Expects Continued Above Trend Growth in 2023
CHICAGO–(BUSINESS WIRE)–Equity Residential (NYSE: EQR) today reported results for the quarter and year ended December 31, 2022.
Fourth Quarter 2022 Results
All per share results are reported as available to common shares/units on a diluted basis.
Quarter Ended December 31,
2022
2021
$ Change
% Change
Earnings Per Share (EPS)
$
0.42
$
1.40
$
(0.98
)
(70.0
%)
Funds from Operations (FFO) per share
$
0.97
$
0.76
$
0.21
27.6
%
Normalized FFO per share
$
0.94
$
0.82
$
0.12
14.6
%
Year Ended December 31,
2022
2021
$ Change
% Change
Earnings Per Share (EPS)
$
2.05
$
3.54
$
(1.49
)
(42.1
%)
Funds from Operations (FFO) per share
$
3.53
$
2.96
$
0.57
19.3
%
Normalized FFO per share
$
3.52
$
2.99
$
0.53
17.7
%
“We are pleased to have delivered outstanding operating results in 2022. I want to thank my 2,400 hard-working colleagues across Equity Residential for all they do every day to delight our customers,” said Mark J. Parrell, Equity Residential’s President and CEO. “Turning to 2023, we have seen the year begin with the usual sequential improvement in demand and rate. We expect to again deliver above trend same store operating results driven by the momentum embedded in our rent roll from a stellar 2022, continuing solid demand and limited expense growth, but also expect the slowing economy to dampen intraperiod rent growth during 2023. Overall, the fundamentals of our business remain strong. Our affluent resident demographic remains highly employable with the unemployment rate for college graduates at 2%. We also see elevated home ownership costs and manageable competitive new apartment supply as further positive factors.”
Recent Highlights
The Company reported a 10.6% increase in same store revenue for the full year 2022 compared to the full year 2021, driven by strong demand. Same store expense growth for the full year 2022 compared to the full year 2021 was a moderate 3.6%, benefitting from favorable real estate tax growth and declines in payroll expense primarily due to the Company’s various innovation and centralization initiatives.
The Company has provided full year 2023 guidance with same store revenue growth expected to be between 4.5% and 6.0%.
During 2022, the Company was a net seller of approximately $633.2 million of attractively priced non-core properties, the proceeds from which were utilized to pay down near-term debt maturities, reducing refinancing needs for 2023.
In October 2022, the Company further enhanced liquidity and financial flexibility by entering into a new $2.5 billion unsecured revolving credit facility maturing in 2027 that replaces the prior facility of the same size that was set to mature in 2024.
The Company was recently recognized as one of America’s Most Responsible Companies for 2023 by Newsweek.
Full Year 2023 Guidance
The Company has provided guidance for its full year 2023 same store operating performance, EPS, FFO per share and Normalized FFO per share as listed below:
Same Store (includes Residential and Non-Residential):
Physical Occupancy
96.2%
Revenue change (1)
4.5% to 6.0%
Expense change
4.0% to 5.0%
Net Operating Income (NOI) change
4.75% to 6.25%
EPS (2)
$1.49 to $1.59
FFO per share (2)
$3.66 to $3.76
Normalized FFO per share (2)
$3.70 to $3.80
Transactions (3):
Consolidated rental acquisitions
–
Consolidated rental dispositions
–
(1)
We anticipate that revenue change will be negatively impacted by approximately 0.9% at the midpoint due to continuing elevated levels of forecasted Bad Debt, Net in 2023, as a result of a slower return to normal resident payment patterns due to local governmental restrictions primarily in California and a lack of governmental rental assistance.
(2)
The Company expects to incur additional casualty losses in the first quarter of 2023 related to Northern and Southern California rainstorms, estimates of which are included in guidance.
(3)
Given current uncertainty in the transaction environment, the Company’s full year 2023 acquisition and disposition guidance reflects no anticipated activity.
The difference between the Company’s full year 2022 actual EPS of $2.05 and the full year 2023 EPS guidance midpoint of $1.54 is due primarily to lower expected property sale gains and the items described below.
The difference between the Company’s full year 2022 actual FFO of $3.53 per share and the full year 2023 FFO guidance midpoint of $3.71 per share is due primarily to the items described below.
