United Dominion Realty Trust, Inc. (UDR)

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UDR, Inc. (UDR)

March 05, 2013 2:15 pm ET


Thomas W. Toomey - Chief Executive Officer, President, Director and Member of Executive Committee

Jerry A. Davis - Chief Operating Officer and Senior Vice President

Thomas M. Herzog - Chief Financial Officer and Senior Vice President


Michael Bilerman - Citigroup Inc, Research Division

Eric Wolfe - Citigroup Inc, Research Division


Michael Bilerman - Citigroup Inc, Research Division

[indiscernible] or other individuals are on the line, please disconnect now. We are very pleased to have with us UDR. Tom Toomey. Tom, I'll turn it over to you to introduce the management team and then have some opening remarks, and then we'll shoot through some Q&A.

Thomas W. Toomey

Thank you, Michael and Nick, and to my immediate left is Jerry Davis, our COO; and to my right is Tom Herzog, our CFO. We've got about 2 minutes of prepared remarks, and I'll read those for you and then open it up to Q&A. Can all of you hear me? That's great. I'll do that.

Michael Bilerman - Citigroup Inc, Research Division

I think your mics are off, sir.

Thomas W. Toomey

Thank you very much. I apologize. I got a little bit of a cold today, so bear with me, if you will. Now let me start with multifamily fundamentals. First I'd say is they remain very solid. First, our view is job growth remains steady. Supply still looks to be under control aside of a couple of markets. The single-family housing is undoubtedly improving, but sourcing of down payment and still tight credit standards are going to make it difficult for people to move out of our apartments and homes. Lastly, household growth continues to improve and continues to favor rental owners and operators. And I'm intrigued to watch what happens in Washington, D.C. on the debate around immigration, but believe that, that may be also helping us in the near-term future. And lastly, record enrollment in college is -- there's a lot of kids getting out. They're most likely going to be renters before they're homeowners, and we think we'll capture a fair share of those.

Our 2013 expected same-store revenue growth is 4% to 5%. Our expense growth of 2.75% to 3.25%, leading to an NOI growth of 4.25% to 6%. We feel like that is a good tone and well above long-term averages, and we expect our strength to come from our coastal markets, although some summed-out markets, particularly Florida, are showing some strength recently.

Moving on, we have provided a 3-year strategic outlook during our fourth quarter call and we spent a great deal of our time here at Citi talking to investors and going through that. And let me highlight a few points there.

First, we view the 3-year strategic outlook and, if you will, as a contract between management and our shareholders, clearly articulating what we are going to do over the next 3 years, why we're going to do it and then what the derived benefits that we expect out of that.

In particular, some points to give to you would be the strategic portfolio repositioning. We consider it complete. There will always be some buying and selling, but the vast majority of repositioning of portfolio is complete. The balance sheet metrics have improved significantly through 2009 and we've established targets that we believe we'll get to by 2015. Operationally, Jerry and his team continue to generate strong results, both on a relative basis by market and through peers and aggregate. We continue to focus on our internal use of capital and its allocation.

We're focused on our development and redevelopment efforts, which currently comprise $1.3 billion of an active pipeline. Over 55% of that will be delivered in 2013 and over 50% of the aggregate pipeline has already been funded.

We expect our AFFO growth per share will grow by 9% on average in 2014 and '15 as a result of the development and redevelopment activities being delivered. We also believe that this will result in a growing dividend. So finally, we think it's a great time to take advantage of what work we've done, let the earnings get to the bottom line and we think we have fundamentals that will support that as well. So with that, Nick, I'll turn it back to you and we'll start the Q&A portion.

Michael Bilerman - Citigroup Inc, Research Division

Great. Tom, we've been starting each of these sessions with the same questions to management, which is, what do you think is the most value creating opportunity that you currently have within the company that the market is not attributing much value for?

Thomas W. Toomey

Well, I think our response would be our redevelopment activities, and they go beyond just a simple kitchen and bath $10,000 per home improvement. Our average spend on a redevelopment activity is $75,000 per home, so we actually take many of these properties down to the studs, rebuild them, and our intent is not just to get a good cash-on-cash return, which we've forecasted better than 88%, but also to reposition the asset and capture a cap rate compression. And so many times, we would start an asset that would be a 5 -- excuse me, a 6 cap and by the time we're done repositioning it, it turned out to be 4.5 cap. So I think people look at redevelopment as a cash-on-cash, but they missed the cap rate compression potential.

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