UDR Annual Report 2008 | Quarterlytics

Plain-text annual report

In 2008, while markets were characterized by disruption, job losses and ongoing uncertainty, our year was characterized by three words: We transformed our portfolio, took aggressive steps to prepare for our future and delivered solid performance. 2008 Annual Report Message from the Chairman and the Chief Executive Ofﬁ cer 2008 was a tumultuous year. With the near collapse of the global ﬁ nancial system, businesses suffered declines in net income and asset values and consumers stopped spending. The Dow Jones Industrial Average dropped 34 percent, Real Estate Investment Trust (REIT) indices dropped as much as 41 percent and consumer conﬁ dence plummeted. Without a doubt, 2008 was a terrible year for real estate stocks. An economy like this reminds us how fortunate we are to be offering one of life’s basic necessities – shelter. While consumers may put off the purchase of new cars or ﬂ at-screen televisions, everyone needs a place to live. For UDR, 2008 can best be characterized by three words: transformation, preparation and performance. In 2008, we transformed our portfolio, took aggressive steps to prepare for our future and delivered operating performance near the top of our industry. Transformation We completed a $1.7 billion sale of 25,684 homes and reinvested $1 billion in acquiring 4,558 homes. These acquisitions are newer communities in attractive urban markets, offering convenient access to large employment centers, major transportation corridors and exciting lifestyle amenities. Our communities are now concentrated in 23 markets, taking advantage of low single-family home affordability and positive demographic and employment trends. The average age of our portfolio has been reduced from 24 years to 16, and our average same store monthly income per occupied home has grown to $1,176, well above the national average of $962. Preparation In the midst of deteriorating capital markets and operating environments, we took aggressive steps to increase our ﬁ nancial ﬂ exibility, reduce our cost structure and adjust our redevelopment and development deliveries. We secured more than $1 billion of cash and credit capacity, by: b b b b Raising $194 million of equity capital; Closing on a $240 million, two-year unsecured term loan facility; Securing $438 million from the expansion and extension of a Fannie Mae facility and other agency ﬁ nancing; and Obtaining ﬁ ve construction loans with a capacity of $179 million. During the ﬁ rst quarter of 2009, we further expanded our credit facilities, which, when added to existing resources, increased our total available ﬁ nancial resources to $1.3 billion. With debt maturities, including available extensions, totaling just $280 million in 2009 and $348 million in 2010, we believe we have more than enough cash and credit capacity for the foreseeable future. We also reduced overhead costs by approximately 17 percent in 2008 and sharply curtailed development activities to just $425 million, a 60 percent reduction from 2007. Performance Finally, in 2008, we continued to deliver solid operating results: b b b We delivered the second-highest growth in same store net operating income among our eleven publicly traded peers; We maintained high same store occupancy at 94.8 percent; and We continued to lead the industry in web-based marketing initiatives, with approximately 50 percent of our new leases now originating on-line. These results enabled us to declare dividends totaling $2.28 per common share, or approximately $352 million, consisting of a regular annual dividend of $1.32 per share, plus a special dividend of $0.96 per share arising from our portfolio sale. Looking Ahead We are conﬁ dent that your Company is well positioned – strategically, organizationally and ﬁ nancially – to compete effectively in all the markets we serve. And we are also conﬁ dent that, over time, the economy will recover, markets will correct themselves and our business will participate in the inevitable rebound. We fully expect 2009 to be a very challenging year. We have prepared for this challenge with increased ﬁ nancial ﬂ exibility, a solid portfolio and an extraordinary team