DENVER–(BUSINESS WIRE)–UDR, Inc. (the “Company”) (NYSE: UDR), announced today its third quarter 2022 results. Net Income, Funds from Operations (“FFO”), FFO as Adjusted (“FFOA”), and Adjusted FFO (“AFFO”) per diluted share for the quarter ended September 30, 2022 are detailed below.
Quarter Ended September 30
Metric
3Q 2022
Actual
3Q 2022
Guidance
3Q 2021
Actual
$ Change vs.
Prior Year Period
% Change vs.
Prior Year Period
Net Income per diluted share
$0.07
$0.06 to $0.08
$0.06
$0.01
17%
FFO per diluted share
$0.57
$0.58 to $0.60
$0.55
$0.02
4%
FFOA per diluted share
$0.60
$0.58 to $0.60
$0.51
$0.09
18%
AFFO per diluted share
$0.54
$0.53 to $0.55
$0.46
$0.08
17%
Same-Store (“SS”) results for the third quarter 2022 versus the third quarter 2021 and the second quarter 2022 are summarized below.
Concessions reflected on a straight-line basis:
Concessions reflected on a cash basis:
SS Growth / (Decline)
Year-Over-Year
(“YOY”): 3Q 2022 vs.
3Q 2021
Sequential:
3Q 2022 vs.
2Q 2022
YOY:
3Q 2022 vs.
3Q 2021
Sequential:
3Q 2022 vs.
2Q 2022
Revenue
12.7%
4.7%
12.2%
4.1%
Expense
7.2%
8.3%
7.2%
8.3%
Net Operating Income (“NOI”)
15.5%
3.1%
14.6%
2.3%
During the quarter, the Company settled approximately 1.8 million shares of common stock under its previously announced forward equity sales agreements at a weighted average net price per share, after adjustments, of $57.00 for proceeds of approximately $99.8 million, leaving $181.3 million of forward equity agreements at an average price per share of approximately $57.57, before adjustments, yet to be settled.
During the quarter and subsequent to quarter end, the Company repurchased 1.2 million shares of its common stock at a weighted average price per share of $41.14 for total consideration of approximately $49.0 million.
During the quarter, the Company entered into a contract to sell one community in Orange County, CA, for gross proceeds of $41.5 million. The transaction is expected to close in the fourth quarter 2022.
As previously announced, during the quarter, the Company fully funded a $102.0 million DCP investment in a portfolio of 14 stabilized communities.
Subsequent to quarter end, the Company published its fourth annual ESG report and concurrently announced that it earned a 5 Star designation from GRESB, the highest ESG rating possible, and a Public Disclosure score of “A”.
“Our third quarter FFOA per share results met the high end of our expectations provided in July, and we raised full-year 2022 guidance for the third time driven by our strong operating results and further accretion from our recent acquisitions,” said Tom Toomey, UDR’s Chairman and CEO. “Our innovative culture, operating acumen, and healthy balance sheet liquidity position UDR well for 2023.”
Outlook
For the fourth quarter 2022, the Company has established the following earnings guidance ranges. Additionally, the Company has increased its previously provided full-year 2022 Same-Store and earnings guidance ranges(1):
4Q 2022
Outlook
3Q 2022
Actual
Updated
Full-Year 2022
Outlook
Prior
Full-Year 2022
Outlook
Change to 2022
Guidance, at
Midpoint
Net Income/(Loss) per diluted share
$0.11 to $0.13
$0.07
$0.23 to $0.25
$0.19 to $0.23
$0.03
FFO per diluted share
$0.60 to $0.62
$0.57
$2.23 to $2.25
$2.23 to $2.27
$(0.01)
FFOA per diluted share
$0.60 to $0.62
$0.60
$2.32 to $2.34
$2.29 to $2.33
$0.02
AFFO per diluted share
$0.54 to $0.56
$0.54
$2.11 to $2.13
$2.09 to $2.13
$0.01
YOY Growth: concessions reflected on a straight-line basis:
SS Revenue
N/A
12.7%
11.25% to 11.75%
10.5% to 11.5%
0.50%
SS Expense
N/A
7.2%
5.0% to 5.5%
3.5% to 4.5%
1.25%
SS NOI
N/A
15.5%
14.00% to 14.75%
13.25% to 14.75%
0.38%
YOY Growth: concessions reflected on a cash basis:
SS Revenue
N/A
12.2%
10.75% to 11.25%
10.0% to 11.0%
0.50%
SS NOI
N/A
14.6%
13.25% to 14.00%
12.5% to 14.0%
0.38%
(1)
Additional assumptions for the Company’s fourth quarter and 2022 outlook can be found on Attachment 14 of the Company’s related quarterly Supplemental Financial Information (“Supplement”). A reconciliation of FFO per share, FFOA per share, and AFFO per share to GAAP Net Income per share can be found on Attachment 15(D) of the Company’s related quarterly Supplement. Non-GAAP financial measures and other terms, as used in this earnings release, are defined and further explained on Attachments 15(A) through 15(D), “Definitions and Reconciliations,” of the Company’s related quarterly Supplement.
