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Equity Residential$78.64($.21)(.27%)

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 Equity Residential Reports Full Year 2018 Results
   Tuesday, January 29, 2019 4:19:00 PM ET

Provides Outlook for 2019

CHICAGO--(BUSINESS WIRE)-- Equity Residential (NYSE: EQR) today reported results for the quarter and year ended December 31, 2018. All per share results are reported as available to common shares/units on a diluted basis. Earnings Per Share (EPS), Funds From Operations (FFO) per share and Normalized FFO per share for the fourth quarter and full years of 2018 and 2017 are detailed below.

  Quarter Ended December 31,     Year Ended December 31,
2018   2017 2018   2017
EPS $ 0.31 $ 0.34 $ 1.77 $ 1.63
FFO per share $ 0.84 $ 0.82 $ 3.14 $ 3.15
Normalized FFO per share $ 0.84 $ 0.83 $ 3.25 $ 3.13
 


“We are pleased to have delivered same store revenue growth at the top end of our original guidance range and solid Normalized FFO growth in 2018. We saw a modest acceleration in our same store revenue results in the fourth quarter of 2018 and expect that to continue into 2019. Our outlook for 2019 is based on an expectation that continued economic growth will create the demand to absorb the elevated levels of new supply in many of our markets,” said Mark J. Parrell, Equity Residential’s President and CEO.

“Our markets continue to be attractive places for employers to locate and expand their businesses to draw on a diverse and talented pool of workers, resulting in strong demand for our product,” Mr. Parrell continued. “We expect that our outstanding people and well-positioned portfolio will deliver a superior customer experience to our residents and excellent risk adjusted returns to our shareholders.”

Highlights

  • The Company produced same store revenue growth of 2.3% for the full year 2018, with Physical Occupancy of 96.2% and renewal rate growth of 4.9%. The Company also produced the highest resident retention in its history.
  • The Company produced same store revenue growth of 2.6% in the fourth quarter of 2018 with Physical Occupancy of 96.2% and renewal rate growth of 5.2%.
  • During the fourth quarter of 2018, the Company completed the development of its 100K property in Washington, D.C. and completed the stabilization of its Cascade development property in Seattle.
  • During the fourth quarter of 2018, the Company issued $400.0 million of 10-year unsecured notes at a coupon of 4.15%. These were issued as “green” bonds and are the first green bond issuance from an apartment REIT.

Fourth Quarter 2018

EPS for the fourth quarter of 2018 was $0.31 compared to $0.34 in the fourth quarter of 2017. The difference is due primarily to lower property sale gains in the fourth 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 $0.84 per share for the fourth quarter of 2018 compared to $0.82 per share in the fourth 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 fourth quarter of 2018 was $0.84 per share compared to $0.83 per share in the fourth 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 $0.01 per share from Lease-Up NOI offset by a negative impact of approximately $0.01 per share from other non-same store NOI primarily driven by the casualty losses described below;
  • A positive impact of approximately $0.01 per share from lower total interest expense;
  • A negative impact of approximately $0.01 per share from lower NOI as a result of the Company’s 2018 and 2017 transaction activity; and
  • A negative impact of approximately $0.01 per share from higher corporate overhead (property management and general and administrative expenses).

The Company’s fourth quarter 2018 financial results had a negative impact of approximately $0.01 per share primarily from certain casualty losses driven by rainstorm damage to assets in its Washington, D.C. area portfolio.

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 2019 Normalized FFO per share on page 25 and 2019 FFO per share and 2019 EPS on page 28 of this release.

Year Ended December 31, 2018

EPS for the year ended December 31, 2018 was $1.77 compared to $1.63 in the year ended December 31, 2017. The difference is due primarily to higher property sale gains offset by higher depreciation expense in the year ended December 31, 2018, the various adjustment items listed on page 24 of this release and the items described below.

FFO was $3.14 per share for the year ended December 31, 2018 compared to $3.15 per share in the year ended December 31, 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 year ended December 31, 2018 was $3.25 per share compared to $3.13 per share in the year ended December 31, 2017. The difference is due primarily to:

  • A positive impact of approximately $0.07 per share from increased same store NOI;
  • A positive impact of approximately $0.10 per share from Lease-Up NOI and other non-same store NOI;
  • A negative impact of approximately $0.01 per share from lower NOI as a result of the Company’s 2018 and 2017 transaction activity;
  • A negative impact of approximately $0.01 per share from higher total interest expense; and
  • A negative impact of approximately $0.03 per share from other items including higher corporate overhead (property management and general and administrative expenses).

The Company’s full year 2018 financial results had a negative impact of approximately $0.01 per share primarily from certain casualty losses driven by rainstorm damage to assets in its Washington, D.C. area portfolio.

Same Store Results

The following table provides the increases for same store results/statistics for the fourth quarter 2018 to fourth quarter 2017 comparison, which includes 73,992 apartment units, and for the full year 2018 to full year 2017 comparison, which includes 71,721 apartment units. The Company’s Physical Occupancy was 96.2% for both the fourth quarter of 2018 and the full year of 2018.

  Fourth Quarter 2018 vs.     Full Year 2018 vs.
Fourth Quarter 2017   Full Year 2017
Revenues 2.6% 2.3%
Expenses 4.2% 3.6%
NOI 1.9% 1.7%
Average Rental Rate 2.5% 2.0%
 

Investment Activity

The Company did not acquire or sell any apartment properties during the fourth quarter of 2018.

During the full year 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%. During the full year 2018, the Company sold five apartment properties 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%. During 2018, the Company sold a land parcel in suburban Maryland for approximately $2.7 million.

In January 2019, the Company acquired three apartment properties consisting of 579 apartment units for an aggregate purchase price of approximately $258.7 million at a weighted average Acquisition Capitalization Rate of 4.6%. The properties are located in Denver, Seattle and Jersey City, New Jersey.

