UDR, Inc.
Q2 2015 Earnings Call Transcript

Published: 28 Jul 2015

[Operator:]

Good day, and welcome to UDR's 2Q 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:]

Thank you operator. Welcome to UDR’s second quarter 2015 financial results conference call. Our second quarter press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, 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. 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 second 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 second quarter of 2015 was a busy and fruitful one for UDR. As we continue to execute on our two year strategic plan. This quarter was highlighted by favorable capital allocation and ongoing impressive operating results. As a result, we have again increased our full year same store growth and earnings guidance ranges. The following four topics highlight the second quarter. First, operations continue to accelerate throughout the second quarter with strong new lease and renewal rate growth leading to over 7% effective rent growth for the quarter. This is an increase of almost 300 basis points year-over-year and over 200 basis points ahead of the first quarter of 2015. Second, our development platform continues to perform very well. Our two communities in lease up the $218 million development in Boston seaport and $92 million participating loan Steele Creek development in Denver are well ahead of budgeted absorption and rent expectations. Including Steele Creek in the West Coast development joint venture projects, we will complete $310 million of accretive development in 2015 and $377 million in 2016. All of which will continue to drive cash flow and NAV growth. Third, we entered into an agreement to acquire up to $908 million of apartment communities in the Washington DC markets in conjunction with the announced merger between home properties and Lone Star funds. This transaction will allow us to increase our exposure to a recovering DC market at favorable pricing. It is consistent with our strategic plan as it will be immediately accretive to earnings, we will be able to issue OPE units at or above NAV and it improves our balance sheet metrics. And finally, we are increasing full year earnings guidance in same store growth ranges for the second time this year to reflect the strength evident in our operations. Since issuing initial guidance in February of 2015, we have increased revenue and NOI growth expectations at the midpoint by 125 and 175 basis points respectively. Additionally, we now expect full year FFO as adjusted growth to be close to 9% as compared to 6% at the start of the year. In short, we feel great about the reminder of 2015 and while it’s early we think 2016 is lining up to be another great year for UDR. 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. We look forward to continued success in 2015. And I'll now turn the call over to Tom.

[Tom Herzog:]

