UDR Inc (UDR) 2010 Q4 法說會逐字稿

Welcome to the UDR 2010 fourth quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)This conference is being recorded today, Monday, February 7, 2011. I would now like to turn the conference over to Andrew Cantor, Vice President of Investor Relations. Please go ahead, sir.

Thank you for joining us for UDR's fourth quarter financial results conference call. Our fourth quarter press release and supplemental disclosure packet was distributed earlier today and posted to 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 Reg G requirement.

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 will 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 fourth quarter conference call. On the call with me today are David Messenger, Chief Financial Officer, and Jerry Davis, Senior Vice President of Operations, who will discuss our results, as well as senior officers Warren Troupe, Matt Akin, and Harry Alcock, who will be available to answer questions during the Q&A portion of the call. My comments today will include a brief summary of our 2010 accomplishments and our outlook for 2011. We accomplished a great deal in 2010. Ultimately, we grew our enterprise by $700 million, while increasing our equity market capitalization past $4 billion, and enterprise value to over $8 billion, and delivered nearly a 50% total shareholder return.

A few highlights from 2010. One, we completed nearly $600 million of acquisitions. Two, completed the development and redevelopment of over 2,000 homes in six communities for $413 million. And three, commenced the development and redevelopment of nearly 1,500 homes in six communities for $386 million. Fourth, we formed a $2.3 billion joint venture with MetLife, consisting of 26 operating communities, containing 5,700 homes and 11 land parcels, with the potential to develop approximately 2,300 additional homes. Fifth, during this record low interest rate environment, we completed $1.3 billion of capital market transactions that further strengthened our balance sheet, including $468 million of equity, $400 million of new debt at a weighted average interest rate of 3.8%, and a weighted average maturity of five years.

The results of these activities reduced our overall weighted average interest costs of our $3.6 billion of debt by 30 basis points, to 4.2%, and increased our fixed charge coverage ratio from 2.0 times to 2.3 times. And, fifth, completed and implemented, across our entire portfolio and operating and technology model which continues to provide benefits to our bottom line, while at the same time providing our customers what they want. In closing the door on 2010, the entire management team thanks our nearly 1,700 associates for a great year.

Turning to 2011, we support the consensus view that the macro trends for our industry are some of the best many of us will see in our careers. And with our operating platform and strong management team, we will be able to continue to create value. We believe the recovery from the recession will be similar to the previous one, as evidenced by steady improvements throughout 2010 and that the pace of recovery will be different for each market as the local dynamics of supply and demand play out. Jerry will get into the specific details of our market outlook. Supporting our view of the recovery, specific comments on the drivers of our business for 2011 include; one, at this point in the recovery, job growth is still a key driver of our business. Current consensus estimates call for two million new jobs. This should support continued demand, but the timing does remain elusive.

Second, home ownership has gone through an unprecedented change and for our primary targeted customers, those between the ages of 25 and 34, who are expected to increase over the next ten years by more than four million, or approximately 13%. These changes will benefit our business as our customers continue to rent housing for an extended period of time versus investing in a home. We further believe, as the economy recovers, that the slow pace of processing or clearing of foreclosures will show up in the appraisal process and hence, further delay home sales. Third, the supply of new apartment homes is expected to be at a 50-year low. While we hear the development pipeline is starting to grow, we believe the majority of this activity is in low barrier markets and with deliveries in 2013 and beyond.

A few thoughts on the overall economy, which concern us. First is the volatility in the capital markets, specifically interest rates. We don't foresee a spike in rates, but we remain cognizant that rates are likely to continue to increase, and may also usher in a decline in consumer sentiment and impact our asset values. Second is how the state and local municipalities will manage their budget shortfalls. We are witnessing a wide variety of alternatives across our market. And lastly, it looks like another summer of rising fuel costs, which, as we witnessed two years ago, has potential to negatively impact the overall economy. So in summary, our view from our individual markets and the overall economy, we expect to see FFO growth of 12% in 2011. The majority of that will be from our same-store operations. Therefore, we have elected to increase our annual dividend nearly 10% to $0.80 per share. With that, I will pass the call over to David.

Thanks, Tom. My comments today will focus on the fourth quarter's results and our 2011 guidance. Earlier this evening, we reported $0.28 of FFO, which consists of $0.28 from our core operations and four significant non-core items, which netted to a negative $1 million, or $0.005 and will be described later in my remarks. For 2010, we reported $1.09 of FFO, comprised of $1.13 from our core operations and a $0.04 charge from non-core activity. Our quarter and annual results are consistent with our expectations and previously announced guidance. Further details are included in our press release and supplement.

The four non-core events for the quarter consisted of the following. In November, we made the decision to relocate the functions in our Richmond, Virginia office to our Denver headquarters. This relocation and the reduction in work force of a net 30 people caused us to record a $4 million charge. In October, we announced that Mark Wallis was retiring after ten years of service with UDR. This retirement resulted in a $2.8 million charge to earnings. Coupled with the relocation of Richmond relocation, we expect to see annual G&A savings of approximately $2 million to $3 million. We had two gains offsetting these charges. First, we sold marketable securities and recorded a gain of $4.7 million. Second, in November, we announced a $2.3 billion JV with MetLife. We subsequently refinanced $442 million of the JV's debt at a weighted average interest rate of 4.22% and a term of nine years. Of this refinancing, UDR was paid a $980,000 fee.

