How did Equity Residential perform operationally in 2001?

Operationally, same-store revenues rose 3.8% and same-store NOI rose 3.8% to $1.09 billion, driven by higher rents on new leases and renewals and by utility and ancillary income. Average same-store occupancy slipped about 0.5 percentage points to 94.4%. FFO, the REIT industry's key cash-flow measure, grew 8.3% to $786.7 million.

Why did net income available to common shares decline in 2001?

Net income available to common shares fell to $367.5 million from $437.5 million mainly because net gains on property sales dropped to $149.3 million from $198.4 million, as fewer units were sold (11,818 versus 20,648). The company also recorded $71.8 million in impairment charges, including $60.0 million on the Globe furniture business, and interest expense and furniture-related costs weighed on results.

How leveraged is the company and what debt maturities should investors watch?

Debt-to-total market capitalization was 37.2% at year-end 2001, below the 50% policy limit. Total debt of $5.74 billion carried a 6.43% weighted average rate, with 84% fixed-rate. Scheduled maturities total $699 million in 2002 and $306 million in 2003, and the $700 million revolving credit facility expires in August 2002, which management is working to replace before mid-2002.

What is the risk from Samuel Zell and his affiliates?

Chairman Samuel Zell and certain affiliates hold about 3.1% of common shares and have consent rights over certain amendments to the operating partnership agreement, giving them substantial influence over the company. The Board has opted out of Maryland's business-combination restrictions for transactions involving these holders, so such deals would not face the usual super-majority protections.

What does the company plan for 2002 and beyond?

Management expects to fund about $33.5 million of remaining development commitments in 2002, plus about $135 million of capital improvements to existing properties. It plans to refinance about $550 million of debt at expected rates of 6.5% to 7.0%, and it guides 2002 same-store revenue to fall between 1.25% lower and 0.5% higher, with expenses rising 1.0% to 1.5%. Management also said it is searching for a new President as part of succession planning.

VMRK 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 7, 2002. Cited figures are marked; the original filing is the authoritative source.

Equity Residential (EQR), the largest publicly traded multifamily REIT by units wholly owned and revenue, reported FY2001 results that were mixed: total revenues rose 6.9% to $2.17 billion^a and net income available to common shares fell to $367.5 million ($1.37 basic EPS) from $437.5 million, largely because 2001 gains on sales were lower ($149.3 million vs. $198.4 million) and the company took $71.8 million of impairment charges, including $60.0 million on its Globe furniture rental business, which was sold in January 2002.

Core operating metrics were steadier: same-store NOI grew 3.8% on 181,951 units, though average same-store occupancy slipped to 94.4% from 94.9%. Funds from operations (FFO) available to common shares and OP units rose 8.3% to $786.7 million^b, and the company declared distributions of $1.68 per share, up from $1.575. Balance sheet leverage was moderate.

Consolidated debt was $5.74 billion^c, or 37.2% of total market capitalization, below the company's stated 50% ceiling. Roughly 57% of debt was fixed-rate at a 7.02% weighted average rate, and floating-rate exposure was about $896 million. The 2002 maturity wall is $699 million, and the $700 million revolving credit facility expires in August 2002, so management plans a refinancing and expects to issue roughly $300 million of unsecured notes in March 2002.

The portfolio comprised 1,076 properties with 224,801 units across 36 states, with 2001 acquisitions of $388 million^d partly offset by $416 million of dispositions, plus about $250 million of remaining funding obligations on development joint ventures. Key risk factors for investors include dependence on Chairman Samuel Zell and his affiliates (who hold about 3.1% of common shares and have influence over the operating partnership agreement), a fairly high dependence on near-term refinancing, interest-rate exposure on floating debt, and continued REIT qualification requirements. Management also disclosed a pending CEO succession search and the expanded taxable REIT subsidiary structure.

02—Key points

Key Highlights

Total revenues grew 6.9% to $2.17 billion in 2001, while net income available to common shares fell to $367.5 million ($1.37 basic EPS) from $437.5 million ($1.69) in 2000.
Same-store NOI rose 3.8% to $1.09 billion on 181,951 units, driven by higher rental rates, though average same-store occupancy declined to 94.4% from 94.9%.
FFO available to common shares and OP units increased 8.3% to $786.7 million, and distributions declared rose to $1.68 per share from $1.575.
Consolidated debt of $5.74 billion equals 37.2% of total market capitalization, well within the company's 50% policy ceiling; the weighted average rate on debt was 6.43%.
A $60.0 million impairment on the Globe furniture rental business and $11.8 million of technology investment write-downs reduced 2001 earnings; the furniture business was sold for about $30.0 million in January 2002.
Near-term refinancing needs are significant: $699 million of debt matures in 2002, and the $700 million credit line expires in August 2002, with management planning about $300 million of unsecured notes in March 2002.
The company owns or has interests in 1,076 properties with 224,801 apartment units in 36 states, and it reported $1.2 billion of preferred equity liquidation value outstanding.

03—Questions

Frequently Asked Questions

How did Equity Residential perform operationally in 2001?
Operationally, same-store revenues rose 3.8% and same-store NOI rose 3.8% to $1.09 billion, driven by higher rents on new leases and renewals and by utility and ancillary income. Average same-store occupancy slipped about 0.5 percentage points to 94.4%. FFO, the REIT industry's key cash-flow measure, grew 8.3% to $786.7 million.
Why did net income available to common shares decline in 2001?
Net income available to common shares fell to $367.5 million from $437.5 million mainly because net gains on property sales dropped to $149.3 million from $198.4 million, as fewer units were sold (11,818 versus 20,648). The company also recorded $71.8 million in impairment charges, including $60.0 million on the Globe furniture business, and interest expense and furniture-related costs weighed on results.
How leveraged is the company and what debt maturities should investors watch?
Debt-to-total market capitalization was 37.2% at year-end 2001, below the 50% policy limit. Total debt of $5.74 billion carried a 6.43% weighted average rate, with 84% fixed-rate. Scheduled maturities total $699 million in 2002 and $306 million in 2003, and the $700 million revolving credit facility expires in August 2002, which management is working to replace before mid-2002.
What is the risk from Samuel Zell and his affiliates?
Chairman Samuel Zell and certain affiliates hold about 3.1% of common shares and have consent rights over certain amendments to the operating partnership agreement, giving them substantial influence over the company. The Board has opted out of Maryland's business-combination restrictions for transactions involving these holders, so such deals would not face the usual super-majority protections.
What does the company plan for 2002 and beyond?
Management expects to fund about $33.5 million of remaining development commitments in 2002, plus about $135 million of capital improvements to existing properties. It plans to refinance about $550 million of debt at expected rates of 6.5% to 7.0%, and it guides 2002 same-store revenue to fall between 1.25% lower and 0.5% higher, with expenses rising 1.0% to 1.5%. Management also said it is searching for a new President as part of succession planning.

04—Continue

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