UDR INC. Forward-Looking Statements
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking
statements include, without limitation, statements concerning property
acquisitions and dispositions, development activity and capital expenditures,
capital raising activities, rent growth, occupancy, rental expense growth and
expected or potential impacts of the novel coronavirus disease ("COVID-19")
pandemic. Words such as "expects," "anticipates," "intends," "plans," "likely,"
"will," "believes," "seeks," "estimates," and variations of such words and
similar expressions are intended to identify such forward-looking statements.
Such statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be materially
different from the results of operations or plans expressed or implied by such
forward-looking statements. Such factors include, among other things, the impact
of the COVID-19 pandemic and measures intended to prevent its spread or address
its effects, unfavorable changes in the apartment market, changing economic
conditions, the impact of inflation/deflation on rental rates and property
operating expenses, expectations concerning the availability of capital and the
stability of the capital markets, the impact of competition and competitive
pricing, acquisitions, developments and redevelopments not achieving anticipated
results, delays in completing developments and redevelopments, delays in
completing lease-ups on schedule or at expected rent and occupancy levels,
expectations on job growth, home affordability and demand/supply ratio for
multifamily housing, expectations concerning development and redevelopment
activities, expectations on occupancy levels and rental rates, expectations
concerning joint ventures and partnerships with third parties, expectations that
automation will help grow net operating income, and expectations on annualized
net operating income.
The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:
? the impact of the COVID-19 pandemic and measures intended to prevent its spread
or address its effects;
? general economic conditions;
unfavorable changes in apartment market and economic conditions that could
? adversely affect occupancy levels and rental rates, including as a result of
COVID-19;
? the failure of acquisitions to achieve anticipated results;
? possible difficulty in selling apartment communities;
? competitive factors that may limit our ability to lease apartment homes or
increase or maintain rents;
? insufficient cash flow that could affect our debt financing and create
refinancing risk;
? failure to generate sufficient revenue, which could impair our debt service
payments and distributions to stockholders;
? development and construction risks that may impact our profitability;
? potential damage from natural disasters, including hurricanes and other
weather-related events, which could result in substantial costs to us;
? risks from climate change that impacts our properties or operations;
? risks from extraordinary losses for which we may not have insurance or adequate
reserves;
risks from cybersecurity breaches of our information technology systems and the
? information technology systems of our third party vendors and other third
parties;
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? uninsured losses due to insurance deductibles, self-insurance retention,
uninsured claims or casualties, or losses in excess of applicable coverage;
? delays in completing developments and lease-ups on schedule;
? our failure to succeed in new markets;
risks that third parties who have an interest in or are otherwise involved in
? projects in which we have an interest, including mezzanine borrowers, joint
venture partners or other investors, do not perform as expected;
? changing interest rates, which could increase interest costs and affect the
market price of our securities;
? potential liability for environmental contamination, which could result in
substantial costs to us;
? the imposition of federal taxes if we fail to qualify as a REIT under the Code
in any taxable year;
our internal control over financial reporting may not be considered effective
? which could result in a loss of investor confidence in our financial reports,
and in turn have an adverse effect on our stock price; and
? changes in real estate laws, tax laws, rent control or stabilization laws or
other laws affecting our business.
A discussion of these and other factors affecting our business and prospects is set forth in Part I, Item 1A. Risk Factors. We encourage investors to review these risk factors. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.
COVID-19 Update
See Part I, Item 1. "Business - COVID-19 Update" above for more information on the impact of COVID-19 on the Company.
The following discussion should be read in conjunction with our consolidated financial statements appearing elsewhere herein and is based primarily on our consolidated financial statements for the years endedDecember 31, 2021 , and 2020. This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020 ofUDR, Inc. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31 ,
2020. Business Overview We are a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, disposes of, and manages multifamily apartment communities. We were formed in 1972 as aVirginia corporation. InJune 2003 , we changed our state of incorporation fromVirginia toMaryland . Our subsidiaries include theOperating Partnership and theDownREIT Partnership . Unless the context otherwise requires, all references in this Report to "we," "us," "our," "the Company," or "UDR" refer collectively toUDR, Inc. , its consolidated subsidiaries and its consolidated joint ventures. 38 Table of Contents AtDecember 31, 2021 , our consolidated real estate portfolio included 160 communities in 13 states plus theDistrict of Columbia totaling 53,229 apartment homes. In addition, we have an ownership interest in 6,570 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 3,733 apartment homes owned by entities in which we hold preferred equity investments.The Same-Store Community apartment home population for the year endedDecember 31, 2021 , was 45,143.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity withUnited States generally accepted accounting principles ("GAAP") requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management's assessment after considering all evidence available. Changes in estimates could affect our financial position or results of operations. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, Significant Accounting Policies, to the Notes to theUDR, Inc. Consolidated Financial Statements included in this Report.
Cost Capitalization
In conformity with GAAP, we capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. Amounts capitalized during the years endedDecember 31, 2021 , 2020, and 2019 were$21.0 million ,$19.0 million , and$13.5 million , respectively.
Investment in Unconsolidated Entities
We may enter into various joint venture agreements and/or partnerships with
unrelated third parties to hold or develop real estate assets. We must determine
for each of these ventures whether to consolidate the entity or account for our
investment under the equity method of accounting. We determine whether to
consolidate a joint venture or partnership based on our rights and obligations
under the venture agreement, applying the applicable accounting guidance. The
application of the rules in evaluating the accounting treatment for each joint
venture or partnership is complex and requires substantial management judgment.
We evaluate our accounting for investments on a regular basis including when a
significant change in the design of an entity occurs. Throughout our financial
statements, and in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, we use the term "joint venture" or
"partnership" when referring to investments in entities in which we do not have
a 100% ownership interest.
We continually evaluate our investments in unconsolidated joint ventures when
events or changes in circumstances indicate that there may be an
other-than-temporary decline in value. We consider various factors to determine
if a decrease in the value of the investment is other-than-temporary. These
factors include, but are not limited to, age of the venture, our intent and
ability to retain our investment in the entity, the financial condition and
long-term prospects of the entity, and the relationships with the other joint
venture partners and its lenders. The amount of loss recognized is the excess of
the investment's carrying amount over its estimated fair value. If we believe
that the decline in fair value is temporary, no impairment is recorded. The
aforementioned factors are taken as a whole by management in determining the
valuation of our investment property. Should the actual results differ from
management's judgment, the valuation could be negatively affected and may result
in a negative impact to our Consolidated Financial Statements.
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Impairment of Long-Lived Assets
Quarterly or when changes in circumstances warrant, we will assess our real estate properties for indicators
of impairment. The judgments regarding the existence of impairment indicators
are based on certain factors. Such factors include, among other things,
operational performance, market conditions, the Company's intent and ability to
hold the related asset, as well as any significant cost overruns on development
properties.
