10-QPeriod: Q1 FY2016

EQUITY RESIDENTIAL Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 5, 2016For Securities:EQR

Summary

Equity Residential (EQR) in its May 5, 2016 10-Q filing reports significant portfolio transformation, highlighted by the completion of the $5.365 billion sale of a large portfolio to Starwood Capital Group in early 2016. This strategic move completes the company's decade-long repositioning towards high barrier-to-entry coastal markets. Proceeds from this and other dispositions are being used to fund substantial shareholder distributions, including a special dividend of $8.00 per share paid in March 2016, with an additional $2.00 to $4.00 per share anticipated later in 2016. Concurrently, EQR is managing its debt, having repaid approximately $2.0 billion in debt obligations. The company reaffirms its focus on core coastal markets like Los Angeles, New York, San Francisco, and Seattle, expecting solid revenue growth in these areas, although New York and Boston face headwinds from new supply.

Financial Highlights

34 data points
Beta

Revenue

$619.08M

Net Income

$3.59B

579.5% Net Margin

EPS (Diluted)

$9.76

Total Assets

$21.30B

Cash & Equivalents

$368.05M

Free Cash Flow

$201.38M

Financial Statements
Beta
Revenue$619.08M
Operating Expenses$402.46M
Operating Income$216.63M
Interest Expense$213.49M
Net Income$3.59B
EPS (Basic)$9.84
EPS (Diluted)$9.76
Shares Outstanding (Basic)364.59M
Shares Outstanding (Diluted)382.24M

Key Highlights

  • 1Completion of the $5.365 billion Starwood portfolio sale, finalizing EQR's strategic shift to high barrier-to-entry coastal markets.
  • 2Return of capital to shareholders via an $8.00 per share special dividend paid in March 2016, with more expected in 2016.
  • 3Significant debt reduction, with approximately $2.0 billion repaid using proceeds from asset sales.
  • 4Strategic focus on six core coastal markets: Boston, New York, Washington D.C., Southern California, San Francisco, and Seattle.
  • 5Reaffirmed 2016 same-store revenue growth guidance of 4.5%-5.0% and NOI growth of 5.0%-6.0%, with strong performance expected in San Francisco and Los Angeles.
  • 6The portfolio has been significantly reshaped, with a reduction in properties and units, concentrating on higher-value, high-barrier markets.
  • 7Ongoing investment in property renovations and upgrades, with approximately $33.9 million spent in Q1 2016, targeting higher rental income.

Frequently Asked Questions

The sale of the Starwood portfolio, along with other 2016 dispositions, is a key component of Equity Residential's completed decade-long strategy to exit lower-barrier entry markets and concentrate on high-barrier, coastal markets. This significantly reshapes the company's portfolio and provides capital for shareholder returns and debt reduction.

Equity Residential paid a special dividend of $8.00 per share in March 2016 and expects to pay an additional special dividend of $2.00 to $4.00 per share later in 2016. These distributions are funded by the proceeds from significant property sales.

Equity Residential anticipates 2016 same-store revenue growth between 4.5% and 5.0% and same-store NOI growth between 5.0% and 6.0%. While the midpoint of the guidance was slightly lowered from initial expectations due to a slower start in New York, the company believes these revised expectations remain strong.

San Francisco and Los Angeles are expected to be top-performing markets for 2016, driven by strong demand and supply constraints. The New York and Boston markets are facing challenges from elevated new supply, which is impacting rent growth and leading to the offering of concessions. Washington D.C. is seeing improvements but continues to lag other markets due to new supply and modest job growth.