UDR Inc. (UDR), a leading multifamily real estate investment trust (REIT), has recently announced that during first quarter 2012, it had completed the sale of 6 apartment communities totaling 1,576 units for net proceeds of $133 million. The company also anticipates selling 15 additional apartment communities aggregating 4,931 units in the remainder of the current fiscal year for $477 million in net proceeds.
The asset sale is part of the long-term strategy of the company to exit the Phoenix, Arizona; Jacksonville, Florida; and Fredericksburg, Virginia markets. The divesture of the non-core assets is also expected to fully fund the $500 million development and redevelopment expenditures that is likely to be incurred by UDR in 2012.
In order to further increase its liquidity, UDR sold all the remaining 8.6 million shares under its previous “At the Market” equity offering program during first quarter 2012 at $25.18 each. Consequently, the company has entered into a new “At the Market” equity offering program that would enable it to sell up to 20 million shares.
UDR is among the best-positioned multifamily apartment REITs in the U.S., with the majority of its portfolio located in California, Florida and on the Atlantic Coast. These are areas where housing costs have soared in the past few years, and despite the drop in home values, the rent vs. ownership spread remains high. The housing meltdown will continue to help apartment REITs like UDR and we expect this sector to remain comparatively stable in the coming quarters as well.
Furthermore, UDR has a geographic diversification that increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of the earnings. UDR has also continuously upgraded the overall quality of its portfolio by selling smaller market, older properties and replacing them with newer assets in better long-term markets. This provides an upside potential for the company.
We maintain our Neutral recommendation on UDR for the long term, which currently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a long-term Neutral recommendation and a Zacks #3 Rank for Apartment Investment & Management Co. (AIV), one of the competitors of UDR.
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UDR INC (UDR): Free Stock Analysis Report
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