Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

udr_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10‑Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                    

Commission file number

1‑10524 (UDR, Inc.)

333‑156002‑01 (United Dominion Realty, L.P.)

UDR, Inc.

United Dominion Realty, L.P.

(Exact name of registrant as specified in its charter)

 

 

Maryland (UDR, Inc.)

54‑0857512

Delaware (United Dominion Realty, L.P.)

54‑1776887

(State or other jurisdiction of

(I.R.S. Employer

incorporation of organization)

Identification No.)

 

1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129

(Address of principal executive offices) (zip code)

(720) 283‑6120

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

UDR, Inc.

Yes  No

United Dominion Realty, L.P.

Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

 

UDR, Inc.

Yes No

United Dominion Realty, L.P.

Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

UDR, Inc.:

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

Emerging growth company

 

 

 

 

United Dominion Realty, L.P.:

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

UDR, Inc.

United Dominion Realty, L.P.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).

 

 

UDR, Inc.

Yes No

United Dominion Realty, L.P.

Yes No

 

The number of shares of UDR, Inc.’s common stock, $0.01 par value, outstanding as of October 26, 2018 was 268,390,557.

 

 

 

 


 

Table of Contents

UDR, INC.

UNITED DOMINION REALTY, L.P.

INDEX

 

PAGE

PART I — FINANCIAL INFORMATION 

 

 

Item 1. Consolidated Financial Statements 

 

 

 

UDR, INC.:

 

 

 

Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017 (audited) 

5

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited) 

6

 

 

Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended September 30, 2018 and 2017 (unaudited) 

7

 

 

Consolidated Statement of Changes in Equity for the nine months ended September 30, 2018 (unaudited) 

8

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited) 

9

 

 

Notes to Consolidated Financial Statements (unaudited) 

10

 

 

UNITED DOMINION REALTY, L.P.:

 

 

 

Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017 (audited) 

40

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited) 

41

 

 

Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended September 30, 2018 and 2017 (unaudited) 

42

 

 

Consolidated Statement of Changes in Capital for the nine months ended September 30, 2018 (unaudited) 

43

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited) 

44

 

 

Notes to Consolidated Financial Statements (unaudited) 

45

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

64

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

87

 

 

Item 4. Controls and Procedures 

87

 

 

PART II — OTHER INFORMATION 

 

 

Item 1. Legal Proceedings 

88

 

 

Item 1A. Risk Factors 

88


 

Table of Contents

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

101

 

 

Item 3. Defaults Upon Senior Securities 

102

 

 

Item 4. Mine Safety Disclosures 

102

 

 

Item 5. Other Information 

102

 

 

Item 6. Exhibits 

103

 

 

Signatures 

106

 

 

Exhibit 3.6

Exhibit 3.18

 

Exhibit 12.1

 

Exhibit 12.2

 

Exhibit 31.1

 

Exhibit 31.2

 

Exhibit 31.3

 

Exhibit 31.4

 

Exhibit 32.1

 

Exhibit 32.2

 

Exhibit 32.3

 

Exhibit 32.4

 

 

 

 


 

Table of Contents

EXPLANATORY NOTE

This Report combines the quarterly reports on Form 10‑Q for the quarter ended September 30, 2018 of UDR, Inc., a Maryland corporation, and United Dominion Realty, L.P., a Delaware limited partnership, of which UDR, Inc. is the parent company and sole general partner. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” the “Company,” “UDR” or “UDR, Inc.” refer collectively to UDR, Inc., together with its consolidated subsidiaries and joint ventures, including United Dominion Realty, L.P. and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”), also a  Delaware limited partnership of which UDR is the sole general partner. Unless the context otherwise requires, the references in this Report to the “Operating Partnership” or the “OP” refer to United Dominion Realty, L.P., together with its consolidated subsidiaries. “Common stock” refers to the common stock of UDR and “stockholders” means the holders of shares of UDR’s common stock and preferred stock. The limited partnership interests of the Operating Partnership and the DownREIT Partnership are referred to as “OP Units” and “DownREIT Units,” respectively, and the holders of the OP Units and DownREIT Units are referred to as “unitholders.” This combined Form 10‑Q is being filed separately by UDR and the Operating Partnership.

