Equity Residential Reports Second Quarter 2018 Results

Raises Midpoint of Same Store Revenue Guidance

CHICAGO--()--Equity Residential (NYSE: EQR) today reported results for the quarter and six months ended June 30, 2018. All per share results are reported as available to common shares/units on a diluted basis. Earnings per Share (EPS) was $0.31, Funds From Operations (FFO) was $0.81 per share and Normalized FFO was $0.81 per share for the second quarter of 2018, each as described in further detail below.

“The primary leasing season of 2018 has again demonstrated the resilient and nearly insatiable demand for rental housing across our markets,” said David J. Neithercut, Equity Residential’s President and CEO. “Strong demand and an enterprise wide focus on customer service continue to drive high occupancy and ever improving resident retention despite elevated levels of new supply. As a result, we are pleased to now expect full year same store revenue growth towards the upper end of our initial guidance expectations.”

Highlights

  • The Company increased the midpoint of its same store revenue guidance range to 2.1% from 1.6%.
  • During the second quarter of 2018, the Company produced Physical Occupancy of 96.2%, new lease rate growth of 1.4% and renewal rate growth of 4.7%, all of which were ahead of the Company’s expectations. The Company also produced the lowest second quarter same store turnover in its history.
  • The Company began the development of West End Tower, a 469-unit, 44-story apartment property in Boston’s West End neighborhood. The project is estimated to cost approximately $409.7 million and be completed in 2021.
  • On August 12, Equity Residential will celebrate 25 years as a publicly listed company.

Second Quarter 2018

EPS for the second quarter of 2018 was $0.31 compared to $0.53 in the second quarter of 2017. The difference is due primarily to higher property sale gains in the second quarter of 2017, the various adjustment items listed on page 23 of this release and the items described below.

FFO as defined by Nareit (National Association of Real Estate Investment Trusts) was $0.81 per share for the second quarter of 2018 compared to $0.77 per share in the second quarter of 2017. The difference is due primarily to the various adjustment items listed on page 23 of this release and the items described below.

Normalized FFO for the second quarter of 2018 was $0.81 per share compared to $0.77 per share in the second quarter of 2017. 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 higher total interest expense.

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

Six Months Ended June 30, 2018

EPS for the six months ended June 30, 2018 was $0.88 compared to $0.92 in the six months ended June 30, 2017. The difference is due primarily to higher depreciation expense and higher property sale gains in the first six months of 2018, the various adjustment items listed on page 23 of this release and the items described below.

FFO was $1.52 per share for the six months ended June 30, 2018 compared to $1.53 per share for the six months ended June 30, 2017. The difference is due primarily to the various adjustment items listed on page 23 of this release and the items described below.

Normalized FFO for the six months ended June 30, 2018 was $1.58 per share compared to $1.51 per share for the six months ended June 30, 2017. The following items impacted Normalized FFO per share in the period:

  • A positive impact of approximately $0.03 per share from increased same store NOI;
  • A positive impact of approximately $0.06 per share from Lease-Up NOI and other non-same store NOI;
  • A negative impact of approximately $0.01 per share from higher total interest expense; and
  • A negative impact of approximately $0.01 per share from higher corporate overhead (property management and general and administrative expenses).

Same Store Results

On a same store second quarter to second quarter comparison, which includes 72,629 apartment units, revenues increased 2.2%, expenses increased 3.2% and NOI increased 1.8%. Average Rental Rate increased 1.9% and Physical Occupancy increased by 0.4% to 96.2%.

On a same store six-month to six-month comparison, which includes 72,210 apartment units, revenues increased 2.2%, expenses increased 3.5% and NOI increased 1.6%. Average Rental Rate increased 1.9% and Physical Occupancy increased 0.3% to 96.1%.

Investment Activity

During the second quarter of 2018, the Company acquired a 240-unit apartment property located in Hoboken, New Jersey for a purchase price of approximately $146.0 million at an Acquisition Capitalization Rate of 4.5%. The Company did not sell an apartment property during the second quarter but did sell a land parcel in suburban Maryland for approximately $2.7 million. The Company also began a $409.7 million development project in Boston, as described above, during the second quarter of 2018.

During the first six months of 2018, the Company acquired two apartment properties consisting of 357 apartment units, including the property described above, for an aggregate purchase price of approximately $199.7 million at a weighted average Acquisition Capitalization Rate of 4.5%. Also during the first six months of 2018, the Company sold four apartment properties, consisting of 786 apartment units, for an aggregate sale price of approximately $290.0 million at a weighted average Disposition Yield of 4.4%, generating an Unlevered IRR of 8.1%, as well as the land parcel described above.

Third Quarter 2018 Guidance

The Company has established an EPS guidance range of $0.59 to $0.63 for the third quarter of 2018. The difference between the Company’s second quarter 2018 EPS of $0.31 and the midpoint of the third quarter 2018 guidance range of $0.61 is due primarily to higher expected gains on property sales and the items described below, partially offset by an expected write-off of a non-cash unamortized discount from a debt extinguishment in connection with the planned sale of an apartment property.

The Company has established an FFO guidance range of $0.76 to $0.80 per share for the third quarter of 2018. The difference between the Company’s second quarter 2018 FFO of $0.81 per share and the midpoint of the third quarter 2018 guidance range of $0.78 per share is due primarily to the expected write-off of a non-cash unamortized debt discount described above, partially offset by the items described below.

