UDR Inc (UDR) 2016 Q4 法說會逐字稿

Good afternoon, and welcome to UDR's fourth-quarter full-year 2016 earnings call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Chris Van Ens, Vice President of Investor Relations. Please go ahead, sir.

Welcome to UDR's fourth-quarter financial results conference call. Our fourth-quarter press release supplemental disclosure package and 2017/2018 strategic outlook document, were distributed yesterday afternoon and posted to the Investor Relations section of our website, IR. UDR.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure, in accordance with the Reg G requirements.

Prior to reading our Safe Harbor disclosure, I would like to direct you to the webcast for this call, located in the Investor Relations section of our website, IR. UDR.com. The webcast includes a slide presentation that will accompany our 2017/2018 strategic outlook commentary.

On to our Safe Harbor. 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 our press release, and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

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

I will now turn the call over to our President and CEO, Tom Toomey.

Thank you, Chris, and good afternoon, everyone. Welcome to UDR's fourth quarter conference call. On the call with me today are Jerry Davis, Chief Operating Officer, and Joe Fisher, Chief Financial Officer, who will discuss our results, as well as senior officers Warren Troupe, Harry Alcock, and Shawn Johnston, who will be available during the Q&A portion of the call.

Later in this call, we will present our 2017-2018 strategic outlook, as we have done in the last four years. As is evident in the outlook document, we continued to execute well on our primary strategic objectives, which are operational excellence, maintaining portfolio diversification, allocating capital to accretive growth opportunities, and strengthening our balance sheet. Focusing on these core principles provides a robust environment for driving total shareholder return, and will continue to make UDR a full cycle investment.

Moving on to 2016, it was another strong year for UDR, and one that included a number of achievements for the Company. First, the strength of our best-in-class operating platform and portfolio diversification was again evident, allowing us to maintain same-store guidance throughout the year, while effectively combating a marketplace that was choppier than expected.

Second, our external growth remained highly accretive. Third, our balance sheet metrics continued to improve, enhancing both liquidity for the Company and safety for our investors. Fourth, we joined the S&P 500, an accomplishment that places us in a select group of only 27 other property REITs.

In short, these accomplishments showcase another year of successfully executing our long-term strategies, as set forth in our strategic outlook. All of the credit for these successes goes to our associates in the field, and in the corporate office, as they face daily market challenges, and a CFO change. I'd like to sincerely thank everyone in the organization for their dedication and hard work throughout 2016.

Next, as we move into 2017, we are confident that the outlook for the long-term apartment fundamentals remains strong despite short-term challenges in the form of new supply, coupled with elevated concession levels, which are forecast to abate as we move in the second half of 2017. In total, we expect this year will again produce top line and bottom line growth, in excess of long term averages.

Lastly, we remain confident that UDR is doing the right things, and has the right team in place to create long-term value for our shareholders. Adhering to our strategic outlook's core principles will continue to help us generate high quality cash flow, dividend, and NAV growth for many years to come. I will provide further commentary regarding our 2017-2018 strategic outlook later in the call, but will turn it over to Jerry for additional comments on the quarter.

Thanks, Tom, and good afternoon, everyone. We're pleased to announce another quarter of strong operating results. During the fourth quarter, year-over-year same-store revenue and NOI growth were 5.0% and 5.3% respectively. For full-year 2016, same-store revenue and NOI growth totaled 5.7% and 6.5% respectively.

During the fourth quarter, we saw a continuation of the top line operating trends evident throughout 2016. That is, overall fundamentals continued to normalize, with localized demand/supply dynamics in markets determining our ability to generate revenue growth. Making up 45% of our same-store NOI, strength was evident in Orange County, Seattle, the Monterey Peninsula, Boston, and our Sun Belt markets. While San Francisco, Los Angeles, and New York, which comprised 30% of our same-store NOI, remain challenged, primarily due to concentrated new supply and elevated concession levels.

For the year, the strength of our operating platform, combined with our diversified portfolio, allowed us to effectively combat these supply-driven headwinds and generate portfolio growth that compared favorably versus the apartment group average. I would like to thank all of the operating associates for making this happen.

Similar to what you heard on our last call, we focused on driving occupancy during the fourth quarter, to remain full during the seasonally slower periods. While each market and community is different with regard to the tradeoff between rate growth and occupancy, I envision us maintaining this strategy at the portfolio level, through at least the first half of 2017. During the fourth quarter, our occupancy averaged 96.8%, that's 20 basis points higher than in the first half of 2016, and 30 basis points higher than the fourth quarter of 2015.

Next, portfolio-wide new lease and renewal rate growth were flat and positive 5.1%, year-over-year in the fourth quarter. We continue to see minimal pressure from single-family competition with move outs to home purchase staying flat at 14% during the fourth quarter. Portfolio-wide affordability remains a non-issue with move outs due to rent increase at 5%. Net bad debt remains low, and at levels consistent with previous quarters.

Year-over-year same-store expense growth of 4.2% was elevated during the quarter. Real estate taxes were the primary culprit, growing 9.5% year-over-year. We continue to see pressure in New York from 421 burn off, and across many of our markets due to still-rising incremental valuations. I'll provide market-level expectations later in the call, when we address our 2017-2018 strategic outlook.

Last, our development lease-ups continued to perform well, achieving rates in aggregate above original expectations, and with leasing velocities generally that of original forecast. The average value creation spread built into our pipeline is in excess of the top end of our 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, the fourth quarter was another good quarter, and 2016 was a solid year given the challenges we faced. We remain laser-focused on maximizing revenue growth and constraining expense growth when possible, and are confident in our ability to execute in 2017. With that, I'll turn the call over to Joe.

Thanks, Jerry. The topics I will cover today include our fourth quarter results, a transactions update, a balance sheet update and capital markets update, and our first-quarter and full-year guidance. Our fourth quarter earnings results were at the mid to above the high end of our previously provided guidance. FFO, FFO as adjusted and AFFO per share were $0.47, $0.46, and $0.40 respectively, and were driven by solid same-store growth. For full-year 2016, earnings results came in near the mid to high end of our previously-provided guidance, with FFO, FFO as adjusted and AFFO per share at $1.80, $1.79 and $1.63 respectively.

Next, transactions. Subsequent to quarter end, we exercised our fixed price purchase option to acquire CityLine, a 244 home West Coast development joint venture community, located in suburban Seattle. The Company's total investment in CityLine was $86.5 million, roughly a 15% discount to the community's estimated fair market value. This equates to 5.3% cash flow cap rate.

As it relates to future options on the West Coast development joint venture communities, or Steele Creek, we will evaluate those options as they become available, based off our funding capacity and potential value creation for our shareholders. For an overview of other transactions consummated during the quarter and year, please see the transactions section of our Q4 earnings press release, or attachment 13 of our 4Q supplemental.

Next, to the balance sheet. At quarter end, our liquidity as measured by cash and credit facility capacity was $1.2 billion. Our financial leverage on an undepreciated book value was 32.1%. On quarter-end enterprise value, it was 23.9%, and inclusive of joint ventures, it was 28.8%.

