Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Share Market Prices and Dividends (Equity Residential)

The following table sets forth, for the years indicated, the high, low and closing sales prices for and the distributions declared on the Company’s Common Shares, which trade on the New York Stock Exchange under the trading symbol EQR.

		Sales Price
		High				Low				Closing				Distributions
2015
Fourth Quarter Ended December 31, 2015		$	82.39			$	74.38			$	81.59			$	0.5525
Third Quarter Ended September 30, 2015		$	81.98			$	61.90			$	75.12			$	0.5525
Second Quarter Ended June 30, 2015		$	79.23			$	69.94			$	70.17			$	0.5525
First Quarter Ended March 31, 2015		$	82.53			$	72.06			$	77.86			$	0.5525
2014
Fourth Quarter Ended December 31, 2014		$	74.72			$	61.47			$	71.84			$	0.5000
Third Quarter Ended September 30, 2014		$	67.91			$	60.44			$	61.58			$	0.5000
Second Quarter Ended June 30, 2014		$	63.54			$	57.19			$	63.00			$	0.5000
First Quarter Ended March 31, 2014		$	59.41			$	51.55			$	57.99			$	0.5000

The number of record holders of Common Shares at February 19, 2016 was approximately 2,500. The number of outstanding Common Shares as of February 19, 2016 was 365,141,603.

Unit Dividends (ERP Operating Limited Partnership)

There is no established public market for the Units (OP Units and restricted units).

The following table sets forth, for the years indicated, the distributions declared on the Operating Partnership's Units.

		Distributions
		2015				2014
Fourth Quarter Ended December 31,		$	0.5525			$	0.5000
Third Quarter Ended September 30,		$	0.5525			$	0.5000
Second Quarter Ended June 30,		$	0.5525			$	0.5000
First Quarter Ended March 31,		$	0.5525			$	0.5000

The number of record holders of Units in the Operating Partnership at February 19, 2016 was approximately 500. The number of outstanding Units as of February 19, 2016 was 379,843,736.

Unregistered Common Shares Issued in the Quarter Ended December 31, 2015 (Equity Residential)

During the quarter ended December 31, 2015, EQR issued 26,554 Common Shares in exchange for 26,554 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(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.

Equity Compensation Plan Information

The following table provides information as of December 31, 2015 with respect to the Company's Common Shares that may be issued under its existing equity compensation plans.

		Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))
Plan Category
		(a) (1)		(b) (1)		(c) (2)
Equity compensation plans approved by shareholders		5,734,365		$48.04		10,922,570
Equity compensation plans not approved by shareholders		N/A		N/A		N/A

(1)	The amounts shown in columns (a) and (b) of the above table do not include 522,150 outstanding Common Shares (all of which are restricted and subject to vesting requirements) that were granted under the Company's 2011 Share Incentive Plan, as amended (the "2011 Plan") and outstanding Common Shares that have been purchased by employees and trustees under the Company's ESPP.

(2)	Includes 7,952,498 Common Shares that may be issued under the 2011 Plan, of which only 33% may be in the form of restricted shares/units, and 2,970,072 Common Shares that may be sold to employees and trustees under the ESPP.

Any Common Shares issued pursuant to EQR's incentive equity compensation and employee share purchase plans will result in ERPOP issuing OP Units to EQR on a one-for-one basis, with ERPOP receiving the net cash proceeds of such issuances.

Item 6.	Selected Financial Data

The following tables set forth selected financial and operating information on a historical basis for the Company and the Operating Partnership. The following information should be read in conjunction with all of the financial statements and notes thereto included elsewhere in this Form 10-K. The historical operating and balance sheet data have been derived from the historical financial statements of the Company and the Operating Partnership. Certain capitalized terms as used herein are defined in the Notes to Consolidated Financial Statements.

EQUITY RESIDENTIAL
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Financial information in thousands except for per share and property data)
		Year Ended December 31,
		2015				2014				2013				2012				2011
OPERATING DATA:
Total revenues from continuing operations		$	2,744,965			$	2,614,748			$	2,387,702			$	1,747,502			$	1,525,220
Interest and other income		$	7,372			$	4,462			$	5,283			$	151,060			$	8,413
Net gain on sales of real estate properties		$	335,134			$	212,685			$	—			$	—			$	—
Income (loss) from continuing operations		$	907,621			$	657,101			$	(168,174	)		$	160,298			$	(72,941	)
Discontinued operations, net		$	397			$	1,582			$	2,073,527			$	720,906			$	1,008,138
Net income		$	908,018			$	658,683			$	1,905,353			$	881,204			$	935,197
Net income available to Common Shares		$	863,277			$	627,163			$	1,826,468			$	826,212			$	879,720
Earnings per share – basic:
Income (loss) from continuing operations available to Common Shares		$	2.37			$	1.73			$	(0.47	)		$	0.45			$	(0.28	)
Net income available to Common Shares		$	2.37			$	1.74			$	5.16			$	2.73			$	2.98
Weighted average Common Shares outstanding		363,498				361,181				354,305				302,701				294,856
Earnings per share – diluted:
Income (loss) from continuing operations available to Common Shares		$	2.36			$	1.72			$	(0.47	)		$	0.45			$	(0.28	)
Net income available to Common Shares		$	2.36			$	1.73			$	5.16			$	2.70			$	2.98
Weighted average Common Shares outstanding		380,620				377,735				354,305				319,766				294,856
Distributions declared per Common Share outstanding		$	2.21			$	2.00			$	1.85			$	1.78			$	1.58
BALANCE SHEET DATA (at end of period):
Real estate, before accumulated depreciation		$	25,182,352			$	27,675,383			$	26,800,948			$	21,008,429			$	20,407,946
Real estate, after accumulated depreciation		$	20,276,946			$	22,242,578			$	21,993,239			$	16,096,208			$	15,868,363
Real estate held for sale		$	2,181,135			$	—			$	—			$	—			$	—
Total assets		$	23,157,328			$	22,950,614			$	22,834,545			$	17,201,000			$	16,659,303
Total debt		$	10,968,498			$	10,844,861			$	10,766,254			$	8,529,244			$	9,721,061
Redeemable Noncontrolling Interests – Operating Partnership		$	566,783			$	500,733			$	363,144			$	398,372			$	416,404
Total shareholders’ equity		$	10,470,368			$	10,368,456			$	10,507,201			$	7,289,813			$	5,669,015
Total Noncontrolling Interests		$	225,987			$	339,320			$	337,995			$	237,294			$	193,842
OTHER DATA:
Total properties (at end of period)		394				391				390				403				427
Total apartment units (at end of period)		109,652				109,225				109,855				115,370				121,974
Funds from operations available to Common Shares and Units – basic (1) (3) (4)		$	1,323,786			$	1,190,915			$	872,421			$	993,217			$	752,153
Normalized funds from operations available to Common Shares and Units – basic (2) (3) (4)		$	1,317,802			$	1,196,446			$	1,057,073			$	883,269			$	759,665
Cash flow provided by (used for):
Operating activities		$	1,356,499			$	1,324,073			$	868,916			$	1,046,155			$	800,467
Investing activities		$	(678,471	)		$	(644,666	)		$	(6,977	)		$	(261,155	)		$	(197,208	)
Financing activities		$	(675,832	)		$	(692,861	)		$	(1,420,995	)		$	(556,331	)		$	(650,746	)

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(Financial information in thousands except for per Unit and property data)
		Year Ended December 31,
		2015				2014				2013				2012				2011
OPERATING DATA:
Total revenues from continuing operations		$	2,744,965			$	2,614,748			$	2,387,702			$	1,747,502			$	1,525,220
Interest and other income		$	7,372			$	4,462			$	5,283			$	151,060			$	8,413
Net gain on sales of real estate properties		$	335,134			$	212,685			$	—			$	—			$	—
Income (loss) from continuing operations		$	907,621			$	657,101			$	(168,174	)		$	160,298			$	(72,941	)
Discontinued operations, net		$	397			$	1,582			$	2,073,527			$	720,906			$	1,008,138
Net income		$	908,018			$	658,683			$	1,905,353			$	881,204			$	935,197
Net income available to Units		$	897,518			$	651,994			$	1,901,746			$	864,853			$	920,500
Earnings per Unit – basic:
Income (loss) from continuing operations available to Units		$	2.37			$	1.73			$	(0.47	)		$	0.45			$	(0.28	)
Net income available to Units		$	2.37			$	1.74			$	5.16			$	2.73			$	2.98
Weighted average Units outstanding		377,074				374,899				368,038				316,554				308,062
Earnings per Unit – diluted:
Income (loss) from continuing operations available to Units		$	2.36			$	1.72			$	(0.47	)		$	0.45			$	(0.28	)
Net income available to Units		$	2.36			$	1.73			$	5.16			$	2.70			$	2.98
Weighted average Units outstanding		380,620				377,735				368,038				319,766				308,062
Distributions declared per Unit outstanding		$	2.21			$	2.00			$	1.85			$	1.78			$	1.58
BALANCE SHEET DATA (at end of period):
Real estate, before accumulated depreciation		$	25,182,352			$	27,675,383			$	26,800,948			$	21,008,429			$	20,407,946
Real estate, after accumulated depreciation		$	20,276,946			$	22,242,578			$	21,993,239			$	16,096,208			$	15,868,363
Real estate held for sale		$	2,181,135			$	—			$	—			$	—			$	—
Total assets		$	23,157,328			$	22,950,614			$	22,834,545			$	17,201,000			$	16,659,303
Total debt		$	10,968,498			$	10,844,861			$	10,766,254			$	8,529,244			$	9,721,061
Redeemable Limited Partners		$	566,783			$	500,733			$	363,144			$	398,372			$	416,404
Total partners' capital		$	10,691,747			$	10,582,867			$	10,718,613			$	7,449,419			$	5,788,551
Noncontrolling Interests – Partially Owned Properties		$	4,608			$	124,909			$	126,583			$	77,688			$	74,306
OTHER DATA:
Total properties (at end of period)		394				391				390				403				427
Total apartment units (at end of period)		109,652				109,225				109,855				115,370				121,974
Funds from operations available to Units – basic (1) (3) (4)		$	1,323,786			$	1,190,915			$	872,421			$	993,217			$	752,153
Normalized funds from operations available to Units – basic (2) (3) (4)		$	1,317,802			$	1,196,446			$	1,057,073			$	883,269			$	759,665
Cash flow provided by (used for):
Operating activities		$	1,356,499			$	1,324,073			$	868,916			$	1,046,155			$	800,467
Investing activities		$	(678,471	)		$	(644,666	)		$	(6,977	)		$	(261,155	)		$	(197,208	)
Financing activities		$	(675,832	)		$	(692,861	)		$	(1,420,995	)		$	(556,331	)		$	(650,746	)

(1)

The National Association of Real Estate Investment Trusts (“NAREIT”) defines funds from operations (“FFO”) (April 2002 White Paper) as net income (computed in accordance with accounting principles generally accepted in the United States (“GAAP”)), excluding gains (or losses) from sales and impairment write-downs of depreciable operating properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis. The April 2002 White Paper states that gain or loss on sales of property is excluded from FFO for previously depreciated operating properties only. Once the Company commences

the conversion of apartment units to condominiums, it simultaneously discontinues depreciation of such property.

(2)	Normalized funds from operations (“Normalized FFO”) begins with FFO and excludes:

▪	the impact of any expenses relating to non-operating asset impairment and valuation allowances;

▪	property acquisition and other transaction costs related to mergers and acquisitions and pursuit cost write-offs;

▪	gains and losses from early debt extinguishment, including prepayment penalties, preferred share/preference unit redemptions and the cost related to the implied option value of non-cash convertible debt discounts;

▪	gains and losses on the sales of non-operating assets, including gains and losses from land parcel and condominium sales, net of the effect of income tax benefits or expenses; and

▪	other miscellaneous non-comparable items.