Capital Markets Activity

On November 30, 2018, the Company issued $400.0 million of 10-year unsecured notes at a coupon of 4.15%. After the effect of the termination of certain interest rate hedges, underwriters’ fees and other costs associated with the offering, the all-in effective rate of the notes is approximately 3.85%. These notes were issued as “green” bonds and as a result, the Company will allocate an amount equal to the net proceeds of approximately $396.7 million from this issuance to one or more eligible green projects, such as its recently developed 855 Brannan community in San Francisco, which received LEED Home Platinum certification.

First Quarter 2019 Guidance

The Company has established guidance ranges for the first quarter of 2019 EPS, FFO per share and Normalized FFO per share as listed below:

  Q1 2019
Guidance
EPS $0.25 to $0.29
FFO per share $0.77 to $0.81
Normalized FFO per share $0.78 to $0.82
 

The difference between the fourth quarter 2018 EPS of $0.31 and the first quarter 2019 guidance midpoint of $0.27 is due primarily to the items described below.

The difference between the fourth quarter 2018 FFO of $0.84 per share and the first quarter 2019 guidance midpoint of $0.79 per share is due primarily to the items described below.

The difference between the fourth quarter 2018 Normalized FFO of $0.84 per share and the first quarter 2019 guidance midpoint of $0.80 per share is due primarily to:

  • A positive impact of approximately $0.01 per share from higher NOI as a result of the Company’s 2019 and 2018 transaction activity;
  • A negative impact of approximately $0.02 per share from lower same store NOI;
  • A negative impact of approximately $0.01 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).

Full Year 2019 Guidance

The Company is providing guidance for its full year 2019 same store operating performance, EPS, FFO per share, Normalized FFO per share, transactions and debt offerings as listed below:

Same Store:  
Physical Occupancy 96.2%
Revenue change 2.2% to 3.2%
Expense change 3.5% to 4.5%
NOI change 1.5% to 3.0%
 
EPS $1.88 to $1.98
FFO per share $3.26 to $3.36
Normalized FFO per share $3.34 to $3.44
 
Transactions:
Consolidated rental acquisitions $700.0 million
Consolidated rental dispositions $700.0 million
Transaction Accretion (Dilution) (25 basis points)
 
Debt Offerings $700.0 million to $900.0 million
 

The difference between the Company’s full year 2018 EPS of $1.77 and the midpoint of the full year 2019 guidance range of $1.93 is due primarily to lower expected property sale gains, lower expected debt extinguishment costs and the items described below.

The difference between the Company’s full year 2018 FFO of $3.14 per share and the midpoint of the full year 2019 guidance range of $3.31 per share is due primarily to lower expected debt extinguishment costs and the items described below.

The difference between the Company’s full year 2018 Normalized FFO of $3.25 per share and the midpoint of the full year 2019 guidance range of $3.39 per share is due primarily to:

  • A positive impact of approximately $0.10 per share from increased same store NOI;
  • A positive impact of approximately $0.04 per share from Lease-Up NOI and other non-same store NOI;
  • A positive impact of approximately $0.01 per share from higher NOI as a result of the Company’s 2019 and 2018 transaction activity; and
  • A negative impact of approximately $0.01 per share from higher total interest expense.

First Quarter 2019 Earnings and Conference Call

Equity Residential expects to announce its first quarter 2019 results on Tuesday, April 30, 2019 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, May 1, 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 307 properties consisting of 79,482 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, January 30, 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)
 
  Year Ended December 31,     Quarter Ended December 31,  
2018     2017   2018     2017  
REVENUES
Rental income $ 2,577,681 $ 2,470,689 $ 652,553 $ 630,519
Fee and asset management   753     717     190     185  
Total revenues   2,578,434     2,471,406     652,743     630,704  
 
EXPENSES
Property and maintenance 429,335 405,281 106,848 98,636
Real estate taxes and insurance 357,814 335,495 89,030 82,177
Property management 92,485 85,493 23,310 20,791
General and administrative 53,813 52,224 12,393 11,858
Depreciation 785,725 743,749 201,856 200,785
Impairment   702     1,693         1,693  
Total expenses   1,719,874     1,623,935     433,437     415,940  
 
Operating income 858,560 847,471 219,306 214,764
 
Interest and other income 15,317 6,136 457 428
Other expenses (17,267 ) (5,186 ) (2,396 ) (2,026 )
Interest:
Expense incurred, net (413,360 ) (383,890 ) (91,906 ) (95,311 )
Amortization of deferred financing costs   (11,310 )   (8,526 )   (2,256 )   (2,079 )
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 431,940 456,005 123,205 115,776
Income and other tax (expense) benefit (878 ) (478 ) (111 ) 232
Income (loss) from investments in unconsolidated entities (3,667 ) (3,370 ) (674 ) (1,217 )
Net gain (loss) on sales of real estate properties 256,810 157,057 (24 ) 15,296
Net gain (loss) on sales of land parcels   987     19,167     (8 )   (3 )
Net income 685,192 628,381 122,388 130,084
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership (24,939 ) (22,604 ) (4,422 ) (4,673 )
Partially Owned Properties   (2,718 )   (2,323 )   (779 )   31  
Net income attributable to controlling interests 657,535 603,454 117,187 125,442
Preferred distributions   (3,090 )   (3,091 )   (772 )   (773 )
Net income available to Common Shares $ 654,445   $ 600,363   $ 116,415   $ 124,669  
 
Earnings per share – basic:
Net income available to Common Shares $ 1.78   $ 1.64   $ 0.32   $ 0.34  
Weighted average Common Shares outstanding   368,052     366,968     368,445     367,442  
 
