Published: 2023-04-28 00:00:00 ET

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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 March 31, 2023

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		New York Stock Exchange

 

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).

 

Equity Residential Yes ☒  No ☐	ERP Operating Limited Partnership Yes ☒  No ☐

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:

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☐
Emerging growth company		☐

 

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 April 21, 2023 was 378,904,669.

 

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EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended March 31, 2023 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 March 31, 2023 owned an approximate 96.8% ownership interest in, ERPOP. The remaining 3.2% interest is owned by limited partners. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management. Management operates the Company and the Operating Partnership as one business. The management of EQR consists of the same members as the management of ERPOP.

The Company is structured as an umbrella partnership REIT (“UPREIT”) and EQR contributes all net proceeds from its various equity offerings to ERPOP. In return for those contributions, EQR receives a number of OP Units (see definition below) in ERPOP equal to the number of Common Shares it has issued in the equity offering. The Company may acquire properties in transactions that include the issuance of OP Units as consideration for the acquired properties. Such transactions may, in certain circumstances, enable the sellers to defer in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales. This is one of the reasons why the Company is structured in the manner shown above. Based on the terms of ERPOP’s partnership agreement, OP Units can be exchanged with Common Shares on a one-for-one basis because the Company maintains a one-for-one relationship between the OP Units of ERPOP issued to EQR and the outstanding Common Shares.

The Company believes that combining the reports on Form 10-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.

 

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The Company believes it is important to understand the few differences between EQR and ERPOP in the context of how EQR and ERPOP operate as a consolidated company. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR’s primary function is acting as the general partner of ERPOP. EQR also issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by EQR (which are contributed to the capital of ERPOP in exchange for additional partnership interests in ERPOP (“OP Units”) (on a one-for-one Common Share per OP Unit basis) or additional preference units in ERPOP (on a one-for-one preferred share per preference unit basis)), the Operating Partnership generates all remaining capital required by the Company’s business. These sources include the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility and/or commercial paper program, the issuance of secured and unsecured debt and partnership interests, and proceeds received from disposition of certain properties and joint venture interests.

Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in the Company’s financial statements. The noncontrolling interests in the Operating Partnership’s financial statements include the interests of unaffiliated partners in various consolidated partnerships. The noncontrolling interests in the Company’s financial statements include the same noncontrolling interests at the Operating Partnership level and limited partner OP Unit holders of the Operating Partnership. The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.

To help investors understand the differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s debt, noncontrolling interests and shareholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.

This report also includes separate Part 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.

 

 

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TABLE OF CONTENTS

 

	PAGE
PART I.
Item 1. Financial Statements of Equity Residential:
Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	2
Consolidated Statements of Operations and Comprehensive Income for the quarters ended March 31, 2023 and 2022	3
Consolidated Statements of Cash Flows for the quarters ended March 31, 2023 and 2022	5
Consolidated Statements of Changes in Equity for the quarters ended March 31, 2023 and 2022	8
Financial Statements of ERP Operating Limited Partnership:
Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	10
Consolidated Statements of Operations and Comprehensive Income for the quarters ended March 31, 2023 and 2022	11
Consolidated Statements of Cash Flows for the quarters ended March 31, 2023 and 2022	13
Consolidated Statements of Changes in Capital for the quarters ended March 31, 2023 and 2022	16
Notes to Consolidated Financial Statements of Equity Residential and ERP Operating Limited Partnership	18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosures about Market Risk	43
Item 4. Controls and Procedures	43
PART II.
Item 1. Legal Proceedings	44
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3. Defaults Upon Senior Securities	44
Item 4. Mine Safety Disclosures	44
Item 5. Other Information	44
Item 6. Exhibits	44

 

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EQUITY RESIDENTIAL

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except for share amounts)

(Unaudited)

 

		March 31,				December 31,
		2023				2022
ASSETS
Land		$	5,559,883			$	5,580,878
Depreciable property			22,343,556				22,334,369
Projects under development			132,341				112,940
Land held for development			60,665				60,567
Investment in real estate			28,096,445				28,088,754
Accumulated depreciation			(9,207,194	)			(9,027,850	)
Investment in real estate, net			18,889,251				19,060,904
Investments in unconsolidated entities			292,279				279,024
Cash and cash equivalents			133,460				53,869
Restricted deposits			85,625				83,303
Right-of-use assets			466,911				462,956
Other assets			235,000				278,206
Total assets		$	20,102,526			$	20,218,262
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net		$	1,968,243			$	1,953,438
Notes, net			5,343,851				5,342,329
Line of credit and commercial paper			—				129,955
Accounts payable and accrued expenses			144,660				96,028
Accrued interest payable			49,776				66,310
Lease liabilities			314,854				308,748
Other liabilities			283,418				306,941
Security deposits			68,728				68,940
Distributions payable			258,992				244,621
Total liabilities			8,432,522				8,517,310
Commitments and contingencies
Redeemable Noncontrolling Interests – Operating Partnership			323,551				318,273
Equity:
Shareholders' equity:
Preferred Shares of beneficial interest, $0.01 par value;    100,000,000 shares authorized; 745,600 shares issued and    outstanding as of March 31, 2023 and December 31, 2022			37,280				37,280
Common Shares of beneficial interest, $0.01 par value;    1,000,000,000 shares authorized; 378,898,221 shares issued    and outstanding as of March 31, 2023 and 378,429,708    shares issued and outstanding as of December 31, 2022			3,789				3,784
Paid in capital			9,488,320				9,476,085
Retained earnings			1,619,131				1,658,837
Accumulated other comprehensive income (loss)			(11,232	)			(2,547	)
Total shareholders’ equity			11,137,288				11,173,439
Noncontrolling Interests:
Operating Partnership			211,718				209,961
Partially Owned Properties			(2,553	)			(721	)
Total Noncontrolling Interests			209,165				209,240
Total equity			11,346,453				11,382,679
Total liabilities and equity		$	20,102,526			$	20,218,262

 

