Equity Residential Provides Operating Update
Equity Residential (NYSE: EQR) announced updates during the Nareit REITWeek 2024 Investor Conference. The company revealed that Earnings Per Share (EPS) and Funds from Operations (FFO) per share are projected to be in the lower half of the previously announced guidance ranges due to a litigation reserve adjustment in Q1 2024. However, normalized FFO per share, same store revenue, and same store net operating income (NOI) are trending towards the upper end of their respective guidance ranges. Key operating metrics for May 2024 include a physical occupancy rate of 96.5%, a 57.0% resident renewal rate, and a 2.9% blended rate for new and renewed leases.
- Normalized FFO per share is trending towards the top of the guidance range.
- Same store revenue is trending towards the top of the guidance range.
- Same store net operating income (NOI) is trending towards the top of the guidance range.
- Physical occupancy rate reached 96.5% in May 2024.
- The blended rate for new and renewed leases increased to 2.9% in May 2024.
- EPS and FFO per share are expected to be in the lower half of the guidance range due to a litigation reserve adjustment in Q1 2024.
- Percentage of residents renewing leases decreased to 57.0% in May 2024 from 61.1% in Q1 2024.
Insights
Equity Residential's announcement centers around their latest operating update and guidance adjustments. The company expects its EPS and FFO per share to be in the bottom half of the full-year guidance ranges due to a litigation reserve adjustment. This indicates potential unforeseen expenses that may concern investors.
On the brighter side, normalized FFO per share, same store revenue and same store NOI are trending towards the top end of guidance ranges. This suggests solid underlying business performance despite the litigation impact. For a company with
However, the litigation reserve adjustment could hint at underlying risks or operational issues. Investors should monitor how the company manages these expenses and whether they result in lasting financial impacts.
In summary, while fundamental operations seem healthy, the legal adjustments present a cautionary note. Retail investors should weigh the strong operating performance against potential risks.
The metrics provided by Equity Residential show a mixed yet cautiously optimistic outlook. The company’s strong physical occupancy rate of
However, the
Looking forward, investors should consider how the company's strategic initiatives and market conditions will impact their ability to sustain high occupancy and rent growth, especially given the economic uncertainties.
For retail investors, the metrics suggest a company that is performing well in a stable market, but potential legal issues could introduce volatility. Keeping an eye on market trends and company strategies will be important for future investment decisions.
Same Store Results Continue to Exceed Expectations
Operating Update
The Company’s Earnings Per Share (EPS) and Funds from Operations(FFO) per share are expected to be in the bottom half of the full year guidance ranges reaffirmed in the Company’s Q1 2024 Earnings Release made public on April 23, 2024 due to the litigation reserve adjustment made during the first quarter. Normalized FFO per share, same store revenue and same store net operating income (NOI) are trending towards the top of their respective full year guidance ranges.
The Company provided the following updated operating statistics in the Investor Presentation:
Residential Same Store Operating Statistics
The following table includes select operating metrics for Residential Same Store Properties (for 77,211 same store apartment units):
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Physical Occupancy |
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Percentage of Residents Renewing by quarter/month |
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New Lease Change |
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Renewal Rate Achieved |
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Blended Rate |
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- May 2024 results are preliminary as of May 24, 2024.
About Equity Residential
Equity Residential is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of residential properties located in and around dynamic cities that attract affluent long-term renters. Equity Residential owns or has investments in 299 properties consisting of 79,688 apartment units, with an established presence in
Forward-Looking Statements
In addition to historical information, this press release contains forward-looking statements and information within the meaning of the federal securities laws. These statements are based on current expectations, estimates, projections and assumptions made by management. While Equity Residential’s management believes the assumptions underlying its forward-looking statements are reasonable, such information is inherently subject to uncertainties and may involve certain risks, including, without limitation, changes in general market conditions, including the rate of job growth and cost of labor and construction material, the level of new multifamily construction and development, government regulations (such as eviction moratoriums) and competition. These and other risks and uncertainties are described under the heading “Risk Factors” in our Annual Report on Form 10-K and subsequent periodic reports filed with the Securities and Exchange Commission (SEC) and available on our website, www.equityapartments.com. Many of these uncertainties and risks are difficult to predict and beyond management’s control. Forward-looking statements are not guarantees of future performance, results or events. Equity Residential assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
Terms and Definitions:
Blended Rate – The weighted average of New Lease Change and Renewal Rate Achieved.
