What to Expect from Equity Residential after a Strong 3Q17

Occupancy drives performance

Equity Residential (EQR) reported funds from operation (or FFO) per share of $0.81 in 3Q17 compared to $0.77 in 3Q16. Normalized FFO also increased to $0.80 in comparison to $0.78 in 3Q16. The positive impact of $0.06 was due to increased same-store net operating income (or NOI) and lease-up NOI and was offset by $0.04 due to increased interest cost, transaction activity, and higher expenses.

What to Expect from Equity Residential after a Strong 3Q17

Same-store revenues were up by 2.2% as compared to 2Q17. The company posted an occupancy rate of 96.2%, and the average rental rate increased by 2.1%. EPS for 3Q17 was $0.37 compared to $0.56 in 3Q16. Low property sale gains in 3Q17 were the key reason for this fall. The company acquired three properties for a total price of ~$411.0 million and sold one property for $53 million.

4Q17 performance

EQR expects its EPS to be in the range of $0.59 to $0.63 for 4Q17. The median of $0.61 for 4Q17 is higher than the 3Q17 EPS of $0.37. Expectations of higher gains on property sales and an increase in FFO per share are reflected in the EPS. FFO per share is expected to be in the range of $0.79 to $0.83 for 4Q17, similar to 3Q17 levels.

Normalized FFO is expected to be in the range of $0.79 to $0.83 per share for 4Q17. The difference of $0.1 from the midpoint of $0.81 is due to the positive impact of $0.02 from lease-up NOI, higher NOI from its acquisition activity, and a negative impact of $0.01 due to increased interest expense. Physical occupancy is expected to be at 95.9%, only a 0.01% increase from the previous quarter.

Peers have the following FFOs per share:

  • AvalonBay Communities (AVB): $2.19
  • Camden Property (CPT): $1.11
  • Essex Property (ESS): $2.98

Equity Residential constitutes 7.3% of the iShares Residential Real Estate ETF (REZ).

In the next article, we will look at EQR’s properties.