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UDR (NYSE:UDR)

Q1 2014 Earnings Call

April 29, 2014 1:00 pm ET

Executives

Christopher G. Van Ens - Vice President of Investor Relations

Thomas W. Toomey - Chief Executive Officer, President, Director and Member of Executive Committee

Thomas M. Herzog - Chief Financial Officer and Senior Vice President

Jerry A. Davis - Chief Operating Officer and Senior Vice President

Harry G. Alcock - Senior Vice President of Asset Management

Analysts

Jana Galan - BofA Merrill Lynch, Research Division

Nicholas Joseph - Citigroup Inc, Research Division

Derek Bower - UBS Investment Bank, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

David Bragg - Green Street Advisors, Inc., Research Division

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the UDR's First Quarter 2014 Conference Call. [Operator Instructions] This conference is being recorded today, April 29, 2014. And I would now like to turn the conference over to Mr. Chris Van Ens, Vice President of Investor Relations. Please go ahead, sir.

Christopher G. Van Ens

Thank you for joining us for UDR's first quarter financial results conference call. Our first 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.

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.

[Operator Instructions] 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 afternoon, everyone. Welcome to UDR's first quarter conference call. On the call with me today are Tom Herzog, Chief Financial Officer; and Jerry Davis, Chief Operating Officer, who will discuss our results, as well as senior officers, Warren Troupe and Harry Alcock, who will be available during the Q&A portion of the call.

My comments will be brief and focus on 5 topics. First, all aspects of our business continue to perform well in the first quarter. Operations is hitting on all cylinders, and our development completions and return in aggregate are meeting or exceeding the expectations.

Apartment fundamental in our markets remained favorable, and our momentum entering the prime leasing season remained very positive.

Second, our first quarter results came in at the high end or beat our initial guidance ranges provided in February on both earnings and same-store basis. Much of 2014 has yet to unfold, but we feel good about where we are, and we'll reevaluate and update you on our full year guidance on the second quarter call.

Likewise we are in line or slightly ahead of the expectations set forth in our 2014 to 2016 strategic plan. We continue to view the plan as a solid roadmap for long-term value creation and remain fully focused on its execution.

Third, we completed $295 million of accretive coastal development during the quarter. Maintaining a consistent development pipeline improves our portfolio quality and geographic footprint, and remains a primary driver or expected cash flow growth in the coming years. We are excited about the $566 million of development projects we have completed over the past 6 months, as well as the $183 million that is expected to come online during the remainder of 2014.

Fourth, we completed the migration of the final 8 operating assets out of our original UDR/MetLife I joint venture with another set of transaction. After 3 years of hard work, this brings the operating community portion of the UDR/MetLife I joint venture to a close. Over this time, we have been pleased with the progress made in increasing our ownership interest to 50% in 16 of the original 26 condo-quality communities that are located in our core markets. And we are excited about the continued expansion of our relationship with the stable long-term partner in MetLife.

I'd like to acknowledge Warren and Harry for their hard work that created a mutually beneficial outcome for both UDR and Met. Tom will provide further details on our investment to date, including our current estimated IRR.

Fifth, we are making progress on our planned dispositions for the year, and while it is early to provide details, pricing has come in favorably versus original expectations. Tom will provide an update on our capital sources and uses in his prepared remarks.

And finally, I'd like to thank all my fellow associates for their hard work in producing another strong quarter for UDR. We look forward to the remainder of 2014.

With that, I will turn the call over to Tom.

Thomas M. Herzog

Thanks, Tom. The topics I will cover today include: First, our first quarter 2014 results; second, a balance sheet and debt maturity update; third, a development update; fourth, an overview of first quarter and post-quarter transaction; fifth, our second quarter and full year 2014 guidance; and last, I'll provide clarification on UDR's guidance relative to future equity issuances.

First, our first quarter results. FFO, FFO as adjusted and AFFO per share were $0.36, $0.36, and $0.33, respectively. Each of these earnings metrics were at or above the high end of our guidance range provided in February.

Moving on to the balance sheet. At quarter end, our financial leverage on an undepreciated cost basis were 39.9%. On a fair value basis, it was 32.0%. Our net debt-to-EBITDA was 7.2x, but is forecast to trend to the mid-6s by year-end. We will continue to manage our balance sheet to BBB+ credit metric.

