UDR Inc (UDR) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the UDR fourth quarter 2012 conference call. At this time, all participants are in a listen-only mode. Following today's presentation, the conference will be opened for questions.

(Operator Instructions)

As a reminder, this conference is being recorded today, February 5, 2013. I would now like to turn the conference over to Chris Van Ens, Vice President of Investor Relations. Please go ahead, sir.

Thank you for joining us for UDR's fourth quarter financial results conference call. Our fourth quarter press release, supplemental disclosure package, and three-year strategy overview document 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. Prior to reading our Safe Harbor disclosure, I would like to direct you to the webcast of this call located in the Investor Relations section of our website, www.UDR.com. The webcast includes a slide presentation that will accompany our three-year strategic outlook commentary.

Onto our Safe Harbor. I would like to note that statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in this 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 limits 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 Tom Herzog, Chief Financial Officer; and Jerry Davis, Senior Vice President of Operations, who will discuss our results; as well as our senior officers, Warren Troupe and Harry Alcock who will be available to answer questions during the Q&A portion of the call. To start, I would like to officially welcome Tom Herzog to UDR's Senior Management team. Many of you listening to the call have known Tom. He is a well-respected CFO who possesses a strong analytical skill set and valuable public REIT experience with two S&P 500 REITs. I am confident that his experience will be beneficial to the Company over the coming years.

My prepared remarks today will be brief as the majority of my comments will be included in our overview of our three-year strategic outlook which will directly follow Senior Management's quarterly and full year prepared remarks. 2012 was another strong year of operating results and we are encouraged by the early trends that we see in 2013. Let me quickly review why the Company is well-positioned and how we will continue to capitalize on good multifamily fundamentals over the years ahead. First, the heavy lifting with regards to our large-scale portfolio positioning is complete. Like most every public REIT, we will continue to see some level of capital recycling completed on an annual basis but any such action will be conducted through normal business activities.

Second, our balance sheet is much improved. But we will continue to manage to lower leverage over time. In our three-year strategic outlook we will speak to leverage targets. Third, we have a top notch operational platform and a team that we believe will continue to take full advantage of the positive multifamily fundamentals currently available to us. Finally, we have $1.3 billion of NAV accretive development and redevelopment under way. 50% of this pipeline is currently funded and 49% would be delivered by the year end 2013. These activities are expected to begin contributing to our bottom line later this year and will generate stronger cash flow growth in 2014 and '15.

In the fourth quarter, we were presented with a challenge related to Hurricane Sandy. However, we were able to successfully navigate these difficulties thanks to the hard work and professionalism of our New York team. We do not believe the storm will have any long-term negative impact on the demand for our Manhattan communities or their valuations. Tom Herzog will delve into more detail in the accounting treatment of Sandy while Jerry will discuss the pre- and post-Sandy New York operating trends in their respective prepared remarks. Overall, we were pleased with our fourth quarter and full year 2012 results. Finally, with the closing of 2012, the entire Management team would like to thank our 1,600 associates for another outstanding year. The outlook for UDR remains bright and we look forward to continued success. With that, I will pass the call over to Tom Herzog.

Thanks, Tom. Before I get into my prepared remarks, I want to express how good it is to be back in the public REIT world and specifically here at UDR. For those of you I have not yet had the opportunity to reconnect or meet, I look forward to interacting with you in the near future. There are several topics I will cover today. First, changes we have made to our presentation of FFO. Second, our fourth quarter and full year 2012 FFO results. Third, our transactions and balance sheet update. Fourth, details regarding the accounting treatment of Hurricane Sandy. Fifth, our first quarter and full year 2013 guidance. And lastly, enhancements we made to our quarterly supplemental package.

Let me begin with the changes we have made to our presentation of FFO. Effective this quarter and going forward, we will be presenting FFO, FFO as adjusted, and AFFO. We will also be guiding to all three of these earnings metrics on a quarterly basis. Unlike our historical presentation, FFO as defined by NAREIT will now be our lead-in metric and we'll reconcile to FFO as adjusted which is equivalent to our previous core FFO. The adjustments to reconcile from FFO to FFO as adjusted will be clearly set forth in each of our quarterly releases. In addition, we have commenced reporting AFFO which reflects our maintenance CapEx, reported on Attachment 14 or Page 25 of our supplement.

There are three primary reasons for these changes. First, was to lead with NAREIT FFO and then reconcile to FFO as adjusted and AFFO for full clarity to the components and adjustments to each of these measurements. Second, to provide guidance to each of these three measurements to eliminate confusion as to what is included and excluded from our earnings guidance. Finally, despite inconsistency within the industry, we believe our new presentation more closely reflects that of many of our REIT peers.

