UDR Inc (UDR) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to UDR's fourth-quarter 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 the 6th of February, 2012.

I would now like to turn the conference over to Chris Van Ens, Vice President of Investor Relations. Please go ahead.

Thank you for joining us for UDR's fourth-quarter financial results conference call. Our fourth-quarter press release and supplemental disclosure package were distributed earlier today and posted to our website, 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 requirements.

I would like to note that statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. The discussion of risks and risk factors are detailed in this morning's press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

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

I will now turn the call over to our President and CEO, Tom Toomey.

Thank you, Chris, and good morning, 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 and Harry Alcock, who will be available to answer questions during the Q&A portion of the call.

My comments today will focus on three topics -- first, our fourth-quarter and full-year 2011 results; second, a summary of our 2011 accomplishments; and finally, our outlook for 2012. Following my comments, David will discuss our financial results and 2012 guidance, and Jerry will provide commentary on operational results and early 2012 trends.

First, UDR's business continues to improve, as evidenced by the accelerating revenue growth we reported during 2011. In the fourth quarter, core FFO per share rose 21% year-over-year, driven by same-store revenue and net operating income growth of 5.3% and 7.7%, respectively. For full-year 2011, core FFO per share of $1.28 per share rose 13% year-over-year, driven by same-store revenue and net operating income of 4.1% and 5.6%, respectively. We expect that 2012 will even be better than 2011.

Second, we accomplished a great deal in 2011, expanding our enterprise by $1.8 billion in key urban markets and disposing of nearly $600 million of non-core communities. At year-end, our equity market capitalization stood at $6 billion and our total enterprise value was nearly $10 billion.

Some additional highlights from the past year that demonstrate the progress we made in implementing our long-term strategic plan to improve our portfolio, strengthen our balance sheet, and grow our cash flow, include -- we entered New York City market through four unique off-market transactions totaling $1.2 billion. These acquisitions offer meaningful operational upside, as they continue to grow in excess of our original forecast. At year-end, New York City accounted for 10% of our total net operating income versus 0 at the beginning of 2011.

We increased our ownership interest in Boston metro area, Washington, DC, and San Francisco through the purchase of approximately 1,800 apartment homes for $606 million. At year-end, these markets accounted for 25% of our total net operating income versus 21% at the beginning of 2011.

As I mentioned earlier in my comments, we disposed of nearly 4,500 apartment homes and 18 communities for a total proceeds of $594 million. We will continue to use the proceeds from non-core asset sales to help fund our development and redevelopment pipeline, unless a 1031 exchange is necessary for tax purposes. We commenced the development and redevelopment of nearly 4,300 homes in 11 communities, located in markets such as New York, Southern California, Washington, DC, and Dallas, for a total estimated cost of $808 million. Our in-progress development and redevelopment pipeline totaled $1.2 billion at year-end, of which 30% has already been funded. We expect to deliver roughly half of these homes by the end of 2013.

We increased our portfolio-wide total income per occupied home by 15% to approximately $1,370 a month. This metric will trend higher as we continue to execute on our strategy of owning apartment homes in high barrier to entry markets, while also disposing of lower rent, non-core communities. We raised nearly $1 billion of equity consisting of $496 million through a secondary offering in July; $109 million in OP units; and an additional $384 million through our aftermarket program, all of which strengthened and delevered our balance sheet.

We completed a $300 million offering of seven-year unsecured notes at 4.25% in May. And finally, we increased our annual dividend by 10% to $0.80 per share. With the closing of 2011, the entire management team would like to thank nearly 1,700 associates for an outstanding year. We look forward to our continued success.

Turning to 2012, we are off to a great start on all fronts and looking forward to another successful year. I'd like first to briefly comment on our second real estate joint venture with MetLife announced in early January.

The new $1.3 billion, 50/50 joint venture consists of 12 operating communities containing 2,500 apartment homes with an average income per occupied home of over $3,000 a month, and is comprised of well-located communities in our core markets. We are pleased with the upside our operating platform generated in our first JV with MetLife, as well as the progress we made in owning larger interests in these high-quality, well-located communities. We look forward to further growing our relationship with MetLife.

We remain committed to deleveraging the balance sheet over time. Our 2012 guidance fully contemplates capital needs for the recently-closed MetLife JV, as well as $500 million in development and redevelopment activities, the majority of which will be funded by the anticipated disposition of non-core communities in 2012. David will speak further on these forces and uses in his prepared remarks.

Moving forward, deleveraging will occur opportunistically and likely in connection with growing the enterprise. At times, there is potential that our leverage will increase over the short-term, especially when or if we close on larger transactions, such as the second MetLife joint venture. But over time, deleveraging the enterprise remains a priority.

Turning to multi-family fundamentals, the robust supply and demand characteristics currently evident in our business will continue to provide a tailwind for apartment owners and operators. With our leading operating platform, much improved portfolio, and experienced management team, UDR is well-positioned for the future. Our 2012 guidance calls for same-store revenue and net operating income growth of 5.5% and 6.75% at the midpoint, respectively, leading to FFO per share of $1.37 to $1.43, a 9% increase at the midpoint. David and Jerry will provide more commentary on our 2012 expectations in their prepared remarks.

In addition to a strong same-store guidance, we will see meaningful growth from our non-mature pool of communities this year. Importantly, many of these non-mature communities are located in supply-constrained, gateway markets that are expected to generate outside top-line growth over the coming years. At the end of 2011, our non-mature pool accounted for 28% of our total NOI. David and Jerry will further discuss our non-mature portfolio and our expectations for it in 2012.

The following support our 2012 outlook -- first, multi-family supply remains in check; second, there remains an aversion to homeownership, as evidenced by still downward-trending home ownership rates. This phenomenon continues to stimulate demand by depressing turnover and thereby limiting frictional supply. Lastly, job growth is expected to continue to gain traction in 2012. More importantly, is that the 20 to 34-year-old age cohort, which has a high propensity to rent, should continue to garner a majority of new jobs.

