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What's in Store for Equity Residential (EQR) Q1 Earnings?

Zacks Equity Research

Equity Residential EQR is slated to report first-quarter 2019 results on Apr 30, after market closes. The company is expected to witness 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) posted negative surprise of 1.18% in terms of FFO per share. Results mirrored improved same-store NOI and lower total interest expense. Nonetheless, the company incurred certain casualty losses arising from rainstorm damage to assets in its Washington, D.C. area portfolio. Further, the company's transaction activities in 2018 and 2017, and higher corporate overhead resulted in a negative impact on its performance.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate once, met in another and missed in the other two occasions, recording average negative surprise of 0.30%. The graph below depicts this surprise history:

Equity Residential Price and EPS Surprise

Equity Residential Price and EPS Surprise | Equity Residential Quote

Let’s see how things are shaping up for Equity Residential prior to this announcement.

Factors at Play

Per a recent study by the real estate technology and analytics firm — RealPage, Inc. — the U.S. apartment market managed to retain the rent momentum which was achieved in the later part of 2018, although new supply volumes remained elevated in the Jan-Mar quarter. Apartment rents were up 3.2% on an annual basis as of first-quarter 2019. In fact, for six straight months, annual rent growth exceeded the 3% mark. In addition, occupancy came in at 95.2% in the quarter, expanding 10 basis points year on year.

Equity Residential too is expected to benefit from its efforts to reposition the company’s portfolio in high barrier-to-entry/core markets. The company is poised for growth amid healthy economy and job-market gains.

Particularly, favorable demographics, lifestyle transformation, and creation of households are likely to have driven demand for the company’s properties in the quarter and helped in absorption of new supply across its markets. As such, Equity Residential is expected to witness decent average rental rate and occupancy of its properties in the to-be-reported quarter.

In fact, for the first quarter, Equity Residential projects normalized FFO per share at 78-82 cents. Results are likely to reflect positive impact from higher net operating income (NOI) as a result of the company’s 2019 and 2018 transaction activity, negative impact from lower same store NOI and higher total interest expense.

The Zacks Consensus Estimate for the first-quarter FFO per share is currently pegged at 81 cents, indicating a projected increase of 5.2% year over year on the back of solid revenues. The Zacks Consensus Estimate for the company’s quarterly revenues is pinned at $654.1 million, highlighting anticipated growth of around 3.3% year over year.

However, new apartment supply across its markets is expected to continue, straining lease rates, occupancy and retention, and lead to use of high concessions as well.

Here is what our quantitative model predicts:

Equity Residential has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Equity Residential is +0.50%.

Zacks Rank: Equity Residential carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Digital Realty Trust, Inc. DLR, slated to release first-quarter earnings on Apr 25, has an Earnings ESP of +1.27% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. ARE, scheduled to report quarterly numbers on Apr 29, has an Earnings ESP of +0.30% and holds a Zacks Rank #2.

Public Storage PSA, set to release results on May 1, has an Earnings ESP of +0.75% and carries a Zacks Rank of 3.

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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