Provides Update on COVID-19 Related Activities and Preliminary April 2020 Statistics;
Withdraws Full Year 2020 Earnings Guidance
Equity Residential (NYSE: EQR) today reported results for the quarter ended March 31, 2020 and preliminary April 2020 operating statistics as well as provided an update on activities related to the COVID-19 pandemic.
"We are deeply grateful to the entire Equity Residential team and especially our on-site colleagues for their dedication to serving our 150,000 residents during this difficult time," said Mark J. Parrell, Equity Residential’s President and CEO. "We have instituted new programs to support our hard working colleagues and to assist our residents and communities. Thank you to the Equity Residential team for honoring their commitment to our residents and to our residents for their trust and support. Working together is the best way for all of us to get through this crisis."
During this pandemic, Equity Residential is:
Supporting Our Residents by:
- Keeping our properties open and operating and our residents safe in compliance with state and local shelter-in-place orders.
- Utilizing technology to allow our property teams to interact remotely with current residents and prospective residents including a touchless new leasing process and a service process designed to limit contact.
- Currently offering resident renewals with no rent increase and providing flexible lease renewal options to help residents weather the crisis.
- Currently creating payment plans, waiving late fees and halting evictions for residents who can document that they have been adversely financially impacted by the COVID-19 pandemic.
- Connecting our residents with governmental and community resources to help residents secure food, financial assistance and healthcare.
Supporting Our Employees by:
- Providing each employee with extended emergency leave.
- Providing resources to help our employees with their physical, mental and financial wellbeing.
- Providing necessary technology and technical resources to limit in-person contact while continuing essential maintenance activities such as emergency repairs and life/safety.
- Paying special cash bonuses to our on-site service and concierge teams for their hard work and dedication.
Supporting Our Communities by:
- Making donations from the Equity Residential Foundation to local food banks and groups helping the homeless and needy in our markets.
- Providing meals to frontline responders from Equity Residential’s restaurant tenants.
Preliminary April 2020 Statistics
The Company has provided various statistics related to its Residential same store operations for the month ended April 30, 2020 to assist investors in understanding the impact of the pandemic on the Company’s operations. These statistics along with comparative numbers for the first quarter of 2020 are set forth below and in more detail on page 13 of this release:
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| April 2020 |
| Q1 2020 |
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New Lease Change |
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| (1.9 | %) |
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| (0.8 | %) |
Renewal Rate Achieved |
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| 2.8 | % |
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| 4.2 | % |
Physical Occupancy (end of period) |
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| 94.7 | % |
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| 96.0 | % |
As the Company’s markets became subject to shelter-in-place orders, the Company experienced significant declines in leasing activity. In the third week of March 2020, Traffic, initial leads and applications declined by 50% or more compared to the same period of last year. In April 2020, the Company experienced a recovery in demand with Traffic, initial leads and applications meaningfully improving. Traffic and initial leads are now down approximately 20% and applications are equal relative to the same period last year.
The Company’s Residential collections are strong. During April 2020, Residential Cash Collections were approximately 97% of Residential Cash Collections in March 2020. As of the end of April 2020, current residents at same store properties had cumulative outstanding Residential Delinquency balances of approximately $11.0 million, representing a same store Residential Delinquency percentage of 5.4%. This compares to cumulative outstanding same store Residential Delinquency balances of approximately $5.4 million, representing a same store Residential Delinquency percentage of 2.6% at the end of March 2020, prior to the impact of COVID-19. The Company continues to work with residents to collect these outstanding balances including through the establishment of payment plans.
The Company’s Non-Residential operations, which mostly consist of ground floor retail in our apartment buildings and public garage parking, have historically been approximately 4.0% of annual total revenues. These operations have been more impacted by the pandemic. The Company collected approximately 58%, or $3.6 million, of retail cash collections during the month of April 2020 as compared to the month of March 2020, and the Company collected approximately 67%, or $1.3 million, of public garage parking cash collections during the month of April 2020 as compared to the month of March 2020. As of the end of April 2020 and March 2020, current retail tenants at our same store properties had cumulative outstanding delinquency or deferred payment balances of approximately $5.0 million and $2.3 million, respectively. The Company is working with remaining retail tenants on payment plans.
