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Is a Beat in Store for Equity Residential's (EQR) Q4 Earnings?
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Equity Residential (EQR - Free Report) is slated to report fourth-quarter and full-year 2020 results on Feb 10, after market close. The company’s results will likely reflect year-over-year declines 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 a negative surprise of 6.1% in terms of FFO per share. Results reflected a decline in revenues amid the choppy environment in the residential real estate market.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and met in the other and missed in another, the average negative surprise being 0.06%. The graph below depicts this surprise history:
Let’s see how things have shaped up for Equity Residential prior to this announcement.
Key Factors
The U.S. apartment market witnessed solid leasing activity in the fourth quarter of 2020, per a report from the real estate technology and analytics firm RealPage . Typically, demand remains low during the October-December quarter, but thanks to the pandemic that pushed this demand to the latter half of the year from the usually strong second quarter. Particularly, in the last three months of 2020, absorptions amounted to about 79,000 units.
However, this demand rebound has not been even, rather, it has been varied across markets. Demand in the Sun Belt markets and the sub-urban ones remained strong, while considerable move-outs and sluggish demand were noticed in gateway markets.
Though occupancy level held up well last December, rent changes varied across metros, with select big cities witnessing significant price reductions, while in a number of individual metros rents continue to rise or have been steady, per a report from RealPage. Specifically, in the country’s 150 largest metros, December occupancy came in at 95.5%, which is just a tad below the year-earlier figure of 95.6%. Effective asking rents, on a nation-wide basis, as of December were off 1% from the 2019-end tally, with the December price point coming at $1,410 per month.
Notably, the coronavirus pandemic and the related social-distancing requirements as well as the macroeconomic choppiness are resulting in a bifurcation between urban and sub-urban markets. Equity Residential has a substantial exposure to urban properties which are feeling the brunt due to the pandemic. Amid extended work-from-home announcements, there is an adverse impact on demand, and this portfolio might have continued to see slight moderation in both average rental rates and physical occupancy.
In addition, record-low mortgage rates are spurring demand for existing and new-home purchases, mainly for the young-age cohorts, where homeownership rates have started to shoot up. During the quarter under discussion, same-store revenues might have been strained amid pressure on rental rates. Furthermore, use of concessions has been rampant in urban portfolios, which is likely to have dented the company’s performance during the quarter under review.
The coronavirus mayhem is also affecting the rent-paying capabilities of residential tenants. According to a RealPage report, rent collections have been disappointing in the lower-tier properties. Also, rent collections are trailing in expensive metros, where financial assistance is insufficient to cover most part of the rent bill. This might have hurt the REIT’s performance as well. Apart from this, the challenging situation is likely to continue with government regulations relating to rent setting and collections leading to exacerbation in recovery of unpaid rent.
Nevertheless, Equity Residential is expected to have benefited from its suburban portfolio exposure. It has a healthy balance sheet and is banking on technology, scale and organizational capabilities to drive growth.
In December, Equity Residential also announced the sale of a large San Diego asset for $312.5 million. The move comes as part of the company’s effort to fortify its financial position, with the company deploying the proceeds for addressing 2021 debt maturities.
Amid these, the Zacks Consensus Estimate for the company’s quarterly revenues is pinned at $608 million, indicating an 11.1% decline year on year. The consensus estimate for total same-store revenues is currently pegged at $590 million, calling for a 4.8% decline sequentially and 9.5% slip year on year. Physical occupancy rate is expected to be around 95%.
Moreover, prior to the fourth-quarter earnings release, there is lack of any solid catalyst for being optimistic about the company’s business activities and prospects. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been revised a cent below to 74 cents over the past week. The figure also suggests a year-over-year decrease of 18.7%.
For the full year, the Zacks Consensus Estimate for FFO per share has been revised marginally south over the past week to $3.23. The figure also indicates a 7.5% decrease year over year on revenues of $2.57 billion.
Here is what our quantitative model predicts:
Our proven model predicts a positive 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 a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Equity Residential carries a Zacks Rank #3 and has an Earnings ESP of +2.15%.
Stocks That Warrant a Look
Here are a few 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:
Healthpeak Properties, Inc. , scheduled to report earnings figures on Feb 9, has an Earnings ESP of +5.66% and holds a Zacks Rank of 3 at present.
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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Image: Bigstock
Is a Beat in Store for Equity Residential's (EQR) Q4 Earnings?
