Equity Residential (NYSE: EQR) today reported results for the
quarter ended March 31, 2017. All per share results are reported as
available to common shares/units on a diluted basis.
“Rental demand remains very strong across the nation’s coastal,
gateway cities but new apartment supply continues to pressure new
lease rates,” said David J. Neithercut, Equity Residential’s
President and CEO. “Nevertheless, we achieved renewal rates of 4.3%
in the first quarter and, as we approach our primary leasing season
with occupancy of 96%, we are well positioned to meet our operating
goals for the year.”
First Quarter 2017
Earnings per Share (EPS) for the first quarter of 2017 was $0.39
compared to $9.76 in the first quarter of 2016. The difference is
due primarily to $9.64 per share in higher property sale gains as a
result of the Company’s significant property sales activity in
2016, the various adjustment items listed on page 22 of this
release and the items described below.
FFO (Funds from Operations), as defined by the National
Association of Real Estate Investment Trusts (NAREIT), was $0.76
per share for the first quarter of 2017 compared to $0.47 per share
in the first quarter of 2016. The difference is due primarily to
the various adjustment items listed on page 22 of this release and
the items described below.
Normalized FFO for the first quarter of 2017 was $0.74 per share
compared to $0.76 per share in the first quarter of 2016. The
following items impacted Normalized FFO per share in the
quarter:
- A positive impact of approximately
$0.02 per share from increased same store net operating income
(NOI);
- A positive impact of approximately
$0.03 per share from Lease-Up NOI;
- A positive impact of approximately
$0.01 per share from lower corporate overhead (property management
and general and administrative expenses); and
- A negative impact of approximately
$0.08 per share of lower NOI primarily as a result of the Company’s
2016 disposition activity.
Reconciliations and definitions of FFO and Normalized FFO are
provided on pages 5, 25 and 26 of this release and the Company has
included guidance for Normalized FFO on page 23 and FFO and EPS on
page 26 of this release.
Same Store Results
On a same store first quarter to first quarter comparison, which
includes 71,000 apartment units, revenues increased 2.6%, expenses
increased 3.9% and NOI increased 2.1%. Average Rental Rate
increased 2.6% and occupancy was flat at 95.9%.
Investment Activity
The Company sold one consolidated apartment property, consisting
of 304 apartment units, for a sale price of $47.6 million at a
Disposition Yield of 6.7% and generating an Unlevered IRR of 17.1%.
The Company also sold one land parcel located in New York City for
a sale price of approximately $33.5 million. The Company did not
acquire any properties during the first quarter of 2017.
Also during the quarter, the Company stabilized its 453 unit
Potrero 1010 development in San Francisco at a Development Yield of
5.9%.
Second Quarter 2017 Guidance
The Company has established an EPS guidance range of $0.51 to
$0.55 for the second quarter of 2017. The difference between the
Company’s first quarter 2017 EPS of $0.39 and the midpoint of the
second quarter 2017 guidance range of $0.53 is due primarily to
higher expected gains on property sales and the items described
below.
The Company has established an FFO guidance range of $0.75 to
$0.79 per share for the second quarter of 2017. The difference
between the Company’s first quarter 2017 FFO of $0.76 per share and
the midpoint of the second quarter 2017 guidance range of $0.77 per
share is due primarily to lower expected debt extinguishment costs,
lower expected gains on land parcel sales and the items described
below.
The Company has established a Normalized FFO guidance range of
$0.75 to $0.79 per share for the second quarter of 2017. The
difference between the Company’s first quarter 2017 Normalized FFO
of $0.74 per share and the midpoint of the second quarter 2017
guidance range of $0.77 per share is due primarily to:
- A positive impact of approximately
$0.02 per share from increased same store NOI;
- A positive impact of approximately
$0.01 per share from Lease-Up NOI;
- A positive impact of approximately
$0.01 per share from lower total interest expense; and
- A negative impact of approximately
$0.01 per share of lower NOI primarily as a result of the Company’s
disposition activity.
Glossary of Terms and Definitions
To improve comparability and enhance disclosure, the Company has
a glossary of defined terms and related reconciliations of Non-GAAP
financial measures on pages 24 through 27 of this release.
Second Quarter 2017 Earnings and Conference Call
Equity Residential expects to announce second quarter 2017
results on Tuesday, July 25, 2017 and host a conference call to
discuss those results at 10:00 a.m. CT on Wednesday, July 26,
2017.
About Equity Residential
Equity Residential is an S&P 500 company focused on the
acquisition, development and management of rental apartment
properties in urban and high-density suburban coastal gateway
markets where today’s renters want to live, work and play. Equity
Residential owns or has investments in 302 properties consisting of
77,498 apartment units, primarily located in Boston, New York,
Washington, D.C., Seattle, San Francisco and Southern California.
For more information on Equity Residential, please visit our
website at www.equityapartments.com.
Forward-Looking Statements
In addition to historical information, this press release
contains forward-looking statements and information within the
meaning of the federal securities laws. These statements are based
on current expectations, estimates, projections and assumptions
made by management. While Equity Residential’s management believes
the assumptions underlying its forward-looking statements are
reasonable, such information is inherently subject to uncertainties
and may involve certain risks, including, without limitation,
changes in general market conditions, including the rate of job
growth and cost of labor and construction material, the level of
new multifamily construction and development, competition and local
government regulation. Other risks and uncertainties are described
under the heading “Risk Factors” in our Annual Report on Form 10-K
and subsequent periodic reports filed with the Securities and
Exchange Commission (SEC) and available on our website,
www.equityapartments.com. Many of
these uncertainties and risks are difficult to predict and beyond
management’s control. Forward-looking statements are not guarantees
of future performance, results or events. Equity Residential
assumes no obligation to update or supplement forward-looking
statements that become untrue because of subsequent events.
A live web cast of the Company’s conference call discussing
these results will take place tomorrow, Wednesday, April 26, at
10:00 a.m. Central. Please visit the Investor section of the
Company’s web site at www.equityapartments.com for the
link. A replay of the web cast will be available for two
weeks at this site.
Equity Residential Consolidated Statements of
Operations
(Amounts in thousands except per share
data)
(Unaudited)
Quarter Ended March 31, 2017
2016 REVENUES Rental income $
603,920 $ 616,165 Fee and asset management 180
2,918 Total revenues 604,100 619,083
EXPENSES Property and maintenance 102,608
109,165 Real estate taxes and insurance 81,728 80,196 Property
management 22,252 23,495 General and administrative 14,173 16,717
Depreciation 178,968 172,885 Total
expenses 399,729 402,458
Operating income 204,371 216,625 Interest and other income
601 3,058 Other expenses (1,090 ) (2,556 ) Interest: Expense
incurred, net (106,210 ) (213,492 ) Amortization of deferred
financing costs (2,296 ) (5,394 ) Income (loss)
before income and other taxes, (loss) from investments in
unconsolidated entities, net gain on sales
of real estate properties and land
parcels and discontinued operations
95,376 (1,759 ) Income and other tax (expense) benefit (262 ) (350
) (Loss) from investments in unconsolidated entities (1,073 )
(1,104 ) Net gain on sales of real estate properties 36,707
3,723,479 Net gain on sales of land parcels 19,193
11,722 Income from continuing operations 149,941
3,731,988 Discontinued operations, net — (157
) Net income 149,941 3,731,831 Net (income) attributable to
Noncontrolling Interests: Operating Partnership (5,411 ) (143,309 )
Partially Owned Properties (788 ) (764 ) Net income
attributable to controlling interests 143,742 3,587,758 Preferred
distributions (773 ) (773 ) Net income available to
Common Shares $ 142,969 $ 3,586,985
Earnings per share – basic: Income from continuing
operations available to Common Shares $ 0.39 $ 9.84
Net income available to Common Shares $ 0.39 $ 9.84
Weighted average Common Shares outstanding 366,605
364,592
Earnings per share – diluted:
Income from continuing operations available to Common Shares $ 0.39
$ 9.76 Net income available to Common Shares $ 0.39
$ 9.76 Weighted average Common Shares outstanding
382,280 382,243 Distributions
declared per Common Share outstanding $ 0.50375 $ 8.50375
Equity Residential Consolidated Statements
of Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per share
data)
(Unaudited)
Quarter Ended March 31, 2017
2016 Net income $ 149,941 $ 3,731,831
Net (income) attributable to Noncontrolling Interests – Partially
Owned Properties (788 ) (764 ) Preferred distributions (773
) (773 ) Net income available to Common Shares and Units
148,380 3,730,294 Adjustments: Depreciation 178,968 172,885
Depreciation – Non-real estate additions (1,298 ) (1,408 )
Depreciation – Partially Owned Properties (832 ) (994 )
Depreciation – Unconsolidated Properties 1,142 1,233 Net (gain) on
sales of unconsolidated entities - operating assets (68 ) — Net
(gain) on sales of real estate properties (36,707 ) (3,723,479 )
Discontinued operations: Net (gain) on sales of discontinued
operations — (15 ) FFO available to Common
Shares and Units 289,585 178,516 Adjustments (see page 22
for additional detail): Asset impairment and valuation allowances —
— Write-off of pursuit costs 715 1,448 Debt extinguishment (gains)
losses, including prepayment penalties, preferred
share redemptions and non-cash convertible
debt discounts
12,304 120,097 (Gains) losses on sales of non-operating assets, net
of income and other tax
expense (benefit)
(18,892 ) (11,977 ) Other miscellaneous items 9
1,397 Normalized FFO available to Common Shares and
Units $ 283,721 $ 289,481 FFO $ 290,358 $
179,289 Preferred distributions (773 ) (773 ) FFO
available to Common Shares and Units $ 289,585 $ 178,516
FFO per share and Unit - basic $ 0.76 $ 0.47
FFO per share and Unit - diluted $ 0.76 $ 0.47
Normalized FFO $ 284,494 $ 290,254 Preferred distributions
(773 ) (773 ) Normalized FFO available to Common Shares and
Units $ 283,721 $ 289,481 Normalized FFO per share
and Unit - basic $ 0.75 $ 0.77 Normalized FFO per
share and Unit - diluted $ 0.74 $ 0.76
Weighted average Common Shares and Units outstanding - basic
379,504 378,289 Weighted average Common Shares
and Units outstanding - diluted 382,280
382,243
Note: See page 22 for additional detail regarding the
adjustments from FFO to Normalized FFO. See pages 24 through 27 for
the definitions of non-GAAP financial measures and other terms as
well as the reconciliations of EPS to FFO per share and Normalized
FFO per share.
Equity Residential Consolidated Balance Sheets
(Amounts in thousands except for share amounts) (Unaudited)
March 31, December 31, 2017
2016 ASSETS Investment in real estate
Land $ 5,902,186 $ 5,899,862 Depreciable property 18,798,554
18,730,579 Projects under development 666,228 637,168 Land held for
development 109,136 118,816 Investment
in real estate 25,476,104 25,386,425 Accumulated depreciation
(5,526,586 ) (5,360,389 ) Investment in real estate,
net 19,949,518 20,026,036 Cash and cash equivalents 42,139 77,207
Investments in unconsolidated entities 59,483 60,141 Deposits –
restricted 76,053 76,946 Escrow deposits – mortgage 68,031 64,935
Other assets 413,114 398,883
Total
assets $ 20,608,338 $
20,704,148 LIABILITIES AND EQUITY
Liabilities: Mortgage notes payable, net $ 3,766,762 $ 4,119,181
Notes, net 4,848,477 4,848,079 Line of credit and commercial paper
314,686 19,998 Accounts payable and accrued expenses 165,640
147,482 Accrued interest payable 74,383 60,946 Other liabilities
308,466 350,466 Security deposits 63,124 62,624 Distributions
payable 191,641 192,296
Total
liabilities 9,733,179
9,801,072 Commitments and contingencies
Redeemable Noncontrolling Interests – Operating Partnership
359,733 442,092 Equity:
Shareholders’ equity: Preferred Shares of beneficial interest,
$0.01 par value;
100,000,000 shares authorized; 745,600
shares issued and
outstanding as of March 31, 2017 and
December 31, 2016
37,280 37,280 Common Shares of beneficial interest, $0.01 par
value;
1,000,000,000 shares authorized;
367,137,757 shares issued
and outstanding as of March 31, 2017 and
365,870,924 shares
issued and outstanding as of December 31,
2016
3,671 3,659 Paid in capital 8,846,997 8,758,422 Retained earnings
1,501,654 1,543,626 Accumulated other comprehensive (loss)
(109,326 ) (113,909 ) Total shareholders’ equity 10,280,276
10,229,078 Noncontrolling Interests: Operating Partnership 228,762
221,297 Partially Owned Properties 6,388
10,609 Total Noncontrolling Interests 235,150
231,906
Total equity 10,515,426
10,460,984 Total liabilities and
equity $ 20,608,338 $
20,704,148
Equity Residential
Portfolio Summary
As of March 31, 2017
% of
Average Apartment Stabilized
Rental Markets/Metro Areas Properties
Units NOI Rate Los
Angeles 70 15,857 18.3 % $ 2,396 Orange County 13 4,028 4.3 % 2,068
San Diego 13 3,505 3.9 %
2,220 Subtotal – Southern California 96 23,390 26.5 % 2,310
San Francisco 54 12,959 19.6 % 3,047 New York 40 10,632 17.9 %
3,734 Washington DC 47 15,637 17.6 % 2,343 Boston 25 6,703 10.4 %
2,850 Seattle 37 7,096 8.0 % 2,172 Other Markets 1
136 — % 1,141
Total 300
76,553 100.0 % 2,675
Unconsolidated Properties 2 945
— —
Grand Total 302
77,498 100.0 %
$ 2,675
Note: Projects under development are not included in the
Portfolio Summary until construction has been completed.
