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Equity Residential Reports First Quarter 2020 Results

Provides Update on COVID-19 Related Activities and Preliminary April 2020 Statistics;

Withdraws Full Year 2020 Earnings Guidance

Equity Residential (NYSE: EQR) today reported results for the quarter ended March 31, 2020 and preliminary April 2020 operating statistics as well as provided an update on activities related to the COVID-19 pandemic.

"We are deeply grateful to the entire Equity Residential team and especially our on-site colleagues for their dedication to serving our 150,000 residents during this difficult time," said Mark J. Parrell, Equity Residential’s President and CEO. "We have instituted new programs to support our hard working colleagues and to assist our residents and communities. Thank you to the Equity Residential team for honoring their commitment to our residents and to our residents for their trust and support. Working together is the best way for all of us to get through this crisis."

During this pandemic, Equity Residential is:

Supporting Our Residents by:

  • Keeping our properties open and operating and our residents safe in compliance with state and local shelter-in-place orders.

  • Utilizing technology to allow our property teams to interact remotely with current residents and prospective residents including a touchless new leasing process and a service process designed to limit contact.

  • Currently offering resident renewals with no rent increase and providing flexible lease renewal options to help residents weather the crisis.

  • Currently creating payment plans, waiving late fees and halting evictions for residents who can document that they have been adversely financially impacted by the COVID-19 pandemic.

  • Connecting our residents with governmental and community resources to help residents secure food, financial assistance and healthcare.

Supporting Our Employees by:

  • Providing each employee with extended emergency leave.

  • Providing resources to help our employees with their physical, mental and financial wellbeing.

  • Providing necessary technology and technical resources to limit in-person contact while continuing essential maintenance activities such as emergency repairs and life/safety.

  • Paying special cash bonuses to our on-site service and concierge teams for their hard work and dedication.

Supporting Our Communities by:

  • Making donations from the Equity Residential Foundation to local food banks and groups helping the homeless and needy in our markets.

  • Providing meals to frontline responders from Equity Residential’s restaurant tenants.

Preliminary April 2020 Statistics

The Company has provided various statistics related to its Residential same store operations for the month ended April 30, 2020 to assist investors in understanding the impact of the pandemic on the Company’s operations. These statistics along with comparative numbers for the first quarter of 2020 are set forth below and in more detail on page 13 of this release:

 

 

April 2020

 

Q1 2020

 

New Lease Change

 

 

(1.9

%)

 

 

(0.8

%)

Renewal Rate Achieved

 

 

2.8

%

 

 

4.2

%

Physical Occupancy (end of period)

 

 

94.7

%

 

 

96.0

%

As the Company’s markets became subject to shelter-in-place orders, the Company experienced significant declines in leasing activity. In the third week of March 2020, Traffic, initial leads and applications declined by 50% or more compared to the same period of last year. In April 2020, the Company experienced a recovery in demand with Traffic, initial leads and applications meaningfully improving. Traffic and initial leads are now down approximately 20% and applications are equal relative to the same period last year.

The Company’s Residential collections are strong. During April 2020, Residential Cash Collections were approximately 97% of Residential Cash Collections in March 2020. As of the end of April 2020, current residents at same store properties had cumulative outstanding Residential Delinquency balances of approximately $11.0 million, representing a same store Residential Delinquency percentage of 5.4%. This compares to cumulative outstanding same store Residential Delinquency balances of approximately $5.4 million, representing a same store Residential Delinquency percentage of 2.6% at the end of March 2020, prior to the impact of COVID-19. The Company continues to work with residents to collect these outstanding balances including through the establishment of payment plans.

The Company’s Non-Residential operations, which mostly consist of ground floor retail in our apartment buildings and public garage parking, have historically been approximately 4.0% of annual total revenues. These operations have been more impacted by the pandemic. The Company collected approximately 58%, or $3.6 million, of retail cash collections during the month of April 2020 as compared to the month of March 2020, and the Company collected approximately 67%, or $1.3 million, of public garage parking cash collections during the month of April 2020 as compared to the month of March 2020. As of the end of April 2020 and March 2020, current retail tenants at our same store properties had cumulative outstanding delinquency or deferred payment balances of approximately $5.0 million and $2.3 million, respectively. The Company is working with remaining retail tenants on payment plans.

