UDR Inc.’s (UDR) third-quarter 2013 funds from operations (FFO) as adjusted came in at 36 cents per share, beating the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 3 cents. The figure also surpassed the company’s guidance range of 33–35 cents per share.
The favorable results at this apartment real estate investment trust (REIT) were 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.
Behind the Headlines
Total revenue, during the quarter, was $193.6 million, up 4.6% year over year and exceeding the Zacks Consensus Estimate of $189 million.
During the quarter, same-store revenues increased 4.9% year over year, while same-store expenses upped 2.6% year over year. Consequently, same-store net operating income (NOI) rose 6.0% from the year-ago quarter. Same-store physical occupancy nudged up 20 basis points to 96.1%, compared with the prior-year quarter.
Developments & Redevelopments
In total, during the reported quarter, UDR spent $91.9 million to complete its development and redevelopment pipeline worth $1.2 billion.
UDR successfully completed the development of 520 homes and spent $70.0 million for its development projects. Notably, the company financed 71% of its development pipeline in the reported quarter. Moreover, UDR intends to complete 30% of its $1.0 billion active developments, by the end of this year.
In addition, UDR finished the redevelopment of 209 homes and expended $21.9 million for its redevelopment projects during the quarter. Overall, UDR has financed 87% of its active redevelopments in the third quarter.
Recoveries from Hurricane Sandy Insurance
During the reported quarter, UDR settled, in full, the Hurricane Sandy claims with its insurance carrier. The company recovered $27.5 million, after deductions worth $1.1 million. Notably, the company’s damages from the storm (including business interruptions costs) totaled to $30.4 million.
Liquidity
As of Sep 30, 2013, UDR’s liquidity amounted to $1 billion through a combination of cash and undrawn capacity on its credit facilities, compared with $769 million in the last quarter. Further, the company had total debt of $3.5 billion, compared with $3.4 billion as of Jun 30, 2013.
Its net debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) stood at 7.0x at quarter-end versus 7.1x a year ago. UDR ended the quarter with 90% fixed-rated debt at a total blended interest rate of 4.3% and a weighted average debt maturity of 4.7 years.
UDR priced 3.700% senior unsecured notes worth $300 million at 99.981% of the principal amount plus accrued interest. The net proceeds were utilized to repay its outstanding balance under the unsecured credit facility and for other corporate needs.
Also, during the quarter, Moody's Corporation (MCO) attributed UDR a Baa2 rating and raised its outlook from Stable to Positive.
2013 Outlook Revised
For full-year 2013, UDR raised the lower end of its 2013 guidance for FFO as adjusted to the range of $1.38–$1.40 per share from $1.36–$1.40. 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 4.75%–5.00%, compared with the prior outlook of 4.50%–5.00%.
In addition, UDR provided guidance for the fourth quarter of 2013. The company projects FFO as adjusted to range between 33 and 35 cents per share.
Dividend Update
On Sep 24, 2013, UDR declared third-quarter 2013 cash dividend of 23.5 cents per share on its common stock. The dividend will be paid on Oct 31, 2013 to shareholders of record as of Oct 10. This marked the 164th consecutive quarter dividend by UDR.
Our Take
We are encouraged by UDR’s third-quarter results which reflected gains from same-store NOI and revenues. Moreover, the ongoing extensive development and redevelopment activities position the company well in upscale markets and provide notable growth prospects. Furthermore, a strong balance sheet with adequate liquidity bodes well.
Nonetheless, the company’s significant development and redevelopment pipeline 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 apartment REITs that are performing better include BRE Properties Inc. (BRE) and Home Properties Inc. (HME). Both 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.
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