Rental Supply Stabilization Will Support Share Price Recovery Amid Sector Pressure

Key Takeaways

• Limited new apartment supply and urban demographic shifts are expected to drive stronger rent growth and high occupancy in Equity Residential's core markets.
  
• Operational technology upgrades and a conservative financial approach position the company for improved margins, stable dividends, and long-term value creation.
  
• Reliance on premium urban markets amid rising supply, affordability pressures, and regulatory risks threatens rent growth, occupancy rates, and long-term earnings stability.

Catalysts

Equity Residential is committed to creating communities where people thrive.

• A significant reduction in new multifamily supply-especially in high-barrier coastal markets like New York, San Francisco, and Washington, D.C.-is expected to increase pricing power for Equity Residential over the next 12-24 months, supporting stronger revenue and net operating income growth.
  
• High housing costs and limited single-family home availability are driving a shift toward long-term renting among well-compensated Millennials and Gen Z, sustaining robust occupancy rates and minimizing rent concessions, which underpins stable or growing cash flow.
  
• The company's focused portfolio in urban, supply-constrained markets positions it to disproportionately benefit from continued demographic migration into cities, delayed household formation, and preference for premium rental properties, which should drive above-market rent growth and higher long-term earnings.
  
• Accelerated deployment of artificial intelligence and operational technologies is expected to improve leasing efficiency, reduce bad debt, and moderate overhead growth, resulting in improved operating margins and potentially higher future earnings per share.
  
• Equity Residential's balance sheet strength and disciplined capital allocation strategy (including targeted asset sales, selective acquisitions, and property renovations) enables opportunistic growth and value creation, thus supporting future funds from operations and dividend stability.

Equity Residential Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Equity Residential's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 33.2% today to 19.4% in 3 years time.
• Analysts expect earnings to reach $669.9 million (and earnings per share of $1.67) by about September 2028, down from $1.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $762.0 million in earnings, and the most bearish expecting $551 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 55.0x on those 2028 earnings, up from 25.2x today. This future PE is greater than the current PE for the US Residential REITs industry at 32.5x.
• Analysts expect the number of shares outstanding to grow by 0.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

Equity Residential Future Earnings Per Share Growth

Risks

• Persistent soft job growth and economic uncertainty in several key markets-such as Los Angeles, Boston (due to education/research sector cuts), and parts of the Sunbelt expansion markets-could limit long-term rental demand and slow revenue growth and net operating income, especially if employment trends further weaken.
  
• Elevated levels of new multifamily supply and ongoing use of rental concessions in certain expansion and supply-constrained submarkets (notably Denver, Dallas, Atlanta urban, and some L.A. neighborhoods) are resulting in continued price sensitivity and weaker new lease growth, pressuring revenue growth and net margins into future years.
  
• High geographic concentration in expensive, highly regulated coastal urban markets (like New York, San Francisco, and Boston) exposes the company to local economic volatility, demographic outflows, and especially increased regulatory risks (such as potential rent freezes or expanded rent control), all of which could constrain rent growth and compress margins or earnings.
  
• The company's dependence on maintaining premium/luxury price points and high rent-to-income ratios makes it particularly sensitive to broader trends in affordability and economic cycles; during downturns or periods of high inflation/weak wage growth, vacancy risk may rise and rent pricing power may erode, affecting both revenues and net margins.
  
• Structurally higher interest rates and intensified competition-both from new multifamily developments and alternative housing models (like build-to-rent single family or tech-driven property managers)-could drive up refinancing/acquisition costs and compress cap rates, reducing earnings growth potential and negatively impacting long-term share price performance.

Valuation

• The analysts have a consensus price target of $74.575 for Equity Residential based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $81.0, and the most bearish reporting a price target of just $66.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.5 billion, earnings will come to $669.9 million, and it would be trading on a PE ratio of 55.0x, assuming you use a discount rate of 7.2%.
• Given the current share price of $66.62, the analyst price target of $74.58 is 10.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.