Item 1. Business

General

Equity Residential (“EQR”) is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban communities where today’s renters want to live, work and play. ERP Operating Limited Partnership (“ERPOP”) is focused on conducting the multifamily property business of EQR. EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 and ERPOP is an Illinois limited partnership formed in May 1993. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP. Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the Operating Partnership.

EQR is the general partner of, and as of December 31, 2019 owned an approximate 96.4% ownership interest in, ERPOP. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, but does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.

The Company’s corporate headquarters is located in Chicago, Illinois and the Company also operates regional property management offices in each of its markets. As of December 31, 2019, the Company had approximately 2,700 employees who provided real estate operations, leasing, legal, financial, accounting, acquisition, disposition, development and other support functions.

Certain capitalized terms used herein are defined in the Notes to Consolidated Financial Statements. See also Note 17 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.

Available Information

You may access our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to any of those reports we file with the Securities and Exchange Commission (“SEC”) free of charge on our website, www.equityapartments.com. These reports are made available on our website as soon as reasonably practicable after we file them with the SEC. The information contained on our website, including any information referred to in this report as being available on our website, is not a part of or incorporated into this report.

Business Objectives and Operating and Investing Strategies

Overview

The Company is one of the largest U.S. publicly-traded owners of rental apartments with a portfolio of properties primarily located in Boston, New York, Washington, D.C., Seattle, San Francisco, Southern California (including Los Angeles, Orange County and San Diego) and Denver. Continued high wage job and income growth, positive demographics and a consumer preference for a rental lifestyle in our highly desirable markets has created a supportive backdrop for our business. Our markets continue to draw skilled knowledge workers that drive economic growth in the United States. This, in turn, attracts employers to our markets seeking to locate and expand their businesses and employ this talented pool of workers, resulting in strong demand for our product.

We believe we have created a best-in-class operating platform to run our properties. Our employees are focused on delivering remarkable customer service to our residents so they will stay with us longer, be willing to pay higher rent for a great experience and will tell their friends about how much they love living in an Equity Residential property. Increasingly, we are using technology to improve this resident experience and to operate our business more efficiently. Our disciplined balance sheet management enhances returns and value creation while maintaining capacity to take advantage of future opportunities. We are committed to sustainability, diversity and inclusion, the total well-being of our employees and being a responsible corporate citizen in the communities in which we operate. These “Equity Values” are deeply embedded in our culture. We believe that our stakeholders value stability, liquidity, predictability and accountability and that is the mission to which we remain unwaveringly committed.

Investment Strategy

The Company invests in apartment communities located in strategically targeted markets (primarily urban and high-density suburban locations) with the goal of maximizing our risk-adjusted total returns by balancing current cash flow generation with long-term capital appreciation. We seek to meet this goal by investing in markets that are characterized by conditions favorable to multifamily property operations over the long-term. These markets generally feature one or more of the following characteristics that allow us to drive performance:

We believe our strategy capitalizes on the increasing preference of renters of all ages to live in the urban core of cities or dense suburban locations near transit, entertainment and cultural amenities. Currently demand for rental housing is driven primarily by household formations from the Millennial segment of our population, also known as the Echo Boom Generation, that now comprises the largest segment of the U.S. population. These young adults, born between 1981 and 2000, currently total approximately 78 million people and are disproportionately renters. We also expect this demographic to remain renters longer due to societal trends favoring delays in marriage and having children. We believe we will continue to see demand from this group, as the largest sub-segment of this cohort is now turning 29 years old while the median age of our resident is 33 years old. Following the Millenials is Generation Z, which comprises the more than 70 million people born between 2001 and 2014. Reports also show a growing trend among aging Baby Boomers, a demographic of more than 76 million people born between 1946 and 1964, toward apartment rentals. We believe we are extremely well positioned to benefit for many years to come as a result of the significant impact these generations will have on rental housing.

Over the past several years, the Company has done an extensive repositioning of its portfolio into urban and highly walkable, close-in suburban assets. While we continue to look for opportunities to expand our portfolio in these locations, we also have been exploring other markets that share these same characteristics, such as Denver. These markets feature strong high wage job growth, high single family home prices and a very attractive lifestyle for our target demographic, which we believe will lead to long-term outperformance for a rental market.

