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UDR to Swap Interests in JV with MetLife, Lifts '19 View

Zacks Equity Research

UDR, Inc. UDR announced that it has entered into an agreement with MetLife Investment Management per which the company will acquire roughly 50% interest in 10 operating communities, one community under development and four accretive development land sites, under its UDR/MetLife Investment Management joint venture (JV). These acquisitions are valued at an aggregate of $1.1 billion, or $557 million at UDR’s share.

Additionally, the company will sell nearly 50% of its ownership stake in five communities owned under the JV to MetLife. This transaction is valued at $645 million, or $323 million at UDR’s share.

After taking into account the fair market value of the in-place debt related to the acquired properties totaling $540 million, UDR’s net cash outflow in the swap transaction will likely be around $105 million. Subject to customary closing conditions and closing price adjustments, the transaction is anticipated to close in fourth-quarter 2019.

When the transaction is completed, the UDR/MetLife JV will consist of 13 communities with 2,837 homes situated in California, Boston, New York and Philadelphia.

Importantly, the transaction will be immediately accretive to earnings. Hence, the company has increased its 2019 funds from operations as adjusted (FFOA) per share outlook by a cent at the mid-point to $2.06-$2.09 band. Previously, the company had guided 2019 FFOA per share of $2.05-$2.08.

This reflects the estimated gains owing to the transaction, UDR’s recent unsecured debt issuance and prepayment activity, and includes projected prepayment costs

Through this deal, UDR has acquired high-quality assets located in targeted markets. Further, it increases the company’s footprint in markets with less near-term new supply and enhances portfolio diversification.

It is a strategic fit as the agreement 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.

In a separate press release, the company announced the public offering of 7.5 million shares of its common stock in an underwritten public offering. Net proceeds from the offering will be used for the acquisition of planned assets, including nearly $270 million of pending value-add acquisition in Boston, MA, working capital and general corporate purposes.

At present, UDR carries a Zacks Rank #3 (Hold). Over the past year, shares of the company have gained 21.7% as compared with the industry’s rally of 19%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Equity Lifestyle Properties, Inc. ELS 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 $4.20.

Essex Property Trust, Inc. ESS currently holds a Zacks Rank of 2. The Zacks Consensus Estimate for 2019 FFO per share has moved north to $13.26 over the past week.

Mid-America Apartment Communities, Inc. MAA also carries a Zacks Rank of 2, presently. The Zacks Consensus Estimate for 2019 FFO per share has moved up in the past month to $6.25.

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