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Section 1: 10-Q (10-Q)

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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 March 31, 2019

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 April 29, 2019 was 281,794,814.

 

 

 

 


 

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 March 31, 2019 (unaudited) and December 31, 2018 (audited) 

5

 

 

Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited) 

6

 

 

Consolidated Statements of Comprehensive Income/(Loss) for the three months ended March 31, 2019 and 2018 (unaudited) 

7

 

 

Consolidated Statements of Changes in Equity for the three months ended March 31, 2019 and 2018 (unaudited) 

8

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited) 

9

 

 

Notes to Consolidated Financial Statements (unaudited) 

10

 

 

UNITED DOMINION REALTY, L.P.:

 

 

 

Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018 (audited) 

40

 

 

Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited) 

41

 

 

Consolidated Statements of Changes in Capital for the three months ended March 31, 2019 and 2018 (unaudited) 

42

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited) 

43

 

 

Notes to Consolidated Financial Statements (unaudited) 

44

 

 

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

62

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

81

 

 

Item 4. Controls and Procedures 

81

 

 

PART II — OTHER INFORMATION 

 

 

Item 1. Legal Proceedings 

83

 

 

Item 1A. Risk Factors 

83

 

 

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

97

 

 


 

Table of Contents

 

 

 

 

Item 3. Defaults Upon Senior Securities 

98

 

 

Item 4. Mine Safety Disclosures 

98

 

 

Item 5. Other Information 

98

 

 

Item 6. Exhibits 

99

 

 

Signatures 

101

 

 

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 March 31, 2019 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 March 31, 2019, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and 175,946,364 OP Units, representing approximately 95.6% 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)

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

 

 

(unaudited)

 

(audited)

ASSETS

 

 

 

 

 

 

Real estate owned:

 

 

  

 

 

  

Real estate held for investment

 

$

10,680,555

 

$

10,196,159

Less: accumulated depreciation

 

 

(3,764,099)

 

 

(3,654,160)

Total real estate owned, net of accumulated depreciation

 

 

6,916,456

 

 

6,541,999

Cash and cash equivalents

 

 

1,043

 

 

185,216

Restricted cash

 

 

23,111

 

 

23,675

Notes receivable, net

 

 

36,974

 

 

42,259

Investment in and advances to unconsolidated joint ventures, net

 

 

749,100

 

 

780,869

Operating lease right-of-use assets

 

 

94,145

 

 

 —

Other assets

 

 

134,896

 

 

137,710

Total assets

 

$

7,955,725

 

$

7,711,728

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Secured debt, net

 

$

599,796

 

$

601,227

Unsecured debt, net

 

 

2,990,033

 

 

2,946,560

Operating lease liabilities

 

 

88,218

 

 

 —

Real estate taxes payable

 

 

27,205

 

 

20,608

Accrued interest payable

 

 

29,397

 

 

38,747

Security deposits and prepaid rent

 

 

36,332

 

 

35,060

Distributions payable

 

 

105,548

 

 

97,666

Accounts payable, accrued expenses, and other liabilities

 

 

65,334

 

 

76,343

Total liabilities

 

 

3,941,863

 

 

3,816,211

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

  

 

 

  

 

 

 

 

 

 

 

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership

 

 

1,051,498

 

 

972,740

 

 

 

 

 

 

 

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 March 31, 2019 and December 31, 2018

 

 

46,200

 

 

46,200

Series F; 15,797,155 and 15,802,393 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

 1

 

 

 1

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

 

 

  

 

 

  

281,791,932 and 275,545,900 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

2,818

 

 

2,755

Additional paid-in capital

 

 

5,184,195

 

 

4,920,732

Distributions in excess of net income

 

 

(2,281,262)

 

 

(2,063,996)

Accumulated other comprehensive income/(loss), net

 

 

(2,970)

 

 

(67)

Total stockholders’ equity

 

 

2,948,982

 

 

