Investor Alert

July 27, 2022, 2:29 p.m. EDT

10-Q: UDR, INC.

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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 three and six months ended June 30, 2022 and 2021, of UDR, Inc. Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q (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

The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:

? the impact of the COVID-19 pandemic and measures intended to prevent its spread or address its effects;

? general economic conditions;

? the impact of inflation/deflation;

unfavorable changes in apartment market and economic conditions that could ? adversely affect occupancy levels and rental rates, including as a result of


? 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;

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? delays in completing developments and lease-ups on schedule or at expected rent and occupancy levels;

? our failure to succeed in new markets;

risks that third parties who have an interest in or are otherwise involved in ? projects in which we have an interest, including mezzanine borrowers, joint venture partners or other investors, do not perform as expected;

? changing interest rates, which could increase interest costs and affect the market price of our securities;

? potential liability for environmental contamination, which could result in substantial costs to us;

? the imposition of federal taxes if we fail to qualify as a REIT under the Code in any taxable year;

our internal control over financial reporting may not be considered effective ? which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price; and

? changes in real estate laws, tax laws, rent control or stabilization laws or other laws affecting our business.

A discussion of these and other factors affecting our business and prospects is set forth in Part II, Item 1A. Risk Factors. We encourage investors to review these risk factors.

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

Business Overview

We are a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, disposes of, and manages multifamily apartment communities in targeted markets located 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.

At June 30, 2022, our consolidated real estate portfolio included 162 communities in 13 states plus the District of Columbia totaling 54,314 apartment homes. In addition, we have an ownership interest in 6,775 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 3,938 apartment homes owned by entities in which we hold preferred equity investments. The Same-Store Community apartment home population for the three and six months ended June 30, 2022, was 47,734 and 47,434, respectively.

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The following table summarizes our market information by major geographic markets as of and for the three and six months ended June 30, 2022:

                                                                                                    Three Months Ended               Six Months Ended
                                                                 June 30, 2022                        June 30, 2022                    June 30, 2022
                                                                Percentage        Total                          Monthly                         Monthly
                                       Number of    Number of   of Total        Carrying       Average         Income per       Average        Income per
                                       Apartment    Apartment    Carrying       Value (in     Physical          Occupied       Physical          Occupied
        Same-Store Communities        Communities     Homes       Value        thousands)     Occupancy         Home (a)       Occupancy         Home (a)
        West Region
        Orange County, CA                      10       4,685          9.5 %  $   1,452,035        96.6 %    $         2,823        96.9 %    $        2,778
        San Francisco, CA                      11       2,764          5.9 %        904,093        96.3 %              3,297        96.6 %             3,249
        Seattle, WA                            14       2,726          6.3 %        961,267        97.6 %              2,663        97.6 %             2,624
        Los Angeles, CA                         4       1,225          3.1 %        469,664        96.5 %              3,044        96.5 %             3,010
        Monterey Peninsula, CA                  7       1,567          1.2 %        190,293        96.5 %              2,111        96.6 %             2,155
        Other Southern California               3         821          1.5 %        218,608        97.1 %              2,656        97.2 %             2,620
        Portland, OR                            3         752          0.8 %        121,918        97.9 %              1,920        97.5 %             1,912
        Mid-Atlantic Region
        Metropolitan D.C.                      23       8,380         15.4 %      2,351,220        97.4 %              2,229        97.4 %             2,206
        Baltimore, MD                           5       1,597          2.3 %        344,896        97.1 %              1,793        97.1 %             1,783
        Richmond, VA                            4       1,359          1.0 %        158,555        97.6 %              1,658        97.7 %             1,626
        Northeast Region
        Boston, MA                             12       4,598         11.6 %      1,777,054        96.7 %              2,843        96.9 %             2,883
        New York, NY                            6       2,318         10.2 %      1,550,585        98.2 %              4,093        98.2 %             4,067
        Philadelphia, PA                        1         313          0.7 %        108,121        97.3 %              2,421        96.8 %             2,420
        Southeast Region
        Tampa, FL                              11       3,877          4.2 %        646,275        96.8 %              1,935        96.9 %             1,889
        Orlando, FL                             9       2,500          1.6 %        248,680        97.0 %              1,672        97.0 %             1,634
        Nashville, TN                           8       2,260          1.5 %        231,200        97.5 %              1,594        97.8 %             1,556
        Other Florida                           1         636          0.6 %         92,847        97.0 %              2,060        97.4 %             2,002
        Southwest Region
        Dallas, TX                             11       3,866          3.8 %        586,188        97.0 %              1,678        97.1 %             1,653
        Austin, TX                              4       1,272          1.2 %        176,318        98.1 %              1,778        97.9 %             1,749
        Denver, CO                              1         218          1.0 %        146,025        95.5 %              3,568        96.1 %             3,491
        Total/Average Same-Store
        Communities                           148      47,734         83.4 %     12,735,842        97.1 %    $         2,377        97.2 %    $        2,350
        Non-Mature, Commercial
        Properties & Other                     14       6,217         14.0 %      2,136,845
        Total Real Estate Held for
        Investment                            162      53,951         97.4 %     14,872,687
        Real Estate Under
        Development (b)                         -         363          2.6 %        400,773
        Total Real Estate Owned               162      54,314        100.0 %     15,273,460
        Total Accumulated
        Depreciation                                                            (5,445,095)
        Total Real Estate Owned,
        Net of Accumulated
        Depreciation                                                          $   9,828,365

Monthly Income per Occupied Home represents total monthly revenues divided by

(b) As of June 30, 2022, the Company was developing six wholly-owned communities with a total of 1,540 apartment homes, 363 of which have been completed.

