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Edited Transcript of UDR earnings conference call or presentation 12-Feb-20 6:00pm GMT

Q4 2019 UDR Inc Earnings Call

Highland Ranch Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of UDR Inc earnings conference call or presentation Wednesday, February 12, 2020 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Harry G. Alcock

UDR, Inc. - CIO & Senior VP

* Jerry A. Davis

UDR, Inc. - President & COO

* Joseph D. Fisher

UDR, Inc. - Senior VP & CFO

* Thomas W. Toomey

UDR, Inc. - Chairman & CEO

* Trent Trujillo

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Conference Call Participants

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* Alexander David Goldfarb

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

* Austin Todd Wurschmidt

KeyBanc Capital Markets Inc., Research Division - VP

* Haendel Emmanuel St. Juste

Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst

* Hardik Goel

Zelman & Associates LLC - VP of Research

* John Joseph Pawlowski

Green Street Advisors, LLC, Research Division - Analyst

* Neil Lawrence Malkin

Capital One Securities, Inc., Research Division - Analyst

* Nicholas Gregory Joseph

Citigroup Inc, Research Division - Director & Senior Analyst

* Nicholas Philip Yulico

Scotiabank Global Banking and Markets, Research Division - Analyst

* Piljung Kim

BMO Capital Markets Equity Research - Senior Real Estate Analyst

* Richard Hill

Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS

* Richard Allen Hightower

Evercore ISI Institutional Equities, Research Division - MD & Research Analyst

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

* Shirley Wu

BofA Merrill Lynch, Research Division - Research Analyst

* Wesley Keith Golladay

RBC Capital Markets, Research Division - VP & Equity Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to UDR's Fourth Quarter 2019 Earnings Call.

(Operator Instructions)

As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Director of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo. You may begin.

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Trent Trujillo, [2]

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Welcome to UDR's Quarterly Financial Results Conference Call. Our 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 financial measures in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake any duty to update any forward-looking statement.

(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 UDR's Chairman and CEO, Tom Toomey.

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [3]

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Thank you, Trent, and welcome to UDR's Fourth Quarter 2019 Conference Call. On the call with me today are Jerry Davis, President and Chief Operating Officer; and Joe Fisher, Chief Financial Officer, who will discuss our results. As well as senior officers, Warren Troupe and Harry Alcock, who will be available during the Q&A portion of the call.

Our fourth quarter results, highlighted by robust same-store NOI growth of 4.1% and FFO as adjusted per share growth of 7%, continued to demonstrate strong execution across all aspects of our business. To recap, 2019 was a very good year for UDR and our shareholders. First, we continue to perform well on operations, which drove approximately 65% of our 2019 FFOA per share growth. The year was highlighted by the ongoing development and execution of our next-gen operating platform, which allows our current and prospective customers to engage with us online and in a self-service manner they have demanded across most aspects of their lives. Second, our capital sourcing and allocation remained disciplined, using equity priced at a premium to NAV and low-cost debt to accretively grow our business through $1.8 billion in acquisitions. These acquisitions have significant operational and investment upside, are in markets targeted for expansion and will produce outsized FFOA growth in 2020 and beyond.

Third, we wound down KFH JV and halved our relationship with MetLife to be an accretive asset swap. These actions simplified our business and added more high-quality real estate on balance sheet. Fourth, we proactively and accretively derisked our enterprise through well-timed issuance and prepayments that extended our duration and improved our liquidity. And last, we accomplished these goals while dramatically improving our resident satisfaction scores, maintaining strong employee engagement and completing a wide variety of ESG-related initiatives that enhanced our returns.

In summary, 2019 was a very good year and representative of what investors can expect from UDR as we continue to execute our long-term strategies. My thanks to the UDR team for their hard work in making 2019 a very special year.

Turning to 2020. Our business is strong as the fundamental landscape for apartments look like it will be fairly similar to that of 2019. Specifically, we expect a relatively robust economy and balanced supply-demand environment, set against volatility that we've all come to see as normal. But whatever the macro environment, we believe we have the right strategy, portfolio and team in place to grow FFOA and the dividend per share at an elevated rate over time through a variety of value creation mechanisms. For 2020, we are expecting 6% FFOA per share growth at the midpoint of our guidance and announced a 5% year-over-year increase in our dividend per share.

Last, Warren Troupe, our Senior Executive Vice President, will be transitioning to a consulting role with UDR effective April 1. I've worked closely with Warren for 18 years, and I'm thankful that UDR and its investors will continue to reap the benefits of his expertise in transactions, legal, risk management and capital markets activities for years to come.

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

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Jerry A. Davis, UDR, Inc. - President & COO [4]

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Thanks, Tom, and good afternoon, everyone. We're pleased to announce another quarter and full year of strong operating results. Fourth quarter same-store revenue, expense and NOI growth rates were 3.3%, 1.3% and 4.1%. Full year 2019 same-store growth rates were 3.6%, 2.5% and 4%, respectively. As Tom alluded to in his prepared remarks, UDR's primary operating objectives are to consistently generate above peer average same-store growth while also expanding our/ operating margin, both of which drive FFOA per share growth over time. Over the years, we have successfully executed these objectives in a variety of ways. Prior to 2019, we primarily focused on top line growth initiatives, such as parking, short-term furnished rentals and common area rentals.

In 2019, these top line growth initiatives continue to produce outstanding results, but we also pivoted our strategy to more actively minimize controllable expense growth through the implementation of our next-gen operating platform. Why did our focus shift? Three reasons. First, our customer increasingly expects to conduct business with us on their time across a wide variety of industries. Intuitive, easy-to-use self-service apps have come to define high-quality service. Interacting with our customers should be no different, which is why the backbone of our next-gen operating platform is built on self-service. Second, centralizing certain operating functions, outsourcing others, providing better self-service to our current and prospective customers and more actively utilizing the data we collect will result in greater efficiencies throughout our cost structure. By 2022, we expect these efforts will expand our controllable margin by 150 to 200 basis points, which translates into $15 million to $20 million in incremental run rate NOI or $300 million to $450 million in value creation at a 22x multiple.

Third, the consistent adoption and execution of operating initiatives that boost revenue growth, constrained expense growth and enhanced FFOA per share growth is ingrained in UDR's cultural DNA. But the next-gen platform is and will remain somewhat of a distraction to our teams in the field and at corporate until fully implemented by the end of 2021. As we consider the sequencing of growth initiatives over the coming years, cost efficiency will be the focal point in 2020, with additional revenue growth initiatives beginning to come online in 2021 and beyond, once our property, technology and data analytics platforms are fully built out.

