Equity Residential (NYSE: EQR) today reported results for the quarter ended March 31, 2018. All per share results are reported as available to common shares/units on a diluted basis. Earnings per Share (EPS) was $0.57, Funds From Operations (FFO) was $0.71 per share and Normalized FFO was $0.77 per share for the first quarter of 2018, each as described in further detail below.

“The demand for rental housing across the nation’s coastal, gateway cities remains very strong but, like last year, new apartment supply continues to limit growth in new lease rates,” said David J. Neithercut, Equity Residential’s President and CEO. “We are pleased to have delivered first quarter results in line with our expectations driven by strong renewal rate growth of 4.6%. As we approach our primary leasing season with occupancy of 96.3% and a company-wide focus on resident retention, we remain well positioned to meet our operating goals for the year.”

Highlights

  • Increased same store revenues by 2.2% over the first quarter of 2017. Achieved same store Physical Occupancy of 96.0% and a 1.9% increase in Average Rental Rate.
  • Increased the Company’s 2018 annualized common share dividend by 7.2%.
  • Issued $500.0 million of 10-year unsecured notes at a coupon of 3.5%, representing the lowest credit spread (80 basis points) of any 10-year REIT benchmark offering in history.

First Quarter 2018

EPS for the first quarter of 2018 was $0.57 compared to $0.39 in the first quarter of 2017. The difference is due primarily to higher property sale gains in the first quarter of 2018, the various adjustment items listed on page 22 of this release and the items described below.

FFO as defined by the National Association of Real Estate Investment Trusts (NAREIT) was $0.71 per share for the first quarter of 2018 compared to $0.76 per share in the first quarter of 2017. The difference is due primarily to the various adjustment items listed on page 22 of this release and the items described below.

Normalized FFO for the first quarter of 2018 was $0.77 per share compared to $0.74 per share in the first quarter of 2017. The difference is due primarily to:

  • A positive impact of approximately $0.02 per share from increased same store net operating income (NOI);
  • A positive impact of approximately $0.02 per share from Lease-Up NOI; and
  • A negative impact of approximately $0.01 per share from other items including higher corporate overhead (property management and general and administrative expenses).

The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 24 through 28 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 5, 25 and 26 of this release and the Company has included guidance for Normalized FFO on page 23 and FFO and EPS on page 26 of this release.

Same Store Results

On a same store first quarter to first quarter comparison, which includes 72,204 apartment units, revenues increased 2.2%, expenses increased 3.9% and NOI increased 1.5%. Average Rental Rate increased 1.9% and Physical Occupancy increased by 0.1% to 96.0%.

Investment Activity

During the first quarter of 2018, the Company acquired a 117-unit consolidated apartment property located in Seattle for a purchase price of approximately $53.7 million and an Acquisition Capitalization Rate of 4.6%. During the quarter, the Company sold a consolidated apartment property in each of New York City, the New York suburbs, suburban Seattle and suburban Los Angeles, totaling 786 apartment units, for an aggregate sale price of approximately $290.0 million, at a weighted average Disposition Yield of 4.4%, generating an Unlevered IRR of 8.1%. Also during the quarter, the Company completed 855 Brannan, a 449-unit apartment development project in San Francisco, for a total cost of approximately $322.2 million and an anticipated Development Yield of 5.1%.

Capital Markets Activity

On February 7, 2018, the Company issued $500.0 million of 10-year unsecured notes maturing March 1, 2028 at a coupon of 3.5% and an all-in effective rate of 3.61% including the effect of underwriters’ fees and the termination of certain interest rate hedges. The Company used the proceeds from this offering to prepay a $550.0 million secured debt pool maturing in 2020. The Company anticipates issuing $300.0 million to $500.0 million of additional debt to prepay a $500.0 million secured debt pool that matures in 2019 but is pre-payable at par in late 2018 (see page 14 for details). The Company anticipates incurring approximately $23.7 million in debt extinguishment costs/prepayment penalties in connection with all of its debt repayment activities in 2018, of which $23.5 million was incurred in the first quarter of 2018, which will not be included in the Company’s Normalized FFO.

Second Quarter 2018 Guidance

The Company has established an EPS guidance range of $0.36 to $0.40 for the second quarter of 2018. The difference between the Company’s first quarter 2018 EPS of $0.57 and the midpoint of the second quarter 2018 guidance range of $0.38 is due primarily to lower expected gains on property sales, partially offset by lower expected debt extinguishment costs and the items described below.

The Company has established an FFO guidance range of $0.77 to $0.81 per share for the second quarter of 2018. The difference between the Company’s first quarter 2018 FFO of $0.71 per share and the midpoint of the second quarter 2018 guidance range of $0.79 per share is due primarily to lower expected debt extinguishment costs and the items described below.

The Company has established a Normalized FFO guidance range of $0.77 to $0.81 per share for the second quarter of 2018. The difference between the Company’s first quarter 2018 Normalized FFO of $0.77 per share and the midpoint of the second quarter 2018 guidance range of $0.79 per share is due primarily to:

  • A positive impact of approximately $0.01 per share from increased same store NOI; and
  • A positive impact of approximately $0.01 per share from other items including lower corporate overhead (property management and general and administrative expenses).

Second Quarter 2018 Earnings and Conference Call

Equity Residential expects to announce its second quarter 2018 results on Tuesday, July 24, 2018 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, July 25, 2018.

About Equity Residential

Equity Residential is an S&P 500 company focused on the acquisition, development and management of rental apartment properties in urban and high-density suburban coastal gateway markets where today’s renters want to live, work and play. Equity Residential owns or has investments in 303 properties consisting of 78,399 apartment units, primarily located in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California. For more information on Equity Residential, please visit our website at www.equityapartments.com.

Forward-Looking Statements

In addition to historical information, this press release contains forward-looking statements and information within the meaning of the federal securities laws. These statements are based on current expectations, estimates, projections and assumptions made by management. While Equity Residential’s management believes the assumptions underlying its forward-looking statements are reasonable, such information is inherently subject to uncertainties and may involve certain risks, including, without limitation, changes in general market conditions, including the rate of job growth and cost of labor and construction material, the level of new multifamily construction and development, competition and local government regulation. Other risks and uncertainties are described under the heading “Risk Factors” in our Annual Report on Form 10-K and subsequent periodic reports filed with the Securities and Exchange Commission (SEC) and available on our website, www.equityapartments.com. Many of these uncertainties and risks are difficult to predict and beyond management’s control. Forward-looking statements are not guarantees of future performance, results or events. Equity Residential assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

A live web cast of the Company’s conference call discussing these results will take place tomorrow, Wednesday, April 25, at 10:00 a.m. Central. Please visit the Investor section of the Company’s web site at www.equityapartments.com for the link. A replay of the web cast will be available for two weeks at this site.

