What Drove Equity Residential’s Second-Quarter Revenues?

Q2 2018 same-store revenues

Equity Residential’s (EQR) second-quarter top line beat Wall Street estimates and marked a YoY (year-over-year) improvement, mainly driven by increased same-store revenues. Its same-store revenues, which include 72,629 apartment units, rose 2.2% YoY to $599.6 million.

What Drove Equity Residential’s Second-Quarter Revenues?

The YoY growth was backed by a 1.9% increase in average rental rates and a 40-basis-point higher occupancy rate. Same-store average rental and occupancy rates for the second quarter were $2,752 and 96.2%, respectively. A YoY improvement of 1.4% in new leases and a 4.7% rise in renewal rates also helped same-store revenue growth.

The company’s same-store revenues marked an improvement on a sequential basis and grew 1% to $616 million. Its average rental rate and occupancy rate increased sequentially 80 bps (basis points) and 20 bps, respectively.

Equity Residential’s properties are mainly located in the top business and commercial cities in the United States, which gives it an upper hand over competitors AvalonBay Communities (AVB), Essex Property Trust (ESS), and American Homes 4 Rent (AMH). They had average monthly rental rates of $2,570, $2,226, and $1.553, respectively, in the first quarter.

The company’s properties are located in Southern California, New York, San Francisco, Washington, DC, Seattle, and Boston. The high property prices in these Class A areas and cities prompts consumers to opt for rental apartments. A high barrier to entry in those cities also helps the company maintain its leadership position.

The company’s sustained focus on expanding its apartment properties is also helping its top-line growth. In the second quarter, Equity Residential bought a 240-unit apartment property in Hoboken, New Jersey, for a total consideration of $146 million. It’s also developing a project in Boston with an estimated cost of $409.7 million.

2018 expectation

For 2018, Equity Residential raised its outlook for certain key metrics. Same-store revenue growth rate for the year was revised upward to 1.9%–2.3% from the earlier projection of 1%–2.25%. Physical occupancy rate is anticipated to be 96.1% against the previous forecast of 96%. The company has also raised its consolidation rental acquisitions to $700 million from $500 million forecast earlier.

Equity Residential makes up ~7.5% of the iShares Residential Real Estate ETF (REZ).