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Equity Residential Continues Seeking “Assets That are Walkable, Convenient to Amenities”

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Equity Residential delivered growth in same-store revenues, net operating income and normalized FFO that exceeded its expectations for the quarter. According to CEO Mark Parrell, “2019 is off to a strong start with demand for our product remaining deep and new supply being absorbed well across all of our markets.”

On the firm’s Q1 earnings call, Parrell said that the company is also benefiting from a sizable dropping new competitive supply in both in New York and Boston markets. “This strong demand across our markets is creating high occupancy which is allowing us to push rate. We’re just beginning the primary leasing season, but if these trends hold we would expect to deliver same-store revenue growth and normalized FFO growth near the top end of our guidance ranges.”

So, switching to investments on the acquisition side on the fourth quarter call, he provided details on three apartment properties that the company acquired early in the first quarter of 2019. “We acquired no other assets in the first quarter, but after the end of the quarter we acquired a 366-unit apartment property in Rockville, Maryland that’s a suburb of Washington D.C.”

He says the property was built in 2016 and is fully stabilized. “The purchase price was approximately $103.5 million and the acquisition cap rate was 5.3%. Our investment strategy for over a decade has been to acquire and develop urban and den suburban properties in our markets, while we have acquired and develop more urban assets of late.”

He added that “We also continue to seek well located product in the suburbs that share certain characteristics with our urban assets like being proximate to high wage employment and other positive drivers of apartment demand having high household incomes and where the rent to income ratio is similar to our other assets in the market.”

By that, he means that rent to income ratio is relatively low. “Assets that are walkable are very convenient to amenities by car and we’re single family owned housing is less affordable compared to rental apartment housing. The Rockville asset checked all these boxes, we owned other assets in this submarket and think this property complements the existing portfolio.”

He adds that the REIT will continue to look for opportunities like this. “We did not sell anything in the first quarter of 2019, but subsequent to the end of the quarter, we sold our 800 Sixth Avenue Asset in Manhattan for approximately $237.5 million. This property is subject to the New York 421A program and its sale will reduce our property tax expense growth rate and improve our NFFO growth rate over time.”

As for where, he says the company will continue to look to acquire properties in Manhattan and elsewhere in the New York area that meet its acquisition parameters. “Our guidance continues to call for $700 million of acquisitions and $700 million of dispositions in 2019. The number of assets that we’re marketing in the first quarter that meet our acquisition parameters were relatively low.

We expect the number of suitable assets for sale to grow as the year goes on.”


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