EQUITY RESIDENTIAL - FORM 8-K - EX-99.2

Attached files

file	filename
EX-99.1 - EX-99.1 - EQUITY RESIDENTIAL	eqr-ex991_20.htm
8-K - 8-K - EQUITY RESIDENTIAL	eqr-8k_20170725.htm

Exhibit 99.2

Chicago, IL – July 25, 2017 - Equity Residential (NYSE: EQR) today reported results for the quarter and six months ended June 30, 2017. All per share results are reported as available to common shares/units on a diluted basis.

Second Quarter 2017

Earnings Per Share (EPS) for the second quarter of 2017 was $0.53 compared to $0.59 in the second quarter of 2016. The difference is due primarily to lower gains on sales of non-operating properties in the second quarter of 2017, which was partially offset by higher gains on sales of operating properties in the second quarter of 2017.

Six Months Ended June 30, 2017

EPS for the six months ended June 30, 2017 was $0.92 compared to $10.36 in the six months ended June 30, 2016. The difference is due primarily to $9.58 per share in higher property sale gains as a result of the Company’s significant property sales activity in 2016, higher gains on sales of non-operating assets in 2016, partially offset by higher debt extinguishment costs in 2016.

Same Store Results

On a same store second quarter to second quarter comparison, which includes 71,354 apartment units, revenues increased 2.1%, expenses increased 4.1% and net operating income (NOI) increased 1.3%. Average Rental Rate increased 2.5% and occupancy decreased 0.4% to 95.8%.

On a same store six-month to six-month comparison, which includes 70,400 apartment units, revenues increased 2.3%, expenses increased 3.9% and NOI increased 1.7%. Average Rental Rate increased 2.5% and occupancy decreased 0.1% to 95.9%.

Investment Activity

During the second quarter of 2017, the Company acquired one consolidated apartment property in Seattle, consisting of 136 apartment units, for a purchase price of approximately $57.0 million at an Acquisition Capitalization Rate of 5.0%. Also during the second quarter, the Company sold two consolidated apartment properties, consisting of 600 apartment units, for an aggregate sale price of approximately $219.1 million at a weighted average Disposition Yield of 5.0% and generating an Unlevered IRR of 12.5%.

In the first six months of 2017, the Company acquired the apartment property described above and sold three consolidated apartment properties, consisting of 904 apartment units, for an aggregate sale price of approximately $266.7 million at a weighted average Disposition Yield of 5.3% and generating an Unlevered IRR of 14.1%. During the first six months of 2017, the Company also sold one land parcel located in New York City for a sale price of approximately $33.5 million.

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 13 through 15 of this release.

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.

Equity Residential

Consolidated Statements of Operations

(Amounts in thousands except per share data)

(Unaudited)

	Six Months Ended June 30,						Quarter Ended June 30,
	2017			2016			2017			2016
REVENUES
Rental income	$	1,216,219		$	1,211,104		$	612,299		$	594,939
Fee and asset management		361			3,133			181			215
Total revenues		1,216,580			1,214,237			612,480			595,154

EXPENSES
Property and maintenance		201,924			205,472			99,316			96,307
Real estate taxes and insurance		169,231			157,611			87,503			77,415
Property management		43,841			44,486			21,589			20,991
General and administrative		27,799			35,013			13,626			18,296
Depreciation		358,864			349,012			179,896			176,127
Total expenses		801,659			791,594			401,930			389,136

Operating income		414,921			422,643			210,550			206,018

Interest and other income		1,763			59,583			1,162			56,525
Other expenses		(2,132	)		(4,060	)		(1,042	)		(1,504	)
Interest:
Expense incurred, net		(197,434	)		(299,964	)		(91,224	)		(86,472	)
Amortization of deferred financing costs		(4,383	)		(7,739	)		(2,087	)		(2,345	)
Income before income and other taxes, (loss) from investments in unconsolidated entities, net gain (loss) on sales of real estate properties and land parcels and discontinued operations		212,735			170,463			117,359			172,222
Income and other tax (expense) benefit		(482	)		(763	)		(220	)		(413	)
(Loss) from investments in unconsolidated entities		(1,755	)		(1,904	)		(682	)		(800	)
Net gain on sales of real estate properties		124,433			3,780,835			87,726			57,356
Net gain (loss) on sales of land parcels		19,170			11,722			(23	)		—
Income from continuing operations		354,101			3,960,353			204,160			228,365
Discontinued operations, net		—			(122	)		—			35
Net income		354,101			3,960,231			204,160			228,400
Net (income) attributable to Noncontrolling Interests:
Operating Partnership		(12,765	)		(152,089	)		(7,354	)		(8,780	)
Partially Owned Properties		(1,553	)		(1,545	)		(765	)		(781	)
Net income attributable to controlling interests		339,783			3,806,597			196,041			218,839
Preferred distributions		(1,546	)		(1,545	)		(773	)		(772	)
Net income available to Common Shares	$	338,237		$	3,805,052		$	195,268		$	218,067