Earnings per share – diluted:
Net income available to Common Shares $ 1.77   $ 1.63   $ 0.31   $ 0.34  
Weighted average Common Shares outstanding   383,695     382,678     384,296     383,105  
 
Distributions declared per Common Share outstanding $ 2.16   $ 2.015   $ 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)
   
Year Ended December 31,   Quarter Ended December 31,  
2018     2017   2018     2017  
Net income $ 685,192 $ 628,381 $ 122,388 $ 130,084

Net (income) loss attributable to Noncontrolling Interests – Partially

 

Owned Properties (2,718 ) (2,323 ) (779 ) 31
Preferred distributions   (3,090 )   (3,091 )   (772 )   (773 )
Net income available to Common Shares and Units 679,384 622,967 120,837 129,342
 
Adjustments:
Depreciation 785,725 743,749 201,856 200,785
Depreciation – Non-real estate additions (4,561 ) (5,023 ) (1,164 ) (1,215 )
Depreciation – Partially Owned Properties (3,740 ) (4,526 ) (903 ) (2,026 )
Depreciation – Unconsolidated Properties 4,451 4,577 1,004 1,147
Net (gain) loss on sales of unconsolidated entities - operating
assets (73 ) (5 )
Net (gain) loss on sales of real estate properties (256,810 ) (157,057 ) 24 (15,296 )
Noncontrolling Interests share of gain (loss) on sales
of real estate properties (284 ) 290 290
Impairment – operating assets   702              
FFO available to Common Shares and Units 1,204,867 1,204,904 321,654 313,022
 
Adjustments (see page 24 for additional detail):
Impairment – non-operating assets 1,693 1,693
Write-off of pursuit costs 4,450 3,106 1,325 777
Debt extinguishment and preferred share redemption (gains)
losses 41,335 11,789 193
Non-operating asset (gains) losses (161 ) (18,884 ) 94 471
Other miscellaneous items   (1,781 )   (3,371 )   827     824  
Normalized FFO available to Common Shares and Units $ 1,248,710   $ 1,199,237   $ 324,093   $ 316,787  
 
FFO $ 1,207,957 $ 1,207,995 $ 322,426 $ 313,795
Preferred distributions   (3,090 )   (3,091 )   (772 )   (773 )
FFO available to Common Shares and Units $ 1,204,867   $ 1,204,904   $ 321,654   $ 313,022  
FFO per share and Unit – basic $ 3.16   $ 3.17   $ 0.84   $ 0.82  
FFO per share and Unit – diluted $ 3.14   $ 3.15   $ 0.84   $ 0.82  
 
Normalized FFO $ 1,251,800 $ 1,202,328 $ 324,865 $ 317,560
Preferred distributions   (3,090 )   (3,091 )   (772 )   (773 )
Normalized FFO available to Common Shares and Units $ 1,248,710   $ 1,199,237   $ 324,093   $ 316,787  
Normalized FFO per share and Unit – basic $ 3.28   $ 3.16   $ 0.85   $ 0.83  
Normalized FFO per share and Unit – diluted $ 3.25   $ 3.13   $ 0.84   $ 0.83  
 
Weighted average Common Shares and Units outstanding – basic   380,921     379,870     381,306     380,325  
Weighted average Common Shares and Units outstanding – diluted   383,695     382,678     384,296     383,105  

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)
 
December 31, December 31,
2018   2017  
ASSETS
Land $ 5,875,803 $ 5,996,024
Depreciable property 20,435,901 19,768,362
Projects under development 109,409 163,547
Land held for development   89,909     98,963  
Investment in real estate 26,511,022 26,026,896
Accumulated depreciation   (6,696,281 )   (6,040,378 )
Investment in real estate, net 19,814,741 19,986,518
Investments in unconsolidated entities 58,349 58,254
Cash and cash equivalents 47,442 50,647
Restricted deposits 68,871 50,115
Other assets   404,806     425,065  
Total assets $ 20,394,209   $ 20,570,599  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 2,385,470 $ 3,618,722
Notes, net 5,933,286 5,038,812
Line of credit and commercial paper 499,183 299,757
Accounts payable and accrued expenses 102,471 114,766
Accrued interest payable 62,622 58,035
Other liabilities 358,563 341,852
Security deposits 67,258 65,009
Distributions payable   206,601     192,828  
Total liabilities   9,615,454     9,729,781  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   379,106     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 December 31, 2018 and December 31, 2017 37,280 37,280
Common Shares of beneficial interest, $0.01 par value;
1,000,000,000 shares authorized; 369,405,161 shares issued
and outstanding as of December 31, 2018 and 368,018,082
shares issued and outstanding as of December 31, 2017 3,694 3,680
Paid in capital 8,935,453 8,886,586
Retained earnings 1,261,763 1,403,530
Accumulated other comprehensive income (loss)   (64,986 )   (88,612 )
Total shareholders’ equity 10,173,204 10,242,464
Noncontrolling Interests:
Operating Partnership 228,738 226,691
Partially Owned Properties   (2,293 )   4,708  
Total Noncontrolling Interests   226,445     231,399  
Total equity   10,399,649     10,473,863  
Total liabilities and equity $ 20,394,209   $ 20,570,599  
 
 
Equity Residential
Portfolio Summary
As of December 31, 2018
               
% of

Stabilized

Average
Apartment Budgeted Rental
Markets/Metro Areas Properties   Units   NOI   Rate
 
Los Angeles 70 15,968 18.5 % $ 2,551
Orange County 13 4,028 4.3 % 2,202
San Diego   12     3,385     3.8 %   2,376
Subtotal – Southern California 95 23,381 26.6 % 2,465
 
