Equity Residential (NYSE: EQR) today reported results for the quarter and six months ended June 30, 2015. All per share results are reported as available to common shares on a diluted basis.

“Fundamental apartment demand in the coastal, high density urban markets targeted by Equity Residential continues to benefit significantly from extremely favorable demographics, steady improvement in employment and changing lifestyles,” said David J. Neithercut, Equity Residential’s President and CEO. “These powerful trends combined with our exceptional portfolio of assets and best-in-class operating platform and local management teams will deliver another very strong year of operating results and value creation in 2015 and for many years to come.”

Second Quarter 2015

FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), for the second quarter of 2015 was $0.90 per share compared to $0.77 per share in the second quarter of 2014. The difference is due primarily to the various non-comparable items listed on page 24 of this release and the items described below.

For the second quarter of 2015, the company reported Normalized FFO of $0.85 per share compared to $0.78 per share in the same period of 2014. The following items impacted Normalized FFO per share in the quarter:

  • a positive impact of approximately $0.06 per share from higher same store net operating income (NOI) and approximately $0.02 per share from NOI from non-same store properties currently in lease-up;
  • a positive impact of approximately $0.01 per share from lower interest expense primarily due to the impact of higher capitalized interest in the second quarter of 2015 and other items; and
  • a negative impact of approximately $0.02 per share from the timing of the company’s 2014 and 2015 transaction activity.

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 6 and 26 of this release and the company has included guidance for Normalized FFO on page 25 and FFO on page 26 of this release.

For the second quarter of 2015, the company reported earnings of $0.78 per share compared to $0.31 per share in the second quarter of 2014. The difference is due primarily to higher gains on property sales in the second quarter of 2015 and the items described above.

Six Months Ended June 30, 2015

FFO for the six months ended June 30, 2015 was $1.68 per share compared to $1.48 per share in the same period of 2014.

For the six months ended June 30, 2015, the company reported Normalized FFO of $1.64 per share compared to $1.49 per share for the same period of 2014.

For the six months ended June 30, 2015, the company reported earnings of $1.27 per share compared to $0.52 per share for the same period of 2014. The difference is due primarily to higher gains on property sales and improved operations during the six months ended June 30, 2015.

Same Store Results

On a same store second quarter to second quarter comparison, which includes 97,580 apartment units, revenues increased 4.9%, expenses increased 3.7% and NOI increased 5.5%.

On a same store six-month to six-month comparison, which includes 96,761 apartment units, revenues increased 5.0%, expenses increased 2.6% and NOI increased 6.2%.

Capital Markets Activity

On May 14, 2015, the company closed two unsecured note offerings totaling $750 million. The company closed a $450 million unsecured note offering maturing June 1, 2025 with a coupon of 3.375% and an all in effective rate of approximately 3.81% including the effect of underwriters’ fees and the termination of certain interest rate hedges. In addition, the company closed a $300 million unsecured note offering maturing June 1, 2045 with a coupon of 4.5% and an all in effective rate of approximately 4.55% including the effect of underwriters’ fees. Proceeds from these issuances were used to repay outstanding balances on the company’s revolving line of credit and commercial paper program.

Investment Activity

During the second quarter of 2015, the company acquired a 202-unit apartment property located in Boston for a total purchase price of approximately $130.3 million at a capitalization (cap) rate of 4.2%.

During the second quarter of 2015, the company sold three consolidated apartment properties, consisting of 827 apartment units, for an aggregate sale price of approximately $118.0 million at a weighted average cap rate of 6.0%. 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 internal rate of return (IRR), inclusive of indirect management costs, of 13.4%.

During the first six months of 2015, the company acquired the one asset listed above. During the same period, the company sold six consolidated apartment properties, consisting of 1,377 apartment units, for an aggregate sale price of approximately $263.4 million at a weighted average cap rate of 5.6%. The company also sold the medical office building described above. These combined sales generated an unlevered IRR, inclusive of indirect management costs, of 12.8%.

Third Quarter 2015 Guidance

The company has established a Normalized FFO guidance range of $0.85 to $0.89 per share for the third quarter of 2015. The difference between the company’s second quarter 2015 Normalized FFO of $0.85 per share and the midpoint of the third quarter 2015 guidance range of $0.87 per share is due primarily to:

  • a positive impact of approximately $0.01 per share from higher same store NOI; and
  • a positive impact of approximately $0.01 per share from lower G&A costs.

Full Year 2015 Guidance

The company has revised its guidance for its full year 2015 same store operating performance and Normalized FFO per share as listed below:

 

Previous

  

Revised

Same store:
Physical occupancy 95.9% 96.0%
Revenue change 4.3% to 4.7% 4.75% to 5.0%
Expense change 2.5% to 3.5% 3.0% to 3.25%
NOI change 4.8% to 5.8% 5.5% to 6.0%
 
Normalized FFO per share $3.37 to $3.45 $3.39 to $3.45
 
Transactions:
Consolidated Rental Acquisitions $500 million $350 million
Consolidated Rental Dispositions $500 million $450 million*
Capitalization Rate Spread 100 basis points 100 basis points

*The company’s consolidated rental disposition guidance includes the sale of the medical office building in Boston described above.

Third Quarter 2015 Earnings and Conference Call

Equity Residential expects to announce third quarter 2015 results on Tuesday, October 27, 2015 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, October 28, 2015.

Equity Residential is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 388 properties consisting of 108,430 apartment units. 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, July 29, 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)
       
Six Months Ended June 30, Quarter Ended June 30,
2015 2014 2015 2014
REVENUES
Rental income $ 1,341,114 $ 1,280,491 $ 676,508 $ 649,766
Fee and asset management   4,369     5,519     2,604     2,802  
Total revenues   1,345,483     1,286,010     679,112     652,568  
 
EXPENSES
Property and maintenance 242,565 240,948 118,005 115,382
Real estate taxes and insurance 169,551 165,149 83,119 83,055
Property management 41,962 42,673 20,518 20,555
Fee and asset management 2,595 3,040 1,274 1,378
Depreciation 388,803 375,303 194,282 190,136
General and administrative   35,652     31,328     15,730     13,752  
Total expenses   881,128     858,441     432,928     424,258  
 
Operating income 464,355 427,569 246,184 228,310
 
Interest and other income 6,650 2,637 6,481 2,032
Other expenses (1,700 ) (2,203 ) (1,770 ) (1,539 )
Interest:
Expense incurred, net (219,417 ) (228,973 ) (110,795 ) (115,924 )
Amortization of deferred financing costs   (5,127 )   (5,926 )   (2,538 )   (3,134 )
 