(3)

The Company believes that FFO and FFO available to Common Shares and Units / Units are helpful to investors as supplemental measures of the operating performance of a real estate company, because they are recognized measures of performance by the real estate industry and by excluding gains or losses related to dispositions of depreciable property and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO available to Common Shares and Units / Units can help compare the operating performance of a company’s real estate between periods or as compared to different companies. The Company also believes that Normalized FFO and Normalized FFO available to Common Shares and Units / Units are helpful to investors as supplemental measures of the operating performance of a real estate company because they allow investors to compare the Company’s operating performance to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units do not represent net income, net income available to Common Shares / Units or net cash flows from operating activities in accordance with GAAP. Therefore, FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units should not be exclusively considered as alternatives to net income, net income available to Common Shares / Units or net cash flows from operating activities as determined by GAAP or as a measure of liquidity. The Company’s calculation of FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.

(4)

FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units are calculated on a basis consistent with net income available to Common Shares / Units and reflects adjustments to net income for preferred distributions and premiums on redemption of preferred shares/preference units in accordance with accounting principles generally accepted in the United States. The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the “Noncontrolling Interests – Operating Partnership”. Subject to certain restrictions, the Noncontrolling Interests – Operating Partnership may exchange their OP Units for Common Shares on a one-for-one basis.

Note: See Item 7 for a reconciliation of net income to FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units.

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations and financial condition of the Company and the Operating Partnership should be read in connection with the Consolidated Financial Statements and Notes thereto. Due to the Company's ability to control the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary entity has been consolidated with the Company for financial reporting purposes, except for three unconsolidated operating properties and our military housing properties. Capitalized terms used herein and not defined are as defined elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2015.

Forward-Looking Statements

Forward-looking statements in this Item 7 as well as elsewhere in this Annual Report on Form 10-K 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. 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. Factors that might cause such differences include, but are not limited to the following:

▪

We intend to actively acquire, develop and rehab multifamily properties for rental operations as market conditions dictate. We may also acquire multifamily properties that are unoccupied or in the early stages of lease up. We may be unable to lease up these apartment properties on schedule, resulting in decreases in expected rental revenues and/or lower yields due to lower occupancy and rates as well as higher than expected concessions or higher than expected operating expenses. We may not be able to achieve rents that are consistent with expectations for acquired, developed or rehabbed properties. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position, to complete a development property or to complete a rehab. Additionally, we expect that other real estate investors with capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts. This competition (or lack thereof) may increase (or depress) prices for multifamily properties. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms. We have acquired in the past and intend to continue to pursue the acquisition of properties and portfolios of properties, including large portfolios, that could increase our size and result in alterations to our capital structure. The total number of apartment units under development, costs of development and estimated completion dates are subject to uncertainties arising from changing economic conditions (such as the cost of labor and construction materials), competition and local government regulation;

▪	Debt financing and other capital required by the Company may not be available or may only be available on adverse terms;

▪	Labor and materials required for maintenance, repair, capital expenditure or development may be more expensive than anticipated;

▪

Occupancy levels and market rents may be adversely affected by national and local economic and market conditions including, without limitation, new construction and excess inventory of multifamily and single family housing, increasing portions of single family housing stock being converted to rental use, rental housing subsidized by the government, other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing, governmental regulations, slow or negative employment growth and household formation, the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers, changes in social preferences and the potential for geopolitical instability, all of which are beyond the Company's control; and

▪	Additional factors as discussed in Part I of this Annual Report on Form 10-K, 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.

Overview

Equity Residential (“EQR”), a Maryland real estate investment trust (“REIT”) formed in March 1993, is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top United States growth markets. ERP Operating Limited Partnership (“ERPOP”), an Illinois limited partnership, was formed in May 1993 to conduct the multifamily residential property business of Equity Residential. EQR has elected to be taxed as a REIT. 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 December 31, 2015 owned an approximate 96.2% 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 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 as of December 31, 2015, the Company also operated property management offices in each of its core markets and two of its non-core markets. As of December 31, 2015, the Company had approximately 3,500 employees who provided real estate operations, leasing, legal, financial, accounting, acquisition, disposition, development and other support functions.

Business Objectives and Operating and Investing Strategies

The Company invests in high quality apartment communities located in strategically targeted markets with the goal of maximizing our risk adjusted total return (operating income plus capital appreciation) on invested capital.

We seek to maximize the income and capital appreciation of our properties by investing in markets that are characterized by conditions favorable to multifamily property operations and appreciation. We are focused on the six core coastal, high barrier to entry markets of Boston, New York, Washington D.C., Southern California (including Los Angeles, Orange County and San Diego), San Francisco and Seattle. These markets generally feature one or more of the following characteristics that allow us to increase rents:

▪	High barriers to entry where, because of land scarcity or government regulation, it is difficult or costly to build new apartment properties, creating limits on new supply;

▪	High home ownership costs;

▪	Strong economic growth leading to job growth and household formation, which in turn leads to high demand for our apartments;

▪	Urban core locations with an attractive quality of life leading to high resident demand and retention; and

▪	Favorable demographics contributing to a larger pool of target residents with a high propensity to rent apartments.

Our operating focus is on balancing occupancy and rental rates to maximize our revenue while exercising tight cost control to generate the highest possible return to our shareholders. Revenue is maximized by attracting qualified prospects to our properties, cost-effectively converting these prospects into new residents and keeping our residents satisfied so they will renew their leases upon expiration. While we believe that it is our high-quality, well-located assets that bring our customers to us, it is the customer service and superior value provided by our on-site personnel that keeps them renting with us and recommending us to their friends.

We use technology to engage our customers in the way that they want to be engaged. Many of our residents utilize our web-based resident portal which allows them to sign and renew their leases, review their accounts and make payments, provide feedback and make service requests on-line.

Acquisitions and developments may be financed from various sources of capital, which may include retained cash flow, issuance of additional equity and debt, sales of properties and joint venture agreements. In addition, the Company may acquire properties in transactions that include the issuance of partnership interests in the Operating Partnership (“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. The Company may acquire land parcels to hold and/or sell based on market opportunities as well as options to buy more land in the future. The Company may also seek to acquire properties by purchasing defaulted or distressed debt that encumbers desirable properties in the hope of obtaining title to property through foreclosure or deed-in-lieu of foreclosure proceedings.

Over the past several years, the Company has done an extensive repositioning of its portfolio from low barrier to entry/non-core markets to high barrier to entry/core markets. Since 2005, the Company has sold nearly 168,000 apartment units primarily in its non-core markets for an aggregate sales price of approximately $16.6 billion, acquired over 68,000 apartment units primarily in its core markets for approximately $19.8 billion and began approximately $5.7 billion of development projects primarily in its core markets. We are currently seeking to acquire and develop assets in the following six core coastal metropolitan areas: Boston, New York, Washington D.C., Southern California, San Francisco and Seattle. The sale of the Starwood portfolio combined with the other 2016 dispositions will complete the Company's planned exit from the South Florida, Denver and Phoenix markets as well as certain New England submarkets. See further discussion below regarding the Company's 2016 disposition activity.

As part of its strategy, the Company purchases completed and fully occupied apartment properties, partially completed or partially occupied properties and takes options on land or acquires land on which apartment properties can be constructed. We intend to hold a diversified portfolio of assets across our target markets. As of December 31, 2015, no single market/metropolitan area accounted for more than 17.6% of our NOI, though NOI concentration has increased in 2016 following the sale of the Starwood portfolio.

We endeavor to attract and retain the best employees by providing them with the education, resources and opportunities to succeed. We provide many classroom and on-line training courses to assist our employees in interacting with prospects and residents as well as extensively train our customer service specialists in maintaining our properties and improvements, equipment and appliances. We actively promote from within and many senior corporate and property leaders have risen from entry level or

junior positions. We monitor our employees' engagement by surveying them annually and have consistently received high engagement scores.

We have a commitment to sustainability and consider the environmental impacts of our business activities. Sustainability and social responsibility are key drivers of our focus on creating the best apartment communities for residents to live, work and play. We have a dedicated in-house team that initiates and applies sustainable practices in all aspects of our business, including investment activities, development, property operations and property management activities. With its high density, multifamily housing is, by its nature, an environmentally friendly property type. Our recent acquisition and development activities have been primarily concentrated in pedestrian-friendly urban locations near public transportation. When developing and renovating our properties, we strive to reduce energy and water usage by investing in energy saving technology while positively impacting the experience of our residents and the value of our assets. We continue to implement a combination of irrigation, lighting, HVAC and renewable energy improvements at our properties that will reduce energy and water consumption. The Company was named the 2015 Global Residential Sector Leader by the Global Real Estate Sustainability Benchmark ("GRESB") survey, a globally recognized analysis of the sustainability indicators of more than 700 real estate portfolios worldwide. For additional information regarding our sustainability efforts, see our December 2015 Corporate Social Responsibility and Sustainability Report at our website, www.equityresidential.com. For 2016, we have added an express company-wide goal regarding enhanced sustainability efforts. Employees, including our executives, will have their performance against this goal evaluated as part of our annual performance review process.

Current Environment

Following the approval by the Company's Board of Trustees, the Company executed an agreement with controlled affiliates of Starwood Capital Group ("Starwood") on October 23, 2015 to sell a portfolio of 72 operating properties consisting of 23,262 apartment units located in five markets across the United States for $5.365 billion (the "Starwood Transaction"). On January 26 and 27, 2016, the Company closed on the sale of all of the portfolio described above. The sale of the Starwood portfolio, combined with other planned 2016 dispositions, will result in the Company's planned exit from the South Florida, Denver and Phoenix markets as well as certain New England submarkets. The Company intends to use the majority of the proceeds from the Starwood Transaction and other planned 2016 dispositions to pay two special dividends to its shareholders and holders of OP Units of between $10.00 and $12.00 per share/unit in the aggregate. On February 22, 2016, the Board of Trustees declared a special dividend of $8.00 per share/unit to be paid on March 10, 2016 to shareholders/unitholders of record as of March 3, 2016. The Company expects to pay an additional special dividend of approximately $2.00 to $4.00 per share/unit later in 2016. All future dividends remain subject to the discretion of the Company's Board of Trustees. The Company used and expects to use the majority of the remaining proceeds to reduce aggregate indebtedness in order to make the transaction leverage neutral. The Company has retired approximately $1.7 billion in secured and unsecured debt prior to scheduled maturity in early 2016 and expects to retire an additional $271.2 million at par at maturity in March 2016 using cash from these sales. The Company may also sell certain other assets in core markets in 2016 with the intention of reinvesting the proceeds from those sales in other assets in our core markets. These sales will narrow the Company's focus, which will now be entirely directed towards our high barrier to entry/core markets, and will essentially complete the Company's portfolio reconfiguration which started approximately ten years ago. We believe the assets being sold will have lower long-term returns (as compared to investments in our high barrier to entry/core markets) and that we can sell them now for prices that we believe are favorable. Given the very strong bids for multifamily assets in our high barrier to entry/core markets from many different segments of the investment community, the Company believes the best risk-adjusted use of the sale proceeds is to distribute a portion to our shareholders and repay outstanding debt. The planned 2016 dispositions discussed above, other than the Starwood Transaction, are subject to certain closing conditions, and there can be no assurance that such sales will occur.

During the year ended December 31, 2015, the Company acquired four consolidated rental properties consisting of 625 apartment units for $296.0 million and three contiguous land parcels for $27.8 million. The Company sold eight consolidated rental properties consisting of 1,857 apartment units for $513.3 million (which included a 193,230 square foot medical office building adjacent to our Longfellow Place property in Boston with a sales price of approximately $123.3 million) during the year ended December 31, 2015. The Company currently budgets consolidated rental acquisitions of approximately $600.0 million during the year ending December 31, 2016 to be funded with proceeds from rental dispositions. The Company currently budgets consolidated rental dispositions of approximately $7.4 billion during the year ending December 31, 2016, which includes the sale of the Starwood portfolio and the other planned 2016 dispositions discussed above.

During the year ended December 31, 2015, the Company started construction on two projects representing 623 apartment units totaling approximately $377.2 million of development costs and substantially completed construction on seven projects representing 1,546 apartment units totaling approximately $835.1 million of development costs. The Company significantly increased its development starts in 2014 as compared to preceding years, and while construction activity remained elevated in 2015, starts have returned to more historical levels (approximately $300.0 million to $500.0 million on average annually). The

Company has budgeted starting approximately $350.0 million of new development projects in 2016. We currently budget spending approximately $600.0 million on development costs during the year ending December 31, 2016. We expect that this capital will be primarily sourced with excess operating cash flow, disposition proceeds, expected debt offerings in 2016 and borrowings on our revolving credit facility and/or commercial paper program.

We currently have access to multiple sources of capital including the equity markets as well as both the secured and unsecured debt markets. In February 2015, the Company entered into a $500.0 million commercial paper program, which allows for daily, weekly or monthly borrowings at low floating rates of interest. We believe this commercial paper program allows the Company to continue to reduce its already low cost of capital and we will use the program to replace a portion of the amount that otherwise would have been outstanding under our revolving line of credit. In May 2015, the Company completed a $450.0 million unsecured ten year note offering with a coupon of 3.375% and an all-in effective interest rate of approximately 3.81% as well as a $300.0 million unsecured thirty year note offering with a coupon of 4.5% and an all-in effective interest rate of approximately 4.55%. The Company used the proceeds from these offerings to repay the outstanding balance on its revolving credit facility and commercial paper program. The Company has budgeted $200.0 million to $250.0 million of secured or unsecured debt offerings during 2016, excluding usage of the commercial paper program.

We believe that cash and cash equivalents, securities readily convertible to cash, current availability on our revolving credit facility and commercial paper program, expected debt offerings and disposition proceeds for 2016 will provide sufficient liquidity to meet our funding obligations relating to asset acquisitions, debt maturities, existing development projects and special dividends through 2016. We expect that our remaining longer-term funding requirements will be met through some combination of new borrowings, equity issuances, property dispositions, joint ventures and cash generated from operations.

Through their lender originator networks, Fannie Mae and Freddie Mac (the “Government Sponsored Enterprises” or “GSEs”) are significant lenders both to the Company and to buyers of the Company's properties. The GSEs have a mandate to support multifamily housing through their financing activities. Any changes to their mandates, reductions in their size or the scale of their activities or loss of key personnel could have an impact on the Company and may, among other things, lead to lower values for our assets and higher interest rates on our borrowings. The Company has access to multiple other forms of public and private capital and over time, we would expect that other lenders, including banks, the commercial mortgage-backed securities market and life insurance companies, will become larger sources of debt capital to the multifamily market, particularly as it relates to the Company's high quality apartment properties.

Same store revenues increased 5.1% during the year ended December 31, 2015 as compared to the same period in 2014, which was above the high end of our original guidance range of 3.75% to 4.50% that we provided in February 2015. Strong demand and continued strength in occupancy levels drove the outperformance during 2015, which should continue into 2016. In addition, improving labor markets, robust household formation and declining single family home ownership levels should keep demand for rental housing high and produce above trend growth for 2016. We anticipate same store revenue increases ranging from 4.50% to 5.25% and same store NOI increases ranging from 5.00% to 6.50% for 2016 as compared to 2015.

As noted above, demand for our apartments has been strong, with high occupancy and low turnover. In general, new supply continues to be absorbed in an orderly fashion with lease-ups occurring faster than expected and only minimal impact on rents at nearby stabilized assets. For 2016, we currently anticipate three groupings of same store revenue growth, with San Francisco, Seattle, Los Angeles, San Diego and Orange County producing 5% or higher, New York and Boston producing 3% to 5% and Washington D.C. producing 1% to 1.3% growth.

Washington D.C., which is our largest market, has seen record absorption despite anemic job growth in 2014 and 2015. However, we have noted recent improvements in professional services hiring. We expect continued slow improvement in the Washington D.C. market throughout 2016, but growth will still lag the remainder of the Company's portfolio due to continuing substantial deliveries of new supply in the market combined with modest but recently improving job growth due to weakness in government hiring and spending. Despite the issues noted in Washington D.C., our business in general continues to perform well because of the combined forces of demographics, household formations and increasing consumer preference for the flexibility of rental housing, all of which should ensure a continued strong demand for rental housing.

Same store expenses increased 2.5% during the year ended December 31, 2015 as compared to the same period in 2014, which was at the low end of our original guidance range of 2.5% to 3.5% that we provided in February 2015, primarily due to a decline in the price of commodities and high temperatures which resulted in a decrease in utility costs due to declines in natural gas, electricity and heating oil. The Company anticipates that 2016 same store expenses will increase 2.5% to 3.5%, with increases in real estate taxes expected to approximate 5.25% for the full year 2016. The anticipated increase in real estate taxes is primarily due to rate and value increases in certain states and municipalities, reflecting those states' and municipalities' continued economic challenges and the dramatic improvement in apartment values and fundamentals as well as the contractual annual reduction in the

benefits of 421a tax abatements in New York City. We expect minimal growth, if any, in full year utility costs due to lower commodity costs. We anticipate same store payroll costs to grow 2.5% to 3.0% in 2016 over 2015. The Company expects overhead costs (property management expense and general and administrative expense) to decline slightly in 2016 over 2015 while it expects total revenues to decline more significantly as a result of the Starwood Transaction and other planned 2016 dispositions. As certain of the Company's overhead costs are fixed and/or not quickly scalable, the Company anticipates overhead costs as a percentage of total revenues will increase in 2016 as compared to 2015.

We believe that the Company is well-positioned as of December 31, 2015 because our properties are geographically diverse, were approximately 94.3% occupied (95.7% on a same store basis) and the long-term demographic picture is positive. We believe certain of our core markets/metro areas, especially Washington D.C., Boston and Seattle, will see substantial near term multifamily supply and there will likely be periods of disruption as new development projects lease up. We believe over the longer term that our core markets will absorb future supply without material marketwide disruption because of the strong demand in these markets as exhibited by our current high occupancy levels and increasing household formations. We have seen evidence of this in Seattle as supply has been absorbed and rental rates continue to grow. We believe our strong balance sheet and ample liquidity will allow us to fund our debt maturities and development costs in the near term and should also allow us to take advantage of investment opportunities in the future.

The current environment information presented above is based on current expectations and is forward-looking.

Results of Operations

In conjunction with our business objectives and operating strategy, the Company continued to invest in apartment properties located in our high barrier to entry/core markets and sell apartment properties located in our low barrier to entry/non-core markets during the years ended December 31, 2015 and December 31, 2014. In summary, we:

Year Ended December 31, 2015:

▪	Acquired four consolidated apartment properties consisting of 625 apartment units for $296.0 million at a weighted average cap rate (see definition below) of 4.5% and three contiguous land parcels for $27.8 million; and

▪	Sold eight consolidated apartment properties consisting of 1,857 apartments units as well as a 193,230 square foot medical office building for $513.3 million at a weighted average cap rate of 5.3% generating an unlevered internal rate of return ("IRR"), inclusive of indirect management costs, of 13.4%.

Year Ended December 31, 2014:

▪	Acquired four consolidated apartment properties consisting of 1,011 apartment units for $363.2 million at a weighted average cap rate of 4.8% and two land parcels for $28.8 million;

▪	Acquired two consolidated apartment properties, one that had just completed lease up and the other which was still in lease up, consisting of 342 apartment units for $106.6 million and are expected to stabilize at a 6.4% yield on cost and a 4.9% yield on cost, respectively;

▪	Acquired the 95% equity interest it did not own in one previously unconsolidated development project with a stabilized real estate value of $87.5 million and an adjusted purchase price of $64.2 million;

▪	Sold ten consolidated apartment properties consisting of 3,092 apartments units for $467.0 million at a weighted average cap rate of 6.1% generating an unlevered IRR, inclusive of management costs, of 8.9% and three land parcels for $62.6 million; and

▪	Sold one unconsolidated property for $62.5 million (sales price listed is the gross sales price and EQR owned an 85% interest).

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) as well as an allocation of indirect property management costs. 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 communities. The cap rate is generally the first year NOI yield (net of replacements) on the Company's investment.

Properties that the Company owned and were stabilized (see definition below) for all of both 2015 and 2014 (the “2015 Same Store Properties”), which represented 96,286 apartment units, impacted the Company's results of operations. Properties that the Company owned for all of both 2014 and 2013 as well as the 18,465 stabilized apartment units acquired in the Archstone

Acquisition that are owned and managed by the Company (the “2014 Same Store Properties”), which represented 97,911 apartment units, also impacted the Company's results of operations. Both the 2015 Same Store Properties and 2014 Same Store Properties are discussed in the following paragraphs.

The following tables provide a rollforward of the apartment units included in Same Store Properties and a reconciliation of apartment units included in Same Store Properties to those included in Total Properties for the year ended December 31, 2015:

		Year Ended
		December 31, 2015
		Properties			Apartment Units
Same Store Properties at December 31, 2014		365			97,911
2013 acquisitions, excluding Archstone		1			322
2015 dispositions		(8	)		(1,857	)
Lease-up properties stabilized		1			188
Properties removed from same store (1)		(1	)		(285	)
Other		—			7
Same Store Properties at December 31, 2015		358			96,286

		Year Ended
		December 31, 2015
		Properties			Apartment Units
Same Store		358			96,286
Non-Same Store:
2015 acquisitions		4			625
2014 acquisitions		4			1,011
2014 acquisitions not yet stabilized (2)		2			342
2013 acquisitions not managed by the Company (3)		3			853
Lease-up properties not yet stabilized (2)		16			3,829
Unconsolidated properties		3			1,281
Properties removed from same store (1)		1			285
Other		1			1
Total Non-Same Store		34			8,227
Military Housing (not consolidated)		2			5,139
Total Properties and Apartment Units		394			109,652

Note: 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.

(1)

Represents one property containing 285 apartment units (Playa Pacifica in Hermosa Beach, CA) which was removed from the same store portfolio due to a major renovation in which significant portions of the property are being taken offline for extended time periods. As of December 31, 2015, the property had 129 apartment units removed from service and an occupancy of only 27.9%. This property will not return to the same store portfolio until it is stabilized for all of the current and comparable periods presented.

(2)	Includes properties in various stages of lease-up and properties where lease-up has been completed but the properties were not stabilized for the comparable periods presented.

(3)	Includes three properties containing 853 apartment units acquired on February 27, 2013 in conjunction with the Archstone Acquisition that are owned by the Company but the entire projects are master leased to a third party corporate housing provider and the Company earns monthly net rental income.

The Company's acquisition, disposition and completed development activities also impacted overall results of operations for the years ended December 31, 2015 and 2014. The impacts of these activities are discussed in greater detail in the following paragraphs.

Comparison of the year ended December 31, 2015 to the year ended December 31, 2014

For the year ended December 31, 2015, the Company reported diluted earnings per share/unit of $2.36 compared to $1.73

per share/unit for the year ended December 31, 2014. The difference is primarily due to approximately $122.3 million in higher gains on property sales as well as improved operations in 2015 vs. 2014.

For the year ended December 31, 2015, income from continuing operations increased approximately $250.5 million when compared to the year ended December 31, 2014. The increase in continuing operations is discussed below.

Revenues from the 2015 Same Store Properties increased $125.3 million primarily as a result of an increase in average rental rates charged to residents, higher occupancy and a decrease in turnover. Expenses from the 2015 Same Store Properties increased $20.5 million primarily due to increases in real estate taxes, repairs and maintenance expenses and payroll/property management costs, partially offset by lower utility costs. The following tables provide comparative same store results and statistics for the 2015 Same Store Properties:

2015 vs. 2014
Same Store Results/Statistics for 96,286 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
		Results												Statistics
														Average Rental Rate (1)
Description		Revenues				Expenses				NOI					Occupancy			Turnover
2015		$	2,566,705			$	837,880			$	1,728,825			$	2,314			96.1	%		54.5	%
2014		$	2,441,390			$	817,337			$	1,624,053			$	2,208			95.8	%		54.9	%
Change		$	125,315			$	20,543			$	104,772			$	106			0.3	%		(0.4	%)
Change		5.1		%		2.5		%		6.5		%		4.8		%

(1)Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.

