Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
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
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Equity Residential Yes ☒ No ☐
ERP Operating Limited Partnership Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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
l
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Equity Residential Yes ☐ No ☒
ERP Operating Limited Partnership Yes ☐ No ☒
The number of EQR Common Shares of Beneficial Interest, $0.01 par value, outstanding on July 25, 2024 was 379,135,883.
EXPLANATORY NOTE
This report combines the reports on Form 10-Q for the quarterly period ended June 30, 2024 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 June 30, 2024 owned an approximate 97.0% ownership interest in, ERPOP. The remaining 3.0% interest is owned by limited partners. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management. Management operates the Company and the Operating Partnership as one business. The management of EQR consists of the same members as the management of ERPOP.
The Company is structured as an umbrella partnership REIT (“UPREIT”) and EQR contributes all net proceeds from its various equity offerings to ERPOP. In return for those contributions, EQR receives a number of OP Units (see definition below) in ERPOP equal to the number of Common Shares it has issued in the equity offering. The Company may acquire properties in transactions that include the issuance of OP Units as consideration for the acquired properties. Such transactions may, in certain circumstances, enable the sellers to defer in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales. This is one of the reasons why the Company is structured in the manner shown above. Based on the terms of ERPOP’s partnership agreement, OP Units can be exchanged with Common Shares on a one-for-one basis because the Company maintains a one-for-one relationship between the OP Units of ERPOP issued to EQR and the outstanding Common Shares.
The Company believes that combining the reports on Form 10-Q of EQR and ERPOP into this single report provides the following benefits:
•enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
•eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
•creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
The Company believes it is important to understand the few differences between EQR and ERPOP in the context of how EQR and ERPOP operate as a consolidated company. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR’s primary function is acting as the general partner of ERPOP. EQR also issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by EQR (which are contributed to the capital of ERPOP in exchange for additional partnership interests in ERPOP (“OP Units”) (on a one-for-one Common Share per OP Unit basis) or additional preference units in ERPOP (on a one-for-one preferred share per preference unit basis)), the Operating Partnership generates all remaining capital required by the Company’s business. These sources include the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility and/or commercial paper program, the issuance of secured and unsecured debt and partnership interests, and proceeds received from disposition of certain properties and joint venture interests.
Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in the Company’s financial statements. The noncontrolling interests in the Operating Partnership’s financial statements include the interests of unaffiliated partners in various consolidated partnerships. The noncontrolling interests in the Company’s financial statements include the same noncontrolling interests at the Operating Partnership level and limited partner OP Unit holders of the Operating Partnership. The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.
To help investors understand the differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s debt, noncontrolling interests and shareholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.
This report also includes separate Part I, Item 4, Controls and Procedures, sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership.
As general partner with control of ERPOP, EQR consolidates ERPOP for financial reporting purposes, and EQR essentially has no assets or liabilities other than its investment in ERPOP. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
TABLE OF CONTENTS
PAGE
PART I.
Item 1. Financial Statements of Equity Residential:
Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023
2
Consolidated Statements of Operations and Comprehensive Income for the six months and quarters ended June 30, 2024 and 2023
3
Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023
5
Consolidated Statements of Changes in Equity for the six months and quarters ended June 30, 2024 and 2023
8
Financial Statements of ERP Operating Limited Partnership:
10
11
13
Consolidated Statements of Changes in Capital for the six months and quarters ended June 30, 2024 and 2023
16
Notes to Consolidated Financial Statements of Equity Residential and ERP Operating Limited Partnership
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
Item 3. Quantitative and Qualitative Disclosures about Market Risk
45
Item 4. Controls and Procedures
PART II.
Item 1. Legal Proceedings
46
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
1
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
(Unaudited)
June 30,
December 31,
2024
2023
ASSETS
Land
$
5,540,352
5,581,876
Depreciable property
23,004,377
22,938,426
Projects under development
188,283
78,036
Land held for development
64,781
114,300
Investment in real estate
28,797,793
28,712,638
Accumulated depreciation
(10,163,756
)
(9,810,337
Investment in real estate, net
18,634,037
18,902,301
Investments in unconsolidated entities
341,871
282,049
Cash and cash equivalents
38,298
50,743
Restricted deposits
100,123
89,252
Right-of-use assets
450,796
457,266
Other assets
214,443
252,953
Total assets
19,779,568
20,034,564
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net
1,634,838
1,632,902
Notes, net
5,351,461
5,348,417
Line of credit and commercial paper
170,884
409,131
Accounts payable and accrued expenses
114,413
87,377
Accrued interest payable
65,585
65,716
Lease liabilities
309,182
311,640
Other liabilities
292,424
272,596
Security deposits
69,848
69,178
Distributions payable
263,668
259,231
Total liabilities
8,272,303
8,456,188
Commitments and contingencies
Redeemable Noncontrolling Interests – Operating Partnership
327,641
289,248
Equity:
Shareholders' equity:
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 343,100 shares issued and outstanding as of June 30, 2024 and 745,600 shares issued and outstanding as of December 31, 2023
17,155
37,280
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 379,086,882 shares issued and outstanding as of June 30, 2024 and 379,291,417 shares issued and outstanding as of December 31, 2023
3,791
3,793
Paid in capital
9,590,105
9,601,866
Retained earnings
1,357,922
1,437,185
Accumulated other comprehensive income (loss)
6,914
5,704
Total shareholders’ equity
10,975,887
11,085,828
Noncontrolling Interests:
Operating Partnership
204,032
202,306
Partially Owned Properties
(295
994
Total Noncontrolling Interests
203,737
203,300
Total equity
11,179,624
11,289,128
Total liabilities and equity
See accompanying notes
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per share data)
Six Months Ended June 30,
Quarter Ended June 30,
REVENUES
Rental income
1,464,981
1,422,397
734,163
717,309
EXPENSES
Property and maintenance
261,128
262,350
126,498
124,771
Real estate taxes and insurance
214,498
209,749
105,571
103,080
Property management
68,969
62,145
33,511
30,679
General and administrative
34,351
35,041
18,631
18,876
Depreciation
450,093
437,185
224,398
221,355
Total expenses
1,029,039
1,006,470
508,609
498,761
Net gain (loss) on sales of real estate properties
227,994
100,122
39,809
(87
Interest and other income
10,657
3,669
1,328
2,131
Other expenses
(45,123
(15,559
(13,385
(6,564
Interest:
Expense incurred, net
(133,040
(131,991
(65,828
(65,590
Amortization of deferred financing costs
(3,836
(3,996
(1,918
(2,017
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels
492,594
368,172
185,560
146,421
Income and other tax (expense) benefit
(635
(634
(331
(336
Income (loss) from investments in unconsolidated entities
(3,372
(2,605
(1,674
(1,223
Net income
488,587
364,933
183,555
144,862
Net (income) loss attributable to Noncontrolling Interests:
(13,278
(11,613
(5,003
(4,554
(2,039
(2,082
(1,069
(1,105
Net income attributable to controlling interests
473,270
351,238
177,483
139,203
Preferred distributions
(902
(1,545
(355
(773
Premium on redemption of Preferred Shares
(1,444
—
Net income available to Common Shares
470,924
349,693
177,128
138,430
Earnings per share – basic:
1.24
0.92
0.47
0.37
Weighted average Common Shares outstanding
378,699
378,492
378,578
378,642
Earnings per share – diluted:
390,548
391,063
390,542
391,187
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 period
4,054
13,834
Losses reclassified into earnings from other comprehensive income
1,210
2,201
600
1,106
Other comprehensive income (loss)
6,255
14,940
Comprehensive income
489,797
371,188
184,155
159,802
Comprehensive (income) attributable to Noncontrolling Interests
(15,350
(13,890
(6,088
(6,135
Comprehensive income attributable to controlling interests
474,447
357,298
178,067
153,667
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
3,836
3,996
Amortization of discounts and premiums on debt
2,536
1,740
Amortization of deferred settlements on derivative instruments
1,204
2,195
Amortization of right-of-use assets
6,470
6,357
Write-off of pursuit costs
1,369
1,993
(Income) loss from investments in unconsolidated entities
3,372
2,605
Distributions from unconsolidated entities – return on capital
281
290
Net (gain) loss on sales of real estate properties
(227,994
(100,122
Realized (gain) loss on investment securities
1,316
87
Unrealized (gain) loss on investment securities
(5,745
Compensation paid with Company Common Shares
21,350
20,845
Changes in assets and liabilities:
(Increase) decrease in other assets
30,297
(13,258
Increase (decrease) in accounts payable and accrued expenses
18,780
25,424
Increase (decrease) in accrued interest payable
(131
(72
Increase (decrease) in lease liabilities
(1,020
(658
Increase (decrease) in other liabilities
22,697
(8,047
Increase (decrease) in security deposits
670
487
Net cash provided by operating activities
817,968
745,980
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions
(63,507
(186,676
Investment in real estate – development/other
(55,253
(46,815
Capital expenditures to real estate
(153,304
(135,247
Non-real estate capital additions
(921
(1,043
Interest capitalized for real estate and unconsolidated entities under development
(6,894
(6,979
Proceeds from disposition of real estate, net
330,128
133,916
Investments in unconsolidated entities – acquisitions
(31,286
(989
Investments in unconsolidated entities – development/other
(28,793
(25,413
Distributions from unconsolidated entities – return of capital
15
Purchase of investment securities and other investments
(2,500
Proceeds from sale of investment securities
7,457
452
Net cash provided by (used for) investing activities
(2,357
(271,279
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage notes payable, net:
Proceeds
22,896
Lump sum payoffs
(64,722
Scheduled principal repayments
(54
Line of credit and commercial paper:
Commercial paper proceeds
3,532,753
2,382,619
Commercial paper repayments
(3,771,000
(2,328,100
Finance ground lease principal payments
(1,438
(1,329
Proceeds from Employee Share Purchase Plan (ESPP)
2,449
2,124
Proceeds from exercise of options
6,480
11,358
Common Shares repurchased and retired
(38,474
Redemption of Preferred Shares
(20,125
Other financing activities, net
(45
(31
Acquisition of Noncontrolling Interests – Partially Owned Properties
(3,737
Contributions – Noncontrolling Interests – Partially Owned Properties
458
9
Contributions – Noncontrolling Interests – Operating Partnership
Distributions:
Common Shares
(507,111
(487,483
Preferred Shares
(1,320
(2,319
Noncontrolling Interests – Operating Partnership
(15,629
(15,233
Noncontrolling Interests – Partially Owned Properties
(2,741
(3,230
Net cash provided by (used for) financing activities
(817,185
(487,231
Net increase (decrease) in cash and cash equivalents and restricted deposits
(1,574
(12,530
Cash and cash equivalents and restricted deposits, beginning of period
139,995
137,172
Cash and cash equivalents and restricted deposits, end of period
138,421
124,642
35,701
88,941
Total cash and cash equivalents and restricted deposits, end of period
6
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized
120,955
125,518
Net cash paid (received) for income and other taxes
877
911
Amortization of deferred financing costs:
(211
1,392
524
895
1,920
Amortization of discounts and premiums on debt:
1,412
616
1,124
Amortization of deferred settlements on derivative instruments:
(6
Accumulated other comprehensive income
Write-off of pursuit costs:
319
316
866
1,111
184
566
(Income) loss from investments in unconsolidated entities:
2,736
1,972
636
633
Realized/unrealized (gain) loss on derivative instruments:
(3,359
(695
Interest capitalized for real estate and unconsolidated entities under development:
(2,592
(2,988
(4,302
(3,991
Investments in unconsolidated entities – development/other:
(28,133
(24,633
(660
(780
Right-of-use assets and lease liabilities initial measurement and reclassifications:
(7,105
7,105
Non-cash share distribution and other transfers from unconsolidated entities:
539
(539
Non-cash change in Supplemental Executive Retirement Plan (SERP) balances:
3,437
3,110
(2,839
(3,258
(598
148
7
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
SHAREHOLDERS’ EQUITY
PREFERRED SHARES
Balance, beginning of period
Partial redemption of 8.29% Series K Cumulative Redeemable
Balance, end of period
COMMON SHARES, $0.01 PAR VALUE
3,784
3,789
Conversion of OP Units into Common Shares
Exercise of share options
Employee Share Purchase Plan (ESPP)
(7
Share-based employee compensation expense:
Restricted shares
3,790
PAID IN CAPITAL
9,476,085
9,603,743
9,488,320
Common Share Issuance:
5,047
4,657
4,793
986
6,479
11,356
2,079
3,246
2,448
804
672
9,381
7,943
4,887
4,290
Share options
2,507
3,125
1,218
1,628
ESPP discount
501
398
205
138
Supplemental Executive Retirement Plan (SERP)
(371
(343
(900
Change in market value of Redeemable Noncontrolling Interests – Operating Partnership
(39,058
(39,123
(30,243
(33,177
Adjustment for Noncontrolling Interests ownership in Operating Partnership
1,532
6,815
2,990
7,768
9,472,628
RETAINED EARNINGS
1,658,837
1,436,671
1,619,131
Common Share distributions
(511,720
(502,070
(255,877
(251,101
Preferred Share distributions
Premium on redemption of Preferred Shares – cash charge
(38,467
1,506,460
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(2,547
6,314
(11,232
Accumulated other comprehensive income (loss) – derivative instruments:
3,708
DISTRIBUTIONS
Distributions declared per Common Share outstanding
1.35
1.325
0.675
0.6625
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
NONCONTROLLING INTERESTS
OPERATING PARTNERSHIP
209,961
