UDR Inc (UDR) 2010 Q2 法說會逐字稿

Good day ladies and gentlemen. Thank you for standing by. Welcome to the UDR 2010 second quarter earnings conference call. (Operator Instructions) The conference is being recorded, today, Monday, August 2, 2010. I will now like to turn the conference over to VP of Investor Relations, Mr. Andrew Cantor. Please, go ahead, Sir.

Thank you for joining us for UDR's second quarter financial results conference call. Our second quarter press release and supplemental disclosure package were distributed earlier today and posted on our website www.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Regulation G. 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 statement are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in 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 today's 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 second quarter conference call. With me today are David Messenger, Chief Financial Officer, and Jerry Davis, Senior Vice President of Operations, 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. Numerous times through this year, we have shared a message. The fundamentals of our business have continued to improve. Today, we are going to repeat that message. Like all of you, we see numerous stories written about the current state of the economy, which range from the bears suggesting that we're heading to a double-dip to the bulls stating that early-stages of growth will continue. Also like many of you, we cannot say with certainty what the trajectory of the economy will be going forward. Our team has gone through many of these cycles and therefore, have the ability to debate our expectations for our business. We usually end up in the glass is half-full or half-empty debate. As we try to reconcile our views with the fundamentals of our business, I would like to take a few minutes and share our current views under the glass is half-full, as we see it today.

First, home ownership. The change from home ownership to renters is currently the main driver of our business. For the Census Bureau, the home ownership rate in the US currently stands at nearly 67%, down from the peak of over 69% in the fourth quarter of 2004. Third party forecasts are showing that the rate is likely to return to levels seen in early 1990's of 64%. It is estimated that each percentage point increase in the number of renters equates to 1.1 million to 1.3 million additional households.

Second, employment. Our original expectation for 2010 was that our growth would be based on modest improvement employment. While we have seen over 880,000 full-time and 120,000 temporary jobs created year-to-date, that hasn't been enough to significantly drive our business. We are hopeful to see businesses start hiring again as the political environment and capital availability stabilize.

Third, on the transaction market. Particularly, the quality assets continue to gain momentum, as we are seeing sellers of assets spread out across markets. Transactions that we have been tracking are closing at discounts to replacement costs, and at lower cap rates as buyers have become more bullish on their ability to achieve near term NOI growth. With the cost of debt near historical lows, there does not appear to be any signs that the transaction market will be slowing any time soon.

Fourth, on the supply side of the equation The supply of new apartment homes continues to be at record-lows, even though demand is increasing. This is not likely to change as many private developers do not have the equity required to secure construction financing to start new projects. And the majority of development projects in the pipeline across the country have been delivered.

On the other hand, looking at the glass is half-empty, we come back to home prices, first. While the news varies, the majority point to continued difficult times ahead for the housing market. Home prices across the US have fallen 20% from their peak in the mid-2006. And even with record-low mortgage rates, the housing market is having difficulty gaining traction. In the short-term the challenges in the housing market benefit our business, but could have a negative impact if the weakness continues. Over the long-term, there is a potential that the anticipated drop in the home ownership rate from 67% to 64% could be disrupted as interest rates begin to move up and renters, once again, jump back into the housing market to try to take advantage of the record-low interest rates and depressed home prices.

The second is government. With recently passed and proposed government policies preoccupying businesses from focus on the strategy of growing their business and workforce, to risk-management, many companies appear to be concerned that these policy changes will disrupt their business and as a result, have been hoarding cash. Credit is available. Banks are willing to lend, but businesses do not appear eager to borrow. We believe this will change, following the mid-term election. And we hope that the clarity of the future political landscape reveals itself.

Third, the consumer. Like businesses, they appear to be strengthening their balance sheet through reduced spending and not taking on additional debt. We believe they will act like businesses and after great uncertainty about employment, taxes, healthcare, housing and the outcome of the mid-term elections take shape, before fully participating in a recovering economy.

And fourth, Fanny Mae and Freddie Mac. The financial overhaul that was signed into law recently, did not address what will happen to the GSEs. While we have all heard that Washington will address the situation sooner rather than later, the potential impact to the overral housing market, both single and multifamily remains substantial. In the short-term, this uncertainty will have a negative impact. However, this may lead to a long-term benefit for investment-grate rated companies like UDR, who can capitalize on this market inefficiency with our continued access to multiple capital sources. We see the net result of these trends, observations, as positive. The fundamentals of our business and the future prospects have changed significantly enough for us to increase our same store and FFO guidance for 2010 and increase the common share dividend.

Before turning the call over to David to discuss the increase to guidance, I want to spend a moment discussing the $0.02 or nearly 3% increase in our full-year common dividend. When we look back to mid-2009, the economic picture was deteriorating and we made a tough decision to reduce our dividend in order to preserve capital and debt capacity to position UDR for the future success. As I stated before, the fundamentals of our business have continued to improve faster than anticipated. And we have now not seen any indication that these improvements will subside. Therefore, we have increased the annual common stock dividend to $0.74 per share. We're hopeful that this increase will mark the beginning of a new trend of dividend increases for UDR shareholders. I will now pass the call over to David, to discuss our financial results and the increase to 2010 guidance.

Thanks, Tom. This evening I want to cover our quarterly results, capital activity and 2010 guidance. Earlier today, we reported $0.27 of FFO, which consisted of $0.28 from our core operations and a $0.01 charge related to convertible debt repurchases and storm-related losses from severe flooding in Nashville in May. Further details are included in our press release and supplement.

Turning to the balance sheet and capital activity. As of June 30, we had proximately $738 million of credit capacity, which will more than meet our debt maturity, development and redevelopment needs through 2011. During the second quarter, we raised $30.3 million from the sale of 1.5 million shares at a weighted average net price of $19.58 under our to after market equity offering program.

During the quarter, we took advantage of an opportunity to repurchase 27,400 shares of our preferred G stock at $23.25 at a yield of 7.25%. Additionally, we repurchased [29.2 million] of our 3.625% converts at an average price of $100.8. While we incurred a premium and wrote off the deferred financing and APB 14-1 costs the transaction is positive to cash flow through maturity.

Turning to our guidance, we're increasing our 2010 guidance. Our full-year 2010 FFO is expected to be between $1.07 and $1.11, compared to our prior expectation of $1.00 to $1.07, a 5% increase at the midpoint. The change in the midpoint can be accounted for through the following. An $0.08 addition from property NOI. A $0.02 addition from interest experience, resulting from a development that was started earlier than originally forecast. A $0.01 rededuction for storm-related losses and convertible debt repurchases incurred in the second quarter. And a $0.04 reduction related to the 5.9 million shares issued in 2010 under our ATM program. Let me give you additional details on the following three material components of our new guidance. NOI, share count, and CapEx per stabilized home.

