Q3' 13 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SEPTEMBER 30, 2013

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)

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 x    No ¨
ERP Operating Limited Partnership Yes x      No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Equity Residential Yes x    No ¨
ERP Operating Limited Partnership Yes x      No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Equity Residential:
 
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company ¨
ERP Operating Limited Partnership:
 
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)
Smaller reporting company ¨

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 x
ERP Operating Limited Partnership Yes ¨      No x 
The number of EQR Common Shares of Beneficial Interest, $0.01 par value, outstanding on October 31, 2013 was 360,410,752.




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EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended September 30, 2013 of Equity Residential and ERP Operating Limited Partnership. Unless stated otherwise or the context otherwise requires, references to “EQR” mean Equity Residential, a Maryland real estate investment trust (“REIT”), and references to “ERPOP” mean ERP Operating Limited Partnership, an Illinois limited partnership. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP. The following chart illustrates the Company's and the Operating Partnership's corporate structure:
    

EQR is the general partner of, and as of September 30, 2013 owned an approximate 96.2% ownership interest in, ERPOP. The remaining 3.8% interest is owned by limited partners. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP's day-to-day management.

The Company is structured as an umbrella partnership REIT (“UPREIT”) and contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, the Company receives a number of OP Units (see definition below) in the Operating Partnership equal to the number of Common Shares it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership, which 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. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to EQR and the 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.

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 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 and guarantees certain debt of ERPOP, as disclosed in this report. 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 the Company, which are contributed



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to the capital of the Operating Partnership in exchange for additional limited partnership interests in the Operating Partnership (“OP Units”) (on a one-for-one Common Share per OP 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, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and joint ventures.

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 and development joint venture partners. 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 significant 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 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 the Operating Partnership, the Company consolidates the Operating Partnership 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
 
 
 
 
 
 
2
 
 
3 to 4
 
 
5 to 7
 
 
8 to 9
 
 
 
 
 
10
 
 
11 to 12
 
 
13 to 15
 
 
16 to 17
 
 
18 to 45
 
 
                      and Results of Operations
46 to 72
 
 
72 to 73
 
 
73
 
 
 
 
 
74
 
 
74
 
 
74
 
 
74
 
 
74
 
 
74
 
 
74



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EQUITY RESIDENTIAL
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
(Unaudited)
 
 
September 30,
2013
 
December 31,
2012
ASSETS
 
 
 
 
Investment in real estate
 
 
 
 
Land
 
$
6,201,333

 
$
4,554,912

Depreciable property
 
19,254,957

 
15,711,944

Projects under development
 
779,053

 
387,750

Land held for development
 
505,494

 
353,823

Investment in real estate
 
26,740,837

 
21,008,429

Accumulated depreciation
 
(4,654,594
)
 
(4,912,221
)
Investment in real estate, net
 
22,086,243

 
16,096,208

Cash and cash equivalents
 
972,761

 
612,590

Investments in unconsolidated entities
 
165,898

 
17,877

Deposits – restricted
 
98,874

 
250,442

Escrow deposits – mortgage
 
40,901

 
9,129

Deferred financing costs, net
 
66,775

 
44,382

Other assets
 
379,979

 
170,372

Total assets
 
$
23,811,431

 
$
17,201,000

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Mortgage notes payable
 
$
6,230,675

 
$
3,898,369

Notes, net
 
5,476,522

 
4,630,875

Lines of credit
 

 

Accounts payable and accrued expenses
 
166,939

 
38,372

Accrued interest payable
 
85,353

 
76,223

Other liabilities
 
331,797

 
304,518

Security deposits
 
71,462

 
66,988

Distributions payable
 
149,836

 
260,176

Total liabilities
 
12,512,584

 
9,275,521

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Redeemable Noncontrolling Interests – Operating Partnership
 
376,057

 
398,372

Equity:
 
 
 
 
Shareholders’ equity:
 
 
 
 
Preferred Shares of beneficial interest, $0.01 par value;
100,000,000 shares authorized; 1,000,000 shares issued and
outstanding as of September 30, 2013 and December 31, 2012
 
50,000

 
50,000

Common Shares of beneficial interest, $0.01 par value;
1,000,000,000 shares authorized; 360,395,959 shares issued
and outstanding as of September 30, 2013 and 325,054,654
shares issued and outstanding as of December 31, 2012
 
3,604

 
3,251

Paid in capital
 
8,542,822

 
6,542,355

Retained earnings
 
2,171,603

 
887,355

Accumulated other comprehensive (loss)
 