207,272
211,718
Issuance of restricted units to Noncontrolling Interests
Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner
(5,048
(4,659
(4,794
(986
Equity compensation associated with Noncontrolling Interests
10,236
10,867
6,149
6,213
Net income attributable to Noncontrolling Interests
13,278
11,613
5,003
4,554
Distributions to Noncontrolling Interests
(15,875
(15,640
(7,429
(7,736
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership
665
2,077
821
1,409
(1,532
(6,815
(2,990
(7,768
207,405
PARTIALLY OWNED PROPERTIES
(721
(1,131
(2,553
2,039
2,082
1,069
1,105
Contributions by Noncontrolling Interests
223
(2,786
(3,261
(456
(452
(2,837
Other
(1,000
(4,728
LIABILITIES AND CAPITAL
Redeemable Limited Partners
Capital:
Partners’ Capital:
Preference Units
General Partner
10,951,818
11,042,844
Limited Partners
Total partners’ capital
11,179,919
11,288,134
Total capital
Total liabilities and capital
(Amounts in thousands except per Unit data)
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties
486,548
362,851
182,486
143,757
ALLOCATION OF NET INCOME:
902
1,545
355
773
Premium on redemption of Preference Units
1,444
Net income available to Units
484,202
361,306
182,131
142,984
Earnings per Unit – basic:
Weighted average Units outstanding
389,380
389,942
389,271
390,032
Earnings per Unit – diluted:
Comprehensive (income) attributable to Noncontrolling Interests – Partially Owned Properties
487,758
369,106
183,086
158,697
12
Proceeds from EQR’s Employee Share Purchase Plan (ESPP)
Proceeds from exercise of EQR options
OP Units repurchased and retired
Redemption of Preference Units
Contributions – Limited Partners
OP Units – General Partner
OP Units – Limited Partners
14
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
PARTNERS’ CAPITAL
PREFERENCE UNITS
GENERAL PARTNER
11,138,706
11,044,203
11,111,240
OP Unit Issuance:
Conversion of OP Units held by Limited Partners into OP Units held by General Partner
5,048
4,659
4,794
Exercise of EQR share options
EQR’s Employee Share Purchase Plan (ESPP)
805
EQR restricted shares
9,383
7,945
4,291
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
10,982,878
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
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (Continued)
NONCONTROLLING INTERESTS – PARTIALLY OWNED PROPERTIES
17
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.
EQR is the general partner of, and as of June 30, 2024 owned an approximate 97.0% 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.
As of June 30, 2024, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 299 properties located in 10 states and the District of Columbia consisting of 79,738 apartment units. The ownership breakdown includes (table does not include any uncompleted development properties):
Properties
Apartment Units
Wholly Owned Properties
284
76,469
Partially Owned Properties – Consolidated
3,060
Partially Owned Properties – Unconsolidated
209
299
79,738
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
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.
The balance sheets at December 31, 2023 have been derived from the audited financial statements at that date but do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
For further information, including definitions of capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.
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 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 taxes. The Company has elected taxable REIT subsidiary (“TRS”) status for certain of its corporate subsidiaries and, as a result, these entities will incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating losses.
Recent Accounting Pronouncements
In March 2024, the Securities and Exchange Commission ("SEC") adopted final rules that will require certain climate-related information in registration statements and annual reports. In April 2024, the SEC voluntarily stayed the new rules as a result of pending legal challenges. The new rules include a requirement to disclose material climate-related risks, descriptions of board and management oversight and risk management activities, the material impacts of these risks on a registrant’s strategy, business model and outlook, and any material climate-related targets or goals, as well as material effects and costs of severe weather events and other natural conditions and greenhouse gas emissions. Prior to the stay of the new rules, they would have been effective for annual periods beginning January 1, 2025, except for the greenhouse gas emissions disclosures, which would have been effective for annual periods beginning January 1, 2026. The Company is currently evaluating the impact of the new rules on its disclosures.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued an amendment to the income tax standards which requires disclosure enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. The new standard will be effective for annual periods beginning January 1, 2025 and will be applied on a prospective basis with the option to apply the standard retrospectively. The Company is currently evaluating the impact of adopting the standard on its consolidated results of operations and financial position.
In November 2023, the FASB issued an amendment to the segment reporting standards which requires disclosure for each reportable segment, on an interim and annual basis, the significant expense categories and amounts that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss. Additionally, it requires disclosure of the title and position of the individual or the name of the group or committee identified as the chief operating decision maker. The new standard will be effective for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025 on a retrospective basis. The Company is currently evaluating the impact of adopting the standard on its consolidated results of operations and financial position.
In March 2020, the FASB issued an amendment to the reference rate reform standard which provides the option for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on contract modifications and hedge accounting. 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 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.
19
The following table presents the changes in the Company’s issued and outstanding Common Shares and Units for the six months ended June 30, 2024 and 2023:
Common Shares outstanding at January 1,
379,291,417
378,429,708
Common Shares Issued:
Conversion of OP Units
90,131
180,629
119,516
232,317
47,466
40,346
Restricted share grants, net
190,804
149,722
Common Shares Other:
Repurchased and retired
(652,452
Common Shares outstanding at June 30,
379,086,882
379,032,722
Units
Units outstanding at January 1,
11,581,306
12,429,737
Restricted unit grants, net
172,667
166,344
Conversion of OP Units to Common Shares
(90,131
(180,629
Units outstanding at June 30,
11,663,842
12,415,452
Total Common Shares and Units outstanding at June 30,
390,750,724
391,448,174
Units Ownership Interest in Operating Partnership
3.0
%
3.2
The following table presents the changes in the Operating Partnership’s issued and outstanding General Partner Units and Limited Partner Units for the six months ended June 30, 2024 and 2023:
General and Limited Partner Units
General and Limited Partner Units outstanding at January 1,
390,872,723
390,859,445
Issued to General Partner:
EQR’s restricted share grants, net
Issued to Limited Partners:
General Partner Other:
General and Limited Partner Units outstanding at June 30,
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 June 30,
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.
