Equity Residential (NYSE: EQR) today reported results for the
quarter and nine months ended September 30, 2019. All per share
results are reported as available to common shares/units on a
diluted basis.
Quarter Ended September
30,
2019
2018
$ Change
% Change
Earnings Per Share (EPS)
$
0.71
$
0.58
$
0.13
22.4
%
Funds from Operations (FFO) per share
$
0.92
$
0.79
$
0.13
16.5
%
Normalized FFO per share
$
0.91
$
0.83
$
0.08
9.6
%
Nine Months Ended September
30,
2019
2018
$ Change
% Change
Earnings Per Share (EPS)
$
1.82
$
1.46
$
0.36
24.7
%
Funds from Operations (FFO) per share
$
2.53
$
2.30
$
0.23
10.0
%
Normalized FFO per share
$
2.58
$
2.41
$
0.17
7.1
%
“We are pleased to report that our same store revenues, expenses
and NOI as well as our Normalized FFO results are tracking in line
with or better than the improved expectations we provided in July
and that the efforts of our hard working colleagues across the
Company produced the highest resident retention in our history. We
continue to see robust demand to live in the vibrant urban and
dense suburban centers of the cities in which we operate,” said
Mark J. Parrell, Equity Residential’s President and CEO.
Highlights
- The Company produced same store revenue growth of 3.4% for the
third quarter of 2019, with Physical Occupancy of 96.5% and Renewal
Rate Achieved growth of 5.0%.
- The Company produced Normalized FFO per share growth of 9.6%
for the third quarter of 2019.
- During the third quarter of 2019, the Company acquired four
apartment properties, totaling 1,084 apartment units, for an
aggregate purchase price of approximately $489.9 million.
- During the third quarter of 2019, the Company issued $600.0
million of unsecured notes at a coupon rate of 2.5% and a yield of
2.56%, the lowest ten-year yield in both the Company’s and REIT
industry’s histories.
Results Per Share
The change in EPS for both the quarter and nine months ended
September 30, 2019 compared to the same periods of 2018, are due
primarily to higher property and unconsolidated sale gains in the
third quarter and/or full year of 2019, the various adjustment
items listed on page 25 of this release and the items described
below.
The per share changes in FFO for both the quarter and nine
months ended September 30, 2019 compared to the same periods of
2018, are due primarily to the various adjustment items listed on
page 25 of this release and the items described below.
The per share changes in Normalized FFO are due primarily
to:
Positive/(Negative)
Impact
Third Quarter 2019 vs.
Third Quarter 2018
September YTD 2019 vs.
September YTD 2018
Same Store NOI
$
0.04
$
0.10
Lease-Up NOI and other non-same store
NOI
0.02
0.06
2019 and 2018 transaction activity impact
on NOI
0.02
0.03
Interest expense
0.01
0.01
Other items, including corporate overhead
1
(0.01
)
(0.03
)
Net
$
0.08
$
0.17
1 Corporate overhead includes property management and general
and administrative expenses.
The Company has a glossary of defined terms and related
reconciliations of Non-GAAP financial measures on pages 27 through
32 of this release. Reconciliations and definitions of FFO and
Normalized FFO are provided on pages 7, 29 and 30 of this release
and the Company has included guidance for 2019 Normalized FFO per
share on page 26 and 2019 FFO per share and 2019 EPS on page 30 of
this release.
Same Store Results
The following table shows the increases in same store results
for the third quarter 2019 to third quarter 2018 comparison, which
includes 75,290 apartment units, and for the nine months ended
September 30, 2019 to nine months ended September 30, 2018
comparison, which includes 72,979 apartment units. The Company’s
Physical Occupancy was 96.5% compared to 96.3% for the third
quarter of 2019 and 2018, respectively, and 96.5% compared to 96.2%
for the first nine months of 2019 and 2018, respectively.
Third Quarter 2019 vs.
Third Quarter 2018
September YTD 2019 vs.
September YTD 2018
Revenues
3.4%
3.3%
Expenses
3.7%
3.8%
NOI
3.3%
3.0%
Investment Activity
The Company acquired four apartment properties during the third
quarter of 2019, totaling 1,084 apartment units, for an aggregate
purchase price of approximately $489.9 million at a weighted
average Acquisition Capitalization Rate of 4.4%. The properties are
located in Los Angeles, the San Francisco Bay Area and suburban
Denver.
During the third quarter of 2019, the Company completed a 137
apartment unit property in Seattle and an 84 apartment unit
property in Cambridge, MA. Also during the quarter, the Company
started a 200 apartment unit joint venture development property in
the San Francisco Bay Area at a development cost of approximately
$117.8 million as well as a wholly-owned 154 apartment unit
property in suburban Washington, D.C. that will be developed at a
cost of approximately $75.3 million.
The Company sold seven properties during the third quarter of
2019, totaling 641 apartment units, for an aggregate sale price of
approximately $303.9 million at a weighted average Disposition
Yield of 4.7%, generating an Unlevered IRR of 7.6%. One of the
properties is located in Arlington, VA and the other six are
located in Berkeley, CA.
During the first nine months of 2019, the Company acquired ten
properties, totaling 2,728 apartment units, for an aggregate
purchase price of approximately $1.1 billion at a weighted average
Acquisition Capitalization Rate of 4.6%.
During the first nine months of 2019, the Company sold nine
wholly-owned properties, totaling 1,202 apartment units, for an
aggregate sale price of approximately $706.7 million at a weighted
average Disposition Yield of 4.5%, generating an Unlevered IRR of
8.0%. During the first nine months of 2019, the Company also sold
two unconsolidated properties, totaling 945 apartment units, for an
aggregate sale price of approximately $394.5 million at a weighted
average Disposition Yield of 4.7%, received net proceeds of
approximately $78.3 million and recognized a GAAP gain on sale of
approximately $69.5 million from these sales.
Capital Markets Activity
On August 27, 2019, the Company issued $600.0 million of 10-year
unsecured notes at a coupon rate of 2.5% and yield of 2.56%. After
the effect of underwriters’ fees and other costs associated with
the offering, the all-in effective yield of the notes is
approximately 2.65%. As previously disclosed, on July 1, 2019 the
Company paid off $950.0 million in secured and unsecured debt with
a Weighted Average Rate of 4.62%.
Fourth Quarter 2019 Guidance
The Company has established guidance ranges for the fourth
quarter of 2019 EPS, FFO per share and Normalized FFO per share as
listed below:
Q4 2019
Guidance
EPS
$0.63 to $0.65
FFO per share
$0.87 to $0.89
Normalized FFO per share
$0.87 to $0.89
The difference between the third quarter 2019 actual EPS of
$0.71 and the fourth quarter 2019 EPS guidance midpoint of $0.64 is
due primarily to lower expected property sale gains and the items
described below.
The difference between the third quarter 2019 actual FFO of
$0.92 per share and the fourth quarter 2019 FFO guidance midpoint
of $0.88 per share is due primarily to the items described
below.
The difference between the third quarter 2019 actual Normalized
FFO of $0.91 per share and the fourth quarter 2019 Normalized FFO
guidance midpoint of $0.88 per share is due primarily to:
Positive/(Negative)
Impact
Fourth Quarter 2019
vs.
Third Quarter 2019
Same Store NOI
$
(0.01
)
2019 and 2018 transaction activity impact
on NOI
(0.01
)
Other items, including corporate
overhead
(0.01
)
Net
$
(0.03
)
Full Year 2019 Guidance
The Company has revised its guidance for its full year 2019 same
store operating performance, EPS, FFO per share, Normalized FFO per
share and transactions as listed below:
Revised
Previous
Same Store:
Physical Occupancy
96.4%
96.4%
Revenue change
3.3%
3.1% to 3.5%
Expense change
3.8%
3.5% to 4.0%
NOI change
3.1%
2.7% to 3.5%
EPS
$2.45 to $2.47
$2.48 to $2.54
FFO per share
$3.40 to $3.42
$3.36 to $3.42
Normalized FFO per share
$3.46 to $3.48
$3.43 to $3.49
Transactions:
Consolidated rental acquisitions
$1.1 billion
$1.0 billion
Consolidated rental dispositions
$1.0 billion
$1.0 billion
Transaction Accretion (Dilution)
None
None
The change in the full year 2019 EPS guidance range is due
primarily to higher expected depreciation expense and the items
described below.
