UDR

UDR, Inc. Q1 2009 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 2009. UDR, Inc. is a self-administered Real Estate Investment Trust (REIT) that owns, acquires, renovates, develops, and manages apartment communities nationwide. As of the reporting date, the portfolio consisted of 161 communities with 44,571 apartment homes across 10 states and the District of Columbia.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Income Volatility: The company reported a net loss of $12.6 million in Q1 2009 compared to a net income of $723.7 million in Q1 2008. This drastic decline is primarily due to the absence of significant property disposition gains in 2009. In Q1 2008, the company recognized a net gain of $767.1 million from the sale of 84 communities.
• Operating Performance: Despite the net loss, core operations remained relatively stable. Property Net Operating Income (NOI) decreased by 6.2% to $99.1 million, driven by a 9.6% decrease in rental income offset by a 15.6% decrease in operating expenses.
• Same Community Metrics: For "Same Communities" (stabilized properties), NOI increased by 1.9% year-over-year. Physical occupancy rose slightly to 94.7%, and total income per occupied home increased to $1,176.
• Debt Management: The company actively managed its debt load, repurchasing $159.6 million of unsecured debt for $150.0 million, resulting in a $7.1 million gain on extinguishment. Total secured debt increased to $1.72 billion, while unsecured debt decreased to $1.64 billion.
• Capital Expenditures: Total capital expenditures decreased 42.9% to $18.2 million, largely due to the reduced portfolio size following 2008 dispositions.

Guidance, Outlook, and Risks

• Outlook: Management does not anticipate significant disposition activity for the remainder of 2009. The strategy focuses on repositioning the portfolio by exiting non-core markets and concentrating on high-barrier-to-entry markets (e.g., Southern California, Northern California, Florida, DC Metro).
• Liquidity: The company expects to meet short-term liquidity needs through operating cash flows and credit facilities. It has approximately $130.9 million of secured debt and $92.0 million of unsecured debt maturing in the remainder of 2009, which it plans to repay using cash on hand or borrowings.
• Risks: Key risks include unfavorable apartment market conditions affecting occupancy and rental rates, refinancing risk due to tight credit markets, and the potential for uninsured losses from natural disasters. The company notes that disruptions in financial markets may impact the availability and cost of credit.
• Subsequent Event: On May 4, 2009, the company received full payment of a $200 million note receivable (plus accrued interest) from a 2008 property sale.

Investor Verification Checklist

• Disposition Gains: Verify that the Q1 2008 net income figure is not indicative of recurring earnings, as it was heavily inflated by one-time gains from selling 84 communities.
• Debt Maturities: Confirm the company's ability to refinance or repay the ~$223 million in debt maturing in late 2009 given current credit market conditions.
• FFO vs. Net Income: Focus on Funds from Operations (FFO) of $55.0 million as a more accurate measure of ongoing operational performance than GAAP net income.
• Occupancy Trends: Monitor the 94.7% occupancy rate for same communities to ensure stability in the face of economic downturns.
• Capital Expenditures: Review the reduction in capital expenditures to ensure it does not negatively impact long-term asset value or future rental growth.