HCP, Inc. (HCP), UDR, Inc. (UDR): Growth Drivers in Place for Equity Residential (EQR)

Well into the earnings season, some of the most followed REITs disclosed their second quarter performances. These include Equity Residential (NYSE:EQR), the latest of the REITs to report its performance. This article will feature the latest earnings review for Equity Residential and will attempt to find out drivers of future growth for the company and its closest peers like HCP, Inc. (NYSE:HCP) and UDR, Inc. (NYSE:UDR).

Headline beat

Operating as a REIT, Equity Residential (NYSE:EQR) acquires, develops and manages multi-family residential properties. These are then rented out to tenants in order to generate rental income for the company, which is later distributed among its investors in the form of dividends. The company surprised its investors and analysts when both its top and bottom lines beat their respective estimates at the end of the second quarter. The second quarter results beat is driven by lower interest expense.

Equity Residential (NYSE:EQR) reported Funds from Operations, or FFO, of $0.73 per share, compared to an estimate of $0.71. Reported FFO per share was 13% above the prior year figure. FFO is one of the most critical metrics for REITs. It is a measure of cash that the REIT generates that will be available for dividend distributions. Also, the reported revenue of $635 was $42.4 million ahead of the estimate.

Geographical footprint

For Equity Residential (NYSE:EQR), occupancy rates improved 50 basis points over the prior quarter to 95.5%, while rents were up 1.6% over the same time period. Since the company has operations across the US, it’s important to see which markets performed better than others. Boston remained the highest performing market, reporting both rent and occupancy growth. The Boston market accounts for around 5% of the total apartment units owned by Equity Residential (NYSE:EQR). The company has a large concentration in South Florida as it accounts for over 10.6% of the total apartments Equity Residential owns. South Florida’s housing markets are showing continuous strength for the past 17 months. Boston was followed by San Francisco while Phoenix remained the weakest in term of revenue growth.

Acquisitions

Rent growth, increase in occupancy and continued acquisition and development remain the key performance driving factors for Equity Residential. During the quarter, Equity Residential (NYSE:EQR) announced that it acquired an asset in Redmond for $91.5 million and some land in Seattle for $16.5 million. Addition of new properties in the portfolio will lead the company to report higher rental income in the coming quarters. Secondly, since the mortgage rates are climbing and owning a single-family residence is becoming expensive. This will further boost demand for multi-family, ultimately increasing the company’s rents and occupancies.

Peers analysis

Now, let’s look at a couple of Equity Residential’s peers. HCP, Inc. (NYSE:HCP) and UDR, Inc. (NYSE:UDR) are among the closest competitors of Equity Residential. Both have disclosed their performances for the second quarter. Let’s look at their performances and see how they will perform in the future.