San Francisco 55 13,424 20.6 % 3,219
Washington DC 49 16,050 17.1 % 2,396
New York 37 9,741 15.2 % 3,848
Boston 25 6,641 10.2 % 3,061
Seattle 41 8,438 9.6 % 2,387
Denver 2 726 0.7 % 2,088
Other Markets   1     136     %   1,217
Total 305 78,537 100.0 % 2,789
 
Unconsolidated Properties   2     945        
 
Grand Total   307     79,482     100.0 % $ 2,789
 

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

 

Equity Residential

     

Portfolio as of December 31, 2018

 
Properties   Apartment Units
   
Wholly Owned Properties 287 74,840
Master-Leased Properties - Consolidated 1 162
Partially Owned Properties - Consolidated 17 3,535
Partially Owned Properties - Unconsolidated   2     945
 
  307     79,482
 
Portfolio Rollforward Q4 2018
($ in thousands)
    Properties     Apartment

Units

     
9/30/2018 306 79,260
 
 
Completed Developments - Consolidated 1 222
         
 
12/31/2018   307     79,482
 
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 2 671
Configuration Changes       14  
 
12/31/2018   307     79,482  
 
 
Equity Residential
 
Fourth Quarter 2018 vs. Fourth Quarter 2017
Same Store Results/Statistics for 73,992 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
   
Results   Statistics  
Description Revenues     Expenses     NOI   Average

Rental

Rate

    Physical

Occupancy

    Turnover  
   
Q4 2018 $ 616,496 $ 180,218 $ 436,278 $ 2,784 96.2 % 10.6 %
Q4 2017 $ 601,061   $ 173,033   $ 428,028   $ 2,717     95.9 %   11.2 %
 
Change $ 15,435   $ 7,185   $ 8,250   $ 67     0.3 %   (0.6 %)
 
Change 2.6 % 4.2 % 1.9 % 2.5 %
 
 
Fourth Quarter 2018 vs. Third Quarter 2018
Same Store Results/Statistics for 76,477 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
   
Results   Statistics  
Description Revenues     Expenses     NOI   Average

Rental

Rate

    Physical

Occupancy

    Turnover  
   
Q4 2018 $ 638,695 $ 187,979 $ 450,716 $ 2,791 96.2 % 10.7 %
Q3 2018 $ 639,995   $ 193,320   $ 446,675   $ 2,789     96.2 %   16.4 %
 
Change $ (1,300 ) $ (5,341 ) $ 4,041   $ 2     0.0 %   (5.7 %)
 
Change (0.2 %) (2.8 %) 0.9 % 0.1 %
 
 
2018 vs. 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  
   
2018 $ 2,363,491 $ 705,890 $ 1,657,601 $ 2,748 96.2 % 51.1 %
2017 $ 2,311,240   $ 681,198   $ 1,630,042   $ 2,693     96.0 %   53.4 %
 
Change $ 52,251   $ 24,692   $ 27,559   $ 55     0.2 %   (2.3 %)
 
Change 2.3 % 3.6 % 1.7 % 2.0 %
 

Note: See page 29 for reconciliations from operating income.

 
Equity Residential
Fourth Quarter 2018 vs. Fourth Quarter 2017
Same Store Results/Statistics by Market
 
                        Increase (Decrease) from Prior Year's Quarter  
Markets/Metro Areas Apartment

Units

  Q4 2018

% of

Actual

NOI

  Q4 2018

Average

Rental

Rate

  Q4 2018

Weighted

Average

Physical

Occupancy %

  Q4 2018

Turnover

  Revenues     Expenses     NOI     Average

Rental

Rate

    Physical

Occupancy

    Turnover  
           
Los Angeles 15,371 18.7 % $ 2,558 96.2 % 12.7 % 4.4 % 7.5 % 3.2 % 4.1 % 0.5 % (0.4 %)
Orange County 4,028 4.5 % 2,202 96.2 % 10.5 % 3.9 % 3.1 % 4.2 % 3.7 % 0.3 % (0.1 %)
San Diego   3,385     4.0 %   2,376     96.3 %   13.8 %   3.9 %   6.7 %   2.9 %   3.8 %   0.3 %   (0.3 %)
Subtotal – Southern California 22,784 27.2 % 2,468 96.2 % 12.5 % 4.3 % 6.8 % 3.4 % 4.0 % 0.4 % (0.3 %)
 
San Francisco 12,975 21.1 % 3,183 95.6 % 11.1 % 3.2 % (4.7 %) 5.8 % 3.5 % (0.2 %) (0.5 %)
Washington DC 15,492 17.5 % 2,386 96.4 % 10.0 % 1.2 % 3.6 % 0.2 % 1.4 % (0.1 %) 0.2 %
New York 9,501 16.0 % 3,857 96.7 % 7.4 % 1.3 % 8.0 % (2.6 %) 1.0 % 0.3 % (0.4 %)
Boston 6,009 9.7 % 3,043 96.1 % 9.0 % 2.6 % 4.1 % 2.0 % 2.1 % 0.3 % (1.3 %)
Seattle 7,095 8.4 % 2,316 96.1 % 11.3 % 1.5 % 4.7 % 0.4 % 1.0 % 1.1 % (2.4 %)
Other Markets 136 0.1 % 1,217 97.8 % 6.6 % 6.9 % (1.9 %) 11.4 % 5.2 % 1.7 % (5.2 %)
                                                                 
Total   73,992     100.0 % $ 2,784     96.2 %   10.6 %   2.6 %   4.2 %   1.9 %   2.5 %   0.3 %   (0.6 %)
 
 
Equity Residential
Fourth Quarter 2018 vs. Third Quarter 2018
Same Store Results/Statistics by Market
 
