On Oct 9, 2013, we reiterated our long-term recommendation on
) - one of the leading apartment real estate investment trusts
(REITs) - at Neutral. The decision depicts the company's
better-than-expected second-quarter results, strong and flexible
balance sheet and successful execution of its strategic
initiatives. However, increasing interest rates, capital market
volatility and stiff competition from other housing alternatives
remain matters of concern.
Why the Reiteration?
Aided by higher revenues, same-store physical occupancy level
and strong portfolio restructuring activity, UDR's second-quarter
2013 adjusted funds from operations (FFO) of 35 cents per share
came in above the Zacks Consensus Estimate by a penny and the
year-ago quarter figure by 2 cents. Also, the 2013 adjusted FFO
per share guidance increase by the company raises investors'
confidence on the stock.
UDR is among the best-positioned apartment REITs in the U.S.,
with the majority of its portfolio located in the Western and
Mid-Atlantic U.S. Additionally, the company's strategy of
expanding its reach through the introduction of a resident
Internet portal and an apartment search application in iPhone and
iPod devices bodes well for its overall growth.
Moreover, going forward, we believe that the rise in apartment
demand generated by 'echo boomers' - children of the baby boomer
generation - will offer UDR ample growth opportunities. Further,
the company has been allocating its capital efficiently, reducing
financial leverage over time and improving cash flow.
Yet, rising interest rates and the capital market volatility
will likely limit UDR's ability to refinance existing debt and
undertake portfolio-restructuring initiatives, thereby denting
the company's growth prospects to some extent. Also, though the
company's decent development and redevelopment pipeline is
encouraging, this increases operational risks in the current
volatile market and exposes it to rising construction costs,
entitlement delays and lease-up risks.
Over the last 60 days, the Zacks Consensus Estimate for 2013
FFO per share remained stable at $1.41. On the other hand, for
2014, it dipped 0.7% to $1.48. Thus, UDR now carries a Zacks Rank
UDR is scheduled to release its third-quarter 2013 results on
Oct 29, 2013, before the opening bell. The Zacks Consensus
Estimate for FFO per share for the upcoming quarter is pegged at
35 cents per share, which represents a year-over-year increase of
Other Stocks to Consider
Other REITs that are currently performing better include
Select Income REIT Common Share
Education Realty Trust, Inc.
Simon Property Group Inc.
). All these stocks carry 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.
EDUCATION RLTY (EDR): Free Stock Analysis
SELECT INCOME (SIR): Free Stock Analysis
SIMON PROPERTY (SPG): Free Stock Analysis
UDR INC (UDR): Free Stock Analysis Report
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