 
Equity Residential
Consolidated Statements of Operations

(Amounts in thousands except per share data)

(Unaudited)

 
  Quarter Ended March 31,  
2018     2017  
REVENUES
Rental income $ 632,831 $ 603,920
Fee and asset management   185     180  
Total revenues   633,016     604,100  
 
EXPENSES
Property and maintenance 108,202 102,608
Real estate taxes and insurance 91,914 81,728
Property management 23,444 22,252
General and administrative 16,278 14,173
Depreciation   196,309     178,968  
Total expenses   436,147     399,729  
 
Operating income 196,869 204,371
 
Interest and other income 5,880 601
Other expenses (3,441 ) (1,090 )
Interest:
Expense incurred, net (116,104 ) (106,210 )
Amortization of deferred financing costs   (3,679 )   (2,296 )
Income before income and other taxes, income (loss) from
investments in unconsolidated entities and net gain (loss)
on sales of real estate properties and land parcels 79,525 95,376
Income and other tax (expense) benefit (213 ) (262 )
Income (loss) from investments in unconsolidated entities (977 ) (1,073 )
Net gain (loss) on sales of real estate properties 142,213 36,707
Net gain (loss) on sales of land parcels   —     19,193  
Net income 220,548 149,941
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership (8,059 ) (5,411 )
Partially Owned Properties   (680 )   (788 )
Net income attributable to controlling interests 211,809 143,742
Preferred distributions   (773 )   (773 )
Net income available to Common Shares $ 211,036   $ 142,969  
 
Earnings per share – basic:
Net income available to Common Shares $ 0.57   $ 0.39  
Weighted average Common Shares outstanding   367,800     366,605  
 
Earnings per share – diluted:
Net income available to Common Shares $ 0.57   $ 0.39  
Weighted average Common Shares outstanding   383,018     382,280  
 
Distributions declared per Common Share outstanding $ 0.54   $ 0.50375  
 
Equity Residential
Consolidated Statements of Funds From Operations and Normalized Funds From Operations

(Amounts in thousands except per share data)

(Unaudited)

 
  Quarter Ended March 31,  
2018     2017  
Net income $ 220,548 $ 149,941
Net (income) loss attributable to Noncontrolling Interests – Partially
Owned Properties (680 ) (788 )
Preferred distributions   (773 )   (773 )
Net income available to Common Shares and Units 219,095 148,380
 
Adjustments:
Depreciation 196,309 178,968
Depreciation – Non-real estate additions (1,145 ) (1,298 )
Depreciation – Partially Owned Properties (1,032 ) (832 )
Depreciation – Unconsolidated Properties 1,148 1,142
Net (gain) loss on sales of unconsolidated entities - operating
assets — (68 )
Net (gain) loss on sales of real estate properties   (142,213 )   (36,707 )
FFO available to Common Shares and Units 272,162 289,585
 
Adjustments (see page 22 for additional detail):
Asset impairment and valuation allowances — —
Write-off of pursuit costs 931 715
Debt extinguishment and preferred share redemption (gains) losses 23,539 12,304
Non-operating asset (gains) losses 213 (18,892 )
Other miscellaneous items   (3,239 )   9  
Normalized FFO available to Common Shares and Units $ 293,606   $ 283,721  
 
FFO $ 272,935 $ 290,358
Preferred distributions   (773 )   (773 )
FFO available to Common Shares and Units $ 272,162   $ 289,585  
FFO per share and Unit - basic $ 0.71   $ 0.76  
FFO per share and Unit - diluted $ 0.71   $ 0.76  
 
Normalized FFO $ 294,379 $ 284,494
Preferred distributions   (773 )   (773 )
Normalized FFO available to Common Shares and Units $ 293,606   $ 283,721  
Normalized FFO per share and Unit - basic $ 0.77   $ 0.75  
Normalized FFO per share and Unit - diluted $ 0.77   $ 0.74  
 
Weighted average Common Shares and Units outstanding - basic   380,663     379,504  
Weighted average Common Shares and Units outstanding - diluted   383,018     382,280  

Note: See page 22 for additional detail regarding the adjustments from FFO to Normalized FFO. See pages 24 through 28 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.

 
Equity Residential
Consolidated Balance Sheets

(Amounts in thousands except for share amounts)

(Unaudited)

 
  March 31,   December 31,
2018   2017  
ASSETS  
Investment in real estate
Land $ 5,960,804 $ 5,996,024
Depreciable property 19,798,353 19,768,362
Projects under development 96,609 163,547
Land held for development     102,851     98,963  
Investment in real estate 25,958,617 26,026,896
Accumulated depreciation     (6,173,047 )   (6,040,378 )
Investment in real estate, net 19,785,570 19,986,518
Cash and cash equivalents 44,453 50,647
Investments in unconsolidated entities 59,091 58,254
Restricted deposits 50,258 50,115
Other assets     444,498     425,065  
Total assets $   20,383,870   $ 20,570,599  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 2,894,344 $ 3,618,722
Notes, net 5,530,815 5,038,812
Line of credit and commercial paper 234,318 299,757
Accounts payable and accrued expenses 167,481 114,766
Accrued interest payable 69,753 58,035
Other liabilities 335,957 341,852
Security deposits 64,748 65,009
Distributions payable     206,794     192,828  
Total liabilities     9,504,210     9,729,781  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership     354,567     366,955  
Equity:
Shareholders’ equity:
Preferred Shares of beneficial interest, $0.01 par value;
100,000,000 shares authorized; 745,600 shares issued and
outstanding as of March 31, 2018 and December 31, 2017 37,280 37,280
Common Shares of beneficial interest, $0.01 par value;
1,000,000,000 shares authorized; 368,211,911 shares issued
and outstanding as of March 31, 2018 and 368,018,082
shares issued and outstanding as of December 31, 2017 3,682 3,680
Paid in capital 8,910,306 8,886,586
Retained earnings 1,415,638 1,403,530
Accumulated other comprehensive income (loss)     (77,734 )   (88,612 )
Total shareholders’ equity 10,289,172 10,242,464
Noncontrolling Interests:
Operating Partnership 234,628 226,691
Partially Owned Properties     1,293     4,708  
Total Noncontrolling Interests     235,921     231,399  
Total equity     10,525,093     10,473,863  
Total liabilities and equity $   20,383,870   $ 20,570,599  
 
 
Equity Residential
Portfolio Summary
As of March 31, 2018
 
              % of   Average
Apartment Stabilized Rental
Markets/Metro Areas Properties   Units   NOI   Rate
 
Los Angeles 70 15,968 18.3 % $ 2,474
Orange County 13 4,028 4.3 % 2,131
San Diego   12     3,385     3.9 %   2,296
Subtotal – Southern California 95 23,381 26.5 % 2,387
 
San Francisco 55 13,418 20.3 % 3,121
Washington DC 48 15,811 17.2 % 2,359
New York 37 10,007 16.0 % 3,827
Seattle 41 8,438 10.1 % 2,360
Boston 24 6,263 9.9 % 2,999
Other Markets   1     136     — %   1,209
Total 301 77,454 100.0 % 2,742
 
Unconsolidated Properties   2     945     —     —
 
Grand Total   303     78,399     100.0 % $ 2,742

Note: Projects under development are not included in the Portfolio Summary until construction has been completed.