"Under very challenging circumstances, our business continues to be durable. Our April payment statistics show a financially resilient resident base and while very early, we have not seen anything to suggest that May will be materially different. We are also seeing an improvement in our leasing activity from the very low levels we experienced in late March though most activity remains lower than usual levels. We are working diligently to prepare our people and properties to operate safely and as efficiently as possible once restrictions are lifted in our markets. While the employment losses of late will pressure operations in the near term, we expect our properties and markets to remain desirable to our affluent renter demographic and our operations to return to a more normal state over time," said Mr. Parrell.
First Quarter 2020 Results
All per share results are reported as available to common shares/units on a diluted basis.
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| Quarter Ended March 31, |
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| 2020 |
| 2019 |
| $ Change |
| % Change |
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| Earnings Per Share (EPS) |
| $ | 0.83 |
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| $ | 0.28 |
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| $ | 0.55 |
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| 196.4 | % |
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| Funds from Operations (FFO) per share |
| $ | 0.86 |
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| $ | 0.81 |
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| $ | 0.05 |
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| 6.2 | % |
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| Normalized FFO per share |
| $ | 0.87 |
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| $ | 0.82 |
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| $ | 0.05 |
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| 6.1 | % |
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Results Per Share
The change in EPS for the quarter ended March 31, 2020 compared to the same period of 2019, is due primarily to higher property sale gains in the first quarter of 2020, the various adjustment items listed on page 23 of this release and the items described below.
The per share change in FFO for the quarter ended March 31, 2020 compared to the same period of 2019, is due primarily to the various adjustment items listed on page 23 of this release and the items described below.
The per share change in Normalized FFO is due primarily to:
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| Positive/(Negative) |
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| First Quarter 2020 vs. |
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Same Store Net Operating Income (NOI) |
| $ | 0.03 |
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Lease-Up NOI |
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| 0.01 |
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Interest expense |
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| 0.02 |
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Other items |
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| (0.01 | ) |
Net |
| $ | 0.05 |
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The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 24 through 29 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 6, 26 and 27 of this release.
Same Store Results
Given the current environment, the Company has provided a breakout of Residential and Non-Residential same store results on page 10 of this release with definitions that can be found on page 28 of this release. The table below reflects same store Residential only results for the first quarter 2020 to first quarter 2019 comparison, which includes 74,919 apartment units. The Company’s Physical Occupancy was 96.5% compared to 96.3% for the first quarter of 2020 and 2019, respectively.
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| First Quarter 2020 vs. |
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Revenues |
| 2.9% |
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Expenses |
| 2.3% |
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NOI |
| 3.2% |
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Investment Activity
The Company sold two wholly-owned properties in the San Francisco Bay Area and one partially-owned consolidated property in Phoenix during the first quarter of 2020, totaling 897 apartment units, for an aggregate sale price of approximately $370.2 million at a weighted average Disposition Yield of 5.0%, generating an Unlevered IRR of 12.9%. The Company did not acquire any apartment properties during the first quarter of 2020.
Subsequent to quarter-end, the Company sold one wholly-owned property located in the San Francisco Bay Area for approximately $108.0 million at a Disposition Yield of 4.5%.
Capital Markets and Liquidity
On April 30, 2020, the Company closed on a $495.0 million secured loan. The loan has a ten-year term, is interest only, and carries a fixed interest rate of 2.60%. Proceeds from the loan were used to pay off outstanding balances under the Company’s revolving line of credit and commercial paper program. As of May 4, 2020, the Company had the following availability under its unsecured revolving credit facility:
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| May 4, 2020 |
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Unsecured revolving credit facility commitment |
| $ | 2,500,000 |
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Commercial paper balance outstanding |
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| (180,000 | ) |
Unsecured revolving credit facility balance outstanding |
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| — |
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Other restricted amounts |
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| (100,949 | ) |
Unsecured revolving credit facility availability |
| $ | 2,219,051 |
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The Company has approximately $25.6 million in debt maturities and $200.0 million in estimated development spend remaining in 2020. With over $2.2 billion in readily available liquidity and very strong credit metrics, the Company is well positioned to meet these and future obligations.
2020 Guidance
Due to the inherent uncertainty surrounding the social and economic disruption resulting from the COVID-19 pandemic, the Company believes it is appropriate to withdraw its full-year 2020 guidance, which was included in its January 28, 2020 earnings release. The Company is also suspending issuing guidance in future periods until there is greater certainty surrounding the impact of the ongoing pandemic.
