UDR Inc. (UDR), a leading multifamily real estate investment trust (REIT), has recently offered 4.25% senior unsecured notes worth $300 million that is scheduled to mature in June 2018. The company has priced the notes at 98.988% of the face amount to yield 4.42% at maturity.
J.P. Morgan Securities LLC, a division of JPMorgan Chase & Co. (JPM), and Citigroup Global Markets Inc. – the brokerage and securities arm of Citigroup Inc. (C) are acting as the joint book-running managers for the offering. UDR intends to utilize the cash raised from the debt offering for general corporate purposes. The strategic move is also aimed at increasing its liquidity.
As of March 31, 2011, UDR had a liquidity of $700 million through a combination of cash and available capacity under its credit facility. In addition, the company had a total debt of $3.5 billion and a fixed charge coverage ratio of 2.4x. By the end of first quarter 2011, UDR had 76% fixed-rated debt at a total blended interest rate of 4.2% and a weighted average debt maturity of 5.4 years.
UDR is among the best-positioned apartment REITs in the U.S., with the majority of its portfolio located in California, Florida and on the Atlantic Coast. These are areas where housing costs have soared in the past few years, and despite the drop in home values, the rent versus own spread still remains high. The housing meltdown will continue to help apartment REITs like UDR and we expect this sector to remain comparatively stable in the coming quarters as well.
Furthermore, UDR has a geographic diversification that increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of the earnings. UDR has also continuously upgraded the overall quality of its portfolio by selling smaller market, older properties and replacing them with newer assets in better long-term markets. This provides an upside potential for the company.
We maintain our ‘Neutral’ recommendation on Developers Diversified for the long term. The company presently has a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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