UDR, Inc.
Q1 2016 Earnings Call Transcript

Published: 27 Apr 2016

[Operator:]

Please standby, we're about to begin. Good day, and welcome to UDR's First Quarter 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Shelby Noble. Please go ahead.

[Shelby Noble:]

Welcome to UDR's first quarter 2016 financial results conference call. Our first quarter press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our Web site, ir.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 requirement. 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. When we get to the question-and-answer portion, we ask you that you be respectable of everyone's time and limit your questions and follow-ups. Management will be available after the call for your questions that do not get answered. I will now turn the call over to our President and CEO, Tom Toomey.

[Tom Toomey:]

Thank you, Shelby, and good afternoon everyone, and welcome to UDR's first quarter conference call. On the call with me today are Tom Herzog, Chief Financial Officer; and Jerry Davis, Chief Operating Officer, who will discuss our results; as well as senior officers, Warren Troupe and Harry Alcock, who will be available for the Q&A portion of the call. The first quarter of 2016 was another great quarter for UDR, with strong same-store results and development lease-ups continuing to perform well. As you have come to expect from UDR, we remain focused on executing on our previously communicated two-year strategic plan, which is still the right plan, given the long-term strength of the apartment business. From a big picture point of view, we're now in our sixth year of achieving 5% plus NOI growth. Over the past two years, most of our markets have seen accelerating growth trends due to supply/demand imbalance, and while our overall 2016 same-store operating trends continue to improve year-over-year in a few markets as anticipated, we have started to feel the impact of concentrated new supply. We believe apartment growth is sustainable, and supply can be absorbed with steady job growth and household formations. Deliveries of new apartment homes are projected to peak in the cycle in 2016 at around 380,000 units, and will subsequently drop in 2017 to 300,000 units, while job growth is forecast to be in the 2 million to 2.5 million range in both years. In this environment, market mix and price points will be key, and this plays well to our overall strategy that centers around our diverse portfolio mix of 20 markets with A and B quality communities in urban and suburban locations, which over the long-term we expect to continue to perform well through the cycles and provide consistent cash flow growth. Our two-year strategic plan issued in February showed strong expected 2016 revenue and NOI growth of 5.75% and 6.75% at the midpoints. And we spoke to an anticipated solid, but slightly decelerating 2017 operating environment with revenue and NOI growth of 5% and 5.5% at the midpoints. Since then, there have been a number of publications speaking to flowing revenue trends in certain markets. And as such, I have asked Jerry to provide an update on our market expectations for the balance of 2016 and how we currently see 2017 stacking up. I hope you find this useful and that you reach the same conclusion that the UDR team. It's a great time to be in the apartment business, and therefore, we're reaffirming our full year guidance provided in the initial outlook, and we'll provide an update during the second quarter earnings call. Also let me take a moment to mention that we were pleased that in early March we were added to the S&P 500 index, which is granted to our investors and the entire UDR team who made this possible. With that, now I will turn the call over to Tom.

[Tom Herzog:]

Thanks, Tom. The topics I will cover today include the first quarter results, our balance sheet and capital markets update, our casualty loss update, and development and transactions update, and our second quarter and full year guidance. Our first quarter earnings results were in line with our previously provided guidance. FFO, FFO as adjusted and AFFO per share were $0.43 and $0.41 respectively. First quarter same-store revenue, expense, and NOI growth remained strong at 6.4%, 2.7%, and 8.0% respectively. Next the balance sheet; at year end, our liquidity as measured by cash and credit facility capacity was 1.1 billion. Our financial leverage on an un-depreciated cost basis was 33.0%. Based on today's market cap, it was 23.8%, and inclusive of JVs it was 28.2%. Our net debt to EBITDA was 5.4 times, and inclusive of JVs was 6.5 times. All balance sheet metric improvements were ahead of plan. During the quarter we issued 174 million of common equity at a net price of $34.73 per share in conjunction with our inclusion in the S&P 500. In addition, in January we paid 83.3 million of 5.25% medium term notes. On to casualty losses; in conjunction with the previously announced damage to our 151 homes, 717 Olympic Community located in the Los Angeles, we recorded a casualty loss of 1.1 million during the quarter attributable to business interruption and temporary housing for our residents. This resulted in a charge of approximately $0.50 to FFO, what was added back to FFO was adjusted. We expect to recover a significant portion of this charge from the insurance providers. And any subsequent recoveries will be included in FFO, but deducted from FFO as adjusted. As a reminder, 717 Olympic is owned by the MetLife II JV. It has no impact on our same-store results. As of today, all damage has been fixed. The community if fully operational and we're over 88% leased. Turning to development, we commenced construction of our 585-home 367 million-345 Harrison Street development in Boston's South End, which we intend to fund with non-core asset sales. We have identified a number of assets that we'll be marketing to satisfy our funding needs for the year, with a significant portion of these sales coming from the mid-Atlantic markets. At the end of the first quarter, the company had an under-construction development pipeline for its pro-rata share totaled 1 billion. The development pipeline is currently expected to produce a weighted average spread between estimated stabilized yields and current market cap rates above the upper end of the company's 150 to 200 basis point targeted range. Next, transactions completed in the quarter. During the first quarter, we sold our 95% ownership interest in two land parcels located in Santa Monica, California for $24 million. This resulted in a gain to FFO of 1.7 million, which was backed out of FFO as adjusted. On to the second quarter and full year 2016 guidance, second quarter 2016 FFO, FFO as adjusted, and AFFO per share guidance is $0.43 to $0.45 and $0.39 to $0.41 respectively. At this time we are maintaining our full year guidance ranges for both earnings and same-store metrics. Full-year 2016 FFO, FFO as adjusted, and AFFO per share is forecasted at $1.75 to $1.81, a $1.75 to $1.81, and a $1.59 to $1.65, respectively. For same-store, our full year 2016 guidance remains unchanged, with revenue growth of 5.5% to 6%, expense 3.0% to 3.5%, and NOI 6.5% to 7.0%. Average 2016 occupancy remains forecasted at 96.6%. Due to the $174 million equity issuance in the quarter, we no longer anticipate a bond issuance later this year, and are updating our full-year interest expense guidance to 121 million to 125 million, from 128 million to 132 million. Other primary full-year guidance assumptions can be found on attachment 15 or page 26 of our supplement. Finally, we declared a quarterly common dividend of $0.295 in the first quarter or $1.18 per share when annualized, 6% above 2015's level, and representing a yield of approximately 3.3%. With that I'll turn the call over to Jerry.

