Equity Residential Reports Full Year 2017 Results

Provides Outlook for 2018

CHICAGO--()--Equity Residential (NYSE: EQR) today reported results for the quarter and year ended December 31, 2017. All per share results are reported as available to common shares/units on a diluted basis. Earnings per Share (EPS) was $0.34, Funds From Operations (FFO) was $0.82 per share and Normalized FFO was $0.83 per share for the fourth quarter of 2017, each as described in further detail below.

“A growing economy resulting in record low unemployment and rising wages combined with extremely favorable demographics continue to provide strong and steady demand for rental housing across our markets,” said David J. Neithercut, Equity Residential’s President and CEO. “In 2017, strong occupancy, record retention and favorable renewal pricing helped mitigate the impact of elevated levels of new supply driving growth in same store revenue, net operating income and Normalized FFO to the upper end of our original expectations.”

“While 2018 will see no letup in the demand for Equity Residential’s high quality rental housing, our markets will experience another year of elevated levels of new supply, reduced pricing power and slowing revenue growth,” Mr. Neithercut continued. “However, the outlook in our coastal markets with high cost of home ownership will soon improve significantly as new apartment supply reduces while favorable demographics, low unemployment and rising incomes continue to produce extraordinarily strong demand and excellent risk adjusted returns to our shareholders.”

Highlights

  • Increased same store revenues by 2.2% over the fourth quarter of 2016. Achieved same store Physical Occupancy of 96.0% and a 2.0% increase in Average Rental Rate.
  • For the full year 2017, increased same store revenues by 2.2%, achieved Physical Occupancy of 96.0%, increased Average Rental Rate 2.3% and produced Same Store Turnover of 52.9%, which is the lowest in the Company’s history.
  • Planned annualized increase of 7.2% in the Company’s 2018 common share dividend.
  • Named the 2017 recipient of the NAREIT Residential Leader in the Light award for the Company’s accomplishments in sustainability.

Fourth Quarter 2017

EPS for the fourth quarter of 2017 was $0.34 compared to $0.75 in the fourth quarter of 2016. The difference is due primarily to lower property sale gains in the fourth quarter of 2017, the various adjustment items listed on page 25 of this release and the items described below.

FFO as defined by the National Association of Real Estate Investment Trusts (NAREIT) was $0.82 per share for the fourth quarter of 2017 compared to $0.80 per share in the fourth quarter of 2016. The difference is due primarily to the various adjustment items listed on page 25 of this release and the items described below.

Normalized FFO for the fourth quarter of 2017 was $0.83 per share compared to $0.79 per share in the fourth quarter of 2016. The difference is due primarily to:

  • A positive impact of approximately $0.02 per share from increased same store net operating income (NOI);
  • A positive impact of approximately $0.03 per share from Lease-Up NOI; and
  • A negative impact of approximately $0.01 per share from other items including higher corporate overhead (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 27 through 30 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 7, 28 and 29 of this release and the Company has included guidance for Normalized FFO on page 26 and FFO and EPS on page 29 of this release.

Year Ended December 31, 2017

EPS for the year ended December 31, 2017 was $1.63 compared to $11.68 for the full year 2016. The difference is due primarily to $10.16 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 25 of this release and the items described below.

FFO for the year ended December 31, 2017 was $3.15 per share compared to $2.94 per share for the full year 2016. The difference is due primarily to the various adjustment items listed on page 25 of this release and the items described below.

Normalized FFO for the year ended December 31, 2017 was $3.13 per share compared to $3.09 per share for the full year 2016. The difference is due primarily to:

  • A positive impact of approximately $0.08 per share from increased same store NOI;
  • A positive impact of approximately $0.11 per share from Lease-Up NOI;
  • A negative impact of approximately $0.12 per share due primarily to the Company’s significant property sale activity in 2016;
  • A negative impact of approximately $0.02 per share from higher total interest expense, driven primarily by a reduction in capitalized interest offset by interest savings from favorable refinancing activity; and
  • A negative impact of approximately $0.01 per share from other items including lower interest and other income.

Same Store Results

On a same store fourth quarter to fourth quarter comparison, which includes 72,529 apartment units, revenues increased 2.2%, expenses increased 2.5% and NOI increased 2.1%. Average Rental Rate increased 2.0% and Physical Occupancy remained flat at 96.0%.

On a same store year to year comparison, which includes 70,117 apartment units, revenues increased 2.2%, expenses increased 2.7% and NOI increased 2.0%. Average Rental Rate increased 2.3% and Physical Occupancy remained flat at 96.0%.

Investment Activity

The Company did not acquire any consolidated apartment properties during the fourth quarter of 2017. During the quarter, the Company sold one consolidated apartment property in southern New Jersey, consisting of 170 apartment units, for a sale price of approximately $35.3 million, at a Disposition Yield of 5.1%, generating an Unlevered IRR of 6.8%. Also during the quarter, the Company completed Cascade, a 477-unit apartment development project in Seattle, for a total cost of approximately $176.4 million and an anticipated Development Yield of 6.6%.

During the full year 2017, the Company acquired four consolidated apartment properties, consisting of 947 apartment units, for an aggregate purchase price of approximately $468.0 million at a weighted average Acquisition Capitalization Rate of 4.8%. During the full year 2017, the Company sold five consolidated apartment properties, consisting of 1,194 apartment units, for an aggregate sale price of approximately $355.0 million, at a weighted average Disposition Yield of 5.1%, generating an Unlevered IRR of 12.4%. During 2017, the Company also sold a land parcel located in New York City for a sale price of approximately $33.5 million. During 2017, the Company completed four new apartment development projects, consisting of 1,393 apartment units, at an aggregate total cost of approximately $584.2 million and an anticipated weighted average Development Yield of 6.0%.

First Quarter 2018 Guidance

The Company has established an EPS guidance range of $0.48 to $0.52 for the first quarter of 2018. The difference between the Company’s fourth quarter 2017 EPS of $0.34 and the midpoint of the first quarter 2018 guidance range of $0.50 is due primarily to higher expected gains on property sales and the items described below.

The Company has established an FFO guidance range of $0.69 to $0.73 per share for the first quarter of 2018. The difference between the Company’s fourth quarter 2017 FFO of $0.82 per share and the midpoint of the first quarter 2018 guidance range of $0.71 per share is due primarily to higher expected debt extinguishment costs and the items described below.

The Company has established a Normalized FFO guidance range of $0.74 to $0.78 per share for the first quarter of 2018. The difference between the Company’s fourth quarter 2017 Normalized FFO of $0.83 per share and the midpoint of the first quarter 2018 guidance range of $0.76 per share is due primarily to:

  • A negative impact of approximately $0.04 per share from lower same store NOI;
  • A negative impact of approximately $0.01 per share as a result of the Company’s 2017 and 2018 transaction activity; and
  • A negative impact of approximately $0.02 per share from higher overhead costs (property management and general and administrative expenses), which are typically front-end loaded for the year.

