United Dominion Realty Trust, Inc. (UDR)

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UDR, Inc. (UDR)

Q3 2008 Earnings Call

November 4, 2008 1:00 pm ET


Larry D. Thede - Vice President - Investor Relations

Thomas W. Toomey - President, Chief Executive Officer, Director

Jerry Davis - Senior Vice President - Property Operations

W. Mark Wallis - Senior Executive Vice President

David L. Messenger - Chief Financial Officer

Warren L. Troupe - Senior Executive Vice President, General Counsel


Analyst for Michael Bilerman - Citigroup

David Bragg - Merrill Lynch

Dustin Pizzo - Banc of America Securities

Jonathan Habermann - Goldman Sachs

[Michelle Coe] - UBS

[Simiti Yupatia - CR Capital Markets]

Jeffrey Donnelly - Wachovia Capital Markets, LLC

Mike Salinsky - RBC Capital Markets

[Mark Ziffert] - Oppenheimer & Co.

Richard Anderson - BMO Capital Markets

Hondo Lee Ute



Welcome to the UDR third 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 Tuesday, November 4, 2008.

I would now like to turn the conference over to Mr. Larry Thede, Vice President of Investor Relations.

Larry D. Thede

Thanks to all of you for joining us for our third quarter financial results conference call. Our third quarter press release and our supplemental disclosure package were distributed yesterday and posted to our website. In the supplement we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

We’ll begin the call with management comments and then open the call to your questions.

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

Before I turn the call over to Tom, let me mention that we’re hosting a Los Angeles Property Tour on November 18, the day prior to the NAREIT Conference. You can find the sign-up form on the Investor Relations tab of our website and please call me if you have questions.

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

Thomas W. Toomey

Thank you again for joining us today to discuss our third quarter results and our tactics during these volatile times. Joining me on the call is Mark Wallis, Warren Troupe, David Messenger and Jerry Davis.

Today is a very important day as we finally arrive at the conclusion of the election and begin to answer the question of what policies are going to be implemented over the next four years. For those who are a little less intense and cannot bear the media coverage of the election tonight, the movie Get Smart comes out on DVD.

Overall the third quarter was a good quarter. Our operations performed on plan in spite of deteriorating fundaments. We raised over $300 million in equity and debt and recently renegotiated a 2010 maturing credit facility extending the maturity to 2018 increasing the size at a blended rate of 4.8%. This proves that even in a volatile market capital is available for well-capitalized companies who can move quickly.

We completed the deployment of our exchange fund with the acquisition of five communities for $286 million. We also completed over 1,000 homes or nearly $200 million in development and redevelopment. Lastly, we finalized the special dividend at $132 million to be paid in January 2009.

On the subject of the economy it is very easy to be caught up in the minute-by-minute data but I might suggest a couple key points. Yes, the capital markets are volatile but with unprecedented action taken by the government and the potential for more to come on so many fronts, we have to keep in mind that these actions will take some time to change the course of our economy. But they will change the course.

The recession, they all come and they all pass. No segment of the economy will escape. Over the last 60 years we have endured 10 recessions and they’ve lasted anywhere from eight to 16 months each. When our management team backs up and looks at today’s economic environment, we realize we cannot predict what will happen but we can prepare. While it might be easy to sit back and let the recession and capital markets run their course, we have been adjusting our tactics to ensure we manage the capital markets and recessions to prepare UDR to take advantage of the inevitable opportunities.

Let me turn the call over to Jerry Davis and the rest of the team to discuss specific areas.

Jerry Davis

While our third quarter operating results of 3.4% revenue growth and 6.6% expense growth are not as strong as previous quarters, they are what we expected and what we previously communicated they would be. Revenues will continue to moderate in our market as the economies worsen. Expenses were up quite a bit this quarter due to very low comparisons in the third quarter of 2007. That being said if you look at our year-to-date numbers, our revenue was increased 4.1%, expenses were up 1.7% and NOI has grown by 5.3%.

I would like to point out that we do see further deceleration in revenue growth in the fourth quarter and we once again will be challenged in expense growth due to very low comparisons from the fourth quarter of 2007. These are related to low insurance expense as well as favorable real estate tax adjustments we took in the fourth quarter of 2007.

When we look at our revenue growth in the third quarter of 3.4%, it is important to realize that Florida which makes up 17% of our same-store NOI experienced a 1.5% revenue decline. If you throw out Florida’s results, like I’m sure Al Gore wishes he could have done eight years ago, our revenue growth was 4.7%.

Our strongest markets continue to be in Northern California where job growth has been 1.1% to date and new supply has been limited. While we have felt a softening in Southern California, we continue to feel that our superior locations at the right price points have enabled us to continue to outperform the market in Orange County. Our coastal locations west of the 405 Freeway continued to be where people want to live in Orange County. I’d like to remind everyone that the average Orange County occupancies have historically not fallen below 93%.

Prior to moving to Denver a year ago, I ran this portfolio for UDR. I can tell you from personal experience that besides superior locations at the right price point and a very seasoned operating team running those properties, we have continued to invest in these properties both on their exteriors and interiors. With the average property in Orange County being over 30 years old, and that’s not just us, that’s the entire inventory of the County, and most of the product being privately owned we are confident that our properties are in better condition than our competition and we will continue to outperform the market as we have over the past four years.

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