The following table provides comparative same store operating expenses for the 2015 Same Store Properties:

2015 vs. 2014
Same Store Operating Expenses for 96,286 Same Store Apartment Units
$ in thousands
																	% of Actual 2015 Operating Expenses
		Actual 2015				Actual 2014				$ Change				% Change
Real estate taxes		$	296,484			$	282,487			$	13,997			5.0	%		35.4	%
On-site payroll (1)		174,950				171,706				3,244				1.9	%		20.9	%
Utilities (2)		118,986				123,296				(4,310		)		(3.5	%)		14.2	%
Repairs and maintenance (3)		104,033				98,168				5,865				6.0	%		12.4	%
Property management costs (4)		77,001				73,242				3,759				5.1	%		9.2	%
Insurance		21,335				23,909				(2,574		)		(10.8	%)		2.6	%
Leasing and advertising		10,370				10,605				(235		)		(2.2	%)		1.2	%
Other on-site operating expenses (5)		34,721				33,924				797				2.3	%		4.1	%
Same store operating expenses		$	837,880			$	817,337			$	20,543			2.5	%		100.0	%

(1)	On-site payroll – Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff.

(2)	Utilities – Represents gross expenses prior to any recoveries under the Resident Utility Billing System (“RUBS”). Recoveries are reflected in rental income.

(3)	Repairs and maintenance – Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair costs.

(4)	Property management costs – Includes payroll and related expenses for departments, or portions of departments, that directly support on-site management. These include such departments as regional and corporate property management, property accounting, human resources, training, marketing and revenue management, procurement, real estate tax, property legal services and information technology.

(5)	Other on-site operating expenses – Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees.

The following table presents a reconciliation of operating income per the consolidated statements of operations and comprehensive income to NOI for the 2015 Same Store Properties:

		Year Ended December 31,
		2015				2014
		(Amounts in thousands)
Operating income		$	1,008,820			$	921,375
Adjustments:
Non-same store operating results		(107,606		)		(103,123		)
Fee and asset management revenue		(8,387		)		(9,437		)
Fee and asset management expense		5,021				5,429
Depreciation		765,895				758,861
General and administrative		65,082				50,948
Same store NOI		$	1,728,825			$	1,624,053

For properties that the Company acquired and were stabilized prior to January 1, 2015 and that the Company expects to continue to own through December 31, 2016, the Company anticipates the following same store results for the full year ending December 31, 2016:

2016 Same Store Assumptions
Physical occupancy		96.0%
Revenue change		4.50% to 5.25%
Expense change		2.50% to 3.50%
NOI change		5.00% to 6.50%

The Company anticipates consolidated rental acquisitions of $600.0 million and consolidated rental dispositions of $7.4 billion (which includes the sale of the Starwood portfolio and other planned 2016 dispositions discussed above) and expects that acquisitions will have a 0.75% lower cap rate than dispositions for the full year ending December 31, 2016.

These 2016 assumptions are based on current expectations and are forward-looking.

Non-same store operating results increased approximately $4.5 million and consist primarily of properties acquired in calendar years 2014 and 2015 as well as operations from the Company’s completed development properties. This increase primarily resulted from:

▪	Development and newly stabilized development properties in lease-up of $27.8 million;

▪	Operating properties acquired in 2014 and 2015 of $18.1 million;

▪	Operating activities from other miscellaneous operations; and

▪	Was mostly offset by lost NOI from 2014 and 2015 dispositions of $41.8 million as well as a decrease in operating activities from other miscellaneous properties (including three master-leased properties from the Archstone Acquisition) of $2.2 million.

See also Note 17 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.

Fee and asset management revenues, net of fee and asset management expenses, decreased approximately $0.6 million or 16.0% primarily as a result of lower revenue earned on management of the Company's military housing ventures at Fort Lewis and McChord Air Force base and lower fees earned on management of the Company's unconsolidated development joint ventures, partially offset by lower expenses.

Property management expenses from continuing operations 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 $1.5 million or 1.9%. This increase is primarily attributable to an increase in payroll-related costs and education/conferences fees.

Depreciation expense from continuing operations, which includes depreciation on non-real estate assets, increased approximately $7.0 million or 0.9% primarily as a result of additional depreciation expense on properties acquired in 2014 and 2015, development properties placed in service and capital expenditures for all properties owned, partially offset by no depreciation

or a partial period of depreciation expense during the year ended December 31, 2015 for properties sold in 2015 and 2014 and properties classified as held for sale at December 31, 2015.

General and administrative expenses from continuing operations, which include corporate operating expenses, increased approximately $14.1 million or 27.7% primarily due to an increase in payroll-related costs, including an additional $8.0 million related to the Company's revised executive compensation program. The Company anticipates that general and administrative expenses will approximate $54.0 million to $56.0 million for the year ending December 31, 2016, excluding charges of approximately $1.4 million related to the Company's revised executive compensation program. The above assumption is based on current expectations and is forward-looking.

Interest and other income from continuing operations increased approximately $2.9 million or 65.2% primarily due to the settlement of various litigation/insurance claims during the year ended December 31, 2015. The Company anticipates that interest and other income will approximate $2.5 million to $3.5 million for the year ending December 31, 2016. The above assumption is based on current expectations and is forward-looking.

Other expenses from continuing operations decreased approximately $6.1 million or 67.6% primarily due to litigation settlement costs recorded during the year ended December 31, 2014 that did not reoccur in 2015 as well as a reduction in the reserve for a litigation matter recorded during the year ended December 31, 2015, partially offset by an increase in the expensing of overhead (pursuit cost write-offs) as a result of a more active focus on sourcing new development opportunities.

Interest expense from continuing operations, including amortization of deferred financing costs, decreased approximately $13.4 million or 2.9% primarily as a result of the repayment of $300.0 million of 6.584% unsecured notes in April 2015, the repayment of $500.0 million of 5.25% unsecured notes in September 2014, the repayment of the Company's $750.0 million unsecured term loan facility in June 2014, mortgage payoffs and higher capitalized interest, partially offset by interest expense on $750.0 million of unsecured notes that closed in May 2015 and $1.2 billion of unsecured notes that closed in June 2014. During the year ended December 31, 2015, the Company capitalized interest costs of approximately $59.9 million as compared to $52.8 million for the year ended December 31, 2014. This capitalization of interest primarily relates to consolidated projects under development. The effective interest cost on all indebtedness for the year ended December 31, 2015 was 4.72% as compared to 4.74% for the year ended December 31, 2014. The Company anticipates that interest expense from continuing operations, excluding debt extinguishment costs/prepayment penalties, will approximate $354.6 million to $370.8 million and capitalized interest will approximate $47.0 million to $53.0 million for the year ending December 31, 2016. The above assumptions are based on current expectations and are forward-looking.

Income and other tax expense from continuing operations decreased approximately $0.5 million or 34.2% primarily due to decreases in estimated taxes related to properties sold and/or operated by the Company's TRS in 2015 vs. 2014. The Company anticipates that income and other tax expense will approximate $1.0 million to $1.5 million for the year ending December 31, 2016. The above assumption is based on current expectations and is forward-looking.

Income from investments in unconsolidated entities increased approximately $23.0 million primarily due to gains on the sale of certain assets owned by the Company's joint ventures with AVB and due to $18.6 million in favorable litigation settlements, neither of which occurred during the year ended December 31, 2014.

Net gain on sales of real estate properties increased approximately $122.4 million or 57.6% as a result of higher gains on the sale of eight consolidated apartment properties during the year ended December 31, 2015 as compared to ten consolidated property sales during the year ended December 31, 2014, all of which did not meet the new criteria for reporting discontinued operations. See Note 11 in the Notes to Consolidated Financial Statements for further discussion.

Net gain on sales of land parcels decreased approximately $5.3 million due to the gain on sale of three land parcels during the year ended December 31, 2014 as compared to no land sales during the year ended December 31, 2015.

Discontinued operations, net decreased approximately $1.2 million or 74.9% between the periods under comparison. This decrease is primarily due to the Company's adoption of the new discontinued operations standard effective January 1, 2014. None of the properties sold during the years ended December 31, 2015 and 2014 met the new criteria for reporting discontinued operations and as a result, the amounts included in discontinued operations for the years ended December 31, 2015 and 2014 represent trailing activity for properties sold in 2013 and prior years. See Note 11 in the Notes to Consolidated Financial Statements for further discussion.

Comparison of the year ended December 31, 2014 to the year ended December 31, 2013

For the year ended December 31, 2014, the Company reported diluted earnings per share/unit of $1.73 compared to $5.16 per share/unit for the year ended December 31, 2013. The difference is primarily due to approximately $1.8 billion in higher gains on property sales in 2013 vs. 2014, partially offset by $69.6 million of higher merger-related expenses incurred in 2013 vs. 2014 in connection with the Archstone Acquisition, $122.8 million of higher debt extinguishment costs incurred in 2013 vs. 2014 in connection with early debt extinguishment of existing mortgage notes payable to manage the Company's post Archstone 2017 maturities profile and higher depreciation in 2013 as a direct result of in-place residential lease intangibles acquired in the Archstone Transaction.

For the year ended December 31, 2014, income from continuing operations increased approximately $825.3 million when compared to the year ended December 31, 2013. The increase in continuing operations is discussed below.

Revenues from the 2014 Same Store Properties increased $101.6 million primarily as a result of an increase in average rental rates charged to residents, higher occupancy and a decrease in turnover. Expenses from the 2014 Same Store Properties increased $14.8 million primarily due to increases in real estate taxes and utilities, partially offset by lower property management costs. The following tables provide comparative same store results and statistics for the 2014 Same Store Properties:

2014 vs. 2013
Same Store Results/Statistics for 97,911 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
		Results												Statistics
														Average Rental Rate (1)
Description		Revenues				Expenses				NOI					Occupancy			Turnover
2014		$	2,475,933			$	830,697			$	1,645,236			$	2,202			95.8	%		55.0	%
2013		$	2,374,350			$	815,865			$	1,558,485			$	2,119			95.4	%		55.5	%
Change		$	101,583			$	14,832			$	86,751			$	83			0.4	%		(0.5	%)
Change		4.3		%		1.8		%		5.6		%		3.9		%

Note: Same store results/statistics include the stabilized apartment units acquired in the Archstone Acquisition that are owned and managed by the Company.

(1)Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.

The following table provides comparative same store operating expenses for the 2014 Same Store Properties:

2014 vs. 2013
Same Store Operating Expenses for 97,911 Same Store Apartment Units
$ in thousands
																	% of Actual 2014 Operating Expenses
		Actual 2014				Actual 2013				$ Change				% Change
Real estate taxes		$	287,214			$	271,888			$	15,326			5.6	%		34.6	%
On-site payroll (1)		174,273				174,589				(316		)		(0.2	%)		21.0	%
Utilities (2)		125,235				119,253				5,982				5.0	%		15.1	%
Repairs and maintenance (3)		100,496				100,319				177				0.2	%		12.1	%
Property management costs (4)		74,278				78,354				(4,076		)		(5.2	%)		8.9	%
Insurance		24,354				24,626				(272		)		(1.1	%)		2.9	%
Leasing and advertising		10,802				12,072				(1,270		)		(10.5	%)		1.3	%
Other on-site operating expenses (5)		34,045				34,764				(719		)		(2.1	%)		4.1	%
Same store operating expenses		$	830,697			$	815,865			$	14,832			1.8	%		100.0	%

(1)	On-site payroll – Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff.

(2)	Utilities – Represents gross expenses prior to any recoveries under the Resident Utility Billing System (“RUBS”). Recoveries are reflected in rental income.

(3)	Repairs and maintenance – Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair costs.

(4)	Property management costs – Includes payroll and related expenses for departments, or portions of departments, that directly support on-site management. These include such departments as regional and corporate property management, property accounting, human resources, training, marketing and revenue management, procurement, real estate tax, property legal services and information technology.

