Equity Residential
(
EQR
), a leading real estate investment trust (REIT), reported fiscal
2012 first quarter funds from operations (FFO) of $191.8 million or
60 cents per share, compared to $176.9 million or 56 cents per
share in the year-ago quarter. Funds from operations, 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.
Excluding certain one-time items, recurring FFO for the reported
quarter was $191.9 million or 61 cents per share, compared to
$175.2 million or 56 cents per share in the year-earlier quarter.
Recurring FFO for first quarter 2012 marginally missed the Zacks
Consensus Estimate by a penny.
Total revenues during the quarter were $527.7 million, compared
to $466.4 million in the year-earlier period. Total revenues during
the reported quarter were in line with the Zacks Consensus Estimate
of $528 million.
Equity Residential benefited from strengthening apartment
fundamentals and superior execution of pricing and expense control
measures. Management further expects to continue delivering strong
growth in operating income and earnings in 2012 as well.
Same-store (first quarter 2012 vs. first quarter 2011
comparison, which includes 105,612 apartment units) quarterly
revenues increased 5.5%. Same-store net operating income (NOI)
during the quarter increased 7.8% year-over-year, primarily due to
a 5.5% increase in average rental rates.
During the quarter, Equity Residential acquired 3 properties
totaling 544 apartment units for $159.1 million at a weighted
average cap rate of 4.4%. The company also acquired two land
parcels in Seattle and South Florida for $23.7 million. Equity
Residential sold 3 consolidated properties during first quarter
2012 (1,522 apartment units) for $206.4 million at a weighted
average cap rate of 6.2%.
During fourth quarter 2011, Equity Residential decided to
acquire approximately 26.5% ownership interests in Archstone - a
privately held owner, operator and developer of multifamily
apartment properties, for $1.325 billion. Archstone was originally
owned by a consortium of financial institutions that include
Bank of America Corporation
(
BAC
),
Barclays PLC
(
BCS
), and Lehman Brothers Holdings Inc. While the banks collectively
held a 53% stake in the company, Lehman held the remaining 47%.
Equity Residential entered into a contract with the affiliates
of Bank of America and Barclays PLC to acquire half of their
combined ownership interests. However, Lehman had the 'right to
first offer,' under which the banks were obliged to present it with
any offer they would like to accept and give the estate a chance to
either match or beat it.
Subsequently, as Lehman exercised this right and acquired this
26.5% interest, Equity Residential's contract with the banks was
terminated.
Presently, Equity Residential has the exclusive right till May
21, 2012 to purchase the remaining 26.5% interests in Archstone
owned by the banks for $1.5 billion or higher. Lehman would also
have the 'right to first offer' for this purchase bid, which if
exercised, would entitle Equity Residential to claim a break-up fee
of up to $80 million.
During the reported quarter, under its At-the-Market (ATM) share
offering program, Equity Residential issued 2.1 million shares at
$59.47 each for total consideration of approximately $123.6
million. The proceeds were primarily utilized to repay debt. At
quarter-end, the company had cash and cash equivalents of $219.6
million, and total debt of $9.4 billion.
Equity Residential amended its $1.25 billion unsecured revolving
credit facility during the quarter to increase the borrowing
capacity by $500 million to $1.75 billion. At the same time, the
company entered into a new senior unsecured $500 million delayed
draw term loan facility.
The strategic moves were intended to partly fund the acquisition
of Archstone. At quarter-end, the company had about $1.7 billion
available on its revolving credit facility, and $500 million
available on its delayed draw term loan.
For second quarter 2012, recurring FFO is expected in the range
of 65 cents to 69 cents per share. We maintain our Neutral
recommendation on the stock, which presently has a Zacks #3 Rank,
which translates into a short-term Hold rating.
BANK OF AMER CP (
BAC
): Free Stock Analysis Report
BARCLAY PLC-ADR (
BCS
): Free Stock Analysis Report
EQUITY RESIDENT (
EQR
): Free Stock Analysis Report
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