Is This REIT Still a Buy ?
Adnan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
UDR (NYSE: UDR) operates as a self administered real estate investment trust with a market cap of $5.8 billion and invests in multifamily apartment communities located in high barrier-to-entry markets throughout the United States. The company has an increasing presence in the Northeastern regions of the US. For the purpose of reporting the company is divided into segments; Same Communities and Non-Mature Communities. Properties within the Same Communities need no substantial redevelopment activities and are considered to have stable occupancy. Non-Mature Communities have properties that are relatively new.
Competitors
AvalonBay Communities (NYSE: AVB) and Equity Residential are among the closest competitors of UDR. AVB owns and invests in multifamily apartments in similar high barrier to entry locations of the United States. AVB reported its fourth quarter performance on January 30, 2013. The FFO per share increased 6.7% to $1.27 from a year. The company expects projected FFO for the year 2013 to be within the range of $4.11 to $4.47, representing a 19.4% decrease from the full year 2012 FFO per share of $5.32. The company expects rental revenue to grow, operating expense to increase 3.5%, while a 4.75% surge in NOI is expected during the full year 2013.
Equity Residential was formed in 1993 and invests in quality apartment properties in top US growth markets. Equity Residential owns or has investments in 412 properties located in 13 states and the District of Columbia, consisting of 117,322 apartment units. The $16 billion company is scheduled to reports its fourth quarter performance on January 5, 2012. The consensus profit estimate is 75 cents, reflecting a rise from 65 cents per share from a year ago. Revenue is projected to eclipse the year-earlier total of $502.3 million by 9.9%, finishing at $551.8 million for the quarter. For the year, revenue is projected to come in at $2.17 billion.
UDR 4Q2012 earnings review
The company reported the performance for the fourth quarter of the prior year on February 5, 2013. Funds from Operation (FFO) of $0.35 remained $0.02 per share behind the consensus estimate. Rental income of $182 million was up 7% from a year ago. The bottom line of $0.22 per share surged 2.3% over the same time period. Year over year same store revenue and net operating revenue growth was 5.7% and 7.3%, respectively.
Rental expenses during the fourth quarter surged 3.2% to $64.1 million. Much of the surge was a result of a 6% hike in real estate taxes and insurance costs. Real estate taxes and insurance is the second most significant expense during the fourth quarter, after property operating and maintenance costs. Among Other Expenses, hurricane related charge of $8.5 million was worth noting.
UDR 2013 outlook
The company gave an outlook for the year 2013, which remained below expectations. The Street was expecting an FFO of $1.44 per share, while the management at UDR expects the core FFO at a midpoint of $1.36 per share. This might put downward pressure on the stock in the short term. However, the long term picture seems positive as the companies 3 year outlook was solid. 2013 same store revenue growth guidance of 4% to 5% remains in line with EQR’s preliminary guidance provided at the end of the third quarter of the prior year, but ahead of AVB’s guidance of 4.3%. Besides, UDR expects the same store NOI to be at 5.1% (midpoint) and expense growth at 3% at the midpoint.
Conclusion
UDR owns a well-diversified apartment portfolio, with assets located throughout the country. Over two thirds of NOI is generated from areas of California, Florida, DC Metro and Seattle, which are prime candidates of a rebound stronger than most markets. Despite the short term pressure on the stock price, I believe UDR presents investors with a long term investment opportunity.
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