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. 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 effect, 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;
? uninsured losses due to insurance deductibles, self-insurance retention,
uninsured claims or casualties, or losses in excess of applicable coverage;
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? 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 the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements for the years endedDecember 31, 2020 , and 2019 of eachUDR, Inc. andUnited Domination Realty, L.P. This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019 ofUDR, Inc. andUnited Domination Realty, L.P. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 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, 2019 .UDR, Inc. : 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 subsidiaries and its consolidated joint ventures. 38
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AtDecember 31, 2020 , our consolidated real estate portfolio included of 149 communities in 13 states plus theDistrict of Columbia totaling of 48,283 apartment homes. In addition, we have an ownership interest in 5,295 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,165 apartment homes owned by entities in which we hold preferred equity investments.The Same-Store Community apartment home population for the year endedDecember 31, 2020 , was 37,607.
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, 2020 , 2019, and 2018 were$19.0 million ,$13.5 million , and$18.1 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, 2020 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, 2020 Year Ended December 31, 2020
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
Orange County, CA 10 4,434 8.8 % $ 1,145,371 96.5 % $ 2,328 $ 91,704
San Francisco, CA 11 2,751 6.8 % 885,036 91.5 % 3,501 76,760
Seattle, WA 13 2,570 6.8 % 889,749 96.7 % 2,471 53,010
Monterey Peninsula, CA 7 1,565 1.4 % 185,224 96.6 % 1,940 27,587
Los Angeles, CA 4 1,225 3.5 % 463,167 95.5 % 2,765 27,585
Other Southern California 2 654 0.9 % 111,656 97.7 % 2,038 11,796
Portland, OR 2 476 0.4 % 52,126 97.1 % 1,637 6,623
Mid-Atlantic Region
Metropolitan D.C. 20 7,496 14.9 % 1,944,746 96.8 % 2,077 125,654
Baltimore, MD 3 720 1.2 % 156,797 97.9 % 1,720 9,603
Richmond, VA 4 1,358 1.2 % 153,906 97.8 % 1,422 16,874
Northeast Region
Boston, MA 4 1,388 3.6 % 470,541 95.1 % 2,783 32,372
New York, NY 3 1,452 7.9 % 1,037,337 92.6 % 4,135 33,181
Southeast Region
Tampa, FL 7 2,287 2.1 % 274,126 97.1 % 1,484 25,949
Orlando, FL 9 2,500 1.8 % 240,100 96.8 % 1,413 28,541
Nashville, TN 8 2,260 1.7 % 223,827 97.8 % 1,378 25,943
Other Florida 1 636 0.7 % 89,630 97.2 % 1,656 8,085
Southwest Region
Dallas, TX 7 2,345 2.3 % 298,205 97.3 % 1,382 24,124
Austin, TX 4 1,272 1.3 % 171,483 97.6 % 1,548 13,607
Denver, CO 1 218 1.1 % 144,959 93.1 % 3,012 5,200
Total/Average Same-Store
Communities 120 37,607 68.4 % 8,937,986 96.3 % $ 2,126 644,198
Non-Mature, Commercial
Properties & Other 28 10,088 28.8 % 3,768,954 196,868
Total Real Estate Held for
Investment 148 47,695 97.2 % 12,706,940 841,066
Real Estate Under Development
(b) - 202 1.9 % 247,877 215
Real Estate Held for
Disposition (c) 1 386 0.9 % 116,655 12,421
Total Real Estate Owned 149 48,283 100.0 % 13,071,472 $ 853,702
Total Accumulated
Depreciation (4,605,366)
Total Real Estate Owned, Net
of Accumulated Depreciation $ 8,466,106
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.
(c) The Company had one community located in
the criteria to be classified as held for disposition at
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, 2019 and held as ofDecember 31, 2020 . 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.
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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.
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 2017 , 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 inApril 2017 , which replaced the prior at-the-market equity offering program entered into inApril 2012 . During the year endedDecember 31, 2020 , the Company did not sell any shares of common stock through its ATM program, other than the forward sales described below. As ofDecember 31, 2020 , we had 9.6 million shares of common stock available for future issuance under the ATM program. InFebruary 2020 , the Company issued$200.0 million of 3.20% senior unsecured medium-term notes due 2030 (the "2030 Notes"). Interest is payable semi-annually in arrears onJanuary 15 andJuly 15 of each year, beginning onJuly 15, 2020 . The notes were priced at 105.660% of the principal amount at issuance. This was a further issuance of the 2030 Notes, and forms a single series with, the$300.0 million aggregate principal amount of the Company's 2030 Notes that were issued inJuly 2019 and the$100.0 million aggregate principal amount of the Company's 2030 Notes that were issued inOctober 2019 . As of the completion of the offering, the aggregate principal amount of outstanding 2030 notes was$600.0 million . InJuly 2020 , the Company refinanced a 4.35% fixed rate mortgage note payable due inNovember 2020 with a balance of$79.3 million with a$160.9 million , 2.62% fixed rate mortgage note payable due in 2031. The Company incurred net extinguishment costs of$0.5 million in connection with the refinancing. The incremental proceeds were used to reduce the Company's borrowings under its unsecured commercial paper program. InJuly 2020 , the Company announced that it commenced a cash tender offer for any and all of its outstanding 3.75% unsecured medium-term notes dueJuly 2024 (the "2024 Notes"). Pursuant to the tender offer, onJuly 21, 2020 , the Company completed the purchase of$116.9 million aggregate principal amount of the 2024 Notes, or 39.0% of the$300.0 million aggregate principal amount of the 2024 Notes. The tender offer consideration was$1,101.92 for each$1,000 principal amount of the 2024 Notes, plus accrued and unpaid interest to, but not including,July 21, 2020 . 42 Table of Contents InJuly 2020 , the Company issued$400.0 million of 2.10% senior unsecured medium-term notes dueAugust 1, 2032 . Interest is payable semi-annually in arrears onFebruary 1 andAugust 1 . The notes were priced at 99.894% of the principal amount at issuance. The Company used a portion of the net proceeds to fund the purchase of the 2024 Notes accepted pursuant to the tender offer described above and to prepay$245.8 million of 4.64% secured debt due in 2023. The combined prepayment and make-whole amounts for the purchase of the 2024 Notes and the prepayment of the secured debt due in 2023, inclusive of the acceleration of fair market value adjustments originally recorded on secured debt assumed in property acquisitions, totaled approximately$24.0 million . InDecember 2020 , the Company issued$350.0 million of 1.90% senior unsecured medium-term notes dueMarch 15, 2033 (the "2033 Notes"). Interest is payable semi-annually in arrears onMarch 15 andSeptember 15 . The notes were priced at 99.578% of the principal amount at issuance. The Company used the net proceeds for the repayment of debt, including the redemption of the remaining$183.1 million aggregate principal amount (plus the make-whole amount of approximately$21.1 million ) of its 2024 Notes,$67.5 million of secured debt maturing in 2023, and outstanding indebtedness under our commercial paper program and working capital credit facility. The 2033 Notes were issued as "green" bonds and, as a result, the Company will allocate an amount equal to the net proceeds from the sale of the 2033 Notes to fund eligible green projects. During the year endedDecember 31, 2020 , the Company repurchased 0.6 million shares of its common stock at an average price of$33.11 per share for total consideration of approximately$19.8 million under its share repurchase program. During the year endedDecember 31, 2020 , the Company entered into forward sales agreements under its ATM program for a total of 2.1 million shares of common stock at a weighted average initial forward price per share of$49.56 . The initial forward price per share 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.