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 244,761 193,104 137,562 109,745
Income and other tax (expense) benefit (369 ) (886 ) (326 ) (646 )
Income (loss) from investments in unconsolidated entities 15,429 (9,025 ) 12,466 (7,616 )
Net gain on sales of real estate properties 228,753 14,903 148,802 14,903
Net (loss) gain on sales of land parcels   (1 )   794     —     824  
Income from continuing operations 488,573 198,890 298,504 117,210
Discontinued operations, net   269     1,562     114     510  
Net income 488,842 200,452 298,618 117,720
Net (income) attributable to Noncontrolling Interests:
Operating Partnership (18,413 ) (7,535 ) (11,354 ) (4,442 )
Partially Owned Properties   (1,487 )   (1,092 )   (844 )   (588 )
Net income attributable to controlling interests 468,942 191,825 286,420 112,690
Preferred distributions (1,724 ) (2,072 ) (833 ) (1,036 )
Premium on redemption of Preferred Shares   (2,789 )   —     —     —  
Net income available to Common Shares $ 464,429   $ 189,753   $ 285,587   $ 111,654  
 
Earnings per share – basic:
Income from continuing operations available to Common Shares $ 1.28   $ 0.52   $ 0.79   $ 0.31  
Net income available to Common Shares $ 1.28   $ 0.53   $ 0.79   $ 0.31  
Weighted average Common Shares outstanding   363,288     360,641     363,476     360,809  
 
Earnings per share – diluted:
Income from continuing operations available to Common Shares $ 1.27   $ 0.52   $ 0.78   $ 0.31  
Net income available to Common Shares $ 1.27   $ 0.52   $ 0.78   $ 0.31  
Weighted average Common Shares outstanding   380,346     376,780     380,491     377,118  
 
Distributions declared per Common Share outstanding $ 1.105   $ 1.00   $ 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)
 
Six Months Ended June 30, Quarter Ended June 30,
2015 2014 2015 2014
Net income $ 488,842 $ 200,452 $ 298,618 $ 117,720
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties (1,487 ) (1,092 ) (844 ) (588 )
Preferred distributions (1,724 ) (2,072 ) (833 ) (1,036 )
Premium on redemption of Preferred Shares   (2,789 )   —     —     —  
Net income available to Common Shares and Units 482,842 197,288 296,941 116,096
 
Adjustments:
Depreciation 388,803 375,303 194,282 190,136
Depreciation – Non-real estate additions (2,524 ) (2,348 ) (1,263 ) (1,160 )
Depreciation – Partially Owned Properties (2,162 ) (2,140 ) (1,083 ) (1,072 )
Depreciation – Unconsolidated Properties 2,457 3,436 1,229 1,833
Net (gain) on sales of real estate properties (228,753 ) (14,903 ) (148,802 ) (14,903 )
Discontinued operations:
Net (gain) on sales of discontinued operations   —     (224 )   —     (153 )
FFO available to Common Shares and Units (1) (3) (4) 640,663 556,412 341,304 290,777
 
Adjustments (see page 24 for additional detail):
Asset impairment and valuation allowances — — — —
Property acquisition costs and write-off of pursuit costs (14,890 ) 7,877 (10,065 ) 7,403
Debt extinguishment (gains) losses, including prepayment penalties, preferred share
redemptions and non-cash convertible debt discounts 1,469 491 (4 ) 491
(Gains) losses on sales of non-operating assets, net of income and other tax expense
(benefit) (800 ) (851 ) (2,458 ) (860 )
Other miscellaneous non-comparable items   (2,179 )   (2,390 )   (3,516 )   (1,927 )
Normalized FFO available to Common Shares and Units (2) (3) (4) $ 624,263   $ 561,539   $ 325,261   $ 295,884  
 
FFO (1) (3) $ 645,176 $ 558,484 $ 342,137 $ 291,813
Preferred distributions (1,724 ) (2,072 ) (833 ) (1,036 )
Premium on redemption of Preferred Shares   (2,789 )   —     —     —  
FFO available to Common Shares and Units - basic and diluted (1) (3) (4) $ 640,663   $ 556,412   $ 341,304   $ 290,777  
FFO per share and Unit - basic $ 1.70   $ 1.49   $ 0.91   $ 0.78  
FFO per share and Unit - diluted $ 1.68   $ 1.48   $ 0.90   $ 0.77  
 
Normalized FFO (2) (3) $ 625,987 $ 563,611 $ 326,094 $ 296,920
Preferred distributions   (1,724 )   (2,072 )   (833 )   (1,036 )
Normalized FFO available to Common Shares and Units - basic and diluted (2) (3) (4) $ 624,263   $ 561,539   $ 325,261   $ 295,884  
Normalized FFO per share and Unit - basic $ 1.66   $ 1.50   $ 0.86   $ 0.79  
Normalized FFO per share and Unit - diluted $ 1.64   $ 1.49   $ 0.85   $ 0.78  
 
Weighted average Common Shares and Units outstanding - basic   376,880     374,377     377,063     374,551  
Weighted average Common Shares and Units outstanding - diluted   380,346     376,780     380,491     377,118  
 
Note:   See page 24 for additional detail regarding the adjustments from FFO to Normalized FFO. See page 26 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)
 
June 30, December 31,
2015 2014
ASSETS
Investment in real estate
Land $ 6,374,779 $ 6,295,404
Depreciable property 20,290,324 19,851,504
Projects under development 1,240,244 1,343,919
Land held for development   127,559     184,556  
Investment in real estate 28,032,906 27,675,383
Accumulated depreciation   (5,736,913 )   (5,432,805 )
Investment in real estate, net 22,295,993 22,242,578
Cash and cash equivalents 92,109 40,080
Investments in unconsolidated entities 94,718 105,434
Deposits – restricted 103,508 72,303
Escrow deposits – mortgage 52,862 48,085
Deferred financing costs, net 59,605 58,380
Other assets   383,035     383,754  
Total assets $ 23,081,830   $ 22,950,614  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable $ 4,952,579 $ 5,086,515
Notes, net 5,875,328 5,425,346
Line of credit and commercial paper — 333,000
Accounts payable and accrued expenses 193,096 153,590
Accrued interest payable 87,131 89,540
Other liabilities 355,632 389,915
Security deposits 76,112 75,633
Distributions payable   209,041     188,566  
Total liabilities   11,748,919     11,742,105  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   488,178     500,733  
Equity:
Shareholders’ equity:
Preferred Shares of beneficial interest, $0.01 par value;
100,000,000 shares authorized; 803,600 shares issued and
outstanding as of June 30, 2015 and 1,000,000 shares
issued and outstanding as of December 31, 2014 40,180 50,000
Common Shares of beneficial interest, $0.01 par value;
1,000,000,000 shares authorized; 364,050,890 shares issued and
outstanding as of June 30, 2015 and 362,855,454 shares
issued and outstanding as of December 31, 2014 3,641 3,629
Paid in capital 8,607,889 8,536,340
Retained earnings 2,012,909 1,950,639
Accumulated other comprehensive (loss)   (163,855 )   (172,152 )
Total shareholders’ equity 10,500,764 10,368,456
Noncontrolling Interests:
Operating Partnership 221,601 214,411
Partially Owned Properties   122,368     124,909  
Total Noncontrolling Interests   343,969     339,320  
Total equity   10,844,733     10,707,776  
Total liabilities and equity $ 23,081,830   $ 22,950,614  
 