Third Quarter 2022 Operating Results
In the third quarter, total revenue increased by $61.5 million YOY, or 18.7 percent, to $391.3 million. This increase was primarily attributable to growth in revenue from Same-Store communities and past accretive external growth investments.
“Blended lease rate growth of 13.1 percent in the third quarter drove strong sequential same-store revenue growth of 4.7 percent on a straight-line basis and further builds our foundation of embedded growth in 2023,” said Mike Lacy, UDR’s Senior Vice President of Operations. “Focusing on rate growth and accepting a higher rate of turnover and slightly lower occupancy reflects our strategy to strengthen our rent roll. Although expenses are pressured by inflation and the typical seasonality of market rents has returned in the fourth quarter thus far, traffic remains high and the financial health of our residents remains strong. This has enabled us to keep occupancy high at 96.7 percent while capturing October blended lease rate growth in the high-single-digits, which remains materially above pre-COVID averages.”
With stronger collections in recent periods, the Company now expects current resident collections to range between 98.2 percent and 98.6 percent in 2022, compared to prior expectations of 98.0 percent to 98.5 percent. For the third quarter 2022, the Company recorded a residential bad debt reserve of $11.7 million, including $0.6 million for the Company’s share from unconsolidated joint ventures, a decrease of $1.1 million versus the Company’s bad debt reserve as of the end of the second quarter 2022. This compares to a quarter-end accounts receivable balance of $20.8 million, a decrease of $2.0 million versus the Company’s accounts receivable balance as of the end of the second quarter 2022.
In the table below, the Company has presented YOY Same-Store results by region, with concessions accounted for on both cash and straight-line bases.
Summary of Same-Store Results in Third Quarter 2022 versus Third Quarter 2021
Region
Revenue
Growth
Expense
Growth
NOI
Growth
% of Same-Store
Portfolio(1)
Physical
Occupancy(2)
YOY Change in
Occupancy
West
9.3%
5.8%
10.6%
33.7%
96.7%
(0.8)%
Mid-Atlantic
8.7%
6.3%
9.8%
20.8%
96.8%
(0.4)%
Northeast
16.5%
3.0%
25.6%
18.1%
97.1%
(0.1)%
Southeast
18.1%
10.7%
22.0%
12.9%
96.7%
(1.2)%
Southwest
14.9%
15.6%
14.5%
9.0%
96.7%
(1.2)%
Other Markets
9.4%
8.7%
9.7%
5.5%
96.8%
(1.0)%
Total (Cash)
12.2%
7.2%
14.6%
100.0%
96.8%
(0.7)%
Total (Straight-Line)
12.7%
7.2%
15.5%
–
–
–
(1)
Based on 3Q 2022 Same-Store NOI. For definitions of terms, please refer to the “Definitions and Reconciliations” section of the Company’s related quarterly Supplement.
(2)
Weighted average Same-Store physical occupancy for the quarter.
In the table below, the Company has presented sequential Same-Store results by region, with concessions accounted for on both cash and straight-line bases.
Summary of Same-Store Results in Third Quarter 2022 versus Second Quarter 2022
Region
Revenue
Growth
Expense
Growth
NOI
Growth
% of Same-Store
Portfolio(1)
Physical
Occupancy(2)
Sequential Change
in Occupancy
West
3.3%
8.3%
1.7%
33.7%
96.7%
(0.1)%
Mid-Atlantic
3.8%
7.3%
2.2%
20.8%
96.8%
(0.6)%
Northeast
5.0%
9.4%
2.7%
18.1%
97.1%
(0.1)%
Southeast
4.8%
7.0%
3.8%
12.9%
96.7%
(0.3)%
Southwest
5.2%
9.6%
2.5%
9.0%
96.7%
(0.4)%
Other Markets
3.0%
8.5%
0.9%
5.5%
96.8%
(0.4)%
Total (Cash)
4.1%
8.3%
2.3%
100.0%
96.8%
(0.3)%
Total (Straight-Line)
4.7%
8.3%
3.1%
–
–
–
(1)
Based on 3Q 2022 Same-Store NOI. For definitions of terms, please refer to the “Definitions and Reconciliations” section of the Company’s related quarterly Supplement.
