases of 0.2%. These amounts varied throughout our markets with the D.C., Baltimore and other Mid-Atlantic markets experiencing lowest rental rate drops. Houston, Nashville, Portland and Phoenix experienced the largest rental rate decreases on new leases. Our markets have continued to improve and in April our new leases declined 2% from what the prior resident was paying and our renewals averaged increases of 1%.

Thanks to our occupancy, average 95.8% in the first quarter of 2010. That's 110 basis points above first quarter 2009 and 40 basis points higher than fourth quarter of 2009. During the first quarter of 2010, all four of our regions had occupancy rates that averaged over 95.5% and 20 of our 23 markets had occupancy greater than 95%. We plan to maintain occupancy in the 95% range throughout 2010 and we anticipate rates on new leases being higher than expiring leases by summer. Today our occupancy is 95.6%. We've been able to grow our occupancy by significantly reducing our resident turnover. Our annualized turnover rate for first quarter of 2010 was 46%, that's 520 basis points better than the 51% in first quarter of 2009.

Assuming that an average resident's move out cost is approximately $2000 in lost rent and expenses related to the turn, this reduction in turnover of 500 homes had roughly a $1 million impact on our NOI and turnover CapEx. The largest improvements in turnover occurred in our West Coast markets. Move outs for home purchase continue to be very low at 12%, that's the same as it was in the first quarter of last year and down from 15% in fourth quarter of 2009.

During the first quarter our unique visitor traffic to udr.com grew by 47% compared to first quarter of 2009. Our organic search visitor traffic is up 32% and our mobile visitor traffic as a percentage of total traffic is now 11%. During the first quarter 63% of all move-ins originated through an Internet source, this compares to 53% in the first quarter of 2009.

Now turning to same-store expenses for the quarter. Total expenses were down 0.3% for the quarter compared to first quarter of 2009. Real estate taxes decreased 6% as a result of favorable tax appeals in several markets. Insurance expense was up 14% due in large part to the winter storm damages of approximately $250,000. Utilities were up 1% due to increases in water expense, which were partially offset by lower electricity experience. Repairs and maintenance expense increased 5% due entirely to snow removal costs in our Mid-Atlantic market. During the quarter snow removal costs totaled $400,000. Personnel costs were up 1%. And lastly, administrative and marketing costs were flat.

We continue to look for more opportunities to give our customers what they want and expect, 24/7 access to us, self-service and choice. Their preference, and more importantly our customers of the future's preference, are to do business with us electronically. We think it is important to measure, not just claim, our customers preference for eCommerce. For that reason we have included-- we have added a table to our press release to report our progress. 73% of our residents paid their rent by ACH in April and 72% of service requests were submitted through the resident portal. In addition to being able to contact us electronically, our call center takes prospect calls 24/7 ensuring that we never miss an opportunity to make a sale.

The next initiative that will be rolled out to benefit our residents are electronic renewals. We are currently piloting the initiative and plan to role it out-- fully role it out by summer. Customers prefer the flexibility of renewing online. They like that they can review their options for lease terms and pricing at their convenience. And after selecting the option that best fits their need, they can have a lease automatically generated that they can then review online and find electronically. This means they don't have to take time out of their busy schedule to come down to our office to sign their lease. Additional features the electronic renewal will be the ability to send out mid-term renewal offers, offer a menu of enticements, such as pricing discounts, carpet cleaning, accent walls, et cetera to prompt residents to renew more quickly and to sell upgrades to existing residents for additional rent premiums on items such as HDTVs, custom closets, kitchen and bath rehabs and a green package for their apartment.

As of March 31st, we owned or managed over 50,000 apartment homes. Of that total almost 4,000 are owned within a joint venture, detailed in Attachment 6 of the earnings supplement. Almost 90% of the remaining 46,000 consolidated homes are included in our same-store portfolio. The remaining 5,500 homes are considered non-mature because they have either not been owned or stabilized for at least four quarters. 1,500 of these homes are acquisition or other properties. The remaining 4,000 non-mature homes are either completed developments or redevelopments.

I'd like to give you some details on the performance of these properties. If you refer to Attachment 8 in our earnings supplement, you will see that we have completed the redevelopment of two communities containing 598 apartment homes at a total cost of $28 million or $100,000 per home. 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 2,600 homes at a total cost of $510 million or $197,000 per home. Leasing has been strong at these properties. In fact, leased occupancy of these properties range from 87% to 98% for all properties except one, residents at Stadium Village, which is in the Phoenix submarket to begin lease-up last summer. Expected stabilized average returns for these developments and redevelopments are in the 5.7% range.

