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 September 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 October 28, 2024 was 379,429,476.
EXPLANATORY NOTE
This report combines the reports on Form 10-Q for the quarterly period ended September 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 September 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 September 30, 2024 and December 31, 2023
2
Consolidated Statements of Operations and Comprehensive Income for the nine months and quarters ended September 30, 2024 and 2023
3
Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023
5
Consolidated Statements of Changes in Equity for the nine months and quarters ended September 30, 2024 and 2023
9
Financial Statements of ERP Operating Limited Partnership:
11
12
14
Consolidated Statements of Changes in Capital for the nine months and quarters ended September 30, 2024 and 2023
18
Notes to Consolidated Financial Statements of Equity Residential and ERP Operating Limited Partnership
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
Item 3. Quantitative and Qualitative Disclosures about Market Risk
48
Item 4. Controls and Procedures
PART II.
Item 1. Legal Proceedings
49
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)
September 30,
December 31,
2024
2023
ASSETS
Land
$
5,675,037
5,581,876
Depreciable property
24,148,043
22,938,426
Projects under development
222,055
78,036
Land held for development
65,113
114,300
Investment in real estate
30,110,248
28,712,638
Accumulated depreciation
(10,386,783
)
(9,810,337
Investment in real estate, net
19,723,465
18,902,301
Investments in unconsolidated entities
359,810
282,049
Cash and cash equivalents
28,610
50,743
Restricted deposits
97,949
89,252
Right-of-use assets
458,673
457,266
Other assets
257,314
252,953
Total assets
20,925,821
20,034,564
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net
1,633,414
1,632,902
Notes, net
5,945,670
5,348,417
Line of credit and commercial paper
786,561
409,131
Accounts payable and accrued expenses
165,787
87,377
Accrued interest payable
50,633
65,716
Lease liabilities
306,119
311,640
Other liabilities
294,543
272,596
Security deposits
74,350
69,178
Distributions payable
263,425
259,231
Total liabilities
9,520,502
8,456,188
Commitments and contingencies
Redeemable Noncontrolling Interests – Operating Partnership
351,803
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 September 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; 379,354,738 shares issued and outstanding as of September 30, 2024 and 379,291,417 shares issued and outstanding as of December 31, 2023
3,794
3,793
Paid in capital
9,584,539
9,601,866
Retained earnings
1,244,953
1,437,185
Accumulated other comprehensive income (loss)
3,534
5,704
Total shareholders’ equity
10,853,975
11,085,828
Noncontrolling Interests:
Operating Partnership
199,206
202,306
Partially Owned Properties
335
994
Total Noncontrolling Interests
199,541
203,300
Total equity
11,053,516
11,289,128
Total liabilities and equity
See accompanying notes
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per share data)
Nine Months Ended September 30,
Quarter Ended September 30,
REVENUES
Rental income
2,213,329
2,146,464
748,348
724,067
EXPENSES
Property and maintenance
396,349
391,437
135,221
129,087
Real estate taxes and insurance
320,452
312,607
105,954
102,858
Property management
100,381
90,314
31,412
28,169
General and administrative
48,902
49,135
14,551
14,094
Depreciation
688,041
661,921
237,948
224,736
Total expenses
1,554,125
1,505,414
525,086
498,944
Net gain (loss) on sales of real estate properties
227,829
127,034
(165
26,912
Interest and other income
26,501
11,296
15,844
7,627
Other expenses
(59,094
(20,517
(13,971
(4,958
Interest:
Expense incurred, net
(205,762
(200,882
(72,722
(68,891
Amortization of deferred financing costs
(5,784
(7,023
(1,948
(3,027
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels
642,894
550,958
150,300
182,786
Income and other tax (expense) benefit
(925
(892
(290
(258
Income (loss) from investments in unconsolidated entities
(4,865
(3,847
(1,493
(1,242
Net income
637,104
546,219
148,517
181,286
Net (income) loss attributable to Noncontrolling Interests:
(17,290
(17,174
(4,012
(5,561
(3,098
(5,299
(1,059
(3,217
Net income attributable to controlling interests
616,716
523,746
143,446
172,508
Preferred distributions
(1,258
(2,318
(356
(773
Premium on redemption of Preferred Shares
(1,444
—
Net income available to Common Shares
614,014
521,428
143,090
171,735
Earnings per share – basic:
1.62
1.38
0.38
0.45
Weighted average Common Shares outstanding
378,718
378,614
378,756
378,853
Earnings per share – diluted:
390,688
391,135
391,026
391,351
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
(3,989
4,514
460
Losses reclassified into earnings from other comprehensive income
1,819
3,132
609
931
Other comprehensive income (loss)
(2,170
7,646
(3,380
1,391
Comprehensive income
634,934
553,865
145,137
182,677
Comprehensive (income) attributable to Noncontrolling Interests
