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EQR Erp Operating LTD Partnership

Filed: 18 Feb 21, 4:27pm

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2020

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,
$0.01 Par Value (Equity Residential)

 

EQR

 

New York Stock Exchange

7.57% Notes due August 15, 2026
(ERP Operating Limited Partnership)

 

N/A

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:

 

None (Equity Residential)

Units of Limited Partnership Interest (ERP Operating Limited Partnership)

(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Equity Residential  Yes   No

ERP Operating Limited Partnership  Yes   No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

Equity Residential  Yes   No

ERP Operating Limited Partnership  Yes   No

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

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

ERP Operating Limited Partnership:

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

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 Act).

 

Equity Residential  Yes   No

ERP Operating Limited Partnership  Yes   No

The aggregate market value of Common Shares held by non-affiliates of the Registrant was approximately $21.7 billion based upon the closing price on June 30, 2020 of $58.82 using beneficial ownership of shares rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting shares owned by Trustees and Executive Officers, some of whom may not be held to be affiliates upon judicial determination.

The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding on February 12, 2021 was 372,663,215.

 

 


Table of Contents

 

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information that will be contained in Equity Residential’s Proxy Statement relating to its 2021 Annual Meeting of Shareholders, which Equity Residential intends to file no later than 120 days after the end of its fiscal year ended December 31, 2020, and thus these items have been omitted in accordance with General Instruction G(3) to Form 10-K.  Equity Residential is the general partner and 96.4% owner of ERP Operating Limited Partnership.

 

 

 

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EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2020 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 December 31, 2020 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-K 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.

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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.  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 II, Item 9A, 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.

 

 

 

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EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

TABLE OF CONTENTS

 

 

 

 

 

PAGE

PART I.

 

 

 

 

 

 

 

 

 

Item 1.

 

Business

 

6

 

 

 

 

 

Item 1A.

 

Risk Factors

 

11

 

 

 

 

 

Item 1B.

 

Unresolved Staff Comments

 

21

 

 

 

 

 

Item 2.

 

Properties

 

21

 

 

 

 

 

Item 3.

 

Legal Proceedings

 

23

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

23

 

 

 

 

 

PART II.

 

 

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

24

 

 

 

 

 

Item 6.

 

Reserved

 

24

 

 

 

 

 

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

 

 

 

Item 7A.

 

Quantitative and Qualitative Disclosures about Market Risk

 

45

 

 

 

 

 

Item 8.

 

Financial Statements and Supplementary Data

 

46

 

 

 

 

 

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

46

 

 

 

 

 

Item 9A.

 

Controls and Procedures

 

46

 

 

 

 

 

Item 9B.

 

Other Information

 

47

 

 

 

 

 

PART III.

 

 

 

 

 

 

 

 

 

Item 10.

 

Trustees, Executive Officers and Corporate Governance

 

48

 

 

 

 

 

Item 11.

 

Executive Compensation

 

48

 

 

 

 

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

48

 

 

 

 

 

Item 13.

 

Certain Relationships and Related Transactions, and Trustee Independence

 

48

 

 

 

 

 

Item 14.

 

Principal Accounting Fees and Services

 

48

 

 

 

 

 

PART IV.

 

 

 

 

 

 

 

 

 

Item 15.

 

Exhibits, Financial Statement Schedules

 

49

 

 

 

 

 

Item 16.

 

Form 10-K Summary

 

49

 

 

 

 

 

EX-21

 

 

 

 

 

 

 

 

 

EX-23.1

 

 

 

 

 

 

 

 

 

EX-23.2

 

 

 

 

 

 

 

 

 

EX-31.1

 

 

 

 

 

 

 

 

 

EX-31.2

 

 

 

 

 

 

 

 

 

EX-31.3

 

 

 

 

 

 

 

 

 

EX 31.4

 

 

 

 

 

 

 

 

 

EX-32.1

 

 

 

 

 

 

 

 

 

EX-32.2

 

 

 

 

 

 

 

 

 

EX-32.3

 

 

 

 

 

 

 

 

 

EX-32.4

 

 

 

 

 

 

 

 

 

EX-101 INSTANCE DOCUMENT

 

 

 

 

 

 

 

EX-101 SCHEMA DOCUMENT

 

 

 

 

 

 

 

EX-101 CALCULATION LINKBASE DOCUMENT

 

 

 

 

 

 

 

EX-101 LABELS LINKBASE DOCUMENT

 

 

 

 

 

 

 

EX-101 PRESENTATION LINKBASE DOCUMENT

 

 

 

 

 

 

 

EX-101 DEFINITION LINKBASE DOCUMENT

 

 

 

 

 

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PART I

Item 1. Business

General

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 residential properties located in and around dynamic cities that attract high quality long-term renters.  ERP Operating Limited Partnership (“ERPOP”) is focused on conducting the multifamily property business of EQR.  EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 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 December 31, 2020 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.

Certain capitalized terms used herein are defined in the Notes to Consolidated Financial Statements.  See also Note 17 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.

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, our proxy statements and any amendments to any of those reports/statements we file with the Securities 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

Overview

The Company is one of the largest U.S. publicly-traded owners and operators of high-quality rental apartment properties with a portfolio primarily located in urban and dense suburban communities in and around Boston, New York, Washington, D.C., Southern California (including Los Angeles, Orange County and San Diego), San Francisco, Seattle and Denver.  Our markets continue to be the primary knowledge centers of the U.S. economy drawing the talented workers and employers that drive economic growth in the United States.  Our properties are located in places that are attractive to knowledge workers whom we hope to convert into satisfied long-term residents.

We believe we have created a best-in-class operating platform to run our properties.  Our employees are focused on delivering remarkable customer service to our residents so they will stay with us longer, be willing to pay higher rent for a great experience and will tell others about how much they love living in an Equity Residential property.  We utilize technology and other innovative methods of engagement to foster relationships and community, improve the resident experience and operate our business more efficiently. Our disciplined balance sheet management enhances returns and value creation while maintaining flexibility to take advantage of future opportunities.  We believe that our stakeholders value stability, liquidity, predictability and accountability and that is the mission to which we remain unwaveringly committed.

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Equity Residential is committed to creating communities where people thrive.  We carry this, our corporate purpose, through our relationships with our customers, our employees, our shareholders and the communities in which we operate.  It drives our commitment to sustainability, diversity and inclusion, total well-being of our employees and being a responsible corporate citizen in the communities in which we operate, which is especially relevant when we face unprecedented challenges like the novel coronavirus (“COVID-19”) pandemic.  

Despite the challenges we have faced with the COVID-19 pandemic, we believe that the long-term prospects for our business remain strong.  Our well-located communities are in and around dynamic cities that we believe will continue to attract high quality long-term renters. When the pandemic subsides, we believe urban centers will re-energize and once again provide significant networking and other benefits for current and prospective residents who may have temporarily deferred, but not abandoned, their desire to live in vibrant major U.S. metropolitan areas.

Investment Strategy

The Company’s long-term strategy is to invest in apartment communities located in strategically targeted markets with the goal of maximizing our risk-adjusted total returns by balancing current cash flow generation with long-term capital appreciation.  We seek to meet this goal by investing in markets that are characterized by conditions favorable to multifamily property operations over the long-term.  We also consider governmental fiscal health, political/regulatory risk and resiliency of our targeted markets.  The markets we focus on generally feature one or more of the following characteristics that allow us to drive performance:

 

High single-family housing prices relative to rental housing costs leading to less competition from owned or rented single-family housing;

 

Strong generators of economic growth often characterized as centers of the knowledge-based economy, leading to high wage job growth and household formation, which in turn leads to high demand for our apartments;

 

Favorable demographics contributing to a larger pool of target residents with a high propensity or greater preference to rent apartments;

 

Higher barriers to entry where, because of land scarcity or government regulation, it is typically more difficult or costly to build new apartment properties, creating limits on new supply; and

 

Strong other demand drivers.

We believe our strategy capitalizes on the preference of renters of all ages to live in the locations where we operate that typically are near to transportation (both public transit and convenient highway access), entertainment and cultural amenities.  Demand for rental housing is driven primarily by household formations from the Millennial segment and increasingly from the Generation Z segment of our population.  Millennials, born between 1981 and 2000, total approximately 78 million people and are disproportionately renters.  They also tend to remain renters longer due to societal trends favoring delays in marriage and having children.  We believe we will continue to see demand from this group, as the largest sub-segment of this cohort is now turning 30 years old while the median age of our resident is 33 years old.  After the Millennials comes Generation Z, which comprises the more than 70 million people born between 2001 and 2014.  Reports also show a growing trend among aging Baby Boomers, a demographic of more than 76 million people born between 1946 and 1964, toward apartment rentals.

Overall, our high-quality resident tends to work in the highest earning sectors of the economy and is not rent burdened, creating the ability to raise rents more readily in good economic times and reducing risk during downturns.  Many of these workers are employed in the fields of Science, Technology, Engineering and Mathematics, or STEM jobs.  They have experienced significantly lower job loss during COVID-19. Once it subsides, we believe we are extremely well positioned to benefit for many years to come as a result of the significant impact the various generations discussed above will have on rental housing.  

Over the last decade, the Company has done an extensive repositioning of its portfolio into urban and highly walkable, close-in suburban assets.  While we continue to look for opportunities to expand our portfolio in these locations, it is our intention over time to further diversify our portfolio into select new markets that share the same characteristics as our current markets and to optimize the mix of our properties located in urban vs. dense suburban submarkets within our existing markets.

Operations and Innovation

We attempt to balance occupancy and rental rates to maximize our revenue while exercising tight cost control to generate the highest possible return to our shareholders.  Revenue is maximized through our customized pricing system that uses market data on current and projected demand and availability to create both current and forward pricing daily for each apartment unit we manage.  We believe our success prior to the pandemic in renewing our residents is due to our focus on the resident experience.  This focus has driven the strong occupancy and renewal rate growth that we have achieved over the last several years prior to the COVID-19 pandemic, which we would expect to return once the pandemic subsides.

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Technology continues to drive innovation in the rental industry and to evolve at a rapid pace. We have been and continue to be a leader in deploying and investing in property technology to serve our customers better and operate more efficiently.  Having been a first mover in such important areas as revenue management and online leasing, we are focused on technology that improves our operating margins and customer experience while also meeting the current needs of our customers, including addressing the challenges of the pandemic.  We use a standardized purchasing system to control our operating expenses and a business intelligence platform that allows all our team members to quickly identify and address issues and opportunities.  Our operations benefitted from having many of these initiatives in place during the pandemic, allowing us to interact with our customers in a safe and responsible manner, including self-guided tours, automated responses to customer inquiries and enhanced service and maintenance management. While we believe areas such as “smart home” technology and others will provide the foundation for current and future improvements to how we do business, we will continue to consider the cost and longevity of technology capital investments versus the benefits.

Our Commitment to Environmental, Social and Governance (“ESG”)

At Equity Residential, we believe a focus on ESG is a key way to programmatically address stakeholder concerns as part of our corporate purpose.  This needs to be a sustainable endeavor, in which we provide properties that will stand the test of time and remain attractive to our customers and the community without negatively impacting the environment.  We have a dedicated in-house team that initiates and applies sustainable practices in all aspects of our business, including investment activities, development, property operations and property management activities. Multifamily housing is one of the most environmentally-friendly uses of real estate, as each property provides homes for hundreds of families in a denser shared environment.  We consider building locations based on walkability, accessibility, neighborhoods and parks.  We also design our communities to support amenities such as fitness centers and we select locations near shops, healthy restaurants and health and wellness programs, enabling a low carbon footprint lifestyle for our residents to live, work and play.

Our sustainability goals help us focus efforts and drive outcomes to create a more sustainable future for all.  We are especially focused on energy consumption, water consumption and greenhouse gas emissions.  We invest in developing and renovating our properties, with a focus on reducing waste, energy and water use by investing in energy-saving technology, such as those for irrigation, lighting, HVAC and renewable energy, while positively impacting the experience of our residents and the value of our assets.

We are also intensely focused on the “Social” and “Governance” aspects of ESG.  As detailed below, we have a commitment to our employees’ engagement, diversity and wellness that is the foundation of our corporate purpose.  We also recognize that a successful company must incorporate the best corporate governance practices in order to better serve its stakeholders.  

In 2018, the Company became the first multifamily REIT ever to issue a “green bond”.  As a result, the net proceeds of approximately $396.7 million from the offering were allocated to eligible green/sustainable certified projects.  For additional information regarding our ESG efforts, see our November 2020 Environmental, Social and Governance Report at our website, www.equityapartments.com.  This report, which includes Sustainability Accounting Standards Board disclosures and incorporates recommendations from the Task Force on Climate-related Financial Disclosures, was reviewed and approved by the Corporate Governance Committee of our Board of Trustees, which monitors the Company’s ongoing ESG efforts.  We continue to enhance our ESG disclosure efforts, including auditing the results outlined in the above report.  Furthermore, our annual proxy statements contain additional information on our corporate governance practices. Such annual proxy statements and the information contained therein are not part of or incorporated into this report.

Human Capital

At Equity Residential, our team of approximately 2,600 employees is the driving force behind our success. We believe that our richly diverse work environment captures top talent, cultivates the best ideas and creates the widest possible platform for this success in line with our corporate purpose of “Creating communities where people thrive.” Our core principles, affectionately named “Ten Ways to Be a Winner,” guide our behavior as individuals and collectively as a team, helping us in our goal to deliver market-leading performance.  As part of our Ten Ways to Be a Winner, we encourage our team members to raise questions, take educated risks, offer new ideas and help us make the right decisions.  One way we live the “Ten Ways” is by enriching our culture through our core “Equity Values”—Diversity and Inclusion, Social Responsibility, Sustainability and Total Well-Being.  We have assembled an employee-led Equity Values Council to lead our efforts on these values by acting as change agents to drive initiatives, create goals and awareness, and encourage colleagues to participate in community service activities and wellness initiatives.  In addition, executive compensation is based, in part, on meeting important Equity Values goals, and our Board of Trustees takes an active role in overseeing our efforts in this regard.

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Diversity and Inclusion

 

Our commitment to diversity and inclusion starts at the top with a highly skilled and diverse Board of Trustees.

 

We are committed to hiring a diverse workforce and also fostering a safe, inclusive and productive workplace for all employees.  We believe providing a work environment based on respect, trust and collaboration creates an exceptional employee experience where employees can bring their whole selves to work and thrive in their careers.  In recent years, we have created a Director of Diversity and Inclusion position to oversee this crucial work.

 

To further prioritize the importance of our diversity and inclusion efforts, our executives’ annual compensation goals include an evaluation of objective metrics measuring our Company’s progress in this regard.

 

We have the benefit of a diverse workforce, of which 60.0% currently identify as ethnically diverse.  We also continue to focus on improving our female representation, which is now 37.0% of our workforce.

 

Going forward, we plan to continue to strategically identify opportunities to increase the diversity of our talent pipeline at all levels, including by actively sourcing diverse candidates for mid-management and above positions.

Pay Equity

 

In order to attract and retain the best employees, we are committed to providing a total compensation package which is market-based, performance driven, fair and internally equitable.

 

Our goal is to be competitive both within the general employment market as well as with our competitors in the real estate industry, with our strongest performers being paid more.

 

Base pay is reviewed annually, as is Equity Residential’s compensation framework, by partnering with managers to create and update job descriptions that reflect the duties, skills, experience and education required to perform the role, and then benchmarking our jobs against third-party compensation surveys to determine the market value of the job.

 

During the year-end evaluation process, managers review and calibrate compensation for all employees on their team, in an effort to ensure equitableness around our pay practices and allow us to retain and reward our top talent.

Employee Engagement

 

Employee engagement and experience are extremely important at Equity Residential. In 2020, we decided to collect employee engagement feedback through frequent pulse surveys (instead of an annual survey like we have historically done), allowing us to check in more often and respond more immediately on employee feedback gathered, especially in light of hardships experienced by many on a personal level as a result of the COVID-19 pandemic and social unrest.

 

Senior leaders are assessed annually on their leadership results, which for 2020 was measured by the more frequent pulse survey scores, employee retention and diversity and inclusion efforts.  

 

The pulse survey ratings from employees in 2020 demonstrated a favorable attitude toward leadership and highlighted our leaders’ ability to effectively lead through adversity.  Furthermore, the survey results reflected strong scores on our diversity and inclusion efforts.

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Training and Development

 

We believe a successful workplace is one where employees constantly learn and grow.  Our internal Organization and Talent Development (“OTD”) team is interspersed throughout our markets and works regularly with employees to expand their knowledge and skills.  OTD develops and delivers a wide range of training and development opportunities, from tactical to strategic, face-to-face to virtual, social learning to self-directed learning, and more.  In 2020, each employee completed an average of 13 hours of dedicated learning at a Company expenditure of over $1,350 per employee.

Health, Safety and Wellness

 

Equity Residential is committed to providing the tools and resources to help our employees achieve total well-being.  Whether physical, financial, career, social or community well-being, Equity Residential offers benefits to help meet our employee needs.

 

Physical - Equity Residential is focused on providing benefits that help our employees achieve balance and address good health proactively, with coverage for emergencies and ongoing needs that can arise as well.  Long before healthcare reform, Equity Residential made a commitment to cover 100% of employee preventive care.  This commitment—and our robust and highly popular Vitality Wellness Program—has made proactive personal healthcare more accessible and manageable for employees, while encouraging ongoing healthy behaviors and rewarding employees for taking a proactive approach to their health.

 

Financial - These benefits and resources help our employees manage their money better today, while preparing for financial milestones and retirement in the future.  Financial peace of mind is at the core of these offerings, whether it’s our generous 401(k) match, basic and supplemental insurance to ensure our loved ones and possessions are cared for, rent discounts at our properties or additional savings and investment options like our employee share purchase plan.

 

Career - When employees move up in skill and experience, so does Equity Residential.  We encourage our employees to “test their limits,” push the boundaries of their comfort zones and seek new challenges through several learning resources and courses, in addition to tuition reimbursement.  We actively promote from within, and many senior corporate and property leaders have risen from entry level or junior positions.

 

Social and Community - We offer a number of benefits that foster social and community well-being, including paid time off to volunteer in our communities.

 

Throughout the COVID-19 pandemic, we have communicated regularly with employees and also released a comprehensive guide designed as a single place for employees to access information on critical benefits and resources.  A key focus included mental well-being to help employees better cope with the challenges to our work routines, our home routines and how we interact with our family, friends and community.

 

For nearly two years, we have partnered with Employees1st to provide financial relief via a crisis fund for employees struck by personal hardships or unforeseen disasters.  The Company contributed additional funds to the Employees1st crisis fund to further support employees who experienced hardship as a result of the COVID-19 pandemic.  We are proud that this program allows yet another avenue for us to tangibly demonstrate our One Team culture by ensuring that employees are safe and secure, especially during extreme or catastrophic circumstances.

 

For further discussion, please refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the Company’s responses related to health and safety issues during the COVID-19 pandemic.  

