UDR, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. UDR is a U.S. apartment REIT with 160 consolidated communities and 53,503 apartment homes, plus interests in 6,489 homes through unconsolidated ventures and partnerships. Dollar amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $357.3 | $301.4; up 18.5% |
| Rental income | $356.2 | $299.8; up 18.8% |
| Net income | $14.6 | $3.3 |
| Net income attributable to UDR | $13.7 | $3.1 |
| Net income attributable to common stockholders | $12.6; $0.04 diluted EPS | $2.0; $0.01 diluted EPS |
| Total property NOI | $243.9 | $201.1; up 21.3% |
| Same-store NOI | $223.5 | $196.0; up 14.0% |
| Same-store operating margin | 69.5% | 67.6% |
| Diluted FFO per share and unit | $0.54 | $0.32 |
| Diluted FFOA per share and unit | $0.55 | $0.47 |
| Diluted AFFO per share and unit | $0.51 | $0.44 |
| Cash from operating activities | $161.0 | $123.6 |
Same-store rental income rose 10.8%, driven by a 5.3% increase in rental rates, lower bad debt and concessions, and improved occupancy. Same-store physical occupancy was 97.3%, up 1.0 percentage point; monthly income per occupied home increased 9.7% to $2,322. Operating expenses rose 4.2%, including higher insurance, repairs and maintenance, and utilities.
Investing activities used $86.8 million, versus $41.0 million provided in Q1 2021, primarily reflecting greater development and capital spending and the absence of prior-year real estate sale proceeds. Financing activities used $75.7 million, compared with $154.2 million used in the prior-year quarter. Period-end cash and restricted cash totaled $26.9 million, including only $0.9 million of unrestricted cash.
At March 31, 2022, total debt, net, was $5.48 billion, with a weighted-average interest rate of 2.80% and weighted-average remaining maturity of 7.4 years. Secured debt was $1.06 billion and unsecured debt was $4.42 billion. UDR had $280 million outstanding under its commercial-paper program, $37.2 million drawn on its $75 million working-capital facility, and no revolver borrowings on its $1.3 billion revolving facility; the latter had $1.3 billion of available capacity, excluding letters of credit. Debt covenants were satisfied. The filing identifies $280 million of commercial paper maturing during the remainder of 2022.
Material changes and unusual items
- Common-stockholder net income increased to $12.6 million from $2.0 million. Higher property NOI and lower interest expense contributed, but the comparison is affected by prior-year items: Q1 2021 included a $50.8 million gain on a property sale and $42.0 million of debt-extinguishment costs; neither item recurred in Q1 2022.
- Q1 2022 property NOI increased by $42.9 million. Same-store NOI grew 14.0%; non-mature/other NOI rose to $20.4 million from $5.0 million, primarily reflecting communities acquired in 2021.
- UDR recognized a $10.6 million variable upside participation gain related to a joint venture community sale. FFOA adjustments also included a $15.6 million unrealized loss on real estate technology investments, primarily associated with SmartRent, partly offset by a $2.2 million realized gain on such investments.
- COVID-related reserve reductions increased rental income by approximately $2.3 million and income from unconsolidated entities by $0.2 million. The filing reports no COVID-related asset impairment charges in the quarter.
- Capital expenditures excluding development were $36.6 million, up 45.2% from $25.2 million; major renovations increased substantially. Development spending was $56.8 million.
Outlook, risks and contingencies
The supplied filing text does not provide a clear numerical earnings or same-store growth guidance range. Management stated that operating cash flow and borrowing capacity were expected to be adequate for operating needs and REIT distributions. The development pipeline comprised seven wholly owned communities with 1,832 homes, a total budget of $689 million, and $458.1 million of carrying value; completion of remaining homes was estimated from Q2 2022 through Q2 2024. Remaining development commitment was approximately $230.9 million. UDR also expected to close in Q2 2022 on a $16 million Fort Lauderdale land acquisition.
Management said inflation had not materially affected Q1 results, while identifying wage, utility, repair, insurance and development-cost pressures. The filing highlights uncertainty from COVID-19 and potential new restrictions, interest-rate and refinancing exposure, rent regulation, construction costs and delays, insurance and weather losses, cybersecurity, and geographic concentration. Six markets generated approximately 60.8% of Q1 NOI. A 100-basis-point increase in variable rates was estimated to increase quarterly interest expense by about $1.0 million, based on the period’s average debt balance. Routine legal claims and proceedings were reported; management did not expect them to have a material adverse effect. No material off-balance-sheet arrangements were disclosed.
In March, UDR entered forward sale agreements covering 7.0 million common shares at an initial forward price of $57.565 per share; no shares had been settled by quarter-end. Another 4.4 million shares were subject to unsettled ATM forward sales agreements. Settlement proceeds depend on contractual adjustments, and the filing notes that cash or net-share settlement could produce different proceeds or dilution outcomes.
Investor facts to verify
- Review subsequent results for same-store rent growth, occupancy, concessions, bad debt, and expense inflation against Q1 trends.
- Track the $280 million commercial-paper maturity and refinancing or repayment plans, as well as variable-rate exposure and interest-rate hedges.
- Verify settlement, net proceeds, and dilution from the 11.4 million shares covered by unsettled forward sale agreements.
- Assess development cost, timing, lease-up, and remaining funding needs for the seven-project pipeline and the planned land acquisition.
- Monitor SmartRent and other technology-investment valuations, the joint-venture sale participation, and the sustainability of reported FFOA and AFFO growth.