Equity Residential(EQR) - 2021 Q2 - Quarterly Report

FORM 10-Q Cover Page This section provides essential identification details for the registrants, Equity Residential and ERP Operating Limited Partnership, for the quarterly report Registrant Information This section identifies Equity Residential (EQR) and ERP Operating Limited Partnership (ERPOP) as the registrants for the quarterly report ended June 30, 2021. It details their incorporation states, IRS Employer Identification Numbers, principal executive offices, and lists their registered securities on the New York Stock Exchange Registrant Information (Amounts in thousands) | Registrant Name | State of Incorporation | I.R.S. Employer Identification No. | | :-------------------------------- | :--------------------- | :--------------------------------- | | Equity Residential | Maryland | 13-3675988 | | ERP Operating Limited Partnership | Illinois | 36-3894853 | Registered Securities on New York Stock Exchange | Class of Securities | Trading Symbol(s) | Exchange Registered On | | :-------------------------------------------------------- | :---------------- | :------------------------ | | Common Shares of Beneficial Interest, $0.01 Par Value | EQR | New York Stock Exchange | | 7.57% Notes due August 15, 2026 (ERP Operating Limited Partnership) | N/A | New York Stock Exchange | - Both Equity Residential and ERP Operating Limited Partnership have filed all required reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and have been subject to such filing requirements for the past 90 days. They have also submitted electronically every Interactive Data File[2][283] Filer Status | Filer Status | Equity Residential | ERP Operating Limited Partnership | | :-------------------------------- | :----------------- | :-------------------------------- | | Large accelerated filer | ☒ | ☐ | | Accelerated filer | ☐ | ☐ | | Non-accelerated filer | ☐ | ☒ | | Smaller reporting company | ☐ | ☐ | | Emerging growth company | ☐ | ☐ | - The number of EQR Common Shares of Beneficial Interest outstanding on July 23, 2021, was 374,457,337[3][284] EXPLANATORY NOTE This section clarifies the combined reporting structure for Equity Residential and ERP Operating Limited Partnership, detailing their relationship and the rationale for consolidated financial presentation Combined Reporting Structure This section explains that the Form 10-Q combines reports for Equity Residential (EQR) and ERP Operating Limited Partnership (ERPOP) to enhance investor understanding, eliminate duplicative disclosure, and create time/cost efficiencies. EQR, a REIT, is the general partner of ERPOP, owning approximately 96.7% interest as of June 30, 2021. The Company operates as an umbrella partnership REIT (UPREIT), where EQR contributes equity offering proceeds to ERPOP in exchange for OP Units, which can be exchanged for Common Shares on a one-for-one basis - The report combines Form 10-Q for Equity Residential (EQR) and ERP Operating Limited Partnership (ERPOP) to provide a consolidated view of the business, eliminate duplicative disclosures, and improve efficiency[4][6][285][287] - EQR is the general partner of ERPOP, holding approximately a 96.7% ownership interest as of June 30, 2021. ERPOP conducts all property ownership, development, and related business operations[4][7][285][288] - The Company operates as an UPREIT, where EQR contributes equity offering proceeds to ERPOP in exchange for OP Units, which are exchangeable for Common Shares on a one-for-one basis[5][286] - Key differences between EQR and ERPOP financial statements are in shareholders' equity, partners' capital, and noncontrolling interests. Separate financial statements, combined notes, and a combined Management's Discussion and Analysis are provided to clarify these differences[8][9][289][290] PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Equity Residential and ERP Operating Limited Partnership Item 1. Financial Statements of Equity Residential This section presents the unaudited condensed consolidated financial statements for Equity Residential (EQR) for the periods ended June 30, 2021, and December 31, 2020. It includes the balance sheets, statements of operations and comprehensive income, statements of cash flows, and statements of changes in equity, providing a detailed financial overview of the company's performance and position Consolidated Balance Sheets EQR's consolidated balance sheets show a slight increase in total assets and liabilities from December 31, 2020, to June 30, 2021, while total equity decreased. Key changes include an increase in restricted deposits and a decrease in net investment in real estate Equity Residential Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :------------------------------------------ | :------------ | :---------------- | | Assets: | | | | Investment in real estate, net | $19,241,091 | $19,343,668 | | Cash and cash equivalents | $39,492 | $42,591 | | Restricted deposits | $353,009 | $57,137 | | Total assets | $20,464,346 | $20,286,891 | | Liabilities: | | | | Mortgage notes payable, net | $2,280,251 | $2,293,890 | | Notes, net | $5,338,671 | $5,335,536 | | Line of credit and commercial paper | $631,770 | $414,830 | | Total liabilities | $9,382,176 | $9,184,454 | | Equity: | | | | Redeemable Noncontrolling Interests – Operating Partnership | $440,123 | $338,951 | | Total shareholders' equity | $10,433,991 | $10,525,651 | | Total equity | $10,642,047 | $10,763,486 | | Total liabilities and equity | $20,464,346 | $20,286,891 | - Total assets increased by $177.455 million (0.87%) from December 31, 2020, to June 30, 2021[15][296] - Total liabilities increased by $197.722 million (2.15%) over the six-month period[17][298] - Total