[Jerry Davis:]

Thanks, Tom, and good afternoon everyone. In my remarks I'll cover the following topics. First, our first quarter portfolio metrics, leasing trends and the rental rate growth we realized this quarter, and early results for the second quarter. Second, how our primary markets performed during the quarter with a high-level update for 2016, and 2017. And last, a brief update on our development lease-ups. We are pleased to announce another strong quarter of operating results. In the first quarter, same-store net operating income grew 8.0%, our highest growth rate since the first quarter of 2012. These results were driven by a very strong 6.4% year-over-year increase in revenue against a 2.7% increase in expenses. Our same-store revenue per occupied home increased by 6.7% year-over-year, to $1,897 per month, while same-store occupancy of 96.5% was down 20 basis points versus the prior year period. Total portfolio revenue per occupied home was $1,995 per month, including pro-rata JVs. Stable job growth, limited impact from new multi-family supply, rental preference from both new millennial households, empty-nesters, and everyone in-between all driving this continued growth. Turning to new and renewal lease rate growth, which is detailed on attachment 8E of our supplement, we grew new lease rates by 3.7% in the first quarter, 50 basis points below the first quarter of 2015. Renewal growth remained robust, at 6.9% in the first quarter, 120 basis points ahead of last year. On a blended rate basis, we averaged 5.3% during the first quarter, an improvement of 40 basis points versus the same period in 2015. In April, these trends continued with new lease and renewal rate growth of 4.2%, and 6.8% respectively. And our current physical occupancy is 96.5%. Our leasing success and stable occupancy gives us confidence that demand is more than sufficient to continue pushing rate higher throughout the upcoming prime leasing season in the majority of our markets. Next, move-outs to home purchase were flat year-over-year, at 13%, in line with our long-term average. Even with our strong renewal increases in the first quarter, less than 9% of our move-outs gave rent increases the reason for leaving. Before I move on to the quarterly performance in our primary markets, I'd like to give a general update on our general portfolio. First, third-party data indicates that in every one of our markets we expect supply to peak this year, with the exception being New York City. Second, job growth remains robust, and we continue to have strong pricing power in the majority of our markets. The overall economic environment we see today is very similar to what we provided in our two-year outlook. Now, moving on to the quarterly performance in our primary markets, which represent 70% of our same-store NOI, and 75% of our total NOI, Metro DC, which represents 18% of our total NOI posted year-over-year same-store revenue growth of 2.1%, compared to 1.9% in the first quarter of '15. We are forecasting the market to generate top line growth in 2016, between 2% and 3% as we will continue to benefit from our diverse 50-50 mix of A and B assets located both inside and outside the Beltway. In the first quarter, our A's and B's had very similar growth rates. Apartment supply in 2016 is expected to increase by 13,600 homes, and then fall to 9,000 homes in 2017. While job growth in 2017 is expect to increase by 1.9%, up from 1.6% in 2016. Our current forecast is that DC will have modestly-accelerating revenue growth in 2017, compared to 2016. Orange County in Los Angeles combined represent 16% of our total NOI. Orange County posted year-over-year revenue growth of 8.4%. We continue to remain very optimistic on Orange County as the market is only expected to see 5,000 units of new supply and nearly 35,000 jobs, implying a 7

[Tom Toomey:]

Thank you, Jerry. And before opening up to Q&A, I want to take a moment to sum up our prepared remarks. We still feel very good about multifamily fundamental, and are at a phase in the cycle where market mix and price points of our portfolio are critical. As Jerry mentioned, due to changes in conditions some of our markets are underperforming, and some are outperforming our original expectations. However, on balance, our outlook for the portfolio is unchanged. This is a testament to our overall strategy and market mix, which is less volatile and more predictable, on average, throughout the cycles. We feel good about 2016 and '17, and remain on target. UDR has the right plan with right team in place to execute. And we feel confident about our future opportunities. With that, I will open it up to Q&A. Operator?

[Operator:]

[Operator Instructions] We'll go first to Jordan Sadler with KeyBanc Capital Markets.

[Austin Wurschmidt:]

Hi, good morning. It's Austin Wurschmidt here with Jordan. Just wanted to touch a little bit on the non-core asset sales, I was curious if you guys were looking to do a portfolio sale. What's the potential timing, and will you exit any additional markets? I know you mentioned a concentration in the Mid-Atlantic.