Thanks Tom. The topics I will cover today include our second quarter results, our balance sheet update, our development update, recent transactions and our revised full year 2015 guidance. Our second quarter earnings results were at or above the upper end of our previously provided guidance ranges. FFO, the FFO was adjusted and AFFO per share $0.41, $0.42 and $0.38 respectively. This was primarily driven by better than expected second quarter same-store revenue, expense and NOI growth which was strong at 5.4%, 1.8% and 6.8% respectively. Jerry will provide additional color in his prepared remarks. Next the balance sheet. During the quarter we've received an upgrade from S&P to BBB plus. At quarter end, our financial leverage on an un-depreciated cost basis was 37.5%. On a fair value basis, it was 28%. Our net debt-to-EBITDA were 6.2 times an inclusive of pro rata JVs it was 7.1 times. All metrics continue to improve as we had anticipated in our strategic plan. At quarter end, our liquidity as measured by cash and credit facility was $446 million. Turning to development, we commence construction on our 516 home, $342 million specific city development at Huntington Beach, California. At quarter end, the pro rata share of our development pipeline totaled approximately $1.1 billion and our equity commitment was 69% funded. Currently, the estimated spread between stabilized yields and current market cap rates is at the top end of our targeted 150 to 200 basis points range. Additionally, our pro rata share of preferred equity and participating loan investments and West Coast development joint venture and Steele Creek totaled $363 million at quarter end and our equity commitment was 94% funded. As to future development, we continue to underwrite opportunities for the focus and we anticipate the size of our pipeline to remain in our targeted range of 900 million to a 1.4 billion. On to recent transactions, as previously announced in May, we closed on the West Coast development joint venture with the Wolff Company. We invested a 136 million or 48% interest in a portfolio of five communities that are currently under construction in our core coastal markets. Second, during the quarter, we announced an agreement was Lone Star and Home properties to acquire up to six communities valued at 908 million in recovering Washington DC markets. The terms of the transaction are dependent on the number of home OP unitholders converting to UDR common OP units which we will know next week. If all home OP unitholders convert to UDR common OP units the transaction will be funded through a combination of 753 million common OP units issued at $35 per unit, the assumption of $90 million of debt and $65 million in cash. This transaction is consistent with our strategic plan and provide several benefits. First, we’re able to select from homes entire portfolio and choose the specific assets the net our investment. These assets include the four newly constructed originally redeveloped properties and two properties which redevelop an opportunities. With our best-in-class operating platform, we hope to generate operating efficiencies and the acquired assets and there could be additional upside for the properties which we developed in potential. Second, if all home OP unit holders convert to UDR common OP units, the transactional positively impact our 2016 - metrics with that two assets improving by up to 175 basis points and net debt to EBITDA improving by up to 0.2 times. Third, the transaction will be predominantly funded with OP units to issue the in line with NAV and will have no associated the issuance cost. Lastly, the transaction will be accretive to FFO, FFO was adjusted in AFFO by up to one and half cents per share depending on the number of units issued and the assets acquired. A fewer than 100% of the home OP unit holders are like to convert will have the option to acquire less than the fixed properties will alternatively acquire some of the properties can 31 exchanges. We will issue a spate press release when we determine the number of OP units we will issue. More details on each transactions can be found under the presentation section of our website www.udr.com. Finally, we sold three communities containing 812 homes in three separate markets Orlando, Tampa and Portland for approximately 110 million. Sales were transacted at weighted average cash flow cap rate of 5.7% at an average monthly revenue per occupied home of $1190 and were 30 years old on average on the third quarter and full year 2015 updated guidance. We increased our full year FFO, FFO was adjusted and AFFO guidance ranges for the second time this year due primarily to stronger than expected operations. Our FFO guidance range increased by a penny of the midpoint and FFO was adjusted in AFFO guidance ranges increased by $0.2 at the mid points. Full year 2015 FFO was adjusted and AFFO per share and now for cash at $1.64 and $1.68, $1.63 to $1.67 and $1.46 to $1.50 respectively. The same store would be have increased full year 2015 revenue growth guidance by 75 basis points as the mid-point to 5.0 to 5.5% expense growth is unchanged at 2.5% to 3% and our NOI growth forecast is increased to 100 basis points as the mid-point to 5.75 to 6.75%. The increases were driven by strong in new and renewal rate growth and stable occupancy. Third quarter 2015 FFO, FFO was adjusted in AFFO per share guidance to $0.39 to $0.41 and $0.34 to $0.36 respectively. Other primary full year guidance assumptions can be found on attachment 15 or page 28 of our supplement. Finally, in the second quarter, we declared a quarterly common dividend of 27.75 per share or $1.11 per share when annualized. 7% above 2014 level and representing 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 second quarter portfolio metrics, leasing trends and the rental rate growth we realized this quarter and an overview of our current operating strategy. Second, the performance of our core markets during the quarter and last a brief update on our development lease-ups and redevelopment progress. We are pleased to announce another stronger quarter of operating results. In the second quarter our same-store per occupied home increased by 5.3 percent year-over-year to $1,703. Occupancy was up 10 basis points to 96.9%, this lead to second quarter revenue growth of 5.4%. Our total portfolio revenue per occupied home at quarter end was $1,885 and close to JV's and armature homes. Our revenue growth for the first half of the year was 5.2% year-over-year as a result of a 4.9% increase in revenue per occupied home and an occupancy game of 30 basis points. As Tom mentioned earlier we increased our full year revenue guidance range to 5% to 5.5%. Our strategy this year has been to drive rate growth which will benefit both 2015 just importantly 2016. In the first half of 2015 we experienced the slight increase in occupancy compared to 2014. For the second half of the year we expect the same occupancy pick up. We are focused on continuing interest rate which will benefit 2016 revenue and NOI growth. That being said we still expect to maintain occupancy levels in the mid 96% range. 