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Equity Residential Reports Third Quarter 2019 Results Revises Full Year Guidance

CHICAGO--(BUSINESS WIRE)--

 

Equity Residential (EQR) today reported results for the quarter and nine months ended September 30, 2019. All per share results are reported as available to common shares/units on a diluted basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

 

 

Earnings Per Share (EPS)

 

$

0.71

 

 

$

0.58

 

 

$

0.13

 

 

 

22.4

%

 

 

Funds from Operations (FFO) per share

 

$

0.92

 

 

$

0.79

 

 

$

0.13

 

 

 

16.5

%

 

 

Normalized FFO per share

 

$

0.91

 

 

$

0.83

 

 

$

0.08

 

 

 

9.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

 

 

Earnings Per Share (EPS)

 

$

1.82

 

 

$

1.46

 

 

$

0.36

 

 

 

24.7

%

 

 

Funds from Operations (FFO) per share

 

$

2.53

 

 

$

2.30

 

 

$

0.23

 

 

 

10.0

%

 

 

Normalized FFO per share

 

$

2.58

 

 

$

2.41

 

 

$

0.17

 

 

 

7.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“We are pleased to report that our same store revenues, expenses and NOI as well as our Normalized FFO results are tracking in line with or better than the improved expectations we provided in July and that the efforts of our hard working colleagues across the Company produced the highest resident retention in our history. We continue to see robust demand to live in the vibrant urban and dense suburban centers of the cities in which we operate,” said Mark J. Parrell, Equity Residential’s President and CEO.

Highlights

  • The Company produced same store revenue growth of 3.4% for the third quarter of 2019, with Physical Occupancy of 96.5% and Renewal Rate Achieved growth of 5.0%.
  • The Company produced Normalized FFO per share growth of 9.6% for the third quarter of 2019.
  • During the third quarter of 2019, the Company acquired four apartment properties, totaling 1,084 apartment units, for an aggregate purchase price of approximately $489.9 million.
  • During the third quarter of 2019, the Company issued $600.0 million of unsecured notes at a coupon rate of 2.5% and a yield of 2.56%, the lowest ten-year yield in both the Company’s and REIT industry’s histories.

Results Per Share

The change in EPS for both the quarter and nine months ended September 30, 2019 compared to the same periods of 2018, are due primarily to higher property and unconsolidated sale gains in the third quarter and/or full year of 2019, the various adjustment items listed on page 25 of this release and the items described below.

The per share changes in FFO for both the quarter and nine months ended September 30, 2019 compared to the same periods of 2018, are due primarily to the various adjustment items listed on page 25 of this release and the items described below.

The per share changes in Normalized FFO are due primarily to:

 

 

Positive/(Negative) Impact

 

 

 

Third Quarter 2019 vs.

Third Quarter 2018

 

 

September YTD 2019 vs.

September YTD 2018

 

Same Store NOI

 

$

0.04

 

 

$

0.10

 

Lease-Up NOI and other non-same store NOI

 

 

0.02

 

 

 

0.06

 

2019 and 2018 transaction activity impact on NOI

 

 

0.02

 

 

 

0.03

 

Interest expense

 

 

0.01

 

 

 

0.01

 

Other items, including corporate overhead 1

 

 

(0.01

)

 

 

(0.03

)

Net

 

$

0.08

 

 

$

0.17

 

1 Corporate overhead includes 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 32 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 7, 29 and 30 of this release and the Company has included guidance for 2019 Normalized FFO per share on page 26 and 2019 FFO per share and 2019 EPS on page 30 of this release.

Same Store Results

The following table shows the increases in same store results for the third quarter 2019 to third quarter 2018 comparison, which includes 75,290 apartment units, and for the nine months ended September 30, 2019 to nine months ended September 30, 2018 comparison, which includes 72,979 apartment units. The Company’s Physical Occupancy was 96.5% compared to 96.3% for the third quarter of 2019 and 2018, respectively, and 96.5% compared to 96.2% for the first nine months of 2019 and 2018, respectively.

 

 

Third Quarter 2019 vs.

Third Quarter 2018

 

 

September YTD 2019 vs.

September YTD 2018

 

Revenues

 

3.4%

 

 

3.3%

 

Expenses

 

3.7%

 

 

3.8%

 

NOI

 

3.3%

 

 

3.0%

 

Investment Activity

The Company acquired four apartment properties during the third quarter of 2019, totaling 1,084 apartment units, for an aggregate purchase price of approximately $489.9 million at a weighted average Acquisition Capitalization Rate of 4.4%. The properties are located in Los Angeles, the San Francisco Bay Area and suburban Denver.

During the third quarter of 2019, the Company completed a 137 apartment unit property in Seattle and an 84 apartment unit property in Cambridge, MA. Also during the quarter, the Company started a 200 apartment unit joint venture development property in the San Francisco Bay Area at a development cost of approximately $117.8 million as well as a wholly-owned 154 apartment unit property in suburban Washington, D.C. that will be developed at a cost of approximately $75.3 million.

