Equity Residential ( EQR ), a
leading real estate investment trust (REIT), reported second
quarter 2012 funds from operations (FFO) of $204.6 million or 64
cents per share, compared to $180.7 million or 58 cents in the
Excluding certain one-time items, recurring FFO for the reported
quarter was $215.0 million or 68 cents per share, compared to
$186.7 million or 60 cents in the year-earlier quarter. Recurring
FFO for second quarter 2012 was in line with the Zacks Consensus
Total revenues during the quarter were $543.8 million, compared to
$480.4 million in the year-earlier period - an increase of 13.2%.
Total revenues during the reported quarter exceeded the Zacks
Consensus Estimate of $539 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 the remainder of 2012 as
Same-store (second quarter 2012 vs. second quarter 2011
comparison, which includes 105,604 apartment units) quarterly
revenues increased 5.5% to $489.9 million. Same-store net operating
income (NOI) during the quarter increased 7.5% year over year to
$319.7 million, primarily due to a 5.7% increase in average rental
rates to $1,626 per apartment unit.
During the quarter, Equity Residential acquired two properties
totaling 812 apartment units for $510.9 million at a weighted
average cap rate of 5.0%. The company also sold nine consolidated
properties during second quarter 2012 (1,662 apartment units) for
$129.9 million at a weighted average cap rate of 6.7%.
Year-to-date, Equity Residential has acquired five properties
(1,356 apartment units) for $670.0 million at a weighted average
cap rate of 4.8% and two land parcels for $23.7 million. Also
during the first half of 2012, the company sold 12 properties
(3,184 apartment units) for $336.3 million at a weighted average
cap rate of 6.4%.
As a part of the final settlement, Equity Residential received
$150 million in termination fees during the quarter from
Bank of America Corporation ( BAC ),
Barclays PLC ( BCS ),
and Lehman Brothers Holdings Inc. for being unable to acquire a
26.5% ownership interest in Archstone - a privately held owner,
operator and developer of multifamily apartment properties.
Archstone was previously owned by Bank of America, Barclays, and
Lehman Brothers. While the banks collectively held a 53% stake in
the company, Lehman held the remaining 47%.
Equity Residential had 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 the
bank's ownership stake, Equity Residential's contract was
terminated. Equity Residential intends to recognize $70 million of
the termination fees as interest and other income in the third
quarter of 2012 and the balance $80 million as interest and other
income in the following quarter.
BANK OF AMER CP (BAC): Free Stock Analysis
BARCLAY PLC-ADR (BCS): Free Stock Analysis
EQUITY RESIDENT (EQR): Free Stock Analysis
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During the reported quarter, the company did not issue any shares
under its At-the-Market (ATM) share offering program. At
quarter-end, the company had $75 million cash in hand, and $1.72
billion available on its revolving credit facility.
For third quarter 2012, recurring FFO is expected in the range of
70 cents to 74 cents per share. For full year 2012, Equity
Residential expects recurring FFO in the range of $2.73 to $2.78.
We maintain our Neutral recommendation on the stock, which
presently has a Zacks #2 Rank that translates into a short-term Buy
Note: FFO, a widely used metric to gauge the performance of
REITs, are obtained after adding depreciation and amortization and
other non-cash expenses to net income.