Equity Residential EQR recently announced the sale of a large San Diego asset for $312.5 million. The move comes as part of the company’s effort to boost its financial position, with the company deploying the proceeds for addressing its 2021 debt maturities.
Particularly, the company sold a 679-unit apartment property — Vantage Pointe — in downtown San Diego at a disposition yield of 4.1%, resulting in a preliminary unlevered IRR of 8.8% over the company’s 10-year ownership period.
Moreover, with the proceeds, along with cash on hand and borrowings under its commercial paper program, the company efficiently addressed its obligations on its $750-million 4.625% unsecured notes that are due in December 2021. Equity Residential now has minimal near-term maturities. Also, improving balance-sheet flexibility positions the company robustly to tap on its growth opportunities.
The move, however, leads to the company incurring $39.1 million in debt extinguishment charges, with $25.8 million being a cash charge and the residual $13.3 million pertaining to write-offs of unamortized debt costs. While such charges will impact Equity Residential’s funds from operations (FFO) per share, its normalized FFO per share will remain unaffected.
Strategic dispositions have been on the company’s agenda over the recent years and such efforts have helped this REIT reposition its portfolio in high-barrier markets. Also, usage of proceeds to address sole significant 2021 debt maturity is encouraging in the current challenging landscape.
However, Equity Residential’s urban core portfolio continues to struggle amid the pandemic-related reductions in economic activity, affecting its occupancy level, resident-renewal activity and rental rates.
The REIT’s sub-urban portfolio provides some support, and it continues to bank on technology and scale to navigate through the blues. However, the company’s performance is likely to be affected in the near term amid the health crisis and reduced rental demand due to the continuation of the flexible work environment and low mortgage rates, resulting in a concessionary operating environment. Management also expects the financial results to weaken over subsequent quarters as the full impact of the pandemic is being felt on the company’s business.
Equity Residential currently carries a Zacks Rank #5 (Sell). The company’s shares have lost 28.5% so far in the year, wider than its industry’s decline of 21.8%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
CubeSmart’s CUBE Zacks Consensus Estimate for 2020 FFO per share has moved up marginally to $1.66 over the past week. The company currently carries a Zacks Rank of 2 (Buy).
Rexford Industrial Realty, Inc. REXR FFO per share estimates for the current year have been revised upward by 1.6% to $1.30 over the past two months. The company carries a Zacks Rank of 2, currently.
City Office REIT, Inc.’s CIO Zacks Consensus Estimate for the ongoing-year FFO per share has moved 5.3% north to $1.20 in two months’ time. The company has a Zacks Rank of 2 at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Equity Residential (EQR): Free Stock Analysis Report
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