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

For further information including definitions for capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Forward-looking statements are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, projections and assumptions made by management. While the Company’s management believes the assumptions underlying its forward-looking statements are reasonable, such information is inherently subject to uncertainties and may involve certain risks, which could cause actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Many of these uncertainties and risks are difficult to predict and beyond management’s control, such as the current novel coronavirus (“COVID-19”) pandemic (see below for further discussion). 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.

In addition, these forward-looking statements are subject to risks related to the COVID-19 pandemic and its accompanying variants, many of which are unknown, including the duration, severity and the extent of the adverse health impact on the general population, our residents and employees, the rate of vaccine distribution and effectiveness of vaccinations, the overall reopening progress in the cities in which we operate, the potential long-term changes in customer preferences for living in our communities and the impact of operational changes we have implemented and may implement in response to the pandemic.

Additional factors that might cause such differences are discussed in Part I of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020, 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. The 2021 guidance assumptions disclosed throughout this Item 2 are based on current expectations and are forward-looking.

Overview

Equity Residential (“EQR”) is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of residential properties located in and around dynamic cities that attract 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 September 30, 2021 owned an approximate 96.7% ownership interest in, ERPOP. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, but does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.

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

Table of Contents

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/statements 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

The Company’s and the Operating Partnership’s overall business objectives and operating and investing strategies have not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020. As more fully discussed in the Company’s and the Operating Partnership’s Annual Report on Form 10-K, it continues to be the Company’s intention over time, through varying degrees of both acquisitions and new wholly-owned and joint venture development projects, to further diversify its portfolio into select new expansion markets that share similar characteristics as its current established markets and to optimize the mix of the Company’s properties located in urban vs. dense suburban submarkets within its markets.

COVID-19 Impact

The overall impact from the COVID-19 pandemic on the Company and the Operating Partnership has not changed materially from the information included in the Company's and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2020. As more fully discussed in the Company's and the Operating Partnership's Annual Report on Form 10-K, despite the impact of COVID-19, we continue to believe that the long-term prospects for our business remain strong. See the Results of Operations discussion below for additional information on how the ongoing recovery from the COVID-19 pandemic is currently impacting our markets and operations.

Results of Operations

2021 Transactions

In conjunction with our business objectives and operating and investing strategies, the following table provides a rollforward of the transactions that occurred during the nine months ended September 30, 2021:

Portfolio Rollforward

($ in thousands)

		Properties				Apartment Units				Purchase Price				Acquisition Cap Rate
12/31/2020			304				77,889
Acquisitions:
Consolidated Rental Properties			8				2,128			$	684,725				3.9	%
Consolidated Rental Properties – Not Stabilized (1)			3				793			$	335,700				4.1	%
Unconsolidated Land Parcels (2)			—				—			$	55,409
										Sales Price				Disposition Yield
Dispositions:
Consolidated Rental Properties			(10	)			(1,842	)		$	(1,021,800	)			(3.8	)%
Completed Developments – Consolidated			2				354
9/30/2021			307				79,322

(1)	The Company acquired three properties during the nine months ended September 30, 2021, one each in the Denver, Atlanta and Seattle markets, that are in lease-up and are expected to stabilize in their second year of ownership at the combined Acquisition Cap Rate listed above.

(2)

The Company entered into separate unconsolidated joint ventures for the purpose of developing vacant land parcels in Denver, CO and suburban New York, NY. The purchase price listed represents the total consideration for the closing of the respective joint ventures. The Company’s total investment in these two joint ventures is approximately $24.9 million as of September 30, 2021. See Notes 6 and 12 in the Notes to Consolidated Financial Statements for additional discussion.

Table of Contents

The consolidated properties acquired are located in the Atlanta (3), Austin (2), Boston, Dallas/Ft. Worth (2), Denver, Seattle and Washington D.C. markets. The Atlanta, Austin and Dallas/Ft. Worth acquisitions marked the Company’s re-entry into these markets. The unconsolidated land parcels acquired were located in the Denver and suburban New York markets. The consolidated properties disposed of were located in the Los Angeles, New York, San Francisco and Seattle markets and the sales generated an Unlevered IRR of 9.2%. The consolidated property development completions were located in the San Francisco and Washington D.C. markets. Finally, the Company commenced construction on one consolidated and two unconsolidated new apartment properties, located in the Denver, New York and Washington D.C. markets, consisting of 971 apartment units totaling approximately $372.7 million of expected development costs. See Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.

The Company’s guidance assumes consolidated rental acquisitions of $1.5 billion and consolidated rental dispositions of $1.5 billion and expects that the Acquisition Cap Rate will be approximately equal to the Disposition Yield for the full year ending December 31, 2021. We currently anticipate spending approximately $300.0 million on development costs during the year ending December 31, 2021, of which approximately $197.7 million was spent during the nine months ended September 30, 2021, primarily for consolidated and unconsolidated properties currently under construction. Certain of these costs are expected to be funded by joint venture partner obligations and third-party construction mortgages. Work at all of our development projects continues with no material delays or cost overruns notwithstanding some brief disruptions from governmental construction moratoriums due to COVID-19.

