Equity Residential Cuts Development To Buoy Up Liquidity

Source: Equity Residential

Chicago-based Equity Residential has announced that it will scrap plans for five development projects and as such will incur a non-cash charge in the fourth quarter of 2008 of approximately $115 million, or $0.39 per share.

The charge reflects impairments in the value of land holdings for five potential development projects that the company no longer plans to pursue. The impairment charge is the difference between each parcel's estimated fair value and current capitalized carrying value, which includes pursuit costs. The impairment charge does not affect the company's continued compliance with its financial or debt covenants.

"We have said for some time that maintaining ample liquidity and credit capacity are our foremost priorities and as a result we would be very cautious regarding new development projects," said David J. Neithercut, Equity Residential's President and CEO. "Our decision to take these charges is a result of our annual review of the company's investment activities and operating strategy in light of current and anticipated conditions in the economy and capital and real estate markets. Our view on development was solidified by the significant acceleration last fall in the deterioration in the credit markets and economy as a whole. While development of high quality assets in our core markets will continue to be an important part of Equity Residential's growth, we will not start any new projects for our own account until capital markets and the economy show signs of improvement."

The company has already reduced its development staff and says it will continue to make adjustments as conditions warrant. After this charge, the company will have land held for development of approximately $250 million, representing approximately 1.5% of the company's total assets. Equity Residential currently has 10 apartment properties under construction which are not impacted by these actions. Equity plans to complete the construction and lease-up of these communities as planned, with amounts remaining to fund current construction activities totaling approximately $623 million, of which $418 million of these fundings will come from existing construction loans and the remaining $205 million will be funded from the company's capital. Equity currently has approximately $1 billion of unrestricted cash and approximately $1.33 billion available on its unsecured revolving credit facility.