UDR, Inc. — 2016 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2016, with unaudited quarterly data, including the quarter ended December 31. UDR is a multifamily REIT focused on apartment communities in high-barrier-to-entry U.S. markets. At year-end, its consolidated portfolio comprised 127 communities and 39,454 completed homes; it also held interests in 27 unconsolidated communities with 6,849 homes.
Financial and operating metrics
| Metric | 2016 | Prior comparable period |
|---|---|---|
| Rental income | $948.5 million | $871.9 million in 2015 |
| Total revenue | $959.9 million | $894.6 million in 2015 |
| Net income attributable to common stockholders | $289.0 million; $1.08 diluted EPS | $336.7 million; $1.29 diluted EPS |
| Same-Store rental income / NOI growth | 5.7% / 6.5% | 5.6% / 6.7% in 2015 |
| Same-Store occupancy / operating margin | 96.7% / 71.3% | 96.7% / 70.8% in 2015 |
| FFO per diluted share and unit | $1.80 | $1.66 in 2015 |
| FFO as Adjusted per diluted share and unit | $1.79 | $1.67 in 2015 |
| AFFO per diluted share and unit | $1.63 | $1.51 in 2015 |
| Cash from operating activities | $536.9 million | $458.6 million in 2015 |
| Cash used in investing / financing | $112.3 million / $429.3 million | $265.5 million / $201.6 million used in 2015 |
| Total debt, net | $3.40 billion | $3.57 billion at year-end 2015 |
Same-Store revenue growth reflected higher rents and fee income; higher property taxes partly offset NOI gains. Companywide total property NOI increased 9.6% to $673.1 million. The common dividend declared was $1.18 per share, up 6.3% from 2015; cash dividends paid were $1.1625 per share.
Material changes versus 2015
- Rental income rose 8.8%, while same-store physical occupancy was stable. Same-Store rent growth was the primary driver of revenue gains.
- Common-stockholder net income declined despite higher rental income and NOI, principally because net gains on real estate sales fell to $210.9 million from $251.7 million. Depreciation and amortization increased $45.0 million.
- FFO and AFFO per share/unit increased, while GAAP diluted EPS decreased. These supplemental non-GAAP measures exclude or adjust for items including real estate sale gains; they are not substitutes for GAAP earnings or operating cash flow.
- UDR sold eight apartment communities totaling 1,782 homes and other assets, recognizing $210.9 million of net-of-tax gains. It acquired 508 homes and increased its ownership in two Bellevue communities to 100%, consolidating them and recognizing a $36.4 million gain on consolidation.
- UDR issued $300 million of 2.95% senior unsecured notes due 2026 and raised $173.2 million net through a common-stock offering. It repaid $375.3 million of secured debt and $83.3 million of notes due in 2016.
Liquidity, outlook, risks and unusual items
- At December 31, UDR had $2.1 million of cash, $1.1 billion of unused revolving-credit capacity (excluding letters of credit), and $53.7 million of unused working-capital facility capacity. Management stated that operating cash flow and borrowing capacity should meet operating needs and REIT distribution requirements.
- About $432 million of UDR debt was variable-rate, or 12.7% of total debt. Management estimated a 100-basis-point rate increase would raise annual interest expense by $6.5 million, based on average variable debt outstanding. Debt covenants were met at year-end.
- Approximately $51 million of secured debt was scheduled to mature in 2017; the company expected to repay it using operating cash, capital-market proceeds, asset-sale proceeds, or credit facilities. In January 2017, UDR established a commercial-paper program of up to $500 million; $120 million was outstanding by February 17 at a weighted average annualized rate of 1.16%.
- Two wholly owned developments totaling 1,101 homes had a budget of $708.5 million, with $342.3 million incurred at year-end and estimated completion in 2018 and 2019. Contractual obligations also included $366.2 million of remaining development costs and $78.4 million of UDR’s proportionate share of unconsolidated-joint-venture commitments.
- No specific 2017 earnings or rent-growth guidance was provided. Management noted that revenue growth could be affected by economic weakness, occupancy declines, concessions, new supply, bad debt and other market factors. Stated risks also include construction delays or cost overruns, competition, interest rates and refinancing, natural disasters and uninsured losses, environmental liabilities, cybersecurity, and maintaining REIT qualification.
- Legal proceedings arose in the ordinary course; management could not determine ultimate liability but did not expect an unprovided loss to materially affect financial condition, results or cash flow. No material off-balance-sheet arrangements were reported. The company reported effective disclosure controls and internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and UDR’s internal controls.
Most important facts for investors to verify
- Reconcile GAAP earnings with the large, episodic real-estate sale gains and the Bellevue consolidation gain; assess underlying recurring earnings separately.
- Review the definitions and reconciliations of NOI, FFO, FFO as Adjusted and AFFO, and compare them cautiously with other REITs’ measures.
- Track same-store rent growth, occupancy, concessions and property-tax expense, particularly amid new apartment supply and management’s qualified 2017 outlook.
- Check development spending, completion schedules, remaining commitments and expected returns against project budgets.
- Monitor debt maturities, variable-rate exposure, covenant capacity, commercial-paper use and the availability and cost of refinancing.
- Assess dividend coverage using operating cash flow and recurring capital needs; declared distributions are subject to board discretion and REIT requirements.