UDR, Inc.
Q1 2015 Earnings Call Transcript

Published: 28 Apr 2015

[Operator:]

Good day, and welcome to UDR's First Quarter 2015 Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Shelby Noble. Please go ahead.

[Shelby Noble:]

Welcome to UDR’s first quarter 2015 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, www.udr.com. In this supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures 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 yesterday’s press release and included in our filings with the SEC. And 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'll 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. 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 during the Q&A portion of the call. The first quarter of 2015 was another great quarter for UDR and our business is firing in all cylinders. As a result of great execution from operations, exceptional lease up velocity and a new strategic investment, we increased our full year same-store and earnings guidance ranges. In short, we continue to execute on our previously communicated 2 year strategic plan, with transparent strength of fundamentals and our diligent capital allocation we feel great about the plan and our ability to deliver on it. The following four topics highlight our first quarter. First, our operations outperformed versus our initial expectations and historical norms due to exceptional new lease rate growth, strong renewal rate growth and a continued focus on containing cost. These trends continued as we move into our prime leasing season in the second quarter. Second, our development lease-up continue to perform very well. We are exceeding our budgeted lease up absorption and realizing rents in excess of our initial projections at Beach & Ocean in Huntington Beach and our 100 Pier 4 in Boston Seaport area. We expect to complete 326 million of a previous development in 2015, which will continue to drive our cash flow and NAV growth. Third, subsequent to quarter-end we entered into a joint venture agreement with The Wolff Company in a portfolio of five communities that are currently under construction. The venture will provide UDR with a pipeline of over 1,500 new homes with an accelerated delivery schedule and anticipated completions beginning in 2015 and ending in 2017. All of the communities are located in core coastal markets including Metro Seattle, Los Angeles and Orange County. Tom will address the economics and the benefit to UDR in his prepared remarks. Fourth, we are increasing our full year same-store and earnings guidance ranges to reflect the strength evident in our operations and the accretive nature of the venture that I just mentioned. Better operations and the venture contributed a penny each versus previously announced guidance. Lastly, our prospects look fantastic as we enter the second quarter. Our mix of A and B quality communities in northern and suburban locations should continue to generate strong operating results. As I indicated earlier April trends were well above our initial forecast and May looks like it will continue to accelerate. There remains a long runway for growth at UDR and we have the right plan and team in place to capitalize on the opportunities. With that, I’d like to express my sincere thanks to all my fellow UDR associates for their extraordinary work in producing another strong quarter of results. I’d also like to welcome Shelby Noble to the UDR team as our new Head of Investor Relations and express my gratitude to Chris Van Ens for all his hard work and along over the past 3 years. I know he will be very successful working with Jerry on the operating team. We look forward to continued success in 2015. I’ll now turn the call over to Tom.

[Tom Herzog:]

