UDR Inc (UDR) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to UDR's second quarter 2013 conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for your questions and instructions will be given at that time. Today's conference is being recorded, July 30, 2013. I would now like to turn the conference over to Chris Van Ens. Please go ahead.

Thank you for joining us for UDR's second quarter financial results conference call. Our second quarter press release and supplemental disclosure package were distributed earlier today and posted to our website www.udr.com. In the supplement we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

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

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

Thank you, Chris, and good afternoon, everyone. Welcome to UDR's second quarter conference call. On the call with me today are Tom Herzog, Chief Financial Officer and Jerry Davis, Chief Operating Officer. We 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. I will cover four topics today. First, our quarterly performance and recent guidance grades, second, multi-family fundamentals, third, our expanding relationship with MetLife and lastly, the continued execution of our three-year strategic plan.

The second quarter was strong across all aspects of our business. Both earnings-per-share and operations outperformed versus our expectations as well as we completed a number of transactions in financing. As a result, we raised earnings per share and same-store guidance in the late June. Herzog and Jerry will provide more details on their prepared remarks on the quarter and the recent guidance increase. All in, we were very pleased with the first half of 2013 and the way it played out and look forward to more of the same for the balance of 2013. Nationally, multi-family fundamentals remain healthy. Demand continues to be driven by improving employment and positive demographics.

New multi-family supply has [increased] from the drop as expected, but permitting trends now appear to be leveling off. In the vast majority of UDR's market, demand and supply dynamics appear favorable with 21 of our 23 markets expected to create at least five jobs for every new apartment home over the next three years. The national single family market has also improved from its recessionary lows, albeit with some support from institutional investors. UDR's markets remain more sheltered than most from this improvement given the relative unaffordability and higher propensity to rent in our coastal markets. The recent increase in interest rates in conjunction with the rising single family home prices has significantly increased down payment requirements and monthly mortgage payments. As a result, our move out to home purchases remain favorable at 13.4% in the quarter, still well below UDR's 15% long term average. Given the recent rise in interest rates, numerous market participants have asked us how the potential future increases might impact the [parcel] guidance.

First there remains significant investor interest in multi-family space, especially on the coast for high quality assets. NOI continues to grow on an above average rate, both good signs for near-term stability and valuation. Offsetting this in part is the recent rise in interest rates which could negatively impact [cap] rates. Higher quality urban assets are less likely to be affected, but there have not been enough trades to form a definitive conclusion. Under the assumption that any further increase in interest rates is driven by a strengthening economy, apartment cash flows and related values will prove resilient over the long term and fare better than most other property sectors given A, their short term lease duration and B, the related impact on homeownership cost increases. So does the evolving interest rate landscape change our capital deployment strategy? The short answer is no. We anticipated that rates would increase on our three year plan and we continue to see good opportunities in our targeted submarkets and above-average profit margins for development and redevelopment. Should this change we will revisit our strategy.

Next, a few comments on our expanding relationship with MetLife. In late June we announced two separate transactions, first the formation of an operating development partnership for a significant portion of our Vitruvian Park master plan communities located in north Dallas. And second, a swapping of ownership interest in certain UDR/MetLife I JV assets that increase our ownership to 50% in two high-quality high rise communities located in Denver and San Diego. We are excited to be expanding our relationship with MetLife. They are a partner we are very familiar with and they are committed to the multi-family space and can co-invest in all aspects of the apartment business.

Finally, an update on our three-year strategic plan. Feedback from market participants continues to be universally positive. Now two quarters in, operating and cash flow growth are ahead of plan and we continue to expect significant growth and value accretion from our development, redevelopment platforms. Herzog and Jerry will provide you with more details on these trending factions and activities in their prepared remarks. Our team remains highly focused on executing the three-year strategic plan which we continue to believe will [supply drive, strong ABD] and cash flow per share growth in the future. With that I will pass the call over to Tom Herzog.

