UDR, Inc. (UDR - Free Report) is a promising stock, presently, backed by its superior portfolio and strategic sub-market locations which position it for further growth. Moreover, the company’s earnings growth prospects and industry tailwinds make it a safe bet.
Notably, the company owns A/B quality properties located in some affluent regions of the United States. This has ensured steady rental income generation over the past few years. Also, combined new and renewal lease over the upcoming quarters is anticipated to boost growth. Further, favorable household formation is likely to further accelerate demand for rental housing in UDR’s markets.
UDR has been witnessing upward estimate revisions, reflecting analysts’ optimism about its prospects. Over the past 30 days, the Zacks Consensus Estimate for 2019 funds from operations (FFO) per share has moved north marginally.
Additionally, this Zacks Rank #2 (Buy) stock has gained around 20.6% over the past year, outperforming 19.5% growth recorded by the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, UDR has a number of other aspects that make it an attractive investment option.
Why the Stock is an Attractive Pick
Promising Industry Tailwinds: The current year’s prime leasing period was encouraging for the U.S. apartment market as reflected by decent rent growth and increasing occupancy level. In fact, going by the latest report from RealPage, occupancy rate in July reached 96.2%, suggesting impressive leasing activity in 2019’s peak season. This marks the highest rate since 2000. Additionally, rent growth this July was approximately 40 basis points higher, year over year, with apartment rents averaging $1,414 across the United States. Amid high-apartment supply environment that had earlier curtailed landlords’ ability to command more rents, a strong leasing season came as a breather for residential REITs, including UDR, Equity Residential (EQR - Free Report) , AvalonBay Communities, Inc. (AVB - Free Report) and Essex Property Trust, Inc. (ESS - Free Report) . As for UDR, the company’s properties are well positioned to benefit from this industry trend.
Strategic Portfolio Trades Aimed at Portfolio Repositioning: UDR has been continuously enhancing the overall quality of its portfolio by acquiring, developing and redeveloping properties in core operating markets, and divesting non-core assets. In fact, in August, the company entered into an agreement with joint-venture (JV) partner, MetLife Investment Management, to fully own interest in 10 operating communities and other specified assets. In addition, UDR intends to shed stake in five communities owned under the JV. This deal will enable UDR to acquire high-quality assets and increase footprint in markets with less near-term new supply. The transaction will also be immediately accretive to earnings.
Balance-Sheet Strength: UDR has sufficient balance-sheet strength to support its strategic priorities. In fact, disciplined capital allocation, strong balance-sheet position as well as cash-flow enhancement will support operational efficiency and dividend growth. Notably, as of Jun 30, 2019, the company had around $750.6 million of liquidity through a combination of cash and undrawn capacity on its credit facilities. It also announced a 6.2% increase in its annualized dividend rate for 2019. Given the company’s strong cash flows and a fortress balance sheet, such dividend hikes are sustainable.
Encouraging FFO Picture: UDR witnessed FFO per share growth of 6.2% over the last three to five years, higher than the industry average of 4.8%. In addition, this uptrend is likely to continue in the near term as reflected by its projected FFO growth rate of 6.7% for 2019 (higher than the industry average of 6.2%). Moreover, strategic transactions executed with JV partner MetLife Investment have enabled the company to increase its 2019 funds from operations as adjusted (FFOA) per share guidance by a cent at the mid-point to $2.06-$2.09, up from the $2.05-$2.08 provided earlier.
Decent Return on Equity (ROE): UDR’s ROE is 5.6% compared with the industry’s average of 3.8%. This reflects the company’s ability to reinvest more efficiently than the industry.
Hence, there are enough reasons to expect a solid upside for this REIT stock. Particularly, a strong Zacks Rank and underlying operational strength appear favorable enough to further drive the stock’s rally in the near future.
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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