The Company has established a Normalized FFO guidance range of $0.81 to $0.85 per share for the third quarter of 2018. The difference between the Company’s second quarter 2018 Normalized FFO of $0.81 per share and the midpoint of the third quarter 2018 guidance range of $0.83 per share is due primarily to:

  • A positive impact of approximately $0.01 per share from increased same store NOI;
  • A positive impact of approximately $0.01 per share from increased NOI as a result of the Company’s 2018 transaction activity;
  • 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 $0.01 per share from higher total interest expense.

Full Year 2018 Guidance

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

     
Revised Previous
Same Store:  
Physical Occupancy 96.1% 96.0%
Revenue change 1.9% to 2.3% 1.0% to 2.25%
Expense change 3.5% to 4.0% 3.5% to 4.5%
NOI change 1.0% to 1.8% 0.0% to 1.5%
 
EPS $1.80 to $1.86 $1.75 to $1.85
FFO per share $3.10 to $3.16 $3.10 to $3.20
Normalized FFO per share $3.22 to $3.28 $3.17 to $3.27
 
Transactions:
Consolidated rental acquisitions $700.0 million $500.0 million
Consolidated rental dispositions $700.0 million $500.0 million
Acquisition Cap Rate/Disposition Yield spread 0 to 25 basis points 50 basis points
 

The change in the full year EPS guidance range is due primarily to higher expected gains on property sales and the items described below, partially offset by the expected write-off of a non-cash unamortized debt discount described above and higher expected depreciation expense.

The change in the full year FFO per share guidance range is due primarily to the expected write-off of a non-cash unamortized debt discount described above, partially offset by the items described below.

The change in the full year Normalized FFO per share guidance range is due primarily to:

  • A positive impact of approximately $0.03 per share from increased same store NOI;
  • A positive impact of approximately $0.01 per share from increased NOI as a result of the Company’s revised 2018 transaction activity; and
  • A negative impact of approximately $0.01 per share from higher total interest expense.

Third Quarter 2018 Earnings and Conference Call

Equity Residential expects to announce its third quarter 2018 results on Tuesday, October 23, 2018 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, October 24, 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 304 properties consisting of 78,645 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, July 25, 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)

     

Six Months Ended June 30,

Quarter Ended June 30,
2018     2017 2018     2017
REVENUES
Rental income $ 1,272,451 $ 1,216,219 $ 639,620 $ 612,299
Fee and asset management   373     361     188     181  
Total revenues   1,272,824     1,216,580     639,808     612,480  
 
EXPENSES
Property and maintenance 211,946 201,924 103,744 99,316
Real estate taxes and insurance 181,396 169,231 89,482 87,503
Property management 46,928 43,841 23,484 21,589
General and administrative 28,780 27,799 12,502 13,626
Depreciation   389,251     358,864     192,942     179,896  
Total expenses   858,301     801,659     422,154     401,930  
 
Operating income 414,523 414,921 217,654 210,550
 
Interest and other income 6,996 1,763 1,116 1,162
Other expenses (7,210 ) (2,132 ) (3,769 ) (1,042 )
Interest:
Expense incurred, net (210,235 ) (197,434 ) (94,131 ) (91,224 )
Amortization of deferred financing costs   (5,778 )   (4,383 )   (2,099 )   (2,087 )

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

investments in unconsolidated entities and net gain (loss)

on sales of real estate properties and land parcels

198,296 212,735 118,771 117,359
Income and other tax (expense) benefit (487 ) (482 ) (274 ) (220 )
Income (loss) from investments in unconsolidated entities (2,008 ) (1,755 ) (1,031 ) (682 )
Net gain (loss) on sales of real estate properties 142,162 124,433 (51 ) 87,726
Net gain (loss) on sales of land parcels   995     19,170     995     (23 )
Net income 338,958 354,101 118,410 204,160
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership (12,358 ) (12,765 ) (4,299 ) (7,354 )
Partially Owned Properties   (1,189 )   (1,553 )   (509 )   (765 )
Net income attributable to controlling interests 325,411 339,783 113,602 196,041
Preferred distributions   (1,545 )   (1,546 )   (772 )   (773 )
Net income available to Common Shares $ 323,866   $ 338,237   $ 112,830   $ 195,268  
 
Earnings per share – basic:
Net income available to Common Shares $ 0.88   $ 0.92   $ 0.31   $ 0.53  
Weighted average Common Shares outstanding   367,865     366,713     367,930     366,820  
 
Earnings per share – diluted:
Net income available to Common Shares $ 0.88   $ 0.92   $ 0.31   $ 0.53  
Weighted average Common Shares outstanding   383,224     382,505     383,423     382,692  
 
Distributions declared per Common Share outstanding $ 1.08   $ 1.0075   $ 0.54   $ 0.50375  
 
     
Equity Residential
Consolidated Statements of Funds From Operations and Normalized Funds From Operations

(Amounts in thousands except per share data)

(Unaudited)

 
Six Months Ended June 30, Quarter Ended June 30,
2018     2017 2018     2017
Net income $ 338,958 $ 354,101 $ 118,410 $ 204,160

