S&P Upgrades UDR, Inc. (UDR) to 'BBB+'; Notes Improving Competitive Position

Standard & Poor's Ratings Services raised its rating on UDR, Inc. (NYSE: UDR) to 'BBB+' from 'BBB'. The outlook is stable. At the same time, we raised the rating on UDR's senior unsecured notes to 'BBB+' from 'BBB'.

"The upgrade reflects our view of the improvement in UDR's competitive position based upon its large and relatively diverse portfolio of apartment properties with above-average asset quality. In addition, credit metrics continue to strengthen," said credit analyst Anita Ogbara. "Our previous outlook stated we could raise the ratings if metrics continue to strengthen and debt to EBITDA continues on a path below 7x. As of March 31, 2015, debt to EBITDA was 6.9x and we expect this ratio to decline further as EBITDA strengthens. Fixed-charge coverage (FCC) is currently 3.3x and debt to undepreciated capital is 39.5%."

The outlook is stable. We believe favorable multifamily fundamentals will persist over the near term, with steady demand and manageable new supply in most of UDR's core markets. We expect more conservative development strategy and balance sheet management should result in more stable credit metrics going forward. Furthermore, we expect any acquisitions to be financed with a combination of debt and equity that will at least preserve UDR's current credit profile.

Downside scenario

We believe there is limited downside to the current rating because of our expectation for healthy apartment fundamentals over the near term. We could lower the ratings if the company materially ramps up its unfunded development pipeline or if weaker than expected operating results lead to credit metrics below our forecasts, specifically debt to EBITDA above 7.5x.

Upside scenario

At this time an upgrade is unlikely, however we could raise our rating over the next 12 months if leverage metrics continue to strengthen and debt to EBITDA continues on a path below 4.5x, which we do not expect. An upgrade would also require development funding obligations to remain manageable and a proven commitment to run the balance sheet at lower leverage over the long term.

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