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Equity Residential Reports First Quarter 2019 Results

CHICAGO--(BUSINESS WIRE)--

Equity Residential (EQR) today reported results for the quarter ended March 31, 2019. All per share results are reported as available to common shares/units on a diluted basis.

               
Quarter Ended March 31,  
2019   2018  

$ Change

  % Change  
Earnings Per Share (EPS) $ 0.28 $ 0.57 $ (0.29 ) (50.9 %)
Funds from Operations (FFO) per share $ 0.81 $ 0.71 $ 0.10 14.1 %
Normalized FFO per share $ 0.82 $ 0.77 $ 0.05 6.5 %
 

“We reported operating results that exceeded our expectations driven by strong demand across all our markets combined with reduced new supply in New York and Boston,” said Mark J. Parrell, Equity Residential’s President and CEO. “As we enter the busiest leasing period of the year, we are well positioned to deliver full year results near the top end of our guidance range if current trends continue. The strength of our business currently and our confidence in its long term prospects led our Board of Trustees to increase our common dividend by 5.1% in March 2019.”

Highlights

  • The Company produced same store revenue growth of 3.1% for the first quarter of 2019, which was above its expectations, with Physical Occupancy of 96.3% and Renewal Rate Achieved growth of 4.9%.
  • The Company produced Normalized FFO per share growth of 6.5% for the first quarter of 2019.
  • During the first quarter of 2019, the Company acquired three apartment properties, totaling 579 apartment units, for an aggregate purchase price of approximately $258.7 million.

Results Per Share

The change in EPS is due primarily to lower property sale gains in the first quarter of 2019, the various adjustment items listed on page 23 of this release and the items described below.

The per share change in FFO, as defined by Nareit (National Association of Real Estate Investment Trusts), 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 2019 vs.
First Quarter 2018  
Same Store Net Operating Income (NOI) $         0.03
Lease-Up NOI and other non-same store NOI 0.02
2019 and 2018 transaction activity impact on NOI 0.01
Other items, including corporate overhead 1           (0.01 )
Net $         0.05  

1 Corporate overhead includes property management and general and administrative expenses.

The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 25 through 29 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 6, 26 and 27 of this release and the Company has included guidance for 2019 Normalized FFO per share on page 24 and 2019 FFO per share and 2019 EPS on page 27 of this release.

Same Store Results and Lease Pricing Statistics

The following table shows the increases in same store results for the first quarter 2019 compared to the first quarter 2018, which includes 74,166 apartment units. The Company’s Physical Occupancy was 96.3% for the first quarter of 2019 compared to 96.0% for the first quarter of 2018.

  First Quarter 2019 vs.
First Quarter 2018
Revenues 3.1%
Expenses 4.4%
NOI 2.5%

The Company has added disclosure of Same Store Lease Pricing Statistics (New Lease Change and Renewal Rate Achieved) by market on page 13 of this release.

Investment Activity

The Company acquired three apartment properties during the first quarter of 2019, totaling 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 Jersey City, NJ, Seattle and Denver. Subsequent to the end of the first quarter, the Company acquired a 366-unit apartment property located in suburban Washington, D.C. for approximately $103.5 million at an Acquisition Capitalization Rate of 5.3%.

The Company did not sell any properties during the first quarter of 2019. Subsequent to the end of the first quarter, the Company sold a 266-unit apartment property located in New York City for approximately $237.5 million at a Disposition Yield of 4.4%.

Capital Markets Activity

On February 20, 2019, the Company closed a new $288.1 million secured loan. The loan has a 10 year term, is interest only and carries a fixed interest rate of 3.94%.

Second Quarter 2019 Guidance

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

  Q2 2019
Guidance
EPS $0.80 to $0.84
FFO per share $0.77 to $0.81
Normalized FFO per share $0.82 to $0.86

The difference between the first quarter 2019 actual EPS of $0.28 and the second quarter 2019 EPS guidance midpoint of $0.82 is due primarily to higher expected property sale gains, offset by higher expected non-cash debt extinguishment costs and the items described below.

The difference between the first quarter 2019 actual FFO of $0.81 per share and the second quarter 2019 FFO guidance midpoint of $0.79 per share is due primarily to higher expected non-cash debt extinguishment costs and the items described below.

The difference between the first quarter 2019 actual Normalized FFO of $0.82 per share and the second quarter 2019 Normalized FFO guidance midpoint of $0.84 per share is due primarily to:

  Positive/(Negative)

Impact

 
Second Quarter 2019 vs.
First Quarter 2019  
Same Store NOI $ 0.02
2019 and 2018 transaction activity impact on NOI (0.01 )
Corporate overhead   0.01  
Net $ 0.02  
 

Second Quarter 2019 Earnings and Conference Call

Equity Residential expects to announce its second quarter 2019 results on Tuesday, July 30, 2019 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, July 31, 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 310 properties consisting of 80,061 apartment units, primarily located in Boston, New York, Washington, D.C., Seattle, San Francisco, Southern California and Denver. For more information on Equity Residential, please visit our website at www.equityapartments.com.

