Equity Residential (NYSE: EQR) today reported results for the quarter and nine months ended September 30, 2016. All per share results are reported as available to common shares/units on a diluted basis.

“Renter demand in urban and high density, close-in suburban markets remains extraordinarily strong as demonstrated by 96% occupancy across our portfolio,” said David J. Neithercut, Equity Residential’s President and CEO. “However, new apartment supply and slowing growth of higher paying jobs have combined to constrain rental rates causing our revenue growth this year to revert more in line with historical trends.”

Highlights

  • Increased same store revenues 3.4% in the third quarter.
  • Paid a special cash dividend of $3.00 per share, or approximately $1.1 billion, to its shareholders on October 14, 2016, which, when combined with the special cash dividend of $8.00 per share paid in March 2016, resulted in total capital returned to EQR’s shareholders of more than $4.0 billion in 2016.
  • On October 12, 2016, completed a $500 million unsecured debt offering at a coupon of 2.85%, the lowest ever for an EQR 10-year and the third lowest of any REIT 10-year.
  • Named the 2016 Global Residential Listed Sector Leader in Sustainability by GRESB.

Third Quarter 2016

Earnings per Share (EPS) for the third quarter of 2016 was $0.56 compared to $0.53 in the third quarter of 2015. The difference is due primarily to a higher amount of property sale gains due to more property sales in the third quarter of 2016, lower depreciation expense in the third quarter of 2016 as a direct result of the Company’s significant sales activity in 2016 and the items described below.

FFO (Funds from Operations), as defined by the National Association of Real Estate Investment Trusts (NAREIT), was $0.77 per share for the third quarter of 2016 compared to $0.87 per share in the third quarter of 2015. The difference is due primarily to the various adjustment items listed on page 25 of this release and the items described below.

Normalized FFO for the third quarter of 2016 was $0.78 per share compared to $0.89 per share in the third quarter of 2015. The following items impacted Normalized FFO per share in the quarter:

  • A positive impact of approximately $0.02 per share from increased same store net operating income (NOI);
  • A positive impact of approximately $0.03 per share from NOI from non-same store properties currently in lease-up;
  • A positive impact of approximately $0.07 per share from lower total interest expense due to lower debt balances;
  • A negative impact of approximately $0.22 per share of lower NOI primarily as a result of the Company’s 2016 disposition activity; and
  • A negative impact of approximately $0.01 per share from other items including lower fee and asset management income.

Reconciliations and definitions of FFO and Normalized FFO are provided on pages 7, 28 and 29 of this release and the Company has included guidance for Normalized FFO on page 26 and FFO and EPS on page 29 of this release.

Nine Months Ended September 30, 2016

EPS for the nine months ended September 30, 2016 was $10.92 compared to $1.80 for the same period of 2015. The difference is due primarily to a higher amount of property sale gains due to significantly more property sales in the first nine months of 2016 and the various adjustment items listed on page 25 of this release.

FFO for the nine months ended September 30, 2016 was $2.14 per share compared to $2.56 per share in the same period of 2015. The difference is due primarily to the various adjustment items listed on page 25 of this release and the items described below.

Normalized FFO for the nine months ended September 30, 2016 was $2.29 per share compared to $2.54 per share for the same period of 2015. The difference is due primarily to:

  • A positive impact of approximately $0.14 per share from increased same store NOI;
  • A positive impact of approximately $0.09 per share from NOI from non-same store properties currently in lease-up;
  • A positive impact of approximately $0.16 per share from lower total interest expense due to lower debt balances;
  • A negative impact of approximately $0.60 per share of lower NOI primarily as a result of the Company’s 2016 disposition activity; and
  • A negative impact of approximately $0.04 per share from higher general and administrative expense, lower fee and asset management income and other items.

Same Store Results

On a same store third quarter to third quarter comparison, which includes 72,229 apartment units, revenues increased 3.4%, expenses increased 5.9% and NOI increased 2.4%. Average Rental Rate increased 3.4% and occupancy decreased 0.2%. The Company’s same store expenses in the quarter were impacted by an adverse legal decision regarding the calculation of real estate taxes for several of the Company’s properties in Jersey City, New Jersey, higher property payroll costs due to fuller property-level employment and increased wage rates, and increased leasing and advertising expenses due primarily to spending on promotional and incentive efforts in San Francisco and New York.

On a same store nine-month to nine-month comparison, which includes 71,488 apartment units, revenues increased 4.0%, expenses increased 2.5% and NOI increased 4.7%. Average Rental Rate increased 4.0% and occupancy remained flat at 96.1%.

Investment Activity

During the third quarter of 2016, the Company acquired a 94-unit apartment property in Los Angeles for a purchase price of approximately $45.2 million and an Acquisition Capitalization Rate of 4.5%. Also during the third quarter of 2016, the Company sold eight consolidated apartment properties, consisting of 941 apartment units, for an aggregate sale price of approximately $140.6 million at a weighted average Disposition Yield of 6.2% and generating an Unlevered Internal Rate of Return (Unlevered IRR) of 12.0%. During the quarter, the Company also sold a land parcel in Berkeley, California for $30.0 million and an unconsolidated property in Atlanta for which the Company received approximately $12.4 million for its 20% interest.

Also during the quarter, the Company stabilized three development properties: 170 Amsterdam in New York, Azure in San Francisco and Odin in Seattle, at a weighted average projected yield of 5.8%.

During the first nine months of 2016, the Company acquired four consolidated apartment properties, consisting of 573 apartment units, for an aggregate purchase price of approximately $249.3 million at a weighted average Acquisition Capitalization Rate of 4.8%. During the first nine months of 2016, the Company sold 91 consolidated apartment properties, consisting of 27,831 apartment units, for an aggregate sale price of approximately $6.57 billion, generating an Unlevered IRR of 11.8%. These sales produced a net gain on sales of real estate properties of approximately $3.87 billion and an Economic Gain of approximately $2.52 billion. The weighted average Disposition Yield on these sales is estimated at 5.3%. Also during the first nine months of 2016, the Company sold its entire interest in the management contracts and related rights associated with the military housing ventures at Joint Base Lewis McChord in Washington State, for approximately $63.3 million, generating a gain on sale of approximately $52.4 million. Also during the first nine months of 2016, the Company sold three land parcels for an aggregate sale price of approximately $57.5 million as well as the unconsolidated property in which it had a partial interest as described above.

Capital Markets Activity

On October 12, 2016, the Company closed a $500 million unsecured note offering maturing November 1, 2026 with a coupon of 2.85% and an all in effective rate of approximately 3.10% including the effect of underwriters’ fees and the termination of certain interest rate hedges. Proceeds from this issuance were used for working capital and general corporate purposes.

Fourth Quarter 2016 Guidance

The Company has established an EPS guidance range of $0.62 to $0.66 for the fourth quarter of 2016. The difference between the Company’s third quarter 2016 EPS of $0.56 and the midpoint of the fourth quarter 2016 guidance range of $0.64 is due primarily to higher expected gains on property sales and sales of non-operating assets and the items described below.

The Company has established an FFO guidance range of $0.82 to $0.86 per share for the fourth quarter of 2016. The difference between the Company’s third quarter 2016 FFO of $0.77 per share and the midpoint of the fourth quarter 2016 guidance range of $0.84 per share is due primarily to higher expected gains on sales of non-operating assets and the items described below.

The Company has established a Normalized FFO guidance range of $0.77 to $0.81 per share for the fourth quarter of 2016. The difference between the Company’s third quarter 2016 Normalized FFO of $0.78 per share and the midpoint of the fourth quarter 2016 guidance range of $0.79 per share is due primarily to:

  • A positive impact of approximately $0.03 per share from increased same store NOI;
  • A positive impact of approximately $0.01 per share from NOI from non-same store properties currently in lease-up;
  • A negative impact of approximately $0.01 per share of lower NOI primarily as a result of the Company’s 2016 disposition activity; and
  • A negative impact of approximately $0.02 per share from higher total interest expense due to lower capitalized interest as well as higher debt balances.

Full Year 2016 Guidance

The Company has revised its guidance for its full year 2016 same store operating performance, EPS, FFO per share, Normalized FFO per share and transactions as listed below:

 

Previous

  

Revised

Same store:
Physical occupancy 95.9% 96.0%
Revenue change 3.5% to 4.0% 3.6% to 3.9%
Expense change 2.5% to 3.0% 2.8% to 3.2%
NOI change 3.75% to 4.25% 3.8% to 4.1%
 
 
EPS $11.84 to $11.90 $11.54 to $11.58
FFO per share $2.96 to $3.02 $2.96 to $3.00
Normalized FFO per share $3.05 to $3.11 $3.06 to $3.10
 
Transactions:
Consolidated Rental Acquisitions $350 million $250 million
Consolidated Rental Dispositions $6.9 billion $6.7 billion
Acquisition Cap Rate/Disposition Yield Spread 75 basis points 60 basis points
 

The change in the full year EPS guidance range is due primarily to lower gains on property sales as a result of the Company’s reduced disposition guidance and the items described below.

