Equity Residential (NYSE: EQR) today reported results for the quarter and year ended December 31, 2015. All per share results are reported as available to common shares on a diluted basis.

“We are delighted to have delivered a 9.1% increase in Normalized FFO in 2015 driven by another very strong year of same store revenue growth,” said David J. Neithercut, Equity Residential’s President and CEO. “We are also pleased to have started the New Year very much in line with our original expectations and that 2016 will be yet another year of strong apartment fundamentals and above trend revenue growth.”

Fourth Quarter 2015

FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), for the fourth quarter of 2015 was $0.92 per share compared to $0.87 per share in the fourth quarter of 2014. The difference is due primarily to the various non-comparable items listed on page 25 of this release and the items described below.

For the fourth quarter of 2015, the company reported Normalized FFO of $0.93 per share compared to $0.86 per share in the same period of 2014. The following items impacted Normalized FFO per share in the quarter:

  • a positive impact of approximately $0.08 per share from higher same store net operating income (NOI) and approximately $0.01 per share from NOI from non-same store properties currently in lease-up; and
  • a negative impact of approximately $0.02 per share of lower NOI due to 2014 and 2015 transaction activity, higher general and administrative costs and other items.

Normalized FFO begins with FFO and eliminates certain items that by their nature are not comparable from period to period or that tend to obscure the company’s actual operating performance. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 7 and 27 of this release and the company has included guidance for Normalized FFO on page 26 and FFO on page 27 of this release.

For the fourth quarter of 2015, the company reported earnings of $0.55 per share compared to $0.59 per share in the fourth quarter of 2014. The difference is due primarily to lower gains on asset sales in the fourth quarter of 2015 and the items described above.

Year Ended December 31, 2015

FFO for the year ended December 31, 2015 was $3.48 per share compared to $3.15 per share in the same period of 2014.

For the year ended December 31, 2015, the company reported Normalized FFO of $3.46 per share compared to $3.17 per share for the same period of 2014.

For the year ended December 31, 2015, the company reported earnings of $2.36 per share compared to $1.73 per share for the same period of 2014. The difference is due primarily to higher gains on property sales and improved operations during the year ended December 31, 2015.

Same Store Results

On a same store fourth quarter to fourth quarter comparison, which includes 98,202 apartment units, revenues increased 5.2%, expenses increased 2.0% and NOI increased 6.8%. Average rental rate increased 5.2% and occupancy remained even at 96.0%.

On a same store year to year comparison, which includes 96,286 apartment units, revenues increased 5.1%, expenses increased 2.5% and NOI increased 6.5%. Average rental rate increased 4.8% and occupancy increased 0.3% to 96.1%.

Investment Activity

During the fourth quarter of 2015, the company acquired three properties, two in Seattle and one in Orange County, California, consisting of 423 apartment units for an aggregate purchase price of approximately $165.8 million at a weighted average capitalization (cap) rate of 4.7%.

During the fourth quarter of 2015, the company sold one consolidated apartment property located in Seattle, consisting of 150 apartment units, for a sale price of approximately $48.5 million at a cap rate of 4.5% generating an unlevered internal rate of return (IRR), inclusive of indirect management costs, of 12.8%.

During 2015, the company acquired four properties consisting of 625 apartment units for an aggregate purchase price of approximately $296.0 million at a weighted average cap rate of 4.5% and three contiguous land parcels for an aggregate purchase price of $27.8 million. Also during 2015, the company completed seven development projects consisting of 1,546 apartment units for a total development cost of approximately $835.1 million.

During 2015, the company sold eight consolidated apartment properties, consisting of 1,857 apartment units, for an aggregate sale price of approximately $390.0 million at a weighted average cap rate of 5.5%. The company also sold a 193,230 square foot medical office building located adjacent to its Longfellow Place property in Boston for approximately $123.3 million at a cap rate of 4.5%. These combined sales generated an unlevered IRR, inclusive of indirect management costs, of 13.4%.

Asset Sale to Starwood

As previously announced on January 27, 2016, the company completed the sale of 72 properties consisting of 23,262 apartment units to controlled affiliates of Starwood Capital Group for $5.365 billion, or approximately $230,634 per unit on average, generating an unlevered IRR, inclusive of indirect management costs, of 11.1%.

Debt Extinguishments

In connection with the Starwood sale and other anticipated 2016 asset sales, the company has retired in 2016 approximately $1.7 billion in debt principal prior to scheduled maturity with an additional $271.2 million anticipated to be retired at par at maturity on March 15, 2016. In addition, no commercial paper or revolving credit facility balances were outstanding as of February 2, 2016. The debt payoffs included both secured and unsecured debt in order to maintain the company’s existing credit metrics and strong credit profile. The company incurred approximately $112.4 million in prepayment penalties associated with these debt extinguishments. The prepayment penalties, including certain related write-offs of unamortized deferred financing costs, premiums/discounts and derivative settlements, will reduce earnings per share and FFO in the first quarter of 2016 by approximately $120.1 million but will not impact Normalized FFO. A summary table of the debt retired is set forth below:

($) in thousands   Maturity   Principal

Amount Repaid

   GAAP

Interest Rate (1)

   Prepayment

Penalty

 
Mortgage notes payable:
 
6.256% Fannie Mae Pool 3 2017 $ 440,806 3.671% $ 29,291
Various Secured – Tax Exempt (2) 2026-2034 41,795 various 194
 
Notes, net:
 
5.125% Notes due 2016 (3) 2016 228,757 5.274% 1,382
5.375% Notes due 2016 2016 400,000 5.091% 9,475
5.750% Notes due 2017 2017 255,923 5.785% 16,494
7.125% Notes due 2017 2017 46,102 7.168% 4,648
4.625% Notes due 2021 2021 250,000 5.989% 31,638
7.570% Notes due 2026 2026 47,975   7.557% 19,302
 
Total $ 1,711,358   $ 112,424
(1) GAAP interest rate is defined as cash interest paid net of discount/(premium) amortization and deferred derivative settlement amortization as applicable in determining interest expense.
(2) Includes various tax exempt mortgage notes that encumbered assets sold as part of the Starwood portfolio.
(3) $228.8 million in 5.125% notes due 2016 were retired in conjunction with the company's tender offer with the remaining $271.2 million anticipated to be retired at par at maturity on March 15, 2016.

First Quarter 2016 Guidance

The company has established a Normalized FFO guidance range of $0.73 to $0.77 per share for the first quarter of 2016. The difference between the company’s fourth quarter 2015 Normalized FFO of $0.93 per share and the midpoint of the first quarter 2016 guidance range of $0.75 per share is due primarily to:

  • a negative impact of approximately $0.17 per share from lower NOI due to 2016 transaction activity including the portfolio sale to Starwood;
  • a negative impact of approximately $0.04 per share from lower NOI primarily as a result of higher seasonal operating expenses in the first quarter of 2016;
  • a negative impact of approximately $0.01 per share from higher general and administrative and property management costs; and
  • a positive impact of approximately $0.04 per share from lower total interest expense.

Full Year 2016 Guidance

The company has established a Normalized FFO guidance range of $3.00 to $3.20 per share for the full year 2016. The assumptions underlying this guidance can be found on page 26 of this release. The difference between the company’s full-year 2015 Normalized FFO of $3.46 per share and the midpoint of the full year 2016 guidance range of $3.10 per share is primarily due to:

  • a negative impact of approximately $0.90 per share from lower NOI due to 2016 transaction activity including the portfolio sale to Starwood;
  • a positive impact of approximately $0.23 per share from higher NOI from the company’s full year 2016 same store pool of approximately 70,000 apartment units;
  • a positive impact of approximately $0.12 per share from higher NOI from development properties in lease-up;
  • a positive impact of approximately $0.21 per share from lower total interest expense; and
  • a negative impact of approximately $0.02 per share from other items.

Special Dividends and 2016 Common Share Dividend

In addition to regular quarterly dividends, Equity Residential anticipates paying two special dividends to its common shareholders in 2016 totaling $10.00 to $12.00 per share. The company expects to pay, in the second quarter of 2016, a special dividend of approximately $8.00 per share from proceeds from the asset sales closed in the first few months of 2016, including the sale to Starwood, and an additional special dividend of approximately $2.00 to $4.00 per share later in the year from the proceeds of additional asset sales.

