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UDR's FFO & Revenues Miss Estimates in Q2, NOI Declines

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Zacks Equity Research
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UDR Inc. UDR reported second-quarter 2020 funds from operations (FFO) as adjusted per share of 51 cents. The figure missed the Zacks Consensus Estimate of 53 cents as well as came in lower than the prior-year’s 52 cents.

Results reflect the adverse impact of the coronavirus pandemic and related economic challenges as well as government actions and regulations on the company’s business.

Second-quarter revenues from rental income climbed 9.9% year over year to nearly $306 million. However, the revenue figure missed the Zacks Consensus Estimate of $315.9 million. This year-over-year upside reflects growth in revenues from acquisition communities.

Revenues recognized for the second quarter were 98.3% of total billed revenues and cash revenues collected were 97.5%. Moreover, the company noted that July cash revenues received as a percentage of billed revenues are consistent with April, May, and June at the corresponding periods of the months.

Moreover, weighted average occupancy in the June-end quarter was 96.3% compared with the year-ago period’s 96.9%, while effective blended lease rate growth was 0.8% compared with the prior-year quarter’s 4.4%.

Inside the Headlines

During the reported quarter, combined same-store revenues decreased 2.1% year over year. Same-store expenses flared up 2.5%. Consequently, same-store net operating income (NOI) declined 4%. Notably, the company’s second-quarter combined same-store bad debt reserve aggregated $4.5 million.

The residential REIT’s weighted average combined same-store physical occupancy contracted 50 basis points (bps), year over year, to 96.3%. Second-quarter annualized-rate of turnover shrunk 620 bps to 48.9%.

UDR continues to implement its Next Generation Operating Platform strategy. This facilitated year-over-year decline in combined same-store controllable expenses by 2% and helped maintain controllable operating margin of 84.3%, stable year on year, despite a decline in combined same-store revenues.

Portfolio Activity

During the June-end quarter, the company sold Waterscape — a 196-home community in Kirkland, WA — for $92.9 million and Borgata Apartment Homes — a 71-home community in Bellevue, WA — for $49.7 million.

The company’s development pipeline aggregated $278.5 million at the end of the reported quarter and 47% of this cost had been incurred. The active pipeline includes three development communities (one each in Addison, TX, Denver, CO, and Dublin, CA) for a combined total of 878 homes.  
At the end of the June-end quarter, the company’s Developer Capital Program investment, including accrued return, totaled $419.6 million. The weighted average return rate is 9.8%, while the weighted average expected remaining term is 2.5 years.

Balance Sheet Position

As of Jun 30, 2020, UDR had $973.7 million of liquidity through a combination of cash and undrawn capacity on its credit facilities, along with roughly $105 million of incremental capital sources from potential settlement of forward equity sales agreements. Additionally, its total debt was $4.8 billion as of the same date.

Notably, during the reported quarter, the company executed a rate lock agreement to refinance its only remaining 2020 maturity, a $79.5 million, 4.35% fixed rate loan due in 2020, with a $160.9 million, 2.62% fixed rate secured loan due in 2031. The refinancing transaction is likely to close in the third quarter and UDR anticipates using the incremental proceeds to lower its borrowings under its unsecured commercial paper program.

UDR ended the April-June quarter with fixed-rate debt representing 94.4% of its total debt, a total blended interest rate of 3.24% and weighted average years to maturity of 7 years.

UDR currently carries a Zacks Rank #4 (Sell).

United Dominion Realty Trust, Inc. Price, Consensus and EPS Surprise

United Dominion Realty Trust, Inc. Price, Consensus and EPS Surprise
United Dominion Realty Trust, Inc. Price, Consensus and EPS Surprise

United Dominion Realty Trust, Inc. price-consensus-eps-surprise-chart | United Dominion Realty Trust, Inc. Quote

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like Digital Realty Trust, Inc. DLR, American Tower Corporation AMT and Host Hotels & Resorts, Inc. HST. All three companies are scheduled to release quarterly numbers on Jul 30.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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