Equity Residential Reports Strong Results

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Equity Residential Reports Strong Results

Same Store Revenues Increase 4.9% in 2Q and 5.0% YTD

Same Store NOI Increases 5.6% in 2Q and 5.8% YTD


CHICAGO--(BUSINESS WIRE)-- Equity Residential (NYS: EQR) today reported results for the quarter and six months ended June 30, 2013. All per share results are reported as available to common shares on a diluted basis.

"We are pleased that apartment fundamentals across our markets remain strong and that we will again produce results for the full year in line with our original guidance and well above historical trends," said David J. Neithercut, Equity Residential's President and CEO. "We are extremely proud of our property teams across the country for delivering such strong performance while simultaneously integrating 21,000 newly acquired apartment units into our portfolio."

Second Quarter 2013

FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), for the second quarter of 2013 was $0.73 per share compared to $0.64 per share in the second quarter of 2012.

For the second quarter of 2013, the company reported Normalized FFO of $0.71 per share compared to $0.68 per share in the same period of 2012. The difference is due primarily to:

  • the positive impact of approximately $0.04 per share from higher same store net operating income (NOI);
  • the positive impact of approximately $0.27 per share from the stabilized Archstone properties, offset by the negative impact of approximately $0.25 per share from 2012 and 2013 disposition activity and common share issuance in connection with the company's purchase of Archstone; and
  • the negative impact of approximately $0.03 per share from higher interest expense and 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 26 and 29 of this release and the company has included guidance for Normalized FFO on page 27 of this release.

For the second quarter of 2013, the company reported earnings of $0.90 per share compared to $0.33 per share in the second quarter of 2012. The difference is due primarily to higher gains from property sales in the second quarter of 2013, partially offset by higher depreciation as a result of the Archstone acquisition, as well as the items discussed above.

Six Months Ended June 30, 2013

FFO for the six months ended June 30, 2013 was $0.97 per share compared to $1.24 per share in the same period of 2012. The difference is due primarily to merger-related expenses and prepayment penalties incurred in the first six months of 2013 in connection with the company's acquisition of Archstone.

For the six months ended June 30, 2013, the company reported Normalized FFO of $1.35 per share compared to $1.29 per share in the same period of 2012.

For the six months ended June 30, 2013, the company reported earnings of $3.84 per share compared to $0.81 per share in the same period of 2012.

Same Store Results

On a same store second quarter to second quarter comparison, which includes 85,509 apartment units, revenues increased 4.9%, expenses increased 3.6% and NOI increased 5.6%.

On a same store six-month to six-month comparison, which includes 84,965 apartment units, revenues increased 5.0%, expenses increased 3.4% and NOI increased 5.8%.

Acquisitions/Dispositions

During the second quarter of 2013, the company acquired one property located in Redmond, Washington, consisting of 322 apartment units, for a purchase price of $91.5 million and a capitalization (cap) rate of 4.7%. The company also acquired one land parcel located in Seattle for future development for a purchase price of $16.5 million.

During the first six months of 2013, the company acquired 77 properties, consisting of 22,103 apartment units. With the exception of the acquisition discussed above, these properties were acquired as part of the company's $9 billion acquisition of 60% of the assets and liabilities of Archstone.

During the quarter, the company sold 19 apartment properties, consisting of 5,745 apartment units, for an aggregate sale price of $729.9 million at a weighted average cap rate of 6.1%. 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 10.5%.

The company sold properties in the following markets during the quarter:

      

Market

Properties

Units

Sale Price (millions)

Phoenix72,032$241.1
Seattle2653126.8
Suburban New England364673.1
Atlanta262780.3
Washington, D.C.262094.6
Jacksonville148055.1
Orlando145637.4
Tacoma123121.5
195,745$729.9
 

Also during the quarter, the company sold one commercial property adjacent to our Harbor Steps property in downtown Seattle for $30.7 million and five land parcels for an aggregate sale price of $59.8 million, generating an economic gain of approximately $29.0 million.

During the first six months of 2013, the company sold 82 apartment properties, consisting of 24,197 apartment units, for an aggregate sale price of $3.7 billion at a weighted average cap rate of 6.0%. These sales, excluding two Archstone assets that were sold shortly after their acquisition, generated an unlevered IRR, inclusive of management costs, of 9.7%.

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

Capital Markets Activities

The company also announced today certain actions designed to maintain its flexibility in the capital markets.

Earlier today, the company filed with the SEC a new universal shelf registration statement on Form S-3 for use in future registered equity and debt securities offerings. This registration statement was filed to replace the company's current universal shelf registration statement, which expires later this year.

The company's Board has also authorized an increase to the amount of shares which may be offered under the company's At-The-Market (ATM) offering program from 6 million shares to 13 million shares. The company has also modified its existing share repurchase program to allow for the potential repurchase of up to 13 million company common shares. The program previously had repurchase capacity equating to approximately 8 million shares. These actions replenish the capacity in these programs to levels that the company believes are appropriate for its size. The company has not used its ATM program since the third quarter of 2012, has not used its share repurchase program for open market repurchases since 2008 and has no immediate plans to utilize either program.