Net (income) loss attributable to Noncontrolling Interests – Partially

Owned Properties

(1,189 ) (1,553 ) (509 ) (765 )
Preferred distributions   (1,545 )   (1,546 )   (772 )   (773 )
Net income available to Common Shares and Units 336,224 351,002 117,129 202,622
 
Adjustments:
Depreciation 389,251 358,864 192,942 179,896
Depreciation – Non-real estate additions (2,260 ) (2,580 ) (1,115 ) (1,282 )
Depreciation – Partially Owned Properties (1,933 ) (1,666 ) (901 ) (834 )
Depreciation – Unconsolidated Properties 2,297 2,285 1,149 1,143

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

assets

(68 )
Net (gain) loss on sales of real estate properties (142,162 ) (124,433 ) 51 (87,726 )
Noncontrolling Interests share of gain (loss) on sales

of real estate properties

  (284 )       (284 )    
FFO available to Common Shares and Units 581,133 583,404 308,971 293,819
 
Adjustments (see page 23 for additional detail):
Asset impairment and valuation allowances
Write-off of pursuit costs 2,066 1,546 1,135 831
Debt extinguishment and preferred share redemption (gains)

losses

23,539 12,402 98
Non-operating asset (gains) losses (478 ) (18,950 ) (691 ) (58 )
Other miscellaneous items   (1,470 )   (790 )   1,769     (799 )
Normalized FFO available to Common Shares and Units $ 604,790   $ 577,612   $ 311,184   $ 293,891  
 
FFO $ 582,678 $ 584,950 $ 309,743 $ 294,592
Preferred distributions   (1,545 )   (1,546 )   (772 )   (773 )
FFO available to Common Shares and Units $ 581,133   $ 583,404   $ 308,971   $ 293,819  
FFO per share and Unit - basic $ 1.53   $ 1.54   $ 0.81   $ 0.77  
FFO per share and Unit - diluted $ 1.52   $ 1.53   $ 0.81   $ 0.77  
 
Normalized FFO $ 606,335 $ 579,158 $ 311,956 $ 294,664
Preferred distributions   (1,545 )   (1,546 )   (772 )   (773 )
Normalized FFO available to Common Shares and Units $ 604,790   $ 577,612   $ 311,184   $ 293,891  
Normalized FFO per share and Unit - basic $ 1.59   $ 1.52   $ 0.82   $ 0.77  
Normalized FFO per share and Unit - diluted $ 1.58   $ 1.51   $ 0.81   $ 0.77  
 
Weighted average Common Shares and Units outstanding - basic   380,729     379,619     380,795     379,733  
Weighted average Common Shares and Units outstanding - diluted   383,224     382,505     383,423     382,692  
 

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

       
Equity Residential
Consolidated Balance Sheets

(Amounts in thousands except for share amounts)

(Unaudited)

 
June 30, December 31,
2018 2017
ASSETS
Investment in real estate
Land $ 5,986,329 $ 5,996,024
Depreciable property 19,946,606 19,768,362
Projects under development 145,564 163,547
Land held for development   86,098     98,963  
Investment in real estate 26,164,597 26,026,896
Accumulated depreciation   (6,338,043 )   (6,040,378 )
Investment in real estate, net 19,826,554 19,986,518
Cash and cash equivalents 34,507 50,647
Investments in unconsolidated entities 58,124 58,254
Restricted deposits 54,370 50,115
Other assets   433,027     425,065  
Total assets $ 20,406,582   $ 20,570,599  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 2,894,325 $ 3,618,722
Notes, net 5,532,637 5,038,812
Line of credit and commercial paper 345,807 299,757
Accounts payable and accrued expenses 146,415 114,766
Accrued interest payable 63,341 58,035
Other liabilities 344,159 341,852
Security deposits 66,800 65,009
Distributions payable   206,829     192,828  
Total liabilities   9,600,313     9,729,781  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   366,483     366,955  
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 June 30, 2018 and December 31, 2017

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

1,000,000,000 shares authorized; 368,278,336 shares issued

and outstanding as of June 30, 2018 and 368,018,082

shares issued and outstanding as of December 31, 2017

3,683 3,680
Paid in capital 8,905,184 8,886,586
Retained earnings 1,329,600 1,403,530
Accumulated other comprehensive income (loss)   (67,310 )   (88,612 )
Total shareholders’ equity 10,208,437 10,242,464
Noncontrolling Interests:
Operating Partnership 232,995 226,691
Partially Owned Properties   (1,646 )   4,708  
Total Noncontrolling Interests   231,349     231,399  
Total equity   10,439,786     10,473,863  
Total liabilities and equity $ 20,406,582   $ 20,570,599  
 
 
Equity Residential
Portfolio Summary
As of June 30, 2018
                       
% of Average
Apartment Stabilized Rental
Markets/Metro Areas Properties   Units   NOI   Rate
 
Los Angeles 70 15,968 18.2 % $ 2,490
Orange County 13 4,028 4.4 % 2,174
San Diego   12     3,385     3.8 %   2,321
Subtotal – Southern California 95 23,381 26.4 % 2,411
 
San Francisco 55 13,424 20.3 % 3,147
Washington DC 48 15,811 17.2 % 2,386
New York 38 10,247 16.4 % 3,820
Seattle 41 8,438 10.0 % 2,368
Boston 24 6,263 9.7 % 3,021
Other Markets   1     136     %   1,187
Total 302 77,700 100.0 % 2,763
 
Unconsolidated Properties   2     945        
 
Grand Total   304     78,645     100.0 % $ 2,763
 

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

 
Equity Residential
 
Portfolio as of June 30, 2018
         
Properties   Apartment Units
   
Wholly Owned Properties 284 74,003
Master-Leased Properties - Consolidated 1 162
Partially Owned Properties - Consolidated 17 3,535
Partially Owned Properties - Unconsolidated   2     945
 
  304     78,645

Note: Effective April 2, 2018, the Company took over management of one of its Master-Leased Properties containing 597 apartment units located in Los Angeles.

