The following discussion should be read in conjunction with our consolidated financial statements appearing elsewhere herein and is based primarily on our consolidated financial statements for the years endedDecember 31, 2022 , and 2021. This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021 ofUDR, Inc. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 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, 2021 .
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking
statements include, without limitation, statements concerning property
acquisitions and dispositions, development activity and capital expenditures,
capital raising activities, rent growth, occupancy, rental expense growth and
expected or potential impacts of the novel coronavirus disease ("COVID-19")
pandemic. Words such as "expects," "anticipates," "intends," "plans," "likely,"
"will," "believes," "seeks," "estimates," and variations of such words and
similar expressions are intended to identify such forward-looking statements.
The following factors, among others, could cause our future results to differ
materially from those expressed in the forward-looking statements:
? general economic conditions;
? the impact of inflation/deflation;
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, developments or redevelopments 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;
? the availability of capital and the stability of the capital markets;
? changes in job growth, home affordability and the demand/supply ratio for
multifamily housing;
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? the failure of automation or technology to help grow net operating income;
? uninsured losses due to insurance deductibles, self-insurance retention,
uninsured claims or casualties, or losses in excess of applicable coverage;
? delays in completing developments and lease-ups on schedule or at expected rent
and occupancy levels;
? 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.
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 in targeted markets located inthe United States . We were formed in 1972 as aVirginia corporation. InJune 2003 , we changed our state of incorporation fromVirginia toMaryland . Our subsidiaries include theOperating Partnership and theDownREIT Partnership . Unless the context otherwise requires, all references in this Report to "we," "us," "our," "the Company," or "UDR" refer collectively toUDR, Inc. , its consolidated subsidiaries and its consolidated joint ventures. AtDecember 31, 2022 , our consolidated real estate portfolio included 165 communities in 13 states plus theDistrict of Columbia totaling 54,999 apartment homes. In addition, we have an ownership interest in 9,099 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 6,262 apartment homes owned by entities in which we hold preferred equity investments.The Same-Store Community apartment home population for the year endedDecember 31, 2022 , was 47,360.
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 36
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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, 2022 , 2021, and 2020 were$31.3 million ,$21.0 million , and$19.0 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, 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
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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, 2022 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. 38
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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, 2022 Year Ended December 31, 2022
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
9 4,595 9.3 % $
1,439,802 96.9 %
11 2,779 5.9 % 914,296 96.0 % 3,345 76,249 Seattle, WA 14 2,726 6.2 % 968,150 97.5 % 2,709 63,538 Los Angeles, CA 4 1,225 3.0 % 472,430 96.6 % 3,031 31,437 Monterey Peninsula, CA 7 1,567 1.2 % 192,299 96.2 % 2,199 30,856 Other Southern California 3 821 1.5 % 220,987 97.2 % 2,700 19,366 Portland, OR 3 752 0.8 % 122,856 97.6 % 1,974 12,690Mid-Atlantic Region Metropolitan D.C. 23 8,381 15.2 % 2,372,091 97.2 % 2,260 152,139 Baltimore, MD 5 1,597 2.3 % 350,542 96.6 % 1,824 22,451 Richmond, VA 4 1,359 1.0 % 160,265 97.5 % 1,709 20,336 Northeast Region Boston, MA 11 4,298 10.9 % 1,701,117 96.8 % 2,978 106,135 New York, NY 6 2,318 10.0 % 1,559,006 98.0 % 4,231 65,731 Philadelphia, PA 1 313 0.7 % 108,463 96.8 % 2,484 6,290 Southeast Region Tampa, FL 11 3,877 4.2 % 652,790 96.8 % 1,975 58,384 Orlando, FL 9 2,500 1.6 % 251,978 96.8 % 1,707 35,360 Nashville, TN 8 2,260 1.5 % 234,298 97.4 % 1,636 30,903 Other Florida 1 636 0.6 % 93,792 97.0 % 2,116 10,666 Southwest Region Dallas, TX 11 3,866 3.9 % 600,425 97.0 % 1,715 48,749 Austin, TX 4 1,272 1.2 % 181,477 97.7 % 1,824 16,469 Denver, CO 1 218 0.9 % 146,736 95.3 % 3,551 6,565 Total/Average Same-Store Communities 146 47,360 81.9 % 12,743,800 97.0 %$ 2,425 932,853 Non-Mature, Commercial Properties & Other 19 7,478 16.8 % 2,622,128 108,209 Total Real Estate Held for Investment 165 54,838 98.7 % 15,365,928 1,041,062 Real Estate Under Development (b) - 161 1.2 % 190,105 (670) Real Estate Held for Disposition (c) - - 0.1 % 14,039 - Total Real Estate Owned 165 54,999 100.0 % 15,570,072$ 1,040,392 Total Accumulated Depreciation (5,762,501) Total Real Estate Owned, Net of Accumulated Depreciation$ 9,807,571
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
(b) communities with a total of 715 apartment homes, of which 161 have been
completed.