(2)
Weighted average Same-Store physical occupancy for the quarter.
For the nine months ended September 30, 2022, total revenue increased by $175.2 million YOY, or 18.6 percent, to $1.1 billion. This increase was primarily attributable to growth in revenue from acquired and Same-Store communities. In the table below, the Company has presented Same-Store results by region, with concessions accounted for on cash and straight-line bases, for the nine months ended September 30, 2022.
Summary of Same-Store Results YTD 2022 versus YTD 2021
Region
Revenue
Growth
Expense
Growth
NOI
Growth
% of Same-Store
Portfolio(1)
Physical
Occupancy(2)
YTD YOY Change
in Occupancy
West
11.1%
3.8%
13.8%
34.6%
96.9%
0.3%
Mid-Atlantic
7.3%
5.3%
8.3%
21.0%
97.2%
0.3%
Northeast
13.1%
2.9%
19.6%
18.3%
97.3%
0.9%
Southeast
15.9%
8.6%
19.7%
13.2%
97.0%
(0.6)%
Southwest
11.9%
9.8%
13.2%
6.9%
97.2%
(0.1)%
Other Markets
11.8%
6.2%
14.2%
6.0%
97.1%
(0.3)%
Total (Cash)
11.4%
5.3%
14.3%
100.0%
97.1%
0.2%
Total (Straight-Line)
11.3%
5.3%
14.2%
–
–
–
(1)
Based on YTD 2022 Same-Store NOI. For definitions of terms, please refer to the “Definitions and Reconciliations” section of the Company’s related quarterly Supplemental Financial Information.
(2)
Weighted average Same-Store physical occupancy for YTD 2022.
Transactional Activity
During the quarter, the Company entered into a contract to sell a 90-home community in Orange County, CA, for total gross proceeds of $41.5 million. During the quarter, the 53-year-old community had a weighted average monthly revenue per occupied home of $2,662 and physical occupancy of 95.4 percent. The sale is expected to close in the fourth quarter 2022.
Development Activity and Other Projects
During the third quarter, the Company completed construction of The George Apartments, a $68.0 million, 200-home community in King of Prussia, PA, which is adjacent to an existing UDR community.
At the end of the third quarter, the Company’s development pipeline totaled $531.5 million and was 69.3 percent funded. The Company’s active development pipeline includes five communities, one each in Dublin, CA; Washington, D.C.; and Tampa, FL; and two communities in Addison, TX, for a combined total of 1,340 homes.
During the third quarter, the Company commenced redevelopment projects at five communities, two in Austin, TX; two in Baltimore, MD; and one in suburban Boston, MA, encompassing a total of 1,593 homes. At the end of the third quarter, the Company’s redevelopment pipeline of 1,638 homes, which includes densification projects that feature the addition of 45 new apartment homes at two communities, totaled $90.0 million and was 27.3 percent funded.
DCP Activity
As previously announced, during the quarter, the Company fully funded a $102.0 million DCP investment in a portfolio of 14 stabilized communities as part of a recapitalization, as summarized below.
Community / Type
Location (MSA)
Commitment
($ millions)
Homes
Return Rate
Investment Type
Stabilized Portfolio / Recapitalization
Various
$102.0
2,460
8.0%
Preferred Equity
During the quarter, the third-party developer affiliated with UDR’s $24.6 million preferred equity joint venture investment in 1532 Harrison, a 136-home community in San Francisco, CA, defaulted on the senior construction loan. As a result, the Company purchased the loan from the lender pursuant to a contract entered into with the lender at the time UDR made its initial investment, and initiated foreclosure proceedings. UDR expects to take title to the property in 2023. As a result of the default in September 2022, the Company began consolidating the joint venture.
At the end of the third quarter, the Company’s investments under its DCP platform, including accrued return, totaled $464.0 million with a weighted average return rate of 9.5 percent, and a weighted average estimated remaining term of 3.9 years.