Equity Residential
Portfolio Summary
As of June 30, 2015
       
% of Average
Apartment Stabilized Rental
Markets/Metro Areas Properties Units NOI (1) Rate (2)
 
Core:
Washington DC 57 18,654 17.5% $ 2,225
New York 39 10,566 17.0% 3,989
San Francisco 51 13,208 14.3% 2,544
Los Angeles 61 13,313 12.7% 2,310
Boston 35 8,018 10.1% 2,812
South Florida 35 11,434 7.5% 1,686
Seattle 41 8,170 7.0% 2,002
Denver 19 6,935 4.7% 1,509
San Diego 13 3,505 3.1% 2,053
Orange County, CA 11 3,490 3.0%   1,862
Subtotal – Core 362 97,293 96.9% 2,370
 
Non-Core:
Inland Empire, CA 10 3,081 2.1% 1,613
All Other Markets 14 2,969 1.0%   1,201
Subtotal – Non-Core 24 6,050 3.1%   1,410
Total 386 103,343 100.0%   2,313
 
Military Housing 2 5,087 —   —
 
Grand Total 388 108,430 100.0% $ 2,313
 
Note: Projects under development are not included in the Portfolio Summary until construction has been completed.
 
(1) % of Stabilized NOI includes budgeted 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 June 30, 2015
 
Properties Apartment

Units

Wholly Owned Properties 361 97,438
Master-Leased Properties - Consolidated 3 853
Partially Owned Properties - Consolidated 19 3,771
Partially Owned Properties - Unconsolidated 3 1,281

Military Housing

2     5,087  
 
388     108,430  
                   
 
Portfolio Rollforward Q2 2015
($ in thousands)
 
Properties Apartment

Units

Purchase/

(Sale) Price

Cap Rate
3/31/2015 389 108,793
Acquisitions:
Consolidated:
Rental Properties 1 202 $ 130,275 4.2 %
Dispositions:
Consolidated:
Rental Properties (1) (3 ) (827 ) $ (241,262 ) 5.2 %
Completed Developments - Consolidated 1 236
Configuration Changes —   26  
 
6/30/2015 388   108,430  
                   
 
Portfolio Rollforward 2015
($ in thousands)
 
Properties Apartment

Units

Purchase/

(Sale) Price

Cap Rate
12/31/2014 391 109,225
Acquisitions:
Consolidated:
Rental Properties 1 202 $ 130,275 4.2 %
Dispositions:
Consolidated:
Rental Properties (1) (6 ) (1,377 ) $ (386,662 ) 5.2 %
Completed Developments - Consolidated 2 324
Configuration Changes —   56  
 
6/30/2015 388   108,430  
 
(1) 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
           
Second Quarter 2015 vs. Second Quarter 2014
Same Store Results/Statistics for 97,580 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
Results Statistics

Average

Rental

Description Revenues Expenses NOI (1)

Rate (2)

Occupancy Turnover
 
Q2 2015 $ 645,198 $ 211,126 $ 434,072 $ 2,294 96.1 % 14.5 %
Q2 2014 $ 614,933   $ 203,515   $ 411,418   $ 2,194   95.8 % 14.1 %
 
Change $ 30,265   $ 7,611   $ 22,654   $ 100   0.3 % 0.4 %
 
Change 4.9 % 3.7 % 5.5 % 4.6 %
                         
 
Second Quarter 2015 vs. First Quarter 2015
Same Store Results/Statistics for 99,858 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
Results Statistics

Average

Rental

Description Revenues Expenses NOI (1)

Rate (2)

Occupancy Turnover
 
Q2 2015 $ 660,148 $ 216,019 $ 444,129 $ 2,294 96.1 % 14.6 %
Q1 2015 $ 646,329   $ 220,846   $ 425,483   $ 2,250   95.9 % 11.2 %
 
Change $ 13,819   $ (4,827 ) $ 18,646   $ 44   0.2 % 3.4 %
 
Change 2.1 % (2.2 %) 4.4 % 2.0 %
                         
 
June YTD 2015 vs. June YTD 2014
Same Store Results/Statistics for 96,761 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
Results Statistics

Average

Rental

Description Revenues Expenses NOI (1)

Rate (2)

Occupancy Turnover
 
YTD 2015 $ 1,267,098 $ 423,791 $ 843,307 $ 2,274 96.0 % 25.6 %
YTD 2014 $ 1,207,334   $ 413,053   $ 794,281   $ 2,180   95.5 % 25.4 %
 
Change $ 59,764   $ 10,738   $ 49,026   $ 94   0.5 % 0.2 %
 
Change 5.0 % 2.6 % 6.2 % 4.3 %
 
(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 26 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
Second Quarter 2015 vs. Second Quarter 2014
Same Store Results/Statistics by Market
                 
Increase (Decrease) from Prior Year's Quarter

 

Markets/Metro Areas

Apartment

Units

Q2 2015

% of

Actual

NOI

Q2 2015

Average

Rental

Rate (1)

Q2 2015

Weighted

Average

Occupancy %

Revenues Expenses NOI

Average

Rental

Rate (1)

Occupancy
 
Core:
Washington DC 18,132 18.1% $ 2,226 96.0% 0.9% 3.3% (0.2%) 0.1% 0.8%
New York 10,330 17.1% 3,961 96.8% 3.7% 6.5% 2.2% 3.1% 0.6%
San Francisco 12,764 15.1% 2,506 96.4% 10.1% 1.9% 13.8% 9.6% 0.3%
Los Angeles 11,071 11.0% 2,229 96.1% 6.4% 0.4% 9.7% 5.6% 0.8%
Boston 7,722 9.8% 2,797 96.6% 2.9% 8.8% 0.4% 2.4% 0.5%
South Florida 10,537 7.4% 1,669 95.8% 5.6% 3.5% 6.8% 5.8% (0.2%)
Seattle 7,380 6.6% 1,960 95.7% 6.7% (0.1%) 10.2% 6.9% (0.2%)
Denver 6,935 5.0% 1,499 95.6% 8.4% 7.0% 9.0% 9.0% (0.6%)
San Diego 3,505 3.3% 2,045 96.0% 4.6% 1.4% 6.1% 4.7% (0.1%)
Orange County, CA 3,490 3.1%   1,849 96.1% 4.7% 2.2% 5.7% 4.5% 0.1%
Subtotal – Core 91,866 96.5% 2,349 96.1% 4.9% 3.8% 5.5% 4.6% 0.3%
 
Non-Core:
Inland Empire, CA 3,081 2.3% 1,619 95.6% 4.8% (0.3%) 7.2% 4.9% (0.1%)
All Other Markets 2,633 1.2%   1,166 96.8% 4.4% 5.0% 3.9% 4.0% 0.3%
Subtotal – Non-Core 5,714 3.5% 1,409 96.2% 4.6% 2.0% 6.0% 4.5% 0.1%
                 