The retail component of a development community located in
(c) met the criteria to be classified as held for disposition at
2022.
We report in two segments: Same-Store Communities and Non-Mature
Communities/Other.
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Our Same-Store Communities segment represents those communities acquired,
developed, and stabilized prior to January 1, 2021 and held as of
December 31, 2022 . 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.
COVID-19 Update
We continue to monitor the status and respond to the effects of the COVID-19 pandemic and its impact on our business. While the pandemic and related government measures adversely impacted our business in certain prior periods, the extent of the impact generally has decreased. Future developments regarding COVID-19, however, continue to be uncertain and difficult to predict. There can be no assurances that closures or restrictions in response to COVID-19, including due to new variants, will not be imposed in the future or that other developments related to COVID-19 will not adversely affect our business, results of operations, financial condition and cash flows in future periods.
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either through operating cash flows, sales of properties, borrowings under our credit agreements, and/or the issuance of debt and/or equity securities. Our primary source of liquidity is our cash flow from operations, as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes, and borrowings under our credit agreements. We routinely use our working capital credit facility, our unsecured revolving credit facility and issuances of commercial paper to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio. We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through net cash provided by property operations, secured and unsecured borrowings, the issuance of debt or equity securities, and/or the disposition of properties. We believe that our net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings under credit agreements, the issuance of debt or equity securities, and/or dispositions of properties. We have a shelf registration statement filed with theSecurities and Exchange Commission , or "SEC ," which provides for the issuance of common stock, preferred stock, depositary shares, debt securities, guarantees of debt securities, warrants, subscription rights, purchase contracts and units to facilitate future financing activities in the public capital markets. Access to capital markets is dependent on market conditions at the time of issuance. InJuly 2021 , the Company entered into an ATM sales agreement under which the Company may offer and sell up to 20.0 million shares of its common stock, from time to time, to or through its sales agents and may enter into separate forward sales agreements to or through its forward purchasers. Upon entering into the ATM sales agreement, the Company simultaneously terminated the sales agreement for its prior at-the-market equity offering program, which was entered into inJuly 2017 . During the year endedDecember 31, 2022 , the Company settled 4.4 million shares of common stock through its ATM program pursuant to the Company's forward sales agreements described below. As ofDecember 31, 2022 , we had 14.0 million shares of common stock available for future issuance under the ATM program. In connection with any forward sales agreement under the Company's ATM program, the relevant forward purchasers will borrow from third parties and, through the relevant sales agent, acting in its role as forward seller, sell a number of shares of the Company's common stock equal to the number of shares underlying the agreement. The Company does not initially receive any proceeds from any sale of borrowed shares by the forward seller. 40
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InJune 2022 , the Company settled all 4.4 million shares under the outstanding forward sales agreements under its ATM program at a weighted average forward price per share of$52.46 , 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 over the term of the agreements and commissions paid to sales agents of approximately$7.5 million , for net proceeds of$230.9 million . InMarch 2022 , in connection with an underwritten public offering, the Company entered into forward sales agreements to sell 7.0 million shares of its common stock at an initial forward price per share of$57.565 . The actual forward price per share received by the Company upon settlement was determined on the applicable settlement dates 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 agreements. During the year endedDecember 31, 2022 , the Company settled all 7.0 million shares under the forward sales agreements at a weighted average forward price per share of$57.07 , which is inclusive of adjustments made to reflect the then-current federal funds rate and the amount of dividends paid to holders of UDR common stock, for net proceeds of$399.5 million . As described above, during the year endedDecember 31, 2022 , the Company settled 11.4 million shares in aggregate under previously announced forward sales agreements, including under the ATM program, for net proceeds of$630.4 million . Aggregate net proceeds from such forward sales, after deducting related expenses, were$629.6 million . During the year endedDecember 31, 2022 , the Company repurchased 1.2 million shares of its common stock at an average price of$41.14 per share for total consideration of approximately$49.0 million under its share repurchase program.
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 2023, we have approximately$1.2 million of secured debt maturing, inclusive of principal amortization, and$300.0 million of unsecured debt maturing, comprised solely of unsecured commercial paper. We anticipate repaying the debt due in 2023 with cash flow from our operations, proceeds from debt or equity offerings, proceeds from dispositions of properties, or from borrowings under our credit agreements and our unsecured commercial paper program.
The following table summarizes our material cash requirements as of
Payments Due by Period
Material Cash Requirements 2023 2024-2025 2026-2027 Thereafter Total
Long-term debt obligations $ 301,242 $ 315,199 $ 1,005,604 $ 3,854,236 $ 5,476,281
Interest on debt obligations (a) 162,003 312,641 268,920 333,131 1,076,695
Letters of credit 2,617 - - - 2,617
Operating lease obligations:
Ground leases (b) 12,442 24,884 24,884 417,895 480,105
$ 478,304 $ 652,724 $ 1,299,408 $ 4,605,262 $ 7,035,698
(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 2022, we incurred gross interest costs of
million
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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.