On Attachment 9 you will see active developments and redevelopments. We currently have four properties compromising 1,575 homes under development at a total estimated cost of $259 million or a little over $164,000 per home. Leasing activities at three properties that have already delivered homes has been ahead of schedule and rents have been in line with our expectations. We also have three properties, or 862 homes, currently undergoing redevelopment at a total budgeted cost of $69 million.

In closing, I'd like to thank all of my fellow UDR associates. It's been a tough year and a half. We're finally seeing light at the end of the tunnel. We appreciate all of your efforts that have transformed our Company. Now I'd like to turn the call back over to Tom.

Operator, with that we'd appreciate it if you'd open up the queue for Q&A and we'll commence that part of the call. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) And our first question comes from the line of Eric Wolfe with Citigroup, Incorporation. Please go ahead.

Hey guys, Michael is on the line with me as well. I know you said that you'll be updating guidance on your second quarter call but in just looking at your first quarter results, both your same-store revenue, NOI were at the better end of guidance ranges you provided and this would presumably be the worst quarter of the year. Your revenue is growing sequentially and your lease up seems to be going better than expected. So I'm just wondering is it's safe to say that you'll probably come out near the high end of your guidance or likely even above?

Eric, this is Dave. I think in our comments we stated that based on our first quarter results we are going to be at the high end of our guidance range that we put out. And it is our intent in 90 days, we'll have better clarity into our revenue, there'll be better clarity into the job market. And during the second quarter call, we'll give you a full and complete update on our guidance.

Okay. I guess I'm just thinking about it. It seems like for every 1% of same-store NOI you get it's about $0.02 of FFO and where you're tracking right now it'd be sort of looks like in the 3% to maybe even 3% to 4% range. So relative to your guidance of 6% that would seem to be at least $0.04 to $0.06 of extra FFO from just better than expected NOI.

On a (inaudible), yes.

Okay. And then last I guess we've heard from a number of your peers that anecdotally there seem to be some bit of job growth in their markets, among the traffic, among their tenant base, but it doesn't appear to be represented in (inaudible) job numbers. Are you getting the same sense?

Yes, we are. We're not really seeing a lot of job growth, this is Jerry, by the way, throughout any of our markets, but we've stopped seeing job loss. And what we're seeing is really people undoubling. A year ago were afraid they're going to lose their jobs, maybe they're staying at home, move in with a roommate and I think the fear of job loss has subsided in people are ready to get out on their own. So you've that volume of people coming into the marketplace.

Right, so it's not so much that you're seeing a lot of tenants come in, you're saying they got a new job, or what have you, it's just more of an increased confidence, people feeling better about their situation?

No, not really. I mean I think it is purely people feeling better about their situation and the thing that's really helped to spur our revenue is really the reduction in resident turnover of homes of a little over 500 basis points down to 46% annualized. The backdoor is closed. You don't have people leaving to buy homes, but it's still at 12% of total move-outs. And the other thing that's down drastically over last year is move-outs for skips and evictions. If you don't have people losing their job and having to leave us, so you have those tow factors. And when you throw in the third, then on expiring leases people aren't able to go to the property next door and rent a comparable unit for 10% to 12% less the way they were last year. This year the lease rates are comparable to what their existing lease is. So you can give them a little bit of an increase, especially if you've maintained the property well and treated them right and they'll renew.

Right.

So the one thing I would tell you that we're starting to see as an indicator that jobs are coming back is temp hiring is up, not a whole lot of full time, we're seeing that throughout several markets especially with [pack arenas] up and (inaudible).

Got you. All right, thank you for the detail.

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

Good afternoon. Just wanted to touch on a couple external growth topics here. Last quarter, Tom and also Mark, you seemed to indicate that you though that the better acquisition opportunities would be-- could be found in the second half of this year or 2011. I wanted to ask if you still feel that way and given that, what is your expectation for the directional movement of Cap rates here? I think your comment on development seemed to indicate that you didn't see them moving back up any time soon.

Yes, David, I'll ask Mark to comment as well on that but I mean I guess we're still hold to the second half of the year will be a better acquisition environment as the number of buyers probably spread out to the number of markets and aren't stacked on top of each other as the transparency of NOI growth becomes more evident across the national platforms. So I think that's one. On the comment of Cap rates, I can't see any reason why Cap rates would rise. They may even compress a little from where they are today. Mark?

No, I would echo that. I think this view of the second half of the year still relates to debt maturity schedules that the banks are facing and the borrowers and see something hint of people looking to maybe to resolve some of those. I would echo Tom's comment on Cap rates, they're going to stay where they are. We think right now the cost per door is going up, but there are still some opportunities below replacement, although that's narrowing.

