UDR Inc (UDR) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to UDR's Q2 2014 conference call. Today's call is being recorded.

And now I'll turn the call over to your host, Chris Van Ens. Please go ahead, sir.

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'd 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 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, and 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, who will discuss our results, as well as Senior Officers Warren Troupe and Harry Alcock who will be available during the Q&A portion of the call.

First, all aspects of our business continue to perform well in the second-quarter. Operations are strong throughout our portfolio, our aggregate development pipeline is meeting or exceeding expectations and our balance sheet is solid. In short, we continue to check all the boxes with regard to the key components of our current three-year strategic plan published last February.

We are just over halfway through 2014 and the macro environment for apartment demand in our markets has been slightly better than we initially expected. These markets continue to generate superior fundamentals relative to the national average. Against this backdrop, and in conjunction with our strong 2014 results to date, we raised our full-year earnings and same-store forecast in today's release. Tom will discuss details in his prepared remarks.

While it is too early to comment on 2015, we will reprice approximately 30% of our apartment homes in the third-quarter and if current trends hold true, we expect another strong year for apartments and UDR. Jerry will provide further details on our forward operating strategy in his prepared remarks.

Second, we closed on $81 million of dispositions during the quarter at better pricing than originally contemplated. Additional sales have closed in the third-quarter. Tom will provide further details.

From a big picture perspective, continuing to find our accretive development pipeline with non-core dispositions is a trade-off that is working. Later this year, we plan to market additional assets and anticipate strong demand given the depth of acquisition capital in the marketplace. We are confident in our ability to execute upon our disposition guidance of $350 million to $450 million in 2014.

Third, we are forecasting two or three additional development starts during the remainder of 2014 with anticipated cost to construct of $200 million to $325 million depending on actual starts activity. The starts will be in our core markets and may include Orange County, San Francisco Bay Area, and Los Angeles. At least two are anticipated to be with MetLife in a 50/50 ownership structure. Like our current pipeline, these new projects will help drive strong NAV and cash flow growth for UDR and it shareholders.

Fourth, we successfully issued $300 million of 10-year unsecured debt during the quarter and an attractive 3.75% coupon. This issuance points to the strength of our balance sheet which continues to improve.

And finally, I'd like to thank all my fellow associates for their hard work in producing another strong quarter for UDR. We look forward to the remainder of 2014. And with that, I will turn the call over to Tom.

Thanks, Tom. The topics I will cover today include first, our second-quarter 2014 results. Second, a balance sheet and debt maturity update and additional details on our $300 million unsecured offering. Third, a development update. Fourth, an overview of second-quarter and post-quarter transactions. And last, our third-quarter and full-year 2014 guidance.

First, our second-quarter results came in better than expected on both earnings and same-store sales growth. FFO, FFO as adjusted, and AFFO per share were $0.39, $0.39, and $0.34, respectively. Quarterly same-store revenue expense and NOI growth remains strong at 4.4%, 1.7%, and 5.5%, respectively.

Moving onto the balance sheet. At quarter-end, our financial leverage on an underappreciated cost basis was 40.5%. On a fair value basis it was approximately 32%. Our net debt to EBITDA was 6.9 times and is forecast to trend into the mid-6s by year-end. We will continue to manage our balance sheet to BBB plus credit metrics.

Our balance sheet remains strong with approximately $650 million of cash and credit facility capacity at quarter-end. In the first half of 2014, $312 million of UDR debt matured at an average rate of 5.3%. We refinanced this debt in June with a $300 million 10-year unsecured offering priced at an attractive yield to maturity of 3.79%. We have no remaining debt maturing in 2014 that cannot be extended at our option.

Turning to development. Our under construction pipeline totaled $671 million at the end of the second-quarter. For these developments, we are projecting approximately a 170 basis point weighted average spread between expected trended yields and current market cap rates. When including our $416 million of development that was completed and in lease-up at quarter-end, our pipeline totaled $1.1 billion and had an expected spread of approximately 180 basis points. Both of these measurements point to the accretive nature of our pipeline and the strong cash flow generation we expect as income comes online.

In the fourth quarter, our 173-home Beach & Ocean development in Huntington Beach, California and our 332-home DelRay Tower project in Alexandria, Virginia will reach completion at a combined budgeted cost of approximately $183 million. Preleasing at these two assets is on plan and both will enhance the quality of our existing portfolio. In total, our $1.1 billion development pipeline was 72% funded at quarter end, with the balance continuing to be funded through non-core asset sales.

As to future development projects, we continue to carefully underrate opportunities and look for new land sites. As Tom indicated, we expect to start an additional two to three developments in the second half of 2014 with MetLife, all in our core markets, with trended spreads in our targeted range of 150 to 200 basis points.

Next, our asset sales. In late June, we closed on the sale of two communities in Tampa for approximately $81 million. On July 1, we sold one community in Orlando for approximately $50 million. Combined these sales were transacted at a 5.6% cash flow cap rate. By the end of day tomorrow, July 30, we expect that the sale of two Norfolk, Virginia area communities will be completed for approximately $47 million at a 7.5% cash flow cap rate.

With these dispositions, we will have sold approximately $225 million of non-core assets in 2014 thus far at a blended cash flow cap rate of 6.1%. Combined, these assets had an average revenue per occupied home of approximately $1120 and averaged 25 years old. Our 2014 guidance currently contemplates an additional $125 million to $225 million in dispositions by year-end, as well as $100 million to $150 million of [1031] acquisitions. We are making progress with these transactions and will provide further details as they become available.

