Equity Residential Reports Second Quarter 2016 Results

Equity Residential (NYSE: EQR) today reported results for the quarter and six months ended June 30, 2016. All per share results are reported as available to common shares/units on a diluted basis.

“After five consecutive years of exceptional fundamentals, elevated levels of new supply and slowing growth of higher paying jobs in San Francisco and New York have created headwinds that cause us to reduce our revenue growth expectations to be more in line with long term historical trends,” said David J. Neithercut, Equity Residential’s President and CEO.

Highlights in the Quarter:

  • Increased same store revenues 4.2%, which, combined with same store expense growth of 1.7% produced an increase in same store net operating income (NOI) of 5.3%.
  • Completed the development of three apartment properties in San Francisco, consisting of 1,355 apartment units, for a total capital cost of approximately $726.9 million.
  • Started the development, for delivery in late 2018, of a 222-unit apartment property in Washington, DC, which has an estimated total capital cost of approximately $88.0 million.
  • Sold three consolidated apartment properties, consisting of 728 apartment units, for an aggregate sale price of approximately $112.5 million at a weighted average Disposition Yield of 5.7% and generating an Unlevered Internal Rate of Return (Unlevered IRR) of 9.3%.
  • Sold the Company’s entire interest in the management contracts and related rights associated with the military housing ventures at Joint Base Lewis McChord in Washington State, for approximately $63.3 million, generating a gain on sale of approximately $52.4 million.

Second Quarter 2016

Earnings Per Share (EPS) for the second quarter of 2016 was $0.59 compared to $0.78 in the second quarter of 2015. The difference is due primarily to lower gains on property sales and lower depreciation expense in the second quarter of 2016.

FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), was $0.90 per share for both the second quarter of 2016 and 2015.

Normalized FFO for the second quarter of 2016 was $0.76 per share compared to $0.85 per share in the second quarter of 2015. The following items impacted Normalized FFO per share in the quarter:

  • a positive impact of approximately $0.05 per share from increased same store NOI;
  • a positive impact of approximately $0.03 per share from NOI from non-same store properties currently in lease-up;
  • a positive impact of approximately $0.06 per share from lower total interest expense;
  • a negative impact of approximately $0.21 per share of lower NOI primarily as a result of the Company’s 2016 disposition activity; and
  • a negative impact of approximately $0.02 per share from other items, including higher general and administrative expense.

Reconciliations and definitions of FFO and Normalized FFO are provided on pages 6, 27 and 28 of this release and the Company has included guidance for Normalized FFO on page 25 and FFO and EPS on page 28 of this release.

Six Months Ended June 30, 2016

EPS for the six months ended June 30, 2016 was $10.36 compared to $1.27 for the same period of 2015. The difference is due primarily to a higher amount of property sale gains due to significantly more property sales in the first six months of 2016 and the various adjustment items listed on page 24 of this release.

FFO for the six months ended June 30, 2016 was $1.37 per share compared to $1.68 per share in the same period of 2015.

Normalized FFO for the six months ended June 30, 2016 was $1.52 per share compared to $1.64 per share for the same period of 2015.

Same Store Results

On a same store second quarter to second quarter comparison, which includes 72,781 apartment units, revenues increased 4.2%, expenses increased 1.7% and NOI increased 5.3%. Average Rental Rate increased 4.0% and occupancy increased 0.1%.

On a same store six-month to six-month comparison, which includes 72,494 apartment units, revenues increased 4.4%, expenses increased 0.9% and NOI increased 5.9%. Average Rental Rate increased 4.3% and occupancy remained flat at 96.1%.

Investment Activity

The Company acquired no properties during the second quarter of 2016 and sold the three assets discussed on the first page of this release.

During the first six months of 2016, the Company acquired three consolidated apartment properties, consisting of 479 apartment units, for an aggregate purchase price of approximately $204.1 million at a weighted average Acquisition Capitalization Rate of 4.9%. During the first six months of 2016, the Company sold 83 consolidated apartment properties, consisting of 26,890 apartment units, for an aggregate sale price of approximately $6.43 billion, generating an Unlevered IRR of 11.8%. The weighted average Disposition Yield on these sales is estimated at 5.3%.

Third Quarter 2016 Guidance

The Company has established an EPS guidance range of $0.62 to $0.66 for the third quarter of 2016. The difference between the Company’s second quarter 2016 EPS of $0.59 and the midpoint of the third quarter 2016 guidance range of $0.64 is due primarily to higher gains on property sales, lower gains on sales of non-operating assets and the items described below.

The Company has established an FFO guidance range of $0.82 to $0.86 per share for the third quarter of 2016. The difference between the Company’s second quarter 2016 FFO of $0.90 per share and the midpoint of the third quarter 2016 guidance range of $0.84 per share is due primarily to lower gains on sales of non-operating assets and the items described below.

The Company has established a Normalized FFO guidance range of $0.75 to $0.79 per share for the third quarter of 2016. The difference between the Company’s second quarter 2016 Normalized FFO of $0.76 per share and the midpoint of the third quarter 2016 guidance range of $0.77 per share is due primarily to:

  • a positive impact of approximately $0.01 per share from NOI from non-same store properties currently in lease-up;
  • a positive impact of approximately $0.01 per share from lower general and administrative expense; and
  • a negative impact of approximately $0.01 per share from lower same store NOI driven by an increase in revenues offset by a larger increase in operating expenses.

Full Year 2016 Guidance

The Company has revised its guidance for its full year 2016 same store operating performance, EPS, FFO per share, Normalized FFO per share and transactions as listed below:

Previous

Revised

Same store:
Physical occupancy 95.9% 95.9%
Revenue change 4.0% to 4.5% 3.5% to 4.0%
Expense change 2.5% to 3.0% 2.5% to 3.0%
NOI change 4.5% to 5.5% 3.75% to 4.25%
EPS $12.60 to $12.70 $11.84 to $11.90
FFO per share $2.96 to $3.06 $2.96 to $3.02
Normalized FFO per share $3.05 to $3.15 $3.05 to $3.11
Transactions:

Consolidated Rental Acquisitions

$600 million

$350 million

Consolidated Rental Dispositions

$7.4 billion $6.9 billion
Acquisition Cap Rate/Disposition Yield Spread 75 basis points 75 basis points

The change in the full year EPS guidance range is due primarily to lower gains on property sales as a result of the Company’s reduced disposition guidance and the items described below.

The change in the full year FFO per share guidance range is due primarily to the items described below.

The change in the full year Normalized FFO per share guidance range is due primarily to:

  • a negative impact of approximately $0.06 per share from lower same store NOI; and
  • a positive impact of approximately $0.01 per share of higher NOI from the amount and timing of 2016 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 26 through 29 of this release.

Third Quarter 2016 Earnings and Conference Call

Equity Residential expects to announce third quarter 2016 results on Tuesday, October 25, 2016 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, October 26, 2016.