Thanks, Tom. There are a number of topics I will cover today. First our second quarter results, second a balance sheet update, third an overview of our recently announced transactions with MetLife, fourth an update on insurance recoveries from Hurricane Sandy, fifth a reiteration of how we look at development yields and lastly, our third quarter and full year 2013 guidance. I'll begin with our second quarter results. FFO per share was $0.37. After deducting a $0.01 benefit from Hurricane Sandy insurance recoveries and taking into account the effects of rounding, FFOs adjusted per share was $0.35. The $0.01 of upside versus the midpoint of our previous FFO as adjusted guidance was primarily driven from better-than-expected same store and non-same store operation. Second quarter AFFO per share was $0.31 and benefited from a lower amount of CapEx spend than anticipated during the quarter, which again was due to timing. We continue to target $1,020 of maintenance CapEx per home in 2013.

Turning now to the balance sheet, at quarter end our financial leverage on historical cost basis was 39%. On a fair value basis it was 29%. Our net debt to EBITDA was 6.9 times following the recent closing of the Vitruvian Park transaction with MetLife. We anticipate that it will remain near this level through year-end 2013 as non-income earning assets come online. As of the end of the second quarter, we had no remaining outstanding debt maturities in 2013. Our improving balance sheet has not gone unnoticed. Recently Moody's affirmed the Company's credit rating of Baa2 and changed its outlook from stable to positive. We ended the quarter with $769 million of available liquidity through accommodation of cash and undrawn capacity on our credit facility.

Next, as Tom highlighted in his opening remarks, in late June we announced two separate transactions with MetLife. The Vitruvian Park transaction included the formation of an operating partnership which comprises the Savoye, Savoye 2 and Fiori communities and a development partnership made up of 28.4 acres of land in the Vitruvian master plan. The operating partnership transacted at a weighted average NOI cap rate of approximately 5% and total transaction proceeds of approximately $200 million. Note that the 997 legacy Vitruvian Park homes, $13 million of developable land and the free standing commercial real estate on the site were not included in the partnership transaction.

The second MetLife transaction involved the exchange of ownership interest in certain UDR MetLife I joint venture communities. We increased our ownership interest in two high rise -- two high quality high rises located in Denver and San Diego from 15% to 50%, both of which are on under allocated core markets, and we relinquished our 10% ownership interest in four communities. Further details for both MetLife transactions are available on our second quarter earnings release filed this morning and in the transaction press release filed on June 25.

Moving on, an update on our insurance recoveries from Hurricane Sandy. Our original damage estimate of $28 million to $32 million remains intact. To date we have recovered $20 million of the $24 million we have submitted for hurricane damages and business interruption loss.

Next, we expect to deliver approximately 39% of our development pipeline in the second half of 2013. As we have had a few questions on how we calculate bid-wide yield on developments, I wanted to take a moment to explain the computation. Expected stabilized yields on development are calculated as projected stabilized NOI including a charge for management fees divided by construction costs. The stabilization period for development projects is defined as the forward 12-month NOI commencing one year following the delivery of the final home of the project. You may note that these definitions in attachment 16 of our supplement have been enhanced but for clarification purposes only. The way in which we calculate such estimated deals remains unchanged. On a trended basis, the weighted average yield for our pipeline continues to be in the range of 6% to 6.5%.

On to 2013 guidance; in our release this morning we increased our full year FFO per share guidance to $1.40 to $1.44 from a previous $1.39 to $1.43 solely to reflect a $0.01 benefit from recently received Hurricane Sandy insurance recoveries in excess of previously established receivables. As a reminder, we previously increased four-year FFO per share, FFOs adjusted per share, AFFO per share and same-store guidance at the same time as our announcement of the MetLife transactions in late June. The four year FFO as adjusted and AFFO per share guidance estimates remain unchanged from our June increase at $1.36 to $1.40 and $1.20 to $1.24 respectively. Our same-store guidance also remains unchanged from our June update with four year revenue expected to go up 4.5% to 5%, expenses of 2.75% to 3.25% and NOI of 5.25% to 6%.

Other changes to various guidance assumptions can be found on attachment 15 or page 27 of our supplement. For the third quarter of 2013 we are providing guidance for both FFO and FFO as adjusted of $0.33 to $0.35 per share. AFFO guidance is $0.28 to $0.30 per share. Lastly, during the quarter we paid a quarterly dividend of $0.235 per share or $0.94 when annualized, our 163rd consecutive quarterly common dividend paid. With that, I'll turn the call over to Jerry.

