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UDR Increases Outlook on Operating Fundamentals Strength

·5 min read

UDR Inc. UDR has raised its guidance ranges in light of the continued strength in operating fundamentals and accretive external growth.

The company now expects to attain the high-end of its previously-issued funds from operations as adjusted (FFOA) per share guidance range of 47-49 cents. The Zacks Consensus Estimate for the same is currently pinned at 49 cents.

The residential REIT also provided a better outlook for same-store cash revenue growth, which it now expects to be (2.0)% to (1.0)%, reflecting an improvement of 440-540 basis points (bps) compared to the first-quarter 2021 same-store cash revenue growth of (6.4)%.

Further, the REIT sees full-year 2021 FFOA per share of $1.94-$2.00, indicating a 1.5-cent increase at the mid-point from the previous estimate of $1.91-$2.00. The Zacks Consensus Estimate for the same is currently pinned at $1.96.

The residential REIT also raised its previously-issued full-year guidance ranges for same-store revenue and net operating income (NOI) growth. Presently, UDR estimates year-on-year same-store revenue changes, with concessions reported on a cash basis of (1.25)% to 0.5% compared with the (2.0)% to 0.5% guided earlier. Further, the company now expects year-on-year same-store NOI changes, with concessions reported on a cash basis of (2.25)% to 0.0% compared with the (3.25)% to 0.0% provided before.

Notably, this represents UDR’s second guidance raise so far in 2021. The company’s operating results continued to improve through May. Solid demand for rental units is aiding physical occupancy and blended lease rate growth with increase in pricing power and reduction in concessions.

Particularly, the May 2021 leasing traffic is 40% higher year over year. Amid this high demand, 85% of UDR properties are offering no concessions, which is encouraging. The company is especially benefiting from self-guided touring via its Next Generation Operating Platform and in fact roughly 97% of tours so far in the year have been self-guided or touchless. The company also noted that there has been positive in-migration in urban areas that were hit the hardest by the health crisis.

Amid high demand and lower turnover, occupancy is getting a boost and weighted average May 2021 physical occupancy of 97.3% reflects a 50-basis point expansion from April, while with blended effective lease rate growth turned positive at +0.3% in May.

However, UDR is not the only residential REIT to raise its guidance ranges on improving market fundamentals. Recently, Essex Property Trust, Inc. ESS has raised the second-quarter and full-year 2021 core FFO per share guidance ranges in light of the improving market conditions and declining concession usage.

Essex Property now expects second-quarter core FFO per share of $2.92-$3.00, suggesting a 4-cent increase at the mid-point from the prior guided range of $2.84-$3.00. Further, the REIT sees full-year 2021 core FFO per share of $12.02-$12.46, indicating an 8-cent increase at the mid-point from the previous estimate of $11.86-$12.46.

Another residential REIT behemoth — AvalonBay Communities, Inc. AVB —witnessed improvements in the occupancy level as well as like-term effective rents in May. Moreover, the average asking rent climbed from fourth-quarter 2020, while the average concession per new move-in lease executed in May 2021 declined from the fourth-quarter level. (Read more: AvalonBay Sees Growth in May Occupancy, Asking Rent)

Obviously, the widespread vaccinations and reopening of local economies are raising hopes for residential REITs, including UDR, Essex Property, AvalonBay and Equity Residential EQR. Improvement in the job market and a significant household formation among young adults are helping in this buoyancy in rental demand.

Amid this recovery in the residential real estate market, UDR has significant upside potential in the peak leasing season, with a diverse portfolio of properties in urban and suburban markets. It also has a healthy balance sheet, and is banking on technological moves and process enhancements to drive growth.

Currently, UDR carries a Zacks Rank #3 (Hold). Shares of this residential REIT have gained 28.5% so far in the year compared with its industry’s rally of 25%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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United Dominion Realty Trust, Inc. (UDR) : Free Stock Analysis Report

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