(169,392
)
 
(193,148
)
Total shareholders’ equity
 
10,598,637

 
7,289,813

Noncontrolling Interests:
 
 
 
 
Operating Partnership
 
213,518

 
159,606

Partially Owned Properties
 
110,635

 
77,688

Total Noncontrolling Interests
 
324,153

 
237,294

Total equity
 
10,922,790

 
7,527,107

Total liabilities and equity
 
$
23,811,431

 
$
17,201,000


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) 
 
 
Nine Months Ended September 30,
 
Quarter Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
REVENUES
 
 
 
 
 
 
 
 
Rental income
 
$
1,749,374

 
$
1,295,431

 
$
626,880

 
$
448,647

Fee and asset management
 
7,399

 
7,328

 
2,566

 
3,052

Total revenues
 
1,756,773

 
1,302,759

 
629,446

 
451,699

 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
Property and maintenance
 
333,202

 
254,009

 
119,632

 
86,682

Real estate taxes and insurance
 
218,777

 
154,633

 
76,255

 
53,064

Property management
 
63,395

 
62,769

 
18,875

 
18,493

Fee and asset management
 
4,739

 
3,595

 
1,516

 
1,108

Depreciation
 
798,121

 
422,148

 
277,336

 
139,337

General and administrative
 
47,018

 
37,162

 
14,438

 
10,083

Total expenses
 
1,465,252

 
934,316

 
508,052

 
308,767

 
 
 
 
 
 
 
 
 
Operating income
 
291,521

 
368,443

 
121,394

 
142,932

 
 
 
 
 
 
 
 
 
Interest and other income
 
1,320

 
70,514

 
816

 
70,087

Other expenses
 
(7,530
)
 
(18,587
)
 
(3,986
)
 
(3,984
)
Merger expenses
 
(19,741
)
 
(1,921
)
 
(182
)
 
(87
)
Interest:
 
 
 
 
 
 
 
 
Expense incurred, net
 
(437,452
)
 
(345,476
)
 
(120,035
)
 
(113,222
)
Amortization of deferred financing costs
 
(15,636
)
 
(10,265
)
 
(4,335
)
 
(3,320
)
(Loss) income before income and other taxes, (loss) from
investments in unconsolidated entities, net gain (loss) on sales
of unconsolidated entities and land parcels and discontinued
operations
 
(187,518
)
 
62,708

 
(6,328
)
 
92,406

Income and other tax (expense) benefit
 
(1,326
)
 
(602
)
 
(493
)
 
(222
)
(Loss) from investments in unconsolidated entities due to operations
 
(2,984
)
 
(3
)
 
(1,454
)
 
(3
)
(Loss) from investments in unconsolidated entities due to merger
expenses
 
(54,781
)
 

 
(1,771
)
 

Net gain on sales of unconsolidated entities
 
16

 

 
16

 

Net gain (loss) on sales of land parcels
 
12,179

 

 
(2,437
)
 

(Loss) income from continuing operations
 
(234,414
)
 
62,103

 
(12,467
)
 
92,181

Discontinued operations, net
 
2,023,897

 
434,702

 
404,184

 
144,142

Net income
 
1,789,483

 
496,805

 
391,717

 
236,323

Net (income) loss attributable to Noncontrolling Interests:
 
 
 
 
 
 
 
 
Operating Partnership
 
(70,947
)
 
(21,646
)
 
(14,836
)
 
(10,496
)
Partially Owned Properties
 
1,101

 
(457
)
 
311

 
312

Net income attributable to controlling interests
 
1,719,637

 
474,702

 
377,192

 
226,139

Preferred distributions
 
(3,109
)
 
(9,319
)
 
(1,037
)
 
(2,386
)
Premium on redemption of Preferred Shares
 

 
(5,150
)
 

 
(5,150
)
Net income available to Common Shares
 
$
1,716,528

 
$
460,233

 
$
376,155

 
$
218,603

 
 
 
 
 
 
 
 
 
Earnings per share – basic:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations available to Common
Shares
 
$
(0.64
)
 
$
0.15

 
$
(0.04
)
 
$
0.27

Net income available to Common Shares
 
$
4.87

 
$
1.53

 
$
1.05

 
$
0.73

Weighted average Common Shares outstanding
 
352,414

 
300,116

 
359,811

 
301,336

 
 
 
 
 
 
 
 
 
Earnings per share – diluted:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations available to Common
Shares
 
$
(0.64
)
 