See accompanying notes

2

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EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands except per share data)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
REVENUES
Rental income		$	705,088			$	653,348
EXPENSES
Property and maintenance			137,579				124,874
Real estate taxes and insurance			106,669				100,688
Property management			31,466				30,747
General and administrative			16,165				17,238
Depreciation			215,830				229,961
Total expenses			507,709				503,508
Net gain (loss) on sales of real estate properties			100,209				(102	)
Operating income			297,588				149,738
Interest and other income			1,538				3,528
Other expenses			(8,995	)			(3,056	)
Interest:
Expense incurred, net			(66,401	)			(72,792	)
Amortization of deferred financing costs			(1,979	)			(2,077	)
Income before income and other taxes, income (loss) from    investments in unconsolidated entities and net gain (loss)    on sales of land parcels			221,751				75,341
Income and other tax (expense) benefit			(298	)			(282	)
Income (loss) from investments in unconsolidated entities			(1,382	)			(1,261	)
Net income			220,071				73,798
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership			(7,059	)			(2,394	)
Partially Owned Properties			(977	)			(639	)
Net income attributable to controlling interests			212,035				70,765
Preferred distributions			(772	)			(772	)
Net income available to Common Shares		$	211,263			$	69,993
Earnings per share – basic:
Net income available to Common Shares		$	0.56			$	0.19
Weighted average Common Shares outstanding			378,341				375,509
Earnings per share – diluted:
Net income available to Common Shares		$	0.56			$	0.19
Weighted average Common Shares outstanding			390,664				389,628

 

See accompanying notes

3

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EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)

(Amounts in thousands except per share data)

(Unaudited)

		Quarter Ended March 31,
		2023				2022
Comprehensive income:
Net income		$	220,071			$	73,798
Other comprehensive income (loss):
Other comprehensive income (loss) – derivative instruments:
Unrealized holding gains (losses) arising during the period			(9,780	)			—
Losses reclassified into earnings from other comprehensive    income			1,095				2,425
Other comprehensive income (loss)			(8,685	)			2,425
Comprehensive income			211,386				76,223
Comprehensive (income) attributable to Noncontrolling Interests			(7,755	)			(3,113	)
Comprehensive income attributable to controlling interests		$	203,631			$	73,110

See accompanying notes

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EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	220,071			$	73,798
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			215,830				229,961
Amortization of deferred financing costs			1,979				2,077
Amortization of discounts and premiums on debt			868				1,358
Amortization of deferred settlements on derivative instruments			1,092				2,422
Amortization of right-of-use assets			3,150				3,046
Write-off of pursuit costs			1,332				1,463
(Income) loss from investments in unconsolidated entities			1,382				1,261
Distributions from unconsolidated entities – return on capital			151				79
Net (gain) loss on sales of real estate properties			(100,209	)			102
Realized (gain) loss on sale of investment securities			87				(2,066	)
Compensation paid with Company Common Shares			9,044				9,203
Changes in assets and liabilities:
(Increase) decrease in other assets			26,257				30,174
Increase (decrease) in accounts payable and accrued expenses			45,357				54,553
Increase (decrease) in accrued interest payable			(16,534	)			(12,634	)
Increase (decrease) in lease liabilities			(334	)			(902	)
Increase (decrease) in other liabilities			(16,032	)			(27,213	)
Increase (decrease) in security deposits			(212	)			1,374
Net cash provided by operating activities			393,279				368,056
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions			—				(113,046	)
Investment in real estate – development/other			(16,786	)			(24,255	)
Capital expenditures to real estate			(55,392	)			(35,285	)
Non-real estate capital additions			(600	)			(971	)
Interest capitalized for real estate and unconsolidated entities under development			(3,393	)			(1,017	)
Proceeds from disposition of real estate, net			133,916				—
Investments in unconsolidated entities – development/other			(14,480	)			(24,897	)
Distributions from unconsolidated entities – return of capital			6				9
Purchase of investment securities and other investments			—				(1,009	)
Proceeds from sale of investment securities			452				3,434
Net cash provided by (used for) investing activities			43,723				(197,037	)

 

See accompanying notes

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EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage notes payable, net:
Proceeds		$	14,090			$	2,689
Scheduled principal repayments			(40	)			(1,933	)
Line of credit and commercial paper:
Commercial paper proceeds			1,323,145				1,424,086
Commercial paper repayments			(1,453,100	)			(1,609,121	)
Finance ground lease principal payments			(665	)			(140	)
Proceeds from Employee Share Purchase Plan (ESPP)			1,452				969
Proceeds from exercise of options			8,112				14,344
Payment of offering costs			—				(114	)
Contributions – Noncontrolling Interests – Partially Owned Properties			—				446
Contributions – Noncontrolling Interests – Operating Partnership			—				1
Distributions:
Common Shares			(236,561	)			(226,639	)
Preferred Shares			(1,544	)			(772	)
Noncontrolling Interests – Operating Partnership			(7,380	)			(7,535	)
Noncontrolling Interests – Partially Owned Properties			(2,598	)			(15,836	)
Net cash provided by (used for) financing activities			(355,089	)			(419,555	)
Net increase (decrease) in cash and cash equivalents and restricted deposits			81,913				(248,536	)
Cash and cash equivalents and restricted deposits, beginning of period			137,172				360,236
Cash and cash equivalents and restricted deposits, end of period		$	219,085			$	111,700
Cash and cash equivalents and restricted deposits, end of period
Cash and cash equivalents		$	133,460			$	41,140
Restricted deposits			85,625				70,560
Total cash and cash equivalents and restricted deposits, end of period		$	219,085			$	111,700

 