[Tom Toomey:]

Jordan, this is Toomey. With regard to that, we're going to expose probably 300-plus million to the market on individual asset bases, and we'll see what the pricing comes in on those, and we feel like it's a good strong market to expose assets and we'll get good pricing on them.

[Austin Wurschmidt:]

And how should we be thinking about pricing, what's sort of your cap rate expectations at this point?

[Tom Toomey:]

Do you want to take it, Harry?

[Harry Alcock:]

Sure. This is Harry. So it depends a little bit on the product mix. I can tell you, in general, the marketplace, Class As are trading at coastal Class As, and main to main locations are trading at four, sub-four. The Bs that would likely comprise most of what we sell, are going to trade between 5%-5.5% cap rates, and depending on location and specific asset type. There continues to be a strong bid for these assets, particularly in the B space, but A and C continues to be readily available. I can tell you Fannie and Freddie both expect to meet or actually exceed 2016 volume versus 2015. So it's a good time to sell assets right now.

[Austin Wurschmidt:]

Thanks for the detail there. And then just touching a little bit on D.C., I mean, you continue to get a little bit of traction on new and renewal lease rates there, and I was just curious how that acceleration stacks up versus your expectation, and any detail you could provide on submarket trends and what you're seeing subsequent to quarter end?

[Jerry Davis:]

Yes, sure, Austin. This is Jerry. D.C., again, we continue to think it bottomed about a year-and-a-half ago, late-2014, but we continue to see supply pressures and various submarkets throughout the Metro D.C. area, such as Arlington and Alexandria. What's interesting is we've seen the compression between what As and Bs are doing -- occur [ph]. Currently, it's probably less than 100 basis points. Our properties in that 14th and U Street neighborhood, including Capital View, View 14, Andover Place and Thomas Circle, those deals are all putting up probably about 3% revenue growth. And then a couple of the places over off Columbia Pike in Arlington are negative revenue growth right now. When you get outside the Beltway, even though outside tends to do a little bit better than inside the Beltway, we'll have a couple of properties out there in Woodbridge that are flat-to-slightly negative. So that the A-B mix has benefited us in the past, where these have significantly outperformed, but we are seeing neighborhoods in D.C. where supply has subsided, reacts very well and starting to see good rent growth. All in, D.C. is performing about where we expected. I'll touch on the home portfolio that we bought back in October, it's performing pretty much within plan -- in accordance with the plan that we had. We found a few opportunities to drive expenses down. We're in the process of spending coming close to $20 million on some initial capital expenditures, some on unit interiors, some on the exteriors of the properties, but as we chug through that we're seeing occupancy, which when we bought the portfolio, I think, was down around 92%. Today, occupancy in that portfolio has risen to between 95% and 96%. So D.C., I would tell you, is going according to plan. Our expectation this year, like I said in my prepared remarks, is that revenue will be between 2% and 3%, and then our expectation going further out is supply continues to be absorbed and '17 is better than '16.

[Austin Wurschmidt:]

Great. Thanks for the color, and I'll yield [ph] the floor.

[Jerry Davis:]

Thank you.

[Operator:]

We'll go next to John Kim with BMO Capital Markets.

[John Kim:]

Thank you. I just wanted to clarify your reduced outlook on New York. So it seems like you have 6% renewal growth this quarter and unusually low turnover of 20%, but you see revenue declining in 2017. So I just wanted to ask if that's purely due to increased vacancy, or do you see rates coming down as well?

[Jerry Davis:]

No, I think it's going to be more rate. I think occupancy there will stay in the 97-98 range. Today it's in the high-96s. The recent turnover was down really in the first quarter as we moved more of our explorations into the more seasonally high demand second and third quarter. So it wasn't purely that we were retaining more people. It was more that we had fewer explorations in the first quarter. So we are definitely feeling the effect of the supply pressures, whether it's Midtown, West, Brooklyn, they're starting to have an effect on our Financial District properties. And if you really stratify what we did in the city in the first quarter, our two down in the Financial District popped revenue growth of about 4.5%, and our Chelsea and Murray Hill properties came in north of seven. So we're feeling it a little bit more in the Financial District. And then if you go up to our MetLife JV property in the Upper West Side, Columbus Square, that one is definitely feeling the effect of the supply in the Upper West Side, and have revenue growth of about 1%-1.5%. So I don't think you'll see us -- that the slowdown that I talked about in '17, I think is going to be more rate-driven than occupancy.

[John Kim:]

And how comfortable do you feel in your 2016 outlook in New York given, as you mentioned, we're heading into the busy leasing season?

[Jerry Davis:]

Yes, New York, actually, it's doing about as well in April as it did in the first quarter. I mean, I would've hoped it would've accelerated, but it hasn't yet, but new lease rate growth in April is about 2.5%-2.6%, but renewal rate growth has jumped up to 6.7%. So I think we did a good job pushing those into the stronger periods, but we feel good about where I expect now. I think I said on the prepared remarks that we've revised our expectations there from being high-fives to low-fives. I guess there is the possibility if we continue to encounter more significant supply pressures that could come a bit lower, but right now, pretty comfortable in that five range.

[John Kim:]

Okay, thanks Jerry.

[Jerry Davis:]

Sure.

[Operator:]

I'll go next to Rich Hightower with Evercore ISI.

[Rich Hightower:]

Hey, good afternoon guys.

[Jerry Davis:]

Hey, Rich. So just a quick question on the schedule of new and renewal rates in the press release, really appreciate the detail there. As it relates to the different markets with different factors sort of offsetting one another, is there a way for you to peg the likes of hitting above the midpoint of the same-store range that didn't really change the several puts and takes during the quarter, in that sense?

