UDR Inc.’s (UDR) fourth-quarter 2013 funds from operations (FFO) as adjusted came in at 35 cents per share, missing the Zacks Consensus Estimate by a penny. However, this was in line with year-ago quarter figure. The figure also matched with the upper end of the company’s guidance range.
For full-year 2013, UDR’s FFO as adjusted of $1.39 missed the Zacks Consensus Estimate marginally while it improved 3.0% over the prior-year figure.
Results were adversely affected by an increase in operating expenses and lower-than-expected top-line growth. However, higher same-store net operating income (NOI) and revenues were the positives for the quarter.
Behind the Headlines
Total revenue during the quarter was $190.3 million, up 5.6% year over year. However, it lagged the Zacks Consensus Estimate of $192 million.
For 2013, total revenue increased 5.9% year over year to $7.6 billion, up 9.9% year over year, while it came in line with Zacks Consensus Estimate.
During the quarter, same-store revenues increased 4.5% year over year, while same-store expenses upped 2.4%. Consequently, same-store NOI rose 5.4% from the year-ago quarter. Same-store physical occupancy rose 30 basis points year over year to 96.2%.
During the quarter, UDR disposed three non core communities for $132.1 million. Notably, this included the sale of two properties that marked the exit from the Sacramento market.
The company also formed a 51%–49% development partnership with MetLife, Inc. (MET) for building a luxury for-rent high-rise in San Francisco.
Developments & Redevelopments
During the reported quarter, UDR spent $275 million for the completion of three development communities consisting of 1,122 apartment homes.
At the end of 2013, UDR’s development pipeline stood at $1.2 billion, of which the company financed 64%. Moreover, UDR intends to complete 50.5% of its $970 million active developments in 2014 while the rest of the development activity will gradually complete by 2015 and 2016.
UDR also successfully completed the redevelopment of 155 homes and incurred $16.5 million for the same.
Balance Sheet
As of Dec 30, 2013, UDR’s liquidity amounted to $930 billion through a combination of cash and undrawn capacity on its credit facilities, compared with $1 billion in Sep 30, 2013. Further, the company had total debt of $3.5 billion, in line with the last quarter.
Its net debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) stood at 7.0x, in line with the year-ago figure. UDR ended the quarter with 89% fixed-rated debt at a total blended interest rate of 4.3% and a weighted average debt maturity of 4.4 years. Fixed charge coverage ratio came in at 3.1x compared with the year-ago figure of 3.0x.
2014 Outlook
For first-quarter 2014, UDR’s guidance for FFO as adjusted stood in the range of $0.33–$0.35 per share. For full-year 2014, guidance for the same stood in the range of $1.47–$1.53 per share.
In addition, for full-year 2014, UDR’s guidance included projection for same-store revenue growth in the range of 3.50% to 4.25%.
Our Take
Though UDR 2013, the overall performance for the year was decent as it registered positive earnings surprises in the first three quarters of the year. 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 bode 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 #2 (Buy).
Among other apartment REITs, BRE Properties Inc. (BRE) outpaced the Zacks Consensus Estimate while AvalonBay Communities Inc. (AVB) reported in line earnings in their latest releases.
Note: Funds 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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