United Dominion Realty Trust, Inc. (UDR)

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UDR, Inc. (UDR)

Q4 2008 Earnings Call

February 10, 2009 1:00 pm ET


Larry Thede – VP IR

Thomas Toomey – President & CEO

Jerry Davis – SVP Property Operations

Mark Wallis – SEVP

David Messenger - CFO

Warren Troupe – SEVP & General Counsel


Jonathan Habermann - Goldman Sachs

Robert Stevenson – Foxx-Pitt Kelton

Michael Bilerman - Citigroup

Michelle Ko – UBS

Richard Anderson - BMO Capital Markets

Mark Biffert – Oppenheimer

Mike Salinsky - RBC Capital Markets

Unidentified Analyst
[Andrew Amculla – Unspecified Company]

Alexander Goldfarb – Unspecified Company

[Kareen Forest – Unspecified Company]
Paula Poskon – Robert W. Baird
Steve Swett – KBW

David Bragg - Merrill Lynch



Welcome to the UDR fourth quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Larry Thede, Vice President of Investor Relations.

Larry Thede

Thanks all of you for joining us for our fourth quarter financial results conference call. Our fourth quarter press release and 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.

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 are included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

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

Thomas Toomey

Thank you Larry, as we are toward the end of earnings season and I see little benefit in taking up your time playing amateur economist, I have a few quick thoughts and then we’ll turn the call over to the key executives for details.

On the subject of the fourth quarter and 2008 performance in the face of challenging times we were very successful on a number of fronts. We strengthened our portfolio with sales of $1.7 billion, and acquisitions of nearly $1.1 billion in the right markets.

We raised over $1 billion in capital with over $700 million raised in the fourth quarter alone. Our operating team delivered the second best NOI growth for the apartment REITs for the year and twice we reduced our cost structure to reflect changes in our portfolio and operation environment.

We adjusted our development deliveries and redevelopment deliveries to reflect a slowdown in the fundamentals, and I personally want to thank and express my appreciation to all our associates who worked very hard to deliver these results.

Let me now turn to 2009 and 2010, our guidance will be given in more detail by David and Jerry, like you we believe the business climate and volatility will remain challenging. We are extremely concerned over the rapidly eroding employment picture that has seen unemployment rise from 4.7% to 7.6% in just six months.

We are skeptical that the government’s efforts to restart the capital markets will show benefit during 2009. I will say though that our strategies will not change. I will continue to focus my efforts on increasing our financial flexibility and in fact in the first 40 days of 2009 we have increased our lines of credit by $240 million brining total cash and credit capacity to $1.2 billion.

With that let me turn the call over to Jerry.

Jerry Davis

Thanks Thomas, and good afternoon everyone. In the fourth quarter of 2008 we saw increasing job and worsening economic conditions effect our business. Our revenue growth of 1.8% during the quarter was lower then we anticipated as pricing power that we enjoyed in our California and Pacific Northwest markets for the first nine months of the year disappeared.

Fourth quarter expense growth came in right where we expected it at 6.8%. As we had communicated all year our fourth quarter 2007 expenses were extremely low due to several favorable tax deals as well very low insurance. Taxes and insurance make up 38% of our total expenses and they were up 20.6% for the quarter.

The other operating expense categories which make up the remaining 62% of our expenses were actually flat with the prior year. On a sequential basis our revenue fell 0.8%, marking the first drop in sequential revenue in the past 17 quarters. Our expenses were down 5% from our third quarter levels and the result was fourth quarter NOI was 1.2% higher then the third quarter.

For the full year our revenue increased 3.6%, expenses were up 3.1%, and the resulting NOI grew by 3.8%. In comparison to the apartment REITs that have reported full year results, that would place our revenue and our NOI growth at second best in the sector.

Beginning in late October and then continuing through the end of the year, we saw a strong shift in our pricing power throughout our portfolio but most notably in our West Coast markets. While we have been able to keep occupancy at very stable levels, rental rates on new leases in most markets have retreated.

In the fourth quarter we continued to get modest increases on the 3,600 lease renewals we did in the 1% to 2% range. However these were not enough to offset the average decline of 4% that we experienced on the 5,000 new leases that we signed in the fourth quarter.

Given the continuing job loss expectations in 2009 we see revenues decreasing by 1% to 3%. Our expectation is that the DC, Virginia, Northern California, Pacific Northwest, and Texas markets which represent 36% of our total revenue will have positive growth but they will be dragged down by deteriorating conditions in Southern California and Phoenix and a continued struggle in Florida. These markets represent 46% of our total revenue.

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