Equity Residential Reports First Quarter Results

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Equity Residential Reports First Quarter Results

Same Store Revenues Increase 5.1%; Same Store NOI Increases 6.3%

CHICAGO--(BUSINESS WIRE)-- Equity Residential (NYS: EQR) today reported results for the quarter ended March 31, 2013. All per share results are reported as available to common shares on a diluted basis.


"The first quarter of 2013 was an historic period for Equity Residential as we completed the $9 billion acquisition and successful integration of nearly 22,000 apartment units across our core markets while selling more than 18,000 non-core apartment units for nearly $3 billion," said David J. Neithercut, Equity Residential's President and CEO. "I am extremely proud of my colleagues across the enterprise for their efforts in successfully completing our portfolio transformation while, at the same time, producing same store revenue growth of 5.1%, which was in line with our operating expectations for the quarter. We currently expect operations for the full year to be consistent with our previous forecast of 4% to 5% same store revenue growth and look forward to the years ahead of owning and operating the finest portfolio of multifamily assets in the best markets for long-term growth."

First Quarter 2013

FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), for the first quarter of 2013 was $0.22 per share compared to $0.60 per share in the first quarter of 2012. The difference is due primarily to the approximately $65.1 million of merger-related expenses and approximately $71.4 million of prepayment penalties the company incurred in the first quarter of 2013 in connection with its acquisition of Archstone. These prepayment penalties had originally been budgeted to occur in the second quarter of 2013.

For the first quarter of 2013, the company reported Normalized FFO of $0.64 per share compared to $0.61 per share in the same period of 2012. The difference is due primarily to:

  • the positive impact of approximately $0.05 per share from higher same store net operating income (NOI);
  • the positive impact of approximately $0.10 per share from the stabilized Archstone properties;
  • the negative impact of approximately $0.04 per share from 2012 and 2013 transaction activity other than Archstone;
  • the negative impact of approximately $0.07 per share from the company's issuance of common shares in connection with its purchase of Archstone; and
  • the negative impact of approximately $0.01 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. Merger expenses and prepayment penalties are not included in the company's Normalized FFO. A reconciliation and definition of Normalized FFO are provided on pages 24 and 27 of this release and the company has included guidance for Normalized FFO on page 25 of this release.

For the first quarter of 2013, the company reported earnings of $3.01 per share compared to $0.47 per share in the first quarter of 2012. The difference is due primarily to approximately $1.07 billion in increased gains on property sales between periods as a direct result of the company's portfolio transformation process as well as the items listed above.

Same Store Results

On a same store first quarter to first quarter comparison, which includes 90,350 apartment units, revenues increased 5.1%, expenses increased 2.9% and NOI increased 6.3%.

Archstone

As previously disclosed, on February 27, 2013, the company completed the $9 billion acquisition of approximately 60% of the assets and liabilities of Archstone, which consisted of approximately 22,000 high quality apartment units located primarily in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California as well as fourteen land sites for future development. Six of these sites are located in the company's core markets and will be held for future development. The remaining eight sites will likely be sold. A full list of the names, locations, number of apartment units and average rental rates of the properties acquired are available in the company's Form 8-K filed on February 28, 2013 with the SEC.

Equity Residential paid its portion of the transaction consideration with $2.016 billion in cash and the issuance of 34,468,085 common shares to the seller of the Archstone assets, an affiliate of Lehman Brothers Holdings Inc. In addition, a total of $2.0 billion of Archstone secured mortgage principal was paid off in conjunction with the closing. The company's cash needs at closing were financed through a combination of approximately $575.0 million of cash on hand, approximately $1.6 billion of available borrowings under the company's revolving credit facility, approximately $1.1 billion of proceeds from the disposition of non-core assets and approximately $750.0 million of bank term debt.

In addition, the company has assumed approximately $2.9 billion of consolidated secured debt, including $2.2 billion of Fannie Mae secured debt. A detailed schedule of the debt assumed is available in the company's Form 8-K filed on February 28, 2013 with the SEC.

Acquisitions/Dispositions

The company acquired no operating properties other than the Archstone assets during the first quarter of 2013. Since the end of the first quarter, the company has acquired one property in Redmond, Washington, consisting of 322 apartment units, for a purchase price of $91.5 million and a capitalization (cap) rate of 4.7%.

During the quarter, the company sold 63 consolidated properties, consisting of 18,452 apartment units, for an aggregate sale price of $2.98 billion at a weighted average cap rate of 6.0%. These sales, excluding one Archstone asset that was sold shortly after its acquisition, generated an unlevered internal rate of return (IRR), inclusive of management costs, of 9.4%.

The company sold properties in the following markets:

   

Market

Properties

Units

Sale Price (millions)

Washington, D.C.103,453$843.9
Phoenix133,592434.1
Orlando102,574290.6
Southern California31,056270.8
Atlanta71,982241.7
South Florida41,616240.1
Northern California3711188.5
Denver51,211180.5
Jacksonville51,637162.4
Northern New Jersey236099.2
Seattle126023.4
6318,452$2,975.2
 

Since the end of the first quarter, the company has sold eight properties consisting of 2,786 apartment units for an aggregate sales price of approximately $374.4 million and one land parcel for $29.0 million.

Please see page eight of this release for comparative portfolio summaries for the end of the fourth quarter 2012 and the end of the first quarter 2013.

Financing Activities

On April 10, 2013, the company closed a $500 million unsecured note offering maturing April 15, 2023 with a coupon of 3.0% and an all in effective rate of approximately 4.0% including the effect of fees and the termination of certain interest rate hedges. Proceeds from the issuance are being used to repay outstanding amounts on the company's revolving credit facility, termination costs on interest rate swaps, secured debt and for other corporate purposes.

