Equity Residential Reports First Quarter 2017 Results

CHICAGO--()--Equity Residential (NYSE: EQR) today reported results for the quarter ended March 31, 2017. All per share results are reported as available to common shares/units on a diluted basis.

“Rental demand remains very strong across the nation’s coastal, gateway cities but new apartment supply continues to pressure new lease rates,” said David J. Neithercut, Equity Residential’s President and CEO. “Nevertheless, we achieved renewal rates of 4.3% in the first quarter and, as we approach our primary leasing season with occupancy of 96%, we are well positioned to meet our operating goals for the year.”

First Quarter 2017

Earnings per Share (EPS) for the first quarter of 2017 was $0.39 compared to $9.76 in the first quarter of 2016. The difference is due primarily to $9.64 per share in higher property sale gains as a result of the Company’s significant property sales activity in 2016, the various adjustment items listed on page 22 of this release and the items described below.

FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), was $0.76 per share for the first quarter of 2017 compared to $0.47 per share in the first quarter of 2016. The difference is due primarily to the various adjustment items listed on page 22 of this release and the items described below.

Normalized FFO for the first quarter of 2017 was $0.74 per share compared to $0.76 per share in the first quarter of 2016. The following items impacted Normalized FFO per share in the quarter:

  • A positive impact of approximately $0.02 per share from increased same store net operating income (NOI);
  • A positive impact of approximately $0.03 per share from Lease-Up NOI;
  • A positive impact of approximately $0.01 per share from lower corporate overhead (property management and general and administrative expenses); and
  • A negative impact of approximately $0.08 per share of lower NOI primarily as a result of the Company’s 2016 disposition activity.

Reconciliations and definitions of FFO and Normalized FFO are provided on pages 5, 25 and 26 of this release and the Company has included guidance for Normalized FFO on page 23 and FFO and EPS on page 26 of this release.

Same Store Results

On a same store first quarter to first quarter comparison, which includes 71,000 apartment units, revenues increased 2.6%, expenses increased 3.9% and NOI increased 2.1%. Average Rental Rate increased 2.6% and occupancy was flat at 95.9%.

Investment Activity

The Company sold one consolidated apartment property, consisting of 304 apartment units, for a sale price of $47.6 million at a Disposition Yield of 6.7% and generating an Unlevered IRR of 17.1%. The Company also sold one land parcel located in New York City for a sale price of approximately $33.5 million. The Company did not acquire any properties during the first quarter of 2017.

Also during the quarter, the Company stabilized its 453 unit Potrero 1010 development in San Francisco at a Development Yield of 5.9%.

Second Quarter 2017 Guidance

The Company has established an EPS guidance range of $0.51 to $0.55 for the second quarter of 2017. The difference between the Company’s first quarter 2017 EPS of $0.39 and the midpoint of the second quarter 2017 guidance range of $0.53 is due primarily to higher expected gains on property sales and the items described below.

The Company has established an FFO guidance range of $0.75 to $0.79 per share for the second quarter of 2017. The difference between the Company’s first quarter 2017 FFO of $0.76 per share and the midpoint of the second quarter 2017 guidance range of $0.77 per share is due primarily to lower expected debt extinguishment costs, lower expected gains on land parcel sales and the items described below.

The Company has established a Normalized FFO guidance range of $0.75 to $0.79 per share for the second quarter of 2017. The difference between the Company’s first quarter 2017 Normalized FFO of $0.74 per share and the midpoint of the second quarter 2017 guidance range of $0.77 per share is due primarily to:

  • A positive impact of approximately $0.02 per share from increased same store NOI;
  • A positive impact of approximately $0.01 per share from Lease-Up NOI;
  • A positive impact of approximately $0.01 per share from lower total interest expense; and
  • A negative impact of approximately $0.01 per share of lower NOI primarily as a result of the Company’s disposition activity.

Glossary of Terms and Definitions

To improve comparability and enhance disclosure, the Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 24 through 27 of this release.

Second Quarter 2017 Earnings and Conference Call

Equity Residential expects to announce second quarter 2017 results on Tuesday, July 25, 2017 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, July 26, 2017.

About Equity Residential

Equity Residential is an S&P 500 company focused on the acquisition, development and management of rental apartment properties in urban and high-density suburban coastal gateway markets where today’s renters want to live, work and play. Equity Residential owns or has investments in 302 properties consisting of 77,498 apartment units, primarily located in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California. 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, April 26, at 10:00 a.m. Central. 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,  
2017     2016  
REVENUES
Rental income $ 603,920 $ 616,165
Fee and asset management   180     2,918  
Total revenues   604,100     619,083  
 
EXPENSES
Property and maintenance 102,608 109,165
Real estate taxes and insurance 81,728 80,196
Property management 22,252 23,495
General and administrative 14,173 16,717
Depreciation   178,968     172,885  
Total expenses   399,729     402,458  
 
Operating income 204,371 216,625
 
Interest and other income 601 3,058
Other expenses (1,090 ) (2,556 )
Interest:
Expense incurred, net (106,210 ) (213,492 )
Amortization of deferred financing costs   (2,296 )   (5,394 )
Income (loss) before income and other taxes, (loss) from investments in

unconsolidated entities, net gain on sales of real estate properties and land

parcels and discontinued operations

95,376 (1,759 )
Income and other tax (expense) benefit (262 ) (350 )
(Loss) from investments in unconsolidated entities (1,073 ) (1,104 )
Net gain on sales of real estate properties 36,707 3,723,479
Net gain on sales of land parcels   19,193     11,722  
Income from continuing operations 149,941 3,731,988
Discontinued operations, net       (157 )
Net income 149,941 3,731,831
Net (income) attributable to Noncontrolling Interests:
Operating Partnership (5,411 ) (143,309 )
Partially Owned Properties   (788 )   (764 )
Net income attributable to controlling interests 143,742 3,587,758
Preferred distributions   (773 )   (773 )
Net income available to Common Shares $ 142,969   $ 3,586,985  
 
