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How the Top 3 Residential REITs Performed in 2Q17

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How the Top 3 Residential REITs Performed in 2Q17 PART 1 OF 7

How the Top 3 Residential REITs Performed in 2Q17

Residential REIT sector

Residential REITs experienced record rent growth in the past few years. However, companies recently ramped up their supply, which moderated rent growth by the second half of 2016. Moreover, the rising interest rate environment in the US poses a threat to the debt-dependent residential REIT business.

How the Top 3 Residential REITs Performed in 2Q17

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However, 2Q17 results don’t show risks from macro headwinds for these REITs. Strategic repositioning of properties and development activities could help REITs combat the macro difficulties.

In this series, we’ll do a comparative analysis of the 2Q17 results of three residential REITs: Equity Residential (EQR), AvalonBay Communities (AVB), and Essex Property (ESS).

Stock performance after 2Q17

Residential REITs showed strong momentum in the first half of 2017 with a decent increase in both top-line and bottom-line results. Stocks of the REITs gained in spite of an increase in the interest rate during the first half of 2017.

EQR stock gained 7.5% in the past six months. AvalonBay stock skyrocketed 8% during the period. However, Essex Property had the highest return of 14.6% in the first half of 2017. The strong rally in the stock prices in the year-to-date period reflects optimism among investors in the sector.

The factors that contributed to the rally in stock prices were:

  • decent first half top-line and bottom-line results
  • strategic initiatives to bolster market presence in the industry
  • lucrative shareholder returns

However, the stocks didn’t show any significant price movements since they announced their second quarter results.

Essex Property reported strongest bottom line

Essex Property’s reported funds from operations (or FFO) per share of $2.97 beat estimates by 2% and were 8% higher than the year-ago level. The company exceeded the management’s expectations by $0.10 per share.

AVB’s FFO came in line with analysts’ estimates of $2.09 per share. Results, however, rose 3% from the year-ago period. Results were within the management’s expectations of a range of $2.07 to $2.13 per share during the quarter. EQR’s FFO of $0.77 per share also met Wall Street’s estimates despite beating the year-ago mark by a penny. Higher net operating income (or NOI) and rent growth drove profit growth during the quarter.

EQR, AVB, ESS, and Boston Properties (BXP) make up almost 18% of the iShares Cohen & Steers REIT (ICF) ETF. The ETF has 98.7% exposure to REITs.

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