Equity Residential (EQR) Q1 FFO And Revenues Top Estimates

Equity Residential (NYSE:EQR) reported first-quarter 2019 normalized funds from operations (FFO) per share of 82 cents, which surpassed the Zacks Consensus Estimate by a penny. Moreover, normalized FFO per share figure came in higher than the 77 cents reported in the year-ago quarter.

Results mirror improved same-store net operating income (NOI) and lease-up NOI, and other non-same store NOI. Further, its transaction activities in 2018 and 2019 had a positive impact on NOI. Management noted that there was strong demand across the company’s markets as well as reduced new supply in New York and Boston, which contributed to the company’s performance.

Total revenues in the reported quarter came in at $662.5 million, up 4.7% from the prior-year tally. In addition, the revenue figure comfortably outpaced the Zacks Consensus Estimate of $654.1 million.

Quarter in Detail

Same-store revenues (includes 74,166 apartment units) were up 3.1% year over year to $622.6 million, while expenses flared up 4.4% year over year to $191.3 million. As a result, same-store NOI climbed 2.5% year over year to $431.3 million.

The company recorded 2.8% growth in average rental rate to $2,796. Physical occupancy expanded 30 basis points year over year to 96.3% for same-store portfolio.

The company exited first-quarter 2019 with cash and cash equivalents of around $29.4 million, down from $47.4 million recorded at the end of the previous quarter. During the first quarter, the company closed a new $288.1 million secured loan, having a 10 year term, interest only and carrying a fixed interest rate of 3.94%.

Portfolio Activity

During the reported quarter, Equity Residential acquired three apartment properties in Jersey City, NJ, Seattle and Denver, aggregating 579 apartment units. The purchase was made for around $258.7 million at a weighted average Acquisition Capitalization Rate of 4.6%.

Equity Residential did not sell any properties during the March-end quarter.

Outlook

For second-quarter 2019, Equity Residential projects normalized FFO per share at 82-86 cents. The Zacks Consensus Estimate for the same is currently pinned at 84 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 $3.38.

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 healthy economy and job-market growth, favorable demographics, lifestyle transformation, and creation of households. Furthermore, the company is expected to benefit from its portfolio-repositioning efforts in high barrier-to-entry/core markets.

Rewarding its shareholders, the company announced 5.1% sequential hike in common stock dividends this March. However, new apartment supply across its markets is expected to continue, putting pressure on lease rates, occupancy and retention, and lead to use of high concessions as well.

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.

We now look forward to the earnings releases of other REITs like Apartment Investment and Management Company (NYSE:AIV) , Regency Centers Corporation (NASDAQ:REG) and Federal Realty Investment Trust (NYSE:FRT) which are slated to report their quarterly numbers on May 2.

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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