"Under very challenging circumstances, our business continues to be durable. Our April payment statistics show a financially resilient resident base and while very early, we have not seen anything to suggest that May will be materially different. We are also seeing an improvement in our leasing activity from the very low levels we experienced in late March though most activity remains lower than usual levels. We are working diligently to prepare our people and properties to operate safely and as efficiently as possible once restrictions are lifted in our markets. While the employment losses of late will pressure operations in the near term, we expect our properties and markets to remain desirable to our affluent renter demographic and our operations to return to a more normal state over time," said Mr. Parrell.

First Quarter 2020 Results

All per share results are reported as available to common shares/units on a diluted basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

 

 

 

2020

 

2019

 

$ Change

 

% Change

 

 

Earnings Per Share (EPS)

 

$

0.83

 

 

$

0.28

 

 

$

0.55

 

 

 

196.4

%

 

 

Funds from Operations (FFO) per share

 

$

0.86

 

 

$

0.81

 

 

$

0.05

 

 

 

6.2

%

 

 

Normalized FFO per share

 

$

0.87

 

 

$

0.82

 

 

$

0.05

 

 

 

6.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Results Per Share

The change in EPS for the quarter ended March 31, 2020 compared to the same period of 2019, is due primarily to higher property sale gains in the first quarter of 2020, the various adjustment items listed on page 23 of this release and the items described below.

The per share change in FFO for the quarter ended March 31, 2020 compared to the same period of 2019, is due primarily to the various adjustment items listed on page 23 of this release and the items described below.

The per share change in Normalized FFO is due primarily to:

 

 

Positive/(Negative)
Impact

 

 

 

First Quarter 2020 vs.
First Quarter 2019

 

Same Store Net Operating Income (NOI)

 

$

0.03

 

Lease-Up NOI

 

 

0.01

 

Interest expense

 

 

0.02

 

Other items

 

 

(0.01

)

Net

 

$

0.05

 

The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 24 through 29 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 6, 26 and 27 of this release.

Same Store Results

Given the current environment, the Company has provided a breakout of Residential and Non-Residential same store results on page 10 of this release with definitions that can be found on page 28 of this release. The table below reflects same store Residential only results for the first quarter 2020 to first quarter 2019 comparison, which includes 74,919 apartment units. The Company’s Physical Occupancy was 96.5% compared to 96.3% for the first quarter of 2020 and 2019, respectively.

 

 

First Quarter 2020 vs.
First Quarter 2019

 

Revenues

 

2.9%

 

Expenses

 

2.3%

 

NOI

 

3.2%

 

Investment Activity

The Company sold two wholly-owned properties in the San Francisco Bay Area and one partially-owned consolidated property in Phoenix during the first quarter of 2020, totaling 897 apartment units, for an aggregate sale price of approximately $370.2 million at a weighted average Disposition Yield of 5.0%, generating an Unlevered IRR of 12.9%. The Company did not acquire any apartment properties during the first quarter of 2020.

Subsequent to quarter-end, the Company sold one wholly-owned property located in the San Francisco Bay Area for approximately $108.0 million at a Disposition Yield of 4.5%.

Capital Markets and Liquidity

On April 30, 2020, the Company closed on a $495.0 million secured loan. The loan has a ten-year term, is interest only, and carries a fixed interest rate of 2.60%. Proceeds from the loan were used to pay off outstanding balances under the Company’s revolving line of credit and commercial paper program. As of May 4, 2020, the Company had the following availability under its unsecured revolving credit facility:

 

 

May 4, 2020
(amounts in thousands)

 

Unsecured revolving credit facility commitment

 

$

2,500,000

 

Commercial paper balance outstanding

 

 

(180,000

)

Unsecured revolving credit facility balance outstanding

 

 

 

Other restricted amounts

 

 

(100,949

)

Unsecured revolving credit facility availability

 

$

2,219,051

 

The Company has approximately $25.6 million in debt maturities and $200.0 million in estimated development spend remaining in 2020. With over $2.2 billion in readily available liquidity and very strong credit metrics, the Company is well positioned to meet these and future obligations.

