10-QPeriod: Q1 FY2015

EQUITY RESIDENTIAL Quarterly Report for Q1 Ended Mar 31, 2015

Filed May 6, 2015For Securities:EQR

Summary

Equity Residential (EQR) reported strong operational performance for the first quarter of 2015, marked by significant growth in same-store revenues and Net Operating Income (NOI). The company's strategic focus on high-barrier-to-entry coastal markets continues to yield positive results, with robust demand and high occupancy levels driving rental rate increases. EQR's proactive portfolio management, including the disposition of non-core assets and continued investment in high-quality properties, positions it well for sustained growth. The company demonstrated effective capital management, utilizing proceeds from property sales and operational cash flow to fund development projects and reduce debt. EQR also reaffirmed its 2015 guidance for same-store revenue and NOI growth, indicating confidence in its ongoing strategy and market positioning. The report highlights a strategic shift towards core markets, a commitment to sustainability, and a solid liquidity position to meet future obligations and pursue opportunities.

Financial Highlights

36 data points
Beta

Revenue

$666.37M

Net Income

$182.52M

27.4% Net Margin

EPS (Diluted)

$0.49

Total Assets

$23.03B

Cash & Equivalents

$49.42M

Free Cash Flow

$347.89M

Financial Statements
Beta
Revenue$666.37M
Operating Expenses$448.04M
Operating Income$218.33M
Interest Expense$108.78M
Net Income$182.52M
EPS (Basic)$0.49
EPS (Diluted)$0.49
Shares Outstanding (Basic)363.10M
Shares Outstanding (Diluted)380.33M

Key Highlights

  • 1Same-store revenues increased by 5.0% and Net Operating Income (NOI) by 7.0% for the first quarter of 2015 compared to the same period in 2014, driven by higher rental rates and occupancy.
  • 2The company sold three consolidated properties (550 apartment units) for $145.4 million in Q1 2015, continuing its strategy of exiting non-core markets.
  • 3EQR budgets $500.0 million for consolidated rental dispositions and $500.0 million for consolidated rental acquisitions in 2015.
  • 4Construction started on one project (449 units, $290.2 million in development costs) in Q1 2015, with budgeted construction starts of $1.0 billion over 2015-2016.
  • 5Diluted earnings per share/unit increased to $0.49 in Q1 2015 from $0.22 in Q1 2014, primarily due to higher gains on property sales.
  • 6The company reported strong liquidity, with $49.4 million in cash and cash equivalents and $1.986 billion available on its revolving credit facility as of March 31, 2015.
  • 7EQR reaffirmed its 2015 guidance for same-store revenue growth (4.3%-4.7%) and NOI growth (4.8%-5.8%), with an improved outlook for same-store revenue growth compared to initial guidance.

Frequently Asked Questions

Equity Residential's strategy focuses on acquiring, developing, and managing high-quality apartment properties in top U.S. growth markets. They specifically target markets with high barriers to entry, such as Boston, New York, Washington D.C., Southern California, San Francisco, and Seattle, which often exhibit favorable conditions for rent increases due to limited new supply, high homeownership costs, and strong economic/demographic trends.

The company is actively repositioning its portfolio by selling assets in lower-barrier, non-core markets and reinvesting in high-barrier, core markets. Capital is allocated through a combination of retained cash flow, debt issuance, equity offerings, property sales, and joint ventures. They have budgeted significant amounts for both acquisitions and dispositions in 2015, aiming for a balanced approach to portfolio enhancement and capital recycling.

The primary financial measure is Net Operating Income (NOI). For the first quarter of 2015, same-store revenues increased by 5.0% and same-store NOI increased by 7.0% compared to the prior year. This growth was driven by a 4.1% increase in average rental rates and a slight increase in occupancy to 95.9%, alongside effective cost controls, although expenses did rise by 1.4%.

Equity Residential anticipates continued growth in 2015. They have increased their guidance for same-store revenue growth to a range of 4.3% to 4.7% (up from 3.75% to 4.50%) and for same-store NOI growth to a range of 4.8% to 5.8% (up from 4.0% to 5.0%). This optimism is supported by strong demand, improving labor markets, and favorable demographics.