The multifamily real estate investment trust (REIT), UDR Inc. (UDR) disclosed its transactional activities in fourth-quarter 2013. Particularly, the company extended its alliance with MetLife, planned its exit from California’s Sacramento market and inked a participating debt financing agreement for a Denver-based community.
Expanding Ties with MetLife
UDR has expanded its ties with MetLife, Inc. (MET) through the sale of 49% stake in 399 Fremont land parcel and a simultaneous 51%/49% joint venture (JV) agreement with the latter. The JV plans to develop a luxury apartment residential project on this land parcel for $317 million. Situated in San Francisco’s Rincon Hill neighborhood, this 42-story tower with 447 residential units enjoys proximity to entertainment spots, the financial district and BART stations and upcoming Transbay Transit Center.
The project, which is likely to complete in 2016, will have a Guaranteed Maximum contract (GMAX) to hedge construction cost risk. Alongside, the JV entered into a term sheet for a non-recourse construction loan worth $174 million, having a 48 months term along with one 12-month extension option.
Fourth-quarter 2013 Divestitures
During the fourth quarter, UDR plans to sell 3 properties. Specifically, the company intends to exit the Sacramento market of California with the disposition of 2 mortgage free communities – Foothills Tennis Village (Roseville) and Woodlake Village Apartments (Sacramento) – for $81.1 million.
UDR also disclosed the proposed divestiture of Greater Boston-based community – Lodge at Stoughton – in the fourth-quarter 2013 for $51.0 million. The sale of this recently developed property in which the company has a 95% stake would help it to reap $49 million in proceeds.
Participating Debt Financing Deal
Furthermore, in late Oct 2013, UDR engaged itself in a participating debt financing deal with a third party that is constructing a Denver-based mid-rise luxury community for $108 million. The project, which is located in the affluent Cherry Creek neighborhood, is anticipated to be complete in late 2015.
As per the deal, UDR will fund up to 85% of the development cost. In return, the company would receive an origination fee and 6.5% interest annually on any outstanding construction financing as well as an option to buy the asset following its completion. Further, UDR will enjoy a management fee during the lease-up and subsequent property operation. Moreover, the company will have 50% participating interest in the upside at the time of the sale or purchase of the community.
Our Take
We believe that this extensive portfolio repositioning activity of UDR will offer notable growth prospects. Furthermore, the company’s focus on allocating its capital efficiently and improving cash flow is encouraging. Such efforts are expected to fortify its balance sheet and enhance shareholder returns going forward.
UDR currently carries a Zacks Rank #3 (Hold). Investors interested in REIT- Equity Trust – Residential industry may consider stocks like Independence Realty Trust, Inc. (IRT) and Spirit Realty Capital, Inc. (SRC). Both stocks carry a Zacks Rank #2 (Buy).
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