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, 2022
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
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.
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).
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:
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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of Common Shares held by non-affiliates of the Registrant was approximately $26.8 billion based upon the closing price on June 30, 2022 of $72.22 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 10, 2023 was 378,602,684.
Auditor Firm Id:
42
Auditor Name:
Ernst and Young LLP
Auditor Location:
Chicago, Illinois, USA
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference certain information that will be contained in Equity Residential’s Proxy Statement relating to its 2023 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, 2022, 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 96.8% 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, 2022 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, 2022 owned an approximate 96.8% ownership interest in, ERPOP. The remaining 3.2% 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:
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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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TABLE OF CONTENTS
PAGE
PART I.
Item 1.
Business
6
Item 1A.
Risk Factors
11
Item 1B.
Unresolved Staff Comments
21
Item 2.
Properties
Item 3.
Legal Proceedings
23
Item 4.
Mine Safety Disclosures
PART II.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
24
Item 6.
Reserved
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
40
Item 8.
Financial Statements and Supplementary Data
41
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III.
Item 10.
Trustees, Executive Officers and Corporate Governance
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Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Trustee Independence
Item 14.
Principal Accountant Fees and Services
PART IV.
Item 15.
Exhibit and Financial Statement Schedules
44
Item 16.
Form 10-K Summary
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 affluent 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, 2022 owned an approximate 96.8% 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 most 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 or furnish to the Securities and Exchange Commission (“SEC”) free of charge on our website, www.equityapartments.com. These reports/statements are made available on our website as soon as reasonably practicable after we file them with or furnish them to 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 an established presence in Boston, New York, Washington, D.C., Southern California (including Los Angeles, Orange County and San Diego), San Francisco and Seattle, and an expanding presence in Denver, Atlanta, Dallas/Ft. Worth and Austin. We believe our markets are knowledge centers of the U.S. economy that draw talented workers and employers that drive economic growth in the United States. We believe the locations of our properties in these markets are attractive to these knowledge workers (who often choose to rent for lifestyle reasons) that we hope to convert into satisfied long-term residents.
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 commitments to sustainability, diversity and inclusion, the total wellbeing of our employees and being a responsible corporate citizen in the communities in which we operate.
We believe we have created an industry‐leading operating platform and balance sheet 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 with our residents to foster relationships and community, improve the resident experience and operate our business more efficiently. We pair that with disciplined balance sheet management that 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.
Despite geopolitical and economic uncertainties, demand to live in our apartment communities remains robust and we believe that the long-term prospects for our business remain strong. Our business benefits from a shortage in housing across the country, especially in the areas in which we are investing. Our well-located communities provide an exceptional experience for our residents around dynamic cities that we believe will continue to attract affluent long-term renters.
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 and 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. Our multi-pronged investment strategy featuring acquisitions, new stand-alone and expansion developments, densifying developments and accretive renovations of existing properties is focused on optimizing our portfolio in terms of quality and location. The markets we focus on generally feature one or more of the following characteristics that allow us to drive performance:
We believe our strategy capitalizes on the preference of renters of all ages to live in the locations where we operate which typically are near transportation (both public transit and convenient highway access), entertainment, employment centers/universities and cultural and outdoor amenities. Furthermore, we believe that demand for rental housing will continue to be driven primarily through household formations from the younger segments of our population, particularly Generation Z, while retaining Millennials for longer and to a lesser extent capturing the aging Baby Boomer generation.
The Company continues to allocate capital in order to optimize performance by balancing current cash flow growth with long-term capital appreciation. We have done so by adding expansion markets to our portfolio when those markets meet many of the same characteristics listed above. Expansion into these markets of Denver, Atlanta, Dallas/Ft. Worth and Austin includes investments in both urban and suburban properties and is generally being funded by reducing exposure in selective established markets. Development also plays an important role in our capital allocation. Development activity is focused on our in-house pipeline, our strategic partnership with Toll Brothers, Inc. (“Toll”) and joint ventures with other third-party developers in both established and expansion markets. The Company remains committed to development as a driver of external growth but acknowledges its incremental risk, particularly in higher inflationary cost environments, when evaluating it as a method of expansion.
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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.
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. We focus on the resident experience and leveraging operating efficiency which we believe drives our success in renewing our residents. This focus has driven strong occupancy and a high percentage of residents renewing while achieving strong renewal rate growth.
Rapidly evolving technology continues to drive innovation in the rental industry. 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 a history as a first mover in such important areas as online leasing, we are focused on technology that drives superior margins and improves customer experience. 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. Many of these initiatives allow us to interact with our customers in a safe, responsible and convenient 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 and their 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 continuous endeavor, in which we invest in resilient 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, restaurants, outdoor amenities such as bike/running paths and health clubs, enabling a low carbon footprint lifestyle for our residents to live, work and play.
Equity Residential’s sustainability program actively manages environmental impacts and climate-related risks and opportunities through optimized, financially responsible capital investments and technologies. We methodically focus on energy, water, waste and emissions to advance the program’s policies, targets and resilience outcomes. Together, we believe our program drives long-term asset value, responsibly manages risks and engages our communities, residents, employees and shareholders as part of our broader ESG strategy and commitment to good corporate citizenship and maximizing investment performance.
To further strengthen our commitments to ESG initiatives, we issued two sustainable fixed-income instruments (each a “green bond”) designed to support projects that contribute to environmental sustainability. In 2018, the Company became the first multifamily REIT ever to issue a green bond. In 2021, the Company issued a second green bond, and the net proceeds of approximately $494.2 million from this offering were fully allocated to the development of one property in Seattle certified as LEED Platinum, one property in Boston certified as LEED Gold and one property in Washington, D.C. certified as LEED Silver. In 2021, the Company began funding its $10.0 million investment in a new fund focused on early stage sustainability and climate change mitigation technology relevant to the built environment.
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 inclusion 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.
Executive compensation includes an ESG goal and our Board of Trustees, primarily through its Compensation Committee, takes an active role in overseeing our efforts in this regard. For additional information regarding our ESG efforts, see our 2022 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
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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 by obtaining third-party assurance covering certain of the results outlined in the above report. Furthermore, our annual proxy statements contain additional information on our ESG efforts, including detailed information regarding our corporate governance practices. Such annual proxy statements and the information contained therein are not part of nor incorporated into this report, except as otherwise provided herein.
Human Capital
At Equity Residential, our team of approximately 2,400 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," which include Diversity & Inclusion, Social Responsibility, Sustainability and Total Wellbeing. We have assembled a cross-functional 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.
Diversity and Inclusion
Pay Equity
9
Employee Engagement
Training and Development
Health, Safety and Wellness
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
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 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:
The geographic concentration of our properties could have an adverse effect on our operations.
While the Company continues to diversify its portfolio with the addition of the expansion markets, the Company’s properties are still predominantly concentrated in our established coastal markets (generally within certain dense urban and suburban submarkets). If one or more of these markets is unfavorably impacted by specific geopolitical and/or 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 or localized environmental and climate issues, the impact of such conditions may have a more negative impact on our results of operations than if our properties were more geographically diverse. Additionally, to the extent that these markets or submarkets 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.
Competition for 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 technological 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 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 results of operations and cash flows more volatile.
Generally, our residential apartment leases are for twelve months or less. If the terms of the renewal or releasing 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. In addition, operating expenses associated with each property, such as real estate taxes, insurance, utilities, maintenance costs and employee wages and benefits, may not decline as quickly or at the same rate as revenues when circumstances might cause a reduction of those revenues at our properties.
Because real estate investments are illiquid, we may not be able to sell properties when appropriate.
Real estate investments often cannot be sold quickly due to regulatory constraints, market conditions or otherwise. As a result, we may not be able to reconfigure our portfolio, including the diversification of our portfolio into the expansion markets, as promptly as desired or as quickly in response to changing economic or other conditions. We may also be unable to consummate dispositions in a timely manner, on attractive terms, or at all. The capitalization rates/disposition yields at which properties may be sold could also be higher than historic rates, thereby reducing our potential proceeds from sale. In some cases, we may also determine that we will not recover the carrying amount of the property upon disposition, potentially causing an impairment charge. This inability to reallocate our capital promptly could negatively affect our financial condition, including our ability to make distributions to our security holders.
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 overestimate the revenue (or underestimate the expenses) that these new or repositioned properties may generate. The occupancy and rental rates at these properties may also fail to meet our expectations for these investments. We may also underestimate the costs necessary to operate an acquired or developed property to the standards established for its intended market position. Land parcels acquired for development may lose significant value prior to the start of construction. Development and renovations are subject to even greater uncertainties and risks due to the complexities and lead time to build or complete these projects. We may also underestimate the costs to complete a development property or to complete a renovation.
Additionally, we have and may in the future acquire large portfolios of properties or companies that could increase our size and result in alterations to our capital structure. We may be unable to integrate the operations of newly acquired large portfolios or companies and realize the anticipated synergies and other benefits or do so within the anticipated time frame.
Construction risks on our development projects could affect our profitability.
We intend to continue to develop multifamily properties through both wholly owned and joint venture arrangements as part of our business strategy. Development often includes long planning and entitlement timelines, subjecting the projects 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 supply chain disruptions, trade disputes, tariffs, labor unrest, geopolitical conflicts or other factors that create inflationary pressures. 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 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, including the joint venture risks noted below, could result in increased costs or the delay or abandonment of opportunities.
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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 unrelated third parties. Joint ventures create risks including the following:
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. Each joint venture agreement is individually negotiated and our ability to operate, finance or dispose of properties and interests in such joint ventures in our sole discretion may be limited to varying degrees depending on the terms of the applicable joint venture agreement. To the extent we have commitments to, on behalf of or are dependent on any such off-balance sheet commitments, or if those commitments or their properties or leases are subject to material contingencies, our liquidity and financial condition could be adversely affected.
In some instances, our 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.
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, these charges could adversely affect our financial condition and results of operations.
Corporate social responsibility, specifically related to ESG, may impose additional costs and expose us to new risks.
Environmental sustainability, social and governance evaluations remain highly important to some 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. Government regulators' and investors' increased focus and activism related to ESG and similar matters may constrain our business operations or increase expenses or capital expenditures. 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. 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.
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Our various technology-related initiatives to improve our operating margins and customer experience may fail to perform as expected.
We have developed and may continue to develop initiatives that are intended to serve our customers better and operate more efficiently, including “smart home” technology and self-service options that are accessible to residents through smart devices or otherwise. Such initiatives have involved and may involve our employees having new or different responsibilities and processes. We may incur significant costs and divert resources in connection with such initiatives, and these initiatives may not perform as expected, which could adversely affect our business, results of operations, cash flows and financial condition.
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 have and could continue to 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, including in recent years. As a result, the market price of our Common Shares has been and could continue to 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, as well as our inclusion or exclusion from stock indices. 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.
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 and to pay us amounts due under various interest rate derivative agreements. 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 and impact the value of the Company’s assets.
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 at or prior to maturity, from exposure to interest rate fluctuations on 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. Rising interest rates increased and may continue to increase our interest expense and the costs of refinancing existing debt. Higher interest rates also increased and could continue to increase capitalization rates, which may lead to reduced valuations of the Company’s assets.
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.
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
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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 additional issuance of Common Shares (including those issued under our At-The-Market ("ATM") program) or Units would reduce the percentage of our Common Shares and Units owned by existing 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 the 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 restrictions could have an adverse effect on our operations and property values.
In part due to increasing pressure from advocacy groups, a growing number of state and local governments have enacted and may continue to consider enacting and/or expanding rent control, rent stabilization, eviction moratoriums or other similar regulations. In addition, the federal government has recently considered imposing rent regulations on multifamily properties secured by government-sponsored debt. These regulations limit or could continue to limit our ability to raise rents or charge certain fees (either of which could have a retroactive effect), enforce residents’ or tenants’ contractual rent obligations or pursue collections, all of 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, environmental and other ESG regulations, 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 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 of 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, such as Section 1031 exchanges, or cause the Company to borrow funds or liquidate investments on unfavorable terms in order to meet these distribution requirements. If we do not dispose of our properties through tax deferred transactions, we may be required to distribute the gain proceeds to shareholders or pay income tax. 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
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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 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 Samuel 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 Crises.
Pandemics, epidemics or other health crises, including the novel coronavirus (“COVID-19”), have and could in the future disrupt our business. Both global and locally targeted health events could materially affect areas where our properties, corporate/regional offices or major service providers are located. These events have and could in the future have an adverse effect on our business, results of operations, financial condition and liquidity in a number of ways, including, but not limited to:
To the extent a pandemic, epidemic or other health crisis adversely affects our business, results of operations, cash flows and financial condition, it may also continue to heighten many of the other risks described elsewhere in this Item 1A, Risk Factors.
Significant inflation could negatively impact our business.
Substantial inflationary pressures can adversely affect us by increasing the costs of land, materials, labor and other costs needed to operate our business. In a highly inflationary environment, we may not be able to raise rental rates at or above the rate of inflation, which could reduce our profit margins. If we are unable to increase our rental prices to offset the effects of inflation, our business, results of operations, cash flows and financial condition could be adversely affected. In addition, interest rate increases enacted to combat inflation have caused market disruption and could continue to prevent us from acquiring or disposing of assets on favorable terms.
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.
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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. These risks have increased due to increased reliance on remote working and other electronic interactions with our current and prospective residents. 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 may periodically collect and store personally identifiable information of our residents and prospective residents in connection with our leasing activities, and we may collect and store personally identifiable information of our employees and their dependents. In addition, we often 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 these 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; (c) providing periodic employee awareness training around phishing and other scams, malware and other cyber risks; (d) implementing a corrective cybersecurity awareness policy that impacts an employee’s performance and compensation to articulate the potential implications of failed phishing tests; and (e) systematically deleting personally identifiable information that no longer is required. 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 to cover our losses 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 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.
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.
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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 are involved and may continue to be involved in legal proceedings, claims, class 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, antitrust, 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.
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, hail, windstorms or hurricanes, drought, 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 adversely impact the value of our properties or result in increased capital expenditures or operating expenses 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
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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, 2022, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 308 properties located in 10 states and the District of Columbia consisting of 79,597 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
Apartment Units
AverageApartment Units
Garden
96
24,449
255
Mid/High-Rise
212
55,148
260
308
79,597
258
Garden is generally defined as properties with two and/or three story buildings while mid/high-rise is generally 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.
The Company’s properties are summarized by ownership type in the following table:
Wholly Owned Properties
293
76,483
Partially Owned Properties – Consolidated
3,114
The following table sets forth certain information by market relating to the Company’s properties at December 31, 2022:
Portfolio Summary
Markets/Metro Areas
ApartmentUnits
% ofStabilizedBudgetedNOI (1)
AverageRentalRate (2)
Established Markets:
Los Angeles
66
15,259
18.2
%
$
2,773
Orange County
4,028
5.2
2,685
San Diego
2,878
4.0
2,894
Subtotal – Southern California
91
22,165
27.4
2,772
San Francisco
11,790
15.9
3,229
Washington, D.C.
47
14,716
15.3
2,531
New York
34
8,536
14.0
4,378
Boston
27
7,170
11.5
3,373
Seattle
46
9,525
11.0
2,575
Subtotal – Established Markets
289
73,902
95.1
3,016
Expansion Markets:
Denver
2,498
2.7
2,372
Atlanta
1,215
1.1
2,120
Dallas/Ft. Worth
1,241
0.7
1,904
Austin
741
0.4
1,853
Subtotal – Expansion Markets
5,695
4.9
2,153
Total
100.0
2,956
Note: Projects under development are not included in the Portfolio Summary until construction has been completed.
The following tables provide a rollforward of the apartment units included in Same Store Properties (please refer to the Definitions section in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations) and a reconciliation of apartment units included in Same Store Properties to those included in Total Properties for the year ended December 31, 2022:
Year Ended December 31, 2022
Same Store Properties at December 31, 2021
284
74,077
2019 acquisitions (not stabilized until 2020)
1
217
2020 acquisitions
158
2022 dispositions
(3
)
(945
Lease-up properties stabilized
221
Properties removed from same store (1)
(2
(819
Other
—
(37
Same Store Properties at December 31, 2022
283
72,872
Same Store
Non-Same Store:
2022 acquisitions
172
2021 acquisitions
4,747
819
Lease-up properties not yet stabilized (2)
986
Total Non-Same Store
6,725
Total Properties and Apartment Units
22
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.
As of December 31, 2022, the Company’s same store occupancy was 95.7% and its total portfolio-wide occupancy, which includes completed development properties in various stages of lease-up, was 95.6%. Certain of the Company’s properties are encumbered by mortgages and additional detail can be found on Schedule III – Real Estate and Accumulated Depreciation.
The properties in various stages of development and lease-up at December 31, 2022 are included in the following table:
Development and Lease-Up Projects as of December 31, 2022
(Amounts in thousands except for project and apartment unit amounts)
Estimated/Actual
Projects
Location
OwnershipPercentage
No. ofApartmentUnits
TotalBudgeted CapitalCost (1)
TotalBook Valueto Date
TotalDebt (2)
PercentageCompleted
StartDate
Initial Occupancy
CompletionDate
StabilizationDate
PercentageLeased / Occupied
CONSOLIDATED:
Projects Under Development:
Reverb (fka 9th and W) (3)
92%
312
108,027
88,378
43,714
88%
Q3 2021
Q1 2023
Q3 2023
Q3 2024
– / –
Laguna Clara II
Santa Clara, CA
100%
225
152,621
24,562
14%
Q2 2022
Q4 2024
Q1 2025
Q4 2025
Projects Under Development - Consolidated
537
260,648
112,940
Projects Completed Not Stabilized:
Aero Apartments
Alameda, CA
90%
200
117,794
113,610
64,664
Q3 2019
Q2 2021
97% / 95%
Projects Completed Not Stabilized - Consolidated
Projects Completed and Stabilized During the Quarter:
Alcott Apartments (fka West End Tower)
Boston, MA
470
409,164
408,114
Q2 2018
Q4 2021
Q4 2022
95% / 95%
Projects Completed and Stabilized During the Quarter - Consolidated
UNCONSOLIDATED:
Alloy Sunnyside
Denver, CO
80%
209
66,004
38,309
5,931
53%
Q4 2023
Q2 2024
Alexan Harrison
Harrison, NY
62%
450
198,664
100,922
2,809
39%
Solana Beeler Park
270
81,206
27,008
19%
Remy (Toll)
Frisco, TX
75%
357
96,937
46,214
4,892
37%
Q1 2022
Q1 2024
Q3 2025
Settler (Toll)
Fort Worth, TX
362
81,775
26,456
24%
Lyle (Toll) (3)
Dallas, TX
334
86,332
13,732
13%
Q3 2022
Q2 2025
Q1 2026
Projects Under Development - Unconsolidated
1,982
610,918
252,641
13,632
Total Development Projects - Consolidated
1,207
787,606
634,664
108,378
Total Development Projects - Unconsolidated
Total Development Projects
3,189
1,398,524
887,305
122,010
Item 3. Legal Proceedings
As of December 31, 2022, 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.
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 10, 2023, the number of record holders of Common Shares was approximately 1,790 and 378,602,684 Common Shares were outstanding. At February 10, 2023, the number of record holders of Units in the Operating Partnership was approximately 465 and 391,169,119 Units were outstanding.
Unregistered Common Shares Issued in the Quarter Ended December 31, 2022 (Equity Residential)
During the quarter ended December 31, 2022, EQR issued 414,871 Common Shares in exchange for 414,871 OP Units held by various limited partners of ERPOP. OP Units are generally exchangeable into Common Shares on a one-for-one basis or, at the option of ERPOP, the cash equivalent thereof, at any time one year after the date of issuance. These shares were either registered under the Securities Act of 1933, as amended (the “Securities Act”), or issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder, as these were transactions by an issuer not involving a public offering. In light of the manner of the sale and information obtained by EQR from the limited partners in connection with these transactions, EQR believes it may rely on these exemptions.
Item 6. Reserved
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. 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. 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.
See Item 1, Business, for discussion regarding the Company’s overview.
See Item 1, Business, for discussion regarding the Company’s business objectives and operating and investing strategies.
COVID-19 Impact
The Company continues to monitor and respond to the ongoing effects of the COVID-19 pandemic. For additional details, see Item 1A, Risk Factors.
Results of Operations
2021 and 2022 Transactions
In conjunction with our business objectives and operating and investing strategies, the following table provides a rollforward of the transactions that occurred during the years ended December 31, 2021 and 2022:
Portfolio Rollforward
($ in thousands)
Purchase Price
AcquisitionCap Rate
12/31/2020
304
77,889
Acquisitions:
Consolidated Rental Properties
3,533
1,249,679
3.7
Consolidated Rental Properties – Not Stabilized (1)
1,214
459,700
Sales Price
DispositionYield
Dispositions:
(14
(3,053
(1,716,775
(3.7
)%
Completed Developments – Consolidated
824
12/31/2021
310
80,407
113,000
3.5
Unconsolidated Land Parcels (2)
56,886
(746,150
(3.4
Configuration Changes
12/31/2022
Acquisitions
Dispositions
26
Developments
Investments in Unconsolidated Entities
See Notes 4 and 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate investments and investments in partially owned entities.
