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Equity Residential (EQR) Q3 FFO Meets, Revenues Top Estimates

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Equity Residential (EQR - Free Report) reported third-quarter 2018 normalized funds from operations (FFO) per share of 83 cents, in line with the Zacks Consensus Estimate. Moreover, normalized FFO per share figure came in higher than the 80 cents reported in the year-ago quarter.

Results mirror improved 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 $652.9 million, up 4.6% from the prior-year tally. In addition, the revenue figure comfortably surpassed the Zacks Consensus Estimate of $643.7 million.

Elevated demand and focus on customer service aided high occupancy level, low turnover and strong renewal rates. Therefore, the company expects 2018 same-store revenue growth at the high end of its forecasts.

Quarter in Detail

Same-store revenues (includes 72,561 apartment units) were up 2.3% year over year to $605.4 million, while expenses flared up 3.7% year over year to $182.2 million. As a result, same-store NOI inched up 1.7% year over year to $423.2 million.

The company recorded 2.1% growth in average rental rate to $2,779. Physical occupancy remained flat year over year at 96.2% for same-store portfolio.

The company exited the third quarter with cash and cash equivalents of around $33 million, slightly down from $34.5 million recorded at the end of the previous quarter.

Portfolio Activity

During the reported quarter, Equity Residential acquired three apartment properties — two in Denver and one in Boston — for a total of $507.3 million, at a weighted average Acquisition Capitalization Rate of 4.4%. This marked a re-entry into the Denver market that is currently experiencing solid high-wage job growth, high single family home prices, and growing demography of renters, management noted. Going forward, the company expects to enhance its Denver portfolio.

On the other hand, the company sold a 506-unit apartment property in New York City for $416.1 million.

Outlook

For fourth-quarter 2018, Equity Residential projects normalized FFO per share at 84-86 cents. The Zacks Consensus Estimate for the same is currently pinned at 84 cents.

For full-year 2018, the company has revised its guidance and now expects normalized FFO per share of $3.25-$3.27 compared to the previous outlook of $3.22-$3.28. The Zacks Consensus Estimate for the same is $3.24.

The company’s full-year outlook is backed by same-store portfolio revenue growth of 2.3%, against the previous projection of 1.9-2.3%, physical occupancy of 96.2%, up from the prior estimate of 96.1% and NOI change of 1.7%, against the previously-issued range of 1.0-1.8%.

Our Viewpoint

We are encouraged with the decent performance of Equity Residential during the Jul-Sep 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 may 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 Corp. (KIM - Free Report) , Simon Property Group, Inc. (SPG - Free Report) and Iron Mountain Inc. (IRM - Free Report) which are slated to report their quarterly numbers on Oct 25.

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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