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Equity Residential$79.13$.28.36%

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 Equity Residential Reports Third Quarter 2018 Results
   Tuesday, October 23, 2018 4:18:00 PM ET

CHICAGO--(BUSINESS WIRE)-- Equity Residential (NYSE: EQR) today reported results for the quarter and nine months ended September 30, 2018. All per share results are reported as available to common shares/units on a diluted basis. Earnings per Share (EPS) was $0.58, Funds From Operations (FFO) was $0.79 per share and Normalized FFO was $0.83 per share for the third quarter of 2018, each as described in further detail below.

“Continued strong demand and an enterprise-wide focus on customer service have produced high occupancy, record low turnover and very strong renewal rates, which should deliver 2018 same store revenue growth at the high end of our forecasts,” said David J. Neithercut, Equity Residential’s CEO. “We also expect to see continued but modest improvement in revenue growth in 2019 as a strong economy and favorable job market continue to drive demand and support absorption of new supply across our markets.”



Highlights

  • The Company revised its guidance for same store revenue growth to 2.3%, which was the top of the Company’s previous guidance range.
  • During the third quarter of 2018, the Company produced Physical Occupancy of 96.2%, new lease rate growth of 1.2% and renewal rate growth of 5.1%. The Company also produced the lowest third quarter same store turnover in its history.
  • The Company re-entered the Denver market with its purchase of two recently completed apartment properties, totaling 726 apartment units, in the Uptown neighborhood for an aggregate purchase price of approximately $275.2 million.
  • During the third quarter of 2018, the Company completed the stabilization of two of its new development properties: 855 Brannan in San Francisco and Helios in Seattle.
  • The Company was recognized for the fifth consecutive year for leadership in Environmental, Social and Governance (ESG) by the Global Real Estate Sustainability Benchmark (GRESB).

“Denver is one of the most dynamic apartment markets in the country featuring strong high-wage job growth, high single family home prices and a large and growing demographic of renters,” said Mark J. Parrell, Equity Residential’s President. “We are excited about our re-entry to the market with the acquisition of two newly completed assets in Uptown and expect to grow our Denver portfolio in the coming years.”

Third Quarter 2018

EPS for the third quarter of 2018 was $0.58 compared to $0.37 in the third quarter of 2017. The difference is due primarily to higher property sale gains in the third quarter of 2018, the various adjustment items listed on page 24 of this release and the items described below.

FFO as defined by Nareit (National Association of Real Estate Investment Trusts) was $0.79 per share for the third quarter of 2018 compared to $0.81 per share in the third quarter of 2017. The difference is due primarily to the various adjustment items listed on page 24 of this release and the items described below.

Normalized FFO for the third quarter of 2018 was $0.83 per share compared to $0.80 per share in the third quarter of 2017. The difference is due primarily to:

  • A positive impact of approximately $0.02 per share from increased same store net operating income (NOI);
  • A positive impact of approximately $0.02 per share from Lease-Up NOI; and
  • A negative impact of approximately $0.01 per share from higher total interest expense.

The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 26 through 30 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 7, 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.

Nine Months Ended September 30, 2018

EPS for the nine months ended September 30, 2018 was $1.46 compared to $1.29 in the nine months ended September 30, 2017. The difference is due primarily to higher property sale gains and higher depreciation expense in the nine months ended September 30, 2018, the various adjustment items listed on page 24 of this release and the items described below.

FFO was $2.30 per share for the nine months ended September 30, 2018 compared to $2.33 per share for the nine months ended September 30, 2017. The difference is due primarily to the various adjustment items listed on page 24 of this release and the items described below.

Normalized FFO for the nine months ended September 30, 2018 was $2.41 per share compared to $2.31 per share for the nine months ended September 30, 2017. The following items impacted Normalized FFO per share in the period:

  • A positive impact of approximately $0.05 per share from increased same store NOI;
  • A positive impact of approximately $0.09 per share from Lease-Up NOI and other non-same store NOI;
  • A negative impact of approximately $0.02 per share from higher total interest expense; and
  • A negative impact of approximately $0.02 per share from other items including higher corporate overhead (property management and general and administrative expenses).

Same Store Results

On a same store third quarter to third quarter comparison, which includes 72,561 apartment units, revenues increased 2.3%, expenses increased 3.7% and NOI increased 1.7%. Average Rental Rate increased 2.1% and Physical Occupancy was flat at 96.2%.

On a same store nine-month to nine-month comparison, which includes 71,721 apartment units, revenues increased 2.2%, expenses increased 3.4% and NOI increased 1.7%. Average Rental Rate increased 1.9% and Physical Occupancy increased 0.3% to 96.2%.

Investment Activity

During the third quarter of 2018, the Company acquired three apartment properties, including two in Denver and one in Boston, for an aggregate purchase price of approximately $507.3 million at a weighted average Acquisition Capitalization Rate of 4.4%. Also during the quarter, the Company sold a 506-unit apartment property located in New York City for approximately $416.1 million at a Disposition Yield of 3.9%, generating an Unlevered IRR of 9.8%.

During the first nine months of 2018, the Company acquired five apartment properties consisting of 1,478 apartment units for an aggregate purchase price of approximately $707.0 million at a weighted average Acquisition Capitalization Rate of 4.4%. Also during the first nine months of 2018, the Company sold five apartment properties, including the transaction described above, consisting of 1,292 apartment units, for an aggregate sale price of approximately $706.1 million at a weighted average Disposition Yield of 4.1%, generating an Unlevered IRR of 8.7%. Also during the first nine months of 2018, the Company sold a land parcel in suburban Maryland for approximately $2.7 million.

Capital Markets Activity

In accordance with the Company’s previously disclosed plans, on October 1, 2018, the Company prepaid a $500.0 million 5.19% mortgage loan with a maturity date of October 1, 2019 at par using funds from the Company’s revolving line of credit.

Fourth Quarter 2018 Guidance

The Company has established an EPS guidance range of $0.32 to $0.34 for the fourth quarter of 2018. The difference between the Company’s third quarter 2018 EPS of $0.58 and the midpoint of the fourth quarter 2018 guidance range of $0.33 is due primarily to lower expected gains on property sales, partially offset by lower expected debt extinguishment costs and the items described below.

The Company has established an FFO guidance range of $0.84 to $0.86 per share for the fourth quarter of 2018. The difference between the Company’s third quarter 2018 FFO of $0.79 per share and the midpoint of the fourth quarter 2018 guidance range of $0.85 per share is due primarily to lower expected debt extinguishment costs and the items described below.

