UDR Tapping West Coast Momentum

udr noi

UDR (NYSE:UDR), like Essex Property Trust (NYSE:ESS), has been taking advantage of the supply-demand imbalance on the West Coast, from which comes 42 percent of its NOI. During Q2 2015, all regions in which UDR operates had strong metrics, but the West Coast boasted stronger same-property renewal and new lease growth. Same-property NOI for the West Coast increased 11 percent year over year, while the same figure for the portfolio increased 7 percent. By being in the right place at the right time, UDR is shaping up to be a 2015 winner for those who entered at a favorable point.

Here are some highlights for Q2 2015 compared with the same period in 2014:

  • AFFO-per-share: up 12 percent to $0.38.
  • Guidance midpoint for full-year AFFO-per-share: up $0.02 to $1.48
  • Same-property occupancy: up 10 basis points to 96.9 percent. Management expects it to stay within that range as they push for higher rental rates.
  • The demand increase drove new lease and renewal lease rates growth between 7 and 7.7 percent. The combined new and renewed lease rate growth is 7.4 percent vs. 4.5 percent in Q2 2014.

UDR keeps plowing along with regard to development. There is $1.1 billion (for a $12.3 billion total market cap) lined up for development, and the company expects the average stabilized yield on development projects to go 150-200 basis points above market cap rates.

As an update to their present transaction with Lone Star and Home Properties, which totals $908 million and encompasses 6 communities in Washington, DC, UDR is contingent on the Home OP unitholders’ agreement to convert Home OP units to UDR OP units. If all works out, the company will have an 18 percent NOI exposure in the region. Management is apparently comfortable with such a recovering market.

S&P has upgraded UDR to BBB+ as debt metrics keep improving. Debt-to-total-market-capitalization has been 29 percent, and ¾ of their debt is fixed. Dividend has been up 7 percent this year, and dividend yield has been slightly lower than the sector median, at 3.3 percent. Price-to-FFO is at 21× — way above its historic norm.

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Source: UDR, Fast Graphs

Written by Heli Brecailo

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