Capital Markets and Balance Sheet Activity
“Our balance sheet remains in a strong position due to available liquidity totaling $1.1 billion, and only 2 percent of total debt scheduled to mature through 2024, after excluding amounts on our commercial paper program,” said Joe Fisher, UDR’s President and Chief Financial Officer. “Third quarter net debt-to-EBITDAre of 6.0x declined more than a full turn versus a year ago, and we continue to expect that year-end net debt-to-EBITDAre and fixed charge coverage should further improve to the mid-5x range.”
During the quarter, the Company settled approximately 1.8 million shares of common stock under its previously announced forward equity sales agreements at a weighted average net share price, after adjustments, of $57.00 for proceeds of approximately $99.8 million.
Additionally, during the quarter, the Company repurchased 685 thousand shares of its common stock at a weighted average price per share of $41.46 for total consideration of approximately $28.4 million. Subsequent to quarter end, the Company repurchased an additional 507 thousand shares of its common stock at a weighted average price per share of $40.70 for total consideration of approximately $20.6 million.
As of September 30, 2022, the Company had $1.1 billion of liquidity through a combination of cash, undrawn capacity on its credit facilities, and estimated proceeds of approximately $181.3 million from the potential future settlement of approximately 3.2 million shares subject to previously announced forward equity sale agreements (at an initial forward price per share of approximately $57.57, which is subject to adjustment at settlement to reflect the average federal funds rate and the amount of dividends paid to holders of UDR common stock over the term of the applicable forward equity sale agreements). The final date by which shares sold under these agreements must be settled is March 30, 2023. Please see Attachment 14 of the Company’s related quarterly Supplement for additional details on projected capital sources and uses.
The Company’s total indebtedness as of September 30, 2022 was $5.6 billion with no remaining consolidated maturities until 2024, excluding principal amortization and amounts on the Company’s commercial paper program. In the table below, the Company has presented select balance sheet metrics for the quarter ended September 30, 2022 and the comparable prior year period.
Quarter Ended September 30
Balance Sheet Metric
3Q 2022
3Q 2021
Change
Weighted Average Interest Rate
3.06%
2.75%
0.31%
Weighted Average Years to Maturity(1)
6.7
7.8
(1.1)
Consolidated Fixed Charge Coverage Ratio
5.3x
4.9x
0.4x
Consolidated Debt as a percentage of Total Assets
33.7%
35.8%
(2.1)%
Consolidated Net-Debt-to-EBITDAre
6.0x
7.1x
(1.1)x
(1)
If the Company’s commercial paper balance was refinanced using its line of credit, the weighted average years to maturity would be 7.0 years without extensions and 7.1 years with extensions for 3Q 2022 and 8.1 years with and without extensions for 3Q 2021.
ESG
Subsequent to quarter end, the Company published its fourth annual ESG report, which detailed the Company’s ongoing best-in-class commitment to engaging in socially responsible ESG activities including active engagement with the Science Based Targets initiative to establish how UDR can contribute to a lower-carbon future. Concurrently, the Company announced that it earned a 5 Star designation from GRESB, the highest ESG rating possible. This accomplishment resulted from UDR’s 2022 GRESB survey score of 87 (a one-point improvement versus the prior year survey) and a GRESB Public Disclosure rating of “A”, the fourth consecutive year UDR has achieved such a distinction.
Dividend
As previously announced, the Company’s Board of Directors declared a regular quarterly dividend on its common stock for the third quarter 2022 in the amount of $0.38 per share. The dividend will be paid in cash on October 31, 2022 to UDR common shareholders of record as of October 11, 2022. The third quarter 2022 dividend will represent the 200th consecutive quarterly dividend paid by the Company on its common stock.
Supplemental Information
The Company offers Supplemental Financial Information that provides details on the financial position and operating results of the Company which is available on the Company’s website at ir.udr.com.
Attachment 15(A)
UDR, Inc.
Definitions and Reconciliations
September 30, 2022
(Unaudited)
Acquired Communities: The Company defines Acquired Communities as those communities acquired by the Company, other than development and redevelopment activity, that did not achieve stabilization as of the most recent quarter.
Adjusted Funds from Operations (“AFFO”) attributable to common stockholders and unitholders: The Company defines AFFO as FFO as Adjusted attributable to common stockholders and unitholders less recurring capital expenditures on consolidated communities that are necessary to help preserve the value of and maintain functionality at our communities.
