UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 |
For the quarterly period ended September 30, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
For the transition period from to
Commission File Number: 1-12252 (Equity Residential)
Commission File Number: 0-24920 (ERP Operating Limited Partnership)
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland (Equity Residential) |
| 13-3675988 (Equity Residential) |
Illinois (ERP Operating Limited Partnership) |
| 36-3894853 (ERP Operating Limited Partnership) |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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Two North Riverside Plaza, Chicago, Illinois 60606 |
| (312) 474-1300 |
(Address of principal executive offices) (Zip Code) |
| ( |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Shares of Beneficial Interest, | EQR | New York Stock Exchange | ||
7.57% Notes due August 15, 2026 | N/A | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Equity Residential Yes ☒ No ☐ | ERP Operating Limited Partnership Yes ☒ No ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Equity Residential Yes ☒ No ☐ | ERP Operating Limited Partnership Yes ☒ No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Equity Residential:
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
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Non-accelerated filer |
| ☐ |
| Small reporting company |
| ☐ |
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Emerging growth company |
| ☐ |
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ERP Operating Limited Partnership:
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
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Non-accelerated filer |
| ☒ |
| Small reporting company |
| ☐ |
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Emerging growth company |
| ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Equity Residential ☐ | ERP Operating Limited Partnership ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Equity Residential Yes ☐ No ☒ | ERP Operating Limited Partnership Yes ☐ No ☒ |
The number of EQR Common Shares of Beneficial Interest, $0.01 par value, outstanding on October 27, 2017July 28, 2020 was 367,484,786.372,210,138.
This report combines the reports on Form 10-Q for the quarterly period ended SeptemberJune 30, 20172020 of Equity Residential and ERP Operating Limited Partnership. Unless stated otherwise or the context otherwise requires, references to “EQR” mean Equity Residential, a Maryland real estate investment trust (“REIT”), and references to “ERPOP” mean ERP Operating Limited Partnership, an Illinois limited partnership. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP. The following chart illustrates the Company'sCompany’s and the Operating Partnership'sPartnership’s corporate structure:
EQR is the general partner of, and as of SeptemberJune 30, 20172020 owned an approximate 96.4% ownership interest in, ERPOP. The remaining 3.6% interest is owned by limited partners. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP'sERPOP’s day-to-day management. Management operates the Company and the Operating Partnership as one business. The management of EQR consists of the same members as the management of ERPOP.
The Company is structured as an umbrella partnership REIT (“UPREIT”) and EQR contributes all net proceeds from its various equity offerings to ERPOP. In return for those contributions, EQR receives a number of OP Units (see definition below) in ERPOP equal to the number of Common Shares it has issued in the equity offering. The Company may acquire properties in transactions that include the issuance of OP Units as consideration for the acquired properties. Such transactions may, in certain circumstances, enable the sellers to defer in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales. This is one of the reasons why the Company is structured in the manner shown above. Based on the terms of ERPOP'sERPOP’s partnership agreement, OP Units can be exchanged with Common Shares on a one-for-one basis because the Company maintains a one-for-one relationship between the OP Units of ERPOP issued to EQR and the outstanding Common Shares.
The Company believes that combining the reports on Form 10-Q of EQR and ERPOP into this single report provides the following benefits:
enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
• | enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business; |
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
• | eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and |
• | creates time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
The Company believes it is important to understand the few differences between EQR and ERPOP in the context of how EQR and ERPOP operate as a consolidated company. All of the Company'sCompany’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR'sEQR’s primary function is acting as the general partner of ERPOP. EQR also issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, and guarantees certain debt of ERPOP, as disclosed in this report.ERPOP. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company'sCompany’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from
equity offerings by EQR which(which are contributed to the capital of ERPOP in exchange for additional partnership interests in ERPOP (“OP Units”) (on a one-for-one Common Share per OP Unit basis) or additional preference units in ERPOP (on a one-for-one preferred share per preference unit basis)), the Operating Partnership generates all remaining capital required by the Company'sCompany’s business. These sources include the Operating Partnership'sPartnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility and/or commercial paper program, the issuance of secured and unsecured debt and equity securitiespartnership interests, and proceeds received from disposition of certain properties and joint venture interests.
Shareholders'Shareholders’ equity, partners'partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners'partners’ capital in the Operating Partnership'sPartnership’s financial statements and as noncontrolling interests in the Company'sCompany’s financial statements. The noncontrolling interests in the Operating Partnership'sPartnership’s financial statements include the interests of unaffiliated partners in various consolidated partnerships. The noncontrolling interests in the Company'sCompany’s financial statements include the same noncontrolling interests at the Operating Partnership level and limited partner OP Unit holders of the Operating Partnership. The differences between shareholders'shareholders’ equity and partners'partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.
To help investors understand the differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity'sentity’s debt, noncontrolling interests and shareholders'shareholders’ equity or partners'partners’ capital, as applicable; and a combined Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.
This report also includes separate Part I, Item 4. 4, Controls and Procedures, sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership.
As general partner with control of ERPOP, EQR consolidates ERPOP for financial reporting purposes, and EQR essentially has no assets or liabilities other than its investment in ERPOP. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
(Amounts in thousands except for share amounts)
(Unaudited)
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| September 30, |
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| December 31, |
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| June 30, |
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| December 31, |
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| 2017 |
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| 2016 |
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| 2020 |
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| 2019 |
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ASSETS |
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Investment in real estate |
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Land |
| $ | 5,985,004 |
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| $ | 5,899,862 |
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| $ | 5,789,307 |
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| $ | 5,936,188 |
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Depreciable property |
|
| 19,571,402 |
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| 18,730,579 |
|
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| 20,997,903 |
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| 21,319,101 |
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Projects under development |
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| 293,064 |
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| 637,168 |
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| 274,825 |
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| 181,630 |
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Land held for development |
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| 99,073 |
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| 118,816 |
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| 102,361 |
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| 96,688 |
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Investment in real estate |
|
| 25,948,543 |
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| 25,386,425 |
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| 27,164,396 |
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| 27,533,607 |
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Accumulated depreciation |
|
| (5,849,110 | ) |
|
| (5,360,389 | ) |
|
| (7,537,713 | ) |
|
| (7,276,786 | ) |
Investment in real estate, net |
|
| 20,099,433 |
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| 20,026,036 |
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| 19,626,683 |
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| 20,256,821 |
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Investments in unconsolidated entities |
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| 55,310 |
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| 52,238 |
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Cash and cash equivalents |
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| 46,565 |
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| 77,207 |
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| 187,416 |
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| 45,753 |
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Investments in unconsolidated entities |
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| 59,029 |
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| 60,141 |
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Deposits – restricted |
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| 36,639 |
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| 76,946 |
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Escrow deposits – mortgage |
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| 10,972 |
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| 64,935 |
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Restricted deposits |
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| 58,117 |
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| 71,246 |
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Right-of-use assets |
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| 505,077 |
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| 512,774 |
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Other assets |
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| 445,195 |
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| 398,883 |
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| 282,348 |
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| 233,937 |
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Total assets |
| $ | 20,697,833 |
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| $ | 20,704,148 |
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| $ | 20,714,951 |
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| $ | 21,172,769 |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Mortgage notes payable, net |
| $ | 3,619,180 |
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| $ | 4,119,181 |
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| $ | 2,340,757 |
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| $ | 1,941,610 |
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Notes, net |
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| 5,143,248 |
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| 4,848,079 |
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| 6,081,102 |
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| 6,077,513 |
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Line of credit and commercial paper |
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| 229,844 |
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| 19,998 |
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|
| — |
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| 1,017,833 |
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Accounts payable and accrued expenses |
|
| 167,984 |
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| 147,482 |
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| 109,776 |
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| 94,350 |
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Accrued interest payable |
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| 72,811 |
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| 60,946 |
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| 67,589 |
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| 66,852 |
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Lease liabilities |
|
| 330,135 |
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| 331,334 |
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Other liabilities |
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| 332,650 |
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| 350,466 |
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| 315,208 |
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|
| 346,963 |
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Security deposits |
|
| 65,230 |
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|
| 62,624 |
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|
| 64,005 |
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| 70,062 |
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Distributions payable |
|
| 192,569 |
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| 192,296 |
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|
| 232,208 |
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|
| 218,326 |
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Total liabilities |
|
| 9,823,516 |
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|
| 9,801,072 |
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| 9,540,780 |
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| 10,164,843 |
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Commitments and contingencies |
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Redeemable Noncontrolling Interests – Operating Partnership |
|
| 380,541 |
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| 442,092 |
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| 336,695 |
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| 463,400 |
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Equity: |
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Shareholders' equity: |
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Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 745,600 shares issued and outstanding as of September 30, 2017 and December 31, 2016 |
|
| 37,280 |
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|
| 37,280 |
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Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 367,462,480 shares issued and outstanding as of September 30, 2017 and 365,870,924 shares issued and outstanding as of December 31, 2016 |
|
| 3,675 |
|
|
| 3,659 |
| ||||||||
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 745,600 shares issued and outstanding as of June 30, 2020 and December 31, 2019 |
|
| 37,280 |
|
|
| 37,280 |
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Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 372,209,012 shares issued and outstanding as of June 30, 2020 and 371,670,884 shares issued and outstanding as of December 31, 2019 |
|
| 3,722 |
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|
| 3,717 |
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Paid in capital |
|
| 8,848,739 |
|
|
| 8,758,422 |
|
|
| 9,118,332 |
|
|
| 8,965,577 |
|
Retained earnings |
|
| 1,464,249 |
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|
| 1,543,626 |
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|
| 1,505,694 |
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|
| 1,386,495 |
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Accumulated other comprehensive (loss) |
|
| (94,674 | ) |
|
| (113,909 | ) | ||||||||
Accumulated other comprehensive income (loss) |
|
| (67,355 | ) |
|
| (77,563 | ) | ||||||||
Total shareholders’ equity |
|
| 10,259,269 |
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| 10,229,078 |
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| 10,597,673 |
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| 10,315,506 |
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Noncontrolling Interests: |
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Operating Partnership |
|
| 228,332 |
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| 221,297 |
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| 235,169 |
|
|
| 227,837 |
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Partially Owned Properties |
|
| 6,175 |
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|
| 10,609 |
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|
| 4,634 |
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|
| 1,183 |
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Total Noncontrolling Interests |
|
| 234,507 |
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|
| 231,906 |
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|
| 239,803 |
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|
| 229,020 |
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Total equity |
|
| 10,493,776 |
|
|
| 10,460,984 |
|
|
| 10,837,476 |
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|
| 10,544,526 |
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Total liabilities and equity |
| $ | 20,697,833 |
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| $ | 20,704,148 |
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| $ | 20,714,951 |
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| $ | 21,172,769 |
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See accompanying notes
2
EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per share data)
(Unaudited)
|
| Nine Months Ended September 30, |
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| Quarter Ended September 30, |
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| Six Months Ended June 30, |
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| Quarter Ended June 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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REVENUES |
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Rental income |
| $ | 1,840,170 |
|
| $ | 1,816,960 |
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| $ | 623,951 |
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| $ | 605,856 |
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| $ | 1,335,837 |
|
| $ | 1,331,676 |
|
| $ | 653,532 |
|
| $ | 669,374 |
|
Fee and asset management |
|
| 532 |
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|
| 3,351 |
|
|
| 171 |
|
|
| 218 |
| ||||||||||||||||
Total revenues |
|
| 1,840,702 |
|
|
| 1,820,311 |
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|
| 624,122 |
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|
| 606,074 |
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EXPENSES |
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|
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Property and maintenance |
|
| 306,645 |
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|
| 309,688 |
|
|
| 104,721 |
|
|
| 104,216 |
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|
| 220,268 |
|
|
| 223,531 |
|
|
| 104,452 |
|
|
| 108,461 |
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Real estate taxes and insurance |
|
| 253,318 |
|
|
| 238,954 |
|
|
| 84,087 |
|
|
| 81,343 |
|
|
| 192,770 |
|
|
| 182,888 |
|
|
| 95,038 |
|
|
| 91,446 |
|
Property management |
|
| 64,702 |
|
|
| 64,003 |
|
|
| 20,861 |
|
|
| 19,517 |
|
|
| 51,317 |
|
|
| 50,765 |
|
|
| 23,608 |
|
|
| 24,369 |
|
General and administrative |
|
| 40,366 |
|
|
| 47,408 |
|
|
| 12,567 |
|
|
| 12,395 |
|
|
| 26,353 |
|
|
| 29,710 |
|
|
| 11,835 |
|
|
| 14,329 |
|
Depreciation |
|
| 542,964 |
|
|
| 528,242 |
|
|
| 184,100 |
|
|
| 179,230 |
|
|
| 418,398 |
|
|
| 404,723 |
|
|
| 205,976 |
|
|
| 200,508 |
|
Total expenses |
|
| 1,207,995 |
|
|
| 1,188,295 |
|
|
| 406,336 |
|
|
| 396,701 |
|
|
| 909,106 |
|
|
| 891,617 |
|
|
| 440,909 |
|
|
| 439,113 |
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net gain (loss) on sales of real estate properties |
|
| 352,243 |
|
|
| 138,835 |
|
|
| 144,266 |
|
|
| 138,856 |
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|
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| ||||||||||||||||
Operating income |
|
| 632,707 |
|
|
| 632,016 |
|
|
| 217,786 |
|
|
| 209,373 |
|
|
| 778,974 |
|
|
| 578,894 |
|
|
| 356,889 |
|
|
| 369,117 |
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
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|
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Interest and other income |
|
| 5,708 |
|
|
| 65,092 |
|
|
| 3,945 |
|
|
| 5,509 |
|
|
| 3,471 |
|
|
| 1,925 |
|
|
| 1,511 |
|
|
| 1,152 |
|
Other expenses |
|
| (3,160 | ) |
|
| (14,480 | ) |
|
| (1,028 | ) |
|
| (10,420 | ) |
|
| (4,227 | ) |
|
| (8,392 | ) |
|
| (1,694 | ) |
|
| (5,117 | ) |
Interest: |
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Expense incurred, net |
|
| (288,579 | ) |
|
| (386,316 | ) |
|
| (91,145 | ) |
|
| (86,352 | ) |
|
| (167,475 | ) |
|
| (203,840 | ) |
|
| (81,885 | ) |
|
| (108,902 | ) |
Amortization of deferred financing costs |
|
| (6,447 | ) |
|
| (10,000 | ) |
|
| (2,064 | ) |
|
| (2,261 | ) |
|
| (4,152 | ) |
|
| (5,783 | ) |
|
| (2,111 | ) |
|
| (3,647 | ) |
Income before income and other taxes, (loss) income from investments in unconsolidated entities, net gain on sales of real estate properties and land parcels and discontinued operations |
|
| 340,229 |
|
|
| 286,312 |
|
|
| 127,494 |
|
|
| 115,849 |
| ||||||||||||||||
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels |
|
| 606,591 |
|
|
| 362,804 |
|
|
| 272,710 |
|
|
| 252,603 |
| ||||||||||||||||
Income and other tax (expense) benefit |
|
| (710 | ) |
|
| (1,189 | ) |
|
| (228 | ) |
|
| (426 | ) |
|
| (240 | ) |
|
| (484 | ) |
|
| (187 | ) |
|
| (246 | ) |
(Loss) income from investments in unconsolidated entities |
|
| (2,153 | ) |
|
| 5,846 |
|
|
| (398 | ) |
|
| 7,750 |
| ||||||||||||||||
Net gain on sales of real estate properties |
|
| 141,761 |
|
|
| 3,870,871 |
|
|
| 17,328 |
|
|
| 90,036 |
| ||||||||||||||||
Net gain on sales of land parcels |
|
| 19,170 |
|
|
| 15,759 |
|
|
| — |
|
|
| 4,037 |
| ||||||||||||||||
Income from continuing operations |
|
| 498,297 |
|
|
| 4,177,599 |
|
|
| 144,196 |
|
|
| 217,246 |
| ||||||||||||||||
Discontinued operations, net |
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| 246 |
| ||||||||||||||||
Income (loss) from investments in unconsolidated entities |
|
| (2,199 | ) |
|
| 68,058 |
|
|
| (1,042 | ) |
|
| 68,765 |
| ||||||||||||||||
Net gain (loss) on sales of land parcels |
|
| — |
|
|
| 178 |
|
|
| — |
|
|
| 177 |
| ||||||||||||||||
Net income |
|
| 498,297 |
|
|
| 4,177,723 |
|
|
| 144,196 |
|
|
| 217,492 |
|
|
| 604,152 |
|
|
| 430,556 |
|
|
| 271,481 |
|
|
| 321,299 |
|
Net (income) attributable to Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net (income) loss attributable to Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Operating Partnership |
|
| (17,931 | ) |
|
| (160,442 | ) |
|
| (5,166 | ) |
|
| (8,353 | ) |
|
| (21,248 | ) |
|
| (15,429 | ) |
|
| (9,713 | ) |
|
| (11,510 | ) |
Partially Owned Properties |
|
| (2,354 | ) |
|
| (2,368 | ) |
|
| (801 | ) |
|
| (823 | ) |
|
| (13,410 | ) |
|
| (1,620 | ) |
|
| (880 | ) |
|
| (821 | ) |
Net income attributable to controlling interests |
|
| 478,012 |
|
|
| 4,014,913 |
|
|
| 138,229 |
|
|
| 208,316 |
|
|
| 569,494 |
|
|
| 413,507 |
|
|
| 260,888 |
|
|
| 308,968 |
|
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (772 | ) |
|
| (773 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Net income available to Common Shares |
| $ | 475,694 |
|
| $ | 4,012,595 |
|
| $ | 137,457 |
|
| $ | 207,543 |
|
| $ | 567,949 |
|
| $ | 411,962 |
|
| $ | 260,116 |
|
| $ | 308,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings per share – basic: | Earnings per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to Common Shares |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
| ||||||||||||||||
Net income available to Common Shares |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
| ||||||||||||||||
Weighted average Common Shares outstanding |
|
| 366,809 |
|
|
| 364,917 |
|
|
| 366,996 |
|
|
| 365,109 |
| ||||||||||||||||
Earnings per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations available to Common Shares |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
| ||||||||||||||||
Net income available to Common Shares |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
|
| $ | 1.53 |
|
| $ | 1.11 |
|
| $ | 0.70 |
|
| $ | 0.83 |
|
Weighted average Common Shares outstanding |
|
| 382,640 |
|
|
| 382,284 |
|
|
| 382,945 |
|
|
| 382,373 |
|
|
| 371,689 |
|
|
| 369,952 |
|
|
| 371,795 |
|
|
| 370,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per Common Share outstanding |
| $ | 1.51125 |
|
| $ | 12.51125 |
|
| $ | 0.50375 |
|
| $ | 3.50375 |
| ||||||||||||||||
Earnings per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income available to Common Shares |
| $ | 1.53 |
|
| $ | 1.11 |
|
| $ | 0.70 |
|
| $ | 0.83 |
| ||||||||||||||||
Weighted average Common Shares outstanding |
|
| 386,272 |
|
|
| 385,644 |
|
|
| 385,913 |
|
|
| 386,107 |
|
See accompanying notes
3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
(Amounts in thousands except per share data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income |
| $ | 498,297 |
|
| $ | 4,177,723 |
|
| $ | 144,196 |
|
| $ | 217,492 |
|
| $ | 604,152 |
|
| $ | 430,556 |
|
| $ | 271,481 |
|
| $ | 321,299 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| 5,216 |
|
|
| (4,240 | ) |
|
| 1,709 |
|
|
| 227 |
|
|
| (1,190 | ) |
|
| (33,765 | ) |
|
| (223 | ) |
|
| (19,345 | ) |
Losses reclassified into earnings from other comprehensive income |
|
| 14,019 |
|
|
| 37,262 |
|
|
| 4,768 |
|
|
| 4,340 |
|
|
| 11,398 |
|
|
| 8,902 |
|
|
| 5,764 |
|
|
| 4,509 |
|
Other comprehensive income (loss) – foreign currency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Currency translation adjustments arising during the period |
|
| — |
|
|
| 264 |
|
|
| — |
|
|
| 214 |
| ||||||||||||||||
Other comprehensive income |
|
| 19,235 |
|
|
| 33,286 |
|
|
| 6,477 |
|
|
| 4,781 |
| ||||||||||||||||
Other comprehensive income (loss) |
|
| 10,208 |
|
|
| (24,863 | ) |
|
| 5,541 |
|
|
| (14,836 | ) | ||||||||||||||||
Comprehensive income |
|
| 517,532 |
|
|
| 4,211,009 |
|
|
| 150,673 |
|
|
| 222,273 |
|
|
| 614,360 |
|
|
| 405,693 |
|
|
| 277,022 |
|
|
| 306,463 |
|
Comprehensive (income) attributable to Noncontrolling Interests |
|
| (20,983 | ) |
|
| (164,096 | ) |
|
| (6,201 | ) |
|
| (9,362 | ) |
|
| (35,026 | ) |
|
| (16,150 | ) |
|
| (10,792 | ) |
|
| (11,797 | ) |
Comprehensive income attributable to controlling interests |
| $ | 496,549 |
|
| $ | 4,046,913 |
|
| $ | 144,472 |
|
| $ | 212,911 |
|
| $ | 579,334 |
|
| $ | 389,543 |
|
| $ | 266,230 |
|
| $ | 294,666 |
|
See accompanying notes
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 498,297 |
|
| $ | 4,177,723 |
|
| $ | 604,152 |
|
| $ | 430,556 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 542,964 |
|
|
| 528,242 |
|
|
| 418,398 |
|
|
| 404,723 |
|
Amortization of deferred financing costs |
|
| 6,447 |
|
|
| 10,000 |
|
|
| 4,152 |
|
|
| 5,783 |
|
Amortization of above/below market lease intangibles |
|
| 2,729 |
|
|
| 2,566 |
|
|
| (35 | ) |
|
| (35 | ) |
Amortization of discounts and premiums on debt |
|
| 4,939 |
|
|
| (18,328 | ) |
|
| 2,553 |
|
|
| 17,795 |
|
Amortization of deferred settlements on derivative instruments |
|
| 14,010 |
|
|
| 37,187 |
|
|
| 11,392 |
|
|
| 8,896 |
|
Amortization of right-of-use assets |
|
| 5,892 |
|
|
| 6,952 |
| ||||||||
Write-off of pursuit costs |
|
| 2,329 |
|
|
| 3,379 |
|
|
| 3,278 |
|
|
| 2,987 |
|
Loss (income) from investments in unconsolidated entities |
|
| 2,153 |
|
|
| (5,846 | ) | ||||||||
(Income) loss from investments in unconsolidated entities |
|
| 2,199 |
|
|
| (68,058 | ) | ||||||||
Distributions from unconsolidated entities – return on capital |
|
| 2,031 |
|
|
| 2,165 |
|
|
| 100 |
|
|
| 2,387 |
|
Net (gain) on sales of investment securities and other investments |
|
| — |
|
|
| (58,416 | ) | ||||||||
Net (gain) on sales of real estate properties |
|
| (141,761 | ) |
|
| (3,870,871 | ) | ||||||||
Net (gain) on sales of land parcels |
|
| (19,170 | ) |
|
| (15,759 | ) | ||||||||
Net (gain) on sales of discontinued operations |
|
| — |
|
|
| (43 | ) | ||||||||
Net (gain) loss on sales of real estate properties |
|
| (352,243 | ) |
|
| (138,835 | ) | ||||||||
Net (gain) loss on sales of land parcels |
|
| — |
|
|
| (178 | ) | ||||||||
Realized/unrealized (gain) loss on derivative instruments |
|
| 25 |
|
|
| — |
| ||||||||
Compensation paid with Company Common Shares |
|
| 19,999 |
|
|
| 25,540 |
|
|
| 13,475 |
|
|
| 16,782 |
|
Other operating activities, net |
|
| 1,805 |
|
|
| — |
| ||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in deposits – restricted |
|
| 788 |
|
|
| 9,992 |
| ||||||||
Decrease in mortgage deposits |
|
| 1,447 |
|
|
| 222 |
| ||||||||
(Increase) decrease in other assets |
|
| (23,024 | ) |
|
| 4,248 |
|
|
| (61,422 | ) |
|
| 1,610 |
|
Increase in accounts payable and accrued expenses |
|
| 62,635 |
|
|
| 41,371 |
| ||||||||
Increase (decrease) in accounts payable and accrued expenses |
|
| 5,954 |
|
|
| 22,435 |
| ||||||||
Increase (decrease) in accrued interest payable |
|
| 11,865 |
|
|
| (15,780 | ) |
|
| 737 |
|
|
| 1,536 |
|
(Decrease) in other liabilities |
|
| (28,250 | ) |
|
| (24,749 | ) | ||||||||
Increase (decrease) in lease liabilities |
|
| (1,199 | ) |
|
| (1,171 | ) | ||||||||
Increase (decrease) in other liabilities |
|
| (18,070 | ) |
|
| (25,161 | ) | ||||||||
Increase (decrease) in security deposits |
|
| 2,606 |
|
|
| (13,522 | ) |
|
| (6,057 | ) |
|
| 1,769 |
|
Net cash provided by operating activities |
|
| 963,034 |
|
|
| 819,321 |
|
|
| 635,086 |
|
|
| 690,773 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate – acquisitions |
|
| (466,395 | ) |
|
| (205,881 | ) |
|
| — |
|
|
| (653,132 | ) |
Investment in real estate – development/other |
|
| (227,187 | ) |
|
| (454,502 | ) |
|
| (95,215 | ) |
|
| (93,210 | ) |
Capital expenditures to real estate |
|
| (143,258 | ) |
|
| (124,551 | ) |
|
| (61,265 | ) |
|
| (81,528 | ) |
Non-real estate capital additions |
|
| (776 | ) |
|
| (4,467 | ) |
|
| (15,536 | ) |
|
| (1,466 | ) |
Interest capitalized for real estate under development |
|
| (23,164 | ) |
|
| (41,658 | ) |
|
| (4,102 | ) |
|
| (2,679 | ) |
Proceeds from disposition of real estate, net |
|
| 350,000 |
|
|
| 6,584,126 |
|
|
| 747,600 |
|
|
| 393,439 |
|
Investments in unconsolidated entities |
|
| (5,324 | ) |
|
| (3,826 | ) |
|
| (5,626 | ) |
|
| (8,572 | ) |
Distributions from unconsolidated entities – return of capital |
|
| 329 |
|
|
| 13,798 |
|
|
| — |
|
|
| 78,262 |
|
Proceeds from sale of investment securities and other investments |
|
| — |
|
|
| 72,815 |
| ||||||||
Decrease (increase) in deposits on real estate acquisitions and investments, net |
|
| 39,519 |
|
|
| (83,668 | ) | ||||||||
(Increase) in mortgage deposits |
|
| (4,541 | ) |
|
| (21 | ) | ||||||||
Net cash (used for) provided by investing activities |
|
| (480,797 | ) |
|
| 5,752,165 |
| ||||||||
Purchase of investment securities and other investments |
|
| (509 | ) |
|
| (269 | ) | ||||||||
Net cash provided by (used for) investing activities |
|
| 565,347 |
|
|
| (369,155 | ) |
See accompanying notes
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt financing costs |
| $ | (6,272 | ) |
| $ | (507 | ) |
| $ | (2,907 | ) |
| $ | (6,069 | ) |
Mortgage deposits |
|
| 57,057 |
|
|
| (6,249 | ) | ||||||||
Mortgage notes payable, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 495,145 |
|
|
| 295,620 |
| ||||||||
Lump sum payoffs |
|
| (493,420 | ) |
|
| (565,084 | ) |
|
| (91,500 | ) |
|
| (95,500 | ) |
Scheduled principal repayments |
|
| (8,771 | ) |
|
| (6,644 | ) |
|
| (3,873 | ) |
|
| (3,110 | ) |
Notes, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 692,466 |
|
| — |
|
|
| — |
|
|
| 597,480 |
| |
Lump sum payoffs |
|
| (394,077 | ) |
|
| (1,500,000 | ) | ||||||||
Line of credit and commercial paper: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit proceeds |
|
| 1,845,000 |
|
|
| 246,000 |
|
|
| 1,870,000 |
|
|
| 1,995,000 |
|
Line of credit repayments |
|
| (1,845,000 | ) |
|
| (246,000 | ) |
|
| (1,890,000 | ) |
|
| (1,995,000 | ) |
Commercial paper proceeds |
|
| 3,888,675 |
|
|
| 1,324,784 |
|
|
| 6,726,167 |
|
|
| 7,775,817 |
|
Commercial paper repayments |
|
| (3,681,750 | ) |
|
| (1,712,472 | ) |
|
| (7,724,000 | ) |
|
| (8,275,000 | ) |
Proceeds from settlement of derivative instruments |
|
| 1,296 |
|
| — |
| |||||||||
Proceeds from (payments on) settlement of derivative instruments |
|
| (1,215 | ) |
|
| (41,616 | ) | ||||||||
Proceeds from Employee Share Purchase Plan (ESPP) |
|
| 2,963 |
|
|
| 2,778 |
|
|
| 2,359 |
|
|
| 1,652 |
|
Proceeds from exercise of options |
|
| 12,967 |
|
|
| 26,939 |
|
|
| 11,322 |
|
|
| 48,487 |
|
Payment of offering costs |
|
| (36 | ) |
|
| (304 | ) |
|
| — |
|
|
| (155 | ) |
Other financing activities, net |
|
| (40 | ) |
|
| (33 | ) |
|
| (31 | ) |
|
| (49 | ) |
Contributions – Noncontrolling Interests – Partially Owned Properties |
|
| 125 |
|
| — |
|
|
| 341 |
|
|
| 4,594 |
| |
Contributions – Noncontrolling Interests – Operating Partnership |
|
| — |
|
|
| 1 |
|
|
| 12 |
|
|
| — |
|
Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
| (554,267 | ) |
|
| (3,490,838 | ) |
|
| (435,427 | ) |
|
| (409,943 | ) |
Preferred Shares |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (1,545 | ) |
|
| (773 | ) |
Noncontrolling Interests – Operating Partnership |
|
| (20,604 | ) |
|
| (137,641 | ) |
|
| (16,478 | ) |
|
| (14,728 | ) |
Noncontrolling Interests – Partially Owned Properties |
|
| (6,873 | ) |
|
| (28,588 | ) |
|
| (10,269 | ) |
|
| (5,170 | ) |
Net cash (used for) financing activities |
|
| (512,879 | ) |
|
| (6,096,176 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents |
|
| (30,642 | ) |
|
| 475,310 |
| ||||||||
Cash and cash equivalents, beginning of period |
|
| 77,207 |
|
|
| 42,276 |
| ||||||||
Cash and cash equivalents, end of period |
| $ | 46,565 |
|
| $ | 517,586 |
| ||||||||
Net cash provided by (used for) financing activities |
|
| (1,071,899 | ) |
|
| (128,463 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents and restricted deposits |
|
| 128,534 |
|
|
| 193,155 |
| ||||||||
Cash and cash equivalents and restricted deposits, beginning of period |
|
| 116,999 |
|
|
| 116,313 |
| ||||||||
Cash and cash equivalents and restricted deposits, end of period |
| $ | 245,533 |
|
| $ | 309,468 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents and restricted deposits, end of period |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 187,416 |
|
| $ | 251,273 |
| ||||||||
Restricted deposits |
|
| 58,117 |
|
|
| 58,195 |
| ||||||||
Total cash and cash equivalents and restricted deposits, end of period |
| $ | 245,533 |
|
| $ | 309,468 |
|
See accompanying notes
6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
| $ | 257,805 |
|
| $ | 383,374 |
|
| $ | 148,164 |
|
| $ | 171,116 |
|
Net cash paid for income and other taxes |
| $ | 964 |
|
| $ | 1,333 |
| ||||||||
Real estate acquisitions/dispositions/other: |
|
|
|
|
|
|
|
| ||||||||
Mortgage loans assumed |
| $ | — |
|
| $ | 43,400 |
| ||||||||
Net cash paid (received) for income and other taxes |
| $ | 428 |
|
| $ | 754 |
| ||||||||
Amortization of deferred financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | (120 | ) |
| $ | — |
| ||||||||
Other assets |
| $ | 1,810 |
|
| $ | 2,291 |
|
| $ | 1,169 |
|
| $ | 1,206 |
|
Mortgage notes payable, net |
| $ | 1,943 |
|
| $ | 3,320 |
|
| $ | 876 |
|
| $ | 2,344 |
|
Notes, net |
| $ | 2,694 |
|
| $ | 4,389 |
|
| $ | 2,227 |
|
| $ | 2,233 |
|
Amortization of discounts and premiums on debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 247 |
|
| $ | (21,318 | ) |
| $ | 1,191 |
|
| $ | 16,426 |
|
Notes, net |
| $ | 1,771 |
|
| $ | 2,578 |
|
| $ | 1,362 |
|
| $ | 1,369 |
|
Line of credit and commercial paper |
| $ | 2,921 |
|
| $ | 412 |
| ||||||||
Amortization of deferred settlements on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | (9 | ) |
| $ | (75 | ) |
| $ | (6 | ) |
| $ | (6 | ) |
Accumulated other comprehensive income |
| $ | 14,019 |
|
| $ | 37,262 |
|
| $ | 11,398 |
|
| $ | 8,902 |
|
Write-off of pursuit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | 2,292 |
|
| $ | 2,876 |
|
| $ | 3,122 |
|
| $ | 2,947 |
|
Other assets |
| $ | 17 |
|
| $ | 399 |
|
| $ | 140 |
|
| $ | 37 |
|
Accounts payable and accrued expenses |
| $ | 20 |
|
| $ | 104 |
|
| $ | 16 |
|
| $ | 3 |
|
Loss (income) from investments in unconsolidated entities: |
|
|
|
|
|
|
|
| ||||||||
(Income) loss from investments in unconsolidated entities: |
|
|
|
|
|
|
|
| ||||||||
Investments in unconsolidated entities |
| $ | 1,076 |
|
| $ | (6,999 | ) |
| $ | 1,554 |
|
| $ | (68,735 | ) |
Other liabilities |
| $ | 1,077 |
|
| $ | 1,153 |
|
| $ | 645 |
|
| $ | 677 |
|
Realized/unrealized (gain) loss on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | (3,803 | ) |