Comparison of the year ended December 31, 2022 to the year ended December 31, 2021
The following table presents a reconciliation of diluted earnings per share/unit for the year ended December 31, 2022 as compared to the same period in 2021:
Year Ended December 31
Diluted earnings per share/unit for full year 2021
3.54
Property NOI
0.60
Interest expense
(0.02
Corporate overhead (1)
(0.03
Net gain/loss on property sales
(1.95
Non-operating asset gains/losses
(0.07
Impairment – non-operating real estate assets
0.04
Depreciation expense
(0.11
0.05
Diluted earnings per share/unit for full year 2022
2.05
The Company’s primary financial measure for evaluating each of its apartment communities is net operating income (“NOI”). NOI represents rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company’s apartment properties.
The following tables present reconciliations of operating income per the consolidated statements of operations to NOI, along with rental income, operating expenses and NOI per the consolidated statements of operations allocated between same store and non-same store/other results (amounts in thousands):
Year Ended December 31,
2022 vs. 2021
2022
2021
$ Change
% Change
Operating income
1,116,046
1,675,841
(559,795
(33.4
Adjustments:
Property management
110,304
98,155
12,149
12.4
General and administrative
58,710
56,506
2,204
3.9
Depreciation
882,168
838,272
43,896
Net (gain) loss on sales of real estate properties
(304,325
(1,072,183
767,858
(71.6
Impairment
16,769
(16,769
(100.0
Total NOI
1,862,903
1,613,360
249,543
15.5
Rental income:
Same store
2,533,577
2,291,604
241,973
10.6
Non-same store/other
201,603
172,393
29,210
16.9
Total rental income
2,735,180
2,463,997
271,183
Operating expenses:
802,291
774,504
27,787
3.6
69,986
76,133
(6,147
(8.1
Total operating expenses
872,277
850,637
21,640
2.5
NOI:
1,731,286
1,517,100
214,186
14.1
131,617
96,260
35,357
36.7
Note: See Note 17 in the Notes to Consolidated Financial Statements for detail by reportable segment/market. Non-same store/other NOI results consist primarily of properties acquired in calendar years 2021 and 2022, operations from the Company’s development properties and operations prior to disposition from 2021 and 2022 sold properties.
See the Same Store Results section below for additional discussion of those results.
28
Property management expenses include off-site expenses associated with the self-management of the Company’s properties as well as management fees paid to any third-party management companies. These expenses increased approximately $12.1 million or 12.4% during the year ended December 31, 2022 as compared to 2021. This increase is primarily attributable to increases in payroll-related costs, training/conference costs, temporary help/contractors costs and third-party management fees.
General and administrative expenses, which include corporate operating expenses, increased approximately $2.2 million or 3.9% during the year ended December 31, 2022 as compared to 2021, primarily due to increases in payroll-related costs, legal and professional fees and training/conference costs.
Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $43.9 million or 5.2% during the year ended December 31, 2022 as compared to 2021, primarily as a result of additional depreciation expense on properties acquired in 2021 and 2022 and development properties placed in service during 2021, partially offset by lower depreciation from properties sold in 2021 and 2022.
Net gain on sales of real estate properties decreased approximately $767.9 million or 71.6% during the year ended December 31, 2022 as compared to 2021, primarily as a result of a lower sales volume with the sale of three consolidated apartment properties in 2022 as compared to the sale of fourteen consolidated apartment properties in the same period in 2021.
Impairment decreased approximately $16.8 million during the year ended December 31, 2022 as compared to 2021, due to an impairment charge in 2021 on one land parcel held for development compared to no impairment charges taken during 2022.
Interest and other income decreased approximately $23.5 million or 91.5% during the year ended December 31, 2022 as compared to 2021. The decrease is primarily due to a gain of $23.6 million on the sale of various investment securities that occurred during 2021 but not during 2022.
Other expenses decreased approximately $5.6 million or 29.1% during the year ended December 31, 2022 as compared to 2021, primarily due to a decline in construction defect and litigation reserves and pursuit costs recorded between 2022 and 2021, partially offset by increases in advocacy contributions, demolition/abatement costs and data transformation project costs.
Interest expense, including amortization of deferred financing costs, increased approximately $10.4 million or 3.7% during the year ended December 31, 2022 as compared to 2021. The increase is primarily due to higher overall interest rates and lower capitalized interest. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the year ended December 31, 2022 was 3.68% as compared to 3.52% in 2021. The Company capitalized interest of approximately $7.1 million and $15.9 million during the years ended December 31, 2022 and 2021, respectively.
Net (income) loss attributable to Noncontrolling Interests in partially owned properties decreased approximately $14.2 million or 79.0% during the year ended December 31, 2022 as compared to 2021, primarily as a result of noncontrolling interest allocations related to the sale of one partially owned apartment property in 2021 as compared to no sales in 2022.
For comparison of the year ended December 31, 2021 to the year ended December 31, 2020, 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, 2021.
Same Store Results
Properties that the Company owned and were stabilized for all of both 2022 and 2021 (the “2022 Same Store Properties”), which represented 72,872 apartment units, drove the Company’s results of operations. 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.
29
The following table provides comparative total same store results and statistics for the 2022 Same Store Properties:
Same Store Results/Statistics Including 72,872 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
Residential
Non-Residential
Revenues
2,441,522
10.7
92,055
5.8
2,204,625
86,979
Expenses
778,206
24,085
751,250
23,254
NOI
1,663,316
14.4
67,970
6.7
1,453,375
63,725
Average Rental Rate
2,898
10.4
2,625
Physical Occupancy
96.4
0.3
96.1
Turnover
42.8
(1.9
%)
44.7
Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
The following table provides results and statistics related to our Residential same store operations for the years ended December 31, 2022 and 2021:
Same Store Residential Results/Statistics by Market
Increase (Decrease) from Prior Year
2022 % of Actual NOI
2022 Average Rental Rate
2022 Weighted Average Physical Occupancy %
2022 Turnover
AverageRental Rate
PhysicalOccupancy
14,662
19.8
2,733
96.6
38.4
9.0
(0.2
(3.1
2,614
97.0
34.5
12.8
(0.7
(0.1
2,706
2,766
96.7
38.1
11.4
(0.9
(5.0
21,396
29.6
2,715
37.6
10.0
(0.4
(2.8
11,368
17.4
3,152
41.5
8.3
0.9
(6.5
14,187
16.2
2,456
96.8
43.1
5.5
(2.2
13.5
4,068
96.9
42.4
17.6
1.8
4.2
9,331
2,497
51.6
(0.5
6,430
3,208
96.2
45.3
11.2
0.5
(1.8
1,624
1.9
2,299
60.3
11.3
0.1
Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.3% of total revenues for the year ended December 31, 2022.
Despite geopolitical and economic uncertainties, demand to live in our apartment communities remained healthy, which our financial results reflected, as we continued to capture the gap between in-place rent levels and market rent levels. Demand for our apartments continues to support strong Physical Occupancy with pricing that is largely in-line with expectations, including modest use of Leasing Concessions. Key operating drivers for this performance during 2022 include:
30
In addition to these stronger fundamentals, bad debt, net moderated during the first half of 2022 with improvement in resident collections primarily driven by receipt of governmental rental assistance payments on behalf of our residents. Bad debt, net increased in the second half of 2022 primarily due to the governmental rental assistance programs winding down.
Transaction activity has slowed as buyers and sellers adjust their expectations to a volatile economic climate and rising interest rates. While this type of environment can be challenging, the Company has traditionally found investment opportunities during periods of market dislocation as our ability to move quickly and our relatively low cost of capital creates flexibility that can provide us a competitive advantage.
Overall, the fundamentals of our business remain strong. Long-term, we expect elevated single family home ownership costs, positive household formation trends and the overall deficit in housing across the country to buffer the impact on our business from the risks of potential economic weakness. We also see our affluent resident base as being more resilient to rising inflation due to higher levels of disposable income and lower relative rent-to-income ratios.
Liquidity and Capital Resources
With approximately $2.4 billion in readily available liquidity, a strong balance sheet, limited near-term maturities, very strong credit metrics and ample access to capital markets, the Company believes it is well positioned to meet its future obligations and opportunities. See further discussion below.
Statements of Cash Flows
The following table sets forth our sources and uses of cash flows for the years ended December 31, 2022, 2021 and 2020 (amounts in thousands):
2020
Cash flows provided by (used for):
Operating activities
1,454,756
1,260,184
1,265,536
Investing activities
107,792
(434,620
663,586
Financing activities
(1,785,612
(565,056
(1,946,393
The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the year ended December 31, 2022.
Operating Activities
Our operating cash flows are primarily impacted by NOI and its components, such as Average Rental Rates, Physical Occupancy levels and operating expenses related to our properties. Cash provided by operating activities for the year ended December 31, 2022 as compared to 2021, increased by approximately $194.6 million as a direct result of the NOI and other changes discussed above in Results of Operations.
Investing Activities
Our investing cash flows are primarily impacted by our transaction activity (acquisitions/dispositions), development spend and capital expenditures. For 2022, key drivers were:
31
For the year ended December 31, 2022, 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, 2022
Same Store Properties
Non-Same Store Properties/Other
Same Store Avg. Per Apartment Unit
Total Apartment Units
Building Improvements
102,079
16,335
(2)
118,414
1,401
Renovation Expenditures
43,197
(1)
6,730
49,927
592
Replacements
49,834
2,911
52,745
684
Total Capital Expenditures to Real Estate
195,110
25,976
221,086
2,677
Financing Activities
Our financing cash flows primarily relate to our borrowing activity (debt proceeds or repayment), distributions/dividends to shareholders and other Common Share activity. For 2022, key drivers were:
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, 2022 and 2021 (amounts in thousands):
December 31, 2022
December 31, 2021
Cash and cash equivalents
53,869
123,832
Restricted deposits
83,303
236,404
Unsecured revolving credit facility availability
2,366,537
2,181,372
32
Credit Facility and Commercial Paper Program
The Company has a $2.5 billion unsecured revolving credit facility maturing October 26, 2027. 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 the Secured Overnight Financing Rate ("SOFR") plus a spread (currently 0.725%), 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 Revolving Credit Agreement also contains a sustainability-linked pricing component which provides for interest rate margin reductions upon achieving certain sustainability ratings. See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of the Company’s credit facility.
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.
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 10, 2023 (amounts in thousands):
February 10, 2023
Unsecured revolving credit facility commitment
2,500,000
Commercial paper balance outstanding
(130,000
Unsecured revolving credit facility balance outstanding
Other restricted amounts
(3,484
2,366,516
Dividend Policy
The Company declared a dividend/distribution for each quarter in 2022 of $0.625 per share/unit, an annualized increase of 3.7% over the amount paid in 2021. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.
Total dividends/distributions paid in January 2023 amounted to $244.6 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended December 31, 2022.
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 $28.1 billion in investment in real estate on the Company’s balance sheet at December 31, 2022, $24.5 billion or 87.1% 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. For additional details, see Item 1A, Risk Factors.
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.
33
The Company’s total debt summary schedule as of December 31, 2022 is as follows:
Debt Summary as of December 31, 2022
DebtBalances
% of Total
Secured
1,953,438
26.3
Unsecured
5,472,284
73.7
7,425,722
Fixed Rate Debt:
Secured – Conventional
1,608,838
21.7
Unsecured – Public
5,342,329
71.9
Fixed Rate Debt
6,951,167
93.6
Floating Rate Debt:
1.4
Secured – Tax Exempt
236,222
3.2
Unsecured – Revolving Credit Facility
Unsecured – Commercial Paper Program
129,955
Floating Rate Debt
474,555
6.4
The following table summarizes the Company’s debt maturity schedule as of December 31, 2022:
Debt Maturity Schedule as of December 31, 2022
Year
FixedRate
FloatingRate
2023 (2)
800,000
198,275
998,275
13.3
2024
6,100
2025
450,000
53,180
503,180
2026
592,025
9,000
601,025
8.0
2027
400,000
9,800
409,800
2028
900,000
10,700
910,700
12.1
2029
888,120
11,500
899,620
12.0
2030
1,095,000
12,600
1,107,600
14.8
2031
528,500
39,700
568,200
7.6
2032
28,000
2033+
1,350,850
110,900
1,461,750
19.5
Subtotal
7,004,495
489,755
7,494,250
Deferred Financing Costs and Unamortized (Discount)
(53,328
(15,200
(68,528
Interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2022, inclusive of capitalized interest, approximates $210.0 million annually for the next five years, with total remaining obligations of approximately $2.3 billion. For floating rate debt, the current rate in effect for the most recent payment through December 31, 2022 is assumed to be in effect through the respective maturity date of each instrument.
See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at December 31, 2022. See also Notes 8 and 16 in the Notes to Consolidated Financial Statements for additional discussion of contractual obligations and commitments as of December 31, 2022.
Capital Structure
The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2022 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.
Capital Structure as of December 31, 2022
(Amounts in thousands except for share/unit and per share amounts)
Secured Debt
Unsecured Debt
Total Debt
24.3
Common Shares (includes Restricted Shares)
378,429,708
Units (includes OP Units and Restricted Units)
12,429,737
Total Shares and Units
390,859,445
Common Share Price at December 31, 2022
59.00
23,060,707
99.8
Perpetual Preferred Equity
37,280
0.2
Total Equity
23,097,987
75.7
Total Market Capitalization
30,523,709
The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2022 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.
(Amounts in thousands except for unit and per unit amounts)
Total Outstanding Units
Perpetual Preference Units
Financial Flexibility
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 May 2022 and expires in May 2025. 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 ATM share offering program which allows EQR to issue Common Shares from time to time into the existing trading market at current market prices or through negotiated transactions, including under forward sale arrangements. In May 2022, the Company replaced the prior program with a new program which extended the maturity to May 2025 and gives us the authority to issue up to 13.0 million shares, all of which remain available for issuance as of December 31, 2022.
Forward sale agreements under the ATM program allow the Company, at its election, to settle the agreements by issuing Common Shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the
35
agreements in whole or in part through the delivery or receipt of Common Shares or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted net income per share using the treasury stock method (see Note 11 in the Notes to Consolidated Financial Statements for additional discussion). The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s Common Shares over the term of the forward sale agreement.
During the quarter ended September 30, 2021, the Company entered into forward sale agreements under the prior program for a total of approximately 1.7 million Common Shares at a weighted average initial forward price per share of $83.25. During the quarter ended December 31, 2022, the Company settled all of the outstanding forward sale agreements, at a weighted average forward price per share of $80.22, which is inclusive of adjustments made to reflect the then-current federal funds rate and the amount of dividends paid to holders of the Company's Common Shares, for net proceeds of approximately $139.6 million. Concurrent with this transaction, ERPOP issued the same amount of OP Units to EQR in exchange for the net proceeds.
The Company may repurchase up to 13.0 million Common Shares under its share repurchase program. No open market repurchases have occurred since 2008. As of February 10, 2023, EQR has remaining authorization to repurchase up to 13.0 million of its shares.
We believe our ability to access capital markets is enhanced by ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings. As of February 10, 2023, the ratings are as follows:
Standard & Poor’s
Moody's
ERPOP's long-term senior debt rating
A-
A3
ERPOP's short-term commercial paper rating
A-2
P-2
EQR's long-term preferred equity rating
BBB
Baa1
See Note 18 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to December 31, 2022.
Definitions
The definition of certain terms described above or below are as follows:
36
37
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, 2022.
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 evaluates its long-lived assets, including its investment in real estate, for indicators of impairment at least quarterly. 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. Assumptions are primarily subject to property-specific characteristics, especially with respect to our intent and ability to hold the related asset. While these property-specific assumptions can have a significant impact on the undiscounted cash flows or estimated fair value of a particular asset, our evaluation of the reported carrying values of long-lived assets during the current year were not particularly sensitive to external or market assumptions.
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 using assumptions primarily based upon property-specific characteristics. 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 connection with the acquisition or financing of the respective property, our own analysis of recently acquired or developed 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/liabilities acquired.
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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, 2022:
(Amounts in thousands)
Net income
806,995
1,396,714
962,501
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties
(3,774
(17,964
(14,855
Preferred/preference distributions
(3,090
Net income available to Common Shares and Units / Units
800,131
1,375,660
944,556
820,832
Depreciation – Non-real estate additions
(4,306
(4,277
(4,564
Depreciation – Partially Owned Properties
(2,640
(3,673
(3,345
Depreciation – Unconsolidated Properties
2,487
2,454
Net (gain) loss on sales of unconsolidated entities - operating assets
(9
(1,304
(1,636
(531,807
Noncontrolling Interests share of gain (loss) on sales of real estate properties
15,650
11,655
FFO available to Common Shares and Units / Units (1) (3) (4)
1,373,917
1,150,632
1,238,145
Write-off of pursuit costs
4,780
6,526
6,869
Debt extinguishment and preferred share redemption (gains) losses
4,664
744
39,292
Non-operating asset (gains) losses
2,368
(22,283
(32,590
Other miscellaneous items
(13,901
8,976
4,652
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)
1,371,828
1,161,364
1,256,368
FFO (1) (3)
1,377,007
1,153,722
1,241,235
Normalized FFO (2) (3)
1,374,918
1,164,454
1,259,458
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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 SOFR, London Interbank Offered Rate ("LIBOR") and Securities Industry and Financial Markets Association (“SIFMA”) indices, which directly impact borrowings under our revolving credit facility and/or 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 Alternative Reference Rates Committee (the “ARRC”) has identified SOFR as the preferred alternative rate for USD LIBOR. As part of the transition process that is now under way, LIBOR is no longer published for certain tenors and key USD settings are expected to be discontinued by June 2023. SOFR is now the primary basis for determining interest payments on borrowings on the Company’s $2.5 billion revolving credit facility. We are closely monitoring the evolution of practices in the credit markets and we do not expect such transition to have a material impact on the Company’s financial position or cash flows.
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.
The Company had total variable rate debt of $0.5 billion, representing 6.4% of total debt, and $0.6 billion, representing 7.3% of total debt, as of December 31, 2022 and 2021, respectively. If interest rates had been 100 basis points higher in 2022 and 2021 and average balances coincided with year end balances, our annual interest expense would have been $4.7 million and $6.1 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, 2022, the Company had total outstanding fixed rate debt of $7.0 billion, or 93.6% of total debt, with an estimated fair market value of $6.2 billion. If interest rates had been 100 basis points lower as of December 31, 2022, the estimated fair market value would have increased by approximately $397.5 million. As of December 31, 2021, the Company had total outstanding fixed rate debt of $7.7 billion, or 92.7% of total debt, with an estimated fair market value of $8.4 billion. If interest rates had been 100 basis points lower as of December 31, 2021, the estimated fair market value would have increased by approximately $637.2 million.
As of December 31, 2022, the Company’s derivative instruments had a net asset fair value of approximately $20.7 million. If interest rates increased by 35 basis points across the curve relative to market quotes as of December 31, 2022 (a 10% upward “parallel shift”), the net asset fair value of the Company’s derivative instruments would be approximately $39.4 million. If interest rates decreased by 35 basis points (a 10% downward “parallel shift”), the net asset fair value of the Company’s derivative instruments would be approximately $1.5 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.
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
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures:
Effective as of December 31, 2022, 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, 2022. Our internal control over financial reporting has been audited as of December 31, 2022 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 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Effective as of December 31, 2022, 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.
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).
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, 2022. Our internal control over financial reporting has been audited as of December 31, 2022 by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
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 2022 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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 Accountant Fees and Services
The information required by Item 10, Item 11, Item 12 (with the exception of the Equity Compensation Plan Information provided below), 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, 2022, 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 96.8% owner of ERP Operating Limited Partnership.
Equity Compensation Plan Information
The following table provides information as of December 31, 2022 with respect to the Company’s Common Shares that may be issued under its existing equity compensation plans.
Plan Category
Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights
Weighted-averageexercise price ofoutstandingoptions, warrants and rights
Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesin column (a))
(a) (1)
(b) (1)
(c) (2)
Equity compensation plans approved by shareholders
4,061,360
$62.60
11,407,237
Equity compensation plans not approved by shareholders
On June 27, 2019, the shareholders of EQR approved the Company's 2019 Plan and the Company filed a Form S-8 registration statement to register 11,331,958 Common Shares under this plan. As of December 31, 2022, 8,920,638 shares were available for future issuance. 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.
PART IV
Item 15. Exhibit and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
Item 16. Form 10-K Summary
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
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.
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.
Seventh Amended and Restated Agreement of Limited Partnership for ERP Operating Limited Partnership, dated as of March 18, 2021 and effective as of January 1, 2020.
Included as Exhibit 10.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated March 18, 2021, filed on March 24, 2021.
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.
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, 2021.
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.
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 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.
4.11
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.
4.12
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.
4.13
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.
4.14
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.
4.15
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.
45
4.16
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.
4.17
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.
4.18
Form of 1.850% Note due August 1, 2031.
Included as Exhibit 4.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated August 3, 2021, filed on August 5, 2021.
4.19
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.
4.20
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.
4.21
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 October 26, 2022, 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 October 26, 2022, filed on October 27, 2022.
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.
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.
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.
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
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.
10.14
Form of 2022 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, 2022.
10.15
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.
10.16
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.
10.17
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.
10.18
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.
10.19
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.
10.20
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.
10.21
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.
10.22
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.
10.23
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.
10.24
Amendment to the Equity Residential Supplemental Executive Retirement Plan, effective as of October 1, 2022.
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, 2022.
10.25
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.
