We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Is it Wise to Hold Equity Residential (EQR) in Your Portfolio?
Read MoreHide Full Article
Equity Residential (EQR - Free Report) is well-positioned to benefit from its portfolio of high-quality apartment units in some of the key markets of the United States that have an affluent tenant base. Its diversification efforts in suburban locations and technological enhancements also augur well, while a decent financial position makes the dividend distribution sustainable. However, the elevated supply of rental units and high interest rates are concerning.
What’s Aiding EQR?
EQR is particularly targeting places where affluent renters prefer to live and work. The company’s well-off residents work in the highest-earning sectors of the economy and are not rent-burdened, which imparts the ability to raise rents more readily in good economic times and reduce risk during downturns.
The REIT is also diversifying into suburban locations considering the shift of affluent renters amid the hybrid working environment. Moreover, given the high cost of homeownership, especially relative to rents, the transition from renter to homeowner is difficult, thus making renting apartment units a viable option.
The residential REIT is experiencing sustained high demand across its market, which is pushing physical occupancy above expectations. Also, strong pricing power in its East Coast markets and continued recovery in its West Coast markets are tailwinds.
Equity Residential noted that in May (preliminary data as of May 24, 2024), physical occupancy reached 96.5%, up from 96.3% in the first quarter of 2024 and 95.8% in the fourth quarter of 2023. The blended rate for May was 2.9%, which improved from 1.6% in the first quarter and 0.7% in the fourth quarter. Particularly, the new lease change was 0.4% in May against a decline of 2.2% in the first quarter of 2024 and a fall of 4.6% in the fourth quarter of 2023.
EQR is also banking on technology and organizational capabilities to drive rent growth and improve the efficiency of its operating platform. Such efforts are likely to provide it with a competitive edge over its peers 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. The company ended the first quarter of 2024 with a net debt to normalized EBITDAre of 3.97X. Unencumbered NOI as a percentage of the total NOI was 89.6%.Further, an A-rated balance sheet renders the company access to the debt market at favorable rates. Hence, with manageable debt maturities, a large pool of high-quality unencumbered assets and solid credit metrics, EQR seems well-positioned to capitalize on growth opportunities.
Solid dividend payouts remain the biggest attraction for REIT investors and Equity Residential remains committed to this purpose. Per the June Investor Update, for the 2011-2024 period, the company’s dividend is expected to witness a compound annual growth rate of 6%. In the last five years, Equity Residentialhas increased its dividend four times and the annualized dividend growth rate for this period is 3.48%. Check Equity Residential’s dividend history here.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have risen 9.9% compared with the industry’s 7.6% growth.
Image Source: Zacks Investment Research
What’s Hurting EQR?
The markets in which EQR operates are expected to face higher deliveries in 2024. Specifically, the Sunbelt markets are anticipated to witness higher absolute deliveries than the coastal markets, although all regions are likely to face higher relative supply in 2024 compared with their long-term averages. An elevated supply relative to demand is expected to weigh on the rental rate and occupancy growth of this residential REIT.
Moreover, a high interest rate environment is a concern for EQR. The company may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. EQR has a substantial debt burden and its total debt was approximately $7.21 billion as of Mar 31, 2024.
The Zacks Consensus Estimate for Invitation Home’s current-year FFO per share has been raised marginally over the past two months to $1.88.
The Zacks Consensus Estimate for Essex Property Trust’s current-year FFO per share has been raised six cents over the past month to $15.41.
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.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
Is it Wise to Hold Equity Residential (EQR) in Your Portfolio?
Equity Residential (EQR - Free Report) is well-positioned to benefit from its portfolio of high-quality apartment units in some of the key markets of the United States that have an affluent tenant base. Its diversification efforts in suburban locations and technological enhancements also augur well, while a decent financial position makes the dividend distribution sustainable. However, the elevated supply of rental units and high interest rates are concerning.
What’s Aiding EQR?
EQR is particularly targeting places where affluent renters prefer to live and work. The company’s well-off residents work in the highest-earning sectors of the economy and are not rent-burdened, which imparts the ability to raise rents more readily in good economic times and reduce risk during downturns.
The REIT is also diversifying into suburban locations considering the shift of affluent renters amid the hybrid working environment. Moreover, given the high cost of homeownership, especially relative to rents, the transition from renter to homeowner is difficult, thus making renting apartment units a viable option.
The residential REIT is experiencing sustained high demand across its market, which is pushing physical occupancy above expectations. Also, strong pricing power in its East Coast markets and continued recovery in its West Coast markets are tailwinds.
Equity Residential noted that in May (preliminary data as of May 24, 2024), physical occupancy reached 96.5%, up from 96.3% in the first quarter of 2024 and 95.8% in the fourth quarter of 2023. The blended rate for May was 2.9%, which improved from 1.6% in the first quarter and 0.7% in the fourth quarter. Particularly, the new lease change was 0.4% in May against a decline of 2.2% in the first quarter of 2024 and a fall of 4.6% in the fourth quarter of 2023.
EQR is also banking on technology and organizational capabilities to drive rent growth and improve the efficiency of its operating platform. Such efforts are likely to provide it with a competitive edge over its peers 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. The company ended the first quarter of 2024 with a net debt to normalized EBITDAre of 3.97X. Unencumbered NOI as a percentage of the total NOI was 89.6%.Further, an A-rated balance sheet renders the company access to the debt market at favorable rates. Hence, with manageable debt maturities, a large pool of high-quality unencumbered assets and solid credit metrics, EQR seems well-positioned to capitalize on growth opportunities.
Solid dividend payouts remain the biggest attraction for REIT investors and Equity Residential remains committed to this purpose. Per the June Investor Update, for the 2011-2024 period, the company’s dividend is expected to witness a compound annual growth rate of 6%. In the last five years, Equity Residentialhas increased its dividend four times and the annualized dividend growth rate for this period is 3.48%. Check Equity Residential’s dividend history here.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have risen 9.9% compared with the industry’s 7.6% growth.
Image Source: Zacks Investment Research
What’s Hurting EQR?
The markets in which EQR operates are expected to face higher deliveries in 2024. Specifically, the Sunbelt markets are anticipated to witness higher absolute deliveries than the coastal markets, although all regions are likely to face higher relative supply in 2024 compared with their long-term averages. An elevated supply relative to demand is expected to weigh on the rental rate and occupancy growth of this residential REIT.
Moreover, a high interest rate environment is a concern for EQR. The company may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. EQR has a substantial debt burden and its total debt was approximately $7.21 billion as of Mar 31, 2024.
Stocks to Consider
Some better-ranked stocks from the residential REIT sector are Invitation Homes (INVH - Free Report) and Essex Property Trust, Inc. (ESS - 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 Invitation Home’s current-year FFO per share has been raised marginally over the past two months to $1.88.
The Zacks Consensus Estimate for Essex Property Trust’s current-year FFO per share has been raised six cents over the past month to $15.41.
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.