Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10524
UDR, Inc.
(Exact name of registrant as specified in its charter)
Maryland
54-0857512
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (720) 283-6120
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
UDR
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large Accelerated Filer þ
Accelerated Filer ◻
Non-Accelerated Filer ◻
Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ◻
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
The aggregate market value of the shares of common stock of UDR, Inc. held by non-affiliates on June 30, 2023 was approximately $5.5 billion. This calculation excludes shares of common stock held by the registrant’s officers and directors and each person known by the registrant to beneficially own more than 5% of the registrant’s outstanding shares, as such persons may be deemed to be affiliates. This determination of affiliate status should not be deemed conclusive for any other purpose. As of February 16, 2024, there were 329,224,105 shares of UDR, Inc.’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated by reference from UDR, Inc.’s definitive proxy statement for the 2024 Annual Meeting of Stockholders.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business
4
Item 1A. Risk Factors
14
Item 1B. Unresolved Staff Comments
31
Item 1C. Cybersecurity
Item 2. Properties
34
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
35
Item 6. [Reserved]
37
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
56
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
57
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
58
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
59
Item 16. Form 10-K Summary
67
Unless the context otherwise requires, all references in this Report to “UDR,” the “Company,” “we,” “our” and “us” refer to UDR, Inc., together with its consolidated subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership” or the “OP”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”).
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:
●general market and economic conditions;
●the impact of inflation/deflation;
●unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates;
●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;
●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;
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●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.
Summary of Risk Factors
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. These risks are discussed more fully in Item 1A. Risk Factors herein. These risks include, but are not limited to, the following:
2
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Item 1. BUSINESS
General
UDR is 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 in the United States. At December 31, 2023, our consolidated real estate portfolio consisted of 168 communities located in 21 markets, consisting of 55,550 completed apartment homes, which are held directly or through our subsidiaries, including the Operating Partnership and the DownREIT Partnership, and consolidated joint ventures. In addition, we have an ownership interest in 10,045 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 5,618 apartment homes owned by entities in which we hold preferred equity investments. At December 31, 2023, the Company was developing two wholly-owned communities totaling 415 homes, of which 56 have been completed.
UDR has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to in this Report as the “Code.” To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than our net capital gains) to our stockholders annually. As a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent we distribute such net income to our stockholders annually. In 2023, we declared total distributions of $1.68 per common share and paid dividends of $1.64 per common share.
Dividends
Declared in
Paid in
2023
First Quarter
$
0.4200
0.3800
Second Quarter
Third Quarter
Fourth Quarter
Total
1.6800
1.6400
UDR was formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our corporate offices are located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado and our telephone number is (720) 283-6120. Our website is www.udr.com. The information contained on our website, including any information referred to in this Report as being available on our website, is not a part of or incorporated into this Report.
As of December 31, 2023, there were 189.9 million units in the Operating Partnership (“OP Units”) outstanding, of which 176.4 million OP Units (including 0.1 million of general partnership units), or 92.9%, were owned by UDR and 13.5 million OP Units, or 7.1%, were owned by outside limited partners. As of December 31, 2023, there were 32.4 million units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 21.4 million, or 66.0%, were owned by UDR and its subsidiaries and 11.0 million, or 34.0%, were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership and DownREIT Partnership.
Human Capital Management
As of December 31, 2023, our team at UDR comprises 1,397 full-time associates and 13 part-time associates, all of whom are dedicated to the success of our organization. Within this workforce, 991 associates are focused on roles directly associated with our communities, while the remaining associates contribute to various corporate functions. Our commitment to social responsibility extends to the entire employee lifecycle, encompassing recruitment, onboarding, development, engagement, and retention. Our overarching objective is to enhance the associate experience, foster diversity, and maintain a motivated workforce that fuels our growth and talent retention. This dedication to our UDR culture and values directly influences improved engagement, productivity, and the overall success of our organization.
Our UDR culture is defined by choice, transparency, and trust, empowering our associates to make decisions that align with their individual interests and benefit the Company as a whole. By prioritizing and enhancing the associate experience, we hope to enhance engagement levels, leading to increased customer satisfaction, higher employee
retention, and superior results. We report to our Board of Directors at least annually with respect to our human capital initiatives, including evaluations and analyses.
Associate Compensation
Attracting, nurturing, and retaining top-tier, diverse talent across our organization is essential to our long-term success. An integral part of this process is our commitment to fair and attractive compensation practices. We continue to utilize our compensation market data tool that enables us to access near real-time market insights. This tool has been helpful in helping us to make informed decisions and adjust our salary ranges accordingly, helping us to remain competitive and attract and retain top talent. By staying up-to-date with the latest trends in the job market, we seek to provide fair and competitive compensation packages to our associates. We also conduct annual assessments of pay equity across various dimensions, such as gender, age, and ethnicity, for each job title. Our compensation programs are designed to include performance-driven bonuses. These metrics are presented annually to our executive leadership and Board of Directors for oversight purposes.
Associate Growth and Development
We firmly believe that frequent training is essential for associate job satisfaction, effectiveness, career progression, and retention. New associates participate in a comprehensive two-day onboarding process that covers our culture, values, mission, and administrative procedures. We offer a wide range of training opportunities tailored to individual needs.
In addition to mandatory regulatory training (e.g., harassment, cybersecurity, fair housing), associates can opt to receive management development training through programs like the ULEAD and the Level Up! Career Mobility Programs. These initiatives equip our associates with valuable skills for career advancement. In total, over 6,000 courses are available to our associates, spanning topics such as leasing skills, property maintenance, customer service, project management, and system applications. In 2023, our associates collectively invested 13,924 hours in training, averaging 10 hours per full time associate. We also implemented improved controls around timely completion of required courses. By the end of 2023, 95% of associates had completed annual technology IT security training, while 95% had completed fair housing, harassment, diversity and inclusion, and business ethics training.
Certifications play a crucial role in career progression in the apartment industry. We actively encourage our associates to pursue professional certifications that align with their interests and benefit the Company. These certifications range from master's degree programs to certified property manager programs to technical licenses. We offer partial tuition reimbursement to support associates in attaining these certifications. Each UDR associate participates in an annual performance review with their direct supervisor, providing feedback on career development and engagement levels.
Additionally, in 2023, the Company hired a Vice President of Organizational Development and Succession Planning. Organizational development and succession planning are critical components of the Company's long-term strategy as they help UDR to have the right talent in the right positions to drive success and growth.
Diversity and Inclusion
We prioritize respect, fairness, and the promotion of diverse perspectives, which contribute to our Company's growth and success. Our commitment extends to fostering a diverse and inclusive workplace environment that facilitates the development and advancement of all associates.
As of December 31, 2023, our workforce is comprised of 60% male and 40% female associates, with an ethnic composition of 53% White, 26% Hispanic/Latino, 13% Black, 2% Asian, and 6% Other. Our management team (including resident services managers and more senior job classifications) reflects a gender balance of 57% male and 43% female, with an ethnic breakdown of 61% White and 39% non-White. Over the three-year period ending December 31, 2023, 520 promotions occurred, with 48% of those promoted to resident services manager, director, or more senior job classifications being female and 26% non-White.
We provide resources, webinars, trainings, workshops, and tools to educate our associates on DEI-related topics. Our commitment to promoting diversity and inclusion remains as we strive to create a healthy and diverse work environment and attract candidates from all backgrounds, ethnicities, and genders.
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Associate Engagement and Outreach
Throughout 2023, we placed greater emphasis on increasing associate engagement and focused efforts on achieving this goal. We implemented a quarterly pulse survey program and several measures aimed at improving communication, making data-driven decisions, and promoting collaboration between our operations and corporate teams. Centralizing information, creating an HR Monthly Newsletter, and initiating internal publications and recognition programs for associates were among the initiatives we undertook to facilitate better communication and foster a sense of community.
The quarterly pulse surveys we implemented in 2023 give us valuable insights into associate engagement, views on UDR culture, and work-life balance, among other key performance indicators. We find these surveys to be incredibly helpful and plan to continue conducting them to receive ongoing feedback.
We believe that our associates should be active in their communities, and we support their efforts. In 2023, UDR provided 1,041 hours of paid time off to associates for volunteer work with over 20 local organizations. We also organized food, clothing, and blood drives, as well as initiatives to promote non-profit organizations and causes, fostering a culture of giving back.
Employee Health, Wellness and Benefits
The health, wellness, and safety of our associates are paramount to UDR. We maintain an inclusive culture by prioritizing the well-being of our associates. Our monthly Wellness Newsletter covers a range of topics, including preventative care, fitness, mental health, and healthy eating habits.
In 2023, we reduced the benefits waiting period from two months to one month. In addition, we enhanced our behavioral health support mobile application, providing associates with 24/7 access to a care team of coaches and mental health professionals via text-based chats and self-guided activities at no additional cost to associates. This program was also expanded in 2023 to provide support to teen-age children for parents with teen-aged children. Finally, a new associate resource program was introduced, providing our associates with a comprehensive set of tools to assist them in every aspect of their life. This resource provides professional counseling and expert referrals for a wide array of personal and work-related concerns.
Our commitment to associate benefits is underscored by a third-party benefits survey, conducted in 2023, where 77% of respondents believed that UDR offered benefits meeting their needs. Utilizing feedback from this survey and our engagement survey, we enhanced the Lifestyle Spending Account. The Lifestyle Spending Account provides flexibility by allowing associates to allocate $1,000 annually to various health, wellness, and lifestyle categories. Furthermore, we implemented a 401(k) auto-enrollment for new hires at 3% of their salary that started in January 2024. We also provide a comprehensive set of employee benefits, including health, dental, and vision insurance coverage for all associates.
Reporting Segments
We report in two segments: Same-Store Communities and Non-Mature Communities/Other.
Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2022, and held as of December 31, 2023. 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. For additional information regarding our operating segments, see Note 16, Reportable Segments, in the Notes to the UDR Consolidated Financial Statements included in this Report.
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Business Objectives
Our principal business objective is to maximize the economic returns of our apartment communities in a sustainable manner to provide our stockholders with the greatest possible total return and value. To achieve this objective, we intend to continue to pursue the following goals and strategies:
2023 Highlights
Commitment to Shareholders
●In July 2023, the Company marked its 51st year as a REIT and, in October 2023, paid its 204th consecutive quarterly dividend. The Company’s annualized declared 2023 dividend of $1.68 represented a 10.5% increase over the previous year.
Property Operations
●
Net income attributable to common stockholders was $439.5 million as compared to $82.5 million in the prior year. The increase was primarily driven by higher gains from dispositions of real estate, higher total net operating income (“NOI”), and higher interest income and other income/(expense) primarily due to realized and unrealized gains from our direct investment in SmartRent, Inc. (“SmartRent”) and higher interest income driven by higher notes receivable balances. These were partially offset by higher depreciation expense primarily due to communities acquired and completion of developments in 2023 and 2022, and higher interest expense primarily due to higher average interest rates and higher overall debt balances.
We achieved Same-Store revenue growth of 5.6% and Same-Store NOI growth of 6.0%.
Investing and Developments
●We acquired six operating communities located in Dallas, Texas, and Austin, Texas, for approximately $354.6 million.
●We completed the development of one community located in Washington, D.C., with a total of 300 apartment homes.
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●We recognized a gain of $25.3 million from the sale of an operating community located in Hillsboro, Oregon.
●We funded an additional $21.8 million to two of our Developer Capital Program preferred equity investments.
●We funded an additional $85.3 million to five of our notes receivable investments.
Balance Sheet
●We amended our Working Capital Credit Facility to extend the maturity date from January 12, 2024 to January 12, 2025, plus a one-year extension option.
●We repurchased 0.6 million shares of common stock for approximately $25.0 million.
ESG Report
We published our 2023 ESG Report on our website, which discloses our environmental and social initiatives, programs, and performance. The report’s ESG disclosures were, to the extent applicable, prepared in accordance with the Global Reporting Initiative (GRI) Standards (core), the Sustainability Accounting Standards Board (SASB) standards, and the Task Force for Climate-related Financial Disclosure (TCFD) framework.
Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further information on the Company’s activities in 2023.
Our Strategic Vision
Our strategic vision is to be the multifamily public REIT of choice for investors. We intend to realize this vision by executing on our strategic objectives, which are:
Maintaining a Diversified Portfolio and Allocating Capital to Accretive Investment Opportunities
We believe greater portfolio diversification, as defined by geographic concentration, location within a market (i.e., urban or suburban) and property quality (i.e., A or B), reduces the volatility of our same-store growth throughout the real estate cycle, appeals to a wider renter and investor audience, lessens the market risk associated with owning a homogenous portfolio, and provides more opportunities for accretive external growth when appropriate. Diversified characteristics of our portfolio include:
We are focused on increasing our presence in markets with favorable job formation and income growth, high propensity to rent, strong relative affordability for rental versus homeownership, and a favorable demand/supply ratio for multifamily housing. Portfolio investment decisions consider internal analyses and third-party research.
Acquisitions and Dispositions
When evaluating potential acquisitions, we consider a wide variety of factors, including:
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We regularly monitor our assets to increase the quality and performance of our portfolio. Factors we consider in deciding whether to dispose of a property include:
The following table summarizes our apartment community acquisitions and dispositions and our consolidated year-end ownership position for the past five years (dollars in thousands):
2022
2021
2020
2019
Homes acquired
1,889
(a)
433
5,426
1,642
7,079
Homes disposed
1,604
(b)
90
651
599
—
Homes owned at December 31,
55,550
54,999
53,229
48,283
47,010
Total real estate owned, at cost
16,023,859
15,570,072
14,740,803
13,071,472
12,602,101
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Development Activities
Our objective in developing a community is to create value while improving the quality of our portfolio. How demographic trends, economic drivers, and multifamily fundamentals and valuations have trended over the long-term and our portfolio strategy generally govern our review process on where and when to allocate development capital. At December 31, 2023, the Company was developing two wholly-owned communities located in Addison, Texas and Tampa, Florida, totaling 415 homes, of which 56 have been completed, with a budget of $187.5 million, in which we have an investment of $160.4 million. The communities are estimated to be completed in the second quarter of 2024.
Redevelopment Activities
Our objective in redeveloping a community is twofold: we aim to grow rental rates while also producing a higher yielding and more valuable asset through asset quality improvement. During the year ended December 31, 2023, we incurred $123.3 million in major renovations, which included major structural changes and/or architectural revisions to existing buildings. As of December 31, 2023, the Company had no communities at which it was conducting substantial redevelopment activities.
Joint Venture and Partnership Activities
We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or partnerships) through which we own an indirect economic interest of less than 100% of the community or communities owned directly by such joint ventures. Our decision to either hold an apartment community in fee simple or have an indirect interest in the community through a joint venture is based on a variety of factors and considerations, including: (i) the economic and tax terms required by the seller of land or a community; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) our projections, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture vehicle is used. Each joint venture agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.
Maintaining a Strong Balance Sheet
We maintain a capital structure that we believe allows us to proactively source potential investment opportunities in the marketplace. We have structured our debt maturity schedule to be able to opportunistically access both secured and unsecured debt markets when appropriate.
As part of our plan to finance our activities, we utilize proceeds from debt and equity offerings and refinancings to extend maturities, pay down existing debt, fund development and redevelopment activities, and acquire apartment communities.
Consistently Driving Operational Excellence
Investment in new technologies continues to drive operating efficiencies in our business and helps us to better meet the changing needs of our business and our residents. Our residents can conduct business with us 24 hours a day, 7 days a week, including completing online leasing applications and renewals and submitting maintenance or other requests throughout our portfolio using our web-based resident internet portal or, increasingly, a smart-device application.
As a result of transforming our operations through technology, residents’ satisfaction has improved, and our operating teams have become more efficient. Web-based technologies have also resulted in declining marketing and advertising costs, improved cash management, and better pricing management of our available apartment homes.
Advancing a Strong Corporate Culture and Ensuring High Resident Satisfaction
Refer to Human Capital Management section above, for further information on the Company’s corporate culture.
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Competitive Conditions
Competition for new residents is generally intense across our markets. Some competing communities offer amenities that our communities do not have. Competing communities can use rental concessions or lower rents to obtain temporary competitive advantages. Also, some competing communities are larger or newer than our communities. The competitive position of each community is different depending upon many factors, including sub-market supply and demand. In addition, other real estate investors compete with us to acquire existing properties, redevelop existing properties, and to develop new properties. These competitors include insurance companies, pension and investment funds, public and private real estate companies, investment companies and other public and private apartment REITs, some of which may have greater resources, or lower capital costs, than we do.
We believe that, in general, we are well-positioned to compete effectively for residents and investments. We believe our competitive advantages include:
Moving forward, we will continue to improve lease management, improve expense control, increase resident retention efforts and align employee incentive plans with metrics that impact our bottom-line performance. We believe this plan of operation, coupled with the portfolio’s strengths in targeting renters across a geographically diverse platform, should position us for continued operational upside.
Communities
At December 31, 2023, our consolidated real estate portfolio included 168 communities with a total of 55,550 completed apartment homes. The overall quality of our portfolio generally enables us to raise rents and to attract residents with higher levels of disposable income who are more likely to absorb such rents.
At December 31, 2023, the Company was developing two wholly-owned communities located in Addison, Texas, and Tampa, Florida, totaling 415 homes, of which 56 have been completed, with a budget of $187.5 million, in which we have an investment of $160.4 million. The communities are estimated to be completed in the second quarter of 2024.
At December 31, 2023, the Company had no communities at which it was conducting substantial redevelopment activities.
Same-Store Community Comparison
We believe that one pertinent quantitative measurement of the performance of our portfolio is tracking the results of our Same-Store Communities’ NOI, which is total rental revenue, less rental and other operating expenses excluding property management. Our Same-Store Community population is comprised of operating communities which we own and have stabilized occupancy, revenues and expenses as of the beginning of the prior year.
Net income attributable to common stockholders was $439.5 million as compared to $82.5 million in the prior year. The increase was primarily driven by higher gains from dispositions of real estate, higher total NOI, and higher interest income and other income/(expense) primarily due to realized and unrealized gains from our direct investment in SmartRent, Inc. (“SmartRent”) and higher interest income driven by higher notes receivable balances, partially offset by higher depreciation expense due to communities acquired and completion of developments in 2023 and 2022, and higher interest expense primarily due to higher average interest rates and higher overall debt balances.
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For the year ended December 31, 2023, our Same-Store NOI increased by $58.8 million compared to the prior year. Our Same-Store Community properties provided 93.1% of our total NOI for the year ended December 31, 2023. The increase in NOI for the 51,368 Same-Store apartment homes, or 92.5% of our portfolio, was primarily driven by an increase in market rental rates, an increase in reimbursement, ancillary and fee income and a decrease in insurance expense, partially offset by the impact from rent concessions, higher bad debt, higher vacancy loss, higher repair and maintenance expense, higher utility expense and higher real estate tax expense.
Revenue growth in 2024 may be impacted by adverse developments affecting the general economy, inclusive of economic conditions as a result of a recession, reduced occupancy rates, increased rental concessions, new supply, increased bad debt and other factors which may adversely impact our ability to increase rents.
Tax Matters
UDR has elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, UDR must continue to meet certain tests that, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than net capital gains) to our stockholders annually. Provided we maintain our qualification as a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent such net income is distributed to our stockholders annually. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property.
We may utilize our taxable REIT subsidiary (“TRS”) to engage in activities that REITs may be prohibited from performing, including the provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions. Our TRS generally is taxable as a regular corporation, and therefore, subject to federal, state and local income taxes.
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 in an inflationary environment, and absent other factors such as increased supply, 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 ended December 31, 2023.
Environmental Matters
Various environmental laws govern certain aspects of the ongoing operation of our communities. Such environmental laws include those regulating the existence of asbestos-containing materials in buildings, management of surfaces with lead-based paint (and notices to residents about the lead-based paint), use of active underground petroleum storage tanks, and waste-management activities. The failure to comply with such requirements could subject us to a government enforcement action and/or claims for damages by a private party.
To date, compliance with federal, state and local environmental protection regulations has not had a material effect on our capital expenditures, earnings or competitive position. We have a property management plan for hazardous materials. As part of the plan, Phase I environmental site investigations and reports have been completed for each property we acquire. In addition, all proposed acquisitions are inspected prior to acquisition. The inspections are conducted by qualified environmental consultants, and we review the issued report prior to the purchase or development of any property. Nevertheless, it is possible that the environmental assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist of which we are unaware. In some cases, we have abandoned otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials have been prohibitive or we have been unwilling to accept the potential risks involved. We do not believe we will be required to engage in any large-scale abatement at any of our properties. We believe that through professional environmental inspections and testing for asbestos, lead paint and other hazardous materials, coupled with a relatively conservative posture toward accepting known environmental risk, we can minimize our exposure to potential liability associated with environmental hazards.
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Federal legislation requires owners and landlords of residential housing constructed prior to 1978 to disclose to potential residents or purchasers of the communities any known lead paint hazards and imposes treble damages for failure to provide such notification. In addition, lead based paint in any of the communities may result in lead poisoning in children residing in that community if chips or particles of such lead based paint are ingested, and we may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities.
We are unaware of any environmental hazards at any of our properties that individually or in the aggregate may have a material adverse impact on our operations or financial position. We have not been notified by any governmental authority, and we are not otherwise aware, of any material non-compliance, liability, or claim relating to environmental liabilities in connection with any of our properties. We do not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse effect on us or our financial condition or results of operations. Future environmental laws, regulations, or ordinances, however, may require additional remediation of existing conditions that are not currently actionable. Also, if more stringent requirements are imposed on us in the future, the costs of compliance could have a material adverse effect on our results of operations and our financial condition.
Insurance
We carry comprehensive general liability coverage on our communities, with limits of liability customary within the multi-family apartment industry to insure against liability claims and related defense costs. We are also insured, with limits of liability customary within the multi-family apartment industry, against the risk of direct physical damage on a replacement cost basis, including loss of rental income during the reconstruction period.
Available Information
We file electronically with the Securities and Exchange Commission our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports on the day of filing with the SEC on our website at www.udr.com, or by sending an e-mail message to ir@udr.com.
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Item 1A.
RISK FACTORS
There are many factors that affect the business and the results of operations of the Company, some of which are beyond its control. The following is a description of important factors that may cause the Company’s actual results in future periods to differ materially from those currently expected or discussed in forward-looking statements set forth in this Report relating to our financial results, operations and business prospects. 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.
Risks Related to Our Real Estate Investments and Our Operations
Unfavorable Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels, Rental Revenues and the Value of Our Real Estate Assets. Unfavorable market conditions in the areas in which we operate or unfavorable economic conditions generally, may significantly affect our occupancy levels, our rental rates and collections, the value of our properties and our ability to acquire or dispose of apartment communities on economically favorable terms. Our ability to lease our properties at favorable rates is adversely affected by the increase in supply in the multifamily and other rental markets and is dependent upon the overall level in the economy, which is adversely affected by, among other things, job losses and unemployment levels, recession, debt levels, housing markets, stock market volatility and uncertainty about the future. Some of our major expenses generally do not decline when related rents decline. We would expect that declines in our occupancy levels and rental revenues would cause us to have less cash available to pay our indebtedness and to distribute to our stockholders, which could adversely affect our financial condition or the market value of our securities. Factors that have in the past and may in the future affect our occupancy levels, our rental revenues, and/or the value of our properties include the following, among others:
The Geographic Concentration of Our Communities in Certain Markets Could Have an Adverse Effect on Our Operations if a Particular Market is Adversely Impacted by Economic or Other Conditions. For the year ended December 31, 2023, approximately 73.3% of our total NOI was generated from communities located in Metropolitan D.C. (14.9%), Boston, MA (11.3%), Orange County, CA (10.9%), Dallas, TX (8.6%),the San Francisco Bay Area, CA (8.2%), New York, NY (7.7%), Seattle, WA (6.3%) and Tampa, FL (5.4%). As a result, if any one or more of these markets is adversely impacted by regional or local economic conditions or real estate market conditions, such conditions may have a greater adverse impact on our results of operations than if our portfolio was more geographically diverse. In addition, if one or more of these markets is adversely affected by changes in regional or local regulations, including those related to rent control or stabilization, such regulations may have a greater adverse impact on our results of operations than if our portfolio was more geographically diverse.
We May Be Unable to Renew Leases or Relet Apartment Units as Leases Expire, or the Terms of Renewals or New Leases May Be Less Favorable Than Current Leases. When our residents decide to leave our apartments, whether because their leases are not renewed or they leave prior to their lease expiration date, we may not be able to relet their apartment units. Even if leases are renewed or we can relet the apartment units, the terms of renewal or reletting may be less favorable than current lease terms. Furthermore, because the majority of our apartment leases have initial terms of 12 months or less, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms. If we are unable to promptly renew the leases or relet the apartment units, or if the rental rates upon renewal or reletting are lower than expected rates, then our results of operations and financial condition may be adversely affected. If residents do not experience increases in their income or if they experience decreases in their income or job losses, we may be unable to increase or maintain rent and/or delinquencies may increase.
We Face Certain Risks Related to Our Retail and Commercial Space. Certain of our properties include retail or commercial space that we lease to third parties. The long-term nature of our retail and commercial leases (generally five to ten years with market-based or fixed-price renewal options) and the characteristics of many of our tenants (generally small and/or local businesses) may subject us to certain risks. The longer-term leases could result in below market lease rates over time, particularly in an inflationary environment. We may require guarantees and other credit support which may prove to be inadequate or uncollectable, and the failure rate of small and/or local businesses may be higher than average. We may not be able to lease new space for rents that are consistent with our projections or for market rates. Also, when leases for our retail or commercial space terminate either at the end of the lease or because a tenant leaves early, the space may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable than the prior lease terms or we may incur additional expenses related to modifications of the spaces in order to satisfy new tenants. Our properties compete with other properties with retail or commercial space. The presence of competitive alternatives may adversely affect our ability to lease space and the level of rents we can obtain. Our retail or commercial tenants have experienced in the past, and may experience in the future, financial distress or bankruptcy, or may fail to comply with their contractual obligations, seek concessions in order to continue operations, or cease their operations, which could adversely impact our results of operations and financial condition.
We Face Risks Related to Inflation/Deflation. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses. The U.S. economy has recently experienced high rates of inflation, which has increased our operating expenses due to higher third party vendor costs and increased our interest expense due to higher interest rates on our variable rate debt. Although the short-term nature of our apartment leases may, absent other factors, enable us to compensate for inflationary effects by increasing rents on our apartment homes, an extreme or sustained escalation in costs could have a negative impact on our residents and their ability to absorb rent increases. The general risk of inflation is that interest on our debt, general and administrative expenses, materials costs, labor costs, and other expenses increase at a rate faster than increases in our rental rates, which could adversely affect our financial condition or results of operations.
We Are Subject to Certain Risks Associated with Selling Apartment Communities, Which Could Limit Our Operational and Financial Flexibility. We periodically dispose of apartment communities that no longer meet our strategic objectives, but adverse market conditions may make it difficult to sell apartment communities we own. We cannot predict whether we will be able to sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser or to close the sale of a property. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold or the purchase price may be reduced to cover any cost of correcting defects or making improvements. These conditions may limit our ability to dispose of properties and to change our portfolio in order to meet our strategic objectives, which could in turn adversely affect our financial condition, results of operations or our ability to fund other activities in which we may want to engage such as the purchase of properties, development or redevelopment, or funding the Developer Capital Program. We are also subject to the following risks in connection with sales of our apartment communities, among others:
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Competition Could Limit Our Ability to Lease Apartment Homes or Increase or Maintain Rents. Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities, condominiums and single-family rental homes, as well as owner occupied single- and multi-family homes. Competitive housing in a particular area, including new supply, could adversely affect our ability to lease apartment homes and increase or maintain rents, which could materially and adversely affect our results of operations and financial condition.
We May Not Realize the Anticipated Benefits of Past or Future Acquisitions, and the Failure to Integrate Acquired Communities and New Personnel Successfully Could Create Inefficiencies. We have acquired in the past, and if presented with attractive opportunities we intend to acquire in the future, apartment communities that meet our investment criteria. Our acquisition activities and their success are subject to the following risks, among others:
Competition Could Adversely Affect Our Ability to Acquire Properties. In the past, other real estate investors, including insurance companies, pension and investment funds, developer partnerships, investment companies and other public and private apartment REITs, have competed with us to acquire existing properties and to develop new properties, and such competition in the future may limit attractive investment opportunities, which could adversely affect our ability to grow or acquire properties profitably or with attractive returns.
Development and Construction Risks Could Impact Our Profitability. In the past we have selectively pursued the development and construction of apartment communities, and we intend to do so in the future as appropriate opportunities arise. Development activities have been, and in the future may be, conducted through wholly-owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities are subject to the following risks, among others:
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An Epidemic, Pandemic or Other Health Crisis, and Measures Intended to Prevent the Spread of Such an Event, Could Have a Material Adverse Effect on our Business, Results of Operations, Cash Flows and Financial Condition. We face risks related to an epidemic, pandemic or other health crisis, which have impacted, and in the future could impact, the markets in which we operate and could have a material adverse effect on our business, results of operations, cash flows and financial condition. The impact of an epidemic, pandemic or other health crisis, and measures to prevent the spread of such an event, could materially and adversely affect our business in a number of ways. Our rental revenue and operating results depend significantly on the occupancy levels at our properties and the ability of our residents and retail and commercial tenants to meet their rent obligations to us, which have been in certain cases, and could in the future be, adversely affected by, among other things, job losses, furloughs, store closures, lower incomes, uncertainty about the future as a result of an epidemic, pandemic or other health crisis and related governmental actions, including eviction moratoriums, shelter-in-place orders, prohibitions or limits on charging certain fees, and limitations on collections and or rent increases, which have affected, and, if such restrictions are not lifted, or are reinstated, or new restrictions imposed, may continue to affect our ability to collect rent or enforce legal or contractual remedies for the failure to pay rent, which have negatively impacted, and may continue to negatively impact, our ability to remove residents or retail and commercial tenants who are not paying rent and our ability to rent their units or other space to new residents or retail and commercial tenants, respectively. In addition, the federal government has in the past allocated, and federal, state or local governments may in the future allocate, funds to rent relief programs. In certain locations, the funds available may not be sufficient to pay all past due rent and reallocation of such funds may result in markets in which we operate not having access to the funds anticipated. Further, certain of our residents with past due rent have not qualified, and may not in the future qualify, to participate in such programs. In addition, some of such programs have required, and programs in the future may require, the forgiveness of a portion of the past due rent or agreeing to other limitations that may adversely affect our business in order to participate or may only provide funds to pay a portion of the past due rent. In addition, while certain locations have adopted programs that may reimburse past due rent owed by residents who have left a community, such programs have only been adopted in a minority of our markets. It is uncertain how any rent relief programs will impact our business in the future.