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 second quarter by wide margin, we grew in the lease rates by 7.7% in the second quarter, a full a full 410 basis point ahead of the second quarter of 2014. Renewal growth also remained robust at 7.0% in the second quarter or 150 basis points ahead of last year. In July, these trends continued with new lease and renewal rate growth of 7.8% and 7.3% respectively. The strength in pricing and demand served us the primary driver of our sizable 75 basis point increase in the same-store revenue at the midpoint or 125 basis points from our initial guidance provided in February. Second quarter expense growth of 1.8% came in on plan and brings our year-to-date growth 2.1%, for the full year we still expect the expenses to increase 2.75% which implied second half growth is more than 3%. In the third quarter we will begin seeing the phase out before 21G real estate tax payments at our two properties in the financial district in New York City. The expense related to these two properties in the second half of 2015 will be $375,000. Real estate taxes in general tended to be the expense line to con-fluctuate the most ever the make of our plan. Moving on to quarterly performance in our primary markets. These markets represent 66% of our same-store NOI and 72% 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 6% and is outperforming versus our budget expectations thus far in 2015. Our Los Angeles portfolio posted strong second quarter revenue growth of 6.0% and acceleration over the 3.8% revenue recorded in the first quarter and we expect full year same-store growth to be right around 6% NOI. Although, the portfolio is concentrated in the Marina Del Rey and Playa Vista submarket which continue to be impacted by new supply. We are seeing new jobs enter the market which is an encouraging sign for 2016. Company such as Facebook, Google, Yahoo and Microsoft are all taking up space in the Playa Vista submarket with hundreds of smaller startups getting up shop along the coast from Santa Monica to Playa Vista. As we indicated a couple a years ago, the jobs are finally coming to this growing tech hub in Southern California. New York City represents 13% of our total NOI. We saw revenue growth of 5.7% year-over-year in New York and expect full year revenue growth to be in the mid 5s. We continue to benefit from our B quality portfolio in the New York City submarket and are encouraged by the 600 basis point reduction in turnover year-over-year. We believe this is primarily due to low home affordability as the reason to move out for home purchase is less than 5%. We continue to see a long runway of growth potential in our New York City portfolio. Metro DC which represents 13% of our total NOI posted year-over-year same store revenue growth of 2.1%. We are forecasting full year revenue growth of just under 2% in 2015. Job growth is returning and then some sub markets supply everything. The best performing sub markets for us in the quarter were on down - circle sub market in Capital Hill. We will continue to benefit from our diverse 50-50 mix of A and B assets located both inside and outside the beltway. We released rates in July or coming in a 2% renewals are over 4%. San Francisco, which represents nearly 12% of our total NOI continues to show no signs of slowing down have seen by revenue growth of 9.3% in the quarter. New lease rates growth to-date July is 15.3% and renewals are at 10.5%. Our results were mixed cross our sub markets. Santa Clara properties posted revenue growth in north of 12% a property along with Peninsula strong revenue growth of 10% in our south of market properties which are competing against new supply came in at 6%. We're seeing a wide spread in performance between As and Bs with Bs outperforming As quarter by 270 basis points. Seattle which represents 6.7% of our total NOI posted 6.1% revenue growth in the quarter. Our portfolio continue to benefit from the strong flow inherent in our suburban B asset those located in rent and North Seattle which are sub markets that are less exposed to new supply. Long-term continue to like to Downtown Seattle sub market as evidenced by recent post development joint venture transaction and believe that the ongoing creation of jobs by companies such as Amazon, Facebook, and Expedia will continue to drive demand in Seattle’s urban core. Boston which represents over 5% of our total NOI put a 5.5% revenue growth in the second quarter despite new supply pressure downtown. Our South Shore properties continue to see the least amount of new supply pressure followed by our North Shore downtown properties. Last, Dallas which represents just over 4.5% of our NOI posted 4.6% year-over-year same store revenue growth in the second quarter. Our Addison properties carried this market up Plano and Central Dallas lagged due to new supply that we expect we'll continue for the remainder of 2015. For the full year, we expect revenue growth to modestly accelerate from our second quarter results and coming around 5%. I'll turn now to our in-lease up developments, which you can find on attachments 9A and 9B or pages 21 and 22 of our supplements. And we recently completed redevelopment in 34. Our pro rata shares of these three properties represents over 400 - 100 tier 4 are 369 home $218 million development in Boston Seaport district with 69% leased and 57% occupied at quarter end and today its 81% leased and 65% occupied. The first move-ins in mid-March we are well ahead of our expectations on both rate and leasing volume. Asking rates a day of 477 per square ahead of our original underwriting of 430 per square foot. Currently we are leasing about 35 homes per month when the expected stabilized occupancy of 90% by October of this year. Steele Creek are 218 home participating loan investment of the Cherry Creek sub market of Denver its currently 60% leased and 45% physically occupied. The property is achieving rents in the 330 per square foot range versus initial underwriting with about 310 a foot. For the past two months our leasing velocity is averaging almost 30 applications per month. 34, our 739 home $98 million redevelopment in the Murray Hills neighborhood New York City its currently over 97% occupied and has been over 90% occupied for the prior fourth quarters. We have $3 million remaining to spend as we complete the roof top potentially the elevator banks are given stabilized occupancy we re-muted from your redevelopment schedule on the supplement this quarter. As a reminder it will be added to our same store pool in the first quarter of 2015. As we sit here today I can tell you that July results came in well ahead of plan thanks to our physical occupancy today is 96.5%. The new growth in August is projected to be roughly the same levels they were in July at 7.3% and leasing remained strong. If we continued pricing power stable occupancies in almost all of our markets these factors leave us very confident for the remainder of 2015. More importantly the impact from our rate increases today will be the catalyst for what we believe to be another strong year in 2016. With that I will open up the call to Q&A operator?