Earnings per share – basic:
Income from continuing operations available to Common Shares $ 0.39   $ 9.84  
Net income available to Common Shares $ 0.39   $ 9.84  
Weighted average Common Shares outstanding   366,605     364,592  
 
Earnings per share – diluted:
Income from continuing operations available to Common Shares $ 0.39   $ 9.76  
Net income available to Common Shares $ 0.39   $ 9.76  
Weighted average Common Shares outstanding   382,280     382,243  
 
Distributions declared per Common Share outstanding $ 0.50375   $ 8.50375  
 
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,  
2017     2016  
Net income $ 149,941 $ 3,731,831
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties (788 ) (764 )
Preferred distributions   (773 )   (773 )
Net income available to Common Shares and Units 148,380 3,730,294
 
Adjustments:
Depreciation 178,968 172,885
Depreciation – Non-real estate additions (1,298 ) (1,408 )
Depreciation – Partially Owned Properties (832 ) (994 )
Depreciation – Unconsolidated Properties 1,142 1,233
Net (gain) on sales of unconsolidated entities - operating assets (68 )
Net (gain) on sales of real estate properties (36,707 ) (3,723,479 )
Discontinued operations:
Net (gain) on sales of discontinued operations       (15 )
FFO available to Common Shares and Units 289,585 178,516
 
Adjustments (see page 22 for additional detail):
Asset impairment and valuation allowances
Write-off of pursuit costs 715 1,448
Debt extinguishment (gains) losses, including prepayment penalties, preferred

share redemptions and non-cash convertible debt discounts

12,304 120,097
(Gains) losses on sales of non-operating assets, net of income and other tax

expense (benefit)

(18,892 ) (11,977 )
Other miscellaneous items   9     1,397  
Normalized FFO available to Common Shares and Units $ 283,721   $ 289,481  
 
FFO $ 290,358 $ 179,289
Preferred distributions   (773 )   (773 )
FFO available to Common Shares and Units $ 289,585   $ 178,516  
FFO per share and Unit - basic $ 0.76   $ 0.47  
FFO per share and Unit - diluted $ 0.76   $ 0.47  
 
Normalized FFO $ 284,494 $ 290,254
Preferred distributions   (773 )   (773 )
Normalized FFO available to Common Shares and Units $ 283,721   $ 289,481  
Normalized FFO per share and Unit - basic $ 0.75   $ 0.77  
Normalized FFO per share and Unit - diluted $ 0.74   $ 0.76  
 
Weighted average Common Shares and Units outstanding - basic   379,504     378,289  
Weighted average Common Shares and Units outstanding - diluted   382,280     382,243  
 

Note: See page 22 for additional detail regarding the adjustments from FFO to Normalized FFO. See pages 24 through 27 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,
2017   2016  
ASSETS
Investment in real estate
Land $ 5,902,186 $ 5,899,862
Depreciable property 18,798,554 18,730,579
Projects under development 666,228 637,168
Land held for development   109,136     118,816  
Investment in real estate 25,476,104 25,386,425
Accumulated depreciation   (5,526,586 )   (5,360,389 )
Investment in real estate, net 19,949,518 20,026,036
Cash and cash equivalents 42,139 77,207
Investments in unconsolidated entities 59,483 60,141
Deposits – restricted 76,053 76,946
Escrow deposits – mortgage 68,031 64,935
Other assets   413,114     398,883  
Total assets $ 20,608,338   $ 20,704,148  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 3,766,762 $ 4,119,181
Notes, net 4,848,477 4,848,079
Line of credit and commercial paper 314,686 19,998
Accounts payable and accrued expenses 165,640 147,482
Accrued interest payable 74,383 60,946
Other liabilities 308,466 350,466
Security deposits 63,124 62,624
Distributions payable   191,641     192,296  
Total liabilities   9,733,179     9,801,072  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   359,733     442,092  
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, 2017 and December 31, 2016

37,280 37,280
Common Shares of beneficial interest, $0.01 par value;

1,000,000,000 shares authorized; 367,137,757 shares issued

and outstanding as of March 31, 2017 and 365,870,924 shares

issued and outstanding as of December 31, 2016

3,671 3,659
Paid in capital 8,846,997 8,758,422
Retained earnings 1,501,654 1,543,626
Accumulated other comprehensive (loss)   (109,326 )   (113,909 )
Total shareholders’ equity 10,280,276 10,229,078
Noncontrolling Interests:
Operating Partnership 228,762 221,297
Partially Owned Properties   6,388     10,609  
Total Noncontrolling Interests   235,150     231,906  
Total equity   10,515,426     10,460,984  
Total liabilities and equity $ 20,608,338   $ 20,704,148  
 

Equity Residential

Portfolio Summary

As of March 31, 2017

 
              % of   Average
Apartment Stabilized Rental
Markets/Metro Areas Properties   Units   NOI   Rate
 
Los Angeles 70 15,857 18.3 % $ 2,396
Orange County 13 4,028 4.3 % 2,068
San Diego   13     3,505     3.9 %   2,220
Subtotal – Southern California 96 23,390 26.5 % 2,310
 
San Francisco 54 12,959 19.6 % 3,047
New York 40 10,632 17.9 % 3,734
Washington DC 47 15,637 17.6 % 2,343
Boston 25 6,703 10.4 % 2,850
Seattle 37 7,096 8.0 % 2,172
Other Markets   1     136     %   1,141
Total 300 76,553 100.0 % 2,675
 
