Exhibit 99.1

 

 

 

 

NEWS RELEASE - FOR IMMEDIATE RELEASE

 

JANUARY 30, 2018

 

Equity Residential Reports Full Year 2017 Results

Provides Outlook for 2018

 

Chicago, IL – January 30, 2018 - Equity Residential (NYSE: EQR) today reported results for the quarter and year ended December 31, 2017.  All per share results are reported as available to common shares/units on a diluted basis. Earnings per Share (EPS) was $0.34, Funds From Operations (FFO) was $0.82 per share and Normalized FFO was $0.83 per share for the fourth quarter of 2017, each as described in further detail below.

 

“A growing economy resulting in record low unemployment and rising wages combined with extremely favorable demographics continue to provide strong and steady demand for rental housing across our markets,” said David J. Neithercut, Equity Residential’s President and CEO. “In 2017, strong occupancy, record retention and favorable renewal pricing helped mitigate the impact of elevated levels of new supply driving growth in same store revenue, net operating income and Normalized FFO to the upper end of our original expectations.”

 

“While 2018 will see no letup in the demand for Equity Residential’s high quality rental housing, our markets will experience another year of elevated levels of new supply, reduced pricing power and slowing revenue growth,” Mr. Neithercut continued. “However, the outlook in our coastal markets with high cost of home ownership will soon improve significantly as new apartment supply reduces while favorable demographics, low unemployment and rising incomes continue to produce extraordinarily strong demand and excellent risk adjusted returns to our shareholders.”

 

Highlights  

 

 

 

 

 

Fourth Quarter 2017

EPS for the fourth quarter of 2017 was $0.34 compared to $0.75 in the fourth quarter of 2016.  The difference is due primarily to lower property sale gains in the fourth quarter of 2017, the various adjustment items listed on page 25 of this release and the items described below.

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FFO as defined by the National Association of Real Estate Investment Trusts (NAREIT) was $0.82 per share for the fourth quarter of 2017 compared to $0.80 per share in the fourth quarter of 2016.  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 fourth quarter of 2017 was $0.83 per share compared to $0.79 per share in the fourth quarter of 2016.  The difference is due primarily to:

 

 

 

 

The Company has a glossary of defined terms and related reconciliations of Non-GAAP financial measures on pages 27 through 30 of this release. 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.

 

Year Ended December 31, 2017

EPS for the year ended December 31, 2017 was $1.63 compared to $11.68 for the full year 2016.  The difference is due primarily to $10.16 per share in higher property sale gains as a result of the Company’s significant property sales activity in 2016, the various adjustment items listed on page 25 of this release and the items described below.  

 

FFO for the year ended December 31, 2017 was $3.15 per share compared to $2.94 per share for the full year 2016.  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 year ended December 31, 2017 was $3.13 per share compared to $3.09 per share for the full year 2016.  The difference is due primarily to:

 

 

 

 

 

 

Same Store Results

On a same store fourth quarter to fourth quarter comparison, which includes 72,529 apartment units, revenues increased 2.2%, expenses increased 2.5% and NOI increased 2.1%. Average Rental Rate increased 2.0% and Physical Occupancy remained flat at 96.0%.

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On a same store year to year comparison, which includes 70,117 apartment units, revenues increased 2.2%, expenses increased 2.7% and NOI increased 2.0%.  Average Rental Rate increased 2.3% and Physical Occupancy remained flat at 96.0%.

 

Investment Activity

The Company did not acquire any consolidated apartment properties during the fourth quarter of 2017. During the quarter, the Company sold one consolidated apartment property in southern New Jersey, consisting of 170 apartment units, for a sale price of approximately $35.3 million, at a Disposition Yield of 5.1%, generating an Unlevered IRR of 6.8%. Also during the quarter, the Company completed Cascade, a 477-unit apartment development project in Seattle, for a total cost of approximately $176.4 million and an anticipated Development Yield of 6.6%.

 

During the full year 2017, the Company acquired four consolidated apartment properties, consisting of 947 apartment units, for an aggregate purchase price of approximately $468.0 million at a weighted average Acquisition Capitalization Rate of 4.8%.  During the full year 2017, the Company sold five consolidated apartment properties, consisting of 1,194 apartment units, for an aggregate sale price of approximately $355.0 million, at a weighted average Disposition Yield of 5.1%, generating an Unlevered IRR of 12.4%.  During 2017, the Company also sold a land parcel located in New York City for a sale price of approximately $33.5 million. During 2017, the Company completed four new apartment development projects, consisting of 1,393 apartment units, at an aggregate total cost of approximately $584.2 million and an anticipated weighted average Development Yield of 6.0%.