First our NOI. For revenues, we expect a full-year range of down 1.5% to down 1%. For expenses, we're tightening our range to up 0.5% to up 1.5%. In the second half of the year, we are facing more difficult comparisons as we had very favorable real estate tax appeal and settlement in the fourth quarter of 2009. Our NOI is now projected to range from down 3% to down 1.7%. To achieve the midpoint of the guidance, year-over-year results for the second half of 2010 would be revenues essentially flat, expenses up 1.8% and NOI down 1%.

Second, our share count. During the first half of 2010, we sold 5.9 million shares for $103.5 million of proceeds. We're assuming no additional share issuances. Third, we're increasing the amount of CapEx per home for 2010. We have reviewed and approved some green initiatives that we will install in our resident homes over the next three years. These are energy-efficient initiatives that will lead to reduced utility bills, allowing us to target those savings in our pricing. Also, there are select markets where we can implement our kitchen and bath program and be paid a premium on the rent. A combination of the green and K&B programs will add $50 per home or $2.3 million to our CapEx spending bringing the total to be spent in 2010 to $1,050 per stabilized home. Now I will turn the call over to Jerry.

Thanks, David. Good evening, everyone. In the second quarter, our NOI decreased by 3.4%. Its revenues fell 2.1% and expenses increased 0.7%. Market rents over the past six months have increased 5.5% or nearly $60 per home. 83% of our communities have had market rent growth over the past six months, with double-digits growth in Nashville, Phoenix, San Francisco, Monterey and Baltimore. Looking deeper at some trends we have gone from a gain to lease of 1.4% or $14 per home in December of 2009 to a loss to lease of 3.9% for $43 per home in June. This means that even if market rents were to stop growing today that over the next 12 months, as leases turn, our leased rents would grow by almost 4%.

Gross rental rates on new leases that were signed in the second quarter of 2010 were 0.4% lower than what the prior resident was paying. This compares to 4.4% lower in the first quarter. 42% of our communities had new residents paying more than what the prior resident paid, which was led by Monterey, the entire Mid-Atlantic region, Nashville, Seattle, and San Diego. Houston, Sacramento and Orlando experienced the largest rental rate decreases on new leases. Our markets have continued to improve and in July our new leases were up about 1% from what the prior resident was paying with 62% of our communities either flat or higher.

Renewing residents in the second quarter on average paid 2.5% higher on an effective rent basis than they had been paying. In July that percentage has grown to 3.7%.

Rent levels peaked for us as a Company in the second quarter of 2008. Some markets peaked a little later, but for the most part the second quarter was our high watermark. From that peak to our trough in the fourth quarter of 2009 we saw rents drop 12%. And for the second quarter of 2010 have rebounded off that low point by 7.5%, but they are still 5.5% under the levels they were at two years ago. Same store occupancy averaged 95.8% in the second quarter of 2010, 30 basis points above 2Q '09 and flat for the first quarter of 2010. That makes five consecutive quarters that we have reported same store physical occupancy of 95.5% or greater.

During the second quarter of 2010, 80% of our communities had occupancy rates that averaged over 95%. We believe that our strategy of consistently maintaining high occupancy has led to stable operating results without broad swings in revenue growth related to changes in occupancy. Our 2.1% decline in revenue for the second quarter of 2009 was a result of a 2.4% decline in rent per occupied home, which was partially offset by a modest 30 basis point improvement in occupancy. Maintaining higher occupancy has given us the pricing power that has enabled our rent declines in the second quarter to peak low by industry standards. We plan to continue to maintain our occupancy in the 95% range for the remainder of the year and we expect year-over-year revenue growth to turn positive later this year.

We have been able to grow our occupancy by significantly reducing resident turnover. Our annualized turnover rate for Q2, 2010 was 55%. That was 550 basis points better than the 61% in the second quarter of 2009. Year-to-date, annualized turnover was 51%, compared to 56% in 2009. We have had almost 1,100 fewer moveouts in the first six months of 2010, compared to the same time period in 2009, due primarily to lower skips and evictions and people moving out due to rent increases. Moveouts for home purchase during the quarter were 14%, slightly higher than 2Q 2009, when they were 13% or in the first quarter of 2010, when they were 12%. We do not believe this is the start of a trend, but rather an increase related to first-time home-buyers taking advantage of the federal tax credit that expired in April.

During the second quarter, our unique visitor traffic to udr.com grew by 59% compared to 2Q of 2009. Our organic search visitor traffic is up 40% and normal visitor traffic as a percentage of total traffic is 10%. During the second quarter, 65% of all move-ins originated through an Internet source. This compares to 60% in the second quarter of 2009.

Now turning to expenses for the quarter. Total expenses were up 0.7% for the quarter, compared to the second quarter of 2009. Real estate taxes decreased 1% as a result of favorable tax appeals in several markets. Insurance expenses were flat. Utilities were up 2% due to increases in the water expense, which were partially offset by lower electricity expense. Repairs and maintenance expense increase 2% and decreases in turnover expenses of 7% were offset by higher maintenance contracts.

Personnel costs were up 4%, due primarily to higher commissions and bonuses, paid to our flight office personnel for exceeding budgeted results and reducing resident turnover. Administrative and marketing cost were down 10% fueled by a 20% reduction in marketing costs and a 42% a drop in evictions expense.

Continuing to advance our electronic platform, in June we began piloting electronic renewals at three communities. The system has been very well-received, our customers like the flexibility of being able to review lease terms and pricing at their convenience and not having to take time away from their busy schedules to come into our office and sign a lease. The primary advantage to UDR is knowing sooner which residents are renewing. This enables us to better manage the pricing on our available inventory whereas in the past we likely didn't know until 30 days before the expiration of lease that the resident was going to moveout or renew. The online renewal capability fully completes the electronic platform for existing residents that we began planning for three years ago.

As of today, we have completed the rollout of this program to all of our communities. Progress on our other electronic initiatives is shown in a table on page three of our press release.

