UDR, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. UDR is a REIT focused on owning, operating, acquiring, developing, and managing U.S. apartment communities. At June 30, 2022, it owned 162 consolidated communities with 54,314 homes and had interests in 6,775 additional completed or planned homes through unconsolidated ventures. The filing reports the quarter and six months ended June 30, 2022, compared with the same periods in 2021; financial statements are unaudited.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $369.2 million | $311.3 million | $726.4 million | $612.8 million |
| Operating income | $50.7 million | $35.8 million | $98.6 million | $110.9 million |
| Net income attributable to UDR | $5.1 million | $11.7 million | $18.8 million | $14.8 million |
| Net income attributable to common stockholders | $4.0 million; $0.01 diluted EPS | $10.7 million; $0.04 diluted EPS | $16.6 million; $0.05 diluted EPS | $12.7 million; $0.04 diluted EPS |
| Same-store NOI | $232.2 million; +14.7% | $202.5 million | $454.4 million; +14.4% | $397.3 million |
| Operating cash flow | — | $398.1 million | $330.2 million |
Q2 rental income increased 19.0% year over year. Same-store rental income rose 11.4% in Q2 and 11.1% year to date; physical occupancy was 97.1% in Q2 and 97.2% year to date. Same-store operating expenses increased 4.2% in both comparisons. Same-store NOI margin was 70.2% in Q2 versus 68.2% a year earlier, and 69.9% year to date versus 67.9%.
Common-stockholder earnings declined in Q2 despite higher property NOI, mainly reflecting increased depreciation and a swing in unconsolidated investment results. UDR reported a $16.4 million Q2 loss from its RETV I investment, primarily related to unrealized changes in SmartRent shares. For the first half, the higher common earnings primarily reflected increased property NOI and lower interest expense, partly offset by no repeat of the prior-year real estate sale gain, higher depreciation, and investment losses.
Funds from operations (non-GAAP): Diluted FFO per share and unit was $0.52 in Q2 2022, unchanged year over year; diluted FFO as adjusted was $0.57 versus $0.49, and diluted AFFO was $0.52 versus $0.44. For the first half, diluted FFO was $1.06 versus $0.83, FFO as adjusted was $1.12 versus $0.96, and AFFO was $1.03 versus $0.88. These supplemental measures are not substitutes for GAAP earnings or operating cash flow.
Liquidity, debt, and capital allocation
- At June 30, total assets were $11.0 billion and total liabilities were $6.1 billion. Cash and cash equivalents were $0.9 million; restricted cash was $27.8 million. Cash, cash equivalents, and restricted cash together totaled $28.7 million.
- Debt, net, totaled $5.52 billion: $1.05 billion secured and $4.46 billion unsecured. Weighted-average interest rate was 2.85%, with weighted-average maturity of 7.1 years. Approximately 89% of real estate, by gross book value, was unencumbered.
- UDR had no borrowings under its $1.3 billion revolving credit facility, with $1.3 billion available (excluding letters of credit). It had $30.9 million outstanding on its $75 million working capital facility and $325 million of commercial paper outstanding under a $700 million program.
- Commercial paper of $325 million was due in the remainder of 2022. UDR reported covenant compliance and expected to meet liquidity needs using property cash flows, credit facilities, commercial paper, debt or equity issuance, and property dispositions as appropriate.
- First-half investing cash outflow was $575.1 million, including $341.1 million for real estate acquisitions, $119.0 million for development, and $91.9 million invested in unconsolidated ventures. Financing cash inflow was $177.3 million, including $350.3 million net proceeds from common-share forward sales; common distributions paid were $236.4 million.
- UDR declared common distributions of $0.76 per share for the first half. Shares outstanding increased to 324.9 million at June 30 from 318.1 million at year-end, including share settlements that raised approximately $350.3 million net; 4.9 million shares under forward sale agreements remained unsettled at quarter-end.
Changes, outlook, and risks
- Same-store operating strength was driven by higher rents, reduced concessions, and ancillary income; expense growth included repair and maintenance, insurance, and utilities, with management citing vendor cost and energy inflation.
- UDR acquired a 434-home operating community in Danvers, Massachusetts, and land parcels in Fort Lauderdale, Dallas, and Riverside. It had six wholly owned developments totaling 1,540 homes, with 363 completed; the remaining homes were estimated for completion from Q3 2022 through Q2 2024. No communities were being redeveloped at quarter-end.
- There was no explicit earnings or operating guidance in the supplied filing text. Management said short- and long-term liquidity needs were expected to be met through operating cash flow and financing sources, and that rent growth generally allows the company to respond to inflation. The filing cautions that interim results are not necessarily indicative of full-year results.
- COVID-19’s impact had generally decreased, but future variants or restrictions could still affect operations, collections, and cash flow. Key risks include rent control and other regulation, local market and supply conditions, inflation and operating costs, interest rates and refinancing, development costs and delays, property concentration, partner or borrower performance, casualty and climate-related losses, and access to capital.
- UDR reported no long-lived asset impairment charges in the first half and no material adverse effect expected from routine litigation. However, it recorded volatile unrealized investment results tied principally to SmartRent; joint ventures also reported substantial net unrealized investment losses in the first half. These results may affect reported earnings and differ from property-level operating performance.
Most important facts for investors to verify
- Whether rent growth, occupancy, and same-store NOI remain resilient as operating expenses and inflation rise.
- The source, valuation, and potential future volatility of SmartRent-related and other real estate technology investment results.
- How the $325 million commercial-paper maturity is refinanced or repaid, and the effect of higher rates on variable-rate debt and future refinancing.
- Whether development budgets, schedules, and lease-up assumptions remain achievable amid construction-cost and market risks.
- The impact of additional share settlements, the remaining forward-sale agreements, and distributions on per-share returns and liquidity.