Equity residential reports full year 2016
results
Chicago--(business wire)--equity residential (nyse: eqr) today reported results for the quarter and year ended december 31, 2016. all per share results are reported as available to common shares/units on a diluted basis. “equity residential continued its long and successful track record of investor centric capital allocation activity in 2016 with the sale of nearly 30,000 apartment units and the return of $4 billion to our shareholders in special dividends,” said david j. neithercut, equity residential’s president and ceo. “these highly strategic sales capitalized on extraordinary investor demand for multifamily assets which enabled equity residential to maximize value for its shareholders while completing the transformation of its portfolio into one focused primarily on urban and highly walkable, close-in suburban assets.” “from an operating perspective, same store revenue growth which began to slow in 2016 will continue to weaken in 2017 due to new apartment supply and slowing growth in higher paying jobs,” said mr. neithercut. “however, extraordinarily strong demand for rental housing driven by favorable demographics, household growth, low unemployment and rising incomes continue to support the long term outlook for rental housing in our core markets and the prospects for excellent risk adjusted returns to our shareholders.” 2016 highlights the company generated same store revenue growth of 3.7% in 2016 as compared to 2015. the company sold 98 consolidated apartment properties, consisting of 29,440 apartment units, for an aggregate sale price of approximately $6.8 billion, generating an unlevered irr of 11.8%. these sales produced a net gain on sales of real estate properties of approximately $4.0 billion and an economic gain of approximately $2.6 billion. the company paid its shareholders special dividends of approximately $4.0 billion, or $11 per share, using proceeds from the above property sales. in addition, the company paid its shareholders approximately $765.7 million, or $2.015 per share, in regular quarterly dividends. the company stabilized six development properties during the year: prism at park avenue south and 170 amsterdam in new york; junction 47 and odin in seattle; azure in san francisco; and vista 99 in san jose. these assets had a total development cost of approximately $894.2 million and a weighted average projected yield of 6.0%. the company entered into a new $2.0 billion unsecured revolving credit agreement which matures in january 2022 and has a lower cost than the company’s prior agreement. fourth quarter 2016 earnings per share (eps) for the fourth quarter of 2016 was $0.75 compared to $0.55 in the fourth quarter of 2015. the difference is due primarily to a higher amount of property sale gains due to more property sales in the fourth quarter of 2016, lower depreciation expense in the fourth quarter of 2016 as a direct result of the company’s significant sales activity in 2016 and the items described below. ffo (funds from operations), as defined by the national association of real estate investment trusts (nareit), was $0.80 per share for the fourth quarter of 2016 compared to $0.92 per share in the fourth quarter of 2015. the difference is due primarily to the various adjustment items listed on page 25 of this release and the items described below. normalized ffo for the fourth quarter of 2016 was $0.79 per share compared to $0.93 per share in the fourth quarter of 2015. the following items impacted normalized ffo per share in the quarter: a positive impact of approximately $0.02 per share from increased same store net operating income (noi); a positive impact of approximately $0.04 per share from lease-up noi; a positive impact of approximately $0.04 per share from lower total interest expense due to lower debt balances; and a negative impact of approximately $0.24 per share of lower noi primarily as a result of the company’s 2016 disposition activity. reconciliations and definitions of ffo and normalized ffo are provided on pages 7, 28 and 29 of this release and the company has included guidance for normalized ffo on page 26 and ffo and eps on page 29 of this release. year ended december 31, 2016 eps for the year ended december 31, 2016 was $11.68 compared to $2.36 for the full year 2015. the difference is due primarily to a higher amount of property sale gains due to significantly more property sales in 2016, partially offset by the items described below. ffo for the year ended december 31, 2016 was $2.94 per share compared to $3.48 per share in the same period of 2015. the difference is due primarily to the various adjustment items listed on page 25 of this release and the items described below. normalized ffo for the year ended december 31, 2016 was $3.09 per share compared to $3.46 per share for the full year 2015. the difference is due primarily to: a positive impact of approximately $0.15 per share from increased same store noi; a positive impact of approximately $0.13 per share from lease-up noi; a positive impact of approximately $0.21 per share from lower total interest expense due to lower debt balances; a negative impact of approximately $0.83 per share of lower noi primarily as a result of the company’s 2016 disposition activity; and a negative impact of approximately $0.03 per share from higher general and administrative expense, lower fee and asset management income and other items. same store results on a same store fourth quarter to fourth quarter