UDR, Inc. — Q2 2013 Form 10-Q
Business context and period: UDR is a multifamily REIT that owns, develops, renovates and manages apartment communities. This filing covers the quarter and six months ended June 30, 2013; financial statements are unaudited. At quarter-end, UDR consolidated 141 communities with 41,153 apartment homes and also held interests in unconsolidated communities. Unless noted, amounts below are UDR, Inc. consolidated figures.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $191.8 million | $180.2 million | $379.1 million | $355.4 million |
| Operating income | $31.5 million | $17.5 million | $62.0 million | $33.1 million |
| Income from continuing operations | $5.4 million | Loss of $23.1 million | $5.0 million | Loss of $21.4 million |
| Net income attributable to common stockholders | $4.3 million | $145.7 million | $3.1 million | $226.6 million |
| Diluted earnings per common share | $0.02 | $0.62 | $0.01 | $0.99 |
| FFO as Adjusted per diluted share | $0.35 | $0.33 | $0.69 | $0.66 |
| AFFO per diluted share | $0.31 | $0.28 | $0.62 | $0.58 |
- Same-store operations: Same-store NOI increased 6.8% in Q2 and 6.4% for the first half. Q2 same-store rental income rose 5.2%; occupancy was 96.1% and monthly income per occupied home was $1,472. The same-store operating margin improved to 69.3% in Q2 from 68.2%.
- Portfolio NOI: Total property NOI was nearly flat in Q2, down 0.2%, and decreased 1.2% for the first half. Lower NOI from communities sold in 2012 offset same-store gains.
- Cash flow: First-half operating cash flow was $172.4 million, versus $151.7 million a year earlier. Investing used $35.9 million, compared with $75.5 million provided in 2012; financing used $139.6 million, versus $55.6 million used. Cash and equivalents ended at $9.0 million.
- Debt and liquidity: Total debt was $3.395 billion at June 30, down from $3.409 billion at year-end 2012; weighted average interest rate was 4.20%, with 4.7 years’ weighted average maturity. Secured debt was $1.385 billion and unsecured debt $2.010 billion. UDR had $228.5 million drawn on its $900 million revolving facility, leaving $671.5 million of unused capacity before letters of credit. It reported compliance with debt covenants.
- Balance sheet and distributions: Total assets were $6.744 billion, total liabilities $3.639 billion, and total equity $2.867 billion. Common distributions declared were $0.235 per share for Q2 and $0.47 for the first half.
Material changes versus the prior period
- Reported common-stockholder net income fell sharply year over year because 2012 included gains on property sales: $172.0 million for Q2 and $252.5 million for the first half. UDR reported no sales classified as discontinued operations in the first half of 2013.
- Continuing results improved, with higher operating income and lower interest expense. Q2 interest expense declined 25.9% and first-half expense declined 19.0%, primarily reflecting lower debt balances and interest rates.
- Same-store NOI growth was supported by higher rents, occupancy and fee/reimbursement income. Real estate taxes and personnel costs rose, partly offset by lower repairs and maintenance.
- First-half capital expenditures were $88.9 million, up 29.4% year over year, primarily due to major renovations and redevelopment. Recurring capital expenditures were $19.0 million, versus $19.9 million.
Outlook, commentary, risks and unusual items
- Management said operating cash flow and credit facilities were expected to meet near-term requirements, including dividends; longer-term needs may be funded through debt or equity issuance, property dispositions and operating cash flow. No specific earnings or rent-growth guidance is provided in the filing text.
- UDR projected recurring capital expenditures of approximately $1,020 per home for 2013. Its wholly owned development pipeline comprised six communities and 1,976 homes, with a $782.5 million budget, $433.7 million carrying value, and expected completion through Q2 2015; 142 homes were completed by quarter-end.
- In June, UDR sold a 50% interest in the Vitruvian Park partnerships to MetLife for approximately $141.3 million. The approximately $436,000 gain was deferred pending completion of a development community, projected for year-end 2013. UDR guaranteed completion of that development.
- Hurricane Sandy insurance proceeds resulted in Q2 and first-half net recoveries of $2.8 million and $5.8 million, respectively, at UDR. Rehabilitation of two affected communities was expected to finish in Q3 2013; one property remained under redevelopment.
- Interest-rate sensitivity: UDR reported $569.6 million of variable-rate debt not subject to swaps and estimated a 100-basis-point rate increase would add $6.1 million to interest expense, based on average balances. Refinancing, rates, apartment demand and rents, development costs and timing, insurance coverage, joint-venture obligations, and REIT qualification are among the disclosed risks.
- Routine legal claims were not expected by management to have a material adverse effect. Disclosure controls were assessed as effective at a reasonable-assurance level. Management reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- Compare GAAP earnings with FFO, FFO as Adjusted and AFFO; the filing cautions these non-GAAP measures are not substitutes for GAAP earnings or cash flow and may not be comparable across REITs.
- Review the debt maturity schedule, especially the disclosed $359.6 million due in 2014, $750.1 million in 2015 and $568.9 million in 2016, and assess refinancing plans and available liquidity.
- Track same-store rent and NOI growth against rising real estate taxes, personnel costs, redevelopment spending and lower NOI from disposed properties.
- Monitor development and redevelopment budgets, lease-up progress, the Vitruvian Park completion guarantee, and any further joint-venture funding needs.
- Check subsequent insurance recoveries and completion of Hurricane Sandy repairs, and assess the effect of variable interest rates and future refinancing on distributions.