Competition

All of the Company’s properties are located in developed areas with multiple housing choices, including other multifamily properties.  The number of competitive housing choices or multifamily properties in a particular area could have a material effect on the Company’s ability to lease apartment units at its properties and on the rents charged.  The Company may be competing with other housing providers that have greater resources than the Company and whose managers have more experience than the Company’s managers.  In addition, other forms of rental properties and single-family housing provide housing alternatives to potential residents of multifamily properties.  See Item 1A, Risk Factors, for additional information with respect to competition.

Regulatory Considerations

See Item 1A, Risk Factors, for information concerning the potential effects of governmental regulations, including environmental regulations, on our operations.

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Item 1A. Risk Factors

General

This Item 1A includes forward-looking statements.  You should refer to our discussion of the qualifications and limitations on forward-looking statements included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The occurrence of the events discussed in the following risk factors could adversely affect, possibly in a material manner, our business, financial condition or results of operations, which could affect the value of our common shares of beneficial interest or preferred shares of beneficial interest (which we refer to collectively as “Shares”), Preference Units, OP Units, restricted units and our public unsecured debt.  In this section, we refer to the Shares, Preference Units, OP Units, restricted units and public unsecured debt together as our “securities” and the investors who own such securities as our “security holders.”

Risks Related to the COVID-19 Pandemic

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 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 may likely continue to cause, severe economic, market and other disruptions worldwide.  There can be no assurance that 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:

 

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;

 

Our residents’ and tenants’ ability to pay their rent on time or at all;

 

Changes in the demand for multifamily properties within our markets;

 

Our geographic concentrations, especially in our dense urban communities which 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 current or prospective residents 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 costs we may incur in protecting our investments and releasing our properties as a result of resident or tenant nonpayment, default or bankruptcy;

 

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 or rental forgiveness) and limit our ability to raise rents or charge certain fees;

 

The risk that local and national authorities may not pass, extend or may reduce government stimulus and relief programs which may be providing or would provide 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

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Non-residential operations in our apartment buildings are particularly 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 and more severe deterioration in our operations due to the pandemic;

 

The risk of a prolonged outbreak and/or multiple waves of an outbreak of the pandemic:

 

a)

could cause 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; and,

 

b)

could cause an adverse impact on our future financial results, cash flows and financial condition and therefore our ability to pay dividends;

 

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;

 

The risk of delays in our development and renovation projects due to construction moratoriums, governmental movement restrictions, social distancing requirements, the closure of many permitting and inspection agencies and disruptions in the supply of construction materials or other products 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;

 

Increased risks of potential cyber attacks due to an increased reliance on remote working and other electronic 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 and the rollout and effectiveness of vaccines, 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 below.  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.

Risks Related to our Business Strategy

Investing in real estate is inherently subject to risks that could negatively impact our business.

Investing in real estate is subject to varying degrees and types of risk. While we seek to mitigate these risks through various strategies, including geographic diversification, market research and proactive asset management, among other techniques, these risks cannot be eliminated. Factors that may impact cash flows and real estate values include, but are not limited to:

 

Local economic conditions, particularly oversupply or reductions in demand;

 

National, regional and local political climates, governmental fiscal health and governmental policies;

 

The inability or unwillingness of residents to pay rent increases;

 

Increases in our operating expenses;

 

Cost and availability of labor and materials required to maintain our properties at acceptable standards;

 

Availability of attractive financing opportunities;

 

Changes in social preferences; and

 

Additional risks that are discussed below.

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The geographic concentration of our properties could have an adverse effect on our operations.

The Company’s properties are concentrated in our primarily coastal markets and located in and around dynamic cities that we believe attract high quality long-term renters.

If one or more of our markets is unfavorably impacted by specific economic conditions, local real estate conditions, increases in social unrest, increases in real estate and other taxes, reduced quality of life, deterioration of local or state government health, rent control or stabilization laws, localized environmental issues or natural/man-made disasters, the impact of such conditions may have a more negative impact on our results of operations than if our properties were more geographically diverse.

Within its primarily coastal markets, the Company is also concentrated in certain dense urban and suburban submarkets.  To the extent that these markets or submarkets within these markets become less desirable to operate in, including changes in multifamily housing supply and demand, our results of operations could be more negatively impacted than if we were more diversified within our markets or invested in a greater number of markets.  

For example, the urban core submarkets of New York City, San Francisco, CA and Boston, MA, have been more adversely impacted by the COVID-19 pandemic in comparison to our other markets. Due to our concentrations in these submarkets, we have experienced larger decreases in rental income from elevated rent concessions and lower occupancy than we might have otherwise.

Failure to generate sufficient revenue could limit our ability to make financing payments or distributions to security holders.

A decrease in cash flows due to declines in rental revenue could negatively affect our ability to make financing payments and distributions to our security holders. Significant expenditures associated with each property, such as real estate taxes, insurance, utilities, maintenance costs and employee wages and benefits, may also negatively impact cash flows, and these expenditures may not decline as quickly or at the same rate as revenues when circumstances might cause a reduction of those revenues at our properties.

Competition in multifamily housing may negatively affect operations and demand for the Company’s properties or residents.

Our properties face competition for residents from other existing or new multifamily properties, condominiums, single family homes and other living arrangements, whether owned or rental, that may attract residents from our properties or prospective residents that would otherwise choose to live with us.  As a result, we may not be able to renew existing resident leases or enter into new resident leases, or if we are able to renew or enter into new leases, they may be at rates or terms that are less favorable than our current rates or terms, resulting in a material impact on our results of operations.

Additionally, our properties face competition for residents as a result of technology innovation. Therefore, we may not be able to retain residents or attract new residents if we are unable to identify and cost effectively implement new, relevant technologies and to keep up with constantly changing resident demand for the latest innovations.  

The short-term nature of apartment leases exposes us more quickly to the effects of declining market rents, potentially making our revenue more volatile. 

Generally, our residential apartment leases are for twelve months or less.  If the terms of the renewal or reletting are less favorable than current terms, then the Company’s results of operations and financial condition could be negatively affected. Given our generally shorter-term lease structure, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.

Competition for acquisitions may prevent us from acquiring properties on favorable terms.

We may not be successful in pursuing acquisition and development opportunities.  We expect that other real estate investors will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts.  We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.  

Operations from new acquisitions, development projects and renovations may fail to perform as expected.

We intend to actively acquire, develop and renovate multifamily operating properties as part of our business strategy.  Newly acquired, developed or renovated properties may not perform as we expect.  We may also overestimate the revenue (or underestimate the expenses) that a new or repositioned project may generate.  The occupancy rates and rents at these properties may fail to meet the expectations underlying our investment.  Development and renovations are subject to greater uncertainties and risks due to complexities and lead time in estimating costs.  We may underestimate the costs necessary to operate an acquired property to the

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standards established for its intended market position.  We may also underestimate the costs to complete a development property or to complete a renovation.  

Construction risks on our development projects could affect our profitability.

We intend to continue to develop multifamily properties as part of our business strategy.  Development often includes long planning and entitlement timelines, subjecting the project to changes in market conditions.  It can involve complex and costly activities, including significant environmental remediation or construction work in our markets.  We may also experience an increase in costs due to general disruptions that affect the cost of labor and/or materials, such as trade disputes, tariffs, labor unrest and/or geopolitical conflicts.  We may abandon opportunities that we have already begun to explore for a number of reasons, and as a result, we may fail to recover expenses or option payments already incurred in exploring those opportunities.  We may also be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third-party permits and authorizations.  These and other risks inherent in development projects could result in increased costs or the delay or abandonment of opportunities.  

Because real estate investments are illiquid, we may not be able to sell properties when appropriate.

Real estate investments generally cannot be sold quickly.  We may not be able to reconfigure our portfolio promptly in response to changing economic or other conditions.  We may be unable to consummate such dispositions in a timely manner, on attractive terms, or at all.  In some cases, we may also determine that we will not recover the carrying amount of the property upon disposition.  This inability to reallocate our capital promptly could negatively affect our financial condition, including our ability to make distributions to our security holders.

The Company’s real estate assets may be subject to impairment charges.

A decline in the fair value of our assets may require us to recognize an impairment against our assets under accounting principles generally accepted in the United States (“GAAP”) if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets for a period of time sufficient to allow for recovery of the depreciated cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write-down the depreciated cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize material asset impairment charges in the future, these charges could adversely affect our financial condition and results of operations.

We are subject to risks involved in real estate activity through joint ventures.

We currently, and may continue to in the future, develop and acquire properties in joint ventures with other persons or entities.  Joint ventures create risks including the following:

 

The possibility that our partners might refuse or be financially unable to make capital contributions when due and therefore we may be forced to make contributions to protect our investments;

 

We may be responsible to our partners for indemnifiable losses;

 

Our partners might at any time have business or economic goals that are inconsistent with ours; and

 

Our partners may be in a position to take action or withhold consent contrary to our recommendations, instructions or requests.

At times we have entered into agreements providing for joint and several liability with our partners.  We also have in the past and could choose in the future to guarantee part of or all of certain joint venture debt.  We and our respective joint venture partners may each have the right to trigger a buy-sell arrangement that could cause us to sell our interest, or acquire our partner's interest, at a time or price that is unfavorable to us.  In some instances, joint venture partners may also have competing interests or objectives that could create conflicts of interest similar to those noted above. These objectives may be contrary to our compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures do not operate in compliance with those requirements. To the extent our partners do not meet their obligations to us or our joint ventures, or they take actions inconsistent with the interests of the joint venture, it could have a negative effect on our results of operations and financial condition, including distributions to our security holders.

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Corporate social responsibility, specifically related to ESG, may impose additional costs and expose us to new risks.

Sustainability, social and governance evaluations remain highly important to investors and other stakeholders. Certain organizations that provide corporate governance and other corporate risk advisory services to investors have developed scores and ratings to evaluate companies and investment funds based upon ESG metrics. Many investors focus on positive ESG-related business practices and scores when choosing to allocate their capital and may consider a company's score as a reputational or other factor in making an investment decision. Investors' increased focus and activism related to ESG and similar matters may constrain our business operations or increase expenses. In addition, investors may decide to refrain from investing in us as a result of their assessment of our approach to and consideration of ESG factors. We may face reputational damage in the event our corporate responsibility procedures or standards do not meet the standards set by various constituencies. Although we have generally scored highly in these metrics to date, there can be no assurance that we will continue to score highly in the future. In addition, the criteria by which companies are rated for ESG efforts may change, which could cause us to receive lower scores than in previous years. A low ESG score could result in a negative perception of the Company, exclusion of our securities from consideration by certain investors who may elect to invest with our competition instead and/or cause investors to reallocate their capital away from the Company, all of which could have an adverse impact on the price of our securities.

Risks Related to our Financing Strategy and Capital Structure

Disruptions in the financial markets could hinder our ability to obtain debt and equity financing and impact our acquisitions and dispositions.

Dislocations and disruptions in capital markets could result in increased costs or lack of availability of debt financing (including under our commercial paper program) and equity financing.  Such events may affect our ability to refinance existing debt, require us to utilize higher cost alternatives and/or impair our ability to adjust to changing economic and business conditions.  Capital market disruptions could negatively impact our ability to make acquisitions or make it more difficult or not possible for us to sell properties or may unfavorably affect the price we receive for properties that we do sell.  Such disruptions could cause the price of our securities to decline.

Changes in market conditions and volatility of share prices could decrease the market price of our Common Shares.

The stock markets, including the New York Stock Exchange on which we list our Common Shares, have experienced significant price and volume fluctuations over time.  As a result, the market price of our Common Shares could be similarly volatile.  Investors in our Common Shares consequently may experience a decrease in the value of their shares, including decreases due to this volatility and not necessarily related to our operating performance or prospects.  Additionally, the market price of our Common Shares may decline or fluctuate significantly in response to the sale of substantial amounts of our Common Shares, or the anticipation of the sale of such shares, by large holders of our securities.  The issuance of additional Common Shares by the Company, or the perception that such issuances might occur, could also cause significant volatility and decreases in the value of our shares.

Our financial counterparties may not perform their obligations.

Although we have not experienced any material counterparty non-performance, disruptions in financial and credit markets or other events could impair the ability of our counterparties to perform under their contractual obligations to us.  There are multiple financial institutions that are individually committed to provide borrowings under our revolving credit facility.  Should any of these institutions fail to perform their obligations when contractually required, our financial condition could be adversely affected.

Rising interest rates can increase costs.

The Company is exposed to market risk from financial instruments primarily from changes in market interest rates.  Such risks derive from the refinancing of debt, exposure to interest rate fluctuations in floating rate debt and from derivative instruments utilized to swap fixed rate debt to floating rates or to hedge rates in anticipation of future debt issuances.  Increases in interest rates would increase our interest expense and the costs of refinancing existing debt.

Insufficient cash flow could affect our ability to service existing debt and create refinancing risk.

We are subject to risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments.  We may not be able to refinance existing debt and if we can, the terms of such refinancing may be less favorable than the terms of existing indebtedness.  Our inability to refinance, extend or repay debt with proceeds from other capital market transactions would negatively impact our financial condition.  If the debt is secured, the mortgage holder may also foreclose on the property.  

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A significant downgrade in our credit ratings could adversely affect our performance.

A significant downgrade in our credit ratings, while not affecting our ability to draw proceeds under the Company’s revolving credit facility, would cause the corresponding borrowing costs to increase, impact our ability to borrow secured and unsecured debt, and potentially impair our ability to access the commercial paper market or otherwise limit our access to capital.  In addition, a downgrade below investment grade would likely cause us to lose access to the commercial paper markets and would require us to post cash collateral and/or letters of credit in favor of some of our secured lenders to cover our self-insured property and liability insurance deductibles or to obtain lower deductible insurance compliant with the lenders’ requirements at the lower ratings level.

Financial covenants could limit operational flexibility and affect our overall financial position.

The terms of our credit agreements, including our revolving credit facility and the indentures under which a substantial portion of our unsecured debt was issued, require us to comply with a number of financial covenants. These covenants may limit our flexibility to run our business and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness and trigger a cross default of other debt.

Some of our properties are financed with tax-exempt bonds or otherwise contain restrictive covenants or deed restrictions, including affordability requirements, which limit income from certain properties.  The Company monitors compliance with the restrictive covenants and deed restrictions that affect these properties.  While we generally believe that the interest rate benefit from financing properties with tax-exempt bonds more than outweighs any loss of income due to restrictive covenants or deed restrictions, this may not always be the case.  Some of these requirements are complex, and our failure to comply with them may subject us to material fines or liabilities.

We may change the dividend policy for our securities in the future. 

The decision to declare and pay dividends on our securities, as well as the timing, amount and composition of any such future dividends, is at the discretion of the Board of Trustees and will depend 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 Board of Trustees may modify our dividend policy from time to time and any change in our dividend policy could negatively impact the market price of our securities.

Issuances or sales of our Common Shares or Units may be dilutive.

Any potential additional issuance of Common Shares or OP Units would reduce the percentage of our Common Shares and OP Units owned by investors. In most circumstances, shareholders and unitholders will not be entitled to vote on whether or not we issue additional Common Shares or Units. In addition, depending on the terms and pricing of additional offerings of our Common Shares or Units along with the value of our properties, our shareholders and unitholders could experience dilution in both book value and fair value of their Common Shares or Units, as well as dilution in our actual and expected earnings per share, funds from operations (“FFO”) per share and Normalized FFO per share.

Regulatory and Tax Risks

The adoption of, or changes, in rent control or rent stabilization regulations and eviction regulations in our markets could have an adverse effect on our operations and property values.

A growing number of state and local governments have enacted and may continue to consider enacting and/or expanding rent control or rent stabilization regulations, which have limited and could continue to limit in broadening ways our ability to raise rents or charge certain fees, either of which could have a retroactive effect. We continue to see increases in governments considering or being urged by advocacy groups to consider rent forgiveness, rent control or rent stabilization regulations or expand coverage of existing regulations in our markets.  These regulations may also make changes to and/or expand eviction and other tenants’ rights regulations that may limit our ability to enforce residents’ or tenants’ contractual rental obligations (such as eviction moratoriums), pursue collections or charge certain fees, which could have an adverse impact on our operations and property values.    

Compliance or failure to comply with regulatory requirements could result in substantial costs. 

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements, building and zoning codes and federal, state and local accessibility requirements, including and in addition to those imposed by the Americans with Disabilities Act and the Fair Housing Act. Noncompliance could result in fines, subject us to lawsuits and require us to remediate or repair the noncompliance. Existing requirements could change and compliance with future requirements may require significant unanticipated expenditures that could adversely affect our financial condition or results of operations.

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Environmental problems are possible and can be costly.

Federal, state and local laws and regulations relating to the protection of the environment may require current or previous owners or operators of real estate to investigate and clean up hazardous or toxic substances at such properties.  The owner or operator may have to pay a governmental entity or third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination.  These laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants.  Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred.  Third parties may also sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site.  We cannot be assured that existing environmental assessments of our properties reveal all environmental liabilities, that any prior owner of any of our properties did not create a material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to any of our properties.

Changes in U.S. accounting standards may materially and adversely affect the reporting of our operations.

The Company follows GAAP, which is established by the Financial Accounting Standards Board (“FASB”), an independent body whose standards are recognized by the Securities and Exchange Commission (“SEC”) as authoritative for publicly held companies.  The FASB and the SEC create and interpret accounting standards and may issue new accounting pronouncements or change the interpretation and application of these standards that govern the preparation of our financial statements.  These changes could have a material impact on our reported consolidated results of operations and financial position.

Any weaknesses identified in our internal control over financial reporting could result in a decrease of our share price.

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting.  If we identify one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have a negative impact on our share price.

Our failure to qualify as a REIT would have serious adverse consequences to our security holders.

We plan to continue to meet the requirements for taxation as a REIT.  Many of these requirements, for which there is limited judicial and administrative interpretation, however, are highly technical and complex.  Therefore, we cannot guarantee that we have qualified or will qualify as a REIT in the future.  The determination that we are a REIT requires an analysis of various factual matters that may not be totally within our control.  To qualify as a REIT, our assets must be substantially comprised of real estate assets as defined in the Internal Revenue Code of 1986, as amended (the “Code”), and related guidance and our gross income must generally come from rental and other real estate or passive related sources that are itemized in the REIT tax laws.  We are also required to distribute to security holders at least 90% of our REIT taxable income excluding net capital gains.

If we fail to qualify as a REIT, we would be subject to U.S. federal income tax at regular corporate rates (including, for years prior to 2018, any alternative minimum tax) and would have to pay significant income taxes unless the Internal Revenue Service (“IRS”) granted us relief under certain statutory provisions.  In addition, we would remain disqualified from taxation as a REIT for four years following the year in which we failed to qualify as a REIT.  We would therefore have less money available for investments or for distributions to security holders and would no longer be required to make distributions to security holders.  This would likely have a significant negative impact on the value of our securities.  

In addition, certain of our subsidiary entities have elected to be taxed as REITs.  As such, each must separately satisfy all of the requirements to qualify for REIT status.  If a subsidiary REIT did not satisfy such requirements, and certain relief provisions did not apply, it would be taxed as a regular corporation and its income would be subject to U.S. federal income taxation.   Failure to comply with these complex REIT rules at the subsidiary REIT level can have a material and detrimental impact to EQR’s REIT status.

 

Gain on disposition of assets held for sale in the ordinary course of business is subject to 100% tax.

