UDR Inc (UDR) — Q3 2018 Earnings Call Transcript

Welcome to UDR's quarterly financial results conference call. Our quarterly 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've reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. 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 our 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 UDR's Chairman, CEO, and President, Tom Toomey.

Thank you, Chris, and welcome to UDR's third quarter 2018 conference call. On the call with me today are Jerry Davis, Chief Operating Officer; and Joe Fisher, Chief 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. There are three key points I'd like to make about our business and the macroeconomic environment. First, we again produced very good results across all aspects of our business during the quarter. These results and the positive outlook drove our second guidance increase this year in earnings per share and same-store growth ranges. Jerry and Joe will discuss these in detail in their prepared remarks. Second, the underlying macroeconomic backdrop for the apartment industry remains positive. This, when combined with solid fundamentals, will continue to support future growth. As such, we expect the apartments will remain a consistent short-term and long-term performer in a very volatile global economic landscape. Third, and turning to 2019, we are optimistic about our prospects. We remain confident in our innovative platform and the expected earnings from it, as well as the improved bottom line contribution from our lease-up communities since 2018. From a capital allocation standpoint, we remain flexible and we'll continue to invest in uses that provide the best risk-adjusted return. We'll provide details on 2019 guidance on our fourth quarter earnings call. Last, to all my fellow associates in the field and corporate offices, we thank you for producing another quarter of strong results. With that, I will turn it over to Jerry.

Thanks, Tom, and good afternoon everyone. We're pleased to announce another strong quarter's results. Third quarter year-over-year revenue and NOI growth for our same-store pool, which represents approximately 83% of total NOI were 3.8% and 3.9% respectively. Please note that excluding the impending sale of our Circle Towers community located in the Washington D.C. market and this commensurate move to held for sale, quarterly same-store revenue growth would have been 3.7% in the quarter, at the top end of the range we've provided in early September. As Tom indicated, business is strong. Seven points I would like to highlight from the quarter are as follows: first, every year same-store revenue growth of 3.8% exhibited continued acceleration versus the 3% and 3.4% growth rates we produced in the first and second quarters. Secondly, market rents accelerated through the end of August before retreating slightly in September. As such, 2018 has exhibited more typical seasonality than any of the prior three years. Well, we had anticipated this coming into 2018, the durability of the market rent growth throughout the prime leasing season was welcomed. We are definitely benefiting from stronger job growth in our markets thus far in 2018, which has been 40 basis points better than initial estimates and solid last 12 month wage growth that has averaged 3.2%. Combined, our markets have outpaced national total income growth by 90 basis points over the trailing 12 months. Third, blended lease rate growth for the quarter was 60 basis points higher than during the same period last year. This is 40 basis points wider than what was realized during the first half of 2018. We expect this gap to continue to widen in the fourth quarter. Fourth, other income grew by nearly 14% in the quarter, well above our expectations. Our operating initiatives continue to grow at rates many multiples of rent growth and remain a primary contributor to our sector-leading 2018 same-store revenue guidance. Fifth, turnover continues to compare favorably versus 2017. Year to date, annualized turnover was down 100 basis points through nine months. This is especially impressive given that our short-term leasing initiative should result in higher turnover. Sixth, same-store expense growth came in at 3.5%. Real estate taxes remain under pressure increasing by 9% year over year, but our controllable expenses grew by only 0.2% as we continue to find efficiencies throughout our operating platform, as evidenced by our year to date personnel expense growth of negative 2.8%. We see a long runway for constraining future expense growth through technological initiatives and process enhancements. And lastly, we saw minimal pressure from move-outs to home purchases or rent increases remain stable at 12% and 6% reasons for move-outs during the quarter. Likewise, bad debt remains in check. These encouraging prospects, combined with our nearly 97% occupancy, set us up well entering 2019. Next, a quick overview of our markets. The majority of our markets are performing in line with expectations. With a few exceptions, the Florida markets, San Francisco, and Boston have outperformed versus original forecasts, while Austin and New York continue to struggle in the face of new supply pressures. Regarding New York, we continue to forecast positive top line growth for that market in 2018 despite slightly negative year to date results. Our development pipeline in aggregate continues to generate lease rates and leasing velocities in line with or ahead of original expectations. At 345 Harrison, our 585-home, $363 million project in Boston, which opened in late May, we ended the quarter at 74% leased, well ahead of initial forecasts. This, combined with rental rates that are in line with original underwriting expectations, keeps us enthused about 345's anticipated contribution to 2019. At our $353 million, 516-home Pacific City development in Huntington Beach, we ended the quarter at 81% leased. We continue to see this property gaining traction. Our two JV developments, totaling $93 million in pro rata spend, remain on budget and on schedule. Our suburban mid-rise 383-home community located in Addison, Texas, Vitruvian West, ended the quarter at 96% leased, which runs well in excess of underwriting expectations after opening the doors just back in February. Our 150-home Vision on Wilshire community, located in Los Angeles, is a very high price point community and is performing well, ending the quarter at 75%, having first moved in just five months earlier in April. Quarter-end lease-up statistics are available on Attachment 9 of our supplement. I would like to again thank all of our associates in the field and at corporate for another strong quarter. With that, I'll turn it over to Joe.