Toll Brothers Joint Ventures

In August 2021, the Company entered into a strategic partnership with Toll Brothers, Inc. (NYSE: TOL) to develop apartment communities in key markets. The partnership will focus on selectively acquiring and developing sites for apartment rental communities in seven metro markets where both parties have a significant or growing presence: Atlanta, Austin, Boston, Dallas/Ft. Worth, Denver, Orange County/San Diego and Seattle. Toll Brothers will act as managing member of each project overseeing approvals, design and construction. See Notes 12 and 14 in the Notes to Consolidated Financial Statements for additional discussion.

Same Store Results

Properties that the Company owned and were stabilized (see definition below) for all of both of the nine months ended September 30, 2021 and 2020 (the “Nine-Month 2021 Same Store Properties”), which represented 75,288 apartment units, drove the Company’s results of operations. The Nine-Month 2021 Same Store Properties are discussed in the following paragraphs.

The Company’s primary financial measure for evaluating each of its apartment communities is net operating income (“NOI”). NOI represents rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company’s apartment properties.

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 nine months ended September 30, 2021:

		Nine Months Ended September 30, 2021
		Properties				Apartment Units
Same Store Properties at December 31, 2020			285				73,585
2019 acquisitions stabilized			12				3,323
2021 dispositions			(10	)			(1,842	)
Lease-up properties stabilized			1				222
Same Store Properties at September 30, 2021			288				75,288

Table of Contents

		Nine Months Ended September 30, 2021
		Properties				Apartment Units
Same Store			288				75,288
Non-Same Store:
2021 acquisitions			11				2,921
2020 acquisitions			1				158
2019 acquisitions not yet stabilized			1				217
Lease-up properties not yet stabilized (1)			5				737
Other			1				1
Total Non-Same Store			19				4,034
Total Properties and Apartment Units			307				79,322

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)	Consists of 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. Also includes one former third-party master-leased property that was not stabilized.

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

		Nine Months Ended September 30,
		2021				2020
Operating income		$	1,033,958			$	961,384
Adjustments:
Property management			74,357				71,513
General and administrative			43,102				37,212
Depreciation			616,032				619,003
Net (gain) loss on sales of real estate properties			(587,623	)			(352,218	)
Total NOI		$	1,179,826			$	1,336,894
Rental income:
Same store		$	1,758,176			$	1,870,199
Non-same store/other			60,691				88,071
Total rental income			1,818,867				1,958,270
Operating expenses:
Same store			612,705				593,502
Non-same store/other			26,336				27,874
Total operating expenses			639,041				621,376
NOI:
Same store			1,145,471				1,276,697
Non-same store/other			34,355				60,197
Total NOI		$	1,179,826			$	1,336,894

Table of Contents

The following table provides comparative total same store results and statistics for the Nine-Month 2021 Same Store Properties:

September YTD 2021 vs. September YTD 2020

Same Store Results/Statistics Including 75,288 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

September YTD 2021																										September YTD 2020
		Residential				% Change				Non- Residential				% Change				Total				% Change						Residential				Non- Residential				Total
Revenues		$	1,692,955				(7.3	%)		$	65,221		(1)		48.7	%		$	1,758,176				(6.0	%)		Revenues		$	1,826,344			$	43,855			$	1,870,199
Expenses		$	594,688				3.1	%		$	18,017				8.4	%		$	612,705				3.2	%		Expenses		$	576,884			$	16,618			$	593,502
NOI		$	1,098,267				(12.1	%)		$	47,204				73.3	%		$	1,145,471				(10.3	%)		NOI		$	1,249,460			$	27,237			$	1,276,697
Average Rental Rate		$	2,607				(7.8	%)																		Average Rental Rate		$	2,829
Physical Occupancy			95.9	%			0.6	%																		Physical Occupancy			95.3	%
Turnover			35.0	%			(4.4	%)																		Turnover			39.4	%

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

(1)	Changes in same store Non-Residential revenues are primarily driven by the write-off of Non-Residential straight-line lease receivables in the third quarter of 2020 and lower bad debt in 2021.

The following table provides results and statistics related to our Residential same store operations for the nine months ended September 30, 2021 and 2020:

September YTD 2021 vs. September YTD 2020

Same Store Residential Results/Statistics by Market

																						Increase (Decrease) from Prior Year
Markets/Metro Areas		Apartment Units				September YTD 2021 % of Actual NOI				September YTD 2021 Average Rental Rate				September YTD 2021 Weighted Average Physical Occupancy %				September YTD 2021 Turnover				Revenues				Expenses				NOI				Average Rental Rate				Physical Occupancy				Turnover
Los Angeles			15,739				20.4	%		$	2,439				96.5	%			32.2	%			(3.2	%)			1.3	%			(5.2	%)			(4.1	%)			0.9	%			(6.1	%)
Orange County			4,028				5.6	%			2,281				97.7	%			27.2	%			1.9	%			2.1	%			1.8	%			0.9	%			1.1	%			(7.5	%)
San Diego			2,706				4.1	%			2,446				97.7	%			34.5	%			3.9	%			1.7	%			4.7	%			3.0	%			0.9	%			(3.1	%)
Subtotal – Southern California			22,473				30.1	%			2,411				96.9	%			31.6	%			(1.5	%)			1.5	%			(2.7	%)			(2.5	%)			1.0	%			(5.9	%)
San Francisco			12,114				18.6	%			2,877				94.8	%			37.0	%			(13.5	%)			3.4	%			(19.4	%)			(13.0	%)			(0.5	%)			(3.4	%)
Washington D.C.			14,569				17.8	%			2,326				96.3	%			36.4	%			(4.6	%)			3.9	%			(8.4	%)			(5.2	%)			0.6	%			(1.1	%)
New York			9,343				11.7	%			3,463				94.4	%			30.6	%			(11.6	%)			2.9	%			(23.8	%)			(12.1	%)			0.5	%			(8.8	%)
Seattle			8,819				10.5	%			2,251				95.8	%			39.1	%			(8.8	%)			4.9	%			(14.3	%)			(9.0	%)			0.2	%			(1.3	%)
Boston			6,346				9.5	%			2,853				95.7	%			37.5	%			(7.9	%)			4.0	%			(12.8	%)			(9.3	%)			1.4	%			(5.8	%)
Denver			1,624				1.8	%			2,031				96.7	%			45.9	%			1.1	%			4.1	%			(0.2	%)			(0.8	%)			1.8	%			(8.2	%)
Total			75,288				100.0	%		$	2,607				95.9	%			35.0	%			(7.3	%)			3.1	%			(12.1	%)			(7.8	%)			0.6	%			(4.4	%)

Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.2% of total revenues for the nine months ended September 30, 2021.

The following table provides guidance for our expected full year 2021 same store operating performance (includes Residential and Non-Residential):

		Revised Full Year 2021			Previous Full Year 2021
Physical Occupancy		96.0%			95.3% to 96.3%
Revenue change		(3.7%)			(5.0%) to (4.0%)
Expense change		3.25%			2.75% to 3.25%
NOI change		(7.0%)			(8.5%) to (7.5%)

Table of Contents

Despite the significant impact from the pandemic on our business, which is reflected in the results for the nine months ended September 30, 2021, the recovery across our portfolio continues ahead of our prior expectations. Robust economic growth coupled with reopening of cities are driving our operations to recover rapidly with significant demand for our apartments in all our markets. This has led to high Physical Occupancy, increased pricing power and a material reduction in Leasing Concessions. Key operating drivers for this performance include:

	•	Pricing – There has been significant improvement in pricing (net of Leasing Concessions) since the end of the fourth quarter of 2020, with pricing reaching or exceeding pre-pandemic levels. Portfolio-wide pricing is now moderating consistent with typical seasonal trends and is in line with our prior expectations. Monthly Residential Leasing Concessions granted have also declined significantly. Residential Leasing Concessions granted in July 2021 were $1.5 million, August 2021 were $0.5 million, September 2021 were $0.2 million and preliminary October 2021 is expected to be less than $50,000, which is down from a peak of $6.1 million per month in February 2021.

	•	Physical Occupancy – Physical Occupancy was 96.6% for the third quarter of 2021 and is expected to remain strong for the balance of 2021.

	•	Percentage of Residents Renewing – Our strategy of focusing on resident renewals continues to deliver strong results. We centralized renewal negotiations for San Francisco, New York and Boston (the markets most impacted in 2020 from the COVID-19 pandemic) in our offsite call center. Results have been positive to date as the Percentage of Residents Renewing continues to improve with September 2021 above 60%, which is higher than 2019 levels. Negotiations in all of our markets are expected to become more challenging given the material improvements in pricing relative to the prior year.

Despite strong rent collections throughout the pandemic, the financial impact from a small subset of our residents and Non-Residential tenants not paying has led to higher levels of bad debt than we have historically experienced. We continue to work with our residents and Non-Residential tenants on meeting their financial obligations. During the nine months ended September 30, 2021, the Company received governmental rental assistance payments paid on behalf of residents of approximately $18.3 million. Despite receipt of these payments, we expect our reserves and bad debt to remain elevated in 2021. Our bad debt allowance policies remain consistent with those in place before the pandemic.

The following table provides comparative same store operating expenses for the Nine-Month 2021 Same Store Properties:

September YTD 2021 vs. September YTD 2020

Total Same Store Operating Expenses Including 75,288 Same Store Apartment Units

$ in thousands

		September YTD 2021				September YTD 2020				$ Change (5)				% Change				% of September YTD 2021 Operating Expenses
Real estate taxes		$	263,521			$	259,603			$	3,918				1.5	%			43.0	%
On-site payroll (1)			123,966				124,652				(686	)			(0.6	)%			20.3	%
Utilities (2)			85,290				78,408				6,882				8.8	%			13.9	%
Repairs and maintenance (3)			77,320				71,359				5,961				8.4	%			12.6	%
Insurance			20,254				18,403				1,851				10.1	%			3.3	%
Leasing and advertising			8,028				7,409				619				8.4	%			1.3	%
Other on-site operating expenses (4)			34,326				33,668				658				2.0	%			5.6	%
Total Same Store Operating Expenses (includes Residential and Non-Residential)		$	612,705			$	593,502			$	19,203				3.2	%			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 and maintenance costs.

Table of Contents

(4)	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.

(5)	The year-to-date over year-to-date changes were primarily driven by the following factors:

	•	Real estate taxes – Increase is lower than expected due to lower rates and assessed values.