The difference between the Company’s full year 2022 actual Normalized FFO of $3.52 per share and the full year 2023 Normalized FFO guidance midpoint of $3.75 per share is due primarily to:
Positive/(Negative)
Impact
Full Year 2023 vs
Full Year 2022
Residential same store NOI
$
0.26
Lease-Up NOI
0.02
2023 and 2022 transaction activity impact on NOI, net
(0.02
)
Corporate overhead (1)
(0.02
)
Other items
(0.01
)
Net
$
0.23
(1)
Corporate overhead includes property management and general and administrative expenses.
The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 29 through 34 of this release. Reconciliations and definitions of FFO and Normalized FFO are provided on pages 7, 31 and 32 of this release.
Results Per Share
The changes in EPS for the quarter and year ended December 31, 2022 compared to the same periods of 2021 are due primarily to lower property sale gains in the current periods, lower depreciation expense in the prior full year period, the various adjustment items listed on page 27 of this release and the items described below.
The per share changes in FFO for the quarter and year ended December 31, 2022 compared to the same periods of 2021 are due primarily to the various adjustment items listed on page 27 of this release and the items described below.
The per share changes in Normalized FFO are due primarily to:
Positive/(Negative) Impact
Fourth Quarter 2022 vs.
Fourth Quarter 2021
Full Year 2022 vs.
Full Year 2021
Residential same store NOI
$
0.12
$
0.54
Non-Residential same store NOI
–
0.01
Lease-Up NOI
0.01
0.05
2022 and 2021 transaction activity impact on NOI, net
(0.01
)
–
Interest expense, net
0.01
(0.02
)
Corporate overhead
–
(0.03
)
Other items (1)
(0.01
)
(0.02
)
Net
$
0.12
$
0.53
(1)
Included in this category was the negative impact in the fourth quarter of 2022 of approximately $0.01 per share primarily from a casualty loss at an East Coast property and rainstorm damage at properties located in Northern California.
Same Store Results
The following table shows the total same store results for the periods presented.
Fourth Quarter 2022 vs.
Fourth Quarter 2021
Fourth Quarter 2022 vs.
Third Quarter 2022
Full Year 2022 vs.
Full Year 2021
Apartment Units
75,473
78,107
72,872
Physical Occupancy
95.9% vs. 96.6%
95.9% vs. 96.4%
96.4% vs. 96.1%
Revenues
9.1%
0.8%
10.6%
Expenses
5.3%
(2.7%)
3.6%
NOI
10.9%
2.4%
14.1%
On page 11 of this release, the Company has provided a breakout of Residential and Non-Residential same store results with definitions that can be found on page 33 of this release. Non-Residential operations account for approximately 3.7% of total revenues for the year ended December 31, 2022.
The following table reflects the detail of the change in Same Store Residential Revenues, which is presented on a GAAP basis showing Leasing Concessions on a straight-line basis.
Fourth Quarter 2022 vs.
Fourth Quarter 2021
Fourth Quarter 2022 vs.
Third Quarter 2022
Full Year 2022 vs.
Full Year 2021
% Change
% Change
% Change
Same Store Residential Revenues-
comparable period
Lease rates
10.4
%
1.7
%
8.5
%
Leasing Concessions
1.0
%
0.0
%
1.5
%
Vacancy gain (loss)
(1.1
%)
(0.3
%)
(0.1
%)
Bad Debt, Net (1)
(1.6
%)
(0.8
%)
0.2
%
Other (2)
0.8
%
0.2
%
0.6
%
Same Store Residential Revenues-
current period
9.5
%
0.8
%
10.7
%
(1)
Change in rental income due to bad debt write-offs and reserves, net of amounts (including governmental rental assistance payments) collected on previously written-off or reserved accounts. The negative contributions to revenue growth in the quarter and sequentially in this category are due to lower resident payments from governmental rental assistance as the programs wind down.
(2)
Includes ancillary income, utility recoveries, early lease termination income, miscellaneous income and other items.
See page 12 for detail and reconciliations of Same Store Residential Revenues on a GAAP basis to Same Store Residential Revenues with Leasing Concessions on a cash basis.
