Equity residential reports third quarter 2016
results
Chicago--(business wire)--equity residential (nyse: eqr) today reported results for the quarter and nine months ended september 30, 2016. all per share results are reported as available to common shares/units on a diluted basis. “renter demand in urban and high density, close-in suburban markets remains extraordinarily strong as demonstrated by 96% occupancy across our portfolio,” said david j. neithercut, equity residential’s president and ceo. “however, new apartment supply and slowing growth of higher paying jobs have combined to constrain rental rates causing our revenue growth this year to revert more in line with historical trends.” highlights increased same store revenues 3.4% in the third quarter. paid a special cash dividend of $3.00 per share, or approximately $1.1 billion, to its shareholders on october 14, 2016, which, when combined with the special cash dividend of $8.00 per share paid in march 2016, resulted in total capital returned to eqr’s shareholders of more than $4.0 billion in 2016. on october 12, 2016, completed a $500 million unsecured debt offering at a coupon of 2.85%, the lowest ever for an eqr 10-year and the third lowest of any reit 10-year. named the 2016 global residential listed sector leader in sustainability by gresb. third quarter 2016 earnings per share (eps) for the third quarter of 2016 was $0.56 compared to $0.53 in the third quarter of 2015. the difference is due primarily to a higher amount of property sale gains due to more property sales in the third quarter of 2016, lower depreciation expense in the third 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 $0.77 per share for the third quarter of 2016 compared to $0.87 per share in the third 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 third quarter of 2016 was $0.78 per share compared to $0.89 per share in the third 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 $0.03 per share from noi from non-same store properties currently in lease-up; a positive impact of approximately $0.07 per share from lower total interest expense due to lower debt balances; a negative impact of approximately $0.22 per share of lower noi primarily as a result of the company’s 2016 disposition activity; and a negative impact of approximately $0.01 per share from other items including lower fee and asset management income. 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. nine months ended september 30, 2016 eps for the nine months ended september 30, 2016 was $10.92 compared to $1.80 for the same period of 2015. the difference is due primarily to a higher amount of property sale gains due to significantly more property sales in the first nine months of 2016 and the various adjustment items listed on page 25 of this release. ffo for the nine months ended september 30, 2016 was $2.14 per share compared to $2.56 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 nine months ended september 30, 2016 was $2.29 per share compared to $2.54 per share for the same period of 2015. the difference is due primarily to: a positive impact of approximately $0.14 per share from increased same store noi; a positive impact of approximately $0.09 per share from noi from non-same store properties currently in lease-up; a positive impact of approximately $0.16 per share from lower total interest expense due to lower debt balances; a negative impact of approximately $0.60 per share of lower noi primarily as a result of the company’s 2016 disposition activity; and a negative impact of approximately $0.04 per share from higher general and administrative expense, lower fee and asset management income and other items. same store results on a same store third quarter to third quarter comparison, which includes 72,229 apartment units, revenues increased 3.4%, expenses increased 5.9% and noi increased 2.4%. average rental rate increased 3.4% and occupancy decreased 0.2%. the company’s same store expenses in the quarter were impacted by an adverse legal decision regarding the calculation of real estate taxes for several of the company’s properties in jersey city, new jersey, higher property payroll costs due to fuller property-level employment and increased wage rates, and increased leasing and advertising expenses due primarily to spending on promotional and incentive efforts in san francisco and new york. on a same store nine-month to nine-month comparison, which includes 71,488 apartment units, revenues increased 4.0%, expenses increased 2.5% and noi increased 4.7%. average rental rate increased 4.0% and occupancy remained flat at 96.1%. investment activity during the third quarter of 2016, the company acquired a 94-unit apartment property in los angeles for a purchase price of approximately $45.2 million and an acquisition capitalization rate of 4.5%. also during the third quarter of 2016, the company sold eight consolidated apartment properties, consisting of 941 apartment units, for an aggregate sale price of approximately $140.6 million at a weighted average disposition yield of 6.2% and generating an unlevered internal rate of return (unlevered irr) of 12.0%. during the quarter, the company also sold a land parcel in berkeley, california for $30.0 million and an unconsolidated property in atlanta for which the company received approximately $12.4 million for its 20% interest. also during the quarter, the company stabilized three development properties: 170 amsterdam in new york, azure in san francisco and odin in seattle, at a weighted average projected yield of 5.8%. during the first nine months of 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%. during the first nine months of 2016, the company sold 91 consolidated apartment properties, consisting of 27,831 apartment units, for an aggregate sale price of approximately $6.57 billion, generating an unlevered irr of 11.8%. these sales produced a net gain on sales of real estate properties of approximately $3.87 billion and an economic gain of approximately $2.52 billion. the weighted average disposition yield on these sales is estimated at 5.3%. also during the first nine months of 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. also during the first nine months of 2016, the company sold three land parcels for an aggregate sale price of approximately $57.5 million as well as the unconsolidated property in which it had a partial interest as described above. 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. fourth quarter 2016 guidance the company has established an eps guidance range of $0.62 to $0.66 for the fourth quarter of 2016. the difference between the company’s third quarter 2016 eps of $0.56 and the midpoint of the fourth quarter 2016 guidance range of $0.64 is due primarily to higher expected gains on property sales and sales of non-operating assets and the items described below. the company has established an ffo guidance range of $0.82 to $0.86 per share for the fourth quarter of 2016. the difference between the company’s third quarter 2016 ffo of $0.77 per share and the midpoint of the fourth quarter 2016 guidance range of $0.84 per share is due primarily to higher expected gains on sales of non-operating assets and the items described below. the company has established a normalized ffo guidance range of $0.77 to $0.81 per share for the fourth quarter of 2016. the difference between the company’s third quarter 2016 normalized ffo of $0.78 per share and the midpoint of the fourth quarter 2016 guidance range of $0.79 per share is due primarily to: a positive impact of approximately $0.03 per share from increased same store noi; a positive impact of approximately $0.01 per share from noi from non-same store properties currently in lease-up; 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 $0.02 per share from higher total interest expense due to lower capitalized interest as well as higher debt balances. full year 2016 guidance the company has revised its guidance for its full year 2016 same store operating performance, eps, ffo per share, normalized ffo per share and transactions as listed below: previous revised the change in the full year eps guidance range is due primarily to lower gains on property sales as a result of the company’s reduced disposition guidance 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 midpoint of the company’s full year normalized ffo per share guidance range has not changed. the small reduction in expected same store noi has been offset by the positive impact of an expected reduction in general and administrative expense. 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. fourth quarter 2016 earnings and conference call equity residential expects to announce fourth quarter 2016 results on tuesday, january 31, 2017 and host a conference call to discuss those results at 10:00 a.m. ct on wednesday, february 1, 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 308 properties consisting of 78,826 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, october 26, 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. apartment units units cap rate yield units cap rate yield % of total 4.95 4.96 fixed rate debt 4.96 0.50 0.98 1.22 1.34 0.96 1.07 4.44 06/01/25 07/01/44 06/01/45 projects under development: — — completed not stabilized (1): completed and stabilized during the quarter: apartment units (1) apartment unit apartment unit apartment unit (4) apartment unit improvements (5) apartment unit apartment unit total apartment unit 4,123,960 balance sheet items: 2016 normalized ffo guidance (per share diluted) q4 2016 2016 2016 same store assumptions (see note below) 2016 transaction assumptions 2016 debt assumptions 2016 other guidance assumptions funds from operations and normalized funds from operations: actual sept. income and other tax expense (benefit)