The change in the full year 2019 FFO per share guidance range is
due primarily to the items described below.
The change in the full year 2019 Normalized FFO per share
guidance range is due primarily to:
Positive/(Negative)
Impact
Revised Full Year 2019
vs.
Previous Full Year
2019
Property NOI
$
0.01
Interest expense
0.01
Other items, including corporate
overhead
(0.01
)
Net
$
0.01
Fourth Quarter and Full Year 2019 Earnings and Conference
Call
Equity Residential expects to announce its fourth quarter and
full year 2019 results on Tuesday, January 28, 2020 and host a
conference call to discuss those results at 10:00 a.m. CT on
Wednesday, January 29, 2020.
About Equity Residential
Equity Residential is committed to creating communities where
people thrive. The Company, a member of the S&P 500, is focused
on the acquisition, development and management of rental apartment
properties located in urban and high-density suburban communities
where today’s renters want to live, work and play. Equity
Residential owns or has investments in 308 properties consisting of
80,299 apartment units, primarily located in Boston, New York,
Washington, D.C., Seattle, San Francisco, Southern California and
Denver. 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, October 23, 2019
at 10:00 a.m. CT. 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)
Nine Months Ended September
30,
Quarter Ended September
30,
2019
2018
2019
2018
REVENUES
Rental income
$
2,016,796
$
1,925,128
$
685,120
$
652,677
Fee and asset management
360
563
25
190
Total revenues
2,017,156
1,925,691
685,145
652,867
EXPENSES
Property and maintenance
338,497
322,487
114,966
110,541
Real estate taxes and insurance
270,434
268,784
87,546
87,388
Property management
72,705
69,175
21,940
22,247
General and administrative
41,127
41,420
11,417
12,640
Depreciation
616,201
583,869
211,478
194,618
Total expenses
1,338,964
1,285,735
447,347
427,434
Net gain (loss) on sales of real estate
properties
269,400
256,834
130,565
114,672
Impairment
—
(702
)
—
(702
)
Operating income
947,592
896,088
368,363
339,403
Interest and other income
2,221
14,860
631
7,864
Other expenses
(11,205
)
(14,871
)
(2,813
)
(7,661
)
Interest:
Expense incurred, net
(289,776
)
(321,454
)
(85,936
)
(111,219
)
Amortization of deferred financing
costs
(8,664
)
(9,054
)
(2,881
)
(3,276
)
Income before income and other taxes,
income (loss) from
investments in unconsolidated entities and
net gain (loss)
on sales of land parcels
640,168
565,569
277,364
225,111
Income and other tax (expense) benefit
(749
)
(767
)
(265
)
(280
)
Income (loss) from investments in
unconsolidated entities
66,906
(2,993
)
(1,152
)
(985
)
Net gain (loss) on sales of land
parcels
2,077
995
1,899
—
Net income
708,402
562,804
277,846
223,846
Net (income) loss attributable to
Noncontrolling Interests:
Operating Partnership
(25,339
)
(20,517
)
(9,910
)
(8,159
)
Partially Owned Properties
(2,450
)
(1,939
)
(830
)
(750
)
Net income attributable to controlling
interests
680,613
540,348
267,106
214,937
Preferred distributions
(2,318
)
(2,318
)
(773
)
(773
)
Net income available to Common Shares
$
678,295
$
538,030
$
266,333
$
214,164
Earnings per share – basic:
Net income available to Common Shares
$
1.83
$
1.46
$
0.72
$
0.58
Weighted average Common Shares
outstanding
370,227
367,920
370,768
368,028
Earnings per share – diluted:
Net income available to Common Shares
$
1.82
$
1.46
$
0.71
$
0.58
Weighted average Common Shares
outstanding
386,177
383,433
386,896
383,884
Distributions declared per Common Share
outstanding
$
1.7025
$
1.62
$
0.5675
$
0.54
Equity Residential
Consolidated Statements of
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per
share data)
(Unaudited)
Nine Months Ended September
30,
Quarter Ended September
30,
2019
2018
2019
2018
Net income
$
708,402
$
562,804
$
277,846
$
223,846
Net (income) loss attributable to
Noncontrolling Interests – Partially
Owned Properties
(2,450
)
(1,939
)
(830
)
(750
)
Preferred distributions
(2,318
)
(2,318
)
(773
)
(773
)
Net income available to Common Shares and
Units
703,634
558,547
276,243
222,323
Adjustments:
Depreciation
616,201
583,869
211,478
194,618
Depreciation – Non-real estate
additions
(4,235
)
(3,397
)
(1,932
)
(1,137
)
Depreciation – Partially Owned
Properties
(2,700
)
(2,837
)
(898
)
(904
)
Depreciation – Unconsolidated
Properties
2,385
3,447
613
1,150
Net (gain) loss on sales of unconsolidated
entities - operating
assets
(69,522
)
—
—
—
Net (gain) loss on sales of real estate
properties
(269,400
)
(256,834
)
(130,565
)
(114,672
)
Noncontrolling Interests share of gain
(loss) on sales
of real estate properties
—
(284
)
—
—
Impairment – operating assets
—
702
—
702
FFO available to Common Shares and
Units
976,363
883,213
354,939
302,080
Adjustments (see page 25 for additional
detail):
Impairment – non-operating assets
—
—
—
—
Write-off of pursuit costs
4,098
3,125
1,111
1,059
Debt extinguishment and preferred share
redemption (gains)
losses
11,807
41,142
(4,840
)
17,603
Non-operating asset (gains) losses
(1,200
)
(255
)
(1,452
)
223
Other miscellaneous items
6,539
(2,608
)
2,121
(1,138
)
Normalized FFO available to Common Shares
and Units
$
997,607
$
924,617
$
351,879
$
319,827
FFO
$
978,681
$
885,531
$
355,712
$
302,853
Preferred distributions
(2,318
)
(2,318
)
(773
)
(773
)
FFO available to Common Shares and
Units
$
976,363
$
883,213
$
354,939
$
302,080
FFO per share and Unit – basic
$
2.55
$
2.32
$
0.93
$
0.79
FFO per share and Unit – diluted
$
2.53
$
2.30
$
0.92
$
0.79
Normalized FFO
$
999,925
$
926,935
$
352,652
$
320,600
Preferred distributions
(2,318
)
(2,318
)
(773
)
(773
)
Normalized FFO available to Common Shares
and Units
$
997,607
$
924,617
$
351,879
$
319,827
Normalized FFO per share and Unit –
basic
$
2.60
$
2.43
$
0.92
$
0.84
Normalized FFO per share and Unit –
diluted
$
2.58
$
2.41
$
0.91
$
0.83
Weighted average Common Shares and Units
outstanding – basic
383,142
380,791
383,709
380,912
Weighted average Common Shares and Units
outstanding – diluted
386,177
383,433
386,896
383,884
Note: See page 25 for additional detail regarding the
adjustments from FFO to Normalized FFO. See pages 27 through 32 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)
September 30,
December 31,
2019
2018
ASSETS
Land
$
5,955,121
$
5,875,803
Depreciable property
21,168,255
20,435,901
Projects under development
143,434
109,409
Land held for development
91,017
89,909
Investment in real estate
27,357,827
26,511,022
Accumulated depreciation
(7,171,876
)
(6,696,281
)
Investment in real estate, net
20,185,951
19,814,741
Investments in unconsolidated entities
52,474
58,349
Cash and cash equivalents
28,777
47,442
Restricted deposits
55,819
68,871
Right-of-use assets
481,044
—
Other assets
249,991
404,806
Total assets
$
21,054,056
$
20,394,209
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net
$
1,962,471
$
2,385,470
Notes, net
6,675,084
5,933,286
Line of credit and commercial paper
354,381
499,183
Accounts payable and accrued expenses
151,680
102,471
Accrued interest payable
73,747
62,622
Lease liabilities
333,312
—
Other liabilities
312,849
358,563
Security deposits
70,398
67,258
Distributions payable
218,136
206,601
Total liabilities
10,152,058
9,615,454
Commitments and contingencies
Redeemable Noncontrolling Interests –
Operating Partnership
494,999
379,106
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 September 30, 2019 and
December 31, 2018
37,280
37,280
Common Shares of beneficial interest,
$0.01 par value;
1,000,000,000 shares authorized;
371,327,332 shares issued
and outstanding as of September 30, 2019
and 369,405,161
shares issued and outstanding as of
December 31, 2018
3,713
3,694
Paid in capital
8,917,312
8,935,453
Retained earnings
1,308,423
1,261,763
Accumulated other comprehensive income
(loss)
(84,092
)
(64,986
)
Total shareholders’ equity
10,182,636
10,173,204
Noncontrolling Interests:
Operating Partnership
226,065
228,738
Partially Owned Properties
(1,702
)
(2,293
)
Total Noncontrolling Interests
224,363
226,445
Total equity
10,406,999
10,399,649
Total liabilities and equity
$
21,054,056
$
20,394,209
Equity Residential
Portfolio Summary
As of September 30,
2019
% of
Stabilized
Average
Apartment
Budgeted
Rental
Markets/Metro Areas
Properties
Units
NOI
Rate
Los Angeles
72
16,603
18.9
%
$
2,627
Orange County
13
4,028
4.3
%
2,276
San Diego
12
3,385
3.8
%
2,437
Subtotal – Southern California
97
24,016
27.0
%
2,541
San Francisco
51
13,606
20.6
%
3,322
Washington DC
49
16,129
16.8
%
2,451
New York
37
9,606
14.5
%
3,944
Seattle
43
8,752
9.8
%
2,446
Boston
25
6,430
9.8
%
3,168
Denver
5
1,624
1.5
%
2,071
Other Markets
1
136
—
%
1,288
Total
308
80,299
100.0
%
$
2,852
Properties
Apartment Units
Wholly Owned Properties
290
76,602
Master-Leased Properties –
Consolidated
1
162
Partially Owned Properties –
Consolidated
17
3,535
308
80,299
Note: Projects under development are not included in the
Portfolio Summary until construction has been completed.
Equity Residential
Portfolio Rollforward Q3
2019
($ in thousands)
Properties
Apartment
Units
Purchase Price
Acquisition
Cap Rate
6/30/2019
309
79,624
Acquisitions:
Consolidated:
Rental Properties
4
1,084
$
489,930
4.4
%
Land Parcels
—
—
$
3,600
Sales Price
Disposition
Yield
Dispositions:
Consolidated Rental Properties
(7
)
(641
)
$
(303,925
)
(4.7
%)
Land Parcels
—
—
$
(1,900
)
Completed Developments – Consolidated
2
221
Configuration Changes
—
11
9/30/2019
308
80,299
Portfolio Rollforward
2019
($ in thousands)
Properties
Apartment
Units
Purchase Price
Acquisition
Cap Rate
12/31/2018
307
79,482
Acquisitions:
Consolidated:
Rental Properties
8
2,142
$
922,080
4.6
%
Rental Properties – Not Stabilized (A)
2
586
$
202,500
4.8
%
Land Parcels
—
—
$
19,832
Sales Price
Disposition
Yield
Dispositions:
Consolidated:
Rental Properties
(9
)
(1,202
)
$
(706,675
)
(4.5
%)
Land Parcels
—
—
$
(1,900
)
Unconsolidated:
Rental Properties (B)
(2
)
(945
)
$
(394,500
)
(4.7
%)
Completed Developments – Consolidated
2
221
Configuration Changes
—
15
9/30/2019
308
80,299
(A)
The Company acquired two properties in the
Denver market in the nine months ended September 30, 2019 that are
in the final stages of completing lease-up and are expected to
stabilize in the second year of ownership at the Acquisition Cap
Rate listed above.
(B)
The Company owned a 20% interest in
unconsolidated rental properties located in San Jose, CA and South
Florida. Sales price listed is the gross sales price. The Company
received net sales proceeds of approximately $78.3 million and
recognized a GAAP gain on sale of approximately $69.5 million.
Equity Residential
Third Quarter 2019 vs. Third
Quarter 2018
Same Store Results/Statistics
for 75,290 Same Store Apartment Units
$ in thousands (except for
Average Rental Rate)
Results
Statistics
Description
Revenues
Expenses
NOI
Average
Rental
Rate
Physical
Occupancy
Turnover
Q3 2019
$
649,712
$
196,520
$
453,192
$
2,870
96.5
%
15.9
%
Q3 2018
$
628,454
$
189,582
$
438,872
$
2,782
96.3
%
16.2
%
Change
$
21,258
$
6,938
$
14,320
$
88
0.2
%
(0.3
%)
Change
3.4
%
3.7
%
3.3
%
3.2
%
Third Quarter 2019 vs. Second
Quarter 2019
Same Store Results/Statistics
for 77,544 Same Store Apartment Units
$ in thousands (except for
Average Rental Rate)
Results
Statistics
Description
Revenues
Expenses
NOI
Average
Rental
Rate
Physical
Occupancy
Turnover
Q3 2019
$
667,190
$
201,658
$
465,532
$
2,862
96.5
%
16.0
%
Q2 2019
$
657,805
$
195,349
$
462,456
$
2,822
96.5
%
13.1
%
Change
$
9,385
$
6,309
$
3,076
$
40
0.0
%
2.9
%
Change
1.4
%
3.2
%
0.7
%
1.4
%
September YTD 2019 vs.
September YTD 2018
Same Store Results/Statistics
for 72,979 Same Store Apartment Units
$ in thousands (except for
Average Rental Rate)
Results
Statistics
Description
Revenues
Expenses
NOI
Average
Rental
Rate
Physical
Occupancy
Turnover
YTD 2019
$
1,857,679
$
559,793
$
1,297,886
$
2,823
96.5
%
38.9
%
YTD 2018
$
1,798,638
$
539,070
$
1,259,568
$
2,743
96.2
%
40.7
%
Change
$
59,041
$
20,723
$
38,318
$
80
0.3
%
(1.8
%)
Change
3.3
%
3.8
%
3.0
%
2.9
%
Note: See page 30 for reconciliations from operating income.
Equity Residential
Third Quarter 2019 vs. Third
Quarter 2018
Same Store Results/Statistics
by Market
Increase (Decrease) from Prior
Year's Quarter
Markets/Metro Areas
Apartment
Units
Q3 2019
% of
Actual
NOI
Q3 2019
Average
Rental
Rate
Q3 2019
Weighted
Average
Physical
Occupancy %
Q3 2019
Turnover
Revenues
Expenses
NOI
Average
Rental
Rate
Physical
Occupancy
Turnover
Los Angeles
15,968
18.9
%
$
2,623
96.6
%
16.7
%
3.1
%
5.7
%
2.0
%
3.4
%
(0.1
%)
(0.4
%)
Orange County
4,028
4.5
%
2,276
96.6
%
17.3
%
4.0
%
2.9
%
4.4
%
3.5
%
0.4
%
0.4
%
San Diego
3,385
3.9
%
2,437
96.6
%
18.5
%
3.7
%
3.4
%
3.7
%
3.8
%
(0.1
%)
0.4
%
Subtotal – Southern California
23,381
27.3
%
2,537
96.6
%
17.1
%
3.3
%
5.0
%
2.6
%
3.5
%
0.0
%
(0.2
%)
San Francisco
13,082
21.1
%
3,322
95.8
%
16.1
%
4.1
%
3.3
%
4.4
%
3.9
%
0.0
%
0.1
%
Washington DC
15,379
17.0
%
2,456
96.7
%
16.2
%
2.5
%
0.7
%
3.3
%
2.3
%
0.4
%
(0.6
%)
New York
9,475
15.2
%
3,949
96.9
%
13.2
%
2.6
%
7.0
%
(0.3
%)
2.6
%
0.1
%
0.2
%
Seattle
7,963
9.8
%
2,436
96.5
%
15.0
%
4.0
%
0.2
%
5.5
%
2.9
%
0.9
%
(0.7
%)
Boston
5,874
9.5
%
3,162
96.4
%
16.0
%
4.6
%
0.7
%
6.2
%
3.5
%
0.7
%
(1.3
%)
Other Markets
136
0.1
%
1,288
98.5
%
14.0
%
7.3
%
2.3
%
9.8
%
7.2
%
0.0
%
1.5
%
Total
75,290
100.0
%
$
2,870
96.5
%
15.9
%
3.4
%
3.7
%
3.3
%
3.2
%
0.2
%
(0.3
%)
Equity Residential
Third Quarter 2019 vs. Second
Quarter 2019
Same Store Results/Statistics
by Market
Increase (Decrease) from Prior
Quarter
Markets/Metro Areas
Apartment
Units
Q3 2019
% of
Actual
NOI
Q3 2019
Average
Rental
Rate
Q3 2019
Weighted
Average
Physical
Occupancy %
Q3 2019
Turnover
Revenues
Expenses
NOI
Average
Rental
Rate
Physical
Occupancy
Turnover
Los Angeles
15,968
18.4
%
$
2,623
96.6
%
16.7
%
1.1
%
2.5
%
0.5
%
1.0
%
0.3
%
2.6
%
Orange County
4,028
4.4
%
2,276
96.6
%
17.3
%
2.2
%
6.4
%
1.0
%
2.0
%
0.2
%
3.6
%
San Diego
3,385
3.8
%
2,437
96.6
%
18.5
%
1.5
%
8.2
%
(0.8
%)
1.8
%
(0.1
%)
4.2
%
Subtotal – Southern California
23,381
26.6
%
2,537
96.6
%
17.1
%
1.3
%
3.7
%
0.4
%
1.2
%
0.2
%
3.0
%
San Francisco
13,082
20.5
%
3,322
95.8
%
16.1
%
1.3
%
4.6
%
0.3
%
1.4
%
(0.3
%)
2.9
%
Washington DC
15,379
16.5
%
2,456
96.7
%
16.2
%
1.1
%
4.6
%
(0.5
%)
1.2
%
(0.1
%)
4.2
%
New York
9,606
15.1
%
3,944
96.9
%
13.3
%
1.1
%
2.8
%
0.0
%
1.4
%
(0.2
%)
3.0
%
Seattle
8,614
10.3
%
2,444
96.5
%
15.1
%
2.6
%
(0.7
%)
3.9
%
2.5
%
(0.1
%)
0.0
%
Boston
6,346
9.9
%
3,168
96.4
%
16.4
%
2.1
%
2.6
%
1.8
%
1.8
%
0.0
%
4.0
%
Other Markets
1,136
1.1
%
2,088
96.1
%
20.2
%
0.5
%
(2.3
%)
1.6
%
0.2
%
0.1
%
3.7
%
Total
77,544
100.0
%
$
2,862
96.5
%
16.0
%
1.4
%
3.2
%
0.7
%
1.4
%
0.0
%
2.9
%
Equity Residential
September YTD 2019 vs.
September YTD 2018
Same Store Results/Statistics
by Market
Increase (Decrease) from Prior
Year
Markets/Metro Areas
Apartment
Units
Sept.
YTD 19
% of
Actual
NOI
Sept.
YTD 19
Average
Rental
Rate
Sept. YTD 19
Weighted
Average
Physical
Occupancy %
Sept. YTD 19
Turnover
Revenues
Expenses
NOI
Average
Rental
Rate
Physical
Occupancy
Turnover
Los Angeles
15,371
19.1
%
$
2,604
96.4
%
42.4
%
4.1
%
6.7
%
3.1
%
3.9
%
0.2
%
(2.2
%)
Orange County
4,028
4.6
%
2,241
96.4
%
41.4
%
3.9
%
0.8
%
4.9
%
3.4
%
0.3
%
(0.7
%)
San Diego
3,385
4.1
%
2,401
96.5
%
44.8
%
3.6
%
3.0
%
3.8
%
3.4
%
0.2
%
(1.9
%)
Subtotal – Southern California
22,784
27.8
%
2,510
96.4
%
42.6
%
4.0
%
5.4
%
3.5
%
3.8
%
0.2
%
(1.9
%)
San Francisco
12,633
21.0
%
3,241
96.2
%
38.9
%
3.9
%
3.0
%
4.1
%
3.8
%
0.0
%
(1.0
%)
Washington DC
15,379
17.6
%
2,426
96.7
%
36.6
%
2.3
%
1.4
%
2.7
%
2.0
%
0.5
%
(2.8
%)
New York
9,235
15.3
%
3,916
96.8
%
31.4
%
2.5
%
6.8
%
(0.3
%)
2.0
%
0.3
%
0.4
%
Boston
5,714
9.5
%
3,096
96.2
%
37.7
%
3.8
%
2.6
%
4.3
%
3.2
%
0.3
%
(2.1
%)
Seattle
7,098
8.7
%
2,337
96.5
%
42.3
%
2.9
%
(1.3
%)
4.6
%
1.9
%
0.8
%
(3.1
%)
Other Markets
136
0.1
%
1,286
98.8
%
47.8
%
7.4
%
8.2
%
6.9
%
7.3
%
0.1
%
2.2
%
Total
72,979
100.0
%
$
2,823
96.5
%
38.9
%
3.3
%
3.8
%
3.0
%
2.9
%
0.3
%
(1.8
%)
Equity Residential
Same Store Lease Pricing
Statistics by Market
For 72,979 Same Store
Apartment Units
New Lease Change (1)
Renewal Rate Achieved (1)
Markets/Metro Areas
Q3 2019
Q3 2018
Q3 2019
Q3 2018
Los Angeles (2)
(0.2
%)
2.5
%
5.4
%
6.4
%
Orange County
(0.2
%)
0.2
%
5.5
%
5.8
%
San Diego
(0.8
%)
2.0
%
5.7
%
6.4
%
Subtotal – Southern California
(0.3
%)
2.1
%
5.4
%
6.3
%
San Francisco
(0.1
%)
1.0
%
5.3
%
5.3
%
Washington DC
2.7
%
0.5
%
4.5
%
4.5
%
New York
2.2
%
0.6
%
3.7
%
3.4
%
Boston
3.2
%
2.3
%
5.5
%
5.1
%
Seattle
3.2
%
(0.5
%)
6.6
%
5.9
%
Total
1.2
%
1.2
%
5.0
%
5.0
%
(1)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for the
definitions of non-GAAP financial measures and other terms.
(2)
The Company’s Q3 2019 New Lease Change in
Los Angeles was negatively impacted by temporary governmental
restrictions put in place in connection with the wildfire
emergency. As a result of these restrictions, the Company was not
offering premium short term leases in this market during the
period.
