UDR(UDR) - 2019 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for UDR, Inc. and its operating partnership, United Dominion Realty, L.P., for the period ended September 30, 2019, including balance sheets, statements of operations, comprehensive income, changes in equity/capital, cash flows, and detailed notes explaining accounting policies and financial details UDR, INC. Consolidated Financial Statements UDR, Inc.'s financial statements show an increase in total assets to $8.7 billion, driven by real estate acquisitions, with total revenues growing to $847.4 million for the nine months ended September 30, 2019, while net income attributable to common stockholders decreased to $84.3 million due to a smaller gain on sale of real estate UDR, Inc. Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total real estate owned, net | $7,563,787 | $6,541,999 | | Total assets | $8,697,597 | $7,711,728 | | Total liabilities | $4,353,641 | $3,816,211 | | Total stockholders' equity | $3,246,562 | $2,905,625 | | Total liabilities and equity | $8,697,597 | $7,711,728 | UDR, Inc. Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $295,394 | $266,144 | $847,375 | $779,192 | | Operating income | $58,856 | $55,011 | $176,275 | $228,503 | | Net income attributable to common stockholders | $26,173 | $17,639 | $84,253 | $118,070 | | Diluted EPS | $0.09 | $0.07 | $0.30 | $0.44 | UDR, Inc. Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $456,876 | $406,724 | | Net cash used in investing activities | ($1,382,802) | ($203,106) | | Net cash provided by financing activities | $740,576 | ($197,368) | | Net (decrease)/increase in cash | ($185,350) | $6,250 | Notes to UDR, INC. Consolidated Financial Statements The notes detail the basis of presentation, significant accounting policies including the adoption of the new lease standard (ASU 2016-02), and provide breakdowns of financial statement items, highlighting extensive real estate acquisition activity, unconsolidated joint ventures, the company's $3.9 billion debt portfolio, and segment performance - The company adopted the new lease standard (ASU 2016-02) on January 1, 2019, recognizing right-of-use assets of $94.3 million and lease liabilities of $88.3 million[33][35] - During the first nine months of 2019, UDR engaged in significant acquisition activity, purchasing multiple operating communities and land parcels across various states including California, Washington, New York, Florida, Maryland, Pennsylvania, Massachusetts, and New Jersey[62][65][73] - As of September 30, 2019, the company had total debt of $3.94 billion, with a weighted average interest rate of 3.63% and a weighted average maturity of 6.9 years, with unsecured debt constituting the majority at $3.34 billion[129][130] - For the nine months ended September 30, 2019, Same-Store communities, comprising 37,959 apartment homes, generated $515.8 million in NOI, representing 87.0% of the company's total property NOI[430][234] UNITED DOMINION REALTY, L.P. Consolidated Financial Statements The financial statements for the Operating Partnership (OP), United Dominion Realty, L.P., show total assets of $2.36 billion as of September 30, 2019, with rental income slightly increasing to $330.4 million for the nine months ended, while net income attributable to OP unitholders significantly decreased to $78.2 million due to a non-recurring gain on sale of real estate in the prior year United Dominion Realty, L.P. Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total real estate owned, net | $2,099,586 | $2,153,824 | | Total assets | $2,355,619 | $2,304,590 | | Total liabilities | $955,402 | $818,701 | | Total partners' capital | $1,382,329 | $1,472,070 | | Total liabilities and capital | $2,355,619 | $2,304,590 | United Dominion Realty, L.P. Consolidated Statement of Operations Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Rental income | $111,700 | $109,539 | $330,384 | $323,397 | | Operating income | $37,187 | $35,613 | $108,591 | $170,472 | | Net income attributable to OP unitholders | $26,835 | $27,695 | $78,175 | $143,883 | United Dominion Realty, L.P. Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $197,874 | $196,498 | | Net cash (used in)/provided by investing activities | ($31,668) | $70,638 | | Net cash used in financing activities | ($165,217) | ($266,410) | | Net increase in cash | $989 | $726 | Notes to UNITED DOMINION REALTY, L.P. Consolidated Financial Statements The notes for the Operating Partnership (OP) indicate that as of September 30, 2019, it owned 52 communities with 16,434 apartment homes, adopted the new lease standard, and guarantees a significant amount of the General Partner's (UDR, Inc.) unsecured debt, with Same-Store communities providing 92.9% of the OP's total NOI - As of September 30, 2019, the Operating Partnership's portfolio consisted of 52 communities with 16,434 apartment homes, and UDR, Inc. (the General Partner) owned 95.7% of the outstanding OP Units[246][247] - The Operating Partnership is the guarantor on the General Partner's (UDR, Inc.) $1.1 billion unsecured revolving credit facility, $500 million commercial paper program, and over $2.8 billion in medium-term notes and term loans[292] - The OP has $624.0 million in notes payable to its General Partner, UDR, Inc., with interest rates ranging from 3.63% to 5.34%[298] - For the nine months ended September 30, 2019, Same-Store communities, comprising 15,723 apartment homes, generated $224.5 million in NOI, representing 92.9% of the OP's total property NOI[495][344] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the financial condition and results of operations for both UDR, Inc. and its Operating Partnership, United Dominion Realty, L.P., covering business overview, liquidity, capital resources, critical accounting policies, and a detailed analysis of operating results, including performance of Same-Store and Non-Mature community segments, and reconciliations of non-GAAP measures UDR, Inc. MD&A Management discusses UDR's performance, highlighting a 3.9% increase in Same-Store NOI for Q3 2019 and 4.0% for the nine-month period, driven by strong rental income