2020 Guidance

Due to the inherent uncertainty surrounding the social and economic disruption resulting from the COVID-19 pandemic, the Company believes it is appropriate to withdraw its full-year 2020 guidance, which was included in its January 28, 2020 earnings release. The Company is also suspending issuing guidance in future periods until there is greater certainty surrounding the impact of the ongoing pandemic.

About Equity Residential

Equity Residential is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban communities where today’s renters want to live, work and play. Equity Residential owns or has investments in 306 properties consisting of 79,065 apartment units, 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. In addition, these forward-looking statements are subject to risks related to the COVID-19 pandemic, many of which are unknown, including the duration and severity of the pandemic, the extent of the adverse health impact on the general population and on our residents, customers and employees in particular, its impact on the employment rate and the economy and the corresponding impact on our residents’ and tenants’ ability to pay their rent on time or at all, the extent and impact of governmental responses and the impact of operational changes we have implemented and may implement in response to the pandemic. Other risks and uncertainties are described under the heading "Risk Factors" in our Annual Report on Form 10-K and subsequent periodic reports filed with the Securities and Exchange Commission (SEC) and available on our website, www.equityapartments.com. Many of these uncertainties and risks are difficult to predict and beyond management’s control. Forward-looking statements are not guarantees of future performance, results or events. Equity Residential assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

A live web cast of the Company’s conference call discussing these results will take place tomorrow, Wednesday, May 6, 2020 at 10:00 a.m. CT. Please visit the Investor section of the Company’s web site at www.equityapartments.com for the link. A replay of the web cast will be available for two weeks at this site.

Equity Residential

Consolidated Statements of Operations

(Amounts in thousands except per share data)

(Unaudited)

 

 

Quarter Ended March 31,

 

 

2020

 

2019

REVENUES

 

 

 

 

 

 

 

 

Rental income

 

$

682,305

 

 

$

662,302

 

Fee and asset management

 

 

24

 

 

 

192

 

Total revenues

 

 

682,329

 

 

 

662,494

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

Property and maintenance

 

 

115,816

 

 

 

115,070

 

Real estate taxes and insurance

 

 

97,732

 

 

 

91,442

 

Property management

 

 

27,709

 

 

 

26,396

 

General and administrative

 

 

14,518

 

 

 

15,381

 

Depreciation

 

 

212,422

 

 

 

204,215

 

Total expenses

 

 

468,197

 

 

 

452,504

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on sales of real estate properties

 

 

207,977

 

 

 

(21

)

 

 

 

 

 

 

 

 

 

Operating income

 

 

422,109

 

 

 

209,969

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

1,936

 

 

 

581

 

Other expenses

 

 

(2,533

)

 

 

(3,275

)

Interest:

 

 

 

 

 

 

 

 

Expense incurred, net

 

 

(85,590

)

 

 

(94,938

)

Amortization of deferred financing costs

 

 

(2,041

)

 

 

(2,136

)

Income before income and other taxes, income (loss) from

investments in unconsolidated entities and net gain (loss)

on sales of land parcels

 

 

333,881

 

 

 

110,201

 

Income and other tax (expense) benefit

 

 

(53

)

 

 

(238

)

Income (loss) from investments in unconsolidated entities

 

 

(1,157

)

 

 

(707

)

Net gain (loss) on sales of land parcels

 

 

 

 

 

1

 

Net income

 

 

332,671

 

 

 

109,257

 

Net (income) loss attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(11,535

)

 

 

(3,919

)

Partially Owned Properties

 

 

(12,530

)

 

 

(799

)

Net income attributable to controlling interests

 

 

308,606

 

 

 

104,539

 

Preferred distributions

 

 

(773

)

 

 

(773

)

Net income available to Common Shares

 

$

307,833

 

 

$

103,766

 

 

 

 

 

 

 

 

 

 

Earnings per share – basic:

 

 

 

 

 

 

 

 

Net income available to Common Shares

 

$

0.83

 

 

$

0.28

 

Weighted average Common Shares outstanding

 

 

371,582

 

 

 

369,558

 

 

 

 

 

 

 

 

 

 

Earnings per share – diluted:

 

 

 

 

 

 

 

 

Net income available to Common Shares

 

$

0.83

 

 

$

0.28

 

Weighted average Common Shares outstanding

 

 

386,949

 

 

 

385,184

 

 

 

 

 

 

 

 

 

 

Distributions declared per Common Share outstanding

 

