core funds from operations (FFO) per share in the fourth quarter
of 2012 reached 75 cents, in line the Zacks Consensus Estimate
and surged 15.4% from the prior-year quarter. Quarterly result
was primarily driven by higher net operating income and lower
total debt costs.
Moreover, on a year-over-year basis, core FFO per share escalated
13.6% to $2.76 from $2.43 last year. However, it missed the Zacks
Consensus Estimate of $2.81.
Equity Residential's reported FFO per share, for the quarter
under review, jumped 46.9% to 94 cents from 64 cents recorded in
the year-ago quarter. The substantial increase was primarily due
to a gain of termination fee worth $80 million or 24 cents per
share, related to Archstone acquisition. Notably, Equity
Residential inked a deal in November to acquire 60% of
Archstone's assets and liabilities. In addition, FFO per share
for 2012 jumped 29.0% to $3.11 from $2.41 in 2011.
Total revenue during the reported quarter increased 11.2% year
over year to $547.7 million, but missed the Zacks Consensus
Estimate of $553 million. For full year 2012, total revenue
advanced 12.8% from a year ago to $2.12 billion but fell short of
the Zacks Consensus Estimate of $2.18 billion.
Quarter in Detail
Same-store quarterly revenues increased 5.4% to $505.3 million
from $479.3 million. In addition, Occupancy surged 40 bps (basis
points) to 95.4% from 95.0% for the same-store portfolio.
Same-store net operating income (NOI), during the quarter,
increased 8.1% year over year to $337.3 million, primarily due to
a 5.0% increase in average rental rates to $1,707 per apartment
The Archstone Deal and Its Financing
In November, Equity Residential, along with
AvalonBay Communities Inc. (
, inked a deal with Lehman Brothers Holdings Inc. to acquire the
entire ownership stake of Archstone Enterprise LP. The deal will
entitle Equity Residential to acquire 60% of Archstone's assets
and liabilities, while the remainder will be acquired by
Avalonbay. The transaction is expected to be accomplished by late
February this year.
During the quarter, Equity Residential closed the public offering
of 21.9 million common shares at $54.75 per share. Subsequent to
the quarter end, the company disclosed further new financing
activities for the accomplishment of the Archstone deal. These
included securing a new $2.5 billion line of credit and $750
million of term loan. These financing measures, coupled with sale
of over $3.0 billion of non-core assets, positioned the company
well to fund its Archstone acquisition and pay off the debts. It
also terminated the $2.5 billion bridge loan facility pledge that
it obtained simultaneously while inking the Archstone deal.
Other Notable Transactions
During the fourth quarter, Equity Residential did not acquire any
assets. However, the company purchased 4 adjacent land parcels,
worth $79.0 million, in Los Angeles for proposed development of
around 970 apartment units. Also, the company divested 15
properties (comprising 3,675 apartment units) for a total price
of $444.4 million. The transaction generated an unlevered
internal rate of return (inclusive of management costs,) of
In 2012, the company bought 9 properties (comprising 1,896
apartment units) for total price of $906.3 million and 6 land
parcels for $141.2 million. Also, Equity Residential divested 35
properties (comprising 9,012 apartment units) for a total value
of $1.06. The sales transaction (excluding two leveraged,
partially-owned assets sold during the third quarter) generated
an unlevered internal rate of return, inclusive of management
costs, of 10.6%.
Of the previously announced sale of approximately $4.0 billion of
the non-core assets in 2013, Equity Residential sold many assets
and lessened the execution risk of the Archstone acquisition to a
great extent. The company now expects around $2.8 billion of
these asset sales to occur before the end of the first quarter.
At the end of 2012, Equity Residential had cash and cash
equivalents of $612.6 million compared to $383.9 million in 2011.
For first quarter 2013, Equity Residential expects core FFO per
share in the range of 62-66 cents. The company expects the 2013
core FFO per share in the range of $2.80-$2.90. The core FFO per
share is expected to bear an adverse impact of 13 cents from the
planned asset sale.
We believe Equity Residential's focus on expansion in the high
barrier-to-entry regions of the U.S will drive its top-line
growth. The Archstone deal can be regarded as a big move towards
strengthening its presence in the upscale regions.
Also, the company has a strong balance sheet with adequate
liquidity and limited debt maturities. Consequently, it has funds
to capitalize on potential acquisition opportunities, which
augurs well for its top-line expansion.
Equity Residential currently holds a Zacks Rank #3 (Hold). Other
REITs that are performing better and are worth a look include
Ventas Inc. (
Simon Property Group Inc. (
, both carrying a Zacks Rank #2 (Buy).
Note: 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.
AVALONBAY CMMTY (AVB): Free Stock Analysis
EQUITY RESIDENT (EQR): Free Stock Analysis
SIMON PROPERTY (SPG): Free Stock Analysis
VENTAS INC (VTR): Free Stock Analysis Report
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