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

UDR Inc. UDR is slated to report third-quarter 2020 results on Oct 29, after the bell. While the company’s results will likely reflect growth in revenues, funds from operations (FFO) per share might display a decline, year over year.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) reported a negative surprise of 3.77% in terms of FFO per share. Results reflected the adverse impact of the coronavirus pandemic and related economic challenges, as well as government actions and regulations on the company’s business.

In the trailing four quarters, the company met the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being 1.41%.

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 for this announcement.

Factors to Consider

The U.S. apartment leasing activity rebounded during the third quarter, mainly driven by an increase in leasing activity in the Sun Belt region. It also underlines the occurrence of job growth after the slump earlier this year, which facilitated new household formation reappearance in a number of markets.

Per the latest report from real estate technology and analytics firm RealPage RP, across the 150 largest U.S. markets, the occupied apartment count climbed 146,517 units, on net, during the September-end quarter. This marks the largest third-quarter demand figure since before the Great Recession. Moreover, product absorption pace in the quarter under review was more than four times the minimal demand for about 34,000 apartments recorded in the second quarter, according to the report.

However, this bouncing back has not been uniform. Though the Sun Belt markets staged a recovery, a number of gateway markets suffered net move-outs during the to-be-reported quarter, and urban core neighborhoods still struggled.

Nevertheless, UDR has a geographically-diverse portfolio with a superior product-mix of A/B quality properties in urban and sub-urban markets. The company’s portfolio includes properties throughout the United States, including both coastal and Sun Belt locations. This strategy of maintaining a diversified portfolio is likely to have provided support in generating operating cash flows during the quarter under review.

In addition, the company is focused on curbing expenses through technological initiatives and process enhancements. Such efforts to find efficiencies throughout its operating platform are likely to have boosted workforce productivity and residents’ experience. Adoption of technology is also anticipated to have supported margin.

UDR’s Next Generation Operating Platform allows it to electronically interact with, and provide service to residents and prospects throughout the company’s diversified portfolio. Also, this has become all the more essential in this social-distancing era, as the virus outbreak needed a quick shift to virtual operations for the continuity of business operations. This is likely to have provided UDR a competitive edge over others during the quarter under consideration.

The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $305.2 million, indicating 5.6% year-over-year growth. The estimate for average occupancy is pegged at 95%.

In its September investor presentation, the company noted that August trends suggest occupancy, lease rate growth, and billed revenue are stabilizing across ~80% of portfolio net operating income. However, in certain urban areas, concessions remain elevated. Furthermore, collecting and growing fees and other income remains challenging amid regulatory restrictions.

The company’s cash revenue collection (as % of billed) was 94.1% for August and 96.7% for July. Weighted average physical occupancy was 95.5% in August and 95.6% for July. However, year-over-year effective blended lease rate growth was a negative 0.6% in August and 0.4% in July.

Amid these, prior to the third-quarter earnings release, there is lack of any solid catalyst to become optimistic about the company’s prospects as the Zacks Consensus Estimate for the FFO per share remained unchanged at 50 cents over the past month. Also, it suggests a year-over year decline of 3.9%.

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.

UDR currently carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.00%.

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:

National Storage Affiliates Trust NSA, scheduled to report quarterly numbers on Nov 5, currently has an Earnings ESP of +4.88% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ventas, Inc. VTR, set to release earnings figures numbers on Nov 6, has an Earnings ESP of +2.03% and carries a Zacks Rank of 3, at present.

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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United Dominion Realty Trust, Inc. (UDR): Free Stock Analysis Report
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