UDR, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. UDR is a multifamily REIT that owns, operates, acquires, develops and manages apartment communities. This filing covers the three months ended March 31, 2020, with comparisons to Q1 2019. At quarter-end, UDR’s consolidated portfolio comprised 150 communities and 47,579 apartment homes across 13 states and Washington, D.C. The filing also reports separately for the Operating Partnership; figures below generally refer to UDR, Inc.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $321.5 million | $270.7 million; up 18.8% |
| Net income attributable to UDR | $5.2 million | $24.5 million |
| Net income attributable to common stockholders; diluted EPS | $4.2 million; $0.01 | $23.5 million; $0.08 |
| Property NOI, non-GAAP | $225.5 million | $189.7 million; up 18.9% |
| Same-store NOI, non-GAAP | $174.5 million; up 3.0% | $169.5 million |
| Same-store NOI margin | 71.6% | 71.5% |
| FFO per diluted common share and unit, non-GAAP | $0.53 | $0.51 |
| FFOA per diluted common share and unit, non-GAAP | $0.54 | $0.50 |
| AFFO per diluted common share and unit, non-GAAP | $0.51 | $0.47 |
| Cash provided by operating activities | $135.5 million | $137.3 million |
| Cash used in investing activities | $214.0 million | $459.7 million |
| Cash provided by financing activities | $68.2 million | $137.7 million |
| Total debt, net, at quarter-end | $4.89 billion; 3.28% weighted average rate | $4.71 billion at December 31, 2019 |
| Total assets / total liabilities, at quarter-end | $9.69 billion / $5.39 billion | $9.64 billion / $5.23 billion at December 31, 2019 |
Cash and cash equivalents were $1.0 million and restricted cash was $21.9 million at March 31. UDR’s balance sheet also included $819.1 million of redeemable noncontrolling interests. The common distribution declared was $0.36 per share for the quarter.
Material changes versus the prior comparable period
- Revenue rose 18.8%, reflecting portfolio growth and contributions from acquired and stabilized communities. Total property NOI increased 18.9%; same-store NOI increased 3.0%.
- Despite higher NOI, net income attributable to UDR fell to $5.2 million from $24.5 million. Management cited $43.0 million of additional depreciation, primarily from communities acquired in 2019; $5.8 million of higher interest expense, mainly from higher average debt; and a $7.1 million decline in interest income and other income. The prior-year comparison included an $8.5 million promoted interest related to prepayment of a note.
- Operating cash flow was nearly flat year over year. Investing cash outflow declined mainly because acquisitions were lower than in Q1 2019, partly offset by increased development spending.
- Same-store physical occupancy increased to 97.1% from 96.9%, and monthly income per occupied home rose 0.5% to $2,208. Same-store operating expenses increased 2.7%, including higher property taxes and repairs and maintenance.
Outlook, management commentary, risks and unusual items
- COVID-19: Management said the pandemic’s impact on Q1 operations and cash flows was not material through the filing date, but future effects could be material and were not predictable. Risks include reduced rent collections, eviction moratoriums, rent deferrals and concessions, tenant financial distress, lower occupancy or rents, asset impairments, and disruption to development and financing markets.
- April rent collections: UDR reported collecting 95.5% of billed April multifamily rent; 95.3% of residents paid in full, 2.7% paid part, and 2.0% paid none. Management said resident assistance included payment plans, rent deferrals and waived late fees. These are subsequent-period indicators, not Q1 results.
- Liquidity and debt: In February, UDR issued $200 million of 3.20% senior notes due 2030, priced at 105.660% of principal. The $215 million of commercial paper outstanding at quarter-end was repaid at maturity in April using revolving and working-capital facilities. As of April 30, UDR reported $375 million drawn on its $1.1 billion revolver, with $725 million of capacity remaining, and $24.8 million drawn on its $75 million working-capital facility, with $50.2 million remaining. UDR was in compliance with debt covenants at March 31.
- Capital and investment: Q1 included a $85.2 million Tampa acquisition and a purchase of the remaining interest in a Hillsboro, Oregon community. The company had three wholly owned developments totaling 878 homes, with a $278.5 million budget and $95.3 million carrying value; estimated completion dates ranged from Q1 2021 to Q2 2022. Remaining real estate commitments were $229.1 million.
- Near-term obligations: UDR identified approximately $112.6 million of secured debt maturities during the remainder of 2020, in addition to the commercial paper subsequently repaid in April. Management expected to fund liquidity needs through property cash flows, borrowings, debt or equity issuance, and dispositions. No quantitative earnings or operating guidance was provided.
- Other notable items: Adoption of the expected-credit-loss standard resulted in an approximately $2.2 million cumulative-effect reduction to retained earnings, primarily related to notes receivable. UDR recorded $1.3 million of net casualty-related charges. A Seattle community sale was pending at March 31; another Seattle community sold in May for $92.9 million, with a reported gain of approximately $31.7 million.
- Principal risks: COVID-19 and related government measures; economic deterioration and rent collection; market and geographic concentration; rent-control and eviction laws; access to and cost of refinancing; variable interest rates; development and construction execution; joint-venture and borrower performance; property impairment, environmental and casualty exposures; and REIT qualification and distribution requirements. UDR reported no material off-balance-sheet arrangements and did not expect ordinary-course litigation to have a material adverse effect.
Important facts for investors to verify
- Subsequent rent collections, delinquencies, concessions, occupancy and leasing trends as the pandemic’s effects developed beyond April 2020.
- Available liquidity and borrowing capacity after commercial-paper repayment, along with future maturities, refinancing costs and compliance with debt covenants.
- Whether same-store rent growth and NOI can offset expense increases and any decline in demand or collections.
- Development budgets, completion timelines, lease-up assumptions and the company’s remaining funding commitments.
- The sustainability of the $0.36 quarterly common distribution relative to recurring cash needs and REIT distribution requirements; reported FFO, FFOA and AFFO are non-GAAP measures and are not substitutes for GAAP cash flow.
- Realization and timing of proceeds from the pending and completed property sales, and any effect of asset sales or impairments on future results.