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 September 30, |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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.) |
|
|
|
Two North Riverside Plaza, Chicago, Illinois 60606 |
| (312) 474-1300 |
(Address of principal executive offices) (Zip Code) |
| (Registrant’s telephone number, including area 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 every Interactive Data File required to be submitted 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 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 |
| ☐ |
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| ☐ |
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|
Emerging growth company |
| ☐ |
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l
ERP Operating Limited Partnership:
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
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| |||
Non-accelerated filer |
| ☒ |
|
|
| ☐ |
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|
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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 25, 201927, 2020 was 371,354,411.
372,253,249.
EXPLANATORY NOTE
This report combines the reports on Form 10-Q for the quarterly period ended September 30, 20192020 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’s and the Operating Partnership’s corporate structure:
EQR is the general partner of, and as of September 30, 20192020 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’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’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; |
| • | 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. |
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’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’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’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 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’s business. These sources include the Operating Partnership’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 partnership interests, and proceeds received from disposition of certain properties and joint venture interests.
Shareholders’ equity, 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’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in the Company’s financial statements. The noncontrolling interests in the Operating Partnership’s financial statements include the interests of unaffiliated partners in various consolidated partnerships. The noncontrolling interests in the Company’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’ equity and 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’s debt, noncontrolling interests and shareholders’ equity or partners’ capital, as applicable; and a combined Management’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, 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.
��
TABLE OF CONTENTS
EQUITY RESIDENTIAL
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
(Unaudited)
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 5,955,121 |
|
| $ | 5,875,803 |
|
| $ | 5,794,771 |
|
| $ | 5,936,188 |
|
Depreciable property |
|
| 21,168,255 |
|
|
| 20,435,901 |
|
|
| 21,076,222 |
|
|
| 21,319,101 |
|
Projects under development |
|
| 143,434 |
|
|
| 109,409 |
|
|
| 337,696 |
|
|
| 181,630 |
|
Land held for development |
|
| 91,017 |
|
|
| 89,909 |
|
|
| 103,900 |
|
|
| 96,688 |
|
Investment in real estate |
|
| 27,357,827 |
|
|
| 26,511,022 |
|
|
| 27,312,589 |
|
|
| 27,533,607 |
|
Accumulated depreciation |
|
| (7,171,876 | ) |
|
| (6,696,281 | ) |
|
| (7,738,318 | ) |
|
| (7,276,786 | ) |
Investment in real estate, net |
|
| 20,185,951 |
|
|
| 19,814,741 |
|
|
| 19,574,271 |
|
|
| 20,256,821 |
|
Investments in unconsolidated entities |
|
| 52,474 |
|
|
| 58,349 |
|
|
| 54,828 |
|
|
| 52,238 |
|
Cash and cash equivalents |
|
| 28,777 |
|
|
| 47,442 |
|
|
| 178,333 |
|
|
| 45,753 |
|
Restricted deposits |
|
| 55,819 |
|
|
| 68,871 |
|
|
| 56,881 |
|
|
| 71,246 |
|
Right-of-use assets |
|
| 481,044 |
|
|
| — |
|
|
| 502,184 |
|
|
| 512,774 |
|
Other assets |
|
| 249,991 |
|
|
| 404,806 |
|
|
| 257,481 |
|
|
| 233,937 |
|
Total assets |
| $ | 21,054,056 |
|
| $ | 20,394,209 |
|
| $ | 20,623,978 |
|
| $ | 21,172,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
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|
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Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 1,962,471 |
|
| $ | 2,385,470 |
|
| $ | 2,313,833 |
|
| $ | 1,941,610 |
|
Notes, net |
|
| 6,675,084 |
|
|
| 5,933,286 |
|
|
| 6,082,897 |
|
|
| 6,077,513 |
|
Line of credit and commercial paper |
|
| 354,381 |
|
|
| 499,183 |
|
|
| — |
|
|
| 1,017,833 |
|
Accounts payable and accrued expenses |
|
| 151,680 |
|
|
| 102,471 |
|
|
| 158,611 |
|
|
| 94,350 |
|
Accrued interest payable |
|
| 73,747 |
|
|
| 62,622 |
|
|
| 65,669 |
|
|
| 66,852 |
|
Lease liabilities |
|
| 333,312 |
|
|
| — |
|
|
| 329,684 |
|
|
| 331,334 |
|
Other liabilities |
|
| 312,849 |
|
|
| 358,563 |
|
|
| 331,522 |
|
|
| 346,963 |
|
Security deposits |
|
| 70,398 |
|
|
| 67,258 |
|
|
| 61,453 |
|
|
| 70,062 |
|
Distributions payable |
|
| 218,136 |
|
|
| 206,601 |
|
|
| 232,237 |
|
|
| 218,326 |
|
Total liabilities |
|
| 10,152,058 |
|
|
| 9,615,454 |
|
|
| 9,575,906 |
|
|
| 10,164,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – Operating Partnership |
|
| 494,999 |
|
|
| 379,106 |
|
|
| 293,706 |
|
|
| 463,400 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 745,600 shares issued and outstanding as of September 30, 2019 and December 31, 2018 |
|
| 37,280 |
|
|
| 37,280 |
| ||||||||
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 371,327,332 shares issued and outstanding as of September 30, 2019 and 369,405,161 shares issued and outstanding as of December 31, 2018 |
|
| 3,713 |
|
|
| 3,694 |
| ||||||||
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 745,600 shares issued and outstanding as of September 30, 2020 and December 31, 2019 |
|
| 37,280 |
|
|
| 37,280 |
| ||||||||
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 372,239,249 shares issued and outstanding as of September 30, 2020 and 371,670,884 shares issued and outstanding as of December 31, 2019 |
|
| 3,722 |
|
|
| 3,717 |
| ||||||||
Paid in capital |
|
| 8,917,312 |
|
|
| 8,935,453 |
|
|
| 9,166,018 |
|
|
| 8,965,577 |
|
Retained earnings |
|
| 1,308,423 |
|
|
| 1,261,763 |
|
|
| 1,371,938 |
|
|
| 1,386,495 |
|
Accumulated other comprehensive income (loss) |
|
| (84,092 | ) |
|
| (64,986 | ) |
|
| (61,478 | ) |
|
| (77,563 | ) |
Total shareholders’ equity |
|
| 10,182,636 |
|
|
| 10,173,204 |
|
|
| 10,517,480 |
|
|
| 10,315,506 |
|
Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership |
|
| 226,065 |
|
|
| 228,738 |
|
|
| 232,516 |
|
|
| 227,837 |
|
Partially Owned Properties |
|
| (1,702 | ) |
|
| (2,293 | ) |
|
| 4,370 |
|
|
| 1,183 |
|
Total Noncontrolling Interests |
|
| 224,363 |
|
|
| 226,445 |
|
|
| 236,886 |
|
|
| 229,020 |
|
Total equity |
|
| 10,406,999 |
|
|
| 10,399,649 |
|
|
| 10,754,366 |
|
|
| 10,544,526 |
|
Total liabilities and equity |
| $ | 21,054,056 |
|
| $ | 20,394,209 |
|
| $ | 20,623,978 |
|
| $ | 21,172,769 |
|
See accompanying notes
EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per share data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
| $ | 2,016,796 |
|
| $ | 1,925,128 |
|
| $ | 685,120 |
|
| $ | 652,677 |
|
| $ | 1,958,270 |
|
| $ | 2,016,796 |
|
| $ | 622,433 |
|
| $ | 685,120 |
|
Fee and asset management |
|
| 360 |
|
|
| 563 |
|
|
| 25 |
|
|
| 190 |
| ||||||||||||||||
Total revenues |
|
| 2,017,156 |
|
|
| 1,925,691 |
|
|
| 685,145 |
|
|
| 652,867 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and maintenance |
|
| 338,497 |
|
|
| 322,487 |
|
|
| 114,966 |
|
|
| 110,541 |
|
|
| 333,333 |
|
|
| 338,497 |
|
|
| 113,065 |
|
|
| 114,966 |
|
Real estate taxes and insurance |
|
| 270,434 |
|
|
| 268,784 |
|
|
| 87,546 |
|
|
| 87,388 |
|
|
| 288,043 |
|
|
| 270,434 |
|
|
| 95,273 |
|
|
| 87,546 |
|
Property management |
|
| 72,705 |
|
|
| 69,175 |
|
|
| 21,940 |
|
|
| 22,247 |
|
|
| 71,513 |
|
|
| 72,705 |
|
|
| 20,196 |
|
|
| 21,940 |
|
General and administrative |
|
| 41,127 |
|
|
| 41,420 |
|
|
| 11,417 |
|
|
| 12,640 |
|
|
| 37,212 |
|
|
| 41,127 |
|
|
| 10,859 |
|
|
| 11,417 |
|
Depreciation |
|
| 616,201 |
|
|
| 583,869 |
|
|
| 211,478 |
|
|
| 194,618 |
|
|
| 619,003 |
|
|
| 616,201 |
|
|
| 200,605 |
|
|
| 211,478 |
|
Total expenses |
|
| 1,338,964 |
|
|
| 1,285,735 |
|
|
| 447,347 |
|
|
| 427,434 |
|
|
| 1,349,104 |
|
|
| 1,338,964 |
|
|
| 439,998 |
|
|
| 447,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sales of real estate properties |
|
| 269,400 |
|
|
| 256,834 |
|
|
| 130,565 |
|
|
| 114,672 |
|
|
| 352,218 |
|
|
| 269,400 |
|
|
| (25 | ) |
|
| 130,565 |
|
Impairment |
|
| — |
|
|
| (702 | ) |
|
| — |
|
|
| (702 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 947,592 |
|
|
| 896,088 |
|
|
| 368,363 |
|
|
| 339,403 |
|
|
| 961,384 |
|
|
| 947,232 |
|
|
| 182,410 |
|
|
| 368,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
| 2,221 |
|
|
| 14,860 |
|
|
| 631 |
|
|
| 7,864 |
|
|
| 4,006 |
|
|
| 2,581 |
|
|
| 535 |
|
|
| 656 |
|
Other expenses |
|
| (11,205 | ) |
|
| (14,871 | ) |
|
| (2,813 | ) |
|
| (7,661 | ) |
|
| (8,324 | ) |
|
| (11,205 | ) |
|
| (4,097 | ) |
|
| (2,813 | ) |
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense incurred, net |
|
| (289,776 | ) |
|
| (321,454 | ) |
|
| (85,936 | ) |
|
| (111,219 | ) |
|
| (248,349 | ) |
|
| (289,776 | ) |
|
| (80,874 | ) |
|
| (85,936 | ) |
Amortization of deferred financing costs |
|
| (8,664 | ) |
|
| (9,054 | ) |
|
| (2,881 | ) |
|
| (3,276 | ) |
|
| (6,253 | ) |
|
| (8,664 | ) |
|
| (2,101 | ) |
|
| (2,881 | ) |
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels |
|
| 640,168 |
|
|
| 565,569 |
|
|
| 277,364 |
|
|
| 225,111 |
|
|
| 702,464 |
|
|
| 640,168 |
|
|
| 95,873 |
|
|
| 277,364 |
|
Income and other tax (expense) benefit |
|
| (749 | ) |
|
| (767 | ) |
|
| (265 | ) |
|
| (280 | ) |
|
| (502 | ) |
|
| (749 | ) |
|
| (262 | ) |
|
| (265 | ) |
Income (loss) from investments in unconsolidated entities |
|
| 66,906 |
|
|
| (2,993 | ) |
|
| (1,152 | ) |
|
| (985 | ) |
|
| (2,445 | ) |
|
| 66,906 |
|
|
| (246 | ) |
|
| (1,152 | ) |
Net gain (loss) on sales of land parcels |
|
| 2,077 |
|
|
| 995 |
|
|
| 1,899 |
|
|
| — |
|
|
| — |
|
|
| 2,077 |
|
|
| — |
|
|
| 1,899 |
|
Net income |
|
| 708,402 |
|
|
| 562,804 |
|
|
| 277,846 |
|
|
| 223,846 |
|
|
| 699,517 |
|
|
| 708,402 |
|
|
| 95,365 |
|
|
| 277,846 |
|
Net (income) loss attributable to Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership |
|
| (25,339 | ) |
|
| (20,517 | ) |
|
| (9,910 | ) |
|
| (8,159 | ) |
|
| (24,624 | ) |
|
| (25,339 | ) |
|
| (3,376 | ) |
|
| (9,910 | ) |
Partially Owned Properties |
|
| (2,450 | ) |
|
| (1,939 | ) |
|
| (830 | ) |
|
| (750 | ) |
|
| (14,113 | ) |
|
| (2,450 | ) |
|
| (703 | ) |
|
| (830 | ) |
Net income attributable to controlling interests |
|
| 680,613 |
|
|
| 540,348 |
|
|
| 267,106 |
|
|
| 214,937 |
|
|
| 660,780 |
|
|
| 680,613 |
|
|
| 91,286 |
|
|
| 267,106 |
|
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
Net income available to Common Shares |
| $ | 678,295 |
|
| $ | 538,030 |
|
| $ | 266,333 |
|
| $ | 214,164 |
|
| $ | 658,462 |
|
| $ | 678,295 |
|
| $ | 90,513 |
|
| $ | 266,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Common Shares |
| $ | 1.83 |
|
| $ | 1.46 |
|
| $ | 0.72 |
|
| $ | 0.58 |
|
| $ | 1.77 |
|
| $ | 1.83 |
|
| $ | 0.24 |
|
| $ | 0.72 |
|
Weighted average Common Shares outstanding |
|
| 370,227 |
|
|
| 367,920 |
|
|
| 370,768 |
|
|
| 368,028 |
|
|
| 371,749 |
|
|
| 370,227 |
|
|
| 371,869 |
|
|
| 370,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Common Shares |
| $ | 1.82 |
|
| $ | 1.46 |
|
| $ | 0.71 |
|
| $ | 0.58 |
|
| $ | 1.77 |
|
| $ | 1.82 |
|
| $ | 0.24 |
|
| $ | 0.71 |
|
Weighted average Common Shares outstanding |
|
| 386,177 |
|
|
| 383,433 |
|
|
| 386,896 |
|
|
| 383,884 |
|
|
| 385,973 |
|
|
| 386,177 |
|
|
| 385,652 |
|
|
| 386,896 |
|
See accompanying notes
EQUITY RESIDENTIAL
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, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 708,402 |
|
| $ | 562,804 |
|
| $ | 277,846 |
|
| $ | 223,846 |
|
| $ | 699,517 |
|
| $ | 708,402 |
|
| $ | 95,365 |
|
| $ | 277,846 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| (33,765 | ) |
|
| 24,021 |
|
|
| — |
|
|
| 12,026 |
|
|
| (1,190 | ) |
|
| (33,765 | ) |
|
| — |
|
|
| — |
|
Losses reclassified into earnings from other comprehensive income |
|
| 14,659 |
|
|
| 13,902 |
|
|
| 5,757 |
|
|
| 4,595 |
|
|
| 17,275 |
|
|
| 14,659 |
|
|
| 5,877 |
|
|
| 5,757 |
|
Other comprehensive income (loss) |
|
| (19,106 | ) |
|
| 37,923 |
|
|
| 5,757 |
|
|
| 16,621 |
|
|
| 16,085 |
|
|
| (19,106 | ) |
|
| 5,877 |
|
|
| 5,757 |
|
Comprehensive income |
|
| 689,296 |
|
|
| 600,727 |
|
|
| 283,603 |
|
|
| 240,467 |
|
|
| 715,602 |
|
|
| 689,296 |
|
|
| 101,242 |
|
|
| 283,603 |
|
Comprehensive (income) attributable to Noncontrolling Interests |
|
| (27,096 | ) |
|
| (23,848 | ) |
|
| (10,946 | ) |
|
| (9,519 | ) |
|
| (39,316 | ) |
|
| (27,096 | ) |
|
| (4,290 | ) |
|
| (10,946 | ) |
Comprehensive income attributable to controlling interests |
| $ | 662,200 |
|
| $ | 576,879 |
|
| $ | 272,657 |
|
| $ | 230,948 |
|
| $ | 676,286 |
|
| $ | 662,200 |
|
| $ | 96,952 |
|
| $ | 272,657 |
|
See accompanying notes
EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 708,402 |
|
| $ | 562,804 |
|
| $ | 699,517 |
|
| $ | 708,402 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 616,201 |
|
|
| 583,869 |
|
|
| 619,003 |
|
|
| 616,201 |
|
Amortization of deferred financing costs |
|
| 8,664 |
|
|
| 9,054 |
|
|
| 6,253 |
|
|
| 8,664 |
|
Amortization of above/below market lease intangibles |
|
| (53 | ) |
|
| 3,294 |
|
|
| (53 | ) |
|
| (53 | ) |
Amortization of discounts and premiums on debt |
|
| 10,137 |
|
|
| 21,360 |
|
|
| 3,834 |
|
|
| 10,137 |
|
Amortization of deferred settlements on derivative instruments |
|
| 14,650 |
|
|
| 13,893 |
|
|
| 17,266 |
|
|
| 14,650 |
|
Amortization of right-of-use assets |
|
| 9,966 |
|
|
| — |
|
|
| 8,785 |
|
|
| 9,966 |
|
Impairment |
|
| — |
|
|
| 702 |
| ||||||||
Write-off of pursuit costs |
|
| 4,098 |
|
|
| 3,125 |
|
|
| 4,864 |
|
|
| 4,098 |
|
(Income) loss from investments in unconsolidated entities |
|
| (66,906 | ) |
|
| 2,993 |
|
|
| 2,445 |
|
|
| (66,906 | ) |
Distributions from unconsolidated entities – return on capital |
|
| 2,486 |
|
|
| 1,885 |
|
|
| 100 |
|
|
| 2,486 |
|
Net (gain) loss on sales of real estate properties |
|
| (269,400 | ) |
|
| (256,834 | ) |
|
| (352,218 | ) |
|
| (269,400 | ) |
Net (gain) loss on sales of land parcels |
|
| (2,077 | ) |
|
| (995 | ) |
|
| — |
|
|
| (2,077 | ) |
Net (gain) loss on debt extinguishment |
|
| 3,381 |
|
|
| 22,110 |
|
|
| — |
|
|
| 3,381 |
|
Realized/unrealized (gain) loss on derivative instruments |
|
| 50 |
|
|
| — |
| ||||||||
Compensation paid with Company Common Shares |
|
| 20,777 |
|
|
| 22,270 |
|
|
| 18,275 |
|
|
| 20,777 |
|
Other operating activities, net |
|
| 1,805 |
|
|
| — |
| ||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets |
|
| (20,871 | ) |
|
| (18,550 | ) |
|
| (30,197 | ) |
|
| (20,871 | ) |
Increase (decrease) in accounts payable and accrued expenses |
|
| 57,822 |
|
|
| 58,756 |
|
|
| 54,418 |
|
|
| 57,822 |
|
Increase (decrease) in accrued interest payable |
|
| 11,125 |
|
|
| 11,097 |
|
|
| (1,183 | ) |
|
| 11,125 |
|
Increase (decrease) in lease liabilities |
|
| (1,784 | ) |
|
| — |
|
|
| (1,650 | ) |
|
| (1,784 | ) |
Increase (decrease) in other liabilities |
|
| (15,578 | ) |
|
| 1,190 |
|
|
| (8,381 | ) |
|
| (15,578 | ) |
Increase (decrease) in security deposits |
|
| 3,140 |
|
|
| 2,168 |
|
|
| (8,609 | ) |
|
| 3,140 |
|
Net cash provided by operating activities |
|
| 1,094,180 |
|
|
| 1,044,191 |
|
|
| 1,034,324 |
|
|
| 1,094,180 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate – acquisitions |
|
| (1,147,236 | ) |
|
| (708,092 | ) |
|
| (48,898 | ) |
|
| (1,147,236 | ) |
Investment in real estate – development/other |
|
| (137,238 | ) |
|
| (101,573 | ) |
|
| (157,778 | ) |
|
| (137,238 | ) |
Capital expenditures to real estate |
|
| (128,335 | ) |
|
| (138,119 | ) |
|
| (92,123 | ) |
|
| (128,335 | ) |
Non-real estate capital additions |
|
| (2,139 | ) |
|
| (3,155 | ) |
|
| (19,290 | ) |
|
| (2,139 | ) |
Interest capitalized for real estate under development |
|
| (4,801 | ) |
|
| (4,547 | ) |
|
| (6,880 | ) |
|
| (4,801 | ) |
Proceeds from disposition of real estate, net |
|
| 692,649 |
|
|
| 691,526 |
|
|
| 747,600 |
|
|
| 692,649 |
|
Investments in unconsolidated entities |
|
| (9,073 | ) |
|
| (4,860 | ) |
|
| (6,664 | ) |
|
| (9,073 | ) |
Distributions from unconsolidated entities – return of capital |
|
| 78,262 |
|
|
| — |
|
|
| 1,000 |
|
|
| 78,262 |
|
Purchase of investment securities and other investments |
|
| (269 | ) |
|
| — |
|
|
| (509 | ) |
|
| (269 | ) |
Net cash provided by (used for) investing activities |
|
| (658,180 | ) |
|
| (268,820 | ) |
|
| 416,458 |
|
|
| (658,180 | ) |
See accompanying notes
EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt financing costs |
| $ | (12,025 | ) |
| $ | (4,355 | ) |
| $ | (2,923 | ) |
| $ | (12,025 | ) |
Mortgage notes payable, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 295,713 |
|
|
| — |
|
|
| 505,375 |
|
|
| 295,713 |
|
Lump sum payoffs |
|
| (723,021 | ) |
|
| (847,939 | ) |
|
| (127,767 | ) |
|
| (723,021 | ) |
Scheduled principal repayments |
|
| (4,883 | ) |
|
| (4,938 | ) |
|
| (5,821 | ) |
|
| (4,883 | ) |
Net gain (loss) on debt extinguishment |
|
| (3,381 | ) |
|
| (22,110 | ) |
|
| — |
|
|
| (3,381 | ) |
Notes, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 1,194,468 |
|
|
| 497,010 |
|
|
| — |
|
|
| 1,194,468 |
|
Lump sum payoffs |
|
| (450,000 | ) |
|
| — |
|
|
| — |
|
|
| (450,000 | ) |
Line of credit and commercial paper: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit proceeds |
|
| 5,850,000 |
|
|
| 1,635,000 |
|
|
| 1,870,000 |
|
|
| 5,850,000 |
|
Line of credit repayments |
|
| (5,850,000 | ) |
|
| (1,635,000 | ) |
|
| (1,890,000 | ) |
|
| (5,850,000 | ) |
Commercial paper proceeds |
|
| 13,341,198 |
|
|
| 9,624,610 |
|
|
| 6,726,167 |
|
|
| 13,341,198 |
|
Commercial paper repayments |
|
| (13,486,000 | ) |
|
| (9,425,000 | ) |
|
| (7,724,000 | ) |
|
| (13,486,000 | ) |
Proceeds from (payments on) settlement of derivative instruments |
|
| (41,616 | ) |
|
| 1,638 |
|
|
| (1,240 | ) |
|
| (41,616 | ) |
Proceeds from Employee Share Purchase Plan (ESPP) |
|
| 2,323 |
|
|
| 3,074 |
|
|
| 3,556 |
|
|
| 2,323 |
|
Proceeds from exercise of options |
|
| 67,066 |
|
|
| 6,000 |
|
|
| 11,426 |
|
|
| 67,066 |
|
Payment of offering costs |
|
| (789 | ) |
|
| (27 | ) |
|
| — |
|
|
| (789 | ) |
Other financing activities, net |
|
| (49 | ) |
|
| (48 | ) |
|
| (31 | ) |
|
| (49 | ) |
Contributions – Noncontrolling Interests – Partially Owned Properties |
|
| 4,594 |
|
|
| 125 |
|
|
| 417 |
|
|
| 4,594 |
|
Contributions – Noncontrolling Interests – Operating Partnership |
|
| — |
|
|
| 1 |
|
|
| 12 |
|
|
| — |
|
Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
| (620,391 | ) |
|
| (583,184 | ) |
|
| (659,668 | ) |
|
| (620,391 | ) |
Preferred Shares |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
Noncontrolling Interests – Operating Partnership |
|
| (22,202 | ) |
|
| (21,040 | ) |
|
| (24,440 | ) |
|
| (22,202 | ) |
Noncontrolling Interests – Partially Owned Properties |
|
| (6,404 | ) |
|
| (8,882 | ) |
|
| (11,312 | ) |
|
| (6,404 | ) |
Net cash provided by (used for) financing activities |
|
| (467,717 | ) |
|
| (787,383 | ) |
|
| (1,332,567 | ) |
|
| (467,717 | ) |
Net increase (decrease) in cash and cash equivalents and restricted deposits |
|
| (31,717 | ) |
|
| (12,012 | ) |
|
| 118,215 |
|
|
| (31,717 | ) |
Cash and cash equivalents and restricted deposits, beginning of period |
|
| 116,313 |
|
|
| 100,762 |
|
|
| 116,999 |
|
|
| 116,313 |
|
Cash and cash equivalents and restricted deposits, end of period |
| $ | 84,596 |
|
| $ | 88,750 |
|
| $ | 235,214 |
|
| $ | 84,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted deposits, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 28,777 |
|
| $ | 32,995 |
|
| $ | 178,333 |
|
| $ | 28,777 |
|
Restricted deposits |
|
| 55,819 |
|
|
| 55,755 |
|
|
| 56,881 |
|
|
| 55,819 |
|
Total cash and cash equivalents and restricted deposits, end of period |
| $ | 84,596 |
|
| $ | 88,750 |
|
| $ | 235,214 |
|
| $ | 84,596 |
|
See accompanying notes
EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
| $ | 246,410 |
|
| $ | 268,966 |
|
| $ | 223,703 |
|
| $ | 246,410 |
|
Net cash paid for income and other taxes |
| $ | 918 |
|
| $ | 934 |
| ||||||||
Net cash paid (received) for income and other taxes |
| $ | (1,092 | ) |
| $ | 918 |
| ||||||||
Amortization of deferred financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | (60 | ) |
| $ | — |
|
| $ | (180 | ) |
| $ | (60 | ) |
Other assets |
| $ | 1,808 |
|
| $ | 1,809 |
|
| $ | 1,755 |
|
| $ | 1,808 |
|
Mortgage notes payable, net |
| $ | 3,529 |
|
| $ | 4,197 |
|
| $ | 1,337 |
|
| $ | 3,529 |
|
Notes, net |
| $ | 3,387 |
|
| $ | 3,048 |
|
| $ | 3,341 |
|
| $ | 3,387 |
|
Amortization of discounts and premiums on debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 8,017 |
|
| $ | 19,394 |
|
| $ | 1,791 |
|
| $ | 8,017 |
|
Notes, net |
| $ | 2,120 |
|
| $ | 1,966 |
|
| $ | 2,043 |
|
| $ | 2,120 |
|
Amortization of deferred settlements on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | (9 | ) |
| $ | (9 | ) |
| $ | (9 | ) |
| $ | (9 | ) |
Accumulated other comprehensive income |
| $ | 14,659 |
|
| $ | 13,902 |
|
| $ | 17,275 |
|
| $ | 14,659 |
|
Write-off of pursuit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | 4,042 |
|
| $ | 3,079 |
|
| $ | 4,621 |
|
| $ | 4,042 |
|
Other assets |
| $ | 48 |
|
| $ | 13 |
|
| $ | 219 |
|
| $ | 48 |
|
Accounts payable and accrued expenses |
| $ | 8 |
|
| $ | 33 |
|
| $ | 24 |
|
| $ | 8 |
|
(Income) loss from investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | (67,900 | ) |
| $ | 1,973 |
|
| $ | 1,474 |
|
| $ | (67,900 | ) |
Other liabilities |
| $ | 994 |
|
| $ | 1,020 |
|
| $ | 971 |
|
| $ | 994 |
|
Realized/unrealized (gain) loss on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | 2,002 |
|
| $ | (24,021 | ) |
| $ | — |
|
| $ | 2,002 |
|
Notes, net |
| $ | 2,277 |
|
| $ | (1,491 | ) |
| $ | — |
|
| $ | 2,277 |
|
Other liabilities |
| $ | 29,486 |
|
| $ | 1,491 |
|
| $ | 1,240 |
|
| $ | 29,486 |
|
Accumulated other comprehensive income |
| $ | (33,765 | ) |
| $ | 24,021 |
|
| $ | (1,190 | ) |
| $ | (33,765 | ) |
Investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | (6,973 | ) |
| $ | (3,180 | ) |
| $ | (5,164 | ) |
| $ | (6,973 | ) |
Other liabilities |
| $ | (2,100 | ) |
| $ | (1,680 | ) |
| $ | (1,500 | ) |
| $ | (2,100 | ) |
Debt financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | 145 |
|
| $ | — |
|
| $ | (231 | ) |
| $ | 145 |
|
Mortgage notes payable, net |
| $ | (2,354 | ) |
| $ | — |
|
| $ | (2,692 | ) |
| $ | (2,354 | ) |
Notes, net |
| $ | (10,454 | ) |
| $ | (4,355 | ) |
| $ | — |
|
| $ | (10,454 | ) |
Other liabilities |
| $ | 638 |
|
| $ | — |
|
| $ | — |
|
| $ | 638 |
|
Right-of-use assets and lease liabilities initial measurement and reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets |
| $ | (491,010 | ) |
| $ | — |
|
| $ | — |
|
| $ | (491,010 | ) |
Other assets |
| $ | 184,116 |
|
| $ | — |
|
| $ | — |
|
| $ | 184,116 |
|
Lease liabilities |
| $ | 335,096 |
|
| $ | — |
|
| $ | — |
|
| $ | 335,096 |
|
Other liabilities |
| $ | (28,202 | ) |
| $ | — |
|
| $ | — |
|
| $ | (28,202 | ) |
See accompanying notes
EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands except per share data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED SHARES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
Balance, end of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
COMMON SHARES, $0.01 PAR VALUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 3,694 |
|
| $ | 3,680 |
|
| $ | 3,708 |
|
| $ | 3,683 |
|
| $ | 3,717 |
|
| $ | 3,694 |
|
| $ | 3,722 |
|
| $ | 3,708 |
|
Conversion of OP Units into Common Shares |
|
| 3 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| 3 |
|
|
| — |
|
|
| 1 |
|
Exercise of share options |
|
| 14 |
|
|
| 2 |
|
|
| 4 |
|
|
| 1 |
|
|
| 2 |
|
|
| 14 |
|
|
| — |
|
|
| 4 |
|
Employee Share Purchase Plan (ESPP) |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
| 2 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
Balance, end of period |
| $ | 3,713 |
|
| $ | 3,684 |
|
| $ | 3,713 |
|
| $ | 3,684 |
|
| $ | 3,722 |
|
| $ | 3,713 |
|
| $ | 3,722 |
|
| $ | 3,713 |
|
PAID IN CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 8,935,453 |
|
| $ | 8,886,586 |
|
| $ | 8,949,581 |
|
| $ | 8,905,184 |
|
| $ | 8,965,577 |
|
| $ | 8,935,453 |
|
| $ | 9,118,332 |
|
| $ | 8,949,581 |
|
Common Share Issuance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of OP Units into Common Shares |
|
| 9,840 |
|
|
| 356 |
|
|
| 4,971 |
|
|
| 25 |
|
|
| 3,912 |
|
|
| 9,840 |
|
|
| 57 |
|
|
| 4,971 |
|
Exercise of share options |
|
| 67,052 |
|
|
| 5,998 |
|
|
| 18,575 |
|
|
| 3,382 |
|
|
| 11,424 |
|
|
| 67,052 |
|
|
| 104 |
|
|
| 18,575 |
|
Employee Share Purchase Plan (ESPP) |
|
| 2,323 |
|
|
| 3,073 |
|
|
| 671 |
|
|
| 893 |
|
|
| 3,556 |
|
|
| 2,323 |
|
|
| 1,197 |
|
|
| 671 |
|
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
| 10,302 |
|
|
| 6,803 |
|
|
| 2,322 |
|
|
| 1,641 |
|
|
| 9,236 |
|
|
| 10,302 |
|
|
| 1,984 |
|
|
| 2,322 |
|
Share options |
|
| 2,185 |
|
|
| 9,206 |
|
|
| 503 |
|
|
| 670 |
|
|
| 1,819 |
|
|
| 2,185 |
|
|
| 526 |
|
|
| 503 |
|
ESPP discount |
|
| 502 |
|
|
| 604 |
|
|
| 137 |
|
|
| 204 |
|
|
| 626 |
|
|
| 502 |
|
|
| 210 |
|
|
| 137 |
|
Offering costs |
|
| (789 | ) |
|
| (27 | ) |
|
| (634 | ) |
|
| — |
|
|
| — |
|
|
| (789 | ) |
|
| — |
|
|
| (634 | ) |
Supplemental Executive Retirement Plan (SERP) |
|
| (1,539 | ) |
|
| (533 | ) |
|
| — |
|
|
| 5 |
|
|
| (395 | ) |
|
| (1,539 | ) |
|
| 111 |
|
|
| — |
|
Change in market value of Redeemable Noncontrolling Interests – Operating Partnership |
|
| (114,936 | ) |
|
| (14,361 | ) |
|
| (57,962 | ) |
|
| (14,189 | ) |
|
| 169,825 |
|
|
| (114,936 | ) |
|
| 41,072 |
|
|
| (57,962 | ) |
Adjustment for Noncontrolling Interests ownership in Operating Partnership |
|
| 6,919 |
|
|
| 2,619 |
|
|
| (852 | ) |
|
| 2,509 |
|
|
| 438 |
|
|
| 6,919 |
|
|
| 2,425 |
|
|
| (852 | ) |
Balance, end of period |
| $ | 8,917,312 |
|
| $ | 8,900,324 |
|
| $ | 8,917,312 |
|
| $ | 8,900,324 |
|
| $ | 9,166,018 |
|
| $ | 8,917,312 |
|
| $ | 9,166,018 |
|
| $ | 8,917,312 |
|
RETAINED EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 1,261,763 |
|
| $ | 1,403,530 |
|
| $ | 1,252,809 |
|
| $ | 1,329,600 |
|
| $ | 1,386,495 |
|
| $ | 1,261,763 |
|
| $ | 1,505,694 |
|
| $ | 1,252,809 |
|
Net income attributable to controlling interests |
|
| 680,613 |
|
|
| 540,348 |
|
|
| 267,106 |
|
|
| 214,937 |
|
|
| 660,780 |
|
|
| 680,613 |
|
|
| 91,286 |
|
|
| 267,106 |
|
Common Share distributions |
|
| (631,635 | ) |
|
| (596,735 | ) |
|
| (210,719 | ) |
|
| (198,939 | ) |
|
| (673,019 | ) |
|
| (631,635 | ) |
|
| (224,269 | ) |
|
| (210,719 | ) |
Preferred Share distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
Balance, end of period |
| $ | 1,308,423 |
|
| $ | 1,344,825 |
|
| $ | 1,308,423 |
|
| $ | 1,344,825 |
|
| $ | 1,371,938 |
|
| $ | 1,308,423 |
|
| $ | 1,371,938 |
|
| $ | 1,308,423 |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | (64,986 | ) |
| $ | (88,612 | ) |
| $ | (89,849 | ) |
| $ | (67,310 | ) |
| $ | (77,563 | ) |
| $ | (64,986 | ) |
| $ | (67,355 | ) |
| $ | (89,849 | ) |
Accumulated other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| (33,765 | ) |
|
| 24,021 |
|
|
| — |
|
|
| 12,026 |
|
|
| (1,190 | ) |
|
| (33,765 | ) |
|
| — |
|
|
| — |
|
Losses reclassified into earnings from other comprehensive income |
|
| 14,659 |
|
|
| 13,902 |
|
|
| 5,757 |
|
|
| 4,595 |
|
|
| 17,275 |
|
|
| 14,659 |
|
|
| 5,877 |
|
|
| 5,757 |
|
Balance, end of period |
| $ | (84,092 | ) |
| $ | (50,689 | ) |
| $ | (84,092 | ) |
| $ | (50,689 | ) |
| $ | (61,478 | ) |
| $ | (84,092 | ) |
| $ | (61,478 | ) |
| $ | (84,092 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per Common Share outstanding |
| $ | 1.7025 |
|
| $ | 1.62 |
|
| $ | 0.5675 |
|
| $ | 0.54 |
|
| $ | 1.8075 |
|
| $ | 1.7025 |
|
| $ | 0.6025 |
|
| $ | 0.5675 |
|
See accompanying notes
EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
(Amounts in thousands except per share data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
NONCONTROLLING INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING PARTNERSHIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 228,738 |
|
| $ | 226,691 |
|
| $ | 227,320 |
|
| $ | 232,995 |
|
| $ | 227,837 |
|
| $ | 228,738 |
|
| $ | 235,169 |
|
| $ | 227,320 |
|
Issuance of restricted units to Noncontrolling Interests |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner |
|
| (9,843 | ) |
|
| (356 | ) |
|
| (4,972 | ) |
|
| (25 | ) |
|
| (3,913 | ) |
|
| (9,843 | ) |
|
| (57 | ) |
|
| (4,972 | ) |
Equity compensation associated with Noncontrolling Interests |
|
| 12,200 |
|
|
| 11,074 |
|
|
| 1,371 |
|
|
| 2,958 |
|
|
| 9,525 |
|
|
| 12,200 |
|
|
| 2,499 |
|
|
| 1,371 |
|
Net income attributable to Noncontrolling Interests |
|
| 25,339 |
|
|
| 20,517 |
|
|
| 9,910 |
|
|
| 8,159 |
|
|
| 24,624 |
|
|
| 25,339 |
|
|
| 3,376 |
|
|
| 9,910 |
|
Distributions to Noncontrolling Interests |
|
| (22,493 | ) |
|
| (21,560 | ) |
|
| (7,414 | ) |
|
| (7,186 | ) |
|
| (25,000 | ) |
|
| (22,493 | ) |
|
| (7,963 | ) |
|
| (7,414 | ) |
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership |
|
| (957 | ) |
|
| 77 |
|
|
| (1,002 | ) |
|
| (567 | ) |
|
| (131 | ) |
|
| (957 | ) |
|
| 1,917 |
|
|
| (1,002 | ) |
Adjustment for Noncontrolling Interests ownership in Operating Partnership |
|
| (6,919 | ) |
|
| (2,619 | ) |
|
| 852 |
|
|
| (2,509 | ) |
|
| (438 | ) |
|
| (6,919 | ) |
|
| (2,425 | ) |
|
| 852 |
|
Balance, end of period |
| $ | 226,065 |
|
| $ | 233,825 |
|
| $ | 226,065 |
|
| $ | 233,825 |
|
| $ | 232,516 |
|
| $ | 226,065 |
|
| $ | 232,516 |
|
| $ | 226,065 |
|
PARTIALLY OWNED PROPERTIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | (2,293 | ) |
| $ | 4,708 |
|
| $ | (1,298 | ) |
| $ | (1,646 | ) |
| $ | 1,183 |
|
| $ | (2,293 | ) |
| $ | 4,634 |
|
| $ | (1,298 | ) |
Net income attributable to Noncontrolling Interests |
|
| 2,450 |
|
|
| 1,939 |
|
|
| 830 |
|
|
| 750 |
|
|
| 14,113 |
|
|
| 2,450 |
|
|
| 703 |
|
|
| 830 |
|
Contributions by Noncontrolling Interests |
|
| 4,594 |
|
|
| 125 |
|
|
| — |
|
|
| — |
|
|
| 417 |
|
|
| 4,594 |
|
|
| 76 |
|
|
| — |
|
Distributions to Noncontrolling Interests |
|
| (6,453 | ) |
|
| (8,930 | ) |
|
| (1,234 | ) |
|
| (1,262 | ) |
|
| (11,343 | ) |
|
| (6,453 | ) |
|
| (1,043 | ) |
|
| (1,234 | ) |
Balance, end of period |
| $ | (1,702 | ) |
| $ | (2,158 | ) |
| $ | (1,702 | ) |
| $ | (2,158 | ) |
| $ | 4,370 |
|
| $ | (1,702 | ) |
| $ | 4,370 |
|
| $ | (1,702 | ) |
See accompanying notes
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 5,955,121 |
|
| $ | 5,875,803 |
|
| $ | 5,794,771 |
|
| $ | 5,936,188 |
|
Depreciable property |
|
| 21,168,255 |
|
|
| 20,435,901 |
|
|
| 21,076,222 |
|
|
| 21,319,101 |
|
Projects under development |
|
| 143,434 |
|
|
| 109,409 |
|
|
| 337,696 |
|
|
| 181,630 |
|
Land held for development |
|
| 91,017 |
|
|
| 89,909 |
|
|
| 103,900 |
|
|
| 96,688 |
|
Investment in real estate |
|
| 27,357,827 |
|
|
| 26,511,022 |
|
|
| 27,312,589 |
|
|
| 27,533,607 |
|
Accumulated depreciation |
|
| (7,171,876 | ) |
|
| (6,696,281 | ) |
|
| (7,738,318 | ) |
|
| (7,276,786 | ) |
Investment in real estate, net |
|
| 20,185,951 |
|
|
| 19,814,741 |
|
|
| 19,574,271 |
|
|
| 20,256,821 |
|
Investments in unconsolidated entities |
|
| 52,474 |
|
|
| 58,349 |
|
|
| 54,828 |
|
|
| 52,238 |
|
Cash and cash equivalents |
|
| 28,777 |
|
|
| 47,442 |
|
|
| 178,333 |
|
|
| 45,753 |
|
Restricted deposits |
|
| 55,819 |
|
|
| 68,871 |
|
|
| 56,881 |
|
|
| 71,246 |
|
Right-of-use assets |
|
| 481,044 |
|
|
| — |
|
|
| 502,184 |
|
|
| 512,774 |
|
Other assets |
|
| 249,991 |
|
|
| 404,806 |
|
|
| 257,481 |
|
|
| 233,937 |
|
Total assets |
| $ | 21,054,056 |
|
| $ | 20,394,209 |
|
| $ | 20,623,978 |
|
| $ | 21,172,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 1,962,471 |
|
| $ | 2,385,470 |
|
| $ | 2,313,833 |
|
| $ | 1,941,610 |
|
Notes, net |
|
| 6,675,084 |
|
|
| 5,933,286 |
|
|
| 6,082,897 |
|
|
| 6,077,513 |
|
Line of credit and commercial paper |
|
| 354,381 |
|
|
| 499,183 |
|
|
| — |
|
|
| 1,017,833 |
|
Accounts payable and accrued expenses |
|
| 151,680 |
|
|
| 102,471 |
|
|
| 158,611 |
|
|
| 94,350 |
|
Accrued interest payable |
|
| 73,747 |
|
|
| 62,622 |
|
|
| 65,669 |
|
|
| 66,852 |
|
Lease liabilities |
|
| 333,312 |
|
|
| — |
|
|
| 329,684 |
|
|
| 331,334 |
|
Other liabilities |
|
| 312,849 |
|
|
| 358,563 |
|
|
| 331,522 |
|
|
| 346,963 |
|
Security deposits |
|
| 70,398 |
|
|
| 67,258 |
|
|
| 61,453 |
|
|
| 70,062 |
|
Distributions payable |
|
| 218,136 |
|
|
| 206,601 |
|
|
| 232,237 |
|
|
| 218,326 |
|
Total liabilities |
|
| 10,152,058 |
|
|
| 9,615,454 |
|
|
| 9,575,906 |
|
|
| 10,164,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Limited Partners |
|
| 494,999 |
|
|
| 379,106 |
|
|
| 293,706 |
|
|
| 463,400 |
|
Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference Units |
|
| 37,280 |
|
|
| 37,280 |
|
|
| 37,280 |
|
|
| 37,280 |
|
General Partner |
|
| 10,229,448 |
|
|
| 10,200,910 |
|
|
| 10,541,678 |
|
|
| 10,355,789 |
|
Limited Partners |
|
| 226,065 |
|
|
| 228,738 |
|
|
| 232,516 |
|
|
| 227,837 |
|
Accumulated other comprehensive income (loss) |
|
| (84,092 | ) |
|
| (64,986 | ) |
|
| (61,478 | ) |
|
| (77,563 | ) |
Total partners’ capital |
|
| 10,408,701 |
|
|
| 10,401,942 |
|
|
| 10,749,996 |
|
|
| 10,543,343 |
|
Noncontrolling Interests – Partially Owned Properties |
|
| (1,702 | ) |
|
| (2,293 | ) |
|
| 4,370 |
|
|
| 1,183 |
|
Total capital |
|
| 10,406,999 |
|
|
| 10,399,649 |
|
|
| 10,754,366 |
|
|
| 10,544,526 |
|
Total liabilities and capital |
| $ | 21,054,056 |
|
| $ | 20,394,209 |
|
| $ | 20,623,978 |
|
| $ | 21,172,769 |
|
See accompanying notes
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, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
| $ | 2,016,796 |
|
| $ | 1,925,128 |
|
| $ | 685,120 |
|
| $ | 652,677 |
|
| $ | 1,958,270 |
|
| $ | 2,016,796 |
|
| $ | 622,433 |
|
| $ | 685,120 |
|
Fee and asset management |
|
| 360 |
|
|
| 563 |
|
|
| 25 |
|
|
| 190 |
| ||||||||||||||||
Total revenues |
|
| 2,017,156 |
|
|
| 1,925,691 |
|
|
| 685,145 |
|
|
| 652,867 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and maintenance |
|
| 338,497 |
|
|
| 322,487 |
|
|
| 114,966 |
|
|
| 110,541 |
|
|
| 333,333 |
|
|
| 338,497 |
|
|
| 113,065 |
|
|
| 114,966 |
|
Real estate taxes and insurance |
|
| 270,434 |
|
|
| 268,784 |
|
|
| 87,546 |
|
|
| 87,388 |
|
|
| 288,043 |
|
|
| 270,434 |
|
|
| 95,273 |
|
|
| 87,546 |
|
Property management |
|
| 72,705 |
|
|
| 69,175 |
|
|
| 21,940 |
|
|
| 22,247 |
|
|
| 71,513 |
|
|
| 72,705 |
|
|
| 20,196 |
|
|
| 21,940 |
|
General and administrative |
|
| 41,127 |
|
|
| 41,420 |
|
|
| 11,417 |
|
|
| 12,640 |
|
|
| 37,212 |
|
|
| 41,127 |
|
|
| 10,859 |
|
|
| 11,417 |
|
Depreciation |
|
| 616,201 |
|
|
| 583,869 |
|
|
| 211,478 |
|
|
| 194,618 |
|
|
| 619,003 |
|
|
| 616,201 |
|
|
| 200,605 |
|
|
| 211,478 |
|
Total expenses |
|
| 1,338,964 |
|
|
| 1,285,735 |
|
|
| 447,347 |
|
|
| 427,434 |
|
|
| 1,349,104 |
|
|
| 1,338,964 |
|
|
| 439,998 |
|
|
| 447,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sales of real estate properties |
|
| 269,400 |
|
|
| 256,834 |
|
|
| 130,565 |
|
|
| 114,672 |
|
|
| 352,218 |
|
|
| 269,400 |
|
|
| (25 | ) |
|
| 130,565 |
|
Impairment |
|
| — |
|
|
| (702 | ) |
|
| — |
|
|
| (702 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 947,592 |
|
|
| 896,088 |
|
|
| 368,363 |
|
|
| 339,403 |
|
|
| 961,384 |
|
|
| 947,232 |
|
|
| 182,410 |
|
|
| 368,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
| 2,221 |
|
|
| 14,860 |
|
|
| 631 |
|
|
| 7,864 |
|
|
| 4,006 |
|
|
| 2,581 |
|
|
| 535 |
|
|
| 656 |
|
Other expenses |
|
| (11,205 | ) |
|
| (14,871 | ) |
|
| (2,813 | ) |
|
| (7,661 | ) |
|
| (8,324 | ) |
|
| (11,205 | ) |
|
| (4,097 | ) |
|
| (2,813 | ) |
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense incurred, net |
|
| (289,776 | ) |
|
| (321,454 | ) |
|
| (85,936 | ) |
|
| (111,219 | ) |
|
| (248,349 | ) |
|
| (289,776 | ) |
|
| (80,874 | ) |
|
| (85,936 | ) |
Amortization of deferred financing costs |
|
| (8,664 | ) |
|
| (9,054 | ) |
|
| (2,881 | ) |
|
| (3,276 | ) |
|
| (6,253 | ) |
|
| (8,664 | ) |
|
| (2,101 | ) |
|
| (2,881 | ) |
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels |
|
| 640,168 |
|
|
| 565,569 |
|
|
| 277,364 |
|
|
| 225,111 |
|
|
| 702,464 |
|
|
| 640,168 |
|
|
| 95,873 |
|
|
| 277,364 |
|
Income and other tax (expense) benefit |
|
| (749 | ) |
|
| (767 | ) |
|
| (265 | ) |
|
| (280 | ) |
|
| (502 | ) |
|
| (749 | ) |
|
| (262 | ) |
|
| (265 | ) |
Income (loss) from investments in unconsolidated entities |
|
| 66,906 |
|
|
| (2,993 | ) |
|
| (1,152 | ) |
|
| (985 | ) |
|
| (2,445 | ) |
|
| 66,906 |
|
|
| (246 | ) |
|
| (1,152 | ) |
Net gain (loss) on sales of land parcels |
|
| 2,077 |
|
|
| 995 |
|
|
| 1,899 |
|
|
| — |
|
|
| — |
|
|
| 2,077 |
|
|
| — |
|
|
| 1,899 |
|
Net income |
|
| 708,402 |
|
|
| 562,804 |
|
|
| 277,846 |
|
|
| 223,846 |
|
|
| 699,517 |
|
|
| 708,402 |
|
|
| 95,365 |
|
|
| 277,846 |
|
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,450 | ) |
|
| (1,939 | ) |
|
| (830 | ) |
|
| (750 | ) |
|
| (14,113 | ) |
|
| (2,450 | ) |
|
| (703 | ) |
|
| (830 | ) |
Net income attributable to controlling interests |
| $ | 705,952 |
|
| $ | 560,865 |
|
| $ | 277,016 |
|
| $ | 223,096 |
|
| $ | 685,404 |
|
| $ | 705,952 |
|
| $ | 94,662 |
|
| $ | 277,016 |
|
ALLOCATION OF NET INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference Units |
| $ | 2,318 |
|
| $ | 2,318 |
|
| $ | 773 |
|
| $ | 773 |
|
| $ | 2,318 |
|
| $ | 2,318 |
|
| $ | 773 |
|
| $ | 773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner |
| $ | 678,295 |
|
| $ | 538,030 |
|
| $ | 266,333 |
|
| $ | 214,164 |
|
| $ | 658,462 |
|
| $ | 678,295 |
|
| $ | 90,513 |
|
| $ | 266,333 |
|
Limited Partners |
|
| 25,339 |
|
|
| 20,517 |
|
|
| 9,910 |
|
|
| 8,159 |
|
|
| 24,624 |
|
|
| 25,339 |
|
|
| 3,376 |
|
|
| 9,910 |
|
Net income available to Units |
| $ | 703,634 |
|
| $ | 558,547 |
|
| $ | 276,243 |
|
| $ | 222,323 |
|
| $ | 683,086 |
|
| $ | 703,634 |
|
| $ | 93,889 |
|
| $ | 276,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Unit – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Units |
| $ | 1.83 |
|
| $ | 1.46 |
|
| $ | 0.72 |
|
| $ | 0.58 |
|
| $ | 1.77 |
|
| $ | 1.83 |
|
| $ | 0.24 |
|
| $ | 0.72 |
|
Weighted average Units outstanding |
|
| 383,142 |
|
|
| 380,791 |
|
|
| 383,709 |
|
|
| 380,912 |
|
|
| 384,759 |
|
|
| 383,142 |
|
|
| 384,871 |
|
|
| 383,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Unit – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Units |
| $ | 1.82 |
|
| $ | 1.46 |
|
| $ | 0.71 |
|
| $ | 0.58 |
|
| $ | 1.77 |
|
| $ | 1.82 |
|
| $ | 0.24 |
|
| $ | 0.71 |
|
Weighted average Units outstanding |
|
| 386,177 |
|
|
| 383,433 |
|
|
| 386,896 |
|
|
| 383,884 |
|
|
| 385,973 |
|
|
| 386,177 |
|
|
| 385,652 |
|
|
| 386,896 |
|
See accompanying notes
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, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 708,402 |
|
| $ | 562,804 |
|
| $ | 277,846 |
|
| $ | 223,846 |
|
| $ | 699,517 |
|
| $ | 708,402 |
|
| $ | 95,365 |
|
| $ | 277,846 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| (33,765 | ) |
|
| 24,021 |
|
|
| — |
|
|
| 12,026 |
|
|
| (1,190 | ) |
|
| (33,765 | ) |
|
| — |
|
|
| — |
|
Losses reclassified into earnings from other comprehensive income |
|
| 14,659 |
|
|
| 13,902 |
|
|
| 5,757 |
|
|
| 4,595 |
|
|
| 17,275 |
|
|
| 14,659 |
|
|
| 5,877 |
|
|
| 5,757 |
|
Other comprehensive income (loss) |
|
| (19,106 | ) |
|
| 37,923 |
|
|
| 5,757 |
|
|
| 16,621 |
|
|
| 16,085 |
|
|
| (19,106 | ) |
|
| 5,877 |
|
|
| 5,757 |
|
Comprehensive income |
|
| 689,296 |
|
|
| 600,727 |
|
|
| 283,603 |
|
|
| 240,467 |
|
|
| 715,602 |
|
|
| 689,296 |
|
|
| 101,242 |
|
|
| 283,603 |
|
Comprehensive (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,450 | ) |
|
| (1,939 | ) |
|
| (830 | ) |
|
| (750 | ) |
|
| (14,113 | ) |
|
| (2,450 | ) |
|
| (703 | ) |
|
| (830 | ) |
Comprehensive income attributable to controlling interests |
| $ | 686,846 |
|
| $ | 598,788 |
|
| $ | 282,773 |
|
| $ | 239,717 |
|
| $ | 701,489 |
|
| $ | 686,846 |
|
| $ | 100,539 |
|
| $ | 282,773 |
|
See accompanying notes
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 708,402 |
|
| $ | 562,804 |
|
| $ | 699,517 |
|
| $ | 708,402 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 616,201 |
|
|
| 583,869 |
|
|
| 619,003 |
|
|
| 616,201 |
|
Amortization of deferred financing costs |
|
| 8,664 |
|
|
| 9,054 |
|
|
| 6,253 |
|
|
| 8,664 |
|
Amortization of above/below market lease intangibles |
|
| (53 | ) |
|
| 3,294 |
|
|
| (53 | ) |
|
| (53 | ) |
Amortization of discounts and premiums on debt |
|
| 10,137 |
|
|
| 21,360 |
|
|
| 3,834 |
|
|
| 10,137 |
|
Amortization of deferred settlements on derivative instruments |
|
| 14,650 |
|
|
| 13,893 |
|
|
| 17,266 |
|
|
| 14,650 |
|
Amortization of right-of-use assets |
|
| 9,966 |
|
|
| — |
|
|
| 8,785 |
|
|
| 9,966 |
|
Impairment |
|
| — |
|
|
| 702 |
| ||||||||
Write-off of pursuit costs |
|
| 4,098 |
|
|
| 3,125 |
|
|
| 4,864 |
|
|
| 4,098 |
|
(Income) loss from investments in unconsolidated entities |
|
| (66,906 | ) |
|
| 2,993 |
|
|
| 2,445 |
|
|
| (66,906 | ) |
Distributions from unconsolidated entities – return on capital |
|
| 2,486 |
|
|
| 1,885 |
|
|
| 100 | �� |
|
| 2,486 |
|
Net (gain) loss on sales of real estate properties |
|
| (269,400 | ) |
|
| (256,834 | ) |
|
| (352,218 | ) |
|
| (269,400 | ) |
Net (gain) loss on sales of land parcels |
|
| (2,077 | ) |
|
| (995 | ) |
|
| — |
|
|
| (2,077 | ) |
Net (gain) loss on debt extinguishment |
|
| 3,381 |
|
|
| 22,110 |
|
|
| — |
|
|
| 3,381 |
|
Realized/unrealized (gain) loss on derivative instruments |
|
| 50 |
|
|
| — |
| ||||||||
Compensation paid with Company Common Shares |
|
| 20,777 |
|
|
| 22,270 |
|
|
| 18,275 |
|
|
| 20,777 |
|
Other operating activities, net |
|
| 1,805 |
|
|
| — |
| ||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets |
|
| (20,871 | ) |
|
| (18,550 | ) |
|
| (30,197 | ) |
|
| (20,871 | ) |
Increase (decrease) in accounts payable and accrued expenses |
|
| 57,822 |
|
|
| 58,756 |
|
|
| 54,418 |
|
|
| 57,822 |
|
Increase (decrease) in accrued interest payable |
|
| 11,125 |
|
|
| 11,097 |
|
|
| (1,183 | ) |
|
| 11,125 |
|
Increase (decrease) in lease liabilities |
|
| (1,784 | ) |
|
| — |
|
|
| (1,650 | ) |
|
| (1,784 | ) |
Increase (decrease) in other liabilities |
|
| (15,578 | ) |
|
| 1,190 |
|
|
| (8,381 | ) |
|
| (15,578 | ) |
Increase (decrease) in security deposits |
|
| 3,140 |
|
|
| 2,168 |
|
|
| (8,609 | ) |
|
| 3,140 |
|
Net cash provided by operating activities |
|
| 1,094,180 |
|
|
| 1,044,191 |
|
|
| 1,034,324 |
|
|
| 1,094,180 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate – acquisitions |
|
| (1,147,236 | ) |
|
| (708,092 | ) |
|
| (48,898 | ) |
|
| (1,147,236 | ) |
Investment in real estate – development/other |
|
| (137,238 | ) |
|
| (101,573 | ) |
|
| (157,778 | ) |
|
| (137,238 | ) |
Capital expenditures to real estate |
|
| (128,335 | ) |
|
| (138,119 | ) |
|
| (92,123 | ) |
|
| (128,335 | ) |
Non-real estate capital additions |
|
| (2,139 | ) |
|
| (3,155 | ) |
|
| (19,290 | ) |
|
| (2,139 | ) |
Interest capitalized for real estate under development |
|
| (4,801 | ) |
|
| (4,547 | ) |
|
| (6,880 | ) |
|
| (4,801 | ) |
Proceeds from disposition of real estate, net |
|
| 692,649 |
|
|
| 691,526 |
|
|
| 747,600 |
|
|
| 692,649 |
|
Investments in unconsolidated entities |
|
| (9,073 | ) |
|
| (4,860 | ) |
|
| (6,664 | ) |
|
| (9,073 | ) |
Distributions from unconsolidated entities – return of capital |
|
| 78,262 |
|
|
| — |
|
|
| 1,000 |
|
|
| 78,262 |
|
Purchase of investment securities and other investments |
|
| (269 | ) |
|
| — |
|
|
| (509 | ) |
|
| (269 | ) |
Net cash provided by (used for) investing activities |
|
| (658,180 | ) |
|
| (268,820 | ) |
|
| 416,458 |
|
|
| (658,180 | ) |
See accompanying notes
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt financing costs |
| $ | (12,025 | ) |
| $ | (4,355 | ) |
| $ | (2,923 | ) |
| $ | (12,025 | ) |
Mortgage notes payable, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 295,713 |
|
|
| — |
|
|
| 505,375 |
|
|
| 295,713 |
|
Lump sum payoffs |
|
| (723,021 | ) |
|
| (847,939 | ) |
|
| (127,767 | ) |
|
| (723,021 | ) |
Scheduled principal repayments |
|
| (4,883 | ) |
|
| (4,938 | ) |
|
| (5,821 | ) |
|
| (4,883 | ) |
Net gain (loss) on debt extinguishment |
|
| (3,381 | ) |
|
| (22,110 | ) |
|
| — |
|
|
| (3,381 | ) |
Notes, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 1,194,468 |
|
|
| 497,010 |
|
|
| — |
|
|
| 1,194,468 |
|
Lump sum payoffs |
|
| (450,000 | ) |
|
| — |
|
|
| — |
|
|
| (450,000 | ) |
Line of credit and commercial paper: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit proceeds |
|
| 5,850,000 |
|
|
| 1,635,000 |
|
|
| 1,870,000 |
|
|
| 5,850,000 |
|
Line of credit repayments |
|
| (5,850,000 | ) |
|
| (1,635,000 | ) |
|
| (1,890,000 | ) |
|
| (5,850,000 | ) |
Commercial paper proceeds |
|
| 13,341,198 |
|
|
| 9,624,610 |
|
|
| 6,726,167 |
|
|
| 13,341,198 |
|
Commercial paper repayments |
|
| (13,486,000 | ) |
|
| (9,425,000 | ) |
|
| (7,724,000 | ) |
|
| (13,486,000 | ) |
Proceeds from (payments on) settlement of derivative instruments |
|
| (41,616 | ) |
|
| 1,638 |
|
|
| (1,240 | ) |
|
| (41,616 | ) |
Proceeds from EQR’s Employee Share Purchase Plan (ESPP) |
|
| 2,323 |
|
|
| 3,074 |
|
|
| 3,556 |
|
|
| 2,323 |
|
Proceeds from exercise of EQR options |
|
| 67,066 |
|
|
| 6,000 |
|
|
| 11,426 |
|
|
| 67,066 |
|
Payment of offering costs |
|
| (789 | ) |
|
| (27 | ) |
|
| — |
|
|
| (789 | ) |
Other financing activities, net |
|
| (49 | ) |
|
| (48 | ) |
|
| (31 | ) |
|
| (49 | ) |
Contributions – Noncontrolling Interests – Partially Owned Properties |
|
| 4,594 |
|
|
| 125 |
|
|
| 417 |
|
|
| 4,594 |
|
Contributions – Limited Partners |
|
| — |
|
|
| 1 |
|
|
| 12 |
|
|
| — |
|
Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP Units – General Partner |
|
| (620,391 | ) |
|
| (583,184 | ) |
|
| (659,668 | ) |
|
| (620,391 | ) |
Preference Units |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
OP Units – Limited Partners |
|
| (22,202 | ) |
|
| (21,040 | ) |
|
| (24,440 | ) |
|
| (22,202 | ) |
Noncontrolling Interests – Partially Owned Properties |
|
| (6,404 | ) |
|
| (8,882 | ) |
|
| (11,312 | ) |
|
| (6,404 | ) |
Net cash provided by (used for) financing activities |
|
| (467,717 | ) |
|
| (787,383 | ) |
|
| (1,332,567 | ) |
|
| (467,717 | ) |
Net increase (decrease) in cash and cash equivalents and restricted deposits |
|
| (31,717 | ) |
|
| (12,012 | ) |
|
| 118,215 |
|
|
| (31,717 | ) |
Cash and cash equivalents and restricted deposits, beginning of period |
|
| 116,313 |
|
|
| 100,762 |
|
|
| 116,999 |
|
|
| 116,313 |
|
Cash and cash equivalents and restricted deposits, end of period |
| $ | 84,596 |
|
| $ | 88,750 |
|
| $ | 235,214 |
|
| $ | 84,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted deposits, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 28,777 |
|
| $ | 32,995 |
|
| $ | 178,333 |
|
| $ | 28,777 |
|
Restricted deposits |
|
| 55,819 |
|
|
| 55,755 |
|
|
| 56,881 |
|
|
| 55,819 |
|
Total cash and cash equivalents and restricted deposits, end of period |
| $ | 84,596 |
|
| $ | 88,750 |
|
| $ | 235,214 |
|
| $ | 84,596 |
|
See accompanying notes
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
| $ | 246,410 |
|
| $ | 268,966 |
|
| $ | 223,703 |
|
| $ | 246,410 |
|
Net cash paid for income and other taxes |
| $ | 918 |
|
| $ | 934 |
| ||||||||
Net cash paid (received) for income and other taxes |
| $ | (1,092 | ) |
| $ | 918 |
| ||||||||
Amortization of deferred financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | (60 | ) |
| $ | — |
|
| $ | (180 | ) |
| $ | (60 | ) |
Other assets |
| $ | 1,808 |
|
| $ | 1,809 |
|
| $ | 1,755 |
|
| $ | 1,808 |
|
Mortgage notes payable, net |
| $ | 3,529 |
|
| $ | 4,197 |
|
| $ | 1,337 |
|
| $ | 3,529 |
|
Notes, net |
| $ | 3,387 |
|
| $ | 3,048 |
|
| $ | 3,341 |
|
| $ | 3,387 |
|
Amortization of discounts and premiums on debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 8,017 |
|
| $ | 19,394 |
|
| $ | 1,791 |
|
| $ | 8,017 |
|
Notes, net |
| $ | 2,120 |
|
| $ | 1,966 |
|
| $ | 2,043 |
|
| $ | 2,120 |
|
Amortization of deferred settlements on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | (9 | ) |
| $ | (9 | ) |
| $ | (9 | ) |
| $ | (9 | ) |
Accumulated other comprehensive income |
| $ | 14,659 |
|
| $ | 13,902 |
|
| $ | 17,275 |
|
| $ | 14,659 |
|
Write-off of pursuit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | 4,042 |
|
| $ | 3,079 |
|
| $ | 4,621 |
|
| $ | 4,042 |
|
Other assets |
| $ | 48 |
|
| $ | 13 |
|
| $ | 219 |
|
| $ | 48 |
|
Accounts payable and accrued expenses |
| $ | 8 |
|
| $ | 33 |
|
| $ | 24 |
|
| $ | 8 |
|
(Income) loss from investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | (67,900 | ) |
| $ | 1,973 |
|
| $ | 1,474 |
|
| $ | (67,900 | ) |
Other liabilities |
| $ | 994 |
|
| $ | 1,020 |
|
| $ | 971 |
|
| $ | 994 |
|
Realized/unrealized (gain) loss on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | 2,002 |
|
| $ | (24,021 | ) |
| $ | — |
|
| $ | 2,002 |
|
Notes, net |
| $ | 2,277 |
|
| $ | (1,491 | ) |
| $ | — |
|
| $ | 2,277 |
|
Other liabilities |
| $ | 29,486 |
|
| $ | 1,491 |
|
| $ | 1,240 |
|
| $ | 29,486 |
|
Accumulated other comprehensive income |
| $ | (33,765 | ) |
| $ | 24,021 |
|
| $ | (1,190 | ) |
| $ | (33,765 | ) |
Investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | (6,973 | ) |
| $ | (3,180 | ) |
| $ | (5,164 | ) |
| $ | (6,973 | ) |
Other liabilities |
| $ | (2,100 | ) |
| $ | (1,680 | ) |
| $ | (1,500 | ) |
| $ | (2,100 | ) |
Debt financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | 145 |
|
| $ | — |
|
| $ | (231 | ) |
| $ | 145 |
|
Mortgage notes payable, net |
| $ | (2,354 | ) |
| $ | — |
|
| $ | (2,692 | ) |
| $ | (2,354 | ) |
Notes, net |
| $ | (10,454 | ) |
| $ | (4,355 | ) |
| $ | — |
|
| $ | (10,454 | ) |
Other liabilities |
| $ | 638 |
|
| $ | — |
|
| $ | — |
|
| $ | 638 |
|
Right-of-use assets and lease liabilities initial measurement and reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets |
| $ | (491,010 | ) |
| $ | — |
|
| $ | — |
|
| $ | (491,010 | ) |
Other assets |
| $ | 184,116 |
|
| $ | — |
|
| $ | — |
|
| $ | 184,116 |
|
Lease liabilities |
| $ | 335,096 |
|
| $ | — |
|
| $ | — |
|
| $ | 335,096 |
|
Other liabilities |
| $ | (28,202 | ) |
| $ | — |
|
| $ | — |
|
| $ | (28,202 | ) |
See accompanying notes
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(Amounts in thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
PARTNERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERENCE UNITS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
Balance, end of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
GENERAL PARTNER |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 10,200,910 |
|
| $ | 10,293,796 |
|
| $ | 10,206,098 |
|
| $ | 10,238,467 |
|
| $ | 10,355,789 |
|
| $ | 10,200,910 |
|
| $ | 10,627,748 |
|
| $ | 10,206,098 |
|
OP Unit Issuance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of OP Units held by Limited Partners into OP Units held by General Partner |
|
| 9,843 |
|
|
| 356 |
|
|
| 4,972 |
|
|
| 25 |
|
|
| 3,913 |
|
|
| 9,843 |
|
|
| 57 |
|
|
| 4,972 |
|
Exercise of EQR share options |
|
| 67,066 |
|
|
| 6,000 |
|
|
| 18,579 |
|
|
| 3,383 |
|
|
| 11,426 |
|
|
| 67,066 |
|
|
| 104 |
|
|
| 18,579 |
|
EQR’s Employee Share Purchase Plan (ESPP) |
|
| 2,323 |
|
|
| 3,074 |
|
|
| 671 |
|
|
| 893 |
|
|
| 3,556 |
|
|
| 2,323 |
|
|
| 1,197 |
|
|
| 671 |
|
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQR restricted shares |
|
| 10,304 |
|
|
| 6,804 |
|
|
| 2,322 |
|
|
| 1,641 |
|
|
| 9,238 |
|
|
| 10,304 |
|
|
| 1,984 |
|
|
| 2,322 |
|
EQR share options |
|
| 2,185 |
|
|
| 9,206 |
|
|
| 503 |
|
|
| 670 |
|
|
| 1,819 |
|
|
| 2,185 |
|
|
| 526 |
|
|
| 503 |
|
EQR ESPP discount |
|
| 502 |
|
|
| 604 |
|
|
| 137 |
|
|
| 204 |
|
|
| 626 |
|
|
| 502 |
|
|
| 210 |
|
|
| 137 |
|
Net income available to Units – General Partner |
|
| 678,295 |
|
|
| 538,030 |
|
|
| 266,333 |
|
|
| 214,164 |
|
|
| 658,462 |
|
|
| 678,295 |
|
|
| 90,513 |
|
|
| 266,333 |
|
OP Units – General Partner distributions |
|
| (631,635 | ) |
|
| (596,735 | ) |
|
| (210,719 | ) |
|
| (198,939 | ) |
|
| (673,019 | ) |
|
| (631,635 | ) |
|
| (224,269 | ) |
|
| (210,719 | ) |
Offering costs |
|
| (789 | ) |
|
| (27 | ) |
|
| (634 | ) |
|
| — |
|
|
| — |
|
|
| (789 | ) |
|
| — |
|
|
| (634 | ) |
Supplemental Executive Retirement Plan (SERP) |
|
| (1,539 | ) |
|
| (533 | ) |
|
| — |
|
|
| 5 |
|
|
| (395 | ) |
|
| (1,539 | ) |
|
| 111 |
|
|
| — |
|
Change in market value of Redeemable Limited Partners |
|
| (114,936 | ) |
|
| (14,361 | ) |
|
| (57,962 | ) |
|
| (14,189 | ) |
|
| 169,825 |
|
|
| (114,936 | ) |
|
| 41,072 |
|
|
| (57,962 | ) |
Adjustment for Limited Partners ownership in Operating Partnership |
|
| 6,919 |
|
|
| 2,619 |
|
|
| (852 | ) |
|
| 2,509 |
|
|
| 438 |
|
|
| 6,919 |
|
|
| 2,425 |
|
|
| (852 | ) |
Balance, end of period |
| $ | 10,229,448 |
|
| $ | 10,248,833 |
|
| $ | 10,229,448 |
|
| $ | 10,248,833 |
|
| $ | 10,541,678 |
|
| $ | 10,229,448 |
|
| $ | 10,541,678 |
|
| $ | 10,229,448 |
|
LIMITED PARTNERS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | 228,738 |
|
| $ | 226,691 |
|
| $ | 227,320 |
|
| $ | 232,995 |
|
| $ | 227,837 |
|
| $ | 228,738 |
|
| $ | 235,169 |
|
| $ | 227,320 |
|
Issuance of restricted units to Limited Partners |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Conversion of OP Units held by Limited Partners into OP Units held by General Partner |
|
| (9,843 | ) |
|
| (356 | ) |
|
| (4,972 | ) |
|
| (25 | ) |
|
| (3,913 | ) |
|
| (9,843 | ) |
|
| (57 | ) |
|
| (4,972 | ) |
Equity compensation associated with Units – Limited Partners |
|
| 12,200 |
|
|
| 11,074 |
|
|
| 1,371 |
|
|
| 2,958 |
|
|
| 9,525 |
|
|
| 12,200 |
|
|
| 2,499 |
|
|
| 1,371 |
|
Net income available to Units – Limited Partners |
|
| 25,339 |
|
|
| 20,517 |
|
|
| 9,910 |
|
|
| 8,159 |
|
|
| 24,624 |
|
|
| 25,339 |
|
|
| 3,376 |
|
|
| 9,910 |
|
Units – Limited Partners distributions |
|
| (22,493 | ) |
|
| (21,560 | ) |
|
| (7,414 | ) |
|
| (7,186 | ) |
|
| (25,000 | ) |
|
| (22,493 | ) |
|
| (7,963 | ) |
|
| (7,414 | ) |
Change in carrying value of Redeemable Limited Partners |
|
| (957 | ) |
|
| 77 |
|
|
| (1,002 | ) |
|
| (567 | ) |
|
| (131 | ) |
|
| (957 | ) |
|
| 1,917 |
|
|
| (1,002 | ) |
Adjustment for Limited Partners ownership in Operating Partnership |
|
| (6,919 | ) |
|
| (2,619 | ) |
|
| 852 |
|
|
| (2,509 | ) |
|
| (438 | ) |
|
| (6,919 | ) |
|
| (2,425 | ) |
|
| 852 |
|
Balance, end of period |
| $ | 226,065 |
|
| $ | 233,825 |
|
| $ | 226,065 |
|
| $ | 233,825 |
|
| $ | 232,516 |
|
| $ | 226,065 |
|
| $ | 232,516 |
|
| $ | 226,065 |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | (64,986 | ) |
| $ | (88,612 | ) |
| $ | (89,849 | ) |
| $ | (67,310 | ) |
| $ | (77,563 | ) |
| $ | (64,986 | ) |
| $ | (67,355 | ) |
| $ | (89,849 | ) |
Accumulated other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| (33,765 | ) |
|
| 24,021 |
|
|
| — |
|
|
| 12,026 |
|
|
| (1,190 | ) |
|
| (33,765 | ) |
|
| — |
|
|
| — |
|
Losses reclassified into earnings from other comprehensive income |
|
| 14,659 |
|
|
| 13,902 |
|
|
| 5,757 |
|
|
| 4,595 |
|
|
| 17,275 |
|
|
| 14,659 |
|
|
| 5,877 |
|
|
| 5,757 |
|
Balance, end of period |
| $ | (84,092 | ) |
| $ | (50,689 | ) |
| $ | (84,092 | ) |
| $ | (50,689 | ) |
| $ | (61,478 | ) |
| $ | (84,092 | ) |
| $ | (61,478 | ) |
| $ | (84,092 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per Unit outstanding |
| $ | 1.7025 |
|
| $ | 1.62 |
|
| $ | 0.5675 |
|
| $ | 0.54 |
|
| $ | 1.8075 |
|
| $ | 1.7025 |
|
| $ | 0.6025 |
|
| $ | 0.5675 |
|
See accompanying notes
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (Continued)
(Amounts in thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
NONCONTROLLING INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS – PARTIALLY OWNED PROPERTIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
| $ | (2,293 | ) |
| $ | 4,708 |
|
| $ | (1,298 | ) |
| $ | (1,646 | ) |
| $ | 1,183 |
|
| $ | (2,293 | ) |
| $ | 4,634 |
|
| $ | (1,298 | ) |
Net income attributable to Noncontrolling Interests |
|
| 2,450 |
|
|
| 1,939 |
|
|
| 830 |
|
|
| 750 |
|
|
| 14,113 |
|
|
| 2,450 |
|
|
| 703 |
|
|
| 830 |
|
Contributions by Noncontrolling Interests |
|
| 4,594 |
|
|
| 125 |
|
|
| — |
|
|
| — |
|
|
| 417 |
|
|
| 4,594 |
|
|
| 76 |
|
|
| — |
|
Distributions to Noncontrolling Interests |
|
| (6,453 | ) |
|
| (8,930 | ) |
|
| (1,234 | ) |
|
| (1,262 | ) |
|
| (11,343 | ) |
|
| (6,453 | ) |
|
| (1,043 | ) |
|
| (1,234 | ) |
Balance, end of period |
| $ | (1,702 | ) |
| $ | (2,158 | ) |
| $ | (1,702 | ) |
| $ | (2,158 | ) |
| $ | 4,370 |
|
| $ | (1,702 | ) |
| $ | 4,370 |
|
| $ | (1,702 | ) |
See accompanying notes
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | Business |
Equity Residential (“EQR”) is an S&P 500 company focused on the acquisition, development and management of rental apartmentresidential properties located in urban and high-density suburban communities,around dynamic cities that attract high quality long-term renters, a business that is conducted on its behalf by ERP Operating Limited Partnership (“ERPOP”). EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 and ERPOP is an Illinois limited partnership formed in May 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. Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the Operating Partnership.
EQR is the general partner of, and as of September 30, 20192020 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 issuespublic 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.
As of September 30, 2019,2020, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 308305 properties located in 109 states and the District of Columbia consisting of 80,29978,568 apartment units. The ownership breakdown includes (table does not include various uncompleted development properties):
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||
Wholly Owned Properties |
|
| 290 |
|
|
| 76,602 |
|
|
| 288 |
|
|
| 75,007 |
|
Master-Leased Properties – Consolidated |
|
| 1 |
|
|
| 162 |
| ||||||||
Master-Leased Property – Consolidated |
|
| 1 |
|
|
| 162 |
| ||||||||
Partially Owned Properties – Consolidated |
|
| 17 |
|
|
| 3,535 |
|
|
| 16 |
|
|
| 3,399 |
|
|
|
| 308 |
|
|
| 80,299 |
|
|
| 305 |
|
|
| 78,568 |
|
COVID-19 Pandemic
The continued rapid development and fast-changing nature of the novel coronavirus (“COVID-19”) pandemic creates many unknowns that have had and could continue to have a future significant impact on the Company. Its duration, severity and the extent of the adverse health impact on the general population, our residents and employees, and the potential changes in customer preferences for living in our communities, are among the many unknowns. These, among other items, have impacted 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.
2. | Summary of Significant Accounting Policies |
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 nine months ended September 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020.
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 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, 20182019 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.
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’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.
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, resulted 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 taxable REIT subsidiary (“TRS”) status for certain of its corporate subsidiaries and, as a result, these entities maywill incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating losses.
In December 2017, H.R. 1, informally titledOn March 27, 2020, the Tax CutsPresident signed into law the Coronavirus Aid, Relief, and JobsEconomic Security Act (the “Tax“CARES Act”), became law. As of September 30,. The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-19 pandemic. Included in the CARES Act are tax provisions which increase allowable interest expense deductions for 2019 and 2020 and increase the Tax Act didability for taxpayers to use net operating losses. While we do not haveexpect these provisions to result in a material impact on our REITto the Company’s taxable income or subsidiary entities, our ability totax liabilities, the Company will continue to qualifyanalyze the provisions 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 (“AMT”) credit. Prior to enactment of this provision, the remaining credits would have been refunded in installments in 2020, 2021 and 2022. We received a REIT or onrefund of our results of operations. remaining $1.6 million in AMT credits during the quarter ended September 30, 2020.
Recently Issued Accounting Pronouncements
In June 2016,August 2020, the Financial Accounting Standards Board (“FASB”) issued an amendment to the debt and equity financial instruments standards which simplifies the accounting for convertible instruments and accounting for contracts in an entity’s own equity. Instead of being required to assess whether an equity contract permits settlement in unregistered shares, which may require a legal analysis under the securities laws, entities will only analyze whether cash settlements are explicitly required when registered shares are unavailable. As a result, such contracts may be classified in permanent rather than mezzanine equity, which may affect the way the Company’s OP Units are presented on its financial statements. The update is effective for the Company beginning on January 1, 2022, but early adoption is allowed beginning January 1, 2021. The Company is currently evaluating the impact of adopting the new standard on its consolidated results of operations and financial position.
In March 2020, the FASB issued an amendment to the reference rate reform standard which provides the option for a limited 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 the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. Entities that 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 was effective for the Company upon issuance and elections can be made through December 31, 2022. The Company is currently evaluating its options with regards to existing contracts and hedging relationships and the impact of adopting this update on its consolidated results of operations and financial position.
Recently Adopted Accounting Pronouncements
In April 2020, a FASB staff question and answer document was issued which intended to reduce the challenges of evaluating the enforceable rights and obligations of leases for concessions granted to lessees in response to the COVID-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 majority of the amendments will not require a straight-line adjustment. See Note 8 for additional discussion.
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 requires entities to estimate a lifetime expected credit loss for most financial instruments, including trade receivables. In November 2018, the FASB issued an amendment excluding operating lease receivables accounted for under the leases standard from the scope of the new credit losses standard. The newCompany adopted this standard will beas required 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 standardand it did not have a material effect on its consolidated results of operations and financial position.
Recently Adopted Accounting Pronouncements
InMay2014,theFASBissuedacomprehensiverevenuerecognition standard entitled Revenue from Contracts with Customers that superseded nearly all existing revenue recognition guidance. Thestandardspecificallyexcludesleaserevenue. The 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 selected the modified retrospective transition method as of the date of adoption as required effectiveJanuary1,2018. Approximately 94%ofrental income consistsof revenue from leasing arrangements, which is specifically excluded from the standard. The Company analyzed its remaining revenue streams, inclusive of fee and asset management and gains and losses on sales, and concluded these revenue streams have the same timing and pattern of revenue recognition under the new guidance, and therefore the Company had no changes in revenue recognition with the adoption of the standard. As such, adoption of the standard did not result in a cumulative adjustment recognized as of January 1, 2018, and the standard did not have a material impact on the Company’s consolidated financial position, results of operations, equity/capital or cash flows.
For the remaining approximately 6% of rental income that is subject to the revenue recognition standard, the Company’s disaggregated revenue streams are disclosed in the table included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2018 and are comparable with the percentage of rental income for the nine months and quarter ended September 30, 2019. These revenue streams have the same timing and pattern of revenue recognition across our reportable segments, with consistent allocations between the leasing and revenue recognition standards.
Additionally, as part of the revenue recognition standard, the FASB issued amendments related to partial sales of real estate. Adoption of the partial sales standard did not result in a change of accounting for the Company related to its disposition process. We concluded that the Company’s typical dispositions will continue to meet the criteria for sale and associated profit recognition under both standards.
In February 2016, the FASB issued a leaseslease standard which sets out principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessors and lessees). The standard requires the following:
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|
|
|
|
The Company adopted this standard as required effective January 1, 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 recorded ROU assets and related lease liabilities to its opening balance sheet upon adoption on January 1, 2019 of $434.2 million and $278.3 million, respectively. The Company calculated the net present value of the lease liabilities on January 1, 2019 and reclassed the following amounts from other assets and other liabilities to record our initial ROU assets (amounts in thousands):
|
| January 1, 2019 |
|
| Balance Sheet Reclass: | |
Initial lease liabilities |
| $ | 278,287 |
|
|
|
Reclassifications: |
|
|
|
|
|
|
Prepaid ground leases |
|
| 17,886 |
|
| Other Assets |
Ground lease intangibles – below market, net |
|
| 166,230 |
|
| Other Assets |
Ground lease intangibles – above market, net |
|
| (2,110 | ) |
| Other Liabilities |
Straight-line rent liabilities (1) |
|
| (26,092 | ) |
| Other Liabilities |
Initial right-of-use assets |
| $ | 434,201 |
|
|
|
|
|
The Company elected the practical expedient to not reassess the classification of existing 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.
In July 2018, the FASB issued an amendment to the leases standard, which includes a practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single component under the leases standard. The amendment also provides a transition option that permits the application of the new guidance as of the adoption date rather than to all periods presented. 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 and elected the new transition option as of the date of adoption effective January 1, 2019.standard. See Note 8 for additional discussion regarding the new 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 presented in the same income statement line as the hedged instrument. The Company adopted this standard as required effective January 1, 2019 and it did not have a material effect on its consolidated results of operations orand financial position.
3. | Equity, Capital and OtherInterests |
The Company refers to “Common Shares” and “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 the 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.
|
|
Equity and Redeemable Noncontrolling Interests of Equity Residential
The following tables presenttable presents the changes in the Company’s issued and outstanding Common Shares and “Units” (which includes OP Units and restricted units) for the nine months ended September 30, 20192020 and 2018:2019:
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares outstanding at January 1, |
|
| 369,405,161 |
|
|
| 368,018,082 |
|
|
| 371,670,884 |
|
|
| 369,405,161 |
|
Common Shares Issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of OP Units |
|
| 294,400 |
|
|
| 12,510 |
|
|
| 99,737 |
|
|
| 294,400 |
|
Exercise of share options |
|
| 1,430,048 |
|
|
| 194,796 |
|
|
| 219,922 |
|
|
| 1,430,048 |
|
Employee Share Purchase Plan (ESPP) |
|
| 37,263 |
|
|
| 61,321 |
|
|
| 69,986 |
|
|
| 37,263 |
|
Restricted share grants, net |
|
| 160,460 |
|
|
| 122,877 |
|
|
| 178,720 |
|
|
| 160,460 |
|
Common Shares outstanding at September 30, |
|
| 371,327,332 |
|
|
| 368,409,586 |
|
|
| 372,239,249 |
|
|
| 371,327,332 |
|
Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units outstanding at January 1, |
|
| 13,904,035 |
|
|
| 13,768,438 |
|
|
| 13,731,315 |
|
|
| 13,904,035 |
|
Restricted unit grants, net |
|
| 140,055 |
|
|
| 267,074 |
|
|
| 247,822 |
|
|
| 140,055 |
|
Conversion of OP Units to Common Shares |
|
| (294,400 | ) |
|
| (12,510 | ) |
|
| (99,737 | ) |
|
| (294,400 | ) |
Units outstanding at September 30, |
|
| 13,749,690 |
|
|
| 14,023,002 |
|
|
| 13,879,400 |
|
|
| 13,749,690 |
|
Total Common Shares and Units outstanding at September 30, |
|
| 385,077,022 |
|
|
| 382,432,588 |
|
|
| 386,118,649 |
|
|
| 385,077,022 |
|
Units Ownership Interest in Operating Partnership |
|
| 3.6 | % |
|
| 3.7 | % |
|
| 3.6 | % |
|
| 3.6 | % |
The following table presents the changes in the Operating Partnership’s issued and outstanding General Partner Units and Limited Partner Units for the nine months ended September 30, 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 |
|
| 219,922 |
|
|
| 1,430,048 |
|
EQR’s Employee Share Purchase Plan (ESPP) |
|
| 69,986 |
|
|
| 37,263 |
|
EQR’s restricted share grants, net |
|
| 178,720 |
|
|
| 160,460 |
|
Issued to Limited Partners: |
|
|
|
|
|
|
|
|
Restricted unit grants, net |
|
| 247,822 |
|
|
| 140,055 |
|
General and Limited Partner Units outstanding at September 30, |
|
| 386,118,649 |
|
|
| 385,077,022 |
|
Limited Partner Units |
|
|
|
|
|
|
|
|
Limited Partner Units outstanding at January 1, |
|
| 13,731,315 |
|
|
| 13,904,035 |
|
Limited Partner restricted unit grants, net |
|
| 247,822 |
|
|
| 140,055 |
|
Conversion of Limited Partner OP Units to EQR Common Shares |
|
| (99,737 | ) |
|
| (294,400 | ) |
Limited Partner Units outstanding at September 30, |
|
| 13,879,400 |
|
|
| 13,749,690 |
|
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.
TheNoncontrollingInterests–OperatingPartnershipUnits Partnership/Limited Partners Capital areclassifiedaseithermezzanineequityorpermanentequity. 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 classified in permanent equity at September 30, 20192020 and December 31, 2018.2019.
ThecarryingvalueoftheRedeemableNoncontrollingInterests–OperatingPartnershipisallocatedbasedonthenumber ofRedeemableNoncontrollingInterests–OperatingPartnershipUnitsinproportiontothenumberofNoncontrollingInterests– Operating Partnership UnitsPartnership/Redeemable Limited Partners is allocated based on the number of Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners in proportion to the number of Noncontrolling Interests – Operating Partnership/Limited Partners Capital in total. Such percentage of the total carrying value of Units/Limited Partner Units which is ascribed to the Redeemable NoncontrollingInterests–OperatingPartnership Partnership/Redeemable Limited Partners isthenadjustedtothegreaterofcarryingvalueorfairmarketvalueasdescribed above. As of September 30, 20192020 and 2018,2019, the Redeemable Noncontrolling Interests – Operating PartnershipPartnership/Redeemable Limited Partners have a redemption value of approximately $495.0293.7 million and $381.2$495.0 million, respectively, whichrepresentsthevalueofCommonSharesthatwouldbeissuedinexchangefortheRedeemable NoncontrollingInterests–OperatingPartnershipUnits.
Partnership/Redeemable Limited Partners.
ThefollowingtablepresentsthechangesintheredemptionvalueoftheRedeemableNoncontrollingInterests–Operating PartnershipPartnership/Redeemable Limited Partners for the nine months ended September 30, 20192020 and 20182019 (amounts in thousands):
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Balance at January 1, |
| $ | 379,106 |
|
| $ | 366,955 |
|
| $ | 463,400 |
|
| $ | 379,106 |
|
Change in market value |
|
| 114,936 |
|
|
| 14,361 |
|
|
| (169,825 | ) |
|
| 114,936 |
|
Change in carrying value |
|
| 957 |
|
|
| (77 | ) |
|
| 131 |
|
|
| 957 |
|
Balance at September 30, |
| $ | 494,999 |
|
| $ | 381,239 |
|
| $ | 293,706 |
|
| $ | 494,999 |
|
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.
The Company’s declaration of trust authorizes it to issue up to 100,000,000 preferred shares of beneficial interest, $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.
ThefollowingtablepresentstheCompany’sissuedandoutstandingPreferredShares Shares/Preference Units as of September 30, 20192020 and December 31, 2018:2019:
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|
|
|
|
|
|
| Amounts in thousands |
| |||||
|
|
|
| Annual |
|
|
|
|
|
|
|
|
| |
|
| Call |
| Dividend Per |
|
| September 30, |
|
| December 31, |
| |||
|
| Date (1) |
| Share (2) |
|
| 2019 |
|
| 2018 |
| |||
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 as of September 30, 2019 and December 31, 2018 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
|
| Amounts in thousands |
| |||||
|
|
|
| Annual |
|
|
|
|
|
|
|
|
| |
|
| Call |
| Dividend Per |
|
| September 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 September 30, 2020 and December 31, 2019 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
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, 2019 and 2018:
|
| 2019 |
|
| 2018 |
| ||
General and Limited Partner Units |
|
|
|
|
|
|
|
|
General and Limited Partner Units outstanding at January 1, |
|
| 383,309,196 |
|
|
| 381,786,520 |
|
Issued to General Partner: |
|
|
|
|
|
|
|
|
Exercise of EQR share options |
|
| 1,430,048 |
|
|
| 194,796 |
|
EQR’s Employee Share Purchase Plan (ESPP) |
|
| 37,263 |
|
|
| 61,321 |
|
EQR’s restricted share grants, net |
|
| 160,460 |
|
|
| 122,877 |
|
Issued to Limited Partners: |
|
|
|
|
|
|
|
|
Restricted unit grants, net |
|
| 140,055 |
|
|
| 267,074 |
|
General and Limited Partner Units outstanding at September 30, |
|
| 385,077,022 |
|
|
| 382,432,588 |
|
Limited Partner Units |
|
|
|
|
|
|
|
|
Limited Partner Units outstanding at January 1, |
|
| 13,904,035 |
|
|
| 13,768,438 |
|
Limited Partner restricted unit grants, net |
|
| 140,055 |
|
|
| 267,074 |
|
Conversion of Limited Partner OP Units to EQR Common Shares |
|
| (294,400 | ) |
|
| (12,510 | ) |
Limited Partner Units outstanding at September 30, |
|
| 13,749,690 |
|
|
| 14,023,002 |
|
Limited Partner Units Ownership Interest in Operating Partnership |
|
| 3.6 | % |
|
| 3.7 | % |
The Limited Partners of the Operating Partnership as of September 30, 2019 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, 2019 and December 31, 2018.
The carrying value of the Redeemable Limited Partner Units is allocated based on the number of Redeemable Limited PartnerUnitsinproportiontothenumberofLimitedPartnerUnitsintotal. SuchpercentageofthetotalcarryingvalueofLimited 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, 2019 and 2018, the Redeemable Limited Partner Units have a redemption value of approximately$495.0million and $381.2 million, respectively,whichrepresentsthevalueofCommonSharesthatwouldbeissuedinexchangefortheRedeemable Limited PartnerUnits.
The following table presents the changes in the redemption value of the Redeemable Limited Partners for the nine months ended September 30, 2019 and 2018 (amounts in thousands):
|
| 2019 |
|
| 2018 |
| ||
Balance at January 1, |
| $ | 379,106 |
|
| $ | 366,955 |
|
Change in market value |
|
| 114,936 |
|
|
| 14,361 |
|
Change in carrying value |
|
| 957 |
|
|
| (77 | ) |
Balance at September 30, |
| $ | 494,999 |
|
| $ | 381,239 |
|
EQR contributes all net proceeds from its various equity offerings (including proceeds from exercise of options for CommonShares)toERPOP. Inreturnforthosecontributions,EQRreceivesanumberofOPUnitsinERPOPequaltothenumber ofCommonSharesithasissuedintheequityoffering(orinthecaseofapreferredequityoffering,anumberofpreferenceunits in ERPOP equal in number and having the same terms as the preferred shares issued in the equity offering).
ThefollowingtablepresentstheOperatingPartnership’sissuedandoutstanding“PreferenceUnits”asofSeptember 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
| Amounts in thousands |
| |||||
|
|
|
| Annual |
|
|
|
|
|
|
|
|
| |
|
| Call |
| Dividend Per |
|
| September 30, |
|
| December 31, |
| |||
|
| Date (1) |
| Unit (2) |
|
| 2019 |
|
| 2018 |
| |||
Preference Units: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 745,600 units issued and outstanding as of September 30, 2019 and December 31, 2018 |
| 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 Shares/Preference Units are payable quarterly. |
Other
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 has an At-The-Market (“ATM”) share offering program which allows EQR to sell Common Shares from time to time into the existing trading market at current market prices as wellasthroughnegotiatedtransactions. In June 2019, the Company 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 a forward sale agreement would allow the Company to lock in a price on the sale of Common Shares at the time the agreement is executed, but defer receiving the proceeds from the sale until a 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. NaN open market repurchases have occurred since 2008, and 0 repurchases of any kind have occurred since February 2014. As of September 30, 2019,2020, EQR has remaining authorization to repurchase up to 13.0 million of its shares under the repurchase program.
shares.
4. | Real Estate |
The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of September 30, 20192020 and December 31, 20182019 (amounts in thousands):
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||
Land |
| $ | 5,955,121 |
|
| $ | 5,875,803 |
|
| $ | 5,794,771 |
|
| $ | 5,936,188 |
|
Depreciable property: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and improvements |
|
| 18,796,370 |
|
|
| 18,232,625 |
|
|
| 18,626,029 |
|
|
| 18,904,686 |
|
Furniture, fixtures and equipment |
|
| 1,875,121 |
|
|
| 1,722,231 |
|
|
| 1,962,223 |
|
|
| 1,916,458 |
|
In-Place lease intangibles |
|
| 496,764 |
|
|
| 481,045 |
|
|
| 487,970 |
|
|
| 497,957 |
|
Projects under development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
| 23,531 |
|
|
| 25,429 |
|
|
| 23,531 |
|
|
| 23,531 |
|
Construction-in-progress |
|
| 119,903 |
|
|
| 83,980 |
|
|
| 314,165 |
|
|
| 158,099 |
|
Land held for development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
| 64,660 |
|
|
| 61,038 |
|
|
| 64,490 |
|
|
| 64,460 |
|
Construction-in-progress |
|
| 26,357 |
|
|
| 28,871 |
|
|
| 39,410 |
|
|
| 32,228 |
|
Investment in real estate |
|
| 27,357,827 |
|
|
| 26,511,022 |
|
|
| 27,312,589 |
|
|
| 27,533,607 |
|
Accumulated depreciation |
|
| (7,171,876 | ) |
|
| (6,696,281 | ) |
|
| (7,738,318 | ) |
|
| (7,276,786 | ) |
Investment in real estate, net |
| $ | 20,185,951 |
|
| $ | 19,814,741 |
|
| $ | 19,574,271 |
|
| $ | 20,256,821 |
|
During the nine months ended September 30, 2019,2020, the Company acquired the following from unaffiliated parties (purchase price in thousands):
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
| ||||||
Rental Properties – Consolidated (1) |
|
| 10 |
|
|
| 2,728 |
|
| $ | 1,124,580 |
|
|
| 1 |
|
|
| 158 |
|
| $ | 48,860 |
|
Land Parcels (three) (2) |
|
| — |
|
|
| — |
|
|
| 19,832 |
| ||||||||||||
Total |
|
| 10 |
|
|
| 2,728 |
|
| $ | 1,144,412 |
|
|
| 1 |
|
|
| 158 |
|
| $ | 48,860 |
|
(1) | Purchase price includes an allocation of approximately |
During the nine months ended September 30, 2019,2020, the Company disposed of the following to unaffiliated parties (sales price in thousands):
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
| |||
Rental Properties – Consolidated |
|
| 9 |
|
|
| 1,202 |
|
| $ | 706,675 |
|
Rental Properties – Unconsolidated (1) |
|
| 2 |
|
|
| 945 |
|
|
| 394,500 |
|
Land Parcels (one) |
|
| — |
|
|
| — |
|
|
| 1,900 |
|
Total |
|
| 11 |
|
|
| 2,147 |
|
| $ | 1,103,075 |
|
|
|
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
| |||
Rental Properties – Consolidated |
|
| 5 |
|
|
| 1,552 |
|
| $ | 754,361 |
|
Total |
|
| 5 |
|
|
| 1,552 |
|
| $ | 754,361 |
|
The Company recognized a net gain on sales of real estate properties of approximately $269.4 million, a net gain on sales of unconsolidated entities of approximately $69.5 million and a net gain on sales of land parcels of approximately $2.1$352.2 million on the above sales.
5. | Commitments to Acquire/Dispose of Real Estate |
The Company has not entered into any agreements to acquire rental properties or land parcels as of the date of filing.
The Company has entered into separate agreements to dispose of the following (sales price and net book value in thousands):
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
| |||
Rental Properties – Consolidated |
|
| 1 |
|
|
| 939 |
|
| $ | 254,000 |
|
Land Parcels (three) |
|
| — |
|
|
| — |
|
|
| 55,350 |
|
Total |
|
| 1 |
|
|
| 939 |
|
| $ | 309,350 |
|
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
|
| Net Book Value |
| ||||
Land Parcels (two) |
|
| — |
|
|
| — |
|
| $ | 55,710 |
|
| $ | 19,475 |
|
Total |
|
| — |
|
|
| — |
|
| $ | 55,710 |
|
| $ | 19,475 |
|
The closing of pending transactions is subject to certain conditions and restrictions; therefore, there can be no assurance that the transactions will be consummated or that the final terms will not differ in material respects from any agreements summarized above. See Note 14 for discussion of the properties acquired or disposed of, if any, subsequent to September 30, 2019.
2020.
6. | Investments in Partially Owned Entities |
The Company has co-investedinvested in various properties with unrelated third parties which are either consolidated or accounted for under the equity method of accounting (unconsolidated).
Consolidated Variable Interest Entities (“VIEs”)
In accordance with accounting standards for consolidation of VIEs, the Company consolidates ERPOP on EQR’s financial statements. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’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’s primary beneficiary. EQR has the power to direct the activities of ERPOP that most significantly impact ERPOP’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.
The Company has various equity interests in certain joint ventures owning 1716 properties containing 3,5353,399 apartment units. The Company is the general partner or managing member of these joint ventures and is responsible for managing the operations and affairs of the joint ventures as well as making all decisions regarding the businesses of the joint ventures. The limited partners or non-managing members are not able to exercise substantive kick-out or participating rights. As a result, the joint ventures qualify as VIEs. The Company has 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 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 joint ventures are required to be consolidated on the Company’s financial statements.
During the nine months ended September 30, 2019, theThe Company also has entered into atwo separate consolidated joint ventureventures which is owned 90% by the Company and 10% by itseach own land parcels that are being/will be developed into multifamily rental properties. These joint venture partner, who is the general partner and developer. The joint venture hasventures have been deemed to be a VIEVIEs and isare consolidated due to the Company being the primary beneficiary. The joint venture owns a land parcel which it is currently developing into a multifamily rental property.
The consolidated assets and liabilities related to the VIEs discussed above were approximately $711.5$764.2 million and $325.5$210.2 million, respectively, at September 30, 20192020 and approximately $713.6$754.7 million and $313.9$323.1 million, respectively, at December 31, 2018.2019.
Investments in Unconsolidated Entities
The following table and information summarizes the Company’s investments in unconsolidated entities, which are accounted for under the equity method of accounting as the requirements for consolidation are not met, as of September 30, 2020 and December 31, 2019 (amounts in thousands except for ownership percentage):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| Ownership Percentage |
| |||
Investments in Unconsolidated Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Property (VIE) (1) |
| $ | 38,820 |
|
| $ | 40,361 |
|
| 33.3% |
| |
Real Estate Technology (2) |
|
| 16,246 |
|
|
| 12,318 |
|
| Varies |
| |
Other |
|
| (238 | ) |
|
| (441 | ) |
| Varies |
| |
Investments in Unconsolidated Entities | $ | 54,828 | $ | 52,238 |
(1) | 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 |
(2) | Represents unconsolidated investments in |
7. | Restricted Deposits |
The following table presents the Company’s restricted deposits as of September 30, 2020 and December 31, 2019 (amounts in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Mortgage escrow deposits: |
|
|
|
|
|
|
|
|
Replacement reserves |
| $ | 9,558 |
|
| $ | 8,543 |
|
Mortgage principal reserves/sinking funds |
|
| 13,013 |
|
|
| 9,689 |
|
Mortgage escrow deposits |
|
| 22,571 |
|
|
| 18,232 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
Tax-deferred (1031) exchange proceeds |
|
| — |
|
|
| 14,232 |
|
Restricted deposits on real estate investments |
|
| 722 |
|
|
| 658 |
|
Resident security and utility deposits |
|
| 32,215 |
|
|
| 37,140 |
|
Other |
|
| 1,373 |
|
|
| 984 |
|
Restricted cash |
|
| 34,310 |
|
|
| 53,014 |
|
Restricted deposits |
| $ | 56,881 |
|
| $ | 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 nine months ended September 30, 2020, approximately 98% 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 nine months ended September 30, 2020, approximately 2% 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 lease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the nine months ended September 30, 2020 and 2019 (amounts in thousands):
|
| Nine Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2019 |
| ||||||||||||||||||
Income Type |
| Residential Leases |
|
| Non-Residential Leases |
|
| Total |
|
| Residential Leases |
|
| Non-Residential Leases |
|
| Total |
| ||||||
Residential and non-residential rent |
| $ | 1,783,298 |
|
| $ | 36,263 |
|
| $ | 1,819,561 |
|
| $ | 1,801,749 |
|
| $ | 54,616 |
|
| $ | 1,856,365 |
|
Utility recoveries (RUBS income) (1) |
|
| 52,538 |
|
|
| 509 |
|
|
| 53,047 |
|
|
| 50,290 |
|
|
| 650 |
|
|
| 50,940 |
|
Parking rent |
|
| 29,052 |
|
|
| 324 |
|
|
| 29,376 |
|
|
| 27,874 |
|
|
| 259 |
|
|
| 28,133 |
|
Storage rent |
|
| 2,814 |
|
|
| 60 |
|
|
| 2,874 |
|
|
| 2,796 |
|
|
| 51 |
|
|
| 2,847 |
|
Pet rent |
|
| 8,583 |
|
|
| — |
|
|
| 8,583 |
|
|
| 8,714 |
|
|
| — |
|
|
| 8,714 |
|
Total lease revenue |
| $ | 1,876,285 |
|
| $ | 37,156 |
|
|
| 1,913,441 |
|
| $ | 1,891,423 |
|
| $ | 55,576 |
|
|
| 1,946,999 |
|
Total other rental income (2) |
|
|
|
|
|
|
|
|
|
| 44,829 |
|
|
|
|
|
|
|
|
|
|
| 69,797 |
|
Rental income |
|
|
|
|
|
|
|
|
| $ | 1,958,270 |
|
|
|
|
|
|
|
|
|
| $ | 2,016,796 |
|
(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 |
The following table presents the lease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the quarters ended September 30, 2020 and 2019 (amounts in thousands):
|
| Quarter Ended September 30, 2020 |
|
| Quarter Ended September 30, 2019 |
| ||||||||||||||||||
Income Type |
| Residential Leases |
|
| Non-Residential Leases |
|
| Total |
|
| Residential Leases |
|
| Non-Residential Leases |
|
| Total |
| ||||||
Residential and non-residential rent |
| $ | 576,192 |
|
| $ | 6,042 |
|
| $ | 582,234 |
|
| $ | 611,020 |
|
| $ | 18,453 |
|
| $ | 629,473 |
|
Utility recoveries (RUBS income) (1) |
|
| 17,306 |
|
|
| 134 |
|
|
| 17,440 |
|
|
| 16,987 |
|
|
| 238 |
|
|
| 17,225 |
|
Parking rent |
|
| 9,592 |
|
|
| 101 |
|
|
| 9,693 |
|
|
| 9,405 |
|
|
| 100 |
|
|
| 9,505 |
|
Storage rent |
|
| 901 |
|
|
| 20 |
|
|
| 921 |
|
|
| 940 |
|
|
| 19 |
|
|
| 959 |
|
Pet rent |
|
| 2,843 |
|
|
| — |
|
|
| 2,843 |
|
|
| 2,916 |
|
|
| — |
|
|
| 2,916 |
|
Total lease revenue |
| $ | 606,834 |
|
| $ | 6,297 |
|
|
| 613,131 |
|
| $ | 641,268 |
|
| $ | 18,810 |
|
|
| 660,078 |
|
Total other rental income (2) |
|
|
|
|
|
|
|
|
|
| 9,302 |
|
|
|
|
|
|
|
|
|
|
| 25,042 |
|
Rental income |
|
|
|
|
|
|
|
|
| $ | 622,433 |
|
|
|
|
|
|
|
|
|
| $ | 685,120 |
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| Ownership Percentage |
| |||
Investments in Unconsolidated Entities: |
|
|
|
|
|
|
|
|
|
|
|
Wisconsin Place Developer (VIE) (1) | $ | 40,896 |
|
| $ | 42,365 |
|
| 33.3% |
| |
Operating Properties (Non-VIE) (2) |
| — |
|
|
| 10,494 |
|
| 20.0% |
| |
Real Estate Technology/Other |
| 11,578 |
|
|
| 5,490 |
|
| Varies |
| |
Investments in Unconsolidated Entities | $ | 52,474 |
|
| $ | 58,349 |
|
|
|
|
|
(1)
The economic impact of the pandemic on a subset of our residents and tenants has led to elevated levels of bad debt. We continue to work with our residents and tenants on payment plans and collections and our bad debt allowance policies remain consistent. The following table presents residential and non-residential accounts receivable and straight-line receivable balances for the Company’s properties as of September 30, 2020 and December 31, 2019 (amounts in thousands):
The following table presents residential bad debt for the Company’s properties for the nine months ended September 30, 2020 and 2019 |
|
|
The following table presents the Company’s restricted deposits as of September 30, 2019 and December 31, 2018 (amounts in thousands):
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Mortgage escrow deposits: |
|
|
|
|
|
|
|
|
Real estate taxes and insurance |
| $ | — |
|
| $ | 876 |
|
Replacement reserves |
|
| 8,523 |
|
|
| 8,641 |
|
Mortgage principal reserves/sinking funds |
|
| 8,758 |
|
|
| 9,754 |
|
Other |
|
| — |
|
|
| 852 |
|
Mortgage escrow deposits |
|
| 17,281 |
|
|
| 20,123 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
Earnest money on pending acquisitions |
|
| — |
|
|
| 5,000 |
|
Restricted deposits on real estate investments |
|
| 665 |
|
|
| 540 |
|
Resident security and utility deposits |
|
| 36,888 |
|
|
| 35,659 |
|
Other |
|
| 985 |
|
|
| 7,549 |
|
Restricted cash |
|
| 38,538 |
|
|
| 48,748 |
|
Restricted deposits |
| $ | 55,819 |
|
| $ | 68,871 |
|
|
|
Lessor Accounting
The Company is the lessor for its residential and retail leases (including commercial leases) and these leases will continue to be accounted for as operating leases under the new standard as described in Note 2. Therefore, the Company did not have significant changes in the accounting for its lease revenues.
For the nine months ended September 30, 2019, approximately 97.1% of the Company’s total lease revenue is generated from residential apartment leases that are generally for twelve months or less in length. The residential apartment leases may include lease income related to such items as 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 nine months ended September 30, 2019, approximately 2.9% of the Company’s total lease revenue is generated by retail leases that are generally for terms ranging between 5-10 years. The retail leases generally consist of ground floor retail spaces and master-leased parking garages that serve as additional amenities for our residents. The retail leases may include lease income related to such items as parking 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. Retail leases are renewable with market-based renewal options.
The Company elected the practical expedient to account for both its lease and non-lease components (specifically common area maintenance charges) as a single lease component under the leases standard.
Nine Months Ended September 30, Income Statement (Rental income): 2020 2019 Bad debt, net $ 29,419 $ 9,021 % of rental income 1.5 % 0.5 %The following table presents the lease income types relating to lease payments for residential and retail leases for the nine months and quarter ended September 30, 2019 (amounts in thousands):
Due to the impact of COVID-19 and the resulting economic impact on our non-residential tenants, we recognized a non-cash write-off of non-residential straight-line lease receivables of $12.9 million during the nine months ended September 30, 2020.In addition, we also reduced rental revenues by $5.6 million during the nine months ended September 30, 2020 as a result of rent payment deferrals/abatements granted to our non-residential tenants.
9. | Debt |
EQRdoesnothaveanyindebtednessasalldebtisincurredbytheOperatingPartnership. Weighted average interest rates noted below for the nine months ended September 30, 2020 include the effect of any derivative instruments and amortization of premiums/discounts/OCI (other comprehensive income) on debt and derivatives.
|
| Nine Months Ended September 30, 2019 |
|
| Quarter Ended September 30, 2019 |
| ||||||||||||||||||
Lease Income Type |
| Residential Leases |
|
| Retail Leases |
|
| Total |
|
| Residential Leases |
|
| Retail Leases |
|
| Total |
| ||||||
Residential and retail rent |
| $ | 1,801,749 |
|
| $ | 54,616 |
|
| $ | 1,856,365 |
|
| $ | 611,020 |
|
| $ | 18,453 |
|
| $ | 629,473 |
|
Parking rent |
|
| 27,874 |
|
|
| 259 |
|
|
| 28,133 |
|
|
| 9,405 |
|
|
| 100 |
|
|
| 9,505 |
|
Storage rent |
|
| 2,796 |
|
|
| 51 |
|
|
| 2,847 |
|
|
| 940 |
|
|
| 20 |
|
|
| 960 |
|
Pet rent |
|
| 8,714 |
|
|
| — |
|
|
| 8,714 |
|
|
| 2,916 |
|
|
| — |
|
|
| 2,916 |
|
Total lease revenue (1) |
| $ | 1,841,133 |
|
| $ | 54,926 |
|
| $ | 1,896,059 |
|
| $ | 624,281 |
|
| $ | 18,573 |
|
| $ | 642,854 |
|
|
|
Lessee Accounting
The Company is the lessee under various corporate office and ground leases for which the Company recognized ROU assets and related lease liabilities effective January 1, 2019. The following table presents the Company’s ROU assets and related lease liabilities as of September 30, 2019 (amounts in thousands):
|
| 2019 |
| |
Right-of-use assets: |
|
|
|
|
Corporate office leases |
| $ | 43,739 |
|
Ground leases (finance) |
|
| 23,201 |
|
Ground leases (operating) |
|
| 414,104 |
|
Right-of-use assets |
| $ | 481,044 |
|
Lease liabilities: |
|
|
|
|
Corporate office leases |
| $ | 45,237 |
|
Ground leases (finance) |
|
| 23,210 |
|
Ground leases (operating) |
|
| 264,865 |
|
Lease liabilities |
| $ | 333,312 |
|
As the standard requires the recognition of a liability for the lease obligation, discount rates are used to determine the net present value of the lease payments. The discount rate for the lease is the rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. As the Company does not know the amount of the lessors’ initial direct costs, it cannot readily determine the rate implicit in the lease and instead must apply the incremental borrowing rate. The Company has estimated the discount rate ranges of 3.3% to 3.9% for corporate office leases and 4.4% to 5.5% for ground leases at adoption. Since the Company’s credit backs the corporate office lease obligations and the lease terms are generally ten years or less, the discount rate range was estimated by using the Company’s borrowing rates for actual pricing data. The discount rate range for ground leases takes into account various factors, including the longer life of the ground leases, and was estimated by using the Company’s borrowing rates for actual pricing data through 30 years and other long-term market rates.
Corporate office leases
The Company leases 9 corporate offices with remaining lease terms of one to 23 years (inclusive of applicable extension options). The Company’s corporate office leases continue to be accounted for as operating leases under the new standard. During the quarter ended September 30, 2019, the Company modified 2 office leases that continue to be classified as operating leases and recorded an additional lease liability and ROU asset at initial remeasurement of approximately $29.1 million.
The Company leases its corporate headquarters from an entity affiliated with EQR’s Chairman of the Board of Trustees. The lease term expires on November 30, 2032 and contains 2 five-year extension options. The amount incurred for such office space for the nine months and quarter ended September 30, 2019 was approximately $2.0 million and $0.7 million, respectively. The Company believes this amount approximates market rates for such rental space.
Ground leases
The Company maintains long-term ground leases for 14 operating properties and one project under development with lease expiration dates ranging from 2042 through 2113 (inclusive of applicable purchase options). The Company owns the building and improvements. Based on its election of the package of practical expedients, the Company was not required to reassess the classification of existing ground leases and therefore the 14 operating property leases continue to be accounted for as operating leases. During the quarter ended September 30, 2019, the Company entered into a new ground lease for a project under development that is being accounted for as a finance lease and recorded an initial lease liability and ROU asset of approximately $23.2 million.
Additional disclosures
The following table illustrates the quantitative disclosures for lessees as of and for the nine months and quarter ended September 30, 2019 (amounts in thousands):
|
| Nine Months Ended September 30, 2019 |
|
| Quarter Ended September 30, 2019 |
| ||
Lease cost: |
|
|
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| $ | — |
|
| $ | — |
|
Interest on lease liabilities (capitalized) |
|
| 55 |
|
|
| 55 |
|
Operating lease cost: |
|
|
|
|
|
|
|
|
Corporate office leases |
|
| 2,753 |
|
|
| 935 |
|
Ground leases |
|
| 16,650 |
|
|
| 5,550 |
|
Short-term lease cost: |
|
|
|
|
|
|
|
|
Corporate office leases |
|
| 168 |
|
|
| 56 |
|
Ground leases |
|
| — |
|
|
| — |
|
Variable lease cost: |
|
|
|
|
|
|
|
|
Corporate office leases |
|
| 1,130 |
|
|
| 361 |
|
Ground leases |
|
| 2,575 |
|
|
| 880 |
|
Total lease cost |
| $ | 23,331 |
|
| $ | 7,837 |
|
The following table illustrates the quantitative disclosures for lessees as of and for the nine months ended September 30, 2019 (amounts in thousands):
|
| September 30, 2019 |
| |
Other information: |
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Investing cash flows from finance leases (capitalized) |
| $ | 47 |
|
Operating cash flows from operating leases: |
|
|
|
|
Corporate office leases |
| $ | 4,128 |
|
Ground leases |
| $ | 12,035 |
|
ROU assets obtained in exchange for new finance lease liabilities |
| $ | 23,201 |
|
ROU assets obtained in exchange for new operating lease liabilities: |
|
|
|
|
Corporate office leases |
| $ | 45,791 |
|
Ground leases |
| $ | 422,018 |
|
Weighted-average remaining lease term – finance leases |
| 19.9 years |
| |
Weighted-average remaining lease term – operating leases: |
|
|
|
|
Corporate office leases |
| 19.2 years |
| |
Ground leases |
| 56.4 years |
| |
Weighted-average discount rate – finance leases |
|
| 3.0 | % |
Weighted-average discount rate – operating leases: |
|
|
|
|
Corporate office leases |
|
| 3.2 | % |
Ground leases |
|
| 5.0 | % |
The following table summarizes the Company’s undiscounted cash flows for contractual obligations for minimum rent payments/receipts under operating and financing leases for the next five years and thereafter as of September 30, 2019:
(Payments)/Receipts Due by Year (in thousands) |
| |||||||||||||||||||||||||||||||
|
| Remaining 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
|
| Total |
| ||||||||
Finance Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Rent Payments (a) |
| $ | (141 | ) |
| $ | (567 | ) |
| $ | (578 | ) |
| $ | (590 | ) |
| $ | (601 | ) |
| $ | (614 | ) |
| $ | (33,850 | ) |
| $ | (36,941 | ) |
Operating Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Rent Payments (a) |
| $ | (4,175 | ) |
| $ | (16,840 | ) |
| $ | (16,862 | ) |
| $ | (16,602 | ) |
| $ | (16,687 | ) |
| $ | (17,014 | ) |
| $ | (977,238 | ) |
| $ | (1,065,418 | ) |
Minimum Rent Receipts (b) |
| $ | 16,194 |
|
| $ | 63,409 |
|
| $ | 60,140 |
|
| $ | 56,624 |
|
| $ | 49,150 |
|
| $ | 41,950 |
|
| $ | 149,208 |
|
| $ | 436,675 |
|
|
|
|
|
The following table provides a reconciliation of lease liabilities from our undiscounted cash flows for minimum rent payments as of September 30, 2019 (amounts in thousands):
|
| 2019 |
| |
Total minimum rent payments |
| $ | 1,102,359 |
|
Less: Lease discount |
|
| 769,047 |
|
Lease liabilities |
| $ | 333,312 |
|
|
|
EQRdoesnothaveanyindebtednessasalldebtisincurredbytheOperatingPartnership. EQRguaranteestheOperating Partnership’srevolvingcreditfacilityuptothemaximumamountandforthefulltermofthefacility. Weighted average interest rates noted below for the nine months ended September 30, 2019 include the effect of any derivative instruments and amortization of premiums/discounts/OCI (other comprehensive income) on debt and derivatives.