Okay and follow up is the Silver Spring purchase, you provided some metrics on valuation there, but could you provide the Cap rate on that one please?

That was a 54 cap and that's 285-- or $286,000 per home. It's just across from a light rail. We like that deal.

Thank you.

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

Hi, good afternoon, everyone. Tom you mentioned looking at 2011 and 2012 debt maturities. I'm just curious are you guys taking the approach here that it may make sense to delever a little bit given where your leverage is? Or are you looking more at just the attractive rates you're seeing and perhaps looking beyond the five-year notes to doing something more on the ten-year range?

Jay, I guess our view has been, and we said it a couple of years ago, that naturally the portfolio would delever by virtue of increasing NOIs and we still believe that's the case. We'll grow back into the appropriate leverage level, although this, as David highlighted in his comments, we've raised $80 million of equity, primarily use of that proceeds was to pay off secured debt that was maturing at 8%. I don't think we have a whole lot of that left in 2011 and 2012 and we pretty much have a pretty solid game plan how to deal with 2011 and 2012, and I'll let Warren talk a little bit to that extent.

I think with respect to 2011, we have about $595 million, but of that $300 million to converge, $166 million which adds a put in. January we're get some indication that maybe that may not all be put to us, and then we have another $123 in September which will just be financed in ordinary course. And the remainder of our debt for 2011 is secured which we'll just refinance as it rolls over. I mean we've seen a lot of access to capital markets, there's a lot of different opportunities. We discussed this, I think everyday, and we'll just continue to monitor the options.

Okay. And Tom just sticking with you, can you give us some sense of just your appetite for acquisitions versus development and I guess specifically can you mention the Cap rate for the Silver Spring asset and then compare it versus say the development that you're planning on starting in D.C. this quarter?

Yes, I think Mark just mentioned the cap rate on the Silver Springs community, which was just completed in 2009, so it's a brand-new property, was a 546 off of in-place rents. We feel good about that acquisition. With respect to the development and in the press release our announcement that we'restart something in the D.C. corridor, we're kind of around the 7% underwriting off of current costs and current rents in that marketplace. So that's a nice spread over acquisitions. That's the spread we look for, and hence our comments directed towards it makes more sense right now instead of showing up at these auctions and trying to out bid a lot of people for us to start our redevelopment and development programs in those markets. And I think we'll end up with in two years a nice new asset at better than a 7% return. And with very few companies, the merchant builders on the sideline, we think we'll be delivering into the strength of a job recovery and very little supply. So hence, makes more sense to us to be pushing more towards the development angle.

That being said, we'll continue to monitor what the banks are going to do with their maturing loan portfolios. Other people who see these prices of assets getting sold, I think there's still an opportunity to grow the enterprise through acquisitions, but we're going to be judicious about it and thoughtful. And we've always said over the last couple of years that we believe that if we find the right opportunity that we can come back to the market, raise capital for that opportunity and make it a win-win for existing shareholders and future shareholders. So that's our approach towards this area.

And you mentioned it is a different world versus 80 days ago. Can you just update? Are you changing your underwriting assumptions for acquisitions or for development properties and perhaps can you compare your assumptions versus what the private markets underwriting right now? It just seems that the underwriting has been fairly aggressive.

Well this is Mark. I mean I think you've seen a few deals that the underwriting was aggressive. And there were some other factors on those. One they have been in costal/urban markets, I think there's been exchange dollars in some cases pushing for those and we understand how that works. So I mean I think that's how we would think about that.

I mean Jay, this is Tom again. I'd also add that we were at your conference I believe what 90 days ago and we talked-- and there was one panelist in particular who had mentioned that they were underwriting 5% revenue growth and then 10% and then 5% on top of that, and we all kind of looked at him and said, gosh, are you serious? I don't know if we've reached a point we agree with that 10% spike, but we certainly are feeling more and more comfortable that 5% or better in some of these markets is more practical. And so yes, over the last 90 days we've probably looked at our rent growth numbers and said they feel a little light, maybe we should be a little more aggressive on that front. And I think that's kind of the sentiment today and David alluded to it. We're still not seeing jobs show up. We hear temps, we hear people unbundling, if you will, but we're not seeing the job numbers that support a 10% revenue growth type assumption in your view, yet. Is it still possible? Certainly. It's just not drifted into our underwriting and our assumptions over what we're attempting to acquire.

