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What's 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 2021 earnings on Feb 1 after the closing bell. The company’s quarterly results will likely reflect growth in both revenues and funds from operations (FFO) per share.

In the last reported quarter, this Chicago, IL-based residential real estate investment trust (REIT) delivered a surprise of 2.67% in terms of FFO per share. Results reflected robust physical occupancy, a sustained pricing power improvement and lower bad debt net due to higher-than-anticipated resident receipts from governmental rent-relief programs.

Over the trailing four quarters, Equity Residential surpassed the Zacks Consensus Estimate on three occasions and missed the same on the other, the average surprise being 4.20%. 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 EQR before this announcement.

Key Factors

For the U.S. apartment market, 2021 appeared to be robust, with renter demand continuing to surge significantly. Net demand aggregated more than 673,000 units, surpassing the prior high set in 2000 by a whopping 66%, per a report from the real estate technology and analytics firm, RealPage. Household formation seemed to have taken place at a faster pace and fueled demand for apartments as well as for other types of housing. Also, renter incomes continued to climb upward. Limited availability led to price appreciation and effective asking rents on new leases increased a remarkable 14.4% in 2021.

Moreover, for the first time, the nation’s apartment market experienced an increase in occupancy in the fourth quarter, which is otherwise considered to be a seasonally slow leasing period. This increase is due to the pandemic that disrupted the seasonal behavior. In the fourth quarter, U.S. occupancy climbed 30 basis points (bps), touching 97.4% at the end of the year, contrary to a decline of an average of 40 bps during the fourth quarter in the past three decades.

Equity Residential, with a diversified portfolio, 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.

The Zacks Consensus Estimate for the company’s quarterly revenues stands at $628.56 million, indicating a 2.5% increase year over year. The consensus estimate for the total same-store revenues is currently pegged at $611 million. The physical occupancy rate is estimated to remain high at 97%, up from 94% in the year-ago period.

The Zacks Consensus Estimate for the October-December quarter’s FFO per share has remained unrevised at 80 cents over the past month. However, it suggests a year-over-year increase of 5.3%.

However, Equity Residential’s earnings might reflect the adverse impact of the pandemic on its business year over year, though the gap is expected to have narrowed. Also, a high-apartment supply adds to its woes.

For the fourth quarter of 2021, the company projected normalized FFO per share in the range of 78-80 cents.

For full-year 2021, the company projected normalized FFO per share in the band of $2.95-$2.97. EQR’s full-year outlook incorporated a same-store revenue decline of 3.7%, while expenses are expected to shoot up 3.25%. Consequently, net operating income is estimated to shrink 7.0%. Physical occupancy is expected at 96.0%.

Here Is What Our Quantitative Model Predicts:

Our proven model does not conclusively predict 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 odds of an FFO beat. However, that’s not the case here.

Equity Residential currently carries a Zacks Rank #3 and has an Earnings ESP of -1.33%. 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 residential REIT sector — AvalonBay Communities, Inc. (AVB - Free Report) , Essex Property Trust, Inc. (ESS - Free Report) and Invitation Homes Inc. (INVH - Free Report) — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter:

AvalonBay Communities, slated to release fourth-quarter earnings on Feb 2, has an Earnings ESP of +0.17% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Essex Property Trust, scheduled to report quarterly numbers on Feb 2, has an Earnings ESP of +0.53% and carries a Zacks Rank of 3.

Invitation Homes, slated to report quarterly numbers on Feb 15, currently has an Earnings ESP of +2.19% 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.