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Should You Hold on to Equity Residential (EQR) Stock for Now?

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The improving demand for apartment living, portfolio diversification efforts in the urban and suburban markets and a solid balance sheet poise Equity Residential (EQR - Free Report) well for growth.

The company has a diversified presence in the urban and suburban markets of Boston, New York, Washington, DC, Seattle, San Francisco and Southern California. It focuses on adding affluent renters to its roster.

The residential REIT has also been making concerted efforts to diversify its portfolio and expand its footprint in the suburban markets where these affluent renters prefer to live, work and play. EQR’s efforts to capture the renter demand in these markets are likely to pay off well in the upcoming period.

Equity Residential’s expansion efforts and robust development pipeline seem encouraging for long-term growth.

In September 2022, Equity Residential and Toll Brothers, through the Toll Brothers Apartment Living rental division, unveiled plans to develop three luxury rental communities comprising 1,053 units in the Dallas/Ft. Worth metropolitan area.

In third-quarter 2022, it began construction on Lyle, a 334-unit apartment property in Dallas, TX. It entered a joint venture on Remy, a 357-unit apartment property in Frisco, TX, the construction of which commenced in first-quarter 2022.

Equity Residential is also banking on technology and organizational capabilities to drive innovation, rent growth and improve the efficiency of its operating platform. This is likely to provide the company with a competitive edge over others.

On the balance sheet front, the company had $2.3 billion in available liquidity as of Sep 30, 2022. Its limited near-term debt maturities and solid credit metrics poise it well to capitalize on growth opportunities.

Nonetheless, the continuation of the flexible working environment has resulted in lower renter demand for costlier and urban/infill markets, raising concerns for Equity Residential’s properties that are concentrated in the urban markets.

Also, elevated supply in some of Equity Residentials’ markets like Denver, Dallas Fort Worth, Austin and Atlanta could subdue demand for its properties, affecting profitability.

Rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.

Analysts, too, seem bearish on the Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2023 funds from operations (FFO) per share does not indicate a favorable outlook, with the same having moved marginally downward over the past month.

Shares of Equity Residential have lost 17.2% compared with its industry’s decline of 12.7% in the past six months.

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Stocks to Consider

Some better-ranked stocks from the residential REIT sector are Broadstone Net Lease (BNL - Free Report) and Armada Hoffler Properties (AHH - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Broadstone Net Lease’s current-year FFO per share is pegged at $1.51.

The Zacks Consensus Estimate for Armada Hoffler Properties’ 2023 FFO per share stands at $1.20.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

See More Zacks Research for These Tickers

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