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UDR to Report Q3 Earnings: What's in the Cards for the Stock?

UDR is expected to deliver solid Q3 results with the Sunbelt region witnessing growth and gateway markets bouncing back.

This story originally appeared on Zacks

UDR Inc. UDR is slated to report third-quarter 2021 earnings on Oct 26, after the market closes. The company’s quarterly results will likely reflect year-over-year growth in revenues and funds from operations (FFO) per share.

- Zacks

In the last reported quarter, the FFO per share of this Denver, CO-based residential real estate investment trust (REIT) came in line with the Zacks Consensus Estimate. Driven by the pace of economic recovery, the results displayed gains from stability in rent collections.

In the last four quarters, the company met the Zacks Consensus Estimate on three occasions and missed in the other, the average negative surprise being 0.52%.

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

Factors to Consider

For the U.S. apartment market, the third quarter appeared to be robust, with renter demand scaling record height. The number of occupied apartments in the nation climbed 255,094 units to 597,354 units, per a report from the real estate technology and analytics firm RealPage, aided by strong leasing in the luxury Class A projects. This marked the biggest quarterly upsurge observed in the RealPage, Inc. database. The surge in home prices and limited inventory levels in the for-sale sector, which are making it difficult for the conversion of renters to homebuyers, are other growth drivers.

The Sun Belt metros continue to see healthy demand that have already proved their resilience amid the pandemic. The non-gateway markets too registered solid demand with considerable absorption, after witnessing a turbulent environment last year that hurt fundamentals.

With a geographically-diverse portfolio and a superior product-mix of A/B quality properties in urban and sub-urban markets, UDR is likely to have gained from this improving trend. The company’s portfolio includes properties throughout the United States, including both coastal and the SunBelt locations. This strategy of maintaining a diversified portfolio across various geographies and price points limits volatility and concentration risks, and helps the company generate steady operating cash flows.

UDR enjoys a decent balance-sheet position, and is banking on technological moves and process enhancements to fuel growth. It is focused on enhancing cost control through its Next Generation Operating Platform. Such efforts to find efficiencies throughout its operating platform are likely to have boosted workforce productivity and residents’ experience during the September-end quarter. Adoption of technology is also anticipated to have bolstered the company’s margin during the period under review.

Prior to the third-quarter earnings release, the company’s activities were adequate to gain adequate analyst confidence. The Zacks Consensus Estimate for quarterly revenues is currently pegged at $319.7 million, indicating a 3.1% year-over-year rise. The consensus mark for average occupancy is pegged at 97%.

The Zacks Consensus Estimate for the quarterly FFO per share has been revised 2% upward to 51 cents in the past two months. This suggests a year-over year growth of 2%.

However, significant exposure to the challenged urban residential assets, where the flexible working environment is still denting demand, might have hurt UDR’s rental rates and occupancy levels.

Here is what our quantitative model predicts:

UDR does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat.

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 of #2 (Buy) and has an Earnings ESP of -0.22%.

Stocks That Warrant a Look

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

American Campus Communities ACC, scheduled to report quarterly numbers on Oct 25, currently has an Earnings ESP of +2.73% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Essex Property Trust, Inc. ESS, slated to release third-quarter earnings on Oct 26, has an Earnings ESP of +0.27% and carries a Zacks Rank of 2, at present.

Equity Residential EQR, scheduled to report quarterly numbers on Oct 26, currently has an Earnings ESP of +1.19% and carries a Zacks Rank of 3.

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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