On Thursday, UBS raised its rating of UDR, Inc. (NYSE:UDR) stock from Neutral to Buy and increased the price target to $44.00 from the previous $38.00. The firm's confidence in UDR's rent growth trajectory has grown, particularly in markets where the company has a substantial presence.
The upgrade reflects UBS's belief in the strength of apartment demand drivers such as job growth and strong absorption, which was notably high in the first quarter of 2024.
UDR's significant operations in Coastal areas, which contribute to 75% of its Same-Store Net Operating Income (SSNOI), are expected to exhibit robust rent growth, while the Sunbelt regions, accounting for the remaining 25% of SSNOI, are anticipated to perform better than expected during the peak leasing season.
UDR's ability to push rental rates is supported by low turnover and high occupancy levels. This is evidenced by the improvement in UDR's blended lease spreads, which have moved from a negative 0.5% in the fourth quarter of 2023 to a positive 0.2% in January 2024 and 1.0% in February 2024, based on preliminary data.
The positive trend is also supported by the recent uptick in Trailing Twelve Month (TTM) RealPage new lease rent observed in March. UBS's analysis suggests that UDR's current premium to other Apartment Real Estate Investment Trusts (REITs) is modest at 1%, compared to a five-year average of 4%. This, according to UBS, warrants an increase in the Funds From Operations (FFO) multiple to 17 times from the current 15 times.
InvestingPro Insights
With UBS upgrading UDR's rating to Buy, a closer look at UDR's recent financial performance and market position can provide investors with additional insights. According to InvestingPro data, UDR's Market Cap is a robust $12.51 billion, showcasing the company's significant presence in the real estate market. The P/E Ratio stands at 28.37, with an adjusted figure of 88.68 for the last twelve months as of Q4 2023, indicating investor confidence in UDR's earnings potential. Meanwhile, the PEG Ratio of 0.07 suggests that the company's earnings growth is potentially undervalued relative to its peers.
InvestingPro Tips highlight UDR's dividend yield of 4.49% as of April 2024, which is attractive for income-focused investors, particularly with a solid dividend growth of 11.84% in the last twelve months. Additionally, with a Price/Book ratio of 3.47, UDR is valued above book value, which could reflect the market's belief in the company's assets and growth prospects. For those seeking comprehensive analysis and further tips, InvestingPro offers additional insights; there are more InvestingPro Tips available that could help refine your investment strategy. Don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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