UDR Announces Second Quarter 2008 Results

UDR, Inc. (NYSE: UDR): Achieved 16th consecutive quarter of same community revenue growth, up 4.4 percent year-over-year and up 1.2 percent sequentially Delivered 7.1 percent same community net operating income (NOI) growth Completed $125 million of acquisitions in the second quarter and another $160 million during July, utilizing exchange funds from the March, 2008 portfolio sale Delivered a new development community with 320 homes Completed redevelopment of 672 homes at two communities Achieved 170 basis-point improvement in operating margin, to 69.2 percent UDR, Inc. (NYSE: UDR) today reported Funds from Operations ("FFO”) of $49.8 million, or $0.36 per diluted share, for the quarter ended June 30, 2008, versus $66.3 million, or $0.45 per diluted share, for the same period a year ago. Comparing year-over-year results, growth in same store net operating income was offset by lower income due to the March 3, 2008 sale of 25,684 apartment homes for $1.7 billion and lower contribution from gains on sales in RE3. Second quarter 2007 FFO included $6.8M or $0.05 per share in gains on sales in RE3. "Today’s results continue to demonstrate the benefits of our portfolio transformation which concentrated our holdings in newer communities with higher rents and lower capital requirements,” said Thomas W. Toomey, President and Chief Executive Officer of UDR. "We have reinvested $850 million of the $1.7 billion sales proceeds into targeted markets. Total monthly income per home is approaching $1,200, and the average age of the portfolio is 15 years. Fifty percent of second quarter same store net operating income was generated from Pacific Coast communities which grew their net operating income by an average of 9.5 percent over last year.” Operating Performance and Same-community ResultsSecond Quarter 2008 vs. Second Quarter 2007     Region   RevenueGrowth   ExpenseGrowth   NOIGrowth   % of Same-communityPortfolio(a)   Western 6.8 % 0.7 % 9.5 % 50.1 % Mid-Atlantic 3.5 % -0.3 % 5.2 % 23.4 % Southeastern 0.0 % -4.8 % 2.8 % 22.5 % Southwestern   7.4 %   -3.1 %   13.6 %   4.0 % Total   4.4 %   -1.2 %   7.1 %   100.0 %   (a) Based on YTD 2008 NOI. The Company defines same-community as all multifamily communities owned and stabilized for at least one year as of the beginning of the most recent quarter. Of UDR’s 43,045 wholly owned apartment homes, 32,898, or 76%, qualify as same-community homes. Same-community ResultsSecond Quarter 2008 vs. Second Quarter 2007($ in thousands, except rents & fees and total income per occupied home)   2nd Qtr '08   2nd Qtr '07   Change (%)   Rent and other income $ 111,001 $ 108,425 2 .4 Concessions 229 1,982 -88 .4 Bad debt   394       670     -41 .2 Total income 110,378 105,773 4 .4 Expenses   33,995       34,424     -1 .2 Net operating income $ 76,383     $ 71,349     7 .1   Total income per occupied home $ 1,179 $ 1,131 4 .2 Average physical occupancy (%) 94 .9 94 .6 30 bps Operating margin (%) 69 .2 67 .5 170 bps Resident credit loss, % of effective rent 0 .4 0 .6 20 bps   Comparing second quarter 2008 to second quarter 2007 on a same-community basis, 86% of the mature markets generated revenue growth. Same-community ResultsSecond Quarter 2008 vs. First Quarter 2008($ in thousands, except rents & fees and total income per occupied home)   2nd Qtr '08   1st Qtr '08   Change (%)   Rent and other income $ 111,001 $ 109,843 1 .1 Concessions 229 380 -39 .7 Bad debt   394       418     -5 .7 Total income 110,378 109,045 1 .2 Expenses   33,995       34,241     -0 .7 Net operating income $ 76,383     $ 74,804     2 .1   Total income per occupied home $ 1,179 $ 1,169 0 .9 Average physical occupancy (%) 94 .9 94 .6 30 bps Operating margin (%) 69 .2 68 .6 60 bps Resident credit loss, % of effective rent 0 .4 0 .4 0 bps   Comparing second quarter 2008 to first quarter 2008 on a same-community basis, 77% of the mature markets generated revenue growth. Overview During the second quarter, key initiatives were completed in the areas of strengthening the Company’s portfolio, redevelopment, development and operations. Progress is described below and will also be discussed during the Company’s August 5, 2008 conference call. Strengthen Our Portfolio   In the second quarter and early in the third quarter, the Company acquired 1,001 homes in four communities:   Community   Location   Acq.   