Thanks, Tom. Good afternoon, everyone. In my remarks I'll cover the following topics, second quarter operating results. I'll also provide an update on our development lease ups and development projects. We are pleased to announce another strong quarter of operating results. In the second quarter same-store and net operating income grew 6.8% driven by a 5.2% year-over-year increase in revenue against a 1.6% increase in expenses. Real estate tax increases of almost 9% were offset by a reduction in our repairs and maintenance expense as well as lower marketing costs.

The same store revenue per occupied home increased by 5% year-over-year to $1,472 per month, while same-store occupancy of 96.1% was 20 basis points higher year-over-year. On a total portfolio basis, including our pro rata share of joint ventures, our revenue per occupied home was $1,602 per month. Sequentially, second quarter net operating income increased by 2.7% representing typical seasonality. This was driven by a 2% increase in revenue against expense growth of 40 basis points.

Turning to new and renewal lease rates, in the second quarter effective rental rate increases on new leases at our same-store communities increased by 4.3% on average and renewal rate growth remained strong at 5.4%. Specifically, in New York our communities that were impacted by Hurricane Sandy are fully back on track. Annualized turnover in the second quarter decreased by 230 basis points year-over-year to 55.4%. I will remind everyone that turnover is highly seasonal and peaks in the second and third quarters during the spring and summer leasing seasons. Rent as a percentage of our tenant income held steady at roughly 17%, similar to where it has been over the past few years.

Next, our development and redevelopment programs along with our same-store will drive our anticipated cash flow growth over the coming years. During the quarter, we spent $133 million on development and redevelopment projects. I am pleased to report that our development lease-ups remain on plan and our redevelopments continue to command the rental rate increases we anticipated. The lease-up specifics; a recently completed 255 home $126 million Capital View on 14th community in Washington DC is currently 91% leased and 90% occupied. The project is on schedule, on budget and leasing up on plan. Until the past month or so we had experienced negligible impact from impending new supply in the U Street Corridor of DC. However, competing product did begin to pre-lease during the quarter. As Herzog indicated in his prepared remarks, Fiori at Vitruvian Park is now owned 50/50 in a partnership with MetLife. This 391-unit, $98 million project in North Dallas is currently 27% leased and 17% occupied.

Our 467-home, $150 million residences at Bella Terra development in Huntington Beach, California is currently 50% leased, 31% occupied. The project is on budget, on schedule and leasing up well ahead of plan. To date we have not had to offer any concessions on any of the leases. Lastly, our 256-home, $65 million Domain College Park development located across the street from the University of Maryland's business school is currently 39% leased and 13% occupied. The project is on schedule, on budget and leasing up on plan.

Turning to our redevelopments. First, the recently completed 583-home, $36 million Westerly on Lincoln redevelopment in Marina Del Rey, California. The renovated homes at this project have averaged a 20% rental rate increase over pre-renovation rent over the life of the property and demand remains strong for our upgrade. Currently the property is 98% leased and 96% physically occupied. Second, our 706-home, $60 million Rivergate redevelopment, Manhattan. As of quarter end we have completed the redevelopment of 288 homes. On these homes we have averaged a 13% rental rate increase. The property is currently 95% leased and 93% occupied. Lastly, our 964-home, $75 million 27Seventy-Five Mesa Verde redevelopment in Costa Mesa, California. As of quarter end we have completed the redevelopment of 356 homes and we'd also built a 12,000 square foot amenity building and a resort-style pool. On these homes we have averaged a 25% rental rate increase. For those of you that have toured 27Seventy-Five you understand that it's truly a transformational project. With that, I'll open up the call to Q&A.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Jana Galan, Bank of America Merrill Lynch.

Thank you. Good afternoon. Jerry, I was wondering if you can follow up on the expenses in the quarter and particularly we saw a pretty good decrease in R&M. I was curious if that was just kind of led to timing of items last year or if you're starting to see some of your technology initiatives take hold?