I would like to give you some details on the performance of our non-mature portfolio of 5,700 homes, which represents 9% of our NOI. If you refer to attachment eight in our earnings supplement, you will see that we have completed the redevelopment of two communities in Dallas and the Metro DC markets, and stating 598 apartment homes at a total cost of $29 million or $100,000 per home. These communities have leased occupancies between 97% and 99% and are performing in line with their pro forma. They have also completed 11 new developments containing over 3,400 homes at a total cost of $626 million or $177,000 per home. Leasing has been strong at these properties. In fact, leased occupancy at these properties range from 95% to 98% for all properties, except three. Residents at (inaudible) Village which is a Phoenix submarket that begin lease-up last summer contribute in Raleigh, North Carolina which was completed in the second quarter, and the Belmont in the uptown submarket of Dallas, which was also completed in the second quarter.

On attachment nine, you will see active developments and redevelopments. We currently have three properties comprising 1,460 homes under development at a total estimated cost of $218 million, or almost $197,000 per home. Leasing activity at the 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 $77 million. With that I would like thank all of my fellow UDR associates and turn the call back over to Tom.

Thank you, Jerry, and I would echo that, thanking our associates for a great quarter and certainly the efforts they are putting in on the technology platform and the NOI results. With that Operator, let's new turn the call open to the Q&A piece.

Thank you, Sir. We'll know begin the question and answer session. (Operator Instructions) Our first question from the line of Eric Wolfe with Citi. Please, go ahead.

Thanks. Michael is also on the line with me. Tom, you talked about the primary driver of rental demand is the decline in home ownership. I'm wondering if you think the improvement that you are seeing right now in rates can continue, even if you kind of with this anemic level of job growth, it's tough to imagine next year your turnover related to home purchases could decline much more than it already has.

Well, Eric, appreciate the question and thanks for joining us tonight. I guess I will let Jerry talk about what is lose to lease is and how that might impact next year. Our view is that psychologic of the rent verse own has certainly swung in our favor and how much this drops from 67% to 64% and over what period of time. We'll just have to wait and see. It looks like it has quite a bit of a distance to fall and if you have three percentage points to get back to what appears to be a normalized level of 64%, you are looking at anywhere between 4 and 5 million people coming back to the renter pool. And depending on how you measure that pool, if it's 30 million or 35 million, that is quite a high degree of demand, and as with said, a very little supply. It would appear to me, if that trend continues and the psychology of that equation of rent versus own continues to come our direction, we probably have some ability to continue to grow rents just off of that. I do believe and as we said in our prepared remarks that eventually businesses are going to arrive at a stabilized environment and start hiring again. And we look forward to that, frankly, more than anything.

Yes, I would just add our loss to lease today is about 3.9% of market rents. So, even if you don't see market rents grow anymore the next 12 months, as leases expire, you are going to reprice existing leases up almost 4%. You take that in addition, to the fact we're 5.5 percentages points away from where our peak rents were back in the second quarter of 2008 and depending on how long it takes to get back to those peak rents you potentially have another 5% to 5.5% on top of that. So we feel like it can be sustained.

Got you. Thank you. And then just on the dividend. How did you come up with the size of the dividend increase? Are you targeting some kind of payout ratio? Should we also assume that you are done with the dividend for the next year or are you going to review it quarterly?

I think we'll continue to review it quarterly as the fundamentals of the business improve. We thought it was important to psychologically send a message to many of our retail shareholders that the dividend would get back into a path of growing. And we said that number not by a derivative of our cash flow, but more oriented towards change in the psychology about the dividend this time. And we'll revisit it, as I said, on a quarterly basis with the board's advice about the fundamentals of our business.

Thanks. And then just one more question. As far as Orange County, I was wondering if you could discuss your outlook there. It's your largest market and somewhat symbolic of the other markets that had been hit hard by the single family housing. Just wondering what your view is on what type of growth you might see there in the next year or two?

I think Orange County got hit pretty good with the recession. Rents went down right around 10% to 12% range. We recovered some of that to date. From December to June, rents are up about 5%. Some job growth did come back this summer. It's hard to tell how much is permanent and how much is seasonal with the tourism business. Not a whole lot of large employers adding jobs. The one thing I can tell you about OC, not a ton of new product being built and you are not going to see people exiting to purchase homes in Orange County. So we feel good about that. And the other thing is when you look at how much rents went down from the peak until now, people in Orange County typically pay one-third of their income in rent. And even without a lot of wage inflation over the next year, people can still take rent increases and get back to the percentage that they were at before.

Got it. Thank you.

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

Thanks. Good afternoon. On your FFO guidance you are at $0.55 on the year. If I assume that you matched this quarter's core FFO $0.28 in the back half, it puts you right at the top end. Could you help us think about some of the risks to the downside there and that is assuming no NOI boost? Thanks.

No problem. Thanks Dave. This is Dave. I think that if you look at our guidance, yes, we're $0.55 for the first half and if you double up this quarter at $0.56, it gives you $1.11 for the year. I think the risk to that is inherent in our revenue range. That if revenues don't come in at the top end of where we are, or if we don't have real estate taxes, that we have an expense blow up in the second half, there would be a possibility that the $1.11 or $1.10, the top end of that range would not come through, if you do the simple math.

Okay. Got it. And next, just a couple questions on your electronic renewals. The 92% participation rates, I know it's just a sample size at this point, but is that a realistic target for the portfolio after you roll this out?

Yes, I think it is, Dave. We have been able to push our other electronic initiatives up into the mid to upper 70%s over the last year, year and a half. And a lot of those to actually doing a monetary transaction online, through a banking system and a lost our residents, especially the older ones really don't want to participate in that. I do believe getting into the 90% range is doable. We'll have to wait and see, once we start going into some of our more challenging demographics on the electronic initiatives, if it takes place, those properties that we did the testing on. But I think easily 80% and above is very feasible. What we found from people is that the ability to shop online, see all the renewal terms as well as prices, is one big advantage. But the biggest advantage is the convenience of not having to come down to our office and sign a lease.

Okay. Just lastly on that Jerry, could you talk about the benefits on the revenue and expense side from rolling this out? You said in the past you have gotten 30-day visibility on people moving out. Will that extend and have you seen that so far? Are you getting higher rents as compared to the old process in your mind? Those are two questions on the revenue side I suppose. And then on the expense side are there staffing savings here?

I tell you, Dave, we had the three properties rolled out for the most of the quarter. We rolled out about a third of the portfolio in the month of June and then the other two-thirds in July. So we don't have a lot of visibility yet on true results of what this is going to look like. I can tell you about 1,300 people have renewed with us electronically to date and that is over the last 45 days, when this was really out there. I think we will get that visibility, again to-date, the system just hasn't been out there long enough to be able to give you a good, hard number. So I will be able to give you a better answer next quarter.

