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UDR to Report Q2 Earnings: What's in Store for the Stock?

Zacks Equity Research

UDR Inc. UDR is slated to report second-quarter 2019 results on Jul 30, 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 positive surprise of 2% in terms of FFO per share. The results reflected growth in rental revenues and same-store net operating income (NOI).

In the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and matched the same in another, delivering an average positive surprise of 1.53%.

United Dominion Realty Trust, Inc. Price and EPS Surprise

United Dominion Realty Trust, Inc. Price and EPS Surprise

United Dominion Realty Trust, Inc. price-eps-surprise | United Dominion Realty Trust, Inc. Quote

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

Factors to Consider

The latest figures from real estate technology and analytics firm RealPage, Inc. suggest that during the current year’s prime leasing period, the U.S. apartment rental market witnessed stellar demand for rental units. In fact, the apartment rental market’s fundamentals have been buoyed by a stable economy, a healthy job market, household formation and high home-ownership costs in several markets, hindering transition from renter to homeowner.

Leasing activity accelerated as demand was strong during the second quarter and per the RealPage report, from April through June, net move-ins aggregated 155,515 units, which came in 11% higher than the second-quarter 2018 product absorption as well as touched a five-year high.

With an impressive leasing activity, occupancy reached 95.8% during the June-end period, up from the prior-year quarter’s 95.4%. This upswing in occupancy level amidst a steady delivery of new units looks encouraging. With occupancy pushing up, rent growth also seems to be steady. In fact, the market has achieved a 3% increase in rents from the prior-year level, attaining an average of $1,390 per month.

Leveraging on this favorable rental housing trend, UDR has been focused on enhancing its overall portfolio by acquiring, developing and redeveloping properties in core operating markets and divesting the company’s non-core assets. In fact, during the April-June quarter, the company acquired three communities in Towson, MD, Philadelphia, PA and St. Petersburg, FL. Additionally, the company entered into agreements to sell two of the three communities under its Kuwait Finance House (“KFH”) joint venture to third parties.

Further, the company has been steadily implementing its Next Generation operating platform consisting of SmartHome installations and other infrastructure buildouts. These efforts will likely drive margin expansions and support the company’s operational platform during the June-end quarter.

Additionally, favorable demographic growth and solid job growth environment are anticipated to be key demand drivers for the company’s properties in the second quarter as well.

However, elevated level of new supply of apartment properties in a number of UDR’s markets is expected to depress its rental revenues. This is because high supply limits a landlord’s ability to demand more rents, results in lesser absorption and leads to increased concession activity. Hence, we anticipate the company to thwart its pricing power.

Also, prior to the second-quarter earnings release, there was lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for the April-June quarter FFO per share remained unchanged at 52 cents, over the past 30 days. Nonetheless, it calls for year-over year growth of 6.1%. The company projects FFO per share at 50 cents-52 cents.

Earnings Whisper

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 carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a beat.

Stocks That Warrant a Look

Boston Properties, Inc. BXP, scheduled to release earnings on Jul 30, has an Earnings ESP of +0.06% and carries a Zacks Rank #3, at present.

Corporate Office Properties Trust OFC, slated to report quarterly figures on Jul 29, has an Earnings ESP of +0.66% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Healthcare Realty Trust Incorporated HR, set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds 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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