Any gain resulting from transfers of properties we hold as inventory or primarily for sale to customers in the ordinary course of business is treated as income from a prohibited transaction subject to a 100% penalty tax unless certain safe harbor exceptions set forth in the Code apply.  We do not believe that our transfers or disposals of property are prohibited transactions.  However, whether property is held for investment purposes is a question that depends on all the facts and circumstances surrounding the particular transaction.  The IRS may contend that certain transfers or dispositions of properties by us or contributions of properties are prohibited transactions.  While we believe the IRS would not prevail in any such dispute, if the IRS were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction.  In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT.

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We may be subject to legislative or regulatory tax changes that could negatively impact our financial condition.

At any time, U.S. federal income tax laws governing REITs or impacting real estate or the administrative interpretations of those laws may be enacted or amended. We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, IRS and U.S. Department of Treasury regulations or other administrative guidance, will be adopted or become effective and any such law, regulation or interpretation may take effect retroactively.  The Company and our shareholders could be negatively impacted by any such change in, or any new, U.S. federal income tax law, regulations or administrative guidance.

Distribution requirements may limit our flexibility to manage our portfolio.

In order to maintain qualification as a REIT under the Code, a REIT must annually distribute to its shareholders at least 90% of its REIT taxable income, excluding the dividends paid deduction and net capital gains.  To the extent the REIT does not distribute all its net capital gain, or distributes at least 90%, but less than 100% of its REIT taxable income, it will be required to pay regular U.S. federal income tax on the undistributed amount at corporate rates.  In addition, we will be subject to a 4% nondeductible excise tax on amounts, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our net capital gains and 100% of our undistributed income from prior years.  We may not have sufficient cash or other liquid assets to meet the 90% distribution requirement. We may be required from time to time, under certain circumstances, to accrue as income for tax purposes interest and rent earned but not yet received.  We may incur a reduction in tax depreciation without a reduction in capital expenditures.  Difficulties in meeting the 90% distribution requirement might arise due to competing demands for our funds or due to timing differences between tax reporting and cash distributions, because deductions may be disallowed, income may be reported before cash is received, expenses may have to be paid before a deduction is allowed or because the IRS may make a determination that adjusts reported income.  In addition, gain from the sale of property may exceed the amount of cash received on a leverage-neutral basis.  A substantial increase to our taxable income may reduce the flexibility of the Company to manage its portfolio through dispositions of properties other than through tax deferred transactions or cause the Company to borrow funds or liquidate investments on unfavorable terms in order to meet these distribution requirements. If we fail to satisfy the 90% distribution requirement and are unable to cure the deficiency, we would cease to be taxed as a REIT, resulting in substantial tax-related liabilities.

We have a share ownership limit for REIT tax purposes.

To remain qualified as a REIT for U.S. federal income tax purposes, not more than 50% in value of our outstanding Shares may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any year.  To facilitate maintenance of our REIT qualification, our Declaration of Trust, subject to certain exceptions, prohibits ownership by any single shareholder of more than five percent of the lesser of the number or value of any outstanding class of common or preferred shares (the “Ownership Limit”).  Absent an exemption or waiver granted by our Board of Trustees, securities acquired or held in violation of the Ownership Limit will be transferred to a trust for the exclusive benefit of a designated charitable beneficiary, and the security holder’s rights to distributions and to vote would terminate.  A transfer of Shares may automatically be deemed void if it causes a person to violate the Ownership Limit.  The Ownership Limit could delay or prevent a change in control and, therefore, could affect our security holders’ ability to realize a premium over the then-prevailing market price for their Shares.  To reduce the ability of the Board to use the Ownership Limit as an anti-takeover device, the Company’s Ownership Limit requires, rather than permits, the Board to grant a waiver of the Ownership Limit if the individual seeking a waiver demonstrates that such ownership would not jeopardize the Company’s status as a REIT.  

Tax elections regarding distributions may impact future liquidity of the Company or our shareholders.

Under certain circumstances we have made and/or may consider making in the future, a tax election to treat certain distributions to shareholders made after the close of a taxable year as having been distributed during such closed taxable year.  This election, which is provided for in the Code, may allow us to avoid increasing our dividends or paying additional income taxes in the current year.  However, this could result in a constraint on our ability to decrease our dividends in future years without creating risk of either violating the REIT distribution requirements or generating additional income tax liability. In addition, the Company may be required to pay interest to the IRS based on such a distribution.

In order to retain liquidity and continue to satisfy the REIT distribution requirements, the Company could issue shares rather than pay a dividend entirely in cash to shareholders. The IRS has published several rulings which have allowed REITs to offer shareholders the choice between shares or cash as a form of payment of a dividend (an “elective stock dividend”).  However, REITs are generally required to structure the cash component to be no less than 20% of the total dividend paid.  Therefore, it is possible that the total tax burden to shareholders resulting from an elective stock dividend may exceed the amount of cash received by the shareholder.

Inapplicability of Maryland law limiting certain changes in control.

Certain provisions of Maryland law applicable to REITs prohibit “business combinations” (including certain issuances of equity securities) with any person who beneficially owns ten percent or more of the voting power of outstanding securities, or with an affiliate who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the Company’s outstanding voting securities (an “Interested Shareholder”), or with an affiliate of an Interested

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Shareholder.  These prohibitions last for five years after the most recent date on which the Interested Shareholder became an Interested Shareholder.  After the five-year period, a business combination with an Interested Shareholder must be approved by two super-majority shareholder votes unless, among other conditions, holders of common shares receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Shareholder for its common shares.  As permitted by Maryland law, however, the Board of Trustees of the Company has opted out of these restrictions with respect to any business combination involving Sam Zell and certain of his affiliates and persons acting in concert with them.  Consequently, the five-year prohibition and the super-majority vote requirements will not apply to a business combination involving us and/or any of them.  Such business combinations may not be in the best interest of our security holders.

General Risk Factors

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 occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our reputation and business relationships, all of which could negatively impact our financial results.

A cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt payment collections and operations, corrupt data or steal confidential information, including information regarding our residents, prospective residents, employees and employees’ dependents.  

Despite system redundancy, the implementation of security measures, required employee awareness training and the existence of a disaster recovery plan for our internal information technology systems, our systems and systems maintained by third-party vendors with which we do business are vulnerable to damage from any number of sources.  We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, phishing attempts, ransomware or other scams, persons inside our organization or persons/vendors with access to our systems and other significant disruptions of our information technology networks and related systems, including property infrastructure.  Our information technology networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations.  Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.  Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.  

We collect and hold personally identifiable information of our residents and prospective residents in connection with our leasing activities, and we collect and hold personally identifiable information of our employees and their dependents.  In addition, we engage third-party service providers that may have access to such personally identifiable information in connection with providing necessary information technology, security and other business services to us.  The systems of our third-party service providers may contain defects in design or other problems that could unexpectedly compromise personally identifiable information.  Although we make efforts to maintain the security and integrity of our information technology networks and those of our third-party providers and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.

We address potential breaches or disclosure of this confidential personally identifiable information by implementing a variety of security measures intended to protect the confidentiality and security of this information including (among others):  (a) engaging reputable, recognized firms to help us design and maintain our information technology and data security systems; (b) conducting periodic testing and verification of information and data security systems, including performing ethical hacks of our systems to discover where any vulnerabilities may exist; and (c) providing periodic employee awareness training around phishing and other scams, malware and other cyber risks.  The Company also has a cyber liability insurance policy to provide some coverage for certain risks arising out of data and network breaches and data privacy regulations which provides a policy aggregate limit and a per occurrence deductible.  Cyber liability insurance generally covers, among other things, costs associated with the wrongful release, through inadvertent breach or network attack, of personally identifiable information.  However, there can be no assurance that these measures will prevent a cyber incident or that our cyber liability insurance coverage will be sufficient in the event of a cyber incident.

A breach or significant and extended disruption in the function of our systems, including our primary website, could damage our reputation and cause us to lose residents and revenues, result in a violation of applicable privacy and other laws, generate third-party

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claims, result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personally identifiable and confidential information and require us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues.  We may not be able to recover these expenses in whole or in any part from our service providers, our insurers or any other responsible parties.  As a result, there can be no assurance that our financial results would not be negatively impacted.

We are also subject to laws, rules, and regulations in the United States, such as the California Consumer Privacy Act (“CCPA”), relating to the collection, use, and security of resident, customer, employee and other data. Evolving compliance and operational requirements under the CCPA and the privacy laws of other jurisdictions in which we operate may impose significant costs that are likely to increase over time. Our failure to comply with laws, rules, and regulations related to privacy and data protection could harm our business or reputation or subject us to fines and penalties.

The Audit Committee is primarily responsible for oversight of the risk management process related to cybersecurity and typically meets no less often than annually with Company information technology personnel to discuss recent trends in cyber risks and the Company’s strategy to defend its business systems and information against cyber attacks as well as the Company’s efforts to comply with data privacy laws such as the CCPA.

Our business and operations rely on specialized information technology systems, the failure of or inadequacy of which could impact our business.

Our ability to identify, implement and maintain appropriate information technology systems differentiates and creates competitive advantages for us in the operations of our business.  These systems often are developed and hosted by third party vendors whom we rely upon for ongoing maintenance, upgrades and enhancements.  While we maintain a rigorous process around selecting appropriate information technology systems and partnering with vendors, our failure to adequately do so could negatively impact our operations and competitive position.

We depend on our key personnel.

We depend on the efforts of our trustees and executive officers.  If one or more of them resign or otherwise cease to be employed by us, our business and results of operations and financial condition could be adversely affected.  

Litigation risk could affect our business.

We may become involved in legal proceedings, claims, actions, inquiries and investigations in the ordinary course of business. These legal proceedings may include, but are not limited to, proceedings related to consumer, shareholder, securities, employment, environmental, development, condominium conversion, tort, eviction and commercial legal issues.  Litigation can be lengthy and expensive, and it can divert management's attention and resources. Results cannot be predicted with certainty, and an unfavorable outcome in litigation could result in liability material to our financial condition or results of operations.

Insurance policies can be costly and may not cover all losses, which may adversely affect our financial condition or results of operations.

The Company’s property, general liability and workers compensation insurance policies provide coverage with substantial per occurrence deductibles and/or self-insured retentions.  These self-insurance retentions can be a material portion of insurance losses in excess of the base deductibles.  While the Company has previously purchased incremental insurance coverage in the event of multiple non-catastrophic occurrences within the same policy year, these substantial deductible and self-insured retention amounts do expose the Company to greater potential for uninsured losses and this additional multiple occurrences coverage may not be available at all or on commercially reasonable terms in the future.  We believe the policy specifications and insured limits of these policies are adequate and appropriate; however, there are certain types of extraordinary losses which may not be adequately covered under our insurance program.  As a result, our financial results could be adversely affected and may vary significantly from period to period.

The Company relies on third-party insurance providers for its property, general liability, workers compensation and other insurance, and should any of them experience liquidity issues or other financial distress, it could negatively impact their ability to pay claims under the Company’s policies.  

Earthquake risk:  Our policies insuring against earthquake losses have substantial deductibles which are applied to the values of the buildings involved in the loss.  With the geographic concentration of our properties, a single earthquake affecting a market may have a significant negative effect on our financial condition and results of operations.  We cannot assure that an earthquake would not cause damage or losses greater than insured levels.  In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property or market, as well as anticipated future revenue.

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Terrorism risk:  The Company has terrorism insurance coverage which excludes losses from nuclear, biological and chemical attacks.  In the event of a terrorist attack impacting one or more of our properties, we could lose the revenues from the property, our capital investment in the property and possibly face liability claims from residents or others suffering injuries or losses.

Catastrophic weather and natural disaster risk:  Our properties may be located in areas that could experience catastrophic weather and other natural disasters from time to time, including wildfires, snow or ice storms, windstorms or hurricanes, flooding or other severe disasters.  These severe weather and natural disasters could cause substantial damages or losses to our properties which may not be covered or could exceed our insurance coverage.  Exposure to this risk could also result in a decrease in demand for properties located in these areas or affected by these conditions.  

Climate change risk: To the extent that significant changes in the climate occur in areas where our properties are located, we may experience severe weather, which may result in physical damage to or decrease the demand for properties located in these areas or affected by these conditions. Should the impact of climate change be material in nature, significant property damage or destruction of our properties could result.  In addition, climate change could cause a significant increase in insurance premiums and deductibles or a decrease in the availability of coverage, either of which could expose the Company to even greater uninsured losses. Our financial condition or results of operations may be adversely affected. In addition, changes in federal, state and local legislation and regulation based on concerns about climate change could result in increased capital expenditures on our existing properties and our new development properties.

Provisions of our Declaration of Trust and Bylaws could inhibit changes in control.

Certain provisions of our Declaration of Trust and Bylaws may delay or prevent a change in control of the Company or other transactions that could provide the security holders with a premium over the then-prevailing market price of their securities or which might otherwise be in the best interest of our security holders.  This includes the Ownership Limit described above.  While our existing preferred shares/preference units do not have all of these provisions, any future series of preferred shares/preference units may have certain voting provisions that could delay or prevent a change in control or other transactions that might otherwise be in the interest of our security holders.  Our Bylaws require certain information to be provided by any security holder, or persons acting in concert with such security holder, who proposes business or a nominee at an annual meeting of shareholders, including disclosure of information related to hedging activities and investment strategies with respect to our securities.  These requirements could delay or prevent a change in control or other transactions that might otherwise be in the interest of our security holders.  The Board of Trustees may use its powers to issue preferred shares and to set the terms of such securities to delay or prevent a change in control of the Company even if a change in control were in the interest of the security holders.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of December 31, 2020, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 304 properties located in 9 states and the District of Columbia consisting of 77,889 apartment units.  See Item 1, Business, for additional information regarding the Company’s properties and the markets/metro areas upon which we are focused.  The Company’s properties are summarized by building type in the following table:

 

Type

 

Properties

 

 

Apartment Units

 

 

Average

Apartment Units

 

Garden

 

 

102

 

 

 

25,791

 

 

 

253

 

Mid/High-Rise

 

 

202

 

 

 

52,098

 

 

 

258

 

 

 

 

304

 

 

 

77,889

 

 

 

256

 

 

The Company’s properties are summarized by ownership type in the following table:

 

 

 

Properties

 

 

Apartment Units

 

Wholly Owned Properties

 

 

287

 

 

 

74,328

 

Master-Leased Property – Consolidated

 

 

1

 

 

 

162

 

Partially Owned Properties – Consolidated

 

 

16

 

 

 

3,399

 

 

 

 

304

 

 

 

77,889

 

 

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The following table sets forth certain information by market relating to the Company’s properties at December 31, 2020:

 

Portfolio Summary

 

Markets/Metro Areas

 

Properties

 

 

Apartment

Units

 

 

% of

Stabilized

Budgeted

NOI (1)

 

 

Average

Rental

Rate (2)

 

Los Angeles

 

 

72

 

 

 

16,603

 

 

 

21.5

%

 

$

2,458

 

Orange County

 

 

13

 

 

 

4,028

 

 

 

5.4

%

 

 

2,222

 

San Diego

 

 

11

 

 

 

2,706

 

 

 

3.8

%

 

 

2,373

 

Subtotal – Southern California

 

 

96

 

 

 

23,337

 

 

 

30.7

%

 

 

2,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

San Francisco

 

 

48

 

 

 

12,707

 

 

 

18.3

%

 

 

3,053

 

Washington D.C.

 

 

47

 

 

 

14,731

 

 

 

17.2

%

 

 

2,387

 

Seattle

 

 

46

 

 

 

9,454

 

 

 

11.4

%

 

 

2,349

 

New York

 

 

37

 

 

 

9,606

 

 

 

11.3

%

 

 

3,617

 

Boston

 

 

25

 

 

 

6,430

 

 

 

9.4

%

 

 

2,958

 

Denver

 

 

5

 

 

 

1,624

 

 

 

1.7

%

 

 

2,003

 

Total

 

 

304

 

 

 

77,889

 

 

 

100.0

%

 

$

2,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: Projects under development are not included in the Portfolio Summary until construction has been completed.

(1)

% of Stabilized Budgeted NOI - Represents original budgeted 2021 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.

(2)

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.

As of December 31, 2020, the Company’s same store occupancy was 94.4% and its total portfolio-wide occupancy, which includes completed development properties in various stages of lease-up, was 94.2%.  Certain of the Company’s properties are encumbered by mortgages and additional detail can be found on Schedule III – Real Estate and Accumulated Depreciation.  Garden-style are generally defined as properties with two and/or three story buildings while mid-rise/high-rise are defined as properties with greater than three story buildings.  These two property types typically provide residents with amenities, such as rooftop decks and swimming pools, fitness centers and community rooms.  In addition, many of our urban properties have non-residential components, such as parking garages and/or retail spaces.

 

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The properties currently in various stages of development and lease-up at December 31, 2020, all of which are consolidated, are included in the following table:

 

Development and Lease-Up Projects as of December 31, 2020

 

(Amounts in thousands except for project and apartment unit amounts)

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

 

Total Book

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No. of

 

 

Budgeted

 

 

Book

 

 

Value Not

 

 

 

 

 

 

 

 

 

 

Estimated/Actual

 

 

 

 

 

 

 

 

 

 

 

 

Apartment

 

 

Capital

 

 

Value

 

 

Placed in

 

 

Total

 

 

Percentage

 

 

Initial

 

Completion

 

Stabilization

 

Percentage

 

 

Percentage

 

Projects

 

Location

 

Units

 

 

Cost (1)

 

 

to Date

 

 

Service

 

 

Debt

 

 

Completed

 

 

Occupancy

 

Date

 

Date

 

Leased

 

 

Occupied

 

Projects Under Development - Wholly Owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alcott Apartments (fka West End Tower)

 

Boston, MA

 

 

470

 

 

$

409,749

 

 

$

267,783

 

 

$

267,783

 

 

$

 

 

 

67

%

 

Q2 2021

 

Q3 2021

 

Q1 2023

 

 

 

 

 

 

The Edge (fka 4885 Edgemoor Lane) (2)

 

Bethesda, MD

 

 

154

 

 

 

75,271

 

 

 

52,312

 

 

 

52,312

 

 

 

 

 

 

70

%

 

Q3 2021

 

Q3 2021

 

Q3 2022

 

 

 

 

 

 

Projects Under Development Wholly

   Owned

 

 

 

 

624

 

 

 

485,020

 

 

 

320,095

 

 

 

320,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Projects Under Development - Partially Owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aero Apartments (3)

 

Alameda, CA

 

 

200

 

 

 

117,794

 

 

 

91,039

 

 

 

91,039

 

 

 

31,494

 

 

 

78

%

 

Q1 2021

 

Q2 2021

 

Q2 2022

 

 

 

 

 

 

Projects Under Development Partially

   Owned

 

 

 

 

200

 

 

 

117,794

 

 

 

91,039

 

 

 

91,039

 

 

 

31,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Projects Under Development

 

 

 

 

824

 

 

$

602,814

 

 

$

411,134

 

 

$

411,134

 

 

$

31,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land Held for Development

 

 

 

N/A

 

 

N/A

 

 

$

86,170

 

 

$

86,170

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Total Budgeted Capital Cost – Estimated remaining cost for projects under development and/or developed plus all capitalized costs incurred to date, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, plus any estimates of costs remaining to be funded for all projects, all in accordance with GAAP.