                                       
Portfolio Rollforward Q2 2018

($ in thousands)

                       
Apartment Purchase Acquisition
Properties   Units   Price   Cap Rate  
     
3/31/2018 303 78,399
 
Acquisitions:
Consolidated:
Rental Properties 1 240 $ 146,000 4.5 %
 
Disposition
Sales Price   Yield  
 
Dispositions:
Consolidated:
Land Parcels $ (2,700 )
 
Configuration Changes       6  
 
6/30/2018   304     78,645  
 
                                     
Portfolio Rollforward 2018

($ in thousands)

                 
Apartment Purchase Acquisition
Properties   Units   Price   Cap Rate  
     
12/31/2017 305 78,611
 
Acquisitions:
Consolidated:
Rental Properties 2 357 $ 199,700 4.5 %
 
Sales Price   Disposition

Yield

 
 
Dispositions:
Consolidated:
Rental Properties (4 ) (786 ) $ (290,020 ) (4.4 %)
Land Parcels $ (2,700 )
 
 
Completed Developments - Consolidated 1 449
Configuration Changes       14  
 
6/30/2018   304     78,645  
 
 
Equity Residential
 
Second Quarter 2018 vs. Second Quarter 2017
Same Store Results/Statistics for 72,629 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

       
Results   Statistics  
    Average    
Rental Physical
Description Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
   
Q2 2018 $ 599,628 $ 177,679 $ 421,949 $ 2,752 96.2 % 13.4 %
Q2 2017 $ 586,757   $ 172,104   $ 414,653   $ 2,701     95.8 %   14.0 %
 
Change $ 12,871   $ 5,575   $ 7,296   $ 51     0.4 %   (0.6 %)
 
Change 2.2 % 3.2 % 1.8 % 1.9 %
 
 
 
Second Quarter 2018 vs. First Quarter 2018
Same Store Results/Statistics for 74,655 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

       
Results   Statistics  
    Average    
Rental Physical
Description Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
   
Q2 2018 $ 616,032 $ 182,521 $ 433,511 $ 2,752 96.2 % 13.5 %
Q1 2018 $ 610,095   $ 186,143   $ 423,952   $ 2,729     96.0 %   10.7 %
 
Change $ 5,937   $ (3,622 ) $ 9,559   $ 23     0.2 %   2.8 %
 
Change 1.0 % (1.9 %) 2.3 % 0.8 %
 
 
 
June YTD 2018 vs. June YTD 2017
Same Store Results/Statistics for 72,210 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

       
Results   Statistics  
    Average    
Rental Physical
Description Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
   
YTD 2018 $ 1,183,348 $ 355,724 $ 827,624 $ 2,732 96.1 % 24.1 %
YTD 2017 $ 1,158,193   $ 343,753   $ 814,440   $ 2,682     95.8 %   25.4 %
 
Change $ 25,155   $ 11,971   $ 13,184   $ 50     0.3 %   (1.3 %)
 
Change 2.2 % 3.5 % 1.6 % 1.9 %
 

Note: See page 28 for reconciliations from operating income.

 
Equity Residential
Second Quarter 2018 vs. Second Quarter 2017
Same Store Results/Statistics by Market
                                 
Increase (Decrease) from Prior Year's Quarter  

Q2 2018

                   
Q2 2018 Q2 2018

Weighted

% of Average

Average

Average
Apartment Actual Rental

Physical

Q2 2018 Rental Physical
Markets/Metro Areas Units   NOI   Rate  

Occupancy %

  Turnover   Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
           
Los Angeles (1) 14,240 17.4 % $ 2,487 96.0 % 14.4 % 2.7 % 2.6 % 2.8 % 3.2 % 0.3 % (1.1 %)
Orange County 3,684 4.1 % 2,151 95.9 % 14.4 % 3.8 % 3.5 % 3.9 % 4.3 % (0.4 %) 1.2 %
San Diego   3,385     4.0 %   2,321     96.4 %   14.9 %   4.7 %   0.9 %   6.1 %   4.2 %   0.1 %   (0.8 %)
Subtotal – Southern California 21,309 25.5 % 2,402 96.1 % 14.5 % 3.2 % 2.4 % 3.4 % 3.5 % 0.2 % (0.6 %)
 
