The 2019 notes were issued at 99.900% of par value to yield 2.396% or 70 basis points over the benchmark rate, and the 2044 notes were issued at 99.297% of par value to yield 4.543% or 115 basis points over the benchmark rate. EQR expects to use the net proceeds of this offering for working capital and general company purposes, including repayment of all or a portion of the outstanding balance under its unsecured revolving credit facility and all or a portion of the outstanding balance under its unsecured term loan facility.
Fitch currently rates EQR as follows:
--Issuer Default Rating (IDR) 'BBB+';
--Unsecured revolving term loan 'BBB+';
--Preferred stock 'BBB-'.
--Unsecured revolving credit facility 'BBB+';
--Senior unsecured notes 'BBB+'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
EQR's rating is supported by the company's focus on high-quality properties in strong markets and sound financial management. The company is the largest multifamily REIT in the U.S. by market capitalization and is a leading owner/operator in many of the top markets in the U.S. including
The company's ratings are further supported by its strong access to capital which has been demonstrated in multiple forms throughout various market cycles. In 2013, EQR greatly improved the quality of its portfolio by acquiring
CREDIT METRICS NORMALIZED
EQR's leverage was temporarily elevated as a result of funding the
EQR's fixed-charge coverage for the trailing 12 months (TTM) ended
EQR closed on the acquisition of
Dispositions were focused on non-core markets including
POSITIVE SAME-STORE RESULTS
SSNOI growth remains strong relative to historical performance, although it has been decelerating. EQR's SSNOI growth was 7.6% in 2012, 5% in 2013 and 4.4% in 1Q'14. Fitch anticipates that fundamentals will remain solid, but continue to decelerate towards the longer term historical average of 2% to 3% SSNOI growth. Fitch expects occupancy to remain in the 95%-96% range as the company continues its focus on utilizing its industry-leading operational platform and technology to optimize NOI.
UPTICK IN DEVELOPMENT
EQR acquired several strong development sites through the
APPROPRIATE CONTINGENT LIQUIDITY
EQR's unencumbered cash NOI stressed at a 7% capitalization rate covered its net unsecured debt by approximately 2.8x as of
ADEQUATE LIQUIDITY; SUPPORTED BY CAPITAL ACCESS
Fitch calculates that EQR's sources of liquidity (unrestricted cash, availability under its unsecured revolving credit facility, expected retained cash flows from operating activities after dividends and distributions) divided by uses of liquidity (debt maturities, developments and recurring capital expenditures) results in a liquidity coverage ratio of 1.3x for the period
Assuming EQR refinances 80% of its maturing secured debt liquidity coverage would be 1.4x. Fitch notes EQR's demonstrated access to a variety of capital channels including public unsecured debt, bank facilities, life insurance company mortgage debt, agency-mortgage debt and equity, which mitigates refinance risk.
AFFO PAYOUT RATIO POLICY REVISED
EQR's annual dividend is based on 65% of the midpoint range of normalized funds from operations (FFO) guidance. Prior to 2014, EQR had a policy in place in which the company made three fixed dividend payments during the first three quarters and one variable dividend payment in the fourth quarter. Under the prior policy, the annual payout was also targeted to equal 65% of normalized FFO. Fitch-calculated adjusted funds from operations (AFFO) payout ratio was 70% over the TTM ended
PREFERRED UNIT NOTCHING
The two-notch differential between EQR's IDR and preferred stock rating is consistent with Fitch's criteria for corporate entities with an IDR of 'BBB+'. Based on
The Stable Outlook reflects Fitch's expectation that multifamily operating fundamentals will continue to revert toward its long-term average. The company's leverage should remain approximately at current levels in the short term, and range between 6.5x and 7.5x over the longer term due to the timing of developments. In addition, EQR has good access to capital, and should be able to refinance maturing obligations due to strong coverage ratios.
The following factors may have a positive impact on EQR's ratings or Outlook:
--Fitch's expectation of leverage sustaining below 7.0x (leverage was 6.8x for the TTM ended
--Fitch's expectation of fixed charge coverage sustaining above 2.5x (coverage was 2.7x for the TTM ended
--Unencumbered asset coverage of net unsecured debt sustaining above 2.5x (pro forma coverage as of
The following factors may have a negative impact on EQR's ratings or Outlook:
--Fitch's expectation of leverage sustaining above 8.0x;
--Fitch's expectation of fixed charge coverage sustaining below 2.0x;
--A liquidity coverage ratio sustaining below 1.0x.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
--'Rating U.S. Equity REITs and REOCs (Sector Credit Factors)' (
--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' (
--'Recovery Ratings and Notching Criteria for Equity REITs' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Criteria for Rating U.S. Equity REITs and REOCs
Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis
Recovery Ratings and Notching Criteria for Equity REITs
Source: Fitch Ratings
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