10-QPeriod: Q3 FY2001

EQUITY RESIDENTIAL Quarterly Report for Q3 Ended Sep 30, 2001

Filed November 13, 2001For Securities:EQR

Summary

Equity Residential (EQR) reported its third-quarter 2001 results, highlighting a decrease in income before certain items compared to the prior year, primarily driven by a significant reduction in net gains from real estate sales. While same-store rental income showed positive growth of 4.7% for the nine months and 3.4% for the quarter, this was partially offset by increased property operating expenses, particularly in utilities and payroll. The company experienced substantial impairment charges of $68 million for the nine-month period, largely related to its furniture rental business acquired through the Globe acquisition, and $61.2 million for the quarter. Despite these headwinds, EQR maintained a robust liquidity position, with cash and cash equivalents increasing to $110.8 million and its revolving credit facility availability at $700 million. The company continues to actively manage its portfolio through acquisitions and dispositions, and is focused on strategic property improvements and managing development projects.

Key Highlights

  • 1Same-store rental income increased by 4.7% for the nine months and 3.4% for the quarter, indicating steady demand and pricing power in core properties.
  • 2The company recorded significant impairment charges totaling $68 million for the nine-month period and $61.2 million for the quarter, primarily due to the furniture rental business and technology investments.
  • 3Net gains on sales of real estate decreased substantially, reflecting fewer property dispositions compared to the prior year.
  • 4Property operating expenses for same-store properties saw increases, driven by higher utility and payroll costs.
  • 5Liquidity remains strong, with cash and cash equivalents at $110.8 million and a $700 million revolving credit facility, underscoring financial flexibility.
  • 6The company is actively engaged in portfolio management, with significant property acquisitions and dispositions, as well as contributions to joint ventures.
  • 7Interest expense is expected to decrease slightly due to lower variable interest rates, and the company is planning to refinance maturing debt in early 2002 at a potentially lower rate.

Frequently Asked Questions

The primary driver for the decrease in income before certain items is a significant reduction in net gains from the sale of real estate, as fewer properties were disposed of compared to the prior year. Additionally, substantial impairment charges related to the furniture rental business and technology investments negatively impacted the results.

The company is focused on managing expense growth for its same-store properties, aiming for no more than 3.75% to 4.0% growth for the remainder of 2001 and between 1.5% to 2.25% for 2002. While utility and payroll costs have increased, the company expects to achieve economies of scale in property management by acquiring properties in major metropolitan areas where it has a significant presence, while disposing of assets in smaller markets.

Equity Residential plans to fund its short-term liquidity needs through working capital, operating cash flow, and its revolving credit facility. For long-term requirements, including acquisitions, development, and debt maturities, the company will rely on issuing unsecured debt and equity securities, as well as proceeds from property dispositions. The company also has uncollateralized properties available to secure additional mortgage borrowings if public capital markets are unfavorable.

For the remainder of 2001, the company expects rental income increases of 3.75% to 4.0% from same-store properties. For 2002, rental income is projected to be within a range of slightly lower by 0.05% to slightly higher by 1.0%. These estimates are contingent on maintaining an overall average occupancy rate of 93.5% to 94.0%.