UDR released earnings this week, highlighted by strong same-store growth.
Here is the take from Sandler O’Neill + Partners:
Given the guidance reductions we’ve seen from peers this year, we are a bit surprised that softening fundamentals have had no impact on UDR’s operations. On the investment side, UDR sold more from Dallas and Baltimore, which will increase its weightings towards the coastal markets that have been under pressure. UDR continues to simplify its JV relationship with MET by rationalizing 3 land sites, selling Dallas (different than above), and buying out MET in two Bellevue buildings.
Here is the UDR earnings release:
DENVER–(BUSINESS WIRE)–UDR (the “Company”) Third Quarter 2016 Highlights:
- Net income per share was $0.10, Funds from Operations (“FFO”) per share was $0.46, FFO as Adjusted per share was $0.45, and Adjusted Funds from Operations (“AFFO”) per share was $0.41.
- Net income attributable to common stockholders was $26.0 million as compared to $12.4 million in the prior year period. The year-over-year increase was primarily due to higher gains on the sale of real estate.
- Year-over-year same-store (“SS”) revenue, expense and net operating income (“NOI”) growth for the quarter were 5.3 percent, 2.5 percent and 6.4 percent, respectively.
- Simplified the Company’s joint venture relationship with MetLife through a variety of strategic transactions consummated during and subsequent to the quarter.
- During and subsequent to the quarter, placed $284.6 million of apartment communities located in Baltimore, MD and Dallas, TX under contract for disposition with an anticipated closing in the fourth quarter.
- Issued $300 million of 10-year unsecured debt at 2.95 percent. Proceeds were used to prepay high-cost 2017 debt, reduce the outstanding balance on the Company’s revolver and for general corporate purposes.
- Updated full-year 2016 earnings growth guidance:
- Increased net income per share guidance to $0.28 to $0.32 from $0.23 to $0.27; and
- Tightened and increased FFO, FFO as Adjusted and AFFO per share guidance to $1.77 to $1.80 from $1.76 to $1.80, $1.78 to $1.80 from $1.77 to $1.80 and $1.62 to $1.64 from $1.61 to $1.64, respectively.
A reconciliation of FFO, FFO as Adjusted 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
Total revenue increased by $21.8 million or 10 percent, to $243.3 million for the third quarter and $59.8 million or 9 percent, to $716.9 million on a year-to-date basis. This increase was primarily due to growth in revenue from stabilized, non-mature communities and same-store communities.
Same-store NOI increased 6.4 percent year-over-year in the third quarter of 2016 and was driven by same-store revenue growth of 5.3 percent against a 2.5 percent increase in same-store expenses. Same-store physical occupancy was 96.8 percent as compared to 96.7 percent in the prior year period. The third quarter annualized rate of turnover was 64.8 percent representing a 10 basis point increase year-over-year.
Summary of Same-Store Results Third Quarter 2016 versus Third Quarter 2015
| Region | Revenue Growth | Expense Growth/ (Decline) | NOI Growth | % of Same- Store Portfolio(1) | Same–Store Occupancy (2) | Number of Same-Store Homes (3) |
| West | 6.6% | 1.6% | 8.2% | 43.8% | 96.4% | 11,460 |
| Mid-Atlantic | 2.2% | (1.9)% | 4.3% | 18.7% | 96.8% | 6,902 |
| Northeast | 4.2% | 4.5% | 4.1% | 17.7% | 97.0% | 3,124 |
| Southeast | 7.1% | 6.2% | 7.5% | 14.3% | 97.2% | 7,683 |
| Southwest | 5.5% | 7.1% | 4.5% | 5.5% | 97.1% | 3,303 |
| Total | 5.3% | 2.5% | 6.4% | 100.0% | 96.8% | 32,472 |
| (1) | Based on Q3 2016 NOI. | |
| (2) | Weighted average same-store occupancy for the quarter. | |
| (3) | During the third quarter, 32,472 apartment homes, or approximately 80 percent of 40,728 total consolidated apartment homes (versus 51,129 apartment homes inclusive of joint ventures, preferred equity investments and development pipeline homes upon completion), 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 not held for disposition. |
Sequential same-store NOI increased by 1.2 percent in the third quarter of 2016 on same-store revenue growth of 1.5 percent and same-store expense growth of 2.1 percent.
Year-to-date, for the nine months ended September 30, 2016, the Company’s same-store revenue increased 5.9 percent and same-store expenses increased 3.5 percent, resulting in a same-store NOI increase of 6.9 percent. Same-store physical occupancy was 96.6 percent as compared to 96.7 percent in the prior year period.
Summary of Same-Store Results YTD 2016 versus YTD 2015
| Region | Revenue Growth | Expense Growth/ (Decline) | NOI Growth | % of Same- Store Portfolio(1) | Same–Store Occupancy(2) | Number of Same-Store Homes(3) |
| West | 7.9% | 5.9% | 8.6% | 42.9% | 96.2% | 11,298 |
| Mid-Atlantic | 2.1% | (1.0)% | 3.5% | 19.0% | 96.8% | 6,902 |
| Northeast | 5.0% | 4.1% | 5.4% | 18.0% | 96.9% | 3,124 |
| Southeast | 7.2% | 2.7% | 9.4% | 14.6% | 96.9% | 7,683 |
| Southwest | 5.4% | 6.3% | 4.9% | 5.5% | 96.9% | 3,303 |
| Total | 5.9% | 3.5% | 6.9% | 100.0% | 96.6% | 32,310 |
| (1) | Based on YTD 2016 NOI. | |
| (2) | Average same-store occupancy for YTD 2016. | |
| (3) | During the nine months, 32,310 apartment homes, or approximately 79 percent of 40,728 total consolidated apartment homes (versus 51,129 apartment homes inclusive of joint ventures, preferred equity investments and development pipeline homes upon completion), 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 not held for disposition. |
Development and Redevelopment Activity
At the end of the third quarter, the Company’s pro-rata share of its development pipeline totaled $1.1 billion. The $1.1 billion consisted of a $163 million completed, non-stabilized development project and $937 million of under-construction developments. The $937 million of under-construction development projects are scheduled to be delivered over the next three years, with $54 million in 2016, $112 million in 2017, $405 million in 2018 and the balance in 2019. The development pipeline is currently expected to produce a weighted average spread between estimated stabilized development yields and current market cap rates in excess of the upper end of the Company’s 150 to 200 basis point targeted range.