Unconsolidated Properties   2     945        
 
Grand Total   302     77,498     100.0 % $ 2,675
 

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

 

Equity Residential

 

Portfolio as of March 31, 2017

 
  Properties     Apartment Units
     
Wholly Owned Properties 280 72,485
Master-Leased Properties - Consolidated 3 853
Partially Owned Properties - Consolidated 17 3,215
Partially Owned Properties - Unconsolidated   2     945
 
  302     77,498
               
 
Portfolio Rollforward Q1 2017

($ in thousands)

 
      Apartment     Disposition
Properties   Units   Sales Price   Yield
12/31/2016   302   77,458  
 
Dispositions:
Consolidated:
Rental Properties (1 ) (304 ) $ (47,600 ) (6.7 %)
Land Parcels $ (33,450 )
Completed Developments - Consolidated   1     344  
 
3/31/2017   302     77,498  
 

Equity Residential

 
First Quarter 2017 vs. First Quarter 2016
Same Store Results/Statistics for 71,000 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results     Statistics
Description Revenues     Expenses     NOI   Average

Rental

Rate

    Physical

Occupancy

    Turnover
   
Q1 2017 $ 560,236 $ 167,316 $ 392,920 $ 2,633 95.9 % 10.4 %
Q1 2016 $ 545,846   $ 161,004   $ 384,842   $ 2,566     95.9 %   10.9 %
 
Change $ 14,390   $ 6,312   $ 8,078   $ 67         (0.5 )%
 
Change 2.6 % 3.9 % 2.1 % 2.6 %
                                                 
 
First Quarter 2017 vs. Fourth Quarter 2016
Same Store Results/Statistics for 73,412 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results   Statistics
    Average    
Rental Physical
Description Revenues   Expenses   NOI Rate   Occupancy   Turnover
   
Q1 2017 $ 583,583 $ 175,798 $ 407,785 $ 2,655 95.8 % 10.5 %
Q4 2016 $ 583,240   $ 166,619   $ 416,621   $ 2,650     95.9 %   11.2 %
 
Change $ 343   $ 9,179   $ (8,836 ) $ 5     (0.1 %)   (0.7 %)
 
Change 0.1 % 5.5 % (2.1 )% 0.2 %
 

Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods. See page 26 for reconciliations from operating income.

 
Equity Residential
First Quarter 2017 vs. First Quarter 2016

Same Store Results/Statistics by Market

 
                        Increase (Decrease) from Prior Year's Quarter  
Q1 2017          
Q1 2017 Q1 2017 Weighted
% of Average Average Average
Apartment Actual Rental Physical Q1 2017 Rental Physical
Markets/Metro Areas Units   NOI   Rate   Occupancy %   Turnover   Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
           
Los Angeles 14,038 17.5 % $ 2,380 95.8 % 11.7 % 3.8 % 5.0 % 3.3 % 4.3 % (0.3 %) 0.0 %
San Diego 3,505 4.2 % 2,220 96.0 % 14.6 % 5.1 % 3.9 % 5.5 % 4.8 % 0.2 % 0.6 %
Orange County   3,684     4.1 %   2,033     96.1 %   10.5 %   5.5 %   6.4 %   5.2 %   5.0 %   0.4 %   (0.1 %)
Subtotal – Southern California 21,227 25.8 % 2,293 95.9 % 11.9 % 4.3 % 5.0 % 4.0 % 4.4 % 0.0 % 0.0 %
 
Washington DC 15,475 18.9 % 2,343 95.9 % 9.2 % 2.1 % 2.8 % 1.8 % 1.9 % 0.1 % (0.3 %)
New York 10,007 18.1 % 3,668 95.9 % 8.7 % 0.3 % 5.7 % (2.7 %) 0.3 % (0.3 %) 0.0 %
San Francisco 11,019 18.1 % 2,916 96.0 % 10.7 % 2.9 % 1.5 % 3.4 % 3.2 % (0.4 %) (1.4 %)
Boston 6,609 11.0 % 2,850 95.9 % 8.7 % 1.4 % 0.9 % 1.6 % 1.3 % 1.1 % (2.6 %)
Seattle 6,527 8.0 % 2,175 95.9 % 12.6 % 6.4 % 5.9 % 6.7 % 5.7 % 0.5 % 0.3 %
Other Markets 136 0.1 % 1,141 99.3 % 5.1 % 6.3 % 29.5 % (6.1 %) 5.9 % 0.4 % (3.7 %)
                                                                 
Total   71,000     100.0 % $ 2,633     95.9 %   10.4 %   2.6 %   3.9 %   2.1 %   2.6 %   0.0 %   (0.5 %)
 
Equity Residential
First Quarter 2017 vs. Fourth Quarter 2016
Same Store Results/Statistics by Market
 
                        Increase (Decrease) from Prior Quarter  
Q1 2017          
Q1 2017 Q1 2017 Weighted
% of Average Average Average
Apartment Actual Rental Physical Q1 2017 Rental Physical
Markets/Metro Areas Units   NOI   Rate   Occupancy %   Turnover   Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
           
Los Angeles 14,430 17.3 % $ 2,379 95.7 % 11.8 % 0.2 % 3.7 % (1.2 %) 0.6 % (0.2 %) (1.7 %)
San Diego 3,505 4.0 % 2,220 96.0 % 14.6 % 1.0 % 5.1 % (0.4 %) 1.1 % 0.0 % 0.3 %
Orange County   3,684     4.0 %   2,033     96.1 %   10.5 %   0.3 %   7.9 %   (2.0 %)   0.4 %   (0.1 %)   (1.2 %)
Subtotal – Southern California 21,619 25.3 % 2,294 95.9 % 12.0 % 0.4 % 4.5 % (1.2 %) 0.7 % (0.1 %) (1.3 %)
 