	•	On-site payroll – Improved sales and service staff utilization from various technology initiatives and higher than usual staffing vacancies during the current period.

	•	Utilities – Water, sewer and trash charges (approximately 65% of total) increased due to both usage and rate. Natural gas and electric charges (approximately 35% of total) increased due to higher commodity prices.

	•	Repairs and maintenance – Increase primarily driven by low comparable period expense growth due to the pandemic and increases in minimum wage on contract services and maintenance repairs (including higher turnover expense from robust leasing activity) in 2021.

	•	Insurance – Increase due to higher premiums on property insurance renewal due to challenging conditions in the insurance market.

	•	Leasing and advertising – Increase primarily driven by increased digital advertising.

	•	Other on-site operating expenses – Increase driven by higher ground lease-related expenses.

The Company now anticipates same store NOI to decline for the full year 2021 by approximately 7.0% (previously was anticipated to decline between 8.5% to 7.5%) primarily driven by the expected improvement in same store revenues. We now anticipate same store expenses to increase by approximately 3.25% (previously was anticipated to increase between 2.75% to 3.25%) for 2021 as compared to 2020, primarily driven by lower real estate taxes and on-site payroll.

See also Note 13 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.

Non-Same Store/Other Results

Non-same store/other NOI results for the nine months ended September 30, 2021 decreased approximately $25.8 million compared to the same period of 2020. These results consist primarily of properties acquired in calendar years 2020 and 2021, operations from the Company’s development properties and operations prior to disposition from 2020 and 2021 sold properties. This difference is due primarily to:

	•	A negative impact of lower NOI from development and newly stabilized development properties in lease-up of $0.8 million;

	•	A positive impact of higher NOI from non-stabilized properties acquired in 2019, 2020 and 2021 of $9.3 million;

	•	A positive impact of higher NOI from other non-same store properties (including one former master-leased property) of $0.5 million; and

	•	A negative impact of lost NOI from 2020 and 2021 dispositions of $32.5 million.

Comparison of the nine months and quarter ended September 30, 2021 to the nine months and quarter ended September 30, 2020

The following table presents a reconciliation of diluted earnings per share/unit for the nine months and quarter ended September 30, 2021 as compared to the same periods in 2020:

		Nine Months Ended September 30				Quarter Ended September 30
Diluted earnings per share/unit for period ended 2020		$	1.77			$	0.24
Property NOI			(0.40	)			(0.02	)
Interest expense			0.12				0.03
Non-operating asset gains/losses			0.06				—
Net gain/loss on property sales			0.63				0.94
Other			(0.04	)			(0.04	)
Diluted earnings per share/unit for period ended 2021		$	2.14			$	1.15

Table of Contents

The decrease in consolidated NOI is primarily a result of the Company’s lower NOI from same store properties, largely due to the economic impact from the COVID-19 pandemic. The following table presents the changes in the components of consolidated NOI for the nine months and quarter ended September 30, 2021 as compared to the same periods in 2020:

		Nine Months Ended September 30, 2021				Quarter Ended September 30, 2021
Consolidated rental income			(7.1	%)			0.1	%
Consolidated operating expenses (1)			2.8	%			2.4	%
Consolidated NOI			(11.7	%)			(1.0	%)

(1)	Consolidated operating expenses are comprised of property and maintenance and real estate taxes and insurance.

Property management expenses include off-site expenses associated with the self-management of the Company’s properties as well as management fees paid to any third-party management companies. These expenses increased approximately $2.8 million or 4.0% and approximately $3.6 million or 17.7% for the nine months and quarter ended September 30, 2021, respectively, as compared to the prior year periods. These increases are primarily attributable to increases in payroll-related costs, legal and professional fees and information technology-related costs specifically for various operating initiatives such as sales-focused improvements and service enhancements, partially offset by decreases in temporary help/contractors costs. The expenses in the comparable periods of 2020 were lower than normal due to the impact of COVID-19. The Company anticipates that property management expenses will approximate $97.5 million to $99.5 million for the year ending December 31, 2021.

General and administrative expenses, which include corporate operating expenses, increased approximately $5.9 million or 15.8% and approximately $2.2 million or 20.1% for the nine months and quarter ended September 30, 2021, respectively, as compared to the prior year periods, primarily due to increases in payroll-related costs, partially offset by decreases in office rent as a result of the consolidation of space at the Company’s corporate headquarters. The expenses in the comparable periods of 2020 were lower than normal due to the impact of COVID-19. The Company anticipates that general and administrative expenses will approximate $55.5 million to $57.5 million for the year ending December 31, 2021.

Depreciation expense, which includes depreciation on non-real estate assets, decreased approximately $3.0 million or 0.5% for the nine months ended September 30, 2021 as compared to the prior year period, primarily due to in-place leases for 2019 acquisitions being fully depreciated as of December 31, 2020 and the Company being a net seller during 2020, which resulted in lower depreciation in the current period, offset by additional depreciation expense on properties acquired in 2020 and 2021 and development properties placed in service during 2021. Depreciation expense increased approximately $14.8 million or 7.4% for the quarter ended September 30, 2021 as compared to the prior year period, primarily as a result of additional depreciation expense on properties acquired in 2020 and 2021 and a development property placed in service during the third quarter of 2021, partially offset by the Company being a net seller during 2020, which resulted in lower depreciation in the current period.