YearBuilt   #Homes   Appx.Mo. Rent   % Occ.6/30/08 Mesa Verde Villas (PineBrook II) Costa Mesa, CA May ‘08 1975 296 $ 1,760 94 % Hearthstone at Merrill Creek Everett, WA May ‘08 2000 220 $ 1,200 94 % Almaden Lake Village San Jose, CA July ‘08 1999 250 $ 1,650 92 % Island Square Mercer Island, WA July ‘08 2007 235 $ 2,000 87 % "These communities strengthen our presence in West Coast markets and are an excellent fit with our acquisition criteria -- which targets urban, infill locations with strong job growth, low single home affordability, located close to public transportation,” said Mark Wallis, Senior Executive Vice President of UDR. "Mesa Verde Villas is located between two existing UDR communities, Pine Brook Village and Villa Venetia, and we expect this acquisition to create value immediately through operating efficiencies in leasing staff, maintenance staff and purchasing. Hearthstone at Merrill Creek is strategically located at the north end of Seattle’s Technology Corridor, in close proximity to major employers such as Boeing, TRW Aeronautical Systems, Fluke Corporation, and Campbell’s Soup. Island Square is a new mixed-use community located on Mercer Island, minutes from both downtown Seattle and Bellevue. Almaden Lake Village is adjacent to light rail with access to major employers including Google, Yahoo, eBay, Apple, Intel and Adobe,” Wallis added. The total purchase price for the four communities was $284.8 million. The purchases were completed using exchange funds from the previously announced, March 3, 2008 portfolio sale. Redevelopment Update During the second quarter of 2008, the Company completed redevelopment of 672 homes at two communities, including Wellington Place at Manassas, VA and Ellicott Grove (formerly Dominion Great Oaks) in Baltimore, MD. The Company invested $25.8 million renovating these communities and expects to grow average monthly rent by nearly $270 per month above pre-redevelopment rents, grow stabilized NOI by 37 percent and create an estimated $26.9 million of value, net of costs. The incremental pro forma return on the capital invested ranges between 6.6 percent and 7.8 percent. As of June 30, 2008, the Company’s redevelopment pipeline included three communities with 756 apartment homes. Total redevelopment investment by the company in these properties is expected to be approximately $35.0 million, with $17.9 million invested as of June 30, 2008. Development Update During the second quarter, UDR completed a 320-home community in Houston at a total cost of $21.1 million, or $66,075 per home. Tiburon is currently 80.4 percent leased at an average monthly rent of $931. The development was completed with an expected yield to cost of 6.8%. At June 30, 2008, the Company’s development and redevelopment activities totaled $2.6 billion. Approximately 6 percent is completed and in lease up, 53 percent is under construction, and 41 percent represents future development opportunities and contains operating properties generating NOI. The Company has discretion to commence development or continue operating those properties depending on market conditions. Operations Update The Company reported solid year-over-year improvements in same-store community results including: a 7.1 percent increase in net operating income to $76.4 million; a 4.4 percent increase in revenues to $110.4; a 1.2 percent reduction in expenses to $34.0 million; a 4.2 percent increase in average monthly revenue per occupied home to $1,179; a 30 basis point increase in occupancy to 94.9 percent; and a 170 basis point improvement in operating margin to 69.2 percent. Nineteen of the Company’s 22 markets posted year-over-year revenue growth, with ten of these markets exceeding 5 percent growth and two of these markets exceeding 10 percent growth. UDR continued its mobile marketing efforts with the introduction of Quick Response bar code technology now displayed on the UDR.com homepage and in print marketing materials. Since the Company’s mobile online apartment reservations capability (http://udrapartments.mobi) was launched on the Internet in April 2008, over 4,700 apartment page views have been recorded and 41 apartment leads have been generated at a zero cost-of-acquisition. Overall, 46 percent of second quarter move-ins was initiated via the Internet, an 8 percent year-over-year increase. The Company completed activating its Level One Call Center during the quarter. This provides 24x7 access to a representative who can provide information to potential residents