Equity Residential 's ( EQR ) normalized funds from operations (FFO) per share in second-quarter 2014 reached 78 cents, exceeding the Zacks Consensus Estimate by a penny and also rose above the prior-year quarter figure by 7 cents. Also, the figure came in line with the higher end of the company's guided range.
Quarterly results at this apartment real estate investment trust (REIT) were primarily driven by higher same store net operating income (NOI) and NOI from non-same store properties currently in lease up as well as reduced total interest expense.
Moreover, Equity Residential's reported FFO per share as defined by the National Association of Real Estate Investment Trusts (NAREIT) for the quarter under review was 77 cents, up from 73 cents in the prior-year quarter.
Total revenue during the reported quarter increased 5.7% year over year to $652.6 million and surpassed the Zacks Consensus Estimate of $645 million.
Quarter in Detail
Same-store revenues (that includes 100,648 apartment units) increased 4.1% year over year to $626.7 million, while expenses moved up 1.4% to $208.1 million. As a result, same-store NOI during the quarter, increased 5.5% year over year to $418.7 million.
The company experienced a 3.8% increase in average rental rates to $2,168 per apartment unit while occupancy moved up 20 basis points year over year to 95.8% for the same-store portfolio.
During the quarter, Equity Residential acquired an apartment property (134-unit) for around $36.1 million anda land parcel for about $10.3 million, both in Seattle. Moreover, the company bought an apartment property (208-unit) in lease up for approximately $70.5 million in Glendale, CA.
Moreover, in the quarter under review, Equity Residential divested an Orlando, FL-based apartment property for around $40.9 million. Additionally, the company offloaded a land parcel in Los Angeles for about $8.2 million.
Equity Residential exited second-quarter 2014 with cash and cash equivalents of $76.1 million, up from $37.2 million at the end of first quarter of 2014.
2014 Outlook Revised
For the full year, Equity Residential revised its normalized FFO per share guidance to the range of $3.08 to $3.12 from $3.03 to $3.13 guided earlier. The company expects full-year FFO per share to benefit from higher NOI properties but partly dwarfed by higher interest expenses stemming from the Jun 2014 debt offerings. The Zacks Consensus Estimate of $3.08 for the same lies within this range.
Equity Residential provided guidance for third-quarter 2014 normalized FFO per share and expects it to range between 77 cents - 81 cents. The Zacks Consensus Estimate of 80 cents lies within this range.
We believe Equity Residential's concerted efforts toward repositioning its portfolio from low barrier-to-entry/non-core markets to high barrier-to-entry/core markets will drive top-line growth going forward. Also, the echo boomers population continues to raise the demand for apartments.
However, the company has a decent exposure to the Washington D.C. market, where conditions remain choppy, thus posing a challenge for rent growth in the near term.
Equity Residential currently holds a Zacks Rank #3 (Hold). Investors interested in the apartment REIT industry may consider stocks like Equity LifeStyle Properties, Inc. ( ELS ), Avalonbay Communities Inc. ( AVB ) and UDR, Inc. ( UDR ). All these stocks carry 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.
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