Thanks, Tom. The topics I will cover today include our first quarter results, our balance sheet and capital markets update, our development update, recent transactions and our revised full year 2015 guidance. Our first quarter earnings of results were at the upper-end of our previously provided guidance ranges. FFO, FFO as adjusted and AFFO per share were $0.43, $0.40 and $0.37, respectively. This was driven by better than expected first quarter same-store revenue, expense and NOI growth which were strong at 5.1%, 2.5% and 6.2% respectively. Jerry will provide additional color in his prepared remarks. Next, the balance sheet. At quarter-end our financial leverage on an undepreciated cost basis was 37.5%, on a fair value basis, it was around 28%. Our net debt-to-EBITDA was 6.4 times inclusive of pro rata JV’s it was 7.3 times, all metrics continued to improve as planned. At quarter-end our liquidity as measured by cash and credit facility capacity was 517 million. On the capital markets, as previously disclosed we issued 109 million of equity net of fees through our ATM program during the quarter, the shares were issues at a premium to consensus NAV. Turning to development. We commenced construction on our 155 home $99 million Domain Mountain View development in Mountain View, California in a 50-50 joint venture with Metlife. At quarter-end the pro rata share of our underway development pipeline totaled 838 million and was 73% funded with an estimated spread between stabilized yields and market cap rate and at the upper-end of our targeted 150 to 200 basis point range. As to future development we continue to underwrite opportunities with a bicoastal focus and we anticipate the size of our pipeline to be in the targeted range of 900 million to 1.4 billion by mid-year. On to recent transactions. As previously announced, we completed the disposition of our 20% interest in our Texas JV. We realized net proceeds of approximately 43 million on the sale inclusive of a promote and disposition fee of approximately 9.6 million. These were recognized in the first quarter but excluded from FFO as adjusted and AFFO. This disposition was well timed as it eliminated our exposure to Houston, reduced our exposure to Dallas and generated a strong IRR of approximately 14%. As Tom mentioned subsequent to quarter-end we entered into a joint venture agreement with The Wolff Company to invest 136 million for a 48% interest and a portfolio of five communities that are currently under construction. Our investment is based on an initial all-in price of 559 million. We are discussing a fixed asset with our partners that we may add before closing which would represent an approximate 20% increase to both our initial all-in price and investment. This transaction is beneficial on a variety of ways. First, we received a 6.5% preferred return on 136 million investment. So the transaction would be immediately accretive to FFO and avoid their earnings drag associated with typical development projects. Second, assuming all five of the communities are acquired, we estimate NAV creation of approximately 80 million at current market cap rates. Third, this transaction increases our exposure to high quality communities located in our core coastal markets for multifamily supply demand fundamentals appear favorable for the foreseeable future. Fourth, the JV is less risky than a typical development as construction is already underway on all five of the communities. Our partner has provided certain guarantees the 136 million to be paid represents our entire reported investment in the venture and there is no promoted structure to our partner. Fifth, four of the five communities are located within a mile of an existing UDR community, thereby enhancing similarity with anticipated operations and valuations. And finally, with lease up starting on average in seven months we’re able to take advantage of current fundamental market strength. Additionally, given our accelerated ability to exercise our purchase options ranging from 22 to 36 months from today, we view this transaction as having elements of a financing arrangement with an option to purchase rather than simply a traditional joint venture. We are excited about the accretive nature of this transaction, additional details are available on our first quarter press release and the West Coast Development joint venture presentation posted on our Web site. On to the second quarter and full year 2015 updated guidance. We increased our full year FFO, FFO as adjusted and AFFO guidance ranges by $0.02 at the midpoint due to stronger than expected operations and accretion from the development joint venture. Full year 2015 FFO, FFO as adjusted and AFFO per share are now forecast at $1.63 to $1.67, $1.61 to $1.65 and $1.44 to $1.48 respectively. For same-store we have increased our full year 2015 revenue growth guidance by 50 basis at the midpoint to 4.25% to 4.75%. Expense growth is unchanged at 2.5% to 3% and increased our NOI growth forecast by 75 basis points at the midpoint to 4.75% to 5.75%. The increase was driven by strong new and renewal rate growth, total occupancy and lower turnover. Second quarter 2015 FFO, FFO as adjusted and AFFO per share guidance is $0.39 to $0.41, $0.39 to $0.41 and $0.34 to $0.36 respectively. From a sources and uses perspective we have updated our sales proceeds and debt and equity issuance guidance at the midpoint from 775 million to 825 million. This net 50 million increase is the result of an increase in our acquisition guidance to account for the development joint venture transaction mentioned earlier and the removal of 75 million of assumed land acquisitions. As to funding our capital needs for the year, to-date we received 43 million from our Texas JV disposition. We issued 109 million of equity on our ATM and have 65 million of assets under contract for sale. Assuming a 300 million bond offering late in the second quarter we have only 250 million to 300 million of remaining capital funding needs for the year. As we outlined in our call last quarter, we will continue to utilize the most advantageous source of capital to fund these needs typically either through asset sales through equity issuance at or above NAV. Other primary full year guidance assumptions can be found on Attachment 15 or Page 25 of our supplement. Finally, we declared a quarterly common dividend of $0.2775 per share in the first quarter or $1.11 per share when annualized, 7% above 2014’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. 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 during the quarter and last a brief update on our development lease-ups. We’re pleased to announce another strong quarter of operating results. In the first quarter same-store net operating income grew 6.2% driven by a 5.1% year-over-year increase in revenue, that was above our expectations and a 2.5% increase in expenses. Our same-store revenue per occupied home increased by 4.6% year-over-year to $1,659 per month. Our same-store occupancy of 96.7% was 60 basis points higher versus the prior year period. Total portfolio revenue per occupied home was $1,836 per month including pro rata JVs. Our first quarter revenue growth was well above our original forecast and was driven by widespread strength across our markets. Stable job growth, limited impact from new multi-family supply, a single family housing market that is still finding its footing, significant demand from new Millennial households and incremental demand from empty-nesters are all helping. Turning to new and renewal lease rate growth which is detailed on Attachment 8-E of our supplement. Our ability to push new lease rate growth continued to outpace historical precedent during the first quarter by wide margin, we grew in the lease rates by 4.2% in 1Q, a full 320 basis point ahead of the first quarter of 2014. Renewal growth also remained robust at 5.7% in the first quarter or 60 basis points ahead of last year. In April, these trends continued with new lease and renewal rate growth of 6.3% and 6.8% respectively. Our leasing success in conjunction with stable, sequential occupancy and lower year-over-year turnover gives us plenty of confidence that demand is more than sufficient to continue pushing rates higher throughout the upcoming prime leasing season. These factors also served as the primary drivers of our sizeable 50 basis point increase in same-store revenue guidance at the midpoint. Next, rents as a percentage of our residents’ income decreased slightly to 17.2%. Move-outs to home purchase were flat year-over-year at 14% in line with our long-term average. Even with renewal increases at a healthy 5.7% in the first quarter, only 6.8% of our move-outs gave rent increases the reason for leaving. Moving on to quarterly performance in our primary markets. These markets represent 65% of our same-store NOI and 71% of our total NOI. Orange County and Los Angeles combined represent 17% of our total NOI. Orange County posted year-over-year revenue growth of 5.8% and is outperforming versus our budget expectations thus far in 2015. Our Los Angeles portfolio is concentrated in Marina Del Rey and Playa Vista submarket and continues to be impacted by new supply in the submarket. As a result, our first quarter year-over-year revenue drove 3.8% lag versus the overall LA market. However, we still expect full year same-store revenue growth of just under 5% for Los Angeles. New York City represents 13% of our total NOI. Our downtown assets posted combined rent growth of 6.5% in the first quarter while maintaining occupancy at just under 98%. Lower Manhattan remains attractive as the result of limited new supply, strong job growth in the technology, finance, media and advertising fields and low housing affordability which limits move-outs to home purchase. Metro DC which represents 12.5% of our total NOI posted year-over-year same-store revenue growth of 1.9%, compared to a negative 50 basis points in 4Q of 2014. We are forecasting 1.5% to 2% revenue growth in 2015, as we continue to benefit from our diverse 50-50 mix of A and B assets located both inside and outside the Beltway. San Francisco which represents nearly 12% of our total NOI shows no sign slowing down as new and renewal lease rate growth in the first quarter and April point to another strong year for the Bay area. Same-store revenue growth in the first quarter reached 9%. Submarket-wise results were more mixed with our Downtown properties posting 5% top-line growth due to the impact of new supply and compared against 11% growth at our properties on Peninsula and in the Silicon Valley. Seattle which represents 6.5% of our total NOI continue to benefit from the strong growth inherent in our suburban B assets which are located in submarkets which are less exposed to new supply. Long-term we continue to like the Downtown Seattle submarket and believe that the ongoing creation of new jobs by companies such as Amazon, Facebook and Expedia will continue to drive demand in Seattle’s urban core. Boston which represents 5% of our total NOI continues to see new supply pressure Downtown. Our suburban assets north of the city and to a lesser degree those on the south shore should fair relatively better in 2015. Last, Dallas, which represents just over 4.5% of our NOI posted 4.4% year-over-year same-store revenue growth in the first quarter. We expect new supply to pressure our Uptown and Plano communities in 2015. For the full year we expect revenue growth to modestly decelerate from our first quarter results and come in around 4.0%. I’ll turn now to our recently completed and in-lease up developments, which you can find on Attachment 9 or Page 19 of our supplement. These three properties represent $400 million or roughly 48% of our pipeline. Beach & Ocean, our 173 home $52 million lease-up in Huntington Beach was 91% leased and 85% occupied at quarter-end. We are ahead of budget and exceeding our lease-up expectations. Asking rents today are just over $3 per square foot or $0.30 ahead of budget. I’d like to remind you this property is located three miles from our Bella Terra project that was stabilized a year ago and it’s just a mile from our oceanfront development site Pacific City which we plan to start at the end of the second quarter. DelRay Tower, our 332 home $132 million lease up in Alexandria, Virginia remains challenged by the weak DC market. But we’re confident in its long-term prospects. We are currently offering concessions of about two months in this oversupplied submarket in order to hold rate and maintain leasing velocity to reach our budgeted occupancy. Long-term, we believe in the DelRay submarket where we built an exceptional property. Lastly, we’re extremely pleased with the first three months of leasing of our 369 home $218 million 100 Pier 4 development in Boston’s Seaport District. We’ve taken over 120 applications in the month of March and April well above our expectations. At quarter-end the property was 31% leased as of today it is 50% leased 17% occupied asking rents of 4.70 per square foot are ahead of original underwriting. Pier 4’s waterfront location is surrounded by new office building construction and is only a five minute walk to the Downtown Financial District and Boston’s South Station Train hub. Several major employees are relocating to the Seaport district including Goodwin Procter which is relocating its Boston headquarters in 2016 and taking 380,000 square feet, State Street Bank which is relocating from the Back Bay taking 485,000 square feet and PWC which is slated to take 334,000 square feet as well. We’ve experienced exceptional leasing demand ahead of these transformational events and are excited as the area continues to attract new potential residents. April results came in well ahead of plan, as we look ahead to the next few months we see continued and improving pricing power and stable occupancy. All-in we had a great first quarter and we remain very positive on the outlook for multifamily fundamentals and our ability to execute during the peak leasing season and throughout the remainder of 2015. With that, I’ll open up the call to Q&A, operator?

[Operator:]

Thank you. [Operator Instructions] And the first question comes from Nick Joseph with Citi.

[Nick Joseph:]

Can you talk about how the development JV was sourced and what the benefit is to your partners for executing the transaction at this time?

[Harry Alcock:]

Nick this is Harry, Wolff was in the market looking for capital partners and given our sort of recent experience with Steele Creek we started talking to them about a similar type structure which is how this thing evolved from our partners perspective I assume there are a number of benefits that they could communicate but I know specifically they’ve got a couple of benefits, one they get to return money to an open-ended fund and redeploy it and secondly they were specifically over allocated on the development front to certain of these markets.

[Nick Joseph:]

And then stabilized estimated yield of 5% on current rents or on trended rents?

[Harry Alcock:]

That’s on trended rents we have grown rents up 3% on average over the next couple of years through stabilization.

[Operator:]

Next would be Jana Galan with Bank of America.