State, local, and federal governments also have increased, and may in the future increase, property taxes or other taxes or fees, or may enact new taxes or fees, in order to increase revenue in connection with an epidemic, pandemic or other health crisis, which has in the past increased, and may in the future increase, our expenses. Our development and construction projects, including those in our Developer Capital Program, also have been and could in the future be adversely affected by factors related to an epidemic, pandemic or other health crisis. An epidemic, pandemic or other health crisis, or related impacts thereof also could adversely affect the businesses and financial conditions of our counterparties, including our joint venture partners, participants in the Developer Capital Program, and general contractors and their subcontractors, and their ability to satisfy their obligations to us and to complete transactions or projects with us as intended.
Bankruptcy or Defaults of Our Counterparties Could Adversely Affect Our Performance. We have relationships with and we execute transactions with or receive services from many counterparties, such as general contractors engaged in connection with our development activities, borrowers, or joint venture partners, among others. As a result, bankruptcies or defaults by these counterparties or their subcontractors have resulted in, and in the future could result in, services not being provided as expected, projects not being completed on time, on budget, or at all, or contractual obligations to us not being satisfied. Further, volatility in the financial markets and economic weakness could affect the counterparties’ ability to complete transactions with us as intended. Either circumstance could result in disruptions to our operations that may adversely affect our financial condition and results of operations.
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Property Ownership Through Partnerships and Joint Ventures May Limit Our Ability to Act Exclusively in Our Interest. We have in the past and may in the future develop and/or acquire properties through partnerships and joint ventures, including those in which we own a preferred interest, with other persons or entities when we believe circumstances warrant the use of such structures. As of December 31, 2023, we had active unconsolidated joint ventures and partnerships, including our preferred equity investments, with a total equity investment of $952.9 million. We have in the past, and could in the future, become engaged in a dispute with one or more of our partners which could adversely impact us. Moreover, our partners may have business, economic or other objectives that are inconsistent with our objectives, including objectives that relate to the appropriate timing and terms of any sale or refinancing of a property. In some instances, our partners may have competing interests in our markets that could create conflicts of interest. Also, our partners have in the past failed and may in the future fail to make capital contributions when due and our partners or the project may otherwise not act or perform as expected, which may require us to contribute additional capital or take other actions that may negatively impact the project or our return. In addition, we may be responsible to our partners for indemnifiable losses. In general, we and our partners may each have the right to trigger a buy-sell or other similar arrangement, which arrangement or other factors could cause us to sell our interest, or acquire our partner’s interest or other property, at a time when we otherwise would not have initiated such a transaction and may result in the valuation of our interest in the partnership or joint venture (if we are the seller) or of the other partner’s interest in the partnership or joint venture (if we are the buyer) at levels which may not be representative of the valuation that would result from an arm’s length marketing process and could cause us to recognize unanticipated capital gains or losses or the loss of fee income.
We may also be subject to other risks in connection with partnerships or joint ventures, including (i) a deadlock if we and our partner are unable to agree upon certain major and other decisions (which could result in litigation or disposing of an asset at a time at which we otherwise would not sell the asset), (ii) limitations on our ability to liquidate our position in the partnership or joint venture without the consent of the other partner, and (iii) requirements to provide guarantees in favor of lenders with respect to the indebtedness of the joint venture.
We May Not be Permitted to Dispose of Certain Properties or Pay Down the Indebtedness Associated with Those Properties When We Might Otherwise Desire to do so Without Incurring Additional Costs. In connection with certain property acquisitions, we have agreed with the sellers that we will not dispose of the acquired properties or reduce the mortgage indebtedness on such properties for significant periods of time unless we pay certain of the resulting tax costs of the sellers or dispose of the property in a transaction in which a gain is not recognized for federal income tax purposes by such sellers, and we may enter into similar agreements in connection with future property acquisitions. These agreements could result in us retaining properties that we would otherwise sell or not paying down or refinancing indebtedness that we would otherwise pay down or refinance. However, subject to certain conditions, we retain the right to substitute other property or debt to meet these obligations to the sellers.
We Could Incur Significant Insurance Costs and Some Potential Losses May Not Be Adequately Covered by Insurance. We have a comprehensive insurance program covering our properties and operating activities with limits of liability, deductibles and self-insured retentions that we believe are comparable to similarly situated companies, including within the multifamily industry. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of extraordinary losses that may not be adequately covered under our insurance program. In addition, we will sustain losses due to insurance deductibles, self-insured retention, uninsured claims or casualties, or losses in excess of applicable coverage.
If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Material losses in excess of insurance proceeds may occur in the future. If one or more of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Such events could materially and adversely affect our financial condition and results of operations.
The cost of insuring our apartment communities and our operations is a component of expense. Insurance premiums and the terms and conditions of insurance policies are subject to significant fluctuations and changes, which are generally outside of our control. We insure our properties and our operations with insurance companies that we believe have a good rating at the time our policies are put into effect. The financial condition of one or more insurance companies that insure us may be negatively impacted, which could result in their inability to pay on future insurance claims. Their inability to pay future claims may have a negative impact on our financial results. In addition, the failure, or exit or partial exit from an insurance market, of one or more insurance companies or other changes in insurance markets in general may affect our ability to obtain insurance coverage in the amounts that we seek, or at all, increase the
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costs to renew or replace our insurance policies, cause us to self-insure a portion of the risk, or increase the cost of insuring properties.
Failure to Succeed in New Markets May Limit Our Growth. We have acquired in the past, and we may acquire in the future if opportunities we believe are appropriate arise, apartment communities that are outside of our existing markets. Entering into new markets may expose us to a variety of risks, and we may not be able to operate successfully in new markets. These risks include, among others:
Failure to Succeed with New Initiatives May Limit Our Ability to Grow NOI. We have in the past developed and may in the future develop initiatives that are intended to drive operating efficiencies and grow NOI, including smart home technologies and self-service options that are accessible to residents through smart devices or otherwise. Such initiatives in the past have involved and in the future may involve our associates having new or different responsibilities and processes. We may incur significant costs and divert resources in connection with such initiatives, and these initiatives may not perform as projected, which could adversely affect our results of operations and the market price of our common stock.
Potential Liability for Environmental Contamination Could Result in Substantial Costs. Under various federal, state and local environmental laws, as a current or former owner or operator of real estate, we could be required to investigate and remediate the effects of contamination of currently or formerly owned real estate by hazardous or toxic substances, often regardless of our knowledge of or responsibility for the contamination and solely by virtue of our current or former ownership or operation of the real estate. In addition, we could be held liable to a governmental authority or to third parties for property damage and for investigation and clean-up costs incurred in connection with the contamination or we could be required to incur additional costs to change how the property is constructed or operated due to presence of such substances. These costs could be substantial, and in many cases environmental laws create liens in favor of governmental authorities to secure their payment. The presence of such substances or a failure to properly remediate any resulting contamination could materially and adversely affect our ability to borrow against, sell or rent an affected property.
In addition, our properties are subject to various federal, state and local environmental, health and safety laws, including laws governing the management of wastes and underground and aboveground storage tanks. Noncompliance with these environmental, health and safety laws could subject us to liability. Changes in laws could increase the potential costs of compliance with environmental laws, health and safety laws or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise adversely affect our financial condition and results of operations.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material, or ACM, or other hazardous substances. Environmental, health and safety laws require that ACM and other hazardous substances be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements.
These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or other hazardous substances or releases of ACM or other hazardous substances into the environment.
We cannot assure you that costs or liabilities incurred as a result of environmental or building condition issues will not adversely affect our financial condition and results of operations.
Our Properties May Contain or Develop Harmful Mold or Suffer from Other Indoor Air Quality Issues, Which Could Lead to Liability for Adverse Health Effects or Property Damage or Cost for Remediation. When excessive
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moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or to increase ventilation, which could adversely affect our results of operations and cash flows. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others for property damage or personal injury.
Compliance or Failure to Comply with the Americans with Disabilities Act of 1990 or Other Safety Regulations and Requirements Could Result in Substantial Costs. The Americans with Disabilities Act of 1990, as amended (the “Americans with Disabilities Act”) generally requires that public buildings, including our properties, be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. Claims have been asserted, and in the future claims may be asserted, against us with respect to some of our properties or operations under the Americans with Disabilities Act. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties or otherwise related to our operations, including the removal of access barriers, it could adversely affect our financial condition and results of operations. In addition, if claims arise, we may expend resources and incur costs in investigating and resolving such claims even if we or our property was in compliance with the law.
Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements and federal, state and local accessibility requirements in addition to those imposed by the Americans with Disabilities Act. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that could adversely affect our financial condition or results of operations.
The Adoption of, or Changes to, Rent Control, Rent Stabilization, Eviction, Tenants’ Rights and Similar Laws and Regulations in Our Markets Could Have an Adverse Effect on Our Results of Operations and Property Values. Various state and local governments as well as the Federal government have enacted and may continue to enact rent control, rent stabilization, or limitations, and similar laws, regulations and policies that could limit our ability to raise rents or charge certain fees, including laws or court orders, either of which could have a retroactive effect. For example, in June 2019, the State of New York enacted new rent control regulations known as the Housing Stability and Tenant Protection Act of 2019 and, in October of 2019, the State of California enacted the Tenant Protection Act of 2019. We have seen a recent increase in governments enacting or considering, or being urged to consider, such laws and regulations. Federal, state and local governments or courts also have made, and may make in the future, changes to laws related to allowable fees and rents, eviction and other tenants’ rights laws and regulations (including changes that apply retroactively) that could adversely impact our results of operations and the value of our properties. Laws and regulations regarding rent control, rent stabilization, eviction, tenants’ rights, and similar matters, as well as any lawsuits against us arising from such laws and regulations, may limit our ability to charge market rents, increase rents, evict delinquent tenants or charge fees, or recover increases in our operating expenses, which could have an adverse effect on our results of operations and the value of our properties.
Compliance with or Changes in Real Estate Tax and Other Laws and Regulations Could Adversely Affect Our Funds from Operations and Our Ability to Make Distributions to Stockholders. We are subject to federal, state and local laws, regulations, rules and ordinances at locations where we operate regarding a wide variety of matters that could affect, directly or indirectly, our operations. Generally, we do not directly pass through costs resulting from compliance with or changes in real estate tax laws to residential property tenants. We also do not generally pass through increases in income, service or other taxes to tenants under leases. These costs may adversely affect net operating income and the ability to make distributions to stockholders. Similarly, compliance with or changes in (i) laws increasing the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) laws and regulations regulating housing, such as the Americans with Disabilities Act and the Fair Housing Amendments Act of 1988, or (iii) employment related laws, among others, may result in significant unanticipated expenditures, which could adversely affect our financial condition and results of operations. In addition, changes in federal and state legislation and regulation on climate change may result in increased capital expenditures to improve the energy efficiency of our existing communities and also may require us to spend more on our new development communities
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without a corresponding increase in revenue. In addition, existing laws could be interpreted in a manner that restricts our ability to use systems that we currently use in our operations and we may face litigation or regulatory risk in connection with such laws. Future compliance with new laws of general applicability, laws applicable to companies in our industry, or laws applicable to public companies generally could increase our costs and could have an adverse effect on our financial performance.
Risk of Litigation. From time to time, we are involved in legal proceedings, lawsuits, and other claims with respect to our properties or operations. For example, we are currently a defendant in a consolidated class action lawsuit and a lawsuit filed by the District of Columbia involving RealPage, which is one of our vendors. An unfavorable resolution of any litigation may have a material adverse effect on our business, results of operations and financial condition. Additionally, litigation may result in substantial costs and expenses and significantly divert the attention of management.
Risk of Damage from Catastrophic Weather and Natural Events. Our communities are located in areas that have experienced, and in the future may experience, catastrophic weather and other natural events from time to time, including mudslides, fires, hurricanes, tornadoes, floods, deep freezes, snow or ice storms, or other severe inclement weather. These adverse weather and natural events could cause damage or losses that may be greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could adversely affect our financial condition and results of operations.
Risk of Potential Climate Change. To the extent significant changes in the climate in areas where our communities are located occur, we may experience extreme weather conditions and changes in precipitation and temperature or water levels, all of which could result in physical damage to, and/or a decrease in demand for, our communities located in these areas or communities that are otherwise affected by these changes. Should the impact of such climate changes be material in nature, or occur for lengthy periods of time, our financial condition and results of operations could be adversely affected.
Risk of Earthquake Damage. Some of our communities are located in areas subject to earthquakes, including in the general vicinity of earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We may also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could adversely affect our financial condition and results of operations. Insurance coverage for earthquakes can be costly due to limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in management’s view, economically impractical.
Risk of Accidental Death or Injury Due to Fire, Natural Disasters or Other Hazards. The accidental death or injury of persons living in our communities due to fire, natural disasters, other hazards, or acts or omissions of third parties could have an adverse effect on our business and results of operations. Our insurance coverage may not cover all losses associated with such events, and we may experience difficulty marketing communities where any such events have occurred, which could have an adverse effect on our financial condition and results of operations.
Actual or Threatened Terrorist Attacks May Have an Adverse Effect on Our Business and Operating Results and Could Decrease the Value of Our Assets. Actual or threatened terrorist attacks and other acts of violence, destruction or war could have an adverse effect on our business and operating results. Attacks or other similar actions that directly impact one or more of our apartment communities could significantly affect our ability to operate those communities and thereby impair our ability to achieve our expected results. Further, our insurance coverage may not cover all losses caused by a terrorist attack or similar events. In addition, the adverse effects that such violent acts and threats of future attacks could have on the U.S. economy could similarly have an adverse effect on our financial condition and results of operations.
Mezzanine Loan or Other Loan Assets Involve Greater Risks of Loss than Senior Loans Secured by Income-Producing Properties. We have originated in the past and may in the future originate mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property, which may be under development, or subordinated loans secured by a pledge of the ownership interests of either the entity owning the property, which may be under development, or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property, which may be under development, or loans that are not secured. Mezzanine loans may involve a higher degree
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of risk than a senior mortgage secured by real property, because the security for the loan may lose all or substantially all of its value as a result of foreclosure by the senior lender and because it is in second position and there may not be adequate equity in the property and unsecured loans involve higher risk by virtue of being unsecured. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine or other loan will be satisfied only after the senior debt. As a result, we may not recover some of or all our investment. In addition, mezzanine loans typically have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Further, foreclosing on our security interest may be delayed or otherwise impacted by the existence of the senior loan, the senior lender’s decision regarding whether to enforce its remedies, or the timing of the senior lender’s foreclosure or enforcement of other remedies with respect to such loan. If there is a default on the senior debt or an inability to refinance the senior debt, we may contribute additional capital or take other actions that we would not otherwise pursue absent such default or failure. In addition, in the event of a default or other changes in the circumstances of an investment, including a change in the value of the applicable property, we may be required to change the manner in which the investment is accounted for, including our ability to recognize earnings, or recognize an allowance for loan loss or a loss on consolidation.
Risk Related to Preferred Equity Investments. We have made in the past and may in the future make preferred equity investments in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of directly or indirectly acquiring, developing and/or managing real property. Generally, we will not have the ability to control the daily operations of the entity, and we will not have the ability to select or remove a majority of the members of the board of directors, managers, general partner or partners or similar governing body of the entity or otherwise control its operations. Although we would seek to maintain sufficient influence over the entity to achieve our objectives, our partners may have interests that differ from ours and may be in a position to take actions without our consent that are inconsistent with our interests. Further, if our partners were to fail to invest additional capital in the entity when required, which has happened in the past, or otherwise do not perform as expected, we may have to invest additional capital to protect our investment. Our partners have in the past failed, and may in the future fail, to develop or operate the real property, operate the entity, refinance property indebtedness or sell the real property in the manner intended and as a result the entity may not be able to redeem our investment or pay the return expected to us in a timely manner or at all. In addition, we may not be able to dispose of our investment in the entity in a timely manner or at the price at which we would want to divest or at all. Further, the entity may need to refinance third-party debt on terms that are inconsistent with our interests or are terms on which we would not elect to incur debt, or the entity may default on third-party debt. To the extent the entity defaults on third-party debt or is unable to refinance such debt or a portion thereof, we may acquire such debt or otherwise take action, including contributing additional capital, to protect our position that we would not take absent the default or inability to refinance. Such activities have in the past involved and may in the future involve foreclosing on the security interest in the property secured by such debt or seeking a deed-in-lieu of foreclosure or similar remedy, and such activities may involve delays or create other risks, including the risk of claims from our partners. In the event that such an entity fails to meet expectations, defaults on its debt, or becomes insolvent or the investment or the underlying property otherwise does not perform as expected, we may lose all or part of our investment in the entity, be delayed in recovering our investment or the expected returns or directly or indirectly take over the property or the management thereof at a time at which we would not done so absent the failure to meet expectations or the default. In addition, in the event of a default or other changes in the circumstances of an investment, including a change in the value of the applicable property, we may be required to change the manner in which the investment is accounted for, including our ability to recognize earnings, or recognize an impairment or a loss on consolidation.
Risks Related to Ground Leases. We have entered into in the past and may in the future enter into, as either landlord or tenant, a long-term ground lease with respect to a property or a portion thereof. Such ground leases may contain a rent reset provision that requires both parties to agree to a new rent or is based upon factors, for example fair market rent, that are not objective and are not within our control. We may not be able to agree with the counterparty to a revised rental rate, or the revised rental rate may be set by external factors, which could result in a different rental rate than we forecasted. In the past we have had disagreements with respect to revised rental rates and certain of such disagreements have gone to arbitration (for resolution as provided in the applicable lease agreement) and have been resolved in a manner adverse to us. In addition, the other party may not perform as expected under the ground lease or there may be a dispute with the other party to the ground lease. Any of these circumstances could have an adverse effect on our business, financial condition or operating results.
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We May Experience a Decline in the Fair Value of Our Assets and Be Forced to Recognize Impairment Charges, Which Could Adversely Impact Our Financial Condition, Liquidity and Results of Operations and the Market Price of Our Common Stock. A decline in the fair value of our assets may require us to recognize an impairment against such assets under generally accepted accounting principles as in effect in the United States (“GAAP”) if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets for a period of time sufficient to allow for recovery to the amortized cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize asset impairment charges in the future, these charges could adversely affect our financial condition, liquidity, results of operations and the market price of our common stock.
Any Material Weaknesses Identified in Our Internal Control Over Financial Reporting Could Have an Adverse Effect on the Market Price of Our Common Stock. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. If we fail to maintain the adequacy of our internal controls over financial reporting, including any failure to implement required new or improved controls as a result of changes to our business or otherwise, or if we experience difficulties in their implementation, our business, results of operations and financial condition could be materially and adversely affected and we could fail to meet our reporting obligations. In addition, if we have one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on the market price of our common stock.
A Breach of Information Technology Systems On Which We Rely Could Materially and Adversely Impact Our Business, Financial Condition, Results of Operations and Reputation. We rely on information technology systems, including the internet and networks and systems and software developed, maintained and controlled by third party vendors and other third parties, to process, transmit and store information and to manage or support our business processes. Third party vendors may collect and hold personally identifiable information and other confidential information of our tenants, prospective tenants and employees. We also maintain such information and financial and business information regarding us and persons and entities with which we do business on our information technology systems. While we take steps, and generally require third party vendors to take steps, to protect the security of the information maintained in our and third party vendors’ information technology systems, including associate training and testing and the use of commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing of the information, it is possible that our or our third party vendors’ security measures will not be able to prevent human error or the systems’ or software’s improper functioning, or the loss, misappropriation, disclosure or corruption of personally identifiable information or other confidential or sensitive information, including information about our tenants and employees. Cybersecurity breaches, including physical or electronic break-ins, computer viruses, malware, phishing scams, attacks by hackers, breaches due to employee error or misconduct, and similar breaches, can create system disruptions, shutdowns or unauthorized access to information maintained on our information technology systems or the information technology systems of our third party vendors or other third parties or otherwise cause disruption or negative impacts to occur to our business and adversely affect our financial condition and results of operations. While we maintain cyber risk insurance to provide some coverage for certain risks arising out of cybersecurity breaches, there is no assurance that such insurance would cover all or a significant portion of the costs or consequences associated with a cybersecurity breach or other occurrence or that such insurance will continue to be available at rates that we consider reasonable or at all. We have in the past experienced cybersecurity breaches on our information technology systems or relating to software that we utilize, and, while none to date have been material, we expect such breaches may occur in the future. As the techniques used to obtain unauthorized access to information technology systems become more varied and sophisticated and the occurrence of such breaches becomes more frequent, we and our third party vendors and other third parties may be unable to adequately anticipate these techniques or breaches or implement appropriate preventative measures. Any failure to prevent cybersecurity breaches and maintain the proper function, security and availability of our or our third party vendors’ and other third parties’ information technology systems could interrupt our operations, damage our reputation and brand, damage our competitive position, make it difficult for us to attract and retain residents or other tenants, and subject us to liability claims or regulatory penalties that could adversely affect our business, financial condition and results of operations.
Our Business and Operations Would Suffer in the Event of Information Technology System Failures. Despite system redundancy and the existence of disaster recovery plans for our information technology systems, our information
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technology systems and the information technology systems maintained by our third party vendors are vulnerable to damage arising from any number of sources beyond our or our third party vendors’ control, including energy blackouts, natural disasters, terrorism, war, and telecommunication failures. Any failure to maintain proper function and availability of our or third parties’ information technology systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could adversely affect our business, financial condition and results of operations.
A Failure to Keep Pace with Developments in Technology Could Impair our Operations or Competitive Position. Our business continues to demand the use of sophisticated systems, software and technology. These systems, software and technologies must be refined, updated and replaced on a regular basis in order for us to meet our business requirements and our residents’ demands and expectations. If we are unable to do so on a timely basis or at a reasonable cost, or fail to do so, our business could suffer. Also, we may not achieve the benefits that we anticipate from any new system, software or technology, and a failure to do so could result in higher than anticipated costs or could adversely affect our results of operations.
Social Media Presents Risks. The use of social media could cause us to suffer brand damage or unintended information disclosure. Negative posts or communications about us on a social networking website could damage our reputation. Further, employees or others may disclose non-public information regarding us or our business or otherwise make negative comments regarding us on social networking or other websites, which could adversely affect our business and results of operations. As social media evolves, we will be presented with new risks and challenges.
Our Success Depends on Our Senior Management. Our success depends upon the retention of our senior management, whose continued service is not guaranteed. We may not be able to find qualified replacements for the individuals who make up our senior management if their services should no longer be available to us. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations.
Changes in U.S. Accounting Standards May Materially and Adversely Affect Our Reported Results of Operations. Accounting for public companies in the United States is in accordance with GAAP, which is established by the Financial Accounting Standards Board (the “FASB”), an independent body whose standards are recognized by the SEC as authoritative for publicly held companies. Uncertainties posed by various initiatives of accounting standard-setting by the FASB and the SEC, which create and interpret applicable accounting standards for U.S. companies, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements. These changes could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financial statements.
Third-Party Expectations Relating to Environmental, Social and Governance Factors May Impose Additional Costs and Expose Us to New Risks. There is an increasing focus from certain investors, tenants, employees, and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance factors. In addition, there is an increased focus on such matters by various regulatory authorities, including the SEC and the state of California, and the activities and expense required to comply with new laws, regulations or standards may be significant. Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to corporate responsibility are inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased in number, resulting in varied and in some cases inconsistent standards. In addition, the criteria by which companies’ corporate responsibility practices are assessed and the regulations applicable thereto are evolving, which could result in greater expectations of us and cause us to undertake costly initiatives or activities to satisfy such new criteria or regulations. Further, if we elect not to or are unable to satisfy such new criteria or do not meet the criteria of a specific third-party provider or investor, some investors may conclude that our policies with respect to corporate responsibility are inadequate. We may face reputational damage in the event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies. Furthermore, if our competitors’ corporate responsibility performance is perceived to be greater than ours, potential or current investors may elect to invest in our competitors instead. In addition, we have communicated certain initiatives and goals regarding environmental, social and governance matters, and we may in the future communicate revised or additional initiatives or goals. We could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. If we fail to satisfy the expectations of investors, tenants and other stakeholders, our initiatives are not executed as planned, or we do not satisfy our goals, our reputation and financial results could be adversely affected.
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Risks Related to Our Indebtedness and Financings
Changing Interest Rates Could Increase Interest Costs and Adversely Affect Our Cash Flows and the Market Price of Our Common Stock. We currently have, and expect to incur in the future, interest-bearing debt, including unsecured commercial paper, at rates that vary with market interest rates. As of December 31, 2023, we had approximately $479.7 million of variable rate indebtedness outstanding, which constitutes approximately 8.3% of total outstanding indebtedness as of such date, and we have experienced increases in the interest rates on such indebtedness, which has increased our interest expense and adversely impacted our results of operations and cash flows. In addition, as a result of rising interest rates, the costs of hedging transactions have increased significantly and may continue to increase. Continued increases in interest rates would further increase our interest expenses and increase the costs of refinancing existing indebtedness and of issuing new debt, including unsecured commercial paper. The effect of prolonged interest rate increases could negatively impact our ability to service our indebtedness, make distributions to security holders, make acquisitions and develop properties.
Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing Risk. We are subject to the risks normally associated with debt financing, including the risk that our operating income and cash flow could be insufficient to make required payments of principal and interest, could restrict or limit our ability to incur additional debt, or could restrict our borrowing capacity under our line of credit due to debt covenant restraints. Sufficient cash flow may not be available to make all required debt payments and satisfy our distribution requirements to maintain our status as a REIT for federal income tax purposes. In addition, the amounts under our line of credit may not be available to us and we may not be able to access the commercial paper market if our operating performance falls outside the constraints of our debt covenants. We are also likely to need to refinance substantially all of our outstanding debt as it matures. We may not be able to refinance existing debt, or the terms of any refinancing may not be as favorable as the terms of the existing debt, which could create pressure to sell assets or to issue additional equity when we would otherwise not choose to do so. In addition, our failure to comply with our debt covenants could result in a requirement to repay our indebtedness prior to its maturity, which could have a material adverse effect on our financial condition and cash flow, increase our financing costs and impact our ability to make distributions to our stockholders.
Failure to Generate Sufficient Income Could Impair Debt Service Payments and Distributions to Stockholders. If our apartment communities do not generate sufficient revenue to meet rental expenses, our ability to make required payments of interest and principal on our debt and to pay dividends or distributions to our stockholders will be adversely affected. The following factors, among others, may affect the income generated by our apartment communities:
Expenses associated with our investment in an apartment community, such as debt service, real estate taxes, insurance, labor costs and maintenance costs, are generally not reduced when circumstances cause a reduction in revenue from that community. If a community is mortgaged to secure payment of debt and we are unable to make the mortgage payments, we could sustain a loss as a result of foreclosure on the community or the exercise of other remedies by the mortgage holder.
Our Debt Level May Be Increased. Our ability to incur debt is limited by covenants in our bank and other credit agreements. We manage our debt to be in compliance with these debt covenants, but subject to compliance with these
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covenants, we may increase the amount of our debt at any time without a concurrent improvement in our ability to service the additional debt.
Financing May Not Be Available and Could Be Dilutive. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit, construction loans and other forms of secured debt, commercial paper and other forms of unsecured debt, and equity financing, including common and preferred equity. We and other companies in the real estate industry have experienced limited availability of financing from time to time, including due to disruptions and uncertainty in the equity and credit markets and regulatory changes directly or indirectly affecting financing markets, for example the changes in terms on construction loans brought about by the Basel III capital requirements and the associated “High Volatility Commercial Real Estate” designation, which has adversely impacted the availability of loans, including construction loans, and the proceeds of and the interest rates thereon. Restricted lending practices could impact our ability to obtain financing or refinancing for our properties. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing stockholders could be diluted.
Failure To Maintain Our Current Credit Ratings Could Adversely Affect Our Cost of Funds, Related Margins, Liquidity, and Access to Capital Markets. Moody’s and Standard & Poor’s routinely evaluate our debt and have given us ratings on our senior unsecured debt, commercial paper program and preferred stock. These ratings are based on a number of factors, which include their assessment of our financial strength, liquidity, capital structure, asset quality, and sustainability of cash flows and earnings. Due to changes in these factors and market conditions, we may not be able to maintain our current credit ratings, which could adversely affect our cost of funds and related margins, liquidity, and access to capital markets, including our ability to access the commercial paper market.
