Equity Residential EQR has made concerted efforts toward repositioning its portfolio from low barrier-to-entry/non-core markets to high barrier-to-entry/core markets. The company has a proven track record of opportunistic acquisitions, timely dispositions and focused development.
The company is putting up two Manhattan apartment buildings for sale, according to a recent report from Bloomberg. It also completed the sale of another building in New York, recently. The latest move comes as the company is aiming at lowering its exposure to this market where fundamentals are tempering. Also, earlier, the company had opted for substantial sale out of its portfolio.
On the other hand, Equity Residential is focusing on the acquisition and development of assets primarily in six core coastal metropolitan areas — Boston, New York, Washington D.C., Southern California, San Francisco and Seattle. Specifically, emphasis on the acquisition, development and management of rental apartment properties in urban and high-density suburban coastal gateway markets in close proximity to public transportation, dining, culture, education and nightlife offers solid scope for greater demand.
The home ownership cost in most markets of Equity Residential is high. Considering the current macroeconomic environment, such a trend is expected to continue, which, in turn, will spur demand for rented apartments.
Moreover, corporate profits are up, and corporate tax cuts are encouraging companies to deploy capital and increase wages. As such, consumer confidence is increasing, driven by job growth, rising wages, and promising solid prospects for Equity Residential. In addition, favorable demographics and creation of new households amid improving economy will likely further boost demand for the company’s properties.
Equity Residential currently has a Zacks Rank #3 (Sell). The company’s shares have appreciated 6.6% in three months’ time compared with its industry’s growth of 5.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Furthermore, the trend in estimate revisions of current-year funds from operations (FFO) per share indicates a favorable outlook for the company. In fact, the stock has seen the Zacks Consensus Estimate for 2018 FFO per share being revised marginally upward in a month’s time.
However, the U.S. residential REIT industry’s growth in rent is slowing and there is no near-term respite in sight. Although solid job growth in recent months indicates more household formations and raises expectations of a revival of the U.S. residential real estate market fundamentals, the struggle to lure renters will continue in the upcoming quarters, when much of new supply is likely to come on course.
This is likely to temper growth rate of other residential REITs, including AvalonBay Communities, Inc. AVB, Apartment Investment & Management Co. AIV, better known as Aimco, and UDR Inc. UDR
Equity Residential too has been experiencing substantial new supply across a number of its markets. This high supply is likely to continue straining new lease rates, occupancy, as well as retention and dampen revenue growth this year. Therefore, landlords’ ability to command more rents may remain stunted and concessions might be rampant in the near term.
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Apartment Investment and Management Company (AIV) : Free Stock Analysis Report
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