UDR Announces Third Quarter 2019 Results

DENVER–(BUSINESS WIRE)–UDR, Inc. (the “Company”) Third Quarter 2019 Highlights:

  • Net income per share was $0.09, Funds from Operations (“FFO”) per share was $0.53, FFO as Adjusted (“FFOA”) per share was $0.52, and Adjusted FFO (“AFFO”) per share was $0.48.
  • Net income attributable to common stockholders was $26.2 million as compared to $17.6 million in the prior year period. The increase was primarily due to higher gains on the sale of unconsolidated investments, the realization of a joint venture (“JV”) development success fee and net operating income (“NOI”) growth.
  • Year-over-year same-store (“SS”) revenue, expense and NOI growth was 3.7 percent, 3.1 percent and 3.9 percent, respectively.
  • The Company’s operating margin (property NOI divided by property rental income) was 70.5 percent as compared to 70.2 percent in the prior year period. The continued implementation of the Company’s Next Generation Operating Platform drove controllable operating margin expansion of 40 basis points year-over-year to 83.9 percent, and limited SS controllable expense growth to 1.2 percent year-over-year.
  • Approximately 5,700 SmartHome installations completed during the quarter (approximately 25,000 total installations completed as of quarter end).
  • Accretively grew the Company through three acquisitions with significant operating/investment upside in markets targeted for expansion at an all-in valuation of $540.6 million.
  • Simplified the Company’s structure by winding down the UDR/Kuwait Finance House (“KFH”) JV and entering into an agreement valued at $1.8 billion to halve the size of the UDR/MetLife JV in an accretive manner. The UDR/MetLife transaction is expected to close during the fourth quarter subject to customary closing conditions. Once complete, approximately 95 percent of the Company’s total NOI will be generated by non-JV sources.
  • Funded accretive external growth with premium valued equity capital by issuing approximately 9.7 million common shares at a weighted average net price of $46.42 for proceeds of $449.2 million.
  • Entered into a forward sales agreement under the Company’s at-the-market equity program for approximately 1.3 million common shares at an initial forward price per share of $47.68.
  • Proactively took advantage of the low interest rate environment during the quarter, and subsequent to quarter end, by issuing an aggregate of $800.0 million of long-duration unsecured debt with a weighted average interest rate of 3.07 percent, and prepaying, or are in the process of prepaying, $700.0 million of higher-cost unsecured debt with a weighted average interest rate of 4.23 percent. The make-whole amount will total approximately $26.9 million, $5.4 million of which was realized in the third quarter. The Company’s pro-forma consolidated weighted average years to maturity, following the prepayments, will be 8.0 years versus 6.9 years at quarter end.
  • Updates to full-year 2019 earnings and same-store growth guidance ranges include:

    • Reduced net income per share guidance by $0.065 at the midpoint to $0.68 to $0.70.
    • Increased FFOA per share guidance by $0.005 at the midpoint to $2.07 to $2.09.
    • Tightened SS revenue guidance range to 3.50 to 3.90 percent.
    • Decreased SS expense guidance by 15 basis points at the midpoint to 2.40 to 2.80 percent.
    • Increased SS NOI guidance by 7.5 basis points at the midpoint to 4.00 to 4.40 percent.

“2019 has been an active and productive year for UDR. We have accretively grown through completed, or announced, acquisitions totaling $1.8 billion, continued to implement our Next Generation Operating Platform, simplified our business through numerous JV transactions and further enhanced our already strong balance sheet and liquidity position. The cumulative impact of these successes has set us up well for 2020 and beyond,” said Tom Toomey, UDR’s Chairman and CEO.