10.26
Distribution Agreement, dated May 18, 2022.
Included as Exhibit 1.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated and filed on May 18, 2022.
10.27
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 May 18, 2022.
10.28
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.
10.29
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.
10.30
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.
10.31
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.
List of Subsidiaries of Equity Residential and ERP Operating Limited Partnership.
Attached herein.
23.1
Consent of Ernst & Young LLP - Equity Residential.
23.2
Consent of Ernst & Young LLP - ERP Operating Limited Partnership.
Power of Attorney.
See the signature page to this report.
31.1
Equity Residential - Certification of Mark J. Parrell, Chief Executive Officer.
31.2
Equity Residential - Certification of Robert A. Garechana, Chief Financial Officer.
31.3
ERP Operating Limited Partnership - Certification of Mark J. Parrell, Chief Executive Officer of Registrant's General Partner.
31.4
ERP Operating Limited Partnership - Certification of Robert A. Garechana, Chief Financial Officer of Registrant's General Partner.
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.
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.
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.
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.
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.
48
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.
By:
/s/ Mark J. Parrell
Mark J. Parrell
President and Chief Executive Officer
(Principal Executive Officer)
Date:
February 16, 2023
BY: EQUITY RESIDENTIAL
ITS GENERAL PARTNER
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 2022, 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
President, Chief Executive Officer and Trustee
/s/ Robert A. Garechana
Executive Vice President and Chief Financial Officer
Robert A. Garechana
(Principal Financial Officer)
/s/ Ian S. Kaufman
Senior Vice President and Chief Accounting Officer
Ian S. Kaufman
(Principal Accounting Officer)
/s/ Angela M. Aman
Trustee
Angela M. Aman
/s/ Linda Walker Bynoe
Linda Walker Bynoe
/s/ Mary Kay Haben
Mary Kay Haben
/s/ T. Zia Huque
T. Zia Huque
/s/ John E. Neal
John E. Neal
/s/ David J. Neithercut
David J. Neithercut
/s/ Mark S. Shapiro
Mark S. Shapiro
/s/ Stephen E. Sterrett
Stephen E. Sterrett
/s/ Samuel Zell
Chairman of the Board of Trustees
Samuel Zell
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
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, 2022 and 2021
F-8
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
F-9 to F-10
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
F-11 to F-13
Consolidated Statements of Changes in Equity for the years ended December 31, 2022, 2021 and 2020
F-14 to F-15
Financial Statements of ERP Operating Limited Partnership:
F-16
F-17 to F-18
F-19 to F-21
Consolidated Statements of Changes in Capital for the years ended December 31, 2022, 2021 and 2020
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Trustees of Equity Residential
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Equity Residential (the Company) as of December 31, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 16, 2023 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 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 accounts or disclosures to which it relates.
Description of
the Matter
At December 31, 2022, the Company’s net investment in real estate was approximately $19.1 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 and assumptions 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 indicators of impairment was complex due to a high degree of subjectivity in the identification of events or changes in circumstances that may indicate impairment was present. Changes in these judgments could have a material impact on the Company’s analysis.
F-2
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, including controls over management’s determination and review of the significant assumptions used in the analyses described above.
We performed audit procedures that included, among others, evaluating the judgments used by management to identify whether indicators of impairment were present and testing the significant assumptions and completeness and accuracy of market and operating data used by the Company in its analyses. We reviewed costs incurred on development properties. We compared the significant assumptions used by management to current market data and performed sensitivity analyses of certain significant assumptions, such as market capitalization rates. We also held discussions with management and read the minutes of meetings of the Board of Trustees and related committees to understand whether there were any changes in management’s operating and development plans that would result in the disposal of a property significantly before the end of its useful life.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
We have served as the Company’s auditor since 1996.
Chicago, Illinois
F-3
To the Partners of ERP Operating Limited Partnership
We have audited the accompanying consolidated balance sheets of ERP Operating Limited Partnership (the Operating Partnership) as of December 31, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 16, 2023 expressed an unqualified opinion thereon.
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.
At December 31, 2022, the Operating Partnership’s net investment in real estate was approximately $19.1 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 and assumptions 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 indicators of impairment was complex due to a high degree of subjectivity in the identification of events or changes in circumstances that may indicate impairment was present. Changes in these judgments could have a material impact on the Operating Partnership’s analysis.
F-4
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Operating Partnership’s long-lived asset impairment evaluation, including controls over management’s determination and review of the significant assumptions used in the analyses described above.
We performed audit procedures that included, among others, evaluating the judgments used by management to identify whether indicators of impairment were present and testing the significant assumptions and completeness and accuracy of market and operating data used by the Operating Partnership in its analyses. We reviewed costs incurred on development properties. We compared the significant assumptions used by management to current market data and performed sensitivity analyses of certain significant assumptions, such as market capitalization rates. We also held discussions with management and read the minutes of meetings of the Board of Trustees and related committees to understand whether there were any changes in management’s operating and development plans that would result in the disposal of a property significantly before the end of its useful life.
We have served as the Operating Partnership’s auditor since 1996.
F-5
Opinion on Internal Control Over Financial Reporting
We have audited Equity Residential’s internal control over financial reporting as of December 31, 2022, 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, 2022, 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, 2022 and 2021, 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, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 16, 2023 expressed an unqualified opinion thereon.
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.
We have audited ERP Operating Limited Partnership’s internal control over financial reporting as of December 31, 2022, 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, 2022, 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, 2022 and 2021, 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, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 16, 2023 expressed an unqualified opinion thereon.
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.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
December 31,
ASSETS
Land
5,580,878
5,814,790
Depreciable property
22,334,369
22,370,811
Projects under development
24,307
Land held for development
60,567
62,998
Investment in real estate
28,088,754
28,272,906
Accumulated depreciation
(9,027,850
(8,354,282
Investment in real estate, net
19,060,904
19,918,624
Investments in unconsolidated entities
279,024
127,448
Right-of-use assets
462,956
474,713
Other assets
278,206
288,220
Total assets
20,218,262
21,169,241
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net
2,191,201
Notes, net
5,835,222
Line of credit and commercial paper
315,030
Accounts payable and accrued expenses
96,028
107,013
Accrued interest payable
66,310
69,510
Lease liabilities
308,748
312,335
Other liabilities
306,941
353,102
Security deposits
68,940
66,141
Distributions payable
244,621
233,502
Total liabilities
8,517,310
9,483,056
Commitments and contingencies
Redeemable Noncontrolling Interests – Operating Partnership
318,273
498,977
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, 2022 and December 31, 2021
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 378,429,708 shares issued and outstanding as of December 31, 2022 and 375,527,195 shares issued and outstanding as of December 31, 2021
3,784
3,755
Paid in capital
9,476,085
9,121,122
Retained earnings
1,658,837
1,827,063
Accumulated other comprehensive income (loss)
(2,547
(34,272
Total shareholders’ equity
11,173,439
10,954,948
Noncontrolling Interests:
Operating Partnership
209,961
214,094
Partially Owned Properties
(721
18,166
Total Noncontrolling Interests
209,240
232,260
Total equity
11,382,679
11,187,208
Total liabilities and equity
See accompanying notes
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per share data)
REVENUES
Rental income
2,571,705
EXPENSES
Property and maintenance
483,865
453,532
440,998
Real estate taxes and insurance
388,412
397,105
381,562
93,825
48,305
Total expenses
1,923,459
1,843,570
1,785,522
Net gain (loss) on sales of real estate properties
304,325
1,072,183
531,807
1,317,990
Interest and other income
2,193
25,666
5,935
Other expenses
(13,664
(19,275
(17,510
Interest:
Expense incurred, net
(282,920
(272,473
(365,073
Amortization of deferred financing costs
(8,729
(8,737
(8,939
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels
812,926
1,401,022
932,403
Income and other tax (expense) benefit
(900
(915
(852
Income (loss) from investments in unconsolidated entities
(5,031
(3,398
(3,284
Net gain (loss) on sales of land parcels
34,234
Net (income) loss attributable to Noncontrolling Interests:
(26,310
(45,900
(34,010
Net income attributable to controlling interests
776,911
1,332,850
913,636
Preferred distributions
Net income available to Common Shares
773,821
1,329,760
910,546
Earnings per share – basic:
2.06
3.56
2.45
Weighted average Common Shares outstanding
376,209
373,833
371,791
Earnings per share – diluted:
389,450
388,089
385,874
F-9
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
Comprehensive income:
Other comprehensive income (loss):
Other comprehensive income (loss) – derivative instruments:
Unrealized holding gains (losses) arising during the year
20,654
(1,190
Losses reclassified into earnings from other comprehensive income
11,071
9,394
35,087
Other comprehensive income (loss)
31,725
33,897
Comprehensive income
838,720
1,406,108
996,398
Comprehensive (income) attributable to Noncontrolling Interests
(31,132
(64,183
(50,084
Comprehensive income attributable to controlling interests
807,588
1,341,925
946,314
F-10
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
8,729
8,737
8,939
Amortization of above/below market lease intangibles
(154
(71
Amortization of discounts and premiums on debt
5,004
5,302
5,231
Amortization of deferred settlements on derivative instruments
11,059
9,382
35,075
Amortization of right-of-use assets
12,157
13,266
11,682
(Income) loss from investments in unconsolidated entities
5,031
3,398
3,284
Distributions from unconsolidated entities – return on capital
398
56
100
Net (gain) loss on sales of land parcels
(5
(34,234
Net (gain) loss on debt extinguishment
26,150
Realized/unrealized (gain) loss on derivative instruments
50
Realized (gain) loss on sale of investment securities
(2,061
(23,432
Compensation paid with Company Common Shares
29,513
27,810
23,174
Other operating activities, net
1,805
Changes in assets and liabilities:
(Increase) decrease in other assets
10,893
5,906
(53,021
Increase (decrease) in accounts payable and accrued expenses
(266
15,381
Increase (decrease) in accrued interest payable
(3,200
3,614
(956
Increase (decrease) in lease liabilities
(1,524
(5,122
(2,204
Increase (decrease) in other liabilities
(13,394
4,286
(8,751
Increase (decrease) in security deposits
2,799
5,661
(9,582
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions
(113,046
(1,712,131
(48,898
Investment in real estate – development/other
(109,345
(206,421
(230,332
Capital expenditures to real estate
(221,086
(151,019
(135,979
Non-real estate capital additions
(4,050
(1,696
(20,100
Interest capitalized for real estate and unconsolidated entities under development
(7,105
(15,932
(10,165
Proceeds from disposition of real estate, net
720,302
1,707,747
1,113,972
Investments in unconsolidated entities – acquisitions
(49,855
(48,534
Investments in unconsolidated entities – development/other
(109,846
(31,257
(5,775
Distributions from unconsolidated entities – return of capital
300
1,516
1,636
Purchase of investment securities and other investments
(168,291
(773
Proceeds from sale of investment securities
3,584
191,398
Net cash provided by (used for) investing activities
F-11
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs
(9,894
(6,446
(2,923
Mortgage notes payable, net:
Proceeds
48,054
58,428
519,204
Lump sum payoffs
(286,461
(156,815
(160,522
Scheduled principal repayments
(3,392
(7,465
(7,759
Net gain (loss) on debt extinguishment
(327
Notes, net:
497,470
(500,000
(750,000
(25,823
Line of credit and commercial paper:
Line of credit proceeds
10,000
1,870,000
Line of credit repayments
(10,000
(1,890,000
Commercial paper proceeds
6,036,083
7,590,200
7,450,997
Commercial paper repayments
(6,221,158
(7,690,000
(8,034,000
Proceeds from (payments on) settlement of derivative instruments
(1,240
Finance ground lease principal payments
(2,463
(365
Proceeds from sale of Common Shares
139,623
Proceeds from Employee Share Purchase Plan (ESPP)
4,178
4,265
4,508
Proceeds from exercise of options
25,069
85,445
12,275
Payment of offering costs
(783
(428
Other financing activities, net
(63
Acquisition of Noncontrolling Interests – Partially Owned Properties
(32,178
Contributions – Noncontrolling Interests – Partially Owned Properties
603
1,394
417
Contributions – Noncontrolling Interests – Operating Partnership
Distributions:
Common Shares
(931,783
(900,468
(883,938
Preferred Shares
(2,318
Noncontrolling Interests – Operating Partnership
(30,324
(31,316
(32,403
Noncontrolling Interests – Partially Owned Properties
(18,406
(5,802
(11,719
Net cash provided by (used for) financing activities
Net increase (decrease) in cash and cash equivalents and restricted deposits
(223,064
260,508
(17,271
Cash and cash equivalents and restricted deposits, beginning of year
360,236
99,728
116,999
Cash and cash equivalents and restricted deposits, end of year
137,172
42,591
57,137
Total cash and cash equivalents and restricted deposits, end of year
F-12
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized
267,612
252,838
320,854
Net cash paid (received) for income and other taxes
748
1,179
(1,038
Amortization of deferred financing costs:
(506
(353
(240
2,768
2,338
2,080
2,743
1,815
4,387
4,009
5,026
Amortization of discounts and premiums on debt:
2,184
2,764
2,234
2,820
2,538
2,997
Amortization of deferred settlements on derivative instruments:
(12
Accumulated other comprehensive income
Write-off of pursuit costs:
1,150
5,918
6,566
732
582
271
(Income) loss from investments in unconsolidated entities:
3,778
2,122
1,995
1,253
1,276
1,289
Realized/unrealized (gain) loss on derivative instruments:
(21,865
1,211
1,240
Interest capitalized for real estate and unconsolidated entities under development:
(2,365
(15,318
(4,740
(614
Investments in unconsolidated entities – development/other:
1,395
(108,556
(30,642
(4,275
(1,290
(2,010
(1,500
Debt financing costs:
(9,566
229
(231
(228
(2,344
(2,692
(100
(4,331
Right-of-use assets and lease liabilities initial measurement and reclassifications:
(400
11,308
400
(11,308
Non-cash share distribution and other transfers from unconsolidated entities:
4,201
1,430
(4,201
(1,430
F-13
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
SHAREHOLDERS’ EQUITY
PREFERRED SHARES
Balance, beginning of year
Balance, end of year
COMMON SHARES, $0.01 PAR VALUE
3,723
3,717
Conversion of OP Units into Common Shares
Issuance of Common Shares
Exercise of share options
Employee Share Purchase Plan (ESPP)
Share-based employee compensation expense:
Restricted shares
PAID IN CAPITAL
9,128,599
8,965,577
Common Share Issuance:
11,919
74,050
4,695
139,606
25,064
85,428
12,273
4,177
4,264
4,507
11,593
8,388
11,223
Share options
2,321
3,101
2,349
ESPP discount
796
991
944
Offering costs
Supplemental Executive Retirement Plan (SERP)
(269
(1,335
(395
(27,383
Change in market value of Redeemable Noncontrolling Interests – Operating Partnership
176,490
(158,598
125,224
Adjustment for Noncontrolling Interests ownership in Operating Partnership
11,432
(23,338
2,202
RETAINED EARNINGS
1,399,715
1,386,495
Common Share distributions
(942,047
(902,412
(897,326
Preferred Share distributions
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(43,666
(77,563
Accumulated other comprehensive income (loss) – derivative instruments:
DISTRIBUTIONS
Distributions declared per Common Share outstanding
2.50
2.41
F-14
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
NONCONTROLLING INTERESTS
OPERATING PARTNERSHIP
233,162
227,837
Issuance of restricted units to Noncontrolling Interests
Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner
(11,923
(74,063
(4,696
Equity compensation associated with Noncontrolling Interests
19,104
17,797
11,926
Net income attributable to Noncontrolling Interests
26,310
45,900
34,010
Distributions to Noncontrolling Interests
(30,407
(30,612
(32,951
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership
4,214
(1,428
(775
(11,432
23,338
(2,202
PARTIALLY OWNED PROPERTIES
4,673
1,183
3,774
17,964
14,855
Contributions by Noncontrolling Interests
(18,469
(5,865
(11,782
(4,795
F-15
LIABILITIES AND CAPITAL
Redeemable Limited Partners
Capital:
Partners’ Capital:
Preference Units
General Partner
11,138,706
10,951,940
Limited Partners
Total partners’ capital
11,383,400
11,169,042
Total capital
Total liabilities and capital
(Amounts in thousands except per Unit data)
803,221
1,378,750
947,646
ALLOCATION OF NET INCOME:
3,090
Net income available to Units
Earnings per Unit – basic:
Weighted average Units outstanding
388,045
386,096
384,794
Earnings per Unit – diluted:
F-17
Comprehensive (income) attributable to Noncontrolling Interests – Partially Owned Properties
834,946
1,388,144
981,543
F-18
F-19
Proceeds from sale of OP Units
Proceeds from EQR’s Employee Share Purchase Plan (ESPP)
Proceeds from exercise of EQR options
Contributions – Limited Partners
OP Units – General Partner
OP Units – Limited Partners
F-20
F-21
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
PARTNERS’ CAPITAL
PREFERENCE UNITS
GENERAL PARTNER
10,532,037
10,355,789
OP Unit Issuance:
Conversion of OP Units held by Limited Partners into OP Units held by General Partner
11,923
74,063
4,696
Issuance of OP Units
Exercise of EQR share options
EQR’s Employee Share Purchase Plan (ESPP)
EQR restricted shares
11,595
8,389
11,225
EQR share options
EQR ESPP discount
Net income available to Units – General Partner
OP Units – General Partner distributions
Change in market value of Redeemable Limited Partners
Adjustment for Limited Partners ownership in Operating Partnership
LIMITED PARTNERS
Issuance of restricted units to Limited Partners
Equity compensation associated with Units – Limited Partners
Net income available to Units – Limited Partners
Units – Limited Partners distributions
Change in carrying value of Redeemable Limited Partners
Distributions declared per Unit outstanding
F-22
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (Continued)
NONCONTROLLING INTERESTS – PARTIALLY OWNED PROPERTIES
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity Residential (“EQR”) is an S&P 500 company focused on the acquisition, development and management of residential properties located in and around dynamic cities that attract affluent long-term renters, a business that is conducted on its behalf by ERP Operating Limited Partnership (“ERPOP”). EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 and ERPOP is an Illinois limited partnership formed in May 1993. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP. Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the Operating Partnership.
As of December 31, 2022, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 308 properties located in 10 states and the District of Columbia consisting of 79,597 apartment units. The ownership breakdown includes (table does not include any uncompleted development properties):
Basis of Presentation
Due to the Company’s ability as general partner to control either through ownership or by contract the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary has been consolidated with the Company for financial reporting purposes, except for any unconsolidated properties/entities.
Real Estate Assets and Depreciation of Investment in Real Estate
The Company expects that substantially all of its acquisitions will be accounted for as asset acquisitions. In an asset acquisition, the Company is required to capitalize transaction costs and allocate the purchase price on a relative fair value basis (including any identified intangible assets). For the years ended December 31, 2022 and 2021, all acquisitions were considered asset acquisitions.
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 connection with the acquisition or financing of the respective property, our own analysis of recently acquired or developed 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/liabilities acquired. The Company allocates the purchase price of acquired real estate to various components as follows:
F-24
Replacements inside an apartment unit such as appliances and carpeting are depreciated over an estimated useful life of five to ten years. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and significant renovations and building improvements that improve and/or extend the useful life of the asset are capitalized over their estimated useful life, generally five to fifteen years. Initial direct leasing costs are expensed as incurred as such expense approximates the deferral and amortization of initial direct leasing costs over the lease terms.
The Company classifies real estate assets as real estate held for sale when it is probable a property will be disposed of. The Company classifies properties under development and/or expansion and properties in the lease-up phase (including land) as construction-in-progress until construction has been completed and certificates of occupancy permits have been obtained.
At least quarterly, the Company 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. If an impairment indicator exists, the Company performs the following:
See Note 4 for further discussion of the Company’s impairment charge on a land parcel in 2021.
Impairment of Investments in Unconsolidated Entities and Other Investments
At least quarterly, the Company evaluates its investments in unconsolidated entities and other investments for indicators of other than temporary impairment, considering whether there has been a change to events or circumstances that would impact recoverability of the Company’s investment as well as any changes with regards to the Company's intent and ability to hold the investment to recover its carrying value.
Cost Capitalization
See the Real Estate Assets and Depreciation of Investment in Real Estate section for a discussion of the Company’s policy with respect to capitalization vs. expensing of fixed asset/repair and maintenance costs. For all development, capital and renovation projects,
F-25
the Company uses its professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. The Company capitalizes interest, real estate taxes and insurance, as well as payroll for those individuals directly responsible for and who spend their time on the execution and supervision of development activities. Additionally, the Company capitalizes payroll for those individuals directly responsible for and who spend their time on the execution and supervision of major capital and/or renovation projects. Capitalization ends when the asset, or a portion of the asset, is substantially completed and ready for its intended use. These costs are reflected on the balance sheets as increases to depreciable property and/or construction-in-progress.
During the years ended December 31, 2022 and 2021, the Company capitalized $15.6 million and $13.9 million, respectively, of payroll and associated costs of employees directly responsible for and who spend their time on the execution and supervision of development activities as well as major capital and/or renovation projects.
Cash and Cash Equivalents
The Company considers all demand deposits, money market accounts and investments in certificates of deposit with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions. The combined account balances at one or more institutions typically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions’ non-performance.