Full Year 2018 Guidance

The Company is providing guidance for its full year 2018 same store operating performance, EPS, FFO per share, Normalized FFO per share, transactions and debt offerings as listed below:

Same Store:  
Physical Occupancy 96.0%
Revenue change 1.0% to 2.25%
Expense change 3.5% to 4.5%
NOI change 0.0% to 1.5%
 
EPS $1.71 to $1.81
FFO per share $3.10 to $3.20
Normalized FFO per share $3.17 to $3.27
 
Transactions:
Consolidated rental acquisitions $500.0 million
Consolidated rental dispositions $500.0 million
Acquisition Cap Rate/Disposition Yield spread 50 basis points
 
Debt offerings: $800.0 million to $1.0 billion

The Company anticipates using the proceeds of any debt offerings to repay debt maturing in 2018 (excluding commercial paper) and to prepay a $550.0 million secured debt pool maturing in 2020 that the Company intends to call in 2018 and to prepay a $500.0 million secured debt pool that matures in 2019 but is pre-payable at par in late 2018 (see page 17 of this release for details). The Company anticipates incurring approximately $23.7 million in debt extinguishment costs/prepayment penalties in connection with all of its debt repayment activities in 2018, which will not be included in the Company’s Normalized FFO.

The Company has established an EPS guidance range of $1.71 to $1.81 for the full year 2018. The difference between the Company’s full year 2017 EPS of $1.63 and the midpoint of the full year 2018 guidance range of $1.76 is due primarily to higher expected gains on property sales, higher expected depreciation expense and the items described below.

The Company has established an FFO guidance range of $3.10 to $3.20 per share for the full year 2018. The midpoint of the full year 2018 FFO guidance range of $3.15 per share is identical to the Company’s full year 2017 FFO of $3.15 per share with variances in line items due primarily to higher expected debt extinguishment costs, lower expected gains on sales of non-operating assets and the items described below.

The Company has established a Normalized FFO guidance range of $3.17 to $3.27 per share for the full year 2018. The difference between the Company’s full year 2017 Normalized FFO of $3.13 per share and the midpoint of the full year 2018 guidance range of $3.22 per share is due primarily to:

  • A positive impact of approximately $0.04 per share from increased same store NOI;
  • A positive impact of approximately $0.09 per share from Lease-Up NOI;
  • A negative impact of approximately $0.01 per share as a result of the Company’s 2017 and 2018 transaction activity;
  • A negative impact of approximately $0.01 per share from higher total interest expense driven primarily by a reduction in capitalized interest and an expected increase in short term rates offset by interest savings from favorable refinancing activity; and
  • A negative impact of approximately $0.02 per share from other items including higher overhead costs (property management and general and administrative expenses).

2018 Dividends

The Company has decided that it will no longer determine its common share dividend as a fixed percentage of estimated Normalized FFO but will instead adopt a more conventional policy based on actual and projected financial conditions, the Company’s actual and projected liquidity and operating results, the Company’s projected cash needs for capital expenditures and other investment activities and such other factors as the Company’s Board of Trustees deems relevant. The Company currently expects to declare a common share dividend for the first quarter of $0.54 per share, an annualized increase of 7.2% over the amount paid in 2017. This policy change is supported by the Company’s strong growth in property operations since the recent economic downturn and a significant reduction in its development activity resulting in a material increase in available cash flow. The first quarter dividend and all future dividends remain subject to the discretion of the Company’s Board of Trustees.

First Quarter 2018 Earnings and Conference Call

Equity Residential expects to announce its first quarter 2018 results on Tuesday, April 24, 2018 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, April 25, 2018.

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 305 properties consisting of 78,611 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, January 31, 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)

 
  Year Ended December 31,     Quarter Ended December 31,  
2017     2016   2017     2016  
REVENUES
Rental income $ 2,470,689 $ 2,422,233 $ 630,519 $ 605,273
Fee and asset management   717     3,567     185     216  
Total revenues   2,471,406     2,425,800     630,704     605,489  
 
EXPENSES
Property and maintenance 405,281 406,823 98,636 97,135
Real estate taxes and insurance 335,495 317,387 82,177 78,433
Property management 85,493 82,015 20,791 18,012
General and administrative 52,224 57,840 11,858 10,432
Depreciation 743,749 705,649 200,785 177,407
Impairment   1,693         1,693      
Total expenses   1,623,935     1,569,714     415,940     381,419  
 
Operating income 847,471 856,086 214,764 224,070
 
Interest and other income 6,136 65,773 428 681
Other expenses (5,186 ) (10,368 ) (2,026 ) 4,112
Interest:
Expense incurred, net (383,890 ) (482,246 ) (95,311 ) (95,930 )
Amortization of deferred financing costs   (8,526 )   (12,633 )   (2,079 )   (2,633 )

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

investments in unconsolidated entities, net gain (loss)

on sales of real estate properties and land parcels

 

 

 

 

and discontinued operations

456,005

416,612

115,776

130,300

Income and other tax (expense) benefit (478 ) (1,613 ) 232 (424 )
Income (loss) from investments in unconsolidated entities (3,370 ) 4,801 (1,217 ) (1,045 )
Net gain (loss) on sales of real estate properties 157,057 4,044,055 15,296 173,184
Net gain (loss) on sales of land parcels   19,167     15,731     (3 )   (28 )
Income from continuing operations 628,381 4,479,586 130,084 301,987
Discontinued operations, net       518         394  
Net income 628,381 4,480,104 130,084 302,381
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership (22,604 ) (171,511 ) (4,673 ) (11,069 )
Partially Owned Properties   (2,323 )   (16,430 )   31     (14,062 )
Net income attributable to controlling interests 603,454 4,292,163 125,442 277,250
Preferred distributions   (3,091 )   (3,091 )   (773 )   (773 )
Net income available to Common Shares $ 600,363   $ 4,289,072   $ 124,669   $ 276,477  
 
Earnings per share – basic:
Income from continuing operations available to Common Shares $ 1.64   $ 11.75   $ 0.34   $ 0.76  
Net income available to Common Shares $ 1.64   $ 11.75   $ 0.34   $ 0.76  
Weighted average Common Shares outstanding   366,968     365,002     367,442     365,256  
 
Earnings per share – diluted:
Income from continuing operations available to Common Shares $ 1.63   $ 11.68   $ 0.34   $ 0.75  
Net income available to Common Shares $ 1.63   $ 11.68   $ 0.34   $ 0.75  
Weighted average Common Shares outstanding   382,678     381,992     383,105     381,860  
 
Distributions declared per Common Share outstanding $ 2.015   $ 13.015   $ 0.50375   $ 0.50375  

Equity Residential

Consolidated Statements of Funds From Operations and Normalized Funds From Operations

(Amounts in thousands except per share data)

(Unaudited)

 
  Year Ended December 31,     Quarter Ended December 31,  
2017     2016   2017     2016  
Net income $ 628,381 $ 4,480,104 $ 130,084 $ 302,381
Net (income) loss attributable to Noncontrolling

Interests – Partially Owned Properties

(2,323 ) (16,430 ) 31 (14,062 )
Preferred distributions   (3,091 )   (3,091 )   (773 )   (773 )
Net income available to Common Shares and Units 622,967 4,460,583 129,342 287,546
 