See accompanying notes

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EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized		$	79,693			$	81,391
Net cash paid (received) for income and other taxes		$	348			$	350
Amortization of deferred financing costs:
Investment in real estate, net		$	(127	)		$	(127	)
Other assets		$	697			$	585
Mortgage notes payable, net		$	449			$	557
Notes, net		$	960			$	1,062
Amortization of discounts and premiums on debt:
Mortgage notes payable, net		$	306			$	685
Notes, net		$	562			$	673
Amortization of deferred settlements on derivative instruments:
Other liabilities		$	(3	)		$	(3	)
Accumulated other comprehensive income		$	1,095			$	2,425
Write-off of pursuit costs:
Investment in real estate, net		$	225			$	375
Investments in unconsolidated entities		$	649			$	1,070
Other assets		$	458			$	18
(Income) loss from investments in unconsolidated entities:
Investments in unconsolidated entities		$	1,071			$	946
Other liabilities		$	311			$	315
Realized/unrealized (gain) loss on derivative instruments:
Other assets		$	7,410			$	—
Other liabilities		$	2,370			$	—
Accumulated other comprehensive income		$	(9,780	)		$	—
Interest capitalized for real estate and unconsolidated entities under development:
Investment in real estate, net		$	(1,422	)		$	(307	)
Investments in unconsolidated entities		$	(1,971	)		$	(710	)
Investments in unconsolidated entities – development/other:
Investments in unconsolidated entities		$	(13,700	)		$	(24,897	)
Other liabilities		$	(780	)		$	—
Right-of-use assets and lease liabilities initial measurement and reclassifications:
Right-of-use assets		$	(7,105	)		$	—
Lease liabilities		$	7,105			$	—
Non-cash share distribution and other transfers from unconsolidated entities:
Investments in unconsolidated entities		$	539			$	859
Other assets		$	(539	)		$	(859	)

 

See accompanying notes

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EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands except per share data)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
SHAREHOLDERS’ EQUITY
PREFERRED SHARES
Balance, beginning of period		$	37,280			$	37,280
Balance, end of period		$	37,280			$	37,280
COMMON SHARES, $0.01 PAR VALUE
Balance, beginning of period		$	3,784			$	3,755
Conversion of OP Units into Common Shares			2				—
Exercise of share options			2				3
Share-based employee compensation expense:
Restricted shares			1				2
Balance, end of period		$	3,789			$	3,760
PAID IN CAPITAL
Balance, beginning of period		$	9,476,085			$	9,121,122
Common Share Issuance:
Conversion of OP Units into Common Shares			3,671				174
Exercise of share options			8,110				14,341
Employee Share Purchase Plan (ESPP)			1,452				969
Share-based employee compensation expense:
Restricted shares			3,653				3,609
Share options			1,497				876
ESPP discount			260				171
Offering costs			—				(114	)
Supplemental Executive Retirement Plan (SERP)			491				(163	)
Change in market value of Redeemable Noncontrolling Interests –    Operating Partnership			(5,946	)			939
Adjustment for Noncontrolling Interests ownership in Operating    Partnership			(953	)			1,045
Balance, end of period		$	9,488,320			$	9,142,969
RETAINED EARNINGS
Balance, beginning of period		$	1,658,837			$	1,827,063
Net income attributable to controlling interests			212,035				70,765
Common Share distributions			(250,969	)			(235,351	)
Preferred Share distributions			(772	)			(772	)
Balance, end of period		$	1,619,131			$	1,661,705
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period		$	(2,547	)		$	(34,272	)
Accumulated other comprehensive income (loss) – derivative    instruments:
Unrealized holding gains (losses) arising during the period			(9,780	)			—
Losses reclassified into earnings from other comprehensive    income			1,095				2,425
Balance, end of period		$	(11,232	)		$	(31,847	)
DISTRIBUTIONS
Distributions declared per Common Share outstanding		$	0.6625			$	0.625

 

See accompanying notes

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EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)

(Amounts in thousands except per share data)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
NONCONTROLLING INTERESTS
OPERATING PARTNERSHIP
Balance, beginning of period		$	209,961			$	214,094
Issuance of restricted units to Noncontrolling Interests			—				1
Conversion of OP Units held by Noncontrolling Interests into OP    Units held by General Partner			(3,673	)			(174	)
Equity compensation associated with Noncontrolling Interests			4,654				7,798
Net income attributable to Noncontrolling Interests			7,059				2,394
Distributions to Noncontrolling Interests			(7,904	)			(7,895	)
Change in carrying value of Redeemable Noncontrolling Interests –    Operating Partnership			668				2,278
Adjustment for Noncontrolling Interests ownership in Operating    Partnership			953				(1,045	)
Balance, end of period		$	211,718			$	217,451
PARTIALLY OWNED PROPERTIES
Balance, beginning of period		$	(721	)		$	18,166
Net income attributable to Noncontrolling Interests			977				639
Contributions by Noncontrolling Interests			—				446
Distributions to Noncontrolling Interests			(2,809	)			(15,836	)
Balance, end of period		$	(2,553	)		$	3,415

 

See accompanying notes

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ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

 

		March 31,				December 31,
		2023				2022
ASSETS
Land		$	5,559,883			$	5,580,878
Depreciable property			22,343,556				22,334,369
Projects under development			132,341				112,940
Land held for development			60,665				60,567
Investment in real estate			28,096,445				28,088,754
Accumulated depreciation			(9,207,194	)			(9,027,850	)
Investment in real estate, net			18,889,251				19,060,904
Investments in unconsolidated entities			292,279				279,024
Cash and cash equivalents			133,460				53,869
Restricted deposits			85,625				83,303
Right-of-use assets			466,911				462,956
Other assets			235,000				278,206
Total assets		$	20,102,526			$	20,218,262
LIABILITIES AND CAPITAL
Liabilities:
Mortgage notes payable, net		$	1,968,243			$	1,953,438
Notes, net			5,343,851				5,342,329
Line of credit and commercial paper			—				129,955
Accounts payable and accrued expenses			144,660				96,028
Accrued interest payable			49,776				66,310
Lease liabilities			314,854				308,748
Other liabilities			283,418				306,941
Security deposits			68,728				68,940
Distributions payable			258,992				244,621
Total liabilities			8,432,522				8,517,310
Commitments and contingencies
Redeemable Limited Partners			323,551				318,273
Capital:
Partners’ Capital:
Preference Units			37,280				37,280
General Partner			11,111,240				11,138,706
Limited Partners			211,718				209,961
Accumulated other comprehensive income (loss)			(11,232	)			(2,547	)
Total partners’ capital			11,349,006				11,383,400
Noncontrolling Interests – Partially Owned Properties			(2,553	)			(721	)
Total capital			11,346,453				11,382,679
Total liabilities and capital		$	20,102,526			$	20,218,262