(2)

The Edge – The land under this project is subject to a long-term ground lease. This project is adjacent to an existing apartment property owned by the Company.

(3)

Aero Apartments – This development project is owned 90% by the Company and 10% by a third-party partner in a joint venture consolidated by the Company. Construction is being partially funded with a construction loan that is non-recourse to the Company. The joint venture partner has funded $4.7 million for its allocated share of the project equity and serves as the developer of the project.

As of December 31, 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 4. Mine Safety Disclosures

Not applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Share/Unit Information (Equity Residential and ERP Operating Limited Partnership)

The Company’s Common Shares trade on the New York Stock Exchange under the trading symbol EQR.  There is no established public market for the Operating Partnership’s Units (OP Units and restricted units).  At February 12, 2021, the number of record holders of Common Shares was approximately 1,950 and 372,663,215 Common Shares were outstanding.  At February 12, 2021, the number of record holders of Units in the Operating Partnership was approximately 475 and 386,705,589 Units were outstanding.

Unregistered Common Shares Issued in the Quarter Ended December 31, 2020 (Equity Residential)

During the quarter ended December 31, 2020, EQR issued 22,768 Common Shares in exchange for 22,768 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.

Equity Compensation Plan Information

The following table provides information as of December 31, 2020 with respect to the Company’s Common Shares that may be issued under its existing equity compensation plans.

 

Plan Category

 

Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights

 

 

Weighted-average

exercise price of

outstanding

options, warrants

and rights

 

 

Number of securities

remaining available

for future issuance

under equity

compensation plans

(excluding securities

in column (a))

 

 

 

(a) (1)

 

 

(b) (1)

 

 

(c) (2)

 

Equity compensation plans approved by shareholders

 

 

5,642,752

 

 

$

56.91

 

 

 

13,136,526

 

Equity compensation plans not approved by shareholders

 

N/A

 

 

N/A

 

 

N/A

 

 

(1)

The amounts shown in columns (a) and (b) of the above table do not include 353,634 outstanding Common Shares (all of which are restricted and subject to vesting requirements) that were granted under the Company’s 2011 Share Incentive Plan, as amended (the “2011 Plan”), and 2019 Share Incentive Plan, as amended (the “2019 Plan”), and outstanding Common Shares that have been purchased by employees and trustees under the Company’s ESPP.

(2)

Includes 10,512,390 Common Shares that may be issued under the 2019 Plan and 2,624,136 Common Shares that may be sold to employees and trustees under the ESPP.

On June 27, 2019, the shareholders of EQR approved the Company's 2019 Plan and the Company has filed a Form S-8 registration statement to register 11,331,958 Common Shares under this plan. As of December 31, 2020, 10,512,390 shares were available for future issuance. In conjunction with the approval of the 2019 Plan, no further awards may be granted under the 2011 Plan. The 2019 Plan expires on June 27, 2029.

Any Common Shares issued pursuant to EQR’s incentive equity compensation and employee share purchase plans will result in ERPOP issuing OP Units to EQR on a one-for-one basis, with ERPOP receiving the net cash proceeds of such issuances.

Item 6. Reserved

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations and financial condition of the Company and the Operating Partnership should be read in connection with the Consolidated Financial Statements and Notes thereto.  Due to the Company’s ability to control the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary entity has been consolidated with the Company for financial reporting purposes, except for any unconsolidated properties/entities.  Capitalized terms used herein and not defined are as defined elsewhere in this Annual Report on Form 10-K.  In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 7, 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, such as the current 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, the rollout and effectiveness of vaccines and the impact of operational changes we have implemented and may implement in response to the pandemic.

Additional factors that might cause such differences are discussed in Part I of this Annual Report on Form 10-K, particularly those under Item 1A, Risk Factors.

Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report.  The 2021 guidance assumptions disclosed throughout this Item 7 are based on current expectations and are forward-looking.

Overview

See Item 1, Business, for discussion regarding the Company’s overview.

Business Objectives and Operating and Investing Strategies

See Item 1, Business, for discussion regarding the Company’s business objectives and operating and investing strategies.

COVID-19 Impact

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.  The continued rapid development and fast-changing nature of the COVID-19 pandemic creates many unknowns that have had and could continue to have a significant future impact on the Company.  Its duration, severity and the extent of the adverse health impact on the general population, our residents and employees, the rollout and effectiveness of vaccines and the potential long-term 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 new touchless leasing process and a service process designed to limit in-person 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;

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Continuing to provide additional paid leave for employees impacted by the pandemic and in 2020 paid special bonuses to certain on-site employees 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 and tenants financially impacted by the pandemic, including creating payment plans to assist them, among other support efforts.

While the pandemic remains a significant health threat, cities continue to work towards safely re-opening their economies and to managing closures in ways that create the least amount of economic impact.  We expect that employers will bring back employees to their offices deliberately and safely.  We believe proximity to employment and to entertainment and social amenities in urban centers will continue to have value.  Employers also continue to invest in the future, committing to long-term office obligations in our markets where they continue to create collaborative work environments.

During the year ended December 31, 2020, the Company collected approximately 97% of its expected Residential revenues in the second, third and fourth quarters of 2020.  We believe that 2021 will be a year of recovery for the Company.  Operating trends are improving and we believe that the first half of 2021 will be the low point in our financial results.  Our affluent, well-employed resident base remains drawn to our nation’s great cities and we expect demand to accelerate and pricing to continue to improve as vaccines are widely administered and cities become more active.   

Results of Operations

2020 and 2019 Transactions

In conjunction with our business objectives and operating and investing strategies, the following tables provide a rollforward of the transactions that occurred during the years ended December 31, 2020 and 2019:

 

Portfolio Rollforward

($ in thousands)

 

 

 

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

 

 

(6

)

 

 

(2,231

)

 

$

(1,066,861

)

 

 

(4.5

)%

Land Parcels

 

 

 

 

 

 

 

$

(55,510

)

 

 

 

 

12/31/2020

 

 

304

 

 

 

77,889

 

 

 

 

 

 

 

 

 

 

(1)

The Company acquired one property in the third quarter of 2020 that is in lease-up and is expected to stabilize in its second year of ownership.

The consolidated property acquired was located in the Seattle market.  The consolidated properties disposed of were located in the Phoenix, San Diego, San Francisco and Washington D.C. markets and the sales generated an Unlevered IRR of 10.2%.

 

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Portfolio Rollforward

($ in thousands)

 

 

 

Properties

 

 

Apartment

Units

 

 

Purchase Price

 

 

Acquisition

Cap Rate

 

12/31/2018

 

 

307

 

 

 

79,482

 

 

 

 

 

 

 

 

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental Properties

 

 

9

 

 

 

2,412

 

 

$

1,039,830

 

 

 

4.6

%

Rental Properties – Not Stabilized (1)

 

 

4

 

 

 

1,128

 

 

$

454,859

 

 

 

4.9

%

Land Parcels

 

 

 

 

 

 

 

$

19,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Price

 

 

Disposition

Yield

 

Dispositions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental Properties

 

 

(11

)

 

 

(2,361

)

 

$

(1,080,675

)

 

 

(4.6

)%

Land Parcels

 

 

 

 

 

 

 

$

(2,100

)

 

 

 

 

Unconsolidated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental Properties (2)

 

 

(2

)

 

 

(945

)

 

$

(394,500

)

 

 

(4.7

)%

Completed Developments – Consolidated

 

 

2

 

 

 

221

 

 

 

 

 

 

 

 

 

Configuration Changes

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

12/31/2019

 

 

309

 

 

 

79,962

 

 

 

 

 

 

 

 

 

 

(1)

The Company acquired four properties during the year ended December 31, 2019, consisting of two properties in the Denver market and two properties in the Seattle market, all of which are in the final stages of completing lease-up and are expected to stabilize in the second year of ownership at the Acquisition Cap Rate listed above.

(2)

The Company owned a 20% interest in unconsolidated rental properties located in San Jose, CA and South Florida.  Sales price listed is the gross sales price.  The Company received net sales proceeds of approximately $78.3 million and recognized a GAAP gain on sale of approximately $69.5 million.

The consolidated properties acquired were located in the New York, Seattle, Washington D.C., San Francisco, Los Angeles and Denver markets.  The consolidated properties disposed of were located in the New York, Washington D.C., San Francisco and Boston markets and the sales generated an Unlevered IRR of 7.8%.  The consolidated properties development completions were located in the Boston and Seattle markets.  Finally, the Company started construction on two consolidated projects, located in the San Francisco and Washington D.C. markets, consisting of 354 apartment units totaling approximately $193.1 million of expected development costs.  

See Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.

The Company’s guidance assumes consolidated rental acquisitions will be approximately equal to consolidated rental dispositions for the full year ending December 31, 2021.  We currently budget spending approximately $220.0 million on development costs during the year ending December 31, 2021, primarily for properties currently under construction.  Certain of these costs are expected to 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 2020 and 2019 (the “2020 Same Store Properties”), which represented 73,585 apartment units, impacted the Company’s results of operations.  The 2020 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.

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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 year ended December 31, 2020:

 

 

 

Year Ended December 31, 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

 

 

(6

)

 

 

(2,231

)

Lease-up properties stabilized

 

 

5

 

 

 

2,015

 

Same Store Properties at December 31, 2020

 

 

285

 

 

 

73,585

 

 

 

 

Year Ended December 31, 2020

 

 

 

Properties

 

 

Apartment

Units

 

Same Store

 

 

285

 

 

 

73,585

 

Non-Same Store:

 

 

 

 

 

 

 

 

2020 acquisitions

 

 

1

 

 

 

158

 

2019 acquisitions

 

 

13

 

 

 

3,540

 

Master-Leased properties (1)

 

 

1

 

 

 

162

 

Lease-up properties not yet stabilized (2)

 

 

3

 

 

 

443

 

Other

 

 

1

 

 

 

1

 

Total Non-Same Store

 

 

19

 

 

 

4,304

 

Total Properties and Apartment Units

 

 

304

 

 

 

77,889

 

 

Note: Properties are considered “stabilized” when they have achieved 90% occupancy for three consecutive months.  Properties are included in same 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.

(2)

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 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):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Operating income

 

$

1,317,990

 

 

$

1,356,160

 

Adjustments:

 

 

 

 

 

 

 

 

Property management

 

 

93,825

 

 

 

95,344

 

General and administrative

 

 

48,305

 

 

 

52,757

 

Depreciation

 

 

820,832

 

 

 

831,083

 

Net (gain) loss on sales of real estate properties

 

 

(531,807

)

 

 

(447,637

)

Total NOI

 

$

1,749,145

 

 

$

1,887,707

 

Rental income:

 

 

 

 

 

 

 

 

Same store

 

$

2,419,018

 

 

$

2,519,235

 

Non-same store/other

 

 

152,687

 

 

 

181,456

 

Total rental income

 

 

2,571,705

 

 

 

2,700,691

 

Operating expenses:

 

 

 

 

 

 

 

 

Same store

 

 

773,479

 

 

 

757,502

 

Non-same store/other

 

 

49,081

 

 

 

55,482

 

Total operating expenses

 

 

822,560

 

 

 

812,984

 

NOI:

 

 

 

 

 

 

 

 

Same store

 

 

1,645,539

 

 

 

1,761,733

 

Non-same store/other

 

 

103,606

 

 

 

125,974

 

Total NOI

 

$

1,749,145

 

 

$

1,887,707

 

 

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The following table provides comparative total same store results and statistics for the 2020 Same Store Properties:

 

2020 vs. 2019

Same Store Results/Statistics Including 73,585 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 

2020

 

 

2019

 

 

 

Residential

 

 

%

Change

 

 

Non-

Residential

 

 

%

Change

 

 

Total

 

 

%

Change

 

 

 

 

Residential

 

 

Non-

Residential

 

 

Total

 

Revenues

 

$

2,356,344

 

 

 

(2.9

%)

 

$

62,674

 

(1)

 

(33.2

%)

 

$

2,419,018

 

 

 

(4.0

%)

 

Revenues

 

$

2,425,471

 

 

$

93,764

 

 

$

2,519,235

 

Expenses

 

$

751,504

 

 

 

2.1

%

 

$

21,975

 

 

 

3.5

%

 

$

773,479

 

 

 

2.1

%

 

Expenses

 

$

736,279

 

 

$

21,223

 

 

$

757,502

 

NOI

 

$

1,604,840

 

 

 

(5.0

%)

 

$

40,699

 

 

 

(43.9

%)

 

$

1,645,539

 

 

 

(6.6

%)

 

NOI

 

$

1,689,192

 

 

$

72,541

 

 

$

1,761,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Rental Rate

 

$

2,809

 

 

 

(1.5

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Rental Rate

 

$

2,852

 

 

 

 

 

 

 

 

 

Physical Occupancy

 

 

95.1

%

 

 

(1.3

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical Occupancy

 

 

96.4

%

 

 

 

 

 

 

 

 

Turnover

 

 

52.3

%

 

 

2.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnover

 

 

49.8

%

 

 

 

 

 

 

 

 

 

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)

Changes in same store Non-Residential revenues are primarily driven by the deferral/abatement of rents, higher bad debt, lower parking income and the non-cash write-off of $12.9 million of Non-Residential straight-line lease receivables predominantly in the third quarter of 2020. 

The following table provides results and statistics related to our Residential same store operations for the years ended December 31, 2020 and 2019:

 

2020 vs. 2019

Same Store Residential Results/Statistics by Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) from Prior Year

 

Markets/Metro Areas

 

Apartment

Units

 

 

2020

% of

Actual

NOI

 

 

2020

Average

Rental

Rate

 

 

2020

Weighted

Average

Physical

Occupancy %

 

 

2020

Turnover

 

 

Revenues

 

 

Expenses

 

 

NOI

 

 

Average

Rental

Rate

 

 

Physical

Occupancy

 

 

Turnover

 

Los Angeles

 

 

15,968

 

 

 

20.1

%

 

$

2,547

 

 

 

95.5

%

 

 

51.9

%

 

 

(3.1

%)

 

 

0.8

%

 

 

(4.8

%)

 

 

(2.4

%)

 

 

(0.7

%)

 

 

(2.5

%)

Orange County

 

 

4,028

 

 

 

5.0

%

 

 

2,252

 

 

 

96.7

%

 

 

45.3

%

 

 

0.2

%

 

 

0.8

%

 

 

0.0

%

 

 

0.0

%

 

 

0.2

%

 

 

(6.5

%)

San Diego

 

 

2,706

 

 

 

3.5

%

 

 

2,374

 

 

 

97.0

%

 

 

49.0

%

 

 

1.4

%

 

 

1.6

%

 

 

1.3

%

 

 

1.0

%

 

 

0.4

%

 

 

(6.0

%)

Subtotal – Southern California

 

 

22,702

 

 

 

28.6

%

 

 

2,473

 

 

 

95.9

%

 

 

50.4

%

 

 

(2.1

%)

 

 

0.9

%

 

 

(3.2

%)

 

 

(1.7

%)

 

 

(0.4

%)

 

 

(3.6

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

San Francisco

 

 

12,183

 

 

 

20.6

%

 

 

3,234

 

 

 

94.7

%

 

 

55.3

%

 

 

(3.9

%)

 

 

3.0

%

 

 

(6.1

%)

 

 

(2.5

%)

 

 

(1.3

%)

 

 

4.2

%

Washington D.C.

 

 

13,711

 

 

 

16.5

%

 

 

2,444

 

 

 

95.7

%

 

 

49.9

%

 

 

(0.6

%)

 

 

0.9

%

 

 

(1.2

%)

 

 

0.4

%

 

 

(0.9

%)

 

 

3.2

%

New York

 

 

9,475

 

 

 

13.3

%

 

 

3,826

 

 

 

93.0

%

 

 

50.9

%

 

 

(6.2

%)

 

 

3.3

%

 

 

(13.2

%)

 

 

(2.4

%)

 

 

(3.7

%)

 

 

12.1

%

Seattle

 

 

8,442

 

 

 

10.4

%

 

 

2,433

 

 

 

95.5

%

 

 

53.6

%

 

 

(0.3

%)

 

 

3.9

%

 

 

(1.8

%)

 

 

0.7

%

 

 

(0.9

%)

 

 

(0.7

%)

Boston

 

 

6,346

 

 

 

9.8

%

 

 

3,100

 

 

 

94.2

%

 

 

56.3

%

 

 

(3.3

%)

 

 

0.6

%

 

 

(4.8

%)

 

 

(1.2

%)

 

 

(2.0

%)

 

 

9.0

%

Denver

 

 

726

 

 

 

0.8

%

 

 

2,101

 

 

 

94.5

%

 

 

70.8

%

 

 

(2.4

%)

 

 

2.9

%

 

 

(4.3

%)

 

 

(1.0

%)

 

 

(1.6

%)

 

 

4.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

73,585

 

 

 

100.0

%

 

$

2,809

 

 

 

95.1

%

 

 

52.3

%

 

 

(2.9

%)

 

 

2.1

%

 

 

(5.0

%)

 

 

(1.5

%)

 

 

(1.3

%)

 

 

2.5

%

 

Note: The above table reflects Residential same store results only.  Residential operations account for approximately 97.3% of total revenues for the year ended December 31, 2020.

The following table includes select statistics for Residential same store properties presented on a suburban and urban basis.  Statistics for January 2021 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 presented below.  

 

 

 

% of

Same

Store

Residential

Revenues

 

 

Physical Occupancy on:

 

 

Percentage of Residents

Renewing by Month

 

 

Blended Rate

 

 

 

Dec YTD 2020

 

 

Sep 30, 2020

 

 

Dec 31, 2020

 

 

Jan 31, 2021

 

 

Jan 2020

 

 

Dec 2020

 

 

Jan 2021 (1)

 

 

Q4 2020

 

 

Dec 2020

 

 

Jan 2021 (1)

 

Suburban (2)

 

 

44

%

 

 

95.9

%

 

 

95.8

%

 

 

96.1

%

 

 

58

%

 

 

58

%

 

 

55

%

 

 

(7.0

%)

 

 

(7.3

%)

 

 

(7.3

%)

Urban Other (2)(3)

 

 

33

%

 

 

94.3

%

 

 

94.6

%

 

 

95.3

%

 

 

55

%

 

 

47

%

 

 

45

%

 

 

(13.4

%)

 

 

(14.3

%)

 

 

(14.7

%)

Urban Core (2)(4)

 

 

23

%

 

 

89.2

%

 

 

90.2

%

 

 

91.8

%

 

 

63

%

 

 

49

%

 

 

51

%

 

 

(25.0

%)

 

 

(26.6

%)

 

 

(25.0

%)

Total

 

 

100

%

 

 

94.2

%

 

 

94.4

%

 

 

95.1

%

 

 

58

%

 

 

53

%

 

 

52

%

 

 

(13.0

%)

 

 

(13.9

%)

 

 

(14.1

%)

 

(1)

January 2021 results are preliminary.

(2)

The Company defines Urban submarkets as those with 3,500 or more households per square mile with the remainder defined as Suburban.

