10-KPeriod: FY2015

EQUITY RESIDENTIAL Annual Report, Year Ended Dec 31, 2015

Filed February 25, 2016For Securities:EQR

Summary

Equity Residential (EQR) is a prominent REIT focused on acquiring, developing, and managing high-quality apartment properties in top US growth markets. The company primarily operates through its subsidiary, ERP Operating Limited Partnership (ERPOP). EQR is executing a significant portfolio repositioning, exiting non-core markets like South Florida, Denver, and Phoenix, while concentrating on six core coastal markets known for high barriers to entry and strong demand. The company reported a substantial increase in net income for 2015 compared to 2014, driven by improved operational performance and gains on property sales. A major strategic initiative in 2015-2016 is the sale of the Starwood portfolio for $5.365 billion, which will facilitate significant special dividends to shareholders and debt reduction. EQR maintains a strong balance sheet and liquidity position, enabling it to fund ongoing development and meet financial obligations.

Financial Highlights

38 data points
Beta

Revenue

$2.74B

Net Income

$870.12M

31.7% Net Margin

EPS (Diluted)

$2.36

Total Assets

$23.11B

Cash & Equivalents

$42.28M

Free Cash Flow

$1.36B

Financial Statements
Beta
Revenue$2.74B
Operating Expenses$1.74B
Operating Income$1.01B
Interest Expense$444.49M
Net Income$870.12M
EPS (Basic)$2.37
EPS (Diluted)$2.36
Shares Outstanding (Basic)363.50M
Shares Outstanding (Diluted)380.62M

Key Highlights

  • 1Equity Residential is strategically divesting from non-core markets to focus on six key high-barrier coastal markets (Boston, New York, Washington D.C., Southern California, San Francisco, Seattle).
  • 2The company completed a significant portfolio sale (Starwood Transaction) for $5.365 billion, comprised of 72 properties and 23,262 units, which is expected to result in substantial special dividends to shareholders and deleveraging.
  • 3EQR reported strong operational performance with same-store revenue growth of 5.1% in 2015, exceeding initial guidance.
  • 4The company's development pipeline includes approximately 5,535 apartment units across 10 wholly-owned projects.
  • 5Total debt at year-end 2015 was approximately $10.97 billion, with a consolidated debt-to-total market capitalization ratio of 26.2%.
  • 6EQR's dividend policy transitioned in 2014 to be based on 65% of the midpoint of Normalized FFO guidance, with an anticipated regular dividend of $2.015 per share in 2016.
  • 7The company was recognized as the 2015 Global Residential Sector Leader by the Global Real Estate Sustainability Benchmark (GRESB).

Frequently Asked Questions

Equity Residential's primary strategy is to invest in, develop, and manage high-quality apartment properties in strategically targeted "core" markets. These markets are characterized by high barriers to entry and strong demand drivers such as job growth, favorable demographics, and high homeownership costs. The company is actively repositioning its portfolio by selling assets in "non-core" markets and reinvesting in these core coastal markets.

The Starwood Transaction involved the sale of 72 operating properties (23,262 apartment units) for $5.365 billion, which closed in January 2016. This sale represents a key step in the company's portfolio repositioning, facilitating its exit from certain non-core markets. The proceeds are intended to be used for substantial special dividends to shareholders and to reduce the company's overall debt, making the transaction leverage-neutral.

In 2015, Equity Residential saw improved financial performance compared to 2014. Diluted earnings per share increased to $2.36 from $1.73. This improvement was driven by higher gains on property sales and stronger operational results, including a 5.1% increase in same-store revenues, which benefited from higher rental rates and occupancy.

Equity Residential has a flexible dividend policy, aiming to align payouts with operating results. Starting in 2014, the annual regular dividend was based on 65% of the midpoint of Normalized FFO guidance. For 2016, the company anticipated a regular dividend of $2.015 per share. In addition to regular dividends, EQR planned to pay significant special dividends from the proceeds of asset sales, such as the Starwood Transaction.