San Francisco 11,846 18.9 % 2,954 95.7 % 11.1 % 0.0 % 4.0 % (1.2 %) 0.3 % (0.3 %) (0.1 %)
New York 10,632 18.6 % 3,734 95.9 % 8.6 % 0.0 % 7.9 % (4.4 %) 0.0 % (0.2 %) 0.1 %
Washington DC 15,475 18.2 % 2,343 95.9 % 9.2 % 0.0 % 4.4 % (1.8 %) 0.1 % (0.1 %) (1.1 %)
Boston 6,609 10.6 % 2,850 95.9 % 8.7 % (0.8 %) 3.0 % (2.2 %) (0.8 %) 0.2 % (1.5 %)
Seattle 7,095 8.3 % 2,172 95.8 % 12.8 % 0.8 % 8.9 % (2.0 %) 0.8 % 0.2 % 1.1 %
Other Markets 136 0.1 % 1,141 99.3 % 5.1 % 1.8 % 41.0 % (15.4 %) (0.4 %) 2.4 % (9.6 %)
                                                                 
Total   73,412     100.0 % $ 2,655     95.8 %   10.5 %   0.1 %   5.5 %   (2.1 %)   0.2 %   (0.1 %)   (0.7 %)
 
Equity Residential
 
First Quarter 2017 vs. First Quarter 2016
Same Store Operating Expenses for 71,000 Same Store Apartment Units

$ in thousands

 
              % of Actual
Q1 2017
Actual Actual $ % Operating
Q1 2017   Q1 2016   Change   Change   Expenses  
   
Real estate taxes $ 70,364 $ 67,553 $ 2,811 4.2 % 42.1 %
On-site payroll (1) 37,406 35,774 1,632 4.6 % 22.4 %
Utilities (2) 23,728 23,312 416 1.8 % 14.2 %
Repairs and maintenance (3) 20,324 19,042 1,282 6.7 % 12.1 %
Insurance 4,202 4,370 (168 ) (3.8 %) 2.5 %
Leasing and advertising 2,407 2,150 257 12.0 % 1.4 %
Other on-site operating expenses (4)   8,885     8,803     82     0.9 %   5.3 %
 
Same store operating expenses $ 167,316   $ 161,004   $ 6,312     3.9 %   100.0 %
 
(1)   On-site payroll - Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff.
 
(2) Utilities - Represents gross expenses prior to any recoveries under the Resident Utility Billing System ("RUBS"). Recoveries are reflected in rental income.
 
(3) Repairs and maintenance - Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair and maintenance costs.
 
(4) Other on-site operating expenses - Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees.
 
Equity Residential
 
Debt Summary as of March 31, 2017

($ in thousands)

 
          Weighted
Weighted Average
Average Maturities
Amounts (1)   % of Total   Rates (1)   (years)
     
Secured $ 3,766,762 42.2 % 4.43 % 5.9
Unsecured   5,163,163     57.8 %   4.37 %   9.2
 
Total $ 8,929,925     100.0 %   4.40 %   7.8
Fixed Rate Debt:
Secured – Conventional $ 3,130,010 35.0 % 5.02 % 4.7
Unsecured – Public   4,399,172     49.3 %   4.80 %   10.6
 
Fixed Rate Debt   7,529,182     84.3 %   4.89 %   8.1
 
Floating Rate Debt:
Secured – Conventional 7,044 0.1 % 0.75 % 16.6
Secured – Tax Exempt 629,708 7.1 % 1.33 % 11.5
Unsecured – Public (2) 449,305 5.0 % 1.62 % 2.2
Unsecured – Revolving Credit Facility (3) 4.8
Unsecured – Commercial Paper Program (4)   314,686     3.5 %   1.09 %  
 
Floating Rate Debt   1,400,743     15.7 %   1.39 %   6.2
 
Total $ 8,929,925     100.0 %   4.40 %   7.8
 
(1)   Net of the effect of any derivative instruments. Weighted average rates are for the quarter ended March 31, 2017.
 
(2) Fair value interest rate swaps convert the $450.0 million 2.375% notes due July 1, 2019 to a floating interest rate of 90-Day LIBOR plus 0.61%.
 
(3) The Company’s $2.0 billion unsecured revolving credit facility matures January 10, 2022. The interest rate on advances under the credit facility will generally be LIBOR plus a spread (currently 0.825%) and an annual facility fee (currently 12.5 basis points). Both the spread and the facility fee are dependent on the credit rating of the Company’s long-term debt. As of March 31, 2017, there was approximately $1.66 billion available on the Company’s unsecured revolving credit facility (net of $20.7 million which was restricted/dedicated to support letters of credit and net of $315.0 million outstanding on the commercial paper program).
 
(4) The Company may borrow up to a maximum of $500.0 million on the commercial paper program subject to market conditions. The notes bear interest at various floating rates with a weighted average of 1.09% for the quarter ended March 31, 2017 and a weighted average maturity of 26 days as of March 31, 2017.

Note: The Company capitalized interest of approximately $8.2 million and $14.2 million during the quarters ended March 31, 2017 and 2016, respectively.