$
0.15

 
$
(0.04
)
 
$
0.27

Net income available to Common Shares
 
$
4.87

 
$
1.52

 
$
1.05

 
$
0.72

Weighted average Common Shares outstanding
 
352,414

 
317,265

 
359,811

 
318,773

 
 
 
 
 
 
 
 
 
Distributions declared per Common Share outstanding
 
$
1.20

 
$
1.0125

 
$
0.40

 
$
0.3375




See accompanying notes
3

Table of Contents

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
(Amounts in thousands except per share data)
(Unaudited)
 
 
 
Nine Months Ended September 30,
 
Quarter Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
Comprehensive income:
 
 
 
 
 
 
 
 
Net income
 
$
1,789,483

 
$
496,805

 
$
391,717

 
$
236,323

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive income (loss) – derivative instruments:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
 
8,737

 
(12,337
)
 
(3,600
)
 
(3,695
)
Losses reclassified into earnings from other comprehensive
income
 
16,084

 
10,907

 
3,986

 
3,704

Other comprehensive income (loss) – other instruments:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
 
554

 
394

 
(374
)
 
312

(Gains) realized during the period
 
(830
)
 

 
(830
)
 

Other comprehensive (loss) – foreign currency:
 
 
 
 
 
 
 
 
Currency translation adjustments arising during the period
 
(789
)
 

 
(1,730
)
 

Other comprehensive income (loss)
 
23,756

 
(1,036
)
 
(2,548
)
 
321

Comprehensive income
 
1,813,239

 
495,769

 
389,169

 
236,644

Comprehensive (income) attributable to Noncontrolling Interests
 
(69,846
)
 
(22,103
)
 
(14,525
)
 
(10,184
)
Comprehensive income attributable to controlling interests
 
$
1,743,393

 
$
473,666

 
$
374,644

 
$
226,460



See accompanying notes
4

Table of Contents

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

 
 
Nine Months Ended September 30,
 
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
1,789,483

 
$
496,805

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
830,097

 
516,940

Amortization of deferred financing costs
 
15,864

 
10,384

Amortization of above/below market leases
 
2,214

 

Amortization of discounts and premiums on debt
 
(37,612
)
 
(5,795
)
Amortization of deferred settlements on derivative instruments
 
15,683

 
10,506

Write-off of pursuit costs
 
3,969

 
6,141

Loss from investments in unconsolidated entities
 
57,765

 
3

Distributions from unconsolidated entities – return on capital
 
1,519

 
454

Net (gain) on sales of investment securities
 
(830
)
 

Net (gain) on sales of unconsolidated entities
 
(16
)
 

Net (gain) on sales of land parcels
 
(12,179
)
 

Net (gain) on sales of discontinued operations
 
(1,990,577
)
 
(307,447
)
Unrealized loss (gain) on derivative instruments
 
32

 
(1
)
Compensation paid with Company Common Shares
 
29,019

 
20,836

Changes in assets and liabilities:
 
 
 
 
Decrease (increase) in deposits – restricted
 
4,152

 
(2,250
)
Decrease (increase) in mortgage deposits
 
271

 
(862
)
Decrease (increase) in other assets
 
7,315

 
(14,039
)
Increase in accounts payable and accrued expenses
 
65,001

 
67,479

(Decrease) in accrued interest payable
 
(2,175
)
 
(9,252
)
(Decrease) increase in other liabilities
 
(5,427
)
 
68,492

(Decrease) increase in security deposits
 
(6,475
)
 
3,472

Net cash provided by operating activities
 
767,093

 
861,866

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Acquisition of Archstone, net of cash acquired
 
(4,000,875
)
 

Investment in real estate – acquisitions
 
(108,308
)
 
(764,859
)
Investment in real estate – development/other
 
(256,965
)
 
(116,715
)
Improvements to real estate
 
(96,866
)
 
(114,535
)
Additions to non-real estate property
 
(3,359
)
 
(6,716
)
Interest capitalized for real estate and unconsolidated entities under development
 
(32,946
)
 
(15,776
)
Proceeds from disposition of real estate, net
 
4,434,708

 
610,127

Investments in unconsolidated entities
 
(59,363
)
 
(5,423
)
Distributions from unconsolidated entities – return of capital
 
25,471

 

Proceeds from sale of investment securities
 
828

 

Decrease in deposits on real estate acquisitions and investments, net
 
147,890

 
31,677

Decrease in mortgage deposits
 
7,623

 
1,682

Acquisition of Noncontrolling Interests – Partially Owned Properties
 

 
(87
)
Net cash provided by (used for) investing activities
 
57,838

 
(380,625
)




