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UDR to Report Q4 Earnings: What's in Store for the Stock?

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UDR Inc. (UDR - Free Report) is slated to report fourth-quarter and full-year 2019 results on Feb 11, after market close. The company’s performance is expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share. Results reflected year-over-year growth in same-store net operating income (NOI) and weighted average same-store physical occupancy.

In the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions for as many in-line performances, delivering an average positive surprise of 1.01%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Following a robust prime leasing season in 2019, the U.S. apartment rental market put up a decent show in the December-end quarter, despite demand for apartments generally slowing down during the colder months as renters usually prefer less to move in winters.

Per the latest report from real estate technology and analytics firm RealPage, Inc. (RP), occupancy at the end of fourth-quarter 2019 remained as high as 95.8%, reflecting an expansion of 40 basis points (bps), year on year. Moreover, rents for new-resident leases were up 2.8% in 2019, hovering around the 3% level that the apartment market has been witnessing since late 2016.

Banking on the favorable rental housing trend, UDR has been focused on enhancing its overall portfolio by acquiring, developing and redeveloping properties in core operating markets and divesting the company’s non-core assets. Moreover, favorable demographics, household formation and job-market gains are anticipated to have been key demand drivers for the company’s properties in the fourth quarter as well.

UDR has also been steadily implementing its Next Generation operating platform consisting of SmartHome installations and other infrastructure buildouts. These efforts are expected to have driven margin expansions and supported the company’s operational platform during the December-end quarter. These, in turn, are likely to have supported the company’s performance in the quarter.

The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $296.6 million, indicating 12.04% year-over-year growth.

However, new supply of apartment properties was elevated in the quarter under review, in a number of the company’s markets. Therefore, we remain apprehensive about UDR’s performance as elevated levels of supply limits a landlord’s ability to demand more rents, results in lesser absorption and leads to increased concession activity. Particularly, new lease rate growth might have been adversely impacted.

Also, prior to the fourth-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for the October-December quarter FFO per share remained unchanged at 54 cents, over the past 30 days. Nonetheless, it suggests year-over year growth of 8%. The company projects FFO as adjusted per share at 53-55 cents.

For full-year 2019, the company forecasts FFO as adjusted per share of $2.07-$2.09. Moreover, it anticipates same-store NOI growth of 4-4.4% for 2019. The Zacks Consensus Estimate for full-year FFO per share is currently pinned at $2.08, indicating 6.1% year-over-year growth on revenues of $1.13 billion.

Key Development in Q4

In December, UDR announced that it closed a $1.76-billion transaction with MetLife Investment Management. The move, which lowered the size of the UDR/MetLife Investment Management joint venture (JV), is projected to be 1-2 cents accretive to the company’s 2020 FFO as adjusted per share.

As part of the transaction, the company acquired roughly 50% stake in 10 JV operating communities, comprising 3,321 apartment homes in total, one community under development and four accretive development land sites. These acquisitions were valued at an aggregate of $1.1 billion, or $557 million at UDR’s share.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for UDR this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although UDR carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks That Warrant a Look

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

Healthpeak Properties, Inc. (PEAK - Free Report) , slated to release fourth-quarter earnings on Feb 11, has an Earnings ESP of +1.15% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vornado Realty Trust (VNO - Free Report) , set to report quarterly numbers on Feb 18, has an Earnings ESP of +5.62% and carries a Zacks Rank of 3, currently.

Host Hotels & Resorts, Inc. (HST - Free Report) , scheduled to release October-December quarter results on Feb 19, has an Earnings ESP of +1.52% and currently holds a Zacks Rank #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.

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