Additionally, subsequent to the end of the second-quarter, the Company received proceeds totaling $36 million from the prepayment of a B note it held. The note was secured by a Class A property in Los Angeles with a maturity date in 2022. The prepayment of this note resulted in a net gain of approximately $8.4 million, or 0.03 of FFO per share which will be recognized in the third-quarter. A gain positively impacted the Company's full-year 2014 FFO per share guidance, but will have no affect on FFO as adjusted or AFFO per share.

Onto third-quarter and full-year 2014 guidance. Second-quarter earnings and same-store sales growth remain strong. As a result of our positive first half 2014 and third-quarter to date operating results and income related to the prepayment of the B note I referenced earlier, we are increasing our full-year 2014 FFO per share guidance at the midpoint by $0.04 to $1.52 to $1.56 from $1.47 to $1.53. We are increasing our full-year FFO as adjusted per share guidance by $0.01 at the midpoint to $1.49 to $1.53 from $1.47 to $1.53. And AFFO per share guidance by $0.01 at the midpoint to $1.32 to $1.36 from $1.30 to $1.36.

Regarding same-store expectations, we are increasing our full-year 2014 same-store revenue growth guidance to 3.75% to 4.25%, up 12.5 basis points at the midpoint, reducing our expense growth guidance to 1.75% to 2.25%, down 100 basis points at the midpoint and raising our NOI growth guidance to 4.5% to 5.5%, up 62.5 basis points at the midpoint. We also increased our full-year same-store occupancy guidance by 50 basis points to 96.5%. Other primary full-year guidance assumptions can be found on attachment 15 or page 27 of our supplement.

Third-quarter 2014 FFO per share guidance is $0.39 to $0.41 inclusive of the additional income from the prepayment to the B note on July 16. FFO as adjusted per share guidance is $0.36 to $0.38 and AFFO per share guidance is $0.31 to $0.33.

Finally, we declared a quarterly common dividend of $0.26 in the second-quarter or $1.04 per share when annualized. This represents a yield of approximately 3.6% and will be our 167th straight quarter of paying a dividend. With that, I'll turn the call over to Jerry.

Thanks, Tom, and good afternoon, everyone. In my remarks, I'll cover the following topics. First, our second-quarter portfolio metrics, leasing trends, and an overview of our current operating strategy. Second, the performance of our primary core markets during the quarter. And last, a brief update on our development lease-ups.

We are pleased to announce another strong quarter of operating results. In the second-quarter, our same-store revenue per occupied home increased by 3.8% year-over-year to $1586 per month. While same-store occupancy of 96.8% was 60 basis points higher on year-over-year and sequential basis.

Our total portfolio revenue per occupied home at quarter-end was $1733 per month, including pro rata JVs. Our revenue growth through the first half of the year has been 4.5% as a result of a 50 basis point improvement in occupancy and a 3.9% increase in the rent per occupied home.

As Tom stated earlier, our revised full-year revenue guidance is 3.75% to 4.25% which implies a second half deceleration. Let me be clear that while we do expect lower revenue growth in the back half of the year, it is the result of two factors. First, we had exceptionally strong occupancy in the second half of 2013 that averaged 96.3%. Therefore, we do not expect the same level of occupancy pickup in Q3 and Q4 of 2014 that we have been benefited from in the first half of this year.

Second, today we are pushing rents harder than we normally would at this time of year because of our very high occupancy levels, which today are close to 97%. While this will result in a slightly lower closing ratio on prospective residents and may cause some existing residents to move out, we are willing to sacrifice some near-term occupancy to strengthen our rent growth in 2015. Through our many strategic initiatives implemented over the past several years, we have the necessary platform to efficiently manage our portfolio moving forward.

Turning to new and renewal lease rate growth, detailed on attachment 8G of our supplement. Second-quarter effective new lease rents increased by 3.6%. Renewal rate growth remains strong at 5.5%. San Francisco, Seattle, Boston, and Nashville performed well, while the Mid-Atlantic region continued to struggle. As a quick reminder, our realized renewal rate growth in a quarter typically is slightly higher than the rate we initially send out to our residents. For July, renewal rate growth is currently 5.1% and I would expect third-quarter renewal growth will be in the 5% range.

In the first quarter of 2015, we believe that likely that our revenue growth will stop decelerating. We base this on supply and demand projections in our submarkets, the strong occupancy trends we are currently seeing, and the rate levels at which we are currently able to sign and renew residents.

Regionally, the Mid-Atlantic, with the exception of Metro DC, is beginning to improve modestly. We expect our southeastern markets to remain stable as new supply is offset by strong job growth. The same holds true for our Texas markets. We are confident that the Northeast will hold up well but certain submarkets may face some supply issues moving forward. The West should remain strong as job growth, especially in the tech sector, continues to enable us to drive rent growth.

Next, annualized turnover in the second-quarter increased slightly by 20 basis points year-over-year. The increase was partially attributable to our ongoing focus on lease expiration management. Over the past couple of years, we have concentrated more leases in the high demand second- and third-quarters. This active management should continue to benefit our current and future year results. Further details for these metrics can be found on attachment 8G or page 20 of our supplement.

Rent as a percentage of our residents income held steady at roughly 19%. Move-outs to home purchase were up 50 basis points yea- over-year at 13.9%, still below our long-term average of approximately 15%.

Moving onto quarterly performance in our primary core markets, these markets represent 65% of our same-store NOI and 70% of our total NOI. Orange County and Los Angeles, which combined represent 16.5% of our total NOI, continue to slowly improve.