It's really a little of both. A little bit's timing from last year, but most of it is the technology and other initiatives we've been doing to make our service teams more efficient in the way they do their business. And by making them more efficient, they're then able to bring more of the third-party services that we've historically vended out in-house. Those include automation; we've given all of our service guys a hand-held device now that they can receive service requests without having to come into the office. And secondly, they're able to do their time keeping online instead of having to walk all the way back to the office to punch in and out for breaks and for lunch. Lastly, I would tell you we've really started managing our people to labor standards, comparing different people, telling them what the expectation is of how long each task should take and that's helped make them more efficient, too. So it's predominantly that.

Thank you. And just turning over to San Diego, you had some very impressive run growth in the quarter there. I was just wondering if you're finally starting to see those, you know, job gains help apartment demand or if something else was going on during the quarter?

I think San Diego is picking up a bit, but our numbers are really inflated. We only have two properties in our same-store pool there, it's only about 300 units. But one of the properties in Oceanside, it has a tax exempt bond that expired about a year and a half on it. You have to wait one year after that to increase the rents on the 20% of the residents that really benefited from below market rate units. So after we waited that one year period we were really able to bring those 20% up to market. That's probably driven the outsize growth a little bit more than improvement in the market. But the market has improved.

Thank you

Nick Joseph, Citigroup.

Great, thanks. Where do you stand in terms of all-in rates for unsecured debt and has that changed over the past few months with the increasing rates?

Hi, Nick, this is Warren. I think our all-in rates on our 10-year we're looking right about kind of the 4.2% to 4.4% range. Spreads have tightened a little bit. We're in the 150 to 160 range and obviously the 10-year has gone up and down over the last month or so.

Great, thanks. And then I guess it's bigger picture question. How do you balance the attractiveness of JV capital against the additional complexity associated with the partnerships?

Well, I mean, when we think about joint venture capital, there are a variety of different benefits. For one, at times you can be trading at a price that's different from your NAV and that provides an opportunity for bringing in funds at a cost effective rate. Another is it gives you the opportunity to attack the bigger deals by bringing -- I'm assuming you're talking specifically about us, the deals that we did with MetLife and with them we've got a long term investor that is interested in multi-family. They like development. We have a long history with them. They prefer lower leverage. From our perspective it also provides a good source of fees. So as I think about the size of the program and at what point it becomes too big, certainly at a $500 million or so equity investment in JVs, and call that $1 billion or so of real estate against a $13 billion asset base for the Company, we think it's still relatively very much in line and not too large at all. We consider it a net-plus.

Great, thanks.

David Toti, Cantor Fitzgerald.

Hey, guys, we just have a couple of general questions. Tom, in particular when you talk about the focus on urban concentrations I kind of understand the -- why they're compelling from a rent growth perspective and sort of kind of defensive positioning. Do you grow concerned that at some point there can be a liability on the urban locations relative to move-out rates because of the particulars of the demographic you're targeting?

You know, it's a fair question. I guess time will yield an answer that we can look back on. Our view would be is that the urban setting, if you look at most demographic studies, this is where that 20 to 35-year-old age cohort is moving to to secure jobs and be around the lifestyle that they want. And I suspect that they're going to be renters for a longer period of time in that urban setting. If you specifically look at our market mix, you can see we've diversified across both coasts on an urban platform, if you will, trying to insulate against economics ups and downs, but focusing on submarkets with a higher propensity to rent and a higher income bracket. We think that combination of characteristics over the long term will enable us to grow cash flow, grow NAV and deliver better returns than are available in the marketplace or what would be available in a boom bust type portfolio in a suburban setting.

Given that focus, and I know this has been a particular strategy for the Company for some time, have you guys experimented at all with adding services to those particular sites where you have that target demographic and concentration outside of the standard cable and whatnot? Is there a way to sort of package or reel sort of secondary fee stream to some of these tenants, given the preferences of that demographic?

Yes, David, this is Jerry. We looked a little bit into that. Most of these properties will have concierge-type services, a doorman, you know. At several of the properties especially the ones we have in the MetLife joint venture we have valet parking services. We have started to experiment a bit with offering other types of concierge-type services to better accommodate our resident base and really sell them time that we can do some of their personal errands for them. We're really in the beginning stages of that, but we are finding with that higher end demographic probably not, you know, some of those urban guys that are more working class, but at the higher end I think they do value their time and have excess funds and they would appreciate that. So we are looking into it.