Total 97,580 100.0% $ 2,294 96.1% 4.9% 3.7% 5.5% 4.6% 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
Second Quarter 2015 vs. First Quarter 2015
Same Store Results/Statistics by Market
                 
Increase (Decrease) from Prior Quarter

 

Markets/Metro Areas

Apartment Units

Q2 2015

% of

Actual

NOI

Q2 2015

Average

Rental

Rate (1)

Q2 2015

Weighted

Average

Occupancy %

Revenues Expenses NOI

Average

Rental

Rate (1)

Occupancy
 
Core:
Washington DC 18,492 18.1% $ 2,229 96.0% 1.4% (4.2%) 4.3% 1.1% 0.3%
New York 10,330 16.7% 3,961 96.8% 2.1% (3.7%) 5.8% 1.7% 0.4%
San Francisco 12,764 14.8% 2,506 96.4% 3.0% (0.9%) 4.7% 3.2% (0.2%)
Los Angeles 12,091 11.8% 2,264 96.0% 2.2% (1.1%) 4.0% 2.1% 0.1%
Boston 7,722 9.6% 2,797 96.6% 1.1% (7.5%) 5.8% 0.1% 1.0%
South Florida 10,933 7.6% 1,673 95.7% 2.5% 1.5% 3.0% 2.6% (0.1%)
Seattle 7,882 6.9% 1,962 95.6% 2.9% 2.6% 3.0% 2.8% 0.1%
Denver 6,935 4.9% 1,499 95.6% 2.9% 9.5% 0.6% 3.0% (0.2%)
San Diego 3,505 3.2% 2,045 96.0% 2.0% 1.7% 2.2% 1.8% 0.1%
Orange County, CA 3,490 3.0%   1,849 96.1% 1.5% (0.8%) 2.4% 1.6% (0.1%)
Subtotal – Core 94,144 96.6% 2,348 96.1% 2.1% (1.9%) 4.2% 2.0% 0.1%
 
Non-Core:
Inland Empire, CA 3,081 2.2% 1,619 95.6% 2.4% (0.9%) 3.9% 1.8% 0.6%
All Other Markets 2,633 1.2%   1,166 96.8% 3.0% (15.2%) 22.0% 2.1% 0.8%
Subtotal – Non-Core 5,714 3.4% 1,409 96.2% 2.6% (8.1%) 9.5% 1.9% 0.7%
                 
Total 99,858 100.0% $ 2,294 96.1% 2.1% (2.2%) 4.4% 2.0% 0.2%
 
(1) Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.
 
Equity Residential
June YTD 2015 vs. June YTD 2014
Same Store Results/Statistics by Market
                 
Increase (Decrease) from Prior Year
 

June YTD 15

June YTD 15

June YTD 15

% of

Average

Weighted

Average
Apartment

Actual

Rental

Average

Rental
Markets/Metro Areas Units

NOI

Rate (1)

Occupancy %

Revenues Expenses NOI Rate (1) Occupancy
 
Core:
Washington DC 17,743 17.9% $ 2,225 95.8% 0.8% 3.0% (0.2%) (0.2%) 0.9%
New York 10,330 17.2% 3,928 96.6% 4.1% 3.2% 4.6% 3.3% 0.7%
San Francisco 12,764 15.2% 2,467 96.5% 10.3% 1.9% 14.3% 9.1% 1.0%
Los Angeles 10,641 10.6% 2,198 96.0% 5.8% 0.7% 8.6% 5.0% 0.7%
Boston 7,722 9.8% 2,796 96.1% 3.1% 5.1% 2.1% 2.6% 0.5%
South Florida 10,537 7.6% 1,648 95.8% 5.4% 3.0% 6.7% 5.1% 0.2%
Seattle 7,380 6.7% 1,935 95.6% 7.1% (0.3%) 10.8% 6.8% 0.2%
Denver 6,935 5.1% 1,477 95.7% 8.7% 3.5% 10.7% 8.6% 0.0%
San Diego 3,505 3.4% 2,026 96.0% 4.9% 1.9% 6.3% 4.4% 0.4%
Orange County, CA 3,490 3.1%   1,835 96.1% 5.1% 3.3% 5.8% 4.4% 0.6%
Subtotal – Core 91,047 96.6% 2,329 96.0% 5.0% 2.6% 6.2% 4.3% 0.6%
 
Non-Core:
Inland Empire, CA 3,081 2.3% 1,605 95.3% 3.9% 1.4% 5.1% 4.2% (0.3%)
All Other Markets 2,633 1.1%   1,154 96.4% 3.9% 2.3% 5.4% 3.9% 0.1%
Subtotal – Non-Core 5,714 3.4% 1,396 95.8% 3.9% 1.9% 5.2% 4.0% (0.1%)
                 
Total 96,761 100.0% $ 2,274 96.0% 5.0% 2.6% 6.2% 4.3% 0.5%
 
(1) Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.
     
Equity Residential
         
Second Quarter 2015 vs. Second Quarter 2014
Same Store Operating Expenses for 97,580 Same Store Apartment Units
$ in thousands

 

 

 

 

Actual

Q2 2015

Actual

Q2 2014

$
Change

%

Change

% of Actual

Q2 2015

Operating

Expenses

 
Real estate taxes $ 75,171 $ 71,511 $ 3,660 5.1 % 35.6 %
On-site payroll (1) 44,021 43,990 31 0.1 % 20.8 %
Utilities (2) 29,085 27,870 1,215 4.4 % 13.8 %
Repairs and maintenance (3) 27,000 25,253 1,747 6.9 % 12.8 %
Property management costs (4) 19,356 18,448 908 4.9 % 9.2 %
Insurance 5,415 6,063 (648 ) (10.7 %) 2.6 %
Leasing and advertising 2,615 2,441 174 7.1 % 1.2 %
Other on-site operating expenses (5)   8,463   7,939   524   6.6 % 4.0 %
 
Same store operating expenses $ 211,126 $ 203,515 $ 7,611   3.7 % 100.0 %
                     
 
June YTD 2015 vs. June YTD 2014
Same Store Operating Expenses for 96,761 Same Store Apartment Units
$ in thousands

 

 

 

 

Actual

YTD 2015

Actual

YTD 2014

$
Change

%

Change

% of Actual

YTD 2015

Operating

Expenses

 
Real estate taxes $ 148,756 $ 141,578 $ 7,178 5.1 % 35.1 %
On-site payroll (1) 88,832 87,046 1,786 2.1 % 21.0 %
Utilities (2) 61,438 64,965 (3,527 ) (5.4 %) 14.5 %
Repairs and maintenance (3) 52,730 48,878 3,852 7.9 % 12.4 %
Property management costs (4) 38,013 36,220 1,793 5.0 % 9.0 %
Insurance 10,738 12,021 (1,283 ) (10.7 %) 2.5 %
Leasing and advertising 5,137 4,876 261 5.4 % 1.2 %
Other on-site operating expenses (5)   18,147   17,469   678   3.9 % 4.3 %
 