comparison, which includes 70,881 apartment units, revenues increased 2.9%, expenses increased 5.6% and noi increased 1.9%. average rental rate increased 3.0% and occupancy decreased 0.1%. on a same store year to year comparison, which includes 69,879 apartment units, revenues increased 3.7%, expenses increased 3.3% and noi increased 3.9%. average rental rate increased 3.7% and occupancy decreased 0.1%. investment activity the company sold seven consolidated apartment properties, consisting of 1,609 apartment units, for an aggregate sale price of approximately $243.5 million at a weighted average disposition yield of 6.6% and generating an unlevered irr of 12.5%. also during the quarter, the company stabilized its vista 99 development in san jose, california at a projected yield of 7.1%. during 2016, the company acquired four consolidated apartment properties, consisting of 573 apartment units, for an aggregate purchase price of approximately $249.3 million at a weighted average acquisition capitalization rate of 4.8%. also during 2016, the company sold 98 consolidated apartment properties, consisting of 29,440 apartment units, for an aggregate sale price of approximately $6.8 billion, generating an unlevered irr of 11.8%. these sales produced a net gain on sales of real estate properties of approximately $4.0 billion and an economic gain of approximately $2.6 billion. the weighted average disposition yield on these sales is estimated at 5.4%. also during 2016, the company sold its entire interest in the management contracts and related rights associated with the military housing ventures at joint base lewis mcchord in washington state, for approximately $63.3 million, generating a gain on sale of approximately $52.4 million. additionally during 2016, the company sold three land parcels for an aggregate sale price of approximately $57.5 million and an unconsolidated property in atlanta for which the company received approximately $12.4 million for its 20% interest. capital markets activity on october 12, 2016, the company closed a $500 million unsecured note offering maturing november 1, 2026 with a coupon of 2.85% and an all in effective rate of approximately 3.10% including the effect of underwriters’ fees and the termination of certain interest rate hedges. proceeds from this issuance were used for working capital and general corporate purposes. on november 3, 2016, the company entered into a new $2.0 billion unsecured revolving credit agreement. the new facility matures in january 2022 and has an interest rate of libor plus a spread (currently 0.825%) with an annual facility fee of 12.5 basis points. both the spread and the facility fee are dependent on the credit rating of the company’s long-term debt. this facility replaced the company’s existing $2.5 billion facility which was scheduled to mature in april 2018. first quarter 2017 guidance the company has established an eps guidance range of $0.32 to $0.36 for the first quarter of 2017. the difference between the company’s fourth quarter 2016 eps of $0.75 and the midpoint of the first quarter 2017 guidance range of $0.34 is due primarily to lower expected gains on property sales and the items described below. the company has established an ffo guidance range of $0.68 to $0.72 per share for the first quarter of 2017. the difference between the company’s fourth quarter 2016 ffo of $0.80 per share and the midpoint of the first quarter 2017 guidance range of $0.70 per share is due primarily to higher expected debt extinguishment costs and the items described below. the company has established a normalized ffo guidance range of $0.71 to $0.75 per share for the first quarter of 2017. the difference between the company’s fourth quarter 2016 normalized ffo of $0.79 per share and the midpoint of the first quarter 2017 guidance range of $0.73 per share is due primarily to: a negative impact of approximately $0.02 per share from lower same store noi; a negative impact of approximately $0.01 per share of lower noi primarily as a result of the company’s 2016 disposition activity; and a negative impact of approximately $0.03 per share from higher overhead costs (general and administrative and property management costs), which are typically front-end loaded for the year. the company expects total overhead costs to decrease in 2017 from 2016. full year 2017 guidance the company is providing guidance for its full year 2017 same store operating performance, eps, ffo per share, normalized ffo per share and transactions as listed below: the company has established an eps guidance range of $1.92 to $2.02 for full year 2017. the difference between the company’s full year 2016 eps of $11.68 and the midpoint of the full year 2017 guidance range of $1.97 is due primarily to lower expected gains on property sales in 2017 and the items described below. the company has established an ffo guidance range of $3.01 to $3.11 per share for full year 2017. the difference between the company’s full year 2016 ffo of $2.94 per share and the midpoint of the full year 2017 guidance range of $3.06 per share is due primarily to lower gains on non-operating asset sales and lower expected debt extinguishment costs and the items described below. the company has established a normalized ffo guidance range of $3.05 to $3.15 per share for full year 2017. the difference between the company’s full year 2016 normalized ffo of $3.09 per share and the midpoint of the full year 2017 guidance range of $3.10 per share is due primarily to: a positive impact of approximately $0.04 per share from increased same store noi; a positive impact of approximately $0.12 per share from noi from non-same store properties, inclusive of lease-up noi; a negative impact of approximately $0.12 per share of lower noi primarily as a result of the company’s 2016 disposition activity; a negative impact of approximately $0.02 per share from higher total interest expense due to lower capitalized interest as the company's development projects are put into service and higher expected floating rates in 2017, partially offset by the significant debt repayment activity during the first quarter of 2016; and a negative impact of approximately $0.01 per share from other items including lower fee and asset management income and lower interest and other income partially offset by lower overhead costs (general and administrative and property management costs). glossary of terms and definitions to improve comparability and enhance disclosure, the company has a glossary of defined terms and related reconciliations of non-gaap financial measures on pages 27 through 30 of this release. first quarter 2017 earnings and conference call equity residential expects to announce first quarter 2017 results on tuesday, april 25, 2017 and host a conference call to discuss those results at 10:00 a.m. ct on wednesday, april 26, 2017. about equity residential equity residential is an s&p 500 company focused on the acquisition, development and management of rental apartment properties in urban and high-density suburban coastal gateway markets where today’s affluent renters want to live, work and play. equity residential owns or has investments in 302 properties consisting of 77,458 apartment units, primarily located in boston, new york, washington, d.c., seattle, san francisco and southern california. 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, february 1, 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. unconsolidated entities, net gain (loss) on sales of real estate properties and land parcels and discontinued operations note: see page 25 for additional detail regarding the adjustments from ffo to normalized ffo. see pages 27 through 30 for the definitions of non-gaap financial measures and other terms as well as the reconciliations of eps to ffo per share and normalized ffo per share. 100,000,000 shares authorized; 745,600 shares issued and outstanding as of december 31, 2016 and december 31, 2015 1,000,000,000 shares authorized; 365,870,924 shares issued and outstanding as of december 31, 2016 and 364,755,444 shares issued and outstanding as of december 31, 2015 portfolio as of december 31, 2016 apartment units disposition yield apartment units acquisition cap rate disposition yield average rental rate physical occupancy average rental rate physical occupancy average rental rate physical occupancy turnover apartment units q4 2016 % of actual noi q4 2016 average rental rate q4 2016 weighted average physical occupancy % q4 2016 turnover average rental rate physical occupancy apartment units q4 2016 % of actual noi q4 2016 average rental rate q4 2016 weighted average physical occupancy % q4 2016 turnover average rental rate physical occupancy apartment units 2016 % of actual noi 2016 average rental rate 2016 weighted average physical occupancy % 2016 turnover average rental rate physical occupancy $ in thousands actual q4 2016 actual q4 2015 $ change % change % of actual q4 2016 operating expenses actual 2016 actual 2015 $ change % change % of actual 2016 operating expenses amounts (1) weighted average rates (1) weighted average maturities (years) fixed rate (1) floating rate (1) weighted average rates on fixed rate debt (1) weighted average rates on total debt (1) interest rate due date amount december 31, 2016 september 30, 2016 december 31, 2016 september 30, 2016 24,526,067 $ 33,513,325 redemption date outstanding shares liquidation value annual dividend per share annual dividend amount apartment units capital cost book value to date value not placed in service debt completed leased occupied completion date stabilization date projects under development: $ — — completed not stabilized (1): completed and stabilized during the quarter: cost noi apartment units (1) apartment unit apartment unit apartment unit (4) apartment unit improvements (5) apartment unit apartment unit total apartment unit balance sheet items: preferred share redemptions and non-cash convertible debt discounts other income) (b) expense (benefit) 2017 normalized ffo guidance (per share diluted) q1 2017 2017 2017 same store assumptions (see note below) 2017 transaction assumptions 2017 debt assumptions 2017 other guidance assumptions acquisition capitalization rate or cap rate – noi that the company anticipates receiving in the next 12 months (or the year two or three stabilized noi for properties that are in lease-up at acquisition) less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross purchase price of the asset. the weighted average acquisition cap rate for acquired properties is weighted based on the projected noi streams and the relative purchase price for each respective property. of real estate properties depreciation gain funds from operations and normalized funds from operations: actual 2016 per share actual 2015 per share actual q4 2016 per share actual q4 2015 per share expected q1 2017 per share expected 2017 per share penalties, preferred share redemptions and non-cash convertible debt discounts income and other tax expense (benefit)