Our balance sheet remains strong, with approximately $630 million of cash and credit facility capacity at quarter end. In the first quarter, $184 million of 5.1% debt matured was temporarily pointed on our revolver. On April 1, we paid off an additional $129 million of 5.5% debt. We intend to refinance these obligations in the unsecured market later this quarter. The only remaining debt maturing in 2014 is $34 million of secured debt that comes due in December.

Turning to development. During the first quarter, we completed 3 projects containing 891 homes for $295 million at a weighted average spread between expected trended yield incurred market cap rate of approximately 220 basis points. Of these completions, Channel Mission Bay in San Francisco is expected to yield well above the upper end of our targeted 150 to 200-basis-point trended range.

Domain College Park, which is across the street from the University of Maryland Business School and Los Alisos, which is located in Mission Viejo, California, are expected to come in 20- to 25-basis-points below our targeted range. But will still be well accretive to earnings than NAV both with solid double-digit IRRs projected at the point of stabilization.

Of our remaining $671 million pipeline of projects still under construction, $183 million of which is expected to be completed in the second half of 2014, we've continued to trend near the midpoint of our targeted range. In total, our $1.1 billion development pipeline is 65% funded.

As to future development projects, we continue to carefully underwrite opportunities, and look for new land sites. In the first quarter, we closed on the previously announced $78 million Pacific City land parcel, a 516-home project located in Huntington Beach, California, and 3 blocks from Huntington Beach Pier.

We're currently completing the design process and expect to break ground in early 2015. Looking ahead, we also expect to announce 2 to 3 new starts in the second half of 2014 and will range from $100 million to $150 million in total.

Next, our first quarter and post-quarter transaction. In January, we sold for approximately $49 million Presidio at Rancho del Oro, a 27-year-old 264-home community located in North County, San Diego. The community's fourth quarter 2013 average revenue per occupied home was $1,485 per month, and the sale was transacted at a 5.4% cap rate.

As Tom mentioned, we have several assets for sale currently in the market and are on track in moving forward with the planned disposition set forth in our guidance. Pricing on such transactions looks to be a bit more favorable than our original expectations.

In addition, during Q1, we sold our minority interest in 2 small UDR/MetLife I JV operating community to MetLife, and received cash proceeds of approximately $3 million. The 2 communities had a combined market value of approximately $85 million with an average cap rate of 3.8%. First quarter revenue per occupied home for the 118 homes in these assets averaged $4,817 per month.

Subsequent to quarter end, we increased our ownership interest from 12% to 50% in the remaining 6 operating assets in the UDR/MetLife I JV for a payment to MetLife of $82 million and contributed to assets to the UDR/MetLife II JV. These 6 assets had an aggregate market value of approximately $505 million with an average cap rate of around 4.8%. The 6 assets comprise 1,523 homes with first quarter average revenue per occupied home of $2,563 per month, are all recently constructed communities located in Los Angeles, San Diego, Dallas, Washington, D.C., Baltimore, and Boston.

Let me now take a step back and provide some context from life-to-date activity of the UDR/MetLife I JV since its formation in November 2010. When we entered into the venture it comprised 26 recently constructed high-quality operating assets with 5,748 homes, and 11 potential development sites with UDR acting as the property manager. UDR owned approximately a 12% interest in the operating assets, and a 4% interest on the land parcel.

Since then, we have engaged with MetLife in 4 ownership swap transactions, as well as other activities wherein we increased our ownership interest from 13% to 15 -- 50% in 16 of the original 26 operating assets, encompassing 3,932 homes and contributed them to the UDR/MetLife II JV.

We sold the minority interest in the remaining 10 operating properties to MetLife. The JV is sold or swapped 4 of the original 11 land parcels, including the sale of one parcel through a third-party. We recapitalized certain operating communities as debt matured, and the JV made distributions of available net cash generated for the joint venture partners.

Let me show to you some key takeaways how we currently view the economics of the deal. We estimate that UDR's current 50% share of the assets and UDR/MetLife II JV, excluding Columbus Square, is valued at approximately $460 million versus cumulative investments over the 3-year period of around $340 million. The annual IRR computed for all cash flows, along with the fair value of the real estate holdings at April 2014, is over 18%.

As a reminder, UDR/MetLife JV I still holds 7 land parcels for which we own 4% interest for a total investment of $6.6 million. These assets provide us the opportunity to participate with Met and the development of well-located land for a total basis of approximately $180 million. We're in various stages of the evaluation and entitlement process on these land parcels, and we'll provide updates as those plans are finalized.