And every time we, this is Mark, we underwrite a deal we like everybody else do a matrix. I think the upper end of the matrix because of what Tom said now in your underwriting we're showing more possible growth as an upside. The median growth rate did a little bit better, but not-- as Tom said, we're not forecasting hard 9%, 10% spikes, although on the upper range we look for those to see what might happen, cause it is possible.

Okay, thank you.

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

Hi, good evening. Just wanted to ask about your revenue management system. As the occupancies remained high and you're seeing better rents both on the renewals and new leases in April, can you just talk about how that's been performing on this sort of inflection point and what is it telling you as far as where you may be able to push rents say in May?

This is Jerry. It's-- well it's really telling us when rents or occupancies are at the level that we're at, mid-95.5 (inaudible) and continue to pushing them up. One thing that we have more control of is on a renewal side we are pushing that harder. About 45 days ago we really started imposing our will a little bit more on the system to really put a floor on renewal rates at 2%, and the Mid-Atlantic markets we'll be going for more. But what's been happening is we've gone from a situation six months ago of a fairly large gain to lease and now of a loss to lease. So as you look at renewing residents or even people that move out, we're going to see a pretty significant gain on gross potential rents and it is worth noting I think that after probably 12 to 16 months of declining gross potential rents, April was the first month where we saw gross potentials start to turn positive on a sequential basis.

So we monitor the system just like people ask how does [guild] start working a declining market? It works similar in an upward direction. You let the system do the work, but you don't except everything it gives you if it doesn't make sense. I can tell you the one thing that we have noticed is that the unbundling or-- the doubling up going away in some residents is we're seeing a little more demand more recently in the one-bedroom floor plans than we are in the two bedrooms, so we're pushing those harder.

It's helpful. Same question just relates to yields. You mentioned the 7% yield on the new D.C. start, are you getting 7% or are you getting better on the Vitruvian start? And what are you seeing on redevelopment?

This is Mark Wallis, Karin. We're-- the [term] is 7.25% so we're at the 25 basis points better, which we would expect in that market the way it's going. And then redevelopments have continued to perform in the 7% to upper 7% range. And we had some come in at the high end of that range, but I'd say that [they're at] 7.5% pretty solid.

Great, thank you very much.

Thank you. Our next question comes from the line of Michelle Ko with Banc of America/Merrill Lynch. Please go ahead.

Thank you. It seems like you're a little apprehensive since you haven't job growth yet and understandably so. I was wondering if you could talk about the markets that you're most concerned about in terms of job growth?

This is Jerry. I would tell you the markets I'm a little, probably the most apprehensive about, some of the Texas markets. Houston right now has, looks like it's going to have some job losses, it's not a significant market for us, but there's a lot of talk of job loss and the Clear Lake area of Houston because of NASA reductions. The Florida markets really haven't had the job growth we would have hoped for, and those are staying down again this year, especially in Orlando, because you're just not getting the job growth to offset the significant oversupply of housing, especially in the shadow markets. Really the West Coast is, it's starting to get some temp hiring, really don't see a lot of full-time jobs coming. But really those are the main ones. It's-- you're not seeing a whole lot of job growth anywhere.

What you're really finding is the markets that had the most oversupply, Phoenix, Inland Empire and Florida have suffered the most and then some of the markets again in Texas, predominantly Houston. You are seeing job growth occurring in Austin, a little bit in Dallas, but they're having difficulty offsetting the large supply that came on late last year and early this year.

Okay, great that's helpful. And also it sounded like that the move-outs to home ownership remained pretty low. I was wondering if you could just talk about this a little bit and where you surprised given that the government was still providing incentives through April?

I was surprised in a couple of markets. You look at Texas markets, the Florida markets, places like Nashville, you still had fairly small move-outs to home ownership in places that had low cost of housing. I'm not surprised at all in D.C. or West Coast markets just because at $350,000 and higher average meaning home prices in those markets, people aren't able to come up with the down payment and they're not able to qualify for a loan. So really not surprised there and-- but I am a little bit surprised. But I do think home ownership has lost a lot of appeal to people. And the tax credit was an incentive for some people to jump out there, but not a lot.

Okay, great. And then just lastly I was wondering if you could give us a sense of what the yields are in some of your more recently completed developments?

Yes, the stabilized yields are going to be in the 5.7% range. What we really did was we took the current rents and then calculated the yield after you burn off the concessions that we've given away over the last -- on the initial lease-up.

Okay, great. Thanks so much.

Thank you. Our next question comes from the line of Steve Swett with Morgan Keegan. Please go ahead.

Hey, good afternoon. Let me just follow up on that last question, Jerry, if I could. If you look at your regions or markets, which ones are surprising you most, if you will, versus where you kind of thought they would be at the start of the year?

