On Mar 28, 2014, we issued an updated research report on residential real estate investment trust (:REIT), Equity Residential (EQR).
On Feb 4, Equity Residential reported its fourth-quarter 2013 financial results. The company’s normalized funds from operations (:FFO) per share in the fourth quarter reached 77 cents, a penny ahead of the Zacks Consensus Estimate and 2 cents above the prior-year quarter figure.
Quarterly results at this REIT were primarily driven by higher same store net operating income (:NOI) and benefit from the Archstone properties. However, the positives were partly offset by the negative impact from disposition activity and common share issuance for the Archstone deal. Notably, the company along with AvalonBay Communities Inc. (AVB) closed the Archstone buyout last February.
We believe Equity Residential’s concerted efforts toward repositioning its portfolio from low barrier-to-entry/non-core markets to high barrier-to-entry/core markets will drive top-line growth going forward. Also, the echo boomers population continues to raise the demand for apartments.
However, the company has a decent exposure to the Washington D.C. market, where conditions remain choppy with rise in new supply and the impact of sequestration and furloughs, thus posing a challenge for rent growth in the near term. Apart from this, the rise in interest rates remains a concern for the stock.
Over the last 30 days, the Zacks Consensus Estimate for FFO per share remained flat at $3.10 for 2014 and $3.30 for 2015. Consequently, the stock has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Investors interested in the residential REIT industry may consider stocks like Associated Estates Realty Corporation (AEC) and UDR, Inc. (UDR). Both these stocks have a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.