UDR Reports $73 Million in Funds From Operations, 25 Percent Increase in Rents

Colorado-based UDR Inc. reported third quarter funds from operations of nearly $73 million, or 32 cents per diluted share, up from $46.9 million, or 27 cents per diluted share, in the third quarter of 2010. Funds from operations is defined as net income, excluding sales of depreciable properties and after adjustments for partnerships and joint ventures, and is a key performance metric for real estate investment trusts.

The multifamily REIT narrowed its third-quarter loss to $13.3 million, or 7 cents per share, from their year-ago loss of $23.8 million, or 16 cents per share. Analysts had predicted a lose of 11 centers per share, according to Reuters.

The REIT recorded a rental income increase of 25 percent to $187.3 million, up from $150 million in 2010. Non-property income jumped to $3.65 million from $1.36 million in 2010. Analysts had estimated revenues of $186.33 million. Same-store revenue increased by 5 percent year-over-year and net operating income (NOI) increased by 7 percent in the third quarter.

Our business remains strong, highlighted by our high-single-digit NOI growth during the third quarter, and our continued ability to take advantage of the opportunities to improve the quality and geography of our portfolio, said Tom Toomey, president and CEO of UDR, in a statement. With ample access to a variety of capital sources and strong multifamily fundamentals, we look forward to continued successes.

In an earnings call on Monday, Toomey attributed the increase in rents to declining national home ownership, low tenant turnover, lack of rental inventory and job growth for younger renters. The company's occupancy rate was over 95 percent. Officials from the company expect the rental market to follow historic seasonal patterns, with slower traffic during the winter and an escalation in leases during the first quarter of 2012 through next summer.

Market fundamentals remain strong, said Jerry Davis, senior vice president of property operations at UDR. Our operating platform is running on all cylinders.

We continue to push new leases and renewal rates with little effect on occupancy, added Toomey. Our 2010 and 2011 acquisitions have targeted urban markets with favorable job creation, including San Francisco, Boston and Washington D.C.

The company has been particularly actively in New York, perhaps the strongest rental market in the country. It purchased three Manhattan properties in the third quarter, totaling 1,423 homes for $911 million. The properties included Rivergate, a 706-unit apartment complex at 401 East 34th Street, purchased for $443.4 million. The 35-story building also has 24,315 square feet of fully leased retail and commercial space. It has an average monthly income of $3,262 per occupied unit. UDR will undergo a $60 million renovation that will update apartment interiors, the lobby and entryway, as well as adding a 6,000 square foot rooftop gym.

UDR also bought 21 Chelsea, a 210-unit apartment building at 120 West 21st Street, for $138.9 million. The 14-story building also has 1,600 of leased retail and a 152-space parking garage. It has an average monthly income of $3,226 per occupied unit. UDR is planning $6 million to $8 million in renovations, including apartment interior, lobby and rooftop improvements.

UDR bought the 507-unit 95 Wall in the Financial District for $328.9 million, a 22-story building with 7,526 square feet of leased retail space and a 97-space parking garage. The average monthly income per occupied unit is $4,1000. The building is near UDR's 10 Hanover Square rental building.

It is also developing the third phase of Vitruvian Park, a 391-home, $98 million project in Texas and a $46 million joint venture in Huntington Beach, Ca. In addition, UDR began five renovation projects that will total $290 million to renovate 2,440 homes in the third quarter. UDR CEO Toomey said that he felt redevelopment projects had the best potential, followed by new acqusitions and development. The price of development parcels, he said, were still near peark values in 2007.

In dispositions, UDR sold $440 million in non-core assets in Dallas, San Francisco and Southern California, with another $50 million under contract. It is also marketing $200 million in properties for sale. Proceeds from the sales will go to pay debt and fund new acquisitions.

UDR has ownership interest in a national porfolio of over 62,000 apartment units, including 2,255 homes under development. Shares of the company were trading for around $25 on Monday.

Write to Roland Li at r.li@ibtimes.com.