Disruptions in Financial Markets May Adversely Impact the Availability and Cost of Credit and Have Other Adverse Effects on Us and the Market Price of Our Common Stock. Our ability to make scheduled payments on, or to refinance, our debt obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business and other factors beyond our control. The global equity and credit markets have experienced in the past, and may experience in the future, periods of extraordinary turmoil and volatility. These circumstances may materially and adversely impact liquidity in the financial markets at times, making terms for certain financings less attractive or in some cases unavailable. Disruptions and uncertainty in the equity and credit markets, including as a result of bank failures and uncertainty in the banking sector generally, may negatively impact our ability to refinance existing indebtedness and access additional financing for acquisitions, development of our properties and other purposes at reasonable terms or at all, which may negatively affect our business and the market price of our common stock. We also rely on the financial institutions that are parties to our revolving credit facility and other credit facilities. If these institutions become capital constrained, tighten their lending standards or become insolvent or if they experience excessive volumes of borrowing requests from other borrowers within a short period of time, they may be unable or unwilling to honor their funding commitments to us, which would adversely affect our ability to draw on our revolving credit facility. If we are not successful in refinancing our existing indebtedness when it becomes due, we may be forced to dispose of properties on disadvantageous terms, which might adversely affect our ability to service other debt and to meet our other obligations. A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital through the issuance of our common or preferred stock.
A Change in U.S. Government Policy or Support Regarding Fannie Mae or Freddie Mac Could Have a Material Adverse Impact on Our Business. While in recent years we have decreased our borrowings from Fannie Mae and Freddie Mac, Fannie Mae and Freddie Mac are a major source of financing to participants in the multifamily housing markets including potential purchasers of our properties. Potential options for the future of agency mortgage financing in the U.S. have been, and may in the future be, suggested that could involve a reduction in the amount of financing Fannie Mae and Freddie Mac are able to provide, limitations on the loans that the agencies may make, which may not include loans secured by properties like our properties, or the phase out of Fannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded or reorganized by the government, or if there is reduced government support for multifamily housing generally, it may adversely affect interest rates, capital availability, development of multifamily communities and the value of multifamily residential real estate and, as a result, may adversely affect our business and results of operations.
The Soundness of Financial Institutions Could Adversely Affect Us. We have relationships with many financial institutions, including lenders under our credit facilities, and, from time to time, we execute transactions with
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counterparties in the financial services industry. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, could result in losses or defaults by these institutions or counterparties or could lead to market-wide liquidity problems. Disruptions and uncertainty with respect to financial institutions, including as a result of bank failures and liquidity concerns, may negatively impact our ability to refinance existing indebtedness and access additional financing for acquisitions, development of our properties and other purposes at reasonable terms or at all, which may negatively affect our business and the market price of our common stock. In addition, in the event that the volatility of the financial markets adversely affects our financial institutions or other counterparties, we or other parties to the transactions with us may be unable to complete transactions as intended, which could adversely affect our results of operations.
Interest Rate Hedging Contracts May Be Ineffective and May Result in Material Charges. From time to time when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates during the period prior to the pricing of the securities by entering into interest rate hedging contracts. We may do this to increase the predictability of our financing costs. Also, from time to time we may rely on interest rate hedging contracts to limit our exposure under variable rate debt to unfavorable changes in market interest rates. If the terms of new debt securities are not within the parameters of, or market interest rates fall below that which we incur under a particular interest rate hedging contract, the contract is ineffective. Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges. In addition, our use of interest rate hedging arrangements may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. Termination of these hedging agreements typically involves costs, such as transaction fees or breakage costs.
Risks Related to Tax Laws
We Would Incur Adverse Tax Consequences if We Failed to Qualify as a REIT. We have elected to be taxed as a REIT under the Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. We intend that our current organization and method of operation will enable us to continue to qualify as a REIT, but we may not so qualify or we may not be able to remain so qualified in the future. In addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. Future legislation, new regulations, administrative interpretations or court decisions could adversely affect our ability to qualify as a REIT or adversely affect our stockholders.
If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to our stockholders in computing our taxable income. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, we could not re-elect REIT status until the fifth calendar year after the year in which we first failed to qualify as a REIT. The additional tax liability from the failure to qualify as a REIT would reduce or eliminate the amount of cash available for investment or distribution to our stockholders. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to our stockholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property.
Certain of our subsidiaries have also elected to be taxed as REITs under the Code, and are therefore subject to the same risks in the event that any such subsidiary fails to qualify as a REIT in any taxable year.
Dividends Paid by REITs Generally Do Not Qualify for Reduced Tax Rates. In general, the maximum U.S. federal income tax rate for dividends paid to individual U.S. stockholders is 20%. Unlike dividends received from a corporation that is not a REIT, our regular dividends (i.e., dividends other than capital gain dividends) paid to individual stockholders generally are not eligible for the reduced rates. However, individual U.S. stockholders generally may deduct 20% of such regular dividends under Section 199A of the Code, reducing the effective tax rate applicable to such dividends (although such provision will expire after 2025 absent future legislation).
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We Conduct a Portion of Our Business Through Taxable REIT Subsidiaries, Which Are Subject to Certain Tax Risks. We have established or invested in and conduct a portion of our business through taxable REIT subsidiaries. Despite our qualification as a REIT, taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in taxable REIT subsidiaries generally do not constitute permissible income and investments for certain of these tests. While we will attempt to ensure that our dealings with taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, we may jeopardize our ability to retain future gains on real property sales, or taxable REIT subsidiaries may be denied deductions, to the extent our dealings with taxable REIT subsidiaries are not deemed to be arm’s length in nature or are otherwise not respected.
REIT Distribution Requirements Limit Our Available Cash. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we retain for other business purposes, including amounts to fund our growth. We generally must distribute annually at least 90% of our net REIT taxable income, excluding any net capital gain, in order for our distributed earnings not to be subject to corporate income tax. We intend to make distributions to our stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code.
Certain Property Transfers May Generate Prohibited Transaction Income, Resulting in a Penalty Tax on Gain Attributable to the Transaction. From time to time, we may transfer or otherwise dispose of some of our properties. Under the Code, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction and subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction and we may jeopardize our ability to retain future gains on real property sales. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT for federal income tax purposes.
Changes to the U.S. Federal Income Tax Laws, including the Enactment of Certain Tax Reform Measures, Could Have an Adverse Impact on Our Business and Financial Results. In recent years, numerous legislative, judicial and administrative changes have been made to the U.S. federal income tax laws applicable to investments in real estate and REITs, and it is possible that additional legislation may be enacted in the future. There can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. The REIT rules are regularly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results.
We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, interpretations or rulings will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding the effect of potential future changes to the federal tax laws on an investment in our shares.
We May Be Adversely Affected by Changes in State and Local Tax Laws and May Become Subject to Tax Audits from Time to Time. Because we are organized and qualify as a REIT, we are generally not subject to federal income taxes, but we are subject to certain state and local taxes. From time to time, changes in state and local tax laws or regulations may result in an increase in our tax liability. A shortfall in tax revenues for states and local jurisdictions in which we own apartment communities may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional state and local taxes. These increased tax costs could adversely affect our financial condition and the amount of cash available for the payment of distributions to our stockholders. In the normal course of business, we or our affiliates (including entities through which we own real estate) may also become subject to federal, state or local tax audits. If we (or such entities) become subject to federal, state or local tax audits, the ultimate result of such audits could have an adverse effect on our financial condition and results of operations.
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The Operating Partnership and the DownREIT Partnership Intend to Qualify as Partnerships, but Cannot Guarantee That They Will Qualify. The Operating Partnership and the DownREIT Partnership intend to qualify as partnerships for federal income tax purposes, and we intend to take that position for all income tax reporting purposes. If classified as partnerships, the Operating Partnership and the DownREIT Partnership generally will not be taxable entities and will not incur federal income tax liability. However, the Operating Partnership and the DownREIT Partnership would be treated as corporations for federal income tax purposes if they were “publicly traded partnerships,” unless at least 90% of their income was qualifying income as defined in the Code. A “publicly traded partnership” is a partnership whose partnership interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). Although neither the Operating Partnership’s nor the DownREIT Partnership’s partnership units are traded on an established securities market, because of the redemption rights of their limited partners, the Operating Partnership’s and DownREIT Partnership’s units held by limited partners could be viewed as readily tradable on a secondary market (or the substantial equivalent thereof), and the Operating Partnership and the DownREIT Partnership may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income for the 90% test generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. The Operating Partnership and the DownREIT Partnership may not meet this qualifying income test. If either the Operating Partnership or the DownREIT Partnership were to be taxed as a corporation, it would incur substantial tax liabilities, and we would then fail to qualify as a REIT for tax purposes, unless it qualified for relief under certain statutory savings provisions, and our ability to raise additional capital would be impaired. In addition, even if the 90% test were met if the Operating Partnership or the DownREIT Partnership were a publicly traded partnership, there could be adverse tax impacts for certain limited partners.
Qualifying as a REIT Involves Highly Technical and Complex Provisions of the Code. Our qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Our ability to satisfy the REIT income and asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination and for which we will not obtain independent appraisals, and upon our ability to successfully manage the composition of our income and assets on an ongoing basis. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.
Risks Related to Our Organization and Ownership of Our Stock
Changes in Market Conditions and Volatility of Stock Prices Could Adversely Affect the Market Price of Our Common Stock. The stock markets, including the New York Stock Exchange (“NYSE”), on which we list our common stock, have experienced significant price and volume fluctuations. As a result, the market price of our common stock has been, and in the future could be similarly volatile, and investors in our common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the price per share of our common stock, including:
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Many of the factors listed above are beyond our control. These factors may cause the market price of shares of our common stock to decline, regardless of our financial condition, results of operations, business or prospects.
We May Change the Dividend Policy for Our Common Stock in the Future. The decision to declare and pay dividends on our common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, funds from operations, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the annual distribution requirements under the REIT provisions of the Code, state law and such other factors as our board of directors considers relevant. Any change in our dividend policy could have an adverse effect on the market price of our common stock.
Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in Our Stockholders’ Best Interests. Maryland business statutes may limit the ability of a third party to acquire control of us. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire our Company and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders’ best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our board of directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66 2/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our equity stock that represents 10% (and certain higher levels) of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote.
Limitations on Share Ownership and Limitations on the Ability of Our Stockholders to Effect a Change in Control of Our Company Restrict the Transferability of Our Stock and May Prevent Takeovers That are Beneficial to Our Stockholders. One of the requirements for maintenance of our qualification as a REIT for U.S. federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Code, during the last half of any taxable year. Our charter contains ownership and transfer restrictions relating to our stock primarily to assist us in complying with this and other REIT ownership
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requirements; however, the restrictions may have the effect of preventing a change of control which does not threaten our REIT status. These restrictions include a provision that generally limits ownership by any person of more than 9.9% of the value of our outstanding equity stock, unless our board of directors exempts the person from such ownership limitation, provided that any such exemption shall not allow the person to exceed 13% of the value of our outstanding equity stock. Absent such an exemption from our board of directors, the transfer of our stock to any person in excess of the applicable ownership limit, or any transfer of shares of such stock in violation of the ownership requirements of the Code for REITs, will be considered null and void, and the intended transferee of such stock will acquire no rights in such shares. These provisions of our charter may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for our stockholders or might otherwise be in our stockholders’ best interests.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Given the prevalence of cybersecurity threats, cybersecurity represents a critical component of the Company’s overall approach to risk management. The Company’s cybersecurity policies, standards and practices are integrated into the Company’s enterprise risk management (“ERM”) approach, and cybersecurity risks are among the core enterprise risks that are subject to oversight by the Company’s Board of Directors (the “Board”). The Company’s cybersecurity policies, standards and practices are derived from recognized frameworks established by the National Institute of Standards and Technology (“NIST”) and other applicable industry standards, and the Company is working to obtain NIST certification. Many members of the Company’s cybersecurity team are certified by and have received training from the International Information Security Consortium (“IISC”). The Company generally approaches cybersecurity threats through a cross-functional, multilayered approach, with specific the goals of: (i) identifying, attempting to prevent and mitigating cybersecurity threats to the Company; (ii) preserving the confidentiality, security and availability of the information that we collect and store to use in our business; (iii) protecting the Company’s intellectual property; (iv) protecting personally identifiable data and maintaining the confidence of our customers, clients and business partners; and (v) providing appropriate public disclosure of cybersecurity risks and incidents when required.
Risk Management and Strategy
Consistent with overall ERM policies and practices, the Company’s cybersecurity program focuses on the following areas:
A key part of the Company’s strategy for managing risks from cybersecurity threats is the ongoing assessment and testing of the Company’s processes and practices through auditing, assessments, tabletop exercises, vulnerability testing and other exercises focused on evaluating the effectiveness of our cybersecurity measures. The Company engages third parties, including legal counsel, to perform assessments on our cybersecurity measures, including information security maturity assessments, penetration testing inclusive of our resident facing apps and devices, audits and independent reviews of our information security control environment and operating effectiveness. The material results of such assessments, audits and reviews are reported to the Audit Committee and the Board, and the Company adapts its cybersecurity policies, standards, processes, and practices as necessary based on the information provided by the assessments, audits, and reviews. In addition, in 2023 outside legal counsel conducted an exercise regarding preparation for cyber events attended by our Chairman and Chief Executive Officer, President and Chief Financial Officer and other members of senior management.
Governance
The Board, in coordination with the Audit Committee, oversees the management of risks from cybersecurity threats, including the policies, standards, processes and practices that the Company’s management implements to address risks from cybersecurity threats. The Board and the Audit Committee each receive presentations and reports on cybersecurity risks, which address a wide range of topics including, for example, recent developments, evolving standards, vulnerability assessments, third-party and independent reviews, the threat environment, new tools and vendors being used by the Company related to cybersecurity, technological trends and information security considerations arising with respect to the Company’s peers and third parties. The Board and the Audit Committee also receive information regarding any cybersecurity incident when appropriate, as well as ongoing updates regarding such incident until it has been addressed. At least once each year the Board and the Audit Committee at least quarterly discuss the Company’s approach to cybersecurity risk management with the Company’s Chief Technology Officer.
The Company’s Chief Technology Officer is the member of the Company’s management that is principally responsible for overseeing the Company’s cybersecurity risk management program, in partnership with other business leaders across the Company. The Chief Technology Officer and our Vice President, Information Security work in coordination with the other members of the Information Security Management System Committee (“ISMS”), which includes department heads and IT personnel. The Chief Technology Officer also provides monthly reports regarding
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information technology including cybersecurity to our senior management including our Chairman and Chief Executive Officer, President and Chief Financial Officer, Senior Vice President – Chief Investment Officer, Senior Vice President – Operations, Senior Vice President – Chief Accounting Officer, Senior Vice President – Acquisitions and Dispositions, and Senior Vice President – General Counsel. The Company’s Chief Technology Officer has served in various roles in information technology and information security for over 23 years. The Chief Technology Officer holds an undergraduate degree in computer science and a master’s degree in business administration. The Company’s Vice President, Information Security holds an undergraduate degree in computer science and management science, has attained a professional certification of Certified Information Systems Security Professional (CISSP) from the IISC and has served in various roles in information technology and information security for over 15 years. In addition, our Vice President, Information Security is a member of InfraGard.
The Company’s Chief Technology Officer and Vice President, Information Security, in coordination with the ISMS, work collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents. To facilitate the success of this program, our IT security team and, when necessary, multidisciplinary teams throughout the Company are deployed to address cybersecurity threats and to respond to cybersecurity incidents in accordance with the Company’s incident response and recovery plans. Through the ongoing communications from these teams, the Chief Technology Officer and the Vice President, Information Security monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents, and report such incidents to the ISMS and other members of management and the Audit Committee or the Board when appropriate.
To date the Company has not been materially affected by a cybersecurity incident or cybersecurity threat and no incident has occurred that is reasonably likely to affect the Company, including its business strategy, results of operations, or financial condition.
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Item 2. PROPERTIES
At December 31, 2023, our consolidated apartment portfolio included 168 communities located in 21 markets, with a total of 55,550 completed apartment homes.
The table below set forth a summary of real estate portfolio by geographic market of the Company at December 31, 2023.
SUMMARY OF REAL ESTATE PORTFOLIO BY GEOGRAPHIC MARKET AT DECEMBER 31, 2023
Percentage
Average
Number of
of Total
Carrying
Home Size
Apartment
Value
Encumbrances
Cost per
Physical
(in square
Homes
(in thousands)
Home
Occupancy
feet)
WEST REGION
Orange County, CA
4,305
8.6
%
1,371,309
318,539
96.4
856
San Francisco, CA
3,309
7.5
1,209,227
67,017
365,436
93.7
837
Seattle, WA
2,702
6.9
1,111,182
411,244
97.2
859
Monterey Peninsula, CA
1,567
1.2
197,561
126,076
95.6
728
Los Angeles, CA
1,225
3.0
482,945
394,241
96.2
967
Other Southern California
821
1.4
224,842
273,864
96.8
1,016
Portland, OR
476
0.3
56,055
117,763
97.1
903
MID-ATLANTIC REGION
Metropolitan D.C.
9,119
16.4
2,633,863
288,530
288,832
95.7
918
Baltimore, MD
2,221
3.5
562,075
58,600
253,073
963
Richmond, VA
1,359
1.0
166,013
122,158
96.9
1,017
NORTHEAST REGION
Boston, MA
4,667
12.2
1,947,236
323,350
417,235
96.7
994
New York, NY
2,318
9.9
1,584,275
683,466
97.8
754
Philadelphia, PA
1,172
2.7
438,465
374,117
96.6
949
SOUTHEAST REGION
Tampa, FL
3,877
4.2
673,942
173,831
995
Orlando, FL
3,493
559,956
160,308
974
Nashville, TN
2,260
1.6
249,705
110,489
933
Other Florida
636
0.6
95,798
150,626
1,130
SOUTHWEST REGION
Dallas, TX
7,363
8.0
1,283,970
476,227
174,381
845
Austin, TX
1,880
2.0
318,791
67,044
169,570
95.9
891
Denver, CO
510
249,653
489,516
93.5
861
Total Operating Communities
167
55,280
96.1
15,416,863
1,280,768
278,887
908
Real Estate Under Development (a)
160,404
Land
1.5
232,365
Held for Disposition
214
0.7
105,999
Other
108,228
(3,055)
Total Real Estate Owned
168
100.0
1,277,713
Item 3. LEGAL PROCEEDINGS
We are subject to various legal proceedings and claims arising in the ordinary course of business. We cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. We believe that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Capital Stock
Common Stock
UDR, Inc.’s common stock has been listed on the New York Stock Exchange (“NYSE”) under the symbol “UDR” since May 7, 1990.
On February 16, 2024, there were 2,659 holders of record of the 329,224,105 outstanding shares of our common stock.
We have determined that, for federal income tax purposes, approximately 88% of the distributions for 2023 represented ordinary income, 10% represented long-term capital gain and 2% represented unrecaptured section 1250 gain.
UDR pays regular quarterly distributions to holders of its common stock. Future distributions will be at the discretion of our Board of Directors and will depend on our actual funds from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code, and other factors.
Series E Preferred Stock
The Series E Cumulative Convertible Preferred Stock (“Series E”) has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time at the holder’s option into 1.083 shares of our common stock. The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any meeting of our stockholders for the election of directors or for any other purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption. In connection with a special dividend (declared on November 5, 2008), the Company reserved for issuance upon conversion of the Series E additional shares of common stock to reflect the number of shares a holder of the Series E would have received if the holder had converted the Series E immediately prior to the record date for this special dividend.
Distributions declared on the Series E for the years ended December 31, 2023 and 2022 were $1.8192 per share, or $0.4548 per quarter, and $1.6456 per share, or $0.4114 per quarter, respectively. The Series E is not listed on any exchange. At December 31, 2023, a total of 2.7 million shares of the Series E were outstanding.
Series F Preferred Stock
We are authorized to issue up to 20.0 million shares of our Series F Preferred Stock (“Series F”). The Series F may be purchased by holders of limited partnership interests in the Operating Partnership and the DownREIT Partnership at a purchase price of $0.0001 per share. Certain OP/DownREIT unitholders were entitled to subscribe for and purchase one share of the Series F for each OP/DownREIT Unit held.
As of December 31, 2023, a total of 11.9 million shares of the Series F were outstanding. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to any other rights, privileges or preferences.
Distribution Reinvestment and Stock Purchase Plan
We have a Distribution Reinvestment and Stock Purchase Plan under which holders of our common stock may elect to automatically reinvest their distributions and make additional cash payments to acquire additional shares of our common stock. Stockholders who do not participate in the plan continue to receive distributions as and when declared. As of February 16, 2024, there were approximately 1,703 participants in the plan.
Unregistered Sales of Equity Securities
From time to time we issue shares of our common stock in exchange for OP Units tendered to the Operating Partnership for redemption in accordance with the provisions of the Operating Partnership’s limited partnership agreement. Under the terms of the Operating Partnership’s limited partnership agreement, the holders of OP Units have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the holder in exchange for a cash payment based on the market value of our common stock at the time of redemption. However, the Operating Partnership’s obligation to pay the cash amount is subject to the prior right of the Company to acquire such OP Units in exchange for either the cash amount or the number of shares of our common stock equal to the number of OP Units being redeemed.
During the three months ended December 31, 2023, we did not issue any shares of our common stock upon redemption of OP Units in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
Purchases of Equity Securities
In January 2008, UDR’s Board of Directors authorized a 15 million share repurchase program. Under the share repurchase program, UDR may repurchase shares of our common stock in open market purchases, block purchases, privately negotiated transactions or otherwise. The following table summarizes all of UDR’s repurchases of shares of common stock under this program during the quarter ended December 31, 2023 (shares in thousands):
Total Number
Maximum
of Shares
Purchased as
Shares that
Part of
May Yet Be
Publicly
Purchased
Shares
Price Paid
Announced Plan
Under the Plan
Period
per Share
or Program
or Program (a)
Beginning Balance
2,973
37.90
12,027
October 1, 2023 through October 31, 2023
November 1, 2023 through November 30, 2023
December 1, 2023 through December 31, 2023
Balance as of December 31, 2023
During the three months ended December 31, 2023, certain of our employees surrendered shares of common stock owned by them to satisfy their statutory federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our 1999 Long-Term Incentive Plan (the “LTIP”). The following table summarizes all of these repurchases during the three months ended December 31, 2023 (shares in thousands):
Announced Plans
Under the Plans
per Share (a)
or Programs
35.14
N/A
38.29
36.50
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Comparison of Five-year Cumulative Total Returns
The following graph compares the five-year cumulative total returns for UDR common stock with the comparable cumulative return of the Nareit Equity REIT Index, Standard & Poor’s 500 Stock Index, the Nareit Equity Apartment Index and the MSCI U.S. REIT Index. The graph assumes that $100 was invested on December 31, 2018, in each of our common stock and the indices presented. Historical stock price performance is not necessarily indicative of future stock price performance. The comparison assumes that all dividends are reinvested.
Period Ending
Index
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
100.00
121.48
103.82
167.27
111.34
114.81
FTSE Nareit Equity Apartment Index
126.32
106.94
174.97
119.06
126.05
S&P 500 Index
131.49
155.68
200.37
164.08
207.21
FTSE Nareit Equity REITs Index
126.00
115.92
166.04
125.58
142.83
The performance graph and the related chart and text, are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of ours, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 6. [RESERVED]
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements for the years ended December 31, 2023, and 2022.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022 of UDR, Inc. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 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 ended December 31, 2022.
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 and rental expense growth. 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.
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 in the United States. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include the Operating Partnership and the DownREIT Partnership. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the Company,” or “UDR” refer collectively to UDR, Inc., its consolidated subsidiaries and its consolidated joint ventures.
At December 31, 2023, our consolidated real estate portfolio included 168 communities in 13 states plus the District of Columbia totaling 55,550 apartment homes. In addition, we have an ownership interest in 10,045 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 5,618 apartment homes owned by entities in which we hold preferred equity investments. The Same-Store Community apartment home population for the year ended December 31, 2023, was 51,368.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management’s assessment after considering all evidence available. Changes in estimates could affect our financial position or results of
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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 the UDR, 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 ended December 31, 2023, 2022, and 2021 were $23.2 million, $31.3 million, and $21.0 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 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,
40
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.
Real Estate Investment Properties
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 a Maryland 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 ended December 31, 2023 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.
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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, 2023:
December 31, 2023
Year Ended December 31, 2023
Monthly
Net
Income per
Operating
Value (in
Occupied
Income
Same-Store Communities
thousands)
Home (a)
West Region
1,370,945
3,013
116,798
2,780
5.8
926,601
96.5
3,490
79,700
1,101,692
2,817
65,697
3,122
31,952
2,289
31,798
224,733
2,883
20,542
1,949
7,833
Mid-Atlantic Region
8,819
15.4
2,473,552
2,298
162,251
1,898
32,610
1,827
21,518
Northeast Region
4,234
10.9
1,724,245
3,145
111,009
9.8
1,573,293
4,640
73,093
972
2.3
372,000
2,552
20,145
Southeast Region
673,742
2,118
63,085
1,914
53,283
1,760
33,664
2,350
12,058
Southwest Region
5,813
6.1
983,508
1,777
76,557
1,272
193,911
96.3
1,924
17,585
218
0.9
147,523
3,587
6,515
Total/Average Same-Store Communities
153
51,368
88.2
14,135,853
2,502
1,037,693
Non-Mature, Commercial Properties & Other
3,912
10.1
1,621,603
71,455
Total Real Estate Held for Investment
98.3
15,757,456
1,109,148
Real Estate Under Development (b)
(387)
Real Estate Held for Disposition (c)
6,009
1,114,770
Total Accumulated Depreciation
(6,267,830)
Total Real Estate Owned, Net of Accumulated Depreciation
9,756,029
Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2022 and held as of December 31, 2023. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.
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Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities, including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either through operating cash flows, sales of properties, borrowings under our credit agreements, and/or the issuance of debt and/or equity securities. Our primary source of liquidity is our cash flow from operations, as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes, and borrowings under our credit agreements. We routinely use our working capital credit facility, our unsecured revolving credit facility and issuances of commercial paper to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio.
We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through net cash provided by property operations, secured and unsecured borrowings, the issuance of debt or equity securities, and/or the disposition of properties. We believe that our net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings under credit agreements, the issuance of debt or equity securities, and/or dispositions of properties.
We have a shelf registration statement filed with the Securities 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.
In July 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 in July 2017. During the year ended December 31, 2023, the Company did not sell any shares of common stock through its ATM program. As of December 31, 2023, 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.
During the year ended December 31, 2023, the Company repurchased 0.6 million shares of its common stock at an average price of $40.13 per share for total consideration of approximately $25.0 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 2024, we have approximately $97.6 million of secured debt maturing, inclusive of principal amortization, and $423.7 million of unsecured debt maturing. We anticipate repaying the debt due in 2024 with cash
43
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 December 31, 2023 (dollars in thousands):
Payments Due by Period
Material Cash Requirements
2024
2025-2026
2027-2028
Thereafter
Long-term debt obligations
521,297
579,843
1,123,449
3,584,491
5,809,080
Interest on debt obligations (a)
171,344
318,937
243,384
236,674
970,339
Letters of credit
2,235
76
2,311
Operating lease obligations:
Ground leases (b)
12,442
24,884
405,452
467,662
707,318
923,740
1,391,717
4,226,617
7,249,392
During 2023, we incurred gross interest costs of $191.0 million, of which $10.1 million was capitalized.
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 the Operating Partnership. With respect to this debt, as further outlined below, the Operating 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 the Operating 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 the Operating Partnership, owns 100 percent of the Operating 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 the Operating Partnership. UDR has concluded that it is the primary beneficiary of, and therefore consolidates, the Operating Partnership.
The Operating Partnership is the subsidiary guarantor of certain of our registered debt securities, including the $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027, $300 million of medium-term notes due January 2028, $300 million of medium-term notes due January 2029, $600 million of medium-term notes due January 2030, $600 million of medium-term notes due August 2031, $400 million of medium-term notes due August 2032, $350 million of medium-term notes due March 2033, $300 million of medium-term notes due in June 2033 and $300 million of medium-term notes due November 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, the Operating 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 the Operating 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.
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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.
The following tables present the summarized financial information for the Operating Partnership as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022, and 2021. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis (dollars in thousands):
December 31,
Total real estate, net
2,629,267
2,353,509
Cash and cash equivalents
Operating lease right-of-use assets
191,673
195,296
Other assets
75,464
67,186
Total assets
2,896,409
2,616,000
Secured debt, net
377,262
187,537
Notes payable to UDR (a)
1,298,903
1,162,308
Operating lease liabilities
186,939
190,495
Other liabilities
133,595
118,103
Total liabilities
1,996,699
1,658,443
Total capital
899,710
957,557
Year Ended
Total revenue
561,441
511,560
440,631
Property operating expenses
(243,842)
(217,048)
(189,543)
Real estate depreciation and amortization
(166,744)
(155,451)
(152,520)
Operating income/(loss)
150,855
139,061
98,568
Interest expense (a)
(55,729)
(37,792)
(33,098)
Other income/(loss)
6,231
(3,589)
9,316
Net income/(loss)
101,357
97,680
74,786
Statements of Cash Flows
The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022.
Operating Activities
For the year ended December 31, 2023, our Net cash provided by/(used in) operating activities was $832.7 million compared to $820.1 million for 2022. The increase in cash flow from operating activities was primarily due to an increase in net operating income (“NOI”), primarily driven by higher revenue per occupied home, and NOI from additional operating communities, partially offset by a decrease in operating distributions from our unconsolidated joint ventures and changes in operating assets and liabilities.