The Company has established a Normalized FFO guidance range of $0.84 to $0.86 per share for the fourth quarter of 2018. The difference between the Company’s third quarter 2018 Normalized FFO of $0.83 per share and the midpoint of the fourth quarter 2018 guidance range of $0.85 per share is due primarily to:

  • A positive impact of approximately $0.01 per share from increased same store NOI; and
  • A positive impact of approximately $0.01 per share from lower total interest expense.

Full Year 2018 Guidance

The Company has revised its guidance for its full year 2018 same store operating performance, EPS, FFO per share, Normalized FFO per share and transactions as listed below:

  Revised   Previous
Same Store:
Physical Occupancy 96.2% 96.1%
Revenue change 2.3% 1.9% to 2.3%
Expense change 3.7% 3.5% to 4.0%
NOI change 1.7% 1.0% to 1.8%
 
EPS $1.78 to $1.80 $1.80 to $1.86
FFO per share $3.14 to $3.16 $3.10 to $3.16
Normalized FFO per share $3.25 to $3.27 $3.22 to $3.28
 
Transactions:
Consolidated rental acquisitions $707.0 million $700.0 million
Consolidated rental dispositions $706.1 million $700.0 million
Transaction accretion (dilution) (1) 30 basis points 0 to 25 basis points
 

(1) Transaction accretion (dilution) represents the spread between the Acquisition Cap Rate and the Disposition Yield.

The change in the full year EPS guidance range is due primarily to lower expected gains on property sales, higher expected depreciation expense 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 positive impact of approximately $0.01 per share from increased property NOI, primarily from same store results;
  • A positive impact of approximately $0.01 per share from lower total interest expense; and
  • A negative impact of approximately $0.01 per share from higher corporate overhead (property management and general and administrative expense).

Fourth Quarter 2018 Earnings and Conference Call

Equity Residential expects to announce its fourth quarter 2018 results on Tuesday, January 29, 2019 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, January 30, 2019.

About Equity Residential

Equity Residential is an S&P 500 company focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban markets where today’s renters want to live, work and play. Equity Residential owns or has investments in 306 properties consisting of 79,260 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, . 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 24, at 10:00 a.m. Central. Please visit the Investor section of the Company’s web site at 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,  
2018   2017 2018   2017
REVENUES
Rental income $ 1,925,128 $ 1,840,170 $ 652,677 $ 623,951
Fee and asset management   563     532     190     171  
Total revenues   1,925,691     1,840,702     652,867     624,122  
 
EXPENSES
Property and maintenance 322,487 306,645 110,541 104,721
Real estate taxes and insurance 268,784 253,318 87,388 84,087
Property management 69,175 64,702 22,247 20,861
General and administrative 41,420 40,366 12,640 12,567
Depreciation 583,869 542,964 194,618 184,100
Impairment   702         702      
Total expenses   1,286,437     1,207,995     428,136     406,336  
 
Operating income 639,254 632,707 224,731 217,786
 
Interest and other income 14,860 5,708 7,864 3,945
Other expenses (14,871 ) (3,160 ) (7,661 ) (1,028 )
Interest:
Expense incurred, net (321,454 ) (288,579 ) (111,219 ) (91,145 )
Amortization of deferred financing costs   (9,054 )   (6,447 )   (3,276 )   (2,064 )
Income before income and other taxes, income (loss) from
investments in unconsolidated entities and net gain (loss)
on sales of real estate properties and land parcels 308,735 340,229 110,439 127,494
Income and other tax (expense) benefit (767 ) (710 ) (280 ) (228 )
Income (loss) from investments in unconsolidated entities (2,993 ) (2,153 ) (985 ) (398 )
Net gain (loss) on sales of real estate properties 256,834 141,761 114,672 17,328
Net gain (loss) on sales of land parcels   995     19,170          
Net income 562,804 498,297 223,846 144,196
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership (20,517 ) (17,931 ) (8,159 ) (5,166 )
Partially Owned Properties   (1,939 )   (2,354 )   (750 )   (801 )
Net income attributable to controlling interests 540,348 478,012 214,937 138,229
Preferred distributions   (2,318 )   (2,318 )   (773 )   (772 )
Net income available to Common Shares $ 538,030   $ 475,694   $ 214,164   $ 137,457  
 
Earnings per share – basic:
Net income available to Common Shares $ 1.46   $ 1.30   $ 0.58   $ 0.37  
Weighted average Common Shares outstanding   367,920     366,809     368,028     366,996  
 
Earnings per share – diluted:
Net income available to Common Shares $ 1.46   $ 1.29   $ 0.58   $ 0.37  
Weighted average Common Shares outstanding   383,433     382,640     383,884     382,945  
 
Distributions declared per Common Share outstanding $ 1.62   $ 1.51125   $ 0.54   $ 0.50375  

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,
2018   2017 2018   2017
Net income $ 562,804 $ 498,297 $ 223,846 $ 144,196

Net (income) loss attributable to Noncontrolling Interests – Partially

Owned Properties (1,939 ) (2,354 ) (750 ) (801 )
Preferred distributions   (2,318 )   (2,318 )   (773 )   (772 )
Net income available to Common Shares and Units 558,547 493,625 222,323 142,623
 
Adjustments:
Depreciation 583,869 542,964 194,618 184,100
Depreciation – Non-real estate additions (3,397 ) (3,808 ) (1,137 ) (1,228 )
Depreciation – Partially Owned Properties (2,837 ) (2,500 ) (904 ) (834 )
Depreciation – Unconsolidated Properties 3,447 3,430 1,150 1,145

Net (gain) loss on sales of unconsolidated entities - operating

assets (68 )
Net (gain) loss on sales of real estate properties (256,834 ) (141,761 ) (114,672 ) (17,328 )
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 883,213 891,882 302,080 308,478
 
Adjustments (see page 24 for additional detail):
Impairment – non-operating assets
Write-off of pursuit costs 3,125 2,329 1,059 783

Debt extinguishment and preferred share redemption (gains)

losses 41,142 11,789 17,603 (613 )
Non-operating asset (gains) losses (255 ) (19,355 ) 223 (405 )
Other miscellaneous items   (2,608 )   (4,195 )   (1,138 )   (3,405 )
Normalized FFO available to Common Shares and Units $ 924,617   $ 882,450   $ 319,827   $ 304,838  
 
