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Equity Residential Reports Full Year 2019 Results

Provides Outlook for 2020

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended December 31,

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

 

 

Earnings Per Share (EPS)

 

$

0.77

 

 

$

0.31

 

 

$

0.46

 

 

 

148.4

%

 

 

Funds from Operations (FFO) per share

 

$

0.86

 

 

$

0.84

 

 

$

0.02

 

 

 

2.4

%

 

 

Normalized FFO per share

 

$

0.91

 

 

$

0.84

 

 

$

0.07

 

 

 

8.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

 

 

Earnings Per Share (EPS)

 

$

2.60

 

 

$

1.77

 

 

$

0.83

 

 

 

46.9

%

 

 

Funds from Operations (FFO) per share

 

$

3.39

 

 

$

3.14

 

 

$

0.25

 

 

 

8.0

%

 

 

Normalized FFO per share

 

$

3.49

 

 

$

3.25

 

 

$

0.24

 

 

 

7.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"Equity Residential had a very good 2019. Strong demand and record resident satisfaction and retention drove same store revenue growth to the high end of our original expectations. Also, Normalized FFO grew by a healthy 7.4%, which was above our expectations. Thanks to the entire Equity Residential team for all they did to accomplish this," said Mark J. Parrell, Equity Residential’s President and CEO. "We expect a consistently growing economy in 2020 to create steady demand to absorb the continuing elevated levels of new supply that will be delivered in most of our markets. This, combined with the impact of the new rent control regulations in California and New York, leads us to anticipate same store revenue growth slightly below our 2019 result."

Company Highlights

  • Produced same store revenue growth of 3.2% for the fourth quarter of 2019, with Physical Occupancy of 96.1% and Renewal Rate Achieved growth of 4.8%. For the full year 2019, produced same store revenue growth of 3.2% with Physical Occupancy of 96.4% and Renewal Rate Achieved growth of 4.9%.
  • Produced Normalized FFO per share growth of 8.3% for the fourth quarter of 2019 and 7.4% for the full year 2019.
  • During the fourth quarter of 2019, acquired three apartment properties, totaling 812 apartment units, for an aggregate purchase price of approximately $370.1 million.
  • Planned annualized increase of 6.2% in its 2020 common share dividend.
  • Continued to enhance its operating platform in 2019, including roll-outs of self-guided tours, application of artificial intelligence to leasing and installation of smart home technology at selected properties, and it plans a significant acceleration of these activities in 2020.
  • Enhanced its balance sheet, liquidity and financial flexibility to support its business objectives and growth through increasing the size of its revolving credit facility to $2.5 billion from $2.0 billion and increasing the maximum size of its unsecured commercial paper program from $500.0 million to $1.0 billion.

Results Per Share

The change in EPS for both the quarter and year ended December 31, 2019 compared to the same periods of 2018, are due primarily to higher property and unconsolidated sale gains in the fourth quarter and/or full year of 2019, the various adjustment items listed on page 25 of this release and the items described below.

The per share changes in FFO for both the quarter and year ended December 31, 2019 compared to the same periods of 2018, are due primarily to the various adjustment items listed on page 25 of this release and the items described below.

The per share changes in Normalized FFO are due primarily to:

 

 

Positive/(Negative) Impact

 

 

 

Fourth Quarter 2019 vs.
Fourth Quarter 2018

 

 

Full Year 2019 vs.
Full Year 2018

 

Same Store NOI

 

$

0.04

 

 

$

0.13

 

Lease-Up NOI and other non-same store NOI

 

 

0.01

 

 

 

0.07

 

2019 and 2018 transaction activity impact on NOI

 

 

0.02

 

 

 

0.05

 

Interest expense

 

 

0.01

 

 

 

0.02

 

Other items

 

 

(0.01

)

 

 

(0.03

)

Net

 

$

0.07

 

 

$

0.24

 

The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 27 through 32 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 7, 29 and 30 of this release and the Company has included guidance for 2020 Normalized FFO per share on page 26 and 2020 FFO per share and 2020 EPS on page 30 of this release.

Same Store Results

The following table shows the increases in same store results for the fourth quarter 2019 to fourth quarter 2018 comparison, which includes 75,816 apartment units, and for the year ended December 31, 2019 to year ended December 31, 2018 comparison, which includes 71,830 apartment units. The Company’s Physical Occupancy was 96.1% compared to 96.2% for the fourth quarter of 2019 and 2018, respectively, and 96.4% compared to 96.2% for the full years 2019 and 2018, respectively.