There are a number of differences between the Company and the Operating Partnership, which are reflected in our disclosures in this Report. UDR is a real estate investment trust (“REIT”), whose most significant asset is its ownership interest in the Operating Partnership. UDR also conducts business through other subsidiaries, including its taxable REIT subsidiary (“TRS”). UDR acts as the sole general partner of the Operating Partnership, holds interests in subsidiaries and joint ventures, owns and operates properties, issues securities from time to time and guarantees debt of certain of our subsidiaries. The Operating Partnership conducts the operations of a substantial portion of the business and is structured as a partnership with no publicly traded equity securities. The Operating Partnership has guaranteed certain outstanding debt of UDR.

As of September 30, 2018, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and 174,137,816 OP Units, representing approximately 94.8% of the total outstanding OP Units in the Operating Partnership. UDR conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership, and, by virtue of its ownership of the OP Units and UDR’s role as the Operating Partnership’s sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Separate financial statements and accompanying notes, as well as separate discussions under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are presented in this report for each of UDR and the Operating Partnership.

 

 


 

Table of Contents

UDR, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2018

    

2017

 

 

(unaudited)

 

(audited)

ASSETS

 

 

 

 

 

 

Real estate owned:

 

 

  

 

 

  

Real estate held for investment

 

$

9,809,142

 

$

9,584,716

Less: accumulated depreciation

 

 

(3,544,781)

 

 

(3,326,312)

Real estate held for investment, net

 

 

6,264,361

 

 

6,258,404

Real estate under development (net of accumulated depreciation of $3,674 and $3,854, respectively)

 

 

347,012

 

 

588,636

Real estate held for disposition (net of accumulated depreciation of $77,872 and $0, respectively)

 

 

89,964

 

 

 —

Total real estate owned, net of accumulated depreciation

 

 

6,701,337

 

 

6,847,040

Cash and cash equivalents

 

 

1,084

 

 

2,038

Restricted cash

 

 

26,996

 

 

19,792

Notes receivable, net

 

 

41,009

 

 

19,469

Investment in and advances to unconsolidated joint ventures, net

 

 

767,376

 

 

720,830

Other assets

 

 

140,982

 

 

124,104

Total assets

 

$

7,678,784

 

$

7,733,273

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Secured debt, net

 

$

798,241

 

$

803,269

Unsecured debt, net

 

 

3,012,939

 

 

2,868,394

Real estate taxes payable

 

 

38,581

 

 

18,349

Accrued interest payable

 

 

27,750

 

 

33,432

Security deposits and prepaid rent

 

 

31,821

 

 

31,916

Distributions payable

 

 

95,372

 

 

91,455

Accounts payable, accrued expenses, and other liabilities

 

 

73,812

 

 

102,956

Total liabilities

 

 

4,078,516

 

 

3,949,771

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

  

 

 

  

 

 

 

 

 

 

 

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership

 

 

992,805

 

 

948,138

 

 

 

 

 

 

 

Equity:

 

 

  

 

 

  

Preferred stock, no par value; 50,000,000 shares authorized:

 

 

  

 

 

  

8.00% Series E Cumulative Convertible; 2,780,994 shares issued and outstanding at September 30, 2018 and December 31, 2017

 

 

46,200

 

 

46,200

Series F; 15,804,393 and 15,852,721 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

 1

 

 

 1

Common stock, $0.01 par value; 350,000,000 shares authorized:

 

 

  

 

 

  

268,390,557 and 267,822,069 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

2,684

 

 

2,678

Additional paid-in capital

 

 

4,619,570

 

 

4,651,205

Distributions in excess of net income

 

 

(2,075,402)

 

 

(1,871,603)

Accumulated other comprehensive income/(loss), net

 

 

202

 

 

(2,681)

Total stockholders’ equity

 

 

2,593,255

 

 

2,825,800

Noncontrolling interests

 

 

 14,208

 

 

9,564

Total equity

 

 

2,607,463

 

 

2,835,364

Total liabilities and equity

 

$

7,678,784

 

$

7,733,273

 

See accompanying notes to consolidated financial statements.