Turning now to our fourth quarter and full year 2012 results. Fourth quarter FFO per share was $0.31. Excluding Hurricane Sandy charges, which totaled $0.04, FFO as adjusted was $0.35 and AFFO was $0.31 per share. Full year 2012 FFO was $1.32 per share. Excluding the adjustments outlined on Attachment 2 or Page 2 of our supplement, FFO as adjusted was $1.35 per share, 5.5% higher than in 2011. Full year AFFO was $1.18 per share, 10% higher than in 2011.

Third, our transactions and balance sheet. As previously discussed, we completed a swap of ownership interest in certain UDR/MetLife I JV operating assets and land parcels in the fourth quarter. Details are included in our quarterly press release. At year end, our financial leverage on a historical cost basis was 39%. On a market value basis it was approximately 32%. Our net debt-to-EBITDA was 7 times and we're comfortably inside of all of our credit agreements and no covenants. We ended the quarter with $913 million of available liquidity, through a combination of cash and undrawn capacity on our credit facility.

Next I will address the accounting treatment around Hurricane Sandy. In the fourth quarter we recognized a $0.04 charge for Sandy-related damages. As I mentioned earlier, this charge was included in FFO but excluded from FFO as adjusted. As to the GAAP accounting for Sandy. First, physical damage is accrued in the period the event occurred. Second, clean-up costs are expensed as incurred. The recognized loss for both of these items is reduced by the estimated insurance reimbursement. Third, business interruption losses are recognized as they occur, whereas the recovery of business interruption losses are recognized when repayment is received or assured.

Due to the inherent uncertainty in the recovery of any natural disaster claim, we conservatively accrued a charge of $0.04, $0.02 of which is equivalent to 25% of the physical damage and clean-up costs and $0.02 attributable to business interruption. Any subsequent insurance recoveries from these fourth quarter 2012 charges that differ from the accrual will continue to be excluded from FFO as adjusted. Business interruption losses incurred in 2013 will inherently have less certainty of measurement. Accordingly, we will not add back such losses to FFO as adjusted; and subsequent business interruption recoveries will be included in FFO as adjusted when received to offset prior business interruption losses recognized in the run rate.

So you how does all this affect same-store results? Business interruption losses that consist of rent rebates to reimburse residents during the period the buildings were uninhabitable will be reported within hurricane-related charges in the income statement. The related rents were contractually receivable and will remain in rental income so that same-store sales will not be disrupted by this item. This treatment has no net impact to our P&L or FFO. As a result of lower occupancy, due to the inability to lease apartments when the building was down, we have decided to delay 95 Wall's entry into our same-store pool until the second quarter of 2014. So as not to distort our New York same-store 2013 results.

On to 2013 guidance. Our 2013 FFO guidance is $1.35 to $1.41 per share. We're expecting $0.02 of RE3 gains from property sales which result in FFO as adjusted of $1.33 to $1.39 per share, or an increase of 1% at the midpoint versus 2012. Our 2013 AFFO guidance is $1.17 to $1.23 per share. This includes $1,020 per door of maintenance CapEx per stabilized home. We anticipate same-store revenue growth of 4% to 5%, same-store expense growth of 2.75% to 3.25%, and same-store NOI growth of 4.25% to 6%. Other primary assumptions can be found on Attachment 15 or Page 26 of our supplement.

You will also notice we now provide quarterly guidance. In the first quarter of 2013, both FFO and AFFO as adjusted guidance are $0.31 to $0.33 per share. Our AFFO guidance is $0.27 to $0.29 per share. Our 2013 FFO as adjusted guidance is only $0.01 higher than last year. The primary drivers of this low FFO growth include several items that offset our forecasted 2013 organic NOI growth which is expected to provide $0.10 contribution to FFO. The offsetting items include $0.035 increase in FFO drag, related to our expanded development and redevelopment pipeline; $0.03 from the 2012 and projected 2013 sales of high cap rate properties in non-core markets; $0.01 of dilution in 2013 from our May 2012 repayment of debt with equity proceeds; as well as a net $0.01 related to miscellaneous other items.

Finally, we made numerous enhancements to our quarterly supplemental document including how we categorize our NOI, additional data on our redevelopment, development and joint venture platforms, and additional same-store operating metrics such as turnover and lease related growth by market. We recognize that our revised supplement in conjunction with our three-year strategy document will likely lead to some in-depth modeling questions. We ask that you hold these questions until after the call when we can walk them through with you individually in greater detail. We believe you will find our retooled supplemental package provides greater transparency and will provide -- will prove helpful and informative.

We have noted that our guidance is lower than many analysts had projected. In examining these variances as best we can we observed several drivers to these differences which include lower interest expense, perhaps due to differences in capitalized interest in our development and redevelopment projects, and lower G&A, perhaps due to confusion relative to the tax provision as presented in our historical financial statements. We believe our improved supplementals will help reduce confusion in the future. With that, I'll turn the call over to Jerry.