We are very pleased with the value that has been created to date with these ventures and with our strategic relationship with MetLife. This relationship will allow us to continue to jointly own an outstanding portfolio of high-quality assets in our core markets, and develop the remaining land parcels over time while earning management and development fees. We've continue to look forward to additional value creation opportunities with MetLife going forward.

On to 2014 guidance. First quarter earning metrics and same-store results came in at or above the upper end of our original guidance expectations and the momentum was good. But given how early it is in the year, we are maintaining our full year 2014 FFO and AFFOs adjusted per share guidance of $1.47 to $1.53, and AFFO guidance of $1.30 to $1.36 per share. In addition, we are maintaining our full year 2014 same-store guidance with expected revenue growth of 3.5% to 4.25%, same-store expense growth of 2.75% to 3.25%, and same-store NOI growth of 3.75% to 5.0%. We will revisit both our earnings and same-store guidance ranges during the second quarter call.

Other primary full year guidance assumptions can be found on Attachment 15 or Page 25 of our supplement. In this page, you will note, we reduced our 2014 acquisition guidance by $100 million at the midpoint, raised our 2014 disposition guidance by $100 million at the midpoint, and reduced our acquisition disposition cap rate spread by 50 basis points at the midpoint based on current pricing and the potential basket of assets to be sold.

Second quarter 2014 FFO, and FFOs adjusted per share guidance is $0.36 to $0.38, and AFFO per share guidance is $0.31 to $0.33. Also, during the quarter, we declared a quarterly common dividend of $0.26 or $1.04 per share when annualized, an 11% increase over 2013. This represents the yield of approximately 4% and 166 uninterrupted quarterly -- quarter ended dividend.

One final item I would like to address. The topic of UDR potential issuing new equity seems to receive a lot of attention during the last couple of months. In a public presentation at the Citi Conference, we made a point to clarify that our commitment to not issue an equity as a discount to NAV does not imply that we will issue equity immediately upon trading at NAV. We have a $1.4 billion portfolio of capital warehouse and non-core communities that we plan to sell over time for strategic reasons. And the proceeds from such sales are capable of fully funding our development plan for the next few years. Accordingly, we do not currently need new equity capital. However, when our stock again, trades at a premium to NAV, we will, of course, consider accretive opportunities as they arise. The equity issuances set forth in our 3-year strategic plan provide a placeholder for such opportunity.

With that, I'll turn the call over to Jerry.

Jerry A. Davis

Thanks, Tom, and good afternoon. In my remarks, I'll cover the following topics: First, our first quarter operating results; second, the performance of our core markets during the quarter; and last, a brief update on our development lease-ups.

We're pleased to announce another strong quarter of operating results. In the first quarter, same-store net operating income grew 5.6%, driven by a 4.5% year-over-year increase in revenue against a 2.2% increase in expenses. As a reminder, fourth quarter of 2013 revenue and NOI growth was similar at 4.5% and 5.4%, respectively.

We are encouraged by our continued ability to keep expense growth in check, especially given the difficult winter, we experienced, in the Eastern portion of the U.S. All in, first quarter winter-related expenses were approximately $530,000 above initial expectations. Offsetting this were lower repairs and maintenance and personnel expenditures, as we continue to gain efficiencies through our investments in technology and process improvement, as well as slightly lower property taxes as a result of a few prior year refunds.

Our same-store revenue per occupied home increased, by 4% year-over-year to $1,520 per month, while same-store occupancy of 96.2% was 45 basis points higher year-over-year. Our total portfolio revenue per occupied home at quarter end was $1,687 per month, including pro rata JV.

Turning to new and renewal lease rate growth. First quarter effective rental rates on new leases increased by 1%. Renewal rate growth remained strong at 5.1%. San Francisco, Seattle, Portland, and Austin performed especially well, while the Mid-Atlantic region continue to struggle. Further details can be found on Attachment 8E or Page 18 of our supplement.

Annualized turnover in the first quarter decreased by 120 basis points year-over-year. As was the case in 2013, this decrease was attributable to our ongoing focus on lease expiration management and the lengthening of our average new lease term. We continue to move lease expirations from the first and fourth quarters into the higher demand second and third quarters where we can realize better rate growth.

Our average new lease term reached 11.9 months in the first quarter of 2014 versus 11.6 months in 2012 and 2013. The lengthened term helps us in the following ways: First, in geographies where new supply is pressuring fundamentals, like Washington, D.C., we are better able to maintain occupancy in the market, in general; second, our churn costs and vacancy loss improve as fewer apartments turnover annually; and finally, longer tenures Drive higher occupancy, which allows us to proactively be more aggressive on rates and fee increases. This focus on intensive lease management should continue to benefit our current and future year results.