5


 

Table of Contents

UDR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

 

2018

 

2017

REVENUES:

    

 

  

    

 

  

    

 

  

    

 

  

Rental income

 

$

263,256

 

$

248,264

 

$

770,373

 

$

734,193

Joint venture management and other fees

 

 

2,888

 

 

2,827

 

 

8,819

 

 

8,718

Total revenues

 

 

266,144

 

 

251,091

 

 

779,192

 

 

742,911

OPERATING EXPENSES:

 

 

  

 

 

  

 

 

  

 

 

  

Property operating and maintenance

 

 

44,090

 

 

42,362

 

 

126,129

 

 

122,574

Real estate taxes and insurance

 

 

34,352

 

 

31,181

 

 

99,541

 

 

90,792

Property management

 

 

7,240

 

 

6,827

 

 

21,185

 

 

20,190

Other operating expenses

 

 

3,314

 

 

1,950

 

 

8,148

 

 

6,010

Real estate depreciation and amortization

 

 

107,881

 

 

107,171

 

 

322,537

 

 

320,653

General and administrative

 

 

11,896

 

 

12,467

 

 

36,028

 

 

36,976

Casualty-related charges/(recoveries), net

 

 

678

 

 

2,056

 

 

2,364

 

 

3,749

Other depreciation and amortization

 

 

1,682

 

 

1,585

 

 

5,057

 

 

4,760

Total operating expenses

 

 

211,133

 

 

205,599

 

 

620,989

 

 

605,704

Operating income

 

 

55,011

 

 

45,492

 

 

158,203

 

 

137,207

Income/(loss) from unconsolidated entities

 

 

(1,382)

 

 

1,819

 

 

(5,091)

 

 

11,591

Interest expense

 

 

(34,401)

 

 

(30,095)

 

 

(95,942)

 

 

(94,500)

Interest income and other income/(expense), net

 

 

1,188

 

 

481

 

 

5,075

 

 

1,423

Income/(loss) before income taxes and gain/(loss) on sale of real estate owned

 

 

20,416

 

 

17,697

 

 

62,245

 

 

55,721

Tax (provision)/benefit, net

 

 

(158)

 

 

(127)

 

 

(618)

 

 

(825)

Income/(loss) from continuing operations

 

 

20,258

 

 

17,570

 

 

61,627

 

 

54,896

Gain/(loss) on sale of real estate owned, net of tax

 

 

 —

 

 

 —

 

 

70,300

 

 

2,132

Net income/(loss)

 

 

20,258

 

 

17,570

 

 

131,927

 

 

57,028

Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership

 

 

(1,616)

 

 

(1,415)

 

 

(10,819)

 

 

(4,607)

Net (income)/loss attributable to noncontrolling interests

 

 

(32)

 

 

35

 

 

(141)

 

 

(107)

Net income/(loss) attributable to UDR, Inc.

 

 

18,610

 

 

16,190

 

 

120,967

 

 

52,314

Distributions to preferred stockholders — Series E (Convertible)

 

 

(971)

 

 

(926)

 

 

(2,897)

 

 

(2,784)

Net income/(loss) attributable to common stockholders

 

$

17,639

 

$

15,264

 

$

118,070

 

$

49,530

 

 

 

 

 

 

 

 

 

 

 

 

 

Common distributions declared per share

 

$

0.3225

 

$

0.3100

 

$

0.9675

 

$

0.9300

 

 

 

 

 

 

 

 

 

 

 

 

 

Income/(loss) per weighted average common share:

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

$

0.07

 

$

0.06

 

$

0.44

 

$

0.19

Diluted

 

$

0.07

 

$

0.06

 

$

0.44

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

 

267,727

 

 

267,056

 

 

267,529

 

 

266,940

Diluted

 

 

268,861

 

 

269,062

 

 

269,020

 

 

268,851

 

See accompanying notes to consolidated financial statements.

