UDR, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing covers UDR, Inc. and its operating partnership; figures below primarily refer to UDR, Inc. consolidated results unless noted. Fourth-quarter figures are for the three months ended December 31, 2012.
Business context
UDR is a multifamily REIT that owns, operates, acquires, develops, redevelops, and manages apartment communities, with a strategic focus on high-barrier-to-entry markets. At year-end, its consolidated portfolio comprised 145 communities and 41,571 completed homes; it also held interests in 39 unconsolidated communities with 9,558 homes. Eight wholly owned communities totaling 2,622 homes were under development.
Financial and operating results
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Rental income from continuing operations | $713.9 million | $623.0 million |
| Total revenues from continuing operations | $729.4 million | $640.4 million |
| Loss from continuing operations | $43.0 million | $123.2 million |
| Net income attributable to common stockholders | $203.4 million; $0.85 per share | $10.5 million; $0.05 per share |
| FFO, diluted | $332.8 million; $1.32 per share | $273.6 million; $1.28 per share |
| FFO as adjusted, diluted | $340.3 million; $1.35 per share | $273.7 million; $1.28 per share |
| AFFO | $298.1 million; $1.18 per share | $229.1 million; $1.07 per share |
| Cash from operating activities | $317.3 million | $244.2 million |
Reported common-stockholder income rose substantially, but was driven chiefly by $260.4 million in pretax gains on property sales and a tax benefit associated with reversal of a deferred-tax valuation allowance. Continuing operations remained loss-making. FFO and AFFO are non-GAAP measures; the filing cautions that FFO is not cash flow or a measure of cash available for needs.
Fourth quarter: Rental income was $182.4 million; continuing operations loss was $13.1 million; net loss attributable to common stockholders was $13.2 million, or $0.05 per share. In Q4 2011, rental income was $170.7 million and common-stockholder income was $44.2 million, or $0.20 per share, including discontinued-operations results.
Same-store operations: UDR’s same-store NOI increased 6.6% to $350.7 million, with rental income up 5.3%, operating expenses up 2.8%, physical occupancy of 95.7%, and operating margin of 67.9% versus 67.1% in 2011. Rental-rate growth and higher occupancy, fees, and reimbursements supported results; higher property taxes and repairs partly offset gains.
Balance sheet, liquidity, and capital
- At December 31, total assets were $6.89 billion, total debt was $3.41 billion (down from $3.92 billion in 2011), and stockholders’ equity was $2.99 billion.
- Cash and cash equivalents were $12.1 million, with an additional $23.6 million of restricted cash. The $900 million revolving credit facility had $76 million drawn and $824 million of unused capacity, excluding letters of credit; UDR reported compliance with debt covenants.
- Debt comprised $1.43 billion secured and $1.98 billion unsecured, with a 4.42% weighted-average interest rate and 4.5 years weighted-average maturity. Approximately $454.5 million was variable-rate debt; a 100-basis-point increase was estimated to raise annual interest expense by $6.6 million.
- Scheduled 2013 debt obligations were approximately $171.9 million. Management expected to fund maturities and operating needs with operating cash flow, borrowings, debt or equity issuance, and property dispositions.
- UDR issued $400 million of 4.625% notes due 2022, raised about $756 million net through common-stock offerings and ATM sales, repaid $491.9 million of secured debt and $445 million of unsecured debt, and redeemed all outstanding Series G preferred shares for $82.1 million.
- Common distributions declared were $0.88 per share for 2012, a 10% increase from 2011. The board retains discretion over future distributions.
Material changes, outlook, and risks
- UDR sold 21 communities with 6,507 homes for $609.4 million, recognizing $260.4 million in pretax gains. It acquired 633 homes in Austin for $11.7 million; the operating partnership itself reported no 2012 acquisitions.
- A new 50/50 MetLife joint venture included 12 operating communities; the five newly acquired Columbus Square buildings were purchased for $637.5 million. UDR’s recorded investment in unconsolidated joint ventures increased to $507.0 million from $213.0 million.
- Development spending was $246.9 million and redevelopment spending was $144.9 million. The wholly owned development pipeline had a $1.0 billion budget and $491.0 million of costs incurred at year-end. Management projected 2013 recurring capital expenditures of approximately $1,020 per home.
- No specific earnings or FFO guidance is provided. Management noted that 2013 revenue growth could be affected by economic conditions, occupancy, concessions, bad debt, and other factors. The company’s strategy emphasizes core markets, rent growth, portfolio improvement, operating efficiency, and dividend growth.
- Hurricane Sandy affected three UDR communities in New York City. UDR recorded $8.5 million of net hurricane-related charges, including an impairment, repair and cleanup costs, and business-interruption impacts, partly offset by estimated insurance recoveries of $14.5 million. $9.7 million of estimated recoveries remained receivable at year-end; rehabilitation of two properties was expected to finish in Q3 2013.
- Key disclosed risks include apartment-market and economic weakness, competitive supply and rent concessions, development cost or lease-up delays, refinancing and interest-rate exposure, joint-venture partner risks, environmental and weather-related losses, and maintaining REIT qualification. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
- Ernst & Young issued unqualified opinions on UDR’s financial statements and internal control over financial reporting. Management concluded disclosure controls and internal controls were effective as of year-end.
Most important facts for investors to verify
- How much of 2012 earnings growth reflects recurring operations versus property-sale gains and the nonrecurring tax valuation-allowance benefit.
- Whether same-store rent and NOI growth can continue while property taxes, operating costs, concessions, and bad debt evolve.
- Funding and refinancing plans for 2013 maturities and the larger development and redevelopment commitments; verify available revolver capacity and covenant headroom.
- Development budgets, delivery timing, lease-up, and returns on the $1.0 billion pipeline, plus the performance and obligations of joint ventures.
- Final Hurricane Sandy insurance recoveries, repair costs, and completion timing; confirm that estimated receivables are collected.
- Dividend sustainability against recurring cash generation, capital spending, debt service, and REIT distribution requirements.