 
Equity Residential
 
Debt Maturity Schedule as of March 31, 2017

($ in thousands)

 
          Weighted   Weighted
Average Rates Average
Fixed Floating % of on Fixed Rates on
Year Rate (1)   Rate (1)   Total   Total   Rate Debt (1)   Total Debt (1)  
2017 $ 593,622 $ 318,300 (2) $ 911,922   10.1 %   6.20 %   4.49 %
2018 83,056 100,735 183,791 2.0 % 5.58 % 3.33 %
2019 507,071 (3) 477,251 984,322 10.9 % 5.17 % 3.42 %
2020 1,678,950 (4) 10,500 1,689,450 18.7 % 5.49 % 5.46 %
2021 927,882 12,600 940,482 10.4 % 4.64 % 4.59 %
2022 265,737 13,800 279,537 3.1 % 3.26 % 3.15 %
2023 1,327,218 15,300 1,342,518 14.9 % 3.74 % 3.71 %
2024 1,711 17,100 18,811 0.2 % 4.89 % 1.25 %
2025 451,797 19,600 471,397 5.2 % 3.38 % 3.28 %
2026 593,912 21,700 615,612 6.8 % 3.59 % 3.49 %
2027+   1,141,276     457,665     1,598,941     17.7 %   4.52 %   3.48 %
Subtotal 7,572,232 1,464,551 9,036,783 100.0 % 4.59 % 4.07 %
Deferred Financing Costs and Unamortized (Discount)   (43,050 )   (63,808 )   (106,858 ) N/A   N/A   N/A  
 
Total $ 7,529,182   $ 1,400,743   $ 8,929,925     100.0 %   4.59 %   4.07 %
 
(1)   Net of the effect of any derivative instruments. Weighted average rates are as of March 31, 2017.
 
(2) Includes $315.0 million in principal outstanding on the Company's commercial paper program. The Company may borrow up to a maximum of $500.0 million on the program subject to market conditions.
 
(3) Includes a $500.0 million 5.19% mortgage loan with a maturity date of October 1, 2019 that can be prepaid at par beginning October 1, 2018.
 
(4) Includes a $550.0 million 6.08% mortgage loan with a maturity date of March 1, 2020 that can be prepaid at par beginning March 1, 2019. Also includes a $500.0 million 5.78% mortgage loan with a maturity date of July 1, 2020 that can be prepaid at par beginning July 1, 2019.
 
Equity Residential
 
Selected Unsecured Public Debt Covenants
 
  March 31,   December 31,
2017 2016
Total Debt to Adjusted Total Assets (not to exceed 60%) 35.1% 35.4%
 
Secured Debt to Adjusted Total Assets (not to exceed 40%) 14.8% 16.2%
 
Consolidated Income Available for Debt Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1) 3.96 3.73
 
Total Unsecured Assets to Unsecured Debt
(must be at least 150%) 377.6% 390.8%
 

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

 
  March 31,   December 31,
2017 2016
Total debt to Normalized EBITDA 5.73x 5.74x
 
Net debt to Normalized EBITDA 5.66x 5.65x
 
Unencumbered NOI as a % of total NOI 72.8% 71.1%
 

Note: See page 21 for the Normalized EBITDA reconciliations.

 
Equity Residential
 
Capital Structure as of March 31, 2017

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

 
Secured Debt           $ 3,766,762       42.2 %    
Unsecured Debt   5,163,163     57.8 %
 
Total Debt 8,929,925 100.0 % 27.3 %
 
Common Shares (includes Restricted Shares) 367,137,757 96.4 %
Units (includes OP Units and Restricted Units)   13,827,472     3.6 %
 
Total Shares and Units 380,965,229 100.0 %
Common Share Price at March 31, 2017 $ 62.22  
23,703,657 99.8 %
Perpetual Preferred Equity (see below)   37,280     0.2 %
 
Total Equity 23,740,937 100.0 % 72.7 %
 
Total Market Capitalization $ 32,670,862 100.0 %
                                         
 
Perpetual Preferred Equity as of March 31, 2017

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

 
            Annual     Annual
Redemption Outstanding Liquidation Dividend Dividend
Series Date Shares   Value   Per Share   Amount
Preferred Shares:  
8.29% Series K 12/10/26   745,600   $ 37,280   $ 4.145 $ 3,091
 
Total Perpetual Preferred Equity 745,600 $ 37,280 $ 3,091
 
Equity Residential
Common Share and Unit
Weighted Average Amounts Outstanding
 
  Q1 2017     Q1 2016
     
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 366,605,450 364,592,279
Shares issuable from assumed conversion/vesting of:
- OP Units 12,898,618 13,696,822
- long-term compensation shares/units   2,775,943     3,953,965
 
Total Common Shares and Units - diluted   382,280,011     382,243,066
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 366,605,450 364,592,279
OP Units - basic   12,898,618     13,696,822
 
Total Common Shares and OP Units - basic 379,504,068 378,289,101
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units   2,775,943     3,953,965
 
Total Common Shares and Units - diluted   382,280,011     382,243,066
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 367,137,757 365,496,019
Units (includes OP Units and Restricted Units)   13,827,472     14,703,617
 
Total Shares and Units   380,965,229     380,199,636
 
Equity Residential
Partially Owned Entities as of March 31, 2017

(Amounts in thousands except for property and apartment unit amounts)

 
  Consolidated     Unconsolidated  
 
Total properties   17     2  
 
Total apartment units   3,215     945  
 
Operating information for the quarter ended 3/31/17 (at 100%):
Operating revenue $ 23,028 $ 7,987
Operating expenses   5,676     2,941  
 
Net operating income 17,352 5,046
Property management 813 213
General and administrative/other 16 25
Depreciation   5,201     4,020  
 
Operating income 11,322 788
Interest and other income 13
Interest:
Expense incurred, net (3,312 ) (2,072 )
Amortization of deferred financing costs   (68 )    
 
Income (loss) before income and other taxes and (loss)
from investments in unconsolidated entities 7,955 (1,284 )
Income and other tax (expense) benefit (34 ) (12 )
(Loss) from investments in unconsolidated entities   (411 )    
Net income (loss) $ 7,510   $ (1,296 )
 
Debt - Secured (1):
EQR Ownership (2) $ 236,590 $ 29,085
Noncontrolling Ownership   64,829     116,339  
 
Total (at 100%) $ 301,419   $ 145,424  
 
(1)   All debt is non-recourse to the Company.
 