6


 

Table of Contents

UDR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

 

2018

 

2017

Net income/(loss)

 

$

20,258

 

$

17,570

 

$

131,927

 

$

57,028

Other comprehensive income/(loss), including portion attributable to noncontrolling interests:

 

 

  

 

 

  

 

 

  

 

 

  

Other comprehensive income/(loss) - derivative instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Unrealized holding gain/(loss)

 

 

2,320

 

 

131

 

 

4,312

 

 

256

(Gain)/loss reclassified into earnings from other comprehensive income/(loss)

 

 

(564)

 

 

119

 

 

(1,162)

 

 

1,328

Other comprehensive income/(loss), including portion attributable to noncontrolling interests

 

 

1,756

 

 

250

 

 

3,150

 

 

1,584

Comprehensive income/(loss)

 

 

22,014

 

 

17,820

 

 

135,077

 

 

58,612

Comprehensive (income)/loss attributable to noncontrolling interests

 

 

(1,798)

 

 

(1,401)

 

 

(11,230)

 

 

(4,856)

Comprehensive income/(loss) attributable to UDR, Inc.

 

$

20,216

 

$

16,419

 

$

123,847

 

$

53,756

 

See accompanying notes to consolidated financial statements.

7


 

Table of Contents

UDR, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Distributions

    

Accumulated Other Comprehensive

    

 

 

    

 

 

 

 

Preferred

 

Common

 

Paid-in

 

in Excess of

 

Income/(Loss),

 

Noncontrolling

 

 

 

 

 

Stock

 

Stock

 

Capital

 

Net Income

 

net

 

Interests

 

Total

Balance at December 31, 2017

 

$

46,201

 

$

2,678

 

$

4,651,205

 

$

(1,871,603)

 

$

(2,681)

 

$

9,564

 

$

2,835,364

Net income/(loss) attributable to UDR, Inc.

 

 

 —

 

 

 —

 

 

 —

 

 

120,967

 

 

 —

 

 

 —

 

 

120,967

Net income/(loss) attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

107

 

 

107

Contribution of noncontrolling interests in consolidated real estate

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

108

 

 

108

Repurchase of common shares

 

 

 —

 

 

(6)

 

 

(19,982)

 

 

 —

 

 

 —

 

 

 —

 

 

(19,988)

Long Term Incentive Plan Unit grants/(vestings), net

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,429

 

 

4,429

Other comprehensive income/(loss)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,883

 

 

 —

 

 

2,883

Exercise of stock options, net

 

 

 —

 

 

 8

 

 

(23,061)

 

 

 —

 

 

 —

 

 

 —

 

 

(23,053)

Issuance/(forfeiture) of common and restricted shares, net

 

 

 —

 

 

(1)

 

 

(1,738)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,739)

Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership

 

 

 —

 

 

 5

 

 

13,146

 

 

 —

 

 

 —

 

 

 —

 

 

13,151

Common stock distributions declared ($0.9675 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(259,214)

 

 

 —

 

 

 —

 

 

(259,214)

Preferred stock distributions declared-Series E ($1.0476 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,897)

 

 

 —

 

 

 —

 

 

(2,897)

Adjustment to reflect redemption value of redeemable noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

(62,655)

 

 

 —

 

 

 —

 

 

(62,655)

Balance at September 30, 2018

 

$

46,201

 

$

2,684

 

$

4,619,570

 

$

(2,075,402)

 

$

202

 

$

14,208

 

$

2,607,463

 

See accompanying notes to consolidated financial statements.

8


 

Table of Contents

UDR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

    

2018

    

2017

Operating Activities

 

 

  

 

 

  

Net income/(loss)

 

$

131,927

 

$

57,028

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

 

 

  

 

 

  

Depreciation and amortization

 

 

327,594

 

 

325,413

(Gain)/loss on sale of real estate owned, net of tax

 

 

(70,300)

 

 

(2,132)

(Income)/loss from unconsolidated entities

 

 

5,091

 

 

(11,591)

Return on investment in unconsolidated joint ventures

 

 

2,848

 

 

3,609

Amortization of share-based compensation

 

 

10,694

 

 

10,072

Other

 

 

2,108

 

 

13,069

Changes in operating assets and liabilities:

 

 

  

 

 

  

(Increase)/decrease in operating assets

 

 

(13,199)

 

 

(7,782)

Increase/(decrease) in operating liabilities

 

 

9,961

 

 

1,590

Net cash provided by/(used in) operating activities

 

 

406,724

 

 

389,276

 

 

 

 

 

 

 

Investing Activities

 

 

  

 

 

  

Acquisition of real estate assets

 

 

 —

 