2,905,625

Noncontrolling interests

 

 

13,382

 

 

17,152

Total equity

 

 

2,962,364

 

 

2,922,777

Total liabilities and equity

 

$

7,955,725

 

$

7,711,728

 

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

 

 

March 31, 

 

 

2019

 

2018

REVENUES:

    

 

  

    

 

  

Rental income

 

$

267,922

 

$

250,483

Joint venture management and other fees

 

 

2,751

 

 

2,822

Total revenues

 

 

270,673

 

 

253,305

OPERATING EXPENSES:

 

 

  

 

 

  

Property operating and maintenance

 

 

41,939

 

 

40,587

Real estate taxes and insurance

 

 

36,300

 

 

33,282

Property management

 

 

7,703

 

 

6,888

Other operating expenses

 

 

5,646

 

 

2,009

Real estate depreciation and amortization

 

 

112,468

 

 

108,136

General and administrative

 

 

12,467

 

 

11,759

Casualty-related charges/(recoveries), net

 

 

 —

 

 

940

Other depreciation and amortization

 

 

1,656

 

 

1,691

Total operating expenses

 

 

218,179

 

 

205,292

Gain/(loss) on sale of real estate owned

 

 

 —

 

 

70,300

Operating income

 

 

52,494

 

 

118,313

 

 

 

 

 

 

 

Income/(loss) from unconsolidated entities

 

 

49

 

 

(1,677)

Interest expense

 

 

(33,542)

 

 

(29,943)

Interest income and other income/(expense), net

 

 

9,813

 

 

2,759

Income/(loss) before income taxes

 

 

28,814

 

 

89,452

Tax (provision)/benefit, net

 

 

(2,212)

 

 

(227)

Net income/(loss)

 

 

26,602

 

 

89,225

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

 

 

(2,057)

 

 

(7,390)

Net (income)/loss attributable to noncontrolling interests

 

 

(42)

 

 

(79)

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

 

 

24,503

 

 

81,756

Distributions to preferred stockholders — Series E (Convertible)

 

 

(1,011)

 

 

(955)

Net income/(loss) attributable to common stockholders

 

$

23,492

 

$

80,801

 

 

 

 

 

 

 

Income/(loss) per weighted average common share:

 

 

  

 

 

  

Basic

 

$

0.08

 

$

0.30

Diluted

 

$

0.08

 

$

0.30

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

  

 

 

  

Basic

 

 

277,002

 

 

267,546

Diluted

 

 

277,557

 

 

269,208

 

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

 

 

March 31, 

 

    

2019

 

2018

Net income/(loss)

 

$

26,602

 

$

89,225

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

 

 

  

 

 

  

Other comprehensive income/(loss) - derivative instruments:

 

 

  

 

 

  

Unrealized holding gain/(loss)

 

 

(2,210)

 

 

1,710

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

 

 

(945)

 

 

(172)

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

 

 

(3,155)

 

 

1,538

Comprehensive income/(loss)

 

 

23,447

 

 

90,763

Comprehensive (income)/loss attributable to noncontrolling interests

 

 

(1,847)

 

 

(7,602)

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

 

$

21,600

 

$

83,161

 

See accompanying notes to consolidated financial statements.

7


 

Table of Contents

UDR, INC.

CONSOLIDATED STATEMENTS 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, 2018

 

$

46,201

 

$

2,755

 

$

4,920,732

 

$

(2,063,996)

 

$

(67)

 

$

17,152

 

$

2,922,777

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

 

 

 —

 

 

 —

 

 

 —

 

 

24,503

 

 

 —

 

 

 —

 

 

24,503

Net income/(loss) attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

30

 

 

30

Contribution of noncontrolling interests in consolidated real estate

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

125

 

 

125

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

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,925)

 

 

(3,925)

Other comprehensive income/(loss)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,903)

 

 

 —

 

 

(2,903)

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

 

 

 —

 

 

 —

 

 

(1,499)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,499)