Fair Value of Financial Instruments
The valuation of financial instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. The Company, where possible, bases the fair values of its financial instruments on listed market prices and third-party quotes. Where these are not available, the Company bases its estimates on current instruments with similar terms and maturities or on other factors relevant to the financial instruments.
In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company 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.
The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. In addition, fair value adjustments will affect either shareholders’ equity/partners’ capital or net income depending on whether the derivative instruments qualify as a hedge for accounting purposes and, if so, the nature of the hedging activity. When the terms of an underlying transaction are modified, or when the underlying transaction is terminated or completed, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market each period. The Company does not use derivatives for trading or speculative purposes. See Note 10 for additional derivatives discussion.
Leases and Revenue Recognition
Rental income attributable to residential leases is recorded on a straight-line basis over the term of the lease when reasonably assured they are collectible, which is not materially different than if it were recorded when due from residents and recognized monthly as it was earned. Residential apartment leases may include lease income related to such items as utility recoveries, parking rent, storage rent and pet rent that the Company treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. Leases entered into between a resident and a property for the rental of an apartment unit are generally year-to-year, renewable upon consent of both parties on an annual or monthly basis.
Rental income attributable to non-residential leases is also recorded on a straight-line basis over the term of the lease when reasonably assured they are collectible. Non-residential leases may include lease income related to such items as utility recoveries, parking rent and storage rent that the Company treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. Non-residential leases generally have five to ten year lease terms with market-based renewal options and consist of ground floor retail spaces and master-leased parking garages that serve as additional amenities for our residents.
F-26
The majority of the Company’s revenue is derived from residential, non-residential and other lease income. Our revenue streams have the same timing and pattern of revenue recognition across our reportable segments, with consistent allocations between the lease and revenue recognition standards. The Company elected an accounting policy to account for both its lease and non-lease components (specifically common area maintenance charges) as a single lease component under the lease standard.
The Company is a lessor for its residential and non-residential leases and is a lessee for its corporate headquarters and regional offices and ground leases for land underlying current operating properties or projects under development. If applicable, lease agreements must be evaluated to determine the accounting treatment as a finance or operating lease in accordance with the lease standard.
The lease standard also requires lessees to recognize on the balance sheet: (a) a liability for the lease obligation (initially measured at the present value of the future lease payments not yet paid over the lease term); and (b) an asset for its right to use the underlying asset (initially equal to the lease liability). The Company uses estimates and judgments on the discount rate used to calculate the present value of the future lease payments. The Company uses its incremental borrowing rate as the discount rate because the Company typically cannot readily determine the rate implicit in the lease. Since the Company’s credit backs the corporate office lease obligations and the lease terms are generally ten years or less, the discount rate range was estimated by using the Company’s borrowing rates for actual pricing data. The discount rate range for ground leases takes into account various factors, including the longer life of the ground leases, and was estimated by using the Company’s borrowing rates for actual pricing data through 30 years and other long-term market rates.
The Company’s revenue streams that are not accounted for under the lease standard include:
See Note 8 for the Company’s rental income detail allocated between the lease and revenue recognition standards.
The Company’s allowance for doubtful accounts (which offsets accounts receivable and is included within other assets on the consolidated balance sheets) and bad debts (which reduce rental income on the consolidated statements of operations and comprehensive income) have historically been very modest, particularly in our residential business, given the quality of our resident base and asset class. However, due to the impact of the novel coronavirus (“COVID-19”) pandemic and extended eviction moratoriums enacted during the pandemic, the allowance for doubtful accounts and bad debts became elevated during 2020 and remained elevated in 2021 and 2022. In accordance with the lease standard, if we determine the lease payments are not probable of collection (based on known troubled accounts, rent deferral plans granted, historical experience and other currently available evidence), we fully reserve for any unpaid amounts, deferred rent receivable, variable lease payments and straight-line receivable balances and recognize rental income only if cash is received. If the Company’s estimates of collectibility differ from the cash received, then the timing and amount of the Company’s reported revenue could be impacted. See Note 8 for additional details.
Share-Based Compensation
The Company expenses share-based compensation for employee and trustee grants of restricted shares, restricted units and share options. Any common share of beneficial interest, $0.01 par value per share (the “Common Shares”), issued pursuant to EQR’s incentive equity compensation and employee share purchase plans will result in ERPOP issuing units of partnership interest (“OP Units”) to EQR on a one-for-one basis, with ERPOP receiving the net cash proceeds of such issuances. See Note 12 for further discussion.
Income and Other Taxes
EQR has elected to be taxed as a REIT. This, along with the nature of the operations of its operating properties, resulted in no provision for federal income taxes at the EQR level. In addition, ERPOP generally is not liable for federal income taxes as the partners should recognize their allocable share of income or loss in their tax returns; therefore no provision for federal income taxes has been made at the ERPOP level. Historically, the Company has generally only incurred certain state and local income, excise and franchise
F-27
taxes. The Company has elected taxable REIT subsidiary status for certain of its corporate subsidiaries and, as a result, these entities will incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating losses.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) included tax provisions which increased allowable interest expense deductions for 2020 (no increases for 2021 and 2022) and increased the ability for taxpayers to use net operating losses. These provisions did not result in a material impact to the Company’s taxable income or tax liabilities.
The CARES Act also allowed corporations to request accelerated refunds of their alternative minimum tax (“AMT”) credit. Prior to enactment of this provision, the remaining credits would have been refunded in installments in 2020, 2021 and 2022. We received a refund of our remaining $1.6 million in AMT credits during the year ended December 31, 2020.
The Company’s provision for income and other tax expense (benefit) was as follows for the years ended December 31, 2022, 2021 and 2020 (amounts in thousands):
State and local income, franchise and excise tax (benefit)
900
915
852
Income and other tax expense (benefit) (1)
During the years ended December 31, 2022, 2021 and 2020, the tax character of the Company’s dividends and distributions were as follows:
2022 (1)
2021 (2)
2020 (3)
Tax character of dividends and distributions:
Ordinary dividends
1.75466
1.40791
1.34739
Long-term capital gain
0.42850
0.73687
0.77923
Unrecaptured section 1250 gain
0.29434
0.26522
0.24838
Dividends and distributions per
Common Share/Unit outstanding
2.47750
2.41000
2.37500
The Company issued Internal Revenue Service (“IRS”) Form 1099-DIV to shareholders to report the tax character of Company distributions consistent with these amounts. The Company provides additional information to assist shareholders in the preparation of their tax returns. For 2022, the Company reported an AMT preference adjustment equal to $(0.01) per share and disclosed amounts defined under Treasury Regulation §1.1061-6(c) as “One Year Amounts Disclosure” and “Three Year Amounts Disclosure” equal to $0.00979 per share and $0.00000 per share, respectively.
Principles of Consolidation
The Company may hold an interest in subsidiaries, partnerships, joint ventures and other similar entities and accounts for these interests in accordance with the consolidation guidance. The Company first determines whether to consolidate the entity as a variable interest entity (“VIE”) or voting interest entity, or to account for the interest under the equity method of accounting as an unconsolidated entity. In situations in which we have concluded that an entity qualifies as a VIE, it is generally because the equity investors of VIEs do not have sufficient equity at risk to finance their activities without additional subordinated financial support or do not have substantive voting rights. The Company consolidates an entity when it is considered to be the primary beneficiary of the VIE or when it controls the entity through ownership of a majority voting interest. A primary beneficiary has the power to direct the activities that most significantly impact the VIE’s performance and has the obligation to absorb the expected losses or the right to receive the expected residual returns that could potentially be significant to the VIE. In evaluating whether the entity is a VIE and/or the Company is the primary beneficiary of the entity, the Company considers several factors, including, but not limited to, proportionate share or ownership of the VIE, funding and financing sources, the business purpose of the entity, related parties, developer and property management fees and agreement terms regarding major decisions, participating and voting rights, contributions and distributions.
F-28
The Company accounts for investments in unconsolidated entities under the equity method of accounting and measures the investments initially at cost. The Company subsequently adjusts the carrying amount by additional cash and non-cash contributions and distributions and its proportionate share of the earnings and losses of such entities. The proportionate share of the earnings and losses are also recognized in the consolidated statements of operations and comprehensive income. In addition, we may earn fees for providing property management services or construction oversight.
Noncontrolling Interests
A noncontrolling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separate from the parent company’s equity. In addition, consolidated net income is required to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and the amount of consolidated net income attributable to the parent and the noncontrolling interest are required to be disclosed on the face of the consolidated statements of operations and comprehensive income. See Note 3 for further discussion.
Operating Partnership: Net income is allocated to noncontrolling interests based on their respective ownership percentage of the Operating Partnership. The ownership percentage is calculated by dividing the number of OP Units held by the noncontrolling interests by the total OP Units held by the noncontrolling interests and EQR. Issuance of additional Common Shares and OP Units changes the ownership interests of both the noncontrolling interests and EQR. Such transactions and the related proceeds are treated as capital transactions.
Partially Owned Properties: The Company reflects noncontrolling interests in partially owned properties on the balance sheet for the portion of properties consolidated by the Company that are not wholly owned by the Company. The earnings or losses from those properties attributable to the noncontrolling interests are generally based on ownership percentage and are reflected as noncontrolling interests in partially owned properties in the consolidated statements of operations and comprehensive income.
Partners’ Capital
The “Limited Partners” of ERPOP include various individuals and entities that contributed their properties to ERPOP in exchange for OP Units. The “General Partner” of ERPOP is EQR. Net income is allocated to the Limited Partners based on their respective ownership percentage of ERPOP. The ownership percentage is calculated by dividing the number of OP Units held by the Limited Partners by the total OP Units held by the Limited Partners and the General Partner. Issuance of additional Common Shares and OP Units changes the ownership interests of both the Limited Partners and EQR. Such transactions and the related proceeds are treated as capital transactions.
Redeemable Noncontrolling Interests – Operating Partnership / Redeemable Limited Partners
The Company classifies Redeemable Noncontrolling Interests – Operating Partnership / Redeemable Limited Partners in the mezzanine section of the consolidated balance sheets for the portion of OP Units that EQR is required, either by contract or securities law, to deliver registered Common Shares to the exchanging OP Unit holder. The redeemable noncontrolling interest units / redeemable limited partner units are adjusted to the greater of carrying value or fair market value based on the Common Share price of EQR at the end of each respective reporting period. See Note 3 for further discussion.
Use of Estimates
In preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued an amendment to the debt and equity financial instruments standards which simplifies the accounting for convertible instruments and accounting for contracts in an entity’s own equity. The Company adopted the standard when effective on January 1, 2022 and it had no impact on its consolidated results of operations and financial position.
F-29
In March 2020, the FASB issued an amendment to the reference rate reform standard which provides the option for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on contract modifications and hedge accounting. The new standard was effective for the Company upon issuance and elections could be made through December 31, 2024. The Company elected to apply the hedge accounting expedients and application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
In April 2020, a FASB staff question and answer document was issued which intended to reduce the challenges of evaluating the enforceable rights and obligations of leases for concessions granted to lessees in response to the COVID-19 pandemic. We elected not to evaluate whether qualifying concessions provided by the Company in response to the COVID-19 pandemic are a lease modification, subject to the criteria that the total payments under the amended lease cannot result in a substantial increase in the rights of the lessor or obligations of the lessee. We also elected to treat the concessions as though they were contemplated as part of the existing contracts and therefore will not apply lease modification rules to the qualifying lease concession amendments. As such, deferrals deemed collectible are recorded as rental receivables with no change to timing of rental revenues and deferrals deemed non-collectible and abatements reduce rental revenues in the deferral/abatement period and cause rental revenues to effectively follow a cash basis related to the changes. The accounting elections provided by the FASB mainly apply to the Company’s non-residential leases and the majority of the amendments will not require a straight-line adjustment. See Note 8 for additional discussion.
In June 2016, the FASB issued a standard which requires companies to adopt a new approach for estimating credit losses on certain types of financial instruments, such as trade and other receivables and loans. The standard requires entities to estimate a lifetime expected credit loss for most financial instruments, including trade receivables. In November 2018, the FASB issued an amendment excluding operating lease receivables accounted for under the lease standard from the scope of the credit losses standard. The Company adopted this standard as required effective January 1, 2020, and it did not have a material effect on its consolidated results of operations and financial position.
The Company is the controlling partner in various consolidated partnerships owning 15 properties consisting of 3,114 apartment units having a noncontrolling interest deficit balance of $0.7 million at December 31, 2022. The Company is required to make certain disclosures regarding noncontrolling interests in consolidated limited-life subsidiaries. Of the consolidated entities described above, the Company is the controlling partner in limited-life partnerships owning two properties having a noncontrolling interest deficit balance of $4.9 million. These two partnership agreements contain provisions that require the partnerships to be liquidated through the sale of their assets upon reaching a date specified in each respective partnership agreement. The Company, as controlling partner, has an obligation to cause the property owning partnerships to distribute the proceeds of liquidation to the Noncontrolling Interests in these Partially Owned Properties only to the extent that the net proceeds received by the partnerships from the sale of their assets warrant a distribution based on the partnership agreements. As of December 31, 2022, the Company estimates the value of Noncontrolling Interest distributions for these two properties would have been approximately $55.4 million (“Settlement Value”) had the partnerships been liquidated. This Settlement Value is based on estimated third-party consideration realized by the partnerships upon disposition of the two Partially Owned Properties and is net of all other assets and liabilities, including yield maintenance on the mortgages encumbering the properties, that would have been due on December 31, 2022 had those mortgages been prepaid. Due to, among other things, the inherent uncertainty in the sale of real estate assets, the amount of any potential distribution to the Noncontrolling Interests in the Company’s Partially Owned Properties is subject to change. To the extent that the partnerships’ underlying assets are worth less than the underlying liabilities, the Company has no obligation to remit any consideration to the Noncontrolling Interests in these Partially Owned Properties.
F-30
The Company refers to “Common Shares” and “Units” (which refer to both OP Units and restricted units) as equity securities for EQR and “General Partner Units” and “Limited Partner Units” as equity securities for ERPOP. To provide a streamlined and more readable presentation of the disclosures for the Company and the Operating Partnership, several sections below refer to the respective terminology for each with the same financial information and separate sections are provided, where needed, to further distinguish any differences in financial information and terminology.
The following table presents the changes in the Company’s issued and outstanding Common Shares and Units for the years ended December 31, 2022, 2021 and 2020:
Common Shares outstanding at January 1,
375,527,195
372,302,000
371,670,884
Common Shares Issued:
Conversion of OP Units
452,532
1,354,208
122,505
1,740,550
468,021
1,710,692
239,695
66,835
70,702
90,196
Restricted share grants, net
174,575
89,593
178,720
Common Shares outstanding at December 31,
Units
Units outstanding at January 1,
12,659,027
13,858,073
13,731,315
Restricted unit grants, net
223,242
155,162
249,263
Conversion of OP Units to Common Shares
(452,532
(1,354,208
(122,505
Units outstanding at December 31,
Total Common Shares and Units outstanding at December 31,
388,186,222
386,160,073
Units Ownership Interest in Operating Partnership
The following table presents the changes in the Operating Partnership’s issued and outstanding General Partner Units and Limited Partner Units for the years ended December 31, 2022, 2021 and 2020:
General and Limited Partner Units
General and Limited Partner Units outstanding at January 1,
385,402,199
Issued to General Partner:
EQR’s restricted share grants, net
Issued to Limited Partners:
General and Limited Partner Units outstanding at December 31,
Limited Partner Units
Limited Partner Units outstanding at January 1,
Limited Partner restricted unit grants, net
Conversion of Limited Partner OP Units to EQR Common Shares
Limited Partner Units outstanding at December 31,
Limited Partner Units Ownership Interest in Operating Partnership
The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units, as well as the equity positions of the holders of restricted units, are collectively referred to as the “Noncontrolling Interests – Operating Partnership” and “Limited Partners Capital,” respectively, for the Company and the Operating Partnership. Subject to certain exceptions (including the “book-up” requirements of restricted units), the Noncontrolling Interests – Operating Partnership/Limited Partners Capital may exchange their Units with EQR for Common Shares on a one-for-one basis. The carrying value of the Noncontrolling Interests – Operating Partnership/Limited Partners Capital (including redeemable interests) is allocated based on the number of Noncontrolling Interests – Operating Partnership/Limited Partners Capital in total in proportion to the number of Noncontrolling Interests – Operating Partnership/Limited Partners Capital in total plus the total number of Common Shares/General Partner Units. Net income is allocated to the Noncontrolling Interests – Operating Partnership/Limited Partners Capital based on the weighted average ownership percentage during the period.
F-31
The Operating Partnership has the right but not the obligation to make a cash payment instead of issuing Common Shares to any and all holders of Noncontrolling Interests – Operating Partnership/Limited Partners Capital requesting an exchange of their Noncontrolling Interests – Operating Partnership/Limited Partners Capital with EQR. Once the Operating Partnership elects not to redeem the Noncontrolling Interests – Operating Partnership/Limited Partners Capital for cash, EQR is obligated to deliver Common Shares to the exchanging holder of the Noncontrolling Interests – Operating Partnership/Limited Partners Capital.
The Noncontrolling Interests – Operating Partnership/Limited Partners Capital are classified as either mezzanine equity or permanent equity. If EQR is required, either by contract or securities law, to deliver registered Common Shares, such Noncontrolling Interests – Operating Partnership/Limited Partners Capital are differentiated and referred to as “Redeemable Noncontrolling Interests – Operating Partnership” and “Redeemable Limited Partners,” respectively. Instruments that require settlement in registered shares cannot be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered shares. Therefore, settlement in cash is assumed and that responsibility for settlement in cash is deemed to fall to the Operating Partnership as the primary source of cash for EQR, resulting in presentation in the mezzanine section of the balance sheet. The Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners are adjusted to the greater of carrying value or fair market value based on the Common Share price of EQR at the end of each respective reporting period. EQR has the ability to deliver unregistered Common Shares for the remaining portion of the Noncontrolling Interests – Operating Partnership/Limited Partners Capital that are classified in permanent equity at December 31, 2022 and 2021.
The carrying value of the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners is allocated based on the number of Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners in proportion to the number of Noncontrolling Interests – Operating Partnership/Limited Partners Capital in total. Such percentage of the total carrying value of Units/Limited Partner Units which is ascribed to the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners is then adjusted to the greater of carrying value or fair market value as described above. As of December 31, 2022 and 2021, the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners have a redemption value of approximately $318.3 million and $499.0 million, respectively, which represents the value of Common Shares that would be issued in exchange for the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners.
The following table presents the changes in the redemption value of the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners for the years ended December 31, 2022, 2021 and 2020, respectively (amounts in thousands):
Balance at January 1,
338,951
463,400
Change in market value
(176,490
158,598
(125,224
Change in carrying value
(4,214
1,428
775
Balance at December 31,
Net proceeds from EQR Common Share and Preferred Share (see definition below) offerings and proceeds from exercise of options for Common Shares are contributed by EQR to ERPOP. In return for those contributions, EQR receives a number of OP Units in ERPOP equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in ERPOP equal in number and having the same terms as the Preferred Shares issued in the equity offering). As a result, the net proceeds from Common Shares and Preferred Shares are allocated for the Company between shareholders’ equity and Noncontrolling Interests – Operating Partnership and for the Operating Partnership between General Partner’s Capital and Limited Partners Capital to account for the change in their respective percentage ownership of the underlying equity.
The Company’s declaration of trust authorizes it to issue up to 100,000,000 preferred shares of beneficial interest, $0.01 par value per share (the “Preferred Shares”), with specific rights, preferences and other attributes as the Board of Trustees may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Company’s Common Shares.
F-32
The following table presents the Company’s issued and outstanding Preferred Shares/Preference Units as of December 31, 2022 and 2021:
Amounts in thousands
Annual
Call
Dividend Per
Date (1)
Share/Unit (2)
Preferred Shares/Preference Units of beneficial interest, $0.01 par value; 100,000,000 shares authorized:
8.29% Series K Cumulative Redeemable Preferred Shares/Preference Units; liquidation value $50 per share/unit; 745,600 shares/units issued and outstanding as of December 31, 2022 and 2021
12/10/26
4.145
The Company has an At-The-Market (“ATM”) share offering program which allows EQR to issue Common Shares from time to time into the existing trading market at current market prices or through negotiated transactions, including under forward sale arrangements. In May 2022, the Company replaced the prior program with a new program which extended the maturity to May 2025 and gives us the authority to issue up to 13.0 million shares, all of which remain available for issuance as of December 31, 2022.
Forward sale agreements under the ATM program allow the Company, at its election, to settle the agreements by issuing Common Shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the agreements in whole or in part through the delivery or receipt of Common Shares or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted net income per share using the treasury stock method (see Note 11 for additional discussion). The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s Common Shares over the term of the forward sale agreement.
The Company may repurchase up to 13.0 million Common Shares under its share repurchase program. No open market repurchases have occurred since 2008. As of December 31, 2022, EQR has remaining authorization to repurchase up to 13.0 million of its shares.
