DEBT, NET (UNITED DOMINION REALTY, L.P.)

9 Months Ended

Sep. 30, 2018

6. SECURED AND UNSECURED DEBT, NET

The following is a summary of our secured and unsecured debt at September 30, 2018 and December 31, 2017 (dollars in thousands):


	Principal Outstanding				As of September 30, 2018
					Weighted		Weighted
					Average		Average	Number of
	September 30,		December 31,		Interest		Years to	Communities
	2018		2017		Rate		Maturity	Encumbered
Secured Debt:
Fixed Rate Debt
Mortgage notes payable (a)	$	419,482	$	395,611	3.82	%	6.1	7
Fannie Mae credit facilities (b)		285,836		285,836	4.86	%	1.3	8
Deferred financing costs		(1,636)		(1,670)
Total fixed rate secured debt, net		703,682		679,777	4.25	%	4.1	15
Variable Rate Debt
Tax-exempt secured notes payable (c)		94,700		94,700	2.16	%	4.4	2
Fannie Mae credit facilities (b)		—		29,034	—	%	—	—
Deferred financing costs		(141)		(242)
Total variable rate secured debt, net		94,559		123,492	2.16	%	4.4	2
Total Secured Debt, net		798,241		803,269	4.00	%	4.2	17
Unsecured Debt:
Variable Rate Debt
Borrowings outstanding under unsecured credit facility due January 2023 (d) (h)		—		—	—	%	4.3
Borrowings outstanding under unsecured commercial paper program due October 2018 (e) (h)		415,000		300,000	2.43	%	0.1
Borrowings outstanding under unsecured working capital credit facility due January 2021 (f)		51,010		21,767	3.09	%	2.3
Term Loan due September 2023 (d) (h)		35,000		35,000	3.04	%	5.0
Fixed Rate Debt
3.70% Medium-Term Notes due October 2020 (net of discounts of $16 and $22, respectively) (h)		299,984		299,978	3.70	%	2.0
1.93% Term Loan due September 2023 (d) (h)		315,000		315,000	1.93	%	5.0
4.63% Medium-Term Notes due January 2022 (net of discounts of $1,177 and $1,446, respectively) (h)		398,823		398,554	4.63	%	3.3
3.75% Medium-Term Notes due July 2024 (net of discounts of $599 and $678, respectively) (h)		299,401		299,322	3.75	%	5.8
8.50% Debentures due September 2024		15,644		15,644	8.50	%	6.0
4.00% Medium-Term Notes due October 2025 (net of discounts of $482 and $534, respectively) (g) (h)		299,518		299,466	4.00	%	7.0
2.95% Medium-Term Notes due September 2026 (h)		300,000		300,000	2.95	%	7.9
3.50% Medium-Term Notes due July 2027 (net of discounts of $617 and $670, respectively) (h)		299,383		299,330	3.50	%	8.8
3.50% Medium-Term Notes due January 2028 (net of discounts of $1,102 and $1,191, respectively) (h)		298,898		298,809	3.50	%	9.3
Other		17		19
Deferred financing costs		(14,739)		(14,495)
Total Unsecured Debt, net		3,012,939		2,868,394	3.44	%	5.1
Total Debt, net	$	3,811,180	$	3,671,663	3.63	%	4.9

For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument.

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. As of September 30, 2018, secured debt encumbered $1.6 billion or 16.0% of UDR’s total real estate owned based upon gross book value ($8.7 billion or 84.0% of UDR’s real estate owned based on gross book value is unencumbered).

(a) Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2020 through September 2028 and carry interest rates ranging from 3.15% to 4.35%.

The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, the Company records the debt at its estimated fair value and amortizes any difference between the fair value and par value to interest expense over the life of the underlying debt instrument.

During the three months ended September 30, 2018 and 2017, the Company had $0.9 million and $0.7 million, respectively, and during the nine months ended September 30, 2018 and 2017, the Company had $2.4 million and $2.2 million, respectively, of amortization of the fair market adjustment of debt assumed in the acquisition of properties, which was included in Interest expense on the Consolidated Statements of Operations. The unamortized fair market adjustment was a net premium of $5.5 million and $8.2 million at September 30, 2018 and December 31, 2017, respectively.

(b) UDR had two secured credit facilities with Fannie Mae with an aggregate commitment of $285.8 million at September 30, 2018. The Fannie Mae credit facilities mature at various dates from October 2019 through July 2020 and bear interest at fixed rates. At September 30, 2018, the weighted average interest rate was 4.86%.

During the nine months ended September 30, 2018, the Company prepaid $29.0 million of its variable rate secured credit facilities with proceeds from the refinance of a mortgage note payable.

Further information related to these credit facilities is as follows (dollars in thousands):


	September 30,			December 31,
	2018			2017
Borrowings outstanding	$	285,836		$	314,870
Weighted average borrowings during the period ended		308,417			416,653
Maximum daily borrowings during the period ended		314,869			636,782
Weighted average interest rate during the period ended		4.8	%		4.3	%
Weighted average interest rate at the end of the period		4.9	%		4.7	%

(c) The variable rate mortgage notes payable that secure tax-exempt housing bond issues mature in August 2019 and March 2032. Interest on these notes is payable in monthly installments. The variable rate mortgage notes have interest rates ranging from 2.15% to 2.20% as of September 30, 2018.

