DENVER–(BUSINESS WIRE)–UDR, Inc. (the “Company”) (NYSE: UDR), announced today its third quarter 2023 results. Net Income, Funds from Operations (“FFO”), FFO as Adjusted (“FFOA”), and Adjusted FFO (“AFFO”) per diluted share for the quarter ended September 30, 2023 are detailed below.
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Quarter Ended September 30 |
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Metric |
3Q 2023 Actual |
3Q 2023 Guidance |
3Q 2022 Actual |
$ Change vs. Prior Year Period |
% Change vs. Prior Year Period |
|
Net Income per diluted share |
$0.10 |
$0.13 to $0.15 |
$0.07 |
$0.03 |
43% |
|
FFO per diluted share |
$0.61 |
$0.62 to $0.64 |
$0.57 |
$0.04 |
7% |
|
FFOA per diluted share |
$0.63 |
$0.62 to $0.64 |
$0.60 |
$0.03 |
5% |
|
AFFO per diluted share |
$0.55 |
$0.56 to $0.58 |
$0.54 |
$0.01 |
2% |
- Same-Store (“SS”) results for the third quarter 2023 versus the third quarter 2022 and the second quarter 2023 are summarized below.
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Concessions reflected on a straight-line basis: |
Concessions reflected on a cash basis: |
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|
SS Growth / (Decline) |
Year-Over-Year (“YOY”): 3Q 2023 vs. 3Q 2022 |
Sequential: 3Q 2023 vs. 2Q 2023 |
YOY: 3Q 2023 vs. 3Q 2022 |
Sequential: 3Q 2023 vs. 2Q 2023 |
|
Revenue |
5.3% |
2.3% |
5.0% |
2.0% |
|
Expense |
3.4% |
3.9% |
3.4% |
3.9% |
|
Net Operating Income (“NOI”) |
6.1% |
1.6% |
5.7% |
1.2% |
-
During the third quarter,
- As previously announced, the Company acquired a six community portfolio in Texas (four in Dallas and two in Austin) totaling 1,753 apartment homes and valued at approximately $402.2 million.
- As previously announced, the Company repurchased 0.6 million shares of its common stock at a weighted average price per share of $40.13 for total consideration of approximately $25.0 million.
- The Company achieved stabilized occupancy at 5421 at Dublin Station, a $126.9 million, 220-home apartment community developed in the Dublin submarket of the San Francisco Bay Area.
- Subsequent to quarter end, the Company published its fifth annual ESG report and concurrently announced that it earned the Regional Sector Leader designation from GRESB.
“Our third quarter FFOA per diluted share met the guidance we provided in July, as the nation’s employment situation remained resilient and relative affordability versus other forms of housing continued to favor apartments,” said Tom Toomey, UDR’s Chairman and CEO. “Recent operating trends across the industry have been softer than typical due to all-time high levels of new supply, leading us to lower our expectation for FFOA per diluted share during the fourth quarter to a midpoint of $0.63 versus the $0.65 that was implied by our prior full-year 2023 guidance. Nevertheless, we believe UDR is well positioned due to our diversified portfolio, investment grade balance sheet, and unique operating initiatives that will differentiate our growth profile moving forward.”
Outlook(1)
As shown in the table below, the Company has established guidance ranges for the fourth quarter 2023 and has updated its prior full-year 2023 Net Income per share, FFO per share, FFOA per share, AFFO per share, and same-store growth guidance ranges.
