Equity Residential Earnings: Higher Leasing Commissions and Net Bad Debt Cause Small Revenue Drag

No-moat Equity Residential reported third-quarter results that were mixed compared with our estimates, though we didn’t see anything that would materially change our $87 fair value estimate. Same-store occupancy improved 10 basis points sequentially to 96.0%, which is slightly better than our 95.9% estimate for the quarter but is 40 basis points below the 96.4% figure the company reported in the third quarter of 2022. Average rental rates improved 5.0% year over year, better than our 3.8% estimate. However, while the blended re-leasing spread was positive with rents 1.6% higher than prior rent terms, rents to new tenants declined 3.2% compared with the prior rent. Additionally, higher leasing concessions in the quarter reduced revenue growth by 40 basis points, leading to same-store revenue growth of only 4.1%. Same-store operating expenses were up only 3.1%, leading to same-store net operating income growth of 4.6% that was relatively in line with our estimate of 4.8% growth. Equity Residential reported normalized funds from operations of $0.96 per share in the third quarter, a penny better than our $0.95 estimate and 4.9% higher than the third quarter of 2022.