But potential speed bumps still exist. First, the general economy is recovering, but progress remains stubbornly slow. The overall recovery from Main Street perspective is still somewhat fragile to us. Second, government intervention, specifically changes to either the GSEs or broad-based housing initiatives. Lastly, the ongoing European debt crisis or the realization of another macro shock could negatively impact capital markets and our consumer confidence in the US. Regardless of these or other risks, UDR remains well-positioned for a robust 2012 and beyond.

To summarize, we expect 2012 will be another strong year for UDR. We project that FFO per share will increase by 9% at the midpoint of our guidance, due to the continued acceleration of our same-store and non-mature net operating income growth. As a result, the Board has increased our annual dividend by 10% to $0.88 per share for 2012.

With that, I will pass the call over to David.

Thanks, Tom. My comments this morning will focus on our fourth-quarter results, a balance sheet update, 2012 guidance, and our capital plans.

Earlier this morning, we reported fourth-quarter core FFO per diluted share of $0.34, a 21% year-over-year increase and consistent with our guidance announced in July. Reported FFO per diluted share of $0.35 during the quarter was positively affected by several nonrecurring items, which netted to an additional $0.01. These items are disclosed in more detail on the first page of our fourth-quarter press release.

Turning to our balance sheet and capital market activities. As of December 31, we had $739 million of cash and credit capacity available to fund our business and external growth opportunities. In December and January, we sold 1.8 million shares under our asset market equity program at a weighted average net price of $24.67. There are 7.4 million remaining shares available for sale under this program.

At December 31, UDR had 233.1 million common share equivalents outstanding. And for your models, if you assume no further equity issuances for the remainder of the year, the 2012 weighted average share count will be 234.3 million. This includes the shares sold under the ATM in January. In early January we completed a $400 million, four-and-five-eighths percent unsecured offering, $100 million of which was used to repay higher costs on secured debt.

With the conclusion of 2011, it is important to look back at the improvements we have made in our balance sheet over the past two years. In addition to making substantial and sustainable progress with regard to our credit metrics, we also acquired and developed over $2 billion of wholly-owned, high-quality apartments in desirable locations. These purchases were primarily funded with dispositions of non-core community in excess of $600 million and the issuance of $1.5 billion in equity.

In short, we have successfully deleveraged our balance sheet over the last two years, while at the same time, materially improving the quality and location of our portfolio. We will continue our deleveraging efforts as we acquire new assets and through opportunistic capital market activities.

A few highlights since 2009. At the end of 2009, UDR had a debt per preferred stock to gross asset value of 55%; an annualized debt to EBITDA of 10; a secured debt to assets ratio of 31%; and a fixed charge coverage ratio of two times. Fast forward to year-end 2011 and our metrics have improved meaningfully. UDR had a debt per preferred stock to gross assets value of 47%, a reduction of 800 basis points; an annualized debt to EBITDA of 8.3 -- that's 1.7 times better, or a 17% improvement; a secured debt to assets ratio of 22% -- a 900 basis point improvement; and a fixed charge coverage ratio of 2.6, that is 0.6 times better or a 30% improvement.

Next, our 2012 guidance. Consistent with prior years, our guidance is driven by a bottoms up approach that begins as property level forecast from our experienced Operations team. Our approach includes a review of the local economy, including job growth, potential new supply, current rent rolls, application counts, et cetera. Additionally, we review macro expectations for the national economy and use this information to gauge the reasonableness of our more micro-expectations.

Our guidance is driven by many components, all of which are detailed in Attachment 14 in our earnings supplement. Let's begin with same-store growth guidance, which is predicated on a pool of 38,680 homes or 82% of the homes UDR wholly owns. For 2012, we anticipate an increase in same-store revenue of 5% to 6%; portfolio occupancy of 95%; and expenses to be up 3% to 3.5%, all resulting in same-store NOI growth of 6% to 7.5%.

Next, non-same-store operations. Due to homes being added to our year-end non-same-store pool throughout 2010 and 2011, we are unable to provide an apples-to-apples year-over-year growth estimate for these assets, but we'll give you a sense of the increased contribution this pool makes to the operations line in 2012.

Excluding our development and redevelopment communities, our recent acquisitions are expected to grow NOI at a rate nearly double that of our same-store pool in 2012. Let me quickly explain our methodology for this calculation, as it is not based on a year-over-year comparable growth rate.

All of our acquisitions generated a full quarter's worth of NOI in the fourth quarter. If you annualize that amount and then compare it to our budget for 2012, we find a growth rate that is nearly double the same-store pool when its fourth-quarter NOI is treated and compared to comparable 2012 assumptions. I want to be clear with everyone -- this is not a comparison of year-over-year growth expectations, but rather it compares our 2012 NOI expectations for our acquisitions and same-store pools to the annualized fourth-quarter NOIs outlined on Attachment 6 of our earnings supplement.

Third, external growth. Wholly-owned acquisitions -- we continue to actively pursue opportunities in our core markets but cannot ensure success in these pursuits. Accordingly, 2012 acquisitions will be market-dependent. Joint venture investments -- we recently formed a second joint venture with MetLife valued at $1.3 billion. Our equity commitments to fund the additional interest in seven communities and the acquisition of Columbus Square totaled $290 million.

Dispositions -- in 2012, we are marketing some of our non-core communities and expect to sell $400 million to $600 million of these communities at an average cap rate between 6% and 6.5%. These dispositions are expected to be dilutive by nature, given the timing differences between the realization of sales proceeds and the reinvestment in the development and redevelopment activity in 2012.

