Back to top

Analyst Blog

On Oct 9, 2013, we reiterated 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 the company’s better-than-expected second-quarter results, strong and flexible balance sheet and successful execution of its strategic initiatives. However, increasing interest rates, capital market volatility and stiff competition from other housing alternatives remain matters of concern.

Why the Reiteration?

Aided by higher revenues, same-store physical occupancy level and strong portfolio restructuring activity, UDR’s second-quarter 2013 adjusted funds from operations (FFO) of 35 cents per share came in above the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 2 cents. Also, the 2013 adjusted FFO per share guidance increase by the company raises investors’ confidence on the stock.

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. Additionally, 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.

Moreover, going forward, we believe that the rise in apartment demand generated by ‘echo boomers’ – children of the baby boomer generation – will offer UDR ample growth opportunities. Further, the company has been allocating its capital efficiently, reducing financial leverage over time and improving cash flow.

Yet, rising interest rates and the capital market volatility will likely limit UDR’s ability to refinance existing debt and undertake portfolio-restructuring initiatives, thereby denting the company’s growth prospects to some extent. Also, though the company’s decent development and redevelopment pipeline is encouraging, this increases operational risks in the current volatile market and exposes it to rising construction costs, entitlement delays and lease-up risks.

Over the last 60 days, the Zacks Consensus Estimate for 2013 FFO per share remained stable at $1.41. On the other hand, for 2014, it dipped 0.7% to $1.48. Thus, UDR now carries a Zacks Rank #3 (Hold).

UDR is scheduled to release its third-quarter 2013 results on Oct 29, 2013, before the opening bell. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 35 cents per share, which represents a year-over-year increase of 5.13%.

Other Stocks to Consider

Other REITs that are currently performing better include Select Income REIT Common Share (SIR - Snapshot Report), Education Realty Trust, Inc. (EDR - Snapshot Report) and Simon Property Group Inc. (SPG - Analyst 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.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UTD THERAPE… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%