(20,330
(22,712
(4,980
(8,822
Comprehensive income attributable to controlling interests
614,604
531,153
140,157
173,855
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:
5,784
7,023
Amortization of discounts and premiums on debt
3,823
2,815
Amortization of deferred settlements on derivative instruments
1,811
3,123
Amortization of right-of-use assets
11,320
9,572
Write-off of pursuit costs
1,905
2,739
(Income) loss from investments in unconsolidated entities
4,865
3,847
Distributions from unconsolidated entities – return on capital
446
436
Net (gain) loss on sales of real estate properties
(227,829
(127,034
Realized (gain) loss on investment securities
1,316
(1,511
Unrealized (gain) loss on investment securities
(19,880
(4,461
Compensation paid with Company Common Shares
26,781
26,948
Changes in assets and liabilities:
(Increase) decrease in other assets
5,551
11,887
Increase (decrease) in accounts payable and accrued expenses
71,360
71,334
Increase (decrease) in accrued interest payable
(15,083
(18,791
Increase (decrease) in lease liabilities
(3,363
(1,077
Increase (decrease) in other liabilities
20,258
(7,024
Increase (decrease) in security deposits
5,172
558
Net cash provided by operating activities
1,219,382
1,188,524
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions
(1,320,592
(324,497
Investment in real estate – development/other
(90,718
(60,179
Capital expenditures to real estate
(230,107
(229,763
Non-real estate capital additions
(1,572
(1,457
Interest capitalized for real estate and unconsolidated entities under development
(10,697
(9,579
Proceeds from disposition of real estate, net
360,850
191,718
Investments in unconsolidated entities – acquisitions
(31,286
(989
Investments in unconsolidated entities – development/other
(48,360
(34,076
Distributions from unconsolidated entities – return of capital
1,409
15
Purchase of investment securities and other investments
(2,500
Proceeds from sale of investment securities
7,457
2,952
Net cash provided by (used for) investing activities
(1,363,616
(468,355
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs
(5,307
(4,106
Mortgage notes payable, net:
Proceeds
572,896
Lump sum payoffs
(932,598
Scheduled principal repayments
(2,400
(554
Notes, net:
597,954
Line of credit and commercial paper:
Line of credit proceeds
198,000
Line of credit repayments
(198,000
Commercial paper proceeds
8,610,430
4,393,568
Commercial paper repayments
(8,233,000
(4,025,887
Proceeds from (payments on) settlement of derivative instruments
25,169
Finance ground lease principal payments
(2,158
(1,995
Proceeds from Employee Share Purchase Plan (ESPP)
2,830
2,591
Proceeds from exercise of options
17,315
11,474
Common Shares repurchased and retired
(38,474
Redemption of Preferred Shares
(20,125
Other financing activities, net
(52
(37
Acquisition of Noncontrolling Interests – Partially Owned Properties
(3,737
Contributions – Noncontrolling Interests – Partially Owned Properties
458
Contributions – Noncontrolling Interests – Operating Partnership
Distributions:
Common Shares
(762,990
(738,584
Preferred Shares
(2,031
(2,319
Noncontrolling Interests – Operating Partnership
(23,058
(22,969
Noncontrolling Interests – Partially Owned Properties
(3,163
(3,536
Net cash provided by (used for) financing activities
130,798
(730,614
Net increase (decrease) in cash and cash equivalents and restricted deposits
(13,436
(10,445
Cash and cash equivalents and restricted deposits, beginning of period
139,995
137,172
Cash and cash equivalents and restricted deposits, end of period
126,559
126,727
39,250
87,477
Total cash and cash equivalents and restricted deposits, end of period
6
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized
197,587
206,080
Net cash paid (received) for income and other taxes
1,097
1,035
Real estate acquisitions/dispositions/other:
Mortgage loans assumed
42,256
Amortization of deferred financing costs:
(211
2,089
786
2,265
2,909
2,880
Amortization of discounts and premiums on debt:
2,126
1,129
1,697
1,686
Amortization of deferred settlements on derivative instruments:
(8
(9
Accumulated other comprehensive income
Write-off of pursuit costs:
401
421
1,292
1,667
212
651
(Income) loss from investments in unconsolidated entities:
3,927
938
Realized/unrealized (gain) loss on derivative instruments:
(3,749
3,989
(765
Investment in real estate – acquisitions:
(1,307,865
(12,727
Interest capitalized for real estate and unconsolidated entities under development:
(4,308
(3,468
(6,389
(6,111
Investments in unconsolidated entities – development/other:
(47,160
(32,667
(1,200
(1,409
Debt financing costs:
Proceeds from (payments on) settlement of derivative instruments:
25,613
(444
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
7
Non-cash change in Supplemental Executive Retirement Plan (SERP) balances:
(1,362
33,970
1,959
(66,048
(597
32,078
8
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
3,791
3,790
Conversion of OP Units into Common Shares
Exercise of share options