Residential Same Store Operating Statistics
The following table includes select operating metrics for Residential Same Store Properties (for 72,872 same store apartment units):
Q3 2022
Q4 2022
January 2023 (1)
Physical Occupancy
96.5%
96.0%
95.8%
Percentage of Residents Renewing by quarter/month
53.7%
56.5%
57.0%
New Lease Change
13.0%
2.5%
1.4%
Renewal Rate Achieved
10.0%
8.5%
6.9%
Blended Rate
11.3%
5.8%
4.6%
(1)
January 2023 results are preliminary.
“Our fourth quarter 2022 and January 2023 operating statistics reflect usual seasonal moderation patterns, though slightly more pronounced. We were, however, pleased that our New Lease Change performance remained positive in the fourth quarter of 2022 and in January 2023, contrary to historical patterns,” said Michael L. Manelis, Equity Residential’s Executive Vice President and Chief Operating Officer. “While it is very early in the year, we are seeing typical sequential improvement in rents and leasing activity with New Lease Change and Blended Rate in January 2023 higher as compared to December 2022, suggesting that the year is beginning in a way consistent with normal demand trends.”
Investment Activity
The Company did not acquire any operating properties during the fourth quarter of 2022. During the full year of 2022, the Company acquired a 172-unit apartment property in San Diego, built in 2020, for $113.0 million at an Acquisition Cap Rate of 3.5% as well as two unconsolidated land parcels for future development for approximately $56.9 million.
The Company did not sell any properties during the fourth quarter of 2022. During the full year of 2022, the Company sold three properties for a total sale price of approximately $746.2 million at a weighted average Disposition Yield of 3.4%, generating an Unlevered IRR of 5.3%.
Capital Markets Activity
In October 2022, the Company settled all of its outstanding forward equity sales agreements under its At-The-Market (ATM) share offering program, which were entered into during the third quarter of 2021. As a result, it issued 1,740,550 common shares at $80.22 per share and received total proceeds of approximately $139.6 million.
Also in October 2022, the Company entered into a new $2.5 billion unsecured revolving credit agreement with a group of 19 financial institutions. The new facility matures October 26, 2027 and has an interest rate of SOFR plus a spread (currently 0.725%) and an annual facility fee (currently 0.125%). Both the spread and the facility fee are dependent on the credit rating of the Company’s long-term debt. This facility replaced the Company’s existing $2.5 billion facility, which was scheduled to mature in November 2024.
First Quarter 2023 Guidance
The Company has established guidance ranges for the first quarter of 2023 EPS, FFO per share and Normalized FFO per share as listed below:
Q1 2023
Guidance
EPS
$0.28 to $0.32
FFO per share
$0.83 to $0.87
Normalized FFO per share
$0.84 to $0.88
The difference between the fourth quarter of 2022 actual EPS of $0.42 and the first quarter of 2023 EPS guidance midpoint of $0.30 is due primarily to the items described below.
The difference between the fourth quarter of 2022 actual FFO of $0.97 per share and the first quarter of 2023 FFO guidance midpoint of $0.85 per share is due primarily to the items described below.
The difference between the fourth quarter of 2022 actual Normalized FFO of $0.94 per share and the first quarter of 2023 Normalized FFO guidance midpoint of $0.86 per share is due primarily to:
Positive/(Negative)
Impact
First Quarter 2023 vs.
Fourth Quarter 2022
Residential same store NOI
$
(0.04
)
Interest expense, net
(0.01
)
Corporate overhead
(0.03
)
Net
$
(0.08
)
About Equity Residential
Equity Residential is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of residential properties located in and around dynamic cities that attract affluent long-term renters. Equity Residential owns or has investments in 308 properties consisting of 79,597 apartment units, with an established presence in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California, and an expanding presence in Denver, Atlanta, Dallas/Ft. Worth and Austin. 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, government regulations (such as eviction moratoriums) and competition. These and 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, Friday, February 10, 2023 at 10:00 a.m. CT. Please visit the Investor section of the Company’s website at www.equityapartments.com for the webcast link.
