UDR

UDR, Inc. 2009 Annual Report (10-K) Summary

Business Context and Reporting Period

UDR, Inc. is a self-administered Real Estate Investment Trust (REIT) owning, acquiring, renovating, developing, and managing apartment communities nationwide. The reporting period covers the fiscal year ended December 31, 2009. As of year-end, the consolidated portfolio included 165 communities with 45,913 completed apartment homes across 23 markets. The company also held an interest in 3,992 homes through unconsolidated joint ventures.

Key Financial Metrics

Note: The 2008 net income included $786.4 million in gains from discontinued operations (property sales), whereas 2009 had no property dispositions.

Material Changes vs. Prior Period

• Net Income Volatility: The company reported a net loss of $95.9 million in 2009 compared to a net income of $688.7 million in 2008. This shift was primarily due to the absence of significant property sale gains in 2009 (which totaled $786.4 million in 2008) and a $16.0 million non-cash charge for other-than-temporary impairment of unconsolidated joint ventures.
• Debt Reduction: UDR aggressively reduced its debt load, repaying $159.6 million of secured debt and $658.2 million of unsecured debt. This included a tender offer and open market repurchases of unsecured debt, resulting in a $9.8 million gain on extinguishment.
• Dividend Policy Adjustment: To preserve capital, the company reduced its regular quarterly dividend from $0.33 to $0.18 per share beginning in the second quarter of 2009. Total distributions declared in 2009 were $0.845 per share, down from $2.29 in 2008 (which included a special dividend).
• Portfolio Consolidation: The company consolidated three joint ventures (Elements Too, 989 Elements, and Bellevue Plaza) in late 2009 after acquiring control, increasing its ownership interest to 98% in each.

Guidance, Outlook, and Risks

• Capital Strategy: Management continues to focus on strengthening the portfolio in high-barrier-to-entry markets (California, DC Metro, Oregon, Washington State) and maintaining access to low-cost capital. An "At the Market" equity program generated approximately $67.2 million in net proceeds in 2009.
• Development Pipeline: As of year-end, the company had 1,576 homes under development with a budget of $258.6 million, expected to be completed in 2010.
• Key Risks:
  • Market Conditions: Unfavorable economic conditions could adversely affect occupancy levels and rental rates.
  • Refinancing Risk: Approximately $237.4 million of secured debt and $50.0 million of unsecured debt mature in 2010. The company anticipates refinancing these obligations but notes that market disruptions could impact terms or availability.
  • Interest Rate Risk: The company had $709.2 million in variable-rate debt; a 100 basis point increase would increase interest expense by approximately $6.0 million.

Investor Verification Checklist

• Debt Maturities: Verify the company's ability to refinance the ~$287 million in debt maturing in 2010 given current credit market conditions.
• FFO vs. Net Income: Review Funds from Operations ($178.3 million) as the primary performance metric, as GAAP net income is distorted by non-recurring property sale gains in prior years and impairment charges.
• Joint Venture Impairments: Assess the impact of the $16.0 million impairment charge on unconsolidated joint ventures and the subsequent consolidation of those entities.
• Dividend Sustainability: Confirm the sustainability of the reduced $0.18 quarterly dividend against current cash flow from operations and debt service requirements.
• Development Costs: Monitor capital expenditure requirements for the 1,576 homes currently under development to ensure they remain within budget.