 

First Quarter 2018 Guidance

The Company has established an EPS guidance range of $0.48 to $0.52 for the first quarter of 2018. The difference between the Company’s fourth quarter 2017 EPS of $0.34 and the midpoint of the first quarter 2018 guidance range of $0.50 is due primarily to higher expected gains on property sales and the items described below.

 

The Company has established an FFO guidance range of $0.69 to $0.73 per share for the first quarter of 2018.  The difference between the Company’s fourth quarter 2017 FFO of $0.82 per share and the midpoint of the first quarter 2018 guidance range of $0.71 per share is due primarily to higher expected debt extinguishment costs and the items described below.

 

The Company has established a Normalized FFO guidance range of $0.74 to $0.78 per share for the first quarter of 2018.  The difference between the Company’s fourth quarter 2017 Normalized FFO of $0.83 per share and the midpoint of the first quarter 2018 guidance range of $0.76 per share is due primarily to:

 

 

 

 

Full Year 2018 Guidance

The Company is providing guidance for its full year 2018 same store operating performance, EPS, FFO per share, Normalized FFO per share, transactions and debt offerings as listed below:

 

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The Company anticipates using the proceeds of any debt offerings to repay debt maturing in 2018 (excluding commercial paper) and to prepay a $550.0 million secured debt pool maturing in 2020 that the Company intends to call in 2018 and to prepay a $500.0 million secured debt pool that matures in 2019 but is pre-payable at par in late 2018 (see page 17 of this release for details).  The Company anticipates incurring approximately $23.7 million in debt extinguishment costs/prepayment penalties in connection with all of its debt repayment activities in 2018, which will not be included in the Company’s Normalized FFO.  

        

The Company has established an EPS guidance range of $1.71 to $1.81 for the full year 2018. The difference between the Company’s full year 2017 EPS of $1.63 and the midpoint of the full year 2018 guidance range of $1.76 is due primarily to higher expected gains on property sales, higher expected depreciation expense and the items described below.

 

The Company has established an FFO guidance range of $3.10 to $3.20 per share for the full year 2018.  The midpoint of the full year 2018 FFO guidance range of $3.15 per share is identical to the Company’s full year 2017 FFO of $3.15 per share with variances in line items due primarily to higher expected debt extinguishment costs, lower expected gains on sales of non-operating assets and the items described below.  

 

The Company has established a Normalized FFO guidance range of $3.17 to $3.27 per share for the full year 2018.  The difference between the Company’s full year 2017 Normalized FFO of $3.13 per share and the midpoint of the full year 2018 guidance range of $3.22 per share is due primarily to:

 

 

 

 

 

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2018 Dividends

The Company has decided that it will no longer determine its common share dividend as a fixed percentage of estimated Normalized FFO but will instead adopt a more conventional policy based on actual and projected financial conditions, the Company’s actual and projected liquidity and operating results, the Company’s projected cash needs for capital expenditures and other investment activities and such other factors as the Company’s Board of Trustees deems relevant.  The Company currently expects to declare a common share dividend for the first quarter of $0.54 per share, an annualized increase of 7.2% over the amount paid in 2017. This policy change is supported by the Company’s strong growth in property operations since the recent economic downturn and a significant reduction in its development activity resulting in a material increase in available cash flow.  The first quarter dividend and all future dividends remain subject to the discretion of the Company’s Board of Trustees.  

 

First Quarter 2018 Earnings and Conference Call

Equity Residential expects to announce its first quarter 2018 results on Tuesday, April 24, 2018 and host a conference call to discuss those results at 10:00 a.m. CT on Wednesday, April 25, 2018.

 

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 renters want to live, work and play.  Equity Residential owns or has investments in 305 properties consisting of 78,611 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, January 31, 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.

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Equity Residential

Consolidated Statements of Operations

(Amounts in thousands except per share data)

(Unaudited)

 

 

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Equity Residential

Consolidated Statements of Funds From Operations and Normalized Funds From Operations

(Amounts in thousands except per share data)

(Unaudited)

 

 

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.