[Jerry Davis:]

I guess I would say this, overall, and maybe -- hopefully this will answer your question. Overall, first quarter came in where we thought it would. So far, in April we're right on track also. You're always going to have some markets that perform a little bit better than expectations. Some that are below, and obviously, the three that we spoke to in the prepared remarks that are currently under are San Francisco, New York, and Los Angeles. And the reason for this under performance really is the effects of new supply. We've talked for years that continuing to get 10% revenue growth in San Francisco wasn't long-term sustainable. And I guess the developers and city officials also took notice of this. And this previously undersupplied market is getting a slug of new supply right now. Fortunately for us, it's going to peak this year, then start to decelerate next year. But what we notice too, and I had this in our remarks, is success of new lease-up properties that are putting some of this pressure on us. That our 399 Fremont lease-up is well ahead of leasing velocity. We're getting rental rates that are above pro forma rents, which were $6 a foot. And we're giving away one month free. So what really shows up is there is demand, and there is traffic for apartments. But we have a lease-up property that's basically getting discounted down 8% because of one month free. You're going to find it harder to push rate on thanks to our properties. But yes, those -- we do have the three underperformers. We also, as I stated earlier, we've got about a third of the company that is exceeding expectations. And those are Orange County, which is I won't say significantly, but it's ahead of where we expected. Our two markets in Florida, Orlando and Tampa are significantly ahead of what we would've expected when we did our business plan. As is Nashville, Portland, and Monterey. And I think the big difference between the ones that are underperforming and those that are outperforming is which ones are being affected by new supply. Those that I just said that are outperforming tend to be B product, which doesn't compete as much against new supply, and they're in markets that really are not getting heavy doses of supply.

[Rich Hightower:]

All right, that's very helpful. And then maybe as one quick follow-up there as it relates to the A/B strategy and Bs outperforming on account of new supply, is it entirely a function of less supply with the B assets versus A, or is there also an element of trading down or anything else on the demand side of the equation that might be leading to outperformance there in general?

[Jerry Davis:]

I think it's predominantly lack of new supply. I mean, there could be some situation of trading down. We've seen the reasons for move-out being rent increase. We're to about 9%, that's stable with where it was about a year ago. We've got two markets that are above 20%, and those are San Francisco, and Los Angeles. And even though you could sit there and think maybe it's because they're getting priced out of the market. When we really see forwarding addresses on where these people move to, they're frequently moving to that brand new supply down that street that's offering the one-month free. Or in the case of Marina del Rey, a month-and-a-half to two months free. The price is then similar to what we were asking them to pay. So we're able to trade up, if you will, into a brand new community, but it's at the same rate. So I don't think it's price-fatigue. There's probably a little bit of that that's inching in there, but I think it's predominantly supply.

[Rich Hightower:]

All right, great. Thanks, Jerry.

[Jerry Davis:]

Sure.

[Operator:]

We'll go next to Nick Joseph with Citi.

[Nick Joseph:]

Thanks. Can you give us an update on the West Coast Development JV, and it looks like a few of the assets are now in lease-up, and what you're seeing in those markets?

[Harry Alcock:]

Sure. I'll start, and then Jerry can jump in. Two of the assets are in lease-up, CityLine in Seattle, and Katella I in Anaheim. And as Jerry mentioned in his prepared remarks, they're both leasing up very well. We just started leasing 8th and Republican, and South Lake Union near Amazon. We've at least, I don't know, 10% or so of the units…

[Jerry Davis:]

16.

[Harry Alcock:]

16% of the units at this point. The next ones are going to be Downtown L.A. asset that will be in leasing in the third quarter. And then the second phase of the Katella project, which would be in leasing early next year.

[Jerry Davis:]

Yes, but Nick, I'll give you a little more color on how well those lease-ups are doing. As Harry said, they're all at or above what we expected. Katella Grand has probably been my biggest surprise. It's up in the Platinum Triangle. And we're getting rents that we anticipated, and call it the $2.25 to $2.30 a foot range. Then able to drive that thing up to 37% leased and 36% occupied using, typically, less than a month free. So that one's been a big surprise, to me, how strong it was. But I think it is a special project. CityLine up in the Columbia City location, that one got off the ground a little bit slow. And we cut rate a bit to get velocity going in the first quarter. But we caught back up to our budgeted occupancy level. And today, that property is 66% leased, 52% physical. And we've gotten rents back above market rate. And we brought concessions in at about a month free now. And the third one that is doing real well right now is 8th and Republican. And we opened the doors to that one about two weeks ago in a very, or as I've stated a minute ago, we're about 16% leased and 6% physical. One extra benefit that we found out a month or two ago, we thought we were getting dropped right in between Amazon land. Google announced recently that they're going to be putting a few offices up within several blocks of this property too and they will be out a couple of years.

[Tom Herzog:]

This is Herzog, too, Nick. I'll add one other thing. Keep in mind, with the West Coast development JV that we do get a 6.5% pref [ph] until such time as the assets are stabilized as defined. And they absorb any operating losses during that time period. So, in the meantime, while these are stabilizing, we're earning a 6.5% on our investment.

[Nick Joseph:]

Thanks, and then just on the new development in Boston, can you talk about the desirability of that project and expectations in terms of the spread over existing cap rates that you expect to achieve?

