Shares of UDR Inc. UDR have rallied 15.8% in the past year, outperforming the industry's growth of 11.5%.

Last October, UDR reported third-quarter 2024 funds from operations as adjusted (FFOA) per share of 62 cents, in line with the Zacks Consensus Estimate. On a year-over-year basis, FFOA per share declined 1.6%.

Results reflected an increase in revenues from same-store communities, prior-year acquisitions and completed developments. UDR raised its full-year 2024 guidance.

This residential real estate investment trust (REIT) carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2024 FFO per share is now pegged at $2.47.

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Factors Behind UDR Stock Price Surge: Will the Trend Last?

UDR has a geographically diversified portfolio with a superior product mix of A/B quality properties throughout the United States in coastal and Sunbelt locations, with a mix of 30% urban and 70% suburban communities. This portfolio diversification saves the company from concentration and volatility risks, providing steady rental cash flows.

In UDR’s market, the demographic trend is dominated by the young adult age cohort, who prefer renting over ownership, given the flexibility and locational advantage it offers. This age cohort has witnessed a considerable part of net job growth, which has helped spur primary renter demand. These factors are expected to drive the demand for apartment rental units in the upcoming period, poising the company well for growth.

UDR is leveraging technological initiatives and process enhancements to bring operational resiliency across its platform. Such efforts are likely to give UDR a competitive edge over others and enable it to capture additional net operating income (NOI), driving long-term profitability. As per the company’s November Investor Presentation, the company’s innovation initiatives have led to an average of $30 million incremental NOI since 2018, equating to $600M of value creation and a 200-basis point controllable margin advantage compared to peers.

The company focuses on maintaining an investment-grade balance sheet and ample liquidity to support operational efficiency and dividend growth. As of Sept. 30, 2024, UDR had $1.0 billion of liquidity. The company’s debt maturity schedule is well-laddered. Its total indebtedness as of Sept. 30, 2024, was $5.9 billion, with only $180 million maturing through 2025. At the end of the third quarter of 2024, the net debt-to-EBITDAre was 5.6X. Also, 87.3% of its NOI is unencumbered, providing scope for tapping the additional secured debt capital if required.

Solid dividend payouts are arguably the biggest enticements for REIT investors, and the company remains committed to that. The company has increased its dividend five times in the last five years, and the five-year annualized dividend growth rate is 4.91%, which is encouraging. Given UDR’s solid financial position, the dividend payouts seem sustainable and well covered by cash flow from operations. Such efforts boost investors’ confidence in the stock.

Key Risks for UDR

The elevated supply of rental units in some of UDR’s markets and competition from alternative housing options are likely to weigh on its pricing power.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Cousins Properties CUZ and Modiv Industrial, Inc. MDV, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has moved marginally northward over the past month to $2.68.

The Zacks Consensus Estimate for Modiv Industrial, Inc.’s current-year FFO per share has been raised marginally over the past week to $1.34.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs

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