Next, rent, as a percentage of our residents' income, held steady at roughly 18%. Move-outs to home purchase were up 230 basis points year-over-year at 14.1%, but still below our long-term average of 14.5%.

Moving on to the quarterly performance in our primary core markets. Orange County and Los Angeles, which combined represents 16% of our total NOI, continue to improve and are expected to perform well in 2014. Our 467-home recently developed Bella Terra community in Huntington Beach continues to be a rocket ship, and is currently 97% leased with rents 10% above up pro forma estimates.

Pricing power in New York City, which represents 13% of our total NOI, improved meaningfully as the quarter -- first quarter progressed, and we continued to feel good about the city's prospects during the upcoming prime leasing season.

New supply in Metro D.C., which represents 13% of our total NOI, continues to hamper fundamentals, but our diverse mix of A and B products, as well as less direct submarket exposure to new supply will help us fare better than many of our peers in 2014. We are still expecting positive full year revenue growth of approximately 1%.

San Francisco, which represents 10% of our total NOI, remains very strong, with employment growth continuing to be driven by high paying professional job. Demand is robust throughout the city, Peninsula, and Silicon Valley. In North San Jose, we are experiencing some pricing pressure due to new supply. Our 315-home Channel Development in Mission Bay is 70% leased, just 4 months after opening its doors and at higher rates than initially expected. Like Bella Terra, Channel is a home run.

Seattle, which represents 7% of our total NOI, remains a very good market for us. Supply is coming, the jobs are as well. Seattle has added over 40,000 jobs since March of last year, enough to absorb new product thus far.

Lastly, Boston, which represents 5% of our total NOI, is emerging from its typical seasonally slower period of the year. The winter was brutal, but we are seeing a seasonal pickup in leasing.

Turning to our new -- our development lease-ups. Channel at Mission Bay in San Francisco and 13th and Market in San Diego comprised $218 million in aggregate estimated cost. Weighted average effective rents are nearly 11% above plan and leasing velocity of 13% ahead of expectations. These lease-ups continue to perform well.

Los Alisos in Mission Viejo, Domain College Park across the street from University of Maryland Business School; and Fiori at our Vitruvian Park JV in Addison, Texas comprised $199 million in aggregate estimated cost.

Weighted average effective rents are 1% below plan, while leasing velocity is 17% below where we would have expected at this point, primarily due to Fiori -- as the prime, excuse me, leasing season gets into full swing, we expect the demand of these projects, especially Domain College Park, and Los Alisos will pick up. We are seeing strong leasing activity at all of our lease-ups in April. In fact, each one of these properties is achieving at least one lease per day thus far. All in, we remain very positive on how the lease-ups are progressing in aggregate.

With that, I will open the call for Q&A. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from the line of Jana Galan with Bank of America.

Jana Galan - BofA Merrill Lynch, Research Division

I was wondering if you can give some color around the changes to transaction activities for 2014? Was that largely led to what you would accomplish in the first quarter? Or just are you seeing less potential acquisitions out there?

Thomas M. Herzog

It's Tom Herzog. As far as the transaction activity, we reduced the acquisition number down by $100 million at the midpoint. We increased the disposition guidance by $100 million at the midpoint. Equity, we just clarified that, that drove to $150 million and the cap rate spread, we just tightened up by 50 basis points. As it pertains to the reason for the changes, the acquisitions, we've got the Pacific City that was purchased in January, we're using that as one of the reversed 1031s, reduced in [ph] April acquisitions. Dispositions we raised, that created a couple hundred million of extra cash flow. We've got the joint venture contribution that we described that comes in as a net $79 million and then we have Steele Creek that comes in at about $60 million that we expect to fund during the year, leaves a little bit of extra cash flow in the mix. So those are the moving pieces that we have.

Jana Galan - BofA Merrill Lynch, Research Division

And you mentioned the $1.4 billion of non-core in potential dispositions, just given the strong demand for apartment assets, would you potentially increase that disposition number further?

Thomas M. Herzog

Well, I mean, as far as the dispositions at the range that we've set, there really isn't going to be reason likely to increase the disposition number. We do have, of course, the capacity to do that if we needed to. But we're not expecting at this time that will be modified.

Operator

And our next question is from the line of Nick Joseph with Citigroup.

Nicholas Joseph - Citigroup Inc, Research Division

You mentioned that the pricing for the planned dispositions has been better-than-expected. Have you seen any increase in condo conversions in your markets?

