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Equity Residential (EQR) Q3 FFO and Revenues Beat Estimates

Zacks Equity Research

Equity Residential EQR reported third-quarter 2019 normalized funds from operations (FFO) per share of 91 cents, surpassing the Zacks Consensus Estimate of 88 cents. Moreover, normalized FFO per share figure comes in 9.6% higher than the 83 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.

Total revenues in the reported quarter came in at $685.1 million, up 4.9% from the prior-year reported figure. In addition, the revenue figure comfortably outpaced the Zacks Consensus Estimate of $678.1 million.

Quarter in Detail

Same-store revenues (includes 75,290 apartment units) were up 3.4% year over year to $649.7 million, while expenses flared up 3.7% year over year to $196.5 million. As a result, same-store NOI climbed 3.3% year over year to $453.2 million.

The company recorded 3.2% growth in average rental rate to $2,870. Physical occupancy expanded 20 basis points year over year to 96.5% for same-store portfolio. Turnover edged down to 15.9% from the year-ago period’s 16.2%.

The company exited third-quarter 2019 with cash and cash equivalents of around $28.8 million, down from the $251.3 million recorded at the end of the previous quarter. Moreover, the company issued $600 million of unsecured notes at a coupon rate of 2.5% and a yield of 2.56%.

Portfolio Activity

During the reported quarter, Equity Residential acquired four apartment properties in Los Angeles, the San Francisco Bay Area and suburban Denver, aggregating 1,084 apartment units. This purchase was made for around $489.9 million at a weighted average Acquisition Capitalization Rate of 4.4%. Further, during the quarter, the company completed a 137 apartment unit property in Seattle as well as an 84 apartment unit property in Cambridge, MA.

The company also sold seven properties for around $303.9 million at a weighted average Disposition Yield of 4.7%. One of the properties is located in Arlington, VA, while the other six are in Berkeley, CA. These properties had 641 apartment units in total.

Outlook

For fourth-quarter 2019, Equity Residential projects normalized FFO per share at 87-89 cents. The Zacks Consensus Estimate for the same is currently pinned at 89 cents.

The company has revised its outlook for the ongoing year and now expects normalized FFO per share of $3.46-$3.48 compared with the $3.43-$3.49 guided earlier. This is above the Zacks Consensus Estimate currently pinned at $3.45.

The company’s full-year outlook is backed by same-store portfolio revenue growth of 3.3%, physical occupancy of 96.4%, and NOI change of 3.1%.

Our Viewpoint

We are encouraged with Equity Residential’s impressive performance in the September-end quarter. Management noted that there is a continued solid demand to live in the vibrant urban and dense suburban centers of the cities where the company operates. It also produced the highest resident retention in its history.

Equity Residential is poised for growth amid 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 the company’s 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 #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 and EPS Surprise

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

We, now, look forward to the earnings releases of other residential REITs like AvalonBay Communities, Inc. AVB, UDR Inc. UDR and Apartment Investment and Management Company AIV which are slated to report their quarterly numbers next week.

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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