[Harry Alcock:]

Sure, Nick. This is Harry. I'll talk about this for a couple of minutes. First, we're building a project in a location that will appeal to a broad range of renters. I'll talk about the neighborhood first, and then economics. This is a new location within the South End, which is one of Boston's most desirable neighborhoods. It's primarily a residential district with old 19th century brownstones. But this particular location is only a 10-minute walk to the Financial District, the Back Bay, and GE's new headquarters that'll bring 800 new employees to Boston. There's tons of restaurants, bars, galleries, and boutiques along Fremont Street. Our side is located directly across the street from a new Whole Foods Market that opened last year. There's been some recently built apartment projects, ink block in the Troy totaling more than 800 units that are nearly fully leased up. The first condo building across the street sold out. And prior to completion of more than a $1000 a foot, they have just started construction on a second condo building related companies purchased a site, kitty-corner from ours, and is into the city for approval of 175 apartments and 100 condos. In terms of economics, yield based on today's rents is about 5.5%. If we get 3% revenue and expense growth for the three plus years, the yield will grow to above six, and more than 200 basis points above today's cap rates. Rents today are more than $400 below our Pier 4 deal that we leased up in seven months last year. When you are comparing similar unit types and like similar assets in Boston, the cap rate for this asset would be very low like lease-up 4% cap rate. We believe in fact that this location could outperform Boston overall, which according to Axial averages nearly 4% per annum through 2019. In addition to Whole Foods and retail and residential construction, our units and our 40,000 square feet of retail will help complete the transition of this new location within a very established and desirable overall neighborhood. Downtown Boston expects to average less than 1500 unit deliveries per year through 2020, and we also believe supply is manageable.

[Nick Joseph:]

Thanks.

[Tom Toomey:]

Thanks, Nick.

[Operator:]

We will go next to Richard Anderson with Mizuho Securities.

[Rich Anderson:]

Thanks. Good morning out there. So if you are doing 8% same-store NOI growth this first quarter, and it sounds like you're going to have a good second quarter, and your guidance is 6.75% still, should we be assuming that you're expecting a supply-induced meaningful deceleration in the second half of the year? Is that how we should read this at this point?

[Jerry Davis:]

Rich, I will start that. This is Jerry. I mean, really when you think about what makes up your revenue growth, it's really the -- it's any change in your occupancy year-over-year and then it's really the weighted blended average of increases for renewals and new leases over the preceding 12th period. So when you really look at how our revenue growth will decelerate over the years, you're really having to look for example in second quarter what did we do in second quarter last year on blended growth and what do we expect to do this year in second quarter on blended growth. And because last year the second and third quarters were extremely strong, and as we go into this year's second and third quarter, the rate growth is going to be less than it was last year. You have a natural deceleration. Now, I guess you could say accurately that it is primarily coming from new supply deceleration that is predominantly occurring in those three markets I talked about earlier, because they have the heavier weighting on our total revenue growth, but I guess long story short, I think you kind of hit it on the head, but I just wanted to make sure people really understand what the components are that really drive the rate growth. For example in first quarter of this quarter what we achieved in the third quarter of 2015 adding more of an impact on first quarter revenue growth than what we achieved as far as rate growth in the first quarter.

[Rich Anderson:]

Okay.

[Tom Toomey:]

Let me add to that. One of the things I'd have you keep in mind is we obviously had a good start to 2016 from a same-store perspective. And as we look at guidance for the balance of the year, it's still too early to make any modifications in our view. We want to get more into peak leasing season, but we do feel good about where we are at, and we will revisit again next quarter.

[Rich Anderson:]

I appreciate that. Thanks, Tom. And then, one of the little tidbits I find interesting is that your development pipeline is at the top end of your kind of range of incremental yields, close to 200 basis points and yet you're worried about supply all around you. I mean, why do you suppose that those two opposite sort of things are happening right now? I would think maybe with elevated level of supply, your own development pipeline would be at least underperforming a little bit in that environment. Can you just kind of walk through that?

[Tom Toomey:]

Rich, this is Toomey. I think it's a testament to Harry and his team. I mean, they have found very good site. They've done a good job of reading what the market opportunity is, and providing a hell of a good product. And I think you're seeing that both last year with Boston and this year with San Francisco. So I think it's a little bit of that aspect of it, if you will. I think it's a fair question. We're probably new to it, and we wanted it little bit more, and try to come up with reasons. We're really focusing on the forward aspect of the business. And we want to stay discipline about allocating our capital and sustaining that type of gap or accretion, if you will. And normally that's -- people wander into the subject of would you expand it? And I don't think we will. I think we're going to stay very disciplined about our development and keep going forward.

[Rich Anderson:]

Okay, sounds good. Thank you.

[Operator:]

We will go next to Nick Yulico with UBS.

[Nick Yulico:]

Thanks. I was hoping you could shed a little bit more light on why the joint venture assets are underperforming so much on a same-store growth basis they did; 1% same-store NOI growth versus 8% for the rest of your portfolio, I guess you talked about in New York what else is going on there?

[Jerry Davis:]

Yes, Nick, this is Jerry. When you really look at it, and I think we stated this earlier, A and especially A plus product competes more against new supply than B. We stated before that the spread between As and Bs in your same-store pool is probably about 100 basis points. But when you do look at the MetLife assets, and there is -- again, there is 24 assets I believe in the same-store pool in MetLife. There's five of them that are in urban course where heavy new supply is hitting -- that's definitely hitting A plus product. One of those is in downtown Seattle. One is in Washington D.C. One is Columbus Square, up in the upper West side. One is in uptown Dallas, and then the last one is in downtown Austin. Those five properties make up 41% of the total NOI for MetLife JV, and they have a revenue growth of 0.6%. So, you know, under 1% because they're going head-to-head against so much new supply. When you look at the expense side, you have situations where I believe last year in the first quarter we had pretty good real estate tax, the appraisals have benefited us, but it's predominantly because of those five properties that are in the urban core of heavy new supply urban locations.