Thanks, Jerry. The topics I will cover today include our third quarter results and forward fourth guidance, a transaction update, and a balance sheet update. Our third quarter earnings results came in at the midpoints of our previously provided guidance ranges. FFO as adjusted and AFFO per share were $0.49 and $0.44. Third quarter FFOA was up $0.02 or 4.3% year-over-year, driven by strong same-store performance, lease-up performance, and accretive capital deployment. I would now like to direct you to Attachment 15 of our supplement, which details our second guidance ranges of 2018 and our latest expectations. In summary, we increased full year 2018 FFOA per share to $1.95 to $1.96 and AFFO per share to $1.79 to $1.80. Primary drivers of the increases include upside from our same-store portfolio, an improved contribution from our lease-up properties, and additional accretion from incremental DCP deployment. Full-year 2018 same-store revenue, expense, and NOI growth guidance ranges were each increased by 25 basis points at the low end to 3.25% to 3.5%, driven by strong blended lease rate and other income growth, offset somewhat by higher real estate taxes. For the fourth quarter, our guidance ranges are $0.49 to $0.50 for FFOA and $0.45 to $0.45 for AFFO. Next, on transactions: during the quarter, we entered into a contract to sell Circle Towers, a 46-year-old, 604-home community located in the Fairfax County submarket of Washington D.C. for $160 million. The sale temporarily decreases our DC exposure ahead of potential new development and densification opportunities in the market over the coming years. The transaction is expected to close during the fourth quarter, subject to customary closing conditions. Regarding development, we continue to work towards stabilizing our development pipeline in the $400 million to $600 million range and have a path forward to do so over the next several years depending on our opportunities. Most of these starts are expected to come from legacy land and densification opportunities as we remain disciplined in our underwriting, and sourcing economical land remains challenging, given the disparity between construction cost increases and rent growth in most markets. Similar to last quarter, we remain constructive on our forecasted 2019 earnings from our $809 million of completed on-balance sheet and JV development. On the developer capital program front, we are seeing more opportunities and closed on three new deals, settling $73 million in commitments during the third quarter, bringing our total commitments to $270 million, 74% of which has been funded. The investments are located in Santa Monica, Philadelphia and Orlando, representing 867 apartment homes in aggregate and have a weighted average yield of 10%. Within the program, we currently have incremental capacity of $50 to $100 million. Please see attachment 12-B for further details. Big picture, we remain flexible with our capital deployment and we'll continue to pivot to take advantage of the best available risk-adjusted return. As long as the opportunities meet our hurdles and fall within our forward sources and uses plan. Next, capital markets and balance sheet: during the quarter, we amended our $1.1 billion revolving credit facility and $350 million term loan to extend both maturities out to 2023 and reduce our spreads over LIBOR by 7.5 basis points and 5 basis points respectively. Subsequent to quarter end, we issued $300 million of 10-year unsecured debt at a coupon of 4.4% and an effective coupon of 4.27% after hedging. Proceeds will be used to prepay $196 million of 5.28% secured debt, originally scheduled to mature in October and December of 2019, and for general corporate purposes, leaving minimal debt maturities in 2019. At quarter end, our liquidity as measured by cash and credit facility capacity, net of the commercial paper balance was $710 million. Our financial leverage was 34% on an un-depreciated book value, 24% on the enterprise value, and 29% inclusive of joint ventures. Our consolidated net debt to EBITDA was 5.7 times, and inclusive of joint ventures, it was 6.3 times. We remain comfortable with our credit metrics and don't plan to actively lever up or down. With regard to the profile of our balance sheet, we will continue to look for NPV positive opportunities to improve our 4.9-year duration and increase the size of our unencumbered NOI pool. Finally, we declared a quarterly common dividend of $0.3225 in the third quarter or $1.29 per share when annualized, representing a yield of approximately 3.2% as of quarter end. With that, I will open it up for Q&A.