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Investing Activities
For the year ended December 31, 2023, Net cash provided by/(used in) investing activities was $(289.1) million compared to $(929.5) million for 2022. The decrease in cash used in investing activities was primarily due to a decrease in acquisitions, an increase in proceeds from sales of real estate, a decrease in spend for development of real estate assets, and a decrease in cash investments in unconsolidated joint ventures, partially offset by an increase in spend for capital expenditures and a decrease in distributions received from unconsolidated joint ventures and partnerships.
Acquisitions
In February 2023, the Company took title to a 136 apartment home operating community located in San Francisco, California, through a foreclosure proceeding. The community was previously owned by a consolidated joint venture of the Company. (See Note 5, Joint Ventures and Partnerships for more information).
In August 2023, the Company acquired a portfolio of six operating communities totaling 1,753 apartment homes, which included four operating communities in Dallas, Texas and two operating communities in Austin, Texas, for a purchase price of $354.6 million. The Company acquired the portfolio with a combination of cash, the assumption of six mortgage loans with an outstanding principal balance of approximately $209.4 million (fair value of $191.7 million), and the issuance of 3.6 million OP Units to the seller valued at $141.4 million. The OP Units were valued based on the closing price per share of UDR’s common stock on the date of acquisition in accordance with GAAP. The Company increased its real estate assets owned by approximately $344.8 million, recorded $9.8 million of in-place lease intangibles, and recorded a $17.6 million debt discount in connection with the below-market debt assumed.
In April 2022, the Company acquired a to-be-developed parcel of land located in Fort Lauderdale, Florida for approximately $16.0 million.
In June 2022, the Company acquired a 433 apartment home operating community located in Danvers, Massachusetts for approximately $207.5 million. The Company increased its real estate assets owned by approximately $203.7 million and recorded $3.8 million of in-place lease intangibles.
In June 2022, the Company acquired three contiguous to-be-developed parcels of land located in Dallas, Texas for approximately $90.2 million.
In June 2022, the Company acquired a to-be-developed parcel of land, which included two operating retail components, located in Riverside, 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.
Dispositions
In January 2023, the Company sold the retail component of a development community located in Washington D.C. for gross proceeds of approximately $14.4 million, resulting in a gain of less than $0.1 million. The gross proceeds were received ratably throughout the development of the community and are reflected as a reduction of capital expenditures.
In June 2023, the Company contributed four wholly owned operating communities, totaling 1,328 apartment homes located in various markets, to a newly formed joint venture in exchange for a 51.0% interest in the venture. The contribution resulted in the Company no longer retaining a controlling interest in the communities, and the Company deconsolidated the operating communities. The Company received approximately $247.9 million in cash proceeds from our joint venture partner at formation. The transaction was accounted for as a partial sale and resulted in a gain of approximately $325.9 million, which was recorded in Gain/(loss) on sale of real estate owned on the Consolidated Statement of Operations, which consisted of the gain on the partial sale and the initial measurement of our retained interest at fair value. (See Note 5, Joint Ventures and Partnerships for further discussion.)
In December 2023, the Company sold an operating community located in Hillsboro, Oregon with a total of 276 apartment homes for gross proceeds of $78.6 million, resulting in a gain of approximately $25.3 million.
In November 2022, the Company sold an operating community located in Orange County, California with a total of 90 apartment homes for gross proceeds of $41.5 million, resulting in a gain of approximately $25.5 million.
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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 ended December 31, 2023, total capital expenditures of $303.7 million or $5,567 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to $234.0 million or $4,373 per stabilized home for the prior year.
The increase in total capital expenditures was primarily due to:
The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, for the years ended December 31, 2023 and 2022 (dollars in thousands except Per Home amounts):
Per Home
Year Ended December 31,
% Change
Turnover capital expenditures
17,595
17,148
2.6
323
320
Asset preservation expenditures
68,017
56,713
19.9
1,249
1,060
17.8
Total recurring capital expenditures
85,612
73,861
15.9
1,572
1,380
13.9
NOI enhancing improvements (a)
90,627
72,165
25.6
1,664
1,349
23.4
Major renovations (b)
123,324
84,048
46.7
2,264
1,571
44.1
Operations platform
4,144
3,917
73
4.1
Total capital expenditures (c)
303,707
233,991
29.8
5,576
4,373
27.5
Repair and maintenance expense
94,958
84,663
1,743
1,582
10.2
Average home count (d)
54,476
53,514
1.8
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.
Consolidated Real Estate Under Development and Redevelopment
At December 31, 2023, our development pipeline consisted of two wholly-owned communities located in Addison, Texas and Tampa, Florida, totaling 415 homes, of which 56 have been completed, with a budget of $187.5 million, in which we have a gross carrying value of $160.4 million. The communities are estimated to be completed in the second quarter of 2024. During 2023, we incurred $159.3 million for development costs, a decrease of $38.7 million as compared to costs incurred in 2022 of $198.0 million.
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Unconsolidated Joint Ventures and Partnerships
The Company recognizes income or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net income or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the communities held by the unconsolidated joint ventures and partnerships.
The Company’s Investment in and advances to unconsolidated joint ventures and partnerships, net, are accounted for under the equity method of accounting. For the year ended December 31, 2023:
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 ended December 31, 2023 and 2022.
Financing Activities
For the years ended December 31, 2023 and 2022, Net cash provided by/(used in) financing activities was $(538.9) million and $111.2 million, respectively.
The following significant financing activities occurred during the year ended December 31, 2023:
The following significant financing activities occurred during the year ended December 31, 2022:
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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 of January 31, 2026, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of January 31, 2027.
Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to Adjusted SOFR plus a margin of 75.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to Adjusted SOFR plus a margin of 83.0 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 70 to 140 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 75 to 160 basis points. 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 upon the Company receiving certain green building certifications, which is reflected in the margins noted above.
As of December 31, 2023, we had no outstanding borrowings under the Revolving Credit Facility, leaving $1.3 billion of unused capacity (excluding $2.3 million of letters of credit at December 31, 2023), 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 of January 12, 2025. In November 2023, the Company amended the Working Capital Credit Facility to extend the maturity date from January 12, 2024 to January 12, 2025, plus a one-year extension option. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to Adjusted SOFR plus a margin of 77.5 basis points. Depending on the Company’s credit rating, the margin ranges from 70 to 140 basis points.
As of December 31, 2023, we had $4.6 million of outstanding borrowings under the Working Capital Credit Facility, leaving $70.4 million of unused capacity.
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 at December 31, 2023.
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 in the 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 the Operating Partnership. As of December 31, 2023, we had issued $408.1 million of commercial paper, for one month terms, at a weighted average annualized rate of 5.7%, leaving $291.9 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 $479.7 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2023. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $5.0 million based on the average balance outstanding during the year.
These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. This analysis does not consider the effects of the adjusted level of overall economic activity that could exist in such an environment 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.
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The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 14, Derivatives and Hedging Activities, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivative instruments.
A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands):
Net cash provided by/(used in) operating activities
832,664
820,071
Net cash provided by/(used in) investing activities
(289,138)
(929,528)
Net cash provided by/(used in) financing activities
(538,854)
111,233
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 December 31, 2023 and 2022.
Net Income/(Loss) Attributable to Common Stockholders
Net income/(loss) attributable to common stockholders was $439.5 million ($1.34 per diluted share) for the year ended December 31, 2023, as compared to $82.5 million ($0.26 per diluted share) for the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:
This was partially offset by:
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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.
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 to UDR, Inc. below.
The following table summarizes the operating performance of our total property NOI for each of the periods presented (dollars in thousands):
December 31, (a)
December 31, (b)
Same-Store Communities:
Same-Store rental income
1,490,837
1,411,495
5.6
1,337,003
1,203,921
11.1
Same-Store operating expense (c)
(453,144)
(432,630)
4.7
(404,150)
(382,226)
5.7
Same-Store NOI
978,865
6.0
932,853
821,695
13.5
Non-Mature Communities/Other NOI:
Stabilized, non-mature communities NOI (d)
34,726
17,651
88,767
33,789
162.7
Development communities NOI
258
(1,387)
NM
*
2,306
(418)
Non-residential/other NOI (e)
18,287
14,801
23.6
5,296
179.5
Sold and held for disposition communities NOI
23,806
30,462
(21.9)
1,665
6,763
(75.4)
Total Non-Mature Communities/Other NOI
77,077
61,527
25.3
107,539
45,430
136.7
Total property NOI
1,040,392
7.1
867,125
20.0
Not meaningful
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The following table is our reconciliation of Net income/(loss) attributable to UDR, Inc. to total property NOI for each of the periods presented (dollars in thousands):
Net income/(loss) attributable to UDR, Inc.
444,353
86,924
150,016
Joint venture management and other fees
(6,843)
(5,022)
(6,102)
Property management
52,671
49,152
38,540
Other operating expenses
20,222
17,493
21,649
676,419
665,228
606,648
General and administrative
69,929
64,144
57,541
Casualty-related charges/(recoveries), net
3,138
9,733
3,748
Other depreciation and amortization
15,419
14,344
13,185
(Gain)/loss on sale of real estate owned
(351,193)
(25,494)
(136,052)
(Income)/loss from unconsolidated entities
(4,693)
(4,947)
(65,646)
Interest expense
180,866
155,900
186,267
Interest income and other (income)/expense, net
(17,759)
6,933
(15,085)
Tax provision/(benefit), net
2,106
349
1,439
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
30,104
5,613
10,873
Net income/(loss) attributable to noncontrolling interests
104
Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2022 and held on December 31, 2023) consisted of 51,368 apartment homes and provided 93.1% of our total NOI for the year ended December 31, 2023.
NOI for our Same-Store Community properties increased 6.0%, or $58.8 million, for the year ended December 31, 2023 compared to the same period in 2022. The increase in property NOI was attributable to a 5.6%, or $79.3 million, increase in property rental income, which was partially offset by a 4.7%, or $20.5 million, increase in operating expenses. The increase in property rental income was primarily driven by a 6.1%, or $80.9 million, increase in rental rates, and a 6.4%, or $9.7 million, increase in reimbursement and ancillary and fee income, partially offset by a $4.9 million increase in bad debt based on probability of collection and a $3.4 million impact from higher concessions. Weighted average physical occupancy decreased by 0.1% to 96.7% and total monthly income per occupied home increased 5.7% to $2,501.
The increase in operating expenses was primarily driven by a 10.3%, or $8.3 million, increase in repair and maintenance expense due to an increase in the cost per home of those that were turned during the year, the impact of inflation on third party vendor costs, and weather-related events, a 10.6%, or $6.2 million, increase in utilities, which was primarily due an increase in energy costs, a 3.2%, or $5.7 million, increase in real estate taxes due to higher assessed valuations, and a 6.9%, or $2.0 million, increase in administrative and marketing expense, partially offset by a $2.5 million decrease in insurance expense primarily due to a decrease in the impact from claims.
The operating margin (property net operating income divided by property rental income) was 69.6% and 69.3% for the years ended December 31, 2023 and 2022, 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 6.9%, or $77.1 million, of our total NOI during the year ended December 31, 2023 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 25.3%, or $15.6 million, for the year ended December 31, 2023 as compared to the same period in 2022. The increase was primarily attributable to a $17.1 million increase in NOI from stabilized, non-mature communities, primarily due to development communities completed in 2023 and 2022 and becoming stabilized, and a $3.5 million increase in non-
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residential/other NOI due to changes in straight-line rent as a result of a decrease in tenant rent concessions during 2023, partially offset by a $6.7 million decrease in sold and held for disposition communities NOI due to the partial sale of four operating communities and the sale of one operating community in 2023, and one operating community held for disposition at December 31, 2023, as compared to the sale of one operating community in 2022.
For the years ended December 31, 2023 and 2022, the Company recognized real estate depreciation and amortization of $676.4 million and $665.2 million, respectively. The increase in 2023 as compared to 2022 was primarily due to communities acquired and completions of developments in 2023 and 2022, partially offset by communities sold in 2023 and assets that became fully depreciated in 2023 and 2022.
Gain/(Loss) on Sale of Real Estate Owned
During the year ended December 31, 2023, the Company recognized a gain of $351.2 million from the partial sale of four operating communities located in various markets and the sale of an operating community located in Hillsboro, Oregon.
During the year ended December 31, 2022, the Company recognized a gain of $25.5 million from the sale of one operating community located in Orange County, California.
Income/(Loss) from Unconsolidated Entities
During the year ended December 31, 2023, the Company recognized income/(loss) from unconsolidated entities of $4.7 million, which was primarily due to net income from our operating joint ventures and preferred equity investments, partially offset by a $24.3 million loss on consolidation of one of our preferred equity investments.
During the year ended December 31, 2022, the Company recognized income/(loss) from unconsolidated entities of $4.9 million, which was primarily due to net income from our operating joint ventures and preferred equity investments and $10.6 million of net variable upside participation recorded on the sale of a DCP community, partially offset by $(35.5) million of investment income/(loss) from RETV I, which primarily related to unrealized gains/(losses) from one portfolio investment held by RETV I, SmartRent.
For the years ended December 31, 2023 and 2022, the Company recognized interest expense of $180.9 million and $155.9 million, respectively. The increase in 2023 as compared to 2022 was primarily due to an increase in average interest rates and higher overall debt balances during the year ended December 31, 2023 as compared to 2022.
Interest income and other income/(expense), net
For the years ended December 31, 2023 and 2022, the Company recognized interest income and other income/(expense), net of $17.8 million and $(6.9) million, respectively. The increase of $24.7 million was primarily due to realized and unrealized gains/(losses) of $3.5 million from our direct investment in SmartRent during the year ended December 31, 2023, as compared to $(15.7) million during the year ended December 31, 2022, and $11.0 million of higher interest income from our notes receivables, partially offset by a $5.9 million gain from the sale of a technology investment in 2022.
Noncontrolling Interest
For the years ended December 31, 2023 and 2022, the Company recognized net income attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership of $30.1 million and $5.6 million, respectively. The increase in 2023 as compared to 2022 was primarily attributed to the noncontrolling interests’ share of the gains from the partial sale of four operating communities located in various markets and a gain form the sale of an operating community located in Hillsboro, Oregon during the year ended December 31, 2023, as compared to the noncontrolling interests’ share of a gain from the sale of an operating community in Orange County, California during the year ended December 31, 2022.
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Funds from Operations, Funds from Operations as Adjusted, and Adjusted Funds from Operations
Funds from Operations
Funds from operations (“FFO”) attributable to common stockholders and unitholders is defined as Net income/(loss) attributable to common stockholders (computed in accordance with GAAP), excluding impairment write-downs of depreciable real estate related to the main business of the Company or of investments in non-consolidated investees that are directly attributable to decreases in the fair value of depreciable real estate held by the investee, gains and losses from sales of depreciable real estate related to the main business of the Company and income taxes directly associated with those gains and losses, plus real estate depreciation and amortization, and after adjustments for noncontrolling interests, and the Company’s share of unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s (“Nareit”) definition issued in April 2002 and restated in November 2018. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, Nareit created FFO as a supplemental measure of a REIT’s operating performance. In the computation of diluted FFO, if OP Units, DownREIT Units, unvested restricted stock, unvested LTIP Units, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count.
Management considers FFO a useful metric for investors as the Company uses FFO in evaluating property acquisitions and its operating performance, and believes that FFO should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company’s activities in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs.
Funds from Operations as Adjusted
FFO as Adjusted (“FFOA”) attributable to common stockholders and unitholders is defined as FFO excluding the impact of non-comparable items including, but not limited to, acquisition-related costs, prepayment costs/benefits associated with early debt retirement, impairment write-downs or gains and losses on sales of real estate or other assets incidental to the main business of the Company and income taxes directly associated with those gains and losses, casualty-related expenses and recoveries, severance costs and legal and other costs.
Management believes that FFOA is useful supplemental information regarding our operating performance as it provides a consistent comparison of our operating performance across time periods and 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
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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.
The following table outlines our reconciliation of Net income/(loss) attributable to common stockholders to FFO, FFOA, and AFFO for the years ended December 31, 2023, 2022, and 2021 (dollars in thousands):
Net income/(loss) attributable to common stockholders
439,505
82,512
145,787
Noncontrolling interests
30,135
5,655
10,977
Real estate depreciation and amortization on unconsolidated joint ventures
42,622
30,062
31,967
Net (gain)/loss on consolidation
24,257
Net gain on the sale of unconsolidated depreciable property
(2,460)
Net gain on the sale of depreciable real estate owned, net of tax
(349,993)
(136,001)
FFO attributable to common stockholders and unitholders, basic
862,945
757,963
656,918
Distributions to preferred stockholders — Series E (Convertible)
4,848
4,412
4,229
FFO attributable to common stockholders and unitholders, diluted
867,793
762,375
661,147
Income/(loss) per weighted average common share, diluted
1.34
0.26
0.48
FFO per weighted average common share and unit, basic
2.46
2.21
2.04
FFO per weighted average common share and unit, diluted
2.45
2.20
2.02
Weighted average number of common shares and OP/DownREIT Units outstanding — basic
351,175
343,149
322,744
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted
354,422
347,094
327,039
Impact of adjustments to FFO:
Debt extinguishment and other associated costs
42,336
Debt extinguishment and other associated costs on unconsolidated joint ventures
1,682
Variable upside participation on DCP, net
(204)
(10,622)
Legal and other costs
2,869
1,493
5,319
Realized (gain)/loss on real estate technology investments, net of tax
(9,864)
(6,992)
(1,980)
Unrealized (gain)/loss on real estate technology investments, net of tax
6,813
52,663
(55,947)
Severance costs
4,164
441
2,280
3,960
Total impact of adjustments to FFO
6,916
46,716
(2,350)
FFOA attributable to common stockholders and unitholders, diluted
874,709
809,091
658,797
FFOA per weighted average common share and unit, diluted
2.47
2.33
2.01
Recurring capital expenditures
(90,917)
(77,710)
(63,820)
AFFO attributable to common stockholders and unitholders, diluted
783,792
731,381
594,977
AFFO per weighted average common share and unit, diluted
2.11
1.82
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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 ended December 31, 2023, 2022, and 2021 (shares in thousands):
Weighted average number of OP/DownREIT Units outstanding
(22,410)
(21,478)
(22,418)
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations
328,765
321,671
300,326
Weighted average number of Series E Cumulative Convertible Preferred shares outstanding
(2,908)
(2,916)
(2,918)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations
329,104
322,700
301,703
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is included in and incorporated by reference from Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and related financial information required to be filed are attached to this Report. Reference is made to page F-1 of this Report for the Index to Consolidated Financial Statements and Schedules of UDR, Inc.
Report of independent registered public accounting firm (PCAOB 00042); Ernst & Young LLP, Denver Colorado.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The disclosure controls and procedures of the Company are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and disclosed within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. As a result, our disclosure controls and procedures are designed to provide reasonable assurance that such disclosure controls and procedures will meet their objectives.
As of December 31, 2023, we carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the Company of the effectiveness of the design and operation of the disclosure controls and procedures of the Company. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the disclosure controls and procedures of the Company are effective at the reasonable assurance level described above.
Management’s Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 for the Company. Under the supervision and with the participation of the management, the Chief Executive Officer and Chief Financial Officer of the Company conducted an assessment of the effectiveness of the internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (2013 Framework) (COSO). Based on such evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023.
Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Report, has audited UDR, Inc.’s internal control over financial reporting as of December 31, 2023. The report of Ernst & Young LLP, which expresses an unqualified opinion on UDR, Inc.’s internal control over financial reporting as of December 31, 2023, is included under the heading “Report of Independent Registered Public Accounting Firm” of UDR, Inc. contained in this Report.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fourth fiscal quarter to which this Report relates that materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of the Company.
Item 9B. OTHER INFORMATION
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. DISCLOSURE REGARDING FOREIGN JURSIDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the information set forth under the headings “Proposal No. 1 Election of Directors,” “Corporate Governance Matters,” “Audit Committee Report,” “Corporate Governance Matters-Board Leadership Structure and Committees-Audit Committee Financial Expert,” “Corporate Governance Matters-Identification and Selection of Nominees for Directors,” “Corporate Governance Matters-Board of Directors and Committee Meetings” and “Executive Officers” in UDR, Inc.’s definitive proxy statement (our “definitive proxy statement”) for its 2024 Annual Meeting of Stockholders.
We have a code of ethics for senior financial officers that applies to our principal executive officer, all members of our finance staff, including the principal financial officer, the principal accounting officer, the treasurer and the controller, our director of investor relations, our corporate secretary, and all other Company officers. We also have a code of business conduct and ethics that applies to all of our employees. Information regarding our codes is available on our website, www.udr.com, and is incorporated by reference to the information set forth under the heading “Corporate Governance Matters” in our definitive proxy statement for UDR’s 2024 Annual Meeting of Stockholders. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of our codes by posting such amendment or waiver on our website.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management,” “Corporate Governance Matters-Board Leadership Structure and Committees-Compensation Committee Interlocks and Insider Participation,” “Executive Compensation,” “Compensation of Directors” and “Executive Compensation-Compensation Committee Report” in the definitive proxy statement for UDR’s 2024 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the information set forth under the headings “Security Ownership of Certain Beneficial Owners and Management,” “Executive Compensation” and “Executive Compensation-Equity Compensation Plan Information” in the definitive proxy statement for UDR’s 2024 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the information set forth under the heading “Security Ownership of Certain Beneficial Owners and Management,” “Corporate Governance Matters-Corporate Governance Overview,” “Corporate Governance Matters-Director Independence,” “Corporate Governance Matters-Board Leadership Structure and Committees-Independence of the Audit, Compensation, Governance and Nominating Committees,” and “Executive Compensation” in the definitive proxy statement for UDR’s 2024 Annual Meeting of Stockholders.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the information set forth under the headings “Audit Matters-Audit Fees” and “Audit Matters-Pre-Approval Policies and Procedures” in the definitive proxy statement for UDR’s 2024 Annual Meeting of Stockholders.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Report:
1. Financial Statements. See Index to Consolidated Financial Statements and Schedules of UDR, Inc. on page F-1 of this Report.
2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of UDR, Inc. on page S-1 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto.
3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index appearing immediately below.
EXHIBIT INDEX
The exhibits listed below are filed as part of this Report. References under the caption “Location” to exhibits or other filings indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. Management contracts and compensatory plans or arrangements filed as exhibits to this Report are identified by an asterisk. The Commission file number for UDR, Inc.’s Exchange Act filings referenced below is 1-10524.
Exhibit
Description
Location
Partnership Interest Purchase and Exchange Agreement dated as of September 10, 1998, by and between UDR, Inc., United Dominion Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P.
Exhibit 2(d) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 333-64281) filed with the Commission on September 25, 1998.
Agreement of Purchase and Sale dated as of August 13, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein.
Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated September 28, 2004 and filed with the Commission on September 29, 2004.
2.03
First Amendment to Agreement of Purchase and Sale dated as of September 29, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein.
Exhibit 2.2 to UDR, Inc.’s Current Report on Form 8-K dated September 29, 2004 and filed with the Commission on October 5, 2004.
Second Amendment to Agreement of Purchase and Sale dated as of October 26, 2004, by and between United Dominion Realty, L.P., a Delaware limited partnership, as Buyer, and Essex The Crest, L.P., a California limited partnership, Essex El Encanto Apartments, L.P., a California limited partnership, Essex Hunt Club Apartments, L.P., a California limited partnership, and the other signatories named as Sellers therein.
Exhibit 2.3 to UDR, Inc.’s Current Report on Form 8-K/A dated September 29, 2004 and filed with the Commission on November 1, 2004.
2.05
Agreement of Purchase and Sale dated as of January 23, 2008, by and between UDR, Inc., United Dominion Realty, L.P., UDR Texas Properties LLC, UDR Western Residential, Inc., UDR South Carolina Trust, UDR Ohio Properties, LLC, UDR of Tennessee, L.P., UDR of NC, Limited Partnership, Heritage Communities L.P., Governour’s Square of Columbus Co., Fountainhead Apartments Limited Partnership, AAC Vancouver I, L.P., AAC Funding Partnership III, AAC Funding Partnership II and DRA Fund VI LLC.
Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated January 23, 2008 and filed with the Commission on January 29, 2008.
2.06
First Amendment to Agreement of Purchase and Sale dated as of February 14, 2008, by and between UDR, Inc., United Dominion Realty, L.P., UDR Texas Properties LLC, UDR Western Residential, Inc., UDR South Carolina Trust, UDR Ohio Properties, LLC, UDR of Tennessee, L.P., UDR of NC, Limited Partnership, Heritage Communities L.P., Governour’s Square of Columbus Co., Fountainhead Apartments Limited Partnership, AAC Vancouver I, L.P., AAC Funding Partnership III, AAC Funding Partnership II and DRA Fund VI LLC.
Exhibit 2.2 to UDR, Inc.’s Current Report on Form 8-K/A dated March 3, 2008 and filed with the Commission on May 2, 2008.
2.07
Contribution Agreement by and among Home Properties, L.P., UDR, Inc., United Dominion Realty, L.P. and LSREF 4 Lighthouse Acquisitions, LLC, dated June 22, 2015 (UDR, Inc. and United Dominion Realty, L.P. have omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation S-K and shall furnish supplementally to the Commission copies of any of the omitted schedules and exhibits upon request by the Commission.)
Exhibit 2.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on June 22, 2015.
2.08
Amendment Agreement, dated as of August 27, 2015, by and among UDR, Inc., United Dominion Realty, L.P., Home Properties, Inc., Home Properties, L.P., LSREF4 Lighthouse Acquisitions, LLC LSREF4 Lighthouse Corporate Acquisitions, LLC and LSREF4 Lighthouse Operating Acquisitions, LLC.
Exhibit 2.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.
3.01
Articles of Restatement of UDR, Inc.
Exhibit 3.09 to UDR, Inc.’s Current Report on Form 8-K dated July 27, 2005 and filed with the Commission on August 1, 2005.
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3.02
Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on March 14, 2007.
Exhibit 3.2 to UDR, Inc.’s Current Report on Form 8-K dated March 14, 2007 and filed with the Commission on March 15, 2007.
3.03
Articles of Amendment to the Articles of Restatement of UDR, Inc. dated August 30, 2011 and filed with the State Department of Assessments and Taxation of the State of Maryland on August 31, 2011.
Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated August 29, 2011 and filed with the Commission on September 1, 2011.
3.04
Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on May 24, 2018.
Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated May 24, 2018 and filed with the SEC on May 29, 2018.
3.05
Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on July 27, 2021.
Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated July 29, 2021 and filed with the SEC on July 29, 2021.
3.06
Articles Supplementary relating to UDR, Inc.’s 6.75% Series G Cumulative Redeemable Preferred Stock dated and filed with the State Department of Assessments and Taxation of the State of Maryland on May 30, 2007.
Exhibit 3.4 to UDR, Inc.’s Form 8-A Registration Statement dated and filed with the Commission on May 30, 2007.
3.07
Amended and Restated Bylaws of UDR, Inc. (as amended through May 24, 2018).
Exhibit 3.6 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
4.01
Form of UDR, Inc. Common Stock Certificate.
Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K dated March 14, 2007 and filed with the Commission on March 15, 2007.
4.02
Senior Indenture dated as of November 1, 1995, by and between UDR, Inc. and First Union National Bank of Virginia, N.A., as trustee.
Exhibit 4(ii)(h)(1) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
4.03
Supplemental Indenture dated as of June 11, 2003, by and between UDR, Inc. and Wachovia Bank, National Association, as trustee.
Exhibit 4.03 to UDR, Inc.’s Current Report on Form 8-K dated June 17, 2004 and filed with the Commission on June 18, 2004.
4.04
Subordinated Indenture dated as of August 1, 1994 by and between UDR, Inc. and Crestar Bank, as trustee.
Exhibit 4(i)(m) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-64725) filed with the Commission on November 15, 1995.
4.05
Form of UDR, Inc. Senior Debt Security.
Exhibit 4(i)(n) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-64725) filed with the Commission on November 15, 1995.
4.06
Form of UDR, Inc. Subordinated Debt Security.
Exhibit 4(i)(p) to UDR, Inc.’s Form S-3 Registration Statement (Registration No. 33-55159) filed with the Commission on August 19, 1994.
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4.07
Form of UDR, Inc. Fixed Rate Medium-Term Note, Series A.
Exhibit 4.01 to UDR, Inc.’s Current Report on Form 8-K dated March 20, 2007 and filed with the Commission on March 22, 2007.
4.08
Form of UDR, Inc. Floating Rate Medium-Term Note, Series A.
Exhibit 4.02 to UDR, Inc.’s Current Report on Form 8-K dated March 20, 2007 and filed with the Commission on March 22, 2007.
4.09
Indenture dated as of April 1, 1994, by and between UDR, Inc. and Nationsbank of Virginia, N.A., as trustee.
Exhibit 4(ii)(f)(1) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
4.10
Supplemental Indenture dated as of August 20, 2009, by and between UDR, Inc. and U.S. Bank National Association, as trustee, to UDR, Inc.’s Indenture dated as of April 1, 1994.
Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K dated August 20, 2009 and filed with the Commission on August 21, 2009.
4.11
Guaranty of United Dominion Realty, L.P. with respect to UDR, Inc.’s Indenture dated as of November 1, 1995.
Exhibit 99.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 30, 2010.
4.12
Guaranty of United Dominion Realty, L.P. with respect to UDR, Inc.’s Indenture dated as of October 12, 2006.
Exhibit 99.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 30, 2010.
4.13
First Supplemental Indenture among UDR, Inc., United Dominion Realty, L.P. and U.S. Bank National Association, as Trustee, dated as of May 3, 2011, relating to UDR, Inc.’s Medium-Term Notes, Series A, due Nine Months or More from Date of Issue.
Exhibit 4.1 to UDR, Inc.’s Current Report on Form 8-K filed with the Commission on May 4, 2011.