[Operator:]

Thank you. [Operator Instructions] And we’ll go to our first question from Nick Joseph with Citigroup.

[Nick Joseph:]

Just two quick operating questions for DC, you mentioned improvement in the results in the job growth if there’s talk of supply picking up again, what’s the markets you think that supply could most likely come to and if the supply doesn’t categorize do you think DC could accelerate from here?

[Jerry Davis:]

I’ll start with that and turn it over to Harry about the sub markets where the new supply is coming. We actually as you said Nick we’ve seen acceleration, we think we bottomed in four quarter of last year. As we look out to 2016 our expectation is revenue growth is going to accelerate from the roughly 2% that we’re expecting this year. we look at what we built in on renewal it’s renewals may come in north 4 and they’ve continued to do that in the month of July at 4.3% and new continues to be north of 2 so on a blended ratio probably a little lower 3% so I’d to guess today it would be higher revenue growth next year. we’re seeing some new supply today that’s continuing in our Del Rey sub markets which I mentioned in my prepared remarks, where having new suppliers reclaim that’s to finish up the lease up there, while still getting away about a month, a month and a half free. That being said, the other location that we’re located in we have a heavy presence along that new street, Logan Circle Port work is performing extremely well with revenue growth, 3%, 3.5% we would expect that one to continue to do well. As far as locations have new supply I know - tie this corner there’s quite a bit new supply coming inside the Del Rey, Harry you want to take that?

[Harry Alcock:]

Other sub markets have several projects in some of these newer neighborhoods around the ballpark in the Southwest Waterfront we’re also getting to see a significant amount of new supply as Jerry mentioned around Del Rey in Northern Virginia we continue to see new supply in that sub market as well.

[Nick Joseph:]

Thanks and then just in terms of occupancy you kept guidance of 96.5% which is 30 bps lower than what you saw in the first half and also 30 bps lower than the trailing 12 months are you expecting to give up some occupancy in the back half of the year to push rates or do you think that occupancy guidance could end up proven to be conservative?

[Jerry Davis:]

Yeah it’s going to be a - conservative we didn’t think it was meaningful on that to change guidance but I do believe in the third quarter specially my occupancy would be less than it was last year as we drive to continue to push rate. But as I’ve stated again at the end of my remarks we’re at 96.5 today, I would expect for the next five months to run somewhere that 96.5 range which is probably a little bit of a decelerate or declined from last year but we’re not going to drop off to the point well below 96 as we averaged 96.5 for the year.

[Nick Joseph:]

Great thanks.

[Jerry Davis:]

Sure.

[Operator:]

And we’ll go now to Haendel Juste from Morgan Stanley.

[Haendel St. Juste:]

Hey I guess good morning out there.

[Jerry Davis:]

Hi Haendel.

[Haendel St. Juste:]

So a question here on pro-forma of the acquisition of the home assets in DC, DC will be about 18% of your NOI is that a level you’re comfortable at? Are you inclined to add a bit more to region in covers or more inclined to call? And then second part of that question, it looks like the golden yield on the acquisition in some of the low fives. Just curious how you're underwriting NOI growth over the next couple of years as part of that acquisition.

[Tom Toomey:]

Haendel this is Toomey, with respect to the comfort level around DC, we're comfortable with the 18% exposure I wouldn't see a climb to grow that above that level. Certainly we think the DC markets is obviously recovering values will continue to grow there. And at some point when look at calling some of the assets no particular time frame for that, but we're always looking to try to maximize the value and we think that market will rise DC probably '17, '18. Harry, you want to take the second question?

[Harry Alcock:]

Sure in terms of underwriting assumptions, we property-by-property we assume revenue growth during the first year some more between 2% and 3% depending on the asset. One of the properties are at the park is completing lease up after their major redevelopment. That property we underwrote in the low-90s in the first year. It's currently around the mid-80s and push that up to 94% in the second year. So we have some second year upside on that asset in particular.

[Haendel St. Juste:]

Okay, appreciate that. Are you looking or plus as we considering starting development projects in DC today and not to tie too much the question before I'm saying are you comfortable at the level where you're at 18% NOI. But just curious on your level of comfort to potentially pursue development opportunity in DC today.

[Harry Alcock:]

Haendel its Harry, we don't currently have any land assets that are available for development in the short term. It is however a market that we would developing, it's a recovering market as we mentioned we typically like to have one property in each of our core development markets at a construction at any given time. And we're just completing the lease up of the --. We're hoping expectation of - sometime in the next year or two we will have another land asset that - and new construction started.

[Haendel St. Juste:]

Okay and just as a follow up I'll have on the line Harry. Just curious the conversations with potential sellers here over the last couple of months with vigorous on peoples' mind. Any change in the number of opportunities we think come to the market and any change that - interactions with sellers.

[Harry Alcock:]

Haendel its Harry. We haven't seen any significant change in the volume of opportunities available. There continue to be a significant amount of transactions. 2014 as you know that we're well over $100 billion on transaction volume. We expect 2015 to be something similar. In terms of interactions with the sellers it's a there is a lot of capital chasing these assets. If you don't we haven't had any interaction that would be unusual not sure exactly the question you're asking. But it continues to be very active transaction market.

