How did EQR's core operating performance trend in 2002?

Same-store revenue fell 2.6% and same-store NOI fell 4.6%, driven by lower physical occupancy (93.5% vs. 94.5%), higher concessions, and lower rental rates on new and renewal leases. Expenses were roughly flat, with higher real estate taxes and insurance offset by lower utility costs.

What does management expect for 2003?

The company's 2003 same-store assumptions call for physical occupancy of 93.0%, revenue change of -3.9% to -1.4%, expense growth of 2.1% to 4.4%, and NOI change of -9.2% to -3.7%. It also planned about $700 million of dispositions and roughly $150 million of capital improvements.

Is EQR's leverage a concern for investors?

Leverage is moderate by the company's measures: debt-to-total market capitalization was 39.8%, debt-to-adjusted total assets under the unsecured covenant was 39.7% (limit 60%), and interest coverage was 3.16x (minimum 1.5x). The main risk is refinancing, since $334 million matures in 2003 and $605 million in 2004.

Why did net income fall in 2002 despite the company's size?

Net income available to common shares declined about $43 million, largely because of lower same-store NOI, higher general and administrative costs, and lower gains on property sales than in 2001. The 2001 results also included a $60 million impairment on the furniture rental business, which made the 2002 discontinued operations line look favorable by comparison.

Do the Zell-affiliated holders have significant influence over the company?

Yes. As of January 31, 2003, Chairman Samuel Zell and affiliated OP Unit holders owned about 3.1% of common shares, and their consent is required for certain amendments to the partnership agreement. The company also opted out of Maryland's business combination restrictions for transactions involving them, which the filing notes may not be in the interest of other security holders.

VMRK 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 14, 2003. Cited figures are marked; the original filing is the authoritative source.

Equity Residential (EQR) reported a challenging 2002 for its multifamily portfolio.

Total revenues were $1.994 billion^a, down from $2.040 billion in 2001, and same-store NOI fell 4.6% as physical occupancy slipped to 93.5% from 94.5% and concessions rose. Net income available to common shares was $324.2 million ($1.18 diluted EPS), down from $367.5 million in 2001, though FFO available to common shares and OP Units declined 6.1% to $738.3 million. Much of the earnings decline reflects weaker rents and occupancy rather than balance-sheet stress.

The balance sheet remains conservative by REIT standards. Consolidated debt was $5.52 billion^b, a 39.8% debt-to-total market capitalization ratio against a stated policy ceiling of 50%, and the weighted average rate on debt was 6.22%. The company disposed of 58 properties for about $546 million, acquired 12 properties for about $290 million, issued $450 million of new unsecured notes, and repurchased about 5.1 million common shares for $115 million.

Management guided to a further 2003 same-store NOI decline of 3.7% to 9.2%, with about $700 million^c of planned dispositions. For investors, the key issues are the 2003 guidance for continued NOI pressure, rising insurance and property tax costs, a $334 million debt maturity in 2003 and $605 million in 2004, and the Zell-affiliated holders' significant influence over the company. The dividend was held at $1.73 per share for the year, with quarterly distributions of $0.4325.

02—Key points

Key Highlights

Total revenues of $1.99 billion in 2002, down about 2.2% from $2.04 billion in 2001, with same-store revenue down 2.6%.
Same-store NOI fell 4.6% in 2002 as average occupancy declined to 93.5% (from 94.5%) and rents and concessions weakened; 2003 guidance calls for a further NOI decline of 3.7% to 9.2%.
Net income available to common shares was $324.2 million ($1.18 diluted EPS), versus $367.5 million ($1.36) in 2001; FFO available to common shares and OP Units was $738.3 million, down 6.1%.
Debt-to-total market capitalization was 39.8% at year-end, below the company's 50% policy limit; total debt was $5.52 billion at a weighted average rate of 6.22%.
Portfolio of 1,039 properties with 223,591 units across 36 states, the largest publicly traded multifamily REIT by wholly owned units; $546 million of 2002 dispositions and $290 million of acquisitions.
Near-term maturities of $334 million in 2003 and $605 million in 2004, plus $1.2 billion of combined preferred equity and preference interests with a weighted average dividend of 8.07%.
Common share repurchase of 5.1 million shares for $115 million in October 2002, with an additional $85 million authorized; the quarterly distribution was held at $0.4325.

03—Questions

Frequently Asked Questions

How did EQR's core operating performance trend in 2002?
Same-store revenue fell 2.6% and same-store NOI fell 4.6%, driven by lower physical occupancy (93.5% vs. 94.5%), higher concessions, and lower rental rates on new and renewal leases. Expenses were roughly flat, with higher real estate taxes and insurance offset by lower utility costs.
What does management expect for 2003?
The company's 2003 same-store assumptions call for physical occupancy of 93.0%, revenue change of -3.9% to -1.4%, expense growth of 2.1% to 4.4%, and NOI change of -9.2% to -3.7%. It also planned about $700 million of dispositions and roughly $150 million of capital improvements.
Is EQR's leverage a concern for investors?
Leverage is moderate by the company's measures: debt-to-total market capitalization was 39.8%, debt-to-adjusted total assets under the unsecured covenant was 39.7% (limit 60%), and interest coverage was 3.16x (minimum 1.5x). The main risk is refinancing, since $334 million matures in 2003 and $605 million in 2004.
Why did net income fall in 2002 despite the company's size?
Net income available to common shares declined about $43 million, largely because of lower same-store NOI, higher general and administrative costs, and lower gains on property sales than in 2001. The 2001 results also included a $60 million impairment on the furniture rental business, which made the 2002 discontinued operations line look favorable by comparison.
Do the Zell-affiliated holders have significant influence over the company?
Yes. As of January 31, 2003, Chairman Samuel Zell and affiliated OP Unit holders owned about 3.1% of common shares, and their consent is required for certain amendments to the partnership agreement. The company also opted out of Maryland's business combination restrictions for transactions involving them, which the filing notes may not be in the interest of other security holders.

04—Continue

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