                        Increase (Decrease) from Prior Quarter  
Markets/Metro Areas Apartment

Units

  Q4 2018

% of

Actual

NOI

  Q4 2018

Average

Rental

Rate

  Q4 2018

Weighted

Average

Physical

Occupancy %

  Q4 2018

Turnover

  Revenues     Expenses     NOI     Average

Rental

Rate

    Physical

Occupancy

    Turnover  
           
Los Angeles 15,968 18.6 % $ 2,551 96.3 % 12.8 % (0.2 %) (0.1 %) (0.3 %) 0.6 % (0.4 %) (4.3 %)
Orange County 4,028 4.4 % 2,202 96.2 % 10.5 % 0.0 % (2.3 %) 0.7 % 0.1 % 0.0 % (6.4 %)
San Diego   3,385     3.8 %   2,376     96.3 %   13.8 %   0.5 %   (3.1 %)   1.8 %   1.2 %   (0.4 %)   (4.3 %)
Subtotal – Southern California 23,381 26.8 % 2,465 96.2 % 12.5 % (0.1 %) (0.8 %) 0.2 % 0.6 % (0.4 %) (4.8 %)
 
San Francisco 13,424 21.2 % 3,207 95.6 % 11.0 % 0.1 % (7.3 %) 2.7 % 0.3 % (0.1 %) (5.6 %)
Washington DC 15,666 17.2 % 2,390 96.4 % 10.0 % (0.5 %) (5.8 %) 1.9 % (0.5 %) 0.1 % (6.8 %)
New York 9,741 15.8 % 3,848 96.6 % 7.5 % (0.5 %) 0.8 % (1.4 %) (0.2 %) (0.2 %) (5.4 %)
Boston 6,169 9.6 % 3,059 96.0 % 9.1 % 0.7 % (2.5 %) 2.0 % 0.0 % 0.4 % (9.1 %)
Seattle 7,960 9.3 % 2,365 96.0 % 11.6 % (0.9 %) (3.3 %) 0.0 % (0.2 %) 0.4 % (4.1 %)
Other Markets 136 0.1 % 1,217 97.8 % 6.6 % 0.4 % (8.7 %) 5.1 % 1.2 % (0.7 %) (5.9 %)
                                                                 
Total   76,477     100.0 % $ 2,791     96.2 %   10.7 %   (0.2 %)   (2.8 %)   0.9 %   0.1 %   0.0 %   (5.7 %)
 
 
Equity Residential
2018 vs. 2017
Same Store Results/Statistics by Market
 
                        Increase (Decrease) from Prior Year  

Markets/Metro Areas

Apartment

Units

  2018

% of

Actual

NOI

  2018

Average

Rental

Rate

  2018

Weighted

Average

Physical

Occupancy %

  2018

Turnover

  Revenues     Expenses     NOI     Average

Rental

Rate

    Physical

Occupancy

    Turnover  
           
Los Angeles 14,240 17.9 % $ 2,507 96.2 % 56.5 % 3.6 % 4.7 % 3.2 % 3.6 % 0.2 % (2.8 %)
Orange County 3,684 4.2 % 2,153 96.1 % 50.2 % 3.5 % 2.4 % 3.9 % 3.7 % (0.1 %) (2.0 %)
San Diego   3,385     4.1 %   2,335     96.3 %   60.5 %   3.9 %   4.1 %   3.8 %   3.8 %   0.0 %   (3.7 %)
Subtotal – Southern California 21,309 26.2 % 2,418 96.2 % 56.1 % 3.6 % 4.3 % 3.4 % 3.6 % 0.1 % (2.8 %)
 
San Francisco 12,315 20.4 % 3,074 96.0 % 51.2 % 2.9 % (2.8 %) 4.7 % 2.6 % 0.2 % (2.8 %)
Washington DC 15,492 18.1 % 2,379 96.3 % 49.6 % 1.0 % 3.6 % (0.1 %) 0.8 % 0.2 % (0.7 %)
New York 9,501 16.7 % 3,844 96.5 % 38.3 % 0.8 % 6.5 % (2.7 %) 0.3 % 0.3 % (3.4 %)
Boston 6,009 10.0 % 3,015 95.9 % 50.0 % 2.5 % 4.0 % 1.9 % 2.1 % 0.1 % (2.2 %)
Seattle 6,959 8.5 % 2,301 95.8 % 56.9 % 2.8 % 5.1 % 2.0 % 2.4 % 0.3 % (2.6 %)
Other Markets 136 0.1 % 1,203 98.5 % 52.2 % 5.5 % 0.8 % 8.1 % 4.6 % 0.9 % 7.3 %
                                                                 
Total   71,721     100.0 % $ 2,748     96.2 %   51.1 %   2.3 %   3.6 %   1.7 %   2.0 %   0.2 %   (2.3 %)
 
 
Equity Residential
 
Fourth Quarter 2018 vs. Fourth Quarter 2017
Same Store Operating Expenses for 73,992 Same Store Apartment Units
$ in thousands
             
Actual

Q4 2018

  Actual

Q4 2017

  $

Change

  %

Change

  % of Actual

Q4 2018

Operating

Expenses

 
   
Real estate taxes $ 75,596 $ 74,758 $ 838 1.1 % 41.9 %
On-site payroll 40,935 37,904 3,031 8.0 % 22.7 %
Utilities 24,623 23,382 1,241 5.3 % 13.7 %
Repairs and maintenance 22,604 20,891 1,713 8.2 % 12.5 %
Insurance 4,816 4,587 229 5.0 % 2.7 %
Leasing and advertising 2,663 2,473 190 7.7 % 1.5 %
Other on-site operating expenses   8,981     9,038     (57 )   (0.6 %)   5.0 %
 
Same store operating expenses $ 180,218   $ 173,033   $ 7,185     4.2 %   100.0 %
 
 
2018 vs. 2017
Same Store Operating Expenses for 71,721 Same Store Apartment Units
$ in thousands
 
  Actual

2018

    Actual

2017

    $

Change

    %

Change

    % of Actual

2018

Operating

Expenses

 
       
Real estate taxes $ 297,734 $ 287,999 $ 9,735 3.4 % 42.2 %
On-site payroll 156,859 150,924 5,935 3.9 % 22.2 %
Utilities 95,761 91,630 4,131 4.5 % 13.6 %
Repairs and maintenance 90,424 85,685 4,739 5.5 % 12.8 %
Insurance 18,272 17,359 913 5.3 % 2.6 %
Leasing and advertising 9,959 9,726 233 2.4 % 1.4 %
Other on-site operating expenses   36,881     37,875     (994 )   (2.6 %)   5.2 %
 
Same store operating expenses $ 705,890   $ 681,198   $ 24,692     3.6 %   100.0 %
 

Note: See pages 26 through 30 for the definitions of non-GAAP financial measures and other terms.