[Haendel St. Juste:]

Okay. Thank you for your time.

[Tom Toomey:]

Thank you.

[Operator:]

And we go now to Dan Oppenheim with Zelman & Associates.

[Dan Oppenheim:]

Thank you very much. I was wondering if you can talk about the idea of so the turnover. How much of that is being driven by just the upper view of front and just an ability to current resistance to handle that. You talked a lot recently about handlings of being happy with low conversion and pushing rents. Wondering overall that capital demand they're seeing in terms of the income qualifications for the residents.

[Jerry Davis:]

Sure this is Jerry. I guess to start with we've seen move outs due to rent increase probably go 300 basis point over the last year or so from 6% of the reasons from new loan to little under 10%. So still with the level that we're comfortable with. And we look at total turnover in the quarter it was up 110 basis points compared to the second quarter of last year. The majority of the reason for that is we had a higher number of lease explorations in the second quarter when we had back in 2014 second quarter of about 350 leases. Probably two or three years ago we started an effort to move more and more explorations from first and fourth quarter and to the middle two quarters primarily because new lease rate growth those high demand time is typically 200 to 300 basis points higher and that’s what it was this year when second quarter the lease rate growth was 7.7% compared to 4.2% in the first quarter of this year. So, we pushed it to that level, we also would expect third quarter which will have probably a 100 to 200 more exploration from we had last year to also have turnover at for higher than it was last year but then we’ll get into the fourth quarter we would think turnover would be a little bit less than last year. So when you look at the entire year, turnover should roughly be flat with what it was last year. When you look at rent income, really have been seen much of the changes instruct a little towards in the high teens pushing 20%, I would tell you those. That is not as a soft number meaning. Half of my residents probably lived with on average three to five years our average ten year is something like 25 months. We only qualify people at the time so we don’t qualify them, so over that three to five year period they’ve been getting salary increases so I think any time you hear any others talk about rent income levels, you should realize, we don’t go back in recertify the never income. I tend to love more as my turnover going up when I am pushing right, when I am looking California in the West Coast when has been pushing right the most over the last year, year and half, turnover is actually down in places like San Francisco, Orange County and locations like that on the year-to-date basis. And then the other thing I look at is if you’re pushing too hard some people will be new when they turn into bad debt as they become a - infection. My bad debt has actually gone down year-over-year to the point this year it’s at less than 0.2% of our gross potential rate so I look at those two metrics a little bit more because they are harder numbers and easier to measure and if we see a situation where either my bad debt starts to spike or my turnover starts grew up dramatically as in better indicator to me that I pushed too hard.

[Dan Oppenheim:]

Great. Thank you.

[Operator:]

And we’ll go now to Jordan Sadler with KeyBanc Capital Markets.

[Unidentified Analyst:]

Hey, good afternoon. It’s Austin in for Jordon. Jerry you mentioned that you feel like you have a long runway for growth in New York I was wondering if you could just provide some additional detail and your comments and what really gives you the confidence that with supply increases in 2016 in the burn-off of 421

[Jerry Davis:]

Well, the main thing as the 421 is not my same store those 421 is that our Columbus square property which is a joint venture. On the same store side, what really gives me the most confidence is when I look at the right growth that I’ve been getting this year and in New York we got 8.4% in second quarter on new, 7% on renewals, in the month of July I knew as it 9.3% so we see strength and incoming traffic and incoming residence rather, the other thing is two more properties in financial districts or the World Trade Center starting to be occupied and retail coming down there it’s becoming much more of available space. And I guess thirdly, when we look at our portfolio there it’s a deep product to the properties in financial districts one in Chelsea and then - 34 or the former - will come into same store in the first quarter which is finishing redevelopment there. Also our deep properties that none of them will compete the with the new supply that what we come into mid count of west, and there is going to be a different price points so we just have not seen the impact of new supply are feeling right now was will continue to not be directly affected. Our property of North Columbus square does feel a little bit of the effect of Herston Yards in Mid-Cont. West but it’s still producing revenue growth in order to 4%. Now Harry do you want to talk about the supply in New York?

[Harry Alcock:]

Well, there has been a lot of reports written that publicize the significant supply on number of permits pulled in May and June in New York City. The primary reason as developers will trying to get under the exploration of 421A program the program since is been extended but certainly not as developer friendly as with additional affordable housing units that some of them are going to be required. So we saw some more than close to 8000 units in Manhattan or - more than in the months of May and June. Even more and Brooklyn and somewhere in the neighborhood of 35,000 permits have been pulled in all the deferrals over the last couple of months.

[Unidentified Analyst:]

Thanks for the detail there. And then just on the capital side, I was wondering looking at their source of funds outlined in guidance for $750 million to $900 million. Does that contemplate the potential units issued for the HMA transactions?