Management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFO as Adjusted. AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. The Company believes that net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO enables investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. A reconciliation from net income/(loss) attributable to common stockholders to AFFO is provided on Attachment 2.
Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items: The Company defines Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items as Consolidated Interest Coverage Ratio – adjusted for non-recurring items divided by total consolidated interest, excluding the impact of costs associated with debt extinguishment, plus preferred dividends.
Management considers Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lending partners with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation of the components that comprise Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.
Consolidated Interest Coverage Ratio – adjusted for non-recurring items: The Company defines Consolidated Interest Coverage Ratio – adjusted for non-recurring items as Consolidated EBITDAre – adjusted for non-recurring items divided by total consolidated interest, excluding the impact of costs associated with debt extinguishment.
Management considers Consolidated Interest Coverage Ratio – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lending partners with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation of the components that comprise Consolidated Interest Coverage Ratio – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.
Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items: The Company defines Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items as total consolidated debt net of cash and cash equivalents divided by annualized Consolidated EBITDAre – adjusted for non-recurring items. Consolidated EBITDAre – adjusted for non-recurring items is defined as EBITDAre excluding the impact of income/(loss) from unconsolidated entities, adjustments to reflect the Company’s share of EBITDAre of unconsolidated joint ventures and other non-recurring items including, but not limited to casualty-related charges/(recoveries), net of wholly owned communities.
Management considers Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lending partners with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation between net income/(loss) and Consolidated EBITDAre – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.
Controllable Expenses: The Company refers to property operating and maintenance expenses as Controllable Expenses.
Controllable Operating Margin: The Company defines Controllable Operating Margin as (i) rental income less Controllable Expenses (ii) divided by rental income. Management considers Controllable Operating Margin a useful metric as it provides investors with an indicator of the Company’s ability to limit the growth of expenses that are within the control of the Company.
Development Communities: The Company defines Development Communities as those communities recently developed or under development by the Company, that are currently majority owned by the Company and have not achieved stabilization as of the most recent quarter.
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre): The Company defines EBITDAre as net income/(loss) (computed in accordance GAAP), plus interest expense, including costs associated with debt extinguishment, plus real estate depreciation and amortization, plus other depreciation and amortization, plus (minus) income tax provision/(benefit), net, (minus) plus net gain/(loss) on the sale of depreciable real estate owned, plus impairment write-downs of depreciable real estate, plus the adjustments to reflect the Company’s share of EBITDAre of unconsolidated joint ventures. The Company computes EBITDAre in accordance with standards established by the National Association of Real Estate Investment Trusts, or Nareit, which may not be comparable to EBITDAre reported by other REITs that do not compute EBITDAre in accordance with the Nareit definition, or that interpret the Nareit definition differently than the Company does. The White Paper on EBITDAre was approved by the Board of Governors of Nareit in September 2017.
Management considers EBITDAre a useful metric for investors as it provides an additional indicator of the Company’s ability to incur and service debt, and enables investors to assess our performance against that of its peer REITs. EBITDAre should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company’s activities in accordance with GAAP. EBITDAre does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs. A reconciliation between net income/(loss) and EBITDAre is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.
Effective Blended Lease Rate Growth: The Company defines Effective Blended Lease Rate Growth as the combined proportional growth as a result of Effective New Lease Rate Growth and Effective Renewal Lease Rate Growth. Management considers Effective Blended Lease Rate Growth a useful metric for investors as it assesses combined proportional market-level, new and in-place demand trends.
Effective New Lease Rate Growth: The Company defines Effective New Lease Rate Growth as the increase in gross potential rent realized less concessions for the new lease term (current effective rent) versus prior resident effective rent for the prior lease term on new leases commenced during the current quarter.
Management considers Effective New Lease Rate Growth a useful metric for investors as it assesses market-level new demand trends.
Effective Renewal Lease Rate Growth: The Company defines Effective Renewal Lease Rate Growth as the increase in gross potential rent realized less concessions for the new lease term (current effective rent) versus prior effective rent for the prior lease term on renewed leases commenced during the current quarter.
Management considers Effective Renewal Lease Rate Growth a useful metric for investors as it assesses market-level, in-place demand trends.
Estimated Quarter of Completion: The Company defines Estimated Quarter of Completion of a development or redevelopment project as the date on which construction is expected to be completed, but it does not represent the date of stabilization.
Contacts
Trent Trujillo
Email: ttrujillo@udr.com
