UDR, Inc. — Q1 2024 Form 10-Q
Business context and period. UDR is a U.S. multifamily REIT. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023. At quarter-end, UDR owned and consolidated 168 communities with 55,386 homes, and held interests in 10,045 additional completed or planned homes through unconsolidated ventures and partnerships.
Financial results and key metrics
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Total revenue | $413.6 million | $399.5 million | Up 3.5% |
| Net income attributable to UDR | $43.1 million | $31.0 million | Up; includes property-sale gain |
| Net income attributable to common stockholders | $41.9 million | $29.8 million | Up 40.8% |
| Diluted EPS | $0.13 | $0.09 | Up $0.04 |
| Total property NOI | $279.4 million | $275.5 million | Up 1.4% |
| Same-store NOI | $261.8 million | $258.6 million | Up 1.2%; revenue up 3.1%, expenses up 7.5% |
| Same-store occupancy | 97.1% | 96.5% | Up 0.6 percentage points |
| Same-store operating margin | 68.7% | 69.9% | Down 1.2 percentage points |
| FFO per diluted share and unit | $0.60 | $0.59 | Up $0.01 |
| FFOA per diluted share and unit | $0.61 | $0.60 | Up $0.01 |
| AFFO per diluted share and unit | $0.56 | $0.57 | Down $0.01 |
Net income includes a $16.9 million gain on the sale of an Arlington, Virginia community. FFO, FFOA, AFFO, and NOI are non-GAAP measures; the filing cautions that they are not substitutes for GAAP earnings or cash flow.
- Cash flow: Operating activities provided $167.6 million, versus $168.0 million. Investing activities provided $18.4 million, versus $117.3 million used. Financing activities used $188.9 million, versus $51.7 million used.
- Capital spending and distributions: Capital expenditures excluding development were $54.3 million, down 1.2%. Cash distributions to common stockholders were $138.2 million; the quarter’s declared common distribution was $0.425 per share.
- Balance sheet and debt: Total assets were $11.19 billion and total liabilities $6.33 billion. Net secured and unsecured debt was $5.76 billion, with a weighted-average interest rate of 3.38% and 5.4 years’ weighted-average maturity. Approximately 87% of real estate, by gross book value, was unencumbered. UDR reported compliance with debt covenants.
- Liquidity: Cash and cash equivalents were $2.1 million, with $29.9 million of restricted cash. The $1.3 billion revolving facility had no borrowings and $1.3 billion of stated unused capacity, excluding letters of credit; the $75 million working-capital facility had $47.9 million unused. Commercial paper capacity was $700 million, of which $390 million was outstanding.
Material changes versus the prior comparable period
- Common-stockholder income rose primarily due to the $16.9 million property-sale gain, a $3.9 million increase in total property NOI, and higher interest income and other income. Higher interest expense and other operating expenses partly offset those gains.
- Interest expense increased to $48.1 million from $43.7 million, reflecting higher average interest rates and debt balances. Interest income and other income increased to $5.9 million from $1.0 million, principally due to increased interest income on notes receivable.
- Same-store rental income increased 3.1%, but property operating expenses rose 7.5%, including higher personnel, repairs and maintenance, and real estate taxes. Total monthly income per occupied same-store home increased 2.5% to $2,527.
- Operating cash flow was broadly unchanged. Investing cash flow improved mainly because of property-sale proceeds, lower development spending, equity-security sale proceeds, and lower net note-receivable issuance.
Outlook, management commentary, risks, and unusual items
- The filing gives no numerical earnings, rent-growth, or other financial guidance. Management expects operating cash flow and available borrowing capacity to support operating needs and REIT distributions, while noting that longer-term needs may be funded with cash flow, debt or equity issuance, and property dispositions.
- Approximately $502.9 million of debt maturities, including amortization, were scheduled for the remainder of 2024: $97.2 million secured and $405.6 million unsecured. Management expects to address these through operating cash flow, financing, dispositions, or available credit and commercial-paper programs.
- UDR sold a 214-home Arlington community in February for $100.0 million gross proceeds, recognizing a $16.9 million gain. It also acquired its partner’s interest in a 173-home Oakland community for $1.4 million.
- One wholly owned development community had 330 planned homes, with 19 completed by quarter-end; remaining homes were estimated for completion in Q2 2024. The project budget was $134.0 million. UDR reported no communities undergoing substantial redevelopment at quarter-end.
- Unusual expenses included $6.3 million of net casualty-related charges and $6.8 million of other operating expenses, the latter increase attributed primarily to legal-related expenses and political contributions. UDR also recorded $2.5 million of legal and other costs in its FFOA reconciliation.
- UDR is a defendant in consolidated litigation alleging antitrust violations related to RealPage revenue-management software, as well as a similar District of Columbia case; governmental investigations are also noted. The cases are in early stages, and the company says it cannot predict an outcome or estimate any potential loss.
- Key disclosed risks include apartment supply, rents and occupancy; inflation and operating costs; interest rates and refinancing; concentrated exposure to certain markets; development and counterparty risks; insurance and severe weather; rent regulation; cybersecurity; and REIT qualification. UDR said it had no material impairment charges on real estate or unconsolidated ventures in the quarter.
Important facts for investors to verify
- How much of the year-over-year earnings increase is attributable to the one-time Arlington sale gain, and how recurring property performance develops.
- Whether same-store revenue growth can outpace operating-cost growth, given the margin decline and higher property expenses.
- Refinancing terms and funding plans for the $502.9 million of 2024 maturities, including short-term commercial paper exposure.
- Development completion, lease-up, and budget performance for the 330-home project, and performance of UDR’s notes receivable and preferred-equity investments.
- Developments in the RealPage-related litigation and investigations, including any change in the company’s ability to estimate potential exposure.