Adjustments:
Depreciation 743,749 705,649 200,785 177,407
Depreciation – Non-real estate additions (5,023 ) (5,224 ) (1,215 ) (1,292 )
Depreciation – Partially Owned Properties (4,526 ) (3,805 ) (2,026 ) (909 )
Depreciation – Unconsolidated Properties 4,577 4,745 1,147 1,139
Net (gain) loss on sales of unconsolidated entities

- operating assets

(73 ) (8,841 ) (5 )
Net (gain) loss on sales of real estate properties (157,057 ) (4,044,055 ) (15,296 ) (173,184 )
Noncontrolling Interests share of gain (loss) on

sales of real estate properties

290 14,521 290 14,521
Discontinued operations:
Net (gain) loss on sales of discontinued operations       (43 )        
FFO available to Common Shares and Units 1,204,904 1,123,530 313,022 305,228
 
Adjustments (see page 25 for additional detail):
Asset impairment and valuation allowances 1,693 1,693
Write-off of pursuit costs 3,106 4,092 777 713
Debt extinguishment (gains) losses, including

prepayment penalties, preferred share redemptions and non-cash

convertible debt discounts 11,789 121,694 1,418
(Gains) losses on sales of non-operating assets,

net of income and other tax expense (benefit)

(18,884 ) (73,301 ) 471 299
Other miscellaneous items   (3,371 )   3,635     824     (5,038 )
Normalized FFO available to Common Shares and Units $ 1,199,237   $ 1,179,650   $ 316,787   $ 302,620  
 
FFO $ 1,207,995 $ 1,126,621 $ 313,795 $ 306,001
Preferred distributions   (3,091 )   (3,091 )   (773 )   (773 )
FFO available to Common Shares and Units $ 1,204,904   $ 1,123,530   $ 313,022   $ 305,228  
FFO per share and Unit - basic $ 3.17   $ 2.97   $ 0.82   $ 0.81  
FFO per share and Unit - diluted $ 3.15   $ 2.94   $ 0.82   $ 0.80  
 
Normalized FFO $ 1,202,328 $ 1,182,741 $ 317,560 $ 303,393
Preferred distributions   (3,091 )   (3,091 )   (773 )   (773 )
Normalized FFO available to Common Shares and Units $ 1,199,237   $ 1,179,650   $ 316,787   $ 302,620  
Normalized FFO per share and Unit - basic $ 3.16   $ 3.11   $ 0.83   $ 0.80  
Normalized FFO per share and Unit - diluted $ 3.13   $ 3.09   $ 0.83   $ 0.79  
 
Weighted average Common Shares and Units outstanding - basic   379,870     378,829     380,325     379,081  
Weighted average Common Shares and Units outstanding - diluted   382,678     381,992     383,105     381,860  

Note: See page 25 for additional detail regarding the adjustments from FFO to Normalized FFO. See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.

Equity Residential

Consolidated Balance Sheets

(Amounts in thousands except for share amounts)

(Unaudited)

 
  December 31,   December 31,
2017   2016  
ASSETS
Investment in real estate
Land $ 5,996,024 $ 5,899,862
Depreciable property 19,768,362 18,730,579
Projects under development 163,547 637,168
Land held for development   98,963     118,816  
Investment in real estate 26,026,896 25,386,425
Accumulated depreciation   (6,040,378 )   (5,360,389 )
Investment in real estate, net 19,986,518 20,026,036
Cash and cash equivalents 50,647 77,207
Investments in unconsolidated entities 58,254 60,141
Restricted deposits 50,115 141,881
Other assets   425,065     398,883  
Total assets $ 20,570,599   $ 20,704,148  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 3,618,722 $ 4,119,181
Notes, net 5,038,812 4,848,079
Line of credit and commercial paper 299,757 19,998
Accounts payable and accrued expenses 114,766 147,482
Accrued interest payable 58,035 60,946
Other liabilities 341,852 350,466
Security deposits 65,009 62,624
Distributions payable   192,828     192,296  
Total liabilities   9,729,781     9,801,072  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   366,955     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 December 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; 368,018,082 shares issued
and outstanding as of December 31, 2017 and 365,870,924
shares issued and outstanding as of December 31, 2016 3,680 3,659
Paid in capital 8,886,586 8,758,422
Retained earnings 1,403,530 1,543,626
Accumulated other comprehensive income (loss)   (88,612 )   (113,909 )
Total shareholders’ equity 10,242,464 10,229,078
Noncontrolling Interests:
Operating Partnership 226,691 221,297
Partially Owned Properties   4,708     10,609  
Total Noncontrolling Interests   231,399     231,906  
Total equity   10,473,863     10,460,984  
Total liabilities and equity $ 20,570,599   $ 20,704,148  
 

Equity Residential

Portfolio Summary

As of December 31, 2017

          % of   Average
Apartment Stabilized Rental
Markets/Metro Areas Properties   Units   NOI   Rate
 
Los Angeles 71 16,160 18.6 % $ 2,454
Orange County 13 4,028 4.4 % 2,142
San Diego 12   3,385   3.9 %   2,288
Subtotal – Southern California 96 23,573 26.9 % 2,375
 
San Francisco 54 12,961 19.5 % 3,089
Washington DC 48 15,811 17.3 % 2,360
New York 39 10,462 16.5 % 3,758
Boston 24 6,263 9.9 % 3,001
Seattle 41 8,460 9.9 % 2,365
Other Markets 1   136   %   1,157
Total 303 77,666 100.0 % 2,729
 
Unconsolidated Properties 2   945      
 
Grand Total 305   78,611   100.0 % $ 2,729

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

 

Equity Residential

Portfolio as of December 31, 2017

 
  Properties     Apartment Units
 
Wholly Owned Properties 283 73,598
Master-Leased Properties - Consolidated 3 853
Partially Owned Properties - Consolidated 17 3,215
Partially Owned Properties - Unconsolidated 2   945
 
305   78,611
           

Portfolio Rollforward Q4 2017

($ in thousands)

 
    Properties     Apartment

Units

    Sales Price     Disposition

Yield

 
 
9/30/2017 305 78,302
Dispositions:
Consolidated:
Rental Properties (1 ) (170 ) $ (35,250 ) (5.1 %)
Completed Developments - Consolidated 1 477
Configuration Changes   2  
 
12/31/2017 305   78,611  
                               

Portfolio Rollforward 2017

($ in thousands)

 
    Properties     Apartment

Units

    Purchase Price     Acquisition

Cap Rate

 
 
12/31/2016 302 77,458
 
Acquisitions:
Consolidated:
Rental Properties – Stabilized 2 437 $ 174,028 4.7 %
Rental Properties – Not Stabilized (A) 2 510 $ 294,022 5.0 %
 
Sales Price   Disposition

Yield

 
 
Dispositions:
Consolidated:
Rental Properties (5 ) (1,194 ) $ (354,950 ) (5.1 %)
Land Parcels $ (33,450 )
Completed Developments - Consolidated 4 1,393
Configuration Changes   7  
 
12/31/2017 305   78,611  
(A)   The Company acquired two properties in the third quarter of 2017 which were in the final stages of initial lease-up and are expected to stabilize in their second year of ownership at a weighted average Acquisition Cap Rate of 5.0%.
 