Equity Residential
Portfolio as of March 31, 2017
Properties Apartment
Units Wholly Owned Properties 280 72,485
Master-Leased Properties - Consolidated 3 853 Partially Owned
Properties - Consolidated 17 3,215 Partially Owned Properties -
Unconsolidated 2 945 302
77,498
Portfolio Rollforward Q1 2017
($ in thousands)
Apartment
Disposition Properties Units
Sales Price Yield 12/31/2016 302
77,458 Dispositions: Consolidated: Rental Properties
(1 ) (304 ) $ (47,600 ) (6.7 %) Land Parcels — — $ (33,450 )
Completed Developments - Consolidated 1 344
3/31/2017 302 77,498
Equity Residential
First Quarter 2017 vs. First Quarter 2016 Same
Store Results/Statistics for 71,000 Same Store Apartment Units
$ in thousands (except for Average Rental
Rate)
Results Statistics Description Revenues
Expenses NOI Average
Rental
Rate
Physical
Occupancy
Turnover Q1 2017 $ 560,236 $ 167,316 $
392,920 $ 2,633 95.9 % 10.4 % Q1 2016 $ 545,846 $ 161,004
$ 384,842 $ 2,566 95.9 % 10.9 %
Change $ 14,390 $ 6,312 $ 8,078 $ 67
— (0.5 )% Change 2.6 % 3.9 % 2.1
% 2.6 %
First Quarter 2017 vs. Fourth Quarter 2016 Same Store
Results/Statistics for 73,412 Same Store Apartment Units
$ in thousands (except for Average Rental
Rate)
Results Statistics Average
Rental Physical Description Revenues Expenses
NOI Rate Occupancy Turnover Q1
2017 $ 583,583 $ 175,798 $ 407,785 $ 2,655 95.8 % 10.5 % Q4 2016 $
583,240 $ 166,619 $ 416,621 $ 2,650
95.9 % 11.2 % Change $ 343 $ 9,179
$ (8,836 ) $ 5 (0.1 %) (0.7 %)
Change 0.1 % 5.5 % (2.1 )% 0.2 %
Note: Same store revenues for all leases are reflected on a
straight-line basis in accordance with GAAP for the current and
comparable periods. See page 26 for reconciliations from operating
income.
Equity Residential First Quarter 2017 vs. First
Quarter 2016
Same Store Results/Statistics by
Market
Increase (Decrease) from Prior Year's
Quarter Q1 2017 Q1 2017
Q1 2017 Weighted % of Average Average Average Apartment Actual
Rental Physical Q1 2017 Rental Physical Markets/Metro Areas Units
NOI Rate Occupancy % Turnover
Revenues Expenses NOI Rate Occupancy
Turnover
Los Angeles 14,038 17.5 % $ 2,380 95.8 % 11.7 % 3.8 % 5.0 % 3.3 %
4.3 % (0.3 %) 0.0 % San Diego 3,505 4.2 % 2,220 96.0 % 14.6 % 5.1 %
3.9 % 5.5 % 4.8 % 0.2 % 0.6 % Orange County 3,684
4.1 % 2,033 96.1 % 10.5 %
5.5 % 6.4 % 5.2 % 5.0 % 0.4 %
(0.1 %) Subtotal – Southern California 21,227 25.8 % 2,293 95.9 %
11.9 % 4.3 % 5.0 % 4.0 % 4.4 % 0.0 % 0.0 % Washington DC
15,475 18.9 % 2,343 95.9 % 9.2 % 2.1 % 2.8 % 1.8 % 1.9 % 0.1 % (0.3
%) New York 10,007 18.1 % 3,668 95.9 % 8.7 % 0.3 % 5.7 % (2.7 %)
0.3 % (0.3 %) 0.0 % San Francisco 11,019 18.1 % 2,916 96.0 % 10.7 %
2.9 % 1.5 % 3.4 % 3.2 % (0.4 %) (1.4 %) Boston 6,609 11.0 % 2,850
95.9 % 8.7 % 1.4 % 0.9 % 1.6 % 1.3 % 1.1 % (2.6 %) Seattle 6,527
8.0 % 2,175 95.9 % 12.6 % 6.4 % 5.9 % 6.7 % 5.7 % 0.5 % 0.3 % Other
Markets 136 0.1 % 1,141 99.3 % 5.1 % 6.3 % 29.5 % (6.1 %) 5.9 % 0.4
% (3.7 %)
Total
71,000 100.0 % $ 2,633 95.9 %
10.4 % 2.6 % 3.9 % 2.1 % 2.6 %
0.0 % (0.5 %)
Equity Residential
First Quarter 2017 vs. Fourth Quarter 2016 Same Store
Results/Statistics by Market
Increase
(Decrease) from Prior Quarter Q1 2017
Q1 2017 Q1 2017 Weighted % of Average Average Average
Apartment Actual Rental Physical Q1 2017 Rental Physical
Markets/Metro Areas Units NOI Rate Occupancy %
Turnover Revenues Expenses NOI
Rate Occupancy Turnover
Los Angeles 14,430 17.3 % $ 2,379 95.7 % 11.8
% 0.2 % 3.7 % (1.2 %) 0.6 % (0.2 %) (1.7 %) San Diego 3,505 4.0 %
2,220 96.0 % 14.6 % 1.0 % 5.1 % (0.4 %) 1.1 % 0.0 % 0.3 % Orange
County 3,684 4.0 % 2,033
96.1 % 10.5 % 0.3 % 7.9 % (2.0 %)
0.4 % (0.1 %) (1.2 %) Subtotal – Southern
California 21,619 25.3 % 2,294 95.9 % 12.0 % 0.4 % 4.5 % (1.2 %)
0.7 % (0.1 %) (1.3 %) San Francisco 11,846 18.9 % 2,954 95.7
% 11.1 % 0.0 % 4.0 % (1.2 %) 0.3 % (0.3 %) (0.1 %) New York 10,632
18.6 % 3,734 95.9 % 8.6 % 0.0 % 7.9 % (4.4 %) 0.0 % (0.2 %) 0.1 %
Washington DC 15,475 18.2 % 2,343 95.9 % 9.2 % 0.0 % 4.4 % (1.8 %)
0.1 % (0.1 %) (1.1 %) Boston 6,609 10.6 % 2,850 95.9 % 8.7 % (0.8
%) 3.0 % (2.2 %) (0.8 %) 0.2 % (1.5 %) Seattle 7,095 8.3 % 2,172
95.8 % 12.8 % 0.8 % 8.9 % (2.0 %) 0.8 % 0.2 % 1.1 % Other Markets
136 0.1 % 1,141 99.3 % 5.1 % 1.8 % 41.0 % (15.4 %) (0.4 %) 2.4 %
(9.6 %)
Total
73,412 100.0 % $ 2,655 95.8 %
10.5 % 0.1 % 5.5 % (2.1 %) 0.2 %
(0.1 %) (0.7 %)
Equity Residential
First Quarter 2017 vs. First Quarter 2016 Same
Store Operating Expenses for 71,000 Same Store Apartment Units
$ in thousands
% of Actual
Q1 2017 Actual Actual $ % Operating Q1 2017 Q1 2016
Change Change Expenses Real
estate taxes $ 70,364 $ 67,553 $ 2,811 4.2 % 42.1 % On-site payroll
(1) 37,406 35,774 1,632 4.6 % 22.4 % Utilities (2) 23,728 23,312
416 1.8 % 14.2 % Repairs and maintenance (3) 20,324 19,042 1,282
6.7 % 12.1 % Insurance 4,202 4,370 (168 ) (3.8 %) 2.5 % Leasing and
advertising 2,407 2,150 257 12.0 % 1.4 % Other on-site operating
expenses (4) 8,885 8,803 82
0.9 % 5.3 % Same store operating
expenses $ 167,316 $ 161,004 $ 6,312
3.9 % 100.0 % (1) On-site payroll - Includes
payroll and related expenses for on-site personnel including
property managers, leasing consultants and maintenance staff.
(2) Utilities - Represents gross expenses prior to any
recoveries under the Resident Utility Billing System ("RUBS").
Recoveries are reflected in rental income. (3) Repairs and
maintenance - Includes general maintenance costs, apartment unit
turnover costs including interior painting, routine landscaping,
security, exterminating, fire protection, snow removal, elevator,
roof and parking lot repairs and other miscellaneous building
repair and maintenance costs. (4) Other on-site operating
expenses - Includes ground lease costs and administrative costs
such as office supplies, telephone and data charges and association
and business licensing fees.