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.
20
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 June 30, 2024 and December 31, 2023.
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 June 30, 2024 and 2023, the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners have a redemption value of approximately $327.6 million and $355.3 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 six months ended June 30, 2024 and 2023, respectively (amounts in thousands):
Balance at January 1,
318,273
Change in market value
39,058
39,123
Change in carrying value
(665
(2,077
Balance at June 30,
355,319
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.
The following table presents the Company’s issued and outstanding Preferred Shares/Preference Units as of June 30, 2024 and December 31, 2023:
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; 343,100 shares/units issued and outstanding as of June 30, 2024 and 745,600 shares/units issued and outstanding as of December 31, 2023 (3)
12/10/2026
4.145
21
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 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. The current program matures in May 2025 and gives us the authority to issue up to 13.0 million shares, all of which remain available for issuance as of June 30, 2024.
During the six months ended June 30, 2024, the Company repurchased and subsequently retired approximately $38.5 million (652,452 shares at a weighted average price per share of $58.95) of its Common Shares in the open market under its share repurchase program. Concurrent with these transactions, ERPOP repurchased and retired the same amount of OP Units previously issued to EQR. Prior to the share repurchase activity during the six months ended June 30, 2024, the Company had the authority to repurchase up to 13.0 million Common Shares under its share repurchase program, of which 12,347,548 shares remain authorized to repurchase as of June 30, 2024.
The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of June 30, 2024 and December 31, 2023 (amounts in thousands):
June 30, 2024
December 31, 2023
Depreciable property:
Buildings and improvements
19,789,495
19,809,432
Furniture, fixtures and equipment
2,698,109
2,609,600
In-Place lease intangibles
516,773
519,394
Projects under development:
40,049
3,201
Construction-in-progress
148,234
74,835
Land held for development:
46,160
82,026
18,621
32,274
During the six months ended June 30, 2024, the Company acquired the following from unaffiliated parties (purchase price and purchase price allocation in thousands):
Purchase Price Allocation (1)
Purchase Price
Depreciable Property
Rental Properties – Consolidated
160
62,595
6,593
56,077
22
During the six months ended June 30, 2024, the Company disposed of the following to unaffiliated parties (sales price and net gain in thousands):
Sales Price
Net Gain
831
334,000
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 Variable Interest Entities (“VIEs”)
In accordance with accounting standards for consolidation of VIEs, the Company consolidates ERPOP on EQR’s financial statements. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management. The limited partners are not able to exercise substantive kick-out or participating rights. As a result, ERPOP qualifies as a VIE. EQR has a controlling financial interest in ERPOP and, thus, is ERPOP’s primary beneficiary. EQR has the power to direct the activities of ERPOP that most significantly impact ERPOP’s economic performance as well as the obligation to absorb losses or the right to receive benefits from ERPOP that could potentially be significant to ERPOP.
The Company has various equity interests in certain joint ventures 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 June 30, 2024:
Operating Properties (1)
Projects Under Development (2)
Projects
Apartment Units (3)
Consolidated Joint Ventures (VIE)
440
The following table provides consolidated assets and liabilities related to the Company's VIEs as of June 30, 2024 and December 31, 2023 (amounts in thousands):
Consolidated Assets
618,439
599,788
Consolidated Liabilities
47,558
41,153
Investments in Unconsolidated Entities
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 June 30, 2024 and December 31, 2023 (amounts in thousands except for ownership percentage):
Ownership Percentage
Investments in Unconsolidated Entities:
Various Real Estate Holdings (VIE)
35,123
35,421
Varies
Projects Under Development and Land Held for Development (VIE)
279,847
220,192
62% - 95% (1)
Real Estate Technology Funds/Companies (VIE)
27,151
26,691
(250
(255
23
The following table summarizes the Company’s unconsolidated joint ventures that were deemed to be VIEs as of June 30, 2024:
Operating Properties
Real Estate Holdings (1)
Projects Under Development (2), (5)
Projects Held for Development (2), (3)
Entities
Apartment Units (4)
Unconsolidated Joint Ventures (VIE)
1,773
1,164
The following table presents the Company’s restricted deposits as of June 30, 2024 and December 31, 2023 (amounts in thousands):
Mortgage escrow deposits:
694
307
Mortgage principal reserves/sinking funds
33,266
29,270
Mortgage escrow deposits
33,960
29,577
Restricted cash:
Earnest money on pending acquisitions
4,000
Restricted deposits on real estate investments
2,228
2,181
Resident security and utility deposits
41,190
40,149
Replacement reserves
16,880
15,571
1,865
1,250
Restricted cash
66,163
59,675
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.
24
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 six months ended June 30, 2024 and 2023 (amounts in thousands):
Six Months Ended June 30, 2024
Six Months Ended June 30, 2023
Income Type
Residential Leases
Non-Residential Leases
Total
Residential and non-residential rent
1,308,397
33,710
1,342,107
1,276,338
31,973
1,308,311
Utility recoveries (RUBS income) (1)
45,456
435
45,891
42,786
419
43,205
Parking rent
23,035
23,668
21,893
225
22,118
Other lease revenue (2)
(10,732
(481
(11,213
(13,420
734
(12,686
Total lease revenue
1,366,156
34,297
1,400,453
1,327,597
33,351
1,360,948
Parking revenue
21,715
20,395
Other revenue
42,813
41,054
Total other rental income (3)
64,528
61,449
The following table presents the lease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the quarters ended June 30, 2024 and 2023 (amounts in thousands):
Quarter Ended June 30, 2024
Quarter Ended June 30, 2023
656,036
14,887
670,923
641,586
15,987
657,573
22,787
208
22,995
21,403
212
21,615
11,611
413
12,024
11,011
116
11,127
(4,787
(389
(5,176
(5,831
65
(5,766
685,647
15,119
700,766
668,169
16,380
684,549
11,037
10,192
22,360
22,568
33,397
32,760
The following table presents residential accounts receivable and straight-line receivable balances for the Company’s properties as of June 30, 2024 and December 31, 2023 (amounts in thousands):
Balance Sheet (Other assets):
Residential accounts receivable balances
16,657
21,477
Allowance for doubtful accounts
(11,380
(15,846
Net receivable balances
5,277
5,631
Straight-line receivable balances
7,893
9,183
25
The following table presents residential bad debt for the Company’s properties for the six months and quarters ended June 30, 2024 and 2023 (amounts in thousands):
Income Statement (Rental income):
Bad debt, net (1)
17,139
19,820
7,924
9,065
% of residential rental income
1.2
1.4
1.1
1.3
EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. Weighted average interest rates noted below for the six months ended June 30, 2024 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 table summarizes the Company’s mortgage notes payable activity for the six months ended June 30, 2024 (amounts in thousands):
Mortgage notes payable, net as of December 31, 2023
Amortization of premiums/discounts
Amortization of deferred financing costs, net (1)
Mortgage notes payable, net as of June 30, 2024
Fixed Rate Debt:
Secured – Conventional
1,398,598
792
454
1,399,844
Floating Rate Debt:
Secured – Tax Exempt
234,304
620
70
234,994
The following table summarizes certain interest rate and maturity date information as of and for the six months ended June 30, 2024:
Interest Rate Ranges (ending)
0.10% - 5.25%
Weighted Average Interest Rate
3.86%
Maturity Date Ranges
2029-2061
As of June 30, 2024, the Company had $246.7 million of secured tax-exempt bonds subject to third-party credit enhancement.
