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UDR to Report Q2 Earnings: What's in the Cards for the Stock?

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UDR Inc. (UDR - Free Report) is slated to report second-quarter 2021 earnings on Jul 28, after the market closes. The company’s results will likely reflect year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, the Denver, CO-based residential real estate investment trust (REIT) reported a negative surprise of 2.08% in terms of FFO per share. Results displayed the adverse impact of the coronavirus pandemic and the resultant regulatory restrictions that remained in place, especially in the urban markets.

In the last four quarters, the company met the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being 1.46%.

Let’s see how things have shaped up prior to this announcement.

Factors to Consider

For the U.S. apartment market, the second quarter appeared to be robust this year, with renter demand soaring significantly. The number of occupied apartments in the nation’s 150 largest metros climbed 219,909 units, per a report from the real estate technology and analytics firm RealPage, aided by acceleration in employment growth that drives household formation and housing absorption. This not only marked a significant increase from second-quarter 2020 when demand for apartments was limited to around 33,000 units, given the nationwide lockdown, but also the biggest quarterly upsurge observed in the RealPage, Inc. database. Surge in home prices and fewer for-sale product availability in the market, which are making it difficult for conversion of renters to homebuyers, are other drivers.

The Sun Belt metros continue to see healthy demand that have already proved their resilience amid the pandemic. However, the gateway markets too registered solid demand with considerable absorption, after witnessing a turbulent environment last year that hurt fundamentals, with job losses and population declines, and a flexible working environment.

The current favorable environment is boosting occupancy levels and in turn, pushing up rents. Per the report from RealPage, occupancy is in line with the early 2000s all-time highs, with effective asking rents rising 2% in June, pushing up prices 6.3% year over year. The annual rent growth marks the biggest 12-month increase recorded since early 2001. Also, average monthly rent surpassed the $1,500 mark for the first time ever and reached $1,513. Rent growth has also been widespread.

With a geographically-diverse portfolio and a superior product-mix of A/B quality properties in urban and sub-urban markets, UDR is likely to have gained from this improving trend. The company’s portfolio includes properties throughout the United States, including both coastal and the SunBelt locations. This strategy of maintaining a diversified portfolio across various geographies and price points, limits volatility and concentration risks, and helps the company generate steady operating cash flows.

UDR has a healthy balance sheet, and is banking on technological moves and process enhancements to drive growth. It is focused on enhancing cost control through its Next Generation Operating Platform. Such efforts to find efficiencies throughout its operating platform are likely to have boosted workforce productivity and residents’ experience. Adoption of technology is also anticipated to have bolstered the company’s margin during the period under review.

Last month, the residential REIT issued a better outlook for second-quarter same-store cash revenue growth, which it expects to be (2.0)% to (1.0)%, reflecting an improvement of 440-540 basis points (bps) compared to the first-quarter 2021 same-store cash revenue growth of (6.4)%.

UDR is also expected to attain the high-end of its previously-issued funds from operations as adjusted (FFOA) per share guided range of 47-49 cents.

Nonetheless, UDR’s earnings will likely reflect the adverse impact of the pandemic on its business.

The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $301.5 million, indicating a 1.5% year-over-year decline. The estimate for average occupancy is pegged at 97%.

Prior to the second-quarter earnings release, the Zacks Consensus Estimate for the quarterly FFO per share has remained unchanged at 49 cents over the past month. This suggests a year-over year decline of 3.9%.

Here is what our quantitative model predicts:

UDR has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

UDR currently carries a Zacks Rank of #3 (Hold) and has an Earnings ESP of +0.91%.

Other Stocks That Warrant a Look

Here are other stocks from the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter:

Equity Residential (EQR - Free Report) , scheduled to report quarterly numbers on Jul 27, currently has an Earnings ESP of +1.43% and carries a Zacks Rank of 3.You can see the complete list of today’s Zacks #1 Rank stocks here.

Essex Property Trust, Inc. (ESS - Free Report) , slated to release second-quarter earnings on Jul 29, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3, at present.

Digital Realty Trust, Inc. (DLR - Free Report) , scheduled to report quarterly numbers on Jul 29, currently has an Earnings ESP of +0.63% and carries a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.