UDR Inc.UDR is well-poised to benefit from its diversified portfolio in the coastal and Sunbelt markets. The favorable demographic trends and technological improvements are likely to aid the residential REIT. However, the elevated supply of residential rental units in some of its markets is a concern.
What’s Aiding UDR?
UDR has a geographically diverse portfolio with a superior product mix of A/B quality properties throughout the United States, including both coastal and Sunbelt locations, with a mix of 40% urban and 60% suburban communities. This diversification limits volatility and concentration risks while aiding the company in generating steady operating cash flows. We estimate a year-over-year increase of 2.3% in rental income in 2024.
UDR is leveraging technological initiatives and process enhancements to bring operational resiliency across its platform. These initiatives involve improving workforce productivity, enhancing customer experience and cutting down on expenses. Such efforts are likely to give UDR a competitive edge over others and enable it to capture additional net operating income (NOI), driving long-term profitability. We estimate the same property NOI to increase by 1.3% for 2024.
UDR continues to focus on disciplined capital distribution and maintaining a healthy balance sheet position. As of June 30, 2024, UDR had $946.2 million of liquidity, and total indebtedness was $5.8 billion. The net debt-to-EBITDAre was 5.7X in the second quarter. The company’s debt maturity schedule is well-laddered, with weighted average years to maturity of 5.2 years and a weighted average interest rate of 3.38%. Also, 86.4% of its NOI is unencumbered, enabling it to procure debt financing at an attractive cost.
Solid dividend payouts are arguably the biggest enticement for REIT investors, and the company remains committed to that. UDR has increased its dividend five times in the last five years, and the five-year annualized dividend growth rate is 4.79%, which is encouraging. Given UDR’s solid financial position, the current dividend seems sustainable and well covered by cash flow from operations. Such efforts boost investors’ confidence in the stock.
What’s Hurting UDR?
The struggle to lure renters for residential REITs, including AvalonBay (AVB), Essex Property ESS and UDR, will persist as the supply volume of residential units is expected to remain elevated in some markets where they operate.
With the ongoing construction standing at a high level, a sizeable number of apartment deliveries are anticipated in the upcoming period. This is likely to weigh on UDR’s ability to increase the rent, restricting its growth momentum to a certain extent.
In recent years, there has been an increase in states and municipalities implementing or considering rent control or rent stabilization laws and regulations. This has limitedresidential REITs’ power to raise rents or charge non-rent fees, affecting their rent growth momentum.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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