 

Q3 2019

Q3 2018

YTD 2019

YTD 2018

Net income per common share, diluted

$

0.09

 

$

0.07

 

$

0.30

 

$

0.44

 

Conversion from GAAP share count

 

(0.007

)

 

(0.006

)

 

(0.025

)

 

(0.041

)

Net gain on the sale of depreciable real estate owned, incl. JVs

 

(0.017

)

 

 

 

(0.034

)

 

(0.237

)

Cumulative effect of change in accounting principle

 

 

 

 

 

 

 

(0.007

)

Depreciation and amortization, including JVs

 

0.451

 

 

0.418

 

 

1.304

 

 

1.242

 

Noncontrolling interests and preferred dividends

 

0.010

 

 

0.009

 

 

0.033

 

 

0.047

 

FFO per common share and unit, diluted

$

0.53

 

$

0.49

 

$

1.57

 

$

1.44

 

Cost/(benefit) associated with debt extinguishment and other

 

0.020

 

 

0.002

 

 

0.020

 

 

0.002

 

Promoted interest on settlement of note receivable, net of tax

 

 

 

 

 

(0.021

)

 

 

Legal and other costs

 

 

 

0.002

 

 

0.012

 

 

0.004

 

Net gain on the sale of non-depreciable real estate owned

 

 

 

 

 

(0.017

)

 

 

Unrealized gain on unconsolidated investments, net of tax

 

(0.010

)

 

 

 

(0.011

)

 

 

Joint venture development success fee

 

(0.012

)

 

 

 

(0.012

)

 

 

Severance costs and other restructuring expense

 

0.001

 

 

 

 

0.001

 

 

 

Casualty-related charges/(recoveries), including JVs, net

 

(0.006

)

 

0.002

 

 

(0.004

)

 

0.009

 

FFOA per common share and unit, diluted

$

0.52

 

$

0.49

 

$

1.54

 

$

1.46

 

Recurring capital expenditures

 

(0.042

)

 

(0.050

)

 

(0.107

)

 

(0.116

)

AFFO per common share and unit, diluted

$

0.48

 

$

0.44

 

$

1.44

 

$

1.34

 

A reconciliation of FFO, FFOA and AFFO to GAAP Net income attributable to common stockholders can be found on Attachment 2 of the Company’s third quarter Supplemental Financial Information.

Operations

In the third quarter, total revenue increased by $29.3 million year-over-year, or 11.0 percent, to $295.4 million. This increase was primarily attributable to growth in revenue from operating and acquisition communities.

In the third quarter, same-store NOI increased 3.9 percent year-over-year, driven by same-store revenue growth of 3.7 percent and same-store expense growth of 3.1 percent. Weighted average same-store physical occupancy increased by 10 basis points to 96.9 percent versus the prior year period. The third quarter annualized rate of turnover was flat year-over-year at 63.8 percent.

Summary of Same-Store Results Third Quarter 2019 versus Third Quarter 2018

Region

Revenue

Growth

 

Expense

Growth/

(Decline)

 

NOI

Growth/

(Decline)

 

% of

Same‑Store

NOI(1)

 

SameStore

Occupancy(2)

 

Number of

Same-Store

Homes(3)

West

4.5

%

2.9

%

5.0

%

46.6

%

96.6

%

13,942

Mid-Atlantic

3.4

%

1.5

%

4.3

%

22.9

%

97.2

%

9,877

Southeast

3.2

%

4.9

%

2.5

%

12.7

%

97.0

%

7,683

Northeast

2.6

%

8.7

%

(0.4

)%

11.8

%

97.1

%

2,840

Southwest

2.4

%

(2.3

)%

5.6

%

6.0

%

96.9

%

3,835

Total

3.7

%

3.1

%

3.9

%

100.0

%

96.9

%

38,177

(1)

Based on Q3 2019 SS NOI.

(2)

Weighted average same-store occupancy for the quarter.

(3)

 

 

During the third quarter, 38,177 apartment homes were classified as same-store. The Company defines QTD SS Communities as those communities stabilized for five full consecutive quarters. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the quarter in the prior year, were not in process of any substantial redevelopment activities, and were not held for disposition.

In the third quarter, sequential same-store NOI declined by 0.5 percent, driven by same-store revenue growth of 1.1 percent and same-store expense growth of 5.1 percent. Weighted average same-store physical occupancy was flat sequentially at 96.9 percent.

Year-to-date, for the nine months ended September 30, 2019, total revenue increased by $68.2 million year-over-year, or 8.8 percent, to $847.4 million. This increase was primarily attributable to growth in revenue from operating and acquisition communities.