and assure that no call from a prospect, customer or resident is unanswered. Capital Markets Update During the second quarter of 2008, the company repurchased 963,200 of its outstanding common shares at an average price of $23.65 per share, or $22.8 million in the aggregate, under its previously announced share repurchase program. Total shares repurchased in the first six months of 2008 were 5.75 million at an average price of $23.47 per share. The Company also repurchased $35 million of outstanding unsecured UDR senior notes at a discount to par value, representing a 6.32 percent yield to maturity, recognizing net gains of $1.2 million in FFO. On July 1, 2008, the Company announced that its Board of Directors declared the following dividends: a regular quarterly dividend on its common stock for the second quarter of 2008 in the amount of $0.33 per share, payable on July 31, 2008 to UDR common stock shareholders of record as of July 11, 2008; a regular quarterly dividend on its Series E Preferred Stock for the second quarter of 2008 in the amount of $0.3322 per share. The preferred dividend is payable on July 31, 2008 to Series E preferred stock shareholders of record as of July 11, 2008; and a regular quarterly dividend on its Series G Preferred Stock for the period of April 30, 2008 to, but not including, July 30, 2008 in the amount of $0.421875 per share, payable on July 30, 2008 to Series G preferred stock shareholders of record as of July 11, 2008. 2008 Guidance For full year 2008, the Company reaffirms estimated FFO of $1.50 to $1.55 per diluted share (excluding potential gains on sales from its RE3 subsidiary). Same-store growth expectations are reaffirmed including revenue growth of 4.0 to 4.5 percent, expense growth of 3.0 to 3.5 percent, and net operating income growth of 5.0 to 5.5 percent. All guidance is based on the current expectations and judgment of the Company’s management team. UDR Los Angeles Property Tour Scheduled for November 18, 2008 UDR and Essex Property Trust plan to host a Los Angeles property tour on Tuesday, November 18, 2008, prior to the NAREIT Annual Convention on November 19 – 21 in San Diego, California. Company management will host a lunch and tour two communities in Marina del Rey, California. Additional information will be made available on the Investor Relations section of the UDR Website at www.udr.com. Conference Call Information   Date: Aug. 5, 2008 Time: 1:00 p.m. Eastern Time   To Participate in the Telephone Conference Call: Dial in at least five minutes prior to start time. Domestic: 800-240-4186 International: 303-262-2191 If you have any questions, please contact: Rebecca Winning: 720-283-6121 E-mail: rwinning@udr.com   Conference Call Playback: Domestic: 800-405-2236 International: 303-590-3000 Passcode: 11116518# The playback can be accessed through Aug. 12, 2008.   Webcast and Podcast: The conference call will also be available on UDR's website at www.udr.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay and downloadable podcast of the call will also be available for 90 days on UDR's website. Full Text of the Earnings Report and Supplemental Data Internet -- The full text of the earnings report and supplemental data will be available immediately following the earnings release to the wire services on Aug. 4, 2008 at the UDR website, at http://www.snl.com/irweblinkx/corporateprofile.aspx?iid=103025 Mail -- For those without Internet access, the second quarter 2008 earnings release will be available by mail or fax, on request. To receive a copy, please call UDR Investor Relations at 720-283-6121. About UDR, Inc. UDR, Inc. (NYSE:UDR), an S&P 400 company, is a leading multifamily real estate investment trust (REIT) with a demonstrated performance history of delivering superior and dependable returns by successfully managing, buying, selling, developing and redeveloping attractive real estate properties in targeted U.S. markets. As of June 30, 2008, UDR owned 43,045 apartment homes and had 4,991 homes under development and another 1,133 homes under contract for development in its pre-sale program. For over 35 years, UDR has delivered long-term value to shareholders, the best standard of service to residents, and the highest quality experience for associates. Additional information can be found on the Company’s website at www.udr.com. Statements contained in this press release, which are not historical facts, are forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the Company’s use of words such as, "expects,” "plans,” "estimates,” "projects,” "intends,” "believes,” and similar expressions that do not relate to historical matters. Such forward-looking statements are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors, which include, but are not limited to, unfavorable changes in the apartment market, changing economic conditions, the impact of competition and competitive pricing, acquisitions or new developments not achieving anticipated results, delays in completing developments and lease-ups on schedule, expectations on job growth, home affordability and demand/supply ratio for multi-family housing, expectations concerning development and redevelopment activities, expectations on occupancy levels, expectations concerning the Vitruvian Park project, including expectations that the Company will be able to secure one of more institutional investor-partners, expectations that automation will help grow net operating income, expectations on post-renovated stabilized annual operating income, exceptions on annualized net operating income and other risk factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time including the Company's Annual Report on Form 10-K and the Company's Quarterly Reports on Form 10-Q. All forward-looking statements in this press release are made as of today, based upon information known to management as of the date hereof. The Company assumes no obligation to update or revise any of its forward-looking statements even if experience or future changes show that indicated results or events will not be realized. Attachment 1   UDRConsolidated Statements of Operations(Unaudited)   Three Months EndedJune 30,   Six Months EndedJune 30, In thousands, except per share amounts   2008       2007     2008       2007       Rental income $ 138,834 $ 123,689 $ 264,399 $ 245,095   Rental expenses: Real estate taxes and insurance 15,785 15,139 29,284 29,623 Personnel 11,890 10,441 23,532 21,558 Utilities 6,705 5,296 13,684 12,314 Repair and maintenance 7,363 6,590 14,059 13,124 Administrative and marketing 3,279 3,265 6,517 6,315 Property management 3,818 3,401 7,271 6,740 Other operating expenses   1,020     314     2,024     625   49,860 44,446 96,371 90,299 Non-property income: Other income   9,324     3,546     14,842     8,558   9,324 3,546 14,842 8,558 Other expenses: Real estate depreciation and amortization 62,507 47,730 114,942 92,200 Interest (net of gains on debt extinguishment of $1.2 million, $0, $6.3 million and $0, respectively) 36,706 38,230 72,497 77,956 General and administrative 9,931 9,670 19,700 19,562 Other depreciation and amortization   944     802     1,873     1,524   110,088 96,432 209,012 191,242   Loss before minority interests and discontinued operations (11,790 ) (13,643 ) (26,142 ) (27,888 ) Minority interests of outside partnerships (38 ) (37 ) (97 ) (67 ) Minority interests of unitholders in operating partnerships   468     1,103     1,594     2,137   Loss before discontinued operations, net of minority interests (11,360 ) (12,577 ) (24,645 ) (25,818 ) Income from discontinued operations, net of minority interests (1)   12,225     19,273     750,769     64,347   Net income 865 6,696 726,124 38,529 Distributions to preferred stockholders - Series B - (1,908 ) - (4,819 ) Distributions to preferred stockholders - Series E (Convertible) (931 ) (931 ) (1,862 ) (1,862 ) Distributions to preferred stockholders - Series G (2,278 ) (785 ) (4,556 ) (785 ) Premium on preferred stock repurchases   -     (2,261 )   -     (2,261 ) Net income available to common stockholders $ (2,344 ) $ 811   $ 719,706   $ 28,802     Earnings per weighted average common share - basic and diluted: Loss from continuing operations available to common stockholders, net of minority interests ($0.12 ) ($0.13 ) ($0.24 ) ($0.27 ) Income from discontinued operations, net of minority interests $ 0.10 $ 0.14 $ 5.80 $ 0.48 Net income available to common stockholders ($0.02 ) $ 0.01 $ 5.56 $ 0.21   Common distributions declared per share $ 0.3300 $ 0.3300 $ 0.6600 $ 0.6600   Weighted average number of common shares outstanding - basic 127,436 134,727 129,550 134,620 Weighted average number of common shares outstanding - diluted 127,436 134,727 129,550 134,620   (1) Discontinued operations represents all properties sold and properties that are currently classified as held for disposition at June 30, 2008, except for nine