Earnings per share – basic:
Income from continuing operations available to Common Shares	$	0.92		$	10.43		$	0.53		$	0.60
Net income available to Common Shares	$	0.92		$	10.43		$	0.53		$	0.60
Weighted average Common Shares outstanding		366,713			364,820			366,820			365,047

Earnings per share – diluted:
Income from continuing operations available to Common Shares	$	0.92		$	10.36		$	0.53		$	0.59
Net income available to Common Shares	$	0.92		$	10.36		$	0.53		$	0.59
Weighted average Common Shares outstanding		382,505			382,012			382,692			382,065

Distributions declared per Common Share outstanding	$	1.0075		$	9.0075		$	0.50375		$	0.50375

Equity Residential

Consolidated Statements of Funds From Operations and Normalized Funds From Operations

(Amounts in thousands)

(Unaudited)

	Six Months Ended June 30,						Quarter Ended June 30,
	2017			2016			2017			2016
Net income	$	354,101		$	3,960,231		$	204,160		$	228,400
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties		(1,553	)		(1,545	)		(765	)		(781	)
Preferred distributions		(1,546	)		(1,545	)		(773	)		(772	)
Net income available to Common Shares and Units		351,002			3,957,141			202,622			226,847

Adjustments:
Depreciation		358,864			349,012			179,896			176,127
Depreciation – Non-real estate additions		(2,580	)		(2,635	)		(1,282	)		(1,227	)
Depreciation – Partially Owned Properties		(1,666	)		(1,943	)		(834	)		(949	)
Depreciation – Unconsolidated Properties		2,285			2,467			1,143			1,234
Net (gain) on sales of unconsolidated entities - operating assets		(68	)		—			—			—
Net (gain) on sales of real estate properties		(124,433	)		(3,780,835	)		(87,726	)		(57,356	)
Discontinued operations:
Net (gain) on sales of discontinued operations		—			(15	)		—			—
FFO available to Common Shares and Units		583,404			523,192			293,819			344,676

Adjustments:
Asset impairment and valuation allowances		—			—			—			—
Write-off of pursuit costs		1,546			2,563			831			1,115
Debt extinguishment (gains) losses, including prepayment penalties, preferred share redemptions and non-cash convertible debt discounts		12,402			120,164			98			67
(Gains) losses on sales of non-operating assets, net of income and other tax expense (benefit)		(18,950	)		(66,593	)		(58	)		(54,616	)
Other miscellaneous items		(790	)		514			(799	)		(883	)
Normalized FFO available to Common Shares and Units	$	577,612		$	579,840		$	293,891		$	290,359

FFO	$	584,950		$	524,737		$	294,592		$	345,448
Preferred distributions		(1,546	)		(1,545	)		(773	)		(772	)
FFO available to Common Shares and Units	$	583,404		$	523,192		$	293,819		$	344,676

Normalized FFO	$	579,158		$	581,385		$	294,664		$	291,131
Preferred distributions		(1,546	)		(1,545	)		(773	)		(772	)
Normalized FFO available to Common Shares and Units	$	577,612		$	579,840		$	293,891		$	290,359

See pages 13 through 15 for the definitions of non-GAAP financial measures and other terms.