Notes
The following table summarizes the Company’s notes activity for the six months ended June 30, 2024 (amounts in thousands):
Notes, net as of December 31, 2023
Notes, net as of June 30, 2024
Unsecured – Public
26
1.85% - 7.57%
3.52%
2025-2047
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 the six months ended June 30, 2024.
Line of Credit and Commercial Paper
The Company has a $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 0.715%), 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 and other terms and conditions per the agreement. The Company did not borrow any amounts under its revolving credit facility during the six months ended June 30, 2024.
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 amount outstanding information for the commercial paper program as of and for the six months ended June 30, 2024:
Weighted Average Interest Rate (1)
5.59%
Weighted Average Maturity (in days)
Weighted Average Amount Outstanding
$300.1 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 June 30, 2024 (amounts in thousands):
Unsecured revolving credit facility commitment
2,500,000
Commercial paper balance outstanding
(171,000
Unsecured revolving credit facility balance outstanding
Other restricted amounts
(3,438
Unsecured revolving credit facility availability
2,325,562
27
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.
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 following table summarizes the inputs to the valuations for each type of fair value measurement:
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.
Derivatives
Readily observable market parameters such as forward yield curves and credit default swap data.
The fair values of the Company’s financial instruments (other than the items listed above and the investments disclosed below) 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 June 30, 2024 and December 31, 2023, respectively (amounts in thousands):
Carrying Value
Estimated FairValue (Level 2)
1,490,171
1,509,706
Unsecured debt, net
5,522,345
5,015,807
5,757,548
5,346,488
Total debt, net
7,157,183
6,505,978
7,390,450
6,856,194
28
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 June 30, 2024 and December 31, 2023, respectively (amounts in thousands):
Fair Value Measurements at Reporting Date Using
Description
Balance SheetLocation
6/30/2024
Quoted Prices inActive Markets forIdentical Assets/Liabilities(Level 1)
Significant OtherObservable Inputs(Level 2)
SignificantUnobservable Inputs(Level 3)
Assets
Supplemental Executive Retirement Plan
Other Assets
105,041
Liabilities
Other Liabilities
Redeemable Noncontrolling Interests –
Operating Partnership/Redeemable
Mezzanine
12/31/2023
Significant Other Observable Inputs (Level 2)
Significant UnobservableInputs(Level 3)
108,478
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 six months ended June 30, 2024 and 2023, respectively (amounts in thousands):
June 30, 2024Type 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
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Forward Starting Swaps
Interest expense
(1,210
June 30, 2023Type of Cash Flow Hedge
Amount of Gain/(Loss) Recognized in OCI on Derivative
(2,201
29
As of June 30, 2024 and December 31, 2023, there were approximately $6.9 million and $5.7 million in deferred gains, net, included in accumulated other comprehensive income (loss), respectively, related to previously settled and/or unsettled derivative instruments, of which an estimated $1.8 million may be recognized as additional interest expense during the twelve months ending June 30, 2025.
The Company has invested in various equity securities without readily determinable fair values and has elected to measure them using the measurement alternative in accordance with the applicable accounting standards for equity securities. These investments are carried at cost less any impairment and adjusted to fair value if there are observable price changes for an identical or similar investment of the same issuer.
The following table summarizes the Company’s real estate technology investment securities included in other assets as of June 30, 2024 and December 31, 2023 (amounts in thousands):
Real Estate Technology Investments
16,284
19,312
During the six months ended June 30, 2024, the Company sold a portion of one of these investment securities for proceeds of approximately $7.5 million and realized a loss on sale of approximately $1.3 million, which is included in interest and other income in the consolidated statements of operations. During the six months ended June 30, 2024, the Company adjusted certain of these investment securities to observable market prices and recorded a net unrealized gain of approximately $5.7 million, which is included in interest and other income in the consolidated statements of operations.
Equity Residential
The following tables set forth the computation of net income per share – basic and net income per share – diluted for the Company (amounts in thousands except per share amounts):
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
10,681
11,450
10,693
11,390
Long-term compensation shares/units
1,168
1,121
1,271
1,155
Denominator for net income per share – diluted
Net income per share – basic
Net income per share – diluted
30
ERP Operating Limited Partnership
The following tables set forth the computation of net income per Unit – basic and net income per Unit – diluted for the Operating Partnership (amounts in thousands except per Unit amounts):
Numerator for net income per Unit – basic and diluted:
Allocation to Preference Units
Allocation to premium on redemption of 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
Commitments
Real Estate Development Commitments
As of June 30, 2024, 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 June 30, 2024 (total project costs remaining in thousands):
Total Project Costs Remaining (1)
Projects Under Development
Consolidated
196,510
Unconsolidated
56,154
Total Projects Under Development
2,438
252,664
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 5 for additional discussion.
Other Commitments
We have entered into, and may continue in the future to enter into, real estate technology and other real estate fund investments. As of June 30, 2024, the Company has invested in ten separate such investments totaling $40.5 million with aggregate remaining commitments of approximately $17.5 million.
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
31
changed laws or regulations on its current properties or on properties that it may acquire in the future.