equity decreased by $121.439 million (1.13%) from December 31, 2020, to June 30, 2021[18][299] Consolidated Statements of Operations and Comprehensive Income EQR's consolidated statements of operations show a significant decrease in net income for the six months ended June 30, 2021, compared to the same period in 2020, primarily due to lower rental income and reduced net gain on sales of real estate properties. However, net income for the quarter ended June 30, 2021, increased compared to the prior year quarter, driven by a higher net gain on sales of real estate Equity Residential Consolidated Statements of Operations Highlights (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Rental income | $1,195,661 | $1,335,837 | | Total expenses | $906,952 | $909,106 | | Net gain (loss) on sales of real estate properties | $223,695 | $352,243 | | Operating income | $512,404 | $778,974 | | Net income | $388,404 | $604,152 | | Net income available to Common Shares | $372,380 | $567,949 | | Earnings per share – basic | $1.00 | $1.53 | | Earnings per share – diluted | $1.00 | $1.53 | - Rental income decreased by $140.176 million (-10.5%) for the six months ended June 30, 2021, compared to the same period in 2020[20][301] - Net income decreased by $215.748 million (-35.7%) for the six months ended June 30, 2021, compared to the same period in 2020[20][301] Equity Residential Consolidated Statements of Operations Highlights (Quarterly, Amounts in thousands) | Metric | Quarter Ended June 30, 2021 | Quarter Ended June 30, 2020 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Rental income | $598,059 | $653,532 | | Total expenses | $444,953 | $440,909 | | Net gain (loss) on sales of real estate properties | $223,738 | $144,266 | | Operating income | $376,844 | $356,889 | | Net income | $328,040 | $271,481 | | Net income available to Common Shares | $315,614 | $260,116 | | Earnings per share – basic | $0.84 | $0.70 | | Earnings per share – diluted | $0.84 | $0.70 | - Net income increased by $56.559 million (20.8%) for the quarter ended June 30, 2021, compared to the same period in 2020[20][301] Equity Residential Comprehensive Income Highlights (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net income | $388,404 | $604,152 | | Other comprehensive income (loss) | $4,637 | $10,208 | | Comprehensive income | $393,041 | $614,360 | | Comprehensive income attributable to controlling interests | $378,400 | $579,334 | Consolidated Statements of Cash Flows EQR's consolidated cash flow statements show a decrease in net cash provided by operating activities for the six months ended June 30, 2021, compared to 2020. Investing activities shifted from providing cash in 2020 to using cash in 2021, while financing activities used less cash in 2021 compared to the prior year Equity Residential Consolidated Cash Flow Highlights (Amounts in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $576,125 | $635,086 | | Net cash provided by (used for) investing activities | $(55,355) | $565,347 | | Net cash provided by (used for) financing activities | $(227,997) | $(1,071,899) | | Net increase (decrease) in cash and cash equivalents and restricted deposits | $292,773 | $128,534 | | Cash and cash equivalents, end of period | $39,492 | $187,416 | | Restricted deposits, end of period | $353,009 | $58,117 | - Net cash provided by operating activities decreased by $58.961 million (-9.3%) for the six months ended June 30, 2021, compared to the same period in 2020[25][306] - Investing activities shifted from providing $565.347 million in cash in 2020 to using $55.355 million in 2021, a change of $620.702 million[25][306] - Financing activities used $227.997 million in cash in 2021, a significant reduction from the $1,071.899 million used in 2020, indicating less debt repayment or more equity issuance/less distributions[29][310] Consolidated Statements of Changes in Equity EQR's consolidated statements of changes in equity show a decrease in total shareholders' equity for the six months ended June 30, 2021, primarily due to common share distributions exceeding net income attributable to controlling interests, and a negative change in market value of redeemable noncontrolling interests Equity Residential Consolidated Statements of Changes in Equity Highlights (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Preferred Shares, end of period | $37,280 | $37,280 | | Common Shares, $0.01 par value, end of period | $3,744 | $3,722 | | Paid in capital, end of period | $9,110,121 | $9,118,332 | | Retained earnings, end of period | $1,321,875 | $1,505,694 | | Accumulated other comprehensive income (loss), end of period | $(39,029) | $(67,355) | | Total shareholders' equity | $10,433,991 | $10,525,651 | | Noncontrolling Interests – Operating Partnership, end of period | $205,691 | $235,169 | | Total equity | $10,642,047 | $10,763,486 | - Total shareholders' equity decreased by $91.660 million (-0.87%) for the six months ended June 30, 2021, compared to December 31, 2020[18][36][299][317] - Retained earnings decreased by $77.840 million, primarily due to common share distributions ($450.220 million) exceeding net income attributable to controlling interests ($373.925 million)[36][317] - Noncontrolling Interests – Operating Partnership decreased by $27.478 million, influenced by conversions of OP Units and distributions[39][320] Item 1. Financial Statements of ERP Operating Limited Partnership This section provides the unaudited condensed consolidated financial statements for ERP Operating Limited Partnership (ERPOP) for the periods ended June 30, 2021, and December 31, 2020. It includes the balance sheets, statements of operations and comprehensive income, statements of cash