 
Equity Residential
 
Portfolio as of March 31, 2018
 
    Properties       Apartment Units
     
Wholly Owned Properties 282 73,160
Master-Leased Properties - Consolidated 2 759
Partially Owned Properties - Consolidated 17 3,535
Partially Owned Properties - Unconsolidated   2     945
 
  303     78,399

Note: Effective February 1, 2018, the Company took over management of one of its Master-Leased Properties containing 94 apartment units located in Boston.

 
 
Portfolio Rollforward Q1 2018

($ in thousands)

 
      Apartment  

Purchase

   Acquisition
Properties   Units  

Price

   Cap Rate  
     
12/31/2017 305 78,611
 
Acquisitions:
Consolidated:
Rental Properties 1 117 $ 53,700 4.6 %
 
Sales Price   Disposition

Yield

  
 
Dispositions:
Consolidated:
Rental Properties (4 ) (786 ) $ (290,020 ) (4.4 %)
Completed Developments - Consolidated 1 449
Configuration Changes   —     8  
 
3/31/2018   303     78,399  
 
Equity Residential
 
First Quarter 2018 vs. First Quarter 2017
Same Store Results/Statistics for 72,204 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results     Statistics  
    Average    
Rental Physical
Description Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
     
Q1 2018 $ 590,384 $ 180,358 $ 410,026 $ 2,721 96.0 % 10.7 %
Q1 2017 $ 577,404   $ 173,605   $   403,799   $ 2,670     95.9 %   10.5 %
 
Change $ 12,980   $ 6,753   $   6,227   $ 51     0.1 %   0.2 %
 
Change 2.2 % 3.9 % 1.5 % 1.9 %
 
First Quarter 2018 vs. Fourth Quarter 2017
Same Store Results/Statistics for 74,475 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 
  Results     Statistics  
    Average    
Rental Physical
Description Revenues   Expenses   NOI   Rate   Occupancy   Turnover  
     
Q1 2018 $ 610,242 $ 186,347 $ 423,895 $ 2,730 96.0 % 10.7 %
Q4 2017 $ 608,860   $ 175,008   $   433,852   $ 2,726     95.9 %   11.2 %
 
Change $ 1,382   $ 11,339   $   (9,957 ) $ 4     0.1 %   (0.5 %)
 
Change 0.2 % 6.5 % (2.3 )% 0.1 %

Note: See page 27 for reconciliations from operating income.

 
Equity Residential
First Quarter 2018 vs. First Quarter 2017
Same Store Results/Statistics by Market
 
                        Increase (Decrease) from Prior Year's Quarter  
Markets/Metro Areas Apartment

Units

  Q1 2018

% of

Actual

NOI

  Q1 2018

Average

Rental

Rate

 

Q1 2018

Weighted

Average

Physical

Occupancy %

  Q1 2018

Turnover

  Revenues     Expenses     NOI     Average

Rental

Rate

    Physical

Occupancy

    Turnover  
           
Los Angeles 14,240 17.7 % $ 2,463 96.1 % 12.6 % 3.9 % 4.2 % 3.8 % 3.4 % 0.4 % 0.8 %
Orange County 3,684 4.2 % 2,112 96.2 % 9.9 % 3.9 % 1.2 % 4.8 % 3.9 % 0.1 % (0.6 %)
San Diego   3,385     4.0 %   2,296     95.8 %   13.7 %   3.5 %   2.8 %   3.8 %   3.8 %   (0.3 %)   (1.0 %)
Subtotal – Southern California 21,309 25.9 % 2,376 96.1 % 12.3 % 3.8 % 3.6 % 3.9 % 3.5 % 0.2 % 0.3 %
 
San Francisco 12,309 20.1 % 3,023 96.4 % 10.4 % 2.7 % 0.2 % 3.6 % 2.0 % 0.6 % (0.5 %)
Washington DC 15,475 17.9 % 2,355 96.1 % 9.3 % 0.7 % 4.1 % (0.8 %) 0.5 % 0.2 % 0.1 %
New York 10,007 17.5 % 3,827 96.0 % 8.3 % 0.2 % 5.3 % (2.9 %) 0.0 % 0.1 % (0.3 %)
Boston (1) 6,009 10.0 % 2,978 95.5 % 9.1 % 2.5 % 5.6 % 1.3 % 2.0 % (0.3 %) 0.2 %
Seattle 6,959 8.5 % 2,276 95.7 % 14.2 % 4.7 % 5.2 % 4.5 % 4.4 % (0.1 %) 1.4 %
Other Markets 136 0.1 % 1,209 98.5 % 11.8 % 5.2 % (15.6 %) 20.5 % 6.0 % (0.8 %) 6.7 %
                                                                 
Total   72,204     100.0 % $ 2,721     96.0 %   10.7 %   2.2 %   3.9 %   1.5 %   1.9 %   0.1 %   0.2 %

(1) Quarter over quarter same store revenues in Boston were positively impacted by non-residential related income. Residential-only same store revenues in Boston increased 1.7% quarter over quarter.

 
Equity Residential
First Quarter 2018 vs. Fourth Quarter 2017
Same Store Results/Statistics by Market
 
                        Increase (Decrease) from Prior Quarter  
Markets/Metro Areas Apartment

Units

  Q1 2018

% of

Actual

NOI

  Q1 2018

Average

Rental

Rate

  Q1 2018

Weighted

Average

Physical

Occupancy %

  Q1 2018

Turnover

  Revenues     Expenses     NOI     Average

Rental

Rate

    Physical

Occupancy

    Turnover  
           
Los Angeles 15,371 18.6 % $ 2,474 96.1 % 12.6 % 1.2 % 5.8 % (0.6 %) 0.7 % 0.4 % (0.5 %)
Orange County 4,028 4.4 % 2,131 96.1 % 9.8 % 0.7 % 7.3 % (1.4 %) 0.3 % 0.2 % (0.8 %)
San Diego   3,385     3.9 %   2,296     95.8 %   13.7 %   0.2 %   5.4 %   (1.6 %)   0.3 %   (0.2 %)   (0.4 %)
Subtotal – Southern California 22,784 26.9 % 2,387 96.1 % 12.2 % 1.0 % 5.9 % (0.9 %) 0.6 % 0.3 % (0.6 %)
 
San Francisco 12,969 20.7 % 3,082 96.4 % 10.5 % 0.8 % 2.5 % 0.2 % 0.1 % 0.6 % (1.1 %)
Washington DC 15,475 17.3 % 2,355 96.1 % 9.3 % (0.6 %) 6.3 % (3.4 %) 0.0 % (0.4 %) (0.5 %)
New York 10,007 16.9 % 3,827 96.0 % 8.3 % (0.2 %) 9.5 % (5.7 %) 0.3 % (0.4 %) 0.5 %
Boston (1) 6,009 9.7 % 2,978 95.5 % 9.1 % (0.6 %) 6.7 % (3.3 %) (0.1 %) (0.3 %) (1.2 %)
Seattle 7,095 8.4 % 2,274 95.7 % 14.2 % 0.3 % 7.0 % (2.1 %) (0.8 %) 0.7 % 0.5 %
Other Markets 136 0.1 % 1,209 98.5 % 11.8 % 7.2 % 7.6 % 7.0 % 4.5 % 2.4 % 0.0 %
                                                                 
Total   74,475     100.0 % $ 2,730     96.0 %   10.7 %   0.2 %   6.5 %   (2.3 %)   0.1 %   0.1 %   (0.5 %)

(1) Sequential same store revenues in Boston were negatively impacted by non-residential related income. Residential-only same store revenues in Boston decreased 0.4% sequentially.

