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Should You Ignore the Decline in Equity Residential (EQR) Stock?

Zacks Equity Research
·4-min read

The broader market, undoubtedly, has been widely affected by geopolitical uncertainties, inflation and the consequent rate hikes. Equity Residential EQR was not spared either.
 
The stock has lost 12.1% in the past month compared with the industry’s decline of 10.3%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

However, the recent sell-off marks a good entry point for investors. We believe the Zacks Rank #2 (Buy) stock has strong growth potential and seems a solid choice.

Analysts too seem bullish on the stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share indicates a favorable outlook, with estimates having been revised 1.2% upward over the past two months to $3.51. This also calls for 17.4% growth year over year compared with the industry’s average of 12.60%.

What Makes Equity Residential a Solid Pick?

Solid Property Base and Technology Implementation: Equity Residential has a dominating presence in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California. The residential REIT is also growing its presence in Denver, Atlanta, Dallas/Ft. Worth and Austin. It is focusing on urban and high-density suburban markets where affluent long-term renters want to live. This diversification is expected to provide the company with a steady rental cash flow over the long term.

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

Healthy Operating Performance: Per Equity Residential’s August operating update, it concluded a strong leasing season, driven by healthy demand and pricing for its apartment units. Consequently, same-store revenue growth is on track to either match or surpass the company’s projections mentioned in its second-quarter 2022 earnings release. Physical occupancy remained high through June and July 2022 at 96.7% and 96.5%, respectively. The preliminary physical occupancy rate for August was 96.6%. The percentage of residents renewing by month for June was 55%, whereas, in July and August, it remained steady at 52%.

Balance Sheet Strength: Equity Residential has a strong balance sheet, ample liquidity and financial flexibility. Moreover, unencumbered NOI as a percentage of total NOI was 88.4% as of Jun 30, 2022. The company ended the second quarter with lower net debt to normalized EBITDAre of 5.01X. An A-rated balance sheet further renders the company access to the debt market.

With $2.3 billion in available liquidity, limited near-term debt maturities, solid credit metrics and sufficient access to capital markets at favorable rates, the company is well poised to meet its future obligations as well as ride on its growth curve.

Dividend: Solid dividend payouts remain the biggest attraction for REIT investors and Equity Residential remains committed to this purpose. The company increased its dividend four times in the past 5 years, and its payout has grown 4.29% over the same time period. Currently, EQR pays a dividend of 62.50 cents per share. Given more balance sheet strength compared to its peers and recovery in business, EQR’s dividend is expected to be sustainable in the days to come. Check Equity Residential’s dividend history here.

Other Stocks to Consider

Some top-ranked stocks from the residential REIT sector are Essex Property Trust ESS, Independence Realty Trust IRT and BRT Apartments Corp. BRT, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Essex Property Trust’s 2022 FFO per share has moved 2% northward in the past two months to $14.48.

The Zacks Consensus Estimate for Independence Realty Trust’s current-year FFO per share has moved 1.9% northward in the past two months to $1.08.

The Zacks Consensus Estimate for BRT Apartments’ ongoing-year FFO per share has been raised 5.8% over the past two months to $1.63.

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.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Equity Residential (EQR) : Free Stock Analysis Report
 
Essex Property Trust, Inc. (ESS) : Free Stock Analysis Report
 
BRT Apartments Corp. (BRT) : Free Stock Analysis Report
 
Independence Realty Trust, Inc. (IRT) : Free Stock Analysis Report
 
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Zacks Investment Research