flows, and statements of changes in capital, reflecting ERPOP's financial performance and position as the primary operating entity Consolidated Balance Sheets ERPOP's consolidated balance sheets show a slight increase in total assets and liabilities from December 31, 2020, to June 30, 2021, while total capital decreased. The asset and liability figures are identical to EQR's consolidated balance sheets, reflecting EQR's consolidation of ERPOP ERP Operating Limited Partnership Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :------------------------------------------ | :------------ | :---------------- | | Assets: | | | | Investment in real estate, net | $19,241,091 | $19,343,668 | | Cash and cash equivalents | $39,492 | $42,591 | | Restricted deposits | $353,009 | $57,137 | | Total assets | $20,464,346 | $20,286,891 | | Liabilities: | | | | Mortgage notes payable, net | $2,280,251 | $2,293,890 | | Notes, net | $5,338,671 | $5,335,536 | | Line of credit and commercial paper | $631,770 | $414,830 | | Total liabilities | $9,382,176 | $9,184,454 | | Capital: | | | | Redeemable Limited Partners | $440,123 | $338,951 | | Total partners' capital | $10,639,682 | $10,758,813 | | Total capital | $10,642,047 | $10,763,486 | | Total liabilities and capital | $20,464,346 | $20,286,891 | - Total assets for ERPOP are identical to EQR's, reflecting the consolidated structure, increasing by $177.455 million (0.87%) from December 31, 2020, to June 30, 2021[42][323] - Total liabilities for ERPOP are identical to EQR's, increasing by $197.722 million (2.15%) over the six-month period[42][323] - Total capital decreased by $121.439 million (1.13%) from December 31, 2020, to June 30, 2021[42][323] Consolidated Statements of Operations and Comprehensive Income ERPOP's consolidated statements of operations show a significant decrease in net income for the six months ended June 30, 2021, compared to the same period in 2020, mirroring EQR's results. However, net income for the quarter ended June 30, 2021, increased compared to the prior year quarter, driven by a higher net gain on sales of real estate ERP Operating Limited Partnership Consolidated Statements of Operations Highlights (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Rental income | $1,195,661 | $1,335,837 | | Total expenses | $906,952 | $909,106 | | Net gain (loss) on sales of real estate properties | $223,695 | $352,243 | | Operating income | $512,404 | $778,974 | | Net income | $388,404 | $604,152 | | Net income attributable to controlling interests | $386,981 | $590,742 | | Net income available to Units | $385,436 | $589,197 | | Earnings per Unit – basic | $1.00 | $1.53 | | Earnings per Unit – diluted | $1.00 | $1.53 | - Rental income decreased by $140.176 million (-10.5%) for the six months ended June 30, 2021, compared to the same period in 2020[44][325] - Net income decreased by $215.748 million (-35.7%) for the six months ended June 30, 2021, compared to the same period in 2020[44][325] ERP Operating Limited Partnership Consolidated Statements of Operations Highlights (Quarterly, Amounts in thousands) | Metric | Quarter Ended June 30, 2021 | Quarter Ended June 30, 2020 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Rental income | $598,059 | $653,532 | | Total expenses | $444,953 | $440,909 | | Net gain (loss) on sales of real estate properties | $223,738 | $144,266 | | Operating income | $376,844 | $356,889 | | Net income | $328,040 | $271,481 | | Net income attributable to controlling interests | $327,299 | $270,601 | | Net income available to Units | $326,527 | $269,829 | | Earnings per Unit – basic | $0.84 | $0.70 | | Earnings per Unit – diluted | $0.84 | $0.70 | - Net income increased by $56.559 million (20.8%) for the quarter ended June 30, 2021, compared to the same period in 2020[44][325] ERP Operating Limited Partnership Comprehensive Income Highlights (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net income | $388,404 | $604,152 | | Other comprehensive income (loss) | $4,637 | $10,208 | | Comprehensive income | $393,041 | $614,360 | | Comprehensive income attributable to controlling interests | $391,618 | $600,950 | Consolidated Statements of Cash Flows ERPOP's consolidated cash flow statements show a decrease in net cash provided by operating activities for the six months ended June 30, 2021, compared to 2020. Investing activities shifted from providing cash in 2020 to using cash in 2021, while financing activities used less cash in 2021 compared to the prior year. These trends mirror EQR's consolidated cash flows ERP Operating Limited Partnership Consolidated Cash Flow Highlights (Amounts in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $576,125 | $635,086 | | Net cash provided by (used for) investing activities | $(55,355) | $565,347 | | Net cash provided by (used for) financing activities | $(227,997) | $(1,071,899) | | Net increase (decrease) in cash and cash equivalents and restricted deposits | $292,773 | $128,534 | | Cash and cash equivalents, end of period | $39,492 | $187,416 | | Restricted deposits, end of period | $353,009 | $58,117 | - Net cash provided by operating activities decreased by $58.961 million (-9.3%) for the six months ended June 30, 2021, compared to the same period in 2020[49][330] - Investing activities shifted from providing $565.347 million in cash in 2020 to using $55.355 million in 2021, a change of $620.702 million[49][330] - Financing activities used $227.997 million in cash in 2021, a significant reduction from the $1,071.899 million used in 2020[53][334] Consolidated Statements of Changes in Capital ERPOP's consolidated statements of changes in capital show a decrease in total partners' capital for the six months ended June 