UDR, Inc. — Q1 2014 Form 10-Q
Business context and period: UDR is a multifamily REIT that owns, develops, renovates, and manages apartment communities. This summary covers the three months ended March 31, 2014, compared with Q1 2013; balance-sheet comparisons are to December 31, 2013. Amounts are U.S. dollars. UDR reported 143 consolidated communities with 41,455 homes, plus interests in 35 unconsolidated communities with 9,791 homes.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $198.0 million | $184.9 million |
| Operating income | $26.5 million | $29.6 million |
| Net income attributable to UDR | $18.4 million | Net loss of $0.3 million |
| Net income attributable to common stockholders; diluted EPS | $17.4 million; $0.07 | Net loss of $1.2 million; $0.00 |
| Net cash from operating activities | $82.5 million | $66.7 million |
| Cash and cash equivalents at period end | $15.9 million | $30.2 million at year-end 2013 |
| Total debt at period end | $3.63 billion; 3.95% weighted average rate | $3.52 billion at year-end 2013 |
- Rental income was $194.4 million, up 6.8%. Total property NOI, a non-GAAP measure, rose 5.4% to $132.1 million. Same-store NOI increased 5.6%; same-store rental income grew 4.5% and operating expenses 2.2%. Same-store occupancy was 96.2%, and operating margin improved to 69.5% from 68.8%.
- Net income included a $24.4 million gain on a San Diego property and adjacent land sale. Excluding the sale gain, the filing reports a $5.2 million loss from continuing operations. The reported profit improvement therefore should not be viewed as wholly recurring.
- FFO was $94.1 million basic and $95.0 million diluted, versus $91.2 million and $92.1 million, respectively, in Q1 2013. FFO as adjusted was $94.5 million versus $89.3 million; AFFO was $87.9 million versus $82.5 million. Diluted FFO per share was $0.36 and AFFO per share $0.33. These are supplemental non-GAAP measures, not substitutes for GAAP earnings or cash flow.
- Cash flow from investing was an outflow of $136.7 million, mainly reflecting acquisitions, development, capital spending, and joint-venture investments; financing provided $39.8 million. Common distributions declared were $0.26 per share, up from $0.235.
- Total assets were $6.83 billion and total liabilities $3.85 billion. Secured debt was $1.44 billion and unsecured debt $2.19 billion. The $900 million revolver had $287.5 million drawn, leaving $612.5 million of capacity before $2.2 million of letters of credit. UDR said it was in compliance with debt covenants.
Material changes and unusual items
- UDR early adopted ASU 2014-08 for disposals from January 1, 2014. The new standard generally requires a disposal to represent a strategic shift to qualify as discontinued operations. Accordingly, the San Diego sale gain was presented in gain on sale of real estate rather than discontinued operations; the filing says the change in presentation did not affect net income available to common stockholders.
- Operating cash flow increased year over year, while total capital expenditures on communities (excluding development and commercial properties) fell 33% to $20.1 million, primarily because major renovations declined.
- Q1 included a $0.5 million casualty loss from an earthquake-damaged California property. Q1 2013 included a $3.0 million Hurricane Sandy insurance recovery, a year-over-year comparison item.
- UDR acquired a fully entitled Huntington Beach land parcel for approximately $78 million. It sold a San Diego property and adjacent land for $48.7 million gross proceeds and recognized a $24.4 million gain.
- After quarter-end, UDR paid off $128.5 million of 5.50% notes due April 2014 using revolver borrowings. On April 21, it also paid approximately $82 million to increase its interest in six MetLife joint-venture communities from 12% to 50%.
Outlook, commentary, and risks
- Management gave no specific earnings or FFO guidance in the supplied filing text. It said operating cash flow and credit-facility borrowings should be adequate for operating needs and distributions, with debt maturities, acquisitions, and development funded through borrowings, securities issuance, and/or property dispositions.
- UDR had three wholly owned communities under development: 874 homes, $400.4 million budget, and $222.6 million carrying value; expected completion was through Q2 2015. Recurring capital expenditures for 2014 were projected at approximately $1,100 per home.
- Approximately $171.0 million of secured and unsecured debt maturities were listed for the remainder of 2014 as of March 31; the April repayment addressed the $128.5 million note maturity. Debt maturities, refinancing access, interest rates, and revolver usage remain important liquidity considerations.
- UDR reported $696.8 million of variable-rate debt not subject to interest-rate swaps; a 100-basis-point rate increase was estimated to raise quarterly interest expense by $1.8 million based on the period’s average balance. Risks cited include apartment-market weakness, rent and occupancy pressure, development and construction delays or cost overruns, natural disasters and uninsured losses, joint-venture dependencies, and REIT qualification.
- Management said ordinary-course legal claims were not expected to have a material adverse effect, reported no material off-balance-sheet arrangements, and concluded disclosure controls were effective at a reasonable-assurance level.
Key facts for investors to verify
- How much of Q1’s GAAP profit reflected the $24.4 million property-sale gain, and how comparable results appear under the new discontinued-operations presentation.
- Whether same-store rent, occupancy, and NOI trends persist, and whether operating-cost growth—particularly utilities, taxes, and insurance—accelerates.
- Post-quarter-end debt and joint-venture transactions, remaining 2014 maturities, revolver availability, and the funding plan for development and redevelopment commitments.
- Development delivery, lease-up, and budget performance, including the stated 874-home pipeline and expected completion schedule.
- Whether FFO and AFFO growth converts into sustainable operating cash flow after recurring capital requirements and distributions.