Equity Residential

 

Fourth Quarter 2017 vs. Fourth Quarter 2016

Same Store Results/Statistics for 72,529 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results     Statistics  
Description Revenues     Expenses     NOI   Average

Rental

Rate

    Physical

Occupancy

    Turnover  
   
Q4 2017 $ 590,387 $ 169,647 $ 420,740 $ 2,709 96.0 % 11.1 %
Q4 2016 $ 577,809   $ 165,552   $ 412,257   $ 2,656     96.0 %   11.2 %
 
Change $ 12,578   $ 4,095   $ 8,483   $ 53     0.0 %   (0.1 %)
 
Change 2.2 % 2.5 % 2.1 % 2.0 %
                                                 

Fourth Quarter 2017 vs. Third Quarter 2017

Same Store Results/Statistics for 73,822 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results     Statistics  
Description Revenues     Expenses     NOI   Average

Rental

Rate

    Physical

Occupancy

    Turnover  
   
Q4 2017 $ 602,878 $ 173,089 $ 429,789 $ 2,720 96.0 % 11.1 %
Q3 2017 $ 604,414   $ 178,672   $ 425,742   $ 2,725     96.2 %   16.7 %
 
Change $ (1,536 ) $ (5,583 ) $ 4,047   $ (5 )   (0.2 %)   (5.6 %)
 
Change (0.3 %) (3.1 %) 1.0 % (0.2 %)
                                                 

2017 vs. 2016

Same Store Results/Statistics for 70,117 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results     Statistics  
Description Revenues     Expenses     NOI   Average

Rental

Rate

    Physical

Occupancy

    Turnover  
   
2017 $ 2,248,564 $ 656,321 $ 1,592,243 $ 2,670 96.0 % 52.9 %
2016 $ 2,200,094   $ 639,342   $ 1,560,752   $ 2,611     96.0 %   54.7 %
 
Change $ 48,470   $ 16,979   $ 31,491   $ 59     0.0 %   (1.8 %)
 
Change 2.2 % 2.7 % 2.0 % 2.3 %

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 29 for reconciliations from operating income.

 

Equity Residential

Fourth Quarter 2017 vs. Fourth Quarter 2016

Same Store Results/Statistics by Market

 
                        Increase (Decrease) from Prior Year's Quarter  
Markets/Metro Areas Apartment

Units

  Q4 2017

% of

Actual

NOI

  Q4 2017

Average

Rental

Rate

  Q4 2017

Weighted

Average

Physical

Occupancy %

  Q4 2017

Turnover

  Revenues     Expenses     NOI     Average

Rental

Rate

    Physical

Occupancy

    Turnover  
           
Los Angeles 14,432 17.6 % $ 2,445 95.9 % 13.0 % 3.2 % 0.7 % 4.1 % 3.4 % 0.0 % (0.5 %)
Orange County 3,684 4.1 % 2,109 96.1 % 11.0 % 4.0 % 2.3 % 4.5 % 4.2 % (0.1 %) (0.7 %)
San Diego   3,385     4.0 %   2,288     96.0 %   14.1 %   4.6 %   3.8 %   4.8 %   4.7 %   (0.1 %)   (0.1 %)
Subtotal – Southern California 21,501 25.7 % 2,363 95.9 % 12.8 % 3.5 % 1.4 % 4.3 % 3.7 % (0.1 %) (0.5 %)
 
New York 10,462 18.8 % 3,758 96.4 % 7.6 % 0.4 % 0.9 % 0.2 % (0.3 %) 0.4 % (0.9 %)
San Francisco 11,848 18.6 % 3,007 95.9 % 11.7 % 1.9 % 4.7 % 1.1 % 2.1 % (0.1 %) 0.6 %
Washington DC 15,475 18.1 % 2,356 96.5 % 9.8 % 1.2 % 2.3 % 0.8 % 0.7 % 0.5 % (0.5 %)
Boston 6,009 10.1 % 2,981 95.8 % 10.3 % 2.3 % 1.7 % 2.4 % 1.4 % 0.1 % 0.2 %
Seattle 7,098 8.6 % 2,285 95.1 % 13.5 % 5.4 % 8.6 % 4.3 % 6.1 % (0.5 %) 1.8 %
Other Markets 136 0.1 % 1,157 96.1 % 11.8 % (0.1 %) 9.8 % (4.4 %) 1.0 % (0.8 %) (2.9 %)
                                                                 
Total   72,529     100.0 % $ 2,709     96.0 %   11.1 %   2.2 %   2.5 %   2.1 %   2.0 %   0.0 %   (0.1 %)
 

Equity Residential

Fourth Quarter 2017 vs. Third Quarter 2017

Same Store Results/Statistics by Market

 
                        Increase (Decrease) from Prior Quarter  
Markets/Metro Areas Apartment

Units

  Q4 2017

% of

Actual

NOI

  Q4 2017

Average

Rental

Rate

  Q4 2017

Weighted

Average

Physical

Occupancy %

  Q4 2017

Turnover

  Revenues     Expenses     NOI     Average

Rental

Rate

    Physical

Occupancy

    Turnover  
           
Los Angeles 14,717 17.6 % $ 2,446 95.8 % 13.1 % (0.6 %) 2.4 % (1.7 %) 0.2 % (0.7 %) (5.1 %)
Orange County 3,684 4.0 % 2,109 96.1 % 11.0 % 0.1 % (5.7 %) 1.9 % 0.4 % (0.3 %) (5.8 %)
San Diego   3,385     3.9 %   2,288     96.0 %   14.1 %   0.1 %   (3.1 %)   1.2 %   0.8 %   (0.7 %)   (4.6 %)
Subtotal – Southern California 21,786 25.5 % 2,365 95.9 % 12.9 % (0.4 %) 0.5 % (0.7 %) 0.3 % (0.6 %) (5.1 %)
 
San Francisco 12,720 19.8 % 3,059 95.9 % 11.6 % 0.3 % (2.9 %) 1.5 % 0.1 % 0.2 % (5.9 %)
New York 10,462 18.4 % 3,758 96.4 % 7.6 % (1.1 %) (3.9 %) 0.6 % (0.8 %) 0.0 % (5.4 %)
Washington DC 15,475 17.7 % 2,356 96.5 % 9.8 % (0.9 %) (5.3 %) 1.0 % (1.1 %) 0.2 % (6.6 %)
Boston 6,009 9.9 % 2,981 95.8 % 10.3 % 1.9 % (4.5 %) 4.5 % 0.5 % 0.0 % (8.0 %)
Seattle 7,234 8.6 % 2,284 95.0 % 13.6 % (0.2 %) (4.4 %) 1.4 % 0.2 % (0.4 %) (2.8 %)
Other Markets 136 0.1 % 1,157 96.1 % 11.8 % (0.9 %) (3.4 %) 0.4 % 0.2 % (1.0 %) 1.5 %
                                                                 
Total   73,822     100.0 % $ 2,720     96.0 %   11.1 %   (0.3 %)   (3.1 %)   1.0 %   (0.2 %)   (0.2 %)   (5.6 %)
 

