UDR, Inc. (UDR) Q2 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the UDR 2011 Second Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Monday, August 1, 2011. I would now like to turn the conference over to Mr. Andrew Cantor, Vice President of Investor Relations. Please go ahead. Andrew Cantor – Vice President of Investor Relations: Thank you for joining us for UDR’s second quarter financial results conference call. Our second quarter press release and supplemental disclosure package were distributed earlier today and posted to our website, www.udr.com. In this supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. I would like to note that statements made during this call, which are not historical, may constitute forward-looking statements. Although, we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in this morning’s press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statement. 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-up. Management will be available after the call for your questions that didn’t get answered on the call. I will now turn the call over to our President and CEO, Tom Toomey. Tom Toomey – President and Chief Executive Officer: Thank you, Andrew, and good morning, everyone. Welcome to UDR’s second quarter conference call. On the call with me today are David Messenger, Chief Financial Officer; and Jerry Davis, Senior Vice President of Operations who will discuss our results, as well as Senior Officers, Warren Troupe; Harry Alcock; and Matt Akin, who will be available to answer questions during the Q&A portion of the call. On the call today, we will discuss our comments on four areas. First, a significant investment activity in 2011; second, capital markets activity; third, David will discuss our financial results and guidance for the remainder of the year; and finally, Gary will discuss our operations. The team has accomplished a great deal this year. I appreciate all of our hard work and believe we have a great deal of momentum to continue our success. With that, let’s just start the results. In the first seven months of 2011, we have grown the portfolio by more than 15% or $1.2 billion through the acquisition of 2,600 homes in seven communities in Manhattan, Washington DC, San Francisco, and Boston. We have announced four new development projects continuing over 1,300 homes for an estimated cost of $375 million and the redevelopment of our Rivergate community for an estimated cost of $40 million to $60 million. As shown by our investment activity, we believe there has been opportune time to continue to grow our company and take advantage of the multifamily tailwind and the long-term positive fundamentals of the business. Let me take a minute to start the recent success in Manhattan and the rationale for nearly $1 billion investment in this market. I think it is clear we have demonstrated the ability to find the attractive off-market deals with above average growth prospect that will strengthen our portfolio. 10 Hanover Square, Rivergate, and 21 Chelsea were all acquired from three different families, each an off-market transaction. These types of acquisitions require an additional level of patience and creativity. Ultimately, we see significant value creation at these communities through the implementation of our operating platform and redevelopment expertise. We will continue to look for similar opportunities grow our presence in Manhattan. Gary will discuss in more detail the success we have already seen at 10 Hanover Square and Rivergate. Turning to capital markets activity, our recently completed $500 million secondary offering was very well-received by the market. The deal was four times oversubscribed and it was priced an attractive 2% discount to the previous day’s close, demonstrating investor’s confidence in our strategy. The offering combined with the ATM and opening unit issuance bring our year-to-date equity raised over $930 million, which means we have funded over 75% of our acquisition through equity. In summary, our company has gone through dramatic change since beginning of the year. And as a result, we have improved our balance sheet, a larger percentage of our NOI coming from above average growth market, and dramatically increased our income per occupied home. We have successfully executed on what we bet we are going to do, de-leveraging through acquisitions and high-barrier to entry market. We are done yet and we believe that this is the right time to enhance the quality and size of our portfolio through acquisitions, development, and redevelopment. With that said, we also believe now it is an appropriate time to sell selected communities. As NOIs have recovered, combined with low interest rate provides us an opportunity to execute at attractive prices. In closing, with the substantial improvement to our portfolio and balance sheet as well as the continued success for our operating platform, we look forward to the remainder of the year. With that, I would pass the call on to David. David Messenger – Chief Financial Officer: Thanks, Tom. Earlier this morning, we reported a year-over-year 15% increase in our quarterly FFO to $0.31. This consisted of $0.32 from our core operations and a $0.01 charge from non-core items or $1.1 million. Our results are consistent with our original guidance announced in February. Further details are included in our press release and supplements. The four non-core items for the quarter consisted of the following. First, we completed $628 million of acquisitions consisting of 10 Hanover Square in Manhattan and View 14 in Washington DC as well as our previously announced $500 million asset exchange. In connection with these transactions, we recorded $2.1 million of acquisition cost and will record additional cost in the third quarter as we have announced $570 million in acquisitions. Specifically, the closing of Rivergate in Manhattan and we are under contract to purchase 21 Chelsea also in Manhattan. Second, we completed a $350 million refinancing for six assets in our UDR/MetLife joint venture. The refinancing was done at a fixed rate of 4.73% and has a term of 10 years. UDR was paid a refinancing fee of $844,000. Third, we incurred $745,000 of severance charges, which will result in future D&A savings. And fourth, we sold Mustang Park a community owned by our (indiscernible) and recognized a gain net of taxes of $891,000. This asset was developed by a third-party through our pre-sell program in the third quarter of 2009 and subsequently sold this quarter. Turning to our balance sheet, as of June 30, we had $882 million of cash and credit capacity, which will more than meet our debt maturity, development, and redevelopment needs through 2012. During the quarter through our APM, we raised $231.2 million through the sale of $9.4 million shares at a weighted average net price of $24.51. Also we took advantage of an opportunity to repurchase 141,200 shares of our series G preferred stock at $25.38 a share and a yield of 6.71%. As previously announced, we priced a seven-year $300 million unsecured bond offering at 4.25%. The bond will mature of June 1, 2018. Subsequent to the quarter close, we sold 20.7 million shares at a price of $25 per share with proceeds being used to fund our most recent acquisitions, pay down debt, and for general corporate purposes. The balance of the year has $103 million of debt maturing, which we planned to pay for through asset sales. This debt has a weighted interest rate of 3.8% and an accounting rate of 5.6%. We also have the opportunity to prepay at par $100 million of a secured