As many of you are aware, we are lengthening the average term at our 1447-home Newport Beach community, the Coronados. This will better position the community long-term, as it will stabilize year-round pricing and mitigate seasonal occupancy and rent growth fluctuations. However, short-term this change hurt our second-quarter new lease rate growth in Orange County, as the Coronados account for roughly half of our same-store units in the market. We will benefit later in 2014 and in 2015 for this strategic move.

New York City, which represents 12% of our total NOI, improved sequentially as new lease and renewal rates averaged 3.3% and 6.2% growth, respectively. And occupancy averaged 97.1% in the second-quarter. New York remains a good market and with occupancy above 98% currently, we have positioned ourselves well for a strong third-quarter. As a reminder, 95 Wall, which we had excluded from same-store results due to Hurricane Sandy, was included in the second-quarter same-store home count.

Metro DC, which represents 13% of our total NOI, had occupancy of 97.4% and effective rent growth of 90 basis points in the second-quarter. A strong result considering the ongoing concerns many have for this market. The encouraging results is a attributable to our mix of approximately 40% A and 60% B product, as well as less direct submarket exposure to new supply. We believe these factors will continue to help us fare better than many of our peers in 2014.

Our B assets in the market experienced revenue growth of 1.4% in Q2, outperforming our A assets by 30 basis points. We are still expecting positive full-year revenue growth of approximately 1% in DC.

San Francisco, which represents 11% of our total NOI, continues to generate extremely strong results due to high-quality employment growth and a general housing shortage in the city proper. In June, new lease rate growth reached over 11% with renewals up 8%. Our July numbers are just as strong.

Seattle, which represents 6% of our total NOI, is another market that has thus far more than adequately absorbed additional multi-family supply. New lease rate growth reached nearly 10% in June and renewal growth continues to be at the top end of our portfolio. For July, renewals are being achieved at 7%.

Boston, which represents 6% of our total NOI, accelerated throughout the quarter after a tough winter with new lease and renewal rate growth of 8.1% and 6.9%, respectively. We expect our suburban locations will continue to outperform as they are less directly impacted by the new supply as being delivered into the downtown core.

Lastly, Dallas, which represents 5% of our NOI, is performing in line with our initial budgeted expectation. Uptown continues to perform well even with significant new supply coming online, while North Dallas has begun to see some new supply pressures. Fortunately, Dallas continues to enjoy very strong job growth.

Turning to our developments. First, our projects that were stabilized for the full quarter. Demand at our 467-home $150 million Bella Terra community in Huntington Beach remains fantastic. The property hit 90% leased in only six months and is currently 97% occupied with rents well ahead of pro forma estimates at $2.55 a square foot.

Next, our projects recently stabilized or in lease-up. Channel and Mission Bay, our 315-home, $145 million development in San Francisco and 13th and Market, our 264-home, $73 million development in San Diego continue to perform well. Weighted average effective rents are 10% above plan. Channel in particular is outpacing initial expectations after hitting 90% occupancy in June, just six months after opening its doors and with effective rents 18% above budget. The property is currently 97% leased and 95% physically occupied.

Los Alisos in Mission Viejo, California, Domain College Park across the street from the University of Maryland Business School, and Fiori at our Vitruvian Park joint venture in Addison, Texas comprise $199 million in aggregate estimated costs. Weighted average effective rents are approximately on plan. Currently, Fiori is 92% leased, Domain College Park is 99% leased and Los Alisos is 79% leased. Domain College Park and Los Alisos should both hit 90% physical occupancy within 13 months of opening. All in, we remain very positive on how our recently completed and end lease-up developments are progressing in aggregate.

Finally, a quick update on our development communities that are not yet open. It is still very early, but pre-leasing of Beach & Ocean, our 173-home, $51 million development at Huntington Beach, and DelRay Tower, our 332-home, $132 million project in Alexandria, Virginia is progressing well. Beach & Ocean will open in October and it is currently 16% pre-leased. DelRay will welcome its first residents in August and it is currently 19% pre-leased. With that, I will open the call to Q&A. Operator?

(Operator Instructions)

Nick Joseph, Citibank.

In terms of funding the remainder of the development spend, how do you internally weigh the decision between selling additional assets and issuing equity at this price?

Hey, Nick, this is Tom Herzog. We still have a view that funding the remaining developments for sale of non-core assets is how we would intend to fund that. As it pertains to issuance of equity, as we've been saying since the beginning of the year, this is trading at a premium and have an accretive use for the funds that we will consider that option. But as far as funding development it is intended through the sale of non-core assets.

So when you say accretive use of funds, is that -- so you're putting development aside, is that really only acquisitions?

It would be acquisitions or other, but excluding development.

Okay, thanks. And then could you talk about what has driven the increased occupancy and if that was an active decision that you targeted within your revenue management system?

Hi, Nick, this is Jerry Davis. Yes, we really started driving occupancy up probably about nine months ago and it's really a couple of factors. We really didn't do any of it within the pricing system. I think when you look at our rent growth and renewal growth, it's comparable to most of our peers but we have seen a pick up in occupancy.

And there's really two or three primary drivers of that. One, starting in fourth quarter of last year, we brought in-house what we call an outbound call center. And all that is, is a small group of people that go through discarded leads from our sites, that our site folks have just determined that they're not hot leads, and we try to resurrect those.

And even though the hit ratio on those is relatively small, we found that we've been able to pick up over 250 incremental leases so far in the first seven months of this year. And when you look at that over the entire portfolio, not just the same-store, that's probably at least a 40 or 50 basis points pop-to-occupancy that was done with nothing to do with pricing.

The other factor, and we've been working on this for a couple of years, is continuously driving to reduce the number of days an apartment sits vacant between when the prior resident moves out and the current resident moves in. Two years ago we were about 26 days to reoccupy a unit. Our goal this year is to get it to 22 days. We hit 24 days last year.

