Is it Prudent to Hold Equity Residential Stock in Your Portfolio Now?

Equity Residential EQR is well-poised to gain from its high-quality, diversified portfolio in markets with an affluent tenant base. Healthy demand for rental units, strategic portfolio repositioning and technological enhancements are likely to aid the company. However, the elevated supply of residential rental units in some of its markets is a key concern. Also, high-interest expenses add to its woes.

On March 20, 2025, Equity Residential announced a 2.6% hike in its annualized dividend. EQR will pay out 69.25 cents per share for the first quarter of 2025, up from 67.50 cents paid out in the prior quarter.

The latest raise reflects the company’s ability to generate solid cash flow through its operating platform and high-quality portfolio. Before this increase, EQR increased its dividend three times in the past five years, and its payout has grown 3.15% over the same period. Check Equity Residential’s dividend history here.

What’s Aiding Equity Residential?

Equity Residential is particularly targeting places where affluent renters prefer to live, work and play. In its strategy, the company is taking into consideration 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.

Moreover, given the high cost of homeownership, especially relative to rents, the transition from renter to homeowner is difficult in its markets, making renting apartment units a viable option. The company expects its total same-store revenues to grow year over year between 2.25% and 3.25% in 2025. We estimate the same to rise 3%.

Equity Residential is making efforts toward repositioning its portfolio. It has been selling older properties and acquiring newer properties in submarkets with high numbers of affluent renters, favorable long-term demand drivers and manageable forward supply. In 2024, the company acquired 18 properties with 5,373 apartment units worth around $1.6 billion and sold 13 properties with 2,598 apartment units for $975.6 million. Such efforts are likely to drive the company’s growth over the long term.

Equity Residential is also banking on technology and organizational capabilities to drive growth and improve the efficiency of its operating platform. Such efforts are likely to provide the company with a competitive edge over others and drive growth in net operating income (NOI) in the upcoming period. We estimate the same-store NOI to increase year over year by 2.5% for 2025.

Equity Residential has a healthy balance sheet with ample liquidity and financial flexibility. As of Dec. 31, 2024, the company had nearly $1.95 billion in liquidity. It has a well-laddered debt maturity schedule. EQR ended the fourth quarter of 2024 with a net debt to normalized EBITDAre of 4.38X. Unencumbered NOI as a percentage of the total NOI was 89.7% in the quarter. Further, an A-rated balance sheet renders the company access to the debt market at favorable rates.

What’s Hurting Equity Residential?

The struggle to lure renters is likely to persist as the volume of new deliveries remains elevated in several markets where the company operates, affecting EQR’s rent growth momentum.

Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for Equity Residential. The company has a substantial debt burden, and its total debt as of Dec. 31, 2024 was $5.8 billion. The company’s interest expenses climbed 4.8% to $49.6 million in the fourth quarter of 2024.

Shares of this residential REIT, carrying a Zacks Rank #3 (Hold), have risen 0.1%, underperforming the industry's 3.6% growth over the past three months. Analysts seem bearish on this stock, with its 2025 funds from operations (FFO) being revised marginally southward to $3.98 per share over the past month.

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Stocks to Consider

Some better-ranked stocks from the residential REIT sector are Modiv Industrial, Inc. MDV and Elme Communities ELME. While MDV sports a Zacks Rank #1 (Strong Buy) at present, ELME carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Modiv Industrial’s 2025 FFO per share stands at $1.36, implying year-over-year growth of 1.5%.

The Zacks Consensus Estimate for Elme Communities’ 2025 FFO per share is pegged at 95 cents, suggesting year-over-year growth of 1.1%.

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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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research