 
Equity Residential
 
First Quarter 2018 vs. First Quarter 2017
Same Store Operating Expenses for 72,204 Same Store Apartment Units

$ in thousands

 
              % of Actual
Q1 2018
Actual Actual $ % Operating
Q1 2018   Q1 2017   Change   Change   Expenses  
   
Real estate taxes $ 76,696 $ 73,064 $ 3,632 5.0 % 42.5 %
On-site payroll (1) 39,389 38,010 1,379 3.6 % 21.8 %
Utilities (2) 25,347 24,032 1,315 5.5 % 14.1 %
Repairs and maintenance (3) 21,276 20,774 502 2.4 % 11.8 %
Insurance 4,601 4,372 229 5.2 % 2.5 %
Leasing and advertising 2,448 2,537 (89 ) (3.5 %) 1.4 %
Other on-site operating expenses (4)   10,601     10,816     (215 )   (2.0 %)   5.9 %
 
Same store operating expenses $ 180,358   $ 173,605   $ 6,753     3.9 %   100.0 %
(1)   On-site payroll - Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff.
 
(2) Utilities - Represents gross expenses prior to any recoveries under the Resident Utility Billing System ("RUBS"). Recoveries are reflected in rental income.
 
(3) Repairs and maintenance - Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair and maintenance costs.
 
(4) Other on-site operating expenses - Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees.
 
Equity Residential
 
Debt Summary as of March 31, 2018

($ in thousands)

 
          Weighted
Weighted Average
Average Maturities
Amounts (1)   % of Total   Rates (1)   (years)
     
Secured $ 2,894,344 33.4 % 4.24 % 6.1
Unsecured   5,765,133     66.6 %   4.14 %   10.5
 
Total $ 8,659,477     100.0 %   4.17 %   9.0
Fixed Rate Debt:
Secured – Conventional $ 2,387,907 27.6 % 4.79 % 4.3
Unsecured – Public   5,085,505     58.7 %   4.46 %   11.7
 
Fixed Rate Debt   7,473,412     86.3 %   4.57 %   9.4
 
Floating Rate Debt:
Secured – Conventional 6,850 0.1 % 1.60 % 6.6
Secured – Tax Exempt 499,587 5.7 % 2.02 % 13.1
Unsecured – Public (2) 445,310 5.2 % 2.33 % 1.2
Unsecured – Revolving Credit Facility (3) — — 2.29 % 3.7
Unsecured – Commercial Paper Program (4)   234,318     2.7 %   1.94 %   —
 
Floating Rate Debt   1,186,065     13.7 %   2.10 %   6.6
 
Total $ 8,659,477     100.0 %   4.17 %   9.0
(1)   Net of the effect of any derivative instruments. Weighted average rates are for the quarter ended March 31, 2018.
 
(2) Fair value interest rate swaps convert the $450.0 million 2.375% notes due July 1, 2019 to a floating interest rate of 90-Day LIBOR plus 0.61%.
 
(3) The Company’s $2.0 billion unsecured revolving credit facility matures January 10, 2022. The interest rate on advances under the credit facility will generally be LIBOR plus a spread (currently 0.825%), or based on bids received from the lending group, and an annual facility fee (currently 12.5 basis points). Both the spread and the facility fee are dependent on the credit rating of the Company’s long-term debt. As of March 31, 2018, there was approximately $1.72 billion available on the Company’s unsecured revolving credit facility (net of $41.6 million which was restricted/dedicated to support letters of credit and net of $235.0 million in principal outstanding on the commercial paper program).
 
(4) The Company may borrow up to a maximum of $500.0 million on the commercial paper program subject to market conditions. The notes bear interest at various floating rates with a weighted average of 1.94% for the quarter ended March 31, 2018 and a weighted average maturity of 46 days as of March 31, 2018.
 

Note: The Company capitalized interest of approximately $1.7 million and $8.2 million during the quarters ended March 31, 2018 and 2017, respectively.

 
Equity Residential
 
Debt Maturity Schedule as of March 31, 2018

($ in thousands)

 
Year   Fixed

Rate (1)

  Floating

Rate (1)

  Total     % of Total     Weighted

Average Rates

on Fixed

Rate Debt (1)

    Weighted

Average

Rates on

Total Debt (1)

 
     
2018 $ 4,410 $ 235,500 (2) $ 239,910 2.7 % 4.01 % 2.23 %
2019 506,731 (3) 466,613 973,344 11.1 % 5.17 % 3.79 %
2020 1,128,592 (4) 700 1,129,292 12.9 % 5.20 % 5.20 %
2021 927,506 600 928,106 10.6 % 4.64 % 4.64 %
2022 265,341 800 266,141 3.0 % 3.26 % 3.26 %
2023 1,326,800 4,800 1,331,600 15.2 % 3.74 % 3.73 %
2024 1,272 10,900 12,172 0.1 % 4.79 % 1.97 %
2025 451,334 13,200 464,534 5.3 % 3.38 % 3.33 %
2026 593,424 14,500 607,924 6.9 % 3.59 % 3.54 %
2027 401,468 15,600 417,068 4.8 % 3.26 % 3.20 %
2028+   1,924,969     481,365     2,406,334     27.4 %   4.17 %   3.66 %
Subtotal 7,531,847 1,244,578 8,776,425 100.0 % 4.27 % 3.89 %
Deferred Financing Costs and Unamortized (Discount)   (58,435 )   (58,513 )   (116,948 ) N/A   N/A   N/A  
 
Total $ 7,473,412   $ 1,186,065   $ 8,659,477     100.0 %   4.27 %   3.89 %
(1)   Net of the effect of any derivative instruments. Weighted average rates are as of March 31, 2018.
 
(2) Includes $235.0 million in principal outstanding on the Company's commercial paper program.
 
(3) Includes a $500.0 million 5.19% mortgage loan with a maturity date of October 1, 2019 that can be prepaid at par beginning October 1, 2018. The Company currently intends to prepay this mortgage loan on October 1, 2018.
 
