Equity Residential Reports Full Year 2012 Results
Equity Residential Reports Full Year 2012 Results
Same Store Revenues Increased 5.5%; Same Store NOI Increased 7.6%;
Provides Outlook for 2013 Performance
CHICAGO--(BUSINESS WIRE)-- Equity Residential (NYS: EQR) today reported results for the quarter and year ended December 31, 2012. All per share results are reported as available to common shares on a diluted basis.
"Operating fundamentals were very strong in 2012 and we delivered same store revenue growth of 5.5% and NOI growth of 7.6%, among the best numbers in our history," said David J. Neithercut, Equity Residential's President and CEO. "Market conditions remain favorable and we currently expect to achieve 4% to 5% same store revenue growth in 2013, yet another year above historical trend."
Fourth Quarter 2012
FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), for the fourth quarter of 2012 was $0.94 per share compared to $0.64 per share in the fourth quarter of 2011. The difference is primarily due to a termination fee of $80 million, or $0.24 per share, that the company received in connection with its pursuit of Archstone as well as the items discussed below.
For the fourth quarter of 2012, the company reported Normalized FFO of $0.75 per share compared to $0.65 per share in the same period of 2011. The difference is due primarily to:
- a positive impact of approximately $0.08 per share from higher net operating income (NOI) from the company's same store portfolio;
- a positive impact of approximately $0.02 per share from lower total debt costs;
- a positive impact of approximately $0.01 per share from 2011 and 2012 transaction activity; and
- a negative impact of $0.01 per share from increased share count resulting from the approximately 21.9 million common shares sold in the company's December 2012 public offering.
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. A reconciliation and definition of Normalized FFO are provided on pages 26 and 29 of this release and the company has included guidance for Normalized FFO on page 27 of this release. The company has also included some additional guidance on forecasted 2013 non-comparable items, primarily Archstone-related costs, on page 28 of this release.
For the fourth quarter of 2012, the company reported earnings of $1.17 per share compared to $0.33 per share in the fourth quarter of 2011. The difference is due primarily to higher gains on property sales, the Archstone-related fee and the other items discussed above.
Year Ended December 31, 2012
FFO for the year ended December 31, 2012 was $3.11 per share compared to $2.41 per share in the same period of 2011.
For the year ended December 31, 2012, the company reported Normalized FFO of $2.76 per share compared to $2.43 per share in the same period of 2011.
For the year ended December 31, 2012, the company reported earnings of $2.70 per share compared to $2.95 per share in the same period of 2011.
Same Store Results
On a same store fourth quarter to fourth quarter comparison, which includes 103,522 apartment units, revenues increased 5.4%, expenses increased 0.5% and NOI increased 8.1%.
On a same store year to year comparison, which includes 98,577 apartment units, revenues increased 5.5%, expenses increased 1.8% and NOI increased 7.6%.
The company did not acquire any operating properties during the fourth quarter of 2012 but did purchase, for approximately $79.0 million, four adjacent land parcels in Los Angeles for future development of as many as 970 apartment units.
During the fourth quarter, the company sold 15 properties, consisting of 3,675 apartment units, for an aggregate sale price of $444.4 million at a weighted average capitalization (cap) rate of 6.1%. These sales generated an unlevered internal rate of return (IRR), inclusive of management costs, of 10.4%.
During 2012, the company acquired nine properties with a total of 1,896 apartment units for an aggregate purchase price of $906.3 million at a weighted average cap rate of 4.7% and six land parcels for $141.2 million.
During 2012, the company sold 35 properties with a total of 9,012 apartment units for an aggregate sale price of $1.06 billion at a weighted average cap rate of 6.2%. These sales, excluding two leveraged, partially-owned assets sold during the third quarter, generated an unlevered IRR, inclusive of management costs, of 10.6%.
The Archstone Acquisition
On November 26, 2012, Equity Residential announced that the company and AvalonBay Communities, Inc. had entered into an agreement with Lehman Brothers Holdings Inc. to acquire, for approximately $16 billion, the assets and liabilities of Archstone Enterprise LP ("Archstone"), which consists principally of a portfolio of high-quality apartment properties in major markets in the United States. Under the terms of the agreement, Equity Residential will acquire approximately 60% of Archstone's assets and liabilities. At closing, the company expects to assume, net of payoffs, approximately $3.3 billion of consolidated Archstone debt, plus a mark-to-market of approximately $225 million. The transaction is expected to close in late February. Please see the company's November 26, 2012 press release for details of the transaction.
Archstone-related Financing Activities
On December 4, 2012, the company completed the public offering of 21.9 million common shares at a price of $54.75 per share for net proceeds of approximately $1.16 billion.
On January 11, 2013, the company entered into a new $2.5 billion unsecured revolving credit agreement with a group of 25 financial institutions. The new facility matures in April 2018 and has an interest rate of LIBOR plus a spread and an annual facility fee that are dependent on the company's then current credit rating. At the company's current rating, the interest rate spread is 1.05% and the annual facility fee is 15 basis points. This facility replaced the company's existing $1.75 billion facility which was scheduled to mature in July 2014.
Also on January 11, 2013, the company entered into a new senior unsecured $750 million delayed draw term loan facility with an interest rate of LIBOR plus a spread which is dependent on the company's then current credit rating. At the company's current rating, the interest rate spread is 1.20%. The maturity date of the facility is January 11, 2015, subject to a one year extension option exercisable by the company. The facility is currently undrawn and is available in one draw made on or before July 11, 2013 and may be used to fund the Archstone acquisition or for other corporate purposes.
With the completion of these financing activities, along with cash on hand, the company has sufficient capital available to completely fund its portion of the Archstone acquisition cash price, transaction costs and required debt pay downs. Therefore, the company terminated the $2.5 billion bridge loan facility commitment that it obtained contemporaneously with entering into the Archstone acquisition contract in November 2012.
Property Sale Update
Equity Residential has previously announced its intention to fund a significant portion of the Archstone acquisition with the proceeds from the sale of assets that are not part of the company's long-term strategic plans and expects to sell approximately $4.0 billion of its non-core assets in 2013. Because of the great demand for these assets, the company has been able to sell more assets sooner and quickly mitigate much of the execution risk of the Archstone acquisition. The company now expects approximately $2.8 billion of these asset sales to occur before the end of the first quarter. Because the majority of the company's disposition activity will now occur much earlier in the year than had been previously planned, the current outlook for the company's 2013 Normalized FFO has been reduced by $0.13 per share below the company's original projections.
The properties that have been sold since the Archstone transaction announcement on November 26, 2012 or are currently under contract for sale, including the previously announced asset sale to the Goldman Sachs/Greystar entity, are located in the following markets:
Sale Price (millions)
|Washington DC Metro||10||3,085||$608.2|
|New York Metro||2||360||$ 99.2|
|Suburban New England|
"The strategic benefits of acquiring the Archstone portfolio included the ability to fund much of the acquisition with proceeds from the exit of non-core markets such as Phoenix, Atlanta, Orlando and Jacksonville," said Mr. Neithercut. "In addition, the acquisition has created the opportunity to dispose of assets located in certain sub-markets that are not part of our long term strategy such as far Suburban Washington, DC submarkets in Virginia and Maryland, Tacoma, Washington and parts of Northern New Jersey. We are pleased that the market reception to our asset sales has been strong and that our sales pace is ahead of plan at pricing that is consistent with our expectations."
First Quarter 2013 Guidance
The company has established a Normalized FFO guidance range of $0.62 to $0.66 per share for the first quarter of 2013. The difference between the company's fourth quarter 2012 Normalized FFO of $0.75 per share and the midpoint of the first quarter 2013 guidance range of $0.64 per share is primarily due to:
- a positive impact of approximately $0.10 per share of NOI from approximately one month of income from the Archstone stabilized properties;
- a negative impact of approximately $0.05 per share of lower NOI from Equity Residential same store properties as a result of higher operating expenses in the first quarter of 2013;
- a negative impact of approximately $0.05 per share from 2012 and 2013 disposition activity;
- a negative impact of approximately $0.06 per share from increased share count resulting from a combination of the approximately 21.9 million common shares sold in the company's December 2012 public offering and the expected issuance of approximately 34.5 million common shares to Lehman Brothers Holdings, Inc. upon closing of the Archstone acquisition;
- a negative impact of approximately $0.02 per share from higher interest expense, primarily as a result of the increased debt associated with the Archstone acquisition; and
- a negative impact of approximately $0.03 per share of other various expenses.
