Apartments can be excellent real estate investments. Because rental rates typically increase faster than the inflation rate, multifamily properties tend to generate steadily rising income. Because of that, they can be a great way to earn passive income.
While being a landlord isn't for everyone, it's something real estate investment trust (REIT) UDR (NYSE: UDR) does quite well. Here's a closer look at the company.
UDR company profile
UDR is a residential REIT focused on owning apartment communities. As of the end of 2021's first quarter, the company owns interests in 51,200 completed apartment homes across 163 communities in 21 coastal and Sun Belt markets. It also has another five communities with 1,417 homes currently under development.
The REIT operates in the following markets:
West Region: 14,539 apartment homes and 35.3% of its total net operating income (NOI).
- Orange County, California: 13.5% of its NOI.
- San Francisco: 8.6% of its NOI.
- Seattle: 6.5% of its NOI.
- Monterey Peninsula, California: 3.2% of its NOI.
- Los Angeles: 3.5% of its NOI.
Mid-Atlantic Region: 11,359 apartment homes and 21% of its total NOI.
- Metropolitan D.C.: 16.5% of its NOI.
- Baltimore: 2.5% of its NOI.
- Richmond, Virginia: 2% of its NOI.
Northeast Region: 7,876 apartment homes and 18.9% of its NOI.
- Boston: 11.8% of its NOI.
- New York: 7.1% of its NOI.
Southeast Region: 8,634 apartment homes and 11.7% of its NOI.
- Tampa, Florida: 5.3% of its NOI.
- Orlando, Florida: 3.4% of its NOI.
- Nashville, Tennessee: 3% of its NOI.
Southwest Region: 5,502 apartment homes and 6.8% of its NOI.
- Dallas: 5.2% of its NOI.
- Austin, Texas: 1.6% of its NOI.
Other markets: 3,290 apartment homes and 6.3% of its NOI.
Other markets include Denver; Palm Beach, Florida; Inland Empire, California; San Diego; Portland, Oregon; and Philadelphia.
Roughly 64% of the company's communities are in suburban markets, and 36% are in urban locations. Meanwhile, 55% of its buildings are Class A, while the remaining 45% are Class B.
Overall, UDR has a very diversified portfolio. It owns apartment communities in higher-cost coastal gateway cities and faster-growing markets in the Sun Belt region. These factors give UDR broad exposure across the apartment marketplace.
The REIT invests in a wide range of opportunities to expand its portfolio and NOI, including:
- Acquisitions: Since 2019, UDR has acquired 28 operating assets for $2.4 billion, including portfolios and one-off value-add deals.
- Development: The REIT will invest in wholly owned and joint venture ground-up development projects. As of the first quarter of 2021, it had $502 million in active construction projects underway.
- Redevelopment: The company will invest in select redevelopment projects, such as adding more units to a property.
- Developer capital program: UDR will provide capital to third-party developers in its target markets. It had committed $444 million to 13 projects as of mid-2021.
- NOI-enhancing investments: The REIT will invest capital in freshening up communities, including improving amenities, renovating kitchens and baths, and other upgrades.
- Operating platform: The company will spend money to enhance its operating platform to utilize more technology and add smart-home technology to its communities.
The pandemic had an impact on UDR's operations and financial results in 2020. Some tenants struggled to pay rent due to job losses. Meanwhile, physical occupancy declined in some markets, notably high-cost coastal gateway cities. Renters took advantage of low interest rates to buy homes or work remotely in lower-cost areas, weighing on lease rates.
For example, in Q4 2020, revenue declined by 5.9% year over year -- due in part to lower occupancy in the West and Northeast regions -- while expenses rose 4.8%, causing NOI to fall 10.1%.
The REIT completed several transactions in 2020 while continuing to enhance its portfolio. Overall, it invested $390.2 million in acquisitions across four communities (two in Tampa and one each in Hillsboro, Oregon, and Herndon, Virginia). Meanwhile, it sold three communities (Kirkland, Washington; Bellevue, Washington; and Alexandria, Virginia) for $287.6 million.
UDR also continued investing in development projects. It ended 2020 with five development communities in the pipeline (Addison, Texas; Denver; Dublin, California; Washington, D.C.; and King of Prussia, Pennsylvania ), representing $491.5 million of total investment, which included starting a $68 million, 200-apartment home community near Philadelphia in Q4 2020. The company also had $429 million in investments in its Developer Capital Program at year-end.
Apartment markets were experiencing some lingering impact from the pandemic in early 2021. As a result, UDR reported year-over-year declines in revenue, NOI, and occupancy during that period. However, leasing traffic, occupancy, and the company's effective blended lease rate grew sequentially as demand for apartments in many of its key markets continued to recover.
UDR made additional moves to enhance its portfolio in early 2021. It acquired two communities (one in suburban Boston for $77.4 million and another in a suburb of Dallas for $110 million) and had another in suburban Dallas under contract for $167 million. The company also sold two communities, one in Orange County for $156 million and another joint venture property in Los Angeles for a total of $121 million.
The REIT also continued making progress on its development program. It finished phase two of a $64 million, 366-apartment home community in Addison, Texas, while starting construction on a third phase, adding a 405-apartment home community in that same city for $74 million. UDR also agreed to invest in two additional projects as part of its Developer Capital Program.
UDR stock price
Overall, UDR has done a solid job growing shareholder value in recent years: