UDR Inc (UDR) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by, and welcome to UDR's first-quarter fiscal year 2012 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, April 30th of 2012 and I would now like to turn the conference over to Vice President of Investor Relations, Mr. Chris Van Ens. Please go ahead, sir.

Thank you for joining us for UDR's first-quarter financial results conference call. Our first-quarter press release and supplemental disclosure package were distributed earlier today and posted to our website, www.UDR.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with the 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 the forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. The discussion of risk 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 first-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 quarterly results and broad operating trend; second, a summary of our dispositions and external growth efforts and their effect on our portfolio; and finally, our deleveraging effort. Following my comments, David will discuss our capital markets activity and balance and Jerry will provide commentary on operating results and emerging operating trends as we enter the peak leasing season.

In the first quarter of 2012, Core FFO per share of $0.34 increased by 13% year over year. Strong year-over-year same-store revenue and net operating income growth of 5.3% and 8.1%, respectively, as well as solid operating execution in our non-same-store portfolio drove the improvement offset by higher-than-anticipated equity issuance through our [aftermarket] equity offering program.

During the quarter, all aspects of our business operated at a high level, and demand for our apartment homes remained robust. With portfolio occupancy nearing 96% at quarter end, accelerating new leads rate growth and strong renewal rate increases, we are well-positioned to push rent during the upcoming leasing season.

In short, all signs indicate that 2012 will be a better year than 2011.

Next, in early April we announced the disposition and pending disposition of 21 unlevered non-core communities comprising 6,500 homes in six markets for gross proceeds of $610 million. With these sales we continue the process of cycling out our lower rent properties. Income for occupied homes for this disposition averaged roughly $950 per month [as of March 31], significantly below our portfolio average of $1,435 per home.

Pricing on the sales met expectation with an average [for] 12 months' economic cap rate of roughly 6.25%. Once all the transactions are completed, our average portfolio income per occupied home is projected to increase to nearly $1,500 per month. In addition, we will have exceeded our previously announced disposition guidance for the year and will have exited Fredericksburg, Virginia, Phoenix, Arizona, and Jacksonville, Florida markets.

Our ongoing portfolio repositioning involves two components -- improving our market mix and urbanizing our portfolio in our core markets. When our planned disposition closed in the second quarter, we will have sold roughly 35% to 40% of our non-core communities necessary to complete our portfolio repositioning effort. Urbanizing our portfolio in our core markets will take place through normal capital recycling.

Our development and redevelopment pipeline totaled $1.2 billion at the end of the quarter, a third of which has been funded to date. These communities are primarily located in urban areas of gateway markets that we expect to generate better long-term growth. With the majority of our current development and redevelopment pipeline reaching completion in 2012 or 2013, we are well-positioned to capitalize on the strong multifamily demand fundamentals and limited new supply evident in our target core markets.

Regarding the overall acquisition environment, we continue to underwrite opportunities in our core market but the landscape remains highly competitive. With that said, we formed our second joint venture with MetLife in early January. The $1.3 billion venture consists of 12 operating communities which is owned 50% by each partner. Seven of the 12 communities were contributed from our first joint venture with MetLife while the remaining five collectively known as Columbus Square were purchased for $630 million, when the JV was sold.

We will continue to explore how [fast] to expand this relationship over time.

Finally, as I mentioned on previous calls, we remain committed to deleveraging over time. But our leverage has the potential to be volatile over the short term, especially when a disconnect exists between capital outlays and our ability to source attractively priced equity. The funding of MetLife II JV with the first-quarter equity issuance was a good example of such a mismatch.

We continue to view ATM equity as a cost-efficient way to slowly deleverage and, therefore, we instituted a new 20 million share plan after our previous program was exhausted, following the end of the first quarter.

To summarize, all aspects of our business continue to perform well and as such we reiterate that 2012 is expected to be a better year for UDR than 2011. Our dispositions and external growth efforts continue to improve the quality of our portfolio and transform our footprint, and deleveraging our asset base overtime remains a priority.

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

Thanks, Tom. My comments this morning will focus on our recent capital market activities, progress of our 2012 capital plan, our intent to further reduce leverage over time and an update on how year to date activities affect our 2012 guidance.

We were active in both the equity and debt capital market during the first quarter. First, through our adds in market equity offering program, we raised $201 million of net proceeds during the first quarter from the sale of 8 million shares at an average net price of $25.18. Following the first-quarter end we completed our previous ATM equity offering [firm] the sale of an additional $15 million for 595,000 shares at an average net price of $25.21. A new ATM equity offering firm whereby we can offer up to 20 million shares was initiated in early April. No shares have been sold via this program to date.

As a result of these actions we had 241.2 million common shares equivalent outstanding at March 31. Assuming no further equity raises for the balance of the year the 2012 fully diluted share count would be 240.3 million common shares inclusive of the ATM shares issued in April.

Second, as previously announced, we completed a $400 million offering of 10-year unsecured notes at 4 5/8% in January. A portion of the proceeds were used to repay $100 million of 5% unsecured notes originally due in January. We will continue to access the unsecured debt market as opportunities and needs arise.