Moving on, we are now 1.5 years into the implementation of the platform and have achieved approximately 25% of the original underwritten NOI improvement. Thus far, our controllable margin has expanded by 60 basis points and site level headcount has been reduced by more than 15% through natural attrition. After reducing our same-store controllable expenses by 0.4% in 2018, 2019 controllable expense growth was just 0.9%, resulting in average annual growth of only 0.3% over the last 2 years versus 1.8% for the peer group. For 2020, we expect our controllable expense growth to be at or below this level. At the same time, 2019 resident satisfaction scores improved by 11%, and we anticipate further improvement in 2020. As such, expanding our margin through cost and headcount reductions is clearly not resulting in a decline in actual or perceived customer service. Rather, it is more efficiently delivering a superior all-around experience to our customers.

Our next-gen operating platform is proving to be a win-win for UDR, our associates, our residents and our investors. We are excited to update you on continued -- on our continued progress and expected economics throughout 2020 and beyond.

Next, 2020 has started well. Occupancy remains high at 96.9% and our $1.8 billion of 2019 acquisitions are ahead of underwriting expectations. As a reminder, we expect the weighted average yield on these acquisitions to improve from a trailing 4.7% at purchase to above 5.5% by year 3. These accretive investments will continue to drive our FFO growth and value creation for years to come.

Looking ahead, full year 2020 same-store revenue, expense and NOI growth ranges are 2.7% to 3.7%, 2.2% to 3.0% and 2.9% to 3.9%, respectively. Drivers of our revenue growth include higher rents, including SmartHome contribution and slightly higher occupancy, offset by a lower contribution from other income as the growth rates from initiatives rolled out over the past several years, such as parking, short-term furnished rentals moderate and lower utility expenses reduce our reimbursement revenue. It is important to note that as 2020 unfolds, our quarterly same-store growth rates will be higher than our year-to-date same-store growth rates, as 2019 acquisitions move into our quarterly same-store pools.

In addition, the MetLife JV communities, acquired in 2019, are included in our full year 2020 same-store pool. These are not expected to significantly impact the same-store growth rates. Their inclusion will provide more transparency through 2020, beginning with our first quarter supplement. At the market level, we expect 2020 top line growth rates will exhibit less variability than in years past. The Monterey Peninsula, Portland and Boston markets are forecast to grow same-store revenue at a rate above the high end of our 2.7 to 3.7 portfolio growth rate range in 2020. New York, Baltimore and Orange County should come in below the low end. All other markets are forecast to grow revenue within the collars of our portfolio growth ranges.

Regarding accelerating versus decelerating markets in 2020 versus 2019, we expect that Portland, Tampa and New York will generate the highest year-over-year acceleration in 2020 same-store growth; and San Francisco, Seattle and Baltimore are forecast to decelerate the most.

In closing, I would like to thank all UDR associates in the field and at corporate for producing another year of robust operating growth, successfully integrating $1.8 billion of acquisitions and continuing to embrace the future in the form of our next-gen operating platform. 2019 was an eventful and very rewarding year. I'm immensely proud of each of you.

With that, I will turn it over to Joe.

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [5]

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Thank you, Jerry. The topics I will cover today include our fourth quarter and full year 2019 results, full year 2020 guidance expectations, a transactions and capital markets update, and a balance sheet update.

Our fourth quarter earnings results came in at the midpoints of previously provided guidance ranges. FFO's adjusted per share was $0.54, approximately 7% higher year-over-year and driven by strong same-store and lease-up performance, accretive capital deployment and lower interest rates. Full year FFOA per share was $2.08, representing year-over-year growth of over 6% and driven by factors similar to our quarterly results.

Next, our full year 2020 guidance. Full year FFOA per share guidance is $2.18 to $2.22, driven by continued strong operations, 2019 capital deployment and interest expense savings. Primary drivers of the $0.12 of growth between our 2019 FFO of $2.08 and our 2020 midpoint of $2.20 per share include a positive impact of approximately $0.07 from same-store, stabilized JVs and commercial operations, a positive impact of approximately $0.05 from transactional activity, DCP, development and redevelopment, a positive impact of approximately $0.03 from lower financing costs, flat year-over-year G&A and a negative impact of approximately $0.03 from a variety of other core items, including ground lease resets and the amortization of certain next-gen operating platform investments. A full guidance update, including sources and uses, expectations and first quarter guidance ranges is available on attachment 15 of our supplement.

Moving on to transactions and capital markets. During 2019, we acquired approximately $1.8 billion communities at share at a weighted average trailing yield of 4.7%, with equity priced at a premium to NAV and low cost debt. As Jerry mentioned in his prepared remarks, we see this weighted average yield growing to above 5.5% by year 3, generating an additional 10% NOI growth above and beyond a 3% annual market rate growth we used in our underwriting. This encapsulates UDR's value proposition when we are able to overlay our well-tuned operating platform, combined with targeted CapEx investment on under-managed assets that are located in markets targeted for expansion. In short, we can buy assets at market prices but drive above-market returns and growth over time. We utilized this value creation equation again subsequent to quarter end by purchasing The Slade at Channelside, a 294-home community in Tampa for $85 million or $290,000 per home.

Similar to our 2019 acquisitions, we anticipate The Slade deal growing from 4.6% in year 1 to 5.3% by year 3. Next, during the quarter, we prefunded the majority of the acquisition of Brio, 259-home community in Bellevue, Washington, on which we have a $170 million fixed purchase price option in 2021, with a $115 million note at a 4.75% interest rate. This property is contiguous to our existing elements and elements to properties in Belvieu. And after stabilization, will be operated as a face of those properties, thereby garnering operating efficiencies.

Regarding the developer capital program, subsequent to quarter end, we exercised our purchase option to buy the 51% we did not already own of The Arbory, a west coast development JV community, with 276 homes in suburban Portland. Our cash outlay for the transaction totaled $54 million, including the payoff of debt. The Arbory is expected to generate a year 1 FFO yield of approximately 5.4% on our all-in blended price.

Finally, on the topic of transactions. During the fourth quarter, we closed a $1.8 billion UDR-MetLife joint venture transaction that was originally announced in August, which effectively halved our relationship with MetLife. We believe this deal was a win-win for both sides and continued to value our partnership with Met.