Equity Residential

2017 vs. 2016

Same Store Results/Statistics by Market

 
                        Increase (Decrease) from Prior Year  
Markets/Metro Areas Apartment

Units

  2017

% of

Actual

NOI

  2017

Average

Rental

Rate

  2017

Weighted

Average

Physical

Occupancy %

  2017

Turnover

  Revenues     Expenses     NOI     Average

Rental

Rate

    Physical

Occupancy

    Turnover  
           
Los Angeles 14,040 17.9 % $ 2,419 96.0 % 59.1 % 3.6 % 0.7 % 4.8 % 3.8 % (0.1 %) (2.0 %)
Orange County 3,684 4.2 % 2,076 96.2 % 52.2 % 4.7 % 4.6 % 4.7 % 4.5 % 0.1 % (1.5 %)
San Diego   3,385     4.1 %   2,249     96.3 %   64.2 %   4.6 %   3.2 %   5.1 %   4.5 %   0.1 %   (0.1 %)
Subtotal – Southern California 21,109 26.2 % 2,332 96.1 % 58.7 % 3.9 % 1.6 % 4.9 % 4.1 % 0.0 % (1.7 %)
 
Washington DC 15,475 18.9 % 2,362 96.1 % 50.3 % 1.3 % 2.8 % 0.7 % 1.4 % 0.1 % (0.4 %)
New York 9,837 18.3 % 3,706 96.2 % 40.4 % 0.1 % 3.7 % (1.8 %) (0.1 %) (0.1 %) (1.5 %)
San Francisco 11,021 18.0 % 2,942 95.9 % 53.6 % 2.0 % 1.5 % 2.1 % 2.2 % (0.2 %) (5.5 %)
Boston 6,009 10.4 % 2,952 95.8 % 52.2 % 1.6 % 0.8 % 2.0 % 1.2 % 0.3 % (3.1 %)
Seattle 6,530 8.1 % 2,241 95.6 % 59.2 % 5.6 % 6.8 % 5.2 % 6.0 % 0.0 % 1.3 %
Other Markets 136 0.1 % 1,150 97.6 % 44.9 % 2.3 % 14.9 % (3.5 %) 2.9 % (0.4 %) (9.5 %)
                                                                 
Total   70,117     100.0 % $ 2,670     96.0 %   52.9 %   2.2 %   2.7 %   2.0 %   2.3 %   0.0 %   (1.8 %)
 

Equity Residential

Fourth Quarter 2017 vs. Fourth Quarter 2016

Same Store Operating Expenses for 72,529 Same Store Apartment Units

$ in thousands

  Actual

Q4 2017

    Actual

Q4 2016

    $

Change

    %

Change

    % of Actual

Q4 2017

Operating

Expenses

 
       
Real estate taxes $ 73,064 $ 70,011 $ 3,053 4.4 % 43.1 %
On-site payroll (1) 37,720 36,241 1,479 4.1 % 22.2 %
Utilities (2) 22,897 22,460 437 1.9 % 13.5 %
Repairs and maintenance (3) 20,327 20,185 142 0.7 % 12.0 %
Insurance 4,367 4,561 (194 ) (4.3 %) 2.6 %
Leasing and advertising 2,364 2,666 (302 ) (11.3 %) 1.4 %
Other on-site operating expenses (4)   8,908     9,428     (520 )   (5.5 %)   5.2 %
 
Same store operating expenses $ 169,647   $ 165,552   $ 4,095     2.5 %   100.0 %

2017 vs. 2016

Same Store Operating Expenses for 70,117 Same Store Apartment Units

$ in thousands

 
  Actual

2017

    Actual

2016

    $

Change

    %

Change

    % of Actual

2017

Operating

Expenses

 
       
Real estate taxes $ 276,762 $ 268,084 $ 8,678 3.2 % 42.2 %
On-site payroll (1) 148,781 142,248 6,533 4.6 % 22.7 %
Utilities (2) 89,938 88,159 1,779 2.0 % 13.7 %
Repairs and maintenance (3) 83,683 82,378 1,305 1.6 % 12.7 %
Insurance 16,683 17,345 (662 ) (3.8 %) 2.5 %
Leasing and advertising 9,282 10,118 (836 ) (8.3 %) 1.4 %
Other on-site operating expenses (4)   31,192     31,010     182     0.6 %   4.8 %
 
Same store operating expenses $ 656,321   $ 639,342   $ 16,979     2.7 %   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 December 31, 2017

($ in thousands)

 
  Amounts (1)     % of Total     Weighted

Average

Rates (1)

    Weighted

Average

Maturities

(years)

       
Secured $ 3,618,722 40.4 % 4.33 % 5.6
Unsecured   5,338,569     59.6 %   4.17 %   10.6
 
Total $ 8,957,291     100.0 %   4.24 %   8.6
Fixed Rate Debt:
Secured – Conventional $ 2,982,344 33.3 % 4.90 % 4.0
Unsecured – Public   4,591,373     51.3 %   4.61 %   12.2
 
Fixed Rate Debt   7,573,717     84.6 %   4.73 %   9.0
 
Floating Rate Debt:
Secured – Conventional 6,948 0.1 % 1.05 % 12.2
Secured – Tax Exempt 629,430 7.0 % 1.56 % 12.2
Unsecured – Public (2) 447,439 5.0 % 1.82 % 1.5
Unsecured – Revolving Credit Facility (3) 2.00 % 3.9
Unsecured – Commercial Paper Program (4)   299,757     3.3 %   1.41 %  
 
Floating Rate Debt   1,383,574     15.4 %   1.62 %   6.3
 
Total $ 8,957,291     100.0 %   4.24 %   8.6
(1)   Net of the effect of any derivative instruments. Weighted average rates are for the year ended December 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%), or based on bids received from the lending group, 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 December 31, 2017, there was approximately $1.69 billion available on the Company’s unsecured revolving credit facility (net of $6.6 million which was restricted/dedicated to support letters of credit and net of $300.0 million in principal 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 1.41% for the year ended December 31, 2017 and a weighted average maturity of 18 days as of December 31, 2017.

Note: The Company capitalized interest of approximately $26.3 million and $51.5 million during the years ended December 31, 2017 and 2016, respectively. The Company capitalized interest of approximately $3.1 million and $9.8 million during the quarters ended December 31, 2017 and 2016, respectively.

