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Equity Residential Reports Third Quarter 2018 Results

Nachrichtenquelle: Business Wire (engl.)
23.10.2018, 22:18  |  312   |   |   

Equity Residential (NYSE: EQR) today reported results for the quarter and nine months ended September 30, 2018. All per share results are reported as available to common shares/units on a diluted basis. Earnings per Share (EPS) was $0.58, Funds From Operations (FFO) was $0.79 per share and Normalized FFO was $0.83 per share for the third quarter of 2018, each as described in further detail below.

“Continued strong demand and an enterprise-wide focus on customer service have produced high occupancy, record low turnover and very strong renewal rates, which should deliver 2018 same store revenue growth at the high end of our forecasts,” said David J. Neithercut, Equity Residential’s CEO. “We also expect to see continued but modest improvement in revenue growth in 2019 as a strong economy and favorable job market continue to drive demand and support absorption of new supply across our markets.”

Highlights

  • The Company revised its guidance for same store revenue growth to 2.3%, which was the top of the Company’s previous guidance range.
  • During the third quarter of 2018, the Company produced Physical Occupancy of 96.2%, new lease rate growth of 1.2% and renewal rate growth of 5.1%. The Company also produced the lowest third quarter same store turnover in its history.
  • The Company re-entered the Denver market with its purchase of two recently completed apartment properties, totaling 726 apartment units, in the Uptown neighborhood for an aggregate purchase price of approximately $275.2 million.
  • During the third quarter of 2018, the Company completed the stabilization of two of its new development properties: 855 Brannan in San Francisco and Helios in Seattle.
  • The Company was recognized for the fifth consecutive year for leadership in Environmental, Social and Governance (ESG) by the Global Real Estate Sustainability Benchmark (GRESB).

“Denver is one of the most dynamic apartment markets in the country featuring strong high-wage job growth, high single family home prices and a large and growing demographic of renters,” said Mark J. Parrell, Equity Residential’s President. “We are excited about our re-entry to the market with the acquisition of two newly completed assets in Uptown and expect to grow our Denver portfolio in the coming years.”

Third Quarter 2018

EPS for the third quarter of 2018 was $0.58 compared to $0.37 in the third quarter of 2017. The difference is due primarily to higher property sale gains in the third quarter of 2018, the various adjustment items listed on page 24 of this release and the items described below.

FFO as defined by Nareit (National Association of Real Estate Investment Trusts) was $0.79 per share for the third quarter of 2018 compared to $0.81 per share in the third quarter of 2017. The difference is due primarily to the various adjustment items listed on page 24 of this release and the items described below.

Normalized FFO for the third quarter of 2018 was $0.83 per share compared to $0.80 per share in the third quarter of 2017. The difference is due primarily to:

  • A positive impact of approximately $0.02 per share from increased same store net operating income (NOI);
  • A positive impact of approximately $0.02 per share from Lease-Up NOI; and
  • A negative impact of approximately $0.01 per share from higher total interest expense.

The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 26 through 30 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 7, 27 and 28 of this release and the Company has included guidance for Normalized FFO on page 25 and FFO and EPS on page 28 of this release.

Nine Months Ended September 30, 2018

EPS for the nine months ended September 30, 2018 was $1.46 compared to $1.29 in the nine months ended September 30, 2017. The difference is due primarily to higher property sale gains and higher depreciation expense in the nine months ended September 30, 2018, the various adjustment items listed on page 24 of this release and the items described below.

FFO was $2.30 per share for the nine months ended September 30, 2018 compared to $2.33 per share for the nine months ended September 30, 2017. The difference is due primarily to the various adjustment items listed on page 24 of this release and the items described below.

Normalized FFO for the nine months ended September 30, 2018 was $2.41 per share compared to $2.31 per share for the nine months ended September 30, 2017. The following items impacted Normalized FFO per share in the period:

  • A positive impact of approximately $0.05 per share from increased same store NOI;
  • A positive impact of approximately $0.09 per share from Lease-Up NOI and other non-same store NOI;
  • A negative impact of approximately $0.02 per share from higher total interest expense; and
  • A negative impact of approximately $0.02 per share from other items including higher corporate overhead (property management and general and administrative expenses).

