UDR, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; balance-sheet comparisons are with December 31, 2011. UDR is a multifamily REIT. Unless noted, financial figures below are UDR, Inc. consolidated amounts.
Business context and operating performance
At quarter-end, UDR consolidated 157 communities with 45,969 apartment homes and also held interests in 44 unconsolidated communities with 11,110 homes. Its consolidated real estate portfolio was concentrated in 11 states and the District of Columbia.
- Rental income was $172.2 million, up 25.0% from $137.8 million; total revenue was $175.9 million, up 23.6% from $142.3 million.
- Across continuing and discontinued apartment operations, property rental income increased 10.4% to $185.4 million, and property NOI rose 14.2% to $124.7 million. Same-community NOI increased 8.1%; same-community occupancy was 95.4%, down 0.3 percentage points, while monthly income per occupied home rose 5.6% to $1,302.
- Net income attributable to UDR common stockholders was $80.8 million, or $0.37 per diluted share, compared with a loss of $30.2 million, or $0.17 per share, a year earlier. Continuing-operations loss attributable to common stockholders was $0.02 per share versus $0.19 per share in Q1 2011.
- FFO was $82.6 million, or $0.36 per basic share, compared with $55.9 million, or $0.30, in the prior-year quarter. FFO is a non-GAAP measure and excludes, among other items, the property-sale gain and the one-time tax benefit.
- Net cash provided by operating activities was $70.0 million, up from $48.0 million. Investing used $224.4 million, primarily reflecting joint-venture investments and development; financing provided $145.4 million. Cash and cash equivalents ended the quarter at $3.6 million, with restricted cash of $24.2 million.
Financial position, debt and liquidity
- Total assets were $6.94 billion and total liabilities were $4.15 billion. Secured debt was $1.81 billion and unsecured debt was $2.10 billion, or $3.91 billion combined.
- Secured debt carried a 4.13% weighted-average rate and 4.8-year weighted-average maturity. UDR reported $5.0 billion of real estate unencumbered by secured debt, based on gross book value. It was in compliance with debt covenants at March 31.
- The $900 million unsecured revolving facility had $197 million outstanding and $5 million of letters of credit. UDR also had $1.0 billion outstanding under Fannie Mae facilities with a $1.2 billion aggregate commitment.
- UDR issued $400 million of 4.625% notes due 2022. Its at-the-market program sold approximately 8.57 million shares for $220.2 million gross proceeds and $215.8 million net proceeds. Common shares outstanding increased to 227.97 million from 219.65 million at year-end.
- Management expected to meet short-term needs through operating cash flow and borrowings, and longer-term needs through debt or equity issuance and property dispositions. Approximately $201.7 million of secured debt was due during the remainder of 2012, net of $59.5 million of extension rights; no unsecured debt was scheduled to mature in that period.
Material changes, outlook and risks
- Q1 GAAP income was substantially affected by two nonrecurring items: an $80.5 million gain on sales of depreciable property and a $22.9 million tax benefit from reversing a taxable REIT subsidiary deferred-tax valuation allowance. UDR sold six communities with 1,576 homes; 14 communities with 4,918 homes were held for sale at quarter-end.
- Management attributed improved operating cash flow and NOI largely to stronger apartment operations and communities acquired in 2011. Same-community rental-rate growth was a key driver; occupancy edged lower. Management did not provide specific full-year earnings or FFO guidance.
- UDR had five wholly owned developments totaling 1,748 homes, with a $601.1 million budget, $225.8 million carrying value, and anticipated completion through Q4 2013. Expected costs to complete wholly owned projects were $375.3 million. 2012 recurring capital expenditures were expected to be approximately $1,150 per home.
- After quarter-end, UDR established an equity distribution agreement permitting sales of up to 20 million additional shares. It also announced redemption of all Series G preferred shares on May 31, 2012, at $25 per share plus accrued dividends, an expected cash outlay of $81.6 million plus dividends.
- Key risks include apartment-market weakness, rent and occupancy pressure, operating-cost inflation, development and lease-up execution, property-sale and refinancing risk, interest-rate exposure, and reliance on capital markets and Fannie Mae financing. UDR reported that a 100-basis-point increase in variable rates would increase annual interest expense by $2.6 million for the stated $261.1 million unhedged balance. Derivative agreements can also require collateral or settlement following specified credit events.
- Legal claims arise in the ordinary course; management did not expect them to have a material adverse effect. UDR reported effective disclosure controls. The earnings-to-fixed-charges exhibit showed a $3.1 million shortfall versus 1:1 coverage for UDR, and an $8.5 million shortfall for the Operating Partnership.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring apartment operations versus the property-sale gain and deferred-tax valuation-allowance reversal.
- Whether FFO growth and same-community rent growth persist, given slightly lower occupancy and rising property taxes.
- Development budgets, remaining commitments, completion timing, and the returns realized on recent joint-venture investments.
- Funding plans for 2012 secured maturities and the Series G preferred-stock redemption, including potential further equity issuance and dilution.
- Joint-venture exposure, including the indemnity related to Hanover-guaranteed loans and the anticipated refinancing of $51 million of remaining loans.