Turning to our balance sheet. During the fourth quarter, we closed on an unsecured $250 million term loan agreement that was used to prepay $86.1 million of secured debt, bearing interest at 6.2%, and to pay down our line of credit. Our 2011 guidance, consistent with prior years, our guidance is driven by a bottoms-up approach that begins with forecasts from our experienced operations team. Our approach includes a review of the local economy, including jobs, supply, current rent growth, leasing traffic, et cetera. Additionally, we review the national economy in various forecasts from groups such as REITs and economy.com, and use that as a gauge of our expectations. We have seven major components to our guidance. Same-store operations, acquisitions/dispositions, debt and equity capital, G&A expenses, development/redevelopment projects, recurring CapEx, and two nonrecurring items.

Let's begin with same-store guidance, which is predicated on a pool of 43,093 homes. This is an increase of 649 homes from the fourth quarter pool and an increase of 2,394 homes, compared to the 2010 year-to-date same-store pool, or 89% of all wholly-owned homes in the portfolio. As we enter 2011, we anticipate an increase in same-store revenue of 3.5% to 4.5%, with 95% occupancy, and expenses to be up 2% to 3%. The combination of these components results in an increase in NOI of 4% to 6%. Acquisitions -- we are actively pursuing a number of assets. We expect to purchase approximately $500 million during 2011 at a blended cap rate of between 4.75% and 5.25%, and will expense approximately $5 million, or $0.025 of acquisition costs, representing 1% of the purchase price. Disposition -- we currently don't have any forecasted for 2011.

G&A expenses -- we expect annual G&A costs to be between $36 million and $37 million, which is down 6.4% at the midpoint from $39 million in 2010. Secured and convertible debts -- in 2011, we had secured debt maturities of $56 million, with a weighted average interest rate of 2.6%. We also have $265 million of convertible debt that has a weighted average dated interest rate of 3.9%. However, for accounting purposes, we have been expensing interest at a rate of 5.5%. Seeing where rates are today and the availability of capital, we expect to refinance the maturing debt at rates between 5% and 5.5%.

Equity -- earlier I mentioned that we expect to purchase $500 million of assets in 2011. As we have mentioned numerous times in our previous calls, we will continue to delever the balance sheet by growing our asset base. As we did in September 2010, we expect to fund the acquisition with 60% to 65% equity. Development and redevelopment -- we have six projects under construction, totalling 1,468 homes, with a total estimated cost of $386 million. These properties will be delivered, starting in the third quarter of 2011, through early 2013. Recurring CapEx -- for 2011, we anticipate maintaining the amount we spend for stabilized home at [$1,050]. This equates to $51 million being spent on 48,570 stabilized homes.

And finally, nonrecurring items. In the first quarter, we will recognize a gain from our investment in a technology company, when the restriction on selling our investment lapses. The gain is expected to be between $3.5 and $4.5 million. During 2011, we will address our 4% convertible debt. We currently have a tender offer open that will close on February 8. If all of the bonds are tendered, we will record a $3.2 million charge to write-off the remaining deferred financing costs. As of today, $10 million of the $168 million outstanding has been tendered to us. Bonds not tendered to us will remain outstanding at 4%, however, the Company has the option to call them at par. When you add all of these items together, they resulted in FFO range of $1.20 to $1.25 per diluted share, which includes the net reduction of $4.2 million, or $0.02 related to the nonrecurring items.

We will update this guidance during our 2011 second quarter call, or when a material event transpires. Now I'll turn the call over to Jerry.

Thank you, Dave. Good evening, everyone. We finished the year strong, with a fourth quarter same-store NOI up 1.3%. Same-store occupancy was up 20 basis points to 95.6%, and the same-store revenues, up 1.7% over the fourth quarter of last year. This marks the seventh straight quarter that our same-store portfolio occupancy has averaged greater than 95.5%. Since December of 2009, market rents have increased 6.6%, or nearly $70 per home. 88% of our communities have achieved market rent growth over the past 12 months, with double-digit growth in San Francisco, Nashville, and Baltimore. We have gone from a gain to lease of 1.4%, or $15 per home in December 2009, to a loss to lease of 3.7%, or $42 per home in December of 2010. A loss to lease is the percentage that in-place rents are below current market rents. This means that as leases turn, we are able to capture market rates, our rents should grow by almost 4% if market rents just stay where they are today.

Gross rental rates on new leases that were signed in the fourth quarter of 2010 were 1.3% higher than what the prior resident was paying. While lower than the growth rates we were experiencing in the third quarter of 1.9%, the difference appears to be the result of seasonality, as we have already seen an uptick as January growth on gross rental rates on new leases back up to the third quarter levels. Renewing residents in the fourth quarter, on average paid 5.2% higher on an effective rent basis than they had been paying. In January, that percentage has grown to 5.5%. Looking out to the spring, we would expect renewal increases to average in the 6% range, and increases on new leases to be in the 3% to 4% range. We have also seen improvements in our turnover levels year-over-year. Annualized turnover for the fourth quarter was 46% compared to 53% in the fourth quarter of 2009.