On the expense side, I can tell you it's a personnel reduction, slightly and that is only at the large properties. As we said with all of our electronic initiatives, when you get to properties under 300 homes, it's difficult to run a property with fewer than that, if you want to be open seven days a week and give quality service. When you start to getting into homes that are 500, 600, 700 apartments that are that large, you can start to trim a job or two here and there, especially on the administrative side. Where we think we're really going to be save money with the ability to push down turnover, beyond what it's natural level would be and we'll save on the turnover cost. So there will be a little bit of headcount. Maybe a little bit of marketing, but we think the big savings comes in turnover.

Okay. That helps. Thank you.

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

Hi, good evening. Can you give us an update on the outlook for new investment for UDR. And current preferences between acquisitions and development, and just an update on what potential new development starts might be coming later this year?

Karin, this is Mark Wallis. On the first question of preference between the two, it's really all depends on the deal (inaudible) deal. So if you look at historically, what we have done, it's been a balance between acquisitions and development. And historically, we try to shoot for on the development side, deliver around 400 to 500 million a year and we think that is a good balance, given the size of our portfolio. And As far as the topline for the rest of the year, we have mentioned before that we're in the process of getting everything geared up for a start in Washington, DC and the district on 14th Street. That all looks good. And then the pipelines we look forward to what we're doing, to get back on-track to that $400 million-plus number, we're working on finishing up entitlements on all coastal stuff. About two to probably three deals out in California. Two being in Northern California and we have another DC. It's a combination that looks like we'll be rehabbing and we'll add about 150 homes to a site there. So I would characterize it as we like both. Obviously, we can execute a good development. Usually can get a premium on the yield. We target to saying that $400 to $500 million range based on the size of the balance sheet and everything that is going on.

That is helpful. Thank you. Last question, I guess is for Tom, related to the macro view, appreciated the earlier commentary. Do you feel confident that today that regardless of which direction the economy heads from here? That the apartments are going to do better than the economy as a whole? And are there some of UDR's markets that you think job growth is more important than others?

Certainly, Karin. I have operated a lot of different types of real estate over the years, and I have kind of gravitated back to the apartment business, because just the sheer demographics coming at us.

You have record enrollment, which we didn't mention in colleges of 8 million kids and eventually they are going to get out and fill apartments and they probably not going to be homeowners. You look at the raw numbers and the tide is going to rise for our business over the next decade. If you are in the business, for what we anticipate is a very, very long time, we're going to participate in that rising tide.

With respect to which markets are more dependent on jobs, certainly, that has been the historical pattern for the south, including Texas and Florida in those corridors, because of low cost of housing in those markets. It's very competitive. And while they generate a lot of jobs, they also generate a lot of competition. You have watched and you have been at this many years. And you have seen us move our portfolio move towards the higher propensity to rent, the lower affordability portfolio that exists today. And I wouldn't see us move back to the job growth markets just to chase that short-term growth. We're in it for the long run and like the portfolio and where it's headed. So I think we'll stay on that path. And jobs, I think like your economists and several others, it's unclear to us the exact timing. But we do feel like businesses are waiting for more stability on a number of fronts and will commence hiring. And I think personally that is going to be next year, and if that were to kick in, our business would really take off beyond what we already highlighted.

Thank you very much.

Thank you. Our next question comes from the line of David Toddy with FDR Capital Markets.

Good evening everyone. Tom, could you just explain to you, something I'm having trouble reconciling with you guys have reported with a number of your peers reported relative to the achievement of pretty high occupancies on historical basis. If you are really underwriting pretty strong rent growth, a couple of quarters out, wouldn't it be more initiative that occupancy would begin to drift down? Or are we not close enough to that point, where it should tip over? I guess I'm thinking from the perspective of capacity utilization and when you try to capture dramatically higher street rates.

I will jump on that first, David. This is Jerry. I think what you are seeing is what Tom just described. You have got these new renter households coming into the market that are able to keep occupancy levels high at the same time, we're able to push rents. I mean I can tell you, we have run at 95.5% for the last five quarters. So we're not one of those who have seen a recent spike in occupancy levels. And we have been able to keep the rent decline it a minimum at 2.4% on rent per occupied home this past quarter. We see that as we look out the next six months, that you are going to see year-over-year revenue growth occur. You are going to continue to see good rent growth. And as we gotten more aggressive in the last couple of months on renewal rates, we really have not seen a dramatic decrease in occupancy. For that matter, we have continued to see resident turnover down almost 10%. So, I just think you have got more demand that you need to factor in, in addition, to the fact that rents got pummeled and you are basically seeing a comeback.

That is helpful.

David, one I would add to it is that our typical resident on a turn costs us about $2,000. And so weighing how much we press rents to drive that turnover back up is a balancing act. And we have kind of elected this economic cycle and probably through the end of the year, to try to maintain that 95% balance. We don't want to try to push too hard, drive down occupancy and then try to fill it back up in the winter, when we may not have the same pricing mechanisms that we have today in your favor. So I think our attitude has been hold at 95%, press, keep our occupancies at that stable level and our turnover down. And then if we do see that job growth kick in next year, then I think we will push the gas pedal all the way through the floor. And just see how hard we can push to affect that occupancy number. And so it's a balancing act. But that is the strategy we're going to employ for the balance of the year and wait until we get stronger economic signals, particularly that area of employment growth.

Okay. That is helpful. And my follow-up question is to do with development. Have you talked about your expectations for stabilized yields on the new projects. And with regard to some of the pipeline projects, are you thinking about lower price points or targeting any different market segments? Basically transforming anything in the shuttle pipeline at this point?

Well back on yields, we're hovering around the 7% yield on these developments. With your second question related to , you mean a lower price point? Is that what the question

Yes. Are you thinking about the product delivery any differently, given different sensitivities of the consumer, a younger demographics?

Yes. We're very sensitive to the younger demographic, 25 to 35-year-old. If you look at our new developments and what is coming on stream, it's very evident that we're targeting that. We think that we'll continue. And so, we're targeting that and we're targeting that infield type product. Also we think that style and that architecture is turning broader appeal to the older market and we'll continue on that path.

And unit mix?

