Equity Residential Promises Strong Growth Prospects - Analyst Blog

On Jun 24, 2014, we issued an updated research report on residential real estate investment trust (REIT), Equity Residential EQR.

On Apr 30, Equity Residential reported its first-quarter 2014 financial results. The company's normalized fund from operations (FFO) per share of 71 cents came in line with the Zacks Consensus Estimate, but was 7 cents above the prior-year quarter figure. Results were aided by higher same store net operating income (NOI) as well as NOI from non-same store properties currently in lease up and reduced total interest expense. Apart from this, last year's Archstone acquisition added to the bliss.

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.

Yet, 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 $3.09 for 2014 and $3.29 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 American Campus Communities, Inc. ACC, Equity LifeStyle Properties, Inc. ELS and UDR, Inc. UDR. All 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.