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What's in Store for Equity Residential's (EQR) Q2 Earnings?

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Equity Residential (EQR - Free Report) is slated to report second-quarter 2021 results on Jul 27, after the closing bell. The company’s results might display 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 an in-line performance in terms of FFO per share. While the pandemic had a significant impact effect on the company’s performance in the first quarter, it showed improving signs with the opening up of cities and return of renters.

Over the trailing four quarters, Equity Residential surpassed the Zacks Consensus Estimate on two occasions, met in the other and missed in another, the average surprise being 0.05%. The graph below depicts this surprise history:

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 Equity Residential prior to this announcement.

Key Factors

For the U.S. apartment market, the second quarter appeared to be robust this year, with renter demand soaring significantly. The number of occupied apartments in the nation’s 150 largest metros climbed 219,909 units, per a report from the real estate technology and analytics firm RealPage, aided by acceleration in employment growth that drives household formation and housing absorption. This not only marked a significant increase from second-quarter 2020 when demand for apartments was limited to around 33,000 units, given the nationwide lockdown, but also the biggest quarterly upsurge observed in the RealPage, Inc. database.

The Sun Belt metros continue to see healthy demand that have already proved their resilience amid the pandemic. However, the gateway markets too registered solid demand with considerable absorption, after witnessing a tepid environment last year that hurt fundamentals, with job losses and population declines, and a flexible working environment.

The current favorable environment is boosting occupancy levels and in turn, pushing up rents. Per a report from RealPage, occupancy is in line with the early 2000s all-time highs, with effective asking rents rising 2% in June, pushing prices up by 6.3% year over year. This annual rent growth marks the biggest 12-month increase recorded since early 2001. Also, average monthly rent surpassed the $1,500 mark for the first time ever and reached $1,513. Rent growth has also been widespread.

Equity Residential, with a diversified portfolio, too is likely to have benefited from this improving trend. It has a healthy balance sheet, and is banking on technology, scale and organizational capabilities to drive growth.

According to Equity Residential’s investor update issued in June, recovery has gained momentum across the company’s markets since April 2021, and physical occupancy improved to 96.5% as of May 31, 2021. The Zacks Consensus Estimate for physical occupancy rate is pinned at 96% for the second quarter, calling for a marginal rise from the prior quarter's 95%.

Moreover, the residential REIT noted improvement in pricing trend with substantial moderation in leasing concessions. Blended rate continued to improve with April at (7.2%) and May at (3.3%).

Nonetheless, Equity Residential’s earnings will likely reflect the adverse impact of the pandemic on its business, year over year. While the gap is expected to have narrowed, the metrics are still below the pre-pandemic levels.

The Zacks Consensus Estimate for the company’s quarterly revenues is pinned at $581.9 million, indicating an 11% decline year on year. The consensus estimate for total same-store revenues is currently pegged at $586 million.

The Zacks Consensus Estimate for the second-quarter FFO per share has remained unchanged over the past month at 70 cents. The figure also suggests a year-over-year decrease of 18.6%.

For second-quarter 2021, the company projects normalized FFO per share at 67-71 cents.

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 currently carries a Zacks Rank of 3 and has an Earnings ESP of +1.43%.

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 too have the right combination of elements to report a positive surprise this quarter:

Mid-America Apartment Communities (MAA - Free Report) , scheduled to report second-quarter earnings on Jul 28, currently has an Earnings ESP of +2.65% and carries a Zacks Rank of 3.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AvalonBay Communities, Inc. (AVB - Free Report) , slated to report quarterly numbers on Jul 28, currently has an Earnings ESP of +0.19% and carries a Zacks Rank of 3.

UDR Inc. (UDR - Free Report) , slated to release quarterly numbers on Jul 28, has an Earnings ESP of +0.91% and has 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.