Our net debt to EBITDA was 5.1 times, and inclusive of joint ventures was 6.2 times. All credit metrics continue to track well versus our strategic outlook.

Lastly, on the balance sheet, as it relates to our new $500 million commercial paper program announced last week, the program offers us an incremental source of low cost, floating rate capital, and is fully backed by our line of credit. Looking ahead, we do not intend to increase our floating rate debt exposure, as the result of putting this facility in place.

I would like to make it clear that this facility will be utilized in place of, and not in addition to our existing line of credit. We extend our thanks to the rating agencies and our lending partners for making UDR one of only a limited number of REITs with access to this form of capital.

I would now like to direct you to attachment 15 or page 28 of our supplement, where we have provided full-year and first-quarter 2017 guidance. Our full-year 2017 guidance ranges are $1.83 to $1.87 for FFO and FFO as adjusted, and $1.68 to $1.72 for AFFO. Our full-year 2017 same-store guidance calls for revenue growth of 3.0% to 4.0%, expense growth of 2.5% to 3.5%, and NOI growth of 3.25% to 4.25%, with average 2017 forecasted occupancy at 96.7%.

Other primary full year guidance assumptions can be found on attachment 15. For first quarter 2017, our guidance ranges are $0.44 to $0.46 for FFO and FFO as adjusted, and $0.42 to $0.44 for AFFO.

Finally, we declared a common dividend of 29.5% in the fourth quarter or $1.18 per share, when annualized. This equates to a yield of approximately 3.2% as of quarter end. With that, I'll remind those listening that there's a link to our 2017-2018 strategic outlook document on the investor relations page of our website. We will pause for a moment so that everyone can gather the outlook materials.

Thanks, Joe and while you're pulling that up, I just want to welcome Joe to his first of many earnings calls, and its been a joy working with him, and we're looking forward to many more years of this. Now turning to our 2017-2018 strategic outlook, which was published in conjunction with our earnings release yesterday afternoon, I'd like to start with some big picture thoughts.

First, as you page through the document, you'll note continuity with previous strategic outlooks. Our focus on optimizing operations, preserving a diversified portfolio, investing in accretive external growth, maintaining a safe and flexible balance sheet, and enhancing transparency has worked well for us, and driven strong cash flow, dividend, and NAV growth for our shareholders.

We believe adherence to these strategies position UDR well to capitalize on opportunities in a variety of economic backdrops, and parts of the real estate cycle. Specifically, our diversified portfolio accomplishes several goals, including lowering our relative exposure to any one market supply and demand trends, giving our transaction team more avenues to accretively deploy capital, and provide our shareholders with a predictable, growing cash flow stream. When combined with our excellent operating platform, this is what ultimately differentiates UDR and makes us a full cycle investment.

Moving to page 3 of the outlook, we lay out our core principles. These are comprised of long-term consistent strategies that govern the path and direction of our enterprise takes. These are one, maximize revenue and NOI growth in our markets through innovative and margin-enhancing efficiency initiatives.

Two, invest when appropriate, in accretive, internal and external opportunities, that optimize returns for investors, refresh our portfolio, maintain diversification, and better position us for future growth. And three, maintain a safe liquid balance sheet, capable of fully funding our enterprise throughout the cycle. These strategies represent our core tenets, and we believe when executed upon well, drive predictable cash flow, dividend and NAV growth over time, while also contributing to an equitable environment for robust TSR.

Moving to page 4, our tactical execution of our long term strategies can take different forms depending on a variety of factors, including shifting market fundamentals, available growth opportunities, and access to accretive capital. On this page, you can see a number of different topics that impact our daily businesses. Being flexible and proactive in all aspects of our business is crucial to our success, and a differentiating factor.

Next, page 5. Consistently executing our long term strategies has lead to strong AFFO, dividend, and NAV growth, since our initial strategic outlook was published in early 2013. During that time, our shareholders have been rewarded with compounded annual total shareholder return of 14.9%, versus the NAREIT apartment index of 12.3%, and NAREIT equity index of 9.2%.

Moving on, the next nine pages of the document outline how we have performed versus our previous four published outlooks, in key aspects of our business, and where we are going in these areas in the future. We are not going to turn each page today, but I encourage you to read through these pages in detail. You will see that our operating, capital allocation, balance sheet, cash flow growth, and NAV growth results, since our initial outlook was published in February of 2013, compare well versus previous plans.

Now, a couple highlights from that section. First, we do believe that we have the best-in-class operating platform. Whether we measure this by our ability to forecast results and trends, or how we perform at the market level versus peers. We compare favorably.

Second, our diversified portfolio makes UDR a full cycle investment. We value this attribute, and intend to maintain diversification by MSA, price point, and submarket in the years ahead.

Third, our developments continue to be highly accretive. We are looking to maintain our pipeline in the range of 5% to 9% of enterprise value, but will not stretch if a deal doesn't pencil.

Last, we have made significant progress on derisking our balance sheet over the years. We are comfortable where our metrics are, but will continue to make progress from organic growth moving forward.

Prior to closing out my comments, I'll provide a brief overview of our macro view, and how it impacts our outlook. While our budgeting and outlook process is granular and built from the bottom up, we also employ a macro overlay as a check. Today, we face the uncertainty of government deregulation, tax reform, volatile interest rates, and fluctuating supply/demand fundamentals at the market level.

While we do not know where these factors will ultimately settle, we lean towards an optimistic longer-term outlook on apartment fundamentals, balanced against the pragmatic patient view of our business. Consensus expectations for continued job growth of 150,000 to 200,000 per month in 2017 feels appropriate, and results in a relatively balanced supply/demand environment through the first half of the year, before supply begins to subside in the second half of 2017.

From an incremental capital deployment perspective, we're in an excellent position to remain patient, but will still look to capitalize on growth opportunities, should they meet our hurdle rates using conservative underwriting. Ultimately, we are willing to say no to deals, if they do not pencil, and simply focus on operating our real estate.

To close out my comments, the runway for solid growth in the apartment industry remains long in our view. While it is true that new supply has presented short-term challenges, we see this choppiness in the market as an opportunity for UDR to outperform versus peers.

We look forward to another strong year in 2017, and successfully executing our latest strategic outlook. With that, I will turn the call over to Joe, to speak about 2017-2018 expectations.

Thanks, Tom. Please turn to page 15 of the document. On this page, we lay out our 2017 guidance, much of which I covered in my prepared remarks, and our initial outlook for 2018.

We expect that both years will produce same-store growth in excess of historical averages. I would like to stress that our initial 2018 expectations reflect how we currently view next year's fundamentals playing out. Of course, expectations for 2018 will change as 2017 progresses, but as in years past, we will not be updating our out-year expectations until we provide 2018 guidance a year from now.

Moving down to sources and uses. As you can see, we have minimal debt coming due in 2017, with more debt coming due in 2018. As we move through 2017, you can expect that we will be continuously evaluating our options with regard to the 2018 maturities.