Turning to the balance sheet and an updated 2012 capital plan. As of March 31, we have nearly $1 billion of cash and credit capacity available to fund our business and external growth opportunity. With $194 million of debt coming due through the end of 2012, we expect the refinancings obligations as they come due at attractive rates compared to the maturing rate. Our year-to-date capital market's activity and the $610 million of completed and pending noncore community disposition announced in early April has helped solidify our 2012 capital plan. Accordingly, an update to our anticipated capital activities this year would be helpful in illustrating the progress we've made.

Beginning with a $197 million line of credit balance at March 31, capital forces through the remainder of 2012 include the April ATM equity sales of $15 million and the community disposition proceeds of approximately $477 million in the second quarter. Then uses include anticipated development spend of [$315] million through the balance of the year, anticipated redevelopment spend of $85 million through the balance of the year and the redemption of $82 million of preferred G stock currently outstanding which was announced last Friday.

Combined, these sources and uses point to a line balance of roughly $187 million by year end.

Assuming no other capital market activities are undertaken during the remainder of 2012 we expect to be in a strong position to fully fund our 2013 operation, development, and redevelopment obligations by year-end.

Regarding leverage. On our fourth-quarter 2011 earnings call I outlined the tremendous progress we have made in deleveraging the enterprise since 2009. We remain committed to the strategy and, moving forward, deleveraging will likely occur opportunistically and concurrently with the growth of the enterprise.

And lastly, a quick word on our 2012 guidance.

The timing of $610 million of completed and pending community dispositions in 2012 was contemplated in our original FFO per share guidance of $1.37 to $1.43 provided on our fourth quarter 2011 earnings call. We have been more successful in ensuring equity from our ATM program than originally anticipated but we are still within our original FFO per share guidance range as the dilution from the shares issued was offset by the 8.1% in-store NOI growth and strong results from the non-same-store portfolio. We will review and if necessary update guidance on our second-quarter 2012 earnings call or if a material event warrants such an update during the interim.

Now I'll turn the call over to Jerry.

Thanks, Dave. Good morning, everyone. We're pleased to announce another strong quarter of operating results.

In the first quarter, same-store NOI grew 8.1% driven by a 5.3% increase in revenue and a better-than-expected expense growth of negative .2%. A lack of snow, or relatively mild winter conditions in many of our cold-weather markets provided most of the expense-related upside. Much like fourth quarter of 2011, the first-quarter 2012 progressed as we expected. Effective rental rate increases on new leases at our same-store communities accelerated throughout the end of the first quarter -- toward the end of the first quarter, while renewal lease rates remained steady with an average increase of roughly 7% across our portfolio. San Francisco, Boston, and Dallas were our best performing markets.

During the first quarter, we built same-store occupancy to roughly 96% by the end of March. Since then, occupancy has proven sticky and new lease rate growth has accelerated as we anticipated it would. This, when combined with the current loss to lease of 4% in our same-store portfolio, gives us confidence that there is ample room to further push rents as we enter the peak leasing systems season.

Our non-same-store wholly owned portfolio continues to perform well and now comprises 33% of NOI. This percentage will trend downward as we advance through 2012.

Four communities were added to our quarterly same-store pool in the first quarter including two of our 2010 Boston acquisitions. By the end of 2012, we expect our non-same-store pool to account for less than 20% of NOI. Specifically, our 2011 New York acquisitions are still generating above market rate rent growth with blended new and renewal lease growth of 8% to 12%, and little to no occupancy loss. This is in line with what we reported on previous earnings calls.

Moving on, two factors that directly affect our business are causing growing consternation for the investment community -- our new multi-family supply and the affordability of single-family housing.

First, supply. Nationally, multi-family permitting has rebounded from its great recession -- recession lows. The monthly reports indicate that there's still room to run until long-term supply and equilibrium is achieved.

Digging deep into the market level, Washington DC, Seattle, Boston, San Jose will all take the greater-than-average level of new supply pressure over the next couple of years. Not coincidentally, these are the same markets that where apartment fundamentals either held up well during the recession or where job creations coming out of the recession far outpaced the national average.

Regarding the [thread of new supply], I want to stress the key attribute of how we operate our business. We are a long-term holder of apartment communities and while we are very cognizant of short-term supply demand imbalances in our market, a buy, hold, sell decision is predicated on a much longer time horizon than just the next two to three years.

Now, single-family housing. Since September 2008, single-family affordability has outpaced its long-term average according to the National Association of Realtors. So the fact that homes are cheap when measured by monthly mortgage payments, based on income, is not a recent settlement. However, affordability should not be examined at [a back end] as it differs significantly by market, does not account for negative buyer psychology or access to capital and disregards potential buyers' ability to produce down payment.

At some point we will see a more consequential number by residents and thus by home. But at less than 12% in the first quarter, we are flat with the fourth quarter and only 100 basis points above our historical low.

Lastly when moveouts to home purchase do return to a more normalized level, the ultimate effect on our business will be somewhat dependent on how the macroeconomy is performing at that time, if a more vibrant recovery accompanies rising home purchases and that is not a bad operated (inaudible) for us.

Annualized turnovers during the first quarter increased by 310 basis points year over year to 46.6%. We are having no trouble releasing our apartments to better credit residents with higher incomes.

Turning to more recent results, through the majority of April new lease rates have increased by 2.8% year over year, similar to the prior year period; and renewals continue to trend well, up 6.7% or 120 basis points above last April's results. Renewal increases for now for the remainder of the second quarter have averaged 6.5% to 7%. We expect to capture close to all of this increase as is generally the case. The occupancy holdings in excess of 96% were primed for the peak leasing season.