 

Equity Residential

Debt Maturity Schedule as of December 31, 2017

($ in thousands)

 
Year   Fixed

Rate (1)

    Floating

Rate (1)

    Total     % of Total     Weighted

Average Rates

on Fixed

Rate Debt (1)

    Weighted

Average

Rates on

Total Debt (1)

 
     
2018 $ 49,734 $ 397,235 (2) $ 446,969 4.9 % 5.55 % 2.17 %
2019 506,731 (3) 468,603 975,334 10.8 % 5.17 % 3.62 %
2020 1,678,592 (4) 400 1,678,992 18.5 % 5.49 % 5.49 %
2021 927,506 300 927,806 10.2 % 4.64 % 4.64 %
2022 265,341 400 265,741 2.9 % 3.26 % 3.26 %
2023 1,326,800 4,400 1,331,200 14.7 % 3.74 % 3.73 %
2024 1,272 10,500 11,772 0.1 % 4.79 % 2.07 %
2025 451,334 12,800 464,134 5.1 % 3.38 % 3.33 %
2026 593,424 14,000 607,424 6.7 % 3.59 % 3.54 %
2027 401,468 15,200 416,668 4.6 % 3.26 % 3.20 %
2028+   1,424,969     520,065     1,945,034     21.5 %   4.41 %   3.67 %
Subtotal 7,627,171 1,443,903 9,071,074 100.0 % 4.48 % 3.97 %
Deferred Financing Costs and Unamortized (Discount)   (53,454 )   (60,329 )   (113,783 ) N/A   N/A   N/A  
 
Total $ 7,573,717   $ 1,383,574   $ 8,957,291     100.0 %   4.48 %   3.97 %
(1)   Net of the effect of any derivative instruments. Weighted average rates are as of December 31, 2017.
(2) Includes $300.0 million in principal outstanding on the Company's commercial paper program.
(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. The Company currently intends to prepay this mortgage loan on 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. The Company currently intends to prepay this mortgage loan on January 31, 2018 and incur approximately $22.5 million in debt extinguishment costs/prepayment penalties. 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

 
  December 31,     September 30,
2017   2017
Total Debt to Adjusted Total Assets (not to exceed 60%) 34.6% 34.8%
 
Secured Debt to Adjusted Total Assets (not to exceed 40%) 14.0% 14.0%
 
Consolidated Income Available for Debt Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1) 4.17 4.07
 
Total Unsecured Assets to Unsecured Debt
(must be at least 150%) 381.0% 377.6%

Note: These selected covenants relate to ERP Operating Limited Partnership's ("ERPOP") outstanding unsecured public debt, which represent the Company's most restrictive covenants. Equity Residential is the general partner of ERPOP.

 
 

Selected Credit Ratios

 
  December 31,     September 30,
2017   2017
Total debt to Normalized EBITDA 5.62x 5.70x
 
Net debt to Normalized EBITDA 5.59x 5.67x
 
Unencumbered NOI as a % of total NOI 74.2% 74.0%

Note: See page 24 for the Normalized EBITDA reconciliations.

 

Equity Residential

Capital Structure as of December 31, 2017

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

 
Secured Debt           $ 3,618,722       40.4 %    
Unsecured Debt   5,338,569     59.6 %
 
Total Debt 8,957,291 100.0 % 26.9 %
 
Common Shares (includes Restricted Shares) 368,018,082 96.4 %
Units (includes OP Units and Restricted Units)   13,768,438     3.6 %
 
Total Shares and Units 381,786,520 100.0 %
Common Share Price at December 31, 2017 $ 63.77  
24,346,526 99.8 %
Perpetual Preferred Equity (see below)   37,280     0.2 %
 
Total Equity 24,383,806 100.0 % 73.1 %
 
Total Market Capitalization $ 33,341,097 100.0 %
                                         

Perpetual Preferred Equity as of December 31, 2017

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

 
Series   Call Date   Outstanding

Shares

    Liquidation

Value

    Annual

Dividend

Per Share

    Annual

Dividend

Amount

Preferred Shares:        
8.29% Series K 12/10/26   745,600   $ 37,280   $ 4.145 $ 3,091
 
Total Perpetual Preferred Equity 745,600 $ 37,280 $ 3,091
 

Equity Residential

Common Share and Unit

Weighted Average Amounts Outstanding

  2017     2016     Q4 2017     Q4 2016
             
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 366,968,358 365,002,012 367,442,352 365,255,902
Shares issuable from assumed conversion/vesting of:
- OP Units 12,901,219 13,827,099 12,882,935 13,824,671
- long-term compensation shares/units   2,808,917     3,163,201     2,780,028     2,779,631
 
Total Common Shares and Units - diluted   382,678,494     381,992,312     383,105,315     381,860,204
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 366,968,358 365,002,012 367,442,352 365,255,902
OP Units - basic   12,901,219     13,827,099     12,882,935     13,824,671
 
Total Common Shares and OP Units - basic 379,869,577 378,829,111 380,325,287 379,080,573
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units   2,808,917     3,163,201     2,780,028     2,779,631
 
Total Common Shares and Units - diluted   382,678,494     381,992,312     383,105,315     381,860,204
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 368,018,082 365,870,924
Units (includes OP Units and Restricted Units)   13,768,438     14,626,075  
 
Total Shares and Units   381,786,520     380,496,999  
 

Equity Residential

Partially Owned Entities as of December 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 year ended 12/31/17 (at 100%):
Operating revenue $ 93,472 $ 32,141
Operating expenses   22,412     11,399  
 
Net operating income 71,060 20,742
Property management 3,401 859
General and administrative 279 3
Depreciation   25,505     16,134  
 
Operating income 41,875 3,746
Interest and other income 77
Interest:
Expense incurred, net (13,316 ) (8,289 )
Amortization of deferred financing costs   (270 )   (1 )
 
Income (loss) before income and other taxes and income (loss)
from investments in unconsolidated entities 28,366 (4,544 )
Income and other tax (expense) benefit (27 ) (13 )
Income (loss) from investments in unconsolidated entities   (1,549 )    
Net income (loss) $ 26,790   $ (4,557 )
 
Debt - Secured (1):
EQR Ownership (2) $ 237,289 $ 29,085
Noncontrolling Ownership   65,058     116,339  
 
Total (at 100%) $ 302,347   $ 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 December 31, 2017

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

 
Projects   Location   No. of

Apartment

Units

    Total

Budgeted

Capital

Cost

    Total

Book Value

to Date

    Total Book

Value Not

Placed in

Service

    Total

Debt

    Percentage

Completed

    Percentage

Leased

    Percentage

Occupied

    Estimated

Completion

Date

  Estimated

Stabilization

Date

             

Projects Under Development:

855 Brannan San Francisco, CA 449 $ 304,035 $ 296,916 $ 90,676 $ 96 % 55 % 50 % Q1 2018 Q1 2019
100 K Street Washington, DC 222 88,023 45,603 45,603 33 % Q4 2018 Q4 2019
1401 E. Madison Seattle, WA 137 62,352 18,334 18,334 3 % Q3 2019 Q1 2020
249 Third Street Cambridge, MA 84 51,447 8,934 8,934 1 % Q4 2019 Q2 2020
                             
Projects Under Development   892     505,857     369,787     163,547      
 

Completed Not Stabilized (1):

455 Eye Street Washington, DC 174 73,157 72,972 96 % 91 % Completed Q1 2018
Helios (formerly 2nd & Pine) Seattle, WA 398 227,287 220,101 54 % 48 % Completed Q2 2019
Cascade Seattle, WA 477 176,378 169,597 50 % 47 % Completed Q2 2019
                             
Projects Completed Not Stabilized   1,049     476,822     462,670          
 

Completed and Stabilized During the Quarter:

Altitude (formerly Village at Howard Hughes) Los Angeles, CA 545 192,331 191,747 96 % 95 % Completed Stabilized
The Alton (formerly Millikan) Irvine, CA 344 107,381 106,795 96 % 95 % Completed Stabilized
One Henry Adams San Francisco, CA 241 169,437 167,256 96 % 93 % Completed Stabilized
                             
Projects Completed and Stabilized During the Quarter   1,130     469,149     465,798          
 
Total Development Projects   3,071   $ 1,451,828   $ 1,298,255   $ 163,547   $  
 
Land Held for Development N/A   N/A   $ 98,963   $ 98,963   $  
 
Total Capital Q4 2017
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS Cost   NOI  
Projects Under Development $ 505,857 $ 1,878
Completed Not Stabilized 476,822 2,793
Completed and Stabilized During the Quarter   469,149     6,215  
Total Development NOI Contribution $ 1,451,828   $ 10,886  

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

Capital Expenditures to Real Estate

For the Year Ended December 31, 2017

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

    Same Store

Properties

    Non-Same Store

Properties/Other

    Total    

Same Store Avg.