Same store operating expenses $ 423,791 $ 413,053 $ 10,738   2.6 % 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 June 30, 2015
(Amounts in thousands)
 
Amounts (1) % of Total

Weighted

Average

Rates (1)

Weighted

Average

Maturities

(years)

 
Secured $ 4,952,579 45.7% 4.20% 7.2
Unsecured   5,875,328 54.3% 4.68% 9.2
 
Total $ 10,827,907 100.0% 4.46% 8.3
 
Fixed Rate Debt:
Secured – Conventional $ 4,215,662 38.9% 4.82% 5.6
Unsecured – Public   5,421,733 50.1% 5.35% 9.7
 
Fixed Rate Debt   9,637,395 89.0% 5.11% 7.9
 
Floating Rate Debt:
Secured – Conventional 7,985 0.1% 0.12% 18.6
Secured – Tax Exempt 728,932 6.7% 0.65% 15.7
Unsecured – Public (2) 453,595 4.2% 0.90% 4.0
Unsecured – Revolving Credit Facility — — 1.06% 2.8
Unsecured – Commercial Paper Program (3)   — — 0.57% —
 
Floating Rate Debt   1,190,512 11.0% 0.77% 11.3
 
Total $ 10,827,907 100.0% 4.46% 8.3
 
(1) Net of the effect of any derivative instruments. Weighted average rates are for the six months ended June 30, 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 June 30, 2015, there was no commercial paper outstanding.
 
Note: The Company capitalized interest of approximately $30.4 million and $25.0 million during the six months ended June 30, 2015 and 2014, respectively. The Company capitalized interest of approximately $15.1 million and $12.2 million during the quarters ended June 30, 2015 and 2014, respectively.
 
Note: The Company recorded approximately $3.1 million and $2.2 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the six months ended June 30, 2015 and 2014, respectively. The Company recorded approximately $2.6 million and $1.1 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the quarters ended June 30, 2015 and 2014, respectively.
 
Debt Maturity Schedule as of June 30, 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)

 
2015 $ 42,932 $ — $ 42,932 0.4 % 5.40 % 5.40 %
2016 1,132,742 — 1,132,742 10.5 % 5.31 % 5.31 %
2017 1,347,390 456 1,347,846 12.5 % 6.16 % 6.16 %
2018 82,799 97,659 180,458 1.7 % 5.59 % 3.07 %
2019 806,698 474,721 1,281,419 11.8 % 5.48 % 3.75 %
2020 1,678,623 809 1,679,432 15.5 % 5.49 % 5.49 %
2021 1,195,251 856 1,196,107 11.0 % 4.63 % 4.63 %
2022 228,924 905 229,829 2.1 % 3.16 % 3.17 %
2023 1,327,965 956 1,328,921 12.3 % 3.74 % 3.74 %
2024 2,497 1,011 3,508 0.0 % 4.97 % 5.14 %
2025+ 1,772,417 673,977 2,446,394 22.6 % 4.49 % 3.37 %
Premium/(Discount)   19,157   (60,838 )   (41,681 ) (0.4 %) N/A   N/A  
 
Total $ 9,637,395 $ 1,190,512   $ 10,827,907   100.0 % 4.97 % 4.48 %
 
(1) Net of the effect of any derivative instruments. Weighted average rates are as of June 30, 2015.
 
Equity Residential
Unsecured Debt Summary as of June 30, 2015
(Amounts in thousands)
 

 

 

 

   

 

   

 

Coupon

Rate

Due

Date

 

Face

Amount

Unamortized

Premium/

(Discount)

Net

Balance

 
Fixed Rate Notes:
5.125% 03/15/16 $ 500,000 $ (36 ) $ 499,964
5.375% 08/01/16 400,000 (201 ) 399,799
5.750% 06/15/17 650,000 (1,017 ) 648,983
7.125% 10/15/17 150,000 (148 ) 149,852
2.375% 07/01/19 (1) 450,000 (360 ) 449,640
Fair Value Derivative Adjustments (1) (450,000 ) 360 (449,640 )
4.750% 07/15/20 600,000 (2,289 ) 597,711
4.625% 12/15/21 1,000,000 (2,445 ) 997,555
3.000% 04/15/23 500,000 (3,449 ) 496,551
3.375% 06/01/25 450,000 (2,454 ) 447,546
7.570% 08/15/26 140,000 — 140,000
4.500% 07/01/44 750,000 (5,097 ) 744,903
4.500% 06/01/45   300,000     (1,131 )   298,869  
 
  5,440,000     (18,267 )   5,421,733  
Floating Rate Notes:
07/01/19 (1) 450,000 (360 ) 449,640
Fair Value Derivative Adjustments 07/01/19 (1)   3,955     —     3,955  
  453,955     (360 )   453,595  
 
Line of Credit and Commercial Paper:
Revolving Credit Facility LIBOR+0.95% 04/01/18 (2)(3) — — —
Commercial Paper Program (4) (4) (2)   —     —     —  
  —     —     —  
 
Total Unsecured Debt $ 5,893,955   $ (18,627 ) $ 5,875,328  
 
(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 June 30, 2015, there was approximately $2.46 billion available on this facility (net of $41.7 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 0.57% for the six months ended June 30, 2015. No amounts were outstanding at June 30, 2015.
 
Equity Residential
       
Selected Unsecured Public Debt Covenants
 

June 30,

2015

March 31,

2015

 
Total Debt to Adjusted Total Assets (not to exceed 60%) 38.5% 38.9%
 
Secured Debt to Adjusted Total Assets (not to exceed 40%) 17.6% 17.8%
 
Consolidated Income Available for Debt Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1) 3.49 3.48
 
Total Unsecured Assets to Unsecured Debt 341.8% 337.7%
(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)
       

 

 

June 30,

2015

March 31,

2015

 
Total debt to Normalized EBITDA 6.24x 6.35x
 
Net debt to Normalized EBITDA 6.16x 6.29x
 
Note:   See page 23 for the footnote referenced above and the Normalized EBITDA reconciliations.
 
