UDR, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; interim financial statements are unaudited. UDR is a multifamily REIT. At quarter-end, it owned and consolidated 126 communities with 39,834 homes, and held interests in 30 additional communities with 7,677 homes.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Total revenue | $253.3 million | $243.8 million; up 3.9% |
| Operating income | $48.0 million | $45.5 million |
| Net income attributable to common stockholders | $80.8 million; $0.30 diluted EPS | $25.0 million; $0.09 diluted EPS |
| Continuing-operations income | $18.9 million | $26.3 million |
| Same-store NOI | $167.5 million; up 2.7% | $163.1 million |
| FFO per diluted share and unit | $0.47 | $0.45 |
| FFO as adjusted per diluted share and unit | $0.47 | $0.45 |
| AFFO per diluted share and unit | $0.45 | $0.43 |
| Common distribution declared per share | $0.3225 | $0.3100 |
Operating trends: Same-store rental income increased 3.0%, while same-store operating expenses rose 3.6%, reducing the same-store operating margin to 71.4% from 71.6%. Physical occupancy was 96.9%, up 0.3 percentage points. Higher rents and ancillary/reimbursement income supported revenue; real estate taxes increased 9.0%, mainly reflecting higher assessed valuations. Total property NOI increased 3.0% to $176.6 million.
Cash flow: Cash from operations was $132.3 million, versus $120.3 million. Investing cash outflow was $24.6 million, compared with $162.8 million, primarily reflecting property-sale proceeds and no real estate acquisitions. Financing cash outflow was $108.6 million, versus $42.7 million, including $83.1 million of common distributions and approximately $20.0 million of share repurchases. Cash, cash equivalents and restricted cash totaled $20.9 million at quarter-end, of which only $1.1 million was unrestricted cash and cash equivalents.
Debt and liquidity: Net debt was $3.681 billion, comprising $801.5 million secured and $2.879 billion unsecured debt. Weighted-average interest rate was 3.66% and average years to maturity 5.1. UDR reported $1.1 billion available under its revolving facility, $225 million unused commercial-paper capacity, and $17.3 million unused working-capital-facility capacity. Debt covenants were in compliance. Secured debt encumbered 16.8% of gross book value of real estate.
Material changes and unusual items
- Net income growth primarily reflects a $70.3 million gain on the sale of a 264-home Orange County, California community for gross proceeds of $90.5 million. The 2017 period included a $2.1 million gain on a land sale.
- Income from unconsolidated entities declined by $12.9 million, mainly because Q1 2017 included a $12.2 million gain on consolidation of a Seattle community.
- Adjusted for real estate gains and other specified items, FFO per diluted share and unit rose to $0.47 from $0.45; AFFO rose to $0.45 from $0.43.
- UDR repurchased 593,373 common shares for approximately $20.0 million. No real estate acquisitions were completed during the quarter.
- A $2.1 million gain from an equity-security investment measurement change was recorded in other income; it was excluded in the company’s FFO reconciliation as a change in accounting guidance.
Outlook, risks and contingencies
Management provided no specific quantitative earnings, rent-growth or occupancy guidance in the supplied filing text. It expects operating cash flow and borrowing capacity to support operating needs and distributions, and anticipates financing longer-term needs through debt or equity issuance, property dispositions and operating cash flow. Two wholly owned developments comprise 1,101 homes, 400 completed, with a stated total budget of $716.5 million; expected completion dates are Q2 2018 and Q1 2019. A remaining community acquisition from a joint venture is anticipated in 2019 for approximately $66.4 million for UDR’s remaining 51% interest.
UDR identified risks including apartment-market and economic weakness, rent and occupancy pressure, rising property costs and interest rates, refinancing and commercial-paper access, development delays or cost overruns, joint-venture and mezzanine/preferred-equity investment performance, uninsured casualty or environmental losses, cybersecurity incidents, and continued REIT qualification. Management said routine litigation was not expected to have a material adverse effect; no material off-balance-sheet arrangements were reported. Disclosure controls were assessed as effective at a reasonable-assurance level.
After quarter-end, the $275 million of commercial paper outstanding at March 31 was repaid at maturity in April, and $320 million was issued with May 2018 maturities. Management estimated that a 100-basis-point increase in variable rates would have increased Q1 interest expense by $1.4 million, based on average balances.
Investor facts to verify
- How much of reported earnings and year-over-year growth is attributable to the $70.3 million property-sale gain, versus recurring apartment operations?
- Whether same-store rent and occupancy growth can offset expense growth, particularly higher real estate taxes.
- The refinancing and liquidity plan for short-term commercial paper maturities, including the May 2018 issuance, and the effect of higher rates.
- Development cost-to-complete, lease-up progress and timing, plus the terms and funding of the anticipated 2019 joint-venture acquisition.
- Performance, repayment prospects and concentration of joint-venture, preferred-equity and note-receivable investments.