Thanks, Tom. Good morning everyone. In my remarks I will cover the following topics -- fourth quarter and full year 2012 operating results, an update on our non-mature pool of assets, and lastly, an update on our New York operations. We are pleased to announce another strong quarter of operating results. In the fourth quarter, same-store net operating income grew 7.3%, driven by 5.7% year-over-year increase in revenue, and only a 2.3% increase in expenses. A quick note. On Attachment 6 or Page 8 of our revised quarterly supplemental package, you will find a breakout of same-store operating expenses with year-over-year, sequential, and year-to-date comparisons by expense component.

Our same-store revenue per occupied home increased by 5% year-over-year to $1,420, while same-store occupancy increased by 60 basis points to 95.8%. On a total portfolio basis, including our pro rata share of JVs, our revenue per occupied home was $1,558. Sequentially, fourth quarter net operating income increased 3.3% driven by a 0.7% increase in revenue and expense growth of negative 4.7%. Before I discuss new and renewal lease growth trends, I would like to direct everyone to Attachment 8G on Page 19, a new addition to our supplemental quarterly package. 8G provides new and renewal lease growth as well as turnover by market.

In the fourth quarter, effective rental rate increases on new leases at our same-store communities increased by 1.7% on average and renewal rate growth remained strong at 5.6%. Full year turnover in 2012 increased 180 basis points year-over-year to 55%. This was a function of our ongoing push to optimize revenue growth through the seasonally stronger demand periods earlier in the year. In the fourth quarter, annualized turnover reversed course declined by 40 basis points year-over-year. We elected to hold occupancy higher during this seasonally slower period by pricing our renewal increases slightly less aggressively which yielded dividends and positioned us for strong lease growth in 2013.

Attachment 5 or Page 7 of our quarterly supplemental package has some changes that I would like to briefly review. You will notice that he we have added an NOI bucket titled stabilized, non-mature. Only non-stabilized communities are now included in our acquisition, development, and redevelopment NOI buckets. We also broke out our nonresidential and other which includes commercial NOI. For more information on how we define our respective NOI buckets and what types of communities are included in each, I will refer you to Attachment 16 on Pages 27 to 29 of our quarterly supplemental package.

Our stabilized non-mature communities account for 47% of our total non-same-store NOI excluding JVs and are primarily located in our core markets. These communities posted sequential revenue growth of 0.8%, 10 basis points better than our same-store portfolio. And NOI growth was 5.1%, which was 180 basis points better.

Moving on to New York and the effects of Hurricane Sandy. As Tom Herzog indicated in his remarks, we have decided to delay 95 Wall's entry into our same-store pool until the second quarter of 2014 as a result of the hurricane. 21 Chelsea will still enter our same store results in the first quarter of 2013 as it was only minimally affected. 10 Hanover Square, our other downtown Manhattan community will remain in our same-store pool as it was also minimally affected aside from the rent rebates we gave while it was uninhabitable for two to three weeks.

Before I review fourth quarter leasing trends in New York, I would like to address any potential long-term negative ramifications to downtown property values. It is still early in the process but we do not see any long-term value impairment. Our residence property was not damaged by the storm and leasing activity is following the normal seasonal patterns. People still want to live in lower Manhattan. Let me address where we stand today versus before Sandy from occupancy and lease rate perspectives at our New York properties.

First, 10 Hanover, with 493 homes. Our pre-Sandy occupancy was 98% and our current occupancy is comparable. Blended lease rate growth is also comparable to pre-Sandy levels. Second, 95 Wall, with 508 homes. Our pre-Sandy occupancy was 96%, and our current occupancy is 92%. 95 Wall was the community most affected by Sandy. Blended lease rate growth still has some room to run before it returns to pre-Sandy levels. However, we are making progress on re-filling the building and would expect business as usual by the end of the second quarter.

Third, Rivergate, with 706 homes. Our pre-Sandy occupancy was 93% and our current occupancy is 88%. This decline was partially driven by our redevelopment program. When Sandy hit we had a certain number of units being redeveloped. Our crews could not work on these units for the weeks when Rivergate was uninhabitable. In the meantime, we had already sent out notices prior to Sandy to free up the next batch of homes to be redeveloped.

Those residents vacated when Rivergate became habitable again. This gave us an abnormally large number of homes in redevelopment which negatively affected occupancy. Blended lease rate growth has not yet returned of to pre-hurricane levels at Rivergate but we have also not had many redeveloped homes come back online since the storm hit. We expect improved lease rate growth by the end of the first quarter. To reiterate, we believe that we will be back to pre-hurricane occupancy and lease rate levels by the end of the second quarter in New York. I'll now turn the call back over to Tom Toomey.

Thanks, Jerry, and let's move into the strategic portion of the call and with that, I'd ask that you pull up the link either in the press release and/or from our website as we're going to go through a PowerPoint presentation, page by page with you. Since announcing our intention to present a three-year strategic outlook we have fielded a number of inquiries as to why. UDR is a very different Company than it was three years ago. Our portfolio and balance sheet have undergone major renovations. Now that these activities are largely complete, it is prudent to explain where we intend to take the Company over the next three years and why our stock is and will continue to be a great investment.