Mortgage Notes Payable
As of September 30, 2019,The following table summarizes the Company had outstandingCompany’s mortgage debt of approximately $2.0 billion.
Duringnotes payable activity for the nine months ended September 30, 2019, the Company: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 September 30, 2020 |
| |||||||
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
| $ | 1,574,699 |
|
| $ | 495,000 |
| (2) | $ | (127,767 | ) |
| $ | (5,821 | ) |
| $ | 858 |
|
| $ | (1,683 | ) |
| $ | 1,935,286 |
|
Floating Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
|
| 7,050 |
|
|
| 10,375 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 180 |
|
|
| 17,605 |
|
Secured – Tax Exempt |
|
| 359,861 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 933 |
|
|
| 148 |
|
|
| 360,942 |
|
Floating Rate Debt |
|
| 366,911 |
|
|
| 10,375 |
|
|
| — |
|
|
| — |
|
|
| 933 |
|
|
| 328 |
|
|
| 378,547 |
|
Total |
| $ | 1,941,610 |
|
| $ | 505,375 |
|
| $ | (127,767 | ) |
| $ | (5,821 | ) |
| $ | 1,791 |
|
| $ | (1,355 | ) |
| $ | 2,313,833 |
|
|
|
| Obtained |
|
|
|
|
|
|
|
|
|
|
The Companyfollowing table summarizes the Company’s debt extinguishment costs on mortgages recorded $2.3 million of write-offs of unamortized deferred financing costsas additional interest expense during the nine months ended September 30, 20192020 (amounts in thousands):
Description |
| Amount |
| |
Write-offs of unamortized deferred financing costs |
| $ | 37 |
|
The following table summarizes certain interest rate and maturity date information as additional interest expense related to debt extinguishment of mortgages. The Company also recorded $6.2 million of write-offs of net unamortized discounts duringand for the nine months ended September 30, 2019 as additional interest expense related to debt extinguishment of mortgages.2020:
September 30, 2020 | |||
Interest Rate Ranges | 0.10% - 4.88% | ||
Weighted Average Interest Rate | 3.39% | ||
Maturity Date Ranges | 2021-2061 |
As of September 30, 2019,2020, the Company had $301.7$281.7 million of secured debt (primarily tax-exempt bonds) subject to third party credit enhancement.
AsofSeptember 30, 2019,scheduledmaturitiesfortheCompany’soutstandingmortgageindebtednesswereatvariousdates through May 28, 2061. At September 30, 2019, the interest rate range on the Company’s mortgage debt was 0.10% to 5.29%. During the nine months ended September 30, 2019, the weighted average interest rate on the Company’s mortgage debt was 3.90%.
Notes
As of September 30, 2019,The following table summarizes the Company had outstanding unsecuredCompany’s notes of approximately $6.7 billion.
Duringactivity for the nine months ended September 30, 2019, the Company:2020 (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 September 30, 2020 |
| ||||||
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured – Public |
| $ | 6,077,513 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,043 |
|
| $ | 3,341 |
|
| $ | 6,082,897 |
|
|
|
|
|
|
|
Asof September 30, 2019,scheduledmaturitiesfortheCompany’soutstandingnoteswereatvariousdatesthroughAugust 1, 2047. At September 30, 2019, the
The following table summarizes certain interest rate range on the Company’s notes was 2.50% to 7.57%. Duringand maturity date information as of and for the nine months ended September 30, 2019, the weighted average interest rate on the Company’s notes was 4.26%.2020:
September 30, 2020 | |||
Interest Rate Ranges | 2.50% - 7.57% | ||
Weighted Average Interest Rate | 4.04% | ||
Maturity Date Ranges | 2021-2047 |
The Company’s unsecured public debt containsnotes contain certain financial and operating covenants including, among other things, maintenance of certain financial ratios. The Company was in compliance with its unsecured public debt covenants for the nine months ended September 30, 2019.2020.
Line of Credit and Commercial Paper
TheOn November 1, 2019, the Company hasreplaced its existing $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 0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit rating. During the nine months ended September 30, 2019, the The weighted average interest rate on the revolving credit facility was 3.14%.1.47% for the nine months ended September 30, 2020.
The Company has an unsecuredcommercialpapernoteprogramintheUnitedStates. TheOn November 4, 2019, the Company may borrow up to aincreased 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 otherunsecuredseniorindebtedness. Thenotesbearinterest at various floating rates with a weighted average interest rate of 2.61%1.81% for the nine months ended September 30, 2019 and a weighted average maturity of 28 days as of September 30, 2019.2020. The weighted average amount outstanding for the nine months ended September 30, 20192020 was approximately $384.7$347.2 million.
TheThe Company limits its utilization of the revolving credit facility in order to maintain liquidity to support its $500.0 million$1.0 billion commercial paper program along with certain other obligations. The following table presents the availability on the Company’s unsecured revolving credit facility as of September 30, 20192020 (amounts in thousands):
|
| September 30, 2019 |
|
| September 30, 2020 |
| ||
Unsecured revolving credit facility commitment |
| $ | 2,000,000 |
|
| $ | 2,500,000 |
|
Commercial paper balance outstanding |
|
| (355,000 | ) |
|
| — |
|
Unsecured revolving credit facility balance outstanding |
|
| — |
|
|
| — |
|
Other restricted amounts |
|
| (100,929 | ) |
|
| (100,949 | ) |
Unsecured revolving credit facility availability |
| $ | 1,544,071 |
|
| $ | 2,399,051 |
|
Other
In 2017, the Company executed a letter of credit facility with a third party financial institution which is not backed or collateralized by borrowings on the Company’s unsecured revolving credit facility. As of September 30, 2019, there was $9.0 million in letters of credit outstanding on this facility.
10. | Derivative and Other Fair Value Instruments |
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.
A three-level valuation hierarchy exists for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization 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 as follows:
| • | 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 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The Company’s derivative positions are valued using models developed by the respective counterparty as well as models applied internally by the Company that use as their inputs 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 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 and line of credit, if applicable) and quoted market prices for each underlying issuance in the case of the public unsecured notes.
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. The following table provides a summary of the carrying and fair values for the Company’s mortgage notes payable and unsecured debt (including its commercial paper and line of credit, if applicable) at September 30, 20192020 and December 31, 2018,2019, respectively (amounts in thousands):
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
| ||||||||
Mortgage notes payable, net |
| $ | 1,962,471 |
|
| $ | 1,961,120 |
|
| $ | 2,385,470 |
|
| $ | 2,352,502 |
|
| $ | 2,313,833 |
|
| $ | 2,346,248 |
|
| $ | 1,941,610 |
|
| $ | 1,930,710 |
|
Unsecured debt, net |
|
| 7,029,465 |
|
|
| 7,599,742 |
|
|
| 6,432,469 |
|
|
| 6,481,426 |
|
|
| 6,082,897 |
|
|
| 6,990,690 |
|
|
| 7,095,346 |
|
|
| 7,677,289 |
|
Total debt, net |
| $ | 8,991,936 |
|
| $ | 9,560,862 |
|
| $ | 8,817,939 |
|
| $ | 8,833,928 |
|
| $ | 8,396,730 |
|
| $ | 9,336,938 |
|
| $ | 9,036,956 |
|
| $ | 9,607,999 |
|
The following tables provide a summary of the fair value measurements for each major category of assets and liabilities measured at fair value on a recurring basis and the location within the accompanying consolidated balance sheets at September 30, 20192020 and December 31, 2018,2019, respectively (amounts in thousands):
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| ||||||||||||||||||
Description |
| Balance Sheet Location |
| 9/30/2019 |
|
| 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 |
| 9/30/2020 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan |
| Other Assets |
| $ | 146,542 |
|
| $ | 146,542 |
|
| $ | — |
|
| $ | — |
|
| Other Assets |
| $ | 146,679 |
|
| $ | 146,679 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan |
| Other Liabilities |
| $ | 146,542 |
|
| $ | 146,542 |
|
| $ | — |
|
| $ | — |
|
| Other Liabilities |
| $ | 146,679 |
|
| $ | 146,679 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership/Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
| Mezzanine |
| $ | 494,999 |
|
| $ | — |
|
| $ | 494,999 |
|
| $ | — |
|
| Mezzanine |
| $ | 293,706 |
|
| $ | 0 |
|
| $ | 293,706 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| |||||||||
Description |
| Balance Sheet Location |
| 12/31/2018 |
|
| 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Starting Swaps |
| Other Assets |
| $ | 2,000 |
|
| $ | — |
|
| $ | 2,000 |
|
| $ | — |
|
Supplemental Executive Retirement Plan |
| Other Assets |
|
| 134,088 |
|
|
| 134,088 |
|
|
| — |
|
|
| — |
|
Total |
|
|
| $ | 136,088 |
|
| $ | 134,088 |
|
| $ | 2,000 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedges |
| Other Liabilities |
| $ | 2,277 |
|
| $ | — |
|
| $ | 2,277 |
|
| $ | — |
|
Forward Starting Swaps |
| Other Liabilities |
|
| 9,851 |
|
|
| — |
|
|
| 9,851 |
|
|
| — |
|
Supplemental Executive Retirement Plan |
| Other Liabilities |
|
| 134,088 |
|
|
| 134,088 |
|
|
| — |
|
|
| — |
|
Total |
|
|
| $ | 146,216 |
|
| $ | 134,088 |
|
| $ | 12,128 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership/Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
| Mezzanine |
| $ | 379,106 |
|
| $ | — |
|
| $ | 379,106 |
|
| $ | — |
|
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| |||||||||
Description |
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan |
| Other Assets |
| $ | 151,889 |
|
| $ | 151,889 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan |
| Other Liabilities |
| $ | 151,889 |
|
| $ | 151,889 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership/Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
| Mezzanine |
| $ | 463,400 |
|
| $ | 0 |
|
| $ | 463,400 |
|
| $ | 0 |
|
The following tables provide a summary of the effect of fair value hedges on the Company’s accompanying consolidated statements of operations and comprehensive income for the nine months ended September 30, 20192020 and 2018,2019, respectively (amounts in thousands):
September 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, 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 |
| $ | 2,277 |
|
| Fixed rate debt |
| Interest expense |
| $ | (2,277 | ) |
Total |
|
|
| $ | 2,277 |
|
|
|
|
|
| $ | (2,277 | ) |
September 30, 2018 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 |
| $ | (1,491 | ) |
| Fixed rate debt |
| Interest expense |
| $ | 1,491 |
|
Total |
|
|
| $ | (1,491 | ) |
|
|
|
|
| $ | 1,491 |
|
The following tables provide a summary of the effect of cash flow hedges on the Company’s accompanying consolidated statements of operations and comprehensive income for the nine months ended September 30, 20192020 and 2018,2019, respectively (amounts in thousands):
|
| Effective Portion |
|
| Effective Portion |
| ||||||||||||||
September 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 |
| ||||||||||||
September 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 |
| $ | (33,765 | ) |
| Interest expense |
| $ | (14,659 | ) |
| $ | (1,190 | ) |
| Interest expense |
| $ | (17,275 | ) |
Total |
| $ | (33,765 | ) |
|
|
| $ | (14,659 | ) |
| $ | (1,190 | ) |
|
|
| $ | (17,275 | ) |
|
| Effective Portion |
|
| Ineffective Portion |
|
| Effective Portion |
| |||||||||||||||||
September 30, 2018 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 |
| |||||||||||||
September 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 |
| $ | 24,021 |
|
| Interest expense |
| $ | (13,902 | ) |
| N/A |
| $ | — |
|
| $ | (33,765 | ) |
| Interest expense |
| $ | (14,659 | ) |
Total |
| $ | 24,021 |
|
|
|
| $ | (13,902 | ) |
|
|
| $ | — |
|
| $ | (33,765 | ) |
|
|
| $ | (14,659 | ) |
As of September 30, 20192020 and December 31, 2018,2019, there were approximately $84.161.5 million and $65.077.6 million in deferred losses, net, included in accumulated other comprehensive income (loss), respectively, related to derivative instruments, of which an estimated $25.6$24.3 million may be recognized as additional interest expense during the twelve months ending September 30, 2020.2021.
In June 2019,April 2020, the Company paid approximately $41.8$1.2 million to settle 102 forward starting swaps in conjunction with the issuance of $600.0$495.0 million of ten-year unsecured public secured conventional mortgage notes. The accrued interest of approximately $0.2entire $1.2 million was recorded as an increase to interest expense. The remaining $41.6 million will beinitially deferred as a component of accumulated other comprehensive income (loss) and will be recognized as an increase to interest expense over the first ninefive years and eleven months of the mortgage notes.
In July 2019, 6 fair value interest rate swaps matured in conjunction with the maturity of the $450.0 million of 2.375% unsecured notes.
11. | Earnings Per Share and Earnings Per Unit |
Equity Residential
The following tables set forth the computation of net income per share – basic and net income per share – diluted for the Company (amounts in thousands except per share amounts):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Numerator for net income per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 708,402 |
|
| $ | 562,804 |
|
| $ | 277,846 |
|
| $ | 223,846 |
|
| $ | 699,517 |
|
| $ | 708,402 |
|
| $ | 95,365 |
|
| $ | 277,846 |
|
Allocation to Noncontrolling Interests – Operating Partnership |
|
| (25,339 | ) |
|
| (20,517 | ) |
|
| (9,910 | ) |
|
| (8,159 | ) |
|
| (24,624 | ) |
|
| (25,339 | ) |
|
| (3,376 | ) |
|
| (9,910 | ) |
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,450 | ) |
|
| (1,939 | ) |
|
| (830 | ) |
|
| (750 | ) |
|
| (14,113 | ) |
|
| (2,450 | ) |
|
| (703 | ) |
|
| (830 | ) |
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
Numerator for net income per share – basic |
| $ | 678,295 |
|
| $ | 538,030 |
|
| $ | 266,333 |
|
| $ | 214,164 |
|
| $ | 658,462 |
|
| $ | 678,295 |
|
| $ | 90,513 |
|
| $ | 266,333 |
|
Numerator for net income per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 708,402 |
|
| $ | 562,804 |
|
| $ | 277,846 |
|
| $ | 223,846 |
|
| $ | 699,517 |
|
| $ | 708,402 |
|
| $ | 95,365 |
|
| $ | 277,846 |
|
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,450 | ) |
|
| (1,939 | ) |
|
| (830 | ) |
|
| (750 | ) |
|
| (14,113 | ) |
|
| (2,450 | ) |
|
| (703 | ) |
|
| (830 | ) |
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
Numerator for net income per share – diluted |
| $ | 703,634 |
|
| $ | 558,547 |
|
| $ | 276,243 |
|
| $ | 222,323 |
|
| $ | 683,086 |
|
| $ | 703,634 |
|
| $ | 93,889 |
|
| $ | 276,243 |
|
Denominator for net income per share – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income per share – basic |
|
| 370,227 |
|
|
| 367,920 |
|
|
| 370,768 |
|
|
| 368,028 |
|
|
| 371,749 |
|
|
| 370,227 |
|
|
| 371,869 |
|
|
| 370,768 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP Units |
|
| 12,915 |
|
|
| 12,871 |
|
|
| 12,941 |
|
|
| 12,884 |
|
|
| 13,010 |
|
|
| 12,915 |
|
|
| 13,002 |
|
|
| 12,941 |
|
Long-term compensation shares/units |
|
| 3,035 |
|
|
| 2,642 |
|
|
| 3,187 |
|
|
| 2,972 |
|
|
| 1,214 |
|
|
| 3,035 |
|
|
| 781 |
|
|
| 3,187 |
|
Denominator for net income per share – diluted |
|
| 386,177 |
|
|
| 383,433 |
|
|
| 386,896 |
|
|
| 383,884 |
|
|
| 385,973 |
|
|
| 386,177 |
|
|
| 385,652 |
|
|
| 386,896 |
|
Net income per share – basic |
| $ | 1.83 |
|
| $ | 1.46 |
|
| $ | 0.72 |
|
| $ | 0.58 |
|
| $ | 1.77 |
|
| $ | 1.83 |
|
| $ | 0.24 |
|
| $ | 0.72 |
|
Net income per share – diluted |
| $ | 1.82 |
|
| $ | 1.46 |
|
| $ | 0.71 |
|
| $ | 0.58 |
|
| $ | 1.77 |
|
| $ | 1.82 |
|
| $ | 0.24 |
|
| $ | 0.71 |
|
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, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Numerator for net income per Unit – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 708,402 |
|
| $ | 562,804 |
|
| $ | 277,846 |
|
| $ | 223,846 |
|
| $ | 699,517 |
|
| $ | 708,402 |
|
| $ | 95,365 |
|
| $ | 277,846 |
|
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,450 | ) |
|
| (1,939 | ) |
|
| (830 | ) |
|
| (750 | ) |
|
| (14,113 | ) |
|
| (2,450 | ) |
|
| (703 | ) |
|
| (830 | ) |
Allocation to Preference Units |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
Numerator for net income per Unit – basic and diluted |
| $ | 703,634 |
|
| $ | 558,547 |
|
| $ | 276,243 |
|
| $ | 222,323 |
|
| $ | 683,086 |
|
| $ | 703,634 |
|
| $ | 93,889 |
|
| $ | 276,243 |
|
Denominator for net income per Unit – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income per Unit – basic |
|
| 383,142 |
|
|
| 380,791 |
|
|
| 383,709 |
|
|
| 380,912 |
|
|
| 384,759 |
|
|
| 383,142 |
|
|
| 384,871 |
|
|
| 383,709 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution for Units issuable upon assumed exercise/vesting of the Company’s long-term compensation shares/units |
|
| 3,035 |
|
|
| 2,642 |
|
|
| 3,187 |
|
|
| 2,972 |
|
|
| 1,214 |
|
|
| 3,035 |
|
|
| 781 |
|
|
| 3,187 |
|
Denominator for net income per Unit – diluted |
|
| 386,177 |
|
|
| 383,433 |
|
|
| 386,896 |
|
|
| 383,884 |
|
|
| 385,973 |
|
|
| 386,177 |
|
|
| 385,652 |
|
|
| 386,896 |
|
Net income per Unit – basic |
| $ | 1.83 |
|
| $ | 1.46 |
|
| $ | 0.72 |
|
| $ | 0.58 |
|
| $ | 1.77 |
|
| $ | 1.83 |
|
| $ | 0.24 |
|
| $ | 0.72 |
|
Net income per Unit – diluted |
| $ | 1.82 |
|
| $ | 1.46 |
|
| $ | 0.71 |
|
| $ | 0.58 |
|
| $ | 1.77 |
|
| $ | 1.82 |
|
| $ | 0.24 |
|
| $ | 0.71 |
|
12. | Commitments and Contingencies |
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.
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.
As of September 30, 2019,2020, the Company has 2 wholly owned projects and 1 partially owned project totaling 824 apartment units in various stages of development with remaining commitments to fund of approximately $459.4$265.1 million (inclusive of applicable construction mortgage and joint venture partner obligations) and estimated completion dates ranging through September 30, 2021, as well as other2021. The Company completed developmentand stabilized 2 projects that are in various stages of lease-up or are stabilized.during the nine months ended September 30, 2020.
As of September 30, 2019,2020, the Company has a2 joint venture agreementagreements with a third party partnerpartners for the consolidated development of a multifamily rental property.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.above for the one joint venture project where construction has started. The joint venture agreementagreements withthis each partner includes include a buy-sellprovisionthatprovides 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 agreement.agreements. See Note 6 for additional discussion.
13. | Reportable Segments |
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 chief operating decision maker. The chief operating decision maker decides how resources are allocated and assesses performance on a recurring basis at least quarterly.
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’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 accounts for approximately 2% 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 urban and high-density suburban communities represent its reportable segments (the recently acquired Denver properties owned by the Company are currently included in non-same store). The Company’s operating segments located in its other markets (Phoenix) that are not material have also been included in the tables presented below. segments.
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” category in the tables presented below.
All revenues are from external customers and there is 0 customer who contributed 10% or more of the Company’s total revenues during the nine months and quarters ended September 30, 20192020 and 2018,2019, respectively.
