What's in Store for Equity Residential (EQR) in Q1 Earnings?
Equity Residential EQR is slated to report first-quarter 2024 results after the closing bell on Apr 23. 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’s (REIT) normalized FFO per share of $1.00 was in line with the Zacks Consensus Estimate. Rental income of $727.5 million in the fourth quarter grew 4% and was almost in line with the consensus mark of $727.6 million.
Over the trailing four quarters, Equity Residential met the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being -0.54%. The graph below depicts this surprise history:
Equity Residential Price and EPS Surprise
Equity Residential price-eps-surprise | Equity Residential Quote
As we approach the release of Equity Residential's first-quarter 2024 earnings report, it is important to examine how this residential REIT is likely to have performed amid the current market conditions.
US Apartment Market in Q1
Per RealPage data, although there was a significant recovery in apartment demand in the first quarter, it was not enough to keep up with the huge amounts of new supply, with the onslaught affecting occupancy and rent growth.
The United States absorbed 103,826 apartment units on net in the first quarter, pushing the annual demand figure to 317,241 units in the 12-month period. This is about 20% higher than a typical annual absorption rate from the 2010s decade, the report noted. A combination of elements like continuing wage increases, solid job growth and favorable demographic trends is driving this surge in demand. Moreover, move-outs from apartment units into single-family homes remain much lower.
However, there were massive amounts of new supply, with 135,652 apartment units being completed in the first quarter, bringing the total number of new multifamily units delivered to 479,367 in the year-ending first quarter of 2024.
With supply outpacing demand, apartment occupancy averaged 94.1% nationwide as of March, down 0.6% year over year, though lower than typical but not significantly down. Apart from the occupancy rate, operators’ pricing power was also affected, with first-quarter annual effective rent change being up 0.2%, and monthly effective rent change being north 0.4%. The average effective rent was $1,813.
Projections
Amid this rebound in demand, Equity Residential’s quarterly performance is likely to have been supported by its portfolio diversification efforts in the urban and suburban markets. EQR’s target residents are more affluent, with lower unemployment and favorable prospects ahead.
The company has a healthy balance sheet and banks on technology, scale and organizational capabilities to drive growth. EQR’s robust balance sheet position is expected to have supported its development activities during the to-be-reported quarter. However, rising supply is likely to have played a spoilsport.
Per its March Investor Update presentation, since the beginning of the year through Feb 26, 2024, news lease change was down 2.9% compared to a decline of 4.5% in the fourth quarter, while the blended rate for this period was 1.3%, up from 0.8% in the fourth quarter. Physical occupancy for the said period was 96.2%, up from 95.9% in the fourth quarter.
We expect first-quarter same-store revenues to increase 1.1% year over year, while same-store net operating income (NOI) is estimated to decline 0.2%. Physical occupancy is expected at 95.7%.
Currently, the Zacks Consensus Estimate for the company’s quarterly revenues stands at $729.83 million, which indicates a 3.51% increase year over year.
For the first quarter of 2024, Equity Residential projected normalized FFO per share in the band of 88-92 cents.
However, before the first-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly normalized FFO per share has remained unchanged in the past month at 91 cents. Nevertheless, it suggests year-over-year growth of 4.6%.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict a surprise in terms of FFO per share for Equity Residential this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
Equity Residential currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.84%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are three stocks from the broader REIT sector — Welltower Inc. WELL, Public Storage PSA and AvalonBay Communities, Inc. AVB — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Welltower is scheduled to report quarterly numbers on Apr 29. WELL has an Earnings ESP of +1.47% and a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Public Storage is slated to report quarterly numbers on Apr 30. PSA has an Earnings ESP of +1.12% and carries a Zacks Rank of 3 presently.
AvalonBay Communities, Inc. is scheduled to report quarterly numbers on Apr 25. AVB has an Earnings ESP of +0.59% and a Zacks Rank of 3 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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
Equity Residential (EQR) : Free Stock Analysis Report
Public Storage (PSA) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
