How did Equity Residential perform financially in 2004 compared with 2003?

Total revenues from continuing operations rose to $1.89 billion from $1.71 billion, largely because of acquisitions and the consolidation of previously unconsolidated development projects. Income from continuing operations fell to $135.3 million from $157.9 million, mainly due to higher depreciation and interest expense. Net income available to common shares declined modestly to $418.6 million from $426.6 million, despite $323.9 million in gains on discontinued operations, which were lower than the 2003 level. FFO rose 1.8%.

What are the main financial risks investors should monitor?

Key risks include the $818 million of 2005 debt maturities, the May 2005 expiration of the $700 million revolving credit facility (management said it expected to replace it in March or April 2005), and floating-rate debt of $1.39 billion, about 21.5% of total debt. A 25 basis point rise in rates would cost roughly $3.5 million in annual interest expense. Other risks include the company's REIT compliance, Florida hurricane exposure with higher self-insured retentions, and the influence of Chairman Samuel Zell and affiliated OP unit holders.

What did the company do with its portfolio and capital in 2004?

Equity Residential sold 58 properties and some condominium units for about $993 million, acquired 24 properties for about $913 million, and bought out minority interests in several previously unconsolidated development properties for about $53 million in cash. It issued $800 million of new unsecured notes (a $300 million 4.75% note due 2009 and a $500 million 5.25% note due 2014) and redeemed the $40 million Series A preference interests. It also used roughly $406.5 million to invest in development projects before consolidating them. Subsequent to year-end, it had agreements pending to acquire three properties for about $90 million and to dispose of seventeen properties for about $325 million.

What is the outlook for dividends and share buybacks?

The company paid a quarterly common distribution of $0.4325, or $1.73 annualized, unchanged from 2003. Distributions declared were roughly 100% of net income available to common shares on a per-share basis, but well below FFO. The board authorized up to $85 million of additional share repurchases, though none were made in 2004. The company also announced irrevocable notices to redeem 1.32 million Series B and C preference units, totaling $66 million, in March 2005.

VMRK 10-K FY2004 Annual Report — Revenue, Net Income, EPS

Q: Is the company's same-store business growing?

Only modestly. Same-store revenues grew 0.9% to $1.61 billion, mainly from lower resident concessions and slightly higher occupancy. Same-store expenses rose 3.6% on higher payroll, utilities and real estate taxes, so same-store NOI declined 0.9% to $960.0 million. For 2005, management expects same-store revenue growth of 2.0% to 3.25% and NOI change of 0% to 3%.

01—Abstract

Summary

Summary of the 10-K filed March 14, 2005. Cited figures are marked; the original filing is the authoritative source.

Equity Residential (EQR), the largest publicly traded owner of multifamily apartments in the U.S., closed 2004 with 939 properties and 200,149 units across 32 states and D.C., and ended the year with a 35%^a consolidated debt-to-total market capitalization ratio.

Total revenues from continuing operations rose 10.8% to $1.89 billion^b, driven largely by acquisitions and the consolidation of previously unconsolidated development projects under FIN 46. Net income available to common shares fell to $418.6 million ($1.50 basic EPS) from $426.6 million, as larger gains on property sales were offset by lower income from continuing operations, which dropped to $135.3 million from $157.9 million. Funds from operations (FFO) available to common shares and OP units rose 1.8% to $651.7 million.

Same-store performance was soft: same-store NOI declined 0.9% to $960.0 million^c, as expenses rose 3.6% on higher payroll, utilities, and real estate taxes, while revenue grew only 0.9%. Hurricane damage in Florida (Charley, Frances, Ivan, Jeanne) cost $15.2 million in estimated uninsured losses, and insurance deductibles were raised to contain premiums. Management guides to 2005 same-store NOI change of 0% to 3%, with revenue growth of 2.0% to 3.25%.