$

0.6025

 

 

$

0.5675

 

Equity Residential

Consolidated Statements of Funds From Operations and Normalized Funds From Operations

(Amounts in thousands except per share data)

(Unaudited)

 

 

 

Quarter Ended March 31,

 

 

2020

 

2019

Net income

 

$

332,671

 

 

$

109,257

 

Net (income) loss attributable to Noncontrolling Interests – Partially

Owned Properties

 

 

(12,530

)

 

 

(799

)

Preferred distributions

 

 

(773

)

 

 

(773

)

Net income available to Common Shares and Units

 

 

319,368

 

 

 

107,685

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

Depreciation

 

 

212,422

 

 

 

204,215

 

Depreciation – Non-real estate additions

 

 

(1,287

)

 

 

(1,182

)

Depreciation – Partially Owned Properties

 

 

(856

)

 

 

(903

)

Depreciation – Unconsolidated Properties

 

 

613

 

 

 

922

 

Net (gain) loss on sales of real estate properties

 

 

(207,977

)

 

 

21

 

Noncontrolling Interests share of gain (loss) on sales

of real estate properties

 

 

11,655

 

 

 

 

FFO available to Common Shares and Units

 

 

333,938

 

 

 

310,758

 

 

 

 

 

 

 

 

 

 

Adjustments (see note for additional detail):

 

 

 

 

 

 

 

 

Impairment – non-operating assets

 

 

 

 

 

 

Write-off of pursuit costs

 

 

1,627

 

 

 

1,448

 

Debt extinguishment and preferred share redemption (gains)

losses

 

 

 

 

 

 

Non-operating asset (gains) losses

 

 

441

 

 

 

229

 

Other miscellaneous items

 

 

(918

)

 

 

1,575

 

Normalized FFO available to Common Shares and Units

 

$

335,088

 

 

$

314,010

 

 

 

 

 

 

 

 

 

 

FFO

 

$

334,711

 

 

$

311,531

 

Preferred distributions

 

 

(773

)

 

 

(773

)

FFO available to Common Shares and Units

 

$

333,938

 

 

$

310,758

 

FFO per share and Unit – basic

 

$

0.87

 

 

$

0.81

 

FFO per share and Unit – diluted

 

$

0.86

 

 

$

0.81

 

 

 

 

 

 

 

 

 

 

Normalized FFO

 

$

335,861

 

 

$

314,783

 

Preferred distributions

 

 

(773

)

 

 

(773

)

Normalized FFO available to Common Shares and Units

 

$

335,088

 

 

$

314,010

 

Normalized FFO per share and Unit – basic

 

$

0.87

 

 

$

0.82

 

Normalized FFO per share and Unit – diluted

 

$

0.87

 

 

$

0.82

 

 

 

 

 

 

 

 

 

 

Weighted average Common Shares and Units outstanding – basic

 

 

384,586

 

 

 

382,477

 

Weighted average Common Shares and Units outstanding – diluted

 

 

386,949

 

 

 

385,184

 

Note: See Adjustments from FFO to Normalized FFO for additional detail regarding the adjustments from FFO to Normalized FFO. See Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms 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)

 

 

 

March 31,

 

December 31,

 

 

2020

 

2019

ASSETS

 

 

 

 

 

 

 

 

Land

 

$

5,883,065

 

 

$

5,936,188

 

Depreciable property

 

 

21,197,547

 

 

 

21,319,101

 

Projects under development

 

 

225,753

 

 

 

181,630

 

Land held for development

 

 

102,602

 

 

 

96,688

 

Investment in real estate

 

 

27,408,967

 

 

 

27,533,607

 

Accumulated depreciation

 

 

(7,420,293

)

 

 

(7,276,786

)

Investment in real estate, net

 

 

19,988,674

 

 

 

20,256,821

 

Investments in unconsolidated entities

 

 

55,866

 

 

 

52,238

 

Cash and cash equivalents

 

 

82,335

 

 

 

45,753

 

Restricted deposits

 

 

58,435

 

 

 

71,246

 

Right-of-use assets

 

 

507,962

 

 

 

512,774

 

Other assets

 

 

226,046

 

 

 

233,937

 

Total assets

 

$

20,919,318

 

 

$

21,172,769

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgage notes payable, net

 

$

1,940,745