(4) Includes a $500.0 million 5.78% mortgage loan with a maturity date of July 1, 2020 that can be prepaid at par beginning July 1, 2019.
 
Equity Residential
 
Selected Unsecured Public Debt Covenants
 
  March 31,     December 31,
2018   2017
Total Debt to Adjusted Total Assets (not to exceed 60%) 33.5% 34.6%
 
Secured Debt to Adjusted Total Assets (not to exceed 40%) 11.2% 14.0%
 
Consolidated Income Available for Debt Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1) 4.37 4.17
 
Total Unsecured Assets to Unsecured Debt
(must be at least 150%) 366.3% 381.0%

Note: These selected covenants relate to ERP Operating Limited Partnership's ("ERPOP") outstanding unsecured public debt, which represent the Company's most restrictive covenants. Equity Residential is the general partner of ERPOP.

 
 

Selected Credit Ratios

 
        March 31,           December 31,
2018   2017
Total debt to Normalized EBITDAre 5.39x 5.61x
 
Net debt to Normalized EBITDAre 5.36x 5.57x
 
Unencumbered NOI as a % of total NOI 78.9% 74.2%

Note: See page 21 for the Normalized EBITDAre reconciliations.

 

Equity Residential

 
Capital Structure as of March 31, 2018

(Amounts in thousands except for share/unit and per share amounts)

 
Secured Debt           $ 2,894,344       33.4 %    
Unsecured Debt   5,765,133     66.6 %
 
Total Debt 8,659,477 100.0 % 26.9 %
 
Common Shares (includes Restricted Shares) 368,211,911 96.3 %
Units (includes OP Units and Restricted Units)   14,026,486     3.7 %
 
Total Shares and Units 382,238,397 100.0 %
Common Share Price at March 31, 2018 $ 61.62  
23,553,530 99.8 %
Perpetual Preferred Equity (see below)   37,280     0.2 %
 
Total Equity 23,590,810 100.0 % 73.1 %
 
Total Market Capitalization $ 32,250,287 100.0 %
 
 
Perpetual Preferred Equity as of March 31, 2018

(Amounts in thousands except for share and per share amounts)

 
                            Annual         Annual
Outstanding Liquidation Dividend Dividend
Series Call Date Shares   Value   Per Share   Amount
Preferred Shares:  
8.29% Series K 12/10/26 745,600 $ 37,280 $ 4.145 $ 3,091
 
Equity Residential
Common Share and Unit
Weighted Average Amounts Outstanding
 
  Q1 2018     Q1 2017
     
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 367,799,738 366,605,450
Shares issuable from assumed conversion/vesting of:
- OP Units 12,862,923 12,898,618
- long-term compensation shares/units   2,355,562     2,775,943
 
Total Common Shares and Units - diluted   383,018,223     382,280,011
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 367,799,738 366,605,450
OP Units - basic   12,862,923     12,898,618
 
Total Common Shares and OP Units - basic 380,662,661 379,504,068
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units   2,355,562     2,775,943
 
Total Common Shares and Units - diluted   383,018,223     382,280,011
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 368,211,911 367,137,757
Units (includes OP Units and Restricted Units)   14,026,486     13,827,472
 
Total Shares and Units   382,238,397     380,965,229
 
Equity Residential
Partially Owned Entities as of March 31, 2018

(Amounts in thousands except for property and apartment unit amounts)

 
    Consolidated       Unconsolidated  
 
Total properties   17     2  
 
Total apartment units   3,535     945  
 
Operating information for the quarter ended 3/31/18 (at 100%):
Operating revenue $ 26,447 $ 8,200
Operating expenses   6,637     2,849  
 
Net operating income 19,810 5,351
Property management 955 218
General and administrative 17 —
Depreciation   10,479     4,052  
 
Operating income 8,359 1,081
Interest and other income 27 —
Interest:
Expense incurred, net (3,312 ) (2,072 )
Amortization of deferred financing costs   (68 )   —  
 
Income (loss) before income and other taxes and income (loss)
from investments in unconsolidated entities 5,006 (991 )
Income and other tax (expense) benefit (18 ) (13 )
Income (loss) from investments in unconsolidated entities   (393 )   —  
Net income (loss) $ 4,595   $ (1,004 )
 
Debt - Secured (1):
EQR Ownership (2) $ 237,522 $ 29,085
Noncontrolling Ownership   65,134     116,339  
 
Total (at 100%) $ 302,656   $ 145,424  
(1)   All debt is non-recourse to the Company.
 
(2) Represents the Company's current equity ownership interest.
 
Equity Residential
Development and Lease-Up Projects as of March 31, 2018

(Amounts in thousands except for project and apartment unit amounts)

 
Projects   Location   No. of

Apartment

Units

     Total

Budgeted

Capital

Cost

     Total

Book Value

to Date

     Total Book

Value Not

Placed in

Service

     Total

Debt

     Percentage

Completed

     Percentage

Leased

     Percentage

Occupied

     Estimated

Completion

Date

   Estimated

Stabilization

Date

             

Projects Under Development:

100K Apartments Washington, DC 222 $ 88,023 $ 61,777 $ 61,777 $ — 66 % — — Q4 2018 Q4 2019
1401 E. Madison Seattle, WA 137 62,352 21,360 21,360 — 9 % — — Q3 2019 Q1 2020
249 Third Street Cambridge, MA 84 51,447 13,472 13,472 — 5 % — — Q4 2019 Q2 2020
                             
Projects Under Development   443     201,822     96,609     96,609     —  
 

Completed Not Stabilized (1):

855 Brannan (2) San Francisco, CA 449 322,235 309,554 — — 81 % 78 % Completed Q1 2019
Helios (formerly 2nd & Pine) Seattle, WA 398 227,287 221,381 — — 75 % 70 % Completed Q2 2019
Cascade Seattle, WA 477 176,378 170,902 — — 67 % 65 % Completed Q2 2019
                             
Projects Completed Not Stabilized   1,324     725,900     701,837     —     —  
 

Completed and Stabilized During the Quarter:

455 Eye Street Washington, DC 174 72,867 72,629 — — 97 % 95 % Completed Stabilized
                             
Projects Completed and Stabilized During the Quarter   174     72,867     72,629     —     —  
 
Total Development Projects   1,941   $ 1,000,589   $ 871,075   $ 96,609   $ —  
 
Land Held for Development N/A   N/A   $ 102,851   $ 102,851   $ —  
 
Total Budgeted Capital Q1 2018
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS Cost   NOI  
Projects Under Development $ 201,822 $ —
Completed Not Stabilized 725,900 4,027
Completed and Stabilized During the Quarter   72,867     985  
Total Development NOI Contribution $ 1,000,589   $ 5,012  

Note: All development projects are wholly owned by the Company.

 
(1)   Properties included here are substantially complete. However, they may still require additional exterior and interior work for all apartment units to be available for leasing.
 
(2) 855 Brannan – The increase in Total Budgeted Capital Cost of $18.2 million is primarily due to scope upgrades to apartment units, amenities and other project components.
 