credit facility that carries a 6.78% interest rate. This too we planned to pay with sales proceeds. As a result of our acquisitions in 2010 and 2011 and the equity we have raised over the same time period, our credit metrics are improving faster than originally anticipated. We expect that our debt to EBITDA to have moved from above 10 times to below 8.5 times. Our debt to DAV will decrease from being above 53% to below 48% and our fixed charge will be above 2.4 times. Turning to our guidance, in conjunction with our July equity offering, we increased our 2011 guidance. Our full year 2011 FFO is expected to be between $1.25 and $1.30 per diluted share compared to our prior guidance of $1.20 to $1.25 per diluted share, a 4% increase at the midpoint. The change in the midpoint can be accounted for through the following; A $0.02 addition from improvement in same-store property NOI and $0.08 addition from our 2011 acquired properties, a $0.02 to $0.03 addition from improvement and other non-same-store property NOI, a $0.01 reduction from interest expense resulting from our $300 million 4.25% unsecured offering occurring earlier in the year than originally forecasted, and a $0.06 deduction related to the common equity issued in 2011 through our ATM program to July equity offering and the issuance of OP units. Let me give you some addition details of the following three material components impacting our new guidance. First our NOI, the revenues we expect the full year range of plus 4% to plus 4.5%. For expenses, we have tightened our range from plus 2% to plus 2.5% as a result of certain real estate tax appeals that were settled in the second quarter. Our NOI is now projected at the range from plus 5% to plus 6%. Second our share count; during 2011 through our ATM, we sold 15.2 million shares for $368.3 million in net proceeds. In July we sold 20.7 million shares at a rate of $496.3 million in net proceeds. In addition, as far the 10 Hanover closed transaction, we issued $2.6 million operating partnership unit for $64 million. In total, we have raised $930 million of equity at a weighted average net price at $24.16 per share. Third asset sales, we have announced that we expect about $200 million to $300 million of assets in the second half of the year, which the proceeds will be used to pay our maturing debt. Now I will turn the call over to Jerry. Jerry Davis – Senior Vice President, Property Operations: Thanks, Dave. Good morning, everyone. Same-store NOI in the second quarter was up 5.1% as a result of revenue growth of 3.6% and expense growth of 70 basis points. Total same-store income per occupied home increased 3.7% to $1,181 and occupancy is down 10 basis points to 95.7%. This is the ninth straight quarter that our occupancy is averaged greater than 95.5%, translate into continued pricing dollar. In fact, our loss to lease at the end June 2011 was 6.3% or $74 per home. Our same-store portfolio effective rental rate on new leases entered in to during the quarter on average 5% higher than what the prior residents was paying. Renewing resident on average paid 5.5% higher on effective basis. Renewal increases sent out for the month of August, September averaged greater than 6% with increases in our strongest market by San Francisco and Washington D.C. averaging 7% to 8% While we are pleased with our ability to push rent, our maintained occupancy this year that has been done without substantial job growth in majority of our market. We believe we will see more job creation in 2012. Resident turnover was down slightly in the quarter to an annualized rate of 55% compared to 56% to the second quarter of 2010. This marks the ninth consecutive quarter of declining turnover. Expense growth of 70 basis points will be result of higher utility, insurance cost, which were offset by lower real estate taxes. Repairs and maintenance and personnel costs were up less than 1%. Given the acquisition, development and redevelopment activity over the past 12 months, our non same-store portfolio has grown to 6,900 homes and now represents 20% of our total NOI, including over 3100 acquired homes located in markets such as Boston, Manhattan, San Francisco, Washington D.C., and select Southern California submarkets. The completed development of over 2,200 homes in six communities at a total estimated cost of $434 million or $185,000 per home. Over 80% of these homes will enter our same-store pool within the next year. In addition, we have 2,000 homes being developed at a total cost of $607 million or $304,000 per home. 40% of these homes will be delivered in 2012 and the remainder in 2013. Over 850 homes that are in redevelopment, the pipeline consists of three communities totaling 862 homes at a total cost of $117 million. Highlands of Marin, San Rafael, California is expected to enter our same-store portfolio in the second quarter of 2012. Barton Creek Landing in Austin, Texas is scheduled to be completed later this year. And City South in San Mateo, California will be completed by mid-year 2012. Leasing and pricing continue to be very strong at both of these communities and both are operating ahead of plan. Our joint venture with MetLife continues to progress well after taking over management of the portfolio in November of 2010, when physical occupancy was 83%, we have pushed that number up to over 94% occupancy and we have fully implemented our operating platform which has driven expenses down. We are pleased with our continued success with this portfolio. Let me turn now to our recent acquisitions. These acquisitions were completed in the third quarter of 2010. First, 10 Hanover Square since acquiring the asset in April, effective rents have increased 14% on new leases buying, exceeding our initial expectation. This level of rent growth in Manhattan over such a short period is an example of our ability to create value through our operating platform. We believe the World Trade Center development site will continue to define the lower Manhattan residential market, with plans for approximately 10 million square feet of office space, 500,000 square feet of retail space, a performing art center, and an improved 800,000 square foot transportation hub. The redevelopment of the World Trade Center site will continue to increase the desirability of the lower Manhattan area, including the residential market. We believe the Financial District is an attractive submarket of Manhattan to grow our presence and we will continue to look for opportunities. Second, Rivergate, let’s take a minute to walk through this transaction. It’s a 706-home community located in one of the highest barrier to entry market, Manhattan. Current in-place rent that are more than $500 below market, but in another way a loss to lease of $500 or over 15%. In the first 10 days since acquiring the asset, we have increased leased occupancy from 95.6% and 98.2% and raised rents 15% over the expiring lease rate. This is 5% ahead of our initial underwriting. While its only 18 leases, the results are very encouraging. Next, we plan to do a $40 million to $60 million redevelopment project, which will include a new rooftop fitness center and deck, as well as an updated lobby building entry way, anticipate additional $700 in the rent following the renovation. Clearly, we are excited for the continued opportunities we see in these assets, and we’ll keep everyone updated on their future success. With that, I’ll now turn the call back over to, Tom. Tom Toomey – President and Chief Executive Officer: And thank you. Operator, now we are prepared for the Q&A portion of the call.

