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Equity Residential Reports Third Quarter 2015 Results

The following excerpt is from the company's SEC filing.

Same Store Revenue Increased 5.4%

Same Store NOI Increased 6.7%

Normalized FFO per Share Increased 8.5%

- Equity Residential (NYSE: EQR) today reported results for the quarter and nine months ended September 30, 2015. All per share results are reported as available to common shares on a diluted basis.

“It remains a very good time to be in the apartment business as continued strong demand for our high quality, well located rental apartments has made 2015 another exceptional year for Equity Residential. For the full year, we expect to deliver same store revenue growth of 5.2%, one of the best results in our history as a public company,” said David J. Neithercut, Equity Residential’s President and CEO. “We believe this success will continue in 2016, when we expect to produce yet another terrific year of same store revenue growth in the range of 4.5% to 5.25%.”

Third Quarter 2015

FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), for the third quarter of 2015 was $0.87 per share compared to $0.81 per share in the third quarter of 2014. The difference is due primarily to the various non-comparable items listed on page 24 of this release and the items described below.

For the third quarter of 2015, the company reported Normalized FFO of $0.89 per share compared to $0.82 per share in the same period of 2014. The following items impacted Normalized FFO per share in the quarter:

a positive impact of approximately $0.07 per share from higher same store net operating income (NOI) and approximately $0.02 per share from NOI from non-same store properties currently in lease-up;

a negative impact of approximately $0.02 per share of lower NOI from 2014 and 2015 transaction activity;

a positive impact of approximately $0.02 per share from lower total interest expense; and

a negative impact of approximately $0.02 per share from other items.

Normalized FFO begins with FFO and eliminates certain items that by their nature are not comparable from period to period or that tend to obscure the company’s actual operating performance. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 6 and 26 of this release and the company has included guidance for Normalized FFO on page 25 and FFO on page 26 of this release.

For the third quarter of 2015, the company reported earnings of $0.53 per share compared to $0.61 per share in the third quarter of 2014. The difference is due primarily to higher gains on property sales in the third quarter of 2014 and the items described above.

Nine Months Ended September 30, 2015

FFO for the nine months ended September 30, 2015 was $2.56 per share compared to $2.29 per share in the same period of 2014.

For the nine months ended September 30, 2015, the company reported Normalized FFO of $2.54 per share compared to $2.31 per share for the same period of 2014.

For the nine months ended September 30, 2015, the company reported earnings of $1.80 per share compared to $1.13 per share for the same period of 2014. The difference is due primarily to higher gains on property sales and improved operations during the nine months ended September 30, 2015.

Same Store Results

On a same store third quarter to third quarter comparison, which includes 97,737 apartment units, revenues increased 5.4%, expenses increased 2.8% and NOI increased 6.7%.

On a same store nine-month to nine-month comparison, which includes 96,432 apartment units, revenues increased 5.1%, expenses increased 2.7% and NOI increased 6.3%.

Investment Activity

During the third quarter of 2015, the company acquired two land parcels in San Francisco, for approximately $21.8 million, which will be combined with an additional land parcel acquired earlier in the year for future development. The company did not acquire any consolidated apartment properties during the quarter. Also during the quarter, the company completed five development projects, consisting of 1,222 apartment units in San Francisco (Azure, Parc on Powell), New York (Prism) and Seattle (Junction 47, Odin) for a total development cost of approximately $675.9 million.

During the third quarter of 2015, the company sold one consolidated apartment property located in the Inland Empire of California, consisting of 330 apartment units, for a sale price of approximately $78.2 million at a capitalization (cap) rate of 5.9% generating an unlevered internal rate of return (IRR), inclusive of indirect management costs, of 15.5%.

During the first nine months of 2015, the company acquired a 202-unit apartment property located in Boston for a total purchase price of approximately $130.3 million at a cap rate of 4.2% and the land parcels described above. Also during the first nine months of 2015, the company completed seven development projects consisting of 1,546

apartment units (including the projects listed above as well as 170 Amsterdam in New York and Residences at Westgate II in Southern California) for a total development cost of approximately $842.5 million.