FFO $ 885,531 $ 894,200 $ 302,853 $ 309,250
Preferred distributions   (2,318 )   (2,318 )   (773 )   (772 )
FFO available to Common Shares and Units $ 883,213   $ 891,882   $ 302,080   $ 308,478  
FFO per share and Unit – basic $ 2.32   $ 2.35   $ 0.79   $ 0.81  
FFO per share and Unit – diluted $ 2.30   $ 2.33   $ 0.79   $ 0.81  
 
Normalized FFO $ 926,935 $ 884,768 $ 320,600 $ 305,610
Preferred distributions   (2,318 )   (2,318 )   (773 )   (772 )
Normalized FFO available to Common Shares and Units $ 924,617   $ 882,450   $ 319,827   $ 304,838  
Normalized FFO per share and Unit – basic $ 2.43   $ 2.32   $ 0.84   $ 0.80  
Normalized FFO per share and Unit – diluted $ 2.41   $ 2.31   $ 0.83   $ 0.80  
 
Weighted average Common Shares and Units outstanding – basic   380,791     379,716     380,912     379,906  
Weighted average Common Shares and Units outstanding – diluted   383,433     382,640     383,884     382,945  

Note: See page 24 for additional detail regarding the adjustments from FFO to Normalized FFO. See pages 26 through 30 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,
2018 2017
ASSETS
Land $ 5,866,457 $ 5,996,024
Depreciable property 20,336,747 19,768,362
Projects under development 134,961 163,547
Land held for development   87,335     98,963  
Investment in real estate 26,425,500 26,026,896
Accumulated depreciation   (6,494,770 )   (6,040,378 )
Investment in real estate, net 19,930,730 19,986,518
Investments in unconsolidated entities 57,576 58,254
Cash and cash equivalents 32,995 50,647
Restricted deposits 55,755 50,115
Other assets   465,094     425,065  
Total assets $ 20,542,150   $ 20,570,599  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 2,789,436 $ 3,618,722
Notes, net 5,534,990 5,038,812
Line of credit and commercial paper 499,367 299,757
Accounts payable and accrued expenses 182,446 114,766
Accrued interest payable 69,132 58,035
Other liabilities 344,373 341,852
Security deposits 67,177 65,009
Distributions payable   206,899     192,828  
Total liabilities   9,693,820     9,729,781  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   381,239     366,955  
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, 2018 and December 31, 2017 37,280 37,280
Common Shares of beneficial interest, $0.01 par value;
1,000,000,000 shares authorized; 368,409,586 shares issued
and outstanding as of September 30, 2018 and 368,018,082
shares issued and outstanding as of December 31, 2017 3,684 3,680
Paid in capital 8,900,324 8,886,586
Retained earnings 1,344,825 1,403,530
Accumulated other comprehensive income (loss)   (50,689 )   (88,612 )
Total shareholders’ equity 10,235,424 10,242,464
Noncontrolling Interests:
Operating Partnership 233,825 226,691
Partially Owned Properties   (2,158 )   4,708  
Total Noncontrolling Interests   231,667     231,399  
Total equity   10,467,091     10,473,863  
Total liabilities and equity $ 20,542,150   $ 20,570,599  
 

Equity Residential

Portfolio Summary

As of September 30, 2018

       
% of Average
Apartment Stabilized Rental
Markets/Metro Areas Properties Units NOI Rate
 
Los Angeles 70 15,968 18.2 % $ 2,536
Orange County 13 4,028 4.3 % 2,199
San Diego 12 3,385 3.8 %   2,348
Subtotal – Southern California 95 23,381 26.3 % 2,451
 
San Francisco 55 13,424 20.2 % 3,210
Washington DC 48 15,828 17.1 % 2,403
New York 37 9,741 15.4 % 3,857
Boston 25 6,641 10.2 % 3,065
Seattle 41 8,438 10.1 % 2,395
Denver 2 726 0.7 % 2,136
Other Markets 1 136 %   1,202
Total 304 78,315 100.0 % 2,788
 
Unconsolidated Properties 2 945    
 
Grand Total 306 79,260 100.0 % $ 2,788

Note: Projects under development are not included in the Portfolio Summary until construction has been completed.

 
Equity Residential
 
Portfolio as of September 30, 2018
   
Properties Apartment Units
 
Wholly Owned Properties 286 74,618
Master-Leased Properties - Consolidated 1 162
Partially Owned Properties - Consolidated 17 3,535
Partially Owned Properties - Unconsolidated 2 945
 
306 79,260
 

Portfolio Rollforward Q3 2018

($ in thousands)

    Properties   Apartment

Units

 

Purchase

Price

  Acquisition

Cap Rate

 
6/30/2018 304 78,645
 
Acquisitions:
Consolidated:
Rental Properties 3 1,121 $ 507,305 4.4 %
 
Sales Price Disposition

Yield

 
Dispositions:
Consolidated:
Rental Properties (1 ) (506 ) $ (416,100 ) (3.9 %)
 
9/30/2018 306   79,260  
 

Portfolio Rollforward 2018

($ in thousands)

    Properties   Apartment

Units

 

Purchase

Price

  Acquisition

Cap Rate

 
12/31/2017 305 78,611
 
Acquisitions:
Consolidated:
Rental Properties 5 1,478 $ 707,005 4.4 %
 
Sales Price Disposition

Yield

 
Dispositions:
Consolidated:
Rental Properties (5 ) (1,292 ) $ (706,120 ) (4.1 %)
Land Parcels $ (2,700 )
 
 
Completed Developments - Consolidated 1 449
Configuration Changes   14  
 
9/30/2018 306   79,260  
 

Equity Residential

 

Third Quarter 2018 vs. Third Quarter 2017

Same Store Results/Statistics for 72,561 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results   Statistics
Description Revenues   Expenses   NOI Average

Rental

Rate

  Physical

Occupancy

  Turnover
 
Q3 2018 $ 605,412 $ 182,220 $ 423,192 $ 2,779 96.2 % 16.4 %
Q3 2017 $ 591,714   $ 175,796   $ 415,918   $ 2,721   96.2 % 16.8 %
 
Change $ 13,698   $ 6,424   $ 7,274   $ 58   0.0 % (0.4 %)
 
Change 2.3 % 3.7 % 1.7 % 2.1 %
 

Third Quarter 2018 vs. Second Quarter 2018

Same Store Results/Statistics for 74,793 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results   Statistics
Description Revenues   Expenses   NOI Average

