UDR's (UDR) CEO Tom Toomey on Q2 2016 Results - Earnings Call Transcript

| About: UDR, Inc. (UDR)

UDR, Inc. (NYSE:UDR)

Q2 2016 Earnings Conference Call

July 27, 2016 01:00 PM ET

Executives

Shelby Noble - IR

Tom Toomey - President and CEO

Shawn Johnston - Interim Principal Financial Officer and CAO

Jerry Davis - SVP and COO

Harry Alcock - SVP, Asset Management

Analysts

Nick Joseph - Citi

Austin Wurschmidt - KeyBanc Capital Markets

Alexander Goldfarb - Sandler O'Neill

Nick Yulico - UBS

Rob Stevenson - Janney

Rich Hill - Morgan Stanley.

Richard Anderson - Mizuho Securities

John Pawlowski - Green Street Advisors

Drew Babin - Robert W. Baird Company

Juan Sanabria - Bank of America Merrill Lynch

Wes Golladay - RBC Capital Markets

Dennis McGill - Zelman & Associates

Operator

Good day and welcome to UDR's 2Q 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Shelby Noble. Please go ahead.

Shelby Noble

Welcome to UDR's second quarter 2016 financial results conference call. Our second quarter press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, 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 requirement.

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 respectable 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.

Tom Toomey

Thank you, Shelby, and good afternoon everyone, and welcome to UDR's second quarter conference call. On the call with me today are Shawn Johnston, Interim Principal Financial Officer; and Jerry Davis, Chief Operating Officer, who will discuss our results; as well as senior officers, Warren Troupe and Harry Alcock, who will be available during the Q&A portion of the call.

The second quarter of 2016 was another great quarter for UDR, with 8% AFFO growth, driven by strong revenue growth of 5.7% and continued leasing strength in the 400 million development and lease up. This is a direct reflection of the continued execution of our strategic plan. At the core of our strategic plan are four elements.

First, a focus on cash flow growth for our shareholders through operational excellence, which Jerry will touch on later. Second, an accretive development pipeline that can be fully self-funded. Third, a diverse portfolio mix of 20 markets with A&B communities in urban and suburban locations. And lastly, a safe low levered balance sheet.

Combined, these four elements are designed to provide the greatest predictability of cash flow growth through a variety of economic cycles. This is reflected in our updated guidance range for the full year with a mid-point resulting in 8% AFFO growth per share, which Shawn will touch on in his remarks.

Before I turn the call over to Shawn, I wanted to add a couple of comments on the recent departure of Tom Herzog, our former CFO. While Tom was an exceptional CFO, he left UDR with an impressive bench, and I feel confident in the skills of those in the finance and accounting team to be more than adequate to handle his absence. At this time Shawn Johnston, our Chief Accounting Officer is serving as our Interim Principle Financial Officer, while we evaluate both internal and external candidates. Shawn is an exceptional candidate for the role and we are glad to have him serving in an interim capacity now.

With that, I will turn the call over to Shawn Johnston for additional comments on the quarter.

Shawn Johnston

Thanks, Tom. The topics I will cover today include our second quarter results, our balance sheet update and our third quarter and full year guidance update. Our second quarter earnings results were at the top end of our previously provided guidance. FFO, FFO as adjusted and AFFO per share were $0.44, $0.45 and $0.41 respectively. Second quarter's same-store revenue, expense, and NOI growth were 5.7%, 5.5%, and 5.7% respectively.

Second quarter expense growth was elevated due to a higher than expected property tax assessment on our 2014 development completion in San Francisco. Historically, San Francisco is value developments for tax purposes, by using a mix of cost to construct and income capitalization. While we budgeted for a mix that was weighted more towards the interim method than precedent would indicate, 100% of the valuation was eventually based on interim capitalization. This unexpected assessment resulted in a charge of $2.2 million during the quarter. $1.1 million of this was attributable to the period that the community was included in our same-store population, and was recognized as a digital same-store expense during the quarter.

The remaining portion of the charge is for real estate taxes while the community was in lease up, which can be found in Attachment 5. Excluding this negative tax variance, quarterly same store expense growth for the portfolio and the San Francisco Bay area would have been 3.4% and 9.9% respectively versus the 5.5% and 33.1% realized.

Next, the balance sheet. At quarter end, our liquidity as measured by cash and credit facility capacity was $876 million. Our financial leverage on an un-depreciated cost basis was 33.2%. Based on quarter and market gap, it was 23.6% and inclusive of JVs it was 28.1%. Our net debt-to-EBITDA was 5.3 times, and inclusive of JVs with 6.3 times. All balance sheet metric improvements were ahead of our strategic plan.

I would like to point out a few changes to our supplemental package. First, you’ll note that we have provided additional GAAP metrics in both our release and supplement in response to the recent SEC interpretation regarding GAAP and non-GAAP metrics. I’d also like to direct you to Attachment 15 or Page 28 of our supplement, where we have updated our full year guidance. We are now providing both our previous and updated guidance for ease of comparison.

With that, we have tightened our full year 2016 FFO per share guidance range to $1.76 to $1.80, and tightened and increased our FFO as adjusted an AFFO per share guidance ranges to $1.77 to $1.80 and $1.61 to $1.64 respectively. A few key items have impacted our original guidance. First, our same store portfolio is performing in line with original guidance, but our Metlife properties which are primarily urban A have underperformed our expectations. This underperformance has been offset by the outperformance of our development lease ups. Second, the S&P 500 inclusion trade resulted in some dilution. However, this issuance gave us the flexibility to change the timing of other planned 2016 capital events to offset the majority of the dilution and ultimately have resulted in an improved balance sheet.

Lastly, we expect a reduction in our full year incentive compensation, which is partially offset by higher than expected healthcare cost, resulting in a net reduction to G&A expense of $2 million at the midpoint. A few other specifics from the page. We increased our sources guidance by $75 million at the midpoint to a range of $650 million to $750 million for the year. This is due to an increase in planned dispositions, which we now anticipate being approximately $400 million for the year. In addition to the $400 million of sales, we have issued a $174 million of common equity, with the remainder of the sources coming from secured debt refinancings. We do not anticipate any additional equity issuances through the remainder of the year.

