Neutral Stance on UDR - Analyst Blog

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On Feb 19, 2013, we reiterated our long-term recommendation on UDR Inc. ( UDR ) at Neutral. This reflects the company's strong operating platform, healthy balance sheet with adequate liquidity and strategic efforts to reposition its portfolio.

Moreover, the automation of most of its businesses augurs well. Yet, the company has a significant development pipeline, which increases operational risks in the current credit-constrained market and remains a drag on its FFO (funds from operations) per share growth.  

Why Neutral?

UDR is among the best-positioned apartment real estate investment trusts (REITs) in the U.S., with the major portion of its portfolio located in California, Florida and on the Atlantic Coast. These are areas where housing costs have soared in the past few years, and despite the drop in home values, the rent-versus-own spread still remains high.

In addition to having a strong portfolio of apartment properties in prime business locations, the company's portfolio repositioning efforts to focus on markets that have better job and rent growth prospects augur well.

Moreover, UDR is committed to allocating its capital accretively, further reducing its financial leverage over time, improving cash flows to support dividend growth, and incrementally improve the quality and market mix of its portfolio.  Such efforts are expected to drive total shareholder returns over the long term. The automation of most of its businesses also bode well.

Earlier this month, UDR reported a better-than-expected fourth quarter 2012 adjusted FFO of 35 cents per share. The quarterly results benefited from higher occupancy level. Though total revenue increased from the prior-year quarter, it fell short of the Zacks Consensus Estimate.

Moreover, the company has a significant development pipeline, which increases operational risks in the current credit-constrained market and remains a drag on its FFO per share growth.

Following the release of the fourth quarter and full year 2012 results, the Zacks Consensus Estimate for full year 2013 FFO per share remained flat at $1.41 while for full year 2014 it improved 0.7% to $1.51 per share in the last 7 days. Following this, the company now has a Zacks Rank #4 (Sell).

Other Stocks to Consider

REITs that are currently performing well include Campus Crest Communities Inc. ( CCG ), Equity LifeStyle Properties, Inc. ( ELS ), Mid-America Apartment Communities Inc. ( MAA ), all carrying a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

CAMPUS CREST CM (CCG): Free Stock Analysis Report

EQUITY LIFESTYL (ELS): Free Stock Analysis Report

MID-AMER APT CM (MAA): Free Stock Analysis Report

UDR INC (UDR): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: ELS , MAA , UDR

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