And we think we can continue to drive that down further by becoming more efficient on turning apartments, as well as putting more of an emphasis on pre-leasing, notice to vacate units instead of just vacant units. And I would remind you, every day we can cut off of our average days vacant about $1.5 million of additional revenue drops to our bottom line.

Thanks. Where do you think that 22 days could eventually get to?

I think we can get it at probably to the mid to high teens. We're currently, when you break it down between turn time and time to reoccupy after the units made ready, we've gotten turn time down to a little under seven days. And the amount of time to get it occupied after it's ready is about 15 days. Those numbers fluctuate and there's some seasonality. This time of the year, my goal for the month of August is to get to 15 days of total vacant days. But when you get to the winter months, it can get up to the mid to high 20s. And I do have some tight markets that I typically can run at about 10 days such as San Francisco and pockets in New York.

Great. Thanks for the details.

Haendel St. Juste, Morgan Stanley.

Tom Herzog, a question for you. So some clarity on the FFO per share guidance here. Curious on, it looks like you're raising the full year as adjusted guidance by just $0.02 here, when you're already $0.04 ahead on the first half so far year to date. So curious on perhaps what's holding you back from a slightly larger increase here? Is it fairly down to conservatism or is it perhaps something that we're not fully appreciating like -- well anything that we're not fully appreciating?

Good question. When we look at the first half, we came in at about $0.75 of FFO as adjusted and we'd have $0.76 in the second half. The reason that the growth isn't a little bit bigger in the second half is a couple things you'd probably expect.

We issued that unsecured debt in June and then we've got the dispositions in the second half of the year, so it's in line with what we expected. As to the beat that we had in Q1 and then Q2, a little bit of conservatism probably built into the guidance for the first two quarters of each of those quarters came up as they were both early in the year and a little bit of uncertainty. So it's really nothing beyond that.

Appreciate that. And the follow up, so your recent dispositions have been in your, call it, warehouse markets where you've capitalized on what looks like to be pretty good pricing for those assets. I'm curious as you look ahead though, and you talked about some thoughts on near-term asset sales; would you consider perhaps broadening your perspective and selling some assets so we have better quality assets in your core urban coastal markets, given what seemed to be pretty full asset pricing here? And we're starting to see some condo converted stock get their tail back into the marketplace.

Haendel, this is Harry Alcock. I think as Tom mentioned in his prepared remarks today, including the B note payoff we closed about $225 million year to date, we've got another $47 million scheduled to close this week, a couple properties in non- core capital warehouse markets in Virginia Beach. That'll get us to a little over $270 million. That leads in order to hit the midpoint of our guidance another $125 million or so.

We will at times consider selling properties in core markets, particularly non-core properties in core markets. We're aware that condo pricing is starting to manifest itself a bit in certain markets in New York City, in San Francisco. We are not looking to do anything specifically today but that potentially is an opportunity in the future.

And Harry, while you're on one more follow-up on that front. The B assets you sold, curious as to the type of buyer that showed up, were there more institutional buyers? Were there a greater number of buyers? I'm curious if there was any retrading or you're effectively getting your full price?

Yes, the three Florida assets were -- we received 20 plus bids on each of those. It's a very broad buyer base, mostly local and regional syndicators. But there's a lot of folks that are showing up for those types of assets, they're leveraged buyers. It's a very deep and liquid market right now. There were no retrades on those three.

The two Hampton Roads assets, the buyer base is a little bit different. It's more of a local type buyer typically. We get several bids but we're not going to reach of the 20 type buyer range. But again, it's going to be a leveraged buyer and there was no retrade of any kind on those either.

Thank you.

Alexander Goldfarb, Sandler O'Neill.

Two questions. First did you say the rents on the Beach & Ocean deal are $2.55 a foot?

I did. No wait. No, Alex, the $2.55 per foot was actually on the Bella Terra deal.

Okay, sorry. If you could comment on the rents that you're getting at Beach & Ocean and then what you expect for the Pacific City site.

Sure. I'll start with the Beach & Ocean. We are currently getting $2.69 market rents per square foot at Beach & Ocean and I would tell you we'll accept our first units there in October, and we've already pre leased 16% of the property. We're still in design for the Pacific City deal, so we haven't finalized rent levels at that property at this point.

Alex, I can jump in a little. I can tell you with, this is Harry, with certainty, we're going to get well above $3 a foot in rents at that project. It really is a unique piece of dirt in Huntington Beach. We're adjacent to a 200,000 square foot retail center that'll open in about a year, tenants will include Apple Store, Equinox, really unique type project.

Next to it the hotel site has started construction. The hotel operator will be a resort boutique type operator that operates the properties like the Bacara in Santa Barbara. So we're really going to have a very, very unique product offering there.

Okay. And then on the B note, do you guys have other of these B note investments out there or do you see this as a business line the way you guys used to look at the RE3, the merch business? Do you see this as a way to put capital out to try and get accretive returns or was this a one-off?

Alex, Herzog here again. It was a one-off. It was an asset Class A asset in LA that over time it would've been a nice asset to own. So it was a one-off. We don't have any further assets like that in our portfolio at the current date.

Okay. Thank you.

Jana Galan, Bank of America Merrill Lynch.

Jerry, I'm sorry if I missed, can you give us an update on rent as a percentage of income? And then maybe give a little bit more color on how much this number ranges within your portfolio and how that compares to prior peaks or your historical average?

Sure, Jana. The percent in the second quarter in total was 19%, actually a hair under. That's up a little bit over the last year or so when we were more in the 17% to 18% range.