If a real estate property has indicators of impairment, we assess whether the
long-lived asset's carrying value exceeds the community's undiscounted future
cash flows, which is representative of projected net operating income ("NOI")
plus the residual value of the community. Our future cash flow estimates are
based upon historical results adjusted to reflect our best estimate of future
market and operating conditions and our estimated holding periods. If such
indicators of impairment are present and the carrying value exceeds the
undiscounted cash flows of the community, an impairment loss is recognized equal
to the excess of the carrying amount of the asset over its estimated fair value.
Our estimates of fair value represent our best estimate based primarily upon
unobservable inputs related to rental rates, operating costs, growth rates,
discount rates, capitalization rates, industry trends and reference to market
rates and transactions.
For long-lived assets to be disposed of, impairment losses are recognized when
the fair value of the asset less estimated cost to sell is less than the
carrying value of the asset. Properties classified as real estate held for
disposition generally represent properties that are actively marketed or
contracted for sale with the closing expected to occur within the next
twelve months. Real estate held for disposition is carried at the lower of cost,
net of accumulated depreciation, or fair value, less the cost to sell,
determined on an asset-by-asset basis. Expenditures for ordinary repair and
maintenance costs on held for disposition properties are charged to expense as
incurred. Expenditures for improvements, renovations, and replacements related
to held for disposition properties are capitalized at cost. Depreciation is not
recorded on real estate held for disposition.
We purchase real estate investment properties from time to time and record the fair value to various components, such as land, buildings, and intangibles related to in-place leases, based on the fair value of each component. In making estimates of fair values for purposes of allocating purchase price, we utilize various sources, including independent appraisals, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining average contractual lease period.
REIT Status
We are aMaryland corporation that has elected to be treated for federal income tax purposes as a REIT. A REIT is a legal entity that holds interests in real estate and is required by the Code to meet a number of organizational and operational requirements, including a requirement that a REIT must distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. If we were to fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at the regular corporate rates and may not be able to qualify as a REIT for four years. Based on the net earnings reported for the year endedDecember 31, 2021 in our Consolidated Statements of Operations, we would have incurred federal and state GAAP income taxes if we had failed to qualify as a REIT. 40
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Summary of Real Estate Portfolio by Geographic Market
The following table summarizes our market information by major geographic
markets as of and for the year ended
December 31, 2021 Year Ended December 31, 2021
Percentage Total Monthly Net
Number of Number of of Total Carrying Average Income per Operating
Apartment Apartment Carrying Value (in Physical Occupied Income
Same-Store Communities Communities Homes Value thousands) Occupancy Home (a) (in thousands)
West Region
10 4,685 9.8 % $
1,441,386 97.5 %
11 2,751 6.1 % 894,975 95.3 % 3,074 66,769
Seattle, WA 14 2,725 6.5 % 957,008 97.2 % 2,417 54,290
Monterey Peninsula, CA 7 1,565 1.3 % 188,914 97.0 % 2,012 28,556
Los Angeles, CA 4 1,225 3.2 % 467,814 96.0 % 2,728 27,116
Other Southern California 3 817 1.5 % 216,455 98.2 % 2,425 17,138
Portland, OR 2 476 0.4 % 53,306 98.3 % 1,726 7,211
Mid-Atlantic Region
Metropolitan D.C. 22 8,003 15.0 % 2,229,593 96.7 % 2,138 135,905 Baltimore, MD 5 1,597 2.3 % 342,725 97.6 % 1,680 21,448 Richmond, VA 4 1,359 1.1 % 156,903 98.2 % 1,523 18,092Northeast Region Boston, MA 10 4,139 10.6 % 1,557,982 96.5 % 2,689 91,483 New York, NY 5 1,825 8.5 % 1,255,445 96.7 % 3,731 40,238 Philadelphia, PA 1 313 0.7 % 108,042 96.6 % 2,294 5,610 Southeast Region Tampa, FL 9 2,911 2.9 % 427,964 97.6 % 1,655 36,438 Orlando, FL 9 2,500 1.7 % 245,992 97.4 % 1,475 30,332 Nashville, TN 8 2,260 1.6 % 229,634 97.9 % 1,431 26,472 Other Florida 1 636 0.6 % 92,007 97.9 % 1,779 8,819 Southwest Region Dallas, TX 11 3,866 4.0 % 584,254 97.1 % 1,536 43,150 Austin, TX 4 1,272 1.2 % 174,084 98.1 % 1,608 14,629 Denver, CO 1 218 1.0 % 145,451 95.6 % 3,138 5,541 Total/Average Same-Store Communities 141 45,143 80.0 % 11,769,934 97.1 %$ 2,182 790,498 Non-Mature, Commercial Properties & Other 19 8,086 17.4 % 2,582,300 77,044 Total Real Estate Held for Investment 160 53,229 97.4 % 14,352,234 867,542Real Estate Under Development (b) - - 2.6 % 388,569 (417) Total Real Estate Owned 160 53,229 100.0 % 14,740,803$ 867,125 Total Accumulated Depreciation (5,137,096) Total Real Estate Owned, Net of Accumulated Depreciation $
9,603,707
Monthly Income per Occupied Home represents total monthly revenues divided by (a) the average physical number of occupied apartment homes in our Same-Store
portfolio.
As of
completed.
We report in two segments: Same-Store Communities and Non-Mature Communities/Other.
Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior toJanuary 1, 2020 and held as ofDecember 31, 2021 . These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months. Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties. 41
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Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either through operating cash flows, sales of properties, borrowings under our credit agreements, and/or the issuance of debt and/or equity securities. Our primary source of liquidity is our cash flow from operations, as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes, and borrowings under our credit agreements. We routinely use our working capital credit facility, our unsecured revolving credit facility and issuances of commercial paper to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio. We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through net cash provided by property operations, secured and unsecured borrowings, the issuance of debt or equity securities, and/or the disposition of properties. We believe that our net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings under credit agreements, the issuance of debt or equity securities, and/or dispositions of properties. We have a shelf registration statement filed with theSecurities and Exchange Commission , or "SEC ," which provides for the issuance of common stock, preferred stock, depositary shares, debt securities, guarantees of debt securities, warrants, subscription rights, purchase contracts and units to facilitate future financing activities in the public capital markets. Access to capital markets is dependent on market conditions at the time of issuance. InJuly 2021 , the Company entered into an ATM sales agreement under which the Company may offer and sell up to 20.0 million shares of its common stock, from time to time, to or through its sales agents and may enter into separate forward sales agreements to or through its forward purchasers. Upon entering into the ATM sales agreement, the Company simultaneously terminated the sales agreement for its prior at-the-market equity offering program, which was entered into inJuly 2017 . During the year endedDecember 31, 2021 , the Company sold 1.6 million shares of common stock through its ATM program pursuant to the Company's forward sales agreements described below. As ofDecember 31, 2021 , we had 18.4 million shares of common stock available for future issuance under the ATM program, including an aggregate of 4.4 million shares subject to the forward sales agreements described below. During the year endedDecember 31, 2021 , the Company entered into forward sales agreements under its current or prior ATM programs for a total of 10.8 million shares of common stock at a weighted average initial forward price per share of$50.59 , of which 4.4 million shares had not been settled. The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current federal funds rate and the amount of dividends paid to holders of UDR common stock over the term of the forward sales agreement. As ofDecember 31, 2021 , 6.4 million shares under the forward sales agreements under the ATM programs had been settled at a weighted average forward price per share of$47.79 , which is inclusive of adjustments made to reflect the then-current federal funds rate, the amount of dividends paid to holders of UDR common stock and commissions paid to sales agents of approximately$2.6 million , for net proceeds of$306.6 million . The final dates by which the remaining shares sold under the forward sales agreements under the ATM programs must be settled range betweenAugust 1, 2022 andSeptember 14, 2022 . InMarch 2021 , the Company entered into forward sale agreements to sell 7.0 million shares of its common stock at an initial forward price per share of$43.51 . The actual forward price per share to be received by the Company upon settlement was determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current federal funds rate and the amount of dividends paid to holders of UDR common stock over the term of the forward sales agreement. InSeptember 2021 , the Company settled all 7.0 million shares at a forward price per share of$42.65 , which is inclusive of adjustments made to reflect the then-current federal funds rate, the amount of dividends paid to holders of UDR common stock and commissions paid to sales agents of approximately$6.0 million , for net proceeds of$298.5 million .
In
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settlement will be determined on the applicable settlement date based on
adjustments made to the initial forward price to reflect the then-current
federal funds rate and the amount of dividends paid to holders of UDR common
stock over the term of the forward sales agreement. In December 2021 , the
Company settled all 6.1 million shares at a forward price per share of $48.33 ,
which is inclusive of adjustments made to reflect the then-current federal funds
rate, the amount of dividends paid to holders of UDR common stock and
commissions paid to sales agents of approximately $5.4 million , for net proceeds
of $294.8 million .
During the year ended December 31, 2021 , the Company settled 19.5 million shares
in aggregate under forward sales agreements under the ATM programs and
previously announced forward sales agreements for net proceeds of $900.0
million . Aggregate net proceeds from such forward sales, after deducting related
expenses, were $899.1 million .
In February 2021 , the Company issued $300.0 million of 2.10% senior unsecured
medium-term notes due June 15, 2033 . The notes were priced at 99.592% of the
principal amount of the notes. The Company used the net proceeds to redeem its
$300.0 million 4.00% senior unsecured medium-term notes due October 2025 (the
"2025 Notes") (plus the make-whole amount and accrued and unpaid interest). The
combined prepayment and make-whole amounts for the purchase of the 2025 Notes
totaled approximately $40.8 million .
In
InSeptember 2021 , the Company entered into an amended and restated credit agreement (the "Credit Agreement") that provides for a$1.3 billion unsecured revolving credit facility (the "Revolving Credit Facility") and a$350.0 million unsecured term loan (the "Term Loan"). The Credit Agreement allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to$2.5 billion , subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date ofJanuary 31, 2026 , with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date ofJanuary 31, 2027 . The Credit Agreement also lowered the margin range for borrowings under the Revolving Credit Facility and the Term Loan. The Credit Agreement amended and restated the Company's prior credit agreement, which provided for: (i) a$1.1 billion revolving credit facility scheduled to mature inJanuary 2023 and (ii) a$350.0 million term loan scheduled to mature inSeptember 2023 . The prior credit agreement allowed the total commitments under the revolving credit facility and total borrowings under the term loan to be increased to an aggregate maximum amount of up to$2.0 billion , subject
to certain conditions.
Based on the Company's current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 77.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to LIBOR plus a margin of 85 basis points. Depending on the Company's credit rating, the margin under the Revolving Credit Facility ranges from 70 to 140 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 75 to 160 basis points. InSeptember 2021 , the Company amended the Working Capital Credit Facility to extend the maturity date fromJanuary 14, 2022 toJanuary 12, 2024 and lower the margin range for the interest rate. Based on the Company's current credit rating, the Working Capital Credit Facility now has an interest rate equal to LIBOR plus a margin of 77.5 basis points. Depending on the Company's credit rating, the margin ranges from 70 to 140 basis points.
In
Future Capital Needs
Future development and redevelopment expenditures may be funded through
unsecured or secured credit facilities, unsecured commercial paper, proceeds
from the issuance of equity or debt securities, sales of properties, joint
ventures, and, to a lesser extent, from cash flows provided by property
operations. Acquisition activity in strategic markets may be funded through
joint ventures, by the reinvestment of proceeds from the sale of properties,
through the
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issuance of equity or debt securities, the issuance of operating partnership units and the assumption or placement of secured and/or unsecured debt.
During 2022, we have approximately$1.1 million of secured debt maturing, comprised solely of principal amortization, and$220.0 million of unsecured debt maturing, comprised solely of the unsecured commercial paper. Additionally, the Company has no secured or unsecured debt maturing in 2023, aside from principal amortization. We anticipate repaying the debt due in 2022 and 2023 with cash flow from our operations, proceeds from debt or equity offerings, proceeds from dispositions of properties, or from borrowings under our credit agreements and our unsecured commercial paper program.
The following table summarizes our material cash requirements as of
Payments Due by Period
Material Cash Requirements 2022 2023-2024 2025-2026 Thereafter Total
Long-term debt obligations $ 221,140 $ 143,179 $ 527,537 $ 4,507,096 $ 5,398,952
Interest on debt obligations (a) 152,508 302,804 284,032 452,570 1,191,914
Letters of credit 2,841 - - - 2,841
Operating lease obligations:
Ground leases (b) 12,442 24,884 24,884 430,337 492,547
$ 388,931 $ 470,867 $ 836,453 $ 5,390,003 $ 7,086,254 (a) Interest payments on variable rate debt instruments are based on each debt
instrument's respective year-end interest rate at
For purposes of our ground lease contracts, the Company uses the minimum
lease payment, if stated in the agreement. For ground lease agreements where (b) there is a rent reset provision based on fair market value or changes in the
consumer price index but does not include a specified minimum lease payment,
the Company uses the current rent over the remainder of the lease term.