| $ | (4,563 | ) |
| $ | — |
|
| $ | 2,002 |
|
Notes, net |
| $ | (1,413 | ) |
| $ | 4,563 |
|
| $ | — |
|
| $ | 2,253 |
|
Other liabilities |
| $ | — |
|
| $ | 4,240 |
|
| $ | 1,215 |
|
| $ | 29,510 |
|
Accumulated other comprehensive income |
| $ | 5,216 |
|
| $ | (4,240 | ) |
| $ | (1,190 | ) |
| $ | (33,765 | ) |
Investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | (2,324 | ) |
| $ | (1,726 | ) |
| $ | (4,726 | ) |
| $ | (6,472 | ) |
Other liabilities |
| $ | (3,000 | ) |
| $ | (2,100 | ) |
| $ | (900 | ) |
| $ | (2,100 | ) |
Distributions from unconsolidated entities - return of capital: |
|
|
|
|
|
|
|
| ||||||||
Investments in unconsolidated entities |
| $ | 329 |
|
| $ | 14,014 |
| ||||||||
Debt financing costs: |
|
|
|
|
|
|
|
| ||||||||
Other assets |
| $ | — |
|
| $ | (216 | ) |
| $ | (215 | ) |
| $ | 145 |
|
Debt financing costs: |
|
|
|
|
|
|
|
| ||||||||
Mortgage notes payable, net |
| $ | — |
|
| $ | (507 | ) |
| $ | (2,692 | ) |
| $ | (2,237 | ) |
Notes, net |
| $ | (6,272 | ) |
| $ | — |
|
| $ | — |
|
| $ | (5,213 | ) |
Other: |
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation adjustments |
| $ | — |
|
| $ | (264 | ) | ||||||||
Other liabilities |
| $ | — |
|
| $ | 1,236 |
| ||||||||
Right-of-use assets and lease liabilities initial measurement and reclassifications: |
|
|
|
|
|
|
|
| ||||||||
Right-of-use assets |
| $ | — |
|
| $ | (438,705 | ) | ||||||||
Other assets |
| $ | — |
|
| $ | 184,116 |
| ||||||||
Lease liabilities |
| $ | — |
|
| $ | 282,791 |
| ||||||||
Other liabilities |
| $ | — |
|
| $ | (28,202 | ) |
See accompanying notes
7
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands)thousands except per share data)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||
|
| September 30, 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| |||||
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED SHARES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 37,280 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
| ||||
Balance, end of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
COMMON SHARES, $0.01 PAR VALUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 3,659 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 3,717 |
|
| $ | 3,694 |
|
| $ | 3,721 |
|
| $ | 3,705 |
| ||||
Conversion of OP Units into Common Shares |
|
| 11 |
|
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
|
| — |
|
Exercise of share options |
|
| 3 |
|
|
| 2 |
|
|
| 10 |
|
|
| — |
|
|
| 3 |
|
Employee Share Purchase Plan (ESPP) |
|
| 1 |
| ||||||||||||||||
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
Balance, end of period |
| $ | 3,675 |
|
| $ | 3,722 |
|
| $ | 3,708 |
|
| $ | 3,722 |
|
| $ | 3,708 |
|
PAID IN CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 8,758,422 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 8,965,577 |
|
| $ | 8,935,453 |
|
| $ | 9,092,441 |
|
| $ | 8,925,882 |
| ||||
Common Share Issuance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of OP Units into Common Shares |
|
| 14,706 |
|
|
| 3,855 |
|
|
| 4,869 |
|
|
| 2,011 |
|
|
| 84 |
|
Exercise of share options |
|
| 12,964 |
|
|
| 11,320 |
|
|
| 48,477 |
|
|
| 171 |
|
|
| 18,624 |
|
Employee Share Purchase Plan (ESPP) |
|
| 2,962 |
|
|
| 2,359 |
|
|
| 1,652 |
|
|
| 1,490 |
|
|
| 526 |
|
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
| 7,488 |
|
|
| 7,252 |
|
|
| 7,980 |
|
|
| 3,231 |
|
|
| 3,404 |
|
Share options |
|
| 6,384 |
|
|
| 1,293 |
|
|
| 1,682 |
|
|
| 623 |
|
|
| 889 |
|
ESPP discount |
|
| 586 |
|
|
| 416 |
|
|
| 365 |
|
|
| 263 |
|
|
| 98 |
|
Offering costs |
|
| (36 | ) |
|
| — |
|
|
| (155 | ) |
|
| — |
|
|
| (155 | ) |
Supplemental Executive Retirement Plan (SERP) |
|
| (594 | ) |
|
| (506 | ) |
|
| (1,539 | ) |
|
| (655 | ) |
|
| (937 | ) |
Change in market value of Redeemable Noncontrolling Interests – Operating Partnership |
|
| 29,551 |
|
|
| 128,753 |
|
|
| (56,974 | ) |
|
| 17,304 |
|
|
| (1,953 | ) |
Adjustment for Noncontrolling Interests ownership in Operating Partnership |
|
| 16,306 |
|
|
| (1,987 | ) |
|
| 7,771 |
|
|
| 1,453 |
|
|
| 3,119 |
|
Balance, end of period |
| $ | 8,848,739 |
|
| $ | 9,118,332 |
|
| $ | 8,949,581 |
|
| $ | 9,118,332 |
|
| $ | 8,949,581 |
|
RETAINED EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 1,543,626 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 1,386,495 |
|
| $ | 1,261,763 |
|
| $ | 1,469,821 |
|
| $ | 1,155,032 |
| ||||
Net income attributable to controlling interests |
|
| 478,012 |
|
|
| 569,494 |
|
|
| 413,507 |
|
|
| 260,888 |
|
|
| 308,968 |
|
Common Share distributions |
|
| (555,071 | ) |
|
| (448,750 | ) |
|
| (420,916 | ) |
|
| (224,243 | ) |
|
| (210,419 | ) |
Preferred Share distributions |
|
| (2,318 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Balance, end of period |
| $ | 1,464,249 |
|
| $ | 1,505,694 |
|
| $ | 1,252,809 |
|
| $ | 1,505,694 |
|
| $ | 1,252,809 |
|
ACCUMULATED OTHER COMPREHENSIVE (LOSS) |
|
|
|
| ||||||||||||||||
Balance, beginning of year |
| $ | (113,909 | ) | ||||||||||||||||
Accumulated other comprehensive income – derivative instruments: |
|
|
|
| ||||||||||||||||
Unrealized holding gains arising during the period |
|
| 5,216 |
| ||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | (77,563 | ) |
| $ | (64,986 | ) |
| $ | (72,896 | ) |
| $ | (75,013 | ) | ||||
Accumulated other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized holding gains (losses) arising during the period |
|
| (1,190 | ) |
|
| (33,765 | ) |
|
| (223 | ) |
|
| (19,345 | ) | ||||
Losses reclassified into earnings from other comprehensive income |
|
| 14,019 |
|
|
| 11,398 |
|
|
| 8,902 |
|
|
| 5,764 |
|
|
| 4,509 |
|
Balance, end of period |
| $ | (94,674 | ) |
| $ | (67,355 | ) |
| $ | (89,849 | ) |
| $ | (67,355 | ) |
| $ | (89,849 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
DISTRIBUTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Distributions declared per Common Share outstanding |
| $ | 1.205 |
|
| $ | 1.135 |
|
| $ | 0.6025 |
|
| $ | 0.5675 |
|
See accompanying notes
8
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY (Continued)
(Amounts in thousands)thousands except per share data)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||
|
| September 30, 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| |||||
NONCONTROLLING INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING PARTNERSHIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 221,297 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 227,837 |
|
| $ | 228,738 |
|
| $ | 235,580 |
|
| $ | 225,081 |
| ||||
Issuance of restricted units to Noncontrolling Interests |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||
Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner |
|
| (14,717 | ) |
|
| (3,856 | ) |
|
| (4,871 | ) |
|
| (2,012 | ) |
|
| (84 | ) |
Equity compensation associated with Noncontrolling Interests |
|
| 8,200 |
|
|
| 7,026 |
|
|
| 10,829 |
|
|
| 1,959 |
|
|
| 2,926 |
|
Net income attributable to Noncontrolling Interests |
|
| 17,931 |
|
|
| 21,248 |
|
|
| 15,429 |
|
|
| 9,713 |
|
|
| 11,510 |
|
Distributions to Noncontrolling Interests |
|
| (20,073 | ) |
|
| (17,037 | ) |
|
| (15,079 | ) |
|
| (7,961 | ) |
|
| (7,474 | ) |
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership |
|
| 32,000 |
|
|
| (2,048 | ) |
|
| 45 |
|
|
| (657 | ) |
|
| (1,520 | ) |
Adjustment for Noncontrolling Interests ownership in Operating Partnership |
|
| (16,306 | ) |
|
| 1,987 |
|
|
| (7,771 | ) |
|
| (1,453 | ) |
|
| (3,119 | ) |
Balance, end of period |
| $ | 228,332 |
|
| $ | 235,169 |
|
| $ | 227,320 |
|
| $ | 235,169 |
|
| $ | 227,320 |
|
PARTIALLY OWNED PROPERTIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 10,609 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 1,183 |
|
| $ | (2,293 | ) |
| $ | 4,739 |
|
| $ | (5,462 | ) | ||||
Net income attributable to Noncontrolling Interests |
|
| 2,354 |
|
|
| 13,410 |
|
|
| 1,620 |
|
|
| 880 |
|
|
| 821 |
|
Contributions by Noncontrolling Interests |
|
| 125 |
|
|
| 341 |
|
|
| 4,594 |
|
|
| — |
|
|
| 4,594 |
|
Distributions to Noncontrolling Interests |
|
| (6,913 | ) |
|
| (10,300 | ) |
|
| (5,219 | ) |
|
| (985 | ) |
|
| (1,251 | ) |
Balance, end of period |
| $ | 6,175 |
|
| $ | 4,634 |
|
| $ | (1,298 | ) |
| $ | 4,634 |
|
| $ | (1,298 | ) |
See accompanying notes
9
ERP OPERATING LIMITEDLIMITED PARTNERSHIP
(Amounts in thousands)
(Unaudited)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate |
|
|
|
|
|
|
|
| ||||||||
Land |
| $ | 5,985,004 |
|
| $ | 5,899,862 |
|
| $ | 5,789,307 |
|
| $ | 5,936,188 |
|
Depreciable property |
|
| 19,571,402 |
|
|
| 18,730,579 |
|
|
| 20,997,903 |
|
|
| 21,319,101 |
|
Projects under development |
|
| 293,064 |
|
|
| 637,168 |
|
|
| 274,825 |
|
|
| 181,630 |
|
Land held for development |
|
| 99,073 |
|
|
| 118,816 |
|
|
| 102,361 |
|
|
| 96,688 |
|
Investment in real estate |
|
| 25,948,543 |
|
|
| 25,386,425 |
|
|
| 27,164,396 |
|
|
| 27,533,607 |
|
Accumulated depreciation |
|
| (5,849,110 | ) |
|
| (5,360,389 | ) |
|
| (7,537,713 | ) |
|
| (7,276,786 | ) |
Investment in real estate, net |
|
| 20,099,433 |
|
|
| 20,026,036 |
|
|
| 19,626,683 |
|
|
| 20,256,821 |
|
Investments in unconsolidated entities |
|
| 55,310 |
|
|
| 52,238 |
| ||||||||
Cash and cash equivalents |
|
| 46,565 |
|
|
| 77,207 |
|
|
| 187,416 |
|
|
| 45,753 |
|
Investments in unconsolidated entities |
|
| 59,029 |
|
|
| 60,141 |
| ||||||||
Deposits – restricted |
|
| 36,639 |
|
|
| 76,946 |
| ||||||||
Escrow deposits – mortgage |
|
| 10,972 |
|
|
| 64,935 |
| ||||||||
Restricted deposits |
|
| 58,117 |
|
|
| 71,246 |
| ||||||||
Right-of-use assets |
|
| 505,077 |
|
|
| 512,774 |
| ||||||||
Other assets |
|
| 445,195 |
|
|
| 398,883 |
|
|
| 282,348 |
|
|
| 233,937 |
|
Total assets |
| $ | 20,697,833 |
|
| $ | 20,704,148 |
|
| $ | 20,714,951 |
|
| $ | 21,172,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: | Liabilities: |
|
|
|
|
|
|
|
|
| ||||||
Mortgage notes payable, net |
| $ | 3,619,180 |
|
| $ | 4,119,181 |
|
| $ | 2,340,757 |
|
| $ | 1,941,610 |
|
Notes, net |
|
| 5,143,248 |
|
|
| 4,848,079 |
|
|
| 6,081,102 |
|
|
| 6,077,513 |
|
Line of credit and commercial paper |
|
| 229,844 |
|
|
| 19,998 |
|
|
| — |
|
|
| 1,017,833 |
|
Accounts payable and accrued expenses |
|
| 167,984 |
|
|
| 147,482 |
|
|
| 109,776 |
|
|
| 94,350 |
|
Accrued interest payable |
|
| 72,811 |
|
|
| 60,946 |
|
|
| 67,589 |
|
|
| 66,852 |
|
Lease liabilities |
|
| 330,135 |
|
|
| 331,334 |
| ||||||||
Other liabilities |
|
| 332,650 |
|
|
| 350,466 |
|
|
| 315,208 |
|
|
| 346,963 |
|
Security deposits |
|
| 65,230 |
|
|
| 62,624 |
|
|
| 64,005 |
|
|
| 70,062 |
|
Distributions payable |
|
| 192,569 |
|
|
| 192,296 |
|
|
| 232,208 |
|
|
| 218,326 |
|
Total liabilities |
|
| 9,823,516 |
|
|
| 9,801,072 |
|
|
| 9,540,780 |
|
|
| 10,164,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Limited Partners |
|
| 380,541 |
|
|
| 442,092 |
|
|
| 336,695 |
|
|
| 463,400 |
|
Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners' Capital: |
|
|
|
|
|
|
|
| ||||||||
Partners’ Capital: |
|
|
|
|
|
|
|
| ||||||||
Preference Units |
|
| 37,280 |
|
|
| 37,280 |
|
|
| 37,280 |
|
|
| 37,280 |
|
General Partner |
|
| 10,316,663 |
|
|
| 10,305,707 |
|
|
| 10,627,748 |
|
|
| 10,355,789 |
|
Limited Partners |
|
| 228,332 |
|
|
| 221,297 |
|
|
| 235,169 |
|
|
| 227,837 |
|
Accumulated other comprehensive (loss) |
|
| (94,674 | ) |
|
| (113,909 | ) | ||||||||
Total partners' capital |
|
| 10,487,601 |
|
|
| 10,450,375 |
| ||||||||
Accumulated other comprehensive income (loss) |
|
| (67,355 | ) |
|
| (77,563 | ) | ||||||||
Total partners’ capital |
|
| 10,832,842 |
|
|
| 10,543,343 |
| ||||||||
Noncontrolling Interests – Partially Owned Properties |
|
| 6,175 |
|
|
| 10,609 |
|
|
| 4,634 |
|
|
| 1,183 |
|
Total capital |
|
| 10,493,776 |
|
|
| 10,460,984 |
|
|
| 10,837,476 |
|
|
| 10,544,526 |
|
Total liabilities and capital |
| $ | 20,697,833 |
|
| $ | 20,704,148 |
|
| $ | 20,714,951 |
|
| $ | 21,172,769 |
|
See accompanying notes
10
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
| $ | 1,840,170 |
|
| $ | 1,816,960 |
|
| $ | 623,951 |
|
| $ | 605,856 |
|
| $ | 1,335,837 |
|
| $ | 1,331,676 |
|
| $ | 653,532 |
|
| $ | 669,374 |
|
Fee and asset management |
|
| 532 |
|
|
| 3,351 |
|
|
| 171 |
|
|
| 218 |
| ||||||||||||||||
Total revenues |
|
| 1,840,702 |
|
|
| 1,820,311 |
|
|
| 624,122 |
|
|
| 606,074 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and maintenance |
|
| 306,645 |
|
|
| 309,688 |
|
|
| 104,721 |
|
|
| 104,216 |
|
|
| 220,268 |
|
|
| 223,531 |
|
|
| 104,452 |
|
|
| 108,461 |
|
Real estate taxes and insurance |
|
| 253,318 |
|
|
| 238,954 |
|
|
| 84,087 |
|
|
| 81,343 |
|
|
| 192,770 |
|
|
| 182,888 |
|
|
| 95,038 |
|
|
| 91,446 |
|
Property management |
|
| 64,702 |
|
|
| 64,003 |
|
|
| 20,861 |
|
|
| 19,517 |
|
|
| 51,317 |
|
|
| 50,765 |
|
|
| 23,608 |
|
|
| 24,369 |
|
General and administrative |
|
| 40,366 |
|
|
| 47,408 |
|
|
| 12,567 |
|
|
| 12,395 |
|
|
| 26,353 |
|
|
| 29,710 |
|
|
| 11,835 |
|
|
| 14,329 |
|
Depreciation |
|
| 542,964 |
|
|
| 528,242 |
|
|
| 184,100 |
|
|
| 179,230 |
|
|
| 418,398 |
|
|
| 404,723 |
|
|
| 205,976 |
|
|
| 200,508 |
|
Total expenses |
|
| 1,207,995 |
|
|
| 1,188,295 |
|
|
| 406,336 |
|
|
| 396,701 |
|
|
| 909,106 |
|
|
| 891,617 |
|
|
| 440,909 |
|
|
| 439,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sales of real estate properties |
|
| 352,243 |
|
|
| 138,835 |
|
|
| 144,266 |
|
|
| 138,856 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Operating income |
|
| 632,707 |
|
|
| 632,016 |
|
|
| 217,786 |
|
|
| 209,373 |
|
|
| 778,974 |
|
|
| 578,894 |
|
|
| 356,889 |
|
|
| 369,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
| 5,708 |
|
|
| 65,092 |
|
|
| 3,945 |
|
|
| 5,509 |
|
|
| 3,471 |
|
|
| 1,925 |
|
|
| 1,511 |
|
|
| 1,152 |
|
Other expenses |
|
| (3,160 | ) |
|
| (14,480 | ) |
|
| (1,028 | ) |
|
| (10,420 | ) |
|
| (4,227 | ) |
|
| (8,392 | ) |
|
| (1,694 | ) |
|
| (5,117 | ) |
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense incurred, net |
|
| (288,579 | ) |
|
| (386,316 | ) |
|
| (91,145 | ) |
|
| (86,352 | ) |
|
| (167,475 | ) |
|
| (203,840 | ) |
|
| (81,885 | ) |
|
| (108,902 | ) |
Amortization of deferred financing costs |
|
| (6,447 | ) |
|
| (10,000 | ) |
|
| (2,064 | ) |
|
| (2,261 | ) |
|
| (4,152 | ) |
|
| (5,783 | ) |
|
| (2,111 | ) |
|
| (3,647 | ) |
Income before income and other taxes, (loss) income from investments in unconsolidated entities, net gain on sales of real estate properties and land parcels and discontinued operations |
|
| 340,229 |
|
|
| 286,312 |
|
|
| 127,494 |
|
|
| 115,849 |
| ||||||||||||||||
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels |
|
| 606,591 |
|
|
| 362,804 |
|
|
| 272,710 |
|
|
| 252,603 |
| ||||||||||||||||
Income and other tax (expense) benefit |
|
| (710 | ) |
|
| (1,189 | ) |
|
| (228 | ) |
|
| (426 | ) |
|
| (240 | ) |
|
| (484 | ) |
|
| (187 | ) |
|
| (246 | ) |
(Loss) income from investments in unconsolidated entities |
|
| (2,153 | ) |
|
| 5,846 |
|
|
| (398 | ) |
|
| 7,750 |
| ||||||||||||||||
Net gain on sales of real estate properties |
|
| 141,761 |
|
|
| 3,870,871 |
|
|
| 17,328 |
|
|
| 90,036 |
| ||||||||||||||||
Net gain on sales of land parcels |
|
| 19,170 |
|
|
| 15,759 |
|
|
| — |
|
|
| 4,037 |
| ||||||||||||||||
Income from continuing operations |
|
| 498,297 |
|
|
| 4,177,599 |
|
|
| 144,196 |
|
|
| 217,246 |
| ||||||||||||||||
Discontinued operations, net |
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| 246 |
| ||||||||||||||||
Income (loss) from investments in unconsolidated entities |
|
| (2,199 | ) |
|
| 68,058 |
|
|
| (1,042 | ) |
|
| 68,765 |
| ||||||||||||||||
Net gain (loss) on sales of land parcels |
|
| — |
|
|
| 178 |
|
|
| — |
|
|
| 177 |
| ||||||||||||||||
Net income |
|
| 498,297 |
|
|
| 4,177,723 |
|
|
| 144,196 |
|
|
| 217,492 |
|
|
| 604,152 |
|
|
| 430,556 |
|
|
| 271,481 |
|
|
| 321,299 |
|
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,354 | ) |
|
| (2,368 | ) |
|
| (801 | ) |
|
| (823 | ) | ||||||||||||||||
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (13,410 | ) |
|
| (1,620 | ) |
|
| (880 | ) |
|
| (821 | ) | ||||||||||||||||
Net income attributable to controlling interests |
| $ | 495,943 |
|
| $ | 4,175,355 |
|
| $ | 143,395 |
|
| $ | 216,669 |
|
| $ | 590,742 |
|
| $ | 428,936 |
|
| $ | 270,601 |
|
| $ | 320,478 |
|
ALLOCATION OF NET INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference Units |
| $ | 2,318 |
|
| $ | 2,318 |
|
| $ | 772 |
|
| $ | 773 |
|
| $ | 1,545 |
|
| $ | 1,545 |
|
| $ | 772 |
|
| $ | 772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner |
| $ | 475,694 |
|
| $ | 4,012,595 |
|
| $ | 137,457 |
|
| $ | 207,543 |
|
| $ | 567,949 |
|
| $ | 411,962 |
|
| $ | 260,116 |
|
| $ | 308,196 |
|
Limited Partners |
|
| 17,931 |
|
|
| 160,442 |
|
|
| 5,166 |
|
|
| 8,353 |
|
|
| 21,248 |
|
|
| 15,429 |
|
|
| 9,713 |
|
|
| 11,510 |
|
Net income available to Units |
| $ | 493,625 |
|
| $ | 4,173,037 |
|
| $ | 142,623 |
|
| $ | 215,896 |
|
| $ | 589,197 |
|
| $ | 427,391 |
|
| $ | 269,829 |
|
| $ | 319,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings per Unit – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Units |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
| ||||||||||||||||
Net income available to Units |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
| ||||||||||||||||
Weighted average Units outstanding |
|
| 379,716 |
|
|
| 378,745 |
|
|
| 379,906 |
|
|
| 379,008 |
| ||||||||||||||||
Earnings per Unit – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations available to Units |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
| ||||||||||||||||
Net income available to Units |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
|
| $ | 1.53 |
|
| $ | 1.11 |
|
| $ | 0.70 |
|
| $ | 0.83 |
|
Weighted average Units outstanding |
|
| 382,640 |
|
|
| 382,284 |
|
|
| 382,945 |
|
|
| 382,373 |
|
|
| 384,702 |
|
|
| 382,854 |
|
|
| 384,818 |
|
|
| 383,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per Unit outstanding |
| $ | 1.51125 |
|
| $ | 12.51125 |
|
| $ | 0.50375 |
|
| $ | 3.50375 |
| ||||||||||||||||
Earnings per Unit – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income available to Units |
| $ | 1.53 |
|
| $ | 1.11 |
|
| $ | 0.70 |
|
| $ | 0.83 |
| ||||||||||||||||
Weighted average Units outstanding |
|
| 386,272 |
|
|
| 385,644 |
|
|
| 385,913 |
|
|
| 386,107 |
|
See accompanying notes
11
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
(Amounts in thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income |
| $ | 498,297 |
|
| $ | 4,177,723 |
|
| $ | 144,196 |
|
| $ | 217,492 |
|
| $ | 604,152 |
|
| $ | 430,556 |
|
| $ | 271,481 |
|
| $ | 321,299 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| 5,216 |
|
|
| (4,240 | ) |
|
| 1,709 |
|
|
| 227 |
|
|
| (1,190 | ) |
|
| (33,765 | ) |
|
| (223 | ) |
|
| (19,345 | ) |
Losses reclassified into earnings from other comprehensive income |
|
| 14,019 |
|
|
| 37,262 |
|
|
| 4,768 |
|
|
| 4,340 |
|
|
| 11,398 |
|
|
| 8,902 |
|
|
| 5,764 |
|
|
| 4,509 |
|
Other comprehensive income (loss) – foreign currency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Currency translation adjustments arising during the period |
|
| — |
|
|
| 264 |
|
|
| — |
|
|
| 214 |
| ||||||||||||||||
Other comprehensive income |
|
| 19,235 |
|
|
| 33,286 |
|
|
| 6,477 |
|
|
| 4,781 |
| ||||||||||||||||
Other comprehensive income (loss) |
|
| 10,208 |
|
|
| (24,863 | ) |
|
| 5,541 |
|
|
| (14,836 | ) | ||||||||||||||||
Comprehensive income |
|
| 517,532 |
|
|
| 4,211,009 |
|
|
| 150,673 |
|
|
| 222,273 |
|
|
| 614,360 |
|
|
| 405,693 |
|
|
| 277,022 |
|
|
| 306,463 |
|
Comprehensive (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,354 | ) |
|
| (2,368 | ) |
|
| (801 | ) |
|
| (823 | ) |
|
| (13,410 | ) |
|
| (1,620 | ) |
|
| (880 | ) |
|
| (821 | ) |
Comprehensive income attributable to controlling interests |
| $ | 515,178 |
|
| $ | 4,208,641 |
|
| $ | 149,872 |
|
| $ | 221,450 |
|
| $ | 600,950 |
|
| $ | 404,073 |
|
| $ | 276,142 |
|
| $ | 305,642 |
|
See accompanying notes
12
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 498,297 |
|
| $ | 4,177,723 |
|
| $ | 604,152 |
|
| $ | 430,556 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 542,964 |
|
|
| 528,242 |
|
|
| 418,398 |
|
|
| 404,723 |
|
Amortization of deferred financing costs |
|
| 6,447 |
|
|
| 10,000 |
|
|
| 4,152 |
|
|
| 5,783 |
|
Amortization of above/below market lease intangibles |
|
| 2,729 |
|
|
| 2,566 |
|
|
| (35 | ) |
|
| (35 | ) |
Amortization of discounts and premiums on debt |
|
| 4,939 |
|
|
| (18,328 | ) |
|
| 2,553 |
|
|
| 17,795 |
|
Amortization of deferred settlements on derivative instruments |
|
| 14,010 |
|
|
| 37,187 |
|
|
| 11,392 |
|
|
| 8,896 |
|
Amortization of right-of-use assets |
|
| 5,892 |
|
|
| 6,952 |
| ||||||||
Write-off of pursuit costs |
|
| 2,329 |
|
|
| 3,379 |
|
|
| 3,278 |
|
|
| 2,987 |
|
Loss (income) from investments in unconsolidated entities |
|
| 2,153 |
|
|
| (5,846 | ) | ||||||||
(Income) loss from investments in unconsolidated entities |
|
| 2,199 |
|
|
| (68,058 | ) | ||||||||
Distributions from unconsolidated entities – return on capital |
|
| 2,031 |
|
|
| 2,165 |
|
|
| 100 |
|
|
| 2,387 |
|
Net (gain) on sales of investment securities and other investments |
|
| — |
|
|
| (58,416 | ) | ||||||||
Net (gain) on sales of real estate properties |
|
| (141,761 | ) |
|
| (3,870,871 | ) | ||||||||
Net (gain) on sales of land parcels |
|
| (19,170 | ) |
|
| (15,759 | ) | ||||||||
Net (gain) on sales of discontinued operations |
|
| — |
|
|
| (43 | ) | ||||||||
Net (gain) loss on sales of real estate properties |
|
| (352,243 | ) |
|
| (138,835 | ) | ||||||||
Net (gain) loss on sales of land parcels |
|
| — |
|
|
| (178 | ) | ||||||||
Realized/unrealized (gain) loss on derivative instruments |
|
| 25 |
|
|
| — |
| ||||||||
Compensation paid with Company Common Shares |
|
| 19,999 |
|
|
| 25,540 |
|
|
| 13,475 |
|
|
| 16,782 |
|
Other operating activities, net |
|
| 1,805 |
|
|
| — |
| ||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in deposits – restricted |
|
| 788 |
|
|
| 9,992 |
| ||||||||
Decrease in mortgage deposits |
|
| 1,447 |
|
|
| 222 |
| ||||||||
(Increase) decrease in other assets |
|
| (23,024 | ) |
|
| 4,248 |
|
|
| (61,422 | ) |
|
| 1,610 |
|
Increase in accounts payable and accrued expenses |
|
| 62,635 |
|
|
| 41,371 |
| ||||||||
Increase (decrease) in accounts payable and accrued expenses |
|
| 5,954 |
|
|
| 22,435 |
| ||||||||
Increase (decrease) in accrued interest payable |
|
| 11,865 |
|
|
| (15,780 | ) |
|
| 737 |
|
|
| 1,536 |
|
(Decrease) in other liabilities |
|
| (28,250 | ) |
|
| (24,749 | ) | ||||||||
Increase (decrease) in lease liabilities |
|
| (1,199 | ) |
|
| (1,171 | ) | ||||||||
Increase (decrease) in other liabilities |
|
| (18,070 | ) |
|
| (25,161 | ) | ||||||||
Increase (decrease) in security deposits |
|
| 2,606 |
|
|
| (13,522 | ) |
|
| (6,057 | ) |
|
| 1,769 |
|
Net cash provided by operating activities |
|
| 963,034 |
|
|
| 819,321 |
|
|
| 635,086 |
|
|
| 690,773 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate – acquisitions |
|
| (466,395 | ) |
|
| (205,881 | ) |
|
| — |
|
|
| (653,132 | ) |
Investment in real estate – development/other |
|
| (227,187 | ) |
|
| (454,502 | ) |
|
| (95,215 | ) |
|
| (93,210 | ) |
Capital expenditures to real estate |
|
| (143,258 | ) |
|
| (124,551 | ) |
|
| (61,265 | ) |
|
| (81,528 | ) |
Non-real estate capital additions |
|
| (776 | ) |
|
| (4,467 | ) |
|
| (15,536 | ) |
|
| (1,466 | ) |
Interest capitalized for real estate under development |
|
| (23,164 | ) |
|
| (41,658 | ) |
|
| (4,102 | ) |
|
| (2,679 | ) |
Proceeds from disposition of real estate, net |
|
| 350,000 |
|
|
| 6,584,126 |
|
|
| 747,600 |
|
|
| 393,439 |
|
Investments in unconsolidated entities |
|
| (5,324 | ) |
|
| (3,826 | ) |
|
| (5,626 | ) |
|
| (8,572 | ) |
Distributions from unconsolidated entities – return of capital |
|
| 329 |
|
|
| 13,798 |
|
|
| — |
|
|
| 78,262 |
|
Proceeds from sale of investment securities and other investments |
|
| — |
|
|
| 72,815 |
| ||||||||
Decrease (increase) in deposits on real estate acquisitions and investments, net |
|
| 39,519 |
|
|
| (83,668 | ) | ||||||||
(Increase) in mortgage deposits |
|
| (4,541 | ) |
|
| (21 | ) | ||||||||
Net cash (used for) provided by investing activities |
|
| (480,797 | ) |
|
| 5,752,165 |
| ||||||||
Purchase of investment securities and other investments |
|
| (509 | ) |
|
| (269 | ) | ||||||||
Net cash provided by (used for) investing activities |
|
| 565,347 |
|
|
| (369,155 | ) |
See accompanying notes
13
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt financing costs |
| $ | (6,272 | ) |
| $ | (507 | ) |
| $ | (2,907 | ) |
| $ | (6,069 | ) |
Mortgage deposits |
|
| 57,057 |
|
|
| (6,249 | ) | ||||||||
Mortgage notes payable, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 495,145 |
|
|
| 295,620 |
| ||||||||
Lump sum payoffs |
|
| (493,420 | ) |
|
| (565,084 | ) |
|
| (91,500 | ) |
|
| (95,500 | ) |
Scheduled principal repayments |
|
| (8,771 | ) |
|
| (6,644 | ) |
|
| (3,873 | ) |
|
| (3,110 | ) |
Notes, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 692,466 |
|
| — |
|
|
| — |
|
|
| 597,480 |
| |
Lump sum payoffs |
|
| (394,077 | ) |
|
| (1,500,000 | ) | ||||||||
Line of credit and commercial paper: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit proceeds |
|
| 1,845,000 |
|
|
| 246,000 |
|
|
| 1,870,000 |
|
|
| 1,995,000 |
|
Line of credit repayments |
|
| (1,845,000 | ) |
|
| (246,000 | ) |
|
| (1,890,000 | ) |
|
| (1,995,000 | ) |
Commercial paper proceeds |
|
| 3,888,675 |
|
|
| 1,324,784 |
|
|
| 6,726,167 |
|
|
| 7,775,817 |
|
Commercial paper repayments |
|
| (3,681,750 | ) |
|
| (1,712,472 | ) |
|
| (7,724,000 | ) |
|
| (8,275,000 | ) |
Proceeds from settlement of derivative instruments |
|
| 1,296 |
|
| — |
| |||||||||
Proceeds from EQR's Employee Share Purchase Plan (ESPP) |
|
| 2,963 |
|
|
| 2,778 |
| ||||||||
Proceeds from (payments on) settlement of derivative instruments |
|
| (1,215 | ) |
|
| (41,616 | ) | ||||||||
Proceeds from EQR’s Employee Share Purchase Plan (ESPP) |
|
| 2,359 |
|
|
| 1,652 |
| ||||||||
Proceeds from exercise of EQR options |
|
| 12,967 |
|
|
| 26,939 |
|
|
| 11,322 |
|
|
| 48,487 |
|
Payment of offering costs |
|
| (36 | ) |
|
| (304 | ) |
|
| — |
|
|
| (155 | ) |
Other financing activities, net |
|
| (40 | ) |
|
| (33 | ) |
|
| (31 | ) |
|
| (49 | ) |
Contributions – Noncontrolling Interests – Partially Owned Properties |
|
| 125 |
|
| — |
|
|
| 341 |
|
|
| 4,594 |
| |
Contributions – Limited Partners |
|
| — |
|
|
| 1 |
|
|
| 12 |
|
|
| — |
|
Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP Units – General Partner |
|
| (554,267 | ) |
|
| (3,490,838 | ) |
|
| (435,427 | ) |
|
| (409,943 | ) |
Preference Units |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (1,545 | ) |
|
| (773 | ) |
OP Units – Limited Partners |
|
| (20,604 | ) |
|
| (137,641 | ) |
|
| (16,478 | ) |
|
| (14,728 | ) |
Noncontrolling Interests – Partially Owned Properties |
|
| (6,873 | ) |
|
| (28,588 | ) |
|
| (10,269 | ) |
|
| (5,170 | ) |
Net cash (used for) financing activities |
|
| (512,879 | ) |
|
| (6,096,176 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents |
|
| (30,642 | ) |
|
| 475,310 |
| ||||||||
Cash and cash equivalents, beginning of period |
|
| 77,207 |
|
|
| 42,276 |
| ||||||||
Cash and cash equivalents, end of period |
| $ | 46,565 |
|
| $ | 517,586 |
| ||||||||
Net cash provided by (used for) financing activities |
|
| (1,071,899 | ) |
|
| (128,463 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents and restricted deposits |
|
| 128,534 |
|
|
| 193,155 |
| ||||||||
Cash and cash equivalents and restricted deposits, beginning of period |
|
| 116,999 |
|
|
| 116,313 |
| ||||||||
Cash and cash equivalents and restricted deposits, end of period |
| $ | 245,533 |
|
| $ | 309,468 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents and restricted deposits, end of period |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 187,416 |
|
| $ | 251,273 |
| ||||||||
Restricted deposits |
|
| 58,117 |
|
|
| 58,195 |
| ||||||||
Total cash and cash equivalents and restricted deposits, end of period |
| $ | 245,533 |
|
| $ | 309,468 |
|
See accompanying notes
14
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
| $ | 257,805 |
|
| $ | 383,374 |
|
| $ | 148,164 |
|
| $ | 171,116 |
|
Net cash paid for income and other taxes |
| $ | 964 |
|
| $ | 1,333 |
| ||||||||
Real estate acquisitions/dispositions/other: |
|
|
|
|
|
|
|
| ||||||||
Mortgage loans assumed |
| $ | — |
|
| $ | 43,400 |
| ||||||||
Net cash paid (received) for income and other taxes |
| $ | 428 |
|
| $ | 754 |
| ||||||||
Amortization of deferred financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | (120 | ) |
| $ | — |
| ||||||||
Other assets |
| $ | 1,810 |
|
| $ | 2,291 |
|
| $ | 1,169 |
|
| $ | 1,206 |
|
Mortgage notes payable, net |
| $ | 1,943 |
|
| $ | 3,320 |
|
| $ | 876 |
|
| $ | 2,344 |
|
Notes, net |
| $ | 2,694 |
|
| $ | 4,389 |
|
| $ | 2,227 |
|
| $ | 2,233 |
|
Amortization of discounts and premiums on debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 247 |
|
| $ | (21,318 | ) |
| $ | 1,191 |
|
| $ | 16,426 |
|
Notes, net |
| $ | 1,771 |
|
| $ | 2,578 |
|
| $ | 1,362 |
|
| $ | 1,369 |
|
Line of credit and commercial paper |
| $ | 2,921 |
|
| $ | 412 |
| ||||||||
Amortization of deferred settlements on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | (9 | ) |
| $ | (75 | ) |
| $ | (6 | ) |
| $ | (6 | ) |
Accumulated other comprehensive income |
| $ | 14,019 |
|
| $ | 37,262 |
|
| $ | 11,398 |
|
| $ | 8,902 |
|
Write-off of pursuit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | 2,292 |
|
| $ | 2,876 |
|
| $ | 3,122 |
|
| $ | 2,947 |
|
Other assets |
| $ | 17 |
|
| $ | 399 |
|
| $ | 140 |
|
| $ | 37 |
|
Accounts payable and accrued expenses |
| $ | 20 |
|
| $ | 104 |
|
| $ | 16 |
|
| $ | 3 |
|
Loss (income) from investments in unconsolidated entities: |
|
|
|
|
|
|
|
| ||||||||
(Income) loss from investments in unconsolidated entities: |
|
|
|
|
|
|
|
| ||||||||
Investments in unconsolidated entities |
| $ | 1,076 |
|
| $ | (6,999 | ) |
| $ | 1,554 |
|
| $ | (68,735 | ) |
Other liabilities |
| $ | 1,077 |
|
| $ | 1,153 |
|
| $ | 645 |
|
| $ | 677 |
|
Realized/unrealized (gain) loss on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | (3,803 | ) |
| $ | (4,563 | ) |
| $ | — |
|
| $ | 2,002 |
|
Notes, net |
| $ | (1,413 | ) |
| $ | 4,563 |
|
| $ | — |
|
| $ | 2,253 |
|
Other liabilities |
| $ | — |
|
| $ | 4,240 |
|
| $ | 1,215 |
|
| $ | 29,510 |
|
Accumulated other comprehensive income |
| $ | 5,216 |
|
| $ | (4,240 | ) |
| $ | (1,190 | ) |
| $ | (33,765 | ) |
Investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | (2,324 | ) |
| $ | (1,726 | ) |
| $ | (4,726 | ) |
| $ | (6,472 | ) |
Other liabilities |
| $ | (3,000 | ) |
| $ | (2,100 | ) |
| $ | (900 | ) |
| $ | (2,100 | ) |
Distributions from unconsolidated entities - return of capital: |
|
|
|
|
|
|
|
| ||||||||
Investments in unconsolidated entities |
| $ | 329 |
|
| $ | 14,014 |
| ||||||||
Debt financing costs: |
|
|
|
|
|
|
|
| ||||||||
Other assets |
| $ | — |
|
| $ | (216 | ) |
| $ | (215 | ) |
| $ | 145 |
|
Debt financing costs: |
|
|
|
|
|
|
|
| ||||||||
Mortgage notes payable, net |
| $ | — |
|
| $ | (507 | ) |
| $ | (2,692 | ) |
| $ | (2,237 | ) |
Notes, net |
| $ | (6,272 | ) |
| $ | — |
|
| $ | — |
|
| $ | (5,213 | ) |
Other: |
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation adjustments |
| $ | — |
|
| $ | (264 | ) | ||||||||
Other liabilities |
| $ | — |
|
| $ | 1,236 |
| ||||||||
Right-of-use assets and lease liabilities initial measurement and reclassifications: |
|
|
|
|
|
|
|
| ||||||||
Right-of-use assets |
| $ | — |
|
| $ | (438,705 | ) | ||||||||
Other assets |
| $ | — |
|
| $ | 184,116 |
| ||||||||
Lease liabilities |
| $ | — |
|
| $ | 282,791 |
| ||||||||
Other liabilities |
| $ | — |
|
| $ | (28,202 | ) |
See accompanying notes
15
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT STATEMENTS OF CHANGES IN CAPITAL
(Amounts in thousands)thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||
|
| September 30, 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| |||||
PARTNERS' CAPITAL |
|
|
|
| ||||||||||||||||
PARTNERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
PREFERENCE UNITS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 37,280 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
| ||||
Balance, end of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
GENERAL PARTNER |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 10,305,707 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 10,355,789 |
|
| $ | 10,200,910 |
|
| $ | 10,565,983 |
|
| $ | 10,084,619 |
| ||||
OP Unit Issuance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of OP Units held by Limited Partners into OP Units held by General Partner |
|
| 14,717 |
|
|
| 3,856 |
|
|
| 4,871 |
|
|
| 2,012 |
|
|
| 84 |
|
Exercise of EQR share options |
|
| 12,967 |
|
|
| 11,322 |
|
|
| 48,487 |
|
|
| 171 |
|
|
| 18,627 |
|
EQR's Employee Share Purchase Plan (ESPP) |
|
| 2,963 |
| ||||||||||||||||
EQR’s Employee Share Purchase Plan (ESPP) |
|
| 2,359 |
|
|
| 1,652 |
|
|
| 1,490 |
|
|
| 526 |
| ||||
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQR restricted shares |
|
| 7,489 |
|
|
| 7,254 |
|
|
| 7,982 |
|
|
| 3,231 |
|
|
| 3,404 |
|
EQR share options |
|
| 6,384 |
|
|
| 1,293 |
|
|
| 1,682 |
|
|
| 623 |
|
|
| 889 |
|
EQR ESPP discount |
|
| 586 |
|
|
| 416 |
|
|
| 365 |
|
|
| 263 |
|
|
| 98 |
|
Net income available to Units – General Partner |
|
| 475,694 |
|
|
| 567,949 |
|
|
| 411,962 |
|
|
| 260,116 |
|
|
| 308,196 |
|
OP Units – General Partner distributions |
|
| (555,071 | ) |
|
| (448,750 | ) |
|
| (420,916 | ) |
|
| (224,243 | ) |
|
| (210,419 | ) |
Offering costs |
|
| (36 | ) |
|
| — |
|
|
| (155 | ) |
|
| — |
|
|
| (155 | ) |
Supplemental Executive Retirement Plan (SERP) |
|
| (594 | ) |
|
| (506 | ) |
|
| (1,539 | ) |
|
| (655 | ) |
|
| (937 | ) |
Change in market value of Redeemable Limited Partners |
|
| 29,551 |
|
|
| 128,753 |
|
|
| (56,974 | ) |
|
| 17,304 |
|
|
| (1,953 | ) |
Adjustment for Limited Partners ownership in Operating Partnership |
|
| 16,306 |
|
|
| (1,987 | ) |
|
| 7,771 |
|
|
| 1,453 |
|
|
| 3,119 |
|
Balance, end of period |
| $ | 10,316,663 |
|
| $ | 10,627,748 |
|
| $ | 10,206,098 |
|
| $ | 10,627,748 |
|
| $ | 10,206,098 |
|
LIMITED PARTNERS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 221,297 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 227,837 |
|
| $ | 228,738 |
|
| $ | 235,580 |
|
| $ | 225,081 |
| ||||
Issuance of restricted units to Limited Partners |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||
Conversion of OP Units held by Limited Partners into OP Units held by General Partner |
|
| (14,717 | ) |
|
| (3,856 | ) |
|
| (4,871 | ) |
|
| (2,012 | ) |
|
| (84 | ) |
Equity compensation associated with Units – Limited Partners |
|
| 8,200 |
|
|
| 7,026 |
|
|
| 10,829 |
|
|
| 1,959 |
|
|
| 2,926 |
|
Net income available to Units – Limited Partners |
|
| 17,931 |
|
|
| 21,248 |
|
|
| 15,429 |
|
|
| 9,713 |
|
|
| 11,510 |
|
Units – Limited Partners distributions |
|
| (20,073 | ) |
|
| (17,037 | ) |
|
| (15,079 | ) |
|
| (7,961 | ) |
|
| (7,474 | ) |
Change in carrying value of Redeemable Limited Partners |
|
| 32,000 |
|
|
| (2,048 | ) |
|
| 45 |
|
|
| (657 | ) |
|
| (1,520 | ) |
Adjustment for Limited Partners ownership in Operating Partnership |
|
| (16,306 | ) |
|
| 1,987 |
|
|
| (7,771 | ) |
|
| (1,453 | ) |
|
| (3,119 | ) |
Balance, end of period |
| $ | 228,332 |
|
| $ | 235,169 |
|
| $ | 227,320 |
|
| $ | 235,169 |
|
| $ | 227,320 |
|
ACCUMULATED OTHER COMPREHENSIVE (LOSS) |
|
|
|
| ||||||||||||||||
Balance, beginning of year |
| $ | (113,909 | ) | ||||||||||||||||
Accumulated other comprehensive income – derivative instruments: |
|
|
|
| ||||||||||||||||
Unrealized holding gains arising during the period |
|
| 5,216 |
| ||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, beginning of period |
| $ | (77,563 | ) |
| $ | (64,986 | ) |
| $ | (72,896 | ) |
| $ | (75,013 | ) | ||||
Accumulated other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized holding gains (losses) arising during the period |
|
| (1,190 | ) |
|
| (33,765 | ) |
|
| (223 | ) |
|
| (19,345 | ) | ||||
Losses reclassified into earnings from other comprehensive income |
|
| 14,019 |
|
|
| 11,398 |
|
|
| 8,902 |
|
|
| 5,764 |
|
|
| 4,509 |
|
Balance, end of period |
| $ | (94,674 | ) |
| $ | (67,355 | ) |
| $ | (89,849 | ) |
| $ | (67,355 | ) |
| $ | (89,849 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
DISTRIBUTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Distributions declared per Unit outstanding |
| $ | 1.205 |
|
| $ | 1.135 |
|
| $ | 0.6025 |
|
| $ | 0.5675 |
|
See accompanying notes
16
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATEDSTATEMENTSTATEMENTSOFCHANGESINCAPITAL(Continued)
(Amounts in thousands)thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||
|
| September 30, 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| |||||
NONCONTROLLING INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS – PARTIALLY OWNED PROPERTIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 10,609 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 1,183 |
|
| $ | (2,293 | ) |
| $ | 4,739 |
|
| $ | (5,462 | ) | ||||
Net income attributable to Noncontrolling Interests |
|
| 2,354 |
|
|
| 13,410 |
|
|
| 1,620 |
|
|
| 880 |
|
|
| 821 |
|
Contributions by Noncontrolling Interests |
|
| 125 |
|
|
| 341 |
|
|
| 4,594 |
|
|
| — |
|
|
| 4,594 |
|
Distributions to Noncontrolling Interests |
|
| (6,913 | ) |
|
| (10,300 | ) |
|
| (5,219 | ) |
|
| (985 | ) |
|
| (1,251 | ) |
Balance, end of period |
| $ | 6,175 |
|
| $ | 4,634 |
|
| $ | (1,298 | ) |
| $ | 4,634 |
|
| $ | (1,298 | ) |
See accompanying notes
17
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity Residential (“EQR”), a Maryland real estate investment trust (“REIT”) formed in March 1993, is an S&P 500 company focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban coastal gateway markets.communities, a business that is conducted on its behalf by ERP Operating Limited Partnership ("ERPOP"(“ERPOP”),. EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 and ERPOP is an Illinois limited partnership was formed in May 1993 to conduct the multifamily residential property business of Equity Residential. EQR has elected to be taxed as a REIT. 1993.References to the "Company," "we," "us"“Company,” “we,” “us” or "our"“our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the "Operating Partnership"“Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP. Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the OperatingPartnership.
