UDR, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; filed October 30, 2020. UDR is a multifamily REIT. At quarter-end, its consolidated portfolio comprised 148 communities and 47,488 apartment homes across 13 states and Washington, D.C.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $310.0 million | $295.4 million | $938.8 million | $847.4 million |
| Net income/(loss) attributable to UDR | $(25.3) million | $27.2 million | $37.7 million | $87.3 million |
| Net income/(loss) attributable to common stockholders | $(26.3) million; $(0.09) diluted/share | $26.2 million; $0.09 diluted/share | $34.6 million; $0.12 diluted/share | $84.3 million; $0.30 diluted/share |
| Total property NOI | $211.1 million | $203.6 million | $648.9 million | $593.1 million |
| FFO per diluted share and unit | $0.42 | $0.53 | $1.46 | $1.57 |
| FFOA per diluted share and unit | $0.50 | $0.52 | $1.55 | $1.54 |
| AFFO per diluted share and unit | $0.45 | $0.48 | $1.43 | $1.44 |
For the first nine months, operating cash flow was $456.6 million, versus $456.9 million a year earlier. Investing used $292.7 million, compared with $1.38 billion in 2019; financing used $173.0 million, compared with $740.6 million of cash provided in 2019. Cash, cash equivalents and restricted cash totaled $24.2 million at September 30, including just $0.9 million of unrestricted cash.
At September 30, net secured and unsecured debt totaled $4.92 billion, with a weighted-average interest rate of 3.01% and 7.6 years weighted-average maturity. Total liabilities were $5.46 billion. UDR reported $230 million outstanding under its $500 million commercial paper program and no revolver borrowings; its $1.1 billion revolving facility and $75 million working-capital facility provided additional capacity, subject to outstanding working-capital borrowing at quarter-end. UDR was in compliance with debt covenants.
Changes and operating trends
- Q3 revenue grew 5.0%, while common-stockholder earnings swung to a loss. The main pressures included $24.5 million of net debt-extinguishment costs, higher average debt and a $24.6 million increase in real estate depreciation and amortization.
- Nine-month common-stockholder earnings fell to $34.6 million from $84.3 million. The $61.3 million gain on two property sales partially offset increased depreciation and interest expense. The comparable 2019 period included a $5.3 million land-sale gain.
- Same-store NOI declined 10.3% in Q3 and 4.1% for the nine months. Q3 same-store rental income fell 6.1%, operating expenses rose 4.1%, physical occupancy was 95.4% (down 1.4 percentage points), and monthly income per occupied home fell 4.8% to $2,143. Same-store operating margin was 68.0%, versus 71.1% in Q3 2019.
- Portfolio-wide NOI nevertheless rose 3.7% in Q3 and 9.4% year to date, largely reflecting acquired and other non-mature communities; these gains do not negate weakness in the same-store portfolio.
Liquidity, capital actions and outlook
During 2020, UDR issued $200 million of 3.20% notes due 2030 and $400 million of 2.10% notes due 2032. It used part of the latter proceeds to tender for $116.9 million of 2024 notes and prepay $245.8 million of secured debt; related prepayment and make-whole costs contributed to the $24.5 million debt-extinguishment charge. UDR also refinanced a mortgage at a lower rate and repurchased 0.6 million shares for approximately $19.8 million.
Management stated that operating cash flow and credit facilities should be adequate for operating needs and REIT distributions, while noting that the pandemic’s effects remain uncertain and could materially harm future results, cash flow and financial condition. In October, the $230 million commercial-paper balance due at September 30 was repaid at maturity with replacement commercial paper and working-capital-facility proceeds. As of October 27, UDR reported no revolver or working-capital-facility borrowings, with $1.1 billion and $75 million of capacity, respectively. The filing provides no specific earnings or operating guidance.
Risks, contingencies and unusual items
- COVID-19 risks include rent collection weakness, eviction moratoriums, concessions, lower occupancy and asset impairment. Urban-core markets, particularly New York, San Francisco Bay Area and Boston, were more adversely affected. As of October 26, collection of billed multifamily rent was 97.7% for July, 96.8% for August and 96.0% for September.
- COVID-related lease-receivable reserves reduced UDR rental income by $4.4 million in Q3 and $12.9 million for the nine months, with additional reductions to income from unconsolidated entities. No COVID-related asset impairment charges were recorded through September 30.
- In September, a borrower defaulted on a secured $20 million note; UDR expected to take title to the collateral through a deed in lieu of foreclosure. A separate $115 million secured note relates to a community UDR agreed to acquire in 2021 after exercising its purchase option.
- After quarter-end, UDR sold a 332-home Alexandria, Virginia community for $145 million, with an expected gain of approximately $58 million. The property had been classified as held for disposition at quarter-end.
- Management cited continuing uncertainty from COVID-19, rent regulation and eviction rules, market and occupancy conditions, concentrated exposure to certain metropolitan areas, refinancing and interest-rate risk, development execution and joint-venture counterparties. Routine litigation was not expected to have a material adverse effect.
Investor facts to verify
- Whether same-store occupancy, concessions, collections and rent trends improved after September 30, particularly in urban-core markets.
- How much of earnings and NOI depended on acquisitions, property-sale gains and non-GAAP adjustments; review FFO, FFOA and AFFO reconciliations alongside GAAP results.
- Current debt maturities, commercial-paper refinancing, credit-facility availability, covenant headroom and the effect of interest rates.
- Resolution and valuation of the defaulted $20 million note, and closing conditions and economics for the 2021 purchase tied to the $115 million note.
- Whether the Alexandria sale closed on the disclosed terms and whether expected proceeds and gain were realized.