Net gain on sales of real estate properties increased approximately $235.4 million or 66.8% for the nine months ended September 30, 2021 as compared to the prior year period, primarily as a result of a higher sales volume with the sale of ten consolidated apartment properties in 2021 as compared to the sale of five consolidated apartment properties in the same period in 2020. Net gain on sales of real estate properties increased $364.0 million for the quarter ended September 30, 2021 as compared to the prior year period, primarily as a result of the sale of five consolidated apartment properties in the third quarter of 2021 as compared to no consolidated property sales in the same period in 2020.

Interest and other income increased approximately $21.3 million for the nine months ended September 30, 2021 as compared to the prior year period. The increase is primarily due to a gain of $23.4 million on the sale of various investment securities that occurred during 2021 but not during 2020, partially offset by decreases in insurance/litigation settlement proceeds and other non-comparable items that occurred during 2020 but not during 2021.

Other expenses increased approximately $2.6 million or 31.0% for the nine months ended September 30, 2021 as compared to the prior year period, primarily due to a $2.2 million construction defect reserve and various other litigation and environmental reserves/settlements, partially offset by a decrease in advocacy contributions. Other expenses decreased approximately $0.6 million or 15.6% for the quarter ended September 30, 2021 as compared to the prior year period, primarily due to decreases in advocacy contributions, partially offset by various litigation reserves/settlements.

Table of Contents

Interest expense, including amortization of deferred financing costs, decreased approximately $45.7 million or 17.9% and approximately $12.7 million or 15.3% for the nine months and quarter ended September 30, 2021, respectively, as compared to the prior year periods. These decreases are primarily due to lower overall debt balances outstanding as compared to the prior year periods, as well as lower overall interest rates. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the nine months ended September 30, 2021 was 3.51% as compared to 3.96% for the prior year period, and for the quarter ended September 30, 2021 was 3.46% as compared to 3.97% for the prior year period. The Company capitalized interest of approximately $12.4 million and $6.9 million during the nine months ended September 30, 2021 and 2020, respectively, and $4.2 million and $2.8 million during the quarters ended September 30, 2021 and 2020, respectively. The Company anticipates that interest expense, excluding debt extinguishment costs/prepayment penalties, will approximate $270.7 million to $274.0 million and capitalized interest will approximate $15.5 million to $16.5 million for the year ending December 31, 2021.

Net (income) loss attributable to Noncontrolling Interests in partially owned properties increased approximately $12.2 million or 86.1% for the nine months ended September 30, 2021 as compared to the prior year period, primarily as a result of noncontrolling interest allocations related to the sale of one partially owned apartment property in the first quarter of 2020 as compared to no sales in the same period in 2021.

Liquidity and Capital Resources

With approximately $2.4 billion in readily available liquidity, limited near-term maturities, very strong credit metrics and ample access to capital markets at low rates, the Company believes it is well positioned to meet its future obligations. See further discussion below.

Short-Term Liquidity and Cash Proceeds

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

The following table presents the Company’s balances for cash and cash equivalents, restricted deposits and the available borrowing capacity on its revolving credit facility as of September 30, 2021 and December 31, 2020 (amounts in thousands):

		September 30, 2021				December 31, 2020
Cash and cash equivalents		$	39,707			$	42,591
Restricted deposits		$	187,042			$	57,137
Unsecured revolving credit facility availability		$	2,369,558			$	1,984,051

During the nine months ended September 30, 2021, the Company generated proceeds from various transactions, which included the following:

	•	Disposed of ten consolidated rental properties, receiving net proceeds of approximately $1.0 billion;

	•	Obtained $28.5 million in 3.58% fixed rate mortgage debt maturing on March 1, 2031;

	•	Issued $500.0 million of ten-year 1.85% unsecured notes, receiving net proceeds of approximately $497.5 million before underwriting fees and other expenses. This was the Company’s second ever green bond offering;

	•	Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $72.3 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); and

	•	Sold various investment securities, receiving net proceeds of $191.4 million.

During the nine months ended September 30, 2021, the above proceeds along with net cash flow from operations and borrowings from the Company’s revolving line of credit and commercial paper program were primarily utilized to:

	•	Acquire eleven consolidated rental properties for approximately $1.0 billion in cash;

	•	Acquire two land parcels in unconsolidated joint ventures for approximately $21.8 million in cash;

Table of Contents

	•	Invest $172.9 million primarily in development projects;

	•	Repay $65.5 million of mortgage loans (inclusive of scheduled principal repayments); and

	•	Purchase $167.8 million of various investment securities and other investments.

Credit Facility and Commercial Paper Program

The Company has a $2.5 billion unsecured revolving credit facility maturing November 1, 2024. The Company has the ability to increase available borrowings by an additional $750.0 million by adding lenders to the facility, obtaining the agreement of existing lenders to increase their commitments or incurring one or more term loans. The interest rate on advances under the facility will generally be LIBOR plus a spread (currently 0.775%), or based on bids received from the lending group, and the Company pays an annual facility fee (currently 0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit rating.