With that, let's begin on Page 3 of the presentation and quickly review our 2012 highlights. The large scale aspects of our portfolio repositioning are complete. We dramatically reduced our leverage; our balance sheet is in good order; and we remain committed to lower leverage model. We successfully navigated the aftermath of Sandy. Tom Herzog joined us as our new CFO. Jerry's operating platform and team continue to post strong results. Our consensus NAV per share was up 4% year-over-year and our annual dividend per share increased 10%. And we expanded our JV platform and grew our development and redevelopment pipeline.

On Page 4, you will see our strategic priorities. In short, we are focused on allocating capital accretively, further reducing our financial leverage over time, growing cash flows to support dividend growth, and incrementally improving the quality and market mix of our portfolio. As we successfully execute on these strategic items, NAV and dividend growth will follow which we expect will drive strong long-term total shareholder return.

Let's first look at capital allocation on Page 5. At the top of the page you will note our pillars of capital allocation -- first, invest in NAV accretive opportunities and second, weigh investment opportunities against our leverage metrics and funding alternatives. We have created a significant amount of value, or approximately $450 million, through our investments since 2010. As you can see from the graph in the middle of this page, this is true for our New York City communities as well. In addition to the NAV generated by our higher growth portfolio, we anticipate creating roughly $450 million in value through our development and redevelopment growth efforts over the coming years. Next, Tom Herzog will take you through our views on the balance sheet management on Page 6.

Thanks, Tom. As indicated at the top of Page 6, we look to a wide range of balance sheet metrics as well as our maturity schedule when considering how to best manage our balance sheet. We are comfortable with the current state of our balance sheet but importantly, we are establishing targets for our balance sheet metrics. We intend to manage to leverage of 35% to 40% and target the lower end of this range over time. However, we will not engage in dilutive activities to accomplish this objective. On a net debt-to-EBITDA basis, we are managing to 6 times to 6.5 times over time. Progress toward these goals will not be linear.

Looking further down the page, you can see how we have dramatically strengthened our balance sheet over the past three years. We remain committed to a lower leverage model and further improvement in our balance sheet metrics is anticipated by year end 2015. One note with regard to our balance sheet metrics this year. It is likely that our metrics will increase in the first half of the year as we continue to fund our development and redevelopment pipeline. We anticipate that net debt-to-EBITDA will be near 7.5 times, and leverage near 40% during the first half of 2013. After this, our metrics will trend lower as $700 million of current no- or low-income producing assets begin to cash flow in the second half of 2013, and accelerate in 2014. Onto Page 7, where Jerry will comment on our operations.

Thanks, Tom. We as a Company remain intensely focused on operations. This is critical because operations drive cash flow which allows dividend growth. As you can see, we have generated operating results that stack up well versus our multifamily peer group over the past five years. Some of our outperformance has resulted from our first mover advantage with regard to technology initiatives. Examples include our electronic resident platform, our online portal, and online renewal leasing. We continue to be big believers in technologies that increase our portfolio efficiencies, and more importantly, enhance customer satisfaction. We will continue to invest in this area.

Looking ahead, we expect that top and bottom line growth will remain robust and drive cash flow through 2015. Some of this will be the result of new technologies such as online new leasing as well as advancements that drive greater efficiencies throughout our cost structure. Turning to Page 8, I will discuss our improved portfolio. As Toomey spoke to earlier, the heavy lifting with regard to our portfolio repositioning is complete. However, like every REIT, we will continue to recycle capital into NAV accretive opportunities through normal business activities. Some level of capital recycling will always be going on.

The majority of our current NOI is generated by our target markets in our West, Northeast, and Mid-Atlantic regions. These regions will continue to grow as we deliver our development and redevelopment projects. Please note that our expectations for our year end 2015 NOI concentrations do not include any capital recycling between now and then or any further development or redevelopment beyond what is currently started. As such, these estimates could prove conservative as any capital allocation activities will target our core markets. Turning to Page 9, Tom Toomey will comment on our thoughts concerning value creation.

Thanks, Jerry. Generating strong total shareholder return over the long term remains our primary goal. To achieve this, we focus on growing our NAV per share, expanding our stock price premium, and/or reducing our stock price discount to NAV, and growing our dividend. One of the primary metrics we focus on to assess whether we are creating value is CVNI growth which calculates all-in NAV per share growth after our dividends are theoretically reinvested at our NAV per share at the time of payment. This metric is highly correlated with long-term total shareholder return.

On Page 10 we will address our development and redevelopment pipeline, an important component of value creation in the coming years. As you can see, we have a $1.3 billion pipeline concentrated in our core markets. A majority of it will come online by the second half of 2013 and begin to cash flow at that point. Currently, however, our pipeline represents a drag on our FFO per share growth. I will let Tom Herzog address this.

