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Equity Residential (EQR) Q2 FFO Beats Estimates, Outlook Up

Zacks Equity Research

Equity Residential EQR reported second-quarter 2019 normalized funds from operations (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 net operating income (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. The Zacks Consensus Estimate for the same is currently pinned at 86 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. This is above the Zacks Consensus Estimate currently pinned at $3.40.

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%.

Our Viewpoint

We are encouraged with Equity Residential’s impressive performance in the second quarter. Healthy demand for its apartment properties aided the company record growth in rent and occupancy. Moreover, backed by strong demand and the lowest second-quarter turnover in its history, the company raised its outlook for the current year, which is encouraging.

Equity Residential is poised for growth amid healthy economy and job-market growth, favorable demographics, lifestyle transformation, and creation of households. Furthermore, the company is anticipated to benefit from its portfolio-repositioning efforts in high barrier-to-entry/core markets. However, new apartment supply across its markets might partly impede its growth momentum in the future, straining lease rates, occupancy and retention, and lead to use of high concessions as well.

Equity Residential currently carries a Zacks Rank #4 (Sell).

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 price-consensus-eps-surprise-chart | Equity Residential Quote

We, now, look forward to the earnings releases of other REITs like Regency Centers Corporation REG, Apartment Investment and Management Company AIV and Federal Realty Investment Trust FRT, which are slated to report their quarterly numbers tomorrow.

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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Regency Centers Corporation (REG) : Free Stock Analysis Report
 
Federal Realty Investment Trust (FRT) : Free Stock Analysis Report
 
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Apartment Investment and Management Company (AIV) : Free Stock Analysis Report
 
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