F-33
The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of December 31, 2022 and 2021 (amounts in thousands):
Depreciable property:
Buildings and improvements
19,471,503
19,632,284
Furniture, fixtures and equipment
2,352,050
2,220,203
In-Place lease intangibles
510,816
518,324
Projects under development:
3,201
Construction-in-progress
109,739
Land held for development:
46,160
14,407
16,838
During the year ended December 31, 2022, the Company acquired the following from unaffiliated parties (purchase price in thousands):
Rental Properties – Consolidated (1)
During the year ended December 31, 2021, the Company acquired the following from unaffiliated parties (purchase price in thousands):
1,709,379
During the year ended December 31, 2022, the Company disposed of the following to unaffiliated parties (sales price in thousands):
Rental Properties – Consolidated
945
746,150
The Company recognized a net gain on sales of real estate properties of approximately $304.3 million on the above sales.
During the year ended December 31, 2021, the Company disposed of the following to unaffiliated parties (sales price in thousands):
3,053
1,716,775
The Company recognized a net gain on sales of real estate properties of approximately $1.1 billion on the above sales.
F-34
During the year ended December 31, 2021, the Company recorded an approximate $16.8 million non-cash asset impairment charge on a land parcel which is included in land held for development on the consolidated balance sheets and included in the non-same store/other segment discussed in Note 17. The charge was the result of an analysis of the parcel’s estimated fair value (determined using internally developed models based on market assumptions and potential sales data from the marketing process) compared to its current capitalized carrying value after reassessment of our expected hold period for the parcel. As of December 31, 2022, the land parcel's carrying value was $15.0 million and the Company has entered into an agreement to dispose of it for $16.0 million as of the date of filing.
The Company has entered into an agreement to acquire the following (purchase price in thousands):
262
78,600
The Company has entered into separate agreements to dispose of the following (sales price and net book value in thousands):
Net Book Value atDecember 31, 2022
10,750
2,546
Land Parcels (one)
16,000
15,000
26,750
17,546
The closing of pending transactions is subject to certain conditions and restrictions; therefore, there can be no assurance that the transactions will be consummated or that the final terms will not differ in material respects from any agreements summarized above. See Note 18 for discussion of the properties acquired or disposed of, if any, subsequent to December 31, 2022.
The Company has invested in various entities with unrelated third parties which are either consolidated or accounted for under the equity method of accounting (unconsolidated).
Consolidated VIEs
In accordance with accounting standards for consolidation of VIEs, the Company consolidates ERPOP on EQR’s financial statements. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management. The limited partners are not able to exercise substantive kick-out or participating rights. As a result, ERPOP qualifies as a VIE. EQR has a controlling financial interest in ERPOP and, thus, is ERPOP’s primary beneficiary. EQR has the power to direct the activities of ERPOP that most significantly impact ERPOP’s economic performance as well as the obligation to absorb losses or the right to receive benefits from ERPOP that could potentially be significant to ERPOP.
The Company has various equity interests in certain joint ventures that have been deemed to be VIEs, and the Company is the VIEs’ primary beneficiary. As a result, the joint ventures are required to be consolidated on the Company’s financial statements. The following table summarizes the Company’s consolidated joint ventures as of December 31, 2022 and 2021:
Operating Properties (1)
Project Under Development (2)
Project
2022 Consolidated Joint Ventures (VIE)
2021 Consolidated Joint Ventures (VIE)
3,546
F-35
The following table provides consolidated assets and liabilities related to the VIEs discussed above as of December 31, 2022 and 2021 (amounts in thousands):
Consolidated Assets
691,880
912,955
Consolidated Liabilities
158,932
251,424
Certain consolidated joint ventures in which we have investments obtained mortgage debt to finance a portion of their activities. The following table and information summarizes the variable rate construction mortgage debt that is non-recourse to the Company at December 31, 2022 and 2021 (aggregate and amounts borrowed under loan commitments in thousands):
Recently Completed Operating Property (1)
Project Under Development
Number of joint ventures with debt financing
Aggregate loan commitments
67,589
73,344
Amounts borrowed under loan commitments (2)
64,776
44,980
61,783
Maturity dates
2023
The Company has various equity interests in certain joint ventures that are unconsolidated and accounted for using the equity method of accounting. Most of these have been deemed to be VIEs and the Company is not the VIEs' primary beneficiary. The remaining have been deemed not to be VIEs and the Company does not have a controlling voting interest.
The following table and information summarizes the Company’s investments in unconsolidated entities as of December 31, 2022 and 2021 (amounts in thousands except for ownership percentage):
Ownership Percentage
Investments in Unconsolidated Entities:
Various Real Estate Holdings (VIE)
35,974
36,024
Varies
Projects Under Development and Land Held for Development (VIE)
218,043
72,488
62% - 95% (1)
Real Estate Technology Funds/Companies (VIE)
25,249
19,347
(242
(411
The following table summarizes the Company’s unconsolidated joint ventures that were deemed to be VIEs as of December 31, 2022 and 2021:
Real Estate Holdings (1)
Projects Under Development (2), (5)
Projects Held for Development (2), (3)
Entities
Apartment Units (4)
2022 Unconsolidated Joint Ventures (VIE)
966
2021 Unconsolidated Joint Ventures (VIE)
929
1,005
F-36
New Development Joint Ventures
The following table provides information on total unconsolidated development joint ventures entered into during the year ended December 31, 2022 (amounts in thousands except for number of unconsolidated joint ventures and apartment units):
Number of unconsolidated joint ventures (1)
Apartment units (2)
1,019
49,855
In 2021, the Company entered into a strategic partnership with Toll Brothers, Inc. (“Toll”) to develop apartment communities in key markets. The Company and Toll have and expect to continue to enter into separate joint venture agreements for each property, and the Company has and expects to continue to account for these unconsolidated joint ventures under the equity method of accounting. Toll has and will continue to act as the managing member of each project and receive developer fees. The Company, in certain circumstances, may act as the property manager, receive property management fees and have the right, but not the obligation, to acquire each property at fair market value upon stabilization. As of December 31, 2022, the Company and Toll entered into four separate joint venture agreements under the strategic partnership.
The following table presents the Company’s restricted deposits as of December 31, 2022 and 2021 (amounts in thousands):
Mortgage escrow deposits:
Replacement reserves
12,549
11,156
Mortgage principal reserves/sinking funds
25,304
Mortgage escrow deposits
37,853
30,260
Restricted cash:
Tax-deferred (1031) exchange proceeds
166,362
Earnest money on pending acquisitions
4,500
2,000
Restricted deposits on real estate investments
Resident security and utility deposits
38,432
35,663
2,289
1,835
Restricted cash
45,450
206,144
Lessor Accounting
The Company is the lessor for its residential and non-residential leases and these leases are accounted for as operating leases under the lease standard.
F-37
The following table presents the lease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the years ended December 31, 2022, 2021 and 2020 (amounts in thousands):
Year Ended December 31, 2021
Year Ended December 31, 2020
Income Type
Residential Leases
Non-Residential Leases
Residential and non-residential rent
2,441,332
63,995
2,505,327
2,199,986
61,033
2,261,019
2,336,778
51,663
2,388,441
Utility recoveries (RUBS income) (1)
81,140
844
81,984
74,846
723
75,569
70,699
677
71,376
Parking rent
43,335
435
43,770
40,934
565
41,499
38,743
412
39,155
Other lease revenue (2)
(12,637
(69
(12,706
(17,667
4,027
(13,640
(28,663
(5,519
(34,182
Total lease revenue
2,553,170
65,205
2,618,375
2,298,099
66,348
2,364,447
2,417,557
47,233
2,464,790
Parking revenue
37,338
26,789
22,210
Other revenue
79,467
72,761
84,705
Total other rental income (3)
116,805
99,550
106,915
The following table presents residential and non-residential accounts receivable and straight-line receivable balances for the Company’s properties as of December 31, 2022 and 2021 (amounts in thousands):
Balance Sheet (Other assets):
Resident/tenant accounts receivable balances
35,688
37,959
3,218
Allowance for doubtful accounts
(31,405
(33,121
(2,152
Net receivable balances
4,283
4,838
668
853
Straight-line receivable balances
4,398
7,460
13,795
13,021
The following table presents residential bad debt for the Company’s properties for the years ended December 31, 2022, 2021 and 2020 (amounts in thousands):
Income Statement (Rental income):
Bad debt, net (1)
26,570
31,485
42,505
% of rental income
1.0
1.3
1.7
Lessee Accounting
The Company is the lessee under various corporate office and ground leases for which the Company recognizes right-of-use (“ROU”) assets and related lease liabilities. The following table presents the Company’s ROU assets and related lease liabilities as of December 31, 2022 and 2021 (amounts in thousands):
Right-of-use assets:
Corporate office leases (operating)
34,767
36,897
Ground leases (finance)
95,834
97,575
Ground leases (operating)
332,355
340,241
Lease liabilities:
35,747
37,760
68,919
69,479
204,082
205,096
F-38
Corporate office leases
The Company leases eight corporate offices with lease expiration dates ranging from 2024 through 2042 (inclusive of applicable extension options). See Note 15 for details on a corporate office lease with a related party.
Ground leases
The Company maintains consolidated long-term ground leases for 15 operating properties and one project under development with lease expiration dates ranging from 2042 through 2118 (inclusive of applicable purchase options). The Company owns the building and improvements. During the year ended December 31, 2021, the Company modified one ground lease that was previously classified as an operating lease. The Company now classifies this lease as a finance lease and reduced its lease liability and ROU asset due to remeasurement by approximately $11.3 million.
Additional disclosures
The following tables illustrate the quantitative disclosures for lessees as of and for the years ended December 31, 2022, 2021 and 2020 (amounts in thousands):
Year EndedDecember 31, 2022
Year EndedDecember 31, 2021
Year EndedDecember 31, 2020
Lease cost:
Finance lease cost:
Amortization of right-of-use assets (capitalized)
351
Amortization of right-of-use assets (expensed)
1,391
Interest on lease liabilities (capitalized)
452
1,029
Interest on lease liabilities (expensed)
1,464
Operating lease cost:
4,061
3,581
3,747
18,338
22,102
Variable lease cost:
430
1,037
1,307
4,342
2,973
3,304
Total lease cost
30,817
29,587
31,489
December 31, 2020
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Investing cash flows from finance leases
383
567
Financing cash flows from finance leases
2,463
1,898
Operating cash flows from operating leases:
4,385
5,016
5,296
15,037
14,682
16,552
Weighted-average remaining lease term – finance leases
24.1 years
25.2 years
18.7 years
Weighted-average remaining lease term – operating leases:
16.1 years
16.8 years
17.4 years
61.2 years
61.8 years
55.3 years
Weighted-average discount rate – finance leases
2.8
3.0
Weighted-average discount rate – operating leases:
5.1
5.0
The following table summarizes the Company’s undiscounted cash flows for contractual obligations for minimum rent payments/receipts under operating and financing leases for the next five years and thereafter as of December 31, 2022:
(Payments)/Receipts Due by Year (in thousands)
Thereafter
Finance Leases:
Minimum Rent Payments (a)
(2,662
(2,880
(2,946
(2,959
(2,971
(85,238
(99,656
Operating Leases:
(15,173
(15,255
(15,024
(14,849
(14,923
(816,532
(891,756
Minimum Rent Receipts (b)
58,776
54,271
48,333
40,461
35,808
119,008
356,657
F-39
The following table provides a reconciliation of lease liabilities from our undiscounted cash flows for minimum rent payments as of December 31, 2022 (amounts in thousands):
Total minimum rent payments
991,412
Less: Lease discount
(682,664
EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. Weighted average interest rates noted below for the years ended December 31, 2022 and 2021 include the effect of any derivative instruments and amortization of premiums/discounts/OCI (other comprehensive income) on debt and derivatives.
Mortgage Notes Payable
The following tables summarize the Company’s mortgage notes payable activity for the years ended December 31, 2022 and 2021, respectively (amounts in thousands):
Mortgage notes payable, net as of December 31, 2021
Amortization of premiums/discounts
Amortization of deferred financing costs, net (1)
Mortgage notes payable, net as of December 31, 2022
1,896,472
(3,311
941
1,197
59,890
(81
515
234,839
1,243
140
294,729
655
344,600
1,852
Mortgage notes payable, net as of December 31, 2020
1,901,091
28,500
(28,200
1,522
1,024
31,494
29,928
(3)
(1,532
361,305
(128,615
1,242
907
392,799
(625
2,293,890
399
F-40
The following table summarizes certain interest rate and maturity date information as of and for the years ended December 31, 2022 and 2021, respectively:
Interest Rate Ranges
0.10% - 7.10%
0.06% - 4.21%
Weighted Average Interest Rate
3.46%
3.18%
Maturity Date Ranges
2023-2061
2022-2061
As of both December 31, 2022 and 2021, the Company had $250.0 million of secured debt (primarily tax-exempt bonds) subject to third-party credit enhancement.
The historical cost, net of accumulated depreciation, of encumbered properties was $2.5 billion and $2.7 billion at December 31, 2022 and 2021, respectively.
Notes
The following tables summarize the Company’s notes activity for the years ended December 31, 2022 and 2021, respectively (amounts in thousands):
Notes, net as of December 31, 2021
Notes, net as of December 31, 2022
4,287
Notes, net as of December 31, 2020
5,335,536
(322
1.85% - 7.57%
3.61%
3.65%
2025-2047
2023-2047
The Company’s unsecured public notes contain certain financial and operating covenants including, among other things, maintenance of certain financial ratios. The Company was in compliance with its unsecured public debt covenants for both the years ended December 31, 2022 and 2021.
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 May 2022 and expires in May 2025.
F-41
Line of Credit and Commercial Paper
On October 26, 2022, the Company replaced its existing $2.5 billion facility with a new $2.5 billion unsecured revolving credit facility maturing on October 26, 2027. 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 the Secured Overnight Financing Rate ("SOFR") plus a spread (currently 0.725%), 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 Company did not borrow any amounts under its revolving credit facility during the year ended December 31, 2022 and the weighted average interest rate was 0.88% for the year ended December 31, 2021.
The Company has an unsecured commercial paper note program under which it may borrow up to a maximum of $1.0 billion 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.
The following table summarizes certain weighted average interest rate, maturity and amounts outstanding information for the commercial paper program as of and for the years ended December 31, 2022 and 2021, respectively:
Weighted Average Interest Rate (1)
1.52%
0.27%
Weighted Average Maturity (in days)
Weighted Average Amounts Outstanding
$156.1 million
$471.0 million
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 December 31, 2022 and 2021, respectively (amounts in thousands):
(315,121
(3,463
(3,507
The following table summarizes the Company’s total debt extinguishment costs recorded as additional interest expense during the years ended December 31, 2022, 2021 and 2020, respectively (amounts in thousands):
Prepayment premiums/penalties
Write-offs of unamortized deferred financing costs
717
634
Write-offs of unamortized (premiums)/discounts/OCI
3,947
12,508
F-42
The following table provides a summary of the aggregate payments of principal on all debt for each of the next five years and thereafter as of December 31, 2022 (amounts in thousands):
2023 (1), (2)
4,975,870
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.
During the year ended December 31, 2021, the Company purchased and sold investment securities and recognized a net gain on sale of $23.4 million, which is included in interest and other income in the consolidated statements of operations. The Company did not own any of these investment securities at December 31, 2021.
A three-level valuation hierarchy exists for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
The Company’s derivative positions are valued using models developed by the respective counterparty as well as models applied internally by the Company that use as their inputs readily observable market parameters (such as forward yield curves and credit default swap data). The following table summarizes the inputs to the valuations for each type of fair value measurement:
F-43
Fair Value Measurement Type
Valuation Inputs
Employee holdings (other than Common Shares) within the supplemental executive retirement plan (the “SERP”)
Quoted market prices for identical assets. These holdings are included in other assets and other liabilities on the consolidated balance sheets.
Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners
Quoted market price of Common Shares.
Mortgage notes payable and private unsecured debt (including its commercial paper and line of credit, if applicable)
Indicative rates provided by lenders of similar loans.
Public unsecured notes
Quoted market prices for each underlying issuance.
The fair values of the Company’s financial instruments (other than mortgage notes payable, unsecured notes, commercial paper, line of credit and derivative instruments), including cash and cash equivalents and other financial instruments, approximate their carrying or contract value. The following table provides a summary of the carrying and fair values for the Company’s mortgage notes payable and unsecured debt (including its commercial paper and line of credit, if applicable) at December 31, 2022 and 2021, respectively (amounts in thousands):
Carrying Value
Estimated Fair Value (Level 2)
1,803,525
2,193,689
Unsecured debt, net
4,874,490
6,150,252
6,798,309
Total debt, net
6,678,015
8,341,453
8,991,998
The following table summarizes the Company’s consolidated derivative instruments at December 31, 2022 (dollar amounts are in thousands):
Forward StartingSwaps (1)
Current Notional Balance
Lowest Interest Rate
2.4470
Highest Interest Rate
3.6995
Maturity Date
2033
F-44
The following tables provide a summary of the fair value measurements for each major category of assets and liabilities measured at fair value on a recurring basis and the location within the accompanying consolidated balance sheets at December 31, 2022 and 2021, respectively (amounts in thousands):
Fair Value Measurements at Reporting Date Using
Balance SheetLocation
Quoted Prices inActive Markets forIdentical Assets/Liabilities(Level 1)
Significant OtherObservable Inputs(Level 2)
SignificantUnobservableInputs(Level 3)
Assets
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Forward Starting Swaps
Other Assets
21,864
Supplemental Executive Retirement Plan
133,245
155,109
Liabilities
Other Liabilities
1,210
134,455
Redeemable Noncontrolling Interests –
Operating Partnership/Redeemable
Mezzanine
164,650
F-45
The following tables provide a summary of the effect of cash flow hedges on the Company’s accompanying consolidated statements of operations and comprehensive income for the years ended December 31, 2022, 2021 and 2020, respectively (amounts in thousands):
December 31, 2022Type of Cash Flow Hedge
Amount ofGain/(Loss) Recognized in OCI on Derivative
Location ofGain/(Loss) Reclassified from Accumulated OCI into Income
Amount ofGain/(Loss) Reclassified from Accumulated OCI into Income
(11,071
December 31, 2021Type of Cash Flow Hedge
(9,394
December 31, 2020Type of Cash Flow Hedge
(35,087
As of December 31, 2022 and 2021, there were approximately $2.5 million and $34.3 million in deferred losses, net, included in accumulated other comprehensive income (loss), respectively, related to previously settled and unsettled derivative instruments, of which an estimated $3.5 million may be recognized as additional interest expense during the twelve months ending December 31, 2023.
In April 2020, the Company paid approximately $1.2 million to settle two forward starting swaps in conjunction with the issuance of $495.0 million of ten-year secured conventional mortgage notes. The entire $1.2 million was initially deferred as a component of accumulated other comprehensive income (loss) and will be recognized as an increase to interest expense over the first five years of the mortgage notes.
F-46
The following tables set forth the computation of net income per share – basic and net income per share – diluted for the Company (amounts in thousands except per share amounts):
Numerator for net income per share – basic:
Allocation to Noncontrolling Interests – Operating Partnership
Numerator for net income per share – basic
Numerator for net income per share – diluted:
Numerator for net income per share – diluted
Denominator for net income per share – basic and diluted:
Denominator for net income per share – basic
Effect of dilutive securities:
OP Units
11,836
12,263
13,003
Long-term compensation shares/units
1,402
1,924
1,080
ATM forward sales
69
Denominator for net income per share – diluted
Net income per share – basic
Net income per share – diluted
The following tables set forth the computation of net income per Unit – basic and net income per Unit – diluted for the Operating Partnership (amounts in thousands except per Unit amounts):
Numerator for net income per Unit – basic and diluted:
Allocation to Preference Units
Numerator for net income per Unit – basic and diluted
Denominator for net income per Unit – basic and diluted:
Denominator for net income per Unit – basic
Dilution for Units issuable upon assumed exercise/vesting of the Company’s long-term compensation shares/units
Denominator for net income per Unit – diluted
Net income per Unit – basic
Net income per Unit – diluted
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.
F-47
Overview of Share Incentive Plans
The 2019 Share Incentive Plan (the “2019 Plan”), as approved by the Company’s shareholders on June 27, 2019, expires on June 27, 2029 and reserves 11,331,958 Common Shares for issuance. All future awards will be granted under the 2019 Plan. As of December 31, 2022, 8,920,638 shares were available for future issuance.
Pursuant to the 2019 Plan and the 2011 Share Incentive Plan (the “2011 Plan”) (collectively the “Share Incentive Plans”), officers, trustees, key employees and consultants of the Company and its subsidiaries may be granted share options to acquire Common Shares (“Options”), including non-qualified share options (“NQSOs”), incentive share options (“ISOs”) and share appreciation rights (“SARs”), or may be granted restricted or non-restricted shares/units (including long-term incentive plan awards), subject to conditions and restrictions. Options, SARs, restricted shares and restricted units are sometimes collectively referred to herein as “Awards.”
The 2011 Plan will terminate when all outstanding Awards have expired or have been exercised/vested. The Board of Trustees may at any time amend or terminate the Share Incentive Plans, but termination will not affect Awards previously granted, absent immediate vesting and cash settlement. Any Options which had vested prior to such a termination would remain exercisable by the holder.
Employee Long-Term Compensation Awards
The following table summarizes the terms of Awards generally granted to employees:
Options
Restricted Shares
Restricted Units
Options exercised after vesting result in issuance of new Common Shares.
Restricted shareholders generally have the same voting rights and receive quarterly dividend payments on their shares at the same rate and on the same date as any other Common Share holder (1).