Equity Residential
Debt Summary as of March 31, 2017
($ in thousands)
Weighted Weighted Average
Average Maturities Amounts (1) % of Total Rates (1)
(years) Secured $ 3,766,762 42.2 % 4.43
% 5.9 Unsecured 5,163,163 57.8 % 4.37 %
9.2 Total $ 8,929,925 100.0 %
4.40 % 7.8 Fixed Rate Debt: Secured – Conventional $
3,130,010 35.0 % 5.02 % 4.7 Unsecured – Public 4,399,172
49.3 % 4.80 % 10.6 Fixed Rate
Debt 7,529,182 84.3 % 4.89 % 8.1
Floating Rate Debt: Secured – Conventional 7,044 0.1 % 0.75
% 16.6 Secured – Tax Exempt 629,708 7.1 % 1.33 % 11.5 Unsecured –
Public (2) 449,305 5.0 % 1.62 % 2.2 Unsecured – Revolving Credit
Facility (3) — — — 4.8 Unsecured – Commercial Paper Program (4)
314,686 3.5 % 1.09 % —
Floating Rate Debt 1,400,743 15.7 %
1.39 % 6.2 Total $ 8,929,925 100.0 %
4.40 % 7.8 (1) Net of the effect of any
derivative instruments. Weighted average rates are for the quarter
ended March 31, 2017. (2) Fair value interest rate swaps
convert the $450.0 million 2.375% notes due July 1, 2019 to a
floating interest rate of 90-Day LIBOR plus 0.61%. (3) The
Company’s $2.0 billion unsecured revolving credit facility matures
January 10, 2022. The interest rate on advances under the credit
facility will generally be LIBOR plus a spread (currently 0.825%)
and an annual facility fee (currently 12.5 basis points). Both the
spread and the facility fee are dependent on the credit rating of
the Company’s long-term debt. As of March 31, 2017, there was
approximately $1.66 billion available on the Company’s unsecured
revolving credit facility (net of $20.7 million which was
restricted/dedicated to support letters of credit and net of $315.0
million outstanding on the commercial paper program). (4)
The Company may borrow up to a maximum of $500.0 million on the
commercial paper program subject to market conditions. The notes
bear interest at various floating rates with a weighted average of
1.09% for the quarter ended March 31, 2017 and a weighted average
maturity of 26 days as of March 31, 2017.
Note: The Company capitalized interest of approximately $8.2
million and $14.2 million during the quarters ended March 31,
2017 and 2016, respectively.
Equity Residential Debt Maturity Schedule
as of March 31, 2017
($ in thousands)
Weighted Weighted
Average Rates Average Fixed Floating % of on Fixed Rates on Year
Rate (1) Rate (1) Total Total Rate Debt
(1) Total Debt (1) 2017 $ 593,622 $ 318,300 (2) $
911,922 10.1 % 6.20 % 4.49 % 2018 83,056
100,735 183,791 2.0 % 5.58 % 3.33 % 2019 507,071 (3) 477,251
984,322 10.9 % 5.17 % 3.42 % 2020 1,678,950 (4) 10,500 1,689,450
18.7 % 5.49 % 5.46 % 2021 927,882 12,600 940,482 10.4 % 4.64 % 4.59
% 2022 265,737 13,800 279,537 3.1 % 3.26 % 3.15 % 2023 1,327,218
15,300 1,342,518 14.9 % 3.74 % 3.71 % 2024 1,711 17,100 18,811 0.2
% 4.89 % 1.25 % 2025 451,797 19,600 471,397 5.2 % 3.38 % 3.28 %
2026 593,912 21,700 615,612 6.8 % 3.59 % 3.49 % 2027+
1,141,276 457,665 1,598,941
17.7 % 4.52 % 3.48 % Subtotal 7,572,232
1,464,551 9,036,783 100.0 % 4.59 % 4.07 % Deferred Financing Costs
and Unamortized (Discount) (43,050 ) (63,808 )
(106,858 ) N/A N/A N/A Total $
7,529,182 $ 1,400,743 $ 8,929,925 100.0
% 4.59 % 4.07 % (1) Net of the effect
of any derivative instruments. Weighted average rates are as of
March 31, 2017. (2) Includes $315.0 million in principal
outstanding on the Company's commercial paper program. The Company
may borrow up to a maximum of $500.0 million on the program subject
to market conditions. (3) Includes a $500.0 million 5.19%
mortgage loan with a maturity date of October 1, 2019 that can be
prepaid at par beginning October 1, 2018. (4) Includes a
$550.0 million 6.08% mortgage loan with a maturity date of March 1,
2020 that can be prepaid at par beginning March 1, 2019. Also
includes a $500.0 million 5.78% mortgage loan with a maturity date
of July 1, 2020 that can be prepaid at par beginning July 1, 2019.
Equity Residential Selected Unsecured
Public Debt Covenants March 31,
December 31, 2017 2016 Total Debt to Adjusted
Total Assets (not to exceed 60%) 35.1% 35.4% Secured Debt to
Adjusted Total Assets (not to exceed 40%) 14.8% 16.2%
Consolidated Income Available for Debt Service to Maximum Annual
Service Charges (must be at least 1.5 to 1) 3.96 3.73 Total
Unsecured Assets to Unsecured Debt (must be at least 150%) 377.6%
390.8%
Note: These selected covenants relate to ERP Operating Limited
Partnership's ("ERPOP") outstanding unsecured public debt, which
represent the Company's most restrictive covenants. Equity
Residential is the general partner of ERPOP.
Selected Credit Ratios
March 31, December 31,
2017 2016 Total debt to Normalized EBITDA 5.73x 5.74x
Net debt to Normalized EBITDA 5.66x 5.65x
Unencumbered NOI as a % of total NOI 72.8% 71.1%
Note: See page 21 for the Normalized EBITDA reconciliations.
