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Equity Residential (EQR) Meets Q4 Estimates; Revenues Top

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Equity Residential (EQR - Free Report) came up with fourth-quarter 2016 normalized funds from operations (“FFO”) per share of 79 cents, in line with the Zacks Consensus Estimate. However, it was down from the 93 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 lease-up NOI. Moreover, the company’s total interest expense declined due to lower debt balances.

Per the company, the slowdown in same store revenue growth, which started in 2016, is anticipated to deteriorate in 2017, amid increasing new apartment supply, along with declining growth in high-paying jobs. Nevertheless, demand is likely to be propelled by favorable demographics, household growth, low unemployment and rising income.
 

 

Total revenue during the reported quarter was $605.5 million, reflecting a 13.9% fall from the prior-year period. However, the figure managed to beat the Zacks Consensus Estimate of $604.8 million.

For full-year 2016, Equity Residential reported normalized FFO per share of $3.09, down from $3.46 in the prior year. Full-year 2016 revenues came in at $2.4 billion, down 11.6% from a year ago.

Quarter in Detail

Same-store revenues (includes 70,881 apartment units) increased 2.9% year over year to $558.6 million and expenses climbed 5.6% from a year ago, to $159.2 million. As a result, same-store NOI inched up 1.9% year over year to $399.4 million.

The company experienced 3.0% growth in average rental rates to $2,629; while occupancy contracted 10 basis points year over year to 96.0% for the same-store portfolio.

The company exited fourth-quarter 2016 with cash and cash equivalents of $77.2 million, down from $517.6 million at the end of the prior quarter.

Portfolio Activity

Equity Residential sold seven consolidated apartment properties (1,609 apartment units), for roughly $243.5 million. Moreover, during the quarter, the company stabilized its Vista 99 development in San Jose, CA, at a projected yield of 7.1%.

2017 Outlook

Equity Residential has provided its outlook for 2017. The company expects normalized FFO per share in the $3.05–$3.15 range. The Zacks Consensus Estimate of $3.16 lies slightly above this range.

For the same-store portfolio, the company predicts physical occupancy to be 95.7%, revenue to register growth of 1.0–2.25%, expense to increase 3.0–4.0% and consequently NOI to climb 0.0–2.0% in the year.  

For first-quarter 2017, the company projects normalized FFO per share in the range of 71–75 cents. The Zacks Consensus Estimate is currently pegged at 76 cents.

Our Viewpoint

Going forward, the company is likely to benefit from its portfolio-repositioning efforts, growth in millennial population, lifestyle transformation and creation of new households. However, its performance over the recent quarters reflected the adverse impact stemming from the company’s 2016 huge disposition activity. Apart from the earnings dilution impact from substantial asset sales, the company is likely to experience pressure on rental rates due to the new apartment supply and a slowdown in high-paying jobs. In addition, rate hike add to its woes.

The company 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 Quote

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 Kimco Realty Corporation (KIM - Free Report) , all of which are expected to report this week.

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.

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