Rental

Rate

  Physical

Occupancy

  Turnover
 
Q3 2018 $ 625,030 $ 187,919 $ 437,111 $ 2,783 96.2 % 16.5 %
Q2 2018 $ 615,329   $ 182,415   $ 432,914   $ 2,745   96.2 % 13.5 %
 
Change $ 9,701   $ 5,504   $ 4,197   $ 38   0.0 % 3.0 %
 
Change 1.6 % 3.0 % 1.0 % 1.4 %
 

September YTD 2018 vs. September YTD 2017

Same Store Results/Statistics for 71,721 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results   Statistics
Description Revenues   Expenses   NOI Average

Rental

Rate

  Physical

Occupancy

  Turnover
 
YTD 2018 $ 1,767,717 $ 531,532 $ 1,236,185 $ 2,739 96.2 % 40.5 %
YTD 2017 $ 1,729,293   $ 513,836   $ 1,215,457   $ 2,687   95.9 % 42.2 %
 
Change $ 38,424   $ 17,696   $ 20,728   $ 52   0.3 % (1.7 %)
 
Change 2.2 % 3.4 % 1.7 % 1.9 %

Note: See page 29 for reconciliations from operating income.

 

Equity Residential

Third Quarter 2018 vs. Third Quarter 2017

Same Store Results/Statistics by Market

 
            Increase (Decrease) from Prior Year's Quarter
Markets/Metro Areas Apartment

Units

Q3 2018

% of

Actual

NOI

Q3 2018

Average

Rental

Rate

Q3 2018

Weighted

Average

Physical

Occupancy %

Q3 2018

Turnover

Revenues   Expenses   NOI   Average

Rental

Rate

  Physical

Occupancy

  Turnover
 
Los Angeles 14,525 18.2 % $ 2,533 96.6 % 17.1 % 3.7 % 4.7 % 3.3 % 3.6 % 0.1 % (1.1 %)
Orange County 3,684 4.2 % 2,175 96.3 % 16.1 % 3.4 % 2.3 % 3.7 % 3.6 % (0.1 %) (0.7 %)
San Diego 3,385 4.0 %   2,348 96.7 % 18.1 % 3.5 % 6.0 % 2.6 % 3.4 % 0.0 % (0.6 %)
Subtotal – Southern California 21,594 26.4 % 2,443 96.6 % 17.1 % 3.6 % 4.5 % 3.3 % 3.6 % 0.1 % (0.9 %)
 
San Francisco 12,734 20.7 % 3,149 95.7 % 16.8 % 3.3 % (0.9 %) 4.8 % 3.2 % 0.0 % (0.7 %)
Washington DC 15,492 17.7 % 2,399 96.3 % 16.8 % 0.8 % 3.7 % (0.5 %) 0.8 % 0.0 % 0.4 %
New York 9,501 16.7 % 3,865 96.8 % 12.8 % 0.8 % 6.0 % (2.2 %) 0.4 % 0.4 % (0.3 %)
Boston 6,009 9.8 % 3,041 95.6 % 18.2 % 2.7 % 2.2 % 2.9 % 2.5 % (0.2 %) (0.1 %)
Seattle 7,095 8.6 % 2,319 95.6 % 15.7 % 2.3 % 5.1 % 1.3 % 1.4 % 0.2 % (0.6 %)
Other Markets 136 0.1 % 1,202 98.5 % 12.5 % 5.5 % 4.6 % 6.0 % 4.1 % 1.4 % 2.2 %
                     
Total 72,561 100.0 % $ 2,779 96.2 % 16.4 % 2.3 % 3.7 % 1.7 % 2.1 % 0.0 % (0.4 %)
 

Equity Residential

Third Quarter 2018 vs. Second Quarter 2018

Same Store Results/Statistics by Market

 
            Increase (Decrease) from Prior Quarter
Markets/Metro Areas Apartment

Units

Q3 2018

% of

Actual

NOI

Q3 2018

Average

Rental

Rate

Q3 2018

Weighted

Average

Physical

Occupancy %

Q3 2018

Turnover

Revenues   Expenses   NOI   Average

Rental

Rate

  Physical

Occupancy

  Turnover
 
Los Angeles (1) 15,371 18.7% $2,545 96.6% 17.3% 3.2% 4.1% 2.9% 1.9% 0.6% 2.6%
Orange County 4,028 4.5% 2,199 96.2% 16.9% 1.6% (2.5%) 3.0% 1.1% 0.3% 1.6%
San Diego 3,385 3.9% 2,348 96.7% 18.1% 1.2% 7.7% (0.9%) 1.2% 0.3% 3.2%
Subtotal – Southern California 22,784 27.1% 2,454 96.6% 17.4% 2.7% 3.7% 2.3% 1.7% 0.5% 2.5%
 
San Francisco 12,975 20.6% 3,173 95.7% 16.8% 1.5% 5.8% 0.1% 2.0% (0.5%) 3.8%
Washington DC 15,666 17.4% 2,403 96.3% 16.8% 0.9% 4.3% (0.6%) 0.8% 0.0% 3.4%
New York 9,501 16.1% 3,865 96.8% 12.8% 1.4% 0.8% 1.8% 1.0% 0.1% 3.2%
Boston 6,169 9.7% 3,060 95.6% 18.2% 0.6% 3.6% (0.6%) 1.5% (0.7%) 4.5%
Seattle 7,562 9.0% 2,331 95.7% 15.7% 1.4% (0.9%) 2.3% 1.3% (0.1%) 0.2%
Other Markets 136 0.1% 1,202 98.5% 12.5% 0.8% (5.7%) 4.5% 1.3% (0.5%) (8.8%)
                     
Total 74,793 100.0% $2,783 96.2% 16.5% 1.6% 3.0% 1.0% 1.4% 0.0% 3.0%

(1) Sequential same store revenue growth in Los Angeles was positively impacted by a previously disclosed second quarter 2018 decline in non-residential income. Residential-only same store revenues in Los Angeles increased 2.5% sequentially.