Forward-Looking Statements

In addition to historical information, this press release contains forward-looking statements and information within the meaning of the federal securities laws. These statements are based on current expectations, estimates, projections and assumptions made by management. While Equity Residential’s management believes the assumptions underlying its forward-looking statements are reasonable, such information is inherently subject to uncertainties and may involve certain risks, including, without limitation, changes in general market conditions, including the rate of job growth and cost of labor and construction material, the level of new multifamily construction and development, competition and local government regulation. Other risks and uncertainties are described under the heading “Risk Factors” in our Annual Report on Form 10-K and subsequent periodic reports filed with the Securities and Exchange Commission (SEC) and available on our website, www.equityapartments.com. Many of these uncertainties and risks are difficult to predict and beyond management’s control. Forward-looking statements are not guarantees of future performance, results or events. Equity Residential assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

A live web cast of the Company’s conference call discussing these results will take place tomorrow, Wednesday, May 1, 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,  
2019     2018  
REVENUES
Rental income $ 662,302 $ 632,831
Fee and asset management   192     185  
Total revenues   662,494     633,016  
 
EXPENSES
Property and maintenance 115,070 108,202
Real estate taxes and insurance 91,442 91,914
Property management 26,396 23,444
General and administrative 15,381 16,278
Depreciation   204,215     196,309  
Total expenses 452,504 436,147
 
Net gain (loss) on sales of real estate properties   (21 )   142,213  
 
Operating income 209,969 339,082
 
Interest and other income 581 5,880
Other expenses (3,275 ) (3,441 )
Interest:
Expense incurred, net (94,938 ) (116,104 )
Amortization of deferred financing costs   (2,136 )   (3,679 )
Income before income and other taxes, income (loss) from
investments in unconsolidated entities and net gain (loss)
on sales of land parcels 110,201 221,738
Income and other tax (expense) benefit (238 ) (213 )
Income (loss) from investments in unconsolidated entities (707 ) (977 )
Net gain (loss) on sales of land parcels   1      
Net income 109,257 220,548
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership (3,919 ) (8,059 )
Partially Owned Properties   (799 )   (680 )
Net income attributable to controlling interests 104,539 211,809
Preferred distributions   (773 )   (773 )
Net income available to Common Shares $ 103,766   $ 211,036  
 
Earnings per share – basic:
Net income available to Common Shares $ 0.28   $ 0.57  
Weighted average Common Shares outstanding   369,558     367,800  
 
Earnings per share – diluted:
Net income available to Common Shares $ 0.28   $ 0.57  
Weighted average Common Shares outstanding   385,184     383,018  
 
Distributions declared per Common Share outstanding $ 0.5675   $ 0.54  
 
Equity Residential
Consolidated Statements of Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per share data)
(Unaudited)

 

  Quarter Ended March 31,
2019   2018
Net income $ 109,257 $ 220,548

Net (income) loss attributable to Noncontrolling Interests – Partially

Owned Properties (799

)

(680 )
Preferred distributions   (773 )   (773 )
Net income available to Common Shares and Units 107,685 219,095
 
Adjustments:
Depreciation 204,215 196,309
Depreciation – Non-real estate additions (1,182 ) (1,145 )
Depreciation – Partially Owned Properties (903 ) (1,032 )
Depreciation – Unconsolidated Properties 922 1,148
Net (gain) loss on sales of real estate properties   21     (142,213 )
FFO available to Common Shares and Units 310,758 272,162
 
Adjustments (see page 23 for additional detail):
Impairment – non-operating assets
Write-off of pursuit costs 1,448 931
Debt extinguishment and preferred share redemption (gains)
losses 23,539
Non-operating asset (gains) losses 229 213
Other miscellaneous items   1,575     (3,239 )
Normalized FFO available to Common Shares and Units $ 314,010   $ 293,606  
 
FFO $ 311,531 $ 272,935
Preferred distributions   (773 )   (773 )
FFO available to Common Shares and Units $ 310,758   $ 272,162  
FFO per share and Unit – basic $ 0.81   $ 0.71  
FFO per share and Unit – diluted $ 0.81   $ 0.71  
 
Normalized FFO $ 314,783 $ 294,379
Preferred distributions   (773 )   (773 )
Normalized FFO available to Common Shares and Units $ 314,010   $ 293,606  
Normalized FFO per share and Unit – basic $ 0.82   $ 0.77  
Normalized FFO per share and Unit – diluted $ 0.82   $ 0.77  
 
Weighted average Common Shares and Units outstanding – basic   382,477     380,663  
Weighted average Common Shares and Units outstanding – diluted   385,184     383,018  

Note: See page 23 for additional detail regarding the adjustments from FFO to Normalized FFO. See pages 25 through 29 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.

