) normalized funds from operations (FFO) per share in
fourth-quarter 2013 reached 77 cents, a penny ahead of the Zacks
Consensus Estimate and 2 cents above the prior-year quarter
Quarterly results at this apartment real estate investment trust
(REIT) were primarily driven by higher same store net operating
income (NOI) and benefit from the Archstone properties. However,
the positives were partly offset by the negative impact from
disposition activity and common share issuance for the Archstone
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 67 cents, down from 94 cents in
the prior-year quarter.
Total revenue during the reported quarter increased 41.3% year
over year to $639.1 million. The revenue figure also surpassed
the Zacks Consensus Estimate of $632 million.
For full-year 2013, Equity Residential's normalized FFO came in
at $2.85 per share on revenues of $2.4 billion. This came below
the prior-year results when the company reported normalized FFO
of $2.76 per share on revenues of $1.7 billion.
Quarter in Detail
Same-store revenues (that includes 82,352 apartment units)
increased 4.0% year over year to $466.6 million, while expenses
moved up 3.5% to $154.2 million. Though the company experienced a
3.9 % increase in average rental rates to $1,980 per apartment
unit, occupancy remained flat at 95.4% for the same-store
portfolio. As a result, same-store NOI during the quarter,
increased 4.3% year over year to $312.4 million.
Acquisitions & Dispositions
During the reported quarter, Equity Residential made no
acquisition of any properties or land sites. On the other hand,
the company reaped $96.7 million from selling 2 apartment
properties (852 apartment units). Moreover, a land parcel in
Florida was sold by the company for $22.0 million. This land
parcel was acquired as part of the Archstone deal.
In 2013, Equity Residential bought 77 properties (22,103
apartment units). Moreover, it acquired 15 land parcels for
approximately $267.2 million in total. The company also sold 94
apartment properties (29,180 apartment units) for a total of
$4.46 billion. Further, it sold 8 land parcels for $126.0 million
in total and one office building for $30.7 million.
Equity Residential exited the quarter with cash and cash
equivalents of $53.5 million, compared with $612.6 million at the
end of 2012.
Lehman Stake Update
As part of the Archstone deal, Equity Residential and
AvalonBay Communities Inc.
) issued shares of common stock to Lehman Brothers Holdings, Inc.
and its affiliates. In particular, Equity Residential issued
around 34.5 million common shares, reflecting about 9.6% of the
company's outstanding shares at that time. Lehman continued to
sell the stake as per a recent bankruptcy court filing. The
company now believes that Lehman's current stake is around 1.5%
of its outstanding common shares.
Equity Residential expects normalized FFO per share to range
between 68 cents - 72 cents in first-quarter 2014. The mid point
of this range is below the fourth-quarter FFO figure as well as
the Zacks Consensus Estimate of 75 cents per share and primarily
reflects the company's anticipations of lower NOI owing to
increased operating expenses.
For full-year 2014, Equity Residential projects normalized FFO
per share to range $3.03 - $3.13. The Zacks Consensus Estimate of
$3.11 per share lies towards the higher end of this range. The
mid-point of this range reflects a rise from the 2013 level and
incorporates the impact of the Archstone stabilized assets to the
company's same store pool and expectations of higher NOI and
lower interest expenses.
Starting 2014, Equity Residential's dividend policy is to pay 65%
of the midpoint of the range of normalized FFO guidance. Based on
it, the company intends to make dividend payments of 50 cents per
share per quarter, or $2.00 per share for the full year 2014,
reflecting a hike of 8% from the prior-year dividend rate.
Going forward, we believe Equity Residential's focus on expansion
in the high barrier-to-entry regions in the U.S. will drive
top-line growth. Also, the echo boomers population continues to
raise the demand for apartments. Alongside, with a decent balance
sheet position, the company is well poised to capitalize on this
favourable trend through acquisitions and developments.
Yet, the company has a decent exposure to the Washington D.C.
market, which has started experiencing a rise in new supply, thus
posing a challenge for base rent growth in the near term.
Equity Residential currently holds a Zacks Rank #3 (Hold).
Investors interested in the apartment REIT industry may consider
BRE Properties Inc.
). Both these stocks carry a Zacks Rank #2 (Buy).
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
BRE PROPERTIES (BRE): Free Stock Analysis
EQUITY RESIDENT (EQR): Free Stock Analysis
UDR INC (UDR): Free Stock Analysis Report
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