With that, operator, I would like to open up the call for questions.

(Operator Instructions). Dave Bragg, Zelman & Associates.

Good morning. Maybe just touching on that last point made by Jerry. Could you talk a little bit more about comparing this year to last year? It looks like when we think about sequential same-store revenue growth, you were the same in first quarter this year as last year but to get to your year-over-year revenue growth guidance, it seems as though you'd need to outperform the sequential numbers that you achieved in 2Q, 3Q, and 4Q of last year. Is that the plan?

Yes, Dave. I think we'll definitely do that in 2Q and 3Q. I mean we see the revenue growth rate increasing in both second quarter and probably in third quarter, maybe leveling off in third. But then, by the time we get to fourth quarter the year-over-year growth will be comparable to what it was this quarter.

But, yes, we feel good about the business. We are looking at renewals in April that were at about 6.7%. We expect the next two months to come out right around 6.5% and we are optimistic about where we are at. Also today our occupancy is at 96.1%, and we spent a good portion of the first quarter firming up that occupancy so we would really be in place to drive rents in this peak season.

Okay thanks. And other question is on the land parcel purchased in San Francisco. Could you provide some more details on that number of units, total cost expected, yield on today's rents, potential start date?

This is Harry. It is a fully entitled land site. It is adjacent to a property that we own and in a very good area in San Francisco in [Ren Con] Hills. It is a fully in title site. Once we get through the city and have more details we will report on it at that time.

Okay and one last question if I may. Could you just revisit the expected needs for equity over the balance of the year through the pickup in your intro comments that you might use a cam further for additional deleveraging but then there was a comment about tying it to acquisitions. So assuming no further -- or no acquisitions over the balance of the year, should we expect any equity issuance?

This is Dave and I will let Tom follow-up but if you go through my script and when we look at our capital sources and uses through the balance of the year we don't have any additional equity in place. But you know, with the share price increasing, it has dropped a year. We have an ATM in place. We are always looking at opportunistically issuing equity under that program. We used it in the first quarter and paid off some debt. I think that we will continue to look at that as an opportunity and an alternative for us as we go through the balance of the year.

I wouldn't have anything to add to that.

Thank you.

Michael Bilerman, Citi Financial.

This is Eric here with Michael. I just want to make sure I understood that your comments. On guidance, you said that the timing and the asset sales were contemplating guidance but yet you are already above the top end in terms of the level of dispositions. I am just trying to put those two together and understand whether there is going to be more dilution from asset sales than was originally in your guidance.

The asset sales that we had in guidance $400 million to $600 million and obviously we have $610 million in there today. Those are the sales that we are looking to have close. We will always have stuff listed in the marketplace. But I think if you go back to our fourth-quarter call we had talked about getting those sales done in the first half of the year. And so that timing was contemplated when we put out our guidance range of $1.37 to $1.43 for 2012.

So right now, yes, we are $10 million over the guidance range but that $10 million is not enough to reconfigure the guidance range at this point.

Got you. And then also you talked about the accelerating activity you are seeing in new lease rates. I was just wondering if you could provide some detail on how things trended from January all the way through April just so we can get a sense for how those rates are coming and going in the peak leasing season.

Sure. This is Jerry. In January and February, they both amongst new leases were coming in at about 1.7% and March it jumped up to 2.6% and April it was right around 3%. The one thing I would add though is when you look at that 3%, that is for our same store. If you blended in our wholly owned, non-stabilized, non-same stores which is predominantly our New York portfolio as well as a few others, those new leases would have been up 3.7% in April. That (technical difficulty) store.

Right and then I guess just on guidance you would expect that to trend up into the force through the peak leasing season just given where your numbers are in terms of same-store revenue?

Yes. I think it could go 4s. You know, we are hopeful if traffic continues to be strong and if there is some job gain in our market that may get a hair above that, but I think 4s are pretty reasonable.

Good. Thank you.

Jana Galan, Bank of America Merrill Lynch.

I was wondering if we could get a little bit more detail on some of your completed developments and where the pure leasing was for Savoy II and maybe it looked like you pushed back the Huntington Beach and San Francisco Mission Bay project back a couple of quarters.

Sure. I will start with the Savoy and then I will probably turn it over to Harry. Savoy has been leasing great. You know, we really look at Savoy I and Savoy II as one project. But I can tell you, in the last two weeks, we have leased about 60 apartments at the Savoys and, for the entire month of April, it was 102 gross applications at the Savoy. So velocity has been great. We have been able to uphold our effective rents where we had planned. So things are going great there.

The other active lease stuff that we have under way right now is the Lodges up in the suburb of Lodge at Stoughton up in the suburb of Boston. And that project is also doing extremely well. We had 40 gross applications there in the month of April and, in the past week, we had 10.

In terms of the two projects you mentioned. First of all in general, it's common for these schedules to change a little bit as we move from preconstruction to the active development phase once we get through [drawing lock] and our general contractor get all city approvals, it is common for those schedules to change a little bit.