30, 2021, primarily due to distributions to General and Limited Partners and a negative change in market value of Redeemable Limited Partners, mirroring the trends in EQR's equity ERP Operating Limited Partnership Consolidated Statements of Changes in Capital Highlights (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Preference Units, end of period | $37,280 | $37,280 | | General Partner Capital, end of period | $10,435,740 | $10,627,748 | | Limited Partners Capital, end of period | $205,691 | $235,169 | | Accumulated other comprehensive income (loss), end of period | $(39,029) | $(67,355) | | Total partners' capital | $10,639,682 | $10,758,813 | | Noncontrolling Interests – Partially Owned Properties, end of period | $2,365 | $4,634 | | Total capital | $10,642,047 | $10,763,486 | - Total partners' capital decreased by $119.131 million (-1.11%) for the six months ended June 30, 2021, compared to December 31, 2020[42][59][323][340] - General Partner Capital decreased by $192.008 million, primarily due to distributions to OP Units – General Partner ($450.220 million) and changes in market value of Redeemable Limited Partners[59][340] - Limited Partners Capital decreased by $27.478 million, influenced by conversions of OP Units and distributions[59][340] Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements for both Equity Residential (EQR) and ERP Operating Limited Partnership (ERPOP). It covers business operations, significant accounting policies, equity and capital structures, real estate investments, commitments, partially owned entities, restricted deposits, lease accounting, debt, fair value measurements, earnings per share/unit, and commitments and contingencies. These notes are crucial for understanding the financial figures presented in the statements 1. Business Equity Residential (EQR) is an S&P 500 REIT focused on acquiring, developing, and managing residential properties in dynamic cities, with operations conducted by ERP Operating Limited Partnership (ERPOP). EQR is the general partner of ERPOP, holding a 96.7% ownership interest as of June 30, 2021. The Company owns 303 properties with 78,107 apartment units across 9 states and D.C. The COVID-19 pandemic continues to be monitored for its potential impact on operations and financial performance - Equity Residential (EQR) is an S&P 500 REIT focused on residential property acquisition, development, and management, with operations conducted by ERP Operating Limited Partnership (ERPOP)[65][346] - As of June 30, 2021, EQR owned approximately 96.7% of ERPOP, which conducts all property ownership and business operations. EQR has no material assets or liabilities other than its investment in ERPOP[66][347] Company Property Ownership as of June 30, 2021 | Property Type | Properties | Apartment Units | | :-------------------------------- | :--------- | :-------------- | | Wholly Owned Properties | 286 | 74,468 | | Master-Leased Property – Consolidated | 1 | 162 | | Partially Owned Properties – Consolidated | 16 | 3,477 | | Total | 303 | 78,107 | - The Company continues to monitor the effects of the COVID-19 pandemic, noting its potential impact on the economy, unemployment, and operations, but states no material changes to prior disclosures[68][349] 2. Summary of Significant Accounting Policies This section outlines the significant accounting policies, including the basis of presentation for the unaudited interim financial statements, management's estimates and assumptions, income and other taxes (EQR's REIT status and ERPOP's partnership tax treatment), and recently issued and adopted accounting pronouncements, such as FASB amendments on convertible instruments, reference rate reform, and lease concessions due to COVID-19 Basis of Presentation The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information, including normal recurring accruals and reclassifications. Management makes estimates and assumptions, which were evaluated for COVID-19 impact, with no necessary revisions at this time. The December 31, 2020 balance sheets are derived from audited statements but do not include all footnotes - Financial statements are unaudited and prepared in accordance with GAAP for interim information, including normal recurring accruals and reclassifications[69][350] - Management's estimates and assumptions, including lease collectibility and impairment, were evaluated for COVID-19 impact, with no revisions deemed necessary at this time[71][352] Income and Other Taxes EQR maintains its REIT status, resulting in no federal income tax provision at the EQR or ERPOP level, as partners recognize their allocable share of income/loss. The Company generally incurs state and local taxes, and its taxable REIT subsidiaries (TRS) incur federal and state income taxes. The CARES Act tax provisions for 2019 and 2020 did not materially impact the Company's tax liabilities - EQR's REIT status and ERPOP's partnership structure generally result in no federal income tax provision at either level, with partners recognizing their allocable share of income or loss[73][354] - The Company incurs state and local income, excise, and franchise taxes, and its taxable REIT subsidiaries (TRS) incur federal and state income taxes[73][354] - The CARES Act tax provisions for 2019 and 2020, which increased interest expense deductions and net operating loss usage, did not materially impact the Company's taxable income or tax liabilities[74][355] Recently Issued Accounting Pronouncements The FASB issued amendments in August 2020 to simplify accounting for convertible instruments and equity contracts, potentially affecting OP Unit presentation, effective January 1, 2022. In March 2020, an amendment to the reference rate