Equity Residential (EQR - Free Report) is slated to report fourth-quarter and full-year 2020 results on Feb 10, after market close. The company’s results will likely reflect year-over-year declines 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 a negative surprise of 6.1% in terms of FFO per share. Results reflected a decline in revenues amid the choppy environment in the residential real estate market.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and met in the other and missed in another, the average negative surprise being 0.06%. The graph below depicts this surprise history:
Equity Residential Price and EPS Surprise
Equity Residential price-eps-surprise | Equity Residential Quote
Let’s see how things have shaped up for Equity Residential prior to this announcement.
Key Factors
The U.S. apartment market witnessed solid leasing activity in the fourth quarter of 2020, per a report from the real estate technology and analytics firm RealPage . Typically, demand remains low during the October-December quarter, but thanks to the pandemic that pushed this demand to the latter half of the year from the usually strong second quarter. Particularly, in the last three months of 2020, absorptions amounted to about 79,000 units.
However, this demand rebound has not been even, rather, it has been varied across markets. Demand in the Sun Belt markets and the sub-urban ones remained strong, while considerable move-outs and sluggish demand were noticed in gateway markets.
Though occupancy level held up well last December, rent changes varied across metros, with select big cities witnessing significant price reductions, while in a number of individual metros rents continue to rise or have been steady, per a report from RealPage. Specifically, in the country’s 150 largest metros, December occupancy came in at 95.5%, which is just a tad below the year-earlier figure of 95.6%. Effective asking rents, on a nation-wide basis, as of December were off 1% from the 2019-end tally, with the December price point coming at $1,410 per month.
Notably, the coronavirus pandemic and the related social-distancing requirements as well as the macroeconomic choppiness are resulting in a bifurcation between urban and sub-urban markets. Equity Residential has a substantial exposure to urban properties which are feeling the brunt due to the pandemic. Amid extended work-from-home announcements, there is an adverse impact on demand, and this portfolio might have continued to see slight moderation in both average rental rates and physical occupancy.
In addition, record-low mortgage rates are spurring demand for existing and new-home purchases, mainly for the young-age cohorts, where homeownership rates have started to shoot up. During the quarter under discussion, same-store revenues might have been strained amid pressure on rental rates. Furthermore, use of concessions has been rampant in urban portfolios, which is likely to have dented the company’s performance during the quarter under review.
The coronavirus mayhem is also affecting the rent-paying capabilities of residential tenants. According to a RealPage report, rent collections have been disappointing in the lower-tier properties. Also, rent collections are trailing in expensive metros, where financial assistance is insufficient to cover most part of the rent bill. This might have hurt the REIT’s performance as well. Apart from this, the challenging situation is likely to continue with government regulations relating to rent setting and collections leading to exacerbation in recovery of unpaid rent.
Nevertheless, Equity Residential is expected to have benefited from its suburban portfolio exposure. It has a healthy balance sheet and is banking on technology, scale and organizational capabilities to drive growth.
In December, Equity Residential also announced the sale of a large San Diego asset for $312.5 million. The move comes as part of the company’s effort to fortify its financial position, with the company deploying the proceeds for addressing 2021 debt maturities.
Amid these, the Zacks Consensus Estimate for the company’s quarterly revenues is pinned at $608 million, indicating an 11.1% decline year on year. The consensus estimate for total same-store revenues is currently pegged at $590 million, calling for a 4.8% decline sequentially and 9.5% slip year on year. Physical occupancy rate is expected to be around 95%.
Moreover, prior to the fourth-quarter earnings release, there is lack of any solid catalyst for being optimistic about the company’s business activities and prospects. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been revised a cent below to 74 cents over the past week. The figure also suggests a year-over-year decrease of 18.7%.
For the full year, the Zacks Consensus Estimate for FFO per share has been revised marginally south over the past week to $3.23. The figure also indicates a 7.5% decrease year over year on revenues of $2.57 billion.
Here is what our quantitative model predicts:
Our proven model predicts a positive 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 a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Equity Residential carries a Zacks Rank #3 and has an Earnings ESP of +2.15%.
Stocks That Warrant a Look
Here are a few 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:
Rexford Industrial Realty, Inc. (REXR - Free Report) , slated to release fourth-quarter earnings on Feb 10, has an Earnings ESP of +2.13% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Healthpeak Properties, Inc. , scheduled to report earnings figures on Feb 9, has an Earnings ESP of +5.66% and holds a Zacks Rank of 3 at present.
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.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>