(2) Represents the Company's current equity ownership interest.
 
Equity Residential
Development and Lease-Up Projects as of March 31, 2017

(Amounts in thousands except for project and apartment unit amounts)

 
                Total Book                
No. of Total Total Value Not Estimated Estimated
Apartment Capital Book Value Placed in Total Percentage Percentage Percentage Completion Stabilization
Projects Location Units   Cost   to Date   Service   Debt   Completed   Leased   Occupied   Date Date
   

Projects Under Development:

455 Eye Street Washington, DC 174 $ 73,157 $ 64,636 $ 64,636 $ 83 % 2 % Q3 2017 Q2 2018
855 Brannan (formerly 801 Brannan) San Francisco, CA 449 304,035 236,310 236,310 75 % 1 % Q3 2017 Q1 2019
Helios (formerly 2nd & Pine) Seattle, WA 398 215,787 197,906 197,906 90 % Q3 2017 Q2 2019
Cascade Seattle, WA 477 176,378 138,710 138,710 79 % 2 % Q3 2017 Q2 2019
100 K Street Washington, DC 222 88,023 28,666 28,666 11 % Q4 2018 Q4 2019
                             
Projects Under Development   1,720     857,380     666,228     666,228      
 

Completed Not Stabilized (1):

340 Fremont (formerly Rincon Hill) San Francisco, CA 348 292,054 289,644 94 % 90 % Completed Q2 2017
One Henry Adams San Francisco, CA 241 172,337 166,244 50 % 44 % Completed Q4 2017
Altitude (formerly Village at Howard Hughes) Los Angeles, CA 545 193,231 191,955 65 % 63 % Completed Q1 2018
The Alton (formerly Millikan) Irvine, CA 344 108,681 105,027 48 % 43 % Completed Q1 2018
                             
Projects Completed Not Stabilized   1,478     766,303     752,870          
 

Completed and Stabilized During the Quarter:

Potrero 1010 San Francisco, CA 453 223,009 222,720 97 % 96 % Completed Stabilized
                             
Projects Completed and Stabilized During the Quarter   453     223,009     222,720          
 
Total Development Projects   3,651   $ 1,846,692   $ 1,641,818   $ 666,228   $  
 
Land Held for Development N/A   N/A   $ 109,136   $ 109,136   $  
 
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS Total Capital

Cost

  Q1 2017

NOI

 
Projects Under Development $ 857,380 $ (89 )
Completed Not Stabilized 766,303 5,739
Completed and Stabilized During the Quarter   223,009     4,032  
Total Development NOI Contribution $ 1,846,692   $ 9,682  
 

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

(1)   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
Repairs and Maintenance Expenses and Capital Expenditures to Real Estate
For the Quarter Ended March 31, 2017

(Amounts in thousands except for apartment unit and per apartment unit amounts)

 
        Repairs and Maintenance Expenses     Capital Expenditures to Real Estate     Total Expenditures
Total

Apartment

Units (1)

  Expense (2)     Avg. Per

Apartment

Unit

    Payroll (3)     Avg. Per

Apartment

Unit

    Total     Avg. Per

Apartment

Unit

  Replacements

(4)

    Avg. Per

Apartment

Unit

    Building

Improvements

(5)

    Avg. Per

Apartment

Unit

    Total     Avg. Per

Apartment

Unit

  Grand

Total

    Avg. Per

Apartment

Unit

                         
Same Store Properties 71,000 $ 20,324 $ 286 $ 17,175 $ 242 $ 37,499 $ 528 $ 18,299 $ 258 $ 19,284 $ 271 $ 37,583 $ 529 (8) $ 75,082 $ 1,057
 
Non-Same Store Properties (6) 5,553 1,290 248 1,049 201 2,339 449 699 134 862 165 1,561 299 3,900 748
 
Other (7)       135     211     346     21     132     153     499  
 
Total   76,553   $ 21,749   $ 18,435   $ 40,184   $ 19,019   $ 20,278   $ 39,297   $ 79,481  
 
(1)   Total Apartment Units - Excludes 945 unconsolidated apartment units for which repairs and maintenance expenses and capital expenditures to real estate are self-funded and do not consolidate into the Company's results.
 
(2) Repairs and Maintenance Expenses - 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.
 
(3) Maintenance Payroll - Includes payroll and related expenses for maintenance staff.
 
(4) Replacements - Includes new expenditures inside the apartment units such as appliances, mechanical equipment, fixtures and flooring, including carpeting. Replacements for same store properties also include $10.8 million spent during the first quarter of 2017 on apartment unit renovations/rehabs (primarily kitchens and baths) on approximately 740 same store apartment units (equating to approximately $14,700 per apartment unit rehabbed) designed to reposition these units for higher rental levels in their respective markets. During 2017, the Company expects to spend approximately $50.0 million for all unit renovation/rehab costs (primarily on same store properties) at an average cost of $11,000 per apartment unit rehabbed.
 
(5) Building Improvements - Includes roof replacement, paving, amenities and common areas, building mechanical equipment systems, exterior painting and siding, major landscaping, vehicles and office and maintenance equipment.
 
(6) Per apartment unit amounts are based on a weighted average of 5,212 apartment units.
 
(7) Other - Primarily includes expenditures for properties sold and properties under development.
 
