Equity Residential: Earnings Preview

Apr.26.11 | About: Equity Residential (EQR)

Equity Residential (NYSE:EQR), a multifamily real estate investment trust, is scheduled to report its fiscal 2011 first quarter earnings after the closing bell on April 27, 2011. The current Zacks Consensus Estimate for the first quarter is 56 cents per share, representing a year-over-year growth of 15.1%.

Fourth Quarter Recap

Equity Residential 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. Funds 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.

At year-end 2010, the company had cash and cash equivalents of $431.4 million and total debt of $9.9 billion.

Guidance

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.

Agreement of Analysts

In the last 7 days, no analysts have revised their earnings estimates for the first quarter or fiscal 2011. In the last 30 days, one out of 20 analysts covering the stock has increased his earnings estimates for the first quarter and 2 out of 25 analysts increased the same for fiscal 2011. In the last 30 days, none of the analysts covering the stock trimmed their earnings estimates for the first quarter or fiscal 2011.

Magnitude of Estimate Revisions

Earnings estimates have remained stagnant for the last 30 days for the first quarter and fiscal 2011 at 56 cents and $2.46 per share, respectively, meaning that analysts are cautious about the performance of the company.

Our Take

Equity Residential is the largest fully integrated publicly traded multi-family real estate investment trust (REIT) in the U.S. 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.

The home ownership cost in most of the markets of Equity Residential is significantly higher than the national average. In addition, financing for new apartment construction has become relatively harder due to the challenging macroeconomic environment, leading to a dearth of new supply. This provides an upside potential for the company as multi-family fundamentals have comparatively held up during the economic downturn. However, the company faces stiff competition from other players in the market which might affect its long term profitability.

We currently have a ‘Neutral’ recommendation on Equity Residential, which presently has a Zacks #3 Rank that translates into a short-term Hold rating. One of its competitors, Apartment Investment & Management Co. (NYSE:AIV) currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.