United Dominion Realty Trust, Inc. (UDR)

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UDR, Inc. (UDR)

Q3 2009 Earnings Call Transcript

October 19, 2009 5:00 pm ET


Andrew Cantor – Investor Relations

Tom Toomey – President and CEO

David Messenger – SVP and CFO

Jerry Davis – SVP, Property Operations

Mark Wallis – Senior EVP

Warren Troupe – Senior EVP, General Counsel and Corporate Secretary


David Toti – Citigroup

Swaroop Yalla – Morgan Stanley

Jay Habermann – Goldman Sachs

Mark Biffert – Oppenheimer

Michael Levy – Macquarie

Michelle Ko – Bank of America

Dave Bragg – ISI Group

Anthony Paolone – JP Morgan

Dustin Pizzo – UBS

Ross Nussbaum – UBS

Rob Stevenson – Fox-Pitt Kelton

Karin Ford – KeyBanc

Michael Salinsky – Royal Bank of Canada Capital

Paula Poskon – Robert W. Baird

Steve Sakwa – ISI Group

Mike Liddell [ph] – AIG

Andrew McCulloch – Green Street Advisors

Jordan Sherman [ph] – Parental Real Estate

Jon Litt – Citigroup

Michael Bilerman – Citigroup



Good afternoon, ladies and gentlemen. Thank you for standing by. 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 open for questions. (Operator instructions) This conference is being recorded, Monday, October 19th of 2009. I would now turn the conference to our host, Tom Toomey, President and CEO. Please go ahead, sir.

Andrew Cantor

Thank you for joining us for UDR’s third quarter financial results conference call. Our third quarter press release and supplemental disclosure package were distributed earlier today and posted to our website, www.udr.com. 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 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 evening’s 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-up. 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.

Tom Toomey

Thank you, Andrew. And good evening to everyone. Welcome to UDR’s third quarter conference call. With me today are Jerry Davis, Senior Vice President of Operations; David Messenger, Chief Financial Officer, who will discuss our results; as well as our Senior Executive Vice Presidents, Mark Wallis and Warren Troupe, who will be available to answer questions during Q&A.

After the market closed today, UDR announced that it achieved core FFO per share of $0.31 compared to $0.30 last year. This quarter’s FFO results were impacted by two items. One, a $0.10 charge related to non-cash equity loss on the company’s investment in a development joint venture and a $0.02 charge associated with our bond tender. Including these amounts, our reported FFO per share is $0.19.

During the quarter, we engaged in a number of capital market activities. In September, we completed a bond tender. The tender was at a 10% premium, but was the right decision, as we realized interest savings over the long-term and were able to modify our bond covenants. Furthermore, in mid-September we initiated at-the-market stock issuance program where we sold roughly 2.3 million shares at an average price of $14.89.

In addition to our efforts to lower our interest expense via our bond tender and to raise our equity opportunistically through the ATM program, UDR secured a 10-year $200 million facility with Fannie Mae at a weighted average interest rate of 5.28% and entered into a $450 million acquisition joint venture with Kuwait Finance House. These activities will be discussed in detail during Dave’s remarks.

These activities further illustrate that the market’s willingness to provide strong multi-family operating platforms like UDR with capital necessary to fortify its existing balance sheet and capital to take advantage of anticipated acquisition opportunities.

From an operating perspective, as we have discussed in the prior calls, the economy certainly remains challenging due to the continued job loss and increasingly tough comparables in the field. However, we remain encouraged by how effective we have been executing despite these headwinds.

To that end, in the quarter, we limited our same store NOI decline to 3.7% on a year-over-year basis and 1% through September 30th and continue to maintain occupancies above 95%. We have been communicating throughout this year that rental growth will be allusive in the near-term as we go through a bottoming process. But the scarcity of new product to compete with in most of our markets and the minimal vacancy in our portfolio should allow us to push rental rates when the job market recovers.

While we expect some markets to continue to moderate, such as our Southern California where we are generating 27% of our same store NOI, we are seeing a slowing in rental rate declines on a sequential basis in other markets, specifically Washington DC and Florida where we generate almost 50% of our same store NOI.

And as we look for sequential rental rate increases across several of our markets perhaps as second half of 2010. Jerry and his team have done a great job of managing the trade-off of occupancy, rents, turnover and resident quality in the field, and he will continue to provide more color on these trends in the individual markets during his remarks.

Recently, there have been some high profile deals going to contract that illustrate the disconnect between private market values and those of the public markets. One particular deal in the DC beltway comes to mind. There are over 30 bidders for this asset at a reported cap rate in the low fives. This high level of participation on the anniversary of the financial markets dislocation shows just how far the pendulum has swung from the irrational despair of 2008.

Institutional investors are showing an appetite that has returned particularly for properties located in strong employment markets with high barriers to entry. While this is just one market and one single asset, the story is the same across many markets and many deals and should provide a reference point or baseline on how valuations in the private market for institutional quality assets relate to those in the public markets.

With that, we’ve got a good amount of ground to cover. I’ll pass the call over to Dave to discuss our financial results.

David Messenger

Thanks, Tom. My comments today will focus on the third quarter results, the steps we’ve taken to further improve our capital position, and our outlook for the remainder of fiscal 2009. Earlier this evening, we reported $0.19 of FFO, which consists of $0.31 from our core operations, a $0.02 charge associated with our tender offer, and a $0.10 charge related to a loss on an equity investment. We have excluded the $0.01 effect related to the convertible debt accounting. Our core FFO $0.31 compares to $0.30 last year. Jerry will provide detail on our operating results in a moment.

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