Turning to 2020. We will remain disciplined with our capital sourcing and allocation and pivot to investments that provide the best risk-adjusted return, should we have an advantageous cost of capital and can match fund. If further external growth opportunities present themselves in 2020, we will continue to evaluate all capital sources. Currently, we have approximately $300 million of assets being marketed for sale. Regarding capital markets, in December, we settled all 1.3 million shares, sold under our previously announced forward sales agreement at a forward price of $47.41 for net proceeds of $63.5 million. No additional equity was issued during or subsequent to the quarter.

During the fourth quarter and as previously announced, we continue to take advantage of the low interest rate environment by issuing $400 million of unsecured debt at a weighted average effective rate of 3.1% with a weighted average of 13.9 years to maturity. $300 million of this debt qualified as a green bond and represented our first use of this ESG-friendly product. Proceeds were used to prepay $400 million of 4.625% unsecured debt. Please see our supplement for further details on our transactional and capital markets activity.

Moving on to the balance sheet. At quarter end, our liquidity, as measured by cash and credit facility capacity, net of the commercial paper balance, was $867 million. Our consolidated financial leverage was 34% on undepreciated book value and 26% on enterprise value, inclusive of joint ventures. Consolidated net debt-to-EBITDA ROE was 6.1x and inclusive of joint ventures was 6.0x. Our consolidated leverage metrics at year-end looks slightly elevated due to only having 1 month of NOI from the acquired MetLife communities, set against the full debt load of those communities.

Normalizing for this would bring our consolidated net debt-to-EBITDA ROE down to approximately 5.8x and within our targeted range. Over the next 3 years, less than 3% of our debt comes due after excluding our commercial paper facility and working capital credit facility. Additionally, our weighted average duration is now over 7 years. Both of these put us in an advantageous position regarding 3-year liquidity. We remain comfortable with our credit metrics and don't plan to actively lever up or down.

Moving on, in conjunction with our release yesterday, we announced a 2020 annualized dividend per share of $1.44, a 5.1% increase over 2019. Last, we would like to officially welcome Trent Trujillo to the UDR team as our Director of Investor Relations. Trent will be running our day-to-day Investor Relations, and we are happy to have him on board.

With that, I will open it up for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Nick Joseph with Citi.

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Nicholas Gregory Joseph, Citigroup Inc, Research Division - Director & Senior Analyst [2]

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Jerry, you talked about the same-store revenue growth assumptions. What's embedded in guidance in terms of blended lease rate growth? And if you can discuss new and renewals expected in 2020.

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Jerry A. Davis, UDR, Inc. - President & COO [3]

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Yes, Nick, this is Jerry. Blended lease rate growth is expected to be fairly comparable to last year, right around that 3% range, with renewals in low the 5, and the new probably in that 1% or so range. And what was your second question?

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Nicholas Gregory Joseph, Citigroup Inc, Research Division - Director & Senior Analyst [4]

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No, that was that entire question. I was then going to ask about the new lease rate growth in fourth quarter we saw it turn negative and the spread between that and the previous year widen. So I was wondering if you could provide some more color on that?

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Jerry A. Davis, UDR, Inc. - President & COO [5]

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Yes. Really, when you look at that, Nick, 4Q '18 was a pretty exceptional year where you didn't see the normal seasonal softness that we've witnessed in prior years. We look at 4Q '19, new lease rate growth was negative 0.5%. That compares to negative 0.5% in 4Q of '17 and to a flat in 4Q of '16. So '18 at 1% was more the aberration. In that quarter, we didn't feel the effects of new supply that we've seen in the other 3 years in the past 4. I will tell you, when you look at January though, we've seen a normal seasonal acceleration. Blended growth is up 2.4%, which is higher than it was in the fourth quarter, but honestly, it's 60 basis points higher than it was in December. So you are seeing good sequential monthly acceleration, but it still is 40 basis points less than it was in January of last year.

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Operator [6]

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Our next question comes from the line of Nick Yulico with Scotiabank.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [7]

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Just going to the guidance, Jerry, just a couple of questions. I think you said that for 2020, obviously, the same-store pool is changing a lot. But did you say that there's no real benefit or detriment from having a higher pool, meaning that if you didn't change the pool, your same-store numbers would be similar?

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Jerry A. Davis, UDR, Inc. - President & COO [8]

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Yes. What I said was the inclusion of the MetLife portfolio into the full year same stores, the delta to revenue and expenses is fairly immaterial. What we're really saying is as you see the sequential or each quarterly growth rate as the year rolls on. Acquisitions we made last year will be rolling into the pool. So those are expected to have higher growth rates than the full year pool of same stores.

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [9]

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Nick, this is Joe. Maybe just to add to that a little bit in terms of MetLife. That goes back to one of the reasons that we had talked about in terms of why we liked the assets that we acquired, meaning that they had less near-term supply pressure. So I think investors are used to see a MetLife portfolio underperform a little bit relative to legacy same-store. But to Jerry's comments, you're seeing that the MetLife assets that we acquired are right there in line with our same-store legacy portfolio. And we'll end up breaking that out for you on Attachment 5, starting in 1Q of '20, so you can see legacy MetLife as well as the combined, which is what we guided to.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [10]

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Okay. That's helpful. And then I don't know if I missed this, but can you just quantify what the impact is from rent control initiatives in New York and California on 2020 same-store revenue?

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Jerry A. Davis, UDR, Inc. - President & COO [11]

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Yes. So it's in that 10 to 15 basis point range. I think back in the third quarter, we told everybody New York was $500 million to $1 million range, AB 1482. We did the calculation after they came out; it is about $300,000 or so. And then the other thing that's impacting us is the anti-gouging laws that went into effect in California in response to wildfires in the fourth quarter and a bit of an effect on 2020 as far as short-term furnished rentals in California of a couple of hundred thousand dollars.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [12]

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Okay. Just one last question is going back to 2019, the final number on same-store NOI growth. It looks like you ended up hitting the bottom of your guidance range? And I think you also revised it up a little bit that range in the third quarter. So what happened that ended up driving you to the low end of the revised range?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [13]

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Yes, it's really a couple of things, primarily. One is, we had 2 significant fires in the portfolio that took -- in October that took somewhere in the 40 to 50 unit range out of service for the entire quarter, which drove down our occupancy a bit. Secondly, as I said, on the California anti-gouging laws were in place from late October through late November. It had not only an effect on short-term furnished rental income in the first quarter of 2020 but also some impact in the last month or 2 of 2019. And we had elevated levels of insurance expense as well as some elevated electricity cost.

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Operator [14]

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Our next question comes from the line of Shirley Wu with Bank of America.

