10-QPeriod: Q1 FY2017

EQUITY RESIDENTIAL Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 4, 2017For Securities:EQR

Summary

Equity Residential (EQR) reported its first quarter 2017 results, highlighting a strategic portfolio transformation towards urban and high-density suburban coastal markets. The company saw a 2.6% increase in same-store revenues, slightly ahead of expectations, driven by strong performance in markets like Seattle and Los Angeles, though New York experienced some pressure due to new supply. While overall rental income and NOI slightly decreased due to significant property dispositions in the prior year, the focus remains on optimizing the existing portfolio. Expenses saw a 3.9% increase, largely due to higher real estate taxes and payroll costs. EQR maintained solid occupancy rates and reported a 2.1% increase in same-store Net Operating Income (NOI). The company also reiterated its commitment to capital allocation through acquisitions, dispositions, and development, with planned acquisitions and dispositions of $500 million each for 2017.

Financial Highlights

33 data points
Beta

Revenue

$604.10M

Net Income

$143.74M

23.8% Net Margin

EPS (Diluted)

$0.39

Total Assets

$20.61B

Cash & Equivalents

$42.14M

Free Cash Flow

$303.90M

Financial Statements
Beta
Revenue$604.10M
Operating Expenses$399.73M
Operating Income$204.37M
Interest Expense$106.21M
Net Income$143.74M
EPS (Basic)$0.39
EPS (Diluted)$0.39
Shares Outstanding (Basic)366.61M
Shares Outstanding (Diluted)382.28M

Key Highlights

  • 1Same-store revenues increased by 2.6% year-over-year for the first quarter of 2017, exceeding expectations, with particular strength in Seattle (+6.4%) and Los Angeles (+3.8%).
  • 2Same-store Net Operating Income (NOI) grew by 2.1% year-over-year, indicating effective management of operating expenses relative to revenue growth.
  • 3The company is strategically rebalancing its portfolio, having completed substantial dispositions of suburban properties and reinvesting in urban and high-density suburban coastal markets.
  • 4Occupancy remained strong at 95.9% for same-store properties, reflecting sustained demand in EQR's target markets.
  • 5Same-store operating expenses increased by 3.9%, with notable rises in real estate taxes (+4.2%) and payroll costs (+4.6%), impacting overall profitability.
  • 6EQR plans to balance its portfolio by acquiring and disposing of approximately $500 million in rental properties each during 2017, funded by operational cash flow and existing credit facilities.
  • 7The company maintained a healthy liquidity position, with $1.66 billion available on its revolving credit facility at the end of the quarter.

Frequently Asked Questions

The significant decrease in net income was primarily due to approximately $3.7 billion in higher gains on property sales in the first quarter of 2016 compared to the first quarter of 2017. This reflects substantial disposition activity in the prior year, whereas the current quarter saw much less significant sales.

Equity Residential is managing rising operating expenses, which increased 3.9% year-over-year, by focusing on cost control while strategically investing in property improvements and staffing to remain competitive. Key expense drivers include real estate taxes and payroll, with increases also noted in repairs and maintenance due to storm damage in California and minimum wage impacts. The company aims to offset these increases through efficiency and by focusing on revenue growth through resident retention.

Equity Residential is actively acquiring and developing multifamily properties in its six core coastal markets (Boston, New York, Washington D.C., Southern California, San Francisco, and Seattle). The strategy focuses on urban and high-density suburban locations with favorable demographics and high barriers to entry. For 2017, the company plans approximately $500 million in acquisitions and $500 million in dispositions, and budgeted starting approximately $100 million in new development projects, with overall development spending of $300 million.

The outlook for same-store revenue growth varies by market. Seattle is expected to lead with approximately 4.25% growth, followed by Los Angeles at 3.6% and Southern California (Orange County/San Diego) slightly higher. New York is anticipated to see a decline of approximately 1.5% due to new luxury supply, while Boston is projected at 1.5% and Washington D.C. at 1.8%. Overall, EQR anticipates a same-store revenue increase ranging from 1.0% to 2.25% for the full year 2017.