The change in the full year FFO per share guidance range is due primarily to the items described below.

The midpoint of the Company’s full year Normalized FFO per share guidance range has not changed. The small reduction in expected same store NOI has been offset by the positive impact of an expected reduction in general and administrative expense.

Glossary of Terms and Definitions

To improve comparability and enhance disclosure, the Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 27 through 30 of this release.

Fourth Quarter 2016 Earnings and Conference Call

Equity Residential expects to announce fourth quarter 2016 results on Tuesday, January 31, 2017 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, February 1, 2017.

About Equity Residential

Equity Residential is an S&P 500 company focused on the acquisition, development and management of rental apartment properties in urban and high-density suburban coastal gateway markets where today’s affluent renters want to live, work and play. Equity Residential owns or has investments in 308 properties consisting of 78,826 apartment units, primarily located in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California. For more information on Equity Residential, please visit our website at www.equityapartments.com.

Forward-Looking Statements

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

A live web cast of the Company’s conference call discussing these results will take place tomorrow, Wednesday, October 26, 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)
 
Nine Months Ended September 30, Quarter Ended September 30,
2016 2015 2016 2015
REVENUES
Rental income $ 1,816,960 $ 2,035,359 $ 605,856 $ 694,245
Fee and asset management   3,351     6,413     218     2,044  
Total revenues   1,820,311     2,041,772     606,074     696,289  
 
EXPENSES
Property and maintenance 309,688 364,948 104,216 122,383
Real estate taxes and insurance 238,954 254,513 81,343 84,962
Property management 64,003 64,651 19,517 20,094
General and administrative 47,408 50,618 12,395 15,197
Depreciation   528,242     584,862     179,230     196,059  
Total expenses   1,188,295     1,319,592     396,701     438,695  
 
Operating income 632,016 722,180 209,373 257,594
 
Interest and other income 65,092 6,906 5,509 256
Other expenses (14,480 ) (2,839 ) (10,420 ) (1,139 )
Interest:
Expense incurred, net (386,316 ) (333,946 ) (86,352 ) (114,298 )
Amortization of deferred financing costs   (10,000 )   (7,734 )   (2,261 )   (2,607 )
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 286,312 384,567 115,849 139,806
Income and other tax (expense) benefit (1,189 ) (698 ) (426 ) (329 )
Income (loss) from investments in unconsolidated entities 5,846 14,388 7,750 (1,041 )
Net gain on sales of real estate properties 3,870,871 295,692 90,036 66,939
Net gain (loss) on sales of land parcels   15,759     (1 )   4,037     —  
Income from continuing operations 4,177,599 693,948 217,246 205,375
Discontinued operations, net   124     350     246     81  
Net income 4,177,723 694,298 217,492 205,456
Net (income) attributable to Noncontrolling Interests:
Operating Partnership (160,442 ) (26,191 ) (8,353 ) (7,778 )
Partially Owned Properties   (2,368 )   (2,473 )   (823 )   (986 )
Net income attributable to controlling interests 4,014,913 665,634 208,316 196,692
Preferred distributions (2,318 ) (2,557 ) (773 ) (833 )
Premium on redemption of Preferred Shares   —     (2,789 )   —     —  
Net income available to Common Shares $ 4,012,595   $ 660,288   $ 207,543   $ 195,859  
 
Earnings per share – basic:
Income from continuing operations available to Common Shares $ 11.00   $ 1.82   $ 0.57   $ 0.54  
Net income available to Common Shares $ 11.00   $ 1.82   $ 0.57   $ 0.54  
Weighted average Common Shares outstanding   364,917     363,386     365,109     363,579  
 
Earnings per share – diluted:
Income from continuing operations available to Common Shares $ 10.92   $ 1.80   $ 0.56   $ 0.53  
Net income available to Common Shares $ 10.92   $ 1.80   $ 0.56   $ 0.53  
Weighted average Common Shares outstanding   382,284     380,423     382,373     380,663  
 
Distributions declared per Common Share outstanding $ 12.51125   $ 1.6575   $ 3.50375   $ 0.5525  
       
Equity Residential
Consolidated Statements of Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per share data)
(Unaudited)
 
Nine Months Ended September 30, Quarter Ended September 30,
2016 2015 2016 2015
Net income $ 4,177,723 $ 694,298 $ 217,492 $ 205,456
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties (2,368 ) (2,473 ) (823 ) (986 )
Preferred distributions (2,318 ) (2,557 ) (773 ) (833 )
Premium on redemption of Preferred Shares   —     (2,789 )   —     —  
Net income available to Common Shares and Units 4,173,037 686,479 215,896 203,637
 
Adjustments:
Depreciation 528,242 584,862 179,230 196,059
Depreciation – Non-real estate additions (3,932 ) (3,767 ) (1,297 ) (1,243 )
Depreciation – Partially Owned Properties (2,896 ) (3,248 ) (953 ) (1,086 )
Depreciation – Unconsolidated Properties 3,606 3,688 1,139 1,231
Net (gain) on sales of unconsolidated entities – operating assets (8,841 ) (100 ) (8,841 ) (100 )
Net (gain) on sales of real estate properties (3,870,871 ) (295,692 ) (90,036 ) (66,939 )
Discontinued operations:
Net (gain) on sales of discontinued operations   (43 )   —     (28 )   —  
FFO available to Common Shares and Units 818,302 972,222 295,110 331,559
 
Adjustments (see page 25 for additional detail):
Asset impairment and valuation allowances — — — —
Property acquisition costs and write-off of pursuit costs 5,487 (13,947 ) 1,228 943
Debt extinguishment (gains) losses, including prepayment penalties, preferred
share redemptions and non-cash convertible debt discounts 120,276 4,501 112 3,032
(Gains) losses on sales of non-operating assets, net of income and other tax
expense (benefit) (74,256 ) (728 ) (7,378 ) 72
Other miscellaneous items   7,221     2,701     8,118     4,880  
Normalized FFO available to Common Shares and Units $ 877,030   $ 964,749   $ 297,190   $ 340,486  
 
FFO $ 820,620 $ 977,568 $ 295,883 $ 332,392
Preferred distributions (2,318 ) (2,557 ) (773 ) (833 )
Premium on redemption of Preferred Shares   —     (2,789 )   —     —  
FFO available to Common Shares and Units $ 818,302   $ 972,222   $ 295,110   $ 331,559  
FFO per share and Unit - basic $ 2.16   $ 2.58   $ 0.78   $ 0.88  
FFO per share and Unit - diluted $ 2.14   $ 2.56   $ 0.77   $ 0.87  
 
Normalized FFO $ 879,348 $ 967,306 $ 297,963 $ 341,319
Preferred distributions   (2,318 )   (2,557 )   (773 )   (833 )
Normalized FFO available to Common Shares and Units $ 877,030   $ 964,749   $ 297,190   $ 340,486  
Normalized FFO per share and Unit - basic $ 2.32   $ 2.56   $ 0.78   $ 0.90  
Normalized FFO per share and Unit - diluted $ 2.29   $ 2.54   $ 0.78   $ 0.89  
 
Weighted average Common Shares and Units outstanding - basic   378,745     376,970     379,008     377,147  
Weighted average Common Shares and Units outstanding - diluted   382,284     380,423     382,373     380,663  
 
Note: See page 25 for additional detail regarding the adjustments from FFO to Normalized FFO. See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.
   
