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Analyst Blog

Equity Residential  reported funds from operations (FFO) of $196.6 million or 63 cents per share in the third quarter of 2011 compared with $166.2 million or 55 cents per share in the year-ago quarter.

Fund from operations, 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.

We cover below the results of the recent earnings announcement, as well as the subsequent analysts’ estimate revisions and the Zacks ratings for the short and long-term outlook on the stock.

Third Quarter Review

Total revenue during the quarter was $511.9 million compared with $453.9 million in the year-earlier period. However, reported revenue was below the Zacks Consensus Estimate of $514.0 million.

Same-store quarterly revenues (which include 104,922 apartment units) increased 5.5%. Same-store net operating income (NOI) during the quarter increased 9.0% year over year.

For fourth quarter 2011, recurring FFO is expected in the range of 63 cents to 67 cents per share. For full-year 2011, Equity Residential increased its recurring FFO guidance from $2.40 - $ 2.45 per share to $2.41- $2.45 per share.

Read our full coverage on this earnings report: Equity Residential Reports Mixed 3Q

Earnings Estimate Revisions - Overview

The company’s earnings estimates for fiscal 2011 have moved in both directions since the third quarter earnings release, implying that the analysts are cautious about the current fiscal performance of the company. Let’s dig into the earnings estimate in details.

Agreement of Estimate Revisions

In the last 7 days, 4 out of the 20 analysts covering the stock increased their earnings estimates for the upcoming quarter and 8 out of the 18 analysts increased the same for fiscal 2011. In the last 7 days, 4 out of 20 analysts covering the stock trimmed their earnings estimates for the upcoming quarter and 3 out of 18 decreased the same for fiscal 2011.

Magnitude of Estimate Revisions

Earnings estimates for the upcoming quarter remained unchanged at 66 cents per share over the last 7 days and $2.42 per share for fiscal 2011, which indicates that the analysts are cautious about the fiscal earnings.

Moving Forward

Based in Chicago, Illinois, Equity Residential is the largest fully integrated publicly traded multi-family real estate investment trust (REIT) in the U.S with assets in some of the best long-term apartment markets in the country.

Furthermore, the company has a fully implemented state-of-the-art operating platform that enables it to manage the operations on a real-time basis and deliver a market-leading performance. The company has a strong balance sheet with plenty of cash and full availability on its line of credit.

However, the continuous acquisition spree of Equity Residential involves significant upfront operating expenses with limited near-term profitability. New properties usually take time to generate revenues, and will continue to drag down margins till they get established

Equity Residential currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Apartment Investment & Management Co. holds a Zacks #3 Rank.

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