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Is a Beat in Store for Equity Residential (EQR) in Q1 Earnings?

Equity Residential EQR is slated to report first-quarter 2023 results on Apr 25 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 delivered an in-line performance in terms of normalized FFO per share.

Over the trailing four quarters, Equity Residential surpassed the Zacks Consensus Estimate on two occasions, met on one and missed the same on the other, the average surprise being 0.52%. The graph below depicts this surprise history:

Equity Residential Price and EPS Surprise

Equity Residential Price and EPS Surprise
Equity Residential Price and EPS Surprise

Equity Residential price-eps-surprise | Equity Residential Quote

Let’s see how things have shaped up for EQR before this announcement.

Key Factors

As we approach the release of Equity Residential's first-quarter 2023 earnings report, it is important to examine how this residential REIT is likely to have performed amid the current market conditions.

Per the first-quarter data from RealPage Market Analytics, the U.S. apartment market witnessed a rebound in net apartment demand to positive territory in the quarter. This ended a streak of three consecutive quarters of negative absorption, and the U.S. apartment market added 19,243 net new renters in the quarter.

Occupancy rates continued to slide but at a much lesser degree than before, coming at 94.7% in March, matching the pre-pandemic decade average. Similarly for rents, in March, same-store effective asking rents for new lease signers increased 0.3%. In March, effective asking rents were up 3.9% year over year, though marking the first time below 4% since April 2021.

Overall, the recent trends suggest that somewhat normal seasonality is returning to the market. This follows a three-year absence, with the pandemic erasing normal seasonal patterns.

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. It has a healthy balance sheet and banks on technology, scale and organizational capabilities to drive growth. EQR’s target resident is more affluent, with lower unemployment and favorable prospects ahead.

In its February Investor Update presentation, Equity Residential noted, per its preliminary data, physical occupancy was 95.8% in February. The new lease change was 1.4% for January, while the blended rate was 4.6%.

We expect first-quarter same-store revenue growth of 6.7% year over year, while expenses are expected to increase by 3.8%. Consequently, same-store net operating income (NOI) is estimated to expand 8.1%. Physical occupancy is expected at 95.7%.

Currently, the Zacks Consensus Estimate for the company’s quarterly revenues stands at $699.54 million, indicating a 7.1% increase year over year. For the first quarter of 2023, Equity Residential projects a normalized FFO per share in the band of 84-88 cents.

Before the first-quarter earnings release, the company’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly normalized FFO per share has been revised north in the past month to 88 cents. This suggests year-over-year growth of 14.3%.

Here Is What Our Quantitative Model Predicts

Our proven model predicts 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 the case here.

Equity Residential currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.31%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are two other stocks from the residential REIT sector — Mid-America Apartment Communities, Inc. MAA and Independence Realty Trust, Inc. IRT — you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.

Mid-America Apartment Communities is slated to report quarterly numbers on Apr 26. MAA has an Earnings ESP of +1.41% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Independence Realty Trust, scheduled to report quarterly numbers on Apr 26, has an Earnings ESP of +4.82% and carries a Zacks Rank of 3.

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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Equity Residential (EQR) : Free Stock Analysis Report

Mid-America Apartment Communities, Inc. (MAA) : Free Stock Analysis Report

Independence Realty Trust, Inc. (IRT) : Free Stock Analysis Report

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