Equity Residential (NYSE: EQR), the largest publicly traded U.S. apartment company, cut its earnings forecasts after announcing it will reduce the value of its corporate housing business by $30 million. Funds from operations are expected to be 45 cents to 48 cents a share in the fourth quarter, the company said in a statement today. That's less than the 55 cents average estimate by analysts surveyed by Bloomberg. For the full year, funds from operations are expected to be $2.23 to $2.26, less than a Bloomberg estimate of $2.16.
Corporate housing contributes about $13 million a year to the Chicago-based company's revenue, Chief Executive Officer David Neithercut said in the statement. The company reported $512 million in rental revenue in the quarter ended Sept. 30.
"We continue to believe that our corporate housing business provides value to Equity Residential and we will continue to support their efforts for growth and increased profitability while serving their important corporate customer base,'' Neithercut said.
Corporate housing provides lodging or temporary homes to corporate employees. The $30 million non-cash expense comes from a reduction in goodwill from the $132.6 million purchase of Globe Business Resources Inc. in 2000. Goodwill is the amount paid for a business above its fair market value.
Equity Residential said it does not have any more goodwill on its books.
Equity Residential, whose chairman is billionaire Sam Zell, owns or has an interest in 619 properties in 26 states. The company is selling properties in slower-growing markets including Dallas and buying buildings in areas where demand for apartments is stronger, such as New York and Southern California.
Equity Residential earlier forecast funds from operations of as much as 57 cents a share in the fourth quarter and $2.35 a share for the year.
The company also today increased its common share dividend 4.5 percent to 46 cents as occupancy and rents rose at its apartment holdings. The dividend will be paid on Jan. 12 to shareholders registered on Dec. 22.
Funds from operations is a measure of cash flow used by real estate investment trusts. It's defined as net income before extraordinary items, non-cash items, depreciation or amortization. It doesn't comply with generally accepted accounting principles.
Shares of Equity Residential are up 32 percent this year through Monday, outperforming the Bloomberg Index of REITs, which rose 28 percent in the same period.