UDR, Inc. — 2010 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2010; the filing also provides unaudited fourth-quarter results. This combined filing reports UDR, Inc. and its operating partnership, United Dominion Realty, L.P. UDR is a multifamily REIT. At year-end, UDR had 172 consolidated communities with 48,553 completed homes and interests in 37 unconsolidated communities with 9,891 homes.
Financial performance and position
- Revenue: UDR rental income was $632.2 million, up 5.3% from $600.7 million in 2009; total revenue was $646.6 million, versus $615.0 million.
- Profitability: Net loss attributable to common stockholders was $112.4 million, or $0.68 per diluted share, compared with a $95.9 million loss, or $0.64 per share, in 2009. The 2010 loss from continuing operations was $111.3 million. Fourth-quarter rental income was $168.0 million; common-stockholder net loss was $30.8 million, or $0.17 per share.
- NOI and margins: Total property NOI was $404.7 million, up 3.3%, while same-community NOI fell 1.7% to $358.0 million. Same-community physical occupancy improved 0.4 percentage points to 95.7%, but rental rates declined 2.4%; higher occupancy and lower concessions partly offset the rate decline. Same-community operating margin decreased to 66.3% from 66.8%.
- FFO: Diluted funds from operations were $192.8 million, up from $184.6 million in 2009. FFO is a supplemental non-GAAP measure and is not cash flow or a substitute for GAAP net income.
- Cash flow: Operating cash flow was $214.2 million, down from $229.4 million. Investing used $583.8 million, mainly for property acquisitions and unconsolidated joint-venture investments; financing provided $373.1 million, including equity issuance.
- Debt and liquidity: Year-end debt totaled $3.57 billion ($1.96 billion secured and $1.60 billion unsecured), versus $3.43 billion in 2009. Cash and cash equivalents were $9.5 million. The $600 million unsecured revolver had $31.8 million drawn and $568.2 million of unused capacity, excluding letters of credit; UDR reported compliance with its credit-facility covenants. About $1 billion of UDR debt was variable-rate and not covered by swaps; a 100-basis-point increase was estimated to raise interest expense by $9.3 million.
- Distributions and equity: UDR declared $0.73 per common share for 2010, compared with $0.85 in 2009. It issued 24.5 million common shares through an underwritten offering and its at-the-market program, generating approximately $467.6 million of net proceeds in total.
Changes from the prior year
- Rental income and total property NOI increased, but same-community NOI declined as lower rent rates and higher operating costs outweighed occupancy improvement. Same-community rental income decreased 0.9%; operating expenses increased 0.6%.
- Net loss attributable to common stockholders widened by $16.5 million. Drivers included higher depreciation, increased severance and restructuring charges, and less favorable debt-extinguishment results than in 2009. Lower losses from unconsolidated entities partly offset these factors; 2009 included a $16 million noncash impairment charge on joint-venture investments.
- UDR acquired five operating communities with 1,374 homes for $412 million and land in San Francisco for $23.6 million; it sold one 149-home community. It also invested $100.8 million for interests in the UDR/MetLife venture.
Outlook, notable items, and risks
- Management gave no specific 2011 earnings, rent-growth, or occupancy guidance in the supplied filing text. It expected 2011 recurring capital expenditures of approximately $1,050 per apartment home. Four wholly owned projects totaling 930 homes were under development, with estimated completion dates from 2012 through 2013.
- UDR expected to address 2011 maturities with debt and equity offerings and secured-debt extensions. Its stated 2011 maturities were approximately $63.4 million of secured debt, net of extension rights, and $95.8 million of unsecured debt.
- Unusual 2010 items included $6.8 million of severance and restructuring charges related to centralizing functions in Colorado and an executive retirement; a roughly $1 million loss on unsecured-debt repurchases; a $4.7 million gain on sale of marketable securities; and a $2.1 million reversal of certain tax accruals. The sale of one community generated an approximately $4 million after-tax gain.
- UDR indemnified Hanover for liabilities associated with Hanover’s guarantee of $333 million of loans tied to the MetLife venture; the company anticipated refinancing those loans within 12 months. UDR also reported $240.963 million of unfunded development commitments at year-end.
- Key stated risks include weak economic and apartment-market conditions, unemployment, rent concessions or lower rents, operating-cost inflation, refinancing and interest-rate exposure, development and lease-up execution, joint-venture obligations, property impairment, environmental and casualty risks, and maintaining REIT qualification. Ordinary-course legal claims were reported; management did not expect them to have a material adverse effect. UDR reported effective disclosure controls and internal control over financial reporting.
Most important facts for investors to verify
- Whether same-community rent trends and NOI improve, and whether occupancy gains can offset rent pressure and expense growth.
- Debt maturities, available revolver capacity, extension rights, covenant headroom, and sensitivity to higher rates.
- How the $333 million MetLife-related guaranteed loans are refinanced and whether additional joint-venture funding is required.
- Development budgets, remaining funding needs, completion timing, and lease-up results for the 930-home pipeline.
- The sustainability of FFO and common distributions relative to operating cash flow, capital needs, debt service, and share dilution.