reform standard (e.g., LIBOR transition) was issued, offering optional expedients for contract modifications and hedge accounting, effective upon issuance. The Company is evaluating the impact of both standards - FASB issued an amendment in August 2020 to simplify accounting for convertible instruments and equity contracts, effective January 1, 2022, which may impact OP Unit presentation[75][356] - A March 2020 FASB amendment on reference rate reform (e.g., LIBOR transition) provides optional expedients for contract modifications and hedge accounting, effective upon issuance. The Company is evaluating its options and impact[76][357] Recently Adopted Accounting Pronouncements In April 2020, the Company elected not to evaluate COVID-19 lease concessions as lease modifications, treating them as part of existing contracts. Collectible deferrals are recorded as rental receivables, while non-collectible deferrals and abatements reduce rental revenues. The Company also adopted a FASB standard on estimating credit losses for financial instruments, effective January 1, 2020, which did not materially affect its financial position - The Company elected not to treat COVID-19 lease concessions as lease modifications, instead accounting for them as part of existing contracts. Collectible deferrals are rental receivables, and non-collectible deferrals/abatements reduce rental revenues[78][359] - A FASB standard on estimating credit losses for financial instruments was adopted effective January 1, 2020, with no material effect on consolidated results or financial position[79][360] 3. Equity, Capital and Other Interests This section details the changes in Equity Residential's (EQR) Common Shares and Units, and ERP Operating Limited Partnership's (ERPOP) General Partner Units and Limited Partner Units. It explains the classification of Noncontrolling Interests as mezzanine or permanent equity, their redemption value, and the allocation of net proceeds from equity offerings. As of June 30, 2021, EQR had 374.35 million Common Shares outstanding, and ERPOP had 12.93 million Units outstanding, with Limited Partners holding a 3.3% ownership interest Changes in Common Shares and Units Outstanding (Six Months Ended June 30) | Metric | 2021 | 2020 | | :------------------------------------------ | :------------ | :------------ | | Common Shares outstanding at January 1, | 372,302,000 | 371,670,884 | | Common Shares outstanding at June 30, | 374,354,830 | 372,209,012 | | Units outstanding at January 1, | 13,858,073 | 13,731,315 | | Units outstanding at June 30, | 12,929,688 | 13,879,951 | | Total Common Shares and Units outstanding at June 30, | 387,284,518 | 386,088,963 | | Units Ownership Interest in Operating Partnership | 3.3% | 3.6% | Changes in General and Limited Partner Units Outstanding (Six Months Ended June 30) | Metric | 2021 | 2020 | | :------------------------------------------ | :------------ | :------------ | | General and Limited Partner Units outstanding at January 1, | 386,160,073 | 385,402,199 | | General and Limited Partner Units outstanding at June 30, | 387,284,518 | 386,088,963 | | Limited Partner Units outstanding at January 1, | 13,858,073 | 13,731,315 | | Limited Partner Units outstanding at June 30, | 12,929,688 | 13,879,951 | | Limited Partner Units Ownership Interest in Operating Partnership | 3.3% | 3.6% | - Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners are adjusted to the greater of carrying value or fair market value based on EQR's Common Share price. Their redemption value was approximately $440.1 million as of June 30, 2021, up from $338.951 million at January 1, 2021[86][87][89][367][368][370] Preferred Shares/Preference Units Outstanding (Amounts in thousands) | Preferred Shares/Preference Units | Call Date | Annual Dividend Per Share/Unit | June 30, 2021 | December 31, 2020 | | :---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------- | :----------------------------- | :------------ | :---------------- | | 8.29% Series K Cumulative Redeemable Preferred Shares/Preference Units; liquidation value $50 per share/unit; 745,600 shares/units issued and outstanding as of June 30, 2021 and December 31, 2020 | 12/10/26 | $4.145 | $37,280 | $37,280 | - EQR and ERPOP have an active universal shelf registration statement for equity and debt securities, expiring in June 2022. EQR contributes net proceeds from equity offerings to ERPOP in exchange for OP Units or preference units[92][373] - The Company has an At-The-Market (ATM) share offering program with authority to issue 13.0 million shares, extended to June 2022, but has not issued shares under this program since September 2012. It also has authorization to repurchase up to 13.0 million Common Shares, with no repurchases since February 2014[93][95][374][376] 4. Real Estate This section details the Company's investment in real estate, including land, depreciable property, and projects under development. As of June 30, 2021, the net investment in real estate was $19.24 billion. During the first six months of 2021, the Company acquired 3 properties (813 units) for $280.2 million and disposed of 5 properties (795 units), recognizing a net gain of $223.7 million on sales Investment in Real Estate (Amounts in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | Land | $5,780,705 | $5,785,367 | | Depreciable property | $21,161,984 | $20,920,654 | | Projects under development | $372,243 | $411,134 | | Land held for development | $90,446 | $86,170 | | Investment in real estate | $27,405,378 | $27,203,325 | | Accumulated depreciation | $(8,164,287) | $(7,859,657) | | Investment in real estate, net | $19,241,091 | $19,343,668 | Real Estate Acquisitions (Six Months Ended June 30, 