UDR Inc. (UDR) reported second-quarter 2014 funds from operations (:FFO) as adjusted of 39 cents per share, which exceeded the Zacks Consensus Estimate by a whisker and the year-ago quarter figure by 4 cents. The figure also surpassed the company’s guided range of 36–38 cents for the quarter under review.

The favorable results at this apartment real estate investment trust (:REIT) were attributable to higher revenues, same-store net operating income (:NOI) and notable portfolio restructuring activity.

However, shares of UDR fell 0.07% during the regular trading session on July 29, on broader market concerns.

Inside the Headlines

Total revenue during the quarter was $203.7 million, up 7.5% year over year and exceeded the Zacks Consensus Estimate of $199 million.

Same-store revenues increased 4.4% year over year, while same-store expenses climbed 1.7%. Consequently, same-store NOI rose 5.5% from the year-ago quarter. Same-store physical occupancy inched up 60 basis points year over year to 96.8%.

During the quarter, UDR raised its ownership stake in the remaining six operating communities that contributed to the UDR / MetLife II Joint Venture. Based on a 4.8% cap rate on estimated 2014 NOI, these condo-quality communities had a total market value of around $505 million.

Furthermore, during the reported quarter, UDR divested 2 Tampa, FL–based communities, for $81 million. Also, subsequent to the second-quarter end, the company vended a Orlando, FL-based community for $50 million.

Moreover, UDR successfully completed the redevelopment of 748 homes at 27 Seventy Five Mesa Verde in Orange County, CA and incurred $78 million for the same. As of Jun 30, 2014, the company had recently completed and under-construction development pipeline of $1.1 billion.

As of Jun 30, 2014, UDR’s liquidity amounted to $650 million through a combination of cash and undrawn capacity on its credit facilities, up from $628 million as of Mar 31, 2014. Further, the company had total debt of $3.7 billion, compared with $3.6 billion in the last quarter.

2014 Outlook

For third-quarter 2014, UDR’s guidance for FFO as adjusted stood in the range of 36–38 cents per share. The Zacks Consensus Estimate of 38 cents is within this range.

For full-year 2014, the company increased the lower end of its previously guided range. The guidance range was revised to $1.49 – $1.53 per share from $1.47–$1.53. The Zacks Consensus Estimate of $1.51 lies within this range.

Our Take

UDR is riding on the winning track with encouraging results in the second quarter. Particularly, the operating portfolio’s performance helped UDR gain momentum. Also, the ongoing extensive development and redevelopment activities position the company well in upscale markets and provide notable growth prospects. Furthermore, lower end increase of the 2014 guidance is notable for this Zacks Rank #2 (Buy) stock.

Other better-ranked REIT stocks are Equity LifeStyle Properties, Inc. (ELS), Avalonbay Communities Inc. (AVB) and American Campus Communities, Inc. (ACC). All have the same rank as UDR.

Note: Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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