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Equity Residential (EQR) Q2 FFO Beats Estimates, View Up

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Equity Residential (EQR - Free Report) reported second-quarter 2018 normalized funds from operations (FFO) per share of 81 cents, beating the Zacks Consensus Estimate of 80 cents by a whisker.

Moreover, normalized FFO per share figure came in higher than 77 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 total interest expense in the quarter.

Also, total revenues in the reported quarter came in at $639.8 million, up 4.5% from the prior-year tally. In addition, the revenue figure surpassed the Zacks Consensus Estimate of $637.9 million.

Per management, there was solid demand for rental housing across its markets in the primary leasing season of the year. In fact, despite high levels of new supply, elevated demand and focus on customer service aided high occupancy level and improved resident retention. Therefore, the company has raised the mid-point of full-year same-store revenue guidance.

Quarter in Detail

Same-store revenues (includes 72,629 apartment units) were up 2.2% year over year to $599.6 million, while expenses flared up 3.2% year over year to $177.7 million. As a result, same-store NOI inched up 1.8% year over year to $421.9 million.

The company recorded 1.9% growth in average rental rate to $2,752. Physical occupancy expanded 40 basis points year over year to 96.2% for same-store portfolio.

The company exited the second quarter with cash and cash equivalents of around $34.5 million, down from $44.5 million recorded at the end of the previous quarter.

Portfolio Activity

During the reported quarter, Equity Residential acquired a Hoboken, NJ property, having 240 apartment units for around $146.0 million at an acquisition capitalization rate of 4.5%. Further, the company started a $409.7-million development project in Boston during the quarter. On the other hand, the company sold a land parcel in suburban Maryland for about $2.7 million. There was no apartment property sale made by the company in the quarter.

Outlook

For third-quarter 2018, Equity Residential projects normalized FFO per share at 81-85 cents. The Zacks Consensus Estimate for the same is currently pegged at 82 cents.

For full-year 2018, the company has revised its guidance and now expects normalized FFO per share of $3.22-$3.28 compared to the prior outlook of $3.17-$3.27. The Zacks Consensus Estimate of $3.23 lies within this range.

The company’s full-year outlook is backed by same-store portfolio revenue growth of 1.9-2.3%, against the previous projection of 1.0-2.25%, physical occupancy of 96.1%, up from the prior estimate of 96.0% and NOI change of 1.0-1.8%, against the previously issued range of 0.0-1.5%.

Our Viewpoint

We are encouraged with the decent performance of Equity Residential in the April-June quarter. The company has been making concerted efforts to reposition its portfolio in high barrier-to-entry/core markets. It is poised for growth amid economic recovery and job-market growth. Particularly, it is anticipated to benefit from favorable demographics, lifestyle transformation and creation of new households. Nevertheless, elevated supply in a number of the company’s markets is likely to strain 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
 

We now look forward to the earnings releases of other REITs like Kimco Realty Corporation (KIM - Free Report) , Digital Realty Trust, Inc. (DLR - Free Report) and CubeSmart (CUBE - Free Report) which are slated to report their quarterly numbers on Jul 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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