Equity Residential Capital Structure as of
March 31, 2017
(Amounts in thousands except for
share/unit and per share amounts)
Secured Debt $ 3,766,762
42.2 % Unsecured Debt
5,163,163 57.8 %
Total Debt
8,929,925 100.0 % 27.3 %
Common Shares (includes Restricted Shares) 367,137,757 96.4 % Units
(includes OP Units and Restricted Units) 13,827,472
3.6 % Total Shares and Units 380,965,229 100.0 %
Common Share Price at March 31, 2017 $ 62.22 23,703,657 99.8
% Perpetual Preferred Equity (see below) 37,280
0.2 %
Total Equity 23,740,937
100.0 % 72.7 % Total Market
Capitalization $ 32,670,862 100.0 %
Perpetual Preferred Equity as of
March 31, 2017
(Amounts in thousands except for share and
per share amounts)
Annual
Annual Redemption Outstanding
Liquidation Dividend Dividend Series
Date Shares Value Per
Share Amount Preferred Shares: 8.29%
Series K 12/10/26 745,600 $ 37,280 $ 4.145 $
3,091 Total Perpetual Preferred Equity 745,600 $ 37,280 $
3,091
Equity Residential Common Share and Unit
Weighted Average Amounts Outstanding Q1
2017 Q1 2016
Weighted Average Amounts Outstanding for Net Income
Purposes: Common Shares - basic 366,605,450 364,592,279 Shares
issuable from assumed conversion/vesting of: - OP Units 12,898,618
13,696,822 - long-term compensation shares/units 2,775,943
3,953,965 Total Common Shares and Units -
diluted 382,280,011 382,243,066
Weighted Average Amounts Outstanding for FFO and Normalized FFO
Purposes: Common Shares - basic 366,605,450 364,592,279 OP
Units - basic 12,898,618 13,696,822
Total Common Shares and OP Units - basic 379,504,068 378,289,101
Shares issuable from assumed conversion/vesting of: - long-term
compensation shares/units 2,775,943 3,953,965
Total Common Shares and Units - diluted 382,280,011
382,243,066
Period Ending Amounts
Outstanding: Common Shares (includes Restricted Shares)
367,137,757 365,496,019 Units (includes OP Units and Restricted
Units) 13,827,472 14,703,617 Total
Shares and Units 380,965,229 380,199,636
Equity Residential Partially Owned Entities as of
March 31, 2017
(Amounts in thousands except for property
and apartment unit amounts)
Consolidated
Unconsolidated Total properties 17
2 Total apartment units 3,215
945 Operating information for the
quarter ended 3/31/17 (at 100%): Operating revenue $ 23,028 $ 7,987
Operating expenses 5,676 2,941
Net operating income 17,352 5,046 Property management 813 213
General and administrative/other 16 25 Depreciation 5,201
4,020 Operating income 11,322 788
Interest and other income 13 — Interest: Expense incurred, net
(3,312 ) (2,072 ) Amortization of deferred financing costs
(68 ) — Income (loss) before income and other
taxes and (loss) from investments in unconsolidated entities 7,955
(1,284 ) Income and other tax (expense) benefit (34 ) (12 ) (Loss)
from investments in unconsolidated entities (411 ) —
Net income (loss) $ 7,510 $ (1,296 ) Debt -
Secured (1): EQR Ownership (2) $ 236,590 $ 29,085 Noncontrolling
Ownership 64,829 116,339 Total
(at 100%) $ 301,419 $ 145,424 (1) All
debt is non-recourse to the Company. (2) Represents the
Company's current equity ownership interest.
Equity
Residential Development and Lease-Up Projects as of March
31, 2017
(Amounts in thousands except for project
and apartment unit amounts)
Total Book
No. of Total Total Value Not
Estimated Estimated Apartment Capital
Book Value Placed in Total Percentage
Percentage Percentage Completion
Stabilization Projects Location Units
Cost to Date Service
Debt Completed Leased
Occupied Date Date
Projects Under
Development:
455 Eye Street Washington, DC 174 $ 73,157 $ 64,636 $ 64,636 $ — 83
% 2 % — Q3 2017 Q2 2018 855 Brannan (formerly 801 Brannan) San
Francisco, CA 449 304,035 236,310 236,310 — 75 % 1 % — Q3 2017 Q1
2019 Helios (formerly 2nd & Pine) Seattle, WA 398 215,787
197,906 197,906 — 90 % — — Q3 2017 Q2 2019 Cascade Seattle, WA 477
176,378 138,710 138,710 — 79 % 2 % — Q3 2017 Q2 2019 100 K Street
Washington, DC 222 88,023 28,666 28,666 — 11 % — — Q4 2018 Q4 2019
Projects Under
Development 1,720 857,380
666,228 666,228 —
Completed Not
Stabilized (1):
340 Fremont (formerly Rincon Hill) San Francisco, CA 348 292,054
289,644 — — 94 % 90 % Completed Q2 2017 One Henry Adams San
Francisco, CA 241 172,337 166,244 — — 50 % 44 % Completed Q4 2017
Altitude (formerly Village at Howard Hughes) Los Angeles, CA 545
193,231 191,955 — — 65 % 63 % Completed Q1 2018 The Alton (formerly
Millikan) Irvine, CA 344 108,681 105,027 — — 48 % 43 % Completed Q1
2018
Projects Completed Not
Stabilized 1,478 766,303
752,870 — —
Completed and
Stabilized During the Quarter:
Potrero 1010 San Francisco, CA 453 223,009 222,720 — — 97 % 96 %
Completed Stabilized
Projects Completed and Stabilized During the Quarter
453 223,009 222,720 —
—
Total Development Projects
3,651 $ 1,846,692 $ 1,641,818 $ 666,228
$ —
Land Held for Development N/A
N/A $ 109,136 $ 109,136 $ —
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS Total
Capital
Cost
Q1 2017
NOI
Projects Under Development $ 857,380 $ (89 ) Completed Not
Stabilized 766,303 5,739 Completed and Stabilized During the
Quarter 223,009 4,032 Total Development
NOI Contribution $ 1,846,692 $ 9,682
Note: All development projects listed are wholly owned by the
Company.
(1) Properties included here are substantially complete.
However, they may still require additional exterior and interior
work for all apartment units to be available for leasing.
Equity Residential Repairs and Maintenance Expenses and
Capital Expenditures to Real Estate For the Quarter Ended
March 31, 2017
(Amounts in thousands except for apartment
unit and per apartment unit amounts)
Repairs and Maintenance Expenses
Capital Expenditures to Real Estate
Total Expenditures Total
Apartment
Units (1)
Expense (2) Avg. Per
Apartment
Unit
Payroll (3) Avg. Per
Apartment
Unit
Total Avg. Per
Apartment
Unit
Replacements
(4)
Avg. Per
Apartment
Unit
Building
Improvements
(5)
Avg. Per
Apartment
Unit
Total Avg. Per
Apartment
Unit
Grand
Total
Avg. Per
Apartment
Unit
Same Store Properties 71,000 $ 20,324 $
286 $ 17,175 $ 242 $ 37,499 $ 528 $ 18,299 $ 258 $ 19,284 $ 271 $
37,583 $ 529 (8) $ 75,082 $ 1,057 Non-Same Store Properties
(6) 5,553 1,290 248 1,049 201 2,339 449 699 134 862 165 1,561 299
3,900 748 Other (7) — 135
211 346 21 132
153 499 Total 76,553
$ 21,749 $ 18,435 $ 40,184 $ 19,019
$ 20,278 $ 39,297 $ 79,481 (1)
Total Apartment Units - Excludes 945 unconsolidated
apartment units for which repairs and maintenance expenses and
capital expenditures to real estate are self-funded and do not
consolidate into the Company's results. (2) Repairs and
Maintenance Expenses - Includes general maintenance costs,
apartment unit turnover costs including interior painting, routine
landscaping, security, exterminating, fire protection, snow
removal, elevator, roof and parking lot repairs and other
miscellaneous building repair and maintenance costs. (3)
Maintenance Payroll - Includes payroll and related expenses for
maintenance staff. (4) Replacements - Includes new
expenditures inside the apartment units such as appliances,
mechanical equipment, fixtures and flooring, including carpeting.
Replacements for same store properties also include $10.8 million
spent during the first quarter of 2017 on apartment unit
renovations/rehabs (primarily kitchens and baths) on approximately
740 same store apartment units (equating to approximately $14,700
per apartment unit rehabbed) designed to reposition these units for
higher rental levels in their respective markets. During 2017, the
Company expects to spend approximately $50.0 million for all unit
renovation/rehab costs (primarily on same store properties) at an
average cost of $11,000 per apartment unit rehabbed. (5)
Building Improvements - Includes roof replacement, paving,
amenities and common areas, building mechanical equipment systems,
exterior painting and siding, major landscaping, vehicles and
office and maintenance equipment. (6) Per apartment unit
amounts are based on a weighted average of 5,212 apartment units.
