On Sep 27, 2013, we reaffirmed our long-term recommendation on
) at Neutral. Going forward, we believe that the company's
results would benefit from its solid fundamentals, expansion
efforts in high barrier-to-entry regions in the U.S. and a
favorable demographic trend that continue to positively impact
the demand of apartments.
Yet, the company's substantial exposure to the Washington DC
market that is exhibiting signs of stress as well as cut throat
competition and rising interest rates remain matters of concern.
Equity Residential's core funds from operations (FFO) per share
in second-quarter 2013 reached 71 cents, in line with the Zacks
Consensus Estimate and up 3 cents year over year. Quarterly
results at this apartment real estate investment trust (REIT)
were primarily driven by higher same store net operating income
and the benefit from stabilized Archstone properties, partly
offset by the negative impact from disposition activity, common
share issuance for the Archstone deal and elevated interest
Going forward, we believe Equity Residential's focus on expansion
in the high barrier-to-entry regions in the U.S. will drive its
top-line growth. The Archstone acquisition, which the company
AvalonBay Communities Inc.
) closed in February, further reinforces that.
Also, the echo boomers population continues to raise the demand
for apartments. Alongside, with a decent balance sheet position,
the company is well poised to capitalize on this favorable trend
through acquisitions and developments.
However, this continuous acquisition spree involves significant
upfront expenses that drag down near-term profitability till the
properties get established. The company also has a decent
exposure to the Washington DC market that is expected to
experience a rise in new supply in the quarters ahead leading to
a challenge for base rent growth going forward.
Over the last 30 days, the Zacks Consensus Estimate for 2013 FFO
per share increased 0.4% to $2.77. However, for 2014 it moved
south 0.3% to $3.08 per share. The stock currently has a Zacks
Rank #3 (Hold).
Other Stocks to Consider
Other REIT stocks that look promising are
Sotherly Hotels Inc.
Campus Crest Communities Inc.
). While Sotherly Hotels carries a Zacks Rank #1 (Strong Buy),
Campus Crest has a Zacks Rank #2 (Buy).
FFO, a widely accepted and reported measure of the
performance of REITs is derived by adding depreciation,
amortization and other non-cash expenses to net income.
AVALONBAY CMMTY (AVB): Free Stock Analysis
CAMPUS CREST CM (CCG): Free Stock Analysis
EQUITY RESIDENT (EQR): Free Stock Analysis
SOTHERLY HOTELS (SOHO): Get Free Report
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