Development and redevelopment -- we have 18 projects currently underway that, when completed, will deliver 6,163 homes. The development and redevelopment pipeline will require approximately $400 million and $100 million of spending, respectively, in 2012, which, as previously stated, will be funded primarily by disposition. G&A expenses -- we expect G&A cost of $32 million to $34 million in 2012, down 7% at the midpoint from $35.4 million in 2011.

Debt activity -- aside from the $400 million unsecured debt offering and the coinciding repayment of $100 million of higher-cost unsecured debt referenced earlier in my remarks, the remainder of our 2012 obligations consists of $195 million of 4.5% secured debt that can be refinanced at roughly 4% to 4.5%, based on today's spreads, treasury, and a 10-year term.

Equity activity -- potential new equity guidance in 2012 is best understood by examining our capital activity for the year. Starting with a line balance as of December 31, 2011 of $421 million, our sources include the following. January 2012 ATM sales of $29 million; an unsecured $400 million debt offering completed in January; and planned asset sales of $500 million at the midpoint of our guidance in 2012.

Then, the uses consist of our previously-announced payoff of $100 million of 5% unsecured debt at par in January; our previously-announced investment in the new MetLife joint venture, which required $214 million of cash in January; the payoff of a $31 million secured mortgage in January; and then the anticipated development spend of $400 million during the year; the anticipated redevelopment spend of $100 million during the year; and the anticipated redemption of the remaining $82 million of our preferred GSE stocks later this year.

Based on this analysis, our activity is fully funded and we do not have an immediate need for additional equity or debt to meet our 2012 funding obligations. Any new equity or debt will be market- and use-dependent.

Recurring CapEx -- for 2012, we anticipate increasing the amount we spend per stabilized home to $1,150. This equates to $55 million being spent on 47,545 stabilized homes. The per-home increase is the result of the transformation our portfolio is undergoing, moving into more high-rise product in higher-cost markets.

Finally, nonrecurring items -- in the first quarter, we repaid a secured mortgage for $31 million and recognized a gain on the mark-to-market adjustment of approximately $4.5 million, which will be included in our first-quarter 2012 results. This will be offset by an approximately $1 million charge related to acquisition costs incurred with the purchase of Columbus Square, and a nearly $3 million charge in connection with the planned redemption of our preferred GE stock.

When added together, these inputs result in a projected 2012 FFO per diluted share range of $1.37 to $1.43. We will update this guidance during our 2012 second-quarter call or if a material event warrants such an update. With regard to the dividend, this morning, we announced a 10% year-over-year increase. Therefore, the 2012 annual dividend will be $0.88 per share and will be paid in quarterly amounts of $0.22 per share.

Now I'll turn the call over to Jerry.

Thanks, Dave. Good morning, everyone. We're pleased to announce another strong quarter and full year of operating results. In the fourth quarter, same-store net operating income grew 7.7% year-over-year, driven by a 5.3% revenue increase and minimal expense growth of 0.5%.

The fourth quarter progressed as we thought it would. Effective rental rates on new leases signed during the quarter grew 1.1% in our same-store portfolio. San Francisco and Austin significantly outperformed the remainder of our portfolio, and 14 of our 22 same-store markets exhibited positive new lease rate growth in the quarter. Our loss to lease at the end of January was 4%, in line with last year.

Growth and renewals remained strong throughout the fourth quarter, increasing 6.2% on an effective basis. We continue to garner renewal rate increases at or slightly above what we originally set out to residents. San Francisco, Phoenix, and Seattle were our top performers. All of our same-store markets exhibited positive renewal rate growth in the fourth quarter.

Fourth-quarter occupancy declined by 40 basis points year-over-year to 95.1%, as we held rates in the fourth quarter and were willing to absorb a small decline in occupancy. However, we are now seeing occupancy strengthen again. Resident turnover was up slightly in the fourth quarter to an annualized rate of 50%, compared to 47% in the fourth quarter of 2010.

Move-outs for home purchase remained well below historical averages of 12%. Move-outs due to rent increases rose slightly, but still represent only 7% of total move-outs. For full-year 2011, our annualized turnover rate was flat at 53%. In addition, our A communities continued to outperform our B communities this past quarter.

In our third-quarter call, I commented that the growth spread for new lease rates between A's and B's was 170 basis points. It widened to over 300 basis points in the fourth quarter. More discretionary income provides our high-rent residents with the means to accept market-driven increases; whereas our lower-rent-paying residents have less latitude to accept such increases.

Sequentially, revenue increased 0.2%, just as we'd expected; and expenses declined by 3.9%, leading to NOI growth of 2.3% during the fourth quarter. For the full year of 2011, net operating income grew by 5.6% on the back of 4.1% revenue growth and 1.4% expense growth. Importantly, fourth-quarter income per occupied home for our same-store portfolio increased 5.7% to $1216, highlighting our operational success during 2011.

Given the substantial acquisition development, redevelopment, and disposition activity we undertook in 2011, our non-same-store portfolio grew to 8,663 homes, and represented 28% of total quarterly NOI at the end of the fourth-quarter. Our acquired bucket includes 3,200 homes purchased in 2010 and 2011, and they are located in markets such as Boston, Manhattan, San Francisco, Washington, DC, Los Angeles, and Orange County.

Excluding the redevelopment communities in this group, our acquisitions are playing out as expected. With regard to the original MetLife JV, results have exceeded our initial expectations. Specifically, the four New York acquisitions achieved weighted average rents increases of 11% during the fourth quarter, with occupancies averaging 97%. Over the past six months, we have turned just under 40% of the roughly 1900 homes we acquired last year in this market, and are still seeing meaningful upside in rental rate growth. We expect this to continue in 2012, and have experienced little to no negative effects from layoffs in the financial sector.

On the expense side, we have eliminated brokered commissions and reduced third-party costs at our New York communities. Lastly, we have nearly 3,100 homes in 11 communities under development and over 3100 homes in seven communities in redevelopment. These homes are expected to generate strong NOI growth as we move past 2012.