Okay. And then my last question, and I apologize if I missed this, but did you guys talk about the specifics to the Texas markets today? Seems to be there's some growing concern about supply. Some of the numbers look a little softer on a year-over-year basis. What are your views on the Texas markets for the next 6 to 12 months?

This is Jerry again. Texas right now is holding up. It decelerated slightly from 1Q to 2Q. We operate in Dallas, up in north Dallas, Plano, as well as Addison and in uptown. Right now supply is becoming an issue especially in uptown, a little bit up north, but job growth to date has been able to offset it. As we look over the next couple of years, we do anticipate job growth of at least 5-1 to new developments. So it probably won't be able to sustain the 7% to 10% year-over-year revenue growth we've enjoyed in the last year or two, but I still think it's going to be strong. I couldn't see it getting over-built.

I think Austin, you're also seeing very high job growth, especially in the tech sectors. Apple is doubling their workforce. Samsung is building a $4 billion plant expansion there. There is a lot of new supply as everybody knows coming into Austin. Most of our properties aren't in the direct line of it. When you really go tour that downtown area, a lot of it is -- a lot of the new supply is coming up down on the south Lamar Street corridor, but when you're downtown where our joint venture with MetLife Ashton Austin is, we probably have the nicest product in town and we're not seeing a lot of competition there. And our other product in Dallas is more the B, B-plus grade and we're not competing directly with the new product.

I might add that just I think it's your typical cycle in Texas, which is, you know, you got a very good run-up in rent. There was not much supply and what's happened recently is move-out to homeownership is going to kick in a little bit and supply, but for us in our view in the long term basis Dallas and Austin are both great cities. They're job machines. There's where the economy is going to continue to prosper across many different employment bases. So I think it's still a very good long term market. It's just going through one of those minor adjustment periods and we'll probably see a good 2014 out of it, too.

Great. Thanks for the detail today.

Rob Stevenson with Macquarie.

Good afternoon, guys. While we're on Texas, can you remind us when does the window for the debt prepayment on the Texas JV open up and what's the current thinking about what you guys are going to do with that?

This is Warren. The window is open from December, 2014 and I think we would discuss that with our partner by the first of next year.

Okay. And then, Tom, what's the thought on the development pipeline now in terms of new starts? I mean you're sitting here the 6%, 6.5% yield on the current pipeline. When you take a look at the next projects in the queue, where's the -- given rising construction costs and financing costs, et cetera, where is the return sort of penciling out if you guys wanted to start those today? And what do you think you're starting between now and the end of the year?

Rob, this is Harry. We don't expect any additional starts in 2013 and if you look on attachment 11 you can see that we have several land sites in our portfolio, both wholly owned and in MetLife, many of which will be used to backfill our existing pipeline. We're actively working through the design and approval processes and would expect to start a number of new projects in 2014. But remember, costs are rising, but rents are also rising. We won't start a project unless we achieve a meaningful spread over market cap rates at least 100 basis points on an untrended basis.

So it's really, it's asset specific. From the spread between the expected yield versus the expected market cap rate is something we look at closely. Today's spreads are relatively high. We think we have a little bit of cushion, but we'll underwrite each of these assets before we start construction.

Okay. Thanks, guys.

Alex Goldfarb, Sandler O'Neill.

Good morning out there. Just a few quick questions here. First, and maybe I'm just not really good at math and maybe I'm just missing a few things, but if we look at the MetLife JV, it's $290 million is gross and it looks like if you stabilize the -- forgive my pronunciation -- Fiori deal, it looks like there's about $8.6 million of NOI coming off of that on annualized basis which would imply sort of a 3 cap. But, you know, if we use the 5 cap that's cited, that says that the development portion of that JV was valued at about $120 million. So $172 million for the three assets and $120 million for the development. Can you just walk through like what I may be missing in those calculations or is that, in fact, the right way to look at it?