Per Apartment Unit

     
Total Apartment Units (1)   70,117     7,549     77,666  
 
Building Improvements $ 114,162 $ 3,966 $ 118,128 $ 1,628
 
Renovation Expenditures (2) 44,418 888 45,306 634
 
Replacements 38,560 613 39,173 550
                     
Total Capital Expenditures $ 197,140   $ 5,467   $ 202,607   $ 2,812

Note: See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms.

(1)   Total Apartment Units - Excludes 945 unconsolidated apartment units for which capital expenditures to real estate are self-funded and do not consolidate into the Company's results.
(2) Renovation Expenditures on 3,371 same store apartment units for the year ended December 31, 2017 approximated $13,200 per apartment unit renovated.
 

Equity Residential

Normalized EBITDA Reconciliations

(Amounts in thousands)

 

Normalized EBITDA Reconciliations for Page 18

                 
Trailing Twelve Months   2017   2016  
December 31, 2017     September 30, 2017   Q4     Q3     Q2     Q1   Q4  
Net income $ 628,381 $ 800,678 $ 130,084 $ 144,196 $ 204,160 $ 149,941 $ 302,381
Interest expense incurred, net 383,890 384,509 95,311 91,145 91,224 106,210 95,930
Amortization of deferred financing costs 8,526 9,080 2,079 2,064 2,087 2,296 2,633
Depreciation 743,749 720,371 200,785 184,100 179,896 178,968 177,407
Income and other tax expense (benefit) (includes discontinued operations) 478 1,135 (232 ) 228 220 262 425
                                         
EBITDA 1,765,024 1,915,773 428,027 421,733 477,587 437,677 578,776
 
Impairment 1,693 1,693
Write-off of pursuit costs (other expenses) 3,106 3,042 777 783 831 715 713
(Income) loss from investments in unconsolidated entities 3,370 3,198 1,217 398 682 1,073 1,045
Net (gain) loss on sales of land parcels (19,167 ) (19,142 ) 3 23 (19,193 ) 28
(Gain) loss on sale of investment securities and other investments (interest and other income) 7 7
Insurance/litigation settlement or reserve income (interest and other income) (4,853 ) (5,053 ) (137 ) (3,500 ) (836 ) (380 ) (337 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 237 (4,837 ) (56 ) 293 (5,074 )
Other 1,245 657 961 95 93 96 373
Net (gain) loss on sales of real estate properties   (157,057 )   (314,945 )   (15,296 )   (17,328 )   (87,726 )   (36,707 )   (173,184 )
Normalized EBITDA $ 1,593,598   $ 1,578,700   $ 417,245   $ 402,181   $ 390,598   $ 383,574   $ 402,347  
 

Balance Sheet Items:

December 31, 2017   September 30, 2017  
 
Total debt $ 8,957,291 $ 8,992,272
Cash and cash equivalents (50,647 ) (46,565 )
Mortgage principal reserves/sinking funds   (3,167 )   (1,595 )
Net debt $ 8,903,477   $ 8,944,112  
 
 

Equity Residential

Adjustments from FFO to Normalized FFO

(Amounts in thousands)

 
  Year Ended December 31,     Quarter Ended December 31,  
2017     2016     Variance   2017     2016     Variance  
 
Impairment $ 1,693   $   $ 1,693   $ 1,693   $   $ 1,693  
Asset impairment and valuation allowances   1,693         1,693     1,693         1,693  
 
Write-off of pursuit costs (other expenses)   3,106     4,092     (986 )   777     713     64  
Write-off of pursuit costs   3,106     4,092     (986 )   777     713     64  
 
Prepayment premiums/penalties (interest expense) 12,258 114,666 (102,408 ) 2,247 (2,247 )
Write-off of unamortized deferred financing costs (interest expense) 251 3,854 (3,603 ) 491 (491 )
Write-off of unamortized (premiums)/discounts/OCI (interest expense) (720 ) 4,494 (5,214 )
Noncontrolling Interests share of debt extinguishment costs (1,394 ) 1,394 (1,394 ) 1,394
(Gain) loss due to ineffectiveness of forward starting swaps (interest expense)       74     (74 )       74     (74 )
Debt extinguishment (gains) losses, including prepayment penalties,

preferred share redemptions and non-cash convertible debt discounts

  11,789     121,694     (109,905 )       1,418     (1,418 )
 
Net (gain) loss on sales of land parcels (19,167 ) (15,731 ) (3,436 ) 3 28 (25 )
Net (gain) loss on sales of unconsolidated entities - non-operating assets (205 ) (81 ) (124 )
(Gain) loss on sale of investment securities and other investments (interest and

other income)

(58,409 ) 58,409 7 (7 )
(Income) loss from investments in unconsolidated entities ─ non-operating assets   488     920     (432 )   468     264     204  
(Gains) losses on sales of non-operating assets, net of income and other tax

expense (benefit)

  (18,884 )   (73,301 )   54,417     471     299     172  
 
Insurance/litigation settlement or reserve income (interest and other income) (4,853 ) (3,228 ) (1,625 ) (137 ) (337 ) 200
Insurance/litigation/environmental settlement or reserve expense (other expenses) 237 4,024 (3,787 ) (5,074 ) 5,074
Other   1,245     2,839     (1,594 )   961     373     588  
Other miscellaneous items   (3,371 )   3,635     (7,006 )   824     (5,038 )   5,862  
 
Adjustments from FFO to Normalized FFO $ (5,667 ) $ 56,120   $ (61,787 ) $ 3,765   $ (2,608 ) $ 6,373  

Note: See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share

 

Equity Residential

Normalized FFO Guidance and Assumptions

The guidance/projections provided below are based on current expectations and are forward-looking. All guidance is given on a Normalized FFO basis. Therefore, certain items excluded from Normalized FFO, such as debt extinguishment costs/prepayment penalties and the write-off of pursuit costs, are not included in the estimates provided on this page. See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.

2018 Normalized FFO Guidance (per share diluted)

 
  Q1 2018   2018
Expected Normalized FFO Per Share $0.74 to $0.78 $3.17 to $3.27

2018 Same Store Assumptions

 
Physical Occupancy       96.0%
Revenue change 1.0% to 2.25%
Expense change 3.5% to 4.5%
NOI change 0.0% to 1.5%

Note: Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO per share/Normalized FFO per share.