Equity Residential
Third Quarter 2019 vs. Third
Quarter 2018
Same Store Operating Expenses
for 75,290 Same Store Apartment Units
$ in thousands
Actual
Q3 2019
Actual
Q3 2018
$
Change (1)
%
Change
% of Actual
Q3 2019
Operating
Expenses
Real estate taxes
$
82,685
$
79,339
$
3,346
4.2
%
42.1
%
On-site payroll
42,439
41,335
1,104
2.7
%
21.6
%
Utilities
26,829
25,804
1,025
4.0
%
13.6
%
Repairs and maintenance
25,723
25,443
280
1.1
%
13.1
%
Insurance
5,423
4,957
466
9.4
%
2.8
%
Leasing and advertising
2,776
2,819
(43
)
(1.5
%)
1.4
%
Other on-site operating expenses
10,645
9,885
760
7.7
%
5.4
%
Same store operating expenses (2)
$
196,520
$
189,582
$
6,938
3.7
%
100.0
%
September YTD 2019 vs.
September YTD 2018
Same Store Operating Expenses
for 72,979 Same Store Apartment Units
$ in thousands
Actual
YTD 2019
Actual
YTD 2018
$
Change (1)
%
Change
% of Actual
YTD 2019
Operating
Expenses
Real estate taxes
$
237,273
$
228,971
$
8,302
3.6
%
42.4
%
On-site payroll
121,739
117,869
3,870
3.3
%
21.8
%
Utilities
74,534
72,717
1,817
2.5
%
13.3
%
Repairs and maintenance
71,835
69,589
2,246
3.2
%
12.8
%
Insurance
15,778
14,351
1,427
9.9
%
2.8
%
Leasing and advertising
7,352
7,460
(108
)
(1.4
%)
1.3
%
Other on-site operating expenses
31,282
28,113
3,169
11.3
%
5.6
%
Same store operating expenses (2)
$
559,793
$
539,070
$
20,723
3.8
%
100.0
%
(1)
Both quarter over quarter and YTD
over YTD changes (unless otherwise noted) are due primarily to:
Real estate taxes – Increase
slightly above most recent expectations due primarily to
anticipated delays in receiving recoveries from appeals
activity.
On-site payroll – Increase below
expectations. Payroll pressures continue but were somewhat offset
by lower than expected employee benefit related costs.
Utilities – Quarter over quarter
growth slightly higher than expected but in line with expectations
for the year.
Insurance – Increase due to
higher premiums on property insurance renewal due to challenging
conditions in the insurance market.
Other on-site operating expenses
– Increase primarily driven by higher ground lease costs due to a
contractual revaluation at one property along with higher
association fees.
(2)
See Additional Reconciliations
and Definitions of Non-GAAP Financial Measures and Other Terms for
the definitions of non-GAAP financial measures and other terms.
Equity Residential
Debt Summary as of September
30, 2019
($ in thousands)
Debt
Balances (1)
% of Total
Weighted
Average
Rates (1)
Weighted
Average
Maturities
(years)
Secured
$
1,962,471
21.8
%
3.90
%
6.7
Unsecured
7,029,465
78.2
%
4.14
%
9.6
Total
$
8,991,936
100.0
%
4.07
%
9.0
Fixed Rate Debt:
Secured – Conventional
$
1,576,040
17.5
%
4.34
%
4.5
Unsecured – Public
6,675,084
74.3
%
4.30
%
10.1
Fixed Rate Debt
8,251,124
91.8
%
4.31
%
9.1
Floating Rate Debt:
Secured – Conventional
6,932
0.1
%
3.04
%
2.7
Secured – Tax Exempt
379,499
4.2
%
2.00
%
15.4
Unsecured – Public
—
—
3.34
%
—
Unsecured – Revolving Credit Facility
—
—
3.14
%
2.3
Unsecured – Commercial Paper Program
(2)
354,381
3.9
%
2.61
%
—
Floating Rate Debt
740,812
8.2
%
2.63
%
8.1
Total
$
8,991,936
100.0
%
4.07
%
9.0
(1)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for
additional details about Debt Balances and Weighted Average
Rates.
(2)
At September 30, 2019, the weighted
average maturity of commercial paper outstanding was 28 days. The
weighted average amount outstanding for the nine months ended
September 30, 2019 was approximately $384.7 million.
Note: The Company capitalized interest of approximately $4.8
million and $4.5 million during the nine months ended September 30,
2019 and 2018, respectively. The Company capitalized interest of
approximately $2.1 million and $1.6 million during the quarters
ended September 30, 2019 and 2018, respectively.
Equity Residential
Debt Maturity Schedule as of
September 30, 2019
($ in thousands)
Year
Fixed
Rate
Floating
Rate
Total
% of Total
Weighted
Average Coupons
on Fixed
Rate Debt (1)
Weighted
Average
Coupons on
Total Debt (1)
2019
$
1,925
$
375,000
(2)
$
376,925
4.2
%
3.40
%
2.31
%
2020
627,541
—
627,541
6.9
%
4.74
%
4.74
%
2021
926,404
—
926,404
10.2
%
4.64
%
4.64
%
2022
264,185
7,593
271,778
3.0
%
3.25
%
3.23
%
2023
1,325,588
3,500
1,329,088
14.6
%
3.74
%
3.73
%
2024
—
6,100
6,100
0.1
%
N/A
1.64
%
2025
450,000
8,200
458,200
5.0
%
3.38
%
3.34
%
2026
592,025
9,000
601,025
6.6
%
3.58
%
3.55
%
2027
400,000
9,800
409,800
4.5
%
3.25
%
3.21
%
2028
900,000
42,380
942,380
10.4
%
3.79
%
3.69
%
2029+
2,838,970
299,635
3,138,605
34.5
%
3.65
%
3.46
%
Subtotal
8,326,638
761,208
9,087,846
100.0
%
3.82
%
3.67
%
Deferred Financing Costs and
Unamortized (Discount)
(75,514
)
(20,396
)
(95,910
)
N/A
N/A
N/A
Total
$
8,251,124
$
740,812
$
8,991,936
100.0
%
3.82
%
3.67
%
(1)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for
additional details about Weighted Average Coupons.
(2)
Includes $355.0 million in principal
outstanding on the Company’s commercial paper program.
Equity Residential
Selected Unsecured Public Debt
Covenants
September 30,
June 30,
2019
2019
Debt to Adjusted Total Assets (not to
exceed 60%)
33.9%
34.5%
Secured Debt to Adjusted Total Assets (not
to exceed 40%)
8.3%
10.5%
Consolidated Income Available for Debt
Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1)
4.75
4.40
Total Unencumbered Assets to Unsecured
Debt
(must be at least 125%)
385.3%
390.5%
Note: These selected covenants represent the most restrictive
financial covenants relating to ERP Operating Limited Partnership's
("ERPOP") outstanding public debt securities. Equity Residential is
the general partner of ERPOP.
Selected Credit Ratios
September 30,
June 30,
2019
2019
Total debt to Normalized EBITDAre
5.22x
5.40x
Net debt to Normalized EBITDAre
5.20x
5.24x
Unencumbered NOI as a % of total NOI
86.9%
81.8%
Note: See page 24 for the Normalized EBITDAre
reconciliations.