About Equity Residential
Equity Residential is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban communities where today’s renters want to live, work and play. Equity Residential owns or has investments in 306 properties consisting of 79,065 apartment units, located in Boston, New York, Washington, D.C., Seattle, San Francisco, Southern California and Denver. For more information on Equity Residential, please visit our website at www.equityapartments.com.
Forward-Looking Statements
In addition to historical information, this press release contains forward-looking statements and information within the meaning of the federal securities laws. These statements are based on current expectations, estimates, projections and assumptions made by management. While Equity Residential’s management believes the assumptions underlying its forward-looking statements are reasonable, such information is inherently subject to uncertainties and may involve certain risks, including, without limitation, changes in general market conditions, including the rate of job growth and cost of labor and construction material, the level of new multifamily construction and development, competition and local government regulation. In addition, these forward-looking statements are subject to risks related to the COVID-19 pandemic, many of which are unknown, including the duration and severity of the pandemic, the extent of the adverse health impact on the general population and on our residents, customers and employees in particular, its impact on the employment rate and the economy and the corresponding impact on our residents’ and tenants’ ability to pay their rent on time or at all, the extent and impact of governmental responses and the impact of operational changes we have implemented and may implement in response to the pandemic. 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, May 6, 2020 at 10:00 a.m. CT. Please visit the Investor section of the Company’s web site at www.equityapartments.com for the link. A replay of the web cast will be available for two weeks at this site.
Equity Residential Consolidated Statements of Operations (Amounts in thousands except per share data) (Unaudited) | ||||||||
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| Quarter Ended March 31, | ||||||
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| 2020 |
| 2019 | ||||
REVENUES |
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Rental income |
| $ | 682,305 |
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| $ | 662,302 |
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Fee and asset management |
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| 24 |
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| 192 |
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Total revenues |
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| 682,329 |
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| 662,494 |
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EXPENSES |
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Property and maintenance |
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| 115,816 |
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| 115,070 |
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Real estate taxes and insurance |
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| 97,732 |
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| 91,442 |
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Property management |
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| 27,709 |
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| 26,396 |
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General and administrative |
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| 14,518 |
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| 15,381 |
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Depreciation |
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| 212,422 |
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| 204,215 |
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Total expenses |
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| 468,197 |
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| 452,504 |
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Net gain (loss) on sales of real estate properties |
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| 207,977 |
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| (21 | ) |
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Operating income |
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| 422,109 |
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| 209,969 |
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Interest and other income |
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| 1,936 |
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| 581 |
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Other expenses |
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| (2,533 | ) |
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| (3,275 | ) |
Interest: |
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Expense incurred, net |
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| (85,590 | ) |
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| (94,938 | ) |
Amortization of deferred financing costs |
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| (2,041 | ) |
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| (2,136 | ) |
Income before income and other taxes, income (loss) from | ||||||||
investments in unconsolidated entities and net gain (loss) | ||||||||
on sales of land parcels |
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| 333,881 |
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| 110,201 |
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Income and other tax (expense) benefit |
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| (53 | ) |
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| (238 | ) |
Income (loss) from investments in unconsolidated entities |
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| (1,157 | ) |
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| (707 | ) |
Net gain (loss) on sales of land parcels |
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| — |
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| 1 |
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Net income |
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| 332,671 |
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| 109,257 |
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Net (income) loss attributable to Noncontrolling Interests: |
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Operating Partnership |
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| (11,535 | ) |
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| (3,919 | ) |
Partially Owned Properties |
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| (12,530 | ) |
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| (799 | ) |
Net income attributable to controlling interests |
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| 308,606 |
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| 104,539 |
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Preferred distributions |
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| (773 | ) |
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| (773 | ) |
Net income available to Common Shares |
| $ | 307,833 |
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| $ | 103,766 |
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Earnings per share – basic: |
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Net income available to Common Shares |
| $ | 0.83 |
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| $ | 0.28 |
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Weighted average Common Shares outstanding |
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| 371,582 |
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| 369,558 |
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Earnings per share – diluted: |
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Net income available to Common Shares |
| $ | 0.83 |
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| $ | 0.28 |
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Weighted average Common Shares outstanding |
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| 386,949 |
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| 385,184 |
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Distributions declared per Common Share outstanding |
| $ | 0.6025 |
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| $ | 0.5675 |
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Equity Residential Consolidated Statements of Funds From Operations and Normalized Funds From Operations (Amounts in thousands except per share data) (Unaudited) | ||||||||
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| Quarter Ended March 31, | ||||||