(5)	Other on-site operating expenses – Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees.

The following table presents a reconciliation of operating income per the consolidated statements of operations and comprehensive income to NOI for the 2014 Same Store Properties:

		Year Ended December 31,
		2014				2013
		(Amounts in thousands)
Operating income		$	921,375			$	512,322
Adjustments:
Archstone pre-ownership operating results		—				55,694
Non-same store operating results		(81,940		)		(47,445		)
Fee and asset management revenue		(9,437		)		(9,698		)
Fee and asset management expense		5,429				6,460
Depreciation		758,861				978,973
General and administrative		50,948				62,179
Same store NOI		$	1,645,236			$	1,558,485

Non-same store operating results increased approximately $34.5 million and consist primarily of properties acquired in calendar years 2013 and 2014 as well as operations from the Company’s completed development properties, but exclude the 18,465 stabilized apartment units acquired in the Archstone Acquisition that are owned and managed by the Company. This increase primarily resulted from:

▪	Development and newly stabilized development properties in lease-up of $20.6 million;

▪	Operating properties acquired in 2013 and 2014 of $13.8 million (excluding operating properties acquired in the Archstone Acquisition);

▪	Other miscellaneous properties (including three master-leased properties acquired in the Archstone Acquisition) of $1.7 million; and

▪	Partially offset by a decrease in operating activities from other miscellaneous operations.

See also Note 17 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.

Fee and asset management revenues, net of fee and asset management expenses, increased approximately $0.8 million or 23.8% primarily as a result of higher revenue earned on management of the Company's military housing ventures at Fort Lewis and McChord Air Force base and lower expenses, partially offset by lower fees earned on management of the Company’s unconsolidated development joint ventures.

Property management expenses from continuing operations 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 decreased approximately $4.7 million or 5.6%. This decrease is primarily attributable to a decrease in payroll-related costs, office rent, education/conferences and legal and professional fees.

Depreciation expense from continuing operations, which includes depreciation on non-real estate assets, decreased approximately $220.1 million or 22.5% primarily as a result of in-place residential lease intangibles which are generally amortized over a six month period and can significantly elevate depreciation expense following an acquisition, especially during 2013 as a direct result of the Archstone Acquisition, partially offset by additional depreciation expense on properties acquired in 2014, development properties placed in service and capital expenditures for all properties owned.

General and administrative expenses from continuing operations, which include corporate operating expenses, decreased approximately $11.2 million or 18.1% primarily due to a decrease in payroll-related costs and office rent.

Interest and other income from continuing operations decreased approximately $0.8 million or 15.5% primarily due to proceeds received from the sale of certain investment securities during the year ended December 31, 2013 that did not reoccur in 2014, partially offset by proceeds received from various insurance/litigation settlements totaling $2.8 million during the year ended December 31, 2014 that did not occur in 2013.

Other expenses from continuing operations decreased approximately $20.6 million or 69.4% primarily due to the closing of the Archstone Acquisition during the year ended December 31, 2013 and the significant decline in transaction activity during the year ended December 31, 2014.

Interest expense from continuing operations, including amortization of deferred financing costs, decreased approximately $140.8 million or 23.1% primarily as a result of $122.8 million of higher debt extinguishment costs incurred on early debt prepayments and write-offs of unamortized deferred financing costs in 2013 vs. 2014 related to managing the Company's post Archstone 2017 maturities profile and higher capitalized interest in 2014. During the year ended December 31, 2014, the Company capitalized interest costs of approximately $52.8 million as compared to $47.3 million for the year ended December 31, 2013. This capitalization of interest primarily relates to consolidated projects under development. The effective interest cost on all indebtedness for the year ended December 31, 2014 was 4.74% as compared to 4.91% (excluding $107.6 million in net debt extinguishment costs) for the year ended December 31, 2013.

Income and other tax expense from continuing operations increased approximately $0.2 million or 19.2% primarily due to increases in estimated taxes related to properties sold by the Company's TRS in 2014 vs. 2013, partially offset by a reduction and timing of all other taxes.

Loss from investments in unconsolidated entities decreased by $50.2 million or 86.3% primarily due to indirect costs incurred in 2013 from the Archstone Acquisition through the Company's joint ventures with AVB such as severance and retention bonuses that have significantly decreased in 2014.

Net gain on sales of real estate properties increased $212.7 million as a result of the sale of ten consolidated apartment properties during the year ended December 31, 2014 that did not meet the new criteria for reporting discontinued operations. See Note 11 in the Notes to Consolidated Financial Statements for further discussion.

Net gain on sales of land parcels decreased approximately $7.0 million or 56.8% due to the gain on sale of three land parcels during the year ended December 31, 2014 as compared to seven land sales during the year ended December 31, 2013.

Discontinued operations, net decreased approximately $2.1 billion or 99.9% between the periods under comparison. This decrease is primarily due to substantially higher sales volume during the year ended December 31, 2013 compared to the same period in 2014 and due to the Company's adoption of the new discontinued operations standard effective January 1, 2014. See Note 11 in the Notes to Consolidated Financial Statements for further discussion.

Liquidity and Capital Resources

EQR issues public equity from time to time and guarantees certain debt of the Operating Partnership. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.

As of January 1, 2015, the Company had approximately $40.1 million of cash and cash equivalents and it had $2.12 billion available under its revolving credit facility (net of $43.8 million which was restricted/dedicated to support letters of credit and net of $333.0 million outstanding). After taking into effect the various transactions discussed in the following paragraphs and the net cash provided by operating activities, the Company’s cash and cash equivalents balance at December 31, 2015 was approximately $42.3 million and the amount available on its revolving credit facility was $2.07 billion (net of $45.1 million which was restricted/dedicated to support letters of credit and net of $387.5 million outstanding on the commercial paper program).

During the year ended December 31, 2015, the Company generated proceeds from various transactions, which included the following:

▪	Disposed of eight consolidated properties and a 193,230 square foot medical office building, receiving net proceeds of approximately $504.7 million;

▪	Issued $450.0 million of ten-year 3.375% fixed rate public notes, receiving net proceeds of $447.5 million before underwriting fees, hedge termination costs and other expenses, at an all-in effective interest rate of 3.81%;

▪	Issued $300.0 million of thirty-year 4.50% fixed rate public notes, receiving net proceeds of $298.9 million before

underwriting fees and other expenses, at an all-in effective interest rate of 4.55%;

▪	Received approximately $51.0 million in distributions from the Residual JV as a result of the winddown/sale of remaining assets owned by the Residual JV and litigation settlements received by the Residual JV; and

▪	Issued approximately 1.5 million Common Shares related to share option exercises and ESPP purchases and received net proceeds of $63.9 million, which were contributed to the capital of the Operating Partnership in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis).

During the year ended December 31, 2015, the above proceeds along with net cash flow from operations and availability on the Company's revolving line of credit and commercial paper program were primarily utilized to:

▪	Acquire four consolidated properties and three contiguous land parcels for approximately $331.3 million;

▪	Invest $653.9 million primarily in development projects;

▪	Repay $368.5 million of mortgage loans;

▪	Repay $300.0 million of 6.584% unsecured notes at maturity; and

▪	Repurchase and retire 254,400 Series K Preferred Shares with a par value of $12.7 million for total cash consideration of approximately $16.3 million, inclusive of premiums and accrued dividends through the redemption date (See Note 3 in the Notes to Consolidated Financial Statements).

In September 2009, EQR announced the establishment of an At-The-Market (“ATM”) share offering program which would allow EQR to sell Common Shares from time to time into the existing trading market at current market prices as well as through negotiated transactions. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds from all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis). EQR may, but shall have no obligation to, sell Common Shares through the ATM share offering program in amounts and at times to be determined by EQR. Actual sales will depend on a variety of factors to be determined by EQR from time to time, including (among others) market conditions, the trading price of EQR’s Common Shares and determinations of the appropriate sources of funding for EQR. On July 30, 2013, the Board of Trustees approved an increase to the amount of shares which may be offered under the ATM program to 13.0 million Common Shares and extended the program maturity to July 2016. EQR has not issued any shares under this program since September 14, 2012. Through February 19, 2016, EQR has cumulatively issued approximately 16.7 million Common Shares at an average price of $48.53 per share for total consideration of approximately $809.9 million.

Depending on its analysis of market prices, economic conditions and other opportunities for the investment of available capital, EQR may repurchase its Common Shares pursuant to its existing share repurchase program authorized by the Board of Trustees. Effective July 30, 2013, the Board of Trustees approved an increase and modification to the Company's share repurchase program to allow for the potential repurchase of up to 13.0 million shares. EQR repurchased approximately $1.8 million (31,240 shares at a price of $56.87 per share) of its Common Shares (all related to the vesting of employees' restricted shares) during the year ended December 31, 2014. No open market repurchases have occurred since 2008. As of February 19, 2016, EQR has remaining authorization to repurchase an additional 12,968,760 of its shares. See Note 3 in the Notes to Consolidated Financial Statements for further discussion.

Depending on its analysis of prevailing market conditions, liquidity requirements, contractual restrictions and other factors, the Company may from time to time seek to repurchase and retire its outstanding debt in open market or privately negotiated transactions.

The Company’s total debt summary and debt maturity schedules as of December 31, 2015 are as follows:

Debt Summary as of December 31, 2015
(Amounts in thousands)
												Weighted Average Maturities (years)
									Weighted Average Rates (1)
		Amounts (1)				% of Total
Secured		$	4,704,870			42.9	%		4.23	%		6.9
Unsecured		6,263,628				57.1	%		4.73	%		8.2
Total		$	10,968,498			100.0	%		4.51	%		7.6
Fixed Rate Debt:
Secured – Conventional		$	3,997,930			36.5	%		4.86	%		5.3
Unsecured – Public		5,423,012				49.4	%		5.30	%		9.2
Fixed Rate Debt		9,420,942				85.9	%		5.10	%		7.6
Floating Rate Debt:
Secured – Conventional		7,985				0.1	%		0.13	%		18.1
Secured – Tax Exempt		698,955				6.3	%		0.64	%		15.5
Unsecured – Public (2)		453,340				4.2	%		0.93	%		3.5
Unsecured – Revolving Credit Facility		—				—			1.07	%		2.3
Unsecured – Commercial Paper Program (3)		387,276				3.5	%		0.56	%		—
Floating Rate Debt		1,547,556				14.1	%		0.75	%		8.1
Total		$	10,968,498			100.0	%		4.51	%		7.6

(1)	Net of the effect of any derivative instruments. Weighted average rates are for the year ended December 31, 2015.

(2)	Fair value interest rate swaps convert the $450.0 million 2.375% notes due July 1, 2019 to a floating interest rate of 90-Day LIBOR plus 0.61%.

(3)	As of December 31, 2015, the weighted average maturity on the Company's outstanding commercial paper was 19 days.

Note: The Company capitalized interest of approximately $59.9 million and $52.8 million during the years ended December 31, 2015 and 2014, respectively.

Note: The Company recorded approximately $8.6 million and $2.8 million of net debt discount/deferred derivative settlement amortization as additional interest expense during the years ended December 31, 2015 and 2014, respectively.

Debt Maturity Schedule as of December 31, 2015
(Amounts in thousands)
																	Weighted Average Rates on Fixed Rate Debt (1)			Weighted Average Rates on Total Debt (1)
		Fixed Rate (1)				Floating Rate (1)
Year			Total				% of Total
2016		$	965,341			$	387,472		(2)	$	1,352,813		(3)	12.3	%		5.33	%		4.06	%
2017		1,347,390				456				1,347,846			(3)	12.3	%		6.16	%		6.16	%
2018		82,802				97,659				180,461				1.7	%		5.59	%		3.07	%
2019		806,705				474,422				1,281,127				11.7	%		5.48	%		3.75	%
2020		1,678,623				809				1,679,432				15.3	%		5.49	%		5.49	%
2021		1,195,251				856				1,196,107				10.9	%		4.63	%		4.63	%
2022		228,924				905				229,829				2.1	%		3.16	%		3.17	%
2023		1,327,965				956				1,328,921				12.1	%		3.74	%		3.74	%
2024		2,497				1,011				3,508				0.0	%		4.97	%		5.14	%
2025		452,625				1,069				453,694				4.1	%		3.38	%		3.39	%
2026+		1,319,792				641,228				1,961,020				17.9	%		4.87	%		3.41	%
Premium/(Discount)		13,027				(59,287		)		(46,260		)		(0.4	%)		N/A			N/A
Total		$	9,420,942			$	1,547,556			$	10,968,498			100.0	%		4.97	%		4.35	%

(1)	Net of the effect of any derivative instruments. Weighted average rates are as of December 31, 2015.