Equity Residential

Consolidated Balance Sheets

(Amounts in thousands except for share amounts)

(Unaudited)

	June 30,			December 31,
	2017			2016
ASSETS
Investment in real estate
Land	$	5,927,949		$	5,899,862
Depreciable property		19,123,571			18,730,579
Projects under development		325,823			637,168
Land held for development		112,474			118,816
Investment in real estate		25,489,817			25,386,425
Accumulated depreciation		(5,671,510	)		(5,360,389	)
Investment in real estate, net		19,818,307			20,026,036
Cash and cash equivalents		37,719			77,207
Investments in unconsolidated entities		59,246			60,141
Deposits – restricted		254,378			76,946
Escrow deposits – mortgage		21,016			64,935
Other assets		445,909			398,883
Total assets	$	20,636,575		$	20,704,148

LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net	$	3,743,363		$	4,119,181
Notes, net		4,456,365			4,848,079
Line of credit and commercial paper		764,361			19,998
Accounts payable and accrued expenses		137,920			147,482
Accrued interest payable		48,823			60,946
Other liabilities		324,002			350,466
Security deposits		63,648			62,624
Distributions payable		191,717			192,296
Total liabilities		9,730,199			9,801,072

Commitments and contingencies

Redeemable Noncontrolling Interests – Operating Partnership		380,519			442,092
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 June 30, 2017 and December 31, 2016		37,280			37,280
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 367,298,765 shares issued and outstanding as of June 30, 2017 and 365,870,924 shares issued and outstanding as of December 31, 2016		3,673			3,659
Paid in capital		8,838,804			8,758,422
Retained earnings		1,511,899			1,543,626
Accumulated other comprehensive (loss)		(101,151	)		(113,909	)
Total shareholders’ equity		10,290,505			10,229,078
Noncontrolling Interests:
Operating Partnership		229,049			221,297
Partially Owned Properties		6,303			10,609
Total Noncontrolling Interests		235,352			231,906
Total equity		10,525,857			10,460,984
Total liabilities and equity	$	20,636,575		$	20,704,148

Equity Residential

Portfolio as of June 30, 2017

	Properties		Apartment Units

Wholly Owned Properties		279		72,021
Master-Leased Properties - Consolidated		3		853
Partially Owned Properties - Consolidated		17		3,215
Partially Owned Properties - Unconsolidated		2		945

		301		77,034

Portfolio Rollforward Q2 2017

($ in thousands)

		Properties			Apartment Units			Purchase Price			Acquisition Cap Rate

	3/31/2017		302			77,498

Acquisitions:
Consolidated:
Rental Properties			1			136		$	57,028			5.0	%

								Sales Price			Disposition Yield

Dispositions:
Consolidated:
Rental Properties			(2	)		(600	)	$	(219,100	)		(5.0	%)

	6/30/2017		301			77,034

Portfolio Rollforward 2017

($ in thousands)

		Properties			Apartment Units			Purchase Price			Acquisition Cap Rate

	12/31/2016		302			77,458

Acquisitions:
Consolidated:
Rental Properties			1			136		$	57,028			5.0	%

								Sales Price			Disposition Yield

Dispositions:
Consolidated:
Rental Properties			(3	)		(904	)	$	(266,700	)		(5.3	%)
Land Parcels			—			—		$	(33,450	)
Completed Developments - Consolidated			1			344

	6/30/2017		301			77,034

Equity Residential

Second Quarter 2017 vs. Second Quarter 2016

Same Store Results/Statistics for 71,354 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

	Results									Statistics
Description	Revenues			Expenses			NOI			Average Rental Rate			Physical Occupancy			Turnover

Q2 2017	$	571,362		$	167,047		$	404,315		$	2,669			95.8	%		14.0	%
Q2 2016	$	559,564		$	160,478		$	399,086		$	2,605			96.2	%		15.0	%

Change	$	11,798		$	6,569		$	5,229		$	64			(0.4	%)		(1.0	%)

Change		2.1	%		4.1	%		1.3	%		2.5	%

June YTD 2017 vs. June YTD 2016

Same Store Results/Statistics for 70,400 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

	Results									Statistics
Description	Revenues			Expenses			NOI			Average Rental Rate			Physical Occupancy			Turnover

YTD 2017	$	1,118,370		$	330,252		$	788,118		$	2,649			95.9	%		25.2	%
YTD 2016	$	1,092,822		$	317,862		$	774,960		$	2,584			96.0	%		25.9	%

Change	$	25,548		$	12,390		$	13,158		$	65			(0.1	%)		(0.7	%)

Change		2.3	%		3.9	%		1.7	%		2.5	%

Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods. See page 14 for reconciliations from operating income.