And I can tell you, I don't have good information on historical numbers related to this. and I don't know if they would be valid anyway given how much UDR's portfolio has changed over the last seven years, the totally different type of product and resident base. It ranges from mid teens to mid-20s but the majority really do come in between that 18% and 22%.

Thank you. And then following up, I heard your A's versus B performance in DC, but do you have that for the portfolio?

I sure do. For the last couple of months, on new lease rate -- new leases, B's have outperformed As somewhere in the 40 to 50 basis point range. And on renewals, B's are getting about 20 to 30 basis points better, so call it a blended 30.

Great. Thanks for the update.

Nick Yulico, UBS.

First question on the development pipeline. You talk about, I think you said it was 170 basis points is the spread right now between the yield and cap rates. I think you said that was for the projects that were completed but not stabilized, is that right?

It's -- Nick, it's Herzog here, that's actually for the ones that are under construction that are in the pipeline. The 180 is for the entire $1.1 billion pipeline including those that are completed.

Okay. So for the ones that were completed, I think you guys are saying something similar as far as the spread in the first quarter. So the ones that are completed, are they performing the same way you thought in the first quarter or have you got any uplift in yield from any of those projects that have been completed now?

Nick, it's Harry Alcock. I'll start and Herzog and Jerry can chime in if they have any additional input. But the -- remember these are stabilized yields that we're calculating, so mostly those stabilized yield are calculated a year after -- one year after completion. So these are 2015 and into 2016 are the measurement periods. So in the last quarter we, for the most part, have not updated any forecast associated with those dates. But the assets are continuing to lease up as expected and the forecasts have remained largely unchanged over the last quarter.

Yes, I would -- this is Jerry, I would agree with that. Lease up velocity over the last 30 days has been strong throughout the development portfolio. On page 21 of the supplement, we show leased occupancies at these properties and they've continued to strengthen. I can tell you for example, Channel at Mission Bay, our San Francisco property today is 97% leased. And I'd remind you, that we accepted our first residents just seven months ago in December.

Bella Terra is 99% leased. Domain College Park, which has been a little slow to lease up because it's a -- it caters to the Smith Business School at the University of Maryland. It's 99% leased today and 30 days from now once school returns, it'll be at about 98%. So we'll have achieved over 90% occupancy in about 13 months because we accepted our first building last year in June or July.

And then when you get down to 13th and Market, which is our property in the East Village of downtown San Diego, leased occupancy today is 81%. We accepted our first units there last fall and that's another property that we fully expect to get stabilized occupancy over 90% within 12 months. And I stated earlier to Alex, that Beach & Ocean, our property that will open its doors in October in Huntington Beach; we've already pre-leased 16% of the units there.

And then DelRay Tower, our property in the DC area where we renovated and added density to existing property, we opened that property later this week and we've already pre leased 21% of the units there. So leasing velocity is good, and I would tell you, the one that's been a little bit slower than normal, we tend to lease up in 12 months or less on average; but Fiori, our property in Vitruvian Park, which right around month 18 right now is 92% leased. So we're about to hit stabilized occupancy there.

Okay. And then I know you guys like to quote these projects in relation to where the yield is versus market cap rates but it'd be pretty helpful to get a sense for where you think the absolute stabilized yield is for this pipeline right now. And then if you could talk about then as well, since it sounds like the new starts are to mostly be in California, what the yield would be on those projects? Thanks.

Nick, it's Harry Alcock. The yield for the pipeline, the 180 basis points are about 6.1%. And then the future projects in California again were -- we'll announce those once we start the project but I think you can assume something relatively similar.

Okay. Thanks, guys.

Rich Anderson, Mizuho.

So, Tom, I don't know if you mentioned this but how did you, I got on a little bit late, how do you feel about floating rate debt at 17% and maturing debt in 2015 at 14%? Are you comfortable in that prospect of higher interest rates, or if you could comment on your strategy?

Well, let me hit the floating rate debt first, I didn't hear the second part. Floating rate debt if we're somewhere between, call it 10% to 20%, or even 15% to 20%, we're comfortable in that range. Especially in multi family where you've got a lot of resets or quicker resets on rents so there's some correlation in that respect. So we are comfortable at that range. What was the second part of your question?

Maturing debt in 2015?

Yes, maturing debt -- again, we're comfortable with the -- we've got about $500 million maturing it's $300 million or so in January and then the balance of it, I think, is in December. It comes in at a rate of somewhere around 5.6%.

Okay.

And as that refinances, probably comes in at a lower rate, so it's a pick up in our model depending on how that plays out. But yes, we're comfortable with that.

Thank you. And then the second question, I don't know if this was brought up either, but Tom Toomey, in the beginning said you're doing a better job in dispositions and getting a better rate than you thought going in. Can you quantify what that is and what the driving factors are you think are behind that lower or that better cap rate, disposition cap rate?

Rich, this is Harry, a couple things. One, demand for these assets has been very strong as I mentioned earlier in the call. And there really, given the demand and the competitive environment for these assets, there simply are no retrades which or there haven't been in our experience this year, which candidly, is a bit unusual. Remember, we exposed a number of assets to the market. The mix of assets sometimes impacts cap rates, but primarily it's just a very favorable sales environment and an environment in which interest rates, if you recall, have actually floated down which also impacts pricing.

I guess my question is you mentioned New York and San Francisco starting to see some condo pricing but that has not played a role yet in that number. Is that correct?

Correct. There's no condo interest whatsoever for the assets that we're marketing.

Okay, great. Okay, thank you very much.

(Operator Instructions)

Derek Bower, ISI Group.