In regards to the company’s regular quarterly common share dividend, as previously announced, the company’s dividend policy is to pay 65% of the midpoint of the range of Normalized FFO guidance customarily provided as part of the company’s fourth quarter earnings release. Based on the guidance above, the company expects to pay four quarterly common share dividends of $0.50375 per share for an annual common share dividend of $2.015 per share in 2016. All future dividends remain subject to the discretion of the company’s Board of Trustees.

First Quarter 2016 Earnings and Conference Call

Equity Residential expects to announce first quarter 2016 results on Tuesday, April 26, 2016 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, April 27, 2016.

About Equity Residential

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. As of January 31, 2016, Equity Residential owns or has investments in 316 properties consisting of 85,391 apartment units located primarily in Boston, New York, Washington DC, 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, February 3, 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)
 
  Year Ended December 31,   Quarter Ended December 31,
2015   2014 2015   2014
REVENUES
Rental income $ 2,736,578 $ 2,605,311 $ 701,219 $ 662,819
Fee and asset management   8,387     9,437     1,974     1,841  
Total revenues   2,744,965     2,614,748     703,193     664,660  
 
EXPENSES
Property and maintenance 479,160 473,098 114,212 112,011
Real estate taxes and insurance 339,802 325,401 85,289 79,684
Property management 81,185 79,636 20,298 18,556
Fee and asset management 5,021 5,429 1,257 1,136
Depreciation 765,895 758,861 181,033 193,089
General and administrative   65,082     50,948     14,140     9,652  
Total expenses   1,736,145     1,693,373     416,229     414,128  
 
Operating income 1,008,820 921,375 286,964 250,532
 
Interest and other income 7,372 4,462 466 1,249
Other expenses (2,942 ) (9,073 ) (103 ) (1,894 )
Interest:
Expense incurred, net (444,069 ) (457,191 ) (110,447 ) (109,967 )
Amortization of deferred financing costs   (10,801 )   (11,088 )   (3,067 )   (2,534 )
Income before income and other taxes, income (loss) from investments in

unconsolidated entities, net gain (loss) on sales of real estate properties

and land parcels and discontinued operations

558,380 448,485 173,813 137,386
Income and other tax (expense) benefit (917 ) (1,394 ) (219 ) (248 )
Income (loss) from investments in unconsolidated entities 15,025 (7,952 ) 637 2,249
Net gain on sales of real estate properties 335,134 212,685 39,442 84,141
Net (loss) gain on sales of land parcels   (1 )   5,277     —     3,431  
Income from continuing operations 907,621 657,101 213,673 226,959
Discontinued operations, net   397     1,582     47     82  
Net income 908,018 658,683 213,720 227,041
Net (income) attributable to Noncontrolling Interests:
Operating Partnership (34,241 ) (24,831 ) (8,050 ) (8,558 )
Partially Owned Properties   (3,657 )   (2,544 )   (1,184 )   (744 )
Net income attributable to controlling interests 870,120 631,308 204,486 217,739
Preferred distributions (3,357 ) (4,145 ) (800 ) (1,036 )
Premium on redemption of Preferred Shares   (3,486 )   —     (697 )   —  
Net income available to Common Shares $ 863,277   $ 627,163   $ 202,989   $ 216,703  
 
Earnings per share – basic:
Income from continuing operations available to Common Shares $ 2.37   $ 1.73   $ 0.56   $ 0.60  
Net income available to Common Shares $ 2.37   $ 1.74   $ 0.56   $ 0.60  
Weighted average Common Shares outstanding   363,498     361,181     363,828     362,018  
 
Earnings per share – diluted:
Income from continuing operations available to Common Shares $ 2.36   $ 1.72   $ 0.55   $ 0.59  
Net income available to Common Shares $ 2.36   $ 1.73   $ 0.55   $ 0.59  
Weighted average Common Shares outstanding   380,620     377,735     381,220     378,886  
 
Distributions declared per Common Share outstanding $ 2.21   $ 2.00   $ 0.5525   $ 0.50  
Equity Residential
Consolidated Statements of Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per share data)
(Unaudited)
 
  Year Ended December 31,   Quarter Ended December 31,
2015   2014 2015   2014
Net income $ 908,018 $ 658,683 $ 213,720 $ 227,041
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties (3,657 ) (2,544 ) (1,184 ) (744 )
Preferred distributions (3,357 ) (4,145 ) (800 ) (1,036 )
Premium on redemption of Preferred Shares   (3,486 )   —     (697 )   —  
Net income available to Common Shares and Units 897,518 651,994 211,039 225,261
 
Adjustments:
Depreciation 765,895 758,861 181,033 193,089
Depreciation – Non-real estate additions (4,981 ) (4,643 ) (1,214 ) (1,158 )
Depreciation – Partially Owned Properties (4,332 ) (4,285 ) (1,084 ) (1,074 )
Depreciation – Unconsolidated Properties 4,920 6,754 1,232 1,572
Net (gain) on sales of unconsolidated entities – operating assets (100 ) (4,902 ) — (4,902 )
Net (gain) on sales of real estate properties (335,134 ) (212,685 ) (39,442 ) (84,141 )
Discontinued operations:
Net (gain) loss on sales of discontinued operations   —     (179 )   —     44  
FFO available to Common Shares and Units (1) (3) (4) 1,323,786 1,190,915 351,564 328,691
 
Adjustments (see page 25 for additional detail):
Asset impairment and valuation allowances — — — —
Property acquisition costs and write-off of pursuit costs (11,706 ) 8,248 2,241 (466 )
Debt extinguishment (gains) losses, including prepayment penalties, preferred share
redemptions and non-cash convertible debt discounts 5,704 (1,110 ) 1,203 (1,623 )
(Gains) losses on sales of non-operating assets, net of income and other tax expense
(benefit) (2,883 ) (1,866 ) (2,155 ) 37
Other miscellaneous non-comparable items   2,901     259     200     (932 )
Normalized FFO available to Common Shares and Units (2) (3) (4) $ 1,317,802   $ 1,196,446   $ 353,053   $ 325,707  
 
FFO (1) (3) $ 1,330,629 $ 1,195,060 $ 353,061 $ 329,727
Preferred distributions (3,357 ) (4,145 ) (800 ) (1,036 )
Premium on redemption of Preferred Shares   (3,486 )   —     (697 )   —  
FFO available to Common Shares and Units - basic and diluted (1) (3) (4) $ 1,323,786   $ 1,190,915   $ 351,564   $ 328,691  
FFO per share and Unit - basic $ 3.51   $ 3.18   $ 0.93   $ 0.87  
FFO per share and Unit - diluted $ 3.48   $ 3.15   $ 0.92   $ 0.87  
 
Normalized FFO (2) (3) $ 1,321,159 $ 1,200,591 $ 353,853 $ 326,743
Preferred distributions   (3,357 )   (4,145 )   (800 )   (1,036 )
Normalized FFO available to Common Shares and Units - basic and diluted (2) (3) (4) $ 1,317,802   $ 1,196,446   $ 353,053   $ 325,707  
Normalized FFO per share and Unit - basic $ 3.49   $ 3.19   $ 0.94   $ 0.87  
Normalized FFO per share and Unit - diluted $ 3.46   $ 3.17   $ 0.93   $ 0.86  
 
Weighted average Common Shares and Units outstanding - basic   377,073     374,899     377,380     375,711  
Weighted average Common Shares and Units outstanding - diluted   380,620     377,735     381,220     378,886  

Note:

  

See page 25 for additional detail regarding the adjustments from FFO to Normalized FFO. See page 27 for the definitions, the footnotes referenced above and the reconciliations of EPS to FFO and Normalized FFO.

