UDR Inc (UDR) 2016 Q3 法說會逐字稿

Good day and welcome UDR's third-quarter 2016 earnings call.

As a reminder, today's conference is been recorded.

At this time, I would like to turn the conference over to Chris Van Ens, Vice President. Please go ahead, sir.

Welcome to UDR's third-quarter 2016 financial results conference call. Our third-quarter press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir.udr.com. In the supplement, we've 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, the 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 yesterday'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 it will be available after the call for your questions that did not get answered. 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 third-quarter conference call. On the call with me today are Jerry Davis, Chief Operating Officer and Shawn Johnston, Interim Principal Financial 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.

UDR reported another strong quarter of results, highlighted by solid, same-store and cash flow growth, strong leasing velocities and rental rates in our development communities, several strategic transactions and continued improvement of our balance sheet. Jerry and Shawn will provide additional details in their prepared remarks.

As we near the end of 2016, I'd like to take a couple minutes to discuss our strategic plan and how we have executed on it. As you know, consistently generating 6% to 10% cash flow per share growth has been a cornerstone of our plan since it was first published in 2013. In 2016, we expect to again achieve that goal with full-year AFFO per share growth of approximately 8% at the midpoint of our guidance.

Next, a deeper look into how the primary drivers of our cash flow growth have performed. First, operations. We expect that our full-year 2016 same-store growth metrics will compare well on an absolute and relative basis in spite of the headwinds that New York, San Francisco and Los Angeles generated this year. We have successfully weathered this storm and continue to do so, partly because of our diversified portfolio, but much of our success stems from our operating platform. Starting with the team's ability to quickly adjust operating tactics to maximize revenue growth in a shifting market, as well as our consistent implementation of innovative technologies. I'm grateful for our team's hard work.

Next, capital allocations. We delivered $163 million of accretive development in 2016, and believe that our $937 million under-construction pipeline will be no different. Our development pipeline provides our shareholders with a strong risk-adjusted return on their capital and allows us to consistently refresh our portfolio via our self-funding model. Fully funding our development growth in a non-dilutive manner through retained cash flow and capital recycled from asset sales is a funding mechanism that we can employ year in and year out. Moving forward, we remain comfortable with this strategy.

Last, our balance sheet continues to improve. Our leverage metrics at the end of the third quarter were better than those originally envisioned for the year ended 2016. As we look into 2017, and without providing guidance, we remain confident in our ability to execute on our strategic plan. Currently, we are in the midst of building the 2017/2018 plan from the ground up. We see no need to change our strategies as they continue to work well as we move through this part of the business cycle. We will share the updated details of the plan with you on the fourth-quarter call.

In summary, while 2016 has presented challenges, we have successfully worked through them and will achieve the guidance provided at the beginning of the year as part of our strategic plan. Given the outlook for sound, intermediate and long-term multifamily fundamentals, we remain confident that adhering to our strategic plan's core principles will continue to help us drive strong cash flow growth for many years to come. With that, I will turn the call over to Jerry for additional comments on the quarter.

Thanks, Tom, good afternoon, everyone. We are pleased to announce another quarter of strong operating results. During the third quarter, year-over-year same-store revenue and NOI growth were 5.3% and 6.4% respectively. On the year-to-date basis, same-store revenue and NOI growth totaled 5.9% and 6.9% respectively.

During the third quarter, operating trends further normalized as compared to 2015, when the majority of markets were accelerating. Localized demand supply dynamics today are creating strength in some markets and weakness in others. Making up 45% of our NOI, strength was evident in Seattle, Orange County, the Monterey Peninsula, Boston and our Sun Belt markets, while New York City, the Bay Area and Los Angeles, which comprise 28% of our NOI, remain challenged due to concentrated new supply and concessions.

Overall, our highly diversified portfolio is defined by market mix, price point and location within markets, continued to perform well during the quarter. We expect we'll generate growth that compares favorably versus the multifamily group average over the foreseeable future.

Turning to operating tactics, as you know, driving great growth was our primary focus over the past two to three years. This approach was successful, largely as a result of the robust multifamily fundamentals present throughout the majority of our markets and evidenced by our cumulative same-store revenue growth of 16% between 2013 and 2015. As 2016 has progressed, diminished pricing power due to concentrated new supply caused us to reevaluate this tactic.

Towards the end of the second quarter, we made a change, pivoting our operating tactics to favor higher occupancy, overrate growth in markets that were more challenged by new supply. Higher occupancy in select markets prior to the seasonally slower forth and first quarters when few of our leases expire is a more prudent approach to maximizing revenue and cash flow growth in the current environment. This strategic shift bore fruit with third-quarter occupancy averaging 96.8%, a 20-basis-point sequential increase. We will operate the portfolio in the high 96% range, through at least the end of this year.

With regard to the prime leasing season, 2016 results were clearly not as robust as those realized in 2015, but still compared favorably versus historical standards. For the third quarter, portfolio-wide new lease and renewal growth totaled 2.7% and 5.6%. We continue to see minimal pressure from single-family competition with moveouts to home purchase totaling 13% during the third quarter.

