Equity Residential (EQR) Meets Q2 FFO, Expects Low Expense Growth
Equity Residential’s EQR second-quarter 2023 normalized funds from operations (FFO) per share of 94 cents increased 5.6% year over year and came in line with the Zacks Consensus Estimate.
The rental income of $717.3 million increased 4.4% year over year and also exceeded the consensus mark of $715.1 million.
Results reflect healthy same-store revenue performance. Mark J. Parrell, Equity Residential’s president and CEO, noted that the supply picture in the coastal markets where EQR mainly operates “remains favorable”, plus “demand is steady”, and “continued progress in mitigating delinquency in Southern California” is observed.
The company also updated the guidance due to pending favorable refinancing activity and second-half same-store expense projections lower than what was previously expected.
Quarter in Detail
Same-store revenues were up 5.5% year over year. Our estimate for same-store revenue growth was 5.9%. Same-store expenses flared up 5.5% and consequently, same-store net operating income (NOI) climbed 5.4% year over year.
The average rental rate increased 6.4% year over year to $3,017 in the quarter ended June. Meanwhile, the physical occupancy contracted 80 basis points (bps) to 95.9% for the same-store portfolio. Our estimate for the same was 96.2%.
Same-store residential revenues were up 5.5% year over year, while expenses increased 5.3%. Consequently, same-store residential NOI expanded 5.6% year over year.
The new lease change for its residential same-store properties was up 2.3%, while the renewal rate achieved by EQR was 5.9% for the second quarter. The blended rate for the quarter was 4.3%. The physical occupancy for this portfolio was 95.9%, flat sequentially.
In the second quarter, Equity Residential acquired two operating properties. These included a recently completed 262-unit apartment property in Atlanta, GA, currently in lease-up, for $78.6 million at a stabilized acquisition cap rate of 6.6%. The other one is a 287-unit property in suburban Denver, TX, built in 2022, for $108 million at an acquisition cap rate of 5%. However, the company did not sell any properties in the second quarter.
Balance Sheet
Equity Residential exited the second quarter of 2023 with cash and cash equivalents of $35.7 million, down from the $133.46 million recorded at the end of the prior quarter.
The net debt to normalized EBITDAre was 4.27X, which increased from 4.17X in the previous quarter. The unencumbered NOI as a percentage of the total NOI was 88.5% in the quarter, up from 88.3% reported in the prior quarter.
Guidance
For the third quarter of 2023, EQR projects normalized FFO per share in the band of 95-99 cents. The Zacks Consensus Estimate for the same is currently pegged at 96 cents.
For 2023, Equity Residential revised its outlook for normalized FFO per share to the $3.77-$3.83 band from its earlier guidance of $3.73 to $3.83, up 2 cents at the midpoint. The Zacks Consensus Estimate for the same is $3.77.
In the second half of the year, the company expects lower same-store expense growth and has reduced its full-year same-store expense guidance midpoint down 25 basis points to 4.25% from 4.5%. Consequently, the same-store NOI growth projection is revised to 6.3-7%, up 15 basis points at the midpoint.
Equity Residential currently carries a Zacks Rank #2 (Buy). 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-eps-surprise-chart | Equity Residential Quote
Performance of Another Residential REIT
Mid-America Apartment Communities MAA reported a second-quarter 2023 core FFO per share of $2.28, which surpassed the Zacks Consensus Estimate by a penny. Moreover, the reported figure climbed 12.9% year over year. This residential REIT’s quarterly results were driven by an increase in the average effective rent per unit for the same-store portfolio.
Rental and other property revenues were $535.1 million, outpacing the Zacks Consensus Estimate of $534.2 million. The reported figure was 8.1%, higher than the previous-year quarter’s $495 million.
An Upcoming Residential REIT Earnings Release
We now look forward to the earnings release of another residential REIT, AvalonBay Communities AVB, which is scheduled to come up with its results on Jul 31.
The Zacks Consensus Estimate for second-quarter FFO per share of AvalonBay Communities is currently pegged at $2.60, which calls for 7% growth year over year.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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