About Equity Residential

Equity Residential is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 315 properties consisting of 79,458 apartment units. 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, July 27, 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)
Six Months Ended June 30,Quarter Ended June 30,
2016201520162015
REVENUES
Rental income $ 1,211,104 $ 1,341,114 $ 594,939 $ 676,508
Fee and asset management 3,133 4,369 215 2,604
Total revenues 1,214,237 1,345,483 595,154 679,112
EXPENSES
Property and maintenance 205,472 242,565 96,307 118,005
Real estate taxes and insurance 157,611 169,551 77,415 83,119
Property management 44,486 44,557 20,991 21,792
General and administrative 35,013 35,421 18,296 15,659
Depreciation 349,012 388,803 176,127 194,282
Total expenses 791,594 880,897 389,136 432,857
Operating income 422,643 464,586 206,018 246,255
Interest and other income 59,583 6,650 56,525 6,481
Other expenses (4,060 ) (1,700 ) (1,504 ) (1,770 )
Interest:
Expense incurred, net (299,964 ) (219,648 ) (86,472 ) (110,866 )
Amortization of deferred financing costs (7,739 ) (5,127 ) (2,345 ) (2,538 )
Income before income and other taxes, (loss) income from investments in

unconsolidated entities, net gain (loss) on sales of real estate properties and land

parcels and discontinued operations

170,463 244,761 172,222 137,562
Income and other tax (expense) benefit (763 ) (369 ) (413 ) (326 )
(Loss) income from investments in unconsolidated entities (1,904 ) 15,429 (800 ) 12,466
Net gain on sales of real estate properties 3,780,835 228,753 57,356 148,802
Net gain (loss) on sales of land parcels 11,722 (1 )
Income from continuing operations 3,960,353 488,573 228,365 298,504
Discontinued operations, net (122 ) 269 35 114
Net income 3,960,231 488,842 228,400 298,618
Net (income) attributable to Noncontrolling Interests:
Operating Partnership (152,089 ) (18,413 ) (8,780 ) (11,354 )
Partially Owned Properties (1,545 ) (1,487 ) (781 ) (844 )
Net income attributable to controlling interests 3,806,597 468,942 218,839 286,420
Preferred distributions (1,545 ) (1,724 ) (772 ) (833 )
Premium on redemption of Preferred Shares (2,789 )
Net income available to Common Shares $ 3,805,052 $ 464,429 $ 218,067 $ 285,587
Earnings per share – basic:
Income from continuing operations available to Common Shares $ 10.43 $ 1.28 $ 0.60 $ 0.79
Net income available to Common Shares $ 10.43 $ 1.28 $ 0.60 $ 0.79
Weighted average Common Shares outstanding 364,820 363,288 365,047 363,476
Earnings per share – diluted:
Income from continuing operations available to Common Shares $ 10.36 $ 1.27 $ 0.59 $ 0.78
Net income available to Common Shares $ 10.36 $ 1.27 $ 0.59 $ 0.78
Weighted average Common Shares outstanding 382,012 380,346 382,065 380,491
Distributions declared per Common Share outstanding $ 9.0075 $ 1.105 $ 0.50375 $ 0.5525
Equity Residential
Consolidated Statements of Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per share data)
(Unaudited)
Six Months Ended June 30,Quarter Ended June 30,
2016201520162015
Net income $ 3,960,231 $ 488,842 $ 228,400 $ 298,618
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties (1,545 ) (1,487 ) (781 ) (844 )
Preferred distributions (1,545 ) (1,724 ) (772 ) (833 )
Premium on redemption of Preferred Shares (2,789 )
Net income available to Common Shares and Units 3,957,141 482,842 226,847 296,941
Adjustments:
Depreciation 349,012 388,803 176,127 194,282
Depreciation – Non-real estate additions (2,635 ) (2,524 ) (1,227 ) (1,263 )
Depreciation – Partially Owned Properties (1,943 ) (2,162 ) (949 ) (1,083 )
Depreciation – Unconsolidated Properties 2,467 2,457 1,234 1,229
Net (gain) on sales of real estate properties (3,780,835 ) (228,753 ) (57,356 ) (148,802 )
Discontinued operations:
Net (gain) on sales of discontinued operations (15 )
FFO available to Common Shares and Units 523,192 640,663 344,676 341,304
Adjustments (see page 24 for additional detail):
Asset impairment and valuation allowances
Property acquisition costs and write-off of pursuit costs 4,259 (14,890 ) 1,175 (10,065 )
Debt extinguishment (gains) losses, including prepayment penalties, preferred share redemptions and non-cash convertible debt discounts 120,164 1,469 67 (4 )
(Gains) losses on sales of non-operating assets, net of income and other tax expense (benefit) (66,878 ) (800 ) (54,600 ) (2,458 )
Other miscellaneous items (897 ) (2,179 ) (959 ) (3,516 )
Normalized FFO available to Common Shares and Units $ 579,840 $ 624,263 $ 290,359 $ 325,261
FFO $ 524,737 $ 645,176 $ 345,448 $ 342,137
Preferred distributions (1,545 ) (1,724 ) (772 ) (833 )
Premium on redemption of Preferred Shares (2,789 )
FFO available to Common Shares and Units $ 523,192 $ 640,663 $ 344,676 $ 341,304
FFO per share and Unit - basic $ 1.38 $ 1.70 $ 0.91 $ 0.91
FFO per share and Unit - diluted $ 1.37 $ 1.68 $ 0.90 $ 0.90
Normalized FFO $ 581,385 $ 625,987 $ 291,131 $ 326,094
Preferred distributions (1,545 ) (1,724 ) (772 ) (833 )
Normalized FFO available to Common Shares and Units $ 579,840 $ 624,263 $ 290,359 $ 325,261
Normalized FFO per share and Unit - basic $ 1.53 $ 1.66 $ 0.77 $ 0.86
Normalized FFO per share and Unit - diluted $ 1.52 $ 1.64 $ 0.76 $ 0.85
Weighted average Common Shares and Units outstanding - basic 378,612 376,880 378,934 377,063
Weighted average Common Shares and Units outstanding - diluted 382,012 380,346 382,065 380,491
Note:See page 24 for additional detail regarding the adjustments from FFO to Normalized FFO. See pages 26 through 29 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)
June 30, 2016December 31, 2015
ASSETS
Investment in real estate
Land $ 5,835,195 $ 5,864,046
Depreciable property 18,474,391 18,037,087
Projects under development 799,947 1,122,376
Land held for development 138,221 158,843
Investment in real estate 25,247,754 25,182,352
Accumulated depreciation (5,119,342 ) (4,905,406 )
Investment in real estate, net 20,128,412 20,276,946
Real estate held for sale 2,181,135
Cash and cash equivalents 497,843 42,276
Investments in unconsolidated entities 65,952 68,101
Deposits – restricted 77,587 55,893
Escrow deposits – mortgage 61,711 56,946
Other assets 398,417 428,899
Total assets$21,229,922$23,110,196
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 4,147,999 $ 4,685,134
Notes, net 4,362,995 5,848,956
Line of credit and commercial paper 387,276
Accounts payable and accrued expenses 186,629 187,124
Accrued interest payable 58,175 85,221
Other liabilities 333,551 366,387
Security deposits 64,242 77,582
Distributions payable 191,403 209,378
Total liabilities9,344,99411,847,058
Commitments and contingencies
Redeemable Noncontrolling Interests – Operating Partnership478,324566,783
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 June 30, 2016 and December 31, 2015