Equity Residential
               
Capital Structure as of June 30, 2015
(Amounts in thousands except for share/unit and per share amounts)
 
Secured Debt $ 4,952,579 45.7%
Unsecured Debt   5,875,328 54.3%
 
Total Debt 10,827,907 100.0% 28.9%
 
Common Shares (includes Restricted Shares) 364,050,890 96.2%
Units (includes OP Units and Restricted Units)   14,466,127   3.8%
 
Total Shares and Units 378,517,017 100.0%
Common Share Price at June 30, 2015 $ 70.17

 

26,560,539 99.8%
Perpetual Preferred Equity (see below)   40,180 0.2%
 
Total Equity 26,600,719 100.0% 71.1%
 
Total Market Capitalization $ 37,428,626 100.0%
                               
 
Perpetual Preferred Equity as of June 30, 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 12/10/26 803,600 $ 40,180 $ 4.145 $ 3,331
 
Total Perpetual Preferred Equity 803,600 $ 40,180 $ 3,331
 
Equity Residential
Common Share and Unit
Weighted Average Amounts Outstanding
         
YTD Q2 2015 YTD Q2 2014 Q2 2015 Q2 2014
 
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 363,288,389 360,640,502 363,476,488 360,808,768
Shares issuable from assumed conversion/vesting of:
- OP Units 13,591,979 13,736,387 13,586,338 13,742,133
- long-term compensation shares/units 3,465,215 2,403,285 3,427,786 2,567,042
 
Total Common Shares and Units - diluted 380,345,583 376,780,174 380,490,612 377,117,943
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 363,288,389 360,640,502 363,476,488 360,808,768
OP Units - basic 13,591,979 13,736,387 13,586,338 13,742,133
 
Total Common Shares and OP Units - basic 376,880,368 374,376,889 377,062,826 374,550,901
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units 3,465,215 2,403,285 3,427,786 2,567,042
 
Total Common Shares and Units - diluted 380,345,583 376,780,174 380,490,612 377,117,943
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 364,050,890 361,562,007
Units (includes OP Units and Restricted Units) 14,466,127 14,336,826
 
Total Shares and Units 378,517,017 375,898,833
   
Equity Residential
Partially Owned Entities as of June 30, 2015
(Amounts in thousands except for project and apartment unit amounts)
         
Consolidated Unconsolidated
Development Projects
 

Held for

and/or Under

Development (4)

Operating Total

Operating

Total
 
Total projects (1)   —     19     19     3     3  
 
Total apartment units (1)   —     3,771     3,771     1,281     1,281  
 
Operating information for the six months ended 6/30/15 (at 100%):
Operating revenue $ 1,103 $ 46,071 $ 47,174 $ 15,918 $ 15,918
Operating expenses   851     13,545     14,396     5,388     5,388  
 
Net operating income 252 32,526 32,778 10,530 10,530
Depreciation 2,339 11,073 13,412 6,159 6,159
General and administrative/other   1     41     42     119     119  
 
Operating (loss) income (2,088 ) 21,412 19,324 4,252 4,252
Interest and other income — 5 5 — —
Other expenses — (50 ) (50 ) — —
Interest:
Expense incurred, net — (7,786 ) (7,786 ) (4,697 ) (4,697 )
Amortization of deferred financing costs   —     (177 )   (177 )   (1 )   (1 )
 
(Loss) income before income and other taxes and (loss)
from investments in unconsolidated entities
(2,088 ) 13,404 11,316 (446 ) (446 )
Income and other tax (expense) benefit — (35 ) (35 ) (18 ) (18 )
(Loss) from investments in unconsolidated entities   —     (739 )   (739 )   —     —  
Net (loss) income $ (2,088 ) $ 12,630   $ 10,542   $ (464 ) $ (464 )
 
Debt - Secured (2):
EQR Ownership (3) $ — $ 282,158 $ 282,158 $ 35,027 $ 35,027
Noncontrolling Ownership   —     78,496     78,496     140,108     140,108  
 
Total (at 100%) $ —   $ 360,654   $ 360,654   $ 175,135   $ 175,135  
 
(1)   Project and apartment unit counts exclude all uncompleted development projects until those projects are substantially completed.
 
(2) All debt is non-recourse to the Company.
 
(3) Represents the Company's current equity ownership interest.
 
(4) See Projects Under Development - Partially Owned on page 21 for further information.
 
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 own certain non-core Archstone assets that are held for sale 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 $71.2 million at June 30, 2015. The ventures are owned 60% by the Company and 40% by AVB.
 
Equity Residential
Consolidated Development and Lease-Up Projects as of June 30, 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 - Wholly Owned:
Parc on Powell (formerly 1333 Powell) Emeryville, CA 173 $ 87,500 $ 80,810 $ 45,761 $ — 99% 79% 39% Q3 2015 Q4 2015
Azure (at Mission Bay) San Francisco, CA 273 189,090 175,390 86,089 — 96% 24% 4% Q3 2015 Q4 2016
Junction 47 (formerly West Seattle) Seattle, WA 206 67,112 60,292 39,805 — 93% 15% 10% Q4 2015 Q3 2016
Odin (formerly Tallman) Seattle, WA 301 84,277 73,900 73,900 — 91% 5% — Q4 2015 Q2 2017
Altitude (formerly Village at Howard Hughes) Los Angeles, CA 545 193,231 118,935 118,935 — 52% — — Q2 2016 Q2 2017
Potrero 1010 San Francisco, CA 453 224,474 117,643 117,643 — 55% — — Q2 2016 Q3 2017
The Alton (formerly Millikan) Irvine, CA 344 102,331 56,870 56,870 — 34% — — Q2 2016 Q3 2017
Vista 99 (formerly Tasman) San Jose, CA 554 214,923 162,588 162,588 — 74% — — Q2 2016 Q2 2018
340 Fremont (formerly Rincon Hill) San Francisco, CA 348 287,454 156,764 156,764 — 45% — — Q3 2016 Q1 2018
One Henry Adams (2) San Francisco, CA 241 172,337 56,236 56,236 — 15% — — Q1 2017 Q4 2017
455 I St Washington, DC 174 73,157 21,471 21,471 — 1% — — Q3 2017 Q2 2018
855 Brannan (formerly 801 Brannan) (2) San Francisco, CA 449 304,035 69,935 69,935 — 3% — — Q3 2017 Q1 2019
2nd & Pine (3) Seattle, WA 398 214,742 63,651 63,651 — 15% — — Q3 2017 Q2 2019
Cascade (2) Seattle, WA 483   172,486   47,591   47,591   — 11% — — Q3 2017 Q2 2019
Projects Under Development - Wholly Owned 4,942 2,387,149 1,262,076 1,117,239 —
 
Projects Under Development - Partially Owned:
Prism at Park Avenue South (4) New York, NY 269   251,961   235,990   7,018   — 96% 51% 43% Q3 2015 Q1 2016
Projects Under Development - Partially Owned 269 251,961 235,990 7,018 —
         
Projects Under Development 5,211   2,639,110   1,498,066   1,124,257   —
 
Completed Not Stabilized - Wholly Owned (5):
Residences at Westgate I (formerly Westgate II) Pasadena, CA 252 127,292 124,911 — — 97% 95% Completed Q3 2015
Residences at Westgate II (formerly Westgate III) Pasadena, CA 88 55,037 50,979 — — 51% 49% Completed Q4 2015
170 Amsterdam (6) New York, NY 236   110,892   109,666   —   — 27% 25% Completed Q1 2016
Projects Completed Not Stabilized - Wholly Owned 576 293,221 285,556 — —
         