 

(65,381)

Proceeds from sales of real estate investments, net

 

 

89,433

 

 

3,250

Development of real estate assets

 

 

(136,170)

 

 

(190,456)

Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement

 

 

(76,381)

 

 

(91,633)

Capital expenditures — non-real estate assets

 

 

(2,963)

 

 

(3,230)

Investment in unconsolidated joint ventures

 

 

(85,059)

 

 

(102,170)

Distributions received from unconsolidated joint ventures

 

 

30,574

 

 

65,053

Purchase deposits on pending acquisitions

 

 

(1,000)

 

 

 —

Repayment/(issuance) of notes receivable, net

 

 

(21,540)

 

 

1,196

Net cash provided by/(used in) investing activities

 

 

(203,106)

 

 

(383,371)

 

 

 

 

 

 

 

Financing Activities

 

 

  

 

 

  

Payments on secured debt

 

 

(82,472)

 

 

(325,212)

Proceeds from the issuance of secured debt

 

 

80,000

 

 

 —

Net proceeds from the issuance of unsecured debt

 

 

115,000

 

 

584,292

Net proceeds/(repayment) of revolving bank debt

 

 

29,243

 

 

19,367

Repurchase of common shares

 

 

(19,988)

 

 

 —

Distributions paid to redeemable noncontrolling interests

 

 

(24,297)

 

 

(23,269)

Distributions paid to preferred stockholders

 

 

(2,854)

 

 

(2,776)

Distributions paid to common stockholders

 

 

(255,683)

 

 

(244,788)

Other

 

 

(36,317)

 

 

(13,424)

Net cash provided by/(used in) financing activities

 

 

(197,368)

 

 

(5,810)

Net increase/(decrease) in cash, cash equivalents, and restricted cash

 

 

6,250

 

 

95

Cash, cash equivalents, and restricted cash, beginning of year

 

 

21,830

 

 

22,106

Cash, cash equivalents, and restricted cash, end of period

 

$

28,080

 

$

22,201

 

 

 

 

 

 

 

Supplemental Information:

 

 

  

 

 

  

Interest paid during the period, net of amounts capitalized

 

$

104,136

 

$

95,008

Cash paid/(refunds received) for income taxes

 

 

579

 

 

1,803

Non-cash transactions:

 

 

  

 

 

  

Transfer of investment in and advances to unconsolidated joint ventures to real estate owned

 

$

 —

 

$

32,260

Vesting of LTIP Units

 

 

4,397

 

 

2,317

Development costs and capital expenditures incurred but not yet paid

 

 

23,437

 

 

48,995

Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (343,653 shares in 2018 and 202,218 shares in 2017)

 

 

13,151

 

 

7,437

Dividends declared but not yet paid

 

 

95,372

 

 

91,454

 

 

 

 

 

 

 

The following reconciles cash, cash equivalents, and restricted cash to the total of the same amounts as shown above:

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash, beginning of year:

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,038

 

$

2,112

Restricted cash

 

 

19,792

 

 

19,994

Total cash, cash equivalents, and restricted cash as shown above

 

$

21,830

 

$

22,106

Cash, cash equivalents, and restricted cash, end of period:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,084

 

$

1,788

Restricted cash

 

 

26,996

 

 

20,413

Total cash, cash equivalents, and restricted cash as shown above

 

$

28,080

 

$

22,201

 

See accompanying notes to consolidated financial statements.

 

9


 

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

1. BASIS OF PRESENTATION

Basis of Presentation

UDR, Inc., collectively with our consolidated subsidiaries (“UDR,” the “Company,” “we,” “our,” or “us”), is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, and manages apartment communities. The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership” or the “OP”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”). As of September 30, 2018, there were 183,636,543 units in the Operating Partnership (“OP Units”) outstanding, of which 174,248,699 OP Units, or 94.9%, were owned by UDR and 9,387,844 OP Units, or 5.1%, were owned by outside limited partners. As of September 30, 2018, there were 32,367,380 units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 17,199,085, or 53.1%, were owned by UDR (including 13,470,651 DownREIT Units, or 41.6%, that were held by the Operating Partnership) and 15,168,295, or 46.9%, were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership and DownREIT Partnership.