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Equity Residential

Consolidated Balance Sheets

(Amounts in thousands except for share amounts)

(Unaudited)

 

 

 

 

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Note:  Projects under development are not included in the Portfolio Summary until construction has been completed.

 

 

 

 

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Portfolio as of December 31, 2017

 

 

 

 

Portfolio Rollforward Q4 2017

($ in thousands)

 

 

 

 

Portfolio Rollforward 2017

($ in thousands)

 

 

 

 

 

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Fourth Quarter 2017 vs. Fourth Quarter 2016

Same Store Results/Statistics for 72,529 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 

 

 

 

Fourth Quarter 2017 vs. Third Quarter 2017

Same Store Results/Statistics for 73,822 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 

 

 

2017 vs. 2016

Same Store Results/Statistics for 70,117 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 

 

 

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 29 for reconciliations from operating income.

 

 

 

 

 

 

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Fourth Quarter 2017 vs. Fourth Quarter 2016

Same Store Operating Expenses for 72,529 Same Store Apartment Units

$ in thousands

 

 

 

 

2017 vs. 2016

Same Store Operating Expenses for 70,117 Same Store Apartment Units

$ in thousands

 

 

 

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Debt Summary as of December 31, 2017

($ in thousands)

 

 

Note: The Company capitalized interest of approximately $26.3 million and $51.5 million during the years ended December 31, 2017 and 2016, respectively.  The Company capitalized interest of approximately $3.1 million and $9.8 million during the quarters ended December 31, 2017 and 2016, respectively.

 

 

 

 

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Debt Maturity Schedule as of December 31, 2017

($ in thousands)

 

 

 

 

 

 

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Selected Unsecured Public Debt Covenants

 

 

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

 

 

Note: See page 24 for the Normalized EBITDA reconciliations.

 

 

 

 

 

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Capital Structure as of December 31, 2017

(Amounts in thousands except for share/unit and per share amounts)

 

 

 

 

 

Perpetual Preferred Equity as of December 31, 2017

(Amounts in thousands except for share and per share amounts)

 

 

 

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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.

 

 

 

 

 

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Note: See pages 27 through 30 for the definitions of non-GAAP financial measures and other terms.

 

 

 

 

 

 

 

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Normalized EBITDA Reconciliations for Page 18

 

 

 

 

 

 

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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.

 

 

 

 

 

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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 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.

2018 Normalized FFO Guidance (per share diluted)

 

2018 Same Store Assumptions

 

 

Note:  Approximately 25 basis point change in NOI percentage = $0.01 per share change in EPS/FFO per share/Normalized FFO per share.

2018 Transaction Assumptions

 

 

2018 Debt Assumptions

 

 

Note: All 2018 debt assumptions are shown on a Normalized FFO basis and therefore exclude an approximately $23.7 million impact from anticipated debt extinguishment costs/prepayment penalties described on page 4.

2018 Capital Expenditures to Real Estate Assumptions

 

Note:  During 2018, the Company expects to spend approximately $60.0 million for apartment unit Renovation Expenditures on approximately 4,500 same store apartment units at an average cost of approximately $13,300 per apartment unit renovated.

2018 Other Guidance Assumptions

 

 

 

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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 reflected on a straight-line basis in accordance with GAAP divided by the weighted average occupied apartment units for the reporting period presented.

Capital Expenditures to Real Estate:

Building Improvements – Includes roof replacement, paving, building mechanical equipment systems, exterior siding and painting, major landscaping, furniture, fixtures and equipment for amenities and common areas, vehicles and office and maintenance equipment.

Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets.

Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting).

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).

Development Yield – NOI that the Company anticipates receiving in the next 12 months following stabilization 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 $50-$150 per apartment unit depending on the type of asset) divided by the Total Budgeted Capital Cost of the asset.  The weighted average Development Yield for development properties is weighted based on the projected NOI streams and the relative Total Budgeted Capital Cost 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.  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 (loss) 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 (loss) 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 net gain (loss) on sales of real estate properties in accordance with GAAP to Economic Gain:

 

 

 

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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:

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.  

 

 

 

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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):

 

 

Lease-Up NOI – Represents NOI for development properties: (i) in various stages of lease-up; and (ii) where lease-up has been completed but the properties were not stabilized (defined as having achieved 90% occupancy for three consecutive months) for all of the current and comparable periods presented.

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/other results (see page 11):

 

 

 

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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.

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, 2016, 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 2018 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 Budgeted 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 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.