See accompanying notes
5

Table of Contents

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
 
 
 
Nine Months Ended September 30,
 
 
2013
 
2012
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Loan and bond acquisition costs
 
$
(18,254
)
 
$
(4,599
)
Mortgage deposits
 
(3,769
)
 
(590
)
Mortgage notes payable:
 
 
 
 
Proceeds
 
5,951

 

Restricted cash
 

 
2,370

Lump sum payoffs
 
(701,762
)
 
(279,943
)
Scheduled principal repayments
 
(9,527
)
 
(11,022
)
Notes, net:
 
 
 
 
Proceeds
 
1,245,550

 

Lump sum payoffs
 
(400,000
)
 
(253,858
)
Lines of credit:
 
 
 
 
Proceeds
 
8,413,000

 
392,000

Repayments
 
(8,413,000
)
 
(385,000
)
(Payments on) settlement of derivative instruments
 
(44,013
)
 

Proceeds from sale of Common Shares
 

 
220,753

Proceeds from Employee Share Purchase Plan (ESPP)
 
2,973

 
4,944

Proceeds from exercise of options
 
16,044

 
46,781

Redemption of Preferred Shares
 

 
(150,000
)
Premium on redemption of Preferred Shares
 

 
(21
)
Payment of offering costs
 
(954
)
 
(2,860
)
Other financing activities, net
 
(33
)
 
(33
)
Contributions – Noncontrolling Interests – Partially Owned Properties
 
11,520

 
5,992

Contributions – Noncontrolling Interests – Operating Partnership
 
5

 
5

Distributions:
 
 
 
 
Common Shares
 
(537,464
)
 
(371,319
)
Preferred Shares
 
(3,109
)
 
(11,344
)
Noncontrolling Interests – Operating Partnership
 
(22,216
)
 
(17,053
)
Noncontrolling Interests – Partially Owned Properties
 
(5,702
)
 
(4,742
)
Net cash (used for) financing activities
 
(464,760
)
 
(819,539
)
Net increase (decrease) in cash and cash equivalents
 
360,171

 
(338,298
)
Cash and cash equivalents, beginning of period
 
612,590

 
383,921

Cash and cash equivalents, end of period
 
$
972,761

 
$
45,623

 













See accompanying notes
6

Table of Contents

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited) 
 
 
Nine Months Ended September 30,
 
 
2013
 
2012
SUPPLEMENTAL INFORMATION:
 
 
 
 
Cash paid for interest, net of amounts capitalized
 
$
451,495

 
$
353,329

Net cash paid for income and other taxes
 
$
1,064

 
$
573

Real estate acquisitions/dispositions/other:
 
 
 
 
Mortgage loans assumed
 
$

 
$
137,644

Valuation of OP Units issued
 
$

 
$
66,606

Amortization of deferred financing costs:
 
 
 
 
Investment in real estate, net
 
$
(152
)
 
$

Deferred financing costs, net
 
$
16,016

 
$
10,384

Amortization of discounts and premiums on debt:
 
 
 
 
Mortgage notes payable
 
$
(39,232
)
 
$
(7,462
)
Notes, net
 
$
1,620

 
$
1,667

Amortization of deferred settlements on derivative instruments:
 
 
 
 
Other liabilities
 
$
(401
)
 
$
(401
)
Accumulated other comprehensive income
 
$
16,084

 
$
10,907

Loss from investments in unconsolidated entities:
 
 
 
 
Investments in unconsolidated entities
 
$
51,923

 
$
3

Other liabilities
 
$
5,842

 
$

Unrealized loss (gain) on derivative instruments:
 
 
 
 
Other assets
 
$
(10,609
)
 
$
5,934

Mortgage notes payable
 
$

 
$
(2,589
)
Notes, net
 
$
(1,523
)
 
$
(3,345
)
Other liabilities
 
$
3,427

 
$
12,336

Accumulated other comprehensive income
 
$
8,737

 
$
(12,337
)
Acquisition of Archstone, net of cash acquired:
 
 
 
 
Investment in real estate, net
 
$
(8,710,242
)
 
$

Investments in unconsolidated entities
 
$
(217,092
)
 
$

Deposits – restricted
 
$
(474
)
 
$

Escrow deposits – mortgage
 
$
(35,897
)
 
$

Deferred financing costs, net
 
$
(25,780
)
 
