UDR Inc (UDR) — Q3 2016 Earnings Call Transcript

Welcome to UDR’s third quarter 2016 financial results conference call. Our third quarter press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. I’d like to note that statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in yesterday’s press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. When we get to the question-and-answer portion, we ask 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 do not get answered. I will now turn the call over to our President and CEO, Tom Toomey.

Thank you, Chris, and good afternoon everyone. Welcome to UDR’s third quarter conference call. On the call with me today are Jerry Davis, Chief Operating Officer; and Shawn Johnston, Interim Principal Financial 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. UDR reported another strong quarter of results, highlighted by solid same-store and cash flow growth. Strong leasing velocities and rental rates at our development communities, several strategic transactions, and continued improvement of our balance sheet. Jerry and Shawn will provide additional details in their prepared remarks. As we near the end of 2016, I’d like to take a couple of minutes to discuss our strategic plan and how we’ve executed on it. As you know, consistently generating 6% to 10% cash flow per share growth has been the cornerstone of our plan since it was first published in 2013. In 2016, we expect to again achieve that goal with full year AFFO per share growth of approximately 8% at the midpoint of our guidance. Next, a deeper look into how the primary drivers of our cash flow growth have performed. First, operations, we expect that our full year 2016 same-store growth metrics will compare well on an absolute and relative basis. In spite of the headwinds that New York, San Francisco, and Los Angeles generated this year. We have successfully weathered this storm and continue to do so, partly because of our diversified portfolio. But much of our success stems from our operating platform, starting with the team’s ability to quickly adjust operating tactics, to maximize revenue growth in a shifting market, as well as a consistent implementation of innovative technologies. I’m grateful for our team’s hard work. Next, capital allocations, we delivered $163 million of accretive development in 2016 and believe that our $937 million under construction pipeline will be no different. Our development pipeline provides our shareholders with a strong risk-adjusted return on their capital and allows us to consistently refresh our portfolio via our self-funding model. Fully funding our development growth in a non-dilutive manner through retained cash flow and capital recycling from asset sales is a funny mechanism that we can employ year in and year out. Moving forward, we remain comfortable with this strategy. Last, our balance sheet continues to improve; our leverage metrics at the end of the third quarter were better than those originally envisioned for the year ended 2016. As we look into 2017 and without providing guidance, we remain confident in our ability to execute on our strategic plan. Currently, we are in the midst of building the 2017, 2018 plan from the ground up. We see no need to change our strategies as they continue to work well as we move through this part of the business cycle. We will share the updated details of the plan with you on the fourth quarter call. In summary, while 2016 has presented challenges, we have successfully worked through them and we’ll achieve the guidance provided at the beginning of the year as part of our strategic plan. Given the outlook for sound intermediate and long-term multifamily fundamentals, we remain confident that adhering to our strategic plan's core principles will continue to help us drive strong cash flow growth for many years to come. With that, I will turn the call over to Jerry for additional comments on the quarter.

