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Equity Residential (EQR) Beats Q2 FFO Estimates, Raises 2021 View

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Equity Residential’s (EQR - Free Report) second-quarter 2021 funds from operations (FFO) per share of 78 cents outpaced the Zacks Consensus Estimate of 70 cents. Rental income of $598.1 million also exceeded the consensus mark of $580.2 million.

Results reflect robust physical occupancy and improvement in other same-store operating metrics, driving quarterly sequential same-store revenues and net operating income (NOI) positive for the first time since the onset of the global health crisis. Based on these improvements, the residential REIT also raised its full-year guidance for same-store revenues, NOI and FFO per share.

According to Equity Residential's president and CEO Mark J. Parrell, “Driven by an accelerating economy and the reopening of cities, our operations continue to recover rapidly with robust demand for our apartments in all our markets leading to high occupancy, increased pricing power and an almost complete absence of new lease concessions. This has driven pricing and Physical Occupancy up so quickly that they now equal or exceed 2019 levels in most of our markets.”

However, the FFO per share declined 9.3% and rental income fell 8.5%, on a year-over-year basis, reflecting the adverse impact of the pandemic on its business.

In the second quarter, the company collected roughly 97% of its expected residential revenues.

Parrell also noted, “Based on these positive indicators, we are pleased to raise our annual same store revenue guidance range to (5%) - (4%) with an expectation that quarter over quarter same store revenue growth could return as early as the fourth quarter of this year.”

Quarter in Detail

Residential same-store revenues (includes 76,556 apartment units) were down 8.4% year over year to $567.9 million, while expenses flared up 3.4% to $195.1 million. As a result, same-store NOI declined 13.5% to $372.7 million, year on year.

Average rental rate decreased 9.5% year on year to $2,574 during the June-end quarter, while physical occupancy expanded 120 basis points to 96.1% for the same-store portfolio.

During the second quarter, the company completed the development of one joint-venture property, Aero Apartments, comprising 200 apartment units in the San Francisco market.

Equity Residential acquired three properties, comprising 813 apartment units and located in Denver, CO, Fairfax, VA and Atlanta, GA, for a total purchase price of $280.2 million at a weighted average acquisition capitalization rate of 3.9%.

The company sold five properties, comprising of 795 apartment units in suburban Los Angeles, CA, suburban New York, NY and suburban Seattle, WA, for a total of $409.5 million, at a weighted average disposition yield of 3.7%, generating an unlevered IRR of 8.8%.

Balance Sheet

Equity Residential exited second-quarter 2021 with cash and cash equivalents of $39.5 million, down from the $42.6 million recorded at the end of 2020.

Outlook

For full-year 2021, the company has revised its guidance and now projects FFO per share of $2.89 -$2.99 compared with the $2.67-$2.77 guided earlier, mainly suggesting higher same-store NOI. The Zacks Consensus Estimate for the same is currently pinned at $2.79.

The company’s full-year outlook incorporates a same-store revenue decline of 5-4% compared with the 8-6% fall guided earlier. Expenses are expected to shoot up 2.75-3.25%, down from the 3-4% estimated earlier. Consequently, NOI is estimated to shrink 8.5-7.5% compared with the 13-11% projected earlier. Physical occupancy is expected to be 95.3-96.3% as against the 95-96% guided earlier.

For third-quarter 2021, the company projects FFO per share at 71-75 cents. The Zacks Consensus Estimate for the same is currently pinned at 69 cents.

Equity Residential currently carries a Zacks Rank #3 (Hold). 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 — AvalonBay Communities, Inc. (AVB - Free Report) , Mid-America Apartment Communities, Inc. (MAA - Free Report) and UDR, Inc. (UDR - Free Report) — scheduled for today after the closing bell.

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.