[Jana Galan:]

Jerry I appreciate you’re going to the core markets, it sounded like DC and Dallas revenue growth are expected to decelerate as we make our way through the year but every other market looks to be are gaining…?

[Jerry Davis:]

Now that is true, actually DC will be close to flat we expect DC for the full year to come in between 1.5% to 2% we’re starting to see the Downtown area as I said in my remarks get closer to the same types of growth as we saw in the suburbs over the last year or so they’re roughly even in that 1.5% range today. A big part of that is most of those assets last year were combating against the lease ups and therefore I have an offer I am going to have free of concessions when those have gone away. But the rest of the portfolio as you noted we are seeing a continuing growth in revenue when we first gave our guidance back in early February we felt our numbers were realistic given our economic data at the time, even though at that time we were seeing a lot of the operating trends on the ground that were showing strength, that was a little early in the year as we got further into the year we've seen the rate growth continue to accelerate sequentially and just as an example I would tell you that in the month of February our blended rate growth between new and renewals was 4.9% in March that grew to 5.6% in April it's jumped up to 6.6% so it has been going up 50 to 100 basis points a month even though we don't expect that pace to continue we do anticipate that the growth will continue to go higher just not the same level of increases each month But I can also say in the month of May I would expect it to be higher that was in April with 6.6 I’d also like to point out that we sent out renewals for the month of June and renewals in June are averaging at over 7% portfolio wide but there is a fairly wide disparity between the strongest markets which are the West Coast where renewals are pushing very high single-digits in the Sunbelt and Mid Atlantic are at the bottom those are about 5% renewal increases right in the middle close to the midpoint of what we are sending out is the Northeastern markets of New York as well as Boston so big disparity and I would remind you that typically we realize very close to what we have sent out so the seven should be a pretty good strong number. Today also just to get this out of the way our fiscal occupancy is 97% and what's really impressive to me and this really speaks to the broad success or strength of the rental markets that we’re in we don’t have a single market that has fiscal occupancy today less than 95.8% and when I look at our new lease rate growth in April our blended rate growth in April compared to the month of March 90% of my markets are higher in April than they were in March. So, going back to what you said we see continued strength and it's virtually across the board.

[Jana Galan:]

And then just following up Tom had mentioned that you maybe adding a one project to the West Coast Development joint venture and Harry you said The Wolff Company was over allocated to Southern California I was just curious if there is opportunity to add more to the JV?

[Tom Toomey:]

Yes. Just in and Jana you are talking about the land development JV or about Wolff? Yes we have five assets that are included in the JV currently there is a sixth asset that is currently being considered by both parties and we may add that prior to closing so yes that would be a West Coast asset as well.

[Jana Galan:]

And any other opportunity to work more with them?

[Tom Toomey:]

We do have a pipeline of additional development opportunities that is something that we would discuss with them once we move forward.

[Operator:]

Next would be Steve Sakwa with Evercore ISI.

[Steve Sakwa:]

Just a couple of quick questions on The Wolff side just to be clear with the five and the potential sixth was that kind of the entire current existing pipeline or did they have a portfolio of 15 and you went in and in effect pick out these five or six assets?

[Warren Troupe:]

Steve. This is Warren. They recently had a portfolio of 10 that they presented to us and when we looked at the 10 the six that we've been talking about are the ones that we thought had the promise for us.

[Steve Sakwa:]

And then I guess for Tom Herzog if you kind of think about NAV and consensus NAV I mean we're hearing more companies kind of using consensus NAV as the maybe the justification for issuing equity the companies don't always provide kind of their own views on NAV but just how do you -- it is just I guess to the extent that there was a large disparity between your own internal and consensus, how do you sort of rationalize that and is there a at which you probably would not issue equity in?

[Tom Herzog:]

Yes, Steve. Certainly we look at consensus NAV it is an easy number for us to speak to, because it's produced by a sell side analyst, but we absolutely do our own NAV internally every quarter and then we bump that up against consensus before we consider issuing equity so that definitely comes into our capital. Did I answer your question on that?

[Steve Sakwa:]

Yes. I mean we could sort of chat offline about it. It's just I guess to the extent that your NAV was 35 and consensus was 32 and the stock was at 33 you would be above consensus below your own number it may justify that we issued above consensus the duration below your own estimated value and so just trying to sort of get your arms around that or how should we should be thinking about that?

[Tom Herzog:]

So I would put at this way we do look at our internal NAV and we run it for a purpose to determine whether we believe internally a transaction would be accretive or dilutive and more certainly if we had concluded that it would be dilutive to us we would not do the transaction so we do look at our own NAV when we consideration equity as well.

[Steve Sakwa:]

And I guess just one last question for Jerry I mean DC looks like it turned the corner I don’t want to put the carts before the horse here. But how you’re just feeling DC it seems like the supply is being absorbed better than people thought. Is there a chance that DC surprises further to the upside there?

[Jerry Davis:]

Steve as I look at my original plan DC is one of my most positive upside surprises along with Baltimore so the entire Mid-Atlantic area. The last quarter we stated that we felt so we had bottom in fourth quarter of 2014 in DC and then it was either going to plateau or start to reaccelerate the acceleration was a little bit sooner than we expect although we did expect it to go positive. I think it potentially could outperform even more we’ll have to see if the jobs continue to come. But right now the new supply inside the Beltway is providing less resistance than it was last year. In fact I think on this call last year I had given some data points of what were my best performing and worst performing individual assets were in DC and I know my worse performing was at about a negative 4% growth and it was my View 14 property down on View Street and if I look at my first quarter results this year that same property has positive revenue growth 3.5%. So that U Street Corridor in particular where we’ve bet pretty heavily with really about four properties within a mile up there are really performing well.

[Steve Sakwa:]

And I guess that’s the only market at this point you’re worried about just downside surprised or is the jobs picture in the household formations just running so strong that there are very few markets where you kind of worry about downside surprise?

[Jerry Davis:]

It is universal look so one when it will show occasional signs of some weaknesses in Dallas although the job growth continues to be strong we have felt the effect of new supply have been playing out where we have roughly one half of our same-store portfolio. But other than that the strength is across the board I think the Downtown San Francisco is impacted by supply as I stated in my prepared remarks that Downtown area is underperforming the Bay Area at about 5.5% to 6% if you call that underperforming. But Steve today we keep looking for when it is going to hit us that is negative and it’s been hard to find. Earlier in the year we were a little concerned with Boston but then what came into reality similar to last year is it was a seasonal weather issue because as soon as March came around we saw a dramatic pick up in our rent growth, our occupancy which have stayed strong, got a little bit stronger and as evidenced by the success of our Seaport lease up Pier 4 we’re very enthused by the strength of Boston even though there is significant development pressure Downtown.

[Operator:]

And next will be John Kim with BMO Capital Markets.

[John Kim:]

I had a question on the consolidation in the sector recently. Do you expect this trend to continue given the leveraged buyers in the market? And does this change the way you run your business at all? For example, do you want to get large or do you increase your economies of scale?

[Tom Toomey:]

This is Tom Toomey and thank you for the question. It’s an open-ended speculative question and in all frankness I’d rather focus on what our strategic plan is, the execution of it and the delivery of the results. And so, while we sat around and observed what’s going on we think our best plan is the one we’ve outlined and the execution of it.

[John Kim:]

So do you think that if you could figure the economies of scale would improve for your company?

[Tom Toomey:]

I think it’s a double edged sword. I mean I at one-time with a few other guys in this room ran a company that was 400 apartment homes. And to tell you the truth after about 200,000 doors you start having inefficiencies because you become a company that’s run by spreadsheets and not the local knowledge of the particular real estate. And we like our size today and are more focused on what we derive out of the assets than what our G&A is relative to the size we don’t see it as a problem today. We look at the results and the cash flow growth of the enterprise more than we do to the G&A aspect of the enterprise.