 

See accompanying notes

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ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands except per Unit data)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
REVENUES
Rental income		$	705,088			$	653,348
EXPENSES
Property and maintenance			137,579				124,874
Real estate taxes and insurance			106,669				100,688
Property management			31,466				30,747
General and administrative			16,165				17,238
Depreciation			215,830				229,961
Total expenses			507,709				503,508
Net gain (loss) on sales of real estate properties			100,209				(102	)
Operating income			297,588				149,738
Interest and other income			1,538				3,528
Other expenses			(8,995	)			(3,056	)
Interest:
Expense incurred, net			(66,401	)			(72,792	)
Amortization of deferred financing costs			(1,979	)			(2,077	)
Income before income and other taxes, income (loss) from    investments in unconsolidated entities and net gain (loss)    on sales of land parcels			221,751				75,341
Income and other tax (expense) benefit			(298	)			(282	)
Income (loss) from investments in unconsolidated entities			(1,382	)			(1,261	)
Net income			220,071				73,798
Net (income) loss attributable to Noncontrolling Interests – Partially Owned    Properties			(977	)			(639	)
Net income attributable to controlling interests		$	219,094			$	73,159
ALLOCATION OF NET INCOME:
Preference Units		$	772			$	772
General Partner		$	211,263			$	69,993
Limited Partners			7,059				2,394
Net income available to Units		$	218,322			$	72,387
Earnings per Unit – basic:
Net income available to Units		$	0.56			$	0.19
Weighted average Units outstanding			389,851				387,397
Earnings per Unit – diluted:
Net income available to Units		$	0.56			$	0.19
Weighted average Units outstanding			390,664				389,628

 

See accompanying notes

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ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)

(Amounts in thousands except per Unit data)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
Comprehensive income:
Net income		$	220,071			$	73,798
Other comprehensive income (loss):
Other comprehensive income (loss) – derivative instruments:
Unrealized holding gains (losses) arising during the period			(9,780	)			—
Losses reclassified into earnings from other comprehensive    income			1,095				2,425
Other comprehensive income (loss)			(8,685	)			2,425
Comprehensive income			211,386				76,223
Comprehensive (income) attributable to Noncontrolling Interests –    Partially Owned Properties			(977	)			(639	)
Comprehensive income attributable to controlling interests		$	210,409			$	75,584

 

See accompanying notes

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ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	220,071			$	73,798
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			215,830				229,961
Amortization of deferred financing costs			1,979				2,077
Amortization of discounts and premiums on debt			868				1,358
Amortization of deferred settlements on derivative instruments			1,092				2,422
Amortization of right-of-use assets			3,150				3,046
Write-off of pursuit costs			1,332				1,463
(Income) loss from investments in unconsolidated entities			1,382				1,261
Distributions from unconsolidated entities – return on capital			151				79
Net (gain) loss on sales of real estate properties			(100,209	)			102
Realized (gain) loss on sale of investment securities			87				(2,066	)
Compensation paid with Company Common Shares			9,044				9,203
Changes in assets and liabilities:
(Increase) decrease in other assets			26,257				30,174
Increase (decrease) in accounts payable and accrued expenses			45,357				54,553
Increase (decrease) in accrued interest payable			(16,534	)			(12,634	)
Increase (decrease) in lease liabilities			(334	)			(902	)
Increase (decrease) in other liabilities			(16,032	)			(27,213	)
Increase (decrease) in security deposits			(212	)			1,374
Net cash provided by operating activities			393,279				368,056
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions			—				(113,046	)
Investment in real estate – development/other			(16,786	)			(24,255	)
Capital expenditures to real estate			(55,392	)			(35,285	)
Non-real estate capital additions			(600	)			(971	)
Interest capitalized for real estate and unconsolidated entities under development			(3,393	)			(1,017	)
Proceeds from disposition of real estate, net			133,916				—
Investments in unconsolidated entities – development/other			(14,480	)			(24,897	)
Distributions from unconsolidated entities – return of capital			6				9
Purchase of investment securities and other investments			—				(1,009	)
Proceeds from sale of investment securities			452				3,434
Net cash provided by (used for) investing activities			43,723				(197,037	)

 

See accompanying notes

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ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage notes payable, net:
Proceeds		$	14,090			$	2,689
Scheduled principal repayments			(40	)			(1,933	)
Line of credit and commercial paper:
Commercial paper proceeds			1,323,145				1,424,086
Commercial paper repayments			(1,453,100	)			(1,609,121	)
Finance ground lease principal payments			(665	)			(140	)
Proceeds from EQR’s Employee Share Purchase Plan (ESPP)			1,452				969
Proceeds from exercise of EQR options			8,112				14,344
Payment of offering costs			—				(114	)
Contributions – Noncontrolling Interests – Partially Owned Properties			—				446
Contributions – Limited Partners			—				1
Distributions:
OP Units – General Partner			(236,561	)			(226,639	)
Preference Units			(1,544	)			(772	)
OP Units – Limited Partners			(7,380	)			(7,535	)
Noncontrolling Interests – Partially Owned Properties			(2,598	)			(15,836	)
Net cash provided by (used for) financing activities			(355,089	)			(419,555	)
Net increase (decrease) in cash and cash equivalents and restricted deposits			81,913				(248,536	)
Cash and cash equivalents and restricted deposits, beginning of period			137,172				360,236
Cash and cash equivalents and restricted deposits, end of period		$	219,085			$	111,700
Cash and cash equivalents and restricted deposits, end of period
Cash and cash equivalents		$	133,460			$	41,140
Restricted deposits			85,625				70,560
Total cash and cash equivalents and restricted deposits, end of period		$	219,085			$	111,700