Equity Residential
Consolidated Balance Sheets
(Amounts in thousands except for share amounts)
(Unaudited)
 
September 30, 2016 December 31, 2015
ASSETS
Investment in real estate
Land $ 5,874,647 $ 5,864,046
Depreciable property 18,610,446 18,037,087
Projects under development 761,068 1,122,376
Land held for development   115,082     158,843  
Investment in real estate 25,361,243 25,182,352
Accumulated depreciation   (5,255,965 )   (4,905,406 )
Investment in real estate, net 20,105,278 20,276,946
Real estate held for sale — 2,181,135
Cash and cash equivalents 517,586 42,276
Investments in unconsolidated entities 60,911 68,101
Deposits – restricted 129,569 55,893
Escrow deposits – mortgage 62,994 56,946
Other assets   421,406     428,899  
Total assets $ 21,297,744   $ 23,110,196  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net $ 4,138,301 $ 4,685,134
Notes, net 4,360,486 5,848,956
Line of credit and commercial paper — 387,276
Accounts payable and accrued expenses 199,795 187,124
Accrued interest payable 69,441 85,221
Other liabilities 353,605 366,387
Security deposits 64,060 77,582
Distributions payable   1,331,363     209,378  
Total liabilities   10,517,051     11,847,058  
 
Commitments and contingencies
 
Redeemable Noncontrolling Interests – Operating Partnership   441,892     566,783  
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 September 30, 2016 and December 31, 2015 37,280 37,280
Common Shares of beneficial interest, $0.01 par value;
1,000,000,000 shares authorized; 365,657,065 shares issued
and outstanding as of September 30, 2016 and 364,755,444
shares issued and outstanding as of December 31, 2015 3,657 3,648
Paid in capital 8,741,846 8,572,365
Retained earnings 1,451,452 2,009,091
Accumulated other comprehensive (loss)   (118,730 )   (152,016 )
Total shareholders’ equity 10,115,505 10,470,368
Noncontrolling Interests:
Operating Partnership 219,102 221,379
Partially Owned Properties   4,194     4,608  
Total Noncontrolling Interests   223,296     225,987  
Total equity   10,338,801     10,696,355  
Total liabilities and equity $ 21,297,744   $ 23,110,196  
 
Equity Residential
Portfolio Summary
As of September 30, 2016
         
% of Average
Apartment Stabilized Rental
Markets/Metro Areas Properties Units NOI Rate
 
Los Angeles 70 15,857 18.0% $ 2,376
Orange County 12 3,684 3.7% 2,012
San Diego 13 3,505 3.6%   2,189
Subtotal – Southern California 95 23,046 25.3% 2,287
 
San Francisco 53 12,718 19.6% 3,058
New York 40 10,632 19.0% 3,766
Washington DC 47 15,637 17.2% 2,352
Boston 29 7,432 10.8% 2,753
Seattle 37 7,096 7.6% 2,149
All Other Markets 5   1,320   0.5%     1,261
Total 306 77,881 100.0% 2,645
 
Unconsolidated Properties 2   945   —     —
 
Grand Total 308 78,826 100.0% $ 2,645
 
Note: Projects under development are not included in the Portfolio Summary until construction has been completed. See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms, such as Average Rental Rate and % of Stabilized NOI.
 
Equity Residential
           
Portfolio as of September 30, 2016
 
Properties

Apartment Units

Wholly Owned Properties 285 73,557
Master-Leased Properties - Consolidated 3 853
Partially Owned Properties - Consolidated 18 3,471
Partially Owned Properties - Unconsolidated 2     945  
 
308     78,826  
                       
 
Portfolio Rollforward Q3 2016
($ in thousands)
 
Properties Apartment

Units

Purchase Price Acquisition

Cap Rate

6/30/2016 315 79,458
Acquisitions:
Consolidated:
Rental Properties – Stabilized 1 94 $ 45,200 4.5 %
 
Sales Price Disposition

Yield

Dispositions:
Consolidated:
Rental Properties (8 ) (941 ) $ (140,600 ) (6.2 %)
Land Parcels — — $ (30,000 )
Unconsolidated:
Rental Properties (A) (1 ) (336 ) $ (74,500 ) (5.6 %)
Completed Developments - Consolidated 1 545
Configuration Changes —   6  
 
9/30/2016 308   78,826  
                       
 
Portfolio Rollforward 2016
($ in thousands)
 
Properties Apartment

Units

Purchase Price Acquisition

Cap Rate

 
12/31/2015 394 109,652
Acquisitions:
Consolidated:
Rental Properties 4 573 $ 249,334 4.8 %
 
Sales Price Disposition

Yield

Dispositions:
Consolidated:
Rental Properties (91 ) (27,831 ) $ (6,568,003 ) (5.3 %)
Land Parcels — — $ (57,455 )
Unconsolidated:
Rental Properties (A) (1 ) (336 ) $ (74,500 ) (5.6 %)
Other:
Military Housing (B) (2 ) (5,161 ) $ (63,250 )
Completed Developments - Consolidated 4 1,900
Configuration Changes —   29  
 
9/30/2016 308   78,826  
 
Note: See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms, such as Acquisition Cap Rate and Disposition Yield.
 
(A) The Company owned a 20% interest in this unconsolidated rental property. Sale price listed is the gross sale price. The Company's share of the net sales proceeds approximated $12.4 million.
(B) The Company sold its entire interest in the management contracts and related rights associated with the military housing ventures at Joint Base Lewis McChord during the second quarter of 2016.
 
Equity Residential
           
Third Quarter 2016 vs. Third Quarter 2015
Same Store Results/Statistics for 72,229 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
Results Statistics
Average
Rental Physical
Description Revenues Expenses NOI Rate Occupancy Turnover
 
Q3 2016 $ 563,892 $ 168,706 $ 395,186 $ 2,602 96.0 % 17.5 %
Q3 2015 $ 545,281   $ 159,343   $ 385,938   $ 2,516   96.2 % 17.9 %
 
Change $ 18,611   $ 9,363   $ 9,248   $ 86   (0.2 %)   (0.4 %)
 
Change 3.4 % 5.9 % 2.4 % 3.4 %
                         
 
Third Quarter 2016 vs. Second Quarter 2016
Same Store Results/Statistics for 73,867 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
Results Statistics
Average
Rental Physical
Description Revenues Expenses NOI Rate Occupancy Turnover
 
Q3 2016 $ 578,222 $ 173,015 $ 405,207 $ 2,609 96.0 % 17.4 %
Q2 2016 $ 570,080   $ 163,646   $ 406,434   $ 2,571   96.2 % 14.8 %
 
Change $ 8,142   $ 9,369   $ (1,227 ) $ 38   (0.2 %) 2.6 %
 
Change 1.4 % 5.7 % (0.3 %) 1.5 %
                         
 
September YTD 2016 vs. September YTD 2015
Same Store Results/Statistics for 71,488 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
 
Results Statistics
Average
Rental Physical
Description Revenues Expenses NOI Rate Occupancy Turnover
 
YTD 2016 $ 1,647,480 $ 484,643 $ 1,162,837 $ 2,562 96.1 % 43.0 %
YTD 2015 $ 1,583,810   $ 472,930   $ 1,110,880   $ 2,463   96.1 % 42.9 %
 
Change $ 63,670   $ 11,713   $ 51,957   $ 99   0.0 % 0.1 %
 
Change 4.0 % 2.5 % 4.7 % 4.0 %
 
Note: Same store operating expenses and same store NOI no longer include an allocation of property management expenses either in the current or comparable periods. The Company has added guidance on property management expense on page 26 of this release. See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms, such as Average Rental Rate, NOI, Physical Occupancy and Turnover.
 
Equity Residential
Third Quarter 2016 vs. Third Quarter 2015
Same Store Results/Statistics by Market
                     
Increase (Decrease) from Prior Year's Quarter
Q3 2016
Q3 2016 Q3 2016 Weighted
% of Average Average Average
Apartment Actual Rental Physical Q3 2016 Rental Physical
Markets/Metro Areas Units NOI Rate Occupancy % Turnover Revenues Expenses NOI Rate Occupancy Turnover
 
Los Angeles 13,950 17.1 % $ 2,352 96.2 % 19.0 % 5.2 % 3.9 % 5.7 % 4.9 % 0.1 % (0.4 %)
San Diego 3,505 4.1 % 2,189 96.6 % 19.1 % 5.0 % 2.2 % 6.1 % 4.8 % 0.1 % (0.7 %)
Orange County 3,490 3.9 %   1,997 96.2 % 17.2 % 5.9 % 2.0 % 7.2 % 5.5 % 0.4 % (0.8 %)
Subtotal – Southern California 20,945 25.1 % 2,266 96.3 % 18.7 % 5.2 % 3.4 % 6.0 % 5.0 % 0.2 % (0.6 %)
 
Washington DC 15,475 18.8 % 2,352 96.1 % 17.0 % 1.6 % 3.6 % 0.7 % 1.5 % (0.1 %) 0.0 %
New York 10,007 18.6 % 3,702 96.2 % 13.6 % 1.3 % 12.1 % (4.0 %) 1.5 % (0.5 %) (0.3 %)
San Francisco 10,846 17.6 % 2,914 95.6 % 19.9 % 5.0 % 5.5 % 4.9 % 5.9 % (0.8 %) 0.7 %
Boston 7,338 11.5 % 2,753 95.9 % 17.7 % 1.9 % 2.6 % 1.5 % 2.3 % (0.3 %) (0.8 %)
Seattle 6,298 7.7 % 2,155 95.9 % 16.3 % 6.7 % 7.6 % 6.4 % 5.1 % 0.5 % (3.0 %)
All Other Markets 1,320 0.7 % 1,261 96.0 % 16.7 % 6.5 % (5.9 %) 16.9 % 6.4 % 0.1 % 1.2 %
                     
