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Equity Residential Lowers Guidance Amid Market Weakness

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Continued weakness in New York and the recent downturn in the San Francisco portfolio compelled Equity Residential EQR to cut its guidance for 2016 same store revenue and net operating income (NOI).

In fact, the residential real estate investment trust (REIT), which blamed new rental apartment supply for hurting rent growth, now expects second-quarter 2016 same store revenue growth of around 4.0–4.2%. Though occupancies and renewal rates in these markets have been in line with the company’s projections, new lease rates are falling short.

As a result, the full-year same store revenue growth projections were lowered to 4.0–4.5% from the prior expectation of 4.5–5.0%. Also, with same store expense growth guidance of 2.5–3.0%, the full-year same store NOI growth projection has been revised down to 4.5–5.5% from 5.0–6.0%.

Following the announcement, shares of Equity Residential fell 4.1% in yesterday’s regular trading session. Also, stocks of a number of other REITs like Avalonbay Communities Inc. AVB, Essex Property Trust Inc. ESS and UDR Inc. (UDR - Free Report) fell 1.92%, 3.65% and 2.78%, respectively.

In fact, such a disclosure from the leading residential REIT is a concern considering that this is the peak leasing session. As a matter of fact, significant rent growth in the past made New York and San Francisco markets among the preferred ones for the developers and landlords. As a result, new construction activity surged in these markets in recent times.  

However, this elevated supply of new units curtailed landlords’ capability to demand more rents. And given the increase in deliveries amid the modest recovery in the economic environment and job market, things are not expected to turn around much.

Currently, Equity Residential has a Zacks Rank #3 (Hold). Avalonbay, Essex Property and UDR also share the same rank as Equity Residential.

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