During 2021, we incurred gross interest costs of
InJanuary 2022 , the entire$220.0 million of outstanding unsecured commercial paper as ofDecember 31, 2021 was repaid at maturity with additional proceeds of unsecured commercial paper with maturity dates inJanuary 2022 andFebruary 2022 and proceeds under the Working Capital Credit Facility. As ofFebruary 11, 2022 , we had no borrowings outstanding under the Revolving Credit Facility, leaving$1.3 billion of unused capacity (excluding$2.6 million of letters of credit), and we had no borrowings outstanding under the Working Capital Credit Facility, leaving$75.0 million of unused capacity.
Guarantor Subsidiary Summarized Financial Information
UDR has certain outstanding debt securities that are guaranteed by theOperating Partnership . With respect to this debt, as further outlined below, theOperating Partnership fully and unconditionally guarantees payment of any principal, premium and interest in full to the holders thereof.The Operating Partnership is a subsidiary of UDR, through which UDR conducts a significant portion of its business and holds a substantial amount of its assets. UDR also conducts business through other subsidiaries, including its taxable REIT subsidiaries. In addition to its ownership interest in theOperating Partnership , UDR holds interests in subsidiaries and joint ventures, owns and operates properties, issues securities from time to time and guarantees debt of certain of its subsidiaries. UDR, as the sole general partner of theOperating Partnership , owns 100 percent of theOperating Partnership's general partnership interests and approximately 95 percent of its limited partnership interests and, by virtue thereof, has the ability to control all of the day-to-day operations of theOperating Partnership . UDR has concluded that it is the primary beneficiary of, and therefore consolidates, theOperating Partnership .The Operating Partnership is the subsidiary guarantor of certain of our registered debt securities, including the$300 million of medium-term notes dueSeptember 2026 ,$300 million of medium-term notes dueJuly 2027 ,$300 million of medium-term notes dueJanuary 2028 ,$300 million of medium-term notes dueJanuary 2029 ,$600 million of medium-term notes dueJanuary 2030 ,$600 million of medium-term notes dueAugust 2031 ,$400 million of medium-term notes dueAugust 2032 ,$350 million of medium-term notes dueMarch 2033 ,$300 million of medium-term notes due inJune 2033 and$300 million of medium-term notes dueNovember 2034 . 44 Table of ContentsThe Operating Partnership fully and unconditionally guarantees payment of any principal, premium and interest in full to the holders of the notes described above. The guarantee forms part of the indenture under which the notes were issued. If, for any reason, we do not make any required payment in respect of the notes when due, theOperating Partnership will cause the payment to be made to, or to the order of, the applicable paying agent on behalf of the trustee. Holders of the notes may enforce their rights under the guarantee directly against theOperating Partnership without first making a demand or taking action against UDR or any other person or entity.The Operating Partnership may, without the consent of the holders of the notes, assume all of our rights and obligations under the notes and, upon such assumption, we will be released from our liabilities under the indenture and the notes. The notes are UDR's unsecured general obligations and rank equally with all of UDR's other unsecured and unsubordinated indebtedness outstanding from time to time. As a result, our payment of amounts due on the notes is subordinated to all of our existing and future secured obligations to the extent of the value of the collateral pledged toward any such secured obligation. Our payment of amounts due on the notes also is effectively subordinated to all liabilities, whether secured or unsecured, of any of our non-guarantor subsidiaries because, in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to such subsidiaries, we, as an equity holder of such subsidiaries, would not receive distributions from such subsidiaries until claims of any creditors of such subsidiaries are satisfied. InMarch 2020 , theSEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule was effective for the Company onJanuary 4, 2021 . As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary guarantors of obligations issued by the parent are no longer required to provide separate financial statements subject to certain criteria. Such criteria include, among other things, that the parent company is an issuer or co-issuer of the debt, the consolidated financial statements of the parent company have been filed and the subsidiary guarantor is consolidated into those financial statements, and the guaranteed security is debt or debt-like. If the applicable criteria are met, the parent company is able to utilize alternative disclosures described in Rule 13-01 of Regulation S-X, which include summarized financial information of the subsidiary guarantor. We evaluated the criteria and determined that we are eligible for the exceptions, which allow us to provide alternative disclosures for theOperating Partnership .
As a result of the amendments, the
The following tables present the summarized financial information for the
December 31, December 31,
2021 2020
Total real estate, net $ 2,262,108 $ 2,151,714
Cash and cash equivalents 21 26
Operating lease right-of-use assets 198,835 202,438
Other assets 96,553 103,389
Total assets $ 2,557,517 $ 2,457,567
Secured debt, net $ 143,745 $ 99,104
Notes payable to UDR (a) 972,283 810,700
Operating lease liabilities 193,892 197,135
Other liabilities 108,076 102,196
Total liabilities 1,417,996 1,209,135
Total capital $ 1,139,521 $ 1,248,432
Year Ended
December 31,
2021 2020 2019
Total revenue $ 440,631 $ 428,747 $ 441,773
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Property operating expenses (189,543) (172,704) (159,823)
Real estate depreciation and amortization (152,520) (143,005) (139,975) Gain/(loss) on sale of real estate
- 57,960 -
Operating income/(loss) 98,568 170,998 141,975
Interest expense (a) (33,098) (29,357) (29,667)
Other income/(loss) 9,316 (5,543) (8,313)
Net income/(loss) $ 74,786 $ 136,098 $ 103,995 All
2021 and 2020, respectively, and
(a) million of interest expense on notes payable to UDR for the years ended
of UDR's consolidated financial statements.
Statements of Cash Flows
The following discussion explains the changes in Net cash provided by/(used in)
operating activities, Net cash provided by/(used in) investing activities, and
Net cash provided by/(used in) financing activities that are presented in our
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020. Operating Activities For the year endedDecember 31, 2021 , our Net cash provided by/(used in) operating activities was$664.0 million compared to$604.3 million for 2020. The increase in cash flow from operating activities was primarily due to changes in operating assets and liabilities and an increase in net operating income.
Investing Activities
For the year endedDecember 31, 2021 , Net cash provided by/(used in) investing activities was$(1.3) billion compared to$(460.8) million for 2020. The increase in cash used in investing activities was primarily due to an increase in acquisitions made during 2021, an increase in spend for development of real estate assets, an increase in investments in unconsolidated joint ventures and a decrease in distributions received from unconsolidated joint ventures, partially offset by the repayment of notes receivable.
Acquisitions
InJanuary 2021 , the Company acquired a 300 apartment home operating community located inFranklin, Massachusetts , for approximately$77.4 million . In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately$51.8 million . The Company increased its real estate assets owned by approximately$82.0 million , recorded$2.0 million of in-place lease intangibles, and recorded a$6.6 million debt premium in connection with the above-market debt assumed. InApril 2021 , the Company acquired a 636 apartment home operating community located inFarmers Branch, Texas , for approximately$110.2 million . In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately$42.0 million . The Company increased its real estate assets owned by approximately$111.5 million , recorded$3.0 million of in-place lease intangibles, and recorded a$4.3 million debt premium in connection with the above-market debt assumed.