Total 72,229 100.0 % $ 2,602 96.0 % 17.5 % 3.4 % 5.9 % 2.4 % 3.4 % (0.2 %) (0.4 %)
 
Equity Residential
Third Quarter 2016 vs. Second Quarter 2016
Same Store Results/Statistics by Market
                     
Increase (Decrease) from Prior Quarter
Q3 2016
Q3 2016 Q3 2016 Weighted
% of Average Average Average
Apartment Actual Rental Physical Q3 2016 Rental Physical
Markets/Metro Areas Units NOI Rate Occupancy % Turnover Revenues Expenses NOI Rate Occupancy Turnover
 
Los Angeles 14,336 17.1 % $ 2,352 96.2 % 19.0 % 1.8 % 5.5 % 0.3 % 1.6 % 0.1 % 1.9 %
San Diego 3,505 4.1 % 2,189 96.6 % 19.1 % 2.4 % 2.8 % 2.2 % 2.2 % 0.1 % 2.4 %
Orange County 3,684 3.9 %   2,012 96.1 % 17.1 % 2.1 % 11.2 % (0.7 %) 2.3 % (0.3 %) 2.7 %
Subtotal – Southern California 21,525 25.1 % 2,267 96.2 % 18.7 % 1.9 % 5.8 % 0.4 % 1.8 % 0.0 % 2.2 %
 
New York 10,396 19.1 % 3,742 96.2 % 13.6 % 0.9 % 7.8 % (2.5 %) 0.6 % (0.2 %) 2.2 %
Washington DC 15,475 18.3 % 2,352 96.1 % 17.0 % 1.0 % 6.5 % (1.3 %) 1.2 % (0.1 %) 3.1 %
San Francisco 11,019 17.4 % 2,920 95.6 % 19.9 % 1.3 % 3.5 % 0.6 % 2.0 % (0.7 %) 4.0 %
Boston 7,338 11.2 % 2,753 95.9 % 17.7 % 0.7 % 7.0 % (1.6 %) 1.5 % (0.3 %) 4.8 %
Seattle 6,794 8.2 % 2,146 95.9 % 16.3 % 3.7 % (0.8 %) 5.5 % 2.4 % 0.3 % (1.0 %)
All Other Markets 1,320 0.7 % 1,261 96.0 % 16.7 % 1.4 % 4.1 % (0.3 %) 1.9 % (0.6 %) 3.7 %
                     
Total 73,867 100.0 % $ 2,609 96.0 % 17.4 % 1.4 % 5.7 % (0.3 %) 1.5 % (0.2 %) 2.6 %
 
Equity Residential
September YTD 2016 vs. September YTD 2015
Same Store Results/Statistics by Market
                     
Increase (Decrease) from Prior Year
Sept. YTD 16
Sept. YTD 16 Sept. YTD 16 Weighted
% of Average Average Average
Apartment Actual Rental Physical Sept. YTD 16 Rental Physical
Markets/Metro Areas Units NOI Rate Occupancy % Turnover Revenues Expenses NOI Rate Occupancy Turnover
 
Los Angeles 13,698 16.7 % $ 2,295 96.1 % 47.8 % 5.8 % 2.2 % 7.4 % 5.5 % 0.2 % (0.1 %)
San Diego 3,505 4.1 % 2,149 96.3 % 49.8 % 5.6 % 2.4 % 6.9 % 5.4 % 0.2 % (1.0 %)
Orange County 3,490 3.9 %   1,954 96.3 % 41.4 % 5.9 % 0.7 % 7.7 % 5.6 % 0.3 % (1.7 %)
Subtotal – Southern California 20,693 24.7 % 2,212 96.2 % 47.1 % 5.8 % 2.0 % 7.4 % 5.5 % 0.2 % (0.5 %)
 
New York 10,007 19.2 % 3,671 96.4 % 33.7 % 2.1 % 4.6 % 0.8 % 2.2 % (0.2 %) 0.8 %
Washington DC 15,475 19.1 % 2,326 96.0 % 40.4 % 1.2 % 0.8 % 1.4 % 1.0 % 0.0 % 0.8 %
San Francisco 10,846 17.7 % 2,863 96.1 % 47.7 % 7.4 % 4.2 % 8.4 % 7.9 % (0.4 %) 1.1 %
Boston 7,136 11.4 % 2,705 95.8 % 41.6 % 2.6 % (2.6 %) 4.8 % 2.8 % (0.4 %) 1.1 %
Seattle 6,011 7.2 % 2,101 95.6 % 45.5 % 6.2 % 7.9 % 5.5 % 5.7 % 0.1 % (3.5 %)
All Other Markets 1,320 0.7 % 1,235 96.4 % 38.9 % 5.6 % (5.1 %) 14.7 % 5.3 % 0.3 % (0.8 %)
                     
Total 71,488 100.0 % $ 2,562 96.1 % 43.0 % 4.0 % 2.5 % 4.7 % 4.0 % 0.0 % 0.1 %
 
Equity Residential
       
Third Quarter 2016 vs. Third Quarter 2015
Same Store Operating Expenses for 72,229 Same Store Apartment Units
($ in thousands)

 

% of Actual
Q3 2016
Actual Actual $ % Operating
Q3 2016 Q3 2015 Change Change Expenses
 
Real estate taxes $ 68,753 $ 63,565 $ 5,188 8.2 % 40.7 %
On-site payroll (1) 38,240 35,557 2,683 7.5 % 22.7 %
Utilities (2) 23,480 23,901 (421 ) (1.8 %) 13.9 %
Repairs and maintenance (3) 23,049 22,098 951 4.3 % 13.7 %
Insurance 4,359 4,211 148 3.5 % 2.6 %
Leasing and advertising 3,380 2,254 1,126 50.0 % 2.0 %
Other on-site operating expenses (4)   7,445   7,757   (312 ) (4.0 %) 4.4 %
 
Same store operating expenses $ 168,706 $ 159,343 $ 9,363   5.9 % 100.0 %
                       
 
September YTD 2016 vs. September YTD 2015
Same Store Operating Expenses for 71,488 Same Store Apartment Units
$ in thousands

 

% of Actual
YTD 2016
Actual Actual $ % Operating
YTD 2016 YTD 2015 Change Change Expenses
 
Real estate taxes $ 200,022 $ 188,669 $ 11,353 6.0 % 41.3 %
On-site payroll (1) 109,028 106,079 2,949 2.8 % 22.5 %
Utilities (2) 67,836 72,091 (4,255 ) (5.9 %) 14.0 %
Repairs and maintenance (3) 63,126 62,534 592 0.9 % 13.0 %
Insurance 12,910 12,440 470 3.8 % 2.7 %
Leasing and advertising 7,518 6,351 1,167 18.4 % 1.5 %
Other on-site operating expenses (4)   24,203   24,766   (563 ) (2.3 %) 5.0 %
 
Same store operating expenses $ 484,643 $ 472,930 $ 11,713   2.5 % 100.0 %
 
Note: Same store operating expenses no longer include an allocation of property management expenses either in the current or comparable periods. The Company has added guidance on property management expense on page 26 of this release.
 
(1) On-site payroll - Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff.
 
(2) Utilities - Represents gross expenses prior to any recoveries under the Resident Utility Billing System ("RUBS"). Recoveries are reflected in rental income.
 
(3) Repairs and maintenance - Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair and maintenance costs.
 
(4) Other on-site operating expenses - Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees.
 
Equity Residential
       
Debt Summary as of September 30, 2016
($ in thousands)
 
Weighted
Weighted Average

 

Average Maturities
Amounts (1)

% of Total

Rates (1) (years)
 
Secured $ 4,138,301 48.7 % 4.34 % 6.7
Unsecured   4,360,486 51.3 % 4.54 % 10.3
 
Total $ 8,498,787 100.0 % 4.44 % 8.5
 
Fixed Rate Debt:
Secured – Conventional $ 3,503,487 41.2 %

4.95

% 5.1
Unsecured – Public   3,904,035 46.0 %

4.96

% 11.2
 

Fixed Rate Debt

  7,407,522 87.2 %

4.96

% 8.3
 
Floating Rate Debt:
Secured – Conventional 7,041 0.1 %

0.50

% 15.6
Secured – Tax Exempt 627,773 7.4 %

0.98

% 14.5
Unsecured – Public (2) 456,451 5.3 %

1.22

% 2.8
Unsecured – Revolving Credit Facility — —

1.34

% 1.5
Unsecured – Commercial Paper Program (3)   — —  

0.96

% —
 
Floating Rate Debt   1,091,265 12.8 %

1.07

% 9.9
 
Total $ 8,498,787 100.0 %

4.44

% 8.5
 
(1) Net of the effect of any derivative instruments. Weighted average rates are for the nine months ended September 30, 2016.
 