A lack of affordability is also not meaningfully affecting us as portfolio-wide moveouts due to rent increases remained relatively constrained at 7%. Net bad debt remains at 0.1% of rents at levels consistent with that of third-quarter 2015.

Next, the forward expectations. Now, providing 2017 guidance, we're projecting a revenue earn-in of about 2% going into 2017, versus the 2.75% earn-in that was baked into the beginning of 2016. Directionally, we continue to expect deceleration in 2017 same-store growth metrics as elevated new supply is further absorbed in some of our higher rent markets.

With that being said, next year is still expected to look good when compared against our long-term, 15-year revenue growth average of about 3%. We will provide detailed 2017 guidance and update to our two-year strategic plan on our fourth-quarter call.

Now, moving on to the quarterly performance, our largest markets, which represent 72% of our total NOI. Metro DC which contributed 19% of our total NOI continues to incrementally improve. Job growth is gaining steam versus a couple of years ago, though new supply remains persistent in some in-field locations. We expect our highly diversified DC portfolio to see continuing improvement throughout 2017.

Orange County in Los Angeles contribute 16.5% of our total NOI. Orange County has been one of our strongest markets in 2016, primarily because our portfolio is concentrated west of the 405 freeway and has benefited from good job growth set against limited new supply. Conversely, Los Angeles has struggled this year due to significant new supply and excessive concessions hitting are highly concentrated Marina del Rey portfolio. This pressure is now subsiding, and we expect pricing power in LA to improve in 2017, and for Orange County to remain stable.

New York City makes up 12% of our total NOI, and it continues to struggle due to concentrated new supply in Midtown West as well as Brooklyn, and excessive concessions. Given the glut of building permits issued prior to 421a's expiring, we expect that driving meaningful growth in Manhattan will be problematic through at least 2018.

Like New York City, San Francisco, which contributes about 12% of our total NOI, continues to be negatively affected by supply, especially south of Market Street. Expected 2016 job growth of 2.9% still looks good versus long-term averages, but has decelerated from 2015's 4.5% growth rate. Our data providers indicate the supply pressures should subside in the city as we move into the second half 2017, at which time pricing power should improve.

Boston, which contributes 7% of our total NOI, has held up well, largely due to our suburban B exposure. On a relative basis, our Downtown and Back Bay communities have also outperformed, due primarily to their differentiated characteristics. Boston continues to look like a good market for us going forward.

Seattle contributed 6% of our total NOI and remains UDR's strongest core market on the West Coast. The MSA's relatively higher affordability, strong growth and well-paying jobs and urban renewal continue to attract educated, tech savvy residents. We expect Seattle will continue to put up good numbers moving forward, although we are keeping our eye on near-term Bellevue supply as that submarket further transforms.

Our secondary market such as Portland, Monterey Peninsula, Florida, Asheville and Austin comprise roughly 25% of our portfolio. Pricing power remains strong in the majority of these markets and continues to help offset the relative weakness in some of our higher rent, coastal locales. Moveouts to home purchase remain constrained and our expectation is that these markets have a long runway for growth due to continued favorable multifamily fundamentals.

Last, our development lease-ups continue to perform well, achieving rates above original expectations and with leasing velocities ahead of original forecast. Thus far in October, these trends have remained firm and our development pipeline remains highly accretive than the average value creation spread in excess of the top end of our targeted 150- to 200-basis-point range. Community-specific quarter-end lease-up statistics are available on attachment 9 or page 21 of our supplement.

Summing it up, we had another good quarter, proactively pivoted our strategy to maximize revenue growth, we remain positive on the outlook for multifamily fundamentals and our ability to execute throughout the remainder of 2016 and into 2017. With that, I'll turn it over to Shawn.

Thanks, Jerry. The topics I will cover today include our third-quarter results, a transactions update, a capital markets and balance sheet update, and our fourth-quarter and full-year guidance. Our third-quarter earnings results were at the mid to high end of our previously provided guidance. FFO, FFO as adjusted and AFFO per share were $0.46, $0.45 and $0.41, driven by solid same-store revenue expense and NOI group of 5.3%, 2.5% and 6.4% respectively.

Next, transactions. We are under contract to sell seven communities in Baltimore and one community in Dallas for $285 million. We expect to close these transactions in the fourth quarter at a cash flow cap rate of approximately 6% and a weighted average IRR of 13%.

We also completed a series of strategic transactions with MetLife that further simplified our joint venture. First, we completed a swap of our land interest in three development sites where we acquired MetLife's 95% interest in a land site located in Dublin, California, in exchange for our 5% weighted average ownership interest in two land sites located in Bellevue, Washington and Los Angeles, California. The Dublin site is within walking distance of the Bay Area BART line and provides the opportunity to develop a differentiated product in that submarket.

