Equity Residential (NYSE:EQR) Q3 2023 Earnings Call Transcript
Equity Residential (NYSE:EQR) Q3 2023 Earnings Call Transcript November 1, 2023
Operator: Good day, and welcome to the EQR 3Q '23 Earnings Conference Call and Webcast. This call is being recorded. At this time, I would like to turn the conference over to Mr. Marty McKenna. Please go ahead.
Martin McKenna: Good morning, and thanks for joining us to discuss Equity Residential's third quarter 2023 results. Our featured speakers today are Mark Parrell, our President and CEO; and Michael Manelis, our Chief Operating Officer. Bob Garechana, our Chief Financial Officer; and Alex Brackenridge, our Chief Investment Officer, are here with us as well for the Q&A. Our earnings release is posted in the Investors section of equityapartments.com as is a management presentation for the quarterly call. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. Now I will turn the call over to Mark Parrell.
Aerial view of a standard residential neighborhood with multiple rows of relatively new houses representing the company's real estate investments.
Mark Parrell: Thank you, Martin. Good morning, and thank you all for joining us today to discuss our third quarter 2023 results. As you can see from the press release and management presentation, the business continues to do well in most of our markets, with our East Coast markets outperforming our West Coast markets. New York, Boston and Washington, D.C., comprising a bit more than 40% of our net operating income are all having very good years and are meeting or exceeding our expectations. Our target renter demographic remains well employed. Unemployment for the college educated is at 2.1%, with increasing pay levels and a continuing high propensity to rent, given elevated single-family ownership costs, low for-sale inventory and lifestyle reasons like delayed marriage and smaller families that favor our business.
We're also seeing lower levels of new apartment construction in most of our established markets where we have 95% of our net operating income versus the Sunbelt markets, a pattern that will continue for the next several years. Consistent with this view throughout the primary leasing season, our pricing followed a trajectory that was pretty typical for a normal pre-COVID year. And as you can see in the management presentation, on par with our guidance assumption, the normal rent seasonality would return in 2023. We saw our portfolio-wide rents peak in early August and then begin to decelerate as we expected. However, we recently saw a deceleration in pricing in San Francisco and Seattle that was more pronounced than usual seasonal patterns. The main culprit here seems to be a lack of job growth for our target renter demographic.
Michael will have more detail on this as well as the building blocks for 2024 that are laid out in the management presentation in a moment. In Los Angeles, we are working through the impact of a drawn-out process to normalize delinquency levels and to reduce bad debt. We continue to make good progress here, portfolio-wide bad debt before application of rental relief funds in the third quarter was about 1.3% as compared to 2.4% in 2022. But the process is uneven, and it is lengthy. Evictions are now taking six months or more in Los Angeles versus the two months to three months prior to the pandemic. Given the underperformance in San Francisco and Seattle and the lumpiness and improvement in bad debt as well as the impact from the noncash write-off of a $1.5 million straight-line rent receivable in the quarter due to the bankruptcy of Rite Aid, which is a retail tenant of ours, we have adjusted our same-store revenue guidance expectation for the year to 5.5% from 5.875% at the previous midpoint.
See also 12 Best Asian Stocks To Buy Now and 30 Most Popular Wine Brands in America.
To continue reading the Q&A session, please click here.
