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UDR Gains from Portfolio Quality: Should You Hold the Stock?

We updated our research report on UDR, Inc.UDR on Nov 13, 2015.

In October, UDR reported third-quarter 2015 funds from operations ("FFO") of 42 cents per share, surpassing the Zacks Consensus Estimate by a penny. Further, the bottom line came considerably better than the prior-year quarter tally of 38 cents. Further, total revenue grew 7.1% year over year to $221.4 million, outpacing the Zacks Consensus Estimate of $217.4 million.

This Highlands Ranch, CO-based residential real estate investment trust ("REIT") has been striving continuously to enhance the overall portfolio quality by acquiring, developing and redeveloping properties in core operating markets as well as divesting its non-core assets. As of Sep 30, 2015, UDR had a development pipeline of recently completed and under-construction assets of $1 billion. We believe the company's extensive portfolio-repositioning activities will boost its prospects.

In addition, UDR's focus on disciplined capital allocation, strong balance sheet position and cash flow enhancement will support its operational efficiency. We expect the company's robust operating platform and efficient management team to help it execute strategic priorities, keeping its growth momentum alive.

However, property divestiture may lead to earnings dilution in the near term. Notably, in third-quarter 2015, the company inked a deal to divest 6 communities for a total price of $221 million through Section 1031 exchanges. The REIT also signed another deal to divest 2 communities for $66 million. We anticipate such sell-off activities to exert pressure on the company's earnings in the short term. Further, stiff competition from other housing alternatives such as rental apartments, condominiums and single-family homes limits the company's power to increase rent and therefore, restricts its growth momentum to some extent.

Echoing similar sentiments, the Zacks Consensus Estimate for the stock has remained unchanged at $1.67 for 2015 and $1.78 for 2016 over the past 7 days. Currently, UDR carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Investors interested in the residential REIT industry may consider stocks like Independence Realty Trust, Inc. IRT , Armada Hoffler Properties, Inc. AHH and Apartment Investment and Management Company AIV . While Independence Realty Trust sports a Zacks Rank #1 (Strong Buy), both Armada Hoffler Properties and Apartment Investment and Management Company hold a Zacks Rank #2 (Buy).

Note: Funds from operations, 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.

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APARTMENT INVT (AIV): Free Stock Analysis Report

UDR INC (UDR): Free Stock Analysis Report

ARMADA HOFFLER (AHH): Free Stock Analysis Report

INDEP REALTY TR (IRT): Free Stock Analysis Report

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


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

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