Apartment REIT Equity Residential is putting the brakes on new developments as construction labor costs escalate, executives said on the firm's fourth-quarter earnings call.
"Clearly, we have throttled back our development activity in the face of rising land and construction costs and declining yields," said David J. Neithercut, Equity Residential’s President and CEO, on the firm's earnings call.
"At the present time, we have two potential development starts this year, totaling only $100 million. Beyond that, we will continue to work on several existing operating assets where we hope to upsize our density in order to build additional units." The company also plans to spend $60 million to buy two land parcels for possible future development, he added.
Last year, Equity Residential completed five new developments, totaling $1.1 billion of project costs. This year, it will finish off nearly $900 million of additional new developments. But that’s where the party ends. By 2018, the firm will complete just one development project, and have only one more underway.
In 2017, the company will focus on upgrading existing properties and adding sustainability upgrades that will save money in the long run, according to management. These activities will include spending $17 million more than in 2016 to freshen up common areas, leasing offices and exercise rooms to stay competitive with newer rival properties. The firm will also spend $50 million to make kitchens and bathrooms in its units more sustainable. Its total renovation expense for 2017 is expected to be $2,600 per same-property unit.
The company generated same store revenue growth of 3.7% in 2016 as compared to 2015. On a same-store fourth quarter to fourth quarter comparison, which includes 70,881 apartment units, revenues increased 2.9%, expenses increased 5.6% and NOI increased 1.9%.
Average Rental Rate increased 3.0% and occupancy decreased 0.1%.On a same store year to year comparison, which includes 69,879 apartment units, revenues increased 3.7%, expenses increased 3.3% and NOI increased 3.9%. Average Rental Rate increased 3.7% and occupancy decreased 0.1%.