Equity Residential (EQR - Free Report) came up with third-quarter 2016 normalized funds from operations (“FFO”) per share of 78 cents, in line with the Zacks Consensus Estimate. However, it was down from 89 cents reported in the year-ago quarter.
Results reflected the adverse impact on net operating income (“NOI”), stemming from the company’s 2016 huge disposition activity. However, the negative was partly mitigated by enhanced NOI from same-store properties and non-same store properties currently in lease-up. Moreover, the company’s total interest expense declined due to lower debt balances.
According to the company, demand for rental units in urban and high density, close-in suburban markets has been high. However, increasing new apartment supply, along with a slowdown in high-paying jobs, are anticipated to put pressure on rental rates, thereby adversely affecting the company’s revenue growth this year.
Total revenue during the reported quarter was $606.1 million, reflecting a 13.0% decline from the prior-year period. However, the figure managed to beat the Zacks Consensus Estimate of $599 million.
Quarter in Detail
Same-store revenues (includes 72,229 apartment units) increased 3.4% year over year to $563.9 million and expenses climbed 5.9% from a year ago to $168.7 million. As a result, same-store NOI grew 2.4% year over year to $395.2 million.
The company experienced a 3.4% increase in average rental rates to $2,602, while occupancy contracted 20 basis points year over year to 96.0% for the same-store portfolio.
It exited third-quarter 2016 with cash and cash equivalents of $517.6 million, up from $497.8 million at the end of the prior quarter.
During the third quarter, Equity Residential purchased a 94-unit apartment property in Los Angeles for around $45.2 million. On the other hand, the company sold eight consolidated apartment properties for approximately $140.6 million. During the quarter, the company also sold a land parcel in Berkeley, California for $30.0 million, along with an unconsolidated property in Atlanta and received around $12.4 million for its 20% stake.
Further, during the quarter, the company stabilized three development properties. This included 170 Amsterdam in New York, Azure in San Francisco and Odin in Seattle, at a weighted average projected yield of 5.8%.
Equity Residential has revised its 2016 guidance and expects normalized FFO per share in the $3.06–$3.10 range against the prior guidance of $3.05–$3.11. The Zacks Consensus Estimate of $3.07 falls within this range.
For the same-store portfolio, the company expects physical occupancy to be 96.0%, compared to the prior outlook of 95.9%; revenue to register growth of 3.6–3.9% compared with 3.5–4.0% increase predicted earlier and NOI to climb 3.8–4.1%, compared with the previous guided range of 3.75–4.25%.
For fourth-quarter 2016, the company projects normalized FFO per share in the range of 77–81 cents. The Zacks Consensus Estimate is currently pegged at 79 cents.
Going forward, the company is expected to benefit from its portfolio-repositioning efforts, growth in the millennial population, lifestyle transformation and creation of new households, though huge asset dispositions and elevated deliveries remain headwinds.
The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let us now look forward to the earnings releases of Essex Property Trust Inc. (ESS - Free Report) , Apartment Investment and Management Company (AIV - Free Report) and The Macerich Company (MAC - Free Report) , all of which are slated to report on Oct 27.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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.
Confidential from Zacks
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