Equity Residential(EQR) - 2023 Q2 - Quarterly Report

Explanatory Note Corporate Structure and Reporting This report combines EQR and ERPOP financial statements, with EQR as the general partner holding a 96.8% interest in the UPREIT structure - EQR is the general partner of ERPOP and held an approximate 96.8% ownership interest as of June 30, 2023, with the remaining 3.2% owned by limited partners[8] - The company is structured as an UPREIT, allowing it to acquire properties by issuing OP Units, which can provide tax deferral benefits to sellers[9] - All property ownership, development, and debt are held at the Operating Partnership (ERPOP) level, with EQR's main assets being its investment in ERPOP and its primary function to act as the general partner and issue equity[11] - The main differences between EQR's and ERPOP's financial statements are in the equity section, where limited partners of ERPOP are treated as noncontrolling interests in EQR's statements and as partners' capital in ERPOP's statements[12] PART I - Financial Information Item 1. Financial Statements Unaudited consolidated financial statements for EQR and ERPOP show $1.42 billion in revenue and $349.7 million net income for the first half of 2023 Equity Residential - Key Financials (Six Months Ended June 30, 2023 vs 2022) | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Rental Income | $1,422,397 | $1,340,378 | | Operating Income | $516,049 | $459,672 | | Net Income Available to Common Shares | $349,693 | $293,321 | | Diluted EPS | $0.92 | $0.78 | | Net Cash from Operating Activities | $745,980 | $690,874 | Equity Residential - Balance Sheet Summary | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $20,145,729 | $20,218,262 | | Total Liabilities | $8,563,867 | $8,517,310 | | Total Equity | $11,226,543 | $11,382,679 | Notes to Consolidated Financial Statements Detailed notes cover business overview, accounting policies, and real estate transactions, including the acquisition of two properties for $186.6 million and disposition of seven for $135.3 million in H1 2023 Portfolio Overview (as of June 30, 2023) | Ownership | Properties | Apartment Units | | :--- | :--- | :--- | | Wholly Owned Properties | 289 | 76,986 | | Partially Owned Properties – Consolidated | 15 | 3,226 | | Total | 304 | 80,212 | Real Estate Transactions (Six Months Ended June 30, 2023) | Transaction Type | Properties | Apartment Units | Price (in thousands) | | :--- | :--- | :--- | :--- | | Acquisitions | 2 | 549 | $186,600 | | Dispositions | 7 | 247 | $135,300 | - Subsequent to June 30, 2023, the company repaid $67.9 million of mortgage debt, locked an interest rate of approximately 4.7% on $530.0 million of secured notes, and received $27.1 million to settle nine forward starting swaps[134] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting 7.7% same-store NOI growth in H1 2023, supported by $2.3 billion in available liquidity Diluted EPS Reconciliation (2022 vs 2023) | Description | Six Months Ended June 30 | Quarter Ended June 30 | | :--- | :--- | :--- | | Diluted EPS 2022 | $0.78 | $0.59 | | Property NOI | $0.17 | $0.06 | | Interest expense | $0.03 | $0.01 | | Corporate overhead | ($0.01) | ($0.02) | | Net gain/loss on property sales | ($0.03) | ($0.28) | | Depreciation expense | $0.05 | $0.02 | | Other | ($0.07) | ($0.01) | | Diluted EPS 2023 | $0.92 | $0.37 | Same Store NOI Change (Six Months Ended June 30, 2023 vs 2022) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Same Store Rental Income | $1,375,078 | $1,281,947 | 7.3% | | Same Store Operating Expenses | $444,251 | $417,686 | 6.4% | | Same Store NOI | $930,827 | $864,261 | 7.7% | - The company maintains a strong liquidity position, with approximately $2.3 billion in readily available liquidity as of June 30, 2023, consisting of cash and availability on its unsecured revolving credit facility[169][175] Results of Operations Results show strong same-store performance with 7.7% NOI growth driven by 7.3% rental income increase, despite higher operating expenses Portfolio Rollforward (Six Months Ended June 30, 2023) | Description | Properties | Apartment Units | | :--- | :--- | :--- | | Balance at 12/31/2022 | 308 | 79,597 | | Acquisitions | 2 | 549 | | Dispositions | (7) | (247) | | Completed Developments | 1 | 312 | | Balance at 6/30/2023 | 304 | 80,212 | - Same-store residential NOI grew 7.8% for the six months ended June 30, 2023, with an average rental rate increase of 8.0% and physical occupancy of 95.9%[161] - Key drivers for performance include strong pricing, particularly in New York; high physical occupancy at 95.9%; and a high percentage of residents renewing (57.0% in Q2 2023), keeping turnover low[168] Liquidity and Capital Resources The company maintains strong liquidity with $2.3 billion available, supported by $746.0 million in operating cash flow and a $24.9 billion unencumbered asset pool Sources and Uses of Cash (Six Months Ended June 30, 2023) | Activity | Amount (in thousands) | | :--- | :--- | | Net Cash from Operating Activities | $745,980 | | Net Cash used for Investing Activities | ($271,279) | | Net Cash used for Financing Activities | ($487,231) | Debt Summary (as of June 30, 2023) | Debt Type | Balance (in thousands) | % of Total | | :--- | :--- | :--- | | Secured | $1,913,069 | 25.7% | | Unsecured | $5,529,847 | 74.3% | | Total | $7,442,916 | 100.0% | | Fixed Rate | $6,954,671 | 93.4% | | Floating Rate | $488,245 | 6.6% | - The company has a significant unencumbered asset pool valued at $24.9 billion (87.6% of total investment in real estate), providing substantial financial flexibility[182] FFO and Normalized FFO Reconciliation (Six Months Ended June 30, 2023) | Metric (in thousands) | Amount | | :--- | :--- | | Net Income | $364,933 | | FFO available to Common Shares and Units | $696,281 | | Normalized FFO available to Common Shares and Units | $710,695 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes to its market risk profile since the December 31, 2022 Annual Report on Form 10-K - There have been no material changes to the company's market risk profile since the end of 2022[191] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures for EQR and ERPOP were effective as of June 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that the disclosure controls and procedures for both EQR and ERPOP were effective as of June 30, 2023[192][194] - No changes occurred during the second quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[193][195] PART II - Other Information Item 1. Legal Proceedings As of June 30, 2023, the company reports no pending or threatened litigation expected to have a material adverse effect - The company is not aware of any litigation that is reasonably expected to have a material adverse effect[196] Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the December 31, 2022 Annual Report on Form 10-K - No material changes to risk factors have occurred since the 2022 Form 10-K filing[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2023, EQR issued 36,062 Common Shares in exchange for OP Units, relying on a Securities Act registration exemption - In Q2 2023, 36,062 Common Shares were issued in exchange for 36,062 OP Units in transactions exempt from registration[198] Item 5. Other Information EVP & CIO Alexander Brackenridge adopted a Rule 10b5-1 trading arrangement on June 15, 2023, for potential securities sales - EVP & CIO Alexander Brackenridge adopted a Rule 10b5-1 trading plan for selling up to 20,133 Common Shares and exercising options for up to 15,516 shares[201]