10-QPeriod: Q3 FY2006

EQUITY RESIDENTIAL Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 6, 2006For Securities:EQR

Summary

Equity Residential (EQR) reported its third-quarter 2006 financial results, showcasing continued strategic asset management with significant property dispositions and acquisitions. The company reported total revenues of $513.9 million for the quarter, up from $430.8 million in the prior year's quarter, driven by increased rental income. Net income for the quarter was $69.8 million, a significant decrease from $267.5 million in Q3 2005, largely due to substantial gains from discontinued operations in the prior year. A notable event during the period was the agreement to sell the Lexford Housing Division for $1.086 billion, which closed shortly after the quarter's end. This disposition, along with other property sales, led to a substantial net gain on sales of discontinued operations. The company also actively managed its balance sheet, issuing new debt and repurchasing shares. While rental income is growing, the decrease in net income highlights the impact of strategic portfolio adjustments and one-time gains from asset sales in prior periods.

Key Highlights

  • 1Total revenues increased to $513.9 million for Q3 2006, up from $430.8 million in Q3 2005, driven by higher rental income.
  • 2Net income for Q3 2006 was $69.8 million, a significant decrease from $267.5 million in Q3 2005, primarily due to large gains from discontinued operations in the prior year's quarter.
  • 3The company announced and agreed to sell its Lexford Housing Division for $1.086 billion, with the sale closing in October 2006. This asset was classified as held for sale.
  • 4Equity Residential actively managed its debt, issuing $400.0 million in fixed-rate notes and $650.0 million in exchangeable notes during the nine months ended September 30, 2006.
  • 5The company repurchased approximately $83.2 million of its common shares during the nine months ended September 30, 2006, as part of its share buyback program.
  • 6Same-store rental revenue increased by 6.0% year-over-year for the nine months ended September 30, 2006, demonstrating underlying operational strength in core assets.
  • 7Net operating income (NOI) from the rental real estate segment increased to $298.6 million for the quarter, up from $234.7 million in the prior year, indicating improved property-level performance.

Frequently Asked Questions

The primary driver of Equity Residential's revenue growth in the third quarter of 2006 was an increase in rental income, which rose to $511.8 million from $428.4 million in the same period of the prior year. This was supported by higher rental rates charged to residents.

The Lexford Housing Division was classified as held for sale as of September 30, 2006, and its results were presented within discontinued operations. While the sale closed after the quarter ended, the company expected to record a significant gain of approximately $420.0 million on this disposition in the fourth quarter of 2006. The prior year's third quarter included substantial gains from discontinued operations, which explains the large year-over-year decrease in net income for the current quarter.

Equity Residential is actively managing its property portfolio through strategic acquisitions and dispositions. During the nine months ended September 30, 2006, the company acquired $1.4 billion of properties and sold $1.1 billion of apartment properties and condominium units. The sale of the Lexford Housing Division is a key part of this strategy to recycle capital and focus on core markets.

The company issued new debt, including $400 million of fixed-rate notes and $650 million of exchangeable notes, during the nine months ended September 30, 2006, to fund its operations and strategic initiatives. It also repurchased $83.2 million of its common shares. The company's debt structure includes both secured and unsecured debt, with a weighted average interest rate of 5.87% as of September 30, 2006, and a weighted average maturity of 6.5 years.