The Company previously had a secured note with an unaffiliated third party with an aggregate commitment of$20.0 million . The note was secured by a parcel of land and related land improvements located inAlameda, California . InSeptember 2020 , the developer defaulted on the loan. As a result of the default, inApril 2021 , the Company took title to the property pursuant to a deed in lieu of foreclosure. The Company increased its real estate assets owned by approximately$25.0 million , the fair market value of the property on the date of the title transfer, and recorded a$0.1 million gain on extinguishment of the secured note to Interest income and other income/(expense), net on the Consolidated Statements of Operations. (See Note 2, Significant Accounting Policies for further discussion.)
In
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InMay 2021 , the Company acquired a 945 apartment home operating community located inFrisco, Texas , for approximately$166.9 million . In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately$89.5 million . The Company increased its real estate assets owned by approximately$169.9 million , recorded$4.1 million of in-place lease intangibles, and recorded a$7.1 million debt premium in connection with the above-market debt assumed.
In
InJuly 2021 , the Company acquired a 259 apartment home operating community located inBellevue, Washington , for approximately$171.9 million . The Company previously had a$115.0 million secured note receivable associated with this operating community. The Company increased its real estate assets owned by approximately$169.1 million and recorded$2.8 million of in-place lease intangibles. In connection with the acquisition of this community, the note and the unpaid accrued interest were paid in full. (See Note 2, Significant Accounting Policies for further discussion.) InAugust 2021 , the Company acquired a 544 apartment home operating community located inGermantown, Maryland , for approximately$127.2 million . The Company increased its real estate assets owned by approximately$124.4 million and recorded$2.8 million of in-place lease intangibles. InSeptember 2021 , the Company acquired a 320 apartment home operating community located inKing of Prussia, Pennsylvania , for approximately$116.2 million . The Company increased its real estate assets owned by approximately$113.8 million and recorded$2.4 million of in-place lease intangibles.
In
InSeptember 2021 , the Company acquired a 339 apartment home operating community located inPhiladelphia, Pennsylvania , for approximately$147.0 million . The Company increased its real estate assets owned by approximately$136.7 million and recorded$7.1 million of real estate tax intangibles and$3.2 million of in-place lease intangibles. InOctober 2021 , the Company acquired its joint venture partner's common equity interest in a 330 apartment home operating community located inOrlando, Florida , for a total purchase price of approximately$106.0 million . The Company paid for the community by issuing approximately 0.9 million OP Units (valued at$53.00 per unit per the agreement) to the seller, which equaled$47.9 million . In connection with the acquisition, the joint venture construction loan of approximately$39.6 million was repaid. The Company previously held a$16.4 million preferred equity investment in the entity on the date of acquisition, which it accounted for as an unconsolidated equity investment (see Note 5, Joint Ventures and Partnerships). As a result, inOctober 2021 , the Company increased its ownership interest to 100% and consolidated the operating community. The Company accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation. The Company increased its real estate assets owned by approximately$103.6 million and recorded$2.4 million of in-place lease intangibles.
In
In
In
InJanuary 2020 , the Company increased its ownership interest from 49% to 100% in a 276 apartment home operating community located inHillsboro, Oregon , for a cash purchase price of approximately$21.6 million . In 47
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connection with the acquisition, the Company repaid approximately$35.6 million of joint venture construction financing. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased its real estate assets owned by approximately$67.8 million and recorded approximately$1.7 million of in-place lease intangibles.
In
In
In
Dispositions
In
In
InMay 2020 , the Company sold an operating community located inBellevue, Washington , with a total of 71 apartment homes for gross proceeds of$49.7 million , resulting in a gain of approximately$29.6 million . The sale was partially financed by the Company through the issuance of a promissory note totaling$4.0 million which was repaid inJanuary 2021 . (See Note 2, Significant Accounting Policies for further discussion.) The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for the above mentioned acquisition of an operating community inTampa, Florida , inJanuary 2020 .
In
InOctober 2020 , the Company sold an operating community located inAlexandria, Virginia , with a total of 332 apartment homes for gross proceeds of$145.0 million , resulting in a gain of approximately$58.0 million . The proceeds were designated for a tax-deferred Section 1031 exchange and were used to pay a portion of the purchase price for acquisitions in November andDecember 2020 . We plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital to primary locations in markets we believe will provide the best investment returns.
Capital Expenditures
We capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. For the year endedDecember 31, 2021 , total capital expenditures of$153.3 million or$3,036 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to$165.8 million or$3,494 per stabilized home for the prior year. 48 Table of Contents
The decrease in total capital expenditures was primarily due to:
? a decrease of 16.5%, or
structural changes and/or architectural revisions to existing buildings;
a decrease of 63.1%, or
? operations platform, which includes smart home installations at certain of our
properties; and
? a decrease of 8.3%, or
kitchen and bath remodels and upgrades to common areas.
This was partially offset by:
? an increase of 12.1%, or
include asset preservation and turnover related expenditures.
The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, for the years endedDecember 31, 2021 and 2020 (dollars in thousands except Per Home amounts): Per Home Year Ended December 31, Year Ended December 31, 2021 2020 % Change 2021 2020 % Change
Turnover capital expenditures$ 15,407 $ 12,978 18.7 %$ 305 $ 273 11.7 % Asset preservation expenditures 48,413 43,946 10.2 % 959 926 3.6 % Total recurring capital expenditures 63,820 56,924 12.1 % 1,264 1,199 5.4 % NOI enhancing improvements (a) 44,727 48,752 (8.3)
% 886 1,027 (13.7) % Major renovations (b) 40,339 48,317 (16.5) % 799 1,018 (21.5) % Operations platform 4,371 11,853 (63.1) % 87 250 (65.4) %
Total capital expenditures (c)$ 153,257 $ 165,846 (7.6) %$ 3,036 $ 3,494 (13.1) % Repair and maintenance expense$ 71,147 $ 56,794 25.3
%$ 1,409 $ 1,196 17.8 % Average home count (d) 50,488 47,475 6.3 %
(a) NOI enhancing improvements are expenditures that result in increased income
generation or decreased expense growth.
(b) Major renovations include major structural changes and/or architectural
revisions to existing buildings.
Total capital expenditures includes amounts capitalized during the year. Cash
(c) paid for capital expenditures is impacted by the net change in related
accruals.
(d) Average number of homes is calculated based on the number of homes
outstanding at the end of each month.
We intend to continue to selectively add NOI enhancing improvements, which we believe will provide a return on investment in excess of our cost of capital. Our objective in redeveloping a community is twofold: we aim to meaningfully grow rental rates while also achieving cap rate compression through asset quality improvement.
