10-Q 1 udr-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

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 of organization)

Identification No.)

1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129

(Address of principal executive offices) (zip code)

(720283-6120

(Registrant’s telephone number, including area code)

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, par value $0.01

UDR

New York Stock Exchange

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 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

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of shares of UDR, Inc.’s common stock, $0.01 par value, outstanding as of April 29, 2024 was 329,306,648.

UDR, INC.

INDEX

PAGE

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 (audited)

3

Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (unaudited)

4

Consolidated Statements of Comprehensive Income/(Loss) for the three months ended March 31, 2024 and 2023 (unaudited)

5

Consolidated Statements of Changes in Equity for the three months ended March 31, 2024 and 2023 (unaudited)

6

Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)

7

Notes to Consolidated Financial Statements (unaudited)

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Item 3. Quantitative and Qualitative Disclosures About Market Risk

51

Item 4. Controls and Procedures

52

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

53

Item 1A. Risk Factors

53

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3. Defaults Upon Senior Securities

71

Item 4. Mine Safety Disclosures

71

Item 5. Other Information

71

Item 6. Exhibits

72

Signatures

73

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

Exhibit 32.2

UDR, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

March 31, 

December 31, 

    

2024

    

2023

(unaudited)

(audited)

ASSETS

Real estate owned:

 

  

 

  

Real estate held for investment

$

15,865,033

$

15,757,456

Less: accumulated depreciation

 

(6,407,092)

 

(6,242,686)

Real estate held for investment, net

 

9,457,941

 

9,514,770

Real estate under development (net of accumulated depreciation of $19 and $184, respectively)

 

126,144

 

160,220

Real estate held for disposition (net of accumulated depreciation of $0 and $24,960, respectively)

 

 

81,039

Total real estate owned, net of accumulated depreciation

 

9,584,085

 

9,756,029

Cash and cash equivalents

 

2,116

 

2,922

Restricted cash

 

29,850

 

31,944

Notes receivable, net

 

235,382

 

228,825

Investment in and advances to unconsolidated joint ventures, net

 

954,301

 

952,934

Operating lease right-of-use assets

189,729

190,619

Other assets

 

195,025

 

209,969

Total assets

$

11,190,488

$

11,373,242

LIABILITIES AND EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Secured debt, net

$

1,236,779

$

1,277,713

Unsecured debt, net

 

4,525,549

 

4,520,996

Operating lease liabilities

184,961

185,836

Real estate taxes payable

 

37,917

 

47,107

Accrued interest payable

 

27,255

 

47,710

Security deposits and prepaid rent

 

50,187

 

50,528

Distributions payable

 

151,512

 

149,600

Accounts payable, accrued expenses, and other liabilities

 

119,739

 

141,311

Total liabilities

 

6,333,899

 

6,420,801

Commitments and contingencies (Note 13)

 

  

 

  

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership

 

937,311

 

961,087

Equity:

 

  

 

  

Preferred stock, no par value; 50,000,000 shares authorized at March 31, 2024 and December 31, 2023:

 

  

 

  

8.00% Series E Cumulative Convertible; 2,686,308 and 2,686,308 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

44,614

 

44,614

Series F; 11,785,976 and 11,867,730 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

1

 

1

Common stock, $0.01 par value; 450,000,000 shares authorized at March 31, 2024 and December 31, 2023:

 

  

 

  

329,327,553 and 329,014,512 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

3,293

 

3,290

Additional paid-in capital

 

7,500,170

 

7,493,217

Distributions in excess of net income

 

(3,638,370)

 

(3,554,892)

Accumulated other comprehensive income/(loss), net

 

9,235

 

4,914

Total stockholders’ equity

 

3,918,943

 

3,991,144

Noncontrolling interests

 

335

 

210

Total equity

 

3,919,278

 

3,991,354

Total liabilities and equity

$

11,190,488

$

11,373,242

See accompanying notes to consolidated financial statements.

3

UDR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended

March 31, 

2024

2023

REVENUES:

    

  

    

  

Rental income

$

411,669

$

398,307

Joint venture management and other fees

 

1,965

 

1,242

Total revenues

 

413,634

 

399,549

OPERATING EXPENSES:

 

  

 

  

Property operating and maintenance

 

73,478

 

64,834

Real estate taxes and insurance

 

58,795

 

57,970

Property management

 

13,379

 

12,945

Other operating expenses

 

6,828

 

3,032

Real estate depreciation and amortization

 

169,858

 

169,300

General and administrative

 

17,810

 

17,480

Casualty-related charges/(recoveries), net

 

6,278

 

4,156

Other depreciation and amortization

 

4,316

 

3,649

Total operating expenses

350,742

 

333,366

Gain/(loss) on sale of real estate owned

16,867

1

Operating income

 

79,759

 

66,184

Income/(loss) from unconsolidated entities

 

9,085

 

9,707

Interest expense

 

(48,062)

 

(43,742)

Interest income and other income/(expense), net

 

5,865

 

1,010

Income/(loss) before income taxes

 

46,647

 

33,159

Tax (provision)/benefit, net

 

(337)

 

(234)

Net income/(loss)

 

46,310

 

32,925

Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership

 

(3,149)

 

(1,953)

Net (income)/loss attributable to noncontrolling interests

 

(12)

 

(8)

Net income/(loss) attributable to UDR, Inc.

 

43,149

 

30,964

Distributions to preferred stockholders — Series E (Convertible)

 

(1,231)

 

(1,183)

Net income/(loss) attributable to common stockholders

$

41,918

$

29,781

Income/(loss) per weighted average common share:

 

  

 

  

Basic

$

0.13

$

0.09

Diluted

$

0.13

$

0.09

Weighted average number of common shares outstanding:

 

  

 

  

Basic

 

328,823

 

328,789

Diluted

 

328,954

 

329,421

See accompanying notes to consolidated financial statements.

4

UDR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)

March 31, 

2024

2023

Net income/(loss)

$

46,310

$

32,925

Other comprehensive income/(loss), including portion attributable to noncontrolling interests:

 

  

 

  

Other comprehensive income/(loss) - derivative instruments:

 

  

 

  

Unrealized holding gain/(loss)

 

6,664

 

(273)

(Gain)/loss reclassified into earnings from other comprehensive income/(loss)

 

(1,995)

 

(1,369)

Other comprehensive income/(loss), including portion attributable to noncontrolling interests

 

4,669

 

(1,642)

Comprehensive income/(loss)

 

50,979

 

31,283

Comprehensive (income)/loss attributable to noncontrolling interests

 

(3,509)

 

(1,840)

Comprehensive income/(loss) attributable to UDR, Inc.

$

47,470

$

29,443

See accompanying notes to consolidated financial statements.

5

UDR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share data)

(Unaudited)

    

    

    

    

Distributions

Accumulated Other Comprehensive

Preferred

Common

Paid-in

in Excess of

Income/(Loss),

Noncontrolling

Stock

Stock

Capital

Net Income

net

Interests

Total

Balance at December 31, 2023

44,615

3,290

7,493,217

(3,554,892)

4,914

210

3,991,354

Net income/(loss) attributable to UDR, Inc.

43,149

43,149

Other comprehensive income/(loss)

4,321

4,321

Issuance/(forfeiture) of common and restricted shares, net

1

85

86

Issuance of common shares through public offering, net

(418)

(418)

Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership

2

7,286

7,288

Contribution of noncontrolling interests in consolidated real estate

125

125

Common stock distributions declared ($0.425 per share)

(140,025)

(140,025)

Preferred stock distributions declared-Series E ($0.4602 per share)

(1,231)

(1,231)

Adjustment to reflect redemption value of redeemable noncontrolling interests

14,629

14,629

Balance at March 31, 2024

$

44,615

$

3,293

$

7,500,170

$

(3,638,370)

$

9,235

$

335

$

3,919,278

    

    

    

    

Distributions

    

Accumulated Other Comprehensive

    

    

Preferred

Common

Paid-in

in Excess of

Income/(Loss),

Noncontrolling

Stock

Stock

Capital

Net Income

net

Interests

Total

Balance at December 31, 2022

$

44,615

$

3,290

$

7,493,423

$

(3,451,587)

$

8,344

$

210

$

4,098,295

Net income/(loss) attributable to UDR, Inc.

 

 

 

 

30,964

 

 

 

30,964

Other comprehensive income/(loss)

 

 

 

 

 

(1,521)

 

 

(1,521)

Issuance/(forfeiture) of common and restricted shares, net

 

 

2

 

695

 

 

 

 

697

Issuance of common shares through public offering, net

 

 

 

(462)

 

 

 

 

(462)

Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership

 

 

 

386

 

 

 

 

386

Common stock distributions declared ($0.42 per share)

 

 

 

 

(138,318)

 

 

 

(138,318)

Preferred stock distributions declared-Series E ($0.4548 per share)

 

 

 

 

(1,183)

 

 

 

(1,183)

Adjustment to reflect redemption value of redeemable noncontrolling interests

 

 

 

 

(67,749)

 

 

 

(67,749)

Balance at March 31, 2023

$

44,615

$

3,292

$

7,494,042

$

(3,627,873)

$

6,823

$

210

$

3,921,109

See accompanying notes to consolidated financial statements.