Both Barton Creek Landing in Austin, Texas and City South in San Mateo, California are scheduled to be completed by the second quarter of 2012. Leasing velocity and realized rent increases continue to be very strong at both communities, and both are operating ahead of budget. These two projects illustrate well our ideology towards redevelopment, generating strong post-rehab top-line growth, while also achieving cap rate compression by moving up the quality spectrum.

In an effort to provide more clarity on our non-mature portfolio, we have included Attachment 7D in our fourth-quarter earnings supplement. The new attachment illustrates our same-store NOI versus total portfolio NOI concentrations for the fourth quarter. As you can see from Attachment 7D, the corridor between Washington, DC and Boston now comprises 39% of our NOI, while the West Coast comprises 36%.

Turning to 2012, new lease growth is beginning to reaccelerate and occupancy is heading northward again. In January, new lease rates increased 1.7% year-over-year, similar to the prior-year period, while occupancy grew 10 basis points versus year-end 2011. Renewals continued to trend well, up 7% in January or 240 basis points above last January's results.

16 of our 23 same-store markets for 2012 generated sequential improvement during the month, an encouraging sign that seasonal pricing power is beginning to ramp. Renewal increases sent out for the remainder of the first quarter of 2012 have averaged 6.5%. We expect to realize the majority of this increase, as many of our markets are strengthening.

With that, I'd like to thank all of our dedicated associates in the field, and at our corporate and regional offices for a strong quarter and a great 2011.

Now I'll turn the call back over to you, Tom.

Thank you, Jerry. And Operator, we're now ready for the Q&A portion of the call.

(Operator Instructions). Dave Bragg, Zelman.

A few questions on disposition plans. Tom, what's the likelihood or your interest in pursuing a large portfolio sale, not unlike that of January 2008, maybe not of the same magnitude, but that general strategy, given your disposition plans for the year? And along with that, can you comment on whether or not you believe that there's a premium or discount inherent in a portfolio sale today?

David, good morning. I'll let Harry take that call.

Hi, Dave. We've got $400 million to $600 million in our guidance. We're going to pursue what we believe to be the appropriate disposition strategy, which may or may not include a portfolio sale. In terms of whether there's a premium, I think it -- my guess is portfolios would trade today at pricing that's roughly equivalent [at] the pricing we'll get on a one-off basis.

This is Jimmy. I'd add that, in a portfolio sale, you could probably control the timing and minimize the risk a little bit of a portfolio transaction versus a one-off market.

Okay. And could you remind us of your methodology to get to that 6% to 6.5% cap rate on these expected dispositions, in terms of the NOI and the CapEx embedded?

Sure, that's going to be 2012 NOI. It's going to have a reasonable management fee in there of about 3% and $500 to $600 a unit in CapEx.

Great. And last question, can you talk about what you're doing on the G&A line to continue to drive that down?

Yes, Dave, this is Dave. A couple of items on the G&A front impacting the 2011 versus 2012. We made several restructuring changes over the past couple of years that you're starting to see the effects of. Our technology efforts haven't been solely focused on our operating platform and we've made significant strides at the corporate level as well.

Our portfolio composition is a positive for us. It's significantly easier and more efficient to manage a $300 million asset in one location than ten $30-million assets elsewhere. And additionally, we've increased our development and redevelopment pipelines, which have moved some of the people from our G&A forces into that segment of our business.

Okay. Thank you.

Karin Ford, KeyBanc.

A question just on your revenue growth guidance. I notice that the midpoint is slightly higher than the revenue growth you achieved for 4Q '11. So could you just walk through what you expect to see the progression through 2012 quarterly of revenue growth for the first half and then the back half of the year?

Sure, Karin. This is Jerry. I can tell you, you're right -- our midpoint is 5.5%, 4Q is 5.3%. So we do expect -- and for the year it was 4.1%, so we do expect 2012 to have better revenue growth than last year.

Our expectation is somewhere in the middle of the year, it's probably going to be at its higher points and then it will tail off a little bit at the end of the year. When you look at the markets, I don't think it's going to be a surprise from what anybody else has been saying, but the strongest markets will be on the West Coast spearheaded by San Francisco. The Texas markets will also do well. We do expect Southern California to be an above-average market for us this year. And if I had to differentiate between several markets down in Southern California, I would tell you, I think Orange County and LA will do better than San Diego and the inland Empire.

And then our weaker markets, we expect Florida to still be below average for us. And we think Washington, DC will be a little bit below average for us this year.

That's helpful. My second question is related to, Tom, a comment you made at the beginning of the call. I guess one of the items you mentioned as a possible driver of your business this year would be changes to the GSEs or something on the regulatory front with respect to housing. Are you seeing anything on those two fronts? Or is that just a hypothetical case related to your guidance?

Karin, it's a good question. I don't think anybody really has clarity in an election year about where the GSEs are going to settle out. There's certainly a lot of noise surrounding it and a lot of people are going to say things to try to garner votes. So I'm not certain that it's going to settle itself out in '12, but it's certainly going to impact our business in '13 as a new Congress is seated and undertakes what to do with the management of the GSEs, both from a rate standpoint as well as an asset standpoint.

So it's just one of those things that, on the horizon, it's going to loom larger and larger in our calculus of risk as well as opportunities. Today, we're not seeing anything impacting our business. The GSEs are open; the rates are attractive. And we think we're going to take advantage of that window by moving a lot of our portfolio into the sales window, and take advantage of that interest rate environment on the sales front.

Thank you. That's helpful.

Jana Galan, Bank of America Merrill Lynch.

I wanted to ask about your -- you mentioned deleveraging would be a priority. Can you talk about some goals or targets of where you'd like to get to on the different leverage metrics you laid out?

This is Tom. You know, I think it's a long-term directional goal and I'm not really set on a set of numbers or specific metrics. When I look at the balance sheet today, I look at a laddered maturity schedule that feels very good, an overall cost of debt inside of 4.2%, and look at the financial flexibility of the enterprise.