Full Year 2013 Guidance
The company's 2013 same store operating guidance on page 27 of this release is computed based on the portfolio of approximately 80,000 apartment units that the company expects to have in its annual same store set after the completion of its planned 2013 dispositions.
The company has established a Normalized FFO guidance range of $2.80 to $2.90 per share for the full year 2013. The assumptions underlying this guidance can be found on page 27 of this release. The difference between the company's full-year 2012 Normalized FFO of $2.76 per share and the midpoint of the company's guidance range of $2.85 per share for full year 2013 Normalized FFO is primarily due to:
- a positive impact of approximately $0.95 per share of NOI from approximately ten months of income from the Archstone stabilized properties;
- a positive impact of approximately $0.19 per share of higher NOI from Equity Residential properties consisting of $0.18 per share from same store NOI and $0.01 per share of NOI from properties in lease-up;
- a positive impact of approximately $0.06 per share from NOI from 2012 acquisition activity;
- a negative impact of approximately $0.63 per share from disposition activity with $0.11 coming from 2012 activity and $0.52 from 2013 activity;
- a negative impact of approximately $0.36 per share from increased share count resulting from a combination of the approximately 21.9 million common shares sold in the company's December 2012 public offering and the expected issuance of approximately 34.5 million common shares to Lehman Brothers Holdings, Inc. upon closing of the Archstone acquisition;
- a negative impact of approximately $0.08 per share from higher interest expense, primarily as a result of the increased debt associated with the Archstone acquisition; and
- a negative impact of approximately $0.04 per share of other various expenses.
First Quarter 2013 Earnings and Conference Call
Equity Residential expects to announce first quarter 2013 results on Tuesday, April 30, 2013 and host a conference call to discuss those results at 11:00 a.m. CT on Wednesday, May 1, 2013.
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 403 properties located in 13 states and the District of Columbia, consisting of 115,370 apartment units. For more information on Equity Residential, please visit our website at www.equityapartments.com.
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, February 6, at 9:00 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.
|Consolidated Statements of Operations|
|(Amounts in thousands except per share data)|
|Year Ended December 31,||Quarter Ended December 31,|
|Fee and asset management||9,573||9,026||2,245||2,344|
|Property and maintenance||415,986||387,968||99,971||96,467|
|Real estate taxes and insurance||241,876||211,518||62,996||52,331|
|Fee and asset management||4,663||4,279||1,068||1,072|
|General and administrative||47,248||43,605||10,072||11,144|
|Interest and other income||150,547||7,965||80,032||1,368|
|Expense incurred, net||(457,666||)||(464,277||)||(110,214||)||(113,525||)|
|Amortization of deferred financing costs||(21,370||)||(16,766||)||(11,051||)||(4,833||)|
Income before income and other taxes, (loss) from investments in unconsolidated entities, net gain on sales of land parcels and discontinued operations
|Income and other tax (expense) benefit||(539||)||(728||)||88||(60||)|
|(Loss) from investments in unconsolidated entities||(14||)||—||(11||)||—|
|Net gain on sales of land parcels||—||4,217||—||—|
|Income from continuing operations||311,555||57,794||140,255||32,506|
|Discontinued operations, net||569,649||877,403||244,144||74,895|
|Net (income) attributable to Noncontrolling Interests:|
|Partially Owned Properties||(844||)||(832||)||(387||)||(414||)|
|Net income attributable to controlling interests||841,719||893,585||367,017||102,482|
|Premium on redemption of Preferred Shares||(5,152||)||—||(2||)||—|
|Net income available to Common Shares||$||826,212||$||879,720||$||365,979||$||99,016|
|Earnings per share - basic:|
Income from continuing operations available to Common Shares
|Net income available to Common Shares||$||2.73||$||2.98||$||1.18||$||0.33|
|Weighted average Common Shares outstanding||302,701||294,856||310,398||295,990|
|Earnings per share - diluted:|
Income from continuing operations available to Common Shares
|Net income available to Common Shares||$||2.70||$||2.95||$||1.17||$||0.33|
|Weighted average Common Shares outstanding||319,766||312,065||327,108||312,731|
|Distributions declared per Common Share outstanding||$||1.78||$||
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