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(3)

Includes all other Urban properties excluding Urban Core.

(4)

Includes Urban properties in Manhattan/Brooklyn, Downtown Boston/Cambridge and Downtown San Francisco.

The following table provides guidance for our expected full year 2021 same store operating performance:

 

 

Full Year 2021

Physical Occupancy

 

94.8% to 95.8%

Revenue change

 

(9.0%) to (7.0%)

Expense change

 

3.0% to 4.0%

NOI change

 

(15.0%) to (12.0%)

Although 2020 has been the most challenging year that we have faced in our business, we believe that initial signs of improvement have emerged and are optimistic that 2021 will be a year of recovery.  We have begun to see improvements across our portfolio for both urban and suburban properties in Physical Occupancy and pricing.  Notably, this is the first time this has occurred since July 2020.  We continue to test price sensitivity in many markets by reducing both the value and quantity of Leasing Concessions being granted and are beginning to raise rents from recent prior months.  While forward trends are improving, our reported results for 2021, particularly in the first half, will continue to be severely impacted by the pandemic.  However, we believe our results will steadily improve through the second half of 2021 as recovery accelerates.  In the meantime, the Company remains focused on the following performance indicators:

 

Demand – Demand continues to be robust and has carried us through much of the winter season with increased move-in activity well above the seasonal norms.  Applications exceeded 2019 levels by approximately 25% in the fourth quarter of 2020 and we were able to generate sufficient activity for move-ins to outpace move-outs despite higher Turnover compared to 2019’s record low level.  Applications have remained robust in January 2021, albeit below December 2020 levels, but that is not unexpected since improved Physical Occupancy has allowed us to start testing pricing increases and we have fewer apartment units available to lease.

 

Pricing – We have seen improvement in the rents (net of Leasing Concessions) that we are able to charge on our apartments since December 2020.  This trend, which is a good indicator of where rents including Leasing Concessions stand, has been improving across both urban and suburban markets since this time.  However, New Lease Change remains negative as do Renewal Rates Achieved, which will continue to contribute to challenging Blended Rates.  

 

Renewal Rates – We continue to experience negotiation pressure on Renewal Rate Achieved as we are still renewing residents who signed leases pre-pandemic.  In terms of the quantity of renewals, we have found some stability in the percent of residents renewing their leases which stands at approximately 52% in January 2021.  We expect that to improve to approximately 54% for February and March 2021, which is still 6% below the record retention rates from 2019.

In summary, the operating environment remains challenging but we are beginning to see what we believe are signs of improvement.  See below for specific discussion on operating performance by geographic market:

 

Boston – Strong application volume and improved retention through the fourth quarter of 2020 resulted in steady gains in Physical Occupancy to position us at 95.4% as of January 31, 2021.  This market has been reducing Leasing Concession use and now approximately 25% to 30% of our applications, as compared to approximately 50% of our applications back in November 2020, are using them.  We have also been able to raise rents consecutively for the past four weeks as of January 31, 2021.  Going forward, we expect continued modest improvement but acknowledge that a full recovery will require additional demand drivers to aid in the absorption of the new supply that is being delivered currently and anticipated through the first half of 2021.  Despite these anticipated challenges in 2021, the performance over the last two months has definitely improved and has been stronger than our other urban core markets. We expect to regain more Physical Occupancy in 2021 which should allow us to recapture some of the pricing we lost in 2020.

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New York – New York continues to feel the outsized impact of the COVID-19 pandemic but there are early signs of recovery.  We recently had our best Traffic week in the last twelve months and our best leasing week, in terms of applications, since August 2020.  Leasing activity is still driven by deal seekers and intra-city movers who are running about 10% higher than normal.  We still see residents continuing to leave the city with most of our residents moving to surrounding states with suburban New Jersey capturing the largest share, but that number is normalizing.  Physical Occupancy has improved in the market and is at 91.2% at January 31, 2021, which is the first time it has exceeded 90% since September 2020.  We believe the broader recovery in this market will be fueled by a lack of competitive new supply, the return to office and the continued growth of technology employers.  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.  For 2021, our focus for New York will be recapturing as much Physical Occupancy and rate as possible while lowering, or possibly eliminating, Leasing Concessions.  Recovery in this market will take some time but it also has significant upside potential given 2020 declines.

 

Washington, D.C. – We believe Washington, D.C. has been our most resilient market on the East Coast.  Physical Occupancy remains solid at 96.1% at January 31, 2021, but the market continues to feel the impact of elevated supply and slowing absorption of new Class A multifamily properties.  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.  Leasing Concession use increased in the fourth quarter of 2020, but has now been greatly reduced as of January 2021.  These recent signs of improvement provide us with more confidence in the ability of the market to absorb more apartment units and allow for continued rate recovery which could make it one of our better performing markets in 2021.

 

Seattle – We are seeing early indications of recovery.  Both Physical Occupancy (95.9% at January 31, 2021) and Traffic (which normally increases at the beginning of the year) continue to improve in 2021.  Traffic increased over January 2020 by approximately 6%, and we are seeing weekly application numbers that are closer to peak leasing season levels than typical first quarter levels.  Leasing Concession use remains common in the market but strength in Physical Occupancy is allowing for a gradual reduction in use.  In 2021, we expect to focus on maintaining strong Physical Occupancy while increasing pricing.

 

San Francisco – This market remains our most challenged but even here we are seeing some signs of recovery.  Physical Occupancy has improved to 93.8% at January 31, 2021, with our downtown assets at 92%, East Bay at 95.7% and both the Peninsula and South Bay right around 94% at the end of January 2021.  The downtown portfolio especially remains pressured with about two-thirds of applicants receiving Leasing Concessions in the fourth quarter of 2020.  January 2021, however, has shown improvement on this front with Leasing Concession use on only about 50% of applications.  The recovery in this market is somewhat dependent on the return to office plans of technology companies, but while we acknowledge that work from home will play a role, we believe that the value of in-person collaboration and the incredible technology eco-structure of the area will make the San Francisco Bay Area attractive again.  Like New York, San Francisco has significant potential due to steep declines in 2020, although recovery will take some time.

 

Los Angeles – Our portfolio maintained Physical Occupancy above 95% throughout the fourth quarter of 2020 while contending with continued pressure from new supply in the Downtown/Koreatown-Mid Wilshire corridor.  Leasing Concession use was modest and averaged approximately 20% of our applications.  The suburban portfolio has very strong Physical Occupancy at or near 97% and the suburban submarkets continue to experience modest year-over-year revenue gains.  Physical Occupancy was at 95.9% at January 31, 2021 for the entire market. In 2021, we expect Los Angeles to be one of our better performing markets as we now have opportunity to increase rates, but will need to work through bad debt.

 

Orange County and San Diego – Both markets are primarily suburban and continue to stand out for their resilience throughout the pandemic.  These markets have averaged approximately 97% Physical Occupancy through the fourth quarter of 2020 (Orange County and San Diego had Physical Occupancy of 97.2% and 97.4%, respectively, at January 31, 2021) and produced higher resident retention than in any of our other markets.  They did so while maintaining positive Blended Rate results in December 2020 and January 2021.  Both of these markets have opportunities to increase rents and we believe will continue to perform well throughout 2021.

 

Denver – While a relatively small market for the Company, this portfolio is holding up well despite the pandemic.  Physical Occupancy is at 96.7% at January 31, 2021 and both New Lease Change and Renewal Rate Achieved were improving in both December 2020 and January 2021, while Leasing Concession use has started to trend down starting in the first quarter of 2021.

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Despite strong rent collections throughout the pandemic, its economic impact on a small subset of our residents and non-residential tenants has led to higher levels of bad debt than we have historically experienced.  We continue to work with our residents and non-residential tenants on payment plans and collections and our bad debt allowance policies remain consistent.  We expect our reserves and bad debt expense to remain elevated in 2021.  See Note 8 in the Notes to Consolidated Financial Statements for additional discussion of leases at December 31, 2020.

The following table provides comparative same store operating expenses for the 2020 Same Store Properties:

 

2020 vs. 2019

Total Same Store Operating Expenses for 73,585 Same Store Apartment Units

$ in thousands

 

 

 

2020

 

 

2019

 

 

$

Change (5)

 

 

%

Change

 

 

% of

2020

Operating

Expenses

 

Real estate taxes

 

$

337,939

 

 

$

325,332

 

 

$

12,607

 

 

 

3.9

%

 

 

43.7

%

On-site payroll (1)

 

 

160,983

 

 

 

160,569

 

 

 

414

 

 

 

0.3

%

 

 

20.8

%

Utilities (2)

 

 

102,768

 

 

 

101,137

 

 

 

1,631

 

 

 

1.6

%

 

 

13.3

%

Repairs and maintenance (3)

 

 

93,620

 

 

 

94,766

 

 

 

(1,146

)

 

 

(1.2

)%

 

 

12.1

%

Insurance

 

 

24,310

 

 

 

20,597

 

 

 

3,713

 

 

 

18.0

%

 

 

3.2

%

Leasing and advertising

 

 

10,321

 

 

 

10,241

 

 

 

80

 

 

 

0.8

%

 

 

1.3

%

Other on-site operating expenses (4)

 

 

43,538

 

 

 

44,860

 

 

 

(1,322

)

 

 

(2.9

)%

 

 

5.6

%

Total Same Store Operating Expenses

   (includes Residential and Non-Residential)

 

$

773,479

 

 

$

757,502

 

 

$

15,977

 

 

 

2.1

%

 

 

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)

The year-over-year changes are due primarily to:

 

Real estate taxes – Higher rates and assessed values continue to drive real estate tax growth across most markets.

 

On-site payroll – Increase driven by higher employee benefit-related costs, partially offset by the transition to an enhanced operating platform and less overtime.

 

Repairs and maintenance – Decrease primarily driven by deferral and cancellation of some projects as a result of COVID-19-related delays.

 

Insurance – Increase due to higher premiums on property insurance renewal due to challenging conditions in the insurance market.

 

Other on-site operating expenses – Decrease primarily due to reduced ground lease expense and lower legal expenses due to legislative suspension of evictions in many markets.

 We anticipate same store expenses to increase between 3.0% to 4.0% for 2021 as compared to 2020.  The increase in same store expenses is expected to be primarily due to the following items:

 

 

Real estate taxes are estimated to increase in the mid 3.0% range (which is slightly lower than the 3.9% increase we experienced between 2020 and 2019).  While municipalities continue to search for methods to close budget gaps, we believe relief on assessed values provided by some jurisdictions and aggressive appeals activity should help control total expense growth.  The timing and success of these appeals may have a significant impact on the ultimate expense growth reported.

 

 

Payroll costs are estimated to increase approximately 2.0%.  Our continued focus on improved efficiencies and utilizations are forecasted to balance payroll growth for the full year of 2021.

 

 

Utilities are estimated to increase between 4.0% and 5.0% primarily due to expected increases in natural gas costs.

 

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Repairs and maintenance costs are estimated to increase between 4.0% and 5.0% primarily due to the resumption of activities that were delayed as a result of the COVID-19 pandemic and a difficult comparable period given this expense category declined between 2020 and 2019.

 

   The Company anticipates same store NOI to decline for the full year 2021 by approximately 15.0% to 12.0% as a result of the same store revenue and expense expectations discussed above.  Given the continued uncertainty resulting from the COVID-19 pandemic, we anticipate the possibility of greater variability around the midpoint, up or down, within these ranges than we would typically experience in the normal course of business.

See also Note 17 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 year ended December 31, 2020 decreased approximately $22.4 million compared to the same period of 2019.  These results consist primarily of properties acquired in calendar years 2019 and 2020, operations from the Company’s development properties and operations prior to disposition from 2019 and 2020 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 $5.0 million;

 

A positive impact of higher NOI from properties acquired in 2019 and 2020 of $34.5 million; and

 

A negative impact of lost NOI from 2019 and 2020 dispositions of $61.1 million.

Comparison of the year ended December 31, 2020 to the year ended December 31, 2019  

The following table presents a reconciliation of diluted earnings per share/unit for the year ended December 31, 2020 as compared to the same period in 2019:

 

 

 

Year Ended

December 31

 

Diluted earnings per share/unit for full year 2019

 

$

2.60

 

Property NOI

 

 

(0.35

)

Interest expense

 

 

0.11

 

Debt extinguishment costs

 

 

(0.04

)

Non-operating asset gains/losses

 

 

0.08

 

Net gain/loss on property sales

 

 

0.01

 

Other

 

 

0.04

 

Diluted earnings per share/unit for full year 2020

 

$

2.45

 

 

The decrease in consolidated NOI is primarily a result of the Company’s lower NOI from same store properties, largely due to the economic impact from the COVID-19 pandemic, and disposition activity.  The following table presents the changes in the components of consolidated NOI for the year ended December 31, 2020 as compared to the same period in 2019:

 

 

 

Year Ended

December 31, 2020

 

Consolidated rental income

 

 

(4.8

%)

Consolidated operating expenses (1)

 

 

1.2

%

Consolidated NOI

 

 

(7.3

%)

 

(1)

Consolidated operating expenses are comprised of property and maintenance and real estate taxes and insurance.

Property management expenses include off-site expenses associated with the self-management of the Company’s properties as well as management fees paid to any third-party management companies.  These expenses decreased approximately $1.5 million or 1.6% during the year ended December 31, 2020 as compared to 2019.  This decrease is primarily attributable to decreases in payroll-related costs (inclusive of lower performance bonuses), travel costs and training/conference costs, partially offset by increases in

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information technology related costs specifically for various operating initiatives such as sales-focused improvements and service enhancements as well as increases in legal and professional fees.  The Company suspended the majority of all travel and training/conference activities as a result of the COVID-19 pandemic.  The Company anticipates that property management expenses will approximate $96.5 million to $98.5 million for the year ending December 31, 2021.

General and administrative expenses, which include corporate operating expenses, decreased approximately $4.5 million or 8.4% during the year ended December 31, 2020 as compared to 2019, primarily due to decreases in payroll-related costs (inclusive of lower performance bonuses) as a result of the Company’s executive succession program during the past two years, decreases in travel costs and training/conference activities which were mostly suspended as a result of the COVID-19 pandemic and decreases in office rent as a result of the consolidation of space at the Company’s corporate headquarters.  The Company anticipates that general and administrative expenses will approximate $53.0 million to $55.0 million for the year ending December 31, 2021.

Depreciation expense, which includes depreciation on non-real estate assets, decreased approximately $10.3 million or 1.2% during the year ended December 31, 2020 as compared to 2019, primarily due to the Company being a net seller during 2020, which resulted in lower depreciation from properties sold in 2019 and 2020 as compared to the additional depreciation expense on properties acquired in 2019 and 2020 and development properties placed in service during 2019.

Net gain on sales of real estate properties increased approximately $84.2 million or 18.8% during the year ended December 31, 2020 as compared to 2019, primarily as a result of the sale of six consolidated apartment properties sold for a higher gain in 2020 as compared to the sale of eleven consolidated properties in 2019.

Interest and other income increased approximately $2.7 million or 85.4% during the year ended December 31, 2020 as compared to 2019.  The increase is primarily due to higher insurance/litigation settlement proceeds and other non-comparable items that occurred during 2020 but not during 2019, partially offset by decreases in short-term investment income on cash and restricted deposit accounts in 2020 as compared to 2019 due to a lower rate environment and lower overall invested balances.

Other expenses decreased approximately $0.7 million or 3.7% during the year ended December 31, 2020 as compared to 2019, primarily due to a decrease in various consulting costs related to a data analytics project which was completed in 2019 and litigation and environmental settlements, partially offset by increases in advocacy contributions and pursuit costs in 2020 as compared to 2019.  

Interest expense, including amortization of deferred financing costs, decreased approximately $27.7 million or 6.9% during the year ended December 31, 2020 as compared to 2019.  The decrease is primarily due to lower overall debt balances outstanding between the periods as a result of deploying disposition proceeds to repay and discharge debt, as well as lower overall interest rates, partially offset by higher debt extinguishment costs in 2020 as compared to 2019.  The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the year ended December 31, 2020 was 3.94% as compared to 4.20% in 2019.  The Company capitalized interest of approximately $10.2 million and $6.9 million during the years ended December 31, 2020 and 2019, respectively.  The Company anticipates that interest expense, excluding debt extinguishment costs/prepayment penalties, will approximate $270.0 million to $276.5 million and capitalized interest will approximate $14.5 million to $16.5 million for the year ending December 31, 2021.

Income and other tax expense increased approximately $3.1 million during the year ended December 31, 2020 as compared to 2019, primarily due to various alternative minimum tax credit refunds recognized in 2019 that did not occur in 2020.  

Income from investments in unconsolidated entities decreased approximately $69.2 million during the year ended December 31, 2020 as compared to 2019, primarily as a result of a $69.5 million gain on the sale of two unconsolidated properties in 2019 that did not occur in 2020.

Net gain on sales of land parcels increased approximately $32.2 million during the year ended December 31, 2020 as compared to 2019, primarily due to a higher gain on the sale of two land parcels in 2020 as compared to the sale of two land parcels in 2019.  

Net (income) loss attributable to Noncontrolling Interests in partially owned properties decreased approximately $11.6 million during the year ended December 31, 2020 as compared to 2019, primarily as a result of noncontrolling interest allocations related to the sale of one partially owned apartment property in 2020 as compared to no sales in 2019.

For comparison of the year ended December 31, 2019 to the year ended December 31, 2018, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019.

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Liquidity and Capital Resources

 

The Company believes its current liquidity position is strong despite the impact of the COVID-19 pandemic.  With approximately $2.0 billion in readily available liquidity, limited near-term maturities, very strong credit metrics and ample access to capital markets at historically low rates, the Company believes 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.  Currently, the Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.

The following table presents the Company’s balances for cash and cash equivalents, restricted deposits and the available borrowing capacity on its revolving credit facility as of December 31, 2020 and 2019 (amounts in thousands): 

 

 

 

December 31, 2020

 

 

December 31, 2019

 

Cash and cash equivalents

 

$

42,591

 

 

$

45,753

 

Restricted deposits

 

$

57,137

 

 

$

71,246

 

Unsecured revolving credit facility availability

 

$

1,984,051

 

 

$

1,379,071

 

 

During the year ended December 31, 2020, the Company generated proceeds from various transactions, which included the following:

 

Disposed of six consolidated rental properties and two land parcels, receiving combined net proceeds of approximately $1.1 billion;

 

Obtained $495.0 million in a 2.60% fixed rate mortgage loan pool maturing on May 1, 2030; and

 

Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $16.8 million, which were contributed to the capital of the Operating Partnership in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis).

During the year ended December 31, 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 one consolidated rental property for approximately $48.9 million in cash;

 

Invest $230.3 million primarily in development projects;

 

Repay $168.3 million of mortgage loans (inclusive of scheduled principal repayments); and

 

Repay $750.0 million of unsecured notes and incur prepayment penalties of approximately $25.8 million by discharging them pursuant to their indenture.

Credit Facility and Commercial Paper Program

The Company has a $2.5 billion unsecured revolving credit facility maturing November 1, 2024.  The Company has the ability to increase available borrowings by an additional $750.0 million by adding lenders to the facility, obtaining the agreement of existing lenders to increase their commitments or incurring one or more term loans.  The interest rate on advances under the facility will generally be LIBOR plus a spread (currently 0.775%), 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.

