Equity Residential(EQR) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Same-store revenues increased by 2.9%, while same-store expenses rose by only 2.7%, leading to same-store NOI growth of 3% and an increase in NFFO per share of 3.2% [7][10] - The company raised its same-store revenue guidance by 70 basis points to a midpoint of 3.2% [8][17] - The same-store expense midpoint of annual guidance was lowered by a full percentage point to 3% [10][28] Business Line Data and Key Metrics Changes - The Northeastern markets of Boston, New York, and Washington, D.C., along with Seattle, performed better than expected, contributing significantly to revenue [7][18] - Expansion markets like Atlanta, Austin, Dallas-Fort Worth, and Denver, which constitute 6% of NOI, faced pressure from high levels of supply [8][25] Market Data and Key Metrics Changes - Total employment growth continued across nearly all markets, with positive growth returning in Q2 for Washington, D.C., Los Angeles, and Atlanta [9] - Occupancy rates remained strong, with overall occupancy at 96.4% for the quarter, and East Coast markets performing best with occupancies around 97% [15][16] Company Strategy and Development Direction - The company is focusing on acquiring recently built properties in expansion markets at favorable prices, anticipating a recovery in rental rates as supply normalizes [11][12] - The company is leveraging technology and innovation to improve cost structures and enhance resident service experiences [10][26] Management's Comments on Operating Environment and Future Outlook - Management noted that high homeownership costs and limited for-sale inventory continue to support rental housing demand [8] - The company expects a significant rental rate recovery in the long term as supply levels normalize in oversupplied markets [12][25] Other Important Information - The company reported a significant increase in transaction activity, with transaction volumes in Q2 2024 nearly tripling from Q1 and doubling from Q2 2023 [11] - The company is testing new AI resident assistant technology to improve operational efficiency and customer service [26] Q&A Session Summary Question: Expectations for seasonality for the rest of the year - Management expects stable renewal rate increases around 4.5% and slight seasonal moderation of new lease change [32] Question: Pricing weakness in Los Angeles - Management anticipates continued pressure from supply in certain submarkets but expects upside potential for recovery in the future [36] Question: Renewal performance trends - Renewal performance has been stable around 5%, with expectations for the third quarter to achieve around 4.5% [39] Question: Capital deployment and IRR hurdles - The company is underwriting acquisitions with a focus on achieving an IRR around 8% in the long term [41] Question: New lease growth in expansion markets - Management expects challenging operating conditions in expansion markets for the balance of the year, with less demand seasonality compared to coastal markets [45] Question: Spread between renewal and new lease pricing - Management anticipates some tightening in the spread but does not expect them to align closely due to normal market conditions [79]