UDR, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. UDR is a multifamily REIT; its consolidated portfolio comprised 166 communities and 55,159 apartment homes across 21 markets. Results are unaudited and compared with Q1 2022 unless noted.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Total revenue | $399.5 million | $357.3 million |
| Net income attributable to UDR | $31.0 million | $13.7 million |
| Net income attributable to common stockholders; diluted EPS | $29.8 million; $0.09 | $12.6 million; $0.04 |
| Same-store NOI; operating margin | $265.7 million; 70.0% | $242.5 million; 69.1% |
| FFO / FFO as adjusted / AFFO per diluted share and unit | $0.59 / $0.60 / $0.57 | $0.54 / $0.55 / $0.51 |
| Operating cash flow | $168.0 million | $161.0 million |
| Cash, cash equivalents and restricted cash | $29.2 million | $30.2 million at Dec. 31, 2022 |
| Total debt, net | $5.577 billion | $5.487 billion at Dec. 31, 2022 |
| Total assets | $10.968 billion | $11.038 billion at Dec. 31, 2022 |
FFO, FFO as adjusted and AFFO are non-GAAP measures; the filing cautions that they are not substitutes for GAAP net income or cash flow.
Performance and changes versus prior year
- Revenue increased 11.8%; total property NOI increased 12.9%. Same-store rental income rose 8.2% and same-store NOI rose 9.5%.
- Same-store rental-rate growth of 10.2% drove revenue gains, partly offset by higher bad debt and occupancy loss. Average physical occupancy was 96.6%, down 0.5% as reported; monthly income per occupied home increased 8.9% to $2,464.
- Same-store operating expenses increased 5.1%, including higher repair and maintenance, utilities, and real estate taxes. Same-store NOI margin improved to 70.0% from 69.1%.
- Interest expense rose $7.8 million to $43.7 million, primarily from higher debt balances and average interest rates. Depreciation and amortization increased $5.7 million.
- Income from unconsolidated entities rose to $9.7 million from $5.4 million. Results included investment gains/losses from real-estate technology investments and preferred equity investments; the prior-year period also included $10.6 million of variable upside participation on a community sale.
- Q1 2023 included $4.2 million of net casualty charges, primarily winter-storm damage, versus $0.8 million of net recoveries in Q1 2022. A reduction in tenant lease-receivable reserves increased rental income by $2.3 million and unconsolidated-entity income by $0.2 million.
- Operating cash flow increased, while investing cash outflow widened to $117.3 million from $86.8 million, reflecting higher capital expenditures, lower JV distributions and net notes-receivable funding, partly offset by lower development spending and JV investment. Financing cash outflow was $51.7 million.
Debt, liquidity and capital allocation
- Debt totaled $5.577 billion net, with a weighted-average interest rate of 3.25% and weighted-average maturity of 6.3 years. Secured debt was $1.051 billion; unsecured debt was $4.526 billion. About 89% of real estate was unencumbered by secured debt, based on gross book value.
- At quarter-end, UDR had no borrowings under its $1.3 billion revolving credit facility, with $1.3 billion of unused capacity, subject to letters of credit. It had $13.8 million outstanding and $61.2 million unused on its $75 million working-capital facility, and $405 million outstanding under a $700 million commercial-paper program.
- Approximately $406 million of debt was due during the remainder of 2023, comprised of $405 million of commercial paper and about $1 million of secured debt. Management expects to meet liquidity needs through property operations, credit facilities, commercial paper, debt or equity issuance, and/or property dispositions.
- Unhedged variable-rate debt was $445.8 million. Management estimated a 100-basis-point rate increase would raise quarterly interest expense by $1.5 million, based on the period’s average balance. UDR was in compliance with debt covenants.
- Operating cash flow funded distributions and investment activity. Common distributions declared were $0.42 per share; $125.1 million was paid to common stockholders during the quarter.
Outlook, risks and unusual items
- The filing provides no quantified full-year earnings, rent-growth, occupancy or FFO guidance. Management states that short- and long-term liquidity needs are expected to be met through operating cash flows and financing or asset-sale alternatives.
- UDR had two wholly owned communities under development, totaling 415 homes, with a $187.5 million budget and $76.5 million carrying value; completion was estimated for Q2 2024. No communities were undergoing substantial redevelopment at quarter-end.
- Principal risks include inflation and operating-cost growth, interest rates and refinancing, capital-market and commercial-paper access, apartment supply and rental demand, rent regulation, geographic concentration, development costs and delays, storm and other uninsured losses, and counterparty/JV performance. Eight major markets generated 72.3% of Q1 NOI.
- Routine legal proceedings were not expected by management to have a material adverse effect, though the company disclosed class-action litigation involving a vendor among its risk factors. No long-lived-asset or JV investment impairments were recorded in Q1; no significant subsequent events were reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether same-store rent growth and occupancy trends persist, and how market-by-market performance changes.
- Commercial-paper refinancing and repayment of the $405 million due in 2023; available facility capacity, borrowing costs and covenant headroom.
- How inflation, interest rates, insurance costs and winter-storm or other casualty claims affect NOI and cash generation.
- Development completion timing, remaining commitments and expected returns, alongside capital expenditures and renovation spending.
- Underlying drivers and durability of unconsolidated-investment income, including preferred equity and real-estate technology investment valuations.
- Potential effects of tenant receivable reserves, rent regulation, litigation and other contingencies on reported results and cash flows.