[John Kim:]

I had a couple of questions on the mechanics of the joint venture, so just understanding the immediate the preferred return that you are getting is essentially a coupon that you’re getting from your partner?

[Tom Toomey:]

Well we get a 6.5% preferred return on our $136 million investment so I think you could describe it as a coupon, yes.

[John Kim:]

And then you -- when this asset stabilizes the development stabilize the yield goes to 5%, 5.4%. So is that actually a little bit dilutive once the developments are complete?

[Tom Toomey:]

Well it’s not dilutive relative to our cost of capital but the question is that the 6.5% coupon that you realized sort of reverse to a 5.4% the answer is yes, so the returns do come down slightly as we -- as the properties come online.

[John Kim:]

And your preference today is to exercise this…

[Tom Herzog:]

If I could just jump in, it's Herzog just to be clear the 6.5% prep on the investment balance until such time as the asset is considered stabilized which would be at 80% occupancy and until that date The Wolff partner will incur all operating losses minus interest or get any operating income during that period of time. Once we have been deemed stabilized on an asset to that definition, then we move into our sharing ratio of 48% to 52% from that point forward. So whatever the asset is yielding at that point will be what falls to the bottom-line and the stabilized numbers that Harry is speaking to at the 5.4 is what he is referencing. So that is the mechanics as to how that will play through the P&L over the life.

[John Kim:]

And so the accretion really picks up once you exercise the options and is your preference right now is to exercise all the options on the properties or what’s your view on the projects today?

[Tom Herzog:]

Well, I think the benefit of having fixed option price is that when we get to that point and the property is stabilized, we can make a separate investment decision as to whether that option prices is a favorable and then make the decision at that time.

[Operator:]

Next will be Dan Oppenheim with Zelman & Associates.

[Dan Oppenheim:]

Was wondering about the increases on the renewals that you're talking about for May and June were you talking about the greatest increases in the West, it looks though there was a slight increase in turnover in some of the Western market where renewables were pushed a bit are you -- do you end up softening renewals based on turnover in any of the market how are you thinking about that in terms of how much you want to push the rents?

[Tom Toomey:]

No we would not we really look at occupancy and generate the highest NOI based on rent increases turnover and things like that and what we’ve seen as we pushed rates in places like Seattle, for example you’ve pointed out. We had renewals of 7.4% in the first quarter, they went up to 8% in the month of April and turnover at 43% is not dramatically up from a 38%. But when I can reload it at 6.1% on new lease rate growth, I am okay with that trade-off. Our job is to increase the value of the real estate, and we believe we have to do it by driving rate growth by really whatever means is necessary and if you get to a point where you're having to dramatically cut new lease rate growth because you have pushed too many people out the back door that would tell me I am pushing too hard. But I am still able to get to 6.1% in Seattle. I've got occupancy today in Seattle that's north of 97%, place like Portland where it also increased 40 -- turnover increased 46%, we have 9% renewal growth and 8.1% new lease rate growth and my renewal growth in the month of April was 10 and my new lease rate growth was 12. That tells there is opportunity to do it. Sometimes people are moving because it’s a transient workforce and when you look at places in the West, a lot or people have relocated from other markets, especially in the Millennials that are going to the West for the job opportunities. And they’re just going to jump around a little bit more. So, we’re not overly concerned with that today.

[Dan Oppenheim:]

And then secondly wondering about the -- so The Wolff joint venture and just thinking about development overall here in the -- at this point in the cycle, given sort of what has happened in terms of the upward move in rents or in such couple of years, will you look for more opportunities to participate in development this way or a potentially putting a shorter time between putting the capital and sort of having building in lease-up than it would be if you were buying land given the land appreciation to the risk at this time?

[Tom Herzog:]

Yes this is Herzog again. I’ll start and let Harry pick up behind me. We still feel that if we pencil development deals in general, we're still targeting 150 to 200 basis point spread over market rates and we still see plenty of deals that meet those standard and that’s true that not as many deals pencil today as might have penciled a year or two ago. But when we look at The Wolff deal, one of the things we really like is it is a much shorter period to stabilization because these projects are already well half underway and so we reach the goal a lot sooner. So as we think about this relative to our pipeline of 900 million to 1.4 billion with anticipated deliveries, of call it 350 million a year or $350 million of your spend. This ties in very much to the strategic plan that we have -- we’ve previously communicated. So this definitely falls in line with the game plan that we’ve had around development. Harry, anything you'd add to that?

[Harry Alcock:]

No and I think you touched on it, that one of the things we looked at and liked about The Wolff transaction is that the initial deliveries whereas in a typical development deal when you are three or four years out from the time you start the planning process in The Wolff transaction initial deliveries are 11 or 12 months from now and stabilization follows about a year later so Wolff does get us there much more quickly.

[Operator:]

And next will be Rich Anderson with Mizuho Securities.

[Rich Anderson:]

So, I just want to make sure I understand that with 900 million to 1.4 billion of target range in your development that’s just what you got now plus Wolff is that right?

[Tom Herzog:]

Yes, what we have now plus Pacific City plus Wolff.

[Rich Anderson:]

Okay. And regarding Wolff you said the all-in stabilized yield is estimated five if you pull the trigger on acquiring assets, does that mean you’re buying a low four on the actual incremental deal because you’re getting the 6.5 to start with?

[Tom Herzog:]

No I think the math is, it’s a, the 6.5 doesn’t come into play in terms of calculating the stabilized yield. If you take the 5.4% that we’re going to achieve for the first 48% it would be a mid for us for the incremental 52%. So we are assuming we acquired all five proprieties we’d be somewhere in that 5% or low 5% range. That includes property tax reassessment in the California property so that sort of diluted the return somewhat but that’s fully incorporated into the underwriting and the reality is that if we sell the property or two loan exercise on all of them and to monetize those gains and apply it against the retain fees that we would be at somewhere in the mid fives. And when we’re talking about underwriting, we’ve underwrote these things in a fairly conservative manner. We’ve assumed revenue growth of roughly 3% per year for the next couple of years through stabilization.

[Rich Anderson:]

So the total price is 597, right and that includes 136 that you’re getting a 6.5% return on. So I can’t imagine how the number is for the incremental amount above the 136 isn’t something below five to get to an average an all-in average of five?

[Tom Herzog:]

Rich, the 136, I’ll say the same thing Harry said a little different though. The 136 million based on that going in price is -- comes in at a 5.4.

[Rich Anderson:]

Okay, that actually, okay, I got you. All right, yes I got it.

[Tom Herzog:]

I want to be real clear, and I’d probably answer your question but just one other item to clarify. When we acquire the remaining portion that we don’t own for those assets that we chose to exercise the option. You got to look at that as just we’re acquiring at that point a new stabilized asset for that additional purchase price.

[Rich Anderson:]

Okay.

[Tom Herzog:]

So, when Harry speaks to the mid 4s that is on a stabilized asset.

[Rich Anderson:]

And then Jerry, I can hear you’re chomping a bit to say that DC has recovered but I mean is there any talk about adding to your investment thesis in DC at this point before we really recovers I mean whether it would be development or looking for assets or just nothing there right now that pencils for you at this point?

[Jerry Davis:]

I’ll start it to Harry in a second. One thing I will tell you Rich is, we’ve been going and looking at opportunities to do renovation properties and we are in the midst of one out in the Fairfax County right now underwriting it with a hopeful start later this year when we think we can do some value-add. We also have some more modest renovation opportunities inside the Beltway but I know Harry has been looking at product inside the Beltway and I will let him give an update on that.

