Equity Residential Scales New 52-Week High - Analyst Blog

Shares of Equity Residential EQR crafted a new 52-week high, touching $62.57 during the trading session on May 13, 2014, as it gained momentum following decent first-quarter 2014 results. The closing price of this apartment real estate investment trust (REIT) on May 13 was $61.71, which reflects a solid year-to-date return of 19.7%. The trading volume for the session was nearly 1.7 million shares.

Despite the strong price appreciation, this Zacks Rank #3 (Hold) stock has plenty of upside left, given the improving market fundamentals, portfolio revamping activity and expected long-term earnings growth of 8.90%.

Growth Drivers

On Apr 30, Equity Residential reported normalized funds from operations (FFO) per share for first-quarter 2014 of 71 cents, in line with the Zacks Consensus Estimate and 7 cents above the prior-year quarter figure. Quarterly results were primarily driven by higher same store net operating income (NOI) and NOI from non-same store properties currently in lease up as well as reduced total interest expense. Total revenue during the reported quarter increased 25.5% year over year to $633.4 million.

We believe Equity Residential is well positioned to deliver better results in the quarters ahead too, given its concerted efforts toward repositioning its portfolio from low barrier-to-entry/non-core markets to high barrier-to-entry/core markets.

Its current focus is to acquire and develop assets primarily in 6 core coastal metropolitan areas – Boston, New York, Washington D.C., Southern California, San Francisco and Seattle. Last year, the company completed the Archstone acquisition that added properties across these diverse geographic locations.

Moreover, the echo boomers population continues to raise the demand for apartments. According to a study by the commercial real estate services firm CBRE Group, Inc. CBG published in April, the national apartment demand is currently growing at a stronger pace (over 220,000 units or 1.6% on an annual basis) than what the market has observed historically, thereby making us confident of better growth prospects for Equity Residential.

As a matter of fact, the company has recorded an average earnings surprise of 1.32% in the past four quarters. Furthermore, over the last 30 days, the Zacks Consensus Estimate for both 2014 and 2015 FFO per share moved north by 0.3% to $3.10 and $3.30, respectively.

Other Stocks Reaching 52 Wk Highs

In addition to Equity Residential, two other REITs also scaled 52-week highs on May 13. The stocks are General Growth Properties, Inc. GGP and Essex Property Trust Inc. ESS.


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.