Equity Residential Reports Third Quarter Results
Equity Residential Reports Third Quarter Results
Same Store Revenues Increase 5.8%; Same Store NOI Increases 7.4%;
Normalized FFO per Share Increases 17.7%
CHICAGO--(BUSINESS WIRE)-- Equity Residential (NYS: EQR) today reported results for the quarter and nine months ended September 30, 2012. All per share results are reported as available to common shares on a diluted basis.
"We continue to experience strong fundamentals across our markets and turned consistent demand into terrific same store revenue growth of 5.8% in the third quarter," said David J. Neithercut, Equity Residential's President and CEO. "For the full year, we expect to deliver 5.6% same store revenue growth, slightly ahead of our original plan and a very good result following growth of 5.0% in 2011. Fundamentals should remain favorable in 2013 which should produce same store revenue growth of 4.0% to 5.0%."
Third Quarter 2012
FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), for the third quarter of 2012 was $0.92 per share compared to $0.63 per share in the third quarter of 2011. The difference is primarily due to a termination fee of $70 million, or $0.22 per share, that the company received in connection with its pursuit of Archstone, as well as the items discussed below.
For the third quarter of 2012, the company reported Normalized FFO of $0.73 per share compared to $0.62 per share in the same period of 2011. The difference is due primarily to:
- a positive impact of $0.07 per share from higher same store net operating income (NOI) and $0.01 per share from higher NOI from properties in lease up; and
- a positive impact of $0.03 per share from 2011 and 2012 transaction activity and timing.
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 24 and 26 of this release and the company has included guidance for Normalized FFO on page 25 of this release.
For the third quarter of 2012, the company reported earnings of $0.72 per share compared to $0.35 per share in the third quarter of 2011. The difference is due primarily to higher gains on property sales, the Archstone-related fee and the other items discussed above.
Nine Months Ended September 30, 2012
FFO for the nine months ended September 30, 2012 was $2.16 per share compared to $1.77 per share in the same period of 2011.
For the nine months ended September 30, 2012, the company reported Normalized FFO of $2.02 per share compared to $1.78 per share in the same period of 2011.
For the nine months ended September 30, 2012, the company reported earnings of $1.52 per share compared to $2.62 per share in the same period of 2011.
Same Store Results
On a same store third quarter to third quarter comparison, which includes 105,902 apartment units, revenues increased 5.8%, expenses increased 2.9% and NOI increased 7.4%.
On a same store nine-month to nine-month comparison, which includes 102,241 apartment units, revenues increased 5.5%, expenses increased 2.2% and NOI increased 7.4%.
During the third quarter of 2012, the company acquired four properties with a total of 540 apartment units for an aggregate purchase price of $236.3 million at a weighted average capitalization (cap) rate of 4.3%.
Also during the quarter, the company acquired, for future development, two land parcels in Seattle and one in Southern California for an aggregate purchase price of $38.5 million. The company expects to start construction in early 2014 of 640 apartment units on the Seattle land parcels for a total development cost of approximately $226.0 million. The company expects to start construction in 2014 of 154 apartment units on the Southern California land parcel for a total development cost of approximately $43.2 million.
During the quarter, the company sold eight properties, consisting of 2,153 apartment units, for an aggregate sale price of $280.7 million at a weighted average cap rate of 6.0%. These sales, excluding two leveraged, partially-owned assets sold during the quarter, generated an unlevered internal rate of return (IRR), inclusive of management costs, of 10.2%.
During the first nine months of 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 five land parcels for $62.2 million.
Also during the first nine months of 2012, the company sold 20 properties with a total of 5,337 apartment units for an aggregate sale price of $616.9 million 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 10.8%.
As previously disclosed, on June 6, 2012, Equity Residential received $150 million in termination fees from Bank of America, Barclays Bank PLC (together, the "Sellers") and Lehman Brothers Holdings Inc. ("Lehman") as a result of Lehman's acquisition of the Sellers' remaining 26.5% interest in Archstone, a privately-held owner, operator and developer of multifamily apartment properties. The company recognized $70 million of these fees in interest and other income in the third quarter of 2012 and will recognize $80 million of these fees in interest and other income in the fourth quarter of 2012. These termination fees will not be included in the company's Normalized FFO.
On August 20, 2012, the company redeemed all of its outstanding Series N Depositary Shares (with a liquidation value of $150 million) each representing 1/10 of a 6.48% Series N Cumulative Redeemable Preferred Share of Beneficial Interest. As a result of this redemption, the company recorded a non-cash charge of approximately $5.1 million, or approximately $0.02 per share, in the third quarter of 2012 for the write-off of the original issuance costs. This charge reduced earnings per share and FFO but did not impact Normalized FFO.
