UDR, Inc. — Q1 2013 Form 10-Q
Business context and reporting period
UDR is a multifamily REIT that owns, develops, renovates, and manages apartment communities. This filing covers the three months ended March 31, 2013, with comparisons to Q1 2012. At quarter-end, UDR consolidated 143 communities with 41,750 homes and also held interests in 39 unconsolidated operating communities with 9,558 homes. UDR owned approximately 94.9% of its operating partnership.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Total revenue | $187.2 million | $175.2 million |
| Operating income | $30.5 million | $15.6 million |
| Net income (loss) attributable to UDR | $(0.3) million | $83.2 million |
| Net income (loss) attributable to common stockholders | $(1.2) million; $0.00 per share | $80.8 million; $0.37 per share |
| FFO, diluted | $92.1 million; $0.35 per share | $83.5 million; $0.35 per share |
| AFFO | $82.5 million; $0.31 per share | $72.0 million; $0.31 per share |
| Cash from operating activities | $66.7 million | $70.0 million |
| Total debt at March 31 | $3.50 billion | $3.41 billion at December 31, 2012 |
At March 31, total assets were $6.89 billion, total liabilities $3.73 billion, and cash and cash equivalents $7.1 million; restricted cash was $24.6 million. Debt carried a weighted average interest rate of 4.34% and had a weighted average 4.2 years to maturity. UDR’s $900 million unsecured revolver had $170 million drawn and approximately $730 million available, excluding letters of credit. UDR declared common distributions of $0.235 per share, up from $0.220 a year earlier.
Same-store communities delivered $105.7 million of NOI, up 6.3%, on rental income growth of 5.4%; physical occupancy was 95.5% and operating margin rose to 68.7% from 68.1%. Total property NOI was $125.3 million, down 2.2%, mainly reflecting the absence of NOI from properties sold in 2012. FFO and AFFO are non-GAAP measures and should not be treated as substitutes for GAAP earnings or cash flow.
Material changes versus the prior period
- Reported net income fell sharply against Q1 2012, which included $80.5 million of property-sale gains in discontinued operations and a $22.9 million tax benefit from reversing a deferred-tax valuation allowance. Neither item recurred in Q1 2013.
- Revenue and operating income increased, while reported continuing net income remained slightly negative after a much smaller tax benefit in 2013. Lower depreciation and interest expense partly offset the prior-year one-off items.
- Operating cash flow declined to $66.7 million. Investing cash use fell to $101.0 million from $224.4 million, while financing provided $29.4 million versus $145.4 million in Q1 2012.
- Same-store NOI growth was offset at the total-portfolio level by the reduction in non-mature/other NOI following 2012 property sales.
Outlook, commentary, risks, and unusual items
- Management expects operating cash flow and credit facilities to meet near-term needs, with debt or equity issuance and property dispositions among potential sources for longer-term needs. No specific full-year earnings or revenue guidance is provided.
- UDR had approximately $46.3 million of secured debt and $121.8 million of unsecured debt maturing during the remainder of 2013; management expected repayment through operating cash flow, financing, or dispositions.
- Management projected 2013 recurring capital expenditures of approximately $1,020 per home. Seven wholly owned development communities, totaling 2,367 homes, had an $880.8 million budget and were expected to complete through Q2 2015. Remaining development and redevelopment costs create execution and funding demands.
- Management reported compliance with debt covenants and effective disclosure controls. It cited interest-rate exposure, refinancing and capital-market access, apartment demand and rent competition, development delays or cost overruns, joint-venture risks, environmental matters, and natural disasters among material risks. A 100-basis-point increase in rates was estimated to add approximately $5.5 million to annual interest expense on UDR’s unhedged variable-rate debt.
- Hurricane Sandy insurance recoveries produced a $3.0 million net recovery in Q1 2013. Rehabilitation of affected properties was generally expected to finish in Q3 2013. Management stated routine litigation was not expected to have a material adverse effect; the ultimate liability could not be determined.
Important facts for investors to verify
- Reconcile GAAP earnings with FFO/AFFO and assess how much reported performance depends on same-store operations versus dispositions and other non-mature properties.
- Review the timing and funding of 2013 maturities, the revolver’s availability and covenants, and the impact of higher rates and refinancing costs.
- Track development and redevelopment budgets, completion dates, lease-up, and expected returns against actual results.
- Confirm receipt of remaining Hurricane Sandy insurance proceeds and completion of repairs, and monitor any changes in insurance estimates or related contingencies.
- Assess distribution coverage, including cash available after recurring capital expenditures and development spending; quarterly results are not necessarily indicative of full-year results.