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Table of Contents

 

The Company may borrow up to a maximum of $1.0 billion under its commercial paper 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. While the COVID-19 pandemic initially caused temporary disruptions in the commercial paper market in March 2020, the Company has maintained access to this 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 February 12, 2021 (amounts in thousands):

 

 

 

February 12, 2021

 

Unsecured revolving credit facility commitment

 

$

2,500,000

 

Commercial paper balance outstanding

 

 

(470,000

)

Unsecured revolving credit facility balance outstanding

 

 

 

Other restricted amounts

 

 

(100,949

)

Unsecured revolving credit facility availability

 

$

1,929,051

 

 

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 each quarter in 2020 of $0.6025 per share/unit, an annualized increase of 6.2% over the amount paid in 2019.  All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.  

Total dividends/distributions paid in January 2021 amounted to $232.3 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended December 31, 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 additional OP Units), proceeds received from the disposition of certain properties and joint ventures, along with cash generated from operations after all distributions.  The Company has a significant number of unencumbered properties available to secure additional mortgage borrowings should unsecured capital be unavailable or the cost of alternative sources of capital be too high.  The 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 $27.2 billion in investment in real estate on the Company’s balance sheet at December 31, 2020, $23.2 billion or 85.3% 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 equity and guarantees certain debt of the Operating Partnership from time to time.  EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.

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Table of Contents

 

The Company’s total debt summary and debt maturity schedules as of December 31, 2020 are as follows:

Debt Summary as of December 31, 2020

($ in thousands)

 

 

 

Debt

Balances

 

 

% of Total

 

 

Weighted

Average

Rates

 

 

Weighted

Average

Maturities

(years)

 

Secured

 

$

2,293,890

 

 

 

28.5

%

 

 

3.33

%

 

 

6.2

 

Unsecured

 

 

5,750,366

 

 

 

71.5

%

 

 

3.91

%

 

 

10.3

 

Total

 

$

8,044,256

 

 

 

100.0

%

 

 

3.76

%

 

 

9.0

 

Fixed Rate Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured – Conventional

 

$

1,901,091

 

 

 

23.6

%

 

 

3.79

%

 

 

4.7

 

Unsecured – Public

 

 

5,335,536

 

 

 

66.4

%

 

 

4.03

%

 

 

11.0

 

Fixed Rate Debt

 

 

7,236,627

 

 

 

90.0

%

 

 

3.97

%

 

 

9.3

 

Floating Rate Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured – Conventional

 

 

31,494

 

 

 

0.4

%

 

 

2.71

%

 

 

1.5

 

Secured – Tax Exempt

 

 

361,305

 

 

 

4.5

%

 

 

1.00

%

 

 

15.0

 

Unsecured – Revolving Credit Facility

 

 

 

 

 

 

 

 

1.47

%

 

 

3.8

 

Unsecured – Commercial Paper Program

 

 

414,830

 

 

 

5.1

%

 

 

1.72

%

 

 

 

Floating Rate Debt

 

 

807,629

 

 

 

10.0

%

 

 

1.34

%

 

 

7.0

 

Total

 

$

8,044,256

 

 

 

100.0

%

 

 

3.76

%

 

 

9.0

 

 

Debt Maturity Schedule as of December 31, 2020

($ in thousands)

 

 

Year

 

Fixed

Rate

 

 

Floating

Rate

 

 

Total

 

 

% of Total

 

 

Weighted Average

Coupons on

Fixed Rate Debt

 

 

Weighted Average

Coupons on

Total Debt

 

2021

 

$

35,665

 

 

$

415,000

 

(1)

$

450,665

 

 

 

5.5

%

 

 

4.41

%

 

 

0.64

%

2022

 

 

264,185

 

 

 

31,855

 

 

 

296,040

 

 

 

3.7

%

 

 

3.25

%

 

 

3.15

%

2023

 

 

1,325,588

 

 

 

3,500

 

 

 

1,329,088

 

 

 

16.4

%

 

 

3.74

%

 

 

3.73

%

2024

 

 

 

 

 

6,100

 

 

 

6,100

 

 

 

0.1

%

 

N/A

 

 

 

0.10

%

2025

 

 

450,000

 

 

 

8,200

 

 

 

458,200

 

 

 

5.6

%

 

 

3.38

%

 

 

3.32

%

2026

 

 

592,025

 

 

 

9,000

 

 

 

601,025

 

 

 

7.4

%

 

 

3.58

%

 

 

3.53

%

2027

 

 

400,000

 

 

 

9,800

 

 

 

409,800

 

 

 

5.0

%

 

 

3.25

%

 

 

3.17

%

2028

 

 

900,000

 

 

 

42,380

 

 

 

942,380

 

 

 

11.6

%

 

 

3.79

%

 

 

3.62

%

2029

 

 

888,120

 

 

 

11,500

 

 

 

899,620

 

 

 

11.1

%

 

 

3.30

%

 

 

3.26

%

2030

 

 

1,095,000

 

 

 

12,600

 

 

 

1,107,600

 

 

 

13.6

%

 

 

2.55

%

 

 

2.52

%

2031+

 

 

1,350,850

 

 

 

275,535

 

 

 

1,626,385

 

 

 

20.0

%

 

 

4.39

%

 

 

3.67

%

Subtotal

 

 

7,301,433

 

 

 

825,470

 

 

 

8,126,903

 

 

 

100.0

%

 

 

3.56

%

 

 

3.23

%

Deferred Financing Costs and

   Unamortized (Discount)

 

 

(64,806

)

 

 

(17,841

)

 

 

(82,647

)

 

N/A

 

 

N/A

 

 

N/A

 

Total

 

$

7,236,627

 

 

$

807,629

 

 

$

8,044,256

 

 

 

100.0

%

 

 

3.56

%

 

 

3.23

%

 

(1)

Represents principal outstanding on the Company’s commercial paper program.

See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at December 31, 2020.

The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2020 is presented in the following table.  The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preferred shares outstanding.

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Table of Contents

 

Equity Residential

Capital Structure as of December 31, 2020

(Amounts in thousands except for share/unit and per share amounts)

 

Secured Debt

 

 

 

 

 

 

 

 

 

$

2,293,890

 

 

 

28.5

%

 

 

 

 

Unsecured Debt

 

 

 

 

 

 

 

 

 

 

5,750,366

 

 

 

71.5

%

 

 

 

 

Total Debt

 

 

 

 

 

 

 

 

 

 

8,044,256

 

 

 

100.0

%

 

 

26.0

%

Common Shares (includes Restricted Shares)

 

 

372,302,000

 

 

 

96.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Units (includes OP Units and Restricted Units)

 

 

13,858,073

 

 

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

Total Shares and Units

 

 

386,160,073

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Common Share Price at December 31, 2020

 

$

59.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,891,569

 

 

 

99.8

%

 

 

 

 

Perpetual Preferred Equity

 

 

 

 

 

 

 

 

 

 

37,280

 

 

 

0.2

%

 

 

 

 

Total Equity

 

 

 

 

 

 

 

 

 

 

22,928,849

 

 

 

100.0

%

 

 

74.0

%

Total Market Capitalization

 

 

 

 

 

 

 

 

 

$

30,973,105

 

 

 

 

 

 

 

100.0

%

 

The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2020 is presented in the following table.  The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preference units outstanding.

ERP Operating Limited Partnership

Capital Structure as of December 31, 2020

(Amounts in thousands except for unit and per unit amounts)

 

Secured Debt

 

 

 

 

 

 

 

$

2,293,890

 

 

 

28.5

%

 

 

 

 

Unsecured Debt

 

 

 

 

 

 

 

 

5,750,366

 

 

 

71.5

%

 

 

 

 

Total Debt

 

 

 

 

 

 

 

 

8,044,256

 

 

 

100.0

%

 

 

26.0

%

Total Outstanding Units

 

 

386,160,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Share Price at December 31, 2020

 

$

59.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,891,569

 

 

 

99.8

%

 

 

 

 

Perpetual Preference Units

 

 

 

 

 

 

 

 

37,280

 

 

 

0.2

%

 

 

 

 

Total Equity

 

 

 

 

 

 

 

 

22,928,849

 

 

 

100.0

%

 

 

74.0

%

Total Market Capitalization

 

 

 

 

 

 

 

$

30,973,105

 

 

 

 

 

 

 

100.0

%

 

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 well as through negotiated transactions.  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.  EQR may, but shall have no obligation to, sell Common Shares through the ATM share offering program in amounts and at times to be determined by EQR.  Actual sales will depend on a variety of factors, including (among others) market conditions, the trading price of EQR’s Common Shares and determinations of the appropriate sources of funding for EQR. Through February 12, 2021, EQR has cumulatively issued approximately 16.7 million Common Shares at an average price of $48.53 per share for total consideration of approximately $809.9 million.

The Company may repurchase up to 13.0 million Common Shares under its share repurchase program.  No open market repurchases have occurred since 2008 and no repurchases of any kind have occurred since February 2014. EQR may, but shall have no obligation to, repurchase Common Shares through the share repurchase program in amounts and at times to be determined by EQR.  Actual repurchases will depend on a variety of factors, including (among others) market conditions, the trading price of EQR’s

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Common Shares and other opportunities for the investment of available capital.  As of February 12, 2021, EQR has remaining authorization to repurchase up to 13.0 million of its shares.  

ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings, have been reaffirmed during the COVID-19 pandemic by all three rating agencies listed below and all continue to maintain a stable outlook.  As of February 12, 2021, 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 18 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to December 31, 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 December 31, 2020 and 2019:

 

 

 

December 31,

2020

 

 

December 31,

2019

 

Debt to Adjusted Total Assets (not to exceed 60%)

 

30.5%

 

 

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)

 

 

5.42

 

 

 

5.07

 

Total Unencumbered Assets to Unsecured Debt

   (must be at least 125%)

 

457.1%

 

 

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

Our policy with respect to capital expenditures is generally to capitalize expenditures that improve the value of the property or extend the useful life of the component asset of the property.  We track improvements to real estate in three major categories and several subcategories:

 

Replacements (inside the apartment unit).  These include:

 

flooring such as carpets, hardwood, vinyl or tile;

 

appliances;

 

mechanical equipment such as individual furnace/air units, hot water heaters, smoke/carbon monoxide/water alarms, etc.;

 

furniture and fixtures such as kitchen/bath cabinets, light fixtures, ceiling fans, sinks, tubs, toilets, mirrors, countertops, etc.; and

 

blinds and window coverings.

All replacements are depreciated over a five to ten-year estimated useful life.  We expense as incurred all make-ready maintenance and turnover costs such as cleaning, interior painting of individual apartment units and the repair of any replacement item noted above.

 

Building improvements (outside the apartment unit).  These include:

 

roof replacement and major repairs;

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paving or major resurfacing of parking lots, curbs and sidewalks;

 

amenities and common areas such as pools, exterior sports and playground equipment, lobbies, clubhouses, laundry rooms, alarm and security systems and offices;

 

major building mechanical equipment systems;

 

interior and exterior structural repair and exterior painting and siding;

 

major landscaping and grounds improvement; and

 

vehicles and office and maintenance equipment.

All building improvements are depreciated over a five to fifteen-year estimated useful life.  We capitalize building improvements and upgrades only if the item: (i) exceeds $2,500 (selected projects may be restricted by other thresholds); (ii) extends the useful life of the asset; and (iii) improves the value of the asset.

The third major category is renovations, which primarily consists of expenditures for kitchens and baths designed to reposition the apartment units/properties for higher rental levels in their respective markets.  All renovation expenditures are depreciated over a ten-year estimated useful life.

For the year ended December 31, 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 Year Ended December 31, 2020

  

 

 

Same Store

Properties (4)

 

 

Non-Same Store

Properties/Other (5)

 

 

Total

 

 

Same Store Avg. Per

Apartment Unit

 

Total Apartment Units

 

 

73,585

 

 

 

4,304

 

 

 

77,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Improvements (1)

 

$

78,969

 

 

$

2,905

 

 

$

81,874

 

 

$

1,073

 

Renovation Expenditures (2)

 

 

22,060

 

 

 

6

 

 

 

22,066

 

 

 

300

 

Replacements (3)

 

 

31,252

 

 

 

787

 

 

 

32,039

 

 

 

425

 

Total Capital Expenditures to Real Estate

 

$

132,281

 

 

$

3,698

 

 

$

135,979

 

 

$

1,798

 

 

(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 1,034 same store apartment units approximated $21,335 per apartment unit renovated.  

(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, 2019, less properties subsequently sold.

(5)

Non-Same Store Properties/Other – Primarily includes all properties acquired during 2019 and 2020, plus any properties in lease-up and not stabilized as of January 1, 2019.  Also includes capital expenditures for properties sold.

For the year ended December 31, 2019, 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 Year Ended December 31, 2019

  

 

 

Same Stores

Properties (4)

 

 

Non-Same Store

Properties/Other (5)

 

 

Total

 

 

Same Store Avg. Per

Apartment Unit

 

Total Apartment Units

 

 

71,830

 

 

 

8,132

 

 

 

79,962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Building Improvements (1)

 

$

91,256

 

 

$

7,469

 

 

$

98,725

 

 

$

1,270

 

Renovation Expenditures (2)

 

 

37,466

 

 

 

2,607

 

 

 

40,073

 

 

 

522

 

Replacements (3)

 

 

37,063

 

 

 

2,562

 

 

 

39,625

 

 

 

516

 

Total Capital Expenditures to Real Estate

 

$

165,785

 

 

$

12,638

 

 

$

178,423

 

 

$

2,308

 

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Table of Contents

 

 

(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 2,415 same store apartment units approximated $15,515 per apartment unit renovated.  

(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, 2018, less properties subsequently sold.  

(5)

Non-Same Store Properties/Other – Primarily includes all properties acquired during 2018 and 2019, plus any properties in lease-up and not stabilized as of January 1, 2018.  Also includes capital expenditures for properties sold.

The COVID-19 pandemic has led us to temporarily slow our capital expenditures, including our renovation activities, to those deemed essential.  Governmental movement restrictions, social distancing requirements, and in some cases, difficulty in procuring materials and labor make continuing these activities more difficult.

The Company estimates that during 2021 it will spend approximately $1,950 per same store apartment unit or $150.0 million of total capital expenditures to real estate for same store properties.  Included in these total expected expenditures are approximately $25.0 million for apartment unit renovation expenditures on approximately 1,250 same store apartment units at an average cost of approximately $20,000 per apartment unit renovated.  The anticipated total capital expenditures to real estate for same store properties represent a higher absolute and per unit dollar amount as compared to 2020 but a lower absolute and per unit dollar amount as compared to 2019, as the Company anticipates slowly returning its capital expenditure activity to more normalized pre-COVID-19 levels.

During the year ended December 31, 2020, the Company’s total non-real estate capital additions, such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Company’s property management offices and its corporate offices, were approximately $20.1 million.  The Company expects to fund approximately $2.1 million in total non-real estate capital additions in 2021. These anticipated fundings are significantly lower than in 2020 primarily due to corporate office renovations completed during 2020. 

Derivative Instruments

In the normal course of business, the Company is exposed to the effect of interest rate changes.  The Company may 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 December 31, 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.

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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.

 

Percentage of Residents Renewing – Leases renewed expressed as a percentage of total renewal offers extended during the reporting period.

 

Physical Occupancy – The weighted average occupied apartment units for the reporting period divided by the average of total apartment units available for rent for the reporting period.

 

Renewal Rate Achieved – The 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 2021 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 December 31, 2020. In case of debt for which fair value hedges are in place, the rate payable under the corresponding derivatives is used in lieu of the contractual interest rate.

 

Weighted Average Rates – Interest expense for each debt instrument for the year ended December 31, 2020 weighted by its average principal balance for the same period. Interest expense includes amortization of premiums, discounts and other comprehensive income on debt and related derivative instruments. In case of debt for which derivatives are in place, the income or expense recognized under the corresponding derivatives is included in the total interest expense for the period.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company has various unconsolidated interests in certain joint ventures.  The Company does not believe that these unconsolidated investments have a materially different impact on its liquidity, cash flows, capital resources, credit or market risk than

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Table of Contents

 

its consolidated operating and/or other activities.  See also Note 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s investments in partially owned entities.  See also Note 16 in the Notes to Consolidated Financial Statements for discussion regarding the Company’s development projects.

The following table summarizes the Company’s contractual obligations for the next five years and thereafter as of December 31, 2020:

 

Payments Due by Year (in thousands)

 

Contractual Obligations

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

Unamortized

Cost/Discounts

 

 

Total

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal (1)

 

$

450,665

 

 

$

296,040

 

 

$

1,329,088

 

 

$

6,100

 

 

$

458,200

 

 

$

5,586,810

 

 

$

(82,647

)

 

$

8,044,256

 

Interest (2)

 

 

261,125

 

 

 

256,206

 

 

 

233,804

 

 

 

200,591

 

 

 

191,694

 

 

 

1,491,050

 

 

 

 

 

 

2,634,470

 

Finance Leases (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Rent Payments

 

 

578

 

 

 

590

 

 

 

601

 

 

 

614

 

 

 

626

 

 

 

33,224

 

 

 

 

 

 

36,233

 

Operating Leases (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Rent Payments

 

 

17,160

 

 

 

16,906

 

 

 

16,997

 

 

 

17,329

 

 

 

17,375

 

 

 

954,108

 

 

 

 

 

 

1,039,875

 

Other Long-Term Liabilities (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Compensation

 

 

769

 

 

 

1,130

 

 

 

1,005

 

 

 

723

 

 

 

723

 

 

 

3,976

 

 

 

 

 

 

8,326

 

Total

 

$

730,297

 

 

$

570,872

 

 

$

1,581,495

 

 

$

225,357

 

 

$

668,618

 

 

$

8,069,168

 

 

$

(82,647

)

 

$

11,763,160

 

 

(1)

Amounts include aggregate principal payments only.

(2)

Amounts include interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2020 and inclusive of capitalized interest.  For floating rate debt, the current rate in effect for the most recent payment through December 31, 2020 is assumed to be in effect through the respective maturity date of each instrument.

(3)

See Note 8 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s lease disclosures.  See Note 16 in the Notes to Consolidated Financial Statements for discussion regarding the Company’s deferred compensation.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to use judgment in the application of accounting policies, including making estimates and assumptions.  If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or different presentation of our financial statements.

The Company’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements.  These policies were followed in preparing the consolidated financial statements at and for the year ended December 31, 2020.

The Company has identified the significant accounting policies below as critical accounting policies.  These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates.  With respect to these critical accounting policies, management believes that the application of judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented.

Impairment of Long-Lived Assets

The Company periodically evaluates its long-lived assets, including its investment in real estate, for indicators of impairment.  The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal, regulatory and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties.  Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted.  Assessing impairment can be complex and involves a high degree of subjectivity in determining if indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset.  In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions.  These estimates can have a significant impact on the undiscounted cash flows or estimated fair value of an asset.

