All things begin equal, Equity Residential is one of the largest apartment owners in the US. The company acquires, develops, and manages multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to residents. A real estate investment trust (REIT), the company wholly owns about 400 garden-style, high-rise, and mid-rise multifamily communities with some 110,000 units in large metropolitan areas. Equity Residential also owns two military housing complexes and partially owns about two dozen other apartment properties totaling around an additional 10,000 units. Its properties are spread across 12 states and Washington, DC.
Equity Residential generates most of its revenue from rental income. It's reported through four segments based on geographic region. They include Northeast (its largest segment), Northwest, Southeast, and Southwest.
The REIT owned 391 properties with nearly 110,000 apartment units at the end of 2014, with more than half of those units being in garden-style complexes, and more than 40% of units being in mid- or high-rise buildings. The rest of the units were located on two military housing properties.
Based in Chicago, Equity Residential strategically operates property management offices in each of its nearly 20 markets. Equity Residential's core markets are Boston, New York, Los Angeles, San Francisco, Seattle, and Washington, DC.
Sales and Marketing
Equity Residential focuses on growth regions throughout the US that have higher-than-average single-family home prices, employment growth, and high standards of living -- all traits found in the company's six core markets.
Equity Residential's revenues and profits have trended higher over the past few years as it has expanded its property portfolio and has charged higher rental rates as the economy has strengthened.
The REIT's revenue jumped by nearly 10% to a record $2.61 billion in 2014 thanks to higher rental income as a result of an increase in average rental rates charged to residents, slightly higher occupancy and a decrease in turnover, and also due to $101.6 million increase in non-same store property rents, as well as from recently completed development properties.
Despite higher revenue in 2014, Equity Residential's net income dove 65% to $658.7 million (its lowest profit since before 2011), mostly as it didn't sell as much of its property as compared to recent years; it sold $467 million worth of apartment units in 2014, versus $4.5 billion in 2013. The REIT's operating cash spiked by 52% to $1.3 billion, as more of its earnings were cash-based than the year before.
Equity Residential has repositioned its portfolio from low barrier to entry/non-core markets to high barrier to entry/core markets in recent years. The company has sold more than 166,000 apartment units since 2005 primarily in its non-core markets for an aggregate sales price of approximately $16.1 billion, and has acquired 67,000-plus apartment units in its core markets for about $19 billion. Additionally, the company has some $3.1 billion worth of projects under development in its pipeline, with about $1.2 billion in starts during 2014 alone (a "high water mark" for the company) driven by valuable and unique land sites that it bought in San Francisco and Seattle that the company expects to "create value for decades."
The REIT is banking on the coming-of-age "Echo Boom" generation (also known as Gen Y or Millennials) -- the children of Baby Boomers -- for whom it believes home ownership is no longer an integral part of the American dream. Echo Boomers typically are more likely to rent than own a home and be renters for longer than previous generations. Members of this generation also value the ability to walk to work, restaurants, coffee shops, public transportation, and parks. Multifamily housing often caters to those needs.
Equity Residential looks to acquire and develop assets in Boston, New York, Southern California, San Francisco, Seattle, and Washington, DC, while it exits Atlanta, Phoenix, Orlando, and Jacksonville. As part of its strategy, Equity Residential purchases completed and fully occupied apartment properties, as well as partially completed or partially occupied properties or land on which it can construct apartment properties.
The company has also been exiting markets to free up resources for more investment in its core markets. During 2014, for example, it continued to sell off its properties in Phoenix and Orlando. In 2013, the company sold a portfolio of assets to a joint venture of the Real Estate Principal Investment Area of Goldman, Sachs & Co. and Greystar Real Estate Partners LLC for $1.5 billion. The transaction, which valued the 27 properties at approximately $187,000 per apartment unit and a capitalization rate in the mid to high 5% range. As part of the deal, Equity Residential made significant progress selling assets in its exit markets and non-core assets in primary markets to fund its share of the acquisition of Archstone.
Mergers and Acquisitions
AvalonBay Communities and Equity Residential completed their $16 billion acquisition of Archstone Enterprise LP from Lehman Brothers Holdings Inc. in 2013. As part of the partnership, AvalonBay gets 40% of Archstone's properties, which equates to 60 apartment communities, including thousands of apartment units in the Washington region. Equity Residential got the remaining 60%, or 78 properties.