(d) In September 2018, the Company entered into a $1.1 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million unsecured term loan (the “Term Loan”). The credit agreement for these facilities (the “Credit Agreement”) allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2023, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of September 30, 2023.

The Credit Agreement amended and restated the Company’s prior credit agreement, which provided for: (i) a $1.1 billion revolving credit facility scheduled to mature in January 2020 and (ii) a $350.0 million term loan scheduled to mature in January 2020. The prior credit agreement allowed the total commitments under the revolving credit facility and total borrowings under the term loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions.

Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 75 to 145 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 80 to 165 basis points.

The Credit Agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The Credit Agreement also includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event of default, following the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the Credit Agreement to be immediately due and payable.

The following is a summary of short-term bank borrowings under the Revolving Credit Facility at September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,			December 31,
	2018			2017
Total revolving credit facility	$	1,100,000		$	1,100,000
Borrowings outstanding at end of period (1)		—			—
Weighted average daily borrowings during the period ended		—			2,274
Maximum daily borrowings during the period ended		—			120,000
Weighted average interest rate during the period ended		—	%		1.6	%
Interest rate at end of the period		—	%		—	%

(1)

Excludes $3.3 million and $3.3 million of letters of credit at September 30, 2018 and December 31, 2017, respectively.

(e) The Company has an unsecured commercial paper program. Under the terms of the program, the Company may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500.0 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of the Company’s other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership.

The following is a summary of short-term bank borrowings under the unsecured commercial paper program at September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,			December 31,
	2018			2017
Total unsecured commercial paper program	$	500,000		$	500,000
Borrowings outstanding at end of period		415,000			300,000
Weighted average daily borrowings during the period ended		350,907			238,810
Maximum daily borrowings during the period ended		440,000			390,000
Weighted average interest rate during the period ended		2.3	%		1.4	%
Interest rate at end of the period		2.4	%		2.0	%

(f) The Company has a working capital credit facility, which provides for a $75.0 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 15, 2021. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin ranges from 85 to 155 basis points. In February 2018, the Company amended the Working Capital Credit Facility to extend the scheduled maturity date from January 1, 2019 to January 15, 2021. The maximum borrowing capacity and interest rate were unchanged by the amendment.

The following is a summary of short-term bank borrowings under the Working Capital Credit Facility at September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,			December 31,
	2018			2017
Total working capital credit facility	$	75,000		$	75,000
Borrowings outstanding at end of period		51,010			21,767
Weighted average daily borrowings during the period ended		29,398			26,993
Maximum daily borrowings during the period ended		64,633			68,207
Weighted average interest rate during the period ended		2.8	%		2.0	%
Interest rate at end of the period		3.1	%		2.5	%

(g) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $200.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.55%.

(h) The Operating Partnership is a guarantor of this debt.

The aggregate maturities, including amortizing principal payments on secured and unsecured debt, of total debt for the next ten calendar years subsequent to September 30, 2018 are as follows (dollars in thousands):


	Total Fixed		Total Variable		Total		Total		Total
Year	Secured Debt		Secured Debt		Secured Debt		Unsecured Debt		Debt
2018	$	935	$	—	$	935	$	415,000	$	415,935
2019		199,659		67,700		267,359		—		267,359
2020		198,076		—		198,076		300,000		498,076
2021		1,117		—		1,117		51,010		52,127
2022		1,157		—		1,157		400,000		401,157
2023		41,245		—		41,245		350,000		391,245
2024		—		—		—		315,644		315,644
2025		127,600		—		127,600		300,000		427,600
2026		50,000		—		50,000		300,000		350,000
2027		—		—		—		300,000		300,000
Thereafter		80,000		27,000		107,000		300,000		407,000
Subtotal		699,789		94,700		794,489		3,031,654		3,826,143
Non-cash (a)		3,893		(141)		3,752		(18,715)		(14,963)
Total	$	703,682	$	94,559	$	798,241	$	3,012,939	$	3,811,180

(a)

Includes the unamortized balance of fair market value adjustments, premiums/discounts and deferred financing costs. The Company amortized $1.1 million and $1.1 million, respectively, during the three months ended September 30, 2018 and 2017 and $3.2 million and $3.2 million, respectively, during the nine months ended September 30, 2018 and 2017 of deferred financing costs into Interest expense.

We were in compliance with the covenants of our debt instruments at September 30, 2018.

On October 26, 2018, the Company issued $300.0 million of 4.40% senior unsecured medium-term notes due January 26, 2029. Interest is payable semi-annually in arrears on January 26 and July 26 of each year, beginning on January 26, 2019. The notes were priced at 99.998% of the principal amount at issuance. The Company will use the net proceeds for the repayment of debt, including $195.8 million of the outstanding balance under the Fannie Mae credit facilities, and for general corporate purposes. The Operating Partnership is a guarantor of this debt.

