Tags: Equity | Residential | rental | EQR

Equity Residential Rides Rental Boom

By    |   Friday, 24 February 2012 08:12 AM

The housing bust has been good for apartment real estate investment trusts (REITs), including Equity Residential (EQR). Indeed, it’s riding the rental boom as home ownership wanes.

Over the past three years, Equity Residential shares have provided an annualized total return of 44 percent, and management increased the dividend by 7 percent last year. The company is one of the biggest apartment owners in the country, with more than 400 properties in 16 states and Washington, D.C.

Equity Residential has lifted the quality of its holdings over the past few years, jettisoning lower-quality properties in favor of mid- and high-rise buildings in top metropolitan areas.

The company’s biggest markets in terms of stabilized net operating income, starting from the top, are New York City, Washington, South Florida, Los Angeles, and Boston, according to Morningstar. Those are all choice locations.

To be sure, Equity Residential’s portfolio isn’t as strong as AvalonBay Communities, the top player in the apartment REIT space. But it’s not too far behind.

Financial firepower

Equity Residential has the financial firepower to continue to buy attractive properties. It is one of the few companies that can bid for the industry’s largest deals. Most of its $1.3 billion revolving credit line is untapped, and most of its properties carry no debt, according to Morningstar.

Standard & Poor’s analyst Royal Shepard has a hold rating on Equity Residential shares. “We like EQR's long-term focus on coastal markets, which we believe have favorable demographic trends and a limited supply of new units,” he writes.

“We think a gradually improving economic environment has begun to bolster operating results, including higher occupancy levels and accelerating rent hikes on lease renewals.”

Equity Residential’s operating income more than doubled to $162.1 million in the fourth quarter from a year earlier. Revenue gained 13 percent to $519.3 million.

The company next reports earnings April 26.

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Friday, 24 February 2012 08:12 AM
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