With Huntington Beach, this is actually the first project developed in the city in 30 years. So the city is actually setting policy as to how and when they are going to allow us to occupy these buildings. Our preference has always been [the paid] occupancy, but the city initially told us that we had to wait until we got final CO and would have to occupy all buildings and all units at one time. Through negotiation we have now -- the city now has allowed us to take initial occupancy at TCO, which is the timing we had showed previously that allowed us to phase in the occupancy over four or five months. But that's all. The initial occupancy our development schedule is unchanged, but how and when the city is going to require us to put our certificate of occupancy in place has changed a little bit.

Thank you very much.

Derek Bower, UBS investment Bank.

Good morning. Can you provide some color on your recent conversations with your joint venture partners, specific to their appetite for future acquisitions? And would you say they are generally more or less either to acquire assets compared to last year?

With respect to our conversations on the joint venture front. First, all three are going very well being Fannie, KFH and Met and all of them see the fundamentals of the business and the strengthening of it, and have an appetite to expand their interest in multifamily. So we're out there shopping for our own book and we're also out there shopping for joint venture opportunities as well.

And given that you have already pre-funded your development spend for the year since this [acquisition] can you just help us prioritize what use of proceeds for future asset sales may be whether it be developed or in the development pipeline recycling, mew acquisitions, or further delevering.

I think all capital activity is weighed in its totality and fungibility. The focus we have is continuing to deleverage our balance sheet and improve the quality of it and the laddering of the maturities. So I think we weigh all of those aspects when we are weighing capital and the price of capital.

Good. I might have missed this but what was the move out for financial reasons and can you perhaps quantify the change from level of income per unit but for your mew move in versus move out?

Sure. Move out for financial reasons is about I think 15% or 16%. I can tell you we said home purchase was 12%. Move outs for rent increase were 7%. But financial reasons whether we pushed the rents too high. I mean -- I'm sorry -- skips and evictions or other financial -- job loss -- was about 15% or 16%. And what was your second part? I'm sorry.

Just to help quantify the change in level of income per unit between new move ins and move outs.

Yes, it is difficult to track on a same-store basis just because our same-store pool has been changing with assets being sold as well as the Boston assets moving in. I think it has gone up about 5% or 6% in general. When you look at places especially like Boston, in Boston as we saw move outs to rent increase go up to 18% of the reasons for move out. And that compares to about 6% last year.

What is really happening there is, two years ago, people were able to move in because the trough drop was so great that they got a deal basically. And they've been moving back out and going back down to the B product instead of living in our A communities.

Now when you look at that increase in turnover which is up 17% year over year, which is dramatic, you'd see a reason for concern except we have been able to reload at those higher income residents. We have been able to keep occupancy levels in that Metro San Francisco area well above 96%; and as you see in our supplement we had revenue growth in San Francisco of over 12% this quarter. So that kind of a churn doesn't bother us when you can reload quickly.

Okay. That's helpful. Thanks.

Karin Ford, KeyBanc Capital Markets.

Good morning. Just wanted to ask on the expense decline in the quarter, you know, it was somewhat due to the mild winter. Is there going to be a timing reversal on any expense savings you had this quarter and is the 3% to 3.5% guidance range still reasonable?

I would say our expense growth definitely came in well below our expectations in the quarter and, as I said in my remarks, a lot of that was from a little snow removal as well as mild winter conditions which depressed [gas] expense. Right now we are running ahead of guidance but there is a lot of unknowns throughout the year with regard to expense growth and a little update guidance at the end of the second quarter.

As far as a reversal or is anything going to flow from first quarter to second quarter? I don't think so. A few other things that happened last year where we were hit with pretty heavy healthcare claims in the first quarter. We do self-insure, and that didn't repeat itself. We continue to streamline our staffing at the site level and realize efficiencies.

Now the one thing that could start to pop but this was really contemplated in our guidance earlier was a lot of our turnover costs will end up hitting us in the second quarter. Because the turns happened in the second half of the first quarter. So we turned most of those units in March, and you'll start seeing some of those expenses come. But that was really built into the guidance.

That's helpful. Thank you.

Next question is just on the development pipeline. Tom, I think you said in your comments that most of the current pipeline -- all the current pipeline actually is currently going to be completed by the end of 2013. From a strategic standpoint would you like to backfill the pipeline to be just as big in 2014 or does some of the uncertainty regarding new supply and just the fundamental picture make you want to possibly start to scale back development as you look ahead?

Very good question. With respect to the size and scope of the pipeline, we are certainly looking at backfilling the 2014, 2015 deliveries. And we are looking at a $10 billion to $11 billion enterprise. Our view is to try to have 3% to 5% of deliveries on an annual basis. And so, we will scope the size and scope of our development pipeline around those percentages and the size of the enterprise as it continues to grow.

So that is part of the downtown San Francisco dirt acquisition and you'll probably see us continue to look for urban setting type dirt where we think the supply equation has a long run at it in our favor. And we will continue to fill in those blanks and keep you informed as we progress.

Thanks. That's helpful. Just one more if I may. On the disposition front, do you have anything beyond the $610 million under contract today?

No, we don't.

Okay. Thank you.

Andrew McCulloch, Green Street Advisors.

Good morning. The $600 million in dispositions that you achieved a 6.25 economic cap rate on can you tell us what the CapEx reserve is in that number and if you can, what the cap rates were for the different markets?

In general, the cap rates are based on 2012 budget and NOI with 3% management fees and 600 per unit in CapEx. And I don't have the exact cap rates. It is a little lower in the next and a little higher in Jacksonville. So there is a little bit of variability around that. We can talk about it in detail off-line if you want to. I just don't have that in front of me.