Jerry, I had a follow up on the call center. Do you think this program can maintain that 40% to 50% lease per month hit rate that it seems to be having this year? And if so, do you think that means occupancy can normalize in the mid-96% range going forward?

I don't see why it cannot continue at that rate, Derek. The only thing I can see changing it, but I think we would still be able to keep that occupancy, is if my people on the ground maybe keep these leads alive a little bit longer. I think they have a lot of things to work on and sometimes you do just have some traffic that falls off the radar that these people pick up.

But yes, I think the new norm, especially given the portfolio that UDR has today and the markets it has today and the quality it has today, it's probably going to continue to run 50 basis points higher than we did a year ago. I think this is a new norm.

And the good thing, I would tell you, because of the boost in occupancy that that team gave us, is it's put us in a position about three months earlier to have very high occupancy. This morning when I was looking at my dashboard I'm at 96%, between at 96.8% and 96.9% physical occupancy and my same-store portfolio. When you have that kind of occupancy this time of the year gives you the ability to push rate a little bit harder.

I'll give you a quick example. I looked back last year and when I looked at my June market rents and my July market rents, I had started decelerating by about $10 per unit from June to July last year. When I look at June to July this year, my market rents per unit accelerated $10. That's about a $20 or a little over probably 120 basis point increase in when I'm going to be able to push rents at. And we're willing to let occupancy slide down a bit and still be in that mid-96% level, to set ourselves up for higher rent growth today than we normally would have been able to get. And the reason we did that is we think it's going to help propel us in, not just fourth quarter, but it sets us up at least for the first two to three quarters of 2015 with strong revenue growth.

Got it. And are there any markets where it sounds like you might be more aggressive with rate later this year, are there any concentration in your portfolio?

I think San Francisco and Seattle and Portland, the Pacific Northwest as you can see on page 20 of our supplement, we're already getting very high single-digit new lease rate growth. I'll tell you what's been encouraging, I had in my prepared remarks and a lot of people have asked me about Orange County. Because Orange County when you look at my supplement, we had new lease rate growth that was a negative 0.5% in the quarter. And our revenue growth was up 4%, which was pretty disappointing in my expectation, as it's going to be at the low end of my peers.

What we were doing there was fixing the Coronados where we had really catered over the last 5 to 10 years to a lot of short-term leases. What that created was a lumpiness in my revenue stream where I would peak in the spring and summer but then fall down drastically in 4Q and 1Q. We've been pushing more for longer term leases which hurt our occupancy a bit and also took down our new lease rate growth. We think it's going to pay dividends, not just in the end of this year but also going into 2015.

But what's really encouraging is when I do go back and I look at how much my market rents have gone up from June to July, they've gone up $25 per unit in just the last month, which is over 2%. And my occupancy today in Orange County is 95.9%. So I think it was a painful strategy that we had to go through in the first half of the year to restabilize Orange County. But I think it really will set us up for a good end of this year and a strong 2015.

Great, I appreciate all the color. And then the last one, on Fiori, obviously, it seems like velocity has picked up there on leasing. I know you guys cut rates back in April, have you had a cut rate again over the last three or four months, or is that from the seasonality and you cut rate once and now you're starting to see a pick up in demand? Thanks.

No, it was really more of a one-time cut. Effective rates today are about $1.80. That's about where it was when we do the original cut. What you're really seeing is a normal seasonal pick up that occurs in Dallas. The last two to three months we've been grossing 40 to 45 leases per month there and netting somewhere in the 35 range. Dallas is a tough market, especially at the A level. You've got new supply that's coming in both (inaudible) as well as the Plano area. So we're getting squeezed on both sides as we introduce this new price point in that Addison market.

One thing we're encouraged by, and this won't help us all at once but we think it will over time, is the Toyota headquarters building that moved from Torrance, California is up in Plano, which is probably only a 10 or 15 minute drive from Fiori, and we think we're going to be able to capture some residents from that relocation.

Great. Thanks again.

Dave Bragg, Green Street Advisors.

Jerry, did you say earlier that the DC is improving modestly? And if so, can you elaborate on that?

Yes, DC is stable. I wouldn't say it's necessarily improving and I think we're really going to have challenges over the next 9 to 12 months as new supply continues to come and job growth continues to be moderate. We're doing -- we've been stable. We had 1.3% revenue growth in 1Q. It was 1.2% growth in 2Q.

What I can tell you is the differential that we have experienced between our best performers and worse performers has tightened. In the first quarter, my best performing property was a deal out in Fairfax County. It was a B quality asset that had 5% revenue growth. And my worst performer was a stabilized property in the U Street corridor that's right across the street from our Capital View development and that one had about a negative 4% revenue growth.

This quarter, my best performing property was that same Fairfax County property and it had positive revenue growth of 3%. But my worst performing property was a property inside the beltway on Columbia Pike that was at negative 2%. So it still is a sub market by sub market deal, but I think DC is going to continue to be a struggling market for another 9 to 12 months.

All right, thanks for that color. And also, I think you said earlier that you expect a pause in the deceleration of revenue growth to occur in the first quarter of 2015, is that right?

Yes.

And what type of economic environment does that assume? Does that assume a continuation of the type of job growth that we've seen so far this year?

Yes, I think if things continue as they are today, Dave, adding 200,000, 250,000 jobs a month, when the supply continues to come where we're seeing from (inaudible) that it's going to hit our sub markets. We're comfortable that things next year probably are going to look similar to what they are right now and the deceleration will probably continue through the back half of this year for us. That is going to be predominantly due to us not being able to pick up any gains in occupancy because we hit high occupancy late last year and today we're trying to push rents. But we think it's really a continuation of what we're seeing today.

