UDR to Report Q4 Earnings: What's in Store for the Stock?

UDR Inc. UDR is slated to report fourth-quarter and full-year 2020 results on Feb 9, after market close. While the company’s results will likely reflect growth in revenues, funds from operations (FFO) per share might display a decline, year over year.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) reported an in-line performance in terms of FFO per share. Though the company witnessed growth in revenues from acquisition communities and acquired and stabilized, non-mature properties, adverse impact of the pandemic and related economic challenges, and governments’ actions and regulations on its business played spoilsport to some extent.

In the trailing four quarters, the company met the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being 1.41%.

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Let’s see how things have shaped up for this announcement.

Factors to Consider

The U.S. apartment market witnessed solid leasing activity in the fourth quarter of 2020, per a report from the real estate technology and analytics firm RealPage RP. Typically, demand remains low during the October-December quarter, but the pandemic pushed this demand to the latter half of the year from the usually strong second quarter. Particularly, in the last three months of 2020, absorptions amounted to about 79,000 units.

However, this demand rebound has not been even, rather, it has been varied across markets. Demand in the Sun Belt markets and the sub-urban ones remained strong, while considerable move-outs and sluggish demand were noticed in gateway markets.

Though occupancy level held up well in December, rent changes varied across metros, with select big cities witnessing significant price reductions, while in a number of individual metros rents continue to rise or have been steady, per a report from RealPage. Particularly, in the country’s 150 largest metros, December occupancy came in at 95.5%, which is just a tad below the year-earlier figure of 95.6%. Effective asking rents, on a nation-wide basis, as of December were off 1% from the 2019-end tally, with the December price point coming at $1,410 per month.

For UDR what has been its saving grace is its geographically-diverse portfolio with a superior product-mix of A/B quality properties in urban and sub-urban markets. The company’s portfolio includes properties throughout the United States, including both coastal and Sun Belt locations. This strategy of maintaining a diversified portfolio is likely to have provided support in generating operating cash flows during the quarter under review.

In addition, the company is focused on curbing expenses through technological initiatives and process enhancements. Such efforts to find efficiencies throughout its operating platform are likely to have boosted workforce productivity and residents’ experience. Adoption of technology is also anticipated to have bolstered the company’s margin.

Particularly, UDR’s Next Generation Operating Platform allows it to electronically interact with, and provide service to residents and prospects throughout the company’s diversified portfolio. This is likely to have provided UDR a competitive edge over others during the quarter under consideration and drive value.

Moreover, in its November investor presentation, the company pointed out that October and November cash collection rates remained consistent with the prior months at similar times of the collection cycle and only around 500 residents (
However, the company has significant exposure to urban residential assets and this portfolio has been feeling the brunt. There have been regulatory restrictions, flexible work schedules, and varying paces of state/city re-openings, which might have affected the company’s performances.

Particularly, in the November presentation, the company noted that though monthly billed revenues and physical occupancy have stabilized across 80% of its portfolio net operating income (NOI), 20% of the NOI remains challenged, particularly in San Francisco, Manhattan and Downtown Boston.

In addition, record-low mortgage rates are spurring demand for existing and new-home purchases, mainly for young age cohorts, where homeownership rates have started to shoot up. Furthermore, use of concessions has been rampant in urban portfolios, which is likely to have dented the company’s performance during the quarter under review.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $306.3 million, indicating 1.2% year-over-year growth. The estimate for average occupancy is pegged at 96%.

For the fourth quarter, the company anticipates that, with concessions reported on a cash basis, same-store revenues will decline 5-6%, while same-store NOI is expected to be down 8.5-10% year over year. Further, the company projects FFO as adjusted per share of 48-50 cents.

Prior to the fourth-quarter earnings release, there is lack of any solid catalyst to become optimistic about the company’s prospects as the Zacks Consensus Estimate for the FFO per share remained unchanged at 49 cents over the past month. Also, it suggests a year-over year decline of 9.3%.

For the full year, the Zacks Consensus Estimate for FFO per share has been kept unchanged at $2.05 over the past week. The figure also indicates a 1.4% decrease year over year on revenues of $1.24 billion.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for UDR this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

UDR currently carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.68%.

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:

Rexford Industrial Realty, Inc. REXR, slated to release fourth-quarter earnings on Feb 10, has an Earnings ESP of +2.13% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Healthpeak Properties (NYSE:PEAK), Inc. PEAK, scheduled to report earnings figures on Feb 9, has an Earnings ESP of +4.40% and holds a Zacks Rank of 3 at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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