of associates working every day to win their markets. We also have a seasoned Board and management team – with many recessions under their belts – experienced in delivering results in good times and bad. We appreciate your continued support. Robert C. Larson Chairman Thomas W. Toomey President and Chief Executive Ofﬁ cer 2 Performance Strengthen Our Portfolio Expand Value with RE3 44,388 apartment homes 24% b Completed redevelopment of 1,678 homes, new development of 1,513 homes, and 2,681 homes are currently under development 18% 18% 50% Percentages denote 2008 NOI contribution $1.7 Billion 2008 portfolio sale $1.0 Billion 2008 acquisitions Vitruvian Park Dallas, TX Transform Operations Source Low Cost Capital Secured more than $1 billion of cash and credit capacity including: $194 million of equity capital $240 million two-year unsecured term loan facility $438 million ﬁ nancing via Fannie Mae and others $179 million capacity with ﬁ ve construction loans b b b b In 2009, we have further expanded our ﬁ nancial resources to: $1.3Billion b b b Delivered second-best same store NOI growth among 11 peer companies Industry’s ﬁ rst iPhone apartment search website Quick Response (QR) bar code program available for mobile devices Social media website presence in MySpace.com 3 Trend Data Funds From Operations1 (per share) $1.49 $1.39 $1.55 $1.58 $1.39 Common Dividends1 (per share) $1.08 $1.11 $1.15 $1.22 $1.22 2 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Operating Margin (same store) Monthly Income (per same store apartment home) 61.0% 61.5% 63.5% 68.1% 68.3% $1,176 $1,139 $884 $728 $766 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Prospective Resident Internet Visits (thousands) 1,600 1,300 1,100 645 428 % Leases Originating from the Internet Marketing Costs (millions) $7.8 49.7% $6.1 40.0% 2004 2005 2006 2007 2008 2007 2008 2007 2008 1 Amounts for all periods represented have been adjusted to reﬂ ect the issuance of 11.4 million shares of common stock in connection with the special dividend. 2 In 2008, distributions totalled $2.11 per common share, including the special dividend. 4 Key Financial Highlights Same Store Results Revenue Growth Net Operating Income Increased Operating Margin Monthly Income (per apartment home) 3.6% 3.8% 68.3% $1,176 Years Ended December 31, (In millions, except per share data and apartment homes owned) 2008 2007 2006 For the Year Rental income from continuing property operations Income from continuing property operations excluding depreciation (NOI) $ Income/(loss) before minority interests and discontinued operations Income from discontinued operations, net of minority interests Net income Distributions to preferred stockholders Net income available to common stockholders Funds from operations - diluted (a) Common distributions declared (b) Special Dividend declared Per Share Earnings per common share - diluted (b) Funds from operations - diluted (a)(b) Common distributions including special dividend declared (b) At Year End Real estate owned, at carrying value (c) Secured debt Unsecured debt Stockholders' equity Number of common shares outstanding (b) Number of completed apartment homes owned 563 372 (50) 757 707 12 698 214 175 177 $ 502 333 49 172 221 14 205 251 178 – $ 468 306 (69) 197 129 15 113 248 168 – $ 4.95 1.39 2.11 $ 1.41 1.58 1.22 $ 0.78 1.55 1.15 $ 5,832 1,462 1,812 1,571 149 $ 5,956 1,138 2,365 1,019 144 $ 5,820 1,183 2,156 1,055 146 44,388 65,867 70,339 (a) Funds from operations (FFO) is deﬁ ned as net income (computed in accordance with generally accepted accounting principles), 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 deﬁ nition conforms with the National Association of Real Estate Investment Trust’s deﬁ nition issued in April 2002. RE3 tax beneﬁ ts and gain on sales, net of taxes, is deﬁ ned as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation. We consider FFO and RE3 tax beneﬁ ts and gain on sales, net of taxes, to be a meaningful supplemental measure of performance because the short-term use of funds produce proﬁ ts which differ from the traditional long-term investment in real estate for REITs. (b) Amounts for all periods represented have been adjusted to reﬂ ect the