 

 

Fourth Quarter 2019 vs.
Fourth Quarter 2018

 

 

Full Year 2019 vs.
Full Year 2018

 

Revenues

 

3.2%

 

 

3.2%

 

Expenses

 

3.0%

 

 

3.7%

 

NOI

 

3.2%

 

 

3.0%

 

Operating Initiatives

In 2020, the Company will accelerate the deployment of the following initiatives aimed at delighting our customers, improving the efficiency of our operating platform and providing enhanced career opportunities for our employees:

  • Smart Home Technology: The installation of smart home technology in an additional 10,000 apartment units at a cost of approximately $1,000 per unit (included in the Company’s capital expenditures guidance on page 26). The Company expects to receive a rent premium of approximately $30 per month per apartment unit;
  • Sales-Focused Improvements: Full deployment of an AI-enabled sales tool, self-guided tours and a new mobile customer relationship management platform, resulting in efficiencies across the sales function; and
  • Service Enhancements: Full deployment of service mobility, creating efficiencies in the service function by driving improved service personnel utilization and enhanced outsourcing decision quality.

The Company expects the impact of these initiatives to deliver approximately $15 million in annual NOI improvements once fully deployed with approximately $5 million of that NOI benefit expected in 2020. These early stage initiatives provide a foundation upon which the Company will build in 2021 and beyond.

Investment Activity

The Company acquired three apartment properties during the fourth quarter of 2019, totaling 812 apartment units, for an aggregate purchase price of approximately $370.1 million at a weighted average Acquisition Capitalization Rate of 4.8%. Two of the properties are located in Seattle and the other in suburban Washington, D.C.

The Company sold two properties during the fourth quarter of 2019, totaling 1,159 apartment units, for an aggregate sale price of approximately $374.0 million at a weighted average Disposition Yield of 4.8%, generating an Unlevered IRR of 7.6%. The properties are located in suburban Washington, D.C.

During 2019, the Company acquired 13 properties, totaling 3,540 apartment units, for an aggregate purchase price of approximately $1.49 billion at a weighted average Acquisition Capitalization Rate of 4.7%.

During 2019, the Company sold 11 wholly-owned properties, totaling 2,361 apartment units, for an aggregate sale price of approximately $1.08 billion at a weighted average Disposition Yield of 4.6%, generating an Unlevered IRR of 7.8%. During 2019, the Company also sold two unconsolidated properties, totaling 945 apartment units, for an aggregate sale price of approximately $394.5 million at a weighted average Disposition Yield of 4.7%, received net proceeds of approximately $78.3 million and recognized a GAAP gain on sale of approximately $69.5 million from these sales.

Capital Markets Activity

On November 1, 2019, the Company’s operating partnership entered into a $2.5 billion multi-currency revolving credit facility, replacing its existing $2.0 billion credit agreement. The new facility matures on November 1, 2024, and can be extended or increased, subject to lender consent and customary conditions. The interest rate and facility fees are based on the operating partnership’s long-term unsecured credit ratings.

In addition, the operating partnership increased the maximum size for its unsecured commercial paper note program from $500.0 million to $1.0 billion. The notes will be sold under customary terms in the United States commercial paper note market and will rank pari passu with all of the other unsecured senior indebtedness of the operating partnership.

On December 6, 2019, the Company redeemed $600.0 million in 4.75% unsecured notes originally due to mature on July 15, 2020. In conjunction with the redemption, the Company incurred approximately $11.6 million in debt extinguishment costs, of which $10.3 million represented cash prepayment penalties and $1.3 million represented non-cash write-offs of unamortized debt discounts and deferred financing costs, all of which are not included in Normalized FFO. The Company's strong liquidity profile as a result of the credit facility and commercial paper program activity discussed above allowed for this early redemption.

2020 Common Share Dividend

The Company expects to declare a common share dividend of $0.6025 per share for the first quarter of 2020, which is an annualized increase of approximately 6.2% over the 2019 dividend. This increase is driven by the Company’s continued strong cash flow performance, solid balance sheet and modest payout ratio. The first quarter dividend and all future dividends remain subject to the discretion of the Company’s Board of Trustees.