I think we're right about average on most metrics and above average on debt to EBITDA. But over time, I think we'll just drive that down. David mentioned in his remarks about the progress we've made over the last couple years. I don't think we'll try to do some big transaction, if you will, to fix it overnight. I think we're going to continue to make slow steady progress on that front. We think that's a prudent balance when managing a balance sheet.

Thank you. And I apologize if you said this, but I wanted to clarify, is there any new acquisition assumptions in your 2012 FFO number?

Jana, this is Dave. There's not.

Thank you.

Eric Wolfe, Citi.

I think you mentioned in your remarks that the acquisition equity guidance this year was going to be March-dependent. Last year, you gave us some specific numbers around that. Just curious why you changed your approach this year? And secondly, how you think about 2012 might shape up from a acquisition perspective relative to 2011?

Well, I think when we looked at the beginning of 2011 and were formulating that game plan about what to do, we thought it was a great window of opportunity to buy, that most people were not in the market trying to buy the caliber of assets we were, and that we think we've been rewarded by finding unique opportunities in that window. And Jerry and his team have delivered on those pro forma's, if not exceeded them. So that's why we were aggressive in our guidance at the beginning of '11 related to acquisitions.

As we start out in '12, our attentions turn more to what do we think the pricing of assets are for the sales side of the equation? And we're going to move more towards that initially at the year, and I think we'll have success on the sales front.

On the acquisition, we're continuing to look at the marketplace. It's hard for us to forecast and really see a significant number of opportunities at this point. So we elected really to say we'll look at it as they come up and weigh each of them individually. And again, look at them in light of what do we think we can do to improve the quality of the asset, garner a better return out of it. And that's kind of our attitude right now about '12 acquisitions.

Right. So you wouldn't see it as being -- I mean, you had a pretty busy year in 2011, so 2012 is really -- I mean, is it a continuation of that? Or is it just you're trying to pick off assets here and there in New York City or Boston? Just trying to understand how busy you think this year can be relative to 2011.

That's a hard crystal ball question. A lot of the activity in '11 was begot because we had a couple of successful relationships and we were buying from a lot of private individuals. And those individuals are not forced to sell and so they elect, both on a relationship and a trust basis, to sell. And I think that's kind of the environment.

Harry, anything you'd add?

Yes. I mean, we're in the market on a regular basis. And as you know, acquisitions are opportunistic by nature. To the extent we find transactions that we feel good about, we certainly will be willing to pull the trigger as we did in '11. I mean, if you remember, when we started '11, we didn't expect to complete the level of activity that we did. But again, on an opportunistic basis, where in the market, we found deals that we ended up closing.

Great. All right. Thank you.

Paula Poskon, Robert W. Baird.

I want to come back to the G&A question from earlier. Specifically, what drove the much lower G&A in the fourth quarter relative to the other three quarters of 2011? And then looking ahead for 2012, how much of the drop-in G&A that you're expecting is attributable to the reallocation of staff?

Hey, Paula, this is Dave. When looking at Q4 versus Q3, a couple I know is going to jump out. First, we had an extremely busy year in the first nine months, the first three quarters, and a significant portion of our acquisitions debt, equity and sales and marketing efforts were undertaken and completed. So accordingly, the bulk of the incentive comps for the Company was accrued during that time period. So there was very little that had to be accrued in the fourth quarter.

We had several severance contracts and consulting contracts run up in the third quarter that weren't present in the fourth quarter. And then leading to your second point, we also started capitalizing more the costs in the fourth quarter towards development and redevelopment pipelines, as those have started to take shape and have nearly doubled over the course of last year or so. But I'll have to get back to you on an exact number for capitalizing costs. We haven't previously disclosed that.

Okay. And then just one other question, just broadly speaking, what are you seeing in terms of trends in hard construction costs? And also, are you seeing any increased difficulty in getting plans approved or projects through the local municipalities, just because they are getting overloaded with staffing -- relative to their staffing?

Sure. Paula, this is Harry Alcock. With respect to construction costs, I think construction activity just in general remained -- the levels remained weak by historical standards. There have been some upward pressure on commodity and material prices. In general, construction prices have increased moderately, perhaps 3% or so, so I think that answers part one.

In terms of part two, the types of markets that -- there's a couple of different things. One, many of the projects that are in our guidance for 2012, we either have approvals or are near the point where we can put shovel-in-ground.

In terms of those, we're sort of starting from scratch and working through a new entitlement process. We haven't noticed any particular slowdown in terms of the processing time for these types of deals. A lot of the markets that we're building in inevitably have longer approval or lead-time processes, just given the types of markets that they're in.

That's helpful, thank you. That's all I have.

Michael Salinsky, RBC Capital Markets.

I just wanted to go back to a comment you put on the last conference call and just wanted to see if it's still the case. You talked about last time funding development and redevelopment with proceeds from dispositions and funding acquisitions with new issuance. Is that still the plan as you look out to 2012?

Yes, Mike, that's currently the plan. And you can see that pretty much they match up at this present time. In the walk-forward that David provided in his comments, we've got about $500 million in development and redevelopment spend planned for the year. And Harry is out marketing a number of communities and we gave guidance of $400 million to $600 million on the sales front.

Okay. So that doesn't include the acquisitions?

No.

I mean, doesn't include -- I'm sorry, joint venture acquisitions. So you don't -- that wouldn't be defined as an acquisition?

It's very hard for us to forecast our joint venture partners' appetite or success rate on acquisitions. If they come to the market, certainly, we'll be telling you about them and fund them accordingly.

Okay. Second, can you give an update on the performance of the Hanover portfolio in the fourth quarter? And just curious what you define as below-average for DC in 2012? If you can walk us through what your expectations are for that market, just given the supply pressure that we're seeing there.

