UDR's CEO Discusses Q2 2012 Results - Earnings Call Transcript

UDR, Inc. (UDR)

Q2 2012 Earnings Conference Call

July 30, 2012 11:00 AM ET


Thomas W. Toomey – President & Chief Executive Officer

Jerry A. Davis - Senior Vice President of Operations

Christopher G. Van Ens- Vice President of Investor Relations

Warren L. Troupe – Senior Executive Vice President

Harry G. Alcock – Senior Vice President, Asset Management


Jana Galan - Bank of America-Merrill Lynch

Karin Ford - KeyBanc Capital Markets

Eric Wolfe – Citigroup

David Bragg - Zelman & Associates

Swaroop Yalla - Morgan Stanley

Paula Poskon - Robert W. Baird

Michael Salinsky - RBC Capital Markets

Robert Stevenson – Macquarie

Alexander Goldfarb - Sandler O'Neill

Richard Anderson - BMO Capital Markets

Jeffrey Donnelly - Wells Fargo Securities



Good day ladies and gentlemen, thank you for standing by. Welcome to UDR's 2Q ‘12 Conference Call. During today's presentation, all parties will be in a listen-only-mode. Following the presentation, the conference will be opened for questions. (Operator instructions). This conference is being recorded today, Monday, July 30, of 2012.

I would now like to turn the conference over to Mr. Chris Van Ens, Vice President of Investor Relations.

Christopher G. Van Ens

Thank you for joining us for UDR's second quarter financial results conference call. Our second quarter press release and supplemental disclosure package were distributed earlier today and posted to our website, www.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

I would like to note that statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in this morning's press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

When we get to the question-and-answer portion, we ask that you be respectful of everyone's time and limit your questions and follow-ups. Management will be available after the call for your questions that did not get answered on the call.

I will now turn the call over to our President and CEO, Tom Toomey.

Thomas W. Toomey

Thank you, Chris, and good morning to everyone. Welcome to UDR's second quarter conference call. On the call with me today are Jerry Davis, Senior Vice President of Operations, who will discuss our results, as well as senior officers, Warren Troupe and Harry Alcock who will be available to answer questions during the Q&A portion of the call.

My comments today will focus on three topics; first, broad operating trends and our quarterly results; second, our business plan update; and finally, an update on our CFO search. Following my comments, Jerry will provide additional commentary on the operating results and emerging operating trends.

During the quarter our business continued to operate at high level, driven by accelerating new and renewal rental rate growth as well as stable occupancy. Multi-family supply and demand fundamentals continue to provide a strong tailwind for apartment owners and we expect will do so for a number of years to come. And especially for those REIT with portfolios concentrated in markets that exhibit above average job growth, low single-family home affordability, a high propensity to win and limited new multi-family supply pressure.

In the second quarter of 2012, core FFO per share of $0.33 increased by 3% year-over-year. Strong year-over-year same-store revenue and net operating income growth of 5.6% and 6.7% respectively, as well as solid execution in our non-same-store portfolio, drove the improvement. Offset by dilution from our late May secondary equity offering. Second, a business plan update. Creating shareholder value remains our top priority.

As such we will continue to focus on growing NAV per share and on increasing our cash flow per share, which in turn supports dividend growth. Increasing top line growth and expanding operating margins are low risk, insistent generators of NAV growth per share. Our strong operating platform has historically been one of UDRs hallmarks and we expect will continue to be our primary driver of NAV creation moving forward.

Capital allocation is the second variable in NAV growth equation. Over the past few years our portfolio quality and footprint has improved dramatically, primarily the result of purposeful repositioning into coastal gateway markets, while simultaneously selling suburban locations and non-core markets. Some comments with regard to these activities.

First, acquisition activity. We intend to further expand our presence in our core markets over time. Markets that exhibit above average job growth, low home affordability, a high propensity to rent and limited new multifamily supply pressures. The capitalization of any future acquisition will be determined in the context of a lower leveraged operating model, but currently there are limited number of deals that fit our acquisition criteria.

Second, disposition activity. We are on a number of communities located in non-core markets, but not all non-core markets are equivalent in our view. Let me break them down. We have several markets that do not fit our long-term operating plan and we intend to exit them over the next 12 to 18 months. Combined, these markets represent $200 million to $400 million of value, minimal when compared to our total enterprise value.

Beyond these, we operate in a number of geographies that do not fit our long-term plan, but serve as warehouses of capital until sold. These market would comprise the majority of our non-core portfolio are more susceptible to new supply and generate lower rents and margin than our coastal market. Some of these markets include Florida and Nashville, are generating solid results currently. We are in no hurry to sell these assets and these solid performers. Their ultimate disposition will depend on potential use to the proceeds, asset pricing and the cost of alternative capital sources at the time of sale. When the time is right these depositions will be consummated in the usual course of business and will represent normal capital recycling.

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