 

Equity Residential

September YTD 2018 vs. September YTD 2017

Same Store Results/Statistics by Market

 
            Increase (Decrease) from Prior Year
Markets/Metro Areas Apartment

Units

Sept. YTD 18

% of

Actual

NOI

Sept. YTD 18

Average

Rental

Rate

Sept. YTD 18

Weighted

Average

Physical

Occupancy %

Sept. YTD 18

Turnover

Revenues   Expenses   NOI   Average

Rental

Rate

  Physical

Occupancy

  Turnover
 
Los Angeles (1) 14,240 17.9 % $ 2,494 96.3 % 44.0 % 3.4 % 3.8 % 3.3 % 3.4 % 0.3 % (2.3 %)
Orange County 3,684 4.2 % 2,146 96.1 % 40.3 % 3.7 % 2.3 % 4.1 % 3.9 % (0.2 %) (0.9 %)
San Diego 3,385 4.1 %   2,322 96.3 % 46.7 % 3.9 % 3.3 % 4.2 % 3.8 % (0.1 %) (3.4 %)
Subtotal – Southern California 21,309 26.2 % 2,406 96.2 % 43.8 % 3.5 % 3.5 % 3.5 % 3.5 % 0.1 % (2.2 %)
 
San Francisco 12,315 20.3 % 3,060 96.1 % 40.2 % 2.8 % (1.9 %) 4.5 % 2.4 % 0.3 % (2.1 %)
Washington DC 15,492 18.1 % 2,377 96.2 % 39.7 % 1.0 % 3.6 % (0.2 %) 0.7 % 0.3 % (0.7 %)
New York 9,501 16.8 % 3,839 96.5 % 30.9 % 0.6 % 6.0 % (2.7 %) 0.1 % 0.4 % (3.0 %)
Boston 6,009 10.0 % 3,006 95.8 % 41.0 % 2.4 % 3.9 % 1.8 % 2.2 % 0.0 % (0.9 %)
Seattle 6,959 8.5 % 2,296 95.7 % 45.6 % 3.3 % 5.2 % 2.6 % 2.9 % 0.0 % (0.4 %)
Other Markets 136 0.1 % 1,199 98.7 % 45.6 % 5.0 % 1.6 % 6.9 % 4.5 % 0.5 % 12.5 %
                     
Total 71,721 100.0 % $ 2,739 96.2 % 40.5 % 2.2 % 3.4 % 1.7 % 1.9 % 0.3 % (1.7 %)

(1) September year-to-date same store revenue growth in Los Angeles was negatively impacted by a previously disclosed second quarter 2018 decline in non-residential income. Residential-only same store revenues in Los Angeles increased 3.6% September year-to-date.

 

Equity Residential

 

Third Quarter 2018 vs. Third Quarter 2017

Same Store Operating Expenses for 72,561 Same Store Apartment Units

$ in thousands

  Actual

Q3 2018

  Actual

Q3 2017

  $

Change

  %

Change

  % of Actual

Q3 2018

Operating

Expenses

 
Real estate taxes $ 76,115 $ 73,057 $ 3,058 4.2 % 41.8 %
On-site payroll (1) 40,425 39,006 1,419 3.6 % 22.2 %
Utilities (2) 24,749 24,164 585 2.4 % 13.6 %
Repairs and maintenance (3) 24,609 23,180 1,429 6.2 % 13.5 %
Insurance 4,668 4,440 228 5.1 % 2.6 %
Leasing and advertising 2,657 2,648 9 0.3 % 1.4 %
Other on-site operating expenses (4)   8,997   9,301   (304 ) (3.3 %) 4.9 %
 
Same store operating expenses $ 182,220 $ 175,796 $ 6,424   3.7 % 100.0 %
 

September YTD 2018 vs. September YTD 2017

Same Store Operating Expenses for 71,721 Same Store Apartment Units

$ in thousands

 
  Actual

YTD 2018

  Actual

YTD 2017

  $

Change

  %

Change

  % of Actual

YTD 2018

Operating

Expenses

 
Real estate taxes $ 224,909 $ 216,000 $8,909 4.1% 42.3 %
On-site payroll (1) 116,961 114,010 2,951 2.6% 22.0 %
Utilities (2) 71,896 68,942 2,954 4.3% 13.5 %
Repairs and maintenance (3) 68,619 65,498 3,121 4.8% 12.9 %
Insurance 13,704 13,019 685 5.3% 2.6 %
Leasing and advertising 7,373 7,353 20 0.3% 1.4 %
Other on-site operating expenses (4)   28,070   29,014 (944 ) (3.3%) 5.3 %
 
Same store operating expenses $ 531,532 $ 513,836 $17,696   3.4% 100.0 %
(1)   On-site payroll - Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff.
(2) Utilities - Represents gross expenses prior to any recoveries under the Resident Utility Billing System ("RUBS"). Recoveries are reflected in rental income.
(3) Repairs and maintenance - Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair and maintenance costs.
(4) Other on-site operating expenses - Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees.
 

Equity Residential

 

Debt Summary as of September 30, 2018

($ in thousands)

  Amounts (1)   % of Total   Weighted

Average

Rates (1)

  Weighted

Average

Maturities

(years)

 
Secured $ 2,789,436 31.6 % 4.19 % 5.4
Unsecured   6,034,357 68.4 % 4.12 % 9.5
 
Total $ 8,823,793 100.0 % 4.14 % 8.2
Fixed Rate Debt:
Secured – Conventional $ 2,386,165 27.0 % 4.66 % 3.8
Unsecured – Public   5,088,560 57.7 % 4.39 % 11.2
 
Fixed Rate Debt   7,474,725 84.7 % 4.48 % 8.9
 
Floating Rate Debt:
Secured – Conventional 6,554 0.1 % 1.82 % 6.4
Secured – Tax Exempt 396,717 4.5 % 2.09 % 13.6
Unsecured – Public (2) 446,430 5.1 % 2.76 % 0.7
Unsecured – Revolving Credit Facility (3) 2.65 % 3.2
Unsecured – Commercial Paper Program (4)   499,367 5.6 % 2.23 %
 
Floating Rate Debt   1,349,068 15.3 % 2.35 % 4.6
 
Total $ 8,823,793 100.0 % 4.14 % 8.2
(1)   Net of the effect of any derivative instruments. Weighted average rates are for the nine months ended September 30, 2018.
(2) Fair value interest rate swaps convert the $450.0 million 2.375% notes due July 1, 2019 to a floating interest rate of 90-Day LIBOR plus 0.61%.
(3) The Company’s $2.0 billion unsecured revolving credit facility matures January 10, 2022. The interest rate on advances under the credit facility will generally be LIBOR plus a spread (currently 0.825%), or based on bids received from the lending group, and an annual facility fee (currently 12.5 basis points). Both the spread and the facility fee are dependent on the credit rating of the Company’s long-term debt. As of September 30, 2018, there was approximately $1.49 billion available on the Company’s unsecured revolving credit facility (net of $6.7 million which was restricted/dedicated to support letters of credit and net of $500.0 million in principal outstanding on the commercial paper program).
(4) The Company may borrow up to a maximum of $500.0 million on the commercial paper program subject to market conditions. The notes bear interest at various floating rates with a weighted average of 2.23% for the nine months ended September 30, 2018 and a weighted average maturity of 18 days as of September 30, 2018.