growth, with the decrease in net income attributed to a large non-recurring gain on sale in 2018, and strong liquidity maintained through active capital market issuances and acquisitions Same-Store Community Operating Performance vs. Prior Year | Period | Same-Store Rental Income Growth | Same-Store Operating Expense Growth | Same-Store NOI Growth | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | 3.7% | 3.1% | 3.9% | | Nine Months Ended Sep 30 | 3.7% | 2.9% | 4.0% | - The company was highly active in acquisitions during the first nine months of 2019, purchasing numerous communities and land parcels in markets including New York, Florida, Maryland, Pennsylvania, Massachusetts, and New Jersey[381][384][391] - Significant financing activities in the first nine months of 2019 included issuing $300 million of 3.20% notes due 2030, $400 million of 3.00% notes due 2031, and raising approximately $662 million in net proceeds from common stock offerings[407] FFO and AFFO per Diluted Share | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | FFO per share | $0.53 | $0.49 | $1.57 | $1.44 | | FFOA per share | $0.52 | $0.49 | $1.54 | $1.46 | | AFFO per share | $0.48 | $0.44 | $1.44 | $1.34 | United Dominion Realty, L.P. MD&A Management's discussion for the Operating Partnership (OP) notes a decrease in net income for the nine-month period to $78.2 million from $143.9 million in the prior year, primarily due to a $70.3 million gain on sale in 2018, while Same-Store NOI grew 2.9% in Q3 and 3.6% for the nine-month period, driven by a 3.7% increase in rental income - The decrease in Net Income for the nine months ended Sep 30, 2019, was primarily due to the absence of a gain on sale of real estate, which was $70.3 million in the comparable 2018 period[488][492] Operating Partnership Same-Store Community Operating Performance vs. Prior Year | Period | Same-Store Rental Income Growth | Same-Store Operating Expense Growth | Same-Store NOI Growth | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | 3.4% | 4.8% | 2.9% | | Nine Months Ended Sep 30 | 3.7% | 3.9% | 3.6% | - The Operating Partnership did not have any acquisitions or dispositions of real estate during the nine months ended September 30, 2019[479] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that its exposure to market risk, primarily from interest rate changes on variable rate debt and refinancing risk, has not materially changed from the disclosures in its 2018 Annual Report on Form 10-K, and derivative instruments are used solely for managing interest rate exposure, not for speculative purposes - The company's market risk, primarily related to interest rate changes, has not materially changed from the year ended December 31, 2018[512] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2019, with no material changes to the internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2019, the CEO and CFO concluded that the disclosure controls and procedures for both the Company and the Operating Partnership are effective at a reasonable assurance level[515] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[516] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various routine legal claims and litigation arising from the ordinary course of business but does not believe these will have a material adverse effect on its financial position or results of operations - The company states that ongoing legal proceedings are not expected to have a material adverse effect on its business, financial position, or results of operations[519] Item 1A. Risk Factors This section details significant risks that could materially affect the company's business, including unfavorable apartment market and economic conditions, geographic concentration, competition, development and construction risks, potential liability for environmental contamination, cybersecurity breaches, failure to maintain REIT status, and changes in interest rates or rent control laws - A significant portion of the company's Net Operating Income (NOI) is generated from a few key markets, including Washington D.C., Orange County, San Francisco, and New York, creating a concentration risk[524] - The company faces risks from the potential enactment or changes to rent control and stabilization laws, which could limit the ability to raise rents and adversely affect results, with recent laws in New York and California noted as examples[555] - Cybersecurity breaches of the company's or its third-party vendors' IT systems pose a significant risk, potentially leading to system disruptions, data loss, reputational damage, and liability claims[570] - Failure to qualify as a REIT would result in adverse tax consequences, including being subject to federal income tax at regular corporate rates and the inability to deduct dividends paid to stockholders[595] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue any unregistered shares of common stock in exchange for OP units or repurchase any shares under its publicly announced repurchase programs during the third quarter of 2019, except for a small number of shares repurchased from employees to satisfy tax obligations related to vested restricted stock - No shares were issued upon redemption of OP Units during the three months ended September 30, 2019[617] - The company did not repurchase any shares of its common stock under its authorized share repurchase programs during the third quarter of 2019, with 14.4 million shares remaining available for repurchase as of September 30, 2019[619] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[621] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[622] Item 5. Other Information There is no other information to report for the period - None[623] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, descriptions of new debt issuances (Medium-Term Notes), and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include descriptions of the 3.200% Medium-Term Note due 2030 and the 3.000% Medium-Term Note due 2031[627] - Certifications from the CEO and CFO for both UDR, Inc. and United Dominion Realty, L.P. under Rule 13a-14(a) and Section 1350 are included as exhibits[627]