$

Other assets
 
$
(203,295
)
 
$

Mortgage notes payable
 
$
3,076,876

 
$

Accounts payable and accrued expenses
 
$
17,576

 
$

Accrued interest payable
 
$
11,305

 
$

Other liabilities
 
$
117,068

 
$

Security deposits
 
$
10,949

 
$

Issuance of Common Shares
 
$
1,929,868

 
$

Noncontrolling Interests – Partially Owned Properties
 
$
28,263

 
$

Interest capitalized for real estate and unconsolidated entities under development:
 
 
 
 
Investment in real estate, net
 
$
(31,648
)
 
$
(15,163
)
Investments in unconsolidated entities
 
$
(1,298
)
 
$
(613
)
Investments in unconsolidated entities:
 
 
 
 
Investments in unconsolidated entities
 
$
(9,317
)
 
$
(5,423
)
Other liabilities
 
$
(50,046
)
 
$

Other:
 
 
 
 
Receivable on sale of Common Shares
 
$

 
$
28,457

Foreign currency translation adjustments
 
$
789

 
$


See accompanying notes
7

Table of Contents

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Amounts in thousands)
(Unaudited)
 
 
 
Nine Months Ended
 
 
September 30, 2013
SHAREHOLDERS’ EQUITY
 
 
 
 
 
PREFERRED SHARES
 
 
Balance, beginning of year
 
$
50,000

Balance, end of period
 
$
50,000

 
 
 
COMMON SHARES, $0.01 PAR VALUE
 
 
Balance, beginning of year
 
$
3,251

Issuance of Common Shares
 
345

Exercise of share options
 
5

Employee Share Purchase Plan (ESPP)
 
1

Share-based employee compensation expense:
 
 
Restricted shares
 
2

Balance, end of period
 
$
3,604

 
 
 
PAID IN CAPITAL
 
 
Balance, beginning of year
 
$
6,542,355

Common Share Issuance:
 
 
Conversion of OP Units into Common Shares
 
1,203

Issuance of Common Shares
 
1,929,523

Exercise of share options
 
16,039

Employee Share Purchase Plan (ESPP)
 
2,972

Share-based employee compensation expense:
 
 
Restricted shares
 
10,248

Share options
 
8,684

ESPP discount
 
557

Offering costs
 
(954
)
Supplemental Executive Retirement Plan (SERP)
 
(439
)
Change in market value of Redeemable Noncontrolling Interests – Operating Partnership
 
69,344

Adjustment for Noncontrolling Interests ownership in Operating Partnership
 
(36,710
)
Balance, end of period
 
$
8,542,822

 
 
 
RETAINED EARNINGS
 
 
Balance, beginning of year
 
$
887,355

Net income attributable to controlling interests
 
1,719,637

Common Share distributions
 
(432,280
)
Preferred Share distributions
 
(3,109
)
Balance, end of period
 
$
2,171,603

 












See accompanying notes
8

Table of Contents

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)
(Amounts in thousands)
(Unaudited)
 
 
 
Nine Months Ended
 
 
September 30, 2013
SHAREHOLDERS’ EQUITY (continued)
 
 
ACCUMULATED OTHER COMPREHENSIVE (LOSS)
 
 
Balance, beginning of year
 
$
(193,148
)
Accumulated other comprehensive income – derivative instruments:
 
 
Unrealized holding gains arising during the period
 
8,737

Losses reclassified into earnings from other comprehensive income
 
16,084

Accumulated other comprehensive income (loss) – other instruments:
 
 
Unrealized holding gains arising during the period
 
554

(Gains) realized during the period
 
(830
)
   Accumulated other comprehensive (loss) – foreign currency:
 
 
     Currency translation adjustments arising during the period
 
(789
)
Balance, end of period
 
$
(169,392
)
 
 
 
NONCONTROLLING INTERESTS
 
 
 
 
 
OPERATING PARTNERSHIP
 
 
Balance, beginning of year
 
$
159,606

Issuance of LTIP Units to Noncontrolling Interests
 
5

Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner
 
(1,203
)
Equity compensation associated with Noncontrolling Interests
 
11,542

Net income attributable to Noncontrolling Interests
 
70,947

Distributions to Noncontrolling Interests
 
(17,060
)
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership
 
(47,029
)
Adjustment for Noncontrolling Interests ownership in Operating Partnership
 
36,710

Balance, end of period
 
$
213,518

 
 