 
Equity Residential
 
Debt Summary as of December 31, 2018
($ in thousands)
         
Amounts (1)   % of Total   Weighted

Average

Rates (1)

  Weighted

Average

Maturities

(years)

     
Secured $ 2,385,470 27.1 % 4.15 % 6.7
Unsecured   6,432,469     72.9 %   4.10 %   9.3
 
Total $ 8,817,939     100.0 %   4.12 %   8.6
Fixed Rate Debt:
Secured – Conventional $ 1,885,407 21.4 % 4.61 % 4.3
Unsecured – Public   5,485,884     62.2 %   4.37 %   10.9
 
Fixed Rate Debt   7,371,291     83.6 %   4.45 %   9.2
 
Floating Rate Debt:
Secured – Conventional 6,357 0.1 % 1.93 % 5.6
Secured – Tax Exempt 493,706 5.6 % 2.14 % 15.6
Unsecured – Public (2) 447,402 5.1 % 2.84 % 0.5
Unsecured – Revolving Credit Facility (3) 2.97 % 3.0
Unsecured – Commercial Paper Program (4)   499,183     5.6 %   2.35 %  
 
Floating Rate Debt   1,446,648     16.4 %   2.46 %   5.8
 
Total $ 8,817,939     100.0 %   4.12 %   8.6
(1)   Net of the effect of any derivative instruments. Weighted average rates are for the year ended December 31, 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 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. As of December 31, 2018, there were no borrowings outstanding under the facility and $6.7 million was restricted/dedicated to support letters of credit. 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. As a result, the Company had approximately $1.40 billion available under the facility at December 31, 2018.
(4) 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. At December 31, 2018, the weighted average maturity of commercial paper outstanding was 22 days.
 

Note: The Company capitalized interest of approximately $6.3 million and $26.3 million during the years ended December 31, 2018 and 2017, respectively. The Company capitalized interest of approximately $1.8 million and $3.1 million during the quarters ended December 31, 2018 and 2017, respectively.

 
Equity Residential
 
Debt Maturity Schedule as of December 31, 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)

 
     
2019 $ 6,731 $ 968,223 (2 ) $ 974,954 10.9 % 3.73 % 2.86 %
2020 1,128,592 (3 ) 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 % 2.13 %
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 % 3.20 %
2028 901,540 48,580 950,120 10.7 % 3.79 % 3.69 %
2029+   1,423,430     407,420     1,830,850     20.6 %   4.41 %   3.83 %
Subtotal 7,427,438 1,485,323 8,912,761 100.0 % 4.11 % 3.86 %
Deferred Financing Costs and Unamortized (Discount)   (56,147 )   (38,675 )   (94,822 ) N/A   N/A   N/A  
 
Total $ 7,371,291   $ 1,446,648   $ 8,817,939     100.0 %   4.11 %   3.86 %
(1)   Net of the effect of any derivative instruments. Weighted average rates are as of December 31, 2018.
(2) Includes $500.0 million in principal outstanding on the Company's commercial paper program.
(3) Includes a $500.0 million 5.78% mortgage loan with a maturity date of July 1, 2020 that can be repaid at par beginning July 1, 2019. The Company currently intends to prepay this mortgage loan on July 1, 2019.
 
Equity Residential
 
Selected Unsecured Public Debt Covenants
 
  December 31,     September 30,
2018   2018
Total Debt to Adjusted Total Assets (not to exceed 60%) 33.4 % 33.5 %
   
Secured Debt to Adjusted Total Assets (not to exceed 40%) 9.0 % 10.6 %
 
Consolidated Income Available for Debt Service to

Maximum Annual Service Charges

(must be at least 1.5 to 1)

4.48 4.46
 
Total Unsecured Assets to Unsecured Debt

(must be at least 150%)

348.2 % 362.9 %
 

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

 
  December 31,     September 30,
2018   2018
Total debt to Normalized EBITDAre 5.34x 5.36x
 
Net debt to Normalized EBITDAre 5.31x 5.34x
 
Unencumbered NOI as a % of total NOI 82.2% 79.8%
 

Note: See page 23 for the Normalized EBITDAre reconciliations.