Equity Residential
Consolidated Balance Sheets
(Amounts in thousands except for share amounts)
(Unaudited)
   
December 31,

2015

December 31,

2014

ASSETS
Investment in real estate
Land $ 5,864,046 $ 6,295,404
Depreciable property 18,027,087 19,851,504
Projects under development 1,122,376 1,343,919
Land held for development   168,843     184,556  
Investment in real estate 25,182,352 27,675,383
Accumulated depreciation   (4,905,406 )   (5,432,805 )
Investment in real estate, net 20,276,946 22,242,578
Real estate held for sale 2,181,135 —
Cash and cash equivalents 42,276 40,080
Investments in unconsolidated entities 68,101 105,434
Deposits – restricted 55,893 72,303
Escrow deposits – mortgage 56,946 48,085
Deferred financing costs, net 54,004 58,380
Other assets   422,027     383,754  
Total assets $ 23,157,328   $ 22,950,614  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable $ 4,704,870 $ 5,086,515
Notes, net 5,876,352 5,425,346
Line of credit and commercial paper 387,276 333,000
Accounts payable and accrued expenses 187,124 153,590
Accrued interest payable 85,221 89,540
Other liabilities 366,387 389,915
Security deposits 77,582 75,633
Distributions payable   209,378     188,566  
Total liabilities   11,894,190     11,742,105  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   566,783     500,733  
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 December 31, 2015 and 1,000,000 shares

issued and outstanding as of December 31, 2014

37,280 50,000
Common Shares of beneficial interest, $0.01 par value;

1,000,000,000 shares authorized; 364,755,444 shares issued and

outstanding as of December 31, 2015 and 362,855,454 shares

issued and outstanding as of December 31, 2014

3,648 3,629
Paid in capital 8,572,365 8,536,340
Retained earnings 2,009,091 1,950,639
Accumulated other comprehensive (loss)   (152,016 )   (172,152 )
Total shareholders’ equity 10,470,368 10,368,456
Noncontrolling Interests:
Operating Partnership 221,379 214,411
Partially Owned Properties   4,608     124,909  
Total Noncontrolling Interests   225,987     339,320  
Total equity   10,696,355     10,707,776  
Total liabilities and equity $ 23,157,328   $ 22,950,614  
 
Equity Residential
Portfolio Summary
As of December 31, 2015
       
% of Average
Apartment Stabilized Rental
Markets/Metro Areas Properties Units NOI (1) Rate (2)
 
Core:
New York 40 10,835 17.6 % $ 4,112
Washington DC 57 18,656 17.0 % 2,212
San Francisco 53 13,656 15.1 % 2,704
Los Angeles 61 13,313 12.3 % 2,339
Boston 35 8,018 9.5 % 2,885
Seattle 44 8,756 7.6 % 2,045
Orange County, CA 12 3,684 3.1 % 1,907
San Diego 13 3,505 3.1 %   2,089
Subtotal – Core 315 80,423 85.3 % 2,606
 
Non-Core:
South Florida 35 11,435 7.2 % 1,708
Denver 19 6,935 4.6 % 1,565
Inland Empire, CA 9 2,751 1.9 % 1,631
All Other Markets 14 2,969 1.0 %   1,226
Subtotal – Non-Core 77 24,090 14.7 %   1,599
Total 392 104,513 100.0 %   2,372
 
Military Housing 2 5,139 —     —
 
Grand Total 394 109,652 100.0 % $ 2,372
Note: Projects under development are not included in the Portfolio Summary until construction has been completed.
(1) % of Stabilized NOI includes actual 2015 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.
(2) Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the last month of the period presented.
 
Equity Residential
 
Portfolio as of December 31, 2015
 
    Properties   Apartment

Units

 
Wholly Owned Properties 367 98,608
Master-Leased Properties - Consolidated 3 853
Partially Owned Properties - Consolidated 19 3,771
Partially Owned Properties - Unconsolidated 3 1,281
Military Housing 2   5,139  
394   109,652  
 
 
Portfolio Rollforward Q4 2015
($ in thousands)
 
Properties Apartment

Units

Purchase/

(Sale) Price

Cap Rate
9/30/2015 392 109,347
Acquisitions:
Consolidated:
Rental Properties 3 423 $ 165,762 4.7 %
Dispositions:
Consolidated:
Rental Properties (1 ) (150 ) $ (48,500 ) 4.5 %
Configuration Changes —   32
 
12/31/2015 394   109,652
 
 
Portfolio Rollforward 2015
($ in thousands)
 
Properties Apartment

Units

Purchase/

(Sale) Price

Cap Rate
12/31/2014 391 109,225
Acquisitions:
Consolidated:
Rental Properties 4 625 $ 296,037 4.5 %
Land Parcels (A) — — $ 27,800
Dispositions:
Consolidated:
Rental Properties (B) (8 ) (1,857 ) $ (513,312 ) 5.3 %
Completed Developments - Consolidated 7 1,546
Configuration Changes —   113
 
12/31/2015 394   109,652
(A)   The Company acquired three contiguous land parcels in San Francisco during 2015 which will be combined for future development.
(B) Includes a 193,230 square foot medical office building adjacent to our Longfellow Place property in Boston (sales price of approximately $123.3 million) which is included in our consolidated rental dispositions guidance but not included in our property and apartment unit counts.
 
Equity Residential
 
Fourth Quarter 2015 vs. Fourth Quarter 2014
Same Store Results/Statistics for 98,202 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
  Results   Statistics
Description Revenues   Expenses   NOI (1)

Average

Rental

Rate (2)

  Occupancy   Turnover
 
Q4 2015 $ 666,440 $ 207,889 $ 458,551 $ 2,357 96.0 % 11.4 %
Q4 2014 $ 633,240   $ 203,860   $ 429,380   $ 2,240   96.0 % 12.3 %
 
Change $ 33,200   $ 4,029   $ 29,171   $ 117   0.0 % (0.9 %)
 
Change 5.2 % 2.0 % 6.8 % 5.2 %
                         
 
Fourth Quarter 2015 vs. Third Quarter 2015
Same Store Results/Statistics for 100,124 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
Results Statistics
Description Revenues Expenses NOI (1)

Average

Rental

Rate (2)

Occupancy Turnover
 
Q4 2015 $ 680,190 $ 211,993 $ 468,197 $ 2,359 96.0 % 11.5 %
Q3 2015 $ 677,812   $ 220,956   $ 456,856   $ 2,349   96.1 % 17.6 %
 
Change $ 2,378   $ (8,963 ) $ 11,341   $ 10   (0.1 %) (6.1 %)
 
Change 0.4 % (4.1 %) 2.5 % 0.4 %
                         
 
2015 vs. 2014
Same Store Results/Statistics for 96,286 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
Results Statistics
Description Revenues Expenses NOI (1)

Average

Rental

Rate (2)

Occupancy Turnover
 
2015 $ 2,566,705 $ 837,880 $ 1,728,825 $ 2,314 96.1 % 54.5 %
2014 $ 2,441,390   $ 817,337   $ 1,624,053   $ 2,208   95.8 % 54.9 %
 
Change $ 125,315   $ 20,543   $ 104,772   $ 106   0.3 % (0.4 %)
 
Change 5.1 % 2.5 % 6.5 % 4.8 %
(1)   The Company's primary financial measure for evaluating each of its apartment communities is net operating income ("NOI"). NOI represents rental income less direct property operating expenses (including real estate taxes and insurance) as well as an allocation of indirect property management costs. 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 communities. See page 27 for reconciliations from operating income.
(2) Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.
 
Equity Residential
Fourth Quarter 2015 vs. Fourth Quarter 2014
Same Store Results/Statistics by Market
 
          Increase (Decrease) from Prior Year's Quarter
Markets/Metro Areas

Apartment

Units

Q4 2015

% of

Actual

NOI

Q4 2015

Average

Rental

Rate (1)

Q4 2015

Weighted

Average

Occupancy %

Revenues   Expenses   NOI  

Average

Rental

Rate (1)

  Occupancy
 
Core:
Washington DC 18,134 17.3 % $ 2,221 95.6 % 0.9 % 0.7 % 0.9 % 0.6 % 0.2 %
New York 10,330 16.8 % 4,027 96.5 % 4.3 % 4.0 % 4.4 % 4.6 % (0.3 %)
San Francisco 12,766 15.5 % 2,641 96.5 % 10.3 % 0.7 % 14.4 % 10.6 % (0.3 %)
Los Angeles 11,811 11.7 % 2,331 96.2 % 6.3 % 2.1 % 8.4 % 6.1 % 0.3 %
Boston 7,722 9.8 % 2,891 96.5 % 3.2 % 3.5 % 3.1 % 3.2 % 0.1 %
Seattle 7,459 6.8 % 2,026 95.9 % 7.6 % (2.0 %) 12.0 % 7.2 % 0.4 %
San Diego 3,505 3.3 % 2,111 96.0 % 5.5 % 1.6 % 7.3 % 6.1 % (0.5 %)
Orange County, CA 3,490 3.1 %   1,898 96.1 % 4.7 % (0.7 %) 6.7 % 5.2 % (0.5 %)
Subtotal – Core 75,217 84.3 % 2,588 96.1 % 5.0 % 1.8 % 6.5 % 5.0 % 0.0 %
 
Non-Core:
South Florida 10,666 7.4 % 1,702 96.0 % 5.9 % 4.3 % 6.7 % 5.5 % 0.4 %
Denver 6,935 5.2 % 1,571 95.5 % 8.4 % (1.4 %) 11.9 % 8.8 % (0.3 %)
Inland Empire, CA 2,751 2.0 % 1,653 95.7 % 6.6 % 5.2 % 7.2 % 6.1 % 0.4 %
All Other Markets 2,633 1.1 %   1,188 95.6 % 3.7 % 2.2 % 4.9 % 4.1 % (0.4 %)
Subtotal – Non-Core 22,985 15.7 % 1,598 95.8 % 6.5 % 2.8 % 8.3 % 6.4 % 0.1 %
                 
Total 98,202 100.0 % $ 2,357 96.0 % 5.2 % 2.0 % 6.8 % 5.2 % 0.0 %
 
(1) Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.
 