Note: The Company capitalized interest of approximately $4.5 million and $23.2 million during the nine months ended September 30, 2018 and 2017, respectively. The Company capitalized interest of approximately $1.6 million and $6.6 million during the quarters ended September 30, 2018 and 2017, respectively.

 

Equity Residential

Debt Maturity Schedule as of September 30, 2018

($ 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)

 
 
2018 $ 1,493 $ 450,200 (2) $ 451,693 5.1 % 4.01 % 2.39 %
2019 506,731 (3) 517,412 (2) 1,024,143 11.5 % 5.17 % 4.02 %
2020 1,128,592 (4) 700 1,129,292 12.7 % 5.20 % 5.20 %
2021 927,506 600 928,106 10.4 % 4.64 % 4.64 %
2022 265,341 800 266,141 3.0 % 3.26 % 3.26 %
2023 1,326,800 4,800 1,331,600 14.9 % 3.74 % 3.73 %
2024 1,272 10,900 12,172 0.1 % 4.79 % 1.98 %
2025 451,334 13,200 464,534 5.2 % 3.38 % 3.33 %
2026 593,424 14,500 607,924 6.8 % 3.59 % 3.54 %
2027 401,468 15,600 417,068 4.7 % 3.26 % 3.19 %
2028+   1,924,969     359,065     2,284,034   25.6 % 4.17 % 3.76 %
Subtotal 7,528,930 1,387,777 8,916,707 100.0 % 4.23 % 3.91 %
Deferred Financing Costs and Unamortized (Discount)   (54,205 )   (38,709 )   (92,914 ) N/A   N/A   N/A  
 
Total $ 7,474,725   $ 1,349,068   $ 8,823,793   100.0 % 4.23 % 3.91 %
(1)   Net of the effect of any derivative instruments. Weighted average rates are as of September 30, 2018.
(2) Includes $500.0 million in principal outstanding on the Company's commercial paper program, of which $450.0 million matures in 2018 and $50.0 million matures in 2019.
(3) Includes a $500.0 million 5.19% mortgage loan with a maturity date of October 1, 2019 that was repaid at par on October 1, 2018.
(4) Includes a $500.0 million 5.78% mortgage loan with a maturity date of July 1, 2020 that can be prepaid at par beginning July 1, 2019.
 

Equity Residential

 

Selected Unsecured Public Debt Covenants

   
September 30, June 30,
2018 2018
Total Debt to Adjusted Total Assets (not to exceed 60%) 33.5% 33.7%
 
Secured Debt to Adjusted Total Assets (not to exceed 40%) 10.6% 11.1%
 
Consolidated Income Available for Debt Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1) 4.46 4.40
 
Total Unsecured Assets to Unsecured Debt
(must be at least 150%) 362.9% 362.3%

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

 
  September 30,   June 30,
2018 2018
Total debt to Normalized EBITDAre 5.36x 5.39x
 
Net debt to Normalized EBITDAre 5.34x 5.36x
 
Unencumbered NOI as a % of total NOI 79.8% 78.9%

Note: See page 23 for the Normalized EBITDAre reconciliations.

 

Equity Residential

 

Capital Structure as of September 30, 2018

(Amounts in thousands except for share/unit and per share amounts)

 
Secured Debt           $ 2,789,436       31.6 %    
Unsecured Debt   6,034,357     68.4 %
 
Total Debt 8,823,793 100.0 % 25.8 %
 
Common Shares (includes Restricted Shares) 368,409,586 96.3 %
Units (includes OP Units and Restricted Units)   14,023,002     3.7 %
 
Total Shares and Units 382,432,588 100.0 %
Common Share Price at September 30, 2018 $ 66.26  
25,339,983 99.9 %
Perpetual Preferred Equity (see below)   37,280     0.1 %
 
Total Equity 25,377,263 100.0 % 74.2 %
 
Total Market Capitalization $ 34,201,056 100.0 %
 

Perpetual Preferred Equity as of September 30, 2018

(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 2018   Sept. YTD 2017   Q3 2018   Q3 2017
 
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 367,920,066 366,808,624 368,027,460 366,996,226
Shares issuable from assumed conversion/vesting of:
- OP Units 12,870,672 12,907,381 12,884,106 12,910,146
- long-term compensation shares/units 2,642,057 2,924,290 2,972,021 3,038,141
 
Total Common Shares and Units - diluted 383,432,795 382,640,295 383,883,587 382,944,513
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 367,920,066 366,808,624 368,027,460 366,996,226
OP Units - basic 12,870,672 12,907,381 12,884,106 12,910,146
 
Total Common Shares and OP Units - basic 380,790,738 379,716,005 380,911,566 379,906,372
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units 2,642,057 2,924,290 2,972,021 3,038,141
 
Total Common Shares and Units - diluted 383,432,795 382,640,295 383,883,587 382,944,513
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 368,409,586 367,462,480
Units (includes OP Units and Restricted Units) 14,023,002 13,809,987
 
Total Shares and Units 382,432,588 381,272,467
 

Equity Residential

Development and Lease-Up Projects as of September 30, 2018

(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
 

100K Apartments Washington, DC 222 $88,023 $81,352 $48,738 $— 94% Q3 2018 Q4 2018 Q4 2019 19% 10%
1401 E. Madison Seattle, WA 137 62,352 29,384 29,384 30% Q2 2019 Q3 2019 Q1 2020
249 Third Street Cambridge, MA 84 51,447 20,458 20,458 19% Q3 2019 Q4 2019 Q2 2020
West End Tower Boston, MA 469 409,749 36,381 36,381 3% Q2 2021 Q3 2021 Q1 2023
         
Projects Under Development 912 611,571 167,575 134,961
 

Cascade Seattle, WA 477 175,378 171,748 Q4 2017 Q4 2018 96% 95%
         
Projects Completed Not Stabilized 477 175,378 171,748
 

855 Brannan San Francisco, CA 449 322,235 318,816 Q1 2018 Q3 2018 96% 95%
Helios (formerly 2nd & Pine) Seattle, WA 398 225,287 225,021 Q3 2017 Q3 2018 96% 94%
         
Projects Completed and Stabilized During the Quarter 847 547,522 543,837
 
Total Development Projects 2,236 $1,334,471 $883,160 $134,961 $—
 
Land Held for Development N/A N/A $87,335 $87,335 $—
 
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS Total

Budgeted

Capital

Cost

Q3 2018

NOI

Projects Under Development $611,571 $(168)
Completed Not Stabilized 175,378 2,071
Completed and Stabilized During the Quarter 547,522 5,876
Total Development NOI Contribution $1,334,471 $7,779

Note: All development projects are wholly owned by the Company.

