UDR, Inc. — 2013 Form 10-K Summary
Business context and reporting period
This is UDR, Inc.’s annual report for the fiscal year ended December 31, 2013, with separate consolidated reporting for its operating partnership, United Dominion Realty, L.P. UDR is a multifamily REIT. At year-end, its consolidated portfolio comprised 141 communities and 41,250 completed homes; it also held interests in 37 unconsolidated communities with 9,909 homes. The filing is annual, though it includes fourth-quarter results.
Financial and operating metrics
| UDR, Inc. metric | 2013 | 2012 |
|---|---|---|
| Total revenue | $758.9 million | $716.6 million |
| Rental income | $746.5 million | $704.7 million |
| Net income attributable to UDR | $44.8 million | $212.2 million |
| Net income attributable to common stockholders | $41.1 million; $0.16 per share | $203.4 million; $0.85 per share |
| Cash from operating activities | $339.9 million | $327.2 million |
| Cash used in investing activities | $123.2 million | $211.6 million |
| Cash used in financing activities | $198.6 million | $116.0 million |
| FFO, diluted / FFO per diluted share | $380.5 million / $1.44 | $354.5 million / $1.40 |
FFO as adjusted was $368.1 million ($1.39 per diluted share), versus $340.3 million ($1.35) in 2012; AFFO was $325.4 million ($1.23 per diluted share), versus $298.1 million ($1.18). These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Same-store revenue rose 4.9% and NOI rose 6.0% to $424.5 million. Same-store physical occupancy averaged 96.0%, monthly income per occupied home was $1,488, and NOI margin increased to 69.2%. The company declared common distributions of $0.94 per share for 2013, up 7% year over year; $0.925 per share was paid during the year.
At December 31, UDR reported total debt of $3.524 billion ($1.442 billion secured and $2.082 billion unsecured), cash and cash equivalents of $30.2 million, total assets of $6.808 billion, and stockholders’ equity of $2.812 billion. Its $900 million unsecured revolving facility had no borrowings outstanding, excluding letters of credit. UDR reported $404.7 million of variable-rate debt; a 100-basis-point increase was estimated to raise annual interest expense by $5.5 million based on average debt outstanding.
For the fourth quarter, rental income was $190.3 million. Net income attributable to common stockholders was $35.8 million, including $41.4 million of discontinued-operations income; continuing operations reported a $3.4 million loss.
Material changes versus the prior comparable period
- Revenue increased 5.9%, while operating cash flow increased 3.9%.
- Full-year common-stockholder net income declined to $41.1 million from $203.4 million. The principal driver was lower property-sale gains: $41.9 million in 2013 versus $260.4 million in 2012, when UDR sold 21 communities compared with two in 2013. A 2012 tax valuation-allowance reversal also boosted the prior-year comparison.
- Same-store NOI growth was supported by higher rents, occupancy, and fee and reimbursement income, partly offset by higher operating expenses, particularly real estate taxes and personnel costs.
- Total debt increased by approximately $114 million year over year. UDR issued $300 million of 3.70% senior notes due 2020, re-priced and extended $350 million of term loans, and extended its revolving facility maturity to December 2017.
- UDR invested $279.6 million in wholly owned development and $92.1 million in redevelopment. It sold a 50% interest in Vitruvian Park partnerships to MetLife for about $141.3 million and sold a 49% interest in the 399 Fremont development for about $29.9 million.
Outlook, commentary, risks and unusual items
No specific 2014 revenue, earnings, FFO, or same-store growth guidance is provided. Management projected recurring capital expenditures of approximately $1,100 per home in 2014. The development pipeline included six wholly owned projects with a $697.6 million budget and expected completion dates through the second quarter of 2015; redevelopment work was expected to extend through the third quarter of 2014. Management stated that liquidity from property operations and credit facilities should meet operating needs and distributions, while long-term needs may be funded through debt or equity issuance, joint ventures, or asset dispositions.
- Management cautioned that 2014 revenue growth could be affected by weaker economic conditions, lower occupancy, concessions, new supply, bad debt, and other pressures on rents. Higher property expenses, especially taxes and wages, could constrain margins.
- Development and redevelopment carry cost-overrun, permitting, schedule, financing, lease-up, and demand risks. In the fourth quarter, the Rivergate redevelopment budget expanded to pursue additional revenue opportunities; further interior renovations at 27 Seventy Five Mesa Verde were deferred because of lower-than-expected submarket demand.
- Other principal risks include refinancing and interest-rate exposure, competition, joint-venture partner constraints, property impairment, natural disasters and insurance limitations, environmental liabilities, and maintaining REIT qualification. The company reported compliance with debt covenants at year-end.
- Hurricane Sandy insurance settlements produced a 2013 recovery and casualty gain; UDR reported a net $12.3 million hurricane-related recovery in its income statement. The 2013 results also included an $8.3 million pretax gain on the sale of its 95% interest in the Lodge at Stoughton joint venture.
- Legal proceedings arose in the ordinary course; management did not expect any uninsured or otherwise unprovided liability to materially affect financial condition, results, or cash flow. Ernst & Young issued unqualified opinions on UDR’s financial statements and internal controls; management reported effective controls.
Important facts for investors to verify
- Reconcile GAAP earnings with recurring operating performance, particularly the effect of property-sale gains, discontinued operations, tax benefits, and hurricane recoveries.
- Review the debt maturity schedule, the January 2014 repayment of $184 million of notes using the revolving facility, and capacity to fund 2014 maturities and committed development costs.
- Assess same-store rent and occupancy trends against market supply, real estate tax increases, and operating expense growth.
- Track development and redevelopment budgets, completion and lease-up progress, especially Rivergate and 27 Seventy Five Mesa Verde.
- Evaluate joint-venture exposures, guarantees, participation rights, and the risks and repayment terms of the $40.8 million bridge loan provided in connection with the Lodge at Stoughton sale.
- Confirm dividend coverage using appropriate cash-flow measures; the filing cautions that FFO and AFFO are non-GAAP measures and do not necessarily represent cash available for distributions.