Year-to-date, for the nine months ended September 30, 2019, same-store NOI increased 4.0 percent year-over-year, driven by same-store revenue growth of 3.7 percent and same-store expense growth of 2.9 percent. Weighted average same-store physical occupancy remained at 96.9 percent versus the prior year period. The year-to-date annualized rate of turnover was 52.7 percent, representing a 10 basis point decline year-over-year.

Summary of Same-Store Results Year-To-Date 2019 versus Year-To-Date 2018

Region

Revenue

Growth

 

Expense

Growth

 

NOI

Growth

 

% of

Same-Store

NOI(1)

 

SameStore

Occupancy(2)

 

Number of

Same-Store

Homes(3)

West

4.4

%

2.9

%

4.9

%

46.6

%

96.6

%

13,942

Mid-Atlantic

3.2

%

1.4

%

4.0

%

23.1

%

97.4

%

9,877

Southeast

3.8

%

3.6

%

3.9

%

12.9

%

96.9

%

7,683

Northeast

2.4

%

6.7

%

0.5

%

12.2

%

97.1

%

2,840

Southwest

2.8

%

0.0

%

4.8

%

5.2

%

97.0

%

3,617

Total

3.7

%

2.9

%

4.0

%

100.0

%

96.9

%

37,959

(1)

 

Based on YTD 2019 NOI.

(2)

Weighted average same-store physical occupancy for YTD 2019.

(3)

 

 

For the nine months ended September 30, 2019, 37,959 apartment homes were classified as same-store. The Company defines YTD SS Communities as those communities stabilized for two full consecutive calendar years. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, were not in process of any substantial redevelopment activities, and were not held for disposition.

Wholly-Owned Transactional Activity

During the quarter, the Company acquired:

  • The Commons at Windsor Gardens, a 914-home community in Norwood, MA, for $270.2 million or $295,600 per home. At the time of the acquisition, the community had average monthly revenue per occupied home of $1,850, occupancy of 96 percent and was 50 years old.
  • One William, a 185-home community in Englewood, NJ, for $83.6 million or $451,900 per home. At the time of the acquisition, the community had average monthly revenue per occupied home of $2,762, occupancy of 99 percent and was 1 year old.

Joint Venture Transactional Activity

During the quarter, the Company:

  • Acquired the 70 percent interest it did not already own in 1301 Thomas Circle, a 292-home community in Washington, DC, at an all-in valuation including closing costs of $186.8 million, or $639,700 per home, from the UDR/KFH JV. At the time of the acquisition, the community had average monthly revenue per occupied home of $3,440, occupancy of 98 percent and was 14 years old.
  • Sold its 30 percent interest in Portico, a 151-home community in Silver Spring, MD, to a third party at an all-in valuation of $43.5 million, or $288,100 per home.
  • The UDR/KFH JV was fully wound down upon the completion of these transactions.

In addition, the Company entered into an agreement with MetLife to:

  • Acquire the approximately 50 percent interest not previously owned in 10 UDR/MetLife JV operating communities, one community under development and four development land sites, valued at $1.1 billion, or $557.0 million at UDR’s share; and,
  • Sell its approximately 50 percent ownership interest in five UDR/MetLife JV communities valued at $645.0 million, or $323.0 million at UDR’s share, to MetLife.
  • After accounting for the assumption of in-place debt totaling $540.0 million at fair-market value, the Company’s net cash outflow to complete the swap is expected to be approximately $105 million. The transaction is expected to close during the fourth quarter, subject to customary closing conditions and closing price adjustments. See the press release entitled “UDR Announces UDR/MetLife Investment Management Joint Venture Transaction Valued at $1.76 Billion and Increases Select Full-Year Earnings Guidance Ranges,” which can be found at ir.udr.com, for further details.

Development Activity

At the end of the third quarter, the Company’s development pipeline totaled $129.5 million at its pro-rata ownership interest and was 25 percent funded. The development pipeline is currently expected to produce a weighted average spread between stabilized yields and current market cap rates of 150 to 200 basis points.