Harry G. Alcock

Nick, it's Harry Alcock. First of all, none of our assets that are in the market are going to be sold to condo converters. But in terms of the question itself, we're starting see a little bit of condo activity on existing operating assets creep into a couple of markets, New York was first, we're starting to see a little bit of it in San Francisco, and we're seeing more of it in those 2 markets on land sites where the -- many of the buyers are going to develop for a condo use.

Nicholas Joseph - Citigroup Inc, Research Division

And in terms of guidance, what are you assuming on the price in for that unsecured bought issuance this quarter?

Thomas M. Herzog

Well, we've -- it's to look at what current pricing is, Nick, this is Tom Herzog again, on the 10-year, we would assume it's somewhere roughly into the vicinity of 4%. If we went with the 7-year, it's more in the vicinity of 3.5%. We've got our guidance number in a little bit lower than that. So we've got a little bit of upside if we get to [indiscernible] between now and [indiscernible].

Nicholas Joseph - Citigroup Inc, Research Division

And finally, what's the timing of the potential development start to MetLife I JV?

Harry G. Alcock

Nick, it's Harry Alcock. The first couple of sites could start as early as later this year. We've got another 2 to 3 sites that could start in 2015, and then the remaining 2 or 3 would potentially be further out.

Operator

Our next question is from the line of Derek Bower with ISI Group.

Derek Bower - UBS Investment Bank, Research Division

Given the MetLife funds carry higher leverage, can you speak to what your pro rata leverage metrics look like, pro forma the transaction? And how do you expect leverage, including the JVs to trend relative to your guidance in the 3-year plan?

Thomas M. Herzog

As far as leverage on the MetLife joint venture or just leverage in general, as, I think, you're aware, we see our net-debt-to-EBITDA is the one I'll focus on, taking down during the year, probably on a consolidated basis and in the year somewhere around 6.5, and then further taking down during the period of our 3-year plan down to about 5.7. As to -- with the inclusion of JVs, we would see that number coming in at somewhere in the mid-6s by the end of the year. The impact of the MetLife swap was quite negligible to the look through, if you will, net-debt-to-EBITDA number somewhere around 0.4x. The transaction itself on the 6 assets came in at I think 56% leverage on that particular component bumped up against our actual leverage in the company and when you do the math on all that, it really does not make that big of an impact.

Derek Bower - UBS Investment Bank, Research Division

Great. You've talked in the past about your desire to increase your ownership stake in the MetLife funds, so now you've done that into Fund II. Can you speak to your desire intent to further increase your stake or own the remaining assets outright?

Thomas W. Toomey

This is Toomey. Our intent in a short-term with Met is to continue to expand the relationship on a 50-50 basis with the development pipeline. And beyond that, we're comfortable right now at a 50-50 relationship on the operating assets, and we'll continue to always have dialogue with Met on a range of topics. And so we're comfortable where we're headed.

Derek Bower - UBS Investment Bank, Research Division

Great. And then just lastly, Jerry, how much more work is left to rightsize lease exposure schedule? And are you having these concessions to do so? And how should we think about the impact of these efforts on 2015 growth?

Jerry A. Davis

Sure. Yes, we're continually moving lease expirations to get into the higher traffic months, which is -- which occur in the second and third quarter. A lot of the work has been done. So I think the impact in 2015, it'll be a little more of a normalized year as far as occupancy affected by these lease expirations changing, as well as new lease rate growth. Really not using concessions to achieve this, actually concessions, when you look at first quarter of '14 versus first quarter of '13, are down 29%. So haven't had to use that, it was really more through lease expirations. One thing we have seen is our resident base is selecting, on their own, to go a little bit more with longer term leases. We've offered up in some of our markets, such as DC and some of the Texas markets up to 14-month lease terms, and we found people opting more for these. This has expanded our average lease term from 11.6 months to 11.9, which has helped to drive down turnover. One thing it has done is when you look at new lease rate growth in first quarter, we are at 1% so far in April, we're at 2.5%. Short-term leases tend to have a bit of a higher premium, so they will help new lease rate growth. So we've seen a little bit of an impact on that. But even though people are selecting those longer term leases, we're finding people that need to move for jobs or select to move for home purchase, they will pay a lease break fee, and we've seen our fee income actually go up 7%. So while we are not overly happy with our new lease rate growth of 1%, which is about 120 basis points lower than it was in the first quarter of last year, we understand why it's happening, we think it has helped us push occupancy up to that 96.2% in the quarter, I would tell you today, our occupancy is at 96.8%. So we're running very high occupancy, probably given up a little bit of new lease rate growth, but it's really more resident selection.