Are you talking about on the lease-ups or just--?

Just I mean the fact that operations are trending kind of ahead of your expectations (inaudible).

Okay, okay I got you. I will tell you the West Coast is shocking me. It's coming back a lot quicker than I expected. You look at places like Seattle, when I gave you earlier that in the month of April that new leases were repricing at just down 2%. When you look at a place like Seattle, new leases are actually up there in April 2%. I never would have guessed that at the beginning of this year. And then you look at some of the other West Coast markets, they're repricing at down 2%, down 3%. It's not significant. So I'm probably most surprised with those West Coast markets.

The Mid-Atlantic area is performing about like what we had expected. Florida is probably not bouncing back quite as well. Orlando is a disappointment, and again, I think that's a supply issue. Yes I'd say the West Coast is positive and the East Coast is negative. I think on the lease-ups, the ones that are most surprising to us where-- that are performing the best are the ones in Texas, those are coming in at a pretty strong return. And the ones that have been hit the hardest are the ones on the West Coast, where you've just had more job loss and a bigger deterioration in rents over the last year and a half.

Okay, thanks. And then David, just a point of clarification, you said I think the tax accrual adjustment was in other income?

Correct.

And what was that -- the amount of that?

Excuse me, approximately $1.8 million.

Okay, thanks a lot, guys.

Thank you. Our next question comes from the line of Alexander Goldfarb with Sandler O'Neill & Partners. Please go ahead.

Yes, good afternoon. Just want to go to the $1.2 billion of debt that's maturing in the next few years, in 2011 and 2012. It looks like right now the weighted average is about 3.5%, 4%. Just want to get your thoughts on where that debt would price today if you were to think about sort of ten-year whether it's fixed, I mean sorry, whether it's secured or unsecured? And then are you doing any hedging? Or what's your sort of strategy around that just given the low rate that it is and expectations that rates are going up?

Hi, Alex this is Warren.

Hey, Warren.

I think if we were doing unsecured today on a ten-year, it would be somewhere in the 5.9% to 6.1% range. Certainly with the agency debt that's been when this was still a very attractive there and I think we're at the 5.4% for the agency debt. And you'll notice on our Portico transaction that we just recently did that with a bank that was a new entry for us and that was very attractive financing. So I think as we see right now, there's a lot of attractive rates and we just continue to watch the market and try to be opportunistic.

But from a modeling perspective from our end, should we just use sort of what you're quoted ten-year rate is or how should we think about the 2011, 2012 is probably too far out, but 2011?

Alex, this is Dave. I think that for you modeling as you're looking into 2011, I think it's probably a fair modeling assumption to use the ten-year quoted rate that Warren just gave you 5.9% to 6.1%.

Okay, and then the next question is just going on development, it's a two-parter. The first is that it looks like Tribute and Belmont are up about 4.5%, 5%, the cost from the fourth quarter to now, so just want get a sense on why the costs have gone up? And then on your expected yields, the 5.7% that you quoted X concessions, just curious what that is if you included the lease-up concessions? And then second, the 7.725% that you quoted for future, is that based on current rents or that's a trend at rent?

Okay, the first on is the costs on Belmont and Tribute. Directionally we went with enhance with some of those projects. We in looking at the market to what we thought would drive those lease-ups coming into the market we were coming into (inaudible) just for example, on Belmont, I think we had 59 leases in the month of April, is that right, Jerry?

That's true, 59 in April.

Now what do we do to get there? One, we decided to go all HDTVs in that market because nobody else had that, tremendous driver of traffic. We did that upfront versus doing it later and just went ahead and added that into our budget. Did a cause-- our closet program there, not 100% but 27% there. And the common areas, we felt like that demographic and we're leasing 464 doors there, we're looking for a little bit stronger workout area, it's bigger higher end machines. We did some things to the pool. And then the other thing on-- and those would pretty much parallel what we did in Tribute. The other-- I mean Tribute, we did the same kind of things there and that lease-up, Jerry I mean is tracking pretty much the same, it wasn't 59, but I think we're over 40--

Tribute actually in April we had 30 net leases last month, we are 37% lease to Tribute as of today and 21% physical.

The other thing we did on Belmont, we went from just lead certified to lead silver certified, which is a one-time chance to do that. We felt that was the smart thing to do and we're seeing the renter in that market-- you can argue that it's an intangible, but it's something they look for there and something we think's the right thing to do just to make the units more attractive, more energy efficient. So that's what we did on the Belmont scope. I think you then had a question regarding--

On the yields, first what the 5.7% would be X concessions and then your 7.725% on new developments, is that a current or trended yield?