 

See accompanying notes

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ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized		$	79,693			$	81,391
Net cash paid (received) for income and other taxes		$	348			$	350
Amortization of deferred financing costs:
Investment in real estate, net		$	(127	)		$	(127	)
Other assets		$	697			$	585
Mortgage notes payable, net		$	449			$	557
Notes, net		$	960			$	1,062
Amortization of discounts and premiums on debt:
Mortgage notes payable, net		$	306			$	685
Notes, net		$	562			$	673
Amortization of deferred settlements on derivative instruments:
Other liabilities		$	(3	)		$	(3	)
Accumulated other comprehensive income		$	1,095			$	2,425
Write-off of pursuit costs:
Investment in real estate, net		$	225			$	375
Investments in unconsolidated entities		$	649			$	1,070
Other assets		$	458			$	18
(Income) loss from investments in unconsolidated entities:
Investments in unconsolidated entities		$	1,071			$	946
Other liabilities		$	311			$	315
Realized/unrealized (gain) loss on derivative instruments:
Other assets		$	7,410			$	—
Other liabilities		$	2,370			$	—
Accumulated other comprehensive income		$	(9,780	)		$	—
Interest capitalized for real estate and unconsolidated entities under development:
Investment in real estate, net		$	(1,422	)		$	(307	)
Investments in unconsolidated entities		$	(1,971	)		$	(710	)
Investments in unconsolidated entities – development/other:
Investments in unconsolidated entities		$	(13,700	)		$	(24,897	)
Other liabilities		$	(780	)		$	—
Right-of-use assets and lease liabilities initial measurement and reclassifications:
Right-of-use assets		$	(7,105	)		$	—
Lease liabilities		$	7,105			$	—
Non-cash share distribution and other transfers from unconsolidated entities:
Investments in unconsolidated entities		$	539			$	859
Other assets		$	(539	)		$	(859	)

 

See accompanying notes

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ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL

(Amounts in thousands except per Unit data)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
PARTNERS’ CAPITAL
PREFERENCE UNITS
Balance, beginning of period		$	37,280			$	37,280
Balance, end of period		$	37,280			$	37,280
GENERAL PARTNER
Balance, beginning of period		$	11,138,706			$	10,951,940
OP Unit Issuance:
Conversion of OP Units held by Limited Partners into OP Units    held by General Partner			3,673				174
Exercise of EQR share options			8,112				14,344
EQR’s Employee Share Purchase Plan (ESPP)			1,452				969
Share-based employee compensation expense:
EQR restricted shares			3,654				3,611
EQR share options			1,497				876
EQR ESPP discount			260				171
Net income available to Units – General Partner			211,263				69,993
OP Units – General Partner distributions			(250,969	)			(235,351	)
Offering costs			—				(114	)
Supplemental Executive Retirement Plan (SERP)			491				(163	)
Change in market value of Redeemable Limited Partners			(5,946	)			939
Adjustment for Limited Partners ownership in Operating Partnership			(953	)			1,045
Balance, end of period		$	11,111,240			$	10,808,434
LIMITED PARTNERS
Balance, beginning of period		$	209,961			$	214,094
Issuance of restricted units to Limited Partners			—				1
Conversion of OP Units held by Limited Partners into OP Units held    by General Partner			(3,673	)			(174	)
Equity compensation associated with Units – Limited Partners			4,654				7,798
Net income available to Units – Limited Partners			7,059				2,394
Units – Limited Partners distributions			(7,904	)			(7,895	)
Change in carrying value of Redeemable Limited Partners			668				2,278
Adjustment for Limited Partners ownership in Operating Partnership			953				(1,045	)
Balance, end of period		$	211,718			$	217,451
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period		$	(2,547	)		$	(34,272	)
Accumulated other comprehensive income (loss) – derivative    instruments:
Unrealized holding gains (losses) arising during the period			(9,780	)			—
Losses reclassified into earnings from other comprehensive    income			1,095				2,425
Balance, end of period		$	(11,232	)		$	(31,847	)
DISTRIBUTIONS
Distributions declared per Unit outstanding		$	0.6625			$	0.625

 

See accompanying notes

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ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (Continued)

(Amounts in thousands except per Unit data)

(Unaudited)

 

		Quarter Ended March 31,
		2023				2022
NONCONTROLLING INTERESTS
NONCONTROLLING INTERESTS – PARTIALLY OWNED    PROPERTIES
Balance, beginning of period		$	(721	)		$	18,166
Net income attributable to Noncontrolling Interests			977				639
Contributions by Noncontrolling Interests			—				446
Distributions to Noncontrolling Interests			(2,809	)			(15,836	)
Balance, end of period		$	(2,553	)		$	3,415

 

See accompanying notes

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EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Company may repurchase up to 13.0 million Common Shares under its share repurchase program. No open market repurchases have occurred since 2008. As of March 31, 2023, EQR has remaining authorization to repurchase up to 13.0 million of its shares.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2022.

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, 2022, 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.

EQR is the general partner of, and as of March 31, 2023 owned an approximate 96.8% ownership interest in, ERPOP. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, but does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.

The Company’s corporate headquarters is located in Chicago, Illinois and the Company also operates regional property management offices in most of its markets.

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, 2022.

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Results of Operations

2023 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 quarter ended March 31, 2023:

 

Portfolio Rollforward

($ in thousands)

 

		Properties				Apartment Units				Sales Price				Disposition Yield
12/31/2022			308				79,597
Dispositions:
Consolidated Rental Properties			(7	)			(247	)		$	(135,300	)			(5.3	%)
Configuration Changes			—				1
3/31/2023			301				79,351

 

Dispositions

Developments

See Notes 4 and 14 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate investments.

Comparison of the quarter ended March 31, 2023 to the quarter ended March 31, 2022

The following table presents a reconciliation of diluted earnings per share/unit for the quarter ended March 31, 2023 as compared to the same period in 2022:

 

		Quarter Ended March 31
Diluted earnings per share/unit for period ended 2022		$	0.19
Property NOI			0.11
Interest expense			0.01
Net gain/loss on property sales			0.26
Depreciation expense			0.03
Other			(0.04	)
Diluted earnings per share/unit for period ended 2023		$	0.56

 

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.

