UDR, Inc. (UDR), a leading multifamily real estate investment trust (REIT), has recently acquired ‘Twenty400’ – a 217-unit luxury apartment community in Arlington, Virginia, through its joint venture with Kuwait Finance House, an Islamic Sharia-compliant bank. The purchase price of $84 million was funded through a new 5-year $49.5 million interest-only loan from Fannie Mae, a 70% equity contribution from Kuwait Finance House to the tune of $24.15 million, and a 30% equity contribution by UDR totaling $10.35 million.
Developed in 2010, ‘Twenty400’ is currently in the final stages of leasing. The five-story apartment community is presently 91% occupied with an average income per occupied home of $2,140. The property is strategically located in close proximity to ‘Delancey at Shirlington Village’ – a 241-unit apartment community owned by the company, and about 2 miles from the Pentagon.
The apartment community features several enticing amenities such as a central courtyard with open green space, resort-style swimming pool and sundeck, a fully equipped fitness center, resident lounge, and controlled access to an on-site 329-space parking garage. The residential units include studio, 1-, 2- and 3- bedroom apartment homes with an average space of 986 square feet.
The acquisition has enabled UDR to augment its portfolio in and around Washington, D.C.– one of the premium multifamily apartment markets in the country. The property also provides an opportunity to increase its revenue through fees and promotes earned through its joint venture partner.
UDR is among the best-positioned apartment REITs in the U.S., with the majority of its portfolio located in California, Florida and on the Atlantic Coast. These are areas where housing costs have soared in the past few years, and despite the drop in home values, the rental-versus-ownership spread still remains high. The housing meltdown will continue to help apartment REITs like UDR and we expect this sector to remain comparatively stable in the coming quarters as well.
Furthermore, UDR has a geographic diversification that increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of earnings.
UDR has also continuously upgraded the overall quality of its portfolio by selling assets in smaller market, older properties and replacing them with newer assets in better long-term markets. This provides an upside potential for the company.
We maintain our Neutral recommendation on UDR, which currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral rating and a Zacks #3 Rank for Equity Residential (EQR), one of the competitors of UDR.
