UDR

UDR, Inc. Q1 2008 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2008. UDR, Inc. is a self-administered Real Estate Investment Trust (REIT) that owns, acquires, renovates, develops, and manages apartment communities nationwide. As of the reporting date, the portfolio included 156 communities with 43,559 apartment homes. The company is a large accelerated filer incorporated in Maryland.

Key Financial Metrics

Material Changes vs. Prior Period

• Discontinued Operations Impact: The dramatic increase in Net Income ($725.3M vs $31.8M) is primarily driven by a $767.1 million gain on the sale of depreciable property (84 communities, 25,140 homes, and one commercial unit) classified as discontinued operations. In Q1 2007, gains on sales were $37.1 million.
• Continuing Operations Loss: Excluding discontinued operations, the company reported a loss from continuing operations of $13.3 million in Q1 2008, compared to a loss of $13.2 million in Q1 2007.
• Portfolio Reduction: The weighted average number of homes decreased 19.1% to 56,853 due to significant dispositions. Physical occupancy for the total portfolio was 91.8% (down 0.9% from 92.7% in 2007).
• Debt Reduction: Total debt decreased by approximately $320 million. The company repaid $67.6 million of secured debt and $576.9 million of unsecured debt, utilizing proceeds from property sales.
• Share Repurchases: The company repurchased 4,386,500 shares of common stock at an average price of $23.33 per share, reducing the share count.

Outlook, Risks, and Management Commentary

• Strategy: Management continues to execute a strategy of exiting markets with limited long-term growth prospects and redeploying capital into core markets (Southern California, Florida, Metropolitan Washington DC) believed to offer the best investment returns.
• Liquidity: The company maintains a $600 million unsecured revolving credit facility (unused as of March 31, 2008) and $748.9 million in secured Fannie Mae facilities ($117.2 million unused). Cash on hand increased significantly to $60.2 million due to disposition proceeds.
• Development: Capital expenditures for development increased to $24.0 million. The company has commitments to complete development projects with an estimated cost to complete of $289.3 million (wholly owned) and $161.0 million (joint ventures).
• Risks: Key risks include unfavorable changes in apartment market conditions affecting occupancy and rental rates, refinancing risk on maturing debt, and the potential failure of new acquisitions or developments to achieve anticipated results. The company notes that a significant portion of sale proceeds may be held in escrow for Section 1031 like-kind exchanges, limiting immediate cash access.
• Unusual Items: The $767.1 million gain on sales is a non-recurring item. Additionally, a $5.1 million gain on debt extinguishment reduced interest expense.

Investor Verification Checklist

• Discontinued Operations: Verify the sustainability of earnings by analyzing Funds from Operations (FFO) and Net Operating Income (NOI) from continuing operations, as Net Income is heavily skewed by one-time asset sales.
• Occupancy Trends: Monitor the 0.9% decline in physical occupancy and the 9.3% decrease in property rental income to assess market headwinds in core regions.
• Debt Maturities: Review the schedule of debt maturities, noting $9.5 million of secured and $75.9 million of unsecured debt maturing in the remainder of 2008, and the company's plan to refinance or repay these obligations.
• 1031 Exchange Escrow: Confirm the status of the $348.3 million held in escrow for Section 1031 exchanges and the timeline for redeployment into new acquisitions.
• Share Count: Track the impact of the active share repurchase program (17.5 million shares remaining authorized) on future earnings per share.