Equity Residential
Consolidated Statements of Operations
(Amounts in thousands except per share data)
(Unaudited)
Year Ended December 31,
Quarter Ended December 31,
2022
2021
2022
2021
REVENUES
Rental income
$
2,735,180
$
2,463,997
$
699,703
$
645,130
EXPENSES
Property and maintenance
483,865
453,532
118,588
112,271
Real estate taxes and insurance
388,412
397,105
85,513
99,325
Property management
110,304
98,155
27,269
23,798
General and administrative
58,710
56,506
11,677
13,404
Depreciation
882,168
838,272
214,272
222,240
Total expenses
1,923,459
1,843,570
457,319
471,038
Net gain (loss) on sales of real estate properties
304,325
1,072,183
(21
)
484,560
Impairment
—
(16,769
)
—
(16,769
)
Operating income
1,116,046
1,675,841
242,363
641,883
Interest and other income
2,193
25,666
(2,651
)
373
Other expenses
(13,664
)
(19,275
)
(4,473
)
(8,367
)
Interest:
Expense incurred, net
(282,920
)
(272,473
)
(65,827
)
(69,740
)
Amortization of deferred financing costs
(8,729
)
(8,737
)
(2,308
)
(2,565
)
Income before income and other taxes, income (loss) from
investments in unconsolidated entities and net gain (loss)
on sales of land parcels
812,926
1,401,022
167,104
561,584
Income and other tax (expense) benefit
(900
)
(915
)
(175
)
(236
)
Income (loss) from investments in unconsolidated entities
(5,031
)
(3,398
)
(1,575
)
(370
)
Net gain (loss) on sales of land parcels
—
5
—
—
Net income
806,995
1,396,714
165,354
560,978
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership
(26,310
)
(45,900
)
(5,286
)
(17,997
)
Partially Owned Properties
(3,774
)
(17,964
)
(1,048
)
(16,007
)
Net income attributable to controlling interests
776,911
1,332,850
159,020
526,974
Preferred distributions
(3,090
)
(3,090
)
(772
)
(772
)
Net income available to Common Shares
$
773,821
$
1,329,760
$
158,248
$
526,202
Earnings per share – basic:
Net income available to Common Shares
$
2.06
$
3.56
$
0.42
$
1.40
Weighted average Common Shares outstanding
376,209
373,833
377,689
374,897
Earnings per share – diluted:
Net income available to Common Shares
$
2.05
$
3.54
$
0.42
$
1.40
Weighted average Common Shares outstanding
389,450
388,089
390,245
389,000
Distributions declared per Common Share outstanding
$
2.50
$
2.41
$
0.625
$
0.6025
Equity Residential
Consolidated Statements of Funds From Operations and Normalized Funds From Operations
(Amounts in thousands except per share data)
(Unaudited)
Year Ended December 31,
Quarter Ended December 31,
2022
2021
2022
2021
Net income
$
806,995
$
1,396,714
$
165,354
$
560,978
Net (income) loss attributable to Noncontrolling Interests – Partially
Owned Properties
(3,774
)
(17,964
)
(1,048
)
(16,007
)
Preferred distributions
(3,090
)
(3,090
)
(772
)
(772
)
Net income available to Common Shares and Units
800,131
1,375,660
163,534
544,199
Adjustments:
Depreciation
882,168
838,272
214,272
222,240
Depreciation – Non-real estate additions
(4,306
)
(4,277
)
(1,117
)
(1,049
)
Depreciation – Partially Owned Properties
(2,640
)
(3,673
)
(543
)
(997
)
Depreciation – Unconsolidated Properties
2,898
2,487
1,001
620
Net (gain) loss on sales of unconsolidated entities – operating
assets
(9
)
(1,304
)
—
(1,300
)
Net (gain) loss on sales of real estate properties
(304,325
)
(1,072,183
)
21
(484,560
)
Noncontrolling Interests share of gain (loss) on sales
of real estate properties
—
15,650
—
15,650
FFO available to Common Shares and Units
1,373,917
1,150,632
377,168
294,803
Adjustments (see note for additional detail):
Impairment – non-operating real estate assets
—
16,769
—
16,769
Write-off of pursuit costs
4,780
6,526
1,484
2,969
Debt extinguishment and preferred share redemption (gains)
losses