Changing unit mix, you are seeing more ones in the urban areas. I mean, because of that $8 million person demographic in the pipeline coming out, they are not used to having roommates, like we may have had in college. And they like to have a place of their own. So you are seeing a little more drive toward one-bedroom and average square footage of homes are slightly below what they used to be. Partly because the designs are better and you do it a little more efficiently. And if I can make it higher per square foot number in rent, but aggregate allows me to have one bedroom.

One thing I would add, David, our leasing velocity continues to be very strong really at all of these new developments, but especially the four that are in really rampup of leasing. Our deal outside of DC, Signal Hill, we had 64 gross leases in the month of July and we netted out about 45. So the property that we have in Raleigh, North Carolina, the Tribute, we had 66 gross leases and netted out 42. The Belmont in uptown Dallas, we had 54 gross leases and we netted 49. The Savoy, which is in Addison, Texas, we had 51 gross leases for a net of 39. When we first budgeted back in October, November for leasing velocity, we thought we would be doing well if we'd be getting 25 to 30 net leases per month. So we're easily 50% ahead of schedule on those.

Great, thank you. Thank you.

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

Hey Tom. Here with Connor as well. Can you give us some sense of acquisition market today and what product you are seeing come to the market? I guess you still mentioned very competitive, but I guess an update what you seeing today, if there are more opportunities? And sort of what you are expecting to see?

This is Mark. I think we're seeing obviously, I think we talked to everybody in this business looking at deals, there are significantly more deals to look at today than there were a year-ago, if not by at least twice the number. We're focused on the markets we're in primarily. And continue to see products coming into those markets. There has been a lot of product come to market in DC . And if you rate the various markets with the most, I would say it's probably there. I think it's there because the sellers see pretty attractive pricing. In the (inaudible) part that's come on, probably not much different from the past, but just basically the way we look at things, I think there has been a little more A product than what we have seen, because I think some of the, not that we were looking at it, but the lower-end product, those people are holding on to that longer, because the cap rate were really compressed two years ago. So expectations may be higher than what sellers are allowing to come to grips with. But that seem to be leasing up somewhat,

This is Tom. I would add what has been interesting to me is to watch the evolution of the sellers and who they are. And you are now starting to see more pensions presenting assets to the marketplace. When you talk to people in the back channel what they are thinking, they are saying, I would rather sell a building at five rather than industrial building at eight. At 5, I would make a little bit of money and at least getting out of this and they are rotating their portfolios around and feel good about the market and depth of the buyers. You will see that most of the stuff that has been closed year-to-date has been auctions, and many people showing up. We haven't quite been able to get to the goal line on the auction deals, but we have been working a lot on private market deals that have other things that we can help solve the seller' issues with. But it takes a little more time.

I'm confident that we're going to be finding acquisitions. We're not inclined to put targets on it and cap rates on it, but Mark and his team have been pretty active in that front. And we feel comfortable between now and the end of the year that we'll find some stuff that will ultimately continue to enhance the portfolio. So it's a dang good market out there to be either a buyer or seller, in our view point. And with the trajectory of NOI that we're seeing in our markets it bodes well for confidence to step out there and take a little bit more. Clearly early understand it's a 5-cap rate market.

And just switching, I guess to redevelopment opportunities the you mentioned very little supply for the next couple of years and home ownership rates that continue to fall. Can you give us a sense of how much you would like to investment in redevelopment perhaps the next 12 to 18 months.

If you look at the schedule, you can see that we have deals underway. In California or (inaudible) deal which is photographed in the press release is going to take some time to get done. That is underway. We're targeting doing our preliminary work, which there is a lot of it that is involved in getting lease expirations ready and the way we can roll through these rehabs. We have got some good opportunities in our California portfolio and we have one or two in the DC portfolio, too. So that is where our focus is.

We'll ramp those up as fast as we can, but you just don't ramp them up overnight. Right now we have almost 900 doors in the pipeline at one time. We probably could -- well, I say we may get up to twice that, probably. We're not going to predict that. It's sort of as they come to market and we get the entitlements and positions from a rental standpoint to make that move and make the move in the market is there.

The way Mark and I think about it, having gone through the cycles, redevelopment as you are recovering from the downturn is probably the easiest and most profitable piece of equation by virtue we're able to maintain some cash flow of the asset as we tear it apart and put it back together. You will see us and we kept the entire team, what we call AQ or "Asset quality" intact after we resize the Company a year and a half ago, knowing that we wanted that skill set to be able to take advantage of this market. And Mark said it correctly, as we're going to focus a lot on the DC Tower program, which you have seen some of our work there, and it has worked very well. And probably real start heavily tearing into the California stuff, as Jerry has been able to demonstrate his ability to move rents.

And it doesn't preclude us from trying to buy assets that are right in that strike zone, where we can come in and take a B asset in an A location and spend anywhere from $30 to $50 a door and bring it up to an A asset. I think it's a great skill set we have inside and we're going to continue to expand it and I would hope that we would be able to double it.

Okay. Last question you mentioned the GAAP versus peak rents of Q2 of 2008. Could you give us a sense of the which markets that you would think might have the greatest upside over the next 12 months or perhaps even those markets that are below that 5.5% range, so still well off peak rent?

Sure. This is Jerry. The ones that are furthest off of peak are probably the largest is LA. LA is still about 15% off our peak rents. Seattle is about 14% off peak rents. Portland is about 13%, and then we have one asset in Houston that is about 14% or 15% off peak. The bulk of the rest are in that call it 0% to 6% range. We actually have one or two properties that are above peak rents that have occurred prior to 2010. And those are both in DC and Baltimore.

Thank you.

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

Yes, hi and good afternoon. I think in the opening comments you guys spoke about buying back your converts at $1.08. Is that correct?

$100.80.

Oh, $100.80. Okay Okay. No worries. I thought I heard $1.08. Okay, that helps that. Actually, I just have one question and then it's just sort of following up from Karin's question earlier. With all of the increased conversation about deflation or even 0% inflation, if you will, which is flat. What does that do to your ability to push rents? I understand about decreased home ownership, the graduating college wave, et cetera. But what does to do in the deflationary world, where people earn less and people sort of hold off thinking that prices are go down? What happens from a landlord's perspective?

Well, in a deflationary period, I suppose cost of money is going to stay down. Cost of materials is going to drop, but best I can tell, people will still want a roof over their head. So we may not be able to push rents as great, because they may not have wage inflation. But the simple answer is the raw number of people coming into the housing equation are going to look and say, great, I don't get a lot of rent growth. I'm not worried about that equation, but the raw demand will be there. And if you have a well located portfolio, people are going to say, I will pay more to be close to my job or transportation. So I think we're reasonably prepared that if a deflationary period persists for a long period of time, I will take my chances with this well-located portfolio over just being out in the hinderlands in suburbia, where it's going to turn into a commodity. And I think that is just where we see ourselves.