Equity Residential
Fourth Quarter 2015 vs. Third Quarter 2015
Same Store Results/Statistics by Market
 
          Increase (Decrease) from Prior Quarter
Markets/Metro Areas

Apartment

Units

Q4 2015

% of

Actual

NOI

Q4 2015

Average

Rental

Rate (1)

Q4 2015

Weighted

Average

Occupancy %

Revenues   Expenses   NOI  

Average

Rental

Rate (1)

  Occupancy
 
Core:
Washington DC 18,494 17.3 % $ 2,223 95.6 % (1.3 %) (6.8 %) 1.5 % (0.7 %) (0.6 %)
New York 10,330 16.4 % 4,027 96.5 % 0.0 % (0.8 %) 0.5 % 0.2 % (0.2 %)
San Francisco 12,766 15.2 % 2,641 96.5 % 1.5 % (3.6 %) 3.5 % 1.6 % 0.0 %
Los Angeles 12,343 12.1 % 2,352 96.2 % 0.6 % (1.7 %) 1.7 % 0.4 % 0.1 %
Boston 7,924 10.0 % 2,902 96.4 % 1.4 % (4.6 %) 4.2 % 1.4 % 0.0 %
Seattle 8,019 7.2 % 2,045 95.8 % 0.5 % (5.4 %) 3.1 % 0.1 % 0.3 %
San Diego 3,505 3.2 % 2,111 96.0 % (0.2 %) (2.8 %) 1.0 % 0.4 % (0.5 %)
Orange County, CA 3,490 3.0 %   1,898 96.1 % 0.3 % (8.6 %) 3.8 % (0.1 %) 0.3 %
Subtotal – Core 76,871 84.4 % 2,589 96.1 % 0.3 % (3.7 %) 2.2 % 0.4 % (0.1 %)
 
Non-Core:
South Florida 10,934 7.5 % 1,703 96.0 % 0.6 % (4.8 %) 3.7 % 0.3 % 0.3 %
Denver 6,935 5.1 % 1,571 95.5 % 1.1 % (13.4 %) 6.7 % 1.2 % (0.2 %)
Inland Empire, CA 2,751 1.9 % 1,653 95.7 % 0.8 % 2.0 % 0.3 % 1.2 % (0.4 %)
All Other Markets 2,633 1.1 %   1,188 95.6 % 0.5 % (2.5 %) 2.9 % 0.9 % (0.4 %)
Subtotal – Non-Core 23,253 15.6 % 1,600 95.8 % 0.7 % (5.9 %) 4.1 % 0.8 % 0.0 %
                 
Total 100,124 100.0 % $ 2,359 96.0 % 0.4 % (4.1 %) 2.5 % 0.4 % (0.1 %)
 
(1) Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.
 
Equity Residential
2015 vs. 2014
Same Store Results/Statistics by Market
 
          Increase (Decrease) from Prior Year
Markets/Metro Areas

Apartment

Units

2015

% of

Actual

NOI

2015

Average

Rental

Rate (1)

2015

Weighted

Average

Occupancy %

Revenues   Expenses   NOI  

Average

Rental

Rate (1)

  Occupancy
 
Core:
Washington DC 17,745 17.7 % $ 2,232 95.9 % 0.7 % 2.5 % (0.1 %) 0.1 % 0.7 %
New York 10,330 17.3 % 3,975 96.6 % 4.2 % 3.6 % 4.6 % 3.9 % 0.3 %
San Francisco 12,766 15.5 % 2,544 96.5 % 10.5 % 1.5 % 14.6 % 9.9 % 0.5 %
Los Angeles 10,641 10.7 % 2,241 96.1 % 5.9 % 0.6 % 8.8 % 5.6 % 0.4 %
Boston 7,722 9.9 % 2,834 96.3 % 3.3 % 4.9 % 2.5 % 3.0 % 0.3 %
Seattle 7,230 6.6 % 1,980 95.7 % 7.3 % (0.6 %) 11.1 % 7.1 % 0.1 %
San Diego 3,505 3.4 % 2,067 96.1 % 5.4 % 1.8 % 7.0 % 5.3 % 0.1 %
Orange County, CA 3,490 3.1 %   1,867 96.0 % 5.1 % 2.2 % 6.2 % 5.1 % 0.0 %
Subtotal – Core 73,429 84.2 % 2,547 96.2 % 4.9 % 2.4 % 6.2 % 4.5 % 0.4 %
 
Non-Core:
South Florida 10,538 7.5 % 1,674 95.8 % 5.7 % 3.6 % 7.0 % 5.5 % 0.2 %
Denver 6,935 5.2 % 1,519 95.6 % 8.8 % 2.9 % 11.0 % 8.9 % (0.2 %)
Inland Empire, CA 2,751 2.0 % 1,616 95.6 % 4.8 % 1.6 % 6.4 % 4.9 % (0.1 %)
All Other Markets 2,633 1.1 %   1,168 96.1 % 3.9 % 4.0 % 3.8 % 3.9 % (0.1 %)
Subtotal – Non-Core 22,857 15.8 % 1,562 95.8 % 6.3 % 3.2 % 7.9 % 6.3 % 0.1 %
                 
Total 96,286 100.0 % $ 2,314 96.1 % 5.1 % 2.5 % 6.5 % 4.8 % 0.3 %
 
(1) Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.
 
Equity Residential
 
Fourth Quarter 2015 vs. Fourth Quarter 2014
Same Store Operating Expenses for 98,202 Same Store Apartment Units
$ in thousands
 
 

Actual

Q4 2015

 

Actual

Q4 2014

 

$

Change

 

%

Change

 

% of Actual

Q4 2015

Operating

Expenses

 
Real estate taxes $ 75,507 $ 72,331 $ 3,176 4.4 % 36.3 %
On-site payroll (1) 43,090 40,949 2,141 5.2 % 20.7 %
Utilities (2) 28,590 29,529 (939 ) (3.2 %) 13.8 %
Repairs and maintenance (3) 23,913 24,103 (190 ) (0.8 %) 11.5 %
Property management costs (4) 19,993 18,997 996 5.2 % 9.6 %
Insurance 5,468 6,136 (668 ) (10.9 %) 2.6 %
Leasing and advertising 2,601 3,060 (459 ) (15.0 %) 1.3 %
Other on-site operating expenses (5)   8,727   8,755   (28 ) (0.3 %) 4.2 %
 
Same store operating expenses $ 207,889 $ 203,860 $ 4,029   2.0 % 100.0 %
                     
 
2015 vs. 2014
Same Store Operating Expenses for 96,286 Same Store Apartment Units
$ in thousands

 

Actual

2015

Actual

2014

$

Change

%

Change

% of Actual

2015

Operating

Expenses

 
Real estate taxes $ 296,484 $ 282,487 $ 13,997 5.0 % 35.4 %
On-site payroll (1) 174,950 171,706 3,244 1.9 % 20.9 %
Utilities (2) 118,986 123,296 (4,310 ) (3.5 %) 14.2 %
Repairs and maintenance (3) 104,033 98,168 5,865 6.0 % 12.4 %
Property management costs (4) 77,001 73,242 3,759 5.1 % 9.2 %
Insurance 21,335 23,909 (2,574 ) (10.8 %) 2.6 %
Leasing and advertising 10,370 10,605 (235 ) (2.2 %) 1.2 %
Other on-site operating expenses (5)   34,721   33,924   797   2.3 % 4.1 %
 
