UDR, Inc. — Q3 2021 Form 10-Q
Business context and reporting period
UDR is a REIT that owns, operates, acquires, develops, and manages apartment communities. At September 30, 2021, it owned and consolidated 158 communities with 52,071 apartment homes in 13 states and the District of Columbia. Results cover the three and nine months ended September 30, 2021, compared with the same 2020 periods.
Financial performance and liquidity
- Revenue: Q3 total revenue was $329.8 million, up 6.4% from $310.0 million; nine-month revenue was $942.6 million, up 0.4% from $938.8 million.
- Profit: Q3 net income attributable to common stockholders was $16.7 million ($0.06 per diluted share), versus a $26.3 million loss ($0.09 loss per share) in Q3 2020. Nine-month common-stockholder income was $29.4 million ($0.10 per diluted share), down from $34.6 million ($0.12) a year earlier.
- Operating performance and margins: Total property NOI, a non-GAAP measure, increased 4.0% to $219.5 million in Q3, but declined 3.0% to $629.2 million for nine months. Same-store NOI rose 6.3% in Q3 and fell 2.9% year to date. Same-store operating margin was 68.3% in Q3 (67.6% in 2020) and 68.5% for nine months (69.8% in 2020).
- FFO and AFFO: Diluted FFO per share and unit was $0.55 in Q3 versus $0.42; nine-month FFO was $1.39 versus $1.46. Diluted FFO as adjusted was $0.51 versus $0.50 for Q3 and $1.47 versus $1.55 for nine months. Diluted AFFO was $0.46 versus $0.45 for Q3 and $1.34 versus $1.43 for nine months. These are non-GAAP measures.
- Cash flow: Nine-month operating cash flow was $483.2 million, versus $456.6 million. Investing activities used $921.3 million, principally reflecting increased acquisitions and development spending; financing activities provided $443.2 million. Cash, cash equivalents, and restricted cash totaled $29.2 million at period-end.
- Debt and liquidity: Debt, net, was $5.52 billion, up from $4.98 billion at year-end 2020; weighted-average interest rate was 2.75% and weighted-average maturity was 7.8 years. UDR reported $1.06 billion secured debt and $4.46 billion unsecured debt. It had no revolving-credit borrowings at quarter-end and $1.3 billion of revolver capacity, plus a $75 million working-capital facility with $43.1 million drawn. Management reported compliance with debt covenants.
- Distributions: The company declared common distributions of $0.3625 per share for Q3. Nine-month cash distributions paid to common stockholders were $322.0 million.
Material changes versus comparable periods
- Q3 earnings improved substantially year over year, led by lower interest expense, higher unconsolidated-investment income, and improved property NOI. The comparison also reflects $24.5 million of debt-extinguishment costs in Q3 2020 versus $0.4 million in Q3 2021.
- Nine-month common-stockholder income and same-store NOI declined. Rental rates and concessions weighed on results, operating expenses increased, interest expense rose, and gains on property sales were lower ($50.8 million in 2021 versus $61.3 million in 2020).
- Same-store Q3 rental income increased 5.3%; physical occupancy rose to 97.5% from 95.5%, while rental rates declined 0.9%. For nine months, same-store rental income declined 0.9%, with rental rates down 2.3% and physical occupancy up to 97.0% from 96.2%.
- UDR completed significant acquisitions during 2021. Acquisition cash outflow was $904.4 million for the nine months, compared with $157.1 million in 2020. It also raised $499.3 million net through common-stock forward sales, increasing shares outstanding.
Outlook, commentary, risks, and unusual items
- The filing provides no specific earnings or operating guidance. Management stated that operating cash flow and borrowing capacity were expected to be adequate for operating needs and REIT distributions, while identifying property operations, debt and equity issuance, and dispositions as potential funding sources.
- Management reported collecting 97.3%, 96.9%, and 96.0% of billed multifamily rent for July, August, and September, respectively, as of October 25. COVID-19 impacts remain uncertain; renewed restrictions, eviction limits, rent assistance delays, concessions, and collection losses could materially affect results and cash flows.
- COVID-related receivable reserve changes increased Q3 rental income by approximately $4.1 million in aggregate. For the nine months, incremental reserves reduced rental income by approximately $1.7 million and unconsolidated-entity income by $0.4 million. No COVID-related asset impairments were recognized for the nine months.
- Other notable items include $42.3 million of nine-month debt-extinguishment costs, mainly associated with redeeming $300 million of 4.00% notes before maturity; $18.2 million of nine-month investment income from real estate technology investments; and a $50.8 million gain on a February property sale.
- UDR issued $300 million of 2.10% notes due 2033 and an additional $200 million of 3.00% notes due 2031, and extended maturities on its revolving and working-capital facilities. The $315 million of commercial paper outstanding at quarter-end was repaid in October with new commercial paper.
- Principal risks include COVID-19 and rental collection uncertainty, concentrated exposure to major markets, rent regulation, operating-cost inflation, property acquisition and development execution, joint-venture and preferred-equity exposure, interest-rate and refinancing risk, and climate, weather, insurance, and cybersecurity risks. Routine litigation was not expected by management to have a material adverse effect; the filing does not provide a clear quantified aggregate litigation exposure.
Important facts for investors to verify
- Underlying same-store rent trends, concessions, occupancy, and expense growth by market, particularly the recovery in rental rates.
- How much Q3 earnings benefited from reserve reversals and real estate technology investment gains, and whether such items are repeatable.
- Acquisition returns and development costs, timing, lease-up assumptions, and the remaining $169.9 million commitment for wholly owned projects under development.
- Debt maturities, commercial-paper rollover and access, variable-rate exposure, and the effects of LIBOR transition; management estimated a 100-basis-point rate increase would add $3.7 million to nine-month interest expense based on average variable-rate debt.
- Share dilution and eventual proceeds from outstanding forward-sale agreements; confirm settlement terms and the effect on per-share measures.