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Will Favorable Demographic Trends Support UDR Q2 Earnings?

Zacks Equity Research
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A Flurry Of Economic and Earnings Data

UDR Inc. UDR is slated to report second-quarter 2018 results on Jul 30, after the market closes. 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 in-line FFO per share. Results reflected growth in revenues from same-store communities, along with stabilized, non-mature and development communities.

Over the trailing four quarters, the company met the Zacks Consensus Estimate in all the occasions. The graph below depicts the same:

United Dominion Realty Trust, Inc. Price and EPS Surprise
 

United Dominion Realty Trust, Inc. Price and EPS Surprise | United Dominion Realty Trust, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

Per the latest report from the real estate technology and analytics firm, RealPage, Inc. RP, rent growth in the U.S. apartment market is slowing down with U.S. apartment rents increasing at an annual pace of just 2.3%, as of mid-2018. However, a mid-2018 occupancy level of 95.0% is still healthy and reflects solid demand despite high deliveries in the market.

Amid these, UDR is likely to benefit from its vast experience in the residential real estate market. The company has a superior portfolio in targeted U.S. markets and adheres to a disciplined capital allocation. These are likely to have driven results in the to-be-reported quarter. Specifically, the company is anticipated to benefit from favorable demographic trends, going forward. There is a steady demand for rental apartments from both new millennial households and empty nesters. Along with this, a healthy job market is estimated to spur demand for apartments.

As such, occupancy is likely to be elevated and the Zacks Consensus Estimate for second-quarter revenues is currently pegged at $253.9 million, indicating 2.4% year-over-year projected growth. Also, the estimate for same-store net operating income (NOI) growth is currently pegged at 2.89% for the quarter.

However, the company has been dealing with escalating deliveries in a number of its markets. This remains a concern as elevated levels of supply curtail landlords’ ability to demand higher rents and result in lesser absorption. Consequently, concession levels are likely to remain at the higher end, while pricing power of UDR is expected to have been limited in the quarter.

Further, prior to the second-quarter earnings release, there is a lack of any solid catalyst for raising optimism about the company’s business activities and prospects. The Zacks Consensus Estimate for FFO per share for the soon-to-be-reported quarter remained unchanged at 48 cents over the past month. Nevertheless, this indicates a 2.1% increase year over year. For the second quarter, management projects FFO per share in the range of 47-49 cents.

Here is what our quantitative model predicts:

UDR has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for UDR is +1.61%.

Zacks Rank: UDR carries a Zacks Rank #3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

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, slated to release second-quarter results on Jul 27, has an Earnings ESP of +0.82% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vornado Realty Trust VNO, scheduled to report quarterly figures on Jul 30, has an Earnings ESP of +3.30% and a Zacks Rank #3.

HCP, Inc. HCP, set to release Q2 results on Aug 2, has an Earnings ESP of +0.66% and a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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