Vivmark Residential 10-Q 2022-03-31

Filed 2022-04-29. 8 sections, 177K characters. Original on sec.gov · Markdown · JSON

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number: 1-12252 (Equity Residential)

Commission File Number: 0-24920 (ERP Operating Limited Partnership)

EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

Maryland (Equity Residential)		13-3675988 (Equity Residential)
Illinois (ERP Operating Limited Partnership)		36-3894853 (ERP Operating Limited Partnership)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Two North Riverside Plaza, Chicago, Illinois 60606		(312) 474-1300
(Address of principal executive offices) (Zip Code)		(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Shares of Beneficial Interest, $0.01 Par Value (Equity Residential)		EQR		New York Stock Exchange
7.57% Notes due August 15, 2026 (ERP Operating Limited Partnership)		N/A		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Equity Residential Yes ☒ No ☐	ERP Operating Limited Partnership Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).


Equity Residential Yes ☒ No ☐	ERP Operating Limited Partnership Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Equity Residential:

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

ERP Operating Limited Partnership:

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


Equity Residential ☐	ERP Operating Limited Partnership ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Equity Residential Yes ☐ No ☒	ERP Operating Limited Partnership Yes ☐ No ☒

The number of EQR Common Shares of Beneficial Interest, $0.01 par value, outstanding on April 22, 2022 was 376,041,849.


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EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended March 31, 2022 of Equity Residential and ERP Operating Limited Partnership. Unless stated otherwise or the context otherwise requires, references to “EQR” mean Equity Residential, a Maryland real estate investment trust (“REIT”), and references to “ERPOP” mean ERP Operating Limited Partnership, an Illinois limited partnership. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP. The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:

EQR is the general partner of, and as of March 31, 2022 owned an approximate 96.7% ownership interest in, ERPOP. The remaining 3.3% interest is owned by limited partners. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management. Management operates the Company and the Operating Partnership as one business. The management of EQR consists of the same members as the management of ERPOP.

The Company is structured as an umbrella partnership REIT (“UPREIT”) and EQR contributes all net proceeds from its various equity offerings to ERPOP. In return for those contributions, EQR receives a number of OP Units (see definition below) in ERPOP equal to the number of Common Shares it has issued in the equity offering. The Company may acquire properties in transactions that include the issuance of OP Units as consideration for the acquired properties. Such transactions may, in certain circumstances, enable the sellers to defer in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales. This is one of the reasons why the Company is structured in the manner shown above. Based on the terms of ERPOP’s partnership agreement, OP Units can be exchanged with Common Shares on a one-for-one basis because the Company maintains a one-for-one relationship between the OP Units of ERPOP issued to EQR and the outstanding Common Shares.

The Company believes that combining the reports on Form 10-Q of EQR and ERPOP into this single report provides the following benefits:

	•	enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

	•	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and

	•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.


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The Company believes it is important to understand the few differences between EQR and ERPOP in the context of how EQR and ERPOP operate as a consolidated company. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR’s primary function is acting as the general partner of ERPOP. EQR also issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, incl

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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, 2021. 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. 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 distribution, effectiveness and acceptance of vaccines and testing, 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, 2021, particularly those under Item 1A, Risk Factors.

Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report.

Overview

Equity Residential (“EQR”) 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 affluent 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 March 31, 2022 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.


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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 or furnish to 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 or furnish them to 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, 2021.

Results of Operations

2022 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 quarter ended March 31, 2022:

Portfolio Rollforward

($ in thousands)

			Purchase Price
12/31/2021	310	80,407
Acquisitions:
Consolidated Rental Properties	1	172	$	113,000	3.5	%
Configuration Changes	—	2
3/31/2022	311	80,581

Real Estate Transaction Highlights

	•	The Company acquired one operating property in the first quarter of 2022, a 172-unit apartment property located in San Diego for a purchase price of $113.0 million;

	•	The Company did not sell any properties during the first quarter of 2022, but subsequent to March 31, 2022, the Company sold a 354-unit apartment property located in New York City for approximately $265.7 million; and

	•	The Company spent approximately $41.9 million during the quarter ended March 31, 2022, primarily for consolidated and unconsolidated development projects.