37,280 37,280
Common Shares of beneficial interest, $0.01 par value;

1,000,000,000 shares authorized; 365,550,636 shares issued

and outstanding as of June 30, 2016 and 364,755,444

shares issued and outstanding as of December 31, 2015

3,656 3,648
Paid in capital 8,718,365 8,572,365
Retained earnings 2,524,788 2,009,091
Accumulated other comprehensive (loss) (123,511 ) (152,016 )
Total shareholders’ equity 11,160,578 10,470,368
Noncontrolling Interests:
Operating Partnership 241,748 221,379
Partially Owned Properties 4,278 4,608
Total Noncontrolling Interests 246,026 225,987
Total equity11,406,60410,696,355
Total liabilities and equity$21,229,922$23,110,196
Equity Residential
Portfolio Summary as of December 31, 2015 Portfolio Summary as of June 30, 2016
% of Average % of Average
Apartment Stabilized Rental Apartment Stabilized Rental
Markets/Metro Areas Properties Units NOI Rate Properties Units NOI Rate
Los Angeles 70 16,064 14.5% $ 2,209 68 15,218 17.1% $ 2,317
Orange County 12 3,684 3.1% 1,918 12 3,684 3.7% 1,966
San Diego 13 3,505 3.1% 2,097 13 3,505 3.7% 2,141
Subtotal – Southern California 95 23,253 20.7% 2,144 93 22,407 24.5% 2,229
San Francisco 52 13,212 14.9% 2,661 54 12,756 19.8% 3,020
New York 40 10,835 17.3% 3,835 40 10,632 19.0% 3,769
Washington DC 57 18,656 17.1% 2,182 47 15,637 17.2% 2,325
Boston 35 8,018 9.6% 2,632 30 7,588 11.0% 2,690
Seattle 44 8,756 7.6% 1,955 37 7,096 7.6% 2,100
South Florida 34 10,934 7.2% 1,682
Denver 19 6,935 4.6% 1,556
All Other Markets 13 2,633 1.0% 1,183 11 2,061 0.9% 1,251
Total389103,232100.0%2,30631278,177100.0%2,598
Unconsolidated Properties 3 1,281 3 1,281
Military Housing 2 5,139
Grand Total394109,652100.0%$2,30631579,458100.0%$2,598
Note: Projects under development are not included in the Portfolio Summary until construction has been completed. See pages 26 through 29 for the definitions of non-GAAP financial measures and other terms, such as Average Rental Rate and % of Stabilized NOI.
Equity Residential
Portfolio as of June 30, 2016
Properties Apartment

Units

Wholly Owned Properties 291 73,853
Master-Leased Properties - Consolidated 3 853
Partially Owned Properties - Consolidated 18 3,471
Partially Owned Properties - Unconsolidated 3 1,281
315 79,458
Portfolio Rollforward Q2 2016
($ in thousands)
Properties Apartment

Units

Sales Price Disposition

Yield

3/31/2016 317 83,992
Dispositions:
Consolidated:
Rental Properties (3 ) (728 ) $ (112,450 ) (5.7 %)
Other:
Military Housing (A) (2 ) (5,161 ) $ (63,250 )
Completed Developments - Consolidated 3 1,355
6/30/2016 315 79,458
Portfolio Rollforward 2016
($ in thousands)
Properties Apartment

Units

Purchase Price Acquisition

Cap Rate

12/31/2015 394 109,652
Acquisitions:
Consolidated:
Rental Properties – Stabilized 2 359 $ 124,461 4.9 %
Rental Properties – Not Stabilized (B) 1 120 $ 79,673 4.8 %
Sales Price Disposition

Yield

Dispositions:
Consolidated:
Rental Properties (83 ) (26,890 ) $ (6,427,403 ) (5.3 %)
Land Parcels $ (27,455 )
Other:
Military Housing (A) (2 ) (5,161 ) $ (63,250 )
Completed Developments - Consolidated 3 1,355
Configuration Changes 23
6/30/2016 315 79,458

Note: See pages 26 through 29 for the definitions of non-GAAP financial measures and other terms, such as Acquisition Cap Rate and Disposition Yield.

(A) The Company sold its entire interest in the management contracts and related rights associated with the military housing ventures at Joint Base Lewis McChord during the second quarter of 2016.
(B)

The Company acquired one property in the first quarter of 2016 which was in the final stages of completing lease-up and is expected to stabilize in its second year of ownership at a 4.8% yield on cost.

Equity Residential
Second Quarter 2016 vs. Second Quarter 2015
Same Store Results/Statistics for 72,781 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
Results Statistics

Description Revenues Expenses NOI

Average

Rental

Rate

Physical

Occupancy

Turnover
Q2 2016 $ 556,022 $ 159,569 $ 396,453 $ 2,544 96.3 % 14.8 %
Q2 2015 $ 533,482 $ 156,886 $ 376,596 $ 2,445 96.2 % 14.1 %
Change $ 22,540 $ 2,683 $ 19,857 $ 99 0.1 % 0.7 %
Change 4.2 % 1.7 % 5.3 % 4.0 %
Second Quarter 2016 vs. First Quarter 2016
Same Store Results/Statistics for 73,919 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
Results Statistics

Description Revenues Expenses NOI

Average

Rental

Rate

Physical

Occupancy

Turnover
Q2 2016 $ 565,453 $ 162,247 $ 403,206 $ 2,549 96.2 % 14.8 %
Q1 2016 $ 556,407 $ 164,996 $ 391,411 $ 2,517 95.9 % 10.8 %
Change $ 9,046 $ (2,749 ) $ 11,795 $ 32 0.3 % 4.0 %
Change 1.6 % (1.7 %) 3.0 % 1.3 %
June YTD 2016 vs. June YTD 2015
Same Store Results/Statistics for 72,494 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
Results Statistics

Description Revenues Expenses NOI

Average

Rental

Rate

Physical

Occupancy

Turnover
YTD 2016 $ 1,099,117 $ 320,884 $ 778,233 $ 2,529 96.1 % 25.5 %
YTD 2015 $ 1,053,117 $ 318,166 $ 734,951 $ 2,425 96.1 % 25.0 %
Change $ 46,000 $ 2,718 $ 43,282 $ 104 0.0 % 0.5 %
Change 4.4 % 0.9 % 5.9 % 4.3 %
Note: Same store operating expenses and same store NOI no longer include an allocation of property management expenses either in the current or comparable periods. The Company has added guidance on property management expense on page 25 of this release. See pages 26 through 29 for the definitions of non-GAAP financial measures and other terms, such as Average Rental Rate, NOI, Physical Occupancy and Turnover.
Equity Residential
Second Quarter 2016 vs. Second Quarter 2015
Same Store Results/Statistics by Market
Increase (Decrease) from Prior Year's Quarter