Next, UDR/MetLife joint venture sold 100% of Cirque, a high-rise committee located in Dallas to an unrelated third party for approximately $75 million at a cash flow cap rate in the mid [fours] and an IRR of 10%. Subsequent to quarter end, we also acquired MetLife's 50% ownership interest in Ashton, Bellevue and Ten20, two adjacent high rise communities located in Bellevue, Washington, for $68 million plus an assumption of $38 million of debt at a cash flow cap rate in the mid fours.

We know both of these assets well, they complement our other assets in the Bellevue submarket and we like the long-term prospects as more established tech companies continue to create a presence on the east side of Metro Seattle. After accounting for joint-venture refinancings, these MetLife transactions were net cash positive to the Company by approximately $14 million and reduced the size of the UDR/MetLife joint-venture by approximately 10% or $355 million.

Next, capital markets. During the third quarter we issued $300 million of 10-year unsecured notes, priced at 2.95%. $158 million of the proceeds were used to prepay 2017 debt maturities with an average interest rate of 5.61%. The majority of the remaining proceeds were used to pay down their revolver.

With a prepayment of the 2017 debt, next year's maturities now total only $71 million. Development will likely represent our largest use of capital in 2017. We will continue to self fund our accretive development pipeline via retained earnings and asset sales and will provide a detailed update of our 2017 sources and uses on the fourth-quarter call.

As a result of the unsecured offering, our weighted average maturities increased by nearly half a year to 5.3 years, and improved our near-term liquidity by approximately $140 million. At quarter end, our liquidity, as measured by cash and credit facility capacity, was $931 million. Our financial leverage on an undepreciated-cost basis was 33.5%, based on quarter-end market cap it was 24.4% and inclusive of joint ventures it was 29%. Our net debt to EBITDA was 5.3 times and inclusive of joint ventures was 6.4 times. All balance sheet metrics continue to track ahead of our strategic outlook.

I would now like to direct you to attachment 15 or page 28 of our supplement where we have updated our full-year guidance. We have tightened and increased our full-year 2016 FFO, FFO as adjusted and AFFO per share guidance ranges to $1.77 to $1.80, $1.78 to $1.80 and $1.62 to $1.64 respectively by increasing the bottom end of the range by $0.01. For same store our full-year 2016 guidance remains unchanged with revenue growth of 5.5% to 6%, expense growth of 3% to 3.5% and NOI growth of 6.5% to 7%. Average 2016 forecasted occupancy is unchanged at 96.6%.

Fourth quarter in 2016 FFO, FFO as adjusted and AFFO per share guidance is $0.44 to $0.46, $0.45 to $0.47 and $0.39 to $0.41 respectively. Next, we declared a quarterly common dividend of $0.29 in the third quarter, or $1.18 per share when annualized. This is 6% above 2015's level and represents a yield of approximately 3.3% as of quarter end.

Finally, a housekeeping item. We moved and consolidated our preferred equity investments and participating loan information and economics to a new attachment, 12B. All information that was previously provided for these investments is still available on the new attachment.

With that, I will open up the call for Q&A. Operator?

(Operator Instructions)

Nick Joseph, Citigroup.

Thanks. I appreciate the color on the expected 2% earn in for 2017. I'm just curious what was underwritten into the two-year strategic plan that you gave in February for revenue growth next year of $475 million to $525 million?

Nick, this is Jerry. When we build up the years, we don't always factor in a year or two out what we expect to have going in. If I have to think back to what it was, it was probably something in the 2.4%, 2.5% range. Typically you're going to earn in something close to half of what you're going to expect for the next year.

Thanks. And then, you outline the different MetLife transactions to simplify that structure going forward. When you think about the MetLife JV more strategically, what should our expectations be for that partnership going forward?

Nick, this is Toomey. We're always in a dialogue with Met about opportunities, our view, I mean the portfolio performance, where we think markets are going. So, overall, I'd say the good relationship, great relationship. And we'll continue in the future.

We like the returns that we're getting. We like the opportunities that it presents us and Met makes a great partner.

Thanks. And just finally, the same-store pool changed with the sale from the Baltimore portfolio and the redevelopment in Dallas. What's the impact from that change of same-store pool on same-store revenue for 2016?

Yes, Nick. It's Jerry. For the Baltimore pool it somewhere between 10 basis points and 15 basis points. I would tell you that when we set guidance at the beginning of the year, we anticipated there would be the Baltimore assets that we're sold - it really had no effect on our guidance range.

And then the asset in Dallas that we pulled out to do a redev, that's a 17-year old deal that we started the redevelopment late in the third quarter and it should last through good portion of next year. That was probably more or like 3 basis points.

Thanks.

Sure.

And our next question comes from Jordan Sadler with KeyBanc. Please go ahead.

Hey, good morning. It's Austin Wurschmidt here with Jordan. Just curious if you could you talk a little bit about what you're seeing in LA, Jerry you talked previously about some new lease ups imply this that we're causing some issue that you expected to subside sometime around the fourth quarter. And it look like new lease rates snapback in LA since the mid-quarter update. Can you just give a little color on the Marina del Rey portfolio?

