United Dominion Realty Trust, Inc. (UDR)

UDR 
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UDR, Inc.(UDR)

Q3 2012 Results Earnings Call

October 29, 2012 11:00 AM ET

Executives

Chris Van Ens - Vice President, IR

Tom Toomey - President and CEO

Jerry Davis - SVP, Operations

Warren Troupe - Interim Principal Financial Officer, Senior Executive VP, Corporate Compliance Officer

Harry Alcock - SVP, Asset Management

Analysts

Eric Wolfe - Citigroup

Jana Galan - Bank of America

Dave Bragg - Zelman & Associates

Andrew Rosivach - Goldman Sachs

Michael Salinsky - RBC Capital Markets

Karin Ford - Keybanc Capital Markets

Michael Bilerman - Citi

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to UDR's Third Quarter 2012 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, October 29, 2012. I would now like to turn the conference over to Mr. Chris Van Ens, Vice President of Investor Relations.

Chris Van Ens

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 morning's press release and included in our filings with the SEC. We do not undertake the 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-ups. 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, Chris, and good morning everyone. Welcome to UDR's third quarter conference call. On the call with me today are Jerry Davis, Senior Vice President of Operations, who will discuss our results, as well as senior officers, Warren Troupe and Harry Alcock who will be available to answer questions during the Q&A portion of the call.

My comments today will focus on four topics; first, broad operating trends and quarterly results; second, an update on our external growth activities; third, an update on our CFO search; and finally, the expansion of our UDR MetLife II joint venture announced this morning. Following my comments Jerry will provide additional commentary on operating results and emerging operating trends.

During the third quarter our business continued to operate at an elevated level, driven by strong organic rent growth as well as slightly higher occupancy rates. With the fourth quarter upon us we have entered the seasonally slow time of year for the apartment demand. Nonetheless good multi-family fundamentals continued to generate tailwind for the industry and we expect will do so for the foreseeable future. This is especially true for UDR, which owns a portfolio increasingly concentrated in markets that exhibit above average job growth, low single family home affordability, a high propensity to rent and in general limited new multifamily supply pressures.

In the third quarter of 2012, core FFO per share of $0.33 increased by 3% year-over-year. Strong same-store revenue and net operating income growth of 5.5% and 6.4% respectively, as well as good execution in our non-same-store portfolio, drove the improvement.

Second an update on external growth activities. Green lighting opportunities that increase the company's net asset value per share remain a top priority, although we are cognizant of balancing this necessity against AFFO per share growth and our intent to operate the company at a lower leverage profile. The following is what we currently see in the marketplace.

First, acquisitions; we continue to look for opportunities to expand in our core markets, but pricing for the most well located assets is full right now. We will consider buying again when we find the right property in the right location at the right price and can fund the acquisition with appropriately priced capital in the context of our lower leverage profile.

Second, development; the weighted average spread between expected stabilized yields and spot cap rates; our in progress pipeline is roughly 150 to 200 basis points. Historically, the spread has been closer to 100 to 150 basis points. As such development remains as a source of significant value creation.

To be clear, we expect our developments to generate stabilized yields that are averaging 6% to 6.5%. These are not represented with the yields we expect upon delivery and lease up. With 51% of our $792 million development pipeline already funded, approximately 75% will be delivered by year-end 2013. We are actively evaluating new opportunities as well as those within our wholly owned and JV land bank.

We finally redevelopment, our pipeline encompasses five projects with a total anticipated spend of $279 million, 34% of which is expected to be completed by year end 2013 and 23% of which has already been funded. Redevelopment continues to offer superior risk reward paid off versus other external growth opportunity. But our opportunity set is limited as viable candidates are inherently tied to the size and scope of our existing portfolio.

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