When certain conditions are met, restricted units convert into an equal number of OP Units, which the holder may exchange for Common Shares on a one-for-one basis or at the option of the Company the cash value of such shares. Restricted unitholders receive quarterly distribution payments on their restricted units at the same rate and on the same date as any other OP Unit holder (1).
Grant/Exercise Price
Granted at the fair market value of Common Shares as of the grant date using the Black-Scholes model as described below.
Granted at the fair market value of Common Shares as of the grant date.
Granted at varying discount rates to the fair market value of Common Shares as of the grant date (2).
Vesting Period
In three equal installments over a three-year period from the grant date.
Three years from the grant date.
Expiration
Ten years from the grant date.
Ten years from the grant date (2).
Upon Employee Termination
Unvested options are canceled.
Unvested restricted shares are canceled.
Unvested restricted units are canceled.
F-48
Valuation Method of Share Options
The fair value of the Option grants is recognized over the requisite service/vesting period of the Options. The fair value for the Company’s Options was estimated at the time the Options were granted using the Black-Scholes option pricing model with the primary grant in each year having the following weighted average assumptions:
Expected volatility (1)
21.3
15.2
Expected life (2)
5 years
Expected dividend yield (3)
3.26
3.23
3.04
Risk-free interest rate (4)
1.66
0.50
1.32
Exercise price per share (5)
91.59
67.48
83.08
Option valuation per share
12.57
7.96
7.23
The valuation method and assumptions are the same as those the Company used in accounting for Option expense in its consolidated financial statements. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model is only one method of valuing options. Because the Company’s Options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the actual value of the Options to the recipient may be significantly different.
Long-Term Incentive Plan
The Company’s executive compensation program allows the Chairman, Chief Executive Officer and certain other executive officers to earn from 0% to 200% of the target number of long-term incentive (“LTI”) awards, payable in the form of restricted shares and/or restricted units. No payout would be made for any result below 50% of the target performance metric. The Company’s Total Shareholder Return (“TSR”), Normalized Funds from Operations (“FFO”) and Net Debt to Normalized EBITDAre (Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate) results over a forward-looking three-year performance period determine the restricted shares and/or restricted units awarded and are compared to pre-established quantitative performance metrics. The grant date fair value of the awards is estimated using a Monte Carlo model for the TSR portion of the awards, and the resulting expense is recorded over the service period regardless of whether the TSR performance measures are achieved, while the Normalized FFO and Net Debt to Normalized EBITDAre portions of the awards are adjusted based on the final achievement obtained. If the executive is retirement-eligible, the grant date fair value is amortized into expense over the first year. All other awards are amortized into expense over the three-year performance and vesting period. If employment is terminated prior to vesting, the restricted shares and restricted units are generally canceled.
The LTI participants receive distributions only on restricted units awarded equal to 10% of the quarterly distributions paid on OP Units during the performance period. At the end of the performance period, LTI participants receive dividends/distributions actually earned on restricted shares or restricted units awarded during the performance period, less any distributions already paid on the restricted units.
The grant date fair value of the TSR portion of the LTI awards is estimated using a multifactor Monte Carlo model to determine share prices for a set of relative awards for which the payout of the award depends on the spread of EQR’s TSR to the TSR of two indices: (a) the FTSE Nareit Apartment Index; and (b) the FTSE Nareit Equity Index. The absolute Company TSR metric previously included in the TSR portion of the LTI awards for which the payout of the award only depended on EQR’s TSR was replaced with a Net Debt to Normalized EBITDAre metric for the 2022 LTI plan, covering the three-year performance period from January 1, 2022 through December 31, 2024. The grant date fair value of the Normalized FFO and Net Debt to Normalized EBITDAre portions of the LTI awards are estimated using the closing price of EQR Common Shares on the grant date for the restricted shares and a discounted closing price of EQR Common Shares on the grant date for the restricted units to reflect the “book-up” and liquidity risk inherent in the units. The individual prices determined above are then weighted to arrive at the final values for each restricted share/unit as follows:
Weighted average fair value per restricted share
96.84
61.73
75.89
Weighted average fair value per restricted unit
93.32
59.82
72.69
F-49
The valuation method and assumptions are the same as those the Company used in accounting for the LTI award expense in its consolidated financial statements. The Monte Carlo valuation model is only one method of valuing awards. Because the Company’s restricted shares/units have characteristics significantly different from those of traded shares/units, and because changes in the subjective input assumptions can materially affect the fair value estimate, the actual value of the restricted shares/units to the recipient may be significantly different.
Trustees
All non-employee Trustees, with the exception of the Company’s Chairman, are granted Options, restricted shares and/or restricted units that vest one year from the grant date that corresponds to the term for which he or she has been elected to serve. Since 2016, the Chairman has only received awards under the LTI plan (see further discussion above).
Retirement Benefits
The Company’s Share Incentive Plans provide for certain benefits upon retirement. The following table summarizes the terms of each retirement eligibility category.
Age 62 for Employees
Rule of 70 for Employees
Age 72 for Trustees
Eligibility
For employees hired prior to January 1, 2009 and who were age 59 or older as of February 1, 2019.
All employees (1).
All non-employee Trustees.
Effect on unvested restricted shares, restricted units and Options
Awards immediately vest, Options continue to be exercisable for the balance of the applicable ten-year option period and restricted units are still subject to the book-up provisions.
Awards continue to vest per the original vesting schedule, subject to certain conditions, Options continue to be exercisable for the balance of the applicable ten-year option period and restricted units are still subject to the book-up provisions.
Effect on LTI Plan
Awards are prorated in proportion to the number of days worked in the first year of the three-year performance period and the individual does not receive any payout of shares or units until the final payout is determined at the end of the three-year performance period.
Under the Company’s definitions of retirement, some of its executive officers, including its Chief Executive Officer, and its Chairman are retirement eligible.
F-50
Compensation Expense and Award Activity
The following tables summarize compensation information regarding the restricted shares, restricted units, Options and Employee Share Purchase Plan (“ESPP”) for the three years ended December 31, 2022, 2021 and 2020.
CompensationExpense
CompensationCapitalized
Restricted Units/OptionsIn-Lieu of Bonus (1)
CompensationEquity
DividendsIncurred
Restricted shares (2)
10,419
1,176
1,120
Restricted units (2)
16,487
87
2,530
1,039
1,889
169
263
718
78
1,510
2,793
33,816
2,159
7,258
1,131
761
16,689
70
1,038
1,254
2,980
121
883
108
30,278
2,015
10,053
1,172
10,103
80
1,743
1,855
2,156
193
862
82
1,527
26,444
3,027
Compensation expense is generally recognized for Awards as follows:
The Company accelerates the recognition of compensation expense for all Awards for those individuals approaching or meeting the retirement age criteria discussed above. The total compensation expense related to Awards not yet vested at December 31, 2022 is $9.5 million (including the accelerated expenses for individuals approaching or meeting the retirement age criteria discussed above), which is expected to be recognized over a weighted average term of 1.38 years.
F-51
The table below summarizes the Award activity of the Share Incentive Plans for the three years ended December 31, 2022, 2021 and 2020:
CommonShares Subjectto Options
WeightedAverageExercise Priceper Option
RestrictedShares
WeightedAverage FairValue perRestricted Share
RestrictedUnits
WeightedAverage Fair Value per Restricted Unit
Balance at December 31, 2019
5,567,544
55.52
306,706
66.15
858,284
64.95
Awards granted (1)
317,731
76.26
179,911
77.44
72.00
Awards exercised/vested
(239,695
50.31
(131,792
66.32
(227,747
68.47
Awards forfeited
(1,344
(1,191
73.45
Awards expired
(1,484
47.18
Balance at December 31, 2020
5,642,752
56.91
353,634
71.81
879,800
66.78
489,853
67.58
96,224
70.46
190,742
60.71
(1,710,692
50.09
(133,351
62.89
(181,531
62.01
(23,317
73.33
(6,631
74.31
(35,580
(10,763
68.00
Balance at December 31, 2021
4,387,833
60.65
309,876
75.17
853,431
66.11
164,199
88.22
182,801
80.52
86.47
(468,021
52.87
(194,533
70.91
(122,999
66.10
(12,968
77.29
(8,226
82.02
(9,683
60.02
Balance at December 31, 2022
62.60
289,918
81.21
953,674
73.57
Amounts in thousands except per share amounts
Weighted average grant date fair value per share for Options granted
12.45
7.98
6.74
Aggregate intrinsic value of Options exercised (1)
14,511
47,413
7,569
Fair value of restricted shares vested
17,353
9,222
10,559
Fair value of restricted units vested
10,662
12,468
18,711
The following table summarizes information regarding Options outstanding and exercisable at December 31, 2022 (aggregate intrinsic value is in thousands):
WeightedAverageRemainingContractual Life in Years
WeightedAverageExercise Price
Aggregate Intrinsic Value (1)
Options Outstanding
4.85
6,303
Options Exercisable
3,549,325
4.36
60.80
Vested and expected to vest
506,883
8.26
75.07
As of December 31, 2021 and 2020, 3,710,888 Options (with a weighted average exercise price of $58.70) and 4,985,668 Options (with a weighted average exercise price of $55.12) were exercisable, respectively.
The Company established an Employee Share Purchase Plan to provide each employee and trustee the ability to annually acquire up to $100,000 of Common Shares of EQR. The Company registered 7,000,000 Common Shares under the ESPP, of which 2,486,599 Common Shares remained available for purchase at December 31, 2022. The Common Shares may be purchased quarterly at a price equal to 85% of the lesser of: (a) the closing price for a share on the last day of such quarter; and (b) the greater of: (i) the closing price for a share on the first day of such quarter, and (ii) the average closing price for a share for all the business days in the quarter.
F-52
The following table summarizes information regarding the Common Shares issued under the ESPP with the net proceeds noted below being contributed to ERPOP in exchange for OP Units (amounts in thousands except share and per share amounts):
Shares issued
Issuance price ranges
$52.33 – $72.51
$53.13 – $71.04
$46.23 – $63.84
Issuance proceeds
$4,178
$4,265
$4,508
The Company established a defined contribution plan (the “401(k) Plan”) to provide retirement benefits for employees that meet minimum employment criteria. The Company matches dollar for dollar up to the first 4% of eligible compensation that a participant contributes to the 401(k) Plan for all employees except those defined as highly compensated employees, whose match is 3%. Participants are vested in the Company’s contributions over five years. The Company recognized an expense in the amount of $4.8 million, $4.9 million and $5.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The Company established the SERP to provide certain officers and trustees an opportunity to defer a portion of their eligible compensation in order to save for retirement. The SERP is restricted to investments in Common Shares, certain marketable securities that have been specifically approved and cash equivalents. The deferred compensation liability represented in the SERP and the securities issued to fund such deferred compensation liability are consolidated by the Company and carried on the Company’s balance sheets, and the Company’s Common Shares held in the SERP are accounted for as a reduction to paid in capital (included in general partner’s capital in the Operating Partnership’s financial statements).
On September 30, 2014, the Company filed with the SEC a Form S-3 Registration Statement to register 4,790,000 Common Shares pursuant to a Distribution Reinvestment Plan (the “2014 DRIP”), which included the remaining shares available for issuance under a previous registration. The registration was automatically declared effective the same day and will expire when all 4,790,000 shares have been issued. The Company has 4,631,362 Common Shares available for issuance under the 2014 DRIP at December 31, 2022.
The 2014 DRIP provides holders of record and beneficial owners of Common Shares and Preferred Shares with a simple and convenient method of reinvesting cash dividends/distributions in additional Common Shares. Common Shares purchased under the 2014 DRIP may, at the option of EQR, be directly issued by EQR or purchased by EQR’s transfer agent in the open market using participants’ funds. The net proceeds from any Common Share issuances are contributed to ERPOP in exchange for OP Units.
The Company leases its corporate headquarters from an entity affiliated with EQR’s Chairman of the Board of Trustees. The lease term expires on November 30, 2032 and contains two five-year extension options. The amount incurred for such office space for the years ended December 31, 2022, 2021 and 2020 were approximately $1.7 million, $1.7 million and $2.1 million, respectively. The Company believes these amounts approximate market rates for such rental space.
Commitments
Real Estate Development Commitments
As of December 31, 2022, the Company has both consolidated and unconsolidated real estate projects under development. The following table summarizes the gross remaining total project costs for the Company’s projects under development at December 31, 2022 (total project costs remaining in thousands):
Total Project Costs Remaining (1)
Projects Under Development
Consolidated
147,708
Unconsolidated
358,277
Total Projects Under Development
2,519
505,985
F-53
We have entered into, and may continue in the future to enter into, joint venture agreements with third-party partners for the development of multifamily rental properties. The joint venture agreements with each development partner include buy-sell provisions that provide the right, but not the obligation, for the Company to acquire each respective partner’s interests or sell its interests at any time following the occurrence of certain pre-defined events described in the joint venture agreements. See Note 6 for additional discussion.
In 2021, the Company entered into a commitment agreement (the “Commitment Agreement”) with Toll to pursue the joint development of multifamily rental properties with an initial term of three years. The Company intends to invest 75% of the equity for each selected project and Toll intends to invest 25%. It is expected that each project will also be financed with approximately 60% non-recourse construction debt. The parties have targeted an initial minimum co-investment of approximately $750.0 million in combined equity. The Company and Toll have and expect to continue to enter into separate joint venture agreements for each property, and the Company has and expects to continue to account for these unconsolidated joint ventures under the equity method of accounting. As of December 31, 2022, the Company and Toll have entered into four separate joint venture agreements under the Commitment Agreement, with three projects currently under development.
Other Commitments
We have entered into, and may continue in the future to enter into, real estate technology and other real estate fund investments. At December 31, 2022, the Company has invested in eight real estate technology funds and one other real estate investment fund with aggregate remaining commitments of approximately $19.9 million.
Employment Agreements
The Company has entered into a retirement benefits agreement with its Chairman and a deferred compensation agreement with one former executive officer. During the years ended December 31, 2022, 2021 and 2020, the Company recognized compensation expense of $(0.2) million, $0.1 million and $0.5 million, respectively, related to these agreements.
The following table summarizes the Company’s contractual obligations for deferred compensation for the next five years and thereafter as of December 31, 2022:
(Payments) Due by Year (in thousands)
Other Long-Term Liabilities:
Deferred Compensation (1)
(666
(767
(4,220
(7,954
Contingencies
Litigation and Legal Matters
The Company, as an owner of real estate, is subject to various federal, state and local laws. Compliance by the Company with existing laws has not had a material adverse effect on the Company. However, the Company cannot predict the impact of new or changed laws or regulations on its current properties or on properties that it may acquire in the future.
The Company does not believe there is any litigation pending or threatened against it that, individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company.
Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses and about which discrete financial information is available that is evaluated regularly by the chief operating decision maker. The chief operating decision maker decides how resources are allocated and assesses performance on a recurring basis at least quarterly.
F-54
The Company’s primary business is the acquisition, development and management of multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to residents. The chief operating decision maker evaluates the Company’s operating performance geographically by market and both on a same store and non-same store basis. While the Company does maintain a non-residential presence, it accounts for approximately 3.7% of total revenues for the year ended December 31, 2022 and is designed as an amenity for our residential residents. The chief operating decision maker evaluates the performance of each property on a consolidated residential and non-residential basis. The Company’s geographic consolidated same store operating segments represent its reportable segments.
The Company’s development activities are other business activities that do not constitute an operating segment and as such, have been aggregated in the “Other” category in the tables presented below.
All revenues are from external customers and there is no customer who contributed 10% or more of the Company’s total revenues during the three years ended December 31, 2022, 2021 and 2020, respectively.
The primary financial measure for the Company’s rental real estate segment is net operating income (“NOI”), which represents rental income less: 1) property and maintenance expense and 2) real estate taxes and insurance expense (all as reflected in the accompanying consolidated statements of operations and comprehensive income). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company’s apartment properties. Revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
The following table presents a reconciliation of NOI from our rental real estate for the years ended December 31, 2022, 2021 and 2020, respectively (amounts in thousands):
Property and maintenance expense
(483,865
(453,532
(440,998
Real estate taxes and insurance expense
(388,412
(397,105
(381,562
(872,277
(850,637
(822,560
Net operating income
1,749,145
The following tables present NOI from our rental real estate for each segment for the years ended December 31, 2022, 2021 and 2020, respectively, as well as total assets and capital expenditures at December 31, 2022 and 2021, respectively (amounts in thousands):
RentalIncome
OperatingExpenses
Same store (1)
469,180
137,078
332,102
431,954
132,274
299,680
444,129
140,469
303,660
122,660
26,338
96,322
109,427
24,986
84,441
105,236
24,545
80,691
86,728
19,395
67,333
78,709
18,395
60,314
74,737
18,176
56,561
Subtotal - Southern California
678,568
182,811
495,757
620,090
175,655
444,435
624,102
183,190
440,912
418,941
124,952
293,989
383,817
118,795
265,022
435,371
117,085
318,286
411,975
136,130
275,845
389,205
129,065
260,140
405,571
125,353
280,218
434,820
186,896
247,924
367,370
182,631
184,739
424,534
197,740
226,794
282,902
79,101
203,801
256,988
80,775
176,213
257,372
74,362
183,010
262,604
79,979
182,625
235,050
76,374
158,676
240,158
71,611
168,547
43,767
12,422
31,345
39,084
11,209
27,875
37,917
11,040
26,877
Total same store
2,425,025
780,381
1,644,644
Non-same store (2)
179,707
70,654
109,053
59,629
27,691
31,938
11,791
9,085
Other (3)
21,896
(668
22,564
112,764
48,442
64,322
134,889
39,473
95,416
Total non-same store/other
146,680
42,179
104,501
Totals
822,560
F-55
Total Assets
Capital Expenditures
2,590,661
35,481
2,668,136
20,917
356,396
7,885
371,063
5,647
228,471
8,798
232,345
2,899
3,175,528
52,164
3,271,544
29,463
3,068,951
33,854
3,165,347
20,021
3,027,549
34,174
3,134,677
27,061
3,421,373
21,636
3,513,047
28,742
2,076,320
28,086
2,140,925
15,203
1,676,783
23,057
1,739,184
21,129
473,127
2,139
492,454
16,919,631
17,457,178
143,634
2,501,008
25,429
2,439,634
4,491
797,623
547
1,272,429
3,298,631
3,712,063
7,385
151,019
There have been no material subsequent events occurring since December 31, 2022.