 
Equity Residential
 
Capital Structure as of December 31, 2018
(Amounts in thousands except for share/unit and per share amounts)
 
Secured Debt           $ 2,385,470       27.1 %    
Unsecured Debt   6,432,469     72.9 %
 
Total Debt 8,817,939 100.0 % 25.8 %
 
Common Shares (includes Restricted Shares) 369,405,161 96.4 %
Units (includes OP Units and Restricted Units)   13,904,035     3.6 %
 
Total Shares and Units 383,309,196 100.0 %
Common Share Price at December 31, 2018 $ 66.01  
25,302,240 99.9 %
Perpetual Preferred Equity (see below)   37,280     0.1 %
 
Total Equity 25,339,520 100.0 % 74.2 %
 
Total Market Capitalization $ 34,157,459 100.0 %
 
 
Perpetual Preferred Equity as of December 31, 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
 
  2018     2017     Q4 2018     Q4 2017
             
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 368,052,312 366,968,358 368,444,736 367,442,352
Shares issuable from assumed conversion/vesting of:
- OP Units 12,868,188 12,901,219 12,860,819 12,882,935
- long-term compensation shares/units   2,774,227     2,808,917     2,990,518     2,780,028
 
Total Common Shares and Units - diluted   383,694,727     382,678,494     384,296,073     383,105,315
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 368,052,312 366,968,358 368,444,736 367,442,352
OP Units - basic   12,868,188     12,901,219     12,860,819     12,882,935
 
Total Common Shares and OP Units - basic 380,920,500 379,869,577 381,305,555 380,325,287
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units   2,774,227     2,808,917     2,990,518     2,780,028
 
Total Common Shares and Units - diluted   383,694,727     382,678,494     384,296,073     383,105,315
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 369,405,161 368,018,082
Units (includes OP Units and Restricted Units)   13,904,035     13,768,438  
 
Total Shares and Units   383,309,196     381,786,520  
 
 
Equity Residential
Development and Lease-Up Projects as of December 31, 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
 
1401 E. Madison Seattle, WA 137 $ 62,352 $ 34,523 $ 34,523 $ 45 % Q2 2019 Q3 2019 Q1 2020
249 Third Street Cambridge, MA 84 51,447 26,168 26,168 38 % Q3 2019 Q4 2019 Q2 2020
West End Tower Boston, MA 469 409,749 48,718 48,718 7 % Q2 2021 Q3 2021 Q1 2023
                             
Projects Under Development   690     523,548     109,409     109,409      
 
100K Apartments Washington, DC 222 88,023 85,116 Q3 2018 Q4 2018 Q4 2019 39 % 35 %
                             
Projects Completed Not Stabilized   222     88,023     85,116          
 
Cascade Seattle, WA 477 174,378 171,902 Q2 2017 Q4 2017 Q4 2018 98 % 97 %
                             
Projects Completed and Stabilized During the Quarter   477     174,378     171,902          
 
Total Development Projects   1,389   $ 785,949   $ 366,427   $ 109,409   $  
 
Land Held for Development N/A   N/A   $ 89,909   $ 89,909   $  
 
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS Total

Budgeted

Capital

Cost

  Q4 2018

NOI

 
Projects Under Development $ 523,548 $
Completed Not Stabilized 88,023 260
Completed and Stabilized During the Quarter   174,378       2,320  
Total Development NOI Contribution $ 785,949     $ 2,580  
 

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 Year Ended December 31, 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     6,816     78,537  
 
Building Improvements $ 100,382 $ 3,830 $ 104,212 $ 1,399
 
Renovation Expenditures (2) 39,431 1,922 41,353 550
 
Replacements 41,746 1,190 42,936 582
                     
Total Capital Expenditures $ 181,559   $ 6,942   $ 188,501   $ 2,531
(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 2,850 same store apartment units for the year ended December 31, 2018 approximated $13,800 per apartment unit renovated.
 
 
Equity Residential
Normalized EBITDAre Reconciliations
(Amounts in thousands)
 
Normalized EBITDAre Reconciliations for Page 18
 
  Trailing Twelve Months     2018     2017  
December 31, 2018     September 30, 2018   Q4     Q3     Q2     Q1   Q4  
Net income $ 685,192 $ 692,888 $ 122,388 $ 223,846 $ 118,410 $ 220,548 $ 130,084
Interest expense incurred, net 413,360 416,765 91,906 111,219 94,131 116,104 95,311
Amortization of deferred financing costs 11,310 11,133 2,256 3,276 2,099 3,679 2,079
Amortization of above/below market lease intangibles 4,392 4,393 1,098 1,098 1,098 1,098 1,099
Depreciation 785,725 784,654 201,856 194,618 192,942 196,309 200,785
Income and other tax expense (benefit) 878 535 111 280 274 213 (232 )
                                         
EBITDA 1,900,857 1,910,368 419,615 534,337 408,954 537,951 429,126
 
Net (gain) loss on sales of real estate properties (256,810 ) (272,130 ) 24 (114,672 ) 51 (142,213 ) (15,296 )
Impairment – operating assets 702 702 702
                                         
EBITDAre 1,644,749 1,638,940 419,639 420,367 409,005 395,738 413,830
 
Impairment – non-operating assets 1,693 1,693
Write-off of pursuit costs (other expenses) 4,450 3,902 1,325 1,059 1,135 931 777
(Income) loss from investments in unconsolidated entities 3,667 4,210 674 985 1,031 977 1,217
Net (gain) loss on sales of land parcels (987 ) (992 ) 8 (995 ) 3
Insurance/litigation settlement or reserve income (interest and other income) (13,286 ) (13,423 ) (7,400 ) (528 ) (5,358 ) (137 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 6,862 7,088 (226 ) 4,202 963 1,923
Advocacy contributions (other expenses) 4,406 3,735 671 2,092 1,278 365
Other 237 816 382 (32 ) 56 (169 ) 961
                                         
Normalized EBITDAre $ 1,650,098   $ 1,645,969   $ 422,473   $ 421,273   $ 411,945   $ 394,407   $ 418,344  
 
December 31, 2018   September 30, 2018  
 
Total debt $ 8,817,939 $ 8,823,793
Cash and cash equivalents (47,442 ) (32,995 )
Mortgage principal reserves/sinking funds   (9,754 )   (8,363 )
Net debt $ 8,760,743   $ 8,782,435  

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)
 
  Year Ended December 31,     Quarter Ended December 31,  
2018     2017     Variance   2018     2017     Variance  
 
Impairment – non-operating assets $   $ 1,693   $ (1,693 ) $   $ 1,693   $ (1,693 )
 
