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Why Is Equity Residential (EQR) Down 1.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Equity Residential (EQR - Free Report) . Shares have lost about 1.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Equity Residential due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Equity Residential Q3 FFO and Revenues Beat Estimates

Equity Residential reported third-quarter 2019 normalized FFO per share of 91 cents, surpassing the Zacks Consensus Estimate of 88 cents. Moreover, normalized FFO per share figure comes in 9.6% higher than the 83 cents reported in the year-ago quarter.

Results mirror improved same-store NOI and lease-up NOI, and other non-same store NOI. Further, its transaction activities in 2018 and 2019 had a positive impact on the company’s NOI.

Total revenues in the reported quarter came in at $685.1 million, up 4.9% from the prior-year reported figure. In addition, the revenue figure comfortably outpaced the Zacks Consensus Estimate of $678.1 million.

Quarter in Detail

Same-store revenues (includes 75,290 apartment units) were up 3.4% year over year to $649.7 million, while expenses flared up 3.7% year over year to $196.5 million. As a result, same-store NOI climbed 3.3% year over year to $453.2 million.

The company recorded 3.2% growth in average rental rate to $2,870. Physical occupancy expanded 20 basis points year over year to 96.5% for same-store portfolio. Turnover edged down to 15.9% from the year-ago period’s 16.2%.

The company exited third-quarter 2019 with cash and cash equivalents of around $28.8 million, down from the $251.3 million recorded at the end of the previous quarter. Moreover, the company issued $600 million of unsecured notes at a coupon rate of 2.5% and a yield of 2.56%.

Portfolio Activity

During the reported quarter, Equity Residential acquired four apartment properties in Los Angeles, the San Francisco Bay Area and suburban Denver, aggregating 1,084 apartment units. This purchase was made for around $489.9 million at a weighted average Acquisition Capitalization Rate of 4.4%. Further, during the quarter, the company completed a 137 apartment unit property in Seattle as well as an 84 apartment unit property in Cambridge, MA.

The company also sold seven properties for around $303.9 million at a weighted average Disposition Yield of 4.7%. One of the properties is located in Arlington, VA, while the other six are in Berkeley, CA. These properties had 641 apartment units in total.

Outlook

For fourth-quarter 2019, Equity Residential projects normalized FFO per share at 87-89 cents.

The company has revised its outlook for the ongoing year and now expects normalized FFO per share of $3.46-$3.48 compared with the $3.43-$3.49 guided earlier. The company’s full-year outlook is backed by same-store portfolio revenue growth of 3.3%, physical occupancy of 96.4%, and NOI change of 3.1%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Equity Residential has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Equity Residential has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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