Thanks. With the development lease-ups, given the progress you continue to make, what's the earning on development in 2019 versus we expected impacts on 2018 results?

Hey, Nick. It's Joe. As we talked about previously, this year we're producing about a mid-two's FFO yield coming off of the $700 plus million of consolidated development. That equates to about a penny of dilution this year relative to run rate. Next year, we think that's probably about a two-penny contribution as those assets continue to move towards stabilization, which will fully occur once we get on to 2020.

Thanks. I think you did the DCP deal in Philadelphia, is that the market you want to add exposure to?

Yes. So we already have one asset there within the existing joint venture. So that is a market we've operated in and tracked over time, but as we talked about a little more and more, we do have these predictive analytics models that show Philadelphia is screening relatively well over the next four to 10 years. So the addition of medical jobs, technology jobs, educational jobs, all continue to contribute to macro factors and industry-specific demand factors that screen pretty well to us. So this was a good way to enter the market through that $50 plus million DCP deal. Obviously, we get a press upfront as well as back-end participation. So it's something we continue to look at, but a good way for us to get a little bit more exposure to a good market.

Thanks. Are there any other markets you are underwriting deals and you currently don't own it?

There is no other markets, and as I said, we do own in that market already, but there's no other markets that we're considering. And just as a quick reminder to you. From a modeling standpoint we do have $73 million that we announced that we committed to this quarter within DCP. I just want to remind everyone that those do fund over time similar to a typical development. So, you typically see about a four-quarter funding profile with those. I mean equity goes in first, followed by our commitment, followed by construction loan. So just from a modeling standpoint, that $73 million as a commitment comes in over time into earning. So, keep that in mind as you think out to 2019.

Hi guys. I'm just hoping you could give your latest thoughts on supply and expectations for '19 deliveries versus '18 updates on slippage, in which you think are going to see meaningful declines your pickups and deliver year-over-year?

Hey, Juan, it's Joe. Good morning. So expectations for 2019 really haven't changed at this point. We've been talking about flat to down 10% in our markets overall. And just to remind on that process that we go through, we utilize a combination of third-party data, our permit base regression models, and then intelligence from the field. So when you roll those up, that flat 10% still feels appropriate at this point in time. I think that's further supported by looking at starts and permit activity that is typically around 10% to 15% down on a national basis and that trend typically holds within our markets as well when we look across that. When you drop down to the MSA level, the markets that we probably see larger increases in would be out on the West Coast, Inland Empire, L.A., Seattle, and then up in Northeastern away from Oakland, and then on the East Coast you have D.C. that probably ticks up for us. And then in terms of markets that come down, the major bi-coastal markets New York City, Boston, and Orange County look to be coming down as well as a number of the Sunbelt markets with Denver, Nashville, and Tampa coming down as well.

Great. Thank you. And then in the other income line item, is that contributing to certain markets more than others? I know you guys would be more problematic about your parking and just thoughts on 2019 and the ability to sustain that going forward, the growth profile?

Yes, Juan, this is Jerry. It definitely contributes more towards some markets. Washington D.C. experienced a significant increase this quarter, with other income up about 15%, which is slightly above the average. However, the two largest markets are Seattle, where other income rose by 22%, and Boston, which saw an increase of about 24%. The most substantial growth tends to occur in those bi-coastal markets, where there is a considerable contribution not only from parking but also from our short-term furnished rentals.