See Notes 4 and 14 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.

Comparison of the quarter ended March 31, 2022 to the quarter ended March 31, 2021

The following table presents a reconciliation of diluted earnings per share/unit for the quarter ended March 31, 2022 as compared to the same period in 2021:

	Quarter Ended March 31
Diluted earnings per share/unit for period ended 2021	$	0.15
Property NOI		0.12
Interest expense		(0.02	)
Depreciation expense		(0.06	)
Diluted earnings per share/unit for period ended 2022	$	0.19


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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 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):

	Quarter Ended March 31,
	2022		2021		$ Change			% Change
Operating income	$	149,738	$	135,560	$	14,178			10.5	%
Adjustments:
Property management		30,747		26,130		4,617			17.7	%
General and administrative		17,238		15,383		1,855			12.1	%
Depreciation		229,961		199,962		29,999			15.0	%
Net (gain) loss on sales of real estate properties		102		43		59			137.2	%
Total NOI	$	427,786	$	377,078	$	50,708			13.4	%
Rental income:
Same store	$	618,357	$	573,752	$	44,605			7.8	%
Non-same store/other		34,991		23,850		11,141			46.7	%
Total rental income		653,348		597,602		55,746			9.3	%
Operating expenses:
Same store		209,991		204,890		5,101			2.5	%
Non-same store/other		15,571		15,634		(63	)		(0.4	)%
Total operating expenses		225,562		220,524		5,038			2.3	%
NOI:
Same store		408,366		368,862		39,504			10.7	%
Non-same store/other		19,420		8,216		11,204			136.4	%
Total NOI	$	427,786	$	377,078	$	50,708			13.4	%

Note: See Note 13 in the Notes to Consolidated Financial Statements for detail by reportable segment/market. Non-same store/other NOI results consist primarily of properties acquired in calendar years 2021 and 2022, operations from the Company’s development properties and operations prior to disposition from 2021 sold properties.

•	The increase in same store rental income is primarily driven by strong Physical Occupancy and significant growth in pricing.

•	The increase in same store operating expenses is due primarily to:

	•	Utilities – A $3.7 million increase primarily from gas and electric due to higher commodity prices;

	•	Repairs and maintenance – A $1.5 million increase primarily driven by volume and timing of maintenance repairs along with increases in minimum wage on contracted services; and

	•	On-site payroll – A $1.4 million decrease due to improved sales and service staff utilization from various technology initiatives and higher than usual staffing vacancies during the current period.

•

The increase in non-same store/other NOI is due primarily to a positive impact of higher NOI from properties acquired during 2021 and 2022 of $17.0 million and higher NOI from development properties in lease-up of $2.4 million, partially offset by a negative impact of lost NOI from 2021 dispositions of $12.3 million and a negative impact of lower NOI from one former master-leased property of $0.6 million.

•

The increase in consolidated total NOI is primarily a result of the Company’s higher NOI from same store properties, largely due to improvement in same store revenues as noted above. Operating expense growth remains modest due to a combination of continued success in managing controllable expenses and modest growth in real estate tax expense (increased by only $0.5 million), leading to 10.7% same store NOI growth for the quarter ended March 31, 2022 as compared to the same period in 2021.

See the Same Store Results section below for additional discussion of those results.


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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 $4.6 million or 17.7% during the quarter ended March 31, 2022 as compared to the prior year period. This increase is primarily attributable to increases in payroll-related costs, training/conference costs and information technology-related costs. A portion of these costs are associated with the various operating initiatives such as sales-focused improvements and service enhancements that facilitate lower onsite expense growth.

General and administrative expenses, which includes corporate operating expenses, increased approximately $1.9 million or 12.1% during the quarter ended March 31, 2022 as compared to the prior year period, primarily due to increases in payroll-related costs, legal and professional fees and training/conference costs.

Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $30.0 million or 15.0% during the quarter ended March 31, 2022 as compared to the prior year period, primarily as a result of additional depreciation expense on properties acquired in 2021 and 2022 and development properties placed in service during 2021, partially offset by lower depreciation from properties sold in 2021.