The unsecured revolving credit agreement contains provisions that establish a process for entering into an amendment to replace LIBOR under certain circumstances, such as the anticipated phase-out of LIBOR by the end of 2021. At this time, it cannot be determined with certainty what other interest rate(s) may succeed LIBOR, if any, and how any successor or alternative rates for LIBOR may affect borrowing costs or the availability of variable interest rate borrowings.

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

The Company limits its utilization of the revolving credit facility in order to maintain liquidity to support its $1.0 billion commercial paper program along with certain other obligations. The following table presents the availability on the Company’s unsecured revolving credit facility as of October 22, 2021 (amounts in thousands):

		October 22, 2021
Unsecured revolving credit facility commitment		$	2,500,000
Commercial paper balance outstanding			(175,000	)
Unsecured revolving credit facility balance outstanding			—
Other restricted amounts			(100,442	)
Unsecured revolving credit facility availability		$	2,224,558

Dividend Policy

The Company determines its dividends/distributions based on actual and projected financial conditions, the Company’s actual and projected liquidity and operating results, the Company’s projected cash needs for capital expenditures and other investment activities and such other factors as the Company’s Board of Trustees deems relevant. The Company declared a dividend/distribution for the first, second and third quarters of 2021 of $0.6025 per share/unit in each quarter, consistent with the amount paid in 2020. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.

Total dividends/distributions paid in October 2021 amounted to $233.3 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended September 30, 2021.

Long-Term Financing and Capital Needs

The Company expects to meet its long-term liquidity requirements, such as lump sum unsecured note and mortgage debt maturities, property acquisitions and financing of development activities, through the issuance of secured and unsecured debt and equity securities (including additional OP Units), proceeds received from the disposition of certain properties and joint ventures, along with cash generated from operations after all distributions. The Company has a significant number of unencumbered properties available to secure additional mortgage borrowings should unsecured capital be unavailable or the cost of alternative sources of capital be too high. The value of and cash flow from these unencumbered properties are in excess of the requirements the Company must maintain in order to comply with covenants under its unsecured notes and line of credit. Of the $27.9 billion in investment in real estate on the Company’s balance sheet at September 30, 2021, $23.9 billion or 85.7% 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.

Table of Contents

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

The Company’s total debt summary and debt maturity schedules as of September 30, 2021 are as follows:

Debt Summary as of September 30, 2021

($ in thousands)

														Weighted
										Weighted				Average
		Debt								Average				Maturities
		Balances				% of Total				Rates				(years)
Secured		$	2,281,165				28.0	%			3.16	%			5.6
Unsecured			5,863,483				72.0	%			3.38	%			10.2
Total		$	8,144,648				100.0	%			3.32	%			8.9
Fixed Rate Debt:
Secured – Conventional		$	1,897,650				23.3	%			3.67	%			4.2
Unsecured – Public			5,833,483				71.6	%			3.69	%			10.2
Fixed Rate Debt			7,731,133				94.9	%			3.69	%			8.7
Floating Rate Debt:
Secured – Conventional			52,573				0.6	%			2.36	%			0.7
Secured – Tax Exempt			330,942				4.1	%			0.46	%			14.9
Unsecured – Revolving Credit Facility			—				—				—				3.1
Unsecured – Commercial Paper Program			30,000				0.4	%			0.28	%			—
Floating Rate Debt			413,515				5.1	%			0.44	%			12.1
Total		$	8,144,648				100.0	%			3.32	%			8.9

Debt Maturity Schedule as of September 30, 2021

($ in thousands)

Year		Fixed Rate				Floating Rate				Total				% of Total				Weighted Average Coupons on Fixed Rate Debt				Weighted Average Coupons on Total Debt
2021		$	1,895			$	30,000		(1)	$	31,895				0.4	%			3.27	%			0.34	%
2022			264,185				54,653				318,838				3.9	%			3.25	%			3.10	%
2023			1,325,588				3,500				1,329,088				16.1	%			3.74	%			3.73	%
2024			—				6,100				6,100				0.1	%		N/A					0.07	%
2025			450,000				8,200				458,200				5.6	%			3.38	%			3.32	%
2026			592,025				9,000				601,025				7.3	%			3.58	%			3.53	%
2027			400,000				9,800				409,800				5.0	%			3.25	%			3.17	%
2028			900,000				10,700				910,700				11.1	%			3.79	%			3.75	%
2029			888,120				11,500				899,620				10.9	%			3.30	%			3.26	%
2030			1,095,000				12,600				1,107,600				13.4	%			2.55	%			2.52	%
2031+			1,879,350				275,535				2,154,885				26.2	%			3.70	%			3.24	%
Subtotal			7,796,163				431,588				8,227,751				100.0	%			3.44	%			3.28	%
Deferred Financing Costs and Unamortized (Discount)			(65,030	)			(18,073	)			(83,103	)		N/A				N/A				N/A
Total		$	7,731,133			$	413,515			$	8,144,648				100.0	%			3.44	%			3.28	%

(1)	Represents principal outstanding on the Company’s commercial paper program.

Table of Contents

See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at September 30, 2021.

ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings, have been reaffirmed during the COVID-19 pandemic by all three rating agencies listed below and all continue to maintain a stable outlook. As of October 22, 2021, the ratings are as follows:

		Standard & Poor’s		Moody’s		Fitch
ERPOP’s long-term senior debt rating		A-		A3		A
ERPOP’s short-term commercial paper rating		A-2		P-2		F-1
EQR’s long-term preferred equity rating		BBB		Baa1		BBB+

See Note 14 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to September 30, 2021.