Thank you, sir. Ladies and gentlemen, we’ll now begin the question-and-answer session. (Operator Instructions) Our first question is from the line of Anthony Paolone with JPMorgan. Please go ahead. Anthony Paolone – JPMorgan: Thanks, good morning. Tom, with the MetLife JV on the land side, you guys were able to take down a piece of land and start construction there or at least do the pre-sale deals. I was wondering if you could tell us how that process went and the prospects for potentially more of those deals, and also the economics?

Well, certainly, I’ll let Harry cover the economics. With respect to the process certainly, we’re having a dialog with Met on a broad range of topics not just the operations of the properties and how they are doing very well, but also the land inventory and how it will ultimately be disposed or build upon. And we are working through the 11 sites and suspect that we’ll find other opportunities in there that we can either work together or we’ll buy the land and build it for our own account. So, I think there will be more activity over the next year on that front. The dialog relatively straightforward, we have recurring meetings with the lot of different Met from the local asset managers all the way to the top and how to manage this $2.5 billion portfolio to optimize this value and continue to reiterate our interest in owning more of it. We are working on the long range of topics there, but I would suspect that you will see us over time figure out how to accomplish what Met wants and what we want, which is to own a little bit more real estate with them, the deal itself and the economics.

Yeah, from a – just from yield standpoint on today’s rents are un-trended rents, we expect to get close to 6.5% on that front. Anthony Paolone – JPMorgan: Got it. And then just my follow-up here, now that you’ve done these deals that now are about or you now have about 20% of the portfolio not in the same-store and the numbers out of New York seem really quite strong. So, I was just wondering how we should think about growth out of a non-same-store pool rate over the next, I don’t know either few quarters or year, whatever you feel comfortable commenting on. It seems like it maybe different than the rest of the core?

Yes, I mean, this is Jerry. I think our non-same-stores will grow at a higher rate. When you look at the bulk of them, they are in New York, Boston, D.C., some in Northern California. I think you are going to see annualized growth rates that exceed what our core portfolio is, if I have to guess. And you are looking probably in the high single-digits in many of those markets, which is quite a bit higher than our same-store. Anthony Paolone – JPMorgan: Okay, thank you.

Thank you. And our next question is from the line of Dave Bragg with Zelman and Associates.

Thanks. Good morning. Tom, last quarter, you opened and closed the call with some interesting thoughts on homeownership you said that the new dynamics there may redefine how the multifamily business has been traditionally underwritten in models. Can you expand on this thought and offer any comments as to whether or not this has already been – you are seeing this contemplated by those in the acquisition market today? – Zelman and Associates: Thanks. Good morning. Tom, last quarter, you opened and closed the call with some interesting thoughts on homeownership you said that the new dynamics there may redefine how the multifamily business has been traditionally underwritten in models. Can you expand on this thought and offer any comments as to whether or not this has already been – you are seeing this contemplated by those in the acquisition market today?

Well, with respect to homeownership, I believe you will continue to see it fall for some time as inventory, foreclosed gets delivered at lower prices, appraised values pick those up, financing available for housing tightens. So, I think we are still have not felt the bottom of homeownership in America, and I think the dynamics in the future, people’s willingness to gamble on housing is going to be less receptive. So, where that pendulum swings to the bottom David I am not certain, but as long as it’s continuing to swing in our favor, I don’t think it’s good for our business. Dave Bragg – Zelman and Associates: Okay. And sure, a follow-up to that is given your portfolio strategy of investing in higher barrier markets, can you talk about the long-term threat of homeownership versus supply and perhaps update us on the trajectory of multifamily supply here as we look into 2012 and beyond?

Well, certainly. And one of the keys of that strategy is to try to get to more of an urban and less home ownership friendly environment, if you will, and to get away from the suburban, primarily because I do worry not over the next couple of years about the supply equation, but certainly if you talk to lenders, you can see that they are lending more aggressively on multifamily, because of the NOI growth rates. Merchant builders will find a way to secure capital. And they are going to start building on the suburban locations, and you can already see that reflective in the start. So, why would I want to have a company exposed to that, I am trying to move us away from as much of that is possible. And I think you’ll see us take advantage of that by selling a lot of our suburban real estate in the years ahead to shrink that exposure. Dave Bragg – Zelman and Associates: Got it. Thank you.

Thank you. And your next question is from the line of Eric Wolfe with Citigroup. Please go ahead. Eric Wolfe – Citigroup: Tom just, just on your answer there can you just tell us for the $300 million of dispositions you are expecting this year what kind of valuations you are expecting and then also looking at a little bit longer term, how much capital recycling is going to play into your strategy versus just going out and issuing equity and issuing debt to grow and upgrade your portfolio?

Well, great. It’s very good question Eric. I will start with the sell side, we are out in the market today exposing $600 million and we will wait and see how the pricing comes in on that. Our suspicions are with the five-year secured loans interest only at about 2.3% as of last week that will get good pricing. We are currently thinking that’s going to be selling probably at about fixed cap. The market that we are exposing is Florida, portions in Southern California, suburban Texas and suburban D.C. and so we will see what the pricing is. But I think it’s a great time to sell and I think being patient and waiting for NOI, trajectory to recover and with low interest rate environment I think we'll be able to thread a needle and get that out. With respect to capital recycling in our plan towards the future, we are modeling and thinking here is that every year we will sell a portfolio that is equivalent to what our delivery for development will be. And we anticipate that probably be a $200 million to $300 million a year and then any high coupon debt and so that will minimize the dilution and fund our development pipeline and high coupon debt. I think that’s the good prudent strategy over the next couple of years and we sized our development pipeline today if it stands at about $600 million, we will probably growth that closer to $1 billion over the next year. And as a result that we coupled with the maturing debt or high coupon debt in the next three years probably get though a portfolio that will sell in the $1 billion to $2 billion over the next three, four years. We don’t see much dilution out of that activity. Eric Wolfe – Citigroup: Okay. And all of that I have seen is the suburban non-core product that’s you referred to or is there anything and that you consider core just not in the market that you really see yourself something in long-term?

I would see that is probably the suburban marketplace drive. Eric Wolfe – Citigroup: Okay. And just one quick one on your markets Monterey saw some pretty strong sequential revenue growth over 7% and I was just curious also in San Diego you saw a negative sequential growth there. Just wondering if there is changed on the outlook there?

No. This is Jerry. In Monterey that is predominately in agricultural marketplace, so you typically we see more growth between 1Q and 2Q. You will make the most of your money in that Monterey portfolio really between February and December of every year, so that’s a normal occurrence. In San Diego, we had some military movement did impact that area and we saw similar issues in both Jacksonville as well as Norfolk and in part of our Seattle portfolio that’s relying on the military. There seem to be an increase in movement this quarter. Eric Wolfe – Citigroup: Okay. Thanks guys.