AtDecember 31, 2021 , our development pipeline consisted of five wholly-owned communities located inDenver, Colorado ,Dublin, California ,Addison, Texas ,King of Prussia, Pennsylvania andWashington D.C. , totaling 1,417 homes, none of which have been completed, with a budget of$501.5 million , in which we have a gross carrying value of$388.6 million . The communities are estimated to be completed between the second quarter of 2022 and the second quarter of 2023. During 2021, we incurred$178.0 million for development costs, an increase of$56.8 million as compared to costs incurred in 2020 of$121.2 million .
At
The Company recognizes income or losses from our investments in unconsolidated
joint ventures and partnerships consisting of our proportionate share of the net
income or losses of the joint ventures and partnerships. In
49
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addition, we may earn fees for providing management services to the communities held by the unconsolidated joint ventures and partnerships.
The Company's Investment in and advances to unconsolidated joint ventures and partnerships, net, are accounted for under the equity method of accounting. For the year endedDecember 31, 2021 :
we made investments totaling
? ventures, including contributions of
investments under our Developer Capital Program, each of which earns a
preferred return;
? our proportionate share of the net income/(loss) of the joint ventures and
partnerships was
? we received distributions of
operating cash flows and
We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years endedDecember 31, 2021 and 2020.
Financing Activities
For the years ended
The following significant financing activities occurred during the year ended
? issuance of
2033, for net proceeds of approximately
issuance of a principal amount of
? medium-term notes due
to yield 2.259%, resulting in net proceeds of approximately
? repayment of
2025;
? net proceeds of
issuance of 19.5 million shares of common stock under forward sales agreements
? for aggregate net proceeds, after deducting related expenses, of approximately
? distributions of
? payment of prepayment and extinguishment costs of
prepayment of debt.
The following significant financing activities occurred during the year ended
? repayments of secured debt of
proceeds from the issuance of secured debt of
? issuance of
? issuance of
? issuance of
? repayment of
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? net repayment of
issuance of 2.1 million shares of common stock under our forward sales
? agreement for aggregate net proceeds of
? repurchase of 0.6 million common shares for approximately
? distributions of
? payment of debt extinguishment costs of
of debt.
Credit Facilities and Commercial Paper Program
InSeptember 2021 , the Company entered into the Credit Agreement that provides for a$1.3 billion unsecured revolving credit facility and a$350.0 million unsecured term loan. The Credit Agreement allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to$2.5 billion , subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date ofJanuary 31, 2026 , with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date ofJanuary 31, 2027 . The Credit Agreement also lowered the margin range for the Revolving Credit Facility and the Term Loan. The Credit Agreement amended and restated the Company's prior credit agreement, which provided for: (i) a$1.1 billion revolving credit facility scheduled to mature inJanuary 2023 and (ii) a$350.0 million term loan scheduled to mature inSeptember 2023 . The prior credit agreement allowed the total commitments under the revolving credit facility and total borrowings under the term loan to be increased to an aggregate maximum amount of up to$2.0 billion , subject
to certain conditions.
Based on the Company's current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 77.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to LIBOR plus a margin of 85 basis points. Depending on the Company's credit rating, the margin under the Revolving Credit Facility ranges from 70 to 140 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 75 to 160 basis points. As ofDecember 31, 2021 , we had no outstanding borrowings under the Revolving Credit Facility, leaving$1.3 billion of unused capacity (excluding$2.8 million of letters of credit atDecember 31, 2021 ), and$350.0 million of outstanding borrowings under the Term Loan. We have a working capital credit facility, which provides for a$75 million unsecured revolving credit facility (the "Working Capital Credit Facility") with a previously scheduled maturity date ofJanuary 14, 2022 . InSeptember 2021 , the Company amended the Working Capital Credit Facility to extend the maturity date fromJanuary 14, 2022 toJanuary 12, 2024 and lower the margin range for the interest rate. Based on the Company's current credit rating, the Working Capital Credit Facility now has an interest rate equal to LIBOR plus a margin of 77.5 basis points. Depending on the Company's credit rating, the margin ranges from 70 to 140 basis points.
As of
The bank revolving credit facilities and the term loan are subject to customary financial covenants and limitations, all of which we were in compliance with atDecember 31, 2021 . We have an unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper up to a maximum aggregate amount outstanding of$700 million . InJuly 2021 , the maximum aggregate amount was increased from$500.0 million to$700.0 million . The notes are sold under customary terms inthe United States commercial paper market and rank pari passu with all of our other unsecured indebtedness. The notes are fully and unconditionally guaranteed by theOperating Partnership . As ofDecember 31, 2021 , we had issued$220.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 0.34%, leaving$480.0 million of unused capacity. InJanuary 2022 , the entire$220.0 million of outstanding unsecured commercial paper as ofDecember 31, 2021 was repaid at maturity with additional proceeds of unsecured commercial paper with maturity dates inJanuary 2022 andFebruary 2022 and proceeds under the Working Capital Credit Facility. 51 Table of Contents Interest Rate Risk We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets and operations. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had$311.5 million in variable rate debt that is not subject to interest rate swap contracts as ofDecember 31, 2021 . If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by$5.0 million based on the average balance outstanding during the year. These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. This analysis does not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure. The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 14, Derivatives and Hedging Activities, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivative instruments. A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands): Year EndedDecember 31, 2021 2020
Net cash provided by/(used in) operating activities$ 663,960 $ 604,316 Net cash provided by/(used in) investing activities (1,272,253) (460,842) Net cash provided by/(used in) financing activities 612,540 (152,594) Results of Operations
The following discussion explains the changes in results of operations that are
presented in our Consolidated Statements of Operations for the years ended
Net Income/(Loss) Attributable to Common Stockholders
Net income/(loss) attributable to common stockholders was$145.8 million ($0.48 per diluted share) for the year endedDecember 31, 2021 , as compared to$60.0 million ($0.20 per diluted share) for the comparable period in the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:
an increase in total property NOI of
communities acquired during 2021 and 2020, lower rent concessions, lower
? vacancy, and a decrease in personnel expense, partially offset by a decrease in
rental rates, operating communities sold during 2021 and 2020 and higher repair
and maintenance expense, insurance expense, and real estate tax expense;
a decrease in interest expense of
? of extinguishment cost from the prepayment of debt during the year ended
2020, and lower interest rates partially offset by higher debt balances;
a gain of
? gains of
the year ended
an increase in income/(loss) from unconsolidated entities of
primarily attributable to
? was primarily attributable to unrealized gains from SmartRent, a portfolio
investment held by the fund, becoming a public company during the year ended
December 31, 2021 , as compared to$5.1 million during the year endedDecember 31, 2020 . A further 52 Table of Contents
discussion can be found in Note 5, Joint Ventures and Partnerships, to the Notes
to the
Apartment Community Operations
Our net income results are primarily from NOI generated from the operation of our apartment communities. The Company defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 3.0% of property revenue, and land rent. Property management expense covers costs directly related to consolidated property operations, inclusive of corporate management, regional supervision, accounting and other costs. Management considers NOI a useful metric for investors as it is a more meaningful representation of a community's continuing operating performance than net income as it is prior to corporate-level expense allocations, general and administrative costs, capital structure and depreciation and amortization. Although the Company considers NOI a useful measure of operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable toUDR, Inc. below.