Our debt maturities increased by $60 million as we have accelerated the accretive prepayment on some existing secured debt to the earliest possible date without penalty. Additionally, we reduced our development, redevelopment and land acquisition guidance by $50 million at the midpoint due to timing of spend, and we increased our acquisition guidance by a $100 million in order to satisfy some Section 31 exchanges that we would like to complete this year.

For same store, our full year 2016 guidance remains unchanged, with revenue growth of 5.5% to 6%; expense 3% to 3.5% and NOI growth of 6.5% to 7%. Average 2016 occupancy remains forecasted at 96.6%. Third quarter 2016 FFO, FFO as adjusted and AFFO per share guidance is $0.44 to $0.46, $0.44 to $0.46 and $0.39 to $0.41 respectively. Finally, we declared a quarterly common dividend of $0.295 in the second quarter or a $1.18 per share when annualized; 6% above 2015’s level, which represents a yield of approximately 3.2%.

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

Jerry Davis

Thanks, Shawn, and good afternoon. In my remarks I will cover the following topics. First, our second quarter portfolio metrics, leasing trends and the rental rate growth we realized this quarter, and early results for the third quarter. Second, how our primary markets performed during the quarter, and last, a brief update on our development lease-ups.

We are pleased to announce another strong quarter of operating results. In the second quarter, same-store net operating income grew 5.7%. These results were driven by a 5.7% year-over-year increase in revenue against a 5.5% increase in expenses. Year-to-date, through June 30th we've achieved NOI growth of 6.8% behind revenue growth of 6% and expense growth of 4.1%.

Our same-store revenue per occupied home increased 6% year-over-year to $1,921 per month, while same-store occupancy of 96.6% was down 30 basis points versus the prior year period. Total portfolio revenue per occupied home was $2,027 per month, including pro-rata JVs. Although we are feeling the impact of new supply in a few of our core markets, namely San Francisco and New York, the positives we see continue to outweigh the negatives. Stable job growth, new household formations, better delay in home purchase, choosing to rent, as well as empty nester baby boomers moving to an urban setting with a live, work, play atmosphere. Our portfolio mix benefits from each of these scenarios.

Turning to new and renewal lease rate growth, which is detailed on attachment 8G of our supplement, we grew our new lease rates by 4.4% in the second quarter, 330 basis points below the second quarter of 2015. Renewal growth remained robust at 6.3% in the second quarter or 70 basis points behind last year. On a blended rate basis, we averaged 5.3% during the second quarter, a reduction of 210 basis points versus the same period last year.

If you look at the 76% of the same-store portfolio not located in New York and San Francisco, our decline in blended rate growth was only 100 basis points. I'd like to point out the exceptional growth we achieved in 2015 was an anomaly. We are now back to a normal operating environment.

Typically, renewal rate growth outpaces new lease rate growth by at least a 100 basis points. Because we were able to drive our occupancy in late 2014 to the 96.5% to 97% level, we were able to push new lease rate growth in the peak leasing season in 2015, higher than that of renewal leases. 2016 is proving to be a more normalized year with renewal growth outpacing new lease rate growth. While we wish every year could be as strong as 2015, we are very happy with the strength seen in 2016 thus far; specially given that we are currently dealing with peak deliveries in the majority of our markets. Next, move-outs to home purchase were up a 150 basis points year-over-year, at 14.1%, and even with our strong renewal increases in the second quarter, less than 9% of our move-outs gave rent increase as the reason for leaving.

Now moving on to the quarterly performance in our primary markets which represent 70% of our same-store NOI and 75% of our total NOI. Metro DC, which represents 19% of our total NOI and 14% of our same-store NOI posted year-over-year same-store revenue growth of 1.8%, a slight deceleration from first quarter, due primarily to very strong bad debt collections in the second quarter of 2015. We are forecasting the market to generate top-line growth in 2016 of between 2% and 3% as we will continue to benefit from our diverse 50/50 mix of A and B assets located both inside and outside the beltway. Our B product outperformed our As during the quarter by 170 basis points as sporadic supply issues continue to make for choppy results in some infield locations.

Orange County in Los Angeles combined represent 16% of our total NOI and about 17% of our same-store NOI. Orange County posted year-over-year revenue growth of 8.9% with both our As and Bs performing well above 8% and all sub markets remaining very strong as we face very limited supply. Revenue growth in Los Angeles was 5.2% during the quarter. Our same-store portfolio is primarily concentrated within the Marina del Ray submarket and is currently facing over 2000 units of new supply, which we expect will be fully absorbed by year-end. We continue to see good job growth and the supply picture improving in 2017 for our same-store LA portfolio.

New York City, which represents 12% of our total NOI and 13% of same-store NOI posted 4.65 revenue growth for the quarter. While our same-store properties are not directly affected by any new developments, we are feeling the impact from new supply in the Manhattan market as new lease growth during the quarter was 1.9%. New Yorkers who typically have been loyal to their preferred neighborhoods are being enticed and by pricing infinites in places like Midtown West. For full year 2016, we expect New York to have revenue growth in the low 4% range, below our original estimates of approximately 5.5%.

San Francisco, which represents about 11% of both our total and same-store NOI is continuing to feel the effects of new supply in several submarkets, including South of market. However, we still expect the bay area to be one of our best performing markets this year with revenue growth between 6% and 7%. Same-store revenue growth in the second quarter was 6.3%, due to the extremely strong blended rent growth we achieved in the third quarter of 2015. We currently see our portfolio being affected by lease-up pressures through the middle of 2017.

