REIT Focus: UDR, Inc.

Jul.18.13 | About: UDR, Inc. (UDR)

This REIT Focus is on UDR, Inc. ("UDR"), a publicly traded REIT that acquires, renovates, develops and manages primarily apartment properties and other commercial assets and owns or had ownership interests in 54,195 apartment homes including 2,887 apartment homes under construction. UDR's communities are located in CA, VA, NY, MA, FL, TN, MD and D.C. UDR owns a 100% general partner interest and a 94.9% limited partnership interest in its UpReit general partnership, United Dominion Realty, L.P.

As of 3/31/13, the average occupancy and monthly rent of its apartment portfolio was 95.5% and $1,448, respectively. UDR was originally formed in 1972 and is currently a Maryland Corporation. UDR is traded on the NYSE, is based in Highlands Ranch, CO. and is rated BBB by Standard & Poor's.

UDR has 250.5 million common shares outstanding and a market capitalization of approximately $6.51 billion. UDR has a well regarded and experienced management team that includes James D. Klingbeil, Chairman of the Board, Thomas W. Toomey, President and Chief Executive Officer, who joined the company in 2001 and Thomas M. Herzog, SVP and CFO.

Select financial data for UDR as of the 3/31/13 10Q and for the period 1/1-3/31/13 is as follows (in millions where applicable):

Real Estate Assets, Gross $8,181
Total Assets $6,891
Secured and Unsecured Debt $3,499
Stockholders' Equity $2,931
Revenue $187
Net Income ($1)
Net Income Per Share ($0)
Cash Flow from Operations $67
Unsecured Credit Facility ($900 with $170 used) $730
Market Capitalization $6,513
Debt to:
Gross Real Estate Assets 43%
Market Capitalization 54%
Dividend and Yield ($.94/sh.) 3.6%
Valuation Methodology:
First Quarter Revenue Per Above Annualized $748
Less: Operating Expenses Annualized (excluding depreciation, amortization & interest expense, plus G&A expenses and other income) $288
Annualized Net Operating Income 2013 $460
Projected Inflation Rate at 3.5% x103.5%
Projected Forward NOI for Next Year $476
Projected Cap Rate 6.5%
Projected Value of Real Estate Assets $7,323
Add: Net Operating Working Capital 21
Add: Investment in Unconsolidated Joint Ventures (at book value) 491
Total Projected Asset Value $7,835
Less: Total Debt Per Above (3,499)
Projected Net Asset Value $4,336
Shares Outstanding 264.2M (250.5M common stock shares, 3M Series E convertible preferred shares, 9.4M partnership units and 1.3M option shares )
Projected NAV Per Share $16
Closing Market Price Per Share on 7/15/13 $25
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The gross real estate assets, debt, net income and funds from operations for the years 2009 through Q1 2013 are shown in the table below:

(Millions) 2009 2010 2011 2012 Q1 2013
Gross Real Estate Assets $6,311 $6,748 $7,848 $8,054 $8,181
Debt $3,426 $3,568 $3,918 $3,409 $3,499
Net Income ($96) ($112) $10 $203 $1
Funds From Operations $184 $193 $273 $333 $92
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As shown above, our net asset value per share for UDR is $16 per share versus a market price of $25 per share. Current average cap rates for apartment properties per CBRE are in the 5% to 8% range, depending on the location and quality of the property. We have used a cap rate of 6.5% due to UDR's portfolio being primarily Class A properties and located in high barrier to entry (CA, MA and DC) and higher economic growth (TX and FL) markets.

UDR's strengths include; average leverage, experienced management team, diversified portfolio and high occupancy at 96%. Weaknesses include; low dividend yield of 3.6% and high stock price.

We do not recommend the purchase of this stock at the current price of $25/sh. and would only be a buyer at a significant discount to the current price. UDR is a well managed REIT; however, the stock is trading at a cap rate of approximately 4.9%, which we consider well below market cap rates for apartment properties.

A five year price chart of UDR is shown below:

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REIT Focus Investment Summary

A summary of our 2013 REIT Focus reviews and investment recommendations is shown below:

Date REIT Market Price Per Share at Analysis Date REIT Focus Projected Price Per Share Current Market Price Per Share-7/15/13 Stock Recommendation at VOM Issue
January 15, 2013 Camden Property Trust (NYSE:CPT) $69 $40 $72 Do Not Buy
February 15, 2013 Hudson Pacific Properties (NYSE:HPP) $22 $10 $21 Do Not Buy
March 15, 2013 CBL & Associates Properties, Inc. (NYSE:CBL) $23 $20 $23 Buy
April 15, 2013 Essex Property Trust, Inc. (NYSE:ESS) $155 $101 $165 Do Not Buy
May 15, 2013 Commonwealth REIT (Pending:CWH) $20 $22 $23 Buy
June 15, 2013 Douglas Emmett, Inc. (NYSE:DEI) $25 $14 $25 Do Not Buy
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.