Lastly, development spend will remain a primary use of capital during both 2017 and 2018, largely funded with free cash flow and dispositions. Regarding the balance sheet, we expect our credit metrics to continue to organically improve at a measured pace in both years. Now I will turn it over to Jerry to comment on market-level expectations.

Thanks, Joe. Please turn to page 16 of the document for our market-level 2017 same-store revenue growth expectations. As you can see from the map, we expect that the Pacific Northwest, the Monterey Peninsula, Southern California, Boston, and many of our Sun Belt markets will continue to generate same-store revenue growth in excess of our portfolio average. This includes Los Angeles, where we were negatively impacted by new supply in 2016.

Washington DC is expected to incrementally accelerate versus 2016, and is now forecast to be a portfolio average growth market in 2017. Please note that this forecast incorporates same-store additions in DC in 2017, including five of the six home properties, which will increase DC's share of our same-store NOI to approximately 19%.

New York, San Francisco, and some smaller markets will continue to struggle in 2017. New York and San Francisco especially will continue to be impacted by still elevated supply coming online in 2017, although San Francisco additions are expected to peak in the first half of the year, potentially setting us up for a better 2018.

Last, as we consider new supply in 2017, our data providers are forecasting national deliveries of approximately 370,000 new apartment homes. Of this, 175,000 homes, or 47% of national deliveries, are expected to impact the markets where we operate. Of the supply coming into our markets, around 28% or 48,400 homes, are expected to be added in our submarkets in 2017.

Regarding how supply will be delivered as 2017 unfolds, our submarkets are expected to see average quarterly deliveries of approximately 13,000 homes in the first half of the year, as compared to 11,000 quarterly deliveries in the back half of 2016. In the second half of 2017, deliveries should fall back to approximately 11,000 per quarter on average.

With that, I'll open the call up for questions. Operator?

(Operator Instructions)

Thank you. Our first question is coming from the line of Nick Joseph with Citigroup.

Thanks. For 2017 same-store revenue guidance, what are the assumptions embedded in achieving either the high end, or the low end of that range?

Yes, Nick, this is Jerry. Basically, the key differentiating factor on that is going to be what pricing do the lease-ups put out there? Are they going to offer two months free or one month free?

The second one is job growth. But I can tell you the assumptions that we put into really get to that mid point is job growth between 150,000 and 200,000 jobs. Our expectation is deliveries should peak in the first half of 2017, and that shows that our data providers are expecting roughly 370,000 homes for the year, possible if it repeats what happened this past year, that some of those could slide into 2018.

Now when you look to take that 370,000 national deliveries, about 170,000 are going to be in our markets, and 48,000 of those are going to be in our submarkets. That's 13% of the total 2017 national deliveries, are going to be in our submarkets. We dialed it down a little bit closer, and when you take our top seven markets which make up about two-thirds our NOI, only about 20% of the 2017 deliveries in those seven Markets will be within one mile of a UDR property.

So you really go from 370,000 deliveries, and when you get down to our top seven markets, a UDR property is having to deal with probably 15,000 or so of those deliveries, on a more specific basis. That being said, that's talking about 2017 deliveries. We are in some markets still facing lease up pressures from 2016 deliveries.

Thanks. What markets have the widest range of potential outcomes in 2017?

I would say Seattle. It's one that we're optimistic about job growth in some of our submarkets. For example, in Bellevue, it was recently announced Amazon is going to come over to the East side.

Salesforce is going to hire about 500 people about a block away from the two properties that we bought MetLife out of this past year. But you do have potential for some supply pressures. Bellevue, you got about 800 more units delivering there.

We don't have much product in downtown Seattle, so the glut of 50% of the supply that's coming into metro Seattle was downtown, so that shouldn't overly affect us. But I would say Seattle is one that probably has a fairly broad range. The other one, just because of what happened last year, would be San Francisco.

Our expectation is the bulk of the new supply, especially in Soma gets absorbed the first, or a lot of it gets delivered, and then absorbed throughout this year, depending on what pricing that people impose, it could move a bit. But I would say those are probably the two markets that I think could swing the most, when we look at it.

Thanks.

Our next question is from the line of Juan Sanabria with Bank of America.

I was just hoping you could speak a little bit to the expectations on new and renewal growth embedded in your same-store NOI across the larger markets, New York, San Fran, LA in particular for 2017?

I don't have that exact data with me. I can probably give it to you later. I can tell you on a more macro basis, when we look at 2017 with a mid point guidance of 3.5%, we would see blended rate growth between new and renewal somewhere in that 3% to 4% range.

Okay, any sense on the blended for those top markets if you don't have the newer renewals, just to see where New York, San Fran and LA shake out amongst the many different markets you're in?

Yes, I don't have that on me. I mean, I can tell you, I can give you a bit of an update to what's in the supplement. On page 20 of the supplement, we give the effect of new and renewal growth for the fourth quarter.

I can tell you for example, in San Francisco where we had negative 5.8% new lease rate growth in the fourth quarter. In the month of January, that number came down to negative 3.2%, so while negative, it at this time, appears to be stabilizing somewhat. I don't know if we'll be able to maintain that, but it has gotten a bit better.

And then when you look at New York, New York and the fourth quarter we had new lease rate growth of negative 2.7%. So far this month, we're at positive 0.9% in New York City, so that has improved, and at the same time, what's really encouraging to us is our occupancy today in New York City is 98.2%, so we're able to really build up a high occupancy in the fourth quarter which was part of our strategy, then able to maintain it, and not have to give away rent in the first quarter. And then our occupancy today in San Francisco is 97.5%, which is 90 basis points higher than it was in the fourth quarter.

Great, and on the expense side, I was just hoping you could talk to the assumptions around expense growth picking back up into 2018, but being maybe a little lower than we expected in 2017, and what's driving that movement in 2017 and 2018? Any color would be appreciated.

I'd say really what you see is, in the fourth quarter for example of this year, our expenses came in a bit higher than we expected at 4.2%. It was really due to real estate taxes, which were up 9.5%. A big part of that was the phase in of the 421-G in New York, and we also got hit with real estate taxes year-over-year in San Francisco and Seattle.

Last year, we also had quite a bit in the fourth quarter of some real estate tax refunds. So we came in a little heavier on expenses in 2016 than we had anticipated, which basically brought down some of the growth rate in 2017. So it was a comp year.

But our current expectation is still that when you look at the components of expense growth next year, it's still going to be heavily weighted towards real estate taxes, which will probably be high single-digits. You've got utilities, call it in the 3% to 4% range. We expect repairs and maintenance to be flat to slightly negative.

We think our marketing will be negative growth in 2017, and our personnel we expect to be about 2%. As you jump over to 2018, where we have a range of 3% to 5%, there's a lot of unknowns at this point. Part of it, the biggest component is real estate taxes.

We can see what's going to happen with the 421-G, but over the last couple of years, that valuations of our real estate and sales comps have gone up, which has driven real estate taxes. We are not sure at this point how much we will get in real estate tax refunds from prior years.