Employee Share Purchase Plan (ESPP)
(7
Share-based employee compensation expense:
Restricted shares
3,797
PAID IN CAPITAL
9,476,085
9,590,105
9,472,628
Common Share Issuance:
8,232
13,907
3,185
9,250
17,312
11,472
10,833
116
2,829
381
467
11,753
10,292
2,372
2,349
Share options
2,973
3,904
466
779
ESPP discount
589
481
88
83
Supplemental Executive Retirement Plan (SERP)
31,930
(900
Change in market value of Redeemable Noncontrolling Interests – Operating Partnership
(64,541
18,613
(25,483
57,736
Adjustment for Noncontrolling Interests ownership in Operating Partnership
4,123
20,534
13,719
9,589,057
RETAINED EARNINGS
1,658,837
1,357,922
1,506,460
Common Share distributions
(767,779
(753,633
(256,059
(251,563
Preferred Share distributions
Premium on redemption of Preferred Shares – cash charge
(38,467
1,426,632
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(2,547
6,914
3,708
Accumulated other comprehensive income (loss) – derivative instruments:
5,099
DISTRIBUTIONS
Distributions declared per Common Share outstanding
2.025
1.9875
0.675
0.6625
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
NONCONTROLLING INTERESTS
OPERATING PARTNERSHIP
209,961
204,032
207,405
Issuance of restricted units to Noncontrolling Interests
Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner
(8,234
(13,916
(3,186
(9,257
Equity compensation associated with Noncontrolling Interests
13,215
14,205
2,979
3,338
Net income attributable to Noncontrolling Interests
17,290
17,174
4,012
5,561
Distributions to Noncontrolling Interests
(23,236
(22,924
(7,361
(7,284
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership
1,986
21,878
1,321
19,801
(4,123
(20,534
(2,591
(13,719
205,845
PARTIALLY OWNED PROPERTIES
(721
(295
(4,728
3,098
5,299
1,059
3,217
Contributions by Noncontrolling Interests
(3,215
(3,573
(429
(312
(2,837
Other
(1,000
(1,823
10
LIABILITIES AND CAPITAL
Redeemable Limited Partners
Capital:
Partners’ Capital:
Preference Units
General Partner
10,833,286
11,042,844
Limited Partners
Total partners’ capital
11,053,181
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
634,006
540,920
147,458
178,069
ALLOCATION OF NET INCOME:
1,258
2,318
356
773
Premium on redemption of Preference Units
1,444
Net income available to Units
631,304
538,602
147,102
177,296
Earnings per Unit – basic:
Weighted average Units outstanding
389,379
389,991
390,087
Earnings per Unit – diluted:
Comprehensive (income) attributable to Noncontrolling Interests – Partially Owned Properties
631,836
548,566
144,078
179,460
13
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
16
17
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
PARTNERS’ CAPITAL
PREFERENCE UNITS
GENERAL PARTNER
11,138,706
10,951,818
10,982,878
OP Unit Issuance:
Conversion of OP Units held by Limited Partners into OP Units held by General Partner
8,234
13,916
3,186
9,257
Exercise of EQR share options
10,835
EQR’s Employee Share Purchase Plan (ESPP)
EQR restricted shares
11,755
10,294
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
11,019,486
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
19
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 September 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 September 30, 2024, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 312 properties located in 10 states and the District of Columbia consisting of 84,018 apartment units. The ownership breakdown includes (table does not include any uncompleted development properties):
Properties
Apartment Units
Wholly Owned Properties
297
80,749
Partially Owned Properties – Consolidated
3,060
Partially Owned Properties – Unconsolidated
209
312
84,018
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 nine months ended September 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, of 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 segment disclosures.
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.
21
The following table presents the changes in the Company’s issued and outstanding Common Shares and Units for the nine months ended September 30, 2024 and 2023:
Common Shares outstanding at January 1,
379,291,417
378,429,708
Common Shares Issued:
Conversion of OP Units
191,019
862,596
284,021
234,395
54,061
48,835
Restricted share grants, net
186,672
148,304
Common Shares Other:
Repurchased and retired
(652,452
Common Shares outstanding at September 30,
379,354,738
379,723,838
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
(191,019
(862,596
Units outstanding at September 30,
11,562,954
11,733,485
Total Common Shares and Units outstanding at September 30,
390,917,692
391,457,323
Units Ownership Interest in Operating Partnership
3.0
%
The following table presents the changes in the Operating Partnership’s issued and outstanding General Partner Units and Limited Partner Units for the nine months ended September 30, 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 September 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 September 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.
