UDR, Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Unaudited results compare with the same 2013 periods. UDR is a multifamily REIT; at quarter-end, it owned and consolidated 141 communities with 40,477 apartment homes and held interests in 35 unconsolidated communities with 9,791 homes.
Key financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $206.8 million | $191.1 million | $608.5 million | $565.5 million |
| Net income attributable to UDR | $40.5 million | $3.2 million | $88.9 million | $8.1 million |
| Net income attributable to common stockholders | $39.6 million; $0.16/share | $2.3 million; $0.01/share | $86.1 million; $0.34/share | $5.3 million; $0.02/share |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $282.0 million | $261.3 million |
| Total debt at period-end | — | — | $3.63 billion | $3.52 billion at Dec. 31, 2013 |
- Property NOI was $139.8 million in Q3, up 8.7%; nine-month NOI was $412.3 million, up 7.8%. Same-store NOI increased 5.1% for Q3 and 5.3% year to date. Same-store operating margins were 69.4% and 69.6%, respectively, versus 68.9% and 69.0% in 2013.
- Same-store occupancy averaged 96.8% in Q3 and 96.6% year to date. Monthly income per occupied home was $1,619 in Q3, up 3.8% year over year.
- Q3 interest expense was $33.1 million, up 6.9%; nine-month interest expense was $97.7 million, up 5.3%. Management attributed the increase mainly to less interest capitalized as developments entered service, partly offset by refinancing at lower rates.
- Cash and cash equivalents were $14.6 million at September 30, down from $30.2 million at year-end. Nine-month investing cash outflow was $300.9 million, versus $128.5 million in 2013; financing cash flow was $3.3 million, versus an outflow of $133.8 million.
- Common distributions declared were $0.26 per share for Q3 and $0.78 for nine months, up from $0.235 and $0.705, respectively, in 2013. Diluted FFO per share was $0.41 for Q3 and $1.16 for nine months; diluted FFO as adjusted was $0.38 and $1.13, respectively.
Changes, transactions, and unusual items
- Reported earnings benefited substantially from real estate sale gains: $31.3 million net of tax in Q3 and $82.3 million for nine months. The company sold six communities totaling 1,904 homes, land, and one operating property during the nine-month period, receiving $233.9 million net proceeds.
- UDR early adopted ASU 2014-08 on discontinued operations from January 1, 2014. Most property-sale gains are now reported in continuing operations; this changes presentation, not net income, and affects comparisons with 2013.
- Interest and other income included an approximately $8.4 million gain following repayment of a real estate note in July. The note repayment contributed to the decline in notes receivable, from $83.0 million at year-end to $18.3 million.
- Q3 same-store growth reflected higher rents and occupancy and lower vacancy/bad debt. Nine-month property results also benefited from completed development and redevelopment projects. 2013 comparisons included Hurricane Sandy insurance recoveries; 2014 included a $0.5 million earthquake-related loss.
- UDR issued $300 million of 3.75% senior notes due 2024 and sold 3.41 million common shares through its equity distribution program for approximately $100.0 million net proceeds. The company reported $160 million outstanding on its $900 million revolving facility, with $740 million unused capacity excluding letters of credit. Total debt carried a weighted-average rate of 3.98% and average maturity of 4.5 years; the company said it was in covenant compliance.
Outlook, risks, and contingencies
- No quantified full-year earnings or FFO guidance is provided in the supplied filing text. Management expects operating cash flow and credit facilities to meet near-term needs and anticipates funding longer-term needs through debt or equity issuance, property sales, and operating cash flow.
- UDR expected three wholly owned development communities totaling 874 homes, with 271 completed, to finish in Q4 2014 and Q2 2015. Recurring capital expenditures for 2014 were projected at approximately $1,100 per home.
- A 100-basis-point increase in rates was estimated to raise UDR’s nine-month interest expense by $5.4 million based on average variable-rate debt balances. The filing identifies exposure to rent and occupancy declines, competition, development and lease-up execution, refinancing and interest-rate risk, joint-venture dependencies, natural disasters and potentially insufficient insurance, and REIT qualification and regulatory risks.
- Development commitments included approximately $288.3 million of expected costs to complete across UDR projects and participating loans. Routine litigation was disclosed; management did not expect the matters, net of insurance or other provisions, to materially affect financial condition, results, or cash flow. No material off-balance-sheet arrangements or significant subsequent events were reported.
Important facts for investors to verify
- How much of reported earnings growth is recurring: reconcile GAAP profit to sale gains, the note repayment gain, and FFO/FFO as adjusted.
- Property-level trends by market, including rent growth, occupancy, concessions, bad debt, and expense growth—especially taxes, insurance, and personnel.
- Debt maturity and refinancing needs, the availability of revolving capacity, and sensitivity to interest-rate increases.
- Development and redevelopment budgets, remaining commitments, completion dates, and expected lease-up returns.
- Effects of the discontinued-operations accounting change on year-over-year comparisons and the impact of equity issuance on per-share measures.