Good afternoon. Thanks for taking the time and the questions. So it looks like new lease growth was higher than renewals in a handful of your markets, such as San Francisco, Monterey, Orlando, do you see this occurrence as a short-term situation or is it perhaps more indicative of the strength of the multifamily market as we head into 2019?

It's probably more short term. You do tend to see as you've noted renewal rate growth tends to be higher and you're going to see seasonality kick in as you go into the fourth quarter. And during the fourth quarter as well as the first quarter, you'll see renewal stay pretty static with where they are today but you'll see the fluctuations occur more on the new site. So I would expect that to come down. But I will tell you the markets have been performing well. Overall, we've seen an extended leasing period, you know where market rents continue to grow through August, before subsiding somewhat in September. The prior two years market rents peaked in May for us so this is more of a normalized year. So yes we do see the rent side of the equation going into 2019 being a bit stronger than it was a year ago.

Thank you very much for that I appreciate that. And Jerry, as a follow-up on recent calls you've highlighted the occupancy benefit you've had from short term rentals, but caution that seasonal reasons it could potentially drop call it 20 basis points to 25 basis points occupancy in the third quarter was the high end of your guidance stayed pretty high. So, have you seen any evidence of these short term renters moving out? Are they just continuing to stay longer or maybe how should we think about this potential occupancy headwind from here?

They do move out there is definitely seasonality, we're probably running today with about half the level we had in the middle of summer and on it. So, but occupancy today is still just under 97% so we've kind of reloaded those people with a 12-month renters so I wouldn't expect to see a drop in our occupancy, but I will point out you did see our turnover pump a bit this quarter it was higher than it was last year's quarter by 40 basis points. And if you take out the effective short term rentals in both periods, turnover would have actually been down 60 basis points. So, it does have an impact on that but we are able as I just said to maintain that higher occupancy levels throughout the slower season.

All right. Thank you very much. Appreciate it.

You are welcome.

Hey, guys. How are you? So, look, you guys have put up consistently great results quarter-after-quarter. And I'm wondering what could make you even more bullish from here or maybe more bearish, I'm thinking sort of about it on a micro-market by market basis. We've seen some of your peers started to aspire ways from some markets maybe New York City. So I'm curious, if there's any market where you're more bullish on and what markets you might be less bearish or less bullish on them than previously?

Yes. I'll start and either Harry or Joe can jump in or Tom. We see as you go into 2019 while all the markets that have performed well this year probably continue into the top end of our revenue growth whether it's Florida, Seattle, Monterey Peninsula, the weak markets I think probably stay weakish. While we see New York is getting a little more stable as evidenced by our results this quarter, it will still be one of our worst performing markets next year as the net new supply that delivers this year and early next year gets absorbed. I think Baltimore and Austin both continue to be weakish next year. But I don't know if any of those are indications that we would either add to or exit markets based on short-term factors. Do you guys have anything to add?

No. I'd just say from the broader business standpoint perhaps Rich that covers the markets. In terms of what we're excited about on the transaction side, you've seen us continue to deploy capital and to develop our capital program; I think over the coming quarters, you'll hopefully see us harvest some gains out of the Wolf joint venture through several options that we have coming up there. I think we're going to see increasing options for traditional redevelopments, unit additions and things of that nature as well as we continue to try to find a way to stabilize out the development pipeline while maintaining discipline around the required returns, so they were still pretty excited on the capital deployment front and of course sourcing net capital through dispositions and free cash flow. The only thing that would be somewhat worrisome that impacts all of us is of course rates going higher. So if you watch the Fed funds rate, obviously with there's floating rate exposure and refinancing activity that doesn't hit into growth over time, but I think we've done a good job of managing the debt maturity profile and getting ahead of that to a great degree. So it's kind of the positive and negative just from the broader business front.

Got it. And so, Joe, maybe just one quick follow-up on the development capital program. Look, we've seen lenders continue to pull back, I'm wondering if you're seeing any pullback from maybe even the GSEs that's leading you to have a bigger competitive advantage and are you maybe more cautious on this development program than you were a year ago or are you more positive just given more opportunity?