Yes. And you're right. That is 90% of our same-store pool is in Marina del Rey and it competes with Playa Vista. During the first - call it seven to nine months of this year, we were competing against that new supply that was offering up to two months free rent.

Luckily, the properties in that submarket that we were battling with have come very close to heading stabilized occupancies pushing 90%. We've seen concession levels late in the third quarter start to come back down to one-month free.

And what's really encouraging is like you said we had new lease rate growth in the third quarter 0.1% and when I look at where we are at in Los Angeles so far in the month of October, it's over 3%. So we are starting to emerge of our problem area in Los Angeles.

And then looking into supply and sort of your submarkets next year, what's the expectation, any other potential supply headwinds that you see?

You know probably the place you see new supply we don't have any same-store assets we have the MetLife asset in Downtown, Los Angeles. You're going to see a continuation of new supply being delivered as well as leased-up. So I think that's going to be difficult.

I think you're going to see a continuation of some supply pressures in SoMa, at least through the first quarter, maybe second quarter of 2017. Downtown, Seattle continues to battle new supply, we do not have any same-store assets there, but we do have two different JV properties there.

And the other one that I have been keeping my eye on, but we really haven't seen a in downturn in fundamentals has been Bellevue, Washington. We're very high on Bellevue, even though, there's probably five or six properties delivering there.

Bellevue, as you know, we just purchased the other 50% of two assets from MetLife there. And you've got jobs that are coming in there.

Amazon is creating a mini campus if you will over on the eastside of Lake Washington, where they just sign the lease for a 350,000 square foot office space that - our rumor has it Apple was looking at the same building and it's continuing to look in Bellevue. So, Bellevue, I think, is going to have job growth that should absorb the new supply, but we are watching the new supply there.

And other than that, obviously, when you get up to New York City, where we've been battling not direct competition in a submarket, but throughout Manhattan, we're going to continue to face supply headwinds throughout our Manhattan portfolio all through next year probably well into 2018.

Thanks for the detail. I know that the southeast and southwest are a little smaller piece of the portfolio, but seem to have held up fairly well here, even into the third quarter. What sort of your outlook on the supply side for those markets?

Yes. We see - again, we used predominantly Axiometrics for this. But we see Tampa delivering supplies in 2016 of about 4,500 units, next year, it's going to be about 4,000; Orlando, it's going to be about 5,500 to 6,000 each of the two years.

Nashville, where most of the new supplies hit the Downtown, urban core is going to slow from 9,000 units to 6,000 units next year. And then Orange County is probably going to see a tick up as some deliveries have slipped from 2016 into 2017, it's going to go from about 4,000 units to about 6,500 units.

A lot of those are concentrated in blue line, one deal that we'll start leasing up in - or occupying to the next month or so, is going to compete against that new supply. But a good portion of our product in Orange County is more B product and it's west to the 405, and it's held up pretty well, especially our Costa Mesa and Huntington Beach assets.

Okay. Thank you.

Sure.

And we'll go next to Juan Sanabria with Bank of America. Please go ahead.

Hi, good afternoon. I was just hoping, you could speak a little bit about to difference in performance of your A and B and maybe if you could talk specifically about.

Juan, you still there?

Yes.

You cut out on us, second half of that question.

Sorry, if you could just talk a little bit about the performance between the A and the B assets in your portfolio maybe this is occurred in New York and San Francisco?

Sure. I guess, on a national basis, I would say that, B's continue to outperform, A's probably by about 100 - 2,550 basis points. But it does definitely vary market by market, in New York. Most of our portfolio is B, especially in the same-store.

But our B's today, when you look at same-store as well as our MetLife property, our B's are coming in at about 3.4% for the quarter, and our A's are at about 4.3%. Our Chelsea property is also included in that 4.3%. So fairly type, you're seeing concessions and pricing issues affect both A's and B's as people in B's at times now can step up to A's.

San Francisco?

San Francisco, and again, ours is San Francisco and San Jose combined interestingly for the quarter, they were fairly even. And again it's the same type of situation where B renters when you - I have an A property down the street that's offering 1.5 months to two months free. Its priced probably on an effective basis just above what you're paying into B. So you can pay a little bit more into the step up and quality.

Okay, great. Thank you.

Jerry Davis Sure.

And then if you can just speak a little bit to supply expectations across some of the Sun Belt market. Do you see kind of more supply heading to those, kind of suburban Sun Belt markets versus kind of the urban coastal markets? Or how do you see that trend playing out as we look forward sort of to 12 months to 18 months?

Yes. As we - again actually or recently revise there a supply data from what we were seeing in two to three months ago and now 2016, 2017 in total are roughly even as about 360,000 to 370,000 multifamily homes.

And when you look at individual markets, there is not a whole lot of differentiation I gave the numbers on the prior question. But basically the Florida markets are roughly flat between 2016 and 2017. Nashville is going to come down about 3,000 homes.

And then like I said earlier, you're going to see a bit of a tick up in Orange County, you're going to see Boston stay roughly flat, Dallas should stay roughly flat, Austin is going to see a reduction of about 4,000 homes from 2016. So you're going to hopefully give a little bit of easing in that job growth continues to be strong in Austin, you should see a pick up.