United Dominion Reality L.P.

Entity information

DEBT

5. DEBT, NET

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification in the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Operating Partnership having effectively established the fixed interest rate for the underlying debt instrument. Secured debt consists of the following as of September 30, 2018 and December 31, 2017 (dollars in thousands):


	Principal Outstanding				As of September 30, 2018
							Weighted
					Weighted		Average
	September 30,		December 31,		Average		Years to	Communities
	2018		2017		Interest Rate		Maturity	Encumbered
Fixed Rate Debt
Fannie Mae credit facilities	$	133,205	$	133,205	5.28	%	1.1	4
Deferred financing costs		(166)		(282)
Total fixed rate secured debt, net		133,039		132,923	5.28	%	1.1	4
Variable Rate Debt
Tax-exempt secured note payable		27,000		27,000	2.20	%	13.5	1
Deferred financing costs		(73)		(78)
Total variable rate secured debt, net		26,927		26,922	2.20	%	13.5	1
Total Secured Debt, Net	$	159,966	$	159,845	4.87	%	3.2	5

As of September 30, 2018, an aggregate commitment of $133.2 million of the General Partner’s secured credit facilities with Fannie Mae was owed by the Operating Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at September 30, 2018. The portions of the Fannie Mae credit facilities owed by the Operating Partnership mature at various dates from October 2019 through December 2019 and bear interest at fixed rates. At September 30, 2018, the weighted average interest rate was 5.28%.

The following information relates to the credit facilities owed by the Operating Partnership (dollars in thousands):


	September 30,			December 31,
	2018			2017
Borrowings outstanding	$	133,205		$	133,205
Weighted average borrowings during the period ended		133,205			223,347
Maximum daily borrowings during the period ended		133,205			408,549
Weighted average interest rate during the period ended		5.3	%		4.6	%
Interest rate at the end of the period		5.3	%		5.3	%

The Operating Partnership may from time to time acquire properties subject to fixed rate debt instruments. In those situations, management will record the secured debt at its estimated fair value and amortize any difference between the fair value and par to interest expense over the life of the underlying debt instrument. The Operating Partnership did not have any unamortized fair value adjustments associated with the fixed rate debt instruments on the Operating Partnership’s properties.

Fixed Rate Debt

At September 30, 2018, the General Partner had borrowings against its fixed rate facilities of $285.8 million, of which $133.2 million was owed by the Operating Partnership based on the ownership of the assets securing the debt. As of September 30, 2018, the funds borrowed under the fixed rate Fannie Mae credit facilities owed by the Operating Partnership had a weighted average fixed interest rate of 5.28%.

Variable Rate Debt

Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures March 2032. Interest on this note is payable in monthly installments. The mortgage note payable has an interest rate of 2.20% as of September 30, 2018.

The aggregate maturities of the Operating Partnership’s secured debt due during each of the next ten calendar years subsequent to September 30, 2018 are as follows (dollars in thousands):


	Fixed		Variable
			Tax-Exempt
	Secured Credit		Secured Notes
Year	Facilities		Payable		Total
2018	$	—	$	—	$	—
2019		133,205		—		133,205
2020		—		—		—
2021		—		—		—
2022		—		—		—
2023		—		—		—
2024		—		—		—
2025		—		—		—
2026		—		—		—
2027		—		—		—
Thereafter		—		27,000		27,000
Subtotal		133,205		27,000		160,205
Non-cash (a)		(166)		(73)		(239)
Total	$	133,039	$	26,927	$	159,966

(a)

Includes the unamortized balance of fair market value adjustments, premiums/discounts, and deferred financing costs. For the three months ended September 30, 2018 and 2017, the Operating Partnership amortized less than $0.1 million and less than $0.1 million, respectively, and $0.1 million and $0.3 million for the nine months ended September 30, 2018 and 2017, respectively, of deferred financing costs into Interest expense.

Guarantor on Unsecured Debt

The Operating Partnership is a guarantor on the General Partner’s unsecured revolving credit facility with an aggregate borrowing capacity of $1.1 billion, an unsecured commercial paper program with an aggregate borrowing capacity of $500 million, $300 million of medium-term notes due October 2020, $400 million of medium-term notes due January 2022, a $350 million term loan due September 2023, $300 million of medium-term notes due July 2024, $300 million of medium-term notes due October 2025, $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027, and $300 million of medium-term notes due January 2028. As of September 30, 2018 and December 31, 2017, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $415 million and $300 million, respectively, outstanding under its unsecured commercial paper program.

On October 26, 2018, the General Partner issued $300.0 million of 4.40% senior unsecured medium-term notes due January 26, 2029. The General Partner will use the net proceeds for the repayment of debt, including all of the Fannie Mae credit facilities allocated to the Operating Partnership, and for general corporate purposes. The Operating Partnership is a guarantor of this debt.