Turnover for the full year was 53% compared to 58% in 2009. We had more than 2,000 fewer move-outs in 2010 compared to 2009. Move-outs per home purchased during the quarter were 11%, flat with the third quarter and better than fourth quarter of 2009 when they were 15%. With the damaged housing market, we would expect move-outs to home purchase to stay at these lower levels for the foreseeable future. Total expenses rose 2.6% for the quarter compared to fourth quarter of 2009. Real estate tax expenses were up more than 6%, driven by difficult year-over-year comparisons, as a result of significant valuation reductions in the fourth quarter of 2009. Marketing costs continue to decline and were down 9% from the prior year. All other major expense categories grew less than 3% over the prior period. In July, we completed the rollout of online renewals throughout our entire portfolio.

The ability to renew online has been very well received by our customers. In fact, in January, of the 1,500 customers that renewed their leases, a little over 1,200, or 80%, renewed online. Our customers want the flexibility of being able to review their lease terms and pricing at their own convenience without having to take time away from their busy schedules to come into our office to physically sign their renewal. The primary advantage to UDR is that we know sooner which residents are renewing. This enables us to better manage the pricing of our available inventory whereas in the past we likely didn't know until 30 days before the expiration of the lease, whether the resident planned on moving out or renewing their lease.

In addition, by making it easier for residents to renew with us, we anticipate a reduction in turnover. Over the very short time since we rolled out electronic renewals, we have seen a correlation between those properties that have a high percentage of residents that renew within the first 15 days after receiving a renewal offer, and the positive effect on both turnover and rents. At those properties, turnover has been 2% lower and asking rents were 3% higher than our overall portfolio. Progress on our other electronic initiatives, including online service requests, ACH rent payments, and the internet-initiated movement is shown in a table on page three of our press release.

Our non-mature portfolio consists of almost 6,100 homes, representing 14% of our total NOI. For more details, see Attachment nine in our earnings supplement for complete developments and redevelopments. We have completed 11 developments, containing 3,540 homes, at a cost of $606 million, or $165,000 per home. Leasing velocity at these properties during 2010 was very strong. 10 of the 11 properties had leased occupancy greater than 90% as of December 31, 2010. Demand remains strong at our developed communities. For example, Signal Hill, our new development in Woodbridge, Virginia, is already 78% leased within eight months of opening its doors to new residents. We expect Signal Hill to reach over 90% physical occupancy early in the second quarter, which would be a significant achievement for a community with 360 homes.

Attachment 10 shows our active developments and redevelopments. At year end, there were four communities comprising 930 homes under development at a total estimated cost of $339 million, for almost $364,000 per home. (inaudible) second phase of our Vitruvian Park project will begin delivering apartments in the summer of 2011 and will be completed in the first quarter of 2012. 2400 14th street in Washington, DC is expected to be completed in the fourth quarter of 2012. The Mission Bay site in San Francisco is expected to be completed in the third quarter of 2013. And the Belmont Townhomes, which are continuation (inaudible) development of the Belmont in uptown Dallas, which was completed and leased up in 2010. We have two properties totalling 538 homes currently undergoing redevelopment at a total budgeted cost of $47 million, or more than $87,000 per home. Barton Creek Landing in Austin, Texas, is scheduled to be completed in the third quarter of 2011 and CitySouth, formerly Lake Pines in San Mateo, California, will be completed in the second quarter of 2012.

I would like to give a quick update on our MetLife JV. Since taking over management of the portfolio and implementing our electronic platform in early November, we have been able to take occupancy from 83% to its current level of 88% physical, 90% leased during our slowest leasing season. At the same time, we have been reducing concession levels and increasing effective rents, rolling out utility reimbursement and implementing various other additional revenue sources. We have increased traffic to the communities through our website, while sharply reducing marketing costs through the elimination of print publications, moving to electronic brochures, and getting UDR's bulk pricing for other internet marketing sources. While we are only three months into managing this portfolio, we are very pleased with the progress we have made, but we still have work to do and we'll continue to update you on our progress.

Finally, elaborating on the guidance that Dave provided earlier, we expect our revenue will increase between 3.5% and 4.5%, with accelerating growth rates, as each quarter progresses. We see our Mid-Atlantic market in San Francisco and San Jose coming in higher than our average and our Houston, Dallas, and Orlando markets coming in lower. On the expense side, we expect real estate taxes, insurance, and administrative and marketing costs to be up less than 2%, personnel and repairs and maintenance to be up around 3%, and utilities expense to increase by more than 5%, as municipalities continue to increase our water rates. With that, I would like to turn the call back over to Tom.

Thank you, Jerry. And with that, operator, we'll now turn the call over to the Q&A portion.

(Operator Instructions)And our first question comes from the line of David Toti with FBR Capital Markets.