Earnings Per Share ("EPS") – Net income per share calculated in accordance with GAAP. Expected EPS is calculated on a basis consistent with actual EPS. Due to the uncertain timing and extent of property dispositions and the resulting gains/losses on sales, actual EPS could differ materially from expected EPS.
FFO and Normalized FFO:
Funds From Operations (“FFO”) – Nareit defines FFO (December 2018 White Paper) as net income (computed in accordance with GAAP), excluding gains or losses from sales and impairment write-downs of depreciable real estate and land when connected to the main business of a REIT, impairment write-downs of investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and depreciation and amortization related to real estate. Adjustments for partially owned consolidated and unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. Expected FFO per share is calculated on a basis consistent with actual FFO per share and is considered an appropriate supplemental measure of expected operating performance when compared to expected EPS.
The Company believes that FFO and FFO available to Common Shares and Units are helpful to investors as supplemental measures of the operating performance of a real estate company, because they are recognized measures of performance by the real estate industry and by excluding gains or losses from sales and impairment write-downs of depreciable real estate and excluding depreciation related to real estate (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO available to Common Shares and Units can help compare the operating performance of a company’s real estate between periods or as compared to different companies.
Normalized Funds From Operations ("Normalized FFO" or "NFFO") – Normalized FFO begins with FFO and excludes:
· the impact of any expenses relating to non-operating real estate asset impairment;
· pursuit cost write-offs;
· gains and losses from early debt extinguishment and preferred share redemptions;
· gains and losses from non-operating assets; and
· other miscellaneous items.
Expected Normalized FFO per share is calculated on a basis consistent with actual Normalized FFO per share and is considered an appropriate supplemental measure of expected operating performance when compared to expected EPS.
The Company believes that Normalized FFO and Normalized FFO available to Common Shares and Units are helpful to investors as supplemental measures of the operating performance of a real estate company because they allow investors to compare the Company's operating performance to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company's actual operating results.
FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units do not represent net income, net income available to Common Shares or net cash flows from operating activities in accordance with GAAP. Therefore, FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units should not be exclusively considered as alternatives to net income, net income available to Common Shares or net cash flows from operating activities as determined by GAAP or as a measure of liquidity. The Company's calculation of FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.
FFO available to Common Shares and Units and Normalized FFO available to Common Shares and Units are calculated on a basis consistent with net income available to Common Shares and reflects adjustments to net income for preferred distributions and premiums on redemption of preferred shares in accordance with GAAP. The equity positions of various individuals and entities that contributed their properties to ERP Operating Limited Partnership, the Company’s operating partnership, in exchange for OP Units are collectively referred to as the "Noncontrolling Interests – Operating Partnership". Subject to certain restrictions, the Noncontrolling Interests – Operating Partnership may exchange their OP Units for Common Shares on a one-for-one basis.
Leasing Concessions – Reflects upfront discounts on both new move-in and renewal leases on a straight-line basis.
New Lease Change – The net effective change in rent (inclusive of Leasing Concessions) for a lease with a new or transferring resident compared to the rent for the prior lease of the identical apartment unit, regardless of lease term.
Net Operating Income (“NOI”) – NOI is the Company’s primary financial measure for evaluating each of its apartment properties. NOI is defined as rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company's apartment properties. NOI does not include an allocation of property management expenses either in the current or comparable periods. Rental income for all leases and operating expense for ground leases (for both same store and non-same store properties) are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
Non-Residential – Consists of revenues and expenses from retail and public parking garage operations.
Percentage of Residents Renewing – Leases renewed expressed as a percentage of total renewal offers extended during the reporting period.
Physical Occupancy – The weighted average occupied apartment units for the reporting period divided by the average of total apartment units available for rent for the reporting period.
Renewal Rate Achieved – The net effective change in rent (inclusive of Leasing Concessions) for a new lease on an apartment unit where the lease has been renewed as compared to the rent for the prior lease of the identical apartment unit, regardless of lease term.
Residential – Consists of multifamily apartment revenues and expenses.
Same Store Properties – For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2023, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented. Unless otherwise noted, includes both Residential and Non-Residential operations for these properties.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240528414680/en/
Marty McKenna
(312) 928-1901
Source: Equity Residential
FAQ
What is the expected EPS and FFO per share for EQR in 2024?
How is Equity Residential's normalized FFO per share trending for 2024?
What was Equity Residential’s physical occupancy rate in May 2024?
What is the percentage of residents renewing leases for EQR in May 2024?
What is the blended rate for new and renewed leases at EQR in May 2024?