[Nick Yulico:]

Okay. Yes, that helpful. I guess my follow-up on that was, you know, if I go through your proxy and I look at some of the short-term compensation metrics for executives, one piece is that same-store revenue growth in market versus your peer group, and then I'm wondering why then it makes sense to be carving out, I think that calculation causes out the MetLife JV assets, which seems like it would actually be that beneficial if you're thinking about how your portfolio is being comp versus your peers which often have less JVs or don't have as much exposure with the JV in a market like New York or Boston?

[Tom Toomey:]

Nick, this is Toomey. It's a good question. First, when we manage and set forth budgets with Met, we have them as a partner in the room, and they weigh in on how they want to be asset run, and we weigh in on it. And we usually somewhere in the middle of that arrive at how we're going to manage the assets. I think, second, we saw the pressure that Jerry alluded to, with ultra A assets, and we really have that conversation run those assets in that manner, and we have since day one disclosed it transparently. With respect to the comp point on the issue, we're very comfortable, we have deliberation with the Board internally that we've got the right comp plan and we launched the right action, which is to win our market. And I think we do that pretty darn consistently, and I think it's a testament to Jerry and his operating team and the innovation that they drive. So we're comfortable with our plan, and how we treated the Met JVs and disclosed them.

[Nick Yulico:]

Okay. Thanks, Tom.

[Operator:]

We will go next to Drew Babin with Robert W. Baird.

[Drew Babin:]

Good afternoon. Thanks for taking the question. First question, just kind of going back to Nick's question on MetLife; the expense growth was relatively high in that JV, to your point about kind of working with MetLife you control the expenses, is there anything in that you might do differently if you're in 100% control of the property, or is there anything that can be done on the expense side, or is that kind of just an outsized impact from 421 in New York?

[Tom Herzog:]

Some of it's outsized impact, some of it's also is real estate tax, timing of real estate tax refunds last year versus this year, and you really need to see a full year and not judge it purely on a quarter. But you will find also in some of these locations where there is heavy new supply, things like personnel growth, because in places where there is heavy new supply, you're constant competition to get the best employees to work for you. So that can drive that number up to. But I can tell you this, we typically attempt on any initiatives that we're rolling out for expense reductions, whatever we do for UDR, we typically do UDR wholly-owned we typically do with MetLife portfolio also.

[Drew Babin:]

Makes sense, and then secondly just looking at private equity appetite for real estate assets, obviously there's been a very strong bid for theoretically more stable suburban properties with home properties and associated states being bought Starwood buying to our portfolio et cetera. What are you seeing in these eight markets in TBDs in terms of who is looking at assets, are you receiving any interests externally from any of the large private equity players, was their appetite kind of more geared towards stable, more stable assets with theoretically higher yields?

[Harry Alcock:]

This is Harry. I think on the -- you have a sort of a by and large a bifurcated buyer class between the main and main class A assets, which are going to be pension funds, sovereign wealth funds and we're starting to see an influx of investment from Canada from the Middle East and Asia. And perhaps to a lesser degree the private equity funds typically have slightly higher IRR hurdles than these others. And therefore while they do they buckets of money that would lend itself to buying A properties, they tend to buy kind of buy A minus properties primarily. At least that's what you've seen historically. That's what we're seeing now that, that there is both asset classes we are seeing very deep buyer pools, which has obviously positively impacted asset pricing. In terms of others sort of reaching out to us, that's something that happens routinely, whether it's from private equity firms or sovereign wealth firms or other buyers, and that happens routinely at really at all points in the cycle.

[Tom Herzog:]

Nick and Drew; if Nick you're still on the call, I want to loop back on the Met thing, a couple of points occurred to me and I was just looking at this notes. Just a reminder, that's 10% of our NOI, you know, we're consistently treated at, and sometimes it's better and sometimes it's worse than the wholly-owned portfolio. But what I look at and we go over every year with our Board, our IRR is going to returns on our investments from beginning to the end. And it's a good thorough review, and I'm just looking at the math coming up on its sixth year that we've been co-investing with them in this JV, and the IRRs are now at better than 15.5%. So I think it's been a very good investment, a very good relationship, and one that we look forward to continuing in the future.

[Drew Babin:]

That's helpful, thank you.

[Operator:]

And we will go next to John Pawlowski with Green Street Advisors.

[John Pawlowski:]

Jerry, thanks for the operating update for April in New York; could you share a new lease and renewal growth trends for April in San Francisco, and what you're seeing heading into May?

[Jerry Davis:]

Sure. I don't have May on me right now, but in April, San Francisco's new was 2.8%, and renewals were fairly stable with where they were in the first quarter at 7.5%.

[John Pawlowski:]

Thanks. And lastly, what drove the decision to sell the two land partials in California?

[Harry Alcock:]

This is Harry. Two projects are in Santa Monica, they both had sort of retail type operating assets on the partials, and as we pursue the re-entitlement of those sites over the past several years, it became obvious to us that the city was not going to sort of cooperate and allow a re-zoning of those assets, and so we sold them to retail units.

[John Pawlowski:]

Okay, great. Thank you.

[Operator:]

And we will now next to Jana Galan with Bank of America Merrill Lynch.