Guarantor Subsidiary Summarized Financial Information
UDR has certain outstanding debt securities that are guaranteed by theOperating Partnership . With respect to this debt, as further outlined below, theOperating Partnership fully and unconditionally guarantees payment of any principal, premium and interest in full to the holders thereof.The Operating Partnership is a subsidiary of UDR, through which UDR conducts a significant portion of its business and holds a substantial amount of its assets. UDR also conducts business through other subsidiaries, including its taxable REIT subsidiaries. In addition to its ownership interest in theOperating Partnership , UDR holds interests in subsidiaries and joint ventures, owns and operates properties, issues securities from time to time and guarantees debt of certain of its subsidiaries. UDR, as the sole general partner of theOperating Partnership , owns 100 percent of theOperating Partnership's general partnership interests and approximately 95 percent of its limited partnership interests and, by virtue thereof, has the ability to control all of the day-to-day operations of theOperating Partnership . UDR has concluded that it is the primary beneficiary of, and therefore consolidates, theOperating Partnership .The Operating Partnership is the subsidiary guarantor of certain of our registered debt securities, including the$300 million of medium-term notes dueSeptember 2026 ,$300 million of medium-term notes dueJuly 2027 ,$300 million of medium-term notes dueJanuary 2028 ,$300 million of medium-term notes dueJanuary 2029 ,$600 million of medium-term notes dueJanuary 2030 ,$600 million of medium-term notes dueAugust 2031 ,$400 million of medium-term notes dueAugust 2032 ,$350 million of medium-term notes dueMarch 2033 ,$300 million of medium-term notes due inJune 2033 and$300 million of medium-term notes dueNovember 2034 .The Operating Partnership fully and unconditionally guarantees payment of any principal, premium and interest in full to the holders of the notes described above. The guarantee forms part of the indenture under which the notes were issued. If, for any reason, we do not make any required payment in respect of the notes when due, theOperating Partnership will cause the payment to be made to, or to the order of, the applicable paying agent on behalf of the trustee. Holders of the notes may enforce their rights under the guarantee directly against theOperating Partnership without first making a demand or taking action against UDR or any other person or entity.The Operating Partnership may, without the consent of the holders of the notes, assume all of our rights and obligations under the notes and, upon such assumption, we will be released from our liabilities under the indenture and the notes. The notes are UDR's unsecured general obligations and rank equally with all of UDR's other unsecured and unsubordinated indebtedness outstanding from time to time. As a result, our payment of amounts due on the notes is subordinated to all of our existing and future secured obligations to the extent of the value of the collateral pledged toward any such secured obligation. Our payment of amounts due on the notes also is effectively subordinated to all liabilities, whether secured or unsecured, of any of our non-guarantor subsidiaries because, in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to such subsidiaries, we, as an equity holder of such subsidiaries, would not receive distributions from such subsidiaries until claims of any creditors of such subsidiaries are satisfied. 42
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The following tables present the summarized financial information for the
eliminations necessary to arrive at the information on a consolidated basis
(dollars in thousands):
December 31, December 31,
2022 2021
Total real estate, net $ 2,353,509 $ 2,262,108
Cash and cash equivalents 9 21
Operating lease right-of-use assets 195,296 198,835
Other assets 67,186 96,553
Total assets $ 2,616,000 $ 2,557,517
Secured debt, net $ 187,537 $ 143,745
Notes payable to UDR (a) 1,162,308 972,283
Operating lease liabilities 190,495 193,892
Other liabilities 118,103 108,076
Total liabilities 1,658,443 1,417,996
Total capital $ 957,557 $ 1,139,521
Year Ended
December 31,
2022 2021 2020
Total revenue $ 511,560 $ 440,631 $ 428,747
Property operating expenses (217,048) (189,543) (172,704)
Real estate depreciation and amortization (155,451) (152,520) (143,005)
Gain/(loss) on sale of real estate
- - 57,960 Operating income/(loss) 139,061 98,568 170,998 Interest expense (a) (37,792) (33,098) (29,357) Other income/(loss) (3,589) 9,316 (5,543) Net income/(loss)$ 97,680 $ 74,786 $ 136,098
All
2022 and 2021, respectively, and
(a) million of interest expense on notes payable to UDR for the years ended
of UDR's consolidated financial statements.
Statements of Cash Flows
The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years endedDecember 31, 2022
and 2021. Operating Activities For the year endedDecember 31, 2022 , our Net cash provided by/(used in) operating activities was$820.1 million compared to$664.0 million for 2021. The increase in cash flow from operating activities was primarily due to an increase in NOI, primarily driven by higher revenue per occupied home and additional operating communities, including those acquired in 2022 and 2021, and changes in operating assets and liabilities.