There could be definitely more opportunity out there to be had for us despite the fact that you see permits and starts activity coming down. What we talked about in past quarters, the fact that the funnel has widened to a degree, as we've been out there pretty consistently for a couple of years now at this point, so the fact that we've been able to execute, we've been a good partner to a number of these developers and we are seeing more opportunities which allows you to pick and choose your points. In terms of your comments on the call the senior piece of the stack on the construction financing side or the perm piece of GSEs, construction financing really hasn't moved much since last quarter, where we talked about it, taken up a little bit, in terms of the loan to cost and seen spreads compress a little bit, but nothing meaningful and definitely not offsetting the increase in LIBOR that we've seen over the last couple of years. And on the GSE front, they continue to be very active. I think they're on Phase 2 to again do $70 billion each. They're definitely the most competitive on the perm side. When you go out to a 10-year lower levered financing, you know, if you're going on the short-end side, the pension money, the bank money is probably a little bit more competitive, but we're typically looking out to longer duration when we're doing the fixed-rate financing on the security side.

Great, Rich. This is Toomey. A couple things to add about the Developer Capital Program, I mean, Harry has done a good job of having a number of relationships there. And as you know after you closed the deal the first time with someone, it's a lot easier the second time around. And so, you know we've got a pretty good net there to go fishing with and I think there'll be plenty of opportunities down the road should we want to expand that program and re-look at it.

And just to kind of close it out, this is Harry. I remember equity capital has also come down. Joe talked a lot about debt capital coming down, which sort of creates the position, the capital stack for this type of investment. We continue to see opportunities going forward. And as Joe mentioned, a couple of the Wolf options are coming up. So you'll see kind of a capital events meeting repayments of a little over $40 million over the next few months, which does give us ample capacity to go back out and reload into new deals next year.

Good afternoon, guys. You've covered a lot of ground on the call already but I'm just throwing this out to the group to see if you can refine some of the trends in move-out for home purchases. And I know Jerry you gave out some stats on that earlier. But just have you noticed any changes maybe across markets or between suburban and urban? And maybe in light of mortgage rates going up and changes from last year's tax law changes, anything that we should be paying attention to?

Honestly, no. Move-outs to home purchases are pretty flat over the last year at about 12% of the reasons for move-outs. And when you look at the markets where you have a higher percentage for move-out, it's the ones you would expect which is typically a Sunbelt Suburban and the ones with the least move outs to home purchase tend to be the urban coastals, so no real changes.

That's helpful. Regarding the decrease in personnel expenses year-over-year in the year-to-date period, how long can you sustain this trend given the tight labor market? Also, how are you balancing this with efficiencies? Could you provide a bit more detail on the factors involved?

Sure. Yes. I mean first thing I'd say is we did give our employees typical performance raises last year in that 3% range. So if we had been able to find efficiency, we would have seen that number growing by at least 3%. I guess let's start with that. What we've really done is analyzed the benefits at times of either outsourcing or automating some functions in a way that it doesn't impact our resident base and I think we'd be able to kind of revenue growth and the satisfaction our residents are showing us by renewing at a high rate. There is no impact on them. But I think by those deltas of ways to make our teams more efficient and on natural attrition being able to at times they outsourced, it's been helpful. The other thing we've been able to do is create opportunities for higher level operating team members to manage multiple properties, so it creates an opportunity for them. So I think we're still in the early stages of working on this. We started last year looking hard at it; we've continued to look this year, but I think the automated platform that we've introduced years ago where our residents have shown us that they prefer self-service has benefited us. I think, as we move into our future, there's going to be some more opportunities. So, I don't think it's just this year. I think we'll be able to consistently find some ways to continually create efficiency.

And Rich, a lot of what Jerry's reaping the benefits of today was really launched about four years ago when he did a time motion study for most of the workforce. It really determined what standards were for all the functions we perform. And now you go through all of that analytics and you really come back with what's the right operating model for the future. And with the right technology, self-served template on top of it, you're going to see this continue to take over our business and people, as you can imagine are at a high variable, at a high cost structure associated with them and we're going to find ways to make everybody more efficient.

