Equity Residential (EQR) reported funds from operations (FFO) of $180.7 million in second quarter 2011 compared with $175.1 million in the year-ago quarter. FFO per share in the reported quarter remained flat year over year at 58 cents. Fund from operations, 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.
Excluding one-time items, FFO in the second quarter stood at $186.7 million or 60 cents per share compared with $175.2 million or 58 cents per share in the year- ago quarter. Reported FFO was in line with the Zacks Consensus Estimate.
We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short and long-term outlook on the stock.
Second Quarter Review
Total revenue during the quarter was $498.1 million compared with $447.4 million in the year-earlier period.
Same-store (which includes 105,730 apartment units) revenue in the quarter increased 4.9% year over year. Same-store net operating income (NOI) during the quarter increased 7.4% year over year.
For third quarter 2011, recurring FFO is expected in the range of 59 cents to 63 cents per share. For full-year 2011, Equity Residential expects recurring FFO in the range of $2.40 to $2.50 per share.
Read our full coverage on this earnings report: Equity Residential Reports In-Line Estimates.
Earnings Estimate Revisions –– Overview
Fiscal 2011 earnings estimates for EQR have moved in both directions since the earnings release, which implies that the analysts are cautious about the current fiscal performance of the company. Let’s dig into the earnings estimate in details.
Agreement of Estimate Revisions
For the upcoming quarter, 1 out of the 22 analysts covering the stock revised the estimates upward, while 8 analysts lowered the same. For fiscal 2011, earnings estimates were increased by 1 out of the 20 analysts covering the stock increased the estimates while 11 analysts moved in the opposite direction over the last 30 days.This clearly indicates a negative bias for the fiscal year earnings.
Magnitude of Estimate Revisions
Earnings estimates for the upcoming quarter remained flat at 62 cents per share in the last 30 days. However, earnings estimates for fiscal 2011 decreased from $2.46 to $2.43 per share, which indicate that despite the gradual improvement in fundamentals, estimates still remain challenged by broader economic trends.
Moving Forward
Equity Residential is the largest fully integrated publicly traded multi-family real estate company in the U.S., with assets in some of the best long-term apartment markets in the country. Furthermore, the company has a fully implemented state-of-the-art operating platform that enables it to manage the operations on a real-time basis and deliver market-leading performance. The company boasts a strong balance sheet with plenty of cash and full availability on its line of credit. This enables the company to capitalize on potential acquisition opportunities to fuel future growth.
However, the company’s acquisition spree involves significant upfront operating expenses with limited near-term profitability. New properties usually take time to generate revenues, and will continue to drag down margins till they get established.
Equity Residential currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Apartment Investment & Management Co. (AIV) also retains a Zacks #3 Rank.
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