Equity Residential earnings show continued demand for rentals

NFFO

By: Marika Bastrmajian

Equity Residential Inc. turned in third quarter earnings that underscore the continued strength of the rental-housing sector, despite the recovery underway in single-family housing.

The Chicago-based real estate investment trust reported normalized funds from operations of $310 million, or 82 cents per diluted share, u from $275 million, or 73 cents per diluted share, in the year-ago quarter. Normalized FFO, a standard measure of profitability in the REIT sector, is an adjusted look at a real estate investment trust’s financial funds generated by operations; it excludes depreciation and certain other factors.

Equity Residential develops and manages high-end apartments throughout the U.S. with 62 properties in Los Angeles, 57 in Washington DC and 51 in San Francisco.

In recent years Equity Residential has been benefitting as people have been unable to qualify for home loans, have been displaced due to a climb in foreclosures and have been skittish to leap back into home ownership as the memory of the housing bust lingers.

“Favorable demographics and changing lifestyles will continue to produce strong demand for rental housing in our high density, urban markets which should deliver same store revenue growth of 3.5 percent to 4.5 percent in 2015,” said David Neithercut, president and chief executive officer.

“Despite the two-headed threat of rising supply and a single family housing recovery, aggregate results suggest that there’s still quite a bit of life in apartment fundamentals,” said David Toti, analyst at Cantor Fitzgerald, in a research note.

Same-store revenues on over 100,000 units increased 4.1 percent this quarter compared with the prior year, and net operating income increased 6 percent. The company uses the NOI metric as a representation of rental income adjusted for management, maintenance and insurance expenses.

Equity Residential invested $139 million this quarter into a 308-unit apartment property and a parcel of land, both in Los Angeles. The REIT also sold $178.6 million in assets and land, including 981 apartment units, and a parcel of land in Florida.

On a net basis, a measure considered less meaningful in the REIT industry, the company reported a decrease in earnings per share earnings of 61 cents in the third quarter, compared with earnings per share of $1.05 in the year prior.

“The difference is due primarily to higher gains on property sales in the third quarter of 2013 partially offset by higher depreciation expense in the third quarter of 2013,” reported the company in their earnings press release.

Equity Residential’s normalized FFO per share exceeded analyst’s expectations of 81 cents by a penny.

In NYSE trading Wednesday afternoon, Equity Residential shares were down 42 cents, or less than 1 percent, at 67.84.