Thomas W. Toomey

Just before we move on to the next question, I want to clarify one thing. Your question on the net-debt-to-EBITDA with the JV pro-rata debt, I think I said 6.6% at the end of the year, I meant to say at the end of the 3-year strategy period. At the end of the year, it'd be more like 7.4x. So 6.6x at the end of '16, 7.4x at the end of '14.

Operator

And our next question is from the line of Alexander Goldfarb with Sandler O'Neill.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Just some quick questions here. One, on the increase in the disposition guidance, how does this compare to the dividend? Does this mean more pressure on paying out the dividend or there is sufficient weather coverage or ability to shelter the gains?

Thomas M. Herzog

Yes. No, Alex, this is Tom Herzog. The dispositions had nothing to do with gain capacity or ability to cover the dividend. Yet literally, it's just -- it was cash flow decisions that we made. So nothing to do with the dividend.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Right, right, to the point that by increasing dispositions, you're not changing the trajectory of what you think the dividend growth is going to be like?

Thomas M. Herzog

No.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Okay, okay. And then, Tom, just you made your comments on equity issuance downplaying that. I mean, there's still some in the guidance, but it sounds like from your comments, it's not going to happen. So over the next 3 years, as we think about the development program, is it just -- should we just factor in sort of like amount of dispositions, so as we're modeling it out as the development's deliver, we sort of have an offsetting amount of dispositions, is that the way we should think about it out or is there, I guess, a different way?

Thomas M. Herzog

No, that's a good question. How we think about the dispositions is that the development program will be funded with these dispositions. And so as far as looking beyond that, I don't think there's a lot more to say. As far as equity issuance is in the plan, those are more of a placeholder. I kind of look at it this way. The cost of issuing equity is probably, call it, what, 4.85% on a yield basis and the cost of dispositions may be call it 6% and the cap rate are 5.5%, I think, is probably the vicinity of what we have in our -- built into our numbers. So there's not going to be much impact on the FFO as a result of -- if there's movement between those 2 numbers. So if there's fewer equity issuances, that's offset by disposition. So I just put that way. Those 2 numbers are relatively [indiscernible].

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then just lastly, while we have to wait for updated guidance on the second quarter, would you -- should we just assume that there'd be increased disposition guidance? Is that more towards the back part of the year like fourth quarter? Or we should be expecting some pretty big trades in the upcoming few weeks, months?

Harry G. Alcock

Alex, this is Harry. We closed one deal in January. I think the next 2, 3 deals could close in the second quarter and the balance will be the second half of the year.

Operator

Our next question is from the line of Karin Ford with KeyBanc Capital Markets.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Just a question for Jerry on same-store revenue growth. You didn't see any deceleration really from fourth quarter to first quarter. How much deceleration are you expecting here in the back half of the year? I know you have more difficult to occupancy comps, but it sounds like you're running pretty far ahead. Should we -- is your expectation that we should see same-store revenue growth trend down from 1Q levels for the balance of the year?

Jerry A. Davis

Yes, Karin, I definitely think it will trend down from the level we had in the first quarter. But we're just now entering our prime leasing season. So far, things have been going well. Our traffic and applications have held up a little bit better than last year. Turnover, as we've disclosed in the supplement, is down 120 basis points. And I can tell you, as through the month of April, it's down -- April versus April of last year another 130 basis points. Occupancy levels today are very high at 96.8% on the same-store pool. But we do have more difficult comps and I think you will see a deceleration. If I had to -- again, we're not updating guidance at this point, but if I had to handicap it right now, I'd say we'd be above the midpoint rather than below the midpoint of our full year guidance. Then we just like to see how the next 2 to 3 months play out before we update guidance.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Can you -- did you tell us where renewal notices are going out for, I guess, June and July?

Jerry A. Davis

They're averaging right about 5.5%.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Okay, that's helpful.

Jerry A. Davis

And I can tell you in the month of April, we achieved 5.7%.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Great, that's helpful. And then just last question is on -- do you have an estimate of if there'd be a change to the same-store growth if you backed out any kitchen and bath activity, this quarter?

