UDR Inc. (UDR), a leading multifamily real estate investment trust (REIT), has recently closed its secondary offering of 20.7 million shares at $25.00 each. The equity offer included 2.7 million shares sold to the underwriters pursuant to the full exercise of the over-allotment options.
BofA Merrill Lynch – the investment banking and wealth management division of Bank of America Corporation (BAC); Wells Fargo Securities, LLC, part of Wells Fargo & Company (WFC); JPMorgan Chase & Co. (JPM); and Morgan Stanley (MS) acted as joint book-running managers for the public offering.
UDR expects net proceeds from the public offering to be approximately $496.3 million. The company intends to utilize the proceeds to fund its acquisitions and for general corporate purposes, including working capital management.
UDR is among the best-positioned 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-versus-own spread still 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 assets in 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. The company presently has a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.
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