This is Herzog. Alex, your math, there are a lot of numbers flying around there, but I do get your point is that you're looking at what the cap rate was in the MetLife I transaction when we completed it and what does it look like today based on some of the transactions that are taking place? I guess I would describe it this way, that the transactions that have been taking place have been swap transactions. So that we and our MetLife partner could both increase our ownership in assets that fit our individual portfolio needs and really the whole transaction was more than a collection of assets. It really involved more the relationship, the options that were in place, development potential, et cetera. So as we look at the overall transaction, there's a lot more going on than just that, but as to the specific detail of what you're looking at on the cap rate, I'd have to look at the detail to see what you're referencing.

I think when you look at that deal, that deal was structured as a portfolio trade rather than a disposition of individual assets and that had their own special allocation requirements and we were pretty much ambivalent. So when we looked at it, it was just a $290 million trade.

Right. But you guys cite a 5 cap, so I'm just curious. The 5 cap would imply that the part of the Vitruvian, those three assets were valued at $172 million. I just want to make sure, is that math right or am I missing something?

Alex, this is Harry. I'd have to look at your math. But Fiori is still in lease-up. So my guess is you're looking at a non-stabilized revenue stream. And if you're applying a cap rate to that -- if you apply a stabilized NOI to Fiori, you'll get a number that's meaningfully higher than that.

Okay. We can go offline. I was using a stabilized, but we can go offline. The second thing is just looking at the back half of the guidance you guys have done 6.4% year to date but your full-year NOI guidance is 5% to 6%. So where in the portfolio are you expecting more of this slowdown that's going to bring the NOI down for the back half of the year?

Yes, I'll take that, Alex. This is Jerry. Really let's look at it in two pieces. First revenue, and you know, through the first half of the year we've had the results of 5.2% growth. So to get to the midpoint -- or the high point of our guidance which is 5%, that means the second half would need to come in at about a 4.8%. I can tell you based on what we're seeing today, what we expect to see the rest of the year, we're comfortable with that guidance. Our expectation is revenue will be near the high end.

When you look at the expense side year-to-date through June, we're at 2.6% and to get to the midpoint of 3% we'd need to average 3.4% in the second half of the year. I'd say we have two factors that could get us there. One, real estate taxes continue to be somewhat of an unknown. We've gotten valuations in on about half of our portfolio, but we still don't have them in for California or Florida, which make up 40% to 50%. And the second is we had a pretty favorable -- difficult comps in the second half of last year to compare to. So when you really see what could drive it, the biggest unknown right now is still real estate taxes.

But isn't -- California's Prop 13 so why would the real estate tax be unknown?

It is Prop 13, but there's still the potential that some of our Prop 8 adjustments we had in prior years haven't totally been factored in.

Okay. So if I heard you correctly the downside to NOI in the back half is more expense related not revenue related.

Yes I think so.

Okay. Thanks a lot.

Michael Salinsky, RBC Capital Markets.

Good afternoon, guys. Just given that we're halfway through the year can you give us an update on where you stand with the remaining dispositions in your guidance?

Yes. We've got about $100 million of dispositions remaining. That's where we're at in the second half. We had the $145 million or so with the Vitruvian transaction and then there's another $100 million on top of that.

Are those actively being marketed or -- ?

Yes. We're in progress on a number of fronts and feel good about that number.

So that would be like a fourth quarter close, then, kind of expected?

Yes. Probably either late third or probably early fourth quarter.

Okay. Then my second question for Jerry, did you give July leasing trends? And also on previous calls you've given a gain or loss to lease statistic. Can you give us where that is for the portfolio and then curious where the DC market is on that?

Yes. I can give you parts of that. I'll probably have to get the DC part later. I don't have that with me, but in a follow-up I'll give you that offline. Loss to lease as of the end of the quarter was at about 4% for the portfolio. And as far as leasing trends through today for the month of July new leases are up about 4.3% to 4.4%. Renewals are up probably right at that 5%, 6% level. And as of today our physical occupancy in the same-store portfolio is 96.3%.

Just a follow-up to that, if I may. Also in the guidance if you look at the run rate for the first half of the year in G&A versus the back half, seems like there's a pretty substantial increase in G&A in the back half of the year. Could you talk about what's going to drive that?

Yes. There were a couple of different things, Mike. Part of it is just timing items such as personnel, healthcare, legal costs, costs associated with software development, et cetera and the other part of it is due to timing on incentive comp type programs just based on the way that the accounting works. Because the program was set up in February, there's no expense in the first month, for instance, and then certain components of it will be more heavily loaded in the second half of the year. So from a G&A perspective it's still relatively just timing.