Interest and other income increased approximately $3.3 million during the quarter ended March 31, 2022 as compared to the prior year period. The increase is primarily due to a gain of $2.1 million on the sale of various investment securities and $1.2 million of litigation settlement proceeds that occurred during 2022 but not during 2021.

Other expenses decreased approximately $1.1 million or 25.6% during the quarter ended March 31, 2022 as compared to the prior year period, primarily due to a $1.5 million decline in construction defect and litigation reserves recorded between 2022 and 2021.

Interest expense, including amortization of deferred financing costs, increased approximately $5.3 million or 7.7% for the quarter ended March 31, 2022 as compared to the prior year period. The increase is primarily due to higher overall debt balances outstanding as compared to the prior year period, higher overall interest rates and lower capitalized interest. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the quarter ended March 31, 2022 was 3.65% as compared to 3.60% for the prior year period. The Company capitalized interest of approximately $1.0 million and $3.8 million during the quarters ended March 31, 2022 and 2021, respectively.

Same Store Results

Properties that the Company owned and were stabilized for all of both of the quarters ended March 31, 2022 and 2021 (the “First Quarter 2022 Same Store Properties”), which represented 74,675 apartment units, drove the Company’s results of operations. 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.

The following table provides comparative total same store results and statistics for the First Quarter 2022 Same Store Properties:

First Quarter 2022 vs. First Quarter 2021

Same Store Results/Statistics Including 74,675 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

First Quarter 2022																	First Quarter 2021
	Residential			% Change			Non- Residential		% Change			Total		% Change				Residential			Non- Residential		Total
Revenues	$	595,325			7.8	%	$	23,032		6.4	%	$	618,357		7.8	%	Revenues	$	552,111		$	21,641	$	573,752
Expenses	$	203,752			2.5	%	$	6,239		2.2	%	$	209,991		2.5	%	Expenses	$	198,784		$	6,106	$	204,890
NOI	$	391,573			10.8	%	$	16,793		8.1	%	$	408,366		10.7	%	NOI	$	353,327		$	15,535	$	368,862

Average Rental Rate	$	2,757			6.2	%											Average Rental Rate	$	2,597
Physical Occupancy		96.4	%		1.4	%											Physical Occupancy		95.0	%
Turnover		8.7	%		(1.3	%)											Turnover		10.0	%

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


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The following table provides results and statistics related to our Residential same store operations for the quarters ended March 31, 2022 and 2021:

First Quarter 2022 vs. First Quarter 2021

Same Store Residential Results/Statistics by Market


Markets/Metro Areas	Apartment Units		Q1 2022 % of Actual NOI			Q1 2022 Average Rental Rate		Q1 2022 Weighted Average Physical Occupancy %			Q1 2022 Turnover			Average Rental Rate			Physical Occupancy			Turnover
Los Angeles		15,259		19.9	%	$	2,584		96.7	%		8.3	%		7.6	%		0.9	%		(1.6	%)
Orange County		4,028		5.7	%		2,450		97.1	%		6.3	%		11.1	%		0.1	%		(1.5	%)
San Diego		2,706		4.1	%		2,662		96.9	%		8.9	%		12.1	%		(0.3	%)		(1.6	%)
Subtotal – Southern California		21,993		29.7	%		2,569		96.8	%		8.0	%		8.8	%		0.6	%		(1.6	%)

San Francisco		11,630		17.7	%		3,004		96.4	%		9.5	%		2.9	%		2.8	%		(2.2	%)
Washington D.C.		14,322		16.6	%		2,371		96.9	%		8.2	%		2.0	%		1.0	%		(1.4	%)
New York		9,345		13.0	%		3,741		97.0	%		8.2	%		6.8	%		5.7	%		(0.1	%)
Seattle		9,331		11.4	%		2,385		94.6	%		11.5	%		6.2	%		(1.0	%)		0.3	%
Boston		6,430		9.7	%		3,054		95.9	%		7.6	%		7.0	%		0.6	%		(1.3	%)
Denver		1,624		1.9	%		2,207		97.4	%		10.5	%		11.2	%		1.3	%		(1.8	%)

Total		74,675		100.0	%	$	2,757		96.4	%		8.7	%		6.2	%		1.4	%		(1.3	%)

Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.2% of total revenues for the quarter ended March 31, 2022.

