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Will Healthy Economy & Job Market Drive UDR's Q4 Earnings?

Zacks Equity Research

UDR Inc. UDR is slated to report fourth-quarter 2018 and full-year results on Feb 12, after market close. 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 an in-line performance in terms of FFO per share. The results reflected a growth in revenues from operating and lease-up communities.

In the trailing four quarters, the company surpassed the Zacks Consensus Estimate in one occasion and matched the same in the remaining three quarters, with average positive surprise of 0.52%.

United Dominion Realty Trust, Inc. Price and EPS Surprise

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

For fourth-quarter 2018, UDR projects FFO as adjusted per share to be in the 49-50 cents range. For full-year 2018, the company guides FFO as adjusted per share in the band of $1.95-$1.96.

Let’s see how things are shaping up, prior to this announcement.

Factors to Consider

The U.S. apartment market witnessed an encouraging fourth quarter in 2018, with accelerated rent growth and elevated occupancy level amid robust demand for rental units. Per a study by the real estate technology and analytics firm — RealPage, Inc. — the annual pace of apartment rent growth in the United States picked up and reached 3.3% in the quarter, ahead of the 2.5% recorded in 2017.

Also, occupancy came in at 95.4%, up from 95% reported at year-end 2017. Reflecting the strongest demand realized since 2010, occupied apartment tally moved up by 323,290 units in 2018, and demand surpassed annual completions that aggregated 287,007 units.

Amid these, UDR is expected to benefit from its high-quality properties located in targeted U.S. markets. The company has a vast experience in the residential real estate market and has a superior product-mix as well. In the to-be-reported quarter, it is likely to benefit from favorable demographics, household formation, improving economy and job market gains which are expected to accelerate demand for rental housing in its markets.

UDR continues to focus on its strategic priorities such as disciplined capital allocation, strong balance-sheet position, as well as cash-flows enhancement to support operational efficiency and dividend growth. These are likely to support its results in the fourth quarter.

Occupancy is likely to be higher. The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $263.5 million, indicating 4.2% year-over-year growth.

However, the company’s activities during the quarter were not adequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate remained unchanged at 49 cents over the last 30 days. Nevertheless, the figure indicates a 2.08% increase year over year.

Nonetheless, apartment deliveries remained elevated in the fourth quarter in a number of the company’s markets. Therefore, we remain apprehensive about UDR’s performance as the company is likely to continue to deal with high deliveries in a number of its markets. 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.

Here is what our quantitative model predicts:

UDR does not have 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: UDR’s Earnings ESP is 0.00%.

Zacks Rank: UDR has a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be 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:

Hersha Hospitality Trust HT, scheduled to release earnings on Feb 25, has an Earnings ESP of +3.81% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CyrusOne Inc. CONE, slated to release fourth-quarter results on Feb 20, has an Earnings ESP of +3.07% and a Zacks Rank of 3.

Federal Realty Investment Trust FRT, set to report quarterly numbers on Feb 13, has an Earnings ESP of +1.53% and carries a Zacks Rank #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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