Projects Completed Not Stabilized 576   293,221   285,556   —   —
 
Completed and Stabilized During the Quarter - Wholly Owned:
Urbana (formerly Market Street Landing) Seattle, WA 287   87,974   87,296   —   — 98% 95% Completed Stabilized
Projects Completed and Stabilized During the Quarter - Wholly Owned 287 87,974 87,296 — —
         
Projects Completed and Stabilized During the Quarter 287   87,974   87,296   —   —
 
Total Consolidated Projects 6,074 $ 3,020,305 $ 1,870,918 $ 1,124,257 $ —
 
Land Held for Development N/A   N/A $ 127,559 $ 127,559 $ —

 

 

NOI CONTRIBUTION FROM CONSOLIDATED DEVELOPMENT PROJECTS

Total Capital

Cost (1)

Q2 2015

NOI

Projects Under Development $ 2,639,110 $ 401
Completed Not Stabilized 293,221 1,013
Completed and Stabilized During the Quarter   87,974   1,429
Total Consolidated Development NOI Contribution $ 3,020,305 $ 2,843
 
(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) One Henry Adams, 855 Brannan and Cascade – The increase in total capital cost is due to the decision to add air conditioning for each project.
 
(3) 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.
 
(4) Prism at Park Avenue South – The Company is jointly developing with Toll Brothers (NYSE: TOL) a project at 400 Park Avenue South in New York City with the Company's rental portion on floors 2-22 and Toll's for sale portion on floors 23-40. The total capital cost and total book value to date represent only the Company's portion of the project. Toll Brothers has funded $116.0 million for their allocated share of the project.
 
(5) 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.
 
(6) 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 Six Months Ended June 30, 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) 96,761 $ 52,730 $ 545 $ 42,218 $ 436 $ 94,948 $ 981 $ 47,485 $ 491 $ 31,828 $ 329 $ 79,313 $ 820 (9) $ 174,261 $ 1,801
 
Non-Same Store Properties (7) 5,301 1,922 389 1,336 270 3,258 659 223 45 2,103 426 2,326 471 5,584 1,130
 
Other (8) —   697   669   1,366   138   185   323   1,689
 
Total 102,062 $ 55,349 $ 44,223 $ 99,572 $ 47,846 $ 34,116 $ 81,962 $ 181,534
 
(1) Total Apartment Units - Excludes 1,281 unconsolidated apartment units and 5,087 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 $28.8 million spent during the six months ended June 30, 2015 on apartment unit renovations/rehabs (primarily kitchens and baths) on 3,126 same store apartment units (equating to approximately $9,200 per apartment unit rehabbed) designed to reposition these assets for higher rental levels in their respective markets. In 2015, the Company expects to spend approximately $60.0 million for all unit renovation/rehab costs (primarily on same store properties) at a weighted average cost of $9,000 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 4,943 apartment units.
 
(8) Other - Primarily includes expenditures for properties sold and properties under development.
 
(9) For 2015, the Company estimates that it will spend approximately $1,850 per apartment unit of capital expenditures, inclusive of apartment unit renovation/rehab costs, or $1,250 per apartment unit excluding apartment unit renovation/rehab costs.
Equity Residential
Normalized EBITDA Reconciliations
(Amounts in thousands)
               
Normalized EBITDA Reconciliations for Page 17
                     
Trailing Twelve Months 2015   2014  
June 30, 2015 March 31, 2015 Q2 Q1 Q4 Q3 Q2
Net income $ 947,073 $ 766,175 $ 298,618 $ 190,224 $ 227,041 $ 231,190 $ 117,720
Interest expense incurred, net (includes discontinued operations) 447,635 452,764 110,795 108,622 109,967 118,251 115,924
Amortization of deferred financing costs (includes discontinued operations) 10,289 10,885 2,538 2,589 2,534 2,628 3,134
Depreciation (includes discontinued operations) 772,361 768,215 194,282 194,521 193,089 190,469 190,136
Income and other tax expense (benefit) (includes discontinued operations) 887 1,209 326 58 243 260 648
Archstone direct acquisition costs (other expenses) 6 29 — — — 6 23
Property acquisition costs (other expenses) 389 405 78 99 77 135 94
Write-off of pursuit costs (other expenses) 3,766 3,648 1,158 493 1,540 575 1,040
(Income) loss from investments in unconsolidated entities (16,502 ) 3,580 (12,466 ) (2,963 ) (2,249 ) 1,176 7,616
Net (gain) loss on sales of land parcels (4,482 ) (5,306 ) — 1 (3,431 ) (1,052 ) (824 )
(Gain) on sale of investment securities (interest and other income) (387 ) (36 ) (387 ) — — — (36 )
Write-off of unamortized retail lease intangibles (rental income) — (147 ) — — — — (147 )
Executive compensation program duplicative costs 4,673 2,337 2,336 2,337 — — —
Forfeited deposits (interest and other income) (150 ) (150 ) — — (150 ) — —
Insurance/litigation settlement or reserve income (interest and other income) (6,221 ) (2,330 ) (5,770 ) — (32 ) (419 ) (1,879 )
Insurance/litigation settlement or reserve expense (other expenses) 3,112 3,099 112 (1,000 ) — 4,000 99
Other (interest and other income) (944 ) (750 ) (194 ) — (750 ) — —
Net loss (gain) on sales of discontinued operations 45 (108 ) — — 44 1 (153 )
Net (gain) on sales of real estate properties   (426,535 )   (292,636 )   (148,802 )   (79,951 )   (84,141 )   (113,641 )   (14,903 )
Normalized EBITDA (1) $ 1,735,015   $ 1,710,883   $ 442,624   $ 415,030   $ 443,782   $ 433,579   $ 418,492  
 

Balance Sheet Items:

June 30, 2015 March 31, 2015
Total debt (1) $ 10,827,907 $ 10,859,508
Cash and cash equivalents (92,109 ) (49,418 )
Mortgage principal reserves/sinking funds   (45,736 )   (43,626 )
Net debt (1) $ 10,690,062   $ 10,766,464  
 
(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 Q2 2015
to Actual Q2 2015
Amounts Per Share
Guidance Q2 2015 Normalized FFO - Diluted (2) (3) $ 320,588 $ 0.842
Property NOI 5,177 0.014
Interest expense (703 ) (0.002 )
Other   199     0.001  
 
Actual Q2 2015 Normalized FFO - Diluted (2) (3) $ 325,261   $ 0.855  
 
                   
 
Non-Comparable Items – Adjustments from FFO to Normalized FFO (2) (3)
             
Six Months Ended June 30, Quarter Ended June 30,
2015 2014 Variance 2015 2014 Variance
Impairment $ —   $ —   $ —   $ —   $ —   $ —  
Asset impairment and valuation allowances   —     —     —     —     —     —  
 