InDecember 2020 , the Company settled all 2.1 million shares sold under the forward sales agreement at a weighted average forward price per share of$48.23 , 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$3.9 million , for net proceeds of$102.3 million . Aggregate net proceeds from such sales, after deducting related expenses, was$102.2 million .
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 issuance of equity or debt securities, the issuance of operating partnership units and the assumption or placement of secured and/or unsecured debt. During 2021, we have approximately$1.1 million of secured debt maturing, comprised solely of principal amortization, and$190.0 million of unsecured debt maturing, comprised solely of the unsecured commercial paper. Additionally, the Company has no secured or unsecured debt maturing in 2022, other than the unsecured working capital credit facility. We anticipate repaying the debt due in 2021 and 2022 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. InJanuary 2021 , the entire$190.0 million of outstanding unsecured commercial paper as ofDecember 31, 2020 was repaid at maturity with additional proceeds of unsecured commercial paper with maturity dates inFebruary 2021 and proceeds under the Working Capital Credit Facility. As ofFebruary 16, 2021 , we had no borrowings outstanding under the Revolving Credit Facility, leaving$1.1 billion of unused capacity (excluding$1.9 million of letters of credit), and we had$0.2 million outstanding under the Working Capital Credit Facility, leaving$74.8 million of unused capacity. OnFebruary 11, 2021 , the Company priced an offering of$300.0 million of 2.10% senior unsecured medium-term notes due 2033. The notes were priced at 99.592% of the principal amount of the notes. The Company intends to 43
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use the net proceeds to repay indebtedness, including the redemption of its$300.0 million 4.00% senior unsecured medium-term notes dueOctober 2025 (plus the make-whole amount and accrued and unpaid interest), to fund potential acquisitions, or for other general corporate purposes. The settlement of the offering is expected to occur onFebruary 26, 2021 , subject to the satisfaction of customary closing conditions.
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 endedDecember 31, 2020
and 2019. Operating Activities For the year endedDecember 31, 2020 , our Net cash provided by/(used in) operating activities was$604.3 million compared to$630.7 million for 2019. The decrease in cash flow from operating activities was primarily due to changes in operating assets and liabilities, partially offset by an increase in return on investments in unconsolidated joint ventures and improved net operating income, primarily driven by net operating income from communities acquired in 2020
and 2019. Investing Activities For the year endedDecember 31, 2020 , Net cash provided by/(used in) investing activities was$(460.8) million compared to$(1.7) billion for 2019. The decrease in cash used in investing activities was primarily due to the decrease in acquisitions made during the current year and an increase in proceeds from sales of real estate investments, partially offset by an increase in spend for development of real estate assets and a decrease in distributions received from unconsolidated joint ventures.
Acquisitions
InJanuary 2020 , the Company acquired a 294 apartment home operating community located inTampa, Florida for approximately$85.2 million . The Company increased its real estate assets owned by approximately$83.1 million and recorded approximately$2.1 million of in-place lease intangibles. 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 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
InJanuary 2019 , the Company increased its ownership interest from 49% to 100% in a 386 apartment home operating community located inAnaheim, California , for a cash purchase price of approximately$33.5 million . In connection with the acquisition, the Company repaid approximately$59.8 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. The Company accounted 44 Table of Contents
for the consolidation as an asset acquisition resulting in no gain upon
consolidation and increased its real estate assets owned by approximately
InJanuary 2019 , the Company increased its ownership interest from 49% to 100% in a 155 apartment home operating community located inSeattle, Washington , for a cash purchase price of approximately$20.0 million . In connection with the acquisition, the Company repaid approximately$26.0 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. The Company accounted for the consolidation as an asset acquisition resulting in no gain upon consolidation and increased its real estate assets owned by approximately$58.1 million and recorded approximately$2.4 million of real estate intangibles and approximately$0.6 million of in-place lease intangibles.
In
In
In
InFebruary 2019 , the Company acquired a 381 apartment home operating community located inSt. Petersburg, Florida for approximately$98.3 million . The Company increased its real estate assets owned by approximately$96.0 million and recorded approximately$2.3 million of in-place lease intangibles.