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Shirley Wu, BofA Merrill Lynch, Research Division - Research Analyst [15]

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So I guess my first question have to do with occupancy. So this coming year, you're thinking a little bit higher in occupancy. Is that a function of kind of bringing those 40 to 50 units back online? Or is that a little bit of a shift in strategy in maintaining your occupancy by pulling back on rates?

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [16]

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It's really not pulling back on rates. I'd tell you, we're -- as we get more information on data analytics, the third phase of our platform is data science. And there's a couple of things we've been able to determine as we had first looks at this. We think it's going to allow us to reduce the number of days units that's vacant from when a resident moves out to when they move in. Every day, we can reduce that. It's about 12 basis points of occupancy pickup. So it's really more focused on that than anything we're playing with rate versus occupancy.

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Shirley Wu, BofA Merrill Lynch, Research Division - Research Analyst [17]

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Got it. That's helpful. And so my second question is on your SmartHome initiative. So you guys have gone around 60% of the homes so far. So can you talk a little bit about your cadence in 2020 and the contribution to revenue growth from this initiative?

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [18]

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Yes. In 2020, our expectation is to add another, call it, 7,000 to 10,000 homes, probably most of those will be completed in the first half of this year. So as the earning comes in, the expectation when you look at how much it's going to contribute to that portion of rent growth, it's, call it, 60 basis points and you factor in the follow-through from what we did last year as well as the new leases that go into effect in 2020

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Operator [19]

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Our next question comes from the line of Rich Hightower with Evercore ISI.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [20]

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Just a quick question on next-gen OP, and there's an impact to FFO and then you're going to capitalize certain parts of the total cost. So can you just walk us through sort of the accounting there? And maybe how much of the amortization of certain expenses is hitting FFO and just break it down that way, really quickly?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [21]

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Yes. Rich, it's Joe. So in terms of the, call it, $30 million that we've laid out for expenditures for the platform that's being spent in 2019 and 2020, we ended up capitalizing that. And depending on the actual investment, it typically averages out to about 5 to 6 years of amortization. So once that's prepared and ready to be put into service, we start the amortization period, which is really starting to kick in here in the first quarter, as we bring more of the process or project online. In terms of the impact, it starts out at, call it, between $0.01 and $0.02 this year and ramps up to around $0.02 on a go-forward basis until it burns off and we kind of eat through it all. So it's a noncash impact. It's just non-REO depreciation that works against us from a FFOA head point.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [22]

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Got it. Okay. And then maybe just a little bit bigger-picture question as we contemplate 2020. If you had to pick 1 or 2 factors, maybe across supply growth, job growth or changing customer preferences as we think about maybe move-outs to home purchase and things like that, where do you think the biggest risk to your forecast could be at this time?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [23]

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Yes, I think more so on the job growth than wage front. I think on the supply side, we have a pretty good handle in terms of where we're leveling out there in terms of supply being up, call it, flat to up 10% in our markets. On the rational pricing front, we really haven't seen any on a market-wide basis. Of course, there is some -- some of that taking place on a submarket specific basis. So I think we have a good handle on the supply front. The demand front is where we'd be more concerned, either to the upside or downside that could drive pricing power in either direction, but obviously, the job support in the last couple of months have been fairly strong, wages have been strong, hours have been strong. So we feel good about it at this point, but that's probably the bigger variable for this year.

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Operator [24]

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Your next question comes from the line of John Kim with BMO Capital Markets.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [25]

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Just to clarify on the same-store results that you have this year. So it sounds like the quarterly results will be higher than the full year figure, just given the acquisitions from last year being added to the pool. And I was wondering if you could just quantify what that difference may be if you could average the quarterlies versus the full year?

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Jerry A. Davis, UDR, Inc. - President & COO [26]

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I don't have that number right in front of me. We'll probably have to give you a call back with that unless Joe has it?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [27]

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No, it's -- we'll come back to you on kind of the quarterly impact, but you'll probably see between 10 and 20 bps pick up between quarterly pool and full year pool as we go throughout the year.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [28]

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Okay. I guess it's been a couple of months since the press reported your interest in the Mack-Cali's multifamily portfolio, and obviously, it's not in your guidance. But do you want to describe what the situation is like as far as your relationship to the deal that was reported?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [29]

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John, it's Joe. Obviously, I'm not going to make any comments on rumors that are out there in the market. So I don't think we're in a position to talk on that front. I guess, what we would say is, generically, when it comes to external growth and capital deployment, we've laid out a pretty clear set of parameters by which we have operated and tend to continue to operate. Be that, making sure we get near-term FFO growth and accretion, make sure that we're match-funded, leverage-neutral, risk-neutral and making sure the assets we look to acquire have NOI and platform upside to help drive some of that accretion. So none of that has really changed. The other piece with external growth to think about. We've talked in the past about development pipeline where we want that to trend towards. We spent most of the cycle at $1 billion plus. We've talked about getting back to 2% to 3% of enterprise value. I think when you look at the current pipeline of $300 million plus land that we have and opportunities that we have internally, I think we have a good path to get back to that. So that's kind of the comments that we can make on external growth at this time.

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Operator [30]

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Your next question comes from the line of Rob Stevenson with Janney Montgomery Scott.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [31]

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Jerry, when you guys did your budgeting for 2020, what markets had the widest bands between the likely top and bottom, in terms of possible outcomes on same-store revenue?

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Jerry A. Davis, UDR, Inc. - President & COO [32]

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Yes, probably Seattle. Seattle is one, every year, you look at it and those projected to have significant supply impact, but job growth always seems to come in and surprise to the upside. We also have been very adept in recent years to push through and get high penetration levels on our other income initiatives. But it's one of those -- I can tell you, for example, in Redmond, we have one asset. There's a couple of thousand units coming online there. Right now, we're not feeling as much of an impact from that as you would have expected. So it's just interesting to watch, especially on that east side of Metro Seattle, their ability to both take supply, but because of the significant job growth that you see in places like Bellevue, Redmond, Kirkland, that it gets absorbed so quickly at such high rates. This past quarter, our Bellevue assets had revenue growth of 5.2%. Now you look at Amazon, which has jumped across Lake Washington to there and there's -- they have 2,000 jobs in Bellevue today, going to increase it by another 2,500 by the end of this year. And I believe they've taken well over 3 million to 3.9 million square feet of space that could accommodate eventually 25,000 associates on that side of the lake. You compound that with other tech companies that are coming over into the east side, whether it's Facebook, Microsoft expanding their campus, Google, things just feel very strong. So that would be the one that I would say probably has the widest variance followed by San Francisco. We've told you fourth quarter, we began to see or feel the impact of new supply, both in SoMa as well as down in Santa Clara. San Francisco is another market that if you don't feel irrational pricing, and we're not feeling it yet today, that job growth and its quality job growth can absorb those units very quickly. So that's another one, I would say, that can surprise to the upside.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [33]

