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 residential properties located in and around dynamic cities that attract high quality long-term renters. ERP Operating Limited Partnership (“ERPOP”) is focused on conducting the multifamily property business of EQR. EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 and ERPOP is an Illinois limited partnership formed in May 1993. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP.

EQR is the general partner of, and as of December 31, 2020 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.

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, our proxy statements and any amendments to any of those reports/statements 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 and operators of high-quality rental apartment properties with a portfolio primarily located in urban and dense suburban communities in and around Boston, New York, Washington, D.C., Southern California (including Los Angeles, Orange County and San Diego), San Francisco, Seattle and Denver. Our markets continue to be the primary knowledge centers of the U.S. economy drawing the talented workers and employers that drive economic growth in the United States. Our properties are located in places that are attractive to knowledge workers whom we hope to convert into satisfied long-term residents.

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 others about how much they love living in an Equity Residential property. We utilize technology and other innovative methods of engagement to foster relationships and community, improve the resident experience and operate our business more efficiently. Our disciplined balance sheet management enhances returns and value creation while maintaining flexibility to take advantage of future opportunities. We believe that our stakeholders value stability, liquidity, predictability and accountability and that is the mission to which we remain unwaveringly committed.

Equity Residential is committed to creating communities where people thrive. We carry this, our corporate purpose, through our relationships with our customers, our employees, our shareholders and the communities in which we operate. It drives our commitment to sustainability, diversity and inclusion, total well-being of our employees and being a responsible corporate citizen in the communities in which we operate, which is especially relevant when we face unprecedented challenges like the novel coronavirus (“COVID-19”) pandemic.

Despite the challenges we have faced with the COVID-19 pandemic, we believe that the long-term prospects for our business remain strong. Our well-located communities are in and around dynamic cities that we believe will continue to attract high quality long-term renters. When the pandemic subsides, we believe urban centers will re-energize and once again provide significant networking and other benefits for current and prospective residents who may have temporarily deferred, but not abandoned, their desire to live in vibrant major U.S. metropolitan areas.

Investment Strategy

The Company’s long-term strategy is to invest in apartment communities located in strategically targeted markets 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. We also consider governmental fiscal health, political/regulatory risk and resiliency of our targeted markets. The markets we focus on generally feature one or more of the following characteristics that allow us to drive performance:

	•	High single-family housing prices relative to rental housing costs leading to less competition from owned or rented single-family housing;

	•	Strong generators of economic growth often characterized as centers of the knowledge-based economy, leading to high wage job growth and household formation, which in turn leads to high demand for our apartments;

	•	Favorable demographics contributing to a larger pool of target residents with a high propensity or greater preference to rent apartments;

	•	Higher barriers to entry where, because of land scarcity or government regulation, it is typically more difficult or costly to build new apartment properties, creating limits on new supply; and

	•	Strong other demand drivers.

We believe our strategy capitalizes on the preference of renters of all ages to live in the locations where we operate that typically are near to transportation (both public transit and convenient highway access), entertainment and cultural amenities. Demand for rental housing is driven primarily by household formations from the Millennial segment and increasingly from the Generation Z segment of our population. Millennials, born between 1981 and 2000, total approximately 78 million people and are disproportionately renters. They also tend 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 30 years old while the median age of our resident is 33 years old. After the Millennials comes 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.

Overall, our high-quality resident tends to work in the highest earning sectors of the economy and is not rent burdened, creating the ability to raise rents more readily in good economic times and reducing risk during downturns. Many of these workers are employed in the fields of Science, Technology, Engineering and Mathematics, or STEM jobs. They have experienced significantly lower job loss during COVID-19. Once it subsides, we believe we are extremely well positioned to benefit for many years to come as a result of the significant impact the various generations discussed above will have on rental housing.

Over the last decade, 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, it is our intention over time to further diversify our portfolio into select new markets that share the same characteristics as our current markets and to optimize the mix of our properties located in urban vs. dense suburban submarkets within our existing markets.

Operations and Innovation

We attempt to 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 success prior to the pandemic in renewing our residents is due to our focus on the resident experience. This focus has driven the strong occupancy and renewal rate growth that we have achieved over the last several years prior to the COVID-19 pandemic, which we would expect to return once the pandemic subsides.