The primary financial measure for the Company’s rental real estate segment is net operating income (“NOI”), which represents rental income less: 1) property and maintenance expense and 2) real estate taxes and insurance expense (all as reflected in the accompanying consolidated statements of operations and comprehensive income). 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. Revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
The following table presents a reconciliation of NOI from our rental real estate for the nine months and quarters ended September 30, 20192020 and 2018,2019, respectively (amounts in thousands):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Rental income |
| $ | 2,016,796 |
|
| $ | 1,925,128 |
|
| $ | 685,120 |
|
| $ | 652,677 |
|
Property and maintenance expense |
|
| (338,497 | ) |
|
| (322,487 | ) |
|
| (114,966 | ) |
|
| (110,541 | ) |
Real estate taxes and insurance expense |
|
| (270,434 | ) |
|
| (268,784 | ) |
|
| (87,546 | ) |
|
| (87,388 | ) |
Total operating expenses |
|
| (608,931 | ) |
|
| (591,271 | ) |
|
| (202,512 | ) |
|
| (197,929 | ) |
Net operating income |
| $ | 1,407,865 |
|
| $ | 1,333,857 |
|
| $ | 482,608 |
|
| $ | 454,748 |
|
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Rental income |
| $ | 1,958,270 |
|
| $ | 2,016,796 |
|
| $ | 622,433 |
|
| $ | 685,120 |
|
Property and maintenance expense |
|
| (333,333 | ) |
|
| (338,497 | ) |
|
| (113,065 | ) |
|
| (114,966 | ) |
Real estate taxes and insurance expense |
|
| (288,043 | ) |
|
| (270,434 | ) |
|
| (95,273 | ) |
|
| (87,546 | ) |
Total operating expenses |
|
| (621,376 | ) |
|
| (608,931 | ) |
|
| (208,338 | ) |
|
| (202,512 | ) |
Net operating income |
| $ | 1,336,894 |
|
| $ | 1,407,865 |
|
| $ | 414,095 |
|
| $ | 482,608 |
|
The following tables present NOI for each segment from our rental real estate for the nine months and quarters ended September 30, 2020 and 2019, respectively, as well as total assets and 2018,respectively,aswellastotalassetsandcapitalexpendituresatSeptember30, 2019(amounts2020 (amounts inthousands):
|
| Nine Months Ended September 30, 2019 |
|
| Nine Months Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2020 |
|
| Nine Months Ended September 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 |
| $ | 350,841 |
|
| $ | 102,851 |
|
| $ | 247,990 |
|
| $ | 337,047 |
|
| $ | 96,431 |
|
| $ | 240,616 |
|
| $ | 355,122 |
|
| $ | 108,953 |
|
| $ | 246,169 |
|
| $ | 363,258 |
|
| $ | 108,606 |
|
| $ | 254,652 |
|
Orange County |
|
| 78,522 |
|
|
| 18,583 |
|
|
| 59,939 |
|
|
| 75,595 |
|
|
| 18,434 |
|
|
| 57,161 |
|
|
| 79,241 |
|
|
| 18,702 |
|
|
| 60,539 |
|
|
| 78,522 |
|
|
| 18,493 |
|
|
| 60,029 |
|
San Diego |
|
| 71,088 |
|
|
| 18,532 |
|
|
| 52,556 |
|
|
| 68,640 |
|
|
| 17,988 |
|
|
| 50,652 |
|
|
| 71,430 |
|
|
| 18,776 |
|
|
| 52,654 |
|
|
| 71,088 |
|
|
| 18,595 |
|
|
| 52,493 |
|
Subtotal - Southern California |
|
| 500,451 |
|
|
| 139,966 |
|
|
| 360,485 |
|
|
| 481,282 |
|
|
| 132,853 |
|
|
| 348,429 |
|
|
| 505,793 |
|
|
| 146,431 |
|
|
| 359,362 |
|
|
| 512,868 |
|
|
| 145,694 |
|
|
| 367,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 359,867 |
|
|
| 87,104 |
|
|
| 272,763 |
|
|
| 346,485 |
|
|
| 84,581 |
|
|
| 261,904 |
|
|
| 346,766 |
|
|
| 89,557 |
|
|
| 257,209 |
|
|
| 354,142 |
|
|
| 87,117 |
|
|
| 267,025 |
|
Washington D.C. |
|
| 330,944 |
|
|
| 101,969 |
|
|
| 228,975 |
|
|
| 323,549 |
|
|
| 100,575 |
|
|
| 222,974 |
|
|
| 294,029 |
|
|
| 90,974 |
|
|
| 203,055 |
|
|
| 295,107 |
|
|
| 90,124 |
|
|
| 204,983 |
|
New York |
|
| 340,828 |
|
|
| 142,047 |
|
|
| 198,781 |
|
|
| 332,474 |
|
|
| 133,001 |
|
|
| 199,473 |
|
|
| 325,920 |
|
|
| 148,306 |
|
|
| 177,614 |
|
|
| 348,190 |
|
|
| 144,197 |
|
|
| 203,993 |
|
Seattle |
|
| 186,030 |
|
|
| 54,125 |
|
|
| 131,905 |
|
|
| 188,093 |
|
|
| 51,884 |
|
|
| 136,209 |
| ||||||||||||||||||||||||
Boston |
|
| 169,576 |
|
|
| 46,645 |
|
|
| 122,931 |
|
|
| 163,292 |
|
|
| 45,473 |
|
|
| 117,819 |
|
|
| 182,502 |
|
|
| 53,603 |
|
|
| 128,899 |
|
|
| 188,710 |
|
|
| 53,478 |
|
|
| 135,232 |
|
Seattle |
|
| 154,453 |
|
|
| 41,517 |
|
|
| 112,936 |
|
|
| 150,103 |
|
|
| 42,084 |
|
|
| 108,019 |
| ||||||||||||||||||||||||
Other Markets |
|
| 1,560 |
|
|
| 545 |
|
|
| 1,015 |
|
|
| 1,453 |
|
|
| 503 |
|
|
| 950 |
| ||||||||||||||||||||||||
Denver |
|
| 13,343 |
|
|
| 3,711 |
|
|
| 9,632 |
|
|
| 13,710 |
|
|
| 3,576 |
|
|
| 10,134 |
| ||||||||||||||||||||||||
Total same store |
|
| 1,857,679 |
|
|
| 559,793 |
|
|
| 1,297,886 |
|
|
| 1,798,638 |
|
|
| 539,070 |
|
|
| 1,259,568 |
|
|
| 1,854,383 |
|
|
| 586,707 |
|
|
| 1,267,676 |
|
|
| 1,900,820 |
|
|
| 576,070 |
|
|
| 1,324,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 136,353 |
|
|
| 43,801 |
|
|
| 92,552 |
|
|
| 69,334 |
|
|
| 25,322 |
|
|
| 44,012 |
|
|
| 87,404 |
|
|
| 27,122 |
|
|
| 60,282 |
|
|
| 33,683 |
|
|
| 10,351 |
|
|
| 23,332 |
|
Other (3) |
|
| 22,764 |
|
|
| 5,337 |
|
|
| 17,427 |
|
|
| 57,156 |
|
|
| 26,879 |
|
|
| 30,277 |
|
|
| 16,483 |
|
|
| 7,547 |
|
|
| 8,936 |
|
|
| 82,293 |
|
|
| 22,510 |
|
|
| 59,783 |
|
Total non-same store/other |
|
| 159,117 |
|
|
| 49,138 |
|
|
| 109,979 |
|
|
| 126,490 |
|
|
| 52,201 |
|
|
| 74,289 |
|
|
| 103,887 |
|
|
| 34,669 |
|
|
| 69,218 |
|
|
| 115,976 |
|
|
| 32,861 |
|
|
| 83,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 2,016,796 |
|
| $ | 608,931 |
|
| $ | 1,407,865 |
|
| $ | 1,925,128 |
|
| $ | 591,271 |
|
| $ | 1,333,857 |
|
| $ | 1,958,270 |
|
| $ | 621,376 |
|
| $ | 1,336,894 |
|
| $ | 2,016,796 |
|
| $ | 608,931 |
|
| $ | 1,407,865 |
|
(1) | For the nine months ended September 30, |
(2) | For the nine months ended September 30, |
(3) | Other includes development, other corporate operations and operations prior to disposition for properties sold. |
|
| Quarter Ended September 30, 2020 |
|
| Quarter Ended September 30, 2019 |
| ||||||||||||||||||
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
| ||||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 115,208 |
|
| $ | 37,023 |
|
| $ | 78,185 |
|
| $ | 122,506 |
|
| $ | 36,461 |
|
| $ | 86,045 |
|
Orange County |
|
| 26,229 |
|
|
| 6,535 |
|
|
| 19,694 |
|
|
| 26,635 |
|
|
| 6,351 |
|
|
| 20,284 |
|
San Diego |
|
| 23,581 |
|
|
| 6,358 |
|
|
| 17,223 |
|
|
| 24,064 |
|
|
| 6,468 |
|
|
| 17,596 |
|
Subtotal - Southern California |
|
| 165,018 |
|
|
| 49,916 |
|
|
| 115,102 |
|
|
| 173,205 |
|
|
| 49,280 |
|
|
| 123,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 113,246 |
|
|
| 31,349 |
|
|
| 81,897 |
|
|
| 122,706 |
|
|
| 30,453 |
|
|
| 92,253 |
|
Washington D.C. |
|
| 99,569 |
|
|
| 32,253 |
|
|
| 67,316 |
|
|
| 101,771 |
|
|
| 31,347 |
|
|
| 70,424 |
|
New York |
|
| 100,076 |
|
|
| 50,179 |
|
|
| 49,897 |
|
|
| 118,803 |
|
|
| 48,614 |
|
|
| 70,189 |
|
Seattle |
|
| 60,216 |
|
|
| 19,073 |
|
|
| 41,143 |
|
|
| 65,370 |
|
|
| 17,569 |
|
|
| 47,801 |
|
Boston |
|
| 58,830 |
|
|
| 18,461 |
|
|
| 40,369 |
|
|
| 64,039 |
|
|
| 17,840 |
|
|
| 46,199 |
|
Denver |
|
| 6,142 |
|
|
| 1,927 |
|
|
| 4,215 |
|
|
| 6,436 |
|
|
| 1,760 |
|
|
| 4,676 |
|
Total same store |
|
| 603,097 |
|
|
| 203,158 |
|
|
| 399,939 |
|
|
| 652,330 |
|
|
| 196,863 |
|
|
| 455,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 19,236 |
|
|
| 6,136 |
|
|
| 13,100 |
|
|
| 9,538 |
|
|
| 2,856 |
|
|
| 6,682 |
|
Other (3) |
|
| 100 |
|
|
| (956 | ) |
|
| 1,056 |
|
|
| 23,252 |
|
|
| 2,793 |
|
|
| 20,459 |
|
Total non-same store/other |
|
| 19,336 |
|
|
| 5,180 |
|
|
| 14,156 |
|
|
| 32,790 |
|
|
| 5,649 |
|
|
| 27,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 622,433 |
|
| $ | 208,338 |
|
| $ | 414,095 |
|
| $ | 685,120 |
|
| $ | 202,512 |
|
| $ | 482,608 |
|
(1) | For the quarters ended September 30, 2020 and 2019, same store primarily includes all properties acquired or completed that were stabilized prior to July 1, 2019, less properties subsequently sold, which represented 75,596 apartmentunits. |
(2) | For the quarters ended September 30, 2020 and 2019, non-same store primarily includes properties acquired after July 1, 2019, plus any properties in lease-up and not stabilized as of July 1,2019. |
(3) | Other includes development, other corporate operations and operations prior to disposition for properties sold. |
|
| Quarter Ended September 30, 2019 |
|
| Quarter Ended September 30, 2018 |
| ||||||||||||||||||
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
| ||||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 122,506 |
|
| $ | 36,666 |
|
| $ | 85,840 |
|
| $ | 118,864 |
|
| $ | 34,683 |
|
| $ | 84,181 |
|
Orange County |
|
| 26,636 |
|
|
| 6,382 |
|
|
| 20,254 |
|
|
| 25,599 |
|
|
| 6,203 |
|
|
| 19,396 |
|
San Diego |
|
| 24,064 |
|
|
| 6,447 |
|
|
| 17,617 |
|
|
| 23,215 |
|
|
| 6,234 |
|
|
| 16,981 |
|
Subtotal - Southern California |
|
| 173,206 |
|
|
| 49,495 |
|
|
| 123,711 |
|
|
| 167,678 |
|
|
| 47,120 |
|
|
| 120,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 127,104 |
|
|
| 31,438 |
|
|
| 95,666 |
|
|
| 122,075 |
|
|
| 30,420 |
|
|
| 91,655 |
|
Washington D.C. |
|
| 111,712 |
|
|
| 34,797 |
|
|
| 76,915 |
|
|
| 108,979 |
|
|
| 34,549 |
|
|
| 74,430 |
|
New York |
|
| 117,382 |
|
|
| 48,293 |
|
|
| 69,089 |
|
|
| 114,407 |
|
|
| 45,143 |
|
|
| 69,264 |
|
Boston |
|
| 59,354 |
|
|
| 16,243 |
|
|
| 43,111 |
|
|
| 56,724 |
|
|
| 16,124 |
|
|
| 40,600 |
|
Seattle |
|
| 60,434 |
|
|
| 16,086 |
|
|
| 44,348 |
|
|
| 58,107 |
|
|
| 16,062 |
|
|
| 42,045 |
|
Other Markets |
|
| 520 |
|
|
| 168 |
|
|
| 352 |
|
|
| 484 |
|
|
| 164 |
|
|
| 320 |
|
Total same store |
|
| 649,712 |
|
|
| 196,520 |
|
|
| 453,192 |
|
|
| 628,454 |
|
|
| 189,582 |
|
|
| 438,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 32,171 |
|
|
| 9,676 |
|
|
| 22,495 |
|
|
| 8,160 |
|
|
| 2,785 |
|
|
| 5,375 |
|
Other (3) |
|
| 3,237 |
|
|
| (3,684 | ) |
|
| 6,921 |
|
|
| 16,063 |
|
|
| 5,562 |
|
|
| 10,501 |
|
Total non-same store/other |
|
| 35,408 |
|
|
| 5,992 |
|
|
| 29,416 |
|
|
| 24,223 |
|
|
| 8,347 |
|
|
| 15,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 685,120 |
|
| $ | 202,512 |
|
| $ | 482,608 |
|
| $ | 652,677 |
|
| $ | 197,929 |
|
| $ | 454,748 |
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2019 |
|
| Nine Months Ended September 30, 2020 |
| ||||||||||
|
| Total Assets |
|
| Capital Expenditures |
|
| Total Assets |
|
| Capital Expenditures |
| ||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 3,002,609 |
|
| $ | 23,301 |
|
| $ | 3,034,765 |
|
| $ | 17,008 |
|
Orange County |
|
| 409,559 |
|
|
| 7,460 |
|
|
| 392,632 |
|
|
| 5,056 |
|
San Diego |
|
| 394,352 |
|
|
| 3,161 |
|
|
| 377,663 |
|
|
| 2,834 |
|
Subtotal - Southern California |
|
| 3,806,520 |
|
|
| 33,922 |
|
|
| 3,805,060 |
|
|
| 24,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 3,267,869 |
|
|
| 19,422 |
|
|
| 3,259,452 |
|
|
| 11,789 |
|
Washington D.C. |
|
| 3,600,267 |
|
|
| 16,517 |
|
|
| 3,092,477 |
|
|
| 15,890 |
|
New York |
|
| 3,915,125 |
|
|
| 17,532 |
|
|
| 3,948,417 |
|
|
| 16,571 |
|
Seattle |
|
| 1,818,213 |
|
|
| 7,010 |
| ||||||||
Boston |
|
| 1,479,159 |
|
|
| 18,191 |
|
|
| 1,774,255 |
|
|
| 13,137 |
|
Seattle |
|
| 1,304,042 |
|
|
| 14,162 |
| ||||||||
Other Markets |
|
| 12,867 |
|
|
| 165 |
| ||||||||
Denver |
|
| 249,306 |
|
|
| 512 |
| ||||||||
Total same store |
|
| 17,385,849 |
|
|
| 119,911 |
|
|
| 17,947,180 |
|
|
| 89,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 3,109,994 |
|
|
| 7,757 |
|
|
| 1,679,594 |
|
|
| 1,811 |
|
Other (3) |
|
| 558,213 |
|
|
| 667 |
|
|
| 997,204 |
|
|
| 505 |
|
Total non-same store/other |
|
| 3,668,207 |
|
|
| 8,424 |
|
|
| 2,676,798 |
|
|
| 2,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 21,054,056 |
|
| $ | 128,335 |
|
| $ | 20,623,978 |
|
| $ | 92,123 |
|
(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 properties sold. |
14. | Subsequent Events |
Subsequent toThere have been no material subsequent events occurring since September 30, 2019, the Company:2020.
|
|
|
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’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. 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
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’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.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 impact on resident housing preferences especially for urban apartment living, 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,discussed in Part I of the following:Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019, particularly those under Item 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.
Due 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.
Overview
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 apartmentresidential properties located in urban and high-density suburban communities where today’s renters want to live, work and play.around dynamic cities that attract high quality long-term renters. ERP Operating Limited Partnership (“ERPOP”) was formed to conductis focused on conducting the multifamily residential property business of EQR. EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 and ERPOP is an Illinois limited partnership formed in May 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 September 30, 20192020 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 markets. As of September 30, 2019,2020, 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-K and any amendments to any of those reports we file with the SECSecurities and Exchange Commission (“SEC”) free of charge on our website, www.equityapartments.com. These reports are made available on 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’s Annual Report on Form 10-K for the year ended December 31, 2018.2019, 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
General 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 have had and could continue to have a future significant impact on the Company. Its duration, severity and the extent of the adverse health impact on the general population, our residents and employees, and the potential changes in customer preferences for living in our communities, are among the many unknowns. These, among other items, have impacted 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.
We have been supporting our residents and employees during the COVID-19 pandemic by:
• | 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; |
• | Successfully implementing changes to the physical layout of our properties and remaining focused on further enhancing our existing commitment to health and safety during the pandemic; |
• | Continuing 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; |
• | Continuing to support our corporate and regional employees by allowing them to work remotely during the pandemic; and |
• | Offering an extensive outreach process for residents financially impacted by the pandemic and creating payment plans to assist them, among other resident support efforts. |
Operational Impact
Operating results in the third quarter were challenging and widely varied. Our suburban portfolio continues to fare relatively well with occupancy similar to last year, rates down more modestly and recovery under way in some markets. Our portfolio located in the urban cores of New York, San Francisco and Boston, however, continue to struggle with pandemic-related reductions in economic activity, which have led to declines in occupancy, lower resident renewal levels and a related drop in rental rates. While we have seen recent improvements in renewals and application volume, pricing pressures continue and headwinds remain. We anticipate that our financial results will weaken over subsequent quarters as the full effect of the pandemic is felt on our business. Looking longer term, we expect that positive developments relating to the pandemic will eventually re-energize the urban centers which have persevered and thrived through many decades and in similarly challenging circumstances. We continue to see the urban locations in our markets as centers of our country’s knowledge industries and expect them to again attract disproportionate numbers of affluent renters once the pandemic ends.
During the nine months ended September 30, 2020, the Company also:
• | Collected approximately 97% of its expected Residential revenues in both the second and third quarters of 2020; and |
• | Reduced its total debt by over $600.0 million during 2020 using proceeds from property dispositions. |
Results of Operations
20192020 Transactions
In conjunction with our business objectives and operating strategy,and investing strategies, the Company continued to invest in apartment properties located primarily in our urban and high-density suburban communities and sell apartment properties that we believe will have inferior long-term returns. The following table provides a rollforward of the transactions that occurred during the nine months ended September 30, 2019:2020:
Portfolio Rollforward
($ in thousands)
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
|
| Acquisition Cap Rate |
| ||||
12/31/2018 |
|
| 307 |
|
|
| 79,482 |
|
|
|
|
|
|
|
|
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Properties |
|
| 8 |
|
|
| 2,142 |
|
| $ | 922,080 |
|
|
| 4.6 | % |
Rental Properties – Not Stabilized (1) |
|
| 2 |
|
|
| 586 |
|
| $ | 202,500 |
|
|
| 4.8 | % |
Land Parcels |
|
| — |
|
|
| — |
|
| $ | 19,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales Price |
|
| Disposition Yield |
| ||
Dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Properties |
|
| (9 | ) |
|
| (1,202 | ) |
| $ | (706,675 | ) |
|
| (4.5 | )% |
Land Parcels |
|
| — |
|
|
| — |
|
| $ | (1,900 | ) |
|
|
|
|
Unconsolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Properties (2) |
|
| (2 | ) |
|
| (945 | ) |
| $ | (394,500 | ) |
|
| (4.7 | )% |
Completed Developments – Consolidated |
|
| 2 |
|
|
| 221 |
|
|
|
|
|
|
|
|
|
Configuration Changes |
|
| — |
|
|
| 15 |
|
|
|
|
|
|
|
|
|
9/30/2019 |
|
| 308 |
|
|
| 80,299 |
|
|
|
|
|
|
|
|
|
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
|
| Acquisition Cap Rate |
| ||||
12/31/2019 |
|
| 309 |
|
|
| 79,962 |
|
|
|
|
|
|
|
|
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Rental Properties – Not Stabilized (1) |
|
| 1 |
|
|
| 158 |
|
| $ | 48,860 |
|
|
| 4.7 | % |
|
|
|
|
|
|
|
|
|
| Sales Price |
|
| Disposition Yield |
| ||
Dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Rental Properties |
|
| (5 | ) |
|
| (1,552 | ) |
| $ | (754,361 | ) |
|
| (4.7 | )% |
9/30/2020 |
|
| 305 |
|
|
| 78,568 |
|
|
|
|
|
|
|
|
|
(1) | The Company acquired |
|
|
The consolidated propertiesproperty acquired werewas located in the New York, Seattle Washington D.C., San Francisco, Los Angeles and Denver markets.market. The consolidated properties disposed of were located in the New York, Washington D.C., San Francisco and Boston markets. The consolidated properties development completions were located in the Boston and Seattle markets. Finally,the Company started construction on two consolidated projects, located in thePhoenix, San Francisco and Washington D.C. markets consistingand the sales generated an Unlevered IRR of 354 apartment units totaling approximately $193.1 million of expected development costs.10.8%. See the Definitions section below for the definition of Acquisition Cap Rate, Development Yield, Disposition Yield and Unlevered IRR. See also Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.
We currently budget spending approximately $220.0 million on development costs during the year ending December 31, 2020, of which approximately $157.8 million was spent during the nine months ended September 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 all of our development projects continues with no material delays after some construction disruptions due to COVID-19.
Same Store Results
Properties that the Company owned and were stabilized (see definition below) for all of both of the nine months ended September 30, 20192020 and 20182019 (the “Nine-Month 20192020 Same Store Properties”), which represented 72,979 apartment units, and properties that the Company owned and were stabilized for all of both of the quarters ended September 30, 2019 and 2018 (the “Third Quarter 2019 Same Store Properties”), which represented 75,29074,264 apartment units, impacted the Company’s results of operations. Both theThe Nine-Month 2019 Same Store Properties and the Third Quarter 20192020 Same Store Properties are discussed in the following paragraphs.
The Company’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 nine months and quarter ended September 30, 2019:2020:
| Nine Months Ended |
|
| Quarter Ended |
| ||||||||||
| September 30, 2019 |
|
| September 30, 2019 |
| ||||||||||
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||
Same Store Properties at Beginning of Period |
| 281 |
|
|
| 71,721 |
|
|
| 291 |
|
|
| 74,236 |
|
2017 acquisitions |
| 2 |
|
|
| 437 |
|
|
| — |
|
|
| — |
|
2018 acquisitions |
| — |
|
|
| — |
|
|
| 1 |
|
|
| 240 |
|
2019 dispositions |
| (9 | ) |
|
| (1,202 | ) |
|
| (7 | ) |
|
| (641 | ) |
Properties added back to same store (1) |
| 2 |
|
|
| 356 |
|
|
| — |
|
|
| — |
|
Lease-up properties stabilized |
| 5 |
|
|
| 1,652 |
|
|
| 3 |
|
|
| 1,444 |
|
Other |
| — |
|
|
| 15 |
|
|
| — |
|
|
| 11 |
|
Same Store Properties at September 30, 2019 |
| 281 |
|
|
| 72,979 |
|
|
| 288 |
|
|
| 75,290 |
|
|
| Nine Months Ended September 30, 2020 |
| |||||
|
| Properties |
|
| Apartment Units |
| ||
Same Store Properties at December 31, 2019 |
|
| 279 |
|
|
| 71,830 |
|
2017 acquisitions |
|
| 2 |
|
|
| 510 |
|
2018 acquisitions |
|
| 5 |
|
|
| 1,461 |
|
2020 dispositions |
|
| (5 | ) |
|
| (1,552 | ) |
Lease-up properties stabilized |
|
| 5 |
|
|
| 2,015 |
|
Same Store Properties at September 30, 2020 |
|
| 286 |
|
|
| 74,264 |
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
| Quarter Ended |
| ||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2019 |
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||||
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||||
Same Store |
|
| 281 |
|
|
| 72,979 |
|
|
| 288 |
|
|
| 75,290 |
|
|
| 286 |
|
|
| 74,264 |
|
Non-Same Store: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 acquisitions |
|
| 1 |
|
|
| 158 |
| ||||||||||||||||
2019 acquisitions |
|
| 10 |
|
|
| 2,728 |
|
|
| 10 |
|
|
| 2,728 |
|
|
| 13 |
|
|
| 3,540 |
|
2018 acquisitions |
|
| 5 |
|
|
| 1,461 |
|
|
| 3 |
|
|
| 1,104 |
| ||||||||
2017 acquisitions – not stabilized |
|
| 2 |
|
|
| 510 |
|
|
| — |
|
|
| — |
| ||||||||
Master-Leased properties (2) |
|
| 1 |
|
|
| 162 |
|
|
| 1 |
|
|
| 162 |
| ||||||||
Lease-up properties not yet stabilized (3) |
|
| 8 |
|
|
| 2,458 |
|
|
| 5 |
|
|
| 1,014 |
| ||||||||
Master-Leased properties (1) |
|
| 1 |
|
|
| 162 |
| ||||||||||||||||
Lease-up properties not yet stabilized (2) |
|
| 3 |
|
|
| 443 |
| ||||||||||||||||
Other |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Total Non-Same Store |
|
| 27 |
|
|
| 7,320 |
|
|
| 20 |
|
|
| 5,009 |
|
|
| 19 |
|
|
| 4,304 |
|
Total Properties and Apartment Units |
|
| 308 |
|
|
| 80,299 |
|
|
| 308 |
|
|
| 80,299 |
|
|
| 305 |
|
|
| 78,568 |
|
Note: Properties are considered “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 162 apartment units that is wholly owned by the Company where the entire project is master-leased to a third party corporate housing provider. |
| 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. |
The following table provides comparative same store results and statistics for the Nine-Month 2019 Same Store Properties:
September YTD 2019 vs. September YTD 2018
Same Store Results/Statistics for 72,979 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 2019 |
| $ | 1,857,679 |
|
| $ | 559,793 |
|
| $ | 1,297,886 |
|
| $ | 2,823 |
|
|
| 96.5 | % |
|
| 38.9 | % |
YTD 2018 |
| $ | 1,798,638 |
|
| $ | 539,070 |
|
| $ | 1,259,568 |
|
| $ | 2,743 |
|
|
| 96.2 | % |
|
| 40.7 | % |
Change |
| $ | 59,041 |
|
| $ | 20,723 |
|
| $ | 38,318 |
|
| $ | 80 |
|
|
| 0.3 | % |
|
| (1.8 | %) |
Change |
|
| 3.3 | % |
|
| 3.8 | % |
|
| 3.0 | % |
|
| 2.9 | % |
|
|
|
|
|
|
|
|
Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
|
|
|
|
|
|
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 results (amounts in thousands):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Operating income |
| $ | 947,592 |
|
| $ | 896,088 |
|
| $ | 368,363 |
|
| $ | 339,403 |
|
| $ | 961,384 |
|
| $ | 947,232 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee and asset management revenue |
|
| (360 | ) |
|
| (563 | ) |
|
| (25 | ) |
|
| (190 | ) | ||||||||
Property management |
|
| 72,705 |
|
|
| 69,175 |
|
|
| 21,940 |
|
|
| 22,247 |
|
|
| 71,513 |
|
|
| 72,705 |
|
General and administrative |
|
| 41,127 |
|
|
| 41,420 |
|
|
| 11,417 |
|
|
| 12,640 |
|
|
| 37,212 |
|
|
| 41,127 |
|
Depreciation |
|
| 616,201 |
|
|
| 583,869 |
|
|
| 211,478 |
|
|
| 194,618 |
|
|
| 619,003 |
|
|
| 616,201 |
|
Net (gain) loss on sales of real estate properties |
|
| (269,400 | ) |
|
| (256,834 | ) |
|
| (130,565 | ) |
|
| (114,672 | ) |
|
| (352,218 | ) |
|
| (269,400 | ) |
Impairment |
|
| — |
|
|
| 702 |
|
|
| — |
|
|
| 702 |
| ||||||||
Total NOI |
| $ | 1,407,865 |
|
| $ | 1,333,857 |
|
| $ | 482,608 |
|
| $ | 454,748 |
|
| $ | 1,336,894 |
|
| $ | 1,407,865 |
|
Rental income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store |
| $ | 1,857,679 |
|
| $ | 1,798,638 |
|
| $ | 649,712 |
|
| $ | 628,454 |
|
| $ | 1,854,383 |
|
| $ | 1,900,820 |
|
Non-same store/other |
|
| 159,117 |
|
|
| 126,490 |
|
|
| 35,408 |
|
|
| 24,223 |
|
|
| 103,887 |
|
|
| 115,976 |
|
Total rental income |
|
| 2,016,796 |
|
|
| 1,925,128 |
|
|
| 685,120 |
|
|
| 652,677 |
|
|
| 1,958,270 |
|
|
| 2,016,796 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store |
|
| 559,793 |
|
|
| 539,070 |
|
|
| 196,520 |
|
|
| 189,582 |
|
|
| 586,707 |
|
|
| 576,070 |
|
Non-same store/other |
|
| 49,138 |
|
|
| 52,201 |
|
|
| 5,992 |
|
|
| 8,347 |
|
|
| 34,669 |
|
|
| 32,861 |
|
Total operating expenses |
|
| 608,931 |
|
|
| 591,271 |
|
|
| 202,512 |
|
|
| 197,929 |
|
|
| 621,376 |
|
|
| 608,931 |
|
NOI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store |
|
| 1,297,886 |
|
|
| 1,259,568 |
|
|
| 453,192 |
|
|
| 438,872 |
|
|
| 1,267,676 |
|
|
| 1,324,750 |
|
Non-same store/other |
|
| 109,979 |
|
|
| 74,289 |
|
|
| 29,416 |
|
|
| 15,876 |
|
|
| 69,218 |
|
|
| 83,115 |
|
Total NOI |
| $ | 1,407,865 |
|
| $ | 1,333,857 |
|
| $ | 482,608 |
|
| $ | 454,748 |
|
| $ | 1,336,894 |
|
| $ | 1,407,865 |
|
The following table provides comparative total same store results and statistics for the Nine-Month 2020 Same Store Properties:
September YTD 2020 vs. September YTD 2019
Same Store Results/Statistics Including 74,264 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
September YTD 2020 |
|
| September YTD 2019 |
| ||||||||||||||||||||||||||||||||||
|
| Residential |
|
| % Change |
|
| Non- Residential |
|
| % Change |
|
| Total |
|
| % Change |
|
|
|
| Residential |
|
| Non- Residential |
|
| Total |
| |||||||||
Revenues |
| $ | 1,811,101 |
|
|
| (1.0 | %) |
| $ | 43,282 |
| (1) |
| (39.0 | %) |
| $ | 1,854,383 |
|
|
| (2.4 | %) |
| Revenues |
| $ | 1,829,896 |
|
| $ | 70,924 |
|
| $ | 1,900,820 |
|
Expenses |
| $ | 569,970 |
|
|
| 1.7 | % |
| $ | 16,737 |
|
|
| 5.6 | % |
| $ | 586,707 |
|
|
| 1.8 | % |
| Expenses |
| $ | 560,225 |
|
| $ | 15,845 |
|
| $ | 576,070 |
|
NOI |
| $ | 1,241,131 |
|
|
| (2.2 | %) |
| $ | 26,545 |
|
|
| (51.8 | %) |
| $ | 1,267,676 |
|
|
| (4.3 | %) |
| NOI |
| $ | 1,269,671 |
|
| $ | 55,079 |
|
| $ | 1,324,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rental Rate |
| $ | 2,843 |
|
|
| 0.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average Rental Rate |
| $ | 2,841 |
|
|
|
|
|
|
|
|
|
Physical Occupancy |
|
| 95.4 | % |
|
| (1.0 | %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Physical Occupancy |
|
| 96.4 | % |
|
|
|
|
|
|
|
|
Turnover |
|
| 39.1 | % |
|
| (0.3 | %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Turnover |
|
| 39.4 | % |
|
|
|
|
|
|
|
|
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) | Non-Residential operations for the nine months ended September 30, 2020 include a $12.9 million non-cash write-off of Non-Residential straight-line lease receivables. The decline in Non-Residential revenues is primarily driven by the deferral/abatement of rent, higher bad debt (inclusive of the Non-Residential straight-line write-off), and to a lesser extent, lower public parking income. |
The Company anticipates the following same store results for the full year ending December 31, 2019, which assumptions are based on current expectations and are forward-looking:
|
| Revised 2019 Same Store Assumptions |
|
| Previous 2019 Same Store Assumptions |
|
Physical Occupancy |
| 96.4% |
|
| 96.4% |
|
Revenue change |
| 3.3% |
|
| 3.1% to 3.5% |
|
Expense change |
| 3.8% |
|
| 3.5% to 4.0% |
|
NOI change |
| 3.1% |
|
| 2.7% to 3.5% |
|
The following table provides theresults and statistics related to our Residential same store revenue growth duringoperations for the nine months ended September 30, 2020 and 2019:
September YTD 2020 vs. September YTD 2019
Same Store Residential Results/Statistics by Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increase (Decrease) from Prior Year |
| |||||||||||||||||||||
Markets/Metro Areas |
| Apartment Units |
|
| September YTD 2020 % of Actual NOI |
|
| September YTD 2020 Average Rental Rate |
|
| September YTD 2020 Weighted Average Physical Occupancy % |
|
| September YTD 2020 Turnover |
|
| Revenues |
|
| Expenses |
|
| NOI |
|
| Average Rental Rate |
|
| Physical Occupancy |
|
| Turnover |
| |||||||||||
Los Angeles |
|
| 15,968 |
|
|
| 19.8 | % |
| $ | 2,575 |
|
|
| 95.5 | % |
|
| 38.2 | % |
|
| (1.8 | %) |
|
| 0.3 | % |
|
| (2.8 | %) |
|
| (1.0 | %) |
|
| (0.8 | %) |
|
| (4.3 | %) |
Orange County |
|
| 4,028 |
|
|
| 4.9 | % |
|
| 2,262 |
|
|
| 96.6 | % |
|
| 34.7 | % |
|
| 1.0 | % |
|
| 1.1 | % |
|
| 0.9 | % |
|
| 0.7 | % |
|
| 0.2 | % |
|
| (6.7 | %) |
San Diego |
|
| 3,385 |
|
|
| 4.2 | % |
|
| 2,425 |
|
|
| 96.5 | % |
|
| 41.2 | % |
|
| 0.8 | % |
|
| 0.7 | % |
|
| 0.9 | % |
|
| 0.8 | % |
|
| 0.0 | % |
|
| (3.6 | %) |
Subtotal – Southern California |
|
| 23,381 |
|
|
| 28.9 | % |
|
| 2,499 |
|
|
| 95.9 | % |
|
| 38.0 | % |
|
| (1.0 | %) |
|
| 0.5 | % |
|
| (1.6 | %) |
|
| (0.5 | %) |
|
| (0.5 | %) |
|
| (4.6 | %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 12,183 |
|
|
| 20.6 | % |
|
| 3,292 |
|
|
| 95.4 | % |
|
| 39.7 | % |
|
| (1.3 | %) |
|
| 2.8 | % |
|
| (2.6 | %) |
|
| (0.3 | %) |
|
| (0.9 | %) |
|
| 0.7 | % |
Washington DC |
|
| 13,711 |
|
|
| 16.2 | % |
|
| 2,461 |
|
|
| 95.8 | % |
|
| 37.4 | % |
|
| 0.4 | % |
|
| 0.9 | % |
|
| 0.2 | % |
|
| 1.4 | % |
|
| (0.8 | %) |
|
| 0.1 | % |
New York |
|
| 9,475 |
|
|
| 13.6 | % |
|
| 3,891 |
|
|
| 94.0 | % |
|
| 39.1 | % |
|
| (3.3 | %) |
|
| 2.5 | % |
|
| (7.7 | %) |
|
| (0.5 | %) |
|
| (2.8 | %) |
|
| 7.6 | % |
Seattle |
|
| 8,442 |
|
|
| 10.2 | % |
|
| 2,456 |
|
|
| 95.8 | % |
|
| 40.0 | % |
|
| 1.6 | % |
|
| 4.7 | % |
|
| 0.3 | % |
|
| 2.3 | % |
|
| (0.7 | %) |
|
| (3.2 | %) |
Boston |
|
| 6,346 |
|
|
| 9.7 | % |
|
| 3,145 |
|
|
| 94.3 | % |
|
| 43.3 | % |
|
| (1.3 | %) |
|
| (0.2 | %) |
|
| (1.7 | %) |
|
| 0.7 | % |
|
| (1.9 | %) |
|
| 5.3 | % |
Denver |
|
| 726 |
|
|
| 0.8 | % |
|
| 2,123 |
|
|
| 94.5 | % |
|
| 54.5 | % |
|
| (1.8 | %) |
|
| 3.7 | % |
|
| (3.7 | %) |
|
| (0.1 | %) |
|
| (1.8 | %) |
|
| 3.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 74,264 |
|
|
| 100.0 | % |
| $ | 2,843 |
|
|
| 95.4 | % |
|
| 39.1 | % |
|
| (1.0 | %) |
|
| 1.7 | % |
|
| (2.2 | %) |
|
| 0.1 | % |
|
| (1.0 | %) |
|
| (0.3 | %) |
Note: The above table reflects Residential same store results only, which account for approximately 97.6% of total revenues.