[Jana Galan:]

Thank you. Jerry, I really appreciate the market outlook for supply and job growth. Do you think that we also need to see wage growth accelerate to continue the success you had in your renewal increases?

[Jerry Davis:]

I don't think it would hurt obviously. I still think even with the wage growth that we've been having over the last several years, we've seen, and with going on with the rent growth we've had. We still have rent to income level that's pretty consistent with where it has been at about 23%. And we haven't seen a huge spike in turnover. So we're not driving many more people out because of rent growth, but yes, I think anytime you can see some wage growth improvement, that's helpful. I'd say a couple of things that have helped somewhat is for our suburban, especially B renters, lower gas prices have kind of supplemented their wage growth. And I think when you look at the more urban dwellers, I don't think again it's so much wage growth that's affecting us there. It's their ability to jump to new lease-up, but I'm never going to argue against wage growth. When you see indications that whether it's California, or different cities in California, or Seattle has done rents in the minimum wages to $15, even though to put a little bit of expense pressure maybe on operators like us, because it will drive -- even though we don't have many people that makes below $15 an hour for an unskilled job. When you have skills that will spread that gap up, I think overall -- I think wage growth like that's going to be good for our sector, and would help us continue to drive rate.

[Jana Galan:]

Thank you. That's it from me.

[Jerry Davis:]

Thanks, Jana.

[Operator:]

We will go next to Rob Stevenson with Janney.

[Rob Stevenson:]

Thanks. Jerry, in Tampa and Orlando, at this rate, how long do you expect to be able to keep this up and is there is a situation where you worry about -- now, it's sort of $1200 a month rent for largely class B products that you're getting into the point where people can afford townhouses and condos in those markets and you could start seeing some move out and accelerate?

[Jerry Davis:]

I mean, you always worry about that, and you have worried about that in the past. Today, about 15%, little over 15% of our move outs in Tampa are to purchase homes. So it's not huge. That people that qualify for the homes want to have to own a home, and I do think in that market you can see high single-digit new and renewal growth for a long period of time. I don't think it's going to last forever. I think it's been a very good multiyear run. I think it can use to run for another year or two, because we're not been affected by new supply. Job growth has been better than in the past. It's been higher quality biotech and medical jobs that have been coming to places like Orlando. But now, do I think it can continue at the levels that it's at today for multiple years? I don't think so, but I don't think it decelerates rapidly in 2017 either.

[Rob Stevenson:]

Okay. And then Harry…

[Tom Herzog:]

On a lighter note, I think Jerry is going to give all our existing residents a Netflix account and send them the big short movie.

[Rob Stevenson:]

Harry, in terms of land, I mean, how aggressive have you guys been these days, and is there anything reasonably priced in your core markets, or is it now sort of going to condo developers and other bidders at higher levels that you guys are comfortable buying land for future development?

[Harry Alcock:]

Well, I guess there's a couple of things; one, we're continuing to look at land size in markets where we historically have built on the coast, and in addition we're continuing to work through the MetLife land bank and we've got projects in Seattle and in L.A. in the East Bay, and expect it will continue to grind through those and expect to start some of those over the next couple of years. Really you should think about it, the sites that we are looking at, these are going to be sort of late '17, and 2018 starts. And so, when we are looking at the fundamentals of these markets, where we have declining supply, really in '17 and '18, these are going to be '19 and '20 deliveries. But to answer your question specifically it is somewhat more challenging. Clearly, the number of percentage of projects that pencil today is much lower than it had been historically, but we expect to continue to find enough projects both externally and within our MetLife JV, using consistent underwriting standards without any type of aggressive rent growth assumptions. So we'll continue to maintain similar development pipeline as we have historically, and fit within our 900 million to a billion core type target.

[Rob Stevenson:]

Does this force you to do more sort of Santa Monica type of things, where you have to buy stuff on the anticipation that you could try to get re-zone and take that sort of risk out there these days in order to find site?

[Harry Alcock:]

Not necessarily. It doesn't mean that we won't a little bit of that. Again, we try to manage the amount of sort of preconstruction risk we take, but for example, if you look at a market like Boston, where we just started a project and therefore we would expect to start the next project sometime in two or three years, clearly, if we found that an adequate site, it's conceivable that we would take some entitlement risk. But we don't necessarily think that's something that we are going to have to do a lot of.

[Rob Stevenson:]

Okay. Thanks, guys.

[Operator:]

We will go next to Michael Lewis with SunTrust.

[Michael Lewis:]

Hi. Thank you. You talked quite a bit about supply peaking everywhere, but New York in 2016, and I was just wondering how comfortable you are that 2016 will be the peak supply year, because as long as you have strong fundamentals, higher occupancy, positive rent growth, low cap rates, it may entice more people to build, it's working for you right, so it might work for others. So, just curious what your thoughts are on that?

[Tom Toomey:]

Michael, this is Toomey. A very good question, and one thing that we alluded to a couple of years, when we saw the banking industry becoming further and further consolidated and regulated is we realized the impact would be -- as the Fed would have the ability to choke off construction loads. And what we are currently seeing in the marketplace and if you talk to private developers is securing a loan for new development in the multifamily space is getting very, very difficult. And you are going to see them less in deals, because it's going to require more equity, there is going to be less proceeds out of construction, and tougher underwriting. I think that combined with the transparency of operating environment and cities difficulties around zoning and entitlement processes is going to slow it down a great deal. And I didn't hear any development in the last three months, talking with a lot of private guys that said, "Hey, we think we are going to do more business in '17 than we are doing right now." Everybody looks at it and says, "We are pulling back. We will be enforced to pull back, and we will have to re-look at our numbers and come up with more equity." So I think that's going to be the biggest choke point about new supply and it's certainly not the demand side of the equation, it is certainly there, and we will persist for many more years. It's the supply is going to choke down.