Operations and Innovation

We balance 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 through our customized pricing system that uses market data on current and projected demand and availability to create both current and forward pricing daily for each apartment unit we manage. We believe our great success with renewal rate growth is due to our motivation to retain our residents with a relentless focus on customer service. Highly satisfied residents stay longer and say great things about us. We also use a standardized purchasing system to control our operating expenses and a business intelligence platform that allows all our team members to quickly identify and address issues and opportunities.

The technology driving the rental industry continues to evolve at a rapid pace, and we have long been a leader in deploying and investing in property technology to serve our customers better and operate more efficiently. As a first mover in such important areas as revenue management, online leasing, centralized procurement and internet listing services, we are focused on technology that improves our operating margin and customer experience. Currently, we are focused on areas such as self-guided tours enabled by technology; automated responses to customer inquiries; data analytics to drive expense savings and revenue improvements; and “smart home” technology. We believe these areas will provide the foundation for current and future improvements to how we do business.

Focus on Our Employees

The Company has a strong, rich culture with a commitment to our “Equity Values” of Diversity & Inclusion, “Total Well-Being” (which brings together physical, financial, career, social and community well-being into a cohesive whole), Sustainability and Social Responsibility. We actively elevate and support these values when employees’ voices are heard and we embrace each other regardless of our differences; when we give back to our communities; when we care for and preserve our environment; and when we encourage and enable our employees and their families to thrive in all areas of well-being. Our employee-led Equity Values Council leads our efforts on these values by acting as change agents to drive initiatives and create awareness. We engage our stakeholders for feedback on key issues, and environmental, social and governance (“ESG”) factors help guide our investment and operating strategy. Additionally, executive compensation is based in part on meeting these important Equity Values goals, and our Board of Trustees takes an active role in overseeing these matters.

Our goal is to create and sustain an inclusive environment where diversity will thrive, employees will want to work and residents will want to live. The Equity Values Council drives new, diversity-focused initiatives for recruitment, career development and education. We actively promote from within, and many senior corporate and property leaders have risen from entry level or junior positions. We survey our employees annually to identify strengths and opportunities in employee satisfaction. We continue to maintain high engagement scores in these surveys and find our employees say they are proud to work at the Company, value one another as colleagues, believe in our mission and values and feel their skills meet their job requirements. The Company was honored with a Glassdoor Employees’ Choice Award, recognizing the Company as one of the 100 Best Places to Work in 2019 among all United States large companies, was in the Top 50 on the overall list and was the highest rated real estate company in this survey. Indeed also recognized the Company as a top-rated workplace in many of our markets.

Our Commitment to ESG

Our purpose is creating communities where people thrive. This needs to be a sustainable endeavor, in which we provide properties that will stand the test of time and remain attractive to our customers and the community without negatively impacting the environment. 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. Multifamily housing is one of the most environmentally-friendly uses of real estate, as each property provides homes for hundreds of families in a denser shared environment. We invest in locations that are highly walkable and transit-friendly, enabling a low carbon footprint lifestyle for our residents to live, work and play.

Our sustainability goals help us focus efforts and track progress. We are especially focusing on energy consumption, water consumption and greenhouse gas emissions. We invest in developing and renovating our properties, with a focus on reducing waste, energy and water use by investing in energy-saving technology, such as those for irrigation, lighting, HVAC and renewable energy, while positively impacting the experience of our residents and the value of our assets.

For additional information regarding our ESG efforts, see our October 2019 Environmental, Social and Governance Report at our website, www.equityapartments.com. This report was reviewed and approved by the Corporate Governance Committee of our Board of Trustees, which monitors the Company’s ongoing ESG efforts. We continue to enhance our ESG disclosure efforts, including auditing the results outlined in the above report. In addition, the Company issued $400.0 million of ten-year 4.15% unsecured notes in 2018 as "green" bonds, and as a result, the Company allocated an amount equal to the net proceeds to eligible green/sustainable projects. This was the first "green" bond issuance from an apartment REIT.

Please refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the Company’s Results of Operations and Liquidity.

Competition

All of the Company’s properties are located in developed areas that include other multifamily properties. The number of competitive multifamily properties in a particular area could have a material effect on the Company’s ability to lease apartment units at its properties and on the rents charged. The Company may be competing with other entities that have greater resources than the Company and whose managers have more experience than the Company’s managers. In addition, other forms of rental properties and single family housing provide housing alternatives to potential residents of multifamily properties. See Item 1A, Risk Factors, for additional information with respect to competition.

Environmental Considerations

See Item 1A, Risk Factors, for information concerning the potential effects of environmental regulations on our operations.