UDR, Inc. (UDR), a leading multifamily real estate investment trust (REIT), reported second quarter 2011 FFO (funds from operations) of $63.6 million or 31 cents per share compared to $45.7 million or 27 cents in the year-earlier quarter.
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.
The reported FFO per share was in line with the Zacks Consensus Estimate. Excluding non-recurring items, recurring FFO for the reported quarter was 32 cents per share. Total revenues during the quarter were $176.8 million compared to $146.6 million in the prior-year quarter. Total revenues for the reported quarter exceeded the Zacks Consensus Estimate of $173 million.
Same-store occupancy remained relatively high at 95.7% during the quarter. Same-store revenues and net operating income increased 3.6% and 5.1% respectively, during the quarter compared to the year-ago quarter. Same-store expenses increased 0.7% during the quarter, primarily due to higher utility and insurance costs, partially offset by a decrease in real estate taxes.
During second quarter 2011, the company completed the acquisition of 10 Hanover Square – a 493-home apartment community in the thriving financial district of Manhattan in New York City, for $259.8 million. In addition, the company completed the $106 million acquisition of View 14 – a 185-home apartment community in Washington, D.C. The property also contains 32,113 square feet of commercial space and a parking garage.
Subsequent to the quarter-end, UDR acquired Rivergate – a 706-home 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-home community in Manhattan with 1,600 square feet of fully-leased retail space and a parking garage, for $138 million.
UDR started construction work of 839 homes in three communities during the quarter for a total cost of $225 million. These included Los Alisos – an $87 million, 320-home community in California; 13th & Market – a $76 million joint venture to develop a 263-home community in San Diego, California; and Domain College Park – a $62 million joint venture to develop a 256-home community in Maryland. At the same time, UDR sold Mustang Park – a 289-home community in Texas, for $31 million.
During second quarter 2011, UDR raised an equity capital of approximately $231.2 million through a secondary offering of 9.4 million shares at a weighted average net price of $24.51 each.
Subsequent to the quarter-end, the company 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 through 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 $882 million through a combination of cash and available capacity under its credit facility. As of June 30, 2011, UDR had a total debt of $3.7 billion and a fixed charge coverage ratio of 2.4x. UDR ended the quarter with 83% fixed-rated debt at a total blended interest rate of 4.4% and a weighted average debt maturity of 4.5 years.
With superior quarterly results, UDR has increased its fiscal 2011 FFO guidance from $1.20 – $1.25 per share to $1.25 – $1.30. 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), one of the competitors of UDR.
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