We recently compiled a list of the 11 Best Self Storage and Apartment Stocks to Buy Now and in this article, we discuss where Equity Residential (NYSE:EQR) stands among these stocks.
The American dream of sprawling living spaces is undergoing a transformation. Increasing housing costs in densely populated areas and the rising need for frequent relocations have led more people to use self-storage facilities. Furthermore, as families expand and accumulate more belongings, the demand for additional storage space continues to grow.
The self-storage sector experienced many changes from 2020 to 2023. The pandemic fueled a boom, with users increasing by 970,000 and sales volume nearly tripling between 2020 and 2021. This boom was driven by relocations, remote work, and increased online shopping. However, 2022 saw moderation with declining home sales and consumer spending leading to slightly lower rental rates and a sales volume drop. The first three quarters of 2023 continued this trend, with economic factors contributing to a further downturn.
Looking ahead to 2024, the self-storage industry is expected to maintain stable occupancy rates and rental income, driven by the ongoing housing shortage. Although a slight uptick in new facilities (4.4%) is predicted, the housing shortage is likely to continue driving demand. According to Mordor Intelligence, the US self-storage market is projected to reach nearly $50 billion by 2029, reflecting a steady growth rate of 2.44%. This indicates continued investor confidence and a healthy market outlook.
Meanwhile, in the apartment sector, rent growth in 2024 is forecasted to be moderate, ranging from 2.5% to 3.7%. The sector is expected to experience slightly stronger growth in 2025. However, with the potential weakening of the labor market and increased supply, some areas may require rent concessions and reductions.
Overall, the US residential real estate market is experiencing steady growth, valued at $2.5 trillion in 2023. This positive trend is expected to continue as the valuation of this market is projected to reach $2.8 trillion by 2028. This jump in the valuation of the residential real estate market translates to a compound annual growth rate (CAGR) of 2.04% during the forecast period. Apartments hold a substantial share of the sector’s total demand. This dominance is likely due to the high number of apartment units being completed, with completions up by 26% as of 2023.
An aerial shot of an apartment community, highlighting the sense of community.
Our Methodology
We have compiled a list of the best self-storage and apartment stocks to buy based on hedge fund sentiment toward each stock. Our assessment of hedge fund sentiment is derived from Insider Monkey’s database of 919 elite hedge funds as of the first quarter of 2024. The best self-storage and apartment stocks to buy have been ranked in ascending order of the number of hedge fund investors in each company.
“Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).”
Where Does Equity Residential (NYSE:EQR) Stand Among the Best Apartment Companies Worldwide?
Equity Residential (NYSE:EQR)
Number of Hedge Fund Holders: 36
Equity Residential (NYSE:EQR) is a US real estate investment trust (REIT) focused on apartment ownership and management. It acquires, develops, and manages rental properties, generating income by leasing units to residents.
Equity Residential (NYSE:EQR) delivered a positive surprise in its first-quarter earnings report on April 23rd. Funds from operations (FFO) of $0.93 per share exceeded analyst estimates by $0.02. Revenue also came in strong, surpassing expectations by $2.74 million and achieving a year-over-year increase of 3.6% to $730.82 million.
Equity Residential (NYSE:EQR) recently received a positive upgrade from CFRA. Analysts upgraded their rating on Equity Residential (NYSE:EQR) from Hold to Buy and increased the price target to $77, up from $66.
This positive outlook is driven by the company’s focus on coastal urban markets with limited new construction, contrasting with trends in the Sun Belt. Moreover, the company benefits from a leasing market tightening, where fewer incentives are offered and renting remains more affordable compared to homeownership.
Here’s what Baron Funds said about Equity Residential (NYSE:EQR) in its Q4 2023 investor letter:
“In the most recent quarter, we re-acquired shares in Equity Residential (NYSE:EQR), the largest U.S. multi-family REIT. The company has assembled an excellent portfolio of Class A apartment buildings located in high barrier-to-entry coastal markets with favorable long-term demographic trends and muted overall supply growth. We believe the company is also well positioned to benefit from the affordability advantages of renting versus home ownership, annual leases that provide the potential for partial inflation protection, and its low levered balance sheet, which positions the company to take advantage of acquisition opportunities.
In our opinion, Equity Residential’s shares are attractively valued relative to private market values and the company owns and operates excellent and relevant real estate that should perform well, long term.”
Overall, Equity Residential (NYSE:EQR) ranks 4th among the 11 best self-storage and apartment stocks to buy now. You can visit the 11 Best Self-Storage and Apartment Stocks to Buy Now to see the other self-storage and apartment companies that are on the hedge fund radar.
While we acknowledge the potential of self-storage and apartment stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.