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The following tables present reconciliations of operating income per the consolidated statements of operations to NOI, along with rental income, operating expenses and NOI per the consolidated statements of operations allocated between same store and non-same store/other results (amounts in thousands):

 

		Quarter Ended March 31,
		2023				2022				$ Change				% Change
Operating income		$	297,588			$	149,738			$	147,850				98.7	%
Adjustments:
Property management			31,466				30,747				719				2.3	%
General and administrative			16,165				17,238				(1,073	)			(6.2	)%
Depreciation			215,830				229,961				(14,131	)			(6.1	)%
Net (gain) loss on sales of real estate properties			(100,209	)			102				(100,311	)		N/A
Total NOI		$	460,840			$	427,786			$	33,054				7.7	%
Rental income:
Same store		$	681,675			$	624,366			$	57,309				9.2	%
Non-same store/other			23,413				28,982				(5,569	)			(19.2	)%
Total rental income			705,088				653,348				51,740				7.9	%
Operating expenses:
Same store			226,790				211,535				15,255				7.2	%
Non-same store/other			17,458				14,027				3,431				24.5	%
Total operating expenses			244,248				225,562				18,686				8.3	%
NOI:
Same store			454,885				412,831				42,054				10.2	%
Non-same store/other			5,955				14,955				(9,000	)			(60.2	)%
Total NOI		$	460,840			$	427,786			$	33,054				7.7	%

 

Note: See Note 13 in the Notes to Consolidated Financial Statements for detail by reportable segment/market. Non-same store/other NOI results consist primarily of properties acquired in calendar year 2022, operations from the Company’s development properties and operations prior to disposition from 2022 and 2023 sold properties.

See the Same Store Results section below for additional discussion of those results.

Property management expenses include off-site expenses associated with the self-management of the Company’s properties as well as management fees paid to any third-party management companies. These expenses increased approximately $0.7 million or 2.3% during the quarter ended March 31, 2023 as compared to the prior year period. This increase is primarily attributable to increases in payroll-related costs, travel costs, temporary help/contractors costs, employment expenses and legal and professional fees, partially offset by decreases in training/conference costs and third-party management fees.

General and administrative expenses, which include corporate operating expenses, decreased approximately $1.1 million or 6.2% during the quarter ended March 31, 2023 as compared to the prior year period, primarily due to decreases in payroll-related costs, legal and professional fees and training/conference costs.

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Depreciation expense, which includes depreciation on non-real estate assets, decreased approximately $14.1 million or 6.1% during the quarter ended March 31, 2023 as compared to the prior year period. This decrease is primarily due to in-place leases for 2021 and 2022 acquisitions being fully depreciated as of December 31, 2022 and lower depreciation from properties sold in 2022 and 2023.

Net gain on sales of real estate properties increased approximately $100.3 million during the quarter ended March 31, 2023 as compared to the prior year period, primarily as a result of the sale of seven consolidated apartment properties in the first quarter of 2023 as compared to no consolidated property sales in the same period in 2022.

Interest and other income decreased approximately $2.0 million or 56.4% during the quarter ended March 31, 2023 as compared to the prior year period. The decrease is primarily due to a gain of $2.1 million on the sale of various investment securities that occurred during 2022 but not during 2023.

Other expenses increased approximately $5.9 million during the quarter ended March 31, 2023 as compared to the prior year period, primarily due to increases in litigation reserves and data transformation project costs that occurred during 2023 but not during 2022.

Interest expense, including amortization of deferred financing costs, decreased approximately $6.5 million or 8.7% during the quarter ended March 31, 2023 as compared to the prior year period. The decrease is primarily due to lower overall debt balances outstanding as compared to the prior year period and higher capitalized interest. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the quarter ended March 31, 2023 was 3.86% as compared to 3.65% for the prior year period. The Company capitalized interest of approximately $3.4 million and $1.0 million during the quarters ended March 31, 2023 and 2022, respectively.

Same Store Results

Properties that the Company owned and were stabilized for all of both of the quarters ended March 31, 2023 and 2022 (the “First Quarter 2023 Same Store Properties”), which represented 76,952 apartment units, drove the Company’s results of operations. Properties are considered “stabilized” when they have achieved 90% occupancy for three consecutive months. Properties are included in same store when they are stabilized for all of the current and comparable periods presented.

The following table provides comparative total same store results and statistics for the First Quarter 2023 Same Store Properties:

 

First Quarter 2023 vs. First Quarter 2022

Same Store Results/Statistics Including 76,952 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

 

First Quarter 2023																				First Quarter 2022
	Residential			% Change			Non- Residential			% Change			Total			% Change					Residential			Non- Residential			Total
Revenues	$	656,513			9.2	%	$	25,162			9.2	%	$	681,675			9.2	%		Revenues	$	601,323		$	23,043		$	624,366
Expenses	$	220,069			7.2	%	$	6,721			8.8	%	$	226,790			7.2	%		Expenses	$	205,360		$	6,175		$	211,535
NOI	$	436,444			10.2	%	$	18,441			9.3	%	$	454,885			10.2	%		NOI	$	395,963		$	16,868		$	412,831
Average Rental Rate	$	2,968			9.8	%														Average Rental Rate	$	2,703
Physical Occupancy		95.9	%		(0.5	%)														Physical Occupancy		96.4	%
Turnover		9.0	%		0.1	%														Turnover		8.9	%

 

Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.