All right, thanks. And two more quick ones for Tom Herzog. First, Tom, attachment 5 there's a really high margin is implied in your stabilized non-mature pool. I realize that's small but wanted to ask you what's driving that.

Dave, let me look at the details of that and we can take that offline. Let me call you back after the call. There's nothing unusual in there but I do want to take a look at that and answer it after the call.

Sure thing. Okay and the last one for you is can you please explain your cash flow cap rate methodology, walk us through management fee, CapEx, what NOI we're talking about, and is that consistent across the Florida sales and the Virginia sales?

Yes, we're taking a full cash flow cap rate approach. We take 2014 NOI, we're using real CapEx, not the $300 to 500 version of it, so $1200 a door. And then a 3% management fee, so very much of a straight on cash flow cap rate approach.

All right. And that's consistent across all of the dispositions you talked about today Virginia, Florida, anything else. Okay, thank you.

Michael Salinsky, RBC Capital Markets.

Jerry, did you actually give what the July lease number was -- new lease number was and then also you broke it out between A and B, could you talk about what you're seeing urban versus some of the suburban assets there?

Sure, I'll give you the first one. July new lease rate growth in total was 4.1%, which is up a bit from May and June. Both May and June were 4% so it's continued to accelerate. And as we look out into the month of August, we have visibility of what market rents are on those units that either have not been leased yet or have been pre-leased. I would expect August to be roughly in that range too. And then renewals in the month of July came down a bit, they were 5.1%. And I would expect renewals over the next quarter or so to be in the low 5.0%s.

Okay.

And then you asked about the urban, suburban. We typically track it more A, B and things like that. I will tell you, we look at urban and suburban, I'm going to let Tom Toomey address this in a second, but when you do look at the growth rates, urban A's and suburban A's for us, they're both right about 4.1%. This is more on the revenue growth for the second quarter, not new lease rate growth. And then our best performing segment was really the suburban B's which came in in the 4.7% range.

Great.

And urban (inaudible) point 2. But I'm going to let Tom talk a minute about how we look at urban and suburban and our view on that.

Yes. Mike, one thing we found and we keep reading through everybody's research is there's lines between urban and suburban seem to be blurred in our view, because you're seeing a lot of these cities are really connecting both of those areas of their communities through enhancements in their transportation systems and jobs are moving around that transportation hubs. And so it's hard for us, even when we look at particular cities, to draw a distinction between urban product and suburban product.

What we're really more focused on as a Company and where we allocate our capital is really trying to get more focused on our sub markets and where we think rent to income levels are supported, supply constraints might be greater, and the prospects out into the future.

And so you take Manhattan, which we've stepped into probably four years ago. We really looked at the market and said we wanted to be a B product in Manhattan and then we thought over the long term that's where the greatest potential for either redevelopments or steady cash flow growth over time. And always felt that an A in Manhattan would be a tough deal because that's a renter by unique standards and would be very frugal in terms of where they always move to the next new great deal.

And you contrast that where Bella Terra in Huntington Beach, the sub market to us was really attractive because nothing had been built in 20 years. And it's very clear after putting up a 500 unit community and Jerry leases it practically out in eight months; that that was a good identified opportunity.

And so you'll find us going forward, and probably doing a better job of communicating it, is trying to articulate clearly why we think the sub markets that we're building in and the product that we'll have in that market, where it's positioned, and why we think over the long term it creates greater value. And so we're not trying to marry ourself to an A product a B product or an urban or suburban. We're really trying to throw a very careful dart around a particular sub market and a particular product that we think over the long term really generates the right returns. And I think that's what we are challenged to do and communicate in the future, and you'll see us do a better job of that.

All right, appreciate the color. As my follow up then, probably for either Tom there. Given the pricing we're seeing in the market, we've seen a decent amount of compression in some of the B markets there, some of the B or secondary markets and also given the appreciation in shares today. Realize you guys put out the three-year plan, but is there any thought to potentially accelerating that, especially with $553 million of debt maturing. Is there any thought to accelerate some of that deleveraging? I know you had set out a gradual leveraging plan but in light of the current capital environment.

Tom will add some, but I would tell you this. I think asset pricing has some room to run. The capital is stacked pretty darn deep. Cash flows are growing. Availability for leverage is still out in the marketplace at very attractive prices. So we think there's some room to run in these asset prices and are by no measure calling it top on pricing.

So I think we're going to continue to just expose assets, see where pricing comes in. If we feel like we're reaching a topping mechanism, we'll certainly revisit our strategy and our plan.

Yes. I think Tom covered it. As it currently stands, Mike, we still do think that matching the sales of non-core against development is the right approach. But certainly as conditions change, we'll revisit that. But that's currently where we stand.

Thank you.

Jeff Donnelly, Wells Fargo.

Jerry, thanks for your remarks on the DC market. I know that you think there's going to be more choppiness there for another 9 to 12 months, but are there sub markets within DC that you feel might have already seen the worst?

Wow, it's hard to tell. There's still more supply coming. I can tell you, I'm a little encouraged for example at U Street. Again, we have Capital View and a property called View 14 that is in my same-store pool, that when I compare it to last year it's a bit better. I can also tell you it's interesting when I look at DC, and I look at market rents compared to what they were a year ago. We're about within 1% of where they were a year ago and they're actually 4% higher than they were at year end.

So there are some sub markets that I think have been fairly stable. When you look out at Woodbridge. When you look at some of our properties in the district around Logan Circle and places like that, things feel fairly stable. But again, wherever the new supply is going to continue to come out of the ground, I think you're still in for tough sledding.

Any discernible change in how buyers in that market are underwriting assets there?

