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UDR, Inc. (UDR - Analyst Report), a leading multi-family real estate investment trust (REIT), reported third quarter 2011 FFO (funds from operations) of $73.0 million or 32 cents per share compared with $46.9 million or 27 cents in the year-earlier quarter. 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.

The reported FFO per share was in line with the Zacks Consensus Estimate. Total revenue during the quarter were $187.3 million compared with $150.1 million in the prior-year quarter. Total revenue for the reported quarter exceeded the Zacks Consensus Estimate of $185 million.

Same-store occupancy remained relatively high at 95.6% during the quarter. Same-store revenues and net operating income increased 5.0% and 7.0% respectively, during the quarter compared to the year-ago quarter. Same-store expenses increased 1.1% during the quarter, primarily due to higher utility and insurance costs, partially offset by a decrease in marketing and administrative costs.

During third quarter 2011, UDR acquired ‘Rivergate’ – a 706-unit apartment community in Manhattan, for $443 million. The 35-story high-rise building also features 24,315 square feet of fully-leased commercial space along with adequate parking space. In addition, the company purchased ‘21 Chelsea’ – a 210-unit community in Manhattan with 1,600 square feet of fully-leased retail space and a parking garage, for $138 million.

UDR also purchased 95 Wall – a 507-unit apartment community in Manhattan, for $328.9 million. The 22-story high-rise contains 7,526 square feet of fully-leased retail space and a 97-space parking garage. Furthermore, the company and its joint venture partner Kuwait Finance House acquired ‘Twenty400’ – a 217-unit 5-story apartment community in Arlington, Virginia, for $84 million.

UDR started construction work of 2,440 homes in 5 new communities during the quarter for a total cost of $290 million. At quarter-end, the development and redevelopment pipeline of the company, including joint ventures projects, totaled $751 million and $337 million, respectively. During the quarter, UDR sold ‘Riachi at One21’ and ‘Ridgeview Park Townhomes’ – a 402-unit and a 48-unit community, respectively, in Texas, for total proceeds of $50.5 million.

During third quarter 2011, UDR issued 20.7 million shares at a gross price of $25.00 each, generating net proceeds of approximately $496.3 million. Bulk of the proceeds was utilized to fund recent acquisitions. Simultaneously, under its “At the Market” equity offering program, UDR raised $42.9 million from the sale of approximately 1.7 million shares at a weighted average net price of $24.90.

At quarter-end, the company had a liquidity of $506 million through a combination of cash and available capacity under its credit facility. Subsequent to the quarter-end, UDR increased its liquidity by an additional $300 million by replacing its previous $600 million revolving credit facility with a new $900 million unsecured revolving credit facility.

As of September 30, 2011, UDR had a total debt of $4.0 billion and a fixed charge coverage ratio of 2.5x. UDR ended the quarter with 76% fixed-rated debt at a total blended interest rate of 4.1% and a weighted average debt maturity of 4.2 years.

With superior quarterly results, UDR reiterated its fiscal 2011 FFO guidance of $1.25 - $1.30 per share. The company expects to complete acquisitions worth $1.2 - $1.5 billion during the current fiscal, with total asset sales of $500 - $600 million and development starts of $450 - $600 million.

We maintain our ‘Neutral’ recommendation on UDR, which currently retains a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also have a ‘Neutral’ rating and a Zacks #3 Rank for Equity Residential (EQR - Analyst Report), one of the competitors of UDR.

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