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The following table provides results and statistics related to our Residential same store operations for the quarters ended March 31, 2023 and 2022:

 

First Quarter 2023 vs. First Quarter 2022

Same Store Residential Results/Statistics by Market

 

																					Increase (Decrease) from Prior Year
Markets/Metro Areas		Apartment Units				Q1 2023 % of Actual NOI				Q1 2023 Average Rental Rate				Q1 2023 Weighted Average Physical Occupancy %				Q1 2023 Turnover				Average Rental Rate				Physical Occupancy				Turnover
Los Angeles			14,415				17.7	%		$	2,775				95.5	%			9.9	%			7.6	%			(1.4	%)			1.4	%
Orange County			4,028				5.6	%			2,717				96.2	%			7.3	%			10.9	%			(0.9	%)			1.0	%
San Diego			2,706				3.9	%			2,899				95.4	%			9.5	%			8.9	%			(1.5	%)			0.6	%
Subtotal – Southern California			21,149				27.2	%			2,780				95.6	%			9.3	%			8.4	%			(1.3	%)			1.2	%
San Francisco			11,368				16.6	%			3,243				95.6	%			9.5	%			7.5	%			(0.8	%)			0.1	%
Washington, D.C.			14,400				16.0	%			2,531				96.6	%			7.3	%			7.1	%			(0.3	%)			(1.0	%)
New York			8,536				14.2	%			4,430				96.8	%			7.5	%			19.7	%			(0.3	%)			(0.7	%)
Seattle			9,525				11.5	%			2,579				95.1	%			11.1	%			8.0	%			0.5	%			(0.3	%)
Boston			6,700				10.0	%			3,341				95.6	%			7.9	%			9.9	%			(0.2	%)			0.3	%
Denver			2,498				2.7	%			2,383				96.3	%			11.1	%			7.4	%			0.3	%			0.5	%
Other Expansion Markets			2,776				1.8	%			1,974				94.6	%			11.4	%			7.6	%			(2.0	%)			0.6	%
Total			76,952				100.0	%		$	2,968				95.9	%			9.0	%			9.8	%			(0.5	%)			0.1	%

 

Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.2% of total revenues for the quarter ended March 31, 2023.

Despite geopolitical and economic uncertainties, demand to live in our apartment communities remained healthy, which our financial results reflected, as we continued to capture the gap between in-place rent levels and market rent levels. Demand for our apartments continues to support strong Physical Occupancy with pricing that is largely in-line with expectations. Key operating drivers for this performance during 2023 include:

In addition to these stronger fundamentals, the Company had better than expected payment and move-out activity related to delinquent residents, especially in Los Angeles, during the first quarter of 2023. This improved activity reduced bad debt, net and offset the decline in governmental rental assistance payments received on behalf of our residents in the first quarter of 2023 as compared to the prior year period.

Overall, the fundamentals of our business remain strong. Long-term, we expect elevated single family home ownership costs, positive household formation trends and the overall deficit in housing across the country to buffer the impact on our business from the risks of potential economic weakness. We also see our affluent resident base as being more resilient to rising inflation due to higher levels of disposable income and lower relative rent-to-income ratios.

Liquidity and Capital Resources

 

With approximately $2.5 billion in readily available liquidity, a strong balance sheet, limited near-term maturities, very strong credit metrics and ample access to capital markets, the Company believes it is well positioned to meet its future obligations and take advantage of opportunities. See further discussion below.

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Statements of Cash Flows

The following table sets forth our sources and uses of cash flows for the quarters ended March 31, 2023 and 2022 (amounts in thousands):

 

		Quarter Ended March 31,
		2023				2022
Cash flows provided by (used for):
Operating activities		$	393,279			$	368,056
Investing activities		$	43,723			$	(197,037	)
Financing activities		$	(355,089	)		$	(419,555	)

 

The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the quarter ended March 31, 2023.

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 quarter ended March 31, 2023 as compared to the prior year period, increased by approximately $25.2 million as a direct result of the NOI and other changes discussed above in Results of Operations.

Investing Activities

Our investing cash flows are primarily impacted by our transaction activity (acquisitions/dispositions), development spend and capital expenditures. For the quarter ended March 31, 2023, 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 quarter ended March 31, 2023, key drivers were:

Short-Term Liquidity and Cash Proceeds

The Company generally expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing properties and scheduled unsecured note and mortgage note repayments, through its working capital, net cash provided by operating activities and borrowings under the Company’s revolving credit facility and commercial paper program. Currently, the Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.

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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 March 31, 2023 and December 31, 2022 (amounts in thousands):

 

		March 31, 2023				December 31, 2022
Cash and cash equivalents		$	133,460			$	53,869
Restricted deposits		$	85,625			$	83,303
Unsecured revolving credit facility availability		$	2,496,516			$	2,366,537

 

Credit Facility and Commercial Paper Program

The Company has a $2.5 billion unsecured revolving credit facility maturing October 26, 2027. The Company has the ability to increase available borrowings by an additional $750.0 million by adding lenders to the facility, obtaining the agreement of existing lenders to increase their commitments or incurring one or more term loans. The interest rate on advances under the facility will generally be the Secured Overnight Financing Rate (“SOFR”) plus a spread (currently 0.725%), or based on bids received from the lending group, and the Company pays an annual facility fee (currently 0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit rating. See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of the Company’s credit facility.

The Company may borrow up to a maximum of $1.0 billion under its commercial paper program subject to market conditions. The notes will be sold under customary terms in the United States commercial paper note market and will rank pari passu with all of the Company’s other unsecured senior indebtedness.

The Company limits its utilization of the revolving credit facility in order to maintain liquidity to support its $1.0 billion commercial paper program along with certain other obligations. The following table presents the availability on the Company’s unsecured revolving credit facility as of April 21, 2023 (amounts in thousands):

 

		April 21, 2023
Unsecured revolving credit facility commitment		$	2,500,000
Commercial paper balance outstanding			(225,000	)
Unsecured revolving credit facility balance outstanding			—
Other restricted amounts			(3,484	)
Unsecured revolving credit facility availability		$	2,271,516

 

Dividend Policy

The Company declared a dividend/distribution for the first quarter of 2023 of $0.6625 per share/unit, an annualized increase of 6.0% over the amount paid in 2022. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.

Total dividends/distributions paid in April 2023 amounted to $258.8 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended March 31, 2023.

