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Here's Why You Should Hold UDR Stock in Your Portfolio Now

Zacks Equity Research

UDR, Inc. UDR has been continuously enhancing the overall quality of its portfolio by acquiring, developing and redeveloping properties in core operating markets and divesting non-core assets. While the company’s extensive portfolio-repositioning activities will aid its prospects, increase in supply of residential units will likely result in lesser absorption.

Nonetheless, in the third quarter, the company posted in-line results with respect to adjusted funds from operations (FFO). Moreover, year-over-year improvement in revenues wasprimarily due to revenue growth from same-store communities, and stabilized, non-mature communities.

Notably, UDR has one of the most favorably positioned multi-family apartment portfolio in the United States. The company’s superior product mix and strategic sub-market locations helped achieve growth in combined new and renewal lease. With improving apartment market fundamentals, we anticipate further enhancement in UDR’s leasing business.

Moreover, a well-positioned portfolio should help the company meet the rise in demand for apartment properties from “echo boomers” — children of the baby-boomer generation.This particular population’s propensity to rent is high. We anticipate that growth in this age group through 2025 and positive job environment in the years ahead will drive demand for UDR’s properties.   

Further, the company remains focused to enhance cash flows and achieve a strong balance sheet. These efforts have supported UDR’s dividend growth and operational efficiency. In fact, in first-quarter 2017, the company hiked its dividend payoutby 5% and retained the same payout in the subsequent quarters. Such investor-friendly moves also boost shareholders’ confidence in the stock.

Shares of UDR have outperformed the industry it belongs to, so far this year. The company’s shares have gained 7.9%, while the industry has recorded growth of 5.1%.


 

However, UDR continues to deal with high supply in a number of its markets, including New York City, Los Angeles and Seattle. This remains a concern as elevated levels of supply limits a landlord’s ability to demand more rents, results in lesser absorption and leads to increased concession activity.

Further, the company has ambitiously accumulated a development pipeline aggregating $975.6 million, in a bid to revamp its portfolio. Although this favors long-term growth, it also increases the company’s operational risks by exposing it to escalating construction costs, entitlement delays and lease-up risks. Further, new constructions tend to have a drag effect on margins.

In addition, the Zacks Consensus Estimate for FFO per share for full-year 2017 has been revised downward by a cent to $1.86, in a month’s time. UDR currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the real estate investment trust (REIT) space include BRT Realty Trust BRT, Equity Lifestyle Properties ELS and Franklin Street Properties FSP.  All three carry a Zacks Rank of 2 (Buy). You can see

the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BRT Realty’s FFO per share estimates for the current year have remained unchanged at 76 cents in a month’s time. Over the past three months, the company’s shares have gained 6.1%.

Equity Realty’s 2017 FFO per share estimates remained unchanged at $3.58 over the past month. The stock has been up 4.4% for the past three months.

Franklin Street Properties’ FFO per share estimates for 2017 remained unchanged at $1.05 over the past month. Its share price has increased 7.6% in three months’ time.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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