Bloomberg News

Equity Residential FFO Rises 3.3% as Apartment Rents Climb

July 27, 2011

(Updates with lowered forecast for normalized FFO in ninth paragraph.)

July 27 (Bloomberg) -- Equity Residential, the largest publicly traded U.S. apartment landlord, said second-quarter funds from operations rose 3.3 percent as the nation’s rents climbed and vacancies declined.

FFO, which gauges a property company’s ability to generate cash, rose to $180.7 million from $174.9 million a year earlier. On a per share basis, FFO was unchanged at 58 cents, the Chicago-based real estate investment trust said today in a statement. The company was expected to have FFO of 60 cents a share, the average estimate of 21 analysts in a Bloomberg survey.

U.S. apartment rents climbed 5.2 percent in the 12 months through June, as a weak homebuying market fueled demand for leasing, according to Axiometrics Inc., a Dallas-based research company. REIT landlords are benefiting from a limited supply of apartments and better job prospects for recent college graduates, according to Anthony Paolone, an analyst with JPMorgan Chase & Co. in New York.

“You look at the economic conditions and they’re not brilliant, yet the apartment pricing power has been phenomenal,” he said in an interview before earnings were released.

While the U.S. unemployment rate hovers above 9 percent, there’s been “a good amount of job growth” in the 20-to-35 age group, Paolone said, “and that age cohort has a bigger propensity to rent.”

‘Drag on Earnings’

Equity Residential sold more than $1 billion of apartment properties in the second quarter, according to Real Capital Analytics Inc., taking advantage of investor demand amid the promise of rent growth. The “stepped up” pace of disposition creates a “near-term drag on earnings,” Paolone, who has an “overweight” rating on the stock, wrote in July 22 note to investors.

FFO, used by REITs, doesn’t conform to generally accepted accounting principles.

Equity Residential reported so-called normalized FFO of 60 cents a share, compared with 58 cents a year earlier. Normalized FFO excludes items that are not comparable from period to period, such as asset impairments or penalties for early payment of debt, the company said.

Full-Year Forecast

The company lowered the upper end of its forecast for full- year normalized FFO because of the increase in property sales, Chief Executive Officer David Neithercut said in the statement. The REIT expects $2.40 to $2.45 a share, down from April’s projection of $2.40 to $2.50.

Second-quarter results were announced after the close of regular U.S. trading. Equity Residential fell 1.6 percent to $62.49 as of 4:15 pm in New York Stock Exchange composite trading. The shares gained 35 percent in the last 12 months, compared with a 31 percent advance in the Bloomberg REIT Apartment Index of 14 companies.

(Equity Residential will hold a conference call tomorrow at 11 a.m. New York time. To monitor, go to the investor information page of www.equityapartments.com.)

--Editors: Christine Maurus, Daniel Taub

To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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