(8) The Company estimates that during 2017 it will spend approximately $2,600 per apartment unit of capital expenditures, inclusive of apartment unit renovation/rehab costs, or $1,900 per apartment unit excluding apartment unit renovation/rehab costs. These estimates include approximately $17.0 million or approximately $250 per apartment unit of additional expenditures for resident focused renovation projects such as common areas and fitness centers in order to remain competitive with the new luxury supply being delivered in many of our markets.
             
Equity Residential
Normalized EBITDA Reconciliations

(Amounts in thousands)

     
Normalized EBITDA Reconciliations for Page 15
     
Trailing Twelve Months   2017   2016  
March 31, 2017     December 31, 2016   Q1   Q4     Q3     Q2     Q1  
Net income $ 898,214 $ 4,480,104 $ 149,941 $ 302,381 $ 217,492 $ 228,400 $ 3,731,831
Interest expense incurred, net 374,964 482,246 106,210 95,930 86,352 86,472 213,492
Amortization of deferred financing costs 9,535 12,633 2,296 2,633 2,261 2,345 5,394
Depreciation 711,732 705,649 178,968 177,407 179,230 176,127 172,885
Income and other tax expense (benefit) (includes discontinued operations) 1,529 1,625 262 425 426 416 358
                                         
EBITDA 1,995,974 5,682,257 437,677 578,776 485,761 493,760 4,123,960
 
Write-off of pursuit costs (other expenses) 3,359 4,092 715 713 816 1,115 1,448
(Income) loss from investments in unconsolidated entities (4,832 ) (4,801 ) 1,073 1,045 (7,750 ) 800 1,104
Net (gain) loss on sales of land parcels (23,202 ) (15,731 ) (19,193 ) 28 (4,037 ) (11,722 )
(Gain) loss on sale of investment securities and other investments (interest and other income) (57,853 ) (58,409 ) 7 (3,260 ) (54,600 ) (556 )
Insurance/litigation settlement or reserve income (interest and other income) (3,555 ) (3,228 ) (380 ) (337 ) (1,517 ) (1,321 ) (53 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 4,561 4,024 293 (5,074 ) 9,339 3 (244 )
Other 1,241 2,839 96 373 337 435 1,694
Net (gain) on sales of discontinued operations (28 ) (43 ) (28 ) (15 )
Net (gain) on sales of real estate properties   (357,283 )   (4,044,055 )   (36,707 )   (173,184 )   (90,036 )   (57,356 )   (3,723,479 )
Normalized EBITDA $ 1,558,382   $ 1,566,945   $ 383,574   $ 402,347   $ 389,625   $ 382,836   $ 392,137  
 

Balance Sheet Items:

March 31, 2017   December 31, 2016  
Total debt $ 8,929,925 $ 8,987,258
Cash and cash equivalents (42,139 ) (77,207 )
Mortgage principal reserves/sinking funds   (61,033 )   (58,652 )
Net debt $ 8,826,753   $ 8,851,399  
 
Equity Residential
Adjustments from FFO to Normalized FFO

(Amounts in thousands)

 
  Quarter Ended March 31,  
2017     2016     Variance  
 
Impairment $   $   $  
Asset impairment and valuation allowances            
 
Write-off of pursuit costs (other expenses)   715     1,448     (733 )
Write-off of pursuit costs   715     1,448     (733 )
 
Prepayment premiums/penalties (interest expense) 11,698 112,419 (100,721 )
Write-off of unamortized deferred financing costs (interest expense) 217 3,099 (2,882 )
Write-off of unamortized (premiums)/discounts/OCI (interest expense)   389     4,579     (4,190 )
Debt extinguishment (gains) losses, including prepayment penalties, preferred share redemptions

and non-cash convertible debt discounts

  12,304     120,097     (107,793 )
 
Net (gain) on sales of land parcels (19,193 ) (11,722 ) (7,471 )
(Gain) on sale of investment securities and other investments (interest and other income) (556 ) 556
(Income) loss from investments in unconsolidated entities ─ non-operating assets   301     301      
(Gains) losses on sales of non-operating assets, net of income and other tax expense (benefit)   (18,892 )   (11,977 )   (6,915 )
 
Insurance/litigation settlement or reserve income (interest and other income) (380 ) (53 ) (327 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 293 (244 ) 537
Other   96     1,694     (1,598 )
Other miscellaneous items   9     1,397     (1,388 )
 
Adjustments from FFO to Normalized FFO $ (5,864 ) $ 110,965   $ (116,829 )
 

Note: See pages 24 through 27 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, are forward-looking and are consistent with the information provided in the fourth quarter 2016 earnings release. 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 24 through 27 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.

 

2017 Normalized FFO Guidance (per share diluted)

 
 

Q2 2017

 

2017

Expected Normalized FFO Per Share $0.75 to $0.79 $3.05 to $3.15
 

2017 Same Store Assumptions (see Note below)

 
Physical occupancy 95.7%
Revenue change 1.0% to 2.25%
Expense change 3.0% to 4.0%
NOI change 0.0% to 2.0%
 
Note: Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO per share/Normalized FFO per share.
 

2017 Transaction Assumptions

 
Consolidated rental acquisitions $500.0 million
Consolidated rental dispositions $500.0 million
Spread between Acquisition Cap Rate and Disposition Yield 75 basis points
 

2017 Debt Assumptions

 
Weighted average debt outstanding $8.8 billion to $9.2 billion
Weighted average interest rate (reduced for capitalized interest) 4.12%
Interest expense, net (on a Normalized FFO basis) $362.6 million to $379.0 million
Capitalized interest $23.0 million to $28.0 million
 

2017 Other Guidance Assumptions

 
 
Property management expense $83.0 million to $85.0 million
General and administrative expense (see Note below) $50.0 million to $52.0 million
Interest and other income $0.5 million
Income and other tax expense $0.5 million to $1.5 million
Debt offerings $300.0 million to $500.0 million
Equity ATM share offerings No amounts budgeted
Preferred share offerings No amounts budgeted
Weighted average Common Shares and Units - Diluted 383.2 million
 

Note: Normalized FFO guidance excludes a duplicative charge of approximately $0.4 million, which will be recorded to general and administrative expense, related to the overlap of accounting costs for the Company's current and former executive compensation programs.

