Grade: C — Some Red Flags, Investigate
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-17, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
**Note on REIT grading**: Traditional Cash-vs-Debt metrics penalize all REITs because leverage secured by real estate is structural, not distressed. Grade adjusted accordingly.
One-line verdict: UDR is a residential apartment REIT with growing FFO but tight leverage ratios that warrant caution. FFO per diluted share rose 6.1% to $2.43 and AFFO per diluted share was $2.22 — healthy growth for an apartment REIT. Net income surged to $378 million from $90 million, boosted by $243 million in gains on sale of depreciable real estate. However, Debt/EBITDA of 4.7x and interest coverage of only 1.6x signal financial tightness. The Beneish M-Score could not be computed due to insufficient data, removing one key manipulation screen. The low gross margin (27.1%) reflects the capital-intensive nature of apartment operations with significant depreciation. Cash flow quality is strong: CFFO/NI of 2.39x and an accruals ratio of -5.0%.
| Metric | Result |
|---|---|
| Red Flags | **1** (Leverage: Debt/EBITDA 4.7x, interest coverage 1.6x) |
| Watch Items | **0** |
| Checks Completed | **14/18** (4 N/A: DSO, AR, impairment, M-Score) |
| Beneish M-Score | **N/A** (insufficient data) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
Apartment REIT: The Portfolio
UDR, Inc. is a multifamily apartment REIT that owns, operates, acquires, renovates, develops, redevelops, disposes of, and manages apartment communities across the United States. The company targets high-barrier-to-entry markets in both coastal and Sun Belt regions.
FFO: The Core Performance Metric
| Metric | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|
| Revenue | $1,628M | $1,672M | $1,712M | +2.4% YoY |
| Net Income | $444M | $90M | $378M | Volatile |
| FFO (diluted) | $868M | $817M | $866M | +6.0% YoY |
| FFO per diluted share | $2.45 | $2.29 | $2.43 | +6.1% YoY |
| AFFO per diluted share | $2.21 | $2.19 | $2.22 | +1.4% YoY |
| Diluted shares | 354.4M | 357.0M | 356.7M | Stable |
Per the filing, FFO attributable to common stockholders and unitholders was $866.5 million (diluted), with FFO per weighted average common share and unit of $2.43 diluted. AFFO per diluted share was $2.22.
Net income is volatile due to gains/losses on real estate dispositions: FY2023 included $350 million in gains, FY2024 had only $17 million, and FY2025 had $243 million. FFO, which excludes these non-recurring items, is the better performance indicator.
The reconciliation shows:
Cash Flow
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $833M | $877M | $903M |
| Net Income | $444M | $90M | $378M |
| CFFO / Net Income | 1.87x | 9.79x | 2.39x |
| CapEx | $312M | $272M | $289M |
| Free Cash Flow | $520M | $605M | $614M |
| Accruals Ratio | — | — | -5.0% |
Cash flow quality is strong. CFFO of $903 million grew 3.0% YoY, and the accruals ratio of -5.0% indicates cash earnings exceed accrual earnings. Free cash flow of $614 million provides solid coverage for dividends.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | — | Insufficient AR data |
| A2 | AR vs Revenue Growth | — | Insufficient AR data |
| A3 | Revenue vs CFFO | Pass | Revenue +2.4%, CFFO +3.0% |
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | Pass | No material inventory |
| B2 | CapEx vs Revenue | Pass | CapEx +6.4% vs revenue +2.4% |
| B3 | SG&A Ratio | Pass | SG&A/Gross Profit = 18.3%, good |
| B4 | Gross Margin | Pass | 27.1%, +2.2pp, improving |
B4: Gross margin of 27.1% appears low but is normal for apartment REITs where GAAP gross profit includes significant depreciation expense. The margin has improved consistently from 21.8% (FY2022) to 27.1% (FY2025).
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | Pass | CFFO/NI = 2.39x |
| C2 | Free Cash Flow | Pass | FCF $614M, FCF/NI = 1.63x |
| C3 | Accruals Ratio | Pass | -5.0%, low accruals |
| C4 | Cash vs Debt | **REIT Context** | Cash $1.2M vs debt $6.0B — typical REIT |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | Pass | No goodwill |
| D2 | Leverage | Fail | Debt/EBITDA = 4.7x, interest coverage = 1.6x |
| D3 | Soft Asset Growth | Pass | Other assets +17.1% vs revenue +2.4% |
| D4 | Asset Impairment | — | No write-off data |
D2 is the sole red flag. Debt/EBITDA of 4.7x exceeds the 4x threshold, and interest coverage of only 1.6x is below the 2x minimum. This means UDR's operating income barely covers its interest expense, leaving minimal margin for revenue disruption. For a residential REIT, this level of leverage is manageable but tight — UDR operates with essentially zero cash on its balance sheet ($1.2 million) and relies entirely on its credit facility and property-level cash flows for liquidity.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | Pass | FCF after acquisitions positive |
| E2 | Goodwill Surge | Pass | No goodwill |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | — | Insufficient data |
Key Risks from the 10-K
1. Interest Coverage of 1.6x — Below Safe Threshold
UDR's interest coverage ratio of 1.6x means operating income is only 60% above interest expense. A 2-3% decline in NOI or a meaningful increase in interest rates on floating-rate debt could compress this ratio below 1.5x, potentially triggering covenant concerns. The company carries $6.0 billion in total debt against $1.2 million in cash — essentially a zero-cash operating model dependent on continuous access to credit markets.
2. Supply Risk in Key Markets
Apartment REITs face supply risk from new multifamily construction. Per the filing, markets like Austin, Nashville, and other Sun Belt cities have experienced elevated new supply, which pressures rents and occupancy. UDR's revenue growth of 2.4% in FY2025 is modest and could decelerate if supply delivers into already competitive markets.
3. Joint Venture Complexity
The filing discloses unconsolidated joint ventures with $52 million in depreciation and an $8 million impairment loss. These off-balance-sheet investments add complexity and leverage that the consolidated financial statements do not fully capture. Investors should examine UDR's proportionate share of joint venture debt when assessing total leverage.
4. Gain Dependency in Net Income
Net income swings wildly based on real estate disposition gains: $444M (FY2023), $90M (FY2024), $378M (FY2025). While FFO strips out these gains, the magnitude ($243 million in FY2025 alone) means UDR's reported profitability depends significantly on the timing and profitability of asset sales.
Summary
Grade: C. Growing FFO per share, but tight leverage demands monitoring.
UDR's operating performance is solid: FFO per share grew 6.1%, AFFO per share grew 1.4%, and cash flow quality metrics are clean with a -5.0% accruals ratio and 2.39x CFFO/NI coverage. No goodwill, no manipulation signals detected (though M-Score is unavailable).
The sole red flag is the leverage profile: Debt/EBITDA 4.7x and interest coverage 1.6x create vulnerability to rising rates or NOI disruption. The near-zero cash balance ($1.2 million) means UDR has no liquidity buffer outside its credit facilities. For investors comfortable with REIT-level leverage, the underlying operating trends are healthy. For those who apply traditional financial health standards, the leverage warrants a C grade.
**Disclaimer**: This report is based on UDR's FY2025 10-K filed with SEC EDGAR on February 17, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025