Thank you. And next question is from the line of Jeff Spector with Bank of America-Merrill Lynch. Please go ahead. Jeff Spector – Bank of America-Merrill Lynch: Tom, you discussed a couple of times now that you are not done yet with the portfolio transformation, can you provide I guess the ideal mix in percentage terms what market to market were at least ex-suburban?

Certainly, Jeff I would think of it this way that the market that we would label 10% to 15% exposure and all that carried chime on in these as well. Would probably the New York, Boston, SoCal and San Francisco, will probably be the 10% to 15% marketplace reducing. If you add that you probably going to end with some more between 60% to 65% of the company in those five market. We probably add a little over 50% today in that market mix. So there is a little bit more buying left to do primarily in New York and Boston and San Francisco with respect to how much is left to sell. I think we have said it on the previous answer to Eric, we will probably looking in about a $1 billion or %2 billion, but our intent is to really just use that money to fund our development. If look at our development pipeline is clearly concentrated in those markets so that I highlighted 10% to 15%. There will be a range of markets that will be somewhere between 5% and 10%, obviously that's probably Seattle, it’s San Diego and Dallas, and that will make up to rest of the portfolio. Jeff Spector – Bank of America-Merrill Lynch: Okay, thank you. One follow-up on your comments about off-market transactions, I would have thought even a year and a half ago, it would be tough to do and you guys have done that. Do you anticipate that will continue? Is it getting tougher? It was David's comment on Rivergate about the dramatic improvement you've had there just in 10 days. It would seem is if people would market to sell their assets?

Harry, you want to color a bit?

Sure. We're out there actively looking for additional opportunities in New York City. As you know, it's hard to find these deals. They come along on an opportunistic basis and it candidly, it's helpful that we're active in the market, our names out there. So, we're finding additional families to talk to just given our recent track record in that market. We're optimistic that we will find other opportunities, when we certainly would like to.

This is Tom, I'd add additional color that, we've done three different family groups. You've had one take OP, the other two have looked at OP transactions, decided to take the cash and pay the taxes. Commonality between them was really the law firms, the tax advisors. So, now we’ve got familiarity, as well as the framework and it's a lot easier for the professionals to go to their clients in their relationships and explain our structure, the way we close, the way we negotiate and I feel like we're going to have more success in that area, but it's patience, patience and patience that gets these deals. So, we're excited about trying to find more, but they are complicated. They take time. It's a great strategy in our view is to pursue that asset that's really an A quality location, but a B asset and bring not just the operating platform to bear, but also the potential for redevelopment. I can understand the owners and operators of these assets today. They've done a fabulous job of creating value for themselves for long periods of time. But every once in a while there's an opportunity and they want to get some liquidity and we'd like to help them in that. So, I think we'll find more. Jeff Spector – Bank of America-Merrill Lynch: Thank you. That’s very helpful.

Thank you. And our next question is from the line of Jay Habermann with Goldman Sachs. Please go ahead. Jay Habermann – Goldman Sachs: Good morning. Tom, as you talked about Rivergate and some of the other acquisitions you've made so far this year clearly pushing rents 15% right off the bat is a very good start. Can you give us some sense of what you're assuming perhaps in years two and three, especially for markets like New York?

We've got a couple things going on. We generally expect over the next couple years to be able to achieve market rent increases of 10% to 12% in aggregate. But in addition to that the Rivergate property and 21 Chelsea property we also have redevelopment component and expect to be able to capitalize on that investment as well. Jay Habermann – Goldman Sachs: And what are you assuming for the returns on redevelopment?

It's an all in return on the assets. So, it's a purchase price, plus there is the money spent and you look at your total return. So, the redevelopment we're not looking at necessarily as an individual investment decision, but rather that's part of our game plan going in. Jay Habermann – Goldman Sachs: Maybe Tom just thinking big picture, is it too early to think about job growth for next year. What are your assumptions that you're baking in for 2012 at this point for job growth?

Boy it is a little early for that Jay. What I’d tell you is a lot is to watch what’s going to happen in D.C. and what’s going to get act and where. I didn’t think defense would be on the agenda, but clearly its front and center now. So, that’s changing the dynamics that I didn’t think was on the table. I think we have to wait and see, both the interest rate environment and a little bit about where these cuts and programs are going to occur as well as if there are some give and take on the tax issue. So, it’s just pre-mature. There is a lot coming out of D.C. that I think we all ought to be sensitive to and watch very closely, but I am still hopeful that small businesses take up the slack and then we get back to 2 million jobs a year, but more importantly to me is our local dynamics of our supply demand and how that plays out and not the aggregate of the U.S. Jay Habermann – Goldman Sachs: Great, thank you.

Thank you. And our next question is from the line of Rob Stevenson with Macquarie. Please go ahead. Rob Stevenson – Macquarie: Hi, good morning guys. Tom, you’ve talked in the past about your New York City strategy being mostly Manhattan’s only strategy for the time being. When you think about Boston, how far out into the burbs, are you willing to go there? I mean, it seems like that that market especially the sort of downtown Boston and such is a less deep market right now at least right now for acquisitions. Are you comfortable going stretching further into the burbs there?

Well, this is Harry. A lot of our portfolio is in the suburbs in Boston. In terms of our investment strategy going forward, our goal is to acquire for our new acquisitions to be closer into the downtown area. And you are right it is not as deeper market as some of these other downtown areas that that’s where we intend to focus the majority of our efforts going forward in Boston.

This is Tom, and I would add Rob that you probably be sign up a couple of development activities in Boston. And it’s still a great city. Long-term, it weathered the downturn enormously surprisingly very well. And so I think we’ll find a couple of development sites downside, down in the business district, if you will. We’ll see how those pan out, but we’ll get our exposure there, we’ll just be patient about how we get it. Rob Stevenson – Macquarie: Okay. What about developing New York City? I mean, you basically bought in Southern Cal, San Francisco, D.C., and then started developing there. It sounds like buying in Boston now and thinking about developing there. At what point does this development in New York City makes sense for you guys or doesn’t?