Long-Term Financing and Capital Needs

The Company expects to meet its long-term liquidity requirements, such as lump sum unsecured note and mortgage debt maturities, property acquisitions and financing of development activities, through the issuance of secured and unsecured debt and equity securities (including additional OP Units), proceeds received from the disposition of certain properties and joint ventures, along with cash generated from operations after all distributions. The Company has a significant number of unencumbered properties available to secure additional mortgage borrowings should unsecured capital be unavailable or the cost of alternative sources of capital be too high. The value of and cash flow from these unencumbered properties are in excess of the requirements the Company must maintain in order to comply with covenants under its unsecured notes and line of credit. Of the $28.1 billion in investment in real estate on the Company’s balance sheet at March 31, 2023, $24.5 billion or 87.1% was unencumbered. However, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise. For additional details, see Item 1A, Risk Factors of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022.

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.

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The Company’s total debt summary schedule as of March 31, 2023 is as follows:

Debt Summary as of March 31, 2023

($ in thousands)

 

		Debt Balances				% of Total
Secured		$	1,968,243				26.9	%
Unsecured			5,343,851				73.1	%
Total		$	7,312,094				100.0	%
Fixed Rate Debt:
Secured – Conventional		$	1,609,068				22.0	%
Unsecured – Public			5,343,851				73.1	%
Fixed Rate Debt			6,952,919				95.1	%
Floating Rate Debt:
Secured – Conventional			122,612				1.7	%
Secured – Tax Exempt			236,563				3.2	%
Unsecured – Revolving Credit Facility			—				—
Unsecured – Commercial Paper Program			—				—
Floating Rate Debt			359,175				4.9	%
Total		$	7,312,094				100.0	%

 

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, 2022.

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, 2022.

 

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Funds From Operations and Normalized Funds From Operations

The following is the Company’s and the Operating Partnership’s reconciliation of net income to FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units for the quarters ended March 31, 2023 and 2022:

 

Funds From Operations and Normalized Funds From Operations

(Amounts in thousands)

 

		Quarter Ended March 31,
		2023				2022
Net income		$	220,071			$	73,798
Net (income) loss attributable to Noncontrolling    Interests – Partially Owned Properties			(977	)			(639	)
Preferred/preference distributions			(772	)			(772	)
Net income available to Common Shares and Units / Units			218,322				72,387
Adjustments:
Depreciation			215,830				229,961
Depreciation – Non-real estate additions			(1,156	)			(1,052	)
Depreciation – Partially Owned Properties			(545	)			(893	)
Depreciation – Unconsolidated Properties			632				620
Net (gain) loss on sales of unconsolidated entities - operating assets			—				(9	)
Net (gain) loss on sales of real estate properties			(100,209	)			102
FFO available to Common Shares and Units / Units (1) (3) (4)			332,874				301,116
Adjustments:
Write-off of pursuit costs			1,332				1,463
Non-operating asset (gains) losses			714				(1,642	)
Other miscellaneous items			6,292				(371	)
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)		$	341,212			$	300,566
FFO (1) (3)		$	333,646			$	301,888
Preferred/preference distributions			(772	)			(772	)
FFO available to Common Shares and Units / Units (1) (3) (4)		$	332,874			$	301,116
Normalized FFO (2) (3)		$	341,984			$	301,338
Preferred/preference distributions			(772	)			(772	)
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)		$	341,212			$	300,566

 

• 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 redemptions;

• gains and losses from non-operating assets; and

• other miscellaneous items.

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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, 2022.

Item 4. Controls and Procedures

Equity Residential

Effective as of March 31, 2023, 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 first quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ERP Operating Limited Partnership

Effective as of March 31, 2023, 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.

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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 first quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As of March 31, 2023, the Company does not believe there is any litigation pending or threatened against it that, individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company.

Item 1A. Risk Factors

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, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended March 31, 2023, EQR issued 144,567 Common Shares in exchange for 144,567 OP Units held by various limited partners of ERPOP. OP Units are generally exchangeable into Common Shares on a one-for-one basis or, at the option of ERPOP, the cash equivalent thereof, at any time one year after the date of issuance. These shares were either registered under the Securities Act of 1933, as amended (the “Securities Act”), or issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder, as these were transactions by an issuer not involving a public offering. In light of the manner of the sale and information obtained by EQR from the limited partners in connection with these transactions, EQR believes it may rely on these exemptions.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits – See the Exhibit Index.

 

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EXHIBIT INDEX

The exhibits listed below are filed as part of this report. References to exhibits or other filings under the caption “Location” indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. The Commission file numbers for our Exchange Act filings referenced below are 1-12252 (Equity Residential) and 0-24920 (ERP Operating Limited Partnership).

 

Exhibit		Description		Location
31.1		Equity Residential – Certification of Mark J. Parrell, Chief Executive Officer.		Attached herein.
31.2		Equity Residential – Certification of Robert A. Garechana, Chief Financial Officer.		Attached herein.
31.3		ERP Operating Limited Partnership – Certification of Mark J. Parrell, Chief Executive Officer of Registrant’s General Partner.		Attached herein.
31.4		ERP Operating Limited Partnership – Certification of Robert A. Garechana, Chief Financial Officer of Registrant’s General Partner.		Attached herein.
32.1		Equity Residential – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Mark J. Parrell, Chief Executive Officer of the Company.		Attached herein.
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.		Attached herein.
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.		Attached herein.
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.		Attached herein.
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

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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.

 

		EQUITY RESIDENTIAL
Date:	April 28, 2023	By:		/s/ Robert A. Garechana
				Robert A. Garechana
				Executive Vice President and Chief Financial Officer
				(Principal Financial Officer)
Date:	April 28, 2023	By:		/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
Date:	April 28, 2023	By:		/s/ Robert A. Garechana
				Robert A. Garechana
				Executive Vice President and Chief Financial Officer
				(Principal Financial Officer)
Date:	April 28, 2023	By:		/s/ Ian S. Kaufman
				Ian S. Kaufman
				Senior Vice President and Chief Accounting Officer
				(Principal Accounting Officer)

 

 

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