01—Abstract
Summary
Summary of the 10-K filed March 19, 1999. Cited figures are marked; the original filing is the authoritative source.
Equity Residential Properties Trust (EQR) closed 1998 as the largest publicly traded REIT owner of multifamily properties, with 654 controlled properties containing 187,002 units across 35 states, average occupancy of 95%, and an average rent of $739a per unit.
Total revenues rose to $1.34 billionb from $747 million in 1997, driven largely by the October 1998 Merry Land (MRY) merger and other 1997-1998 acquisitions. Net income available to Common Shares increased to $165.3 million ($1.65 per share basic, $1.63 diluted), while Funds From Operations (FFO) available to Common Shares and OP Units grew 69.5% to $458.8 million, the key metric REIT investors track. The balance sheet expanded sharply, with total assets of $10.7 billion and total debt of $4.68 billion.
Management reports a debt-to-total market capitalization ratio of about 41%, below its 50% policy ceiling. Roughly $840 millionc (18%) of debt is floating rate, and about $2.3 billion is secured by mortgages on 216 properties. Effective interest cost fell to 7.10% from 7.50%.
Growth was funded through common share offerings, preferred share issuances (Series H through L, plus MRY-assumed preferreds), and unsecured notes, while a 1998 share repurchase of 2.37 million shares at about $40d signaled management's view of undervaluation. Key risks for investors include leverage and refinancing exposure, rising interest rates on variable-rate debt, dilution from future equity issuance, and concentrated influence by Chairman Samuel Zell and Starwood-affiliated holders (together with officers, roughly 8% of common shares).
Dependence on key personnel and REIT qualification compliance are additional risks disclosed in the filing. The common distribution was $2.72 per share for 1998, up from $2.55, and the Board declared $0.71 for the first quarter of 1999.
02—Key points
Key Highlights
- Revenue growth: Total revenues increased about 79% to $1.337 billion in 1998, reflecting acquisitions including the $2.2 billion MRY merger completed October 19, 1998.
- FFO strength: FFO available to Common Shares and OP Units rose 69.5% to $458.8 million, supporting a distribution increase to $2.72 per share (from $2.55) and a $0.71 quarterly dividend.
- Portfolio scale: 654 controlled properties with 187,002 units in 35 states; 95% average occupancy and $739 average monthly rent per unit at December 31, 1998.
- Leverage within policy: Debt-to-total market capitalization of approximately 41% versus a 50% policy limit; total debt of $4.68 billion, with 18% floating rate exposure (about $840 million).
- Lower cost of capital: Effective interest cost on total debt declined to 7.10% in 1998 from 7.50% in 1997, even as average indebtedness grew about $1.9 billion.
- Capital raising and buybacks: Issued about 8.5 million common shares for $412.5 million net, issued $542 million of unsecured notes, and repurchased 2.37 million common shares at roughly $40 per share.
- Concentrated control: Samuel Zell, the Zell Original Owners, Starwood entities and officers together hold a significant stake and can influence governance; the filing notes Maryland business-combination protections were opted out for Zell-affiliated parties.
03—Questions
Frequently Asked Questions
How did EQR's earnings and cash flow perform in 1998?
Net income available to Common Shares rose to $165.3 million, or $1.65 per basic share, from $117.6 million ($1.79) in 1997. The per-share decline reflects the large increase in shares outstanding from the MRY merger and equity offerings. The more meaningful REIT metric, FFO, rose 69.5% to $458.8 million. Operating cash flow was $533.2 million, up from $338.0 million.
Is EQR's dividend supported by its cash flow?
The company declared $2.72 per common share for 1998 and a $0.71 quarterly distribution for Q1 1999. Total distributions paid in 1998 were $404.5 million, which is covered by FFO of $458.8 million and operating cash flow of $533.2 million. Because REIT rules require distributing at least 95% of taxable income, the payout is structurally high, and dividend growth depends on continued FFO growth from acquisitions and same-store rent increases.
How much debt does EQR carry and what are the main refinancing risks?
Total debt was about $4.68 billion at year-end 1998, including $2.34 billion of mortgage notes and about $2.05 billion of unsecured notes, plus $290 million on lines of credit. Scheduled principal payments are modest near term ($25 million in 1999, $52 million in 2000), but $249.8 million matures in 2001 and $225.2 million in 2002. The company's $500 million credit facility matures in November 1999, and the 2015 Notes carry a 2005 remarketing feature, so refinancing execution is a key watch item.
What are the main risks to shareholders described in the filing?
Key risks include high leverage and refinancing needs, exposure to rising rates on $840 million of floating-rate debt (about a $4.5 million annual earnings impact per 10% rate move), dilution from future equity issuance, real estate illiquidity, and possible loss of REIT status, which would trigger corporate-level taxes. The filing also flags significant influence by Samuel Zell and Starwood-affiliated holders, dependence on key executives such as Zell and Douglas Crocker II, who have no employment agreements, and possible tax exposure from merger partners' prior REIT compliance.
04—Continue