Okay. That's great. And then in your non-same-store pool is it possible for you to tell us what the year-over-year revenue in NOI growth is for that portfolio on an isolated basis? And maybe you just have to look at the acquired property [to understand] but is there anyway you could give us those numbers?

There's a few properties that you potentially could do that for. But most of the properties in our non-same-store we didn't own at the same time last year. You can't. Or it was in the first couple of months of ownership when you anniversary off it. And there are some things that can fluctuate those first couple of months. It wouldn't really make the numbers meaningful.

But as a broad comp, you are saying they are running a little bit better than the same-store projects because of where they are located.

Yes and I can tell you that -- true. And I can tell you they are running better than my same-store pool because I can look at what I am getting at in new lease rate but I can tell you what I am getting in renewal growth and I can tell you that I have been able to typically shave off some expenses from what we inherited those assets at.

Great. Thank very much.

Michael Salinsky, RBC Capital Markets.

Good morning. Jerry, could you just go back to operations? You usually give a lost lease statistic. How does that compare right now? And then as you saw the 300 basis point pickup in turnover were there any particular markets where you know that it will spike?

Sure. Yes. Loss to lease right now is right around 4%. So still in good shape. Plenty of room to run with that and we do expect market rents to grow throughout the leasing season and then they tend to slow down, or actually go backwards as far as you get into the winter months.

On the turnover and I did misspeak earlier, I apologize. I said San Francisco's turnover was up 17%. I was looking at the wrong line. Actually my heaviest increases in turnover the top end was in San Diego, which was up 20%. Most of that is military deployments. We only have 300 units there that are heavily dependent on Camp Pendleton.

Boston, as said, was up about 17%. I can tell you we have been pushing rents there heavily since we bought those two deals at the end of 2010. San Francisco was up 5%. Dallas was up 5%. We have been pushing rent growth in Dallas and San Francisco very heavily. And my Monterey County portfolio is up 12%.

A few of the ones that are low or below my average are my Orange County portfolio is actually down 1%. Austin is down 8%. Nashville, which has been a really strong market for us this year, is down 3%. Seattle is up 2% and Washington, DC is up 2%.

That's such great detail. Second question answered -- [insert], I think the comment is a follow on to Karin's, should we look for additional development starts in the year? Or redevelopment starts there be and as we think about development yields how are those trending relative to underwriting at this point?

More increase in development start. Certainly as we are able to fill in the 2014 and 2015 delivery calendar, we will announce those and you would work backwards and say if you are here in the middle of 2012 and looking out two years, three years. So I would expect to see some of that expand as the year progresses.

With respect to development yield, they are holding steady. You have got a combination of the market rents are moving and, in particular, the sights and activities that we are undertaking very strong rent numbers for that urban product, that A product, and offsetting that is a slight increase in the cost structure and land values. So overall, I'd say yields are still holding at about 6, 6.5 type on trending. On in plays, most of them are starting out at a 6.

That's helpful. Then as an unrelated follow-up and on the Capital Markets front as you look at the price of the equity today, you also look at disposition and disposition pricing. Are you more inclined to sell more assets or continue raising money out of the ATM as a means of deleveraging as you talked about there?

I think it is important to try to do both. I think you expose your lower quality assets that are non-core you anticipate ultimately selling some day and you see what price they fetch and you also look at the share price. And this management team will freely admit we look at the share price everyday and, with the ATM, it represents a great way for us to to continue to deleverage. And we continue to look at asset sale.

Fair enough. Thank you much.

Alex Goldfarb, Sandler O'Neill.

Good morning. You had mentioned, I think you said that household income in your portfolio was up maybe 5%, 6%. Can you give us a sense of what rent as a percent of income is now versus a year ago?

Sure. It is still right around 18%. I think a year ago it was roughly 17%, so it's just gone up very modestly.

Okay, and then going to the capital market side you guys just pick out your -- I think it was your last public prefer the previous period. I think you guys developed some OP preferred. I just want to get your sense, given -- do you think that public preferreds have a place in your capital structure or based on where you want to go with your fixed charge coverage or just maybe more using straight common and straight unsecured set preferreds for your perspective really don't have a place in the current rate environment?

I think that the preferreds today, given they are at 6.75 in new issue preferreds or maybe a little bit less. When you compare it that against unsecured rates, asset sales, common equity and all the other alternatives to capital we have, I don't think preferreds have a place in the capital spec today so that is why you saw us make the announcement Friday that we are going to redeem the $82 million of preferred G's outstanding. Then we will continue to source and review all the other alternatives available to us.

Okay, and then just final question. Did you guys comment on the $23 million of the tax benefit in the TRS?

No we didn't. We recorded a very significant tax benefit in the TRS. We did not include it in FFO. We didn't put it is we didn't feel it truly fit the intention of the FFO definition. The adjustment was due to the sales we have completed and those that are pending. Those sales allowed us to reverse the valuation allowance on deferred tax assets and the related non-net operating loss items. That is kind of it in a nutshell. If you want to discuss it further, go into greater detail, give me a call later today.

Okay. That's helpful. I appreciate it.

Saroop Purewal, Morgan Stanley.

I had a question about Mission Bay. I mean it's been in the news recently because of -- (inaudible) salesforce decided to suspend at campus. Can you talk about how does that change your underwriting on your project and maybe from a demand perspective, but also from -- relative to your land costs?