Acquisition of Investment Properties

The Company allocates the purchase price of properties that meet the definition of an asset acquisition to net tangible and identified intangible assets acquired based on their relative fair values.  In making estimates of relative fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in

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connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data.  The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets acquired.

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 each of the three years ended December 31, 2020:

Funds From Operations and Normalized Funds From Operations

(Amounts in thousands)

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net income

 

$

962,501

 

 

$

1,009,708

 

 

$

685,192

 

Net (income) loss attributable to Noncontrolling Interests – Partially Owned

   Properties

 

 

(14,855

)

 

 

(3,297

)

 

 

(2,718

)

Preferred/preference distributions

 

 

(3,090

)

 

 

(3,090

)

 

 

(3,090

)

Net income available to Common Shares and Units / Units

 

 

944,556

 

 

 

1,003,321

 

 

 

679,384

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

820,832

 

 

 

831,083

 

 

 

785,725

 

Depreciation – Non-real estate additions

 

 

(4,564

)

 

 

(5,585

)

 

 

(4,561

)

Depreciation – Partially Owned Properties

 

 

(3,345

)

 

 

(3,599

)

 

 

(3,740

)

Depreciation – Unconsolidated Properties

 

 

2,454

 

 

 

2,997

 

 

 

4,451

 

Net (gain) loss on sales of unconsolidated entities - operating assets

 

 

(1,636

)

 

 

(69,522

)

 

 

 

Net (gain) loss on sales of real estate properties

 

 

(531,807

)

 

 

(447,637

)

 

 

(256,810

)

Noncontrolling Interests share of gain (loss) on sales

   of real estate properties

 

 

11,655

 

 

 

 

 

 

(284

)

Impairment – operating assets

 

 

 

 

 

 

 

 

702

 

FFO available to Common Shares and Units / Units (1) (3) (4)

 

 

1,238,145

 

 

 

1,311,058

 

 

 

1,204,867

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Impairment – non-operating assets

 

 

 

 

 

 

 

 

 

Write-off of pursuit costs

 

 

6,869

 

 

 

5,529

 

 

 

4,450

 

Debt extinguishment and preferred share redemption (gains) losses

 

 

39,292

 

 

 

23,991

 

 

 

41,335

 

Non-operating asset (gains) losses

 

 

(32,590

)

 

 

(940

)

 

 

(161

)

Other miscellaneous items

 

 

4,652

 

 

 

8,430

 

 

 

(1,781

)

Normalized FFO available to Common Shares and Units / Units (2) (3) (4)

 

$

1,256,368

 

 

$

1,348,068

 

 

$

1,248,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO (1) (3)

 

$

1,241,235

 

 

$

1,314,148

 

 

$

1,207,957

 

Preferred/preference distributions

 

 

(3,090

)

 

 

(3,090

)

 

 

(3,090

)

FFO available to Common Shares and Units / Units (1) (3) (4)

 

$

1,238,145

 

 

$

1,311,058

 

 

$

1,204,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Normalized FFO (2) (3)

 

$

1,259,458

 

 

$

1,351,158

 

 

$

1,251,800

 

Preferred/preference distributions

 

 

(3,090

)

 

 

(3,090

)

 

 

(3,090

)

Normalized FFO available to Common Shares and Units / Units (2) (3) (4)

 

$

1,256,368

 

 

$

1,348,068

 

 

$

1,248,710

 

 

(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 funds from operations on the same basis.

(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;

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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 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk from financial instruments primarily from changes in interest rates.  Such risks derive from the refinancing of debt maturities, from exposure to interest rate fluctuations on floating rate debt and from derivative instruments utilized to swap fixed rate debt to floating or to hedge rates in anticipation of future debt issuances.  Our operating results are, therefore, affected by changes in short-term interest rates, primarily London interbank offered rate (“LIBOR”) and Securities Industry and Financial Markets Association (“SIFMA”) indices, which directly impact borrowings under our revolving credit facility and interest on secured and unsecured borrowings contractually tied to such rates.  Short-term interest rates also indirectly affect the discount on notes issued under our commercial paper program.  Additionally, we have exposure to long-term interest rates, particularly U.S. Treasuries as they are utilized to price our long-term borrowings and therefore affect the cost of refinancing existing debt or incurring additional debt.

The Company monitors and manages interest rates as part of its risk management process, by targeting adequate levels of floating rate exposure and an appropriate debt maturity profile.  From time to time, we may utilize derivative instruments to manage interest rate exposure and to comply with the requirements of certain lenders, but not for trading or speculative purposes.  See also Note 10 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments.

The Company had total variable rate debt of $0.8 billion, representing 10.0% of total debt, and $1.4 billion, representing 15.3% of total debt, as of December 31, 2020 and 2019, respectively.  If interest rates had been 100 basis points higher in 2020 and 2019 and average balances coincided with year end balances, our annual interest expense would have been $8.1 million and $13.8 million higher, respectively.  Unsecured notes issued under the Company’s commercial paper program are treated as variable rate debt for the purposes of this calculation even though they do not have a stated interest rate, given their short-term nature.  The effect of derivatives, if applicable, is also considered when computing the total amount of variable rate debt.

Changes in interest rates also affect the estimated fair market value of our fixed rate debt, computed using a discounted cash flow model.  As of December 31, 2020, the Company had total outstanding fixed rate debt of $7.2 billion, or 90.0% of total debt, with an estimated fair market value of $8.2 billion.  If interest rates had been 100 basis points lower as of December 31, 2020, the estimated fair market value would have increased by approximately $686.6 million.  As of December 31, 2019, the Company had total outstanding fixed rate debt of $7.7 billion, or 84.7% of total debt, with an estimated fair market value of $8.2 billion.  If interest rates had been 100 basis points lower as of December 31, 2019, the estimated fair market value would have increased by approximately $664.4 million.

These amounts were determined by considering the impact of hypothetical interest rates on the Company’s financial instruments.  These analyses do not consider the effects of the changes in overall economic activity that could exist in such an environment.  Further, in the event of changes of such magnitude, management would likely take actions to further mitigate its exposure to these changes.  However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in the Company’s financial structure or results.

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The Company cannot predict the effect of adverse changes in interest rates on its debt and derivative instruments and, therefore, its exposure to market risk, nor can there be any assurance that long-term debt will be available at advantageous pricing.  Consequently, future results may differ materially from the estimated adverse changes discussed above.

Item 8. Financial Statements and Supplementary Data

See Index to Consolidated Financial Statements and Schedule on page F-1 of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Equity Residential

(a) Evaluation of Disclosure Controls and Procedures:

Effective as of December 31, 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) Management’s Report on Internal Control over Financial Reporting:

Equity Residential’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.  Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.

Based on the Company’s evaluation under the framework in Internal Control – Integrated Framework, management concluded that its internal control over financial reporting was effective as of December 31, 2020.  Our internal control over financial reporting has been audited as of December 31, 2020 by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

(c) 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 fourth quarter of 2020 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 December 31, 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.

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(b) Management’s Report on Internal Control over Financial Reporting:

ERP Operating Limited Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.  Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of EQR, management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.

Based on the Operating Partnership’s evaluation under the framework in Internal Control – Integrated Framework, management concluded that its internal control over financial reporting was effective as of December 31, 2020.  Our internal control over financial reporting has been audited as of December 31, 2020 by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

(c) 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 fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

Item 9B. Other Information

None.

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PART III

Items 10, 11, 12, 13 and 14.

Trustees, Executive Officers and Corporate Governance; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Certain Relationships and Related Transactions, and Trustee Independence; and Principal Accounting Fees and Services

The information required by Item 10, Item 11, Item 12, Item 13 and Item 14 is incorporated by reference to, and will be contained in, Equity Residential’s Proxy Statement, which the Company intends to file no later than 120 days after the end of its fiscal year ended December 31, 2020, and thus these items have been omitted in accordance with General Instruction G(3) to Form 10-K. Equity Residential is the general partner and 96.4% owner of ERP Operating Limited Partnership.

 

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this Report:

 

(1)

Financial Statements: See Index to Consolidated Financial Statements and Schedule on page F-1 of this Form 10-K.

 

(2)

Exhibits: See the Exhibit Index.

 

(3)

Financial Statement Schedules: See Index to Consolidated Financial Statements and Schedule on page F-1 of this Form 10-K.

Item 16. Form 10-K Summary

None.

 

 

 

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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

3.1

 

Articles of Restatement of Declaration of Trust of Equity Residential dated December 9, 2004.

 

Included as Exhibit 3.1 to Equity Residential’s Form 10-K for the year ended December 31, 2004.

 

 

 

 

 

3.2

 

Eighth Amended and Restated Bylaws of Equity Residential, effective as of October 1, 2015.

 

Included as Exhibit 3.1 to Equity Residential's Form 8-K dated and filed on October 1, 2015.

 

 

 

 

 

3.3

 

First Amendment to Eighth Amended and Restated Bylaws of Equity Residential, dated November 20, 2017.

 

Included as Exhibit 3.1 to Equity Residential's Form 8-K dated and filed on November 20, 2017.

 

 

 

 

 

3.4

 

Second Amendment to Eighth Amended and Restated Bylaws of Equity Residential, effective as of May 4, 2020.

 

Included as Exhibit 3.1 to Equity Residential's Form 8-K dated May 4, 2020, filed on May 8, 2020.

 

 

 

 

 

3.5

 

Sixth Amended and Restated Agreement of Limited Partnership for ERP Operating Limited Partnership dated as of March 12, 2009.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated March 12, 2009, filed on March 18, 2009.

 

 

 

 

 

4.1

 

Description of Equity Residential Common Shares Registered Under Section 12 of the Securities Exchange Act of 1934.

 

Included as Exhibit 4.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-K for the year ended December 31, 2019.

 

 

 

 

 

4.2

 

Description of ERP Operating Limited Partnership Notes Registered Under Section 12 of the Securities Exchange Act of 1934.

 

Included as Exhibit 4.2 to Equity Residential's and ERP Operating Limited Partnership's Form 10-K for the year ended December 31, 2019.

 

 

 

 

 

4.3

 

Description of ERP Operating Limited Partnership OP Units Registered Under Section 12 of the Securities Exchange Act of 1934.

 

Included as Exhibit 4.3 to Equity Residential's and ERP Operating Limited Partnership's Form 10-K for the year ended December 31, 2019.

 

 

 

 

 

4.4

 

Indenture, dated October 1, 1994, between the Operating Partnership and The Bank of New York Mellon Trust Company, N.A., as successor trustee (“Indenture”).

 

Included as Exhibit 4(a) to ERP Operating Limited Partnership’s Form S-3 filed on October 7, 1994. **

 

 

 

 

 

4.5

 

First Supplemental Indenture to Indenture, dated as of September 9, 2004.

 

Included as Exhibit 4.2 to ERP Operating Limited Partnership’s Form 8-K, filed on September 10, 2004.

 

 

 

 

 

4.6

 

Second Supplemental Indenture to Indenture, dated as of August 23, 2006.

 

Included as Exhibit 4.1 to ERP Operating Limited Partnership’s Form 8-K dated August 16, 2006, filed on August 23, 2006.

 

 

 

 

 

4.7

 

Third Supplemental Indenture to Indenture, dated as of June 4, 2007.

 

Included as Exhibit 4.1 to ERP Operating Limited Partnership’s Form 8-K dated May 30, 2007, filed on June 1, 2007.

 

 

 

 

 

4.8

 

Fourth Supplemental Indenture to Indenture, dated as of December 12, 2011.

 

Included as Exhibit 4.2 to ERP Operating Limited Partnership's Form 8-K dated December 7, 2011, filed on December 9, 2011.

 

 

 

 

 

4.9

 

Fifth Supplemental Indenture to Indenture, dated as of February 1, 2016.

 

Included as Exhibit 4.6 to Equity Residential's and ERP Operating Limited Partnership's Form 10-K for the year ended December 31, 2015.

 

 

 

 

 

4.10

 

Form of 4.625% Note due December 15, 2021.

 

Included as Exhibit 4.1 to ERP Operating Limited Partnership's Form 8-K dated December 7, 2011, filed on December 9, 2011.

 

 

 

 

 

4.11

 

Form of 3.00% Note due April 15, 2023.

 

Included as Exhibit 4.1 to ERP Operating Limited Partnership's Form 8-K dated April 3, 2013, filed on April 8, 2013.

 

 

 

 

 

4.12

 

Form of 3.375% Note due June 1, 2025.

 

Included as Exhibit 4.1 to ERP Operating Limited Partnership's Form 8-K dated May 11, 2015, filed on May 13, 2015.

 

 

 

 

 

4.13

 

Terms Agreement regarding 7.57% Notes due August 15, 2026.

 

Included as Exhibit 1 to ERP Operating Limited Partnership’s Form 8-K, filed on August 13, 1996.

 

 

 

 

 

4.14

 

Form of 2.850% Note due November 1, 2026.

 

Included as Exhibit 4.1 to ERP Operating Limited Partnership's Form 8-K dated October 4, 2016, filed on October 7, 2016.

 

 

 

 

 

4.15

 

Form of 3.250% Note due August 1, 2027.

 

Included as Exhibit 4.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated July 31, 2017, filed on August 2, 2017.

 

 

 

 

 

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4.16

 

Form of 3.500% Note due March 1, 2028.

 

Included as Exhibit 4.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated February 1, 2018, filed on February 6, 2018.

 

 

 

 

 

4.17

 

Form of 4.150% Note due December 1, 2028.

 

Included as Exhibit 4.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated November 28, 2018, filed on November 29, 2018.

 

 

 

 

 

4.18

 

Form of 3.000% Note due July 1, 2029.

 

Included as Exhibit 4.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated June 17, 2019, filed on June 20, 2019.

 

 

 

 

 

4.19

 

Form of 2.500% Note due February 15, 2030.

 

Included as Exhibit 4.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated August 20, 2019, filed on August 22, 2019.

 

 

 

 

 

4.20

 

Form of 4.500% Note due July 1, 2044.

 

Included as Exhibit 4.2 to ERP Operating Limited Partnership's Form 8-K dated June 16, 2014, filed on June 18, 2014.

 

 

 

 

 

4.21

 

Form of 4.500% Note due June 1, 2045.

 

Included as Exhibit 4.2 to ERP Operating Limited Partnership's Form 8-K dated May 11, 2015, filed on May 13, 2015.

 

 

 

 

 

4.22

 

Form of 4.000% Note due August 1, 2047.

 

Included as Exhibit 4.2 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated July 31, 2017, filed on August 2, 2017.

 

 

 

 

 

10.1

*

Noncompetition Agreement (Zell).

 

Included as an exhibit to Equity Residential's Form S-11 Registration Statement, File No. 33-63158. **

 

 

 

 

 

10.2

 

Revolving Credit Agreement, dated as of November 1, 2019, among ERP Operating Limited Partnership, Bank of America, N.A., as Administrative Agent, and the financial institutions party thereto.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated November 1, 2019, filed on November 4, 2019.

 

 

 

 

 

10.3

 

Amended and Restated Limited Partnership Agreement of Lexford Properties, L.P.

 

Included as Exhibit 10.16 to Equity Residential's Form 10-K for the year ended December 31, 1999.

 

 

 

 

 

10.4

*

Equity Residential 2019 Share Incentive Plan.

 

Included as Exhibit 99.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated June 27, 2019, filed on July 1, 2019.

 

 

 

 

 

10.5

*

Equity Residential 2011 Share Incentive Plan.

 

Included as Exhibit 99.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated June 16, 2011, filed on June 22, 2011.

 

 

 

 

 

10.6

*

First Amendment to 2011 Share Incentive Plan.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended June 30, 2012.

 

 

 

 

 

10.7

*

Second Amendment to 2011 Share Incentive Plan.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended September 30, 2013.

 

 

 

 

 

10.8

*

Third Amendment to 2011 Share Incentive Plan.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended March 31, 2014.

 

 

 

 

 

10.9

*

Fourth Amendment to 2011 Share Incentive Plan.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended September 30, 2014.

 

 

 

 

 

10.10

*

Fifth Amendment to 2011 Share Incentive Plan.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended June 30, 2016.

 

 

 

 

 

10.11

*

Sixth Amendment to 2011 Share Incentive Plan.

 

Included as Exhibit 10.18 to Equity Residential's and ERP Operating Limited Partnership's Form 10-K for the year ended December 31, 2016.

 

 

 

 

 

10.12

*

Seventh Amendment to 2011 Share Incentive Plan.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended September 30, 2017.

 

 

 

 

 

10.13

*

Equity Residential Second Restated 2002 Share Incentive Plan dated December 10, 2008.

 

Included as Exhibit 10.15 to Equity Residential's Form 10-K for the year ended December 31, 2008.

 

 

 

 

 

10.14

*

First Amendment to Second Restated 2002 Share Incentive Plan.

 

Included as Exhibit 10.1 to Equity Residential's Form 10-Q for the quarterly period ended September 30, 2010.

 

 

 

 

 

51


Table of Contents

 

10.15

*

Second Amendment to Second Restated 2002 Share Incentive Plan.

 

Included as Exhibit 10.3 to Equity Residential's Form 10-Q for the quarterly period ended June 30, 2011.

 

 

 

 

 

10.16

*

Third Amendment to Second Restated 2002 Share Incentive Plan.

 

Included as Exhibit 10.2 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended June 30, 2012.

 

 

 

 

 

10.17

*

Fourth Amendment to Second Restated 2002 Share Incentive Plan.

 

Included as Exhibit 10.2 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended September 30, 2013.

 

 

 

 

 

10.18

*

Form of 2018 Long-Term Incentive Plan Award Agreement.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended March 31, 2018.

 

 

 

 

 

10.19

*

Form of Change in Control/Severance Agreement between the Company and other executive officers.

 

Included as Exhibit 10.13 to Equity Residential's Form 10-K for the year ended December 31, 2001.

 

 

 

 

 

10.20

*

Form of First Amendment to Amended and Restated Change in Control/Severance Agreement with each executive officer.

 

Included as Exhibit 10.1 to Equity Residential's Form 10-Q for the quarterly period ended March 31, 2009.

 

 

 

 

 

10.21

*

Form of Indemnification Agreement between the Company and each trustee and executive officer.

 

Included as Exhibit 10.18 to Equity Residential's Form 10-K for the year ended December 31, 2003.

 

 

 

 

 

10.22

*

Form of Letter Agreement between Equity Residential and Alan W. George.

 

Included as Exhibit 10.3 to Equity Residential's Form 10-Q for the quarterly period ended September 30, 2008.

 

 

 

 

 

10.23

*

Form of Executive Retirement Benefits Agreement.

 

Included as Exhibit 10.24 to Equity Residential's Form 10-K for the year ended December 31, 2006.

 

 

 

 

 

10.24

*

Retirement Benefits Agreement between Samuel Zell and the Company dated October 18, 2001.

 

Included as Exhibit 10.18 to Equity Residential's Form 10-K for the year ended December 31, 2001.

 

 

 

 

 

10.25

*

Age 62 Retirement Agreement, dated September 4, 2018, by and between Equity Residential and David J. Neithercut.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended September 30, 2018.

 

 

 

 

 

10.26

*

Age 62 Retirement Agreement, dated February 27, 2020, by and between Equity Residential and Alan W. George.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended March 31, 2020.

