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Equity Residential (EQR) Up 1.3% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Equity Residential (EQR). Shares have added about 1.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Equity Residential due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Equity Residential Tops Q4 FFO Estimate, Misses on Revenues

Equity Residential reported fourth-quarter 2019 normalized FFO per share of 91 cents, surpassing the Zacks Consensus Estimate of 89 cents. Moreover, normalized FFO per share figure came in 8.3% higher than the 84 cents reported in the year-ago quarter.

Results mirrored improved same-store NOI and growth in average rental rate. The company has also provided its guidance for the ongoing year.

Total revenues in the reported quarter came in at $683.9 million, up 4.8% from the prior-year reported figure. However, the revenue figure missed the Zacks Consensus Estimate of $685 million.

For full-year 2019, normalized FFO per share came in at $3.49, ahead of the Zacks Consensus Estimate of $3.47 and the prior-year tally of $3.25. This was supported by 4.8% year-over-year growth in total revenues of $2.7 billion.

Quarter in Detail

Same-store revenues (includes 75,816 apartment units) were up 3.2% year over year to $652.4 million, while expenses flared up 3% year over year to $193.5 million. As a result, same-store NOI climbed 3.2% year over year to $458.9 million.

The company recorded 3.1% growth in average rental rate to $2,875. Physical occupancy contracted 10 basis points year over year to 96.1% for same-store portfolio. Turnover edged down to 10.6% from the year-ago period’s 10.8%.

The company exited 2019 with cash and cash equivalents of around $45.7 million, down from the $47.4 million recorded at the end of 2018. Moreover, the company boosted its liquidity and financial flexibility by upsizing its revolving credit facility to $2.5 billion from $2 billion and increasing the maximum size of the unsecured commercial-paper program to $1 billion from $500 million.

Portfolio Activity

During the reported quarter, Equity Residential acquired three apartment properties, aggregating 812 apartment units. These purchases were made for aggregate of $370.1 million at a weighted average Acquisition Capitalization Rate of 4.8%.

The company also sold two properties for around $374 million at a weighted average Disposition Yield of 4.8%. The properties are located in suburban Washington, D.C. These properties had 1,159 apartment units in total.

Outlook

For first-quarter 2020, Equity Residential projects normalized FFO per share at 84-88 cents.

The company also issued its outlook for the ongoing year and expects normalized FFO per share of $3.59-$3.69. This is backed by same-store portfolio revenue growth projections of 2.3-3.3%, physical occupancy of 96.4%, and NOI growth of 1.5-3.5%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Equity Residential has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Equity Residential has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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