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What's in the Offing for UDR Inc (UDR) this Earnings Season?

UDR Inc. UDR is slated to report third-quarter 2017 results on Oct 30, after the market closes.

Last quarter, this Denver, CO-based residential real estate investment trust (REIT) delivered in-line result with respect to funds from operations (FFO) per share. Results reflect growth in revenues from same-store and stabilized, non-mature communities.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in one occasion and met estimates in the other three, the average beat being nearly 0.6%. The graph below depicts this surprise history:

For the third quarter, the company projects FFO per share in the range of 46-47 cents. The Zacks Consensus Estimate for the same is currently pegged at 47 cents.

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

Factors to Consider

UDR boasts a vast experience in the residential real estate market. The company has a superior portfolio in targeted U.S. markets and adheres to disciplined capital allocation. These are likely to drive results in the to-be-reported quarter.

Specifically, the company is anticipated to benefit from favorable demographic trends. There is steady demand for rental apartments from both new millennial households and empty nesters. Along with this, the healthy job market is estimated to drive demand for apartments.

In fact, according to a study by the real estate technology and analytics firm — RealPage, Inc. RP — the U.S. apartment market recorded stable rent growth, while occupancy remained encouraging in the third quarter. However, these growth levels have moderated from the earlier years. For new leases, effective rents inched up 0.9% during the quarter and 2.6% annually. Further, apartment occupancy came in at 95.5% for the third quarter across the nation’s top 100 metros.

However, we remain apprehensive about UDR’s performance as the company has been dealing with escalating deliveries in a number of its markets. This remains a concern as elevated levels of supply curtail a landlord’s ability to demand higher rents and result in lesser absorption. As such, concession levels are likely to remain at the higher end, while pricing power of UDR is expected to remain limited in the quarter.

Amid these, the Zacks Consensus Estimate for third-quarter revenues is pegged at $250.1 million, denoting estimated growth of 2.8% year over year.

Also, prior to the third-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the quarter under review remained unchanged at 47 cents over the past two months.

Earnings Whispers

Our proven model does not conclusively show that UDR will likely beat estimates this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: The Earnings ESP for UDR is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 47 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: UDR’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

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

CoreSite Realty Corporation COR, slated to release third-quarter results on Oct 26, has an Earnings ESP of +1.19% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extra Space Storage Inc. EXR, scheduled to release earnings on Nov 1, has an Earnings ESP of +1.31% and a Zacks Rank of 2.

Boston Properties, Inc. BXP, slated to release quarterly numbers on Nov 1, has an Earnings ESP of +0.39% and a Zacks Rank of 3.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. 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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RealPage, Inc. (RP): Free Stock Analysis Report
 
United Dominion Realty Trust, Inc. (UDR): Free Stock Analysis Report
 
Boston Properties, Inc. (BXP): Free Stock Analysis Report
 
CoreSite Realty Corporation (COR): Free Stock Analysis Report
 
Extra Space Storage Inc (EXR): Free Stock Analysis Report
 
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