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Equity Residential (EQR) Beats Q3 FFO Estimates, Raises 2021 View

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Equity Residential’s (EQR - Free Report) third-quarter 2021 normalized funds from operations (FFO) per share of 77 cents outpaced the Zacks Consensus Estimate of 75 cents. Rental income of $623.2 million also exceeded the consensus mark of $599.8 million.

Results reflect robust physical occupancy, sustained pricing power improvement and lower bad debt, net due to higher-than-anticipated resident receipts from governmental rent relief programs. In the reported period, Equity Residential also achieved positive total same store revenue growth quarter over quarter for the first time since the onset of the global health crisis. The residential REIT also raised its full-year guidance for same-store revenues, net operating income (NOI) and normalized FFO per share.

On a year-over-year basis, FFO per share remained flat at 77 cents, while rental income inched up 0.1%.  

In the third quarter, the company collected roughly 97% of its expected residential revenues. Further, it received governmental rental assistance payments of $13.4 million paid on behalf of residents.

The company also provided an update on October performance. Particularly, as of Oct 21, 2021, the company saw physical occupancy of 96.9%, up from 96.7% as of the end of September. Renewals also improved in October, with 64% of the residents renewing by the month compared with 58.5% by the third quarter. Further, the blended rate has increased to 9.8% for October, up from the third quarter’s 7.6%.

Quarter in Detail

Residential same-store revenues (includes 75,509 apartment units) were down 2.5% year over year to $579.3 million, while expenses flared up 2.1% to $200.7 million. As a result, same-store NOI declined 4.8% to $378.7 million, year on year.

The average rental rate decreased 4.4% year on year to $2,649 during the quarter ended September, while physical occupancy expanded 190 basis points to 96.6% for the same-store portfolio.

Equity Residential acquired eight operating properties, comprising 2,108 apartment units located in Austin, TX, Dallas/Ft. Worth, TX, Atlanta, GA, suburban Seattle, WA and suburban Boston, MA, for a total purchase price of $740.2 million and a weighted average acquisition cap rate of 3.9%. The buyouts marked the company’s reentering the Dallas/Ft. Worth and Austin markets.

The company sold five operating properties, comprising 1,047 apartment units in California, for a total of $612.3 million, at a weighted average disposition yield of 3.9%. This generated an unlevered IRR of 9.5%.

Moreover, in August 2021, the company entered into a strategic partnership with Toll Brothers, Inc. for developing apartment communities in the strategic Equity Residential markets.

Balance Sheet

Equity Residential exited third-quarter 2021 with cash and cash equivalents of $39.7 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 normalized FFO per share of $2.95-$2.97 compared with $2.85-$2.95 guided earlier. The Zacks Consensus Estimate for the same is currently pinned at $2.92.

The company’s full-year outlook incorporates a same-store revenue decline of 3.7% compared with the 5-4% fall guided earlier. Expenses are expected to shoot up 3.25% compared with 2.75-3.25% estimated earlier. Consequently, NOI is estimated to shrink 7.0% compared with the 8.5-7.5% decline projected earlier. Physical occupancy is expected at 96.0% compared with 95.3-96.3% guided earlier.

For fourth-quarter 2021, the company projects normalized FFO per share of 78-80 cents. The Zacks Consensus Estimate for the same is currently pinned at 78 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 REITs — AvalonBay Communities, Inc. (AVB - Free Report) , Mid-America Apartment Communities, Inc. (MAA - Free Report) and Duke Realty Corp. (DRE - 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.