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Okay. And then when you guys look at supply in your California markets over the next, whatever, 18, 24 months or whatever you guys have good data on, how much of this stuff has condo maps? And do you guys expect that the various legislation and ballot initiatives in California are going to make condo projects and/or conversions more attractive, which could also help a little bit on the supply side on the rentals?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [34]

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Rob, it's Joe. So when we look at a supply, when we track the permitting data that is out there, I'd say California, generally, is probably one of the markets that has trended lower from a permitting activity. So over the last 3 to 6 months, you've seen permits nationally took higher, really led by more of the sunbelt markets and a little bit on the east coast, but west coast has been looking better. As it relates to the condo mapping, we have not gone to that level of detail to figure out how much of that supply or permanent activity is related to that. So really, no comments on that front.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [35]

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Okay. Because presumably, your high-rise off in these west coast markets is the stuff that where if you have supply coming online, it's probably the easiest to do condos, right? I mean -- and so some of your supply that you're going to get hit with would make the best condo conversions or condo sales just right out of the box at that time?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [36]

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Yes, potentially.

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Operator [37]

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Our next question comes from the line of Wes Golladay with RBC Capital Markets.

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Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [38]

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Just a few DCP questions for you. What are your expectations for Alameda Point block?

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Harry G. Alcock, UDR, Inc. - CIO & Senior VP [39]

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Wes, this is Harry. Right now, we have a land loan in this project that we've had for a couple of years. The land loan matures at the end of March. The developer continues to work through final pricing and the like. We have an option upon satisfying certain conditions to provide sort of permanent DCP in that, but we're not in a position yet to be able to comment on it.

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Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [40]

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Okay. And would a potential extension may happen? Would that be a potential assumption there?

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [41]

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Wes, this is Toomey. Certainly, that would be one consideration. We'll look at what Harry highlighted when the numbers come in. But what we're excited about Alameda is, in August, I believe, the ferry starts its operations, and so that whole corridor is going to be activated. And we like the price point relative to the markets around it. So I think it's going to be an area to keep your eye on, and we're hopeful we can find a deal inside of that.

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Harry G. Alcock, UDR, Inc. - CIO & Senior VP [42]

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And Wes, I guess, I'll just comment. The project itself has made tremendous progress in terms of infrastructure, in terms of the road now connecting the rest of Alameda to the waterfront, the first market-rate apartment project has started construction in the first 2 townhome or sold projects has started construction. So it has now turned into a real viable project at this point.

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Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [43]

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Okay. And then looking at Brio, could you have just bought that asset today and done the lease-up yourself? Looks like you guys would do a much better job on the lease-up than a developer. So how do you think about that versus doing a secured loan for a year?

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Harry G. Alcock, UDR, Inc. - CIO & Senior VP [44]

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Wes, this is Harry. So the structure is that we funded $115 million at 4.75% with an option to acquire the property 1 year post TCO, which will happen sometime next year. UDR, if we are managing the lease-up, we get some new significant operational synergies on this. And the structure allows us to mitigate lease-up dilution, while still managing the lease-up gives us a fixed price option next year. We fund 75% of the purchase price today. We've done business with this developer in the past. We like the asset and the location.

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [45]

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Yes, I would add to that. Harry said, we'll get synergies. Just to let you know, this deal is in Bellevue. I just gave you an update of all the positive things happening in over in Bellevue, Redmond and Kirkland. But what makes this deal more enticing to us is it's contiguous to 2 additional phases of the Elements buildings that were built by the same developer. We have price point differential between Brio and the 10-year and I guess 9-year-old product that will be run with, but as Harry said, you'll get synergies. We think we'll be able to run this property on stabilization, maybe one extra person in the office and one extra person in maintenance. So quite a bit of a benefit being located right there, being able to lay on our operating platform.

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Operator [46]

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Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

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Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [47]

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Jerry, you mentioned that you plan to turn the focus back to revenue initiatives in 2021, you'll still be reaping the benefits, I guess, from the expense efficiencies over the next 3 years. But can you give us a sense of what those new revenue initiatives are that you're exploring and the potential magnitude of that opportunity?

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [48]

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Austin, this is Toomey. Maybe I'd step back, and I'll get to let Jerry answer that question, but a couple of things come to mind. And I've been at this 25-plus years, and I have seen over that trend, developments and vectors, focus, shift away from development, capabilities, consolidations to market mix, to the last 5 years, it has probably been around revenue. But our strategy, in our view, has always been that long-term value creation, share price appreciation comes from cash flow growth. And you've got 7 companies today that are really good, and you can see it in the convergence of our revenue on top of each other and very little differentiation. But ultimately, starting in '17, we started to look at it and say, where is our customer going, where is our margin going, because mature businesses eventually arrive at that conclusion. And after '17 concluded and started implementing in '18, our operating platform, and whether you have $1 billion of revenue or $3 billion, 100 to 300 basis point margin expansion is a heck of a lot of value on the table. And I'm really happy that we're after that. You can see our progress that Jerry and team are reporting on that front, and I think the best days lie ahead. But when I look back at the last years, one thing I'm struck by is, in '18, we grew cash flow 6%; '19, 6%; and '20 at the midpoint 6%. I'd like to keep that trend goal. And I think what Jerry and the team are all working on with respect to the initiatives in the platform, certainly, are going to be the biggest driver of that going forward. So I think the industry is arriving at a new door of opportunity. We're all going to go through it. There is no doubt in my mind about that because our customers already stepped through that door. And how we implement it and the speed in which we implement it will be the differentiating point. But you talked about revenue and potentials off of the platform. I'll kick it back to Jerry and let him talk about where he's headed.

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Jerry A. Davis, UDR, Inc. - President & COO [49]

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Yes. I answered some of this earlier. But when we look at the data science component of the next-gen operating platform, I tell you everybody here that I got first glimpse of it; it has gotten pretty excited. We see opportunities to better price our homes. When you can see things spatially through heat maps, opportunities jump off the page at you, and you can just identify and really quantify where there's opportunities that you were missing when information was either in a spreadsheet or just not quite as visible. The other thing I think we're going to be able to do much better job on is improving resident retention as we are able to accumulate more information about our residents and where is the best place we can go acquire those residents in the future, I think it's going to help us drive down turnover, increase retention. And I think we're also going to be able to gain more and more data, compare communities to each other, find best practices to reduce the time it takes to reoccupy homes or the way we always say, let's reduce the number of vacant days. So I think what you're going to see is most of it's going to come on the true occupancy and rent side, not other income initiatives that we're going to find through this data science.