San Francisco 12,734 20.8 % 3,088 96.2 % 12.9 % 3.1 % (3.1 %) 5.3 % 2.5 % 0.5 % (0.1 %)
Washington DC 15,475 17.9 % 2,382 96.3 % 13.5 % 1.5 % 3.1 % 0.8 % 0.7 % 0.8 % (0.8 %)
New York 10,007 17.5 % 3,826 96.8 % 9.5 % 0.4 % 7.3 % (3.5 %) (0.3 %) 0.7 % (1.8 %)
Boston 6,009 9.9 % 2,998 96.3 % 13.7 % 2.3 % 3.8 % 1.7 % 1.9 % 0.6 % (0.4 %)
Seattle 6,959 8.3 % 2,291 95.8 % 15.6 % 3.0 % 5.4 % 2.1 % 2.9 % 0.0 % (0.2 %)
Other Markets 136 0.1 % 1,187 99.0 % 21.3 % 4.3 % 21.8 % (3.6 %) 3.9 % 0.5 % 3.7 %
                                                                 
Total   72,629     100.0 % $ 2,752     96.2 %   13.4 %   2.2 %   3.2 %   1.8 %   1.9 %   0.4 %   (0.6 %)
 

(1) Quarter over quarter same store revenues in Los Angeles were negatively impacted by non-residential related income. Residential-only same store revenues in Los Angeles increased 3.4% quarter over quarter.

 
Equity Residential
Second Quarter 2018 vs. First Quarter 2018
Same Store Results/Statistics by Market
                                   
Increase (Decrease) from Prior Quarter  
Q2 2018                    
Q2 2018 Q2 2018 Weighted
% of Average Average Average
Apartment Actual Rental Physical Q2 2018 Rental Physical
Markets/Metro Areas Units   NOI   Rate  

Occupancy %

  Turnover   Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
           
Los Angeles (1) 15,371 18.4 % $ 2,498 96.0 % 14.7 % 0.2 % (2.1 %) 1.2 % 1.0 % (0.1 %) 2.1 %
Orange County 4,028 4.4 % 2,174 95.9 % 15.3 % 1.6 % 0.8 % 1.8 % 2.0 % (0.2 %) 5.5 %
San Diego   3,385     4.0 %   2,321     96.4 %   14.9 %   2.0 %   (2.9 %)   3.7 %   1.1 %   0.6 %   1.2 %
Subtotal – Southern California 22,784 26.8 % 2,414 96.1 % 14.9 % 0.7 % (1.8 %) 1.6 % 1.1 % 0.0 % 2.7 %
 
San Francisco 12,975 20.7 % 3,111 96.2 % 13.0 % 0.9 % (3.9 %) 2.5 % 1.0 % (0.2 %) 2.5 %
Washington DC 15,649 17.6 % 2,386 96.3 % 13.4 % 1.4 % (1.1 %) 2.6 % 1.1 % 0.2 % 4.1 %
New York 10,007 17.0 % 3,826 96.8 % 9.5 % 0.7 % (2.4 %) 2.8 % 0.0 % 0.8 % 1.2 %
Boston 6,009 9.6 % 2,998 96.3 % 13.7 % 1.6 % (3.6 %) 3.7 % 0.7 % 0.8 % 4.6 %
Seattle 7,095 8.2 % 2,290 95.8 % 15.6 % 0.9 % 3.0 % 0.1 % 0.7 % 0.1 % 1.4 %
Other Markets 136 0.1 % 1,187 99.0 % 21.3 % (1.5 %) 5.9 % (5.3 %) (1.8 %) 0.5 % 9.5 %
                                                                 
Total   74,655     100.0 % $ 2,752     96.2 %   13.5 %   1.0 %   (1.9 %)   2.3 %   0.8 %   0.2 %   2.8 %
 

(1) Sequential same store revenues in Los Angeles were negatively impacted by non-residential related income. Residential-only same store revenues in Los Angeles increased 0.8% sequentially.

 
Equity Residential
June YTD 2018 vs. June YTD 2017
Same Store Results/Statistics by Market
                                   
Increase (Decrease) from Prior Year  

 

                   

 

 

June YTD 18

June YTD 18

June YTD 18

Weighted
% of Average Average

 

Average
Apartment Actual Rental Physical

June YTD 18

Rental Physical
Markets/Metro Areas Units   NOI   Rate  

Occupancy %

  Turnover   Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
           
Los Angeles (1) 14,240 17.7 % $ 2,475 96.1 % 26.9 % 3.3 % 3.4 % 3.3 % 3.3 % 0.4 % (1.2 %)
Orange County 3,684 4.1 % 2,132 96.1 % 24.3 % 3.8 % 2.3 % 4.3 % 4.1 % (0.1 %) 0.0 %
San Diego   3,385     4.1 %   2,308     96.1 %   28.6 %   4.1 %   1.9 %   4.9 %   4.0 %   (0.1 %)   (2.8 %)
Subtotal – Southern California 21,309 25.9 % 2,389 96.1 % 26.7 % 3.5 % 3.0 % 3.7 % 3.5 % 0.2 % (1.3 %)
 