6

UDR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except for share data)

(Unaudited)

Three Months Ended March 31, 

    

2024

    

2023

Operating Activities

  

 

  

Net income/(loss)

$

46,310

$

32,925

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

 

  

 

  

Depreciation and amortization

 

174,174

 

172,949

(Gain)/loss on sale of real estate owned

 

(16,867)

 

(1)

(Income)/loss from unconsolidated entities

 

(9,085)

 

(9,707)

Return on investment in unconsolidated joint ventures and partnerships

 

4,596

 

4,317

Amortization of share-based compensation

 

7,258

 

8,246

Other

 

10,377

 

7,690

Changes in operating assets and liabilities:

 

 

  

(Increase)/decrease in operating assets

 

1,447

 

(7,119)

Increase/(decrease) in operating liabilities

 

(50,611)

 

(41,285)

Net cash provided by/(used in) operating activities

 

167,599

 

168,015

Investing Activities

 

  

 

  

Proceeds from sales of real estate investments, net

 

98,650

 

Development of real estate assets

 

(30,595)

 

(42,498)

Capital expenditures and other major improvements — real estate assets

 

(52,563)

 

(54,353)

Capital expenditures — non-real estate assets

 

(4,583)

 

(4,532)

Investment in unconsolidated joint ventures and partnerships

 

(1,105)

 

(1,821)

Distributions received from unconsolidated joint ventures and partnerships

 

4,289

 

3,108

Proceeds from sale of equity securities

4,624

Purchase deposits on pending acquisitions

(743)

Repayment/(issuance) of notes receivable, net

 

(270)

 

(16,501)

Net cash provided by/(used in) investing activities

 

18,447

 

(117,340)

Financing Activities

 

  

 

  

Payments on secured debt

 

(40,749)

 

(292)

Net proceeds/(repayment) of commercial paper

 

(18,075)

 

105,000

Net proceeds/(repayment) of revolving bank debt

 

22,467

 

(14,244)

Distributions paid to redeemable noncontrolling interests

 

(10,452)

 

(8,178)

Distributions paid to preferred stockholders

 

(1,210)

 

(1,097)

Distributions paid to common stockholders

 

(138,247)

 

(125,083)

Other

 

(2,680)

 

(7,765)

Net cash provided by/(used in) financing activities

 

(188,946)

 

(51,659)

Net increase/(decrease) in cash, cash equivalents, and restricted cash

 

(2,900)

 

(984)

Cash, cash equivalents, and restricted cash, beginning of year

 

34,866

 

30,194

Cash, cash equivalents, and restricted cash, end of period

$

31,966

$

29,210

Supplemental Information:

 

  

 

  

Interest paid during the period, net of amounts capitalized

$

69,197

$

64,707

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

3,126

3,126

Cash paid/(refunds received) for income taxes

 

(51)

 

206

Non-cash transactions:

 

  

 

  

Redeemable long-term and short-term incentive plan units

$

$

6,989

Development costs and capital expenditures incurred, but not yet paid

 

34,728

 

35,524

Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (190,278 shares and 9,957 shares, respectively)

 

7,288

 

386

Distribution of equity securities from unconsolidated real estate technology investments

7,749

Dividends declared, but not yet paid

 

151,512

 

148,409

The following reconciles cash, cash equivalents, and restricted cash to amounts as shown above:

Cash, cash equivalents, and restricted cash, beginning of year:

Cash and cash equivalents

$

2,922

$

1,193

Restricted cash

31,944

29,001

Total cash, cash equivalents, and restricted cash as shown above

$

34,866

$

30,194

Cash, cash equivalents, and restricted cash, end of period:

Cash and cash equivalents

$

2,116

$

1,172

Restricted cash

29,850

28,038

Total cash, cash equivalents, and restricted cash as shown above

$

31,966

$

29,210

See accompanying notes to consolidated financial statements.

7

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

1. 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 March 31, 2024, our consolidated apartment portfolio consisted of 168 communities with a total of 55,386 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 March 31, 2024, there were 190.0 million units in the Operating Partnership (“OP Units”) outstanding, of which 176.5 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 March 31, 2024, there were 32.4 million units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 21.5 million, or 66.4%, were owned by UDR and its subsidiaries and 10.9 million, or 33.6%, 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 accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations necessary for the fair presentation of our financial position as of March 31, 2024, and results of operations for the three months ended March 31, 2024 and 2023, have been included. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2023 appearing in UDR’s Annual Report on Form 10-K, filed with the SEC on February 20, 2024.