Well, Rob, I don’t want to say, I was never, certainly at some point the lifecycle of the company and its talent face it may. Today, we are just very, very comfortable that there is a very deep pipeline of this product similar to what we have got in Rivergate, 10 Hanover, and Chelsea, where there are great properties, good locations, there is upside in what we can do tomorrow. And I think we’ll stay at that bandwidth for a while. That doesn’t mean that we don’t see a lot of development opportunities, we’re just not comfortable with that risk reward at this point and feel like there is enough opportunity in the bandwidth that’s in our strike zone to find those. And I do like the opportunity just trading with these families. They are very sophisticated, they are very capable, and there is a lot of assets that they hold and we see it as a pretty good pipeline, if you will, that not many other people are pursuing with the same intensity that we are. Rob Stevenson – Macquarie: Okay, good. Thanks guys.

Thank you. And our next question is from the line of Alexander Goldfarb with Sandler O'Neill. Please go ahead. Alexander Goldfarb – Sandler O'Neill: Good morning. Just sort of curious as you guys underwrite the New York deals, what you are expecting for turnover as you guys are new institutional owner versus these who are privately run from the family perspective? And sort of, how that turnover – your turnover assumptions there if they differ materially from what you typically underwrite for other acquisitions?

Alex, it’s a very good question. Generally, what we find is, is when we do a light rehab is that the residents can take the absorption and they don’t frankly move. When we do a more higher intense re-grade, we expect almost to turn 100% of the residency over. And so I think the people at Rivergate are probably over the next three years going to get enough rent increases that it will push a substantial number of amount. I think in the case of the Chelsea that they’ll probably generally stay and in 10 Hanover, we’re finding that they are taking the rent increases and not really moving. So, we weigh it as part of our overall strategy of each acquisition, each opportunity, but the higher end, the more intense work. We have generally we do try to target turning over the entire resident base. Then it’s a question of how deep the market's going to be at 4,500 to 5,000 a month, basically for 1,000 feet. We think its $50 a foot, $52 a foot in that particular location of Rivergate, but the market’s pretty deep in that price point. Alexander Goldfarb – Sandler O'Neill: So sounds like the image for Chelsea and Hanover stay the same, but I guess resident perception of Rivergate is being the more affordable that will change as you guys upgrade it and run into more institutionally, it sounds like?

Absolutely. Alexander Goldfarb – Sandler O'Neill: The second question for David, just want to make sure I got everything. The $1.25 to $1.30 guidance, one just wanted to know what the transaction expense in the third quarter and for the second half of the year we should model in? Then are there any other onetime items like any other gains or anything like that in there?

The $1.25 to $1.30, you take the acquisitions that we’re going to close on here in the third quarter. Rivergate, 21 Chelsea and then you've got another call it roughly $300 million that we have in guidance and assume between 50 basis points to 1%. At the beginning of the year, we came out with 1% of the guidance, but we've seem to trend down from that a little bit. So you can probably back off that a little bit probably $0.02 in there in terms of acquisition cost, and then the rest of the earnings is a pretty sterile I believe. Alexander Goldfarb – Sandler O'Neill: So, no gains or anything like that?

No. Alexander Goldfarb – Sandler O'Neill: Okay. Thank you.

Thank you. And your next question is from the line of Rich Anderson with BMO Capital Markets. Please go ahead. Rich Anderson – BMO Capital Markets: Hey good morning everyone. Jerry mentioned the expected job growth in 2012 and Tom you mentioned you expect the housing market to remain weak for the time being and those kinds of two comments and could be argued that they are in contrasts with one another. That is revitalize housing market is going to be a part of recovery in the jobs markets. So, I'm curious as to why you think jobs will return in 2012, if you think the housing markets going to stay weak?

Well, I'll take my shot at what I think jobs. First, I would put up the dollar is going to get weaker. I think the export that easily we'll do well in that. I think technology will continue to strengthen. Healthcare up in the air, but it's clear to me that there is just a workforce shortage in that industry. So, I think those are going to be three that will probably grow in terms of jobs. Construction, which is always been kind of the industry that led us out of recessions in the past. I think is going to be muted. That I just don't see any need for construction. So, therefore is one down. The other down is probably going to continue to be government and now it might be defense. So, that being said, it's going to be a lot about what markets you're exposed to and, where that jobs are going to take place and probably would add oil and gas to the positive side as well. Homeownership, homeownership is really, can you give me any reason yourself that you see it swinging back around. You got to stay about for a down payment. You're probably going to be face with higher interest rate, going to squeeze your mortgage payment. I just don't see people wanting to venture back into that while the economy is still maybe in a double dip, maybe trying to find its way out of this recession. So, that's how I reconcile the two, Rich. Rich Anderson – BMO Capital Markets: Okay. And then second question is you guys obviously pretty aggressive buyers of real estate key market, have been made for an interesting story to cover obviously, but you can't know for certainly that it's going to be the right call. Right I mean something could turn against you and the prospects for multifamily could this time next year maybe not as good as what we're feeling today. It could happen to say that, right. So, what are your trigger points as you're going through this aggressive or active acquisition effort that might make you say, wait, hold on, let's slow this down a little? What are some of the things you're looking for that might give you pause?

Well, Rich, I'm not trying to time out of market. What I'm looking at is the long-term aspect of staying to be out of blank sheet of paper, where do you think the best prospects are for the long-term and they are in multifamily. They are in urban settings with what I would call amenity-driven space around them being transportation parts, job centers. So, I just look at the long-term and say, that's probably the areas that are going have the most enduring quality cash flow growth prospects as well as value appreciation in our assets. My experience and history proves it's probably right, this industry generally gets in trouble mostly, when we overbuild or the housing market becomes an artificial bubble enabled by the government. So, if you take away the government enabling the housing bubble, which I can't control, then it's the function of supply. Where does supply occur? It occurs in all our markets at different times and different paces and so our theory is that, it's going to start in suburbs where land is relatively available cheap and people will build out there to kind of meet a growing demand of the long-term demand if you will. So, that's why you will see the push for us more on in urban, more affordability, and the lastly is the equation of margin. In our suburban portfolio margins are probably in the low 60s and our urban portfolio margins were probably in the high 60s, a 10% margin differential combined with a better growth rate tells me, you're going to get lot better return over long-term. In the short run, there is a lot of things that can go wrong and the old saying, when Washington's in session, nobody’s safe, is true. And I don't know what's going to come up that. It's our biggest threat to our industry over the short-term, but that being said, it seems to me that I’d rather buy today than I’d build because of that uncertainty over that time horizon. That being said, we're going to find those unique sites that are worth building on and we’ll continue to pursue that and we’ll find them with our sales. So, I tried to lay both the capital risk by seeing I will sell assets to fund my development and my high coupon debt and that I will continue to buy as long as I have a very accretive possibility with my share price and the acquisition and the growth prospects. So, that’s how we thing about capital allocation over both the short-term and long-term. Rich Anderson – BMO Capital Markets: Okay, great color. Thank you.

Thank you. And our next question is from the line of Karin Ford with KeyBanc Capital Markets. Please go ahead. Karin Ford – KeyBanc Capital Markets: Hi good morning. Just another question on the non-same store pool, I appreciate the color that you’re expecting high single digits growth there. Did you own enough assets long enough, or do you have enough data that you could talk about, maybe what the sequential growth was in revenue and the non-same store pool compared to the 1.6% you posted in the same store pool?

Karin, this is Jerry. We really don’t have that information. Now most of the properties in that non-same store pool purchased at the latest in the fourth quarter of last year or late third quarter, you’re still working through some things like concession burn off. We don’t really have true growth rates to really give meaningful data on. Karin Ford – KeyBanc Capital Markets: Okay. Second question just relates to acquisition, I know you've funded 75% worth equity from here, drove down to at the EBITDA down to 8.5%. What percentage of acquisitions from here do you think will be funded with equity and where ultimately do you think debt to EBITDA will wind up by the end of the year?

Karin this is Tom. Funding source in the future, I still think we probably need to be doing 60% or greater in equity. I think it’s a good balance for us and a good strategy for us to lock-up acquisitions to come back to the street and say, here is what we have locked up. Here is our strategy, here is how we think we're going to manage this asset and increase its value and let the street actually see what they're investing in. So, that probably be better than 60% for time being and we will see how that goes as well as we will watch the stock price and how it respond.

Hey Karin, this is Dave. Regarding debt to EBITDA, assuming everything works out with respect to in the second half of the year, I would say our debt to EBITDA ends up somewhere between an 8 and 8.5. Karin Ford – KeyBanc Capital Markets: Thanks very much.

Thank you. And our next question is from the line of Paula Poskon with Robert W. Baird. Please go ahead. Paula Poskon – Robert W. Baird: Thanks. Good morning. To follow-up on that home ownership penetration rate discussion, one of your peers last week compared their average home ownership penetration rate in their markets to the national average. How would you do the same?

This is Jerry. I haven’t pulled that data. I would tend to say it’s probably fairly close to the national average. When you look at markets like San Francisco, New York, Boston I’d say it's below the national average and then when you get into markets such Nashville, Florida. Texas, Phoenix, it would tend to be a little bit above, so my guess and this is just a guess is it’s probably close to the national average. Paula Poskon – Robert W. Baird: Thanks Jerry. And also to talk about turnover, what percentage of move-outs this quarter were due to home purchase and also to high rent and how did that trend compare year-over-year and sequentially?

Sure. Move-outs to home purchase were just under 12%. That compares to 14% last year in the second quarter and it’s up slightly from about 11% in the first quarter and I would tell you that’s just seasonal home buying more than a trend. Move-outs to rent increase were about little over 6%, that compares to about 2% last year, so it is up quite a bit, but still not a meaningful number and then first quarter was up 5%. So, it’s inched up a little. What’s interesting is when you do look at move-outs to home purchase, there is two different scenarios, one is place like San Francisco, where we have pushed move-outs to rent increase above 10% there. So, it’s above our average, but what’s great is we are able to reload quickly with people willing to pay upwards of $300 million more than what the departing resident was paying and we are able to maintain occupancy levels in that San Francisco market of above 96.5%. So, in some markets you can push. You don’t really care if they move out, because you’re going to reload high rate. Conversely, when you go to markets like Florida, you’ll push and at times we’ll see occupancy get high and will get aggressive on renewal increases and there you will find people will move out and it’s more difficult to reload quickly. And therefore as you struggle to get your occupancy back up to over 95%, you may have to reduce your rent. So, when I look at my rates on new leases in a place like San Francisco in the month of July, we were getting over 16% increases on new leases in San Francisco, which was the best in our portfolio. In Florida, that percentage was more in the 2% to 4% range. So, sometimes you don’t mind when you push people out of those high increases and sometimes it gets painful when you have to re-look through strategy of how hard you push on renewals. Paula Poskon – Robert W. Baird: That’s very helpful, Jerry. Thank you for that. And then just a housekeeping, yeah…

Just to add to that, because I think we’ve read through the dialog on a lot of these conference calls about people trying to look at percentage of income. I’m not so certain that metric has the same relevance and power that it did in the past. Why, because I don’t think homeownership as is appealing as it was during when lot of people were measuring that and trying to correlate this next where rents going to go to or when they’re going to top out to. I think, what Jerry pointed to is very critical, which is how much do you grow rent, how long does it take you to reload the property after pushing that rent. And that’s probably a metric that I think maybe the sell side, buy side should focus a little bit more on, because that’s the one we are very much focused on is push the rent, when we see people move out, we say, well, wait a minute, that’s okay, if we can reload in 15 days. If it takes us a month to reload, then we push too far. So, it’s a lot about where is the top in the rents. It’s the questions more of how many people does it take to resell the property and how quickly do you identify them? So, I think that plays well into both our electronic platform, which has really given us daily information on that reload in that traffic to determine if we’re getting there on the pricing point. Paula Poskon – Robert W. Baird: Tom, I certainly agree with you on the all of the reasons why we don’t – shouldn’t be excited about the return of homeownership. I happen to subscribe to the theory that there is a secular trend underway among the psychological approach of the next generation coming out. Do you subscribe to that theory as well or do you take issue – or do you think that once the economy straightens out and there is wage growth that homeownership will return to norm?