Archstone direct acquisition costs (other expenses) (A) —

 

 

(7 ) 7 — 23 (23 )
Archstone indirect costs ((income) loss from investments in unconsolidated entities) (B) (16,718 ) 6,249 (22,967 ) (11,301 ) 6,246 (17,547 )
Property acquisition costs (other expenses) 177 143 34 78 94 (16 )
Write-off of pursuit costs (other expenses)   1,651     1,492     159     1,158     1,040     118  
Property acquisition costs and write-off of pursuit costs   (14,890 )   7,877     (22,767 )   (10,065 )   7,403     (17,468 )
 
Write-off of unamortized deferred financing costs (interest expense) 75 582 (507 ) 1 582 (581 )
Write-off of unamortized (premiums)/discounts/OCI (interest expense) (1,395 ) — (1,395 ) (5 ) — (5 )
(Gain) due to ineffectiveness of forward starting swaps (interest expense) — (91 ) 91 — (91 ) 91
Premium on redemption of Preferred Shares   2,789     —     2,789     —     —     —  
Debt extinguishment (gains) losses, including prepayment penalties, preferred share
redemptions and non-cash convertible debt discounts   1,469     491     978     (4 )   491     (495 )
 
Net loss (gain) on sales of land parcels 1 (794 ) 795 — (824 ) 824
Net (gain) on sales of unconsolidated entities – non-operating assets (414 ) — (414 ) (2,071 ) — (2,071 )
(Gain) on sale of investment securities (interest and other income)   (387 )   (57 )   (330 )   (387 )   (36 )   (351 )
(Gains) losses on sales of non-operating assets, net of income and other tax expense (benefit)   (800 )   (851 )   51     (2,458 )   (860 )   (1,598 )
 
Write-off of unamortized retail lease intangibles (rental income) — (147 ) 147 — (147 ) 147
Executive compensation program duplicative costs (C) 4,673 — 4,673 2,336 — 2,336
Insurance/litigation settlement or reserve income (interest and other income) (5,770 ) (2,342 ) (3,428 ) (5,770 ) (1,879 ) (3,891 )
Insurance/litigation settlement or reserve expense (other expenses) (888 ) 99 (987 ) 112 99 13
Other (interest and other income)   (194 )   —     (194 )   (194 )   —     (194 )
Other miscellaneous non-comparable items   (2,179 )   (2,390 )   211     (3,516 )   (1,927 )   (1,589 )
           
Non-comparable items – Adjustments from FFO to Normalized FFO (2) (3) $ (16,400 ) $ 5,127   $ (21,527 ) $ (16,043 ) $ 5,107   $ (21,150 )
 
(A) Archstone direct acquisition costs primarily includes items such as investment banking and legal/accounting fees that were incurred directly by the Company.
 
(B) 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 six months and quarter ended June 30, 2015, the amounts also include approximately $18.6 million and $11.7 million, respectively, related to the favorable settlement of a lawsuit.
 
(C) 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, $0.7 million and $4.0 million has been recorded to property management expense and general and administrative expense, respectively, for the six months ended June 30, 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 June 30, 2015.
 
Note: See page 26 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. See page 26 for the definitions, the footnotes referenced below and the reconciliations of EPS to FFO and Normalized FFO.
 

2015 Normalized FFO Guidance (per share diluted)

   

Q3 2015

2015

 
Expected Normalized FFO (2) (3) $0.85 to $0.89 $3.39 to $3.45
 

2015 Same Store Assumptions

 
Physical occupancy 96.0%
Revenue change 4.75% to 5.0%
Expense change 3.0% to 3.25%
NOI change 5.5% to 6.0%
 
(Note: Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO/Normalized FFO)
 

2015 Transaction Assumptions

 
Consolidated rental acquisitions $350.0 million
Consolidated rental dispositions $450.0 million*
Capitalization rate spread 100 basis points
 
* The Company's consolidated rental disposition guidance includes the sale of the medical office building in Boston described on page 9.
 

2015 Debt Assumptions

 
Weighted average debt outstanding $10.8 billion to $11.0 billion
Weighted average interest rate (reduced for capitalized interest) 4.08%
Interest expense, net $440.6 million to $448.8 million
Capitalized interest $58.0 million to $62.0 million
 

2015 Other Guidance Assumptions

 
General and administrative expense (see Note below) $51.0 million to $53.0 million
Interest and other income $0.5 million
Income and other tax expense $1.0 million
Debt offerings No additional amounts budgeted
Equity ATM share offerings No amounts budgeted
Preferred share offerings No amounts budgeted
Weighted average Common Shares and Units - Diluted 380.6 million
 
Note: Normalized FFO guidance excludes a duplicative charge of approximately $9.3 million, of which $8.0 million will be recorded to general and administrative expense and $1.3 million will be recorded to property management 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 6, 24 and 25
 

Expected

Expected

Expected Q2 2015

Q3 2015

2015

Amounts Per Share

Per Share

Per Share

 
Expected Earnings - Diluted (5) $ 256,103 $ 0.673 $0.51 to $0.55 $2.11 to $2.17
Add: Expected depreciation expense 195,912 0.514 0.53 2.09
Less: Expected net gain on sales (5)   (120,296 )   (0.316 ) (0.18 ) (0.78 )
 
Expected FFO - Diluted (1) (3) 331,719 0.871 0.86 to 0.90 3.42 to 3.48
 
Asset impairment and valuation allowances — — — —
Property acquisition costs and write-off of pursuit costs (9,241 ) (0.024 ) — (0.03 )
Debt extinguishment (gains) losses, including prepayment penalties,
preferred share redemptions and non-cash convertible debt discounts (8 ) — — 0.01
(Gains) losses on sales of non-operating assets, net of income and other tax
expense (benefit) — — (0.02

)

(0.02 )
Other miscellaneous non-comparable items   (1,882 )   (0.005 ) 0.01   0.01  
 
Expected Normalized FFO - Diluted (2) (3) $ 320,588   $ 0.842   $0.85 to $0.89 $3.39 to $3.45
 
Definitions and Footnotes for Pages 6, 24 and 25
 
(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 10
         
The following tables present reconciliations of operating income per the consolidated statements of operations to NOI for the June YTD 2015 and the Second Quarter 2015 Same Store Properties:
 
Six Months Ended June 30, Quarter Ended June 30,
2015 2014 2015 2014
 
Operating income $ 464,355 $ 427,569 $ 246,184 $ 228,310
Adjustments:
Non-same store operating results (43,729 ) (37,440 ) (20,794 ) (19,356 )
Fee and asset management revenue (4,369 ) (5,519 ) (2,604 ) (2,802 )
Fee and asset management expense 2,595 3,040 1,274 1,378
Depreciation 388,803 375,303 194,282 190,136
General and administrative   35,652     31,328     15,730     13,752  
 
Same store NOI $ 843,307   $ 794,281   $ 434,072   $ 411,418