Same store operating expenses $ 837,880 $ 817,337 $ 20,543   2.5 % 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 costs.
(4) Property management costs - Includes payroll and related expenses for departments, or portions of departments, that directly support on-site management. These include such departments as regional and corporate property management, property accounting, human resources, training, marketing and revenue management, procurement, real estate tax, property legal services and information technology.
(5) 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 December 31, 2015
(Amounts in thousands)
 
  Amounts (1)   % of Total  

Weighted

Average

Rates (1)

 

Weighted

Average

Maturities

(years)

 
Secured $ 4,704,870 42.9 % 4.23 % 6.9
Unsecured   6,263,628 57.1 % 4.73 % 8.2
 
Total $ 10,968,498 100.0 % 4.51 % 7.6
 
Fixed Rate Debt:
Secured – Conventional $ 3,997,930 36.5 % 4.86 % 5.3
Unsecured – Public   5,423,012 49.4 % 5.30 % 9.2
 
Fixed Rate Debt   9,420,942 85.9 % 5.10 % 7.6
 
Floating Rate Debt:
Secured – Conventional 7,985 0.1 % 0.13 % 18.1
Secured – Tax Exempt 698,955 6.3 % 0.64 % 15.5
Unsecured – Public (2) 453,340 4.2 % 0.93 % 3.5
Unsecured – Revolving Credit Facility — — 1.07 % 2.3
Unsecured – Commercial Paper Program (3)   387,276 3.5 % 0.56 % —
 
Floating Rate Debt   1,547,556 14.1 % 0.75 % 8.1
 
Total $ 10,968,498 100.0 % 4.51 % 7.6
(1) Net of the effect of any derivative instruments. Weighted average rates are for the year ended December 31, 2015.
(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) As of December 31, 2015, the weighted average maturity on the Company's outstanding commercial paper was 19 days.
Note: The Company capitalized interest of approximately $59.9 million and $52.8 million during the years ended December 31, 2015 and 2014, respectively. The Company capitalized interest of approximately $14.1 million and $14.7 million during the quarters ended December 31, 2015 and 2014, respectively.
Note: The Company recorded approximately $8.6 million and $2.8 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the years ended December 31, 2015 and 2014, respectively. The Company recorded approximately $2.8 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the quarter ended December 31, 2015. The Company recorded approximately $0.7 million of net debt premium/deferred derivative settlement amortization as a reduction to interest expense during the quarter ended December 31, 2014.
 
Debt Maturity Schedule as of December 31, 2015
(Amounts 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)

 
2016 $ 965,341 $ 387,472 (2) $ 1,352,813 (3) 12.3% 5.33% 4.06%
2017 1,347,390 456 1,347,846 (3) 12.3% 6.16% 6.16%
2018 82,802 97,659 180,461 1.7% 5.59% 3.07%
2019 806,705 474,422 1,281,127 11.7% 5.48% 3.75%
2020 1,678,623 809 1,679,432 15.3% 5.49% 5.49%
2021 1,195,251 856 1,196,107 10.9% 4.63% 4.63%
2022 228,924 905 229,829 2.1% 3.16% 3.17%
2023 1,327,965 956 1,328,921 12.1% 3.74% 3.74%
2024 2,497 1,011 3,508 0.0% 4.97% 5.14%
2025 452,625 1,069 453,694 4.1% 3.38% 3.39%
2026+ 1,319,792 641,228 1,961,020 17.9% 4.87% 3.41%
Premium/(Discount) 13,027 (59,287) (46,260) (0.4%) N/A N/A
 
Total $ 9,420,942 $ 1,547,556 $ 10,968,498 100.0% 4.97% 4.35%
(1) Net of the effect of any derivative instruments. Weighted average rates are as of December 31, 2015.
(2) Represents the principal outstanding on the Company's unsecured commercial paper program. The Company may borrow up to a maximum of $500.0 million on the program subject to market conditions. No amounts remain outstanding under this program as of February 2, 2016.
(3) Following completion of the debt extinguishment activities as described on page 3 and repayment of all outstanding commercial paper balances, the Company will have approximately $336.6 million and $605.0 million in debt maturing in 2016 and 2017, respectively.
 
Equity Residential
Unsecured Debt Summary as of December 31, 2015
(Amounts in thousands)
 
 

Coupon

Rate

 

Due

Date

   

Face

Amount

 

Unamortized

Premium/

(Discount)

 

Net

Balance

 
Fixed Rate Notes:
5.125% 03/15/16 (5) $ 500,000 $ (9 ) $ 499,991
5.375% 08/01/16 (5) 400,000 (108 ) 399,892
5.750% 06/15/17 (5) 650,000 (763 ) 649,237
7.125% 10/15/17 (5) 150,000 (116 ) 149,884
2.375% 07/01/19 (1) 450,000 (315 ) 449,685
Fair Value Derivative Adjustments (1) (450,000 ) 315 (449,685 )
4.750% 07/15/20 600,000 (2,060 ) 597,940
4.625% 12/15/21 (5) 1,000,000 (2,254 ) 997,746
3.000% 04/15/23 500,000 (3,226 ) 496,774
3.375% 06/01/25 450,000 (2,331 ) 447,669
7.570% 08/15/26 (5) 140,000 — 140,000
4.500% 07/01/44 750,000 (5,009 ) 744,991
4.500% 06/01/45   300,000     (1,112 )   298,888  
 
  5,440,000     (16,988 )   5,423,012  
Floating Rate Notes:
07/01/19 (1) 450,000 (315 ) 449,685
Fair Value Derivative Adjustments 07/01/19 (1)   3,655     —     3,655  
 
  453,655     (315 )   453,340  
 
Line of Credit and Commercial Paper:
Revolving Credit Facility LIBOR+0.95% 04/01/18 (2)(3) — — —
Commercial Paper Program (4) (4) (2)   387,472     (196 )   387,276  
 
  387,472     (196 )   387,276  
 
Total Unsecured Debt $ 6,281,127   $ (17,499 ) $ 6,263,628  
(1)   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%.
(2) Facility/program is private. All other unsecured debt is public.
(3) Represents the Company's $2.5 billion unsecured revolving credit facility maturing April 1, 2018. The interest rate on advances under the credit facility will generally be LIBOR plus a spread (currently 0.95%) and an annual facility fee (currently 15 basis points). Both the spread and the facility fee are dependent on the credit rating of the Company's long-term debt. As of December 31, 2015, there was approximately $2.07 billion available on this facility (net of $45.1 million which was restricted/dedicated to support letters of credit and net of $387.5 million outstanding on the commercial paper program). As of February 2, 2016, there was approximately $2.47 billion available on this facility (net of $32.8 million which was restricted/dedicated to support letters of credit).
(4) Represents the Company's unsecured commercial paper program. The Company may borrow up to a maximum of $500.0 million on this program subject to market conditions. The notes bear interest at various floating rates with a weighted average of 0.56% for the year ended December 31, 2015 and a weighted average maturity of 19 days as of December 31, 2015. No amounts remain outstanding under this program as of February 2, 2016.
(5) All or a portion of these notes were repaid in conjunction with the debt extinguishment activities as described on page 3.
 
Equity Residential
 
Selected Unsecured Public Debt Covenants
   
December 31,

2015

September 30,

2015

 
Total Debt to Adjusted Total Assets (not to exceed 60%) 38.5% 38.3%
 
Secured Debt to Adjusted Total Assets (not to exceed 40%) 16.5% 17.3%
 
Consolidated Income Available for Debt Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1) 3.67 3.56
 
Total Unsecured Assets to Unsecured Debt 336.8% 342.8%
(must be at least 150%)
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 (1)
 
December 31,

2015

  September 30,

2015

 
Total debt to Normalized EBITDA 6.14x 6.14x
 
Net debt to Normalized EBITDA 6.09x 6.09x
Note:   See page 24 for the footnote referenced above and the Normalized EBITDA reconciliations.
 