[Harry Alcock:]

And Rich if you think about sort of a development strategy that we’ve talked about historically it’s a deal that we’re going to have sort of one property under construction in each market at any given time. So as we for example finish our Pier 4 deal in Downtime Boston we just recently acquired a land site and in the south then with the expectation that we’re going to start next year. As it applies to DC we have our DelRay property that is where we have completed construction and are in the midst of lease-up. Our hope and expectation would be that at some point in the near future that we have a new DC development asset that we can start to construct and we’re actively sourcing those opportunities now.

[Operator:]

And next will be Nick Yulico with UBS.

[Nick Yulico:]

And Tom I was hoping to get a couple of questions on the guidance. What is the reason for interest expense now going down versus your prior guidance and can you just remind us the capitalized interest you expect this year?

[Tom Toomey:]

Yes hi Nick, we took it from 1.25 to 1.30 down to 1.20 to 1.25, and just a couple of items on that, most of it’s due to the delay in the bonds issuance. Just based on timing that we previously had in the plan and we’re comfortable at this point pushing that back to the, towards the latter half of the second quarter. And a little bit of timing on cap interest on one of should development assets. So that's what makes up that difference. And as to cap interest, I could add it up out of the -- I want to say it’s like $5 million of quarter. That's just from memory. I think that's right, but I can add it up and you can call me after the call if you like and I can verify that. But I think it's in that range.

[Nick Yulico:]

Okay. Got it, thanks. And then just going back to the Wolff joint venture, can you just talk about why it sort of made sense to -- if you guys have been citing 150 to 200 business points as a spread on development in this deal, at the end of the day it's going to be 50 to 125 basis points. Why it’s only made sense to take that lower spread and then just I guess separate from that on the future met life JV development, is that also sort of a lower spread than where you guys are doing stuff from balance sheet?

[Harry:]

This is Harry. I think the whole question -- we view this really as a hybrid between an acquisition and a pure development. So if you think about it long kind of the risk return spectrum, you start all the way to the left where you have a fully occupied or nearly fully occupied property and operating results that are well known at a kind of a fore cap rate for these types of assets. And then you take it all the way to a pure development where the results won't be known from three years to four years from the time they just started sort of the designed process and go through the construction and lease up period and have full risk on construction and as well as lease up -- it didn't get somewhere in the 6% plus return on that when Wolff fell right in the middle where we'll be in the fives. We'll start initial occupancy in a year. Our partner has all construction and cost risk and so it really is a hybrid. In addition, rather than having the drag associated with the pure development deal, we did 6.5% coupon on our invested capital through the construction and lease up period. Oh I'm sorry, the second part of the question was MetLife. So the main Mountain View property that we just started, we haven’t talked about returns, but that property we would expect to be at the very high end of our 150 to 200 basis points spread, probably above that. We have a couple other properties that could start in the MetLife portfolio later this year, two in LA and possibly a new phase at the [indiscernible] and we're still working through the design and the economics of those assets and we'll talk about it at the time but then we get there. The 3033 Wilshire deal that we started last year, again we would expect to be at the high end of our 150 to 200 basis points spread on the market cap rates, but we'll talk about that more as we get closer to completion.

[Operator:]

And the next question will come from Alex Goldfarb with Sandler O'Neill.

[Alex Goldfarb:]

I guess we'll continue the Wolff. So maybe this is for Warren. On the deal, the Wolff Company has the right to get a 6.5% preferred equity if you guys don't buy at least two of the five deals. The economics would seem punitive to you guys if you didn't. So apart from providing them comfort with here -- that you guys will take at least two of the deals, what are other reasons why you would not exercise that apart from obviously the market falling at or better, something like that?

[Tom Toomey:]

Well. Alex, as Harry said, one of the things we really like is that we have the option and the ability to look once we get to the utilization and once we get to our window and we can look at the properties, making new investments and deciding which one we'd like. Wolff, one of the two of five which are really just to give them some comfort that we were going to perform, but as we said to one of your earlier questions, we initially started with 10 properties and went through the investment analysis and the joint venture hopefully will be safe towards the process negotiating for one final property. So I think from a real estate -- I think perspective Jerry and Harry feel very comfortable with the six that we have in the JV, and like I said, we'll be able to make that decision at the option time.

[Alex Goldfarb:]

Okay. And then Tom Herzog, on the ATM in the press release and your comments, you mentioned the stock trading above NAV. Yes, above consensus NAV. Looking at SNL, the NAV right is around $33. At year end it was $31.50. You guys issued at like $32 - $30 gross or $31.16 set. So one, sounds dilutive to where or below where consensus NAV is. But second is a lot of companies talk about that chain, the issuance of the ATM, what they use, and I didn't hear you guys talk about it, but maybe that's the way you look at it. So should we expect that every time your stocks trades above $32 you guys are issuing ATM or is it truly a face of where you have investment opportunity that's above your implied cap rate than your issuing?

[Tom Toomey:]

Okay, multiple questions there. Let me see if I can get them all. The first question was we issued at a net price on the $109 million at $31.64. That’s correct. You got to remember we were issuing most of that at the very beginning of 2015. So the lease of January 6, January 12, that’s when the majority of it occurred. So when we think of an average of what the consensus NAV was at that time, and you guys will recall that early in the year that NAV started to move fairly quickly. We had an average consensus NAV during the issuance period during the same time they were issuing these shares of $31.07. So on a net basis we came in at $31.64 and the consensus NAV was $31.07. I think the second question was, you note that we utilized the ATM -- I would -- and if our price exceeds that which allows us to issue at or above what we continue to do so, what I would reference back is the remarks that I made in the first quarter call when we spoke to our different uses of funds, which are set forth in that trader [ph] strategic document where we had development cost, we had certain acquisitions, spend and so we sort of bucket of funding needs for the year and we spoke to three sources that we would fund them with; and that was issuance of stock, sales of assets and debt. And we have executed to that as we had indicated we would and we said that we would identify what we thought the most favorable sources of funds to fund our needs and we have done that and we’ll continue to do that. As we look at where we stand today after picking up the various fundings that we’ve already completed, I guess it’s probably important for me to remind you that a good portion has already been funded. We’ve tweaked our guidance a little bit on attachment 15, but the changes are not major. You will see that when you compare the old attach from 15 to the new which provides our guidance. And we have already funded a 109 -- we started with a need of $825 million. ROE, it has adjusted for the latest adjustments. We funded 109 in the ATM. The Texas JV brought in 43. We’ve got sales under contract of 65 and we’ve got more out there that will go under contract. We’ve got 300 million of debt that I’ve already alluded to that will likely come in at the end of the second quarter. And what that really means is we’ve got about $250 million to $300 million remaining for the entire year, which is a relatively small number for us as you know and we continue to state that we will use the most advantageous funding source for that purpose.

[Operator:]

And then next will be Ian Weissman with Credit Suisse.

[Unidentified Analyst:]

This is Chris for Ian. Monterey and Portland are essentially non-core markets that continue to generate very strong rent growth and have occupancy over 97, and I think in Portland’s case 98%. Obviously when rent growth was increasing in the high single digit, it lowers the urgency to sell, but just curious about your thoughts about market timing or whether you’re more like performance agnostic when it comes to exiting out of those markets?