Equity Residential
Capital Expenditures to Real Estate
For the Quarter Ended March 31, 2018

(Amounts in thousands except for apartment unit and per apartment unit amounts)

 
    Same Store     Non-Same Store         Same Store Avg. Per
Properties   Properties/Other   Total   Apartment Unit
 
Total Apartment Units (1)   72,204     5,250     77,454  
 
Building Improvements $ 18,590 $ 406 $ 18,996 $ 258
 
Renovation Expenditures (2) 7,809 26 7,835 108
 
Replacements 9,836 80 9,916 136
                     
Total Capital Expenditures $ 36,235   $ 512   $ 36,747   $ 502
Note: See pages 24 through 28 for the definitions of non-GAAP financial measures and other terms.
 
(1)   Total Apartment Units - Excludes 945 unconsolidated apartment units for which capital expenditures to real estate are self-funded and do not consolidate into the Company's results.
 
(2) Renovation Expenditures on 550 same store apartment units for the quarter ended March 31, 2018 approximated $14,200 per apartment unit renovated.
 
Equity Residential
Normalized EBITDAre Reconciliations

(Amounts in thousands)

 
Normalized EBITDAre Reconciliations for Page 15
 
           
Trailing Twelve Months   2018   2017  
March 31, 2018     December 31, 2017   Q1   Q4     Q3     Q2     Q1  
Net income $ 698,988 $ 628,381 $ 220,548 $ 130,084 $ 144,196 $ 204,160 $ 149,941
Interest expense incurred, net 393,784 383,890 116,104 95,311 91,145 91,224 106,210
Amortization of deferred financing costs 9,909 8,526 3,679 2,079 2,064 2,087 2,296
Amortization of above/below market lease intangibles 4,070 3,828 1,098 1,099 1,012 861 856
Depreciation 761,090 743,749 196,309 200,785 184,100 179,896 178,968
Income and other tax expense (benefit) 429 478 213 (232 ) 228 220 262
                                         
EBITDA 1,868,270 1,768,852 537,951 429,126 422,745 478,448 438,533
 
Net (gain) loss on sales of real estate properties (262,563 ) (157,057 ) (142,213 ) (15,296 ) (17,328 ) (87,726 ) (36,707 )
                                         
EBITDAre 1,605,707 1,611,795 395,738 413,830 405,417 390,722 401,826
 
Impairment – non-operating assets 1,693 1,693 — 1,693 — — —
Write-off of pursuit costs (other expenses) 3,322 3,106 931 777 783 831 715
(Income) loss from investments in unconsolidated entities 3,274 3,370 977 1,217 398 682 1,073
Net (gain) loss on sales of land parcels 26 (19,167 ) — 3 — 23 (19,193 )
Insurance/litigation settlement or reserve income (interest and other income) (9,831 ) (4,853 ) (5,358 ) (137 ) (3,500 ) (836 ) (380 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 1,867 237 1,923 — — (56 ) 293
Other 1,345 1,245 196 961 95 93 96
                                         
Normalized EBITDAre $ 1,607,403   $ 1,597,426   $ 394,407   $ 418,344   $ 403,193   $ 391,459   $ 384,430  
 

Balance Sheet Items:

March 31, 2018   December 31, 2017  
 
Total debt $ 8,659,477 $ 8,957,291
Cash and cash equivalents (44,453 ) (50,647 )
Mortgage principal reserves/sinking funds   (4,778 )   (3,167 )
Net debt $ 8,610,246   $ 8,903,477  
Note:   EBITDA, EBITDAre and Normalized EBITDAre do not include any adjustments for the Company’s share of partially owned unconsolidated entities or the minority partner’s share of partially owned consolidated entities due to the immaterial size of the Company’s partially owned portfolio.
 
Equity Residential
Adjustments from FFO to Normalized FFO

(Amounts in thousands)

 
  Quarter Ended March 31,  
2018     2017     Variance  
 
Impairment $ —   $ —   $ —  
Asset impairment and valuation allowances   —     —     —  
 
Write-off of pursuit costs (other expenses)   931     715     216  
Write-off of pursuit costs   931     715     216  
 
Prepayment premiums/penalties (interest expense) 22,110 11,698 10,412
Write-off of unamortized deferred financing costs (interest expense) 1,580 217 1,363
Write-off of unamortized (premiums)/discounts/OCI (interest expense)   (151 )   389     (540 )
Debt extinguishment and preferred share redemption (gains) losses   23,539     12,304     11,235  
 
Net (gain) loss on sales of land parcels — (19,193 ) 19,193
(Income) loss from investments in unconsolidated entities ─ non-operating assets   213     301     (88 )
Non-operating asset (gains) losses   213     (18,892 )   19,105  
 
Insurance/litigation settlement or reserve income (interest and other income) (5,358 ) (380 ) (4,978 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) 1,923 293 1,630
Other   196     96     100  
Other miscellaneous items   (3,239 )   9     (3,248 )
 
Adjustments from FFO to Normalized FFO $ 21,444   $ (5,864 ) $ 27,308  

Note: See pages 24 through 28 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.

 

Equity Residential

Normalized FFO Guidance and Assumptions

 
The guidance/projections provided below are based on current expectations and are forward-looking. All guidance is given on a Normalized FFO basis. Therefore, certain items excluded from Normalized FFO, such as debt extinguishment costs/prepayment penalties and the write-off of pursuit costs, are not included in the estimates provided on this page. See pages 24 through 28 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.

2018 Normalized FFO Guidance (per share diluted)

 
    Q2 2018     2018
Expected Normalized FFO Per Share $0.77 to $0.81 $3.17 to $3.27
 

2018 Same Store Assumptions

 
Physical Occupancy           96.0%
Revenue change 1.0% to 2.25%
Expense change 3.5% to 4.5%
NOI change 0.0% to 1.5%

Note: Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO per share/Normalized FFO per share.

 

2018 Transaction Assumptions

 
Consolidated rental acquisitions       $500.0 million
Consolidated rental dispositions $500.0 million
Spread between Acquisition Cap Rate and Disposition Yield 50 basis points
 

2018 Debt Assumptions

     
Weighted average debt outstanding $8.8 billion to $9.1 billion
Weighted average interest rate (reduced for capitalized interest) 4.21%
Interest expense, net (on a Normalized FFO basis) $370.5 million to $383.1 million
Capitalized interest $4.0 million to $8.0 million

Note: All 2018 debt assumptions are shown on a Normalized FFO basis and therefore exclude an approximately $23.7 million impact from anticipated debt extinguishment costs/prepayment penalties described on page 2.

 

2018 Capital Expenditures to Real Estate Assumptions

 
      Per Same Store      
  Apartment Unit Total
Total Capital Expenditures to Real Estate $2,900 $210.0 million

Note: During 2018, the Company expects to spend approximately $60.0 million for apartment unit Renovation Expenditures on approximately 4,500 same store apartment units at an average cost of approximately $13,300 per apartment unit renovated, which is included in the Total Capital Expenditures to Real Estate amounts noted above.