Markets/Metro Areas

Apartment

Units

Q2 2016

% of

Actual

NOI

Q2 2016

Average

Rental

Rate

Q2 2016

Weighted

Average

Physical

Occupancy %

Q2 2016

Turnover

Revenues Expenses NOI

Average

Rental

Rate

Physical

Occupancy

Turnover
Los Angeles 13,698 16.4% $ 2,294 96.1% 17.0% 6.0% 2.3% 7.6% 5.7% 0.2% 0.7%
San Diego 3,505 4.0% 2,141 96.5% 16.7% 6.0% 1.8% 7.6% 5.3% 0.5% (0.3%)
Orange County 3,490 3.8% 1,949 96.7% 13.9% 6.5% (0.9%) 8.9% 5.7% 0.6% (0.1%)
Subtotal – Southern California 20,693 24.2% 2,209 96.3% 16.5% 6.1% 1.8% 7.8% 5.5% 0.3% 0.5%
New York 10,007 19.2% 3,671 96.6% 11.5% 2.4% 2.0% 2.5% 2.3% (0.2%) 1.1%
Washington DC 15,475 19.0% 2,325 96.2% 13.9% 1.2% 0.9% 1.3% 0.7% 0.2% 1.2%
San Francisco 10,955 17.6% 2,857 96.2% 15.8% 7.7% 3.9% 9.0% 8.1% (0.3%) 0.9%
Boston 7,292 11.5% 2,676 96.3% 13.0% 3.0% (3.6%) 5.6% 2.9% (0.2%) 0.0%
Seattle 6,298 7.3% 2,107 95.7% 17.5% 6.0% 7.4% 5.5% 5.7% 0.3% 0.2%
All Other Markets 2,061 1.2% 1,251 96.5% 13.5% 4.8% (0.3%) 8.2% 5.0% (0.3%) (0.3%)
Total 72,781 100.0% $ 2,544 96.3% 14.8% 4.2% 1.7% 5.3% 4.0% 0.1% 0.7%
Equity Residential
Second Quarter 2016 vs. First Quarter 2016
Same Store Results/Statistics by Market
Increase (Decrease) from Prior Quarter

Markets/Metro Areas

Apartment

Units

Q2 2016

% of

Actual

NOI

Q2 2016

Average

Rental

Rate

Q2 2016

Weighted

Average

Physical

Occupancy %

Q2 2016

Turnover

Revenues Expenses NOI

Average

Rental

Rate

Physical

Occupancy

Turnover
Los Angeles 14,038 16.8% $ 2,319 96.1% 17.1% 1.7% 0.6% 2.2% 1.6% 0.0% 5.4%
Orange County 3,684 4.0% 1,966 96.4% 14.4% 2.6% (2.3%) 4.2% 1.7% 0.7% 3.8%
San Diego 3,505 3.9% 2,141 96.5% 16.7% 2.1% 0.4% 2.7% 1.2% 0.7% 2.7%
Subtotal – Southern California 21,227 24.7% 2,228 96.2% 16.6% 1.9% 0.2% 2.6% 1.5% 0.3% 4.7%
New York 10,007 18.9% 3,671 96.6% 11.5% 1.2% (4.1%) 4.1% 0.9% 0.4% 2.8%
Washington DC 15,475 18.7% 2,325 96.2% 13.9% 1.8% (1.8%) 3.3% 1.1% 0.4% 4.4%
San Francisco 11,128 17.5% 2,863 96.2% 15.9% 1.3% 0.2% 1.6% 1.3% (0.2%) 3.8%
Boston 7,494 11.6% 2,690 96.2% 12.9% 1.1% (3.2%) 2.8% 0.7% 1.1% 2.3%
Seattle 6,527 7.5% 2,103 95.6% 17.5% 3.0% 2.2% 3.3% 2.5% 0.2% 5.2%
All Other Markets 2,061 1.1% 1,251 96.5% 13.5% 2.8% (9.9%) 12.6% 2.2% 0.5% 4.4%
Total 73,919 100.0% $ 2,549 96.2% 14.8% 1.6% (1.7%) 3.0% 1.3% 0.3% 4.0%
Equity Residential
June YTD 2016 vs. June YTD 2015
Same Store Results/Statistics by Market
Increase (Decrease) from Prior Year

Markets/Metro Areas

Apartment

Units

June YTD 16

% of

Actual

NOI

June YTD 16

Average

Rental

Rate

June YTD 16

Weighted

Average

Physical

Occupancy %

June YTD 16

Turnover

Revenues Expenses NOI

Average

Rental

Rate

Physical

Occupancy

Turnover
Los Angeles 13,698 16.6% $ 2,277 96.0% 28.8% 6.2% 1.5% 8.3% 5.9% 0.2% 0.4%
San Diego 3,505 4.1% 2,128 96.1% 30.8% 5.9% 2.4% 7.3% 5.6% 0.1% (0.2%)
Orange County 3,490 3.8% 1,933 96.4% 24.2% 5.9% 0.1% 7.9% 5.7% 0.3% (0.9%)
Subtotal – Southern California 20,693 24.5% 2,193 96.1% 28.3% 6.1% 1.4% 8.1% 5.8% 0.2% 0.0%
New York 10,007 19.2% 3,656 96.4% 20.1% 2.5% 1.8% 2.8% 2.6% (0.2%) 1.1%
Washington DC 15,475 19.0% 2,313 96.0% 23.4% 1.0% (0.6%) 1.7% 0.7% 0.1% 0.8%
San Francisco 10,955 17.7% 2,838 96.3% 27.9% 8.6% 3.5% 10.3% 9.1% (0.3%) 0.6%
Boston 7,292 11.5% 2,665 95.7% 23.6% 3.0% (5.6%) 6.7% 3.0% (0.4%) 1.7%
Seattle 6,011 7.0% 2,076 95.6% 29.5% 6.1% 7.7% 5.4% 6.0% 0.0% (0.3%)
All Other Markets 2,061 1.1% 1,238 96.2% 22.6% 4.6% (6.0%) 13.4% 4.6% (0.2%) (0.7%)
Total 72,494 100.0% $ 2,529 96.1% 25.5% 4.4% 0.9% 5.9% 4.3% 0.0% 0.5%
Equity Residential
Second Quarter 2016 vs. Second Quarter 2015
Same Store Operating Expenses for 72,781 Same Store Apartment Units
$ in thousands

% of Actual
Q2 2016
Actual Actual $ % Operating
Q2 2016 Q2 2015 Change Change Expenses
Real estate taxes $ 66,655 $ 63,237 $ 3,418 5.4 % 41.8 %
On-site payroll (1) 35,667 35,401 266 0.8 % 22.3 %
Utilities (2) 21,317 22,888 (1,571 ) (6.9 %) 13.4 %
Repairs and maintenance (3) 21,798 21,010 788 3.8 % 13.7 %
Insurance 4,350 4,191 159 3.8 % 2.7 %
Leasing and advertising 2,111 2,145 (34 ) (1.6 %) 1.3 %
Other on-site operating expenses (4) 7,671 8,014 (343 ) (4.3 %) 4.8 %
Same store operating expenses $ 159,569 $ 156,886 $ 2,683 1.7 % 100.0 %
June YTD 2016 vs. June YTD 2015
Same Store Operating Expenses for 72,494 Same Store Apartment Units
$ in thousands