22
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 September 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 September 30, 2024 and 2023, the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners have a redemption value of approximately $351.8 million and $277.8 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 nine months ended September 30, 2024 and 2023, respectively (amounts in thousands):
Balance at January 1,
318,273
Change in market value
64,541
(18,613
Change in carrying value
(1,986
(21,878
Balance at September 30,
277,782
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 September 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 September 30, 2024 and 745,600 shares/units issued and outstanding as of December 31, 2023 (3)
12/10/2026
4.145
23
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 September 30, 2024.
During the nine months ended September 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 nine months ended September 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 September 30, 2024.
The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of September 30, 2024 and December 31, 2023 (amounts in thousands):
September 30, 2024
December 31, 2023
Depreciable property:
Buildings and improvements
20,760,047
19,809,432
Furniture, fixtures and equipment
2,822,816
2,609,600
In-Place lease intangibles
565,180
519,394
Projects under development:
40,031
3,201
Construction-in-progress
182,024
74,835
Land held for development:
46,160
82,026
18,953
32,274
During the nine months ended September 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
Lease Intangible (2)
Rental Properties – Consolidated
4,578
1,317,845
154,777
1,152,251
12,727
24
During the nine months ended September 30, 2024, the Company disposed of the following to unaffiliated parties (sales price and net gain in thousands):
Sales Price
Net Gain
969
365,500
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 September 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 September 30, 2024 and December 31, 2023 (amounts in thousands):
Consolidated Assets
631,890
599,788
Consolidated Liabilities
47,373
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 September 30, 2024 and December 31, 2023 (amounts in thousands except for ownership percentage):
Ownership Percentage
Investments in Unconsolidated Entities:
Various Real Estate Holdings (VIE)
34,915
35,421
Varies
Projects Under Development and Land Held for Development (VIE)
297,480
220,192
62% - 95% (1)
Real Estate Technology Funds/Companies (VIE)
27,666
26,691
(251
(255
25
The following table summarizes the Company’s unconsolidated joint ventures that were deemed to be VIEs as of September 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)
2,412
526
The following table presents the Company’s restricted deposits as of September 30, 2024 and December 31, 2023 (amounts in thousands):
Mortgage escrow deposits:
456
307
Mortgage principal reserves/sinking funds
33,124
29,270
Mortgage escrow deposits
33,580
29,577
Restricted cash:
Earnest money on pending acquisitions
524
Restricted deposits on real estate investments
2,231
2,181
Resident security and utility deposits
42,624
40,149
Replacement reserves
17,439
15,571
2,075
1,250
Restricted cash
64,369
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.
26
The following tables present the lease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the nine months and quarters ended September 30, 2024 and 2023 (amounts in thousands):
Nine Months Ended September 30, 2024
Nine Months Ended September 30, 2023
Income Type
Residential Leases
Non-Residential Leases
Total
Residential and non-residential rent
1,978,847
48,658
2,027,505
1,926,869
46,642
1,973,511
Utility recoveries (RUBS income) (1)
67,731
752
68,483
64,007
662
64,669
Parking rent
34,738
1,027
35,765
32,955
354
33,309
Other lease revenue (2)
(15,417
(1,070
(16,487
(19,172
330
(18,842
Total lease revenue
2,065,899
49,367
2,115,266
2,004,659
47,988
2,052,647
Parking revenue
32,553
30,033
Other revenue
65,510
63,784
Total other rental income (3)
98,063
93,817
Quarter Ended September 30, 2024
Quarter Ended September 30, 2023
670,450
14,948
685,398
650,531
14,669
665,200
22,275
317
22,592
21,221
243
21,464
11,703
394
12,097
11,062
129
11,191
(4,685
(589
(5,274
(5,752
(404
(6,156
699,743
15,070
714,813
677,062
14,637
691,699
10,838
9,638
22,697
22,730
33,535
32,368
The following table presents residential accounts receivable and straight-line receivable balances for the Company’s properties as of September 30, 2024 and December 31, 2023 (amounts in thousands):
Balance Sheet (Other assets):
Residential accounts receivable balances
16,281
21,477
Allowance for doubtful accounts
(10,044
(15,846
Net receivable balances
6,237
5,631
Straight-line receivable balances
9,141
9,183
The following table presents residential bad debt for the Company’s properties for the nine months and quarters ended September 30, 2024 and 2023 (amounts in thousands):
Income Statement (Rental income):
Bad debt, net (1)
25,045
28,862
7,906
9,042
% of residential rental income
1.2
1.4
1.1
1.3
27
Lessee Accounting
During the nine months ended September 30, 2024, the Company acquired below market long-term ground and parking leases, each fully prepaid at $1 and expiring in 2110, in connection with an apartment property acquisition as described in Note 4 and recorded a lease intangible asset of approximately $12.7 million, which is included in right-of-use assets on the consolidated balance sheets.
EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. Weighted average interest rates noted below for the nine months ended September 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 nine months ended September 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 September 30, 2024
Fixed Rate Debt:
Secured – Conventional
1,398,598
1,193
681
1,400,472
Floating Rate Debt:
Secured – Tax Exempt
234,304
933
105
232,942
The following table summarizes certain interest rate and maturity date information as of and for the nine months ended September 30, 2024:
Interest Rate Ranges (ending)
0.10% - 5.25%
Weighted Average Interest Rate
3.85%
Maturity Date Ranges
2029-2061
As of September 30, 2024, the Company had $244.3 million of secured tax-exempt bonds subject to third-party credit enhancement.
Notes
The following table summarizes the Company’s notes activity for the nine months ended September 30, 2024 (amounts in thousands):
Notes, net as of December 31, 2023
Notes, net as of September 30, 2024
Unsecured – Public
(2)
(2,398
28
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 nine months ended September 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 weighted average interest rate on the revolving credit facility was 6.14% for the nine months ended September 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 nine months ended September 30, 2024:
Weighted Average Interest Rate (1)
5.51%
Weighted Average Maturity (in days)
Weighted Average Amount Outstanding
$420.5 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 September 30, 2024 (amounts in thousands):
Unsecured revolving credit facility commitment
2,500,000
Commercial paper balance outstanding
(789,000
Unsecured revolving credit facility balance outstanding
Other restricted amounts
(3,438
Unsecured revolving credit facility availability
1,707,562
The following table summarizes the Company's total debt extinguishment costs recorded as additional expense for the nine months and quarters ended September 30, 2024 and 2023 (amounts in thousands):
Write-offs of unamortized deferred financing costs
1,143
1,096
29
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 September 30, 2024 and December 31, 2023, respectively (amounts in thousands):
Carrying Value
Estimated FairValue (Level 2)
1,556,724
1,509,706
Unsecured debt, net
6,732,231
6,450,650
5,757,548
5,346,488
Total debt, net
8,365,645
8,007,374
7,390,450
6,856,194
30
The following tables provide a summary of the fair value measurements for each major category of assets and liabilities measured at fair value on a recurring basis and the location within the accompanying consolidated balance sheets at September 30, 2024 and December 31, 2023, respectively (amounts in thousands):
Fair Value Measurements at Reporting Date Using
Description
Balance SheetLocation
9/30/2024
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
109,840
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 nine months ended September 30, 2024 and 2023, respectively (amounts in thousands):
September 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
(1,819
September 30, 2023Type of Cash Flow Hedge
Amount of Gain/(Loss) Recognized in OCI on Derivative
(3,132
31
As of September 30, 2024 and December 31, 2023, there were approximately $3.5 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 $1.7 million may be recognized as additional interest expense during the twelve months ending September 30, 2025.
During the nine months ended September 30, 2024, the Company paid approximately $4.0 million to settle four forward starting swaps in conjunction with the issuance of $600.0 million of ten-year unsecured public notes. The entire $4.0 million was initially deferred as a component of accumulated other comprehensive income (loss) and will be recognized as an increase to interest expense over the ten-year term of the notes.
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 September 30, 2024 and December 31, 2023 (amounts in thousands):
Real Estate Technology Investments
30,419
19,312
During the nine months ended September 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 nine months ended September 30, 2024, the Company adjusted certain of these investment securities to observable market prices and recorded a net unrealized gain of approximately $19.9 million, which is included in interest and other income in the consolidated statements of operations.
32
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
10,661
11,377
10,623
11,234
Long-term compensation shares/units
1,309
1,144
1,647
1,264
Denominator for net income per share – diluted
Net income per share – basic
Net income per share – diluted
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
33
Commitments
Real Estate Development Commitments
As of September 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 September 30, 2024 (total project costs remaining in thousands):
Total Project Costs Remaining (1)
Projects Under Development
Consolidated
665
162,738
Unconsolidated
269,964
Total Projects Under Development
3,077
432,702
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 September 30, 2024, the Company has invested in ten separate such investments totaling $41.6 million with aggregate remaining commitments of approximately $16.4 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 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 September 30, 2024 and December 31, 2023, the Company’s litigation accruals approximated $42.4 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 September 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
34
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 for same store properties and on a portfolio basis for non-same store properties. While the Company does maintain a non-residential presence, it accounts for less than 4.0% of total revenues for the nine months ended September 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 nine months and quarters ended September 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.
