UDR, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. UDR is a multifamily REIT; figures below are consolidated UDR, Inc. unless noted. Dollar amounts are in millions except per-share data.
Business context and portfolio
UDR owned and consolidated 138 communities with 43,683 apartment homes across 13 states and Washington, D.C. Its broader portfolio included 29 additional communities with 7,453 homes through unconsolidated ventures. Same-store communities comprised 38,177 homes for the quarter.
Financial results and key metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $295.4 | $266.1 | $847.4 | $779.2 |
| Net income attributable to UDR, Inc. | $27.2 | $18.6 | $87.3 | $121.0 |
| Net income attributable to common stockholders | $26.2 | $17.6 | $84.3 | $118.1 |
| Diluted EPS | $0.09 | $0.07 | $0.30 | $0.44 |
| Total property NOI | $203.6 | $184.8 | $593.1 | $544.7 |
| FFO per diluted share/unit | $0.53 | $0.49 | $1.57 | $1.44 |
| AFFO per diluted share/unit | $0.48 | $0.44 | $1.44 | $1.34 |
Q3 same-store NOI increased 3.9%; same-store rental income rose 3.7%, physical occupancy was 96.9%, and monthly income per occupied home increased 3.6% to $2,206. The same-store operating margin was 71.1%, versus 71.0% in Q3 2018.
For the first nine months, operating cash flow was $456.9, compared with $406.7 in 2018. Investing cash flow was a use of $1,382.8, principally reflecting real estate acquisitions; financing cash flow provided $740.6. Cash, cash equivalents, and restricted cash totaled $23.5 at quarter-end, including $1.9 of unrestricted cash and equivalents.
At September 30, total debt, net, was $3,935.9, up from $3,547.8 at year-end 2018; the weighted-average interest rate was 3.63% and weighted-average years to maturity were 6.9. Secured debt was $600.6 and unsecured debt was $3,335.3. UDR reported compliance with debt covenants. Liquidity included an undrawn $1.1 billion revolver, $440.0 of unused commercial-paper capacity, and $40.6 of unused working-capital facility capacity.
Material changes and notable items
- Revenue grew 11% in Q3 and about 9% for the nine-month period. Nine-month common-stockholder income and diluted EPS declined from 2018, principally because the prior-year period included a $70.3 gain on an operating-community sale; depreciation and interest expense also increased.
- UDR acquired communities and land during 2019; cash paid for real estate acquisitions was $1,269.6 for the nine months. Acquisitions helped lift non-mature-community NOI and increased depreciation expense.
- In August, UDR agreed to acquire MetLife’s approximately 50% interests in 10 operating communities, a development community, and four land parcels (valued at $1.1 billion, or $557 million at UDR’s share), and sell its approximately 50% interests in five operating communities (valued at $645 million, or $323 million at UDR’s share). Closing was expected in Q4 2019, subject to customary conditions and adjustments.
- UDR issued $300 million of 3.20% notes due 2030 and $400 million of 3.00% notes due 2031. It also raised equity: $312.3 net through its ATM program and approximately $349.8 net from a separate 7.5 million-share offering during the nine months.
- In October 2019, after quarter-end, UDR issued $400 million of notes due 2030 and 2034 to refinance $400 million of 4.63% notes due 2022. The 2034 notes were designated green bonds.
- UDR adopted the new lease standard in January 2019, recording $94.3 of right-of-use assets and $88.3 of lease liabilities at adoption. At quarter-end, those balances were $135.9 and $130.1, respectively.
Outlook, commentary, and risks
The filing provides no specific earnings or operating guidance. Management said it expects short-term liquidity needs to be met through property operating cash flow and borrowings, and longer-term needs through operating cash flow, debt or equity issuance, and/or property dispositions. Management considered operating cash flow and available borrowing sources adequate for operating needs and REIT distributions. It noted that apartment leases generally have terms of 12 months or less, allowing rents to adjust, and said inflation’s direct effects had not materially affected results to date.
Key disclosed risks include apartment-market weakness, competition and supply, rent and occupancy pressure, rising property costs and taxes, development and acquisition execution, joint-venture and counterparty risks, interest rates and refinancing, insurance gaps and natural disasters, cybersecurity, and changing regulation. UDR highlighted the geographic concentration of approximately 51% of nine-month NOI in Washington, D.C., Orange County, the San Francisco Bay Area, and New York. It also cited newly enacted rent-protection laws in New York and California. Routine litigation was disclosed; management did not expect it to have a material adverse effect. UDR reported no material off-balance-sheet arrangements and no impairment charges on unconsolidated investments in the periods presented.
Investor verification priorities
- Verify same-store rent growth, occupancy, expense trends, and NOI by region, especially in the concentrated major markets.
- Review the MetLife portfolio transaction’s closing, final pricing adjustments, financing, and expected operating contribution.
- Assess acquisition returns against added depreciation, higher debt, equity issuance, and the substantial nine-month investment cash outflow.
- Confirm post-quarter refinancing terms and the use of proceeds, including the planned repayment of the 2022 notes.
- Monitor available liquidity, commercial-paper reliance, debt maturities, interest-rate exposure, and covenant compliance.
- Review rent-control and tenant-protection developments, property-tax and operating-cost increases, and the potential impact on rent growth and margins.