Also, as previously disclosed, 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 were used to repay secured debt and amounts outstanding on the company's revolving credit facility, fund termination costs on interest rate swaps and for other corporate purposes.

Third Quarter 2013 Guidance

The company has established a Normalized FFO guidance range of $0.71 to $0.75 per share for the third quarter of 2013. The difference between the company's second quarter 2013 Normalized FFO of $0.71 per share and the midpoint of the third quarter guidance range of $0.73 per share is due primarily to a positive impact of approximately $0.02 per share from lower interest expense and general and administrative costs.

Full Year 2013 Guidance

The company has revised its guidance for its full year 2013 same store operating performance, transactions and Normalized FFO results as well as other items listed on page 27 of this release. The changes to the full year same store, transactions and Normalized FFO guidance are listed below:

  

Previous

Revised

Same store:
Physical occupancy95.3%95.3%
Revenue change4.0% to 5.0%4.4% to 4.6%
Expense change2.5% to 3.5%3.0% to 3.5%
NOI change4.5% to 6.0%5.0% to 5.25%
 
Acquisitions:$100 million$100 million
Dispositions:$4.0 billion$4.1 billion
Cap Rate Spread:100 basis points110 basis points
 
Normalized FFO per share:$2.80 to $2.90$2.80 to $2.85
 

The difference between the midpoint of the previous Normalized FFO guidance range and the midpoint of the revised guidance range is due primarily to the company completing its approximately $4 billion disposition program earlier in the year than originally expected.

Third Quarter 2013 Earnings and Conference Call

Equity Residential expects to announce third quarter 2013 results on Wednesday, October 30, 2013 and host a conference call to discuss those results at 10:00 a.m. CT on Thursday, October 31, 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 398 properties located in 12 states and the District of Columbia, consisting of 113,388 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, July 31, 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.

    
Equity Residential
Consolidated Statements of Operations
(Amounts in thousands except per share data)
(Unaudited)
 
Six Months Ended June 30,Quarter Ended June 30,
2013201220132012
REVENUES
Rental income$1,151,918$874,338$632,405$446,139
Fee and asset management 4,833  4,276  2,673  2,212 
Total revenues 1,156,751  878,614  635,078  448,351 
 
EXPENSES
Property and maintenance220,417173,819117,81985,423
Real estate taxes and insurance145,400104,26878,54753,422
Property management44,52044,27622,03120,937
Fee and asset management3,2232,4871,5771,180
Depreciation528,328289,273327,985145,438
General and administrative 32,582  27,079  16,086  13,391 
Total expenses 974,470  641,202  564,045  319,791 
 
Operating income182,281237,41271,033128,560
 
Interest and other income504427249258
Other expenses(3,544)(14,603)(981)(8,802)
Merger expenses(19,559)(1,834)(467)(685)
Interest:
Expense incurred, net(317,417)(232,254)(122,950)(114,627)
Amortization of deferred financing costs (11,301) (6,945) (4,353) (4,017)
(Loss) income before income and other taxes, (loss) from investments in
unconsolidated entities, net gain on sales of land parcels and
discontinued operations(169,036)(17,797)(57,469)687
Income and other tax (expense) benefit(833)(380)(428)(213)
(Loss) from investments in unconsolidated entities due to operations(1,530)(1,175)
(Loss) from investments in unconsolidated entities due to merger expenses(53,010)(6,999)
Net gain on sales of land parcels 14,616    14,616   
(Loss) income from continuing operations(209,793)(18,177)(51,455)474
Discontinued operations, net 1,607,559  278,659  388,187  107,841 
Net income1,397,766260,482336,732108,315
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership(56,111)(11,150)(12,788)(4,732)
Partially Owned Properties 790  (769) 815  (319)
Net income attributable to controlling interests1,342,445248,563324,759103,264
Preferred distributions (2,072) (6,933) (1,036) (3,467)
Net income available to Common Shares$1,340,373 $241,630 $323,723 $99,797 
 
Earnings per share - basic:
(Loss) from continuing operations available to Common
Shares$(0.58)$(0.08)$(0.14)$(0.01)
Net income available to Common Shares$3.84 $0.81 $0.90 $0.33 
Weighted average Common Shares outstanding 348,654  299,499  359,653  300,193 
 
Earnings per share - diluted:
(Loss) from continuing operations available to Common
Shares$(0.58)$(0.08)$(0.14)$(0.01)
Net income available to Common Shares$3.84 $0.81 $0.90 $0.33 
Weighted average Common Shares outstanding 348,654  299,499  359,653  300,193 
 
Distributions declared per Common Share outstanding$0.80 $0.6750 $0.40 $0.3375 
    
Equity Residential
Consolidated Statements of Funds From Opera
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