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Should Investors Retain UDR Stock in Their Portfolio for Now?

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A geographically-diverse portfolio with a superior product mix of A/B quality properties in urban and suburban markets positions UDR, Inc. (UDR - Free Report) well for growth. Technological advancements and process enhancements also bode well for the company.

The company’s properties are located throughout the United States, which includes a mix of urban and suburban communities in both coastal and Sunbelt locations. Therefore, portfolio diversification with respect to geographies and price points limits UDR’s exposure to volatility and concentration risks alongside assuring stable cash flows.

In addition, a favorable demographic trend in the young-adult age cohort, which has a higher propensity to rent, is likely to fuel the demand for UDR’s properties.

UDR’s technological investments and process enhancements are expected to help control future expenses and aid margin expansion and long-term profitability. Its Next Generation Operating Platform supports electronical interaction, provides service to residents and aids its business prospects. These efforts are likely to give the company a competitive edge over its peers.

On the balance sheet front, UDR exited second-quarter 2022 with $1.3 billion of liquidity. The company has a well-laddered debt maturity schedule and no consolidated maturities until 2024.

Also, investment-grade credit ratings of Baa1(Stable) and BBB+(Stable) from Moody's Investors Service and S&P Global Ratings, respectively, give it favorable access to the debt market. Such a strong financial footing is likely to aid UDR’s long-term growth endeavors.

Solid dividend payouts are the biggest enticement for REIT investors, and UDR remains committed to that. In March 2022, the residential REIT announced a hike in its annualized dividend by 4.7% to $1.52 per share, resulting in a quarterly dividend of 38 cents. It has maintained this payment thereafter.

Given its robust balance sheet position and a sustainable cash flow from operations, the dividend payment is likely to be sustainable in forthcoming quarters.

Analysts seem bullish on this Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share indicates a favorable outlook for UDR as it has been increased nearly 1% over the past two months to $2.32.

However, its shares have lost 9.2% in the past three months compared with the industry’s fall of 6.9%.

Zacks Investment Research
Image Source: Zacks Investment Research

Regulatory restrictions regarding rent control or rent stabilization by certain states and municipalities have been limiting the residential REITs’ power to raise rents or charge non-rent fees. Moreover, with government assistance coming to an end, any macroeconomic disturbances could hamper the company’s rental revenue growth in the near term.

Although a decent development pipeline is encouraging for UDR’s long-term growth, a huge cost outlay ($599.5 million of which 66.9% was funded as of second-quarter 2022 end) exposes it to various operational risks such as a rise in construction costs, entitlement delays, lease-up risks and funding risks.

Further, a hike in interest rates is likely to increase borrowing costs, affecting the company’s ability to purchase or develop real estate.

Stocks to Consider

Some better-ranked stocks in the REIT sector are Equity Residential (EQR - Free Report) , Independence Realty Trust (IRT - Free Report) and BRT Apartments (BRT - Free Report) .

The Zacks Consensus Estimate for Equity Residential’s 2022 FFO per share has moved 1.7% upward in the past two months to $3.51. EQR presently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for Independence Realty Trust’s current-year FFO per share has moved 1.9% northward in the past two months to $1.08. IRT also carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for BRT Apartments’ ongoing year’s FFO per share has been raised 5.8% over the past two months to $1.63. BRT carries a Zacks Rank #1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

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.

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