Equity Residential Reports First Quarter Results

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.

10

3,453

$843.9

Phoenix

13

3,592

434.1

Orlando

10

2,574

290.6

Southern California

3

1,056

270.8

Atlanta

7

1,982

241.7

South Florida

4

1,616

240.1

Northern California

3

711

188.5

Denver

5

1,211

180.5

Jacksonville

5

1,637

162.4

Northern New Jersey

2

360

99.2

Seattle

1

260

23.4

63

18,452

$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,

2013

2012

REVENUES

Rental income

$

537,002

$

444,384

Fee and asset management

2,160

2,064

Total revenues

539,162

446,448

EXPENSES

Property and maintenance

107,083

92,952

Real estate taxes and insurance

68,647

52,440

Property management

22,489

23,339

Fee and asset management

1,646

1,307

Depreciation

205,272

148,246

General and administrative

16,496

13,688

Total expenses

421,633

331,972

Operating income

117,529

114,476

Interest and other income

256

169

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 income

1,061,034

152,167

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,

2013

2012

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 Units

1,059,973

148,251

Adjustments:

Depreciation

205,272

148,246

Depreciation - Non-real estate additions

(1,216

)

(1,354

)

Depreciation - Partially Owned and Unconsolidated Properties

(1,015

)

(800

)

Discontinued operations:

Depreciation

14,766

26,862

Net (gain) on sales of discontinued operations

(1,198,922

)

(132,956

)

Net incremental gain on sales of condominium units

49

Gain on sale of Equity Corporate Housing (ECH)

250

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

79,108

188,298

Adjustments (see page 24 for additional detail):

Asset impairment and valuation allowances

Property acquisition costs and write-off of pursuit costs

67,668

2,626

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

redemptions and non-cash convertible debt discounts

79,643

(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)