01—Abstract
Summary
Summary of the 10-K filed February 18, 2021. Cited figures are marked; the original filing is the authoritative source.
Equity Residential (EQR) closed 2020 with a 304-property, 77,889-unit portfolio concentrated in coastal, urban and dense suburban markets, and its FY2020 10-K (filed February 18, 2021) reflects a sharp COVID-19 hit to operations.
Rental income fell 4.8% to $2.57 billiona, same-store NOI declined 6.6%, and same-store residential revenue dropped 2.9%, with urban core markets (New York, San Francisco, Boston) hit hardest. Diluted EPS was $2.45 versus $2.60 in 2019, held up by $531.8 million of property sale gains. Management guided 2021 same-store NOI down 12% to 15%, calling the first half of 2021 the low point and expecting recovery in the second half.
Balance sheet and liquidity remain strong. Total debt was $8.04 billionb at a 3.76% weighted average rate with a 9-year average maturity, 85.3% of real estate was unencumbered, and the company reported about $2.0 billion of available liquidity. Investment-grade ratings were reaffirmed with stable outlooks (ERPOP senior debt at A-/A3/A), and the dividend was held at $0.6025 per quarter, up 6.2% from 2019.
Covenants were comfortably met. Management highlighted early signs of recovery, including improving occupancy and pricing since late 2020, but also flagged elevated bad debt and reserves that it expects to persist into 2021.
The filing is a combined report for EQR and its operating partnership, ERP Operating Limited Partnership, in which EQR owns about 96.4%c. EQR holds no debt of its own, since all debt sits at the operating partnership.
02—Key points
Key Highlights
- Rental income fell 4.8% to $2.57B in 2020 from $2.70B in 2019, driven by a 6.6% decline in same-store NOI to $1.65B.
- Same-store residential revenue fell 2.9%, with urban core markets (NYC, SF, Boston) most affected; Physical occupancy averaged 95.1% and the average rental rate fell 1.5% to $2,809.
- Diluted EPS was $2.45 versus $2.60 in 2019, supported by $531.8M of gains on property sales.
- 2021 guidance calls for same-store revenue down 7% to 9%, expenses up 3% to 4%, and NOI down 12% to 15%, with management expecting the first half of 2021 to be the low point.
- Liquidity of about $2.0B, $8.04B of total debt at a 3.76% weighted average rate, and 85.3% of real estate unencumbered; ratings reaffirmed as stable (ERPOP senior debt A-/A3/A).
- Quarterly dividend held at $0.6025 per share, a 6.2% annualized increase over 2019; operating cash flow of $1.27B covered distributions.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 18, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Operating Expenses | $1.79B$1.79B | −0.4% |
| Operating Income | $1.32B$1.36B | −2.8% |
| Interest Expense | $365.07M$390.08M | −6.4% |
| Net Income | $962.50M$1.01B | −4.7% |
| EPS (Basic) | $2.45$2.61 | −6.1% |
| EPS (Diluted) | $2.45$2.60 | −5.8% |
| Shares Outstanding (Basic) | 371.79M370.46M | +0.4% |
| Shares Outstanding (Diluted) | 385.87M386.33M | −0.1% |
05—Questions
Frequently Asked Questions
How much did COVID-19 affect EQR's 2020 financial performance?
The impact was significant but manageable. Rental income fell 4.8%, same-store NOI dropped 6.6%, and bad debt rose to $42.5M (1.7% of rental income) from $12.1M in 2019. Non-residential tenants also saw a $12.9M straight-line receivable write-off. EQR still collected about 97% of expected residential revenue in Q2 through Q4 2020.
Is EQR's balance sheet and debt position secure?
Yes. Debt was $8.04B, 90% fixed rate, with a 9.0-year weighted average maturity and only $450.7M due in 2021. Unsecured revolver availability was $1.98B at year-end, and the company remained in compliance with all unsecured debt covenants. Ratings agencies reaffirmed their ratings and kept outlooks stable.
What does the 2021 outlook look like for EQR?
Management guided to same-store NOI declining 12% to 15% in 2021, with revenue down 7% to 9% and expenses up 3% to 4%. It expects the first half of 2021 to be the trough, with recovery accelerating in the second half as vaccines roll out and cities reopen. Physical occupancy was already improving in January 2021, though new-lease rates remained negative.
Why are EQR's urban markets underperforming suburban ones?
Urban core submarkets (Manhattan/Brooklyn, Downtown Boston/Cambridge, Downtown San Francisco) generated 23% of same-store revenue and were hit hardest, with NYC occupancy near 91% and SF downtown assets in the low 90s by early 2021. Suburban properties, about 44% of revenue, held occupancy near 96%. Management believes urban demand will return as workers come back to offices, but recovery will take time.
Is the dividend at risk, and what does the structure mean for investors?
The dividend was maintained at $0.6025 per quarter and total distributions paid in January 2021 were $232.3M. Management says future dividends remain at the board's discretion. EQR is a REIT that must distribute at least 90% of REIT taxable income. Because EQR is an UPREIT, holders of OP Units can exchange them one-for-one for common shares, and EQR itself carries no debt, with all borrowing done by the operating partnership.
06—Continue