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Equity Residential’s (EQR - Free Report) third-quarter 2022 normalized funds from operations (FFO) per share of 92 cents outpaced the Zacks Consensus Estimate of 91 cents. Rental income of $695.1 million also exceeded the consensus mark of $694.1 million.
On a year-over-year basis, the FFO per share grew 19.5% from 77 cents, while the rental income increased 11.5%.
Results reflect healthy demand during the primary leasing season. This residential REIT also benefited from the favorable real estate tax and payroll expenses. EQR narrowed its full-year guidance for normalized FFO per share.
Per Mark J. Parrell, Equity Residential’s president and CEO, “The substantial embedded growth in our rent roll and our financially resilient and highly employable resident base leaves us well positioned to deliver above average results in 2023 despite likely macroeconomic turbulence.”
Quarter in Detail
Same-store revenues were up 11.8% year over year, reflecting healthy demand during the primary leasing season. The same-store expense increase was limited to 3.5% and reflected the favorable real estate tax and payroll expenses. As a result, same-store NOI surged 16.2% year over year.
The average rental rate increased 12.3% year over year to $2,955 in the quarter ended September. Meanwhile, the physical occupancy contracted 0.1% to 96.5% for the same-store portfolio.
In the third quarter, Equity Residential sold a 455-unit apartment property in New York for $415.0 million at a disposition yield of 3.4% and a 136-unit apartment property in Washington, D.C. for $65.5 million at a disposition yield of 4.3%. These two asset sales produced an unlevered IRR of 4.6%. However, EQR did not acquire any operating property in the quarter.
Balance Sheet
Equity Residential exited the third quarter of 2022 with cash and cash equivalents of $44.8 million, down from the $123.8 million recorded at the end of 2021.
The net debt to normalized EBITDAre was 4.54X compared with 5.01X in the previous quarter. The unencumbered NOI as a percentage of the total NOI was 88.3% in the quarter compared with the 88.4% reported in the prior quarter.
Guidance
For the full-year 2022, Equity Residential narrowed its guidance and now projects normalized FFO per share in the band of $3.52-$3.54 compared with the prior range of $3.48-$3.58. The Zacks Consensus Estimate for the same is currently pegged at $3.52.
The company’s full-year guidance incorporates a slight uptick in the midpoint of earlier same-store revenue growth projections, expecting it to now exhibit an expansion of 10.6%. Expenses are expected to increase by 3.3%, suggesting an increase of 0.3% at the midpoint.
Consequently, NOI is estimated to expand 14.25%, suggesting no uptick at the midpoint from earlier projections. Physical occupancy is expected at 96.4%, down 0.1% from the prior guidance.
For the fourth quarter of 2022, the company projects normalized FFO per share in the band of 94-96 cents. The Zacks Consensus Estimate for the same is currently pegged at 95 cents.
We now look forward to the earnings releases of residential REITs — AvalonBay Communities, Inc. (AVB - Free Report) , UDR Inc. (UDR - Free Report) and Mid-America Apartment Communities, Inc. (MAA - Free Report) . While AvalonBay Communities is slated to report quarterly results on Nov 3, UDR Inc. and Mid-America Apartment Communities are 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.
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Equity Residential (EQR) Tops Q3 FFO Mark, Narrows '22 View
Equity Residential’s (EQR - Free Report) third-quarter 2022 normalized funds from operations (FFO) per share of 92 cents outpaced the Zacks Consensus Estimate of 91 cents. Rental income of $695.1 million also exceeded the consensus mark of $694.1 million.
On a year-over-year basis, the FFO per share grew 19.5% from 77 cents, while the rental income increased 11.5%.
Results reflect healthy demand during the primary leasing season. This residential REIT also benefited from the favorable real estate tax and payroll expenses. EQR narrowed its full-year guidance for normalized FFO per share.
Per Mark J. Parrell, Equity Residential’s president and CEO, “The substantial embedded growth in our rent roll and our financially resilient and highly employable resident base leaves us well positioned to deliver above average results in 2023 despite likely macroeconomic turbulence.”
Quarter in Detail
Same-store revenues were up 11.8% year over year, reflecting healthy demand during the primary leasing season. The same-store expense increase was limited to 3.5% and reflected the favorable real estate tax and payroll expenses. As a result, same-store NOI surged 16.2% year over year.
The average rental rate increased 12.3% year over year to $2,955 in the quarter ended September. Meanwhile, the physical occupancy contracted 0.1% to 96.5% for the same-store portfolio.
In the third quarter, Equity Residential sold a 455-unit apartment property in New York for $415.0 million at a disposition yield of 3.4% and a 136-unit apartment property in Washington, D.C. for $65.5 million at a disposition yield of 4.3%. These two asset sales produced an unlevered IRR of 4.6%. However, EQR did not acquire any operating property in the quarter.
Balance Sheet
Equity Residential exited the third quarter of 2022 with cash and cash equivalents of $44.8 million, down from the $123.8 million recorded at the end of 2021.
The net debt to normalized EBITDAre was 4.54X compared with 5.01X in the previous quarter. The unencumbered NOI as a percentage of the total NOI was 88.3% in the quarter compared with the 88.4% reported in the prior quarter.
Guidance
For the full-year 2022, Equity Residential narrowed its guidance and now projects normalized FFO per share in the band of $3.52-$3.54 compared with the prior range of $3.48-$3.58. The Zacks Consensus Estimate for the same is currently pegged at $3.52.
The company’s full-year guidance incorporates a slight uptick in the midpoint of earlier same-store revenue growth projections, expecting it to now exhibit an expansion of 10.6%. Expenses are expected to increase by 3.3%, suggesting an increase of 0.3% at the midpoint.
Consequently, NOI is estimated to expand 14.25%, suggesting no uptick at the midpoint from earlier projections. Physical occupancy is expected at 96.4%, down 0.1% from the prior guidance.
For the fourth quarter of 2022, the company projects normalized FFO per share in the band of 94-96 cents. The Zacks Consensus Estimate for the same is currently pegged at 95 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-eps-surprise-chart | Equity Residential Quote
Upcoming Releases
We now look forward to the earnings releases of residential REITs — AvalonBay Communities, Inc. (AVB - Free Report) , UDR Inc. (UDR - Free Report) and Mid-America Apartment Communities, Inc. (MAA - Free Report) . While AvalonBay Communities is slated to report quarterly results on Nov 3, UDR Inc. and Mid-America Apartment Communities are 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.