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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