issuance of 11.4 million shares of common stock in connection with the Company’s January 29, 2009 special dividend. (c) Includes real estate held for investment, real estate held for disposition, and real estate under development, before depreciation. Disclosure of Section 303A.12(a) Certiﬁ cations On June 11, 2008, the Company’s Chief Executive Ofﬁ cer submitted to the New York Stock Exchange the annual certiﬁ cation required by Section 303A.12(a) of the NYSE Listed Company Manual regarding the Company’s compliance with NYSE corporate governance listing standards. In addition, the certiﬁ cations of the Company’s Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer required under Section 302 of the Sarbanes-Oxley Act of 2002 were ﬁ led as Exhibits 31.1 and 31.2, respectively, to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. 5 Board of Directors Katherine A. Cattanach 3, 4 Private Investor Formerly General Partner INVESCO Private Capital, Inc. Eric J. Foss 4 Chairman, President and Chief Executive Officer The Pepsi Bottling Group, Inc. Robert P. Freeman 2, 4 Senior Managing Director and Principal Greyfields Investors, LLC Jon A. Grove 2, 3 Private Investor Formerly Chairman, President and Chief Executive Officer ASR Investments Corporation James D. Klingbeil 1, 3 Vice Chairman of the Board Chairman and Chief Executive Officer, Klingbeil Multifamily Funds IV, V and VI Robert C. Larson 1 Chairman of the Board Senior Advisor of Lazard Alternative Investments, LLC Chairman and Senior Advisor of Lazard Real Estate Partners, LLC Chairman of Larson Realty Group Thomas R. Oliver 2, 3 Private Investor Formerly Chairman and Chief Executive Officer InterContinental Hotels, Inc. Lynne B. Sagalyn 3, 4 Earle W. Kazis and Benjamin Schore Professor of Real Estate and Director of the Paul Milstein Center for Real Estate Columbia Business School Mark J. Sandler 2, 4 Private Investor Formerly Senior Managing Director Bear, Stearns & Co., Inc. Thomas W. Toomey 1 Chief Executive Officer and President Thomas C. Wajnert 2 Senior Advisor to Irving Place Capital Partners Formerly Chairman and Chief Executive Officer of AT&T Capital Corporation Committees: 1Executive 2Audit 3Compensation 4Governance Executive Ofﬁ cers Thomas W. Toomey Chief Executive Officer and President Warren L. Troupe Senior Executive Vice President, General Counsel and Secretary W. Mark Wallis Senior Executive Vice President Acquisitions, Dispositions, Asset Quality & Development Richard A. Giannotti Executive Vice President Redevelopment Senior Vice Presidents Matthew T. Akin Acquisitions & Dispositions David L. Messenger Chief Financial Ofﬁ cer Katie Miles-Ley Human Resources Dhrubo K. Sircar Chief Information Ofﬁ cer Thomas A. Spangler Business Development S. Douglas Walker Transactions Thomas P. Simon Treasurer Mark M. Culwell Development Jerry A. Davis Property Operations General Information Corporate Ofﬁ ce 1745 Shea Center Drive, Suite 200 Highlands Ranch, Colorado 80129 (720) 283-6120 (720) 283-2452 FAX Investor Services E-Mail: ir@udr.com Website: www.udr.com Transfer Agent And Registrar Wells Fargo Shareowner Services 161 North Concord Exchange South St. Paul, Minnesota 55075 Investor Information: (800) 468-9716 Common Stockholders At February 27, 2009, UDR had 5,279 common stockholders of record. Associates At February 27, 2009, UDR had 1,333 full and part-time associates. Annual Meeting The Annual Meeting of Stockholders is scheduled for Wednesday, May 13, 2009 at 8:30 a.m. at the Hyatt Regency Tech Center located at 7800 E. Tufts Avenue in Denver, CO. All stockholders are cordially invited. Dividend Reinvestment and Stock Purchase Plan Information regarding the Plan can be obtained by contacting Investor Services. Stock Listing New York Stock Exchange (NYSE) Symbols: UDR (Common) UDRPfg (Preferred) Under the Private Securities Litigation Reform Act of 1995: The forward-looking statements contained in this report are subject to certain economic risks and uncertainties described under the heading “Risk Factors” in the company’s 2008 Annual Report on Form 10-K. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. 6 udr.com NYSE: UDR

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