Okay. And then the final thing is are there any markets where you feel they are supportive enough to do a major redevelopment program? Or do you think it's mostly just light redevelopments?

Well, we have never done the light redevelopments. Our definition of a "redevelopment" is to retenant the entire community. So on average we probably spend $30,000 to $40,000 and could qualify mores a new, complete community in the end. So that is the scope of it. Mark, any thoughts you have on it?

In California we're spending in the $90,000 range per door and we call it "Redevelopment," versus " Rehab," to make that distinction. When I was around when a "rehab" was basically nothing more than paint jobs and correcting some deferred maintenance. In figuring out locations, we think there continue will be redevelopment opportunities, especially with our expertise.

I'm sorry, which markets did you say were the $90,000 ones?

California, Northern California.

North California, okay.

Northern California, depending on -- It's a very general statement, but just to put a scope on it. And Tom mentioned the $40 a door range and we have done some of those in other markets. That are still significant dollars. So you are really retenants the property.

Alex, I would also point to the right time to do redevelopments is at the bottom of the cycle. So you will see our focus towards California, because we think it has bottomed. And we think a materials cost, labors cost are at their low point and the ability for a new group of tenants coming in to pay more is greater. How much did you move the rent? You spend $9 a door and moved it $500 a month?

More than that. That was the original budget.

When you look at the scope of what we do, like Mark said, it's not just painting the kitchen, but gutting the interior, removing walls to open up the floor plan, reskimming the exterior, putting on hardy plank or changing the architectural dimension, adding some amenity buildings, redoing the landscaping plan. It looks like a totally different property the time we're done and the reality like, Mark said, we changed the resident base.

Okay. Thank you.

Thank you, our next question comes from the line of Michele Ko, with Bank of America. Please, go ahead.

Thank you, I was just wondering for those markets where you are already above the peak, like DC and Baltimore, how do you think about how much more you can push rents in those markets?

Those markets continue to have a little bit of job growth. There is no new product really coming in. What you really have in the situation of DC, is a lot of product did come online over the last 24 hours that were heavily concessionary. So even though you may not be able to push market rents as much, you will see the burn off concessions that could propel your revenue growth 6% to 8% by itself. But they are adding jobs. The differential between owning and renting seems to be very high. And there are highly educated workforces there. And as 8 million students get out of school, we think they will be more inclined to go there and the coastal markets versus other places.

Michele, this is Tom. I don't see Washington getting any smaller any time soon. They seem to have their own definition of employment act and every department that I talk to say they have got a budget, but haven't been able to hire all the people that they want or get the clearances that they need. It seems to me there is a lot of pent-up demand in the DC corridor. We're seeing it stretch all the way up to the Baltimore portfolio. So I think there is a lot of years ahead of growth in that marketplace.

Okay, thanks. That is helpful. Just secondly, I was wondering if you are thinking about ramping up developments back to the $400 million to $500 million level, at this point in time? What is your preference of secured versus unsecured debt. And what rates are you seeing and what kind on the secured?

Michele, this is Warren. I think on we always try to maintain a balance between secured and unsecured and monitor both those markets. I think with respect to the secured, on the five-year, we're looking at 4% to 4.2% and on the ten-year, 4.7% to 4.95%. So I this on each project we do, we do construction financing. We only have a couple of loans like now in the 70% to 75% loan to value around (inaudible) was 265. So there is a lot of construction funding that's availability.

What kind of equity requirement do you have on those?

It's 30% to -- I think one we're doing right now is around 30%. That is so you are looking at investment-grade rated company with a lot of access to capital sources, and the best construction loan we can get is 70% of cost. That bodes well for keeping the merchant building model on the sideline. And I think as the economy improves, and the NOIs improve, the banks will probably get back into 80% loan to cost. But that is still a lot of capital to be raised by merchant builders. So if anything, the REITs probably have a good 18 month, two-year running start on most of what has caused our problems in the past, which is over building.

I think the merchant builders in the 50% to 60% of loan to cost and probably L300 to L400. So as Tom said, a big difference.

Okay. Great, thanks so much. That was very helpful.

Our next question comes from the line Swarup Yalda with Morgan Stanley. Please, go ahead.

Yes. Hi. Tom, you talked and many of your peers talked about the decline in home ownership rate, but I guess the one question, which everybody is trying to figure out is which percentage of homeowners, former homeowners are going to become renters in apartment buildings rather than renting single-family homes? Can you share your thoughts on that?

I think it's been the mystery of this cycle and everyone you learn a little something new that the home ownership 69% was not sustainable. And many people didn't want to give up their lawn mowers and hoses and rented their homes. Thinking that all of these people with move into apartments and into the rental and, in fact, it's opposite. They realized that a well-managed community, stable ownership is more important to them to be convenient to their job centers and transportation centers. So I think as we highlighted in your earlier comments there is a risk that A, the trajectory of 69% to go into 64%, doesn't continue. It reverts and we tried to play out scenarios that we thought would cause a pause. And what it plays out in your mind is simply that if the feds take up interest rates, people are going say gosh, better borrow my money now and buy whatever I can in a home. And that Jerry will have an exit to home ownership and that will cause some disruption in your revenue stream.

But that will be short-lived. That doesn't feel like a very deep market to us right now. In your existing renter base of people penting up and waiting for home prices or interest rates to move. So I feel good that we'll weather that storm.

In the long run, it seems to me that the raw demographics will take over. And the only reason that the feds would raise interest rates is that the employment picture takes off or inflation takes off, both of which would affect us probably disproportionate to the loss of people moving out of the home. So while we weigh it has a risk, on the net benefit to us, I think. We'll see how the future plays out.

Okay. And just to touch back on the guidance, again, I am looking at the same-store revenue guidance of negative 1.25%. And given the positive sequentials you have seen in the first and second quarter, I was wondering what is driving the large sort of implied decline in fourth quarter? I understand some of it is seasonal, but if you can just help us understand that.

I mean really what it is, it's just really the absorption of that loss to lease. As you see rents just continuing to go up, our gross potential rents go up every month, it flows straight to the bottom line. We're able to maintain the occupancy level. And the other thing to factor again is that we troughed in fourth quarter of last year.

