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Equity Residential (EQR) Up 6% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Equity Residential (EQR). Shares have added about 6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Equity Residential due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Equity Residential Q2 FFO Beats Estimates, Outlook Up

Equity Residential reported second-quarter 2019 normalized FFO per share of 86 cents, which surpassed the Zacks Consensus Estimate by a whisker. Moreover, normalized FFO per share figure comes in 6.2% higher than the 81 cents reported in the year-ago quarter.

Results mirror improved same-store NOI and lease-up NOI, and other non-same store NOI. Further, its transaction activities in 2018 and 2019 had a positive impact on the company’s NOI. Management noted that improving results in the East Coast markets and Seattle, as well as strength in the California markets aided the company’s quarterly performance. Backed by healthy demand for its apartment properties, the company raised its full-year guidance for same-store revenues, NOI and normalized FFO per share.

Total revenues in the reported quarter came in at $669.5 million, up 4.6% from the prior-year tally. In addition, the revenue figure comfortably outpaced the Zacks Consensus Estimate of $667.5 million.

Quarter in Detail

Same-store revenues (includes 74,236 apartment units) were up 3.5% year over year to $630.6 million, while expenses flared up 3.3% year over year to $186.5 million. As a result, same-store NOI climbed 3.6% year over year to $444.0 million.

The company recorded 3% growth in average rental rate to $2,822. Physical occupancy expanded 40 basis points year over year to 96.6% for same-store portfolio. Turnover edged down to 13% from 13.5% in the year-ago period.

The company exited second-quarter 2019 with cash and cash equivalents of around $251.3 million, up from the $29.4 million recorded at the end of the previous quarter. Moreover, the company issued $600 million of unsecured notes at a coupon rate of 3.0%.

Portfolio Activity

During the reported quarter, Equity Residential acquired three apartment properties in suburban Washington, D.C., suburban Denver and San Jose, CA, aggregating 1,065 apartment units. This purchase was made for around $376 million at a weighted average Acquisition Capitalization Rate of 4.9%.

The company also sold two wholly-owned properties for around $402.8 million at a weighted average Disposition Yield of 4.4%. Located in New York and Boston, these properties had 561 apartment units in total. Further, the company sold two unconsolidated properties, located in San Jose, CA and South Florida, for approximately $394.5 million, receiving net proceeds of around $78.3 million.

Outlook Raised

For third-quarter 2019, Equity Residential projects normalized FFO per share at 87-91 cents. For the ongoing year, the company expects normalized FFO per share of $3.43-$3.49, up from the $3.34-$3.44 guided earlier.

The company’s full-year outlook is backed by same-store portfolio revenue growth of 3.1-3.5%, compared with the prior estimate of 2.2-3.2%, physical occupancy of 96.4% that is up from the previous outlook of 96.2%, and NOI change of 2.7-3.5% as against the earlier guidance of 1.5-3%.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Equity Residential has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Equity Residential has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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