[Tom Herzog:]

This is Herzog, no it does not. But the home transaction there would be units in addition to that's been described in the sources we spoken to you earlier.

[Unidentified Analyst:]

So then how would you really think about the mix of capital raising throughout the balance of the year to the extent you feel comfortable that the HMA deal is going to go through is currently structured.

[Tom Herzog:]

Well if the fact was that when we look at our sources who uses for the balance of the year, we've got about $200 million to $250 million left to fund in total. And that's really unchanged when we spoke to last quarter. It will be some combination of sales, or it could be stock or could be debt whatever we conclude at the time if provides the best pricing and it's the best outcome for our investors. So as far as home, again the majority of that come through OP units that depends on how many of the home OP unitholders convert to duty units, as to what will actually look like. And we'll have those numbers sometime in the next couple of weeks.

[Unidentified Analyst:]

Thanks for the detail.

[Tom Herzog:]

Yeah we've got some optionality obviously on whether we would kick from assets out of if we didn't have full conversion or do - ones or the - we're in good shape on that side.

[Unidentified Analyst:]

Thank you.

[Operator:]

And we go now to Drew Bawin with Robert W. Baird.

[Drew Bawin:]

Hi guys. Hoping you could talk through the unsecured debt market right now and what you're seeing in terms of spreads and what you should think about from modeling purposes in terms of the potential bond offering in the next couple quarters.

[Tom Toomey:]

Yeah we day we raised the BBB plus by S&P and AA one by Moody's last year. The current spreads are probably in the range on a 10 year deal 160 to maybe upwards of 170 basis point all and spread including lesser concessions but probably closer to about 160 mark is my guess. So that's the spread what that - we're doing.

[Drew Bawin:]

Okay, and just couple of guidance side. And certainly if you could talk through the increase in G&A expenses while as the large JV FFO guidance.

[Tom Toomey:]

Yeah the increase in G&A is going to be just two things, we've had outperformance during the year against what we have set forth is our plan. And therefore the incentive programs payout at a higher rate. And that's what the increase in the guidance that we set forth on the cash run. 15 years for that. And then as far as the joint ventures that would then be the Wolff JV and then also the addition of Steele Creek some offset for the Texas JV and then there is a few other moving parts within that, but those are probably numbers.

[Drew Bawin:]

Okay guys, that's helpful. Thank you.

[Tom Toomey:]

Thank you.

[Operator:]

And we're going now to Dave Brad [ph] with Greenstreet Advisors.

[Unidentified Analyst:]

Thank you. Couple of questions on dispositions, first can you remind us what level of CapEx is reserved for in your cash flow cap rate?

[Harry Alcock:]

Of the cash flow cap rate Dave this is Harry includes $11.50 per unit in CapEx.

[Unidentified Analyst:]

Is that a consistent assumption anytime we see that from UDR is that the right number to apply?

[Harry Alcock:]

Yes.

[Unidentified Analyst:]

Okay thank you. And what's the disposition pipeline working like from here?

[Jerry Davis:]

Well Dave it depends. We've got maybe another I guess I would back up. We put it into that tool we’ve got 250 million left of fund at home and that’s going to be some combination of sales debt inside. So again the funding means are not great, I hate to put a number on it because it could change during the year based on conditions.

[Unidentified Analyst:]

Okay and you have been planning on a bond offering earlier in the year what’s the latest on that front?

[Jerry Davis:]

We’ve been looking at ten year deal towards the end of last quarter and we’ve got about two-thirds hedge rates now from a treasury perspective so we’re looking on massive hurry on that. We bumped into the Greece and Chinese prices which has the market - that’s choppy and too critical so probably better off to look to sometimes probably in the early parts of the third quarter so that’s still part of the plan but we decided to push that again.

[Unidentified Analyst:]

Okay and the last question is there anything qualitative you can share with us regarding the solicitation of home OPU in the quarters?

[Tom Toomey:]

This is Toomey Dave, to compare the question this time we’ll have an answer a couple of weeks and so we probably just be able to come out with a press release shortly thereafter with the facts and so speculating between now and then clearly doesn’t reflects our focus.

[Unidentified Analyst:]

Understood can you just explain to us how the process works?

[Tom Toomey:]

I'm sorry David in terms of what?

[Unidentified Analyst:]

Communication? Yeah the communication between UDR and OPU in orders?

[Tom Toomey:]

We’ve been working in conjunction with the Cape Of Home, and have been having the conversations meetings and dialog with the whole OPU dealers, unit holders both come and explain the trends actually among the home people as well as explain the options and have received a 700 page offering document so as you mind that it’s clearly complex so we our day-to-day dialogue with them.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

And we’ll go now to Rob Stevenson with Janney.