4,664
744
348
480
Non-operating asset (gains) losses
2,368
(22,283
)
3,542
731
Other miscellaneous items
(13,901
)
8,976
(15,733
)
4,456
Normalized FFO available to Common Shares and Units
$
1,371,828
$
1,161,364
$
366,809
$
320,208
FFO
$
1,377,007
$
1,153,722
$
377,940
$
295,575
Preferred distributions
(3,090
)
(3,090
)
(772
)
(772
)
FFO available to Common Shares and Units
$
1,373,917
$
1,150,632
$
377,168
$
294,803
FFO per share and Unit – basic
$
3.54
$
2.98
$
0.97
$
0.76
FFO per share and Unit – diluted
$
3.53
$
2.96
$
0.97
$
0.76
Normalized FFO
$
1,374,918
$
1,164,454
$
367,581
$
320,980
Preferred distributions
(3,090
)
(3,090
)
(772
)
(772
)
Normalized FFO available to Common Shares and Units
$
1,371,828
$
1,161,364
$
366,809
$
320,208
Normalized FFO per share and Unit – basic
$
3.54
$
3.01
$
0.94
$
0.83
Normalized FFO per share and Unit – diluted
$
3.52
$
2.99
$
0.94
$
0.82
Weighted average Common Shares and Units outstanding – basic
388,045
386,096
389,357
386,851
Weighted average Common Shares and Units outstanding – diluted
389,450
388,089
390,245
389,000
Note: See Adjustments from FFO to Normalized FFO for additional detail regarding the adjustments from FFO to Normalized FFO. See Additional Reconciliations and Definitions of Non-GAAP Financial Measures and Other Terms 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)
December 31,
December 31,
2022
2021
ASSETS
Land
$
5,580,878
$
5,814,790
Depreciable property
22,334,369
22,370,811
Projects under development
112,940
24,307
Land held for development
60,567
62,998
Investment in real estate
28,088,754
28,272,906
Accumulated depreciation
(9,027,850
)
(8,354,282
)
Investment in real estate, net
19,060,904
19,918,624
Investments in unconsolidated entities1
279,024
127,448
Cash and cash equivalents
53,869
123,832
Restricted deposits
83,303
236,404
Right-of-use assets
462,956
474,713
Other assets
278,206
288,220
Total assets
$
20,218,262
$
21,169,241
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net
$
1,953,438
$
2,191,201
Notes, net
5,342,329
5,835,222
Line of credit and commercial paper
129,955
315,030
Accounts payable and accrued expenses
96,028
107,013
Accrued interest payable
66,310
69,510
Lease liabilities
308,748
312,335
Other liabilities
306,941
353,102
Security deposits
68,940
66,141
Distributions payable
244,621
233,502
Total liabilities
8,517,310
9,483,056
Commitments and contingencies
Redeemable Noncontrolling Interests – Operating Partnership
318,273
498,977
Equity:
Shareholders’ equity:
Preferred Shares of beneficial interest, $0.01 par value;
100,000,000 shares authorized; 745,600 shares issued and
outstanding as of December 31, 2022 and December 31, 2021
37,280
37,280
Common Shares of beneficial interest, $0.01 par value;
1,000,000,000 shares authorized; 378,429,708 shares issued
and outstanding as of December 31, 2022 and 375,527,195
shares issued and outstanding as of December 31, 2021
3,784
3,755
Paid in capital
9,476,085
9,121,122
Retained earnings
1,658,837
1,827,063
Accumulated other comprehensive income (loss)
(2,547
)
(34,272
)
Total shareholders’ equity
11,173,439
10,954,948
Noncontrolling Interests:
Operating Partnership
209,961
214,094
Partially Owned Properties
(721
)
18,166
Total Noncontrolling Interests
209,240
232,260
Total equity
11,382,679
11,187,208
Total liabilities and equity
$
20,218,262
$
21,169,241
1 Includes $218.0 million and $72.5 million in unconsolidated development projects as of December 31, 2022 and December 31, 2021, respectively. See Development and Lease-Up Projects for additional detail on unconsolidated projects.
Contacts
Marty McKenna
312-928-1901
mmckenna@eqr.com