UDR, Inc. — Q2 2010 Form 10-Q
Reporting period: Three and six months ended June 30, 2010; balance-sheet comparisons are to December 31, 2009. UDR is a multifamily REIT. At quarter-end it owned and consolidated 168 communities with 46,932 homes; its total portfolio, including unconsolidated communities, comprised 179 communities and 51,075 homes.
Financial results and key metrics
Unless otherwise noted, amounts are in millions. Cash-flow figures are for the six months ended June 30.
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Total revenue | $156.0 | $155.8 | $310.9 | $311.4 |
| Net loss attributable to common stockholders | $(29.0) | $(14.9) | $(55.4) | $(30.3) |
| Loss per common share, diluted | $(0.18) | $(0.10) | $(0.35) | $(0.21) |
| FFO per share, diluted | $0.27 | $0.34 | $0.55 | $0.69 |
| Operating cash flow | $101.8 | $124.0 | ||
| Investing cash flow | $(122.2) | $10.1 | ||
| Financing cash flow | $22.5 | $(141.8) |
- Q2 expenses were $182.5 million, up from $169.8 million; loss from continuing operations was $27.8 million versus $14.7 million.
- Apartment portfolio rental income increased 1.6% in Q2 and 1.2% year to date, but property NOI declined 1.0% and 1.1%, respectively, as operating costs grew faster.
- Same-community Q2 NOI fell 3.4%; for the six months it fell 3.9%. Same-community physical occupancy was 95.8%, while rental rates and income per occupied home declined. Same-community operating margin fell to 66.7% in Q2 from 67.7%, and to 66.4% year to date from 67.3%.
- Cash and cash equivalents were $8.1 million at June 30, compared with $6.0 million at year-end; marketable securities were $37.9 million. Total assets were $5.08 billion and total equity was $1.37 billion.
- Secured debt was $1.96 billion and unsecured debt $1.45 billion, or $3.41 billion combined. Secured debt had a 4.23% weighted-average rate and 5.2-year weighted-average maturity. The filing reports approximately $892 million of variable-rate indebtedness, 26.1% of total debt.
Material changes and financing
- Common shares outstanding rose to 163.0 million from 155.5 million at year-end. The at-the-market program generated $103.4 million net proceeds in the first half from 5.9 million shares sold.
- UDR issued $150 million of 5.25% senior unsecured notes in February. It repaid $29.2 million face value of 2011 convertible notes for $29.4 million, recording a $1.0 million extinguishment loss.
- UDR repaid $83.8 million of secured debt, received $51.9 million of secured borrowings, and made net repayments of $55.4 million on its $600 million unsecured revolver. The revolver had $133.9 million outstanding and $466.1 million unused capacity, excluding letters of credit.
- The company repaid construction loans associated with consolidated Bellevue joint ventures and bought its partners’ remaining 49% interests in three ventures, increasing its interests to 98%. No community acquisitions or dispositions occurred in the first half.
- Common distributions declared declined to $0.18 per share in Q2 from $0.305 in Q2 2009; first-half distributions were $0.36 versus $0.485 per share.
Outlook, risks, and unusual items
- No specific earnings or FFO guidance is provided. Management expects recurring capital expenditures in 2010 of approximately $1,050 per home. The wholly owned development pipeline comprised 1,104 homes, with a $218.2 million budget and expected completion through Q1 2012.
- Management said operating cash flow and credit facilities are expected to cover short-term needs; longer-term requirements may be funded with debt or equity issuance and property dispositions. Approximately $134.6 million of secured debt, including amortization, matures during the rest of 2010; management anticipated exercising extensions on $131.7 million.
- Key risks include weak rental markets, rent and occupancy pressure, operating-cost increases, refinancing and interest-rate exposure, development and construction risks, capital-market access, and potential uninsured weather or other losses. The company also identifies REIT qualification, tax, environmental, regulatory, and joint-venture risks.
- Derivative positions included $7.7 million of net liability exposure under agreements with credit-related provisions; no collateral had been posted, but a qualifying breach could require settlement at that amount. Management estimated $5.2 million of accumulated hedge losses would be reclassified as higher interest expense through June 2011.
- Management reported compliance with debt covenants, effective disclosure controls, no material change in internal control over financial reporting, and no legal matter expected to have a material adverse effect. The filing states interim results are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether rent trends, concessions, bad debt, and occupancy support a recovery in same-community NOI and margins.
- Debt maturities, extension availability, covenant headroom, and the effect of higher rates on variable-rate debt and refinancing costs.
- Cash needs and returns for development commitments, capital expenditures, and consolidated joint-venture properties.
- The impact of continued equity issuance and reduced common distributions on per-share results and investor returns.
- Actual operating cash generation versus FFO; FFO is a non-GAAP measure and is not a substitute for cash flow.