We report in two segments: Same-Store Communities and Non-Mature Communities/Other.

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to April 1, 2021 (for quarter-to-date comparison) and January 1, 2021 (for year-to-date comparison) and held as of June 30, 2022. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior period, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition within the current year. 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.

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COVID-19 Update

We continue to monitor the status and respond to the effects of the COVID-19 pandemic and its impact on our business. While the pandemic and related government measures adversely impacted our business in certain prior periods, the extent of the impact generally has decreased. Future developments regarding COVID-19, however, continue to be uncertain and difficult to predict. There can be no assurances that closures or restrictions in response to COVID-19, including due to new variants, will not be imposed in the future or that other developments related to COVID-19 will not adversely affect our business, results of operations, financial condition and cash flows in future periods.

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, sales of properties, borrowings under our credit agreements, and/or the issuance of debt and/or equity securities. Our primary source of liquidity is our cash flow from operations, as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes, and borrowings under our credit agreements. We routinely use our working capital credit facility, our unsecured revolving credit facility and issuances of commercial paper to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through net cash provided by property operations, secured and unsecured borrowings, the issuance of debt or equity securities, and/or the disposition of properties. We believe that our net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings under credit agreements, the issuance of debt or equity securities, and/or dispositions of properties.

We have a shelf registration statement filed with 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 three and six months ended June 30, 2022, the Company settled 4.4 million shares of common stock through its ATM program pursuant to the Company's forward sales agreements described below. As of June 30, 2022, we had 14.0 million shares of common stock available for future issuance under the ATM program.

In connection with any forward sales agreement under the Company's ATM program, the relevant forward purchasers will borrow from third parties and, through the relevant sales agent, acting in its role as forward seller, sell a number of shares of the Company's common stock equal to the number of shares underlying the agreement. The Company does not initially receive any proceeds from any sale of borrowed shares by the forward seller.

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 sale 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 to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current federal funds rate and the amount of dividends paid to

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holders of UDR common stock over the term of the forward sales agreements. In June 2022, the Company settled 2.1 million shares under the forward sales agreements at a forward price per share of $57.18, 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 $120.1 million. As of June 30, 2022, 4.9 million shares under the forward sale agreements had not been settled. The final date by which shares sold under the forward sale agreements must be settled is March 30, 2023.

As described above, during the six months ended June 30, 2022, the Company settled 6.5 million shares in aggregate under previously announced forward sales agreements including under the ATM program for net proceeds of $351.0 million. Aggregate net proceeds from such forward sales, after deducting related expenses, were $350.3 million.

Future Capital Needs

Future development and redevelopment expenditures may be funded through unsecured or secured credit facilities, unsecured commercial paper, proceeds from the issuance of equity or debt securities, sales of properties, joint ventures, and, to a lesser extent, from cash flows provided by property operations. Acquisition activity in strategic markets may be funded through joint ventures, by the reinvestment of proceeds from the sale of properties, through the issuance of equity or debt securities, the issuance of operating partnership units and the assumption or placement of secured and/or unsecured debt.

During the remainder of 2022, we have approximately $0.6 million of secured debt maturing, inclusive of principal amortization, and $325.0 million of unsecured debt maturing, comprised solely of unsecured commercial paper. We anticipate repaying the remaining debt with cash flow from our operations, proceeds from debt or equity offerings, proceeds from dispositions of properties, or from borrowings under our credit agreements and our unsecured commercial paper program.

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 United Dominion Realty, L.P. (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 June 30, 2022 and December 31, 2021, and for the three and six months ended June 30, 2022 and 2021. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis (dollars in thousands):

                                                June 30,       December 31,
                                                  2022             2021
        Total real estate, net                 $ 2,432,426    $     2,262,108
        Cash and cash equivalents                       10                 21
        Operating lease right-of-use assets        197,049            198,835
        Other assets                                91,152             96,553
        Total assets                           $ 2,720,637    $     2,557,517
        Secured debt, net                      $   143,521    $       143,745
        Notes payable to UDR (a)                 1,208,199            972,283
        Operating lease liabilities                192,213            193,892
        Other liabilities                          122,575            108,076
        Total liabilities                        1,666,508          1,417,996
        Total capital                          $ 1,054,129    $     1,139,521
                                                            Three Months Ended           Six Months Ended
                                                                 June 30,                   June 30,
                                                             2022         2021          2022          2021
        Total revenue                                     $  124,606   $  107,418    $  245,404    $  212,954
        Property operating expenses                         (45,859)     (45,963)      (93,629)      (90,766)
        Real estate depreciation and amortization           (38,182)     (38,125)      (75,056)      (78,348)
        Operating income/(loss)                               40,565       23,330        76,719        43,840
        Interest expense (a)                                 (9,938)      (8,124)      (19,101)      (16,196)
        Other income/(loss)                                    4,375          543         7,557         4,270
        Net income/(loss)                                 $   35,002   $   15,749    $   65,175    $   31,914

All $1.2 billion and $972.3 million notes payable to UDR as of June 30, 2022 and December 31, 2021, respectively, and $9.4 million and $7.4 million of interest expense on notes payable to UDR for the three months ended June 30,

Critical Accounting Policies and Estimates and New Accounting Pronouncements

Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related to (1) capital expenditures, (2) impairment of long-lived assets, (3) real estate investment properties, and (4) revenue recognition.

Our critical accounting policies are described in more detail in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in UDR's Annual Report on Form 10-K, filed with the SEC on February 15, 2022. There have been no significant changes in our critical accounting policies from those reported in our Form 10-K filed with the SEC on February 15, 2022. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently . . .

Jul 27, 2022


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