Investing Activities
For the year endedDecember 31, 2022 , Net cash provided by/(used in) investing activities was$(929.5) million compared to$(1.3) billion for 2021. The decrease in cash used in investing activities was primarily due to a decrease in acquisitions during 2022 and an increase in distributions received from unconsolidated joint ventures and partnerships, partially offset by a decrease in proceeds from the sale of real estate, an increase in investments in unconsolidated joint ventures and partnerships, an increase in spend for development and capital expenditures of real estate assets, and an increase from the net issuance of notes receivable during 2022 compared to the net repayment of notes receivable in 2021. 43 Table of Contents Acquisitions
In
In
located in
increased its real estate assets owned by approximately
recorded
In
land located in
InJune 2022 , the Company acquired a to-be-developed parcel of land, which included two operating retail components, located inRiverside, California for approximately$29.0 million . The Company increased its real estate assets owned by approximately$28.2 million and recorded$0.8 million of in-place lease intangibles. InJanuary 2021 , the Company acquired a 300 apartment home operating community located inFranklin, Massachusetts , for approximately$77.4 million . In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately$51.8 million . The Company increased its real estate assets owned by approximately$82.0 million , recorded$2.0 million of in-place lease intangibles, and recorded a$6.6 million debt premium in connection with the above-market debt assumed. InApril 2021 , the Company acquired a 636 apartment home operating community located inFarmers Branch, Texas , for approximately$110.2 million . In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately$42.0 million . The Company increased its real estate assets owned by approximately$111.5 million , recorded$3.0 million of in-place lease intangibles, and recorded a$4.3 million debt premium in connection with the above-market debt assumed. The Company previously had a secured note with an unaffiliated third party with an aggregate commitment of$20.0 million . The note was secured by a parcel of land and related land improvements located inAlameda, California . InSeptember 2020 , the developer defaulted on the loan. As a result of the default, inApril 2021 , the Company took title to the property pursuant to a deed in lieu of foreclosure. The Company increased its real estate assets owned by approximately$25.0 million , the fair market value of the property on the date of the title transfer, and recorded a$0.1 million gain on extinguishment of the secured note to Interest income and other income/(expense), net on the Consolidated Statements of Operations. (See Note 2, Significant Accounting Policies for further discussion.)
In
InMay 2021 , the Company acquired a 945 apartment home operating community located inFrisco, Texas , for approximately$166.9 million . In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately$89.5 million . The Company increased its real estate assets owned by approximately$169.9 million , recorded$4.1 million of in-place lease intangibles, and recorded a$7.1 million debt premium in connection with the above-market debt assumed.
In
located in
increased its real estate assets owned by approximately
recorded
InJuly 2021 , the Company acquired a 259 apartment home operating community located inBellevue, Washington , for approximately$171.9 million . The Company previously had a$115.0 million secured note receivable associated with this operating community. The Company increased its real estate assets owned by approximately$169.1 million and recorded$2.8 million of in-place lease intangibles. In connection with the acquisition of this community, the note and the unpaid accrued interest were paid in full. (See Note 2, Significant Accounting Policies for further discussion.) 44
Table of Contents
InAugust 2021 , the Company acquired a 544 apartment home operating community located inGermantown, Maryland , for approximately$127.2 million . The Company increased its real estate assets owned by approximately$124.4 million and recorded$2.8 million of in-place lease intangibles. InSeptember 2021 , the Company acquired a 320 apartment home operating community located inKing of Prussia, Pennsylvania , for approximately$116.2 million . The Company increased its real estate assets owned by approximately$113.8 million and recorded$2.4 million of in-place lease intangibles.
In
located in
increased its real estate assets owned by approximately
recorded
in-place lease intangibles.
InSeptember 2021 , the Company acquired a 339 apartment home operating community located inPhiladelphia, Pennsylvania , for approximately$147.0 million . The Company increased its real estate assets owned by approximately$136.7 million and recorded$7.1 million of real estate tax intangibles and$3.2 million of in-place lease intangibles. InOctober 2021 , the Company acquired its joint venture partner's common equity interest in a 330 apartment home operating community located inOrlando, Florida , for a total purchase price of approximately$106.0 million . The Company paid for the community by issuing approximately 0.9 million OP Units (valued at$53.00 per unit per the agreement) to the seller, which equaled$47.9 million . In connection with the acquisition, the joint venture construction loan of approximately$39.6 million was repaid. The Company previously held a$16.4 million preferred equity investment in the entity on the date of acquisition, which it accounted for as an unconsolidated equity investment (see Note 5, Joint Ventures and Partnerships). As a result, inOctober 2021 , the Company increased its ownership interest to 100% and consolidated the operating community. The Company accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation. The Company increased its real estate assets owned by approximately$103.6 million and recorded$2.4 million of in-place lease intangibles.
In
located in
increased its real estate assets owned by approximately
recorded
In
located in
increased its real estate assets owned by approximately
recorded
Dispositions
In
County, California
In
California
of
In
California
million
We plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital to primary locations in markets we believe will provide the best investment returns.
