Equity Residential Earnings: Mid-5% Same-Store Growth for Revenue, Expense, and Net Operating Income

Second-quarter results for Equity Residential EQR were relatively in line with our expectations, leading us to reaffirm our $88 fair value estimate for the no-moat company. Same-store occupancy remained flat sequentially at 95.9%, which is slightly below our 96.2% estimate for the quarter and 80 basis points below the 96.7% figure reported in the second quarter of 2022. Average rental rates increased 6.4%, slightly better than our estimate of 5.4% growth, leading to same-store revenue growth of 5.5% in the second quarter. Meanwhile, same-store operating expenses grew 5.6% in the quarter, which led to same-store net operating income growth of 5.3%. As a result, Equity Residential reported normalized funds from operations growth of 5.7% to $0.94 per share, which matched our estimate for the second quarter.

Management did not make any material changes to the guidance for its same-store portfolio, only raising the low end of its same-store NOI guidance by 30 basis points to a new range of 6.3% to 7.0% for 2023. Still, the solid second-quarter results led to management also raising the low end of normalized FFO guidance by 4 cents to a new range of $3.77 to $3.83, putting our $3.76 estimate just below the updated guidance range. Third-quarter normalized FFO is expected to range between $0.95 and $0.99, putting our $0.95 estimate at the low end of the range. We may slightly raise our 2023 normalized FFO estimate to match the updated guidance, but given that the outlook for the same-store portfolio remains relatively unchanged, we don’t anticipate making any material changes to our long-term estimates for the company.