Equity Residential
 
Capital Structure as of December 31, 2015
(Amounts in thousands except for share/unit and per share amounts)
 
Secured Debt           $ 4,704,870   42.9 %  
Unsecured Debt   6,263,628 57.1 %
 
Total Debt 10,968,498 100.0 % 26.2 %
 
Common Shares (includes Restricted Shares) 364,755,444 96.2 %
Units (includes OP Units and Restricted Units)   14,427,164   3.8 %
 
Total Shares and Units 379,182,608 100.0 %
Common Share Price at December 31, 2015 $ 81.59
30,937,509 99.9 %
Perpetual Preferred Equity (see below)   37,280 0.1 %
 
Total Equity 30,974,789 100.0 % 73.8 %
 
Total Market Capitalization $ 41,943,287 100.0 %
 
 
Perpetual Preferred Equity as of December 31, 2015
(Amounts in thousands except for share and per share amounts)
 
Series

Redemption

Date

Outstanding

Shares

Liquidation

Value

Annual

Dividend

Per Share

Annual

Dividend

Amount

 
Preferred Shares:
8.29% Series K 12/10/26 745,600 $ 37,280 $ 4.145 $ 3,091
 
Total Perpetual Preferred Equity 745,600 $ 37,280 $ 3,091
(1)   Effective November 12, 2015, the Company repurchased and retired 58,000 Series K Preferred Shares with a par value of $2.9 million for total cash consideration of approximately $3.6 million. As a result of this partial redemption, the Company incurred a cash charge of approximately $0.7 million which was recorded as a premium on the redemption of preferred shares but did not impact Normalized FFO.
 
Equity Residential
Common Share and Unit
Weighted Average Amounts Outstanding
       
2015 2014 Q4 2015 Q4 2014
 
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 363,497,518 361,181,497 363,827,809 362,017,851
Shares issuable from assumed conversion/vesting of:
- OP Units 13,575,927 13,717,844 13,552,095 13,692,848
- long-term compensation shares/units 3,546,058 2,836,034 3,839,809 3,174,890
 
Total Common Shares and Units - diluted 380,619,503 377,735,375 381,219,713 378,885,589
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 363,497,518 361,181,497 363,827,809 362,017,851
OP Units - basic 13,575,927 13,717,844 13,552,095 13,692,848
 
Total Common Shares and OP Units - basic 377,073,445 374,899,341 377,379,904 375,710,699
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units 3,546,058 2,836,034 3,839,809 3,174,890
 
Total Common Shares and Units - diluted 380,619,503 377,735,375 381,219,713 378,885,589
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 364,755,444 362,855,454
Units (includes OP Units and Restricted Units) 14,427,164 14,298,691
 
Total Shares and Units 379,182,608 377,154,145
 
Equity Residential
Partially Owned Entities as of December 31, 2015
(Amounts in thousands except for project and apartment unit amounts)
   
Consolidated Unconsolidated

Operating

Operating

 
Total projects   19     3  
 
Total apartment units   3,771     1,281  
 
Operating information for the year ended 12/31/15 (at 100%):
Operating revenue $ 94,349 $ 32,285
Operating expenses   26,081     12,061  
 
Net operating income 68,268 20,224
Depreciation 22,216 12,350
General and administrative/other   330     255  
 
Operating income 45,722 7,619
Interest and other income 12 (1 )
Other expenses (50 ) —
Interest:
Expense incurred, net (15,459 ) (9,390 )
Amortization of deferred financing costs   (349 )   (2 )
 
Income (loss) before income and other taxes and (loss)
from investments in unconsolidated entities 29,876 (1,774 )
Income and other tax (expense) benefit (35 ) (18 )
(Loss) from investments in unconsolidated entities   (1,501 )   —  
Net income (loss) $ 28,340   $ (1,792 )
 
Debt - Secured (1):
EQR Ownership (2) $ 266,414 $ 34,969
Noncontrolling Ownership   77,015     139,877  
 
Total (at 100%) $ 343,429   $ 174,846  

(1)

 

All debt is non-recourse to the Company.

(2)

Represents the Company's current equity ownership interest.

Note: The above table excludes the Company's interests in unconsolidated joint ventures entered into with AvalonBay Communities, Inc. ("AVB") in connection with the acquisition of certain real estate related assets from Archstone Enterprise LP (such assets are referred to herein as "Archstone"). These ventures owned certain non-core Archstone assets and succeeded to certain residual Archstone liabilities/litigation, as well as responsibility for tax protection arrangements and third-party preferred interests in former Archstone subsidiaries. The preferred interests had an aggregate liquidation value of $42.2 million at December 31, 2015. The ventures are owned 60% by the Company and 40% by AVB.
 
Equity Residential
Development and Lease-Up Projects as of December 31, 2015
(Amounts in thousands except for project and apartment unit amounts)
Projects   Location   No. of

Apartment

Units

  Total

Capital

Cost (1)

  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:

Potrero 1010 San Francisco, CA 453 $ 224,474 $ 174,741 $ 174,741 $ — 75 % — — Q2 2016 Q3 2017
Vista 99 (formerly Tasman) San Jose, CA 554 214,923 191,153 116,624 — 94 % 20 % 16 % Q2 2016 Q2 2018
Altitude (formerly Village at Howard Hughes) Los Angeles, CA 545 193,231 153,993 153,993 — 74 % — — Q3 2016 Q2 2017
The Alton (formerly Millikan) Irvine, CA 344 102,331 75,416 75,416 — 58 % — — Q3 2016 Q3 2017
340 Fremont (formerly Rincon Hill) San Francisco, CA 348 287,454 218,851 218,851 — 82 % — — Q3 2016 Q1 2018
One Henry Adams San Francisco, CA 241 172,337 89,907 89,907 — 44 % — — Q1 2017 Q4 2017
455 I St Washington, DC 174 73,157 28,977 28,977 — 13 % — — Q3 2017 Q2 2018
855 Brannan (formerly 801 Brannan) San Francisco, CA 449 304,035 100,482 100,482 — 19 % — — Q3 2017 Q1 2019
2nd & Pine (2) Seattle, WA 398 214,742 95,681 95,681 — 34 % — — Q3 2017 Q2 2019
Cascade Seattle, WA 483 172,486 67,704 67,704 — 28 % — — Q3 2017 Q2 2019
         
Projects Under Development 3,989   1,959,170   1,196,905   1,122,376   —
 

Completed Not Stabilized (3):

Prism at Park Avenue South New York, NY 269 245,161 239,992 — — 91 % 90 % Completed Q1 2016
170 Amsterdam (4) New York, NY 236 111,892 111,609 — — 76 % 71 % Completed Q2 2016
Azure (at Mission Bay) San Francisco, CA 273 187,390 183,455 — — 71 % 70 % Completed Q2 2016
Junction 47 (formerly West Seattle) Seattle, WA 206 67,112 66,115 — — 79 % 75 % Completed Q3 2016
Odin (formerly Tallman) Seattle, WA 301 81,777 79,909 — — 57 % 52 % Completed Q4 2016
         
Projects Completed Not Stabilized 1,285   693,332   681,080   —   —
 

Completed and Stabilized During the Quarter:

Residences at Westgate II (formerly Westgate III) Pasadena, CA 88 54,287 52,083 — — 99 % 99 % Completed Stabilized
Parc on Powell (formerly 1333 Powell) Emeryville, CA 173 87,500 82,975 — — 98 % 97 % Completed Stabilized
         
Projects Completed and Stabilized During the Quarter 261   141,787   135,058   —   —
 
Total Development Projects 5,535 $ 2,794,289 $ 2,013,043 $ 1,122,376 $ —
 
Land Held for Development N/A   N/A $ 168,843 $ 168,843 $ —
 

 

 

NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS

Total Capital

Cost (1)

Q4 2015

NOI

Projects Under Development $ 1,959,170 $ (27 )
Completed Not Stabilized 693,332 3,980
Completed and Stabilized During the Quarter   141,787     1,608  
Total Development NOI Contribution $ 2,794,289   $ 5,561  

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

(1)   Total capital cost represents 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, all in accordance with GAAP.
(2) 2nd & Pine – Includes an adjacent land parcel on which certain improvements including a portion of a parking structure will be constructed as part of the development of this project. The Company may eventually construct an additional apartment tower on this site or sell a portion of the garage and the related air rights.
(3) 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.
(4) 170 Amsterdam – The land under this project is subject to a long term ground lease.
 