The Company is involved in various pending and threatened legal proceedings which arise in the ordinary course of business. The Company evaluates these litigation matters on an ongoing basis, but in no event less than quarterly, in assessing the adequacy of its accruals and disclosures. For legal proceedings in which it has been determined that a loss is both probable and reasonably estimable, the Company records new accruals and/or adjusts existing accruals that represent its best estimate of the loss incurred based on the facts and circumstances known at that time. As of June 30, 2024 and December 31, 2023, the Company’s litigation accruals approximated $50.0 million and $17.1 million, respectively, and are included in other liabilities in the consolidated balance sheets. Actual losses may differ materially from the amounts noted above and the ultimate outcome of these legal proceedings is generally not yet determinable. As of June 30, 2024 and December 31, 2023, the Company does not believe there is any litigation pending or threatened against it that, either individually or in the aggregate and inclusive of the matters accrued for as noted above, may reasonably be expected to have a material adverse effect on the Company and its financial condition.
The Company has been named as a defendant in a number of cases filed in late 2022 and 2023 alleging antitrust violations by RealPage, Inc., a seller of revenue management software products, and various owners and/or operators of multifamily housing, including us, that have utilized these products. The complaints allege collusion among the defendants to illegally fix and inflate the pricing of multifamily rents and seek monetary damages, injunctive relief, fees and costs. All of the cases except for one have been consolidated into a single putative class action in the United States District Court for the Middle District of Tennessee. On December 28, 2023, motions to dismiss this consolidated action, filed by RealPage, Inc. as well as us and our multifamily co-defendants, were denied by the Court and the case is proceeding. Another case with similar allegations has been filed by the District of Columbia against RealPage, Inc. and a number of multifamily owners and/or operators, including us. We believe these various lawsuits are without merit and we intend to vigorously defend against them. As these proceedings are in the early stages, it is not possible for the Company to predict the outcome nor is it possible to estimate the amount of loss, if any, which may be associated with an adverse decision in any of these cases.
The Company is named as a defendant in a class action in the United States District Court for the Northern District of California filed in 2016 which alleges that the amount of late fees charged by the Company were improperly determined under California law. The plaintiffs are seeking monetary damages and other relief. On April 8, 2024, the Court issued certain findings of facts and conclusions of law that are adverse to the Company’s legal position. At this time, the Company is continuing to defend the action. While the resolution of this matter cannot be predicted with certainty, the Company does not believe that the eventual outcome will have a material adverse effect on the Company and its financial condition.
Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses and about which discrete financial information is available that is evaluated regularly by the chief operating decision maker. The chief operating decision maker decides how resources are allocated and assesses performance on a recurring basis at least quarterly.
The Company’s primary business is the acquisition, development and management of multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to residents. The chief operating decision maker evaluates the Company’s operating performance geographically by market and both on a same store and non-same store basis. While the Company does maintain a non-residential presence, it accounts for less than 4.0% of total revenues for the six months ended June 30, 2024 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 six months and quarters ended June 30, 2024 and 2023, 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.
32
The following table presents a reconciliation of net income per the consolidated statements of operations to NOI for the six months and quarters ended June 30, 2024 and 2023, respectively (amounts in thousands):
Adjustments:
(39,809
(10,657
(3,669
(1,328
(2,131
45,123
15,559
13,385
6,564
133,040
131,991
65,828
65,590
1,918
2,017
Income and other tax expense (benefit)
635
634
331
336
1,674
1,223
Total NOI
989,355
950,298
502,094
489,458
The following tables present NOI from our rental real estate for each segment for the six months and quarters ended June 30, 2024 and 2023, respectively, as well as total assets and capital expenditures at June 30, 2024 (amounts in thousands):
Rental Income
Operating Expenses
NOI
Same store (1)
Los Angeles
239,386
73,603
165,783
229,783
72,575
157,208
Orange County
62,272
13,865
48,407
59,417
13,396
46,021
San Diego
51,815
11,659
40,156
48,925
11,550
37,375
Subtotal - Southern California
353,473
99,127
254,346
338,125
97,521
240,604
Washington, D.C.
231,584
72,407
159,177
220,318
72,109
148,209
San Francisco
217,043
65,700
151,343
213,502
65,735
147,767
New York
246,136
101,320
144,816
237,830
97,137
140,693
Boston
162,532
46,726
115,806
155,729
46,197
109,532
Seattle
148,624
43,291
105,333
145,796
41,172
104,624
Denver
35,810
10,667
25,143
35,469
10,685
24,784
Other Expansion Markets
37,363
16,199
21,164
37,088
16,165
20,923
Total same store
1,432,565
455,437
977,128
1,383,857
446,721
937,136
Non-same store/other
Non-same store (2)
27,547
12,418
15,129
12,400
6,509
5,891
Other (3)
4,869
7,771
(2,902
26,140
18,869
7,271
Total non-same store/other
32,416
20,189
12,227
38,540
25,378
13,162
Totals
475,626
472,099
33
120,119
35,778
84,341
116,295
35,264
81,031
31,171
6,937
24,234
30,045
6,703
23,342
25,991
5,780
20,211
24,691
5,736
18,955
177,281
48,495
128,786
171,031
47,703
123,328
116,465
36,342
80,123
111,220
35,472
75,748
108,731
31,263
77,468
107,288
31,893
75,395
122,172
50,045
72,127
119,785
47,649
72,136
82,081
22,988
59,093
78,851
22,034
56,817
74,792
22,013
52,779
73,018
20,951
52,067
18,002
5,221
12,781
17,873
5,211
12,662
18,645
8,158
10,487
18,718
10,950
718,169
224,525
493,644
697,784
218,681
479,103
14,599
6,297
8,302
7,497
3,744
3,753
1,395
1,247
12,028
5,426
6,602
15,994
7,544
8,450
19,525
9,170
10,355
232,069
227,851
Total Assets
Capital Expenditures
2,455,957
24,700
335,826
8,702
336,372
8,283
3,128,155
41,685
3,029,979
22,162
3,018,760
28,267
3,240,380
12,363
2,051,119
12,924
2,043,317
16,325
807,719
2,156
880,531
3,805
18,199,960
139,687
756,305
13,153
823,303
464
1,579,608
13,617
153,304
34
Subsequent to June 30, 2024, the Company:
644
216,750
35
For further information including definitions for capitalized terms not defined herein, refer to the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.
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 the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023, 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.
Overview
Equity Residential (“EQR”) is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of 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.
The Company’s corporate headquarters is located in Chicago, Illinois and the Company also operates regional property management offices in most of its markets.
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
The Company’s and the Operating Partnership’s overall business objectives and operating and investing strategies have not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.
