UDR, Inc. — Q3 2011 Form 10-Q Summary
Business context and reporting period
UDR is a multifamily REIT that owns, acquires, develops, renovates and manages apartment communities. This unaudited filing covers the quarter and nine months ended September 30, 2011, with comparisons to 2010. At quarter-end, UDR consolidated 172 communities with 49,674 homes and also held interests in 38 unconsolidated communities with 10,108 homes.
Financial results and key metrics
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $192.5 million | $152.3 million | $534.3 million | $440.9 million |
| Net loss attributable to common stockholders | $15.6 million; $0.07/share | $26.1 million; $0.16/share | $33.7 million; $0.17/share | $81.5 million; $0.51/share |
| Funds from operations (FFO), diluted | $0.32/share | $0.27/share | $0.93/share | $0.81/share |
| Net cash from operating activities | Not provided quarterly | Not provided quarterly | $182.9 million | $157.5 million |
- Q3 property NOI, including discontinued operations, was $123.4 million, up 22.3%; nine-month NOI was $349.4 million, up 17.6%. Same-community NOI increased 7.0% in Q3 and 4.8% year to date. Same-community occupancy was 95.6% in Q3; its operating margin was 66.6%, versus 65.3% a year earlier.
- Loss from continuing operations was $25.6 million in Q3 versus $28.6 million in 2010, and $85.7 million for nine months versus $84.4 million. Reported net loss improved largely because income from discontinued operations rose to $11.8 million in Q3 and $58.2 million year to date, including property-sale gains of $11.4 million and $56.1 million, respectively.
- At September 30, total debt was approximately $4.0 billion, based on balance-sheet secured debt, debt on properties held for sale and unsecured debt. Cash and cash equivalents were $13.5 million, with a further $19.6 million of restricted cash. UDR reported $362 million drawn on its $600 million unsecured revolver and compliance with debt covenants.
- Nine-month cash flows: investing used $1.087 billion and financing provided $907.9 million. Investing outflows reflected acquisitions, development and capital spending. The filing reported $1.539 billion of contractual purchase prices for 2011 acquisitions; this includes properties acquired through an asset exchange.
- UDR raised approximately $496.3 million net from a July common-stock offering and approximately $368.2 million net through at-the-market programs during the first nine months. Shares outstanding increased from 182.5 million at year-end 2010 to 219.0 million at September 30, 2011.
Material changes versus the prior comparable period
- Revenue and NOI grew substantially, reflecting acquisitions as well as improved same-community rents and operating performance. Same-community physical occupancy remained around 95.5%–95.6%.
- Common-stockholder losses narrowed, but the improvement in GAAP net loss was materially supported by property-sale gains. FFO per share also increased, offering a supplemental view that excludes real-estate sale gains and depreciation.
- Real-estate depreciation and amortization increased 27.7% in Q3 and 22.7% year to date, primarily due to acquisitions and completed development and redevelopment projects. Interest expense also increased; year-to-date results included a $4.0 million write-off of deferred financing costs associated with debt prepayment.
- Debt and real estate expanded, with acquisitions funded through a combination of equity issuance, debt assumption and borrowing. Investing cash use more than doubled from the prior-year period.
Outlook, risks, contingencies and unusual items
- Management said operating cash flow and credit-agreement borrowings were expected to meet near-term needs; longer-term requirements, including maturities, development and acquisitions, could be funded with borrowings, securities issuance and property dispositions. Management did not provide specific earnings or FFO guidance in the supplied filing text.
- The wholly owned development pipeline comprised 1,641 homes, with a reported budget of $524.3 million and $192.9 million carrying value; completion was anticipated through Q4 2013. Recurring capital expenditures for 2011 were estimated at approximately $1,050 per home.
- On October 25, 2011, after quarter-end, UDR replaced its $600 million revolver with a $900 million facility, with a four-year initial term, one-year extension option and ability to increase capacity to $1.35 billion.
- Management highlighted risks from economic and apartment-market weakness, rent and occupancy pressure, acquisition and development execution, refinancing and credit availability, interest rates, property sales, insurance and environmental exposures, REIT qualification and possible equity dilution. UDR estimated that a 100-basis-point increase in rates would raise annual interest expense by $2.4 million on its $240.4 million of variable-rate debt not subject to swaps.
- UDR indemnified a former partner in connection with guarantees on loans to joint ventures: $156 million was outstanding at quarter-end against $506 million of guarantees. Separately, UDR had $16.2 million of derivative net liabilities subject to credit-related provisions that could require settlement if triggered; no collateral had been posted. Management said ordinary-course litigation was not expected to have a material adverse effect. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much of revenue and NOI growth reflects same-community performance versus newly acquired properties, and whether rent growth and occupancy remain durable.
- How much of the improvement in GAAP losses depends on property dispositions, and whether FFO growth translates into sustainable cash available for distributions.
- Acquisition financing, leverage, refinancing needs and liquidity after the October 2011 revolver replacement; also review maturity schedules and covenant headroom.
- Actual development costs, completion and lease-up timing, and remaining funding commitments compared with the stated pipeline budget.
- Potential dilution from equity issuance, and the status of the joint-venture indemnity and derivative collateral triggers.