First Quarter 2020 Guidance

The Company has established guidance ranges for the first quarter of 2020 EPS, FFO per share and Normalized FFO per share as listed below:

 

 

Q1 2020
Guidance

EPS

 

$0.98 to $1.02

FFO per share

 

$0.83 to $0.87

Normalized FFO per share

 

$0.84 to $0.88

The difference between the fourth quarter 2019 actual EPS of $0.77 and the first quarter 2020 EPS guidance midpoint of $1.00 is due primarily to higher expected property sale gains, lower expected debt extinguishment costs and the items described below.

The difference between the fourth quarter 2019 actual FFO of $0.86 per share and the first quarter 2020 FFO guidance midpoint of $0.85 per share is due primarily to lower expected debt extinguishment costs and the items described below.

The difference between the fourth quarter 2019 actual Normalized FFO of $0.91 per share and the first quarter 2020 Normalized FFO guidance midpoint of $0.86 per share is due primarily to:

 

 

Positive/(Negative)
Impact

 

 

 

 

First Quarter 2020 vs.
Fourth Quarter 2019

 

 

Same Store NOI

 

$

(0.02

)

 

2020 and 2019 transaction activity impact on NOI

 

 

(0.01

)

 

Interest expense

 

 

0.01

 

 

Corporate overhead

 

 

(0.02

)

 

Other items

 

 

(0.01

)

 

Net

 

$

(0.05

)

 

Full Year 2020 Guidance

The Company has provided guidance for its full year 2020 same store operating performance, EPS, FFO per share, Normalized FFO per share, transactions and debt offerings as listed below:

Same Store:

 

 

 

 

Physical Occupancy

 

96.4%

 

Revenue change

 

2.3% to 3.3%

 

Expense change

 

3.0% to 4.0%

 

NOI change

 

1.5% to 3.5%

 

 

 

 

 

 

EPS

 

$2.64 to $2.74

 

FFO per share

 

$3.57 to $3.67

 

Normalized FFO per share

 

$3.59 to $3.69

 

 

 

 

 

 

Transactions:

 

 

 

 

Consolidated rental acquisitions

 

$1.25 billion

 

Consolidated rental dispositions

 

$1.0 billion

 

Transaction Accretion (Dilution)

 

(25 basis points)

 

 

 

 

 

 

Debt Offerings

 

$600.0 million to $1.0 billion

 

The difference between the Company’s full year 2019 actual EPS of $2.60 and the full year 2020 EPS guidance midpoint of $2.69 is due primarily to lower expected property sale gains, lower expected debt extinguishment costs, lower expected depreciation expense and the items described below.

The difference between the Company’s full year 2019 actual FFO of $3.39 per share and the full year 2020 FFO guidance midpoint of $3.62 per share is due primarily to lower expected debt extinguishment costs and the items described below.

The difference between the Company’s full year 2019 actual Normalized FFO of $3.49 per share and the full year 2020 Normalized FFO guidance midpoint of $3.64 per share is due primarily to:

 

 

Positive/(Negative)
Impact

 

 

 

Full Year 2020 vs.
Full Year 2019

 

Same Store NOI

 

$

0.11

 

Lease-Up NOI

 

 

0.01

 

Interest expense

 

 

0.07

 

Corporate overhead

 

 

(0.01

)

Other items

 

 

(0.03

)

Net

 

$

0.15

 

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 309 properties consisting of 79,962 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, January 29, 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)

 

 

Year Ended December 31,

 

 

Quarter Ended December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

2,700,691

 

 

$

2,577,681

 

 

$

683,895

 

 

$

652,553

 

Fee and asset management

 

 

384

 

 

 

753

 

 

 

24

 

 

 

190

 

Total revenues

 

 

2,701,075

 

 

 

2,578,434

 

 

 

683,919

 

 

 

652,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and maintenance

 

 

446,845

 

 

 

429,335

 

 

 

108,348

 

 

 

106,848

 

Real estate taxes and insurance

 

 

366,139

 

 

 

357,814

 

 

 

95,705

 

 

 

89,030

 

Property management

 

 

95,344

 

 

 

92,485

 

 

 

22,639

 

 

 

23,310

 

General and administrative

 

 

52,757

 

 

 

53,813

 

 

 

11,630

 

 

 

12,393

 

Depreciation

 

 

831,083

 

 

 

785,725

 

 

 

214,882

 

 

 

201,856

 

Total expenses

 

 

1,792,168

 

 

 

1,719,172

 

 

 

453,204

 

 

 

433,437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on sales of real estate properties

 

 

447,637

 

 