 
PARTIALLY OWNED PROPERTIES
 
 
Balance, beginning of year
 
$
77,688

Net (loss) attributable to Noncontrolling Interests
 
(1,101
)
Contributions by Noncontrolling Interests
 
11,520

Acquisition of Archstone
 
28,263

Distributions to Noncontrolling Interests
 
(5,735
)
Balance, end of period
 
$
110,635


See accompanying notes
9

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
 
 
 
September 30,
2013
 
December 31,
2012
ASSETS
 
 
 
 
Investment in real estate
 
 
 
 
Land
 
$
6,201,333

 
$
4,554,912

Depreciable property
 
19,254,957

 
15,711,944

Projects under development
 
779,053

 
387,750

Land held for development
 
505,494

 
353,823

Investment in real estate
 
26,740,837

 
21,008,429

Accumulated depreciation
 
(4,654,594
)
 
(4,912,221
)
Investment in real estate, net
 
22,086,243

 
16,096,208

Cash and cash equivalents
 
972,761

 
612,590

Investments in unconsolidated entities
 
165,898

 
17,877

Deposits – restricted
 
98,874

 
250,442

Escrow deposits – mortgage
 
40,901

 
9,129

Deferred financing costs, net
 
66,775

 
44,382

Other assets
 
379,979

 
170,372

Total assets
 
$
23,811,431

 
$
17,201,000

 
 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
 
Liabilities:
 
 
 
 
Mortgage notes payable
 
$
6,230,675

 
$
3,898,369

Notes, net
 
5,476,522

 
4,630,875

Lines of credit
 

 

Accounts payable and accrued expenses
 
166,939

 
38,372

Accrued interest payable
 
85,353

 
76,223

Other liabilities
 
331,797

 
304,518

Security deposits
 
71,462

 
66,988

Distributions payable
 
149,836

 
260,176

Total liabilities
 
12,512,584

 
9,275,521

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Redeemable Limited Partners
 
376,057

 
398,372

Capital:
 
 
 
 
Partners' Capital:
 
 
 
 
Preference Units
 
50,000

 
50,000

General Partner
 
10,718,029

 
7,432,961

Limited Partners
 
213,518

 
159,606

Accumulated other comprehensive (loss)
 
(169,392
)
 
(193,148
)
Total partners' capital
 
10,812,155

 
7,449,419

Noncontrolling Interests – Partially Owned Properties
 
110,635

 
77,688

Total capital
 
10,922,790

 
7,527,107

Total liabilities and capital
 
$
23,811,431

 
$
17,201,000



See accompanying notes
10

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per Unit data)(Unaudited) 
 
 
Nine Months Ended September 30,
 
Quarter Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
REVENUES
 
 
 
 
 
 
 
 
Rental income
 
$
1,749,374

 
$
1,295,431

 
$
626,880

 
$
448,647

Fee and asset management
 
7,399

 
7,328

 
2,566

 
3,052

Total revenues
 
1,756,773

 
1,302,759

 
629,446

 
451,699

 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
Property and maintenance
 
333,202

 
254,009

 
119,632

 
86,682

Real estate taxes and insurance
 
218,777

 
154,633

 
76,255

 
53,064

Property management
 
63,395

 
62,769

 
18,875

 
18,493

Fee and asset management
 
4,739

 
3,595

 
1,516

 
1,108

Depreciation
 
798,121

 
422,148

 
277,336

 
139,337

General and administrative
 
47,018

 
37,162

 
14,438

 
10,083

Total expenses
 
1,465,252

 
934,316

 
508,052

 
308,767

 
 
 
 
 
 
 
 
 
Operating income
 
291,521

 
368,443

 
121,394

 
142,932

 
 
 
 
 
 
 
 
 
Interest and other income
 
1,320

 
70,514

 
816

 
70,087

Other expenses
 
(7,530
)
 
(18,587
)
 
(3,986
)
 
(3,984
)
Merger expenses
 
(19,741
)
 
(1,921
)
 
(182
)
 
(87
)
Interest:
 
 
 
 
 
 
 
 
Expense incurred, net
 
(437,452
)
 
(345,476
)
 
(120,035
)
 
(113,222
)
Amortization of deferred financing costs
 
(15,636
)
 
(10,265
)
 
(4,335
)
 
(3,320
)
(Loss) income before income and other taxes, (loss) from investments
in unconsolidated entities, net gain (loss) on sales of unconsolidated
entities and land parcels and discontinued operations
 
(187,518
)
 
62,708

 
(6,328
)
 
92,406

Income and other tax (expense) benefit
 
(1,326
)
 
