UDR, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; interim financial statements are unaudited. UDR is a multifamily REIT. At quarter-end, its consolidated portfolio comprised 135 communities and 42,292 homes; it also held interests in 31 unconsolidated communities with 7,895 homes.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $281.3 million | $259.7 million | $552.0 million | $513.0 million |
| Net income attributable to UDR common stockholders | $34.6 million | $19.6 million | $58.1 million | $100.4 million |
| Diluted EPS | $0.12 | $0.07 | $0.21 | $0.37 |
| Total property NOI | $199.7 million | $183.3 million | $389.4 million | $359.9 million |
| Same-store NOI growth | 4.2% | — | 4.1% | — |
| Same-store operating margin | 72.2% | 71.9% | 71.9% | 71.6% |
Q2 revenue increased about 8% and common-stockholder income rose about 76% year over year. Same-store occupancy was 96.9% in Q2, unchanged year over year; monthly income per occupied home rose 3.7% to $2,183. For the six months, FFO per diluted share and unit was $1.05 versus $0.96; adjusted FFO was $1.02 versus $0.97, and AFFO was $0.96 versus $0.90. These are non-GAAP measures.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $286.4 million, up from $255.1 million. Investing cash outflow was $806.0 million, chiefly reflecting acquisitions; financing cash inflow was $334.7 million.
- Cash, cash equivalents and restricted cash totaled $24.0 million at June 30, down from $208.9 million at year-end; unrestricted cash alone was $1.0 million.
- Total debt, net, was $3.871 billion, versus $3.548 billion at December 31, 2018; weighted-average interest rate was 3.64% and weighted-average years to maturity were 4.9. Secured debt was $598.4 million and unsecured debt was $3.272 billion.
- Commercial paper outstanding was $392 million of a $500 million program. The $1.1 billion revolver had no borrowings; the $75 million working-capital facility had $33.4 million outstanding. UDR reported compliance with debt covenants.
- UDR had $555.1 million of variable-rate debt not covered by swaps; a 100-basis-point rate increase would have raised six-month interest expense by an estimated $2.2 million, based on average balances.
Material changes and notable items
- Q2 results benefited from higher property NOI, a $5.3 million gain on a Los Angeles land sale, and improved income from unconsolidated entities. Six-month common income declined from 2018 largely because the prior-year period included a $70.3 million gain on an operating-community sale.
- Six-month interest expense rose $6.4 million year over year, primarily from higher average debt and rates and lower capitalized interest. Depreciation and amortization also increased with acquisitions and homes delivered from prior development.
- UDR acquired multiple communities and land parcels during the first half; acquisition of real estate assets used $730.8 million of cash. It raised $212.9 million net through its at-the-market share program, primarily to fund acquisitions.
- A $8.5 million promoted-interest payment from early repayment of a note increased six-month interest and other income. In July 2019, UDR issued $300 million of 3.20% notes due 2030 and sold 2.2 million ATM shares for approximately $99.4 million net.
Outlook, risks and contingencies
- No quantified earnings or operating guidance is provided in the supplied filing text. Management expects operating cash flow and borrowing capacity to meet operating needs, distributions and planned capital spending; future capital needs may also be funded by debt or equity issuance and property sales.
- UDR expected approximately $392 million of commercial paper and $69.6 million of secured debt to mature during the remainder of 2019. It expected a 2019 closing on a planned acquisition of the remaining 70% interest in a community for about $128.8 million. A further $83.6 million acquisition agreement was entered in July.
- A ground-lease rent reset was in process and could increase right-of-use assets by up to $146.5 million and lease liabilities by up to $140.6 million. UDR also disputed a ground-lease reset; the affected annual payment could rise from $0.5 million to an estimated $1.2–$4.0 million.
- Key disclosed risks include market rents, occupancy and supply; geographic concentration (53.6% of six-month NOI came from the Washington, D.C. area, Orange County, San Francisco Bay Area and New York); interest-rate and refinancing exposure; acquisitions and joint ventures; natural disasters and insurance; cybersecurity; and rent regulation. New York enacted rent-control legislation in June 2019.
- Routine legal matters were not expected by management to have a material adverse effect. The filing reports no material off-balance-sheet arrangements and effective disclosure controls.
Investor verification priorities
- Separate recurring operating growth from sale gains and the $8.5 million promoted-interest item; review comparable FFO and AFFO reconciliations.
- Track same-store rent growth, occupancy, operating expenses and property taxes, especially across UDR’s concentrated markets.
- Confirm refinancing of commercial paper and other 2019 maturities, the use of July debt and equity proceeds, and remaining liquidity after acquisitions.
- Monitor the disputed ground-lease reset and the potential additional lease liability from rent resets.
- Verify closing, funding and expected returns for announced acquisitions and development-capital investments, and assess dilution from ATM share issuance.