Multifamily real estate investment trust Equity Residential raised revenue projections going into the second half of the year, citing strong demand, high occupancy rates, and limited turnover, particularly in established coastal markets.
The Chicago-based company said Tuesday its apartment portfolio benefits from steady leasing among its target cohort, namely a well-employed, high-earning renter demographic that has been bolstered by positive employment trends and job growth. Revenue rose nearly 3% in the second quarter, according to the REIT.
The company is "seeing positive forward momentum in our business, which led us to significantly improve our guidance," Mark J. Parrell, Equity Residential's president and CEO, said on the company’s earnings call. The company boosted its guidance for annual revenue growth to 3.2% from 2.9%.
Equity Residential described move-outs due to high rental rates edging below long-run averages and a roughly 20% income-to-rent ratio as a signal it was pushing rents at a proper pace. The REIT also said it's seen a boost in occupancy rates that have grown to 96.2% as a result of elevated single-family housing costs and new apartment supply it views as manageable.
Move-outs to purchase a home have accounted for just 7.5% of all move-outs in the second quarter, the lowest number the company has reported in a three-month period. And while turnover in its largely Sun Belt expansion markets — where increased supply has been a larger issue — trended above coastal markets, both remain low relative to historical norms with renewals pushing as high as 60% in some areas.
The combination of high demand, limited turnover, and strong job and wage growth among its residents has allowed Equity Residential to raise rents 7% higher than where they were at the beginning of January, executives said.
“That's about 40 basis points stronger than a normal rent seasonality curve, and definitely stronger than kind of the muted expectations that we started the year,” Michael Manelis, Equity Residential’s chief operating officer, said on the call. “So I think we like the rent level position that we're at right now. Whether we get a little bit more acceleration for the next couple of weeks, really doesn't impact kind of our full year outlook.”
Acquisitions Return
The company also bucked trends from the first quarter that saw limited to no acquisition activity across the U.S. multifamily sector. Less interest rate volatility allowed Equity Residential to purchase for roughly $62.6 million a 160-unit property in suburban Boston that was completed in 2023.
The REIT has already picked up two additional properties in Atlanta and Dallas totaling 644 units in the third quarter for a combined $216.8 million. The company is under contact for a third deal in Denver consisting of 202 units for $77 million.
Company executives indicated Equity Residential would continue to pursue acquisitions of recently built properties at close to replacement cost in Sun Belt expansion markets.
“We're open to buying existing streams of income and we're open to developing assets,” Parrell said. “But right now our lean is towards the existing assets, we think there's still going to be quite a bit sold.”
Parrell cited developers holding short-term bank debt as prime targets for acquisitions but added the transactions “may not quite be at the fire sale prices people expected a couple of years ago, but they're still going to be good values compared to replacement costs and we like that basis.”