Well on the 5.7%, Jerry, you want to speak to that and then I'll talk about how we trend the rents?

Yes, the 5.7% is again that's trended after the concessions go away, currently it's about 5%, a little bit under that, and then I'll let Mark jump in.

Yes, on the development yields, what we've done is reduce concessions down to what typically they would be one to two weeks, which we think we deliver these and the other 12 on 2013 timeframe certainly is reasonable. We then trend them about, on average about -- we trended those about 3.5%, which is just a year and a half trending. So that's how we get there.

Okay, thank you very much.

Hey, Alex, this is Dave. I just want to clear up one comment that they-- before the next question. You'd asked about your 2011 modeling, and the intent was that if you're modeling the unsecured, as those role, you'd be using the unsecured rate of about 6% or so that Warren had given you. The secured debt, as that rolls over you're going to be looking more at 5.4% rate. And to keep in mind that the 4% converse in January, if they're not put to us, that's about $166 million, if those aren't put to us, those will stay out there at 4% through the balance of their maturity, through the next put date.

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

Thanks, good afternoon, everybody. And I think Alex's last question was a four parter. So now my first question is a ten-parter, I'm just joking about that. Do you guys need jobs to grow in the second quarter for you to revisit your guidance? Or if things go as planned or how they've gone so far in the first quarter, that would be enough for you to revisit guidance?

I think that regardless of what happens, we're going to revisit guidance for the second quarter. Our plan is that in the next 90 days, we'll have more visibility into the balance of the year, we'll have more visibility into revenue, more visibility into the job market one way or another, and at that time it'd be appropriate for us to update our guidance.

Okay but just so I'm clear, it's-- this was a better than expected quarter and by definition then your guidance would be better than expected if nothing changes from the trends that you saw in the first quarter?

Rich, this is Toomey, just to be clear, certainly at the beginning of the year you look at our mid-point, we had negative 6% on same-store NOI pool, and we had certain assumptions about our lease-ups. And you just heard us state that the first quarter we did better than that and our lease-ups are doing better. We'd like to see after the second quarter, you in essence have 65% of your revenue pretty much identified and in the book. It would seem appropriate to not speculate over the next 90 day job market and/or economic, oil and prices or any of those things, we'll just wait it out 90 days. We're telling you exactly where we stand now. You understood where we stood at the beginning the year. From that, we'll be back in 90 days with a more firm picture on both of those. If jobs don't happen, we'll give you just what our assumptions will be again and see where it's at. I think A, Jerry alluded to it earlier, we're seeing temps, we're seeing some job pictures improve, but we'd like to get a little bit further down the year instead chasing our tail every quarter with new guidance.

Okay. And the second question is relative to the Kuwait joint venture. Is that kind of a done deal now or is it still kind of alive in your mind now that they teamed up with a Canadian REIT? I know that they had some interest in a higher entry level cap rate, or going in cap rate, which they weren't seeing in your markets. I always thought of Kuwait as your-- the way you could get into New York and Boston, but has that that strategy changed now?

This is Warren. That joint venture is still very much alive and well. We're out actually looking at additional properties even as we speak and we intend to proceed forward for the remainder of the joint venture. I don't know, Mark do you have any--?

The deal that we just closed was a KFH deal. So I think they're-- they've gone through an educational process so that they (inaudible) and they understand cap rates are tighter and that they're still over here actively shopping with us.

Very committed to the US market.

Okay, so-- but have their changed their kind of expectations, I couldn't quite hear?

Yes, they have. They're getting more realistic. They-- this earlier cap rate discussion we had on the call, they're tracking that and they understand that and they're more realistic, or they're just seeing what everyone else is seeing too.

Okay, thank you.

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

Thanks very much. Given your comments in your prepared statement around expectations for a multi-year period of pricing power, how actively are you out looking to add to the land bank?

This is Mark Wallis, I'll speak to that. We are always looking at land (inaudible) as we should, especially if it's near another property that we already own. We get operating efficiencies. I just comment on the land. It seems to us on-- and we've made actually some offers, a couple unsolicited to see where sellers were. Land prices are still very steep. I don't think they've gone up, but I think they've held pretty close to where they were and I'm talking about good urban infill quality sites. I'm sure if you get out on the perimeters of the cities and the suburban markets, there might be garden office sites that you could acquire, but we're just not really pursuing those.

That's helpful, thanks. And just a housekeeping question. What drove the year-over-year spike in admin and marketing costs?

Lease-ups coming on.

Oh, okay. On the same-store it was actually flat. When you look at our income statement, if you look either at admin and marketing or personnel costs are up, that's really just the lease-ups. You've got several thousand of them coming online and we had no costs last year.

