BMO Capital Markets upgraded apartment REIT Equity Residential (NYSE:EQR) to Market Perform from Underperform on Monday as its peak leasing is holding up.
The prior Underperform rating was based on EQR's premium valuation relative to the sector, combined with the expectation for weakening demand from rising unemployment. "The recession has so far been elusive," BMO analyst John P. Kim wrote in a note to clients.
Since then, BMO has upgraded its near-term growth outlook for the U.S. economy to 1.0% growth for Q2 2023 GDP and now sees 2023 year-end unemployment of 4.4% compared with its previous estimate of 4.8%.
"We now expect the leasing season (2Q and 3Q) to remain intact, which should bode well for continued strong leasing figures," Kim said.
With an NYC revival and easing bad debt in Los Angeles County, May blended rates accelerated to +4.6% from +4.0% in April, Kim pointed out.
Meanwhile, Equity Residential's (EQR) daily asking rents, according to CoStar, are accelerating sequentially in Q2-to-date at a sector high of +2.4% Q/Q vs. the sector's +1.5% rate, the analyst said.
With that strength, the REIT faces tougher comparisons. Kim expects rent growth to moderate throughout the peak leasing season.