Good evening, guys. Just quickly, do you have any particular balance sheet strategy going forward into the year that will address the level of [footing] or debt and along those lines, could you also describe your LIBOR assumptions for the year?

David, this is Toomey. With respect to the strategy on the floating rate through the year, we'll probably bring that down. It's starting the year at 28%, 29%, and we're looking at the market and wondering if it's not a good opportunity for an unsecured offering and that would pull it into the 20%, 22% range. So that's some action you'll probably see us take. LIBOR assumptions, I think we're following the normal curve, which shows 25 bips, up a quarter throughout the year.

So end of year, maybe about 75 to 100?

Yes.

Okay, great. Then my second question has to do with your development increase. Number one, is there a signal about the acquisitions market in that decision to shift capital to development? And then secondly, is there anything -- are there any common themes in the starts that you announced relative to price points, particularly low land bases, or any particular rent strength pocket?

Certainly. You can see the development starts that were announced, first the 1400 Street in DC, we've probably been working on entitlements for that site for the better part of two years and they've just now cleared. And so that's an asset that we've always intended to -- as soon as we could get the entitlement process complete, start on and it's inside the Beltway, 14th street. And the other one, the announcement would be Mission Bay, and that's a tract that's right on the other side of the Fourth Street Bridge, right next to the ball park. We secured that site earlier this year as part of buying that site, we had some entitlement work that had already been commenced by the prior owner. So we're able to build up start points on that. Commonality between the two properties. Rent levels probably about $2500 a month and the margins are probably going to be north of 70% on both.

That's very helpful. Thank you.

And our next question comes from the line of Swaroop Yalla with Morgan Stanley.Please go ahead.

Hello, good afternoon. Can you hear me? Jerry, this is a question for you about the DC and the San Francisco portfolios. You are already running at about 97% or higher occupancies. Just wondering, as you look into 2011, if you think that rent growth can sustain itself, and if you could rank the market in terms of the best and the worst for 2011?

Sure. You're right, both those markets, we've run between 96% and 97% for the past year. They're probably two of our strongest. We do have a lot of embedded loss to lease in both of those markets, and like I said in my script earlier, those are two of our strongest markets. If I had to continue to rank throughout our portfolio, after those, I would say Seattle would be a top performer, Austin, Texas would be up near the top third. Then when you start getting to the middle of the portfolio -- Baltimore, really the whole Mid-Atlantic would be up at the top along with San Francisco, then Seattle. The middle will be a couple of the Florida markets, Tampa, Jacksonville. Nashville will be right in the midst for us, and then some of the Southern California markets, Orange County, San Diego, and L.A. The markets we aren't overly encouraged by for 2011 would be Orlando, Dallas, and Houston. All three of those predominantly because of supply issues. The Inland Empire, same thing. There's still excess supply, not enough job growth. And then probably right at the bottom, Sacramento. We didn't really perform very well there last year. Hopefully we'll bounce, but most people expect Sacramento to continue to struggle for the next couple of years.

That's helpful. Tom, looking at the $500 million of acquisitions guidance, are there any common themes in that? First of all, are they -- do we expect them to be spaced uniformly throughout the year, or are you looking at any portfolios? And also, just wondering if there's anything about, are they core acquisitions or more opportunistic?

This is Toomey, and I'd ask Harry and Matt if they want to chime in. With respect to what we're targeting, I would say core, particularly probably the coastal markets. I don't see a portfolio transaction at this time. I see one-off individual assets would probably fit over our existing operating template.

Okay. Thank you.

And we have a question from the line of Rob Stevenson with Macquarie.Please go ahead.

Can you talk a little bit about -- looking at the first quarter here, in terms of the expenses, how much more of those similar type of weather from the last six weeks can you take without having same-store expenses really running away from you?

This is Jerry. It really depends on where the weather hits us. A lot of the snow removal costs we've incurred to date has been up in Boston. And really none -- we don't have any same-store properties in Boston. We really only have two properties up there that are wholly-owned by UDR and one of those is a property that the entire parking is in a garage, so there's no snow removal there. So DC, we really haven't been hit that hard compared to last year. Richmond, Virginia, Norfolk, areas like that, we also haven't really been hit. So we haven't been overly affected by the winter storms on the East Coast. This past week, we got hit with some freeze damage down in Texas. Most of that is insured costs and quite a bit of that also was incurred with one of our JV partners. Only a bit of that was at our same-store. To date, really haven't been overly affected by storm the way we were last year in the first quarter.

Okay, and then can you talk about what's embedded in your guidance for this year in terms of turnover expectations? And at what point do you expect those lines between rents on rental rate growth on renewals versus new leases starting to converge?

Sure. As far as turnover this past year, our turnover was about 53%. Through the first 40 days of this year, we're running just a tad below where we were at the same period last year. I don't really expect turnover to differ much from where it was last year, call it plus or minus 200 basis points. I don't see people moving out home purchase anymore than they did last year, or for credit reasons. So I would say -- I would be shocked if it was plus or minus 2% from the 53% we're at this year. As far as crossing over new leases to renewal rates, my expectation is it will happen sometime probably in the third quarter, summer time.