Equity Residential

Second Quarter 2017 vs. Second Quarter 2016

Same Store Operating Expenses for 71,354 Same Store Apartment Units

$ in thousands

	Actual Q2 2017		Actual Q2 2016		$ Change			% Change			% of Actual Q2 2017 Operating Expenses

Real estate taxes	$	71,519	$	68,331	$	3,188			4.7	%		42.8	%
On-site payroll (1)		38,211		35,270		2,941			8.3	%		22.9	%
Utilities (2)		21,239		20,809		430			2.1	%		12.7	%
Repairs and maintenance (3)		21,841		21,643		198			0.9	%		13.1	%
Insurance		4,242		4,417		(175	)		(4.0	%)		2.5	%
Leasing and advertising		2,193		2,151		42			2.0	%		1.3	%
Other on-site operating expenses (4)		7,802		7,857		(55	)		(0.7	%)		4.7	%

Same store operating expenses	$	167,047	$	160,478	$	6,569			4.1	%		100.0	%

June YTD 2017 vs. June YTD 2016

Same Store Operating Expenses for 70,400 Same Store Apartment Units

$ in thousands

	Actual YTD 2017		Actual YTD 2016		$ Change			% Change			% of Actual YTD 2017 Operating Expenses

Real estate taxes	$	140,236	$	134,556	$	5,680			4.2	%		42.5	%
On-site payroll (1)		74,656		70,249		4,407			6.3	%		22.6	%
Utilities (2)		44,530		43,657		873			2.0	%		13.5	%
Repairs and maintenance (3)		41,735		40,338		1,397			3.5	%		12.6	%
Insurance		8,361		8,695		(334	)		(3.8	%)		2.5	%
Leasing and advertising		4,550		4,233		317			7.5	%		1.4	%
Other on-site operating expenses (4)		16,184		16,134		50			0.3	%		4.9	%

Same store operating expenses	$	330,252	$	317,862	$	12,390			3.9	%		100.0	%

(1)	On-site payroll - Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff.

(2)	Utilities - Represents gross expenses prior to any recoveries under the Resident Utility Billing System ("RUBS"). Recoveries are reflected in rental income.

(3)	Repairs and maintenance - Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair and maintenance costs.

(4)	Other on-site operating expenses - Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees.

Equity Residential

Debt Summary as of June 30, 2017

($ in thousands)

	Amounts (1)		% of Total			Weighted Average Rates (1)			Weighted Average Maturities (years)

Secured	$	3,743,363		41.8	%		4.38	%		5.9
Unsecured		5,220,726		58.2	%		4.28	%		8.9

Total	$	8,964,089		100.0	%		4.32	%		7.6
Fixed Rate Debt:
Secured – Conventional	$	3,108,842		34.7	%		4.96	%		4.4
Unsecured – Public		4,006,424		44.7	%		4.76	%		11.3

Fixed Rate Debt		7,115,266		79.4	%		4.85	%		8.3

Floating Rate Debt:
Secured – Conventional		7,045		0.1	%		0.87	%		16.4
Secured – Tax Exempt		627,476		7.0	%		1.43	%		12.5
Unsecured – Public (2)		449,941		5.0	%		1.69	%		2.0
Unsecured – Revolving Credit Facility (3)		265,000		2.9	%		2.00	%		4.5
Unsecured – Commercial Paper Program (4)		499,361		5.6	%		1.31	%		—

Floating Rate Debt		1,848,823		20.6	%		1.50	%		5.1

Total	$	8,964,089		100.0	%		4.32	%		7.6

(1)	Net of the effect of any derivative instruments. Weighted average rates are for the six months ended June 30, 2017.

(2)	Fair value interest rate swaps convert the $450.0 million 2.375% notes due July 1, 2019 to a floating interest rate of 90-Day LIBOR plus 0.61%.

(3)

The Company’s $2.0 billion unsecured revolving credit facility matures January 10, 2022. The interest rate on advances under the credit facility will generally be LIBOR plus a spread (currently 0.825%), or based on bids received from the lending group, and an annual facility fee (currently 12.5 basis points). Both the spread and the facility fee are dependent on the credit rating of the Company’s long-term debt. As of June 30, 2017, there was approximately $1.22 billion available on the Company’s unsecured revolving credit facility (net of $12.1 million which was restricted/dedicated to support letters of credit, net of $265.0 million outstanding on the revolving credit facility and net of $500.0 million in principal outstanding on the commercial paper program).