(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 September 30, 2016, there was no commercial paper outstanding.
 
Note: The Company capitalized interest of approximately $41.7 million and $45.8 million during the nine months ended September 30, 2016 and 2015, respectively. The Company capitalized interest of approximately $13.3 million and $15.4 million during the quarters ended September 30, 2016 and 2015, respectively.
 
Note: The Company recorded approximately $18.9 million and $5.8 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the nine months ended September 30, 2016 and 2015, respectively. The Company recorded approximately $5.1 million and $2.7 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the quarters ended September 30, 2016 and 2015, respectively.
 
Debt Maturity Schedule as of September 30, 2016
($ in thousands)
 

 

 

 

       
Weighted Weighted
Average Rates Average
Fixed Floating on Fixed Rates on
Year Rate (1) Rate (1) Total % of Total Rate Debt (1) Total Debt (1)
 
2016 $ 1,938 $ — $ 1,938 0.0 % 4.68 % 4.68 %
2017 605,397 388 605,785 7.0 % 6.19 % 6.18 %
2018 83,695 97,550 181,245 2.1 % 5.57 % 3.18 %
2019 807,680 478,867 1,286,547 15.0 % 5.47 % 3.89 %
2020 1,679,590 686 1,680,276 19.5 % 5.49 % 5.49 %
2021 946,257 725 946,982 11.0 % 4.63 % 4.63 %
2022 266,447 766 267,213 3.1 % 3.27 % 3.26 %
2023 1,327,965 809 1,328,774 15.5 % 3.74 % 3.74 %
2024 2,498 854 3,352 0.0 % 4.97 % 3.94 %
2025 452,625 903 453,528 5.3 % 3.38 % 3.38 %
2026+   1,271,816     575,470     1,847,286   21.5 % 4.76 % 3.55 %
Subtotal 7,445,908 1,157,018 8,602,926 100.0 % 4.79 % 4.29 %
Deferred Financing Costs (30,658 ) (9,272 ) (39,930 ) N/A N/A N/A
Premium/(Discount)   (7,728 )   (56,481 )   (64,209 ) N/A   N/A   N/A  
 
Total $ 7,407,522   $ 1,091,265   $ 8,498,787   100.0 % 4.79 % 4.29 %
 
(1) Net of the effect of any derivative instruments. Weighted average rates are as of September 30, 2016.
 
Equity Residential
Unsecured Debt Summary as of September 30, 2016
($ in thousands)
   

 

 

 

 

 

Interest Due
Rate Date Amount
 
Fixed Rate Notes:
5.750 % 06/15/17 $ 394,077
7.125 % 10/15/17 103,898
4.750 % 07/15/20 600,000
4.625 % 12/15/21 750,000
3.000 % 04/15/23 500,000
3.375 %

06/01/25

450,000
7.570 % 08/15/26 92,025
4.500 %

07/01/44

750,000
4.500 %

06/01/45

300,000
Deferred Financing Costs and Unamortized (Discount)   (35,965 )
 
  3,904,035  
Floating Rate Notes:
(1) 07/01/19 450,000
Fair Value Derivative Adjustments (1) 07/01/19 8,218
Deferred Financing Costs and Unamortized (Discount)   (1,767 )
 
  456,451  
 
Line of Credit and Commercial Paper:
Revolving Credit Facility (2) (3) LIBOR+0.95% 04/01/18 —
Commercial Paper Program (2) (4)   —  
 
  —  
 
Total Unsecured Debt $ 4,360,486  
 
(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) The interest rate on advances under the $2.5 billion revolving credit facility maturing April 1, 2018 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 September 30, 2016, there was approximately $2.48 billion available on this facility (net of $24.6 million which was restricted/dedicated to support letters of credit).
 
(4) The Company may borrow up to a maximum of $500.0 million on the commercial paper program subject to market conditions. The notes bear interest at various floating rates with a weighted average of 0.96% for the nine months ended September 30, 2016. No amounts were outstanding at September 30, 2016.
 
Equity Residential
       
Selected Unsecured Public Debt Covenants

 

 

September 30, June 30,
2016 2016
 
Total Debt to Adjusted Total Assets (not to exceed 60%) 32.8% 33.1%
 
Secured Debt to Adjusted Total Assets (not to exceed 40%) 16.0% 16.2%
 
Consolidated Income Available for Debt Service to
Maximum Annual Service Charges
(must be at least 1.5 to 1) 3.88 3.86
 
Total Unsecured Assets to Unsecured Debt 447.4% 442.6%
(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
     

 

 

 

September 30, June 30,
2016 2016
 
Total debt to Normalized EBITDA 5.20x 5.00x
 
Net debt to Normalized EBITDA 4.85x 4.67x
 
Unencumbered NOI as a % of total NOI 70.9% 71.0%
 
Note: See page 24 for the Normalized EBITDA reconciliations.
 
Equity Residential
               
Capital Structure as of September 30, 2016
(Amounts in thousands except for share/unit and per share amounts)
 
Secured Debt $ 4,138,301 48.7%
Unsecured Debt   4,360,486 51.3%
 
Total Debt 8,498,787 100.0% 25.8%
 
Common Shares (includes Restricted Shares) 365,657,065 96.2%
Units (includes OP Units and Restricted Units)   14,627,745   3.8%
 
Total Shares and Units 380,284,810 100.0%
Common Share Price at September 30, 2016 $ 64.33
24,463,722 99.8 %
Perpetual Preferred Equity (see below)   37,280 0.2 %
 
Total Equity 24,501,002 100.0 % 74.2 %
 
Total Market Capitalization $ 32,999,789 100.0 %
                               
 
Perpetual Preferred Equity as of September 30, 2016
(Amounts in thousands except for share and per share amounts)

 

 

 

Annual Annual
Redemption Outstanding Liquidation Dividend Dividend
Series Date Shares Value Per Share 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
 
Equity Residential
Common Share and Unit
Weighted Average Amounts Outstanding
       
YTD Q3 2016 YTD Q3 2015 Q3 2016 Q3 2015
 
Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic 364,916,765 363,386,211 365,109,088 363,578,666
Shares issuable from assumed conversion/vesting of:
- OP Units 13,827,914 13,583,959 13,898,660 13,568,180
- long-term compensation shares/units 3,539,383 3,452,974 3,365,546 3,516,096
 
Total Common Shares and Units - diluted 382,284,062 380,423,144 382,373,294 380,662,942
 
Weighted Average Amounts Outstanding for FFO and Normalized FFO Purposes:
Common Shares - basic 364,916,765 363,386,211 365,109,088 363,578,666
OP Units - basic 13,827,914 13,583,959 13,898,660 13,568,180
 
Total Common Shares and OP Units - basic 378,744,679 376,970,170 379,007,748 377,146,846
Shares issuable from assumed conversion/vesting of:
- long-term compensation shares/units 3,539,383 3,452,974 3,365,546 3,516,096
 
Total Common Shares and Units - diluted 382,284,062 380,423,144 382,373,294 380,662,942
 
Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares) 365,657,065 364,140,040
Units (includes OP Units and Restricted Units) 14,627,745 14,455,727
 
Total Shares and Units 380,284,810 378,595,767
 
Equity Residential
Partially Owned Entities as of September 30, 2016
(Amounts in thousands except for property and apartment unit amounts)
   
Consolidated Unconsolidated
 
Total properties   18     2  
 
Total apartment units   3,471     945  
 
Operating information for the nine months ended 9/30/16 (at 100%):
Operating revenue $ 70,123 $ 23,844
Operating expenses   17,183     8,368  
 
Net operating income 52,940 15,476
Property management 2,476 636
General and administrative/other 50 49
Depreciation   16,161     12,001  
 
Operating income 34,253 2,790
Interest and other income 47 —
Other expenses (7 ) —
Interest:
Expense incurred, net (11,073 ) (6,217 )
Amortization of deferred financing costs   (289 )   —  
 
Income (loss) before income and other taxes and (loss)
from investments in unconsolidated entities 22,931 (3,427 )
Income and other tax (expense) benefit (44 ) (13 )
(Loss) from investments in unconsolidated entities   (1,091 )   —  
Net income (loss) $ 21,796   $ (3,440 )
 
Debt - Secured (1):
EQR Ownership (2) $ 243,145 $ 29,084
Noncontrolling Ownership   75,282     116,339  
 
Total (at 100%) $ 318,427   $ 145,423  
 
(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 established 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 $41.3 million at September 30, 2016. The ventures are owned 60% by the Company.
 