No, I believe that there will be. The pendulum is swinging in our favor. At some point, absent government intervention, it will slowdown and start to swing back the other way in individual market by market. What’s the right number? I think ours with the interest deductibility on the payable potentially that the true dynamic of where it settles out won’t be settled for the next couple of years. I like the fact that it’s swinging in our favor during that period of time. So, secular change depends on how your time horizon. Having two kids that are post-college graduate out there in the workplace, I listen to them, listen to their friends and they say listen homeownership ties me down, I know I’m going to have to move around to get jobs, I don’t want to be tied to a home. Plus I can’t save up the damn money, I can got to mom and dad and get it. But the truth is I’d rather have my lifestyle, the flexibility, and all the amenities that renting affords me today and they are not really inclined to see homeownership as what we saw at my generation. And Paula, you are much younger than I so, you can fill in the gap. Paula Poskon – Robert W. Baird: I wouldn’t bet on that, but thank you for the color. I appreciate it. And then just two housekeeping questions for Dave, what did the severance charge relate to and what is that savings that you mentioned going forward? And secondly, what were the insurance related expenses?

On your second question, insurance-related expenses, we had a significant fire at one of our communities in Northern Virginia, that related to the series of units that were down, because of that there was the deductible related to that fire and the severance charges, about $750,000 were related to individuals throughout our enterprise that are no longer with us and the savings will be not dollar for dollar, but will be somewhere less than that on a go-forward basis. Paula Poskon – Robert W. Baird: Okay, thank you.

Thank you. And our next question is from the line of Michael Salinsky with RBC Capital Markets. Please go ahead. Michael Salinsky – RBC Capital Markets: Quick question, guys. You talked a little bit about near-term targets what are the long-term targets from a leverage standpoint? And in addition to that how much of the $75 million to $300 million of acquisitions you have in the guidance for the second quarter half of the year here is identified at this point?

Michael, with respect to identified targets, I can say that we probably put in $300 million in the guidance. We are probably looking at assets that are double that likelihood of closing, unclear to us. We are trading a lot of terms if you will, so many time, you are trading a lot of terms on a deal, lower probabilities securing it. Long-term capital and leverage level, I’m a big fixed guy. I really think that’s the key metric. We’re at 24 today. I’ve always been very comfortable at the 22 to 25 range. So, I am getting very comfortable where our leverage is. I know there is a debt to EBITDA orientation. We are looking at – we’re going to be in a low eight range. I look at the shape in the form of debt over that and that I've got $3.5 billion of debt at a 4.4 with a weighted average maturity of six years. So, I think we’ve got a good balance sheet, we’ve got a good shape to our debt structure, and really don’t have a desire to see it down into the sixes, if you will. Michael Salinsky – RBC Capital Markets: Then switching over to operations here for the second question, can you give an update on in terms of June and July trends in Orange County, I know Irvine Company changed the caps, they had on place there. Also curious as to the performance of Boston, you gave a great deal about New York, but I didn’t hear anything on Boston there during the second quarter in terms of your portfolio? And then Jerry if you could break out loss to lease maybe by region or a couple of your largest markets that’d be helpful as well?

Sure. I’ll start with the Orange County. Orange County did have a good second half of the second quarter and it has continued Orange County. We’ve been able to maintain our occupancy levels up north of 95%. We're setting out a renewal increases that we're setting out for August and September in Orange County are some of the highest in our company. Our average increase by the way that was setting out for the next couple months or up in the mid sixes. Orange County is in August and September, call a blended 7.5%. It's not as good as San Francisco, but it's probably up in the same ballpark with the Seattle. So, we feel pretty good about Orange County right now. Some submarkets within Orange County are strengthening more quickly and Platinum Triangle, while it's getting better still is in at the strength of the Coastal Properties. Boston, we've continued to see good results in Boston. We're sending out rent increases there north of 6%. We've maintained occupancy levels in that Boston portfolio that we have both the MetLife venture as well as the wholly-owned averages probably in the 96% to 98% range, but it's a very strong market. We don't see a whole lot of new supply that's been affecting us up in Boston. Michael Salinsky – RBC Capital Markets: And then finally just in terms of loss lease, could you maybe break it out by few of your larger markets, just to kind of sense of where how it's trending, just specifically, do you see maybe versus the West Coast?

Sure. In June, the total loss lease was a little over 6%. San Francisco was pushing 12%. Austin was at about 12%. LA, Orange County were both in 7% to 8%. If you get back to D.C., D.C. is actually about 4.5%. Everything else, I would tell you is roughly it's bundled up close to the 4% to 5%. It's probably the Florida stuff is a little at the low end down in the threes also. Michael Salinsky – RBC Capital Markets: Okay. That’s helpful. Thank you.

Sure.

Thank you. And your next question is from the line of Jeff Donnelly with Wells Fargo. Please go ahead. Jeff Donnelly – Wells Fargo: Hey guys, just a question or two. Tom, the GSEs had floated the idea of renting single-family homes that’s really pressure on housing markets and we can debate whether we actually saw anything or not. I'm just curious, do you think that's possible for a private enterprise not necessarily UDR to profitably manage single family home rental business in the scale or even for the government do to without losing money?

Yes, it’s interesting, because I had three people in my office for the last two weeks, they were asking about what systems they thought would be needed to be able to secure that and that they were actually putting together companies to make debts on that effort, if it were to come to fruition. And listening to the dynamics of it, they were going to tap realtors as kind of their leasing agents and pay them a commission. So, it seemed to me that an efficient structure could be put in place to manage that I didn't think it was high return business, it looked to me like their margins were somewhere between 15% and 20%. So I don’t think that’s a great use of capital manpower. But it seems to me that there could be a market that would be efficient and effective in that and an opportunity for some entrepreneurs to jump in it. Though can it happen? Certainly, if the government puts its will and heart behind it, how much business you want to do with the government it always is cautious statement in my mind. Is it a much of a threat to us? Looking over kind of what their business plans were and the identified product, I didn’t see it as any much of a threat to us in terms of our portfolio or our business model. So, if it helps the housing market strengthen, helps the overall account, the economy, I probable before it, if all things would be an equal. Jeff Donnelly – Wells Fargo: And just a follow-up maybe from earlier questions, so what do you think about your purchases in New York as well as the assets involved and the exchange with Avalon, where your initial cap rate was when you bought them and maybe where you think that can go? Now that you’ve had more time with these assets, are you able to maybe put a finer point on as to say, for example you see 100 basis points of upside in your yield and that split, what between I’ll call it better revenue management versus better expense controls, really that latter piece I'm more interested in where you kind of see the source of your upside?