% of Actual
YTD 2016
Actual Actual $ % Operating
YTD 2016 YTD 2015 Change Change Expenses
Real estate taxes $ 132,938 $ 126,017 $ 6,921 5.5 % 41.4 %
On-site payroll (1) 71,975 71,752 223 0.3 % 22.4 %
Utilities (2) 45,281 49,277 (3,996 ) (8.1 %) 14.1 %
Repairs and maintenance (3) 40,924 41,402 (478 ) (1.2 %) 12.8 %
Insurance 8,673 8,354 319 3.8 % 2.7 %
Leasing and advertising 4,228 4,211 17 0.4 % 1.3 %
Other on-site operating expenses (4) 16,865 17,153 (288 ) (1.7 %) 5.3 %
Same store operating expenses $ 320,884 $ 318,166 $ 2,718 0.9 % 100.0 %
Note: Same store operating expenses no longer include an allocation of property management expenses either in the current or comparable periods. The Company has added guidance on property management expense on page 25 of this release.
(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 June 30, 2016
(Amounts in thousands)
Amounts (1) % of Total

Weighted

Average

Rates (1)

Weighted

Average

Maturities

(years)

Secured $ 4,147,999 48.7% 4.34% 6.9
Unsecured 4,362,995 51.3% 4.55% 10.6
Total $ 8,510,994 100.0% 4.45% 8.8
Fixed Rate Debt:
Secured – Conventional $ 3,505,691 41.2% 4.97% 5.4
Unsecured – Public 3,902,878 45.9% 4.99% 11.4
Fixed Rate Debt 7,408,569 87.1% 4.98% 8.6
Floating Rate Debt:
Secured – Conventional 7,894 0.1% 0.47% 16.0
Secured – Tax Exempt 634,414 7.4% 0.88% 14.8
Unsecured – Public (2) 460,117 5.4% 1.21% 3.1
Unsecured – Revolving Credit Facility 1.34% 1.8
Unsecured – Commercial Paper Program (3) 0.96%
Floating Rate Debt 1,102,425 12.9% 1.01% 10.2
Total $ 8,510,994 100.0% 4.45% 8.8
(1) Net of the effect of any derivative instruments. Weighted average rates are for the six months ended June 30, 2016.
(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) As of June 30, 2016, there was no commercial paper outstanding.
Note: The Company capitalized interest of approximately $28.4 million and $30.4 million during the six months ended June 30, 2016 and 2015, respectively. The Company capitalized interest of approximately $14.2 million and $15.1 million during the quarters ended June 30, 2016 and 2015, respectively.
Note: The Company recorded approximately $13.8 million and $3.1 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the six months ended June 30, 2016 and 2015, respectively. The Company recorded approximately $4.8 million and $2.6 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the quarters ended June 30, 2016 and 2015, respectively.
Debt Maturity Schedule as of June 30, 2016
(Amounts in thousands)

Year

Fixed

Rate (1)

Floating

Rate (1)

Total % of Total

Weighted

Average Rates

on Fixed

Rate Debt (1)

Weighted

Average

Rates on

Total Debt (1)

2016 $ 3,842 $ $ 3,842 0.1 % 4.69 % 4.69 %
2017 605,397 456 605,853 7.1 % 6.19 % 6.18 %
2018 83,695 97,660 181,355 2.1 % 5.57 % 3.58 %
2019 807,680 482,811 1,290,491 15.2 % 5.47 % 3.86 %
2020 1,679,590 809 1,680,399 19.8 % 5.49 % 5.49 %
2021 946,257 856 947,113 11.1 % 4.63 % 4.63 %
2022 266,447 905 267,352 3.2 % 3.27 % 3.26 %
2023 1,327,965 956 1,328,921 15.6 % 3.74 % 3.74 %
2024 2,498 1,010 3,508 0.0 % 4.97 % 3.67 %
2025 452,625 1,069 453,694 5.3 % 3.38 % 3.38 %
2026+ 1,271,816 582,898 1,854,714 21.8 % 4.76 % 3.41 %
Deferred Financing Costs (31,712 ) (9,645 ) (41,357 ) (0.5 %) N/A N/A
Premium/(Discount) (7,531 ) (57,360 ) (64,891 ) (0.8 %) N/A N/A
Total $ 7,408,569 $ 1,102,425 $ 8,510,994 100.0 % 4.79 % 4.26 %
(1) Net of the effect of any derivative instruments. Weighted average rates are as of June 30, 2016.

Equity Residential

Unsecured Debt Summary as of June 30, 2016
(Amounts in thousands)

Interest

Rate

Due

Date

Amount

Fixed Rate Notes:
5.750% 06/15/17 $ 394,077
7.125% 10/15/17 103,898
4.750% 07/15/20 600,000
4.625% 12/15/21 750,000
3.000% 04/15/23 500,000
3.375% 06/01/25 450,000
7.570% 08/15/26 92,025
4.500% 07/01/44 750,000
4.500% 06/01/45 300,000
Deferred Financing Costs and Unamortized (Discount) (37,122 )
3,902,878
Floating Rate Notes:
(1) 07/01/19 450,000
Fair Value Derivative Adjustments (1) 07/01/19 12,045
Deferred Financing Costs and Unamortized (Discount) (1,928 )
460,117
Line of Credit and Commercial Paper:
Revolving Credit Facility (2) (3) LIBOR+0.95% 04/01/18
Commercial Paper Program (2) (4)
Total Unsecured Debt $ 4,362,995
(1) 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%.
(2) Facility/program is private. All other unsecured debt is public.
(3) The interest rate on advances under the $2.5 billion revolving credit facility maturing April 1, 2018 will generally be LIBOR plus a spread (currently 0.95%) and an annual facility fee (currently 15 basis points). Both the spread and the facility fee are dependent on the credit rating of the Company's long-term debt. As of June 30, 2016, there was approximately $2.48 billion available on this facility (net of $24.6 million which was restricted/dedicated to support letters of credit).
(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 0.96% for the six months ended June 30, 2016. No amounts were outstanding at June 30, 2016.