Results of Operations
2024 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 six months ended June 30, 2024:
Portfolio Rollforward
($ in thousands)
ApartmentUnits
PurchasePrice
AcquisitionCap Rate
302
80,191
Acquisitions:
Consolidated Rental Properties – Not Stabilized
5.7
Unconsolidated Land Parcels
33,394
DispositionYield
Dispositions:
Consolidated Rental Properties
(5
(831
(334,000
(5.7
%)
Completed Developments – Unconsolidated
Configuration Changes
Acquisitions
Dispositions
Developments
See Notes 4 and 5 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate investments and investments in partially owned entities.
37
Comparison of the six months and quarter ended June 30, 2024 to the six months and quarter ended June 30, 2023
The following table presents a reconciliation of diluted earnings per share/unit for the six months and quarter ended June 30, 2024 as compared to the same periods in 2023:
Six Months EndedJune 30
Quarter EndedJune 30
Diluted earnings per share/unit for period ended 2023
Property NOI
0.09
0.03
Corporate overhead (1)
(0.02
(0.01
Net gain/loss on property sales
0.34
0.10
Depreciation expense
(0.04
(0.05
Diluted earnings per share/unit for period ended 2024
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 net 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):
$Change
%Change
123,654
33.9
38,693
26.7
6,824
11.0
2,832
9.2
(690
(2.0
)%
(245
(1.3
12,908
3,043
(127,872
127.7
(39,896
(6,988
190.5
803
(37.7
29,564
190.0
6,821
103.9
1,049
0.8
238
0.4
(160
(4.0
(99
(4.9
0.2
(1.5
767
29.4
451
36.9
39,057
4.1
12,636
2.6
Rental income:
Same store
48,708
3.5
20,385
2.9
(6,124
(15.9
(3,531
(18.1
Total rental income
42,584
16,854
2.3
Operating expenses:
8,716
2.0
5,844
2.7
(5,189
(20.4
(1,626
(17.7
Total operating expenses
3,527
0.7
4,218
1.9
NOI:
39,992
4.3
14,541
(935
(7.1
(1,905
(18.4
Note: See Note 12 in the Notes to Consolidated Financial Statements for detail by reportable segment/market.
38
See the Same Store Results section below for additional discussion of those results. See the reconciliation table of net income per the consolidated statements of operations to NOI above for the dollar and percentage changes related to the comparison discussions provided below.
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. The increases during the six months and quarter ended June 30, 2024 as compared to the prior year periods are primarily attributable to increases in payroll-related costs and information technology expenses.
General and administrative expenses, which include corporate operating expenses, decreased during the six months and quarter ended June 30, 2024 as compared to the prior year periods, primarily due to decreases in payroll-related costs.
Depreciation expense, which includes depreciation on non-real estate assets, increased during the six months and quarter ended June 30, 2024 as compared to the prior year periods, primarily as a result of additional depreciation expense on properties acquired in 2023 and 2024 and development properties placed in service during 2023 and 2024, partially offset by lower depreciation from properties sold in 2023 and 2024.
Net gain on sales of real estate properties increased during the six months ended June 30, 2024 as compared to the prior year period, primarily as a result of the sale of five consolidated apartment properties for a higher gain in 2024 as compared to the sale of seven consolidated apartment properties in the same period in 2023. Net gain on sales of real estate properties increased during the quarter ended June 30, 2024 as compared to the prior year period, primarily as a result of the sale of two consolidated apartment properties in the second quarter of 2024 as compared to no consolidated property sales in the same period in 2023.
Interest and other income increased during the six months ended June 30, 2024 as compared to the prior year period, primarily due to a net increase in realized/unrealized gains of $4.5 million on various investment securities as well as short-term investment income on restricted deposit accounts due to a higher rate environment and higher overall invested balances. Interest and other income decreased during the quarter ended June 30, 2024 as compared to the prior year period, primarily due to an increase in realized/unrealized losses of $2.6 million on various investment securities, partially offset by increases of $1.3 million in insurance/litigation settlement proceeds received during 2024 as compared to 2023.
Other expenses increased during the six months and quarter ended June 30, 2024 as compared to the prior year periods, primarily due to increases in litigation accruals and advocacy contributions, partially offset by decreases in data transformation project costs that occurred during 2023 but not during 2024.
Interest expense, including amortization of deferred financing costs, increased during the six months and quarter ended June 30, 2024 as compared to the prior year periods, primarily due to higher rates on floating debt. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the six months ended June 30, 2024 was 3.89% as compared to 3.81% for the prior year period, and for the quarter ended June 30, 2024 was 3.88% as compared to 3.75% for the prior year period. The Company capitalized interest of approximately $6.9 million and $7.0 million during the six months ended June 30, 2024 and 2023, respectively, and $3.8 million and $3.6 million during the quarters ended June 30, 2024 and 2023, respectively.
Loss from investments in unconsolidated entities increased during the six months and quarter ended June 30, 2024 as compared to the prior year periods, primarily as a result of losses incurred on our unconsolidated development properties which recently started lease-up activities.
39
Same Store Results
Properties that the Company owned and were stabilized for all of both of the six months ended June 30, 2024 and 2023 (the “Six-Month 2024 Same Store Properties”), which represented 77,054 apartment units, drove the Company’s results of operations. Properties are considered “stabilized” when they have achieved 90% occupancy for three consecutive months.
The following table provides results and statistics related to our Residential same store operations for the six months ended June 30, 2024 and 2023:
June YTD 2024 vs. June YTD 2023
Same Store Residential Results/Statistics by Market
Increase (Decrease) from Prior Year
Markets/Metro Areas
June YTD 24 % of Actual NOI
June YTD 24 Average Rental Rate
June YTD 24 Weighted Average Physical Occupancy %
June YTD 24 Turnover
AverageRental Rate
PhysicalOccupancy
Turnover
14,135
17.5
2,927
95.6
21.3
3.9
(0.1
3,718
5.2
2,907
96.0
18.2
4.9
2,878
3,115
19.6
5.0
0.0
Subtotal – Southern California
20,731
27.0
2,950
95.7
20.5
4.2
0.3
14,554
16.7
2,686
97.0
18.4
4.8
0.5
11,188
15.9
3,308
96.3
21.1
0.6
8,536
14.1
4,601
97.2
16.1
7,077
11.2
3,583
96.2
18.8
(0.8
9,266
10.4
2,587
22.2
(3.3
2,505
2,421
96.5
24.4
(3.8
3,197
2.1
95.3
29.5
(0.5
77,054
100.0
3,093
20.2
Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.2% of total revenues for the six months ended June 30, 2024.