EQR is the general partner of, and as of SeptemberJune 30, 20172020 owned an approximate 96.4% ownership interest in, ERPOP. All of the Company'sCompany’s property ownership, development and related business operations are conducted through the Operating PartnershipandEQRhasnomaterialassetsorliabilitiesotherthanitsinvestmentinERPOP. EQRissues public equityfromtime totime,thenetproceedsofwhichitisobligatedtocontributetoERPOP,butdoesnothaveanyindebtednessasalldebtisincurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company'sCompany’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly tradedequity.
As of SeptemberJune 30, 2017,2020, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 305304 properties located in 109 states and the District of Columbia consisting of 78,30278,410 apartment units. The ownership breakdown includes (table does not include various uncompleted development properties):
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||
Wholly Owned Properties |
|
| 283 |
|
|
| 73,289 |
|
|
| 287 |
|
|
| 74,849 |
|
Master-Leased Properties – Consolidated |
|
| 3 |
|
|
| 853 |
| ||||||||
Master-Leased Property – Consolidated |
|
| 1 |
|
|
| 162 |
| ||||||||
Partially Owned Properties – Consolidated |
|
| 17 |
|
|
| 3,215 |
|
|
| 16 |
|
|
| 3,399 |
|
Partially Owned Properties – Unconsolidated |
|
| 2 |
|
|
| 945 |
| ||||||||
|
|
| 305 |
|
|
| 78,302 |
|
|
| 304 |
|
|
| 78,410 |
|
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation. These reclassifications did not have an impact on net income previously reported. Operating results for the ninesix months ended SeptemberJune 30, 20172020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2020.
In preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. In response to the novel coronavirus (“COVID-19”) pandemic, management evaluated whether its estimates, such as lease collectibility (see discussion below) and impairment, required revised approaches and generally concluded that no revisions were necessary at this time.
The balance sheets at December 31, 20162019 have been derived from the audited financial statements at that date but do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
18
For further information, including definitions of capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s and the Operating Partnership'sPartnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019.
Income and Other Taxes
DueEQR has elected to the structure of EQRbe taxed as a REIT andREIT. This, along with the nature of the operations of its operating properties, noresulted in 0 provision for federal income taxes has been made at the EQR level. In addition, ERPOP generally is not liable for federal income taxes as the partners recognize their proportionateallocable share of income or loss in their tax returns; therefore no provision for federal income taxes has been made at the ERPOP level. Historically, the Company has generally only incurred certain state and local income, excise and franchise taxes. The Company has elected Taxabletaxable REIT Subsidiarysubsidiary (“TRS”) status for certain of its corporate subsidiaries and, as a result, these entities will incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating losses.
Deferred tax assetsOn March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and liabilities are recognized for future tax consequences attributableEconomic Security Act (the “CARES Act”). The CARES Act was enacted to differences betweenprovide economic relief to companies and individuals in response to the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates for which the temporary differences are expected to be recovered or settled. The effects of changes in tax rates on deferred tax assets and liabilities are recognized in earningsCOVID-19 pandemic. Included in the period enacted. The Company’s deferredCARES Act are tax assets were generallyprovisions which increase allowable interest expense deductions for 2019 and 2020 and increase the result of tax affected suspended interest deductions,ability for taxpayers to use net operating losses, differing depreciable lives on capitalized assets andlosses. While we do not expect these provisions to result in a material impact to the timing of expense recognition for certain accrued liabilities. As of September 30, 2017,Company’s taxable income or tax liabilities, the Company has elected REIT status for its primary TRS upon filingwill continue to analyze the 2016provisions of the CARES Act and related guidance as it is published.
The CARES Act also allows corporations to request accelerated refunds of their alternative minimum tax return(“AMT”) credit. Prior to enactment of this provision, the remaining credits would have been refunded in the third quarterinstallments in 2020, 2021 and 2022. We have filed a claim and expect to receive a refund of 2017, with the election retroactive to January 1, 2016. As a result, the Company wrote-off its deferred tax assets, which were fully reserved, asour remaining $1.6 million of September 30, 2017.AMT credit in 2020.
Recently Issued Accounting Pronouncements
In May 2014,March 2020, the Financial Accounting Standards Board (the "FASB"(“FASB”) issued an amendment to the reference rate reform standard which provides the option for a comprehensive new revenue recognition standard entitled Revenuelimited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on contract modifications and hedge accounting. An example of such reform is the expected market transition from Contracts with Customers the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. Entities that will supersede nearly all existing revenue recognition guidance.make this optional expedient election would not have to remeasure the contracts at the modification date or reassess the accounting treatment if certain criteria are met and would continue applying hedge accounting for relationships affected by reference rate reform. The new standard specifically excludes lease revenue. The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Companies will likely need to use more judgment and make more estimates than under current revenue recognition guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration, if any, to include in the transaction price and allocating the transaction price to each separate performance obligation. The new standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect, if any, recognized as of the date of adoption. The Company anticipates selecting the modified retrospective transition method with a cumulative effect recognized as of the date of adoption and will adopt the new standard effective January 1, 2018, when effective. The Company is continuing to evaluate the standard; however, we do not expect its adoption to have a significant impact on the consolidated financial statements, as approximately 95% of total revenues consist of rental income from leasing arrangements, which is specifically excluded from the standard. In addition, the Company's fee and asset management activities are immaterial now that it sold its interest in Joint Base Lewis McChord in 2016 and given the nature of its disposition transactions, there should be no changes in accounting under the new standard.
In January 2016, the FASB issued a new standard which requires companies to measure all equity securities with readily determinable fair values at fair value on the balance sheet, with changes in fair value recognized in net income. The new standard will bewas effective for the Company beginning on January 1, 2018. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.
In February 2016, the FASB issued a new leases standard which sets out principles for the recognition, measurement, presentationupon issuance and disclosure of leases for both parties to a contract (i.e. lessors and lessees). The new standard requires the following:
Lessors – Leases willelections can be accounted for using an approach that is substantially equivalent to existing guidance for operating, sales-type and financing leases, but aligned with the new revenue recognition standard. Lessors will be required to allocate lease payments to separate lease and non-lease components of each lease agreement, with the non-lease components evaluated under the new revenue recognition standard.
19
The new standard will be effective for the Company beginning on January 1, 2019, with early adoption permitted, though the Company currently anticipates adopting the new standard on the effective date. The new standard must be adopted using a modified retrospective method, which requires application of the new guidance at the beginning of the earliest comparative period presented and provides for certain practical expedients, which the Company currently anticipates electing. The Company anticipates that its residential and retail/commercial leases where it is the lessor will continue to be accounted for as operating leases under the new standard. Therefore, the Company does not currently anticipate significant changes in the accounting for its lease revenues.made through December 31, 2022. The Company is also the lessee under various corporate officecurrently evaluating its options with regards to existing contracts and ground leases, which it will be required to recognize right of use assetshedging relationships and related lease liabilities on its consolidated balance sheets upon adoption. The Company currently anticipates that its corporate office leases where it is the lessee will continue to be accounted for as operating leases under the new standard. Based on its anticipated election of the practical expedients, the Company would not be required to reassess the classification of existing ground leases and therefore these leases would continue to be accounted for as operating leases. However, in the event we modify existing ground leases and/or enter into new ground leases after adoption of the new standard, such leases will likely be classified as finance leases. The Company will continue to evaluate the impact of adopting the new leases standardthis update on its consolidated results of operations and financial position.
In June 2016, the FASB issued a new standard which requires companies to adopt a new approach for estimating credit losses on certain types of financial instruments, such as trade and other receivables and loans. The standard will require entities to estimate a lifetime expected credit loss for most financial instruments, including trade receivables. The new standard will be effective for the Company beginning on January 1, 2020, with early adoption permitted beginning January 1, 2019. The Company is currently evaluating the impact of adopting the new standard on its consolidated results of operations and financial position.
In August 2016 and October 2016, the FASB issued new standards to clarify how specific transactions are classified and presented on the statement of cash flows. Among other clarifications, the new standards specifically provide guidance for the following items within the statement of cash flows which have required significant judgment in the past:
Cash payments related to debt prepayments or extinguishment costs are to be classified within financing activities;
The portion of the cash payment made to settle a zero-coupon bond or a bond with an insignificant cash coupon attributable to accreted interest related to a debt discount is to be classified as a cash outflow within operating activities, and the portion attributable to the principal is to be classified within financing activities;
Insurance settlement proceeds are to be classified based on the nature of the loss;
Companies must elect to classify distributions received from equity method investees using either a cumulative earnings approach or a look-through approach and the election must be disclosed; and
Restricted cash will be included with cash and cash equivalents on the statement of cash flows. Total cash and cash equivalents and restricted cash are to be reconciled to the related line items on the balance sheet.
The new standards must be applied retrospectively to all periods presented in the consolidated financial statements and they will be effective for the Company beginning on January 1, 2018, with early adoption permitted. The Company currently anticipates adopting the new standards in the fourth quarter of 2017 and plans to continue to apply the look-through approach for distributions received from equity method investees. The Company does not expect overall cash flows to change; however, there will be material changes between cash flow classifications due to the substantial debt prepayment penalties that the Company has incurred in the comparative period.
In February 2017, the FASB issued a new standard which clarifies the accounting treatment for partial sales of nonfinancial assets (i.e. real estate). The standard clarifies that partial sales transactions include contributions of nonfinancial assets to a joint venture or other noncontrolled investee. Companies must recognize a full gain or loss on transfers of nonfinancial assets to equity method investees. The standard requires companies to derecognize distinct nonfinancial assets or distinct in substance nonfinancial assets in partial sale transactions when it does not have a controlling financial interest in the legal entity that holds the asset and transfers control of the asset. Once the distinct nonfinancial asset is transferred, the company is required to measure any non-controlling interest it receives or retains at fair value and
20
recognize a full gain or loss on the transaction. If a company transfers ownership interests in a consolidated subsidiary and continues to maintain a controlling financial interest, the company does not derecognize the assets or liabilities, and accounts for the transaction as an equity transaction and no gain or loss is recognized. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption was permitted beginning on January 1, 2017. The Company anticipates adopting the new standard concurrently with the new revenue recognition standard. The new standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect recognized as of the date of adoption. The Company has not had a partial sale of nonfinancial assets in the current or comparative periods. Therefore, the Company does not currently believe that the adoption of this standard will have a material impact on its consolidated results of operations and financial position.
In August 2017, the FASB issued a final standard which makes changes to the hedge accounting model to enable entities to better portray their risk management activities in the financial statements. The new standard expands an entity’s ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk and eases certain documentation and assessment requirements. The new standard also eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of any hedging instrument to be presented in the same income statement line as the hedged instrument. The new standard will be effective for the Company beginning on January 1, 2019 and early adoption is permitted. The Company is currently evaluating the impact of adopting the new standard on its consolidated results of operations and financial position.
Recently Adopted Accounting Pronouncements
In February 2015,April 2020, a FASB staff question and answer document was issued which intended to reduce the FASB issued new consolidation guidance which made changeschallenges of evaluating the enforceable rights and obligations of leases for concessions granted to bothlessees in response to the variable interest modelCOVID-19 pandemic. We elected not to evaluate whether qualifying concessions provided by the Company in response to the COVID-19 pandemic are a lease modification, subject to the criteria that the total payments under the amended lease cannot result in a substantial increase in the rights of the lessor or obligations of the lessee. We also elected to treat the concessions as though they were contemplated as part of the existing contracts and therefore will not apply lease modification rules to the qualifying lease concession amendments. As such, deferrals deemed collectible are recorded as rental receivables with no change to timing of rental revenues and deferrals deemed non-collectible and abatements reduce rental revenues in the deferral/abatement period and cause rental revenues to effectively follow a cash basis related to the changes. The accounting elections provided by the FASB mainly apply to the Company’s non-residential leases and the voting model. Amongmajority of the amendments will not require a straight-line adjustment. During the quarter ended June 30, 2020, we have granted rent payment deferrals/abatements to our non-residential tenants of $4.5 million, of which $4.1 million reduced rental revenues.
In June 2016, the FASBissued a standard which requires companies to adopt a new approach for estimating credit losses on certain types of financial instruments, such as trade and other changes,receivables and loans. The standard requires entities to estimate a lifetime expected credit loss for most financial instruments, including trade receivables. In November 2018, the newFASB issued an amendment excluding operating lease receivables accounted for under the leases standard specifically eliminatedfrom the presumption inscope of the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. Generally, only a single limited partner that is able to exercise substantive kick-out rights will consolidate.credit losses standard. The Company adopted this new standard as required effective January 1, 2016. While adoption of the new standard2020 and it did not result in any changes to conclusions about whetherhave a joint venture wasmaterial effect on its consolidated or unconsolidated, the Company has determined that certainresults of its joint venturesoperations and the Operating Partnership will now qualify as variable interest entities ("VIEs") and therefore will require additional disclosures. See Note 6 for further discussion.financial position.
In March February2016,the FASB issued a newlease standard which simplified several aspectssets out principles for the recognition, measurement, presentation and disclosure of the accountingleases for employee share-based payment transactions, including income tax consequences, classification of awards as equity or liability, statement of cash flows classificationboth parties to a contract (i.e. lessors and policy election options for forfeitures.lessees). The Company adopted this new standard as required effective January 1, 2017.2019 using a modified retrospective method and the Company applied the guidance as of the adoption date and elected certain practical expedients, as described below. The standard impacted our consolidated balance sheets but did not impact our consolidated statements of operations. Right-of-use (“ROU”) assets and lease liabilities where the Company is the lessee were recognized for various corporate office leases and ground leases. The Company will continuerecorded ROU assets and related lease liabilities to estimateits opening balance sheet upon adoption on January 1, 2019 of $434.2 million and $278.3 million, respectively.
The Company elected the numberpractical expedient to not reassess the classification of awards expectedexisting operating leases. As of January 1, 2019, any new or modified ground leases may be classified as financing leases unless they meet certain conditions. When there is a material lease modification, the Company is required to reassess the classification and remeasure the lease liability. The Company also elected the practical expedient to account for both its lease and non-lease components as a single component under the leases standard. See Note 8 for additional discussion regarding the lease standard.
In August 2017, the FASB issued a final standard which makes changes to the hedge accounting model to enable entities to better portray their risk management activities in the financial statements. The standard expands an entity’s ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk and eases certain documentation and assessment requirements. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of any hedging instrument to be forfeitedpresented in the same income statement line as the hedged instrument. The Company adopted this standard as required effective January 1, 2019 and adjust the estimate when it is no longer probable that the employee will fulfill the service condition, as was required under the old standard. The adoption of this standard did not have a material impacteffect on ourits consolidated results of operations orand financial position.
In January 2017, the FASB issued a new standard which clarified the definition of a business. The standard's objective was to add additional guidance that assists companies in determining whether transactions should be accounted for as an asset acquisition or a business combination. The new standard first requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If this threshold is not met, the entity next evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Among other differences, transaction costs associated with asset acquisitions are capitalized while those associated with business combinations are expensed as incurred. In addition, purchase price in an asset acquisition is allocated on a relative fair value basis while in a business combination it is generally measured at fair value. The new standard will be applied prospectively to any transactions occurring within the period of adoption. The Company early adopted the new standard as allowed effective January 1, 2017. The Company anticipates that substantially all of its transactions will now be accounted for as asset acquisitions, which means transaction costs will largely be capitalized as noted above.
Other
The Company is the controlling partner in various consolidated partnerships owning 17 properties and 3,215 apartment units having a noncontrolling interest book value of $6.2 million at September 30, 2017. The Company is required to make certain disclosures regarding noncontrolling interests in consolidated limited-life subsidiaries. Of the consolidated entities described above, the Company is the controlling partner in limited-life partnerships owning four properties having a noncontrolling interest deficit balance of $7.3 million. These four partnership agreements contain provisions that require the partnerships to be liquidated through the sale of their assets upon reaching a date specified in each respective partnership agreement. The Company, as controlling partner, has an obligation to cause the property owning partnerships to distribute the proceeds of liquidation to the Noncontrolling Interests in these Partially Owned Properties only to the extent that the net proceeds received by the partnerships from the sale of their assets warrant a distribution based on the partnership agreements. As of September 30, 2017, the Company estimates the value of
21
Noncontrolling Interest distributions for these four properties would have been approximately $65.8 million (“Settlement Value”) had the partnerships been liquidated. This Settlement Value is based on estimated third party consideration realized by the partnerships upon disposition of the four Partially Owned Properties and is net of all other assets and liabilities, including yield maintenance on the mortgages encumbering the properties, that would have been due on September 30, 2017 had those mortgages been prepaid. Due to, among other things, the inherent uncertainty in the sale of real estate assets, the amount of any potential distribution to the Noncontrolling Interests in the Company's Partially Owned Properties is subject to change. To the extent that the partnerships' underlying assets are worth less than the underlying liabilities, the Company has no obligation to remit any consideration to the Noncontrolling Interests in these Partially Owned Properties.
3. | Equity, Capital and OtherInterests |
EquityThe Company refers to “Common Shares” and Redeemable Noncontrolling Interests“Units” (which refer to both OP Units and restricted units) as equity securities for EQR and “General Partner Units” and “Limited Partner Units” as equity securities for ERPOP. To provide a streamlined and more readable presentation of Equity Residentialthe disclosures for the Company and the Operating Partnership, several sections below refer to the respective terminology for each with the same financial information and separate sections are provided, where needed, to further distinguish any differences in financial information and terminology.
The following tables presenttable presents the changes in the Company’s issued and outstanding Common Shares and “Units” (which includes OPUnits for the six months ended June 30, 2020 and 2019:
|
| 2020 |
|
| 2019 |
| ||
Common Shares |
|
|
|
|
|
|
|
|
Common Shares outstanding at January 1, |
|
| 371,670,884 |
|
|
| 369,405,161 |
|
Common Shares Issued: |
|
|
|
|
|
|
|
|
Conversion of OP Units |
|
| 97,363 |
|
|
| 188,406 |
|
Exercise of share options |
|
| 217,935 |
|
|
| 1,059,674 |
|
Employee Share Purchase Plan (ESPP) |
|
| 44,110 |
|
|
| 27,131 |
|
Restricted share grants, net |
|
| 178,720 |
|
|
| 158,438 |
|
Common Shares outstanding at June 30, |
|
| 372,209,012 |
|
|
| 370,838,810 |
|
Units |
|
|
|
|
|
|
|
|
Units outstanding at January 1, |
|
| 13,731,315 |
|
|
| 13,904,035 |
|
Restricted unit grants, net |
|
| 245,999 |
|
|
| 140,055 |
|
Conversion of OP Units to Common Shares |
|
| (97,363 | ) |
|
| (188,406 | ) |
Units outstanding at June 30, |
|
| 13,879,951 |
|
|
| 13,855,684 |
|
Total Common Shares and Units outstanding at June 30, |
|
| 386,088,963 |
|
|
| 384,694,494 |
|
Units Ownership Interest in Operating Partnership |
|
| 3.6 | % |
|
| 3.6 | % |
The following table presents the changes in the Operating Partnership’s issued and outstanding General Partner Units and restricted units)Limited Partner Units for the ninesix months ended SeptemberJune 30, 2017:2020 and 2019:
| ||||
| ||||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
|
| ||
|
| |||
|
| |||
|
|
|
|
| 2020 |
|
| 2019 |
| ||
General and Limited Partner Units |
|
|
|
|
|
|
|
|
General and Limited Partner Units outstanding at January 1, |
|
| 385,402,199 |
|
|
| 383,309,196 |
|
Issued to General Partner: |
|
|
|
|
|
|
|
|
Exercise of EQR share options |
|
| 217,935 |
|
|
| 1,059,674 |
|
EQR’s Employee Share Purchase Plan (ESPP) |
|
| 44,110 |
|
|
| 27,131 |
|
EQR’s restricted share grants, net |
|
| 178,720 |
|
|
| 158,438 |
|
Issued to Limited Partners: |
|
|
|
|
|
|
|
|
Restricted unit grants, net |
|
| 245,999 |
|
|
| 140,055 |
|
General and Limited Partner Units outstanding at June 30, |
|
| 386,088,963 |
|
|
| 384,694,494 |
|
Limited Partner Units |
|
|
|
|
|
|
|
|
Limited Partner Units outstanding at January 1, |
|
| 13,731,315 |
|
|
| 13,904,035 |
|
Limited Partner restricted unit grants, net |
|
| 245,999 |
|
|
| 140,055 |
|
Conversion of Limited Partner OP Units to EQR Common Shares |
|
| (97,363 | ) |
|
| (188,406 | ) |
Limited Partner Units outstanding at June 30, |
|
| 13,879,951 |
|
|
| 13,855,684 |
|
Limited Partner Units Ownership Interest in Operating Partnership |
|
| 3.6 | % |
|
| 3.6 | % |
The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units, as well as the equity positions of the holders of restricted units, are collectively referred to as the “Noncontrolling Interests – Operating Partnership”. and “Limited Partners Capital,” respectively, for the Company and the Operating Partnership. Subject to certain exceptions (including the “book-up” requirements of restricted units), the Noncontrolling Interests – Operating PartnershipPartnership/Limited Partners Capital may exchange their Units with EQR for Common Shares on a one-for-one basis. The carrying value of the Noncontrolling Interests – Operating PartnershipPartnership/Limited Partners Capital (including redeemable interests) is allocated based on the number of Noncontrolling Interests – Operating Partnership UnitsPartnership/Limited Partners Capital in total in proportion to the number of Noncontrolling Interests – Operating Partnership UnitsPartnership/Limited Partners Capital in total plus the total number of Common Shares.Shares/General Partner Units. Net income is allocated to the Noncontrolling Interests – Operating PartnershipPartnership/Limited Partners Capital based on the weighted average ownership percentage during the period.
The Operating Partnership has the right but not the obligation to make a cash payment instead of issuing Common Shares to any and all holders of Noncontrolling Interests – Operating Partnership UnitsPartnership/Limited Partners Capital requesting an exchange of their OP UnitsNoncontrolling Interests – Operating Partnership/Limited Partners Capital with EQR. Once the Operating Partnership elects not to redeem the Noncontrolling Interests – Operating Partnership UnitsPartnership/Limited Partners Capital for cash, EQR is obligated to deliver Common Shares to the exchanging holder of the Noncontrolling Interests – Operating Partnership Units.Partnership/Limited Partners Capital.
The Noncontrolling Interests – Operating Partnership UnitsPartnership/Limited Partners Capital are classified as either mezzanine equity or permanent equity. If EQR is required, either by contract or securities law, to deliver registered Common Shares, such Noncontrolling Interests – Operating PartnershipPartnership/Limited Partners Capital are differentiated and referred to as “Redeemable Noncontrolling Interests – Operating Partnership”. and “Redeemable Limited Partners,” respectively. Instruments that require settlement in registered shares cannot be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered shares. Therefore, settlement in cash is assumed and that responsibility for settlement in cash is deemed to fall to the Operating Partnership as the primary source of cash for EQR, resulting in presentation in the mezzanine section of the balance sheet. The Redeemable Noncontrolling Interests – Operating PartnershipPartnership/Redeemable Limited Partners are adjusted to the greater of carrying value or fair market value based on the Common Share price of EQR at the end of each respective reporting period. EQR has the ability to deliver unregistered Common Shares for the remaining portion of the Noncontrolling Interests – Operating Partnership UnitsPartnership/Limited Partners Capital that are
22
classified in permanent equity at September June 30, 20172020 and December 31, 2016.2019.
The carrying value of the Redeemable Noncontrolling Interests – Operating PartnershipPartnership/Redeemable Limited Partners is allocated based on the number of Redeemable Noncontrolling Interests – Operating Partnership UnitsPartnership/Redeemable Limited Partners in proportion to the number of Noncontrolling Interests – Operating Partnership UnitsPartnership/Limited Partners Capital in total. Such percentage of the total carrying value of Units/Limited Partner Units which is ascribed to the Redeemable Noncontrolling Interests – Operating PartnershipPartnership/Redeemable Limited Partners is then adjusted to the greater of carrying value or fair market value as described above. As of SeptemberJune 30, 2017,2020 and 2019, the Redeemable Noncontrolling Interests – Operating PartnershipPartnership/Redeemable Limited Partners have a redemption value of approximately $380.5$336.7 million and $436.0 million, respectively,which represents the value of Common Shares that would be issued in exchange for the Redeemable Noncontrolling Interests – Operating Partnership Units.Partnership/Redeemable Limited Partners.
The following table presents the changes in the redemption value of the Redeemable Noncontrolling Interests – Operating PartnershipPartnership/Redeemable Limited Partners for the ninesix months ended SeptemberJune 30, 20172020 and 2019 (amounts inthousands):
|
| 2017 |
|
| 2020 |
|
| 2019 |
| |||
Balance at January 1, |
| $ | 442,092 |
|
| $ | 463,400 |
|
| $ | 379,106 |
|
Change in market value |
|
| (29,551 | ) |
|
| (128,753 | ) |
|
| 56,974 |
|
Change in carrying value |
|
| (32,000 | ) |
|
| 2,048 |
|
|
| (45 | ) |
Balance at September 30, |
| $ | 380,541 |
| ||||||||
Balance at June 30, |
| $ | 336,695 |
|
| $ | 436,035 |
|
Net proceeds from EQR Common Share and Preferred Share (see definition below) offerings and proceeds from exercise of options for Common Shares are contributed by EQR to ERPOP. In return for those contributions, EQR receives a number of OP Units in ERPOP equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in ERPOP equal in number and having the same terms as the Preferred Shares issued in the equity offering). As a result, the net offering proceeds from Common Shares and Preferred Shares are allocated for the Company between shareholders’ equity and Noncontrolling Interests – Operating Partnership and for the Operating Partnership between General Partner’s Capital and Limited Partners Capital to account for the change in their respective percentage ownership of the underlying equity of ERPOP.equity.
TheCompany’sdeclarationoftrustauthorizesittoissueupto 100,000,000preferredsharesofbeneficialinterest, $0.01$0.01 par value per share (the “Preferred Shares”), with specific rights, preferences and other attributes as the Board of Trustees may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Company’s Common Shares.
The following table presents the Company’s issued and outstanding Preferred SharesShares/Preference Units asof SeptemberJune 30, 2017 2020andDecember 31, 2016:2019:
|
|
|
|
|
|
|
| Amounts in thousands |
| |||||
|
|
|
| Annual |
|
|
|
|
|
|
|
|
| |
|
| Call |
| Dividend per |
|
| September 30, |
|
| December 31, |
| |||
|
| Date (1) |
| Share (2) |
|
| 2017 |
|
| 2016 |
| |||
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 745,600 shares issued and outstanding at September 30, 2017 and December 31, 2016 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
|
| Amounts in thousands |
| |||||
|
|
|
| Annual |
|
|
|
|
|
|
|
|
| |
|
| Call |
| Dividend Per |
|
| June 30, |
|
| December 31, |
| |||
|
| Date (1) |
| Share/Unit (2) |
|
| 2020 |
|
| 2019 |
| |||
Preferred Shares/Preference Units of beneficial interest, $0.01 par value; 100,000,000 shares authorized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.29% Series K Cumulative Redeemable Preferred Shares/Preference Units; liquidation value $50 per share/unit; 745,600 shares/units issued and outstanding as of June 30, 2020 and December 31, 2019 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
(1) | On or after the call date, redeemable |
(2) | Dividends on Preferred |
23
Capital and Redeemable Limited Partners of ERP Operating Limited Partnership
The following tables present the changes in the Operating Partnership’s issued and outstanding Units and in the limited partners’ Units for the nine months ended September 30, 2017:
| ||||
| ||||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
|
| ||
|
| |||
|
|
|
The Limited Partners of the Operating Partnership as of September 30, 2017 include various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units, as well as the equity positions of the holders of restricted units. Subject to certain exceptions (including the “book-up” requirements of restricted units), Limited Partners may exchange their Units with EQR for Common Shares on a one-for-one basis. The carrying value of the Limited Partner Units (including redeemable interests) is allocated based on the number of Limited Partner Units in total in proportion to the number of Limited Partner Units in total plus the number of General Partner Units. Net income is allocated to the Limited Partner Units based on the weighted average ownership percentage during the period.
