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UDR Inc (UDR) Q1 FFO Meets Estimates: Will Stock Gain?

UDR Inc. UDR reported first-quarter 2016 adjusted funds from operations (“FFO”) of 43 cents per share, which came in line with the Zacks Consensus Estimate. However, the figure was up 8% from the prior year tally of 40 cents. The improvement was driven by growth in same-store revenue and net operating income (“NOI”). The company has also reaffirmed its full-year 2016 guidance.

We expect the earnings release to lead to stock movement.

Total revenue for this residential real estate investment trust (“REIT”) improved 6.9% year over year to $234.8 million. However, the figure missed the Zacks Consensus Estimate of $237 million.

Inside the Headlines

During the quarter, same-store revenues increased 6.4% year over year; while same-store expense climbed 2.7%. Consequently, same-store NOI rose 8.0% year over year; whereas same-store physical occupancy inched down 20 basis points (bps) year over year to 96.5%. Moreover, the annualized rate of turnover climbed 110 bps year over year to 42.2%.

Notably, during the quarter, UDR started the construction of 345 Harrison Street, a 585-home development in Boston’s South End, with an estimated cost of $367 million. On the other hand, the company sold two land parcels located in Santa Monica, CA for $24 million.

At the end of the reported quarter, UDR had an under-construction development pipeline for which its pro rata share amounted to $1 billion.

As of Mar 31, 2016, the company had $1.1 billion available, through a combination of cash and undrawn capacity on its credit facilities compared with $987 million as of Dec 31, 2015. Further, the company had total debt of $3.4 billion, down from $3.6 billion at the end of the prior quarter.

Moreover, together with the company’s inclusion in the S&P 500 Index, it issued 5 million common shares at $34.73, which helped in raking up $174 million in net proceeds.

Guidance 2016

UDR has reaffirmed its guidance for the full year. The company expects both FFO per share and FFO as adjusted per share in the range of $1.75–$1.81. Also, the company projects growth in revenues, rise in expense and higher NOI in the respective ranges of 5.5–6%, 3–3.5% and 6.5–7%. The Zacks Consensus Estimate for FFO per share is currently pegged at $1.78.

For second-quarter 2016, UDR expects FFO per share and FFO as adjusted per share in a range of 43–45 cents. The Zacks Consensus Estimate for the second quarter currently stands at 45 cents.

Our Viewpoint

Going forward, we expect UDR to benefit from improving U.S. apartment fundamentals, its efforts to enhance the overall portfolio quality, disciplined capital allocation and a strong balance sheet position. Yet, operational risks associated with construction activities, stiff competition from other housing alternatives and any rise in interest rate are concerns.

Currently UDR has a Zacks Rank #3 (Hold). We now look forward to the earnings releases of the other S&P 500 residential REITs – Avalonbay Communities Inc. AVB, Essex Property Trust Inc. ESS and Apartment Investment and Management Company AIV – which are scheduled to report this week itself.

Note: Funds from operations, 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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