The Company sold seven properties during the third quarter of 2019, totaling 641 apartment units, for an aggregate sale price of approximately $303.9 million at a weighted average Disposition Yield of 4.7%, generating an Unlevered IRR of 7.6%. One of the properties is located in Arlington, VA and the other six are located in Berkeley, CA.

During the first nine months of 2019, the Company acquired ten properties, totaling 2,728 apartment units, for an aggregate purchase price of approximately $1.1 billion at a weighted average Acquisition Capitalization Rate of 4.6%.

During the first nine months of 2019, the Company sold nine wholly-owned properties, totaling 1,202 apartment units, for an aggregate sale price of approximately $706.7 million at a weighted average Disposition Yield of 4.5%, generating an Unlevered IRR of 8.0%. During the first nine months of 2019, the Company also sold two unconsolidated properties, totaling 945 apartment units, for an aggregate sale price of approximately $394.5 million at a weighted average Disposition Yield of 4.7%, received net proceeds of approximately $78.3 million and recognized a GAAP gain on sale of approximately $69.5 million from these sales.

Capital Markets Activity

On August 27, 2019, the Company issued $600.0 million of 10-year unsecured notes at a coupon rate of 2.5% and yield of 2.56%. After the effect of underwriters’ fees and other costs associated with the offering, the all-in effective yield of the notes is approximately 2.65%. As previously disclosed, on July 1, 2019 the Company paid off $950.0 million in secured and unsecured debt with a Weighted Average Rate of 4.62%.

Fourth Quarter 2019 Guidance

The Company has established guidance ranges for the fourth quarter of 2019 EPS, FFO per share and Normalized FFO per share as listed below:

 

 

Q4 2019

Guidance

EPS

 

$0.63 to $0.65

FFO per share

 

$0.87 to $0.89

Normalized FFO per share

 

$0.87 to $0.89

The difference between the third quarter 2019 actual EPS of $0.71 and the fourth quarter 2019 EPS guidance midpoint of $0.64 is due primarily to lower expected property sale gains and the items described below.

The difference between the third quarter 2019 actual FFO of $0.92 per share and the fourth quarter 2019 FFO guidance midpoint of $0.88 per share is due primarily to the items described below.

The difference between the third quarter 2019 actual Normalized FFO of $0.91 per share and the fourth quarter 2019 Normalized FFO guidance midpoint of $0.88 per share is due primarily to:

 

 

Positive/(Negative)

Impact

 

 

 

 

Fourth Quarter 2019 vs.

Third Quarter 2019

 

 

Same Store NOI

 

$

(0.01

)

 

2019 and 2018 transaction activity impact on NOI

 

 

(0.01

)

 

Other items, including corporate overhead

 

 

(0.01

)

 

Net

 

$

(0.03

)

 

Full Year 2019 Guidance

The Company has revised its guidance for its full year 2019 same store operating performance, EPS, FFO per share, Normalized FFO per share and transactions as listed below:

 

 

Revised

 

 

Previous

 

Same Store:

 

 

 

 

 

 

 

 

Physical Occupancy

 

96.4%

 

 

96.4%

 

Revenue change

 

3.3%

 

 

3.1% to 3.5%

 

Expense change

 

3.8%

 

 

3.5% to 4.0%

 

NOI change

 

3.1%

 

 

2.7% to 3.5%

 

 

 

 

 

 

 

 

 

 

EPS

 

$2.45 to $2.47

 

 

$2.48 to $2.54

 

FFO per share

 

$3.40 to $3.42

 

 

$3.36 to $3.42

 

Normalized FFO per share

 

$3.46 to $3.48

 

 

$3.43 to $3.49

 

 

 

 

 

 

 

 

 

 

Transactions:

 

 

 

 

 

 

 

 

Consolidated rental acquisitions

 

$1.1 billion

 

 

$1.0 billion

 

Consolidated rental dispositions

 

$1.0 billion

 

 

$1.0 billion

 

Transaction Accretion (Dilution)

 

None

 

 

None

 

The change in the full year 2019 EPS guidance range is due primarily to higher expected depreciation expense and the items described below.

The change in the full year 2019 FFO per share guidance range is due primarily to the items described below.

The change in the full year 2019 Normalized FFO per share guidance range is due primarily to:

 

 

Positive/(Negative)

Impact

 

 

 

 

Revised Full Year 2019 vs.

Previous Full Year 2019

 

 

Property NOI

 

$

0.01

 

 

Interest expense

 

 

0.01

 

 

Other items, including corporate overhead

 

 

(0.01

)

 

Net

 

$

0.01

 

 

Fourth Quarter and Full Year 2019 Earnings and Conference Call

Equity Residential expects to announce its fourth quarter and full year 2019 results on Tuesday, January 28, 2020 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, January 29, 2020.