The Operating Partnership has the right but not the obligation to make a cash payment instead of issuing Common Shares to any and all holders of Limited Partner Units requesting an exchange of their OP Units with EQR. Once the Operating Partnership elects not to redeem the Limited Partner Units for cash, EQR is obligated to deliver Common Shares to the exchanging limited partner.
The Limited Partner Units are classified as either mezzanine equity or permanent equity. If EQR is required, either by contract or securities law, to deliver registered Common Shares, such Limited Partner Units are differentiated and referred to as “Redeemable Limited Partner Units”. Instruments that require settlement in registered shares cannot be classified in permanent equity as it is not always completely within an issuer's control to deliver registered shares. Therefore, settlement in cash is assumed and that responsibility for settlement in cash is deemed to fall to the Operating Partnership as the primary source of cash for EQR, resulting in presentation in the mezzanine section of the balance sheet. The Redeemable Limited Partner Units are adjusted to the greater of carrying value or fair market value based on the Common Share price of EQR at the end of each respective reporting period. EQR has the ability to deliver unregistered Common Shares for the remaining portion of the Limited Partner Units that are classified in permanent equity at September 30, 2017 and December 31, 2016.
The carrying value of the Redeemable Limited Partner Units is allocated based on the number of Redeemable Limited Partner Units in proportion to the number of Limited Partner Units in total. Such percentage of the total carrying value of Limited Partner Units which is ascribed to the Redeemable Limited Partner Units is then adjusted to the greater of carrying value or fair market value as described above. As of September 30, 2017, the Redeemable Limited Partner Units have a redemption value of approximately $380.5 million, which represents the value of Common Shares that would be issued in exchange for the Redeemable Limited Partner Units.
24
The following table presents the changes in the redemption value of the Redeemable Limited Partners for the nine months ended September 30, 2017 (amounts in thousands):
|
| 2017 |
| |
Balance at January 1, |
| $ | 442,092 |
|
Change in market value |
|
| (29,551 | ) |
Change in carrying value |
|
| (32,000 | ) |
Balance at September 30, |
| $ | 380,541 |
|
EQR contributes all net proceeds from its various equity offerings (including proceeds from exercise of options for Common Shares) to ERPOP. In return for those contributions, EQR receives a number of OP Units in ERPOP equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in ERPOP equal in number and having the same terms as the preferred shares issued in the equity offering).
The following table presents the Operating Partnership's issued and outstanding “Preference Units” as of September 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
| Amounts in thousands |
| |||||
|
|
|
| Annual |
|
|
|
|
|
|
|
|
| |
|
| Call |
| Dividend Per |
|
| September 30, |
|
| December 31, |
| |||
|
| Date (1) |
| Unit (2) |
|
| 2017 |
|
| 2016 |
| |||
Preference Units: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 745,600 units issued and outstanding at September 30, 2017 and December 31, 2016 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
Other
In September 2009,EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC in June 2019 and expires in June 2022. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).
The Company announced the establishment ofhas an At-The-Market (“ATM”) share offering program which would allowallows EQR to sell Common Shares from time to time into the existing trading market at current market prices as well as through negotiated transactions. PerIn June 2019, the termsCompany extended the program maturity to June 2022. In connection with the extension, the Company may now also sell Common Shares under forward sale agreements. The use of ERPOP's partnershipa forward sale agreement EQR contributeswould allow the netCompany to lock in a price on the sale of Common Shares at the time the agreement is executed, but defer receiving the proceeds from all equity offerings to the capital of ERPOP in exchange for additional OP Units (onsale until a one-for-one Common Share per OP Unit basis). The program currently has a maturity of June 2019.later date. EQR has the authority to issue 13.0 million shares but has not issued any shares under this program since September 2012.
The Company may repurchase up to 13.0 million Common Shares under its share repurchase program. No shares were repurchased during the nine months ended SeptemberNaN open market repurchases have occurred since 2008, and 0 repurchases of any kind have occurred since February 2014. As of June 30, 2017 and as a result,2020, EQR
has remaining authorization to repurchase up to 13.0 million of its shares under the repurchase program as of September 30, 2017.
25
shares.
The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of SeptemberJune 30, 20172020 and December 31, 20162019 (amounts in thousands):
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Land |
| $ | 5,985,004 |
|
| $ | 5,899,862 |
|
Depreciable property: |
|
|
|
|
|
|
|
|
Buildings and improvements |
|
| 17,601,348 |
|
|
| 16,913,430 |
|
Furniture, fixtures and equipment |
|
| 1,500,963 |
|
|
| 1,346,300 |
|
In-Place lease intangibles |
|
| 469,091 |
|
|
| 470,849 |
|
Projects under development: |
|
|
|
|
|
|
|
|
Land |
|
| 61,047 |
|
|
| 115,876 |
|
Construction-in-progress |
|
| 232,017 |
|
|
| 521,292 |
|
Land held for development: |
|
|
|
|
|
|
|
|
Land |
|
| 63,439 |
|
|
| 84,440 |
|
Construction-in-progress |
|
| 35,634 |
|
|
| 34,376 |
|
Investment in real estate |
|
| 25,948,543 |
|
|
| 25,386,425 |
|
Accumulated depreciation |
|
| (5,849,110 | ) |
|
| (5,360,389 | ) |
Investment in real estate, net |
| $ | 20,099,433 |
|
| $ | 20,026,036 |
|
The following table summarizes the carrying amounts for the Company's above and below market ground and retail lease intangibles as of September 30, 2017 and December 31, 2016 (amounts in thousands):
Description |
| Balance Sheet Location |
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
Ground lease intangibles – below market |
| Other Assets |
| $ | 191,918 |
|
| $ | 178,251 |
|
Retail lease intangibles – above market |
| Other Assets |
|
| 1,260 |
|
|
| 1,260 |
|
Lease intangible assets |
|
|
|
| 193,178 |
|
|
| 179,511 |
|
Accumulated amortization |
|
|
|
| (21,305 | ) |
|
| (17,972 | ) |
Lease intangible assets, net |
|
|
| $ | 171,873 |
|
| $ | 161,539 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Ground lease intangibles – above market |
| Other Liabilities |
| $ | 2,400 |
|
| $ | 2,400 |
|
Retail lease intangibles – below market |
| Other Liabilities |
|
| 5,270 |
|
|
| 5,270 |
|
Lease intangible liabilities |
|
|
|
| 7,670 |
|
|
| 7,670 |
|
Accumulated amortization |
|
|
|
| (5,113 | ) |
|
| (4,509 | ) |
Lease intangible liabilities, net |
|
|
| $ | 2,557 |
|
| $ | 3,161 |
|
The following table provides a summary of the effect of the amortization for above and below market ground and retail lease intangibles on the Company’s accompanying consolidated statements of operations and comprehensive income for the nine months and quarters ended September 30, 2017 and 2016 respectively (amounts in thousands):
|
|
|
| Nine Months Ended |
|
| Quarter Ended |
| ||||||||||
|
|
|
| September 30, |
|
| September 30, |
| ||||||||||
Description |
| Income Statement Location |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Ground lease intangible amortization |
| Property and Maintenance |
| $ | (3,253 | ) |
| $ | (3,241 | ) |
| $ | (1,092 | ) |
| $ | (1,080 | ) |
Retail lease intangible amortization |
| Rental Income |
|
| 524 |
|
|
| 675 |
|
|
| 80 |
|
|
| 222 |
|
Total amortization of above/below market lease intangibles |
|
|
| $ | (2,729 | ) |
| $ | (2,566 | ) |
| $ | (1,012 | ) |
| $ | (858 | ) |
26
The following table provides a summary of the aggregate amortization for above and below market ground and retail lease intangibles for each of the next five years (amounts in thousands):
|
| Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
| ||||||
Ground lease intangibles |
| $ | (1,116 | ) |
| $ | (4,463 | ) |
| $ | (4,463 | ) |
| $ | (4,463 | ) |
| $ | (4,463 | ) |
| $ | (4,463 | ) |
Retail lease intangibles |
|
| 16 |
|
|
| 71 |
|
|
| 71 |
|
|
| 71 |
|
|
| 71 |
|
|
| 27 |
|
Total |
| $ | (1,100 | ) |
| $ | (4,392 | ) |
| $ | (4,392 | ) |
| $ | (4,392 | ) |
| $ | (4,392 | ) |
| $ | (4,436 | ) |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Land |
| $ | 5,789,307 |
|
| $ | 5,936,188 |
|
Depreciable property: |
|
|
|
|
|
|
|
|
Buildings and improvements |
|
| 18,574,877 |
|
|
| 18,904,686 |
|
Furniture, fixtures and equipment |
|
| 1,936,039 |
|
|
| 1,916,458 |
|
In-Place lease intangibles |
|
| 486,987 |
|
|
| 497,957 |
|
Projects under development: |
|
|
|
|
|
|
|
|
Land |
|
| 23,531 |
|
|
| 23,531 |
|
Construction-in-progress |
|
| 251,294 |
|
|
| 158,099 |
|
Land held for development: |
|
|
|
|
|
|
|
|
Land |
|
| 64,460 |
|
|
| 64,460 |
|
Construction-in-progress |
|
| 37,901 |
|
|
| 32,228 |
|
Investment in real estate |
|
| 27,164,396 |
|
|
| 27,533,607 |
|
Accumulated depreciation |
|
| (7,537,713 | ) |
|
| (7,276,786 | ) |
Investment in real estate, net |
| $ | 19,626,683 |
|
| $ | 20,256,821 |
|
During the ninesix months ended SeptemberJune 30, 2017, the Company acquired the entire equity interest in the following from unaffiliated parties (purchase price in thousands):
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
| |||
Rental Properties – Consolidated (1) |
|
| 4 |
|
|
| 947 |
|
| $ | 468,050 |
|
Total |
|
| 4 |
|
|
| 947 |
|
| $ | 468,050 |
|
|
|
During the nine months ended September 30, 2017,2020, the Company disposed of the following to unaffiliated parties (sales price in thousands):
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
| ||||||
Rental Properties – Consolidated |
|
| 4 |
|
|
| 1,024 |
|
| $ | 319,700 |
|
|
| 5 |
|
|
| 1,552 |
|
| $ | 754,361 |
|
Land Parcels (one) |
|
| — |
|
|
| — |
|
|
| 33,450 |
| ||||||||||||
Total |
|
| 4 |
|
|
| 1,024 |
|
| $ | 353,150 |
|
|
| 5 |
|
|
| 1,552 |
|
| $ | 754,361 |
|
The Company recognized a net gain on sales of real estate properties of approximately $141.8 million and a net gain on sales of land parcels of approximately $19.2$352.2 million on the above sales.
The Company has not entered into any separate agreements to acquire rental properties or land parcels as of October 27, 2017.
the date of filing.
The Company has entered into a separate agreementagreements to dispose of the following (sales price and net book value in thousands):
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
|
| Net Book Value |
| |||||||
Land Parcels (one) |
|
| — |
|
|
| — |
|
| $ | 2,700 |
| ||||||||||||||||
Land Parcels (two) |
|
| — |
|
|
| — |
|
| $ | 55,150 |
|
| $ | 19,445 |
| ||||||||||||
Total |
|
| — |
|
|
| — |
|
| $ | 2,700 |
|
|
| — |
|
|
| — |
|
| $ | 55,150 |
|
| $ | 19,445 |
|
The closing of this pending transactiontransactions is subject to certain conditions and restrictions,restrictions; therefore, there can be no assurance that this transactionthe transactions will be consummated or that the final terms will not differ in material respects from thoseany agreements summarized above. See Note 14 for discussion of the properties acquired or disposed of, if any, subsequent to June 30, 2020.
27
TheCompanyhasco-investedinvariouspropertieswithunrelatedthirdpartieswhichareeitherconsolidatedoraccounted for under the equity method of accounting (unconsolidated). The following tables and information summarize
Consolidated Variable Interest Entities (“VIEs”)
In accordance with accounting standards for consolidation of VIEs, the Company’s investments in partially owned entities as of September 30, 2017 (amounts in thousands except for property and apartment unit amounts):
|
| Consolidated |
|
| Unconsolidated |
| ||||||||||
|
| (VIE) |
|
| (Non-VIE) |
|
| (VIE) (1) |
|
| Total |
| ||||
Total properties |
|
| 17 |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Total apartment units |
|
| 3,215 |
|
|
| 945 |
|
|
| — |
|
|
| 945 |
|
Balance sheet information at 9/30/2017 (at 100%): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate |
| $ | 648,839 |
|
| $ | 236,630 |
|
| $ | 172,995 |
|
| $ | 409,625 |
|
Accumulated depreciation |
|
| (226,607 | ) |
|
| (40,840 | ) |
|
| (48,670 | ) |
|
| (89,510 | ) |
Investment in real estate, net |
|
| 422,232 |
|
|
| 195,790 |
|
|
| 124,325 |
|
|
| 320,115 |
|
Cash and cash equivalents |
|
| 22,914 |
|
|
| 7,194 |
|
|
| 139 |
|
|
| 7,333 |
|
Investments in unconsolidated entities |
|
| 45,035 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Deposits – restricted |
|
| 385 |
|
|
| 258 |
|
|
| — |
|
|
| 258 |
|
Other assets |
|
| 26,246 |
|
|
| 450 |
|
|
| 105 |
|
|
| 555 |
|
Total assets |
| $ | 516,812 |
|
| $ | 203,692 |
|
| $ | 124,569 |
|
| $ | 328,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY/CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net (2) |
| $ | 302,037 |
|
| $ | 145,424 |
|
| $ | — |
|
| $ | 145,424 |
|
Accounts payable & accrued expenses |
|
| 2,975 |
|
|
| 2,644 |
|
|
| 150 |
|
|
| 2,794 |
|
Accrued interest payable |
|
| 1,024 |
|
|
| 691 |
|
|
| — |
|
|
| 691 |
|
Other liabilities |
|
| 453 |
|
|
| 308 |
|
|
| 27 |
|
|
| 335 |
|
Security deposits |
|
| 2,037 |
|
|
| 488 |
|
|
| — |
|
|
| 488 |
|
Total liabilities |
|
| 308,526 |
|
|
| 149,555 |
|
|
| 177 |
|
|
| 149,732 |
|
Noncontrolling Interests – Partially Owned Properties/Partners' equity |
|
| 6,175 |
|
|
| 54,336 |
|
|
| 84,682 |
|
|
| 139,018 |
|
Company equity/General and Limited Partners' Capital |
|
| 202,111 |
|
|
| (199 | ) |
|
| 39,710 |
|
|
| 39,511 |
|
Total equity/capital |
|
| 208,286 |
|
|
| 54,137 |
|
|
| 124,392 |
|
|
| 178,529 |
|
Total liabilities and equity/capital |
| $ | 516,812 |
|
| $ | 203,692 |
|
| $ | 124,569 |
|
| $ | 328,261 |
|
|
| Consolidated |
|
| Unconsolidated |
| ||||||||||
|
| (VIE) |
|
| (Non-VIE) |
|
| (VIE) (1) |
|
| Total |
| ||||
Operating information for the nine months ended 9/30/2017 (at 100%): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
| $ | 69,917 |
|
| $ | 20,050 |
|
| $ | 3,805 |
|
| $ | 23,855 |
|
Operating expenses |
|
| 17,056 |
|
|
| 6,746 |
|
|
| 1,573 |
|
|
| 8,319 |
|
Net operating income |
|
| 52,861 |
|
|
| 13,304 |
|
|
| 2,232 |
|
|
| 15,536 |
|
Property management |
|
| 2,463 |
|
|
| 584 |
|
|
| 56 |
|
|
| 640 |
|
General and administrative/other |
|
| 239 |
|
|
| 1 |
|
|
| 127 |
|
|
| 128 |
|
Depreciation |
|
| 15,569 |
|
|
| 7,960 |
|
|
| 4,126 |
|
|
| 12,086 |
|
Operating income (loss) |
|
| 34,590 |
|
|
| 4,759 |
|
|
| (2,077 | ) |
|
| 2,682 |
|
Interest and other income |
|
| 45 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense incurred, net |
|
| (9,977 | ) |
|
| (6,217 | ) |
|
| — |
|
|
| (6,217 | ) |
Amortization of deferred financing costs |
|
| (203 | ) |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Income (loss) before income and other taxes and (loss) from investments in unconsolidated entities |
|
| 24,455 |
|
|
| (1,459 | ) |
|
| (2,077 | ) |
|
| (3,536 | ) |
Income and other tax (expense) benefit |
|
| (34 | ) |
|
| (13 | ) |
|
| — |
|
|
| (13 | ) |
(Loss) from investments in unconsolidated entities |
|
| (1,155 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Net income (loss) |
| $ | 23,266 |
|
| $ | (1,472 | ) |
| $ | (2,077 | ) |
| $ | (3,549 | ) |
|
|
|
|
28
Note: The above tables exclude EQR's ownership interest inCompany consolidates ERPOP private equity fund investments, and the Company's interests in unconsolidated joint ventures established in connection with the acquisition of certain real estate related assets from Archstone Enterprise LP ("Archstone"). These ventures owned certain Archstone assets and succeeded to certain residual Archstone liabilities/litigation, as well as responsibility for tax protection arrangements and third-party preferred interests in former Archstone subsidiaries. The preferred interests had an aggregate liquidation value of $37.4 million at September 30, 2017. The ventures are owned 60% by the Company. See below for further discussion.
Operating Properties
The Company has various equity interests in certain limited partnerships owning 16 properties containing 2,783 apartment units. Each partnership owns a multifamily property. The Company is the general partner of these limited partnerships and is responsible for managing the operations and affairs of the partnerships as well as making all decisions regarding the businesses of the partnerships. The limited partners are not able to exercise substantive kick-out or participating rights. As a result, the partnerships qualify as VIEs. The Company has a controllingon EQR’s financial interest in the VIEs and, thus, is the VIEs' primary beneficiary. The Company has both the power to direct the activities of the VIEs that most significantly impact the VIEs' economic performance as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. As a result, the partnerships are required to be consolidated on the Company's financial statements.
The Company has a 75% equity interest in the Wisconsin Place joint venture. The project contains a mixed-use site located in Chevy Chase, Maryland consisting of residential, retail, office and accessory uses, including underground parking facilities. The joint venture owns the 432 unit residential component, but has no ownership interest in the retail and office components. At September 30, 2017, the residential component had a net book value of $167.0 million. The Company is the managing member and is responsible for conducting all administrative day-to-day matters and affairs of the joint venture as well as implementing all decisions with respect to the joint venture. The limited partner is not able to exercise substantive kick-out or participating rights. As a result, the joint venture qualifies as a VIE. The Company has a controlling financial interest in the VIE and, thus, is the VIE's primary beneficiary. The Company has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance as well as the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, the entity that owns the residential component is required to be consolidated on the Company's financial statements.
The Wisconsin Place joint venture also retains an unconsolidated interest in an entity that owns the land underlying the entire project and owns and operates the parking facility. At September 30, 2017, the basis of this investment was $45.0 million. The joint venture, as a limited partner, does not have substantive kick-out or participating rights in the entity. As a result, the entity qualifies as a VIE. The joint venture does not have a controlling financial interest in the VIE and is not the VIE's primary beneficiary. The joint venture does not have the power to direct the activities of the VIE that most significantly impact the VIE's economic performance or the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, the entity that owns the land and owns and operates the parking facility is unconsolidated and recorded using the equity method of accounting.
The Company has a 20% equity interest in each of the Nexus Sawgrass and Domain joint ventures. The Nexus Sawgrass joint venture owns a 501 unit apartment property located in Sunrise, Florida and the Company's interest had a basis of $4.4 million at September 30, 2017. The Domain joint venture owns a 444 unit apartment property located in San Jose, California and the Company's interest had a basis of $8.4 million at September 30, 2017. Both properties were funded with long-term, non-recourse secured loans from the partner. The mortgage loan on Nexus Sawgrass has a current unconsolidated outstanding balance of $48.6 million, bears interest at 5.60% and matures January 1, 2021. The mortgage loan on Domain has a current unconsolidated outstanding balance of $96.8 million, bears interest at 5.75% and matures January 1, 2022. While the Company is the managing member of both of the joint ventures, the joint venture partner has significant participating rights and has active involvement in and oversight of the operations. As a result, the entities do not qualify as VIEs. The Company alone does not have the power to direct the activities of the entities that most significantly impact the entities' economic performance and as a result, the entities are unconsolidated and recorded using the equity method of accounting.
Other
As the sole general partner of ERPOP, EQR has exclusive control of ERPOP'sERPOP’s day-to-day management. The limited partners are not able to exercise substantive kick-out or participating rights. As a result, ERPOP qualifies as a VIE. EQR has a controlling financial interest in ERPOP and, thus, is ERPOP'sERPOP’s primary beneficiary. EQR has the power to direct the activities of ERPOP that most significantly impact ERPOP'sERPOP’s economic performance as well as the obligation to absorb losses or the right to receive benefits from ERPOP that could potentially be significant to ERPOP. As a result, ERPOP is required to be consolidated on EQR's financial statements.
The Company agreed to a maximum investment of $5.0 million each for two privatehas various equity funds, both of which primarily focus on real estate technology investments. interests in certain joint ventures owning 16 properties containing 3,399 apartment units. The Company accountsis the general partner or managing member of these joint ventures and is responsible for both investments undermanaging the equity method of accounting. As of
29
September 30, 2017, the Company’s interest in these investments had a combined basis of $1.6 million.
On February 27, 2013, in connection with the acquisition of Archstone, subsidiariesoperations and affairs of the Company entered into three limited liability company agreements (collectively,joint ventures as well as making all decisions regarding the “Residual JV”). The Residual JV owned certain Archstone assets and succeeded to certain residual Archstone liabilities/litigation. The Residual JV is owned 60% by the Company and 40% by its joint venture partner. The Company's basis at September 30, 2017 was a net obligation of $0.4 million. The Residual JV is managed by a Management Committee consisting of two members from eachbusinesses of the Company and its joint venture partner. Bothventures. The limited partners have equal participation in the Management Committee and all significantor non-managing members are not able to exercise substantive kick-out or participating rights are shared by both partners.rights. As a result, the Residual JV does notjoint ventures qualify as a VIE.VIEs. The Company alone does not havehas a controlling financial interest in the VIEs and, thus, is the VIEs’ primary beneficiary. The Company has both the power to direct the activities of the Residual JVVIEs that most significantly impact the Residual JV'sVIEs’ economic performance and as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. As a result, the Residual JV isjoint ventures are required to be consolidated on the Company’s financial statements.
The Company also has entered into two separate consolidated joint ventures which each own land parcels that are being/will be developed into multifamily rental properties. These joint ventures have been deemed to be VIEs and are consolidated due to the Company being the primary beneficiary.
The consolidated assets and liabilities related to the VIEs discussed above were approximately $753.7 million and $236.6 million, respectively, at June 30, 2020 and approximately $754.7 million and $323.1 million, respectively, at December 31, 2019.
Investments in Unconsolidated Entities
The following table and information summarizes the Company’s investments in unconsolidated and recorded usingentities, which are accounted for under the equity method of accounting. The Residual JV has sold allaccounting as the requirements for consolidation are not met, as of the real estate assets that were acquired as part of the acquisition of Archstone, including all of the German assets,June 30, 2020 and isDecember 31, 2019 (amounts in the process of winding down all remaining activities.thousands except for ownership percentage):
On February 27, 2013, in connection with the acquisition of Archstone, a subsidiary of the Company entered into a limited liability company agreement (the “Legacy JV”), through which they assumed obligations of Archstone in the form of preferred interests, some of which are governed by tax protection arrangements. At September 30, 2017, the remaining preferred interests had an aggregate liquidation value of $37.4 million, our share of which is included in other liabilities in the accompanying consolidated balance sheets. Obligations of the Legacy JV are borne 60% by the Company and 40% by its joint venture partner. The Legacy JV is managed by a Management Committee consisting of two members from each of the Company and its joint venture partner. Both partners have equal participation in the Management Committee and all significant participating rights are shared by both partners. As a result, the Legacy JV does not qualify as a VIE. The Company alone does not have the power to direct the activities of the Legacy JV that most significantly impact the Legacy JV's economic performance and as a result, the Legacy JV is unconsolidated and recorded using the equity method of accounting.
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| Ownership Percentage |
| |||
Investments in Unconsolidated Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Property (VIE) (1) |
| $ | 39,385 |
|
| $ | 40,361 |
|
| 33.3% |
| |
Real Estate Technology/Other |
|
| 15,925 |
|
|
| 11,877 |
|
| Varies |
| |
Investments in Unconsolidated Entities |
| $ | 55,310 |
|
| $ | 52,238 |
|
|
|
|
|
| Represents an unconsolidated interest in an entity that owns the land underlying one of the consolidated joint venture properties noted above and owns and operates a related parking facility. The joint venture, as a limited partner, does not have substantive kick-out or participating rights in the entity. As a result, the entity qualifies as a VIE. The joint venture does not have a controlling financial interest in the VIE and is not the VIE’s primary beneficiary. The joint venture does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance or the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, the entity that owns the land and owns and operates the parking facility is unconsolidated and recorded using the equity method of accounting. |
Table of Contents |
7. | Restricted |
The following table presents the Company’s restricted deposits as of SeptemberJune 30, 20172020 and December 31, 20162019 (amounts in thousands):
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Mortgage escrow deposits: |
|
|
|
|
|
|
|
| ||||||||
Replacement reserves |
| $ | 9,233 |
|
| $ | 8,543 |
| ||||||||
Mortgage principal reserves/sinking funds |
|
| 11,895 |
|
|
| 9,689 |
| ||||||||
Mortgage escrow deposits |
|
| 21,128 |
|
|
| 18,232 |
| ||||||||
Restricted cash: |
|
|
|
|
|
|
|
| ||||||||
Tax-deferred (1031) exchange proceeds |
| $ | — |
|
| $ | 38,847 |
|
|
| — |
|
|
| 14,232 |
|
Restricted deposits on real estate investments |
|
| 61 |
|
|
| 733 |
|
|
| 747 |
|
|
| 658 |
|
Resident security and utility deposits |
|
| 35,667 |
|
|
| 37,007 |
|
|
| 34,869 |
|
|
| 37,140 |
|
Other |
|
| 911 |
|
|
| 359 |
|
|
| 1,373 |
|
|
| 984 |
|
Totals |
| $ | 36,639 |
|
| $ | 76,946 |
| ||||||||
Restricted cash |
|
| 36,989 |
|
|
| 53,014 |
| ||||||||
Restricted deposits |
| $ | 58,117 |
|
| $ | 71,246 |
|
8. | Leases |
Lessor Accounting
The Company is the lessor for its residential and non-residential leases and these leases will continue to be accounted for as operating leases under the standard as described in Note 2.
For the six months ended June 30, 2020, approximately 97.6% of the Company’s total lease revenue is generated from residential apartment leases that are generally twelve months or less in length. The residential apartment leases may include lease income related to such items as utility recoveries, parking, storage and pet rent that the Company treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. The collection of lease payments at lease commencement is probable and therefore the Company subsequently recognizes lease income over the lease term on a straight-line basis. Residential leases are renewable upon consent of both parties on an annual or monthly basis.
For the six months ended June 30, 2020, approximately 2.4% of the Company’s total lease revenue is generated by non-residential leases that are generally for terms ranging between five to ten years. The non-residential leases generally consist of ground floor retail spaces and master-leased parking garages that serve as additional amenities for our residents. The non-residential leases may include lease income related to such items as utility recoveries, parking rent and storage rent that the Company treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. The collection of lease payments at lease commencement is probable and therefore the Company subsequently recognizes lease income over the lease term on a straight-line basis. Non-residential leases are renewable with market-based renewal options.
The following table presents the Company’s escrow depositslease income types relating to lease payments for mortgages as of Septemberresidential and non-residential leases along with the total other rental income for the six months and quarter ended June 30, 2017 and December 31, 20162020 (amounts in thousands):
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Real estate taxes and insurance |
| $ | 556 |
|
| $ | 2,003 |
|
Replacement reserves |
|
| 7,969 |
|
|
| 3,428 |
|
Mortgage principal reserves/sinking funds |
|
| 1,595 |
|
|
| 58,652 |
|
Other |
|
| 852 |
|
|
| 852 |
|
Totals |
| $ | 10,972 |
|
| $ | 64,935 |
|
|
| Six Months Ended June 30, 2020 |
|
| Quarter Ended June 30, 2020 |
| ||||||||||||||||||
Income Type |
| Residential Leases |
|
| Non-Residential Leases |
|
| Total |
|
| Residential Leases |
|
| Non-Residential Leases |
|
| Total |
| ||||||
Residential and non-residential rent |
| $ | 1,207,106 |
|
| $ | 30,221 |
|
| $ | 1,237,327 |
|
| $ | 594,626 |
|
| $ | 12,127 |
|
| $ | 606,753 |
|
Utility recoveries (RUBS income) (1) |
|
| 35,232 |
|
|
| 375 |
|
|
| 35,607 |
|
|
| 17,814 |
|
|
| 147 |
|
|
| 17,961 |
|
Parking rent |
|
| 19,460 |
|
|
| 223 |
|
|
| 19,683 |
|
|
| 9,627 |
|
|
| 126 |
|
|
| 9,753 |
|
Storage rent |
|
| 1,913 |
|
|
| 40 |
|
|
| 1,953 |
|
|
| 951 |
|
|
| 21 |
|
|
| 972 |
|
Pet rent |
|
| 5,740 |
|
|
| — |
|
|
| 5,740 |
|
|
| 2,839 |
|
|
| — |
|
|
| 2,839 |
|
Total lease revenue |
| $ | 1,269,451 |
|
| $ | 30,859 |
|
|
| 1,300,310 |
|
| $ | 625,857 |
|
| $ | 12,421 |
|
|
| 638,278 |
|
Total other rental income (2) |
|
|
|
|
|
|
|
|
|
| 35,527 |
|
|
|
|
|
|
|
|
|
|
| 15,254 |
|
Rental income |
|
|
|
|
|
|
|
|
| $ | 1,335,837 |
|
|
|
|
|
|
|
|
|
| $ | 653,532 |
|
(1) | RUBS income primarily consists of variable payments representing the recovery of utility costs from residents. |
(2) | Other rental income is accounted for under the revenue recognition standard. |
DuringThe following table presents the ninelease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the six months and quarter ended June 30, 2019 (amounts in thousands):
|
| Six Months Ended June 30, 2019 |
|
| Quarter Ended June 30, 2019 |
| ||||||||||||||||||
Income Type |
| Residential Leases |
|
| Non-Residential Leases |
|
| Total |
|
| Residential Leases |
|
| Non-Residential Leases |
|
| Total |
| ||||||
Residential and non-residential rent |
| $ | 1,190,729 |
|
| $ | 36,163 |
|
| $ | 1,226,892 |
|
| $ | 598,209 |
|
| $ | 17,693 |
|
| $ | 615,902 |
|
Utility recoveries (RUBS income) (1) |
|
| 33,303 |
|
|
| 412 |
|
|
| 33,715 |
|
|
| 16,858 |
|
|
| 209 |
|
|
| 17,067 |
|
Parking rent |
|
| 18,469 |
|
|
| 159 |
|
|
| 18,628 |
|
|
| 9,332 |
|
|
| 87 |
|
|
| 9,419 |
|
Storage rent |
|
| 1,856 |
|
|
| 32 |
|
|
| 1,888 |
|
|
| 937 |
|
|
| (12 | ) |
|
| 925 |
|
Pet rent |
|
| 5,798 |
|
|
| — |
|
|
| 5,798 |
|
|
| 2,911 |
|
|
| — |
|
|
| 2,911 |
|
Total lease revenue |
| $ | 1,250,155 |
|
| $ | 36,766 |
|
|
| 1,286,921 |
|
| $ | 628,247 |
|
| $ | 17,977 |
|
|
| 646,224 |
|
Total other rental income (2) |
|
|
|
|
|
|
|
|
|
| 44,755 |
|
|
|
|
|
|
|
|
|
|
| 23,150 |
|
Rental income |
|
|
|
|
|
|
|
|
| $ | 1,331,676 |
|
|
|
|
|
|
|
|
|
| $ | 669,374 |
|
(1) | RUBS income primarily consists of variable payments representing the recovery of utility costs from residents. |
(2) | Other rental income is accounted for under the revenue recognition standard. |
9. | Debt |
EQRdoesnothaveanyindebtednessasalldebtisincurredbytheOperatingPartnership. Weighted average interest rates noted below for the six months ended SeptemberJune 30, 2017,2020 include the Company received approximately $60.5 million fromeffect of any derivative instruments and amortization of premiums/discounts/OCI (other comprehensive income) on debt and derivatives.
Mortgage Notes Payable
The following table summarizes the returnCompany’s mortgage notes payable activity for the six months ended June 30, 2020 (amounts in thousands):
|
| Mortgage notes payable, net as of December 31, 2019 |
|
| Proceeds |
|
| Lump sum payoffs |
|
| Scheduled principal repayments |
|
| Amortization of premiums/ discounts |
|
| Amortization of deferred financing costs, net (1) |
|
| Mortgage notes payable, net as of June 30, 2020 |
| |||||||
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
| $ | 1,574,699 |
|
| $ | 495,000 |
| (2) | $ | (91,500 | ) |
| $ | (3,873 | ) |
| $ | 571 |
|
| $ | (2,035 | ) |
| $ | 1,972,862 |
|
Floating Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
|
| 7,050 |
|
|
| 145 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120 |
|
|
| 7,315 |
|
Secured – Tax Exempt |
|
| 359,861 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 620 |
|
|
| 99 |
|
|
| 360,580 |
|
Floating Rate Debt |
|
| 366,911 |
|
|
| 145 |
|
|
| — |
|
|
| — |
|
|
| 620 |
|
|
| 219 |
|
|
| 367,895 |
|
Total |
| $ | 1,941,610 |
|
| $ | 495,145 |
|
| $ | (91,500 | ) |
| $ | (3,873 | ) |
| $ | 1,191 |
|
| $ | (1,816 | ) |
| $ | 2,340,757 |
|
(1) | Represents amortization of deferred financing costs, net of debt financing costs. |
(2) | Obtained a 2.60% fixed rate mortgage loan pool maturing on May 1, 2030. |
The following table summarizes the Company’s debt extinguishment costs on mortgages recorded as additional interest expense during the six months ended June 30, 2020 (amounts in thousands):
Description |
| Amount |
| |
Write-offs of unamortized deferred financing costs |
| $ | 32 |
|
The following table summarizes certain interest rate and maturity date information as of various mortgage principal reserves/sinking funds on certain tax-exempt mortgage bond deals.and for the six months ended June 30, 2020:
| June 30, 2020 | ||
Interest Rate Ranges | 0.07% - 5.29% | ||
Weighted Average Interest Rate | 3.51% | ||
Maturity Date Ranges | 2020-2061 |
EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. EQR guarantees the Operating Partnership’s revolving credit facility up to the maximum amount and for the full term of the facility.
30
As of SeptemberJune 30, 2017,2020, the Company had outstanding mortgage debt of approximately $3.6 billion.
During the nine months ended September 30, 2017, the Company:
Repaid $300.0 million of 5.987% mortgage debt held in a Fannie Mae loan pool maturing in 2019 and incurred a prepayment penalty of approximately $10.8 million;
Repaid $193.4 million of conventional fixed-rate mortgage loans maturing in 2017 through 2048 and incurred a prepayment penalty of approximately $1.5 million; and
Repaid $8.8 million of scheduled principal repayments on various mortgage debt.
The Company recorded $0.3 million of write-offs of unamortized deferred financing costs during the nine months ended September 30, 2017 as additional interest expense related to debt extinguishment of mortgages. The Company also recorded $0.7 million of write-offs of net unamortized premiums during the nine months ended September 30, 2017 as a reduction of interest expense related to debt extinguishment of mortgages.
As of September 30, 2017, the Company had $598.7$281.7 million of secured debt (primarily tax-exempt bonds) subject to third party credit enhancement.
As of September 30, 2017, scheduled maturities for the Company’s outstanding mortgage indebtedness were at various dates through May 28, 2061. At September 30, 2017, the interest rate range on the Company’s mortgage debt was 0.10% to 6.90%. During the nine months ended September 30, 2017, the weighted average interest rate on the Company’s mortgage debt was 4.33%.