We have modeled our development and redevelopment projects and quantified the expected FFO accretion, NAV creation, and FFO drag. Assuming we maintain our pipeline at $1.0 billion to $1.5 billion, deliver $500 million of new product annually on average, and current development/redevelopment economics hold, our pipeline should be approximately $0.03 to $0.04 accretive annually to FFO and AFFO per share. Under the same assumptions, we anticipate that our pipeline will contribute $0.60 to $0.85 of NAV annually moving forward. Assuming no additional starts or in-process development or redevelopment creates a drag on our FFO per share of $0.055 in 2013, $0.04 in 2014, and $0.01 in 2015, as we have been fully funding this pipeline for the last few years, but harvesting little of to no cash flow during this development period.

Turning to Page 11 and our joint ventures. We like our joint venture partnerships and platforms. They represent a stable source of long-term capital and can enhance economics. As you can see, our joint venture relationships are extensive and we have created significant value through our joint venture investments. JVs will remain a part of our long-term value creation strategy.

Turning to Page 12, we provide an overview of our 2013 to 2015 expectations. We are not economists. Therefore, we look to our third-party research providers for macroeconomic expectations such as job growth, household formations, and multifamily-specific data. These assumptions are available at the top of the page. We outlined our 2013 guidance earlier in the call.

Our cumulative primary growth expectations for the 2014 through 2015 period are as follows. FFO per share growth of 12% to 16%. FFO as adjusted per share growth of 14% to 18%. AFFO per share growth of 16% to 20%. Same-store revenue growth of 7% to 9%. Same-store expense growth of 5% to 7%. And same-store NOI growth of 7% to 11%. Again, those were cumulative metrics. Additional details can be found on this page as well as in the Appendix of this document beginning on Page 16.

Before moving on, I would like to provide some observations regarding our 2013 FFO per share guidance. During the three-year period from 2010 to 2012, we purchased $1.97 billion of assets at an average cap rate of 4.7%. We sold $1.22 billion of assets at an average cap rate of 6.9%. We grew our development and redevelopment programs to $1.3 billion, 50% of which has been funded, and deleveraged our balance sheet by fully funding all external growth activities with equity. Note that this $2.21 billion of equity was issued at a slight premium to NAV per share over this time period and that our $3.4 billion of on-balance sheet debt at year end 2012 was very similar to our end-of-year debt balance in 2009.

In total, these activities will be roughly $0.14 dilutive to our 2013 FFO and AFFO per share which is clearly impactful when compared against our $1.20 of expected AFFO in 2013 at the midpoint. Let me provide you some context as to how we arrived at the $0.14. Matching our three-year acquisitions against dispositions yielded $0.10 of dilution and ramping our development and redevelopment pipeline contributed another $0.055 of total dilution in 2013. This was offset somewhat by a portion of a new equity we issued that was used to fund part of our wholly-owned joint venture and land acquisitions. This created $0.02 of accretion.

The team was fully cognizant of this trade-off between short-term dilution and long-term value creation when we undertook these activities. With these now behind us, our already superior operating platform has been successfully augmented with a much improved portfolio that is built for the long term; a fortified balance sheet, and an accretive development and redevelopment program. We are well positioned in all areas for growth in 2014 and 2015. Turning to Page 13, Toomey will address what makes UDR unique.

First, we are large enough to enjoy cost and capital and G&A economies of scale, but still nimble enough that moderately sized value accretive opportunities move the needle. Second, we have a good market mix and range of asset quality that does well in a variety of economic scenarios. Third, our operating platform is second to none. Finally, we have an extensive long-lived and stable joint venture relationship with high quality dedicated partners. These serve to lower our effective cost of capital and boost our returns.

Lastly, please turn to Page 14. So why invest in UDR? As you can see, we believe that there's plenty of reasons starting with multifamily fundamentals continue to look robust. We have a strong three-year growth profile which is driven by our efficient operating platform and our repositioned portfolio. The heavy lifting is completed with regards to our portfolio and balance sheet repositioning, as well as the ramp-up of our development and redevelopment programs. And lastly, cash flow and NAV per share growth from our external growth efforts will begin to come online towards the end of 2013 and accelerate over the next few years.

As Herzog mentioned earlier, our FFO and AFFO per share growth would be rather marginal in 2013. However, in 2014 and '15, cash flow growth is expected to improve markedly to roughly 9% annually. Quickly, here are the primary big picture assumptions that support these growth expectations during this time period given the current economic conditions. Our projected same-store NOI growth of roughly 4.25% per year would result in additional FFO and AFFO growth of 5% to 6% per year. Development and redevelopment coming online during this period are forecast to add another 3% to 5% growth and remaining non-same-stores is anticipated to add approximately 1% per year.