And likewise in the year-over-year drop in same-store operating expenses in Houston and Austin?

Same-store in Houston and Austin, a portion of that --

Hold that one second.

On the same-store side year-over-year Houston and Austin were both down just for-- because of lower taxes.

Great. That's all I have. Thank you.

Sure.

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

Good afternoon. Just going back to the acquisition versus development question here for a second. Now what spread do you need in a market before-- to look at the buy versus build? I mean what kind of risk premium are you taking on development at this point, your underwriting in new development?

It's pretty much 150 basis points is the median. If you're in more of a commodity market that's going to be 175 even up to 200 and I think (inaudible) would agree that in some coastal markets you could be slightly below 150, not a lot. But 150 is pretty much the median and it's possible to find better opportunities on occasion.

Okay. And an IR basis, what kind of spread does that equate to?

Well I think in a development deal people look to a 10% and 11.5% unlevered IRR. And on acquisitions, I think most of these would be written at the 8% to 9.5%, there's-- well up to the 10%, in that range.

And has that changed any in the last 90 days?

Not really, I don't think.

Okay, that's good.

I guess I think in the last 90 days, the first 90 days ago we were looking at cap rates and saying boy, there is some aggressive growth needed to achieve some decent returns there. And what's happening is that view on growth is starting to materialize. The spread, as Mark alluded to, hasen't really changed. Cap rates haven't really changed a whole lot, there's just more transactions getting crossed at what we were surprised at 90 days ago, a 5% seemed pretty aggressive. And today what you're seeing is a lot of transactions at that 5% and so it validates that there are buyers out there in depth to cover a number of transactions at that price. But our view about the spread verse buy verse build has been consistent.

Okay, that's fair. And then just given the improving conditions you're seeing, is there any thought to maybe ramp up redevelopment a little bit more here and maybe capture some of the rent growth opportunities with your original expectations for the year?

Well this is Mark. Yes, there should be opportunities to ramp up redevelopment, a lot of that takes a lot of lead time, we're working on those opportunities. And I think the key trigger is going to be as you see jobs come back, are you going to be ready to ramp those up? And we're certainly working on several of our existing communities to be prepared when we see that situation happen.

How close are you to starting any of those? Is that something that's possible in 2010?

I think you're going to see it early 2011, maybe permeated at the end of 2010 on maybe one or two possibly. It's going to be primarily hitting the market in 2011.

That's all for me. Thanks, guys.

Thank you. Our next question comes from the line of Dustin Pizzo with UBS. Please go ahead.

Hi thank you, good afternoon, guys. Tom, just following up on one of your earlier answers, I know you're not concerned about cap rates moving higher near term, but in an environment where you and your peers are all raising rents pretty significantly over the next few years, do you see that as a signal if there's more inflation out in the economy than we're all expecting which could in turn potentially drive interest rates up perhaps sooner and sharper than--?

Dustin, I'm going to have to say I caught about half of your question. You're either breaking up or the volume is way down. So I apologize. Just is to make sure I answer the question correctly, would you repeat it, please?

Sure and hopefully it's better now, but--

Yes, it is.

Just trying to get a sense for if you're concerned perhaps longer term or 12 to 18 months out on cap rates, if in an environment where you and your peers are all the raising rents pretty significantly. Do you see that as a potential signal that there could be more inflation out there than we are expecting, which could in turn drive interest rates up perhaps sooner and sharper than anticipated?

Yes, I think the rate environments an interesting topic. First, obviously they need to go up, you can't keep them down at this level for some period of time. That being said I think the European economy is going to be-- remain weak for some time and LIBOR will remain low and that the US Treasury rate probably gets moved up as capital flows and the global scheme of things starts to see growth on others. So first base rates are going to move up. Spreads I think have some room to tighten. You look at them on a historical trend, and you do as well, seems like theres room in there for 50, 75 basis point contraction on spreads. So there's a going to be a period maybe the year, two years where we may not have a whole lot of change in effective rates. And at the same time what you're seeing is is that our NOIs are going to grow by virtue of just lack of supply and the reversion to a growing job market. Which industries and where they are is really where your job is going to be fun over the next couple of years, picking out the right markets and right portfolio mixes.

So if I were to think about cap rates trending out, I think what I would look at is cost of debt goes up, the spread over debt is usually the hit for the Bs, probably moves more than the As, and that the A portfolios are probably going to be growing up more in value than the Bs over the next one/two-year period just by that virtue of math. And that's what our bet has been. That's why we've sold a great deal of the Company in 2008 was to move ourselves to an urban, higher quality A-type portfolio, if you will, because we thought overtime that that the infill location would have been a better appreciating opportunity than the suburban B-orientated portfolios. So that's been our bet and I think we'll find out over the next couple years if it pays off.