The company also sold 58 properties for about $993 million^d and bought 24 properties for roughly $913 million, while pursuing development projects and planning a new credit facility. For investors, the key watch items are the $818 million of debt maturing in 2005 (including $300 million of putable unsecured notes and the $700 million revolver expiring in May 2005), moderately elevated leverage with floating-rate debt at 21.5% of total debt, and the sensitivity of rental income to a competitive supply and low-mortgage-rate environment that the company describes as adversely affecting it.

02—Key points

Key Highlights

Revenue growth of 10.8% to $1.89 billion, but income from continuing operations fell 14% to $135.3 million, reflecting higher depreciation (up $69.2 million) and interest expense.
Same-store NOI declined 0.9% to $960.0 million as same-store expenses rose 3.6% against 0.9% revenue growth; same-store occupancy improved slightly to 93.3% from 93.0%.
FFO available to common shares and OP units increased 1.8% to $651.7 million; net income available to common shares was $418.6 million, or $1.50 per basic share.
Consolidated debt-to-total market capitalization of 35% with total debt of $6.46 billion, a weighted average rate of 5.63%, and 78.7% of debt fixed-rate.
Heavy 2005 maturities of $818 million (12.7% of total debt), including a $300 million unsecured note putable in 2005 and the $700 million credit facility expiring in May 2005 with $150 million drawn at year-end.
Portfolio reshaping: 58 dispositions for $993 million and 24 acquisitions for about $913 million, with 2005 guidance calling for a 0% to 3% same-store NOI change.
Hurricane-related uninsured property damage reserve of $15.2 million, and a $1.6 million reserve for a Florida class action on lease-termination fees that is under appeal.

03—Questions

Frequently Asked Questions

How did Equity Residential perform financially in 2004 compared with 2003?
Total revenues from continuing operations rose to $1.89 billion from $1.71 billion, largely because of acquisitions and the consolidation of previously unconsolidated development projects. Income from continuing operations fell to $135.3 million from $157.9 million, mainly due to higher depreciation and interest expense. Net income available to common shares declined modestly to $418.6 million from $426.6 million, despite $323.9 million in gains on discontinued operations, which were lower than the 2003 level. FFO rose 1.8%.
Is the company's same-store business growing?
Only modestly. Same-store revenues grew 0.9% to $1.61 billion, mainly from lower resident concessions and slightly higher occupancy. Same-store expenses rose 3.6% on higher payroll, utilities and real estate taxes, so same-store NOI declined 0.9% to $960.0 million. For 2005, management expects same-store revenue growth of 2.0% to 3.25% and NOI change of 0% to 3%.
What are the main financial risks investors should monitor?
Key risks include the $818 million of 2005 debt maturities, the May 2005 expiration of the $700 million revolving credit facility (management said it expected to replace it in March or April 2005), and floating-rate debt of $1.39 billion, about 21.5% of total debt. A 25 basis point rise in rates would cost roughly $3.5 million in annual interest expense. Other risks include the company's REIT compliance, Florida hurricane exposure with higher self-insured retentions, and the influence of Chairman Samuel Zell and affiliated OP unit holders.
What did the company do with its portfolio and capital in 2004?
Equity Residential sold 58 properties and some condominium units for about $993 million, acquired 24 properties for about $913 million, and bought out minority interests in several previously unconsolidated development properties for about $53 million in cash. It issued $800 million of new unsecured notes (a $300 million 4.75% note due 2009 and a $500 million 5.25% note due 2014) and redeemed the $40 million Series A preference interests. It also used roughly $406.5 million to invest in development projects before consolidating them. Subsequent to year-end, it had agreements pending to acquire three properties for about $90 million and to dispose of seventeen properties for about $325 million.
What is the outlook for dividends and share buybacks?
The company paid a quarterly common distribution of $0.4325, or $1.73 annualized, unchanged from 2003. Distributions declared were roughly 100% of net income available to common shares on a per-share basis, but well below FFO. The board authorized up to $85 million of additional share repurchases, though none were made in 2004. The company also announced irrevocable notices to redeem 1.32 million Series B and C preference units, totaling $66 million, in March 2005.

04—Continue

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