Sure, Mike, this is Jerry. The MetLife portfolio -- I don't have the fourth quarter numbers with me, but I can tell you for the year, we exceeded our budget that we underwrote that deal at by 12%. So -- and it did pick up steam later in the year. We would expect in 2012 for those MetLife properties to do better than our same-store pool still, because there continues to be more opportunities for revenue growth, whether it's continued concession burn-off or just rent growth.

And as far as DC, you know, I would tell you we're looking at DC probably in the 4.5% to 5% range for revenue growth this next year.

And then finally, just can you give us an update on what you're expecting on the real estate tax front built into the guidance?

Sure. Real estate taxes are -- with a large portion of the portfolio in California were with the 2% for Prop 13. But when you look at it blended throughout the portfolio, it's up in the -- roughly 5% to 5.5% range. Most of the pressure is coming from Virginia as well as Florida.

Okay. And that assumes -- I'm assuming that's a same-store number? It doesn't include the revaluations for acquisitions done last year in some of the markets like New York, Boston?

That's true. That is a same-store number.

Okay. Thank you.

Derek Bower, UBS.

Just on the performance of the A's versus B's, of the 300 basis points, can you talk about which markets may be more pronounced than others in that widening? And what your sense may be for how wide that spread could get in 2012?

Yes, in the fourth quarter, the spread, like you said, was 300 basis points. It was -- and the markets where you really saw the larger spreads were predominantly San Francisco, Seattle. The markets where you didn't see as much of a spread tended to be more in the Washington, DC area, because new supply has affected our downtown or inside the Beltway markets, and outside the Beltway did better. That's where our B product is located. So, those would be the two outliers, whether it's the best or the worst.

And how large of a spread do I think that will get to be? It's hard to tell. I could see it getting a little bit more, but probably not markedly.

Okay. That's helpful, thanks. And Tom, back to your remarks earlier on the call on growing the enterprise, can you give us a sense for how large or -- and if there's any target size you have for your portfolio? And is there a number out there that might be too big?

Yes, Derek, that's a very, very thoughtful question, and one that the management and the Board have undertaken as part of our strategic plan and review in 2012 is to revisit the size and shape of the enterprise. And so we'll probably be able to give you more color later in the year on the subject, but it's certainly one that we feel good about getting to what turns out to be a $10 billion enterprise and managing $4 billion of JVs.

So, certainly, we have the management, talent, and skills to manage a larger enterprise. But how big and where it's at right balance is something that we're just undertaking this year.

Okay. That's it for me. Thanks, guys.

Alex Goldfarb, Sandler O'Neill.

Just going back to the dividend, you guys, last quarter in the fourth quarter, increased it 7.5%. And then -- so it sounds like you're increasing it another -- just over 2%. As the Board thinks about the dividend, what change from last time they met when they raised it to the subsequent quarter to raise it just a little bit again? Was there something that changed? Or were you guys waiting to finalize the taxable income?

Alex, this is Dave. The increase in the dividend for 2012 compared to 2011 is 10% from $0.80 to $0.88. The change we made really this time was to make sure we were paying it out quarterly versus the staggered payouts that we did during 2011 of the $0.185, $0.20 and $0.215. But the Board looks at this, management looks at this dividend, and always considers taxable income and cash flow at the enterprise, and felt that the 10% increase on a year-over-year basis to $0.88 per share was appropriate.

Okay, but from the last time -- I'm just curious. I mean, they raised -- you guys raised it 7.5%, which is meaningful, but the additional amount -- I'm just trying to understand if it's -- if there was something new that the Board considered? Or if it was just as the books closed for year-end, just trying to assess where the taxable income stands? And then also curious where the new dividend rate compares to taxable income?

A couple parts in there, Alex. First, management and the Board weighed what our growth prospects were going into '12 and beyond in setting the new dividend, and feel comfortable at the level we've set. There was no taxable event or structuring needed at the end of the year to increase the dividend to ensure that we met both the taxable minimum or did not become a taxpayer, if you will. So that aspect -- the second part of your question, Dave?

With regard to where we are with the dividend compared to taxable income, we have not disclosed what our taxable income per share amount is.

Okay. And then the second question is on the property tax -- it's a two-parter. First of all, just as you've entered New York and you're now 421a. If you can just remind us when the first year where you'll experience the step-ups.

And then the second was your comments about Florida real estate taxes increasing and being a pressure point, I would have thought that that would have been one of the parts to rebound less, just given that rent growth in some of those Northern markets had lagged some of the other parts of the country.

Alex, this is Harry. I'll answer the first part with respect to the New York City tax abatement. We have tax abatements arranged from 10 years to all the way up to 20 years. So we'll see that -- the abatement phase out over the course of the 20 years, so it's long time. 2013/2014 is the first year where we get a partial burn-off of any component of the abatement.

And on the Florida, Alex, I can see your point. I would tell you that we will appeal anything we can, but right now, what the consultants are showing is that heavy growth in Florida, as well as, again, the Virginia and DC markets. It's not surprising that DC and Baltimore pushed up ahead, just like you said, because they were the first to rebound and didn't drop as far. Florida, over the past couple of years, the municipalities have really come after us more on water rates than anything else. And it seems like their strategy this year is to go more tax.

Okay. And just -- Harry, what is the step-up in '13/'14? What is the amount or impact?

I don't know what the exact amount impact is, but it's sort of the first 20% of one of the properties the abatement burns off. So it's not going to be any more.

Thank you.

Rob Stevenson, Macquarie.

Tom, what do you think today, sitting here, the percentage of your portfolio that you would classify as non-core?

You know, Rob, I don't have the door counts, but with respect to value, we'd look at it and say it's somewhere between $1.2 billion and $1.5 billion. And if you look at the way I, and we, as a management team, size it, that's equivalent to about where we are in the development pipeline. And so our strategy over time is to sell assets and redeployment of new developments. And if the development pipeline of $1.2 billion is over the next three years, that's kind of our horizon to dispose of that. Now there will be some dilution as it relates to we'll probably sell before the assets come online and stabilize, but we think that's a good, prudent way to fund the development activities.

