Equity residential reports 10% increase in
normalized ffo per share for second quarter 2014
Chicago--(business wire)--equity residential (nyse: eqr) today reported results for the quarter and six months ended june 30, 2014. all per share results are reported as available to common shares on a diluted basis. "demand for well located, high quality rental housing in our core markets remains exceptionally strong as favorable demographics and an improving economy combine to deliver operating results at the high end of our expectations portfolio wide," said david j. neithercut, equity residential's president and ceo. "as a result, we currently expect full year growth in same store revenues of 4% and normalized funds from operations to increase 9% per share." second quarter 2014 ffo (funds from operations), as defined by the national association of real estate investment trusts (nareit), for the second quarter of 2014 was $0.77 per share compared to $0.73 per share in the second quarter of 2013. the difference is due primarily to the items discussed below, partially offset by higher gains on land sales in the second quarter of 2013. for the second quarter of 2014, the company reported normalized ffo of $0.78 per share compared to $0.71 per share in the same period of 2013. the following items impacted normalized ffo per share in the quarter: the positive impact of approximately $0.06 per share from higher same store net operating income (noi) and approximately $0.01 per share from noi from non-same store properties currently in lease up; and the negative impact of approximately $0.03 per share from 2013 disposition activity, the proceeds from which were used to repay debt resulting in a positive impact of approximately $0.03 per share from lower total interest expense, along with 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. a reconciliation and definition of normalized ffo are provided on pages 25 and 28 of this release and the company has included guidance for normalized ffo on page 26 of this release. for the second quarter of 2014, the company reported earnings of $0.31 per share compared to $0.90 per share in the second quarter of 2013. the difference is due primarily to higher gains on property sales in the second quarter of 2013 partially offset by higher depreciation expense in the second quarter of 2013. six months ended june 30, 2014 ffo for the six months ended june 30, 2014 was $1.48 per share compared to $0.97 per share in the same period of 2013. the difference is due primarily to the acquisition expenses and prepayment penalties the company incurred in the first six months of 2013, along with the items described above. for the six months ended june 30, 2014, the company reported normalized ffo of $1.49 per share compared to $1.35 per share for the same period of 2013. for the six months ended june 30, 2014, the company reported earnings of $0.52 per share compared to $3.84 per share for the same period of 2013. the difference is due primarily to higher gains on property sales in the first six months of 2013 partially offset by higher depreciation expense, acquisition expenses and prepayment penalties incurred in the first six months of 2013. same store results the company’s same store results for all periods include 18,465 stabilized apartment units acquired in the archstone acquisition that are owned and managed by the company. on a same store second quarter to second quarter comparison, which includes 100,648 apartment units, revenues increased 4.1%, expenses increased 1.4% and noi increased 5.5%. on a same store six-month to six-month comparison, which includes 100,648 apartment units, revenues increased 4.0%, expenses increased 2.3% and noi increased 5.0%. investment activity during the second quarter of 2014, the company acquired a 134-unit apartment property in seattle for a purchase price of approximately $36.1 million pursuant to a contract executed prior to the commencement of construction. the company has recently completed the initial lease up of the asset and expects to achieve a capitalization (cap) rate of 6.4% at stabilization, which will occur in the second year of ownership. the company also acquired a 208-unit apartment property in lease up in glendale, california for a purchase price of approximately $70.5 million and a cap rate of 4.9% at stabilization, which will occur in the second year of ownership. also during the quarter, the company acquired a land parcel in seattle for future development for approximately $10.3 million. during the second quarter, the company sold a 336-unit apartment property in orlando, florida for approximately $40.9 million and a cap rate of 6.7%. this sale generated an unlevered internal rate of return (irr), inclusive of management costs, of 7.9%. the company also sold a land parcel in los angeles for approximately $8.2 million during the quarter. these were the only property and land sales made by the company during the first six months of 2014. for the six months ended june 30, 2014, the company acquired three properties with a total of 772 apartment units for an aggregate purchase price of approximately $249.6 million at a weighted average cap rate of 5.1%. capital markets activities on june 19, 2014, the company closed two unsecured note offerings totaling $1.2 billion. the company closed a $750 million unsecured note offering maturing july 1, 2044 with a coupon of 4.5% and an all in effective rate of approximately 4.57% including the effect of underwriters’ fees and the termination of certain interest rate hedges. in addition, the company closed a $450 million unsecured note offering maturing july 1, 2019 with a coupon of 2.375% and an all in effective rate of approximately 2.52% including the effect of underwriters’ fees. the company swapped the 5-year notes to a floating rate of 90-day libor plus 0.61% and an all in effective rate of 90-day libor plus 0.75%. proceeds from these issuances were used to repay the company’s $750 million term loan facility that was scheduled to mature in 2015 and its outstanding balance on its revolving line of credit. third quarter 2014 guidance the company has established a normalized ffo guidance range of $0.77 to $0.81 per share for the third quarter of 2014. the difference between the company’s second quarter normalized ffo of $0.78 per share and the midpoint of the third quarter guidance range of $0.79 per share is due primarily to: the positive impact of approximately $0.01 per share from same store and lease up noi; the positive impact of approximately $0.01 per share from lower g&a expenses; and the negative impact of approximately $0.01 per share from higher total interest expense resulting from the company’s june 2014 debt offerings. full year 2014 guidance the company has revised its guidance for its full year 2014 same store operating performance and normalized ffo results as well as other items listed on page 26 of this release. the changes to the full year same store and normalized ffo guidance are listed below: previous revised the company’s guidance for investment activity remains unchanged at $500 million of acquisitions and $500 million of dispositions with a spread of 100 basis points. the difference between the midpoint of the previous normalized ffo guidance range of $3.08 per share and the midpoint of the revised guidance range of $3.10 per share is due primarily to: the positive impact of approximately $0.04 per share from higher noi; and the negative impact of approximately $0.02 per share from higher interest expense resulting from the company’s june 2014 debt offerings. third quarter 2014 earnings and conference call equity residential expects to announce third quarter 2014 results on tuesday, october 28, 2014 and host a conference call to discuss those results at 10:00 a.m. ct on wednesday, october 29, 2014. 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 397 properties consisting of 111,491 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 30, 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. entities, net gain on sales of land parcels, discontinued operations and net gain on sales of real estate properties june 30,2014 december 31, 2013 100,000,000 shares authorized; 1,000,000 shares issued and outstanding as of june 30, 2014 and december 31, 2013 1,000,000,000 shares authorized; 361,562,007 shares issued and outstanding as of june 30, 2014 and 360,479,260 shares issued and outstanding as of december 31, 2013 apartmentunits military housing units (sale) price units (sale) price average rental rate (2) average average rental rate (2) q2 2014 q2 2014 q2 2014 % of average weighted average apartment actual rental average rental units noi rate (1) occupancy % rate (1) q2 2014 q2 2014 q2 2014 % of average weighted actual rental average noi rate (1) occupancy % june ytd 14 june ytd 14 june ytd 14 % of average weighted actual rental average noi rate (1) occupancy % % of actual q2 2014 actual actual $ % operating q2 2014 q2 2013 change change expenses % of actual ytd 2014 actual actual $ % operating ytd 2014 ytd 2013 change change expenses weighted weighted average average maturities rates (1) (years) secured – conventional $ 4,375,827 weighted weighted average rates average fixed floating on fixed rates on rate (1) rate (1) rate debt (1) total debt (1) unamortized coupon due face premium/ net rate date amount (discount) balance annual annual redemption outstanding liquidation dividend dividend date shares value per share amount ffo purposes: held for held for and/or under and/or under completed, not development (4) development (4) stabilized (5) operating ended 6/30/14 (at 100%): total book value total not no. of total book placed estimated estimated apartment capital value in total percentage percentage percentage completion stabilization project location units cost (1) to date service debt completed leased occupied date date projects under development - wholly owned: projects under development - partially owned: completed not stabilized - wholly owned (4): completed and stabilized during the quarter - wholly owned: total capital noi cost (1) q2 2014 547,034 total book value total not no. of total book placed estimated estimated percentage apartment capital value in total percentage percentage percentage completion stabilization projects location ownership units cost (1) to date service debt completed leased occupied date date projects under development - unconsolidated: completed not stabilized - unconsolidated (3): completed and stabilized during the quarter - unconsolidated: apartment units (1) apartment unit apartment unit apartment unit (4) apartment unit improvements (5) apartment unit apartment unit total apartment unit (2) repairs and maintenance expenses - includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair costs. (3) maintenance payroll - includes payroll and related expenses for maintenance staff. (4) replacements - includes new expenditures inside the apartment units such as appliances, mechanical equipment, fixtures and flooring, including carpeting. replacements for same store properties also include $19.6 million spent during the six months ended june 30, 2014 on apartment unit renovations/rehabs (primarily kitchens and baths) on 2,253 same store apartment units (equating to about $8,700 per apartment unit rehabbed) designed to reposition these assets for higher rental levels in their respective markets. in 2014, the company expects to spend approximately $45.0 million for all unit renovation/rehab costs (primarily on same store properties) at a weighted average cost of $8,500 per apartment unit rehabbed. (5) building improvements - includes roof replacement, paving, amenities and common areas, building mechanical equipment systems, exterior painting and siding, major landscaping, vehicles and office and maintenance equipment. (6) same store properties - primarily includes all properties acquired or completed and stabilized prior to january 1, 2013, less properties subsequently sold. also includes 18,465 stabilized apartment units acquired in the archstone acquisition that are owned and managed by the company. (7) non-same store properties - primarily includes all properties acquired during 2013 and 2014, plus any properties in lease-up and not stabilized as of january 1, 2013, but excludes 18,465 stabilized apartment units acquired in the archstone acquisition that are owned and managed by the company. per apartment unit amounts are based on a weighted average of 3,313 apartment units. (8) other - primarily includes expenditures for properties sold. (9) for 2014, the company estimates that it will spend approximately $1,700 per apartment unit of capital expenditures, inclusive of apartment unit renovation/rehab costs, or $1,250 per apartment unit excluding apartment unit renovation/rehab costs. six months endedjune 30, quarter endedjune 30, redemptions and non-cash convertible debt discounts 2014 normalized ffo guidance (per share diluted) q3 2014 2014 2014 same store assumptions 2014 transaction assumptions 2014 debt assumptions 2014 other guidance assumptions balance sheet items: expected expected q3 2014 2014 per share per share preferred share redemptions and non-cash convertible debt discounts expense (benefit)