F-56
Schedule III - Real Estate and Accumulated Depreciation
Overall Summary
Investmentin RealEstate, Gross
AccumulatedDepreciation
Investmentin RealEstate, Net
Encumbrances (1)
Wholly Owned Unencumbered
256
67,542
23,810,329,470
(7,664,733,730
16,145,595,740
Wholly Owned Encumbered
8,941
3,376,901,549
(1,095,745,422
2,281,156,127
1,816,819,525
27,187,231,019
(8,760,479,152
18,426,751,867
Partially Owned Unencumbered
2,646
666,489,021
(239,628,682
426,860,339
Partially Owned Encumbered
468
235,033,453
(27,742,015
207,291,438
136,618,560
901,522,474
(267,370,697
634,151,777
Total Unencumbered Properties
269
70,188
24,476,818,491
(7,904,362,412
16,572,456,079
Total Encumbered Properties
9,409
3,611,935,002
(1,123,487,437
2,488,447,565
1,953,438,085
Total Consolidated Investment in Real Estate
28,088,753,493
(9,027,849,849
19,060,903,644
S-1
Encumbrances Reconciliation
Portfolio/Entity Encumbrances
Number ofPropertiesEncumbered by
See PropertiesWith Note:
Amount
Archstone Master Property Holdings LLC
H
799,609,043
Individual Property Encumbrances
1,153,829,042
Total Encumbrances per Financial Statements
S-2
Schedule III – Real Estate and Accumulated Depreciation
The changes in total real estate for the years ended December 31, 2022, 2021 and 2020 are as follows:
27,203,325
27,533,607
Acquisitions and development
214,903
1,912,579
298,847
Improvements
225,136
152,715
154,433
Dispositions and other
(624,191
(995,713
(783,562
The changes in accumulated depreciation for the years ended December 31, 2022, 2021 and 2020 are as follows:
8,354,282
7,859,657
7,276,786
(208,600
(343,647
(237,961
9,027,850
S-3
Initial Cost toCompany
CostCapitalizedSubsequent toAcquisition(Improvements,net) (E)
Gross Amount Carried atClose of Period 12/31/22
Apartment Name
Non-ResidentialComponents
Date ofConstruction
Building &Fixtures
Building &Fixtures (A)
Total (B)
AccumulatedDepreciation (C)
Investmentin RealEstate, Net at12/31/22
Encumbrances
Wholly Owned Unencumbered:
100 K Apartments (fka 100K Street)
2018
222
15,600,000
70,296,069
118,357
70,414,426
86,014,426
(11,947,067
74,067,359
170 Amsterdam
New York, NY
G
2015
236
112,096,955
873,284
112,970,239
(34,043,879
78,926,360
175 Kent
Brooklyn, NY
2011
113
22,037,831
53,962,169
2,748,393
56,710,562
78,748,393
(24,154,395
54,593,998
180 Montague (fka Brooklyn Heights)
2000
32,400,000
92,675,228
5,887,763
98,562,991
130,962,991
(37,808,894
93,154,097
180 Riverside Boulevard
1998
516
144,968,250
138,346,681
21,777,910
160,124,591
305,092,841
(95,800,315
209,292,526
1210 Mass
2004
144
9,213,512
36,559,189
5,206,790
41,765,979
50,979,491
(24,625,028
26,354,463
1401 Joyce on Pentagon Row
Arlington, VA
326
9,780,000
89,668,165
8,362,559
98,030,724
107,810,724
(48,077,244
59,733,480
1500 Mass Ave
1951
556
54,638,298
40,361,702
17,314,785
57,676,487
112,314,785
(36,090,603
76,224,182
1800 Oak (fka Rosslyn)
2003
314
31,400,000
109,005,734
12,374,587
121,380,321
152,780,321
(47,084,778
105,695,543
2201 Pershing Drive
2012
188
11,321,198
49,674,175
3,334,541
53,008,716
64,329,914
(21,108,327
43,221,587
2201 Wilson
219
21,900,000
78,724,663
8,420,498
87,145,161
109,045,161
(32,851,672
76,193,489
2400 M St
2006
359
30,006,593
114,013,785
5,316,469
119,330,254
149,336,847
(69,768,932
79,567,915
315 on A
2013
202
14,450,070
115,824,930
1,849,886
117,674,816
132,124,886
(35,660,011
96,464,875
340 Fremont (fka Rincon Hill)
San Francisco, CA
2016
348
42,000,000
248,607,902
845,648
249,453,550
291,453,550
(62,382,935
229,070,615
341 Nevins
(F)
3,621,717
308,661
3,930,378
3003 Van Ness (fka Van Ness)
1970
625
56,300,000
141,191,580
11,966,163
153,157,743
209,457,743
(59,966,206
149,491,537
425 Mass
2009
559
28,150,000
138,600,000
7,678,062
146,278,062
174,428,062
(68,166,012
106,262,050
455 Eye Street
2017
174
11,941,407
61,418,689
220,558
61,639,247
73,580,654
(13,446,641
60,134,013
4th and Hill
Los Angeles, CA
13,131,456
1,868,544
15,000,000
55 West Fifth I & II (fka Townhouse Plaza and Gardens)
San Mateo, CA
1964/1972
241
21,041,710
71,931,323
16,597,875
88,529,198
109,570,908
(39,856,719
69,714,189
600 Washington
135
32,852,000
43,140,551
4,393,943
47,534,494
80,386,494
(27,305,832
53,080,662
660 Washington (fka Boston Common)
420
106,100,000
166,311,679
16,424,115
182,735,794
288,835,794
(66,003,911
222,831,883
70 Greene
Jersey City, NJ
2010
480
28,108,899
236,763,553
5,882,189
242,645,742
270,754,641
(106,757,715
163,996,926
71 Broadway
1997
238
22,611,600
77,492,171
21,574,386
99,066,557
121,678,157
(63,873,265
57,804,892
77 Bluxome
2007
102
5,249,124
18,609,876
701,746
19,311,622
24,560,746
(8,233,756
16,326,990
77 Park Avenue (fka Hoboken)
Hoboken, NJ
301
27,900,000
168,992,440
10,981,777
179,974,217
207,874,217
(67,423,156
140,451,061
777 Sixth
2002
294
65,352,706
65,747,294
7,342,095
73,089,389
138,442,095
(37,935,617
100,506,478
88 Hillside
Daly City, CA
95
7,786,800
31,587,325
4,090,905
35,678,230
43,465,030
(15,507,323
27,957,707
855 Brannan
449
41,363,921
282,730,067
791,530
283,521,597
324,885,518
(57,385,586
267,499,932
929 Mass (fka 929 House)
Cambridge, MA
1975
127
3,252,993
21,745,595
9,408,793
31,154,388
34,407,381
(23,489,575
10,917,806
Academy Village
North Hollywood, CA
1989
248
25,000,000
23,593,194
12,730,206
36,323,400
61,323,400
(24,155,942
37,167,458
Acappella
Pasadena, CA
143
5,839,548
29,360,452
2,564,708
31,925,160
37,764,708
(15,642,799
22,121,909
Alban Towers
1934
18,900,000
89,794,201
7,663,308
97,457,509
116,357,509
(36,633,733
79,723,776
Alborada
Fremont, CA
1999
442
24,310,000
59,214,129
10,322,001
69,536,130
93,846,130
(52,639,765
41,206,365
10,424,000
397,689,562
153,059
397,842,621
408,266,621
(17,988,355
390,278,266
Alcyone
Seattle, WA
162
11,379,497
49,360,503
2,335,387
51,695,890
63,075,387
(17,135,294
45,940,093
Altitude (fka Village at Howard Hughes, The (Lots 1 & 2))
545
43,783,485
150,234,305
768,468
151,002,773
194,786,258
(39,032,515
155,753,743
Alton, The (fka Millikan)
Irvine, CA
344
11,049,027
96,523,927
444,288
96,968,215
108,017,242
(23,284,909
84,732,333
Arbor Terrace
Sunnyvale, CA
1979
177
9,057,300
18,483,642
12,974,052
31,457,694
40,514,994
(22,871,546
17,643,448
Arches, The
1974
410
26,650,000
62,850,000
8,667,397
71,517,397
98,167,397
(31,720,951
66,446,446
Artisan on Second
2008
118
8,000,400
36,074,600
1,773,555
37,848,155
45,848,555
(16,682,625
29,165,930
S-4
CostCapitalized Subsequent to Acquisition(Improvements,net) (E)
Gross Amount Carried at Close of Period 12/31/22
Artistry Emeryville (fka Emeryville)
Emeryville, CA
1994
267
12,300,000
61,466,267
9,277,700
70,743,967
83,043,967
(29,468,973
53,574,994
Atelier
120
32,401,680
47,135,432
864,452
47,999,884
80,401,564
(13,864,493
66,537,071
Avenue Two
Redwood City, CA
1972
123
7,995,000
18,005,000
3,218,915
21,223,915
29,218,915
(10,054,846
19,164,069
Axis at Shady Grove
Rockville, MD
366
14,745,774
90,503,831
470,604
90,974,435
105,720,209
(20,048,451
85,671,758
Azure (fka Mission Bay-Block 13)
273
32,855,115
153,566,841
1,614,260
155,181,101
188,036,216
(42,622,898
145,413,318
Bay Hill
Long Beach, CA
160
7,600,000
27,437,239
4,626,774
32,064,013
39,664,013
(20,533,563
19,130,450
Beatrice, The
302
114,351,405
165,648,595
3,361,487
169,010,082
283,361,487
(67,992,813
215,368,674
Bella Vista I, II, III Combined
Woodland Hills, CA
2003-2007
579
31,682,754
121,095,786
12,495,872
133,591,658
165,274,412
(78,584,749
86,689,663
Belle Arts Condominium Homes, LLC
Bellevue, WA
63,158
236,157
2,098
238,255
301,413
(116,241
185,172
Belle Fontaine
Marina Del Rey, CA
9,098,808
28,701,192
2,883,835
31,585,027
40,683,835
(13,248,942
27,434,893
Breakwater at Marina Del Rey
1964-1969
224
73,189,262
2,754,554
75,943,816
(30,159,723
45,784,093
Briarwood (CA)
1985
192
9,991,500
22,247,278
5,601,488
27,848,766
37,840,266
(22,206,373
15,633,893
Brodie, The
Westminster, CO
8,639,904
79,256,940
1,143,901
80,400,841
89,040,745
(16,788,446
72,252,299
Brooklyner, The (fka 111 Lawrence)
490
40,099,922
221,438,631
5,865,063
227,303,694
267,403,616
(93,897,222
173,506,394
C on Pico
2014
94
17,125,766
28,074,234
674,098
28,748,332
45,874,098
(8,307,453
37,566,645
Carlyle Mill
Alexandria, VA
317
10,000,000
51,367,913
11,079,514
62,447,427
72,447,427
(42,035,228
30,412,199
Carmel Terrace
San Diego, CA
1988-1989
384
2,288,300
20,596,281
14,843,791
35,440,072
37,728,372
(31,639,776
6,088,596
Cascade
477
23,751,564
149,406,957
575,259
149,982,216
173,733,780
(32,505,847
141,227,933
Centennial (fka Centennial Court & Centennial Tower)
1991/2001
408
9,700,000
70,080,378
16,430,466
86,510,844
96,210,844
(54,699,023
41,511,821
Centre Club Combined
Ontario, CA
1994 & 2002
7,436,000
33,014,789
10,995,514
44,010,303
51,446,303
(32,105,510
19,340,793
Chelsea Square
Redmond, WA
1991
3,397,100
9,289,074
3,299,009
12,588,083
15,985,183
(10,213,447
5,771,736
Chloe on Madison (fka 1401 E. Madison)
2019
137
10,401,958
53,807,106
43,467
53,850,573
64,252,531
(7,027,468
57,225,063
Chloe on Union (fka Chloe)
117
14,835,571
39,359,650
3,081,197
42,440,847
57,276,418
(10,171,551
47,104,867
Church Corner
1987
85
5,220,000
16,744,643
3,600,746
20,345,389
25,565,389
(13,313,791
12,251,598
Circa Fitzsimons
280
9,241,400
86,070,796
474,244
86,545,040
95,786,440
(7,763,471
88,022,969
City Gate at Cupertino (fka Cupertino)
Cupertino, CA
311
40,400,000
95,937,046
8,167,032
104,104,078
144,504,078
(41,009,589
103,494,489
City Square Bellevue (fka Bellevue)
191
15,100,000
41,876,257
4,334,618
46,210,875
61,310,875
(18,516,662
42,794,213
Clarendon, The
2005
292
30,400,340
103,824,660
3,166,324
106,990,984
137,391,324
(47,350,954
90,040,370
Cleo, The
92
6,615,467
14,829,335
4,575,938
19,405,273
26,020,740
(11,563,408
14,457,332
Connecticut Heights
518
27,600,000
114,002,295
11,472,554
125,474,849
153,074,849
(48,629,875
104,444,974
Corcoran House at DuPont Circle (fka DuPont Circle)
1961
138
13,500,000
26,913,113
4,899,921
31,813,034
45,313,034
(12,714,363
32,598,671
Courthouse Plaza
1990
396
87,386,024
8,488,969
95,874,993
(39,049,234
56,825,759
Creekside (San Mateo)
9,606,600
21,193,232
5,960,684
27,153,916
36,760,516
(22,033,090
14,727,426
Cronins Landing
Waltham, MA
281
32,300,000
85,119,324
15,325,293
100,444,617
132,744,617
(39,790,380
92,954,237
Crystal Place
1986
181
17,200,000
47,918,975
4,699,279
52,618,254
69,818,254
(21,346,735
48,471,519
Dalton, The
22,947,777
95,334,754
454,380
95,789,134
118,736,911
(14,548,074
104,188,837
Deerwood (SD)
316
2,082,095
18,739,815
17,949,500
36,689,315
38,771,410
(33,440,329
5,331,081
Del Mar Ridge
7,801,824
36,948,176
5,974,943
42,923,119
50,724,943
(21,861,664
28,863,279
Eagle Canyon
Chino Hills, CA
252
1,808,900
16,274,361
12,390,469
28,664,830
30,473,730
(24,294,152
6,179,578
Edge, The (fka 4885 Edgemoor Lane)
Bethesda, MD
154
72,788,808
13,063
72,801,871
(4,378,237
68,423,634
Edgemont at Bethesda Metro
13,092,552
43,907,448
4,482,432
48,389,880
61,482,432
(20,248,395
41,234,037
Emerson Place
1962
444
14,855,000
57,566,636
38,628,593
96,195,229
111,050,229
(76,597,956
34,452,273
Encore at Sherman Oaks, The
Sherman Oaks, CA
1988
8,700,000
25,446,003
4,809,250
30,255,253
38,955,253
(14,274,387
24,680,866
Eviva on Cherokee
274
10,507,626
100,037,204
1,860,527
101,897,731
112,405,357
(18,556,701
93,848,656
S-5
Flora
Austin, TX
194
5,733,088
32,343,349
192,360
32,535,709
38,268,797
(4,201,809
34,066,988
Fremont Center
322
25,800,000
78,753,114
7,285,452
86,038,566
111,838,566
(33,761,134
78,077,432
Gaithersburg Station
Gaithersburg, MD
17,500,000
74,678,917
5,224,502
79,903,419
97,403,419
(29,469,619
67,933,800
Gateway at Malden Center
Malden, MA
203
9,209,780
25,722,666
18,846,091
44,568,757
53,778,537
(32,286,012
21,492,525
Geary Court Yard
165
1,722,400
15,471,429
6,540,464
22,011,893
23,734,293
(18,375,315
5,358,978
Girard
102,450,328
1,158,171
103,608,499
(22,398,155
81,210,344
Hampshire Place
259
10,806,000
30,335,330
11,225,496
41,560,826
52,366,826
(24,997,884
27,368,942
Harbor Steps
59,403,601
158,829,432
49,422,576
208,252,008
267,655,609
(124,036,014
143,619,595
Hathaway
385
2,512,500
22,611,912
15,679,986
38,291,898
40,804,398
(31,724,680
9,079,718
Helios (fka 2nd+Pine)
18,061,674
206,762,591
958,328
207,720,919
225,782,593
(44,822,360
180,960,233
Heritage at Stone Ridge
Burlington, MA
180
10,800,000
31,808,335
4,835,568
36,643,903
47,443,903
(21,603,853
25,840,050
Heritage Ridge
Lynwood, WA
197
6,895,000
18,983,597
5,406,272
24,389,869
31,284,869
(14,983,556
16,301,313
Hesby
23,299,892
102,700,108
2,889,705
105,589,813
128,889,705
(35,650,223
93,239,482
Highlands at South Plainfield
South Plainfield, NJ
10,080,000
37,526,912
3,417,910
40,944,822
51,024,822
(24,715,819
26,309,003
Hikari
128
9,435,760
32,564,240
1,840,553
34,404,793
43,840,553
(14,977,251
28,863,302
Hudson Crossing
23,420,000
69,977,699
4,057,602
74,035,301
97,455,301
(46,188,890
51,266,411
Hudson Pointe
182
5,350,000
41,114,074
8,519,647
49,633,721
54,983,721
(32,045,583
22,938,138
Huxley, The
18,775,028
89,336,651
302,791
89,639,442
108,414,470
(13,549,420
94,865,050
Indie Deep Ellum
231
12,253,503
63,853,704
333,872
64,187,576
76,441,079
(6,111,055
70,330,024
Ivory Wood
Bothell, WA
2,732,800
13,888,282
4,232,149
18,120,431
20,853,231
(10,518,766
10,334,465
Jia (fka Chinatown Gateway)
14,791,831
78,286,423
2,131,858
80,418,281
95,210,112
(30,341,299
64,868,813
Junction 47 (fka West Seattle)
206
11,726,305
56,581,665
986,404
57,568,069
69,294,374
(16,946,678
52,347,696
Juniper Sandy Springs
Sandy Springs, GA
230
8,668,700
64,989,813
241,832
65,231,645
73,900,345
(5,646,809
68,253,536
Kelvin, The (fka Modera)
15,521,552
64,853,448
1,173,016
66,026,464
81,548,016
(20,199,995
61,348,021
Kilby
6,431,940
64,187,474
139,395
64,326,869
70,758,809
(6,440,466
64,318,343
Laguna Clara
10,441,994
22,572,843
17,692,369
40,265,212
50,707,206
(20,593,789
30,113,417
3,200,426
21,360,769
24,561,195
Landings at Port Imperial
W. New York, NJ
276
27,246,045
37,741,049
17,699,560
55,440,609
82,686,654
(39,896,355
42,790,299
Lane
13,142,946
71,940,276
330,375
72,270,651
85,413,597
(10,315,294
75,098,303
Lex, The
San Jose, CA
387
21,817,512
158,778,598
1,334,350
160,112,948
181,930,460
(27,171,976
154,758,484
Liberty Park
Braintree, MA
5,977,504
26,749,110
8,761,439
35,510,549
41,488,053
(24,345,405
17,142,648
Liberty Tower
235
16,382,822
83,817,078
7,907,595
91,724,673
108,107,495
(41,539,645
66,567,850
Lincoln Heights
Quincy, MA
336
5,928,400
33,595,262
16,724,209
50,319,471
56,247,871
(42,708,830
13,539,041
Lofts at Kendall Square (fka Kendall Square)
186
18,696,674
78,445,657
8,134,204
86,579,861
105,276,535
(34,435,985
70,840,550
Lofts at Kendall Square ll (fka 249 Third Street)
84
4,603,326
44,187,266
51,779
44,239,045
48,842,371
(5,641,481
43,200,890
Longacre House
73,170,045
53,962,510
7,138,240
61,100,750
134,270,795
(32,498,890
101,771,905
Longfellow Place
710
38,264,917
132,175,915
102,674,772
234,850,687
273,115,604
(182,527,965
90,587,639
Luna Upper Westside
Atlanta, GA
345
14,847,420
108,325,394
286,230
108,611,624
123,459,044
(8,732,860
114,726,184
Madox
131
9,679,635
64,594,205
1,526,495
66,120,700
75,800,335
(12,710,345
63,089,990
Mantena
98
22,346,513
61,501,158
1,952,525
63,453,683
85,800,196
(24,407,861
61,392,335
Mara Pacific Beach
25,360,682
87,755,429
402,658
88,158,087
113,518,769
(5,771,661
107,747,108
Marina 41 (fka Marina Del Rey)
1973
623
168,842,442
11,795,707
180,638,149
(72,019,685
108,618,464
Mariposa at Playa Del Rey (fka Playa Del Rey)
Playa Del Rey, CA
354
60,900,000
89,311,482
8,681,246
97,992,728
158,892,728
(38,697,798
120,194,930
S-6
Market Street Village
13,740,000
40,757,301
3,086,270
43,843,571
57,583,571
(25,501,351
32,082,220
Marlowe (fka Oakwood Crystal City)
15,400,000
35,474,336
5,248,421
40,722,757
56,122,757
(16,520,673
39,602,084
Milano Lofts
1925/2006
99
8,125,216
27,378,784
4,867,971
32,246,755
40,371,971
(13,222,232
27,149,739
Mill Creek
Milpitas, CA
12,858,693
57,168,503
19,425,365
76,593,868
89,452,561
(50,263,493
39,189,068
Milo
319
15,957,975
153,331,358
1,032,312
154,363,670
170,321,645
(9,704,486
160,617,159
Mosaic at Metro
Hyattsville, MD
59,580,898
2,012,533
61,593,431
(30,003,658
31,589,773
Mountain View Redevelopment
Mountain View, CA
2,589,543
Mozaic at Union Station
272
8,500,000
52,529,446
3,490,903
56,020,349
64,520,349
(31,748,137
32,772,212
Murray Hill Tower (fka Murray Hill)
75,800,000
102,705,401
14,991,455
117,696,856
193,496,856
(48,050,917
145,445,939
Next on Sixth
52,509,906
136,635,650
717,015
137,352,665
189,862,571
(24,161,125
165,701,446
North Pier at Harborside
297
4,000,159
94,290,590
12,335,354
106,625,944
110,626,103
(65,149,768
45,476,335
Northglen
Valencia, CA
234
9,360,000
20,778,553
7,684,511
28,463,064
37,823,064
(20,322,900
17,500,164
Northpark
Burlingame, CA
510
38,607,000
77,472,217
18,243,943
95,716,160
134,323,160
(51,062,231
83,260,929
Oak Park Combined
Agoura Hills, CA
1989 & 1990
3,390,700
30,517,274
12,750,164
43,267,438
46,658,138
(38,437,510
8,220,628
Oaks
Santa Clarita, CA
520
23,400,000
61,020,438
14,204,778
75,225,216
98,625,216
(46,957,294
