By Ilaina Jonas
NEW YORK Feb 5 Apartment owner Equity
Residential reported a key earnings measure that missed
Wall Street's forecast and issued lower-than-expected forecast
for the year, despite reporting higher rent and low expense
growth in the fourth quarter.
Equity Residential, whose chairman and founder is real
estate mogul Sam Zell, said on Tuesday that fourth-quarter funds
from operations (FFO), excluding one-time items, rose to $243.9
million, or 75 cents a share, from $204.6 million, or 65 cents a
share, a year ago.
That fell short of the average of analysts' forecasts of 77
cents per share, according to Thomson Reuters I/B/E/S, but was
in line with the company's own forecast of 72 cents to 76 cents
Funds from operations is a real estate investment trust
(REIT) measure that usually removes losses and gains from
property sales and eliminates the effect of depreciation on
Len Rittberg, vice president of Adelante Capital Management,
which owns Equity Residential shares, attributed the miss to
confusion over costs and gains related to Equity Residential's
pending purchase of assets held by Archstone.
During the quarter, Equity Residential and smaller rival
AvalonBay Communities Inc said they would acquire
Archstone, a large apartment owner taken private in 2007, for
$6.5 billion plus the assumption of debt.
Equity Residential said it would buy 60 percent of the
assets and AvalonBay 40 percent. The deal is expected to close
by the end of the month, Equity Residential said.
The company sold shares in December to help pay for the
purchase and raised $1.16 billion in net proceeds. It also has
sold or is in the process of selling 74 properties for about
$3.15 billion to help pay for the Archstone assets. The sales
happened much more quickly than the company expected, prompting
it to lower is internal full-year FFO forecast, excluding items,
by 13 cents per share, Equity Residential said.
Although the apartment sector has been one of the
strongest-performing in commercial real estate, it has been the
weakest when it comes to stock performance. Investors are
concerned about slowing rent increases in some major markets, as
well as the threat of oversupply in markets such as Washington
D.C. and Seattle.
Revenue for properties the company has operated for at least
a year grew 5.4 percent in the fourth quarter, slower than the
5.8 percent rate Equity Residential reported for the prior
For 2013, Equity Residential expects FFO excluding
nonrecurring items in the range of $2.80 to $2.90 per share,
while analysts forecast $2.94 a share, according to Thomson
"The thing that the market seems to be valuing more than
quarterly results is the guidance," Rittberg said. "This is
probably going to be a little disappointing."
AvalonBay's stock fell 4 percent last week in part because
of its outlook for 2013.
The Chicago-based company sees first-quarter FFO in the
range of 62 to 66 cents per share, while analysts forecast 65
cents per share.
Equity Residential reported results after the close of
trading on Tuesday. Its shares fell 0.6 percent to $54.16 during