[Jerry Davis:]

This is Jerry. I guess I would start with -- you’re correct. These two non-core markets are performing extremely well. And I would remind people that when you do look at our non-core markets, it’s not always because they’re underperformers. They just don’t meet our strategic initiatives and plan. And I think at times it’s best to actually exit a market when it’s at the top. So in a second Harry will give you an update on some of the transactions that he is looking at in those markets. But today the operating teams are doing an extremely good job and markets that have good fundamentals. But again they don’t fit our core strategic focus of these gateway markets that are bicoastal. Even though they’re in the coast, our preference would still be for Seattle over Portland. And while the Monterey Peninsula market has done extremely well, the average rents in that market are fairly low. It caters more to an agricultural economy. And longer term we grow their CR assets in some of the other markets in the West Coast or East Coast but when you think about San Francisco, Seattle, Orange County, LA, a more comfortable long term.

[Harry Alcock:]

This is Harry. I think I’d just add that we will continue to chip away at these properties to meet our sales objectives, to just give you kind of an overview of the properties that we’re working on now. We have two properties that are in central Florida that are under contract, one in Tampa, one in Orlando. And to your point on Portland, we have one of our three assets in Portland that's currently in the market. We’re getting terrific investor interest and would expect to close that sometime in the third quarter.

[Unidentified Analyst:]

So it sounds like you have a mix of assets out to market regardless of how those markets are performing. Now that you’re said that you’re kind of more -- you would tend more to sell assets that are performing well than those that are kind of laggard, is that kind of what I am hearing?

[Tom Toomey:]

I don’t think that’s what I -- if I said it, I didn’t mean it in that context. What I was saying is just because a market is performing well, we’re not going to hold on to it ride out strong NOI growth and wait till it starts to go on a down cycle. Jerry can get optimal pricing when there is still some upside opportunity. So we don’t wait till the market is about to turn south to mark it for sale. That's what I meant to say.

[Unidentified Analyst:]

And then I apologize if I missed this, but revenue growth came in at 5.1% for the first quarter. It sounds like things are accelerating over the last month. And then guidance is up 4.25 to 4.75. Just wondering where the drop is going to come from?

[Tom Toomey:]

It's really occupancy. You look at the two components that really drive revenue growth, one is change in occupancy, the other is change in rent per occupied home. And then the first quarter it was 60 basis points of occupancy growth year-over-year and 4.6% growth in rents. We will most likely not have the opportunity in last three quarters of the year to see that same occupancy growth since we pushed occupancy last year up starting in 2Q to the high 96 levels. So it's predominantly going to come from rent growth. That being said, if I had to look at it today based on the trends, we’re probably moving more to the middle to high side of our guidance number, then we are too below.

[Operator:]

And next will be Jordan Sadler with KeyBanc Capital Markets.

[Jordan Sadler:]

So just curious -- I'm coming back to Wolff one more time. Can you offer price versus development cost to Wolff? I'm curious about how the 559 compares versus their basis and ultimately sort of the premium replacement cost here?

[Tom Toomey:]

I’ll start with that Jordan. I think -- I don’t know that we have the -- I know that we don’t have the exact -- their exact cost numbers. Suffice to say this a premium to the resisting cost, but I think I'd point to that the 559 is $357,000 per apartment home and the 597 is prudent to be exercised the options on over -- and the remaining 52% on all five properties is $380,000 per apartment home. So neither of those are numbers that are alarming over the field, particularly rolled us from a new construction standpoint.

[Jordan Sadler:]

And I guess there was a previous question surrounding this I think regarding the motivation of this at this point. As you guys are pointing to potentially $80 million of value creation, it seems like a pretty short window to get there. I think we’re talking about lease-up commencing in as little as seven months for some of these. Can you maybe sort of talk about what the trigger might have been or why there is this opportunity for that amount of value creation in this relative to 136 million of principal in this shorter window of time in this environment?

[Tom Toomey:]

So Jordan, the way that I think about it is rather than pointing to $80 million of $136 million, we get the point to $80 million on $597 million which is the total aggregate purchase price assuming we acquire all five assets. But what Wolff gets is -- again, I think I mentioned at the beginning of the call they get -- first they get return capital to their open ended fund, which is favorable for them, I assume on then assume many levels including the fact that they get to redeploy these assets. And secondly, Wolff has a robust pipeline of additional opportunities. In their minds they were over allocated on the development side to both Southern California and to Seattle and therefore they we having just sort of forego other opportunities. So from their perspective they get a couple of -- there is a couple of significant benefits to that.

[Unidentified Analyst:]

This is [indiscernible] here. I had just one quick one as well. Jerry you may have touched on in a bit at the end of the last question, but given sort of where you guys finished in the first quarter, both top-line growth and same store NOI, and the accelerating trends you’ve seen really into May and June, what’s kind of held you back on raising the same-store growth even higher?

[Jerry Davis:]

I guess just caution as we go further into the leasing season, and again we have visibility into June during the months of the third quarter you got another 30% of the properties, the leases that will reprised. Today again I am more optimistic that we're going to push towards the high-end than I am to the low end, but we have another couple of quarters later this year to take a look at it. But today I can’t tell you anything that I see that's excessively negative.

[Operator:]

And next will be Rob Stevenson with [indiscernible].

[Rob Stevenson:]

No Wolff questions I promise. Just two quick ones here, Jerry how many projects or dollar value do you think you're going to put into the redevelopment pipeline this year?

[Jerry Davis:]

We anticipate -- and these will all be later in the year. We anticipate --three to seven would be my estimate. There will probably be a handful of those that are in the $15 million to $20 million range, and then some that will be under $10 million. So you’re not going to see any -- I believe we had guidance Tom for a redevelopment. So what was that number?

[Tom Toomey:]

The spend is somewhere -- that's going to be as adjusted about $350 million for the year. That’s development [indiscernible]

[Jerry Davis:]

But we don’t see any of the redevelopments we’re anticipating right now Rob being of the size of some of the ones we've done over the last couple of years.

[Rob Stevenson:]

Okay. So it’s going to be less than $100 million of incremental assets going in there if I'm just using fixed project at $50 million gives me $90 million or something in that neighborhood will be the sort of upper end you think?

[Tom Toomey:]

I think it’s less than that I can’t say it’s probably more enough 50 range at the high end.

[Rob Stevenson:]

Okay.

[Tom Toomey:]

And that would be start this year. A lot of the spend would actually be next year.

[Rob Stevenson:]

Okay. And then Tom Herzog. Just a quick one. With the $0.03 gap between FFO and FFO as adjusted in the first quarter, when I look at the full year announcement, does that mean that you're at this point not including anything else that would be a gap a between FFO and FFO as adjusted for the last three quarters.

[Tom Herzog:]

Right.

[Rob Stevenson:]

Okay.

[Tom Herzog:]

Nothing of any significance. You can see that the couple of odds and ends in the -- attached from ‘15, but all the big stuff would be passed, which was really the Texas JV promote and dispo fee.

[Operator:]

And next will be Haendel St. Juste with Morgan Stanley.

[Haendel St. Juste:]

So I guess first for you Mr. Herzog, quick one on capital allocation. Help me understand the decision to raise the dividend by 7% during the quarter while you’re selling about 109 million stock in your ATM. Is there after-tax issue or something I'm not fully appreciating there?

[Tom Herzog:]

No, we just looked at our coverage, we looked at the growth of our AFFO, and as we’ve lined out the last couple of three years, we wanted our dividend growth to largely reflect our AFFO growth. So nothing has changed on that front. It wasn’t the tax issue. And we'll contaminate that as we think forward the next couple of years, as you look at our plan too, you’ll see that our dividend growth coincides with our AFFO growth.

[Haendel St. Juste:]

Okay. And now that you fully liquidated the Texas JV with Fannie Mae, can share what the IRR was? We felt a cap rate of about 6% on recent sales assets but curious what the return of the likely investment was?