Boston, which represents 7% of our total NOI, about 5% of same-store NOI produced a strong 6.1% revenue growth during the second quarter. The suburban assets in the North shore were our strongest performers, with growth over 7.5%. Even with new supply downtown, our one same-store assets in the back day posted revenue growth of 4% for the quarter. The Seaport district, home to our 2015 completion on 100 Pier 4 in the South end district, home to our under construction community, 345 Harrison continued to see more growth with additional office and retail tenants in the submarket.

Seattle, which represents 6% of our total and same-store NOI posted strong revenue growth of 8.5% for the quarter. 16% of our portfolio is B product, which posted revenue growth of 12.3% where our A quality communities produce 6.6% growth. We continue to benefit from the strong growth inherent in these suburban B assets which are located in submarkets that are less exposed to new supply. Even with new supply pressure, our Bellevue assets posted revenue growth of 6.8% for the quarter where revenue growth in downtown Seattle was essentially flat.

Last, Dallas, which represents just over 4% of our total and same-store NOI posted 5% year-over-year same-store growth in the second quarter. Our B properties had revenue growth of 500 basis points higher than our A's, as having new supply in uptown and along the toll ways and packing rent growth in those submarkets. While new supply remains elevated, we expect deliveries to decline after this year and are confident they will be absorbed by the strength in the diversified job market in Dallas.

Our secondary market, such as Portland, Monterey Peninsula, Florida, Nashville and Austin which comprised roughly 20% of our portfolio continue to have strong pricing power due to limited amounts of new supply and robust job growth. Our expectation is that these markets have a long runway of growth due to favorable economic.

July results came in, in line with our plan. As we look ahead to the next two months we see stable pricing power and occupancy. Our 50-50 AB portfolio located throughout 20 markets has enabled out performance in our Sun Belt market, Orange County, Seattle, Boston, Portland and Monterey to offset markets that are being impacted by new supply, namely San Francisco, New York and Los Angeles.

I'll turn now to our four end lease up developments, which you can find on attachments. 9A and 9B or pages 21 and 22 of our supplement. Our pro-rata share of these four properties represents over $400 million or roughly 30% of our pipeline, inclusive of the west coast development joint venture. In total, these properties are performing ahead of plan. First, 399 Freemont our 447 home, $318 million 50-50 met by JV leased up in San Francisco, with 50% leased and 43% occupied at quarter end. Today we are 57% leased and 48% occupied with rents exceeding pro forma. We are currently operating six weeks' concession as we’ve begun to see increased competition from other lease ups in the submarket. Over the last month, we have taken over 30 leases.

The following three communities are all part of the west coast development joint venture. Katella brand I, our 399 home, $138 million lease up in Anaheim, California was 65% leased and 58% occupied at quarter end, and as of today it's 72% leased and 64% occupied. We are currently offering less than one month of concession at this community and leasing remains very strong with about 30 applications per month.

8th & Republican, our 211-home, $97 million lease-up in the South Lake Union submarket of Seattle was 47% leased and 37% occupied at quarter end and is currently 60% leased and 46% occupied, and we are averaging over one application per day. CityLine, our 244-home, $80 million lease-up in the Columbia City submarket of Seattle was 87% leased and 84% occupied at quarter end. Today, the property is 89% leased, and 86% physically occupied. All in, we had a very strong second quarter, and we remain very positive on the outlook for multi-family fundamentals, and our ability to execute throughout the remainder of 2016.

With that, we will open the call to Q&A. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Nick Joseph with Citi. Please go ahead.

Nick Joseph

Thanks. Just sticking with operations, you outlined A versus B performance cost in many markets and the 50/50 diversified portfolio, I think you have a unique perspective on this. So when you expect that spread between As and Bs to contract and when could As actually outperform Bs, just given the current supply picture?

Tom Toomey

Good question and, I’d tell you it varies market by market, but I think overall, and we stated this probably for the last two to three quarters, we would see As getting closer to Bs probably mid-year, next year, maybe a little bit after that. And then as you get deeper into ’18 I think As probably start competing more head-to-head with Bs. But it’s definitely market dependent. For example, I would think in Washington DC, we’ve seen that spread contract and expand multiple times. Last quarter it was about 50 basis points where Bs were outperforming. This quarter we expanded to 1.7, but we do see a slowdown of new supply effecting our product and DC over the next year and half. So I do think As, because there are typically better locations by the second half of next year should start doing much better there.

When you look at a place like New York, it’s probably a little more prolonged, call it maybe even 2019 or further where we see Bs continuing to outperform. And in San Francisco I think its similar. You’re going to see supply continue to offset the market in so many places like that at least through the middle of next year. And I think that will cause As to continue to have to go head-to-head against new supply well into ’18. So I think San Francisco, New York, Dallas, Austin is probably pushed out a bit, but several of the other markets that saw new supply come a little bit earlier, it’s shorter but, on average I'm guessing, it gets closer in late ’17 and probably pulls even in ’18.

Nick Joseph

Thanks. And then as per the two-year outlook, you put out 2017 operating assumptions. You’ve maintained 2016 same-store revenue growth. I was wondering if there is any update to the 2017 estimate of 4.75 or 5.25?

Tom Toomey

Yes, I can tell you we -- clearly we saw a deceleration coming in 2017. And as you said, we’ve put that in our 2-year outlook. And the range was the 4.75 to 5.25, which implied about a 75 basis points decline from 2016. And we’re continuing to project a slowdown in ’17 based on a lower blended rate growth in ’16 compared to ’15. But at this point it’s probably a little early to give guidance on where we think ’17 is going to come in. We still don’t have great visibility on pricing for September and the fourth quarter of this year, and we really haven’t fine-tuned our expectations yet for 2017. So a little bit early, but it's probably leaning towards the lower end of that range.

Nick Joseph

Thanks. And just quickly, on that range, does that contemplate the assets that are not in the same-store pool that you laid out on attachment 7B, that will roll into the same-store pool in 2017.

Tom Toomey

Yes.

Operator

Next we’ll hear from Jordan Sadler with KeyBanc Capital Markets.

