Janney Upgrades Equity Residential

Equity Residential (NYSE: EQR) reduced its same-store and earnings guidance for 2016. Janney’s Robert Stevenson upgraded the rating for the company to Buy, with a fair value of $78. The analyst commented that shares were trading at an attractive valuation versus apartment peers.

Negative Guidance Revision

Equity Residential reduced its same-store and earnings guidance for 2016 to reflect higher-than-expected asset sales as well as the weaker operating results in 1Q16 from its largest market, New York. Stevenson believes Equity Residential would be able to meet the mid-to-upper-end of its revised 2016 same-store guidance, given the slight improvement expected in NYC fundamentals and the “signs of life” already visible in Washington, D.C.

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Attractive Valuation

Stevenson mentioned that the fair value estimate included a $3 special dividend to be paid in the back half of 2016 and overall implied ~14 percent upside for the stock.

Equity Residential’s exposure to higher-price point assets in New York City, D.C., San Francisco, Southern California, Boston and Seattle makes the company vulnerable to any weakness even in one or two markets. “For now, we believe the rewards outweigh the potential risks, with EQR becoming one of our favorite names in the apartment REIT space,” the Janney report stated.

The company has already paid an $8 special dividend so far in 2016 and is expected to pay another $2–$4 special dividend later this year.