Equity Residential
Development and Lease-Up Projects as of September 30, 2016
(Amounts in thousands except for project and apartment unit amounts)
          Total Book            
No. of Total Total Value Not Estimated Estimated
Apartment Capital Book Value Placed in Total Percentage Percentage Percentage Completion Stabilization
Projects Location Units   Cost   to Date   Service   Debt   Completed   Leased   Occupied   Date   Date
 

Projects Under Development:

One Henry Adams San Francisco, CA 241 $ 172,337 $ 150,049 $ 150,049 $

—

92 % 3 % — Q4 2016 Q4 2017
The Alton (formerly Millikan) Irvine, CA 344 102,331 97,031 97,031

—

86 % 2 % — Q1 2017 Q3 2017
455 I St Washington, DC 174 73,157 52,291 52,291 — 60 % — — Q3 2017 Q2 2018
855 Brannan (formerly 801 Brannan) San Francisco, CA 449 304,035 174,190 174,190 — 53 % — — Q3 2017 Q1 2019
2nd & Pine Seattle, WA 398 215,787 156,240 156,240 — 70 % — — Q3 2017 Q2 2019
Cascade Seattle, WA 477 176,378 108,753 108,753 — 59 % — — Q3 2017 Q2 2019
100 K Street Washington, DC 222 88,023 22,514 22,514 — 3 % — — Q4 2018 Q4 2019
         
Projects Under Development 2,305   1,132,048   761,068   761,068   —
 

Completed Not Stabilized (1):

Vista 99 (formerly Tasman) San Jose, CA 554 208,923 202,161 — — 94 % 93 % Completed Q4 2016
Potrero 1010 San Francisco, CA 453 224,474 217,296 — — 85 % 83 % Completed Q1 2017
Altitude (formerly Village at Howard Hughes) Los Angeles, CA 545 193,231 186,930 — — 39 % 36 % Completed Q2 2017
340 Fremont (formerly Rincon Hill) San Francisco, CA 348 287,454 285,149 — — 61 % 56 % Completed Q1 2018
         
Projects Completed Not Stabilized 1,900   914,082   891,536   —   —
 

Completed and Stabilized During the Quarter:

Odin (formerly Tallman) Seattle, WA 301 80,677 80,509 — — 99 % 98 % Completed Stabilized
Azure (at Mission Bay) San Francisco, CA 273 185,290 185,111 — — 97 % 96 % Completed Stabilized
170 Amsterdam (2) New York, NY 236 111,932 111,859 — — 92 % 91 % Completed Stabilized
         
Projects Completed and Stabilized During the Quarter 810   377,899   377,479   —   —
 
Total Development Projects 5,015 $ 2,424,029 $ 2,030,083 $ 761,068 $ —
 
Land Held for Development N/A   N/A $ 115,082 $ 115,082 $ —

 

 

Total Capital Q3 2016
NOI CONTRIBUTION FROM DEVELOPMENT PROJECTS Cost NOI
Projects Under Development $ 1,132,048 $ (206 )
Completed Not Stabilized 914,082 3,799
Completed and Stabilized During the Quarter   377,899     5,643  
Total Development NOI Contribution $ 2,424,029   $ 9,236  
 
Note: All development projects listed are wholly owned by the Company.
 
(1) Properties included here are substantially complete. However, they may still require additional exterior and interior work for all apartment units to be available for leasing.
 
(2) 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 Nine Months Ended September 30, 2016
(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 71,488 $ 63,126 $ 883 $ 49,786 $ 696 $ 112,912 $ 1,579 $ 57,224 $ 801 $ 55,290 $ 773 $ 112,514 $ 1,574 $ 225,426 $ 3,153
 
Non-Same Store Properties (6) 6,393 3,353 684 2,494 508 5,847 1,192 3,278 669 5,987 1,221 9,265 1,890 15,112 3,082
 
Other (7) —   3,685   3,981   7,666   1,985   787   2,772   10,438
 
Total 77,881 $ 70,164 $ 56,261 $ 126,425 $ 62,487 $ 62,064 $ 124,551 $ 250,976
 
(1) Total Apartment Units - Excludes 945 unconsolidated 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 and maintenance 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 $35.9 million spent during the nine months ended September 30, 2016 on apartment unit renovations/rehabs (primarily kitchens and baths) on approximately 3,200 same store apartment units (equating to approximately $11,000 per apartment unit rehabbed) designed to reposition these units for higher rental levels in their respective markets. In 2016, the Company expects to spend approximately $50.0 million for all unit renovation/rehab costs (primarily on same store properties) at a weighted average cost of $11,000 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) Per apartment unit amounts are based on a weighted average of 4,904 apartment units.
 
(7) Other - Primarily includes expenditures for properties sold and properties under development.
 
(8) Based on the approximately 70,000 apartment units expected to be included in same store properties at December 31, 2016, the Company estimates that during 2016 it will spend approximately $2,300 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.
 
Equity Residential
Normalized EBITDA Reconciliations
(Amounts in thousands)
               
Normalized EBITDA Reconciliations for Page 18
                     
Trailing Twelve Months 2016 2015
September 30, 2016 June 30, 2016 Q3 Q2 Q1 Q4 Q3
Net income $ 4,391,443 $ 4,379,407 $ 217,492 $ 228,400 $ 3,731,831 $ 213,720 $ 205,456
Interest expense incurred, net 496,856 524,802 86,352 86,472 213,492 110,540 114,298
Amortization of deferred financing costs 13,067 13,413 2,261 2,345 5,394 3,067 2,607
Depreciation 709,275 726,104 179,230 176,127 172,885 181,033 196,059
Income and other tax expense (benefit) (includes discontinued operations)   1,419     1,322     426     416     358     219     329  
EBITDA 5,612,060 5,645,048 485,761 493,760

4,123,960

508,579 518,749
 
Property acquisition costs (other expenses) 2,256 2,242 41 76 1,335 804 27
Write-off of pursuit costs (other expenses) 4,265 4,120 816 1,115 1,448 886 671
(Income) loss from investments in unconsolidated entities (6,483 ) 2,308 (7,750 ) 800 1,104 (637 ) 1,041
Net (gain) on sales of land parcels (15,759 ) (11,722 ) (4,037 ) — (11,722 ) — —
(Gain) on sale of investment securities and other investments (interest and other income) (58,555 ) (55,295 ) (3,260 ) (54,600 ) (556 ) (139 ) —
Executive compensation program duplicative costs and retirement benefit obligations 3,413 8,021 359 359 359 2,336 4,967
Insurance/litigation settlement or reserve income (interest and other income) (3,098 ) (1,581 ) (1,517 ) (1,321 ) (53 ) (207 ) —
Insurance/litigation/environmental settlement or reserve expense (other expenses) 7,169 (2,149 ) 9,339 3 (244 ) (1,929 ) 21
Other (interest and other income) (63 ) (108 ) (63 ) — — — (108 )
Net (gain) on sales of discontinued operations (43 ) (15 ) (28 ) — (15 ) — —
Net (gain) on sales of real estate properties   (3,910,313 )   (3,887,216 )   (90,036 )   (57,356 )     (3,723,479 )   (39,442 )   (66,939 )
Normalized EBITDA $ 1,634,849   $ 1,703,653   $ 389,625   $ 382,836     $ 392,137   $ 470,251   $ 458,429  
 

Balance Sheet Items:

September 30, 2016 June 30, 2016
Total debt $ 8,498,787 $ 8,510,994
Cash and cash equivalents (517,586 ) (497,843 )
Mortgage principal reserves/sinking funds   (56,404 )   (54,126 )
Net debt $ 7,924,797   $ 7,959,025  
 
Equity Residential
Adjustments from FFO to Normalized FFO
(Amounts in thousands)
             
Nine Months Ended September 30,   Quarter Ended September 30,
2016 2015 Variance 2016 2015 Variance
Impairment $ —   $ —   $ —   $ —   $ —   $ —  
Asset impairment and valuation allowances   —     —     —     —     —     —  
 
Archstone indirect costs ((income) loss from investments in unconsolidated entities) (A) 656 (16,473 ) 17,129 371 245 126
Property acquisition costs (other expenses) 1,452 204 1,248 41 27 14
Write-off of pursuit costs (other expenses)   3,379     2,322     1,057     816     671     145  
Property acquisition costs and write-off of pursuit costs   5,487     (13,947 )   19,434     1,228     943     285  
 