I'll start. We saw the announcement as well; we are aware of it, but the salesforce did not actually leave the city. They did not relocate to the Mission Bay area but those employees remained in the city and I can tell you rents in the city have continued to increase. We feel very good about our land-base and ultimately the development yields we expect on that project.

I would add to that. Harry is right. When you look at our rents in the city, when I look at my property, Edgewater, which is right across the canal from Mission Bay and then our 3 A deal. Our new lease rates there are 20% higher than what the departing resident was paying. So -- and those are maybe a mile from Mission Bay site at most. So, it is still generally in the neighborhood. It is just not right across the street.

But then and I do think we feel over time other employees are going to come into that Mission Bay area. It is not going to be vacant.

Got it. And Jerry, just to pick up on markets again, can you tell us in the markets that you were surprised by this quarter and maybe even heading into other peak leasing season, either on a positive or negative perspective?

Sure. My biggest positive surprise right now you is very strong. We had revenue growth of 6.8%. My sequential was well over 2%. We are running it with good occupancy right now. We are getting great rent growth. We do feel like the renters are coming back to those locations west of the 405. So I would tell you probably my biggest positive surprise is OC.

Finally our Florida markets in Orlando and Tampa are starting to contribute. You know, they are north of 4% revenue growth. They have been a positive surprise.

My negative surprises have been really located more in my tertiary markets, those noncore -- Sacramento, Monterey, Portland. My other Mid-Atlantics have not performed well and then probably my last disappointment would be down in San Diego where I had very marginal revenue growth of less than 0.5%, really due to military rotations.

I would tell you in San Diego, I expect my second half to be much better because we really saw a downtrend in revenue growth they're starting in the second half of last year when the rotations started. We were anniversarying our strong first-half numbers but we are going to be going against weak second half numbers and we are hopeful that some of the military comes back.

Great. That's helpful. Thank you.

Rich Anderson, BMO Capital Markets.

Thanks, everybody. So, I'm looking back in your disposition, the $1.7 billion in 2008, which I think you described as the lower echelon of your portfolio at the time. I am curious. Is there any connection -- was there a feeling then that there was more to do beyond that or was there something that happened from 2008 to now that triggered a greater urbanization of the Company?

At the time we sold that portfolio, our feeling was it didn't make sense to buy. The prices that were being paid for assets were above replacement cost. And so, we looked at our portfolio and said -- if asset pricing is in that structure, how much of it does it make sense to sell? And we knew we were going to go more towards a coastal urbanization product. And as we tried to decipher how much, it came in a combination of factors first -- our effort to preserve our dividend at that time.

Second was an element of 1031 and the tax structuring or how big of a special dividend we would have. And we felt comfortable settling in on that $1.7 billion, $1.8 billion at that time. And I think we have been rewarded.

The assets that we held through the financial crisis have come back strong. Jerry has done a good job in running them and we've probably gotten better pricing on this group than we would have had we sold them back in 2008. I think that has been done.

Your question kind of moves towards the next which is how much is left. And as you can see we have got $600 million that will close by the second quarter and that is about 40%. So, you can do the math that really we are setting that probably $600 million to $800 million more to go and no particular hurry. You can look at the markets and see what they are and feel like the NOI growth is picking up steam and in some of those locations we would like to garner that and, then, sell them in the next window of time. And I think that is going to be driven by both the NOI growth, by capital flows, and certainly the debt markets and the rate environment. But we feel no pressure and probably will be rewarded for judicious -- you know, steadily exposing to the market and see what prices we get and when we have hit our target, they will be gone.

So you don't feel like that kind of like this kind of a lingering overhang of another potentially dilutive large transaction? You think it will be a low and steady process at this point forward.

Yes. I think it is just really an insignificant amount in relationship to the enterprise. I mean you're at a $10 billion or $11 billion enterprise. You are always going to have some portion of it if you should be examining rather you have optimized the value or the market is overpaying for it; and then, you should always try to be thinking about selling 3% to 5% of your portfolio on an annual basis.

Our hope is that the use of proceeds will be able to redeploy back into higher yielding, higher quality urban product that we are developing or redeveloping.

All right and, then, my follow-up question is you talked a lot about how your average rent is up and you're selling lower rent. I guess the question is, are they absolutely better -- is it absolutely better to be at a higher versus lower rent scenario? And isn't it the case that the higher income people are featuring more in the crosshairs of a housing reversal in terms of home buying and the rest are wealthy people. Can you comment on that?

Yes, Rich. There's a common things that come to mind for us as a management group and the first is the slide of home ownership, today, the pickup and the data points to a drop to 64.5%. And it is clear that it's probably going to continue to fall.

Primarily what I think people are missing out of the news and the settlement of the mortgage with the banks is that now they are free to start exposing more and more assets to foreclosure sales, and that is going to drive down the appraised values and going to make people have to come up with larger equity checks. And that process is at least in our mind a two- to five-year process for Americans to heal their balance sheet, to be able to save enough to be able to afford homes.

And I don't think home appreciation is going to be anywhere near the picture because of this foreclosure sale type environment.

On a long-term basis. I guess I'm starting to see it and I've been at it a long time, America is turning into a have and a have not. And the people at the high-caliber income, urban setting are where the jobs are going to be. They are going to have higher income, elasticity, wealth elasticity, and the people that are kind of wage earners, if you will, are going to be more exposed to shocks in fuel, utility, insurance, and health care.

