UDR Q3 FFO Up Y/Y, Shares Rise, Outlook Mid-Point Raised - Analyst Blog

UDR Inc. (UDR) reported third-quarter 2014 funds from operations (FFO) as adjusted of 38 cents per share, which missed the Zacks Consensus Estimate by 2 cents. Nevertheless, it came above the year-ago quarter figure by 2 cents. The figure was within the company's guided range of 36–38 cents for the quarter under review.

The results at this residential real estate investment trust (REIT) were attributable to higher revenues, same-store net operating income (NOI) and notable portfolio restructuring activity. Also, the company raised the mid-point of its 2014 guidance range.

Following this announcement, shares of UDR gained 0.10% during the regular trading session on Oct 28.

Inside the Headlines

Total revenue during the quarter was $206.8 million, up 8.2% year over year and exceeded the Zacks Consensus Estimate of $204 million.

Same-store revenues increased 4.4% year over year, while same-store expenses climbed 2.9%. Consequently, same-store NOI rose 5.1% from the year-ago quarter. Same-store physical occupancy inched up 60 basis points year over year to 96.8%.

During the quarter, UDR acquired two communities – Lightbox (162 homes) and Waterscape at Juanita Village (196 homes) – in Seattle for $121 million. Further, the company in a 50/50 joint venture with MetLife, Inc. (MET) initiated a $125 million development project in Irvine, CA.

On the other hand, the company divested three communities in Orlando, FL and Norfolk, VA for total proceeds of $97 million. Also, UDR vended a small commercial asset in Glendale, CA for $11 million.

As of Sep 30, 2014, UDR's pipeline of recently completed and under-construction assets stood at $1.0 billion.

As of the same date, the company's liquidity amounted to $755 million through a combination of cash and undrawn capacity on its credit facilities, up from $650 million as of Jun 30, 2014. Further, the company had total debt of $3.6 billion, down from $3.7 billion in the prior quarter.

2014 Guidance

For fourth-quarter 2014, UDR's guidance for FFO as adjusted stood in the range of 38–40 cents per share. The Zacks Consensus Estimate of 39 cents is within this range.

For full-year 2014, the company increased the midpoint of its previously guided range. The range was revised to $1.51 – $1.53 per share from $1.49 – $1.53. The Zacks Consensus Estimate of $1.53 lies within this range.

Our Viewpoint

Although the FFO miss is not so encouraging, we believe the operating portfolio's performance will help UDR to deliver better results going forward. Also, the ongoing acquisitions, extensive construction activities position the company well in upscale markets and provide notable growth prospects. Furthermore, increase in the lower end of the 2014 guidance, for the second consecutive time, is notable for this Zacks Rank #1 (Strong Buy) stock.

Other better-ranked REIT stocks are Silver Bay Realty Trust Corp. (SBY) and Spirit Realty Capital, Inc. (SRC). Both stocks have the same rank as UDR.

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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