UDR Beats on Q1 FFO & Revs - Analyst Blog

UDR Inc. UDR reported first-quarter 2014 funds from operations (FFO) as adjusted of 36 cents per share, which surpassed the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 2 cents. The figure also surpassed the company's guided range of 33–35 cents.

The favorable results at this apartment real estate investment trust (REIT) were attributable to higher revenues, same-store net operating income (NOI) and notable portfolio restructuring activity.

Total revenue during the quarter was $198.0 million, up 7.1% year over year and also exceeded the Zacks Consensus Estimate of $192 million.

Quarter in Details

Same-store revenues increased 4.5% year over year, while same-store expenses climbed 2.2%. Consequently, same-store NOI rose 5.6% from the year-ago quarter. Same-store physical occupancy inched up 50 basis points year over year to 96.2%.

During the quarter, UDR bought the Pacific City land parcel in Huntington Beach, CA for $78 million. Moreover, the company finished the development of three communities (891 apartment homes) for $295 million. Also, UDR successfully completed the redevelopment of 138 homes and incurred $11.3 million for the same.

On the other hand, UDR sold its stake in two UDR / MetLife I Joint Venture operating communities to MetLife, Inc. MET. Also, subsequent to the first-quarter end, UDR raised its ownership stake in the remaining six operating communities that was contributed to the UDR / MetLife II Joint Venture. UDR paid approximately $79 million to MetLife for it.

Furthermore, during the reported quarter, UDR divested a 264 home community­­, Presidio at Rancho del, in North County San Diego for $48.7 million.

Balance Sheet

As of Mar 31, 2014, UDR's liquidity amounted to $628 million through a combination of cash and undrawn capacity on its credit facilities, compared with $930 million in Dec 31, 2013. Further, the company had total debt of $3.6 billion, compared with $3.5 billion in the last quarter.

Its net debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) stood at 7.2x, as compared to 7.3x in the year-ago quarter. Fixed charge coverage ratio came in at 3.2x compared with the year-ago figure of 3.0x.

2014 Outlook

For second-quarter 2014, UDR's guidance for FFO as adjusted stood in the range of 36–38 cents per share. The Zacks Consensus Estimate of 37 cents is within this range.

For full-year 2014, the company reiterated its previous guidance range of $1.47–$1.53 per share. The Zacks Consensus Estimate of $1.50 lies within this range.

Dividend Raised

In March, UDR declared an 11% hike in its first-quarter 2014 cash dividend rate to 26 cents per share from 23.5 cents paid in the prior quarter. The dividend was paid on Apr 30, 2014 to stockholders of record on Apr 9.

Our Take

UDR repositioned itself on the winning track with encouraging results in the first quarter, after posting meek results in the last quarter. Particularly, the operating portfolio's performance helped UDR gain momentum. Also, the ongoing extensive development and redevelopment activities position the company well in upscale markets and provide notable growth prospects. Furthermore, a dividend hike raises investors' confidence on this Zacks Rank #2 (Buy) stock.

Other better-ranked REIT stocks are Equity LifeStyle Properties, Inc. ELS and Preferred Apartment Communities, Inc. APTS. Both have the same rank as UDR.

Note: 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.