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Equity Residential (EQR) Q4 FFO Lags Estimates, Revenues Top

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Equity Residential (EQR - Free Report) reported fourth-quarter 2018 normalized funds from operations (FFO) per share of 84 cents, which missed the Zacks Consensus Estimate by a penny. However, normalized FFO per share figure came in higher than the 83 cents reported in the year-ago quarter.

Results mirror improved same-store net operating income (NOI) and lower total interest expense. Nonetheless, the company incurred certain casualty losses arising from rainstorm damage to assets in its Washington, D.C. area portfolio. Further, its transaction activities in 2018 and 2017, and higher corporate overhead resulted in a negative effect on the company’s performance.

Total revenues in the reported quarter came in at $652.7 million, up 3.5% from the prior-year tally. In addition, the revenue figure comfortably surpassed the Zacks Consensus Estimate of $650.0 million.

For full-year 2018, the company reported normalized FFO per share of $3.25, up 3.8% from the prior year. This was backed by 4.3% year-over-year growth in revenues to nearly $2.6 billion.

Equity Residential Price, Consensus and EPS Surprise
 

Equity Residential Price, Consensus and EPS Surprise | Equity Residential Quote

Quarter in Detail

Same-store revenues (includes 73,992 apartment units) were up 2.6% year over year to $616.5 million, while expenses flared up 4.2% year over year to $180.2 million. As a result, same-store NOI inched up 1.9% year over year to $436.3 million.

The company recorded 2.5% growth in average rental rate to $2,784. Physical occupancy expanded 30 basis points year over year to 96.2% for same-store portfolio.

The company exited 2018 with cash and cash equivalents of around $47.4 million, up from $33 million recorded at the end of the previous quarter.

Portfolio Activity

During the reported quarter, Equity Residential did not acquire or sell any apartment properties.

During full-year 2018, Equity Residential acquired five apartment properties — comprising 1,478 apartment units — for a total of $707.0 million, at a weighted average Acquisition Capitalization Rate of 4.4%. During this period, the company sold five apartment properties for around $706.1 million.

Outlook

For first-quarter 2019, Equity Residential projects normalized FFO per share at 78-82 cents. The Zacks Consensus Estimate for the same is currently pinned at 82 cents.

For full-year 2019, the company expects normalized FFO per share of $3.34-$3.44. The Zacks Consensus Estimate for the same is $3.41.

The company’s full-year outlook is backed by same-store portfolio revenue growth of 2.2-3.2%, physical occupancy of 96.2%, and NOI change of 1.5-3.0%.

Our Viewpoint

Equity Residential is poised for growth amid economic recovery and job-market growth, favorable demographics, lifestyle transformation, and creation of households. Further, the company is expected to benefit from its portfolio-repositioning efforts in high barrier-to-entry/core markets. Nevertheless, new apartment supply across its markets will likely continue putting pressure on new lease rates, occupancy, retention and result in high concessions as well.

Equity Residential currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like Alexandria Real Estate Equities, Inc. (ARE - Free Report) , AvalonBay Communities, Inc. (AVB - Free Report) , and Apartment Investment and Management Company (AIV - Free Report) which are slated to report their quarterly numbers on Feb 4.

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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