Austin Wurschmidt

Hi it’s Austin Wurschmidt here with Jordan. Just revisiting Nick’s earlier question on Bs outperforming As in most of your markets. I was just curious what the price differential is between your As and Bs in some of the similar submarkets?

Tom Toomey

It depends A and B. The difference between A and a B in Dallas is probably $250 to $300. When you get to the New York, it's probably north of $1000 differential. San Francisco, it's going to be $800 to $1,000. So it can vary, but you are typically looking at it getting close to a $1,000 in some of the high rise and urban markets on the coast. And when you get into the Sun Belt it can be tracked down to just a $200.

Austin Wurschmidt

So it's fair to say around 20% to 25% in some of your larger markets?

Tom Toomey

Yes, that sounds right.

Austin Wurschmidt

Okay, and then just thinking about guidance, what are you assuming in terms of blended lease rate growth in the second half of the year?

Tom Toomey

Second half of the year, the blend, we're looking at it being low for us. Probably you are going to see in the second half -- I can you this. Renewals for July are coming in on effective basis at about 5.9%. And as you look out to next month or two, it's probably going to stay in that 5.7% to 5.8% range but then in the fourth quarter it will come down probably mid-5%. And then we're seeing new lease rate growth in July is currently at about 3.2% and our expectation would be it will just come down a hair over the last three months. We really -- we saw pricing last year in the fourth quarter come down a bit. So we're not anniversaring off such high prices. But yes second half is probably going to be low for us compared to the 5.3% that we have in the first half.

Operator

And next we have Alexander Goldfarb with Sandler O'Neill.

Alexander Goldfarb

Just a few quick questions. Jerry, on the operations, on the first quarter call you guys were -- earlier here, you guys were asking about the high guidance and actually Herzog explained how the high same-store NOI guidance, what the leakage was, that it wasn’t necessarily translating to FFO growth, but now this quarter where we see some of your peers dialing back their expectations for the year, what are some of the things that because you guys to be able to maintain such a high guidance range? Is it that the amount of Bs that you have or is just a fact that in your portfolio mix you said markets like Dallas and Norfolk, southern markets that aren’t represented in some of the other in some of your other bi-coastal peers.

Tom Toomey

Yes. I’ll start. First I’d remind you, we got out of Norfolk in the fourth quarter of the last year. So it's gone. Yes, I think a big part of it that you have to consider is we really drove weight very strongly in the second half as paid benefits this year. And when you look at the -- we anticipated there would be a deceleration in rate growth with this year and that has happened. And while I'll say directionally and in total, that reduction was pretty close, we missed on a market-by-market basis. For example, 29% of our portfolio, which is made up of New York, San Francisco and Los Angeles, we’re missing our numbers. We came into the year thinking San Francisco would be an 8. Now we think it's probably going to end up at 6.5. We thought New York was going to high 5s. Now we think it's going to be low 4s. And Los Angeles, we came in think it was going to be call it a 7, and now we think it's going to be mid 5s.

What we have that a lot of people don't is the diversified portfolio. 20 markets, we got the 50/50 split between A, Bs and Urbans. And what's really helping us is that 42% of our portfolio is performing better than we had expected coming into the year. So it's offsetting those three markets that are doing worse. And those are markets like Seattle which I think all of us are doing well in right now. Our Orange County portfolio with 8.9% revenue growth in the second quarter is doing exceptionally well. We're doing very well in Boston, where we have predominantly a suburban portfolio in our same-store pool. We held up at about a 6 -- a little north of the 6 revenue there. Two markets in Florida, both Orlando and Tampa are doing better than we expected. Nashville is on fire right now, and again we're very suburban B there. So we're not being impacted at all by the new supply. And then we have our Monterey and Portland portfolios that are doing well.

So the beauty of our portfolio with that diversification is we're not dependent on a couple of the markets doing well or not doing well. We realize this diversified approach that's going to continue to help us in the future, because all markets are going to go through the natural cycle. So we’ll always have some that are doing better, some that are doing worse. So, I think it's really more of a portfolio diversification that's really helping us.

Alexander Goldfarb

And historically, like Toomey is talking about, hardest market, the market that you had used to source capital to help fund the development, based on what you're seeing in this cycle, does the weakness in some of the coastal markets pressure at the high end change your view and maybe some of the coastal markets are going to be seen for harvesting rather than some of the markets like Richmond, some of those others?

Tom Toomey

I think there's still a couple of markets that we probably are ready to exit a little more quickly than others, and I think Harry will talk maybe as soon as I get off this on which ones we’re looking at in our disposition program this year. But markets that we've historically talked about that were in our warehouse and we kind of stopped talking about that, because we -- we've really come to realize, there're good strong markets, and they're going to perform well over the long term, places like Florida, again Orlando, Nashville, Tampa, places like that, I think we're satisfied to stay there over the midterm and probably long term. There's no rush to exit. But we'll selectively sell assets, and at times get out of markets to fund the development pipeline. But maybe Harry can give you a little more input on what we're looking to sell this year.

Harry Alcock

Yes, Alex. In the short term -- we're always looking at which assets to sell to fund our development pipeline in particular. This year we've looked at -- we intend to sell Baltimore -- at least sell down portfolio to some extent. We have a group of assets in the market today. We're also going to sell a couple properties in Dallas for the balance of the year.

Alexander Goldfarb

Okay. And then Harry, while you’re on, could you just walk us through the ground lease deal that you did in LA and the economics then how this fits in within UDR's investment game plan?

Harry Alcock

Sure. Well Alex, as you know, we look at all these trades in the context of best invested return to the shareholders. La Jolla, the effective land sizes of $400,000 per unit, which is the price that's unheard of the Los Angeles, we were able to monetize most or all of our future development gain today, and then convert this one-time gain into another structured deal where we received nearly 7% return on our capital. And so while its different than Steel Creek, it’s another example of how we deploy capital and then create transactions.