Okay, and then I don't know whether or not I missed it or not, but you talked about the new developments and the redevelopments that were already under way. Could you talk about -- what's the expectations are for starts in both new developments and redevelopments for 2011?

Yes, we -- this is Toomey. I think the commenced development, and there's probably more detail in Exhibit nine and 10 in the press release, but we've got about 1,500 homes that we're going to start, and that's in six communities, about $386 million of investment. And you'll see they are generally East Coast, West Coast type of overlay.

Okay, so that's in addition to what's on Attachment 10, it doesn't include any of those assets?

No, not -- inclusive of that. (multiple speakers)Those are the development-- If you're asking me to speculate beyond that, I'd just say we'll announce them as we get them done, but we're certainly out looking at a number of rehab opportunities, which are seriously under our control, and we'll probably add to that as the year progresses and we'll focus primarily both on the East and West Coast on those for redevelopment. New development starts, it's a matter of just entitlements, and that's a long process that just takes a while for us to get there. But I would expect those to also increase as the year progresses.

So the new developments, the starts, is going to be dependent on how much you can get entitled, not based on any caution you have at this point in the cycle?

No, I think where we're looking to start, we like what the prospects for the individual markets are. Basically you're looking at the West Coast, all those markets are going to be having a strong '11, '12, '13 cycle. And, on the East Coast, it will probably be the DC Corridors some more.

Okay. Thanks, guys.

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

Hello, good afternoon. Tom, just on the point on deleveraging, I know you mentioned issuing equity to help fund the $500 million of acquisitions, but did you guys also consider dispositions, just given your cost of capital?

Yes, Jay, certainly. What we've continually done has exposed assets to the market and looked for pricing that seems attractive to us. And we'll see what the market is willing to pay for what we have out there.

Okay.

We didn't want to give any guidance on that, because you just never know what people are going to offer, and you put yourself in a box by saying, we gave guidance of selling a couple hundred million. We don't want to disappoint you. We'll see what the pricing comes back at.

Right, but at the same time, you guys are setting forth the guidance for acquisitions, at roughly 5% cap rates. Is that your assumption there, that the pipeline is increasing and your expectations or IRRs are picking up as well on rent growth?

Yes, to all the above.

Okay. How much of your IRR assumptions changed, would you say in the last 60 to 90 days?

Last 60 days, 90 days, not a whole lot. From six months ago, I would say they are up, probably about 300 basis points.

Okay. Thank you.

And our next question comes from the line of Dustin Pizzo with UBS. Please go ahead.

Good afternoon, guys. Tom, last week one of your peers noted that they have seen cap rates tick up about 25 basis points on the West Coast since November, just given the move we've seen in interest rates here. Can you talk about the trends you guys are seeing, given the cap rate discussion on your guidance and how active you are on the market?

This is Matt Akin. We haven't seen a whole lot of cap rate changes in the core products that we're really looking to buy. A little bit of cap rate expansion in the private market, where buyers are more exposed to the interest rate risks. Overall, it's not a very dramatic change.

Okay, and I imagine it's fairly consistent across the different markets in the country, and by asset class?

I think the asset class certainly have some differences in terms of cap rates, the C-grade product is more subjective to move, or the cap rates where the interest rates move out, but we're seeing the core markets stay pretty fundamental and stable on the cap rates that we're seeing on the assets that we look to buy.

I think you're right. This is Toomey. With respect to cap rates on the B, C stuff, appear to be more sensitive to the overall debt costs, 'cause you're just picking one range of buyers who dominate that market, and what I have found in the past and we've talked about it internally is 100 basis point movement in interest rates is about 20 to 25 on a B-class asset, and you can offset some of that by virtue of the NOI growth, but eventually it catches up. So I would expect to be priced a little bit harder if rates really do start moving, but I'm not so convinced we'll see any of that movement until probably second half of the year at earliest.

Okay, and then, I appreciate the additional color on the renewal rate differences with the electronic renewal program, but can you talk about what the change has been, if there has been, in the acceptance rate of the initial increase? So, if historically 60% of people were accepting the increase and 40% came back to negotiate, where that's gone, and perhaps, where you see it going?

We don't really actively track that. I can tell you when we do look, the number of people who want to come and renegotiate when they get on electronic renewal is very, very small. We have tracked in the past what's the dollar amount change from what we sent out to what was accepted. And last time I looked at that when it was an electronic renewal that was taken, it was probably 10% of what it was for a manual renewal. So let's say it was 60%. I'm not sure if that's what it was for us. Today it's probably 90%, 95%. But we have very little negotiation that occurs today.

That's helpful.

Dustin, I would also add that what it's really doing is it's helping our pricing engine run better. And the computer is always looking out over your demand and what you have in anticipated supply, and if 15 days of renewal notice you can take off 25% of the available doors in a renewal period, the machine reads that and gets very aggressive at pushing rents. And so I think it's a leg up that we have coming into this leasing season by, being able to send these notices. Those notices are sticking, and then Jerry's going to get a lot more aggressive, or have the capability to do so, by knowing how many people sign up in the first 15 days.