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4Q 2023 Outlook |
3Q 2023 Actual |
Prior Full-Year 2023 Outlook |
Updated Full-Year 2023 Outlook |
Full-Year 2023 Midpoint (change) |
|
Net Income per diluted share |
$0.08 to $0.10 |
$0.10 |
$1.35 to $1.39 |
$1.32 to $1.34 |
$1.33 (-$0.04) |
|
FFO per diluted share |
$0.62 to $0.64 |
$0.61 |
$2.48 to $2.52 |
$2.45 to $2.47 |
$2.46 (-$0.04) |
|
FFOA per diluted share |
$0.62 to $0.64 |
$0.63 |
$2.47 to $2.51 |
$2.46 to $2.48 |
$2.47 (-$0.02) |
|
AFFO per diluted share |
$0.56 to $0.58 |
$0.55 |
$2.24 to $2.28 |
$2.23 to $2.25 |
$2.24 (-$0.02) |
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YOY Growth: concessions reflected on a straight-line basis: |
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SS Revenue |
N/A |
5.3% |
6.25% to 7.25% |
5.75% to 6.25% |
6.00% (-0.75%) |
|
SS Expense |
N/A |
3.4% |
4.0% to 5.5% |
4.50% to 5.00% |
4.75% (unch) |
|
SS NOI |
N/A |
6.1% |
6.75% to 8.25% |
6.50% to 7.00% |
6.75% (-0.75%) |
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YOY Growth: concessions reflected on a cash basis: |
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SS Revenue |
N/A |
5.0% |
6.0% to 7.0% |
5.40% to 5.90% |
5.65% (-0.85%) |
|
SS NOI |
N/A |
5.7% |
6.5% to 8.0% |
6.00% to 6.50% |
6.25% (-1.00%) |
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(1) |
Additional assumptions for the Company’s fourth quarter and full-year 2023 outlook can be found on Attachment 14 of the Company’s related quarterly Supplemental Financial Information (“Supplement”). A reconciliation of FFO per share, FFOA per share, and AFFO per share to GAAP Net Income per share can be found on Attachment 15(D) of the Company’s related quarterly Supplement. Non-GAAP financial measures and other terms, as used in this earnings release, are defined and further explained on Attachments 15(A) through 15(D), “Definitions and Reconciliations,” of the Company’s related quarterly Supplement. |
Third Quarter 2023 Results and Fourth Quarter 2023 Expectations
In the third quarter, total revenue increased by $18.8 million YOY, or 4.8 percent, to $410.1 million. This increase was primarily attributable to growth in revenue from Same-Store communities and past accretive external growth investments.
“Continued strength in renewal lease rate growth, occupancy, incremental income from our innovative operating initiatives, and positive rent collection trends enabled us to achieve 2.3 percent sequential same-store revenue growth on a straight-line basis in the third quarter,” said Mike Lacy, UDR’s Senior Vice President of Operations. “Resident financial health remains resilient but elevated new apartment supply is resulting in less robust pricing power than we had previously expected for the latter part of the third quarter and into the fourth quarter. As a result, we anticipate that effective lease rate growth for the fourth quarter will be below historical norms and our prior expectations, with October to-date blended lease rate growth approximating 1 percent.”
In the tables below, the Company has presented YOY, sequential, and year-to-date (“YTD”) Same-Store results by region, with concessions accounted for on both cash and straight-line bases.
Summary of Same-Store Results in Third Quarter 2023 versus Third Quarter 2022
|
Region |
Revenue Growth / (Decline) |
Expense Growth / (Decline) |
NOI Growth / (Decline) |
% of Same-Store Portfolio(1) |
Physical Occupancy(2) |
YOY Change in Occupancy |
|
West |
3.9% |
4.4% |
3.7% |
30.9% |
96.7% |
0.2% |
|
Mid-Atlantic |
4.8% |
4.6% |
4.9% |
21.0% |
96.9% |
0.2% |
|
Northeast |
6.9% |
5.1% |
7.9% |
18.2% |
96.7% |
(0.3)% |
|
Southeast |
6.0% |
3.1% |
7.3% |
14.2% |
96.4% |
(0.1)% |
|
Southwest |
3.2% |
(5.6)% |
8.9% |
9.0% |
96.8% |
0.1% |
|
Other Markets |
5.0% |
8.0% |
3.8% |
6.7% |
96.6% |
(0.2)% |
|
Total (Cash) |
5.0% |
3.4% |
5.7% |
100.0% |
96.7% |
0.0% |
|
Total (Straight-Line) |
5.3% |
3.4% |
6.1% |
– |
– |
– |
|
(1) |
