EUR 850.00 For Business Accounts Only

Morningstar | Consistent Growth Throughout the Portfolio Leads to an In-Line 1Q for Equity Residential

Equity Residential reported an in-line first quarter for 2019, leading us to maintain our $69 fair value estimate and no-moat rating. Same-store occupancy was up sequentially 10 basis points to 96.3%, above our 96.1% estimate. Same-store rate growth was also slightly ahead of our assumptions, with 2.8% year-over-year growth, leading to same-store revenue growth of 3.1% for the quarter. However, same-store expense growth was also higher than we anticipated at 4.4% growth in the quarter mainly due to a 3.9% increase to payroll expenses and 7.8% increase to repairs and maintenance expenses. As a result, same-store net operating income growth was 2.5%, slightly below our 2.7% estimate. Normalized funds from operations were in line with our expectations at $0.82 for the first quarter. Guidance for 2019 remains unchanged, and we are at the midpoint of Equity Residential’s normalized FFO guidance for the second quarter, so we don't foresee making any major changes to our model.

After Equity Residential's West Coast portfolio outperformed the company's East Coast portfolio in 2018, the company is seeing more consistent revenue growth across the entire portfolio so far in 2019. While Southern California and San Francisco are still leading the portfolio with 3.9% and 3.8% same-store revenue growth, respectively, even Washington, D.C., which had the lowest revenue growth in the first quarter, was still up 2.1%. Every market saw positive occupancy growth year over year and had rate growth of at least 1.5% in the quarter. Most markets also saw NOI growth between 3% and 4%, though New York fell 1.2% due to 7.8% expense growth in the first quarter. Other than the high expense growth in a couple of markets, it is good to see the consistent growth across the geographically diversified portfolio.