Given the fact that a lot of these non-core assets are in core markets for you guys, I mean, do you have any desire to do a disposition JV? Or are these likely to just be outright sales to maximize the value?

Rob, the vast majority are in tertiary markets that we'll probably exit, and I wouldn't see us joint-venturing those. I would just see a whole effort to sell them. And we think the market is good for that today. I mean, this capital environment as well as debt environment is very conducive to creating a wide range of options and a number of players to expose the assets to. So I'm very comfortable with our ability to execute the sales at attractive prices.

Okay. And then one quick one for Dave. Thanks for the additional disclosure. One quick question on the same-store guidance for '12. It looks like the unit count is the same for '12 as it was in the fourth quarter. Is that just because you're expecting for whatever is rolling in to sell an appropriate number of assets this year in terms of units? Or is there something else going on there?

Are you asking are we forecasting sales coming out of the same-store numbers?

No, no. Your same-store -- for the '12 guidance, the same-store unit count is 38,680, which I believe is the same as the fourth-quarter same-store number. Now is the reason why there's no additions to the same-store or no variance between that, is because whatever you're rolling into the same-store bucket, you're expecting the dispositions to be an equal number of units, roughly? Or is there something else going on there?

No -- everything that's in the same-store pool in the fourth quarter then goes into your year-to-date for -- your 2012 year-to-date same-store pool. So everything will have a full year of comparison. And then we've got an additional attachment in Attachment 7 that discloses each quarter as to when each asset will roll into the same-store bucket. So that way you can roll your quarter numbers. But I think what we're getting hung up on and we can take it offline, is the difference between the quarter pool and the year-to-date pool.

Well, the 2012 pool -- yes, I mean, we can discuss it offline. Yes, that's fine. Thanks.

Saroop Purewal, Morgan Stanley.

Jerry, can you give us an idea of your exposure to financial services employment in the Manhattan portfolio?

Absolutely. It varies really by some markets within Manhattan. When you look at the two deals we have down in the Financial District, roughly 50% of our residents are in the financial industry. As you go up to Rivergate, which is Murray Hill, Chelsea, and then up to Columbus Square, it's more in the 15% to 25% range.

Great. That's helpful. And then in terms of the dispositions, did you guys talk about the markets which you're looking to make these dispositions? And also, if you can give us an idea of the timing of these? I mean, should we be modeling equally over the quarters? Or is there any timing we should be thinking about?

Sure, this is Harry. The markets are going to be our non-core tertiary markets by and large; we didn't give any specific guidance, but that should give you a sense as to what we're talking about.

In terms of the timing, we've got a couple deals tied up now that could close in the first three or four months of the year. I think we expect most of the balance to close in the first half of the year. It could be some inevitably that carry into the second half, but generally, the disposition should be relatively front-loaded.

Great. That's helpful. Thanks.

Rich Andersen, BMO Capital Markets.

So Tom, if you could get us a hypothetical great transaction for your southeastern region, your southwestern region, and sell all or most of that portfolio, would that be a good transaction for you? Or do you think still -- because you guys seem to be leaning towards these higher barrier markets, northern markets. I mean, is that something that you think still adds value to the story, those low barrier regions?

No, there's a couple different questions inside of it, Rich. I mean, certainly for us, any offer that we receive for any asset is always considered. And if we were to receive an offer of substance in size for a particular portfolio or region, there's no question we would weigh it, if it's in our long-term plan to dispose of it. And so that's part of what Harry and the entire acquisition and disposition team is doing, is exposing a lot to the market and see what we get.

So we're not afraid of selling assets. And as you recall in 2007 and '08, we sold 25,000 apartment homes and about one-third of the enterprise, because we thought it was a great time to unload those assets. And it turned out to be very gratuitous in the sense that we hit it just about the right window.

If I were to guess, though, in that transaction, if there was one thing you would have liked to done to that transaction is maybe had more of the Florida element involved in the sale -- is that accurate? I'm not suggesting you ever told me that, but I feel like maybe that's your posture. Is that about right?

Well, the first thing you're testing is my memory, which over the years, fades. But on the long-term aspect of looking at it, you know, we've asked ourselves several times in looking at that transaction if we would have sold more.

And what we really thought about when we sized and shaped it was both the element of where we would go with the dividend and the coverage of the dividend, as well as asset pricing. And it turns out we got it about half right. We had the right asset pricing right window to sell, but the truth is we didn't forecast the economy dropping as precipitously as we did. And ultimately, a year later, we had to cut the dividend.

And I don't regret the decision. Florida, at the time, we thought, would weather a better storm. We thought there was some more value to be wrung out. And the truth is, here we are five years later, and Florida still has not bounced back. And I think we'll probably see some of our asset dispositions in Florida this cycle.

Just quickly a couple of questions -- this is on the joint ventures. Did you say that you can't gauge the appetite of MetLife in future activity, but you did say you expect to do more? So do you have any -- can you provide any color on how big future business could be with MetLife?

Well, in the case of MetLife, I can't really speak on behalf of MetLife with respect to their goals and aspirations and pricing. What we have is a very good working relationship, and we talk about individual communities and portfolios that are in the market today as well as may come to the market. And I think they're very astute buyers of real estate. And they'll have their own sense of price; we'll have ours and we'll compare notes. But I would say that their overall tenor is towards growing their multifamily platform and (multiple speakers) --

In the Southeast?

I -- wouldn't be fair for me to speculate what markets.

Okay. (multiple speakers) And then lastly, on the Kuwait Finance House, I'm just curious, is there anything unique about having them as a partner? Anything cultural? I mean, are they nice people? You know, all that --.