Jerry A. Davis

Yes, I mean, if we look at -- let me actually take a moment on that because here's how we think about it. So first of all, we don't have any camp Bs that are in place at the current date, but we do have revenue enhancing spend. And, I think, when you think about revenue enhancing spend, you need to look at it based on probably 3 pieces of data. The first one is the amount of capital spent, which I think as you know, we've disclosed in our 3-year strategic plan. The second is expected return that you get in the first year and in subsequent years. Third, I think, one has to consider the rollover effect of those enhancements that are dropping off from prior years. So in our case, we spent $10 million in 2013, we'll bump it a little bit in 2014. I think it's up to $11 million is the number. As I said in the past, and Jerry said, we typically underwrite to around 20% year one cash on cash return because these are relatively short life improvements often 10 years or so. And we seek to get an IRR hurdle of at least 200 basis points in excess of our WAC [ph]. The impact of $10 million of spend in the year of the spend is probably about 15 basis points on same-store. And if you took a 4 years worth, you're probably at 30 basis points. But because we've been doing this for a long time and the rollover effect occurs on I'm guessing that the same-store growth is probably closer to 0 because there's as much rolling up that's coming on. One other point that I'd make around this is the impact of redevelopments, which we would heard a lot about recently. And especially major redevelopments like a 2775 or a Rivergate and just to be clear, we do not include these in our same-store sales. And these projects are typically, call it, $70,000 to $100,000 per door, usually stripping them to the stud, so major projects and those are excluded from our same-store results all together. So if anybody has desire to want to dig deeper to how we do these calcs and how we look at it, I'm glad to take any of those questions offline.

Operator

Our next question is from the line of Michael Salinsky with RBC Capital Markets.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Tom, I know you didn't update guidance, but you just inject the $79 million in the joint ventures. If you were to update guidance, what kind of lift we would we expect on the joint venture by and there just given the mark-to-market on the debt there?

Thomas M. Herzog

Mike, this is Herzog again. The impact of the swaps themselves had a very slight positive impact in 2014, it'll be a bit more positive in 2015, but not enough to be probably adjusting your numbers for. Harry, I know you looked at those 2, I think, it was quite small, I don't think we have any...

Harry G. Alcock

It'd be in the fractions of pennies rather than full pennies.

Thomas M. Herzog

Yes.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay, fair enough. Second, question, the 3 plants starts for the back half of the year, do you hold the parcels on those already?

Harry G. Alcock

We do. 2 of those 3 are MetLife parcels and the other's a wholly owned deal in Los Angeles.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

And with those, you'd buy in the 46% you don't own and go from there on the pari passu, will you fund the development cost or how would you fund that?

Jerry A. Davis

Yes, that's the expectation that we would develop those on a 50-50 basis with Met.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Okay. And finally, you get the debt maturing in the Texas joint venture. Obviously, Texas has been strong performer over the last couple of years. Just can you give us an update on what you're thinking is on the Texas joint venture, whether there's a plan to marketing any of those assets or just to extend that debt maturity?

Thomas W. Toomey

Michael, this is Toomey. I think the intent in our conversations with our joint venture partner is when the debt is prepayable to expose those to the market and see what pies, we feel good about the prices of those assets at this time. And the job that Jerry and his team have done in running them. So they'll probably be able to be sold some time early next year.

Operator

[Operator Instructions] And our next question is from the line of Haendel St. Juste with Morgan Stanley.

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

Question on development. Understanding you're seeking yields 150, 200 basis points of bulk market cap rates. Given that we're late in the cycle and the recent, I guess, softness that your domain, Los Alisos and Fiori. Wanted to know whether you considered raising your return requirements for new development starts?

Harry G. Alcock

Haendel, this is Harry. First of all, clearly, cost are rising, land prices are rising, but rents were also rising. So, I think, yields are generally flat. We don't intend to increase our yield requirements per se, but we will take all of those factors into account in underwriting these deals. And won't start a new deal until we hit those threshold, which is the 150 to 200 basis points. So it's true, not all deals are going to pencil today, clearly, less than what would have penciled 2 to 3 years ago.

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

Okay. Can you talk more specifically, you talked about -- you seemed more optimistic on domain in Los Alisos, but more muted on Fiori perhaps can you go into -- am I reading that correctly, first of all? And then maybe can you talk a bit about the Fiori asset, what you're seeing there? Is it pricing that's the issue, is it weak demand, is it supply in uptown, can you talk a bit more about that?