The accompanying interim unaudited consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). 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 interim unaudited consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation.

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 noted in Note 2, Significant Accounting Policies.

8

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2024

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In March 2024, the SEC issued final rules on the enhancement and standardization of climate-related disclosures. The rules require disclosure of, among other things: material climate-related risks; activities to mitigate or adapt to such risks; governance and management of such risks; and material greenhouse gas emissions from operations owned or controlled (Scope 1) and/or indirect emissions from purchased energy consumed in operations (Scope 2). Additionally, the rules require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. The rules will become effective for the Company on a phased-in timeline starting in the year ended December 31, 2025. While the SEC has voluntarily stayed the rules, the Company is currently evaluating the effect the rules will have on its financial statement disclosures.

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.

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 variable interest entity (“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.

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

9

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2024

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 Operations. Recoveries of financial assets previously written off are recorded when received. For the three months ended March 31, 2024 and 2023, the Company recorded net credit recoveries/(losses) of less than $(0.1) million and $(0.1) 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 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 Accounting Standards Codification (“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.

10

Table of Contents

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2024

The following table summarizes our Notes receivable, net as of March 31, 2024 and December 31, 2023 (dollars in thousands):

Interest rate at

Balance Outstanding (a)

    

March 31, 

    

March 31, 

    

December 31, 

2024

2024

2023

Notes due October 2024 (b)

10.50

%  

$

100,859

$

98,271

Note due December 2024 (c)

12.00

%  

38,411

37,022

Note due December 2026 (d)

11.00

%  

66,317

64,608

Note due December 2026 (e)

11.00

%  

26,872

26,164

Notes due June 2027 (f)

18.00

%  

3,907

3,737

Notes receivable

236,366

229,802

Allowance for credit losses

(984)

(977)

Total notes receivable, net

 

  

$

235,382

$

228,825

(a)Outstanding note amounts include any accrued and unpaid interest, as applicable.
(b)The Company has two loans (the “Notes”) with a joint venture that owns a 478 apartment home operating community located in Philadelphia, Pennsylvania with an aggregate commitment of $93.5 million (exclusive of accrued interest), all of which has been funded. The Notes are subordinate to the senior construction loan, but senior to the equity in the borrower. Currently, the Notes have a scheduled maturity date in October 2024, with two remaining one-year extension options. In April 2024, the joint venture refinanced the senior construction loan with a new loan that matures in April 2026, with a one year extension option subject to certain conditions.
(c)The Company has a secured note with an unaffiliated third party with an aggregate commitment of $32.5 million, of which $31.8 million was funded as of March 31, 2024. Interest payments are due monthly, with the exception of payments from June 2022 to December 2024, which are accrued and added to the principal balance and will be due at maturity of the note. The note is secured by substantially all of the borrower’s assets and matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) December 2024.
(d)The Company has a secured mezzanine loan with a third party developer of a 482 apartment home community located in Riverside, California, which is expected to be completed in 2025, with an aggregate commitment of $59.7 million (exclusive of accrued interest), all of which has been funded. Interest payments accrue for 36 months and are due monthly after the loan has been outstanding for 36 months. The secured mezzanine loan has a scheduled maturity date in December 2026, with two one-year extension options.
(e)The Company has a secured mezzanine loan with a third party developer of a 237 apartment home community located in Menifee, California, which is expected to be completed in 2025, with an aggregate commitment of $24.4 million (exclusive of accrued interest), all of which has been funded. Interest payments accrue for 36 months and are due monthly after the loan has been outstanding for 36 months. The secured mezzanine loan has a scheduled maturity date in December 2026, with two one-year extension options.
(f)The Company and a syndicate of lenders previously entered into a $16.0 million secured credit facility with an unaffiliated third party. In 2023, the secured credit facility was amended to provide a new term loan in the amount of $19.0 million, and the Company’s commitment was increased from $1.5 million to $3.0 million (exclusive of accrued interest), all of which has been funded. Interest payments accrue and are due at maturity of the facility. The facility is secured by substantially all of the borrower’s assets and matures at the earliest of the following: (a) acceleration in the event of default; or (b) June 2027.

The Company recognized $6.3 million and $1.6 million of interest income for the notes receivable described above during the three months ended March 31, 2024 and 2023, 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.