A month has gone by since the last earnings report for UDR (UDR). Shares have lost about 4.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is UDR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
UDR's FFO & Revenues Miss Estimates in Q2, NOI Declines
UDR reported second-quarter 2020 FFO as adjusted per share of 51 cents. The figure missed the Zacks Consensus Estimate of 53 cents as well as came in lower than the prior-year’s 52 cents.
Results reflect the adverse impact of the coronavirus pandemic and related economic challenges as well as government actions and regulations on the company’s business.
Second-quarter revenues from rental income climbed 9.9% year over year to nearly $306 million. However, the revenue figure missed the Zacks Consensus Estimate of $315.9 million. This year-over-year upside reflects growth in revenues from acquisition communities.
Revenues recognized for the second quarter were 98.3% of total billed revenues and cash revenues collected were 97.5%. Moreover, the company noted that July cash revenues received as a percentage of billed revenues are consistent with April, May, and June at the corresponding periods of the months.
Moreover, weighted average occupancy in the June-end quarter was 96.3% compared with the year-ago period’s 96.9%, while effective blended lease rate growth was 0.8% compared with the prior-year quarter’s 4.4%.
Inside the Headlines
During the reported quarter, combined same-store revenues decreased 2.1% year over year. Same-store expenses flared up 2.5%. Consequently, same-store net operating income (NOI) declined 4%. Notably, the company’s second-quarter combined same-store bad debt reserve aggregated $4.5 million.
The residential REIT’s weighted average combined same-store physical occupancy contracted 50 basis points (bps), year over year, to 96.3%. Second-quarter annualized-rate of turnover shrunk 620 bps to 48.9%.
UDR continues to implement its Next Generation Operating Platform strategy. This facilitated year-over-year decline in combined same-store controllable expenses by 2% and helped maintain controllable operating margin of 84.3%, stable year on year, despite a decline in combined same-store revenues.
During the June-end quarter, the company sold Waterscape — a 196-home community in Kirkland, WA — for $92.9 million and Borgata Apartment Homes — a 71-home community in Bellevue, WA — for $49.7 million.
The company’s development pipeline aggregated $278.5 million at the end of the reported quarter and 47% of this cost had been incurred. The active pipeline includes three development communities (one each in Addison, TX, Denver, CO, and Dublin, CA) for a combined total of 878 homes.
At the end of the June-end quarter, the company’s Developer Capital Program investment, including accrued return, totaled $419.6 million. The weighted average return rate is 9.8%, while the weighted average expected remaining term is 2.5 years.
Balance Sheet Position
As of Jun 30, 2020, UDR had $973.7 million of liquidity through a combination of cash and undrawn capacity on its credit facilities, along with roughly $105 million of incremental capital sources from potential settlement of forward equity sales agreements. Additionally, its total debt was $4.8 billion as of the same date.
Notably, during the reported quarter, the company executed a rate lock agreement to refinance its only remaining 2020 maturity, a $79.5 million, 4.35% fixed rate loan due in 2020, with a $160.9 million, 2.62% fixed rate secured loan due in 2031. The refinancing transaction is likely to close in the third quarter and UDR anticipates using the incremental proceeds to lower its borrowings under its unsecured commercial paper program.
UDR ended the April-June quarter with fixed-rate debt representing 94.4% of its total debt, a total blended interest rate of 3.24% and weighted average years to maturity of 7 years.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, UDR has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. It's no surprise UDR has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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