Thank you very much.

Sure.

And we'll go next to Drew Babin with Robert W. Baird & Company. Please go ahead.

Thanks for taking my question. First question is on West Coast JV assets, it's really closer to time window where you would have the option of purchasing those, I was curious as to pay the probability that you would do so and be aware NOI yields maybe on the option pricing relative to 6.5% preferred return requirement you have?

Drew, this is Harry Alcock. First, three of the assets are in lease up and they have all leased up very well. The first asset in Seattle was stabilized. The next two in Anaheim and second Seattle asset again leased up very well.

Rates that are at or above our original expectation I think when we talked about this, we thought that the all in sort of return on costs in these assets would be somewhere in the neighborhood of 5%. We don't have anything that changes our view on that and again as we look at the option windows that began opening up next year.

We'll make the determination as to which assets we want to buy and which assets we want to sell. But again the first one would be the two Seattle assets and the Anaheim asset. First half of the year will make that determination.

And as you go forward into next year in 2018, in terms of acquisitions that makes sense for UDR, it's kind of the main research priority going to be these JV assets versus going out and kind of looking at what's become a pretty frothy market in terms of the asset pricing?

Yes. Well, I think as you think about how we're going to deploy capital next year. Development is going to continue to be sort of our preferred means to deploy capital.

Second between the West Coast JV assets and against Steele Creek, we have option window that opens next year, we'll make a determination as to which of those assets we want to buy and which we want to sell. And I think you're right in that regard.

That's helpful. And then one more question on Boston. Well it's sold on strong year-to-date that was bit of deceleration in 3Q on some of the pricing given kind of the exposure, the suburban exposure there and most of the supplies being urban, is there anything going on there or is that just kind of a little pick up and what should be a pretty stable market going forward?

I think - it's Jerry, it's predominantly a hick up. We did - we saw a bit of a back up in occupancy throughout that portfolio and there are four assets in our same-store pool, two are up in the B assets in the north end, those continued to do well.

Our Downtown Back Bay property probably had revenue growth in the 2.5% range. So it definitely is started to feel more of the competition from urban supply.

And then we also have one of our same-store assets is down in the south and in range - it's been competing against new supply, it's being popping up in Quincy. So the north end continue and hold up well Downtown felt some supply pressures as did the south end, but I think they'll continue to do pretty well.

Great. That's helpful. Thank you very much.

Thank you. Our next question is from John Kim with BMO Capital Markets. Please go ahead.

Thank you. One of your competitors today recently increased expense guidance you've been able to maintain expense further to moderate level. But I was wondering if there are any components to expenses that you're feeling outward pressure?

Yes. Real estate taxes for sure have been given us pressure for the - really the last year. So, you've got the Sun Belt assets had typically been seen real estate taxes go up high single-digit.

That's really a function of the NOI growth, which taken the valuations up. Similarly, Seattle has felt that kind of pressure, and then because of our 421 abatement burn-offs we're going to feel it there to. We're always watching personnel cost and there is a lot of demand for the quality people that we hire especially in high new supply areas.

Fortunately for the quarter-end, year-to-date, we've kept that growth at 1.1%, and we did it really because we've realized quite a few efficiencies over the last year or two at our sites staffs that have allowed us this year to reduce staffing levels by 1.5% or so. And that's through things like our inside sales group who assist in renewals and leasing.

And secondly, we've deployed about a 70-package lockers out into the field that take the burden of packaged handling of our site people, so that they can spend more time on sales and service. And we've able to turn that in some headcount savings. But, I'd say the biggest expense pressure continues to be real estate taxes, as the valuations for real estate continue to go up.

Okay. And at the same time, you've kept turnover relatively stable versus last year despite new supply really picking up. Can you just elaborate on what you've done strategically to address with the market where you'd be seeing lot of the supply pressure?

Yes. Well, we probably two things, one is earlier this year based on the success we'd had again with its inside sales team that helped us on new leases. We created a department of a few people that really assist our people on renewal.

So they call everybody that hasn't made a decision to renew or give notice yet, it's our renewal offer has been out there for a while. And try to answer any questions to prompt them to renew more quickly. We ask them as a secondary source to go out to people, but have given notice to try to convince them to stay and sometimes this may result in slight negotiation on renewal rates.

I think those are the biggest things, I think, we've obviously seen the renewal increase is come from last year they were north of 7%. Right now they are in the mid-5%. So there is not quite as much pressure.

But, I think we've got a focus on service, and a focus on sales and I think doing things like again putting these package lockers in. And we don't look at it just the savings to our site times, we see this in the amenity that people can self serve 24/7, we're always looking for opportunities to provide our residence with more, what they're looking for.

I may have missed this, but - what were the new renewal leases trending so far this month?

The month October new is at 1.1%, and renewals so far in October at 5.3%.

Okay, great. Thank you.

Sure.

And our next question is from Alexander Goldfarb with Sandler O'Neill. Please go ahead.