Technology continues to drive innovation in the rental industry and to evolve at a rapid pace. We have been and continue to be a leader in deploying and investing in property technology to serve our customers better and operate more efficiently. Having been a first mover in such important areas as revenue management and online leasing, we are focused on technology that improves our operating margins and customer experience while also meeting the current needs of our customers, including addressing the challenges of the pandemic. We 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. Our operations benefitted from having many of these initiatives in place during the pandemic, allowing us to interact with our customers in a safe and responsible manner, including self-guided tours, automated responses to customer inquiries and enhanced service and maintenance management. While we believe areas such as “smart home” technology and others will provide the foundation for current and future improvements to how we do business, we will continue to consider the cost and longevity of technology capital investments versus the benefits.

Our Commitment to Environmental, Social and Governance (“ESG”)

At Equity Residential, we believe a focus on ESG is a key way to programmatically address stakeholder concerns as part of our corporate purpose. 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 consider building locations based on walkability, accessibility, neighborhoods and parks. We also design our communities to support amenities such as fitness centers and we select locations near shops, healthy restaurants and health and wellness programs, enabling a low carbon footprint lifestyle for our residents to live, work and play.

Our sustainability goals help us focus efforts and drive outcomes to create a more sustainable future for all. We are especially focused 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.

We are also intensely focused on the “Social” and “Governance” aspects of ESG. As detailed below, we have a commitment to our employees’ engagement, diversity and wellness that is the foundation of our corporate purpose. We also recognize that a successful company must incorporate the best corporate governance practices in order to better serve its stakeholders.

In 2018, the Company became the first multifamily REIT ever to issue a “green bond”. As a result, the net proceeds of approximately $396.7 million from the offering were allocated to eligible green/sustainable certified projects. For additional information regarding our ESG efforts, see our November 2020 Environmental, Social and Governance Report at our website, www.equityapartments.com. This report, which includes Sustainability Accounting Standards Board disclosures and incorporates recommendations from the Task Force on Climate-related Financial Disclosures, 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. Furthermore, our annual proxy statements contain additional information on our corporate governance practices. Such annual proxy statements and the information contained therein are not part of or incorporated into this report.

Human Capital

At Equity Residential, our team of approximately 2,600 employees is the driving force behind our success. We believe that our richly diverse work environment captures top talent, cultivates the best ideas and creates the widest possible platform for this success in line with our corporate purpose of “Creating communities where people thrive.” Our core principles, affectionately named “Ten Ways to Be a Winner,” guide our behavior as individuals and collectively as a team, helping us in our goal to deliver market-leading performance. As part of our Ten Ways to Be a Winner, we encourage our team members to raise questions, take educated risks, offer new ideas and help us make the right decisions. One way we live the “Ten Ways” is by enriching our culture through our core “Equity Values”—Diversity and Inclusion, Social Responsibility, Sustainability and Total Well-Being. We have assembled an employee-led Equity Values Council to lead our efforts on these values by acting as change agents to drive initiatives, create goals and awareness, and encourage colleagues to participate in community service activities and wellness initiatives. In addition, executive compensation is based, in part, on meeting important Equity Values goals, and our Board of Trustees takes an active role in overseeing our efforts in this regard.

Diversity and Inclusion

	•	Our commitment to diversity and inclusion starts at the top with a highly skilled and diverse Board of Trustees.

	•	We are committed to hiring a diverse workforce and also fostering a safe, inclusive and productive workplace for all employees. We believe providing a work environment based on respect, trust and collaboration creates an exceptional employee experience where employees can bring their whole selves to work and thrive in their careers. In recent years, we have created a Director of Diversity and Inclusion position to oversee this crucial work.

	•	To further prioritize the importance of our diversity and inclusion efforts, our executives’ annual compensation goals include an evaluation of objective metrics measuring our Company’s progress in this regard.

	•	We have the benefit of a diverse workforce, of which 60.0% currently identify as ethnically diverse. We also continue to focus on improving our female representation, which is now 37.0% of our workforce.

	•	Going forward, we plan to continue to strategically identify opportunities to increase the diversity of our talent pipeline at all levels, including by actively sourcing diverse candidates for mid-management and above positions.

Pay Equity

	•	In order to attract and retain the best employees, we are committed to providing a total compensation package which is market-based, performance driven, fair and internally equitable.

