UDR Meets Earnings, Revs Up

Zacks

UDR Inc. (UDR) – a real estate investment trust (:REIT) – reported first-quarter 2013 FFO (funds from operations), excluding non-recurring items, of 34 cents per share. The result came in line with both the Zacks Consensus Estimate as well as the year-ago quarter figure. Although, higher revenues aided the quarterly results, flat physical occupancy level acted as a dampener.

UDR’s reported FFO stood at $92.1 million or 35 cents per share, compared with $83.5 million or 35 cents per share in the year-earlier quarter.

Total revenue during the quarter stood at $187.2 million, up 6.8% from $175.2 million in the prior-year quarter. In addition, it surpassed the Zacks Consensus Estimate of $186 million.

Behind the Headlines Number

Same-store revenues increased 5.4% year over year in the reported quarter, while same-store net operating income (:NOI) escalated 6.3% over the same period. Same-store physical occupancy remained flat at 95.5% compared with the prior-year quarter.

Notable Portfolio Activities

During the quarter under review, UDR completed the development of a 255-home community (60% occupied at the end of first quarter) – Capitol View on 14th – for $126 million, located in the U-Street corridor of Washington, D.C.

In addition, the company also concluded the redevelopment of 247 homes for $19.5 million. Thus, UDR successfully completed the redevelopment of 849 homes, representing 38% of the company’s 2,253 homes under refurbishment at the end of the first quarter of 2013.

Moreover, UDR spent $109 million during the quarter to complete its $1.2 billion development and redevelopment pipeline. Overall, UDR has financed 52% of its active pipeline during the quarter. Going forward, the company intends to fund 43%, 38% and 18% of its active pipeline in 2013, 2014 and 2015, respectively.

Liquidity

As of Mar 31, 2013, UDR’s liquidity amounted to $826 million through a combination of cash and undrawn capacity on its credit facilities. Further, the company had total debt of $3.5 billion as of Mar 31, 2013.

Its net debt-to-EBITDA was 7.3x at quarter-end versus 8.1x a year ago. UDR ended the quarter with 84% fixed-rated debt at a total blended interest rate of 4.3% and a weighted average debt maturity of 4.2 years.

2013 Outlook Reiterated

For full year 2013, UDR reaffirmed its FFO, excluding non-recurring items, in the range of $1.33–$1.39 per share, based on revenue growth of 4% to 5%, NOI of 4.25% to 6.00% and physical occupancy of 95.5%.

In addition, UDR provided guidance for the second quarter of 2013. The company projects FFO, excluding non-recurring items, to range between 33–35 cents per share.

Dividend Update

UDR paid first-quarter 2013 cash dividend of 23.5 cents per share on its common stock, up 6.8% over the prior dividend of 22 cents. The dividend was paid on Apr 30, 2013 to shareholders of record as of Apr 9. This marked the 162nd quarter of the company’s dividend payment on common stock.

Our Take

UDR’s decent quarterly result reflected the gain from rental income and same store NOI increases, but flat year over year occupancy level hurt the growth. However, the company’s ongoing extensive development and redevelopment activity to strengthen its presence in the upscale markets provides notable growth prospects. Furthermore, UDR is focusing on allocating its capital actively and improving cash flow to support dividend growth.  Such efforts are expected to fortify its balance sheet and enhance shareholder returns going forward.

Nonetheless, the company has a significant development and redevelopment pipeline, which increases operational risks in the current credit-constrained market and undermines its growth potential to some extent.

UDR currently retains a Zacks Rank #4 (Sell). Other REITs that are performing better than UDR include – DDR Corp. (DDR), Acadia Realty Trust (AKR) and Equity One Inc. (EQY). All these stocks carry 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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