The following table presents a reconciliation of net income per the consolidated statements of operations to NOI for the nine months and quarters ended September 30, 2024 and 2023, respectively (amounts in thousands):
Adjustments:
165
(26,912
(26,501
(11,296
(15,844
(7,627
59,094
20,517
13,971
4,958
205,762
200,882
72,722
68,891
1,948
3,027
Income and other tax expense (benefit)
925
892
290
258
1,493
1,242
Total NOI
1,496,528
1,442,420
507,173
492,122
35
The following tables present NOI from our rental real estate for each segment for the nine months and quarters ended September 30, 2024 and 2023, respectively, as well as total assets and capital expenditures at September 30, 2024 (amounts in thousands):
Rental Income
Operating Expenses
NOI
Same store (1)
Los Angeles
359,597
111,273
248,324
348,595
108,917
239,678
Orange County
93,760
21,113
72,647
90,080
20,188
69,892
San Diego
77,784
17,731
60,053
74,183
17,371
56,812
Subtotal - Southern California
531,141
150,117
381,024
512,858
146,476
366,382
Washington, D.C.
347,229
110,104
237,125
331,425
107,050
224,375
San Francisco
325,999
99,012
226,987
321,310
98,504
222,806
New York
369,642
151,331
218,311
356,157
145,192
210,965
Boston
244,474
69,882
174,592
234,291
69,072
165,219
Seattle
223,656
65,197
158,459
218,574
62,055
156,519
Denver
53,522
16,190
37,332
53,324
16,161
37,163
Other Expansion Markets
55,612
22,509
33,103
55,768
24,123
31,645
Total same store
2,151,275
684,342
1,466,933
2,083,707
668,633
1,415,074
Non-same store/other
Non-same store (2)
54,874
22,230
32,644
22,406
10,893
11,513
Other (3)
7,180
10,229
(3,049
40,351
24,518
15,833
Total non-same store/other
62,054
32,459
29,595
62,757
35,411
27,346
Totals
716,801
704,044
120,211
37,670
82,541
118,812
36,343
82,469
31,488
7,248
24,240
30,663
6,792
23,871
25,969
6,071
19,898
25,258
5,820
19,438
177,668
50,989
126,679
174,733
48,955
125,778
117,306
38,351
78,955
112,681
35,616
77,065
108,957
33,313
75,644
107,808
32,769
75,039
123,506
50,011
73,495
118,327
48,055
70,272
81,941
23,156
58,785
78,562
22,875
55,687
75,032
21,907
53,125
72,778
20,883
51,895
19,649
6,062
13,587
19,802
5,937
13,865
18,249
6,309
11,940
18,679
7,957
10,722
722,308
230,098
492,210
703,370
223,047
480,323
25,391
9,371
16,020
8,059
4,099
3,960
649
1,706
(1,057
12,638
4,799
7,839
26,040
11,077
14,963
20,697
8,898
11,799
241,175
231,945
36
Total Assets
Capital Expenditures
2,441,079
39,778
334,057
12,059
335,471
12,061
3,110,607
63,898
2,980,055
35,160
2,996,799
42,555
3,241,250
19,683
2,028,747
21,954
2,023,139
22,405
799,928
3,036
872,501
5,154
18,053,026
213,845
1,998,651
15,724
874,144
538
2,872,795
16,262
230,107
Subsequent to September 30, 2024, the Company:
274
89,500
37
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 nine months ended September 30, 2024:
Portfolio Rollforward
($ in thousands)
ApartmentUnits
PurchasePrice
AcquisitionCap Rate
302
80,191
Acquisitions:
Consolidated Rental Properties
4,418
1,255,250
5.1
Consolidated Rental Properties – Not Stabilized
160
62,595
5.7
Unconsolidated Land Parcels
33,394
DispositionYield
Dispositions:
(6
(969
(365,500
(5.7
%)
Completed Developments – Unconsolidated
Configuration Changes
Acquisitions
Dispositions
Developments
39
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.