4.14
UDR, Inc. 2.950% Medium-Term Note, Series A due September 2026, issued August 23, 2016.
Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.
4.15
UDR, Inc. 3.500% Medium-Term Note, Series A due July 2027, issued June 16, 2017.
Exhibit 10.2 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
4.16
UDR, Inc. 3.500% Medium-Term Note, Series A due January 2028, issued December 13, 2017.
Exhibit 4.21 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017.
4.17
UDR, Inc. 4.400% Medium-Term Note, Series A due January 2029, issued October 26, 2018.
Exhibit 4.21 to UDR, Inc’s Annual Report on Form 10-K for the year ended December 31, 2018.
4.18
UDR, Inc. 3.200% Medium-Term Note, Series A due January 2030, issued July 2, 2019.
Exhibit 4.1 to UDR, Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
4.19
UDR, Inc. 3.000% Medium-Term Note, Series A due August 2031, issued August 15, 2019.
Exhibit 4.2 to UDR, Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
62
4.20
UDR, Inc. 3.100% Medium-Term Note, Series A due November 2034, issued October 11, 2019.
Exhibit 4.22 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019.
4.21
UDR, Inc. 3.200% Medium-Term Note, Series A due January 2030, issued October 11, 2019.
Exhibit 4.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019.
4.22
Description of UDR, Inc’s Securities.
Exhibit 4.22 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021.
4.23
UDR, Inc. 3.200% Medium-Term Note, Series A due January 2030, issued February 28, 2020.
Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
4.24
UDR, Inc. 2.100% Medium-Term Note, Series A due August 2032, issued July 21, 2020.
Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.
4.25
UDR, Inc. 1.900% Medium-Term Note, Series A due March 2033, issued December 14, 2020.
Exhibit 4.26 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.
4.26
UDR, Inc. 2.100% Medium-Term Note, Series A due June 2033, issued February 26, 2021.
Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.
4.27
UDR, Inc. 3.000% Medium-Term Note, Series A due August 2031, issued September 24, 2021.
Exhibit 4.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.
10.01*
UDR, Inc. 1999 Long-Term Incentive Plan (as amended and restated February 19, 2024).
Filed herewith.
10.02*
Form of UDR, Inc. Restricted Stock Award Agreement under the 1999 Long-Term Incentive Plan.
Exhibit 10.2 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019.
10.03*
Form of UDR, Inc. Restricted Stock Award Agreement for awards outside of the 1999 Long-Term Incentive Plan.
Exhibit 99.3 to UDR, Inc.’s Current Report on Form 8-K dated March 19, 2007 and filed with the Commission on March 19, 2007.
10.04*
Description of UDR, Inc. Shareholder Value Plan.
Exhibit 10(x) to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999.
10.05*
Description of UDR, Inc. Executive Deferral Plan.
Exhibit 10(xi) to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999.
10.06*
Indemnification Agreement by and between UDR, Inc. and each of its directors and officers listed on Schedule A thereto.
Exhibit 10.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.
63
10.07
Subordination Agreement dated as of April 16, 1998, by and between UDR, Inc. and United Dominion Realty, L.P.
Exhibit 10(vi)(a) to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
10.08
Third Amended and Restated Distribution Agreement among UDR, Inc., United Dominion Realty, L.P., as Guarantor, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Wells Fargo Securities, LLC, as Agents, dated September 1, 2011, with respect to the issue and sale by UDR, Inc. of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue.
Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on September 1, 2011.
10.09
Second Amended and Restated Credit Agreement, dated as of September 15, 2021, by and among UDR, Inc., as borrower, and the lenders and agents party thereto.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated September 15, 2021 and filed with the SEC on September 15, 2021.
10.10
First Amendment to Second Amended and Restated Credit Agreement, dated as of September 19, 2022, by and among UDR, Inc., as borrower, and the lenders and agents party thereto.
Exhibit 10.2 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.
10.11
Guaranty of United Dominion Realty, L.P., dated as of September 15, 2021, with respect to the Credit Agreement, dated as of September 15, 2021.
Exhibit 10.2 to UDR, Inc.’s Current Report on Form 8-K dated September 15, 2021 and filed with the SEC on September 15, 2021.
10.12
Amended and Restated Aircraft Time Sharing Agreement dated as of February 18, 2019, by and between UDR, Inc. and Thomas W. Toomey.
Exhibit 10.15 to UDR, Inc’s Annual Report on Form 10-K for the year ended December 31, 2018.
10.13
Amendment No. 1, dated July 29, 2014, to the Third Amended and Restated Distribution Agreement among UDR, Inc., United Dominion Realty, L.P., as Guarantor, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Wells Fargo Securities, LLC, as Agents, dated September 1, 2011, with respect to the issue and sale by UDR, Inc. of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue.
Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated July 29, 2014 and filed with the Commission on July 31, 2014.
10.14
Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P., dated as of October 5, 2015, as amended.
Exhibit 10.21 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015.
10.15*
Class 1 LTIP Unit Award Agreement.
Exhibit 10.22 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015.
10.16*
Notice of Class 2 LTIP Unit Award.
Exhibit 10.16 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019.
64
10.17*
Notice of Restricted Stock Unit Award.
Exhibit 10.17 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019.
10.18
Amendment No. 2, dated April 27, 2017, to the Third Amended and Restated Distribution Agreement, dated September 1, 2011 and as amended July 29, 2014, among the Company and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC, and Wells Fargo Securities, LLC, as Agents, with respect to the issue and sale by UDR, Inc. of its Medium Term Notes, Series A Due Nine Months or More From Date of Issue.
Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated April 27, 2017 and filed with the Commission on April 27, 2017.
10.19
Letter Agreement, between UDR, Inc. and Warren L. Troupe (including the related release agreement and consulting agreement as exhibits thereto), dated December 31, 2019.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated December 31, 2019 and filed with the Commission on January 3, 2020.
10.20
Letter Agreement, between UDR, Inc. and Jerry A. Davis (including the related release agreement and Consulting Agreement as exhibits thereto), dated December 16, 2020.
Exhibit 10.2 to UDR Inc.’s Current Report on Form 8-K dated and filed with the Commission on December 16, 2020.
10.21
Amendment No. 3, dated May 7, 2020, to the Third Amended and Restated Distribution Agreement, dated September 1, 2011 and as amended July 29, 2014 and April 27, 2017.
Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on May 7, 2020.
10.22
Amendment No. 4, dated February 14, 2023, to the Third Amended and Restated Distribution Agreement, dated September 1, 2011 and as amended July 29, 2014, April 27, 2017 and May 7, 2020.
Exhibit 1.2 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on February 14, 2023.
10.23
Class 1 Performance LTIP Unit Award Agreement.
Exhibit 10.22 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.
10.24
Class 2 Performance LTIP Unit Award Agreement.
Exhibit 10.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.
10.25
Class 2 Performance LTIP Unit Award Agreement, STI.
Exhibit 10.24 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.
10.26
Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2004.
Exhibit 10.23 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003.
10.27
First Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of June 24, 2005.
Exhibit 10.06 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
10.28
Second Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion
Exhibit 10.6 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31,
65
Realty, L.P. dated as of February 23, 2006.
2006.
10.29
Third Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 2, 2007.
Exhibit 99.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
10.30
Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of December 27, 2007.
Exhibit 10.25 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.
10.31
Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of March 7, 2008.
Exhibit 10.53 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008.
10.32
Sixth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of December 9, 2008.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated December 9, 2008 and filed with the Commission on December 10, 2008.
10.33
Seventh Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of March 13, 2009.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated March 18, 2009 and filed with the Commission on March 19, 2009.
10.34
Eighth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of November 17, 2010.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on November 18, 2010.
10.35
Ninth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of December 4, 2015.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated December 4, 2015 and filed with the Commission on December 10, 2015.
10.36
Tenth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of October 29, 2018.
Exhibit 3.18 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
10.37
Eleventh Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of December 16, 2020.
Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8-K dated and filed with the Commission on December 16, 2020.
10.38
Twelfth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of July 25, 2022.
Exhibit 10.1 to UDR, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
10.39
Form of UDR, Inc. Stock Option Agreement.
Exhibit 10.37 to UDR, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021.
Subsidiaries of UDR, Inc.
22.1
List of Guarantor Subsidiaries of UDR, Inc.
Exhibit 22.1 to UDR Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.
23.1
Consent of Independent Registered Public Accounting Firm for UDR, Inc.
66
31.1
Rule 13a-14(a) Certification of the Chief Executive Officer of UDR, Inc.
31.2
Rule 13a-14(a) Certification of the Chief Financial Officer of UDR, Inc.
32.1
Section 1350 Certification of the Chief Executive Officer of UDR, Inc.
32.2
Section 1350 Certification of the Chief Financial Officer of UDR, Inc.
UDR, Inc. Recoupment Policy.
101
Inline XBRL (Extensible Business Reporting Language). The following materials from this Annual Report on Form 10-K for the period ended December 31, 2023, formatted in Inline XBRL: (i) consolidated balance sheets of UDR, Inc., (ii) consolidated statements of operations of UDR, Inc., (iii) consolidated statements of comprehensive income/(loss) of UDR, Inc., (iv) consolidated statements of changes in equity of UDR, Inc., (v) consolidated statements of cash flows of UDR, Inc., and (vi) notes to consolidated financial statements of UDR, Inc. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
Management Contract or Compensatory Plan or Arrangement
Item 16. FORM 10-K SUMMARY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 20, 2024
By:
/s/ Thomas W. Toomey
Thomas W. Toomey
Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 20, 2024 by the following persons on behalf of the registrant and in the capacities indicated.
/s/ Katherine A. Cattanach
Katherine A. Cattanach
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Director
/s/ Joseph D. Fisher
/s/ Jon A. Grove
Joseph D. Fisher
Jon A. Grove
President and Chief Financial Officer
(Principal Financial Officer)
/s/ Tracy L. Hofmeister
/s/ Mary Ann King
Tracy L. Hofmeister
Mary Ann King
Senior Vice President – Chief Accounting Officer
(Principal Accounting Officer)
/s/ James D. Klingbeil
/s/ Clint D. McDonnough
James D. Klingbeil
Clint D. McDonnough
Lead Independent Director
/s/ Robert A. McNamara
Robert A. McNamara
/s/ Diane M. Morefield
Diane M. Morefield
/s/ Kevin C. Nickelberry
Kevin C. Nickelberry
/s/ Mark R. Patterson
Mark R. Patterson
68
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Reports of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets at December 31, 2023 and 2022
F-5
Consolidated Statements of Operations for the years ended December 31, 2023, 2022, and 2021
F-6
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2023, 2022, and 2021
F-7
Consolidated Statements of Changes in Equity for the years ended December 31, 2023, 2022, and 2021
F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
F-9
Notes to Consolidated Financial Statements
F-11
SCHEDULES FILED AS PART OF THIS REPORT
Schedule III- Summary of Real Estate Owned
S-1
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of UDR, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of UDR, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income/(loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 20, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Indicators of Impairment of Real Estate Owned and Investment in Unconsolidated Joint Ventures
Description of the Matter
At December 31, 2023, the Company’s real estate owned, net and investment in and advances to unconsolidated joint ventures, net were approximately $9.8 billion and $952.9 million, respectively. As more fully described in Note 2 to the consolidated financial statements, the Company periodically evaluates these assets for indicators of impairment, and this includes, among other things, judgments based on factors such as operational performance, market conditions, the Company’s intent and ability to hold each asset, as well as any significant cost overruns on development or redevelopment communities. During 2023, the Company did not recognize an impairment related to real estate
F - 2
owned, net or any other than temporary impairments related to its investment in unconsolidated joint ventures.
Auditing the Company’s evaluation for indicators of impairment was complex due to a high degree of subjectivity in the identification of events or changes in circumstances that may indicate an impairment of its real estate owned or that the value of its investment in unconsolidated joint ventures may be other than temporarily impaired. Differences or changes in these judgments could have a material impact on the Company’s analysis.
How We Addressed the Matter in Our Audit
We tested the Company’s internal controls over the asset impairment evaluation process. This included testing controls over management’s determination and review of the considerations used in the impairment indicator analysis.
Our procedures with regards to the Company’s evaluation for indicators of impairment included, among others, testing the completeness and accuracy of management’s impairment analysis and evaluating management’s judgments determining whether indicators of impairment were present. For example, we performed inquires of management, considered historical operating results and the current market conditions, performed an independent assessment using both internally and externally available information, read the minutes of the meetings of the Board of Directors, and reviewed the Company’s development and redevelopment costs.
Accounting for acquisitions of real estate investment properties
During 2023, the Company acquired real estate investment properties which were accounted for as asset acquisitions. The aggregate increase in real estate and other assets due to these acquisitions was approximately $354.6 million. As more fully described in Note 3 to the consolidated financial statements, the total consideration was allocated to land, land improvements, buildings and improvements, and real estate intangible assets based on their relative fair value.
Auditing the Company’s acquisition of real estate investment properties is complex and requires a higher degree of auditor judgment due to the significant assumptions that are utilized in the determination of the relative fair values of the assets acquired. The significant assumptions used in management’s analysis to estimate the fair value of these components includes capitalization rates, market comparable prices for similar land parcels, and market rental rates.
We tested the Company’s internal controls over the acquisition of real estate investment properties and the resulting purchase price allocations. This included testing controls over management’s identification of the assets acquired and liabilities assumed and evaluating the methods and significant assumptions used by the Company to develop such estimates.
Our testing of the fair values of the assets acquired included, among others, evaluating the selection of the Company's valuation model and testing the significant assumptions discussed above as well as the completeness and accuracy of the underlying data. For example, we compared management’s assumptions to observable market transactions and replacement costs associated with the fair value of the land and buildings and improvements. We involved our real estate valuation specialists to assist in evaluating the significant assumptions listed above. In addition, we performed sensitivity tests on the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions.
/s/ Ernst & Young LLP
We have served as the Company's auditor since at least 1984, but we are unable to determine the specific year.
Denver, Colorado
February 20, 2024
F - 3
Opinion on Internal Control Over Financial Reporting
We have audited UDR, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, UDR, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income/(loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes, and the financial statement schedule listed in the accompanying Index at Item 15(a) and our report dated February 20, 2024 expressed an unqualified opinion thereon.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F - 4
UDR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
Real estate owned:
Real estate held for investment
15,365,928
Less: accumulated depreciation
(6,242,686)
(5,762,205)
Real estate held for investment, net
9,514,770
9,603,723
Real estate under development (net of accumulated depreciation of $184 and $296, respectively)
160,220
189,809
Real estate held for disposition (net of accumulated depreciation of $24,960 and $0, respectively)
81,039
14,039
Total real estate owned, net of accumulated depreciation
9,807,571
2,922
1,193
Restricted cash
31,944
29,001
Notes receivable, net
228,825
54,707
Investment in and advances to unconsolidated joint ventures, net
952,934
754,446
190,619
194,081
209,969
197,471
11,373,242
11,038,470
LIABILITIES AND EQUITY
Liabilities:
1,052,281
Unsecured debt, net
4,520,996
4,435,022
185,836
189,238
Real estate taxes payable
47,107
37,681
Accrued interest payable
47,710
46,671
Security deposits and prepaid rent
50,528
51,999
Distributions payable
149,600
134,213
Accounts payable, accrued expenses, and other liabilities
141,311
153,220
6,420,801
6,100,325
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
961,087
839,850
Equity:
Preferred stock, no par value; 50,000,000 shares authorized at December 31, 2023 and December 31, 2022:
8.00% Series E Cumulative Convertible; 2,686,308 and 2,686,308 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively
44,614
Series F; 11,867,730 and 12,100,514 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively
Common stock, $0.01 par value; 450,000,000 shares authorized at December 31, 2023 and December 31, 2022:
329,014,512 and 328,993,088 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively
3,290
Additional paid-in capital
7,493,217
7,493,423
Distributions in excess of net income
(3,554,892)
(3,451,587)
Accumulated other comprehensive income/(loss), net
4,914
8,344
Total stockholders’ equity
3,991,144
4,098,085
210
Total equity
3,991,354
4,098,295
Total liabilities and equity
See accompanying notes to consolidated financial statements.
F - 5
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
REVENUES:
Rental income
1,620,658
1,512,364
1,284,665
6,843
5,022
6,102
Total revenues
1,627,501
1,517,386
1,290,767
OPERATING EXPENSES:
Property operating and maintenance
273,736
250,310
218,094
Real estate taxes and insurance
232,152
221,662
199,446
Total operating expenses
1,343,686
1,292,066
1,158,851
Gain/(loss) on sale of real estate owned
351,193
25,494
136,052
Operating income
635,008
250,814
267,968
Income/(loss) from unconsolidated entities
4,693
4,947
65,646
(180,866)
(155,900)
(186,267)
17,759
(6,933)
15,085
Income/(loss) before income taxes
476,594
92,928
162,432
Tax (provision)/benefit, net
(2,106)
(349)
(1,439)
474,488
92,579
160,993
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
(30,104)
(5,613)
(10,873)
Net (income)/loss attributable to noncontrolling interests
(31)
(42)
(104)
(4,848)
(4,412)
(4,229)
Income/(loss) per weighted average common share:
Basic
0.49
Diluted
Weighted average number of common shares outstanding:
F - 6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(In thousands)
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)
3,872
14,489
3,502
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)
(7,533)
(998)
1,755
Other comprehensive income/(loss), including portion attributable to noncontrolling interests
(3,661)
13,491
5,257
Comprehensive income/(loss)
470,827
106,070
166,250
Comprehensive (income)/loss attributable to noncontrolling interests
(29,904)
(6,541)
(11,351)
Comprehensive income/(loss) attributable to UDR, Inc.
440,923
99,529
154,899
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Distributions
Accumulated Other Comprehensive
Preferred
Common
Paid-in
in Excess of
Income/(Loss),
Noncontrolling
Stock
Capital
Net Income
net
Interests
Balance at December 31, 2020
44,765
2,966
5,881,383
(2,685,770)
(9,144)
24,391
3,258,591
80
Redemption of noncontrolling interests in consolidated real estate
(125)
Long Term Incentive Plan Unit grants/(vestings), net
7,084
Other comprehensive income/(loss)
4,883
Issuance/(forfeiture) of common and restricted shares, net
4,115
4,116
Issuance of common shares through public offering, net
195
898,858
899,053
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership
99,913
99,932
Common stock distributions declared ($1.45 per share)
(442,329)
Preferred stock distributions declared-Series E ($1.570 per share)
Adjustment to reflect redemption value of redeemable noncontrolling interests
(502,768)
Balance at December 31, 2021
3,181
6,884,269
(3,485,080)
(4,261)
31,430
3,474,304
(31,220)
12,605
4,847
115
629,437
629,552
Conversion of Series E Cumulative Convertible shares
(150)
149
23,737
23,741
Common stock distributions declared ($1.52 per share)
(493,312)
Repurchase of common shares
(12)
(49,016)
(49,028)
Preferred stock distributions declared-Series E ($1.6456 per share)
444,293
Balance at December 31, 2022
44,615
(3,430)
6,558
6,560
(551)
18,790
18,794
Common stock distributions declared ($1.68 per share)
(553,021)
(6)
(25,003)
(25,009)
Preferred stock distributions declared-Series E ($1.8192 per share)
10,211
Balance at December 31, 2023
F - 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization
691,838
679,572
619,833
Return on investment in unconsolidated joint ventures and partnerships
15,944
22,369
23,269
Amortization of share-based compensation
32,896
27,505
22,052
Loss on extinguishment of debt, net
9,791
31,835
19,182
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets
(33,579)
9,792
(33,454)
Increase/(decrease) in operating liabilities
(2,828)
(13,140)
11,447
663,960
Acquisition of real estate assets
(17,848)
(341,149)
(1,244,508)
Proceeds from sales of real estate investments, net
325,767
40,808
280,077
Development of real estate assets
(155,875)
(198,022)
(178,029)
Capital expenditures and other major improvements — real estate assets
(295,440)
(214,833)
(156,384)
Capital expenditures — non-real estate assets
(16,907)
(21,180)
(10,140)
Investment in unconsolidated joint ventures and partnerships
(71,395)
(201,412)
(112,321)
Distributions received from unconsolidated joint ventures and partnerships
14,399
81,443
37,362
Proceeds from sale of equity securities
14,471
Purchase deposits on pending acquisitions
(1,000)
Repayment/(issuance) of notes receivable, net
(85,310)
(75,183)
111,690
(1,272,253)
Payments on secured debt
(1,244)
(1,141)
(1,096)
Payments on unsecured debt
(300,000)
Net proceeds from the issuance of unsecured debt
511,552
Net proceeds/(repayment) of commercial paper
108,075
80,000
30,000
Net proceeds/(repayment) of revolving bank debt
(23,425)
(1,531)
1,522
Proceeds from the issuance of common shares through public offering, net
Distributions paid to redeemable noncontrolling interests
(35,582)
(34,255)
(33,663)
Distributions paid to preferred stockholders
(4,770)
(4,381)
(4,225)
Distributions paid to common stockholders
(539,852)
(483,624)
(433,780)
Payment of prepayment and extinguishment costs
(40,769)
(16,496)
(24,359)
(16,054)
612,540
Net increase/(decrease) in cash, cash equivalents, and restricted cash
4,672
1,776
4,247
Cash, cash equivalents, and restricted cash, beginning of year
30,194
28,418
24,171
Cash, cash equivalents, and restricted cash, end of year
34,866
Supplemental Information:
Interest paid during the period, net of amounts capitalized
184,201
154,911
136,978
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
12,502
Cash paid/(refunds received) for income taxes
1,911
1,145
4,778
Non-cash transactions:
Secured debt assumed upon acquisition of real estate assets
191,737
201,296
Acquisition of land parcel pursuant to a deed in lieu of foreclosure
25,000
Cancellation of secured note receivable pursuant to a deed in lieu of foreclosure
24,869
Transfer of investment in and advances to unconsolidated joint ventures to real estate owned
16,425
OP Units issued for real estate, net
141,359
48,533
Redeemable long-term and short-term incentive plan units
28,507
56,568
14,578
Development costs and capital expenditures incurred, but not yet paid
39,080
56,336
39,856
Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (470,800 shares; 502,868 shares; and 1,916,613 shares)
F - 9
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
Distribution of equity securities from unconsolidated real estate technology investments
7,749
18,018
Contribution of operating properties to unconsolidated joint venture
258,056
Transfer of preferred equity investment to note receivable
73,453
Dividends declared, but not yet paid
124,729
The following reconciles cash, cash equivalents, and restricted cash to amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year:
1,409
27,451
22,762
Total cash, cash equivalents, and restricted cash as shown above
Cash, cash equivalents, and restricted cash, end of year:
F - 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
1. CONSOLIDATION AND BASIS OF PRESENTATION
Organization and Formation
UDR, Inc. (“UDR,” the “Company,” “we,” or “our”) is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, and manages apartment communities in targeted markets located in the United States. At December 31, 2023, our consolidated apartment portfolio consisted of 168 communities with a total of 55,550 apartment homes located in 21 markets. In addition, the Company has an ownership interest in 10,045 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 5,618 apartment homes owned by entities in which we hold preferred equity investments.
Basis of Presentation
The accompanying consolidated financial statements of UDR include its wholly-owned and/or controlled subsidiaries (see Note 4, Variable Interest Entities and Note 5, Joint Ventures and Partnerships, for further discussion). All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership” or the “OP”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”). As of December 31, 2023 and 2022, there were 189.9 million and 186.1 million units, respectively, in the Operating Partnership (“OP Units”) outstanding, of which 176.4 million, or 92.9% and 176.3 million, or 94.7%, respectively, were owned by UDR and 13.5 million, or 7.1% and 9.8 million, or 5.3%, respectively, were owned by outside limited partners. As of December 31, 2023 and 2022, there were 32.4 million units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 21.4 million, or 66.0% and 21.1 million, or 65.1%, respectively, were owned by UDR and its subsidiaries and 11.0 million, or 34.0% and 11.3 million, or 34.9%, respectively, were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership and DownREIT Partnership.
The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than those in Note 3, Real Estate Owned and Note 5, Joint Ventures and Partnerships.
2. SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, which requires disclosure enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. The ASU is effective for the Company for the year ended December 31, 2025. The Company is currently evaluating the effect that the ASU will have on the consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segments Disclosures. ASU 2023-07 requires expanded disclosures of a public entity’s reportable segments, and requires more enhanced information regarding a reportable segment’s expenses on an interim and annual basis. The ASU is effective for the Company for the year ended December 31, 2024, and interim periods commencing in 2025. Early adoption is permitted. The Company is currently evaluating the effect that the ASU will have on the consolidated financial statements and related disclosures.
Real Estate
Real estate assets held for investment are carried at historical cost and consist of land, land improvements, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment.
F - 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to the acquisition and/or improvement of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy.
UDR purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When recording the acquisition of a community, we first assign fair value to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Company estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining average contractual life. Property acquisition costs are capitalized as incurred if the acquisition does not meet the definition of a business.
Quarterly or when changes in circumstances warrant, UDR will assess our real estate properties for indicators of impairment. The judgments regarding the existence of impairment indicators are based on certain factors. Such factors include, among other things, operational performance, market conditions, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties.
If a real estate property has indicators of impairment, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected net operating income (“NOI”) plus the residual value of the community. Our future cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. If such indicators of impairment are present and the carrying value exceeds the undiscounted cash flows of the community, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair value represent our best estimate based primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions.
For the years ended December 31, 2023, 2022 and 2021, we did not record any impairments on our real estate properties.
Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 30 to 55 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets.
Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes 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. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2023, 2022, and 2021 were $13.1 million, $17.9 million and $11.3 million, respectively. During the years ended December 31, 2023,
F - 12
2022, and 2021, total interest capitalized was $10.1 million, $13.4 million and $9.7 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion and depreciation commences over the estimated useful life.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the Company’s cash and cash equivalents are held at major commercial banks.
Restricted Cash
Restricted cash primarily consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits.
Real Estate Sales Gain Recognition
For sale transactions resulting in a transfer of a controlling financial interest of a property, the Company generally derecognizes the related assets and liabilities from its Consolidated Balance Sheets and records the gain or loss in the period in which the transfer of control occurs. If control of the property has not been transferred by the Company, the criteria for derecognition are not met and the Company will continue to recognize the related assets and liabilities on its Consolidated Balance Sheets.
Sale transactions to entities in which the Company sells a controlling financial interest in a property but retains a noncontrolling interest are accounted for as partial sales. Partial sales resulting in a change in control are accounted for at fair value and a full gain or loss is recognized. Therefore, the Company will record a gain or loss on the partial interest sold, and the initial measurement of our retained interest will be accounted for at fair value.
Sales of real estate to joint ventures or other noncontrolled investees are also accounted for at fair value and the Company will record a full gain or loss in the period the property is contributed.
To the extent that the Company acquires a controlling financial interest in a property that it previously accounted for as an equity method investment, the Company will not remeasure its previously held interest if the acquisition is treated as an asset acquisition. The Company will include the carrying amount of its previously held equity method interest along with the consideration paid and transaction costs incurred in determining the amounts to allocate to the related assets and liabilities acquired on its Consolidated Balance Sheets. When treated as an asset acquisition, the Company will not recognize a gain or loss on consolidation of a property.
Allowance for Credit Losses
The Company accounts for allowance for credit losses under the current expected credit loss (“CECL”) impairment model for its financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and presents the net amount of the financial instrument expected to be collected. The CECL impairment model excludes operating lease receivables. The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, that considers forecasts of future economic conditions in addition to information about past events and current conditions. Based on this model, we analyze the following criteria, as applicable in developing allowances for credit losses: historical loss information, the borrower’s ability to make scheduled payments, the remaining time to maturity, the value of underlying collateral, projected future performance of the borrower and macroeconomic trends.
The Company measures credit losses of financial assets on a collective (pool) basis when similar risk characteristics exist. If the Company determines that a financial asset does not share risk characteristics with the Company’s other financial assets, the Company evaluates the financial asset for expected credit losses on an individual basis. Allowance for credit losses are recorded as a direct reduction from an asset’s amortized cost basis. Credit losses and recoveries are recorded in Interest income and other income/(expense), net on the Consolidated Statements of
F - 13
Operations. Recoveries of financial assets previously written off are recorded when received. For the years ended December 31, 2023, 2022 and 2021, the Company recorded net credit recoveries/(losses) of $(0.7) million, $(0.1) million and $0.6 million, respectively, on the Consolidated Statements of Operations.
The Company has made the optional election provided by the standard not to measure allowance for credit losses for accrued interest receivables as the Company writes off any uncollectible accrued interest receivables in a timely manner. The Company periodically evaluates the collectability of its accrued interest receivables. A write-off is recorded when the Company concludes that all or a portion of its accrued interest receivable balance is no longer collectible.
Notes Receivable
Notes receivable relate to financing arrangements which are typically secured by assets of the borrower that may include real estate assets. Certain of the loans we extend may include characteristics such as options to purchase the project within a specific time window following expected project completion. These characteristics can cause the loans to fall under the definition of a variable interest entity (“VIE”), and thus trigger consolidation consideration. We consider the facts and circumstances pertinent to each loan, including the relative amount of financing we are contributing to the overall project cost, decision making rights or control we hold, and our rights to expected residual gains or our obligations to absorb expected residual losses from the project. If we are deemed to be the primary beneficiary of a VIE due to holding a controlling financial interest, the majority of decision making control, or by other means, consolidation of the VIE would be required. The Company has concluded that it is not the primary beneficiary of the borrowing entities of the existing loans.
Additionally, we analyze each loan arrangement that involves real estate development to consider whether the loan qualifies for accounting as a loan or as an investment in a real estate development project. The Company has evaluated its real estate loans, where appropriate, for accounting treatment as loans versus real estate development projects, as required by ASC 310-10. For each loan, the Company has concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate.