The following table summarizes the operating performance of our total property NOI for each of the periods presented (dollars in thousands):
Year Ended Year Ended
December 31, (a) December 31, (b)
2021 2020 % Change 2020 2019 % Change
Same-Store Communities:
Same-Store rental income $ 1,147,259 $ 1,130,760 1.5 % $ 924,138 $ 953,121 (3.0) %
Same-Store operating expense
(c) (356,761) (344,149) 3.7 % (279,940) (268,718) 4.2 %
Same-Store NOI 790,498 786,611 0.5 % 644,198 684,403 (5.9) %
Non-Mature Communities/Other
NOI:
Stabilized, non-mature
communities NOI (d) 62,906 24,645 155.2 % 161,258 98,193 64.2 %
Acquired communities NOI 4,156 - - % 7,919 762 939.2 %Development communities NOI (417) (127) NM * 214 (8) (2,775.0) % Non-residential/other NOI (e) 5,114 27,689 (81.5) % 27,694 12,954 113.8 % Sold and held for disposition communities NOI 4,868 14,884 (67.3) % 12,419 11,999 3.5 % Total Non-Mature Communities/Other NOI 76,627 67,091 14.2 % 209,504 123,900 69.1 % Total property NOI$ 867,125 $ 853,702 1.6 %$ 853,702 $ 808,303 5.6 % * Not meaningful
(a) Same-Store consists of 45,143 apartment homes.
(b) Same-Store consists of 37,607 apartment homes.
(c) Excludes depreciation, amortization, and property management expenses.
Represents non-mature communities that have achieved 90% occupancy for three (d) consecutive months but do not meet the criteria to be included in Same-Store
Communities.
(e) Primarily non-residential revenue and expense and straight-line adjustment
for concessions.
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The following table is our reconciliation of Net income/(loss) attributable toUDR, Inc. to total property NOI for each of the periods presented (dollars
in
thousands):
Year Ended December 31,
2021 2020 2019Net income/(loss) attributable to UDR, Inc.$ 150,016 $ 64,266 $ 184,965 Joint venture management and other fees (6,102)
(5,069) (14,055) Property management 38,540 35,538 32,721 Other operating expenses 21,649 22,762 13,932
Real estate depreciation and amortization 606,648 608,616 501,257 General and administrative 57,541 49,885 51,533 Casualty-related charges/(recoveries), net 3,748 2,131 474 Other depreciation and amortization 13,185 10,013 6,666 (Gain)/loss on sale of real estate owned (136,052) (119,277) (5,282) (Income)/loss from unconsolidated entities (65,646) (18,844) (137,873) Interest expense 186,267 202,706 170,917 Interest income and other (income)/expense, net (15,085) (6,274) (15,404) Tax provision/(benefit), net 1,439 2,545 3,838 Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership 10,873 4,543 14,426 Net income/(loss) attributable to noncontrolling interests 104 161 188 Total property NOI$ 867,125 $ 853,702 $ 808,303 Same-Store Communities
Our
NOI for ourSame-Store Community properties increased 0.5%, or$3.9 million , for the year endedDecember 31, 2021 compared to the same period in 2020. The increase in property NOI was attributable to a 1.5%, or$16.5 million , increase in property rental income, which was partially offset by a 3.7%, or$12.6 million , increase in operating expenses. The increase in property rental income was primarily driven by an increase of$11.1 million from lower vacancy, a 4.7%, or$5.7 million , increase in reimbursement and ancillary and fee income, a decrease in bad debt expense of$5.6 million and a decrease of$5.1 million in rent concessions, partially offset by a 1.1%, or$11.5 million , decrease in rental rates. Physical occupancy increased by 1.0% to 97.1% and total monthly income per occupied home increased 0.4% to$2,182 . The increase in operating expenses was primarily driven by a 17.2%, or$9.3 million , increase in repair and maintenance expense due to the increased use of third party vendors, a 29.4%, or$4.4 million , increase in insurance expense due to increased claims, and a 2.8%, or$4.1 million , increase in real estate taxes, which was primarily due to higher assessed valuations, partially offset by a 12.7%, or$7.7 million , decrease in personnel expense as a result of fewer employees.
The operating margin (property net operating income divided by property rental
income) was 68.9% and 69.6% for the years ended
Non-Mature Communities/Other
UDR's Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities, which include communities recently developed or acquired, redevelopment properties, sold or held for disposition properties, and non-apartment components of mixed use properties. The remaining 8.8%, or$76.6 million , of our total NOI during the year endedDecember 31, 2021 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 14.2%, or$9.5 million , for the year endedDecember 31, 2021 as compared to the same period in 2020. The increase was primarily attributable to a$38.3 million increase in NOI from stabilized, non-mature communities, primarily due to communities acquired in 2021 and 2020 and a$4.2 million increase in acquired communities, partially offset by a
$22.6 million 54 Table of Contents
decrease in non-residential/other primarily due to changes in straight-line rent
as a result of increased tenant rent concessions during 2020, and a
Gain/(Loss) on Sale of Real Estate Owned
During the year ended
During the year ended
Income/(Loss) from Unconsolidated Entities
For the years endedDecember 31, 2021 and 2020, we recognized income/(loss) from unconsolidated entities of$65.6 million and$18.8 million , respectively. The increase in 2021 as compared to 2020 was primarily due to$50.8 million of investment income from RETV I, which was primarily attributable to unrealized gains from SmartRent, a portfolio investment held by the fund, becoming a public company during the year endedDecember 31, 2021 , as compared to$5.1 million during the year endedDecember 31, 2020 . A further discussion can be found in Note 5, Joint Ventures and Partnerships, to the Notes to theUDR, Inc. Consolidated Financial Statements included in this Report.
Interest expense
For the years endedDecember 31, 2021 and 2020, the Company recognized interest expense of$186.3 million and$202.7 million , respectively. The decrease in 2021 as compared to 2020 was primarily attributable to$42.3 million of debt extinguishment costs from the prepayment of debt during the year endedDecember 31, 2021 as compared to$49.2 million for the year endedDecember 31, 2020 , and lower interest rates, partially offset by higher debt balances.
