UDR, Inc. 2021 Form 10-K Summary
Business context and reporting period
UDR is a U.S. multifamily REIT. This annual filing covers the year ended December 31, 2021, with comparisons primarily to 2020. At year-end, its consolidated portfolio comprised 160 communities and 53,229 completed homes across 21 markets; unconsolidated investments included interests in another 6,570 completed or planned homes.
Financial and operating performance
- Revenue: Total revenue was $1.291 billion, up 4.0% from $1.241 billion. Rental income was $1.285 billion.
- Profit: Net income attributable to common stockholders was $145.8 million, or $0.48 per diluted share, versus $60.0 million, or $0.20, in 2020. Net income attributable to UDR, Inc. was $150.0 million versus $64.3 million.
- NOI and same-store operations: Total property NOI, a non-GAAP measure, rose 1.6% to $867.1 million. Same-store revenue grew 1.5% and same-store NOI increased 0.5% to $790.5 million. Same-store physical occupancy was 97.1%, up 1.0 percentage point; monthly income per occupied home rose 0.4% to $2,182. The reported same-store operating margin was 68.9%, versus 69.6% in 2020.
- Cash flow: Operating cash flow was $664.0 million, up from $604.3 million. Investing activities used $1.272 billion, mainly reflecting higher acquisitions, development spending and joint-venture investment. Financing activities provided $612.5 million.
- Debt and liquidity: Debt, net of financing adjustments, totaled $5.413 billion, compared with $4.977 billion a year earlier; weighted-average interest rate was 2.80% and average maturity 7.7 years. Variable-rate debt was $311.5 million, or about 5.8% of outstanding debt. Cash and cash equivalents were $1.0 million, with $27.5 million of restricted cash. At year-end, the $1.3 billion revolving facility had no borrowings, and the $75 million working-capital facility had $29.5 million outstanding. The company reported compliance with debt covenants.
- Dividends and capital: UDR declared $1.45 per common share for 2021, a 0.7% annual increase. It issued 19.5 million shares through forward sales for approximately $899.1 million in net proceeds.
Material changes versus 2020
- Common-stockholder earnings increased by $85.8 million. Drivers included higher property NOI, lower interest expense, $136.1 million of real-estate sale gains, and increased income from unconsolidated entities.
- Revenue increased 4.0%, mainly from acquisitions and rent growth, while same-store NOI growth remained modest at 0.5%.
- Acquisitions totaled 5,426 homes for approximately $1.5 billion; two Anaheim community sales generated $136.1 million of gains. Investing cash outflow increased substantially year over year.
- Income from unconsolidated entities increased to $65.6 million from $18.8 million. It included approximately $50.8 million of investment income related primarily to unrealized SmartRent gains after the company went public.
- The company refinanced $300 million of 4.00% notes due 2025 with $300 million of 2.10% notes due 2033, and issued an additional $200 million of 3.00% notes due 2031. It also expanded and extended its revolving credit facility.
Outlook, commentary, risks and unusual items
- The filing provides no specific 2022 earnings, rent-growth or occupancy guidance. Management said 2022 revenue growth could be affected by economic and COVID-19 developments, occupancy, concessions, new supply and bad debt.
- Five wholly owned developments totaling 1,417 homes were underway, with a $501.5 million budget and $388.6 million invested at year-end; completion was estimated from Q2 2022 through Q2 2023. Remaining development commitment was $112.9 million.
- Management cited inflationary pressure on wages, utilities, repairs and maintenance, and development costs, while noting short apartment lease terms generally allow rents to adjust. It did not consider inflation materially harmful to 2021 results.
- COVID-19, rent collection and eviction restrictions, rent-control and tenant-protection rules, concentrated exposure to major markets, operating-cost inflation, interest rates, refinancing and development execution remain key risks. Five markets generated approximately 56.6% of 2021 NOI.
- COVID-related rent reserves at year-end included approximately $13.2 million for multifamily and $6.1 million for retail tenants. The reserve change had a net $0.2 million favorable effect on 2021 results. The company reported no real-estate impairment charges in 2021.
- Debt prepayment and make-whole costs were approximately $40.8 million for redeeming the 2025 notes. SmartRent-related unrealized investment gains were material to reported unconsolidated-entity income and are not equivalent to recurring property operations.
- Ordinary-course legal matters were disclosed; management did not expect them to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of earnings and FFO growth reflects recurring apartment operations versus property-sale gains and unrealized SmartRent valuation gains.
- Whether same-store rent growth can recover while repair, insurance and property-tax expenses rise.
- Development budget, timing, lease-up assumptions and remaining funding needs for the five projects.
- Debt maturities, variable-rate exposure, access to credit facilities and the effects of benchmark-rate transition and refinancing costs.
- Potential dilution and capital-allocation effects of the 2021 equity issuance and remaining forward-sale agreements.
- Rent collection, tenant reserves, regulatory restrictions and exposure to the company’s largest markets.