UDR Readies to Report Q1 Earnings? What's in the Offing?

UDR Inc. UDR, a premier multifamily real estate investment trust (REIT), is set to announce its first-quarter 2024 results after the closing bell on Apr 30. Its quarterly results are likely to reflect growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Denver, CO-based residential REIT came up with an FFO as adjusted per share of 63 cents, in line with the consensus mark. Quarterly results reflected year-over-year growth in revenues, driven by healthy operating trends and past accretive external growth investments. However, a rise in property operating and maintenance and interest expenses acted as dampeners.

In the last four quarters, UDR’s FFO as adjusted per share met the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being -0.81%. The graph below depicts the surprise history of the company:

United Dominion Realty Trust, Inc. Price and EPS Surprise

United Dominion Realty Trust, Inc. Price and EPS Surprise

United Dominion Realty Trust, Inc. price-eps-surprise | United Dominion Realty Trust, Inc. Quote

Let’s see how things have shaped up before this announcement.

US Apartment Market in Q1

Per RealPage data, although there was a significant recovery in apartment demand in the first quarter, it was not enough to keep up with the huge amounts of new supply, with the onslaught affecting occupancy and rent growth.

The United States absorbed 103,826 apartment units on net in the first quarter, pushing the annual demand figure to 317,241 units in the 12-month period. This is about 20% higher than a typical annual absorption rate from the 2010s decade, the report noted. A combination of elements like continuing wage increases, solid job growth and favorable demographic trends is driving this surge in demand. Moreover, move-outs from apartment units into single-family homes remain much lower.

However, there were massive amounts of new supply, with 135,652 apartment units being completed in the first quarter, bringing the total number of new multifamily units delivered to 479,367 in the year-ending first quarter of 2024.

With supply outpacing demand, apartment occupancy averaged 94.1% nationwide as of March, down 0.6% year over year, though lower than typical but not significantly down. Apart from the occupancy rate, operators’ pricing power was also affected, with the first-quarter annual effective rent change being up 0.2% and the monthly effective rent change being north 0.4%. The average effective rent was $1,813.

Projections

UDR owns a geographically diverse portfolio with a superior product mix of A/B quality properties in urban and suburban markets. The company’s portfolio comprises properties throughout the United States, including both coastal and Sunbelt locations, with a good mix of urban and suburban communities.

UDR’s technological investments and process enhancements are expected to help enhance cost control and aid margin expansion via its Next Generation Operating Platform. The platform allows the company to electronically interact with and provide service to residents, aiding its business prospects. Its healthy balance sheet position is likely to have boosted its growth endeavors.

However, the elevated supply of rental units in some of its markets may have increased competition and partly limited rent growth, casting a pall on the company’s quarterly performance to a certain extent. In addition, a high interest rate environment is likely to have acted as a spoilsport.

Per the company’s March Investor Presentation, UDR noted that it enjoyed 97.1% average physical occupancy in February and 97.2% in January, up from 96.9% in the fourth quarter of 2023. UDR experienced effective blended lease rate growth of around 1% for February and 0.2% in January compared with a negative 0.5% in the fourth quarter. Moreover, year-over-year turnover improved for the 10th consecutive month in February.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $408.8 million. This indicates a 2.6% year-over-year rise.

For the first quarter, we estimate weighted average same-store physical occupancy at 96.8%, down 10 basis points sequentially. Moreover, our estimate for same-store net operating income growth is currently pegged at 3.4%. We expect interest expenses to grow 6.2% year over year in the first quarter.

UDR projected first-quarter 2024 FFO as adjusted per share in the range of 60-62 cents.

Before the first-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO as adjusted per share has remained unchanged at 61 cents in the past month. However, this suggests year-over-year growth of 1.67%.

Here Is What Our Quantitative Model Predicts:

Our proven model does not conclusively predict a surprise in terms of FFO per share for UDR this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.

UDR currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are three stocks from the broader REIT sector — Welltower Inc. WELL, Public Storage PSA and Invitation Homes Inc. INVH — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

Welltower is scheduled to report quarterly numbers on Apr 29. WELL has an Earnings ESP of +0.71% and a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Public Storage is slated to report quarterly numbers on Apr 30. PSA has an Earnings ESP of +0.88% and carries a Zacks Rank of 3 presently.

Invitation Homes Inc. is scheduled to report quarterly numbers on Apr 30. INVH has an Earnings ESP of +0.77% and a Zacks Rank of 3 presently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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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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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