During the quarter, the company issued 1,095,609 common shares at an average price of $62.70 per share for total proceeds of approximately $68.7 million under its At-the-Market (ATM) share offering program. Since the beginning of 2012, the company has issued 3,173,919 common shares at an average price of $60.59 per share for total proceeds of approximately $192.3 million under the program. The company has not issued any shares under the program since the end of the third quarter and currently has approximately 6.0 million shares available for issuance under this program.
On October 1, 2012, the company redeemed the approximately $222.1 million outstanding of its 5.5% unsecured notes which matured on that date and on October 5, 2012, the company paid off its $500 million Term Loan which matured on that date. Both of these activities were funded from the company's revolving credit facility. As of October 23, 2012, the company had an outstanding balance of $850 million and approximately $870 million available on its revolving credit facility.
Fourth Quarter 2012 Guidance
The company has established a Normalized FFO guidance range of $0.72 to $0.76 per share for the fourth quarter of 2012. The difference between the company's third quarter 2012 Normalized FFO of $0.73 per share and the midpoint of the fourth quarter guidance range of $0.74 per share is primarily due to:
- a positive impact of $0.02 per share from higher same store NOI;
- a positive impact of $0.01 per share from lower interest expense and preferred share distributions; and
- a negative impact of $0.02 per share from 2011 and 2012 transaction activity and timing and other items.
Full Year 2012 Guidance
The company has revised its guidance for its full year 2012 same store operating performance, transactions and Normalized FFO results as well as other items listed on page 25 of this release. The changes to the full year same store, transactions and Normalized FFO guidance are listed below:
|Revenue change||5.4% to 5.6%||5.6%|
|Expense change||1.5% to 2.5%||2.3%|
|NOI change||7.0% to 8.0%||7.5%|
|Acquisitions:||$1.25 billion||$1.1 billion|
|Dispositions:||$1.25 billion||$1.1 billion|
|Cap Rate Spread:||130 basis points||150 basis points|
|Normalized FFO per share:||$2.73 to $2.78||$2.74 to $2.78|
Fourth Quarter 2012 Earnings and Conference Call
Equity Residential expects to announce fourth quarter 2012 results on Tuesday, February 5, 2013 and host a conference call to discuss those results at 9:00 a.m. CT on Wednesday, February 6, 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 418 properties located in 13 states and the District of Columbia, consisting of 118,986 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, Thursday, October 25, 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)
|Nine Months Ended September 30,||Quarter Ended September 30,|
|Fee and asset management||7,328||6,682||3,052||2,928|
|Property and maintenance||325,071||300,362||110,679||101,712|
|Real estate taxes and insurance||182,222||162,430||64,235||57,109|
|Fee and asset management||3,595||3,207||1,108||1,250|
|General and administrative||37,178||32,462||10,096||10,121|
|Interest and other income||70,516||6,598||70,087||5,313|
|Expense incurred, net||(347,452||)||(350,957||)||(113,876||)||(112,449||)|
|Amortization of deferred financing costs||(10,319||)||(11,900||)||(3,338||)||(4,650||)|
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||(627||)||(669||)||(222||)||(283||)|
|(Loss) from investments in unconsolidated entities||(3||)||-||(3||)||-|
|Net gain on sales of land parcels||-||4,217||-||-|
|Income from continuing operations||181,227||33,721||132,681||30,217|
|Discontinued operations, net||315,578||794,075||103,642||82,760|
|Net (income) loss attributable to Noncontrolling Interests:|
|Partially Owned Properties||(457||)||(418||)||312||(387||)|
|Net income attributable to controlling interests||474,702||791,103||226,139||107,848|
|Premium on redemption of Preferred Shares|
|Net income available to Common Shares||$||460,233||$||780,704||$||218,603||$||104,382|
|Earnings per share - basic:|
Income from continuing operations available to Common Shares
|Net income available to Common Shares||$||1.53||$||2.65||$||0.73||$||0.35|
|Weighted average Common Shares outstanding||300,116||294,474||301,336||295,831|
|Earnings per share - diluted:|
Income from continuing operations available to Common Shares
|Net income available to Common Shares||$||1.52||$||2.62||$||0.72||$||0.35|
|Weighted average Common Shares outstanding||317,265||311,908||318,773||312,844|
|Distributions declared per Common Share outstanding||$||1.0125||$||1.0125||$||0.3375||$||0.3375|
|Consolidated Statements of Funds From Operations and Normalized Funds From Operations|
|(Amounts in thousands except per share data)|
Nine Months Ended September 30,
Quarter Ended September 30,
Net (income) loss attributable to Noncontrolling Interests - Partially Owned Properties
|Premium on redemption of Preferred Shares||(5,150||)||-||(5,150||)||-|
|Net income available to Common Shares and Units||481,879||816,979||229,099||109,124|
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