So looking at year-over-year comparisons, our revenue was dropping each month last year, all the way through the end of the year, and it's been going up every month this year. So you are comparing against easier numbers and your rents are actually going up. Your repricing/exciting residents at greater than 1% in the month of July. And you are seeing renewal rates that are in July effectively up about 3.5% to 4%.

Okay. Thank you so much.

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

Thanks. Good evening everyone. The one thing that maybe is wrong about UDR and "wrong" is not the right word, but it's leverage and where you stand on some of your leverage ratios relative to your peers. Is there a contemplated or specific plan in place as it relates to bringing your leverage ratios down or improving them? Or is plan to really just grow into a better ratio?

Rich, fair point. You are right. The Company on the surface appears to be levered, but I look at not leverage in true dollar terms, always I look at as well is fix charge and I think we're right about average on the fixed charge ratio. We're just one of those companies that was smart enough, fortunate enough to borrow a lot of money at very low rates. And we didn't anticipate the cycle down, but we're going to grow back into that.

We don't see any particular reason for raising equity to pay off 4% debt, for example. I think I would rather watch our NOIs grow into that. And that is kind of our plan at this point. Our internal projections show we'll get back to basically a fixed charge of 2.25% or better by the end of 2011. And certainly that is probably our target number, and I don't see any particular reason to sell equity to get there any time sooner. I would like to see Jerry's NOIs grow us into that.

Okay. That is all I have. Thanks.

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

Good evening, guys. Jerry I apologize if I missed this. You mention what is your address new leases were for June and July or no?

Yes, I did. Leases in June were up 1%. And in July, they were also up 1%.

Is the plan to start pushing those more aggressively here in the second half of the year or are you going to layoff a little more in the seasonally slow periods?

We'll push aggressively, as long as we don't see a decline in occupancy. I can tell you the renewal rates that we have sent out for the October expirations. We feel are going to end zone up at about 5% increases for the most part.

On new leases, again, you look at it and I think it will grow and we are aggressive. But as Tom stated earlier in the call, our strategy this year is to maintain occupancy at 95% range to keep turnover down. And again, without new jobs, you're still a little cautious especially when you go into the winter months. But we do look at our change in rent per occupied home and think we're doing a pretty good job. You balance it about the portfolio we have. It's a little harder California to push rents than it is in DC and some of the other markets, but we'll push where we can. If we get major resistance, we'll retreat back. We have not really found a point where we pushed so hard that we had to retreat.

Tom Toomey, I'm interested in seeing the electronic renewal and the visibility it gives us. There is something about our resident base and I think it's this generation of renters. That when they get this notice electronically and right then and there they can say I'm going continue living there and that rent number fits what I'm taking home and click "done". Click, Lease. That helps Jerry get a lot of visibility very quickly toward what's he is going to be able to do. And it helps our teams when the take late is so high on the offers that they get a little bit tougher the following month that they send them out. I think this electronic renewal element and you have heard me over the years push a lot of this electronic stuff and it's working out. You will see a lot of our peers follow us in suit in this area and I think it's going to be the way that revolutionizes our business and frankly, gives us better transparency on our pricing capabilities. But I'm excited about the potential that exists in this product.

That is helpful. Second question, kind of more of a bigger-picture question. Camden on their conference calls have given us the statistic of under 30 in the portfolio and how that declined over the past year and just as we're talking about unbundling and trends, I was just curious if you had tracked that in the portfolio and how much you had see that back up?

We generally don't try to track our residents in that light. I think you would start wondering into fair-housing issues and we tend to try to steer clear of that. We rent to people who are qualified, clear our scores and keep our apartments full that way.

Okay. Then I guess finally, David a question for you he can during the quarter, how much capacity could you go out to and raise in the unsecured markets without jeopardizing the current rating?

The unsecured market is pretty darn deep. I think our issue is not can we raise the money or the size of it? It feels like a very deep market. The problem is what do we do with it? So I can't see us for the balance of the year really being in the unsecured market. And next year's debt maturity schedule is $0.5 billion, of which half of it is converts. And we're going to have to wait and see what action those convert holders take and we'll know a lot of that in January. So we continue to be amazed at the low rate environment, the size and the depth of the market seems very robust, but there is no use of proceeds for us.

Okay. Thanks, guys.

Thank you, our next question comes from the line of Anthony Paolone with JPMorgan. Please, go ahead.

Thanks. I think I just have one final point. In terms of your Kuwait partner and you mentioned 5% cap really being the market at this point and you didn't think things were going to get easier going forward. Just wondering the thought of using debenture there?

This is Warren. We continue to look at properties and assets for the joint venture. We're looking at a couple right now. Some of the assets will be outside of just the inner beltway, some in the mid-cap, 5.5% cap. And certainly if it's an attractive asset, they have indicated that they are interested in proceeding.

Okay. Thanks.

Thank you our next question comes from the line of Dustin Pizzo with UBS.

Hi, good evening guys. Jerry, the peak (inaudible) is helpful. But do you have the statistics for revenues or income per occupied home?

Actually the revenue per occupied home and. Oh for peak and trough?

Yes.

I dont have that right now. I'm not evening sure if I can pull it. We'll take a look at that and if I can, I will get Andrew to get with you offline.

That would be helpful. Going back to the renewal rates. What was the average increase you went out with July to get to the 3.9% average?

We went out with about that amount. What is difficult is when you offer rents to people and you use a yield management software, you offer various lease terms. So the best lease term is typically for the longest term lease. So it may be a 14-month lease. If we had a 3.7%, 3.8% and everybody had accepted the best lease term it was probably 2.5%. But when they choose a seven, eight month lease, the increase goes up more. It was about that amount. I can tell you that we elected about two months ago to stop negotiating leases or renewals and stick hard to what was offered. If people wanted a 12-month lease term, they could take it or they can move. If it was an eight-month, they could take that. What you typically find is people saying I want a 12-month rate on an eight-month term. And our answer is that you need to sign a 12-month lease if you want a 12-month rate.

I think you referenced in an answer to one of Mike's questions earlier, but what is the trend for August? The renewal increases?

August is probably going to go up to 4.2% range. My guess is when we get to October, we're going to be up in the 5% to 5.5% range.

Perfect, thank you.

Thank you. Our next question comes the line of Handell St. Jus with KBW.

Hey guys. Most of mine have been asked. I had a question for you Tom. You raise the dividend during Q2, but you also sold a meaningful amount of stock. So help me understand the capital decision here. Is there a taxable income or dividend issue? Is there anything else that might be going on behind-the-scene?

