UDR, Inc. — 2014 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2014; the filing also presents fourth-quarter results. UDR is a multifamily REIT that owns, operates, develops, redevelops, and manages apartments, concentrating on high-barrier-to-entry U.S. markets. At year-end, UDR’s consolidated portfolio comprised 139 communities and 39,851 completed homes; unconsolidated ventures added interests in 36 communities with 10,055 homes. The filing also reports separately for UDR’s Operating Partnership (OP), which UDR controls and owns approximately 95% of.
Key financial metrics
| Metric | UDR, Inc. 2014 | 2013 |
|---|---|---|
| Rental income | $805.0 million | $746.5 million |
| Total revenues | $818.0 million | $758.9 million |
| Net income attributable to common stockholders | $150.6 million; $0.59 diluted per share | $41.1 million; $0.16 diluted per share |
| FFO, diluted (non-GAAP) | $415.4 million; $1.56 per share | $380.5 million; $1.44 per share |
| FFO as adjusted, diluted (non-GAAP) | $403.5 million; $1.52 per share | $368.1 million; $1.39 per share |
| AFFO (non-GAAP) | $359.6 million; $1.35 per share | $325.4 million; $1.23 per share |
| Cash from operating activities | $392.4 million | $339.9 million |
| Cash used in investing activities | $293.7 million | $123.2 million |
| Total debt at year-end | $3.58 billion | $3.52 billion |
| Cash and cash equivalents at year-end | $15.2 million | $30.2 million |
UDR same-store rental income increased 4.3% and same-store NOI increased 5.2% to $440.8 million. Same-store occupancy rose 0.6 percentage points to 96.7%; average monthly income per occupied home increased 3.8% to $1,573. Same-store operating margin increased to 69.9% from 69.3%. Total property NOI, including discontinued operations, increased 8.2% to $556.3 million.
Common distributions declared were $1.04 per share, up from $0.94 in 2013; UDR reported a 10.6% increase in its annualized declared dividend. The filing states $1.015 per share was paid during 2014. UDR’s $900 million unsecured revolver had $152.5 million drawn at year-end, leaving $747.5 million of unused capacity before letters of credit. UDR reported compliance with debt covenants. Variable-rate debt was approximately $579.7 million; management estimated a 100-basis-point increase would raise annual interest expense by $6.9 million, based on the year’s average balance.
Material changes versus the prior comparable period
- Rental income rose 7.8%; operating cash flow increased $52.5 million.
- Net income attributable to common stockholders rose substantially, but was materially affected by $143.6 million of net-of-tax real estate sale gains and a $5.8 million one-time tax benefit. Continuing-operations income attributable to common stockholders was $0.60 per share, compared with a loss of $0.01 in 2013.
- FFO, adjusted FFO, and AFFO per share increased year over year. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
- Investing cash outflow increased, principally reflecting higher real estate acquisition and unconsolidated joint venture investment, partly offset by higher sale proceeds and lower development/redevelopment spending.
- UDR sold nine communities totaling 2,500 homes and other assets for $328.4 million gross proceeds. It acquired two communities totaling 358 homes and development land. Consolidated homes declined to 39,851 from 41,250.
- UDR issued $300 million of 3.75% senior unsecured notes due 2024 and sold 3.41 million common shares through its equity distribution program for approximately $99.8 million net proceeds.
- UDR adopted ASU 2014-08 prospectively, changing which property disposals qualify as discontinued operations. This materially changed the income-statement presentation; the filing says it did not change net income for the periods presented.
Outlook, management commentary, risks, and unusual items
Management expects short-term liquidity needs to be met with property operating cash flow and credit facilities, and longer-term needs with borrowings, debt or equity issuance, and/or property dispositions. In 2015, approximately $196.6 million of UDR secured debt and $324.3 million of unsecured debt were scheduled to mature; $325.2 million of notes due in January 2015 were repaid with revolver borrowings. Management projected recurring capital expenditures of approximately $1,150 per home in 2015. The filing gives no numerical 2015 rent-growth, occupancy, earnings, or FFO guidance.
At year-end, UDR had one wholly owned development under construction: 369 Boston homes, with a $217.7 million budget and expected completion in the second quarter of 2015. Three additional UDR development communities with 825 homes were completed but not yet stabilized. Management cited rental-rate growth, increased occupancy, technology-enabled operating efficiencies, and portfolio concentration in primary markets as operating priorities. It cautioned that 2015 revenue growth could be affected by economic weakness, lower occupancy, concessions, new supply, bad debt, and other market factors.
- Earnings quality: 2014 GAAP income benefited from property-sale gains and a one-time tax benefit; assess recurring operating performance separately.
- Leverage and refinancing: debt maturities, refinancing access, covenant capacity, credit ratings, and interest-rate exposure remain important. UDR also relies on capital markets and Fannie Mae financing for parts of its business.
- Development and joint ventures: costs, construction timing, lease-up, partner rights, capital commitments, and guarantees may affect expected returns. UDR reported $172.2 million of unfunded commitments to unconsolidated ventures and $40.1 million for development projects.
- Portfolio and operating risks: competition, new apartment supply, market concentration, property taxes, insurance costs, environmental matters, and severe weather or earthquake losses may affect NOI and asset values.
- Other unusual or relevant items: a $8.4 million net gain on repayment of a note receivable boosted other income; UDR recorded $0.5 million of casualty losses from California earthquake and storm damage. Legal proceedings were described as ordinary-course matters, with no expected material adverse effect; no material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Reconcile reported 2014 net income to recurring performance, including sale gains, the tax benefit, and the note-repayment gain; review the company’s FFO/AFFO definitions and reconciliations.
- Check whether same-store rent, occupancy, expense growth, and margins remain supportive as new supply and concessions evolve in UDR’s key markets.
- Review the 2015 debt repayment and refinancing plan, available revolver capacity, interest-rate hedges, and covenant headroom.
- Track development and redevelopment budgets, completion and stabilization milestones, and remaining joint venture and participating-loan commitments.
- Confirm dividend coverage using operating cash flow and appropriate REIT measures, bearing in mind that REIT distribution requirements and board discretion affect payout decisions.