Notes
As of September 30, 2017, the Company had outstanding unsecured notes of approximately $5.1 billion.
During the nine months ended September 30, 2017, the Company:
Repaid $394.1 million of 5.75% unsecured notes at maturity;
Issued $400.0 million of ten-year 3.25% fixed rate public notes, receiving net proceeds of approximately $399.3 million before underwriting fees, hedge termination costs and other expenses, at an all-in effective interest rate of 3.32% after termination of four forward starting swaps in conjunction with the issuance (see Note 9 for further discussion); and
Issued $300.0 million of thirty-year 4.00% fixed rate public notes, receiving net proceeds of approximately $293.2 million before underwriting fees and other expenses, at an all-in effective interest rate of 4.11%.
As of September 30, 2017, scheduled maturities for the Company’s outstanding notes were at various dates through August 1, 2047. At September 30, 2017, the interest rate range onThe following table summarizes the Company’s notes was 2.375% to 7.57%. Duringactivity for the ninesix months ended SeptemberJune 30, 2017, the weighted average2020 (amounts in thousands):
|
| Notes, net as of December 31, 2019 |
|
| Proceeds |
|
| Lump sum payoffs |
|
| Amortization of premiums/ discounts |
|
| Amortization of deferred financing costs, net (1) |
|
| Notes, net as of June 30, 2020 |
| ||||||
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured – Public |
| $ | 6,077,513 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,362 |
|
| $ | 2,227 |
|
| $ | 6,081,102 |
|
(1) | Represents amortization of deferred financing costs, net of debt financing costs. |
The following table summarizes certain interest rate onand maturity date information as of and for the six months ended June 30, 2020:
June 30, 2020 | |||
Interest Rate Ranges | 2.50% - 7.57% | ||
Weighted Average Interest Rate | 4.06% | ||
Maturity Date Ranges | 2021-2047 |
The Company’s unsecured public notes contain certain financial and operating covenants including, among other things, maintenance of certain financial ratios. The Company was 4.41%.in compliance with its unsecured public debt covenants for the six months ended June 30, 2020.
Line of Credit and Commercial Paper
On November 3, 2016,1, 2019, the Company replaced its existing $2.5$2.0 billion facility with a $2.0$2.5 billion unsecured revolving credit facility maturing January 10, 2022.November 1, 2024. The Company has the ability to increase available borrowings by an additional $750.0 million by adding additional bankslenders to the facility, or obtaining the agreement of existing bankslenders to increase their commitments.commitments or incurring one or more term loans. The interest rate on advances under the facility will generally be LIBOR plus a spread (currently 0.825%0.775%), or based on bids received from the lending group, and the Company pays an annual facility fee (currently 12.5 basis points)0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit rating ofrating. The weighted average interest rate on the Company’s long term debt.revolving credit facility was 1.47% for the six months ended June 30, 2020.
31
OnFebruary2,2015,theCompanyenteredintoanunsecuredcommercialpapernoteprogramintheUnitedStates. The Company may borrow up to ahas an unsecured commercial paper note program in the United States. On November 4, 2019, the Company increased the maximum ofaggregate amount outstanding for the commercial paper program from $500.0 million under this program subject to market conditions.$1.0 billion. The notes will be soldundercustomarytermsintheUnitedStatescommercialpapernotemarket subject to market conditions andwillrankparipassuwithalloftheCompany's Company’s otherunsecuredseniorindebtedness. Asof September 30, 2017, there was a balance of$229.8 million outstanding on thecommercialpaperprogram ($230.0 million in principal outstanding net of an unamortized discount of $0.2 million). Thenotesbearinterest at various floating rates with a weighted average interest rate of 1.37%1.81% for the ninesix months ended SeptemberJune 30, 2017 and a2020. The weighted average maturityamount outstanding for the six months ended June 30, 2020 was approximately $522.7 million.
The Company limits its utilization of 18 days as of September 30, 2017.
As of September 30, 2017, the amount available on the revolving credit facility was $1.76 billion (net of $11.1 million which was restricted/dedicatedin order to maintain liquidity to support letters of credit and net of $230.0 million in principal outstanding on theits $1.0 billion commercial paper program).
Other
On April 24, 2017,program along with certain other obligations. The following table presents the Company executed a new letter of credit facility with a third party financial institution which is not backed by or collateralized by borrowingsavailability on the Company’s unsecured revolving credit facility. Asfacility as of SeptemberJune 30, 2017, there was $9.0 million2020 (amounts in letters of credit outstanding on this facility.thousands):
|
| June 30, 2020 |
| |
Unsecured revolving credit facility commitment |
| $ | 2,500,000 |
|
Commercial paper balance outstanding |
|
| — |
|
Unsecured revolving credit facility balance outstanding |
|
| — |
|
Other restricted amounts |
|
| (100,949 | ) |
Unsecured revolving credit facility availability |
| $ | 2,399,051 |
|
The valuation of financial instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. The Company, where possible, bases the fair values of its financial instruments, including its derivative instruments, on listed market prices and third party quotes. Where these are not available, the Company bases its estimates on current instruments with similar terms and maturities or on other factors relevant to the financial instruments.
In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company seeksmay seek to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments. The Company may also use derivatives to manage commodity prices in the daily operations of the business.
Athree-levelvaluationhierarchyexistsfordisclosureoffairvaluemeasurements. Thevaluationhierarchyisbasedupon thetransparencyofinputstothevaluationofanassetorliabilityasofthemeasurementdate. Afinancialinstrument’scategorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined asfollows:
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• | Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• | Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
• | Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair valuemeasurement. |
The Company’s derivative positions are valued using models developed by the respective counterparty as well as models developedapplied internally by the Company that use as their basisinputs readily observable market parameters (such as forward yield curves and credit default swap data). Employee holdings other than Common Shares within the supplemental executive retirement plan (the “SERP”) are valued using quoted market prices for identical assets and are included in other assets and other liabilities on the consolidated balance sheets. Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners are valued using the quoted market price of Common Shares. The fair values disclosed for mortgage notes payable and unsecured debt (including its commercial paper)paper and line of credit, if applicable) were calculated using indicative rates provided by lenders of similar loans in the case of mortgage notes payable and the private unsecured debt (including its commercial paper)paper and line of credit, if applicable) and quoted market prices for each underlying issuance in the case of the public unsecured notes.
32
The fair values of the Company’s financial instruments (other than mortgage notes payable, unsecured notes, commercial paper, line of credit and derivative instruments), including cash and cash equivalents and other financial instruments, approximate their carrying or contract value. Thefollowingtableprovidesasummaryofthe carrying andfairvaluesforthe Company’s mortgage notes payable and unsecured debt (including its commercial paper and line of credit, if applicable) at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively (amounts inthousands):
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
| ||||
Mortgage notes payable, net |
| $ | 3,630,477 |
|
| $ | 3,619,180 |
|
| $ | 4,161,001 |
|
| $ | 4,119,181 |
|
Unsecured debt, net |
|
| 5,640,095 |
|
|
| 5,373,092 |
|
|
| 5,030,330 |
|
|
| 4,868,077 |
|
Total debt, net |
| $ | 9,270,572 |
|
| $ | 8,992,272 |
|
| $ | 9,191,331 |
|
| $ | 8,987,258 |
|
The following table summarizes the Company’s consolidated derivative instruments at September 30, 2017 (dollar amounts are in thousands):
| Fair Value Hedges (1) |
|
| Forward Starting Swaps (2) |
| ||
Current Notional Balance | $ | 450,000 |
|
| $ | 250,000 |
|
Lowest Interest Rate |
| 2.375 | % |
|
| 2.1478 | % |
Highest Interest Rate |
| 2.375 | % |
|
| 2.2895 | % |
Earliest Maturity Date |
| 2019 |
|
|
| 2028 |
|
Latest Maturity Date |
| 2019 |
|
|
| 2029 |
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
| ||||
Mortgage notes payable, net |
| $ | 2,340,757 |
|
| $ | 2,370,036 |
|
| $ | 1,941,610 |
|
| $ | 1,930,710 |
|
Unsecured debt, net |
|
| 6,081,102 |
|
|
| 7,012,755 |
|
|
| 7,095,346 |
|
|
| 7,677,289 |
|
Total debt, net |
| $ | 8,421,859 |
|
| $ | 9,382,791 |
|
| $ | 9,036,956 |
|
| $ | 9,607,999 |
|
|
|
Thefollowingtablesprovideasummaryofthefairvaluemeasurementsforeachmajorcategoryofassetsandliabilities measured at fair value on a recurring basis and the location within the accompanying consolidated balance sheets at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively (amounts inthousands):
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| ||||||||||||||||||
Description |
| Balance Sheet Location |
| 9/30/2017 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Balance Sheet Location |
| 6/30/2020 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Fair Value Hedges |
| Other Assets |
| $ | 444 |
|
| $ | — |
|
| $ | 444 |
|
| $ | — |
| ||||||||||||||||||
Forward Starting Swaps |
| Other Assets |
|
| 3,921 |
|
|
| — |
|
|
| 3,921 |
|
|
| — |
| ||||||||||||||||||
Supplemental Executive Retirement Plan |
| Other Assets |
|
| 136,774 |
|
|
| 136,774 |
|
|
| — |
|
|
| — |
|
| Other Assets |
| $ | 139,649 |
|
| $ | 139,649 |
|
| $ | — |
|
| $ | — |
|
Total |
|
|
| $ | 141,139 |
|
| $ | 136,774 |
|
| $ | 4,365 |
|
| $ | — |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan |
| Other Liabilities |
| $ | 136,774 |
|
| $ | 136,774 |
|
| $ | — |
|
| $ | — |
|
| Other Liabilities |
| $ | 139,649 |
|
| $ | 139,649 |
|
| $ | — |
|
| $ | — |
|
Total |
|
|
| $ | 136,774 |
|
| $ | 136,774 |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership/Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
| Mezzanine |
| $ | 380,541 |
|
| $ | — |
|
| $ | 380,541 |
|
| $ | — |
|
| Mezzanine |
| $ | 336,695 |
|
| $ | — |
|
| $ | 336,695 |
|
| $ | — |
|
33
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| ||||||||||||||||||
Description |
| Balance Sheet Location |
| 12/31/2016 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Balance Sheet Location |
| 12/31/2019 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Fair Value Hedges |
| Other Assets |
| $ | 1,857 |
|
| $ | — |
|
| $ | 1,857 |
|
| $ | — |
| ||||||||||||||||||
Supplemental Executive Retirement Plan |
| Other Assets |
|
| 124,420 |
|
|
| 124,420 |
|
|
| — |
|
|
| — |
|
| Other Assets |
| $ | 151,889 |
|
| $ | 151,889 |
|
| $ | — |
|
| $ | — |
|
Total |
|
|
| $ | 126,277 |
|
| $ | 124,420 |
|
| $ | 1,857 |
|
| $ | — |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan |
| Other Liabilities |
| $ | 124,420 |
|
| $ | 124,420 |
|
| $ | — |
|
| $ | — |
|
| Other Liabilities |
| $ | 151,889 |
|
| $ | 151,889 |
|
| $ | — |
|
| $ | — |
|
Total |
|
|
| $ | 124,420 |
|
| $ | 124,420 |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership/Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
| Mezzanine |
| $ | 442,092 |
|
| $ | — |
|
| $ | 442,092 |
|
| $ | — |
|
| Mezzanine |
| $ | 463,400 |
|
| $ | — |
|
| $ | 463,400 |
|
| $ | — |
|
Thefollowingtablesprovideasummaryoftheeffectoffairvaluehedges ontheCompany’saccompanyingconsolidated statements of operations and comprehensive income for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively (amounts in thousands):
September 30, 2017 Type of Fair Value Hedge |
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Recognized in Income on Derivative |
|
| Hedged Item |
| Income Statement Location of Hedged Item Gain/(Loss) |
| Amount of Gain/(Loss) Recognized in Income on Hedged Item |
| ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
| Interest expense |
| $ | (1,413 | ) |
| Fixed rate debt |
| Interest expense |
| $ | 1,413 |
|
Total |
|
|
| $ | (1,413 | ) |
|
|
|
|
| $ | 1,413 |
|
June 30, 2020 Type of Fair Value Hedge | Location of Gain/(Loss) Recognized in Income on Derivative | Amount of Gain/(Loss) Recognized in Income on Derivative | Hedged Item | Income Statement Location of Hedged Item Gain/(Loss) | Amount of Gain/(Loss) Recognized in Income on Hedged Item | |||||||||
Derivatives designated as hedging instruments: | ||||||||||||||
Interest Rate Contracts: | ||||||||||||||
Interest Rate Swaps | N/A | $ | — | N/A | N/A | $ | — | |||||||
Total | $ | — | $ | — |
September 30, 2016 Type of Fair Value Hedge |
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Recognized in Income on Derivative |
|
| Hedged Item |
| Income Statement Location of Hedged Item Gain/(Loss) |
| Amount of Gain/(Loss) Recognized in Income on Hedged Item |
| ||||||||||||||||
June 30, 2019 Type of Fair Value Hedge |
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Recognized in Income on Derivative |
|
| Hedged Item |
| Income Statement Location of Hedged Item Gain/(Loss) |
| Amount of Gain/(Loss) Recognized in Income on Hedged Item |
| ||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
| Interest expense |
| $ | 4,563 |
|
| Fixed rate debt |
| Interest expense |
| $ | (4,563 | ) |
| Interest expense |
| $ | 2,253 |
|
| Fixed rate debt |
| Interest expense |
| $ | (2,253 | ) |
Total |
|
|
| $ | 4,563 |
|
|
|
|
|
| $ | (4,563 | ) |
|
|
| $ | 2,253 |
|
|
|
|
|
| $ | (2,253 | ) |
34
Table Thefollowingtablesprovideasummaryof Contents
The following tables provide a summary theeffectofcashflowhedgesonthe effect of cash flow hedges on the Company’saccompanyingconsolidated statements of operations and comprehensive income for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively (amounts in thousands):
|
| Effective Portion |
|
| Ineffective Portion |
|
| Effective Portion |
| |||||||||||||||||
September 30, 2017 Type of Cash Flow Hedge |
| Amount of Gain/(Loss) Recognized in OCI on Derivative |
|
| Location of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
|
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| |||||||||||||
June 30, 2020 Type of Cash Flow Hedge |
| Amount of Gain/(Loss) Recognized in OCI on Derivative |
|
| Location of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| ||||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Starting Swaps |
| $ | 5,216 |
|
| Interest expense |
| $ | (14,019 | ) |
| N/A |
| $ | — |
|
| $ | (1,190 | ) |
| Interest expense |
| $ | (11,398 | ) |
Total |
| $ | 5,216 |
|
|
|
| $ | (14,019 | ) |
|
|
| $ | — |
|
| $ | (1,190 | ) |
|
|
| $ | (11,398 | ) |
|
| Effective Portion |
|
| Ineffective Portion |
|
| Effective Portion |
| |||||||||||||||||
September 30, 2016 Type of Cash Flow Hedge |
| Amount of Gain/(Loss) Recognized in OCI on Derivative |
|
| Location of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
|
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| |||||||||||||
June 30, 2019 Type of Cash Flow Hedge |
| Amount of Gain/(Loss) Recognized in OCI on Derivative |
|
| Location of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| ||||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Starting Swaps |
| $ | (4,240 | ) |
| Interest expense |
| $ | (37,262 | ) |
| N/A |
| $ | — |
|
| $ | (33,765 | ) |
| Interest expense |
| $ | (8,902 | ) |
Total |
| $ | (4,240 | ) |
|
|
| $ | (37,262 | ) |
|
|
| $ | — |
|
| $ | (33,765 | ) |
|
|
| $ | (8,902 | ) |
Asof September June 30, 2017 2020and December 31, 2016, 2019,therewereapproximately $94.7 $67.4millionand $113.9 $77.6millionindeferred losses, net, included in accumulated other comprehensive income (loss), respectively, related to derivative instruments. Based on the estimated fair valuesinstruments, of the net derivative instruments at September 30, 2017, the Company may recognizewhich an estimated $21.4$25.7 million of accumulated other comprehensive (loss)may be recognized as additional interest expense during the twelve months ending SeptemberJune 30, 2018.2021.
In August 2017,April 2020, the Company received $1.3paid approximately $1.2 million to settle four2 forward starting ten-year swaps in conjunction with the issuance of $400.0$495.0 million of ten-year fixed rate public secured conventional mortgage notes. The entire $1.3$1.2 million was initially deferred as a component of accumulated other comprehensive income (loss) and will be recognized as a decreasean increase to interest expense over the ten-year termfirst five years of the mortgage notes.
35
Equity Residential
Thefollowingtablessetforththecomputationofnetincomepershare–basicandnetincomepershare–dilutedforthe Company (amounts in thousands except per shareamounts):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Numerator for net income per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 498,297 |
|
| $ | 4,177,599 |
|
| $ | 144,196 |
|
| $ | 217,246 |
| ||||||||||||||||
Allocation to Noncontrolling Interests – Operating Partnership, net |
|
| (17,931 | ) |
|
| (160,437 | ) |
|
| (5,166 | ) |
|
| (8,344 | ) | ||||||||||||||||
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,354 | ) |
|
| (2,368 | ) |
|
| (801 | ) |
|
| (823 | ) | ||||||||||||||||
Net income |
| $ | 604,152 |
|
| $ | 430,556 |
|
| $ | 271,481 |
|
| $ | 321,299 |
| ||||||||||||||||
Allocation to Noncontrolling Interests – Operating Partnership |
|
| (21,248 | ) |
|
| (15,429 | ) |
|
| (9,713 | ) |
|
| (11,510 | ) | ||||||||||||||||
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (13,410 | ) |
|
| (1,620 | ) |
|
| (880 | ) |
|
| (821 | ) | ||||||||||||||||
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (772 | ) |
|
| (773 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Income from continuing operations available to Common Shares, net of Noncontrolling Interests |
|
| 475,694 |
|
|
| 4,012,476 |
|
|
| 137,457 |
|
|
| 207,306 |
| ||||||||||||||||
Discontinued operations, net of Noncontrolling Interests |
|
| — |
|
|
| 119 |
|
|
| — |
|
|
| 237 |
| ||||||||||||||||
Numerator for net income per share – basic |
| $ | 475,694 |
|
| $ | 4,012,595 |
|
| $ | 137,457 |
|
| $ | 207,543 |
|
| $ | 567,949 |
|
| $ | 411,962 |
|
| $ | 260,116 |
|
| $ | 308,196 |
|
Numerator for net income per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 498,297 |
|
| $ | 4,177,599 |
|
| $ | 144,196 |
|
| $ | 217,246 |
| ||||||||||||||||
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,354 | ) |
|
| (2,368 | ) |
|
| (801 | ) |
|
| (823 | ) | ||||||||||||||||
Net income |
| $ | 604,152 |
|
| $ | 430,556 |
|
| $ | 271,481 |
|
| $ | 321,299 |
| ||||||||||||||||
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (13,410 | ) |
|
| (1,620 | ) |
|
| (880 | ) |
|
| (821 | ) | ||||||||||||||||
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (772 | ) |
|
| (773 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Income from continuing operations available to Common Shares |
|
| 493,625 |
|
|
| 4,172,913 |
|
|
| 142,623 |
|
|
| 215,650 |
| ||||||||||||||||
Discontinued operations, net |
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| 246 |
| ||||||||||||||||
Numerator for net income per share – diluted |
| $ | 493,625 |
|
| $ | 4,173,037 |
|
| $ | 142,623 |
|
| $ | 215,896 |
|
| $ | 589,197 |
|
| $ | 427,391 |
|
| $ | 269,829 |
|
| $ | 319,706 |
|
Denominator for net income per share – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income per share – basic |
|
| 366,809 |
|
|
| 364,917 |
|
|
| 366,996 |
|
|
| 365,109 |
|
|
| 371,689 |
|
|
| 369,952 |
|
|
| 371,795 |
|
|
| 370,342 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP Units |
|
| 12,907 |
|
|
| 13,828 |
|
|
| 12,910 |
|
|
| 13,899 |
|
|
| 13,013 |
|
|
| 12,902 |
|
|
| 13,023 |
|
|
| 12,885 |
|
Long-term compensation shares/units |
|
| 2,924 |
|
|
| 3,539 |
|
|
| 3,039 |
|
|
| 3,365 |
|
|
| 1,570 |
|
|
| 2,790 |
|
|
| 1,095 |
|
|
| 2,880 |
|
Denominator for net income per share – diluted |
|
| 382,640 |
|
|
| 382,284 |
|
|
| 382,945 |
|
|
| 382,373 |
|
|
| 386,272 |
|
|
| 385,644 |
|
|
| 385,913 |
|
|
| 386,107 |
|
Net income per share – basic |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
|
| $ | 1.53 |
|
| $ | 1.11 |
|
| $ | 0.70 |
|
| $ | 0.83 |
|
Net income per share – diluted |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
|
| $ | 1.53 |
|
| $ | 1.11 |
|
| $ | 0.70 |
|
| $ | 0.83 |
|
Net income per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations available to Common Shares, net of Noncontrolling Interests |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
| ||||||||||||||||
Discontinued operations, net of Noncontrolling Interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Net income per share – basic |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
| ||||||||||||||||
Net income per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations available to Common Shares |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
| ||||||||||||||||
Discontinued operations, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Net income per share – diluted |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
|
36
ERP Operating Limited Partnership
The following tables set forth the computation of net income per Unit – basic and net income per Unit – diluted for the Operating Partnership (amounts in thousands except per Unit amounts):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Numerator for net income per Unit – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 498,297 |
|
| $ | 4,177,599 |
|
| $ | 144,196 |
|
| $ | 217,246 |
| ||||||||||||||||
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,354 | ) |
|
| (2,368 | ) |
|
| (801 | ) |
|
| (823 | ) | ||||||||||||||||
Net income |
| $ | 604,152 |
|
| $ | 430,556 |
|
| $ | 271,481 |
|
| $ | 321,299 |
| ||||||||||||||||
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (13,410 | ) |
|
| (1,620 | ) |
|
| (880 | ) |
|
| (821 | ) | ||||||||||||||||
Allocation to Preference Units |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (772 | ) |
|
| (773 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Income from continuing operations available to Units |
|
| 493,625 |
|
|
| 4,172,913 |
|
|
| 142,623 |
|
|
| 215,650 |
| ||||||||||||||||
Discontinued operations, net |
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| 246 |
| ||||||||||||||||
Numerator for net income per Unit – basic and diluted |
| $ | 493,625 |
|
| $ | 4,173,037 |
|
| $ | 142,623 |
|
| $ | 215,896 |
|
| $ | 589,197 |
|
| $ | 427,391 |
|
| $ | 269,829 |
|
| $ | 319,706 |
|
Denominator for net income per Unit – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income per Unit – basic |
|
| 379,716 |
|
|
| 378,745 |
|
|
| 379,906 |
|
|
| 379,008 |
|
|
| 384,702 |
|
|
| 382,854 |
|
|
| 384,818 |
|
|
| 383,227 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution for Units issuable upon assumed exercise/vesting of the Company’s long-term compensation shares/units |
|
| 2,924 |
|
|
| 3,539 |
|
|
| 3,039 |
|
|
| 3,365 |
|
|
| 1,570 |
|
|
| 2,790 |
|
|
| 1,095 |
|
|
| 2,880 |
|
Denominator for net income per Unit – diluted |
|
| 382,640 |
|
|
| 382,284 |
|
|
| 382,945 |
|
|
| 382,373 |
|
|
| 386,272 |
|
|
| 385,644 |
|
|
| 385,913 |
|
|
| 386,107 |
|
Net income per Unit – basic |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
|
| $ | 1.53 |
|
| $ | 1.11 |
|
| $ | 0.70 |
|
| $ | 0.83 |
|
Net income per Unit – diluted |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
|
| $ | 1.53 |
|
| $ | 1.11 |
|
| $ | 0.70 |
|
| $ | 0.83 |
|
Net income per Unit – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations available to Units |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
| ||||||||||||||||
Discontinued operations, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Net income per Unit – basic |
| $ | 1.30 |
|
| $ | 11.00 |
|
| $ | 0.37 |
|
| $ | 0.57 |
| ||||||||||||||||
Net income per Unit – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income from continuing operations available to Units |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
| ||||||||||||||||
Discontinued operations, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Net income per Unit – diluted |
| $ | 1.29 |
|
| $ | 10.92 |
|
| $ | 0.37 |
|
| $ | 0.56 |
|
The Company executed an agreement with controlled affiliates of Starwood Capital Group ("Starwood") on October 23, 2015 to sell a portfolio of 72 operating properties consisting of 23,262 apartment units located in five markets across the United States for $5.365 billion (the "Starwood Transaction" or “Starwood Portfolio”). The Starwood Portfolio represented substantially all of the assets in the Company’s South Florida and Denver markets and certain suburban assets in the Washington D.C., Seattle and Los Angeles markets. On January 26 and 27, 2016, the Company closed on the sale of the entire portfolio described above.
37
The Company concluded that the Starwood Transaction did not qualify for discontinued operations reporting as it did not represent a strategic shift that had a major effect on the Company’s operations and financial results. The Company has been investing only in its six coastal markets (Boston, New York, Washington D.C., Southern California, San Francisco and Seattle) and has not been acquiring or developing any new assets in its other markets. Over the past several years, the Company has been repositioning its portfolio by selling its suburban assets located in markets outside its six core coastal markets. The sale of the Starwood Portfolio represented the continuation of the above strategy. However, the Company concluded that the Starwood Transaction did qualify as an individually significant component of the Company as the amount received upon disposal exceeded 10% of total assets, and NOI (see definition in Note 13) of the Starwood Portfolio represented approximately 1.6% of consolidated NOI (for the approximate one-month period owned in 2016) for the nine months ended September 30, 2016 and approximately 15.7% of consolidated NOI for the year ended December 31, 2015. As a result, the following table summarizes the results of operations attributable to the Starwood Transaction for the nine months and quarter ended September 30, 2016 (amounts in thousands):
|
| Nine Months Ended |
|
| Quarter Ended |
| ||
|
| September 30, 2016 |
|
| September 30, 2016 |
| ||
REVENUES |
|
|
|
|
|
|
|
|
Rental income |
| $ | 30,660 |
|
| $ | 239 |
|
Total revenues |
|
| 30,660 |
|
|
| 239 |
|
EXPENSES |
|
|
|
|
|
|
|
|
Property and maintenance |
|
| 7,839 |
|
|
| (84 | ) |
Real estate taxes and insurance |
|
| 2,933 |
|
|
| 1 |
|
Property management |
|
| 2 |
|
|
| — |
|
General and administrative |
|
| 19 |
|
|
| 4 |
|
Total expenses |
|
| 10,793 |
|
|
| (79 | ) |
Operating income |
|
| 19,867 |
|
|
| 318 |
|
Interest and other income |
|
| 21 |
|
|
| 10 |
|
Interest: |
|
|
|
|
|
|
|
|
Expense incurred, net |
|
| (380 | ) |
|
| (6 | ) |
Amortization of deferred financing costs |
|
| (707 | ) |
|
| — |
|
Income and other tax (expense) benefit |
|
| (1 | ) |
|
| — |
|
Net gain (loss) on sales of real estate properties |
|
| 3,161,097 |
|
|
| (103 | ) |
Income from operations attributable to controlling interests – Operating Partnership |
|
| 3,179,897 |
|
|
| 219 |
|
Income from operations attributable to Noncontrolling Interests – Operating Partnership |
|
| (122,146 | ) |
|
| (8 | ) |
Income from operations attributable to controlling interests – Company |
| $ | 3,057,751 |
|
| $ | 211 |
|
The Company, as an owner of real estate, is subject to various Federal, state and local laws, including, but not limited to, rent regulations and environmental laws. Compliance by the Company with existing laws has not had a material adverse effect on the Company. However, the Company cannot predict the impact of new or changed laws or regulations, whether related to COVID-19 or otherwise, on its current properties or on properties that it may acquire in the future. As of September 30, 2017, the Company does have environmental reserves totaling approximately $5.7 million related to two of its properties.
The Company has established a reserve related to various litigation matters associated with its Massachusetts properties and periodically assesses the adequacy of the reserve and makes adjustments as necessary. As of September 30, 2017, the reserve totaled approximately $0.9 million. While no assurances can be given, the Company does not believe that the ultimate resolution of any of these remaining litigation matters, if adversely determined, would have a material adverse effect on the Company.
The Company does not believe there is any other litigation pending or threatened against it that, individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company.
As of SeptemberJune 30, 2017,2020, the Company has four2 wholly owned projects and 1 partially owned project totaling 1,285824 apartment units in various stages of development with remaining commitments to fund of approximately $127.3$328.0 million (inclusive of applicable construction mortgage and joint venture partner obligations) and estimated completion dates ranging through September 30, 2019,2021. Estimated completion dates and budgeted capital costs for projects under development currently remain unchanged from the Company’s estimates in the fourth quarter of 2019. The Company will reevaluate these dates and costs as well as other completed developmentthe impact of COVID-19 becomes clearer. The Company has 2 projects that are in various stageswere completed and stabilized during the quarter ended June 30, 2020.
As of lease up or are stabilized.
As of SeptemberJune 30, 2017,2020, the Company has two unconsolidated operating properties (Nexus Sawgrass and Domain) that are owned2 joint venture agreements with the same third party partners for the consolidated development of multifamily rental properties, one of which is currently under construction as noted above. The development commitment to fund the project under construction is included in the development funding totals above for one of the joint venture partner.ventures. The joint venture agreements with thiseach partner are primarily deal-specific
38
regardingprofit-sharing,equitycontributions,returnsoninvestment,include a buy-sell agreements and other customary provisions. Thebuy-sellarrangementscontainprovisionsprovision thatprovide provides the right, but not the obligation, for the Company to acquire theeach respective partner’s interests or sell its interests at any time following the occurrence of certain pre-defined events described in the joint venture agreements. See Note 6 for furtheradditional discussion.
Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses and about which discrete financial information is available that is evaluated regularly by the chiefoperatingdecisionmaker. Thechiefoperatingdecisionmakerdecideshowresourcesareallocatedandassessesperformance on a recurring basis at leastquarterly.
The Company’s primary business is the acquisition, development and management of multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to residents. The chief operating decision maker evaluates the Company'sCompany’s operating performance geographically by market and both on a same store and non-same store basis. While the Company does maintain a non-residential presence, it historically has accounted for approximately 4.0% of total revenues and is designed as an amenity for our residential residents. The chief operating decision maker evaluates the performance of each property on a consolidated residential and non-residential basis. The Company’s geographic same store operating segments located in its coastal marketsurban and high-density suburban communities represent its reportable segments. The Company's operating segments located in its other markets (Phoenix) that are not material have also been included in the tables presented below.
The Company’s fee and asset management and development activities are other business activities that do not constitute an operating segment and as such, have been aggregated in the "Other"“Other” category in the tables presented below.