No. While there is still interrelated, they are arrived at slightly differently. In the case of the dividend, the decision was that in the statement when we cut our dividend, was that when fundamentals of the business turned, that we would reverse this trend and get back to growing the dividend. And once we saw that capital is available, that our fundamentals of our business have shifted. And therefore, it's time to raise the dividend and send that signal to your shareholders that that is an important part of our total return.

With respect to raising the equity, I think we had a couple of pieces of debt that came due that made sense. 6% plus, $30 million was an effective way of us paying it off you rather that going to the market and deal with a secured piece of debt or leave it outstanding online. There are no further debt maturities for the balance of the year. So I wouldn't see us revisiting that type of use of our ATM program.

Thanks for that. And then just one quick follow-up. Could you give us the unlevered IR expectation for the Silver Springs acquisition and what the near-term growth rates in that projection are?

Unlevered IR was close to a nine.

And the growth rate? Near-term growth rates in that projection are?

We think it's going to be probably north of six. Why? Because the building needed. Great location, 200 yards from the rail, but needed a little updating. We are lobbying for just a few basic stuff. Pretty easy to execute. That is why we think it will be that good.

Okay, Mark thanks for that. That is all I have.

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

Good afternoon. Just a follow up on that Kuwait JV. How much have you opened up the spectrum in types of assets you can target there and still fairly focused?

This is Warren. It's still focused on the initial type of asset and we're still looking at assets on the East Coast, DC corridor and within California, but it still meets the criteria.

Then on the Savoy project, that fulfills the obligation of the city as far as build-out, correct?

That is correct.

And given improving fundamentals, how long do you think it will take to billed out the vacant land you had there before you have to demo additional properties?

Well, that is a hard question to answer, because there is going to be, we think there is going to be demand for other product types, third party users, senior housing. There's people kicking the tires on that. Other uses. And also, our intent is to keep as much revenue-producing property going as possible.

Maybe this is what you are meaning. So we don't tear anything down any time soon and we'll see how it goes, although we're in the planning stages for the other uses that I mentioned. And also, the next phase, because when you are leasing at these kind of paces and what we expect when we deliver the Savoy 2, that we'll be ready to be delivering more homes. We see the pace of picking up out there. We are already working on fore planning.

This is Tom. What you find in these master plan-oriented deal is that the first deal is like the orphan that to gets filled up and all of a sudden the momentum takes off. The big deal is the completion of park. And that park will be done by third to fourth quarter, fourth quarter.

First of the year, it will be totally done. If you go out there now, it's dramatic the kind of things going on and you can see it shaking up. All that has to happen would be the first of this year and that is all pristine.

At that point, the value of the surrounding dirt that is vacant, all of a sudden gets elevated and visibility. You all of a sudden have 700 occupied apartment homes, that are new. You have the old, which are slightly upgraded. So I think Vitruvian will be a stronger story as 2011 arrives and certainly will then accrue a lot of the benefit of all the hard work Mark and his team have put in over the last three years on that deal. We think we have timed it out very, very well.

Great, thanks, guys. That is all I had.

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

Thanks very much. Hey, Jerry, on the technology initiatives, do you have other initiatives that you are working on that you look at rolling out later this year or next year? Or the ones in process pretty much it?

We got a few. We're working on a few things on the service side. Some service pods where you can again have one service manager oversee five or six properties that are geographically close to each other. You can have more specialists. Some guys just do turns. Some guys to do work orders, to make them more efficient. You also have the ability to retain more of these guys, because you are able, when you have four properties worth of guys doing on-call at night, they don't have to cover as often as they used to. That was always a reason a lot of our guys left us. We're testing that right now in two location. One is in Richmond, Virginia and one in is it Phoenix, working out the kinks.

Next year I think we'll be look more into electronic leases, those things. Even though it's a lot like the electronic renewals, you are having to convince a newcomer to your property that your lease is not something to really fear. It's a lot easier on the renewal side when they had to go through the lease process last year and they understand all the components. That it's easy to click through how many pages. That is harder on a new lease. And we're trying to find a new way to condense what is in a lease, but still have the teeth to make it a legal document. We'll work on that next to year. I can tell you, it's been a hard push the last two and a half, three years when we didn't have a lot of transactions to get this done. We have pretty much fully rolled out ACH and the service requests and very high penetration levels. For the next six to nine months I see us doing the same thing with the electronic renewals. We'll watch the service side and we'll also looking at opportunities as we add to the portfolio to roll them into the electronic mix on things like service pods and sales pods.

Steve, this is Tom Toomey. I would add our intent, when we started this a couple of years ago is just to make the entire ability to do business with us on electronic platform any shape, the resident wanted. And you can see from the penetration, the residents have responded and say that is the way they want to do business. You have young kids, you can see and you realize that generation; that is the way they are going to do business. That was the first part and we n took a lot of that effort throughout the downturn, knowing that eventually it would end. And we would arrive on the other side of the downturn with a company that is capable of generating the best margins in the industry. If I turned Mark loose with the best margin capabilities, the best footprint of electronics, than he can go buy assets at better prices and deliver more growth. So this has dovetailed into your long-term strategy of basically getting to high-margin, where with we can then get a better return on capital than a lot of our competition.

Remind you we're just not looking at apartment REIT peers. We look at the private sector as a lot of our completion and we're running at 67%, 68% margin in a lot of our product and a lot of private sector is running at 60%, 58%. If I can turn this group loose on buying assets and increasing the margins anywhere from 5% to 10%, do the math. That is a lot of NAV creation potential. So I think we have made a great choice by completing this during the downturn. And look forward to the days ahead, when we can take out and use it as an acquisition tool.

Thank you, Tom. A final question, given where cap rates are, how do you look at disposition as a potential source of capital going forward, given your portfolio? You did a lot of selling a couple of years ago, but is this something you would look at more going into 2011, given pricing?

Certainly will. And we would like to see a little more recovery in some of the NOI and some of the markets that we would like to sell, but as that NOI becomes more transparent, we certainly would love to be selling assets.

Okay. Thank you very much.

Thank you. And management, there are no further questions in queue at this time.

Well, thank you all for your time this evening. And with that, we'll conclude and wish you the best of your remaining summer days. Take care.

Ladies and gentlemen, this concludes the UDR 2010 second quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325. For international participant, please dial 13035903030 and enter access code had 4326870 followed by the pound key. This replay will be available until August 25th,2010. Thank you so for your participation. You may now disconnect.