2018 Transaction Assumptions

 
Consolidated rental acquisitions       $500.0 million
Consolidated rental dispositions $500.0 million
Spread between Acquisition Cap Rate and Disposition Yield 50 basis points

2018 Debt Assumptions

 
Weighted average debt outstanding       $8.8 billion to $9.1 billion
Weighted average interest rate (reduced for capitalized interest) 4.21%
Interest expense, net (on a Normalized FFO basis) $370.5 million to $383.1 million
Capitalized interest $4.0 million to $8.0 million

Note: All 2018 debt assumptions are shown on a Normalized FFO basis and therefore exclude an approximately $23.7 million impact from anticipated debt extinguishment costs/prepayment penalties described on page 4.

2018 Capital Expenditures to Real Estate Assumptions

 
 

Per Same Store

Apartment Unit

  Total
Total Capital Expenditures to Real Estate   $2,900 $210.0 million

Note: During 2018, the Company expects to spend approximately $60.0 million for apartment unit Renovation Expenditures on approximately 4,500 same store apartment units at an average cost of approximately $13,300 per apartment unit renovated.

2018 Other Guidance Assumptions

 
Property management expense       $88.5 million to $90.5 million
General and administrative expense $53.0 million to $55.0 million
Interest and other income $0.5 million to $1.0 million
Income and other tax expense $0.5 million to $1.0 million
Debt offerings $800.0 million to $1.0 billion
Equity ATM share offerings No amounts budgeted
Preferred share offerings No amounts budgeted
Weighted average Common Shares and Units - Diluted 383.8 million
 

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.

Capital Expenditures to Real Estate:

Building Improvements – Includes roof replacement, paving, building mechanical equipment systems, exterior siding and painting, major landscaping, furniture, fixtures and equipment for amenities and common areas, vehicles and office and maintenance equipment.

Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets.

Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting).

Debt Covenant Compliance – Our unsecured debt includes certain financial and operating covenants including, among other things, maintenance of certain financial ratios. These provisions are contained in the indentures applicable to each notes payable or the credit agreement for our line of credit. The Debt Covenant Compliance ratios that are provided show the Company's compliance with certain covenants governing our public unsecured debt. These covenants generally reflect our most restrictive financial covenants. The Company was in compliance with its unsecured debt covenants for all years presented (the ratios should not be used for any other purpose, including without limitation, to evaluate the Company's financial condition or results of operations, nor do they indicate the Company's covenant compliance as of any other date or for any other period).

Development Yield – NOI that the Company anticipates receiving in the next 12 months following stabilization less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $50-$150 per apartment unit depending on the type of asset) divided by the Total Budgeted Capital Cost of the asset. The weighted average Development Yield for development properties is weighted based on the projected NOI streams and the relative Total Budgeted Capital Cost for each respective property.

Disposition Yield – NOI that the Company anticipates giving up in the next 12 months less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross sale price of the asset. The weighted average Disposition Yield for sold properties is weighted based on the projected NOI streams and the relative sales price for each respective property.

Earnings Per Share ("EPS") Net income per share calculated in accordance with GAAP. Expected EPS is calculated on a basis consistent with actual EPS. Due to the uncertain timing and extent of property dispositions and the resulting gains/losses on sales, actual EPS could differ materially from expected EPS.

Economic Gain – Economic Gain is calculated as the net gain (loss) on sales of real estate properties in accordance with GAAP, excluding accumulated depreciation. The Company generally considers Economic Gain to be an appropriate supplemental measure to net gain (loss) on sales of real estate properties in accordance with GAAP because it is one indication of the gross value created by the Company's acquisition, development, 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 (loss) on sales of real estate properties in accordance with GAAP to Economic Gain:

  Year Ended December 31, 2017     Quarter Ended December 31, 2017  
 
Net Gain (Loss) on Sales of Real Estate Properties $ 157,057 $ 15,296
Accumulated Depreciation Gain   (64,619 )   (10,383 )
 
Economic Gain $ 92,438   $ 4,913  
 

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 7 and 26 (the expected guidance/projections provided below are based on current expectations and are forward-looking):

 
      Actual   Actual   Expected     Expected
Actual 2017 Actual 2016 Q4 2017 Q4 2016 Q1 2018 2018
Per Share   Per Share   Per Share   Per Share   Per Share   Per Share
EPS - Diluted $ 1.63 $ 11.68 $ 0.34 $ 0.75 $0.48 to $0.52 $1.71 to $1.81
Add: Depreciation expense 1.93 1.83 0.52 0.46 0.51 2.01
Less: Net (gain) loss on sales   (0.41 )   (10.57 )   (0.04 )   (0.41 ) (0.30)   (0.62)
 
FFO per share - Diluted 3.15 2.94 0.82 0.80 0.69 to 0.73 3.10 to 3.20
 
Asset impairment and valuation allowances
Write-off of pursuit costs 0.01 0.01 0.01
Debt extinguishment (gains) losses, including

prepayment penalties, preferred share

redemptions and non-cash convertible debt

discounts

0.03 0.32 0.06 0.06
(Gains) losses on sales of non-operating assets,

net of income and other tax expense (benefit)

(0.05 ) (0.19 )
Other miscellaneous items   (0.01 )   0.01     0.01     (0.01 ) (0.01)  
 
Normalized FFO per share - Diluted $ 3.13   $ 3.09   $ 0.83   $ 0.79   $0.74 to $0.78   $3.17 to $3.27

Lease-Up NOI – Represents NOI for development properties: (i) in various stages of lease-up; and (ii) where lease-up has been completed but the properties were not stabilized (defined as having achieved 90% occupancy for three consecutive months) for all of the current and comparable periods presented.

Net Operating Income (“NOI”) – NOI is the Company’s primary financial measure for evaluating each of its apartment properties. NOI is defined as rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company's apartment properties. NOI does not include an allocation of property management expenses either in the current or comparable periods. Rental income for all leases and operating expense for ground leases (for both same store and non-same store properties) are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.

The following tables present reconciliations of operating income per the consolidated statements of operations to NOI, along with rental income, operating expenses and NOI per the consolidated statements of operations allocated between same store and non-same store/other results (see page 11):

  Year Ended December 31,     Quarter Ended December 31,  
2017     2016   2017     2016  
Operating income $ 847,471 $ 856,086 $ 214,764 $ 224,070
Adjustments:
Fee and asset management revenue (717 ) (3,567 ) (185 ) (216 )
Property management 85,493 82,015 20,791 18,012
General and administrative 52,224 57,840 11,858 10,432
Depreciation 743,749 705,649 200,785 177,407
Impairment   1,693         1,693      
Total NOI $ 1,729,913   $ 1,698,023   $ 449,706   $ 429,705  
Rental income:
Same store $ 2,248,564 $ 2,200,094 $ 590,387 $ 577,809
Non-same store/other   222,125     222,139     40,132     27,464  
Total rental income 2,470,689 2,422,233 630,519 605,273
Operating expenses: