Equity Residential's (EQR) Q1 FFO in Line, Revenues Miss
Equity Residential EQR reported first-quarter 2017 normalized funds from operations (“FFO”) per share of 74 cents, in line with the Zacks Consensus Estimate. However, the figure was lower than 76 cents reported in the year-ago quarter.
Results reflected enhanced same-store net operating income (NOI) and lease-up NOI. In addition, the company experienced lower corporate overhead. However, the positive was offset by adverse impact on NOI, primarily stemming from the company’s 2016 huge disposition activity.
Per the company’s management, there is solid rental demand through the nation’s coastal, gateway cities, but amid high apartment supply, new lease rates continue to remain under pressure.
Moreover, total revenue during the reported quarter came in at $604.1 million, reflecting a 2.4% fall from the prior-year period. The figure also marginally missed the Zacks Consensus Estimate of $604.7 million.
Quarter in Detail
Same-store revenues (includes 71,000 apartment units) increased 2.6% year over year to $560.2 million and expenses climbed 3.9% year over year to $167.3 million. As a result, same-store NOI advanced 2.1% year over year to $392.9 million.
The company experienced 2.6% growth in average rental rates to $2,633, while occupancy remained unchanged year over year at 95.9% for the same-store portfolio.
The company exited first-quarter 2017 with cash and cash equivalents of $42.1 million, down from $77.2 million at the end of the prior year.
Portfolio Activity
Equity Residential did not acquire any properties in the reported quarter. The company stabilized its 453 unit Potrero 1010 development in San Francisco at a Development Yield of 5.9%. On the other hand, it sold one consolidated apartment property (304 apartment units) for $47.6 million.
2017 Outlook
For second-quarter 2017, Equity Residential projects normalized FFO per share in the range of 75–79 cents. The Zacks Consensus Estimate is currently pegged at 77 cents.
For full-year 2017, the company expects normalized FFO per share in the $3.05–$3.15 range. The Zacks Consensus Estimate of $3.09 lies within this range. For the same-store portfolio, the company projects physical occupancy to be 95.7%, revenue to register growth of 1.0–2.25%, expense to increase 3.0–4.0%, and consequently NOI to climb 0.0–2.0%.
Our Viewpoint
Equity Residential is likely to benefit from portfolio-repositioning efforts, growth in millennial population, lifestyle transformation and creation of new households. However, the company’s performance over the recent quarters reflected the adverse impact due to the company’s 2016 huge disposition activity. Apart from the earnings dilution impact from substantial asset sales, the company is expected to experience pressure on rental rates due to the new apartment supply in its markets.
Equity Residential currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Equity Residential Price, Consensus and EPS Surprise
Equity Residential Price, Consensus and EPS Surprise | Equity Residential Quote
Let us now look forward to the earnings releases of Essex Property Trust Inc. ESS, Apartment Investment and Management Company AIV and Simon Property Group, Inc. SPG, all of which are expected to report this week.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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