It seems to be a wise decision to add UDR, Inc. UDR to your portfolio now, given its continued efforts to expand in strategic markets on the back of acquisitions and developments efforts. Moreover, amid stable economy, job growth and rising wages, the increase in household formation will likely accelerate demand for rental housing in UDR’s markets.
Recently, UDR posted first-quarter 2019 FFO per share of 51 cents, outpacing the Zacks Consensus Estimate by a whisker. The figure came in higher than the prior-year quarter reported tally of 47 cents. The beat was aided by year-over-year growth in revenues from rental income and same-store net operating income (NOI).
The company's price performance also seems impressive. In fact, this Zacks Rank #2 (Buy) stock has gained around 23.1% over the past year, outperforming 18.4% growth recorded by the industry.
Notably, UDR has a number of other aspects that make it a solid investment choice.
Why the Stock is an Attractive Pick
Encouraging FFO Picture: UDR has witnessed FFO per share growth of 6.38% over the last three to five years, higher than the industry’s average of 4.75%. In addition, this uptrend is likely to continue in the near term as reflected by its projected FFO growth rate of 5.2% for 2019 (higher than the industry average of approximately 4%). Further, management anticipates FFO in the $2.05-$2.09 range for the current year. This outlook reflects robust demand for the company’s apartment assets.
Favorable Demographic Tailwind: Demographic growth continues to be strong in the young-adult age cohort, which has a higher propensity to rent. This age cohort has also witnessed considerable part of net job growth, which is helping spur primary renter demand. Also, high interest rates have made owning a home costlier. Several millennials have high student debt, which makes it difficult for them to save for the down payment in order to purchase a house. Therefore, as housing affordability will likely become more challenging in the upcoming period, we believe demand for UDR’s properties will witness an uptrend.
Portfolio-Repositioning Efforts to Drive Operational Excellence: Leveraging on favorable rental housing trends, UDR is focused on enhancing its overall portfolio by acquiring, developing and redeveloping properties in core operating markets and divesting the company’s non-core assets. In fact, during first-quarter 2019, it acquired four operating assets for an aggregate amount of nearly $362 million. UDR’s development pipeline aggregated $747.9 million at pro-rata ownership interest. These portfolio repositioning activities are likely to drive long-term growth. In addition, it aims to enhance operating margins through innovative technological solutions and process enhancement. This will drive margin expansions and support the company’s operational platform.
Balance-Sheet Strength: UDR has sufficient balance-sheet strength to support its strategic priorities. In fact, disciplined capital allocation, strong balance-sheet position as well as cash flows enhancement will support operational efficiency and dividend growth. Notably, as of Mar 31, 2019 the company had around $1 billion of liquidity through a combination of cash and undrawn capacity on its credit facilities. Moreover, it announced a 6.2% increase in its annualized dividend rate for 2019. Given a strong balance sheet and low dividend payout ratio as compared to the industry, such dividend hikes are sustainable.
Other Stocks to Consider
Armada Hoffler Properties, Inc.’s AHH FFO per share estimates for 2019 marginally moved north to $1.16, over the past month. At present, it carries a Zacks Rank of 2.
Government Properties Income Trust’s OPI Zacks Consensus Estimate for 2019 FFO per share has been revised upward marginally to $5.27 over the past week. It carries a Zacks Rank of 2, currently.
Essex Property Trust, Inc.’s ESS FFO per share estimate for the ongoing year marginally moved up to $13.10 in 30 days’ time. The stock currently carries a Zacks Rank of 2.
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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