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Will UDR Come Up With a Positive Surprise in Q3 Earnings?

Zacks Equity Research
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UDR Inc. UDR is slated to report third-quarter 2018 results on Oct 29, 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 a better-than-expected performance in terms of FFO per share. The results reflected a rise in revenues from operating communities.

In the trailing four quarters, the company surpassed the Zacks Consensus Estimate on one occasion and matched the same in the remaining three quarters.

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Factors to Consider

Per a study by real estate technology and analytics firm — RealPage, Inc. RP, the third quarter of this year proved to be an encouraging one for the U.S. apartment market with accelerating rent growth and increasing occupancy level. In fact, rents grew at an annual pace of 2.9% in the quarter and reversed the pattern of slowing price hikes since late 2015. Also, occupancy came in at 95.8%, up from 95.4% reported in the previous quarter.

Given these, UDR is likely to benefit from its vast experience in the residential real estate market. The company’s portfolio, located in the targeted U.S. markets, has a superior product-mix. It also adheres to disciplined capital allocation. These are likely to drive results in the to-be-reported quarter. Specifically, favorable demographics, household formation, recovering economy and job market growth are expected to drive demand for UDR's properties in the quarter.

Occupancy is likely to be higher. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $258.6 million, indicating 3% year-over-year growth.

Further, the company’s activities during the quarter somewhat gained analysts’ confidence. Consequently, the Zacks Consensus Estimate moved up a cent to 49 cents over the last 30 days. The figure also indicates a 4.3% increase year over year. For the third quarter, management projects FFO as adjusted per share to be in the 48-50 cents range.

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 also increase concessional activities. Rate hike adds to its woes.

Here is what our quantitative model predicts:

A positive Earnings ESP and a Zacks Rank #3 (Hold) or higher increases 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 +0.68%.

Zacks Rank: UDR currently carries a Zacks Rank #2 (Buy).

UDR's positive Earnings ESP when combined with a favorable Zacks Rank makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may also want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Regency Centers Corporation REG, scheduled to release earnings on Oct 25, has an Earnings ESP of +0.21% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Welltower Inc. WELL, slated to release third-quarter results on Oct 30, has an Earnings ESP of +1.06% and a Zacks Rank of 3.

Public Storage PSA, scheduled to release earnings on Oct 30, has an Earnings ESP of +0.27% and 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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