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Should You Retain Equity Residential in Your Portfolio Now?
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Equity Residential (EQR - Free Report) is likely to benefit from its high-quality, diversified portfolio targeting affluent renters. The strategic portfolio repositioning and technological enhancements are likely to aid the company. However, the elevated supply of residential rental units in some markets and high interest rates are concerns.
Last July, this residential real estate investment trust (REIT) reported its second-quarter 2024 normalized funds from operations (FFO) per share of 97 cents, which surpassed the Zacks Consensus Estimate of 96 cents.Results reflected decent same-store performances, backed by healthy demand. The company also raised its 2024 guidance.
Shares of EQR have risen 21.5% over the past six months compared with the industry's upside of 17.2%. Analysts also seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2024 FFO per share revised upward marginally over the past week to $3.89.
Image Source: Zacks Investment Research
What’s Aiding Equity Residential?
EQR is particularly targeting places where affluent renters who are not rent-burdened prefer to live, yielding stable revenues. Moreover, the rise in homeownership costs due to higher interest rates has resulted in renting apartment units as a more affordable option.These factors are expected to drive the demand for apartment rental units in the upcoming period, poising the company well for growth. The company expects same-store revenue growth to be within 2.9%-3.5% this year. We estimate the same to grow by 3.1%.
Equity Residential 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 EQR with a competitive edge over others and drive growth in net operating income (NOI) in the upcoming period. We estimate the same store NOI to increase by 3.3% for the year 2024.
Equity Residential has a healthy balance sheet with ample liquidity and financial flexibility. As of June 30, 2024, the company had nearly $2.3 billion of liquidity. It has a well-laddered debt maturity schedule with no significant debt maturities until 2025. The company ended the second quarter of 2024 with a net debt to normalized EBITDAre of 3.92X, and the unencumbered NOI percentage was 89.6%, rendering 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. 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%. Moreover, we estimate the FFO to grow by 2.5% for 2024. Given the company’s solid operating platform, FFO growth projections and balance sheet strength, this dividend is expected to be sustainable over the near term.
What’s Hurting Equity Residential?
With the ongoing construction standing at a high level, a sizeable number of apartment deliveries are anticipated in the upcoming period. This is likely to weigh on the company’s ability to increase the rent, restricting its growth momentum to a certain extent. Though strong demand and a favorable regulatory environment continue to support its long-term outlook in expansion markets, in the near term, management expects to witness pressure from high levels of new supply slated to be delivered in 2024.
A high interest rate environment is a concern for EQR. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt as of June 30, 2024 was approximately $7.16 billion. Moreover, with high interest rates still in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has been raised marginally over the past two months to $2.66.
The Zacks Consensus Estimate for Essex Property Trust’s current-year FFO per share has moved northward marginally over the past week to $15.53.
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.
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Should You Retain Equity Residential in Your Portfolio Now?
Equity Residential (EQR - Free Report) is likely to benefit from its high-quality, diversified portfolio targeting affluent renters. The strategic portfolio repositioning and technological enhancements are likely to aid the company. However, the elevated supply of residential rental units in some markets and high interest rates are concerns.
Last July, this residential real estate investment trust (REIT) reported its second-quarter 2024 normalized funds from operations (FFO) per share of 97 cents, which surpassed the Zacks Consensus Estimate of 96 cents.Results reflected decent same-store performances, backed by healthy demand. The company also raised its 2024 guidance.
Shares of EQR have risen 21.5% over the past six months compared with the industry's upside of 17.2%. Analysts also seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2024 FFO per share revised upward marginally over the past week to $3.89.
Image Source: Zacks Investment Research
What’s Aiding Equity Residential?
EQR is particularly targeting places where affluent renters who are not rent-burdened prefer to live, yielding stable revenues. Moreover, the rise in homeownership costs due to higher interest rates has resulted in renting apartment units as a more affordable option.These factors are expected to drive the demand for apartment rental units in the upcoming period, poising the company well for growth. The company expects same-store revenue growth to be within 2.9%-3.5% this year. We estimate the same to grow by 3.1%.
Equity Residential 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 EQR with a competitive edge over others and drive growth in net operating income (NOI) in the upcoming period. We estimate the same store NOI to increase by 3.3% for the year 2024.
Equity Residential has a healthy balance sheet with ample liquidity and financial flexibility. As of June 30, 2024, the company had nearly $2.3 billion of liquidity. It has a well-laddered debt maturity schedule with no significant debt maturities until 2025. The company ended the second quarter of 2024 with a net debt to normalized EBITDAre of 3.92X, and the unencumbered NOI percentage was 89.6%, rendering 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. 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%. Moreover, we estimate the FFO to grow by 2.5% for 2024. Given the company’s solid operating platform, FFO growth projections and balance sheet strength, this dividend is expected to be sustainable over the near term.
What’s Hurting Equity Residential?
With the ongoing construction standing at a high level, a sizeable number of apartment deliveries are anticipated in the upcoming period. This is likely to weigh on the company’s ability to increase the rent, restricting its growth momentum to a certain extent. Though strong demand and a favorable regulatory environment continue to support its long-term outlook in expansion markets, in the near term, management expects to witness pressure from high levels of new supply slated to be delivered in 2024.
A high interest rate environment is a concern for EQR. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt as of June 30, 2024 was approximately $7.16 billion. Moreover, with high interest rates still in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Cousins Properties (CUZ - 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 Cousins Properties’ current-year FFO per share has been raised marginally over the past two months to $2.66.
The Zacks Consensus Estimate for Essex Property Trust’s current-year FFO per share has moved northward marginally over the past week to $15.53.
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.