2021) | Property Type | Properties | Apartment Units | Purchase Price (thousands) | | :------------------------------- | :--------- | :-------------- | :------------------------- | | Rental Properties – Consolidated | 3 | 813 | $280,200 | Real Estate Dispositions (Six Months Ended June 30, 2021) | Property Type | Properties | Apartment Units | | :------------------------------- | :--------- | :-------------- | | Rental Properties – Consolidated | 5 | 795 | - The Company recognized a net gain of approximately $223.7 million on sales of real estate properties during the six months ended June 30, 2021[99][380] 5. Commitments to Acquire/Dispose of Real Estate As of the filing date, the Company had no agreements to acquire rental properties or land parcels. However, it had entered into agreements to dispose of two consolidated rental properties comprising 454 apartment units for a sales price of $275.0 million, with a net book value of $98.033 million as of June 30, 2021. The closing of these transactions is subject to conditions - The Company had no agreements to acquire rental properties or land parcels as of the filing date[100][381] Commitments to Dispose of Real Estate (Amounts in thousands) | Property Type | Properties | Apartment Units | Sales Price | Net Book Value at June 30, 2021 | | :------------------------------- | :--------- | :-------------- | :---------- | :------------------------------ | | Rental Properties - Consolidated | 2 | 454 | $275,000 | $98,033 | - The closing of pending disposition transactions is subject to certain conditions and restrictions, with no assurance of consummation or final terms[103][384] 6. Investments in Partially Owned Entities The Company invests in partially owned entities, classifying them as either consolidated Variable Interest Entities (VIEs) or unconsolidated entities accounted for under the equity method. ERPOP is consolidated as a VIE by EQR. The Company also consolidates 16 joint ventures owning 3,477 apartment units and one joint venture for multifamily development. Investments in unconsolidated entities include an operating property VIE and five real estate technology funds/companies Consolidated Variable Interest Entities ("VIEs") EQR consolidates ERPOP as a VIE due to its controlling financial interest and power to direct ERPOP's activities. Additionally, the Company consolidates 16 joint ventures (3,477 apartment units) and one joint venture for multifamily development, all identified as VIEs where the Company is the primary beneficiary. Consolidated assets and liabilities related to these VIEs were approximately $778.6 million and $242.0 million, respectively, at June 30, 2021 - EQR consolidates ERPOP as a Variable Interest Entity (VIE) because EQR is the sole general partner with exclusive control and is ERPOP's primary beneficiary[105][386] - The Company consolidates 16 joint ventures owning 3,477 apartment units and one joint venture for multifamily rental property development, all identified as VIEs where the Company is the primary beneficiary[106][387] Consolidated VIEs Assets and Liabilities (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :---------- | :------------ | :---------------- | | Total assets | $778,600 | $784,100 | | Liabilities | $242,000 | $224,000 | Investments in Unconsolidated Entities The Company holds investments in unconsolidated entities, accounted for under the equity method, as consolidation requirements are not met. These include an operating property VIE (33.3% ownership) and five real estate technology funds/companies with varying ownership percentages. Total investments in unconsolidated entities were $53.364 million at June 30, 2021 Investments in Unconsolidated Entities (Amounts in thousands) | Category | June 30, 2021 | December 31, 2020 | Ownership Percentage | | :---------------------------- | :------------ | :---------------- | :------------------- | | Operating Property (VIE) | $37,204 | $38,288 | 33.3% | | Real Estate Technology | $16,609 | $14,866 | Varies | | Other | $(449) | $(372) | Varies | | Total Investments in Unconsolidated Entities | $53,364 | $52,782 | | - Investments in unconsolidated entities are accounted for under the equity method, as the Company does not have a controlling financial interest or primary beneficiary status in these VIEs[108][389] 7. Restricted Deposits The Company's restricted deposits significantly increased from $57.137 million at December 31, 2020, to $353.009 million at June 30, 2021. This increase was primarily driven by tax-deferred (1031) exchange proceeds of $285.147 million, along with increases in mortgage escrow deposits and earnest money on pending acquisitions Restricted Deposits (Amounts in thousands) | Category | June 30, 2021 | December 31, 2020 | | :------------------------------------- | :------------ | :---------------- | | Mortgage escrow deposits | $27,077 | $24,045 | | Tax-deferred (1031) exchange proceeds | $285,147 | — | | Earnest money on pending acquisitions | $6,250 | — | | Resident security and utility deposits | $32,405 | $31,412 | | Total restricted deposits | $353,009 | $57,137 | - Total restricted deposits increased by $295.872 million (517.8%) from December 31, 2020, to June 30, 2021, largely due to tax-deferred exchange proceeds[111][392] 8. Leases This section details the Company's lessor accounting for residential and non-residential leases, which are treated as operating leases. Residential leases (97% of total lease revenue) are typically 12 months or less, while non-residential leases (3%) range from five to ten years. The COVID-19 pandemic has led to elevated bad debt levels, with residential bad debt increasing significantly in 2021 compared to 2020 Lessor Accounting The