Thanks, Tom, and good afternoon everyone. We’re pleased to announce another quarter of strong operating results. During the third quarter, year-over-year same-store revenue and NOI growth were 5.3% and 6.4%, respectively. On a year-to-date basis, same-store revenue and NOI growth totaled 5.9% and 6.9%, respectively. During the third quarter, operating trends further normalized compared to 2015 when the majority of markets were accelerating. Localized demand/supply dynamics today are creating strength in some markets and weakness in others. Making up 45% of our NOI, strength was evident in Seattle, Orange County, the Monterey Peninsula, Boston, and our Sunbelt markets. On New York City, the Bay Area, and Los Angeles, which comprise 28% of our NOI, remain challenged due to the concentrated new supply and concessions. Overall, our highly diversified portfolio is defined by market mix, price point, and location with end markets that continue to perform well during the quarter, and we expect will generate growth that compares favorably versus the multifamily group average over the foreseeable future. Turning to operating tactics, as you know, driving rate growth was our primary focus over the past two to three years. This approach was successful largely due to the robust multifamily fundamentals present throughout the majority of our markets and evidenced by our cumulative same-store revenue growth of 16% between 2013 and 2015. As 2016 has progressed, diminished pricing power due to concentrated new supply caused us to reevaluate this tactic. Towards the end of the second quarter, we made a change pivoting our operating tactics to favor higher occupancy over rate growth in markets that were more challenged by new supply. Higher occupancy in select markets prior to the seasonally slower fourth and first quarters, when few of our leases expire, is a more prudent approach to maximizing revenue and cash flow growth in the current environment. This strategic shift bore fruit with third quarter occupancy averaging 96.8%, a 20 basis points sequential increase. We will operate the portfolio in the high 96% range through at least the end of this year. With regard to the prime leasing season, 2016 results were clearly not as robust as those realized in 2015, but still compared favorably versus historical standards. In the third quarter, portfolio-wide new lease and renewal growth totaled 2.7% and 5.6%. We continue to see minimal pressure from single-family competition with move-outs to home purchases totaling 13% during the third quarter. A lack of affordability is also not meaningfully affecting us, as portfolio-wide move-outs due to rent increases remain relatively constrained at 7%. Net bad debt remains at 0.1% of rents at levels consistent with that of third quarter 2015. Next, forward expectations. We’re now providing 2017 guidance. We are projecting our revenue earning of about 2% going into 2017, versus the 2.75% earning that was baked into the beginning of 2016. Directionally, we continue to expect deceleration in 2017 same-store growth metrics as elevated new supply is further absorbed in some of our higher rent markets. With that being said, next year is still expected to look good when compared against our long-term 15-year revenue growth average of about 3%. We will provide detailed 2017 guidance and an update to our two-year strategic plan in our fourth quarter call. Now, moving on to the quarterly performance in our largest markets, which represent 72% of our total NOI. Metro DC, which contributes 19% of our total NOI, continues to incrementally improve. Job growth is gaining steam compared to a couple of years ago, though new supply remains persistent in some infill locations. We expect our highly diversified DC portfolio to see continuing improvement throughout 2017. Orange County and Los Angeles contribute 16.5% of our total NOI. Orange County has been one of our strongest markets in 2016, primarily because our portfolio is concentrated west of the 405 Freeway and has benefited from good job growth set against limited new supply. Conversely, Los Angeles has struggled this year due to significant new supply and excessive concessions, hitting our highly concentrated Marina del Rey portfolio. This pressure is now subsiding, and we expect pricing power in LA to improve in 2017, while Orange County remains stable. New York City makes up 12% of our total NOI, and it continues to struggle due to concentrated new supply in Midtown and West, as well as Brooklyn, and excessive concessions. Given the number of building permits issued prior to the expiration of 421a, we expect that driving meaningful growth in Manhattan will be problematic through at least 2018. Like New York City, San Francisco, which contributes about 12% of our total NOI, continues to be negatively affected by supply, especially south of Market Street. Expected job growth of 2.9% in 2016 still looks good versus long-term averages, but it has decelerated from a 4.5% growth rate in 2015. Our data providers indicate that supply pressures should subside in the cities moving into the second half of 2017, at which time pricing power should improve. Boston, which contributes 7% of our total NOI, has held up well largely due to our suburban B exposure. On a relative basis, our Downtown and Back Bay Communities have also outperformed due primarily to their differentiated characteristics. Boston continues to look like a good market for us going forward. Seattle contributes 6% of total NOI and remains UDR’s strongest core market on the West Coast. Seattle's relatively higher affordability, strong growth, and well-paying jobs and urban renewal continue to attract educated tech-savvy residents. We expect that Seattle will continue to put up good numbers moving forward, although we are keeping our eye on near-term Bellevue supply as that submarket further transforms. Our secondary markets, such as Portland, Monterey Peninsula, Florida, Nashville, and Austin, comprise roughly 25% of our portfolio. Pricing power remains strong in the majority of these markets and continues to help offset the relative weakness in some of our higher rent coastal locales. Move-outs to home purchases remain constrained, and our expectations for these markets have a long runway for growth due to continued favorable multifamily fundamentals. Lastly, our development lease-ups continue to perform well, achieving rates above original expectations and with leasing velocities ahead of original forecasts. Thus far in October, lease trends have remained firm, and our development pipeline remains highly accretive with average value creation spread exceeding the top end of our targeted 150 basis point to 250 basis point range. Community-specific quarter-end lease up statistics are available on attachment 9 or page 21 of our supplement. Summing that up, we had another good quarter proactively pivoted our strategy to maximize revenue growth and remain positive on the outlook for multifamily fundamentals and our ability to execute throughout the remainder of 2016 and into 2017. With that, I’ll turn it over to Shawn.