Debt Covenants

The Company’s unsecured debt includes certain financial and operating covenants including, among other things, maintenance of certain financial ratios. These provisions are contained in the indentures applicable to each note payable or the credit agreement for our line of credit. The Company was in compliance with its unsecured debt covenants for all periods presented. The following table presents the Company’s selected unsecured public debt covenants as of September 30, 2021 and December 31, 2020:

		September 30, 2021				December 31, 2020
Debt to Adjusted Total Assets (not to exceed 60%)		30.0%				30.5%
Secured Debt to Adjusted Total Assets (not to exceed 40%)		9.2%				9.6%
Consolidated Income Available for Debt Service to Maximum Annual Service Charges (must be at least 1.5 to 1)			4.93			5.42
Total Unencumbered Assets to Unsecured Debt (must be at least 125%)		453.9%				458.3%

Note: These selected covenants represent the most restrictive financial covenants relating to ERPOP’s outstanding public debt securities and are defined in the indenture relating to such securities. The Company maintains substantial additional borrowing capacity and, as reflected by the above selected covenant information, believes it could currently incur substantial additional debt before it would breach any of its debt covenants.

Capitalization of Fixed Assets and Improvements to Real Estate

The Company’s and the Operating Partnership’s capital expenditures policy has not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020.

For the nine months ended September 30, 2021, our actual capital expenditures to real estate included the following (amounts in thousands except for apartment unit and per apartment unit amounts):

Capital Expenditures to Real Estate

For the Nine Months Ended September 30, 2021

		Same Store Properties (4)				Non-Same Store Properties/Other (5)				Total				Same Store Avg. Per Apartment Unit
Total Apartment Units			75,288				4,034				79,322
Building Improvements (1)		$	60,028			$	625			$	60,653			$	798
Renovation Expenditures (2)			21,163				286				21,449				281
Replacements (3)			24,939				665				25,604				331
Total Capital Expenditures to Real Estate		$	106,130			$	1,576			$	107,706			$	1,410

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

Table of Contents

(2)	Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets. Amounts for 996 same store apartment units approximated $21,248 per apartment unit renovated.

(3)	Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting).

(4)	Same Store Properties – Primarily includes all properties acquired or completed that are stabilized prior to January 1, 2020, less properties subsequently sold.

(5)	Non-Same Store Properties/Other – Primarily includes all properties acquired during 2020 and 2021, plus any properties in lease-up and not stabilized as of January 1, 2020. Also includes capital expenditures for properties sold.

The Company estimates that during 2021 it will spend approximately $1,950 per same store apartment unit or $150.0 million of total capital expenditures to real estate for same store properties. Included in these total expected expenditures are approximately $25.0 million for apartment unit renovation expenditures on approximately 1,250 same store apartment units at an average cost of approximately $20,000 per apartment unit renovated. The anticipated total capital expenditures to real estate for same store properties represent a higher absolute and per unit dollar amount as compared to 2020 but a lower absolute and per unit dollar amount as compared to 2019, as the Company anticipates slowly returning its capital expenditure activity to more normalized pre-COVID-19 levels.

Derivative Instruments

The Company has no derivative instruments outstanding at September 30, 2021. See Note 10 in the Notes to Consolidated Financial Statements for additional discussion of the impact of derivative instruments during the periods ended September 30, 2021 and 2020.

Definitions

The definition of certain terms described above or below are as follows:

	•	Acquisition Cap Rate – NOI that the Company anticipates receiving in the next 12 months (or the year two or three stabilized NOI for properties that are in lease-up at acquisition) less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross purchase price of the asset. The weighted average Acquisition Cap Rate for acquired properties is weighted based on the projected NOI streams and the relative purchase price for each respective property.

	•	Average Rental Rate – Total Residential rental revenues reflected on a straight-line basis in accordance with GAAP divided by the weighted average occupied apartment units for the reporting period presented.

	•	Development Yield – NOI that the Company anticipates receiving in the next 12 months following stabilization less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $50-$150 per apartment unit depending on the type of asset) divided by the Total Budgeted Capital Cost of the asset. The weighted average Development Yield for development properties is weighted based on the projected NOI streams and the relative Total Budgeted Capital Cost for each respective property.

	•	Disposition Yield – NOI that the Company anticipates giving up in the next 12 months less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross sales price of the asset. The weighted average Disposition Yield for sold properties is weighted based on the projected NOI streams and the relative sales price for each respective property.

	•	Leasing Concessions – Reflects upfront discounts on both new move-in and renewal leases on a straight-line basis.

	•	Non-Residential – Consists of revenues and expenses from retail and public parking garage operations.

	•	Percentage of Residents Renewing – Leases renewed expressed as a percentage of total renewal offers extended during the reporting period.

	•	Physical Occupancy – The weighted average occupied apartment units for the reporting period divided by the average of total apartment units available for rent for the reporting period.

Table of Contents

	•	Residential – Consists of multifamily apartment revenues and expenses.

	•	Same Store Residential Revenues – Revenues from our same store properties presented on a GAAP basis which reflects the impact of Leasing Concessions on a straight-line basis.