Equity Residential
Capital Structure as of
September 30, 2019
(Amounts in thousands except for
share/unit and per share amounts)
Secured Debt
$
1,962,471
21.8
%
Unsecured Debt
7,029,465
78.2
%
Total Debt
8,991,936
100.0
%
21.3
%
Common Shares (includes Restricted
Shares)
371,327,332
96.4
%
Units (includes OP Units and Restricted
Units)
13,749,690
3.6
%
Total Shares and Units
385,077,022
100.0
%
Common Share Price at September 30,
2019
$
86.26
33,216,744
99.9
%
Perpetual Preferred Equity (see below)
37,280
0.1
%
Total Equity
33,254,024
100.0
%
78.7
%
Total Market Capitalization
$
42,245,960
100.0
%
Perpetual Preferred Equity as
of September 30, 2019
(Amounts in thousands except for
share and per share amounts)
Series
Call Date
Outstanding
Shares
Liquidation
Value
Annual
Dividend
Per Share
Annual
Dividend
Amount
Preferred Shares:
8.29% Series K
12/10/26
745,600
$
37,280
$
4.145
$
3,091
Equity Residential
Common Share and Unit
Weighted Average Amounts
Outstanding
Sept. YTD 2019
Sept. YTD 2018
Q3 2019
Q3 2018
Weighted Average Amounts Outstanding
for Net Income Purposes:
Common Shares - basic
370,226,966
367,920,066
370,767,761
368,027,460
Shares issuable from assumed
conversion/vesting of:
- OP Units
12,915,512
12,870,672
12,941,406
12,884,106
- long-term compensation shares/units
3,034,089
2,642,057
3,186,671
2,972,021
Total Common Shares and Units -
diluted
386,176,567
383,432,795
386,895,838
383,883,587
Weighted Average Amounts Outstanding
for FFO and Normalized FFO Purposes:
Common Shares - basic
370,226,966
367,920,066
370,767,761
368,027,460
OP Units - basic
12,915,512
12,870,672
12,941,406
12,884,106
Total Common Shares and OP Units -
basic
383,142,478
380,790,738
383,709,167
380,911,566
Shares issuable from assumed
conversion/vesting of:
- long-term compensation shares/units
3,034,089
2,642,057
3,186,671
2,972,021
Total Common Shares and Units -
diluted
386,176,567
383,432,795
386,895,838
383,883,587
Period Ending Amounts
Outstanding:
Common Shares (includes Restricted
Shares)
371,327,332
368,409,586
Units (includes OP Units and Restricted
Units)
13,749,690
14,023,002
Total Shares and Units
385,077,022
382,432,588
Equity Residential
Development and Lease-Up
Projects as of September 30, 2019
(Amounts in thousands except for
project and apartment unit amounts)
Total
Total
Total Book
No. of
Budgeted
Book
Value Not
Estimated/Actual
Apartment
Capital
Value
Placed in
Total
Percentage
Initial
Completion
Stabilization
Percentage
Percentage
Projects
Location
Units
Cost
to Date
Service
Debt
Completed
Occupancy
Date
Date
Leased
Occupied
Projects Under
Development - Wholly Owned:
Alcott Apartments (fka West End Tower)
Boston, MA
470
$
409,749
$
110,026
$
110,026
$
—
24%
Q2 2021
Q3 2021
Q1 2023
—
—
4885 Edgemoor Lane (A)
Bethesda, MD
154
75,271
8,080
8,080
—
1%
Q3 2021
Q3 2021
Q3 2022
—
—
Projects Under Development - Wholly
Owned
624
485,020
118,106
118,106
—
Projects Under
Development - Partially Owned:
Aero Apartments (B)
Alameda, CA
200
117,794
25,328
25,328
6,931
4%
Q4 2020
Q2 2021
Q2 2022
—
—
Projects Under Development - Partially
Owned
200
117,794
25,328
25,328
6,931
Projects Under Development
824
602,814
143,434
143,434
6,931
Completed Not
Stabilized (C):
100K Apartments
Washington DC
222
86,023
85,223
—
—
Q3 2018
Q4 2018
Q4 2019
96%
95%
Lofts at Kendall Square II (fka 249 Third
Street)
Cambridge, MA
84
51,447
43,008
—
—
Q3 2019
Q3 2019
Q2 2020
74%
68%
Chloe on Madison (fka 1401 E. Madison)
Seattle, WA
137
65,341
59,670
—
—
Q3 2019
Q3 2019
Q2 2020
46%
5%
Projects Completed Not
Stabilized
443
202,811
187,901
—
—
Total Development Projects
1,267
$
805,625
$
331,335
$
143,434
$
6,931
Land Held for Development
N/A
N/A
$
91,017
$
91,017
$
—
NOI CONTRIBUTION FROM DEVELOPMENT
PROJECTS
Total
Budgeted
Capital
Cost
Q3 2019
NOI
Projects Under Development
$
602,814
$
—
Completed Not Stabilized
202,811
1,131
Total Development NOI Contribution
$
805,625
$
1,131
(A)
4885 Edgemoor Lane – The land
under this project is subject to a long-term ground lease. This
project is adjacent to an existing apartment property owned by the
Company.
(B)
Aero Apartments – This
development project is owned 90% by the Company and 10% by a third
party partner in a joint venture consolidated by the Company.
Construction is being partially funded with a construction loan
that is non-recourse to the Company. The joint venture partner has
funded $4.6 million for its allocated share of the project equity
and serves as the developer of the project.
(C)
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.
All of these properties are wholly owned by the Company.
Equity Residential
Capital Expenditures to Real
Estate
For the Nine Months Ended
September 30, 2019
(Amounts in thousands except for
apartment unit and per apartment unit amounts)
Same Store
Properties
Non-Same Store
Properties/Other
Total
Same Store Avg. Per Apartment
Unit
Total Apartment Units
72,979
7,320
80,299
Building Improvements
$
64,478
$
4,976
$
69,454
$
884
Renovation Expenditures (1)
27,153
2,426
29,579
372
Replacements
28,280
1,022
29,302
387
Capital Expenditures to Real Estate
(2)
$
119,911
$
8,424
$
128,335
$
1,643
(1)
Renovation Expenditures on 1,790 same
store apartment units for the nine months ended September 30, 2019
approximated $15,195 per apartment unit renovated.
(2)
See Additional Reconciliations and
Definitions of Non-GAAP Financial Measures and Other Terms for
additional details about Capital Expenditures to Real Estate.
Equity Residential
Normalized EBITDAre
Reconciliations
(Amounts in thousands)
Normalized EBITDAre
Reconciliations for Page 19
Trailing Twelve Months
2019
2018
September 30, 2019
June 30, 2019
Q3
Q2
Q1
Q4
Q3
Net income
$
830,790
$
776,790
$
277,846
$
321,299
$
109,257
$
122,388
$
223,846
Interest expense incurred, net
381,682
406,965
85,936
108,902
94,938
91,906
111,219
Amortization of deferred financing
costs
10,920
11,315
2,881
3,647
2,136
2,256
3,276
Amortization of above/below market lease
intangibles
4,392
4,392
1,098
1,098
1,098
1,098
1,098
Depreciation
818,057
801,197
211,478
200,508
204,215
201,856
194,618
Income and other tax expense (benefit)
860
875
265
246
238
111
280
EBITDA
2,046,701
2,001,534
579,504
635,700
411,882
419,615
534,337
Net (gain) loss on sales of real estate
properties
(269,376
)
(253,483
)
(130,565
)
(138,856
)
21
24
(114,672
)
Net (gain) loss on sales of unconsolidated
entities - operating assets
(69,522
)
(69,522
)
—
(69,522
)
—
—
—
Impairment – operating assets
—
702
—
—
—
—
702
EBITDAre
1,707,803
1,679,231
448,939
427,322
411,903
419,639
420,367
Write-off of pursuit costs (other
expenses)
5,423
5,371
1,111
1,539
1,448
1,325
1,059
(Income) loss from investments in
unconsolidated entities - operations
3,290
3,123
1,152
757
707
674
985
Net (gain) loss on sales of land
parcels
(2,069
)
(170
)
(1,899
)
(177
)
(1
)
8
—
Insurance/litigation settlement or reserve
income (interest and other income)
(383
)
(7,783
)
—
(383
)
—
—
(7,400
)
Insurance/litigation/environmental
settlement or reserve expense (other expenses)
1,743
5,927
18
1,701
250
(226
)
4,202
Advocacy contributions (other
expenses)
876
2,963
5
200
—
671
2,092
Data analytics project (other
expenses)
4,581
3,170
1,416
1,408
1,375
382
5
Other
549
(170
)
682
(83
)
(50
)
—
(37
)
Normalized EBITDAre
$
1,721,813
$
1,691,662
$
451,424
$
432,284
$
415,632
$
422,473
$
421,273
Balance Sheet
Items:
September 30, 2019
June 30, 2019
Total debt
$
8,991,936
$
9,130,421
Cash and cash equivalents
(28,777
)
(251,273
)
Mortgage principal reserves/sinking
funds
(8,758
)
(7,898
)
Net debt
$
8,954,401
$
8,871,250
Note: EBITDA, EBITDAre and Normalized EBITDAre do not include
any adjustments for the Company’s share of partially owned
unconsolidated entities or the minority partner’s share of
partially owned consolidated entities due to the immaterial size of
the Company’s partially owned portfolio.