Thanks, Jerry. The topics I will cover today include our third quarter results, a transactions update, our capital markets and balance sheet update, and our fourth quarter and full-year guidance. Our third-quarter earnings results were at the mid to high-end of our previously provided guidance. FFO, FFO as adjusted, and AFFO per share were $0.46, $0.45, and $0.41, driven by solid same-store revenue, expense, and NOI growth of 5.3%, 2.5%, and 6.4%, respectively. Next, transactions: we’re under contracted to sell seven communities in Baltimore and one community in Dallas for $285 million. We expect to close these transactions in the fourth quarter at a cash flow cap rate of approximately 6% and a weighted average IRR of 13%. We also completed a series of strategic transactions with MetLife that further simplified our joint venture. First, we completed a swap of our land interest and pre-development sites, where we acquired MetLife’s 95% interest in a land site located in Dublin, California, in exchange for our 5% weighted average ownership interest in two land sites located in Bellevue, Washington and Los Angeles, California. The Dublin site is within walking distance of the Bay Area BART line and provides the opportunity to develop a differentiated product in that sub-market. Next, our UDR/MetLife joint venture sold 100% of The Surge, a high-rise community located in Dallas to an unrelated third party for approximately $75 million at a cash flow cap rate in the mid-fours and an IRR of 10%. Subsequent to quarter end, we also acquired MetLife’s 50% ownership interest in Ashton Bellevue and Ten20, two adjacent high-rise communities located in Bellevue, Washington for $68 million plus assumption of $38 million of debt at a cash flow cap rate in the mid-fours. We know both of these assets well; they complement our other assets in the Bellevue submarket, and we like the long-term prospects as more established tech companies continue to create a presence on the Eastside of Metro Seattle. After accounting for joint venture refinancings, these MetLife transactions were net cash positive to the company by approximately $14 million and reduced the size of the UDR/MetLife Joint Venture by approximately 10%, or $355 million. Next, capital markets. During the third quarter, we issued $300 million of 10-year unsecured notes priced at 2.95%. $158 million of the proceeds were used to prepay 2017 debt maturities with an average interest rate of 5.61%. The majority of the remaining proceeds were used to pay down our revolver. With the prepayment of the 2017 debt, next year’s maturities now total only $71 million. Development will likely represent our larger use of capital in 2017. We will continue to self-fund our accretive development pipeline through retained earnings and asset sales, and we’ll provide a detailed update of our 2017 sources and uses on the fourth quarter call. As a result of the unsecured offering, our weighted average maturities increased by nearly half a year to 5.3 years and improved our near-term liquidity by approximately $140 million. At quarter end, our liquidity as measured by cash and credit facility capacity was $931 million. Our financial leverage on an un-depreciated cost basis was 33.5%. Based on quarter-end market cap, it was 24.4% and inclusive of joint ventures, it was 29%. Our net debt to EBITDA was 5.3 times and inclusive of joint ventures, it was 6.4 times. All balance sheet metrics continue to track ahead of our strategic outlook. I would now like to direct you to attachment 15 or page 28 of our supplement, where we have updated our full-year guidance. We have tightened and increased our full year 2016 FFO, FFO as adjusted, and AFFO per share guidance ranges to $1.77 to $1.80, $1.78 to $1.80, and $1.62 to $1.64 respectively by increasing the bottom end of the range by $0.01. For same-store, our full year 2016 guidance remains unchanged with revenue growth of 5.5% to 6%, expense growth of 3% to 3.5%, and NOI growth of 6.5% to 7%. Average 2016 forecasted occupancy is unchanged at 96.6%. Fourth quarter 2016 FFO, FFO as adjusted, and AFFO per share guidance is $0.44 to $0.46, $0.45 to $0.47, and $0.39 to $0.41 respectively. Next, we declared a quarterly common dividend of $0.295 in the third quarter or $1.18 per share when annualized. This is 6% above 2015s level and represents a yield of approximately 3.3% as of quarter-end. Finally, a housekeeping item. We moved and consolidated our preferred equity investments and participating loan information and economics to a new attachment 12b. All information that was previously provided for these investments is still available on the new attachment. With that, I will open up the call for Q&A.

Thanks. I appreciate the color on the expected 2% earn-in for 2017. I’m just curious what was underwritten into the two-year strategic plan that you gave in February for revenue growth next year of $475 million to $525 million?

Nick, this is Jerry. When we build up the years, we don’t always factor in a year or two out what we expect to have going in. If I have to think back to what it was, it was probably something in the 2.4%, 2.5% range. Typically you’re going to earn in something close to half of what you’re going to expect for the next year.

Thanks. And then, you outline the different MetLife transactions to simplify that structure going forward. Would you think about the MetLife JV more strategically? What should our expectations be for that partnership going forward?

Nick, this is Toomey. We’re always in a dialogue with MetLife about opportunities, our view, I mean the portfolio performance, where we think markets are going. So, overall, I’d say, we have a good relationship; a great relationship. And we’ll continue in the future. We like the returns that we’re getting. We like the opportunities that it presents us, and MetLife makes a great partner.