	•	% of Stabilized Budgeted NOI – Represents original budgeted 2021 NOI for stabilized properties and projected annual NOI at stabilization (defined as having achieved 90% occupancy for three consecutive months) for properties that are in lease-up.

	•	Traffic – Consists of an expression of interest in an apartment by completing an in-person tour, self-guided tour or virtual tour that may result in an application to lease.

	•	Turnover – Total Residential move-outs (including inter-property and intra-property transfers) divided by total Residential apartment units.

	•	Unlevered Internal Rate of Return (“IRR”) – The Unlevered IRR on sold properties is the compound annual rate of return calculated by the Company based on the timing and amount of: (i) the gross purchase price of the property plus any direct acquisition costs incurred by the Company; (ii) total revenues earned during the Company’s ownership period; (iii) total direct property operating expenses (including real estate taxes and insurance) incurred during the Company’s ownership period; (iv) capital expenditures incurred during the Company’s ownership period; and (v) the gross sales price of the property net of selling costs.

	•	Weighted Average Coupons – Contractual interest rate for each debt instrument weighted by principal balances as of September 30, 2021. In case of debt for which fair value hedges are in place, the rate payable under the corresponding derivatives is used in lieu of the contractual interest rate.

	•	Weighted Average Rates – Interest expense for each debt instrument for the nine months ended September 30, 2021 weighted by its average principal balance for the same period. Interest expense includes amortization of premiums, discounts and other comprehensive income on debt and related derivative instruments. In case of debt for which derivatives are in place, the income or expense recognized under the corresponding derivatives is included in the total interest expense for the period.

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. See also Note 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s investments in partially owned entities. See also Note 12 in the Notes to Consolidated Financial Statements for discussion regarding the Company’s development projects.

The Company’s contractual obligations for the next five years and thereafter have not changed materially from the amounts and disclosures included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020. See the updated debt maturity schedule included in Liquidity and Capital Resources for further discussion.

Critical Accounting Policies and Estimates

The Company’s and the Operating Partnership’s critical accounting policies and estimates have not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020.

Table of Contents

Funds From Operations and Normalized Funds From Operations

The following is the Company’s and the Operating Partnership’s reconciliation of net income to FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units for the nine months and quarters ended September 30, 2021 and 2020:

Funds From Operations and Normalized Funds From Operations

(Amounts in thousands)

		Nine Months Ended September 30,								Quarter Ended September 30,
		2021				2020				2021				2020
Net income		$	835,736			$	699,517			$	447,332			$	95,365
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties			(1,957	)			(14,113	)			(534	)			(703	)
Preferred/preference distributions			(2,318	)			(2,318	)			(773	)			(773	)
Net income available to Common Shares and Units / Units			831,461				683,086				446,025				93,889
Adjustments:
Depreciation			616,032				619,003				215,397				200,605
Depreciation – Non-real estate additions			(3,228	)			(3,433	)			(1,052	)			(1,126	)
Depreciation – Partially Owned Properties			(2,676	)			(2,514	)			(994	)			(828	)
Depreciation – Unconsolidated Properties			1,867				1,838				634				614
Net (gain) loss on sales of unconsolidated entities - operating assets			(4	)			(1,000	)			—				(1,000	)
Net (gain) loss on sales of real estate properties			(587,623	)			(352,218	)			(363,928	)			25
Noncontrolling Interests share of gain (loss) on sales of real estate properties			—				11,655				—				—
FFO available to Common Shares and Units / Units (1) (3) (4)			855,829				956,417				296,082				292,179
Adjustments:
Impairment – non-operating assets			—				—				—				—
Write-off of pursuit costs			3,557				4,864				910				1,586
Debt extinguishment and preferred share redemption (gains) losses			264				37				—				5
Non-operating asset (gains) losses			(23,014	)			1,022				294				352
Other miscellaneous items			4,520				(514	)			1,179				1,796
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)		$	841,156			$	961,826			$	298,465			$	295,918
FFO (1) (3)		$	858,147			$	958,735			$	296,855			$	292,952
Preferred/preference distributions			(2,318	)			(2,318	)			(773	)			(773	)
FFO available to Common Shares and Units / Units (1) (3) (4)		$	855,829			$	956,417			$	296,082			$	292,179
Normalized FFO (2) (3)		$	843,474			$	964,144			$	299,238			$	296,691
Preferred/preference distributions			(2,318	)			(2,318	)			(773	)			(773	)
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)		$	841,156			$	961,826			$	298,465			$	295,918

(1)

The National Association of Real Estate Investment Trusts (“Nareit”) defines funds from operations (“FFO”) (December 2018 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 real estate and land when connected to the main business of a REIT, impairment write-downs of investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and depreciation and amortization related to real estate. Adjustments for partially owned consolidated and unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis.

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

	•	the impact of any expenses relating to non-operating asset impairment;

	•	pursuit cost write-offs;

	•	gains and losses from early debt extinguishment and preferred share redemptions;

	•	gains and losses from non-operating assets; and

	•	other miscellaneous items.

(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 from sales and impairment write-downs of depreciable real estate and excluding depreciation related to real estate (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO and

Table of Contents

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 GAAP. 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.