In addition, the Company had preferred equity and participating loan investments for which its pro rata share totaled $364 million. 100 percent of the Company’s equity commitments in these projects has been funded. The $364 million consisted of $133 million of completed, stabilized developments, $114 million of completed, non-stabilized developments and $117 million of under-construction developments. Of the $117 million in development projects left to complete, $61 million is expected to be completed in 2016 with the balance in 2017.
Transactional Activity
As previously disclosed during the quarter, the Company placed seven communities, containing 1,402 homes, in Baltimore, MD under contract for disposition for approximately $236 million or $168,000 per home. The seven communities had an average monthly revenue per occupied home of $1,331 and were 31 years old on average. The sales are expected to close in the fourth quarter.
Subsequent to quarter end, the Company placed Highlands of Preston, a 380 home community located in Dallas, TX under contract for disposition for $48.6 million or $128,000 per home and is expected to close in the fourth quarter. The community had an average monthly revenue per occupied home of $1,148, was 31 years old and had undergone redevelopment in 2008.
Joint Venture Activity
The Company continued to simplify its joint venture with MetLife during and subsequent to the third quarter via a series of strategic transactions.
During the quarter, the Company completed a swap of developable land with MetLife, resulting in the Company acquiring MetLife’s remaining 95 percent interest in a land site in Dublin, CA in exchange for the Company’s 5 percent weighted average ownership interest in two land sites located in Bellevue, WA and Los Angeles, CA.
Additionally during the quarter, the UDR/MetLife Joint Venture disposed of Cirque, a 252 home, high-rise community located in Dallas, TX to an unrelated third party for $74.7 million, of which the Company’s share was $37.4 million. The community had an average monthly revenue per occupied home of $2,575 and was 8 years old.
Subsequent to quarter end, the Company acquired MetLife’s 50 percent interest in Ten20 and Ashton Bellevue, two adjacent UDR/MetLife Joint Venture communities located in Bellevue, WA. The Company acquired MetLife’s interest for $68.4 million plus the assumption of $37.9 million of debt. These communities had a weighted average monthly revenue per occupied home of $3,322 and were 7 years old.
After accounting for joint venture refinancings, these transactions were approximately $14 million net cash positive to the Company and served to reduce the size of the UDR/MetLife Joint Venture by approximately 10% or $355 million.
Capital Markets
As previously disclosed during the quarter, the Company issued $300 million of 10-year unsecured debt at 2.95 percent. Proceeds were used to prepay approximately $158 million of 5.61% debt originally maturing in 2017, reduce the outstanding balance on the Company’s revolver and for general corporate purposes.
Balance Sheet
At September 30, 2016, the Company had $931 million in availability through a combination of cash and undrawn capacity on its credit facilities.
The Company’s total indebtedness at September 30, 2016 was $3.5 billion. The Company ended the quarter with fixed-rate debt representing 81.5 percent of its total debt, a total blended interest rate of 3.66 percent and a weighted average maturity of 5.3 years. The Company’s leverage was 33.5 percent versus 36.7 percent a year ago, net debt-to-EBITDA was 5.3x versus 6.0x a year ago and fixed charge coverage was 4.70x versus 4.22x 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 2016 in the amount of $0.295 per share. The dividend will be paid in cash on October 31, 2016 to UDR common stock shareholders of record as of October 11, 2016. The third quarter 2016 dividend will represent the 176th consecutive quarterly dividend paid by the Company on its common stock.
On an annualized declared basis, the Company’s $1.18 per share 2016 dividend represents a 6 percent increase versus 2015.
Outlook
For the fourth quarter of 2016, the Company has established the following earnings guidance ranges:
| Net income per share | $0.08 to $0.12 |
| FFO per share | $0.44 to $0.46 |
| FFO as Adjusted per share | $0.45 to $0.47 |
| AFFO per share | $0.39 to $0.41 |
For the full-year 2016, the Company has updated its previously provided earnings guidance ranges:
| Revised | Prior Guidance | |
| Net income per share | $0.28 to $0.32 | $0.23 to $0.27 |
| FFO per share | $1.77 to $1.80 | $1.76 to $1.80 |
| FFO as Adjusted per share | $1.78 to $1.80 | $1.77 to $1.80 |
| AFFO per share | $1.62 to $1.64 | $1.61 to $1.64 |
For the full-year 2016, the Company has reaffirmed its previously provided same-store growth guidance ranges:
| Revenue | 5.50% to 6.00% |
| Expense | 3.00% to 3.50% |
| Net operating income | 6.50% to 7.00% |
Additional assumptions for the Company’s fourth quarter and full-year 2016 guidance can be found on Attachment 15 of the Company’s third quarter Supplemental Financial Information.