The following table includes select statistics for Residential same store properties presented on a suburban and urban basis. Statistics for October 2020 are preliminary and Blended Rate is inclusive of Leasing Concessions. The impact the COVID-19 pandemic is having on the operating performance in our markets and submarkets varies with urban markets more challenged than suburban markets as comparedpresented below.
|
| % of Same Store Residential Revenues |
|
| Physical Occupancy on: |
|
| Renewal % |
|
| Blended Rate |
|
| Change in Applications |
| |||||||||||||||||||||||||||||||||||||||||
|
| Sep YTD 2020 |
|
| Jun 30, 2020 |
|
| Sep 30, 2020 |
|
| Oct 22, 2020 |
|
| Oct 2019 |
|
| Sep 2020 |
|
| Oct 2020 (4) |
|
| Q3 2020 |
|
| Sep 2020 |
|
| Oct 2020 (4) |
|
| Q3 2020 vs. Q3 2019 |
|
| Oct 2020 (4) vs. Oct 2019 |
| ||||||||||||||||||||
Suburban (1) |
|
| 44 | % |
|
| 96.4 | % |
|
| 95.9 | % |
|
| 95.8 | % |
|
| 59 | % |
|
| 54 | % |
|
| 57 | % |
|
| (4.8 | %) |
|
| (5.8 | %) |
|
| (6.0 | %) |
|
| 10 | % |
|
| 32 | % | ||||||||
Urban (1)(2) |
|
| 33 | % |
|
| 94.7 | % |
|
| 94.4 | % |
|
| 94.4 | % |
|
| 50 | % |
|
| 46 | % |
|
| 50 | % |
|
| (6.5 | %) |
|
| (8.4 | %) |
|
| (10.7 | %) |
|
| 21 | % |
|
| 47 | % | ||||||||
Urban Core (1)(3) |
|
| 23 | % |
|
| 92.5 | % |
|
| 89.2 | % |
|
| 88.9 | % |
|
| 58 | % |
|
| 43 | % |
|
| 46 | % |
|
| (14.7 | %) |
|
| (17.9 | %) |
|
| (21.4 | %) |
|
| 48 | % |
|
| 108 | % | ||||||||
Total |
|
| 100 | % |
|
| 95.1 | % |
|
| 94.2 | % |
|
| 94.1 | % |
|
| 56 | % |
|
| 50 | % |
|
| 53 | % |
|
| (7.9 | %) |
|
| (9.5 | %) |
|
| (10.6 | %) |
|
| 20 | % |
|
| 46 | % |
(1) | The Company defines Urban submarkets as those with 3,500 or more households per square mile with the remainder defined as Suburban. |
(2) | Includes all other Urban properties excluding Urban Core. |
(3) | Includes Urban properties in Manhattan/Brooklyn, Downtown Boston/Cambridge and Downtown San Francisco. |
(4) | October 2020 results are preliminary. |
• | Suburban – Our suburban properties have been more resilient during the pandemic. Concession use is more limited and Average Rental Rates have been fairly stable during the quarter ended September 30, 2020 with a few Southern California submarkets beginning to show year-over-year growth. The suburban portfolio is expected to continue to perform better than the rest of the portfolio, with some potential improvement in pricing and relatively stable Physical Occupancy. |
• | Urban – Urban properties in markets (excluding the urban core properties discussed below) such as Washington D.C., Seattle and Southern California, have not performed as well as suburban markets but have shown some signs of resiliency. Average Rental Rates have been stable since the middle of May 2020 through late July 2020 and concession use was moderate. Extended work from home announcements in late July and August, however, began impacting our performance in these markets. We believe this group of properties will likely continue to see slight moderation in both Average Rental Rates and Physical Occupancy, with potentially more pressure in Seattle where some signs of weakness have appeared lately. |
• | Urban Core – Our urban core properties located in New York City, downtown San Francisco and downtown Boston/Cambridge, MA are the most challenged. This group of properties has the highest use of concessions (approximately 70% of portfolio wide concessions) and the most pressure on Average Rental Rates. These urban core properties are producing lower retention, leading to decreased Average Rental Rates, increased use of concessions and lower Physical Occupancy. We believe these properties have the highest risk of volatility in operations for the balance of the year as they will likely continue to be challenged by increased turnover and a highly concessionary operating environment. |
In addition to the same period in 2018discussion above, operating performance by geographic market is discussed below.
In Boston, delivery of new supply and our expected same store revenue growth for 2019 as of September 30, 2019:
Markets/Metro Areas |
| Actual YTD 2019 Same Store Revenue Growth |
|
| Revised Projected Full Year 2019 Same Store Revenue Growth |
|
| Previous Projected Full Year 2019 Same Store Revenue Growth |
|
Boston |
| 3.8% |
|
| 3.9% |
|
| 3.5% |
|
New York |
| 2.5% |
|
| 2.5% |
|
| 2.5% |
|
Washington D.C. |
| 2.3% |
|
| 2.5% |
|
| 2.6% |
|
Seattle |
| 2.9% |
|
| 3.4% |
|
| 3.2% |
|
San Francisco |
| 3.9% |
|
| 3.8% |
|
| 4.0% |
|
Los Angeles |
| 4.1% |
|
| 3.8% |
|
| 3.9% |
|
Orange County |
| 3.9% |
|
| 3.8% |
|
| 3.6% |
|
San Diego |
| 3.6% |
|
| 3.4% |
|
| 3.4% |
|
Overall |
| 3.3% |
|
| 3.3% |
|
| 3.1% to 3.5% |
|
Same store revenues, which were in line with our expectations, increasedelevated vacancy levels due to record low turnover, strong occupancylack of international students and favorable overall demand. Strong results, particularlyworkers is expected to continue to challenge the near-term performance. Concessions remain elevated, especially in downtown Boston and Seattle, led usCambridge, but consistent since July 2020. Currently, we have seen some very early signs of stability with no incremental declines in Average Rental Rates for the last several weeks and marginal improvement in Physical Occupancy. For the market to reaffirmfully stabilize, we believe it will require continued improvement in demand drivers to aid in the midpointabsorption of the new supply that is being delivered currently and anticipated in early 2021.
In New York, pandemic-related reductions in economic activity and residents continuing to leave the city makes this one of our same store revenue growth expectations for full year 2019. We continue to focus on providing remarkable experiences formost challenged markets. The elevated move-outs continued with most of our residents resultingmoving to surrounding states with suburban New Jersey capturing the largest share. Although overall economic activity in record retention levelsthe city remains meaningfully suppressed, there are early signs of the city trying to re-energize, bringing some brief periods of stability in late September and strong occupancy.
Boston performed better than expected with strong demand across the market. Strong occupancy, new lease and renewal pricing increases continue to drive performance. Stronger than anticipated demand has driven our improved performance. Supply has been modestthrough October. The broader recovery in 2019 butthis market is expected to be morefueled by a lack of competitive new supply and the continued growth of technology employers in the market. Many of these technology firms continue to expand their investments in this market, even during the pandemic, supporting the view that the city will continue to thrive, as it has in the past, post-pandemic. Currently, we head into 2020.are defying the usual seasonal drop-off in applications and are achieving outsized growth in the weekly application counts. We have also recently seen a slowing in the pace of move-outs. However, we will continue to feel pressure on Physical Occupancy until move-outs fully normalize.
Washington, D.C. is holding up better than our other East Coast markets but performance did moderate during the quarter due to slowing Class A multifamily absorption. The market continues to benefit from federal government employment, which has actually seen a net increase over the last twelve months, but overall job growth has declined. Concession use was relatively low in the third quarter but we are starting to see some pricing pressure in this market and expect performance to moderate through the remainder of 2020, partly due to normal seasonality, but also due to continued competitive pressure from new supply.
The New York market performed in line with our expectationsSeattle began the year with strong occupancyexpectations based on elevated job growth and pricing power. Strong demanda favorable competitive supply landscape in the downtown area for the second consecutive year. While Seattle was initially impacted in March 2020 by COVID-19, its performance through late July 2020 was very stable. Social unrest in the city and lower new supplyextended work from home announcements in late July and August, however, began impacting our competitive footprint is driving performance. DueConcessions which were hardly used previously, are now starting to be seen in part to improved new lease pricing and occupancy and this reductionstabilized assets in supply, we have also used very limited concessions. We continue to monitor the impact of the recently passed rent control regulations. Thus far, the impact has been in line with expectations. Of the approximately 9,600 apartment units located in our New York market, approximately 3,200 apartment units are "rent stabilized" and therefore more directly impacted by these new regulations. We estimate that the new regulations will have a negative impact on renewal rates for some of these 3,200 apartment units and will impact our ability to charge certain fees at all of our New York City properties (approximately 6,600 apartment units). We expect an approximate $0.8 million annual reduction in fees, of which approximately $0.4 million will impact 2019.submarkets. Overall, we believe this market will quickly bounce back post-pandemic.
San Francisco is our most challenged market due to lower Physical Occupancy downtown, escalating concession use, pressure on Average Rental Rates and new supply. Supply in 2021 is expected to continue to be concentrated in Oakland and the new rent control regulations will have a modestly negative impactSouth Bay, which may challenge operations even further unless the technology workers resume living in closer proximity to their offices. Suburban submarkets, such as the East Bay, are performing better than the urban core. We believe this market should recover when there is more clarity on our New York market results in 2019.
Washington D.C. continues to demonstrate strength in demand with strong occupancytechnology companies’ long-term plans regarding office versus work from home policies and an improved pricing power despite elevated deliveries. The economy, particularly in Northern Virginia, remains strong with gainsquality of life in the professional and business services sector whichdowntown area.
In Los Angeles, overall pricing including the use of concessions has been stable since mid-September 2020 while application activity has continued to grow. The suburban submarkets are aidingexperiencing modest year-over-year revenue gains. We believe the overall portfolio will modestly improve through the remainder of 2020 primarily driven by continued Average Rental Rate improvement in the absorptionsuburban submarkets.
Finally, Orange County and San Diego stand out for their resilience throughout the pandemic. Our portfolio in these markets consists primarily of new supply being delivered. However, we remain cautious on this market’ssuburban assets, which were certainly impacted by the pandemic, but they have consistently sustained Physical Occupancy above 96.5% collectively while also improving the percentage of residents renewing their leases. Both markets have experienced year-over-year revenue gains and are expected to sustain or strengthen their performance due to continued pressure from elevated new supply.
The Seattle market performed better than expected asthrough the market continues to experience strong demand despite elevated new supply. Job growth continues to be very strong and we experienced improvement in occupancy and better new lease and renewal pricing than anticipated for the year.
California recently passed new rent control regulations which become effective on January 1,remainder of 2020. The new regulations, among other things, limit the ability to raise rents on renewal to the local California consumer price index + 5% on properties fifteen years or older. It does not however impose such a cap upon vacancy of an apartment unit. Of our approximately 37,600 apartment units located in California, approximately 24,400 will be subject to these new regulations when they take effect next year. Overall, we believe the new rent control regulations will have a modestly negative impact on our California market results beginning in 2020.
While San Francisco continues to be oneThe economic impact of the pandemic on a subset of our strongest markets in 2019, recent renewal ratesresidents and occupancy have been slightly lower than expected. While these recent trends are consistent with normal seasonal declines, wetenants has led to elevated levels of bad debt. We continue to monitor these changes in demand. Overall, the market continues to show good absorption of new supplywork with our residents and continued economic growth as well as job expansion driven by technology company expansionstenants on payment plans and investments, with the downtown area performing stronglycollections and the East Bay lagging.
The Los Angeles market continues to perform well. Overall results were largely in line with expectations. We had anticipated the second half of 2019 would be more challenging due to pressure from new supply and difficult occupancy comparisons against 2018. Occupancy remained strong, but we experienced less pricing power and softening rate growth.our bad debt allowance policies remain consistent. We expect our reserves and bad debt charge-offs to seeremain elevated for the higher supply trends continue as deliveries have been pushed from 2019 to 2020 due to labor and construction constraints.
In the Orange County market, results have been better than expected primarily due to strong occupancy. Renewal pricing remains strong and our properties continue to perform well against competitive new supply.
In San Diego, results have been in line with expectations. Slightly lower renewal pricing is driven by supply pressureremainder of this year. See Note 8 in the downtown area, but military spending remains strong.
Notes to Consolidated Financial Statements for additional discussion of leases at September 30, 2020.
While the recently acquired Denver properties are not currently withineconomic uncertainty and extended impact of the pandemic have made it difficult to predict what a recovery will look like and when it may occur, we remain optimistic on a number of fronts including the ability to grow Average Rental Rates in our full year same storesuburban portfolio, they are performing in line withcontinued demand for our expectations atproduct regardless of location and solid collection performance. Our ongoing efforts will continue to focus on creating opportunities to improve performance while ensuring the timewellbeing of acquisition.our employees and residents.
The following table provides comparative total same store operating expenses for the Nine-Month 20192020 Same Store Properties:
September YTD 20192020 vs. September YTD 20182019
Total Same Store Operating Expenses for 72,979Including 74,264 Same Store Apartment Units
$ in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % of Actual |
| |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD 2019 |
| |||||||||||||||||||||
|
| Actual |
|
| Actual |
|
| $ |
|
| % |
|
| Operating |
| |||||||||||||||||||||||||
|
| YTD 2019 |
|
| YTD 2018 |
|
| Change (5) |
|
| Change |
|
| Expenses |
|
| September YTD 2020 |
|
| September YTD 2019 |
|
| $ Change (5) |
|
| % Change |
|
| % of September YTD 2020 Operating Expenses |
| ||||||||||
Real estate taxes |
| $ | 237,273 |
|
| $ | 228,971 |
|
| $ | 8,302 |
|
|
| 3.6 | % |
|
| 42.4 | % |
| $ | 256,320 |
|
| $ | 246,112 |
|
| $ | 10,208 |
|
|
| 4.1 | % |
|
| 43.7 | % |
On-site payroll (1) |
|
| 121,739 |
|
|
| 117,869 |
|
|
| 3,870 |
|
|
| 3.3 | % |
|
| 21.8 | % |
|
| 123,061 |
|
|
| 123,653 |
|
|
| (592 | ) |
|
| (0.5 | )% |
|
| 21.0 | % |
Utilities (2) |
|
| 74,534 |
|
|
| 72,717 |
|
|
| 1,817 |
|
|
| 2.5 | % |
|
| 13.3 | % |
|
| 77,545 |
|
|
| 76,183 |
|
|
| 1,362 |
|
|
| 1.8 | % |
|
| 13.2 | % |
Repairs and maintenance (3) |
|
| 71,835 |
|
|
| 69,589 |
|
|
| 2,246 |
|
|
| 3.2 | % |
|
| 12.8 | % |
|
| 70,635 |
|
|
| 73,079 |
|
|
| (2,444 | ) |
|
| (3.3 | )% |
|
| 12.0 | % |
Insurance |
|
| 15,778 |
|
|
| 14,351 |
|
|
| 1,427 |
|
|
| 9.9 | % |
|
| 2.8 | % |
|
| 18,345 |
|
|
| 15,547 |
|
|
| 2,798 |
|
|
| 18.0 | % |
|
| 3.1 | % |
Leasing and advertising |
|
| 7,352 |
|
|
| 7,460 |
|
|
| (108 | ) |
|
| (1.4 | )% |
|
| 1.3 | % |
|
| 7,366 |
|
|
| 7,649 |
|
|
| (283 | ) |
|
| (3.7 | )% |
|
| 1.3 | % |
Other on-site operating expenses (4) |
|
| 31,282 |
|
|
| 28,113 |
|
|
| 3,169 |
|
|
| 11.3 | % |
|
| 5.6 | % |
|
| 33,435 |
|
|
| 33,847 |
|
|
| (412 | ) |
|
| (1.2 | )% |
|
| 5.7 | % |
Same store operating expenses |
| $ | 559,793 |
|
| $ | 539,070 |
|
| $ | 20,723 |
|
|
| 3.8 | % |
|
| 100.0 | % | ||||||||||||||||||||
Total Same Store Operating Expenses (includes Residential and Non-Residential) |
| $ | 586,707 |
|
| $ | 576,070 |
|
| $ | 10,637 |
|
|
| 1.8 | % |
|
| 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. |
(5) | Theyear-to-date over year-to-date changes are due primarily to: |
| • | Real estate taxes – |
| • | On-site payroll – |
| • |
|
| • | Insurance – Increase due to higher premiums on property insurance renewal due to challenging conditions in the insurance market. |
| • |
|
Same store expenses increased 3.8% during the nine months ended September 30, 2019 as compared to the same period in 2018. The Company now anticipates that full year 2019 same store expenses will increase 3.8%.
Same store NOI increased 3.0% during the nine months ended September 30, 2019 as compared to the same period in 2018, which was in line with our expectations. The Company now anticipates same store NOI growth of approximately 3.1% for full year 2019 as compared to 2018 as a result of the above same store revenue and expense expectations.
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 nine months ended September 30, 2019 increased2020 decreased approximately $35.7$13.9 million compared to the same period of 20182019 and consist primarily of properties acquired in calendar years 20182019 and 2019,2020, operations from the Company’s development properties and operations prior to disposition from 20182019 and 20192020 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 |
| • | A positive impact of higher NOI from properties |
|
|
| • | A negative impact of lost NOI from |
The Company’s guidance assumes consolidated rental acquisitions of $1.1 billion and consolidated rental dispositions of $1.0 billion and expects that the Acquisition Cap Rate will be equal to the Disposition Yield for the full year ending December 31, 2019. The Company currently budgets two development starts during the year ending December 31, 2019, both of which started in the third quarter of 2019. We currently budget spending approximately $185.6 million on development costs during the year ending December 31, 2019, primarily for properties currently under construction. We assume that this capital will be primarily sourced with excess operating cash flow, future debt offerings and borrowings on our revolving credit facility and/or commercial paper program. These 2019 assumptions are based on current expectations and are forward-looking.
Comparison of the nine months and quarter ended September 30, 20192020 to the nine months and quarter ended September 30, 20182019
The following table presents a reconciliation of diluted earnings per share/unit for the nine months and quarter ended September 30, 20192020 as compared to the same periodperiods in 2018:2019:
|
| Nine Months Ended September 30 |
|
| Quarter Ended September 30 |
|
| Nine Months Ended September 30 |
|
| Quarter Ended September 30 |
| ||||
Diluted earnings per share/unit for period ended 2018 |
| $ | 1.46 |
|
| $ | 0.58 |
| ||||||||
Diluted earnings per share/unit for period ended 2019 |
| $ | 1.82 |
|
| $ | 0.71 |
| ||||||||
Property NOI |
|
| 0.19 |
|
|
| 0.08 |
|
|
| (0.16 | ) |
|
| (0.17 | ) |
Interest expense |
|
| 0.08 |
|
|
| 0.03 |
| ||||||||
Debt extinguishment costs |
|
| 0.08 |
|
|
| 0.05 |
|
|
| 0.03 |
|
|
| (0.01 | ) |
Depreciation expense |
|
| (0.08 | ) |
|
| (0.03 | ) | ||||||||
Net gain/loss on property/unconsolidated sales |
|
| 0.21 |
|
|
| 0.03 |
| ||||||||
Net gain/loss on property sales |
|
| — |
|
|
| (0.33 | ) | ||||||||
Other |
|
| (0.04 | ) |
|
| — |
|
|
| — |
|
|
| 0.01 |
|
Diluted earnings per share/unit for period ended 2019 |
| $ | 1.82 |
|
| $ | 0.71 |
| ||||||||
Diluted earnings per share/unit for period ended 2020 |
| $ | 1.77 |
|
| $ | 0.24 |
|
The increasedecrease in consolidated NOI is primarily a result of the Company’s improvedlower NOI from same store and lease-up properties, along with NOIlargely due to the economic impact from the Company’s recent transaction activity.COVID-19 pandemic. The following table presents the changes in the components of consolidated NOI for the nine months and quarter ended September 30, 20192020 as compared to the same periodperiods in 2018:2019:
|
| Nine Months Ended September 30 |
|
| Quarter Ended September 30 |
|
| Nine Months Ended September 30, 2020 |
|
| Quarter Ended September 30, 2020 |
| ||||
Consolidated rental income |
|
| 4.8 | % |
|
| 5.0 | % |
|
| (2.9 | %) |
|
| (9.1 | %) |
Consolidated operating expenses (1) |
|
| 3.0 | % |
|
| 2.3 | % |
|
| 2.0 | % |
|
| 2.9 | % |
Consolidated NOI |
|
| 5.5 | % |
|
| 6.1 | % |
|
| (5.0 | %) |
|
| (14.2 | %) |
(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 increaseddecreased approximately $3.5$1.2 million or 5.1%1.6% and approximately $1.7 million or 7.9% for the nine months and quarter ended September 30, 2020, respectively, as compared to the prior year periods. These decreases are primarily attributable to decreases in payroll-related costs, travel costs and training/conference costs, partially offset by increases in information technology related costs specifically for various operating initiatives such as sales-focused improvements and service enhancements. The Company suspended the majority of all travel and training/conference activities as a result of the COVID-19 pandemic.
General and administrative expenses, which include corporate operating expenses, decreased approximately $3.9 million or 9.5% and approximately $0.6 million or 4.9% for the nine months and quarter ended September 30, 2020, respectively, as compared to the prior year periods. These decreases are primarily due to decreases in payroll-related costs as a result of the Company’s executive succession program during the past two years, along with declines in travel costs and training/conference activities which were mostly suspended as a result of the COVID-19 pandemic.
Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $2.8 million or 0.5% for the nine months ended September 30, 2020 as compared to the prior year period, primarily as a result of additional depreciation expense on properties acquired in 2019 and 2020 and development properties placed in service during 2019, offset by lower depreciation from properties sold in 2019 and 2020. Depreciation expense decreased approximately $10.9 million or 5.1% for the quarter ended September 30, 2020 as compared to the prior year period, primarily as a result of no property sales in the third quarter of 2020 as compared to the sale of seven consolidated properties in the same period in 2019 and lower depreciation on properties acquired in the same period in 2019, partially offset by additional depreciation expense on development properties placed in service during the third quarter of 2019 and a property acquired in the same period in 2020.
Net gain on sales of real estate properties increased approximately $82.8 million or 30.7% for the nine months ended September 30, 2020 as compared to the prior year period, primarily as a result of the sale of five consolidated apartment properties sold for a higher gain in 2020 as compared to the sale of nine consolidated properties in the same period in 2019. Net gain on sales of real estate properties decreased approximately $130.6 million for the quarter ended September 30, 2020 as compared to the prior year period, primarily as a result of the sale of seven consolidated properties in the third quarter of 2019 as compared to no consolidated property sales in the same period in 2020.
Interest and other income increased approximately $1.4 million or 55.2% for the nine months ended September 30, 2020 as compared to the prior year period. These increases areThe increase is primarily attributabledue to increaseshigher insurance/litigation settlement proceeds and other non-comparable items that occurred during 2020 but not during 2019, partially offset by decreases in payroll-related costs, legalshort-term investment income on cash and professional feesrestricted deposit accounts in 2020 as compared to 2019 due to a lower rate environment and computer operations costs. Theselower overall invested balances.
Other expenses decreased approximately $0.3$2.9 million or 1.4%25.7% for the quarternine months ended September 30, 20192020 as compared to the prior year period, primarily due to a decrease in payroll-related costs and temporary help/contractors. The Company anticipates that property management expenses will approximate $97.0 million to $99.0 million for the year ending December 31, 2019.
General and administrative expenses, which include corporate operating expenses, decreased approximately $0.3 million or 0.7% and approximately $1.2 million or 9.7% for the nine months and quarter ended September 30, 2019, respectively, as compared to the prior year periods, primarily due to decreases in payroll-related costs and legal and professional fees, partially offset by increases in office rent and education/conference costs. The Company anticipates that general and administrative expenses will approximate $52.0 million to $54.0 million for the year ending December 31, 2019.
Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $32.3 million or 5.5% and approximately $16.9 million or 8.7% for the nine months and quarter ended September 30, 2019, respectively, as compared to the prior year periods, primarily as a result of additional depreciation expense on properties acquired in 2018 and 2019and development properties placed in service during 2018, offset by lower depreciation from properties sold in 2018 and 2019.
Net gain on sales of real estate properties increased approximately $12.6 million or 4.9% for the nine months ended September 30, 2019 as compared to the prior year period as a result of the sale of nine consolidated apartment properties in 2019 as compared to five consolidated properties in the same period in 2018. Net gain on sales of real estate properties increased approximately $15.9 million or 13.9% during the quarter ended September 30, 2019 compared to the prior year period as a result of the sale of seven consolidated properties in 2019 as compared to one consolidated property sale in the same period in 2018.
Interest and other income decreased approximately $12.6 million or 85.1% and approximately $7.2 million or 92.0% for the nine months and quarter ended September 30, 2019, respectively, ascompared to the prior year periods, primarily due to a decline in insurance/litigation settlement proceeds received during 2019 as compared to 2018. The Company anticipates that interest and other income will approximate $2.0 million for the year ending December 31, 2019, excluding certain non-comparable insurance/litigation settlement proceeds.
Other expenses decreased approximately $3.7 million or 24.7% and approximately $4.8 million or 63.3% for the nine months and quarter ended September 30, 2019, respectively, as compared to the prior year periods, primarily due to a decrease in expenses related to litigation and environmental settlements and advocacy contributions partially offset by increases in pursuit costs and various consulting costs related to a data analytics project which was completed last year and litigation and environmental settlements, partially offset by increases in 2019advocacy contributions in 2020 as compared to 2018. 2019. Other expenses increased approximately $1.3 million or 45.6% for the quarter ended September 30, 2020 as compared to the prior year period, primarily due to an increase in advocacy contributions and litigation and environmental settlements, partially offset by a decrease in various consulting costs related to a data analytics project which was completed last year.
Interest expense, including amortization of deferred financing costs, decreased approximately $32.1$43.8 million or 9.7%14.7% and approximately $5.8 million or 6.6% for the nine months and quarter ended September 30, 20192020, respectively, as compared to the prior year period. The decrease isperiods. These decreases are due primarily to $29.3 million in lower overall debt extinguishment costs forbalances outstanding between the nine months ended September 30, 2019periods as compareda result of deploying disposition proceeds to the prior year period. Interest expense, including amortization of deferred financing costs, decreased approximately $25.7 million or 22.4% for the quarter ended September 30, 2019repay debt, as compared to the prior year period. The decrease is due primarily to$22.4 million inwell as lower debt extinguishment costs for the quarter ended September 30, 2019 as compared to the prior year period.overall interest rates. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the nine months ended September 30, 20192020 was 4.27%3.96% as compared to 4.36%4.27% for the prior year period, and for the quarter ended September 30, 20192020 was 4.11%3.97% as compared to 4.30%4.11% for the prior year period. The Company capitalized interest of approximately $4.8$6.9 million and $4.5$4.8 million during the nine months ended September 30, 20192020 and 2018,2019, respectively, and $2.1$2.8 million and $1.6$2.1 million during the quarters ended September 30, 2020 and 2019, and 2018, respectively. The Company anticipates that interest expense, excluding debt extinguishment costs/prepayment penalties, will approximate $367.8 million to $372.0 million and capitalized interest will approximate $7.0 million for the year ending December 31, 2019.
Income from investments in unconsolidated entities increaseddecreased approximately $69.9$69.4 million duringfor the nine months ended September 30, 20192020 as compared to the prior year period, primarily as a result of a $69.5 million gain on the sale of two unconsolidated properties in 2019 that did not occur in the same period in 2018.2020.
Net gain on sales of land parcels increased(income) loss attributable to Noncontrolling Interests in partially owned properties decreased approximately $1.1$11.7 million for the nine months ended September 30, 20192020 as compared to the prior year period, dueprimarily as a result of noncontrolling interest allocations related to a higher gain on the sale of one land parcelpartially owned apartment property in 2019 as compared to one land parcel in the same period in 2018.Net gain on sales of land parcels increased approximately $1.9 million during the quarter ended September 30, 2019 compared to the prior year period, as a result of the sale of one land parcel in 20192020 as compared to no sales in the same period in 2018.