Based on 3Q 2023 Same-Store NOI. For definitions of terms, please refer to the “Definitions and Reconciliations” section of the Company’s related quarterly Supplement. |
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(2) |
Weighted average Same-Store physical occupancy for the quarter. |
Summary of Same-Store Results in Third Quarter 2023 versus Second Quarter 2023
|
Region |
Revenue Growth / (Decline) |
Expense Growth / (Decline) |
NOI Growth / (Decline) |
% of Same-Store Portfolio(1) |
Physical Occupancy(2) |
Sequential Change in Occupancy |
|
West |
2.4% |
2.9% |
2.2% |
30.9% |
96.7% |
0.3% |
|
Mid-Atlantic |
2.4% |
3.2% |
2.1% |
21.0% |
96.9% |
0.0% |
|
Northeast |
2.6% |
7.3% |
0.3% |
18.2% |
96.7% |
(0.4)% |
|
Southeast |
0.7% |
1.7% |
0.2% |
14.2% |
96.4% |
0.1% |
|
Southwest |
1.1% |
0.3% |
1.6% |
9.0% |
96.8% |
0.5% |
|
Other Markets |
1.3% |
11.0% |
(2.3)% |
6.7% |
96.6% |
0.0% |
|
Total (Cash) |
2.0% |
3.9% |
1.2% |
100.0% |
96.7% |
0.1% |
|
Total (Straight-Line) |
2.3% |
3.9% |
1.6% |
– |
– |
– |
|
(1) |
Based on 3Q 2023 Same-Store NOI. For definitions of terms, please refer to the “Definitions and Reconciliations” section of the Company’s related quarterly Supplement. |
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|
(2) |
Weighted average Same-Store physical occupancy for the quarter. |
Summary of Same-Store Results YTD 2023 versus YTD 2022
|
Region |
Revenue Growth / (Decline) |
Expense Growth / (Decline) |
NOI Growth / (Decline) |
% of Same-Store Portfolio(1) |
Physical Occupancy(2) |
YOY Change in Occupancy |
|
West |
5.0% |
5.4% |
4.8% |
31.2% |
96.5% |
(0.1)% |
|
Mid-Atlantic |
5.7% |
5.1% |
5.9% |
21.2% |
96.8% |
(0.2)% |
|
Northeast |
8.5% |
5.8% |
10.0% |
17.4% |
97.0% |
(0.3)% |
|
Southeast |
9.5% |
6.7% |
10.8% |
14.3% |
96.2% |
(0.7)% |
|
Southwest |
6.9% |
2.9% |
9.4% |
9.0% |
96.6% |
(0.5)% |
|
Other Markets |
5.9% |
4.7% |
6.4% |
6.9% |
96.7% |
(0.2)% |
|
Total (Cash) |
6.7% |
5.2% |
7.3% |
100.0% |
96.6% |
(0.3)% |
|
Total (Straight-Line) |
7.4% |
5.2% |
8.4% |
– |
– |
– |
|
(1) |
Based on YTD 2023 Same-Store NOI. For definitions of terms, please refer to the “Definitions and Reconciliations” section of the Company’s related quarterly Supplement. |
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|
(2) |
Weighted average Same-Store physical occupancy for the quarter. |
Transactional Activity
As previously announced, during the quarter, the Company acquired a portfolio of six communities in Texas totaling 1,753 apartment homes in exchange for $172.8 million of UDR Operating Partnership Units issued at $47.50 per unit, $20.0 million in cash, and the assumption of $209.4 million of below market debt at a weighted average coupon rate of 3.8 percent with a weighted average of 6.3 years to maturity.
The transaction is expected to be cash flow neutral in year one and accretive in year two as operating initiatives are implemented. The transaction is expected to be dilutive to FFOA per share in 2023 due to negative non-cash debt mark-to-market adjustments related to the significantly below-market-rate debt being assumed.
Development Activity and Other Projects
During the quarter, the Company achieved stabilized occupancy at 5421 at Dublin Station, a $126.9 million, 220-home apartment community the Company developed in the Dublin submarket of the San Francisco Bay Area.
At the end of the third quarter, the Company’s development pipeline totaled $187.5 million and was 74 percent funded, with only $48.4 million remaining to fund. The Company’s active development pipeline includes two communities, one each in the Addison submarket of Dallas, TX, and Tampa, FL, for a combined 415 apartment homes.
At the end of the third quarter, the Company’s redevelopment pipeline of 2,313 apartment homes totaled $105.0 million and was 34 percent funded.
Developer Capital Program (“DCP”) Portfolio
At the end of the third quarter, the Company’s commitments under its DCP platform totaled $520.9 million with a contractual weighted average return rate of 9.9 percent and a weighted average estimated remaining term of 2.9 years.