During the quarter, the Company commenced the construction of Cirrus, a 292-home community in Denver, CO. Cirrus has a total budgeted cost of $97.5 million, or $333,900 per home, and is expected to be completed during the first quarter of 2022.

Developer Capital Program (“DCP”) Activity

At the end of the third quarter, the Company’s DCP investments, including accrued return, totaled $264.4 million.

Capital Markets and Balance Sheet Activity

During the third quarter, the Company’s equity transactions were as follows:

  • Issued approximately 9.7 million shares at a weighted average net price of $46.42 for proceeds of approximately $449.2 million. Approximately 2.2 million of these shares were issued via the Company’s at-the-market equity program.
  • Entered into a forward sales agreement under the Company’s at-the-market equity program for approximately 1.3 million common shares at an initial forward price per share of $47.68, which will be adjusted at settlement to reflect the then-current federal funds rate and the amount of dividends paid to holders of UDR common stock over the term of the forward sales agreement. No shares under the forward sales agreement have been settled. The final date by which shares sold under the forward sales agreement must be settled is March 31, 2020.
  • Uses of realized, and expected, proceeds include the acquisitions outlined in this press release, future acquisitions and general corporate purposes.

During and subsequent to the third quarter, the Company’s debt transactions were as follows:

  • Settled its late-June offering of $300.0 million, 10-year unsecured debt at an effective rate of 3.46 percent after accounting for previous hedging activities.
  • Issued $800.0 million of unsecured debt ($300.0 million qualifying as a “Green Bond”) with a weighted average years to maturity of 12.9 years and an effective rate of 3.07 percent. $400.0 million settled subsequent to quarter end.
  • Prepaid, or are in the process of prepaying, $700.0 million of unsecured debt with a weighted average rate of 4.23 percent. The make-whole amount will total approximately $26.9 million, $5.4 million of which was realized during the third quarter. The Company’s weighted average years to maturity will be 8.0 years following completion versus 6.9 years at quarter end.
  • Issued or refinanced $162.5 million of secured debt with a weighted average years to maturity of 10.2 years and an effective rate of 2.88 percent.

At September 30, 2019, the Company had approximately $1.1 billion of liquidity through a combination of cash and undrawn capacity on its credit facilities.

The Company’s total indebtedness as of September 30, 2019 was $3.94 billion. The Company ended the quarter with fixed-rate debt representing 96.0 percent of its total debt, a total blended interest rate of 3.63 percent and a weighted average years to maturity of 6.9 years. The Company’s consolidated leverage was 31.0 percent versus 33.7 percent a year ago, its consolidated net-debt-to-EBITDAre was 5.5x versus 5.7x a year ago and its consolidated fixed charge coverage ratio was 4.7x versus 4.5x a year ago.

Dividend

As previously announced, the Company’s Board of Directors declared a regular quarterly dividend on its common stock for the third quarter of 2019 in the amount of $0.3425 per share. The dividend will be paid in cash on October 31, 2019 to UDR common stockholders of record as of October 10, 2019. The third quarter 2019 dividend will represent the 188th consecutive quarterly dividend paid by the Company on its common stock.

Outlook

For the fourth quarter of 2019, the Company has established the following earnings guidance ranges.

Net income per share

$0.36 to $0.38

FFO per share

$0.45 to $0.47

FFOA per share

$0.53 to $0.55

AFFO per share

$0.47 to $0.49

For the full-year 2019, the Company’s updated earnings per share guidance ranges are:

 

Updated Guidance

Prior Guidance

Net income per share

$0.68 to $0.70

$0.74 to $0.77

FFO per share

$2.03 to $2.05

$2.08 to $2.11

FFOA per share

$2.07 to $2.09

$2.06 to $2.09

AFFO per share

$1.91 to $1.93

$1.90 to $1.93

For the full-year 2019, the Company’s updated same-store guidance ranges are:

 

Updated Guidance

 

 

Prior Guidance

Revenue growth

3.50% to 3.90%

 

 

3.40% to 4.00%

Expense growth

2.40% to 2.80%

 

 

2.50% to 3.00%

Net operating income growth

4.00% to 4.40%

 

 

3.75% to 4.50%

Physical occupancy

96.8% to 97.0%

 

 

96.8% to 97.0%

Additional assumptions for the Company’s fourth quarter and full-year 2019 guidance can be found on Attachment 15 of the Company’s third quarter Supplemental Financial Information. A reconciliation of FFO per share, FFOA per share and AFFO per share to GAAP Net income per share can be found on Attachment 16(D) of the Company’s third quarter Supplemental Financial Information. Non-GAAP financial measures and other terms, as used in this earnings release, are defined and further explained on Attachments 16(A) through 16(D), “Definitions and Reconciliations,” of the Company’s third quarter Supplemental Financial Information.

