How did EQR's growth in 1999 compare with 1998, and what drove it?

Total revenues rose to $1.75 billion from $1.34 billion, and income before gains and minority interests rose to $330.3 million from $255.0 million. The increase was driven mainly by the October 1999 LFT Merger (402 properties, roughly $738 million) and other 1999 acquisitions of about $1.4 billion, partly offset by 36 dispositions that generated a $93.5 million gain.

Is EQR's leverage and debt load a concern for investors?

Leverage is moderate by the company's measures, with a debt-to-total-market-capitalization ratio of about 42.75% against a 50% policy ceiling. Total debt is about $5.5 billion, and roughly $2.9 billion of it is secured by properties. Investors should still watch the sizable maturities scheduled for 2000 through 2004 and the refinancing risk they carry, since the filing notes that not all maturing debt may be refinanced on favorable terms.

What does the Zell and Starwood ownership mean for shareholders?

Samuel Zell's affiliates held about 2.85% of common shares and Starwood-affiliated entities held under 1%, but their OP Unit holdings and consent rights over Partnership Agreement amendments give them substantial influence. The Board has opted out of Maryland's business combination restrictions for Zell-affiliated parties, which could allow transactions that are not necessarily in the interest of other shareholders.

What are the main REIT-specific risks highlighted in the filing?

The main risks are the need to keep REIT status (including a 95% distribution requirement that drops to 90% in 2001), possible tax liabilities if merger partners did not qualify as REITs, and proposed Clinton Administration changes to REIT distribution rules and ownership tests. Failure to qualify would mean corporate-level taxation and a four-year disqualification period.

What is the outlook for capital spending and near-term commitments?

Management budgeted about $110 million of total capital expenditures for 2000, versus $141.9 million in 1999. Other commitments include roughly $32.7 million for joint-venture funding, $44.9 million for continued development and expansion, $33.4 million for earnout payments, and a $25 million WRP Newco preferred stock investment expected in April 2000. The company also has a standby obligation to fund up to $20 million to guarantee third-party construction financing.

VMRK 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 14, 2000. Cited figures are marked; the original filing is the authoritative source.

Equity Residential Properties Trust (EQR) closed 1999 as the largest publicly traded multifamily REIT, owning or holding interests in 1,062 properties with 225,708 units across 35 states, of which 983 properties (214,060 units) are wholly owned.

Growth was driven by acquisitions, most notably the October 1999 LFT Merger (402 properties, 36,609 units, roughly $738 million^a), and total revenues rose about 31% to $1.75 billion. Net income available to common shares reached $280.7 million, or $2.30 basic and $2.29 diluted per share, up from $1.65 in 1998. Funds from operations (FFO) available to common shares and OP Units rose 35% to $619.6 million, and distributions declared per share increased to $2.94 from $2.72.

The balance sheet expanded significantly, with total assets of $11.7 billion^b and total debt of $5.5 billion. Management reports a debt-to-total-market-capitalization ratio of about 42.75%, below its 50% policy ceiling. Floating-rate exposure is modest at roughly $700.9 million (12.8% of debt), and a 10% rate move would change annual interest expense by about $3.9 million.

Liquidity was supported by a new $700 million^c unsecured revolver, of which $300 million was drawn at year-end and $110 million was outstanding as of March 7, 2000. Subsequent events include the pending $64.8 million all-cash Globe Business Resources acquisition, a $53.6 million preferred unit issuance, and several dispositions.

Investor considerations include the heavy reliance on acquisitions and capital markets for growth, the Zell/Starwood concentration of influence, REIT compliance risk tied to merger partners' history, and proposed federal REIT tax changes that could affect distribution requirements. Interest-rate and refinancing exposure is also notable, given the large amount of debt maturing in 2000 through 2004.

02—Key points

Key Highlights

Revenue grew about 31% to $1.75 billion in 1999, from $1.34 billion in 1998, driven primarily by acquisitions including the LFT Merger.
Net income available to common shares was $280.7 million ($2.30 basic / $2.29 diluted EPS), up from $1.65 basic EPS in 1998.
FFO available to common shares and OP Units increased 35% to $619.6 million; distributions declared rose to $2.94 per share from $2.72.
Portfolio of 1,062 properties (225,708 units) in 35 states; 983 wholly owned properties with 214,060 units.
Debt-to-total-market-capitalization of approximately 42.75%, within the company's 50% policy ceiling; total debt of $5.5 billion.
Floating-rate debt of $700.9 million (12.8% of total debt), with limited sensitivity: a 55 bp move changes annual interest expense by about $3.9 million.
Pending $64.8 million all-cash acquisition of Globe Business Resources (plus $69.4 million of assumed debt), expected to close in Q2 2000.

03—Questions

Frequently Asked Questions

How did EQR's growth in 1999 compare with 1998, and what drove it?
Total revenues rose to $1.75 billion from $1.34 billion, and income before gains and minority interests rose to $330.3 million from $255.0 million. The increase was driven mainly by the October 1999 LFT Merger (402 properties, roughly $738 million) and other 1999 acquisitions of about $1.4 billion, partly offset by 36 dispositions that generated a $93.5 million gain.
Is EQR's leverage and debt load a concern for investors?
Leverage is moderate by the company's measures, with a debt-to-total-market-capitalization ratio of about 42.75% against a 50% policy ceiling. Total debt is about $5.5 billion, and roughly $2.9 billion of it is secured by properties. Investors should still watch the sizable maturities scheduled for 2000 through 2004 and the refinancing risk they carry, since the filing notes that not all maturing debt may be refinanced on favorable terms.
What does the Zell and Starwood ownership mean for shareholders?
Samuel Zell's affiliates held about 2.85% of common shares and Starwood-affiliated entities held under 1%, but their OP Unit holdings and consent rights over Partnership Agreement amendments give them substantial influence. The Board has opted out of Maryland's business combination restrictions for Zell-affiliated parties, which could allow transactions that are not necessarily in the interest of other shareholders.
What are the main REIT-specific risks highlighted in the filing?
The main risks are the need to keep REIT status (including a 95% distribution requirement that drops to 90% in 2001), possible tax liabilities if merger partners did not qualify as REITs, and proposed Clinton Administration changes to REIT distribution rules and ownership tests. Failure to qualify would mean corporate-level taxation and a four-year disqualification period.
What is the outlook for capital spending and near-term commitments?
Management budgeted about $110 million of total capital expenditures for 2000, versus $141.9 million in 1999. Other commitments include roughly $32.7 million for joint-venture funding, $44.9 million for continued development and expansion, $33.4 million for earnout payments, and a $25 million WRP Newco preferred stock investment expected in April 2000. The company also has a standby obligation to fund up to $20 million to guarantee third-party construction financing.

04—Continue

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