UDR, Inc. — Q2 2011 Form 10-Q Summary
Business context and reporting period
UDR is a REIT that owns, acquires, develops, renovates and manages apartment communities. This combined filing covers the quarter and six months ended June 30, 2011, with comparisons to the same 2010 periods. Unless stated otherwise, financial results below are for UDR, Inc. and its consolidated subsidiaries; interim results are unaudited.
At quarter-end, UDR had 170 consolidated communities with 48,556 homes and interests in 37 unconsolidated communities with 9,891 homes. Its wholly owned development pipeline comprised five communities and 1,250 homes.
Financial performance and position
| UDR, Inc. metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Total revenue | $179.6 million | $148.7 million | $347.9 million | $294.5 million |
| Loss from continuing operations | $(29.9) million | $(28.5) million | $(59.7) million | $(55.9) million |
| Net income/(loss) attributable to common stockholders | $12.1 million | $(29.0) million | $(18.1) million | $(55.4) million |
| Common-stock earnings/(loss) per share | $0.06 | $(0.18) | $(0.10) | $(0.35) |
| FFO per common share, basic | $0.32 | $0.27 | $0.61 | $0.55 |
| Common distributions declared per share | $0.200 | $0.180 | $0.385 | $0.360 |
Revenue rose 20.8% in Q2 and 18.1% for the six-month period. Property NOI, including continuing and discontinued operations, increased 17.9% to $116.7 million in Q2 and 15.2% to $225.9 million in the first half. Same-community NOI increased 5.1% in Q2 and 3.9% in the first half. Same-community physical occupancy was 95.7% in Q2, down 0.1 percentage point year over year; average monthly income per occupied home rose 1.5% to $1,181. The same-community operating margin was 67.0% in Q2 versus 66.0%, and 66.5% for the first half versus 66.0%.
Q2 common-stock income chiefly reflects a $44.7 million gain on property sales reported in discontinued operations; continuing operations remained in loss. For the six months, UDR also recorded a $3.1 million realized gain on marketable securities and $4.1 million of other debt charges, including debt-extinguishment costs. Depreciation and amortization rose 23.6% in Q2 and 20.1% for the first half, primarily reflecting acquisitions, development and redevelopment. FFO is a non-GAAP measure and is not cash flow from operations.
At June 30, total assets were $6.0 billion, total liabilities $3.94 billion and equity $1.83 billion. Cash and cash equivalents were $21.6 million, with $20.2 million of restricted cash. Secured debt was $1.99 billion and unsecured debt $1.71 billion. Secured borrowings carried a 4.22% weighted-average rate and 5.1-year weighted-average maturity; $532.4 million was variable rate. About 42.2% of gross real estate book value was encumbered. UDR reported compliance with debt covenants.
For the first six months, operating cash flow was $115.1 million, versus $101.8 million in 2010; investing cash outflow was $266.1 million, versus $122.2 million; financing cash inflow was $163.1 million, versus $22.5 million. The increase in operating cash flow was attributed primarily to higher property NOI. UDR had $595 million of unused capacity on its $600 million revolving facility, excluding $1.7 million of letters of credit.
Material changes and capital activity
- UDR acquired five communities during the first half, with a stated aggregate purchase price of $628.3 million: 10 Hanover Square, 388 Beale, 14 North, Inwood West and View 14. The April asset exchange involved acquiring communities valued at $263 million and disposing of six California communities.
- UDR also sold a Dallas community in May. Property dispositions generated the $44.7 million UDR-level gain noted above. Acquisition-related costs were $2.7 million for the first half.
- Common shares outstanding increased from 182.5 million at year-end 2010 to 196.7 million at June 30, 2011. First-half at-the-market programs generated approximately $325 million in net proceeds, as reported across the two programs.
- After quarter-end, UDR completed a 20.7 million-share offering at $25 per share for approximately $496.3 million in net proceeds. On July 19, it acquired the 706-home Rivergate community in New York for $443.4 million.
Outlook, risks and contingencies
- Management expected operating cash flow and credit facilities to meet short-term needs, with debt and equity issuance, property dispositions and borrowings available for longer-term maturities, acquisitions and development. The filing gives no specific earnings or FFO guidance.
- UDR expected recurring capital expenditures in 2011 of approximately $1,050 per home. Its wholly owned development pipeline had a $425.9 million budget, $157.3 million incurred at quarter-end, and expected completion through Q4 2013.
- UDR identified remaining-2011 maturities of approximately $12.4 million of secured debt and $96.4 million of unsecured debt; the secured amount is described as net of extension rights. The filing also identifies refinancing, interest-rate, credit-market and Fannie Mae/Freddie Mac policy risks.
- Interest-rate sensitivity disclosure states that a 100-basis-point increase would raise annual interest expense by approximately $2.7 million on $272.3 million of variable-rate debt not subject to swaps. UDR estimated that $8.0 million of derivative-related amounts would be reclassified as increased interest expense through June 30, 2012.
- UDR indemnified a former partner in connection with guarantees on loans to UDR/MetLife Partnership sub-tier entities; $209 million was outstanding at quarter-end, and refinancing was anticipated within 12 months. The filing also describes potential additional joint-venture funding needs. Ordinary-course litigation was not expected by management to have a material adverse effect; no specific quantified loss contingency is provided.
- Key risks include weaker local economies or apartment demand, lower occupancy or rents, rising operating costs and rates, acquisition and development execution, refinancing access, property-sale conditions, uninsured property losses, environmental liabilities and maintaining REIT qualification. Management stated that disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- How much reported earnings improvement came from recurring apartment operations versus the property-sale gain and other unusual items.
- Whether same-community rent growth, occupancy and NOI trends persist, and how operating-cost inflation affects margins.
- The funding, returns and integration performance of recent acquisitions, the Rivergate purchase and the development pipeline.
- Debt maturities, available revolver capacity, variable-rate exposure, covenant headroom and refinancing assumptions, including the secured-debt extensions.
- The effect of the share issuance on per-share results and distributions, and the use of offering proceeds relative to acquisition and debt needs.
- The status of the UDR/MetLife-related loan refinancing and indemnity exposure, derivative collateral provisions and other joint-venture commitments.