The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations necessary for the fair presentation of our financial position as of September 30, 2018, and results of operations for the three and nine months ended September 30, 2018 and 2017,  have been included. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2017 appearing in UDR’s Annual Report on Form 10‑K, filed with the Securities and Exchange Commission on February 20, 2018.

The accompanying interim unaudited consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the interim unaudited consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than those noted in Note 6, Secured and Unsecured Debt, Net and Note 10, Derivatives and Hedging Activity.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities. The ASU aims to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The updated standard would have been effective for the Company on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The Company early adopted the guidance on January 1, 2018; however, the updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.

In January 2017, the FASB issued ASU 2017‑01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The ASU changes the definition of a business to assist entities with evaluating whether a set of transferred assets is a business. As a result, the accounting for acquisitions of real estate could be impacted. The updated standard was effective for the Company on January 1, 2018. The ASU will be applied prospectively to any transactions occurring

10


 

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

after adoption. The Company expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred.

In November 2016, the FASB issued ASU 2016‑18, Statement of Cash Flows (Topic 230), Restricted Cash. The ASU addresses the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The updated standard was effective for the Company on January 1, 2018, and was applied retrospectively to all periods presented. The updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.

As a result of the adoption of ASU 2016-18, for the nine months ended September 30, 2017, the following line items in the following amounts were reclassified on the Consolidated Statements of Cash Flows (in thousands):

 

 

 

 

 

 

Nine months ended

 

 

September 30, 2017

(Increase)/decrease in operating assets

 

$

407

Net cash provided by /(used in) operating activities

 

$

407

 

 

 

 

Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement

 

$

12

Net cash provided by /(used in) investing activities

 

$

12

 

 

 

 

Net increase/(decrease) in cash, cash equivalents, and restricted cash

 

$

419

 

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. The updated standard will be effective for the Company on January 1, 2020; however, early adoption of the ASU is permitted on January 1, 2019. The Company is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. The standard will be effective for the Company on January 1, 2019; however, early adoption of the standard is permitted.

 

While the Company is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures, we expect to adopt the guidance on its effective date. The Company intends to elect the following package of practical expedients provided by the standard which includes: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company anticipates recognizing right-of-use assets and related lease liabilities on our consolidated balance sheets upon adoption equal to the present value of the remaining minimum lease payments related to ground leases for communities where we are the lessee. The Company plans to continue recognizing lease expense for these leases in a manner similar to current accounting upon adoption of the standard based on our election of the package of practical expedients. However, in the event we modify existing ground leases and/or enter into new ground leases subsequent to the adoption of the standard, such leases would likely be classified as finance leases under the standard and require expense recognition based on the effective interest method. Under the standard, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, we will be required to expense internal leasing costs as incurred.

 

In July 2018, the FASB issued ASU No. 2018-11, Leases – Targeted Improvements, which provides entities with relief from the costs of implementing certain aspects of ASU No. 2016-02, Leases. The ASU provides a practical expedient which allows lessors to not separate lease and non-lease components in a contract and allocate the

11


 

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company intends to elect the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provides a transition option that permits entities to not recast the comparative periods presented when transitioning to the standard. The Company also intends to elect the transition option. 

 

In January 2016, the FASB issued ASU No. 2016‑01, Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The updated standard requires certain equity securities to be measured at fair value on the balance sheet, with changes in fair value recognized in net income. The standard was effective for the Company on January 1, 2018. The Company holds one investment in equity securities subject to the updated guidance. As the investment does not have a readily determinable fair value, the Company elected the measurement alternative under which the investment is measured at cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer. During the three and nine months ended September 30, 2018, the Company recorded gains of zero and $2.1 million, respectively, in Interest income and other income/(expense), net on the Consolidated Statements of Operations as a result of measuring the investment using this measurement alternative. The Company does not view the impact, as a result of the adoption of the updated standard, to be material to the consolidated financial statements. Disclosures were updated pursuant to the requirements of the ASU.