51,667,922
Ocean Crest
Solana Beach, CA
146
5,111,200
11,910,438
5,469,025
17,379,463
22,490,663
(13,994,857
8,495,806
Odin (fka Tallman)
16,807,519
64,519,515
690,891
65,210,406
82,017,925
(18,952,155
63,065,770
Olivian at the Realm
Lewisville, TX
421
14,854,564
109,310,039
154,217
109,464,256
124,318,820
(7,519,616
116,799,204
One Henry Adams
30,224,393
139,654,146
941,609
140,595,755
170,820,148
(33,716,718
137,103,430
One India Street (fka Oakwood Boston)
1901
22,200,000
28,672,979
7,157,116
35,830,095
58,030,095
(14,916,926
43,113,169
Osprey
320
18,121,932
116,950,910
172,416
117,123,326
135,245,258
(8,948,571
126,296,687
Pacific Place
32,250,000
110,750,000
4,111,677
114,861,677
147,111,677
(42,362,494
104,749,183
Packard Building
61
5,911,041
19,954,959
1,469,814
21,424,773
27,335,814
(6,446,067
20,889,747
Parc 77
1903
40,504,000
18,025,679
7,676,398
25,702,077
66,206,077
(16,735,945
49,470,132
Parc Cameron
1927
166
37,600,000
9,855,597
8,276,153
18,131,750
55,731,750
(13,345,490
42,386,260
Parc Coliseum
1910
52,654,000
23,045,751
10,565,103
33,610,854
86,264,854
(22,366,482
63,898,372
Parc East Towers
1977
324
102,163,000
108,989,402
14,803,968
123,793,370
225,956,370
(69,894,282
156,062,088
Parc on Powell (fka Parkside at Emeryville)
173
16,667,059
65,473,337
1,021,766
66,495,103
83,162,162
(20,020,764
63,141,398
Park Connecticut
142
13,700,000
59,087,519
3,885,983
62,973,502
76,673,502
(23,160,708
53,512,794
Park West (CA)
1987/1990
3,033,500
27,302,383
14,094,687
41,397,070
44,430,570
(36,021,598
8,408,972
Parkside
Union City, CA
208
6,246,700
11,827,453
8,737,771
20,565,224
26,811,924
(16,030,621
10,781,303
Pearl, The (WA)
6,972,585
26,527,415
1,403,758
27,931,173
34,903,758
(8,660,957
26,242,801
Pearl MDR (fka Oakwood Marina Del Rey)
1969
597
120,795,359
13,477,577
134,272,936
(53,218,370
81,054,566
Pegasus
1949/2003
18,094,052
81,905,948
10,224,057
92,130,005
110,224,057
(42,331,513
67,892,544
Portofino
176
3,572,400
14,660,994
4,818,688
19,479,682
23,052,082
(16,141,591
6,910,491
Portofino (Val)
216
8,640,000
21,487,126
6,883,676
28,370,802
37,010,802
(20,895,885
16,114,917
Portside Towers
1992-1997
527
22,487,006
96,842,913
30,111,517
126,954,430
149,441,436
(103,497,789
45,943,647
Potrero 1010
453
40,830,011
181,924,463
1,837,147
183,761,610
224,591,621
(48,837,157
175,754,464
Prado (fka Glendale)
Glendale, CA
264
67,977,313
7,080,681
75,057,994
(29,571,046
45,486,948
Prime, The
34,625,000
77,879,740
8,041,396
85,921,136
120,546,136
(41,828,588
78,717,548
Prism at Park Avenue South (fka 400 Park Avenue South)
76,292,169
171,812,112
403,354
172,215,466
248,507,635
(52,304,125
196,203,510
Promenade at Town Center I & II
2001
564
28,200,000
69,795,915
16,878,188
86,674,103
114,874,103
(54,285,113
60,588,990
Providence
3,573,621
19,055,505
6,546,316
25,601,821
29,175,442
(15,360,712
13,814,730
S-7
Quarry Hills
26,900,000
84,411,162
5,919,777
90,330,939
117,230,939
(35,205,398
82,025,541
Radiant Fairfax Ridge
Fairfax, VA
213
7,352,547
63,018,744
599,521
63,618,265
70,970,812
(6,560,278
64,410,534
Radius Uptown
372
13,644,960
121,899,084
2,496,966
124,396,050
138,041,010
(24,982,459
113,058,551
Redmond Court
10,300,000
33,488,745
5,065,385
38,554,130
48,854,130
(15,412,602
33,441,528
Regency Palms
Huntington Beach, CA
1,857,400
16,713,254
9,273,705
25,986,959
27,844,359
(21,987,950
5,856,409
Reserve at Burlington, The
20,250,000
114,476,423
999,016
115,475,439
135,725,439
(10,286,168
125,439,271
Reserve at Clarendon Centre, The
10,500,000
52,812,935
5,641,747
58,454,682
68,954,682
(38,910,541
30,044,141
Reserve at Eisenhower, The
226
6,500,000
34,585,059
5,968,046
40,553,105
47,053,105
(26,987,506
20,065,599
Reserve at Empire Lakes
Rancho Cucamonga, CA
467
16,345,000
73,080,670
10,689,811
83,770,481
100,115,481
(47,908,127
52,207,354
Reserve at Fairfax Corner
652
15,804,057
63,129,050
14,579,441
77,708,491
93,512,548
(53,894,121
39,618,427
Reserve at Mountain View (fka Mountain View)
1965
27,000,000
33,029,605
9,378,941
42,408,546
69,408,546
(18,449,986
50,958,560
Reserve at Potomac Yard
588
11,918,917
68,862,641
20,648,643
89,511,284
101,430,201
(57,505,652
43,924,549
Reserve at Town Center I-III (WA)
Mill Creek, WA
2001, 2009, 2014
584
16,768,705
77,623,664
13,119,148
90,742,812
107,511,517
(46,947,259
60,564,258
Rianna I & II
2000/2002
156
4,430,000
29,298,096
3,312,507
32,610,603
37,040,603
(15,749,206
21,291,397
Ridgewood Village I&II
11,809,500
34,004,048
7,923,377
41,927,425
53,736,925
(32,573,463
21,163,462
Riva Terra I (fka Redwood Shores)
34,963,355
84,587,658
9,098,327
93,685,985
128,649,340
(38,559,988
90,089,352
Riva Terra II (fka Harborside)
149
17,136,645
40,536,531
4,332,667
44,869,198
62,005,843
(17,412,318
44,593,525
Riverpark
321
14,355,000
80,894,049
6,065,713
86,959,762
101,314,762
(36,678,117
64,636,645
Rivington, The
240
34,340,640
112,112,152
4,792,489
116,904,641
151,245,281
(24,887,916
126,357,365
Rivington II, The
850,870
Rosecliff II
130
4,922,840
30,202,160
2,681,231
32,883,391
37,806,231
(14,457,252
23,348,979
Sakura Crossing
14,641,990
42,858,010
2,000,425
44,858,435
59,500,425
(20,432,415
39,068,010
Saxton
325
38,805,400
128,652,023
812,621
129,464,644
168,270,044
(19,446,350
148,823,694
Seventh & James
1992
663,800
5,974,803
4,722,895
10,697,698
11,361,498
(9,353,898
2,007,600
Sheffield Court
3,342,381
31,337,332
25,857,292
57,194,624
60,537,005
(46,325,259
14,211,746
Siena Terrace
Lake Forest, CA
356
8,900,000
24,083,024
9,292,173
33,375,197
42,275,197
(26,789,841
15,485,356
Skycrest
10,560,000
25,574,457
7,087,323
32,661,780
43,221,780
(23,685,443
19,536,337
Skyhouse South
14,182,277
101,911,177
560,298
102,471,475
116,653,752
(10,186,010
106,467,742
Skylark
1,781,600
16,731,916
5,933,120
22,665,036
24,446,636
(18,283,892
6,162,744
Skyview
Rancho Santa Margarita, CA
3,380,000
21,952,863
7,296,364
29,249,227
32,629,227
(22,568,433
10,060,794
SoMa II
29,406,606
5,921,781
35,328,387
Sonterra at Foothill Ranch
Foothill Ranch, CA
7,503,400
24,048,507
6,847,223
30,895,730
38,399,130
(25,101,574
13,297,556
South City Station (fka South San Francisco)
368
68,900,000
79,476,861
8,971,334
88,448,195
157,348,195
(34,002,945
123,345,250
Southwood
Palo Alto, CA
6,936,600
14,324,069
7,931,945
22,256,014
29,192,614
(16,836,599
12,356,015
Springline
136
9,163,667
47,910,981
838,294
48,749,275
57,912,942
(11,855,973
46,056,969
Square One
112
7,222,544
26,277,456
325,303
26,602,759
33,825,303
(8,950,176
24,875,127
STOA
237
25,326,048
79,976,031
588,847
80,564,878
105,890,926
(14,520,667
91,370,259
Summerset Village
Chatsworth, CA
2,890,450
23,670,889
9,290,561
32,961,450
35,851,900
(28,997,875
6,854,025
Ten23 (fka 500 West 23rd Street)
111
58,881,873
1,746,694
60,628,567
(22,633,385
37,995,182
Terraces, The
14,087,610
16,314,151
3,018,966
19,333,117
33,420,727
(9,495,519
23,925,208
Theo
275
15,322,049
122,105,822
5,254,700
127,360,522
142,682,571
(8,502,526
134,180,045
S-8
Third Square
2008/2009
471
26,767,171
218,822,728
10,776,005
229,598,733
256,365,904
(111,180,199
145,185,705
Three20
134
7,030,766
29,005,762
1,087,210
30,092,972
37,123,738
(10,939,955
26,183,783
Toscana
1991/1993
563
39,410,000
50,806,072
27,932,212
78,738,284
118,148,284
(55,741,592
62,406,692
Town Square at Mark Center I&II
1996
678
39,928,464
141,208,321
16,912,775
158,121,096
198,049,560
(87,827,875
110,221,685
Troy Boston
378
34,641,051
181,607,331
3,073,444
184,680,775
219,321,826
(39,487,683
179,834,143
Urbana (fka Market Street Landing)
12,542,418
75,800,090
3,686,862
79,486,952
92,029,370
(28,693,210
63,336,160
Uwajimaya Village
8,800,000
22,188,288
7,342,363
29,530,651
38,330,651
(16,380,454
21,950,197
Vantage Hollywood
298
42,580,326
56,014,674
4,125,563
60,140,237
102,720,563
(20,441,762
82,278,801
Veloce
15,322,724
76,176,594
4,461,903
80,638,497
95,961,221
(30,895,677
65,065,544
Venue at the Promenade
Castle Rock, CO
8,355,048
83,752,689
470,811
84,223,500
92,578,548
(14,700,491
77,878,057
Verde Condominium Homes (fka Mission Verde, LLC)
5,190,700
9,679,109
5,573,142
15,252,251
20,442,951
(12,283,530
8,159,421
Veridian (fka Silver Spring)
Silver Spring, MD
457
18,539,817
130,407,365
5,763,254
136,170,619
154,710,436
(62,907,818
91,802,618
Versailles
253
12,650,000
33,656,292
9,094,333
42,750,625
55,400,625
(29,209,935
26,190,690
Versailles (K-Town)
10,590,975
44,409,025
2,593,220
47,002,245
57,593,220
(23,132,781
34,460,439
Victor on Venice
115
10,350,000
35,433,437
4,209,804
39,643,241
49,993,241
(21,183,520
28,809,721
Villa Solana
Laguna Hills, CA
1984
1,665,100
14,985,677
13,685,294
28,670,971
30,336,071
(25,421,545
4,914,526
Village at Del Mar Heights, The (fka Del Mar Heights)
168
40,859,396
4,208,000
45,067,396
60,167,396
(18,327,660
41,839,736
Virginia Square
85,940,003
6,529,565
92,469,568
(36,782,306
55,687,262
Vista 99 (fka Tasman)
554
27,709,329
177,556,948
2,423,476
179,980,424
207,689,753
(48,405,518
159,284,235
Vista Del Lago
Mission Viejo, CA
1986-1988
608
4,525,800
40,736,293
24,220,628
64,956,921
69,482,721
(57,478,601
12,004,120
Walden Park
1966
232
12,448,888
52,044,448
5,522,419
57,566,867
70,015,755
(27,224,023
42,791,732
Water Park Towers
34,400,000
108,485,859
14,359,832
122,845,691
157,245,691
(49,167,584
108,078,107
Watertown Square
Watertown, MA
16,800,000
34,074,056
2,755,801
36,829,857
53,629,857
(14,197,322
39,432,535
Weaver, The
250
25,405,232
69,552,640
80,225
69,632,865
95,038,097
(5,864,080
89,174,017
West 96th
84,800,000
67,055,501
8,473,061
75,528,562
160,328,562
(31,695,180
128,633,382
West End Apartments (fka Emerson Place/CRP II)
469,546
163,123,022
5,993,520
169,116,542
169,586,088
(84,958,233
84,627,855
Westchester at Rockville
10,600,000
44,135,207
1,692,757
45,827,964
56,427,964
(17,362,650
39,065,314
Westerly
331
11,958,829
79,169,818
335,530
79,505,348
91,464,177
(7,278,523
84,185,654
Westmont
163
64,900,000
61,143,259
7,661,767
68,805,026
133,705,026
(27,260,798
106,444,228
Westside
204
34,200,000
56,962,630
3,948,110
60,910,740
95,110,740
(23,529,443
71,581,297
Westside Barrington (fka Westside Villas III)
3,060,000
5,538,871
1,243,160
6,782,031
9,842,031
(5,023,466
4,818,565
Westside Barry (Westside Villas VI)
1,530,000
3,023,523
811,372
3,834,895
5,364,895
(2,819,131
2,545,764
Westside Beloit (fka Westside Villas I)
1,785,000
3,233,254
836,921
4,070,175
5,855,175
(3,041,406
2,813,769
Westside Bundy (fka Westside Villas II)
1,955,000
3,541,435
824,134
4,365,569
6,320,569
(3,237,578
3,082,991
Westside Butler (fka Westside Villas IV)
5,539,390
1,347,078
6,886,468
9,946,468
(5,076,540
4,869,928
Westside Villas (fka Westside Villas V &VII)
1999 & 2001
9,605,000
19,983,385
3,194,844
23,178,229
32,783,229
(16,789,962
15,993,267
Windridge (CA)
Laguna Niguel, CA
2,662,900
23,985,497
13,661,399
37,646,896
40,309,796
(33,906,750
6,403,046
Wisconsin Place
Chevy Chase, MD
432
172,089,355
2,076,371
174,165,726
(65,458,283
108,707,443
Woodleaf
Campbell, CA
178
8,550,600
16,988,183
7,575,252
24,563,435
33,114,035
(19,366,947
13,747,088
Zephyr on the Park
15,637,106
89,964,029
245,884
90,209,913
105,847,019
(6,844,304
99,002,715
Management Business
Chicago, IL
(D)
144,428,737
(113,190,150
31,238,587
2,867,660
111,362
(95,482
15,880
4,740,181,596
17,196,859,828
1,873,288,046
19,070,147,874
S-9
Wholly Owned Encumbered:
1111 Belle Pre (fka The Madison)
360
18,937,702
94,758,679
1,301,957
96,060,636
114,998,338
(34,860,500
80,137,838
86,361,102
2501 Porter
13,000,000
75,271,179
7,884,211
83,155,390
96,155,390
(34,040,743
62,114,647
(H)
300 East 39th (fka East 39th)
254
48,900,000
96,174,639
7,769,517
103,944,156
152,844,156
(40,193,465
112,650,691
63,893,638
303 East 83rd (fka Camargue)
1976
261
79,400,000
79,122,624
13,844,760
92,967,384
172,367,384
(38,462,652
133,904,732
425 Broadway
Santa Monica, CA
101
12,600,000
34,394,772
4,097,606
38,492,378
51,092,378
(15,477,611
35,614,767
Artisan Square
Northridge, CA
7,000,000
20,537,359
2,895,523
23,432,882
30,432,882
(15,715,350
14,717,532
35,644,779
Avanti
Anaheim, CA
12,960,000
18,497,682
4,388,146
22,885,828
35,845,828
(13,934,940
21,910,888
28,058,907
Avenir Apartments
114,321,619
7,751,473
122,073,092
(46,061,694
76,011,398
850,000
City Pointe
Fullerton, CA
183
6,863,792
36,476,208
5,576,589
42,052,797
48,916,589
(20,067,743
28,848,846
39,644,941
Cleveland House
1953
214
18,300,000
66,392,414
7,798,160
74,190,574
92,490,574
(28,821,216
63,669,358
Elevé
14,080,560
56,419,440
1,584,949
58,004,389
72,084,949
(20,141,393
51,943,556
38,417,797
Estancia at Santa Clara (fka Santa Clara)
123,759,804
6,477,555
130,237,359
(49,544,280
80,693,079
Fairchase
392
23,500,000
87,722,321
2,935,251
90,657,572
114,157,572
(33,752,961
80,404,611
Flats at DuPont Circle
1967
306
35,200,000
108,768,198
4,979,171
113,747,369
148,947,369
(41,675,966
107,271,403
Glo
201
16,047,023
48,650,963
4,244,622
52,895,585
68,942,608
(23,712,129
45,230,479
32,872,538
Heights on Capitol Hill
5,425,000
21,138,028
2,318,311
23,456,339
28,881,339
(13,336,645
15,544,694
22,598,847
Kelvin Court (fka Alta Pacific)
132
10,752,145
34,846,856
1,280,833
36,127,689
46,879,834
(18,179,103
28,700,731
26,266,190
Kenwood Mews
Burbank, CA
141
14,100,000
24,662,883
4,497,673
29,160,556
43,260,556
(17,987,698
25,272,858
37,645,358
La Terrazza at Colma Station
Colma, CA
155
41,251,044
4,821,270
46,072,314
(24,784,283
21,288,031
25,039,995
Lindley Apartments
Encino, CA
129
5,805,000
25,705,000
3,047,415
28,752,415
34,557,415
(13,227,135
21,330,280
28,056,926
Lofts 590
20,100,000
67,909,023
1,634,837
69,543,860
89,643,860
(25,270,231
64,373,629
43,047,692
Longview Place
20,880,000
90,255,509
14,729,499
104,985,008
125,865,008
(61,621,009
64,243,999
84,324,510
Mark on 8th
23,004,387
51,116,647
631,037
51,747,684
74,752,071
(11,613,846
63,138,225
Metro on First
8,540,000
12,209,981
4,050,272
16,260,253
24,800,253
(9,137,232
15,663,021
21,503,008
Moda
251
12,649,228
36,842,012
2,688,215
39,530,227
52,179,455
(18,867,144
33,312,311
(I)
Montierra (CA)
8,160,000
29,360,938
11,542,219
40,903,157
49,063,157
(30,150,419
18,912,738
61,056,297
Notch
Newcastle, WA
5,463,324
43,490,989
209,022
43,700,011
49,163,335
(5,297,358
43,865,977
Old Town Lofts
7,740,467
44,146,181
1,323,622
45,469,803
53,210,270
(14,024,622
39,185,648
35,588,915
Olympus Towers
328
14,752,034
73,335,425
14,449,983
87,785,408
102,537,442
(56,949,584
45,587,858
94,800,450
Park Place at San Mateo (fka San Mateo)
575
71,900,000
211,907,141
18,068,811
229,975,952
301,875,952
(89,508,506
212,367,446
Red 160 (fka Redmond Way)
15,546,376
65,320,010
3,100,845
68,420,855
83,967,231
(27,642,178
56,325,053
Skyhouse Denver
13,562,331
126,360,318
1,503,996
127,864,314
141,426,645
(25,694,150
115,732,495
74,226,664
SoMa Square Apartments (fka South Market)
79,900,000
177,316,977
21,165,844
198,482,821
278,382,821
(76,177,456
202,205,365
Teresina
Chula Vista, CA
440
28,600,000
61,916,670
9,132,262
71,048,932
99,648,932
(41,706,770
57,942,162
37,940,000
Vintage
2005-2007
7,059,230
47,677,762
5,044,823
52,722,585
59,781,815
(28,688,384
31,093,431
49,162,360
Vintage at 425 Broadway (fka Promenade)
1934/2001
60
9,000,000
13,961,523
2,017,699
15,979,222
24,979,222
(6,698,223
18,280,999
West 54th
48,193,837
5,292,317
53,486,154
114,386,154
(22,720,803
91,665,351
50,209,568
Portfolio/Entity Encumbrances (1)
750,628,599
2,410,192,655
216,080,295
2,626,272,950
S-10
Partially Owned Unencumbered:
2300 Elliott
796,800
7,173,725
8,079,953
15,253,678
16,050,478
(13,410,704
2,639,774
Bellevue Meadows
1983
4,507,100
12,574,814
6,996,090
19,570,904
24,078,004
(15,908,888
8,169,116
Canyon Ridge
4,869,448
11,955,064
4,630,428
16,585,492
21,454,940
(13,766,694
7,688,246
Country Oaks
6,105,000
29,561,865
8,216,848
37,778,713
43,883,713
(26,756,533
17,127,180
Harrison Square (fka Elliot Bay)
35,844,345
6,509,034
42,353,379
49,953,379
(17,983,188
31,970,191
Lantern Cove
Foster City, CA
6,945,000
23,064,976
9,119,269
32,184,245
39,129,245
(23,642,181
15,487,064
Radius Koreatown
2014/2016
32,494,154
84,645,203
871,171
85,516,374
118,010,528
(22,022,979
95,987,549
Rosecliff
5,460,000
15,721,570
5,467,734
21,189,304
26,649,304
(16,448,847
10,200,457
Schooner Bay I
5,345,000
20,390,618
8,671,731
29,062,349
34,407,349
(20,233,539
14,173,810
Schooner Bay II
4,550,000
18,064,764
7,729,384
25,794,148
30,344,148
(17,946,115
12,398,033
St Johns West
10,097,109
47,928,229
162,483
48,090,712
58,187,821
(6,385,716
51,802,105
Venn at Main
350
26,626,497
151,520,448
1,204,708
152,725,156
179,351,653
(32,823,149
146,528,504
Virgil Square
5,500,000
15,216,613
4,271,846
19,488,459
24,988,459
(12,300,149
12,688,310
120,896,108
473,662,234
71,930,679
545,592,913
Partially Owned Encumbered:
13,107,242
100,503,088
82,614
100,585,702
113,692,944
(6,598,126
107,094,818
64,664,406
Canyon Creek (CA)
San Ramon, CA
268
18,812,120
8,724,976
27,537,096
32,962,096
(21,143,889
11,818,207
28,240,084
Reverb (fka 9th and W)
88,378,413
43,714,070
18,532,242
207,693,621
8,807,590
216,501,211
5,630,238,545
20,288,408,338
2,170,106,610
22,458,514,948
S-11
NOTES:
S-12