(2)	Represents the principal outstanding on the Company's unsecured commercial paper program. The Company may borrow up to a maximum of $500.0 million under this program subject to market conditions. No amounts remain outstanding under this program as of February 19, 2016.

(3)	Following completion of the debt extinguishment activities in 2016 and repayment of all outstanding commercial paper balances, the Company will have approximately $336.6 million and $605.0 million in debt maturing in 2016 and 2017, respectively. See Note 18 in the Notes to Consolidated Financial Statements for further discussion.

The following table provides a summary of the Company’s unsecured debt as of December 31, 2015:

Unsecured Debt Summary as of December 31, 2015
(Amounts in thousands)
										Unamortized Premium/ (Discount)
		Coupon Rate		Due Date		Face Amount					Net Balance
Fixed Rate Notes:
		5.125%		03/15/16	(5)	$	500,000			$	(9	)		$	499,991
		5.375%		08/01/16	(5)	400,000				(108		)		399,892
		5.750%		06/15/17	(5)	650,000				(763		)		649,237
		7.125%		10/15/17	(5)	150,000				(116		)		149,884
		2.375%		07/01/19	(1)	450,000				(315		)		449,685
Fair Value Derivative Adjustments					(1)	(450,000		)		315				(449,685		)
		4.750%		07/15/20		600,000				(2,060		)		597,940
		4.625%		12/15/21	(5)	1,000,000				(2,254		)		997,746
		3.000%		04/15/23		500,000				(3,226		)		496,774
		3.375%		06/01/25		450,000				(2,331		)		447,669
		7.570%		08/15/26	(5)	140,000				—				140,000
		4.500%		07/01/44		750,000				(5,009		)		744,991
		4.500%		06/01/45		300,000				(1,112		)		298,888
						5,440,000				(16,988		)		5,423,012
Floating Rate Notes:
				07/01/19	(1)	450,000				(315		)		449,685
Fair Value Derivative Adjustments				07/01/19	(1)	3,655				—				3,655
						453,655				(315		)		453,340
Line of Credit and Commercial Paper:
Revolving Credit Facility		LIBOR+0.95%		04/01/18	(2)(3)	—				—				—
Commercial Paper Program		(4)		(4)	(2)	387,472				(196		)		387,276
						387,472				(196		)		387,276
Total Unsecured Debt						$	6,281,127			$	(17,499	)		$	6,263,628

(1)	Fair value interest rate swaps convert the $450.0 million 2.375% notes due July 1, 2019 to a floating interest rate of 90-Day LIBOR plus 0.61%.

(2)	Facility/program is private. All other unsecured debt is public.

(3)

Represents the Company's $2.5 billion unsecured revolving credit facility maturing April 1, 2018. The interest rate on advances under the credit facility will generally be LIBOR plus a spread (currently 0.95%) and an annual facility fee (currently 15 basis points). Both the spread and the facility fee are dependent on the credit rating of the Company's long-term debt. As of December 31, 2015, there was approximately $2.07 billion available on this facility (net of $45.1 million which was restricted/dedicated to support letters of credit and net of $387.5 million outstanding on the commercial paper program). As of February 19, 2016, there was approximately $2.44 billion available on this facility (net of $64.5 million which was restricted/dedicated to support letters of credit).

(4)

Represents the Company's unsecured commercial paper program. The Company may borrow up to a maximum of $500.0 million under this program subject to market conditions. The notes bear interest at various floating rates with a weighted average of 0.56% for the year ended December 31, 2015 and a weighted average maturity of 19 days as of December 31, 2015. No amounts remain outstanding under this program as of February 19, 2016.

(5)	All or a portion of these notes were repaid in conjunction with the debt extinguishment activities in 2016. See Note 18 in the Notes to Consolidated Financial Statements for further discussion.

EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC on July 30, 2013 and expires on July 30, 2016. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).

The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2015 is presented in the following table. The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preferred shares outstanding.

Equity Residential
Capital Structure as of December 31, 2015
(Amounts in thousands except for share/unit and per share amounts)
Secured Debt									$	4,704,870			42.9	%
Unsecured Debt									6,263,628				57.1	%
Total Debt									10,968,498				100.0	%		26.2	%
Common Shares (includes Restricted Shares)		364,755,444				96.2	%
Units (includes OP Units and Restricted Units)		14,427,164				3.8	%
Total Shares and Units		379,182,608				100.0	%
Common Share Price at December 31, 2015		$	81.59
									30,937,509				99.9	%
Perpetual Preferred Equity (see below)									37,280				0.1	%
Total Equity									30,974,789				100.0	%		73.8	%
Total Market Capitalization									$	41,943,287						100.0	%

Equity Residential
Perpetual Preferred Equity as of December 31, 2015
(Amounts in thousands except for share and per share amounts)
											Annual Dividend Per Share				Annual Dividend Amount
		Redemption Date		Outstanding Shares			Liquidation Value
Series
Preferred Shares:
8.29% Series K (1) (2)		12/10/26		745,600			$	37,280			$	4.145			$	3,091
Total Perpetual Preferred Equity				745,600			$	37,280							$	3,091

(1)	Effective January 26, 2015, the Company repurchased and retired 196,400 Series K Preferred Shares with a par value of $9.82 million for total cash consideration of approximately $12.7 million. As a result of this partial redemption, the Company incurred a cash charge of approximately $2.8 million which was recorded as a premium on the redemption of Preferred Shares.

(2)	Effective November 12, 2015, the Company repurchased and retired 58,000 Series K Preferred Shares with a par value of $2.9 million for total cash consideration of approximately $3.6 million. As a result of this partial redemption, the Company incurred a cash charge of approximately $0.7 million which was recorded as a premium on the redemption of Preferred Shares.

The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2015 is presented in the following table. The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preference units outstanding.

ERP Operating Limited Partnership
Capital Structure as of December 31, 2015
(Amounts in thousands except for unit and per unit amounts)
Secured Debt								$	4,704,870			42.9	%
Unsecured Debt								6,263,628				57.1	%
Total Debt								10,968,498				100.0	%		26.2	%
Total outstanding Units		379,182,608
Common Share Price at December 31, 2015		$	81.59
								30,937,509				99.9	%
Perpetual Preference Units (see below)								37,280				0.1	%
Total Equity								30,974,789				100.0	%		73.8	%
Total Market Capitalization								$	41,943,287						100.0	%

ERP Operating Limited Partnership
Perpetual Preference Units as of December 31, 2015
(Amounts in thousands except for unit and per unit amounts)
											Annual Dividend Per Unit				Annual Dividend Amount
		Redemption Date		Outstanding Units			Liquidation Value
Series
Preference Units:
8.29% Series K (1) (2)		12/10/26		745,600			$	37,280			$	4.145			$	3,091
Total Perpetual Preference Units				745,600			$	37,280							$	3,091

(1)

Effective January 26, 2015, the Operating Partnership repurchased and retired 196,400 Series K Preference Units with a par value of $9.82 million for total cash consideration of approximately $12.7 million, in conjunction with the concurrent redemption of the corresponding Company Preferred Shares. As a result of this partial redemption, the Operating Partnership incurred a cash charge of approximately $2.8 million which was recorded as a premium on the redemption of Preference Units.

(2)

Effective November 12, 2015, the Operating Partnership repurchased and retired 58,000 Series K Preference Units with a par value of $2.9 million for total cash consideration of approximately $3.6 million, in conjunction with the concurrent redemption of the corresponding Company Preferred Shares. As a result of this partial redemption, the Operating Partnership incurred a cash charge of approximately $0.7 million which was recorded as a premium on the redemption of Preference Units.

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. Under normal operating conditions, the Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.

The Company has a flexible dividend policy which it believes will generate payouts closely aligned with the actual annual operating results of the Company’s core business and provide transparency to investors. Beginning in 2014, the Company began paying its annual dividend based on 65% of the midpoint of the range of Normalized FFO guidance customarily provided as part of the Company's fourth quarter earnings release. The Company's 2015 annual dividend payout was $2.21 per share/unit and the Company paid four quarterly dividends of $0.5525 per share/unit in 2015. The Company expects the 2016 annual regular dividend payout will be $2.015 per share/unit and the Company intends to pay four quarterly dividends of $0.50375 per share/unit in 2016. Due to the continued execution of its disposition strategy, the Company's anticipated 2016 regular annual dividend will decrease by approximately 8.8% as compared to 2015. In addition to the regular quarterly dividends, the Company anticipates paying two special dividends to its shareholders and holders of OP Units of between $10.00 and $12.00 per share/unit in the aggregate. On February 22, 2016, the Board of Trustees declared a special dividend of $8.00 per share/unit to be paid on March 10, 2016 to shareholders/unitholders of record as of March 3, 2016. The Company expects to pay an additional special dividend of approximately $2.00 to $4.00 per share/unit later in 2016 from the proceeds of additional asset sales. All future dividends remain subject to the discretion of the Board of Trustees. The above assumptions are based on current expectations and are forward-looking.

While our current dividend policy makes it less likely that we will over distribute, it will also lead to a dividend reduction more quickly should operating results deteriorate or large portfolio sales occur. However, whether due to changes in the dividend policy or otherwise, there may be times when the Company experiences shortfalls in its coverage of distributions, which may cause the Company to consider reducing its distributions and/or using the proceeds from property dispositions or additional financing transactions to make up the difference. Should these shortfalls occur for lengthy periods of time or be material in nature, the Company's financial condition may be adversely affected and it may not be able to maintain its current distribution levels. The Company believes that its expected 2016 operating cash flow will be sufficient to cover capital expenditures and regular dividends/distributions, while net sales proceeds will cover the anticipated special dividends.

The Company also expects to meet its long-term liquidity requirements, such as lump sum unsecured note and mortgage debt maturities, property acquisitions, financing of construction and 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 and cash generated from operations after all distributions. In addition, the Company has significant unencumbered properties available to secure additional mortgage borrowings in the event that the public capital markets are unavailable or the cost of alternative sources of capital is too high. The fair 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, line of credit and commercial paper program. Of the $28.5 billion in investment in real estate on the Company’s balance sheet at December 31, 2015 (inclusive of $3.4 billion of real estate held for sale), $20.8 billion (inclusive of real estate held for sale) or 72.9% 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.

ERPOP's long-term senior debt ratings and short-term commercial paper ratings as well as EQR's long-term preferred equity ratings as of February 19, 2016 are as follows:

		Standard & Poor's		Moody's		Fitch
ERPOP's long-term senior debt rating		A-		Baa1 (1)		A-
ERPOP's short-term commercial paper rating		A-2		P-2		F-2
EQR's long-term preferred equity rating		BBB		Baa2 (2)		BBB

(1)	Moody's rated ERPOP's long-term senior debt with a positive outlook.

(2)	Moody's rated EQR's long-term preferred equity with a positive outlook.

The long-term credit ratings listed above reflect the one-level upgrades by Standard & Poor's ("S&P") and Fitch effective April 30, 2015 and April 28, 2015, respectively. As a result of the S&P upgrade, the interest rate spread on advances under the Company's revolving credit facility was lowered from 1.05% to 0.95% effective April 30, 2015. The long-term credit ratings listed above were reaffirmed following the Company's announcement of the Starwood Transaction and other planned 2016 dispositions. EQR does not have short-term credit ratings.