 

 

 

 

 

10.27

*

The Equity Residential Supplemental Executive Retirement Plan as Amended and Restated effective April 1, 2017.

 

Included as Exhibit 10.2 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended June 30, 2017.

 

 

 

 

 

10.28

*

Amendment to the Equity Residential Supplemental Executive Retirement Plan, effective as of June 1, 2020.

 

Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 10-Q for the quarterly period ended June 30, 2020.

 

 

 

 

 

10.29

*

The Equity Residential Grandfathered Supplemental Executive Retirement Plan as Amended and Restated effective January 1, 2005.

 

Included as Exhibit 10.2 to Equity Residential's Form 10-Q for the quarterly period ended March 31, 2008.

 

 

 

 

 

10.30

 

Distribution Agreement, dated June  6, 2019, among the Company, the Operating Partnership, JPMorgan Chase Bank, National Association, London Branch, J.P. Morgan Securities LLC, Barclays Bank PLC, Barclays Capital Inc., Bank of America, N.A., BofA Securities, Inc., The Bank of New York Mellon, BNY Mellon Capital Markets, LLC, Morgan Stanley & Co. LLC, MUFG Securities EMEA plc, MUFG Securities Americas Inc., The Bank of Nova Scotia, Scotia Capital (USA) Inc., UBS AG, London Branch and UBS Securities LLC.

 

Included as Exhibit 1.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated and filed on June 6, 2019.

 

 

 

 

 

10.31

 

Form of Master Forward Sale Confirmation.

 

Included as Exhibit 1.2 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated and filed on June 6, 2019.

 

 

 

 

 

10.32

 

Archstone Residual JV, LLC Limited Liability Company Agreement.

 

Included as Exhibit 10.3 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated February 27, 2013, filed on February 28, 2013.

 

 

 

 

 

10.33

 

Archstone Parallel Residual JV, LLC Limited Liability Company Agreement.

 

Included as Exhibit 10.4 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated February 27, 2013, filed on February 28, 2013.

 

 

 

 

 

10.34

 

Archstone Parallel Residual JV 2, LLC Limited Liability Company Agreement.

 

Included as Exhibit 10.5 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated February 27, 2013, filed on February 28, 2013.

 

 

 

 

 

52


Table of Contents

 

10.35

 

Legacy Holdings JV, LLC Limited Liability Company Agreement.

 

Included as Exhibit 10.6 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated February 27, 2013, filed on February 28, 2013.

 

 

 

 

 

21

 

List of Subsidiaries of Equity Residential and ERP Operating Limited Partnership.

 

Attached herein.

 

 

 

 

 

23.1

 

Consent of Ernst & Young LLP - Equity Residential.

 

Attached herein.

 

 

 

 

 

23.2

 

Consent of Ernst & Young LLP - ERP Operating Limited Partnership.

 

Attached herein.

 

 

 

 

 

24

 

Power of Attorney.

 

See the signature page to this report.

 

 

 

 

 

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

 

ERP Operating Limited Partnership - Certification of Mark J. Parrell, Chief Executive Officer of Registrant's General Partner.

 

Attached herein.

 

 

 

 

 

31.4

 

ERP Operating Limited Partnership - Certification of Robert A. Garechana, Chief Financial Officer of Registrant's General Partner.

 

Attached herein.

 

 

 

 

 

32.1

 

Equity Residential - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Mark J. Parrell, Chief Executive Officer of the Company.

 

Attached herein.

 

 

 

 

 

32.2

 

Equity Residential - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Robert A. Garechana, Chief Financial Officer of the Company.

 

Attached herein.

 

 

 

 

 

32.3

 

ERP Operating Limited Partnership - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Mark J. Parrell, Chief Executive Officer of Registrant's General Partner.

 

Attached herein.

 

 

 

 

 

32.4

 

ERP Operating Limited Partnership - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Robert A. Garechana, Chief Financial Officer of Registrant's General Partner.

 

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).

 

 

 

*Management contracts and compensatory plans or arrangements filed as exhibits to this report are identified by an asterisk.

**Filed on paper – hyperlink is not required pursuant to Rule 105 of Regulation S-T.

 

 

 

 

53


Table of Contents

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

 

 

 

 

 

 

 

By:

 

/s/ Mark J. Parrell

 

 

 

 

Mark J. Parrell

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

 

 

Date:

 

February 18, 2021

 

 

 

 

 

 

 

ERP OPERATING LIMITED PARTNERSHIP

BY: EQUITY RESIDENTIAL

ITS GENERAL PARTNER

 

 

 

 

 

 

 

By:

 

/s/ Mark J. Parrell

 

 

 

 

Mark J. Parrell

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

 

 

Date:

 

February 18, 2021

 

 

 

 


Table of Contents

 

EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

POWER OF ATTORNEY

KNOW ALL MEN/WOMEN BY THESE PRESENTS, that each person whose signature appears below, hereby constitutes and appoints Mark J. Parrell, Robert A. Garechana and Ian S. Kaufman, or any of them, his or her attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her in any and all capacities, to do all acts and things which said attorneys and agents, or any of them, deem advisable to enable the company to comply with the Securities Exchange Act of 1934, as amended, and any requirements or regulations of the Securities and Exchange Commission in respect thereof, in connection with the company’s filing of an annual report on Form 10-K for the company’s fiscal year 2020, including specifically, but without limitation of the general authority hereby granted, the power and authority to sign his or her name as a trustee or officer, or both, of the company, as indicated below opposite his or her signature, to the Form 10-K, and any amendment thereto; and each of the undersigned does hereby fully ratify and confirm all that said attorneys and agents, or any of them, or the substitute of any of them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each registrant and in the capacities set forth below and on the dates indicated:

 

Name

 

Title

 

Date

 

 

 

 

 

/s/  Mark J. Parrell

 

President, Chief Executive Officer and Trustee

 

February 18, 2021

Mark J. Parrell

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/  Robert A. Garechana

 

Executive Vice President and Chief Financial Officer

 

February 18, 2021

Robert A. Garechana

 

(Principal Financial Officer)

 

 

 

 

 

 

 

/s/  Ian S. Kaufman

 

Senior Vice President and Chief Accounting Officer

 

February 18, 2021

Ian S. Kaufman

 

(Principal Accounting Officer)

 

 

 

 

 

 

 

/s/  Angela Aman

 

Trustee

 

February 18, 2021

Angela Aman

 

 

 

 

 

 

 

 

 

/s/  Raymond Bennett

 

Trustee

 

February 18, 2021

Raymond Bennett

 

 

 

 

 

 

 

 

 

/s/  Linda Walker Bynoe

 

Trustee

 

February 18, 2021

Linda Walker Bynoe

 

 

 

 

 

 

 

 

 

/s/  Connie K. Duckworth

 

Trustee

 

February 18, 2021

Connie K. Duckworth

 

 

 

 

 

 

 

 

 

/s/  Mary Kay Haben

 

Trustee

 

February 18, 2021

Mary Kay Haben

 

 

 

 

 

 

 

 

 

/s/  T. Zia Huque

 

Trustee

 

February 18, 2021

T. Zia Huque

 

 

 

 

 

 

 

 

 

/s/  Bradley A. Keywell

 

Trustee

 

February 18, 2021

Bradley A. Keywell

 

 

 

 

 

 

 

 

 

/s/  John E. Neal

 

Trustee

 

February 18, 2021

John E. Neal

 

 

 

 

 

 

 

 

 

/s/  David J. Neithercut

 

Trustee

 

February 18, 2021

David J. Neithercut

 

 

 

 

 

 

 

 

 

/s/  Mark S. Shapiro

 

Trustee

 

February 18, 2021

Mark S. Shapiro

 

 

 

 

 

 

 

 

 

/s/  Stephen E. Sterrett

 

Trustee

 

February 18, 2021

Stephen E. Sterrett

 

 

 

 

 

 

 

 

 

/s/  Samuel Zell

 

Chairman of the Board of Trustees

 

February 18, 2021

Samuel Zell

 

 

 

 

 

 

 

 

 

 

 

 

 


Table of Contents

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

 

 

 

PAGE

 

 

 

FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT

 

 

 

 

 

Report of Independent Registered Public Accounting Firm on the Financial Statements (Equity Residential)

 

F-2 to F-3

 

 

 

Report of Independent Registered Public Accounting Firm on the Financial Statements (ERP Operating Limited Partnership)

 

F-4 to F-5

 

 

 

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting (Equity Residential)

 

F-6

 

 

 

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting (ERP Operating Limited Partnership)

 

F-7

 

 

 

Financial Statements of Equity Residential:

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2020 and 2019

 

F-8

 

 

 

Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

 

F-9 to F-10

 

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

 

F-11 to F-13

 

 

 

Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018

 

F-14 to F-15

 

 

 

Financial Statements of ERP Operating Limited Partnership:

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2020 and 2019

 

F-16

 

 

 

Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

 

F-17 to F-18

 

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

 

F-19 to F-21

 

 

 

Consolidated Statements of Changes in Capital for the years ended December 31, 2020, 2019 and 2018

 

F-22 to F-23

 

 

 

Notes to Consolidated Financial Statements of Equity Residential and ERP Operating Limited Partnership

 

F-24 to F-56

 

 

 

SCHEDULE FILED AS PART OF THIS REPORT

 

 

 

 

 

Schedule III – Real Estate and Accumulated Depreciation of Equity Residential and ERP Operating Limited Partnership

 

S-1 to S-12

 

All other schedules have been omitted because they are inapplicable, not required or the information is included elsewhere in the consolidated financial statements or notes thereto.

 

 

 


Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders and Board of Trustees

Equity Residential

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Equity Residential (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2021 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.  

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

F-2


Table of Contents

 

 

 

Impairment of Long-Lived Assets

 

Description of

the Matter

At December 31, 2020, the Company’s net investment in real estate was approximately $19.3 billion. As more fully described in Note 2 to the consolidated financial statements, the Company periodically evaluates its long-lived assets, including its investment in real estate, for impairment. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties.  If the expected future undiscounted cash flows are less than the carrying amount of the long-lived asset, an impairment loss is recognized for the difference between the estimated fair value and the carrying amount.  

Auditing the Company's process to evaluate long-lived assets for impairment was complex due to a high degree of subjectivity in determining whether indicators of impairment were present, and in determining the future undiscounted cash flows and estimated fair values, if necessary, of long-lived assets where impairment indicators were determined to be present. In particular, these estimates were sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses and capitalization rates, which are affected by expectations about future market or economic conditions.    

 

 

How We

Addressed the

Matter in

Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s long-lived asset impairment evaluation and measurement process, including controls over management’s determination and review of the significant assumptions used in the analyses and described above.

To test the Company’s evaluation of long-lived assets for impairment, we performed audit procedures that included, among others, evaluating the indicators of impairment identified by management and testing the significant assumptions and completeness and accuracy of operating data used by the Company in its analyses. We compared the significant assumptions used by management to current market data and performed sensitivity analyses of certain significant assumptions as discussed above.  We also involved our valuation specialists to assist in evaluating certain assumptions used, including future rental revenues and operating expenses, and capitalization rates.

 

 

 

 

/s/  ERNST & YOUNG LLP

 

 

ERNST & YOUNG LLP

 

We have served as the Company’s auditor since 1996.

 

 

 

Chicago, Illinois

 

 

February 18, 2021

 

 

 

 

 

 

 


F-3


Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Partners

ERP Operating Limited Partnership

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of ERP Operating Limited Partnership (the Operating Partnership) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, changes in capital and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Operating Partnership at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Operating Partnership’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2021 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

These financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on the Operating Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

F-4


Table of Contents

 

 

 

Impairment of Long-Lived Assets

 

Description of

the Matter

At December 31, 2020, the Operating Partnership’s net investment in real estate was approximately $19.3 billion. As more fully described in Note 2 to the consolidated financial statements, the Operating Partnership periodically evaluates its long-lived assets, including its investment in real estate, for impairment. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal and environmental concerns, the Operating Partnership’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties. If the expected future undiscounted cash flows are less than the carrying amount of the long-lived asset, an impairment loss is recognized for the difference between the estimated fair value and the carrying amount.

Auditing the Operating Partnership’s process to evaluate long-lived assets for impairment was complex due to a high degree of subjectivity in determining whether indicators of impairment were present, and in determining the future undiscounted cash flows and estimated fair values, if necessary, of long-lived assets where impairment indicators were determined to be present. In particular, these estimates were sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses and capitalization rates, which are affected by expectations about future market or economic conditions.

 

 

How We

Addressed the

Matter in

Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Operating Partnership’s long-lived asset impairment evaluation and measurement process, including controls over management’s determination and review of the significant assumptions used in the analyses and described above.

To test the Operating Partnership’s evaluation of long-lived assets for impairment, we performed audit procedures that included, among others, evaluating the indicators of impairment identified by management and testing the significant assumptions and completeness and accuracy of operating data used by the Operating Partnership in its analyses. We compared the significant assumptions used by management to current market data and performed sensitivity analyses of certain significant assumptions as discussed above. We also involved our valuation specialists to assist in evaluating certain assumptions used, including future rental revenues and operating expenses, and capitalization rates.

 

 

 

 

 

/s/  ERNST & YOUNG LLP

 

 

ERNST & YOUNG LLP

 

We have served as the Operating Partnership’s auditor since 1996.

 

 

 

Chicago, Illinois

 

 

February 18, 2021

 

 

 

 

 

 

 


F-5


Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders and Board of Trustees

Equity Residential

 

Opinion on Internal Control over Financial Reporting

 

We have audited Equity Residential’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Equity Residential (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 18, 2021 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

 

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

 

 

/s/  ERNST & YOUNG LLP

 

 

ERNST & YOUNG LLP

 

 

 

Chicago, Illinois

 

 

February 18, 2021

 

 

 


F-6


Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Partners

ERP Operating Limited Partnership

 

Opinion on Internal Control over Financial Reporting

 

We have audited ERP Operating Limited Partnership’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, ERP Operating Limited Partnership (the Operating Partnership) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Operating Partnership as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, changes in capital and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 18, 2021 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

The Operating Partnership’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Operating Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

 

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

 

 

/s/  ERNST & YOUNG LLP

 

 

ERNST & YOUNG LLP

 

 

 

Chicago, Illinois

 

 

February 18, 2021

 

 

 

 

 

F-7


Table of Contents

 

EQUITY RESIDENTIAL

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except for share amounts)

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Land

 

$

5,785,367

 

 

$

5,936,188

 

Depreciable property

 

 

20,920,654

 

 

 

21,319,101

 

Projects under development

 

 

411,134

 

 

 

181,630

 

Land held for development

 

 

86,170

 

 

 

96,688

 

Investment in real estate

 

 

27,203,325

 

 

 

27,533,607

 

Accumulated depreciation

 

 

(7,859,657

)

 

 

(7,276,786

)

Investment in real estate, net

 

 

19,343,668

 

 

 

20,256,821

 

Investments in unconsolidated entities

 

 

52,782

 

 

 

52,238

 

Cash and cash equivalents

 

 

42,591

 

 

 

45,753

 

Restricted deposits

 

 

57,137

 

 

 

71,246

 

Right-of-use assets

 

 

499,287

 

 

 

512,774

 

Other assets

 

 

291,426

 

 

 

233,937

 

Total assets

 

$

20,286,891

 

 

$

21,172,769

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgage notes payable, net

 

$

2,293,890

 

 

$

1,941,610

 

Notes, net

 

 

5,335,536

 

 

 

6,077,513

 

Line of credit and commercial paper

 

 

414,830

 

 

 

1,017,833

 

Accounts payable and accrued expenses

 

 

107,366

 

 

 

94,350

 

Accrued interest payable

 

 

65,896

 

 

 

66,852

 

Lease liabilities

 

 

329,130

 

 

 

331,334

 

Other liabilities

 

 

345,064

 

 

 

346,963

 

Security deposits

 

 

60,480

 

 

 

70,062

 

Distributions payable

 

 

232,262

 

 

 

218,326

 

Total liabilities

 

 

9,184,454

 

 

 

10,164,843

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Noncontrolling Interests – Operating Partnership

 

 

338,951

 

 

 

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 December 31, 2020 and

   December 31, 2019

 

 

37,280

 

 

 

37,280

 

Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares

   authorized; 372,302,000 shares issued and outstanding as of December 31, 2020 and

   371,670,884 shares issued and outstanding as of December 31, 2019

 

 

3,723

 

 

 

3,717

 

Paid in capital

 

 

9,128,599

 

 

 

8,965,577

 

Retained earnings

 

 

1,399,715

 

 

 

1,386,495

 

Accumulated other comprehensive income (loss)

 

 

(43,666

)

 

 

(77,563

)

Total shareholders’ equity

 

 

10,525,651

 

 

 

10,315,506

 

Noncontrolling Interests:

 

 

 

 

 

 

 

 

Operating Partnership

 

 

233,162

 

 

 

227,837

 

Partially Owned Properties

 

 

4,673

 

 

 

1,183

 

Total Noncontrolling Interests

 

 

237,835

 

 

 

229,020

 

Total equity

 

 

10,763,486

 

 

 

10,544,526

 

Total liabilities and equity

 

$

20,286,891

 

 

$

21,172,769

 

 

See accompanying notes

F-8


Table of Contents

 

EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands except per share data)

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

2,571,705

 

 

$

2,700,691

 

 

$

2,577,681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Property and maintenance

 

 

440,998

 

 

 

446,845

 

 

 

429,335

 

Real estate taxes and insurance

 

 

381,562

 

 

 

366,139

 

 

 

357,814

 

Property management

 

 

93,825

 

 

 

95,344

 

 

 

92,485

 

General and administrative

 

 

48,305

 

 

 

52,757

 

 

 

53,813

 

Depreciation

 

 

820,832

 

 

 

831,083

 

 

 

785,725

 

Total expenses

 

 

1,785,522

 

 

 

1,792,168

 

 

 

1,719,172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on sales of real estate properties

 

 

531,807

 

 

 

447,637

 

 

 

256,810

 

Impairment

 

 

 

 

 

 

 

 

(702

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

1,317,990

 

 

 

1,356,160

 

 

 

1,114,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

5,935

 

 

 

3,201

 

 

 

16,070

 

Other expenses

 

 

(17,510

)

 

 

(18,177

)

 

 

(17,267

)

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

Expense incurred, net

 

 

(365,073

)

 

 

(390,076

)

 

 

(413,360

)

Amortization of deferred financing costs

 

 

(8,939

)

 

 

(11,670

)

 

 

(11,310

)

Income before income and other taxes, income (loss) from investments in

   unconsolidated entities and net gain (loss) on sales of land parcels

 

 

932,403

 

 

 

939,438

 

 

 

688,750

 

Income and other tax (expense) benefit

 

 

(852

)

 

 

2,281

 

 

 

(878

)

Income (loss) from investments in unconsolidated entities

 

 

(3,284

)

 

 

65,945

 

 

 

(3,667

)

Net gain (loss) on sales of land parcels

 

 

34,234

 

 

 

2,044

 

 

 

987

 

Net income

 

 

962,501

 

 

 

1,009,708

 

 

 

685,192

 

Net (income) loss attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

Operating Part