Jefferies Updates Its Estimates & PT Following Equity Residential's Earnings

After a strong year of being a net acquirer of properties in 2010, Jefferies expects Equity Residential EQR to gradually shift towards a greater focus on developments in 2011/2012. EQR expects development starts for 2011 to range between $400-$500M, and anticipates spending $160M on construction of ongoing and new projects in 2011. Jefferies notes that new development starts of $400-$500M will be in addition to the $228M worth of on-going developments as of 4Q10. On the 4Q10 earnings call, mgmt stated that developments currently being pursued have average yields of ~6.5%, with certain projects yielding 7-7.5%. Jefferies notes that 6.5% yields on new developments are 100-250bps wide of where cap rates on stabilized Class A assets are currently trading. Given the solid lease-up of developments in 2010, and its expectations for apartment rental demand to remain strong in EQR's core markets, Jefferies believes a shift towards a larger development pipeline is strategically beneficial. Jefferies has a Hold rating and $52 PT on EQR EQR closed Monday at $54.59