 

2018 Other Guidance Assumptions

 
Property management expense       $88.5 million to $90.5 million
General and administrative expense $53.0 million to $55.0 million
Interest and other income $0.5 million to $1.0 million
Income and other tax expense $0.5 million to $1.0 million
Debt offerings $800.0 million to $1.0 billion
Equity ATM share offerings No amounts budgeted
Preferred share offerings No amounts budgeted
Weighted average Common Shares and Units - Diluted 383.8 million
 

Equity Residential

Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms

(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
 
This Earnings Release and Supplemental Information includes certain non-GAAP financial measures and other terms that management believes are helpful in understanding our business. The definitions and calculations of these non-GAAP financial measures and other terms may differ from the definitions and methodologies used by other REITs and, accordingly, may not be comparable. These non-GAAP financial measures should not be considered as an alternative to net earnings or any other measurement of performance computed in accordance with accounting principles generally accepted in the United States (“GAAP”) or as an alternative to cash flows from specific operating, investing or financing activities. Furthermore, these non-GAAP financial measures are not intended to be a measure of cash flow or liquidity.
 

Acquisition Capitalization Rate or Cap Rate – NOI that the Company anticipates receiving in the next 12 months (or the year two or three stabilized NOI for properties that are in lease-up at acquisition) less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross purchase price of the asset. The weighted average Acquisition Cap Rate for acquired properties is weighted based on the projected NOI streams and the relative purchase price for each respective property.

 

Average Rental Rate – Total residential rental revenues reflected on a straight-line basis in accordance with GAAP divided by the weighted average occupied apartment units for the reporting period presented.

 

Capital Expenditures to Real Estate:

 

Building Improvements – Includes roof replacement, paving, building mechanical equipment systems, exterior siding and painting, major landscaping, furniture, fixtures and equipment for amenities and common areas, vehicles and office and maintenance equipment.

Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets.

Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting).

 

Debt Covenant Compliance – Our unsecured debt includes certain financial and operating covenants including, among other things, maintenance of certain financial ratios. These provisions are contained in the indentures applicable to each notes payable or the credit agreement for our line of credit. The Debt Covenant Compliance ratios that are provided show the Company's compliance with certain covenants governing our public unsecured debt. These covenants generally reflect our most restrictive financial covenants. The Company was in compliance with its unsecured debt covenants for all years presented (the ratios should not be used for any other purpose, including without limitation, to evaluate the Company's financial condition or results of operations, nor do they indicate the Company's covenant compliance as of any other date or for any other period).

 

Development Yield – NOI that the Company anticipates receiving in the next 12 months following stabilization less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $50-$150 per apartment unit depending on the type of asset) divided by the Total Budgeted Capital Cost of the asset. The weighted average Development Yield for development properties is weighted based on the projected NOI streams and the relative Total Budgeted Capital Cost for each respective property.

 

Disposition Yield – NOI that the Company anticipates giving up in the next 12 months less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross sale price of the asset. The weighted average Disposition Yield for sold properties is weighted based on the projected NOI streams and the relative sales price for each respective property.

 

Earnings Per Share ("EPS") – Net income per share calculated in accordance with GAAP. Expected EPS is calculated on a basis consistent with actual EPS. Due to the uncertain timing and extent of property dispositions and the resulting gains/losses on sales, actual EPS could differ materially from expected EPS.

 

Equity Residential

Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms – Continued

(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
 

EBITDA for Real Estate and Normalized EBITDA for Real Estate:

 

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”) – The National Association of Real Estate Investment Trusts (“NAREIT”) defines EBITDAre (September 2017 White Paper) as net income (computed in accordance with GAAP) before interest expense, income taxes, depreciation and amortization expense, and further adjusted for gains and losses from sales of depreciated operating properties, impairment write-downs of depreciated operating properties, impairment write-downs of investments in unconsolidated entities caused by a decrease in value of depreciated operating properties within the joint venture and adjustments to reflect the Company’s share of EBITDAre of investments in unconsolidated entities.

 
The Company believes that EBITDAre is useful to investors, creditors and rating agencies as a supplemental measure of the Company’s ability to incur and service debt because it is a recognized measure of performance by the real estate industry, and by excluding gains or losses related to sales or impairment of depreciated operating properties, EBITDAre can help compare the Company’s credit strength between periods or as compared to different companies.
 

Normalized Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (“Normalized EBITDAre”) – Represents net income (computed in accordance with GAAP) before interest expense, income taxes, depreciation and amortization expense, and further adjusted for non-comparable items. Normalized EBITDAre, total debt to Normalized EBITDAre and net debt to Normalized EBITDAre are important metrics in evaluating the credit strength of the Company and its ability to service its debt obligations. The Company believes that Normalized EBITDAre, total debt to Normalized EBITDAre, and net debt to Normalized EBITDAre are useful to investors, creditors and rating agencies because they allow investors to compare the Company’s credit strength to prior reporting periods and to other companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual credit quality.

 

Economic Gain – Economic Gain is calculated as the net gain (loss) on sales of real estate properties in accordance with GAAP, excluding accumulated depreciation. The Company generally considers Economic Gain to be an appropriate supplemental measure to net gain (loss) on sales of real estate properties in accordance with GAAP because it is one indication of the gross value created by the Company's acquisition, development, rehab, management and ultimate sale of a property and because it helps investors to understand the relationship between the cash proceeds from a sale and the cash invested in the sold property. The following table presents a reconciliation of net gain (loss) on sales of real estate properties in accordance with GAAP to Economic Gain:

        Quarter Ended March 31, 2018  
 
Net Gain (Loss) on Sales of Real Estate Properties $ 142,213
Accumulated Depreciation Gain   (63,640 )
 
Economic Gain $ 78,573  
 

FFO and Normalized FFO:

 

Funds From Operations (“FFO”) – NAREIT defines FFO (April 2002 White Paper) as net income (computed in accordance with GAAP), excluding gains (or losses) from sales and impairment write-downs of depreciated operating properties, plus depreciation and amortization expense, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis. The April 2002 White Paper states that gain or loss on sales of property is excluded from FFO for previously depreciated operating properties only. Expected FFO per share is calculated on a basis consistent with actual FFO per share and is considered an appropriate supplemental measure of expected operating performance when compared to expected EPS.

 
The Company believes that FFO and FFO available to Common Shares and Units are helpful to investors as supplemental measures of the operating performance of a real estate company, because they are recognized measures of performance by the real estate industry and by excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO available to Common Shares and Units can help compare the operating performance of a company’s real estate between periods or as compared to different companies.
 

Normalized Funds From Operations ("Normalized FFO") – Normalized FFO begins with FFO and excludes:

• the impact of any expenses relating to non-operating asset impairment and valuation allowances;

• pursuit cost write-offs;

• gains and losses from early debt extinguishment and preferred share redemptions;

 

Equity Residential

Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms – Continued

(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
 

• gains and losses from non-operating assets; and

• other miscellaneous items.