On January 11, 2013, the Company replaced its existing $1.75 billion facility with a $2.5 billion unsecured revolving credit facility maturing April 1, 2018. The Company has the ability to increase available borrowings by an additional $500.0 million by adding additional banks to the facility or obtaining the agreement of existing banks to increase their commitments. The interest rate on advances under the facility will generally be LIBOR plus a spread (currently 0.95%) and the Company pays an annual facility fee (currently 15 basis points). Both the spread and the facility fee are dependent on the credit rating of the Company’s long-term debt.

On February 2, 2015, the Company entered into an unsecured commercial paper note program in the United States. The Company may borrow up to a maximum of $500.0 million under this 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. As of February 19, 2016, no amounts were outstanding under this program.

As of February 19, 2016, no amounts were outstanding and the amount available on the revolving credit facility was $2.44 billion (net of $64.5 million which was restricted/dedicated to support letters of credit). This facility may, among other potential uses, be used to fund property acquisitions, costs for certain properties under development and short-term liquidity requirements.

See Note 18 in the Notes to Consolidated Financial Statements for discussion of the events which occurred subsequent to December 31, 2015.

Capitalization of Fixed Assets and Improvements to Real Estate

Our policy with respect to capital expenditures is generally to capitalize expenditures that improve the value of the property or extend the useful life of the component asset of the property. We track improvements to real estate in two major categories and several subcategories:

▪	Replacements (inside the apartment unit). These include:

•	flooring such as carpets, hardwood, vinyl or tile;

•	appliances;

•	mechanical equipment such as individual furnace/air units, hot water heaters, etc;

•	furniture and fixtures such as kitchen/bath cabinets, light fixtures, ceiling fans, sinks, tubs, toilets, mirrors, countertops, etc; and

•	blinds.

All replacements are depreciated over a five to ten-year estimated useful life. We expense as incurred all make-ready maintenance and turnover costs such as cleaning, interior painting of individual apartment units and the repair of any replacement item noted above.

▪	Building improvements (outside the apartment unit). These include:

•	roof replacement and major repairs;

•	paving or major resurfacing of parking lots, curbs and sidewalks;

•	amenities and common areas such as pools, exterior sports and playground equipment, lobbies, clubhouses, laundry rooms, alarm and security systems and offices;

•	major building mechanical equipment systems;

•	interior and exterior structural repair and exterior painting and siding;

•	major landscaping and grounds improvement; and

•	vehicles and office and maintenance equipment.

All building improvements are depreciated over a five to fifteen-year estimated useful life. We capitalize building improvements and upgrades only if the item: (i) exceeds $2,500 (selected projects must exceed $10,000); (ii) extends the useful life of the asset; and (iii) improves the value of the asset.

For the year ended December 31, 2015, our actual improvements to real estate totaled approximately $182.1 million. This includes the following (amounts in thousands except for apartment unit and per apartment unit amounts):

Capital Expenditures to Real Estate
For the Year Ended December 31, 2015
		Total Apartment Units (1)			Replacements (2)				Avg. Per Apartment Unit				Building Improvements (3)				Avg. Per Apartment Unit				Total				Avg. Per Apartment Unit
Same Store Properties (4)		96,286			$	98,120			$	1,019			$	75,294			$	782			$	173,414			$	1,801
Non-Same Store Properties (5)		6,946			1,870				335				6,293				1,127				8,163				1,462
Other (6)		—			302								234								536
Total		103,232			$	100,292							$	81,821							$	182,113

(1)	Total Apartment Units – Excludes 1,281 unconsolidated apartment units and 5,139 military housing apartment units for which repairs and maintenance expenses and capital expenditures to real estate are self-funded and do not consolidate into the Company's results.

(2)

Replacements – Includes new expenditures inside the apartment units such as appliances, mechanical equipment, fixtures and flooring, including carpeting. Replacements for same store properties also include $60.6 million spent in 2015 on apartment unit renovations/rehabs (primarily kitchens and baths) on 6,499 same store apartment units (equating to about $9,300 per apartment unit rehabbed) designed to reposition these assets for higher rental levels in their respective markets.

(3)	Building Improvements – Includes roof replacement, paving, amenities and common areas, building mechanical equipment systems, exterior painting and siding, major landscaping, vehicles and office and maintenance equipment.

(4)	Same Store Properties – Primarily includes all properties acquired or completed and stabilized prior to January 1, 2014, less properties subsequently sold.

(5)	Non-Same Store Properties – Primarily includes all properties acquired during 2014 and 2015, plus any properties in lease-up and not stabilized as of January 1, 2014. Per apartment unit amounts are based on a weighted average of 5,582 apartment units.

(6)	Other – Primarily includes expenditures for properties sold and properties under development.

For the year ended December 31, 2014, our actual improvements to real estate totaled approximately $186.0 million. This includes the following (amounts in thousands except for apartment unit and per apartment unit amounts):

Capital Expenditures to Real Estate
For the Year Ended December 31, 2014
		Total Apartment Units (1)			Replacements (2)				Avg. Per Apartment Unit				Building Improvements (3)				Avg. Per Apartment Unit				Total				Avg. Per Apartment Unit
Same Store Properties (4)		97,911			$	85,045			$	869			$	93,988			$	960			$	179,033			$	1,829
Non-Same Store Properties (5)		5,000			236				60				5,513				1,410				5,749				1,470
Other (6)		—			920								255								1,175
Total		102,911			$	86,201							$	99,756							$	185,957

(1)	Total Apartment Units – Excludes 1,281 unconsolidated apartment units and 5,033 military housing apartment units for which repairs and maintenance expenses and capital expenditures to real estate are self-funded and do not consolidate into the Company’s results.

(2)

Replacements – Includes new expenditures inside the apartment units such as appliances, mechanical equipment, fixtures and flooring, including carpeting. Replacements for same store properties also include $51.4 million spent in 2014 on apartment unit renovations/rehabs (primarily kitchens and baths) on 6,111 same store apartment units (equating to about $8,400 per apartment unit rehabbed) designed to reposition these assets for higher rental levels in their respective markets.

(3)	Building Improvements – Includes roof replacement, paving, amenities and common areas, building mechanical equipment systems, exterior painting and siding, major landscaping, vehicles and office and maintenance equipment.

(4)	Same Store Properties – Primarily includes all properties acquired or completed and stabilized prior to January 1, 2013, less properties subsequently sold. Also includes 18,465 stabilized apartment units acquired in the Archstone Acquisition that are owned and managed by the Company.

(5)	Non-Same Store Properties – Primarily includes all properties acquired during 2013 and 2014, plus any properties in lease-up and not stabilized as of January 1, 2013, but excludes 18,465 stabilized apartment units acquired in the Archstone Acquisition that are owned and managed by the Company. Per apartment unit amounts are based on a weighted average of 3,911 apartment units.

(6)	Other – Primarily includes expenditures for properties sold.

Based on the approximately 70,000 apartment units expected to be included in same store properties by December 31, 2016, the Company estimates that it will spend approximately $2,200 per apartment unit of capital expenditures, inclusive of apartment unit renovation/rehab costs, or $1,600 per apartment unit excluding apartment unit renovation/rehab costs during 2016. In 2016, the Company expects to spend approximately $40.0 million for all unit renovation/rehab costs (primarily on same store properties) at a weighted average cost of $10,000 per apartment unit rehabbed. These anticipated amounts represent an increase in the cost per unit over 2015, but a decline in the absolute dollar amounts, which is primarily driven by the Company's more valuable urban apartment footprint. We will continue to create value from our properties by doing those rehabs that meet our investment parameters. The above assumptions are based on current expectations and are forward-looking.

During the year ended December 31, 2015, the Company’s total non-real estate capital additions, such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Company’s property management offices and its corporate offices, were approximately $4.0 million. The Company expects to fund approximately $4.1 million in total non-real estate capital additions in 2016. The above assumption is based on current expectations and is forward-looking.

Capital expenditures to real estate and non-real estate capital additions are generally funded from net cash provided by operating activities and from investment cash flow.

Derivative Instruments

In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company seeks to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments. The Company may also use derivatives to manage its exposure to foreign exchange rates or manage commodity prices in the daily operations of the business.

The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from these instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives it currently has in place.

See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments at December 31, 2015.

Other

Total distributions paid in January 2016 amounted to $209.4 million (excluding distributions on Partially Owned Properties), which included certain distributions declared during the fourth quarter ended December 31, 2015.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company has various unconsolidated interests in certain joint ventures. The Company does not believe that these unconsolidated investments have a materially different impact on its liquidity, cash flows, capital resources, credit or market risk than its consolidated operating and/or other activities.

Operating Properties

The Company has a 75% equity interest in the Wisconsin Place joint venture. The project contains a mixed-use site located in Chevy Chase, Maryland consisting of residential, retail, office and accessory uses, including underground parking facilities. The joint venture owns the 432 unit residential component, but has no ownership interest in the retail and office components. The joint venture also retains an unconsolidated interest in an entity that owns the land underlying the entire project and owns and operates the parking facility. At December 31, 2015, the basis of this investment was $49.4 million. The Company does not have substantive kick-out or participating rights in the entity. As a result, the entity that owns the land and owns and operates the parking facility is unconsolidated and recorded using the equity method of accounting.

The Company has a 20% equity interest in the Waterton Tenside joint venture which owns a 336 unit apartment property located in Atlanta, Georgia and had a basis of $3.9 million at December 31, 2015. The partner is the managing member and developed the project. The project is encumbered by a non-recourse mortgage loan that has a current outstanding balance of $29.4 million, bears interest at 3.66% and matures December 1, 2018. The Company does not have substantive kick-out or participating rights. As a result, the entity is unconsolidated and recorded using the equity method of accounting.

The Company has a 20% equity interest in each of the Nexus Sawgrass and Domain joint ventures. The Nexus Sawgrass joint venture owns a 501 unit apartment property located in Sunrise, Florida and had a basis of $5.1 million at December 31, 2015. The Domain joint venture owns a 444 unit apartment property located in San Jose, California and had a basis of $10.0 million at December 31, 2015. Nexus Sawgrass and Domain were completed and stabilized during the quarters ended September 30, 2014 and March 31, 2015, respectively. Construction on both projects was predominantly funded with long-term, non-recourse secured loans from the partner. The mortgage loan on Nexus Sawgrass has a current unconsolidated outstanding balance of $48.6 million, bears interest at 5.60% and matures January 1, 2021. The mortgage loan on Domain has a current unconsolidated outstanding balance of $96.8 million, bears interest at 5.75% and matures January 1, 2022. While the Company is the managing member of both of the joint ventures, was responsible for constructing both of the projects and gave certain construction cost overrun guarantees, the joint venture partner has significant participating rights and has active involvement in and oversight of the ongoing projects. As a result, the entities are unconsolidated and recorded using the equity method of accounting. The Company currently has no further funding obligations related to these projects. The Company's strategy with respect to these ventures was to reduce its financial risk related to the development of the properties.

Other

On February 27, 2013, in connection with the Archstone Acquisition, subsidiaries of the Company and AVB entered into three limited liability company agreements (collectively, the “Residual JV”). The Residual JV owned certain non-core Archstone assets and succeeded to certain residual Archstone liabilities/litigation. The Residual JV is owned 60% by the Company and 40% by AVB. The Company's initial investment was $147.6 million and the Company's basis at December 31, 2015 was a net obligation of $0.3 million. The Residual JV is managed by a Management Committee consisting of two members from each of the Company and AVB. Both partners have equal participation in the Management Committee and all significant participating rights are shared by both partners. As a result, the Residual JV is unconsolidated and recorded using the equity method of accounting.