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Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [50]

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That's helpful. I appreciate all the commentary and thoughts there. And I guess that kind of goes a little bit into the next question. Given the ability to acquire market cap rates and generate upside and cash flow growth. At this point, your acquisitions, though, have been largely one-off, more surgical opportunities over the last couple of years and spread out fairly well geographically. But just wondering if there are any markets where you feel like you're significantly underexposed or under-indexed to that you'd like to take a little bit more of a concentrated run at, potentially through a larger transaction or a series of one-offs?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [51]

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Austin, it's Joe. Yes, I think our diversified approach continues to stand in terms of when we deploy capital over the last 12, 18 months. You've seen us all up and down the east coast. You've seen us down in the Florida markets. We just talked about Brio and what we're doing there in Seattle. I do think we'd like to be more active in SoCal but trying to kind of map out the risk/reward and the cap rates that you get there, which are fairly compressed. So I think you'll see us continue to be diversified in the approach and spread our bets and try to match fund those and go get the NOI upside out of the platform.

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [52]

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Austin, I'd just say, there's a lot of opportunity when you think about our footprint today and the buying the one next door, buying the one down the street. We don't lack for an opportunity set. We just have to be very disciplined about making sure that we accrete the value and not the seller. And so we're going to stay focused on what we've been doing, and it's worked.

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Operator [53]

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Our next question comes from the line of Rich Hill with Morgan Stanley.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [54]

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Joe, I think this might be a question for you, given it's maybe a little bit of a guidance question. But it sounds like you guys are getting much, much smarter on your next-gen OP, big data. So I'm wondering, as we think about that 3.4% full year NOI guide, how are we supposed to think about that cadence? Is it still very time to peak leasing season? Or are we supposed to think that as you get smarter and more efficient, that we're going to start to see some acceleration in the back half of the year?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [55]

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Rich, it's Joe. We've traditionally now provided quarter-by-quarter guidance as it relates to same store. So probably not going to start at this point. We provided 1Q FFO guidance. So if I'm going to leave it at that, and then you'll see the cadence develop throughout the year.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [56]

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I figured I tried, Joe. I'm not asking for guidance.

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [57]

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Nice try.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [58]

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I do -- understood. Understood. So coming back to the development, I think we have chatted in the past that maybe that could get up to $500 million versus the $1 billion at the peak. So -- and I think you've referenced some land deals that are starting to pencil out a little bit more. Can you just walk us through what's driving that increase and development potentially?

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [59]

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Maybe just some quick historical context, maybe Harry will jump in, too. We had been at $1 billion-plus for most of the cycle. And so we've been very disciplined around making sure we get that 150 to 200 basis points. We haven't been focused on maintaining $1 billion at all costs. So you saw that $1 billion shrink to 0 kind of from the 2016 to 2019 time frame as deals completed. At this point in time, we've been working on land for quite a while. You saw the Denver parcel that we acquired last year. You saw the Union Market deal in D.C. that we acquired last year, both of which have been worked on for an extended period of time. Today, we got the $300 million pipeline across 3 deals. Union Market is not in the active pipeline as of quarter end, but we expect it to be shortly. It's about 140-plus or minus deal. So that will take the pipeline up. In addition, Vitruvian through the MetLife transaction, where we had Vitruvian West 1 and now 2 in the pipeline, we've been getting good yields with those in the mid-6s. And so we have Vitruvian West 3 that we think we'll be able to move forward with here in short order. So that will get you back to that plus or minus $0.5 billion. I think, depending on circumstances, cost of capital and opportunities that probably took a little bit higher than that, in that 2% to 3% range of enterprise, so call it, $500 million, $600 million, $700 million, $800 million. But that's easy to fund when you think about the cadence of it and the free cash flow that we throw off of $125 million, $150 million a year, the leverage capacity that we have each and every year, and then the dispositions that we typically put out there is normal course of business. So definitely not anything insurmountable from a funding standpoint.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [60]

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Got it. And just for clarification, this is in addition to and not lieu of the CDP program, right?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [61]

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That is -- it's a stand-alone. So when we talk about $500 million to $700 million, that is typically ground up consolidated development that we're speaking to. When you look at DCP, we've traditionally thrown out there kind of $300 million, $350 million, $400 million type of number, of which we sit in the high 2s today. So we have some capacity to add there as well.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [62]

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Got it. I'm sorry for the confusing question. What I really meant was, you wouldn't be reducing your development capital program to increase development. It would be development increasing while the development -- while the development capital program stays where it is, maybe even increasing a little bit more.

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [63]

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Correct.

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Operator [64]

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Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

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Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [65]

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First, just congrats to Warren. So well done. So 2 questions. Jerry, on the SmartHome technology front, in answering one of the earlier questions, you mentioned the revenue opportunities, occupancy and expenses. The expenses I get, obviously, you guys have talked about personnel retention, being able to retain your better employees and not have to go through the people who are cycling in and out. But as far as occupancy and rent, you guys are like 96% plus. The industry has had YieldStar or LRO adding number of the pricing systems, and you said that this really isn't about driving other income. Can you just elaborate more where the SmartHome -- I get it on the operational, on the expense side, but where on the revenue side -- if you've had really good occupancy, and you've had really good rent growth through the systems, where the SmartHome will help you grow on the revenue side?

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Jerry A. Davis, UDR, Inc. - President & COO [66]

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In reality, the SmartHome, we get a rent increase at new lease terms, call it, that $20 range. We do think there's efficiency that we gain either through our maintenance people, our prospective residents being able to do some kind of tours and be able to utilize smart homes. Implementing leak-detection devices, drives down R&M as well as insurance costs. But I don't foresee smart homes are going to drive occupancy. I think there is that rent pickup that you get as you add that amenity, that again allows a lot more flexibility for entering your apartment, having a dog sitter or somebody like that to have access to it. But when we look back as we've installed these smart homes and look at what our market rents have done in those communities from the time before we install till after, we're comfortable that we're getting that $20, $25 pop in rents.