Company accounts for both residential and non-residential leases as operating leases. Residential leases, comprising 97% of total lease revenue, are generally short-term (≤12 months), while non-residential leases (3%) are longer (5-10 years). Lease income is recognized on a straight-line basis. The pandemic has resulted in elevated bad debt, with residential bad debt increasing to $25.772 million for the six months ended June 30, 2021 (2.2% of rental income), up from $13.348 million (1.0%) in the prior year - Approximately 97% of the Company's total lease revenue for the six months ended June 30, 2021, is from residential apartment leases (generally 12 months or less), and 3% is from non-residential leases (generally 5-10 years)[112][393] Total Lease Revenue and Other Rental Income (Six Months Ended June 30, Amounts in thousands) | Income Type | 2021 Total | 2020 Total | | :---------------------------------------- | :--------- | :--------- | | Residential and non-residential rent | $1,109,541 | $1,237,327 | | Utility recoveries (RUBS income) | $36,863 | $35,607 | | Parking rent | $20,252 | $19,683 | | Other lease revenue (net of bad debt) | $(17,832) | $(7,504) | | Total lease revenue | $1,148,824 | $1,285,113 | | Parking revenue | $11,572 | $11,312 | | Other revenue | $35,265 | $39,412 | | Total other rental income | $46,837 | $50,724 | | Rental income | $1,195,661 | $1,335,837 | Residential Bad Debt (Amounts in thousands) | Period | Bad debt, net | % of rental income | | :-------------------------------------- | :------------ | :----------------- | | Six Months Ended June 30, 2021 | $25,772 | 2.2% | | Six Months Ended June 30, 2020 | $13,348 | 1.0% | | Quarter Ended June 30, 2021 | $12,079 | 2.1% | | Quarter Ended June 30, 2020 | $9,564 | 1.5% | - The economic impact of the pandemic has led to elevated levels of bad debt, with residential bad debt increasing by 93.1% for the six months ended June 30, 2021, compared to the prior year[117][118][398][399] 9. Debt This section details the Company's debt structure, which is entirely incurred by the Operating Partnership (ERPOP). As of June 30, 2021, total debt was $8.25 billion, with 27.6% secured and 72.4% unsecured. The Company has a $2.5 billion unsecured revolving credit facility and a $1.0 billion commercial paper program. Interest expense decreased significantly for the six months ended June 30, 2021, due to lower debt balances and interest rates Mortgage Notes Payable As of June 30, 2021, the Company's net mortgage notes payable totaled $2.28 billion, a slight decrease from $2.29 billion at December 31, 2020. This includes fixed-rate and floating-rate secured debt, with a weighted average interest rate of 3.17% and maturities ranging from 2022 to 2061. The Company obtained $28.5 million in new fixed-rate mortgage debt and repaid $59.88 million in lump sum payoffs during the period Mortgage Notes Payable Activity (Six Months Ended June 30, 2021, Amounts in thousands) | Category | Balance Dec 31, 2020 | Proceeds | Lump Sum Payoffs | Scheduled Principal Repayments | Amortization of Premiums/Discounts | Amortization Deferred Financing Costs, net | Balance June 30, 2021 | | :------------------- | :------------------- | :------- | :--------------- | :----------------------------- | :--------------------------------- | :----------------------------------------- | :-------------------- | | Fixed Rate Debt | $1,901,091 | $28,500 | $(28,200) | $(3,713) | $758 | $354 | $1,898,790 | | Floating Rate Debt | $392,799 | $19,259 | $(31,680) | — | $616 | $467 | $381,461 | | Total | $2,293,890 | $47,759 | $(59,880) | $(3,713) | $1,374 | $821 | $2,280,251 | Mortgage Notes Payable Interest Rate and Maturity (June 30, 2021) | Metric | Value | | :--------------------------- | :---------- | | Interest Rate Ranges | 0.03% - 4.21% | | Weighted Average Interest Rate | 3.17% | | Maturity Date Ranges | 2022-2061 | - As of June 30, 2021, $250.0 million of secured debt was subject to third-party credit enhancement[123][404] Notes The Company's unsecured public notes, net, totaled $5.339 billion as of June 30, 2021, a slight increase from $5.336 billion at December 31, 2020. These fixed-rate notes have a weighted average interest rate of 3.75% and maturities ranging from 2023 to 2047. The Company was in compliance with all unsecured public debt covenants Notes Activity (Six Months Ended June 30, 2021, Amounts in thousands) | Category | Balance Dec 31, 2020 | Proceeds | Lump Sum Payoffs | Realized/Unrealized (Gain) Loss on Derivative Instruments | Amortization of Premiums/Discounts | Amortization Deferred Financing Costs, net | Balance June 30, 2021 | | :----------------- | :------------------- | :------- | :--------------- | :-------------------------------------------------------- | :--------------------------------- | :----------------------------------------- | :-------------------- | | Unsecured – Public | $5,335,536 | — | — | — | $1,219 | $1,916 | $5,338,671 | Notes Interest Rate and Maturity (June 30, 2021) | Metric | Value | | :--------------------------- | :---------- | | Interest Rate Ranges | 2.50% - 7.57% | | Weighted Average Interest Rate | 3.75% | | Maturity Date Ranges | 2023-2047 | - The Company was in compliance with its unsecured public debt covenants for the six months ended June 30, 2021[127][408] Line of Credit and Commercial Paper The Company maintains a $2.5 billion unsecured revolving credit facility maturing in November 2024 and a $1.0 billion unsecured commercial paper note program. As of June 30, 2021, the commercial paper balance outstanding was $632.0 million, with a weighted average interest rate of 0.29% and a 46-day maturity. The revolving credit facility had $1.767 billion in availability, with