 

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 GAAP measurement of performance 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.

 

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 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 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.

 

Economic Gain – Economic Gain is calculated as the net gain 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 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, rehab, 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 on sales of real estate properties in accordance with GAAP to Economic Gain:

     
Quarter Ended March 31, 2017  
 
Net Gain on Sales of Real Estate Properties $ 36,707
Accumulated Depreciation Gain   (12,773 )
 
Economic Gain $ 23,934  
 

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)
 

Funds From Operations and Normalized Funds From Operations:

 

Funds From Operations (“FFO”) – The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO (April 2002 White Paper) as net income (computed in accordance with accounting principles generally accepted in the United States (“GAAP”)), excluding gains (or losses) from sales and impairment write-downs of depreciable operating properties, plus depreciation and amortization, 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 dispositions of depreciable property 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 and valuation allowances;

• pursuit cost write-offs;

• gains and losses from early debt extinguishment, including prepayment penalties, preferred share redemptions and the cost related to the implied option value of non-cash convertible debt discounts;

• gains and losses on the sales of non-operating assets, including gains and losses from land parcel sales, net of the effect of income tax benefits or expenses; 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.
 

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)
 
The following table presents reconciliations of EPS to FFO per share and Normalized FFO per share for pages 5 and 23 (the expected guidance/projections provided below are based on current expectations and are forward-looking):
       
Actual Q1 2017

Per Share

  Actual Q1 2016

Per Share

  Expected

Q2 2017

Per Share

Expected

2017

Per Share

EPS - Diluted $ 0.39 $ 9.76 $0.51 to $0.55 $1.83 to $1.93
Add: Depreciation expense 0.47 0.45 0.47 1.92
Less: Net gain on sales   (0.10 )   (9.74 ) (0.23) (0.69)
 
FFO per share - Diluted 0.76 0.47 0.75 to 0.79 3.06 to 3.16
 
Asset impairment and valuation allowances
Write-off of pursuit costs 0.01 0.01
Debt extinguishment (gains) losses, including prepayment

penalties, preferred share redemptions and non-cash

convertible debt discounts

0.03 0.31 0.03
(Gains) losses on sales of non-operating assets, net of

income and other tax expense (benefit)

(0.05 ) (0.03 ) (0.05)
Other miscellaneous items        
 
Normalized FFO per share - Diluted $ 0.74   $ 0.76   $0.75 to $0.79 $3.05 to $3.15
 

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 results (see page 9):

  Quarter Ended March 31,  
2017     2016  
Operating income $ 204,371 $ 216,625
Adjustments:
Fee and asset management revenue (180 ) (2,918 )
Property management 22,252 23,495
General and administrative 14,173 16,717
Depreciation   178,968     172,885  
Total NOI $ 419,584   $ 426,804  
Rental income:
Same store $ 560,236 $ 545,846
Non-same store   43,684     70,319  
Total rental income 603,920 616,165
Operating expenses:
Same store 167,316 161,004
Non-same store   17,020     28,357  
Total operating expenses 184,336 189,361
NOI:
Same store 392,920 384,842
Non-same store   26,664     41,962  
Total NOI $ 419,584   $ 426,804  
 

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)
 

Non-Same Store Properties – For annual comparisons, primarily includes all properties acquired during 2016 and 2017, plus any properties in lease-up and not stabilized as of January 1, 2016.

 

Normalized Earnings Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA") – Represents net income in accordance with GAAP before interest expense, income taxes, depreciation expense and amortization expense and further adjusted for non-comparable items. Normalized EBITDA, total debt to Normalized EBITDA and net debt to Normalized EBITDA are important metrics in evaluating the credit strength of the Company and its ability to service its debt obligations. The Company believes that Normalized EBITDA, total debt to Normalized EBITDA and net debt to Normalized EBITDA 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.

 

Physical Occupancy – The weighted average occupied apartment units for the reporting period divided by the average of total apartment units available for rent for the reporting period.

 

Same Store Properties – For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2016, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.

 

% of Stabilized NOI – Represents budgeted 2017 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 Capital Cost – Estimated cost for projects under development and/or developed and all capitalized costs incurred to date plus any estimates of costs remaining to be funded for all projects, 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, all in accordance with GAAP.

 

Total Market Capitalization – The aggregate of the market value of the Company’s outstanding common shares, including restricted shares, the market value of the Company’s operating partnership units outstanding, including restricted units (based on the market value of the Company’s common shares) and the outstanding principal balance of debt. The Company believes this is a useful measure of a real estate operating company’s long-term liquidity and balance sheet strength, because it shows an approximate relationship between a company’s total debt and the current total market value of its assets based on the current price at which the Company’s common shares trade. However, because this measure of leverage changes with fluctuations in the Company’s share price, which occur regularly, this measure may change even when the Company’s earnings, interest and debt levels remain stable.

 

Turnover – Total residential move-outs divided by total residential apartment units, including inter-property and intra-property transfers.

 

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. Each of the items (i) through (v) is calculated in accordance with GAAP.

 
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, rehab, 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.
 

Contacts

Equity Residential
Marty McKenna, (312) 928-1901

Contacts

Equity Residential
Marty McKenna, (312) 928-1901