 

In May 2014, the FASB issued ASU No. 2014‑09, Revenue from Contracts with Customers.  ASU No. 2014-09 amended the FASB Accounting Standards Codification (“ASC”) by creating ASC Topic 606, Revenue from Contracts with Customers.  The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry-specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method. ASC Topic 606 was effective for the Company on January 1, 2018, at which time the Company adopted it using the modified retrospective approach. However, as the majority of the Company’s revenue is from rental income related to leases, the ASU did not have a material impact on the consolidated financial statements. Related disclosures are provided and/or updated pursuant to the requirements of the ASU.

Principles of Consolidation

The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with the consolidation guidance. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

Discontinued Operations

In accordance with GAAP, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.

We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations.

Revenue

 

On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, utilizing the modified retrospective method, under which only contracts entered into after the effective date or not complete as of

12


 

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

the effective date are subject to the new standard and an adjustment to the opening balance of retained earnings is made to recognize any required adjustments. As a result of the adoption, the Company did not make an adjustment to retained earnings because no open contracts required different treatment under the new standard.

 

Revenue is measured based on consideration specified in contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer.

 

The following is a description of the principal streams from which the Company generates its revenue:

 

Lease Revenue

 

Lease revenue related to leases is recognized on an accrual basis when due from residents or tenants in accordance with ASC 840, Leases. Rental payments are generally due on a monthly basis and recognized on a straight-line basis over the reasonably assured lease term. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of lease revenue on a straight-line basis over the reasonably assured lease term.

 

Reimbursements Revenue

 

Reimbursements revenue includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. Reimbursements revenue is recognized on a gross basis as earned as the Company has determined it is the principal provider of the services.

 

Other Revenue

 

Other revenue is generated by services provided by the Company to its retail and residential tenants and other unrelated third parties. These fees are generally recognized as earned.

 

Joint venture management and other fees

 

The Joint venture management and other fees revenue consists of management fees charged to our equity method joint ventures per the terms of contractual agreements and other fees. Joint venture fee revenue is recognized monthly as the management services are provided and the fees are earned or upon a transaction whereby the Company earns a fee.

 

Real Estate Sales Gain Recognition 

 

For sale transactions resulting in a transfer of a controlling financial interest of a property, the Company generally derecognizes the related assets and liabilities from its Consolidated Balance Sheets and records the gain or loss in the period in which the transfer of control occurs. If control of the property has not transferred to the counterparty, the criteria for derecognition are not met and the Company will continue to recognize the related assets and liabilities on its Consolidated Balance Sheets.

 

Sale transactions to entities in which the Company sells a controlling financial interest in a property but retains a noncontrolling interest are accounted for as partial sales. Partial sales resulting in a change in control are accounted for at fair value and a full gain or loss is recognized. Therefore, the Company will record a gain or loss on the partial interest sold, and the initial measurement of our retained interest will be accounted for at fair value. 

 

Sales of real estate to joint ventures or other noncontrolled investees are also accounted for at fair value and the Company will record a full gain or loss in the period the property is contributed.

 

13


 

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

Disaggregation of Revenue

 

Rental income, as disclosed on the Consolidated Statements of Operations, is disaggregated by principal revenue stream and by reportable segment in the following tables (dollars in thousands).  Joint venture management and other fees are not included in the tables as they are not allocable to a specific reportable segment or segments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, (a)

 

September 30, (b)

 

 

2018

    

2017

    

2018

    

2017

Lease Revenue (c)

 

 

 

 

 

 

 

 

 

 

 

 

Same-Store Communities

 

 

 

 

 

 

 

 

 

 

 

 

West Region

 

$

95,447

 

$

91,399

 

$

277,317

 

$

265,595

Mid-Atlantic Region

 

 

51,291

 

 

49,772

 

 

152,866

 

 

148,916

Northeast Region

 

 

37,201

 

 

36,726

 

 

110,541

 

 

109,495

Southeast Region

 

 

27,773

 

 

26,221

 

 

81,555

 

 

77,697

Southwest Region

 

 

11,647

 

 

11,446

 

 

29,561

 

 

29,126

Non-Mature Communities/Other

 

 

19,940

 

 

13,836

 

 

58,570

 

 

46,879

Total segment and consolidated lease revenue

 

$

243,299

 

$

229,400

 

$

710,410

 

$

677,708

 

 

 

 

 

 

 

 

 

 

 

 

 

Reimbursements Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Same-Store Communities