Write-off of pursuit costs (other expenses)   4,450     3,106     1,344     1,325     777     548  
 
Prepayment premiums/penalties (interest expense) 22,110 12,258 9,852
Write-off of unamortized deferred financing costs (interest expense) 2,957 251 2,706 193 193
Write-off of unamortized (premiums)/discounts/OCI (interest expense)   16,268     (720 )   16,988              
Debt extinguishment and preferred share redemption (gains) losses   41,335     11,789     29,546     193         193  
 
Net (gain) loss on sales of land parcels (987 ) (19,167 ) 18,180 8 3 5
Net (gain) loss on sales of unconsolidated entities - non-operating assets (205 ) 205
(Income) loss from investments in unconsolidated entities - non-operating assets   826     488     338     86     468     (382 )
Non-operating asset (gains) losses   (161 )   (18,884 )   18,723     94     471     (377 )
 
Insurance/litigation settlement or reserve income (interest and other income) (13,286 ) (4,853 ) (8,433 ) (137 ) 137
Insurance/litigation/environmental settlement or reserve expense (other expenses) 6,862 237 6,625 (226 ) (226 )
Advocacy contributions (other expenses) 4,406 4,406 671 671
Other   237     1,245     (1,008 )   382     961     (579 )
Other miscellaneous items   (1,781 )   (3,371 )   1,590     827     824     3  
 
Adjustments from FFO to Normalized FFO $ 43,843   $ (5,667 ) $ 49,510   $ 2,439   $ 3,765   $ (1,326 )
 

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.

   
Q1 2019 Full Year 2019
 

 
 
Expected Normalized FFO Per Share $0.78 to $0.82 $3.34 to $3.44
 

 
Physical Occupancy 96.2%
Revenue change 2.2% to 3.2%
Expense change 3.5% to 4.5%
NOI change (1) 1.5% to 3.0%
 

 
Consolidated rental acquisitions $700.0M
Consolidated rental dispositions $700.0M
Transaction Accretion (Dilution) (25 basis points)
 

 
Weighted average debt outstanding $8.8B to $9.0B
Weighted average interest rate (reduced for capitalized interest) 4.25%
Interest expense, net (on a Normalized FFO basis) $374.0M to $382.5M
Capitalized interest $4.5M to $8.5M
 

 
Capital Expenditures to Real Estate for Same Store Properties $190.0M
Capital Expenditures to Real Estate per Same Store Apartment Unit $2,600
 

 
Property management expense $96.0M to $98.0M
General and administrative expense $49.0M to $51.0M
Interest and other income $1.2M to $1.7M
Income and other tax expense $0.7M to $1.2M
Debt offerings $700.0M to $900.0M
Equity ATM share offerings No amounts budgeted
Preferred share offerings No amounts budgeted
Weighted average Common Shares and Units - Diluted 385.1M
 
(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 $16.8 million impact from anticipated debt extinguishment costs in connection with all planned debt repayment activities in 2019, all of which represents non-cash write-offs of unamortized debt discounts and deferred financing costs.
(3) During 2019, the Company expects to spend approximately $40.0 million for apartment unit Renovation Expenditures on approximately 3,000 same store apartment units at an average cost of approximately $13,300 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 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:

   
Year Ended December 31, 2018   Quarter Ended December 31, 2018  
 
Net Gain (Loss) on Sales of Real Estate Properties $ 256,810 $ (24 )
Accumulated Depreciation Gain   (100,655 )    
 
Economic Gain $ 156,155   $ (24 )
 

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 Actual Expected Expected
Actual 2018 Actual 2017 Q4 2018 Q4 2017 Q1 2019 2019
Per Share   Per Share   Per Share   Per Share   Per Share   Per Share
EPS – Diluted $ 1.77 $ 1.63 $ 0.31 $ 0.34 $0.25 to $0.29 $1.88 to $1.98
Add: Depreciation expense 2.04 1.93 0.53 0.52 0.52 2.00
Less: Net (gain) loss on sales (0.67 ) (0.41 ) (0.04 )   (0.62 )
Add: Impairment – operating assets                        
 
FFO per share – Diluted 3.14 3.15 0.84 0.82 0.77 to 0.81 3.26 to 3.36
 
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 0.05
Non-operating asset (gains) losses (0.05 )
Other miscellaneous items   (0.01 )   (0.01 )       0.01     0.01     0.02  
 
Normalized FFO per share – Diluted $ 3.25   $ 3.13   $ 0.84   $ 0.83   $0.78 to $0.82   $3.34 to $3.44
 

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):

   
Year Ended December 31,   Quarter Ended December 31,  
2018     2017   2018     2017  
Operating income $ 858,560 $ 847,471 $ 219,306 $ 214,764
Adjustments:
Fee and asset management revenue (753 ) (717 ) (190 ) (185 )
Property management 92,485 85,493 23,310 20,791
General and administrative 53,813 52,224 12,393 11,858
Depreciation 785,725 743,749 201,856 200,785
Impairment   702     1,693         1,693  
Total NOI $ 1,790,532   $ 1,729,913   $ 456,675   $ 449,706  
Rental income:
Same store $ 2,363,491 $ 2,311,240 $ 616,496 $ 601,061
Non-same store/other   214,190     159,449     36,057     29,458  
Total rental income 2,577,681 2,470,689 652,553 630,519
Operating expenses:
Same store 705,890 681,198 180,218 173,033
Non-same store/other   81,259     59,578     15,660     7,780  
Total operating expenses 787,149 740,776 195,878 180,813
NOI:
Same store 1,657,601 1,630,042 436,278 428,028
Non-same store/other   132,931     99,871     20,397     21,678  
Total NOI $ 1,790,532   $ 1,729,913   $ 456,675   $ 449,706  
 

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.

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, 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 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 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.

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 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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