Issuance of common shares through public offering, net

 

 

 —

 

 

44

 

 

192,135

 

 

 —

 

 

 —

 

 

 —

 

 

192,179

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

 

 

 —

 

 

19

 

 

72,827

 

 

 —

 

 

 —

 

 

 —

 

 

72,846

Common stock distributions declared ($0.3425 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(96,561)

 

 

 —

 

 

 —

 

 

(96,561)

Preferred stock distributions declared-Series E ($0.3708 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,011)

 

 

 —

 

 

 —

 

 

(1,011)

Adjustment to reflect redemption value of redeemable noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

(144,197)

 

 

 —

 

 

 —

 

 

(144,197)

Balance at March 31, 2019

 

$

46,201

 

$

2,818

 

$

5,184,195

 

$

(2,281,262)

 

$

(2,970)

 

$

13,382

 

$

2,962,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

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.

 

 

 —

 

 

 —

 

 

 —

 

 

81,756

 

 

 —

 

 

 —

 

 

81,756

Net income/(loss) attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

70

 

 

70

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

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,424)

 

 

(1,424)

Other comprehensive income/(loss)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,405

 

 

 —

 

 

1,405

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

 

 

 —

 

 

 —

 

 

(4,148)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,148)

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

 

 

 —

 

 

 4

 

 

11,691

 

 

 —

 

 

 —

 

 

 —

 

 

11,695

Common stock distributions declared ($0.3225 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(86,322)

 

 

 —

 

 

 —

 

 

(86,322)

Preferred stock distributions declared-Series E ($0.3492 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(955)

 

 

 —

 

 

 —

 

 

(955)

Adjustment to reflect redemption value of redeemable noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

68,217

 

 

 —

 

 

 —

 

 

68,217

Balance at March 31, 2018

 

$

46,201

 

$

2,676

 

$

4,638,766

 

$

(1,808,907)

 

$

(1,276)

 

$

8,318

 

$

2,885,778

 

See accompanying notes to consolidated financial statements.

8


 

Table of Contents

UDR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except for share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2019

    

2018

Operating Activities

 

 

  

 

 

  

Net income/(loss)

 

$

26,602

 

$

89,225

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

 

 

  

 

 

  

Depreciation and amortization

 

 

114,124

 

 

109,827

(Gain)/loss on sale of real estate owned

 

 

 —

 

 

(70,300)

(Income)/loss from unconsolidated entities

 

 

(49)

 

 

1,677

Return on investment in unconsolidated joint ventures

 

 

1,977

 

 

678

Amortization of share-based compensation

 

 

5,937

 

 

3,504

Other

 

 

3,910

 

 

1,745

Changes in operating assets and liabilities:

 

 

  

 

 

  

(Increase)/decrease in operating assets

 

 

2,295

 

 

3,560

Increase/(decrease) in operating liabilities

 

 

(17,463)

 

 

(7,660)

Net cash provided by/(used in) operating activities

 

 

137,333

 

 

132,256

 

 

 

 

 

 

 

Investing Activities

 

 

  

 

 

  

Acquisition of real estate assets

 

 

(403,245)

 

 

 —

Proceeds from sales of real estate investments, net

 

 

 —

 

 

89,433

Development of real estate assets

 

 

(6,237)

 

 

(63,718)

Capital expenditures and other major improvements — real estate assets

 

 

(31,264)

 

 

(14,765)

Capital expenditures — non-real estate assets

 

 

(3,346)

 

 

(433)

Investment in unconsolidated joint ventures

 

 

(21,389)

 

 

(19,736)

Distributions received from unconsolidated joint ventures

 

 

10,797

 

 

5,633

Purchase deposits on pending acquisitions

 

 

(10,350)

 

 

(1,000)

Repayment/(issuance) of notes receivable, net

 

 

5,285

 

 

(20,000)

Net cash provided by/(used in) investing activities

 

 

(459,749)

 

 