And the other component on the expense stack that we are looking at pretty intently, especially as you get into later this year, but especially in 2018, is personnel cost. We're just not sure if they are going to spike. We've been able to maintain those at basically sub-inflationary levels, as we have been able to realize some efficiencies.

And even though we've been giving people raises of 3% or so, we've been able to reduce some headcount. Not sure how much more of that we have, but really, the things that will swing you from the 3% to the 5% are probably mostly related to the real estate taxes and personnel lines.

Thank you.

The next question is from the line of Jordan Sadler with KeyBanc.

It's Austin Wurschmidt here with Jordan. Just wanted to touch on the same-store revenue guidance again. It seems like through the second half of 2016, you are north of 5%, so you've got a pretty healthy rate, earning into the first half of the year.

And Tom, you mentioned in the concessions should abate in a lot of your markets in the second half of 2017. So really what are you assuming for the second half of the year for same-store revenue growth, to get you down to that 3% to 4% range?

We're really, the assumption is obviously that you may or may not, if you get down to the 3%, have the pricing power that we're expecting, which is the blended new and renewal lease rate growth of between 3% and 4%. One thing that benefited us quite a bit in the second half of 2016, was we had a positive variance on [derivative] line items. One was occupancy, in the fourth quarter we were 30 BPs higher in the fourth quarter than prior year.

The second one was late 2015, we started pushing a few initiatives that bore fruit last your. One was charging for parking spaces throughout the portfolio, even at some suburban garden communities. Actually the pick up in parking revenue attributed about 15 basis points to our revenue growth for the full year, and most of that was occurring in the second half.

So some of that will not be repeatable but yes, really, when you look at the second half of the year, what could drive us down, and what's really hitting us right now is some of this irrational pricing, that you'll see in our high supply markets where people are giving away two months free. Obviously when you look at what our blended growth was in the fourth quarter at 2.4%, at zero on new and 5.1% on renewals, some of that was seasonal, some of it was weakness in the markets. We're anticipating easier comps in the second half of the year, but I think the biggest factor that you really need to realize is the impact in the second half of 2016, from the improvement in occupancy, and the improvement in some other fee income that may or may not repeat.

Thanks for the color, Jerry and then just sticking maybe with Northern California, one of the higher supply markets. What are you seeing across the different submarkets between San Jose, downtown San Fran, and the East Bay just on the ground?

They are all tough, to start with, there's none that are doing great, some are much more challenged with new supply. I can tell you Soma is probably the most difficult, where you've got new lease rate growth that's at least negative 5%. We had our revenue growth there in the quarter I think was something like Soma was negative 0.8% for the fourth quarter, so it was weak.

Santa Clara was our next weakest. We've two or three properties down there and it was 2.1%, but we had a couple of strong producers too.

Our San Mateo properties were at 4.5%, and our best market in the fourth quarter was Mountain View. We've got one asset there and that had revenue growth of 6%.

I guess the commonality we've done really well, is they were not combating new supply at all. They are B, maybe B minus properties, but where you're getting new supply down in Mission Bay and Soma, it's very difficult, and you're repricing units at negative mid single-digits, which is creating revenue growth that is slightly negative.

Great. Thanks for taking the questions.

Our next question is from the line of John Kim with BMO Capital Markets.

Without delving too far into politics, how concerned are you about headwinds to demand under the new administration? And in particular, we're already seeing major changes to immigration policy, and I'm wondering how much you think that may impact some of your coastal markets?

Thanks, John, this is Joe. So we spent a lot of time thinking through the various scenarios here, and decision tree analysis of tax reform, deregulation, border taxes, immigration, et cetera. But to be honest, a lot of it is really just big picture theoretical at this point, so trying to actually come up with decisions based off it, it's a little bit difficult.

I think we lean to the optimistic side of course on deregulation and tax reform, in terms of what it means for the economy longer term. But in terms of what it means for our forecasting and near term business, how we're thinking about it, we are going to remain patient and prudent about it, and not make any big picture decisions based off of the theoretical at this point.

So happy to dig through a little bit more detail off line on GSE or tax reform, et cetera. But at this point, nothing major impacting the business.

How about in particular like H-1B visas? Is that something you track within your portfolio as far as number of residents that are under this visa plan?

Yes, this is Jerry. I don't have that information.

Okay, thank you.

Our next question is from the line of Michael Lewis with SunTrust.

I actually wasn't going to mention Trump, but John got me in the mood. One of the things we were thinking of is, we came across this list of the 50 Trump infrastructure projects most likely to get done.

I was wondering if you've looked at your portfolio, and where maybe you have exposure, where there's apartments close to these projects, where maybe you could see some demand increases. I don't know if you've looked at that yet?

This is Tom Toomey. We haven't seen the list, but I'd be interested if you could send it our direction, and if you would forward it to Chuck Schumer, and the Dems, would help as well.

Okay, well I can forward it to you, at least. I don't know if I could -- Schumer hopefully has already seen it. My second question is an open-ended one for Joe.

To jump on your first call by the way. I was just curious if you haven't been at UDR very long but you have a history of following the Company, and I'm wondering if there's anything you've seen so far maybe that has surprised you or things you think you could do differently. I don't know if the commercial paper program has your fingerprints on it, but just if you have initial thoughts or things you and Tom have talked about?

As you said, I've been around the industry and the Company for quite a while at this point. Know the team here, 10 years-plus or minus, so got to know them well over time, their strategies, how they operate, and as part of the process. I think both sides did a lot of due diligence in terms of understanding each other, and where the organizations going, and what the resources are available, et cetera. So no surprises at this point, really just trying to get up to speed, and learn this side of the business a little bit more, and add value where I can.

In terms of the CP program, that was really the work of Warren and Abe Claude from the Treasury team, really taking that forward, and getting that in place, so excited about that. They worked pretty hard with the rating agencies to get the A2 and P2 ratings from S&P and Moody's, and then all of our lenders, to get that put in place. So pretty excited about that, it's just another alternative form of capital that we have available.

Again as said in the opening remarks, though, keep in mind it's an alternative to our line of credit, that is not in addition to our line of credit, so our intent is not to take on additional floating rate debt exposure, it's not additional capacity as we see it. It's just access to potentially a lower price cost of capital for us than the line, which today indications are inside of [LIBOR plus 50] on CP, possibly even tighter than that, so we feel pretty good about that.

Great, thanks.

The next question is from the line of Rich Anderson with Mizuho Securities.

So I'm looking at the tone of the call here, and the development spending number in particular of $400 million at the mid point. Tom, you alluded to keeping development in the range of 5% to 9% of enterprise value. Is $400 million of the development spending a low number, like maybe the floor that we could expect from UDR, or could it even be lower than that?

Rich, good morning or good afternoon. Either way, it's about the mid point of it. We think that range of 5% to 9% gives us flexibility to continue to find opportunities, but we will weigh them one deal at a time, and let the market dictate where the best cost of capital is against the returns and risk.

Okay, so $400 million, if second half doesn't go the way you think, could go to $300 million or something lower?

Yes.

Before it starts?

Every deal has got to clear the hurdle, and if it doesn't I'm not married to that number. I'm married to proper capital allocation decisions.

Okay, and then a question for Jerry. What's the situation with Los Angeles? I remember a year and a half ago, everyone was getting all warm and fuzzy about the market, and then it disappointed in 2016 because of supply, and now it's back up in one of your favorite markets.

It's really come full circle in a really short period of time, that's not really typical of a market. Can you describe what's going on there, and why it had such a kind of a whipsaw event over the past year and a half?

I'd love to, Rich. And we've discussed this in prior calls, but our LA portfolio is really predominantly concentrated over in Marina Del Ray. We've got three of our four properties there.

And that city is about two miles from Playa Vista, which is where the bulk of Silicon Beach is, and you've got significant tech jobs going there. But last year, you also had a couple thousand units, really two operators that came in and had to lease up their properties last year, and they came in with some of this what we've been calling irrational pricing, where you are giving away two months free on a 12 month lease. And even though their base rents were probably 15% to 20% higher than ours, when you come in with two months free, you basically kill any pricing power we had in our assets.

So it took us from call it the fourth quarter of 2015 in Los Angeles, we had revenue growth of about 10% I believe, and when you look at the fourth quarter of this year, it was down to 2.8%. It was really, because we had no pricing power throughout the year. Some time in the fourth quarter, both of those deals stabilized, got up to 90% occupancy, and all of a sudden we were able to start pushing rate again.

So again, if you were to look at the new and renewal growth page in our supplement, in the fourth quarter, we had new lease rate growth in LA of 1.4%, which was above average for the Company, and it's at 2.1% so far in January. So our expectation is LA, our submarket of LA had the biggest wave of supply hit it. Once it went away, we were able to get back on track, and start pushing rate again, and we currently think Los Angeles is going to perform above average for UDR.

Now if you go to downtown LA, it's a different story. There's probably 3,000 to 4,000 units coming online in 2017. There's a couple thousand units in lease-up there right now.

I think most of them are giving away about a month free, so it's not irrational, but it's just heavy doses of new supply downtown. So it's one of those deals depending on where your properties are located, you could have different results, and because we have so much concentration in Marina Del Ray, you'll see a swing from having a great 2015 to an underperforming, if you will by peer comparisons 2016. And I think in 2017, we'll probably do about as well as everybody else, maybe a little better.

Rich, this is Harry. I just wanted to add one point. As you look longer term in Los Angeles, there's been a couple ballot initiatives. One that's on the March ballot, that is actually proposing to impose a moratorium on all new development in Los Angeles. It's a little unclear how those are going to play out, but clearly, with the heavy doses of new recent supply, you have some local pushback, which from a fundamental standpoint, could bode well for that market long term.

Okay, and then if I could have a yes, no or I'm not going to tell you response. Metro DC, is that a green market, so to speak on your page 16 and 18, or too early to say?

It's too early to say. I would say it's either average or it would be a green. We do see DC as being one of the markets that we see continued improvement, as you get out to 2018.

As we stated this year, we're going to be in the [3s], that's up from mid [2s] in 2016. But yes, we are really not, our portfolio, I think that's the answer. Our portfolio is not going head-to-head with much new supply in DC.

We have one asset that's really going against a fairly sizeable wave down by the ballpark or Southwest waterfront, but that one deal happens to be our rent controlled deal, which is pricing significantly lower. But yes, I think DC, if I had to guess today, it's going to be average to above average.

The other market we think very likely will show some improvement in 2018 over 2017, just because of how bad it's getting beat up this year, would be San Francisco. We think San Francisco is going to definitely be below average market this year as we go through absorbing supply, especially in the downtown area, in the first half of 2017. But what we're hopeful for and I can't say that the Los Angeles story repeats itself, but what we're hopeful for is that once you get through that supply, pricing comes back, and you get to get back at it.

Great, thanks.

Our next question comes from the line of Rich Hightower with Evercore ISI.

Welcome, Joe. First question is related to -- in terms of this comment about irrational pricing and some of the new lease-up competition within your submarkets. So how much of your view on the composition of the builder base, meaning merchant builders, or people with expensive mezz financing going to catch that, or people like that, how much of that colors your view on how long this irrational pricing dynamic will continue? And would you say any of that is reflected in guidance for the year?

Well I guess I'll start. This is Harry, and then turn it over to Jerry. I think you hit an important element of our business as we look into 2017, that for the merchant builders in particular, who rely on construction financing, that financing is clearly much more difficult to obtain, lower loan to values, higher spreads, red lining certain developers in certain markets. So that financing is not nearly as readily available as it had been a year ago, which inherently, that combined with continued rising costs and deceleration in fundamentals should result in fewer starts in 2017 than we had seen in the past two or three years.

And I would add Rich, when you say how much is built into our guidance, I would say if there's significant irrational pricing, yes, we think that's what would push us down to the low end of our revenue guidance. And if a lot of those get leased up, or if there's a lack of better rational pricing in 2017, I think that's what gets us up to the top end. But we think that is one of the biggest variables that we face on the revenue side.

I think we can maintain the occupancy. I think we see the supply, the other wild card obviously is the job picture. But that pricing is what we feel really did the most damage to us and the sector this past year, whether it was in San Francisco, Los Angeles, even in New York City.

I think there was a bit of a slowdown in job creation in San Francisco last year, but we do think what got us most was two months free on a 12.

Rich, this is Tom Toomey. Just additional color. The GSEs have a program, and I use this as an escape valve, whereby they will go to permanent financing, as well as drawdown schedule if you will, on properties that are in lease up. So you can go from, you don't have to be at 85%/90% occupancy. You can start financing on a permanent basis as low as 60%.

Now it cuts proceeds, but clearly the GSEs have programs, should some of these developers as their lease-ups look for an avenue to go to perm in a quicker pace. They just have to look at the pricing grid, and determine if that's the better option for them. So I think as that program starts getting more traction in the space, it may be a little bit of a relief valve on that urgency, to get to 90%, so you can get to permanent financing.

That's actually very helpful color. Second quick question, you mentioned five of the home properties in DC are entering the same-store pool in I think the first quarter of 2017. Can you guys give us a sense of the basis points of contribution to same-store revenue growth, that are held within those assets?

Sure. Honestly, we have 3,400 total units coming into the same-store pool in the first quarter. We got the five home properties, you've got one property that was a development deal we did in the Del Ray area of DC, you've got one renovation deal that's in the Pacific Heights area of San Francisco, and then the eighth property is our Pier 4 deal in the Seaport area of Boston.

When you combine all of those, contribution to total same-stores is basically zero. They net out. A lot of it is because of the locations they are at, San Francisco was a sub performing market.

DC is right in the middle, Boston is probably at the high end, but when you blend it altogether, they probably don't make a significant, they don't make any impact really, on the total same-stores. And even within DC, the contribution of those five home assets, the contribution is de minimus.