In order to manage debt maturities and the level of the company's secured indebtedness, the company prepaid in full on March 29, 2013 $543.0 million of secured debt with an interest rate of 5.7%, which would have matured January 1, 2017. In connection with this prepayment, the company incurred, in the first quarter, a penalty of $70.3 million that it previously anticipated incurring in the second quarter of 2013.

Second Quarter 2013 Guidance

The company has established a Normalized FFO guidance range of $0.67 to $0.71 per share for the second quarter of 2013. The difference between the company's first quarter 2013 Normalized FFO of $0.64 per share and the midpoint of the second quarter guidance range of $0.69 per share is primarily due to:

  • the positive impact of approximately $0.04 per share from higher same store NOI;
  • the positive impact of approximately $0.18 per share from the Archstone stabilized properties;
  • the negative impact of approximately $0.11 per share from 2012 and 2013 transaction activity other than Archstone;
  • the negative impact of approximately $0.04 per share from the company's issuance of common shares in connection with its purchase of Archstone; and
  • the negative impact of approximately $0.02 from higher interest expense and other items.

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 416 properties located in 13 states and the District of Columbia, consisting of 118,778 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, 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 1, at 11:00 a.m. Central.Please visit the Investor section of the company's web site atwww.equityapartments.comfor 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)
 
Quarter Ended March 31,
20132012
REVENUES
Rental income$537,002$444,384
Fee and asset management 2,160  2,064 
Total revenues 539,162  446,448 
 
EXPENSES
Property and maintenance107,08392,952
Real estate taxes and insurance68,64752,440
Property management22,48923,339
Fee and asset management1,6461,307
Depreciation205,272148,246
General and administrative 16,496  13,688 
Total expenses 421,633  331,972 
 
Operating income117,529114,476
 
Interest and other income256169
Other expenses(2,564)(5,807)
Merger expenses(19,092)(1,149)
Interest:
Expense incurred, net(195,685)(118,011)
Amortization of deferred financing costs (7,023) (2,934)
(Loss) before income and other taxes, (loss) from investments
in unconsolidated entities and discontinued operations(106,579)(13,256)
Income and other tax (expense) benefit(407)(170)
(Loss) from investments in unconsolidated entities due to operations(355)
(Loss) from investments in unconsolidated entities due to merger expenses (46,011)  
(Loss) from continuing operations(153,352)(13,426)
Discontinued operations, net 1,214,386  165,593 
Net income1,061,034152,167
Net (income) attributable to Noncontrolling Interests:
Operating Partnership(43,323)(6,418)
Partially Owned Properties (25) (450)
Net income attributable to controlling interests 1,017,686  145,299 
Preferred distributions (1,036) (3,466)
Net income available to Common Shares$1,016,650 $141,833 
 
Earnings per share - basic:

(Loss) from continuing operations available to Common Shares

$(0.44)$(0.06)
Net income available to Common Shares$3.01 $0.47 
Weighted average Common Shares outstanding 337,532  298,805 
 
Earnings per share - diluted:

(Loss) from continuing operations available to Common Shares

$(0.44)$(0.06)
Net income available to Common Shares$3.01 $0.47 
Weighted average Common Shares outstanding 337,532  298,805 
 
Distributions declared per Common Share outstanding$0.40 $0.3375 
  
Equity Residential
Consolidated Statements of Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per share data)
(Unaudited)
 
Quarter Ended March 31,
20132012
Net income$1,061,034$152,167
Net (income) attributable to Noncontrolling Interests -
Partially Owned Properties(25)(450)
Preferred distributions (1,036) (3,466)
Net income available to Common Shares and Units1,059,973148,251
 
Adjustments:
Depreciation205,272148,246
Depreciation - Non-real estate additions(1,216)(1,354)
Depreciation - Partially Owned and Unconsolidated Properties(1,015)(800)
Discontinued operations:
Depreciation14,76626,862
Net (gain) on sales of discontinued operations(1,198,922)(132,956)
Net incremental gain on sales of condominium units49
Gain on sale of Equity Corporate Housing (ECH) 250   
FFO available to Common Shares and Units (1) (3) (4)79,108188,298
 
Adjustments (see page 24 for additional detail):
Asset impairment and valuation allowances
Property acquisition costs and write-off of pursuit costs67,6682,626
Debt extinguishment (gains) losses, including prepayment penalties, preferred share
redemptions and non-cash convertible debt discounts79,643(41)
(Gains) losses on sales of non-operating assets, net of income and other tax expense
(benefit)(250)(4)
Other miscellaneous non-comparable items   974 
Normalized FFO available to Common Shares and Units (2) (3) (4)$226,169 $191,853 
 
FFO (1) (3)$80,144$191,764
Preferred distributions(1,036)(3,466)
FFO available to Common Shares and Units - basic and diluted (1) (3) (4)$79,108 $188,298 
FFO per share and Unit - basic$0.23 $0.60 
FFO per share and Unit - diluted$0.22 $0.60 
 
Normalized FFO (2) (3)$227,205$195,319
Preferred distributions (1,036) (3,466)
Normalized FFO available to Common Shares and Units - basic and diluted (2) (3) (4)$226,169 $191,853 
Normalized FFO per share and Unit - basic$0.64 $0.61 
Normalized FFO per share and Unit - diluted$0.64 $0.61 
 
Weighted average Common Shares and Units outstanding - basic 351,255  312,011 
Weighted average Common Shares and Units outstanding - diluted 353,656  315,230 
 
Note:See page 24 for additional detail regarding the adjustments from FFO to Normalized FFO. See page 27 for the definitions, the footnotes referenced above and the reconciliations of EPS to FFO and Normalized FFO.
  
Equity Residential
Consolidated Balance Sheets
(Amounts in thousands except for share amounts)
(Unaudited)
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