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Is it Wise to Retain Equity Residential (EQR) Stock for Now?
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Equity Residential (EQR - Free Report) has a diversified presence in the urban and suburban markets of Boston, New York, Washington, DC, Seattle, San Francisco and Southern California and is well-poised to benefit from the healthy demand for its residential properties in these markets. For 2023, we estimate the total rental income to grow 3.5% year over year.
The company is banking on technology and organizational capabilities to drive innovation, rent growth and improve the efficiency of its operating platform. This is likely to provide EQR competitive edge over others.
To enhance its portfolio quality, Equity Residential has been making efforts toward repositioning its portfolio by disposing of older properties and acquiring newer properties in submarkets with high numbers of affluent renters and favorable long-term demand drivers.
In 2022, the company acquired a 172-unit apartment property in San Diego for $113 million. In the same period, it disposed of three consolidated rental properties, comprising 945 apartment units, for $746.1 million.
The residential REIT has also been making concerted efforts to diversify its portfolio and expand its footprint in the suburban markets, wherein 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 has an encouraging development pipeline. As of Dec 31, 2022, the company had eight projects (consolidated and unconsolidated) under development, comprising 2,519 apartment units, with total project costs of $505.9 million.
On the balance sheet front, the company exited 2022 with $2.4 billion of liquidity and net debt to normalized EBITDAre of 4.38X. Its limited near-term debt maturities and solid credit metrics poise it well to capitalize on growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Equity Residential remains committed to the same. In March 2023, the residential REIT increased its quarterly cash dividend on its common stock to 66.25 cents per share from 62.50 cents paid out earlier, marking a hike of 6% on its annualized dividend.
We expect the company’s dividend rate to be sustainable, given the company’s solid operating platform, our funds from operations (FFO) growth projections of 5.5% for 2023 and solid balance-sheet strength than industry counterparts.
Nonetheless, the lack of governmental rental assistance in 2023 and rent-control regulations in some of the major markets may weigh on EQR’s revenue growth to a certain extent. Also, an expected slowdown in job growth can hurt leasing volume in the upcoming period.
An elevated supply in some of Equity Residentials’ markets like Denver, Dallas, Fort Worth, Austin and Atlanta can 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.
Shares of this Zacks Rank #3 (Hold) company have lost 12.4% in the past six months compared with its industry’s fall of 8%.
The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 FFO per share is pegged at $8.95.
The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pinned at $2.17.
The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Is it Wise to Retain Equity Residential (EQR) Stock for Now?
Equity Residential (EQR - Free Report) has a diversified presence in the urban and suburban markets of Boston, New York, Washington, DC, Seattle, San Francisco and Southern California and is well-poised to benefit from the healthy demand for its residential properties in these markets. For 2023, we estimate the total rental income to grow 3.5% year over year.
The company is banking on technology and organizational capabilities to drive innovation, rent growth and improve the efficiency of its operating platform. This is likely to provide EQR competitive edge over others.
To enhance its portfolio quality, Equity Residential has been making efforts toward repositioning its portfolio by disposing of older properties and acquiring newer properties in submarkets with high numbers of affluent renters and favorable long-term demand drivers.
In 2022, the company acquired a 172-unit apartment property in San Diego for $113 million. In the same period, it disposed of three consolidated rental properties, comprising 945 apartment units, for $746.1 million.
The residential REIT has also been making concerted efforts to diversify its portfolio and expand its footprint in the suburban markets, wherein 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 has an encouraging development pipeline. As of Dec 31, 2022, the company had eight projects (consolidated and unconsolidated) under development, comprising 2,519 apartment units, with total project costs of $505.9 million.
On the balance sheet front, the company exited 2022 with $2.4 billion of liquidity and net debt to normalized EBITDAre of 4.38X. Its limited near-term debt maturities and solid credit metrics poise it well to capitalize on growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Equity Residential remains committed to the same. In March 2023, the residential REIT increased its quarterly cash dividend on its common stock to 66.25 cents per share from 62.50 cents paid out earlier, marking a hike of 6% on its annualized dividend.
We expect the company’s dividend rate to be sustainable, given the company’s solid operating platform, our funds from operations (FFO) growth projections of 5.5% for 2023 and solid balance-sheet strength than industry counterparts.
Nonetheless, the lack of governmental rental assistance in 2023 and rent-control regulations in some of the major markets may weigh on EQR’s revenue growth to a certain extent. Also, an expected slowdown in job growth can hurt leasing volume in the upcoming period.
An elevated supply in some of Equity Residentials’ markets like Denver, Dallas, Fort Worth, Austin and Atlanta can 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.
Shares of this Zacks Rank #3 (Hold) company have lost 12.4% in the past six months compared with its industry’s fall of 8%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities (ARE - Free Report) and Terreno Realty (TRNO - Free Report) , each currently carrying a Zacks Rank #2 (Buy), and Service Properties Trust (SVC - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 FFO per share is pegged at $8.95.
The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pinned at $2.17.
The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.