(laughter) Rich, I mean, anybody you pick as a partner is always nice people. Okay?

(laughter) But I mean, it's just your typical joint venture, there's not anything unique about -- because it is a kind of a unique type of partner, I guess I would say.

Well, and I think they're obviously Sharia-compliant and they're a very proud/compliant investor, and prudent. They've been investing in the United States for many, many years and have been successful at it. So we find them very engaging, thoughtful, and a very strategic partner to have.

Excellent. Thank you very much.

Tom Truxillio, Bank of America.

Thanks for taking the call. I appreciate your comments to Jana about your future deleveraging being more directional and opportunistic than goal-oriented. I know that's hard to forecast acquisitions in 2012, but can you just provide some comments on potential sources of financing should your acquisitions exceed your divestitures? So if you need additional capital, do you see using the equity market, preferreds, debts, either secured or unsecured? And what you're seeing out of pricing in each of those markets?

Hey, Tom, this is Dave. I think when we look at future acquisitions, and whenever there's an additional need that arises, we look at all sources of capital and determine at that time what is best for pricing, what is best for long-term growth of the enterprise.

And so there may be points in time where unsecured offerings make more sense. There will be other times where we're going to fund more with equity than we would with debt. From an unsecured standpoint, we're looking to continue to bring down our secured leverage, and you've seen us access the unsecured markets more frequently than the secured. On an unsecured basis, we're probably around a 4% type number on 10-year paper. And equity is what it's trading at today.

I think we've been pretty vocal in saying that we would fund more of the acquisitions with equity and debt, and that we also always have the opportunity to look at the wide array of capital market, I guess, products that are out there. Being an investment grade-rated company lends -- helps lend itself to that.

Okay, great. Thanks for the color.

Mark Biffert, Bloomberg.

Yes. This is a question for Harry. I'm just wondering if you can talk about acquisition cap rates in 2012 and what you're seeing? And whether you think that cap rates will continue to compress from current levels or if you think they'll level off?

It would be -- in terms of acquisition cap rates for the core product that we've been looking at, my general assumption is that the cap rates will be relatively stable throughout the year. These types of assets are influenced significantly by changes in interest rates, and buyers tend not to capitalize the purchase with nearly as much debt.

In terms of the non-core product, perhaps, that we're selling, again, I think cap rates are probably going to move generally sideways. Interest rates remain low; buyers are still underwriting for properties with good fundamentals and expect cap rates to remain generally low.

And then you guys gave disposition cap rates 6% to 6.5%. I'm just wondering, given that that's funding your development, what the dilution will be from development, in terms of timing, when it bleeds into your portfolio in terms of sale? Are you going to sell these as you need the money for funding for development? Or is there going to be a mismatch of funding there?

Mark, this is Toomey. There's probably a mismatch. I think the sales will probably be more front-loaded; the development dollars will be even throughout the year. And realize, the development dollars are going to assets under construction. So there -- inherently, there's no cash flow coming back from that construction activity. So that's a big part of the dilution we're taking in the short run. But in the long run, the caliber of assets, the growth rate of the new assets and the market composition of them should far and exceed the assets that we're selling. And so that's kind of our plan for '12.

Okay. And then lastly on your CapEx spend, you guys have $1150 a unit priced in and that's up from $1081 last year. I'm just wondering where that number goes and how much of that is being impacted by the new non-same-store pool that's coming in, given the higher cost markets that they're in?

You hit it on the head. A lot of it is it's a different portfolio than we've had from the last couple of years. And whether it's a high-rise or a mid-rise, you have a lot of systems that cost more than a basic garden community to take care of, as well as the common areas. The amenity base when people are paying the rents that are in New York up in the $3000 to $4500 range, the upkeep is more timely. So most of it is due to the change in the portfolio.

Okay, great. Thank you.

Taylor Schimkat, KBW.

Just one question, guys. Going back to dispositions, it looks like a chunk of the 2011 dispositions were newer properties developed through RE3. Looking forward to 2012, what does the mix look like between newer assets in secondary markets and older assets?

And then, secondly, could you comment on the expected cap rates spread between those newer and older assets, if that's appropriate?

This is Harry. In terms of the characterization of the properties that we're selling in 2012, a majority of the properties will be our, call it, the non-core assets in these tertiary markets, the age will vary. But it will not be weighted in any particular way towards newer assets; although, inevitably, there will be some in those sales.

In terms of newer versus older, it depends on so many things, including whether there's a rehab component in terms of the quality of the submarket, et cetera. I mean, in general, newer assets -- particularly new assets -- will trade at lower cap rates than older assets. But it gets a little hard to generalize, because you have to look at sort of the really micro aspects of the deal on a property-by-property basis.

Okay. Thanks, guys.

Eric Wolfe, Citi.

Just one quick clarification. I think you mentioned in your remarks that your anticipated deleveraging was fully in guidance. I mean, does that mean that you have some equity issuance in guidance? Or is it just the dispositions that you're talking about there?

Eric, this is Dave. As to the disposition guidance, we don't have any additional equity in our guidance numbers other than the shares issued to the ATM in January that were disclosed.

Okay. Thank you.

And there are no further questions. Please proceed.

Well, thank you, all of you, for your time this morning. And as you can tell, 2011 was a very, very good year for UDR and that we accomplished many of our strategic goals. And as we look at 2012, we feel very good about the business on the ground, from an operating and from an opportunity standpoint. And I believe that we will take advantage of those as they present themselves.

We have a very good sound management group; execution team on the ground and it's reflected both in our guidance, as well as our increasing of our dividend. So we think we're off to a great start in '12 and looking forward to it.

And with that, we'll close and thank you for your time again.

Ladies and gentlemen, this concludes UDR's fourth-quarter conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 or 800-406-7325, with the access code 4501829. ACT would like to thank you for your participation. You may now disconnect.