During the years ended December 31, 2015, 2014 and 2013, the Company received approximately $51.0 million, $83.5 million and $18.9 million, respectively, in distributions from the Residual JV as a result of the winddown/sale of assets owned by the Residual JV and litigation settlements received by the Residual JV. The Company's pro rata share of the proceeds/distributions that have been repatriated to the Residual JV and received by the Company as a result of the German dispositions and winddown activity was approximately $3.5 million, $79.6 million and $18.9 million during the years ended December 31, 2015, 2014 and 2013, respectively. The Company's pro rata share of the proceeds related to the sale of other real estate assets owned by the Residual JV was approximately $30.7 million and $3.9 million, respectively, during the years ended December 31, 2015 and 2014. The Company’s pro rata share of the litigation settlements received by the Residual JV was approximately $16.8 million during the year ended December 31, 2015. As of December 31, 2015, the Residual JV has sold all of the real estate assets that were acquired as part of the Archstone Acquisition, including all of the German assets.

On February 27, 2013, in connection with the Archstone Acquisition, a subsidiary of the Company and AVB entered into a limited liability company agreement (the “Legacy JV”), through which they assumed obligations of Archstone in the form of preferred interests, some of which are governed by tax protection arrangements. During the year ended December 31, 2015, the Legacy JV distributed $27.9 million to its preferred interests holders for accrued and unpaid dividends, of which the Company's pro rata share was approximately $16.7 million. At December 31, 2015, the remaining preferred interests had an aggregate liquidation value of $42.2 million, our share of which is included in other liabilities in the accompanying consolidated balance sheets. Obligations of the Legacy JV are borne 60% by the Company and 40% by AVB. The Legacy JV is managed by a Management Committee consisting of two members from each of the Company and AVB. Both partners have equal participation

in the Management Committee and all significant participating rights are shared by both partners. As a result, the Legacy JV is unconsolidated and recorded using the equity method of accounting.

As of December 31, 2015, the Company has 10 wholly owned projects totaling 3,989 apartment units in various stages of development with estimated completion dates ranging through September 30, 2017, as well as other completed development projects that are in various stages of lease up or are stabilized. See also Note 16 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company's development projects.

See also Notes 2 and 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s investments in partially owned entities.

The following table summarizes the Company’s contractual obligations for the next five years and thereafter as of December 31, 2015:

Payments Due by Year (in thousands)
Contractual Obligations		2016				2017				2018				2019				2020				Thereafter				Total
Debt:
Principal (a) (e)		$	1,352,813			$	1,347,846			$	180,461			$	1,281,127			$	1,679,432			$	5,126,819			$	10,968,498
Interest (b) (e)		450,115				402,278				332,680				283,556				222,463				1,601,388				3,292,480
Operating Leases:
Minimum Rent Payments (c)		15,723				15,721				15,712				15,567				15,158				839,521				917,402
Other Long-Term Liabilities:
Deferred Compensation (d)		1,387				1,724				1,724				1,130				1,080				4,797				11,842
Total		$	1,820,038			$	1,767,569			$	530,577			$	1,581,380			$	1,918,133			$	7,572,525			$	15,190,222

(a)	Amounts include aggregate principal payments only.

(b)	Amounts include interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2015 and inclusive of capitalized interest. For floating rate debt, the current rate in effect for the most recent payment through December 31, 2015 is assumed to be in effect through the respective maturity date of each instrument.

(c)	Minimum basic rent due for various office space the Company leases and fixed base rent due on ground leases for 12 properties.

(d)	Estimated payments to the Company's Chairman, Vice Chairman and one former CEO based on actual and planned retirement dates.

(e)	In connection with the Starwood Transaction and the anticipation of other planned 2016 dispositions, the Company has retired approximately $1.7 billion in secured and unsecured debt prior to scheduled maturity in early 2016 and expects to retire an additional $271.2 million at par at maturity in March 2016. See Note 18 in the Notes to Consolidated Financial Statements for further discussion.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or different presentation of our financial statements.

The Company’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements. These policies were followed in preparing the consolidated financial statements at and for the year ended December 31, 2015 and are consistent with the year ended December 31, 2014.

The Company has identified five significant accounting policies as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented. The five critical accounting policies are:

Acquisition of Investment Properties

The Company allocates the purchase price of properties to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and

leasing activities in estimating the fair value of the tangible and intangible assets acquired.

Impairment of Long-Lived Assets

The Company periodically evaluates its long-lived assets, including its investments in real estate, for indicators of impairment. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions and legal and environmental concerns, as well as the Company’s ability to hold and its intent with regard to each asset. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted.

Depreciation of Investment in Real Estate

The Company depreciates the building component of its investment in real estate over a 30-year estimated useful life, building improvements over a 5-year to 15-year estimated useful life and both the furniture, fixtures and equipment and replacement components over a 5-year to 10-year estimated useful life, all of which are judgmental determinations.

Cost Capitalization

See the Capitalization of Fixed Assets and Improvements to Real Estate section for a discussion of the Company’s policy with respect to capitalization vs. expensing of fixed asset/repair and maintenance costs. In addition, the Company capitalizes an allocation of the payroll and associated costs of employees directly responsible for and who spend their time on the execution and supervision of major capital and/or renovation projects. These costs are reflected on the balance sheets as increases to depreciable property.

For all development projects, the Company uses its professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. The Company capitalizes interest, real estate taxes and insurance and payroll and associated costs for those individuals directly responsible for and who spend their time on development activities, with capitalization ceasing no later than 90 days following issuance of the certificate of occupancy. These costs are reflected on the balance sheets as construction-in-progress for each specific property. The Company expenses as incurred all payroll costs of on-site employees working directly at our properties, except as noted above on our development properties prior to certificate of occupancy issuance and on specific major renovations at selected properties when additional incremental employees are hired.

During the years ended December 31, 2015, 2014 and 2013, the Company capitalized $22.3 million, $22.4 million and $16.5 million, respectively, of payroll and associated costs of employees directly responsible for and who spend their time on the execution and supervision of development activities as well as major capital and/or renovation projects.

Fair Value of Financial Instruments, Including Derivative Instruments

The valuation of financial instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. The Company, where possible, bases the fair values of its financial instruments, including its derivative instruments, on listed market prices and third party quotes. Where these are not available, the Company bases its estimates on current instruments with similar terms and maturities or on other factors relevant to the financial instruments.

Funds From Operations and Normalized Funds From Operations

For the year ended December 31, 2015, Funds From Operations (“FFO”) available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units increased $132.9 million, or 11.2%, and increased $121.4 million, or 10.1%, respectively, as compared to the year ended December 31, 2014. For the year ended December 31, 2014, FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units increased $318.5 million, or 36.5%, and increased $139.4 million, or 13.2%, respectively, as compared to the year ended December 31, 2013.

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 each of the five years ended December 31, 2015:

Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
		Year Ended December 31,
		2015				2014				2013				2012				2011
Net income		$	908,018			$	658,683			$	1,905,353			$	881,204			$	935,197
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties		(3,657		)		(2,544		)		538				(844		)		(832		)
Preferred/preference distributions		(3,357		)		(4,145		)		(4,145		)		(10,355		)		(13,865		)
Premium on redemption of Preferred Shares/Preference Units		(3,486		)		—				—				(5,152		)		—
Net income available to Common Shares and Units / Units		897,518				651,994				1,901,746				864,853				920,500
Adjustments:
Depreciation		765,895				758,861				978,973				560,669				506,175
Depreciation – Non-real estate additions		(4,981		)		(4,643		)		(4,806		)		(5,346		)		(5,519		)
Depreciation – Partially Owned Properties		(4,332		)		(4,285		)		(6,499		)		(3,193		)		(3,062		)
Depreciation – Unconsolidated Properties		4,920				6,754				3,661				—				—
Net (gain) on sales of unconsolidated entities – operating assets		(100		)		(4,902		)		(7		)		—				—
Net (gain) on sales of real estate properties		(335,134		)		(212,685		)		—				—				—
Discontinued operations:
Depreciation		—				—				34,380				124,323				157,353
Net (gain) on sales of discontinued operations		—				(179		)		(2,036,505		)		(548,278		)		(826,489		)
Net incremental gain (loss) on sales of condominium units		—				—				8				(11		)		1,993
Gain on sale of Equity Corporate Housing (ECH)		—				—				1,470				200				1,202
FFO available to Common Shares and Units / Units (1) (3) (4)		1,323,786				1,190,915				872,421				993,217				752,153
Adjustments:
Asset impairment and valuation allowances		—				—				—				—				—
Property acquisition costs and write-off of pursuit costs		(11,706		)		8,248				79,365				21,649				14,557
Debt extinguishment (gains) losses, including prepayment penalties, preferred share/
preference unit redemptions and non-cash convertible debt discounts		5,704				(1,110		)		121,730				16,293				12,300
(Gains) losses on sales of non-operating assets, net of income and other tax expense
(benefit)		(2,883		)		(1,866		)		(17,908		)		(255		)		(6,976		)
Other miscellaneous non-comparable items		2,901				259				1,465				(147,635		)		(12,369		)
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)		$	1,317,802			$	1,196,446			$	1,057,073			$	883,269			$	759,665
FFO (1) (3)		$	1,330,629			$	1,195,060			$	876,566			$	1,008,724			$	766,018
Preferred/preference distributions		(3,357		)		(4,145		)		(4,145		)		(10,355		)		(13,865		)
Premium on redemption of Preferred Shares/Preference Units		(3,486		)		—				—				(5,152		)		—
FFO available to Common Shares and Units / Units (1) (3) (4)		$	1,323,786			$	1,190,915			$	872,421			$	993,217			$	752,153
Normalized FFO (2) (3)		$	1,321,159			$	1,200,591			$	1,061,218			$	893,624			$	773,530
Preferred/preference distributions		(3,357		)		(4,145		)		(4,145		)		(10,355		)		(13,865		)
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)		$	1,317,802			$	1,196,446			$	1,057,073			$	883,269			$	759,665

(1)

The National Association of Real Estate Investment Trusts (“NAREIT”) defines funds from operations (“FFO”) (April 2002 White Paper) as net income (computed in accordance with accounting principles generally accepted in the United States (“GAAP”)), excluding gains (or losses) from sales and impairment write-downs of depreciable operating properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis. The April 2002 White Paper states that gain or loss on sales of property is excluded from FFO for previously depreciated operating properties only. Once the Company commences the conversion of apartment units to condominiums, it simultaneously discontinues depreciation of such property.

(2) Normalized funds from operations (“Normalized FFO”) begins with FFO and excludes:

▪	the impact of any expenses relating to non-operating asset impairment and valuation allowances;

▪	property acquisition and other transaction costs related to mergers and acquisitions and pursuit cost write-offs;

▪	gains and losses from early debt extinguishment, including prepayment penalties, preferred share/preference unit redemptions and the cost related to the implied option value of non-cash convertible debt discounts;

▪	gains and losses on the sales of non-operating assets, including gains and losses from land parcel and condominium sales, net of the effect of income tax benefits or expenses; and

▪	other miscellaneous non-comparable items.

(3)

The Company believes that FFO and FFO available to Common Shares and Units / Units are helpful to investors as supplemental measures of the operating performance of a real estate company, because they are recognized measures of performance by the real estate industry and by excluding gains or losses related to dispositions of depreciable property and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO available to Common Shares and Units / Units can help compare the operating performance of a company’s real estate between periods or as compared to different companies. The Company also believes that Normalized FFO and Normalized FFO available to Common Shares and Units / Units are helpful to investors as supplemental measures of the operating performance of a real estate company because they allow investors to compare the Company’s operating performance to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units do not represent net income, net income available to Common Shares / Units or net cash flows from operating activities in accordance with GAAP. Therefore, FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units should not be exclusively considered as alternatives to net income, net income available to Common Shares / Units or net cash flows from operating activities as determined by GAAP or as a measure of liquidity. The Company’s calculation of FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.

(4)

FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units are calculated on a basis consistent with net income available to Common Shares / Units and reflects adjustments to net income for preferred distributions and premiums on redemption of preferred shares/preference units in accordance with accounting principles generally accepted in the United States. The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the “Noncontrolling Interests – Operating Partnership”. Subject to certain restrictions, the Noncontrolling Interests – Operating Partnership may exchange their OP Units for Common Shares on a one-for-one basis.