Got it. Thanks for the color, guys.

Very good morning. A quick follow-up on Pacific City, you talked about occupancy kind of trending in line with where you expected to be, but didn't talk as much about rate. I was just curious where rate is relative to initial expectations. And then quickly just on both 345 Harrison Street and Pacific City, should we think of these projects as stabilizing kind of by the end of next year or maybe the dates there?

Yes, the current rates on Pacific City are, call it 365 to 370. So, just a hair under what we've trended in our original underwriting, but not much. And I would say on the stabilization, I think you're going both of the deals either stabilized, you know, closer to the first quarter. You know, when you think about 345 Harrison, one thing I would point out, while we were at 74% leased at the end of the quarter, 10% of that property has affordable units that were still going through the lottery process with the city. And we should have that 10% moved in early in the first quarter. So that property is not exceedingly well as rents in the 540 or so range. So Pacific City, you know, we're continuing to lease well, but we're at over a year into the lease-up on this. So, you're having to backfill for some amount at the same time, but we would expect that will also stabilize give or take year-end.

Drew, this is Joe. Just to clarify on that in terms of giving you a little bit more color on the actual yields. So in 1Q 2020 which Jerry was referring to on the stabilization quarter, we think the overall pipeline stabilizes in the high-fives. So you have 345 Harrison and probably six in a quarter range; Pac City in the 5.5 range; and then our two assets on the joint venture also stabilizing out in the mid-sixes, and Vision in the mid-fives, so overall when you look at it somewhere in the high-five stabilization out in 2020.

Can you discuss whether there has been year-over-year improvement in leasing trends for the MetLife joint venture similar to what you observed in the consolidated portfolio during the second and third quarters? It appears that blended lease rates are performing better compared to this time last year within the joint ventures.

Yes. They are up a bit, not as pronounced as in the same-stores. I don't have the data in front of me on a property by property basis. But you can see in the 3Q versus 3Q last year on Attachment 12 they - the revenue popped up to growing by 1.6% which are still not at the level of our same-store, it's quite an improvement from over last quarter. You've still got certain properties in that portfolio whether it's Columbus Square in the Upper West Side, which is almost 20% of the JV. That one is coming in slightly negative and then you've got a few other - the properties that are combating new supply, so they don't have as much pricing power. And those are deals in Downtown Denver, the East Village, San Diego, as well as some of our Addison properties in Dallas.

Okay, great. That's all from me. Thank you.

Good morning. Good morning out there. Jerry, first question is, it's been a trend you commented on, on turnover being lower if you adjust for the expirations in the quarter and it's certainly been an industry trend. But on the other hand, you hear about an endless amount of companies trying to find employees and unable to find workers. So how do we rationalize that there seems to be a lot of companies that are looking for workers and yet turnover in the apartments is down. I would think that if companies are competing that workers are being moving around with certain turnover increase but that's not what we're seeing. What are you guys seeing at the property level for residents, are they not job hopping or what do you guys think is driving you?

I think you're still seeing job hopping but I see frequently because there's so much demand for employees in pretty much all of our markets. We're not really having pretty much all of our markets, do not really have lean cities they live in to find new jobs.

With an older rental base averaging 37 years, residents tend not to move as frequently. Additionally, improvements in mass transportation infrastructure have made it easier to travel across cities. I believe there are several factors at play, and the situation is evolving.

Yes.

It is a pay I'm excited.

Yes. So I think there's a few things to keep turnover down. I think one is I think we're all addressing each more and providing better customer service. But I think the other thing is in a lot of our markets you're not seeing this rational pricing that came into our phase in 2017 and 2016 where people are offered two-month free; that will lower people out even if there is payment we estimated. So, I think with the one-month free that normalized pricing methodology, if you're keeping your residents happy, they're going to stick with you longer.

Okay. And then second question is, New York you mentioned that it was still one of your weaker markets, and just sort of curious now that you've had a few of your peers sell some 421as and you can see what pricing is. Do you think that you may consider selling some of your 421a assets and maybe lightening your exposure to New York or your view of your holdings in New York is unchanged?