Prepayment premiums/penalties (interest expense) 112,419 — 112,419 — — —
Write-off of unamortized deferred financing costs (interest expense) 3,363 88 3,275 112 13 99
Write-off of unamortized (premiums)/discounts/OCI (interest expense) 4,494 (1,379 ) 5,873 — 16 (16 )
Loss due to ineffectiveness of forward starting swaps (interest expense) — 3,003 (3,003 ) — 3,003 (3,003 )
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   120,276     4,501     115,775     112     3,032     (2,920 )
 
Net (gain) loss on sales of land parcels (15,759 ) 1 (15,760 ) (4,037 ) — (4,037 )
Net (gain) loss on sales of unconsolidated entities – non-operating assets (81 ) (342 ) 261 (81 ) 72 (153 )
(Gain) on sale of investment securities and other investments (interest and
other income) (B)   (58,416 )   (387 )   (58,029 )   (3,260 )   —     (3,260 )
(Gains) losses on sales of non-operating assets, net of income and other tax
expense (benefit)   (74,256 )   (728 )   (73,528 )   (7,378 )   72     (7,450 )
 
Executive compensation program duplicative costs and retirement benefit obligations (C) 1,077 9,640 (8,563 ) 359 4,967 (4,608 )
Insurance/litigation settlement or reserve income (interest and other income) (2,891 ) (5,770 ) 2,879 (1,517 ) — (1,517 )
Insurance/litigation/environmental settlement or reserve expense (other expenses) (D) 9,098 (867 ) 9,965 9,339 21 9,318
Other (interest and other income)   (63 )   (302 )   239     (63 )   (108 )   45  
Other miscellaneous items   7,221     2,701     4,520     8,118     4,880     3,238  
           
Adjustments from FFO to Normalized FFO $ 58,728   $ (7,473 ) $ 66,201   $ 2,080   $ 8,927   $ (6,847 )
 
(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 Archstone-related unconsolidated joint ventures. During the nine months ended September 30, 2015, the amount also includes approximately $18.6 million received related to the favorable settlement of a lawsuit.
 
(B) The nine months ended September 30, 2016 includes a $52.4 million gain related to the sale of the Company's entire interest in the management contracts and related rights associated with the military housing ventures at Joint Base Lewis McChord.
 
(C) Represents the accounting cost associated with the overlap of the Company's current and former performance based executive compensation programs. The Company is required to expense in 2016 and 2015 a portion of both the previous program's time based equity grants for service in 2014 or 2015 and the performance based grants issued under the current program, creating a duplicative charge. For the nine months and quarter ended September 30, 2016, the entire amounts have been recorded to general and administrative expense. For the nine months ended September 30, 2015, $1.0 million and $6.0 million has been recorded to property management expense and general and administrative expense, respectively. For the quarter ended September 30, 2015, $0.3 million and $2.0 million has been recorded to property management expense and general and administrative expense, respectively. Also includes $2.6 million recorded to general and administrative expense during the nine months and quarter ended September 30, 2015 as a result of certain adjustments for retirement benefit obligations.
 
(D) For the nine months and quarter ended September 30, 2016, includes a $5.0 million litigation reserve and a $4.3 million environmental reserve.
 
Note: See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.
 
Equity Residential
Normalized FFO Guidance and Assumptions
   
The guidance/projections provided below are based on current expectations and are forward-looking. All guidance is given on a Normalized FFO basis. Therefore, certain items excluded from Normalized FFO, such as debt extinguishment costs/prepayment penalties, property acquisition costs and the write-off of pursuit costs, are not included in the estimates provided on this page. See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms as well as the reconciliations of EPS to FFO per share and Normalized FFO per share.
 

2016 Normalized FFO Guidance (per share diluted)

 
 

Q4 2016

2016

 
Expected Normalized FFO Per Share $0.77 to $0.81 $3.06 to $3.10
 

2016 Same Store Assumptions (see Note below)

 
Physical occupancy 96.0%
Revenue change 3.60% to 3.90%
Expense change 2.80% to 3.20%
NOI change 3.80% to 4.10%
 
Note: The same store guidance provided above is based on the approximately 70,000 apartment units expected to be included in same store properties at December 31, 2016. Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO per share/Normalized FFO per share.
 

2016 Transaction Assumptions

 
Consolidated rental acquisitions $250.0 million
Consolidated rental dispositions $6.7 billion
Spread between Acquisition Cap Rate and Disposition Yield 60 basis points
 

2016 Debt Assumptions

 
Weighted average debt outstanding $9.0 billion to $9.1 billion
Weighted average interest rate (reduced for capitalized interest) 4.02%
Interest expense, net (on a Normalized FFO basis) $361.8 million to $365.8 million
Capitalized interest $50.0 million to $52.0 million
 
Note: All 2016 debt assumptions are shown on a Normalized FFO basis and therefore exclude the impact of the debt extinguishment costs/prepayment premiums/penalties shown on page 25.
 

2016 Other Guidance Assumptions

 
Property management expense $82.0 million to $84.0 million
General and administrative expense (see Note below) $57.0 million to $58.0 million
Interest and other income $3.8 million to $4.0 million
Income and other tax expense $1.5 million to $2.0 million
Debt offerings $500.0 million
Equity ATM share offerings No amounts budgeted
Preferred share offerings No amounts budgeted
Special dividend paid in Q1 2016 $8.00 per share
Special dividend paid in Q4 2016 $3.00 per share
Regular annual dividend (paid in four equal quarterly installments) $2.015 per share
Weighted average Common Shares and Units - Diluted 382.3 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 overlap of accounting costs for the Company's current and former executive compensation programs.
 
Equity Residential
Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms
(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
   
This Earnings Release and Supplemental Information includes certain non-GAAP financial measures and other terms that management believes are helpful in understanding our business. The definitions and calculations of these non-GAAP financial measures and other terms may differ from the definitions and methodologies used by other REITs and, accordingly, may not be comparable. These non-GAAP financial measures should not be considered as an alternative to net earnings or any other GAAP measurement of performance or as an alternative to cash flows from specific operating, investing or financing activities. Furthermore, these non-GAAP financial measures are not intended to be a measure of cash flow or liquidity.
 
Acquisition Capitalization Rate or Cap Rate – NOI that the Company anticipates receiving in the next 12 months (or the year two or three stabilized NOI for properties that are in lease-up at acquisition) less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross purchase price of the asset. The weighted average Acquisition Cap Rate for acquired properties is weighted based on the projected NOI streams and the relative purchase price for each respective property.
 
Average Rental Rate – Total residential rental revenues divided by the weighted average occupied apartment units for the reporting period presented.
 
Debt Covenant Compliance – Our unsecured debt includes certain financial and operating covenants including, among other things, maintenance of certain financial ratios. These provisions are contained in the indentures applicable to each notes payable or the credit agreement for our line of credit. The Debt Covenant Compliance ratios that are provided show the Company's compliance with certain covenants governing our public unsecured debt. These covenants generally reflect our most restrictive financial covenants. The Company was in compliance with its unsecured debt covenants for all years presented (the ratios should not be used for any other purpose, including without limitation, to evaluate the Company's financial condition or results of operations, nor do they indicate the Company's covenant compliance as of any other date or for any other period).
 
Disposition Yield – NOI that the Company anticipates giving up in the next 12 months less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross sale price of the asset. The weighted average Disposition Yield for sold properties is weighted based on the projected NOI streams and the relative sales price for each respective property.
 
Earnings Per Share ("EPS") – Net income per share calculated in accordance with GAAP. Expected EPS is calculated on a basis consistent with actual EPS. Due to the uncertain timing and extent of property dispositions and the resulting gains/losses on sales, actual EPS could differ materially from expected EPS.
 
Economic Gain – Economic Gain is calculated as the net gain on sales of real estate properties in accordance with GAAP, excluding accumulated depreciation. The Company generally considers Economic Gain to be an appropriate supplemental measure to net gain on sales of real estate properties in accordance with GAAP because it is one indication of the gross value created by the Company's acquisition, development, rehab, management and ultimate sale of a property and because it helps investors to understand the relationship between the cash proceeds from a sale and the cash invested in the sold property. The following table presents a reconciliation of Economic Gain to net gain on sales of real estate properties in accordance with GAAP:
     
Nine Months Ended September 30, 2016
   
Net Gain on Sales
Accumulated of Real Estate
Economic Gain Depreciation Gain   Properties
 
Starwood sale $ 1,981,887 $ 1,179,210 $ 3,161,097
Woodland Park sale 258,890 30,442 $ 289,332
River Tower sale 152,320 32,076 $ 184,396
Other sales   123,068   112,978 $ 236,046
 
Totals $ 2,516,165 $ 1,354,706 $ 3,870,871
 
Equity Residential
Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms – Continued
(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
 

Funds From Operations and Normalized Funds From Operations:

 
Funds From Operations (“FFO”) – The National Association of Real Estate Investment Trusts (“NAREIT”) defines 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. Expected FFO per share is calculated on a basis consistent with actual FFO per share and is considered an appropriate supplemental measure of expected operating performance when compared to expected EPS.
 