In
InMay 2019 , the Company acquired a 313 apartment home operating community located inKing of Prussia, Pennsylvania for approximately$107.3 million . The Company increased its real estate assets owned by approximately$106.4 million and recorded approximately$0.9 million of in-place lease intangibles.
In
In
InAugust 2019 , the Company acquired a 914 apartment home operating community located inNorwood, Massachusetts for approximately$270.2 million . The Company increased its real estate assets owned by approximately$260.1 million and recorded approximately$10.1 million of in-place lease intangibles. InAugust 2019 , the Company acquired a 185 apartment home operating community located inEnglewood, New Jersey for approximately$83.6 million . The Company increased its real estate assets owned by approximately$77.5 million and recorded approximately$4.6 million of real estate intangibles and approximately$1.5 million of in-place lease intangibles. InAugust 2019 , the Company purchased a 292 apartment home operating community inWashington, D.C. , directly from the UDR/KFH joint venture, thereby increasing its ownership interest from 30% to 100%, for a purchase price at 100% of approximately$184.0 million , before$2.8 million of closing costs incurred by UDR at acquisition. The Company accounted for the consolidation as an asset acquisition, resulting in no gain upon consolidation, and increased its real estate assets owned by approximately$156.0 million and recorded approximately$5.9 million of in-place lease intangibles. 45 Table of Contents InNovember 2019 , the Company acquired the approximately 50% ownership interest not previously owned in 10 UDR/MetLife operating communities, one development community and four land parcels valued at$1.1 billion , or$564.2 million at UDR's share, and sold its approximately 50% ownership interest in five UDR/MetLife operating communities valued at$645.8 million , or$322.9 million at UDR's share, to MetLife. The Company paid$109.2 million directly to MetLife to complete the transaction. As a result, the Company consolidated the 10 operating communities, one development community and four land parcels, and they are no longer accounted for as equity method investments 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 upon consolidation and increased its real estate assets owned by approximately$977.8 million and recorded approximately$30.0 million of in-place lease intangibles. In connection with the acquisition, the Company assumed six secured fixed rate mortgage notes payable and one credit facility secured by four communities with a combined outstanding balance of$518.4 million and estimated fair value of$551.8 million . The Company recorded the debt at its fair value in Secured debt, net on the Consolidated Balance Sheets. The following table is a summary of the 10 communities, one development community and four land parcels acquired from the UDR/MetLife joint venture: Property Type Number of Homes Location Strata Operating Community 163 San Diego, CA Crescent Falls Church Operating Community 214 Washington, D.C. Charles River Landing Operating Community 350 Boston, MA Lodge at Ames Pond Operating Community 364 Boston, MA Lenox Farms Operating Community 338 Boston, MA Towson Promenade Operating Community 379 Baltimore, MD Savoye Operating Community 394 Addison, TX Savoye2 Operating Community 351 Addison, TX
Fiori on
Operating Community 383 Addison, TX
Vitruvian West Phase 2 (a)
4 Land Parcels N/A Addison, TX
The number of apartment homes for the community under development presented
(a) in the table above is based on the projected number of total homes upon
completion of development. As of
been completed.
Dispositions
In May 2020 , the Company sold an operating community located in Bellevue,
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 in January 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 in
Tampa, Florida , in January 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 . InJune 2019 , the Company sold a parcel of land located inLos Angeles, California for$38.0 million , resulting in a gain of approximately$5.3 million . Prior to the sale, the parcel of land was subject to a ground lease, under which UDR was the lessor, scheduled to expire in 2065. The ground lease included a purchase option for the lessee to acquire the land during specific periods of the ground lease term. During the second quarter of 2019, the lessee exercised the purchase option resulting in the sale by the Company and the ground lease being terminated. 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. 46 Table of Contents 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, 2020 , total capital expenditures of$165.8 million or$3,494 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to$158.0 million or$3,710 per stabilized home for the prior year.
The increase in total capital expenditures was primarily due to:
an increase of 35.8%, or
? major structural changes and/or architectural revisions to existing buildings;
and
? an increase of 11.1%, or
include asset preservation and turnover related expenditures; and
? an increase of 11.6%, or
kitchen and bath remodels and upgrades to common areas.
This was partially offset by:
a decrease of 56.8%, or
? operations platform, which includes smart home installations at certain of our
properties.
The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, for the years endedDecember 31, 2020 and 2019 (dollars in thousands except Per Home amounts): Per Home Year Ended December 31, Year Ended December 31, 2020 2019 % Change 2020 2019 % Change
Turnover capital expenditures$ 12,978 $ 11,192 16.0 %$ 273 $ 263 3.8 % Asset preservation expenditures 43,946 40,054 9.7 % 926 941 (1.6) % Total recurring capital expenditures 56,924 51,246 11.1 % 1,199 1,204 (0.4) % NOI enhancing improvements (a) 48,752 43,689 11.6
% 1,027 1,026 0.1 % Major renovations (b) 48,317 35,569 35.8 % 1,018 835 21.9 % Operations platform 11,853 27,445 (56.8) % 250 645 (61.3) %
Total capital expenditures (c)$ 165,846 $ 157,949 5.0 %$ 3,494 $ 3,710 (5.8) % Repair and maintenance expense$ 56,794 $ 43,525 30.5
%$ 1,196 $ 1,022 17.0 % Average home count (d) 47,475 42,579 11.5 %
(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, 2020 , our development pipeline consisted of five wholly-owned communities located inDenver, Colorado ,Dublin, California ,Addison, Texas ,King of Prussia, Pennsylvania andWashington D.C. , totaling 1,378 homes, 202 of which have been completed, with a budget of$491.5 million , in which we have an investment of 47 Table of Contents$247.9 million . The communities are estimated to be completed between the first quarter of 2021 and the second quarter of 2023. During 2020, we incurred$121.2 million for development costs, an increase of$95.8 million as compared to costs incurred in 2019 of$25.4 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 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, 2020 :
we made investments totaling
? ventures, including contributions of
investments under our Developer Capital Program, which earn preferred returns
ranging from 8.5% to 13.0%;
? 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, 2020 and 2019.
