Equity Residential To Pay $3 Special Dividend On Asset Sale

Ushering in good news for its shareholders, Equity Residential (NYSE:EQR) announced a special cash dividend of $3.00 per common share, primarily the outcome from the sale of its non-core assets. This dividend will be paid on Oct 14, 2016 to shareholders of record on Sep 26.

Further, this residential real estate investment trust (REIT) declared that the sale of its non-core assets has generated an unlevered internal rate of return of 11.8%. Thus, the company is well poised to focus exclusively on owning, building and operating assets in coastal markets, specifically the higher-density urban locations situated close to public transportation, job centers as well as other amenities.

Usually, special dividends are paid by REITs on capital gains from the sale of assets to avoid paying tax. Notably, solid dividend payouts remain the biggest attraction for REIT investors as the U.S. law requires these companies to distribute 90% of their annual taxable income in the form of dividends to shareholders.

Apart from the above-mentioned special dividend, the company had also announced a special dividend of $8.00 earlier this year. In fact, the latest distribution would bring the tally of total capital returned to its shareholders in 2016 to over $4 billion. Per the company’s CEO David J. Neithercut, this represents the biggest amount ever paid in the real estate sector.

Along with special dividends, Equity Residential would continue to pay its regular quarterly dividend. The company has declared a regular common share dividend of 50.375 cents per share for the third quarter. This will also be paid on Oct 14, 2016 to shareholders of record on Sep 26.

Equity Residential’s sale of the Starwood portfolio, together with the other 2016 dispositions, has resulted in the company's exit from the South Florida and Denver markets. Dispositions would, eventually, complete the REIT’s planned exit from the Phoenix market as well as specific New England submarkets.

While we believe that the latest sale of assets would aid the company in focusing exclusively on its core, high-density urban markets, the earnings dilution impact from such a move would be impossible to avoid in the near term.

Equity Residential currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the REIT industry is InfraREIT, Inc. (NYSE:HIFR) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Also, investors can consider stocks like Silver Bay Realty Trust Corp. (NYSE:SBY) and Sun Communities Inc. (NYSE:SUI) , that carry a Zacks Rank #2 (Buy).

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