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Equity Residential’s (EQR - Analyst Report) core funds from operations (FFO) per share in second-quarter 2013 reached 71 cents, in line with the Zacks Consensus Estimate and up 3 cents year over year.

Quarterly results at this apartment real estate investment trust (REIT) were primarily driven by higher same store net operating income (NOI) and the benefit from stabilized Archstone properties. However, the positives were offset partially by the negative impact from disposition activity, common share issuance for the Archstone deal and elevated interest expense.

Equity Residential’s reported FFO per share, for the quarter under review, was 73 cents, up from 64 cents in the prior-year quarter.

Total revenue during the reported quarter increased 41.6% year over year to $635.1 million and comfortably surpassed the Zacks Consensus Estimate of $607 million.

Quarter in Detail

Same-store revenues (that includes 85,509 apartment units) increased 4.9% year over year to $461.2 million, while expenses increased 3.6% to $158.5 million. In addition, occupancy inched up 30 bps (basis points) to 95.5% from 95.2% for the same-store portfolio.

Same-store NOI, during the quarter, increased 5.6% year over year to $302.7 million, primarily reflecting a 4.5% increase in average rental rates to $1,884 per apartment unit.

Acquisitions & Dispositions

During the reported quarter, Equity Residential purchased a Redmond, Wash.-based property (322 apartment units) for $91.5 million. It also acquired a land parcel located in Seattle for $16.5 million, which can be used for development in future.

On the other hand, Equity Residential reaped $729.9 million from selling 19 apartment properties (5,745 apartment units). The company also disposed a commercial property in downtown Seattle for $30.7 million and 5 land parcels for a total of $59.8 million, resulting in an economic gain of around $29.0 million.

Capital Markets Moves

Equity Residential filed a new universal shelf registration statement with the SEC for utilizing in future registered equity and debt securities offerings. Moreover, its board has authorized a hike in its At-The-Market (ATM) offering program to 13 million shares from 6 million shares as well as tailored its existing share repurchase program for potential buybacks of up to 13 million of its common shares (prior capacity was 8 million shares).

Notably, since Q3 last year, the company has not utilized its ATM program. While since 2008, it has not opted for share buybacks from the open market. It has no intention of utilizing either programs immediately.


Equity Residential exited the quarter with cash and cash equivalents of $152.6 million, compared with $612.6 million at the end of 2012.

During the quarter, Equity Residential completed a $500 million unsecured note offering due Apr 15, 2023 with a coupon of 3.0%. Proceeds were used to repay debts and other corporate purposes.


For third-quarter 2013, Equity Residential expects core FFO per share in the range of 71–75 cents. Sequentially, the company expects the results to benefit from lower interest expense and general and administrative costs.

For full-year 2013, Equity Residential forecasts core FFO per share in the range of $2.80 – $2.85 compared to the previous forecast of $2.80 – $2.90. The revisions result from the accomplishment of the company’s $4 billion disposition program earlier in the year than initially anticipated. The projections are based on same store revenue growth of 4.4% – 4.6% (previously expected 4.0% to 5.0%) and NOI increase of 5.0% to 5.25% (previously 4.5% to 6.0%).  

Our Viewpoint

Going forward, we believe Equity Residential’s focus on expansion in the high barrier-to-entry regions of the U.S will drive its top-line growth. The Archstone acquisition, which the company along with AvalonBay Communities Inc. (AVB - Analyst Report) closed in February, further reinforces that.

Moreover, the echo boomers population continues to raise the demand for apartments. Alongside, with a decent balance sheet position, the company is well poised to capitalize on this favorable trend through acquisitions and developments. However, the continuous acquisition spree of the company involves significant upfront expenses that drag down near-term profitability till the properties get established.   

Equity Residential currently holds a Zacks Rank #3 (Hold). The other apartment REITs that are performing well and deserve a look include Camden Property Trust (CPT - Snapshot Report) and UDR Inc. (UDR - Analyst Report), both carrying a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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