Equity Residential Raises Outlook as Lease Growth Accelerates
Second-quarter rental income increased 2.1% to $785.0 million.
Equity Residential (EQR), the apartment real-estate investment trust, reported a 3% increase in normalized funds from operations to $1.02 a share as lease-rate growth accelerated despite lower occupancy.
Blended lease-rate growth reached 2.8%, up from 1.5% in the first quarter, and strengthened to a preliminary 3.0% in July. New-lease pricing improved to a 0.7% decline from a 2.8% decline in the prior quarter, then narrowed further to a preliminary 0.1% decline in July.
Earnings fell 40% from a year earlier to $0.30 a share, primarily because of lower property-sale gains and adjustment items, though they rose from $0.24 in the first quarter. FFO increased 2% to $1.00 a share, reversing the first quarter’s 5.3% year-over-year decline.
Same-store revenue grew 1.9%, slowing from 2.2% in the first quarter, while same-store net operating income increased 1.4% for a second consecutive quarter. Expenses rose 3%, continuing to outpace revenue growth, but fell 2.9% sequentially and helped lift NOI 2.6% from the first quarter.
Physical occupancy declined to 96.2% from 96.5% in the first quarter and remained at that level in preliminary July results. Renewal-rate growth increased to 5.2%, while the share of residents renewing fell sequentially to 60.0% and slipped to a preliminary 59.0% in July.
Equity Residential raised the midpoint of its full-year same-store revenue-growth outlook by 0.2 percentage point and now expects growth of 2.1% to 2.7%. The company also raised the midpoint of its NOI-growth forecast by 0.3 point to a range of 1.5% to 2.1%, kept expense-growth guidance at 3.0% to 4.0% and lowered its occupancy forecast to 96.3%.
The company withdrew its full-year EPS, FFO and normalized-FFO guidance because of its pending all-stock merger with AvalonBay Communities, while retaining its standalone same-store operating outlook. The estimated equity market capitalization of the combined company was updated to about $53 billion, with enterprise value of roughly $71 billion and more than 180,000 apartments.
Equity Residential sold two properties totaling 515 apartments in Los Angeles and San Francisco for about $164.0 million and made no acquisitions during the quarter. It also completed partially owned developments totaling 809 units in suburban Boston and Seattle, advancing its development pipeline as the AvalonBay transaction remained pending.