UDR, Inc. — 2019 Form 10-K Summary
Business context and reporting period
UDR is a U.S. multifamily REIT; this annual report covers the fiscal year ended December 31, 2019, with comparative 2018 results and selected quarterly data. At year-end, UDR reported 148 consolidated communities in 20 markets, with 47,010 completed homes, plus interests in 5,268 homes through unconsolidated ventures and partnerships. The Operating Partnership (OP) is a separately reporting subsidiary and operates 52 communities with 16,434 homes.
Key financial metrics
| Metric | 2019 | 2018 / change |
|---|---|---|
| Total revenue | $1.152 billion | $1.047 billion; up 10.1% |
| Net income attributable to UDR common stockholders | $180.9 million; $0.63 diluted per share | $199.2 million; $0.74 per share |
| Same-store revenue / NOI growth | 3.6% / 4.0% | Same-store NOI grew 3.4% in 2018 |
| Same-store occupancy / operating margin | 96.9% / 71.8% | Occupancy unchanged; margin was 71.5% |
| FFO per diluted share and unit | $2.03 | $1.93 |
| FFOA / AFFO per diluted share and unit | $2.08 / $1.92 | $1.96 / $1.80 |
| Cash from operating activities | $630.7 million | $560.7 million |
| Cash used in investing activities | $1.687 billion | $113.5 million |
| Cash from financing activities | $880.4 million | Cash used: $260.1 million |
| Total debt, net | $4.708 billion | $3.548 billion |
| Cash and restricted cash | $33.3 million | $208.9 million |
Fourth-quarter 2019 rental income was $302.7 million; net income was $105.2 million and net income attributable to common stockholders was $96.9 million, or $0.33 per diluted share. UDR declared $1.37 in common dividends per share for 2019, up 6.2% from 2018; $1.35 was paid during the year.
Material changes versus the prior comparable period
- Revenue rose primarily from acquisitions and rent growth. Same-store NOI increased $26.7 million, supported by higher rents and ancillary income, partly offset by higher repairs and real estate taxes.
- Common-stockholder net income declined 9.2%. Higher depreciation, interest expense and debt-prepayment costs, and substantially lower gains on sales of consolidated real estate more than offset operating growth and higher income from unconsolidated entities. The latter included a $114.9 million UDR share of gains from a joint-venture transaction.
- Operating cash flow improved, while investing cash outflow expanded sharply due largely to acquisitions and increased capital investment. Year-end cash and restricted cash fell substantially.
- UDR acquired eight communities totaling 2,919 homes for approximately $911.9 million, acquired development land, and consolidated additional joint-venture interests. The filing’s broader acquisition activity includes interests brought onto UDR’s consolidated balance sheet.
- Capital spending excluding development rose 40.3% to $157.9 million, including $27.4 million for the operations platform and $35.6 million for major renovations.
Outlook, risks and unusual items
- The filing does not provide a clear numerical 2020 earnings or same-store growth guidance. Management cautioned that revenue growth could be affected by the economy, occupancy, concessions, new supply, bad debt and rent levels.
- UDR was developing three wholly owned communities totaling 878 homes, with a $278.5 million budget and expected completion from Q1 2021 through Q2 2022. Two communities with 653 homes were in redevelopment; completion was expected in Q1 2021.
- 2019 financing included approximately $1.1 billion of new senior unsecured notes at weighted average stated rates around 3.0%–3.2%; $700 million of higher-rate notes was prepaid. UDR also raised approximately $725 million net through ATM, forward-sale and public common-stock offerings. A $300 million 2034 issuance was designated a green bond.
- At year-end, UDR had $300 million of commercial paper outstanding, $200 million of unused commercial-paper capacity, a $1.1 billion revolving facility with no borrowings, and $350 million outstanding under its term loan. Approximately $410.6 million of debt was scheduled to mature in 2020, including $300 million of commercial paper. Management expected to meet obligations through operating cash flow, borrowings, and debt or equity issuance and asset dispositions.
- Interest-rate exposure included $378.6 million of variable-rate debt; a 100-basis-point increase was estimated to raise annual interest expense by $3.5 million. The filing also identifies LIBOR’s planned transition to SOFR as a risk.
- Geographic concentration is material: 52.7% of 2019 NOI came from Washington, D.C. (16.2%), Orange County (14.2%), San Francisco Bay Area (12.2%) and New York City (10.1%). Rent regulation, including newly enacted California and New York laws, could constrain rent increases.
- Other principal risks include apartment-market competition and supply, lease renewal and rent collection, acquisition and development execution, refinancing and capital-market access, joint-venture and preferred-equity exposures, uninsured property losses, climate and natural hazards, cybersecurity, environmental liability, and continued REIT qualification.
- UDR reported ordinary-course legal proceedings but said any liability not covered by insurance was not expected to materially affect its financial condition, results or cash flow. The auditor issued an unqualified opinion; management and the auditor concluded financial reporting controls were effective. The critical audit matter concerned fair-value allocations for 2019 real-estate acquisitions.
Important facts for investors to verify
- Reconcile reported GAAP earnings with FFO, FFOA and AFFO, including the effect of joint-venture gains and debt-extinguishment costs; these supplemental measures are not substitutes for GAAP cash flow or earnings.
- Review the acquisition and joint-venture consolidations, related assumed debt, and the one-time gains that materially affected reported results.
- Assess debt maturities, commercial-paper refinancing, available facility capacity, interest-rate exposure and the sizable 2019 equity issuance and resulting share-count increase.
- Track same-store rent and expense trends, occupancy, repair costs, real-estate taxes, new supply and the effects of rent-control laws in major markets.
- Monitor development and redevelopment budgets, completion dates, lease-up and returns against cost of capital, as well as the $115 million secured note and purchase option for the Bellevue project.
- Evaluate dividend coverage and the board’s discretion over future distributions; REIT status generally requires distribution of at least 90% of REIT taxable income.