Allrevenuesarefromexternalcustomersandthereis no 0customerwhocontributed10%ormoreoftheCompany’stotal revenues during the ninesix months and quarters ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
The primary financial measure for the Company’s rental real estate segment is net operating income (“NOI”), which representsrentalincomeless:1) propertyandmaintenanceexpenseand2) realestatetaxesandinsuranceexpense (all (allasreflected in the accompanying consolidated statements of operations and comprehensive income). TheCompanybelievesthat NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company’s apartment properties. Revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
ThefollowingtablepresentsareconciliationofNOIfromourrentalrealestate specific to continuing operations forthe ninesix months and quarters ended SeptemberJune 30, 20172020 and 2016,2019, respectively (amounts inthousands):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Rental income |
| $ | 1,840,170 |
|
| $ | 1,816,960 |
|
| $ | 623,951 |
|
| $ | 605,856 |
|
| $ | 1,335,837 |
|
| $ | 1,331,676 |
|
| $ | 653,532 |
|
| $ | 669,374 |
|
Property and maintenance expense |
|
| (306,645 | ) |
|
| (309,688 | ) |
|
| (104,721 | ) |
|
| (104,216 | ) |
|
| (220,268 | ) |
|
| (223,531 | ) |
|
| (104,452 | ) |
|
| (108,461 | ) |
Real estate taxes and insurance expense |
|
| (253,318 | ) |
|
| (238,954 | ) |
|
| (84,087 | ) |
|
| (81,343 | ) |
|
| (192,770 | ) |
|
| (182,888 | ) |
|
| (95,038 | ) |
|
| (91,446 | ) |
Total operating expenses |
|
| (559,963 | ) |
|
| (548,642 | ) |
|
| (188,808 | ) |
|
| (185,559 | ) |
|
| (413,038 | ) |
|
| (406,419 | ) |
|
| (199,490 | ) |
|
| (199,907 | ) |
Net operating income |
| $ | 1,280,207 |
|
| $ | 1,268,318 |
|
| $ | 435,143 |
|
| $ | 420,297 |
|
| $ | 922,799 |
|
| $ | 925,257 |
|
| $ | 454,042 |
|
| $ | 469,467 |
|
39
The following tables present NOI for each segment from our rental real estate specific to continuing operations for the ninesix months and quarters ended SeptemberJune 30, 20172020 and 2016,2019, respectively,aswellastotalassetsandcapitalexpendituresat September June 30, 2017(amounts2020 (amounts inthousands):
|
| Nine Months Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2016 |
|
| Six Months Ended June 30, 2020 |
|
| Six Months Ended June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
| ||||||||||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 296,345 |
|
| $ | 83,927 |
|
| $ | 212,418 |
|
| $ | 285,463 |
|
| $ | 83,459 |
|
| $ | 202,004 |
|
| $ | 239,914 |
|
| $ | 71,930 |
|
| $ | 167,984 |
|
| $ | 240,751 |
|
| $ | 72,145 |
|
| $ | 168,606 |
|
Orange County |
|
| 66,081 |
|
|
| 16,355 |
|
|
| 49,726 |
|
|
| 63,005 |
|
|
| 15,529 |
|
|
| 47,476 |
|
|
| 53,013 |
|
|
| 12,167 |
|
|
| 40,846 |
|
|
| 51,887 |
|
|
| 12,142 |
|
|
| 39,745 |
|
San Diego |
|
| 66,052 |
|
|
| 17,386 |
|
|
| 48,666 |
|
|
| 63,171 |
|
|
| 16,884 |
|
|
| 46,287 |
|
|
| 47,848 |
|
|
| 12,417 |
|
|
| 35,431 |
|
|
| 47,023 |
|
|
| 12,126 |
|
|
| 34,897 |
|
Subtotal - Southern California |
|
| 428,478 |
|
|
| 117,668 |
|
|
| 310,810 |
|
|
| 411,639 |
|
|
| 115,872 |
|
|
| 295,767 |
|
|
| 340,775 |
|
|
| 96,514 |
|
|
| 244,261 |
|
|
| 339,661 |
|
|
| 96,413 |
|
|
| 243,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington DC |
|
| 322,307 |
|
|
| 98,043 |
|
|
| 224,264 |
|
|
| 317,879 |
|
|
| 95,187 |
|
|
| 222,692 |
| ||||||||||||||||||||||||
San Francisco |
|
| 236,580 |
|
|
| 59,313 |
|
|
| 177,267 |
|
|
| 234,514 |
|
|
| 57,629 |
|
|
| 176,885 |
| ||||||||||||||||||||||||
Washington D.C. |
|
| 196,601 |
|
|
| 59,331 |
|
|
| 137,270 |
|
|
| 195,453 |
|
|
| 59,389 |
|
|
| 136,064 |
| ||||||||||||||||||||||||
New York |
|
| 345,656 |
|
|
| 126,226 |
|
|
| 219,430 |
|
|
| 345,434 |
|
|
| 120,390 |
|
|
| 225,044 |
|
|
| 227,179 |
|
|
| 98,581 |
|
|
| 128,598 |
|
|
| 230,808 |
|
|
| 96,067 |
|
|
| 134,741 |
|
San Francisco |
|
| 283,654 |
|
|
| 69,053 |
|
|
| 214,601 |
|
|
| 277,666 |
|
|
| 68,246 |
|
|
| 209,420 |
| ||||||||||||||||||||||||
Seattle |
|
| 127,073 |
|
|
| 35,440 |
|
|
| 91,633 |
|
|
| 124,029 |
|
|
| 34,634 |
|
|
| 89,395 |
| ||||||||||||||||||||||||
Boston |
|
| 170,545 |
|
|
| 47,538 |
|
|
| 123,007 |
|
|
| 168,118 |
|
|
| 47,308 |
|
|
| 120,810 |
|
|
| 123,673 |
|
|
| 35,144 |
|
|
| 88,529 |
|
|
| 124,671 |
|
|
| 35,639 |
|
|
| 89,032 |
|
Seattle |
|
| 133,279 |
|
|
| 37,205 |
|
|
| 96,074 |
|
|
| 125,910 |
|
|
| 34,979 |
|
|
| 90,931 |
| ||||||||||||||||||||||||
Other Markets |
|
| 1,384 |
|
|
| 499 |
|
|
| 885 |
|
|
| 1,342 |
|
|
| 428 |
|
|
| 914 |
| ||||||||||||||||||||||||
Denver |
|
| 8,944 |
|
|
| 2,419 |
|
|
| 6,525 |
|
|
| 9,125 |
|
|
| 2,417 |
|
|
| 6,708 |
| ||||||||||||||||||||||||
Total same store |
|
| 1,685,303 |
|
|
| 496,232 |
|
|
| 1,189,071 |
|
|
| 1,647,988 |
|
|
| 482,410 |
|
|
| 1,165,578 |
|
|
| 1,260,825 |
|
|
| 386,742 |
|
|
| 874,083 |
|
|
| 1,258,261 |
|
|
| 382,188 |
|
|
| 876,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 144,975 |
|
|
| 53,367 |
|
|
| 91,608 |
|
|
| 78,287 |
|
|
| 29,173 |
|
|
| 49,114 |
|
|
| 58,629 |
|
|
| 17,748 |
|
|
| 40,881 |
|
|
| 14,374 |
|
|
| 4,423 |
|
|
| 9,951 |
|
Other (3) |
|
| 9,892 |
|
|
| 10,364 |
|
|
| (472 | ) |
|
| 90,685 |
|
|
| 37,059 |
|
|
| 53,626 |
|
|
| 16,383 |
|
|
| 8,548 |
|
|
| 7,835 |
|
|
| 59,041 |
|
|
| 19,808 |
|
|
| 39,233 |
|
Total non-same store/other |
|
| 154,867 |
|
|
| 63,731 |
|
|
| 91,136 |
|
|
| 168,972 |
|
|
| 66,232 |
|
|
| 102,740 |
|
|
| 75,012 |
|
|
| 26,296 |
|
|
| 48,716 |
|
|
| 73,415 |
|
|
| 24,231 |
|
|
| 49,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 1,840,170 |
|
| $ | 559,963 |
|
| $ | 1,280,207 |
|
| $ | 1,816,960 |
|
| $ | 548,642 |
|
| $ | 1,268,318 |
|
| $ | 1,335,837 |
|
| $ | 413,038 |
|
| $ | 922,799 |
|
| $ | 1,331,676 |
|
| $ | 406,419 |
|
| $ | 925,257 |
|
(1) | For the |
(2) | For the |
(3) | Other includes development, other corporate operations and operations prior to |
|
| Quarter Ended September 30, 2017 |
|
| Quarter Ended September 30, 2016 |
| ||||||||||||||||||
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
| ||||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 102,566 |
|
| $ | 27,768 |
|
| $ | 74,798 |
|
| $ | 98,542 |
|
| $ | 29,362 |
|
| $ | 69,180 |
|
Orange County |
|
| 22,427 |
|
|
| 5,500 |
|
|
| 16,927 |
|
|
| 21,455 |
|
|
| 5,362 |
|
|
| 16,093 |
|
San Diego |
|
| 22,432 |
|
|
| 5,867 |
|
|
| 16,565 |
|
|
| 21,516 |
|
|
| 5,740 |
|
|
| 15,776 |
|
Subtotal - Southern California |
|
| 147,425 |
|
|
| 39,135 |
|
|
| 108,290 |
|
|
| 141,513 |
|
|
| 40,464 |
|
|
| 101,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York |
|
| 125,351 |
|
|
| 46,219 |
|
|
| 79,132 |
|
|
| 124,709 |
|
|
| 44,223 |
|
|
| 80,486 |
|
Washington DC |
|
| 108,763 |
|
|
| 33,459 |
|
|
| 75,304 |
|
|
| 107,340 |
|
|
| 32,817 |
|
|
| 74,523 |
|
San Francisco |
|
| 98,805 |
|
|
| 24,875 |
|
|
| 73,930 |
|
|
| 97,259 |
|
|
| 24,487 |
|
|
| 72,772 |
|
Boston |
|
| 57,071 |
|
|
| 16,351 |
|
|
| 40,720 |
|
|
| 56,368 |
|
|
| 16,399 |
|
|
| 39,969 |
|
Seattle |
|
| 49,268 |
|
|
| 13,647 |
|
|
| 35,621 |
|
|
| 46,948 |
|
|
| 12,493 |
|
|
| 34,455 |
|
Other Markets |
|
| 459 |
|
|
| 158 |
|
|
| 301 |
|
|
| 457 |
|
|
| 136 |
|
|
| 321 |
|
Total same store |
|
| 587,142 |
|
|
| 173,844 |
|
|
| 413,298 |
|
|
| 574,594 |
|
|
| 171,019 |
|
|
| 403,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 33,974 |
|
|
| 10,371 |
|
|
| 23,603 |
|
|
| 14,128 |
|
|
| 6,120 |
|
|
| 8,008 |
|
Other (3) |
|
| 2,835 |
|
|
| 4,593 |
|
|
| (1,758 | ) |
|
| 17,134 |
|
|
| 8,420 |
|
|
| 8,714 |
|
Total non-same store/other |
|
| 36,809 |
|
|
| 14,964 |
|
|
| 21,845 |
|
|
| 31,262 |
|
|
| 14,540 |
|
|
| 16,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 623,951 |
|
| $ | 188,808 |
|
| $ | 435,143 |
|
| $ | 605,856 |
|
| $ | 185,559 |
|
| $ | 420,297 |
|
40
|
| Quarter Ended June 30, 2020 |
|
| Quarter Ended June 30, 2019 |
| ||||||||||||||||||
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
| ||||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 117,994 |
|
| $ | 35,013 |
|
| $ | 82,981 |
|
| $ | 121,216 |
|
| $ | 35,688 |
|
| $ | 85,528 |
|
Orange County |
|
| 26,318 |
|
|
| 5,953 |
|
|
| 20,365 |
|
|
| 26,058 |
|
|
| 5,966 |
|
|
| 20,092 |
|
San Diego |
|
| 23,706 |
|
|
| 6,100 |
|
|
| 17,606 |
|
|
| 23,720 |
|
|
| 5,978 |
|
|
| 17,742 |
|
Subtotal - Southern California |
|
| 168,018 |
|
|
| 47,066 |
|
|
| 120,952 |
|
|
| 170,994 |
|
|
| 47,632 |
|
|
| 123,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 116,303 |
|
|
| 29,045 |
|
|
| 87,258 |
|
|
| 118,044 |
|
|
| 28,528 |
|
|
| 89,516 |
|
Washington D.C. |
|
| 97,527 |
|
|
| 28,680 |
|
|
| 68,847 |
|
|
| 98,571 |
|
|
| 29,409 |
|
|
| 69,162 |
|
New York |
|
| 111,949 |
|
|
| 48,130 |
|
|
| 63,819 |
|
|
| 117,457 |
|
|
| 47,626 |
|
|
| 69,831 |
|
Seattle |
|
| 63,378 |
|
|
| 18,383 |
|
|
| 44,995 |
|
|
| 63,695 |
|
|
| 17,853 |
|
|
| 45,842 |
|
Boston |
|
| 59,990 |
|
|
| 16,984 |
|
|
| 43,006 |
|
|
| 62,751 |
|
|
| 17,398 |
|
|
| 45,353 |
|
Denver |
|
| 6,110 |
|
|
| 1,733 |
|
|
| 4,377 |
|
|
| 6,403 |
|
|
| 1,831 |
|
|
| 4,572 |
|
Total same store |
|
| 623,275 |
|
|
| 190,021 |
|
|
| 433,254 |
|
|
| 637,915 |
|
|
| 190,277 |
|
|
| 447,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 24,631 |
|
|
| 7,212 |
|
|
| 17,419 |
|
|
| 4,000 |
|
|
| 1,124 |
|
|
| 2,876 |
|
Other (3) |
|
| 5,626 |
|
|
| 2,257 |
|
|
| 3,369 |
|
|
| 27,459 |
|
|
| 8,506 |
|
|
| 18,953 |
|
Total non-same store/other |
|
| 30,257 |
|
|
| 9,469 |
|
|
| 20,788 |
|
|
| 31,459 |
|
|
| 9,630 |
|
|
| 21,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 653,532 |
|
| $ | 199,490 |
|
| $ | 454,042 |
|
| $ | 669,374 |
|
| $ | 199,907 |
|
| $ | 469,467 |
|
(1) | For the quarters ended |
(2) | For the quarters ended |
(3) | Other includes development, other corporate operations and operations prior to |
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, 2020 |
| ||||||||||
|
| Total Assets |
|
| Capital Expenditures |
|
| Total Assets |
|
| Capital Expenditures |
| ||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 2,620,672 |
|
| $ | 18,952 |
|
| $ | 3,064,404 |
|
| $ | 13,070 |
|
Orange County |
|
| 330,580 |
|
|
| 6,671 |
|
|
| 397,148 |
|
|
| 3,458 |
|
San Diego |
|
| 425,241 |
|
|
| 3,776 |
|
|
| 382,082 |
|
|
| 1,993 |
|
Subtotal - Southern California |
|
| 3,376,493 |
|
|
| 29,399 |
|
|
| 3,843,634 |
|
|
| 18,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington DC |
|
| 3,836,992 |
|
|
| 26,308 |
| ||||||||
San Francisco |
|
| 3,288,932 |
|
|
| 6,940 |
| ||||||||
Washington D.C. |
|
| 3,120,074 |
|
|
| 10,534 |
| ||||||||
New York |
|
| 4,181,890 |
|
|
| 23,547 |
|
|
| 4,001,050 |
|
|
| 10,429 |
|
San Francisco |
|
| 2,480,069 |
|
|
| 25,896 |
| ||||||||
Seattle |
|
| 1,838,484 |
|
|
| 4,334 |
| ||||||||
Boston |
|
| 1,670,467 |
|
|
| 18,906 |
|
|
| 1,790,996 |
|
|
| 8,631 |
|
Seattle |
|
| 1,172,356 |
|
|
| 15,499 |
| ||||||||
Other Markets |
|
| 12,778 |
|
|
| 83 |
| ||||||||
Denver |
|
| 251,427 |
|
|
| 245 |
| ||||||||
Total same store |
|
| 16,731,045 |
|
|
| 139,638 |
|
|
| 18,134,597 |
|
|
| 59,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 3,080,697 |
|
|
| 3,206 |
|
|
| 1,642,289 |
|
|
| 1,129 |
|
Other (3) |
|
| 886,091 |
|
|
| 414 |
|
|
| 938,065 |
|
|
| 502 |
|
Total non-same store/other |
|
| 3,966,788 |
|
|
| 3,620 |
|
|
| 2,580,354 |
|
|
| 1,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 20,697,833 |
|
| $ | 143,258 |
|
| $ | 20,714,951 |
|
| $ | 61,265 |
|
(1) | Same store primarily includes all properties acquired or completed that were stabilized prior to January 1, |
(2) | Non-same store primarily includes properties acquired after January 1, |
(3) | Other includes development, other corporate operations and capital expenditures for propertiessold. |
The continued rapid development and fast-changing nature of the COVID-19 pandemic creates many unknowns that could have a future material impact on the Company. Its duration and severity and the extent of the adverse health impact on the general population, our residents and our employees, as well as the potential changes in customer preferences for living in the urban and dense suburban locations in which many of the Company’s properties are located, are among the unknowns. These, among other items, will likely impact the economy, the unemployment rate and our operations and could materially affect our future consolidated results of operations, financial condition, liquidity, investments and overall performance.
Subsequent to SeptemberJune 30, 2017,2020, the Company repaid $103.9 million of 7.125% unsecured notesCompany:
• | Repaid $19.7 million of mortgage debt at par prior to maturity. |
41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For further information including definitions for capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s and the Operating Partnership'sPartnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, projections and assumptions made by management. While the Company'sCompany’s management believes the assumptions underlying its forward-looking statements are reasonable, such information is inherently subject to uncertainties and may involve certain risks, which could cause actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Many of these uncertainties and risks are difficult to predict and beyond management's control.management’s control, such as the current novel coronavirus (“COVID-19”) pandemic (see below for further discussion). Forward-looking statements are not guarantees of future performance, results or events. The forward-looking statements contained herein are made as of the date hereof and the Company undertakes no obligation to update or supplement these forward-looking statements.
In addition, these forward-looking statements are subject to risks related to the COVID-19 pandemic, many of which are unknown, including the duration and severity of the pandemic, the extent of the adverse health impact on the general population and on our residents, customers and employees in particular, its impact on the employment rate and the economy and the corresponding impact on our residents’ and tenants’ ability to pay their rent on time or at all, the extent and impact of governmental responses and the impact of operational changes we have implemented and may implement in response to the pandemic.
Factors that might cause such differences include, but are not limited to the following:
We intend to actively acquire, develop and rehab multifamily properties for rental operations as market conditions dictate. We may also acquire multifamily properties that are unoccupied or in the early stages of lease up. We may be unable to lease up these apartment properties on schedule, resulting in decreases in expected rental revenues and/or lower yields due to lower occupancy and rental rates as well as higher than expected concessions or higher than expected operating expenses. We may not be able to achieve rents that are consistent with expectations for acquired, developed or rehabbed properties. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position, to complete a development property or to complete a rehab. Additionally, we expect that other real estate investors with capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts. This competition (or lack thereof) may increase (or depress) prices for multifamily properties. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms. We have acquired in the past and intend to continue to pursue the acquisition of properties, including large portfolios of properties, that could increase our size and result in alterations to our capital structure. The total number of apartment units under development, costs of development and estimated completion dates are subject to uncertainties arising from changing economic conditions (such as the cost of labor and construction materials), competition and local government regulation;
Debt financing and other capital required by the Company may not be available or may only be available on adverse terms;
Labor and materials required for maintenance, repair, capital expenditure or development may be more expensive than anticipated;
Occupancy levels and market rents may be adversely affected by national and local political, economic and market conditions including, without limitation, new construction and excess inventory of multifamily and owned housing/ condominiums, increasing portions of owned housing/condominium stock being converted to rental use, rental housing subsidized by the government, other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing, slow or negative employment growth and household formation, the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers, changes in social preferences, governmental regulations (including rent control legislation and restrictions) and the potential for geopolitical instability, all of which are beyond the Company's control; and
Additional factors as discussed in Part I of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019, particularly those under “ItemItem 1A, Risk Factors. Additional factors are also included in Part II, Item 1A, Risk Factors”., of this Quarterly Report on Form 10-Q.
Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report.
42Due to the inherent uncertainty surrounding the social and economic disruption resulting from the COVID-19 pandemic, the Company withdrew its full-year 2020 guidance earlier this year. The Company is also suspending issuing guidance in future periods until there is greater certainty surrounding the impact of the ongoing pandemic.
Equity Residential (“EQR”), is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban communities where today’s renters want to live, work and play. ERP Operating Limited Partnership (“ERPOP”) is focused on conducting the multifamily property business of EQR. EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 is an S&P 500 company focused on the acquisition, development and management of rental apartment properties in urban and high-density suburban coastal gateway markets where today's renters want to live, work and play. ERP Operating Limited Partnership (“ERPOP”),ERPOP is an Illinois limited partnership was formed in May 1993 to conduct the multifamily residential property business of Equity Residential. EQR has elected to be taxed as a REIT.1993. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP.
EQR is the general partner of, and as of SeptemberJune 30, 20172020 owned an approximate 96.4% ownership interest in, ERPOP. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, but does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.
The Company’s corporate headquarters is located in Chicago, Illinois and the Company also operates regional property management offices in each of its six core coastal markets. As of SeptemberJune 30, 2017,2020, the Company had approximately 2,7002,600 employees who provided real estate operations, leasing, legal, financial, accounting, acquisition, disposition, development and other support functions.
Available Information
You may access our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8- K8-K and any amendments to any of those reports we file with the SECSecurities and Exchange Commission (“SEC”) free of charge aton our website, www.equityapartments.com. These reports are made available aton our website as soon as reasonably practicable after we file them with the SEC. The information contained on our website, including any information referred to in this report as being available on our website, is not a part of or incorporated into this report.
Business Objectives and Operating and Investing Strategies
The Company’s and the Operating Partnership’s overall business objectives and operating and investing strategies have not changed from the information included in the Company’s and the Operating Partnership'sPartnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019, though the Company and the Operating Partnership will continue to be focused on its response to the COVID-19 pandemic in the near-term. As more fully discussed in the Company’s and the Operating Partnership’s Annual Report on Form 10-K, it continues to be the Company’s intention over time to diversify its portfolio into new markets that have characteristics similar to its current markets and to optimize the mix of the Company’s properties located in urban vs. dense suburban submarkets.
COVID-19 Impact
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The continued rapid development and fast-changing nature of the COVID-19 pandemic creates many unknowns that could have a future material impact on the Company. Its duration and severity and the extent of the adverse health impact on the general population, our residents and our employees, as well as the potential changes in customer preferences for living in the urban and dense suburban locations in which many of the Company’s properties are located, are among the unknowns. These, among other items, will likely impact the economy, the unemployment rate and our operations and could materially affect our future consolidated results of operations, financial condition, liquidity, investments and overall performance. For additional details, see Item 1A, Risk Factors.
The Company continues to support its residents and employees during the COVID-19 pandemic. The Company is utilizing technology to allow our property teams to interact remotely with current and prospective residents, including a touchless new leasing process and a service process designed to limit contact. The Company also successfully implemented changes to the physical layout of its properties and remains focused on further enhancing its existing commitment to health and safety during the pandemic. We also continue to provide additional paid leave for employees impacted by the pandemic and paid special bonuses to certain on-site employees during the second quarter of 2020 in recognition of their significant efforts. In addition, the Company continues to support its corporate and regional employees by allowing them to work remotely during the pandemic. Among other resident support efforts, we have an extensive outreach process for residents financially impacted by the pandemic and have created payment plans to assist them.
We see good demand for our apartments, both urban and suburban, but with increased customer price sensitivity, especially in the urban cores of New York City, San Francisco and Boston/Cambridge, MA. Looking forward, we believe the rate of improvement in our business will be dictated by how effectively the COVID-19 pandemic can be controlled and more normal economic activity restored. In the meantime, we believe our strong balance sheet, state of the art operating platform and opportunistic mindset leaves us well positioned to weather the storm and to take advantage should conditions allow.
During the second quarter of 2020, the Company also:
• | Experienced a recovery in demand by late May 2020. Initial leads, Traffic and applications continue to be in-line with the same time last year; |
• | Collected on average 97% of its total monthly Residential rental income. July 2020 collections continue to trend on a similar pace to prior months; and |
• | Had the highest resident retention for the second quarter in the Company’s history. |
Results of Operations
Third Quarter 20172020 Transactions
In conjunction with our business objectives and operating strategy, the Company continued to invest in apartment properties located primarily in our six coastal marketsurban and high-density suburban communities and sell apartment properties that we believe will have inferior long-term returns. The following table provides a rollforward of the transactions that occurred during the six months ended June 30, 2020:
Portfolio Rollforward
($ in thousands)
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
|
| Disposition Yield |
| ||||
12/31/2019 |
|
| 309 |
|
|
| 79,962 |
|
|
|
|
|
|
|
|
|
Dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Rental Properties |
|
| (5 | ) |
|
| (1,552 | ) |
| $ | (754,361 | ) |
|
| (4.7 | )% |
6/30/2020 |
|
| 304 |
|
|
| 78,410 |
|
|
|
|
|
|
|
|
|
The consolidated properties disposed of were located primarily in the less dense portion of suburbanPhoenix, San Francisco and Washington D.C. markets and/or properties that are functionally or locationally challenged duringand the quarter ended September 30, 2017 as follows:
Acquired three consolidated apartment properties, located in Boston, Los Angeles and Bellevue, Washington, consisting of 811 apartment units for approximately $411.0 million, at a weighted average Acquisition Cap Rate (see Definitions section below) of 4.8%;
Sold one consolidated apartment property in San Diego consisting of 120 apartment units for approximately $53.0 million, at a Disposition Yield (see Definitions section below) of 4.3% and generatingsales generated an Unlevered IRR (see Definitions section below) of 10.1%; and
Substantially completed construction on two projects in Washington, D.C. and Seattle consisting of 572 apartment units totaling approximately $300.4 million of development costs.
See also10.8%. See Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.
43We currently budget spending approximately $225.0 million on development costs during the year ending December 31, 2020, of which approximately $95.2 million was spent during the six months ended June 30, 2020, primarily for properties currently under construction. Certain of these costs will be funded by third party construction mortgages and joint venture partner obligations. Work at our development project in Boston resumed after a nine-week suspension due to the city’s COVID-19-related temporary construction moratorium, and our projects in Bethesda, MD and Alameda, CA continue under construction. The expected spending noted above could change as a result of COVID-19 related impacts.
Properties that the Company owned and were stabilized (see definition below) for all of both of the ninesix months ended SeptemberJune 30, 20172020 and 20162019 (the “Nine-Month 2017“Six-Month 2020 Same Store Properties”), which represented 70,285 apartment units, and properties that the Company owned and were stabilized for all of both of the quarters ended September 30, 2017 and 2016 (the “Third Quarter 2017 Same Store Properties”), which represented 72,04974,264 apartment units, impacted the Company’s results of operations. Both the Nine-Month 2017 Same Store Properties and the Third Quarter 2017The Six-Month 2020 Same Store Properties are discussed in the following paragraphs.
The Company'sCompany’s primary financial measure for evaluating each of its apartment communities is net operating income (“NOI”). NOI represents rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company’s apartment properties.
The following tables provide a rollforward of the apartment units included in Same Store Properties and a reconciliation of apartment units included in Same Store Properties to those included in Total Properties for the ninesix months and quarter ended SeptemberJune 30, 2017:2020:
| Nine Months Ended |
|
| Quarter Ended |
| ||||||||||
| September 30, 2017 |
|
| September 30, 2017 |
| ||||||||||
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||
Same Store Properties at Beginning of Period |
| 272 |
|
|
| 69,879 |
|
|
| 282 |
|
|
| 71,354 |
|
2015 acquisitions |
| 4 |
|
|
| 625 |
|
|
| — |
|
|
| — |
|
2017 dispositions |
| (4 | ) |
|
| (1,024 | ) |
|
| (1 | ) |
|
| (120 | ) |
Lease-up properties stabilized |
| 4 |
|
|
| 800 |
|
|
| 3 |
|
|
| 810 |
|
Other |
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Same Store Properties at September 30, 2017 |
| 276 |
|
|
| 70,285 |
|
|
| 284 |
|
|
| 72,049 |
|
|
| Six Months Ended June 30, 2020 |
| |||||
|
| Properties |
|
| Apartment Units |
| ||
Same Store Properties at December 31, 2019 |
|
| 279 |
|
|
| 71,830 |
|
2017 acquisitions |
|
| 2 |
|
|
| 510 |
|
2018 acquisitions |
|
| 5 |
|
|
| 1,461 |
|
2019 acquisitions |
|
| — |
|
|
| — |
|
2020 dispositions |
|
| (5 | ) |
|
| (1,552 | ) |
Lease-up properties stabilized |
|
| 5 |
|
|
| 2,015 |
|
Same Store Properties at June 30, 2020 |
|
| 286 |
|
|
| 74,264 |
|
|
| Nine Months Ended |
|
| Quarter Ended |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2017 |
| ||||||||||
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||
Same Store |
|
| 276 |
|
|
| 70,285 |
|
|
| 284 |
|
|
| 72,049 |
|
Non-Same Store: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 acquisitions - stabilized |
|
| 2 |
|
|
| 437 |
|
|
| 2 |
|
|
| 437 |
|
2017 acquisitions - not stabilized |
|
| 2 |
|
|
| 510 |
|
|
| 2 |
|
|
| 510 |
|
2016 acquisitions |
|
| 4 |
|
|
| 573 |
|
|
| 1 |
|
|
| 94 |
|
Properties removed from same store (1) |
|
| 2 |
|
|
| 356 |
|
|
| 2 |
|
|
| 356 |
|
Master-Leased properties (2) |
|
| 3 |
|
|
| 853 |
|
|
| 3 |
|
|
| 853 |
|
Lease-up properties not yet stabilized (3) |
|
| 13 |
|
|
| 4,342 |
|
|
| 8 |
|
|
| 3,057 |
|
Other |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Total Non-Same Store |
|
| 27 |
|
|
| 7,072 |
|
|
| 19 |
|
|
| 5,308 |
|
Unconsolidated properties |
|
| 2 |
|
|
| 945 |
|
|
| 2 |
|
|
| 945 |
|
Total Properties and Apartment Units |
|
| 305 |
|
|
| 78,302 |
|
|
| 305 |
|
|
| 78,302 |
|
|
| Six Months Ended June 30, 2020 |
| |||||
|
| Properties |
|
| Apartment Units |
| ||
Same Store |
|
| 286 |
|
|
| 74,264 |
|
Non-Same Store: |
|
|
|
|
|
|
|
|
2019 acquisitions |
|
| 13 |
|
|
| 3,540 |
|
Master-Leased properties (1) |
|
| 1 |
|
|
| 162 |
|
Lease-up properties not yet stabilized (2) |
|
| 3 |
|
|
| 443 |
|
Other |
|
| 1 |
|
|
| 1 |
|
Total Non-Same Store |
|
| 18 |
|
|
| 4,146 |
|
Total Properties and Apartment Units |
|
| 304 |
|
|
| 78,410 |
|
Note: Properties are considered "stabilized"“stabilized” when they have achieved 90% occupancy for three consecutive months. Properties are included in Same Storesame store when they are stabilized for all of the current and comparable periods presented.
(1) | Consists of one property containing |
|
|
| Consists of properties in various stages of lease-up and properties where lease-up has been completed but the properties were not stabilized for the comparable periods presented. |
44
Revenues from the Nine-Month 2017 Same Store Properties increased $37.3 million primarily as a result of an increase in average rental rates charged to residents. Expenses from the Nine-Month 2017 Same Store Properties increased $13.8 million primarily as a result of an increase in real estate taxes, on-site payroll costs, utilities and repairs and maintenance expenses. The following tables providepresent reconciliations of operating income per the consolidated statements of operations to NOI, along with rental income, operating expenses and NOI per the consolidated statements of operations allocated between same store and non-same store results (amounts in thousands):
|
| Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Operating income |
| $ | 778,974 |
|
| $ | 578,894 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Property management |
|
| 51,317 |
|
|
| 50,765 |
|
General and administrative |
|
| 26,353 |
|
|
| 29,710 |
|
Depreciation |
|
| 418,398 |
|
|
| 404,723 |
|
Net (gain) loss on sales of real estate properties |
|
| (352,243 | ) |
|
| (138,835 | ) |
Total NOI |
| $ | 922,799 |
|
| $ | 925,257 |
|
Rental income: |
|
|
|
|
|
|
|
|
Same store |
| $ | 1,260,825 |
|
| $ | 1,258,261 |
|
Non-same store/other |
|
| 75,012 |
|
|
| 73,415 |
|
Total rental income |
|
| 1,335,837 |
|
|
| 1,331,676 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Same store |
|
| 386,742 |
|
|
| 382,188 |
|
Non-same store/other |
|
| 26,296 |
|
|
| 24,231 |
|
Total operating expenses |
|
| 413,038 |
|
|
| 406,419 |
|
NOI: |
|
|
|
|
|
|
|
|
Same store |
|
| 874,083 |
|
|
| 876,073 |
|
Non-same store/other |
|
| 48,716 |
|
|
| 49,184 |
|
Total NOI |
| $ | 922,799 |
|
| $ | 925,257 |
|
The following table provides comparative total same store results and statistics for the Nine-Month 2017Six-Month 2020 Same Store Properties:
September
June YTD 20172020 vs. SeptemberJune YTD 20162019
Same Store Results/Statistics for 70,285Including 74,264 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
|
| Results |
|
| Statistics |
| ||||||||||||||||||
Description |
| Revenues |
|
| Expenses |
|
| NOI |
|
| Average Rental Rate (1) |
|
| Physical Occupancy (2) |
|
| Turnover (3) |
| ||||||
YTD 2017 |
| $ | 1,685,303 |
|
| $ | 496,232 |
|
| $ | 1,189,071 |
|
| $ | 2,662 |
|
|
| 96.0 | % |
|
| 41.9 | % |
YTD 2016 |
| $ | 1,647,988 |
|
| $ | 482,410 |
|
| $ | 1,165,578 |
|
| $ | 2,601 |
|
|
| 96.0 | % |
|
| 43.6 | % |
Change |
| $ | 37,315 |
|
| $ | 13,822 |
|
| $ | 23,493 |
|
| $ | 61 |
|
|
| 0.0 | % |
|
| (1.7 | )% |
Change |
|
| 2.3 | % |
|
| 2.9 | % |
|
| 2.0 | % |
|
| 2.3 | % |
|
|
|
|
|
|
|
|
June YTD 2020 |
|
| June YTD 2019 |
| ||||||||||||||||||||||||||||||||||
|
| Residential |
|
| % Change |
|
| Non- Residential |
|
| % Change |
|
| Total |
|
| % Change |
|
|
|
| Residential |
|
| Non- Residential |
|
| Total |
| |||||||||
Revenues |
| $ | 1,223,361 |
|
|
| 1.0 | % |
| $ | 37,464 |
| (1) |
| (20.4 | %) |
| $ | 1,260,825 |
|
|
| 0.2 | % |
| Revenues |
| $ | 1,211,210 |
|
| $ | 47,051 |
|
| $ | 1,258,261 |
|
Expenses |
| $ | 375,710 |
|
|
| 1.1 | % |
| $ | 11,032 |
|
|
| 3.4 | % |
| $ | 386,742 |
|
|
| 1.2 | % |
| Expenses |
| $ | 371,517 |
|
| $ | 10,671 |
|
| $ | 382,188 |
|
NOI |
| $ | 847,651 |
|
|
| 0.9 | % |
| $ | 26,432 |
|
|
| (27.3 | %) |
| $ | 874,083 |
|
|
| (0.2 | %) |
| NOI |
| $ | 839,693 |
|
| $ | 36,380 |
|
| $ | 876,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rental Rate |
| $ | 2,871 |
|
|
| 1.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average Rental Rate |
| $ | 2,821 |
|
|
|
|
|
|
|
|
|
Physical Occupancy |
|
| 95.7 | % |
|
| (0.7 | %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Physical Occupancy |
|
| 96.4 | % |
|
|
|
|
|
|
|
|
Turnover |
|
| 21.4 | % |
|
| (1.9 | %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Turnover |
|
| 23.3 | % |
|
|
|
|
|
|
|
|
Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
(1) |
|
|
|
|
|
The following table provides comparativeresults and statistics related to our Residential same store operating expensesoperations for the Nine-Month 2017 Same Store Properties:six months ended June 30, 2020 and 2019:
September
June YTD 20172020 vs. SeptemberJune YTD 20162019
Same Store Operating ExpensesResidential Results/Statistics by Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increase (Decrease) from Prior Year |
| |||||||||||||||||||||
Markets/Metro Areas |
| Apartment Units |
|
| June YTD 2020 % of Actual NOI |
|
| June YTD 2020 Average Rental Rate |
|
| June YTD 2020 Weighted Average Physical Occupancy % |
|
| June YTD 2020 Turnover |
|
| Revenues |
|
| Expenses |
|
| NOI |
|
| Average Rental Rate |
|
| Physical Occupancy |
|
| Turnover |
| |||||||||||
Los Angeles |
|
| 15,968 |
|
|
| 19.7 | % |
| $ | 2,615 |
|
|
| 95.3 | % |
|
| 23.2 | % |
|
| 0.1 | % |
|
| (0.3 | %) |
|
| 0.2 | % |
|
| 1.0 | % |
|
| (0.9 | %) |
|
| (2.6 | %) |
Orange County |
|
| 4,028 |
|
|
| 4.8 | % |
|
| 2,272 |
|
|
| 96.6 | % |
|
| 18.8 | % |
|
| 2.2 | % |
|
| 0.2 | % |
|
| 2.8 | % |
|
| 2.0 | % |
|
| 0.2 | % |
|
| (5.4 | %) |
San Diego |
|
| 3,385 |
|
|
| 4.2 | % |
|
| 2,435 |
|
|
| 96.4 | % |
|
| 23.7 | % |
|
| 1.9 | % |
|
| 2.1 | % |
|
| 1.9 | % |
|
| 2.0 | % |
|
| 0.0 | % |
|
| (2.7 | %) |
Subtotal – Southern California |
|
| 23,381 |
|
|
| 28.7 | % |
|
| 2,529 |
|
|
| 95.7 | % |
|
| 22.5 | % |
|
| 0.7 | % |
|
| 0.1 | % |
|
| 0.9 | % |
|
| 1.3 | % |
|
| (0.6 | %) |
|
| (3.1 | %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 12,183 |
|
|
| 20.7 | % |
|
| 3,334 |
|
|
| 95.8 | % |
|
| 21.1 | % |
|
| 1.1 | % |
|
| 2.9 | % |
|
| 0.5 | % |
|
| 1.7 | % |
|
| (0.6 | %) |
|
| (1.9 | %) |
Washington DC |
|
| 13,711 |
|
|
| 16.0 | % |
|
| 2,463 |
|
|
| 95.9 | % |
|
| 19.8 | % |
|
| 1.3 | % |
|
| (0.1 | %) |
|
| 1.9 | % |
|
| 2.1 | % |
|
| (0.7 | %) |
|
| (0.8 | %) |
New York |
|
| 9,475 |
|
|
| 14.0 | % |
|
| 3,930 |
|
|
| 95.4 | % |
|
| 18.7 | % |
|
| (0.3 | %) |
|
| 2.4 | % |
|
| (2.4 | %) |
|
| 1.1 | % |
|
| (1.3 | %) |
|
| 0.4 | % |
Seattle |
|
| 8,442 |
|
|
| 10.2 | % |
|
| 2,469 |
|
|
| 96.3 | % |
|
| 22.9 | % |
|
| 3.8 | % |
|
| 2.7 | % |
|
| 4.2 | % |
|
| 3.9 | % |
|
| (0.1 | %) |
|
| (5.1 | %) |
Boston |
|
| 6,346 |
|
|
| 9.7 | % |
|
| 3,178 |
|
|
| 94.7 | % |
|
| 22.7 | % |
|
| 1.0 | % |
|
| (1.9 | %) |
|
| 2.2 | % |
|
| 2.6 | % |
|
| (1.4 | %) |
|
| 1.2 | % |
Denver |
|
| 726 |
|
|
| 0.7 | % |
|
| 2,133 |
|
|
| 94.5 | % |
|
| 30.6 | % |
|
| (1.2 | %) |
|
| (0.3 | %) |
|
| (1.5 | %) |
|
| 0.6 | % |
|
| (1.9 | %) |
|
| 0.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 74,264 |
|
|
| 100.0 | % |
| $ | 2,871 |
|
|
| 95.7 | % |
|
| 21.4 | % |
|
| 1.0 | % |
|
| 1.1 | % |
|
| 0.9 | % |
|
| 1.8 | % |
|
| (0.7 | %) |
|
| (1.9 | %) |
Note: The above table reflects Residential same store results only, which historically account for 70,285approximately 96.0% of total revenues.