Comparison of the nine months and quarter ended September 30, 2024 to the nine months and quarter ended September 30, 2023
The following table presents a reconciliation of diluted earnings per share/unit for the nine months and quarter ended September 30, 2024 as compared to the same periods in 2023:
Nine Months EndedSeptember 30
Quarter EndedSeptember 30
Diluted earnings per share/unit for period ended 2023
Property NOI
0.12
0.04
(0.01
Corporate overhead (1)
(0.02
Net gain/loss on property sales
0.27
(0.06
Non-operating asset gains/losses
0.03
Depreciation expense
(0.08
(0.04
(0.07
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
90,885
16.6
(32,769
(18.1
)%
10,067
11.1
3,243
11.5
(233
(0.5
457
3.2
26,120
3.9
13,212
5.9
(100,795
79.3
27,077
(100.6
(15,205
134.6
(8,217
107.7
38,577
188.0
9,013
181.8
4,880
2.4
3,831
5.6
(1,239
(17.6
(1,079
(35.6
3.7
12.4
1,018
26.5
251
20.2
54,108
3.8
15,051
3.1
Rental income:
Same store
67,568
18,938
2.7
(703
(1.1
5,343
25.8
Total rental income
66,865
24,281
3.4
Operating expenses:
15,709
2.3
7,051
(2,952
(8.3
2,179
24.5
Total operating expenses
12,757
1.8
9,230
4.0
NOI:
51,859
2.5
2,249
8.2
3,164
26.8
40
Note: See Note 12 in the Notes to Consolidated Financial Statements for detail by reportable segment/market.
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 nine months and quarter ended September 30, 2024 as compared to the prior year periods are primarily attributable to increases in payroll-related costs, information technology expenses and legal and professional fees.
General and administrative expenses, which include corporate operating expenses, decreased during the nine months ended September 30, 2024 as compared to the prior year period, primarily due to decreases in payroll-related costs, partially offset by increases in other public company costs. General and administrative expenses increased during the quarter ended September 30, 2024 as compared to the prior year period, primarily due to increases in travel costs and other public company expenses.
Depreciation expense, which includes depreciation on non-real estate assets, increased during the nine months and quarter ended September 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 nine months ended September 30, 2024 as compared to the prior year period, primarily as a result of the sale of six consolidated apartment properties for a higher gain in 2024 as compared to the sale of eight consolidated apartment properties in the same period in 2023. Net gain on sales of real estate properties decreased during the quarter ended September 30, 2024 as compared to the prior year period, primarily due to a loss on sale of one consolidated apartment property in the third quarter of 2024 as compared to a gain on sale of one consolidated apartment property in the same period in 2023.
Interest and other income increased during the nine months and quarter ended September 30, 2024 as compared to the prior year periods, primarily due to a net increase in realized/unrealized gains of $12.6 million and $8.1 million, respectively, 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.
Other expenses increased during the nine months ended September 30, 2024 as compared to the prior year period, 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. Other expenses increased during the quarter ended September 30, 2024 as compared to the prior year period, primarily due to increases in advocacy contributions.
41
Interest expense, including amortization of deferred financing costs, increased during the nine months and quarter ended September 30, 2024 as compared to the prior year periods, primarily due to higher overall debt balances outstanding and higher rates on floating debt. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the nine months ended September 30, 2024 was 3.90% as compared to 3.81% for the prior year period, and for the quarter ended September 30, 2024 was 3.92% as compared to 3.81% for the prior year period. The Company capitalized interest of approximately $10.7 million and $9.6 million during the nine months ended September 30, 2024 and 2023, respectively, and $3.8 million and $2.6 million during the quarters ended September 30, 2024 and 2023, respectively.
Loss from investments in unconsolidated entities increased during the nine months and quarter ended September 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, partially offset by increases in net income of unconsolidated operating properties and a gain on sale of an unconsolidated operating property.
Same Store Results
Properties that the Company owned and were stabilized for all of both of the nine months ended September 30, 2024 and 2023, which represented 76,916 apartment units, drove the Company’s results of operations. Properties are considered “stabilized” when they have achieved 90% occupancy for three consecutive months.
42
The following table provides results and statistics related to our Residential same store operations for the nine months ended September 30, 2024 and 2023:
September YTD 2024 vs. September YTD 2023
Same Store Residential Results/Statistics by Market
Increase (Decrease) from Prior Year
Markets/Metro Areas
Sept. YTD 24 % of Actual NOI
Sept. YTD 24 Average Rental Rate
Sept. YTD 24 Weighted Average Physical Occupancy %
Sept. YTD 24 Turnover
AverageRental Rate
PhysicalOccupancy
Turnover
14,135
17.5
2,932
95.6
33.7
0.2
0.1
3,718
5.2
2,917
96.0
28.9
4.3
(0.3
0.0
2,878
4.2
3,119
95.9
32.1
0.4
Subtotal – Southern California
20,731
26.9
2,955
95.7
32.6
14,416
16.5
2,716
96.9
4.6
11,188
15.9
3,321
96.2
33.8
1.0
0.5
0.3
8,536
14.3
4,624
97.3
27.1
(3.2
7,077
11.2
3,597
(1.7
9,266
10.4
2,602
36.0
0.7
(3.8
2,505
2.6
2,418
96.3
42.7
0.8
(3.9
3,197
2.2
1,958
95.2
45.8
(1.4
0.9
76,916
100.0
3,108
33.5
Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.3% of total revenues for the nine months ended September 30, 2024.
