Equity Residential Q4 FFO falls, beats views
NEW YORK (Reuters) - Landlords are also having a tough time in the recession.
Equity Residential (EQR.N), one of the biggest U.S. owners and managers of apartments, on Wednesday said quarterly funds from operations fell 56 percent. But the results were not as bad as analysts had expected and its shares rose 3.5 percent.
The real estate investment trust (REIT), led by real estate mogul and media investor Sam Zell, also forecast a tough period ahead as the economy and job market weakens through 2009. Equity Residential added it had sufficient liquidity to meet funding needs into 2011.
AvalonBay Communities Inc (AVB.N), another apartment REIT, posted a 74 percent drop in funds from operations. The results narrowly fell short of analysts' forecasts as it abandoned some development plans and cut jobs to deal with a sagging U.S. economy.
The average apartment rent fell 0.4 percent in the fourth-quarter of 2008, the first decline since early 2003, according to real estate research firm Reis. Rents are expected to fall another 1.7 percent in 2009, according to Reis.
Equity Residential, which owns or has a stake in 568 U.S. properties consisting of 147,244 units, reported funds from operations of $84.8 million, or 29 cents a share, for the fourth quarter. That was down from $193.8 million, or 67 cents, a year earlier.
The results beat the average analysts' forecast of 23 cents per share, according to Reuters Estimates.
FFO, a key performance measure for real estate investment trusts, excludes the profit-reducing effect of depreciation, a noncash accounting item.
Equity Residential said it expected first-quarter FFO in a range of 53 cents to 58 cents per share, compared with the 58 cents per share analysts had expected.
For apartments managed for at least a year, net operating income rose by 2.8 percent in the latest quarter. The earnings also reflected a noncash charge of $116 million, or 40 cents per share, for the lower value of land it no longer plans to develop.
Equity Residential CEO David Neithercut said the company began to feel the effects of a weak job market and economic slowdown in the quarter.
"Job losses are expected to continue, further weakening pricing power across our markets," he said.
The company said it was confident its $1.02 billion of unrestricted cash and federally insured investment deposits, along with its $1.3 billion unsecured revolving credit line, would help it meet its obligations through 2011.
Jobs growth is one of the greatest drivers of demand for new apartments. With the U.S. economy shedding 1.9 million jobs in the last four months of 2008, apartment landlords have seen a softening rental market.
Equity Residential shares were trading at $24.24, up 3.5 percent, after closing at $23.42.
Zell made the bulk of his fortune selling Equity Office Properties Trust for $23 billion in 2007. He subsequently led a deal to take newspaper publisher Tribune Co private. Tribune filed for Chapter 11 bankruptcy protection in December.
AvalonBay said its fourth-quarter funds from operations plunged to $23 million, or 30 cents a share, from $89.6 million, or $1.14, in the year-earlier quarter.
Analysts on averaged expected AvalonBay to post FFO of 31 per share, according to Reuters Estimates.
As AvalonBay warned late in the fourth quarter, mounting layoffs and frozen credit markets are prompting the company to reevaluate development plans. Job growth is one of the key drivers of apartment demand.
Alexandria, Virginia-based AvalonBay said land impairments came to $57.9 million for the fourth quarter and the year. It said impairments and costs associated with abandoning projects, coupled with a decrease in gains on asset sales, dragged down profit.
AvalonBay had a net loss of 2 cents a share for the most recent period, compared with $1.65 a year ago.
(Additional reporting by Chris Kaufman and Joe Giannone; Editing by Phil Berlowitz and Ted Kerr)
