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Equity Residential (EQR) Q3 FFO Beats on Sound NOI Growth

Equity Residential EQR reported third-quarter 2017 normalized funds from operations (FFO) per share of 80 cents, beating the Zacks Consensus Estimate by a penny. The figure came in higher than 78 cents reported in the year-ago quarter.

Results mirror enhanced same-store net operating income (NOI) and lease-up NOI. However, the company experienced adverse impact on NOI, primarily stemming from its 2016 and 2017 transaction activity. Also, it incurred elevated interest expense and higher corporate overhead in the quarter.

Moreover, total revenues in the reported quarter came in at $624.1 million, indicating 3.0% growth from the prior-year period. In addition, the figure surpassed the Zacks Consensus Estimate of $619.6 million.

Per management, steady rental demand during peak leasing period helped deliver solid occupancy, retention and renewal pricing. This assisted in alleviating the impact from high supply in the company’s markets.

Equity Residential now expects to deliver same-store revenue growth at the upper end of its original projections for the year. Also, with the latest favorable real estate tax appeals, the company anticipates generating same-store NOI growth at the upper end of its initial expectations.

Quarter in Detail

Same-store revenues (includes 72,049 apartment units) were up 2.2% year over year to $587.1 million, while expenses climbed 1.7% year over year to $173.8 million. As a result, same-store NOI advanced 2.4% year over year to $413.3 million.

The company experienced 2.1% growth in average rental rate to $2,709. Occupancy expanded 20 basis points from the year-ago quarter to 96.2% for same-store portfolio.

The company exited third-quarter 2017 with cash and cash equivalents of around $46.6 million, up from $37.7 million recorded at the end of the prior quarter.

Portfolio Activity

During the reported quarter, Equity Residential acquired three consolidated apartment properties in Boston, Los Angeles and Bellevue, WA, comprising 811 apartment units, for around $411.0 million. On the other hand, the company sold one consolidated apartment property in San Diego (120 apartment units) for $53 million.

Outlook

For fourth-quarter 2017, Equity Residential projects normalized FFO per share in the range of 79-83 cents. The Zacks Consensus Estimate for the same is currently pegged at 81 cents.

The company revised its projections for full-year 2017 same-store operating performance and FFO per share. It now estimates normalized FFO per share in the $3.10-$3.14 range compared with the prior guidance of $3.08-$3.14. The Zacks Consensus Estimate of $3.11 lies within this range.

For the same-store portfolio, the company revised expectations for physical occupancy to 95.9% from 95.8% and revenue growth to 2.2% from the previously guided range of 1.75-2.25%. Also, expense is projected to flare up 3.2% against the prior range of 3.25-4.0%, while NOI is estimated to be up 1.8% compared with the previous range of 0.75-1.75%.  

Our Viewpoint

Equity Residential’s better-than-expected performance in the third quarter is impressive. The company is anticipated 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. However, elevated levels of new supply in its markets remain concerns.

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 residential REITs like Apartment Investment and Management Company AIV, AvalonBay Communities, Inc. AVB and Essex Property Trust Inc. ESS. Apartment Investment and Management Company and AvalonBay are scheduled to release results on Oct 26 and Oct 30, while Essex Property is slated to report its numbers on Nov 1.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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Apartment Investment and Management Company (AIV): Free Stock Analysis Report
 
AvalonBay Communities, Inc. (AVB): Free Stock Analysis Report
 
Equity Residential (EQR): Free Stock Analysis Report
 
Essex Property Trust, Inc. (ESS): Free Stock Analysis Report
 
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