The following table summarizes our Notes receivable, net as of December 31, 2023 and 2022 (dollars in thousands):
Interest rate at
Balance Outstanding (a)
Notes due October 2024 (b)
10.50
98,271
Note due December 2024 (c)
12.00
37,022
30,377
Note due December 2026 (d)
11.00
64,608
17,292
Note due December 2026 (e)
26,164
Notes due June 2027 (f)
18.00
3,737
1,500
Notes receivable
229,802
54,982
Allowance for credit losses
(977)
(275)
Total notes receivable, net
F - 14
The Company recognized $14.5 million, $3.5 million, and $5.3 million of interest income for the notes receivable described above during the years ended December 31, 2023, 2022, and 2021, respectively, none of which was related party interest. Interest income is included in Interest income and other income/(expense), net on the Consolidated Statements of Operations.
Investment in Joint Ventures and Partnerships
We use the equity method to account for investments in joint ventures and partnerships that qualify as VIEs where we are not the primary beneficiary and other entities that we do not control or where we do not own a majority of the economic interest but have the ability to exercise significant influence over the operating and financial policies of the investee. Throughout these financial statements we use the term “joint venture” or “partnership” when referring to investments in entities in which we do not have a 100% ownership interest. The Company also uses the equity method when we function as the managing partner and our venture partner has substantive participating rights or where we can be replaced by our venture partner as managing partner without cause. For a joint venture or partnership accounted for under the equity method, our share of net earnings or losses is reflected as income/loss when earned/incurred and distributions are credited against our investment in the joint venture or partnership as received.
In determining whether a joint venture or partnership is a VIE, the Company considers: the form of our ownership interest and legal structure; the size of our investment; the financing structure of the entity, including necessity of subordinated debt; estimates of future cash flows; ours and our partner’s ability to participate in the decision making related to acquisitions, disposition, budgeting and financing of the entity; obligation to absorb losses and
F - 15
preferential returns; nature of our partner’s primary operations; and the degree, if any, of disproportionality between the economic and voting interests of the entity. As of December 31, 2023, the Company held one investment in a joint venture that qualified as a VIE where we were determined to be the primary beneficiary (See Note 5, Joint Ventures and Partnerships, for further discussion).
We evaluate our investments in unconsolidated joint ventures for events or changes in circumstances that indicate 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, the fair value of the property of the joint venture, 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 into consideration as a whole by management in determining the valuation of our equity method investments. 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.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. Derivative financial instruments are recorded on our Consolidated Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for cash flow hedges that are deemed effective are reflected in other comprehensive income/(loss) and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings.
Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership
Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income available to common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.
Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP Units/DownREIT Units have been outstanding for at least one year, subject to certain exceptions. UDR, as the general partner of the Operating Partnership and the DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of Common Stock of the Company for each OP Unit/DownREIT Unit), as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable. Accordingly, the Company records the OP Units/DownREIT Units outside of permanent equity and reports the OP Units/DownREIT Units at their redemption value using the Company’s stock price at each balance sheet date.
Income Taxes
Due to the structure of the Company as a REIT and the nature of the operations for the operating properties, no provision for federal income taxes has been provided for at UDR. Historically, the Company has generally incurred only state and local excise and franchise taxes. UDR has elected for certain consolidated subsidiaries to be treated as taxable REIT subsidiaries (“TRS”).
Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured
F - 16
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company’s deferred tax assets/(liabilities) are generally the result of differing depreciable lives on capitalized assets, temporary differences between book and tax basis of assets and liabilities and timing of expense recognition for certain accrued liabilities. As of December 31, 2023 and 2022, UDR’s net deferred tax asset/(liability) was ($0.8) million and $(0.8) million, respectively, and are recorded in Accounts payable, accrued expenses and other liabilities on the Consolidated Balance Sheets.
GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.
The Company recognizes and evaluates its tax positions using a two-step process. First, UDR determines whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.
The Company invests in assets that qualify for federal investment tax credits (“ITC”) through our TRS. An ITC reduces federal income taxes payable when qualifying depreciable property is acquired. The ITC is determined as a percentage of cost of the assets. The Company accounts for ITCs under the deferral method, under which the tax benefit from the ITC is deferred and amortized as a tax benefit into Tax (provision)/benefit, net on the Consolidated Statements of Operations over the book life of the qualifying depreciable property. The ITCs are recorded in Accounts payable, accrued expenses and other liabilities on the Consolidated Balance Sheets.
UDR had no material unrecognized tax benefit, accrued interest or penalties at December 31, 2023. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2020 through 2022 remain open to examination by tax jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax (provision)/benefit, net on the Consolidated Statements of Operations.
Principles of Consolidation
The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with the consolidation guidance. The Company first evaluates whether each entity is a VIE. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.
Discontinued Operations
In accordance with GAAP, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.
We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations.
Stock-Based Employee Compensation Plans
The Company measures the cost of employee services received in exchange for an award of an equity instrument based on the award’s fair value on the grant date and recognizes the cost as stock-based compensation expense over the period during which the employee is required to provide service in exchange for the award, which is
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generally the vesting period. For performance based awards, the Company remeasures the fair value based on the estimated achievement of the performance criteria each balance sheet date with adjustments made on a cumulative basis until the award is settled and the final compensation is known. Stock-based compensation expense is only recognized for performance based awards that we expect to vest, which we estimate based upon an assessment of the probability that the performance criteria will be achieved. Stock-based compensation expense associated with awards is updated for actual forfeitures. The fair value for market based awards issued by the Company is calculated utilizing a Monte Carlo simulation and the fair value for stock options issued by the Company is calculated utilizing the Black-Scholes-Merton formula. For further discussion, see Note 10, Employee Benefit Plans.
Advertising Costs
All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2023, 2022, and 2021, total advertising expense was $9.2 million, $8.7 million, and $8.3 million, respectively.
Cost of Raising Capital
Costs incurred in connection with the issuance of equity securities are deducted from stockholders’ equity. Costs incurred in connection with the issuance or renewal of debt are recorded based on the terms of the debt issuance or renewal. Accordingly, if the terms of the renewed or modified debt instrument are deemed to be substantially different (i.e. a 10 percent or greater difference in the cash flows between instruments), all unamortized financing costs associated with the extinguished debt are charged to earnings in the current period and certain costs of new debt issuances are capitalized and amortized over the term of the debt. When the cash flows are not substantially different, the lender costs associated with the renewal or modification are capitalized and amortized into interest expense over the remaining term of the related debt instrument and other related costs are expensed. The balance of any unamortized financing costs associated with retired debt is expensed upon retirement. Deferred financing costs for new debt instruments include fees and costs incurred by the Company to obtain financing. Deferred financing costs are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt.
Comprehensive Income/(Loss)
Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2023, 2022, and 2021, the Company’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 14, Derivatives and Hedging Activity, for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the years ended December 31, 2023, 2022, and 2021 was $(0.2) million, $0.9 million, and $0.4 million, respectively.
Forward Sales Agreements
From time to time the Company utilizes forward sales agreements for the future issuance of its common stock. When the Company enters into a forward sales agreement, the contract requires the Company to sell its shares to a counterparty at a predetermined price at a future date. The net sales price and proceeds attained by the Company will be determined on the dates of settlement, with adjustments during the term of the contract for the Company’s anticipated dividends as well as for a daily interest factor that varies with changes in the federal funds rate. The Company generally has the ability to determine the dates and method of settlement (i.e., gross physical settlement, net share settlement or cash settlement), subject to certain conditions and the right of the counterparty to accelerate settlement under certain circumstances.
The Company accounts for the shares of common stock reserved for issuance upon settlement as equity in accordance with ASC 815-40, Contracts in Entity's Own Equity, which permits equity classification when a contract is
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considered indexed to the entity’s own stock and the contract requires or permits the issuing entity to settle the contract in shares (either physically or net in shares).
The guidance establishes a two-step process for evaluating whether an equity-linked financial instrument is considered indexed to the entity’s own stock, first, evaluating the instrument’s contingent exercise provisions and second, evaluating the instrument’s settlement provisions. When entering into forward sales agreements, we determined that (i) none of the agreement’s exercise contingencies are based on observable markets or indices besides those related to the market for our own stock price; and (ii) none of the settlement provisions preclude the agreements from being indexed to our own stock.
Before the issuance of shares of common stock, upon physical or net share settlement of the forward sales agreements, the Company expects that the shares issuable upon settlement of the forward sales agreements will be reflected in its diluted income/(loss) per share calculations using the treasury stock method. Under this method, the number of shares of common stock used in calculating diluted income/(loss) per share is deemed to be increased by the excess, if any, of the number of shares of common stock that would be issued upon full physical settlement of the forward sales agreements over the number of shares of common stock that could be purchased by the Company in the open market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). When the Company physically or net share settles any forward sales agreement, the delivery of shares of common stock would result in an increase in the number of weighted average common shares outstanding and dilution to basic income/(loss) per share. (See Note 8, Income/(Loss) per Share for further discussion.)
Lease Receivables
During the years ended December 31, 2023 and 2022, the Company performed an analysis in accordance with the ASC 842, Leases, guidance to assess the collectibility of its operating lease receivables. This analysis included an assessment of collectibility of current and future rents and whether those lease payments were no longer probable of collection. In accordance with the leases guidance, if lease payments are no longer deemed to be probable over the life of the lease contract, we recognize revenue only when cash is received, and all existing contractual operating lease receivables and straight-line lease receivables are reserved.
As of December 31, 2023, the Company’s multifamily tenant lease receivables balance, net of its reserve, was approximately $9.0 million, including its share from unconsolidated joint ventures. The Company’s retail tenant lease receivables balance (exclusive of straight-line rent receivables), net of its reserve, was approximately $0.3 million, including its share from unconsolidated joint ventures, as of December 31, 2023. As of December 31, 2022, the Company’s multifamily tenant lease receivables balance, net of its reserve, was approximately $8.7 million, including its share from unconsolidated joint ventures. The Company’s retail tenant lease receivables balance (exclusive of straight-line rent receivables), net of its reserve, was approximately $4.3 million, including its share from unconsolidated joint ventures, as of December 31, 2022.
Use of Estimates
The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates.
Market Concentration Risk
The Company is subject to increased exposure from economic and other competitive factors specific to markets where the Company holds a significant percentage of the carrying value of its real estate portfolio. At December 31, 2023, the Company held greater than 10% of the carrying value of its real estate portfolio in each of the Metropolitan D.C. and Boston, Massachusetts markets.
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3. REAL ESTATE OWNED
Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and held for disposition properties. As of December 31, 2023, the Company owned and consolidated 168 communities in 13 states plus the District of Columbia totaling 55,550 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2023 and 2022 (dollars in thousands):
2,549,716
2,539,499
Depreciable property — held and used:
Land improvements
255,706
254,578
Building, improvements, and furniture, fixtures and equipment
12,902,021
12,521,838
Real estate intangible assets
50,013
Under development:
Land and land improvements
16,576
43,711
143,828
146,394
Real estate held for disposition:
13,734
92,265
Real estate owned
Accumulated depreciation (a)
(5,762,501)
Real estate owned, net
In January 2024, the Company acquired its joint venture partner’s common equity interest in a 173 apartment home operating community located in Oakland, California for $1.4 million. The community was previously owned by a consolidated joint venture of the Company. (See Note 5, Joint Ventures and Partnerships for more information).
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In January 2021, the Company acquired a 300 apartment home operating community located in Franklin, 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.
In April 2021, the Company acquired a 636 apartment home operating community located in Farmers 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 in Alameda, California. In September 2020, the developer defaulted on the loan. As a result of the default, in April 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.
In May 2021, the Company acquired a to-be-developed parcel of land located in Tampa, Florida, for approximately $6.6 million.
In May 2021, the Company acquired a 945 apartment home operating community located in Frisco, 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 June 2021, the Company acquired a 468 apartment home operating community located in Germantown, Maryland, for approximately $121.9 million. The Company increased its real estate assets owned by approximately $119.3 million and recorded $2.6 million of in-place lease intangibles.
In July 2021, the Company acquired a 259 apartment home operating community located in Bellevue, 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.
In August 2021, the Company acquired a 544 apartment home operating community located in Germantown, 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.
In September 2021, the Company acquired a 320 apartment home operating community located in King 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.
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In September 2021, the Company acquired a 192 apartment home operating community located in Towson, Maryland, for approximately $57.6 million. The Company increased its real estate assets owned by approximately $54.0 million and recorded $2.4 million of real estate tax intangibles and $1.2 million of in-place lease intangibles.
In September 2021, the Company acquired a 339 apartment home operating community located in Philadelphia, 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.
In October 2021, the Company acquired its joint venture partner’s common equity interest in a 330 apartment home operating community located in Orlando, 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. As a result, in October 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 October 2021, the Company acquired a 663 apartment home operating community located in Orlando, Florida, for approximately $177.8 million. The Company increased its real estate assets owned by approximately $174.1 million and recorded and $3.7 million of in-place lease intangibles.
In November 2021, the Company acquired a 430 apartment home operating community located in Towson, Maryland, for approximately $125.3 million. The Company increased its real estate assets owned by approximately $122.6 million and recorded and $2.7 million of in-place lease intangibles.
In February 2024, the Company sold an operating community located in Arlington, Virginia with a total of 214 apartment homes for gross proceeds of $100.0 million, resulting in a gain of approximately $17.3 million. This operating community was classified as held for disposition as of December 31, 2023.
In February 2021, the Company sold an operating community located in Anaheim, California, with a total of 386 apartment homes for gross proceeds of $156.0 million, resulting in a gain of approximately $50.8 million.
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In October 2021, the Company sold an operating community located in Anaheim, California, with a total of 265 apartment homes for a sales price of $126.0 million, resulting in a gain of approximately $85.2 million.
Developments
At December 31, 2023, the Company was developing two wholly-owned communities totaling 415 homes, of which 56 have been completed, in which we have an investment of $160.4 million. The communities are estimated to be completed in the second quarter of 2024.
Other Activity
In connection with the acquisition of certain properties, the Company agreed to pay certain of the tax liabilities of certain contributors if the Company sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Company may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, a tax deferred Section 1031 exchange.
Further, the Company has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Company, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.
Amortization of Intangible Assets
The following table provides a summary of the aggregate amortization for the intangible assets acquired in the acquisition of real estate for each of the next five years and thereafter (in thousands):
Unamortized Balance as of December 31, 2023
2025
2026
2027
2028
Real estate intangible assets, net (a)
32,770
3,995
3,858
3,723
3,590
2,436
15,168
In-place lease intangible assets, net (b)
13,104
8,997
626
519
450
326
2,186
45,874
12,992
4,484
4,242
4,040
2,762
17,354
4. VARIABLE INTEREST ENTITIES
The Company has determined that the Operating Partnership and DownREIT Partnership are VIEs as the limited partners lack substantive kick-out rights and substantive participating rights. The Company has concluded that it is the primary beneficiary of, and therefore consolidates, the Operating Partnership and DownREIT Partnership based on its role as the sole general partner of the Operating Partnership and DownREIT Partnership. The Company’s role as community manager and its equity interests give us the power to direct the activities that most significantly impact the economic performance and the obligation to absorb potentially significant losses or the right to receive potentially significant benefits of the Operating Partnership and DownREIT Partnership.
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5. JOINT VENTURES AND PARTNERSHIPS
UDR has entered into joint ventures and partnerships with unrelated third parties to own, operate, acquire, renovate, develop, redevelop, dispose of, and manage real estate assets that are either consolidated and included in Real estate owned on the Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in Investment in and advances to unconsolidated joint ventures, net, on the Consolidated Balance Sheets. The Company consolidates the entities that we control as well as any variable interest entity where we are the primary beneficiary. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.
UDR’s joint ventures and partnerships are funded with a combination of debt and equity. Our losses are typically limited to our investment and except as noted below, the Company does not guarantee any debt, capital payout or other obligations associated with our joint ventures and partnerships.
Consolidated joint venture
The Company previously held a preferred equity investment in a joint venture that owned a 136 apartment home community located in San Francisco, California. In 2022, the joint venture was deemed to be a VIE and the Company concluded that it was the primary beneficiary of the VIE, and therefore began consolidating the joint venture. In February 2023, the Company took title to the property pursuant to a foreclosure resulting in it being a wholly-owned community.
The Company has a preferred equity investment in a joint venture that owns a 173 apartment home community located in Oakland, California. In December 2023, the developer informed the Company that it would not fund its share of a capital call and subsequently entered into an agreement to transfer its equity interest in the joint venture to the Company for $1.4 million. As a result, the joint venture was deemed to be a VIE. The Company concluded that it is the primary beneficiary of the VIE, and therefore began consolidating the joint venture, resulting in a $24.3 million loss on consolidation which is recorded in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. The consolidated assets and liabilities related to the VIE were initially recorded at fair value during December 2023 and were approximately $68.0 million and $42.5 million, respectively, as of December 31, 2023. The Company took title to the developer’s equity interest in the joint venture in January 2024. (See Note 3, Real Estate Owned for more information).
Unconsolidated joint ventures and partnerships
The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services for the communities held by the unconsolidated joint ventures and partnerships.
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The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of December 31, 2023 and 2022 (dollars in thousands):
UDR's Weighted Average
Ownership Interest
Investment at
Income/(loss) from investments
Joint Ventures
Operating:
UDR/MetLife (a)
2,837
50.1
225,195
247,160
(5,378)
(7,604)
(17,785)
UDR/LaSalle (b)
1,590
51.0
286,723
(3,660)
Total Joint Ventures
4,427
511,918
(9,038)
Weighted
Developer Capital Program
Years To
and Real Estate Technology Investments (c)
Rate
Maturity
Commitment (d)
Preferred equity investments:
Operating (e)
4,545
9.3
3.3
252,889
304,699
282,766
27,260
20,202
10,928
Development
1,073
10.7
3.2
68,207
83,072
74,648
8,425
6,172
92
Total Preferred Equity Investments
5,618
9.6
321,096
387,771
357,414
35,685
26,374
11,020
Real estate technology and sustainability investments:
RETV I (f)
18,000
10,062
16,601
(614)
(35,507)
50,795
RETV II
15,371
11,670
1,364
(265)
1,101
RETV III
15,000
1,329
(212)
RET Strategic Fund
13,980
8,078
(174)
496
RET ESG
10,000
3,640
2,898
(260)
(153)
Total Preferred Equity Investments and Real Estate Technology Investments
432,153
396,661
35,789
(9,055)
62,916
Sold joint ventures and other investments (g)
103,173
(22,058)
21,606
20,515
Total Joint Ventures, Developer Capital Program and Real Estate Technology Investments, net (a)
944,071
746,994
In December 2023, the joint venture acquired an operating community with 262 apartment homes, located in Norwood, Massachusetts, for approximately $114.3 million.
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As disclosed above, the Company began consolidating one preferred investment in December 2023, resulting in a $24.3 million loss on consolidation classified in Income/(loss) from unconsolidated entities.
As of December 31, 2023 and 2022, the Company had deferred fees of $7.6 million and $8.1 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.
The Company recognized management fees of $6.8 million, $5.0 million, and $6.1 million during the years ended December 31, 2023, 2022, and 2021, respectively, for management of the communities held by the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations.
The Company may, in the future, make additional capital contributions to certain of our joint ventures and partnerships should additional capital contributions be necessary to fund acquisitions or operations.
We consider various factors to determine if a decrease in the value of our Investment in and advances to unconsolidated joint ventures, net 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. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. The Company did not incur any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures during the years ended December 31, 2023, 2022, and 2021.
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Condensed summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share) is presented below for the years ended December 31, 2023, 2022, and 2021 (dollars in thousands):
Developer
Capital Program
As of and For the
UDR/
and Other
MetLife
LaSalle
RETV I
Investments
Condensed Statements of Operations:
139,073
20,514
109,725
269,340
58,298
6,896
1,396
53,046
119,636
54,895
21,182
43,407
119,484
25,880
(7,564)
(1,368)
13,272
30,220
(32,720)
(126)
(103)
(53,282)
(86,231)
537
Net realized gain/(loss) on held investments
33,941
2,113
36,054
Net unrealized gain/(loss) on held investments
(29,346)
16,695
(12,651)
(6,840)
(7,690)
3,124
(20,665)
(32,071)
Condensed Balance Sheets:
1,214,525
595,976
1,347,556
3,158,057
Investments, at fair value
57,700
200,132
257,832
14,826
4,809
260
41,775
61,670
16,406
9,986
120,562
146,976
1,245,757
610,771
57,982
1,710,025
3,624,535
Third party debt, net
855,050
45,126
1,112,640
2,012,816
Accounts payable and accrued liabilities
14,856
5,510
118
151,018
171,502
869,906
50,636
1,263,658
2,184,318
375,851
560,135
57,864
446,367
1,440,217
Year Ended December 31, 2022
130,229
38,145
168,416
55,262
1,596
23,622
80,480
55,580
20,064
75,644
Gain/(loss) on sale of real estate
127,542
19,387
(1,554)
122,001
139,834
(30,510)
(21)
(16,383)
(46,914)
(90)
Net realized gain/(loss) on held investments (a)
101,954
3,601
105,555
Net unrealized gain/(loss) on held investments (a)
(308,202)
(569)
(308,771)
(11,123)
(207,823)
108,560
(110,386)
1,257,952
1,481,832
2,739,784
96,118
117,625
213,743
15,554
1,160
22,285
38,999
14,420
107,287
121,759
1,287,926
97,330
1,729,029
3,114,285
857,909
1,079,420
1,937,329
14,155
70
202,923
217,148
872,064
1,282,343
2,154,477
415,862
97,260
446,686
959,808
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West Coast
For the
Year Ended December 31, 2021
114,124
184
18,509
132,823
51,761
333
1,445
15,626
69,165
58,486
8,429
66,915
34,757
34,608
(5,546)
31,500
(32,307)
(41)
(17)
(11,161)
(43,526)
(1,238)
(623)
(1,861)
12,341
285,155
16,276
301,431
(28,430)
33,329
296,040
(1,054)
299,885
6. LEASES
Lessee - Ground Leases
UDR has six communities that are subject to ground leases, under which UDR is the lessee, that expire between 2043 and 2103, inclusive of extension options we are reasonably certain will be exercised. All of these leases are classified as operating leases through the lease term expiration based on our election of the practical expedient provided by the leasing standard. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the remaining lease term. We currently do not hold any finance leases. The Company also elected the short-term lease exception provided by the leasing standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. No leases qualified for the short-term lease exception during the years ended December 31, 2023 and 2022.
As of December 31, 2023 and 2022, the Operating lease right-of-use assets were $190.6 million and $194.1 million, respectively, and the Operating lease liabilities were $185.8 million and $189.2 million, respectively, on our Consolidated Balance Sheets related to our ground leases. The value of the Operating lease right-of-use assets exceeds the value of the Operating lease liabilities due to prepaid lease payments. The calculation of these amounts includes minimum lease payments over the remaining lease term (described further in the table below). Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in earnings in the period in which the obligation for those payments is incurred.
As the discount rate implicit in the leases was not readily determinable, we determined the discount rate for these leases utilizing the Company’s incremental borrowing rate at a portfolio level, adjusted for the remaining lease term, and the form of underlying collateral.
The weighted average remaining lease term for these leases was 42.0 years and 42.6 years at December 31, 2023 and 2022, respectively, and the weighted average discount rate was 5.0% at both December 31, 2023 and 2022.
Future minimum lease payments and total operating lease liabilities from our ground leases as of December 31, 2023 are as follows (dollars in thousands):
Ground Leases
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Total future minimum lease payments (undiscounted)
Difference between future undiscounted cash flows and discounted cash flows
(281,826)
Total operating lease liabilities (discounted)
For purposes of recognizing our ground lease contracts, the Company uses the minimum lease payments, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on a change in an index or a rate (i.e., changes in fair market rental rates or changes in the consumer price index) but that does not include a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term. If there is a contingency upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, which is resolved such that those payments now meet the definition of lease payments, the Company will remeasure the right-of-use asset and lease liability on the reset date.
The components of operating lease expenses were as follows (dollars in thousands):
Lease expense:
Contractual lease expense
13,173
12,991
12,924
Variable lease expense (a)
155
112
78
Total operating lease expense (b)(c)
13,328
13,103
13,002
Lessor - Apartment Home, Retail and Commercial Space Leases
UDR’s communities and retail and commercial space are leased to tenants under operating leases. As of December 31, 2023, our apartment home leases generally have initial terms of 12 months or less. As of December 31, 2023, our retail and commercial space leases generally have initial terms of between 5 and 15 years and represent approximately 1% to 2% of our total lease revenue. Our apartment home leases are generally renewable at the end of the lease term, subject to potential changes in rental rates, and our retail and commercial space leases generally have renewal options, subject to associated increases in rental rates due to market-based or fixed-price renewal options and certain other conditions. (See Note 16, Reportable Segments for further discussion around our major revenue streams and disaggregation of our revenue.)
Future minimum lease payments from our retail and commercial leases as of December 31, 2023 are as follows (dollars in thousands):
Retail and Commercial Leases
26,807
24,432
21,735
18,121
F - 29
15,191
58,166
Total future minimum lease payments (a)
164,452
Certain of our leases with retail and commercial tenants provide for the payment by the lessee of additional variable rent based on a percentage of the tenant’s revenue. The amounts shown in the table above do not include these variable percentage rents. The Company recorded variable percentage rents of $1.1 million, $0.8 million and $0.4 million during the years ended December 31, 2023, 2022 and 2021, respectively.
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7. SECURED AND UNSECURED DEBT, NET
The following is a summary of our secured and unsecured debt at December 31, 2023 and 2022 (dollars in thousands):
Principal Outstanding
As of December 31, 2023
Interest
Years to
Encumbered
Secured Debt:
Fixed Rate Debt
Mortgage notes payable (a)
1,213,751
1,005,622
3.48
Deferred financing costs and other non-cash adjustments (b)
(3,009)
19,712
Total fixed rate secured debt, net
1,210,742
1,025,334
Variable Rate Debt
Mortgage notes payable (c)
40,017
8.33
1.3
Tax-exempt secured notes payable (d)
27,000
8.2
Deferred financing costs
(46)
(53)
Total variable rate secured debt, net
66,971
26,947
6.61
Total Secured Debt, net
3.64
Unsecured Debt:
Borrowings outstanding under unsecured credit facility due January 2026 (e) (n)
2.1
Borrowings outstanding under unsecured commercial paper program due January 2024 (f) (n)
408,075
300,000
5.67
0.1
Borrowings outstanding under unsecured working capital credit facility due January 2025 (g)
4,593
28,015
6.28
Term Loan due January 2027 (e) (n)
175,000
3.1
350,000
3.36
8.50% Debentures due September 2024
15,644
8.50
2.95% Medium-Term Notes due September 2026 (h) (n)
2.89
3.50% Medium-Term Notes due July 2027 (net of discounts of $247 and $317, respectively) (i) (n)
299,753
299,683
3.50% Medium-Term Notes due January 2028 (net of discounts of $479 and $598, respectively) (n)
299,521
299,402
3.50
4.0
4.40% Medium-Term Notes due January 2029 (net of discounts of $3 and $4, respectively) (j) (n)
299,997
299,996
5.1
3.20% Medium-Term Notes due January 2030 (net of premiums of $8,294 and $9,667, respectively) (k) (n)
608,294
609,667
3.32
3.00% Medium-Term Notes due August 2031 (net of premiums of $9,109 and $10,304, respectively) (l) (n)
609,109
610,304
7.6
2.10% Medium-Term Notes due August 2032 (net of discounts of $303 and $338, respectively) (n)
399,697
399,662
2.10
1.90% Medium-Term Notes due March 2033 (net of discounts of $1,110 and $1,230, respectively) (n)
348,890
348,770
1.90
9.2
2.10% Medium-Term Notes due June 2033 (net of discounts of $941 and $1,041, respectively) (n)
299,059
298,959
9.5
3.10% Medium-Term Notes due November 2034 (net of discounts of $956 and $1,045, respectively) (m) (n)
299,044
298,955
3.13
10.8
(20,682)
(24,040)
Total Unsecured Debt, net
3.30
5.9
Total Debt, net
5,798,709
5,487,303
3.40
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For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument.
Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. As of December 31, 2023, secured debt encumbered approximately 14% of UDR’s total real estate owned based upon gross book value (approximately 86% of UDR’s real estate owned based on gross book value is unencumbered).
(a) At December 31, 2023, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from July 2024 through February 2031 and carry interest rates ranging from 2.62% to 4.39%.
The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, the Company records the debt at its estimated fair value and amortizes any difference between the fair value and par value to interest expense over the term of the underlying debt instrument.
In August 2023, the Company assumed secured fixed rate mortgage notes payable with an outstanding balance of $209.4 million and a fair value of $191.7 million in connection with the acquisition of six operating communities. The six mortgages had outstanding balances ranging from $28.0 million to $40.0 million and carry interest rates from 3.24% to 4.12% (see Note 3, Real Estate Owned).
(b) During the years ended December 31, 2023, 2022, and 2021, the Company had $3.4 million, $4.5 million, and $3.9 million, respectively, of amortization of the fair market adjustment of debt assumed in the acquisition of properties inclusive of its fixed rate mortgage notes payable, which was included in Interest expense on the Consolidated Statements of Operations. The unamortized fair market adjustment was a net premium of $1.5 million and $22.5 million at December 31, 2023 and 2022, respectively. The change in net premium was primarily due to the assumption of fixed rate mortgages discussed in footnote (a) above.