(602
)
 
(493
)
 
(222
)
(Loss) from investments in unconsolidated entities due to operations
 
(2,984
)
 
(3
)
 
(1,454
)
 
(3
)
(Loss) from investments in unconsolidated entities due to merger
expenses
 
(54,781
)
 

 
(1,771
)
 

Net gain on sales of unconsolidated entities
 
16

 

 
16

 

Net gain (loss) on sales of land parcels
 
12,179

 

 
(2,437
)
 

(Loss) income from continuing operations
 
(234,414
)
 
62,103

 
(12,467
)
 
92,181

Discontinued operations, net
 
2,023,897

 
434,702

 
404,184

 
144,142

Net income
 
1,789,483

 
496,805

 
391,717

 
236,323

Net loss (income) attributable to Noncontrolling Interests – Partially
Owned Properties
 
1,101

 
(457
)
 
311

 
312

Net income attributable to controlling interests
 
$
1,790,584

 
$
496,348

 
$
392,028

 
$
236,635

 
 
 
 
 
 
 
 
 
ALLOCATION OF NET INCOME:
 
 
 
 
 
 
 
 
Preference Units
 
$
3,109

 
$
9,319

 
$
1,037

 
$
2,386

Premium on redemption of Preference Units
 
$

 
$
5,150

 
$

 
$
5,150

 
 
 
 
 
 
 
 
 
General Partner
 
$
1,716,528

 
$
460,233

 
$
376,155

 
$
218,603

Limited Partners
 
70,947

 
21,646

 
14,836

 
10,496

Net income available to Units
 
$
1,787,475

 
$
481,879

 
$
390,991

 
$
229,099

 
 
 
 
 
 
 
 
 
Earnings per Unit – basic:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations available to Units
 
$
(0.64
)
 
$
0.15

 
$
(0.04
)
 
$
0.27

Net income available to Units
 
$
4.87

 
$
1.53

 
$
1.05

 
$
0.73

Weighted average Units outstanding
 
366,150

 
313,932

 
373,547

 
315,513

 
 
 
 
 
 
 
 
 
Earnings per Unit – diluted:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations available to Units
 
$
(0.64
)
 
$
0.15

 
$
(0.04
)
 
$
0.27

Net income available to Units
 
$
4.87

 
$
1.52

 
$
1.05

 
$
0.72

Weighted average Units outstanding
 
366,150

 
317,265

 
373,547

 
318,773

 
 
 
 
 
 
 
 
 
Distributions declared per Unit outstanding
 
$
1.20

 
$
1.0125

 
$
0.40

 
$
0.3375

 



See accompanying notes
11

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
(Amounts in thousands except per Unit data)
(Unaudited)
 
 
 
Nine Months Ended September 30,
 
Quarter Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
Comprehensive income:
 
 
 
 
 
 
 
 
Net income
 
$
1,789,483

 
$
496,805

 
$
391,717

 
$
236,323

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive income (loss) – derivative instruments:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
 
8,737

 
(12,337
)
 
(3,600
)
 
(3,695
)
Losses reclassified into earnings from other comprehensive
income
 
16,084

 
10,907

 
3,986

 
3,704

Other comprehensive income (loss) – other instruments:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
 
554

 
394

 
(374
)
 
312

(Gains) realized during the period
 
(830
)
 

 
(830
)
 

Other comprehensive (loss) – foreign currency:
 
 
 
 
 
 
 
 
Currency translation adjustments arising during the period
 
(789
)
 

 
(1,730
)
 

Other comprehensive income (loss)
 
23,756

 
(1,036
)
 
(2,548
)
 
321

Comprehensive income
 
1,813,239

 
495,769

 
389,169

 
236,644

Comprehensive loss (income) attributable to Noncontrolling
Interests – Partially Owned Properties
 
1,101

 
(457
)
 
311

 
312

Comprehensive income attributable to controlling interests
 
$
1,814,340

 
$
495,312

 
$
389,480

 
$
236,956


See accompanying notes
12

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
 
 
Nine Months Ended September 30,
 
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
1,789,483

 
$
496,805

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
830,097

 
516,940

Amortization of deferred financing costs
 
15,864

 
10,384

Amortization of above/below market leases
 
2,214

 

Amortization of discounts and premiums on debt
 
(37,612
)
 