(A) Properties included here are substantially complete. However, they may still require additional exterior and interior work for all apartment units to be available for leasing.

 

Equity Residential

Capital Expenditures to Real Estate

For the Nine Months Ended September 30, 2018

(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 (1)   71,721     6,594     78,315  
 
Building Improvements $ 69,956 $ 2,328 $ 72,284 $ 976
 
Renovation Expenditures (2) 30,079 1,183 31,262 419
 
Replacements 33,648 925 34,573 469
             
Total Capital Expenditures $ 133,683   $ 4,436   $ 138,119   $ 1,864
(1)   Total Apartment Units - Excludes 945 unconsolidated apartment units for which capital expenditures to real estate are self-funded and do not consolidate into the Company's results.
(2) Renovation Expenditures on 2,195 same store apartment units for the nine months ended September 30, 2018 approximated $13,700 per apartment unit renovated.
 

Equity Residential

Normalized EBITDAre Reconciliations

(Amounts in thousands)

 

Normalized EBITDAre Reconciliations for Page 18

 
  Trailing Twelve Months   2018   2017
September 30, 2018   June 30, 2018 Q3   Q2     Q1   Q4   Q3  
Net income $ 692,888 $ 613,238 $ 223,846 $ 118,410 $ 220,548 $ 130,084 $ 144,196
Interest expense incurred, net 416,765 396,691 111,219 94,131 116,104 95,311 91,145
Amortization of deferred financing costs 11,133 9,921 3,276 2,099 3,679 2,079 2,064
Amortization of above/below market lease intangibles 4,393 4,307 1,098 1,098 1,098 1,099 1,012
Depreciation 784,654 774,136 194,618 192,942 196,309 200,785 184,100
Income and other tax expense (benefit) 535 483 280 274 213 (232 ) 228
                                         
EBITDA 1,910,368 1,798,776 534,337 408,954 537,951 429,126 422,745
 
Net (gain) loss on sales of real estate properties (272,130 ) (174,786 ) (114,672 ) 51 (142,213 ) (15,296 ) (17,328 )
Impairment – operating assets 702 702
                                         
EBITDAre 1,638,940 1,623,990 420,367 409,005 395,738 413,830 405,417
 
Impairment – non-operating assets 1,693 1,693 1,693
Write-off of pursuit costs (other expenses) 3,902 3,626 1,059 1,135 931 777 783
(Income) loss from investments in unconsolidated entities 4,210 3,623 985 1,031 977 1,217 398
Net (gain) loss on sales of land parcels (992 ) (992 ) (995 ) 3
Insurance/litigation settlement or reserve income (interest and other income) (13,423 ) (9,523 ) (7,400 ) (528 ) (5,358 ) (137 ) (3,500 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 7,088 2,886 4,202 963 1,923
Advocacy contributions (other expenses) 3,735 1,643 2,092 1,278 365
Other 816 943 (32 ) 56 (169 ) 961 95
                                         
Normalized EBITDAre $ 1,645,969   $ 1,627,889   $ 421,273   $ 411,945   $ 394,407   $ 418,344   $ 403,193  
 

September 30, 2018 June 30, 2018
Total debt $ 8,823,793 $ 8,772,769
Cash and cash equivalents (32,995 ) (34,507 )
Mortgage principal reserves/sinking funds   (8,363 )   (6,544 )
Net debt $ 8,782,435   $ 8,731,718  

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,
2018   2017   Variance 2018   2017   Variance
 
Impairment – non-operating assets $   $   $   $   $   $  
 
Write-off of pursuit costs (other expenses)   3,125     2,329     796     1,059     783     276  
 
Prepayment premiums/penalties (interest expense) 22,110 12,258 9,852
Write-off of unamortized deferred financing costs (interest expense) 2,764 251 2,513 1,184 8 1,176
Write-off of unamortized (premiums)/discounts/OCI (interest expense)   16,268     (720 )   16,988     16,419     (621 )   17,040  
Debt extinguishment and preferred share redemption (gains) losses   41,142     11,789     29,353     17,603     (613 )   18,216  
 
Net (gain) loss on sales of land parcels (995 ) (19,170 ) 18,175
Net (gain) loss on sales of unconsolidated entities - non-operating assets (205 ) 205 (205 ) 205
(Income) loss from investments in unconsolidated entities - non-operating assets   740     20     720     223     (200 )   423  
Non-operating asset (gains) losses   (255 )   (19,355 )   19,100     223     (405 )   628  
 
Insurance/litigation settlement or reserve income (interest and other income) (13,286 ) (4,716 ) (8,570 ) (7,400 ) (3,500 ) (3,900 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 7,088 237 6,851 4,202 4,202
Advocacy contributions (other expenses) 3,735 3,735 2,092 2,092
Other   (145 )   284     (429 )   (32 )   95     (127 )
Other miscellaneous items   (2,608 )   (4,195 )   1,587     (1,138 )   (3,405 )   2,267  
 
Adjustments from FFO to Normalized FFO $ 41,404   $ (9,432 ) $ 50,836   $ 17,747   $ (3,640 ) $ 21,387  

Note: See pages 26 through 30 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 26 through 30 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 2018  

Revised Full Year 2018

 

Previous Full Year 2018

 
Expected Normalized FFO Per Share $0.84 to $0.86 $3.25 to $3.27 $3.22 to $3.28
 

 
Physical Occupancy 96.2% 96.1%
Revenue change 2.3% 1.9% to 2.3%
Expense change 3.7% 3.5% to 4.0%
NOI change (1) 1.7% 1.0% to 1.8%
 

 
Consolidated rental acquisitions $707.0M $700.0M
Consolidated rental dispositions $706.1M $700.0M
Transaction accretion (dilution) (2) 30 basis points 0 to 25 basis points
 