Equity Residential
Repairs and Maintenance Expenses and Capital Expenditures to Real Estate
For the Year Ended December 31, 2015
(Amounts in thousands except for apartment unit and per apartment unit amounts)
   
    Repairs and Maintenance Expenses     Capital Expenditures to Real Estate Total Expenditures
Total

Apartment

Units (1)

Expense (2)   Avg. Per

Apartment

Unit

  Payroll (3)   Avg. Per

Apartment

Unit

  Total Avg. Per

Apartment

Unit

Replacements

(4)

  Avg. Per

Apartment

Unit

  Building

Improvements

(5)

  Avg. Per

Apartment

Unit

  Total   Avg. Per

Apartment

Unit

  Grand

Total

  Avg. Per

Apartment

Unit

 
Same Store Properties (6) 96,286 $ 104,033 $ 1,081 $ 84,484 $ 877 $ 188,517 $ 1,958 $ 98,120 $ 1,019 $ 75,294 $ 782 $ 173,414 $ 1,801 (9) $ 361,931 $ 3,759
 
Non-Same Store Properties (7) 6,946 4,667 836 3,563 639 8,230 1,475 1,870 335 6,293 1,127 8,163 1,462 16,393 2,937
 
Other (8) —   1,061   821   1,882   302   234   536   2,418
 
Total 103,232 $ 109,761 $ 88,868 $ 198,629 $ 100,292 $ 81,821 $ 182,113 $ 380,742
(1)   Total Apartment Units - Excludes 1,281 unconsolidated apartment units and 5,139 military housing apartment units for which repairs and maintenance expenses and capital expenditures to real estate are self-funded and do not consolidate into the Company's results.
 
(2) Repairs and Maintenance Expenses - 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 costs.
 
(3) Maintenance Payroll - Includes payroll and related expenses for maintenance staff.
 
(4) Replacements - Includes new expenditures inside the apartment units such as appliances, mechanical equipment, fixtures and flooring, including carpeting. Replacements for same store properties also include $60.6 million spent in 2015 on apartment unit renovations/rehabs (primarily kitchens and baths) on 6,499 same store apartment units (equating to approximately $9,300 per apartment unit rehabbed) designed to reposition these assets for higher rental levels in their respective markets. In 2016, the Company expects to spend approximately $40.0 million for all unit renovation/rehab costs (primarily on same store properties) at a weighted average cost of $10,000 per apartment unit rehabbed.
 
(5) Building Improvements - Includes roof replacement, paving, amenities and common areas, building mechanical equipment systems, exterior painting and siding, major landscaping, vehicles and office and maintenance equipment.
 
(6) Same Store Properties - Primarily includes all properties acquired or completed and stabilized prior to January 1, 2014, less properties subsequently sold.
 
(7) Non-Same Store Properties - Primarily includes all properties acquired during 2014 and 2015, plus any properties in lease-up and not stabilized as of January 1, 2014. Per apartment unit amounts are based on a weighted average of 5,582 apartment units.
 
(8) Other - Primarily includes expenditures for properties sold and properties under development.
 
(9) Based on the approximately 70,000 apartment units expected to be included in same store properties by December 31, 2016, the Company estimates that it will spend approximately $2,200 per apartment unit of capital expenditures, inclusive of apartment unit renovation/rehab costs, or $1,600 per apartment unit excluding apartment unit renovation/rehab costs during 2016.
 
Equity Residential
Normalized EBITDA Reconciliations
(Amounts in thousands)
 
Normalized EBITDA Reconciliations for Page 18
           
Trailing Twelve Months 2015 2014
December 31, 2015   September 30, 2015 Q4   Q3   Q2   Q1 Q4
Net income $ 908,018 $ 921,339 $ 213,720 $ 205,456 $ 298,618 $ 190,224 $ 227,041
Interest expense incurred, net 444,069 443,589 110,447 114,205 110,795 108,622 109,967
Amortization of deferred financing costs 10,801 10,268 3,067 2,607 2,538 2,589 2,534
Depreciation 765,895 777,951 181,033 196,059 194,282 194,521 193,089
Income and other tax expense (benefit) (includes discontinued operations) 932 956 219 329 326 58 243
Property acquisition costs (other expenses) 1,008 281 804 27 78 99 77
Write-off of pursuit costs (other expenses) 3,208 3,862 886 671 1,158 493 1,540
(Income) loss from investments in unconsolidated entities (15,025 ) (16,637 ) (637 ) 1,041 (12,466 ) (2,963 ) (2,249 )
Net loss (gain) on sales of land parcels 1 (3,430 ) — — — 1 (3,431 )
(Gain) on sale of investment securities and other investments (interest and other income) (526 ) (387 ) (139 ) — (387 ) — —
Executive compensation program duplicative costs and retirement benefit obligations 11,976 9,640 2,336 4,967 2,336 2,337 —
Forfeited deposits (interest and other income) — (150 ) — — — — (150 )
Insurance/litigation settlement or reserve income (interest and other income) (5,977 ) (5,802 ) (207 ) — (5,770 ) — (32 )
Insurance/litigation settlement or reserve expense (other expenses) (2,796 ) (867 ) (1,929 ) 21 112 (1,000 ) —
Other (interest and other income) (302 ) (1,052 ) — (108 ) (194 ) — (750 )
Net loss on sales of discontinued operations — 44 — — — — 44
Net (gain) on sales of real estate properties   (335,134 )   (379,833 )   (39,442 )   (66,939 )   (148,802 )   (79,951 )   (84,141 )
Normalized EBITDA (1) $ 1,786,148   $ 1,759,772   $ 470,158   $ 458,336   $ 442,624   $ 415,030   $ 443,782  
 

Balance Sheet Items:

December 31, 2015 September 30, 2015
Total debt (1) $ 10,968,498 $ 10,803,319
Cash and cash equivalents (42,276 ) (37,366 )
Mortgage principal reserves/sinking funds   (50,155 )   (47,902 )
Net debt (1) $ 10,876,067   $ 10,718,051  
(1) Normalized EBITDA, total debt to Normalized EBITDA and net debt to Normalized EBITDA are important metrics in evaluating the credit strength of the Company and its ability to service its debt obligations. The Company believes that Normalized EBITDA, total debt to Normalized EBITDA and net debt to Normalized EBITDA 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.
 
Equity Residential
Normalized FFO Guidance Reconciliations and Non-Comparable Items
(Amounts in thousands except per share data)
(All per share data is diluted)
 
Normalized FFO Guidance Reconciliations
 
  Normalized
FFO Reconciliations
Guidance Q4 2015
to Actual Q4 2015
Amounts   Per Share
Guidance Q4 2015 Normalized FFO - Diluted (2) (3) $ 348,808 $ 0.916
Property NOI 5,173 0.013
General and administrative expense (1,879 ) (0.005 )
Interest expense 727 0.002
Other   224   —  
Actual Q4 2015 Normalized FFO - Diluted (2) (3) $ 353,053 $ 0.926  

 

 
Non-Comparable Items – Adjustments from FFO to Normalized FFO (2) (3)
 
  Year Ended December 31,   Quarter Ended December 31,
2015   2014   Variance 2015   2014   Variance
Impairment $ —   $ —   $ —   $ —   $ —   $ —  
Asset impairment and valuation allowances   —     —     —     —     —     —  
 
Archstone indirect costs ((income) loss from investments in unconsolidated entities) (A) (15,922 ) 4,287 (20,209 ) 551 (2,083 ) 2,634
Property acquisition costs (other expenses) 1,008 354 654 804 77 727
Write-off of pursuit costs (other expenses)   3,208     3,607     (399 )   886     1,540     (654 )
Property acquisition costs and write-off of pursuit costs   (11,706 )   8,248     (19,954 )   2,241     (466 )   2,707  
 
Prepayment premiums/penalties (interest expense) — 250 (250 ) — 250 (250 )
Write-off of unamortized deferred financing costs (interest expense) 594 614 (20 ) 506 10 496
Write-off of unamortized (premiums)/discounts/OCI (interest expense) (1,379 ) (1,883 ) 504 — (1,883 ) 1,883
Loss (gain) due to ineffectiveness of forward starting swaps (interest expense) 3,003 (91 ) 3,094 — — —
Premium on redemption of Preferred Shares   3,486     —     3,486     697     —     697  
Debt extinguishment (gains) losses, including prepayment penalties, preferred share

redemptions and non-cash convertible debt discounts

  5,704     (1,110 )   6,814     1,203     (1,623 )   2,826  
 
Net loss (gain) on sales of land parcels 1 (5,277 ) 5,278 — (3,431 ) 3,431
Net (gain) loss on sales of unconsolidated entities – non-operating assets (2,358 ) 3,468 (5,826 ) (2,016 ) 3,468 (5,484 )
(Gain) on sale of investment securities and other investments (interest and other income)   (526 )   (57 )   (469 )   (139 )   —     (139 )
(Gains) losses on sales of non-operating assets, net of income and other tax expense (benefit)   (2,883 )   (1,866 )   (1,017 )   (2,155 )   37     (2,192 )
 