Same Store Results

On a same store third quarter to third quarter comparison, which includes 72,561 apartment units, revenues increased 2.3%, expenses increased 3.7% and NOI increased 1.7%. Average Rental Rate increased 2.1% and Physical Occupancy was flat at 96.2%.

On a same store nine-month to nine-month comparison, which includes 71,721 apartment units, revenues increased 2.2%, expenses increased 3.4% and NOI increased 1.7%. Average Rental Rate increased 1.9% and Physical Occupancy increased 0.3% to 96.2%.

Investment Activity

During the third quarter of 2018, the Company acquired three apartment properties, including two in Denver and one in Boston, for an aggregate purchase price of approximately $507.3 million at a weighted average Acquisition Capitalization Rate of 4.4%. Also during the quarter, the Company sold a 506-unit apartment property located in New York City for approximately $416.1 million at a Disposition Yield of 3.9%, generating an Unlevered IRR of 9.8%.

During the first nine months of 2018, the Company acquired five apartment properties consisting of 1,478 apartment units for an aggregate purchase price of approximately $707.0 million at a weighted average Acquisition Capitalization Rate of 4.4%. Also during the first nine months of 2018, the Company sold five apartment properties, including the transaction described above, consisting of 1,292 apartment units, for an aggregate sale price of approximately $706.1 million at a weighted average Disposition Yield of 4.1%, generating an Unlevered IRR of 8.7%. Also during the first nine months of 2018, the Company sold a land parcel in suburban Maryland for approximately $2.7 million.

Capital Markets Activity

In accordance with the Company’s previously disclosed plans, on October 1, 2018, the Company prepaid a $500.0 million 5.19% mortgage loan with a maturity date of October 1, 2019 at par using funds from the Company’s revolving line of credit.

Fourth Quarter 2018 Guidance

The Company has established an EPS guidance range of $0.32 to $0.34 for the fourth quarter of 2018. The difference between the Company’s third quarter 2018 EPS of $0.58 and the midpoint of the fourth quarter 2018 guidance range of $0.33 is due primarily to lower expected gains on property sales, partially offset by lower expected debt extinguishment costs and the items described below.

The Company has established an FFO guidance range of $0.84 to $0.86 per share for the fourth quarter of 2018. The difference between the Company’s third quarter 2018 FFO of $0.79 per share and the midpoint of the fourth quarter 2018 guidance range of $0.85 per share is due primarily to lower expected debt extinguishment costs and the items described below.

The Company has established a Normalized FFO guidance range of $0.84 to $0.86 per share for the fourth quarter of 2018. The difference between the Company’s third quarter 2018 Normalized FFO of $0.83 per share and the midpoint of the fourth quarter 2018 guidance range of $0.85 per share is due primarily to:

  • A positive impact of approximately $0.01 per share from increased same store NOI; and
  • A positive impact of approximately $0.01 per share from lower total interest expense.

Full Year 2018 Guidance

The Company has revised its guidance for its full year 2018 same store operating performance, EPS, FFO per share, Normalized FFO per share and transactions as listed below:

  Revised   Previous
Same Store:
Physical Occupancy 96.2% 96.1%
Revenue change 2.3% 1.9% to 2.3%
Expense change 3.7% 3.5% to 4.0%
NOI change 1.7% 1.0% to 1.8%
 
EPS $1.78 to $1.80 $1.80 to $1.86
FFO per share $3.14 to $3.16 $3.10 to $3.16
Normalized FFO per share $3.25 to $3.27 $3.22 to $3.28
 
Transactions:
Consolidated rental acquisitions $707.0 million $700.0 million
Consolidated rental dispositions $706.1 million $700.0 million
Transaction accretion (dilution) (1) 30 basis points 0 to 25 basis points
 

(1) Transaction accretion (dilution) represents the spread between the Acquisition Cap Rate and the Disposition Yield.

