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Here's Why You Should Retain UDR Stock in Your Portfolio Now
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UDR, Inc. (UDR - Free Report) is well-poised to benefit from a diversified portfolio, technological initiatives and a healthy balance sheet position. However, the elevated supply of rental units and high interest rates are worrisome.
What’s Aiding It?
UDR has a geographically diverse portfolio with a superior product mix of A/B quality properties in urban and suburban markets. The company’s portfolio comprises properties across the United States, including both coastal and Sunbelt locations. This strategy of diversifying the portfolio across geographies and price points limits volatility and concentration risks while aiding the company to generate steady operating cash flows. Our estimate indicates a year-over-year increase of 2.1% in rental income this year.
UDR is also leveraging technological initiatives and process enhancements to drive operational resiliency across its platform. Its Next Generation Operating Platform allows the company to electronically interact with and provide service to residents and prospects throughout its diversified portfolio. These efforts are likely to give the company a competitive edge over its peers and help capture additional net operating income (NOI). For 2024, we estimate the company’s same-store NOI to grow marginally on a year-over-year basis.
The company maintains a healthy balance sheet position with ample liquidity. It exited the fourth quarter of 2023 with $965.3 million of liquidity. The company’s debt maturity schedule is well-laddered, with a weighted average years to maturity of 5.6 years and a weighted average interest rate of 3.40%. Also, 86.7% of its NOI is unencumbered. It also enjoys favorable investment-grade credit ratings, which enable it to procure debt financing at an attractive cost.
Solid dividend payouts are arguably the biggest enticement for REIT investors and UDR remains committed to that. In February 2024, concurrent with the fourth-quarter earnings release, the company rewarded investors with an annual dividend hike of 1.2% to $1.70 per share, resulting in a quarterly dividend of approximately 42.5 cents. The company has increased its dividend five times in the last five years and its five-year annualized dividend growth of 4.60% is encouraging.
Though we expect funds from operations as adjusted (FFOA) to record a year-over-year marginal decline in 2024, the metric is expected to rise 3.8% and 7.4% in 2025 and 2026, respectively. Given our FFOA growth projections and UDR’s solid financial position, the latest dividend hike seems sustainable and well covered by cash flow from operations.
Over the past month, shares of this Zacks Rank #3 (Hold) company have gained 3% compared with the industry’s growth of 2.5%.
Image Source: Zacks Investment Research
What’s Hurting It?
The struggle to lure the renters is likely to persist as the supply volume of new deliveries is expected to remain elevated in a number of its markets. With the ongoing construction standing at a high level, a sizeable number of apartment deliveries are expected in the upcoming period.
Management expects Sunbelt markets to face significantly higher absolute deliveries than the coastal markets, although all regions will face higher relative supply in 2024 compared with their long-term averages. For 2024, on a straight-line basis, the company projects year-over-year growth of up to 3% in same-store revenues. We expect the metric to rise 2.2% in 2024, which is within the guided range.
Moreover, a high interest rate environment is a concern for UDR. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden and its total debt as of Dec 31, 2023, was $5.8 billion. Our estimate indicates a year-over-year rise of 5.7% in interest expenses in 2024.
The Zacks Consensus Estimate for SKT’s 2024 FFO per share stands at $2.03, indicating an increase of 3.6% from the year-ago reported figure.
The Zacks Consensus Estimate for SLG’s 2024 FFO per share is pinned at $5.88, suggesting year-over-year growth of 19%.
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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Here's Why You Should Retain UDR Stock in Your Portfolio Now
UDR, Inc. (UDR - Free Report) is well-poised to benefit from a diversified portfolio, technological initiatives and a healthy balance sheet position. However, the elevated supply of rental units and high interest rates are worrisome.
What’s Aiding It?
UDR has a geographically diverse portfolio with a superior product mix of A/B quality properties in urban and suburban markets. The company’s portfolio comprises properties across the United States, including both coastal and Sunbelt locations. This strategy of diversifying the portfolio across geographies and price points limits volatility and concentration risks while aiding the company to generate steady operating cash flows. Our estimate indicates a year-over-year increase of 2.1% in rental income this year.
UDR is also leveraging technological initiatives and process enhancements to drive operational resiliency across its platform. Its Next Generation Operating Platform allows the company to electronically interact with and provide service to residents and prospects throughout its diversified portfolio. These efforts are likely to give the company a competitive edge over its peers and help capture additional net operating income (NOI). For 2024, we estimate the company’s same-store NOI to grow marginally on a year-over-year basis.
The company maintains a healthy balance sheet position with ample liquidity. It exited the fourth quarter of 2023 with $965.3 million of liquidity. The company’s debt maturity schedule is well-laddered, with a weighted average years to maturity of 5.6 years and a weighted average interest rate of 3.40%. Also, 86.7% of its NOI is unencumbered. It also enjoys favorable investment-grade credit ratings, which enable it to procure debt financing at an attractive cost.
Solid dividend payouts are arguably the biggest enticement for REIT investors and UDR remains committed to that. In February 2024, concurrent with the fourth-quarter earnings release, the company rewarded investors with an annual dividend hike of 1.2% to $1.70 per share, resulting in a quarterly dividend of approximately 42.5 cents. The company has increased its dividend five times in the last five years and its five-year annualized dividend growth of 4.60% is encouraging.
Though we expect funds from operations as adjusted (FFOA) to record a year-over-year marginal decline in 2024, the metric is expected to rise 3.8% and 7.4% in 2025 and 2026, respectively. Given our FFOA growth projections and UDR’s solid financial position, the latest dividend hike seems sustainable and well covered by cash flow from operations.
Over the past month, shares of this Zacks Rank #3 (Hold) company have gained 3% compared with the industry’s growth of 2.5%.
Image Source: Zacks Investment Research
What’s Hurting It?
The struggle to lure the renters is likely to persist as the supply volume of new deliveries is expected to remain elevated in a number of its markets. With the ongoing construction standing at a high level, a sizeable number of apartment deliveries are expected in the upcoming period.
Management expects Sunbelt markets to face significantly higher absolute deliveries than the coastal markets, although all regions will face higher relative supply in 2024 compared with their long-term averages. For 2024, on a straight-line basis, the company projects year-over-year growth of up to 3% in same-store revenues. We expect the metric to rise 2.2% in 2024, which is within the guided range.
Moreover, a high interest rate environment is a concern for UDR. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden and its total debt as of Dec 31, 2023, was $5.8 billion. Our estimate indicates a year-over-year rise of 5.7% in interest expenses in 2024.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Tanger Inc. (SKT - Free Report) and SL Green Realty (SLG - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for SKT’s 2024 FFO per share stands at $2.03, indicating an increase of 3.6% from the year-ago reported figure.
The Zacks Consensus Estimate for SLG’s 2024 FFO per share is pinned at $5.88, suggesting year-over-year growth of 19%.
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.