Equity Residential's Q3 earnings narrow to US$29.8M from US$143.3M a year ago as revenues rise to US$525.2M from US$477.6M; CEO sees continued strength in core markets

Cindy Allen

CHICAGO , October 28, 2010 (press release) – Equity Residential (NYSE:EQR - News) today reported results for the quarter and nine months ended September 30, 2010. All per share results are reported on a fully-diluted basis.

“The recovery that began early in the year continued through the summer and delivered quarterly same store revenue growth for the first time since the fourth quarter of 2008,” said David J. Neithercut, Equity Residential’s President and CEO. “Continued strength in retention and rising rates for renewals and new leases combined with favorable demographics and supply limitations indicate that fundamentals in our core markets should remain strong for the foreseeable future.”

Third Quarter 2010

For the third quarter of 2010, the company reported earnings of $0.09 per share compared to $0.48 per share in the third quarter of 2009. The difference is due primarily to lower gains from property sales in 2010.

The company reported FFO (funds from operations) for the quarter at the high end of its guidance range and, as expected, positive quarter over quarter same store revenues and net operating income (NOI) for the first time in six quarters.

FFO for the quarter ended September 30, 2010 was $0.55 per share compared to $0.53 per share for the same period of 2009. The difference is due primarily to:

* the net positive impact of approximately $0.05 per share from lease-up activity, higher total NOI from the company’s same store portfolio and the volume and timing of 2010 transaction activity, partially offset by the negative impact of dilution from 2009 transaction activity;
* the negative impact of approximately $0.02 per share from the expenses and lost revenues resulting from the reconstruction of the Prospect Towers garage; and
* the net negative impact of approximately $0.01 per share due to lower interest and other income and certain other non-comparable items listed on page 24 of this release.

Nine Months Ended September 30, 2010

For the nine months ended September 30, 2010, the company reported earnings of $0.29 per share compared to $1.12 per share in the same period of 2009.

FFO for the nine months ended September 30, 2010 was $1.63 per share compared to $1.69 per share in the same period of 2009.

Same Store Results

On a same store third quarter to third quarter comparison, which includes 117,286 apartment units, revenues increased 1.3%, expenses increased 1.9% and NOI increased 0.9%.

On a same store sequential second quarter to third quarter comparison, which includes 120,931 apartment units, revenues increased 1.4%, expenses increased 2.5% and NOI increased 0.7%.

On a same store nine-month to nine-month comparison, which includes 116,775 apartment units, revenues decreased 1.0%, expenses increased 1.7% and NOI decreased 2.6%.

Acquisitions/Dispositions

During the third quarter of 2010, the company acquired six properties: one located in Los Angeles, one in San Diego, two in the San Francisco Bay Area and two in the Washington, D.C. Metro Area. The properties have a total of 1,955 apartment units and the aggregate purchase price was $548.9 million. Included in this total is the company’s previously announced acquisition of Vantage Pointe, a 679-unit property located in San Diego, California, that is in lease up and is currently 27% occupied. The company expects Vantage Pointe to have stabilized operations in its third year of ownership at a 7.0% yield on cost. The weighted average capitalization (cap) rate on the company’s acquisitions in the quarter, not including Vantage Pointe, was 5.2%.

Also during the third quarter, the company acquired three land parcels, located in the Washington, D.C. Metro Area, San Francisco Bay Area and Southeast Florida, for an aggregate purchase price of $42.3 million.

During the quarter, the company sold three consolidated properties, consisting of 426 apartment units, for an aggregate sale price of $26.1 million at a weighted average cap rate of 7.3% generating an unlevered internal rate of return (IRR), inclusive of management costs, of 10.6%.

Also during the quarter, the company sold the last of its interests in an institutional joint venture which held 24 unconsolidated properties consisting of 5,635 apartment units. The portfolio was valued in its entirety at $375.1 million, which results in an implied weighted average cap rate of 7.6%. The company sold its 25% equity interest to its partner and received, net of debt repayments, $25.4 million, of which $22.5 million was recorded as a gain on the sale of unconsolidated entities. This gain is included in net income but not in FFO and this sale is not part of the company’s guidance of $750.0 million of property sales for the year.

During the first nine months of 2010, the company acquired 14 properties, consisting of 4,164 apartment units, for an aggregate purchase price of $1.4 billion. Included in this total are the acquisitions of 425 Mass and Vantage Pointe, both of which are currently in lease up. The weighted average cap rate on the company’s acquisitions in the first nine months of 2010, not including 425 Mass and Vantage Pointe, was 5.5%.

During the first nine months of 2010, the company sold 11 consolidated properties, consisting of 2,437 apartment units, for an aggregate sale price of $172.0 million at a weighted average cap rate of 7.5% generating an unlevered IRR, inclusive of management costs, of 9.6%.

At-The-Market (ATM) Share Offering Program

During the third quarter of 2010, the company did not issue any common shares under its ATM Share Offering Program. The company has approximately 12.4 million shares available for issuance under this program and has not issued any such shares since January 14, 2010.

Debt Offering

On July 15, 2010, the company closed on a $600.0 million unsecured notes offering maturing July 15, 2020 with a coupon rate of 4.75% and an all-in effective interest rate of 5.09% including the effect of fees and the termination of certain interest rate hedges.

Fourth Quarter 2010 Guidance

The company has established an FFO guidance range of $0.56 to $0.60 per share for the fourth quarter of 2010.

Full Year 2010 Guidance

The company has revised its guidance for its full year 2010 same store operating performance and FFO results as well as other items listed on page 25 of this release. The changes to the full year same store and FFO guidance are listed below:


Previous

Revised
Same store:
Physical occupancy 95.0% 94.9%
Revenue change (0.5%) to 0.0% (0.25%)
Expense change 1.0% to 2.0% 1.5%
NOI change (2.0%) to (0.5%) (1.25%)

FFO per share $2.14 to $2.20 $2.18 to $2.22


The difference between the midpoint of the previous FFO guidance range and the midpoint of the revised guidance range is due primarily to the impact on NOI from the company’s 2010 transaction activity and better than expected performance of properties in lease up.

Fourth Quarter 2010 Conference Call

Equity Residential expects to announce fourth quarter 2010 results on Wednesday, February 2, 2011 and host a conference call to discuss those results at 10:00 a.m. CT on Thursday, February 3, 2011.

Equity Residential is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 471 properties located in 18 states and the District of Columbia, consisting of 133,029 apartment units. For more information on Equity Residential, please visit our website at www.equityapartments.com.

Industry Intelligence Editor's Note: In an omitted table, Equity Residential reported Q3 earnings of US$29.8 million versus US$3$143.3 million a year ago. Revenues for the period were US$525.2 million versus US$477.6 million a year ago.

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