Equity Residential (EQR Quick QuoteEQR - Free Report) is well-poised to gain from its high-quality, diversified portfolio in markets with an affluent tenant base. Healthy demand for rental units, strategic portfolio repositioning and technological enhancements are likely to aid the company. However, the elevated supply of residential rental units in some of its markets is a key concern. Also, high-interest expenses add to its woes.

Late in April, Equity Residential reported a first-quarter 2025 normalized funds from operations (FFO) per share of 95 cents, which surpassed the Zacks Consensus Estimate of 93 cents. On a year-over-year basis, the normalized FFO per share improved 2.2%. 

Results reflected a rise in same-store revenues and physical occupancy on a year-over-year basis. The company reaffirmed its guidance for 2025.

What’s Aiding Equity Residential?

Equity Residential is particularly targeting places where affluent renters prefer to live, work and play. In its strategy, the company is taking into consideration the hybrid working environment and the recent migration trends of affluent renters, opting for the acquisition and development of properties in suburban locations of its established markets and adding select new markets, such as its entry into Atlanta, GA, and Austin, TX. Moreover, given the high cost of homeownership, especially relative to rents, the transition from renter to homeowner is difficult in its markets, making renting apartment units a viable option. The company expects its total same-store revenues to grow year over year between 2.25% and 3.25% in 2025.

Equity Residential is making efforts toward repositioning its portfolio. It has been selling older properties and acquiring newer properties in submarkets with high numbers of affluent renters, favorable long-term demand drivers and manageable forward supply. Equity Residential has an encouraging development pipeline. Over the next few years, the developments underway are expected to deliver meaningful incremental NOI upon completion and stabilization and are expected to fuel FFO and net asset value growth.

Equity Residential is also banking on technology and organizational capabilities to drive growth and improve the efficiency of its operating platform. Such efforts are likely to provide the company with a competitive edge over others and drive growth in net operating income (NOI) in the upcoming period. 

Equity Residential has a healthy balance sheet with ample liquidity and financial flexibility. As of March 31, 2025, the company had nearly $2.2 billion of liquidity. It has a well-laddered debt maturity schedule. EQR ended the first quarter of 2025 with a net debt to normalized EBITDAre of 4.21x. Unencumbered NOI as a percentage of the total NOI was 90.5% in the quarter. Further, an A-rated balance sheet renders the company access to the debt market at favorable rates. 

Solid dividend payouts remain the biggest attraction for REIT investors and Equity Residential remains committed to this purpose. Over the last decade, the residential REIT has delivered strong dividend growth while maintaining a conservative payout ratio. In March 2025, Equity Residential announced a quarterly cash dividend of 69.25 cents per share on the common stock for the first quarter of 2025, an increment of 2.6% over the prior quarter's payment. Per its February 2025 Investor Day presentation, for the 2011-2024 period, the company’s dividend witnessed a compounded annual growth rate of 6%. Given the company’s solid operating platform and balance sheet strength compared with industry counterparts, this dividend growth rate is expected to be sustainable over the long run.

What’s Hurting Equity Residential?

The struggle to lure renters remains consistent as the supply volume of residential apartment units is expected to remain elevated in the near term in some of the markets where the company operates. The company’s expansion markets are likely to witness higher apartment deliveries, weighing on the company’s ability to increase rent. 

The company expects its same-store revenues to remain under pressure in the near term for its expansion markets, given high levels of supply affecting the rent growth momentum. In such markets, market occupancies are lower than the company’s established markets, and concessions are prevalent.

Despite the Federal Reserve announcing rate cuts late in 2024, the interest rate is still high and is a concern for Equity Residential. Elevated rates imply high borrowing costs for the company, which can hinder its ability to acquire or develop its real estate holdings. The company has a substantial debt burden, and its total debt as of March 31, 2025, was approximately $7.85 billion. Interest expenses for the first quarter of 2025 increased 7.3% year over year.

Shares of this residential REIT, carrying a Zacks Rank #3 (Hold), have lost 3.9% compared with the industry's 4.1% decline so far in the year. The recent estimate revision trend does not seem favorable, with the Zacks Consensus Estimate for its 2025 FFO per share remaining unchanged at $3.97 over the past month.

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are VICI Properties (VICI Quick QuoteVICI - Free Report) and W.P. Carey (WPC Quick QuoteWPC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for VICI’s 2025 FFO per share is pinned at $2.34, suggesting year-over-year growth of 3.5%.

The Zacks Consensus Estimate for WPC’s 2025 FFO per share stands at $4.88, indicating an increase of 3.8% from the year-ago reported figure.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.