[Rob Stevenson:]

Good afternoon guys, Jerry in terms of the increase in the same store revenue guidance was there one or two particular markets that were releasing the back half of the year or thus far this year where it’s really surprise versus where you started the quarter with progress?

[Tom Toomey:]

Yeah that’s a great question and really the bulk of the increase well let me put it this way, we only have one market that is not hitting the original business plan and that’s not a material market its’ Michigan Virginia, every one of my other markets is above plan and they vary to some degree. I would state the biggest surprises to original guidance have come West Coast, going from and mostly from Northern California up through the Pacific Northwest have helped perform by quite a bit to our original expectations. Also a following that the two Texas markets both Dallas and Houston are holding a better in the faith of new supply than we originally expected and when we get beyond that where there is so caliber rest of the some belt through the Mid Atlantic they are all doing better than original plan but the biggest drivers were Northwest.

[Rob Stevenson:]

Okay. And then Harry would you think today in terms of construction cost you guys are starting with new developments I mean it’s where, where the goods cost have been sort of six, 12 months ago on these projects versus today and where are you seeing the biggest upward push?

[Harry Alcock:]

So from over the last couple of years we consistently saw double-digit cost increases I can tell you today as because we’re looking to start new projects and are looking forward to the next four, six, eight, 10 months. The cost increases have moderated in fact we’re starting to see decreases in certain materials, steel has come down 10% plus over the past years, lumber has come down 0.56% over the past year so as we look forward as cost increases have moderated we’re now looking at sort of a mid-single-digit type cost increases, the labor market in certain locations continues to be challenging and is pushing back in some of these material declines. Though we've gone from kind of mid-double digit type increases mid-teens down to mid-single digits.

[Rob Stevenson:]

Okay. And then just lastly in your urban core, what do you think these days in terms of both ground up condo development as well as condo conversions?

[Harry Alcock:]

Rob this is Harry. So that really was the first market where that materialized the condo boom. It's manifested itself in land prices which has gone up significantly and so far few were apartment, projects will pent up projects will pencil now is for multi-family use. It's migrated a little bit to say Francisco where you are seeing for example a project right across from our 399 Fremont deal has been sold to a condo converter. The project has completed a lease up and now - so we are seeing that a little bit in San Francisco. In other markets we're not seeing it to California a little bit in Boston. But really a lot in New York. Some in San Francisco and then just small number in another markets.

[Rob Stevenson:]

Okay. Thanks guys.

[Tom Toomey:]

Thanks Rob.

[Operator:]

And we go now to Steve Sakwa with Evercore ISI.

[Steve Sakwa:]

Just one quick question, Tom. What's the actual Treasury lock rate that you have for the debt deal?

[Tom Toomey:]

We came in at about let me check back on it. There is about 245 and there was like 20 basis points of forward carry.

[Steve Sakwa:]

So kind of a Treasury and 265 plus the spread of 160 you talked about?

[Tom Toomey:]

Yeah.

[Steve Sakwa:]

Okay, great. Thanks.

[Tom Toomey:]

Yeah.

[Operator:]

And now we go to Ian Weissman with Credit Suisse.

[Ian Weissman:]

Just two questions and maybe you can give us an update on that potential 6th acquisition from Wolff and what sort of been the issue with finalizing that transaction.

[Warren Troupe:]

Sure, this is Warren. We are currently negotiation on the sixth asset. We are hopeful that we will be able to consummate that within near future. The issue is that there is an already partner on the both side and we've also had to include them in negotiation which have been - over the last couple of weeks.

[Ian Weissman:]

Alright. Okay and finally just it has been focused on DC in New York just turn to LA for a second both of you and Avalon reported a pretty nice jump in revenue growth in that market. It's only been a long time coming. Maybe you can just talk about some of the drivers in LA today and what you think sustainable growth is in that market?

[Jerry Davis:]

Yeah, this is Jerry and you are right. We are excited to actually participate in some of the higher revenue growth this quarter after having a discipline 3.8% growth in its fourth quarter. We turned it rather 6%. This quarter our expectation full year revenue growth in Los Angeles for us will be more than 6% and really what's driven if we're UDR, I would remind you talk of our same-store portfolio and then we're going to double rate and there has been quite a bit of the new tech job coming in Playa Vista. Over the last two years we've had new equipment supply come to Playa. So it came the proceeded the job growth. But the jobs are finally starting to come. I think in addition to that what goes from Santa Monica into the down town area is helping dry grades in the West side. As another benefit we more recently seen in Marian Del Ray portfolio is rental rates in Santa Monica has been driving people just throughout head down the coast 5 or 6 miles to us. New supply is coming in LA right now. It's kind of shifted from that West side. It taking down town right now and we're seeing a little bit of pressure down there. But we're still optimistic about down town as this is becoming much more of a believable city with retail and night life and some job through. But again as I stated earlier, our same-store pool is heavily concentrated among the area and we're finally starting to see the job growth in some of our apartments.