 
Equity Residential
Consolidated Balance Sheets
(Amounts in thousands except for share amounts)
(Unaudited)
   
March 31, December 31,
2019   2018  
ASSETS
Land $ 5,918,994 $ 5,875,803
Depreciable property 20,691,304 20,435,901
Projects under development 135,191 109,409
Land held for development   91,647     89,909  
Investment in real estate 26,837,136 26,511,022
Accumulated depreciation   (6,900,496 )   (6,696,281 )
Investment in real estate, net 19,936,640 19,814,741
Investments in unconsolidated entities 62,853 58,349
Cash and cash equivalents 29,391 47,442
Restricted deposits 64,115 68,871
Right-of-use assets 434,683
Other assets   241,129     404,806  
Total assets $ 20,768,811   $ 20,394,209  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 2,671,491 $ 2,385,470
Notes, net 5,936,335 5,933,286
Line of credit and commercial paper 344,844 499,183
Accounts payable and accrued expenses 152,831 102,471
Accrued interest payable 74,028 62,622
Lease liabilities 282,237
Other liabilities 321,172 358,563
Security deposits 68,335 67,258
Distributions payable   218,471     206,601  
Total liabilities   10,069,744     9,615,454  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   432,562     379,106  
Equity:
Shareholders’ equity:
Preferred Shares of beneficial interest, $0.01 par value;
100,000,000 shares authorized; 745,600 shares issued and
outstanding as of March 31, 2019 and December 31, 2018 37,280 37,280
Common Shares of beneficial interest, $0.01 par value;
1,000,000,000 shares authorized; 370,462,401 shares issued
and outstanding as of March 31, 2019 and 369,405,161
shares issued and outstanding as of December 31, 2018 3,705 3,694
Paid in capital 8,925,882 8,935,453
Retained earnings 1,155,032 1,261,763
Accumulated other comprehensive income (loss)   (75,013 )   (64,986 )
Total shareholders’ equity 10,046,886 10,173,204
Noncontrolling Interests:
Operating Partnership 225,081 228,738
Partially Owned Properties   (5,462 )   (2,293 )
Total Noncontrolling Interests   219,619     226,445  
Total equity   10,266,505     10,399,649  
Total liabilities and equity $ 20,768,811   $ 20,394,209  
 

Equity Residential

Portfolio Summary

As of March 31, 2019

 
              % of

Stabilized

  Average
Apartment Budgeted Rental
Markets/Metro Areas Properties   Units   NOI   Rate
 
Los Angeles 70 15,968 18.4 % $ 2,572
Orange County 13 4,028 4.3 % 2,215
San Diego   12     3,385     3.8 %   2,373
Subtotal – Southern California 95 23,381 26.5 % 2,481
 
San Francisco 55 13,424 20.5 % 3,217
Washington DC 49 16,050 16.9 % 2,401
New York 38 9,872 15.3 % 3,874
Boston 25 6,641 10.1 % 3,078
Seattle 42 8,612 9.7 % 2,383
Denver 3 1,000 1.0 % 2,261
Other Markets   1     136     %   1,286
Total 308 79,116 100.0 % 2,799
 
Unconsolidated Properties   2     945        
 
Grand Total   310     80,061     100.0 % $ 2,799

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

 
Equity Residential
 
Portfolio as of March 31, 2019
 
  Properties     Apartment Units
     
Wholly Owned Properties 290 75,419
Master-Leased Properties - Consolidated 1 162
Partially Owned Properties - Consolidated 17 3,535
Partially Owned Properties - Unconsolidated   2     945
 
  310     80,061
 
Portfolio Rollforward Q1 2019
($ in thousands)
 
    Properties     Apartment

Units

    Purchase Price     Acquisition

Cap Rate

 
           
12/31/2018 307 79,482
 
Acquisitions:
Consolidated:
Rental Properties 2 305 $ 148,150 4.6 %
Rental Properties – Not Stabilized (A) 1 274 $ 110,500 4.6 %
           
 
3/31/2019   310     80,061  
(A)   The Company acquired one property in Denver in the first quarter of 2019 that was in the final stages of completing lease-up and is expected to stabilize in its second year of ownership at an Acquisition Cap Rate of 4.6%.
 
Equity Residential
 
First Quarter 2019 vs. First Quarter 2018
Same Store Results/Statistics for 74,166 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
  Results     Statistics  
Description Revenues     Expenses     NOI   Average

Rental

Rate

    Physical

Occupancy

    Turnover  
   
Q1 2019 $ 622,603 $ 191,323 $ 431,280 $ 2,796 96.3 % 9.9 %
Q1 2018 $ 603,797   $ 183,181   $ 420,616   $ 2,721     96.0 %   10.8 %
 
Change $ 18,806   $ 8,142   $ 10,664   $ 75     0.3 %   (0.9 %)
 
Change 3.1 % 4.4 % 2.5 % 2.8 %
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