Equity Residential Beats Estimates - Analyst Blog

Equity Residential (EQR), a leading real estate investment trust (REIT), reported fiscal 2010 fourth quarter funds from operations (FFO) of $136.5 million or 45 cents per share, compared to $126.9 million or 43 cents per share in the year-ago quarter. 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.

The fourth quarter 2010 FFO included certain non-recurring items, excluding which FFO for the quarter was $184.5 million or 61 cents per share compared to $156.6 million or 54 cents per share in the year-earlier quarter. The recurring FFO for fourth quarter 2010 beat the Zacks Consensus Estimate by 3 cents.

Total revenues during the quarter were $517.1 million, compared to $461.3 million in the year-earlier period. Total revenues during the reported quarter missed the Zacks Consensus Estimate of $522 million.

For full year 2010, Equity Residential reported FFO of $623.3 million or $2.07 per share, compared to $616.1 million or $2.12 per share in 2009. Excluding certain non-recurring items, FFO for fiscal 2010 was $682.9 million or $2.27 per share compared to $662.2 million or $2.28 per share in the previous year. The recurring FFO for fiscal 2010 exceeded the Zacks Consensus Estimate by 6 cents.

Total revenues during the year were $2.0 billion, compared to $1.9 billion in 2009. Total revenues during fiscal 2010 were in line with the Zacks Consensus Estimate of $2.0 billion. The company 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 2011 as well.

Same-store (fourth quarter 2010 vs. fourth quarter 2009 comparison, which includes 113,931 apartment units) quarterly revenues increased 2.7%. Same-store net operating income (NOI) during the quarter increased 5.4% year-over-year. For full year 2010, same-store revenues decreased 0.1%, while same-store NOI decreased 0.8%.

During the quarter, Equity Residential acquired two properties totaling 281 apartment units for $87.5 million at a weighted average cap rate of 4.8%. The company also acquired two land parcels for $14.6 million. During 2010, the company acquired 16 properties totaling 4,445 apartment units for $1.5 billion.

Equity Residential sold 24 consolidated properties during fourth quarter 2010 (4,734 apartment units) for $546.4 million at a weighted average cap rate of 6.5%. For full year 2010, the company sold 35 consolidated properties totaling 7,171 apartment units for $718.4 million at a weighted average cap rate of 6.7%.

During the quarter, Equity Residential offered 5.1 million shares at $50.27 each for total consideration of approximately $256.1 million. Subsequent to the quarter-end, the company also issued 3.0 million shares at an average price of $50.84 per share for total consideration of approximately $154.5 million. The proceeds were primarily utilized to repay debt. At year-end 2010, the company had cash and cash equivalents of $431.4 million and total debt of $9.9 billion.

Equity Residential has recently announced a new dividend policy, which will generate payouts in alignment with its actual annual operating results. Pursuant to this policy, the company intends to pay an annual cash dividend equal to approximately 65% of recurring FFO. The strategic move is aimed to provide more transparency to investors.

For full-year 2011, Equity Residential expects recurring FFO in the range of $2.40 to $2.50 per share. For first quarter 2011, recurring FFO is expected to be in the range of 53 cents to 57 cents per share.

We maintain our ‘Neutral' recommendation on the stock, which presently has a Zacks #3 Rank, which translates into a short-term ‘Hold' rating. We also have a ‘Neutral' recommendation and a Zacks #2 Rank (short-term ‘Buy') for Post Properties Inc. (PPS), one of the competitors of Equity Residential.

 
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