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UDR Closes $1.76B Transaction With MetLife, Reduces Size of JV

Zacks Equity Research

UDR, Inc. UDR recently closed a $1.76-billion transaction with MetLife Investment Management. The move, which lowers the size of the UDR/MetLife Investment Management Joint Venture (JV), is projected to be 1-2 cents accretive to the company’s 2020 funds from operations (FFO) as adjusted per share.

As part of the transaction, the company has acquired roughly 50% stake in 10 JV operating communities, comprising 3,321 apartment homes in total, one community under development and four accretive development land sites. These acquisitions were valued at an aggregate of $1.1 billion, or $557 million at UDR’s share.

Additionally, the company sold nearly 50% of its ownership stake in five communities owned under the JV to MetLife. These communities included 1,001 apartment homes in total and the transaction was valued at $645 million, or $323 million at UDR’s share.

After taking into account the agreed-upon fair market value (FMV) of the in-place debt related to the acquired properties aggregating $540 million, UDR’s net cash outflow in the swap transaction amounted to around $109 million. Following the transaction completion, the UDR/MetLife JV consists of 13 properties.

The acquisition is a strategic fit for UDR and has helped gain assets in markets aimed for expansion and enhanced portfolio diversification. Moreover, per the company’s press release, the move replaces lower-multiple management fee income with higher-multiple real estate income. In addition, full ownership offers potential for operational upside and capital improvement opportunities.

The transaction will be accretive to earnings. Particularly, the company estimated the move to be 0-1 cent accretive to 2020 net income per share and 1-2 cents accretive to 2020 FFO as adjusted per share. This is inclusive of agreed-upon FMV debt adjustments.

UDR is likely to benefit from its vast portfolio of residential properties, located in the targeted U.S. markets, that has a superior product mix. Also, favorable demographics, household formation, resilient economy and stable job-market conditions are anticipated to spur demand for rental-housing units. To capitalize on this trend, UDR is focusing on expansion in strategic markets through acquisitions and development efforts. However, elevated supply in a number of its markets is expected to curtail the company’s pricing power.

At present, UDR carries a Zacks Rank #3 (Hold). So far in the year, shares of the company have gained 18.1% as compared with the industry’s rally of 30.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



Stocks to Consider

American Homes 4 Rent AMH carries a Zacks Rank of 2 (Buy), currently. The Zacks Consensus Estimate for 2019 FFO per share has been revised marginally upward in the past month to $1.12.

Sun Communities, Inc. SUI currently holds a Zacks Rank of 2. The Zacks Consensus Estimate for 2019 FFO per share has moved marginally north to $4.89 over the past two months.

Cousins Properties Incorporated CUZ also carries a Zacks Rank of 2, at present. The Zacks Consensus Estimate for 2019 FFO per share moved up 2.1% to $2.96 over the past two months.

Note: 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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