Equity Residential (NYSE:EQR) Q4 2017 Earnings Conference Call - Final Transcript

Jan 31, 2018 • 11:00 am ET


Equity Residential (NYSE:EQR) Q4 2017 Earnings Conference Call - Final Transcript


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David J. Neithercut

And we closed on $468 million for the full year at a weighted average cap rate of 4.8%. Consistent with last year, we begin 2018 with an expectation for transaction activity of $500 million of acquisitions funded with $500 million of proceeds from dispositions. And like a year ago, we will only conduct this activity if it can be accomplished with the limited initial dilution and result in higher long-term total returns.

Now turning to development, it is becoming more and more difficult as land prices remain strong and the growth in construction costs continues to outpace rent growth significantly reducing development yields in all markets. Nevertheless development capital appears to still be available and around of abundant supply for the right sponsors with the right deals.

For the rest of them it appears that putting together a capital stack is becoming harder and harder. Our construction financing does remain available, but at lower advance rates and wider spreads, while requiring more capital support. To us, this all adds up to fewer starts and hence fewer deliveries in the very near future.

Now development remains a core competency at Equity Residential and we have development expertise in each of our markets that continue to underwrite new development opportunities for consideration. But the fact of the matter is that we have not acquired a land parcel for development since 2015 when we assembled the site for 238 units in downtown San Francisco.

Since then we've seen construction cost continue to escalate and revenue growth slow, resulting in development yield have forced us to the sidelines in taking down new land parcels. In the meantime, we've continue to work diligently to create value in our existing land inventory.

During the year we completed $584 million of development projects at a weighted average yield of 6%, which represents a 175 to 200 basis points premium to cap rates in today's marketplace. In 2017, we also started two development projects totaling $114 million where we are targeting 5% to 5.5% returns on cost, representing 75 to 150 basis points cap rate premiums.

Now at the present time, we have four development sites remaining in inventory, representing about $1 billion of total development cost and we currently expect to start the largest of these sometime this summer, because after nearly 10 years of extraordinarily hard work the team has all the necessary approvals to soon begin construction of a new tower on the site of our 50 year old parking garage located directly across the street from Boston's north station and the TD Boston Garden.

At 44 Floors this 469 unit property will be Boston's tallest apartment tower, the fantastic views and located in exciting and growing Boston neighborhood. As I said, we expect to begin demolition of a garage sometime this summer and deliver the tower in late 2021 at a cost of $410 million, our current underwriting point to a stabilized yield in the low sixes. Now before we open the call to