01—Abstract
Summary
Summary of the 8-K filed July 29, 2024. Cited figures are marked; the original filing is the authoritative source.
Equity Residential (EQR) reported second quarter 2024 results on July 29, 2024, with EPS of $0.47a (up 27.0% year over year) and FFO per share of $0.94 (up 1.1%).
Normalized FFO per share was $0.97b, up 3.2%. For the first half of 2024, EPS was $1.24 (up 34.8%) and Normalized FFO was $1.91 (up 4.9%). The headline driver was operating momentum: same-store revenue rose 2.9%, same-store expenses rose 2.7%, and same-store NOI grew 3.0%.
Physical occupancy held at 96.4%c, and the blended lease rate improved to 2.9% from 1.6% in Q1, with June improving relative to April and May. Net EPS growth was boosted by higher property sale gains, so the more relevant comparison for recurring earnings power is Normalized FFO. Management raised full-year 2024 same-store guidance.
Revenue growth is now 2.9% to 3.5% (midpoint up 70 basis points), expense growth is 2.5% to 3.5% (midpoint down 100 basis points), and same-store NOI growth is 3.0% to 3.5% (midpoint up 145 basis points). Normalized FFO guidance rose to $3.86 to $3.92d from $3.80 to $3.90, a $0.04 increase at the midpoint. The company attributed about $0.07 of the increase to same-store NOI, partly offset by a $0.02 hit from corporate overhead.
Full-year FFO guidance was cut to $3.72 to $3.78 from $3.74 to $3.84, mainly due to higher expected other expenses. Third-quarter guidance calls for Normalized FFO of $0.96 to $1.00, with Q3 blended rates expected to rise 2.0% to 3.0%. Capital deployment was modest but active.
Subsequent to quarter end, EQR acquired two properties with 644 units in Atlanta and Dallas/Ft. Worth for $216.8 million and went under contract for a 202-unit Denver property at $77.0 million. In Q2 it sold two older assets (average age about 35 years) for $85.5 million at a 6.2% disposition yield, and bought a 160-unit Boston property at a 5.7% acquisition cap rate.
Balance sheet metrics were stable, with net debt to Normalized EBITDAre at 3.92x, total debt of $7.16 billion at a 3.69% weighted average rate, and 89.6% of NOI unencumbered. This filing is an earnings release furnished under Item 2.02, not a filed disclosure with new legal obligations.
02—Key points
Key Highlights
- Q2 2024 Normalized FFO per share of $0.97, up 3.2% year over year; FFO per share of $0.94, up 1.1%
- Q2 2024 EPS of $0.47, up 27.0%, largely driven by higher property sale gains rather than core operations
- Same-store NOI grew 3.0% in Q2 on 2.9% revenue growth and 2.7% expense growth; physical occupancy at 96.4%
- Full-year 2024 same-store NOI guidance raised to 3.0%-3.5% (midpoint up 145 bps); revenue guidance raised to 2.9%-3.5%
- Normalized FFO guidance raised to $3.86-$3.92 from $3.80-$3.90, while FFO guidance was lowered to $3.72-$3.78 from $3.74-$3.84
- Blended lease rate improved to 2.9% in Q2 from 1.6% in Q1; Q3 blended rate expected to rise 2.0%-3.0%
- Post-quarter acquisitions of 644 units ($216.8M) and a pending 202-unit Denver purchase ($77.0M); Q2 dispositions at a 6.2% yield
03—Questions
Frequently Asked Questions
Why did EPS rise 27% while Normalized FFO grew only 3.2%?
EPS includes net gains on property sales, which were $39.8 million in Q2 2024 versus a small loss in Q2 2023. Those gains reflect the timing of dispositions and are not part of recurring operating performance. Normalized FFO excludes gains on sales and other non-comparable items, so it is the better gauge of the underlying business. The 3.2% increase in Normalized FFO per share reflects steady same-store NOI growth, partly offset by higher corporate overhead.
What drove the raised same-store NOI guidance?
The company raised its revenue growth midpoint by 70 bps to 3.2%, citing better physical occupancy and blended rates. It also lowered its expense growth midpoint by 100 bps to 3.0%, supported by low growth in primary expense categories. Together these changes lifted the same-store NOI midpoint by 145 bps to 3.25%, which accounts for about $0.07 per share of the Normalized FFO guidance increase.
Why was FFO guidance lowered while Normalized FFO guidance was raised?
The FFO change is driven mainly by higher expected other expenses, which reduce FFO but are excluded from Normalized FFO as miscellaneous items. The company's Normalized FFO adjustments include other miscellaneous items such as insurance and litigation reserves, so the gap between the two metrics widened in the revised guidance. Investors should focus on Normalized FFO for the operating trend, but should also monitor the non-recurring expense items that are driving the gap.
What does the Q3 2024 outlook imply for near-term performance?
Q3 2024 Normalized FFO guidance is $0.96 to $1.00 per share, compared with $0.97 in Q2. The company expects the Q3 blended lease rate to increase 2.0% to 3.0%, which reflects typical seasonal moderation after the spring leasing season. Management cited higher corporate overhead and higher interest expense as partial offsets to NOI growth in the sequential comparison.
Is EQR's balance sheet under pressure?
Based on the disclosed metrics, the balance sheet looks stable. Net debt to Normalized EBITDAre was 3.92x, down from 3.97x at the end of Q1. Total debt was $7.16 billion, 77% unsecured, with a weighted average rate of 3.69% and a weighted average maturity of 7.9 years. The company was in compliance with its unsecured debt covenants, and 89.6% of NOI came from unencumbered assets.
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