We continue to work with our residents and tenants on payment plans and collections and our allowance policies remain consistent. We expect our reserves and bad debt charge-offs to remain elevated for the remainder of this year. The following table provides Residential and Non-Residential accounts receivable and straight-line receivable balances for the Company’s same store properties as of June 30, 2020 and March 31, 2020 (amounts in thousands):
Same Store Resident/Tenant Accounts Receivable Balances
Including 74,264 Same Store Apartment Units
$ in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % of Actual |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD 2017 |
| |
|
| Actual |
|
| Actual |
|
| $ |
|
| % |
|
| Operating |
| |||||
|
| YTD 2017 |
|
| YTD 2016 |
|
| Change |
|
| Change |
|
| Expenses |
| |||||
Real estate taxes |
| $ | 208,482 |
|
| $ | 201,645 |
|
| $ | 6,837 |
|
|
| 3.4 | % |
|
| 42.0 | % |
On-site payroll (1) |
|
| 112,607 |
|
|
| 107,514 |
|
|
| 5,093 |
|
|
| 4.7 | % |
|
| 22.7 | % |
Utilities (2) |
|
| 67,788 |
|
|
| 66,472 |
|
|
| 1,316 |
|
|
| 2.0 | % |
|
| 13.7 | % |
Repairs and maintenance (3) |
|
| 64,170 |
|
|
| 62,952 |
|
|
| 1,218 |
|
|
| 1.9 | % |
|
| 12.9 | % |
Insurance |
|
| 12,526 |
|
|
| 13,024 |
|
|
| (498 | ) |
|
| (3.8 | )% |
|
| 2.5 | % |
Leasing and advertising |
|
| 7,034 |
|
|
| 7,579 |
|
|
| (545 | ) |
|
| (7.2 | )% |
|
| 1.4 | % |
Other on-site operating expenses (4) |
|
| 23,625 |
|
|
| 23,224 |
|
|
| 401 |
|
|
| 1.7 | % |
|
| 4.8 | % |
Same store operating expenses |
| $ | 496,232 |
|
| $ | 482,410 |
|
| $ | 13,822 |
|
|
| 2.9 | % |
|
| 100.0 | % |
|
| Residential |
|
| Non-Residential |
| ||||||||||||||||||
|
| June 30, 2020 |
|
| March 31, 2020 |
|
| June 30, 2020 |
|
| March 31, 2020 |
| ||||||||||||
Resident/tenant accounts receivable balances |
| $ | 18,175 |
|
| $ | 5,358 |
|
| $ | 4,815 |
|
| $ | 2,270 |
| ||||||||
Allowance for doubtful accounts |
|
| (6,518 | ) |
|
| (1,850 | ) |
|
| (2,416 | ) |
|
| (1,532 | ) | ||||||||
Net receivable balances |
| $ | 11,657 |
| (1) | $ | 3,508 |
|
| $ | 2,399 |
|
| $ | 738 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Straight-line receivable balances |
| $ | 2,990 |
|
| $ | 1,633 |
|
| $ | 24,161 |
|
| $ | 26,154 |
|
(1) | The Company held Residential security deposits approximating 20% of the net receivable balance at June 30, 2020. |
The following table provides preliminary information related to Residential same store operations for the month ended July 2020 compared to the actuals for the quarter ended June 30, 2020.
|
| July 2020 |
|
| Second Quarter 2020 |
| ||
New Lease Change |
|
| (8.3 | %) |
|
| (7.0 | %) |
Renewal Rate Achieved |
|
| (0.9 | %) |
|
| 0.7 | % |
Blended Rate (1) |
|
| (4.5 | %) |
|
| (2.7 | %) |
Physical Occupancy |
|
| 95.0 | % |
|
| 94.9 | % |
(1) | Blended Rate after applying the effect of new move-in and renewal concessions is approximately (5.5%) and (3.5%) for July 2020 and the second quarter of 2020, respectively, driven by higher usage in the urban cores of New York, San Francisco and Boston. |
The July 2020 results listed above are approximately equal to the Company's June 2020 results for New Lease Change, Renewal Rate Achieved and Blended Rate. Concession use is higher in July 2020 than in June 2020.
We expected the negative impact on Physical Occupancy to be most pronounced in the second quarter and then stabilize at a new base level, which currently appears to be the case. The story is more mixed as it relates to Average Rental Rates, which remains more challenged in the urban cores of New York City, San Francisco and Boston/Cambridge, MA. Use of new lease concessions during the second quarter of 2020 was concentrated in the submarkets noted above. Traffic and application activity improved throughout the quarter as Average Rental Rates were reduced in these submarkets. Meanwhile the rest of the portfolio is showing more stability in Average Rental Rates, though those rates are still lower than last year.
As a result of the differing impact that the COVID-19 pandemic is currently having on the operating performance of our markets and submarkets, we believe it is most helpful to discuss our portfolio as follows:
• | First, our suburban properties, which represent approximately 45% of our portfolio, have been more resilient during the pandemic with Physical Occupancy declining to a low point of 95.2% during the second quarter of 2020 but since recovering fully to levels at or above the prior year. By the middle of July 2020, Physical Occupancy for this category of properties stood at 96.6%. The percentage of suburban leases renewing was very strong at 65% and continues to trend well above the prior year. Average Rental Rates have slowly recovered since early May with limited concession use, though those rates are still below the prior year level. |
• | Second, our properties that are located in the urban cores of New York City, San Francisco and Boston/Cambridge, MA, which represent about 25% of our portfolio, have Physical Occupancy of 90.9% by the middle of July 2020. This group of properties has the highest use of concessions (about 50% of all new leases) and the most pressure on Average Rental Rates. For the second quarter of 2020, these urban properties renewed 58% of residents, which was 500 basis points lower than the second quarter of 2019 and was trending down throughout the quarter, ending at 53% in June 2020. We believe these properties have the highest risk of volatility in operations for the balance of the year. |
• | Our third category consists of urban properties in our other markets, such as Washington D.C., Seattle and Southern California, and constitutes about 30% of our portfolio. These properties reached a low point in Physical Occupancy of 94.0% in the middle of May 2020, but quickly rebounded and had Physical Occupancy of 95.2% by the middle of July 2020. Average Rental Rates have been stable since the middle of May, though they are down year-over-year, and concessions are being used on about 15% of our new leases. During the second quarter of 2020, 57% of residents renewed at these properties, which is 300 basis points better than the second quarter of 2019. Overall, this group of urban properties has had consistent operations for the past two months, with a slight increase in Physical Occupancy in the last couple of weeks of July 2020. |
The following table provides comparative total same store operating expenses for the Six-Month 2020 Same Store Properties:
June YTD 2020 vs. June YTD 2019
Total Same Store Operating Expenses Including 74,264 Same Store Apartment Units
$ in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % of Actual |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD 2020 |
| |
|
| Actual |
|
| Actual |
|
| $ |
|
| % |
|
| Operating |
| |||||
|
| YTD 2020 |
|
| YTD 2019 |
|
| Change (5) |
|
| Change |
|
| Expenses |
| |||||
Real estate taxes |
| $ | 170,416 |
|
| $ | 164,075 |
|
| $ | 6,341 |
|
|
| 3.9 | % |
|
| 44.1 | % |
On-site payroll (1) |
|
| 81,249 |
|
|
| 81,757 |
|
|
| (508 | ) |
|
| (0.6 | )% |
|
| 21.0 | % |
Utilities (2) |
|
| 50,654 |
|
|
| 49,787 |
|
|
| 867 |
|
|
| 1.7 | % |
|
| 13.1 | % |
Repairs and maintenance (3) |
|
| 44,497 |
|
|
| 48,027 |
|
|
| (3,530 | ) |
|
| (7.4 | )% |
|
| 11.5 | % |
Insurance |
|
| 12,187 |
|
|
| 10,365 |
|
|
| 1,822 |
|
|
| 17.6 | % |
|
| 3.2 | % |
Leasing and advertising |
|
| 4,385 |
|
|
| 4,917 |
|
|
| (532 | ) |
|
| (10.8 | )% |
|
| 1.1 | % |
Other on-site operating expenses (4) |
|
| 23,354 |
|
|
| 23,260 |
|
|
| 94 |
|
|
| 0.4 | % |
|
| 6.0 | % |
Total Same Store Operating Expenses (includes Residential and Non-Residential) |
| $ | 386,742 |
|
| $ | 382,188 |
|
| $ | 4,554 |
|
|
| 1.2 | % |
|
| 100.0 | % |
(1) | On-site payroll – Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff. |
(2) | Utilities – Represents gross expenses prior to any recoveries under the Resident Utility Billing System (“RUBS”). Recoveries are reflected in rental income. |
(3) | Repairs and maintenance – Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair and maintenance costs. |
(4) | Other on-site operating expenses – Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees. |
45
The following tables present reconciliations of operating income per the consolidated statements of operations to NOI, along with rental income, operating expenses and NOI per the consolidated statements of operations allocated between same store and non-same store/other results for the nine months ended September 30, 2017 and 2016 (amounts in thousands):
|
| Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Operating income |
| $ | 632,707 |
|
| $ | 632,016 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Fee and asset management revenue |
|
| (532 | ) |
|
| (3,351 | ) |
Property management |
|
| 64,702 |
|
|
| 64,003 |
|
General and administrative |
|
| 40,366 |
|
|
| 47,408 |
|
Depreciation |
|
| 542,964 |
|
|
| 528,242 |
|
Total NOI |
| $ | 1,280,207 |
|
| $ | 1,268,318 |
|
Rental income: |
|
|
|
|
|
|
|
|
Same store |
| $ | 1,685,303 |
|
| $ | 1,647,988 |
|
Non-same store/other |
|
| 154,867 |
|
|
| 168,972 |
|
Total rental income |
|
| 1,840,170 |
|
|
| 1,816,960 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Same store |
|
| 496,232 |
|
|
| 482,410 |
|
Non-same store/other |
|
| 63,731 |
|
|
| 66,232 |
|
Total operating expenses |
|
| 559,963 |
|
|
| 548,642 |
|
NOI: |
|
|
|
|
|
|
|
|
Same store |
|
| 1,189,071 |
|
|
| 1,165,578 |
|
Non-same store/other |
|
| 91,136 |
|
|
| 102,740 |
|
Total NOI |
| $ | 1,280,207 |
|
| $ | 1,268,318 |
|
For properties that the Company acquired or completed that were stabilized prior to January 1, 2016 and that the Company expects to continue to own through December 31, 2017, the Company anticipates the following same store results for the full year ending December 31, 2017:
| Theyear-to-date over year-to-date changes are due primarily to: |
|
| • |
| Real estate taxes – Higher rates and assessed values continue to drive real estate tax growth across most markets with a slight improvement from previous expectations caused by successful appeals activity and lower than expected rate growth in New York. |
|
|
| On-site payroll – Results better than expectations due to faster than anticipated progress in transition to enhanced operating platform, lower than expected employee benefit-related costs and less overtime, partially offset by one-time frontline worker bonuses. |
|
|
| Utilities – Growth lower than expected due to warmer winter weather and energy rate decreases. |
|
|
| Repairs and maintenance – Decrease primarily driven by deferral and cancellation of some projects as a result of COVID-19-related delays. |
• | Insurance – Increase due to higher premiums on property insurance renewal caused by challenging conditions in the insurance market. |
• | Leasing and advertising – Decrease greater than expectations due in part to suspension of resident activities. |
The Company anticipates consolidated rental acquisitions of $468.0 million and consolidated rental dispositions of $500.0 million and expects that the Acquisition Cap Rate will be 0.50% lower than the Disposition Yield for the full year ending December 31, 2017. These 2017 assumptions are based on current expectations and are forward-looking.
Same store revenues increased 2.3% during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, which was ahead of our expectations primarily driven by gains in occupancy. As a result, the Company now anticipates same store revenue growth of approximately 2.2% for 2017, as compared to the most recent updated guidance range of 1.75% to 2.25% that was provided in July 2017. The Company’s primary goal in 2017 continues to focus on retaining existing residents to drive renewal rate growth, which came in at 4.6% for the nine months ended September 30, 2017 as compared to the same period in 2016. Same store turnover declined by 1.7% for the nine months ended September 30, 2017 as compared to the same period in 2016. With same store occupancy of 96.0% for the nine months ended September 30, 2017, we also increased our occupancy expectations for full year 2017 from 95.8% to 95.9%.
Washington D.C. was originally expected to post improved same store revenue results for 2017 as compared to 2016 because we expected continuing job growth to allow the elevated levels of new supply in this market to be absorbed. During the second quarter of 2017, this job growth weakened, though it has modestly improved recently, with the impact from potential government spending initiatives still remaining unclear. Same store revenues increased 1.4% in the nine months ended September 30, 2017 as compared to the same period in 2016, which was lower than our original February 2017 expectations. We now expect to produce same store revenue growth of approximately 1.5% in 2017, which is relatively consistent with the prior year and slightly higher than our most recent expectation provided in July 2017 of an increase of 1.4% for this market.
46
In the New York market, elevated deliveries of new luxury supply both in established residential areas and newer residential areas like Long Island City are having an impact on our ability to raise rents as renters begin to let go of neighborhood loyalty. There has also been a reduction in the rate of job growth in the financial services sector and technology sector, which are important demand drivers in the market. Due in part to our strong same store occupancy levels (96.1% for the nine months ended September 30, 2017), we have used fewer concessions during the nine months of 2017 than we originally expected and anticipate that trend to continue in the remaining three months of 2017. As a result, same store revenues increased 0.1% in the nine months ended September 30, 2017 as compared to the same period in 2016, which was slightly above our expectations. We still expect there to be a decline in same store revenues of approximately 0.1% for full year 2017, which is better than our most recent expectation provided in July 2017 of a decline of 0.3% for this market.
We have a cautious outlook for Boston as the market continues to feel the impact from an elevated level of deliveries of new supply in the downtown and Cambridge submarkets with approximately 50% of this new supply competing with our properties. Job growth has continued to improve in the market which is a positive sign that the additional supply may be absorbed without significant disruption. Same store revenues increased 1.4% in the nine months ended September 30, 2017 as compared to the same period in 2016, which was consistent with our expectations. We expect to produce same store revenue growth of approximately 1.6% in 2017, which is slightly higher than our most recent expectation provided in July 2017 of an increase of 1.5% for this market.
Seattle is producing solid rental rate growth driven by the continued growth in technology jobs in the market, but showed signs of slowing rent growth during the quarter. While new supply remains elevated in this market, until recently strong job growth has enabled that supply to be quickly absorbed with little market disruption. Same store revenues increased 5.9% in the nine months ended September 30, 2017 as compared to the same period in 2016, which exceeded our expectations. We expect Seattle to produce same store revenue growth of approximately 5.7% in 2017, which is slightly lower than our most recent expectation provided in July 2017 of an increase of 5.75% for this market.
San Francisco is producing a slower rate of job growth in the technology sector compared to previous years. However, we continue to see strong demand throughout the market, although the rate at which we can increase rents remains somewhat modest due to new supply and a slower rate of job growth. Same store revenues increased 2.2% in the nine months ended September 30, 2017 as compared to the same period in 2016, which was ahead of our expectations. We expect to produce same store revenue growth of approximately 2.1% in 2017, which is better than our most recent expectation provided in July 2017 of an increase of 1.8% for this market.
Southern California, which includes Los Angeles, Orange County and San Diego, is performing well and is positioned to be one of our better performing markets in 2017. Widely dispersed new supply, very good economic growth and adequate levels of job growth in the market are driving strong revenue growth. Same store revenues increased 4.1% in the nine months ended September 30, 2017 as compared to the same period in 2016, which was above our expectations. We expect to produce same store revenue growth of approximately 4.0% in 2017, which is slightly higher than our most recent expectation provided in July 2017 of an increase of 3.8% for this market. We expect Orange County and San Diego to perform slightly better than Los Angeles for full year 2017 as compared to 2016.
Same store expenses increased 2.9% during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The Company now anticipates that 2017 same store expenses will increase 3.2%, as compared to the most recent guidance range of 3.25% to 4.0% that was provided in July 2017, significantly impacted by the following items:
Real estate taxes increased 3.4% during the nine months ended September 30, 2017 as compared to the same period in 2016 and are now estimated to increase 3.4% for the full year 2017 as compared to 2016 (lower than the most recent guidance of 4.0% to 4.5% provided in July 2017), primarily driven by favorable real estate tax appeal results;
Payroll costs increased 4.7% during the nine months ended September 30, 2017 as compared to the same period in 2016 and are estimated to increase 6.0% for the full year 2017 as compared to 2016 (consistent with the most recent guidance provided in July 2017), primarily due to an increase in on-site staffing to assure the service levels necessary to remain competitive with new supply, higher on-site wages due to competition from new supply and higher medical and workers compensation costs; and
Utilities increased 2.0% during the nine months ended September 30, 2017 as compared to the same period in 2016 and are estimated to increase approximately 2.0% for the full year 2017 as compared to 2016 (consistent with the most recent guidance provided in July 2017), primarily due to moderate increases in natural gas costs, partially offset by lower gas usage and lower prices for electricity.
47
Same store NOI increased 2.0% during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, which was ahead of our expectations. As a result, the Company now anticipates same store NOI growth of approximately 1.8%, as compared to the most recent guidance range of 0.75% to 1.75% that was provided in July 2017, for the full year 2017 as a result of the above same store revenue and expense expectations.
For the quarter ended September 30, 2017, same store revenue increased $12.5 million or 2.2%, same store expenses increased $2.8 million or 1.7% and same store NOI increased $9.7 million or 2.4% when compared to the prior year period. SeeSee also Note 13 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.
Non-Same Store/Other Results
Non-same store/other NOI results for the ninesix months ended SeptemberJune 30, 20172020 decreased approximately $11.6$0.5 million compared to the same period of 20162019 and consist primarily of properties acquired in calendar years 2016 and 2017,year 2019, operations from the Company’s development properties and operations prior to disposition from 20162019 and 20172020 sold properties. This difference is due primarily to:
A positive impact of higher NOI from development and newly stabilized development properties in lease-up of $30.5 million;
• | A positive impact of higher NOI from development and newly stabilized development properties in lease-up of $3.4 million; |
A positive impact of higher NOI from properties acquired in 2016 and 2017 of $6.6 million;
• | A positive impact of higher NOI from properties acquired in 2019 of $27.6 million; and |
A positive impact of higher NOI from other non-same store properties (including three master leased properties) of $1.8 million; and
A negative impact of lost NOI from 2016 and 2017 dispositions of $48.4 million.
• | A negative impact of lost NOI from 2019 and 2020 dispositions of $29.5 million. |
Comparison of the ninesix months and quarter ended SeptemberJune 30, 20172020 to the ninesix months and quarter ended SeptemberJune 30, 20162019
For the nine months ended September 30, 2017, the Company reportedThe following table presents a reconciliation of diluted earnings per share/unit of $1.29 compared to $10.92 per share/unit infor the same period of 2016. The difference is primarily due to approximately $9.78 per share/unit in higher gains on property sales six months and $0.14 per share/unit in higher gains on sales of non-operating assets in 2016 compared to 2017 as a direct result of the significant sales activity in 2016 compared to 2017, partially offset by $0.28 per share/unit in higher debt extinguishment costs incurred in 2016 as compared to 2017. For the quarter ended SeptemberJune 30, 2017, the Company reported diluted earnings per share/unit of $0.37 compared to $0.56 per share/unit in the same period of 2016. The difference is primarily due to approximately $0.22 per share/unit in higher gains on property sales in the third quarter of 20162020 as compared to the same period in 2017, partially offset by improved operations in the third quarter of 2017 as compared to the third quarter of 2016.2019:
Income from continuing operations decreased approximately $3.7 billion and $73.1 million for the nine months and quarter ended September 30, 2017, respectively, compared to the prior periods.
|
| Six Months Ended June 30 |
|
| Quarter Ended June 30 |
| ||
Diluted earnings per share/unit for period ended 2019 |
| $ | 1.11 |
|
| $ | 0.83 |
|
Property NOI |
|
| (0.01 | ) |
|
| (0.04 | ) |
Interest expense |
|
| 0.06 |
|
|
| 0.03 |
|
Debt extinguishment costs |
|
| 0.04 |
|
|
| 0.04 |
|
Net gain/loss on property sales |
|
| 0.34 |
|
|
| (0.17 | ) |
Other |
|
| (0.01 | ) |
|
| 0.01 |
|
Diluted earnings per share/unit for period ended 2020 |
| $ | 1.53 |
|
| $ | 0.70 |
|
The decrease in continuing operations is discussed below.
The guidance/projections provided below are based on current projections and are forward-looking.
For the nine months ended September 30, 2017, consolidated rental income increased 1.3%, consolidated operating expenses (comprised of property and maintenance and real estate taxes and insurance) increased 2.1% and consolidated NOI increased 0.9% when compared to the nine months ended September 30, 2016. The increase in NOI is primarily a result of the Company’s improvedlower NOI from same store properties, largely due to the economic impact from the COVID-19 pandemic. The following table presents the changes in the components of consolidated NOI for the six months and lease-up properties. For the quarter ended SeptemberJune 30, 2017, consolidated rental income increased 3.0%, consolidated operating expenses (comprised of property and maintenance and real estate taxes and insurance) increased 1.8% and consolidated NOI increased 3.5% when2020 as compared to the quarter ended September 30, 2016. The increasesame periods in NOI is primarily a result of improved NOI from same store and lease-up properties.2019:
For the nine months ended September 30, 2017, fee and asset management revenues decreased approximately $2.8 million or 84.1% primarily as a result of lower revenue earned on management of the Company's military housing ventures at Joint Base Lewis McChord due to the sale of the Company's entire interest in the management contracts and related rights associated with these ventures in the second quarter of 2016.
|
| Six Months Ended June 30, 2020 |
|
| Quarter Ended June 30, 2020 |
| ||
Consolidated rental income |
|
| 0.3 | % |
|
| (2.4 | %) |
Consolidated operating expenses (1) |
|
| 1.6 | % |
|
| (0.2 | %) |
Consolidated NOI |
|
| (0.3 | %) |
|
| (3.3 | %) |
(1) | Consolidated operating expenses are comprised of property and maintenance and real estate taxes and insurance. |
Property management expenses include off-site expenses associated with the self-management of the Company’s properties as well as management fees paid to any third party management companies. These expenses increased approximately $0.7$0.6 million or 1.1% and approximately $1.3 million or 6.9% for the ninesix months and quarters ended SeptemberJune 30, 2017, respectively,2020 as compared to the prior year periods. These increases areperiod. The increase is primarily attributable to increases in education/conferenceinformation technology related costs specifically for various operating initiatives such as sales-focused improvements and service enhancements, partially offset by decreases in payroll-related costs, travel costs and legal fees. The Company anticipates that property management expenses will approximate $85.0 million for the year ending December 31, 2017.
48
General and administrative expenses, which include corporate operatingtraining/conference costs. These expenses decreased approximately $7.0$0.8 million or 14.9%3.1% for the nine monthsquarter ended SeptemberJune 30, 20172020 as compared to the prior year period, primarily due to a decrease in payroll-related costs, in 2017 compared to 2016. travel costs and training/conference costs. The Company suspended the majority of all travel and training/conference activities as a result of the COVID-19 pandemic.
General and administrative expenses, increasedwhich include corporate operating expenses, decreased approximately $0.2$3.4 million or 1.4%11.3% and approximately $2.5 million or 17.4% for the six months and quarter ended SeptemberJune 30, 20172020, respectively, as compared to the prior year period,periods, primarily due to an increasedecreases in payroll-related costs in 2017. The Company anticipates that general and administrative expenses will approximate $52.0 million foras a result of the year ending December 31, 2017, excluding charges of approximately $0.4 million related toCompany’s executive changes over the overlap of accounting costs for the Company's current and former executive compensation programs.past two years.
Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $14.7$13.7 million or 2.8%3.4% and $4.9approximately $5.5 million or 2.7% for the ninesix months and quartersquarter ended SeptemberJune 30, 2017,2020, respectively, as compared to the prior year periods, primarily as a result of additional depreciation expense on properties acquired in 2016 and 20172019 and development properties placed in service partiallyduring 2019, offset by lower depreciation from properties sold in 20162019 and 2017.2020.
Interest and other income decreased approximately $59.4 million or 91.2% and $1.6 million or 28.4% for the nine months and quarters ended September 30, 2017, respectively, compared to the prior year periods. The year to date decrease is primarily attributable to the approximate $52.4 millionNet gain from the saleon sales of the Company's entire interest in the management contracts and related rights associated with the military housing ventures at Joint Base Lewis McChord during the nine months ended September 30, 2016 which did not reoccur in 2017. The year to date and quarterly decreases are also a result of the sale of the Company’s 421-a real estate tax certificates during the third quarter of 2016 which did not reoccur in 2017. The Company anticipates that interest and other income will approximate $1.2properties increased approximately $213.4 million for the year ending December 31, 2017, excluding certain non-comparable insurance/litigation settlement proceeds.
Other expenses decreased approximately $11.3 million or 78.2% and $9.4 million or 90.1% for the nine months and quarters ended September 30, 2017, respectively, compared to the prior year periods, primarily due to a decrease in litigation settlements in 2017 as compared to 2016, as well as a decrease in annual transaction costs of approximately $1.5 million. In addition, the Company anticipates that substantially all of its transactions will now be accounted for as asset acquisitions, which means that transaction costs will largely be capitalized, as a result of its adoption of the new definition of a business standard effective January 1, 2017. See Note 2 in the Notes to Consolidated Financial Statements for further discussion.
Interest expense, including amortization of deferred financing costs, decreased approximately $101.3 million or 25.6% for the ninesix months ended SeptemberJune 30, 20172020 as compared to the prior year period, primarily as a result of $108.5 million in lower debt extinguishment costs in 2017a higher sales volume with the sale of five consolidated apartment properties during the first half of 2020 as compared to 2016. The effective interest costthe sale of two consolidated apartment properties during the first half of 2019. Net gain on all indebtedness for the nine months ended September 30, 2017 was 4.47% as compared to 4.69% for the prior year period. Interest expense, including amortizationsales of deferred financing costs,real estate properties increased approximately $4.6$5.4 million or 5.2%3.9% for the quarter ended SeptemberJune 30, 20172020 as compared to the prior period. The increase isyear period, primarily due toas a result of lower capitalized interestthe sale of two consolidated apartment properties sold for a higher gain in the second quarter of 2020 as compared to the sale of two consolidated properties in the same period in 2019.
Interest and other income increased approximately $1.5 million or 80.3% and approximately $0.4 million or 31.2% for the current periodsix months and quarter ended June 30, 2020, respectively, as compared to the prior period. The effective interest costyear periods. These increases are primarily due to higher insurance/litigation settlement proceeds that did not occur in 2019, partially offset by decreases in short-term investment income on all indebtedness for the quarter ended September 30, 2017 was 4.35%cash and restricted deposit accounts in 2020 as compared to 4.67%2019 due to a lower rate environment and lower overall balances.
Other expenses decreased approximately $4.2 million or 49.6% and approximately $3.4 million or 66.9% for the prior year period. The Company capitalized interest of approximately $23.2 million and $41.7 million during the nine months ended September 30, 2017 and 2016, respectively, and $6.6 million and $13.3 million during the quarters ended September 30, 2017 and 2016, respectively. The Company anticipates that interest expense from continuing operations, excluding debt extinguishment costs/prepayment penalties, will approximate $370.5 million to $374.7 million and capitalized interest will approximate $25.0 million to $27.0 million for the year ending December 31, 2017.
Income and other tax expense decreased approximately $0.5 million or 40.3% and $0.2 million or 46.5% for the ninesix months and quartersquarter ended SeptemberJune 30, 2017,2020, respectively, as compared to the prior year periods, primarily due to decreases in various state and local taxesconsulting costs related to a data analytics project which was completed last year and litigation and environmental settlements, partially offset by increases in advocacy contributions in 2020 as compared to 2019.
Interest expense, including amortization of deferred financing costs, decreased approximately $38.0 million or 18.1% and approximately $28.6 million or 25.4% for the Company's elevatedsix months and quarter ended June 30, 2020, respectively, as compared to the prior year periods. The decrease is due primarily to lower debt extinguishment costs, lower overall debt balances outstanding between the periods as a result of deploying disposition activity in 2016 vs. 2017.proceeds to repay debt, as well as lower overall interest rates. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the six months ended June 30, 2020 was 3.95% as compared to 4.34% for the prior year period, and for the quarter ended June 30, 2020 was 3.96% as compared to 4.34% for the prior year period. The Company anticipates that incomecapitalized interest of approximately $4.1 million and other tax expense will approximate $1.0$2.7 million forduring the year ending December 31, 2017.six months ended June 30, 2020 and 2019, respectively, and $2.3 million and $1.5 million during the quarters ended June 30, 2020 and 2019, respectively.
Income from investments in unconsolidated entities decreased approximately $8.0$70.3 million and $8.1$69.8 million for the ninesix months and quartersquarter ended SeptemberJune 30, 2017,2020, respectively, as compared to the prior year periods, primarily due to theas a result of a $69.5 million gain on the sale of onetwo unconsolidated apartment propertyproperties in the prior year2019 that did not occur in 2017.the same periods in 2020.
Net gain on sales of real estate(income) loss attributable to Noncontrolling Interests in partially owned properties decreased approximately $3.7 billion or 96.3% as a result of$11.8 million for the sale of 91 consolidated apartment properties (including the Starwood Portfolio) during the ninesix months ended SeptemberJune 30, 2016 as compared to only four consolidated apartment property sales during the nine months ended September 30, 2017, all of which did not meet the criteria for reporting discontinued operations. Net gain on sales of real estate properties decreased approximately $72.7 million and 80.8% during the quarter ended September 30, 2017 compared to the prior period as a result of the sale of one consolidated apartment property compared to the sale of eight consolidated properties in the prior year. See Note 11 in the Notes to Consolidated Financial Statements for further discussion.
49
Net gain on sales of land parcels increased approximately $3.4 million or 21.6% due to the gain on sale of one land parcel with a low basis during the nine months ended September 30, 2017 as compared to the gain on sales of four land parcels during the nine months ended September 30, 2016. Net gain on sales of land parcels decreased approximately $4.0 million during the quarter ended September 30, 20172020, as compared to the prior year period, primarily as a result of noncontrolling interest allocations related to the gain on sale of one land parcelpartially owned apartment property in 2020 as compared to no sales in the prior year that did not occursame period in 2017.2019.
Liquidity and Capital Resources
The Company believes its current liquidity position is strong despite the impact of the COVID-19 pandemic. With approximately $2.4 billion in readily available liquidity, limited near-term maturities, very strong credit metricsand ample access to capital markets at historically low rates, the Companybelieves it is well positioned to meet its future obligations. See further discussion below.
Short-Term Liquidity and Cash Proceeds
The Company generally expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing properties and scheduled unsecured note and mortgage note repayments, through its working capital, net cash provided by operating activities and borrowings under the Company’s revolving credit facility and commercial paper program. Under normal operating conditions,Currently, the Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.
As of January 1, 2017,The following table presents the Company had approximately $77.2 million ofCompany’s balances for cash and cash equivalents, restricted deposits and the amount available borrowing capacity on its revolving credit facility was $1.96 billion (netas of $20.6 million which was restricted/dedicated to support letters of creditJune 30, 2020 and net of $20.0 millionDecember 31, 2019 (amounts in principal outstanding on the commercial paper program). After taking into effect the various transactions discussed in the following paragraphs and the net cash provided by operating activities, the Company's cash and cash equivalents balance at September 30, 2017 was approximately $46.6 million and the amount available on its revolving credit facility was $1.76 billion (net of $11.1 million which was restricted/dedicated to support letters of credit and net of $230.0 million in principal outstanding on the commercial paper program).thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Cash and cash equivalents |
| $ | 187,416 |
|
| $ | 45,753 |
|
Restricted deposits |
| $ | 58,117 |
|
| $ | 71,246 |
|
Unsecured revolving credit facility availability |
| $ | 2,399,051 |
|
| $ | 1,379,071 |
|
During the ninesix months ended SeptemberJune 30, 2017,2020, the Company generated proceeds from various transactions, which included the following:
Disposed of four consolidated rental properties and one land parcel, receiving net proceeds of approximately $350.0 million;
• | Disposed of five consolidated rental properties, receiving net proceeds of approximately $747.6 million; |
Issued $400.0 million of ten-year 3.25% fixed rate public notes, receiving net proceeds of approximately $399.3 million before underwriting fees, hedge termination costs and other expenses;
• | Obtained $495.0 million in a 2.60% fixed rate mortgage loan pool maturing on May 1, 2030; and |
Issued $300.0 million of thirty-year 4.00% fixed rate public notes, receiving net proceeds of approximately $293.2 million before underwriting fees and other expenses; and
Issued approximately 0.4 million Common Shares related to share option exercises and ESPP purchases and received net proceeds of $15.9 million, which were contributed to the capital of the Operating Partnership in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis).
• | Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $13.7 million, which were contributed to the capital of the Operating Partnership in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis). |
During the ninesix months ended SeptemberJune 30, 2017,2020, the above proceeds along with net cash flow from operations and borrowings from the Company'sCompany’s revolving line of credit and commercial paper program were primarily utilized to:
• | Invest $95.2 million primarily in development projects; and |
• | Repay $95.4 million of mortgage loans (inclusive of scheduled principal repayments). |
Acquire four consolidated rental properties for approximately $466.4Subsequent to June 30, 2020, the Company prepaid at par $19.7 million of the $23.7 million in cash;
Invest $227.2debt maturities remaining in 2020. The Company has debt maturities of $834.9 million primarily in development projects;
Repay $502.22021, $750.0 million of mortgage loans and incur prepayment penalties of approximately $12.3 million; andwhich is due on December 15, 2021.
Repay $394.1 million of 5.750% unsecured notes at maturity.
Credit Facility and Commercial Paper Program
On November 3, 2016, theThe Company replaced its existinghas a $2.5 billion facility with a $2.0 billion unsecured revolving credit facility maturing January 10, 2022.November 1, 2024. The Company has the ability to increase available borrowings by an additional $750.0 million by adding additional bankslenders to the facility, or obtaining the agreement of existing bankslenders to increase their commitments.commitments or incurring one or more term loans. The interest rate on advances under the facility will generally be LIBOR plus a spread (currently 0.825%0.775%), or based on bids received from the lending group, and the Company pays an annual facility fee (currently 12.5 basis points)0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit ratingrating.
The unsecured revolving credit agreement contains provisions that establish a process for entering into an amendment to replace LIBOR under certain circumstances, such as the anticipated phase-out of LIBOR by the Company's long-term debt.end of 2021. At this time, it cannot be determined with certainty what interest rate(s) may succeed LIBOR, if any, and how any successor or alternative rates for LIBOR may affect borrowing costs or the availability of variable interest rate borrowings.
On February 2, 2015, theThe Company entered intohas an unsecured commercial paper note program in the United States. The
50
Company may borrow up to a maximum of $500.0 million$1.0 billion under this program subject to market conditions. The notes will be sold under customary terms in the United States commercial paper note market and will rank pari passu with all of the Company'sCompany’s other unsecured senior indebtedness. As of October 27, 2017, there wasWhile the COVID-19 pandemic caused a balance of $440.0 million outstanding ontemporary disruption in the commercial paper program.market in March 2020, the Company has maintained access to such market and expects to continue to be able to do so in the future.
AsThe Company limits its utilization of October 27, 2017, no amounts were outstanding and the amount available on the revolving credit facility was $1.55 billion (net of $6.6 million which was restricted/dedicatedin order to maintain liquidity to support letters of credit and net of $440.0 million in principal outstandingits $1.0 billion commercial paper program along with certain other obligations. The following table presents the availability on the commercial paper program). ThisCompany’s unsecured revolving credit facility may, among other potential uses, be used to fund property acquisitions, costs for certain properties under development and short-term liquidity requirements.as of July 28, 2020 (amounts in thousands):
|
| July 28, 2020 |
| |
Unsecured revolving credit facility commitment |
| $ | 2,500,000 |
|
Commercial paper balance outstanding |
|
| — |
|
Unsecured revolving credit facility balance outstanding |
|
| — |
|
Other restricted amounts |
|
| (100,949 | ) |
Unsecured revolving credit facility availability |
| $ | 2,399,051 |
|
Dividend Policy
The Company’sCompany determines its dividends/distributions based on actual and the Operating Partnership’s dividend policy has not changed from the information included inprojected financial conditions, the Company’s actual and projected liquidity and operating results, the Operating Partnership’s Annual Report on Form 10-KCompany’s projected cash needs for capital expenditures and other investment activities and such other factors as the Company’s Board of Trustees deems relevant. The Company declared a dividend/distribution for the year ended December 31, 2016. first and second quarters of 2020 of $0.6025 per share/unit in each quarter, an annualized increase of 6.2% over the amount paid in 2019. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.
Total dividends/distributions paid in October 2017July 2020 amounted to $192.6$232.2 million (excluding distributions on Partially Owned Properties), which includedconsisted of certain distributions declared during the third quarter ended SeptemberJune 30, 2017.2020.
Long-Term Financing and Capital Needs
The Company expects to meet its long-term liquidity requirements, such as lump sum unsecured note and mortgage debt maturities, property acquisitions and financing of construction and development activities, through the issuance of secured and unsecured debt and equity securities including(including additional OP Units,Units), proceeds received from the disposition of certain properties and joint ventures, andalong with cash generated from operations after all distributions. In addition, theThe Company has a significant number of unencumbered properties available to secure additional mortgage borrowings in the event that the publicshould unsecured capital markets arebe unavailable or the cost of alternative sources of capital isbe too high. The fair value of and cash flow from these unencumbered properties are in excess of the requirements the Company must maintain in order to comply with covenants under its unsecured notes and line of credit and commercial paper program. credit. Of the $25.9$27.2 billion in investment in real estate on the Company’s balance sheet at SeptemberJune 30, 2017, $20.02020, $23.0 billion or 77.1%84.7% was unencumbered.unencumbered. However,, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise.
