On Jul 18, 2013, we reaffirmed our long-term recommendation on UDR Inc. (UDR - Analyst Report) – one of the leading apartment real estate investment trusts (REITs) – at Neutral. The decision depicts company’s successful execution of strategic initiatives in past quarters. Nonetheless, UDR’s vast development pipeline and tough competition from other housing alternatives remain matters of concern.
UDR is among the best-positioned apartment REITs in the U.S., with the majority of its portfolio located in the Western and Mid-Atlantic U.S. Moreover, the company’s strategy of expanding its reach through the introduction of a resident Internet portal and an apartment search application in iPhone and iPod devices bodes well for its overall growth.
In addition, the improving apartment sector will enable UDR to witness a growing demand for its upscale communities in the coming years. Further, the company has been allocating its capital efficiently, reducing financial leverage over time and improving cash flows.
However, UDR’s active development and redevelopment pipeline exposes it to various risks such as rising construction costs, entitlement delays and lease-ups. Additionally, increasing competition from developers of other housing alternatives somewhat restricts the company’s growth momentum and poses a drag on earnings.
Over the last 60 days, the Zacks Consensus Estimate for 2013 funds from operations (FFO) per share remained stable at $1.39. On the other hand, for 2014, it nudged up 0.7% to $1.49. Thus, UDR now carries a Zacks Rank #3 (Hold).
UDR is scheduled to report second-quarter 2013 earnings on Jul 30, before the opening bell. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 34 cents per share. The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for UDR is 0.00% for the second quarter. This, along with its Zacks Rank #3 reduces the company’s chance of an earnings beat.
Other Stock to Consider
Other apartment REITs that are currently performing better include AvalonBay Communities, Inc. (AVB - Analyst Report), Mid America Apartment Communities Inc. (MAA - Snapshot Report) and Sun Communities, Inc. (SUI - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.