(c) In December 2023, the Company began consolidating a preferred equity investment which included a secured variable rate senior construction loan with an outstanding balance of $40.0 million. The senior construction loan had an interest rate of 8.33% as of December 31, 2023 (see Note 5, Joint Ventures and Partnerships).
(d) The variable rate mortgage note payable secures a tax-exempt housing bond issue that matures in March 2032. Interest on this note is payable in monthly installments. As of December 31, 2023, the variable interest rate on the mortgage note was 4.08%.
(e) 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 of January 31, 2026, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of January 31, 2027.
In August 2021 and March 2023, the Company entered into five interest rate swaps totaling a $350.0 million of notional value, which became effective in July 2022 and in March 2023, to hedge against interest rate risk on all or a
F - 32
portion of the Term Loan debt until July 2025. $350.0 million of the Term Loan debt has a weighted average interest rate, inclusive of the impact of the interest rate swaps, of 3.36% from March 2023 until January 2024, $262.5 million of the Term Loan debt has a weighted average interest rate, inclusive of the impact of interest rate swaps, of 2.68% from January 2024 until July 2024, and $175.0 million of the Term Loan debt has a weighted average interest rate, inclusive of the impact of interest rate swaps, of 1.43% from July 2024 until July 2025.
The Credit Agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The Credit Agreement also includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event of default, following the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the Credit Agreement to be immediately due and payable.
The following is a summary of short-term bank borrowings under the Revolving Credit Facility at December 31, 2023 and 2022 (dollars in thousands):
Total revolving credit facility
1,300,000
Borrowings outstanding at end of period (1)
Weighted average daily borrowings during the period ended
2,055
3,776
Maximum daily borrowings during the period ended
250,000
205,000
Weighted average interest rate during the period ended
3.9
Interest rate at end of the period
(f) 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 in the 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 the Operating Partnership.
The following is a summary of short-term bank borrowings under the unsecured commercial paper program at December 31, 2023 and 2022 (dollars in thousands):
Total unsecured commercial paper program
700,000
Borrowings outstanding at end of period
384,068
405,671
505,000
5.4
(g) 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 of January 12, 2025. In November 2023, the Company amended the Working Capital Credit Facility to extend the maturity date from January 12, 2024 to January 12, 2025, plus a one-year extension option. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to Adjusted SOFR plus a margin of 77.5 basis points. Depending on the Company’s credit rating, the margin ranges from 70 to 140 basis points.
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The following is a summary of short-term bank borrowings under the Working Capital Credit Facility at December 31, 2023 and 2022 (dollars in thousands):
Total working capital credit facility
75,000
15,829
15,080
57,107
55,812
6.3
5.2
(h) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $100.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 2.89%.
(i) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $200.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.03%.
(j) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $150.0 million of the initial $300.0 million issued. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.27%.
(k) The Company previously entered into forward starting interest rate swaps and treasury lock to hedge against the interest rate risk of this debt. The all-in weighted average interest rate, inclusive of the impact of the forward starting swaps and treasury locks, was 3.32%.
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The aggregate maturities, including amortizing principal payments on secured and unsecured debt, of total debt for the next ten years subsequent to December 31, 2023 are as follows (dollars in thousands):
Total Fixed
Total Variable
Year
Secured Debt
Unsecured Debt
Debt
97,578
423,719
178,568
218,585
223,178
56,665
356,665
6,931
650,000
656,931
166,518
466,518
2029
315,802
615,802
2030
230,759
600,000
830,759
2031
160,930
760,930
2032
400,000
427,000
2033
Subtotal
4,528,312
Non-cash (a)
(7,316)
(10,371)
We were in compliance with the covenants of our debt instruments at December 31, 2023.
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8. INCOME/(LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income/(loss) per share for the periods presented (dollars and shares in thousands, except per share data):
Numerator for income/(loss) per share:
Income/(loss) attributable to common stockholders - basic and diluted
Denominator for income/(loss) per share:
Weighted average common shares outstanding
329,136
321,949
300,579
Non-vested restricted stock awards
(371)
(278)
(253)
Denominator for basic income/(loss) per share
Incremental shares issuable from assumed conversion of unvested LTIP Units, performance units, unvested restricted stock and shares issuable upon settlement of forward sales agreements
339
1,029
1,377
Denominator for diluted income/(loss) per share
Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per common share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of the OP Units and DownREIT Units, convertible preferred stock, stock options, unvested long-term incentive plan units (“LTIP Units”), performance units, unvested restricted stock and continuous equity program forward sales agreements. Only those instruments having a dilutive impact on our basic income/(loss) per share are included in diluted income/(loss) per share during the periods. For the years ended December 31, 2023, 2022, and 2021, the effect of the conversion of the OP Units, DownREIT Units and the Company’s Series E preferred stock was not dilutive and therefore not included in the above calculation.
The Company generally has the ability to determine the dates and method of settlement (i.e., gross physical settlement, net share settlement or cash settlement), subject to certain conditions and the right of the counterparty to accelerate settlement under certain circumstances. The Company currently expects to fully physically settle each forward sales agreement with the relevant forward purchaser on one or more dates specified by the Company on or prior to the maturity date of that particular forward sales agreement, in which case the Company expects to receive aggregate net
F - 36
cash proceeds at settlement equal to the number of shares underlying the particular forward sales agreement multiplied by the relevant forward sale price. However, subject to certain exceptions, the Company may also elect, in its discretion, to cash settle or net share settle a particular forward sales agreement, in which case the Company may not receive any proceeds (in the case of cash settlement) or will not receive any proceeds (in the case of net share settlement), and the Company may owe cash (in the case of cash settlement) or shares of UDR common stock (in the case of net share settlement) to the relevant forward purchaser.
During the year ended December 31, 2023, the Company did not enter into any forward purchase agreements under its continuous equity program.
In June 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.
In March 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 ended December 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 ended December 31, 2022, the Company settled all 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 ended December 31, 2023, the Company repurchased 0.6 million shares of its common stock at an average price of $40.13 per share for total consideration of approximately $25.0 million under its share repurchase program. During the year ended December 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.
The following table sets forth the additional shares of common stock outstanding by equity instrument if converted to common stock for each of the years ended December 31, 2023, 2022, and 2021 (in thousands):
OP/DownREIT Units
22,410
21,478
22,418
Convertible preferred stock
2,908
2,916
2,918
Unvested LTIP Units and unvested restricted stock
9. STOCKHOLDERS’ EQUITY
UDR has an effective registration statement that allows the Company to sell an undetermined number of debt and equity securities as defined in the prospectus. The Company’s authorized capital was 450.0 million shares of common stock and 50.0 million shares of preferred stock as of December 31, 2023.
F - 37
The following table presents the changes in the Company’s issued and outstanding shares of common and preferred stock for the years ended December 31, 2023, 2022 and 2021:
Preferred Stock
Series E
Series F
296,612
2,695
14,441
97
Issuance of common shares through forward sales public offering, net (forward sales agreement)
19,517
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership
318,150
12,583
120
11,402
(1,192)
499
(9)
Forfeiture of Series F shares
(482)
328,993
2,686
12,101
174
148
(233)
329,015
11,868
In July 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 in July 2017. As of December 31, 2023, 14.0 million shares were available for sale under the ATM program.
During the year ended December 31, 2023, the Company entered into the following equity transactions for our common stock:
F - 38
Distributions are subject to the approval of the Board of Directors and are dependent upon our strategy, financial condition and operating results. UDR’s common distributions for the years ended December 31, 2023, 2022, and 2021 totaled $1.68, $1.52, and $1.45 per share, respectively.
The Series E Cumulative Convertible Preferred Stock (“Series E”) has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time at the holder’s option into one share of our common stock prior to a “Special Dividend” declared in 2008 (1.083 shares after the Special Dividend). The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any meeting of our stockholders for the election of directors or for any other purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption.
Distributions declared on the Series E for the years ended December 31, 2023, 2022, and 2021 were $1.82, $1.65, and $1.57 per share, respectively. The Series E is not listed on any exchange. At December 31, 2023 and 2022, a total of 2.7 million and 2.7 million, respectively, shares of the Series E were outstanding.
UDR is authorized to issue up to 20.0 million shares of the Series F Preferred Stock (“Series F”). The Series F may be purchased by certain holders of OP Units and DownREIT Units, at a purchase price of $0.0001 per share. OP/DownREIT Unitholders are entitled to subscribe for and purchase one share of UDR’s Series F for each OP/DownREIT Unit held. During the years ended December 31, 2023 and 2022, 0.2 million and 0.5 million of the Series F shares were forfeited upon the conversion of OP Units and DownREIT Units into Company common stock, respectively.
At December 31, 2023 and 2022, a total of 11.9 million and 12.1 million shares, respectively, of the Series F were outstanding with an aggregate purchase value of $1,187 and $1,210, respectively. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to dividends or any other rights, privileges or preferences.
UDR’s Distribution Reinvestment and Stock Purchase Plan allows common and preferred stockholders the opportunity to purchase, through the reinvestment of cash dividends and by making additional cash payments, additional shares of UDR’s common stock. During the year ended December 31, 2023, all shares issued with respect to the plan were acquired through the open market.
10. EMPLOYEE BENEFIT PLANS
In May 2022, the stockholders of UDR approved an amendment and restatement to the LTIP. The LTIP authorizes the granting of awards which may take the form of options to purchase shares of common stock, stock appreciation rights, restricted stock, dividend equivalents, partnership interests in the Operating Partnership designated as LTIP Units, performance partnership interests in the Operating Partnership designated as Performance Units, other stock-based awards, and any other right or interest relating to common stock or cash incentive awards to Company directors, employees and outside trustees to promote the success of the Company by linking individual’s compensation via grants of share based payment.
LTIP Units and Performance Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not economically equivalent in value to a share of our common stock, but over time can increase in value to one-for-one parity with common stock by operation of special tax rules applicable to profits interests. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP Units or Performance Units is less than the value of an equal number of shares of our common stock.
F - 39
As of December 31, 2023, 35.0 million shares were reserved on an unadjusted basis for issuance upon the grant or exercise of awards under the LTIP. As of December 31, 2023, there were 10.6 million common shares available for issuance under the LTIP.
The LTIP contains double trigger change of control provisions allowing for the vesting of an award when certain conditions are met upon qualifying events such as a merger where UDR is not the surviving entity. Upon the death or disability of an award recipient, all outstanding instruments will vest and all restrictions will lapse. The LTIP specifies that in the event of a capital transaction, which includes but is not limited to stock dividends, stock splits, extraordinary cash dividends and spin-offs, the number of shares available for grant in totality or to a single individual is to be adjusted proportionately. The LTIP specifies that when a capital transaction occurs that would dilute the holder of the stock award, prior grants are to be adjusted such that the recipient is no worse as a result of the capital transaction.
A summary of UDR’s Performance Units, LTIP Units, restricted stock and option activities during the year ended December 31, 2023 is as follows (shares in thousands):
Unvested Performance Units Outstanding
Performance Units Exercisable
Unvested Stock Options Outstanding
Stock Options Exercisable
LTIP Units
Restricted Stock
Average Fair
Value Per
Exercise
Number
Restricted
Units
Price
Options
LTIP Unit
of shares
Balance, December 31, 2022
2,749
44.66
1,823
36.85
45.91
491
53.69
273
48.77
Granted
2,207
38.59
133
232
50.11
224
41.21
Exercised
Vested
(455)
40.28
455
(19)
59.90
(411)
54.09
47.84
Forfeited (a)
(784)
46.28
(7)
47.03
Balance, December 31, 2023
3,717
41.25
2,278
37.53
1,339
44.99
312
50.51
365
44.53
As of December 31, 2023, the Company had granted 6.9 million shares of restricted stock, 3.0 million LTIP Units, 6.0 million Performance Units, and 1.4 million stock options under the LTIP.
Stock Option Awards
UDR has granted stock options to our employees and Company directors. Subject to certain conditions, each stock option is exercisable into one share of UDR common stock.
The total remaining compensation cost on unvested stock options was $2.9 million as of December 31, 2023.
During the year ended December 31, 2023, no stock options were exercised.
The weighted average remaining contractual life on all stock options outstanding as of December 31, 2023 is 8.6 years and such options have a weighted average exercise price of $44.99.
During the years ended December 31, 2023 and 2022, we recognized $0.6 million and $0.7 million, respectively, of net compensation expense related to outstanding stock options. No compensation expense related to outstanding stock options was recognized during the year ended December 31, 2021.
F - 40
Restricted Stock Awards
Restricted stock awards are granted to our employees and Company directors. The restricted stock awards are valued based upon the closing sales price of UDR common stock on the date of grant. Compensation expense is recorded under either the straight-line method or graded vesting method over the vesting period, which is generally one to four years. Restricted stock awards earn dividends payable in cash or dividend reinvestment shares. Some of the restricted stock grants are based on the Company’s performance and are subject to adjustment during the initial one to three year performance periods. During the years ended December 31, 2023, 2022, and 2021, we recognized $6.4 million, $5.7 million, and $4.5 million of compensation expense, net of capitalization, related to the amortization of restricted stock awards, respectively. The total remaining compensation cost on unvested restricted stock awards was $5.4 million and had a weighted average remaining contractual life of 2.0 years as of December 31, 2023.
Unit Awards
Unit awards are granted to our employees and Company directors. Compensation expense is recorded under either the straight-line method or graded vesting method over the vesting period, which is generally one to four years. Unit awards earn distributions payable in cash or distribution reinvestment units. Some of the Unit awards are based on the Company’s performance and are subject to adjustment during the initial one to three year performance periods. During the years ended December 31, 2023, 2022, and 2021, we recognized $6.2 million, $15.9 million and $5.9 million, respectively, of compensation expense, net of capitalization, related to the amortization of the awards. The total remaining compensation cost on Unit awards was $3.7 million and had a weighted average remaining contractual life of 1.3 years as of December 31, 2023.
Performance Unit Awards
UDR has granted Performance Units to our employees and Company directors. Subject to certain conditions, each Performance Unit is exercisable into one Operating Partnership common unit. Compensation expense is recorded under either the straight-line method or graded vesting method over the vesting period, which is generally one to four years. Performance Unit awards earn distributions payable in cash equivalent to 2% of regular distributions paid on OP Units. Some of the Performance Unit awards are based on the Company’s performance and are subject to adjustment during the initial one to three year performance periods.
The total remaining compensation cost on unvested Performance Units was $11.6 million as of December 31, 2023.
During the year ended December 31, 2023, no Performance Units were exercised.
The weighted average remaining contractual life on all Performance Units outstanding as of December 31, 2023 is 8.1 years and such Performance Units have a weighted average exercise price of $41.25.
During the years ended December 31, 2023, 2022 and 2021, we recognized $19.8 million, $5.2 million and $11.7 million, respectively, of net compensation expense related to outstanding Performance Units.
Short-Term Incentive Compensation
In January 2023, certain officers of the Company were awarded either a restricted stock grant, an STI Unit grant, or an STI Performance Unit grant, or a combination of all three, under the 2023 Long-Term Incentive Program (“2023 LTI”). All three of the awards represent short-term incentive compensation for the officers. The restricted stock award was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”), or $38.59 per share. The STI Unit award was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant in accordance with ASC 718, or $38.59 per unit, inclusive of a discount due to uncertainty associated with the STI Unit reaching parity with the value of a share of UDR common stock. The STI Performance Unit award was valued for compensation expense purposes on the date of grant in accordance with ASC 718 as determined by the lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 29.0%, an expected life of 5.5 years, an annualized risk-free rate of 4.09%, and an annual dividend yield of 3.3%, or $7.86 per unit, inclusive of a discount due to uncertainty associated with the STI Performance Unit reaching parity with the value of a
F - 41
share of UDR common stock. The restricted stock awards, STI Unit awards, and STI Performance Unit awards are primarily based on the Company’s performance and are subject to adjustment based on performance against predefined metrics during the one-year performance period.
In January 2022, certain officers of the Company were awarded STI Unit grants under the 2022 Long-Term Incentive Program (“2022 LTI”). The STI Unit awards represent short-term incentive compensation for the officers and were valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant in accordance with ASC 718, Compensation - Stock Compensation, or $51.10 per unit, inclusive of a discount due to uncertainty associated with the STI Unit reaching parity with the value of a share of UDR common stock. The STI Unit awards are primarily based on the Company’s performance and are subject to adjustment based on performance against predefined metrics during the one-year performance period.
In January 2021, certain officers of the Company were awarded STI Performance Unit grants under the 2021 Long-Term Incentive Program (“2021 LTI”). The STI Performance Unit awards represent short-term incentive compensation for the officers and were valued for compensation expense purposes on the date of grant in accordance with ASC 718, Compensation - Stock Compensation, as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 27.0%, an expected life of 5.5 years, an annualized risk-free rate of 0.49%, and an annual dividend yield of 3.4%, or $5.06 per unit, inclusive of a discount due to uncertainty associated with the STI Performance Unit reaching parity with the value of a share of UDR common stock. The STI Performance Unit awards are primarily based on the Company’s performance and are subject to adjustment based on performance against predefined metrics during the one-year performance period.
Long-Term Incentive Compensation
In January 2023, certain officers of the Company were awarded either a restricted stock grant, an LTIP Unit grant, or an LTIP Performance Unit grant, or a combination of all three, under the 2023 LTI. For all three restricted stock grants, LTIP Unit grants and Performance Unit grants, thirty percent of the 2023 LTI award is based upon FFO as Adjusted over a one-year period and will vest fifty percent on the one-year anniversary and fifty percent on the two-year anniversary. Fifteen percent of the 2023 LTI award is based upon relative FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining fifty-five percent of the 2023 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and as measured relative to the Nareit Equity REITs Total Return Index over a three-year period whereby all three will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant or $38.59 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $17.58 per unit on the grant date, inclusive of an 8.9% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $18.45 per unit on the grant date, inclusive of a 4.4% discount. Because LTIP Performance Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Performance Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Performance Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $4.12 per unit on the grant date, inclusive of an 8.9% discount, a volatility factor of 29.0%, an expected life of 5.5 years, an annualized risk-free rate of 4.09%, and an annual dividend yield of 3.3%, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $4.29 per unit on the grant date, inclusive of a 4.4% discount, a volatility factor of 27.0%, an expected life of 6.5 years, an annualized risk-free rate of 4.08%, and an annual dividend yield of 3.3%. The portion of the restricted stock grant based upon relative TSR was valued for compensation expense purposes at $44.85 per share for the comparable apartment REITs component and $43.30 per share for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 36.0%. The portion of the LTIP Unit grant based upon relative TSR was valued for compensation expense purposes at $21.62 per unit, inclusive of a 4.4% discount, for the comparable apartment REITs component and $20.89 per unit, inclusive of a 4.4% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 36.0%. The portion of the LTIP Performance Unit grant based upon relative TSR was valued for compensation expense purposes at $6.02 per unit, inclusive of a 4.4% discount, for the comparable
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apartment REITs component and $5.86 per unit, inclusive of a 4.4% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 16.0%, an expected life of 6.5 years, an annualized risk-free rate of 4.08%, and an annual dividend yield of 3.2%.
In January 2022, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2022 LTI. For both restricted stock grants and LTIP Unit grants, thirty percent of the 2022 LTI award is based upon FFO as Adjusted over an approximately one-year period and will vest fifty percent on the one-year anniversary and fifty percent on the two-year anniversary. Fifteen percent of the 2022 LTI award is based upon relative FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining fifty-five percent of the 2022 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and as measured relative to the Nareit Equity REITs Total Return Index over a three-year period whereby both will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant or $59.90 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $27.04 per unit on the grant date, inclusive of a 9.7% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $28.72 per unit on the grant date, inclusive of a 4.1% discount. The portion of the restricted stock grant based upon relative TSR was valued for compensation expense purposes at $66.83 per share for the comparable apartment REITs component and $68.02 per share for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 33.0%. The portion of the LTIP Unit grant based upon relative TSR was valued for compensation expense purposes at $31.95 per unit, inclusive of a 4.1% discount, for the comparable apartment REITs component and $32.85 per unit, inclusive of a 4.1% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 33.0%.
In January 2021, certain officers of the Company were awarded either a restricted stock grant, an LTIP Unit grant, or an LTIP Performance Unit grant, or a combination of all three, under the 2021 LTI. For all three restricted stock grants, LTIP Unit grants and Performance Unit grants, thirty percent of the 2021 LTI award is based upon FFO as Adjusted over an approximately one-year period and will vest fifty percent on the one-year anniversary and fifty percent on the two-year anniversary. Fifteen percent of the 2021 LTI award is based upon relative FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining fifty-five percent of the 2021 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and as measured relative to the Nareit Equity REITs Total Return Index over a three-year period whereby all three will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant or $36.85 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $16.69 per unit on the grant date, inclusive of a 9.4% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $17.71 per unit on the grant date, inclusive of a 3.9% discount. Because LTIP Performance Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Performance Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Performance Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $2.67 per unit on the grant date, inclusive of a 9.4% discount, a volatility factor of 27.0%, an expected life of 5.5 years, an annualized risk-free rate of 0.49%, and an annual dividend yield of 3.4%, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $2.85 per unit on the grant date, inclusive of a 3.9% discount, a volatility factor of 26.0%, an expected life of 6.5 years, an annualized risk-free rate of 0.57%, and an annual dividend yield of 3.4%. The portion of the restricted stock grant based upon relative TSR was valued for compensation expense purposes at $40.09 per share for the comparable apartment REITs component and $39.95 per share for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo
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simulation using a volatility factor of 33.0%. The portion of the LTIP Unit grant based upon relative TSR was valued for compensation expense purposes at $19.43 per unit, inclusive of a 3.9% discount, for the comparable apartment REITs component and $19.37 per unit, inclusive of a 3.9% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 33.0%. The portion of the LTIP Performance Unit grant based upon relative TSR was valued for compensation expense purposes at $3.59 per unit, inclusive of a 3.9% discount, for the comparable apartment REITs component and $3.70 per unit, inclusive of a 3.9% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 33.0%, an expected life of 6.5 years, an annualized risk-free rate of 0.16%, and an annual dividend yield of 3.5%.
Profit Sharing Plan
Our profit sharing plan (the “Plan”) is a defined contribution plan covering all eligible full-time employees. Under the Plan, UDR makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate provisions for contributions, both matching and discretionary, which are included in General and administrative on UDR’s Consolidated Statements of Operations for the years ended December 31, 2023, 2022, and 2021, were $1.1 million, $1.7 million, and $1.4 million, respectively.
11. INCOME TAXES
For 2023, 2022, and 2021, UDR believes that we have complied with the REIT requirements specified in the Code. As such, the REIT would generally not be subject to federal income taxes.
For income tax purposes, distributions paid to common stockholders may consist of ordinary income, qualified dividends, capital gains, unrecaptured section 1250 gains, return of capital, or a combination thereof. Distributions that exceed our current and accumulated earnings and profits constitute a return of capital rather than taxable income and reduce the stockholder’s basis in their common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common shares, it generally will be treated as a gain from the sale or exchange of that stockholder’s common shares. Taxable distributions paid per common share were taxable as follows for the years ended December 31, 2023, 2022 and 2021 (unaudited):
Ordinary income
1.4384
1.3329
0.9798
Qualified ordinary income
0.0001
0.0405
Long-term capital gain
0.1697
0.1521
0.3577
Unrecaptured section 1250 gain
0.0318
0.0174
0.0695
1.5025
1.4475
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We have a TRS that is subject to federal and state income taxes. A TRS is a C-corporation which has not elected REIT status and as such is subject to United States federal and state income tax. The components of the provision for income taxes are as follows for the years ended December 31, 2023, 2022, and 2021 (dollars in thousands):
Income tax (benefit)/provision
Current
Federal
69
2,693
State
2,036
440
1,236
Total current
2,105
3,929
Deferred
(27)
(1,770)
(16)
(672)
Investment tax credit
(48)
Total deferred
(91)
(2,490)
Total income tax (benefit)/provision
Deferred income taxes are provided for the change in temporary differences between the basis of certain assets and liabilities for financial reporting purposes and income tax reporting purposes. The expected future tax rates are based upon enacted tax laws. The components of our TRS deferred tax assets and liabilities are as follows for the years ended December 31, 2023, 2022, and 2021 (dollars in thousands):
Deferred tax assets:
Federal and state tax attributes
157
102
Total deferred tax assets
181
221
162
Valuation allowance
(33)
(32)
Net deferred tax assets
154
188
130
Deferred tax liabilities:
Book/tax depreciation and basis
(881)
(876)
(860)
(76)
(67)
(68)
Total deferred tax liabilities
(957)
(943)
(928)
Net deferred tax assets/(liabilities)
(803)
(755)
(798)
Income tax provision/(benefit), net from our TRS differed from the amounts computed by applying the U.S. statutory rate of 21% to pretax income/(loss) for the years ended December 31, 2023, 2022, and 2021 as follows (dollars in thousands):
Income tax provision/(benefit)
U.S. federal income tax provision/(benefit)
105
(109)
1,058
State income tax provision
2,054
914
664
Other items
(409)
(246)
Solar credit amortization
ITC basis adjustment
(5)
Total income tax provision/(benefit)
As of December 31, 2023, the Company had federal net operating loss carryovers (“NOL”) of $23.9 million expiring in 2032 through 2035 and state NOLs of $65.4 million expiring in 2023 through 2032. A portion of these attributes are still available to the subsidiary REITs, but are carried at a zero effective tax rate.
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The Company’s Tax benefit/(provision), net was $(2.1) million, $(0.3) million and $(1.4) million for the years ended December 31, 2023, 2022 and 2021, respectively. The increase of $1.8 million was primarily attributable to an increase in state taxes, as well as an increase in TRS income of $1.0 million. GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statements reflect expected future tax consequences of income tax positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.
The Company evaluates our tax position using a two-step process. First, we determine whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company will then determine the amount of benefit to recognize and record the amount of the benefit that is more likely than not to be realized upon ultimate settlement. As of December 31, 2023 and 2022, UDR has no material unrecognized income tax benefits/(provisions), net.
The Company files income tax returns in federal and various state and local jurisdictions. The tax years 2020 through 2022 remain open to examination by the major taxing jurisdictions to which the Company is subject.
12. NONCONTROLLING INTERESTS
Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income attributable to common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.
Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP Units/DownREIT Units have been outstanding for at least one year, subject to certain exceptions. UDR, as the general partner of the Operating Partnership and the DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of the Company for each OP Unit/DownREIT Unit), as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable. Accordingly, the Company records the OP Units/DownREIT Units outside of permanent equity and reports the OP Units/DownREIT Units at their redemption value using the Company’s stock price at each balance sheet date.
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The following table sets forth redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership for the years ended December 31, 2023 and 2022 (dollars in thousands):
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership at beginning of year
1,299,442
Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
(10,211)
(444,293)
Conversion of OP Units/DownREIT Units to Common Stock or Cash
(30,569)
(44,346)
Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
(39,072)
(34,020)
Redeemable Long-Term and Short-Term Incentive Plan Units
29,857
Allocation of other comprehensive income/(loss)
(231)
886
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership at end of year
Noncontrolling Interests
Noncontrolling interests represent interests of unrelated partners in certain consolidated affiliates, and are presented as part of equity on the Consolidated Balance Sheets since these interests are not redeemable. Net (income)/loss attributable to noncontrolling interests was less than $(0.1) million, less than $(0.1) million, and $(0.1) million during the years ended December 31, 2023, 2022, and 2021, respectively.
13. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS
Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
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The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2023 and 2022 are summarized as follows (dollars in thousands):
Fair Value at December 31, 2023, Using
Quoted
Prices in
Amount in
Active
Statement of
Markets
Significant
Financial
Fair Value
for Identical
Position at
Estimate at
Assets or
Observable
Unobservable
Liabilities
Inputs
2023 (a)
(Level 1)
(Level 2)
(Level 3)
Description:
Notes receivable, net (b)
222,755
Equity securities (c)
7,210
Derivatives - Interest rate contracts (d)
10,103
246,138
240,068
Secured debt instruments - fixed rate: (e)
Mortgage notes payable
1,215,228
1,124,140
Secured debt instruments - variable rate: (e)
Tax-exempt secured notes payable
Unsecured debt instruments: (e)
Working capital credit facility
Commercial paper program
Unsecured notes
4,129,010
3,611,697
5,823,923
5,215,522
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (f)
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Fair Value at December 31, 2022, Using
2022 (a)
55,514
9,707
15,270
79,684
80,491
1,028,169
909,041
4,131,047
3,448,632
5,514,231
4,712,688
There were no transfers into or out of any of the levels of the fair value hierarchy during the year ended December 31, 2023 and 2022.
Financial Instruments Carried at Fair Value
The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived
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from observable market interest rate curves. The fair values of interest rate swaps and caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2023 and 2022, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership have a redemption feature and are marked to their redemption value. The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership are classified as Level 2.
Financial Instruments Not Carried at Fair Value
At December 31, 2023, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments, which includes notes receivable and debt instruments, are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations.
14. DERIVATIVES AND HEDGING ACTIVITY
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate
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payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2023, 2022, and 2021, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
Amounts reported in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through December 31, 2024, the Company estimates that an additional $6.0 million will be reclassified as a decrease to Interest expense.
As of December 31, 2023, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):
Product
Instruments
Notional
Interest rate swaps and caps
369,880
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of December 31, 2023, no derivatives not designated as hedges were held by the Company.
Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2023 and 2022 (dollars in thousands):
Asset Derivatives
Liability Derivatives
(included in Other assets)
(included in Other liabilities)
Fair Value at:
Derivatives designated as hedging instruments:
Interest rate products
Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2023, 2022, and 2021 (dollars in thousands):
Gain/(Loss) Recognized in
Gain/(Loss) Reclassified
from Accumulated OCI into
(Amount Excluded from
Recognized in OCI
Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships
7,533
998
(1,755)
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Total amount of Interest expense presented on the Consolidated Statements of Operations
Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
The Company has certain agreements with some of its derivative counterparties that contain a provision where, in the event of default by the Company or the counterparty, the right of setoff may be exercised. Any amount payable to one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative agreement, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity’s creditworthiness is materially weaker than the original party to the derivative agreement.