All of those are going to weigh on their ability to pay higher rent and we fee; like the balance and the right place to be a long-term basis is that urban, more income elasticity type residence, and we recognize that they have a choice. But if you take Manhattan, for example, 70% of the population rent. They have had choices for decades and have chosen to rent for decades.

Great. Thanks for the color.

Rob Stevenson, Macquarie Group Services.

Good morning. Dave or Jerry, you guys talked about expenses before, but can you give us an idea, what, 300 or 500 basis points of turnover impact is on a same-store expense line in terms of growth there? And then how property taxes are coming in a third into the year?

I'll take the second half of your question here on the property taxes. So far, we haven't had any surprises either to the positive or the negative. We really start seeing those second, third quarter. We have been talking with our consultants, and speaking with some of the jurisdictions where we have information now and are able to have some preliminary conversations.

So right now, I think we are okay on the real estate tax front and we will have some more color to update you at the time of the second quarter call which will be midway through the summer. We will have some more valuations out.

And on your turnover question I am going to have to either get back to you or ask Chris to -- I am going to have to run the numbers to really come up with a good number.

Then one question for you, Tom. With the exit of Phoenix market, what characteristics does Dallas have that keeps you there longer-term that Phoenix didn't?

I think the Dallas, the urban portfolio is probably one that will continue to liquidate over time. I think the Dallas urban portfolio has many of the characteristics for seeking (technical difficulty) elastic type residence and supply constrained and the caliber of product we want to deliver. So we will probably [shrink] our Dallas exposure more to that urban product and that would probably include the Vitruvia. And as you can see from (technical difficulty) when you control 122 acres and almost a submarket able to garner better traffic and higher rents and so I think that would be our long-term focus in the Dallas markets.

Okay. Thanks.

Jeffrey Donnelly, Wells Fargo.

Good morning. I'm curious, maybe for Tom. Are there markets that are attractive to you today where, say, development doesn't pencil right now but it might take two to 3 years to get there or even longer?

Well, I think the market that we study over time that we don't have a foothold in today would probably be Miami is probably the glaring hole in the portfolio in terms of that urban/product that would fit. Outside of that, I think the rest there's long development cycles in all of those urban products and we wouldn't exclude land. We are not trying to time the market, if you will, as much as we are trying to look at subneighborhoods and get ahead of where we think they're growing and where the employment base is growing.

I'm curious. Maybe I'll switch gears a little bit. Now that you guys have made something of a splash in the New York City market, I guess on the operating -- from the operating side what do you think is going better or worse than your expectations? And secondarily have you found and maybe you've shaken loose some interest from maybe assets that have been owned somewhat generally -- generationally by families that might be looking to sell?

I guess I'll start with what's gone better. Obviously the expenses came in better than expected. Some of that was outside of our control, the weather. And some of it was definitely within our control, such as streamlining our offices better as well as our maintenance to garner a little bit of expense savings there.

Maybe the biggest I've seen, you know we've continued to find more opportunities in this good economy to pass through higher fees or increase our reimbursement percentages; but there really haven't been too many surprises and net on the negative, I'd tell you there's very little that surprised me.

And I guess the second half of the question I'll answer. In terms of finding opportunities from families, as you probably know that tends to be a fairly sticky group. They tend to make these decisions for opted reasons other than pure economics. I think at this point, it is worth noting that the five deals we have done have all been from families and from five separate families.

So without question we -- you know, we are a group that has performed and is in that conversation and we continue to have discussions with other families in New York City. It becomes very difficult to predict if and when we will get additional acquisition opportunities in New York City. But we do continue to have those conversations.

Just one last question. One of your competitors has kind of long made a big deal about branding their product and recently announced plans to have three distinct brands. Sort of cut their portfolio up a little bit differently maybe so they can position it differently for different types of consumers. What is your thinking about that level of branding and do you ever foresee yourself going down that road?

Well, I think we are intrigued to see if they are successful and I think we continue to watch how it is being executed and, if, in fact garners a benefit to them. My experience in this business has been individual communities find their own way into the market niche and residents are able to select what fits them best and you just need to do a better job of marketing to people and particular segments.

And I think some of that is coming about with Jerry and his technology advancements and, certainly, in the social media frontier. Our greatest asset for marketing is our own existing residents and to keep them happy. So, we think that is where we are going to focus a lot is on resident satisfaction, resident marketing and the amenity and the staff itself delivering. So we'll watch it and see how it performs.

Okay. Great. Thank you.

Michael Bilerman, Citi Financial.

Just had a question on the assets that were sold or that are pending to be sold, the 15 communities and maybe weave in a little bit about the six that were sold in the first quarter. How many different buyers was that? And sort of what type, were they just local, were they financial buyers and give a little bit more color around that?

Sure. So there are three separate buyers. We had two buyers on the transactions that closed in the first quarter. One was a local buyer that was backed by a private equity firm. The second was a syndicator -- a sort of a mostly regional syndicator that of its equality apartments around the country. That was a fairly significant management company and the third was a buyer that had just raised a new fund. They are a fairly significant buyer to not to operate their own property. So they are purely a financial buyer. I guess there's a little bit of each.