Operator

And next in queue we have Nick Yulico with UBS. Please go ahead.

Nick Yulico

Well thanks. So I guess just turning back to the guidance, specifically on same-store revenue growth, where you’ve gone 6% year-to-date and for the year saying and 5.5% to 6% is the range, how should we think about what level of conservatism is built into the guidance? Because it doesn’t seem to imply much of a deceleration in the back half of the year?

Jerry Davis

Yes, Nick, it’s Jerry. I’d tell you right now, we look at our model, we’re coming in right in the midpoint of guidance. There’s a couple of things that could push us, there’s really one thing that push us to the top-end, and that would be if we get a significant occupancy pick-up. And we have been pushing to drive occupancy a little bit higher over the last month or two. The thing that could drive us to the bottom is if we see a further deterioration in operating fundamentals. And typically those would probably have to come with more downside than we’ve projected in New York and San Francisco since the other ones have been reacting kind of stable.

There is a couple of things though -- because I know what you’re talking about. We’ve got a 6 or so in the first half of the year, which would imply second half would be a 5.5. But there’s a few things to keep in mind. If here so far we had 6.3% rent per occupied home growth, that’s been offset by about a 30 basis points decline in occupancy; we had very difficult occupancy comps at the first half of last year. Our occupancy in the second half of last year decelerated about 20 or 30 bps. Now we’re still very high at 96.6, but it wasn’t at 96.8 or 96.9. Our expectation and what we’re shooting for this year is to have a positive spread over last year’s occupancy. So we’re not going to be losing revenue growth even if occupancy declined. We’re hoping we get a little bit of pickup in that.

Then the second thing just that’s interesting is our fee income is up almost 10% year-over-year, and we would expect that to continue through the second half of the year. And that’s really coming partially from lease break fees; people electing to move and relocate for jobs or buy houses or things like that. And but the second part is we started working on an initiative in the second half of last year to drive higher revenues from our parking rent, which was an initiative we began working on like I said, late last year but we’ve got the fruits of it this year, to find a way to increase this under optimized real estate.

So you got 6% of your revenue stack coming from fee income, that’s growing at a much higher rate than my rents. And you know, how optimistic or pessimistic or conservative is that midpoint? Right now we’ve factored in like I said earlier that we think blended rate growth for the second half of the year is going to be low 4s. So again, you’re looking at renewal growth in the low 5s and new lease rate growth, maybe right around 3, and that seems to us to be pretty sustainable right now.

Nick Yulico

Okay, sounds fine. I guess just one other follow-up on that. You did talk about the second half blended lease growth of low 4%. It sounds like there is other items in your sort of revenue that are helping as you mentioned fee income et cetera. So I guess point is we shouldn’t be using that low 4% lease rate growth as sort of a directionally where your same-store revenue growth is heading is, how should we think about?

Jerry Davis

Well, I'll say this. You're lease rate growth or what we get from new rental renewals benefits you over the next 12 months. So a portion of what we’re realizing in the third quarter of this year is based on the very strong lease rate growth and renewal growth that we got at the end of the last year. So it continues to pay benefits for the next 12 months. So what I'm telling you that I'm going to do over the next six months has some benefit over the next six months, but it also has a benefit over the following six months. So you can't just look at my current -- what am I signing leases for, because that's only for the percentage of residents or expirations that are happening at that time.

Nick Yulico

Yes, so I meant that the second half blend of lease growth of low 4%, whether that sort of indicator about where 2017 same-store sales revenue growth would be, not this year?

Jerry Davis

It does build. You are right. It does build into 2017. The others saying is though, what are rents going to do next year, and we’re going to have some markets where you’re probably going to see rate growth continue to go down, but we have other markets for example Los Angeles where we’re fighting heavy new supply right now, but I expect that one to pick up quite a bit next year. So some of is dependent on how we do next year but we are building up part of our rent role right now for 2017.

Nick Yulico

Okay, that's helpful. And just to clarify, when you talk about the fee income being strong, is any of that from actual leased termination, lease break fees of residents, or is that helping you at all?

Jerry Davis

Yes, that is -- that's about half of it. We're hitting a portion -- we'll probably pick up a little over a $1 million, $1.2 million this year of additional revenue from parking, and that's just basically -- and it’s predominantly in garden communities, charging people for parking and determining which spaces are the most preferable and trying to monetize that. But the other big mover is lease break fees, where somebody wants to cancel their lease ahead of the natural expiration date. They are contractually obligated to pay us to get out of the lease. So a portion of it is that.

Operator

Next question comes from Rob Stevenson with Janney.

Rob Stevenson

Jerry, when you look at 2017 deliveries in the New York area, is that -- how much of that is concentrated in Manhattan, and would be sort of direct competition for you guys versus how much of that stuff is in Queens and Brooklyn where you don’t have any assets?

Jerry Davis

Most of it is not directly impacting us. When you look at approximate to our neighborhoods, we’re not going to head to head with much, but we have been feeling the impact coming from whether it's mid-town in west Brooklyn, you have people in New Jersey, as well as Queens, they are all kind of a stealing some people away, if you can get nice new product for a lower effective rate. I don’t have the numbers off the top of my head about how much is in Manhattan versus Queens though.

Rob Stevenson

When does the that property that's just north of View 34, that we followed the property tour is scheduled to start leasing?

Jerry Davis

I think it's late fourth quarter or first quarter. We think we’ll probably feel some effect from that, but their rents are quite a bit higher than ours.

Rob Stevenson

Okay, and then Harry the guidance on the acquisition went from $0 million to $100 million to a $100 million to $200 million. Is that third party acquisitions or is that you guys buying in some of the Wolf stuff?

Harry Alcock

It's not the Wolf stuff. So it generally is going to be third party acquisitions and there are couple 10/31 trades that we're looking to execute in the fourth quarter.

Rob Stevenson

You don't want the contract currently?

Harry Alcock

No.

Operator

Next we'll hear from Rich Hill with Morgan Stanley.

