UDR, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are with December 31, 2014. UDR is a multifamily REIT. At quarter-end, it owned 138 consolidated communities with 39,956 homes and held interests in 28 unconsolidated communities with 6,696 homes. Unless noted otherwise, amounts are U.S. dollars.
Financial performance and condition
| Metric | Q1 2015 | Q1 2014 or prior date |
|---|---|---|
| Total revenue | $219.8 million | $198.0 million |
| Net income attributable to UDR common stockholders; diluted EPS | $72.9 million; $0.28 | $17.4 million; $0.07 |
| Same-store NOI | $122.2 million; up 6.2% | $115.0 million |
| Total property NOI | $143.6 million; up 8.7% | $132.1 million |
| Operating cash flow | $96.0 million | $82.5 million |
| Investing cash flow | $(49.5) million | $(136.7) million |
| Financing cash flow | $(55.4) million | $39.8 million |
| FFO, diluted; FFO as Adjusted, diluted; AFFO | $116.0 million; $108.4 million; $101.1 million | $95.0 million; $94.5 million; $87.9 million |
Same-store rental income rose 5.1%; physical occupancy increased 0.6 percentage point to 96.7%, and monthly income per occupied home rose 4.6% to $1,659. Same-store operating expenses increased 2.5%, lifting the same-store NOI margin to 70.4% from 69.7%. Common distributions declared were $0.2775 per share, versus $0.2600 a year earlier.
At March 31, total assets were $6.86 billion and total debt was $3.52 billion, comprising $1.37 billion secured and $2.15 billion unsecured debt. Debt averaged 3.62% interest with 4.4 years weighted-average maturity. Cash and cash equivalents were $6.3 million, with $23.3 million restricted cash. UDR had $389 million drawn on its $900 million revolving facility and approximately $511 million of unused capacity, excluding letters of credit. Approximately 73.3% of real estate gross book value was unencumbered. The company reported compliance with debt covenants.
Material changes versus the prior period
- GAAP earnings increased sharply, principally because UDR recorded $59.2 million of income from unconsolidated entities, including a $59.1 million gain and $9.6 million of promote and disposition fees from the January sale of eight communities held in a Texas joint venture. The gain included $24.2 million of previously deferred gains. This was an equity-method joint venture sale, not a sale of consolidated properties.
- Q1 2014 included a $24.3 million after-tax gain on the sale of a consolidated property and adjacent land; there were no consolidated real estate sales in Q1 2015. These differing sale-related items limit the comparability of GAAP earnings.
- FFO as Adjusted, diluted, increased to $108.4 million from $94.5 million; per diluted share it was $0.40 versus $0.36. AFFO increased to $101.1 million from $87.9 million, or $0.37 versus $0.33 per diluted share.
- Interest expense declined 12.4% to $28.8 million, mainly reflecting repayment of $325.2 million of 5.25% notes at maturity in January and replacement financing at lower rates. Total debt declined from $3.58 billion at year-end.
- UDR issued 3.44 million common shares through its equity distribution program for $108.8 million net proceeds, primarily to fund development and redevelopment.
Outlook, commentary, risks and unusual items
- Management expects operating cash flow and credit-facility borrowings to meet short-term needs; longer-term needs may be funded through debt or equity issuance, asset dispositions and operating cash flow. The filing provides no specific full-year earnings or FFO guidance.
- UDR had one wholly owned development community with 369 planned homes, 108 completed, a $217.7 million budget and $196.7 million carrying value; completion was estimated for Q2 2015. Two wholly owned redevelopment projects had $90.4 million incurred against a $113.0 million budget. The filing reports $249.1 million of expected costs to complete across the listed development, redevelopment and joint-venture commitments, including UDR’s proportionate share where applicable.
- After quarter-end, UDR entered an agreement to invest $136 million for a 48% interest in five communities under construction, with closing expected in May 2015. UDR expects a 6.5% preferred return through stabilization and has options to acquire the remaining interests; exercising all options would bring the stated total purchase price to $597 million.
- Approximately $194.9 million of UDR debt, including scheduled principal amortization, matures during the remainder of 2015. The filing also lists $663.2 million due in 2017 and $874.9 million in 2018, including the revolving facility maturity and other debt.
- UDR reported $816.2 million of variable-rate debt not subject to swaps; a 100-basis-point rate increase would have raised quarterly interest expense by an estimated $2.1 million based on average balances. Hedging instruments are used for interest-rate risk management, not trading. Derivative agreements may require collateral or settlement after specified defaults or adverse credit events.
- Severe east-coast snowstorms resulted in $1.0 million of casualty charges at UDR; the Operating Partnership separately reported $0.6 million for an earthquake-related loss. Management stated routine litigation is not expected to have a material adverse effect. Key risks include apartment demand and rent competition, development and lease-up execution, weather and other uninsured losses, refinancing and interest-rate exposure, joint-venture partner risks, and maintaining REIT status.
Important facts for investors to verify
- How much of reported earnings growth is recurring property performance versus the Texas joint-venture gain and fees; compare GAAP earnings with FFO as Adjusted and AFFO.
- Whether same-store rent growth and occupancy can continue to outpace property expense growth, including real estate taxes and personnel costs.
- Funding plans for 2015 maturities and the larger 2017–2018 debt schedule, as well as available revolving capacity and exposure to variable rates.
- Development budgets, costs to complete and delivery timing, plus the funding and economics of the Wolff joint venture and its purchase options.
- Effects of share issuance and distributions on per-share results, and the potential impact of market, insurance, joint-venture, legal and REIT-related risks.