(5,795
)
Amortization of deferred settlements on derivative instruments
 
15,683

 
10,506

Write-off of pursuit costs
 
3,969

 
6,141

Loss from investments in unconsolidated entities
 
57,765

 
3

Distributions from unconsolidated entities – return on capital
 
1,519

 
454

Net (gain) sales of investment securities
 
(830
)
 

Net (gain) on sales of unconsolidated entities
 
(16
)
 

Net (gain) on sales of land parcels
 
(12,179
)
 

Net (gain) on sales of discontinued operations
 
(1,990,577
)
 
(307,447
)
Unrealized loss (gain) on derivative instruments
 
32

 
(1
)
Compensation paid with Company Common Shares
 
29,019

 
20,836

Changes in assets and liabilities:
 
 
 
 
Decrease (increase) in deposits – restricted
 
4,152

 
(2,250
)
Decrease (increase) in mortgage deposits
 
271

 
(862
)
Decrease (increase) in other assets
 
7,315

 
(14,039
)
Increase in accounts payable and accrued expenses
 
65,001

 
67,479

(Decrease) in accrued interest payable
 
(2,175
)
 
(9,252
)
(Decrease) increase in other liabilities
 
(5,427
)
 
68,492

(Decrease) increase in security deposits
 
(6,475
)
 
3,472

Net cash provided by operating activities
 
767,093

 
861,866

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Acquisition of Archstone, net of cash acquired
 
(4,000,875
)
 

Investment in real estate – acquisitions
 
(108,308
)
 
(764,859
)
Investment in real estate – development/other
 
(256,965
)
 
(116,715
)
Improvements to real estate
 
(96,866
)
 
(114,535
)
Additions to non-real estate property
 
(3,359
)
 
(6,716
)
Interest capitalized for real estate and unconsolidated entities under development
 
(32,946
)
 
(15,776
)
Proceeds from disposition of real estate, net
 
4,434,708

 
610,127

Investments in unconsolidated entities
 
(59,363
)
 
(5,423
)
Distributions from unconsolidated entities – return of capital
 
25,471

 

Proceeds from sale of investment securities
 
828

 

Decrease in deposits on real estate acquisitions and investments, net
 
147,890

 
31,677

Decrease in mortgage deposits
 
7,623

 
1,682

Acquisition of Noncontrolling Interests – Partially Owned Properties
 

 
(87
)
Net cash provided by (used for) investing activities
 
57,838

 
(380,625
)
 






See accompanying notes
13

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
 
 
 
Nine Months Ended September 30,
 
 
2013
 
2012
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Loan and bond acquisition costs
 
$
(18,254
)
 
$
(4,599
)
Mortgage deposits
 
(3,769
)
 
(590
)
Mortgage notes payable:
 
 
 
 
Proceeds
 
5,951

 

Restricted cash
 

 
2,370

Lump sum payoffs
 
(701,762
)
 
(279,943
)
Scheduled principal repayments
 
(9,527
)
 
(11,022
)
Notes, net:
 
 
 
 
Proceeds
 
1,245,550

 

Lump sum payoffs
 
(400,000
)
 
(253,858
)
Lines of credit:
 
 
 
 
Proceeds
 
8,413,000

 
392,000

Repayments
 
(8,413,000
)
 
(385,000
)
(Payments on) settlement of derivative instruments
 
(44,013
)
 

Proceeds from sale of OP Units
 

 
220,753

Proceeds from EQR's Employee Share Purchase Plan (ESPP)
 
2,973

 
4,944

Proceeds from exercise of EQR options
 
16,044

 
46,781

Redemption of Preference Units
 

 
(150,000
)
Premium on redemption of Preference Units
 

 
(21
)
Payment of offering costs
 
(954
)
 
(2,860
)
Other financing activities, net
 
(33
)
 
(33
)
Contributions – Noncontrolling Interests – Partially Owned Properties
 
11,520

 
5,992

Contributions – Limited Partners
 
5

 
5

Distributions:
 
 
 
 
OP Units – General Partner
 
(537,464
)
 
(371,319
)
Preference Units
 
(3,109
)
 
(11,344
)
OP Units – Limited Partners
 
(22,216
)
 
(17,053
)
Noncontrolling Interests – Partially Owned Properties
 
(5,702
)
 
(4,742
)
Net cash (used for) financing activities
 
(464,760
)
 
(819,539
)
Net increase (decrease) in cash and cash equivalents
 
360,171

 
(338,298
)
Cash and cash equivalents, beginning of period
 
612,590

 
383,921

Cash and cash equivalents, end of period
 
$
972,761

 
$
45,623

 













See accompanying notes
14

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP
CO