 
Weighted average debt outstanding $8.8B to $8.9B $8.8B to $9.0B
Weighted average interest rate (reduced for capitalized interest) 4.25% 4.27%
Interest expense, net (on a Normalized FFO basis) $374.0M to $378.3M $375.8M to $384.3M
Capitalized interest $6.0M $6.0M to $7.0M
 

 

Per Same Store

Apartment Unit

Total Capital Expenditures to Real Estate (4) $2,800 $200.0M $210.0M
 

 
Property management expense $91.5M $89.5M to $91.5M
General and administrative expense $54.0M $52.0M to $54.0M
Interest and other income $1.5M $1.5M
Income and other tax expense $1.0M $1.0M
Debt offerings $800.0M to $1.0B $800.0M to $1.0B
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 383.5M 383.4M
(1)   Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO per share/Normalized FFO per share.
(2) Transaction accretion (dilution) represents the spread between the Acquisition Cap Rate and the Disposition Yield.
(3) All 2018 debt assumptions are shown on a Normalized FFO basis and therefore exclude an approximately $41.3 million impact from anticipated debt extinguishment costs/prepayment penalties in connection with all debt repayment activities in 2018, of which $22.1 million represents cash prepayment penalties and $19.2 million represents non-cash write-offs of unamortized debt discounts and deferred financing costs.
(4) During 2018, the Company expects to spend approximately $41.0 million for apartment unit Renovation Expenditures on approximately 3,000 same store apartment units at an average cost of approximately $13,700 per apartment unit renovated, which is included in the Total Capital Expenditures to Real Estate amounts 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 Information includes certain non-GAAP financial measures and other terms that management believes are helpful in understanding our business. The definitions and calculations of these non-GAAP financial measures and other terms may differ from the definitions and methodologies used by other REITs and, accordingly, may not be comparable. These non-GAAP financial measures should not be considered as an alternative to net earnings or any other 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.

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 Covenant Compliance – Our unsecured debt includes certain financial and operating covenants including, among other things, maintenance of certain financial ratios. These provisions are contained in the indentures applicable to each notes payable or the credit agreement for our line of credit. The Debt Covenant Compliance ratios that are provided show the Company's compliance with certain covenants governing our public unsecured debt. These covenants generally reflect our most restrictive financial covenants. The Company was in compliance with its unsecured debt covenants for all years presented (the ratios should not be used for any other purpose, including without limitation, to evaluate the Company's financial condition or results of operations, nor do they indicate the Company's covenant compliance as of any other date or for any other period).

Development Yield – NOI that the Company anticipates receiving in the next 12 months following stabilization less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $50-$150 per apartment unit depending on the type of asset) divided by the Total 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 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.

 
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)

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 – Economic Gain 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 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:

  Nine Months Ended September 30, 2018     Quarter Ended September 30, 2018  
 
Net Gain (Loss) on Sales of Real Estate Properties $ 256,834 $ 114,672
Accumulated Depreciation Gain   (100,655 )   (37,015 )
 
Economic Gain $ 156,179   $ 77,657  

Funds From Operations (“FFO”) Nareit defines FFO (April 2002 White Paper) as net income (computed in accordance with GAAP), excluding gains (or losses) from sales and impairment write-downs of depreciated operating properties, plus depreciation and amortization expense, 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 sales of depreciated operating properties 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;
  • 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 24 (the expected guidance/projections provided below are based on current expectations and are forward-looking):

  Actual Sept.   Actual Sept.   Actual   Actual   Expected     Expected
YTD 2018 YTD 2017 Q3 2018 Q3 2017 Q4 2018 2018
Per Share   Per Share   Per Share   Per Share   Per Share   Per Share
EPS – Diluted $ 1.46 $ 1.29 $ 0.58 $ 0.37 $0.32 to $0.34 $1.78 to $1.80
Add: Depreciation expense 1.51 1.41 0.51 0.48 0.52 2.03
Less: Net (gain) loss on sales (0.67 ) (0.37 ) (0.30 ) (0.04 ) (0.67)
Add: Impairment – operating assets                  
 
FFO per share – Diluted 2.30 2.33 0.79 0.81 0.84 to 0.86 3.14 to 3.16
 
Impairment – non-operating assets
Write-off of pursuit costs 0.01 0.01 0.01

Debt extinguishment and preferred share

redemption (gains) losses

0.11

0.03

0.04

0.11

Non-operating asset (gains) losses (0.05 )
Other miscellaneous items   (0.01 )   (0.01 )       (0.01 )   (0.01)
 
Normalized FFO per share – Diluted $ 2.41   $ 2.31   $ 0.83   $ 0.80   $0.84 to $0.86   $3.25 to $3.27

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,
2018   2017 2018   2017
Operating income $ 639,254 $ 632,707 $ 224,731 $ 217,786
Adjustments:
Fee and asset management revenue (563 ) (532 ) (190 ) (171 )
Property management 69,175 64,702 22,247 20,861
General and administrative 41,420 40,366 12,640 12,567
Depreciation 583,869 542,964 194,618 184,100
Impairment   702         702      
Total NOI $ 1,333,857   $ 1,280,207   $ 454,748   $ 435,143  
Rental income:
Same store $ 1,767,717 $ 1,729,293 $ 605,412 $ 591,714
Non-same store/other   157,411     110,877     47,265     32,237  
Total rental income 1,925,128 1,840,170 652,677 623,951
Operating expenses:
Same store 531,532 513,836 182,220 175,796
Non-same store/other   59,739     46,127     15,709     13,012  
Total operating expenses 591,271 559,963 197,929 188,808
NOI:
Same store 1,236,185 1,215,457 423,192 415,918
Non-same store/other   97,672     64,750     31,556     19,225  
Total NOI $ 1,333,857   $ 1,280,207   $ 454,748   $ 435,143  

Non-Same Store Properties – For annual comparisons, primarily includes all properties acquired during 2017 and 2018, plus any properties in lease-up and not stabilized as of January 1, 2017.

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, 2017, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.

% of Stabilized NOI – Represents budgeted 2018 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 cost for projects under development and/or developed and 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.

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 general and administrative expense, interest expense (including loan assumption costs and other loan-related costs) or property management expense. Therefore, the Unlevered IRR is not a substitute for net income as a measure of our performance. Management believes that the Unlevered IRR achieved during the period a property is owned by the Company is useful because it is one indication of the gross value created by the Company’s acquisition, development, 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.

Equity Residential
Marty McKenna, (312) 928-1901

Source: Equity Residential



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