Equity Residential

Selected Unsecured Public Debt Covenants
June 30, March 31,
2016 2016
Total Debt to Adjusted Total Assets (not to exceed 60%) 33.1% 33.5%
Secured Debt to Adjusted Total Assets (not to exceed 40%) 16.2% 16.5%
Consolidated Income Available for Debt Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1) 3.86 3.84
Total Unsecured Assets to Unsecured Debt 442.6% 437.0%
(must be at least 150%)
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
June 30, March 31,
2016 2016
Total debt to Normalized EBITDA 5.00x 4.87x
Net debt to Normalized EBITDA 4.67x 4.63x
Unencumbered NOI as a % of total NOI 71.0% 70.8%
Note: See page 23 for the Normalized EBITDA reconciliations.
Equity Residential
Capital Structure as of June 30, 2016
(Amounts in thousands except for share/unit and per share amounts)
Secured Debt $ 4,147,999 48.7%
Unsecured Debt 4,362,995 51.3%
Total Debt8,510,994100.0%24.5%
Common Shares (includes Restricted Shares) 365,550,636 96.1%
Units (includes OP Units and Restricted Units) 14,706,597 3.9%
Total Shares and Units 380,257,233 100.0%
Common Share Price at June 30, 2016 $ 68.88
26,192,118 99.9%
Perpetual Preferred Equity (see below) 37,280 0.1%
Total Equity26,229,398100.0%75.5%
Total Market Capitalization$34,740,392100.0%
Perpetual Preferred Equity as of June 30, 2016
(Amounts in thousands except for share and per share amounts)

Series

Redemption

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
Total Perpetual Preferred Equity 745,600 $ 37,280 $ 3,091
Equity Residential
Common Share and Unit
Weighted Average Amounts Outstanding
YTD Q2 2016 YTD Q2 2015 Q2 2016 Q2 2015
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 364,819,546 363,288,389 365,046,813 363,476,488
Shares issuable from assumed conversion/vesting of:
- OP Units 13,792,153 13,591,979 13,887,484 13,586,338
- long-term compensation shares/units 3,400,342 3,465,215 3,130,701 3,427,786
Total Common Shares and Units - diluted 382,012,041 380,345,583 382,064,998 380,490,612
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 364,819,546 363,288,389 365,046,813 363,476,488
OP Units - basic 13,792,153 13,591,979 13,887,484 13,586,338
Total Common Shares and OP Units - basic 378,611,699 376,880,368 378,934,297 377,062,826
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units 3,400,342 3,465,215 3,130,701 3,427,786
Total Common Shares and Units - diluted 382,012,041 380,345,583 382,064,998 380,490,612
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 365,550,636 364,050,890
Units (includes OP Units and Restricted Units) 14,706,597 14,466,127
Total Shares and Units 380,257,233 378,517,017
Equity Residential
Partially Owned Entities as of June 30, 2016
(Amounts in thousands except for property and apartment unit amounts)
Consolidated Unconsolidated
Total properties 18 3
Total apartment units 3,471 1,281
Operating information for the six months ended 6/30/16 (at 100%):
Operating revenue $ 46,331 $ 18,933
Operating expenses 11,319 6,685
Net operating income 35,012 12,248
Property management 1,633 421
General and administrative/other 40 166
Depreciation 10,755 8,962
Operating income 22,584 2,699
Interest and other income 37
Interest:
Expense incurred, net (7,549 ) (4,690 )
Amortization of deferred financing costs (218 )
Income (loss) before income and other taxes and (loss)
from investments in unconsolidated entities 14,854 (1,991 )
Income and other tax (expense) benefit (44 ) (13 )
(Loss) from investments in unconsolidated entities (731 )
Net income (loss) $ 14,079 $ (2,004 )
Debt - Secured (1):
EQR Ownership (2) $ 242,911 $ 34,909
Noncontrolling Ownership 75,203 139,637
Total (at 100%) $ 318,114 $ 174,546
(1) All debt is non-recourse to the Company.
(2) Represents the Company's current equity ownership interest.
Note: The above table excludes the Company's interests in unconsolidated joint ventures entered into with AvalonBay Communities, Inc. ("AVB") in connection with the acquisition of certain real estate related assets from Archstone Enterprise LP (such assets are referred to herein as "Archstone"). These ventures owned certain non-core Archstone assets and succeeded to certain residual Archstone liabilities/litigation, as well as responsibility for tax protection arrangements and third-party preferred interests in former Archstone subsidiaries. The preferred interests had an aggregate liquidation value of $42.1 million at June 30, 2016. The ventures are owned 60% by the Company and 40% by AVB.
Equity Residential
Development and Lease-Up Projects as of June 30, 2016
(Amounts in thousands except for project and apartment unit amounts)
Projects Location No. of

Apartment

Units

Total

Capital

Cost

Total

Book Value

to Date

Total Book

Value Not

Placed in

Service

Total

Debt

Percentage

Completed

Percentage

Leased

Percentage

Occupied

Estimated

Completion

Date

Estimated

Stabilization

Date

Projects Under Development:

Altitude (formerly Village at Howard Hughes) Los Angeles, CA 545 $ 193,231 $ 184,417 $ 150,579 $ 97% 11% 5% Q3 2016 Q2 2017
The Alton (formerly Millikan) Irvine, CA 344 102,331 87,595 87,595 77% Q4 2016 Q3 2017
One Henry Adams San Francisco, CA 241 172,337 128,457 128,457 69% Q1 2017 Q4 2017
455 I St Washington, DC 174 73,157 38,555 38,556 34% Q3 2017 Q2 2018
855 Brannan (formerly 801 Brannan) San Francisco, CA 449 304,035 150,923 150,923 41% Q3 2017 Q1 2019
2nd & Pine Seattle, WA 398 215,787 130,918 130,918 55% Q3 2017 Q2 2019
Cascade Seattle, WA 477 176,378 92,594 92,594 46% Q3 2017 Q2 2019
100 K Street Washington, DC 222 88,023 20,325 20,325 1% Q4 2018 Q4 2019
Projects Under Development2,8501,325,279833,784799,947

Completed Not Stabilized (1):

Azure (at Mission Bay) San Francisco, CA 273 187,390 185,094 99% 96% Completed Q3 2016
Odin (formerly Tallman) Seattle, WA 301 80,677 80,459 98% 98% Completed Q3 2016
170 Amsterdam (2) New York, NY 236 111,892 111,855 93% 92% Completed Q3 2016
Vista 99 (formerly Tasman) San Jose, CA 554 214,923 200,587 80% 76% Completed Q2 2017
Potrero 1010 San Francisco, CA 453 224,474 213,422 59% 46% Completed Q2 2017
340 Fremont (formerly Rincon Hill) San Francisco, CA 348 287,454 276,117 26% 2% Completed Q1 2018
Projects Completed Not Stabilized2,1651,106,8101,067,534

Completed and Stabilized During the Quarter:

Junction 47 (formerly West Seattle) Seattle, WA 206 68,180 66,686 98% 96% Completed Stabilized
Projects Completed and Stabilized During the Quarter20668,18066,686
Total Development Projects5,221$2,500,269$1,968,004$799,947$
Land Held for DevelopmentN/AN/A$138,221$138,221$
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS

Total Capital

Cost

Q2 2016

NOI

Projects Under Development $ 1,325,279 $ (228)
Completed Not Stabilized 1,106,810 6,858
Completed and Stabilized During the Quarter 68,180 1,072
Total Development NOI Contribution $ 2,500,269 $ 7,702
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.
(2) 170 Amsterdam - The land under this project is subject to a long term ground lease.
Equity Residential
Repairs and Maintenance Expenses and Capital Expenditures to Real Estate
For the Six Months Ended June 30, 2016
(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 72,494 $ 40,924 $ 565 $ 33,288 $ 459 $ 74,212 $ 1,024 $ 33,251 $ 459 $ 31,631 $ 436 $ 64,882 $ 895