(4)

The Company may borrow up to a maximum of $500.0 million on the commercial paper program subject to market conditions. The notes bear interest at various floating rates with a weighted average of 1.31% for the six months ended June 30, 2017 and a weighted average maturity of 30 days as of June 30, 2017.

Note: The Company capitalized interest of approximately $16.6 million and $28.4 million during the six months ended June 30, 2017 and 2016, respectively. The Company capitalized interest of approximately $8.4 million and $14.2 million during the quarters ended June 30, 2017 and 2016, respectively.

Equity Residential

Debt Maturity Schedule as of June 30, 2017

($ in thousands)

Year	Fixed Rate (1)				Floating Rate (1)				Total			% of Total			Weighted Average Rates on Fixed Rate Debt (1)			Weighted Average Rates on Total Debt (1)

2017	$	197,531			$	500,100		(2)	$	697,631			7.7	%		7.11	%		3.11	%
2018		82,734				97,235				179,969			2.0	%		5.58	%		3.63	%
2019		506,731		(3)		471,427				978,158			10.8	%		5.17	%		3.51	%
2020		1,678,592		(4)		400				1,678,992			18.5	%		5.49	%		5.49	%
2021		927,506				300				927,806			10.2	%		4.64	%		4.64	%
2022		265,341				265,400		(5)		530,741			5.9	%		3.26	%		2.62	%
2023		1,326,800				4,700				1,331,500			14.7	%		3.74	%		3.73	%
2024		1,272				11,300				12,572			0.1	%		4.79	%		1.34	%
2025		451,334				13,800				465,134			5.1	%		3.38	%		3.31	%
2026		593,424				15,000				608,424			6.7	%		3.59	%		3.52	%
2027+		1,126,437				532,165				1,658,602			18.3	%		4.52	%		3.38	%
Subtotal		7,157,702				1,911,827				9,069,529			100.0	%		4.52	%		3.91	%
Deferred Financing Costs and Unamortized (Discount)		(42,436	)			(63,004	)			(105,440	)	N/A			N/A			N/A

Total	$	7,115,266			$	1,848,823			$	8,964,089			100.0	%		4.52	%		3.91	%

(1)	Net of the effect of any derivative instruments. Weighted average rates are as of June 30, 2017.

(2)	Includes $500.0 million in principal outstanding on the Company's commercial paper program.

(3)	Includes a $500.0 million 5.19% mortgage loan with a maturity date of October 1, 2019 that can be prepaid at par beginning October 1, 2018.

(4)	Includes a $550.0 million 6.08% mortgage loan with a maturity date of March 1, 2020 that can be prepaid at par beginning March 1, 2019. Also includes a $500.0 million 5.78% mortgage loan with a maturity date of July 1, 2020 that can be prepaid at par beginning July 1, 2019.

(5)	Includes $265.0 million outstanding on the Company’s unsecured revolving credit facility.

Equity Residential

Common Share and Unit

Weighted Average Amounts Outstanding

	YTD Q2 2017		YTD Q2 2016		Q2 2017		Q2 2016

Weighted Average Amounts Outstanding for Net Income Purposes:
Common Shares - basic		366,713,268		364,819,546		366,819,902		365,046,813
Shares issuable from assumed conversion/vesting of:
- OP Units		12,905,975		13,792,153		12,913,250		13,887,484
- long-term compensation shares/units		2,886,010		3,400,342		2,958,466		3,130,701

Total Common Shares and Units - diluted		382,505,253		382,012,041		382,691,618		382,064,998

Period Ending Amounts Outstanding:
Common Shares (includes Restricted Shares)		367,298,765		365,550,636
Units (includes OP Units and Restricted Units)		13,816,133		14,706,597

Total Shares and Units		381,114,898		380,257,233

Equity Residential

Partially Owned Entities as of June 30, 2017

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

	Consolidated			Unconsolidated

Total properties		17			2

Total apartment units		3,215			945

Operating information for the six months ended 6/30/17 (at 100%):
Operating revenue	$	46,278		$	15,888
Operating expenses		11,365			5,501

