Equity Residential Posts Bigger-Than-Expected $177M Profit, Stays In Buy Mode
Equity Residential surprised its own executives with stronger-than-expected quarterly results.
The Chicago-based apartment REIT posted a $177M profit in its second-quarter earnings report released after markets closed Monday. Revenue growth, at 2.9% more than the second quarter of the prior year, outpaced the 2.7% increase in expenses. Overall net operating income was up 3% year-over-year.
“We are pleased to report results that exceeded our expectations and to be seeing positive forward momentum in our business,” CEO Mark Parrell said in a statement.
The quarterly profit breaks down to 47 cents per share, up 10 cents from the prior year and beating analysts' expectations of 38 cents. The strong performance led the firm to raise its full-year guidance, which sent the stock up 1.7% in after-hours trading.
Equity Residential owns around 300 properties and more than 79,000 apartment units. It built its portfolio in Boston, New York, Washington, D.C., Seattle and California but is now targeting growth in Denver, Atlanta, the Dallas metro and Austin.
"Our portfolio continues to benefit from steady demand from our well-employed, higher-earning renter demographic, elevated single-family housing costs and manageable new apartment supply across most of our markets,” Parrell said.
Equity Residential acquired one property and sold two in the second quarter, according to the earnings report. It purchased the recently completed 160-unit Helix Apartments in suburban Boston for $62.6M in May at a 5.7% capitalization rate.
That same month, it sold the 162-unit Marlowe Apartments a block away from Amazon HQ2 in Arlington, Virginia, for $48.5M and a 165-unit project in San Francisco for around $37M. The weighted average disposition yield on the two developments was 6.2%.
The REIT also disclosed the acquisition of two properties in Atlanta and the Dallas metro since the end of the second quarter, spending a combined $217M for 644 units. It is also under contract to pay $77M for a 202-unit property in Denver.
The second-quarter results followed an equally sunny first quarter, where Parrell said the firm was seeing “terrific demand” in its four key expansion markets.
The REIT’s strong performance this year is playing out against an uncertain multifamily backdrop. Record new construction driven by pandemic-era demand is testing the upper limits of rent growth, which has moderated significantly or turned negative in some markets.
But while rent growth is slowing, it hasn’t stopped, and rents are again starting to tick up in metro areas that didn’t see a glut of new construction. Nonetheless, multifamily loan distress has skyrocketed as sponsors with maturing loans face new, significantly higher interest rates that sap any profitability from their balance sheet.
Investors are eyeing distressed properties, along with performing assets, for acquisitions, betting that valuations are near the bottom and the interest rate environment will improve.
Blackstone’s $10B purchase of AIR Communities was seen by many analysts as a signal that investor sentiment in the rental space had shifted, and more buyers would start scooping up properties.
REITs are also bouncing back after two years of bearish sentiment around real estate on Wall Street. Real estate stocks had their best day of the year earlier this month and led all S&P sectors in gains for at least one week of the month.
The sector is still pulling out of a slump, with the FTSE Nareit All REIT index showing global REITs are up 1.75% year-to-date, while its apartment REIT index is up 0.35% over the same period.
The S&P 500 is up more than 14% from the start of the year.