(8)

$ 139,094 $ 1,919
Non-Same Store Properties (6) 5,683 1,871 444 1,389 330 3,260 774 2,616 621 4,604 1,092 7,220 1,713 10,480 2,487
Other (7) 2,937 3,394 6,331 1,689 659 2,348 8,679
Total 78,177 $ 45,732 $ 38,071 $ 83,803 $ 37,556 $ 36,894 $ 74,450 $ 158,253
(1) Total Apartment Units - Excludes 1,281 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 $20.7 million spent during the six months ended June 30, 2016 on apartment unit renovations/rehabs (primarily kitchens and baths) on 1,806 same store apartment units (equating to approximately $11,400 per apartment unit rehabbed) designed to reposition these assets for higher rental levels in their respective markets. In 2016, the Company expects to spend approximately $50.0 million for all unit renovation/rehab costs (primarily on same store properties) at a weighted 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 4,214 apartment units.
(7) Other - Primarily includes expenditures for properties sold and properties under development.
(8) Based on the approximately 70,000 apartment units expected to be included in same store properties by December 31, 2016, the Company estimates that it will spend approximately $2,300 per apartment unit of capital expenditures, inclusive of apartment unit renovation/rehab costs, or $1,600 per apartment unit excluding apartment unit renovation/rehab costs during 2016.
Equity Residential
Normalized EBITDA Reconciliations
(Amounts in thousands)
Normalized EBITDA Reconciliations for Page 17
Trailing Twelve Months20162015
June 30, 2016March 31, 2016Q2Q1Q4Q3Q2
Net income $ 4,379,407 $ 4,449,625 $ 228,400 $ 3,731,831 $ 213,720 $ 205,456 $ 298,618
Interest expense incurred, net 524,802 549,196 86,472 213,492 110,540 114,298 110,866
Amortization of deferred financing costs 13,413 13,606 2,345 5,394 3,067 2,607 2,538
Depreciation 726,104 744,259 176,127 172,885 181,033 196,059 194,282
Income and other tax expense (benefit) (includes discontinued operations) 1,322 1,232 416 358 219 329 326
EBITDA5,645,0485,757,918493,7604,123,960508,579518,749606,630
Property acquisition costs (other expenses) 2,242 2,244 76 1,335 804 27 78
Write-off of pursuit costs (other expenses) 4,120 4,163 1,115 1,448 886 671 1,158
Loss (income) from investments in unconsolidated entities 2,308 (10,958 ) 800 1,104 (637 ) 1,041 (12,466 )
Net (gain) on sales of land parcels (11,722 ) (11,722 ) (11,722 )
(Gain) on sale of investment securities and other investments (interest and other income) (55,295 ) (1,082 ) (54,600 ) (556 ) (139 ) (387 )
Executive compensation program duplicative costs and retirement benefit obligations 8,021 9,998 359 359 2,336 4,967 2,336
Insurance/litigation settlement or reserve income (interest and other income) (1,581 ) (6,030 ) (1,321 ) (53 ) (207 ) (5,770 )
Insurance/litigation settlement or reserve expense (other expenses) (2,149 ) (2,040 ) 3 (244 ) (1,929 ) 21 112
Other (interest and other income) (108 ) (302 ) (108 ) (194 )
Net (gain) on sales of discontinued operations (15 ) (15 ) (15 )
Net (gain) on sales of real estate properties (3,887,216 ) (3,978,662 ) (57,356 ) (3,723,479 ) (39,442 ) (66,939 ) (148,802 )
Normalized EBITDA$1,703,653$1,763,512$382,836$392,137$470,251$458,429$442,695

Balance Sheet Items:

June 30, 2016March 31, 2016
Total debt $ 8,510,994 $ 8,583,818
Cash and cash equivalents (497,843 ) (368,049 )
Mortgage principal reserves/sinking funds (54,126 ) (52,305 )
Net debt $ 7,959,025 $ 8,163,464
Equity Residential
Adjustments from FFO to Normalized FFO
(Amounts in thousands)
Six Months Ended June 30, Quarter Ended June 30,
2016 2015 Variance 2016 2015 Variance
Impairment $ $ $ $ $ $
Asset impairment and valuation allowances
Archstone indirect costs (loss (income) from investments in unconsolidated entities (A) 285 (16,718 ) 17,003 (16 ) (11,301 ) 11,285
Property acquisition costs (other expenses) 1,411 177 1,234 76 78 (2 )
Write-off of pursuit costs (other expenses) 2,563 1,651 912 1,115 1,158 (43 )
Property acquisition costs and write-off of pursuit costs 4,259 (14,890 ) 19,149 1,175 (10,065 ) 11,240
Prepayment premiums/penalties (interest expense) 112,419 112,419
Write-off of unamortized deferred financing costs (interest expense) 3,251 75 3,176 152 1 151
Write-off of unamortized (premiums)/discounts/OCI (interest expense) 4,494 (1,395 ) 5,889 (85 ) (5 ) (80 )
Premium on redemption of Preferred Shares 2,789 (2,789 )
Debt extinguishment (gains) losses, including prepayment penalties,

preferred share redemptions and non-cash convertible debt discounts

120,164 1,469 118,695 67 (4 ) 71
Net (gain) loss on sales of land parcels (11,722 ) 1 (11,723 )
Net (gain) on sales of unconsolidated entities – non-operating assets (414 ) 414 (2,071 ) 2,071
(Gain) on sale of investment securities and other investments (interest and

other income) (B)

(55,156 ) (387 ) (54,769 ) (54,600 ) (387 ) (54,213 )
(Gains) losses on sales of non-operating assets, net of income and other tax

expense (benefit)

(66,878 ) (800 ) (66,078 ) (54,600 ) (2,458 ) (52,142 )
Executive compensation program duplicative costs (C) 718 4,673 (3,955 ) 359 2,336 (1,977 )
Insurance/litigation settlement or reserve income (interest and other income) (1,374 ) (5,770 ) 4,396 (1,321 ) (5,770 ) 4,449
Insurance/litigation settlement or reserve expense (other expenses) (241 ) (888 ) 647 3 112 (109 )
Other (interest and other income) (194 ) 194 (194 ) 194
Other miscellaneous items (897 ) (2,179 ) 1,282 (959 ) (3,516 ) 2,557
Adjustments from FFO to Normalized FFO $ 56,648 $ (16,400 ) $ 73,048 $ (54,317 ) $ (16,043 ) $ (38,274 )
(A) Archstone indirect costs primarily includes the Company's 60% share of winddown costs for such items as office leases, litigation and German operations/sales that were incurred indirectly through the Company's interest in various unconsolidated joint ventures with AVB. During the six months and quarter ended June 30, 2015, the amounts also include approximately $18.6 million and $11.7 million, respectively, received related to the favorable settlement of a lawsuit.
(B) The six months and quarter ended June 30, 2016 includes a $52.4 million gain related to the sale of the Company's entire interest in the management contracts and related rights associated with the military housing ventures at Joint Base Lews McChord.
(C) Represents the accounting cost associated with the overlap of the Company's current and former performance based executive compensation programs. The Company is required to expense in 2016 and 2015 a portion of both the previous program's time based equity grants for service in 2014 or 2015 and the performance based grants issued under the current program, creating a duplicative charge. For the six months and quarter ended June 30, 2016, the entire amounts have been recorded to general and administrative expense. For the six months ended June 30, 2015, $0.7 million and $4.0 million has been recorded to property management expense and general and administrative expense, respectively. For the quarter ended June 30, 2015, $0.3 million and $2.0 million has been recorded to property management expense and general and administrative expense, respectively.
Note: See pages 26 through 29 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, property acquisition costs and the write-off of pursuit costs, are not included in the estimates provided on this page. The special dividend to be paid later in 2016 remains subject to the discretion of the Company's Board of Trustees and may vary materially due to, among other items, the amount and timing of 2016 dispositions. See pages 26 through 29 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.

