10-QPeriod: Q2 FY2016

EQUITY RESIDENTIAL Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 4, 2016For Securities:EQR

Summary

Equity Residential (EQR) reported significant portfolio transformation in its Q2 2016 10-Q filing, primarily driven by the substantial sale of the Starwood Portfolio and other dispositions, which largely exited the company from lower-barrier-to-entry markets and consolidated its focus on six high-barrier-to-entry coastal markets. This strategic shift facilitated the distribution of capital to shareholders through special dividends and debt reduction, strengthening the company's financial position. While overall rental income and NOI declined due to this divestiture activity, the core "same store" portfolio demonstrated resilience, with revenue and NOI growth driven by increasing average rental rates and stable occupancy, particularly in strong markets like Seattle and Los Angeles. The company is actively managing its capital structure, leveraging debt and equity markets while prudently investing in development within its core markets. Looking ahead, EQR provided updated guidance for 2016, anticipating a slight moderation in same-store revenue and NOI growth compared to earlier projections, primarily due to increased multifamily supply and slower job growth in New York and San Francisco. Despite these localized headwinds, the company remains optimistic about long-term demand in its target markets, supported by favorable demographics and a focus on urban core locations. EQR's strong balance sheet and liquidity position are expected to support ongoing operations, debt maturities, and future investment opportunities.

Financial Highlights

34 data points
Beta

Revenue

$595.15M

Net Income

$218.84M

36.8% Net Margin

EPS (Diluted)

$0.59

Total Assets

$21.23B

Cash & Equivalents

$497.84M

Free Cash Flow

$273.69M

Financial Statements
Beta
Revenue$595.15M
Operating Expenses$389.14M
Operating Income$206.02M
Interest Expense$86.47M
Net Income$218.84M
EPS (Basic)$0.60
EPS (Diluted)$0.59
Shares Outstanding (Basic)365.05M
Shares Outstanding (Diluted)382.06M

Key Highlights

  • 1Significant portfolio repositioning completed: Exited several markets and intensified focus on six high-barrier-to-entry coastal markets.
  • 2Substantial capital return to shareholders: Paid an $8.00 special dividend and expects to pay another $2.00-$4.00 special dividend from proceeds of large property sales.
  • 3Same-store portfolio shows resilience: Revenues and NOI for the core portfolio increased due to rising rental rates and stable occupancy.
  • 4Updated 2016 guidance reflects market conditions: Slightly reduced same-store revenue and NOI growth forecasts due to supply and job growth concerns in NY and SF.
  • 5Strong liquidity position: Significant cash on hand and available credit lines to meet near-term obligations and fund future investments.
  • 6Active debt management: Reduced aggregate indebtedness by approximately $2.0 billion.
  • 7Focus on sustainability: Named 2015 Global Residential Sector Leader by GRESB, with ongoing company-wide goals.

Frequently Asked Questions

Equity Residential is now intensely focused on its six high-barrier-to-entry coastal markets: Boston, New York, Washington D.C., Southern California, San Francisco, and Seattle. This strategy aims to capitalize on favorable demographics, high homeownership costs, and strong demand in these urban core locations.

Equity Residential has returned significant capital to shareholders through substantial special dividends. An $8.00 per share/unit special dividend was paid in March 2016, and the company anticipates paying an additional special dividend of $2.00 to $4.00 per share/unit later in 2016, funded by proceeds from asset sales.

The company is experiencing headwinds from elevated levels of new multifamily supply and slower growth of higher-paying jobs in New York and San Francisco, leading to a revision of its 2016 same-store revenue and NOI growth guidance for these specific markets. Elevated deliveries of new luxury supply in Boston also present some challenges.

EQR anticipates 2016 same-store revenues to increase by 3.5% to 4.0% and same-store NOI to increase by 3.75% to 4.25%. This is a slight reduction from previous guidance, primarily due to specific market conditions in New York and San Francisco.