UDR, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. UDR is a U.S. multifamily REIT. At quarter-end, its consolidated portfolio comprised 168 communities and 55,597 apartment homes; it also had interests in 9,956 homes through unconsolidated ventures and partnerships.
Financial performance and position
- Revenue: Q3 total revenue was $410.1 million, up 4.8% year over year; rental income was $408.4 million. Nine-month revenue was $1.214 billion, versus $1.118 billion.
- Profit: Q3 net income attributable to common stockholders was $31.6 million ($0.10 per diluted share), compared with $22.5 million ($0.07). Nine-month results were $407.7 million ($1.24 per diluted share), versus $39.1 million ($0.12); the 2023 period included a $325.9 million gain on a partial sale of four communities.
- Property operations: Same-store NOI increased 5.7% in Q3 and 7.3% for the first nine months. Q3 same-store rental income rose 5.0%, while operating expenses rose 3.4%; same-store occupancy was 96.7%. Same-store operating margin was 69.0% in Q3 versus 68.6% a year earlier.
- Cash flow: Nine-month operating cash flow was $613.6 million, compared with $602.6 million. Investing used $216.2 million, versus $838.7 million; financing used $395.1 million, versus providing $237.5 million. Period-end cash, cash equivalents and restricted cash totaled $32.5 million, including $30.8 million restricted.
- Debt and liquidity: Debt, net, was $5.753 billion versus $5.487 billion at December 31, 2022; weighted-average interest rate was 3.37%, with 5.9 years weighted-average maturity. UDR had $1.3 billion available under its revolver, $320 million unused commercial-paper capacity, and $48.3 million unused working-capital facility capacity. The filing reports covenant compliance at quarter-end.
- Balance sheet: Total assets were $11.420 billion and total liabilities were $6.362 billion. Secured debt was $1.238 billion and unsecured debt $4.515 billion.
Material changes versus comparable periods
- Q3 common-stockholder income rose year over year, supported primarily by higher property NOI and higher interest income, partly offset by increased interest expense and lower income from unconsolidated entities.
- Nine-month common-stockholder income increased sharply, principally because of the $325.9 million real-estate sale gain. Excluding this unusual gain, reported GAAP income growth would be substantially lower.
- Same-store rental growth reflected higher rental rates; nine-month physical occupancy declined 0.3 percentage points to 96.6%. Operating costs increased, including repairs and maintenance, utilities and real-estate taxes.
- In August, UDR acquired six Texas communities with 1,753 homes for $354.6 million, using cash, assumed mortgages and 3.6 million OP units. In June, it contributed four communities with 1,328 homes to a joint venture, received about $247.9 million and recognized the partial-sale gain.
- Capital expenditures excluding development rose 47.8% to $228.6 million for the nine months, driven largely by higher major renovations.
Outlook, commentary and risks
- No specific earnings or same-store growth guidance is provided in the supplied filing text. Management expects to meet short-term liquidity needs from property operations and available credit and commercial-paper facilities; longer-term needs may be funded through operations, borrowing, securities issuance or property dispositions.
- Two wholly owned development projects totaling 415 homes had a $187.5 million budget, $139.1 million carrying value and $48.4 million remaining commitment; completion was estimated for Q2 2024. UDR reported no communities undergoing substantial redevelopment at quarter-end.
- Management cited inflation-related pressure on wages, utilities, repairs and maintenance, and higher interest costs. It stated that inflation had not materially affected results for the three- and nine-month periods, while noting that sustained cost increases could pressure residents’ ability to absorb rent increases.
- Key risks include apartment supply, rent and occupancy trends, rent-control or tenant-protection laws, concentrated exposure to major markets, rising rates and refinancing, development costs and delays, joint-venture and borrower performance, climate and catastrophic events, insurance availability, and cybersecurity. UDR noted that $433.7 million of variable-rate debt was not subject to swaps; a 100-basis-point rate increase would have raised nine-month interest expense by an estimated $3.7 million based on average debt outstanding.
- Routine legal claims are disclosed; management does not expect them to have a material adverse effect. The filing reports no significant subsequent events and no material impairment charges on long-lived assets or unconsolidated joint-venture investments in the periods presented.
Important facts for investors to verify
- How much of nine-month earnings growth reflects recurring property operations versus the $325.9 million partial-sale gain and other investment valuation items.
- The refinancing or repayment plan for $380 million of commercial paper shown as maturing in the remainder of 2023, and the $26.7 million working-capital facility balance due January 2024.
- Whether rental-rate growth can continue to offset expense inflation, occupancy changes and any softening in apartment demand.
- Progress, remaining costs and expected returns for the two development projects and the expanded renovation program.
- Credit quality, maturity extensions and repayment prospects for UDR’s notes receivable and preferred-equity investments.