Equity Residential Reports Third Quarter 2019 Results Revises Full Year Guidance

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.

Contacts:

Equity Residential
Marty McKenna, (312) 928-1901

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