Capital Expenditures
We capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. For the year endedDecember 31, 2022 , total capital expenditures of$234.0 million or$4,373 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to$153.3 million or$3,036 per stabilized home for the prior year. 45 Table of Contents
The increase in total capital expenditures was primarily due to:
? an increase of 108.4%, or
major structural changes and/or architectural revisions to existing buildings;
? an increase of 61.3%, or
kitchen and bath remodels and upgrades to common areas; and
? an increase of 15.7%, or
which include asset preservation and turnover related expenditures.
The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, for the years endedDecember 31, 2022 and 2021 (dollars in thousands except Per Home amounts): Per Home Year Ended December 31, Year Ended December 31, 2022 2021 % Change 2022 2021 % Change
Turnover capital expenditures$ 17,148 $ 15,407 11.3 %$ 320 $ 305 4.9 % Asset preservation expenditures 56,713 48,413 17.1 % 1,060 959 10.5 % Total recurring capital expenditures 73,861 63,820 15.7 % 1,380 1,264 9.2 % NOI enhancing improvements (a) 72,165 44,727 61.3
% 1,349 886 52.3 % Major renovations (b) 84,048 40,339 108.4 % 1,571 799 96.6 % Operations platform 3,917 4,371 (10.4) % 73 87 (16.1) %
Total capital expenditures (c)$ 233,991 $ 153,257 52.7 %$ 4,373 $ 3,036 44.0 % Repair and maintenance expense$ 84,663 $ 71,147 19.0
%$ 1,582 $ 1,409 12.3 % Average home count (d) 53,514 50,488 6.0 %
(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, 2022 , our development pipeline consisted of three wholly-owned communities located inWashington D.C. ,Addison, Texas andTampa, Florida , totaling 715 homes, of which 161 have been completed, with a budget of$332.5 million , in which we have a gross carrying value of$190.1 million . The communities are estimated to be completed between the first quarter of 2023 and the second quarter of 2024. During 2022, we incurred$198.0 million for development costs, an increase of$20.0 million as compared to costs incurred in 2021 of$178.0 million .
At
substantial redevelopment activities.
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.
46
Table of Contents
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, 2022 :
we made investments totaling
? ventures and partnerships, including contributions of
unconsolidated investments under our Developer Capital Program, each of which
earns a preferred return;
? our proportionate share of the net income/(loss) of the joint ventures and
partnerships was
? we received cash 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, 2022 and 2021.
Financing Activities
For the years ended
financing activities was
The following significant financing activities occurred during the year ended
issued 11.4 million shares of common stock at an average price of
? share under forward sales agreements for aggregate net proceeds, after
deducting related expenses, of approximately
? repurchased 1.2 million shares of common stock at an average price of
per share for approximately
? net proceeds of
? paid
The following significant financing activities occurred during the year ended
? issued
2033, for net proceeds of approximately
issued
? 2031, priced at 106.388% of the principal amount to yield 2.259%, resulting in
net proceeds of approximately
? repaid
? net proceeds of
issued 19.5 million shares of common stock under forward sales agreements for
? aggregate net proceeds, after deducting related expenses, of approximately
? paid
? paid prepayment and extinguishment costs of
prepayment of debt.
Credit Facilities and Commercial Paper Program
The Company has a$1.3 billion unsecured revolving credit facility (the "Revolving Credit Facility") and a$350.0 million unsecured term loan (the "Term Loan"). The credit agreement for these facilities ( the "Credit Agreement") allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to$2.5 billion , subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date ofJanuary 31, 2026 , with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date ofJanuary 31, 2027 . InSeptember 2022 , the Company amended the Credit
Agreement to change the
47
Table of Contents
interest rate benchmark from London Interbank Offered Rate ("LIBOR") to Secured
Overnight Financing Rate ("SOFR").
Based on the Company's current credit rating, the Revolving Credit Facility has an interest rate equal to SOFR plus a margin of 85.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to SOFR plus a margin of 93.0 basis points. The margins noted for the current interest rates include a 10 basis point adjustment related to the SOFR transition. Depending on the Company's credit rating, the margin under the Revolving Credit Facility ranges from 70 to 140 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 75 to 160 basis points. Further, the Credit Agreement includes sustainability adjustments pursuant to which the applicable margin for the Revolving Credit Facility and the Term Loan were reduced by two basis points inSeptember 2022 upon the Company receiving certain green building certifications, which is reflected in the margins noted above. As ofDecember 31, 2022 , we had no outstanding borrowings under the Revolving Credit Facility, leaving$1.3 billion of unused capacity (excluding$2.6 million of letters of credit atDecember 31, 2022 ), and$350.0 million of outstanding borrowings under the Term Loan. The Company has a working capital credit facility, which provides for a$75.0 million unsecured revolving credit facility (the "Working Capital Credit Facility") with a scheduled maturity date ofJanuary 12, 2024 . InSeptember 2022 , the Company amended its Working Capital Credit Facility to change the interest rate benchmark from LIBOR to SOFR. Based on the Company's current credit rating, the Working Capital Credit Facility has an interest rate equal to SOFR plus a margin of 87.5 basis points. The margin noted for the current interest rate includes a 10 basis point adjustment related to the SOFR transition. Depending on the Company's credit rating, the margin ranges from 70 to 140 basis points.
As of
the Working Capital Credit Facility, leaving
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, 2022 . The Company has an unsecured commercial paper program. Under the terms of the program, the Company may issue unsecured commercial paper up to a maximum aggregate amount outstanding of$700.0 million . The notes are sold under customary terms inthe United States commercial paper market and rank pari passu with all of the Company's other unsecured indebtedness. The notes are fully and unconditionally guaranteed by theOperating Partnership . As ofDecember 31, 2022 , we had issued$300.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 4.7%, leaving$400.0 million of unused capacity. 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$530.0 million in variable rate debt that is not subject to interest rate swap contracts as ofDecember 31, 2022 . If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by$5.9 million based on the average balance outstanding during the year. These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. This analysis does not consider the effects of the adjusted level of overall economic activity that could exist in such an environment or actions we may take to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure. The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 14, Derivatives and Hedging Activities, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivative instruments. 48
Table of Contents
A presentation of cash flow metrics based on GAAP is as follows (dollars in
thousands):
Year Ended December 31,
2022 2021
Net cash provided by/(used in) operating activities$ 820,071 $ 663,960 Net cash provided by/(used in) investing activities (929,528) (1,272,253) Net cash provided by/(used in) financing activities 111,233
612,540 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$82.5 million ($0.26 per diluted share) for the year endedDecember 31, 2022 , as compared to$145.8 million ($0.48 per diluted share) for the prior year. The decrease resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:
a gain of
?
to gains of
in
an increase in depreciation expense of
? communities acquired in 2022 and 2021, partially offset by assets that became
fully depreciated in 2022 and 2021;
a decrease in income from unconsolidated entities of
due to
ended
?
one portfolio investment held by RETV I, SmartRent, partially offset by
million of net variable upside participation recorded on the sale of a DCP
community in 2022 and an increase in income from our preferred equity investments; and
a decrease in interest income and other income/(expense), net of
primarily due to a
? SmartRent's public share price during the year ended
compared to a
public share price during the year ended
This was partially offset by:
an increase in total property NOI of
? revenue per occupied home, NOI from additional operating communities, including
those acquired in 2022 and 2021, and a decrease in rent concessions, partially
offset by an increase in property operating expenses; and
a decrease in interest expense of
of extinguishment cost from the prepayment of debt during the year ended
?
partially offset by an increase in average interest rates during the year ended
Apartment Community Operations
Our net income results are primarily from NOI generated from the operation of
our apartment communities. The Company defines NOI, which is a non-GAAP
financial measure, as rental income less direct property rental expenses. Rental
income represents gross market rent less adjustments for concessions, vacancy
loss and bad debt. Rental expenses include real estate taxes, insurance,
personnel, utilities, repairs and maintenance, administrative and marketing.
Excluded from NOI is property management expense which is calculated as 3.25% 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.
49
Table of Contents
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)
2022 2021 % Change 2021 2020 % Change
Same-Store Communities:
Same-Store rental income $ 1,337,003 $ 1,203,921 11.1 % $ 1,147,259 $ 1,130,760 1.5 %
Same-Store operating
expense (c) (404,150) (382,226) 5.7 % (356,761) (344,149) 3.7 %
Same-Store NOI 932,853 821,695 13.5 % 790,498 786,611 0.5 %
Non-Mature
Communities/Other NOI:
Stabilized, non-mature
communities NOI (d) 88,767 33,789 162.7 % 62,906 24,645 155.2 %
Acquired communities NOI - - - 4,156 - N/A
Development communities NOI 2,306 (418) NM *
(417) (127) NM * Non-residential/other NOI (e) 14,801 5,296 179.5 % 5,114 27,689 (81.5) % Sold and held for
disposition communities NOI 1,665 6,763 (75.4) %
4,868 14,884 (67.3) % Total Non-Mature Communities/Other NOI 107,539 45,430 136.7 % 76,627 67,091 14.2 % Total property NOI$ 1,040,392 $ 867,125 20.0 %$ 867,125 $ 853,702 1.6 % * Not meaningful
(a) Same-Store consists of 47,360 apartment homes.
(b) Same-Store consists of 45,143 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.