Net operating income		34,913			10,387
Property management		1,630			425
General and administrative/other		29			90
Depreciation		10,395			8,048

Operating income		22,859			1,824
Interest and other income		24			—
Interest:
Expense incurred, net		(6,638	)		(4,145	)
Amortization of deferred financing costs		(135	)		—

Income (loss) before income and other taxes and (loss) from investments in unconsolidated entities		16,110			(2,321	)
Income and other tax (expense) benefit		(34	)		(13	)
(Loss) from investments in unconsolidated entities		(761	)		—
Net income (loss)	$	15,315		$	(2,334	)


Debt - Secured (at 100%) (1)	$	301,728		$	145,424

(1)	All debt is non-recourse to the Company.

Equity Residential

Capital Expenditures to Real Estate

For the Six Months Ended June 30, 2017

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

			Capital Expenditures to Real Estate
	Total Apartment Units (1)		Replacements (2)		Avg. Per Apartment Unit		Building Improvements (3)		Avg. Per Apartment Unit		Total		Avg. Per Apartment Unit

Same Store Properties		70,400	$	40,233	$	572	$	46,477	$	660	$	86,710	$	1,232	(6)

Non-Same Store Properties (4)		5,689		922		170		1,286		237		2,208		407

Other (5)		—		129				250				379

Total		76,089	$	41,284			$	48,013			$	89,297

(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)

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 $22.0 million spent during the six months ended June 30, 2017 on apartment unit renovations/rehabs (primarily kitchens and baths) on approximately 1,650 same store apartment units (equating to approximately $13,300 per apartment unit rehabbed) designed to reposition these units for higher rental levels in their respective markets. During 2017, the Company expects to spend approximately $50.0 million for unit renovation/rehab costs on same store properties at an average cost of $11,000 per apartment unit rehabbed.

(3)	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.

(4)	Per apartment unit amounts are based on a weighted average of 5,421 apartment units.

(5)	Other - Primarily includes expenditures for properties sold and properties under development.

(6)

The Company estimates that during 2017 it will spend approximately $2,600 per apartment unit of capital expenditures, inclusive of apartment unit renovation/rehab costs, or $1,900 per apartment unit excluding apartment unit renovation/rehab costs. These estimates include approximately $17.0 million or approximately $250 per apartment unit of additional expenditures for resident focused renovation projects such as common areas and fitness centers in order to remain competitive with the new luxury supply being delivered in many of our markets.

Equity Residential

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

(Amounts in thousands except per apartment unit data)

These Selected Financial Results include 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.

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.

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.

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;

•

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.

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.

Equity Residential

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

(Amounts in thousands except per apartment unit data)

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.

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

The following tables present reconciliations of operating income per the consolidated statements of operations to NOI, along with rental income, operating expenses and NOI per the consolidated statements of operations allocated between same store and non-same store results (see page 6):

	Six Months Ended June 30,						Quarter Ended June 30,
	2017			2016			2017			2016
Operating income	$	414,921		$	422,643		$	210,550		$	206,018
Adjustments:
Fee and asset management revenue		(361	)		(3,133	)		(181	)		(215	)
Property management		43,841			44,486			21,589			20,991
General and administrative		27,799			35,013			13,626			18,296
Depreciation		358,864			349,012			179,896			176,127
Total NOI	$	845,064		$	848,021		$	425,480		$	421,217
Rental income:
Same store	$	1,118,370		$	1,092,822		$	571,362		$	559,564
Non-same store		97,849			118,282			40,937			35,375
Total rental income		1,216,219			1,211,104			612,299			594,939
Operating expenses:
Same store		330,252			317,862			167,047			160,478
Non-same store		40,903			45,221			19,772			13,244
Total operating expenses		371,155			363,083			186,819			173,722
NOI:
Same store		788,118			774,960			404,315			399,086
Non-same store		56,946			73,061			21,165			22,131
Total NOI	$	845,064		$	848,021		$	425,480		$	421,217

Non-Same Store Properties – For annual comparisons, primarily includes all properties acquired during 2016 and 2017, plus any properties in lease-up and not stabilized as of January 1, 2016.

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.


		14

Equity Residential

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

(Amounts in thousands except per apartment unit data)

Same Store Properties – For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2016, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.

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

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

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


		15

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