The 2019 guidance/projections provided above are based on current projections and are forward-looking.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, 2019,The following table presents the Company had approximately $47.4 million ofCompany’s balances for cash and cash equivalents, approximately $68.9 million of restricted deposits and the amount available borrowing capacity on its revolving credit facility was $1.40 billion. After taking into effect the various transactions discussed in the following paragraphs and the net cash provided by operating activities, atas of September 30, 2020 and December 31, 2019 the Company’s cash and cash equivalents balance was approximately $28.8 million, the restricted deposits balance was approximately $55.8 million and the amount available on its revolving credit facility was $1.54 billion. See Note 9(amounts in the Notes to Consolidated Financial Statements for further discussion of the availability on the Company’s revolving credit facility.thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Cash and cash equivalents |
| $ | 178,333 |
|
| $ | 45,753 |
|
Restricted deposits |
| $ | 56,881 |
|
| $ | 71,246 |
|
Unsecured revolving credit facility availability |
| $ | 2,399,051 |
|
| $ | 1,379,071 |
|
During the nine months ended September 30, 2019,2020, the Company generated proceeds from various transactions, which included the following:
| • | Disposed of |
| • | Obtained |
| • | Issued |
|
|
|
|
During the nine months ended September 30, 2019,2020, the above proceeds along with net cash flow from operations and borrowings from the Company’s revolving line of credit and commercial paper program were primarily utilized to:
| • | Acquire |
| • | Invest |
|
|
| • | Repay |
Credit Facility and Commercial Paper Program
The Company has 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 0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit rating.
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 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.
The Company has an unsecured commercial paper note program in the United States. The 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’s other unsecured senior indebtedness. As of October 25, 2019, there wasWhile the COVID-19 pandemic caused a balance of $470.0 milliontemporary disruption in principal outstanding on 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.
The Company limits its utilization of the revolving credit facility in order to maintain liquidity to support its $1.0 billion commercial paper program along with certain other obligations. The following table presents the availability on the Company’s unsecured revolving credit facility as of October 25, 201927, 2020 (amounts in thousands):
|
| October 25, 2019 |
|
| October 27, 2020 |
| ||
Unsecured revolving credit facility commitment |
| $ | 2,000,000 |
|
| $ | 2,500,000 |
|
Commercial paper balance outstanding |
|
| (470,000 | ) |
|
| — |
|
Unsecured revolving credit facility balance outstanding |
|
| — |
|
|
| — |
|
Other restricted amounts |
|
| (100,929 | ) |
|
| (100,949 | ) |
Unsecured revolving credit facility availability |
| $ | 1,429,071 |
|
| $ | 2,399,051 |
|
Dividend Policy
The Company determines its dividends/distributions based on actual and projected financial conditions, the Company’s actual and projected liquidity and operating results, the Company’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 first, second and third quarters of 20192020 of $0.5675$0.6025 per share/unit in each quarter, an annualized increase of 5.1%6.2% over the amount paid in 2018. This increase is supported by the Company’s strong growth in property operations and a significant reduction in its development activity resulting in a material increase in available cash flow.2019. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees. The Company believes that its expected 2019 operating cash flow will be sufficient to cover capital expenditures and regular dividends/distributions.
Total dividends/distributions paid in October 20192020 amounted to $218.1$232.2 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended September 30, 2019.2020.
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 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 thatshould unsecured capital isbe 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. Of the $27.4$27.3 billion in investment in real estate on the Company’s balance sheet at September 30, 2019, $23.72020, $23.2 billion or 86.7%85.0% was unencumbered. However,, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise.
EQR issues public equity from time to time and guarantees certain debt of the Operating Partnership.Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
The Company’s total debt summary and debt maturity schedules as of September 30, 20192020 are as follows:
Debt Summary as of September 30, 20192020
($ in thousands)
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| Average |
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| Maturities |
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| Amounts |
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|
| (years) |
| ||||
Secured |
| $ | 1,962,471 |
|
|
| 21.8 | % |
|
| 3.90 | % |
|
| 6.7 |
|
Unsecured |
|
| 7,029,465 |
|
|
| 78.2 | % |
|
| 4.14 | % |
|
| 9.6 |
|
Total |
| $ | 8,991,936 |
|
|
| 100.0 | % |
|
| 4.07 | % |
|
| 9.0 |
|
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
| $ | 1,576,040 |
|
|
| 17.5 | % |
|
| 4.34 | % |
|
| 4.5 |
|
Unsecured – Public |
|
| 6,675,084 |
|
|
| 74.3 | % |
|
| 4.30 | % |
|
| 10.1 |
|
Fixed Rate Debt |
|
| 8,251,124 |
|
|
| 91.8 | % |
|
| 4.31 | % |
|
| 9.1 |
|
Floating Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
|
| 6,932 |
|
|
| 0.1 | % |
|
| 3.04 | % |
|
| 2.7 |
|
Secured – Tax Exempt |
|
| 379,499 |
|
|
| 4.2 | % |
|
| 2.00 | % |
|
| 15.4 |
|
Unsecured – Public |
|
| — |
|
|
| — |
|
|
| 3.34 | % |
|
| — |
|
Unsecured – Revolving Credit Facility |
|
| — |
|
|
| — |
|
|
| 3.14 | % |
|
| 2.3 |
|
Unsecured – Commercial Paper Program |
|
| 354,381 |
|
|
| 3.9 | % |
|
| 2.61 | % |
|
| — |
|
Floating Rate Debt |
|
| 740,812 |
|
|
| 8.2 | % |
|
| 2.63 | % |
|
| 8.1 |
|
Total |
| $ | 8,991,936 |
|
|
| 100.0 | % |
|
| 4.07 | % |
|
| 9.0 |
|
Debt Maturity Schedule as of September 30, 2019
($ in thousands)
Year |
| Fixed Rate |
|
| Floating Rate |
|
| Total |
|
| % of Total |
|
| Weighted Average Coupons on Fixed Rate Debt |
|
| Weighted Average Coupons on Total Debt |
| ||||||
2019 |
| $ | 1,925 |
|
| $ | 375,000 |
| (1) | $ | 376,925 |
|
|
| 4.2 | % |
|
| 3.40 | % |
|
| 2.31 | % |
2020 |
|
| 627,541 |
|
|
| — |
|
|
| 627,541 |
|
|
| 6.9 | % |
|
| 4.74 | % |
|
| 4.74 | % |
2021 |
|
| 926,404 |
|
|
| — |
|
|
| 926,404 |
|
|
| 10.2 | % |
|
| 4.64 | % |
|
| 4.64 | % |
2022 |
|
| 264,185 |
|
|
| 7,593 |
|
|
| 271,778 |
|
|
| 3.0 | % |
|
| 3.25 | % |
|
| 3.23 | % |
2023 |
|
| 1,325,588 |
|
|
| 3,500 |
|
|
| 1,329,088 |
|
|
| 14.6 | % |
|
| 3.74 | % |
|
| 3.73 | % |
2024 |
|
| — |
|
|
| 6,100 |
|
|
| 6,100 |
|
|
| 0.1 | % |
| N/A |
|
|
| 1.64 | % | |
2025 |
|
| 450,000 |
|
|
| 8,200 |
|
|
| 458,200 |
|
|
| 5.0 | % |
|
| 3.38 | % |
|
| 3.34 | % |
2026 |
|
| 592,025 |
|
|
| 9,000 |
|
|
| 601,025 |
|
|
| 6.6 | % |
|
| 3.58 | % |
|
| 3.55 | % |
2027 |
|
| 400,000 |
|
|
| 9,800 |
|
|
| 409,800 |
|
|
| 4.5 | % |
|
| 3.25 | % |
|
| 3.21 | % |
2028 |
|
| 900,000 |
|
|
| 42,380 |
|
|
| 942,380 |
|
|
| 10.4 | % |
|
| 3.79 | % |
|
| 3.69 | % |
2029+ |
|
| 2,838,970 |
|
|
| 299,635 |
|
|
| 3,138,605 |
|
|
| 34.5 | % |
|
| 3.65 | % |
|
| 3.46 | % |
Subtotal |
|
| 8,326,638 |
|
|
| 761,208 |
|
|
| 9,087,846 |
|
|
| 100.0 | % |
|
| 3.82 | % |
|
| 3.67 | % |
Deferred Financing Costs and Unamortized (Discount) |
|
| (75,514 | ) |
|
| (20,396 | ) |
|
| (95,910 | ) |
| N/A |
|
| N/A |
|
| N/A |
| |||
Total |
| $ | 8,251,124 |
|
| $ | 740,812 |
|
| $ | 8,991,936 |
|
|
| 100.0 | % |
|
| 3.82 | % |
|
| 3.67 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
|
|
|
|
| Weighted |
|
| Average |
| ||
|
| Debt |
|
|
|
|
|
| Average |
|
| Maturities |
| |||
|
| Balances |
|
| % of Total |
|
| Rates |
|
| (years) |
| ||||
Secured |
| $ | 2,313,833 |
|
|
| 27.6 | % |
|
| 3.39 | % |
|
| 6.9 |
|
Unsecured |
|
| 6,082,897 |
|
|
| 72.4 | % |
|
| 3.91 | % |
|
| 10.1 |
|
Total |
| $ | 8,396,730 |
|
|
| 100.0 | % |
|
| 3.78 | % |
|
| 9.2 |
|
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
| $ | 1,935,286 |
|
|
| 23.1 | % |
|
| 3.84 | % |
|
| 5.3 |
|
Unsecured – Public |
|
| 6,082,897 |
|
|
| 72.4 | % |
|
| 4.04 | % |
|
| 10.1 |
|
Fixed Rate Debt |
|
| 8,018,183 |
|
|
| 95.5 | % |
|
| 4.00 | % |
|
| 8.9 |
|
Floating Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
|
| 17,605 |
|
|
| 0.2 | % |
|
| 3.02 | % |
|
| 1.7 |
|
Secured – Tax Exempt |
|
| 360,942 |
|
|
| 4.3 | % |
|
| 1.17 | % |
|
| 15.2 |
|
Unsecured – Revolving Credit Facility |
|
| — |
|
|
| — |
|
|
| 1.47 | % |
|
| 4.1 |
|
Unsecured – Commercial Paper Program |
|
| — |
|
|
| — |
|
|
| 1.81 | % |
|
| — |
|
Floating Rate Debt |
|
| 378,547 |
|
|
| 4.5 | % |
|
| 1.50 | % |
|
| 14.6 |
|
Total |
| $ | 8,396,730 |
|
|
| 100.0 | % |
|
| 3.78 | % |
|
| 9.2 |
|
See the Definitions section below for the definition
Debt Maturity Schedule as of Weighted Average Coupons and Weighted Average Rates. September 30, 2020
($ in thousands)
Year |
| Fixed Rate |
|
| Floating Rate |
|
| Total |
|
| % of Total |
|
| Weighted Average Coupons on Fixed Rate Debt |
|
| Weighted Average Coupons on Total Debt |
| ||||||
2020 |
| $ | 1,991 |
|
| $ | — |
|
| $ | 1,991 |
|
|
| — |
|
|
| 3.40 | % |
|
| 3.40 | % |
2021 |
|
| 818,366 |
| (1) |
| — |
|
|
| 818,366 |
|
|
| 9.7 | % |
|
| 4.62 | % |
|
| 4.62 | % |
2022 |
|
| 264,185 |
|
|
| 18,026 |
|
|
| 282,211 |
|
|
| 3.3 | % |
|
| 3.25 | % |
|
| 3.19 | % |
2023 |
|
| 1,325,588 |
|
|
| 3,500 |
|
|
| 1,329,088 |
|
|
| 15.7 | % |
|
| 3.74 | % |
|
| 3.73 | % |
2024 |
|
| — |
|
|
| 6,100 |
|
|
| 6,100 |
|
|
| 0.1 | % |
| N/A |
|
|
| 0.13 | % | |
2025 |
|
| 450,000 |
|
|
| 8,200 |
|
|
| 458,200 |
|
|
| 5.4 | % |
|
| 3.38 | % |
|
| 3.32 | % |
2026 |
|
| 592,025 |
|
|
| 9,000 |
|
|
| 601,025 |
|
|
| 7.1 | % |
|
| 3.58 | % |
|
| 3.53 | % |
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 |
|
|
| 32.2 | % |
|
| 3.56 | % |
|
| 3.21 | % |
Subtotal |
|
| 8,086,125 |
|
|
| 396,641 |
|
|
| 8,482,766 |
|
|
| 100.0 | % |
|
| 3.66 | % |
|
| 3.50 | % |
Deferred Financing Costs and Unamortized (Discount) |
|
| (67,942 | ) |
|
| (18,094 | ) |
|
| (86,036 | ) |
| N/A |
|
| N/A |
|
| N/A |
| |||
Total |
| $ | 8,018,183 |
|
| $ | 378,547 |
|
| $ | 8,396,730 |
|
|
| 100.0 | % |
|
| 3.66 | % |
|
| 3.50 | % |
(1) | $750.0 million of 4.625% unsecured notes will mature on December 15, 2021. |
See also Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at September 30, 2019.2020.
ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’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 25, 201927, 2020, the ratings are as follows:
|
| Standard & Poor’s |
| Moody’s |
| Fitch |
ERPOP’s long-term senior debt rating |
| A- |
| A3 |
| A |
ERPOP’s short-term commercial paper rating |
| A-2 |
| P-2 |
| F-1 |
EQR’s long-term preferred equity rating |
| BBB |
| Baa1 |
| BBB+ |
See Note 14 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to September 30, 2019.2020.
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 September 30, 2020 and December 31, 2019:
|
| September 30, 2020 |
|
| December 31, 2019 |
| |
Debt to Adjusted Total Assets (not to exceed 60%) |
| 31.6% |
|
| 33.8% |
| |
Secured Debt to Adjusted Total Assets (not to exceed 40%) |
| 9.6% |
|
| 8.2% |
| |
Consolidated Income Available for Debt Service to Maximum Annual Service Charges (must be at least 1.5 to 1) |
|
| 4.99 |
|
| 5.07 |
|
Total Unencumbered Assets to Unsecured Debt (must be at least 125%) |
| 437.4% |
|
| 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’s Annual Report on Form 10-K for the year ended December 31, 20182019.
For the nine months ended September 30, 2019,2020, our actual capital expenditures to real estate included the following (amounts in thousands except for apartment unit and per apartment unit amounts):
Capital Expenditures to Real Estate
For the Nine Months Ended September 30, 20192020
|
| Same Store Properties (4) |
|
| Non-Same Store Properties/Other (5) |
|
| 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 |
|
| 72,979 |
|
|
| 7,320 |
|
|
| 80,299 |
|
|
|
|
|
|
| 74,264 |
|
|
| 4,304 |
|
|
| 78,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Improvements (1) |
| $ | 64,478 |
|
| $ | 4,976 |
|
| $ | 69,454 |
|
| $ | 884 |
|
| $ | 47,977 |
|
| $ | 1,977 |
|
| $ | 49,954 |
|
| $ | 646 |
|
Renovation Expenditures (2) |
|
| 27,153 |
|
|
| 2,426 |
|
|
| 29,579 |
|
|
| 372 |
|
|
| 17,682 |
|
|
| 6 |
|
|
| 17,688 |
|
|
| 238 |
|
Replacements (3) |
|
| 28,280 |
|
|
| 1,022 |
|
|
| 29,302 |
|
|
| 387 |
|
|
| 24,148 |
|
|
| 333 |
|
|
| 24,481 |
|
|
| 325 |
|
Total Capital Expenditures to Real Estate |
| $ | 119,911 |
|
| $ | 8,424 |
|
| $ | 128,335 |
|
| $ | 1,643 |
|
| $ | 89,807 |
|
| $ | 2,316 |
|
| $ | 92,123 |
|
| $ | 1,209 |
|
(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. |
(2) | Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets. Amounts for |
(3) | Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting). |
(4) | Same Store Properties – Primarily includes all properties acquired or completed that are stabilized prior to January 1, |
(5) | Non-Same Store Properties/Other – Primarily includes all properties acquired during |
The Company estimates that during 2019 it will spend approximately $2,400 per same store apartment unit or $175.0 million of totalCOVID-19 pandemic has led us to temporarily slow our capital expenditures, including our renovation activities, to realthose deemed essential. Governmental movement restrictions, social distancing requirements, and in some cases, difficulty in procuring materials and labor make continuing these activities more difficult.
During the nine months ended September 30, 2020, the Company’s total non-real estate for same store properties. During 2019,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 $19.3 million. The Company expects to spendfund approximately $37.2$0.9 million in total non-real estate capital additions for apartment unit renovation expenditures on approximately 2,400 same store apartment units at an average costthe remainder of approximately $15,500 per apartment unit renovated. The revised anticipated total capital expenditures to real estate for same store properties represent a lower percentage of anticipated same store revenues and a slightly lower cost per unit and absolute dollar amount as compared to 2018. The Company plans to continue the capital expenditures for investment in customer-facing building improvements (leasing offices, fitness centers, common areas, etc.) to enhance the quality of our properties and to protect our competitive position given the new luxury supply opening in many of our markets. We also expect to continue to commit capital to sustainability projects and renovation expenditures during 2019. The above assumptions2020. These year-to-date fundings are based on current expectationssignificantly higher than 2019 and are forward-looking.primarily driven by corporate office renovations during 2020.
Capital expenditures to real estate 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 10 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments at September 30, 2019.2020.
Definitions
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. |
• | 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. |
| • | Leasing Concessions – Reflects upfront discounts on both new move-in and renewal leases on a straight-line basis. |
• | New Lease Change – The net effective change in rent (inclusive of Leasing Concessions) 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. |
• | 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 % – Leases renewed expressed as a percentage of total renewal offers extended during the reporting period. |
• | Renewal Rate Achieved – The net effective change in rent (inclusive of Leasing Concessions) 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. |
• | Residential – Consists of multifamily apartment revenues and expenses. |
• | Same Store Residential Revenues – Revenues from our same store properties presented on a GAAP basis which reflects the impact of Leasing Concessions on a straight-line basis. |
• | % 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 September 30, |
| • | Weighted Average Rates – Interest expense for each debt instrument for the nine months ended September 30, |
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 Note 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, 2018.2019. See the updated contractual obligations for minimum rent payments schedule included in Note 8 in the Notes to Consolidated Financial Statements and 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 from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 20182019.
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 nine months and quarters ended September 30, 20192020 and 2018:2019:
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net income |
| $ | 708,402 |
|
| $ | 562,804 |
|
| $ | 277,846 |
|
| $ | 223,846 |
|
| $ | 699,517 |
|
| $ | 708,402 |
|
| $ | 95,365 |
|
| $ | 277,846 |
|
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (2,450 | ) |
|
| (1,939 | ) |
|
| (830 | ) |
|
| (750 | ) |
|
| (14,113 | ) |
|
| (2,450 | ) |
|
| (703 | ) |
|
| (830 | ) |
Preferred/preference distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
Net income available to Common Shares and Units / Units |
|
| 703,634 |
|
|
| 558,547 |
|
|
| 276,243 |
|
|
| 222,323 |
|
|
| 683,086 |
|
|
| 703,634 |
|
|
| 93,889 |
|
|
| 276,243 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 616,201 |
|
|
| 583,869 |
|
|
| 211,478 |
|
|
| 194,618 |
|
|
| 619,003 |
|
|
| 616,201 |
|
|
| 200,605 |
|
|
| 211,478 |
|
Depreciation – Non-real estate additions |
|
| (4,235 | ) |
|
| (3,397 | ) |
|
| (1,932 | ) |
|
| (1,137 | ) |
|
| (3,433 | ) |
|
| (4,235 | ) |
|
| (1,126 | ) |
|
| (1,932 | ) |
Depreciation – Partially Owned Properties |
|
| (2,700 | ) |
|
| (2,837 | ) |
|
| (898 | ) |
|
| (904 | ) |
|
| (2,514 | ) |
|
| (2,700 | ) |
|
| (828 | ) |
|
| (898 | ) |
Depreciation – Unconsolidated Properties |
|
| 2,385 |
|
|
| 3,447 |
|
|
| 613 |
|
|
| 1,150 |
|
|
| 1,838 |
|
|
| 2,385 |
|
|
| 614 |
|
|
| 613 |
|
Net (gain) loss on sales of unconsolidated entities - operating assets |
|
| (69,522 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,000 | ) |
|
| (69,522 | ) |
|
| (1,000 | ) |
|
| — |
|
Net (gain) loss on sales of real estate properties |
|
| (269,400 | ) |
|
| (256,834 | ) |
|
| (130,565 | ) |
|
| (114,672 | ) |
|
| (352,218 | ) |
|
| (269,400 | ) |
|
| 25 |
|
|
| (130,565 | ) |
Noncontrolling Interests share of gain (loss) on sales of real estate properties |
|
| — |
|
|
| (284 | ) |
|
| — |
|
|
| — |
|
|
| 11,655 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Impairment – operating assets |
|
| — |
|
|
| 702 |
|
|
| — |
|
|
| 702 |
| ||||||||||||||||
FFO available to Common Shares and Units / Units (1) (3) (4) |
|
| 976,363 |
|
|
| 883,213 |
|
|
| 354,939 |
|
|
| 302,080 |
|
|
| 956,417 |
|
|
| 976,363 |
|
|
| 292,179 |
|
|
| 354,939 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment – non-operating assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Write-off of pursuit costs |
|
| 4,098 |
|
|
| 3,125 |
|
|
| 1,111 |
|
|
| 1,059 |
|
|
| 4,864 |
|
|
| 4,098 |
|
|
| 1,586 |
|
|
| 1,111 |
|
Debt extinguishment and preferred share redemption (gains) losses |
|
| 11,807 |
|
|
| 41,142 |
|
|
| (4,840 | ) |
|
| 17,603 |
|
|
| 37 |
|
|
| 11,807 |
|
|
| 5 |
|
|
| (4,840 | ) |
Non-operating asset (gains) losses |
|
| (1,200 | ) |
|
| (255 | ) |
|
| (1,452 | ) |
|
| 223 |
|
|
| 1,022 |
|
|
| (1,200 | ) |
|
| 352 |
|
|
| (1,452 | ) |
Other miscellaneous items |
|
| 6,539 |
|
|
| (2,608 | ) |
|
| 2,121 |
|
|
| (1,138 | ) |
|
| (514 | ) |
|
| 6,539 |
|
|
| 1,796 |
|
|
| 2,121 |
|
Normalized FFO available to Common Shares and Units / Units (2) (3) (4) |
| $ | 997,607 |
|
| $ | 924,617 |
|
| $ | 351,879 |
|
| $ | 319,827 |
|
| $ | 961,826 |
|
| $ | 997,607 |
|
| $ | 295,918 |
|
| $ | 351,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO (1) (3) |
| $ | 978,681 |
|
| $ | 885,531 |
|
| $ | 355,712 |
|
| $ | 302,853 |
|
| $ | 958,735 |
|
| $ | 978,681 |
|
| $ | 292,952 |
|
| $ | 355,712 |
|
Preferred/preference distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
FFO available to Common Shares and Units / Units (1) (3) (4) |
| $ | 976,363 |
|
| $ | 883,213 |
|
| $ | 354,939 |
|
| $ | 302,080 |
|
| $ | 956,417 |
|
| $ | 976,363 |
|
| $ | 292,179 |
|
| $ | 354,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normalized FFO (2) (3) |
| $ | 999,925 |
|
| $ | 926,935 |
|
| $ | 352,652 |
|
| $ | 320,600 |
|
| $ | 964,144 |
|
| $ | 999,925 |
|
| $ | 296,691 |
|
| $ | 352,652 |
|
Preferred/preference distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (773 | ) |
Normalized FFO available to Common Shares and Units / Units (2) (3) (4) |
| $ | 997,607 |
|
| $ | 924,617 |
|
| $ | 351,879 |
|
| $ | 319,827 |
|
| $ | 961,826 |
|
| $ | 997,607 |
|
| $ | 295,918 |
|
| $ | 351,879 |
|
(1) | The National Association of Real Estate Investment Trusts (“Nareit”) defines funds from operations (“FFO”) (December 2018 White Paper) as net income (computed in accordance with accounting principles generally accepted in the United States (“GAAP”)), excluding gains or losses from sales and impairment write-downs of depreciable real estate and land when connected to the main business of a REIT, impairment write-downs of investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and depreciation and amortization related to real estate. Adjustments for partially owned consolidated and unconsolidated partnerships and joint ventures are calculated to reflect |
(2) | Normalized funds from operations (“Normalized FFO”) begins with FFO and excludes: |
| • | 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. |
(3) | The Company believes that FFO and FFO available to Common Shares and Units / Units are helpful to investors as supplemental measures of the operating performance of a real estate company, because they are recognized measures of performance by the real estate industry and by excluding gains or losses from sales and impairment write-downs of depreciable real estate and excluding depreciation related to real estate (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO available to Common Shares and Units / Units can help compare the operating performance of a company’s real estate between periods or as compared to different companies. The Company also believes that Normalized FFO and Normalized FFO available to Common Shares and Units / Units are helpful to investors as supplemental measures of the operating performance of a real estate company because they allow investors to compare the Company’s operating performance to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units do not represent net income, net income available to Common Shares / Units or net cash flows from operating activities in accordance with GAAP. Therefore, FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units should not be exclusively considered as alternatives to net income, net income available to Common Shares / Units or net cash flows from operating activities as determined by GAAP or as a measure of liquidity. The Company’s calculation of FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies. |
(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 “Noncontrolling Interests – Operating Partnership”. Subject to certain restrictions, the Noncontrolling Interests – Operating Partnership may exchange their OP Units for Common Shares on a one-for-one basis. |
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, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. See Note 10 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 September 30, 2019,2020, 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 above that occurred during the third quarter of 20192020 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 September 30, 2019,2020, 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 the Operating Partnership’s evaluation referred to above that occurred during the third quarter of 20192020 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of September 30, 2019,2020, 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.
Item 1A. Risk Factors
TherehavebeennomaterialchangestoThe Company’s risk factor disclosures in Part I, Item 1A of theriskfactors thatwerediscussedinPartI,Item1AoftheCompany’sandthe OperatingPartnership’sAnnualReportonForm10-Kfortheyearended December 31, 2018.2019 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 obligations (such as eviction moratoriums) and limit our ability to raise rents or charge certain fees; |
• | 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 their operations and, in turn, could result in an increase in tenant/garage operator defaults, rent deferrals/abatements and rent reductions. |
• | Our properties may also incur significant operating expenses related to shelter-in-place orders, quarantines and social distancing requirements, such as higher cleaning or other related costs; |
• | 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 multiple waves 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. To the extent the COVID-19 pandemic adversely affects our business, results of operations, cash flows and financial condition, it may also have the effect of heightening many of the other risks described in the risk factors section of the Company's and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2019. 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 September 30, 20192020 - Equity Residential
During the quarter ended September 30, 2019,2020, EQR issued 105,9942,374 Common Shares in exchange for 105,9942,374 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 option of ERPOP, the cash equivalent thereof, at any time one year after the date of issuance. These shares were either registered under the Securities Act of 1933, as amended (the “Securities Act”), or issued in reliance on an exemption from registration under 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 these exemptions.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits – See the Exhibit Index.
EXHIBIT INDEX
The exhibits listed below are filed as part of this report. References to exhibits or other filings under the caption “Location” indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. The Commission file numbers for our Exchange Act filings referenced below are 1-12252 (Equity Residential) and 0-24920 (ERP Operating Limited Partnership).
Exhibit |
| Description |
| Location |
|
| |||
31.1 |
| Equity Residential – Certification of Mark J. Parrell, Chief Executive Officer. |
| Attached herein. |
|
|
|
|
|
31.2 |
| Equity Residential – Certification of Robert A. Garechana, Chief Financial Officer. |
| Attached herein. |
|
|
|
|
|
31.3 |
|
| Attached herein. | |
|
|
|
|
|
31.4 |
|
| Attached herein. | |
|
|
|
|
|
32.1 |
|
| Attached herein. | |
|
|
|
|
|
32.2 |
|
| Attached herein. | |
|
|
|
|
|
32.3 |
|
| Attached herein. | |
|
|
|
|
|
32.4 |
|
| 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). |
|
|
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.
|
| EQUITY RESIDENTIAL | ||
|
|
|
|
|
Date: | October 30, | By: |
| /s/ Robert A. Garechana |
|
|
|
| Robert A. Garechana |
|
|
|
| Executive Vice President and Chief Financial Officer |
|
|
|
| (Principal Financial Officer) |
|
|
|
|
|
Date: | October 30, | By: |
| /s/ Ian S. Kaufman |
|
|
|
| Ian S. Kaufman |
|
|
|
| Senior Vice President and Chief Accounting Officer |
|
|
|
| (Principal Accounting Officer) |
|
| ERP OPERATING LIMITED PARTNERSHIP ITS GENERAL PARTNER | ||
|
|
|
|
|
Date: | October 30, | By: |
| /s/ Robert A. Garechana |
|
|
|
| Robert A. Garechana |
|
|
|
| Executive Vice President and Chief Financial Officer |
|
|
|
| (Principal Financial Officer) |
|
|
|
|
|
Date: | October 30, | By: |
| /s/ Ian S. Kaufman |
|
|
|
| Ian S. Kaufman |
|
|
|
| Senior Vice President and Chief Accounting Officer |
|
|
|
| (Principal Accounting Officer) |