Strong Balance Sheet And Liquidity Will Support Financial Stability Through 2026

Key Takeaways

• Strategic focus on innovation and occupancy rates is expected to drive incremental NOI growth and maintain high occupancy, enhancing revenue and earnings.
  
• Strong balance sheet and liquidity, alongside joint ventures, position UDR well to capitalize on growth opportunities and manage refinancing risk.
  
• Elevated costs and supply issues may suppress revenue and impact financial stability, while investments face risks requiring cautious management of expectations.

Catalysts

UDR, Inc. (NYSE: UDR), an S&P 500 company, is a leading multifamily real estate investment trust with a demonstrated performance history of delivering superior and dependable returns by successfully managing, buying, selling, developing and redeveloping attractive real estate properties in targeted U.S.

• UDR anticipates enhanced economic and apartment demand growth in 2025, supported by supply pressures abating in the latter half of the year, which should positively impact revenue growth.
  
• Ongoing investments in innovation, such as advancing customer experience projects and property-wide WiFi rollout, are expected to drive incremental NOI growth in 2025, enhancing earnings.
  
• The company is positioned to take advantage of external growth opportunities, despite elevated costs of capital, by utilizing joint ventures and operating partnership unit deals, potentially boosting revenue and earnings.
  
• UDR's strategic focus on increasing occupancy rates and reducing turnover below historical averages should maintain high occupancy above 97%, positively impacting net margins and revenue stability.
  
• UDR's strong balance sheet and liquidity, with over $1 billion in liquidity and limited debt maturing through 2026, position the company well to fund capital needs and manage refinancing risk, supporting earnings and financial stability.

UDR Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming UDR's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 11.6% in 3 years time.
• Analysts expect earnings to reach $214.7 million (and earnings per share of $0.69) by about April 2028, up from $84.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $311.1 million in earnings, and the most bearish expecting $156.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 96.4x on those 2028 earnings, down from 161.2x today. This future PE is greater than the current PE for the US Residential REITs industry at 40.3x.
• Analysts expect the number of shares outstanding to grow by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

UDR Future Earnings Per Share Growth

Risks

• Management noted their reliance on forward-looking statements and the inherent risks of meeting those expectations. This uncertainty could affect future revenues and earnings.
  
• Elevated cost of capital may hinder external growth opportunities, suggesting potential impacts on net margins and earnings.
  
• Supply deliveries remain above historical averages, which could suppress rent growth and revenue potential, especially in 2025.
  
• Increased supply in regions like the Sunbelt could pressure revenues and NOI due to potential pricing power limitations.
  
• Some investments, like those in 1300 Fairmount, have faced issues requiring them to be moved to nonaccrual status, suggesting risks to earnings and financial stability.

Valuation

• The analysts have a consensus price target of $46.227 for UDR based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $214.7 million, and it would be trading on a PE ratio of 96.4x, assuming you use a discount rate of 6.7%.
• Given the current share price of $41.24, the analyst price target of $46.23 is 10.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.