Equity Residential (EQR) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Quarterly Results: Same-store revenues increased by 2.9%, expenses rose by 2.7%, leading to NOI growth of 3% and an NFFO per share increase of 3.2%.
• Revenue Performance Exceeds Expectations: Steady demand across all markets and limited supply in coastal markets led to an increase in same-store revenue guidance by 70 basis points to 3.2%.
• Positive Market Trends: High homeownership costs, limited for-sale inventory, and a steady employment picture support rental housing performance.
• Capital Allocation and Acquisitions: Transaction activity is increasing, with acquisitions in suburban Boston, Atlanta, and Dallas, focusing on properties with strong cash flow growth prospects.
• Operational Innovations: Introduction of an AI resident assistant and a self-guided tour experience app to enhance customer service and operating efficiencies.

Pessimistic Highlights

• Pressure from High Levels of Supply: Expansion markets like Atlanta and Austin face pressure due to high levels of supply, impacting demand.
• Challenges in Los Angeles: New lease change negatively impacted by new supply in Hollywood Mid-Wilshire and shadow supply in downtown and West LA.

Company Outlook

• Stable Demand and Occupancy: Occupancy at 96.4% for the quarter, with strong renewal processes leading to low resident turnover.
• Guidance Revision: Full-year same-store revenue guidance revised to 3.2%, with expectations of seasonal moderation in new lease and renewals.
• Focus on Expansion Markets: Despite current challenges, there is a long-term strategy to grow the portfolio in expansion markets with anticipated rental rate recovery.

Q & A Highlights

• Q: Can you provide more detail on seasonality expectations for the rest of the year? (Eric Wolfe, Citi)

  A: Expect stable achieved renewal rate increases around 4.5% and slight seasonal moderation of new lease change. Occupancy is over 96%, with solid application volumes and a normal seasonal deceleration curve. (Michael Manelis)

• Q: How are renewals trending, and what are your expectations for the third quarter? (Steve Sakwa, Evercore ISI)

  A: Renewal performance remained stable at around 5% through the quarter. For the third quarter, quotes are out for the next 90 days ranging between 6.5% and 7%, with negotiations still ongoing. (Michael Manelis)

• Q: Could you discuss the impact of evictions on LA pricing and when you expect it to normalize? (Eric Wolfe, Citi)

  A: The impact of new supply and evictions is expected to continue through the year, with an anticipated recovery in 2025 as the market works through filling these units. (Michael Manelis)

• Q: Can you speak more about the renewals and how they trended through the quarter? (Steve Sakwa, Evercore ISI)

  A: Renewal performance has been stable, with expectations for the third quarter to achieve around 4.5% renewal rate increases. (Michael Manelis)

• Q: Regarding capital deployment, how are you thinking about IRR hurdles today? (Steve Sakwa, Evercore ISI)

  A: Pricing properties around a 5% forward cap rate, with a focus on acquiring recently built properties in expansion markets. The strategy includes underwriting a 5% forward cap rate with assumptions of rent degradation and benefits from focused management processes. (Alexander Brackenridge)

• Q: Can you provide insights into the expansion markets' potential progression of new lease growth this fall? (Adam Kramer, Morgan Stanley)

  A: Demand continues, but operating conditions remain challenging due to new supply. The focus is on renewing residents as the top priority in these markets. (Michael Manelis)

• Q: Could you discuss the NOI guidance increase and the factors limiting the flow-through to FFO guidance? (Michael Goldsmith, UBS)

  A: The increase in NOI guidance reflects improvements in revenue and expense management, with a portion of the overhead growth related to legal costs associated with defense and commercial disputes. (Robert Garechana)

• Q: Can you comment on turnover trends and price sensitivity across markets? (Jamie Feldman, Wells Fargo)

  A: Turnover remains historically low, with some price sensitivity observed in Southern California. The overall financial health of residents remains strong. (Michael Manelis)

• Q: Could you discuss the impact of the political environment on regulatory risks, especially in D.C.? (Anthony Paolone, JPMorgan)

  A: The focus is on state and local efforts, with significant efforts to educate and fight against rent control measures, especially in California. Federal efforts are more educational, with discussions ongoing with presidential campaign teams. (Mark Parrell)