Okay that's great. Thanks, Jerry.

The next question is from the line of Nick Yulico with UBS.

Going back to your 2017 market revenue growth expectation page here, New York and San Francisco are listed at below 3% revenue growth. Was hoping to get a little bit more precise of a range of outcomes for those two markets?

We typically don't give anymore precise. I'll tell you this, at this point, they are not negative.

Okay, so not negative. And then for those two markets, where are your in-place rents versus where you are trying to get new leases signed today, are you still below market?

I do not have that on me. I'm fairly certain though that I would have a gain to lease, which is what you're saying on both of those right now.

Okay.

And yes, that's basically when you do look at that new lease rate growth that we show on the page of the supplement. Typically, if you'll see that number is a negative, it means, what your in place rents are, are greater than what current market rents are so you'll reprice negatively when you have a turn. So yes, I don't have the numbers on me, but I'm fairly certain those are gain to lease.

Just last question, Tom, I think you talked about concessions abating second half of 2017. Some of that was related to San Francisco, but if you think about San Francisco, New York, I mean maybe there's a little bit different of a supply delivery completion picture in 2017, but there's still 2018 to come, more supply. What I'm wondering is when we talk about concessions abating, do they go away all in 2017-2018, or do they just bounce around and make both markets still challenging markets to be trying to compete versus new supply?

It's Jerry, I'll let Tom clean this up if he wants to, but I'd say this. In San Francisco, our expectation is, I don't know if we would say concessions go away. We think they come down significantly.

I mean, I can tell you for example, in the fourth quarter of this year, our concessions in San Francisco were $300,000-plus higher than in the fourth quarter of last year. They were about 40% of our total concessions. So I think as the supply goes through, and you don't have as many lease ups offering one to two months, then I think that takes all the pressure off a stabilized deal.

So it should come down. Will it go to zero? No. I can't tell you exactly where it will go, but I think the concessions pressure there is shorter lived than it is in New York, and we stated previously we think New York is going to be a challenging market for us and our other peers, probably well into 2018, as supply continues. (technical difficulties)

Nick, this is [Tom Toomey]. Just to give you a little bit more longer term trend view, from my point of view, and I'm closing on 25 years-plus of doing this. 60% of the time in a market, you can get your deal leased up with one month concession, 20% of the time, you don't need to offer that.

That was 2015. We did not have to offer any concessionary, in almost any of our lease-ups to gain the traction in lease-up velocity we were striving for and the pricing power. So 2016 fit a lot into that 60% bucket, and we saw a handful of markets that went over the line past one month free, and then that's just a function of job loss or excessive supply, and you identified in both cases, San Francisco and New York.

And 20% of the time you're in a recession, you're delivering a deal and you're going two to three months free. We don't see that horizon out there in our marketplace. We think the market is moving back to its normal pattern, which it operates 60% of the time, one month free.

As soon as that is leased up, people pull off the concessions, go back to full pricing, and that's when we're seeing that exhibited, for example, in a market like LA. And our theory for 2017 is a handful of markets operate in that 60%, some of them are going to be on the lower side and still offer that concessionary, but Jerry and his team are pretty sensitive to it, and you can see their response has been driving occupancy, and being very successful at it. So I think the key is being very nimble about your pricing schemes, and sensitive to the concessionary markets.

And I've always cautioned people on your side of the fence, you'd learn a lot more by looking at the concessionary market, than you will the same-store market. It is the leading indicator towards our pricing power strengthening or weakening.

That's good perspective. Thanks, Tom.

Our next question comes from the line of Alexander Goldfarb with Sandler O'Neill.

Welcome, Joe to the other side of the conference call dial-in. Just a question, Tom. Maybe you were answering it when the phone cut out, but as far as concessions go, do you think that they've reached a stable level.

Therefore somewhere mid 2017 for the back half, and then they will go down? Or do you guys anticipate in some of the markets that concession pressure could continue to increase in the first part of 2017?

Well I think it's a market by market specific question, and if Jerry wants to speak to, or you want to address this particular market and its concession pattern, it's best directed at him. Mine is an overall trending of how I see the market react, and it's pretty darn predictable in my view.

Alex, this is Jerry. I think for now, they appear to be stable. I don't think they are increasing.

A few markets, they are actually coming down, and we've had success on lease-ups in a few markets where you're at that normalized level that Toomey was talking about. For example, we have a deal in Irvine, called the Residences on Jamboree this past month. We signed 40 leases, we opened this place two to three months ago, but we had 40 leases this past month at one month free, and today we're 40% leased, and almost 20% physically occupied.

So it is market by market. I think when you get up to San Francisco, we are finishing up the lease up at 399 Fremont, and we're down to the last couple of probably least desirable units, and we're having to offer closer to two months free to finish this thing out. So it's dependent on the submarket, but I do think as significant supply gets absorbed in places like San Francisco, you'll see it go back down, but it's stable today.

So the bottom line is Jerry, that whereas last year there was a bit of -- I don't want to say surprise, but surprise mid year, with the amount of concessions and supply. Right now you don't see that happening in the first part of 2017? It's sort of a stable situation and then should abate towards year-end, it sounds like what you're saying.

Yes, what I was going to say I think San Francisco is similar to what it was last year. We are not going to get surprised because we're in it, but I do think it's going to improve by the second half.

And then a question for Joe or Warren, whoever wants to take it. On the CP program, you were clear that you would either do CP or line of credit, but from a funding source and overall cost of your debt, does it matter which one you use? Does it matter if you think about your long term bonds, does one react better if you use line of credit versus CP, or what's the difference as you interplay the two?

The main difference is just in terms of where we will price relative to LIBOR. So if you look at where LOC prices are today, we're at LIBOR plus 90, plus a 15 basis point facility fee. So you're at 1.05% all-in on that.

Indications are that we're going to be in that 40 to 50 basis point range over LIBOR for the CP program. It's really taking any balance that we had in the forecast over the next year or two and evaluating at that point in time, whether we want to move that over to the CP, and pick up that 50 basis points-plus or minus of spread relative to the line.

Okay, and historically, the CP has been inside a line of credit, or has there been times where it's outside?

If you go back to the crisis, clearly CP dried up and liquidity went away. That's why it's a backstop by the line, and not an alternative to the line, so it's not in addition to it. That's why we have the line of credit to back it, so CP can dry up from time to time, but historically its been inside.

Okay, thank you.

Our next question comes from the line of Drew Babin with Robert W. Baird.

When you first gave guidance for 2016 in 4Q 2015, blended spreads renewals and new leases were up 5.3%. Ended up being a pretty good indicator for revenue growth for 2016 being 5.6%.

Given the blended spreads are 2.4% right now, lower than the low end of your guidance, what can we expect in terms of turnover ratios, particularly in Q2 and Q3 during the peak leasing season? Would you expect turnover to be much lower than it was last year?