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Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [67]

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Okay. And then, Joe, just the perfunctory rent control. Obviously, the latest from Albany is if you are looking at CPI plus 3, which is slight better than the CPI plus 1.5%, but still, obviously, would not be a positive thing. Maybe you can just give your latest on your thoughts on what will happen in Albany? And then also how that is affecting you guys looking at New York City, if you're still actively looking in New York? Or if your interest in the region is now exclusively in the suburbs?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [68]

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Alex. So maybe just to clarify on Albany. You may have more information than we do on this. But I think the way we looked at it, it was the greater of CPI times 1.5 or 3%. So it seemed like they were setting a 3% floor on renewals, but you still have vacancy decontrol. So just want to clarify that. So if that's the scenario and you still have vacancy decontrol, you still have the upside on news and you get 3% renewals as a floor. It's not what we'd ideally like to see. We'd like to see a more constructive discussion around public-private partnerships, up zoning, densification, less regulation, things of that nature. But it is a factor that plays into our thinking when we're thinking about New York City and allocation there as well as the broader region as well. It goes into a qualitative factor, but that's pretty consistent nationally as well. We're seeing increased activity nationally, and so it goes into our thinking everywhere, but that's why we like the diversified platform that we have.

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Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [69]

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But would you still consider buying in New York or you're more focused on New Jersey?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [70]

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We'd still consider New York. We'd consider New Jersey as you saw with One William last year. New Jersey also was talking about CPI plus 5%, I believe. So I think there's a number of markets out there that are looking at that. So we'll take into account each time we look at a transaction.

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Operator [71]

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Our next question comes from the line of Neil Malkin with Capital One Securities.

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Neil Lawrence Malkin, Capital One Securities, Inc., Research Division - Analyst [72]

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First, I want to touch on capital allocation. Given your track record, very good operating ability and capital costs, both on equity and debt that are favorable, just maybe could you talk about why the acquisition or potential acquisition outlook in your guidance was pretty light, and also, if you have anything you're potentially looking at right now? That would be great.

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [73]

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Neil, it's Joe. In terms of guidance, historically, our practice has been to not guide to speculative activity. If you go back to our guidance last year, clearly, we surpassed that from an acquisition standpoint. We were able to find accretive opportunities and match to fund those with well-priced equity and debt. So the acquisition guidance, you see there on Attachment 15, $140 million. That's really just for The Slade at Channelside that we announced as well as the buyout of Arbory and Wolff joint venture. So going forward, we'll continue to do what we've done over the last 12 or 18 months, which is: look at the pipeline, try to find opportunities that can drive additional upside as we did this year and drive more earnings accretion and growth. And if we can do that, we'll figure out where to pivot towards in terms of the source of capital. I did mention that we have $300 million of assets in the market today. So generally normal course of business for us, but we have a pretty diverse swath of markets and cap rate ranges that we're looking at. We like the feedback we're getting so far. So we're looking at that as well as a source of capital.

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Neil Lawrence Malkin, Capital One Securities, Inc., Research Division - Analyst [74]

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Okay. But you can't -- I mean, are you -- you talked about $300 million of assets on the block to sell. But I mean, in terms of the pipeline or the pool of assets that are potential acquisition candidates, I mean, has that trended higher, just in terms of how the market blows your cost of capital?

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [75]

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No, it's -- I think we were saying, back in November, the pipeline had dried up a little bit. But I don't know if you were down to NMHC, the other week. Typically, that's when you start to see more activity coming to market. So typically, pipelines start to pick up around that time. So we'd expect to see more deals coming to market. But again, we're going to keep disciplined around the parameters that we've got to see and not just simply go out there and buy just to utilize the cost of capital.

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Neil Lawrence Malkin, Capital One Securities, Inc., Research Division - Analyst [76]

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Okay. And then the other one for me is, could you just talk about your outlook for supply in Northern California and Seattle. The data vendors, there seems to be a fair amount of disconnect between the data vendors, what aspects it talked about. I'm just wondering what you're seeing in those markets or what you expect to see for 2020.

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [77]

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Yes. I think when you look at both Northern California and Seattle, when we look at third-party data, permit data in terms of the regression approach that we take and then talking to individuals on the ground as we work through our budget process, both of those markets are expected to be up generally. Seattle is a little bit more flattish at a market level. I think San Fran, overall, probably a little bit more first-half weighted, dependent on the slippage that we see there. And then when you flip over to kind of the longer-term look and think about what we see going forward, the permanent inactivity in Northern California has dropped off quite a bit more over the last 3 to 6 months versus where it had trended, whereas Seattle has remained a little bit more static.

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Operator [78]

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Our next question comes from the line of Hardik Goel with Zelman Associates.

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Hardik Goel, Zelman & Associates LLC - VP of Research [79]

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Joe, maybe this one's for you. You mentioned your balance sheet or your leverage is at 5.8x, if I calculate the full run rate of cash flow and JV deal you guys closed in the fourth quarter. At 5.8x, if you were to acquire something that's a $2 billion portfolio, I'm not saying it's the Mack-Cali one or not. But if you were to take on a deal like that, how much more could you lever up? Or what's the appetite to lever up if you have an opportunity like that, that makes sense? And is those current leverage kind of inhibiting you or driving you to not make those decisions because of where it is?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [80]

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Yes. Maybe it's good to just kind of lay out what we've communicated in the past in terms of the goals on the balance sheet. We've talked about 5 to 6x debt to EBITDA, fairly consistently and our desire to stay within that range. The plan calls for that. So I guess, if you say, on an adjusted basis, we're at 5.8x. I guess, you could say that we have the ability to lever up 0.2x to get to our plan or stay within the range we've laid out. So we really don't have any intent or desire to lever up at this point in time. We like to be in the solid BBB+, Baa1, like the cost of capital that affords us. And we've really been focused beyond debt to EBITDA on a lot of other metrics, i.e. fixed charge, free cash flow, duration, 3-year liquidity, et cetera. So in totality, I think it's important to take a holistic approach thinking about the balance sheet, not just locking in on that debt-to-EBITDA metric, which did tick up but obviously due to onetime issues related to MetLife timing. So I wouldn't say you should expect us to lever up for transactions.

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Hardik Goel, Zelman & Associates LLC - VP of Research [81]

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Got it. So I guess, maybe taking a slightly different way, if there was to be an attractive deal out there that required a lot of capital, you would need to also have the cost of equity to kind of take it down because as you mentioned, your balance sheet only allows you a 0.2 turn.