 
Expected Normalized FFO per share is calculated on a basis consistent with actual Normalized FFO per share and is considered an appropriate supplemental measure of expected operating performance when compared to expected EPS.
 
The Company believes that Normalized FFO and Normalized FFO available to Common Shares and Units are helpful to investors as supplemental measures of the operating performance of a real estate company because they allow investors to compare the Company's operating performance to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company's actual operating results.
 
FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units do not represent net income, net income available to Common Shares or net cash flows from operating activities in accordance with GAAP. Therefore, FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units should not be exclusively considered as alternatives to net income, net income available to Common Shares or net cash flows from operating activities as determined by GAAP or as a measure of liquidity. The Company's calculation of FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.
 
FFO available to Common Shares and Units and Normalized FFO available to Common Shares and Units are calculated on a basis consistent with net income available to Common Shares and reflects adjustments to net income for preferred distributions and premiums on redemption of preferred shares in accordance with GAAP. The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the "Noncontrolling Interests – Operating Partnership". Subject to certain restrictions, the Noncontrolling Interests – Operating Partnership may exchange their OP Units for Common Shares on a one-for-one basis.
 
The following table presents reconciliations of EPS to FFO per share and Normalized FFO per share for pages 5 and 22 (the expected guidance/projections provided below are based on current expectations and are forward-looking):
  Actual   Actual   Expected     Expected
Q1 2018 Q1 2017 Q2 2018 2018
Per Share   Per Share   Per Share   Per Share
EPS - Diluted $ 0.57 $ 0.39 $0.36 to $0.40 $1.75 to $1.85
Add: Depreciation expense 0.51 0.47 0.49 1.96
Less: Net (gain) loss on sales   (0.37 )   (0.10 ) (0.08)   (0.61)
 
FFO per share - Diluted 0.71 0.76 0.77 to 0.81 3.10 to 3.20
 
Asset impairment and valuation allowances — — — —
Write-off of pursuit costs — — — 0.01
Debt extinguishment and preferred share redemption
(gains) losses 0.06 0.03 — 0.06
Non-operating asset (gains) losses — (0.05 ) — —
Other miscellaneous items   —     —   —   —
 
Normalized FFO per share - Diluted $ 0.77   $ 0.74   $0.77 to $0.81   $3.17 to $3.27

Lease-Up NOI – Represents NOI for development properties: (i) in various stages of lease-up; and (ii) where lease-up has been completed but the properties were not stabilized (defined as having achieved 90% occupancy for three consecutive months) for all of the current and comparable periods presented.

Net Operating Income (“NOI”) – NOI is the Company’s primary financial measure for evaluating each of its apartment properties. NOI is defined as rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company's apartment properties. NOI does not include an allocation of property management expenses either in the current or comparable periods. Rental income for all leases and operating expense for ground leases (for both same store and non-same store properties) are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.

The following tables present reconciliations of operating income per the consolidated statements of operations to NOI, along with rental income, operating expenses and NOI per the consolidated statements of operations allocated between same store and non-same store/other results (see page 9):

 

Equity Residential

Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms – Continued

(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
 
    Quarter Ended March 31,  
2018       2017  
Operating income $ 196,869 $ 204,371
Adjustments:
Fee and asset management revenue (185 ) (180 )
Property management 23,444 22,252
General and administrative 16,278 14,173
Depreciation   196,309     178,968  
Total NOI $ 432,715   $ 419,584  
Rental income:
Same store $ 590,384 $ 577,404
Non-same store/other   42,447     26,516  
Total rental income 632,831 603,920
Operating expenses:
Same store 180,358 173,605
Non-same store/other   19,758     10,731  
Total operating expenses 200,116 184,336
NOI:
Same store 410,026 403,799
Non-same store/other   22,689     15,785  
Total NOI $ 432,715   $ 419,584  

Non-Same Store Properties – For annual comparisons, primarily includes all properties acquired during 2017 and 2018, plus any properties in lease-up and not stabilized as of January 1, 2017.

Physical Occupancy – The weighted average occupied apartment units for the reporting period divided by the average of total apartment units available for rent for the reporting period.

Same Store Properties – For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2017, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.

% of Stabilized NOI – Represents budgeted 2018 NOI for stabilized properties and projected annual NOI at stabilization (defined as having achieved 90% occupancy for three consecutive months) for properties that are in lease-up.

Total Budgeted Capital Cost – Estimated cost for projects under development and/or developed and all capitalized costs incurred to date plus any estimates of costs remaining to be funded for all projects, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, all in accordance with GAAP.

Total Market Capitalization – The aggregate of the market value of the Company’s outstanding common shares, including restricted shares, the market value of the Company’s operating partnership units outstanding, including restricted units (based on the market value of the Company’s common shares) and the outstanding principal balance of debt. The Company believes this is a useful measure of a real estate operating company’s long-term liquidity and balance sheet strength, because it shows an approximate relationship between a company’s total debt and the current total market value of its assets based on the current price at which the Company’s common shares trade. However, because this measure of leverage changes with fluctuations in the Company’s share price, which occur regularly, this measure may change even when the Company’s earnings, interest and debt levels remain stable.

Turnover – Total residential move-outs divided by total residential apartment units, including inter-property and intra-property transfers.

Unencumbered NOI % – Represents NOI generated by consolidated real estate assets unencumbered by outstanding secured debt as a percentage of total NOI generated by all of the Company's consolidated real estate assets.

 

Equity Residential

Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms – Continued

(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
 

Unlevered Internal Rate of Return (“IRR”) – The Unlevered IRR on sold properties is the compound annual rate of return calculated by the Company based on the timing and amount of: (i) the gross purchase price of the property plus any direct acquisition costs incurred by the Company; (ii) total revenues earned during the Company’s ownership period; (iii) total direct property operating expenses (including real estate taxes and insurance) incurred during the Company’s ownership period; (iv) capital expenditures incurred during the Company’s ownership period; and (v) the gross sales price of the property net of selling costs. Each of the items (i) through (v) is calculated in accordance with GAAP.

 
The calculation of the Unlevered IRR does not include an adjustment for the Company’s general and administrative expense, interest expense (including loan assumption costs and other loan-related costs) or property management expense. Therefore, the Unlevered IRR is not a substitute for net income as a measure of our performance. Management believes that the Unlevered IRR achieved during the period a property is owned by the Company is useful because it is one indication of the gross value created by the Company’s acquisition, development, rehab, management and ultimate sale of a property, before the impact of Company overhead. The Unlevered IRR achieved on the properties as cited in this release should not be viewed as an indication of the gross value created with respect to other properties owned by the Company, and the Company does not represent that it will achieve similar Unlevered IRRs upon the disposition of other properties. The weighted average Unlevered IRR for sold properties is weighted based on all cash flows over the investment period for each respective property, including net sales proceeds.