Yes. Good morning out there. Jerry, just following along that, that John's questions. It sounds like, you guys have been pretty proactive on the portfolio this year, as well as budgeting guidance that you're able to maintain while peers have revised down.

So, as you look at your guidance for next year, back in June when we met you guys expressed confidence that you would still be on track for your 2017, but earlier in this call, you guys said that you'll address 2017 later. So just looking at your multi-year plan where you are now it would see you're still on track to hit 2017, is that fair. Or there are some things that are coming up that you think could cause you guys to deviate from that?

Yes, Alex, as I indicated in my prepared remarks so that provided 2017 guidance. We do expect same-store growth to continue to decelerate in 2017 on a year-over-year basis.

And we're currently projecting as I said earlier, earn in of about 2% compared to 2.75% that was based in the beginning of 2016. As a result, we see it unlikely that we would be able to achieve the lower end of the 4.75% to 5% in quarter 2017 same-store revenue growth range that we originally provided in our 2016, 2017 two-year plan that was published earlier this year.

With that time, the operating environment and some of our higher rent coastal markets was much more accommodating, when we originally provided the range and that next year's top line growth, is still expected to compare favorably against our long-term revenue growth of about 3%. That being said, we're going to give more detailed 2017 guidance and our update to the two-year strategic plan on our fourth quarter call.

Okay. But it is fair to say because back in June, you guys expressed confidence to still meet. It is that your range this year was wide enough to accommodate or did the market further decelerate post June-May REIT that's caused your revise, think that you won't even that the bottom end would be lower?

I think there has continued to be slowing especially in New York and San Francisco throughout the summer months. That made it more clear to us that - again that 4.75% is probably not the card.

Okay. And then, this is a question, maybe - but Toomey or Warren wants to take it. But on the MetLife JV, the simplification it's going on. Is any of that related to MetLife's overall business model where they are breaking down parts of their businesses and you expect more of the MetLife JV to unwind or were these totally independent of what Met is doing corporately and therefore we should still see you guys maintaining the relationship with Met?

Alex, this is Tom. With respect to MET, and you've seen it every year, that we've been in this relationship, for the last six. We've always had some degree of some trade going on throughout the life of this joint venture and I would probably see us continuing that same pattern in the future. We see no impact from what's going on at Met at Corporate to the real estate appetite, views of the world or their capital availability or deployment of capital.

So, I think we'll discontinued to have these dialogue that we do with a great partner at future opportunities that help us advance UDR and help them advance their capital deployment. So, I don't see any change to that. I think it was just one of those years where we decided to sell an asset, buy two shrink land inventory and I like the side of the trade that we ended up on.

Okay. And did this take care of your 5% stakes that you had with Met? Did this take care of them all or there's still more of those?

Yes

Okay.

Okay, basically down to land inventory with them is through the end.

Okay. Thank you, Tom.

Thank you. We'll go next to Rich Anderson with Mizuho Securities.

Thanks, good morning. So, Jerry, it doesn't sound like you're kind of dangerously close to going negative in any market either in next year or the year after not looking for guidance, but clear residential did suggest that New York is probably going to go negative for them next year. Do you - just to get it on the record if we can, do you feel like anything is going that self in the next couple of years, or do you still think you will above the Mendoza line or whatever?

Yes. I don't see that at this point. There is differences in our portfolio mix, especially in New York with some of our peers, again remember we are more of a B operator there, we don't have anything in places like Brooklyn, we don't have any specific - any properties that are directly in Midtown West. So while we are affected and it will tamper our ability to really pushed rate, I don't see us going negative anywhere.

Okay. And then Tom, you mentioned the 6% to 10% cash flow per share growth kind of strategy, obviously that's not really a trend number or at trend or kind of average number over the course of many, many years. What do you think - why you're not going to give the outlook for 2017.

But what do you think the - sort of the average number would be 6% to 10% is a premium growth rate. Do you think that the number for bottom line AFFO growth is significantly below that or what's your view using your history as a guide?

Well, it's a long history, Rich, and timeless this question. For the last three years make it four. We had three years at 10%, we had this year looks like an 8% and as we're looking now towards the future.

I think in a stable supply demand demographic that we're in a phase, its probably in the 6% to 8% kind of range, lot of it would take to get below that fix, I think is a recession and the depth and in the nature of that. I'm not calling for one, but I think that has been the my historical pattern is when the country goes into recession, its where is our exposure to it, how deepened of our portfolio do we have in those particular areas or industry exposure.

Hard to forecast that element of it, but what we've trying to do is build the company that can stay in that 6% to 10% through most cycles and I think we've done that. And I think we're going to continue to in the future and when you look at the next strategic plan, you're going to see a lot of the same strategies that we've been executing on in last four years. Very focused on capital deployment, operations and continued balance sheet improvement.

Okay. And I hope Chris doesn't get mad at me because he is way bigger. I want one more question. The self funding strategy hinges a lot of on dispositions, decelerating fundamental.