Okay. Thank you.

Haendel St. Juste from Morgan Stanley.

Hey, guys. Jerry, just a quick follow-up question on expenses. Can you talk about the 9% year-over-year real estate tax growth? How did that compare to expectations and where do you see the most pressure across your portfolio for conversations that are underway today outside of -- was it California and Florida?

It's roughly at expectations. You know, we were right up around that 9% level in our budgets this year. So no huge changes yet, but like I said we still haven't heard about California and Florida. I think Florida probably is where most of the conversation will come. You know, we've already talked to Texas, Virginia, places like that, but I think most of it's going to come in Florida.

All right. And another one for Warren or Tom. On the new MetLife Vitruvian JV, the one with the Savoye and Fiori assets, can you discuss generally the nature and scope of fees from the JV and also the long-term return required to hit a promote there?

Yes, Haendel, This is Warren. In terms of the fees it's structured pretty much like our existing loan on MetLife II. There's a property management fee, there's a financing fee, all are pretty much market. As we do development there will be development asset management fees. In terms of promote there's not a promote structure in that. It's a 50/50 JV.

Great. And one more related to that. Can you discuss timing early thoughts for the other -- in the press release the other 2,500 homes and 50,000 square feet of retails you plan to build out?

I'll start and let Harry really address that. We're in active discussions right now with MetLife over the future development of Vitruvian and I will tell you they're very excited about developing that and making our master plan come to fruition.

Yes. Haendel, this is Harry. In addition to talking to MetLife, we are beginning the design and planning process for the next phase. When that comes to fruition I don't know. It will be our first development deal with Met. So we're sort of testing each other out a little bit as we work through the planning process.

All right. Fair enough. And, Warren, I guess I know where you were at Navy when you bailed out of my meeting now, so I'll talk to you guys soon. (laughter) Thanks.

Thank you.

(Operator Instructions)

Dave Bragg, Green Street Advisors.

Thank you. So just comparing your guidance for the year to the three year plan that you had laid out, it appears as though with the stock trading at a discount to NAV you've been able to remove your equity needs for 2013 and in doing so have increased dispositions, cut back a little bit on development spending and redev spending. If the discount persists into 2014 and 2015, is this the playbook that we should look for you to follow in terms of a deviation from the three-year plan?

You know, as far as the adjustment to the guidance as a result of the Vitruvian transaction, we did bring in enough cash to remove the equity issuance that we had previously included. If our price went back up above NAV, we still could raise some of that equity. As far as cutting the development or redevelopment, though, that had nothing to do with the current conditions. That's just been the timing of the spend that we've had within the programs. So as I look forward into 2014 and 2015, there's really nothing that's changed in our plan relative to Vitruvian or market conditions at this point.

Right. But, Tom, if you go through 2014 and 2015 and the stock's at a discount over that time frame, looking at the, I think it would be $350 million to $450 million of equity issuance in your three-year plan, what are the levers? Can you just talk through the levers that you'd pull to offset that?

Well, one of the big ones is we still have about $400 million of non-core assets that could be utilized to create some funding. We have some warehouse assets of a much larger size that could be utilized that we're in no hurry to liquidate, but that stands as a possibility. So again as we look forward, we've got a number of different sources of funding that could be brought in. Equity, could be debt, it could be joint ventures and, of course, the sales of non-core type assets. So, and on top of that we've got -- not that we would intend to use it, but in a shorter term we still do have a sizable amount of capacity on a revolver. So there's a lot of different funding that we could use as we go forward.

Okay. Thank you for that.

Thank you. I'm showing no further questions in the queue at this time. Please continue with any closing comments.

Well, thank you, all of you, for taking time this morning or this afternoon. And certainly we feel good about the business, feel good about our three-year strategic plan and the execution of it and we're seeing good strong fundamentals in the business and we see that continuing for some long period of time and are enjoying the benefits of it and you'll see us continue to focus on execution. And with that, we'll see you shortly.

Ladies and gentlemen, this concludes our conference for today. If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 and enter the access code of 4628403. Thank you for your participation. You may now disconnect.