Jerry A. Davis

Haendel, it's Jerry. Fiori, as most of you know, is in Addison, Texas. We built a product that was comparable to what is built typically in uptown, about 10 miles north up in Addison. We priced it very similar to uptown assets and we're getting the pricing, the velocity just hasn't been there. We would attribute a large portion of that to general weakness in the uptown market today where a lot of these lines have been coming online. And that's kind of prevented us from getting the pricing we would have like to get in Fiori. We recently have cut pricing at Fiori to get leasing velocity back on track. In fact, this month, we had 40 gross leases in the month of April. Our expectation is to continue with it. One other sign of encouragement for Fiori is, Toyota announced yesterday, they're going to move their headquarters from Torrance, California to Plano, Texas and add about 4,000 to 5,000 jobs. Plano is about 5 or 6 miles north of Addison. We have about 1,200 heads up in Plano, as well as the 1,000 or so units at the Vitruvian Park that we think will really help us out there, too. But a lot of it has been softness in uptown due to new supply, some of it has been due to, we were introducing a new price point to the absent market and the leasing velocity has been just slower than we expected.

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

Appreciate that. We haven't talked much about it lately, it seems. But A versus B performance in your portfolio this past quarter, is there any discernible performance and any thoughts as we head into decreasing season here?

Jerry A. Davis

These are a little bit stronger, but it's not enough to really call anything on. What you typically find is in some markets, if your product is A and it's near-new supply, it's obviously, going to be competing more against lease-ups that tend to have higher concessions. But overall, Bs are less than probably 70 basis points better on pricing and, as far as occupancy, my entire portfolio was occupied at a very high level right now.

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

Okay. One point of clarification you mentioned, I see that the first quarter same-store expenses in Northeast were, I guess, pretty far below expectations. You were talking earlier about some lower RNM costs and maybe some tax, realty tax benefits. Was that primarily the reason for the Northeast portfolio, the low year-over-year expense -- increase in expenses over there something else there?

Thomas M. Herzog

No, I'm glad you asked. It's really 2 things. One, we've done a good job of hedging our heating costs up in the Northeast, about 90% are hedged, so that put a collar, if you will, on some of the utility expenses. The second thing is we get hit pretty hard last year with snow removal up in Boston. And typically in Boston, you buy a contract on the number of inches of snow that can be removed. We bought this year an unlimited amount of snow removal for a fixed-rate and we locked in that rate for the next 3 years because of that. And because of the harshness of the winter and especially up in Boston. We didn't have as much of snow removal cost up there, as you would've expected.

Operator

And our next question is from the line of David Bragg with Green Street Advisors.

David Bragg - Green Street Advisors, Inc., Research Division

Could you please share some of the specifics on the new Huntington Beach development deal? It looks like a really interesting site and it'd be great to hear your expectations for the total cost, rents per square-foot, and the yield on today's rents.

Harry G. Alcock

Dave, it's Harry. I think, we acquired the site for $78 million, it's zoned for 516 units. We're still in the midst of the design process. The design will ultimately sort of determine the costs and the rents we expect, I think, we're probably a little bit early to start talking about those. We expect to start the project probably in some time early next year, and we'll talk about it more once we completed our work.

David Bragg - Green Street Advisors, Inc., Research Division

Okay. All right, We'll circle back then. How about on 399 Fremont now that, that one has started. How is that one looking in terms of rents per square-foot and yield on today's rents?

Harry G. Alcock

David, it's Harry again. Yes, we're well underway on that one. The costs numbers are published. We expect to spend approximately $318 million development as -- is going fine thus far. We expect that one to finish in late '15, early '16. Rents today should be somewhere in the neighborhood of $5.25 per foot and we'll trend up from there. We expect to stabilize yield on that one somewhere in the low-6s.

Operator

Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back over to Mr. Tom Toomey. Please go ahead, sir.

Thomas W. Toomey

Thank you, operator, and thank all of you for your time today. The closing remarks, I guess, I would say this. We're very excited about the position that we're in. With the leasing season upon us, the teams are pretty focused. And certainly, seen the traffic and the operational platform is running on all cylinders. So we're excited about that. I thought we had a very good quarter all the way down the line on all metrics and clearly, are performing at our 3-year plan or ahead of our 3-year plan and I would expect us to continue that trend for the balance of the year, and we look forward to seeing you guys in NAV [ph]. With that, operator, we'll end the call. Thank you.

Operator

Ladies and gentlemen, this concludes the UDR's First Quarter 2014 Conference Call. This conference will be available for replay after 3:00 today through May 29 at midnight. You may access the replay system by dialing 1 (800) 406-7325 and enter access code of 4676019 and followed by the pound sign. Thanks, everyone, for your participation, and you may now disconnect.

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