(7) Other - Primarily includes expenditures for properties
sold and properties under development. (8) The Company
estimates that during 2017 it will spend approximately $2,600 per
apartment unit of capital expenditures, inclusive of apartment unit
renovation/rehab costs, or $1,900 per apartment unit excluding
apartment unit renovation/rehab costs. These estimates include
approximately $17.0 million or approximately $250 per apartment
unit of additional expenditures for resident focused renovation
projects such as common areas and fitness centers in order to
remain competitive with the new luxury supply being delivered in
many of our markets.
Equity Residential Normalized EBITDA
Reconciliations
(Amounts in thousands)
Normalized EBITDA Reconciliations for Page
15 Trailing Twelve Months
2017 2016 March 31, 2017
December 31, 2016 Q1 Q4
Q3 Q2
Q1 Net income $ 898,214 $ 4,480,104 $ 149,941 $
302,381 $ 217,492 $ 228,400 $ 3,731,831 Interest expense incurred,
net 374,964 482,246 106,210 95,930 86,352 86,472 213,492
Amortization of deferred financing costs 9,535 12,633 2,296 2,633
2,261 2,345 5,394 Depreciation 711,732 705,649 178,968 177,407
179,230 176,127 172,885 Income and other tax expense (benefit)
(includes discontinued operations) 1,529 1,625 262 425 426 416 358
EBITDA 1,995,974
5,682,257 437,677 578,776 485,761
493,760 4,123,960 Write-off of pursuit costs
(other expenses) 3,359 4,092 715 713 816 1,115 1,448 (Income) loss
from investments in unconsolidated entities (4,832 ) (4,801 ) 1,073
1,045 (7,750 ) 800 1,104 Net (gain) loss on sales of land parcels
(23,202 ) (15,731 ) (19,193 ) 28 (4,037 ) — (11,722 ) (Gain) loss
on sale of investment securities and other investments (interest
and other income) (57,853 ) (58,409 ) — 7 (3,260 ) (54,600 ) (556 )
Insurance/litigation settlement or reserve income (interest and
other income) (3,555 ) (3,228 ) (380 ) (337 ) (1,517 ) (1,321 ) (53
) Insurance/litigation/environmental settlement or reserve expense
(other expenses) 4,561 4,024 293 (5,074 ) 9,339 3 (244 ) Other
1,241 2,839 96 373 337 435 1,694 Net (gain) on sales of
discontinued operations (28 ) (43 ) — — (28 ) — (15 ) Net (gain) on
sales of real estate properties (357,283 ) (4,044,055
) (36,707 ) (173,184 ) (90,036 )
(57,356 ) (3,723,479 )
Normalized EBITDA $
1,558,382 $ 1,566,945 $
383,574 $ 402,347 $
389,625 $ 382,836 $
392,137
Balance Sheet
Items:
March 31, 2017 December 31, 2016 Total
debt $ 8,929,925 $ 8,987,258 Cash and cash equivalents (42,139 )
(77,207 ) Mortgage principal reserves/sinking funds (61,033
) (58,652 ) Net debt $ 8,826,753 $ 8,851,399
Equity Residential Adjustments from FFO to
Normalized FFO
(Amounts in thousands)
Quarter Ended March 31, 2017
2016 Variance
Impairment $ — $ — $ — Asset impairment
and valuation allowances — — —
Write-off of pursuit costs (other expenses)
715 1,448 (733 ) Write-off of pursuit
costs 715 1,448 (733 )
Prepayment premiums/penalties (interest expense) 11,698 112,419
(100,721 ) Write-off of unamortized deferred financing costs
(interest expense) 217 3,099 (2,882 ) Write-off of unamortized
(premiums)/discounts/OCI (interest expense) 389
4,579 (4,190 ) Debt extinguishment (gains)
losses, including prepayment penalties, preferred share redemptions
and non-cash convertible debt
discounts
12,304 120,097 (107,793 )
Net (gain) on sales of land parcels (19,193 ) (11,722 ) (7,471 )
(Gain) on sale of investment securities and other investments
(interest and other income) — (556 ) 556 (Income) loss from
investments in unconsolidated entities ─ non-operating assets
301 301 — (Gains) losses
on sales of non-operating assets, net of income and other tax
expense (benefit) (18,892 ) (11,977 ) (6,915 )
Insurance/litigation settlement or reserve income (interest
and other income) (380 ) (53 ) (327 )
Insurance/litigation/environmental settlement or reserve expense
(other expenses) 293 (244 ) 537 Other 96 1,694
(1,598 ) Other miscellaneous items 9
1,397 (1,388 ) Adjustments from FFO to
Normalized FFO $ (5,864 ) $ 110,965 $ (116,829 )
Note: See pages 24 through 27 for the definitions of non-GAAP
financial measures and other terms as well as the reconciliations
of EPS to FFO per share and Normalized FFO per share.
Equity Residential Normalized FFO Guidance and
Assumptions
The guidance/projections provided below
are based on current expectations, are forward-looking and are
consistent with the information provided in the fourth quarter 2016
earnings release. All guidance is given on a Normalized FFO basis.
Therefore, certain items excluded from Normalized FFO, such as debt
extinguishment costs/prepayment penalties and the write-off of
pursuit costs, are not included in the estimates provided on this
page. See pages 24 through 27 for the definitions of non-GAAP
financial measures and other terms as well as the reconciliations
of EPS to FFO per share and Normalized FFO per share.
2017 Normalized
FFO Guidance (per share diluted)
Q2 2017
2017
Expected Normalized FFO Per Share $0.75 to $0.79 $3.05 to $3.15
2017 Same Store
Assumptions (see Note below)
Physical occupancy 95.7% Revenue change 1.0% to 2.25%
Expense change 3.0% to 4.0% NOI change 0.0% to 2.0% Note:
Approximately 25 basis point change in NOI percentage = $0.01 per
share change in EPS/FFO per share/Normalized FFO per share.
2017 Transaction
Assumptions
Consolidated rental acquisitions $500.0 million Consolidated
rental dispositions $500.0 million Spread between Acquisition Cap
Rate and Disposition Yield 75 basis points
2017 Debt
Assumptions
Weighted average debt outstanding $8.8 billion to $9.2
billion Weighted average interest rate (reduced for capitalized
interest) 4.12% Interest expense, net (on a Normalized FFO basis)
$362.6 million to $379.0 million Capitalized interest $23.0 million
to $28.0 million
2017 Other
Guidance Assumptions
Property management expense $83.0 million to $85.0
million General and administrative expense (see Note below) $50.0
million to $52.0 million Interest and other income $0.5 million
Income and other tax expense $0.5 million to $1.5 million Debt
offerings $300.0 million to $500.0 million Equity ATM share
offerings No amounts budgeted Preferred share offerings No amounts
budgeted Weighted average Common Shares and Units - Diluted 383.2
million
Note: Normalized FFO guidance excludes a duplicative charge of
approximately $0.4 million, which will be recorded to general and
administrative expense, related to the overlap of accounting costs
for the Company's current and former executive compensation
programs.
Equity Residential
Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms
(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted) This Earnings Release and
Supplemental Information includes certain non-GAAP financial
measures and other terms that management believes are helpful in
understanding our business. The definitions and calculations of
these non-GAAP financial measures and other terms may differ from
the definitions and methodologies used by other REITs and,
accordingly, may not be comparable. These non-GAAP financial
measures should not be considered as an alternative to net earnings
or any other GAAP measurement of performance or as an alternative
to cash flows from specific operating, investing or financing
activities. Furthermore, these non-GAAP financial measures are not
intended to be a measure of cash flow or liquidity.
