Equity Residential (EQR)
Q3 2011 Earnings Call
October 27, 2011 11:00 am ET
Frederick C. Tuomi - Former President of Property Management
Mark J. Parrell - Chief Financial Officer and Executive Vice President
Marty McKenna - Spokeman
Unknown Executive -
David S. Santee - Executive Vice President of Operations
David J. Neithercut - Chief Executive Officer, President, Trustee, Member of Executive Committee and Member of Pricing Committee
Mark Biffert - Goldman Sachs
Eric Wolfe - Citigroup Inc, Research Division
Andrew McCulloch - Green Street Advisors, Inc., Research Division
Jana Galan - BofA Merrill Lynch, Research Division
Jonathan Habermann - Goldman Sachs Group Inc., Research Division
Ross T. Nussbaum - UBS Investment Bank, Research Division
Richard C. Anderson - BMO Capital Markets U.S.
Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division
David Bragg - Zelman & Associates, Research Division
Seth Laughlin - ISI Group Inc., Research Division
Michael Bilerman - Citigroup Inc, Research Division
Michael J. Salinsky - RBC Capital Markets, LLC, Research Division
Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division
Swaroop Yalla - Morgan Stanley, Research Division
Haendel Emmanuel St. Juste - Keefe, Bruyette, & Woods, Inc., Research Division
Steve Sakwa - ISI Group Inc., Research Division
Robert Stevenson - Macquarie Research
Previous Statements by EQR
» Equity Residential's CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Equity Residential's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» Equity Residential Q1 2010 Earnings Call Transcript
Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, October 27, 2011. I would now like to turn the call over to Mr. Marty McKenna, Vice President, Investor Relations. Go ahead, sir.
Thanks, Jo. Good morning and thank you for joining us to discuss Equity Residential's Third Quarter 2011 Results. Our featured speakers today are David Neithercut, our President and CEO; David Santee, our EVP of Property Operations; and Mark Parrell, our Chief Financial Officer. Fred Tuomi, our EVP of Property Management is also here with us for the Q&A.
Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities law. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. And now I'll turn the call over to David.
David J. Neithercut
Thank you, Marty. Good morning, everyone. Thank you for joining us for our call today. We're obviously very pleased with the company's operating performance in the third quarter and we want to thank the thousands of our colleagues across the country that continue to deliver these strong results for us. Only 2 other times in our company's history have we delivered 9% growth in quarterly NOI, and theses result could not have been achieved without the dedication and the commitment by our on-site personnel and their support teams.
And here's a very important thing that we want to share with you today, and that is across the country, these teams continue to deliver. Despite concerns about the economy, with expectations of slowing job growth and worries about the growing possibility of a double-dip recession, we are continuing to post very strong operating results. This month, this week, and even today. Because despite all the worry and all the headlines, our dashboards indicate there's no let-up in the strength of underlying apartment fundamentals. And David Santee is going to tell you just exactly what it is we're seeing out there today.
David S. Santee
Okay, thank you, David. Good morning, everyone. Since we last spoke, the economic headwinds have been creating considerable uncertainty. However, one thing is certain, the fundamentals of our business remains strong come, our dashboards flash green, and our target demographic appears to be healthy and resilient. In the third quarter, our 17,000-plus new residents had an average household income of $86,000 and a median age of 29. Individual credit scores continue to improve and we had record numbers of automatic credit approvals across the portfolio.
Now typically, this is the time of year where I would expect to be telling you about the softening of demand along with downward pressure on rents due to the seasonal nature of our business. But it's quite the contrary. Our daily unique visitors to equityapartments.com, our number one source for move-ins and a the key proxy for relative demand, continue to outpace previous year's activity by more than 20%. This means that we average over 15,000 unique visitors through our website each and everyday. To keep pace with turnover, we only -- we need only to convert 5% of these 15,000 daily visitors to new residents.
On a quarter-over-quarter basis, e-leads or guest cards increased 7%, applicants increased 6% and move-ins were up 4%. With this continued strength in demand and favorable overall fundamentals, our 4 key drivers of revenue continue to deliver results at/or above expectations. As we have discussed previously, these drivers are our turnover, occupancy, base rent and renewal pricing. So let's start with turnover.
Turnover for the third quarter was 17.7% compared to 17.9% for Q3 2010. This positions us well for achieving our revised 2011 annualized turnover of 57.2%. Quality homes, loyal customers and our friend, the housing market, continue to fuel a strong base of residents whose average stay has increased from 1.4 years to 1.8 years quarter-over-quarter.
Now occupancy. Throughout this year, we have continued to enjoy a 40-plus basis point improvement in occupancy. With occupancy at 95.2% today, and a left to lease of 7.5%, it's a story of what we don't see in the traditional seasonal slowdown. Last year at this time, occupancy was 94.6%, and we had a slightly higher left to lease. But this year, solid demand, a lack of new supply, and a rethink on the benefits of homeownership should continue to support higher, stabilized occupancy and base rents. So let's go to base rents.
Since January 1, base rents have improved 9.1%. And for definitional purposes, base rents are LRO-produced rents prior to assigning any amenity values. Our quarter-over-quarter base rents increased 5.8%, exceeding our internal expectations of 5%. Base rents in Q4 should be, on average, 8% higher than a year ago, as a result of normal seasonal Q4 rate softening experienced last year, which we are not experiencing today. This break in seasonal patterns, coupled with improved pricing power in our Southern California markets, gives us continued confidence and opportunity with our renewal rates.
So as a result of continued low turnover, strong occupancy and base rents that are all trending very favorably against historical norms, we have the confidence to quote and achieve market-leading rents on each and every renewal. As a result, renewal rents achieved in Q3 were up 6.4%, and forward-quoted rents are 7.4% for November, 8% for December, and January coming in at 8.3%. And again, quoted rents are initial rates offered to all expiring leases but history tells us that we will achieve 80 to 100 basis points less than quoting. So with all that said, no one can predict the future. However, my dashboard is telling me that our future is bright. That in the near term, job growth is less important than previous downturns and we have the wind at our back. How hard and fast that wind blows remains to be seen.
David J. Neithercut
All right. Thank you, David. So obviously, we feel pretty good about current fundamentals in the multifamily space and despite concerns about the macroeconomic climate, we remain optimistic about fundamentals for the foreseeable future and that's for all the reasons we've talked about over the last several quarters.
We feel good about apartment fundamentals with so little new supply being added to most of our markets. And at a time when we'll create about 1 million new households a year in the country and occupancy levels, as David said, in across many other portfolios are already above 95%. We feel good about apartment fundamentals because demographics are squarely in our favor, with 85 million eco-boomers coming into the work place and most likely, in the rental housing.