Equity Residential
Adjustments from FFO to
Normalized FFO
(Amounts in thousands)
Nine Months Ended September
30,
Quarter Ended September
30,
2019
2018
Variance
2019
2018
Variance
Impairment – non-operating assets
$
—
$
—
$
—
$
—
$
—
$
—
Write-off of pursuit costs (other
expenses)
4,098
3,125
973
1,111
1,059
52
Prepayment premiums/penalties (interest
expense)
3,381
22,110
(18,729
)
3,381
—
3,381
Write-off of unamortized deferred
financing costs (interest expense)
2,273
2,764
(491
)
767
1,184
(417
)
Write-off of unamortized
(premiums)/discounts/OCI (interest expense)
6,153
16,268
(10,115
)
(8,988
)
16,419
(25,407
)
Debt extinguishment and preferred share
redemption (gains) losses
11,807
41,142
(29,335
)
(4,840
)
17,603
(22,443
)
Net (gain) loss on sales of land
parcels
(2,077
)
(995
)
(1,082
)
(1,899
)
—
(1,899
)
(Income) loss from investments in
unconsolidated entities ─ non-operating assets
877
740
137
447
223
224
Non-operating asset (gains) losses
(1,200
)
(255
)
(945
)
(1,452
)
223
(1,675
)
Insurance/litigation settlement or reserve
income (interest and other income)
(383
)
(13,286
)
12,903
—
(7,400
)
7,400
Insurance/litigation/environmental
settlement or reserve expense (other expenses)
1,969
7,088
(5,119
)
18
4,202
(4,184
)
Advocacy contributions (other
expenses)
205
3,735
(3,530
)
5
2,092
(2,087
)
Data analytics project (other
expenses)
4,199
128
4,071
1,416
5
1,411
Other
549
(273
)
822
682
(37
)
719
Other miscellaneous items
6,539
(2,608
)
9,147
2,121
(1,138
)
3,259
Adjustments from FFO to Normalized FFO
$
21,244
$
41,404
$
(20,160
)
$
(3,060
)
$
17,747
$
(20,807
)
Note: See pages 27 through 32 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 and are forward-looking. 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 27
through 32 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.
Q4 2019
Revised Full Year 2019
Previous Full Year
2019
2019 Normalized
FFO Guidance (per share diluted)
Expected Normalized FFO Per Share
$0.87 to $0.89
$3.46 to $3.48
$3.43 to $3.49
2019 Same Store
Assumptions
Physical Occupancy
96.4%
96.4%
Revenue change
3.3%
3.1% to 3.5%
Expense change
3.8%
3.5% to 4.0%
NOI change (1)
3.1%
2.7% to 3.5%
2019 Transaction
Assumptions
Consolidated rental acquisitions
$1.1B
$1.0B
Consolidated rental dispositions
$1.0B
$1.0B
Transaction Accretion (Dilution)
None
None
2019 Debt
Assumptions (2)
Weighted average debt outstanding
$8.95B to $9.05B
$8.9B to $9.1B
Weighted average interest rate (reduced
for capitalized interest)
4.11%
4.14%
Interest expense, net (on a Normalized FFO
basis)
$367.8M to $372.0M
$368.5M to $376.7M
Capitalized interest
$7.0M
$7.0M to $8.0M
2019 Capital
Expenditures to Real Estate Assumptions for Same Store Properties
(3)
Capital Expenditures to Real Estate for
Same Store Properties
$175.0M
$190.0M
Capital Expenditures to Real Estate per
Same Store Apartment Unit
$2,400
$2,600
2019 Other
Guidance Assumptions
Property management expense
$97.0M to $99.0M
$97.0M to $99.0M
General and administrative expense
$52.0M to $54.0M
$52.0M to $54.0M
Interest and other income
$2.0M
$1.8M
Income and other tax expense
$1.0M
$0.9M
Debt offerings
$1.5B
$888.1M
Equity ATM share offerings
No amounts budgeted
No amounts budgeted
Preferred share offerings
No amounts budgeted
No amounts budgeted
Weighted average Common Shares and Units -
Diluted
386.6M
386.2M
(1)
Approximately 25 basis point change in NOI
percentage = $0.01 per share change in EPS/FFO per share/Normalized
FFO per share.
(2)
All 2019 debt assumptions are shown on a
Normalized FFO basis and therefore exclude an approximately $12.4
million impact from anticipated debt extinguishment costs in
connection with all planned debt repayment activities in 2019, of
which $3.4 million represents cash prepayment penalties and $9.0
million represents non-cash write-offs of unamortized debt
discounts and deferred financing costs.
(3)
During 2019, the Company expects to spend
approximately $37.2 million for apartment unit Renovation
Expenditures on approximately 2,400 same store apartment units at
an average cost of approximately $15,500 per apartment unit
renovated, which is included in the Capital Expenditures to Real
Estate assumptions noted above.
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 Financial 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 real estate investment trusts (“REIT”) and,
accordingly, may not be comparable. These non-GAAP financial
measures should not be considered as an alternative to net earnings
or any other measurement of performance computed in accordance with
accounting principles generally accepted in the United States
(“GAAP”) 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.
Capital Expenditures to Real
Estate:
Building Improvements – Includes roof
replacement, paving, building mechanical equipment systems,
exterior siding and painting, major landscaping, furniture,
fixtures and equipment for amenities and common areas, vehicles and
office and maintenance equipment.
Renovation Expenditures – Apartment
unit renovation costs (primarily kitchens and baths) designed to
reposition these units for higher rental levels in their respective
markets.
Replacements – Includes appliances,
mechanical equipment, fixtures and flooring (including hardwood and
carpeting).
Debt Balances:
Commercial Paper Program – The Company
may borrow up to a maximum of $500.0 million under its commercial
paper program subject to market conditions. The notes bear interest
at various floating rates.
Revolving Credit Facility – The
Company’s $2.0 billion unsecured revolving credit facility matures
January 10, 2022. The interest rate on advances under the facility
will generally be LIBOR plus a spread (currently 0.825%), or based
on bids received from the lending group, and an annual facility fee
(currently 0.125%). Both the spread and the facility fee are
dependent on the Company’s senior unsecured credit rating. In
addition, the Company limits its utilization of the facility in
order to maintain liquidity to support its $500.0 million
commercial paper program along with certain other obligations. The
following table presents the availability on the Company’s
unsecured revolving credit facility:
September 30, 2019
Unsecured revolving credit facility
commitment
$
2,000,000
Commercial paper balance outstanding
(355,000
)
Unsecured revolving credit facility
balance outstanding
—
Other restricted amounts
(100,929
)
Unsecured revolving credit facility
availability
$
1,544,071
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 periods presented.
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 Budgeted 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 Budgeted 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 sales 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.