Capital Markets and Balance Sheet Activity
“With minimal committed forward funding obligations, strong next 3-year liquidity, and our ability to source capital through joint venture and OP unit transactions, we can utilize our investment grade balance sheet and continue to opportunistically grow the Company to enhance stakeholder returns,” said Joe Fisher, UDR’s President and Chief Financial Officer.
During the quarter, the Company repurchased 0.6 million shares of its common stock at a weighted average price per share of $40.13 for total consideration of approximately $25.0 million.
The Company’s total indebtedness as of September 30, 2023 was $5.8 billion with no remaining consolidated maturities until 3Q 2024, excluding principal amortization and amounts on the Company’s commercial paper program. As of September 30, 2023, the Company had $970.0 million of liquidity through a combination of cash and undrawn capacity on its credit facilities. Please see Attachment 14 of the Company’s related quarterly Supplement for additional details on projected capital sources and uses.
In the table below, the Company has presented select balance sheet metrics for the quarter ended September 30, 2023 and the comparable prior year period.
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Quarter Ended September 30 |
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|
Balance Sheet Metric |
3Q 2023 |
3Q 2022 |
Change |
|
Weighted Average Interest Rate |
3.37% |
3.06% |
0.31% |
|
Weighted Average Years to Maturity(1) |
5.9 |
6.7 |
(0.8) |
|
Consolidated Fixed Charge Coverage Ratio |
5.2x |
5.3x |
(0.1)x |
|
Consolidated Debt as a percentage of Total Assets |
32.8% |
33.7% |
(0.9)% |
|
Consolidated Net Debt-to-EBITDAre |
5.7x |
6.0x |
(0.3)x |
|
(1) |
If the Company’s commercial paper balance was refinanced using its line of credit, the weighted average years to maturity would have been 6.0 years without extensions and 6.1 years with extensions for 3Q 2023 and 7.0 years without extensions and 7.1 years with extensions for 3Q 2022. |
ESG
Subsequent to quarter end, the Company published its fifth annual ESG report, which detailed the Company’s ongoing best-in-class commitment to engaging in socially responsible ESG activities including establishing science-based emissions reduction targets that should contribute to a lower-carbon future. Concurrently, the Company announced that it earned the Regional Sector Leader designation from GRESB resulting from the Company’s 2023 GRESB survey score of 87. In addition, the Company’s GRESB Public Disclosure rating is “A”, the fifth consecutive year UDR has achieved such a distinction.
Dividend
As previously announced, the Company’s Board of Directors declared a regular quarterly dividend on its common stock for the third quarter 2023 in the amount of $0.42 per share. The dividend will be paid in cash on October 31, 2023 to UDR common shareholders of record as of October 10, 2023. The third quarter 2023 dividend will represent the 204th consecutive quarterly dividend paid by the Company on its common stock.
Supplemental Information
The Company offers Supplemental Financial Information that provides details on the financial position and operating results of the Company which is available on the Company’s website at ir.udr.com.
Attachment 15(A)
Definitions and Reconciliations
September 30, 2023
(Unaudited)
Acquired Communities: The Company defines Acquired Communities as those communities acquired by the Company, other than development and redevelopment activity, that did not achieve stabilization as of the most recent quarter.
Adjusted Funds from Operations (“AFFO”) attributable to common stockholders and unitholders: The Company defines AFFO as FFO as Adjusted attributable to common stockholders and unitholders less recurring capital expenditures on consolidated communities that are necessary to help preserve the value of and maintain functionality at our communities.
Management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFO as Adjusted. AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. The Company believes that net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO enables investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. A reconciliation from net income/(loss) attributable to common stockholders to AFFO is provided on Attachment 2.
Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items: The Company defines Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items as Consolidated Interest Coverage Ratio – adjusted for non-recurring items divided by total consolidated interest, excluding the impact of costs associated with debt extinguishment, plus preferred dividends.
Management considers Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lenders with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation of the components that comprise Consolidated Fixed Charge Coverage Ratio – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.
Consolidated Interest Coverage Ratio – adjusted for non-recurring items: The Company defines Consolidated Interest Coverage Ratio – adjusted for non-recurring items as Consolidated EBITDAre – adjusted for non-recurring items divided by total consolidated interest, excluding the impact of costs associated with debt extinguishment.
Management considers Consolidated Interest Coverage Ratio – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lenders with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation of the components that comprise Consolidated Interest Coverage Ratio – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.
Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items: The Company defines Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items as total consolidated debt net of cash and cash equivalents divided by annualized Consolidated EBITDAre – adjusted for non-recurring items. Consolidated EBITDAre – adjusted for non-recurring items is defined as EBITDAre excluding the impact of income/(loss) from unconsolidated entities, adjustments to reflect the Company’s share of EBITDAre of unconsolidated joint ventures and other non-recurring items including, but not limited to casualty-related charges/(recoveries), net of wholly owned communities.
Management considers Consolidated Net Debt-to-EBITDAre – adjusted for non-recurring items a useful metric for investors as it provides ratings agencies, investors and lenders with a widely-used measure of the Company’s ability to service its consolidated debt obligations as well as compare leverage against that of its peer REITs. A reconciliation between net income/(loss) and Consolidated EBITDAre – adjusted for non-recurring items is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.
Controllable Expenses: The Company refers to property operating and maintenance expenses as Controllable Expenses.
Controllable Operating Margin: The Company defines Controllable Operating Margin as (i) rental income less Controllable Expenses (ii) divided by rental income. Management considers Controllable Operating Margin a useful metric as it provides investors with an indicator of the Company’s ability to limit the growth of expenses that are within the control of the Company.
Development Communities: The Company defines Development Communities as those communities recently developed or under development by the Company, that are currently majority owned by the Company and have not achieved stabilization as of the most recent quarter.
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre): The Company defines EBITDAre as net income/(loss) (computed in accordance with GAAP), plus interest expense, including costs associated with debt extinguishment, plus real estate depreciation and amortization, plus other depreciation and amortization, plus (minus) income tax provision/(benefit), net, (minus) plus net gain/(loss) on the sale of depreciable real estate owned, plus impairment write-downs of depreciable real estate, plus the adjustments to reflect the Company’s share of EBITDAre of unconsolidated joint ventures. The Company computes EBITDAre in accordance with standards established by the National Association of Real Estate Investment Trusts, or Nareit, which may not be comparable to EBITDAre reported by other REITs that do not compute EBITDAre in accordance with the Nareit definition, or that interpret the Nareit definition differently than the Company does. The White Paper on EBITDAre was approved by the Board of Governors of Nareit in September 2017.
Management considers EBITDAre a useful metric for investors as it provides an additional indicator of the Company’s ability to incur and service debt, and enables investors to assess our performance against that of its peer REITs. EBITDAre should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company’s activities in accordance with GAAP. EBITDAre does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs. A reconciliation between net income/(loss) and EBITDAre is provided on Attachment 4(C) of the Company’s quarterly supplemental disclosure.
Effective Blended Lease Rate Growth: The Company defines Effective Blended Lease Rate Growth as the combined proportional growth as a result of Effective New Lease Rate Growth and Effective Renewal Lease Rate Growth. Management considers Effective Blended Lease Rate Growth a useful metric for investors as it assesses combined proportional market-level, new and in-place demand trends.
Effective New Lease Rate Growth: The Company defines Effective New Lease Rate Growth as the increase in gross potential rent realized less concessions for the new lease term (current effective rent) versus prior resident effective rent for the prior lease term on new leases commenced during the current quarter.
Management considers Effective New Lease Rate Growth a useful metric for investors as it assesses market-level new demand trends.
Effective Renewal Lease Rate Growth: The Company defines Effective Renewal Lease Rate Growth as the increase in gross potential rent realized less concessions for the new lease term (current effective rent) versus prior effective rent for the prior lease term on renewed leases commenced during the current quarter.
Management considers Effective Renewal Lease Rate Growth a useful metric for investors as it assesses market-level, in-place demand trends.
Estimated Quarter of Completion: The Company defines Estimated Quarter of Completion of a development or redevelopment project as the date on which construction is expected to be completed, but it does not represent the date of stabilization.
Attachment 15(B)
Definitions and Reconciliations
September 30, 2023
(Unaudited)
Funds from Operations as Adjusted (“FFO as Adjusted”) attributable to common stockholders and unitholders: The Company defines FFO as Adjusted attributable to common stockholders and unitholders as FFO excluding the impact of other 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 FFO as Adjusted 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 compare our operating results with other REITs. FFO as Adjusted is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. The Company believes that net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to FFO as Adjusted.
Contacts
Trent Trujillo
Email: [email protected]