[Michael Lewis:]

Thanks. And that's actually a good -- your answer does lead into my second question, which is you have an outlook out there through 2017, do you think by the time we get to the end of that outlook, this dynamic between the suburbs outperforming the center city and B's doing better than A's, do you think that dynamic will start to shift by the end of 2017, or do you think will still be an environment like that?

[Tom Toomey:]

Well, you are asking a very broad question, and it's hard to draw a blanket over the whole U.S. We can take individual markets and probably take it offline and go through those, but my view on long-term is that a lot of developers are moving out to the suburbs, where they are building kind of an A minus product to a price point sensitive customer, and they are going to be able to put up a lot more doors quicker in that type of environment. And the suburbs by the time '17 arrives will be probably turning over. I think they are going to be a good spot for '16 and '17, but after that I would suspect that they are going to start seeing the same supply pressures that we are seeing in some of the urban markets today. And so, they will probably start turning over then.

[Michael Lewis:]

Great, thank you.

[Operator:]

We will go next to Alexander Goldfarb with Sandler O'Neill.

[Alexander Goldfarb:]

Hey. Thank you, and sorry, I hopped on late this busy earning day. So if you answered this, I apologize. But on the Santa Monica land, did you guys say how long you owned that land for?

[Tom Toomey:]

Alex, we bought it in the second half of 2012; so, about three and half years.

[Alexander Goldfarb:]

Okay. And just given that you guys, you know the coastal markets well, was it just something, did -- was the pushback on the entitlement changed much -- was it much different than you originally thought, or you always thought it would be a difficult one to get done and you were just willing to buy it and see if you could get it done?

[Tom Toomey:]

Well, Alex, at the time that we acquired it, that was a -- Santa Monica was granting these re-zoning types of projects that would allow for a certain density in a lot of these sites. Shortly after we acquired it, the city basically shutdown, and I remember in the year 2014, they issued something like 50 total building permits. And so, basically over the three years, it became obvious to us that we were not going to get these sites re-zoned anytime soon, given that they had existing retail uses, and we had retail buyers available, we decided to get rid of them.

[Alexander Goldfarb:]

Okay. And do you have any other in the rest of the portfolio, any land positions, anything that's sort of comparable?

[Tom Toomey:]

No.

[Alexander Goldfarb:]

Okay, thank you.

[Tom Herzog:]

Alex, I should add one thing.

[Alexander Goldfarb:]

Sure.

[Tom Herzog:]

Just keep in mind on those two small land assets that had a little bit of retail on top of them. We did ultimately sell them both at gain. So, for what it's worth, there were some gains, but it was more gain.

[Alexander Goldfarb:]

Gains are good. Thank you.

[Operator:]

And we will go next to Jordan Sadler with KeyBanc Capital Markets.

[Austin Wurschmidt:]

Hey, guys, it's Austin here again. Just one quick follow-up, Jerry, I was wondering if you could give a little color, your thoughts on some of the rental rate moratorium and other regulations that we have seen in Northern California, particularly with regard to the vintage of your Northern California portfolio.

[Jerry Davis:]

Yes, you know there have been a few things that have come up, there were some meetings last week, or the week before in San Mateo that talked about properties built I think before 1980, or -- it's 20 to 30-year-old product, but it seemed like it got shot down pretty quickly, but I can tell you this, our two deals in San Mateo are older than that. So if it's passed, those potentially would be affected. The other ones that we've heard about, but we are not directly affected are -- I think it was a 90-day restriction on renewal growth in Oakland, and not positive effect, past just talked about, just directly affect us. And then the other one that was getting talked about I believe was in San Jose, you know, putting a -- moving the cap on renewals on rent control buildings, I think was going from 8% to 5%. Ours is not a rent control building. So I don't think it would have any effect on us in San Jose, and our asset there is a little bit newer. So at this point, I think the only one that potentially in the future could affect us if it did get passed, but again it seems like it shot down pretty quickly by City Council in San Mateo.

[Austin Wurschmidt:]

Great. Thanks for the detail.

[Operator:]

At this time, there are no other questions in the queue. I will turn it back to Tom Toomey for any closing remarks.

[Tom Toomey:]

Well, thank you all of you for attempting, for being on this call today, I know it was a long call, but I thought it was very fruitful to have a good dialog and go through the markets in detail. A reminder to you as I listen to the questions and reading the call notes, a lot of you is right now on focus on the short-term, and really we are focused on the long-term aspects of the business, which do not remain anything, but positive. The demographics are on our side. The supply/demand curve is on our supply side to be able to execute our strategy, deliver solid growing cash flow and paying dividends. And so, I think the construct of the business is great, where we're from a strategic standpoint of being in the markets we're in, the mix of portfolios and the management team to execute on that. And so, we think the future is very bright. We think just as we've always tried to be very transparent about the operations of the business, when you back up and you look at the end results of the cash flow growth, the prospects for the balance of the year in '17 as well, we're very excited about those prospects and eager to just keep working on those. And so with that, I will close, and we thank you and look forward to seeing many of you in the next conferences over the next couple of months. Take care.

[Operator:]

And that does conclude today's conference call. We appreciate your participation.