San Francisco 12,315 20.1 % 3,036 96.3 % 23.4 % 2.8 % (2.2 %) 4.4 % 2.1 % 0.6 % (1.7 %)
Washington DC 15,475 18.0 % 2,369 96.2 % 22.9 % 1.1 % 3.6 % 0.0 % 0.6 % 0.5 % (1.2 %)
New York 10,007 17.6 % 3,827 96.4 % 17.8 % 0.3 % 6.3 % (3.2 %) (0.1 %) 0.4 % (2.7 %)
Boston 6,009 9.9 % 2,988 95.9 % 22.8 % 2.3 % 4.8 % 1.3 % 1.9 % 0.1 % (0.8 %)
Seattle 6,959 8.4 % 2,284 95.8 % 29.8 % 3.9 % 5.3 % 3.3 % 3.6 % 0.0 % 0.1 %
Other Markets 136 0.1 % 1,198 98.8 % 33.1 % 4.8 % 0.2 % 7.4 % 4.9 % 0.0 % 10.3 %
                                                                 
Total   72,210     100.0 % $ 2,732     96.1 %   24.1 %   2.2 %   3.5 %   1.6 %   1.9 %   0.3 %   (1.3 %)
 

(1) June year-to-date same store revenues in Los Angeles were negatively impacted by non-residential related income. Residential-only same store revenues in Los Angeles increased 3.6% June year-to-date.

 

Equity Residential

 
Second Quarter 2018 vs. Second Quarter 2017
Same Store Operating Expenses for 72,629 Same Store Apartment Units

$ in thousands

                       

% of Actual

Q2 2018
Actual Actual $ % Operating
Q2 2018   Q2 2017   Change   Change   Expenses  
   
Real estate taxes $ 76,695 $ 73,601 $ 3,094 4.2 % 43.2 %
On-site payroll (1) 38,936 38,742 194 0.5 % 21.9 %
Utilities (2) 22,853 21,737 1,116 5.1 % 12.9 %
Repairs and maintenance (3) 23,481 22,199 1,282 5.8 % 13.2 %
Insurance 4,663 4,435 228 5.1 % 2.6 %
Leasing and advertising 2,388 2,320 68 2.9 % 1.3 %
Other on-site operating expenses (4)   8,663     9,070     (407 )   (4.5 %)   4.9 %
 
Same store operating expenses $ 177,679   $ 172,104   $ 5,575     3.2 %   100.0 %
 
 
 
June YTD 2018 vs. June YTD 2017
Same Store Operating Expenses for 72,210 Same Store Apartment Units

$ in thousands

                       

% of Actual

YTD 2018
Actual Actual $ % Operating
YTD 2018   YTD 2017   Change   Change   Expenses  
   
Real estate taxes $ 152,034 $ 145,535 $ 6,499 4.5 % 42.7 %
On-site payroll (1) 78,088 76,528 1,560 2.0 % 22.0 %
Utilities (2) 47,944 45,583 2,361 5.2 % 13.5 %
Repairs and maintenance (3) 44,471 42,761 1,710 4.0 % 12.5 %
Insurance 9,196 8,737 459 5.3 % 2.6 %
Leasing and advertising 4,816 4,826 (10 ) (0.2 %) 1.3 %
Other on-site operating expenses (4)   19,175     19,783     (608 )   (3.1 %)   5.4 %
 
Same store operating expenses $ 355,724   $ 343,753   $ 11,971     3.5 %   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 June 30, 2018

($ in thousands)

                 
Weighted
Weighted Average

 

Average Maturities

Amounts (1)

  % of Total   Rates (1)   (years)
     
Secured $ 2,894,325 33.0 % 4.22 % 5.9
Unsecured   5,878,444     67.0 %   4.14 %   10.0
 
Total $ 8,772,769     100.0 %   4.17 %   8.7
Fixed Rate Debt:
Secured – Conventional $ 2,387,042 27.2 % 4.71 % 4.0
Unsecured – Public   5,087,027     58.0 %   4.41 %   11.5
 
Fixed Rate Debt   7,474,069     85.2 %   4.51 %   9.1
 
Floating Rate Debt:
Secured – Conventional 6,751 0.1 % 1.74 % 6.5
Secured – Tax Exempt 500,532 5.7 % 2.13 % 14.0
Unsecured – Public (2) 445,610 5.1 % 2.64 % 1.0
Unsecured – Revolving Credit Facility (3) 2.29 % 3.5
Unsecured – Commercial Paper Program (4)   345,807     3.9 %   2.16 %  
 
Floating Rate Debt   1,298,700     14.8 %   2.31 %   6.1
 
Total $ 8,772,769     100.0 %   4.17 %   8.7
 
(1)     Net of the effect of any derivative instruments. Weighted average rates are for the six months ended June 30, 2018.
 
(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 June 30, 2018, there was approximately $1.65 billion available on the Company’s unsecured revolving credit facility (net of $6.7 million which was restricted/dedicated to support letters of credit and net of $347.0 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 2.16% for the six months ended June 30, 2018 and a weighted average maturity of 48 days as of June 30, 2018.
 

Note: The Company capitalized interest of approximately $2.9 million and $16.6 million during the six months ended June 30, 2018 and 2017, respectively. The Company capitalized interest of approximately $1.2 million and $8.4 million during the quarters ended June 30, 2018 and 2017, respectively.