Acquisition Capitalization Rate or Cap
Rate – NOI that the Company anticipates receiving in the next
12 months (or the year two or three stabilized NOI for properties
that are in lease-up at acquisition) less an estimate of property
management costs/management fees allocated to the project
(generally ranging from 2.0% to 4.0% of revenues depending on the
size and income streams of the asset) and less an estimate for
in-the-unit replacement capital expenditures (generally ranging
from $100-$450 per apartment unit depending on the age and
condition of the asset) divided by the gross purchase price of the
asset. The weighted average Acquisition Cap Rate for acquired
properties is weighted based on the projected NOI streams and the
relative purchase price for each respective property.
Average Rental Rate – Total
residential rental revenues reflected on a straight-line basis in
accordance with GAAP divided by the weighted average occupied
apartment units for the reporting period presented.
Debt Covenant Compliance – Our
unsecured debt includes certain financial and operating covenants
including, among other things, maintenance of certain financial
ratios. These provisions are contained in the indentures applicable
to each notes payable or the credit agreement for our line of
credit. The Debt Covenant Compliance ratios that are provided show
the Company's compliance with certain covenants governing our
public unsecured debt. These covenants generally reflect our most
restrictive financial covenants. The Company was in compliance with
its unsecured debt covenants for all years presented (the ratios
should not be used for any other purpose, including without
limitation, to evaluate the Company's financial condition or
results of operations, nor do they indicate the Company's covenant
compliance as of any other date or for any other period).
Development Yield – NOI that the
Company anticipates receiving in the next 12 months following
stabilization less an estimate of property management
costs/management fees allocated to the project (generally ranging
from 2.0% to 4.0% of revenues depending on the size and income
streams of the asset) and less an estimate for in-the-unit
replacement capital expenditures (generally ranging from $50-$150
per apartment unit depending on the type of asset) divided by the
Total Capital Cost of the asset. The weighted average Development
Yield for development properties is weighted based on the projected
NOI streams and the relative Total Capital Cost for each respective
property.
Disposition Yield – NOI that the
Company anticipates giving up in the next 12 months less an
estimate of property management costs/management fees allocated to
the project (generally ranging from 2.0% to 4.0% of revenues
depending on the size and income streams of the asset) and less an
estimate for in-the-unit replacement capital expenditures
(generally ranging from $100-$450 per apartment unit depending on
the age and condition of the asset) divided by the gross sale price
of the asset. The weighted average Disposition Yield for sold
properties is weighted based on the projected NOI streams and the
relative sales price for each respective property.
Earnings Per Share ("EPS") – Net
income per share calculated in accordance with GAAP. Expected EPS
is calculated on a basis consistent with actual EPS. Due to the
uncertain timing and extent of property dispositions and the
resulting gains/losses on sales, actual EPS could differ materially
from expected EPS.
Economic Gain – Economic Gain is
calculated as the net gain on sales of real estate properties in
accordance with GAAP, excluding accumulated depreciation. The
Company generally considers Economic Gain to be an appropriate
supplemental measure to net gain on sales of real estate properties
in accordance with GAAP because it is one indication of the gross
value created by the Company's acquisition, development, rehab,
management and ultimate sale of a property and because it helps
investors to understand the relationship between the cash proceeds
from a sale and the cash invested in the sold property. The
following table presents a reconciliation of net gain on sales of
real estate properties in accordance with GAAP to Economic
Gain:
Quarter Ended March 31, 2017
Net Gain on Sales of Real Estate Properties $ 36,707
Accumulated Depreciation Gain (12,773 ) Economic Gain
$ 23,934
Equity Residential
Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms –
Continued
(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
Funds From
Operations and Normalized Funds From Operations:
Funds From Operations (“FFO”) – The
National Association of Real Estate Investment Trusts (“NAREIT”)
defines FFO (April 2002 White Paper) as net income (computed in
accordance with accounting principles generally accepted in the
United States (“GAAP”)), excluding gains (or losses) from sales and
impairment write-downs of depreciable operating properties, plus
depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated
to reflect funds from operations on the same basis. The April 2002
White Paper states that gain or loss on sales of property is
excluded from FFO for previously depreciated operating properties
only. Expected FFO per share is calculated on a basis consistent
with actual FFO per share and is considered an appropriate
supplemental measure of expected operating performance when
compared to expected EPS.
The Company believes that FFO and FFO available to Common
Shares and Units are helpful to investors as supplemental measures
of the operating performance of a real estate company, because they
are recognized measures of performance by the real estate industry
and by excluding gains or losses related to dispositions of
depreciable property and excluding real estate depreciation (which
can vary among owners of identical assets in similar condition
based on historical cost accounting and useful life estimates), FFO
and FFO available to Common Shares and Units can help compare the
operating performance of a company’s real estate between periods or
as compared to different companies.
Normalized Funds From Operations
("Normalized FFO") – Normalized FFO begins with FFO and
excludes:
• the impact of any expenses relating to
non-operating asset impairment and valuation allowances;
• pursuit cost write-offs;
• gains and losses from early debt
extinguishment, including prepayment penalties, preferred share
redemptions and the cost related to the implied option value of
non-cash convertible debt discounts;
• gains and losses on the sales of
non-operating assets, including gains and losses from land parcel
sales, net of the effect of income tax benefits or expenses;
and
• other miscellaneous items.
Expected Normalized FFO per share is calculated on a basis
consistent with actual Normalized FFO per share and is considered
an appropriate supplemental measure of expected operating
performance when compared to expected EPS. The Company
believes that Normalized FFO and Normalized FFO available to Common
Shares and Units are helpful to investors as supplemental measures
of the operating performance of a real estate company because they
allow investors to compare the Company's operating performance to
its performance in prior reporting periods and to the operating
performance of other real estate companies without the effect of
items that by their nature are not comparable from period to period
and tend to obscure the Company's actual operating results.
FFO, FFO available to Common Shares and Units, Normalized FFO and
Normalized FFO available to Common Shares and Units do not
represent net income, net income available to Common Shares or net
cash flows from operating activities in accordance with GAAP.
Therefore, FFO, FFO available to Common Shares and Units,
Normalized FFO and Normalized FFO available to Common Shares and
Units should not be exclusively considered as alternatives to net
income, net income available to Common Shares or net cash flows
from operating activities as determined by GAAP or as a measure of
liquidity. The Company's calculation of FFO, FFO available to
Common Shares and Units, Normalized FFO and Normalized FFO
available to Common Shares and Units may differ from other real
estate companies due to, among other items, variations in cost
capitalization policies for capital expenditures and, accordingly,
may not be comparable to such other real estate companies.
FFO available to Common Shares and Units and Normalized FFO
available to Common Shares and Units are calculated on a basis
consistent with net income available to Common Shares and reflects
adjustments to net income for preferred distributions and premiums
on redemption of preferred shares in accordance with GAAP. The
equity positions of various individuals and entities that
contributed their properties to the Operating Partnership in
exchange for OP Units are collectively referred to as the
"Noncontrolling Interests – Operating Partnership". Subject to
certain restrictions, the Noncontrolling Interests – Operating
Partnership may exchange their OP Units for Common Shares on a
one-for-one basis.