I think in New York, the vast majority of the improvements on the revenue management side of the equation. That the cost structures that we would say probably get eaten up by the higher tax equation, but it’s probably leaning 80% towards the revenue side of the equation in the Manhattan stuff. The other stuff we bought in D.C. I would think it’s a combination, Boston, probably more 50/50 revenue and expenses. They are not poorly run real estate. It's probably just not optimized and not responsive to the resident. Jeff Donnelly – Wells Fargo: Okay, great. Thank you very much.

Thank you. And your next question is from the line of Seth Laughlin with ISI Group. Seth Laughlin – ISI Group: Thanks. Just given that your exposing assets in the more suburban markets and obviously looking in the higher barrier markets to acquire. I'm wondering if you just comment on the cap rate spread, how that spread has changed over the last 12 months and maybe where you see that spread going forward over the next year going?

This is Toomey, I'll ask Harry to comment further. My view of cap rates on the B product suburban is always a function of the debt and so, with debt being if nothing else coming down, I would literally drop my jaw to see a five-year piece of paper at 3.5 isle only and to look at that paper and say guys suburban, you should be talking about five caps. They are saying think six. We'll see what we can do and maybe we'll get better. So, I contrast that where I look at the urban portfolios, where it's a lot more competitive and we're seeing, basically its turn to four cap markets. Does it have much room to fall from there? I don't have any idea about, where cap rates are headed, but I know the urban is not as right sensitive as in the past. So, that's kind of some color. If I think about interest rates in the future, maybe the base rate phased down low like it is, but my sense is given what's going on in Washington, spreads are going to have to widen and I think that's going to have a more direct impact on the pricing of the B and suburban portfolios than it is the urban orientation, which have more institutional less levered players trying to pursue it. That's been my experience and I would probably think it's going to continue to repeat itself in this part of cycle. Any other comments on cap rates?

I don't think. So, they'll clearly come down in all product types, the A stuff, as well as the B product that we're going to be selling. Remember a lot of what we're buying and have been buying particularly in New York City, is that a rehab component. So, in addition to getting some market growth we're going to get a return on our invested dollars as well. Seth Laughlin – ISI Group: Understood. Then maybe just a quick follow-up for Jerry, it looks like from your comments Orange County, it's firming up. Is it your expectation that we could see revenue growth above the portfolio average sometime this year or do you think we have to wait till 2012 for that?

I think you’re probably looking at 2012. Seth Laughlin – ISI Group: Understood, thanks for the comment.

Thank you. Our next question is from the line of Derek Bower with UBS. Please go ahead. Derek Bower – UBS: Thanks. Most of my questions already been answered, but two quick ones hopefully. On the future Manhattan deals, are you only looking at off marketed deals, where there may be some operating inefficiencies that you can exploit to help reduce your returns, or are you also looking at assets, which are more well leased with rents in line with the market average?

Well, we're looking at the deals that are in the market as well as the off-market transactions. The properties that we've acquired, the three properties happened to be from three families and we believe, we've realized the capitalized and the operational inefficiencies in those properties. So, at the end of the day perhaps those are the deals that are just easiest for us to get done, to get across the finish line rather than competing with everyone on the market that deals. But we're looking in all of them. Derek Bower – UBS: Okay, got it. And then quickly just back to D.C, can you discuss your overall acquisition strategy there going forward and maybe touch upon the View 14 acquisition you had there and given your commentary of expecting D.C. to no longer being a top market for your portfolio starting in 2012?

This is Toomey. With respect D.C. in 14 View, the benefit out of 14 View is that we're developing a community right across the street from it. So, truly it was an auction. We have been quoting the seller for a better part of three years, knowing that we were under development and thought that it would make a great complement. It’s in the union area, which is very trendy and upbeat. So, that was an auction that frankly we thought was worth stepping to the top of the list and winning, because of the synergies that we could run the two of them together and achieve some better returns out of that. On a go-forward basis, I always like the strategy of – in D.C. of buying what I call the old towers of buildings that are 8 to 15 and rehabbing them. We think that the rehabs give us a chance to create value and that the suburban portfolio in D.C. is just trade in capital over time and we will trade out of that, but no particular hurry, we like the exposure, but that would be how we probably shape D.C. in the future. Derek Bower – UBS: Okay, great. Thanks.

Thank you. And our next question is from the line of Swaroop Yalla with Morgan Stanley. Please go ahead. Swaroop Yalla – Morgan Stanley: Yes, hi. Actually, just to touch upon expenses, some of your peers have reported strong expense controls and so have you this quarter. Just wondering if you see any opportunities to control expenses maybe other tax deals later this year?

We definitely are hopeful that we’ll win some tax for later this year. We are comparing against favorable taxes last year and the second half of the year, so it’s hard to determine if that’s going to come. On other expense control items, I would tell you when you look back over the last three to five years, we’ve been really pushing electronic initiatives to make our advertising more efficient and less expensive as well as the workforce in our site offices. So, we’ve reaped a lot of that benefits historically and we continue to lead the way and look for additional ways to really drive down expenses going forward. We are cognizant though that you need to continue to maintain your assets at a high level if you want to command premium rates and occupancy. So, we are not going to make a short-term decision just to drive expenses down this year. Swaroop Yalla – Morgan Stanley: Got it. And Tom, I hear your comments on rental income as metric, which is changing as the rental psychology is changing as well, but just curious as you have repositioned your portfolio, how has the rent to household income changed as you have moved between your markets?

This is actually Jerry. It’s really stayed the same for the last two to three years. It’s about 17%. And it will be a little higher in some markets, a little lower in others, but it’s been fairly consistent the last couple of years. Swaroop Yalla – Morgan Stanley: Great. And is the long run average around the same as well or?

I think, longer term when you go back a few more years it was probably in the low 20s and now it’s in that, again, the 17% to 18% range. What we have seen as our average renters’ income has gone up about 4% in the last year and sometimes that’s the guy that was living there last year got a 4% raise, but more often I think we are trading now departing residents with higher income, higher grade residents. Swaroop Yalla – Morgan Stanley: Great. That’s very helpful. Thank you.

Thank you. And that does conclude the question-and-answer session. I would now like to turn the call back over to management for closing remarks. Tom Toomey – President and Chief Executive Officer: Well, thank you all of you for the time today and we look forward to another second half of the year, hopefully, as busy as the first half, but we do like our business. We like its long-term prospects and continue to believe it's a great time to grow our enterprise and all the momentum in the industry seems to be very positive, so look forward to talking to you more in the future. Take care.