Okay. That's helpful. And then just finally, looking at the disclosure on the MetLife JV, if I take your share of NOI, annualize it, you can assume a pretty healthy increase in net NOI to do a lease-up. I'm coming up with a yield on the total pro rata cost basis in the 2%, 2.5% range. And I recognize there's some cost basis in the land parcels there which aren't generating any revenues, but could you just talk about that a bit?

You're only taking -- Dustin, this is Dave. You're taking the amount off of cash in '11, correct annualizing that and comparing that?

Right.

You're taking the 9.65% is our percent and comparing that to the -- yes. One, you have to make an assumption on what the value of the land is on our investments 'cause that isn't generating any NOI, plus, then the item that you don't have included in there is our management fee. And I believe that back in November, the cash on cash returns that we are quoting after we get these assets stabilized was including not only our share of the NOI, but also the management fee. So it was essentially our entire cash return on the investment.

Okay. Okay, thanks.

And our next question comes from the line of Alex Goldfarb with Sandler O'Neill.

Yes, hello. Good evening.Just a little more color on the term loan. Just want to get a sense of when you looked at that versus looking at, let's say five-year unsecured paper, ten-year unsecured paper, where you were coming out, what the cost difference was?

Alex, Warren. I think the time we were looking at that, there was an 80 bip increase in the ten-year for an unsecured. Remember, that was late November, early December. So as we've said, we like to look at all of our capital options. At that point in time, a five-year term loan, which actually put us out to 2016, [about] 200 was a very attractive buy.

Okay. Are you finding that the banks are -- they are much more willing to hold down the all-in versus the unsecured market?

We have found the banks to be very aggressive. They have talked with us and said that for investment grade borrowers like us, they're actively seeking to put out more money and we're seeing them be very aggressive. We've also seen the life companies be pretty aggressive.

Okay. That sounds pretty consistent. Then the second part of that, in the fall, I think it was a NAREIT when you closed on the Hanover deal, I think you guys had spoken about doing $800 million by year end at just under 4%. Obviously rates jumped pretty meaningfully at the end of the year, so you did about 4.40%. What should we be expecting from now 'til, let's say, the next earnings call? Is there anything -- should we be expecting the balance of that, like another 3.60%, or is that just a whole new batch of debt now?

I think the -- I think what Tom talked about, the $800 million, was the near-term maturities for both 2010 and 2011. I think our plan at the time had been to put in a bank facility, which we did for $446 million for the first [tranche]. We have some 2011 maturities which are actually about $200 million. We're looking at some additional stuff. We're working on that now and I think as the year goes along, you'll see those refinancing of those either individually or in full. And again, we've seen a lot of interest from both the agencies and insurance companies on those refinances.

Okay. So that the refinancing, so you'll be getting more refinancing fee and if so, what's penciled into your guidance?

We'll get more-- this is Dave. Currently we don't have any additional refinancing fees penciled in guidance.

But you're correct. We will be getting more refinancing fees.

Okay, and can we just -- on a rough estimate, can we use what you got this time as a ratio for future fees, or each batch is different?

No, it's the same fee.

Basically, one point of the financing.

Okay. So there would be incrementals -- so it was incremental to your guidance?

Yes, correct.

Okay, thanks.

And our next question comes from the line of Karin Ford with KeyBanc. Please go ahead.

Hello, good evening. Appreciate the color on the plan to do potentially an unsecured debt deal to fix some of the floating rate debt. Is any of that in your guidance today, and what type of unsecured rates could you get on seven-year to ten-year paper?

Hi, Karin, this is Dave. We've got that in the guidance and looking at seven-year today, we'd be -- call it 5%, 5.2%. Ten-year is probably 20 basis points higher, or 5.5%

Okay, got it. Okay, thanks. Second question is on the development side, can you talk about what type of yield you're expecting on the projects you started this quarter?

This is Tom. What we started this quarter is going to be, call it a 6.5% blended.

Okay, and what type of IRR do you think that translates to?

I think you're going to be somewhere between 9%, 9.5%.

Okay. Great. And final question, it does sound like you're getting good early information on the online renewals, and you said you were expecting renewal rent growth of roughly 6% in the spring. Are you guys getting 6% rent growth on your current renewals, or is that just based on the trends that you were seeing, keeping them trending out through the spring?

It's actually the trend, Karin. During the fourth quarter it was in the low 5%s. In January, it had eeked up a little bit to about 5.4%. And we are seeing it just progress up each month, call it 20 basis points. We see that six points being where we'll be during the summer.

Okay. Thank you very much.

And we have a question from the line of Eric Wolf with Citi Financial. Please go ahead.

Thanks. Getting back to the acquisitions for a second, can you tell us how much you expect of the $500 million to come from the Hanover/MetLife portfolio and whether we can expect you to keep increasing your concentration in the Boston/Northeast area?

