Shares of Equity Residential EQR have risen 20.9% year to date, outperforming the industry's growth of 11.5%.

Last October, EQR reported third-quarter 2024 normalized funds from operations (FFO) per share of 98 cents, in line with the Zacks Consensus Estimate. On a year-over-year basis, the normalized FFO per share grew 2.1%.

Results reflected decent same-store performances, backed by healthy demand amid modest supply. The company revised its 2024 guidance.

This residential real estate investment trust (REIT) carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2024 FFO per share is now pegged at $3.88, implying year-over-year growth of 2.65%.

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Factors Behind EQR Stock Price Surge: Will the Trend Last?

Core Business Strength: Equity Residential is targeting places where affluent renters prefer to live, work and play. In its strategy, the company is considering the hybrid working environment and the recent migration trends of affluent renters, opting for the acquisition and development of properties in suburban locations of its established markets and adding select new markets, such as its entry into Atlanta, GA, and Austin, TX.

As of Sept. 30, 2024, Equity Residential had 42 properties (including those under development) in the expansion markets of Atlanta, Austin, Dallas/Ft. Worth and Denver, contributing to 10% of its total portfolio NOI.

EQR is making strategic efforts toward repositioning its portfolio, selling older properties and acquiring newer ones in submarkets with high numbers of affluent renters, favorable long-term demand drivers and manageable forward supply. In the third quarter of 2024, the company acquired 14 properties with 4,418 apartment units and disposed of one property with 138 units. Such efforts are likely to relieve pressure on its balance sheet and drive growth over the long term.

EQR has an encouraging development pipeline. As of Sept. 30, 2024, the company had nine projects (consolidated and unconsolidated) under development. Over the next few years, the developments underway are expected to deliver meaningful incremental NOI upon completion and stabilization and fuel FFO and net asset value (NAV) growth.

Healthy Balance Sheet Position: EQR has a healthy balance sheet with ample liquidity and financial flexibility. As of Sept. 30, 2024, the company had nearly $1.7 billion of liquidity through cash and cash equivalents and the available borrowing capacity on its revolving credit facility.

It has a well-laddered debt maturity schedule with limited near-term maturities.  The company ended the third quarter of 2024 with a net debt to normalized EBITDAre of 4.56X. Unencumbered NOI as a percentage of the total NOI was 89.7% in the quarter, providing it with financial flexibility and access to the debt market at favorable terms.

Dividend Payouts: Solid dividend payouts remain the biggest attraction for REIT investors, and EQR remains committed to this purpose. Per the June Investor Update, for the 2011-2024 period, the company’s dividend is expected to witness a compound annual growth rate of 6%. In the last five years, EQR has increased its dividend four times and the annualized dividend growth rate for this period is 3.4%.

Key Risks for EQR

The elevated supply of apartments in some of Equity Residential’s markets is likely to weigh on the company’s ability to increase rent, restricting its growth momentum to a certain extent.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Iron Mountain IRM and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Iron Mountain’s current-year FFO per share has been raised marginally over the past month to $4.49.

The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has moved marginally northward over the past month to $2.68.

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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