(24,586)

 

 

 

 

 

 

 

Financing Activities

 

 

  

 

 

  

Payments on secured debt

 

 

(962)

 

 

(1,172)

Payments on unsecured debt

 

 

 —

 

 

(25,000)

Net proceeds/(repayment) of commercial paper

 

 

(11,115)

 

 

 —

Net proceeds/(repayment) of revolving bank debt

 

 

54,294

 

 

35,940

Proceeds from the issuance of common shares through public offering, net

 

 

192,179

 

 

 —

Repurchase of common shares

 

 

 —

 

 

(19,988)

Distributions paid to redeemable noncontrolling interests

 

 

(8,553)

 

 

(7,990)

Distributions paid to preferred stockholders

 

 

(959)

 

 

(915)

Distributions paid to common stockholders

 

 

(88,911)

 

 

(83,051)

Other

 

 

1,706

 

 

(6,471)

Net cash provided by/(used in) financing activities

 

 

137,679

 

 

(108,647)

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

 

 

(184,737)

 

 

(977)

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

 

 

208,891

 

 

21,830

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

 

$

24,154

 

$

20,853

 

 

 

 

 

 

 

Supplemental Information:

 

 

  

 

 

  

Interest paid during the period, net of amounts capitalized

 

$

44,271

 

$

35,155

Cash paid/(refunds received) for income taxes

 

 

241

 

 

(22)

Non-cash transactions:

 

 

  

 

 

  

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

 

$

40,433

 

$

 —

Recognition of operating lease right-of-use assets

 

 

94,349

 

 

 —

Recognition of operating lease liabilities

 

 

88,336

 

 

 —

Vesting of LTIP Units

 

 

14,335

 

 

4,397

Development costs and capital expenditures incurred but not yet paid

 

 

10,745

 

 

39,749

Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (1,838,133 shares in 2019 and 303,498 shares in 2018)

 

 

72,846

 

 

11,695

Dividends declared but not yet paid

 

 

105,548

 

 

95,122

 

 

 

 

 

 

 

The following reconciles cash, cash equivalents, and restricted cash to amounts as shown above:

 

 

 

 

 

 

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

 

 

 

 

 

 

Cash and cash equivalents

 

$

185,216

 

$

2,038

Restricted cash

 

 

23,675

 

 

19,792

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

 

$

208,891

 

$

21,830

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

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,043

 

$

1,083

Restricted cash

 

 

23,111

 

 

19,770

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

 

$

24,154

 

$

20,853

 

See accompanying notes to consolidated financial statements.

 

9


 

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

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 March 31, 2019, there were 184,053,122 units in the Operating Partnership (“OP Units”) outstanding, of which 176,057,247 OP Units, or 95.7%, were owned by UDR and 7,995,875 OP Units, or 4.3%, were owned by outside limited partners. As of March 31, 2019, there were 32,367,380 units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 17,233,074, or 53.2%, were owned by UDR (including 13,470,651 DownREIT Units, or 41.6%, that were held by the Operating Partnership) and 15,134,306, or 46.8%, 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 March 31, 2019, and results of operations for the three months ended March 31, 2019 and 2018, 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, 2018 appearing in UDR’s Annual Report on Form 10‑K, filed with the Securities and Exchange Commission on February 19, 2019.

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 3, Real Estate Owned, Note 5, Joint Ventures and Partnerships and Note 13, Commitments and Contingencies.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which amends the transition requirements and scope of ASU 2016-13 and clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. The Company is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

 

10


 

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2019

In February 2016, the FASB issued ASU 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 on their balance sheets. Lessees of operating leases 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 became effective for the Company on January 1, 2019.

 

The Company elected the following package of practical expedients provided by the standard: (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 also elected the short-term lease exception provided for in the standard and therefore will only recognize right-of-use assets and lease liabilities for leases with a term greater than one year.