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| 2020 |
| 2019 | ||||
Net income |
| $ | 332,671 |
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| $ | 109,257 |
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Net (income) loss attributable to Noncontrolling Interests – Partially | ||||||||
Owned Properties |
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| (12,530 | ) |
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| (799 | ) |
Preferred distributions |
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| (773 | ) |
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| (773 | ) |
Net income available to Common Shares and Units |
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| 319,368 |
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| 107,685 |
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Adjustments: |
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Depreciation |
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| 212,422 |
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| 204,215 |
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Depreciation – Non-real estate additions |
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| (1,287 | ) |
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| (1,182 | ) |
Depreciation – Partially Owned Properties |
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| (856 | ) |
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| (903 | ) |
Depreciation – Unconsolidated Properties |
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| 613 |
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| 922 |
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Net (gain) loss on sales of real estate properties |
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| (207,977 | ) |
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| 21 |
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Noncontrolling Interests share of gain (loss) on sales | ||||||||
of real estate properties |
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| 11,655 |
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| — |
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FFO available to Common Shares and Units |
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| 333,938 |
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| 310,758 |
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Adjustments (see note for additional detail): |
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Impairment – non-operating assets |
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| — |
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| — |
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Write-off of pursuit costs |
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| 1,627 |
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| 1,448 |
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Debt extinguishment and preferred share redemption (gains) | ||||||||
losses |
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| — |
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Non-operating asset (gains) losses |
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| 441 |
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| 229 |
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Other miscellaneous items |
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| (918 | ) |
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| 1,575 |
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Normalized FFO available to Common Shares and Units |
| $ | 335,088 |
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| $ | 314,010 |
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FFO |
| $ | 334,711 |
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| $ | 311,531 |
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Preferred distributions |
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| (773 | ) |
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| (773 | ) |
FFO available to Common Shares and Units |
| $ | 333,938 |
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| $ | 310,758 |
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FFO per share and Unit – basic |
| $ | 0.87 |
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| $ | 0.81 |
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FFO per share and Unit – diluted |
| $ | 0.86 |
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| $ | 0.81 |
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Normalized FFO |
| $ | 335,861 |
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| $ | 314,783 |
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Preferred distributions |
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| (773 | ) |
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| (773 | ) |
Normalized FFO available to Common Shares and Units |
| $ | 335,088 |
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| $ | 314,010 |
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Normalized FFO per share and Unit – basic |
| $ | 0.87 |
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| $ | 0.82 |
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Normalized FFO per share and Unit – diluted |
| $ | 0.87 |
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| $ | 0.82 |
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Weighted average Common Shares and Units outstanding – basic |
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| 384,586 |
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| 382,477 |
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Weighted average Common Shares and Units outstanding – diluted |
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| 386,949 |
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| 385,184 |
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Note: See Adjustments from FFO to Normalized FFO for additional detail regarding the adjustments from FFO to Normalized FFO. See Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms 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) | ||||||||
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| March 31, |
| December 31, | ||||
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| 2020 |
| 2019 | ||||
ASSETS |
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Land |
| $ | 5,883,065 |
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| $ | 5,936,188 |
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Depreciable property |
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| 21,197,547 |
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| 21,319,101 |
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Projects under development |
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| 225,753 |
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| 181,630 |
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Land held for development |
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| 102,602 |
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| 96,688 |
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Investment in real estate |
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| 27,408,967 |
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| 27,533,607 |
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Accumulated depreciation |
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| (7,420,293 | ) |
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| (7,276,786 | ) |
Investment in real estate, net |
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| 19,988,674 |
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| 20,256,821 |
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Investments in unconsolidated entities |
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| 55,866 |
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| 52,238 |
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Cash and cash equivalents |
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| 82,335 |
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| 45,753 |
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Restricted deposits |
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| 58,435 |
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| 71,246 |
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Right-of-use assets |
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| 507,962 |
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| 512,774 |
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Other assets |
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| 226,046 |
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| 233,937 |
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Total assets |
| $ | 20,919,318 |
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| $ | 21,172,769 |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Mortgage notes payable, net |
| $ | 1,940,745 | ... |||||