Do you see any risk that people buying public of multifamily real estate might make it more difficult for that self funding strategy to stay intact over the next couple of years?

Rich, this is Harry. I think the short answer is no. What I can tell you is that there are continues to be plenty of liquidity in the market that there is still key debt available, there's plenty of buyers, although buyer pools are somewhat shallower. What you could see is that buyers continue to underwrite lower growth rates that cap rates could increase a bit.

Remember you still have solid fundamentals in most of the markets, so that even if cap rates increase a little bit and NOI should continue to increase. So there's no obvious impact to absolute value. But, there's the big point is that there is avery liquid market, if you look at 2016, transaction volume, it's still going to be very robust, it'll be slightly lower than 2015 kind of record levels. But should be similar to 2013 and 2014 and there's no evidence that, that's going to abate anytime soon.

Great. Thanks.

Rich, I'd follow on little bit. Even in the debts of 2009 and 2010, transactions were getting done. We may not like the price, but there is still liquidity and Fannie and Freddie were still doing business.

So, I think, there's going to be always a supply of capital. I think we've got a diversified portfolio that we can always look at and say there is a liquidity opportunity there. And so I don't see much risk from us at the sales level that we're anticipating being able to execute.

Okay, fair enough. Thanks.

And our next question comes from Wes Golladay with RBC Capital Markets. Please go ahead.

Hi, guys. You mentioned the risk of concentrated supply and you also highlighted Bellevue has having a bit of a supply increase. Do you think that job growth is sufficient to absorb the supply and with the developers be more rational?

We saw in LA where demand was pretty solid yet the pressure on the existing properties existed somewhat in - how you see those two markets being different?

Yes. I guess, there's - we don't see a rational concession levels in Bellevue at this point that they've actually been offering a month free on lease ups, if not something less. Our portfolio in Bellevue has been able to maintain to date as the supply has been delivering north of 6% revenue growth and you getting very good renewals as well as new lease rate growth.

Yes, I think the job growth when you look at Amazon coming in next year, you look at Apple that's looking to come, you consider that Bellevue has pretty close to Redmond, so it doesn't just have to job growth in Bellevue, it's a lot of those places on the east side that benefit. I think Bellevue is a bit different.

And I do think job growth will continue and that core of Bellevue will eventually run out of developable space. The other thing to keep in mind and this is a little more long-term but in about five years or six years, the light rail is going to reach across like Washington and really connect both Bellevue as well as Redmond to the west side of town and I think it will enhance the east side even more.

Okay. And then going back to LA, obviously you have two large development out there, weighing on your results and normally pressuring you guys this year. Do you see any other large developments that might cause a hick up in another market next year?

There is a couple of developers that come in with very aggressive pricing, they can affect us and the places that we've seen it happen this year has been the platinum triangle of Orange County. I could see it potentially happening in Irvine and we've also felt it up in San Jose, I don't foresee it at this point anywhere else.

Okay. Thank you.

Sure.

(Operator Instructions)

And next is Jeff Donnelly with Wells Fargo. Please go ahead.

Good morning guys. Just I'm curious on your take on this, there is a handful of jurisdictions in Northern California looking at rent control, selection season and I think a few more than a half dozen of your properties following to those areas and maybe just a portion of that is would be subject of laws of they're contemplated.

What's your take on that legislation maybe the odds of its passage and I guess how do you think that effects valuation of it came delay?

I'll talk about our assets there, Harry can talk valuations afterwards. But when you look at it there is five cities in Northern California that are bringing forth somewhat control issues to the balance. There is two markets where we're located that are bring it is, San Mateo on Mountain View.

We really only have three properties that cost to about 2.5% of UDR's NOI that are going to be affected by it. It's only for pre-1995 build assets but would still be the right control with the range from 1% to 5% on increases.

I'd say another California property association is been fighting that pretty strongly and thinks the probability of passages probably limited that we'll have to wait and see, but right now I can tell you over the next year or so. I don't think those are up to 5% on increases would make much of difference.

It's not the way it was two or three years or a year to three years ago when we were getting very high rent increases but again it's relatively low exposure 2.5% of UDR and Harry, talk more about what you think would be the valuations?

Sure. Where we sort of really dealt with this type of issue was in New York City where you have rent stabilization. Say I guess I answered the couple of different ways.

One the short-term that will have probably a slight negative impact on value where the absolute rent growth in the near-term will be slightly lower because you do have these fixed cap on increases. However the way you look at it over the long-term is it's really a timing issue that typically you have vacancy control, so over time you captured those sort of embedded shortfalls as you're tenancy turns over

In the long-term if you get say, five-years into a rent control program, these assets actually traded lower cap rates, because of the embedded upside that exist on the rent roll so that you have a certain number of units that are well below sort of market rent, you've assuming that over time, just really on an actuarial basis you're going to get 5% or 10% or 15% of those assets - or those units that turn over and are able to capture that upside.

And if you so - I guess some - before this legislation came to light, did you ever proceed with the discernible difference between how lenders and investors underwrote 395 product in California or is really no difference?