 

256,810

 

 

 

178,237

 

 

 

(24

)

Impairment

 

 

 

 

 

(702

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

1,356,544

 

 

 

1,115,370

 

 

 

408,952

 

 

 

219,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

2,817

 

 

 

15,317

 

 

 

596

 

 

 

457

 

Other expenses

 

 

(18,177

)

 

 

(17,267

)

 

 

(6,972

)

 

 

(2,396

)

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expense incurred, net

 

 

(390,076

)

 

 

(413,360

)

 

 

(100,300

)

 

 

(91,906

)

Amortization of deferred financing costs

 

 

(11,670

)

 

 

(11,310

)

 

 

(3,006

)

 

 

(2,256

)

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

investments in unconsolidated entities and net gain (loss)

on sales of land parcels

 

 

939,438

 

 

 

688,750

 

 

 

299,270

 

 

 

123,181

 

Income and other tax (expense) benefit

 

 

2,281

 

 

 

(878

)

 

 

3,030

 

 

 

(111

)

Income (loss) from investments in unconsolidated entities

 

 

65,945

 

 

 

(3,667

)

 

 

(961

)

 

 

(674

)

Net gain (loss) on sales of land parcels

 

 

2,044

 

 

 

987

 

 

 

(33

)

 

 

(8

)

Net income

 

 

1,009,708

 

 

 

685,192

 

 

 

301,306

 

 

 

122,388

 

Net (income) loss attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(36,034

)

 

 

(24,939

)

 

 

(10,695

)

 

 

(4,422

)

Partially Owned Properties

 

 

(3,297

)

 

 

(2,718

)

 

 

(847

)

 

 

(779

)

Net income attributable to controlling interests

 

 

970,377

 

 

 

657,535

 

 

 

289,764

 

 

 

117,187

 

Preferred distributions

 

 

(3,090

)

 

 

(3,090

)

 

 

(772

)

 

 

(772

)

Net income available to Common Shares

 

$

967,287

 

 

$

654,445

 

 

$

288,992

 

 

$

116,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Common Shares

 

$

2.61

 

 

$

1.78

 

 

$

0.78

 

 

$

0.32

 

Weighted average Common Shares outstanding

 

 

370,461

 

 

 

368,052

 

 

 

371,155

 

 

 

368,445

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Common Shares

 

$

2.60

 

 

$

1.77

 

 

$

0.77

 

 

$

0.31

 

Weighted average Common Shares outstanding

 

 

386,333

 

 

 

383,695

 

 

 

387,143

 

 

 

384,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared per Common Share outstanding

 

$

2.27

 

 

$

2.16

 

 

$

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)

 

 

Year Ended December 31,

 

 

Quarter Ended December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

1,009,708

 

 

$

685,192

 

 

$

301,306

 

 

$

122,388

 

Net (income) loss attributable to Noncontrolling Interests – Partially

Owned Properties

 

 

(3,297

)

 

 

(2,718

)

 

 

(847

)

 

 

(779

)

Preferred distributions

 

 

(3,090

)

 

 

(3,090

)

 

 

(772

)

 

 

(772

)

Net income available to Common Shares and Units

 

 

1,003,321

 

 

 

679,384

 

 

 

299,687

 

 

 

120,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

831,083

 

 

 

785,725

 

 

 

214,882

 

 

 

201,856

 

Depreciation – Non-real estate additions

 

 

(5,585

)

 

 

(4,561

)

 

 

(1,350

)

 

 

(1,164

)

Depreciation – Partially Owned Properties

 

 

(3,599

)

 

 

(3,740

)

 

 

(899

)

 

 

(903

)

Depreciation – Unconsolidated Properties

 

 

2,997

 

 

 

4,451

 

 

 

612

 

 

 

1,004

 

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

assets

 

 

(69,522

)

 

 

 

 

 

 

 

 

 

Net (gain) loss on sales of real estate properties

 

 

(447,637

)

 

 

(256,810

)

 

 

(178,237

)

 

 

24

 

Noncontrolling Interests share of gain (loss) on sales

of real estate properties

 

 

 

 

 

(284

)

 

 

 

 

 

 

Impairment – operating assets

 

 

 

 

 

702

 

 

 

 

 

 

 

FFO available to Common Shares and Units

 

 

1,311,058

 

 

 

1,204,867

 

 

 

334,695

 

 

 

321,654

 

 

 

 

 

 

 

 

 

...