Thanks. And just finally, the same-store pool changed with the sale from the Baltimore portfolio and the redevelopment in Dallas. What’s the impact from that change of same-store pool on same-store revenue for 2016?

Yes, Nick. It’s Jerry. For the Baltimore pool, it's somewhere between 10 basis points and 15 basis points. I would tell you that when we set guidance at the beginning of the year, we anticipated there would be the Baltimore assets that we sold – it really had no effect on our guidance range. And then the asset in Dallas that we pulled out to do a redevelopment, that’s a 17-year-old deal that we started the redevelopment late in the third quarter and it should last through a good portion of next year. That was probably more or less like 3 basis points.

Hey, good morning. It’s Austin Wurschmidt here with Jordan. Just curious if you could talk a little bit about what you’re seeing in LA. Jerry talked previously about some new lease-ups implying that we were causing some issues that you expected to subside sometime around the fourth quarter. It looks like new lease rates have snapped back in LA since the mid-quarter update. Can you just give a little color on the Marina del Rey portfolio?

Yes. And you’re right. That is 90% of our same-store pool is in Marina del Rey and it competes with Playa Vista. During the first – call it seven to nine months of this year, we were competing against that new supply that was offering up to two months free rent. Luckily, the properties in that submarket that we were battling with have come very close to heading to stabilized occupancies, pushing 90%. We’ve seen concession levels late in the third quarter start to come back down to one month free. And what’s really encouraging is, like you said, we had new lease rate growth in the third quarter of 0.1%. When I look at where we are at in Los Angeles so far in the month of October, it’s over 3%. So we are starting to emerge from our problem area in Los Angeles.

And then looking into supply and sort of your submarkets next year, what’s the expectation for any other potential supply headwinds that you see?

You know, probably the place you see new supply, we don’t have any same-store assets; we have the MetLife asset in Downtown Los Angeles. You’re going to see a continuation of new supply being delivered as well as leased up. I think that’s going to be difficult. I think you’re going to see a continuation of some supply pressures in SoMa, at least through the first quarter, maybe second quarter of 2017. Downtown, Seattle continues to battle new supply; we do not have any same-store assets there, but we do have two different JV properties there. The other one that I have been keeping my eye on, but we really haven’t seen a downturn in fundamentals, has been Bellevue, Washington. We’re very high on Bellevue, even though there are probably five or six properties delivering there. Bellevue, as you know, we just purchased the other 50% of two assets from MetLife there. And you’ve got jobs that are coming in there. Amazon is creating a mini campus, if you will, over on the Eastside of Lake Washington, where they just signed a lease for a 350,000 square foot office space that, rumor has it, Apple was looking at the same building and it’s continuing to look in Bellevue. So, Bellevue, I think, is going to have job growth that should absorb the new supply, but we are watching the new supply there. And other than that, obviously, when you get up to New York City, where we’ve been battling not direct competition in a submarket, but throughout Manhattan, we’re going to continue to face supply headwinds throughout our Manhattan portfolio all through next year and probably well into 2018.

Thanks for the detail. I know that the southeast and southwest are a little smaller pieces of the portfolio, but seem to have held up fairly well here, even into the third quarter. What sort of your outlook on the supply side for those markets?

Yes. We see – again, we use predominantly Axiometrics for this. But we see Tampa delivering supplies in 2016 of about 4,500 units; next year, it’s going to be about 4,000 units; Orlando, it’s going to be about 5,500 to 6,000 each of the two years. Nashville, where most of the new supplies hit the Downtown urban core, is going to slow from 9,000 units to 6,000 units next year. And then Orange County is probably going to see a tick-up as some deliveries have slipped from 2016 into 2017; it’s going to go from about 4,000 units to about 6,500 units.

Hi, good afternoon. I was just hoping you could speak a little bit about the difference in performance of your A and B assets, and maybe if you could talk specifically about...

Juan, you still there? You cut out on us, second half of that question.

Yes, sorry. If you could just talk a little bit about the performance between the A and B assets in your portfolio, maybe specifically what occurred in New York and San Francisco?

Sure. I guess, on a national basis, I would say that B’s continue to outperform A’s probably by about 100 to 250 basis points. But it does definitely vary market by market, in New York. Most of our portfolio is B, especially in the same-store. But our B’s today, when you look at same-store as well as our MetLife property, our B’s are coming in at about 3.4% for the quarter, and our A’s are at about 4.3%. Our Chelsea property is also included in that 4.3%. So fairly tight, you’re seeing concessions and pricing issues affect both A’s and B’s, as people in B’s at times now can step up to A’s.

Okay, great. Thank you.

Sure.

