Shares of Equity Residential (EQR -1.13%) tumbled 20.2% in the first half of 2022, according to data provided by S&P Global Market Intelligence. That was slightly less than the S&P 500's 20.6% decline to start the year.
The same recessionary concerns that triggered the broader market sell-off were largely to blame for the real estate investment trust's (REIT) slump.
Equity Residential is having a strong year financially. The residential REIT reported robust first-quarter results in late April, delivering double-digit percentage growth in its funds from operations per share. This year, demand for apartments has been intense, keeping occupancy levels high and rental rates rising. Equity Residential reported the lowest tenant turnover in its history, as its renters didn't have many options other than keeping their existing apartments due to surging real estate prices.
The company's growing rental income enabled it to increase its dividend by 3.7%. With the stock price down and the payout up, the REIT's yield has grown to 3.5%. Meanwhile, the REIT continued its capital recycling program to improve its portfolio. Equity Residential acquired a recently built apartment complex in San Diego while agreeing to sell an older one in New York City.
Despite all those positives, shares of Equity Residential have been under pressure this year due to concerns that the U.S. economy might slip into a recession. That possibility led several analysts to reduce their price targets on it.
For example, Haendel St. Juste of Mizuho Securities lowered his firm's price target on the REIT from $84 to $79 per share in light of his reduced expectations for its rent growth in 2023. While St. Juste has a positive view about its prospects for 2022, he foresees the opposite for 2023, especially if there's a recession. Meanwhile, Truist analyst Michael Lewis cut the bank's price target on Equity Residential from $85 to $79. The analyst sees a recession potentially impacting household formation, which could affect apartment demand.
However, while analysts see some downside risk ahead, they noted that apartment REITs are entering the next economic cycle from a position of strength.
The market is growing more concerned that we could be heading for a recession, which could somewhat cool off the current red-hot demand for apartments. However, while that could slow rental growth, Equity Residential is in a strong position to continue growing its funds from operations and dividend. Because of that and its higher dividend yield following this year's sell-off, it's a much more attractive option for income-seeking investors these days.