50
Table of Contents
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,
2022 2021 2020
Net income/(loss) attributable to UDR, Inc.$ 86,924 $ 150,016 $ 64,266 Joint venture management and other fees (5,022)
(6,102) (5,069) Property management 49,152 38,540 35,538 Other operating expenses 17,493 21,649 22,762
Real estate depreciation and amortization 665,228 606,648 608,616 General and administrative 64,144 57,541 49,885 Casualty-related charges/(recoveries), net 9,733 3,748 2,131 Other depreciation and amortization 14,344 13,185 10,013 (Gain)/loss on sale of real estate owned (25,494) (136,052) (119,277) (Income)/loss from unconsolidated entities (4,947) (65,646) (18,844) Interest expense 155,900 186,267 202,706 Interest income and other (income)/expense, net 6,933 (15,085) (6,274) Tax provision/(benefit), net 349 1,439 2,545 Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership 5,613 10,873 4,543 Net income/(loss) attributable to noncontrolling interests 42 104 161 Total property NOI$ 1,040,392 $ 867,125 $ 853,702 Same-Store Communities
Our
prior to
apartment homes and provided 89.7% of our total NOI for the year ended
NOI for ourSame-Store Community properties increased 13.5%, or$111.2 million , for the year endedDecember 31, 2022 compared to the same period in 2021. The increase in property NOI was attributable to an 11.1%, or$133.1 million , increase in property rental income, which was partially offset by a 5.7%, or$21.9 million , increase in operating expenses. The increase in property rental income was primarily driven by a 9.2%, or$105.2 million , increase in rental rates, an$18.0 million decrease in rent concessions and a 9.4%, or$12.5 million , increase in reimbursement and ancillary and fee income. Weighted average physical occupancy remained the same at 97.0% and total monthly income per occupied home increased 11.1% to$2,425 . The increase in operating expenses was primarily driven by an 11.0%, or$7.3 million , increase in repair and maintenance expense due to the increased use of third party vendors and an increase in the number of homes that turned as well as the impact of inflation on those third party vendor costs, a 25.5%, or$5.1 million , increase in insurance expense due to increased claims, a 7.9%, or$4.0 million , increase in utilities, which was primarily due an increase in energy costs, and a 2.7%, or$4.4 million , increase in real estate taxes due to higher assessed valuations.
The operating margin (property net operating income divided by property rental
income) was 69.8% and 68.3% for the years ended
respectively.
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 10.3%, or$107.5 million , of our total NOI during the year endedDecember 31, 2022 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 136.7%, or$62.1 million , for the year endedDecember 31, 2022 as compared to the same period in 2021. The increase was primarily attributable to a$55.0 million increase in NOI from stabilized, non-mature communities, primarily due to communities acquired in 2022 and 2021, and a$9.5 million increase in non-residential/other primarily due to changes in straight-line rent as a result of decreased tenant rent concessions during 2021, partially offset by a$5.1 million decrease in sold and held for disposition communities. 51 Table of Contents
Real estate depreciation and amortization
For the years ended
estate depreciation and amortization of
respectively. The increase in 2022 as compared to 2021 was primarily
attributable to communities acquired in 2022 and 2021, partially offset by
assets that became fully depreciated in 2022 and 2021.
Gain/(Loss) on Sale of Real Estate Owned
During the year ended
million
California
During the year ended
million
California
Income/(Loss) from Unconsolidated Entities
For the years endedDecember 31, 2022 and 2021, we recognized income/(loss) from unconsolidated entities of$4.9 million and$65.6 million , respectively. The decrease in 2022 as compared to 2021 was primarily due to$(35.5) million of investment income/(loss) from RETV I during the year endedDecember 31, 2022 as compared to$50.8 million during the year endedDecember 31, 2021 , which primarily related to unrealized gains/(losses) from one portfolio investment held by RETV I, SmartRent, partially offset by$10.6 million of net variable upside participation recorded on the sale of a DCP community in 2022 and an increase in income from our preferred equity investments.
Interest expense
For the years endedDecember 31, 2022 and 2021, the Company recognized interest expense of$155.9 million and$186.3 million , respectively. The decrease in 2022 as compared to 2021 was primarily attributable to$42.3 million of extinguishment cost from the prepayment of debt during the year endedDecember 31, 2021 as compared to none for the year endedDecember 31, 2022 , partially offset by an increase in average interest rates during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 .
Interest income and other income/(expense), net
For the years endedDecember 31, 2022 and 2021, the Company recognized interest income and other income/(expense), net of$(6.9) million and$15.1 million , respectively. The decrease of$22.0 million was primarily due to a$(15.7) million unrealized loss due to the decrease in SmartRent's public share price during the year endedDecember 31, 2022 as compared to a$6.6 million unrealized gain due to the increase in SmartRent's public share price during the year
endedDecember 31, 2021 . Inflation Inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and repair and maintenance costs. In addition, inflation could also impact our general and administrative expenses, the interest on our debt if variable or refinanced in a high-inflationary environment, our cost of capital, and our cost of development, redevelopment, maintenance or other operating activities. However, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for inflationary effects by increasing rents on our apartment homes. Although an extreme or sustained escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this had a material impact on our results for the year endedDecember 31, 2022 .
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
52
Table of Contents
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 theNational Association of Real Estate Investment Trust's ("Nareit") definition issued inApril 2002 and restated inNovember 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 enables investors to more easily compare our
operating results with other REITs. FFOA is not intended to represent cash flow
or liquidity for the period, and is only intended to provide an additional
measure of our operating performance. We believe that Net income/(loss)
attributable to common stockholders is the most directly comparable GAAP
financial measure to FFOA. However, other REITs may use different methodologies
for calculating FFOA or similar FFO measures and, accordingly, our FFOA may not
always be comparable to FFOA or similar FFO measures calculated by other REITs.
