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Despite revenue pullback and choppy NYC, Equity Residential expects strong 2016


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Despite revenue pullback and choppy NYC, Equity Residential expects strong 2016

Despitelowered expectations for revenue in 2016 and trouble in the New York apartment market,Equity Residential is stillpredicting a strong year, executives said in an April 27 earnings conference call.

The company'sstock traded down more than 3% in the day's early hours, after President and CEODavid Neithercut saidin an earnings release that a return to normal trends, after an unusually strong2015, was causing a modest pullback in the midpoint of the company's predicted same-storerevenue range. The change did not affect the company's full-year normalized FFOguidance.

In thecall, Neithercut said the company nevertheless expects "another very strongyear of revenue growth," citing strong demand for rental housing in high-densitylocations in and around large coastal cities.

COO DavidSantee said 2016 "is shaping up to be another one of the best years we havehad," adding:  "Instead of havinga spectacular year like 2015, we will have a great year that is still well abovehistorical long-term trends."

Still,some analysts and other observers believe Equity Residential was essentially callingan apartment-market peak when it sold$5.37 billion in assets to affiliates of Starwood Capital Group in a deal that closedin January. Company executives dispute that interpretation.

"Wereally just expected 2016 to mirror 2015, and I would say, in hindsight, 2015 wasan anomaly year in the 30 years that I personally have been doing this," Santeesaid, citing continued high occupancies in the fourth quarter, when occupanciesusually decline.

In NewYork, "there's some crazy stuff going on," Santee said, including a glutof luxury condominiums that has put pressure on the rental market.

"Ithink the challenge inNew York is the disparity between the luxury apartments that have been deliveredand will be delivered, versus the mix of the quality of jobs that are being deliveredin New York City," he added. "A lot of tech jobs, a lot of marketing jobs,probably in the $90,000 to $100,000 range, but it takes $130,000 a year in New YorkCity to afford a one-bedroom apartment."

Thoughthere are signs that the city is turning positively for landlords once again, witha fall-off in new leasing concessions, rents there remain under pressure, whichaffects the company as a whole, Santee said.

"NewYork is roughly 20% of our revenue," he said. "If you can't achieve 3%or 4% rate growth there, then it's going to impact your full-year growth."

In responseto analysts' questions about the company's share-price discount to NAV, Neithercutsaid "all options are on the table," including share repurchases — thoughit is too late to reverse a planned special dividend related to the asset salesand pursue buybacks instead.

"Ithink our actions with the special dividend suggest that we try and do what's rightby our shareholders, and if doing a stock buyback makes sense, and we are able todo that on a balance sheet-neutral basis, we'll certainly consider that going forward,"he said.

Still,he said the muted revenue guidance should be viewed in perspective.

"We'restill within our range," Neithercut said. "We had, within our range forthis year, the possibility and the potential that the 2016 occupancy curve wouldlook like 2015. And it's not.  But we're stillwithin our range, and the change in this guidance is just 10-plus, 20 basis points,and it's still delivering what is, on a historical basis, extraordinarily good results."