EQR issues public equity from time to time and guarantees certain debt of the Operating Partnership.Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
The Company’s total debt summary and debt maturity schedules as of SeptemberJune 30, 20172020 are as follows:
Debt Summary as of SeptemberJune 30, 20172020
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| ||
|
|
|
|
|
|
|
|
|
| Weighted |
|
| Average |
|
|
|
|
|
|
|
|
|
| Weighted |
|
| Average |
| ||||
|
|
|
|
|
|
|
|
|
| Average |
|
| Maturities |
|
| Debt |
|
|
|
|
|
| Average |
|
| Maturities |
| |||||
|
| Amounts (1) |
|
| % of Total |
|
| Rates (1) |
|
| (years) |
|
| Balances |
|
| % of Total |
|
| Rates |
|
| (years) |
| ||||||||
Secured |
| $ | 3,619,180 |
|
|
| 40.2 | % |
|
| 4.33 | % |
|
| 5.8 |
|
| $ | 2,340,757 |
|
|
| 27.8 | % |
|
| 3.51 | % |
|
| 7.0 |
|
Unsecured |
|
| 5,373,092 |
|
|
| 59.8 | % |
|
| 4.22 | % |
|
| 10.8 |
|
|
| 6,081,102 |
|
|
| 72.2 | % |
|
| 3.85 | % |
|
| 10.3 |
|
Total |
| $ | 8,992,272 |
|
|
| 100.0 | % |
|
| 4.27 | % |
|
| 8.8 |
|
| $ | 8,421,859 |
|
|
| 100.0 | % |
|
| 3.77 | % |
|
| 9.4 |
|
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
| $ | 2,983,680 |
|
|
| 33.2 | % |
|
| 4.91 | % |
|
| 4.3 |
|
| $ | 1,972,862 |
|
|
| 23.4 | % |
|
| 3.94 | % |
|
| 5.4 |
|
Unsecured – Public |
|
| 4,693,929 |
|
|
| 52.2 | % |
|
| 4.68 | % |
|
| 12.2 |
|
|
| 6,081,102 |
|
|
| 72.2 | % |
|
| 4.06 | % |
|
| 10.3 |
|
Fixed Rate Debt |
|
| 7,677,609 |
|
|
| 85.4 | % |
|
| 4.77 | % |
|
| 9.1 |
|
|
| 8,053,964 |
|
|
| 95.6 | % |
|
| 4.03 | % |
|
| 9.1 |
|
Floating Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
|
| 7,046 |
|
|
| 0.1 | % |
|
| 0.98 | % |
|
| 16.1 |
|
|
| 7,315 |
|
|
| 0.1 | % |
|
| 3.35 | % |
|
| 2.0 |
|
Secured – Tax Exempt |
|
| 628,454 |
|
|
| 6.9 | % |
|
| 1.49 | % |
|
| 12.4 |
|
|
| 360,580 |
|
|
| 4.3 | % |
|
| 1.49 | % |
|
| 15.5 |
|
Unsecured – Public (2) |
|
| 449,319 |
|
|
| 5.0 | % |
|
| 1.77 | % |
|
| 1.7 |
| ||||||||||||||||
Unsecured – Revolving Credit Facility |
|
| — |
|
|
| — |
|
|
| 2.00 | % |
|
| 4.2 |
|
|
| — |
|
|
| — |
|
|
| 1.47 | % |
|
| 4.3 |
|
Unsecured – Commercial Paper Program |
|
| 229,844 |
|
|
| 2.6 | % |
|
| 1.37 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.81 | % |
|
| — |
|
Floating Rate Debt |
|
| 1,314,663 |
|
|
| 14.6 | % |
|
| 1.57 | % |
|
| 6.9 |
|
|
| 367,895 |
|
|
| 4.4 | % |
|
| 1.68 | % |
|
| 15.2 |
|
Total |
| $ | 8,992,272 |
|
|
| 100.0 | % |
|
| 4.27 | % |
|
| 8.8 |
|
| $ | 8,421,859 |
|
|
| 100.0 | % |
|
| 3.77 | % |
|
| 9.4 |
|
51
|
|
|
|
Debt Maturity Schedule as of SeptemberJune 30, 20172020
($ in thousands)
Year |
| Fixed Rate (1) |
|
| Floating Rate (1) |
|
| Total |
|
| % of Total |
|
| Weighted Average Rates on Fixed Rate Debt (1) |
|
| Weighted Average Rates on Total Debt (1) |
|
| Fixed Rate |
|
| Floating Rate |
|
| Total |
|
| % of Total |
|
| Weighted Average Coupons on Fixed Rate Debt |
|
| Weighted Average Coupons on Total Debt |
| ||||||||||||
2017 |
| $ | 105,731 |
|
| $ | 230,100 |
| (2) | $ | 335,831 |
|
|
| 3.7 | % |
|
| 7.08 | % |
|
| 3.20 | % | ||||||||||||||||||||||||
2018 |
|
| 49,734 |
|
|
| 97,235 |
|
|
| 146,969 |
|
|
| 1.6 | % |
|
| 5.55 | % |
|
| 2.99 | % | ||||||||||||||||||||||||
2019 |
|
| 506,731 |
| (3) |
| 470,644 |
|
|
| 977,375 |
|
|
| 10.7 | % |
|
| 5.17 | % |
|
| 3.58 | % | ||||||||||||||||||||||||
2020 |
|
| 1,678,592 |
| (4) |
| 400 |
|
|
| 1,678,992 |
|
|
| 18.5 | % |
|
| 5.49 | % |
|
| 5.49 | % |
| $ | 23,669 |
|
| $ | — |
|
| $ | 23,669 |
|
|
| 0.3 | % |
|
| 4.75 | % |
|
| 4.75 | % |
2021 |
|
| 927,506 |
|
|
| 300 |
|
|
| 927,806 |
|
|
| 10.2 | % |
|
| 4.64 | % |
|
| 4.64 | % |
|
| 834,904 |
| (1) |
| — |
|
|
| 834,904 |
|
|
| 9.8 | % |
|
| 4.63 | % |
|
| 4.63 | % |
2022 |
|
| 265,341 |
|
|
| 400 |
|
|
| 265,741 |
|
|
| 2.9 | % |
|
| 3.26 | % |
|
| 3.26 | % |
|
| 264,185 |
|
|
| 7,796 |
|
|
| 271,981 |
|
|
| 3.2 | % |
|
| 3.25 | % |
|
| 3.22 | % |
2023 |
|
| 1,326,800 |
|
|
| 4,400 |
|
|
| 1,331,200 |
|
|
| 14.6 | % |
|
| 3.74 | % |
|
| 3.73 | % |
|
| 1,325,588 |
|
|
| 3,500 |
|
|
| 1,329,088 |
|
|
| 15.6 | % |
|
| 3.74 | % |
|
| 3.73 | % |
2024 |
|
| 1,272 |
|
|
| 10,500 |
|
|
| 11,772 |
|
|
| 0.1 | % |
|
| 4.79 | % |
|
| 1.39 | % |
|
| — |
|
|
| 6,100 |
|
|
| 6,100 |
|
|
| 0.1 | % |
| N/A |
|
|
| 0.15 | % | |
2025 |
|
| 451,334 |
|
|
| 12,800 |
|
|
| 464,134 |
|
|
| 5.1 | % |
|
| 3.38 | % |
|
| 3.31 | % |
|
| 450,000 |
|
|
| 8,200 |
|
|
| 458,200 |
|
|
| 5.4 | % |
|
| 3.38 | % |
|
| 3.32 | % |
2026 |
|
| 593,424 |
|
|
| 14,000 |
|
|
| 607,424 |
|
|
| 6.7 | % |
|
| 3.59 | % |
|
| 3.53 | % |
|
| 592,025 |
|
|
| 9,000 |
|
|
| 601,025 |
|
|
| 7.0 | % |
|
| 3.58 | % |
|
| 3.53 | % |
2027+ |
|
| 1,826,437 |
|
|
| 535,265 |
|
|
| 2,361,702 |
|
|
| 25.9 | % |
|
| 4.15 | % |
|
| 3.43 | % | ||||||||||||||||||||||||
2027 |
|
| 400,000 |
|
|
| 9,800 |
|
|
| 409,800 |
|
|
| 4.8 | % |
|
| 3.25 | % |
|
| 3.18 | % | ||||||||||||||||||||||||
2028 |
|
| 900,000 |
|
|
| 42,380 |
|
|
| 942,380 |
|
|
| 11.1 | % |
|
| 3.79 | % |
|
| 3.62 | % | ||||||||||||||||||||||||
2029 |
|
| 888,120 |
|
|
| 11,500 |
|
|
| 899,620 |
|
|
| 10.6 | % |
|
| 3.30 | % |
|
| 3.26 | % | ||||||||||||||||||||||||
2030+ |
|
| 2,445,850 |
|
|
| 288,135 |
|
|
| 2,733,985 |
|
|
| 32.1 | % |
|
| 3.56 | % |
|
| 3.21 | % | ||||||||||||||||||||||||
Subtotal |
|
| 7,732,902 |
|
|
| 1,376,044 |
|
|
| 9,108,946 |
|
|
| 100.0 | % |
|
| 4.39 | % |
|
| 3.97 | % |
|
| 8,124,341 |
|
|
| 386,411 |
|
|
| 8,510,752 |
|
|
| 100.0 | % |
|
| 3.67 | % |
|
| 3.51 | % |
Deferred Financing Costs and Unamortized (Discount) |
|
| (55,293 | ) |
|
| (61,381 | ) |
|
| (116,674 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (70,377 | ) |
|
| (18,516 | ) |
|
| (88,893 | ) |
| N/A |
|
| N/A |
|
| N/A |
| ||||||
Total |
| $ | 7,677,609 |
|
| $ | 1,314,663 |
|
| $ | 8,992,272 |
|
|
| 100.0 | % |
|
| 4.39 | % |
|
| 3.97 | % |
| $ | 8,053,964 |
|
| $ | 367,895 |
|
| $ | 8,421,859 |
|
|
| 100.0 | % |
|
| 3.67 | % |
|
| 3.51 | % |
(1) |
|
|
|
|
|
|
|
See Note 89 in the Notes to Consolidated Financial Statements for additional discussion of debt at SeptemberJune 30, 2017.2020.
ERPOP'sERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR'sEQR’s long-term preferred equity ratings, whichhave recently been reaffirmed during the COVID-19 pandemic by all havethree rating agencies listed below and all continue to maintain a stable outlook, asoutlook. As of October 27, 2017July 28, 2020, the ratings are as follows:
|
| Standard & |
|
|
| Fitch |
|
| A- |
| A3 |
|
|
|
| A-2 |
| P-2 |
|
|
|
| BBB |
| Baa1 |
|
|
|
|
See Note 14 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to SeptemberJune 30, 2017.2020.
Debt Covenants
The Company’s unsecured debt includes certain financial and operating covenants including, among other things, maintenance of certain financial ratios. These provisions are contained in the indentures applicable to each note payable or the credit agreement for our line of credit. The Company was in compliance with its unsecured debt covenants for all periods presented. The following table presents the Company’s selected unsecured public debt covenants as of June 30, 2020, March 31, 2020 and December 31, 2019:
|
| June 30, 2020 |
|
| March 31, 2020 |
|
| December 31, 2019 |
|
Debt to Adjusted Total Assets (not to exceed 60%) |
| 31.8% |
|
| 32.5% |
|
| 33.8% |
|
Secured Debt to Adjusted Total Assets (not to exceed 40%) |
| 9.7% |
|
| 8.2% |
|
| 8.2% |
|
Consolidated Income Available for Debt Service to Maximum Annual Service Charges (must be at least 1.5 to 1) |
| 4.96 |
|
| 5.09 |
|
| 5.07 |
|
Total Unencumbered Assets to Unsecured Debt (must be at least 125%) |
| 439.5% |
|
| 408.3% |
|
| 386.1% |
|
Note: These selected covenants represent the most restrictive financial covenants relating to ERPOP’s outstanding public debt securities and are defined in the indenture relating to such securities. The Company maintains substantial additional borrowing capacity and, as reflected by the above selected covenant information, believes it could currently incur substantial additional debt before it would breach any of its debt covenants.
Capitalization of Fixed Assets and Improvements to Real Estate
The Company’s and the Operating Partnership’s capital expenditures policy has not changed from the information included in the Company’s and the Operating Partnership'sPartnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019.
For the ninesix months ended SeptemberJune 30, 2017,2020, our actual capital expenditures to real estate included the following (amounts in thousands except for apartment unit and per apartment unit amounts):
52
Capital Expenditures to Real Estate
For the NineSix Months Ended SeptemberJune 30, 20172020
|
| Same Stores Properties (5) |
|
| Non-Same Store Properties/Other (6) |
|
| Total |
|
| Same Store Avg. Per Apartment Unit |
|
| Same Store Properties (4) |
|
| Non-Same Store Properties/Other (5) |
|
| Total |
|
| Same Store Avg. Per Apartment Unit |
| ||||||||
Total Apartment Units |
|
| 70,285 |
|
|
| 7,072 |
|
|
| 77,357 |
|
|
|
|
|
|
| 74,264 |
|
|
| 4,146 |
|
|
| 78,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Improvements |
| $ | 75,369 |
|
| $ | 2,379 |
|
| $ | 77,748 |
|
| $ | 1,072 |
|
| $ | 29,657 |
|
| $ | 1,387 |
|
| $ | 31,044 |
|
| $ | 399 |
|
Rehab Expenditures (3) |
|
| 35,698 |
|
|
| 889 |
|
|
| 36,587 |
|
|
| 508 |
| ||||||||||||||||
Renovation Expenditures (2) |
|
| 15,022 |
|
|
| 6 |
|
|
| 15,028 |
|
|
| 202 |
| ||||||||||||||||
Replacements |
|
| 28,571 |
|
|
| 352 |
|
|
| 28,923 |
|
|
| 407 |
|
|
| 14,955 |
|
|
| 238 |
|
|
| 15,193 |
|
|
| 202 |
|
Total Capital Expenditures |
| $ | 139,638 |
|
| $ | 3,620 |
|
| $ | 143,258 |
|
| $ | 1,987 |
| ||||||||||||||||
Total Capital Expenditures to Real Estate |
| $ | 59,634 |
|
| $ | 1,631 |
|
| $ | 61,265 |
|
| $ | 803 |
|
(1) |
|
| Building Improvements – Includes roof replacement, paving, building mechanical equipment systems, exterior siding and painting, major landscaping, furniture, fixtures and equipment for amenities and common areas, vehicles and office and maintenance equipment. |
|
|
| Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting). |
| Same Store Properties – Primarily includes all properties acquired or completed that are stabilized prior to January 1, |
| Non-Same Store Properties/Other – Primarily includes all properties acquired during |
The Company estimates that during 2017 it will spend approximately $2,500 per same store apartment unit or $176.0 million of totalCOVID-19 pandemic has led us to temporarily slow our capital expenditures, including our renovation activities, to real estate. During 2017, the Company expects to spend approximately $43.0 million for apartment unit rehab expenditures on same store properties at an average cost of approximately $13,000 per apartment unit rehabbed. The anticipated total capital expenditures to real estate amounts represent an increase as a percentage of rental revenues, in the cost per unitthose deemed essential. Governmental movement restrictions, social distancing requirements, and in the absolute dollar amounts over 2016. We will continue to create value from our properties by doing those rehabs that meet our investment criteria. The above assumptions are based on current expectations and are forward-looking.some cases, difficulty in procuring materials make continuing these activities more difficult.
During the ninesix months ended SeptemberJune 30, 2017,2020, the Company’s total non-real estate capital additions, such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Company’s property management offices and its corporate offices, were approximately $0.8$15.5 million. The Company expects to fund approximately $0.6$6.2 million in total non-real estate capital additions for the remainder of 2017.2020. These year-to-date and anticipated fundings represent a decrease over 2016, which isare significantly higher than 2019 and are primarily driven by the substantial completion of the implementation of new systemscorporate office renovations during 2016. The above assumption is based on current expectations and is forward-looking.2020.
Capital expenditures to real estate and non-real estate capital additions are generally funded from net cash provided by operating activities and from investment cash flow.
Derivative Instruments
In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company seeksmay seek to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments. The Company may also use derivatives to manage commodity prices in the daily operations of the business.
The Company has a policy of only entering into derivative contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from these instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives it currently has in place.
See Note 910 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments at SeptemberJune 30, 2017.2020.
53
The definition of certain terms described above or below are as follows:
Acquisition Cap Rate – NOI that the Company anticipates receiving in the next 12 months (or the year two or three stabilized NOI for properties that are in lease-up at acquisition) less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross purchase price of the asset. The weighted average Acquisition Cap Rate for acquired properties is weighted based on the projected NOI streams and the relative purchase price for each respective property.
• | Acquisition Cap Rate – NOI that the Company anticipates receiving in the next 12 months (or the year two or three stabilized NOI for properties that are in lease-up at acquisition) less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross purchase price of the asset. The weighted average Acquisition Cap Rate for acquired properties is weighted based on the projected NOI streams and the relative purchase price for each respective property. |
Disposition Yield – NOI that the Company anticipates giving up in the next 12 months less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross sale price of the asset. The weighted average Disposition Yield for sold properties is weighted based on the projected NOI streams and the relative sales price for each respective property.
• | Average Rental Rate– Total Residential rental revenues reflected on a straight-line basis in accordance with GAAP divided by the weighted average occupied apartment units for the reporting period presented. |
• | Blended Rate – The weighted average of New Lease Change and Renewal Rate Achieved. |
• | Development Yield – NOI that the Company anticipates receiving in the next 12 months following stabilization less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $50-$150 per apartment unit depending on the type of asset) divided by the Total Budgeted Capital Cost of the asset. The weighted average Development Yield for development properties is weighted based on the projected NOI streams and the relative Total Budgeted Capital Cost for each respective property. |
• | Disposition Yield – NOI that the Company anticipates giving up in the next 12 months less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross sales price of the asset. The weighted average Disposition Yield for sold properties is weighted based on the projected NOI streams and the relative sales price for each respective property. |
• | New Lease Change – The change in rent for a lease with a new or transferring resident compared to the rent for the prior lease of the identical apartment unit, regardless of lease term and without concessions or discounts being applied. |
• | Non-Residential – Consists of revenues and expenses from retail and public parking garage operations. |
• | Physical Occupancy – The weighted average occupied apartment units for the reporting period divided by the average of total apartment units available for rent for the reporting period. |
• | Renewal Rate Achieved – The change in rent for a new lease on an apartment unit where the lease has been renewed as compared to the rent for the prior lease of the identical apartment unit, regardless of lease term and without concessions or discounts being applied. |
• | Residential – Consists of multifamily apartment revenues and expenses. |
Unlevered Internal Rate of Return (“IRR”) – The Unlevered IRR on sold properties is the compound annual rate of return calculated by the Company based on the timing and amount of: (i) the gross purchase price of the property plus any direct acquisition costs incurred by the Company; (ii) total revenues earned during the Company’s ownership period; (iii) total direct property operating expenses (including real estate taxes and insurance) incurred during the Company’s ownership period; (iv) capital expenditures incurred during the Company’s ownership period; and (v) the gross sales price of the property net of selling costs. Each of the items (i) through (v) is calculated in accordance with generally accepted accounting principles (“GAAP”).
• | % of Stabilized Budgeted NOI – Represents original budgeted 2020 NOI for stabilized properties and projected annual NOI at stabilization (defined as having achieved 90% occupancy for three consecutive months) for properties that are in lease-up. |
• | Traffic – Consists of an expression of interest in an apartment by completing an in-person tour, self-guided tour or virtual tour that may result in an application to lease. |
• | Turnover– Total Residential move-outs (including inter-property and intra-property transfers) divided by total Residential apartment units. |
• | Unlevered Internal Rate of Return (“IRR”) – The Unlevered IRR on sold properties is the compound annual rate of return calculated by the Company based on the timing and amount of: (i) the gross purchase price of the property plus any direct acquisition costs incurred by the Company; (ii) total revenues earned during the Company’s ownership period; (iii) total direct property operating expenses (including real estate taxes and insurance) incurred during the Company’s ownership period; (iv) capital expenditures incurred during the Company’s ownership period; and (v) the gross sales price of the property net of selling costs. |
• | Weighted Average Coupons – Contractual interest rate for each debt instrument weighted by principal balances as of June 30, 2020. In case of debt for which fair value hedges are in place, the rate payable under the corresponding derivatives is used in lieu of the contractual interest rate. |
• | Weighted Average Rates – Interest expense for each debt instrument for the six months ended June 30, 2020 weighted by its average principal balance for the same period. Interest expense includes amortization of premiums, discounts and other comprehensive income on debt and related derivative instruments. In case of debt for which derivatives are in place, the income or expense recognized under the corresponding derivatives is included in the total interest expense for the period. |
Off-Balance Sheet Arrangements and Contractual Obligations
The Company has various unconsolidated interests in certain joint ventures. The Company does not believe that these unconsolidated investments have a materially different impact on its liquidity, cash flows, capital resources, credit or market risk than its consolidated operating and/or other activities. See Notes 2 andNote 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s investments in partially owned entities. See also Note 12 in the Notes to Consolidated Financial Statements for discussion regarding the Company’s development projects.
The Company’s contractual obligations for the next five years and thereafter have not changed materially from the amounts and disclosures included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019. See the updated debt maturity schedule included in Liquidity and Capital Resources for further discussion.
Critical Accounting Policies and Estimates
The Company’s and the Operating Partnership’s critical accounting policies and estimates have not changed materially from the information included in the Company’s and the Operating Partnership'sPartnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019.
Funds From Operations and Normalized Funds From Operations
The following is the Company’s and the Operating Partnership’s reconciliation of net income to FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units for the ninesix months and quarters ended SeptemberJune 30, 20172020 and 2016.2019:
54
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net income |
| $ | 498,297 |
|
| $ | 4,177,723 |
|
| $ | 144,196 |
|
| $ | 217,492 |
|
| $ | 604,152 |
|
| $ | 430,556 |
|
| $ | 271,481 |
|
| $ | 321,299 |
|
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,354 | ) |
|
| (2,368 | ) |
|
| (801 | ) |
|
| (823 | ) | ||||||||||||||||
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (772 | ) |
|
| (773 | ) | ||||||||||||||||
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (13,410 | ) |
|
| (1,620 | ) |
|
| (880 | ) |
|
| (821 | ) | ||||||||||||||||
Preferred/preference distributions |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) | ||||||||||||||||
Net income available to Common Shares and Units / Units |
|
| 493,625 |
|
|
| 4,173,037 |
|
|
| 142,623 |
|
|
| 215,896 |
|
|
| 589,197 |
|
|
| 427,391 |
|
|
| 269,829 |
|
|
| 319,706 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 542,964 |
|
|
| 528,242 |
|
|
| 184,100 |
|
|
| 179,230 |
|
|
| 418,398 |
|
|
| 404,723 |
|
|
| 205,976 |
|
|
| 200,508 |
|
Depreciation – Non-real estate additions |
|
| (3,808 | ) |
|
| (3,932 | ) |
|
| (1,228 | ) |
|
| (1,297 | ) |
|
| (2,307 | ) |
|
| (2,303 | ) |
|
| (1,020 | ) |
|
| (1,121 | ) |
Depreciation – Partially Owned Properties |
|
| (2,500 | ) |
|
| (2,896 | ) |
|
| (834 | ) |
|
| (953 | ) |
|
| (1,686 | ) |
|
| (1,802 | ) |
|
| (830 | ) |
|
| (899 | ) |
Depreciation – Unconsolidated Properties |
|
| 3,430 |
|
|
| 3,606 |
|
|
| 1,145 |
|
|
| 1,139 |
|
|
| 1,224 |
|
|
| 1,772 |
|
|
| 611 |
|
|
| 850 |
|
Net (gain) on sales of unconsolidated entities - operating assets |
|
| (68 | ) |
|
| (8,841 | ) |
|
| — |
|
|
| (8,841 | ) | ||||||||||||||||
Net (gain) on sales of real estate properties |
|
| (141,761 | ) |
|
| (3,870,871 | ) |
|
| (17,328 | ) |
|
| (90,036 | ) | ||||||||||||||||
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net (gain) on sales of discontinued operations |
|
| — |
|
|
| (43 | ) |
|
| — |
|
|
| (28 | ) | ||||||||||||||||
Net (gain) loss on sales of unconsolidated entities - operating assets |
|
| — |
|
|
| (69,522 | ) |
|
| — |
|
|
| (69,522 | ) | ||||||||||||||||
Net (gain) loss on sales of real estate properties |
|
| (352,243 | ) |
|
| (138,835 | ) |
|
| (144,266 | ) |
|
| (138,856 | ) | ||||||||||||||||
Noncontrolling Interests share of gain (loss) on sales of real estate properties |
|
| 11,655 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
FFO available to Common Shares and Units / Units (1) (3) (4) |
|
| 891,882 |
|
|
| 818,302 |
|
|
| 308,478 |
|
|
| 295,110 |
|
|
| 664,238 |
|
|
| 621,424 |
|
|
| 330,300 |
|
|
| 310,666 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment and valuation allowances |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Impairment – non-operating assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Write-off of pursuit costs |
|
| 2,329 |
|
|
| 3,379 |
|
|
| 783 |
|
|
| 816 |
|
|
| 3,278 |
|
|
| 2,987 |
|
|
| 1,651 |
|
|
| 1,539 |
|
Debt extinguishment (gains) losses, including prepayment penalties, preferred share/preference unit redemptions and non-cash convertible debt discounts |
|
| 11,789 |
|
|
| 120,276 |
|
|
| (613 | ) |
|
| 112 |
| ||||||||||||||||
(Gains) losses on sales of non-operating assets, net of income and other tax expense (benefit) |
|
| (19,355 | ) |
|
| (73,600 | ) |
|
| (405 | ) |
|
| (7,007 | ) | ||||||||||||||||
Debt extinguishment and preferred share redemption (gains) losses |
|
| 32 |
|
|
| 16,647 |
|
|
| 32 |
|
|
| 16,647 |
| ||||||||||||||||
Non-operating asset (gains) losses |
|
| 670 |
|
|
| 252 |
|
|
| 229 |
|
|
| 23 |
| ||||||||||||||||
Other miscellaneous items |
|
| (4,195 | ) |
|
| 8,673 |
|
|
| (3,405 | ) |
|
| 8,159 |
|
|
| (2,310 | ) |
|
| 4,418 |
|
|
| (1,392 | ) |
|
| 2,843 |
|
Normalized FFO available to Common Shares and Units / Units (2) (3) (4) |
| $ | 882,450 |
|
| $ | 877,030 |
|
| $ | 304,838 |
|
| $ | 297,190 |
|
| $ | 665,908 |
|
| $ | 645,728 |
|
| $ | 330,820 |
|
| $ | 331,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO (1) (3) |
| $ | 894,200 |
|
| $ | 820,620 |
|
| $ | 309,250 |
|
| $ | 295,883 |
|
| $ | 665,783 |
|
| $ | 622,969 |
|
| $ | 331,072 |
|
| $ | 311,438 |
|
Preferred/preference distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (772 | ) |
|
| (773 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
FFO available to Common Shares and Units / Units (1) (3) (4) |
| $ | 891,882 |
|
| $ | 818,302 |
|
| $ | 308,478 |
|
| $ | 295,110 |
|
| $ | 664,238 |
|
| $ | 621,424 |
|
| $ | 330,300 |
|
| $ | 310,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normalized FFO (2) (3) |
| $ | 884,768 |
|
| $ | 879,348 |
|
| $ | 305,610 |
|
| $ | 297,963 |
|
| $ | 667,453 |
|
| $ | 647,273 |
|
| $ | 331,592 |
|
| $ | 332,490 |
|
Preferred/preference distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (772 | ) |
|
| (773 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Normalized FFO available to Common Shares and Units / Units (2) (3) (4) |
| $ | 882,450 |
|
| $ | 877,030 |
|
| $ | 304,838 |
|
| $ | 297,190 |
|
| $ | 665,908 |
|
| $ | 645,728 |
|
| $ | 330,820 |
|
| $ | 331,718 |
|
(1) | The National Association of Real Estate Investment Trusts (“ |
(2) | Normalized funds from operations (“Normalized FFO”) begins with FFO and excludes: |
the impact of any expenses relating to non-operating asset impairment and valuation allowances;
pursuit cost write-offs;
gains and losses from early debt extinguishment, including prepayment penalties, preferred share/preference unit redemptions and the cost related to the implied option value of non-cash convertible debt discounts;
gains and losses on the sales of non-operating assets, including gains and losses from land parcel sales, net of the effect of income tax benefits or expenses; and
other miscellaneous items.
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| • | the impact of any expenses relating to non-operating asset impairment; |
• | pursuit cost write-offs; |
• | gains and losses from early debt extinguishment and preferred share redemptions; |
• | gains and losses from non-operating assets; and |
• | other miscellaneous items. |
(4) | FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units are calculated on a basis consistent with net income available to Common Shares / Units and reflects adjustments to net income for preferred distributions and premiums on redemption of preferred shares/preference units in accordance with GAAP. The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s and the Operating Partnership’s market risk has not changed materially from the amounts and information reported in Part II, Item 7A. 7A, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s and the Operating Partnership'sPartnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019. See Note 910 in the Notes to Consolidated Financial Statements for additional discussion of derivative and other fair value instruments.
Item 4. Controls and Procedures
Equity Residential
| (a) | Evaluation of Disclosure Controls and Procedures: |
Effective as of SeptemberJune 30, 2017,2020, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
| (b) | Changes in Internal Control over Financial Reporting: |
There were no changes to the internal control over financial reporting of the Company identified in connection with the Company’s evaluation referred to in Item 4(a) above that occurred during the thirdsecond quarter of 20172020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ERP Operating Limited Partnership
| (a) | Evaluation of Disclosure Controls and Procedures: |
Effective as of SeptemberJune 30, 2017,2020, the Operating Partnership carried out an evaluation, under the supervision and with the participation of the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of EQR, of the effectiveness of the Operating Partnership’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Operating Partnership in its Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
| (b) | Changes in Internal Control over Financial Reporting: |
There were no changes to the internal control over financial reporting of the Operating Partnership identified in connection with
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the Operating Partnership’s evaluation referred to in Item 4(a) above that occurred during the thirdsecond quarter of 20172020 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
As of SeptemberJune 30, 2017,2020, the Company does not believe there is any litigation pending or threatened against it that, individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company.
There have been no material changes to theThe Company’s risk factors that were discussedfactor disclosures in Part I, Item 1A of the Company’s and the Operating Partnership'sPartnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019 are hereby supplemented as follows:
Risk of Pandemics or Other Health Crisis.
A pandemic, epidemic or other health crisis, similar to the recent outbreak of COVID-19, affecting areas where our properties, corporate/regional offices or major service providers are located could have an adverse effect on our business, results of operations, cash flows and financial condition.
The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.
In December 2019, COVID-19 was first reported in Wuhan, China, and in March 2020, the World Health Organization declared COVID-19 a pandemic. The outbreak has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on movement and business operations such as travel bans, border closings, business closures, quarantines, social distancing and shelter-in-place orders. The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. We cannot assure you conditions will not continue to deteriorate as a result of the pandemic.
The impact of the COVID-19 pandemic and measures to prevent its spread could materially negatively impact our business, results of operations, financial condition and liquidity in a number of ways, including:
• | A decrease in our rental revenues or increase in related reserves and write-offs as a potential result of: |
• | Our residents’ and tenants’ ability to pay their rent on time or at all and the demand for multifamily properties within our markets; |
• | Our geographic concentrations, especially in our dense urban submarketswhich often makes social distancing more difficult, may experience longer periods of economic disruption due to delays in business re-openings and/or required re-closures, as a result of which we may be more susceptible to the impact of COVID-19; |
• | Changes in resident preferences, including changes due to increased employer flexibility to work from home, making them less likely to want to live in dense urban centers where we own many of our properties or to want to live in denser forms of multifamily housing like the high-rise or mid-rise housing the Company owns; |
• | The concessions made, and those that continue to be made, to residents’ rent obligations, which may not be on terms as favorable to us as those currently in place; |
• | The deterioration of global economic conditions as a result of the pandemic may ultimately decrease occupancy levels and pricing across our portfolio as residents reduce or defer their spending; |
• | Resident or tenant nonpayment, default or bankruptcy, as a result of which we may incur costs in protecting our investment and releasing our property; |
• | The risk that local and national authorities may expand or extend certain measures imposing restrictions on our ability to enforce residents’ or tenants’ contractual rental obligationsand limiting our ability to raise rents; |
• | The risk that local and national authorities may not extendor may reduce the government stimulus and relief |
programs which may be providing benefits to our residents (or employers of our residents) and tenants; |
• | Restrictions inhibiting our employees’ ability to meet with existing and potential residents has disrupted and could in the future further disrupt our ability to lease apartments which could adversely impact our rental rate and occupancy levels; and |
• | Ground floor retail and parking garage operations in our apartment buildings are vulnerable to the effects from the COVID-19 pandemic, which we expect may adversely impact our retail tenants' and parking garage operations and, in turn, could result in an increase in tenant/garage operator defaults, rent deferrals/abatements and rent reductions. |
• | The risk that our access to capital at attractive terms may be diminished due to, among other factors: (i) potential disruptions in the long-term debt and commercial paper markets; (ii) the risk that a prolonged economic slowdown or recession could negatively impact our lending counterparties; and (iii) reductions in the Company’s credit ratings as a result of a protracted increase in unemployment or reduced income of our residents and tenants; |
• | The risk that we may lose our ability to borrow under our commercial paper program if our credit ratings were to fall below investment grade; |
• | The risk of a prolonged outbreak and/or second wave of an outbreak causing long-term damage to economic conditions, which in turn could cause material declines in the fair value of our assets, leading to asset impairment charges; |
• | A general decline in the real estate market or demand for real estate transactions could hinder our ability to acquire or dispose of properties, including through our joint ventures. Also, a possible increase in distressed sales of real estate due to the impact of COVID-19 could decrease real estate values in our markets and limit our ability to sell our properties at advantageous prices or at all; |
• | The risk of delays in our development and renovation projects due to construction moratoriums (such as what occurred with our Boston development project), governmental movement restrictions, social distancing requirements, the closure of many permitting and inspection agencies and disruptions in the supply of construction materials due to problems in the supply chain or otherwise; |
• | A possible further decline in the price of our common shares due to a prolonged economic recession or other impacts described herein; |
• | The risk of a prolonged outbreak which could cause an adverse impact on our future financial results, cash flows and financial condition and therefore our ability to pay dividends; |
• | Increased risks of potential cyber attacks due to an increased reliance on remote working and other interactions with our current and prospective residents; and |
• | Potential inability to maintain adequate staffing at our properties and corporate/regional offices due to shelter-in-place orders, an outbreak at one or more of our properties or corporate/regional offices and/or the continued duration or expansion of the pandemic. |
The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. Due to the speed with which the situation is continuing to develop, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, cash flows and financial condition could be material.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Common Shares Issued in the Quarter Ended SeptemberJune 30, 20172020 - Equity Residential
During the quarter ended SeptemberJune 30, 2017,2020, EQR issued 6,14655,418 Common Shares in exchange for 6,14655,418 OP Units held by various limited partners of ERPOP. OP Units are generally exchangeable into Common Shares on a one-for-one basis or, at the optionofERPOP,thecashequivalentthereof,atanytimeoneyearafterthedateofissuance. Theseshareswereeitherregistered undertheSecuritiesActof1933,asamended (the “Securities (the“SecuritiesAct”),orissuedinrelianceonanexemptionfromregistrationunder Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder, as these were transactions by an issuer not involving a public offering. In light of the manner of the sale and information obtained by EQR from the limited partners in connection with these transactions, EQR believes it may rely on theseexemptions.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Item 6. Exhibits – See the Exhibit Index.
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Theexhibitslistedbelowarefiledaspartofthisreport. Referencestoexhibitsorotherfilingsunderthecaption “Location” “Location”indicate thattheexhibitorotherfilinghasbeenfiled,thattheindexedexhibitandtheexhibitreferredtoarethesameandthattheexhibit referredto are the same and that the exhibit referred to isincorporatedbyreference. TheCommissionfilenumbersforourExchangeActfilingsreferencedbeloware1-12252 (Equity Residential) and 0-24920 (ERP Operating LimitedPartnership).
Exhibit |
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10.1 | * |
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| Attached herein. | |
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31.1 |
| Equity Residential – Certification of |
| Attached herein. |
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31.2 |
| Equity Residential – Certification of |
| Attached herein. |
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31.3 |
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| Attached herein. | |
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31.4 |
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| Attached herein. | |
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32.1 |
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| Attached herein. | |
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32.2 |
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32.3 |
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| Attached herein. | ||
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| Attached herein. |
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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Table of Contents*Management contracts and compensatory plans or arrangements filed as exhibits to this report are identified by an asterisk.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| EQUITY RESIDENTIAL | ||
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| Executive Vice President and Chief Financial Officer |
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Date: |
| By: |
| /s/ Ian S. Kaufman |
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| Ian S. Kaufman |
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| Senior Vice President and Chief Accounting Officer |
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| (Principal Accounting Officer) |
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| ERP OPERATING LIMITED PARTNERSHIP ITS GENERAL PARTNER | ||
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| Executive Vice President and Chief Financial Officer |
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| /s/ Ian S. Kaufman |
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| Ian S. Kaufman |
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| Senior Vice President and Chief Accounting Officer |
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| (Principal Accounting Officer) |