EBITDA for Real Estate and Normalized
EBITDA for Real Estate:
Earnings Before Interest, Taxes,
Depreciation and Amortization for Real Estate (“EBITDAre”) –
The National Association of Real Estate Investment Trusts
(“Nareit”) defines EBITDAre (September 2017 White Paper) as net
income (computed in accordance with GAAP) before interest expense,
income taxes, depreciation and amortization expense, and further
adjusted for gains and losses from sales of depreciated operating
properties, impairment write-downs of depreciated operating
properties, impairment write-downs of investments in unconsolidated
entities caused by a decrease in value of depreciated operating
properties within the joint venture and adjustments to reflect the
Company’s share of EBITDAre of investments in unconsolidated
entities.
The Company believes that EBITDAre is useful
to investors, creditors and rating agencies as a supplemental
measure of the Company’s ability to incur and service debt because
it is a recognized measure of performance by the real estate
industry, and by excluding gains or losses related to sales or
impairment of depreciated operating properties, EBITDAre can help
compare the Company’s credit strength between periods or as
compared to different companies.
Normalized Earnings Before Interest,
Taxes, Depreciation and Amortization for Real Estate (“Normalized
EBITDAre”) – Represents net income (computed in accordance with
GAAP) before interest expense, income taxes, depreciation and
amortization expense, and further adjusted for non-comparable
items. Normalized EBITDAre, total debt to Normalized EBITDAre and
net debt to Normalized EBITDAre are important metrics in evaluating
the credit strength of the Company and its ability to service its
debt obligations. The Company believes that Normalized EBITDAre,
total debt to Normalized EBITDAre, and net debt to Normalized
EBITDAre 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.
Economic Gain (Loss) – Economic Gain (Loss) is calculated
as the net gain (loss) on sales of real estate properties in
accordance with GAAP, excluding accumulated depreciation. The
Company generally considers Economic Gain (Loss) to be an
appropriate supplemental measure to net gain (loss) 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, renovation, 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 (loss) on sales of real estate properties in accordance with
GAAP to Economic Gain (Loss):
Nine Months Ended September
30, 2019
Quarter Ended September 30,
2019
Net Gain (Loss) on Sales of Real Estate
Properties
$
269,400
$
130,565
Accumulated Depreciation Gain
(138,173
)
(63,791
)
Economic Gain (Loss)
$
131,227
$
66,774
FFO and Normalized FFO:
Funds From Operations (“FFO”) – Nareit
defines FFO (December 2018 White Paper) as net income (computed in
accordance with GAAP), excluding gains or losses from sales and
impairment write-downs of depreciable real estate and land when
connected to the main business of a REIT, impairment write-downs of
investments in entities when the impairment is directly
attributable to decreases in the value of depreciable real estate
held by the entity and depreciation and amortization related to
real estate. Adjustments for partially owned consolidated and
unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis. 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 from sales
and impairment write-downs of depreciable real estate and excluding
depreciation related to real estate (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;
• pursuit cost write-offs;
• gains and losses from early debt
extinguishment and preferred share redemptions;
• gains and losses from non-operating assets;
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.
The following table presents reconciliations
of EPS to FFO per share and Normalized FFO per share for pages 7
and 26 (the expected guidance/projections provided below are based
on current expectations and are forward-looking):
Actual Sept.
Actual Sept.
Actual
Actual
Expected
Expected
YTD 2019
YTD 2018
Q3 2019
Q3 2018
Q4 2019
2019
Per Share
Per Share
Per Share
Per Share
Per Share
Per Share
EPS – Diluted
$
1.82
$
1.46
$
0.71
$
0.58
$0.63 to $0.65
$2.45 to $2.47
Depreciation expense
1.59
1.51
0.54
0.51
0.55
2.13
Net (gain) loss on sales
(0.88
)
(0.67
)
(0.33
)
(0.30
)
(0.31)
(1.18)
Impairment – operating assets
—
—
—
—
—
—
FFO per share – Diluted
2.53
2.30
0.92
0.79
0.87 to 0.89
3.40 to 3.42
Impairment – non-operating assets
—
—
—
—
—
—
Write-off of pursuit costs
0.01
0.01
—
—
—
0.01
Debt extinguishment and preferred
share
redemption (gains) losses
0.03
0.11
(0.01
)
0.04
—
0.03
Non-operating asset (gains) losses
—
—
—
—
—
—
Other miscellaneous items
0.01
(0.01
)
—
—
—
0.02
Normalized FFO per share – Diluted
$
2.58
$
2.41
$
0.91
$
0.83
$0.87 to $0.89
$3.46 to $3.48
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/other results (see page 11):
Nine Months Ended September
30,
Quarter Ended September
30,
2019
2018
2019
2018
Operating income
$
947,592
$
896,088
$
368,363
$
339,403
Adjustments:
Fee and asset management revenue
(360
)
(563
)
(25
)
(190
)
Property management
72,705
69,175
21,940
22,247
General and administrative
41,127
41,420
11,417
12,640
Depreciation
616,201
583,869
211,478
194,618
Net (gain) loss on sales of real
estate
properties
(269,400
)
(256,834
)
(130,565
)
(114,672
)
Impairment
—
702
—
702
Total NOI
$
1,407,865
$
1,333,857
$
482,608
$
454,748
Rental income:
Same store
$
1,857,679
$
1,798,638
$
649,712
$
628,454
Non-same store/other
159,117
126,490
35,408
24,223
Total rental income
2,016,796
1,925,128
685,120
652,677
Operating expenses:
Same store
559,793
539,070
196,520
189,582
Non-same store/other
49,138
52,201
5,992
8,347
Total operating expenses
608,931
591,271
202,512
197,929
NOI:
Same store
1,297,886
1,259,568
453,192
438,872
Non-same store/other
109,979
74,289
29,416
15,876
Total NOI
$
1,407,865
$
1,333,857
$
482,608
$
454,748
New Lease Change – The change in rent for a lease with a
new or transferring resident compared to the rent for the prior
lease of the identical apartment unit, regardless of lease term and
without concessions or discounts being applied.
Non-Same Store Properties – For annual comparisons,
primarily includes all properties acquired during 2018 and 2019,
plus any properties in lease-up and not stabilized as of January 1,
2018.
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.
Renewal Rate Achieved – The change in rent for a new
lease on an apartment unit where the lease has been renewed as
compared to the rent for the prior lease of the identical apartment
unit, regardless of lease term.
Same Store Operating
Expenses:
On-site Payroll – Includes payroll and
related expenses for on-site personnel including property managers,
leasing consultants, and maintenance staff.
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.
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.
Utilities – Represents gross expenses
prior to any recoveries under the Resident Utility Billing System
(“RUBS”). Recoveries are reflected in rental income.
Same Store Properties – For annual comparisons, primarily
includes all properties acquired or completed that are stabilized
prior to January 1, 2018, 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 Budgeted NOI – Represents budgeted 2019
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 Budgeted Capital Cost – Estimated remaining cost
for projects under development and/or developed plus all
capitalized costs incurred to date, 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, plus any estimates of costs remaining to be funded
for all projects, 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.
Transaction Accretion (Dilution) – Represents the spread
between the Acquisition Cap Rate and the Disposition Yield.
Turnover – Total residential move-outs (including
inter-property and intra-property transfers) divided by total
residential apartment units.
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.
The calculation of the Unlevered IRR does not include an
adjustment for the Company’s property management expense, general
and administrative expense or interest expense (including loan
assumption costs and other loan-related costs). 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, renovation, 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.
Weighted Average Coupons – Contractual interest rate for
each debt instrument weighted by principal balances as of September
30, 2019. In case of debt for which fair value hedges are in place,
the rate payable under the corresponding derivatives is used in
lieu of the contractual interest rate.
Weighted Average Rates – Interest expense for each debt
instrument for the nine months ended September 30, 2019 weighted by
its average principal balance for the same period. Interest expense
includes amortization of premiums, discounts and other
comprehensive income on debt and related derivative instruments. In
case of debt for which derivatives are in place, the income or
expense recognized under the corresponding derivatives is included
in the total interest expense for the period.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191022006142/en/
Equity Residential Marty McKenna, (312) 928-1901
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