Back to top

Analyst Blog

UDR Inc.’s (UDR - Analyst Report) second-quarter 2013 funds from operations (FFO) as adjusted of 35 cents per share came above the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 2 cents.

The result at this real estate investment trust (REIT) was attributable to higher revenues, same-store physical occupancy level and strong portfolio restructuring activity. The reported FFO was 37 cents per share, up from 33 cents in the prior-year quarter.

Total revenue during the quarter was $191.8 million, up 6.5% year over year and exceeding the Zacks Consensus Estimate of $189 million as well.

Behind the Headlines

During the quarter, same-store revenues increased 5.2% year over year, while same-store expenses upped 1.6% year over year. Consequently, same-store net operating income (NOI) rose 6.8% over the same period. Same-store physical occupancy nudged up 20 basis points to 96.1%, compared with the prior-year quarter.

Developments & Redevelopments

During the reported quarter, UDR spent $133.1 million to complete its $1.3 billion development and redevelopment pipeline. Overall, the company financed 66% of its active pipeline in the said quarter. Going forward, the company intends to fund 39%, 41% and 20% of its active pipeline in 2013, 2014 and 2015, respectively.

Moreover, UDR concluded the redevelopment of a 583-home project – The Westerly on Lincoln – worth $36.1 million in California. Additionally, the company finished the redevelopment of 219 homes at 2 communities – Rivergate (706 homes) and 27 Seventy Five Mesa Verde (964 homes) – for a total cost of $33.6 million.

Thus, UDR successfully completed the redevelopment of 644 homes, excluding The Westerly on Lincoln, which represents 39% of the company’s 1,670 homes under refurbishment at the end of the reported quarter.

Extension of Ties with MetLife

UDR extended its ties with MetLife by forming an additional 50/50 partnership with the latter. This joint venture (JV) includes operating communities and developable land parcels at UDR’s Vitruvian Park master plan development situated in Addison, Texas.

As part of the JV’s formation, net proceeds of $199.9 million were received by UDR. Moreover, the expansion of its UDR/MetLife II JV was made through a swap of ownership interests in certain UDR/MetLife I JV communities, over and above a net cash payment of $15.6 million to MetLife.

Liquidity

As of Jun 30, 2013, UDR’s liquidity amounted to $769 million through a combination of cash and undrawn capacity on its credit facilities, compared with $826 million in the last quarter. Further, the company had total debt of $3.4 billion, compared with $3.5 billion as of Mar 31, 2013.

Its net debt-to-EBITDA was 6.9x at quarter-end versus 6.3x a year ago. UDR ended the quarter with 83% fixed-rated debt at a total blended interest rate of 4.2% and a weighted average debt maturity of 4.7 years.

During the quarter, UDR amended and re-priced the revolving credit facility worth $900 million and term loans worth $350 million. In addition, UDR refinanced the Fannie Mae credit facility of $186 million, during the quarter. These moves enabled the company to reduce its borrowing costs and extend the debt maturity of these facilities.

2013 Outlook Revised

For full-year 2013, UDR increased the guidance for FFO as adjusted to $1.36–$1.40 per share from $1.33–$1.39 forecasted earlier. This was based on an uptick in the lower end of the same store revenue outlook, which is now projected to grow in the range of 4.50%–5.00%, compared with the prior outlook of 4.00%–5.00%.

In addition, UDR provided guidance for the third quarter of 2013. The company projects FFO as adjusted to range between 33–35 cents per share.

Dividend Update

UDR paid second-quarter 2013 cash dividend of 23.5 cents per share on its common stock on Jul 31, 2013 to shareholders of record as of Jul 10. This marked the 163rd consecutive quarter dividend payment by UDR.

Our Take

UDR’s second-quarter impressive results reflected gains from same store NOI and physical occupancy increases. Moreover, the ongoing extensive development and redevelopment positions the company well in upscale markets and provides notable growth prospects. Furthermore, restructuring of credit revolvers boosts its liquidity position.

Nonetheless, the company has a significant development and redevelopment pipeline, which increases operational risks in the current credit-constrained market and may undermine its growth potential to some extent.

UDR currently carries a Zacks Rank #3 (Hold). Other REITs that are performing better include The Macerich Company (MAC - Analyst Report), CBRE Group, Inc (CBG - Analyst Report) and Equity One Inc. (EQY - Snapshot Report). All these stocks have a Zacks Rank #2 (Buy).

Note: Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Please login to Zacks.com or register to post a comment.