BMO Capital Markets analyst John P. Kim downgraded Equity Residential ( NYSE: EQR ) to Market Perform from Outperform due to higher interest rates and cap rate assumptions.
Price discovery in the multifamily sector is impacting Equity Residential ( EQR ), which in July slashed acquisition guidance for 2022 to $113M from its previous guidance of $2.0B, citing uncertainty in the real estate market.
EQR shares have slipped 2.1% in late Thursday morning trading.
Kim reduced his estimate for EQR's discounted cash flow ("DCF") by ~17% to $75.48. EQR has 13.5% of debt due in FY22/FY23 at a weighted average interest rate of 3.7%, he said. He expects its incremental interest expense for FY23 to be $10.3M at a new weighted average interest rate of 6.05%, which lower BMO's FY23 normalized FFO per share estimate by ~$0.02. The change in risk-free rate to 4.0% also contributes to the lower DCF estimate.
Equity Residential's ( EQR ) stock performance has been disappointing relative to its strong operational performance, but the stock has still modestly outperformed its REIT peers, Kim added.
SA contributor WideAlpha is more optimistic on the stock citing inflation protection at a reasonable value
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Equity Residential cut to Market Perform at BMO on higher interest rates