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [82]

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It's either an attractive cost of equity or we have dispositions. We have free cash flow. We have other levers to pull as we look out over the next 2 to 3-year business plan. So it's not always dependent on cost of equity. We have multiple sources of capital to tap into.

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Operator [83]

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Our next question comes from the line of Haendel St. Juste with Mizuho Securities.

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Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [84]

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I guess most of mine have been asked, but I've got a couple of market-specific questions. First, on Boston, a market that you guys have outlined, you expect to grow at a pace better than the overall portfolio asset, a market that is expecting to see a lot of supply come online this year. So just curious -- and by the way, in the urban core, where I believe you do have a number of assets. So just curious, what gives you the confidence for that kind of statement, facing that kind of supply and then maybe some comments on the lease-up over at Garrison?

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Jerry A. Davis, UDR, Inc. - President & COO [85]

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Haendel, this is Jerry. Yes, I think we would agree with your assessment that there is going to be supply pressures downtown. We're feeling them in Seaport, we felt it there in the fourth quarter where Pier 4 had revenue growth of just 2.1%. Our properties, though, that are in the North Shore as well as down in the Salisbury should encounter less supply pressures and do it better. So really going to be dependent on which assets you're looking at. The only property that's in our same-store pool that's downtown is Pier 4 for full year same-store. So again, we would agree that there is going to be supply downtown. There's going to be a bit less when you get out to the suburbs, especially when you're looking at some of the B product that we have that's up in the North Shore.

Garrison lease-up is -- it's doing well. It's at 82%, 84% physically occupied. We finished the renovation of the amenity building that was part of that redev. We're looking to re-engage on unit turns again in the next couple of months. And we anticipate, while we're leasing up against a lot of new supply, that location in the back bay is highly desirable. I think as the construction moves out of that small area or site, meaning the construction that we do during the renovation period that it's going to be a great asset.

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Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [86]

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Appreciate that, Jerry. What type of spread are you projecting? Or as you think about the revenue outlook for Boston in terms of the urban versus suburban?

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Jerry A. Davis, UDR, Inc. - President & COO [87]

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Spread between those is -- I think it's about 200 basis points.

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Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [88]

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Okay. And second question on Baltimore. I recall spending a lot of time last year or last summer, I think we visited talking about your market predictive model and how it's leading you to be a bit more enthusiastic about Baltimore, a market where a lot of your peers seem to be shying away from. So can you talk a bit more about what you're seeing in Baltimore today calling you to -- leading you to call out as a market that you expect to see some of the most deceleration. It doesn't look like there's a lot of supply coming online in that market this year. So maybe you could talk about what's perhaps changed in your view on Baltimore over the last 6-or-so months? And what was perhaps underappreciated in your market revenue model?

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Joseph D. Fisher, UDR, Inc. - Senior VP & CFO [89]

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Haendel, it's Joe, and then I'll kick it over to Jerry for some more specifics. As it relates to the predictive analytics piece and how we were looking at that a year ago and what drove us to think about that, that's a quantitative approach. So it shines a light on markets that we think are set for outperformance, but you still have to take a qualitative approach and make sure that the expectations on the ground actually meet up with what the model or the machine tells you. So things that got us excited about Baltimore: historically, it's a very stable job growth, typically in line with national averages, we're seeing that continue; from an affordability standpoint, one of the most affordable east coast cities out there; job diversification-wise, when you look at it, especially in the cybersecurity and defense side, very strong there, but they also have good biomedical, health care, education, government. So you have a good stabilizing factor in terms of volatility of performance in Baltimore, which is good from a portfolio of construct standpoint. And then you have a very highly educated workforce. They are top-tenant stem jobs, top-tenant graduate degrees as a percentage of workforce. So there's a lot of things that we're doing for the MSA as a whole. And then you obviously have to narrow it down to a submarket call, which is what we did with Rogers Sports. So we're not necessarily at Baltimore-proper. So we had to pick the right submarket. So that's kind of what led us there over the long term. Short-term volatility, obviously, comes through in results, but it's more of a long-term play. So maybe Jerry wants to close it out.

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Jerry A. Davis, UDR, Inc. - President & COO [90]

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Yes, I would just add, it is one of the markets we see where there's going to be elevated supply this year versus last year, a couple of thousand units. When we look at our submarkets, we've got about 700 of those units are coming within a mile of our property, in the Towson area. So last year, we did 3.1% revenue growth. This year, we expect it to be down in the 2s. So again, I think, as Joe said, we like the market, but that's more of a mid- and long term, not a -- how is it going to do better in a year. And I think over the next year, we're going to be...

(technical difficulty).

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Operator [91]

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Our next question comes from the line of John Guinee with Stifel.

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [92]

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John, are you there? You might be on mute.

Operator, do we have anyone else left in the queue?

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Operator [93]

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Yes, we do. Our next person in queue is John Pawlowski with Green Street Advisors.

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John Joseph Pawlowski, Green Street Advisors, LLC, Research Division - Analyst [94]

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Harry, hoping you could describe for us on the DCP front and the bid intents year-end. Just the last 3 to 6 months, how the competition has fared one way or the other?

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Harry G. Alcock, UDR, Inc. - CIO & Senior VP [95]

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Sure, John. I think you've seen supply has been relatively stable. There continues to be demand from developers. There's also additional competition from a number of debt funds. It's been the same in the past 12 or 18 months. We're continuing to find opportunities that sort of fit our parameters in terms of assets that we want to own long term. They fit our return hurdles. You saw in the close of deal in Oakland last year. We have others that we're looking as we look to not only backfill our core pipeline but also add incrementals.

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John Joseph Pawlowski, Green Street Advisors, LLC, Research Division - Analyst [96]

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As of pricing, within that solid deal flow, does the pricing on deals become more competitive?

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Harry G. Alcock, UDR, Inc. - CIO & Senior VP [97]

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I think there are circumstances where it has been. Again, just as you have more players in this space. But the deals we're doing, we're underwriting a consistent IRR. We're always looking for deals that fit our parameters. So our expectation is that the transactions we enter into, the returns will be very consistent to what we've done historically.

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Operator [98]

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(Operator Instructions) There are no further questions in the queue. I'd like to hand the call back to Mr. Toomey for closing remarks.

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Thomas W. Toomey, UDR, Inc. - Chairman & CEO [99]

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Well, a quick closing. I want to thank you for your time and interest in UDR. Clearly, you can hear that we're excited about 2020, and certainly, our future beyond that. We have the right team, the right plan, just look forward to executing on it. And we look forward to seeing many of you in the conferences in the near future. Take care.

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Operator [100]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.