no amounts borrowed during the six months ended June 30, 2021. The credit agreement includes provisions for LIBOR replacement - The Company has a $2.5 billion unsecured revolving credit facility maturing November 1, 2024, with an interest rate of LIBOR plus a spread (currently 0.775%) and an annual facility fee (currently 0.125%)[128][409] - The Company has a $1.0 billion unsecured commercial paper note program, with notes bearing interest at various floating rates. For the six months ended June 30, 2021, the weighted average interest rate was 0.29% and weighted average maturity was 46 days[129][410] Unsecured Revolving Credit Facility Availability (June 30, 2021, Amounts in thousands) | Metric | June 30, 2021 | | :------------------------------------------ | :------------ | | Unsecured revolving credit facility commitment | $2,500,000 | | Commercial paper balance outstanding | $(632,000) | | Unsecured revolving credit facility balance outstanding | — | | Other restricted amounts | $(100,699) | | Unsecured revolving credit facility availability | $1,767,301 | - The unsecured revolving credit agreement includes provisions for replacing LIBOR, with the impact on borrowing costs currently uncertain[506] Other During the six months ended June 30, 2021, the Company recorded $264 thousand in debt extinguishment costs, primarily from write-offs of unamortized deferred financing costs Debt Extinguishment Costs (Six Months Ended June 30, 2021, Amounts in thousands) | Category | June 30, 2021 | | :---------------------------------------- | :------------ | | Write-offs of unamortized deferred financing costs | $264 | 10. Fair Value Measurements This section discusses the Company's fair value measurements for financial instruments, which are based on a three-level valuation hierarchy. The fair values of most financial instruments approximate their carrying value, except for mortgage notes payable and unsecured debt. The Company uses derivatives to manage interest rate risk but had no derivative instruments outstanding at June 30, 2021. A net gain of $23.4 million was recognized from the sale of investment securities during the six months ended June 30, 2021 - The Company uses a three-level valuation hierarchy for fair value measurements, categorizing inputs as Level 1 (quoted prices in active markets), Level 2 (observable inputs for similar assets/liabilities), or Level 3 (unobservable inputs)[133][414] Fair Value Measurement Types and Valuation Inputs | Fair Value Measurement Type | Valuation Inputs | | :--------------------------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------------------------------------------- | | Employee holdings within the supplemental executive retirement plan (SERP) | Quoted market prices for identical assets (Level 1) | | Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners | Quoted market price of Common Shares (Level 2) | | Mortgage notes payable and private unsecured debt (including commercial paper and line of credit) | Indicative rates provided by lenders of similar loans (Level 2) | | Public unsecured notes | Quoted market prices for each underlying issuance (Level 2) | Carrying and Fair Values for Debt (Amounts in thousands) | Debt Type | June 30, 2021 Carrying Value | June 30, 2021 Estimated Fair Value (Level 2) | December 31, 2020 Carrying Value | December 31, 2020 Estimated Fair Value (Level 2) | | :-------------------------- | :--------------------------- | :------------------------------------------- | :------------------------------- | :------------------------------------------- | | Mortgage notes payable, net | $2,280,251 | $2,308,025 | $2,293,890 | $2,313,263 | | Unsecured debt, net | $5,970,441 | $6,688,195 | $5,750,366 | $6,686,612 | | Total debt, net | $8,250,692 | $8,996,220 | $8,044,256 | $8,999,875 | - The Company recognized a net gain of $23.4 million from the sale of investment securities during the six months ended June 30, 2021, included in interest and other income[132][413] - The Company had no derivative instruments outstanding at June 30, 2021. As of June 30, 2021, there were $39.0 million in deferred losses, net, related to derivative instruments in accumulated other comprehensive income (loss)[141][243][422][524] 11. Earnings Per Share and Earnings Per Unit This section provides the computation of basic and diluted earnings per share for Equity Residential (EQR) and earnings per unit for ERP Operating Limited Partnership (ERPOP). For the six months ended June 30, 2021, both EQR's diluted EPS and ERPOP's diluted EPU were $1.00, a decrease from $1.53 in the prior year, reflecting lower net income available to common shares/units Equity Residential For the six months ended June 30, 2021, Equity Residential reported basic and diluted earnings per share of $1.00, a decrease from $1.53 in the prior year. This was based on net income available to Common Shares of $372.380 million and weighted average Common Shares outstanding of 373.050 million (basic) and 387.367 million (diluted) Equity Residential Earnings Per Share (Amounts in thousands except per share amounts) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net income available to Common Shares | $372,380 | $567,949 | | Earnings per share – basic | $1.00 | $1.53 | | Weighted average Common Shares outstanding (basic) | 373,050 | 371,689 | | Earnings per share – diluted | $1.00 | $1.53 | | Weighted average Common Shares outstanding (diluted) | 387,367 | 386,272 | Equity Residential Earnings Per Share (Quarterly, Amounts in thousands except per share amounts) | Metric | Quarter Ended June 30, 2021 | Quarter Ended June 30, 2020 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net income available to Common Shares | $315,614