Earnings Scorecard: Equity Residential (EQR)

Equity Residential (EQR), a leading real estate investment trust (REIT), reported its fiscal 2010 second quarter fund from operations (FFO) of 58 cents per share, which exceeded the Zacks Consensus Estimate by 3 cents. Fund 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.

We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

Total revenues during the quarter were $510.9 million, compared with $480.3 million in the year-ago period. Total revenues during the reported quarter were well ahead of the Zacks Consensus estimate of $491 million.

Same-store (second quarter 2010 vs. second quarter 2009 comparison, which includes 117,349 apartment units) quarterly revenues decreased 1.2%, while same-store operating expenses increased 1.5%. Same-store net operating income (NOI) during the quarter decreased 2.9% year over year, primarily due to a 2.8% decrease in average rental rates.

(Read our full coverage on this earnings report: Equity Residential Tops Estimates)

Earnings Estimate Revisions- Overview

Fiscal earnings estimates have climbed for Equity Residential since the earnings release, meaning that analysts are bullish about its long-term performance. Let’s dig into the earnings estimate details.

Agreement of Estimate Revisions

In the last 30 days, fiscal 2010 earnings estimates were raised by 11 analysts out of the19 covering the stock, while 2 have lowered the same. For fiscal 2011, 12 out of 23 analysts covering the stock have revised their estimates upward, while only 1 has decreased it. This indicates a positive directional movement for the fiscal year earnings. Management further observed a steady improvement in market fundamentals with an increase in occupancy and base rents.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2010 have augmented 3 cents from $2.14 to $2.17 since the earnings announcement. For fiscal 2011, earnings estimates have increased 5 cents from $2.29 to $2.34. This is encouraging news for the company. For full-year 2010, Equity Residential has also revised its FFO guidance from the range of $1.95 to $2.15 per share to $2.14 to $2.20 in anticipation of an improved occupancy and operating income from its properties.

Moving Forward

The long-term earnings estimate picture for Equity Residential is positive. Equity Residential is the largest publicly traded multi-family real estate operator in the U.S. with a diverse portfolio of properties in some of the best long-term apartment markets in the country. Furthermore, the company has a fully implemented state-of-the-art operating platform enabling it to manage operations on a real-time basis and deliver a market-leading performance.

However, Equity Residential is repositioning its portfolio to focus on high-barrier markets, which might cause near-term earnings dilution. Consequently, the company is continually under stress to maintain profitability.

Currently, we maintain our Neutral rating on Equity Residential with a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1-3 months.

EQUITY RESIDENT (EQR): Free Stock Analysis Report

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