And then, if you can just speak a little bit to supply expectations across some of the Sun Belt markets. Do you see kind of more supply heading into those, kind of suburban Sun Belt markets versus kind of the urban coastal markets? Or how do you see that trend playing out as we look forward sort of to 12 months to 18 months?

Yes. As we – again, we recently revised our supply data from what we were seeing two to three months ago, and now in 2016 and 2017 in total are roughly even at about 360,000 to 370,000 multifamily homes. And when you look at individual markets, there is not a whole lot of differentiation. I gave the numbers in the prior question. But basically the Florida markets are roughly flat between 2016 and 2017. Nashville is going to come down about 3,000 homes. And then like I said earlier, you’re going to see a bit of a tick up in Orange County; you’re going to see Boston stay roughly flat, Dallas should stay roughly flat, Austin is going to see a reduction of about 4,000 homes from 2016. So you’re going to hopefully give a little bit of easing as job growth continues to be strong in Austin; you should see a pick up.

Okay. Thank you.

Sure.

Hi, good afternoon. I was just hoping you could speak a little bit about the difference in performance of your A and B assets, and maybe if you could talk specifically about…

Juan, you still there?

Yes.

You cut out on us, second half of that question.

Sorry. If you could just talk a little bit about the performance between the A and B assets in your portfolio, maybe specifically what occurred in New York and San Francisco?

Sure. I guess, on a national basis, I would say that B’s continue to outperform A’s probably by about 100 to 250 basis points. But it does definitely vary market by market, in New York. Most of our portfolio is B, especially in the same-store. But our B’s today, when you look at same-store as well as our MetLife property, our B’s are coming in at about 3.4% for the quarter, and our A’s are at about 4.3%. Our Chelsea property is also included in that 4.3%. So fairly tight, you’re seeing concessions and pricing issues affect both A’s and B’s as people in B’s at times now can step up to A’s.

Okay, great. Thank you.

Sure.

And then, if you can just speak a little bit to supply expectations across some of the Sun Belt markets. Do you see kind of more supply heading to those, kind of suburban Sun Belt markets versus kind of the urban coastal markets? Or how do you see that trend playing out as we look forward sort of to 12 months to 18 months?

Yes. As we – again, we recently revise our supply data from what we were seeing two to three months ago and now in 2016 and 2017 in total are roughly even at about 360,000 to 370,000 multifamily homes. And when you look at individual markets, there is not a whole lot of differentiation in the numbers I gave in the prior question. But basically the Florida markets are roughly flat between 2016 and 2017. Nashville is going to come down about 3,000 homes. And then like I said earlier, you’re going to see a bit of a tick-up in Orange County; you’re going to see Boston stay roughly flat, Dallas should stay roughly flat, Austin is going to see a reduction of about 4,000 homes from 2016. So you’re going to hopefully give a little bit of easing as job growth continues to be strong in Austin; you should see a pick up.

Okay. Thank you.

Sure.

Thanks for taking my question. First question is on West Coast JV assets. It’s really closer to the time window where you would have the option of purchasing those. I was curious as to the probability that you would do so and the NOI yields maybe on the option pricing relative to your 6.5% preferred return requirement?

Drew, this is Harry Alcock. First, three of the assets are in lease up and they have all leased up very well. The first asset in Seattle was stabilized. The next two in Anaheim and the second Seattle asset again leased up very well. Rates that are at or above our original expectation. I think when we talked about this, we thought that the all-in return on costs in these assets would be somewhere in the neighborhood of 5%. We don’t have anything that changes our view on that, and again as we look at the option windows that began opening up next year, we’ll make the determination as to which assets we want to buy and which assets we want to sell. But again, the first one would be the two Seattle assets and the Anaheim asset. The first half of the year will make that determination.

And as you go forward into next year in 2018, in terms of acquisitions that make sense for UDR, is kind of the main research priority going to be these JV assets versus going out and kind of looking at what’s become a pretty frothy market in terms of asset pricing?

Yes. Well, I think as you think about how we’re going to deploy capital next year. Development is going to continue to be sort of our preferred means to deploy capital. Secondly, between the West Coast JV assets and Steele Creek, we have option windows that open next year, we’ll make a determination as to which of those assets we want to buy and which we want to sell. I think you’re right in that regard.

That’s helpful. And then one more question on Boston. While it’s sold on strong year-to-date, there was a bit of deceleration in Q3 on some of the pricing given kind of the exposure, the suburban exposure there and most of the supply being urban. Is there anything going on there or is that just kind of a little hiccup in what should be a pretty stable market going forward?

