Equity Residential (EQR) Q4 Earnings: Is A Beat In Store?

Equity Residential (NYSE:EQR) is slated to report fourth-quarter 2018 results on Jan 29, after market closes. The company is expected to witness growth in revenues and funds from operations (FFO) per share in the upcoming quarterly results.

In the last reported quarter, this Chicago, IL-based residential real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate twice — the average positive surprise being 0.61%. The graph below depicts this surprise history:

Let’s see how things are shaping up for Equity Residential prior to this announcement.

Factors at Play

Equity Residential’s performance in the to-be-reported quarter is likely to benefit from its efforts to reposition the company’s portfolio in high barrier-to-entry/core markets. Amid economic recovery and job-market gains, the company is poised for expansion. Specifically, favorable demographics, lifestyle transformation, and creation of households amid improving economy are likely to have driven demand for the company’s properties in the quarter and helped in absorption of new supply across its markets.

Moreover, the U.S. apartment market witnessed an encouraging fourth quarter in 2018, with accelerated rent growth and elevated occupancy level amid robust demand for rental units. Per a study by the real estate technology and analytics firm — RealPage, Inc. (NASDAQ:RP) — the annual pace of apartment rent growth in the United States picked up and reached 3.3% in the quarter, ahead of the 2.5% recorded in 2017.

Also, occupancy came in at 95.4%, up from 95% reported at year-end 2017. Reflecting the strongest demand realized since 2010, occupied apartment tally moved up by 323,290 units in 2018, and demand surpassed annual completions that aggregated 287,007 units.

Amid this, Equity Residential is expected to witness high average rental rate and occupancy of its properties in the to-be-reported quarter. The Zacks Consensus Estimate for occupancy is currently pegged at 96%, while the average rental rate for the Dec-end quarter is estimated to be $2827, denoting an increase of 1.7% from the third quarter.

Moreover, Equity Residential projects normalized FFO per share of 84-86 cents for fourth-quarter 2018. Results are likely to reflect positive impact from growth in same-store net operating income (NOI) and lower total interest expenses. For full-year 2018, the company estimates normalized FFO per share of $3.25-$3.27.

The Zacks Consensus Estimate for the fourth-quarter FFO per share is currently pegged at 85 cents, which indicates a projected increase of 2.41% year over year. This growth is expected to be backed by revenues and in fact, the Zacks Consensus Estimate for the company’s quarterly revenues is pinned at $650.0 million, highlighting anticipated growth of around 3.06% year over year. For full-year 2018, the Zacks Consensus Estimate for FFO per share is $3.27.

Nevertheless, Equity Residential too has been experiencing substantial new supply across a number of markets. Further, there is increased concession activity amid higher supply, which is another concern.

Here is what our quantitative model predicts:

Equity Residential has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Equity Residential is +0.82%.

Zacks Rank: Equity Residential carries a Zacks Rank #2 (Buy), currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are a few stocks in the REIT sector you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Boston Properties, Inc. (NYSE:BXP) , slated to release fourth-quarter results on Jan 29, has an Earnings ESP of +0.33% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Omega Healthcare Investors, Inc. (NYSE:OHI) , scheduled to report quarterly numbers on Feb 11, has an Earnings ESP of +0.26% and a Zacks Rank of 2.

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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