Hey, Alex, this is Joe. Just over the comment that the buy-sell decision on a market is going to be independent of the 421 aspect, like any buyers going to account for that within their underwriting and therefore the pricing that we received. So it's not going to be a 421 driven decision. But New York as a whole you mentioned is been a little bit sluggish in years of late. But when we look at the macro drivers and the fundamental specific drivers put New York, we do think we're getting on to a period now where rent growth is not necessarily correlated well with the improvement in the market overall. And so, I think you will see a period going forward not necessarily next year, but over the next four years or so where New York starts to live from an underperformer to potentially an outperformer. So, given that, I don't think you'll see us lighten up on New York. That also say as we talk about we're looking at redevelopment opportunities. New York is included in that basket. So, hopefully, we can find something that makes sense of there in New York and get some additional capital deployed. The last piece of course is the qualitative factors of what's taking place with New York Senate and whether or not that flips to more left leaning and therefore more focus on the affordable or the rent stabilized piece the business as part of our discussions. But at this point, it's still up in the air. So, we're waiting to see what takes place in the next week or so.

Good day, guys. Jerry, you're beating the peers pretty handily in Seattle in terms of same-store revenue growth, other than of course just being better operators. Is this the other income thing? Is it a B versus A thing, a sub-market thing or something else?

All the above.

Yes, I'd say it's all the above. A lot of it is we're more east side than west side and a lot of supply is at the west side. But I do think this other income is a significant factor; it probably added 200 basis points to our growth this year. So, I think that's a fairly sizable. And I would tell you, we have an exceptional operating team that's been together for a long time in Seattle. So, I think that local regional team is the best in this sector.

Rob, it's Joe. So just in looking at the land sites at the Dublin land, we've been working on for a long time, our hope is that we can get to economics that would compel the construction start here in the relatively near future, but we're still working on that. Vitruvian, remember the 383 units we leased that in about six months. So that we were leasing that at about 60 units per month. So we're actively working on the next two phases there with an expectation that we could start construction on those sometime next year assuming the economics work. But remember, we leased it up very quickly. It rents that we increased three times or four times through the lease-up period. So it leased up very well, which speaks to the demand that exists in that submarket at that price point, which is a relatively affordable price point significantly below the other three projects that we built there and significantly below for example uptown rents.

Okay. Thanks, guys.

Good morning. On your DCP program, can you just remind us what percentage of the investments you make you underwrite to potentially own?

Yes, John, when we enter a developer capital program, we underwrite it as if we were the ultimate owner. We want to ensure that we're investing in real estate submarkets and markets that we desire to own. Over time, we have seen some successes, particularly with the Denver deal. Regarding Steele Creek, we have had several other successful executions and mentioned a couple of upcoming projects that we believe we can execute on when the market value exceeds the option price. In the other section of the DCP, specifically the southern investments, none of those come with explicit options for us to exercise. However, two of them provide backend participation, allowing us to share in the economics beyond the fixed rate we receive. We believe we gain insight into the operating trends and maintain a position in the capital stack due to our existing relationships with equity. We hope to have the opportunity to access some of those assets, but the maturity profile for them is still three to five years away, so we have some time to wait.

Thank you for that. And Jerry, you mentioned technology in that initiative that has contributed to your personnel cost and I'm just wondering if you could provide any color on other discussions you're having with companies that may impact your business over the next few years?

Yes I think over the next couple of years, you're going to see us probably start to implement more slowly - start to implement more smart home technology into our units. You know I think the good thing about that is something that residents from pay for because it does make their life much more convenient it's also something that makes our workforce much more efficient. And I guess lastly, I think it's going to tie in as we start to explore more self-guided touring, which we believe a large majority of our residents prefer to do. It's going to make it easier for them to get around our communities. So I think you're going to see advances in all of those aspects.

Thank you.

Well. Thank you. And first, thanks all of you for your time and interest in UDR today. As I started out the call business is very good and we are certainly grateful for all our associates and the teamwork that they have put in this year and look forward to closing out the year and getting into a strong 2019. And we look forward to seeing many of you in San Francisco, next week. And with that, take care.