Inflation
Inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and repair and maintenance costs. In addition, inflation could also impact our general and administrative expenses, the interest on our debt if variable or refinanced in a high-inflationary environment, and our cost of development activities. However, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this had a material impact on our results for the year endedDecember 31, 2021 .
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.
Funds from Operations, Funds from Operations as Adjusted, and Adjusted Funds from Operations
Funds from Operations
Funds from operations ("FFO") attributable to common stockholders and
unitholders is defined as Net income/(loss) attributable to common stockholders
(computed in accordance with GAAP), excluding impairment write-downs of
depreciable real estate related to the main business of the Company or of
investments in non-consolidated investees that are directly attributable to
decreases in the fair value of depreciable real estate held by the investee,
gains and losses from sales of depreciable real estate related to the main
business of the Company and income taxes directly associated with those gains
and losses, plus real estate depreciation and amortization, and after
adjustments for noncontrolling interests, and the Company's share of
unconsolidated partnerships and joint ventures. This definition conforms with
the National Association of Real Estate Investment Trust's ("Nareit") definition
issued in April 2002 and restated in November 2018 . Historical cost accounting
for real estate assets in accordance with GAAP implicitly assumes that the value
of real estate assets diminishes predictably over time. Since real estate values
instead have historically risen or fallen with market conditions, many industry
investors and analysts have considered the presentation of operating results for
real estate companies that use historical cost accounting to be insufficient by
themselves. Thus, Nareit created FFO as a supplemental measure of a REIT's
operating performance. In the computation of diluted FFO, if
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OP Units, DownREIT Units, unvested restricted stock, unvested LTIP Units, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count. Management considers FFO a useful metric for investors as the Company uses FFO in evaluating property acquisitions and its operating performance, and believes that FFO 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. FFO 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.
Funds from Operations as Adjusted
FFO as Adjusted ("FFOA") attributable to common stockholders and unitholders is
defined as FFO excluding the impact of non-comparable items including, but not
limited to, acquisition-related costs, prepayment costs/benefits associated with
early debt retirement, impairment write-downs or gains and losses on sales of
real estate or other assets incidental to the main business of the Company and
income taxes directly associated with those gains and losses, casualty-related
expenses and recoveries, severance costs and legal and other costs.
Management believes that FFOA is useful supplemental information regarding our
operating performance as it provides a consistent comparison of our operating
performance across time periods and enables investors to more easily compare our
operating results with other REITs. FFOA 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. We believe that Net income/(loss)
attributable to common stockholders is the most directly comparable GAAP
financial measure to FFOA. However, other REITs may use different methodologies
for calculating FFOA or similar FFO measures and, accordingly, our FFOA may not
always be comparable to FFOA or similar FFO measures calculated by other REITs.
FFOA should not be considered as an alternative to net income (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.
Adjusted Funds from Operations
Adjusted FFO ("AFFO") attributable to common stockholders and unitholders is
defined as FFOA less recurring capital expenditures on consolidated communities
that are necessary to help preserve the value of and maintain functionality at
our communities. Therefore, management considers AFFO a useful supplemental
performance metric for investors as it is more indicative of the Company's
operational performance than FFO or FFOA.
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. We
believe 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.
56
Table of Contents
The following table outlines our reconciliation of Net income/(loss)
attributable to common stockholders to FFO, FFOA, and AFFO for the years ended
Year Ended December 31,
2021 2020 2019
Net income/(loss) attributable to common
stockholders $ 145,787 $ 60,036 $ 180,861
Real estate depreciation and amortization 606,648 608,616 501,257
Noncontrolling interests 10,977 4,704 14,614
Real estate depreciation and amortization on
unconsolidated joint ventures 31,967 35,023 57,954 Net gain on the sale of unconsolidated depreciable property
(2,460) - (125,407)
Net gain on the sale of depreciable real estate
owned, net of tax (136,001) (118,852) -
FFO attributable to common stockholders and
unitholders, basic $ 656,918 $
589,527
4,229 4,230 4,104
FFO attributable to common stockholders and
unitholders, diluted $ 661,147 $ 593,757 $ 633,383
Income/(loss) per weighted average common share,
diluted $ 0.48 $ 0.20 $ 0.63
FFO per weighted average common share and unit,
basic $ 2.04 $ 1.86 $ 2.04
FFO per weighted average common share and unit,
diluted $ 2.02 $ 1.85 $ 2.03
Weighted average number of common shares and
OP/DownREIT Units outstanding - basic 322,744 316,855 308,020
Weighted average number of common shares,
OP/DownREIT Units, and common stock equivalents
outstanding - diluted 327,039 320,187 311,799
Impact of adjustments to FFO: Debt extinguishment and other associated costs$ 42,336 $ 49,190 $ 29,594 Debt extinguishment and other associated costs on unconsolidated joint ventures 1,682 - - Promoted interest on settlement of note receivable, net of tax - - (6,482) Legal and other 5,319
8,973 3,660 Net gain on the sale of non-depreciable real estate owned
- - (5,282)
Realized (gain)/loss on real estate technology
investments, net of tax (1,980) 1,005 -
Unrealized (gain)/loss on real estate technology
investments, net of tax (55,947) (4,587) (3,300)
Joint venture development success fee - - (3,750)
Severance costs 2,280 1,948 390
Casualty-related charges/(recoveries), net 3,960 2,545 636
Casualty-related charges/(recoveries) on
unconsolidated joint ventures, net - 31 (374)
$ (2,350) $ 59,105 $ 15,092 FFOA attributable to common stockholders and unitholders, diluted$ 658,797 $
652,862
FFOA per weighted average common share and unit, diluted$ 2.01 $
2.04
Recurring capital expenditures (63,820) (56,924) (51,246) AFFO attributable to common stockholders and unitholders, diluted$ 594,977 $
595,938
AFFO per weighted average common share and unit, diluted$ 1.82 $ 1.86 $ 1.92 57 Table of Contents The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the UDR Consolidated Statements of Operations for the years endedDecember 31, 2021 , 2020, and 2019 (shares in thousands): Year Ended December 31, 2021 2020 2019 Weighted average number of common shares and OP/DownREIT Units outstanding - basic 322,744 316,855 308,020 Weighted average number of OP/DownREIT Units outstanding (22,418)
(22,310) (22,773) Weighted average number of common shares outstanding - basic per the Consolidated Statements of Operations 300,326 294,545 285,247
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding - diluted
327,039 320,187 311,799
Weighted average number of OP/DownREIT Units
outstanding (22,418) (22,310) (22,773)
Weighted average number of Series E Cumulative
Convertible Preferred shares outstanding (2,918) (2,950) (3,011) Weighted average number of common shares outstanding - diluted per the Consolidated Statements of Operations 301,703 294,927 286,015
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