[Tom Herzog:]

The all in IRR on it was 14%.

[Haendel St. Juste:]

That’s levered?

[Tom Herzog:]

Yes.

[Haendel St. Juste:]

Okay. And you guys mentioned the four assets you chose not to pursue with Wolff. I’m not sure if I missed it or not, but did you mention why you weren’t pursuing those? Perhaps they were markets you don’t want to exposure to? Was it a size issue? Maybe you don’t want to take too big of a portfolio? Can you give me some sense as to you opted not to pursue the other four?

[Harry:]

Haendel, this is Harry, -- take on the quality of the assets and their specific submarkets.

[Haendel St. Juste:]

Okay. Last one, Jerry on Seattle -- recently the supply that hit downtown Seattle was -- you absorbed without much of impact. But now the fund shift over to Belvieu which is a much smaller submarket and some forecast suggest that Belvieu might -- they're seeing a 20% expense ratio on supply over the next couple years. And given that Belvieu is where you and a couple of your peers are effectively concentrated, curious on -- I guess you still have good pricing product today but your expectations for the market over the course of this year into next, thoughts on perhaps operating strategy. And would you guys perhaps consider culling some of your portfolio there, especially given not only the supply outlook but you guys acquired it looks like two asset, the Wolff link up.

[Jerry Davis:]

We like Belvieu very much. Now there is job growth continuing that there even though Expedia is moving their headquarters over to Seattle from Belvieu we think it will get refurnished within downtown Belvieu which is a growing and vibrant city to be honest with you. We continue to see revenue growth so far this year north of 6%. We have a very high end A portfolio there, although as you stated there is significant new supply that is coming to that market. We think Belvieu caters a lot of the east side job centers, whether it’s Microsoft or downtown Belvieu, or Google employers on the east side. I don’t think we would be looking to downsize Belvieu. Two of our deals are MetLife JVs and then very high end we have the Element Steels which -- they're extremely well with the workforce in Belvieu and we have one property down in the downtown area Belvieu that's only about 80 units. That typically does very well although this year as you noted it surrounded by supply and it’s probably suffering the most with revenue growth that’s roughly flat compared to the 6% or 7% to the rest of that sub market. The two deals that we did we get in the Wolff transaction related to this are ones in Salt lake [ph] Union, which we're excited to have one downtown presence. Currently we really have one 50-5o JV deal with Met down there. That's probably the best property in all of downtown Seattle. This property provides us with -- I think of it is a dormitory for Amazon workers. It' surrounded right in the middle of the Amazon campus. So I think that is going to do extremely. And then other deal is then Columbia city which is probably 5 - 6 miles south of the downtown area. The thing we like most about that property is it's right on the LiveRail. It's directly across street and it's in an emerging neighborhood that we think has a ton of upside growth. And what we really like about that -- because a lot of our portfolio in Seattle is a product, this is a price point is about 65% to 70% of what downtown rents are. So it's a great alternative to those people that want to want to have more of an urban feel but can't afford downtown Seattle. So I know it's at long question about Seattle but we are very bullish on Seattle. You're right. That city, [indiscernible] new supply but the job growth was more than sufficient and we continue to be very excited about really growing our exposure in that market.

[Operator:]

And next will be Michael Salinsky with RBC Capital Markets.

[Michael Salinsky:]

Just to go back to Wolff a little fast, the assets you guys are requiring, are those in the same fund? And then as you look at Wolff -- obviously MetLife being a long term joint venture, I think you've characterized their [indiscernible] joint venture as an intermediate term. How would you characterize the Wolff joint venture?

[Unidentified Company Representative:]

Michael, t Wolff assets are all in one fund. And then as you know on this one it has a finite life. It's less than six years, and [indiscernible] periods start in this second year. So this is a lot different than what we have in terms of long term MetLife count joint venture.

[Michael Salinsky:]

Alright. It's helpful. Then my follow up question, G&A guidance went up for the quarter and you brought in your corporate headquarters. Why -- I would have thought buying that in what have actually reduced unit. What was the reason for the G&A increase?

[Unidentified Company Representative:]

But we had the increased performance and FFO which impacted the LTI plan. And so that's what the net increases over time.

[Operator:]

And next will be Drew Bewin [ph] with Robert W. Baird and Company.

[Unidentified Analyst:]

Hi, guys. It's actually for you Jerry, on the Marina del Rey concentration in Los Angeles. I was hoping you could talk about the growth in that area and what ultimately kind of gets that market out of the --and how the flattish environment -- it's then persisting and furthermore maybe talk about other operational improvements you're making elsewhere on the west coast to improve growth just beyond what the market is providing and to win more of those markets.

[Jerry Davis:]

Sure. Yeah start on Marina del Rey, and as you pointed out, it has struggled. Our revenue growth -- this quarter my expectation will be the lowest in the sector at 3.8%. About 80 to 90% of our same store portfolio is in the Marina and when you look at the Marina it has been hit with new supplies down at Playa Vista which an adjacent sub markets, your buying company and several other operators have been building there over the last couple of years. And while it struggled last year and this year, our expectation is that as you get into 2016 and 2017, when the sliver comp [ph] beach really starts cranking out the jobs which are projected to be probably about 10,000, whether it's Google, Yahoo, [indiscernible], several other tech employers are coming to that sub market. We think our proximity to the jobs is going to more than offset what's been hurting us with our proximity to the new supply. So it's just a situation where the supply beat the jobs, and we would expect in 2016 and 2017 to see that get quite a bit better. As far as initiatives in the west coast, we were really run the same initiatives, whether it's east coast or west coast. One thing we have been doing down in our Orange County portfolio is investing some revenue enhancing dollars which Herzog requires and we comply with getting a 200 basis points over [indiscernible] IRR, which typically is about a 20% return on your money. But we're looking for opportunities to upgrade those 40 plus year old properties that we've maintained well but we haven’t improved the functionality since we bought a lot of those assets back in the mid-2000s. So they were due and we've been putting some of that $30 million or so that we get guidance, revenue enhancing dollars since beginning the year. It's heavily growing into the west coast. As you look up into the San Francisco area where we had 9% revenue growth, on a situation there honestly as we don't have anything in the east bay, the downtown area, the jobs are coming, again commonly but I said about the Marina del Rey area. The financial district is going to have significant job growth over the next couple of years but that's also where the new supply is coming. We are fairly heavy in that some area. And then up in in Seattle, I think about 80% of our portfolio up there is a product, and even though new supply haven’t hurt it too much, it has had an impact on it. So no real new initiatives, although we are looking for opportunities like I said in So-Cal to reinvest even more in our real estate to give our residents some of the things they’re looking for.

[Unidentified Analyst:]

And one follow up, shifting to the East Coast, as you look at markets like Boston and New York where obviously condos in the city are very pricey, people are -- they want to be in the city. Renting is still the most attractive option. Given the public transportation systems of both of those markets, there is always options that somebody really wants to get out if they’re willing to spend like commute to save money. Are you seeing anything in those markets, whether it’d move outs to buy ratios or sort of where people are interested in renting? It would indicate that there is some potential rent fatigue there.

[Jerry Davis:]

We think our renting demographic wants to be in that urban core, and they have various things they have to spend money on. And when you’re living in urban core, you get to cut down on your transportation cost, which can run upwards of $1,000 and they just make trade-offs. But that younger demographic that we’re typically focused on in those urban markets have a high preference to be in the downtown locations, their entertainment, their jobs. And you'll always get few people that will move out to the next ring, whether it's in San Francisco going to Oakland, Manhattan going to Brooklyn or Jersey. Only one of those markets you brought up that I continue to see a fairly high new downtown purchases since the Boston market which historically since we benefited last three to four years has been one of our highest move out to home purchase markets at over 20%.

