UDR, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. UDR is a multifamily REIT. At quarter-end it owned and consolidated 153 communities with 50,413 apartment homes, and had interests in 6,211 additional completed or planned homes through unconsolidated ventures.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $311.3 million | $307.3 million | $612.8 million | $628.7 million |
| Net income attributable to UDR | $11.7 million | $57.8 million | $14.8 million | $63.0 million |
| Net income attributable to common stockholders | $10.7 million | $56.7 million | $12.7 million | $60.9 million |
| Diluted earnings per share | $0.04 | $0.19 | $0.04 | $0.21 |
| Same-store NOI | $196.7 million | $203.0 million | $384.4 million | $412.9 million |
| Total property NOI | $208.6 million | $212.3 million | $409.7 million | $437.7 million |
- Q2 same-store NOI fell 3.1%; six-month same-store NOI declined 6.9%. Same-store operating margin was 68.8% in Q2 and 68.6% for the first half, versus 70.3% and 70.8% in 2020.
- For the six months, same-store rental income fell 3.8%, primarily from lower rental rates, higher concessions and receivable reserves; operating expenses rose 3.6%. Physical occupancy improved to 96.8% from 96.5%.
- FFO per diluted share and unit was $0.52 in Q2, unchanged from 2020, and $0.83 for the first half, down from $1.04. Adjusted FFO per diluted share and unit was $0.49 and $0.96, respectively, versus $0.51 and $1.05. AFFO per diluted share and unit was $0.44 and $0.88, versus $0.47 and $0.98. These are non-GAAP measures.
Cash flow, debt and liquidity
- Six-month operating cash flow was $330.2 million, up from $317.0 million. Investing cash outflow was $314.7 million, compared with $161.9 million, reflecting higher acquisitions and joint-venture investment. Financing cash outflow was $3.5 million, versus $165.5 million.
- Cash and cash equivalents were $3.4 million and restricted cash was $32.7 million at June 30. Total debt, net, was $5.45 billion, up from $4.98 billion at year-end 2020; weighted average debt interest rate was 2.71%, with 7.5 years weighted average maturity.
- Debt was $1.06 billion secured and $4.39 billion unsecured. The company reported $470 million of commercial paper outstanding at quarter-end and $27.3 million drawn under its $75 million working-capital facility. No revolving-credit borrowings were outstanding against the $1.1 billion facility. UDR reported compliance with debt covenants.
- In February, UDR issued $300 million of 2.10% notes due 2033 and redeemed $300 million of 4.00% notes due 2025, incurring approximately $42 million of extinguishment costs. The outstanding $470 million of commercial paper matured and was repaid in July with new commercial paper due in August; the program limit was increased to $700 million in July.
- Common distributions declared were $0.3625 per share for Q2. Cash distributions paid to common stockholders totaled $214.4 million in the first half.
Material changes, outlook and risks
- Lower earnings chiefly reflect the absence of Q2 2020 real-estate sale gains of $61.3 million. First-half 2021 results also included a $50.8 million gain on the sale of an Anaheim community, while interest expense rose $35.6 million, largely because of the $42.0 million debt-extinguishment charge.
- UDR acquired operating communities in Massachusetts, Texas and Maryland, plus Tampa land, during the first half. It sold an Anaheim community for $156 million gross proceeds and a $50.8 million gain. The filing also describes a July Bellevue acquisition for approximately $170 million, two July purchase contracts totaling approximately $239.5 million, and a pending $124 million Anaheim sale expected to close in 2021.
- Management reported increased leasing traffic and a higher share of prospective tenants signing leases in Q2 versus Q2 2020. As of July 26, UDR had collected 96.9%, 96.6% and 95.8% of billed multifamily rent for April, May and June, respectively.
- COVID-related uncertainty remains material, including potential rent collection pressure, eviction restrictions, rent assistance timing, concessions and impairment risk. First-half incremental lease-receivable reserves reduced rental income by $5.8 million and income from unconsolidated entities by $0.5 million; no COVID-related asset impairment charges were recorded.
- The development pipeline comprised five wholly owned communities, 1,417 homes, with a $501.5 million budget and estimated completion dates from Q1 2022 through Q2 2023. No formal earnings or operating guidance is provided in the filing text.
- Other disclosed risks include weaker apartment-market conditions, concentrated exposure to major markets, rent regulation, inflation and operating-cost growth, refinancing and interest-rate exposure, development and acquisition execution, natural disasters, cybersecurity, and REIT qualification. UDR said ordinary-course litigation was not expected to have a material adverse effect.
Investor verification points
- Review same-store rent, concessions, receivable reserves and expense trends, particularly in urban markets, and distinguish occupancy gains from revenue and NOI performance.
- Assess the effect of the $42 million debt-extinguishment charge and the timing and economics of the debt refinancing; verify the subsequent commercial-paper rollover and available credit capacity.
- Confirm outcomes and financing for the July acquisitions, purchase commitments and pending disposition, and track development budgets, delivery timing and lease-up.
- Evaluate potential dilution and proceeds from forward equity sales: multiple agreements covering 17.9 million shares were unsettled at June 30, 2021, with settlement dates in 2022.
- Compare reported GAAP earnings with FFO, FFOA and AFFO, which are non-GAAP measures and include company-defined adjustments.