I think – it’s Jerry, it’s predominantly a hiccup. We did – we saw a bit of a back-up in occupancy throughout that portfolio and there are four assets in our same-store pool, two are up in the B assets in the north end; those continued to do well. Our Downtown Back Bay property probably had revenue growth in the 2.5% range. So it definitely has started to feel more of the competition from urban supply. And then we also have one of our same-store assets down in the south and in range – it’s been competing against new supply; it’s been popping up in Quincy. So the north end continues to hold up well; Downtown felt some supply pressures as did the south end, but I think they’ll continue to do pretty well.

Thank you. One of your competitors today recently increased expense guidance. You’ve been able to maintain expense further to a moderate level. But I was wondering if there are any components to expenses that you’re feeling outward pressure on?

Yes. Real estate taxes for sure have been giving us pressure really for the last year. You’ve got the Sun Belt assets, which have typically seen real estate taxes go up high single-digit. That’s really a function of the NOI growth, which has taken the valuations up. Similarly, Seattle has felt that kind of pressure, and then because of our 421a abatement burn-offs, we're going to feel it there too. We’re always watching personnel costs, and there is a lot of demand for the quality people that we hire, especially in high new supply areas. Fortunately for the quarter-end, year-to-date, we’ve kept that growth at 1.1%, and we did it really because we’ve realized quite a few efficiencies over the last year or two at our sites that have allowed us this year to reduce staffing levels by 1.5% or so. And that’s through things like our inside sales group who assist in renewals and leasing. And secondly, we’ve deployed about a 70-package lockers out into the field that take the burden of package handling off our site people, so that they can spend more time on sales and service. We’ve been able to turn that into some headcount savings. But I’d say, the biggest expense pressure continues to be real estate taxes as the valuations for real estate continue to go up.

Okay. And at the same time, you’ve kept turnover relatively stable versus last year despite new supply really picking up. Can you just elaborate on what you’ve done strategically to address the markets where you’d be seeing a lot of the supply pressure?

Yes. Well, we probably two things: one is earlier this year, based on the success we’d had again with its inside sales team, that helped us on new leases. We created a department of a few people that really assist our people on renewal. So they call everybody that has made a decision to renew or give notice yet; our renewal offers have been out there for a while. And they try to answer any questions to prompt them to renew more quickly. We asked them as a secondary source to go out to people who have given notice, to try to convince them to stay, and sometimes this may result in slight negotiation on renewal rates. I think those are the biggest things. I think we’ve obviously seen that renewal increases come from last year; they were north of 7%. Right now, they are in the mid-5%. So there is not quite as much pressure. But I think we’ve got a focus on service, and a focus on sales, and I think doing things like again putting these package lockers – and we don’t look at it just the savings to our site teams; we see this as an amenity that people can self-serve 24/7. We’re always looking for opportunities to provide our residents with more of what they’re looking for.

I may have missed this, but what were the new renewal leases trending so far this month?

The month of October, new leases are at 1.1%, and renewals so far in October are at 5.3%.

Okay, great. Thank you.

Yes. Good morning out there. Jerry, just following along that, John’s questions. It sounds like you guys have been pretty proactive on the portfolio this year, as well as budgeting guidance that you’re able to maintain while peers have revised down. So, as you look at your guidance for next year, back in June when we met you guys expressed confidence that you would still be on track for your 2017, but earlier in this call, you guys said that you’ll address 2017 later. So just looking at your multi-year plan where do you guys see you’re still on track to hit 2017, is that fair? Or are there some things that are coming up that you think could cause you guys to deviate from that?

Yes, Alex, as I indicated in my prepared remarks, we provided 2017 guidance. We do expect same-store growth to continue to decelerate in 2017 on a year-over-year basis. And we’re currently projecting, as I said earlier, earn-in of about 2% compared to the 2.75% that was baked into the beginning of 2016. As a result, we see it unlikely that we would be able to achieve the lower end of the 4.75% to 5% in quarter 2017 same-store revenue growth range that we originally provided in our 2016, 2017 two-year plan that was published earlier this year. That being said, the operating environment and some of our higher rent coastal markets was much more accommodating when we originally provided the range, and that next year’s top line growth is still expected to compare favorably against our long-term revenue growth of about 3%. That being said, we’re going to give more detailed 2017 guidance and our update to the two-year strategic plan on our fourth quarter call.

Okay. But it is very stake because back in June, you guys expressed confidence to still meet. Is that your range this year was wide enough to accommodate? Or did the market further decelerate post June-May REIT that’s caused your revise to think that you won’t even be at the bottom end?

