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Is it Wise to Retain Equity Residential (EQR) Stock for Now?

Given the improving demand for apartment living post the pandemic, Equity Residential EQR is well-positioned for growth.

The company, which is one of the leading, fully integrated, publicly-traded multi-family real estate investment trusts (REITs) in the United States, has a dominating presence in Boston, New York, Washington, DC, Seattle, San Francisco and Southern California. The residential REIT has also been making concerted efforts to expand its footprint in Denver, Atlanta and Austin.

The recent migration trends of affluent renters, who are opting for suburban locations, have made EQR diversify its portfolio and increase its reach to the suburban markets. Its efforts to capture the renter demand in these markets are likely to pay off well.

Equity Residential’s portfolio-rebalancing efforts and robust development pipeline seem encouraging for long-term growth.

In September 2022, Equity Residential and Toll Brothers, through the Toll Brothers Apartment Living rental division, unveiled plans to develop three luxury rental communities, comprising 1,053 units in the Dallas/Ft. Worth metropolitan area.

In third-quarter 2022, it began construction on Lyle, a 334-unit apartment property in Dallas, TX, and entered a joint venture on Remy, a 357-unit apartment property in Frisco, TX, the construction of which commenced in first-quarter 2022.

Equity Residential is also banking on technology and organizational capabilities to drive innovation, rent growth and improve the efficiency of its operating platform. This is likely to provide the company with a competitive edge over others.

On the balance-sheet front, the company had $2.3 billion in available liquidity as of Sep 30, 2022. Its limited near-term debt maturities and solid credit metrics poise it well to capitalize on growth opportunities.

EQR has been consistent in paying dividends to its shareholders, which remains a huge attraction for REIT investors. In March 2022, the residential REIT increased its quarterly cash dividend on its common stock to 62.50 cents per share from 60.30 cents paid out earlier, marking a hike of 3.7% on its annualized dividend. Considering its robust balance sheet position and a recovery in business, the company is likely to maintain its dividend payout in the forthcoming quarters.

Nonetheless, the continuation of the flexible working environment has resulted in lower renter demand for costlier and urban/infill markets, raising concerns for Equity Residential’s properties that are concentrated in the urban markets. Also, management anticipates rent growth to moderate in the upcoming period.

Shortage of raw materials and skilled labor amid a high inflationary environment could adversely impact the company’s huge development pipeline.

Further, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.

Shares of Equity Residential, currently carrying a Zacks Rank #3 (hold), have lost 5.4% compared with its industry’s decline of 1% in the quarter-to-date period.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Stocks to Consider

Some better-ranked companies from the REIT sector are VICI Properties VICI, Lamar Advertising LAMR and Equity Commonwealth EQC.

The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.91. VICI currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share is pegged at $7.34. LAMR has a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for Equity Commonwealth’s ongoing year’s FFO per share is pegged at 33 cents. EQC currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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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Equity Residential (EQR) : Free Stock Analysis Report

Lamar Advertising Company (LAMR) : Free Stock Analysis Report

Equity Commonwealth (EQC) : Free Stock Analysis Report

VICI Properties Inc. (VICI) : Free Stock Analysis Report

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