	•	Our goal is to be competitive both within the general employment market as well as with our competitors in the real estate industry, with our strongest performers being paid more.

	•	Base pay is reviewed annually, as is Equity Residential’s compensation framework, by partnering with managers to create and update job descriptions that reflect the duties, skills, experience and education required to perform the role, and then benchmarking our jobs against third-party compensation surveys to determine the market value of the job.

	•	During the year-end evaluation process, managers review and calibrate compensation for all employees on their team, in an effort to ensure equitableness around our pay practices and allow us to retain and reward our top talent.

Employee Engagement

	•	Employee engagement and experience are extremely important at Equity Residential. In 2020, we decided to collect employee engagement feedback through frequent pulse surveys (instead of an annual survey like we have historically done), allowing us to check in more often and respond more immediately on employee feedback gathered, especially in light of hardships experienced by many on a personal level as a result of the COVID-19 pandemic and social unrest.

	•	Senior leaders are assessed annually on their leadership results, which for 2020 was measured by the more frequent pulse survey scores, employee retention and diversity and inclusion efforts.

	•	The pulse survey ratings from employees in 2020 demonstrated a favorable attitude toward leadership and highlighted our leaders’ ability to effectively lead through adversity. Furthermore, the survey results reflected strong scores on our diversity and inclusion efforts.

Training and Development

	•	We believe a successful workplace is one where employees constantly learn and grow. Our internal Organization and Talent Development (“OTD”) team is interspersed throughout our markets and works regularly with employees to expand their knowledge and skills. OTD develops and delivers a wide range of training and development opportunities, from tactical to strategic, face-to-face to virtual, social learning to self-directed learning, and more. In 2020, each employee completed an average of 13 hours of dedicated learning at a Company expenditure of over $1,350 per employee.

Health, Safety and Wellness

	•	Equity Residential is committed to providing the tools and resources to help our employees achieve total well-being. Whether physical, financial, career, social or community well-being, Equity Residential offers benefits to help meet our employee needs.

	•	Physical - Equity Residential is focused on providing benefits that help our employees achieve balance and address good health proactively, with coverage for emergencies and ongoing needs that can arise as well. Long before healthcare reform, Equity Residential made a commitment to cover 100% of employee preventive care. This commitment—and our robust and highly popular Vitality Wellness Program—has made proactive personal healthcare more accessible and manageable for employees, while encouraging ongoing healthy behaviors and rewarding employees for taking a proactive approach to their health.

	•	Financial - These benefits and resources help our employees manage their money better today, while preparing for financial milestones and retirement in the future. Financial peace of mind is at the core of these offerings, whether it’s our generous 401(k) match, basic and supplemental insurance to ensure our loved ones and possessions are cared for, rent discounts at our properties or additional savings and investment options like our employee share purchase plan.

	•	Career - When employees move up in skill and experience, so does Equity Residential. We encourage our employees to “test their limits,” push the boundaries of their comfort zones and seek new challenges through several learning resources and courses, in addition to tuition reimbursement. We actively promote from within, and many senior corporate and property leaders have risen from entry level or junior positions.

	•	Social and Community - We offer a number of benefits that foster social and community well-being, including paid time off to volunteer in our communities.

	•	Throughout the COVID-19 pandemic, we have communicated regularly with employees and also released a comprehensive guide designed as a single place for employees to access information on critical benefits and resources. A key focus included mental well-being to help employees better cope with the challenges to our work routines, our home routines and how we interact with our family, friends and community.

	•	For nearly two years, we have partnered with Employees1st to provide financial relief via a crisis fund for employees struck by personal hardships or unforeseen disasters. The Company contributed additional funds to the Employees1st crisis fund to further support employees who experienced hardship as a result of the COVID-19 pandemic. We are proud that this program allows yet another avenue for us to tangibly demonstrate our One Team culture by ensuring that employees are safe and secure, especially during extreme or catastrophic circumstances.

	•	For further discussion, please refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the Company’s responses related to health and safety issues during the COVID-19 pandemic.

Competition

All of the Company’s properties are located in developed areas with multiple housing choices, including other multifamily properties. The number of competitive housing choices or 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 housing providers 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.

Regulatory Considerations

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