Write-off of unamortized retail lease intangibles (rental income) — (147 ) 147 — — —
Executive compensation program duplicative costs and retirement benefit obligations (B) 11,976 — 11,976 2,336 — 2,336
Forfeited deposits (interest and other income) — (150 ) 150 — (150 ) 150
Insurance/litigation settlement or reserve income (interest and other income) (5,977 ) (2,793 ) (3,184 ) (207 ) (32 ) (175 )
Insurance/litigation settlement or reserve expense (other expenses) (2,796 ) 4,099 (6,895 ) (1,929 ) — (1,929 )
Other (interest and other income)   (302 )   (750 )   448     —     (750 )   750  
Other miscellaneous non-comparable items   2,901     259     2,642     200     (932 )   1,132  
           
Non-comparable items – Adjustments from FFO to Normalized FFO (2) (3) $ (5,984 ) $ 5,531   $ (11,515 ) $ 1,489   $ (2,984 ) $ 4,473  
(A) Archstone indirect costs primarily includes the Company's 60% share of winddown costs for such items as office leases, litigation and German operations/sales that were incurred indirectly through the Company's interest in various unconsolidated joint ventures with AVB. During the year ended December 31, 2015, the amount also includes approximately $18.6 million related to the favorable settlement of a lawsuit.
(B) Primarily represents the accounting cost associated with the Company's new performance based executive compensation program. The Company is required to expense in 2015 a portion of both the previous program's time based equity grants for service in 2014 and the performance based grants issued under the new program, creating a duplicative charge. Of this amount, $1.3 million and $8.0 million has been recorded to property management expense and general and administrative expense, respectively, for the year ended December 31, 2015 and $0.3 million and $2.0 million has been recorded to property management expense and general and administrative expense, respectively, for the quarter ended December 31, 2015. Also includes $2.6 million recorded to general and administrative expense during the year ended December 31, 2015 as a result of certain adjustments for retirement benefit obligations.
Note: See page 27 for the definitions, the footnotes referenced above and the reconciliations of EPS to FFO and Normalized FFO.
 

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, property acquisition costs and the write-off of pursuit costs, are not included in the estimates provided on this page. All proposed dividends provided below remain subject to the discretion of the Company's Board of Trustees. The proposed special dividends provided below may vary materially due to, among other items, the amount and timing of 2016 dispositions. See page 27 for the definitions, the footnotes referenced below and the reconciliations of EPS to FFO and Normalized FFO.

 
 

2016 Normalized FFO Guidance (per share diluted)

 
Q1 20162016
 
Expected Normalized FFO (2) (3) $0.73 to $0.77 $3.00 to $3.20
 

2016 Same Store Assumptions (see Note below)

 
Physical occupancy 96.0%
Revenue change 4.50% to 5.25%
Expense change 2.50% to 3.50%
NOI change 5.00% to 6.50%
 
Note: The same store guidance provided above is based on the approximately 70,000 apartment units expected to be included in same store properties by December 31, 2016. Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO/Normalized FFO.
 

2016 Transaction Assumptions

 
Consolidated rental acquisitions $600.0 million
Consolidated rental dispositions $7.4 billion
Capitalization rate spread 75 basis points
 

2016 Debt Assumptions (see Note below)

 
Weighted average debt outstanding $8.8 billion to $9.2 billion
Weighted average interest rate (reduced for capitalized interest) 4.03%
Interest expense, net (on a Normalized FFO basis) $354.6 million to $370.8 million
Capitalized interest $47.0 million to $53.0 million
 
Note: All 2016 debt assumptions are shown on a Normalized FFO basis and therefore exclude the impact of the debt extinguishment costs/prepayment penalties described on page 3.
 

2016 Other Guidance Assumptions

 
General and administrative expense (see Note below) $54.0 million to $56.0 million
Interest and other income $2.5 million to $3.5 million
Income and other tax expense $1.0 million to $1.5 million
Debt offerings $200.0 million to $250.0 million
Equity ATM share offerings No amounts budgeted
Preferred share offerings No amounts budgeted
Special dividend paid in Q2 2016 $8.00 per share
Special dividend paid later in 2016 $2.00 to $4.00 per share
Regular annual dividend (paid in four equal quarterly installments) $2.015 per share
Weighted average Common Shares and Units - Diluted 382.5 million
 
Note: Normalized FFO guidance excludes a duplicative charge of approximately $1.4 million, which will be recorded to general and administrative expense, related to the Company's revised executive compensation program.
 
Equity Residential
Additional Reconciliations, Definitions and Footnotes
(Amounts in thousands except per share data)
(All per share data is diluted)
 
The guidance/projections provided below are based on current expectations and are forward-looking.
 
Reconciliations of EPS to FFO and Normalized FFO for Pages 7, 25 and 26
 

Expected

 

Expected

Expected Q4 2015

Q1 2016

2016

Amounts   Per Share

Per Share

Per Share

 
Expected Earnings - Diluted (5) $ 188,338 $ 0.494 $10.05 to $10.09 $12.66 to $12.86
Add: Expected depreciation expense 196,454 0.516 0.47 1.96
Less: Expected net gain on sales (5)   (39,483 )   (0.104 ) (9.92) (11.76)
 
Expected FFO - Diluted (1) (3) 345,309 0.906 0.60 to 0.64 2.86 to 3.06
 
Asset impairment and valuation allowances — — — —
Property acquisition costs and write-off of pursuit costs 1,789 0.005 0.01 0.02
Debt extinguishment (gains) losses, including prepayment penalties,

preferred share redemptions and non-cash convertible debt discounts

40 — 0.31 0.32
(Gains) losses on sales of non-operating assets, net of income and other tax

expense (benefit)

(666 ) (0.002 ) (0.19) (0.20)
Other miscellaneous non-comparable items   2,336     0.007   — —
 
Expected Normalized FFO - Diluted (2) (3) $ 348,808   $ 0.916   $0.73 to $0.77 $3.00 to $3.20
Definitions and Footnotes for Pages 7, 25 and 26
   
(1) The National Association of Real Estate Investment Trusts ("NAREIT") defines funds from operations ("FFO") (April 2002 White Paper) as net income (computed in accordance with accounting principles generally accepted in the United States ("GAAP")), excluding gains (or losses) from sales and impairment write-downs of depreciable operating properties, plus depreciation and amortization, 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. Once the Company commences the conversion of apartment units to condominiums, it simultaneously discontinues depreciation of such property.
 
(2) Normalized funds from operations ("Normalized FFO") begins with FFO and excludes:
• the impact of any expenses relating to non-operating asset impairment and valuation allowances;
• property acquisition and other transaction costs related to mergers and acquisitions and pursuit cost write-offs;
• gains and losses from early debt extinguishment, including prepayment penalties, preferred share redemptions and the cost related to the implied option value of non-cash convertible debt discounts;
• gains and losses on the sales of non-operating assets, including gains and losses from land parcel and condominium sales, net of the effect of income tax benefits or expenses; and
• other miscellaneous non-comparable items.
 
(3) 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 dispositions of depreciable property 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. The Company also 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.
 
(4) 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 accounting principles generally accepted in the United States. 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.
 
(5) Earnings represents net income per share calculated in accordance with accounting principles generally accepted in the United States. Expected earnings is calculated on a basis consistent with actual earnings. Due to the uncertain timing and extent of property dispositions and the resulting gains/losses on sales, actual earnings could differ materially from expected earnings.
Same Store NOI Reconciliation for Page 11
 
The following tables present reconciliations of operating income per the consolidated statements of operations to NOI for the 2015 and the Fourth Quarter 2015 Same Store Properties:
       
Year Ended December 31, Quarter Ended December 31,
2015 2014 2015 2014
 
Operating income $ 1,008,820 $ 921,375 $ 286,964 $ 250,532
Adjustments:
Non-same store operating results (107,606 ) (103,123 ) (22,869 ) (23,188 )
Fee and asset management revenue (8,387 ) (9,437 ) (1,974 ) (1,841 )
Fee and asset management expense 5,021 5,429 1,257 1,136
Depreciation 765,895 758,861 181,033 193,089
General and administrative   65,082     50,948     14,140     9,652  
 
Same store NOI $ 1,728,825   $ 1,624,053   $ 458,551   $ 429,380