Rich Hill

A quick question. I think I remember you asking about of this call that you were seeing a little bit more supply pressures in the LA market. That’s maybe a little bit different then some of the commentary if you referred from last years. So I'm curious, how much of that is driven versus by Class A versus Class B? And are you actually starting to see supply pick up in maybe the Class B space versus the Class A?

Tom Toomey

It’s a good question. Here's what the deal is. 90% of our same-store portfolio is located in Marina del Rey. So it's three properties over in Marina. Marina is about a two-mile drive to Playa Vista where all of the tech firms are relocating to the area called Silicon Beach. We've got two lease ups occurring in Playa Vista right now. One is a 1,500-unit deal, the other one I think is 400 units. But they are coming in offering concessions of one to two months free. And what’s it's really done, it's directly impacting my three [ph] properties in Los Angeles that make up 90% of my portfolio. So, yes, I don't think any of my peers would be feeling the same thing, because they don't have as much concentration in one sub market in Los Angeles as I have.

Operator

Next we've Richard Anderson with Mizuho Securities.

Richard Anderson

So, Harry, you said something interesting earlier about how you were kind of abandoning -- maybe it’s Jerry -- abandoning this warehousing concept, and thinking about keeping some assets in some markets in the portfolio. And so I was wondering if you could talk about any other adjustments you're making to the strategy like that. Because one of them, I recall when you spent some together last year, the 50/50 Class A, Class B could actually morph into more like 60 or 70 Class A over time. Do you feel like maybe there's an adjustment there that you'll make in the current environment kind of like how you're adjusting your warehousing kind of concept?

Tom Toomey

Rich, this is Toomey. I think abandoning or changing is probably a little bit of an over statement. I think what we're doing is constantly weighing our market mix and the price point in what we think cash flow is going to grow at. And so when we think we have a market for example where Baltimore has performed in last five years, averaging 3% growth, we kind of look out the next five years and say, we don't think it's really going to change a whole lot. Where else do we think we can redeploy that capital in the enterprise, most immediately in the development pipeline. So we're always revisiting our markets. On the balance of 50/50, the As that we're putting in today, 10 years from now will be Bs. And so I think we'll probably hover around the 50/50, it might go 60/40 but I don’t see a long-term directional change in that allocation.

I think what ultimately we’re trying to build, and have done so far and will continue to refine is building cash flow, and where we see it can grow the best. And concentrated positions could create concentrated risk. And so we’re always going to have this diversification. We think over time it works. Some markets having Bs work better than As. Other cases where we look at jobs and where we think they're coming up in the price point, As are going to be better. So I think that’s the overriding doctrine that we’re overall thinking about our capital allocation and decisions, and markets from time-to-time. Florida is an example right now, talking off the cost, is going to enjoy a another couple year run, but supply will start coming at Florida in the near-future, and then we’ll look at how we feel about our assets positioned in that market and rather we should move more capital out of that, and into other places where opportunities will become available.

Richard Anderson

Okay. And then as a follow-up, was there anything about the QR print that kind of caused you to at least take another look at your numbers and make sure you weren’t missing anything. The is one kind of cynical view is that the rest of the group is going to have to revisit guidance, not this quarter maybe, but next quarter. I’m just curious if there was any level of reaction on your part from seeing that profit take effect?

Tom Toomey

Rich, I'm not going to comment on EQR or their results and their outlook. What I am going to say is, is that Jerry and his team run a culture from the bottom-up focusing greatly on what’s going on in the ground, reforecasting the business constantly, monitoring our traffic or pricing power, and that feeds right up to us on a weekly basis, and we discuss how does that fit in our outlook for the future, and we’re very comfortable with the guidance we’ve just given. We feel like a lot of the year is pretty much behind us. There's not a lot of leases to price in that fourth quarter window, and we’re trying to really focus on our '17. And I think that’s a credit to his team, to Shaun and his efforts in forecasting FP&L, that we have a pretty darn good handle on exactly where we’re at, what are the levers that we can move, and what’s our range of outcomes. And that’s why we tightened guidance the way we did, but we feel very good about the guidance we’ve given, and it's a credit to Jerry and his operating team, but also in way it's positioned

Operator

And moving on we’ll next hear from John Pawlowski with Green Street Advisors.

John Pawlowski

Jerry, rent growth across a number of Sun Belt markets, namely Dallas, Tampa and Orlando for example, seem to have decelerated throughout the quarter. Do you expect that reacceleration in the back half of the year across some of these Sun Belt markets?

Jerry Davis

You know Dallas I think is going to continue to be difficult. Its having new supply there. Our B product is continuing to do well, but we’ve got properties in uptown as well as Plana [ph] that are going up against new supply. So I think you’re going to continue to see a struggle in Dallas, but I don’t think it’s going to get any worse. I think when you look at the other Sun Belts, Orlando and Tampa, I think you're going to see Orlando turn back around. What happened in the quarter -- second quarter is we probably got a bit aggressive on renewal growth, where we were popping out 7.9%, and opened back door a little, put a little pressure on occupancy levels, and we had to cut new lease rate growth to get occupancy back up. Our occupancy in Orlando today is 97.1%. That compares to an average of 96.5% during the second quarter and we've seen a lease rate growth in the month of July jump back up to 6.6% compared to the 4.9% that we reported in Q2. So I think Orlando feels good and then Tampa just feels stable. We've had a few lease ups in a sub market of Tampa that's affected us, and I think they're starting to stabilize now and I think our numbers will too.

John Pawlowski

And then Harry what timing can we expect on the roughly $400 million of dispositions, how is pricing shaping up versus expectation?

Harry Alcock

Pricing is coming in sort of at or slightly above expectations. We expect these things to close mostly early in the fourth quarter.

Operator

Next we'll hear from Drew Babin with Robert W. Baird Company.