2016 Normalized FFO Guidance (per share diluted)

Q3 2016

2016

Expected Normalized FFO Per Share $0.75 to $0.79 $3.05 to $3.11

2016 Same Store Assumptions (see Note below)

Physical occupancy 95.9%
Revenue change 3.50% to 4.00%
Expense change 2.50% to 3.00%
NOI change 3.75% to 4.25%
Note: The same store guidance provided above is based on the approximately 70,000 apartment units expected to be included in same store properties by December 31, 2016. Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO per share/Normalized FFO per share.

2016 Transaction Assumptions

Consolidated rental acquisitions $350.0 million
Consolidated rental dispositions $6.9 billion
Spread between Acquisition Cap Rate and Disposition Yield 75 basis points

2016 Debt Assumptions

Weighted average debt outstanding $8.9 billion to $9.2 billion
Weighted average interest rate (reduced for capitalized interest) 4.02%
Interest expense, net (on a Normalized FFO basis) $357.8 million to $369.8 million
Capitalized interest $49.0 million to $53.0 million
Note: All 2016 debt assumptions are shown on a Normalized FFO basis and therefore exclude the impact of the debt extinguishment costs/prepayment premiums/penalties shown on page 24.

2016 Other Guidance Assumptions

Property management expense $82.0 million to $84.0 million
General and administrative expense (see Note below) $58.0 million to $60.0 million
Interest and other income $3.2 million to $4.0 million
Income and other tax expense $1.0 million to $2.0 million
Debt offerings $200.0 million to $250.0 million
Equity ATM share offerings No amounts budgeted
Preferred share offerings No amounts budgeted
Special dividend paid in Q1 2016 $8.00 per share
Special dividend to be paid later in 2016 $2.00 to $4.00 per share
Regular annual dividend (paid in four equal quarterly installments) $2.015 per share
Weighted average Common Shares and Units - Diluted 382.4 million
Note: Normalized FFO guidance excludes a duplicative charge of approximately $1.4 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 include 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 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).
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 Economic Gain to net gain on sales of real estate properties in accordance with GAAP:
Six Months Ended June 30, 2016
Economic Gain Accumulated

Depreciation Gain

Net Gain on Sales

of Real Estate

Properties

Starwood sale $ 1,981,990 $ 1,179,210 $ 3,161,200
Woodland Park sale 258,896 30,442 289,338
River Tower sale 152,342 32,076 184,418
Other sales 75,509 70,370 145,879
Totals $ 2,468,737 $ 1,312,098 $ 3,780,835
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;
• property acquisition and other transaction costs related to mergers and acquisitions and 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 6 and 25 (the expected guidance/projections provided below are based on current expectations and are forward-looking):

Actual June

YTD 2016

Per Share

Actual June

YTD 2015

Per Share

Actual

Q2 2016

Per Share

Actual

Q2 2015

Per Share

Expected

Q3 2016

Per Share

Expected

2016

Per Share

EPS - Diluted $ 10.36 $ 1.27 $ 0.59 $ 0.78 $0.62 to $0.66 $11.84 to $11.90
Add: Depreciation expense 0.91 1.01 0.46 0.51 0.46 1.82
Less: Net gain on sales (9.90 ) (0.60 ) (0.15 ) (0.39 ) (0.26 ) (10.70 )
FFO per share - Diluted 1.37 1.68 0.90 0.90 0.82 to 0.86 2.96 to 3.02
Asset impairment and valuation allowances
Property acquisition costs and write-off of pursuit costs 0.01 (0.04 ) (0.03 ) 0.02

Debt extinguishment (gains) losses, including prepayment penalties, preferred share redemptions and non-cash convertible debt discounts

0.31 0.32

(Gains) losses on sales of non-operating assets, net of income and other tax expense (benefit)

(0.17 ) (0.14 ) (0.01 ) (0.07 ) (0.25 )
Other miscellaneous items (0.01 )
Normalized FFO per share - Diluted $ 1.52 $ 1.64 $ 0.76 $ 0.85 $0.75 to $0.79 $3.05 to $3.11
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.
The following tables present reconciliations of rental income, operating expenses and NOI for the June YTD 2016 and the Second Quarter 2016 Same Store Properties (see page 10) to rental income, operating expenses and NOI per the consolidated statements of operations and NOI to operating income per the consolidated statements of operations:
Six Months Ended June 30, Quarter Ended June 30,
2016 2015 2016 2015
Rental income:
Same store $ 1,099,117 $ 1,053,117 $ 556,022 $ 533,482
Non-same store 111,987 287,997 38,917 143,026
Total rental income 1,211,104 1,341,114 594,939 676,508
Operating expenses:
Same store 320,884 318,166 159,569 156,886
Non-same store 42,199 93,950 14,153 44,238
Total operating expenses 363,083 412,116 173,722 201,124
NOI:
Same store 778,233 734,951 396,453 376,596
Non-same store 69,788 194,047 24,764 98,788
Total NOI 848,021 928,998 421,217 475,384
Adjustments:
Fee and asset management revenue 3,133 4,369 215 2,604
Property management (44,486 ) (44,557 ) (20,991 ) (21,792 )
General and administrative (35,013 ) (35,421 ) (18,296 ) (15,659 )
Depreciation (349,012 ) (388,803 ) (176,127 ) (194,282 )
Operating income $ 422,643 $ 464,586 $ 206,018 $ 246,255
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 2015 and 2016, plus any properties in lease-up and not stabilized as of January 1, 2015.
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, 2015, 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 – For the June 30, 2016 Portfolio Summary, represents budgeted 2016 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. For the December 31, 2015 Portfolio Summary, represents actual 2015 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 refers to the internal rate of return calculated by the Company based on the timing and amount of (i) total revenue earned during the period owned by the Company and (ii) the gross sales price net of selling costs, offset by (iii) the undepreciated capital cost of the properties at the time of sale and (iv) total direct property operating expenses (including real estate taxes and insurance) incurred during the period owned by the Company. Each of the items (i), (ii), (iii) and (iv) 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 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.

Contacts:

Equity Residential
Marty McKenna, (312) 928-1901

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