Equity Residential's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Equity Residential (EQR)

Q1 2012 Earnings Call

April 26, 2012 11:00 am ET

Executives

Marty McKenna - Spokeman

David J. Neithercut - Chief Executive Officer, President, Trustee, Member of Executive Committee and Member of Pricing Committee

Frederick C. Tuomi - President of Property Management

David S. Santee - Executive Vice President of Operations

Mark J. Parrell - Chief Financial Officer and Executive Vice President

Analysts

David Bragg - Zelman & Associates, Research Division

Eric Wolfe - Citigroup Inc, Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Ross L. Smotrich - Barclays Capital, Research Division

Swaroop Yalla - Morgan Stanley, Research Division

Conor Fennerty - Goldman Sachs Group Inc., Research Division

Jana Galan - BofA Merrill Lynch, Research Division

Andrew McCulloch - Green Street Advisors, Inc., Research Division

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Philip J. Martin - Morningstar Inc., Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Nicholas Yulico - Macquarie Research

Michael Bilerman - Citigroup Inc, Research Division

Presentation

Operator

Good day, ladies and gentlemen and thank you for standing by. And welcome to the first quarter 2012 earnings conference call. [Operator Instructions] This conference is being recorded today, Thursday, April 26, 2012. I would now like to turn the call over to Mr. Marty McKenna. Go ahead, sir.

Marty McKenna

Thanks, Jo. Good morning, and thank you for joining us to discuss Equity Residential's First Quarter 2012 Results. Our featured speakers today are David Neithercut, our President and CEO; and Fred Tuomi, our EVP of Property Management. David Santee, our EVP of Property Operations; and Mark Parrell, our CFO, are also here with us for the Q&A.

Please be advised that 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 certain to 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, everybody. We appreciate you taking the time to join us today for our first quarter call. Clearly, the strength and operating fundamentals that the multifamily space has enjoyed the last 6 quarters or so has certainly carried over into the first quarter 2012 and should continue for the balance of the year. And those fundamentals drove our first quarter results, which came in very much in line with our expectations.

Our same-store revenue growth in the quarter was 5.5% and same-store NOI growth was a very strong 7.8%. Our new lease rates are pretty much where we thought they'd be and renewal rates continue to trend in the sixes just as we had expected. So we feel very good about where we sit today and to help you understand how we're currently positioned moving in to our primary leasing season, I'm going to hand the call over to Fred and he'll share a bit about the trends we're seeing across our markets.

Frederick C. Tuomi

Thank you, David. Let me do this, talk about some of our key markets but before I do that, I just want to give you a quick update on our key drivers of our revenue.

And for the first quarter, the drivers of our revenue support our full year same-store revenue growth around the midpoint of our guidance that we gave back in January. So let me give you a quick update on each of those 4 drivers.

First is turnover. And the recent turnover is up. Its up 100 basis points the first quarter of this year versus last year. However if you look within the quarter, January and February did have a pretty good spike in move outs compared to the same month last year. But then March came right back in line with 2011 and as did April after the end of the quarter.

So look at where we are in the market. Kind of as expected, the markets with the strongest rent growth have been having some price resistance on renewals. And it's natural when you think about it, residents who traded up in quality and in rent levels during the recession will eventually be priced out at some point and that's happening in some of our high-growth markets.

Home buying is up in a few areas but not by much and still well below historic norms. Home buying is really not a problem and continues to be in check. That takes us to occupancy. And a while occupancy did match the first quarter of last year at 94 9, it was below kind of what we wanted for the first quarter, below our budgets, below our expectations. And the occupancy in our key markets actually declined throughout the quarter as we held on to our higher rates. And we believe that making a trade right now in our strong markets, trading some occupancy or holding those higher rates is actually a good strategy at this point in the cycle.

Now as we enter the leasing season, we fully expect and begin to see a recapture of that occupancy at those higher rates that you held onto as we enter the leasing season. And let me make a point here, that new residents still showed no problem at accepting and achieving these new rates. So we are seeing some turnover based on the prices of the stack but not on new leases coming in.

So that takes us to the base rents. And as David mentioned, base rents running just as we expected to Q1 averaging about 6.5% over 2011 levels during the quarter.

And then finally, renewals. Renewals remain very strong. We averaged 6.6% increases for the quarter and in the month of April, we actually closed out 6.9% real increases for the quarter. Now let's take a quick look in the sampling of some of our markets.

First is Boston, Massachusetts. Boston has been on a great run as you know. After several quarters of double-digit rent growth, we did experience price resistance during the first quarter. And therefore turnover did move up in this market. Occupancy is now recovering very quickly at rents 10% or more above last year. In town, in Cambridge, some markets are doing great and definitely Quincy not quite strong as we're having some a little more of turnover and some home buying down in Quincy.

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