UDR to Report Q3 Earnings: What's in Store for the Stock?

UDR Inc. UDR is slated to report third-quarter 2019 results on Oct 29, after market close. The company’s performance is expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share. Results reflected year-over-year growth in same-store net operating income (NOI). Nonetheless, weighted average same-store physical occupancy remained flat, year on year.

In the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions for as many in line performances, delivering an average positive surprise of 1.01%.

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 are shaping up for this announcement.

Factors to Consider

The U.S. apartment market has put up an impressive performance in the past few months, successfully banking on the stellar rental-unit demand. While occupancy is hovering at a near-record level, rents continue to register a steady rise.

Per the latest report from real estate technology and analytics firm, RealPage, occupancy reached 96.3% as of third-quarter 2019, with an impressive leasing activity. The figure is not only up from the prior-year period’s 95.9%, but is also close to the all-time high of 96.4% attained almost two decades ago in late 2000. The warmer months witness an uptick in apartment leasing activity. However, this year, the performance was robust, as demand was particularly strong.

With an uptick in occupancy, rent growth also seems to be steady. For new leases, rents were up 1.2% during the third quarter, driving the annual rent growth pace to 3% and monthly rents averaging $1,416.

Leveraging on this favorable rental housing trend, UDR has been focused on enhancing its overall portfolio by acquiring, developing and redeveloping properties in core operating markets and divesting the company’s non-core assets.

Additionally, favorable demographics, household formation and job-market gains are anticipated to have been key demand drivers for the company’s properties in the third quarter as well. Further, the company has been steadily implementing its Next Generation operating platform consisting of SmartHome installations and other infrastructure buildouts. These efforts will likely have driven margin expansions and supported the company’s operational platform during the September-end quarter.

These are likely to have supported its results in the quarter. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $284.4 million, indicating 6.8% year-over-year growth.

However, new supply of apartment properties remained elevated in the quarter under review, in a number of the company’s markets. Therefore, we remain apprehensive about UDR’s performance as elevated levels of supply limits a landlord’s ability to demand more rents, results in lesser absorption and leads to increased concession activity.
Also, prior to the third-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for the July-September quarter FFO per share remained unchanged at 52 cents, over the past 30 days. Nonetheless, it suggests year-over year growth of 6.1%. The company projects FFO as adjusted per share at 51-53 cents.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive 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 odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although UDR carries a Zacks Rank of 2 (Buy), its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Ventas, Inc. VTR, scheduled to release earnings on Oct 25, has an Earnings ESP of +2.02% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Digital Realty Trust, Inc. DLR, slated to report third-quarter results on Oct 29, has an Earnings ESP of +2.61% and currently carries a Zacks Rank of 3.

Apartment Investment and Management Company AIV, set to release quarterly numbers on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

Note: Anything related to earnings presented in this write-up represent 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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