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Equity Residential (EQR) Q1 FFO Lags Estimates, Revenues Up

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Equity Residential (EQR - Free Report) reported first-quarter 2018 normalized funds from operations (FFO) per share of 77 cents, missing the Zacks Consensus Estimate of 78 cents by a whisker.

Per management, although the nation’s coastal, gateway cities are witnessing strong rental housing demand, growth in new lease rates continues to be dampened by new apartment supply.

However, normalized FFO per share figure came in higher than 74 cents reported in the year-ago quarter. Results mirror enhanced same-store net operating income (NOI) and lease-up NOI. Nonetheless, the company incurred higher corporate overhead in the quarter.

Moreover, total revenues in the reported quarter came in at $633.0 million, up 4.8% from the prior-year tally. In addition, the revenue figure surpassed the Zacks Consensus Estimate of $631.3 million.

Quarter in Detail

Same-store revenues (includes 72,204 apartment units) were up 2.2% year over year to $590.4 million, while expenses flared up 3.9% year over year to $180.4 million. As a result, same-store NOI inched up 1.5% year over year to $410.0 million.

The company experienced 1.9% growth in average rental rate to $2,721. Physical occupancy expanded 10 basis points year over year to 96.0% for same-store portfolio.

The company exited the first quarter with cash and cash equivalents of around $44.5 million, down from $50.6 million recorded at the end of the prior quarter.

Portfolio Activity

During the reported quarter, Equity Residential acquired a Seattle property — a 117-unit consolidated apartment property — for around $53.7 million and an acquisition capitalization rate of 4.6%.

On the other hand, the company sold a consolidated apartment property each in New York City, the New York suburbs, sub-urban Seattle and sub-urban Los Angeles (aggregating 786 apartment units), for a total of about $290.0 million, at a weighted average disposition yield of 4.4%. Further, the company completed 855 Brannan — a 449-unit apartment development project — in San Francisco for $322.2 million.

Outlook

For second-quarter 2018, Equity Residential projects normalized FFO per share in the range of 77-81 cents. The Zacks Consensus Estimate for the same is currently pegged at 80 cents.

For full-year 2018, the company expects normalized FFO per share of $3.17-$3.27. The Zacks Consensus Estimate of $3.22 lies within this range. The company’s full-year outlook is backed by same-store portfolio revenue growth of 1.0-2.25%, physical occupancy of 96.0% and NOI change of 0.0-1.5%. Also, expense is projected to flare up 3.5-4.5%.

Our Viewpoint

Equity Residential is expected to benefit from its efforts to reposition the portfolio in high barrier-to-entry/core markets, favorable demographics, lifestyle transformation, and creation of new households. The company’s current focus is on the acquisition and development of assets primarily in the six core coastal metropolitan areas — Boston, New York, Washington D.C., Southern California, San Francisco and Seattle. Nevertheless, elevated supply in a number of its markets is likely to put pressure on rental rates and result in high concessions. Furthermore, rate hike remains another concern.

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 Quote


We now look forward to the earnings releases of other REITs like Taubman Centers, Inc. (TCO - Free Report) , Kimco Realty Corporation (KIM - Free Report) and Digital Realty Trust, Inc. (DLR - Free Report) which are slated to report quarterly numbers on Apr 26.

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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