During the six months ended June 30, 2024, the Company had strong performance in its operating business, with healthy demand across all of our markets supported by a continuing solid job market and high employment for our target affluent renter demographic. Supply has also been modest in most of our existing coastal markets yet has been elevated in our expansion markets. As expected, our East Coast markets continue to be our best performers. On the West Coast, Seattle has performed particularly well with significant improvement, while San Francisco has improved but at a more modest pace. Our Southern California markets have shown good demand but with price sensitivity.
The Company continued to make progress in move-out activity related to delinquent residents during the six months ended June 30, 2024. While the eviction process remains challenging, we have made additional progress in reducing delinquencies in our portfolio. We expect this trend to continue through the remainder of 2024.
Overall, the fundamentals of our business are healthy. Long-term, we expect elevated single family home ownership costs, positive household formation trends, manageable competitive new supply in our established coastal markets 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 resilient to economic uncertainty, including elevated inflation, due to higher levels of disposable income and lower relative rent-to-income ratios.
Liquidity and Capital Resources
With approximately $2.3 billion in readily available liquidity, a strong balance sheet, limited near-term debt maturities, very strong credit metrics and ample access to capital markets, the Company believes it is well positioned to meet its future obligations and take advantage of opportunities. See further discussion below.
40
Statements of Cash Flows
The following table sets forth our sources and uses of cash flows for the six months ended June 30, 2024 and 2023 (amounts in thousands):
Cash flows provided by (used for):
Operating activities
Investing activities
Financing activities
The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the six months ended June 30, 2024.
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 six months ended June 30, 2024 as compared to the prior year period, increased by approximately $72.0 million as a direct result of the NOI and other changes discussed above in Results of Operations, as well as the timing of certain real estate tax payments.
Investing Activities
Our investing cash flows are primarily impacted by our transaction activity (acquisitions/dispositions), development spend and capital expenditures. For the six months ended June 30, 2024, key drivers were:
Financing Activities
Our financing cash flows primarily relate to our borrowing activity (debt proceeds or repayment), distributions/dividends to shareholders/unitholders and other Common Share activity. For the six months ended June 30, 2024, 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
41
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 June 30, 2024 and December 31, 2023 (amounts in thousands):
2,086,585
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 0.715%), 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 and other terms and conditions per the agreement. See Note 8 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 July 25, 2024 (amounts in thousands):
July 25, 2024
(574,000
1,922,562
Dividend Policy
The Company declared a dividend/distribution for the first and second quarters of 2024 of $0.675 per share/unit in each quarter, an annualized increase of 2.0% over the amount paid in 2023. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.
Total dividends/distributions paid in July 2024 amounted to $263.7 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended June 30, 2024.
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 $28.8 billion in investment in real estate on the Company’s balance sheet at June 30, 2024, $25.6 billion or 89.1% 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, of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.
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.
42
The Company’s total debt summary schedule as of June 30, 2024 is as follows:
Debt Summary as of June 30, 2024
DebtBalances
% of Total
Secured
22.8
Unsecured
77.2
19.5
74.8
Fixed Rate Debt
6,751,305
94.3
3.3
Unsecured – Revolving Credit Facility
Unsecured – Commercial Paper Program
2.4
Floating Rate Debt
405,878
The Company’s long-term financing and capital needs and sources have not changed materially from the information included in the Company's and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2023.
Critical Accounting Policies and Estimates
The Company’s and the Operating Partnership’s critical accounting policies and estimates have not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.
43
Funds From Operations and Normalized Funds From Operations
The following is the Company’s and the Operating Partnership’s reconciliation of net income to FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units for the six months and quarters ended June 30, 2024 and 2023:
Preferred/preference distributions
Premium on redemption of Preferred Shares/Preference Units
Net income available to Common Shares and Units / Units
Depreciation – Non-real estate additions
(1,897
(2,259
(942
(1,103
Depreciation – Partially Owned Properties
(1,089
(1,055
(547
(510
Depreciation – Unconsolidated Properties
1,452
1,226
1,117
594
FFO available to Common Shares and Units / Units (1) (3) (4)
704,767
696,281
366,348
363,407
661
Debt extinguishment and preferred share/preference unit redemption (gains) losses
47
Non-operating asset (gains) losses
(3,216
1,031
2,890
317
Other miscellaneous items
40,674
11,343
10,083
5,051
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)
745,038
710,695
380,142
369,483
FFO (1) (3)
707,113
697,826
366,703
364,180
Normalized FFO (2) (3)
745,940
712,240
380,497
370,256
•the impact of any expenses relating to non-operating real estate asset impairment;
•pursuit cost write-offs;
•gains and losses from early debt extinguishment and preferred share/preference unit redemptions;
•gains and losses from non-operating assets; and
•other miscellaneous items.
44
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s and the Operating Partnership’s market risk has not changed materially from the amounts and information reported in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.
Effective as of June 30, 2024, 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.
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 second quarter of 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Effective as of June 30, 2024, 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.
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 second quarter of 2024 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
PART II. OTHER INFORMATION
Other than as disclosed below, there have been no changes to the legal proceedings discussed in Part I, Item 3 of the Company's and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2023. As of June 30, 2024, the Company does not believe there is any litigation pending or threatened against it that, either individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company and its financial condition. See Note 11 in the Notes to Consolidated Financial Statements for further discussion.
There have been no material changes to the risk factors that were discussed in Part I, Item 1A of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.
Unregistered Common Shares Issued in the Quarter Ended June 30, 2024 (Equity Residential)
During the quarter ended June 30, 2024, EQR issued 82,164 Common Shares in exchange for 82,164 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.
None.
Not applicable.
During the quarter ended June 30, 2024, no trustee or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
Item 6. Exhibits – See the Exhibit Index.
EXHIBIT INDEX
The exhibits listed below are filed as part of this report. References to exhibits or other filings under the caption “Location” indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. The Commission file numbers for our Exchange Act filings referenced below are 1-12252 (Equity Residential) and 0-24920 (ERP Operating Limited Partnership).
Exhibit
Location
31.1
Equity Residential – Certification of Mark J. Parrell, Chief Executive Officer.
Attached herein.
31.2
Equity Residential – Certification of Robert A. Garechana, Chief Financial Officer.
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 With Embedded Linkbase Documents.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:
August 1, 2024
By:
/s/ Robert A. Garechana
Robert A. Garechana
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Ian S. Kaufman
Ian S. Kaufman
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
ERP OPERATING LIMITED PARTNERSHIP BY: EQUITY RESIDENTIAL
ITS GENERAL PARTNER