operating properties sold to a joint venture in the fourth quarter of 2007 that have been included in continuing operations in accordance with the provisions of FAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and EITF No. 03-13. Attachment 2   UDRFunds From Operations(Unaudited)   Three Months EndedJune 30,   Six Months EndedJune 30, In thousands, except per share amounts   2008       2007       2008       2007       Net income $ 865 $ 6,696 $ 726,124 $ 38,529   Distributions to preferred stockholders (3,209 ) (3,624 ) (6,418 ) (7,466 ) Real estate depreciation and amortization, including discontinued operations 62,507 64,317 114,942 128,477 Minority interest, including discontinued operations 376 1 49,159 1,697 Real estate depreciation and amortization on unconsolidated joint ventures 1,317 693 2,062 835 Net gains on the sale of depreciable property, excluding RE3   (13,027 )   (2,762 )   (780,989 )   (39,819 ) Funds from operations ("FFO") - basic $ 48,829   $ 65,321   $ 104,880   $ 122,253     Distribution to preferred stockholders - Series E (Convertible) 931 931 1,862 1,862         Funds from operations - diluted $ 49,760   $ 66,252   $ 106,742   $ 124,115     Weighted average number of common shares and OP Units outstanding - basic 136,324 142,493 138,476 142,603 Weighted average number of common shares, OP Units, and common stock equivalents outstanding - diluted 139,853 148,114 141,948 148,623   FFO per common share - basic $ 0.36   $ 0.46   $ 0.76   $ 0.86   FFO per common share - diluted $ 0.36   $ 0.45   $ 0.75   $ 0.84     FFO is defined as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable property, premiums or original issuance costs associated with preferred stock redemptions, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust's definition issued in April 2002. UDR considers FFO in evaluating property acquisitions and its operating performance and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of UDR's activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. Attachment 3   UDRConsolidated Balance Sheets(Unaudited)   In thousands, except share and per share amounts June 30,2008   December 31,2007     ASSETS   Real estate owned: Real estate held for investment $ 4,977,957 $ 4,129,460 Less: accumulated depreciation   (935,369 )   (821,991 ) 4,042,588 3,307,469 Real estate under development (net of accumulated depreciation of $511 and $963) 327,564 343,768 Real estate held for disposition (net of accumulated depreciation of $12,876 and $548,805)   45,019     929,545   Total real estate owned, net of accumulated depreciation 4,415,171 4,580,782 Cash and cash equivalents 1,412 3,219 Restricted cash 8,515 6,295 Deferred financing costs, net 32,308 34,136 Notes receivable 224,776 12,655 Investment in unconsolidated joint ventures 48,177 48,264 Funds held in escrow from IRC Section 1031 exchanges pending the acquisition of real estate 231,795 56,217 Other assets 71,812 54,636 Other assets - real estate held for disposition   2,180     4,917   Total assets $ 5,036,146   $ 4,801,121     LIABILITIES AND STOCKHOLDERS' EQUITY   Secured debt $ 1,206,817 $ 910,611 Secured debt - real estate held for disposition - 227,325 Unsecured debt 2,012,727 2,364,740 Real estate taxes payable 16,246 8,808 Accrued interest payable 23,736 27,999 Security deposits and prepaid rent 28,270 21,897 Distributions payable 47,548 49,152 Deferred gains on the sale of depreciable property 28,814 28,690 Accounts payable, accrued expenses, and other liabilities 36,928 51,989 Other liabilities - real estate held for disposition   2,147     28,468   Total liabilities 3,403,233 3,719,679   Minority interests 103,656 62,049   Stockholders' equity Preferred stock, no par value; 50,000,000 shares authorized 2,803,812 shares of 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 shares at December 31, 2007) 46,571 46,571 5,400,000 shares of 6.75% Series G Cumulative Redeemable issued and outstanding (5,400,000 shares at December 31, 2007) 135,000 135,000 Common stock, $0.01 par value; 250,000,000 shares authorized 128,320,888 shares issued and outstanding (133,317,706 shares at December 31, 2007) 1,283 1,333 Additional paid-in capital 1,494,239 1,620,541 Distributions in excess of net income (148,608 ) (783,238 ) Accumulated other comprehensive income/(loss), net   772     (814 ) Total stockholders' equity   1,529,257     1,019,393   Total liabilities and stockholders' equity $ 5,036,146   $ 4,801,121