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 308 properties consisting of 80,299 apartment units, primarily 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. 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, October 23, 2019 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)

 

 

Nine Months Ended September 30,

 

 

Quarter Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

2,016,796

 

 

$

1,925,128

 

 

$

685,120

 

 

$

652,677

 

Fee and asset management

 

 

360

 

 

 

563

 

 

 

25

 

 

 

190

 

Total revenues

 

 

2,017,156

 

 

 

1,925,691

 

 

 

685,145

 

 

 

652,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and maintenance

 

 

338,497

 

 

 

322,487

 

 

 

114,966

 

 

 

110,541

 

Real estate taxes and insurance

 

 

270,434

 

 

 

268,784

 

 

 

87,546

 

 

 

87,388

 

Property management

 

 

72,705

 

 

 

69,175

 

 

 

21,940

 

 

 

22,247

 

General and administrative

 

 

41,127

 

 

 

41,420

 

 

 

11,417

 

 

 

12,640

 

Depreciation

 

 

616,201

 

 

 

583,869

 

 

 

211,478

 

 

 

194,618

 

Total expenses

 

 

1,338,964

 

 

 

1,285,735

 

 

 

447,347

 

 

 

427,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on sales of real estate properties

 

 

269,400

 

 

 

256,834

 

 

 

130,565

 

 

 

114,672

 

Impairment

 

 

 

 

 

(702

)

 

 

 

 

 

(702

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

947,592

 

 

 

896,088

 

 

 

368,363

 

 

 

339,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

2,221

 

 

 

14,860

 

 

 

631

 

 

 

7,864

 

Other expenses

 

 

(11,205

)

 

 

(14,871

)

 

 

(2,813

)

 

 

(7,661

)

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expense incurred, net

 

 

(289,776

)

 

 

(321,454

)

 

 

(85,936

)

 

 

(111,219

)

Amortization of deferred financing costs

 

 

(8,664

)

 

 

(9,054

)

 

 

(2,881

)

 

 

(3,276

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investments in unconsolidated entities and net gain (loss)

on sales of land parcels

640,168

565,569

277,364

225,111

Income and other tax (expense) benefit

 

 

(749

)

 

 

(767

)

 

 

(265

)

 

 

(280

)

Income (loss) from investments in unconsolidated entities

 

 

66,906

 

 

 

(2,993

)

 

 

(1,152

)

 

 

(985

)

Net gain (loss) on sales of land parcels

 

 

2,077

 

 

 

995

 

 

 

1,899

 

 

 

 

Net income

 

 

708,402

 

 

 

562,804

 

 

 

277,846

 

 

 

223,846

 

Net (income) loss attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(25,339

)

 

 

(20,517

)

 

 

(9,910

)

 

 

(8,159

)

Partially Owned Properties

 

 

(2,450

)

 

 

(1,939

)

 

 

(830

)

 

 

(750

)

Net income attributable to controlling interests

 

 

680,613

 

 

 

540,348

 

 

 

267,106

 

 

 

214,937

 

Preferred distributions

 

 

(2,318

)

 

 

(2,318

)

 

 

(773

)

 

 

(773

)

Net income available to Common Shares

 

$

678,295

 

 

$

538,030

 

 

$

266,333

 

 

$

214,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Common Shares

 

$

1.83

 

 

$

1.46

 

 

$

0.72

 

 

$

0.58

 

Weighted average Common Shares outstanding

 

 

370,227

 

 

 

367,920

 

 

 

370,768

 

 

 

368,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Common Shares

 

$

1.82

 

 

$

1.46

 

 

$

0.71

 

 

$

0.58

 

Weighted average Common Shares outstanding

 

 

386,177

 

 

 

383,433

 

 

 

386,896

 

 

 

383,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared per Common Share outstanding

 

$

1.7025

 

 

$

1.62

 

 

$

0.5675

 

 

$

0.54

 

Equity Residential

Consolidated Statements of Funds From Operations and Normalized Funds From Operations

(Amounts in thousands except per share data)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

Quarter Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

708,402

 

 

$

562,804

 

 

$

277,846

 

 

$

223,846

 

Net (income) loss attributable to Noncontrolling Interests – Partially

Owned Properties

 

 

(2,450

)

 

 

(1,939

)

 

 

(830

)

 

 

(750

)

Preferred distributions

 

 

(2,318

)

 

 

(2,318

)

 

 

(773

)

 

 

(773

)

Net income available to Common Shares and Units

 

 

703,634

 

 

 

558,547

 

 

 

276,243

 

 

 

222,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

616,201

 

 

 

583,869

 

 

 

211,478

 

 

 

194,618

 

Depreciation – Non-real estate additions

 

 

(4,235

)

 

 

(3,397

)

 

 

(1,932

)

 

 

(1,137

)

Depreciation – Partially Owned Properties

 

 

(2,700

)

 

 

(2,837

)

 

 

(898

)

 

 

(904

)

Depreciation – Unconsolidated Properties

 

 

2,385

 

 

 

3,447

 

 

 

613

 

 

 

1,150

 

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

assets

 

 

(69,522

)

 

 

 

 

 

 

 

 

 

Net (gain) loss on sales of real estate properties

 

 

(269,400

)

 

 

(256,834

)

 

 

(130,565

)

 

 

(11null