When combined and set against our current leverage, our average 2014 and '15 FFO and AFFO growth per share of 8% and 9%, respectively, look very reasonable. These growth levels would result in 2015 FFO and AFFO of $1.57, and $1.41, respectively. Applying these same forecasts to UDR's consensus NAV of $26.50 per share, yields annual NAV growth of roughly 9% in 2014 and '15, and would result in NAV per share north of $32 by the end of 2015. This projected NAV increase when coupled with dividends expected to be paid in 2014 and '15 would generate CVNI growth of roughly 12% annually. We will continue to work hard to execute on all the strategic priorities that we have reviewed with you today.

Finally, and most importantly, we remain focused on managing our business every day to drive total shareholder return for investors and believe that we have the right team and plan in place to do so. With that, operator, we will turn the call over to Q&A session.

Thank you, sir, ladies and gentlemen, at this time we will begin the question-and-answer session.

(Operator Instructions).

Derek Bower, UBS bank.

I was wondering if you could just give us a better handle on the timing of sources and uses for 2013 and most specifically the thought behind issuing $100 million of equity below NAV as compared to selling some more non-core assets.

The sources and uses, just if you were to take them and run them down, so we've got -- I'll just give you the pieces real quickly. We've got the surplus of AFFO versus dividends of $68 million, the debt issuances, equity issuances, that you can see from the guidance, the wholly owned dispositions -- it comes up to about $700 million of sources just roughly. We've got some debt maturities, less the development and redevelopment spending, about $750 million. That's how it balances out.

When we think about the equity issuance, I would describe it this way. We've got a number of different sources of capital that we could employ -- it could be debt; it could be equity; it could be joint venture, proceeds, et cetera. So whether we choose to issue that $100 million of equity or not is yet to be determined. So I would say that it's very possible that we could. It could be a bigger number. It could be a smaller number, depending on market circumstances.

Okay. Thanks. On the capital recycling front, can you describe what the appetite from MetLife is to do more asset swap transactions such as The Olivian and do you think it would be possible we would see another one of those transactions this year?

Hi, it's Warren Troupe. We're always in discussions with MetLife and we've said from the beginning we like that joint venture. It's a way for us to increase our ownership interest in those existing assets and I think as you see us go along you'll see us continue to execute those transactions with MetLife and also increase the size of joint venture, too.

Okay, thanks. Just lastly, big picture question, going back to your Page 12 macro assumptions. At the top you have job formation growing in 2013, 2014, income growing, household formations growing, but it seems that your assumptions assume home ownership rate declines in 2013. Wondering if you've done any sensitivities on your 2014 to 2015 outlook based on a growth in home ownership rate.

With respect to the assumptions on 12, those are national assumptions and we've looked at our individual markets when we've thought about '14 and '15 and believe that the home ownership rate in those markets won't appreciably move more than what it is today.

Okay. Thank you.

Eric Wolfe, Citigroup.

Hey, guys. The topic of stock repurchase's came up on a call earlier today and obviously on a lot of calls over the last week or two there's been some discussion about apartment REIT's trading at large discounts to NAV. My question is whether you think there's anything UDR can do to be more active about trying to close out this discount. Obviously part of -- the strategic outlook would seem to be part of that but are there other things that you can do in the short term or medium term to help close out the discount?

I think you're right. One of the first things is to provide a strategic outlook and this document does a fine job on that. The second aspect is the enhancements of our disclosures in the quarterly package so that people can drill down to the value of the enterprise more easily. And I think the third is just execution on our part. And that we've got a good, experienced team, feel like we've got the right assets, the right balance sheet, the right growth opportunities. It's just time to execute. I think we're going to focus on those three and see how far they take us and then we'll evaluate it at that point and see where we move.

Okay. Fair. And I think Michael had a follow-up.

Yes. Tom, just thinking about -- you ended your comments thinking about the growth in NAV and the growth in NOI getting to a $32 stock price or $32 NAV, I should say. Underlying that is an expectation of flat cap rates, right?

Well, not necessarily. Let me just give you the pieces, Michael. How we looked at that analysis is we took the same-store growth to get the NOI that would be created from the guidance that we put in the document. We also looked at the non-same-store and then we picked up our development and redevelopment value creation from an NOI perspective that would be created from a program that's in place and projected that all over about three years. A fairly in-depth model.

We took that NOI and we capped that out --you're correct -- at today's cap rate so we could get a sense for it and then incorporated that into our NAV creation to get the growth that would just mathematically come to something north of $32 a share. While we were at it, we did then pick up the dividend yield off of consensus NAV and created the CVNI that he we spoke to of about 12.2%. The cap rates that we used was 5.135%. We picked that up from looking to the consensus NAV that the Street had put out, kind of the average cap rate that was within that mix to utilize the 5.135%.

Effectively flat cap rates and growing NOI, getting to that NAV is predicated on cap rates staying relatively stagnant.

You're correct. In addition to that, the growth from the development and redevelopment program.

And then at least in the '14 to '15 time frame you have this, call it $500 million of equity being issued, this is on Page 12 of the presentation. Is that a similar answer thinking about the $100 million that's embedded in guidance for '13 that the $500 million in '14 and '15 is predicated on the stock, because you've now put yourself out there saying you will not issue equity below NAV, and given the stock's at $23, you got a far ways to move up especially with an outlook that the NAV's going to grow significantly over the next couple years, that, that $500 million has got to come from other things or you don't spend the money, right? You either don't do the acquisitions or you don't do the development and redevelopment because you've got to come up with $500 million of cash.

That's correct. The activity that would take place will be in part dictated by access to various sources of capital. So depending on what those look like, obviously that could impact the plans.

You've embedded in your forward plan issuing equity at NAV, in that time frame to grow NAV per share?

Right.

Okay. All right. Thank you.

Rich Anderson, BMO Capital Markets.

Welcome, Tom Herzog.

Thanks, Rich.

Does your balance sheet management slide on Page 6 of the 2015 outlook include newly started development activity?

No. The balance sheet that we put in place, the balance sheet management as well as the development, redevelopment value creation drag, et cetera, do not assume new development projects are put into place.

And yet on the summary page on Page 12 you do assume incremental development spending. So isn't there a kind of disconnect between your balance sheet and your 2015 expectations without that missing variable?

Well, I would say that the balance sheet, just looking at where those metrics fall out, to at least freeze that as to what the portfolio looks like today gives us a good feel for what those metrics will look like. And then again, depending on what circumstances look like, if we grow the development and redevelopment program, those sources of funding will need to come from somewhere which we've set forth and with that it would keep the metrics I think in a line based on the mix that we would use. That would be the intent. As you noted, we set a target of 35% to 40% leverage which drives a certain net debt-to-EBITDA with the intent of managing toward the lower end of that range. But without doing so on a dilutive basis. So that all comes into play in the way that we think about how the model comes together.

Okay. Turning to more current things, on the current list of joint ventures that you have outstanding -- this question's for anybody -- what's the lifetime of these joint ventures in your mind? When do you think that there will have to be some type of event to demonetize one way or the other?

With respect to the life cycle of the joint ventures, obviously the Met platform you're talking about a generational Fortune 50 Company that looks at real estate as a long-term hold and a key part of their overall management of their portfolio and are desirous to grow that real estate holding. With respect to KFH, certainly it is an investor who has come in and out of the United States from time to time and probably at this point in time would still be looking to grow its platform in the US. So I don't believe there's any finite date that, that would terminate. Lastly is the Texas joint venture. I think right there, key date will be when the debt, which is slightly above market at 5.5% today burns off in '15, 2015. That most likely would be a date that we'll make a decision with our partner about those particular assets.

Okay. Last question from me is on the same store NOI outlook of 4.25% to 6%. Pretty wide, I guess, but maybe not so much for the start of the year. What factors would have to happen for you to be closer to the low end and what are some of the catalysts for you to get at or above the high end of that range?

Rich, this is Jerry. I would say it's all really dependent mostly on job growth. I think the expenses for the most part, we know what real estate taxes are going to be and I think the rest of our expenses we're typically good at locking down, so I feel good about the expense growth guidance we gave. On the revenue side, like I said, I think it's totally dependent on job growth or job loss. If I had to pick two markets that could shift on me quickly, one would be Washington, DC -- could probably get worse given Pentagon's announcement last week about eliminating 46,000 jobs and furloughing for one day a week 200,000 more. On the positive, I could see a place like San Diego having an uptick if some military rotations go towards the West Coast. But that's really the biggest factor.

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

Alexander Goldfarb, Sandler O'Neill.

Jerry, the first question, just picks up on the expense side. Your guys' expense guidance is meaningfully lower than peers. It's also quite a tight range. Understand that over the past several years you guys have been good about keeping expense growth low. But what do you think is different about some of the things that you guys have in your numbers that some of the other guys maybe don't. I mean, is it literally that's just the way the properties lay out, you're not seeing the same real estate tax pressure or just maybe better on the insurance front. It's just strikingly a lot lower.

Yes. I can't really speak to anyone else. I'm not sure what's behind their numbers. I can tell you though, we are feeling real estate tax pressure, maybe not as much as the sunbelt-dominated guys, but our taxes, we're expecting to be north of 8% growth. When you really look back like you said over the last five years, we've done a pretty good job of keeping expense growth at sub-1%. So migrating it up to that midpoint of 3% is predominantly driven by taxes.

We think turnover this year will probably be roughly even to where it was in 2012. We spent the last four to five years making our sales force and administrative functions more efficient and over the next couple of years we think there's ways to realize efficiencies in our service functions of our business. So we're going to be hitting that hard over the next two to three years. But yes, I think when you look at it, it's really maintaining control and driving down the cost of doing our service side of the business that will help keep us at the low end.

Okay. If I understand you, in addition, presumably Warren's doing a good job on negotiating with the insurance companies to keep premiums low, but essentially whatever costs you're seeing rise on property tax you're sort of taking it out on the other side by keeping expenses down, that's the take-away?

Yes, I think that's accurate.

