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Equity Residential (EQR), Toll Brothers Team Up for Development

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Equity Residential EQR recently announced a partnership with luxury homes builder Toll Brothers, Inc. TOL to develop new rental apartment communities in major U.S. markets.

The move comes as part of the residential REIT’s strategic diversification efforts and scale up of development initiatives efficiently amid a rising demand for rental apartment units.

Initially, this tie-up intends to focus on selective acquisition and development of sites for apartment rental communities in six metro markets where the two companies enjoy substantial or growing presence. These include Atlanta; Austin; Boston; Denver; Orange County/San Diego; and Seattle, and in Dallas-Fort Worth, a market that Equity Residential has re-entered, of late.

According to Mark J. Parrell, president and CEO of Equity Residential, “This venture will marry Equity Residential’s market knowledge and balance sheet strength with Toll Brothers’ existing deep development capability to produce high quality apartment properties in our expansion markets and predominantly suburban locations in our existing markets that appeal to our affluent renter demographic.”

The partnership will see Equity Residential investing 75% of the equity for each selected project and Toll Brothers investing 25% over the next three years. It is further anticipated that each project will also be financed with roughly 60% leverage. Upon stabilization, Equity Residential will enjoy the option to acquire each property.

While Toll Brothers will act as managing member of each project and receive development, construction management, and financing fees, as well as a promoted interest, Equity Residential will obtain fees for property management, leasing and marketing services, as well as construction supervision.

An initial minimum co-investment of around $750 million in combined equity, or $1.9-billion capacity, considering 60% leverage has been targeted by the companies. If additional opportunities are identified, these targets could be increased. Presently, the venture is expected to commence with three properties that are controlled by Toll Brothers, with a total anticipated project cost of nearly $242 million.

Portfolio diversification in urban and suburban markets has been the saving grace for Equity Residential amid the pandemic. This is because, though the company’s urban markets faced challenges, the suburban markets have been comparatively stable.

Currently, Equity Residential carries a Zacks Rank #2 (Buy). Shares of this residential REIT have gained 37.9% so far in the year compared with its industry’s rally of 34.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
Zacks Investment Research

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Other Stocks to Consider

The Zacks Consensus Estimate for Mid-America Apartment Communities’ MAA current-year funds from operations (FFO) per share has moved up 1.4% to $6.67 in the past month. The company currently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for American Homes 4 Rent’s AMH 2021 FFO per share has moved 3.1% north to $1.33 over the past week. The company carries a Zacks Rank of 2, currently.

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

Toll Brothers Inc. (TOL) : Free Stock Analysis Report

MidAmerica Apartment Communities, Inc. (MAA) : Free Stock Analysis Report

American Homes 4 Rent (AMH) : Free Stock Analysis Report

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