UDR to Post Q1 Earnings: What’s in Store for the Stock?

UDR Inc. UDR is slated to report first-quarter 2018 results on Apr 25, after the market closes. Revenues and funds from operations (FFO) per share are expected to grow year over year.

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

Over the trailing four quarters, the company met the Zacks Consensus Estimate in all the four occasions. The graph below depicts the same:

United Dominion Realty Trust, Inc. Price and EPS Surprise

United Dominion Realty Trust, Inc. Price and EPS Surprise | United Dominion Realty Trust, Inc. Quote

Factors to Consider

UDR boasts a vast experience in the residential real estate market. Additionally, it 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 a 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.

Per the latest report from the real estate technology and analytics firm — RealPage, Inc. — the national apartment market moderated in first-quarter 2018, with occupancy shrinking slightly and rent growth slowing down. Nevertheless, the first quarter marks a slow leasing period, thanks to the cold weather that inhibits shift of households and limits growth in demand.

Going by statistics, annual rent growth shrunk to 2.3% in Q1. This marked moderation from the 2.6-2.9% growth rate experienced throughout 2017. Occupancy level of 94.5% in March edged down from the prior-year tally of 95%, with metros having subdued construction activity faring well and recording the strongest occupancy. Nevertheless, the overall occupancy level is still healthy.

Amid these, we remain apprehensive about UDR’s performance in Q1. 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. Consequently, concession levels are likely to remain at the higher end while pricing power of UDR is expected to remain limited in the quarter.

Further, prior to the first-quarter earnings release, there is a lack of any solid catalyst for raising optimism about the company’s business activities and prospects. The Zacks Consensus Estimate for FFO per share for the soon-to-be-reported quarter remained unchanged at 47 cents over the past month. Nevertheless, this indicates a 4.4% increase year over year. For the first quarter, management projects FFO per share in the band of 46-48 cents.

The Zacks Consensus Estimate for first-quarter revenues is pegged at $253 million, indicating year-over-year improvement of 3.8%.

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.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: UDR has an Earnings ESP of -0.53%.

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.

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:

PS Business Parks, Inc. PSB, slated to release first-quarter results on Apr 24, has an Earnings ESP of +0.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Taubman Centers, Inc. TCO, scheduled to release earnings on Apr 26, has an Earnings ESP of +0.47% and a Zacks Rank of 3.

Simon Property Group, Inc. SPG, slated to release quarterly numbers on Apr 27, has an Earnings ESP of +0.32% and 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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