[Ian Weissman:]

And is there been a shift in cap rates in that market just now that the momentum is building.

[Tom Toomey:]

Cap rates have been low in that market for some time. We haven't seen any noticeable decline in the cap rates today. They have been and continue to be very, very low the good product in Los Angeles area.

[Ian Weissman:]

Okay I appreciate the color. Thank you.

[Operator:]

And we go now to Brian Peterson with Sandler O'Neill Investments.

[Brian Peterson:]

Thanks hey guys. Just a quick question back to unsecured, you guys even though given a consideration to shorter terms and then 10 years. Just start some peers speak about that and the relative pricing attractiveness and wondering whether you would have ever consider.

[Tom Toomey:]

This is Toomey, yeah when we look at our debt maturity schedule, we've got a pretty good open slot with very little maturing and 10 years out. So we probably pick that window. And that being said we're looking at the price differential of really our overall governing element is to try to keep that level later maturity schedule.

[Brian Peterson:]

Okay great. Thank you.

[Operator:]

[Operator Instructions]. And now we go to John Kim with BMO Capital Markets.

[John Kim:]

Thank you. I had a question on your same-store expenses in your MetLife joint venture. They increased significantly during the quarter and much higher than your balance sheet assets. Was there a specific reason for this and is there something that may translate into your own portfolio given there is been overlap in geography.

[Tom Toomey:]

No those are typically just related to real-estate taxes either increase this year or refunds last year. I can remember specifically on those what drove it to that level. But I'm pretty sure we did recognize some real-estate tax refund to some of the California assets last year. We may have got and hit with an increase in one of our Texas markets this year. So it’s purely real-estate taxes.

[John Kim:]

Okay. And then on the turnaround that you've had in DC on new leases. Can you elaborate if there is particular price point only this sub market that you're finding more success in recently?

[Tom Toomey:]

Really it's interesting that are doing better than they did last year. A year ago the spread between - was probably 500 to 600 basis point is compressed in the point today. Where it's closer to what it is in our total company which is somewhere in the 100 to 150 basis point differential. As I stated earlier, we're finding some of that urban core A product downtown in Logan circle, Thomas circle and New Street which are right in the same general area are very strong. Our property in Arlington village is probably almost struggling property today because of their supply. And the B assets outside the beltway are continuing to do fairly well but I would say our strongest sub-market inside that way is that - corridor.

[John Kim:]

Okay. And then finally on dispositions have you disclosed with your IRRs or economic gains are on the asset sales that you've completed this quarter.

[Tom Toomey:]

We have not but we can now take it Harry.

[Harry Alcock:]

It's Harry the three assets we sold this quarter those the weighted average IRR was around 11%. So we had kind of a 12% or 9% and then 11% for the three assets that sold. We're probably sold the Texas JV in the first quarter and about 14% so for the year we're at about 12% unlevered IRR for the asset base.

[John Kim:]

All of those numbers you mentioned unlevered IRRs?

[Harry Alcock:]

Yes.

[John Kim:]

Okay great. Thank you.

[Operator:]

And we'll go now to West Causley [ph] with RBC Capital Markets.

[Unidentified Analyst:]

Hello everyone with the labor market tightening are you seen any turnover at the property level and also at the construction level.

[Jerry Davis:]

I'll start with the property this is Jerry and then Harry can take construction. Turnout was up by here year-over-year and it's predominantly in the high apartment supply markets. So when look at DC Seattle places like that we feel depth of bit of pressure but nothing significant. I do think as we look into 2016, we're going to see a little bit more wage pressure. Whereas year-to-date our personnel expenses up about 3.5%, I'm guessing it's going to be about 100 basis points higher than that in 2016. Harry?

[Harry Alcock:]

This is Harry. On the construction side, it's a very high labor market for construction management personnel. We've lost one person this year and they're in the process of replacing him we've added a couple of others as new projects have started. But it's a very competitive labor market.

[Unidentified Analyst:]

Okay. Thanks a lot for taking the questions.

[Operator:]

And at this time there are no further questions. I'll turn the call back to Tom Toomey for closing remarks.

[Tom Toomey:]

Thank you operator and thank all of you for your time and interest in UDR. As we've gotten two quarters down in the year it's very good year for us. We looking forward to the second half with this continued strength and our performance. And certainly the team is remains focused on the strategic plan the execution of it and building to the strength of 2016 and then we think that's going to be a good year as well. So with that thank you and take care.

[Operator:]

This concludes our conference. Thank you for your participation.