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Is it Wise to Hold Equity Residential (EQR) Stock Right Now?

Zacks Equity Research
·4 min read

Equity Residential EQR is witnessing a recovery in residential demand in the current quarter after leasing activity declined in late March. The company also witnessed improvement in physical occupancy, while residential cash collections were strong in May.

The company emphasizes on the acquisition, development and management of rental apartment properties in urban and high-density suburban coastal gateway markets, where tenants have ample scope to live, work and play.

Moreover, Equity Residential is banking on technology and organizational capabilities to drive innovation, rent growth, and improve the efficiency of its operating platform. These include installation of smart-home technology and sales-focused improvements like complete deployment of an AI-enabled sales tool. Also, such technological enhancements have become all the more essential in this social-distancing era, as the virus outbreak required a quick shift to virtual operations for the continuity of business operations.

Additionally, the company has a strong balance sheet and ample liquidity. This will help it sail through these uncertain times and enjoy greater liquidity. Equity Residential exited first-quarter 2020 with cash and cash equivalents of $82.3 million and strong net debt to normalized EBITDA of 4.9 times. Moreover, it boosted its liquidity and financial flexibility by closing a $495-million secured loan. As of May 4, 2020, Equity Residential had $2.2 billion available under its unsecured revolving credit facility. Also, 84% of the company’s total net operating income (NOI) is unencumbered. Hence, it has sufficient funds to address its modest anticipated development spend and minimal near-term debt maturities.

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However, the coronavirus pandemic is expected to hurt the rent-paying capability of residential tenants. As such, Equity Residential’s top line is likely to be affected in the near term, with adverse impact on rental rates and occupancy. The company witnessed reduced foot traffic and applications due to restrictions and shelter-in-place orders in its markets, resulting in significant declines in leasing activity in late March.

Furthermore, it has been witnessing high new supply across a number of its markets, particularly Los Angeles. This elevated supply level is likely to keep putting pressure on new lease rates, occupancy as well as retention, and impede revenue growth this year. Furthermore, concession activity remains high in this environment, which is another concern.

Moreover, the trend in estimate revisions of 2020 FFO per share does not indicate a favorable outlook as the estimate moved 2.6% south over the past month.

In addition, this Zacks Rank #3 (Hold) company has underperformed its industry over the past year. Shares of Equity Residential have depreciated 19.5%, while the industry has lost 12.7% during this period.

 

Stocks to Consider

Alexander & Baldwin, Inc.’s ALEX funds from operations (FFO) per share estimate for 2020 moved up from 22 cents to 83 cents over the past two months. The stock currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

City Office REIT, Inc.’s CIO Zacks Consensus Estimate for the ongoing-year FFO per share moved 13.3% north to $1.11 over the past two months. The stock currently flaunts a Zacks Rank of 1.

Gladstone Land Corporation’s LAND Zacks Consensus Estimate for the current year’s FFO per share moved 9.7% north to 68 cents over the past two months. The stock currently carries a Zacks Rank of 2 (Buy).

Note: Anything related to earnings presented in this write-up represents 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
 
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Gladstone Land Corporation (LAND) : Free Stock Analysis Report
 
City Office REIT, Inc. (CIO) : Free Stock Analysis Report
 
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