Shares of UDR Inc. UDR touched a new 52-week high of $38.07 on Dec 30, before closing the trading session marginally lower at $37.76. This reflects a solid year-to-date return of over 26% for this residential real estate investment trust (REIT). The trading volume in the session was over 0.8 million shares.
Despite hitting a 52-week high, we believe that this Zacks Rank #2 (Buy) stock has the potential to move even higher, given its solid property base, improving U.S. apartment fundamentals, its efforts on enhancing the overall portfolio quality, disciplined capital allocation and strong balance sheet position.
Growth Drivers
UDR has a well diversified portfolio with both A and B property quality that is well balanced between urban and suburban locations. Moreover, its total portfolio revenue per occupied home stands at $1,933, well ahead of the U.S. average of $1,210.
Furthermore, UDR has a robust $1 billion development pipeline, which is currently 70% funded. We believe that the company’s extensive portfolio repositioning activities will boost its prospects, going forward.
Importantly, demographic growth continues to be strong in the young-adult age cohort, which has a higher propensity to rent. In fact, a significant change in lifestyle has taken place and life-cycle events are getting increasingly delayed. This is leading to an extension of the average age of first-time homeownership. This age cohort has also experienced considerable part of net job growth and is thus a significant source of pent-up demand.
Moreover, in Oct 2015, UDR reported third-quarter 2015 funds from operations (“FFO”) of 42 cents per share, surpassing the Zacks Consensus Estimate by a penny. Further, revenues grew 7.1% year over year to $221.4 million.
In addition, UDR’s focus on disciplined capital allocation, strong balance sheet position and cash flow enhancement support its operational efficiency. We expect the company’s robust operating platform and efficient management team to help it execute strategic priorities, keeping its growth momentum alive.
Other REIT Stocks Scaling 52-Week Highs
Some other stocks in the REIT industry that have scaled new 52-week highs include Digital Realty Trust Inc. DLR, Extra Space Storage Inc. EXR and Sovran Self Storage Inc. SSS.
Note: FFO, 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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