Okay. Second question is for Toomey. Obviously Tom Herzog doesn't need an introduction. We all know him. But just sort of curious, given it was a lengthy process, it was one that you guys weren't under pressure to have to fill right away, given the existing CFO strength there. What was the Board's take and view as far as succession planning? If we think about it, succession planning is something that can take four, five plus years. I know that you comment that you're not ready to hang up the spurs any time in the near term. But these things do take time. Just sort of curious what the Board's thought as you went about filling that role.

The Board was part of the process, obviously. With respect to the subject of succession, you're right, Alex, first, I'm 52 years old. I like what I'm doing. I like the team I've assembled. I enjoy what I'm doing and so annually we review a succession plan. The Board approves it and we march forward with that plan every year and evaluate it every year.

Okay. So nothing changed when you went about doing this search? That didn't prompt a further review of anything as far as succession goes?

It was part of the evaluation process and we reached the conclusion that Mr. Herzog was the best candidate today and for the future.

Okay. Perfect. Thank you.

Michael Salinsky, RBC Capital Markets.

Also appreciate the added disclosure there in the three-year plan. Just a couple quick bookkeeping questions. First, you gave what you expect to spend in 2013. What's the outlook for development starts and redevelopment starts in '13?

Mike, this is Harry. We didn't give any guidance as to starts in 2013. In '14, '15, we have to start another, call it $500 million, $550 million to reach the guidance that we've given for 2014, 2015 spend. I can tell you that our existing pipeline both in our owned land assets and our JV assets with MetLife, the total spend in that portfolio could be in excess of $1 billion. We've got additional redevelopment projects we're looking at. So we certainly have a sufficient pipeline to backfill the existing projects. In terms of 2013, we didn't give any guidance. I'd be surprised if we started a lot although we're working on a number of projects and the exact timing depends on when we complete the entitlements and permitting process with the various cities.

Okay. Jerry, in your prepared comments, did you give January trends?

I didn't but I will. January, our rates on new leases were up about 2.5%. That compares to 1.7% last January. And then our renewals were up 5.9% in January, that's down from last year when it was pushing 7%.

And the occupancy on a year-over-year basis?

Occupancy is up slightly in January. Today, I think it averaged about 95.5% in January and today we're at 95.4%. I would expect for the first quarter it will end up in that 95.5% range.

Okay. That's helpful. Then just finally, the G&A increase looked a bit large. Could you walk through the components of what drove the increase there in G&A.

The G&A, first of all, I don't want you to be confused by the G&A. We understand in the past that some of that occurred. Tax number used to be net into that and then beginning last quarter when people realized there was confusion here, that was discontinued. So now the G&A and the tax benefit are broken out separately which you've probably seen. When we look at the 2012 G&A relative to the guidance that was given at the beginning of the year, you'll find that as the tax number is broken out that we're pretty much right on in that number.

As we look to 2013, we're up call it a $2 million, $2.5 million. That's due to the basic stuff. We've got normal personnel increases. We had certain comp items for folks in the field that had done a great job in 2012. And then miscellaneous and technology type items make up the rest. So no big staggering line item made up that change but it comes to about $0.01.

Okay. I'll look at that. That tax benefit then, just it's been elevated the last couple of years. As we kind of look forward over the next several years, given your outlook, should we expect that to come down pretty substantially as you kind of move out of that business?

Well, I would put it this way. In 2012, the first quarter of '12 there wasn't a benefit recorded because the sales hadn't been made and it was being backed off against the valuation allowance adjustment that took place. In 2013 -- so it was running about $3 million a quarter in '12 with nothing in Q1. In 2013 that number is going to be more in the vicinity of $11 million to $13 million. And then as we go forward from there, as some of the development projects start to stabilize and some of the additional sales start to earn in, you're going to see that tax benefit start to decline and that's what you see in that guidance on Page 16 or 17 of the three-year strategy pad. You see it decline for those reasons as that development starts to earn in.

Appreciate the color. Thank you.

I should just note one thing, though, is that just so we don't have confusion, we're not intending to move out of that business in the TRS. We'll continue to own assets in there, develop assets, so that tax benefit is an ongoing item and you can see it ebb and flow based on activity that takes place.

Mr. Toomey, there are no further questions at this time.

Well, thank you all for your time today. I know it was a lengthy prepared remarks but I think we had a lot to give you today and certainly the team's going to be available for follow-up calls. But as you can see today, what we have accomplished is we provided a three-year road map. We've enhanced our disclosures. We restated our strategic priorities. We certainly gave you a case of why UDR is a good investment today and in the future. And lastly, I add, I think we have the right team to execute this. So with that, thank you for your time today and we wish you the best.

Ladies and gentlemen, this concludes the UDR fourth-quarter 2012 conference call. If you would like to listen to a replay of today's conference call, please dial 1-303-590-3030, or toll free at 1-800-406-7325 and use access code 4588175. We thank you for your participation. You may now disconnect.