[Operator:]

And next will be Connor Wagner with Greenstreet Advisors.

[Connor Wagner:]

Jerry on DC last quarter you provided some good commentary on the split between the deals outside of the Beltway, how they are performing in the Asian side of the Beltway. Just wondering if you could update that for the first quarter and placed in April?

[Jerry Davis:]

Deals outside-inside, as I stated I think earlier on the call, they’re starting to compress to where either it's a B or it's an A or it's inside or outside, they’re all getting more to the point where they’re averaging between 1% and 2%. So the differentiation is tightening. My As actually were at about 1.9% revenue growth during the quarter and my B’s we’re about 1.2%. So the A’s actually did pick up. And again I think that was because they had more supply pressure last year for concessions. We’re keeping the price down. And honestly what’s been interesting for the same reason is my urban product which is more of the inside of the Beltway, and revenue growth of high twos and my suburban was just slightly negative. So we kind of have flipped a little bit where the suburban A is starting to pick up steam. Then when you look at how does April looked, in DC my new lease rate growth was 0.8% in April. That’s probably if I look back the first time, that number has been positive in the last year and half. So it did go positive at 0.8 and my renewal growth in the month of April in DC, and these are effective numbers, is 5.6%. So DC is starting to look a lot more like the rest of the portfolio. It’s getting there.

[Connor Wagner:]

Thank you. And then last one Jerry, on Austin we’ve seen job growth decelerate obviously at the high number over the last year. Have you seen any slowdown in your portfolio or between the properties that you have that are more within city limits versus the suburban ones?

[Jerry Davis:]

Well, haven’t really noticed the job growth slow as well as far as the performance of my properties we have seen our downtown product, which competes with new supply as a rough patch at times. We have another property up north at the domain shopping center where new supply is also effective, even though it's kind of in a tech corridor. So we like it long term. But Austin is definitely a market that has seen a slowdown from last year to this year just as absorption of that supply is occurring. Although Austin goes through these waves where you will have new supply grow 10%-12% over a three year period. It will be difficult three years but then as soon as they eat that up, it takes off again. So -- but Austin right now, I just told you the good news about DC accelerating. When I look at Austin my new lease rate growth in the month of April is negative 0.3%, and that compares to about 2%-2.5% in the first quarter. So, we are definitely feeling some pressure in Austin today.

[Operator:]

And our next question comes from Nick Joseph with Citi.

[Unidentified Analyst:]

I guess I had a couple of just quick questions going back to the Wolff transaction. You talked about certain guarantees. What are those guarantees?

[Tom Toomey:]

Jerry, do you want to take that one?

[Jerry Davis:]

I can’t.

[Warren Troupe:]

This is Warren. The completion guarantee is under the construction loan and certain other non-recourse bad void guarantees.

[Unidentified Analyst:]

What are the total construction loans and what are the terms in terms of the amount and maturity date and rate?

[Warren Troupe:]

The average price for construction loan is about 210 and the total amount of construction loans, it's about 275 million and our UDR share would be about $140 million. So of that 2017 maturities would be approximately $173 million, 2018 maturities would be $39 million. Of those UDR shares will be 84 million in 2017 and approximately $19 million and 2018. All construction loans have two-year extension feature.

[Unidentified Analyst:]

And then the all-in construction cost that they guaranteed, I take it, it's like $400 million. Is that what you said to Jordan before?

[Harry Alcock:]

No, we didn’t talk about the all-in construction cost, Michael. This is Harry.

[Unidentified Analyst:]

So what is the all-in -- I guess the $275 million of debt, 70% LTV is $400 million. Is that a fair?

[Harry Alcock:]

Yes, the number is probably higher than that but we didn’t -- we don’t have that handy and we didn’t speak to the all-in construction cost start. Our buy in price is 559 million. So what we did say is that construction cost is below our volume price.

[Tom Toomey:]

And you're right that the partner is responsible for all cost overruns and the guarantees on the construction loans.

[Unidentified Analyst:]

Do you guys have any involvement in the lease-up? Do you have any share of responsibilities at all and or was it just all-in there?

[Tom Toomey:]

We’re actually going to be the property manager for each of the properties and Jerry’s team will be doing the lease-up on the properties.

[Unidentified Analyst:]

And what’s the guarantee in terms of that they are not going to try cost at a higher margin and higher profit in terms of -- rather than being effectively a merchant builder in this case, what’s going to be the recourse that you have to make sure whether [indiscernible] spent is in?

[Harry Alcock:]

Michael its Harry. They are a required facility to the documents to build the property in accordance with the approved plans and specs. These properties are all in a construction. We’ve reviewed the plans and specs of -- we’re going to hire a third-party construction manager to participate in the weekly OAC meetings, constructions meetings and get weekly reports or monthly reports from Wolff. So we’re going to have sort of kind of an active oversight rule in that process.

[Tom Toomey:]

One other thing I would mention is part of the due diligence process, Harry's team have actually now look at existing Wolff product. So we’re familiar with their construction, we’re familiar with their product. We have teams now have been meeting the Wolff people and going through finishes, going through layouts and so I think we’re pretty comfortable that we're going to have a very active role and a very active voice in this whole process.

[Unidentified Analyst:]

And then your 6.5 preferred return -- that's a -- is it a pit payment or is it actually a cash payment from Wolff on your equity?

[Tom Toomey:]

6.5 is going to get paid Michael at the end -- at the time that we take the asset out.

[Unidentified Analyst:]

And does that include equity or is that actually a preferred payment? It's actually overturn or is it go towards your equity to buyout the next piece.

[Tom Toomey:]

Yes, it's actually a return on our investment. It's compounded as we go.

[Unidentified Analyst:]

So it's a real return. It's not …

[Tom Toomey:]

It's a real return.

[Tom Herzog:]

And then just one other guarantee that Warren might have spoken to us, and I think we spoke earlier, but keep in mind at any operating losses during that development period are included by Wolff up to the point stabilization. So that’s another form of guarantee from our perspective.

[Unidentified Analyst:]

And then outside of refinancing the debt, you're payment to them when you -- when these stabilize to own 100% is just the $38 million additional of equity and then are you blaming now [ph] you would have to fund then do a refinancing?

[Tom Herzog:]

Yes, that’s correct. We’ve got debt that comes due. There's some delay on that and take a two to three years out as these options become exercisable and that debt comes due -- we can choose to fund that -- whatever the most advantageous way is. And keep in mind too that if we choose not to acquire one or two of the assets, that that can also act towards the funding. But as we talking, but we would be looking at all five assets as having appeal from a purchase perspective, but we’re through a place out on that.

[Unidentified Analyst:]

But your total, if you're on 136, you have to fund the difference between the 136 and the 597 outside any debt loans?

[Tom Herzog:]

That’s correct, after the debt is still.

[Unidentified Analyst:]

So whichever ones we acquire?

[Tom Herzog:]

Correct.

[Operator:]

And that does conclude the question-and-answer session. I’ll now turn the conference call back over to President and CEO Mr. Tom Toomey.

[Tom Toomey:]

Well first let me say thank you for your time today. It was very productive. And we appreciate your interest in UDR. As we started the call business is great and bordering on fantastic. You can obviously hear from the call our level of enthusiasm for where operating trends are headed and the opportunities that lie ahead and we’ll continue to execute on our two year plan and believe that that is a great path for UDR and for our shareholders. So with that take care and we’ll talk to you next quarter.

[Operator:]

Thank you. And that does conclude today’s conference. We do thank you for your participation today.