No. I don't think there has been a difference. I don't think there is a difference today. But again I think what I just described is sort of how that will manifest itself with any of this legislation is passed.

Okay. That's helpful. I Appreciate it.

And we'll take our next question from John Pawlowski with Green Street Advisors. Please go ahead.

Thank you. Tom can you provide color on how the board's CFO search process is going and an estimate on when we can expect an announcement?

Sure, John. We'll probably have this wrapped up and be able to make an announcement around [NAREIT].

Okay. Thanks. Jerry, you have about nine assets hitting same-store pool next year, and your preliminary 2017 revenue growth guidance, what kind of benefit was new same-store pool addition contemplated in the revenue growth guidance?

Hey, we're still doing the 2017 budgets and honestly I didn't come right out and I haven't factored in even on preliminary basis what the boost is. Five and the six assets I will tell you are part of home portfolio from last year.

So whatever you're expecting Washington D.C. to be. I'd say those should be fairly comparable for us. You also have one other new development in Washington D.C. del Rey Tower that rolls in, then you have our Seaport property in Boston that will be rolling in.

And then you have one redevelopment that was in San Francisco. So, you factor in that a six of the seven or the six of the eight or so in Washington D.C., one is in San Francisco, and one is in kind of the urban core of Boston, and I wouldn't necessarily expect them to have a significant positive impact to our same-stores.

Okay. Thank you.

Sure.

And our next question is from Rich Hill with Morgan Stanley. Please go ahead.

Hey, guys. Thanks for all the transparency thus far, just to trying to first about your development pipeline and many more strategic question thinking forward.

What sort of markets if you have to sort of project right now or do you think are strongest and maybe which are the weakest. And so, how are you thinking about your development pipeline and how might that be pivoting in the future?

So Rich, this is Harry. As we talked about before we've really developed in seven or eight different markets. So Southern California, Northern California, Seattle and the in the major East Coast markets plus Dallas and potentially Denver as we did in the Steele Creek.

So those - we're going to continue to focus our development activity in those markets, if you can imagine some of that question is really opportunity base that we're going to look at the opportunities in those markets it has the best location. And using the sort of revenue growth that one would expect in those markets we will underwrite that type of growth and where we find opportunities that that sort of meet our return thresholds those, those are locate, those are projects that that we'll actually move forward and deliver.

We're going to continue to maintain at least that our business plan is to maintain our $900 million to $1.4 billion type development pipeline. So you won't see it increase above that level. And again, we'll continue to use a disciplined underwriting approach.

Got it. So, new market that you're developing in right now that, that you may see it less opportunity in the future than you do right now, it'll - go ahead, I'm sorry.

I think certain markets, at certain times we are going to have less opportunity and I think you could use San Francisco is an example that anywhere, where you do have some pressure on the rental rate growth, you still have land prices that are very high. And so you probably have a kind of a set of circumstances in the City of San Francisco where it's probably hard, but in near-term for any projects to make sense, but again, these markets change over time and the fundamentals of those markets will change and we will continue to underwrite those opportunities accordingly.

Great. Okay. That's helpful. Thank you.

Our next question comes from Nick Yulico with UBS. Please go ahead.

Well. Thanks. Just sort of question on your - this is for the Attachment 5, give your return on invested capital metric and help me understand what you guys are trying to show there if I look historically, [current rent] goes up year-over-year.

And then if I go back to like prior supplemental, the absolute numbers really not that much different from, where you guys are reporting a return on invested capital today. So what exactly you guys trying to sort of measure there?

Nick, we're looking at 5 and it's an operating margin page.

I'm sorry, I mean the Attachment 5.

Well, thank you, sir.

Yes.

Anybody got an idea on the question? Looks pretty constant. Nick, we're all scratching our head and trying to figure out where you're going with the question.

Well, like if I look here already, it was up 7.6% versus 7.3% a year-ago, that's like a 4% difference, yet your same-store NOI was up over 6%. And if you go back historically, you're kind of in somewhere in this ballpark of 7% to 7.5% on this metric in your supplemental going back several years.

So, I'm just trying to figure out what exactly this metric is trying to show since it doesn't seem like your return on invested capital for the same-store has really gone up that much over the last several years?

The new capital put in, it will be probably just operations in new capital.

But 7.6% or it's a 7.3% call it a 4%, 4.5% growth rate which is relatively consistent with the NOI growth rate.

Approximately $12 billion of assets.

Yes.

Shareholder value $400 million, $500 million.

Yes I think we can follow-up on offline. Thanks.

And it does appear we have no further questions. I'll return the program to President, John Toomey. Please go ahead.

Well, just to be clear it's still Tom Toomey, I'm still President and CEO.

Let me just close with thank you for your time today, and second we're very focused on finishing up the strong year and certainly look forward to 2017 and 2018 and rolling out that strategic plan again in February of next year as we wrap it up. And we will see many of you at NAREIT, and we look forward to that exchange and time together in a couple week. So, with that take care and have a good day.

And this will conclude today's program. Thanks for your participation. You may now disconnect.