During the nine months ended September 30, 2024, the Company had solid performance in its operating business, with healthy demand across most of our markets supported by a continuing solid job market, high employment levels among our target affluent renter demographic and wage growth across the economy. Competitive new 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 continued to show improvement, while San Francisco has improved but at a more modest pace. Our Southern California markets (namely the city of Los Angeles) have shown good demand but greater price sensitivity during the third quarter of 2024.
The Company continued to make progress in move-out activity related to delinquent residents during the nine months ended September 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.
We are seeing an increasingly active transaction market providing us with opportunities to acquire properties in our expansion markets. We are excited to grow our portfolio and create operating scale in these markets as we execute on our strategy to better balance our portfolio.
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 $1.7 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.
43
Statements of Cash Flows
The following table sets forth our sources and uses of cash flows for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2024 as compared to the prior year period increased by approximately $30.9 million primarily as a result of the NOI and other changes discussed above in Results of Operations.
Investing Activities
Our investing cash flows are primarily impacted by our transaction activity (acquisitions/dispositions), development spend and capital expenditures. For the nine months ended September 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 nine months ended September 30, 2024, key drivers were:
44
Short-Term Liquidity and Cash Proceeds
The Company generally expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing properties and scheduled unsecured note and mortgage note repayments, through its working capital, net cash provided by operating activities and borrowings under the Company’s revolving credit facility and commercial paper program. Currently, the Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.
The following table presents the Company’s balances for cash and cash equivalents, restricted deposits and the available borrowing capacity on its revolving credit facility as of September 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 October 28, 2024 (amounts in thousands):
October 28, 2024
(994,985
(23,000
1,478,577
Dividend Policy
The Company declared a dividend/distribution for the first, second and third 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 October 2024 amounted to $263.4 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended September 30, 2024.
45
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 $30.1 billion in investment in real estate on the Company’s balance sheet at September 30, 2024, $26.9 billion or 89.5% 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.
The Company’s total debt summary schedule as of September 30, 2024 is as follows:
Debt Summary as of September 30, 2024
DebtBalances
% of Total
Secured
19.5
Unsecured
80.5
16.7
71.1
Fixed Rate Debt
7,346,142
87.8
2.8
Unsecured – Revolving Credit Facility
Unsecured – Commercial Paper Program
9.4
Floating Rate Debt
1,019,503
12.2
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.
46
Funds From Operations and Normalized Funds From Operations
The following is the Company’s and the Operating Partnership’s reconciliation of net income to FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units for the nine months and quarters ended September 30, 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
(2,839
(3,291
(942
(1,032
Depreciation – Partially Owned Properties
(1,645
(1,599
(556
(544
Depreciation – Unconsolidated Properties
3,881
1,921
2,429
695
Net (gain) loss on sales of unconsolidated entities - operating assets
(710
Noncontrolling Interests share of gain (loss) on sales of real estate properties
2,336
FFO available to Common Shares and Units / Units (1) (3) (4)
1,090,203
1,072,856
385,436
376,575
536
746
Debt extinguishment and preferred share/preference unit redemption (gains) losses
Non-operating asset (gains) losses
(17,452
(4,735
(14,236
(5,766
Other miscellaneous items
53,432
14,831
12,758
3,488
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)
1,129,532
1,086,834
384,494
376,139
FFO (1) (3)
1,092,905
1,075,174
385,792
377,348
Normalized FFO (2) (3)
1,130,790
1,089,152
384,850
376,912
•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.
47
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 September 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 third 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 September 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 third 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 September 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 September 30, 2024 (Equity Residential)
During the quarter ended September 30, 2024, EQR issued 100,888 Common Shares in exchange for 100,888 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 September 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
Ninth Amended and Restated Bylaws of Equity Residential, effective September 19, 2024.
Included as Exhibit 3.1 to Equity Residential's Form 8-K dated September 19, 2024, filed on September 24, 2024.
4.1
Form of 4.650% Note due September 15, 2034.
Included as Exhibit 4.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated September 9, 2024, filed on September 10, 2024.
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.
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).
50
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:
November 4, 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