UDR, Inc. — Q1 2019 Form 10-Q
Business context and reporting period
UDR is a multifamily REIT that owns, operates, acquires, renovates, develops, and manages apartment communities. This filing covers the quarter ended March 31, 2019, with comparisons to Q1 2018. At quarter-end, UDR consolidated 131 communities with 41,041 homes and had interests in 32 additional unconsolidated communities with 8,112 homes.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Total revenue | $270.7 million | $253.3 million |
| Net income attributable to UDR | $24.5 million | $81.8 million |
| Net income attributable to common stockholders | $23.5 million; $0.08 per diluted share | $80.8 million; $0.30 per diluted share |
| Operating cash flow | $137.3 million | $132.3 million |
| Investing cash flow | $(459.7) million | $(24.6) million |
| Financing cash flow | $137.7 million | $(108.6) million |
| Total property NOI | $189.7 million | $176.6 million |
| Total debt, net | $3.59 billion | $3.55 billion at Dec. 31, 2018 |
| Cash and restricted cash | $24.2 million | $208.9 million at Dec. 31, 2018 |
- Revenue increased about 6.9%. Same-store rental income rose 3.8%, same-store NOI rose 4.1%, and same-store operating expenses rose 3.0%. Same-store physical occupancy was 96.8%, down 0.1 percentage point; same-store operating margin was 71.5%, versus 71.3%.
- FFO per diluted share and unit was $0.51 versus $0.47; FFOA was $0.50 versus $0.47; AFFO was $0.47 versus $0.45. These are non-GAAP measures.
- Debt had a weighted-average interest rate of 3.73% and weighted-average years to maturity of 5.5. UDR reported covenant compliance. Its $1.1 billion unsecured revolver was undrawn, while $54.3 million of the $75 million working-capital facility and $90 million of commercial paper were outstanding.
Material changes and unusual items
- Common-stockholder net income fell primarily because Q1 2018 included a $70.3 million gain from a property sale; UDR recorded no real-estate sale gains in Q1 2019.
- UDR reported $8.5 million of promoted interest income from repayment of a note, contributing to the increase in interest and other income to $9.8 million from $2.8 million.
- Investing cash outflow increased with acquisitions. UDR acquired two operating communities through exercise of joint-venture purchase options, two other operating communities, and development land in Washington, D.C., and Denver. It spent $403.2 million on real-estate acquisitions.
- UDR raised $192.2 million net through its ATM program by issuing 4.4 million shares, primarily to fund acquisitions. Total capital expenditures rose to $34.4 million from $15.3 million, including $12.5 million for its operations platform, including smart-home installations.
- Adoption of lease accounting standards added $94.1 million of right-of-use assets and $88.2 million of lease liabilities. A ground-lease rent reset under review could increase these balances by up to $146.7 million and $140.7 million, respectively, during the remainder of 2019.
Outlook, risks, and contingencies
Management said operating cash flow, credit facilities, commercial paper, and access to debt or equity markets and property sales are expected to support liquidity needs, distributions, capital improvements, and acquisitions. No specific earnings or operating guidance was provided. UDR expected to repay approximately $70.6 million of secured debt and $90.0 million of commercial paper maturing during the remainder of 2019. It had no communities under development at quarter-end and was redeveloping two communities, with completion expected in Q4 2020 and Q1 2021.
- One ground-lease rent reset is in dispute; annual payments could rise from the current $0.5 million to between $1.2 million and $4.0 million, depending on the outcome.
- UDR had a contract to acquire a 313-home community in Pennsylvania for about $108.5 million, expected to close in Q2 2019 subject to customary conditions; its $5.4 million deposit was generally non-refundable except for failure of closing conditions.
- Management said routine legal matters were not expected to materially adversely affect the company. Key disclosed risks include apartment-market and rental-rate weakness, higher property expenses, geographic concentration, interest-rate and refinancing risk, development and acquisition execution, natural disasters, cybersecurity, and changes to rent-control or REIT-related laws.
- About 51.8% of Q1 NOI came from Washington, D.C., Orange County, the San Francisco Bay Area, and New York, increasing exposure to conditions in those markets.
Important facts for investors to verify
- Whether same-store rent growth and NOI growth persist while expense growth, including taxes and repairs, remains controlled.
- How the acquisitions perform, including the communities consolidated from joint ventures, and whether acquisition spending produces expected returns.
- Funding plans for near-term maturities and future investment, given low unrestricted cash, substantial acquisition outflows, and reliance on capital markets and credit facilities.
- The outcome and potential financial effect of the ground-lease rent reset dispute and the proposed Pennsylvania acquisition.
- The effect of ATM share issuance and other potential equity issuance on per-share results and shareholder distributions.