This is Toomey. First, with respect to the Met, we're 60 days into the relationship, and what I would report is they're very happy with our operations and our reporting, and our asset management. We continue to have dialogue on the value of each individual asset and potential transaction, but we've not provided that as part of our $500 million. We don't want to, basically, add that into that number at this time. Markets that we're looking for acquisitions, the Eastern seaboard, DC, all the way up to Boston, and the West Coast.

That's helpful. And just as part of the 10% dividend increase, could you tell us how you came up with that level, just wondering whether it's based on a specific payout level or based on your earnings growth this year?

Well, I think we look at a lot of different metrics with respect to our capital needs, the cost of capital, as well as what our operating cash flow is expected to increase. And so, I think we lean more towards looking at the operating cash flow. We felt capital was going to be available and cost effective. And so, in our mind, it became very clear that the dividend could be supported on an increased level from just our operations platform, and the asset base increasing, and that was the reason for increasing it to that level. It's a level that we felt very comfortable with keeping our payout ratios relatively low to the peers, and continued growing. So, I think it's a good first step and hope to have many more quarters of it in the future.

Great, thanks.

And we have a question from the line of Michael Salinsky with RBC Capital Markets.

Close enough. First question--

Can you sing the national anthem?

I'll save you guys the embarrassment there. Second of all -- first question, relating to deleveraging, I know you guys plan to deleverage through acquisitions, but can you remind us what your long-term leverage target is, where you guys -- where you plan to be by year end essentially?

Well, I think the metric that I've always focused on, Mike, has always been fixed charge. I know the market is moving more to an EBITDA range, but we've been focused at fixed charge. And it moved to 2.3% this quarter. And I would say that it's going to have to be 2.3% to 2.5% range for us. I think that's first. And where it will be at the end of the year, I think we'll be in that 2.3% to 2.5% range, and our debt-to-EBITDA probably will still be slightly over 9%, is where we're forecasting.

Okay, and then in the guidance, there's no ATM issuance behind the deleveraging through acquisitions, correct?

That is correct.

Okay. And second of all, development outlays for 2011, I didn't see that in the guidance. How much are you guys planning to spend on development outlays, as well as redevelopment?

David's going to have to answer that one.

Sorry, I had to dig out my schedule. Development, 2011, we're looking on the projects that are detailed, 2400 Savoy, Mission Bay, Belmont Townhomes, roughly $90 million. Then on redevelopment with the Lake Pines or CitySouth and Barton Creek, about $20 million for 2011.

Okay, and that includes any spec or anything like that, or is that just in current projects?

Those are current projects, our current development spend.

Okay. So that -- okay. We can talk offline about that. Then finally, just curious as you're working through the Hanover portfolio, burning off concessions, resetting effect. How much growth are you seeing essentially on an effective basis? I mean, as your marketing rents to market, you're also burning off concessions. How much upside are you seeing as those reset?

I think it's probably 8% or 9%. You're really looking, Mike -- Hanover was offering concessions of two to three months. We think on an effective basis, we could get rid of one of those months and that gets you up to about 8%. Then we're also seeing the ability to push occupancy levels up quite a bit higher than where Hanover ran them. From the time we got into the portfolio until today, we've taken occupancy from 83% to 88%, and today, it's almost 91% leased. We would think by summer we're going to be running this portfolio in the 93% range or so. So in addition to the effective rents, you've got that, as well as we've also been rolling out utility reimbursements, which Hanover wasn't doing as aggressively as we are.

Okay. That's helpful. Thank you much.

And our next question comes from the line of Paula Poskon with Robert W. Baird. Please go ahead.

Thank you. Jerry, to follow-up on your earlier comments on rental rate expectations, how -- what do you expect in your strongest and weakest markets, which I assume from your comments are DC and Sacramento, respectively?

Up in DC and San Francisco, my expectation for the high end of rent growths would be 6.5% to 7.5% and at the lower end, it's more in the 2% range.

Okay, thanks. That's helpful. And do you ever override what your revenue management system suggests on pricing?

Absolutely. We probably accept 75% to 80% of the suggestions, but it takes lot of components to maximize revenue once the people at the site level, once the team that we have here managing the rents, one is the quality of the asset and the last is the pricing software. And it takes all of them and the system only knows what's been input into the system, either historical traffic or current availability. It doesn't know if jobs are about to come to town or if jobs are leaving town, and that's where we rely on our people at the site level to communicate with our pricing people here. They communicate by e-mail on a daily basis and by conference call at least once every other week.

That's helpful. Thank you. And how is the pace of lease-up at Signal Hill compared to your expectations?

It's significantly above.

And is that driving your change in yield?

Yes, it is, because we're able to moderate down the concession somewhat, as well as get occupancy up higher and get away from some of the marketing sources we had implemented early in the lease-up.

So where do you think that will ultimately pencil out?

This is Toomey. I think you're going to see that deal come in probably at 7.25%, 7.5%. I mean the lease-up pace is twice what we had anticipated, and Jerry's right. He's able to pull off the expenses and the concessions much quicker on that. So we've gotten fortunate to deliver one right into the eye of a perfect storm, with the BRAC relocation, it's going to fully lease up a lot better.

