Equity Residential’s Q2 Results Beat Wall Street Estimates

Second-quarter performance

On July 25, Equity Residential (EQR) posted FFO (funds from operations) of $0.81 for Q2 2018, beating Wall Street’s expectations by a penny and exceeding the mid-point of management’s guidance of $0.77–$0.81. That marked an improvement of $0.04 (or 5.2%) from FFO of $0.77 in Q2 2017. Increased rentals, higher occupancy rates, and upside margins benefited its second-quarter bottom-line results.

Equity Residential’s Q2 Results Beat Wall Street Estimates

The company stated that the $0.04 YoY rise in FFO per share was mainly due to a $0.02 benefit from improved same-store NOI (net operating income) and a $0.03 gain from increased lease-up NOI, partially offset by a negative impact of a penny from higher interest expenses.

The company’s second-quarter rental revenues grew 4.5% YoY to $639.6 million and beat Wall Street’s estimate of $637.1 million. Apart from increased occupancy and average rental rates, a reduction of 60 basis points in its same-store turnover rate also positively impacted rental revenues. A turnover rate signifies the number of residents moving to a new unit within the same community.

An improving domestic economy and a robust job market are driving demand for rental properties, thus pushing average rental and occupancy rates higher.

Management comments

In its second-quarter earnings press release, Equity Residential president and CEO David Neithercut stated, “Strong demand and an enterprise wide focus on customer service continue to drive high occupancy and ever improving resident retention despite elevated levels of new supply.”

Buoyed by encouraging second-quarter performance, the company raised its same-store revenue outlook for 2018. It now anticipates same-store revenues to grow 1.9%–2.3% from the previously forecast range of 1%–2.25%. Management also narrowed its guidance range for normalized FFO per share. The new mid-point of FFO per share is $3.25, which is higher than an earlier projection of $3.22.

The company projects FFO per share of $0.76–$0.80 in the third quarter.

AvalonBay Communities (AVB), Camden Property (CPT), and Essex Property (ESS) are expected to report adjusted FFO of $2.19, $1.18, and $3.10 per share, respectively, for the second quarter. Equity Residential and these peers make up ~23% of the iShares Residential Real Estate ETF (REZ).

In this series, we’ll look at Equity Residential’s second-quarter revenue growth drivers, capital reallocation strategy, shareholder payouts, and valuation.