 
Equity Residential
 
Debt Maturity Schedule as of June 30, 2018

($ in thousands)

                   
Weighted Weighted

Average Rates

Average

Fixed Floating on Fixed

Rates on

Year Rate (1)   Rate (1)   Total  

% of Total

 

Rate Debt (1)

 

Total Debt (1)

 
     
2018 $ 2,957 $ 297,400 (2) $ 300,357 3.4 % 4.01 % 2.32 %
2019 506,731 (3) 516,752 (2) 1,023,483 11.5 % 5.17 % 4.01 %
2020 1,128,592 (4) 700 1,129,292 12.7 % 5.20 % 5.20 %
2021 927,506 600 928,106 10.4 % 4.64 % 4.64 %
2022 265,341 800 266,141 3.0 % 3.26 % 3.26 %
2023 1,326,800 4,800 1,331,600 15.0 % 3.74 % 3.73 %
2024 1,272 10,900 12,172 0.1 % 4.79 % 1.94 %
2025 451,334 13,200 464,534 5.2 % 3.38 % 3.33 %
2026 593,424 14,500 607,924 6.9 % 3.59 % 3.54 %
2027 401,468 15,600 417,068 4.7 % 3.26 % 3.19 %
2028+   1,924,969     481,365     2,406,334     27.1 %   4.17 %   3.64 %
Subtotal 7,530,394 1,356,617 8,887,011 100.0 % 4.23 % 3.90 %
Deferred Financing Costs and Unamortized (Discount)   (56,325 )   (57,917 )   (114,242 ) N/A   N/A   N/A  
 
Total $ 7,474,069   $ 1,298,700   $ 8,772,769     100.0 %   4.23 %   3.90 %
 
   
(1) Net of the effect of any derivative instruments. Weighted average rates are as of June 30, 2018.
 
(2) Includes $347.0 million in principal outstanding on the Company's commercial paper program, of which $297.0 million matures in 2018 and $50.0 million matures in 2019.
 
(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 $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
         
June 30, March 31,
2018   2018
Total Debt to Adjusted Total Assets (not to exceed 60%) 33.7% 33.5%
   
Secured Debt to Adjusted Total Assets (not to exceed 40%) 11.1% 11.2%
 

Consolidated Income Available for Debt Service to Maximum Annual Service Charges (must be at least 1.5 to 1)

4.40 4.37
 

Total Unsecured Assets to Unsecured Debt (must be at least 150%)

362.3% 366.3%

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

         
June 30, March 31,
2018   2018
Total debt to Normalized EBITDAre 5.39x 5.39x
 
Net debt to Normalized EBITDAre 5.36x 5.36x
 
Unencumbered NOI as a % of total NOI 78.9% 78.9%
 

Note: See page 22 for the Normalized EBITDAre reconciliations.

 
Equity Residential
 

Capital Structure as of June 30, 2018

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

                   
Secured Debt $ 2,894,325 33.0 %
Unsecured Debt   5,878,444     67.0 %
 
Total Debt 8,772,769 100.0 % 26.5 %
 
Common Shares (includes Restricted Shares) 368,278,336 96.3 %
Units (includes OP Units and Restricted Units)   14,024,018     3.7 %
 
Total Shares and Units 382,302,354 100.0 %
Common Share Price at June 30, 2018 $ 63.69  
24,348,837 99.8 %
Perpetual Preferred Equity (see below)   37,280     0.2 %
 
Total Equity 24,386,117 100.0 % 73.5 %
 
Total Market Capitalization $ 33,158,886 100.0 %
 
 
 
Perpetual Preferred Equity as of June 30, 2018

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

                         
Annual Annual
Outstanding Liquidation Dividend Dividend
Series Call Date Shares   Value   Per Share   Amount
Preferred Shares:  
8.29% Series K 12/10/26 745,600 $ 37,280 $ 4.145 $ 3,091
 
 
Equity Residential
Common Share and Unit
Weighted Average Amounts Outstanding
                     
YTD Q2 2018   YTD Q2 2017   Q2 2018   Q2 2017
       
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 367,865,479 366,713,268 367,930,497 366,819,902
Shares issuable from assumed conversion/vesting of:
- OP Units 12,863,844 12,905,975 12,864,756 12,913,250
- long-term compensation shares/units   2,494,962     2,886,010     2,627,326     2,958,466
Total Common Shares and Units - diluted   383,224,285     382,505,253     383,422,579     382,691,618
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 367,865,479 366,713,268 367,930,497 366,819,902
OP Units - basic   12,863,844     12,905,975     12,864,756     12,913,250
Total Common Shares and OP Units - basic 380,729,323 379,619,243 380,795,253 379,733,152
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units   2,494,962     2,886,010     2,627,326     2,958,466
Total Common Shares and Units - diluted   383,224,285     382,505,253     383,422,579     382,691,618
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 368,278,336 367,298,765
Units (includes OP Units and Restricted Units)   14,024,018     13,816,133  
Total Shares and Units   382,302,354     381,114,898  
 
Equity Residential
Development and Lease-Up Projects as of June 30, 2018

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

                                                             
Total Total

Total Book

No. of Budgeted Book

Value Not

Estimated Estimated Estimated
Apartment Capital Value

Placed in

Total Percentage Initial Completion Stabilization Percentage Percentage
Projects Location Units   Cost   to Date   Service   Debt   Completed   Occupancy   Date Date Leased   Occupied
     

Projects Under Development:

100K Apartments Washington, DC 222 $ 88,023 $ 74,221 $ 74,221 $ 87% Q3 2018 Q4 2018 Q4 2019 1%
1401 E. Madison Seattle, WA 137 62,352 25,125 25,125 18% Q2 2019 Q3 2019 Q1 2020
249 Third Street Cambridge, MA 84 51,447 16,491 16,491 9% Q3 2019 Q4 2019 Q2 2020
West End Tower Boston, MA 469 409,749 29,727 29,727 2% Q2 2021 Q3 2021 Q1 2023
                             
Projects Under Development   912     611,571     145,564     145,564      
 

Completed Not Stabilized (A):

855 Brannan San Francisco, CA 449 322,235 318,145 Completed Q3 2018 95% 93%
Helios (formerly 2nd & Pine) Seattle, WA 398 226,287 223,912 Completed Q3 2018 94% 92%
Cascade Seattle, WA 477 175,378 171,597 Completed Q4 2018 87% 83%
                             
Projects Completed Not Stabilized   1,324     723,900     713,654          
 
Total Development Projects   2,236   $ 1,335,471   $ 859,218   $ 145,564   $  
 
Land Held for Development N/A   N/A   $ 86,098   $ 86,098   $  
 
Total
Budgeted
Capital Q2 2018
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS Cost   NOI  
Projects Under Development $ 611,571 $ (1 )
Completed Not Stabilized   723,900     6,221  
Total Development NOI Contribution $ 1,335,471   $ 6,220  
 

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

(A) 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 Six Months Ended June 30, 2018

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

                       
Same Store Non-Same Store

Same Store Avg.

Properties   Properties/Other   Total  

Per Apartment Unit

 
Total Apartment Units (1)   72,210     5,490     77,700  
 
Building Improvements $ 45,533 $ 1,370 $ 46,903 $ 631
 
Renovation Expenditures (2) 16,928 509 17,437 234
 
Replacements 21,198 449 21,647 294
                     
Total Capital Expenditures $ 83,659   $ 2,328   $ 85,987   $ 1,159
 
   
(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 1,269 same store apartment units for the six months ended June 30, 2018 approximated $13,340 per apartment unit renovated.
 
 
Equity Residential
Normalized EBITDAre Reconciliations

(Amounts in thousands)

 
Normalized EBITDAre Reconciliations for Page 17
                           
Trailing Twelve Months   2018   2017  
June 30, 2018       March 31, 2018   Q2       Q1   Q4       Q3       Q2  
Net income $ 613,238 $ 698,988 $ 118,410 $ 220,548 $ 130,084 $ 144,196 $ 204,160
Interest expense incurred, net 396,691 393,784 94,131 116,104 95,311 91,145 91,224
Amortization of deferred financing costs 9,921 9,909 2,099 3,679 2,079 2,064 2,087
Amortization of above/below market lease intangibles 4,307 4,070 1,098 1,098 1,099 1,012 861
Depreciation 774,136 761,090 192,942 196,309 200,785 184,100 179,896
Income and other tax expense (benefit) 483 429 274 213 (232 ) 228 220
                                         
EBITDA 1,798,776 1,868,270 408,954 537,951 429,126 422,745 478,448
 
Net (gain) loss on sales of real estate properties (174,786 ) (262,563 ) 51 (142,213 ) (15,296 ) (17,328 ) (87,726 )
                                         
EBITDAre 1,623,990 1,605,707 409,005 395,738 413,830 405,417 390,722
 
Impairment – non-operating assets 1,693 1,693 1,693
Write-off of pursuit costs (other expenses) 3,626 3,322 1,135 931 777 783 831
(Income) loss from investments in unconsolidated entities 3,623 3,274 1,031 977 1,217 398 682
Net (gain) loss on sales of land parcels (992 ) 26 (995 ) 3 23
Insurance/litigation settlement or reserve income (interest and other income) (9,523 ) (9,831 ) (528 ) (5,358 ) (137 ) (3,500 ) (836 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 2,886 1,867 963 1,923 (56 )
Advocacy contributions (other expenses) 1,643 365 1,278 365
Other 943 980 56 (169 ) 961 95 93
                                         
Normalized EBITDAre $ 1,627,889   $ 1,607,403   $ 411,945   $ 394,407   $ 418,344   $ 403,193   $ 391,459  
 

Balance Sheet Items:

June 30, 2018   March 31, 2018  
Total debt $ 8,772,769 $ 8,659,477
Cash and cash equivalents (34,507 ) (44,453 )
Mortgage principal reserves/sinking funds   (6,544 )   (4,778 )
Net debt $ 8,731,718   $ 8,610,246  
 

Note: EBITDA, EBITDAre and Normalized EBITDAre do not include any adjustments for the Company’s share of partially owned unconsolidated entities or the minority partner’s share of partially owned consolidated entities due to the immaterial size of the Company’s partially owned portfolio.

 

Equity Residential

Adjustments from FFO to Normalized FFO

(Amounts in thousands)

       
Six Months Ended June 30,   Quarter Ended June 30,  
2018       2017       Variance   2018       2017       Variance  
 
Impairment $   $   $   $   $   $  
Asset impairment and valuation allowances                        
 
Write-off of pursuit costs (other expenses)   2,066     1,546     520     1,135     831     304  
Write-off of pursuit costs   2,066     1,546     520