I would forecast this year it's going to be slightly lower. In the fourth quarter, we were down a little over 100 BPs. I can tell you in January so far, it's looking like we'll have slightly lower turnover, it's hard to tell.

We could get to a point honestly Drew, if we got pricing power back significantly, as we go into leasing season, we're going to put our foot on the gas again, and it could push some people out. So I don't really operate to a turnover level. I try to maximize the revenue this past three or four months.

Our intent, because of spread between renewals and new were so wide, was there was value in retaining as many people as we could, so we didn't push quite as hard, and it drive that down and drove our occupancy up to 96.8% for the quarter. I can tell you today my same-store occupancy is 96.8% still, but we're just going to have to see where we are at in the middle of the year.

Okay, thank you, and one more, just on New York City, if you could break it down by neighborhood, where do you expect things to be a little bit stronger in 2017? And I know you mentioned before the financial district assets are maybe a little weaker at some spots during 2016. What does that look like going forward?

I think Chelsea, our one deal there will be our best performer. I can tell you right now its new lease rate growth is, I think, 4%. You get down to the Financial District where we have two, they probably -- one is positive 1% today, one is negative 1%.

Now we have few expirations, so the sample size is very small on all of these for the month of January, but I think Financial District is going to be difficult. There are still some of these older converted buildings that are in lease up today, offering pretty sizeable concessions. The Financial District probably goes head-to-head more directly with Brooklyn, where there's a fairly significant glut of supply that's being absorbed.

Our property over at Murray Hill, View 34, formerly known as Rivergate, it's doing okay. I wouldn't say it's doing great. There's a new lease-up that should start welcoming its first residents in the next month or two.

It's priced significantly higher than us, but that's one of the situations they come in and want to lease up fast, and start giving away two months free, it could have an impact on us. So we're watching that.

And then our Columbus Square deal that's in the MetLife joint venture actually stabilized. It's doing okay, which means positive. It competes a little bit with Midtown West, but it's probably doing about average with the rest of the city.

So Chelsea is the best, and I would guess depending on what happens in Murray Hill, that one could get a little messy, but I would think the Financial District would maybe be the weakest, because of Brooklyn supply.

Great, thank you.

Our next question is from the line of John Pawlowski with Green Street Advisors.

Thanks. Jerry, with regards to 2018 revenue growth guidance, can you share the blended rent rate growth assumption that underpins the midpoint?

We really aren't going to share that right now. We haven't gotten that specific. I can tell you the basics that come to that.

It's really about four points that we thought about. One, we think job growth in 2018 at this point is probably comparable to 2017. We don't have anything to tell us it won't be.

Second, we think several of our markets will see stabilization in 2017, as far as where supply is coming in. Deliveries, are expected to peak in the first half, as I said earlier today in 2017.

You've got two markets that probably see acceleration from 2017 to 2018. One of those is Washington DC, and the second one, as I stated earlier, is San Francisco.

And can you share January trends? I know you mentioned occupancy but new lease growth, renewal growth, and what you're sending renewals out at today?

Yes, I can give you that. New, so far, in January is actually down 0.7%. That compares to flat for fourth quarter.

I can tell you fourth quarter was propped up a bit by October numbers, so it is down. But as I stated earlier, a couple of the markets are doing better than they were in the fourth quarter. San Francisco is at a negative 3% for January for new lease rate growth, and New York is at a positive slightly under 1%, the rest of them, it's a mix of things.

I can tell you again we have continued to be pushing occupancy, again our rate is 96.8%. I read an Axiometrics report that came out a day or two ago that was talking about December, national occupancy was 30 basis points lower then it was December of last year. We're 30 to 40 basis points higher than we were at the same time last year, so we've continued to do a little bit of the occupancy versus rate trade.

And then your question about renewal growth. January's renewal growth right now is coming in at 5.2%. That compares to 5.1% in the fourth quarter, and what we're sending out for the next couple months is right around 5%.

Okay, thank you.

The next question is from the line of Dennis McGill with Zelman & Associates.

Just digging in on the supply a little bit, there seems to be too many moving pieces when we look forward. One is how much supply is actually coming and when is it going to come, and then the other piece is how is the market reacting to that supply. So if you look in hindsight, look at 2016, was supply more or less than what these data providers thought it would be at this time last year, or did the market react differently, or some combination?

I'll start and somebody can finish. This is Jerry. I would say I don't think supply was more.

It actually may have been a bit less because some of the supply was expected to come in the end of 2016 slid into 2017. I think it was more the pricing of that new supply -- and again we've been talking about this, so I don't want to continuously repeat. But it was people offering excessive concessions, that put a damper on the ability of stabilized properties to push rate.

So if we look forward, then the impact would be the opposite? You'd expect more supply, but you expect people to behave more rationally?

I don't know. I expect right now people will behave the way they have been. And again when we look at the range of guidance we gave 3% to 4%, if more markets priced irrationally, it takes us to the bottom end of our range, and if people price more rationally, then I think it takes us to the top end of our range.

Got it. Appreciate it.

Our next question is from the line of Rob Stevenson with Janney Montgomery Scott.

On the development pipeline, at this point, do you expect to start 7 Harcourt or the Dublin project in 2017?

Rob this is Harry. 7 Harcourt is going to be a small redevelopment, I expect that we probably will start that in 2017. Dublin is a land parcel that we acquired out of the MetLife joint venture in the third and fourth quarter of last year.

I think we probably have another 12 months or more of design work. I think that probably does not start in 2017. I would look to that more for 2018.

Since you started a JV project at Addison, is there any reason why you would start another project until that comes closer to delivery date in 2018?

Well you're talking about the Vitruvian West parcel, where we have multiple parcels that we own with MetLife. Our expectation is that we'll complete construction some time in late 2018 on that, and probably won't start the next phase, clearly until that one is completed. So late 2018, some time into 2019.

Okay, and then one quick one for Joe. The $600 million or so of debt coming due in 2018 has just under a 4% cost on it. Where are you from talking to bankers these days, where do you think you could place $500 million or $600 million of unsecured debt cost wise today, given the 10 year at 2.50%.

Correct, yes we got that $300 million coming due in June next year at 4.25%, and then you have a Fannie facility that's about $140 million floating and $70 million fixed in there. That's high [3%s], so you'll probably see us knock them out with a $600 million issuance, I would assume. You may see a $300 million or $400 million within that to refi part of it.

We have the ability to prepay some of it so it could get pulled forward. But when you look at rates today, on 10 year for us on unsecured, we're sitting about [1.35%] over. If you go into insurance and GSE market, you're 10 BPs wider than that for insurance, and another 10 BPs wider than that for GSEs -- so 3.8%, 3.9%, 4% for those three respective options there.

If we went down to seven year which we have a hole in our 2023 maturity schedule, we could look to do something there as well, but then you're going more to a spread of 120 basis points on the unsecured side, and again moving up for insurance and GSEs. So it's something we're cognizant of, we're going to continue to evaluate it. We'll look at prepays, and see if they make sense at some point, but we'll keep an eye on it, and may address some of this year, may wait until next year.

Thanks.

Our next question is coming from the line of Nick Joseph with Citigroup.

It's Michael Bilerman. Joe, congrats on the move again. And I'm just curious, now that you're C-suite Joe, what's your pitch to the old buy side Joe that, at least at the end of November, didn't own any shares of UDR.

What would you say to him now that you're in this seat on why he should have owned UDR rather than any of the apartment peers?

(Laughter) Thanks Michael. I appreciate the warm welcome.

Would you expect anything less?

You start out with the ski.

I was ready for it, I suppose. I think that it's the same thing. Part of the reasons I was attracted to come over here was one, you look at the management side in terms of the depth of the platform on the management side.

Clearly operations, I think we're pretty excellent on that front, and pretty good reputation, continue to outperform our peers in most markets. And then the diversification piece, it's less a NAV trade, when you think about the diversification, it's more of a stability of cash flow trade, that plays into the evolving shareholder base that exists out there. So the stability of cash flow piece, diversification by market, price points by market, is pretty compelling.

So while it doesn't sound like my old shop owned as November, we have been holders over time in UDR, so hopefully they will come back in at some point and hopefully some others will as well.

Was there anything that you were advocating when you sat on the other side of the table for value creation, that you'd want to implement, now that you're on that side of the table?

Yes, I think there was always things, not just with UDR, but all companies I was advocating for, depending on my near term and longer term views. So at this point it's really taking those views that I have and skill sets I have, and trying to learn the business from the other side with full information, as opposed to looking at it from the other side maybe a shorter term approach, as I had in the past.

So there's going to be things I'm going to look at, but at the end of the day, part of the appeal of coming here was the decision-making process of five guys in a room, all have equal vote, and all put their thoughts into it, and then we make the decision as a collective group. So my thoughts I'm sure will be heard, but we'll debate them as a group.

Just lastly--

This is Tom Toomey. I think it's critical to point to is, what's critical for our long term success is to continue to evolve in a smart way, and one way to do so is adding really smart people to the room, who have a different perspective on the world, and have been on the other side of the table.

I think Joe brings an enormous amount of that. And it's great having a dialogue with him about why we've done things, or what we're thinking about for the future, and to have a good lens from the Street's perspective as well as investment community perspective added to that.

So he's very extremely additive to the conversations. We make a decision of things here as a group, and any time that group is stronger, we make better decisions.

Agreed. I guess one last one Joe is, we spend a lot of time on investments and operations. As a previous investor, how do you evaluate corporate governance for the apartment REITs, and how do you think UDR ranks? And is there things that coming from that buy-side mentality that you would want to implement at UDR in the corporate governance side?

Anything on the corporate governance side in terms of implementation, we're going to always be open to feedback from investors on the Street. But it's really going to come from discussions with the Board and Management team top down, so not going to speak to any views I may or may not have on corporate governance at this point.

Okay. Thank you.

Our next question is from the line of Richard Hill with Morgan Stanley.

Quick question, maybe just taking a step back, and we may be unique to this, and we may not be. But in a lot of our discussions with both investors that are investing in apartments and maybe more generalist investors that are looking at rentership overall, there seems to be at least more questions we're getting as to whether or not some of the apartment REITs would at some point be looking to invest in the single family rental market.

Our response is there's not enough apartments in the United States as is over a longer term, so maybe it's not needed. But I'm curious if that's something you've thought about, if you're getting questions about that, as well and if you just think that's a completely crazy question?

Rich this is Toomey. I'll give you my point of view. First from a lens of, I think home ownership is going to wane.

If you look at it, people that are over 60 is 80%, the national numbers are 63%. As they age out, so to speak, that number probably comes down. And so I think you're seeing a general acceptance that renting is a very viable option, and the stigma that existed under my generation has waned.

When I think about the single family rental business, I've been amazed, and very applauding of the fact it went from a transaction to actually an operating model. And then when I look at the operating model they've moved their cash flow margin from about 30% up to 40% in a pretty rapid window of time, and I think that's a testament to those management teams and to their efforts, and wish them the best of luck on continuing to grow that.

From our cash flow margin standpoint, we're operating at about 63% to 65%. So if I were going to invest a dollar, do I want to invest it in a business at 40% margin, or one that's 60%-plus margin, and how does that valuation adjust accordingly to that? And we've built a Company as you highlighted earlier, driven towards cash flow margin expansion, et cetera, et cetera.

So I think apartments would be taking a step back by adding that margin, and to look at the operating detail and ask, could it ever achieve going from 40% to 60%-plus? It might, but time is going to take a long time to get there in my view. So that's my lens on the single family versus multi-family perspective, and I would pretty much say at this time I would have no interest in joining the ranks of the single family rental pool.

Got it, that's very helpful. Just wanted to get your strategic thoughts on it. That's all for me.

Our next question is from the line of Wes Golladay with RBC Capital Markets.

Looking at the construction lending environment, it continues to get tougher and tougher. Do you think this will lead to more of a supply and demand imbalance late 2018 and 2019, where you get back to that above trend, maybe 4% or 5% national growth? For same-store revenue.

This is Harry. I think, just to focus on the first part of your question, where you think about construction lending environment is difficult, the fundamentals are increasingly difficult, with respect to the individual development assets. So I think that it's likely that we will see somewhat of a slowdown in terms of new development starts in 2017, which to your point could translate to lower deliveries in 2018 and 2019.

I think you are seeing some of the merchant builders focus on projects that they can start, which means they are rotating out of the urban infill areas, that drove much of the this current wave of new supply into the suburbs. So the absolute numbers of units may stay relatively similar, although I think there's also a decent possibility that deliveries late 2018, late 2019 slow somewhat. Jerry, do you want to think about what that could mean from a supply/demand standpoint?

I think as long as job growth continues and you think about what Toomey said a minutes ago about home ownership rates, you'll see a pullback in supply in our markets. I could see getting up to that level. You'll see the top end of the range we've given for 2018 pierces into that range you're talking about, so I could see that potentially happening, but it's really most dependent on jobs.

Okay and then, are you seeing more alternative transactions like the Wolfe transaction you did a few years ago to help these developers out?

There clearly -- this is Harry again. There clearly is a market for that type of finance [structure], given that with the reduced loan to cost available through the third party construction lenders, you have a natural gap in the capital stack. So those types of investments are clearly available, and there clearly is a market for them, and we're continuing to look at them as they materialize.

Okay. Thanks a lot.

It appears we have no further questions. I'll return the program to President and CEO, Tom Toomey.

Thank you, and all of you, and for the extended session, I thought it was very helpful, and I hope you found the same. In summary, we feel great about the business, the plan, and the right team, and now it's just a matter of continuing to execute on a day-to-day basis, and build on the success that we have. With that, I'll close, and say we look forward to seeing many of you on the road as we get out there and continue to communicate what the attributes of UDR are, and our success around execution.

This will conclude today's program. Thank you for your participation. You may now disconnect.