Tabular Disclosure of Offsetting Derivatives
The Company has elected not to offset derivative positions on the consolidated financial statements. The tables below present the effect on its financial position had the Company made the election to offset its derivative positions as of December 31, 2023 and 2022 (dollars in thousands):
Gross
Net Amounts of
Gross Amounts Not Offset
Amounts
Assets
in the Consolidated
Offset in the
Presented in the
Balance Sheets
Amounts of
Consolidated
Cash
Recognized
Balance
Collateral
Offsetting of Derivative Assets
Sheets
Received
Net Amount
December 31, 2022
Offsetting of Derivative Liabilities
Posted
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15. COMMITMENTS AND CONTINGENCIES
Commitments
The following summarizes the Company’s commitments at December 31, 2023 (dollars in thousands):
UDR's
UDR's Remaining
Properties
Investment (a)
Commitment
Real estate commitments
Wholly-owned — under development
27,096
Wholly-owned — redevelopment (b)
73,869
123,030
Other unconsolidated investments:
Real estate technology and sustainability investments (c)
-
55,948
40,052
290,221
190,178
Contingencies
Litigation and Legal Matters
The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. The Company believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flows.
16. REPORTABLE SEGMENTS
GAAP guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision Maker to decide how to allocate resources and for purposes of assessing such segments’ performance. UDR’s Chief Operating Decision Maker is comprised of several members of its executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments.
UDR owns and operates multifamily apartment communities that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures for UDR’s apartment communities are rental income and net operating income (“NOI”). Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as rental income less direct property rental expenses. 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. UDR’s Chief Operating Decision Maker utilizes NOI as the key measure of segment profit or loss.
UDR’s two reportable segments are Same-Store Communities and Non-Mature Communities/Other:
F - 53
Management evaluates the performance of each of our apartment communities on a Same-Store Community and Non-Mature Community/Other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants. Therefore, the Company’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the Chief Operating Decision Maker.
All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of UDR’s total revenues during the years ended December 31, 2023, 2022, and 2021.
The following is a description of the principal streams from which the Company generates its revenue:
Lease Revenue
Lease revenue related to leases is recognized on an accrual basis when due from residents or tenants in accordance with ASC 842, Leases. Rental payments are generally due on a monthly basis and recognized on a straight-line basis over the noncancellable lease term because collection of the lease payments was probable at lease commencement, inclusive of any periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of lease revenue on a straight-line basis over the lease term.
Lease revenue also includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. These services represent non-lease components in a contract as the Company transfers a service to the lessee other than the right to use the underlying asset. The Company has elected the practical expedient under the leasing standard to not separate lease and non-lease components from its resident and retail lease contracts as the timing and pattern of revenue recognition for the non-lease component and related lease component are the same and the combined single lease component would be classified as an operating lease.
Other Revenue
Other revenue is generated by services provided by the Company to its retail and residential tenants and other unrelated third parties. Revenue is measured based on consideration specified in contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer. These fees are generally recognized as earned.
The Joint venture management and other fees revenue consists of management fees charged to our equity method joint ventures per the terms of contractual agreements and other fees. Joint venture fee revenue is recognized monthly as the management services are provided and the fees are earned or upon a transaction whereby the Company earns a fee. Joint venture management and other fees are not allocable to a specific reportable segment or segments.
The following table details rental income and NOI for UDR’s reportable segments for the years ended December 31, 2023, 2022, and 2021, and reconciles NOI to Net income/(loss) attributable to UDR, Inc. on the Consolidated Statements of Operations (dollars in thousands):
F - 54
Reportable apartment home segment lease revenue
463,119
443,435
399,692
301,785
286,825
249,455
302,568
282,744
239,301
226,352
210,156
166,800
150,818
144,031
118,316
125,868
97,643
72,323
Total segment and consolidated lease revenue
1,570,510
1,464,834
1,245,887
Reportable apartment home segment other revenue
11,672
11,899
10,214
11,772
10,868
8,490
7,005
6,895
5,241
9,413
8,822
7,275
6,333
5,820
4,924
3,953
3,226
2,634
Total segment and consolidated other revenue
50,148
47,530
38,778
Total reportable apartment home segment rental income
474,791
455,334
409,906
313,557
297,693
257,945
309,573
289,639
244,542
235,765
218,978
174,075
157,151
149,851
123,240
129,821
100,869
74,957
Total segment and consolidated rental income
Reportable apartment home segment NOI
354,320
339,954
300,828
216,379
204,923
177,339
204,247
189,922
151,521
162,090
149,132
116,239
100,657
94,934
75,993
45,205
Total segment and consolidated NOI
Reconciling items:
(52,671)
(49,152)
(38,540)
(20,222)
(17,493)
(21,649)
(676,419)
(665,228)
(606,648)
(69,929)
(64,144)
(57,541)
Casualty-related (charges)/recoveries, net
(3,138)
(9,733)
(3,748)
(15,419)
(14,344)
(13,185)
F - 55
The following table details the assets of UDR’s reportable segments as of December 31, 2023 and 2022 (dollars in thousands):
Reportable apartment home segment assets:
Same-Store Communities (a):
4,360,532
4,295,073
3,201,640
3,140,167
3,669,538
3,629,026
1,579,201
1,521,489
1,324,942
1,287,332
1,888,006
1,696,985
Total segment assets
Accumulated depreciation
Total segment assets — net book value
Total consolidated assets
Markets included in the above geographic segments are as follows:
F - 56
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SCHEDULE III — REAL ESTATE OWNED
Gross Amount at Which
Initial Costs
Carried at Close of Period
Costs of
Improvements
Capitalized
Land and
Buildings
Total Initial
Subsequent
Buildings &
and
Acquisition
to Acquisition
Accumulated
Date of
Date
Costs
Depreciation
Construction(a)
Acquired
Harbor at Mesa Verde
20,476
28,538
49,014
28,532
22,789
54,757
77,546
44,469
1965/2003
Jun-03
27 Seventy Five Mesa Verde
99,329
110,644
209,973
114,805
117,402
207,376
324,778
175,675
1979/2013
Oct-04
Huntington Vista
8,055
22,486
30,541
17,674
9,534
38,681
48,215
31,045
1970
Missions at Back Bay
229
14,129
14,358
5,298
11,141
8,515
19,656
6,858
1969
Dec-03
Eight 80 Newport Beach - North
62,516
46,082
108,598
58,082
71,036
95,644
166,680
76,215
1968/2000/2016
Eight 80 Newport Beach - South
58,785
50,067
108,852
54,549
63,849
99,552
163,401
71,564
Mar-05
Beach & Ocean
12,878
41,282
13,408
40,752
54,160
22,049
2014
Aug-11
The Residences at Bella Terra
132,737
25,988
131,749
157,737
78,988
2013
Oct-11
The Residences at Pacific City
78,085
281,051
79,025
280,111
359,136
106,653
2018
Jan-14
ORANGE COUNTY, CA
365,353
271,946
637,299
734,010
414,172
957,137
613,516
2000 Post Street
9,861
44,578
54,439
46,869
14,640
86,668
101,308
56,181
1987/2016
Dec-98
Birch Creek
4,365
16,696
21,061
12,350
1,657
31,754
33,411
22,030
1968
Highlands Of Marin
5,996
24,868
30,864
31,919
8,352
54,431
62,783
43,701
1991/2010
Marina Playa
6,224
23,916
30,140
16,822
1,541
45,421
46,962
30,318
1971
River Terrace
22,161
40,137
62,298
10,955
23,027
50,226
73,253
39,624
2005
Aug-05
CitySouth
14,031
30,537
44,568
42,885
16,839
70,614
87,453
58,321
1972/2012
Nov-05
Bay Terrace
8,545
14,458
23,003
9,849
11,718
21,134
32,852
15,228
1962
Oct-05
Highlands of Marin Phase II
5,353
18,559
23,912
11,848
5,783
29,977
35,760
23,105
1968/2010
Oct-07
Edgewater
30,657
83,872
114,529
14,226
30,843
97,912
128,755
70,402
2007
Mar-08
Almaden Lake Village
594
42,515
43,109
14,003
1,138
55,974
57,112
39,285
1999
Jul-08
388 Beale
14,253
74,104
88,357
23,393
14,712
97,038
111,750
59,184
Apr-11
Channel @ Mission Bay
23,625
135,225
24,459
134,391
158,850
79,183
Sep-10
5421 at Dublin Station
8,922
118,105
8,931
118,096
127,027
9,118
Sep-16
HQ
19,938
65,816
85,754
657
66,473
86,411
5,248
Sep-22
Residences at Lake Merritt
8,664
56,876
65,540
Dec-23
SAN FRANCISCO, CA
183,189
536,932
720,121
489,106
192,242
1,016,985
550,937
Crowne Pointe
2,486
6,437
8,923
11,598
3,293
17,228
20,521
13,719
1987
Hilltop
2,174
7,408
9,582
7,917
14,354
17,499
11,648
1985
The Kennedy
6,179
22,307
28,486
6,826
6,440
28,872
35,312
21,185
Hearthstone at Merrill Creek
6,848
30,922
37,770
11,324
7,373
41,721
49,094
29,318
2000
May-08
Island Square
21,284
89,389
110,673
11,121
21,753
100,041
121,794
69,982
elements too
27,468
72,036
99,504
25,300
30,381
94,423
124,804
77,695
2010
Feb-10
989elements
8,541
45,990
54,531
8,485
8,703
54,313
63,016
35,723
2006
Dec-09
Lightbox
6,449
38,884
45,333
1,818
6,490
40,661
47,151
22,778
Aug-14
Ashton Bellevue
8,287
124,939
133,226
6,296
8,395
131,127
139,522
49,989
2009
Oct-16
TEN20
5,247
76,587
81,834
6,880
5,309
83,405
88,714
32,097
Milehouse
5,976
63,041
69,017
2,001
6,058
64,960
71,018
28,356
2016
Nov-16
CityLine
11,220
85,787
97,007
1,627
11,249
87,385
98,634
37,002
Jan-17
CityLine II
56,843
60,566
596
3,724
57,438
61,162
20,469
Jan-19
Brio
21,780
147,188
168,968
3,973
21,802
151,139
172,941
22,342
Jul-21
SEATTLE, WA
137,662
867,758
1,005,420
105,762
144,115
967,067
472,303
Boronda Manor
1,946
8,982
13,564
3,499
20,993
24,492
14,708
1979
Garden Court
888
4,188
5,076
7,963
1,831
11,208
13,039
7,938
1973
Cambridge Court
3,039
12,883
15,922
20,972
5,961
30,933
36,894
22,925
1974
Laurel Tree
1,304
5,115
6,419
8,850
2,549
12,720
15,269
9,532
1977
The Pointe At Harden Ranch
6,388
23,854
30,242
37,173
10,516
56,899
67,415
41,266
1986
The Pointe At Northridge
2,044
8,028
10,072
14,254
3,790
20,536
24,326
14,832
The Pointe At Westlake
5,334
6,663
9,463
2,408
13,718
16,126
9,667
1975
MONTEREY PENINSULA, CA
16,938
68,384
85,322
112,239
30,554
167,007
120,868
Rosebeach
8,414
17,449
25,863
8,996
9,029
25,830
34,859
20,545
Sep-04
Tierra Del Rey
39,586
36,679
76,265
11,580
40,094
47,751
87,845
34,397
1998
Dec-07
The Westerly
48,182
102,364
150,546
49,562
51,276
148,832
200,108
105,696
1993/2013
Jefferson at Marina del Rey
55,651
104,482
62,662
97,471
160,133
72,963
2008
Sep-07
LOS ANGELES, CA
151,833
156,492
308,325
174,620
163,061
319,884
233,601
Verano at Rancho Cucamonga Town Square
13,557
3,645
17,202
65,582
24,699
58,085
82,784
51,712
Oct-02
Windemere at Sycamore Highland
5,810
23,450
29,260
11,498
6,524
34,234
40,758
26,115
2001
Nov-02
S - 1
SCHEDULE III — REAL ESTATE OWNED - (Continued)
Strata
14,278
84,242
98,520
14,439
86,861
101,300
20,265
Nov-19
OTHER SOUTHERN CA
33,645
111,337
144,982
79,860
45,662
179,180
98,092
Tualatin Heights
3,273
9,134
12,407
12,035
4,526
19,916
24,442
15,900
1989
Hunt Club
6,014
14,870
20,884
10,729
6,806
24,807
31,613
20,539
PORTLAND, OR
9,287
24,004
33,291
22,764
11,332
44,723
36,439
TOTAL WEST REGION
897,907
2,036,853
2,934,760
1,718,361
1,001,138
3,651,983
4,653,121
2,125,756
Dominion Middle Ridge
3,311
13,283
16,594
18,932
4,695
30,831
35,526
22,740
1990
Jun-96
Dominion Lake Ridge
2,366
8,387
10,753
11,905
3,283
19,375
22,658
15,951
Feb-96
Presidential Greens
11,238
30,028
11,924
37,491
49,415
29,612
1938
May-02
The Whitmore
6,418
13,411
19,829
27,977
7,846
39,960
47,806
34,052
1962/2008
Apr-02
Ridgewood -apts side
5,612
20,086
25,698
17,819
6,688
36,829
43,517
29,519
1988
Aug-02
Waterside Towers
13,001
49,657
62,658
39,976
51,284
51,350
102,634
39,970
Wellington Place at Olde Town
13,753
36,059
49,812
24,224
15,157
58,879
74,036
48,790
1987/2008
Sep-05
Andover House
183
59,948
60,131
8,588
356
68,363
68,719
48,044
2004
Mar-07
Sullivan Place
1,137
103,676
104,813
21,760
2,069
124,504
126,573
89,499
Delancey at Shirlington
66,765
88,371
11,279
21,714
77,936
99,650
54,376
2006/2007
View 14
5,710
97,941
103,651
8,977
5,788
106,840
112,628
66,547
Jun-11
Capitol View on 14th
31,393
99,186
31,505
99,074
130,579
61,086
Domain College Park
7,300
63,157
7,574
62,883
70,457
37,166
1200 East West
9,748
68,022
77,770
6,274
10,003
74,041
84,044
32,093
Oct-15
Courts at Huntington Station
27,749
111,878
139,627
8,532
28,230
119,929
148,159
59,972
2011
Eleven55 Ripley
15,566
123,105
15,984
116,534
132,518
49,554
Arbor Park of Alexandria
50,881
159,728
210,609
13,063
51,798
171,874
223,672
85,235
1969/2015
Courts at Dulles
14,697
83,834
98,531
14,878
14,895
98,514
113,409
51,253
Newport Village
127,600
50,046
177,454
227,500
23,888
50,912
200,476
251,388
102,925
1301 Thomas Circle
27,836
128,191
156,027
4,896
27,885
133,038
160,923
38,762
Aug-19
Station on Silver
16,661
109,198
125,859
1,904
16,759
111,004
127,763
23,720
Dec-20
Seneca Place
21,184
98,173
119,357
10,778
21,201
108,934
130,135
23,787
Jun-21
Canterbury Apartments
24,456
100,011
124,467
11,769
24,474
111,762
136,236
22,198
Aug-21
The MO
27,135
114,283
141,418
6,332
METROPOLITAN, D.C.
408,987
1,632,031
2,041,018
592,845
459,159
2,174,704
1,073,183
Calvert's Walk
4,408
24,692
29,100
14,247
5,434
37,913
43,347
30,123
Mar-04
20 Lambourne
11,750
45,590
57,340
19,759
12,518
64,581
77,099
43,729
2003
Domain Brewers Hill
4,669
40,630
45,299
4,860
5,084
45,075
50,159
28,686
Aug-10
Rodgers Forge
15,392
67,958
83,350
9,943
15,621
77,672
93,293
25,538
1945
Apr-19
Towson Promenade
12,599
78,847
91,446
9,223
12,780
87,889
100,669
23,089
1274 at Towson
7,807
46,238
54,045
4,065
7,823
50,287
58,110
8,220
Sep-21
Quarters at Towson Town Center
16,111
106,453
122,564
16,834
16,107
123,291
139,398
29,330
Nov-21
BALTIMORE, MD
72,736
410,408
483,144
78,931
75,367
486,708
188,715
Gayton Pointe Townhomes
826
5,148
5,974
33,838
3,767
36,045
39,812
34,084
1973/2007
Sep-95
Waterside At Ironbridge
1,844
13,239
15,083
13,553
3,172
25,464
28,636
20,208
Sep-97
Carriage Homes at Wyndham
474
30,997
31,471
13,168
4,523
40,116
44,639
33,610
Nov-03
Legacy at Mayland
1,979
11,524
13,503
39,423
6,318
46,608
52,926
43,764
Dec-91
RICHMOND, VA
5,123
60,908
66,031
99,982
17,780
148,233
131,666
TOTAL MID-ATLANTIC REGION
347,130
486,846
2,103,347
2,590,193
771,758
552,306
2,809,645
3,361,951
1,393,564
Garrison Square
6,475
91,027
97,502
30,493
6,819
121,176
127,995
75,144
1887/1990
Ridge at Blue Hills
6,039
34,869
40,908
8,906
6,646
43,168
49,814
28,124
Inwood West
20,778
88,096
108,874
19,287
20,257
107,904
128,161
71,094
14 North
72,500
10,961
51,175
62,136
21,501
11,902
71,735
83,637
47,016
100 Pier 4
24,584
206,485
24,857
206,212
231,069
91,084
2015
Dec-15
345 Harrison
32,938
332,575
44,982
320,531
365,513
98,041
Nov-11
Currents on the Charles
12,580
70,149
82,729
3,372
12,790
73,311
86,101
22,586
Jun-19
The Commons at Windsor Gardens
34,609
225,515
260,124
27,950
34,852
253,222
288,074
81,193
S - 2
Charles River Landing
17,068
112,777
129,845
4,424
17,367
116,902
134,269
31,498
Lenox Farms
94,050
17,692
115,899
133,591
13,857
17,911
129,537
147,448
34,277
Union Place
51,800
9,902
72,242
82,144
7,291
10,027
79,408
89,435
16,313
Jan-21
Bradlee Danvers
28,669
175,114
203,783
11,937
28,689
187,031
215,720
20,090
1874/2008
Jun-22
BOSTON, MA
222,295
1,036,863
1,259,158
688,078
237,099
1,710,137
616,460
10 Hanover Square
41,432
218,983
260,415
36,689
41,917
255,187
297,104
141,638
2005/2020
21 Chelsea
36,399
107,154
143,553
17,825
36,531
124,847
161,378
View 34
114,410
324,920
439,330
126,178
116,145
449,363
565,508
273,754
1985/2013
Jul-11
95 Wall Street
57,637
266,255
323,892
18,381
58,718
283,555
342,273
180,171
Leonard Pointe
38,010
93,204
131,214
2,537
38,078
95,673
133,751
31,102
Feb-19
One William
6,422
75,527
81,949
2,312
6,478
77,783
84,261
22,787
NEW YORK, NY
294,310
1,086,043
1,380,353
203,922
297,867
1,286,408
723,321
Park Square
10,365
96,050
106,415
2,646
10,615
98,446
109,061
31,893
May-19
The Smith Valley Forge
17,853
95,973
113,826
2,198
17,861
98,163
116,024
15,740
322 on North Broad
12,240
124,524
136,764
10,168
12,259
134,673
146,932
22,482
The George Apartments
17,341
49,107
17,350
49,098
66,448
5,108
Aug-20
PHILADELPHIA, PA
57,799
316,547
374,346
64,119
380,380
75,223
TOTAL NORTHEAST REGION
574,404
2,439,453
3,013,857
956,119
593,051
3,376,925
3,969,976
1,415,004
Summit West
2,176
4,710
6,886
18,886
4,366
21,406
25,772
16,811
1972
Dec-92
The Breyley
1,780
2,458
4,238
22,178
4,432
21,984
26,416
21,465
1977/2007
Sep-93
Lakewood Place
1,395
10,647
12,042
17,428
3,312
26,158
29,470
22,144
Mar-94
Cambridge Woods
1,791
7,166
8,957
16,314
3,811
21,460
25,271
Jun-97
Inlet Bay
7,702
23,150
30,852
27,124
11,059
46,917
57,976
40,006
1988/1989
MacAlpine Place
10,869
36,858
47,727
20,413
12,818
55,322
68,140
43,583
Dec-04
The Vintage Lofts at West End
6,611
37,663
44,274
26,103
16,061
54,316
70,377
43,176
Jul-09
Peridot Palms
6,293
89,752
96,045
4,081
93,636
100,126
31,756
2017
The Preserve at Gateway
4,467
43,723
48,190
2,852
4,534
46,508
51,042
14,871
The Slade at Channelside
10,216
72,786
83,002
6,573
10,440
79,135
89,575
21,437
Jan-20
Andover Place at Cross Creek
11,702
107,761
119,463
10,314
11,742
118,035
129,777
29,407
1997/1999
Nov-20
TAMPA, FL
65,002
436,674
501,676
172,266
89,065
584,877
302,475
Seabrook
1,846
4,155
6,001
12,292
3,367
14,926
18,293
13,514
1984/2004
Altamira Place
1,533
11,076
12,609
26,314
34,808
38,923
32,713
1984/2007
Apr-94
Regatta Shore
757
6,608
7,365
21,453
2,766
26,052
28,818
23,655
1988/2007
Jun-94
Alafaya Woods
1,653
9,042
10,695
15,523
2,996
23,222
26,218
20,063
1989/2006
Oct-94
Los Altos
2,804
12,349
15,153
16,585
4,705
27,033
31,738
23,434
1990/2004
Oct-96
Lotus Landing
2,185
8,639
10,824
16,378
3,401
23,801
27,202
18,739
1985/2006
Jul-97
Seville On The Green
1,282
6,498
7,780
11,686
1,981
17,485
19,466
13,430
1986/2004
Oct-97
Ashton @ Waterford
17,538
21,410
9,727
4,894
26,243
31,137
20,825
May-98
Arbors at Lee Vista
6,692
12,860
19,552
20,450
8,090
31,912
40,002
24,231
1992/2007
Aug-06
Arbors at Maitland Summit
15,929
158,079
174,008
19,614
15,977
177,645
193,622
40,338
Oct-21
Essex Luxe
9,068
94,487
103,555
982
9,087
95,450
104,537
14,841
ORLANDO, FL
47,621
341,331
388,952
171,004
61,379
498,577
245,783
Legacy Hill
1,148
5,867
7,015
13,107
2,192
17,930
20,122
15,790
Nov-95
Hickory Run
1,469
11,584
13,053
18,525
2,910
28,668
31,578
22,077
Dec-95
Carrington Hills
2,117
46,333
5,100
43,350
48,450
32,673
Brookridge
708
5,461
6,169
9,556
1,643
14,082
15,725
11,695
Mar-96
Breckenridge
766
7,714
8,480
9,240
1,895
15,825
17,720
12,855
Mar-97
Colonnade
1,460
16,015
17,475
11,468
2,839
26,104
28,943
20,416
Jan-99
The Preserve at Brentwood
3,182
24,674
27,856
17,700
4,437
41,119
45,556
31,814
Jun-04
Polo Park
4,583
16,293
20,876
20,735
6,416
35,195
41,611
30,254
May-06
NASHVILLE, TN
15,433
87,608
103,041
146,664
27,432
222,273
177,574
The Reserve and Park at Riverbridge
15,968
56,401
72,369
23,429
17,229
78,569
61,221
1999/2001
OTHER FLORIDA
TOTAL SOUTHEAST REGION
144,024
922,014
1,066,038
513,363
195,105
1,384,296
1,579,401
787,053
S - 3
Thirty377
24,036
32,951
56,987
24,444
26,513
54,918
81,431
43,340
1999/2007
Legacy Village
90,000
16,882
100,102
116,984
23,814
128,022
151,836
93,415
2005/06/07
Addison Apts at The Park
22,041
11,228
33,269
22,877
54,675
16,244
1977/78/79
May-07
Addison Apts at The Park I
7,903
554
8,457
11,058
6,486
17,544
5,162
Addison Apts at The Park II
634
11,074
8,458
5,485
13,943
4,208
Savoye
8,432
50,483
58,915
6,024
8,976
55,963
64,939
14,891
Savoye 2
6,451
56,615
63,066
4,266
7,021
60,311
67,332
16,234
Fiori on Vitruvian Park
46,133
7,934
78,575
86,509
5,383
8,513
83,379
91,892
22,831
Vitruvian West Phase I
41,317
6,273
61,418
67,691
3,316
6,576
64,431
71,007
17,875
Vitruvian West Phase II
15,798
22,249
40,069
6,656
55,662
62,318
11,714
Vitruvian West Phase III
7,141
2,754
9,895
64,013
7,371
66,537
73,908
7,550
The Canal
41,941
12,671
98,813
111,484
4,584
12,719
103,349
116,068
19,654
Apr-21
Cool Springs at Frisco Bridges
89,510
18,325
151,982
170,307
20,793
18,346
172,754
191,100
36,533
2012
May-21
Central Square at Frisco
37,700
7,661
52,455
60,116
878
7,662
53,332
60,994
1,387
Aug-23
Villiaggio
32,500
6,186
41,813
47,999
1,110
42,923
49,109
1,124
Lofts at Palisades
39,996
8,198
56,143
64,341
743
56,886
65,084
1,479
Flats at Palisades
32,130
5,546
43,854
49,400
1,390
5,548
45,242
50,790
DALLAS, TX
182,571
856,172
1,038,743
245,227
205,413
1,078,557
314,834
Barton Creek Landing
3,151
14,269
17,420
27,791
5,931
39,280
45,211
34,318
1986/2012
Mar-02
Residences at the Domain
4,034
55,256
59,290
18,543
4,999
72,834
77,833
51,904
Aug-08
Red Stone Ranch
17,646
22,730
5,804
31,852
37,656
18,799
Apr-12
Lakeline Villas
4,148
16,869
21,017
12,193
4,870
28,340
33,210
16,291
2002
Estancia Villas
28,020
6,384
52,946
59,330
932
53,878
60,262
Palo Villas
39,024
5,975
57,880
63,855
764
58,644
64,619
1,487
AUSTIN, TX
28,776
214,866
243,642
75,149
33,963
284,828
124,189
Steele Creek
8,586
130,400
138,986
8,888
138,684
147,572
47,925
Oct-17
Cirrus
13,853
88,228
13,858
88,223
102,081
9,140
DENVER, CO
22,439
152,839
96,814
22,746
226,907
57,065
TOTAL SOUTHWEST REGION
543,271
233,786
1,201,438
1,435,224
417,190
262,122
1,590,292
1,852,414
496,088
TOTAL OPERATING COMMUNITIES
2,336,967
8,703,105
11,040,072
4,376,791
2,603,722
12,813,141
6,217,465
REAL ESTATE UNDER DEVELOPMENT
Villas at Fiori
9,921
776
10,697
38,805
9,964
39,538
49,502
Meridian
104,291
110,902
TOTAL REAL ESTATE UNDER DEVELOPMENT
16,532
17,308
143,096
16,575
143,829
LAND
Vitruvian Park®
22,547
1,467
24,014
13,198
30,297
6,915
37,212
751
Alameda Point Block 11
25,006
6,994
32,000
Newport Village II
5,237
14,562
19,799
2727 Turtle Creek
90,205
8,942
99,147
488 Riverwalk
16,053
6,299
22,352
3001 Iowa Ave
13,468
21,855
TOTAL LAND
172,516
173,983
58,382
180,266
52,099
HELD FOR DISPOSITION
Crescent Falls Church
13,687
88,692
102,379
3,620
13,733
92,266
24,960
TOTAL HELD FOR DISPOSITION
COMMERCIAL
Brookhaven Shopping Center
30,900
7,793
23,107
15,741
3001 Iowa Ave Commercial
9,882
4,861
14,743
4,862
14,744
492
TOTAL COMMERCIAL
30,901
17,675
27,969
45,644
16,233
Other (b)
33,221
136
33,085
758
1745 Shea Center I
3,034
20,534
23,568
5,795
3,081
26,282
29,363
7,479
TOTAL CORPORATE
39,016
3,217
59,367
62,584
8,237
TOTAL COMMERCIAL & CORPORATE
12,916
25,395
38,311
69,917
20,892
87,336
24,470
Deferred Financing Costs and Other Non-Cash Adjustments
S - 4
TOTAL REAL ESTATE OWNED
2,552,618
8,819,435
11,372,053
4,651,806
2,835,188
13,188,671
6,267,830
Date of original construction/date of last major renovation, if applicable.
Includes unallocated accruals and capital expenditures.
The aggregate cost for federal income tax purposes was approximately $15.2 billion at December 31, 2023 (unaudited).
The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 30 to 55 years.
S - 5
3-YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
The following is a reconciliation of the carrying amount of total real estate owned at December 31, (in thousands):
Balance at beginning of the year
Real estate acquired (including joint venture consolidation)
410,581
409,263
1,513,106
Capital expenditures and development
441,606
444,009
346,365
Real estate sold
(398,400)
(24,003)
(190,140)
Balance at end of the year
The following is a reconciliation of total accumulated depreciation for real estate owned at December 31, (in thousands):
5,762,501
5,137,096
4,605,366
Depreciation expense for the year
668,899
634,424
584,228
Accumulated depreciation on sales
(163,570)
(9,019)
(52,498)
Balance at end of year
S - 6
S - 7