The Company believes that FFO and FFO available to Common Shares and Units are helpful to investors as supplemental measures of the operating performance of a real estate company, because they are recognized measures of performance by the real estate industry and by excluding gains or losses related to 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.
 
Normalized Funds From Operations ("Normalized FFO") – Normalized FFO begins with FFO and excludes:
• the impact of any expenses relating to non-operating asset impairment and valuation allowances;
• 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 sales, net of the effect of income tax benefits or expenses; and
• other miscellaneous items.
 
Expected Normalized FFO per share is calculated on a basis consistent with actual Normalized FFO per share and is considered an appropriate supplemental measure of expected operating performance when compared to expected EPS.
 
The Company believes that Normalized FFO and Normalized FFO available to Common Shares and Units are helpful to investors as supplemental measures of the operating performance of a real estate company because they allow investors to compare the Company's operating performance to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company's actual operating results.
 
FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units do not represent net income, net income available to Common Shares or net cash flows from operating activities in accordance with GAAP. Therefore, FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units should not be exclusively considered as alternatives to net income, net income available to Common Shares or net cash flows from operating activities as determined by GAAP or as a measure of liquidity. The Company's calculation of FFO, FFO available to Common Shares and Units, Normalized FFO and Normalized FFO available to Common Shares and Units may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.
 
FFO available to Common Shares and Units and Normalized FFO available to Common Shares and Units are calculated on a basis consistent with net income available to Common Shares and reflects adjustments to net income for preferred distributions and premiums on redemption of preferred shares in accordance with GAAP. The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the "Noncontrolling Interests – Operating Partnership". Subject to certain restrictions, the Noncontrolling Interests – Operating Partnership may exchange their OP Units for Common Shares on a one-for-one basis.
   
Equity Residential
Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms – Continued
(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
             
The following table presents reconciliations of EPS to FFO per share and Normalized FFO per share for pages 7 and 26 (the expected guidance/projections provided below are based on current expectations and are forward-looking):

 

Actual Sept.

Actual Sept.

Actual Actual Expected Expected
YTD 2016 YTD 2015 Q3 2016 Q3 2015 Q4 2016 2016
Per Share Per Share Per Share Per Share Per Share Per Share
 
EPS - Diluted $ 10.92 $ 1.80 $ 0.56 $ 0.53 $0.62 to $0.66 $11.54 to $11.58
Add: Depreciation expense 1.37 1.53 0.47 0.51 0.47 1.84
Less: Net gain on sales   (10.15 )   (0.77 )   (0.26 )   (0.17 ) (0.27) (10.42)
 
FFO per share - Diluted 2.14 2.56 0.77 0.87 0.82 to 0.86 2.96 to 3.00
 
Asset impairment and valuation allowances — — — — — —
Property acquisition costs and write-off of pursuit costs 0.01 (0.04 ) 0.01 — — 0.01
Debt extinguishment (gains) losses, including prepayment penalties, preferred share redemptions and non-cash convertible debt discounts 0.31 0.01 — 0.01 — 0.31
(Gains) losses on sales of non-operating assets, net of

income and other tax expense (benefit)

(0.19 ) — (0.02 ) — (0.05) (0.24)
Other miscellaneous items   0.02     0.01     0.02     0.01   — 0.02
 
Normalized FFO per share - Diluted $ 2.29   $ 2.54   $ 0.78   $ 0.89   $0.77 to $0.81   $3.06 to $3.10
 
Net Operating Income (“NOI”) – NOI is the Company’s primary financial measure for evaluating each of its apartment properties. NOI is defined as rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company's apartment properties. NOI does not include an allocation of property management expenses.
 
The following tables present reconciliations of rental income, operating expenses and NOI for the September YTD 2016 and the Third Quarter 2016 Same Store Properties (see page 11) to rental income, operating expenses and NOI per the consolidated statements of operations and NOI to operating income per the consolidated statements of operations:
 
Nine Months Ended September 30,   Quarter Ended September 30,
2016 2015 2016 2015
 
Rental income:
Same store $ 1,647,480 $ 1,583,810 $ 563,892 $ 545,281
Non-same store   169,480     451,549     41,964     148,964  
Total rental income 1,816,960 2,035,359 605,856 694,245
 
Operating expenses:
Same store 484,643 472,930 168,706 159,343
Non-same store   63,999     146,531     16,853     48,002  
Total operating expenses 548,642 619,461 185,559 207,345
 
NOI:
Same store 1,162,837 1,110,880 395,186 385,938
Non-same store   105,481     305,018     25,111     100,962  
Total NOI 1,268,318 1,415,898 420,297 486,900
 
Adjustments:
Fee and asset management revenue 3,351 6,413 218 2,044
Property management (64,003 ) (64,651 ) (19,517 ) (20,094 )
General and administrative (47,408 ) (50,618 ) (12,395 ) (15,197 )
Depreciation   (528,242 )   (584,862 )   (179,230 )   (196,059 )
 
Operating income $ 632,016   $ 722,180   $ 209,373   $ 257,594  
 
Equity Residential
Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms – Continued
(Amounts in thousands except per share and per apartment unit data)
(All per share data is diluted)
 
Non-Same Store Properties – For annual comparisons, primarily includes all properties acquired during 2015 and 2016, plus any properties in lease-up and not stabilized as of January 1, 2015.
 
Normalized Earnings Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA") – Represents net income in accordance with GAAP before interest expense, income taxes, depreciation expense and amortization expense and further adjusted for non-comparable items. 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.
 
Physical Occupancy – The weighted average occupied apartment units for the reporting period divided by the average of total apartment units available for rent for the reporting period.
 
Same Store Properties – For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2015, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.
 
% of Stabilized NOI – Represents budgeted 2016 NOI for stabilized properties and projected annual NOI at stabilization (defined as having achieved 90% occupancy for three consecutive months) for properties that are in lease-up.
 
Total Capital Cost – Estimated cost for projects under development and/or developed and all capitalized costs incurred to date plus any estimates of costs remaining to be funded for all projects, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, all in accordance with GAAP.
 
Total Market Capitalization – The aggregate of the market value of the Company’s outstanding common shares, including restricted shares, the market value of the Company’s operating partnership units outstanding, including restricted units (based on the market value of the Company’s common shares) and the outstanding principal balance of debt. The Company believes this is a useful measure of a real estate operating company’s long-term liquidity and balance sheet strength, because it shows an approximate relationship between a company’s total debt and the current total market value of its assets based on the current price at which the Company’s common shares trade. However, because this measure of leverage changes with fluctuations in the Company’s share price, which occur regularly, this measure may change even when the Company’s earnings, interest and debt levels remain stable.
 
Turnover – Total residential move-outs divided by total residential apartment units, including inter-property and intra-property transfers.
 
Unencumbered NOI % – Represents NOI generated by consolidated real estate assets unencumbered by outstanding secured debt as a percentage of total NOI generated by all of the Company's consolidated real estate assets.
 
Unlevered Internal Rate of Return (“IRR”) – The Unlevered IRR on sold properties refers to the internal rate of return calculated by the Company based on the timing and amount of (i) total revenue earned during the period owned by the Company and (ii) the gross sales price net of selling costs, offset by (iii) the undepreciated capital cost of the properties at the time of sale and (iv) total direct property operating expenses (including real estate taxes and insurance) incurred during the period owned by the Company. Each of the items (i), (ii), (iii) and (iv) is calculated in accordance with GAAP.
 
The calculation of the Unlevered IRR does not include an adjustment for the Company’s general and administrative expense, interest expense or property management expense. Therefore, the Unlevered IRR is not a substitute for net income as a measure of our performance. Management believes that the Unlevered IRR achieved during the period a property is owned by the Company is useful because it is one indication of the gross value created by the Company’s acquisition, development, rehab, management and ultimate sale of a property, before the impact of Company overhead. The Unlevered IRR achieved on the properties as cited in this release should not be viewed as an indication of the gross value created with respect to other properties owned by the Company, and the Company does not represent that it will achieve similar Unlevered IRRs upon the disposition of other properties. The weighted average Unlevered IRR for sold properties is weighted based on all cash flows over the investment period for each respective property, including net sales proceeds.