- BMO Capital Markets analyst John P. Kim upgraded Equity Residential (NYSE:EQR) to Market Perform from Underperform, with a $64 target price.
- The new rating reflects resilient U.S. employment data amid peak leasing season.
- The unemployment rate advanced from 3.4% to 3.7%, contrary to forecasts of an increase to 3.5%.
- BMO's Economics Team upgraded its near-term growth outlook for the U.S. economy, with the GDP forecast to +1.0% in Q2 2023 and the 2023 unemployment rate to 4.4% (from 4.8%).
- Kim now expects the leasing season in Q2 and Q3 to remain unchanged, driving strong leasing for EQR.
- Last week, EQR raised its 2023 guidance, with Normalized FFO per share increased to $3.73-$3.83 from $3.70-$3.80, same-store revenue growth to 5.5%-6.25% from 4.5%-6.0% and same-store NOI growth to 6.0%-7.0% from 4.75%-6.25% previously.
- However, the company now expects moderated occupancy of 96.0% (-20 bps vs. earlier).
- The analyst sees EQR's daily asking rents accelerating sequentially in Q2 2023 to date at a sector-high of +2.4% q/q vs the sector of +1.5% (as per CoStar data).
- Meanwhile, on a Y/Y basis, Kim cites rents facing tougher comparables and expects them to moderate throughout the peak leasing season.
- The analyst raised estimates for revenues to $711.4 million (from $708.8 million) in Q2 2023, $2.87 billion (from $2.86 billion) in 2023 and $2.96 billion (from $2.95 billion) in 2024.
- Kim also raised expectations for FFO per share to $0.93 (from $0.92) in Q2 2023, $3.79 (from $3.74) in 2023 and $3.91 (from $3.88) in 2024.
- Price Action: EQR shares are trading higher by 1.15% at $63.81 on the least check Monday.
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