Despite challenging conditions for apartment landlords nationwide, UDR Inc. (UDR) delivered an annual boost in key funds from operations, helped by cost cutting, increased occupancy and stable rents.

For the second quarter ended June 30, the real-estate investment trust with nearly 45,000 units generated FFO of $56.3 million, or 35 cents per share, up from $49.8 million, or 33 cents, a year earlier, the company was expected to report Tuesday afternoon. Revenue came in at $152 million, up from $140 million.

UDR reported a loss of 10 cents compared with a year-earlier loss of 3 cents. Though the loss was wider, it beat the Street view of a 12-cent loss.

The results are good news for a sector weakened as unemployed tenants move home or double up and lower housing prices and federal tax incentives tempt renters into ownership. But more pain could come as leases inked during better times are replaced with current deals.

"While the REITs are doing an admirable job of slowing the bleeding through expense growth containment, reported results will continue to get worse throughout this year as new leases are marked-to-market. 2010 will be equally challenging," Green Street Advisors noted. "If the recovery is jobless in nature and/or households begin to take advantage of vastly improved single-family affordability, the eventual rebound in apartment fundamentals could be shaped more like a barge's hull than that of a cutter."

So far, the earnings season has been painful for the multifamily sector. Late Monday, Post Properties Inc. (PPS) said its FFO was a loss of $1.32 per share, compared with negative 28 cents for the second quarter of 2008. Industry giant Equity Residential (EQR), meanwhile, recently reported FFO of 58 cents a share, down from 64 cents a share a year earlier.

UDR's same-store net operating income slipped 1% percent for the second quarter, while occupancy edged up 90 basis points, to 95.7%, year over year, helped by gains in every region that kept the revenue decline at less than a percentage point.

"So far, we're the only apartment REIT to increase occupancy, and we did it without sacrificing rents," said Chief Executive Thomas W. Toomey in an interview. The quarter's average rent was about $1,200 a month, flat from a year earlier.

That shows that the company's bold move last year - selling 30% of its assets - might be paying off. It exited the Carolinas, Ohio and Colorado, and remained in the West Coast and in Washington, D.C., areas where it typically costs more to buy a home. That "allowed us to cull through the entire portfolio and prepare it to weather the economic downturn better," Toomey said.

Aided by lower utility, administrative and marketing costs - the company previously exited pricey print advertising - expenses were shaved by 0.8%. That offset the NOI decline, giving it an operating margin of 68.3% for the year's first two quarters, consistent with the second quarter of 2008.

Part of the savings has come from the Internet, which is being used for marketing and to ink leases: Year to date, more than half of UDR's signed leases were originated over the Web, a 29% improvement over the first six months of 2008, shaving personnel expenses.

The Internet work - which includes a Facebook page, Twitter account and iPhone application - is also increasing communication with tenants and reducing turnover, Toomey said.

Like many competitors, Denver-based UDR isn't starting any new projects this year. It has seven active developments and two active redevelopments, the bulk of which will be delivered next year, "which should align with improving market conditions," the company said in a statement.

As of June 30, UDR had about $5 million in cash and about $900 million when including undrawn credit facilities. That, it says, provides "ample flexibility to meet its capital needs for its development activities and debt maturities through 2011."

Following an already-announced dividend cut, from $1.32 to 72 cents per share - expected to save about $80 million annually - UDR is maintaining its previously announced annual FFO guidance of $1.23 to $1.35 per diluted share.

-By Dawn Wotapka; Dow Jones Newswires; 212-416-2193;