Equity Residential Q1 FFO In Line

Zacks

Equity Residential’s (EQR) normalized funds from operations (:FFO) per share in first-quarter 2014 reached 71 cents, in line with the Zacks Consensus Estimate and within the company’s guided range of 68 cents – 72 cents. Results, however, came 7 cents above the prior-year quarter figure.

Quarterly results at this apartment real estate investment trust (:REIT) were primarily driven by higher same store net operating income (:NOI) and NOI from non-same store properties currently in lease up as well as reduced total interest expense.

Equity Residential’s reported FFO per share, as defined by the National Association of Real Estate Investment Trusts (:NAREIT), for the quarter under review, was 71 cents, up from 22 cents in the prior-year quarter, reflecting expenses and prepayment penalties associated with the Archstone acquisition in the prior year.

Total revenue during the reported quarter increased 25.5% year over year to $633.4 million. However, it narrowly missed the Zacks Consensus Estimate of $637 million.

Quarter in Detail

Same-store revenues (that includes 100,984 apartment units) increased 4.0% year over year to $613.9 million, while expenses moved up 3.2% to $218.2 million. As a result, same-store NOI during the quarter, increased 4.4% year over year to $395.6 million.

The company experienced a 3.9 % increase in average rental rates to $2,133 per apartment unit while occupancy moved up 10 basis points year over year to 95.1% for the same-store portfolio.

During the quarter, Equity Residential acquired an apartment property in Los Angeles (430-unit) for around $143.0 million and purchased additional development rights at one of its present land sites in Manhattan for about $5.5 million.

The company made no sale of any properties or any land parcels in the reported quarter. It accomplished the construction on 5 development projects (1,290 apartment units) for a total development cost of around $368.3 million and commenced construction on 3 development projects (1,145 apartment units) for approximately $614.3 million.

Liquidity

Equity Residential exited the first-quarter 2014 with cash and cash equivalents of $37.2 million, down from $53.5 million at the end of 2013.

Outlook

Equity Residential expects normalized FFO per share to range between 74 cents – 78 cents in second-quarter 2014. The Zacks Consensus Estimate of 77 cents per share also lies within this range.

The company expects second-quarter FFO per share to benefit from higher NOI from same store properties and properties in lease up and lower general and administrative expenses, partly dwarfed by higher total interest expense.

Our Viewpoint

We believe Equity Residential’s concerted efforts toward repositioning its portfolio from low barrier-to-entry/non-core markets to high barrier-to-entry/core markets will drive top-line growth going forward. Also, the echo boomers population continues to raise the demand for apartments.

However, the company has a decent exposure to the Washington D.C. market, where conditions remain choppy, thus posing a challenge for rent growth in the near term.

Equity Residential currently holds a Zacks Rank #3 (Hold). Investors interested in the apartment REIT industry may consider stocks like Equity LifeStyle Properties, Inc. (ELS), Preferred Apartment Communities, Inc. (APTS) and UDR, Inc. (UDR). All these stocks carry a Zacks Rank #2 (Buy).


Note: 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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