This is Harry. The truth is there's still a lot of demand for apartments in the good DC locations and pricing of recent trades reflect that. Buyers inevitably are going to contemplate that the next year or two is going to be call it flat, in terms of revenue growth. But the good product still has plenty of buyer demand.

I guess maybe switching to Boston if I could, Jerry, how are you thinking about Boston as supply comes into the market in the next two to three years? And how'd you compare that outlook for the market compared to what we've already seen in DC; do you think it's going to be a similar impact or better or worse?

Yes, I'll start and then I'll probably throw it over to Harry since he looks more out in the future at the pipeline. I think what you're going to see is this first wave of new supply and what we show is it's going to grow by about 7000 units in 2014. Quite a bit in the CBD. That's about a 1.7% increase in supply.

And we felt over the last couple of years that the downtown area was actually slightly under supplied and could absorb quite a bit. And we're actually seeing that, we're holding up fairly well throughout Boston. Even our one property in the Back Bay, I think, had revenue growth of about 5%. So, it's holding up.

I think it's definitely going to get choppy in some of the sub markets as they come. We have a property that we're pretty excited about down in the Seaport area. We love our location. It's going to be delivering and later in the first quarter. But there's going to be other supply that comes in approximate to and it's probably going to be in some -- to some degree competitive war with some of the other new product coming.

But we like the job market in Boston, whether it's education, tech, financial. We think Boston could probably act more like a Seattle, which had a lot of new supply, as well as an Austin that had in lot of new supply, because you have high-quality jobs that are there to absorb it.

And I think that's one of the big differences when you compare to DC, is you had a situation where DC had excessive new supply where you're adding 3% to 4% over the last couple of years of new product. And you had job growth that was basically zero. So, I look at it with that kind of a difference. So we're a little more optimistic about Boston being more similar to a Seattle and Austin than it is to a DC. But Harry, anything you'd add?

I think you hit the main point is that there's a lot of good jobs being created in Boston whereas in DC job growth has largely flattened out. If you just look at the jobs coming into the sub market adjacent to our Pier 4 project and the Seaport, that we'll begin delivering early next year, there's been over 2 million square feet of office that has either been delivered in the last year or is under construction. 70% or 75% of that is already leased.

You have companies like Vertex relocating into the Seaport, taking 1.1 million square feet, which is 3000 or 4000 jobs. Good one, Proctor is taking 400,000 square feet in an office building right next to our Pier 4 project. So you do have an unusual amount of job growth that we expect will fuel demand for the apartments that are being delivered over the next couple of years.

Great. Thanks, guys.

William [Cuho], Cowen and Company.

A point of clarification. As I look at the full-year guidance, it looked like at the mid point revenue growth was revised up 12 bps and occupancy was revised up 50 basis points. Does that imply that rent growth expectations came down a bit?

No, not really, this is Jerry. The occupancy increase in guidance was really much more related to how well we've done in the first half of this year. We were able to hit 96.8% this quarter. I think year to date occupancy is 96.5%. Our expectation was really that the first half of the year we would probably be in the low 96%s.

We weren't as confident at that time that this outbound call center would be so successful. So it's really a continuation of the same occupancy we've had. And I would tell you, increase in occupancy that we had in the first half of the year, really was able to help fuel the revenue growth; because we actually came in a little bit under in the first half of this year in rent growth based on our original plan. So, basically what I'm saying, I think occupancy continues roughly where it is and you probably see a slight deceleration or a flatness, if you will, in rent growth.

Okay. And then secondly, again, with the guide G&A went up about $1 million at the midpoint and it looked like $0.6 million of that was from the long-term incentive plan. Is there something else making up that difference or is it more a rounding thing?

We had a couple things going on in G&A. There was about $1 million of timing in the first half. We just had an acceleration of about $1 million from what we would have in the second half. The second thing is we did bump the guidance up at the mid point about [$1 million]. You're correct part of this is [delta] based on performance. The other small amount is just miscellaneous other items.

Okay, great. Thanks.

Nick Yulico, UBS.

I was actually -- a follow up on the G&A question. Can you just quantify was -- if it is going up by whatever it was, [$1.1 million] at the midpoint, was the savings in the same-store property operating expenses an offset to that?

Well no, the G&A up by $1 million has no connection really with the same-store operating expenses at all. It's two totally separate things.

Okay, no I'm still a bit confused as to the same-store NOI is better. The bond deal you got execution like you thought you would. The asset sales sound like have been a little better. The G&A is an offset to that and seems like again your FFO going up $0.01 and your adjusted FFO it seems like there would be more of a benefit from how the same-store did.

Yes. Well, we said a couple things. So same-store has improved, we have a little bit better results on the development as far as timing, the lease up on that. G&A is an offset. We did have some timing on the interest expense where we've got the bond offering that occurred right in the June time frame. We've got some timing on the sales. So when you factor all those components in that's what's driving the $0.01 improvement.

All right. Thanks guys.

And this will conclude our question-and-answer session for today. I'll turn the call back over to Tom Toomey for closing remarks.

Great. And thank you, all of you, for your time and the comprehensive dialogue on the call. In summary, it was a very good quarter. We started out that way. We feel great about the quarter. It's a great time to be in the apartment business again.

And lastly, I'd say we're very focused on our plan and in particular about building a strong 2015. I feel like we've got a lot of the right momentum, a lot of right operating strategies, execution on the development activities, the financing front, so we feel really great about the business and are looking forward to getting this year behind us and getting into 2015. With that, we'll sign off and wish you to have a good happy summer.

And ladies and gentlemen, that does conclude your conference for today. We do thank you for your participation.