 

The Company recognized right-of-use assets of $94.3 million and lease liabilities of $88.3 million as of January 1, 2019 upon adoption of the standard. The right-of-use assets included $6.0 million of prepaid rent and intangible assets that was included within Other assets on our Consolidated Balance Sheets as of December 31, 2018.

 

The lease liabilities represent the present value of the remaining minimum lease payments as of January 1, 2019 related to ground leases for communities where we are the lessee. The right-of-use assets represent our right to use an underlying asset for the lease term, which are calculated utilizing the lease liabilities plus any prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. Our right-of-use assets and related lease liabilities recognized as of January 1, 2019 may change as a result of updates to the projected future minimum lease payments. Certain of our ground lease agreements where we are the lessee have future minimum lease payments that reset in the future based upon a percentage of the fair market value of the land at the time of the reset. One of these resets is in process as of March 31, 2019 and is estimated to increase our right-of-use assets and lease liabilities up to a maximum of $146.7 million and $140.7 million, respectively, during the remainder of 2019. The Company will continue to recognize lease expense for these leases in a manner similar to previous accounting 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, subsequent to the adoption of the standard, we are now expensing non-incremental leasing costs as incurred.

 

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which provides entities with relief from the costs of implementing certain aspects of ASU 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 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 elected 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, which the Company also elected.

 

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.

11


 

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2019

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.

 

To the extent that the Company acquires a controlling financial interest in a property that it previously accounted for as an equity method investment, the Company will not remeasure its previously held interest if the acquisition is treated as an asset acquisition. The Company will include the carrying amount of its previously held equity method interest along with the consideration paid and transaction costs incurred in determining the amounts to allocate to the related assets and liabilities acquired on its Consolidated Balance Sheets. When treated as an asset acquisition, the Company will not recognize a gain or loss on consolidation of a property.

 

Notes Receivable

The following table summarizes our Notes receivable, net as of March 31, 2019 and December 31, 2018 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

Interest rate at

 

Balance Outstanding

 

    

March 31, 

    

March 31, 

    

December 31, 

 

 

2019

 

2019

 

2018

Note due December 2019 (a)

 

12.00

%  

$

20,000

 

$

20,000

Note due February 2020 (b)

 

10.00

%  

 

14,974

 

 

14,659

Note due October 2020 (c)

 

8.00

%  

 

2,000

 

 

2,000

Note due August 2022 (d)

 

10.00

%  

 

 —

 

 

5,600

Total notes receivable, net

 

  

 

$

36,974

 

$

42,259


(a)

In March 2018, the Company entered into a secured note with an unaffiliated third party with an aggregate commitment of $20.0 million, of which $20.0 million has been funded. Interest payments are due when the loan matures. In March 2019, the note’s maturity was extended to December 27, 2019, and the note is secured by a parcel of land.

(b)

The Company has a secured note with an unaffiliated third party with an aggregate commitment of $16.4 million, of which $15.0 million has been funded, including $0.3 million during the three months ended March 31, 2019. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the eighth anniversary of the date of the note (February 2020).

(c)

The Company has a secured note with an unaffiliated third party with an aggregate commitment of $2.0 million, of which $2.0 million has been funded. Interest payments are due when the loan matures. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $10.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (October 2020).

(d)

In January 2019, the $5.6 million secured note was repaid in full along with the contractually accrued interest of $0.2 million and an additional $8.5 million of promoted interest in conjunction with the unaffiliated third party being acquired.

12


 

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2019

The Company recognized $1.1 million and $0.6 million of interest income and $8.5 million and zero of promoted interest from notes receivable during the three months ended March 31, 2019 and 2018, respectively, none of which was related party interest. Interest income and promoted interest are included in Interest income and other income/(expense), net on the Consolidated Statements of Operations.

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the three months ended March 31, 2019 and 2018, the Company’s other comprehensive income/(loss) consisted of the gain/(loss) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 11, Derivatives and Hedging Activity, for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the three months ended March 31, 2019 and 2