During the first nine months of 2015, the company sold seven consolidated apartment properties, consisting of 1,707 apartment units, for an aggregate sale price of approximately $341.5 million at a weighted average cap rate of 5.7%. The company also sold a 193,230 square foot medical office building located adjacent to its Longfellow Place property in Boston for approximately $123.3 million at a cap rate of 4.5%. These combined sales generated an unlevered IRR, inclusive of indirect management costs, of 13.5%.

Fourth Quarter 2015 Guidance

The company has established a Normalized FFO guidance range of $0.89 to $0.93 per share for the fourth quarter of 2015. The difference between the company’s third quarter 2015 Normalized FFO of $0.89 per share and the midpoint of the fourth quarter 2015 guidance range of $0.91 per share is due primarily to a positive impact of approximately $0.02 per share from higher same store NOI.

Full Year 2015 Guidance

The company has revised its guidance for its full year 2015 same store operating performance, Normalized FFO per share and transactions as listed below:

Previous

Revised

Same store:

Physical occupancy

Revenue change

4.75% to 5.0%

Expense change

3.0% to 3.25%

NOI change

5.5% to 6.0%

$3.39 to $3.45

$3.43 to $3.47

Transactions:

Consolidated Rental Acquisitions

$350 million

Consolidated Rental Dispositions

$450 million*

$500 million*

Capitalization Rate Spread

100 basis points

*The company’s consolidated rental disposition guidance includes the sale of the medical office building in Boston described above.

About Equity Residential

Equity Residential is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 392 properties consisting of 109,347 apartment units. 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,

. 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 today, Monday, October 26, at 10:00 a.m. Central. Please visit the Investor section of the company’s web site at

for the link. A replay of the web cast will be available for two weeks at this site.

Consolidated Statements of Operations

(Amounts in thousands except per share data)

(Unaudited)

Quarter Ended September 30,

REVENUES

Rental income

2,035,359

1,942,492

694,245

662,001

Fee and asset management

Total revenues

2,041,772

1,950,088

696,289

664,078

EXPENSES

Property and maintenance

364,948

361,087

122,383

120,139

Real estate taxes and insurance

254,513

245,717

84,962

80,568

Property management

60,887

61,080

18,925

18,407

Depreciation

584,862

565,772

196,059

190,469

General and administrative

50,942

41,296

15,290

Total expenses

1,319,916

1,279,245

438,788

420,804

Operating income

721,856

670,843

257,501

243,274

Interest and other income

Other expenses

(2,839

(7,179

(1,139

(4,976

Interest:

Expense incurred, net

(333,622

(347,224

(114,205

(118,251

Amortization of deferred financing costs

(7,734

(8,554

(2,607

(2,628

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

384,567

311,099

139,806

117,995

Income and other tax (expense) benefit

(1,146

Income (loss) from investments in unconsolidated entities

14,388

(10,201

(1,041

(1,176

Net gain on sales of real estate properties

295,692

128,544

66,939

113,641

Net (loss) gain on sales of land parcels

Income from continuing operations

693,948

430,142

205,375

231,252

Discontinued operations, net

Net income

694,298

431,642

205,456

231,190

Net (income) attributable to Noncontrolling Interests:

Operating Partnership

(26,191

(16,273

(7,778

(8,738

Partially Owned Properties

(2,473

(1,800

Net income attributable to controlling interests

665,634

413,569

196,692

221,744

Preferred distributions

(2,557

(3,109

(1,037

Premium on redemption of Preferred Shares

(2,789

Net income available to Common Shares

660,288

410,460

195,859

220,707

Earnings per share – basic:

Income from continuing operations available to Common Shares

Weighted average Common Shares outstanding

363,386

360,900

363,579

361,409

Earnings per share – diluted:

380,423

377,228

380,663

377,954

Distributions declared per Common Share outstanding

1.6575

0.5525

Consolidated Statements of Funds From Operations and Normalized Funds From Operations

Net (income) attributable to Noncontrolling Interests – Partially Owned Properties

Net income available to Common Shares and Units

686,479

426,733

203,637

229,445

Adjustments:

Depreciation – Non-real estate additions

(3,767

(3,485

(1,243

(1,137

Depreciation – Partially Owned Properties

(3,248

(3,211

(1,086

(1,071

Depreciation – Unconsolidated Properties

Net (gain) on sales of unconsolidated entities – operating assets

Net (gain) on sales of real estate properties

(295,692

(128,544

(66,939

(113,641

Discontinued operations:

Net (gain) loss on sales of discontinued operations

FFO available to Common Shares and Units (1) (3) (4)

972,222

862,224

331,559

305,812

Adjustments (see page 24 for additional detail):

Asset impairment and valuation allowances

Property acquisition costs and write-off of pursuit costs

(13,947

Debt extinguishment (gains) losses, including prepayment penalties, preferred share

redemptions and non-cash convertible debt discounts

(Gains) losses on sales of non-operating assets, net of income and other tax expense

(benefit)

(1,903

(1,052

Other miscellaneous non-comparable items

Normalized FFO available to Common Shares and Units (2) (3) (4)

964,749

870,739

340,486

309,200

FFO (1) (3)

977,568

865,333

332,392

306,849

FFO available to Common Shares and Units - basic and diluted (1) (3) (4)

FFO per share and Unit - basic

FFO per share and Unit - diluted

Normalized FFO (2) (3)

967,306

873,848

341,319

310,237

Normalized FFO available to Common Shares and Units - basic and diluted (2) (3) (4)

Normalized FFO per share and Unit - basic

Normalized FFO per share and Unit - diluted

Weighted average Common Shares and Units outstanding - basic

376,970

374,626

377,147

375,116

Weighted average Common Shares and Units outstanding - diluted

See page 24 for additional detail regarding the adjustments from FFO to Normalized FFO. See page 26 for the definitions, the footnotes referenced above and the reconciliations of EPS to FFO and Normalized FFO.

Consolidated Balance Sheets

(Amounts in thousands except for share amounts)

September 30,

December 31,

ASSETS

Investment in real estate

6,424,887

6,295,404

Depreciable property

20,540,247

19,851,504

Projects under development

1,039,657

1,343,919

Land held for development

154,690

184,556

28,159,481

27,675,383

Accumulated depreciation

(5,914,695

(5,432,805

Investment in real estate, net

22,244,786

22,242,578

Cash and cash equivalents

37,366

40,080

Investments in unconsolidated entities

74,108

105,434

Deposits – restricted

135,674

72,303

Escrow deposits – mortgage

54,071

48,085

Deferred financing costs, net

57,001

58,380

Other assets

405,798

383,754

Total assets

23,008,804

22,950,614

LIABILITIES AND EQUITY

Liabilities:

Mortgage notes payable

4,891,529

5,086,515

Notes, net

5,881,794

5,425,346

Line of credit and commercial paper

29,996

333,000

Accounts payable and accrued expenses

253,027

153,590

Accrued interest payable

86,083

89,540

Other liabilities

353,106

389,915

Security deposits

76,934

75,633

Distributions payable

209,086

188,566

Total liabilities

11,781,555

11,742,105

Commitments and contingencies

Redeemable Noncontrolling Interests – Operating Partnership

522,585

500,733

Equity:

Shareholders’ equity:

Preferred Shares of beneficial interest, $0.01 par value;

100,000,000 shares authorized; 803,600 shares issued and

outstanding as of September 30, 2015 and 1,000,000 shares

issued and outstanding as of December 31, 2014

40,180

50,000

Common Shares of beneficial interest, $0.01 par value;

1,000,000,000 shares authorized; 364,140,040 shares issued and

outstanding as of September 30, 2015 and 362,855,454...


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