Notes Receivable, net
Notes receivable relate to financing arrangements that are typically secured by real estate, real estate related projects or other assets.
The following significant activities occurred during the year ended
in
2021. When the note was funded, the Company also entered into a purchase option
agreement and paid a deposit of
option to acquire the community at a fixed price of
is generally nonrefundable other than due to a failure of closing conditions
? pursuant to the terms of the agreement. If the Company fails to close the
purchase other than due to seller's failure or other breaches in the purchase
option agreement, per the terms of the agreement, the note will be modified to
extend the maturity date to 10 years following the date the temporary
certificate of occupancy was issued, which was
the loan would be interest only for the first three years and after such date
payments will be based on a 30-year amortization schedule.
Financing Activities
For the years ended
The following significant financing activities occurred during the year ended
? repayments of secured debt of
proceeds from the issuance of secured debt of
48
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? issuance of
? issuance of
? issuance of
? repayment of
? net repayment of
? sale 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$19.8 million ;
? distributions of
? payment of debt extinguishment costs of
of debt.
The following significant financing activities occurred during the year ended
issuance of
? (3.42% effective rate after the effect of a cash flow hedge), for net proceeds
of approximately
issuance of
? (3.01% effective rate after the effect of a cash flow hedge), for net proceeds
of approximately
3.70% medium-term notes due in
issuance of
(3.24% effective rate after the effect of a cash flow hedge), and issuance of
?
effective rate after the effect of a cash flow hedge), for net proceeds of
approximately
medium-term notes due in
? net proceeds of
program;
? net proceeds of
facilities;
? repayments of
of
sale of 7.5 million shares of common stock in an underwritten public offering
? for net proceeds of approximately
? sale of 7.0 million shares of common stock under our ATM program for proceeds
of
? sale of 1.3 million shares of common stock under our forward sales agreement
for net proceeds of
? distributions of
Credit Facilities and Commercial Paper Program
During the year endedDecember 31, 2020 , the Company prepaid the$201.9 million outstanding balance under its secured credit facility withNew York Life with proceeds from the issuance of senior unsecured medium-term notes. The Company incurred net extinguishment costs of$9.0 million during the year endedDecember 31, 2020 , which was included in Interest expense on the Consolidated Statements of Operations. The Company has a$1.1 billion unsecured revolving credit facility and a$350.0 million unsecured term loan. The Credit Agreement for these facilities allows the total commitments under the Revolving Credit Facility and the total 49
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borrowings under the Term Loan to be increased to an aggregate maximum amount of up to$2.0 billion , subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date ofJanuary 31, 2023 , with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date ofSeptember 30, 2023 . Based on the Company's current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 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 90 basis points. Depending on the Company's credit rating, the margin under the Revolving Credit Facility ranges from 75 to 145 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 80 to 165 basis points. As ofDecember 31, 2020 , we had no outstanding borrowings under the Revolving Credit Facility, leaving$1.1 billion of unused capacity (excluding$2.8 million of letters of credit atDecember 31, 2020 ), 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 scheduled maturity date ofJanuary 14, 2022 . Based on the Company's current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points. Depending on the Company's credit rating, the margin ranges from 75 to 145 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, 2020 . 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$500 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, 2020 , we had issued$190.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 0.27%, leaving$310.0 million of unused capacity. InJanuary 2021 , the entire$190.0 million of outstanding unsecured commercial paper as ofDecember 31, 2020 was repaid at maturity with additional proceeds of unsecured commercial paper with maturity dates inFebruary 2021 and proceeds under the Working Capital Credit Facility.
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$280.0 million in variable rate debt that is not subject to interest rate swap contracts as ofDecember 31, 2020 . If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by$3.8 million based on the average balance outstanding during the year. These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. This analysis does not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure. The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 14, Derivatives and Hedging Activities, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivative instruments. 50
Table of Contents
A presentation of cash flow metrics based on GAAP is as follows (dollars in
thousands):
Year Ended December 31,
2020 2019Net cash provided by/(used in) operating activities$ 604,316 $ 630,704 Net cash provided by/(used in) investing activities (460,842) (1,686,687) Net cash provided by/(used in) financing activities (152,594)
880,383 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$60.0 million ($0.20 per diluted share) for the year endedDecember 31, 2020 , as compared to$180.9 million ($0.63 per diluted share) for the comparable period in the prior year. The decrease resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:
an increase in real estate depreciation expense of
? to communities acquired in 2020 and 2019, partially offset by a decrease from
sold communities and fully depreciated assets;
an increase in interest expense of
? average debt balances and the early pay off of debt during 2020 and 2019,
resulting in prepayment costs of
a decrease in income/(loss) from unconsolidated entities of
primarily attributable to a
operating communities from our UDR/MetLife II joint venture, a
? gain recognized on the sale of two operating properties from our UDR/KFH joint
venture, a
technology investment, and an increase in preferred interest earned due to
increased Developer Capital Program investments in 2019; and
a decrease in interest income and other income/(expense), net of
? primarily attributable to an
of a note to a multifamily technology company in 2019.
This was partially offset by:
gains of
? year ended
of a parcel of land in
31, 2019; and
an increase in total property NOI of
? additional operating communities, including those acquired in 2020 and 2019,
partially offset by an increase of
expenses.
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 2.875%
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.
51
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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)
2020 2019 % Change 2019 2018 % Change
Same-Store Communities:
Same-Store rental income $ 924,138 $ 953,121 (3.0) % $ 962,269 $ 928,849 3.6 %
Same-Store operating expense
(c) (279,940) (268,718) 4.2 % (271,826) (265,087) 2.5 %
Same-Store NOI 644,198 684,403 (5.9) % 690,443 663,762 4.0 %
Non-Mature Communities/Other
NOI:
Stabilized, non-mature
communities NOI (d) 161,258 98,193 64.2 % 79,007 11,968 560.2 %
Acquired communities NOI 7,919 762 939.2 % 5,830 - - %Redevelopment communities NOI - - - % 18,571 21,875 (15.1) % Development communities NOI 214 (8) NM * (8) 4,374 NM * Non-residential/other NOI (e) 27,694 12,954 113.8 % 13,174 18,609 (29.2) % Sold and held for disposition communities NOI 12,419 11,999 3.5 % 1,286 11,527 (88.8) % Total Non-Mature Communities/Other NOI 209,504 123,900 69.1 % 117,860 68,353 72.4 % Total property NOI$ 853,702 $ 808,303 5.6 %$ 808,303 $ 732,115 10.4 % * Not meaningful
(a) Same-Store consists of 37,607 apartment homes.
(b) Same-Store consists of 37,959 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,
2020 2019 2018Net income/(loss) attributable to UDR, Inc.$ 64,266 $ 184,965 $ 203,106 Joint venture management and other fees (5,069) (14,055) (11,754) Property management 35,538 32,721 28,465 Other operating expenses 22,762 13,932 12,100
Real estate depreciation and amortization 608,616 501,257 429,006 General and administrative 49,885 51,533 46,983 Casualty-related charges/(recoveries), net 2,131 474 2,121 Other depreciation and amortization 10,013 6,666 6,673 (Gain)/loss on sale of real estate owned (119,277) (5,282) (136,197) (Income)/loss from unconsolidated entities (18,844) (137,873) 5,055 Interest expense 202,706 170,917 134,168 Interest income and other (income)/expense, net (6,274) (15,404) (6,735) Tax provision/(benefit), net 2,545 3,838 688 Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership 4,543 14,426 18,215 Net income/(loss) attributable to noncontrolling interests 161 188 221 Total property NOI$ 853,702 $ 808,303 $ 732,115 Same-Store Communities
Our
NOI for ourSame-Store Community properties decreased 5.9%, or$40.2 million , for the year endedDecember 31, 2020 compared to the same period in 2019. The decrease in property NOI was attributable to a 3.0%, or$29.0 million , decrease in property rental income and a 4.2%, or$11.2 million , increase in operating expenses. The decrease in property rental income was primarily driven by an$11.7 million increase in our reserve on multifamily tenant lease receivables, an increase of$15.1 million in rent concessions and an increase of$10.0 million in economic occupancy loss, partially offset by a 0.7%, or$6.0 million , increase in rental rates and a 1.7%, or$1.8 million , increase in reimbursement and ancillary and fee income. Physical occupancy decreased by 0.5% to 96.3% and total monthly income per occupied home decreased 2.6% to$2,126 . The increase in operating expenses was primarily driven by a 12.5%, or$4.8 million , increase in repair and maintenance expense due to the increased use of third party vendors, partially offset by a 2.7%, or$1.7 million , decrease in personnel expense as a result of fewer employees, and a 6.9%, or$7.7 million , increase in real estate taxes, which was primarily due to higher assessed valuations.
The operating margin (property net operating income divided by property rental
income) was 69.7% and 71.8% 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 24.5%, or$209.5 million , of our total NOI during the year endedDecember 31, 2020 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 69.1%, or$85.6 million , for the year endedDecember 31, 2020 as compared to the same period in 2019. The increase was primarily attributable to a$63.1 million increase in NOI from stabilized, non-mature communities, primarily due to communities acquired in 2020 and 2019, a$14.7 million increase in non-residential/other primarily due to changes in straight-line rent as a result of increased tenant rent concessions during the period, and a$7.2 million increase in acquired communities. 53
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Real estate depreciation and amortization
For the years ended
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, 2020 and 2019, we recognized income/(loss) from unconsolidated entities of$18.8 million and$137.9 million , respectively. The decrease of$119.1 million was primarily due to:
? no dispositions from the Company's unconsolidated entities during the year
endedDecember 31, 2020 . As compared to:
gains of
our UDR/MetLife II joint venture, a
? operating communities in our UDR/KFH joint venture, and a
unrealized gain recorded on an unconsolidated technology investment and an
increase in Developer Capital Program investments during the year ended
December 31, 2019 . Interest expense For the years endedDecember 31, 2020 and 2019, the Company recognized interest expense of$202.7 million and$170.9 million , respectively. The increase in 2020 as compared to 2019 was primarily attributable to higher average debt balances, and the early pay off of debt during 2020 and 2019, resulting in prepayment costs of$49.2 million and$29.6 million , respectively.
Interest income and other income/(expense), net
For the years endedDecember 31, 2020 and 2019, the Company recognized interest income and other income/(expense), net of$6.3 million and$15.4 million , respectively. The decrease in 2020 as compared to 2019 was primarily attributable to an$8.5 million promoted interest on the prepayment of a note to a multifamily technology company in 2019.
Inflation
We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates 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 has had a material impact on our results for the year endedDecember 31, 2020 .
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.
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Contractual Obligations
The following table summarizes our contractual obligations as of
Payments Due by Period
Contractual Obligations 2021 2022-2023 2024-2025 Thereafter Total
Long-term debt obligations $ 191,097 $ 380,347 $ 584,113 $ 3,829,660 $ 4,985,217
Interest on debt obligations (a) 149,982 297,275 271,162
479,084 1,197,503
Letters of credit 2,839 - - - 2,839
Operating lease obligations:
Ground leases (b) 12,442 24,884 24,884 442,778 504,988
$ 356,360 $ 702,506 $ 880,159 $ 4,751,522 $ 6,690,547 (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 2020, we incurred gross interest costs of
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 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 allows investors to more easily
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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 flows 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 will enable 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 flows 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.
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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,
2020 2019 2018
Net income/(loss) attributable to common
stockholders $ 60,036 $ 180,861 $ 199,238
Real estate depreciation and amortization 608,616 501,257 429,006
Noncontrolling interests 4,704 14,614 18,436
Real estate depreciation and amortization on
unconsolidated joint ventures 35,023 57,954 61,871 Net gain on the sale of unconsolidated depreciable property
- (125,407) -
Net gain on the sale of depreciable real estate
owned, net of tax (118,852) - (136,197)
FFO attributable to common stockholders and
unitholders, basic $ 589,527 $
629,279
4,230 4,104 3,868
FFO attributable to common stockholders and
unitholders, diluted $ 593,757 $ 633,383 $ 574,122
Income/(loss) per weighted average common share,
diluted $ 0.20 $ 0.63 $ 0.74
FFO per weighted average common share and unit,
basic $ 1.86 $ 2.04 $ 1.95
FFO per weighted average common share and unit,
diluted $ 1.85 $ 2.03 $ 1.93
Weighted average number of common shares and
OP/DownREIT Units outstanding - basic 316,855 308,020 292,727
Weighted average number of common shares,
OP/DownREIT Units, and common stock equivalents
outstanding - diluted 320,187 311,799 297,042
Impact of adjustments to FFO: -
Costs associated with debt extinguishment and other
- (6,482) -
Legal and other costs 8,973 3,660 1,622 Net gain on the sale of non-depreciable real estate owned
- (5,282) -
Realized/unrealized (gain)/loss on unconsolidated
technology investments, net of tax (3,582) (3,300) -
Joint venture development success fee - (3,750) -
Severance costs and other restructuring expense 1,948 390 114
Casualty-related charges/(recoveries), net 2,545 636 2,364
Casualty-related charges/(recoveries) on
unconsolidated joint ventures, net 31 (374) -
$ 59,105 $ 15,092 $ 7,576
FFOA attributable to common stockholders and
unitholders, diluted $ 652,862 $
648,475
FFOA per weighted average common share and unit, diluted$ 2.04 $
2.08
Recurring capital expenditures (56,924) (51,246) (46,915) AFFO attributable to common stockholders and unitholders, diluted$ 595,938 $
597,229
AFFO per weighted average common share and unit, diluted$ 1.86 $ 1.92 $ 1.80 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, 2020 , 2019, and 2018 (shares in thousands): Year Ended December 31, 2020 2019 2018 Weighted average number of common shares and OP/DownREIT Units outstanding - basic 316,855 308,020 292,727 Weighted average number of OP/DownREIT Units outstanding (22,310)
(22,773) (24,548) Weighted average number of common shares outstanding - basic per the Consolidated Statements of Operations 294,545 285,247 268,179
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding - diluted
320,187 311,799 297,042
Weighted average number of OP/DownREIT Units
outstanding (22,310) (22,773) (24,548)
Weighted average number of Series E Cumulative
Convertible Preferred shares outstanding (2,950) (3,011) (3,011) Weighted average number of common shares outstanding - diluted per the Consolidated Statements of Operations 294,927 286,015 269,483
United Dominion Realty, L.P. : Business OverviewUnited Dominion Realty, L.P. (the "Operating Partnership" or "UDR, L.P. ") is aDelaware limited partnership formed inFebruary 2004 and organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act.The Operating Partnership is the successor-in-interest toUnited Dominion Realty, L.P. , a limited partnership formed under the laws ofVirginia , which commenced operations onNovember 4, 1995 . Our sole general partner isUDR, Inc. , aMaryland corporation ("UDR" or the "General Partner"), which conducts a substantial amount of its business and holds a substantial amount of its assets through theOperating Partnership . AtDecember 31, 2020 , theOperating Partnership's real estate portfolio included 53 communities located in nine states and theDistrict of Columbia with a total of 17,174 apartment homes. As ofDecember 31, 2020 , UDR owned 0.1 million units of our general partnership interests and 176.1 million units of our limited partnership interests (the "OP Units"), or approximately 95.3% of our outstanding OP Units. By virtue of its ownership of our OP Units and being our sole general partner, UDR has the ability to control all of the day-to-day operations of theOperating Partnership . Unless otherwise indicated or unless the context requires otherwise, all references in this section of this Report to theOperating Partnership or "we," "us" or "our" refer toUDR, L.P. together with its consolidated subsidiaries, and all references in this section to "UDR" or the "General Partner" refer solely toUDR, Inc. UDR is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. The General Partner was formed in 1972 as aVirginia corporation and changed its state of incorporation fromVirginia toMaryland inJune 2003 . AtDecember 31, 2020 , the General Partner's consolidated real estate portfolio included 149 communities located in 13 states and theDistrict of Columbia with a total of 48,283 apartment homes. In addition, the General Partner had an ownership interest in 5,295 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,165 apartment homes owned by entities in which we hold preferred equity investments.
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 58
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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 the
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, theOperating Partnership 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, 2020 , 2019, and 2018 were$1.0 million ,$1.0 million , and less than$0.1 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.
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, theOperating Partnership'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 and capitalization rates, industry trends and reference to market rates and transactions. 59 Table of Contents 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.
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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, 2020 Year Ended December 31, 2020
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
5 3,119 18.6 % $
753,801 96.6 %
9 2,185 15.3 % 617,293 92.6 % 3,198 57,812
Seattle, WA 5 932 5.8 % 233,525 97.0 % 2,086 15,840
Monterey Peninsula, CA 7 1,565 4.6 % 185,224 96.6 % 1,940 27,587
Los Angeles, CA 2 344 2.9 % 118,281 96.4 % 2,728 7,740
Other Southern California 1 414 1.9 % 76,883 97.6 % 2,155 7,897
Portland, OR 2 476 1.3 % 52,126 97.1 % 1,637 6,623
Mid-Atlantic Region
Metropolitan D.C. 5 1,736 10.9 % 442,224 96.3 % 2,106 29,262
Baltimore, MD 2 540 2.7 % 108,779 97.8 % 1,563 6,781
Northeast Region
Boston, MA 1 387 1.9 % 76,059 95.5 % 2,086 6,656
New York, NY 1 503 8.3 % 334,347 90.9 % 3,449 10,684
Southeast Region
Tampa, FL 2 942 2.8 % 114,452 97.7 % 1,556 11,333
Nashville, TN 6 1,612 3.9 % 157,415 97.6 % 1,352 18,159
Other Florida 1 636 2.2 % 89,630 97.2 % 1,656 8,085
Southwest Region
Denver, CO 1 218 3.6 % 144,959 93.1 % 3,012 5,199
Total/Average Same-Store
Communities 50 15,609 86.7 %
3,504,998 96.0 %
3 1,565 13.3 % 538,727 20,838
Total Real Estate Owned 53 17,174 100.0 % 4,043,725 $ 303,287
Total Accumulated
Depreciation (1,892,011)
Total Real Estate Owned, Net of Accumulated Depreciation $
2,151,714
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.
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, 2019 and held as ofDecember 31, 2020 . 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.
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale of properties, and the issuance of debt. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity.The Operating Partnership's primary source of liquidity is cash flow from operations, as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes, and borrowings owed by us under the General Partner's credit agreements. The General 61
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Partner will routinely use its working capital credit facility, its 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 owed by us under the General Partner's credit agreements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities and potential property acquisitions through net cash provided by property operations, borrowings and the disposition of properties. We believe that our net cash provided by property operations and borrowings will continue to be adequate to meet both operating requirements and the payment of distributions. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings owed by us under the General Partner's credit agreements, and the disposition of properties.
Future Capital Needs
Future capital expenditures are expected to be funded with proceeds from the issuance of secured debt or unsecured debt, sales of properties, borrowings owed by us under ourGeneral Partner's credit agreements, and to a lesser extent, from cash flows provided by operating activities.
As of
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 endedDecember 31, 2020
and 2019. Operating Activities For the year endedDecember 31, 2020 , Net cash provided by/(used in) operating activities was$217.7 million compared to$255.1 million for 2019. The decrease in cash flow from operating activities was primarily due to a decrease in net operating income and changes in operating assets and liabilities.
Investing Activities
For the year endedDecember 31, 2020 , Net cash provided by/(used in) investing activities was$(140.0) million compared to$(43.9) million for 2019. The increase in cash used in investing activities was primarily due to the acquisition of two operating communities in 2020, partially offset by proceeds from the sale of an operating community 2020 and a decrease in capital expenditures and other major improvements in 2020, as compared to 2019.
Acquisitions
InNovember 2020 , theOperating Partnership acquired a 672 apartment home operating community located inTampa, Florida for approximately$122.5 million .The Operating Partnership increased its real estate assets owned by approximately$119.4 million and recorded approximately$3.1 million of in-place lease intangibles. InDecember 2020 , theOperating Partnership acquired a 400 apartment home operating community located inHerndon, Virginia for approximately$128.6 million .The Operating Partnership increased its real estate assets owned by approximately$125.9 million and recorded approximately$2.7 million of in-place lease intangibles.
During the year ended
Dispositions
InOctober 2020 , theOperating Partnership 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$58.0 million . 62
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The proceeds were designated for a tax-deferred Section 1031 exchange and were used to pay a portion of the purchase price for acquisitions in November andDecember 2020 .
During the year ended
Financing Activities
For the year endedDecember 31, 2020 , Net cash provided by/(used in) financing activities was$(76.6) million compared to$(210.9) million for 2019. The decrease in cash used in financing activities was primarily due to a decrease in repayments of notes payable to the General Partner, partially offset by proceeds from the issuance of secured debt in 2019.
Guarantor on Unsecured Debt
The Operating Partnership is the guarantor on the General Partner's unsecured revolving credit facility with an aggregate borrowing capacity of$1.1 billion , an unsecured commercial paper program with an aggregate borrowing capacity of$500 million , a$350 million term loan dueSeptember 2023 ,$300 million of medium-term notes dueOctober 2025 ,$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 ,$400 million of medium-term notes dueAugust 2031 ,$400 million of medium-term notes dueAugust 2032 ,$350 million of medium-term notes dueMarch 2033 and$300 million of medium-term notes dueNovember 2034 . As ofDecember 31, 2020 and 2019, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had$190.0 million and$300.0 million , respectively, outstanding under its unsecured commercial paper program.
The credit facilities are subject to customary financial covenants and limitations.
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. 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$27.0 million in variable rate debt that is not subject to interest rate swap contracts as ofDecember 31, 2020 . If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by$0.3 million based on the average balance atDecember 31, 2020 . These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analyses do not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such amount, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure. The General Partner also utilizes derivative financial instruments owed by theOperating Partnership to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 9, Derivatives and Hedging Activities, in the Notes to theOperating Partnership's Consolidated Financial Statements for additional discussion of derivative instruments. A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands): Year EndedDecember 31, 2020 2019
Net cash provided by/(used in) operating activities$ 217,683 $ 255,093 Net cash provided by/(used in) investing activities (140,039) (43,906) Net cash provided by/(used in) financing activities (76,578) (210,853) 63 Table of Contents 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 OP Unitholders
Net income/(loss) attributable to OP unitholders was$134.2 million ($0.73 per diluted OP Unit) for the year endedDecember 31, 2020 as compared to net income of$102.2 million ($0.56 per diluted OP Unit) for the prior year. The increase in net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report:
gain of
?
the sale of real estate in 2019.
This was partially offset by:
a decrease in total property NOI of
approximately
? receivables, an increase in real estate taxes due to higher assessed
valuations, and an increase in repair and maintenance expenses due to increased
use of third party vendors, partially offset by a decrease in personnel expense
as result of fewer employees; and
? an increase in other operating expenses of
ground lease expense.
Apartment Community Operations
Our net income results primarily from NOI generated from the operation of our apartment communities.The Operating Partnership 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 are property management costs, which are theOperating Partnership's allocable share of costs incurred by the General Partner for shared services of corporate level property management employees and related support functions and 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 we consider 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 to OP unitholders below. 64
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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) %
2020 2019 Change 2019 2018 Change
Same-Store Communities:
Same-Store rental income $ 390,848 $ 403,551 (3.1) % $ 404,442 $ 390,647 3.5 %
Same-Store operating expense (b) (108,399) (103,355) 4.9 % (104,284) (100,815) 3.4 %
Same-Store NOI 282,449 300,196 (5.9) %300,158 289,832 3.6 %
Non-Mature Communities/Other NOI: Stabilized, non-mature communities NOI (d) 8,498 12,773 (33.5) % 5,621 5,125 9.7 % Acquired communities NOI 1,176 - - % - - - Redevelopment communities NOI - - - % 12,773 14,878 (14.1) % Non-residential/other NOI (c) 6,959 4,504 54.5 % 4,454 6,634 (32.9) % Sold and held for disposition communities NOI 4,205 5,533 (24.0) % - 911 (100.0) % Total Non-Mature Communities/Other NOI 20,838 22,810 (8.6) % 22,848 27,548 (17.1) % Total property NOI$ 303,287 $ 323,006 (6.1) %$ 323,006 $ 317,380 1.8 %
(a) Same-Store consists of 15,609 apartment homes.
(b) Same-Store consists of 15,723 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.
The following table is our reconciliation of Net income/(loss) attributable to OP unitholders to total property NOI for the years endedDecember 31, 2020 , 2019 and 2018 (dollars in thousands): Year Ended December 31, 2020 2019 2018 Net income/(loss) attributable to OP unitholders$ 134,229 $ 102,163 $ 229,763 Property management 12,326 12,701 11,878 Other operating expenses 16,138 9,488 8,864 Real estate depreciation and amortization 143,005 139,975 143,481 General and administrative 17,987 18,014 16,889 Casualty-related charges/(recoveries), net 793 853 951 (Gain)/loss on sale of real estate owned (57,960) - (75,507) (Income)/loss from unconsolidated entities 5,543 8,313 (43,496) Interest expense 29,357 29,667 22,835 Net income/(loss) attributable to noncontrolling interests 1,869 1,832 1,722 Total property NOI$ 303,287 $ 323,006 $ 317,380 Same-Store Communities OurSame-Store Community properties (those acquired, developed, and stabilized prior toJanuary 1, 2019 and held as ofDecember 31, 2020 ) consisted of 15,609 apartment homes and provided 93.1% of our total NOI for the year endedDecember 31, 2020 . NOI for ourSame-Store Community properties decreased 5.9%, or$17.7 million , for the year endedDecember 31, 2020 compared to 2019. The decrease in property NOI was primarily attributable to a 3.1%, or$12.7 million , decrease in property rental income and a 4.9%, or$5.0 million , increase in operating expenses. The decrease in property rental income was primarily driven by a$6.1 million increase in our reserve on multifamily tenant lease receivables, a$5.9 million increase in rent concessions and a$4.7 million increase in economic occupancy loss, partially offset by a 0.8%, or$3.1 million , increase in rental rates and a 2.0%, or$0.9 million , increase in reimbursement and ancillary and fee income. Physical occupancy decreased 0.8% to 96.0% and total monthly income per occupied home decreased 2.4% to$2,173 . 65
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The increase in operating expenses was primarily driven by a 15.9%, or$2.6 million , increase in repair and maintenance expense due to the increased use of third party vendors, partially offset by a 9.0%, or$2.0 million , decrease in personnel expense as a result of fewer employees, and a 7.8%, or$3.0 million , increase in real estate taxes, which was primarily due to higher assessed valuations.
The operating margin (property net operating income divided by property rental
income) was 72.3% and 74.4% for the years ended
Non-Mature Communities/Other
The remaining 6.9%, or$20.8 million , of our total NOI during the year endedDecember 31, 2020 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased 8.6%, or$2.0 million , for the year endedDecember 31, 2020 as compared to 2019. The decrease was primarily driven by a decrease in NOI of$4.3 million from stabilized, non-mature communities, and a decrease of$1.3 million from sold and held for disposition communities, partially offset by an increase of$2.5 million from non-residential/other primarily due to changes in straight-line rent as a result of increased tenant rent concessions during 2020, and an increase of$1.2 million from acquired communities.
Other Operating Expense
For the year endedDecember 31, 2020 , other operating expense increased by 70.1%, or$6.7 million , as compared to 2019, which was primarily due to higher ground lease expense in 2020 as a result of a rent reset provision on one of our ground leases.
Gain/(Loss) on Sale of Real Estate Owned
During the year endedDecember 31, 2020 , theOperating Partnership recognized a gain of$58.0 million on the sale of an operating community inAlexandria, Virginia with a total of 332 apartment homes. During the year endedDecember 31, 2019 , theOperating Partnership did not recognize any gains on the sale of
real estate. Inflation
We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates 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 has had a material impact on our results for the year endedDecember 31, 2020 .
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.
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Contractual Obligations
The following table summarizes our contractual obligations as of
Payments Due by Period
Contractual Obligations 2021 2022-2023 2024-2025 Thereafter Total
Long-term debt obligations $ - $ - $ - $ 99,500 $ 99,500
Interest on debt obligations (a) 2,475 4,950 4,950 10,593 22,968
Operating lease obligations - ground
leases (b) 12,442 24,884 24,884 442,778 504,988
Operating lease obligations - equipment
leases 179 370 386 813 1,748
$ 15,096 $ 30,204 $ 30,220 $ 553,684 $ 629,204 (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
the minimum lease payment, if stated in the agreement. For ground lease (b) agreements where 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
the remainder of the lease term.
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