Okay and then just along those lines of your last comments, I mean as you're evaluating the various capital options today, can you talk about your appetite, if any, to ramp up dispositions here in some of your remaining non-core markets just to capitalize on that pricing and investor demand that appears to be out there?

Yes, certainly Mark and Matt Akin who run that part of the shop who have certainly taken a number of portfolios and had dialogue with brokers to see what the interest level is in terms of some of those assets that I think Jerry and team have run to ultimately what we're going to get out of them. And so I think we'll give you more guidance around the-- that on the second quarter if there's something that attracts us in the sale market. But we always have been in the mindset if it doesn't make sense to buy, then what does it make sense to do, sell, develop, redevelop? And so one of the biggest challenges that we face everyday, every quarter, every year, is what the proper capital allocation amongst those scenarios. And so yes it makes sense if we get the right price to sell assets, not only to pay down debt, but probably flip into better markets and better quality.

Okay, fair enough. And then just finally, and I guess this might be for Mark, but looking at the second phase of the void, can you just tell us the average rent per unit you're using in the underwriting assumptions is?

Well as I said before, we're using the baseline, we're getting a [subordinated] one today during that-- we're running that at about, I'm flipping to that--

$35 a foot.

Yes about $35 a foot and then we as I said we trend it-- we take some concessions out of that and then trended that about 3.5%.

Okay perfect. Thanks, guys.

Well I think [Woody] about $900-- 900 square feet on that deal, or 850?

We are at-- we were at 841 square-feet on phase 1 and on phase 2 we're going to 899 square-feet. Our-- always been our strategy there is to provide different product mix whereas we can appeal to a wider consumer base. But we think that there's going to be a little more demand as we're seeing how just quickly the rest of that extra 50 square foot of space in the second phase.

On average.

Thank you. Our next question comes from the line of Andrew McCulloch with Green Street Advisors. Please go ahead.

Good afternoon. Can you give just a general update on your expectations for the future build-out of Vitruvian just kind of beyond (inaudible)?

Well let me say this about the (inaudible), one thing we really hadn't talked about is that the City of Addison is cooperating with us. We're building a park there and a road infrastructure and new drainage and all of this for this creek that goes through there and a hike trail/run trail, that's about $39 million. There is a requirement that we deliver over 600 homes, that's now being complete with phase 2. So we're not really-- I just want to emphasize, we're not required to do anything else to deliver the full package there.

With-- since the lease-up is so strong on phase 1, we anticipate delivering phase 2 in a great, certainly much better job market than we have today, we're looking at the next phase. But it would be-- we have the option of do something as small as 150 doors thus another 400-door deal, it's a lot of flexibility. And so we're studying that right now, various alternatives, where's the best place to deliver new product, but we certainly haven't committed to the third phase. But it's something that we're looking at and we're having inquiries from people that aren't in our strike zone, say senior housing people that might want to do a senior housing site somewhere in there, we're certainly going to talk to them and are talking to them. But all I can say on the third phase, we're already talking about it but we haven't committed to the size, we're going to see how we finish up this lease-up and we certainly got enough doors to keep the momentum going out there.

Great, thanks. And then just on the Portico debt, I think you said 5 year at 4.5. Can you give us any color on the LTD on that loan and also how deep you think the market is for non-agency debt?

Yes, this Warren. We ended up doing I think 58% was both the cost on our loan to value on that one. And the market was very deep on that, we had a number of sources inquire about financing that transaction. In addition to the banks we also looked at some life insurance financing, which didn't turn out to be competitive, but the agencies were also very competitive on that one.

Do you guys expect you'll be doing more non-agency debt before than you have in the last 12, 18 months?

We intend-- we monitor all the options and we just tend to look to see which is most attractive. We like the part about being able to add new sources to our capital structure, that was one thing that was attractive about the Portico lender.

Great, that's all I had, thanks.

Thank you. (Operator Instructions) And I'm not showing any further questions. Management, please continue with any closing remarks.

Well thank you all of you for your time today, we appreciate it and hope that we've answered your questions about our business and where it's headed. And we'll see many of you in NAREIT in the next couple of weeks. With that, take care.

Thank you. Ladies and gentlemen, that does conclude our conference for today. If you would like to listen to the replay of today's conference, please dial 303-590-3030 or 1-800-406-7325, using the access code 4282238. Thank you for your participation. You may now disconnect.