Supplemental Information

The Company offers Supplemental Financial Information that provides details on the financial position and operating results of the Company which is available on the Company’s website at ir.udr.com.

Conference Call and Webcast Information

UDR will host a webcast and conference call at 1:00 p.m. Eastern Time on October 30, 2019 to discuss third quarter results.

The webcast will be available on UDR’s website at ir.udr.com. To listen to a live broadcast, access the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software.

To participate in the teleconference dial 877-705-6003 for domestic and 201-493-6725 for international. A passcode is not necessary.

A replay of the conference call will be available through November 30, 2019, by dialing 844-512-2921 for domestic and 412-317-6671 for international and entering the confirmation number, 13695016, when prompted for the passcode.

A replay of the call will also be available for 30 days on UDR’s website at ir.udr.com.

Full Text of the Earnings Report and Supplemental Data

The full text of the earnings report and Supplemental Financial Information will be available on the Company’s website at ir.udr.com.

Attachment 16(A)

UDR, Inc.

Definitions and Reconciliations

September 30, 2019

(Unaudited)

Acquired Communities: The Company defines Acquired Communities as those communities acquired by the Company, other than development and redevelopment activity, that did not achieve stabilization as of the most recent quarter.

Adjusted Funds from Operations (“AFFO”) attributable to common stockholders and unitholders: The Company defines AFFO as FFO as Adjusted attributable to common stockholders and unitholders less recurring capital expenditures on consolidated communities that are necessary to help preserve the value of and maintain functionality at our communities.

Management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFO as Adjusted. AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. The Company believes that net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. A reconciliation from net income/(loss) attributable to common stockholders to AFFO is provided on Attachment 2.

Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items: The Company defines Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items as Consolidated Interest Coverage Ratio – adjusted for non-recurring items divided by total consolidated interest, excluding the impact of costs associated with debt extinguishment, plus preferred dividends.

Management considers Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lending partners with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation of the components that comprise Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.

Consolidated Interest Coverage Ratio – adjusted for non-recurring items: The Company defines Consolidated Interest Coverage Ratio – adjusted for non-recurring items as Consolidated EBITDAre – adjusted for non-recurring items divided by total consolidated interest, excluding the impact of costs associated with debt extinguishment.

Management considers Consolidated Interest Coverage Ratio – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lending partners with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation of the components that comprise Consolidated Interest Coverage Ratio – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.

Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items: The Company defines Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items as total consolidated debt net of cash and cash equivalents divided by annualized Consolidated EBITDAre – adjusted for non-recurring items. Consolidated EBITDAre – adjusted for non-recurring items is defined as EBITDAre excluding the impact of income/(loss) from unconsolidated entities, adjustments to reflect the Company’s share of EBITDAre of unconsolidated joint ventures and other non-recurring items including, but not limited to casualty-related charges/(recoveries), net of wholly owned communities.

Management considers Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lending partners with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation between net income/(loss) and Consolidated EBITDAre – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.

Controllable Expenses: The Company refers to property operating and maintenance expenses as Controllable Expenses.

Controllable Operating Margin: The Company defines Controllable Operating Margin as (i) rental income less Controllable Expenses (ii) divided by rental income. Management considers Controllable Operating Margin a useful metric as it provides investors with an indicator of the Company’s ability to limit the growth of expenses that are within the control of the Company.

Development Communities: The Company defines Development Communities as those communities recently developed or under development by the Company, that are currently majority owned by the Company and have not achieved stabilization as of the most recent quarter.

Contacts

Chris Van Ens, 720.348.7762

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