Drew Babin

One follow-up question on the 10/31 opportunity. Would you say that the opportunity on the disposition side, is kind of a more compelling reason for the increase in your overall transaction activity for this year, or would you say that the opportunistic use of the capital on the acquisition side is the more exciting opportunity?

Harry Alcock

This is Harry. So I think there's a couple of questions there. One, we sell a number of properties every year to fund -- there's a bucket of capital to fund various uses, including specifically development. We do have 10/31 opportunities that we're going to look at. The pricing on the acquisition we think is likely to be generally market. We'll look at markets such as DC, Boston, Southern California, Northern California, Seattle to redeploy the capital. We think that will be largely market. The cap rates on these sales, typically our Baltimore assets are going to be somewhere in the neighborhood of 6%. The cap rate on one of our Dallas acquisitions that's in the market today called Cert, which is a Metlife JV asset, which should be somewhere in the neighborhood of 5.25. We've got one additional Dallas asset that will definitely be a component of the 10/31 and we think that's probably a mid 5s type trade.

Drew Babin

And secondly I was hoping to dig in on Manhattan a little bit. With View 34 being same-store pool this year, and obviously that's been a strong asset so far. Can you talk at all about how the Manhattan portfolio is performing ex-View 34? Or conversely just provide how View 34 has done year-to-date?

Harry Alcock

Yes. View 34 actually added about 70 basis points to our numbers. And I -- hold up one second, let me get the details. I think -- look at the Manhattan portfolio, View 34's revenue growth during the quarter was about 6.1% year-over-year.

Tom Toomey

It's Toomey. I'd add. That's what's reflective when you do a good job on a rehab of a B, and you keep it in that B price point and boy, I wish I could find more View 34s is the answer?

Drew Babin

So can you talk at all specifically about how Downtown's performing?

Tom Toomey

Sure. Yes, Downtown is definitely our hardest hit submarket in Manhattan for same-stores. But our two Downtown properties had revenue growth during the quarter of just under 3%. Now when you get up to a one Met JV, which is in the upper west side, Columbus Square, that property had revenue growth of just under 1%. So that's the one that is combating most head to head new supply. And then just to do a full lap through, Manhattan we only have one other deal and it's in Chelsea. And that property has continued to do extremely well and it had revenue growth in the mid sixes.

Operator

Next we have Juan Sanabria with Bank of America Merrill Lynch.

Juan Sanabria

Just wondering if you could briefly run through what your exceptions are across let's say your top five markets for new supply 2016 and then going into full year 2017?

Jerry Davis

Sure. When we look at D.C. in 2016 our expectations for news -- I'll tell you, we get this data from Axiometrics. So if you get Axio data, it's going to be roughly the same, but D.C. 2016 is about 13,500 units and 2017 is projected to be about 9,000. New York is going to go from 25,000 this year to 30,000 next year, and that is the one market we see where supply in our major markets is going to be higher next year than this year. San Francisco goes from about 13,000 to about 7,000. Seattle goes from about 10,000 to 6,000 and I guess the last market I would highlight is we showed Dallas going from about 18,000 units this year to about 13,000 next year.

Juan Sanabria

A couple of your peers have commented that they may be few numbers higher than what Axio actual uses. Is there any concern on your part that those numbers may be understated and your 2017 figures could be under more pressure than where the numbers may currently spin out too?

Tom Toomey

Juan this is Tom. This is an interesting topic, and I'm glad you kind of got us there, is what is the supply picture look like in the future, because I think everybody is kind of throwing around different numbers. I would tell you some anecdotal information that's critical to this conversation would be is what are banks' lending on, and what is the bank lending environment. And if you start digging into that with the bankers, you're realizing very rapidly that the terms on construction loans, the pricing on them, and the availability is contracting at a rapid pace. And we've seen several large banks just red line and say we're not doing multifamily loans any longer, period. Or probably now price terms that are prohibitive to make the deals work.

So, I think you are going to start to see some of those construction numbers start really coming down rapidly, as people start to get into their construction loan draws, and trying to get their terms and their penciling work. I think it also creates an opportunity for UDR to look at wharf and steel type creek opportunities, that might start becoming and available in 2017, should this come to fruition. So I would stay very focused on what the supply of money looks like, the terms of that, and watch how that ultimately unfolds. I know everybody's numbers are all over the map right now, but what I look at is one of the drivers and it's not the opportunities, not the fundamentals. Those are there. It's the question of capital and the price of that capital and will deals work. And we'll stay focused on that, which is my recommendation for 2017.

Juan Sanabria

And then in Europe any remarks? Tom, you talked about being focused on operational excellence. I think you've hit a little bit on the parking upside. Any other things you could point to that you're working on that maybe we'd say some margin upside and any sort of target numbers you could talk to?

Tom Toomey

I'll let Jerry clean it up, but I'll start with it. One we're a very operationally focused company, and it comes a lot through innovation. So, there's always as you can see from prior road shows, we've always listed out initiatives that we're focused on. We have basically a biweekly meeting on innovation here, and we're talking about the product, the initiatives that we have underway, what's working, what's not and we're always constantly pressing the next envelope for our customer. And we do a great job of listening to what they want, and what they are willing to pay for. And its Jerry and his team to filter through that innovation list and put it in the practical terms.

This parking conversation that he alluded to earlier is really a conversation started two years ago, and ultimately we've built systems out, convinced the field about the pricing scheme and they've done a great job of executing it. And I can tell you that at the last count there were 57 initiatives on that schedule. Some will not work, many of them will. So we're going to continue to be innovative operationally, and that's how it makes the difference at the enterprise.

Jerry Davis

I'll give you a few examples. Tom spoke and you mentioned the parking, another one, and they're not all revenue enhancing. Some are expense reducing. So we -- and some are capital expenditures that give us that return. But one is converting common area space lighting to LED lighting, which dramatically drops down, both your electrical cost as well as the maintenance time people have to spend replacing those light bulbs. And we've seen a reduction in our electric costs this year from doing that.