Alex, this is Toomey. With respect to MetLife, you’ve seen it every year that we’ve been in this relationship for the last six; we’ve always had some degree of some trade going on during the life of this joint venture. I would probably see us continuing that same pattern in the future. We see no impact from what’s going on at Met at corporate to the real estate appetite, views of the world, or their capital availability or deployment of capital. So, I think we’ll continue to have these dialogues; we’re doing it with a great partner at future opportunities that help us advance UDR and help them advance their capital deployment. So, I don’t see any change to that.

Okay. And did this take care of your 5% stakes that you had with Met? Did this take care of them all? Or are there still more of those?

Yes. It’s basically down to land inventory with them through the end.

Thanks, good morning. So, Jerry, it doesn’t sound like you’re kind of dangerously close to going negative in any market either in next year or the year after. No looking for guidance, but real estate did suggest that New York is probably going to go negative for them next year. Do you – just to get it on the record if we can, do you feel like anything is going on that could self-correct in the next couple of years, or do you still think it will remain above the Mendoza line or whatever?

Yes. I don’t see that at this point. There are differences in our portfolio mix, especially in New York with some of our peers; again, remember that we’re more of a B operator there. We don’t have anything in places like Brooklyn, we don’t have any properties that are directly in Midtown West. So while we are affected and it will tamper our ability to really push rates, I don’t see us going negative anywhere.

Okay. And then Tom, you mentioned the 6% to 10% cash flow per share growth strategy. Obviously that’s not really a trend number or trend or kind of average number over the course of many, many years. What do you think – why you’re not going to give the outlook for 2017. But what do you think the sort of the average number would be? 6% to 10% is a premium growth rate. Do you think the number for bottom line AFFO growth is significantly below that, or what’s your view using your history as a guide?

Well, it’s a long history, Rich, and timeless this question. For the last three years make it 4%. We had three years at 10%, we had this year looks like an 8%, and as we’re looking now towards the future, I think in a stable supply-demand demographic that we’re in a phase, it’s probably in the 6% to 8% kind of range. A lot of it would take to get below that fix, I think is a recession and the depth and nature of that. I’m not calling for one, but I think that has been the historical pattern; when the country goes into recession, it’s where is our exposure to it, and how deepened our portfolio do we have in those particular areas or industry exposure. Hard to forecast that element of it, but what we’ve been trying to do is build the company that can stay in that 6% to 10% through most cycles, and I think we’ve done that. And I think we’re going to continue to look to do so, and when you look at the next strategic plan, you’re going to see a lot of the same strategies that we’ve been executing on in the last four years. Very focused on capital deployment, operations, and continued balance sheet improvement.

Okay. And I hope Chris, I think a man because he is way bigger. I want one more question. The self-funding strategy hinges a lot of on dispositions, decelerating fundamentals. Do you see any risk that people buying public multifamily real estate might make it more difficult for that self-funding strategy to stay intact over the next couple of years?

Rich, this is Harry. I think the short answer is no. What I can tell you is that there continues to be plenty of liquidity in the market, that there are still deals getting done. There’s plenty of buyers, although the buyer pools are somewhat shallower. But you can see that buyers continue to underwrite lower growth rates; thus, cap rates could increase a bit. Remember, you still have solid fundamentals in most of the markets, so that even if cap rates increase a little bit and NOI should continue to increase, so there’s no obvious impact to absolute value. But, there’s the big point; that is a liquid market. If you look at 2016, transaction volume is still going to be very robust; it’ll be slightly lower than 2015 kind of record levels. But it should be similar to 2013 and 2014, and there’s no evidence that, that’s going to abate anytime soon.

Great. Thanks.

Hi, guys. You mentioned the risk of concentrated supply, and you also highlighted Bellevue as having a bit of a supply increase. Do you think that job growth is sufficient to absorb the supply, and with the developers being more rational? We saw in LA where demand was pretty solid yet the pressure on the existing properties existed somewhat. How do you see those two markets being different?

Yes. I guess there’s – we don’t see rational concession levels in Bellevue at this point that they’ve actually been offering a month free on leases, if not something less. Our portfolio in Bellevue has been able to maintain to date as the supply has been delivering north of 6% revenue growth; and you’re getting very good renewals as well as new lease rate growth. Yes, I think the job growth, when you look at Amazon coming in next year, you look at Apple that’s looking to come, you consider that Bellevue has pretty close to Redmond, so it doesn’t just have to job growth in Bellevue; it’s the part of the those places on the east side that benefit. I think Bellevue is a bit different. And I do think job growth will continue, and that core of Bellevue will eventually run out of developable space. The other thing to keep in mind, and this is a little more long-term, but in about five years or six years, the light rail is going to reach across Lake Washington and really connect both Bellevue and Redmond to the west side of town, and I think it will enhance the Eastside even more.