Thanks, and, Tom, what are you seeing -- or can you just characterize what opportunities, if any, you're seeing for land?

Land didn't seem to reprice at all. And certainly doesn't seem like banks or any other people who have been sitting on it are willing to cut prices. So I think a shock that we'll all look back on this period of time was that land should have been repriced, it didn't, and that's surprising. So the stuff that we're out pursuing is very competitive, and I think what we have is a leg up in the sense that we're willing to commit and write a check and don't need financing, per se, to get it closed. So I think we'll have some luck on that trend in the future. Certainly the REITs will be competitive, but a lot of private guys just won't be able to step up on dirt and get the paper or the loans to do it.

Thanks very much.

Our next question comes from the line of Andrew McCulloch with Greenstreet Advisors. Please go ahead.

Just on the MetLife JV land, how many of those sites are shovel-ready today, and when do you think the earliest you may move forward with any of those?

This is Toomey. Shovel-ready today would be two of the 11. Shovel-ready in a year would be an additional four. And there's one currently under study right now.

Great, thanks. And then just one more question. Can you give us an update on the Kuwaiti JV? Been pretty quiet that front.

This is Matt Akin. We continue to show KFH acquisition opportunities. They are focused on the DC market for the most part today. Their expectations for returns just aren't available in the marketplace today. I think we certainly don't have to do deals with those guys. We have no contractual obligation to do more with them, but we'll continue to show them opportunities for the right capital vehicle that makes sense for that joint venture.

Great. Thanks, guys.

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

Thanks, good afternoon.I have a question on the MetLife portfolio, and the success you're having in leasing it up. It seems to me, and correct me if I'm wrong, and I'm sure you will, that you're in an awkward spot, because if you want to buy assets, you want to be a bigger participant in that upside as opposed to just $93 million. And so I'm curious how you balance that with your desire to get the assets up and moving, but also having an eye towards buying them at some point down the road.

Yes, Rich, certainly when we entered into the JV, we understood that we would be working somewhat against ourselves. But in all frankness, we don't know how to run assets any differently. We run them the best we can. We run them just like we run ours and we always will do that. It's our systems, our people, and so that's why Met consented to have us as a partner. Second, we traded that upside that we'll be creating for them, for really having the opportunity to buy this portfolio. And we feel that with our knowledge of running it, and with our contract with Met, that somewhere down the road, it will lead to a transaction that will be beneficial for both parties. And we'll get our hands on some of these assets, which you may or may not have visited, but they are very unique, and that option of investing in it, we're getting paid very well in the interim, through our management fee, as well as our cash flow. So it's a trade that's good for both parties. And if we have to pay a little bit more in the future, it's still going to be a price that will probably be better than if we had to go into the open market and slug it out in a toe-to-toe auction.

Okay. And then just turning more generally to acquisitions, say midpoint 5% initial cap rate on the $500 million you mentioned, where do you think that that return could be say, 2012, 2013?

Well, what we've looked at and what we're in study, I would say trending going up to, what, 6, 6%. I'm getting nods on 6%.

Okay. Thanks, guys.

(Operator Instructions)Our next question comes from the line of Anthony Paolone with JPMorgan. Please go ahead.

Tom, did you mention earlier I think to Jay's question that IRRs on acquisitions you're seeing now are about 300 basis points better than they were about six months ago? Did I catch that right?

No. What we intended to state there was that our NOI growth assumptions.

Okay.

We were probably looking at three and six months ago, nine months ago, and now we feel a little bit more confident about that NOI growth in a lot of those markets that we're shopping. That's what I was intending to state.

Okay, got you. So can you put some parameters just around -- it follows up on Rich's question I guess, too, if you're going in at 5% caps and you're looking at being at 6% in a year or so, or in a couple of years, where you think IRRs are over some holding period, exit cap rates that you might think about, how that all fits in right now?

Yes, I'll ask Matt to give you some more color.

We're looking at -- as cap rates have stayed fairly stable in the core that we're looking at, underwriting exit caps maybe 50 basis points higher than that. The growth rate's in line, consistent with what we're seeing in our portfolio. You're looking at unlevered is 9%, 8.5% range.

Okay, thank you.

We have a follow up question from the line of Paula Poskon with Robert W. Baird.Please go ahead.

Thanks. Hey, Dave, what is the breakdown in the CapEx guidance between recurring and revenue enhancing?

We haven't provided any breakdown anymore. We just consider it all one lump sum at $1,050.

Okay, thanks.

And I show no further questions at this time. Please continue.

Well, operator, in closing, what I would like to say is that I think we have the wind at our backs for 2011 and '12, and beyond. I think we've got a good team, got a good footprint, and an operating platform that can create value, as well as our redevelopment and development capabilities. So, I think as the markets unfold, we're out there looking for opportunities and see that we can create some value for our shareholders and we're very happy to increase our dividend again. So with that, all of you take care and we'll talk to you next quarter.

Ladies and gentlemen, that concludes our call for today. If you would like to listen to a replay of today's call, please dial 1-800-406-7325 and enter access code of 4400210. Thank you for your participation. You may now disconnect.