To add some color, I mean, you are finding all aspects of the buyers of real estate out there today. The levered buyer, the pure capital low leverage player, the local player is out there. I mean, it is a great time to expose assets because you are finding a lot of traction and a lot of different things for capital.

So one of the assets that is being sold is a development. What is the basis in the development in Phoenix, Stadium Village?

What is our cost basis?

Well, yes, I'm just trying to reconcile a little bit what you have held for at least on the balance sheet you got held for disposition, call it underappreciation of a $455 million. Does that include Stadium Village or exclude it?

Stadium Village isn't -- cost basis is around $50 million.

And is that in the held for disposition or is that still in development?

No, that is in held for disposition. Any thing that we have that was moved into held for disposition you would see on the balance sheet we took out and there is a held for distribution as a line item and also for liabilities. So we took that out.

Right, and so, looking at attachment 6 so you have your NOI, you break it out very nicely between all the components. You're held for dispositions is $8.7 million in the quarter call it about $35 million annualized. Over [477], that is a 7.3% cap rate? What am I doing wrong? I guess your development has no income? That would only raise it even more.

I think you have to look at it in more detail.

Yes. We will take a look at that and we'll talk to you and Eric off-line and get some additional information for you.

Okay. And then just last question, in terms of the events the technology initiatives it says initiated via Internet source of 56%. I guess it surprised me that 44% of people are still not using the Internet to shop for where they want to live. I guess, how accurate do you think that survey is that you are tracking when they come in? And where are these other 44% of people coming from? These are drive-by?

I think it's drive-bys. I think it's walk-bys as you've gotten more urban. I also think like Tom said earlier we are getting a lot more coming in from resident referrals. I can tell you, we are still -- we are not in the rental publications and for the most part we don't use brokers except in some situations in Dallas and in Houston. So it predominantly has gone down, as we have gone a little more urban.

And you are, really, you are relying to some degree on what the incoming person tells either our call center or the people at the site. If they give us a different answer we are not going to wrestle them down.

Thank you.

Taylor Schimkat, KBW.

Good morning. My first question is probably for Jerry. On the disposition portfolio could you tell us what the operating guidance assumptions were for 2012. I guess I'm curious on the margin whether the asset sales would push 2012 operating guidance assumptions higher or lower, all else equal?

Don't have that in front of me. But I would tell you they were probably generally about in line with what we would have expected on average. You know, Phoenix, we expected to do right about average with what our full Company guidance was and Jacksonville was probably just a hair under. So I think the impact was probably negligible.

And then my second question is, it is probably for Harry or Tom. Could you talk about the opportunities that's today resourcing new JV development deals as compared to acquiring wholly owned entitled land for development?

I would tell you that Warren and Harry are entertaining numerous opportunities where developers have entitled sites locked up and are seeking a capital partner. And I think that trend is worth noting is, is that while we are enjoying a great run in the apartment business the developers and the merchant builders are increasing their backlog, but they are not binding the capital to go at it full horse, if you will, or full force. And so they are turning to REIT and obviously we have got a couple pre-development programs with Hanover and others that we are looking at.

So I think it is a good thing for REITs to mind, if they wanted to wrap up their development pipeline in high-quality and really the, if you will, the strength of the trade is in our side of the equation right now.

So would you say then that there's a premium return to UDR for doing JV development deals as opposed to wholly owned land and if so what you think that yield premium would be?

Well, I think you have to look at the quality and caliber of each individual opportunity. And so, if undertaking a Boston development can yield us a 6, 6.5 and we have to joint venture the partner to do that, we probably would undertake that effort. Could we do that on our own? It is a question of how much G&A you want to carry, how much pursuit time and what happens if you decide you are full in Boston in that case and you don't want to. What you do with your team?

So, we like the template because it exposes us to a lot of different opportunities and we can pick and choose through them. And right now, as I said earlier, I think it is in our favor to go through those opportunities and pick the best one for ourselves.

Okay. Thanks.

Paula Poskon, Robert W. Baird & Company.

(technical difficulty) team and infrastructure is adequate to support the growth you're planning over the next several years or do you think you are going to have to add some bandwidth?

This is Tom. Certainly this group that is sitting around the table today has on average average about $1.2 billion to $1.5 billion in acquisitions sales activity for the better part of a decade. And that we have averaged $400 million of development so I think if we stay in that bandwidth, this group is quite capable and the operating platform point that didn't go noticed is we managed about 60,000 doors today. We sold about 10% of them by the end of June and so Jerry has capacity on his platform to certainly do more than what we're doing today and what we are turning our attention to do is not more, but doing a better job. And I think he is going to do that.

Thank you.

There are no further questions in queue at this time. Gentlemen, please continue.

Well, first let me thank all of you for your conversations and questions today. We appreciate that. I think May is an important month for UDR. We celebrate two major milestones. First it will be our 40th year as a REIT and it will be our 160th quarterly dividend paid. And I thank all the people that have over the years made that possible, that it is a milestone for the Company and one we are very proud of.

Second, 2012 is off to a great start. It is certainly going to be a better year than 2011 and we see no threats to that in the horizon. And lastly we look forward to seeing many of you in June at NAREIT and certainly at our investor tour of Columbus Square on Monday, June 11. With that, take care.

Ladies and gentlemen, that concludes our conference this afternoon. We thank you very much for your participation. You may now disconnect.