Equity Residential (EQR Quick QuoteEQR - Free Report) is slated to report third-quarter 2021 results on Oct 26, after the closing bell. The company’s results might display year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Chicago, IL-based residential real estate investment trust (REIT) delivered a surprise of 11.43% in terms of FFO per share. Results highlighted robust physical occupancy and improvement in other same-store operating metrics, driving the quarterly sequential same-store revenues and net operating income (NOI) positive for the first time since the initial days of the global health crisis.

Over the trailing four quarters, Equity Residential surpassed the Zacks Consensus Estimate on two occasions, met in the other and missed in another, the average surprise being 2.01%. The graph below depicts this surprise history:

Equity Residential Price and EPS Surprise

Equity Residential price-eps-surprise | Equity Residential Quote

Let’s see how things have shaped up for Equity Residential prior to this announcement.

Key Factors

For the U.S. apartment market, the third quarter appeared to be robust this year, with renter demand continuing to surge significantly. The number of occupied apartments was up 255,094 units, per a report depicting preliminary calculations from the real estate technology and analytics firm RealPage. This marked the biggest quarterly product absorption figure observed in the database that go back to the early 1990s. As of third-quarter 2021, the annual demand volume reached a whopping 597,354 units. Increase in occupied apartments over the past year surpassed the previous results.

After living with parents during the initial days of the pandemic, young adults are now forming new households. A better job market, particularly for the high-paying employment sectors than in the low-wage positions, is triggering demand for luxury units. In addition, rising home prices and limited inventory levels in the for-sale sector are hindering the conversions to homeownership and stoking rental housing demand. In terms of markets, product absorption continued in the Sun Belt and other non-gateway metros. What’s grabbing attention is the large product absorption in the gateway metros, reflecting healthy rental demand.  

The current favorable environment is boosting the occupancy levels and in turn, pushing up rents. Rent growth has also been widespread.

Equity Residential, with a diversified portfolio, too is likely to have benefited from this improving trend. It has a healthy balance sheet, and is banking on technology, scale and organizational capabilities to drive growth.

Equity Residential, in its September-released operating update, noted that it is concluding a strong leasing season, witnessing healthy demand and pricing for the company’s apartment units. Management, therefore, stated that its same-store revenue growth is on track to meet or slightly surpass the company’s projections referred in its second-quarter 2021 earnings release.

Particularly, as of Sep 21, 2021, the company saw physical occupancy of 96.9%, up from 96.7% as of the end of August and July, and 96.3% at the end of June. Renewals also improved in September, with 62% of the residents renewing by the month compared with 58% by August, 54% by July and 53% by June. Further, the blended rate increased to 9.7% for September, up from August’s 8.2%, July’s 5.1% and June’s 0.6%.

Nonetheless, Equity Residential’s earnings might reflect the adverse impact of the pandemic on its business, year over year, though the gap is expected to have narrowed. Also, a high apartment supply add to its woes.

The Zacks Consensus Estimate for the company’s quarterly revenues is pinned at $599.75 million, indicating a 3.64% decline year on year. The consensus estimate for the total same-store revenues is currently pegged at $595 million, suggesting an increase from the prior quarter’s $589 million.

Prior to the quarterly earnings release, analysts seem to be optimistic about the company’s prospects as the Zacks Consensus Estimate for the July-September quarter’s FFO per share moved two cents north to 75 cents over the past month. However, it still suggests a year-over year decline of 2.6%.

For third-quarter 2021, the company projects FFO per share at 71-75 cents.

Here is what our quantitative model predicts:

Our proven model predicts a positive surprise in terms of FFO per share for Equity Residential this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Equity Residential currently carries a Zacks Rank of 3 and has an Earnings ESP of +1.19%.

Stocks That Warrant a Look

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

Essex Property Trust, Inc. (ESS Quick QuoteESS - Free Report) , slated to report quarterly numbers on Oct 26, currently has an Earnings ESP of +0.27% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Camden Property Trust (CPT Quick QuoteCPT - Free Report) , slated to release quarterly numbers on Oct 28, has an Earnings ESP of +0.43% and has a Zacks Rank of 2, at present.

Public Storage (PSA Quick QuotePSA - Free Report) , scheduled to report quarterly numbers on Nov 1, currently has an Earnings ESP of +1.50% and carries 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.