Equity Residential to Post Q3 Earnings: Is a Beat in Store?
Equity Residential EQR is slated to report third-quarter 2023 results on Oct 31, after the closing bell. The company’s quarterly results are likely to reflect growth in revenues and funds from operations (FFO) per share.
In the last reported quarter, this Chicago, IL-based residential real estate investment trust (REIT) reported normalized FFO per share of 94 cents, in line with the Zacks Consensus Estimate. The quarterly results reflect healthy same-store revenue performance.
Over the trailing four quarters, Equity Residential’s normalized FFO per share surpassed the Zacks Consensus Estimate once, met twice and missed in the remaining one, the average negative surprise being 0.01%. The graph below depicts this surprise history:
Equity Residential Price and EPS Surprise
Equity Residential price-eps-surprise | Equity Residential Quote
U.S. Apartment Market in Q3
Per a recent RealPage report, apartment demand in the United States during the third quarter continued to show signs of solid rebound even though rent growth was somewhat flat.
The U.S. apartment market absorbed 90,827 units per the RealPage Market Analytics. Although the figure does not compare to the historically robust demand of 2021, it still marks the largest quarterly tally in nearly two years and is in sync with the long-term seasonal norms.
However, the quarter saw the highest levels of apartment completions since the 1980s, with more than 128,000 units coming online nationally, shifting the balance of power in the rental market back to renters.
The effective asking rents fell 0.3% in September. As a result, year-over-year rent growth was just 0.1% during the quarter. This compares with 9% recorded a year ago. The key reason behind this is that apartment operators are prioritizing occupancy rates over rents to safeguard cash flow, leading to more options for renters and putting downward pressure on rent growth.
Speaking of the U.S. apartment occupancy, despite the supply surge, the solid demand helped maintain occupancy levels near the long-term average. After slipping only 10 basis points (bps) in September, occupancy at the end of the third quarter was 94.4%.
EQR’s Portfolio & Q3 Performance Through August
Equity Residential enjoys a dominating presence in Boston, New York, Washington, DC, Seattle, San Francisco and Southern California.
Given the healthy demand across its markets and improving delinquency, mainly in Southern California, EQR’s operating performance during the third quarter is likely to have been on the better side, making us optimistic regarding its earnings.
The company has also been making concerted efforts to diversify its portfolio and expand its footprint in the suburban markets where these affluent renters prefer to live, work and play. This is expected to have led to stable revenue generation, boosting the top line.
Equity Residential is banking on technology and organizational capabilities to drive innovation, rent growth and improve the efficiency of its operating platform. These include the installation of smart home technology and smart access aimed at elevating customer experience. Such efforts are likely to have aided the company’s quarterly performance and driven net operating income (NOI) growth.
Per its latest operating update, the residential REIT concluded the leasing season with healthy demand and pricing for its apartment units. Also, the company noted that its same-store revenue growth is on track with the guidance it issued during the second-quarter 2023 earnings release.
Consistent with seasonal trends, rents peaked in early August, and the company anticipates rent moderation for the remainder of the year. Despite a 3.5% increase in same-store residential blended rates for the third quarter through Aug 31 compared with a 4.3% increase in the second quarter, EQR reported an uptick in physical occupancy. Same-store physical occupancy increased to 96% in the same period from 95.9% in the prior quarter.
Further, EQR’s robust balance sheet position is expected to have supported its development activities during the to-be-reported quarter.
Projections for Q3
For the third quarter of 2023, we expect year-over-year same-store revenue growth of 4.2%. On the other hand, for the second half of the year, the company expects lower same-store expense growth. Per our estimate, quarterly same-store expenses are expected to increase marginally. Consequently, same-store NOI is estimated to rise 6.1%. We estimate physical occupancy to be 96.1%, suggesting a 20-basis point increase sequentially.
Currently, the Zacks Consensus Estimate for the company’s quarterly revenues stands at $727.96 million, indicating a 4.7% increase from the prior-year quarter’s reported figure.
EQR projected normalized FFO per share in the range of 95-99 cents for the third quarter.
Although the Zacks Consensus Estimate for the quarterly normalized FFO per share has been unchanged at 97 cents over the past month, it suggests growth of 5.4% from the year-ago reported number.
What Our Quantitative Model Predicts
Our proven model predicts a surprise in terms of FFO per share for Equity Residential this season. The right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — increases the odds of a beat. That is just the case here.
Earnings ESP: EQR has an Earnings ESP of +0.50%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: EQR currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Performance of Other Residential REITs
AvalonBay Communities AVB reported a third-quarter 2023 core FFO per share of $2.66, beating the Zacks Consensus Estimate of $2.64. Moreover, the figure climbed 6.4% from the prior-year quarter’s tally.
The quarterly results reflect a year-over-year increase in same-store residential rental revenues, driven by effective lease rates. AVB also raised its core FFO per share outlook for 2023.
Mid-America Apartment Communities MAA reported third-quarter 2023 core FFO per share of $2.29, which surpassed the Zacks Consensus Estimate by a penny. Moreover, the reported figure climbed 4.6% year over year.
This residential REIT’s quarterly results were driven by an increase in the average effective rent per unit for the same-store portfolio. MAA also revised its outlook for 2023.
Essex Property Trust Inc. ESS reported third-quarter 2023 core FFO per share of $3.78, beating the Zacks Consensus Estimate of $3.77. The figure improved 2.4% from the year-ago quarter.
Results reflected favorable growth in same-property revenues, though higher same-property operating expenses partly acted as a dampener. ESS reaffirmed the midpoint of the full-year 2023 guidance for core FFO per share.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report
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