Equity Residential
Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms –
Continued
(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted) The following table presents
reconciliations of EPS to FFO per share and Normalized FFO per
share for pages 5 and 23 (the expected guidance/projections
provided below are based on current expectations and are
forward-looking):
Actual Q1 2017
Per Share
Actual Q1 2016
Per Share
Expected
Q2 2017
Per Share
Expected
2017
Per Share
EPS - Diluted $ 0.39 $ 9.76 $0.51 to $0.55 $1.83 to $1.93 Add:
Depreciation expense 0.47 0.45 0.47 1.92 Less: Net gain on sales
(0.10 ) (9.74 ) (0.23) (0.69) FFO per share -
Diluted 0.76 0.47 0.75 to 0.79 3.06 to 3.16 Asset impairment
and valuation allowances — — — — Write-off of pursuit costs — 0.01
— 0.01 Debt extinguishment (gains) losses, including prepayment
penalties, preferred share redemptions and
non-cash
convertible debt discounts
0.03 0.31 — 0.03 (Gains) losses on sales of non-operating assets,
net of
income and other tax expense (benefit)
(0.05 ) (0.03 ) — (0.05) Other miscellaneous items —
— — — Normalized FFO per share - Diluted $
0.74 $ 0.76 $0.75 to $0.79 $3.05 to $3.15
Lease-Up NOI – Represents NOI for development properties:
(i) in various stages of lease-up; and (ii) where lease-up has been
completed but the properties were not stabilized (defined as having
achieved 90% occupancy for three consecutive months) for all of the
current and comparable periods presented.
Net Operating Income (“NOI”) – NOI is the Company’s
primary financial measure for evaluating each of its apartment
properties. NOI is defined as rental income less direct property
operating expenses (including real estate taxes and insurance). The
Company believes that NOI is helpful to investors as a supplemental
measure of its operating performance because it is a direct measure
of the actual operating results of the Company's apartment
properties. NOI does not include an allocation of property
management expenses either in the current or comparable periods.
Rental income for all leases and operating expense for ground
leases (for both same store and non-same store properties) are
reflected on a straight-line basis in accordance with GAAP for the
current and comparable periods.
The following tables present reconciliations of operating income
per the consolidated statements of operations to NOI, along with
rental income, operating expenses and NOI per the consolidated
statements of operations allocated between same store and non-same
store results (see page 9):
Quarter Ended March 31, 2017
2016 Operating income $ 204,371 $ 216,625
Adjustments: Fee and asset management revenue (180 ) (2,918 )
Property management 22,252 23,495 General and administrative 14,173
16,717 Depreciation 178,968 172,885
Total NOI $ 419,584 $ 426,804 Rental income: Same
store $ 560,236 $ 545,846 Non-same store 43,684
70,319 Total rental income 603,920 616,165 Operating
expenses: Same store 167,316 161,004 Non-same store 17,020
28,357 Total operating expenses 184,336
189,361 NOI: Same store 392,920 384,842 Non-same store
26,664 41,962 Total NOI $ 419,584 $
426,804
Equity Residential
Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms –
Continued
(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
Non-Same Store Properties – For
annual comparisons, primarily includes all properties acquired
during 2016 and 2017, plus any properties in lease-up and not
stabilized as of January 1, 2016.
Normalized Earnings Before Interest,
Income Taxes, Depreciation and Amortization ("EBITDA") –
Represents net income in accordance with GAAP before interest
expense, income taxes, depreciation expense and amortization
expense and further adjusted for non-comparable items. Normalized
EBITDA, total debt to Normalized EBITDA and net debt to Normalized
EBITDA are important metrics in evaluating the credit strength of
the Company and its ability to service its debt obligations. The
Company believes that Normalized EBITDA, total debt to Normalized
EBITDA and net debt to Normalized EBITDA are useful to investors,
creditors and rating agencies because they allow investors to
compare the Company's credit strength to prior reporting periods
and to other companies without the effect of items that by their
nature are not comparable from period to period and tend to obscure
the Company's actual credit quality.
Physical Occupancy – The weighted
average occupied apartment units for the reporting period divided
by the average of total apartment units available for rent for the
reporting period.
Same Store Properties – For annual
comparisons, primarily includes all properties acquired or
completed that are stabilized prior to January 1, 2016, less
properties subsequently sold. Properties are included in Same Store
when they are stabilized for all of the current and comparable
periods presented.
% of Stabilized NOI – Represents
budgeted 2017 NOI for stabilized properties and projected annual
NOI at stabilization (defined as having achieved 90% occupancy for
three consecutive months) for properties that are in lease-up.
Total Capital Cost – Estimated cost
for projects under development and/or developed and all capitalized
costs incurred to date plus any estimates of costs remaining to be
funded for all projects, including land acquisition costs,
construction costs, capitalized real estate taxes and insurance,
capitalized interest and loan fees, permits, professional fees,
allocated development overhead and other regulatory fees, all in
accordance with GAAP.
Total Market Capitalization – The
aggregate of the market value of the Company’s outstanding common
shares, including restricted shares, the market value of the
Company’s operating partnership units outstanding, including
restricted units (based on the market value of the Company’s common
shares) and the outstanding principal balance of debt. The Company
believes this is a useful measure of a real estate operating
company’s long-term liquidity and balance sheet strength, because
it shows an approximate relationship between a company’s total debt
and the current total market value of its assets based on the
current price at which the Company’s common shares trade. However,
because this measure of leverage changes with fluctuations in the
Company’s share price, which occur regularly, this measure may
change even when the Company’s earnings, interest and debt levels
remain stable.
Turnover – Total residential
move-outs divided by total residential apartment units, including
inter-property and intra-property transfers.
Unencumbered NOI % – Represents NOI
generated by consolidated real estate assets unencumbered by
outstanding secured debt as a percentage of total NOI generated by
all of the Company's consolidated real estate assets.
Unlevered Internal Rate of Return
(“IRR”) – The Unlevered IRR on sold properties is the compound
annual rate of return calculated by the Company based on the timing
and amount of: (i) the gross purchase price of the property plus
any direct acquisition costs incurred by the Company; (ii) total
revenues earned during the Company’s ownership period; (iii) total
direct property operating expenses (including real estate taxes and
insurance) incurred during the Company’s ownership period; (iv)
capital expenditures incurred during the Company’s ownership
period; and (v) the gross sales price of the property net of
selling costs. Each of the items (i) through (v) is calculated in
accordance with GAAP.
The calculation of the Unlevered IRR does not include an
adjustment for the Company’s general and administrative expense,
interest expense (including loan assumption costs and other
loan-related costs) or property management expense. Therefore, the
Unlevered IRR is not a substitute for net income as a measure of
our performance. Management believes that the Unlevered IRR
achieved during the period a property is owned by the Company is
useful because it is one indication of the gross value created by
the Company’s acquisition, development, rehab, management and
ultimate sale of a property, before the impact of Company overhead.
The Unlevered IRR achieved on the properties as cited in this
release should not be viewed as an indication of the gross value
created with respect to other properties owned by the Company, and
the Company does not represent that it will achieve similar
Unlevered IRRs upon the disposition of other properties. The
weighted average Unlevered IRR for sold properties is weighted
based on all cash flows over the investment period for each
respective property, including net sales proceeds.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170425006860/en/
Equity ResidentialMarty McKenna, (312) 928-1901
Equity Residential (NYSE:EQR)
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