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Why Is Equity Residential (EQR) Up 2.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Equity Residential (EQR - Free Report) . Shares have added about 2.5% in that time frame, underperforming 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 Tops, Revenues Miss Estimates

Equity Residential’s second-quarter 2020 normalized FFO per share of 86 cents surpassed the Zacks Consensus Estimate of 83 cents. The reported figure remained flat, year over year.

Results reflect a decline in same-store expenses on impressive expense control and continued enhancements in its operating platform. Moreover, resident retention was the highest for the second quarter in Equity Residential’s history.

However, total revenues in the second quarter came in at $653.5 million, down about 2.4% year on year. The revenue figure also missed the Zacks Consensus Estimate of $656.7 million.

Management noted, “We see good demand for our apartments, both urban and suburban, but with increased customer price sensitivity, especially in the urban cores of New York, San Francisco and Boston.”

The company also stated that it started witnessing a recovery in demand in late May, while initial leads, traffic and applications continue to be in line with the prior-year period. Further, the residential REIT collected an average 97% of its total monthly residential rental income in the second quarter, while July collections are trending at a similar pace to previous months.

Quarter in Detail

Same-store revenues (includes 74,843 apartment units) edged down 0.9% year over year to $608.7 million, while expenses slipped 0.1% to $184.8 million. As a result, same-store net operating income (NOI) declined 1.2% to $423.9 million, year on year.

Average rental rate inched up 0.8% year on year to $2,860 during the June-end quarter, while physical occupancy contracted 160 basis points to 94.9% for the same-store portfolio.

Balance Sheet

Equity Residential exited second-quarter 2020 with cash and cash equivalents of $187.4 million, up from the $82.3 million recorded at the end of the first quarter. As of Jul 28, 2020, the company had no outstanding balances under its revolving credit facility or commercial paper program and had $2.4 billion in available liquidity.

Portfolio Activity

During the reported quarter, the company sold two apartment properties for $384.2 million at a weighted average Disposition Yield of 4.4%. The properties are located in the San Francisco Bay Area and the Washington, DC area. These properties had 655 apartment units in total.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Equity Residential has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Equity Residential has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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