Sam Zell’s Equity Residential was hit with a 58 percent decline in income in the third quarter, with urban flight severely impacting its apartment portfolio.
The REIT’s net income in the third quarter was $95.4 million, down from $227.8 million in the same period last year, the company reported Wednesday. That’s a significant drop from the second quarter, when the company recorded $271.5 million in income. Its total revenue during the third quarter was $622.4 million, down by 9 percent year-over-year.
On the earnings call, the real estate investment trust’s CEO Mark Parrell told analysts that renters decided to leave their apartments as employers delayed plans to bring workers back to offices.
“This occupancy pressure in turn caused further rent declines and increased concessions,” Parrell said.
About 23 percent of the company’s rental portfolio is located in cities like San Francisco and New York, which continue to be impacted by suburban migration.
The portfolio-wide occupancy rate was 94.8 percent, down by 1.7 percentage points compared to a year ago. But it’s lower for urban properties: The occupancy rate for Equity’s New York units is just below 90 percent, said COO Michael Manelis.
The portfolio-wide average rent as of September was $2,765, down by 3 percent from June. The average rent in New York also slipped by 3 percent, from $3,909 in June to $3,805 in September. The landlord has been offering concessions of up to two months of free rent, depending on the market, Manelis said.
The number of tenant applications during the third quarter was 12,700, up about 20 percent compared to a year ago, mainly from renters who opted to move into larger apartments, said Manelis. But the spike was not enough to compensate the number of tenants leaving.
The uptick in applications has continued into October, although the peak rental season typically ends by now in normal years, Manelis said.
“Given the amount of inventory we have available in our urban portfolio, we will need to maintain this velocity through the fourth quarter or reduce turnover in order to continue to hold portfolio-wide occupancy at 94 percent,” he said. “Stabilization and then improvement of our occupancy is what would allow us to dial back concessions and begin increasing rates.”