The change in the full year EPS guidance range is due primarily to lower expected gains on property sales, higher expected depreciation expense and the items described below.

The change in the full year FFO per share guidance range is due primarily to the items described below.

The change in the full year Normalized FFO per share guidance range is due primarily to:

  • A positive impact of approximately $0.01 per share from increased property NOI, primarily from same store results;
  • A positive impact of approximately $0.01 per share from lower total interest expense; and
  • A negative impact of approximately $0.01 per share from higher corporate overhead (property management and general and administrative expense).

Fourth Quarter 2018 Earnings and Conference Call

Equity Residential expects to announce its fourth quarter 2018 results on Tuesday, January 29, 2019 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, January 30, 2019.

About Equity Residential

Equity Residential is an S&P 500 company focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban markets where today’s renters want to live, work and play. Equity Residential owns or has investments in 306 properties consisting of 79,260 apartment units, primarily located in Boston, New York, Washington, D.C., Seattle, San Francisco, Southern California and Denver. 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, October 24, at 10:00 a.m. Central. Please visit the Investor section of the Company’s web site at www.equityapartments.com for 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)

 
  Nine Months Ended September 30,     Quarter Ended September 30,  
2018   2017 2018   2017
REVENUES
Rental income $ 1,925,128 $ 1,840,170 $ 652,677 $ 623,951
Fee and asset management   563     532     190     171  
Total revenues   1,925,691     1,840,702     652,867     624,122  
 
EXPENSES
Property and maintenance 322,487 306,645 110,541 104,721
Real estate taxes and insurance 268,784 253,318 87,388 84,087
Property management 69,175 64,702 22,247 20,861
General and administrative 41,420 40,366 12,640 12,567
Depreciation 583,869 542,964 194,618 184,100
Impairment   702         702      
Total expenses   1,286,437     1,207,995     428,136     406,336  
 
Operating income 639,254 632,707 224,731 217,786
 
Interest and other income 14,860 5,708 7,864 3,945
Other expenses (14,871 ) (3,160 ) (7,661 ) (1,028 )
Interest:
Expense incurred, net (321,454 ) (288,579 ) (111,219 ) (91,145 )
Amortization of deferred financing costs   (9,054 )   (6,447 )   (3,276 )   (2,064 )
Income before income and other taxes, income (loss) from
investments in unconsolidated entities and net gain (loss)
on sales of real estate properties and land parcels 308,735 340,229 110,439 127,494
Income and other tax (expense) benefit (767 ) (710 ) (280 ) (228 )
Income (loss) from investments in unconsolidated entities (2,993 ) (2,153 ) (985 ) (398 )
Net gain (loss) on sales of real estate properties 256,834 141,761 114,672 17,328
Net gain (loss) on sales of land parcels   995     19,170          
Net income 562,804 498,297 223,846 144,196
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership (20,517 ) (17,931 ) (8,159 ) (5,166 )
Partially Owned Properties   (1,939 )   (2,354 )   (750 )   (801 )
Net income attributable to controlling interests 540,348 478,012 214,937 138,229
Preferred distributions   (2,318 )   (2,318 )   (773 )   (772 )
Net income available to Common Shares $ 538,030   $ 475,694   $ 214,164   $ 137,457  
 
Earnings per share – basic:
Net income available to Common Shares $ 1.46   $ 1.30   $ 0.58   $ 0.37  
Weighted average Common Shares outstanding   367,920     366,809     368,028     366,996  
 
Earnings per share – diluted:
Net income available to Common Shares $ 1.46   $ 1.29   $ 0.58   $ 0.37  
Weighted average Common Shares outstanding   383,433     382,640     383,884     382,945  
 
Distributions declared per Common Share outstanding $ 1.62   $ 1.51125   $ 0.54   $ 0.50375  

Equity Residential

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