Secondly package lockers. Some people believe in them, some people don’t. I will tell you we do. We've installed well over 40 lockers; we've got another 35 that are being installed right now. We're doing it for two reasons. Dealing with package management is a huge time suck on our onsite teams. So it opens them up to do more work makes money for us. And secondly it's a benefit that residents enjoy to have 24/7 access to pick up their own packages. So we get a little bit of a rent from that doing that too. And the packaged lockers have an IRR, that we look at it, well over 25% to 30%.

So, financially it makes a lot of sense, but we always do things that the residents want, and that typically is good for us. And what both of those things do? You heard me mention on the LED lights because it takes -- gives back some time to our maintenance teams. And you heard me on the package lockers, say that we've been able to give some time back to our leasing maintenance. This year, and if you look at our personnel numbers, personnel expense number, you'll see that it's roughly flat for the quarter. We've been able to reduce about 1.5% to 2% of our site headcount this year because of some of these efficiencies that we've been able to do. So those are just a couple of examples, but like Toomey said we're always looking. There are some that we'll spend a great little time on, and they don't work, but we're always trying to search for the next thing to expand our margins.

Operator

And moving on we'll hear from Wes Golladay with RBC Capital Markets.

Wes Golladay

You mentioned that the supply in Marina del Rey would abate to the second half. Are you seeing any of your major markets where the supply could be back half loaded this year?

Tom Toomey

Back half loaded, let' me think. I think Bellevue -- probably Bellevue, Washington. So, one, and I'll get Harry in on this on a minute. Bellevue is one where there's lot of cranes and there's a lot of supply coming. We're currently doing exceptionally well there with 6.5%, 7% revenue growth this quarter on our same-store pool, but our expectation was that we would be more affected by new supply there and that's one of the reasons that our Seattle portfolio is outperforming. But Bellevue is probably one that I could say picking up later this year and maybe spreading into the first half of next year. Can you think of anything else, Harry?

Harry Alcock

Well, New York obviously continues to second half of this year and into next year, you're going to see that heavier supply in New York.

Tom Toomey

And I will tell you another one, that this will continue to get hit, and we don't have any same-store properties there, but Downtown LA has quite -- I mean probably got 3,000 to 4,000 new supply that's in some stage of lease up or pre-lease up right now. So Downtown LA is going to -- it's going to be interesting to operate there over the next year.

Wes Golladay

And real quick, you had mentioned the lenders who were looking to cut back on multifamily lending. Was this more emphasis on the coastal markets or is it broad based including the Sunbelt as well?

Tom Toomey

This is Toomey. We're seeing it across the template. And so when we talk to people about how they're sourcing their capital, where half of them go to other pools of money, foreign banks, local, regional banks, all of which do not have the capacity of our big national banks. And so by virtue of just pricing and the size, we expect that will drive some of the geography of where supply is going to come. So it's going to start moving to the Sun Belt and it's start going to moving suburban, and then also I think it's going to decrease that urban pressure. So we're going to see the market shifting.

Operator

[Operator Instructions] And we'll hear from Dennis McGill with Zelman & Associates. Please go ahead.

Dennis McGill

A couple of quick ones. On the 4.4% new lease growth rate for the quarter, what would that look it if you split it by urban and suburban assets?

Tom Toomey

Urban and suburban. I don't have that number on me.

Dennis McGill

Okay. We can follow up. And then just a more bigger picture, it sounds like right now it's widely accepted that San Fran and New York are going through an adjustment phase. But these are markets that I think most have said have come in below expectations and weaker than even maybe six months ago, but it doesn't sound like there's any assumption that other markets could follow that path. Is that right and then I guess what gives you confidence that there is not another one sort of uncertainty around the corner, especially with the urban portfolio. I understand the suburban protection, but any urban environment where supply is pretty pronounced virtually across the country?

Jerry Davis

Here is how I would think about it. First, New York and San Francisco are not really surprises to us. They are urban settings, when you see supply coming, you see it coming years in advance. Second, we've had great job growth in both of those markets, and both have tapered off to more of the norm. And so that combination kind of gives you what those markets are. As we look towards the future, we don’t see as a big supply pressures coming at the urban portfolios, but we do have a concern about job growth sustaining itself, and I think everybody should. And were waiting to see how the election turns out and how the economy turns out, but in both of those camps that's -- the future will be what it's going to be.

So I'm not at all surprised about those two markets. We are not surprised about our outlay exposure. We saw it coming. What we see was this. These are supply driven numbers that are changing our pricing power. It is not the underlying fundamentals of demographics and or job markets that are driving our business right now. Those are still in very good shape. And so we we're very focused on the supply pressure, and think we have a very good handle on it, feel good about the way we're running the business to deal with that supply. When it abates, we think we're back to guns on pricing, and we'll do very well in that environment.

Tom Toomey

And I would just add, even though we don’t see any markets right now, if one pop-up for let's say there is job loss in a particular market or something like that, that goes back to the benefit of being in 20 markets and having that A and B portfolio. We've got other markets that can counterbalance something like that.

Operator

And at this time, it appears we have no further questions. I'd like to turn the conference back over to President and CEO, Tom Toomey for any additional or closing remarks.

Tom Toomey

Great, thank you again for all of your time. Again, I think we had a very solid quarter on all fronts. Certainly we remain focused on the strategic plan and the execution of it. A big part of that is just execution and we're doing it right now. What is the strategic plan focused on? Growing cash workflow through all points in the cycle. We're going through one of those right now. You can see from our results we're still able to sustain and guide to on a strong cash flow number, and I think that's attributed to the team in the room, in particular Jerry and his operating team, and their focus on adjusting their strategies by individual assets, by unit types to meet the market and get ahead of it if you will. And also we're enjoying a very good strong development pipeline that's leasing up very well and gives us confidence for the future.

So with that, we thank you again for your time and look forward to talking to you next quarter.

Operator

And that does conclude today's conference call. We thank you all for your participation. You may now disconnect, and have a nice day.

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