10-QPeriod: Q2 FY2014

EQUITY RESIDENTIAL Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 7, 2014For Securities:EQR

Summary

Equity Residential (EQR) reported strong performance in its multifamily portfolio for the six months and quarter ended June 30, 2014, with positive trends in same-store revenue and NOI growth. The company continues its strategic shift towards high-barrier-to-entry coastal markets, evidenced by significant acquisitions and development activity, partially funded by dispositions of non-core assets. EQR successfully accessed capital markets, completing substantial note offerings to refinance existing debt and extend maturity profiles, bolstering its liquidity position. Despite challenges in specific markets like Washington D.C. due to new supply and economic factors, the overall portfolio benefits from favorable demographics, increasing household formation, and a preference for rental housing. Management anticipates continued revenue and NOI growth, with operational efficiencies being driven by technology and strategic portfolio repositioning.

Financial Highlights

38 data points
Beta

Revenue

$652.57M

Net Income

$112.69M

17.3% Net Margin

EPS (Diluted)

$0.31

Total Assets

$22.99B

Cash & Equivalents

$76.13M

Free Cash Flow

$282.60M

Financial Statements
Beta
Revenue$652.57M
Operating Expenses$424.26M
Operating Income$228.31M
Interest Expense$115.92M
Net Income$112.69M
EPS (Basic)$0.31
EPS (Diluted)$0.31
Shares Outstanding (Basic)360.81M
Shares Outstanding (Diluted)377.12M

Key Highlights

  • 1Same-store revenue increased by 4.0% and same-store NOI increased by 5.0% for the six months ended June 30, 2014, demonstrating solid operational performance.
  • 2The company actively manages its portfolio by acquiring properties in core, high-barrier-to-entry markets and disposing of non-core assets, with $500 million budgeted for both acquisitions and dispositions in 2014.
  • 3EQR strengthened its balance sheet by issuing $1.2 billion in unsecured notes and using proceeds to repay existing debt, extending debt maturities and improving its overall capital structure.
  • 4Development activity is increasing, with $614.3 million in new apartment construction starts during the first half of 2014 and a budget of up to $1.6 billion for new construction starts in 2014 and 2015.
  • 5Occupancy remained high at 95.3% for same-store properties, with expectations for full-year occupancy at 95.5%, indicating strong demand for EQR's rental units.
  • 6Despite some market softness in Washington D.C., the company's core markets are generally performing better than expected, with strong rent growth and lower turnover.
  • 7Liquidity remains strong, with $76.1 million in cash and cash equivalents and $2.47 billion available on its revolving credit facility as of June 30, 2014.

Frequently Asked Questions

Equity Residential's primary strategy involves actively acquiring, developing, and repositioning high-quality apartment properties in top United States growth markets, with a strategic focus on high-barrier-to-entry coastal markets such as Boston, New York, Washington D.C., Southern California, San Francisco, and Seattle. They aim to maximize risk-adjusted total returns through a combination of rental income and capital appreciation by investing in markets with favorable conditions like limited new supply, high homeownership costs, strong economic and job growth, and favorable demographics.

The company is actively managing its debt by refinancing existing obligations and extending maturity profiles. In June 2014, EQR issued $1.2 billion in unsecured notes, using the proceeds to repay a term loan and outstanding balances on its revolving credit facility. They also maintain significant access to capital through their revolving credit facility and the public debt and equity markets, ensuring sufficient liquidity to meet funding obligations.

The key performance indicator highlighted is Net Operating Income (NOI), particularly same-store NOI, which provides a direct measure of operating results for comparable properties. For the six months ended June 30, 2014, same-store NOI increased by 5.0% and same-store revenue increased by 4.0%. The company also monitors occupancy rates, which remained strong at 95.3% for same-store properties, and rental rate growth, which has seen positive trends across most markets.

Washington D.C. is noted as a market showing signs of stress due to substantial new supply and the impact of sequestration and furloughs on the local economy. This is expected to result in a 1% decline in same-store revenues in that market for 2014, slightly reducing the company-wide growth. Despite this, EQR's overall portfolio is performing well due to broad demographic trends and demand for rental housing, and the company continues to focus on its core, high-barrier markets.