It has been about a month since the last earnings report for Equity Residential (EQR Quick QuoteEQR - Free Report) . Shares have lost about 1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Equity Residential due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Equity Residential Misses Q1 FFO Estimates, Revenues Beat

Equity Residential’s first-quarter 2023 normalized FFO per share of 87 cents increased 13% year over year but narrowly missed the Zacks Consensus Estimate of 88 cents.

The rental income of $705.1 million increased 7.9% year over year and exceeded the consensus mark of $699.5 million. It also surpassed our estimate of $697.1 million.

Results reflected continued healthy demand and lower-than-anticipated bad debt. EQR also noted that it experienced better payment and move-out activity related to delinquent residents than assumed in its February 2023 guidance.

However, higher expenses due to repair and maintenance work resulting from severe California rain storms, coupled with increased property-related legal and administrative expenditures, acted as a dampener. Also, there was a contraction in physical occupancy.

Quarter in Detail

Same-store revenues were up 9.2% year over year, driven by healthy demand and lower-than-anticipated bad debt. However, due to repair and maintenance expenses resulting from severe California rain storms and increased property-related legal and administrative expenses, same-store expenses flared up 7.2%. Consequently, same-store NOI jumped 10.2% year over year.

The average rental rate increased 9.8% year over year to $2,968 in the quarter ended March. Meanwhile, the physical occupancy contracted 50 basis points (bps) to 95.9% for the same-store portfolio. Our estimate for the same was 95.7%.

Same-store residential revenues were up 9.2% year over year, while expenses increased 7.2%. Consequently, same-store residential NOI expanded 10.2% year over year.

The new lease change for its residential same-store properties was up 1.3%, while the renewal rate achieved by EQR was 6.2% for the first quarter. The blended rate for the quarter was 3.9%. The physical occupancy for this portfolio was 95.9%, up 10 bps sequentially.

In the first quarter, Equity Residential did not acquire any operating properties. However, EQR sold a small portfolio of seven properties in Los Angeles, CA, comprising 247 apartment units for $135.3 million.

Balance Sheet

Equity Residential exited the first quarter of 2023 with cash and cash equivalents of $133.46 million, up from $53.9 million recorded at the end of 2022.

The net debt to normalized EBITDAre was 4.17X, which declined from 4.38X in the previous quarter. The unencumbered NOI as a percentage of the total NOI was 88.3% in the quarter compared with the 88.2% reported in the prior quarter.

Guidance

For the second quarter of 2023, EQR projects normalized FFO per share in the band of 91-95 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Equity Residential has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Equity Residential has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.