Okay. And then going back to LA, obviously you have two large developments out there, weighing on your results and normally pressuring you guys this year. Do you see any other large developments that might cause a hiccup in another market next year?

There are a couple of developers that come in with very aggressive pricing; they can affect us. And the places that we’ve seen it happen this year have been in the Platinum Triangle of Orange County. I could see it potentially happening in other markets, and we’ve also felt that, I can’t say but I don’t foresee it at this point anywhere else.

Good morning, guys. I’m just curious on your take on this handful of jurisdictions in Northern California looking at rent control. I think a few more than half a dozen of your properties fall into those areas, and maybe just a portion of that would be subject to these laws if they’re contemplated. What’s your take on that legislation, maybe the odds of its passage, and I guess how do you think that affects the valuation if it came to light?

I’ll talk about our assets there. We have about three properties that could be affected, and it’s only for pre-1995 build assets, but still, it would be rent control with the range from 1% to 5% on increases. I’d say another California Property Association has been fighting that pretty strongly and thinks the probability of passage is probably limited. We’ll have to wait and see, but right now I can tell you that over the next year or so, I don’t think those are up to 5% increases would make much of a difference. It’s not the way it was two or three years ago with very high rent increases. But again, it’s relatively low exposure, 2.5% of UDR.

Sure. Where we sort of really dealt with this type of issue has been in New York City where you have rent stabilization. I guess I answered a couple of different ways. One, the short-term that will have probably a slight negative impact on value where the absolute rent growth in the near-term will be slightly lower because you do have these fixed caps on increases. However, the way you look at it over the long-term is really a timing issue; that typically you have vacancy control, so over time you capture those sort of embedded shortfalls as your tenants turn over. In the long-term, if you get, say, five years into a rent control program, these assets actually trade at lower cap rates because of the embedded upside that exists on the rent roll; so that you have a certain number of units that are well below market rent. You just assume that over time, just on an actuarial basis, you’re going to get 5%, or 10%, or 15% of those units that turn over and are able to capture that upside.

Thank you, Tom. Can you provide color on how the board’s CFO search process is going and an estimate on when we can expect an announcement?

Sure, John. We’ll probably have this wrapped up and be able to make an announcement relatively soon.

You have about nine assets hitting same-store pool next year, and your preliminary 2017 revenue growth guidance. What kind of benefit was the new same-store pool addition contemplated in the revenue growth guidance?

Okay. Thank you.

Sure.

Hey, guys. Thanks for all the transparency thus far, just trying to probe first about your development pipeline and many more strategic questions thinking forward. What sort of markets, if you have to sort of project right now, do you think are strongest and maybe which are the weakest. And so, how are you thinking about your development pipeline and how might that be pivoting in the future?

So Rich, this is Harry. As we talked about before, we’ve really developed in seven or eight different markets: Southern California, Northern California, Seattle, and the major East Coast markets, plus Dallas and potentially Denver as we did in Steele Creek. So those – we’re going to continue to focus our development activity in those markets. If you can imagine, some of that question is really opportunity-based; we’re going to look at opportunities in those markets that have the best location and using the sort of revenue growth that one would expect in those markets, we will underwrite that type of growth and where we find opportunities that meet our return thresholds, those are projects that we’ll actually move forward and deliver. We’re going to continue to maintain at least $900 million to $1.4 billion in our development pipeline. So you don’t see us increasing above that level. Again, we’ll continue to use a disciplined underwriting approach.

Got it. So, new market that you’re developing in right now that you may see less opportunity in than you do right now?

I think certain markets at certain times, we are going to have less opportunity, and I think you could use San Francisco as an example; that anywhere where you do have some pressure on the rental rate growth, you still have land prices that are very high. It probably has become a set of circumstances in the City of San Francisco where it’s probably hard in the near-term for any projects to make sense. But again, these markets change over time, and the fundamentals of those markets will change; we will continue to underwrite those opportunities accordingly.

Well. Thanks. Just sort of a question on your – this is for the Attachment 5, give your return on invested capital metric and help me understand what you guys are trying to show there. If I look historically, it kind of goes up year-over-year. And then if I go back to prior supplements, the absolute numbers are really not that much different from where you guys are reporting a return on invested capital today. So what exactly are you guys showing in that metric?

Nick, we’re looking at it; it’s an operating margin page.

Let me just close by thanking you for your time today, and second, we’re very focused on finishing up the strong year and certainly look forward to 2017 and 2018 and rolling out that strategic plan again in February of next year as we wrap it up. We will see many of you at our next meeting, and we look forward to that exchange and time together in a couple weeks. So, with that, take care and have a good day.