FFOA should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of financial performance, or as an
alternative to cash flow from operating activities (determined in accordance
with GAAP) as a measure of our liquidity.
Adjusted Funds from Operations
Adjusted FFO ("AFFO") attributable to common stockholders and unitholders is
defined as FFOA less recurring capital expenditures on consolidated communities
that are necessary to help preserve the value of and maintain functionality at
our communities. Therefore, management considers AFFO a useful supplemental
performance metric for investors as it is more indicative of the Company's
operational performance than FFO or FFOA.
AFFO is not intended to represent cash flow or liquidity for the period, and is
only intended to provide an additional measure of our operating performance. We
believe that Net income/(loss) attributable to common stockholders is the most
directly comparable GAAP financial measure to AFFO. Management believes that
AFFO is a widely recognized measure of the operations of REITs, and presenting
AFFO enables investors to assess our performance in comparison to other REITs.
However, other REITs may use different methodologies for calculating AFFO and,
accordingly, our AFFO may not always be comparable to AFFO calculated by other
REITs. AFFO should not be considered as an alternative to net income/(loss)
(determined in accordance with GAAP) as an indication of financial performance,
or as an alternative to cash flow from operating activities (determined in
accordance with GAAP) as a measure of our liquidity, nor is it indicative of
funds available to fund our cash needs, including our ability to make
distributions.
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Table of Contents
The following table outlines our reconciliation of Net income/(loss)
attributable to common stockholders to FFO, FFOA, and AFFO for the years ended
Year Ended
2022 2021 2020 Net income/(loss) attributable to common stockholders$ 82,512 $ 145,787 $ 60,036 Real estate depreciation and amortization 665,228 606,648 608,616 Noncontrolling interests 5,655 10,977 4,704 Real estate depreciation and amortization on unconsolidated joint ventures 30,062
31,967 35,023
Net gain on the sale of unconsolidated depreciable
property
- (2,460) - Net gain on the sale of depreciable real estate owned, net of tax (25,494) (136,001) (118,852) FFO attributable to common stockholders and unitholders, basic$ 757,963 $
656,918
Distributions to preferred stockholders - Series E
(Convertible)
4,412 4,229 4,230 FFO attributable to common stockholders and unitholders, diluted$ 762,375 $ 661,147 $ 593,757 Income/(loss) per weighted average common share, diluted$ 0.26 $ 0.48 $ 0.20 FFO per weighted average common share and unit, basic$ 2.21 $ 2.04 $ 1.86 FFO per weighted average common share and unit, diluted$ 2.20 $ 2.02 $ 1.85 Weighted average number of common shares and OP/DownREIT Units outstanding - basic 343,149 322,744 316,855 Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding - diluted 347,094
327,039 320,187
Impact of adjustments to FFO: Debt extinguishment and other associated costs $ -$ 42,336 $ 49,190 Debt extinguishment and other associated costs on unconsolidated joint ventures - 1,682 - Variable upside participation on DCP, net (10,622) - - Legal and other 1,493 5,319 8,973 Realized (gain)/loss on real estate technology investments, net of tax (6,992) (1,980) 1,005 Unrealized (gain)/loss on real estate technology investments, net of tax 52,663 (55,947) (4,587) Severance costs 441 2,280 1,948 Casualty-related charges/(recoveries), net 9,733 3,960 2,545 Casualty-related charges/(recoveries) on unconsolidated joint ventures, net - - 31$ 46,716 $ (2,350) $ 59,105 FFOA attributable to common stockholders and unitholders, diluted$ 809,091 $
658,797
FFOA per weighted average common share and unit, diluted$ 2.33 $
2.01
Recurring capital expenditures (77,710) (63,820) (56,924) AFFO attributable to common stockholders and unitholders, diluted$ 731,381 $
594,977
AFFO per weighted average common share and unit, diluted$ 2.11 $ 1.82 $ 1.86 54 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, 2022 , 2021, and 2020 (shares in thousands): Year Ended
2022 2021 2020 Weighted average number of common shares and OP/DownREIT Units outstanding - basic 343,149 322,744 316,855 Weighted average number of OP/DownREIT Units outstanding (21,478)
(22,418) (22,310)
Weighted average number of common shares outstanding -
basic per the Consolidated Statements of Operations 321,671 300,326 294,545
Weighted average number of common shares, OP/DownREIT
Units, and common stock equivalents outstanding -
diluted
347,094 327,039 320,187 Weighted average number of OP/DownREIT Units outstanding (21,478) (22,418) (22,310) Weighted average number of Series E Cumulative Convertible Preferred shares outstanding (2,916)
(2,918) (2,950)
Weighted average number of common shares outstanding -
diluted per the Consolidated Statements of Operations 322,700 301,703 294,927
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