Strong demand for our apartments in all of our markets has led to high Physical Occupancy, increased pricing power and a material reduction in Leasing Concessions. Key operating drivers for this performance during 2022 include:

	•	Pricing – There has been significant growth in pricing (net of Leasing Concessions) compared to the same period of 2021 across all of our markets. The use of Leasing Concessions has also declined significantly from its peak in February 2021, outside of some elevated use in Seattle during the first quarter of 2022.

	•	Physical Occupancy – Physical Occupancy of 96.4% for the first quarter of 2022 remained strong, exceeding first quarter of 2021 levels and contributing to growth in Same Store Residential Revenues.

	•	Percentage of Residents Renewing and Turnover – Our continued strategy of focusing on resident renewals delivered strong results. We reported Turnover of 8.7% for the first quarter of 2022, the lowest in the Company’s history, reflecting a strong trend of historically high resident retention. Results have been positive to date with the Percentage of Residents Renewing of 60% for the first quarter of 2022.

Same Store Residential Revenues in the first quarter of 2022 were impacted by higher than expected delinquency in Southern California caused by residents that were previously in good standing failing to pay their rent as they applied for funds under the California rental assistance program as it was expanded and extended into 2022. The Company continues to actively pursue payment and is seeing early signs of improved resident payment behavior in April 2022 following the expiration of the program’s eligibility period on March 31, 2022.

Liquidity and Capital Resources

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


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Statements of Cash Flows

The following table sets forth our sources and uses of cash flows for the quarters ended March 31, 2022 and 2021 (amounts in thousands):

	Quarter Ended March 31,
	2022			2021
Cash flow provided by (used for):
Operating activities	$	368,056		$	346,053
Investing activities	$	(197,037	)	$	(126,345	)
Financing activities	$	(419,555	)	$	(221,600	)

The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the quarter ended March 31, 2022.

Operating Activities

Our operating cash flows are primarily impacted by NOI and its components, such as Average Rental Rates, Physical Occupancy levels and operating expenses related to our properties. Cash provided by operating activities for the quarter ended March 31, 2022 as compared to the prior year period, increased by approximately $22.0 million as a direct result of the NOI and other changes discussed above in Results of Operations.

Investing Activities

Our investing cash flows are primarily impacted by our transaction activity (acquisitions/dispositions), development spend, capital expenditures and unconsolidated joint venture activity. For the quarter ended March 31, 2022, key drivers were:

	•	Acquired one consolidated rental property for approximately $113.0 million in cash;

	•	Invested $24.3 million primarily in development projects;

	•	Invested $35.3 million in capital expenditures to real estate; and

	•	Invested $24.9 million primarily in unconsolidated development joint venture entities as well as unconsolidated investments in real estate technology funds/companies for various technology initiatives.

Financing Activities

Our financing cash flows primarily relate to our borrowing activity (debt proceeds or repayment), distributions/dividends to shareholders and other Common Share activity. For the quarter ended March 31, 2022, key drivers were:

	•	Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $15.3 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

	•	Paid dividends/distributions on Common Shares, Preferred Shares, Units (including OP Units and restricted units) and noncontrolling interests in partially owned properties totaling approximately $250.8 million.

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.


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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 March 31, 2022 and December 31, 2021 (amounts in thousands):

	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	41,140	$	123,832
Restricted deposits	$	70,560	$	236,404
Unsecured revolving credit facility availability	$	2,366,493	$	2,181,372

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 the London Interbank Offered Rate (“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.

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 April 22, 2022 (amounts in thousands):

	April 22, 2022
Unsecured revolving credit facility commitment	$	2,500,000
Commercial paper balance outstanding		(50,000	)
Unsecured revolving credit facility balance outstanding		—
Other restricted amounts		(3,507	)
Unsecured revolving credit facility availability	$	2,446,493

Dividend Policy

The Company declared a dividend/distribution for the first quarter of 2022 of $0.625 per share/unit, an annualized increase of 3.7% over the amount paid in 2021. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.

Total dividends/distributions paid in April 2022 amounted to $242.6 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended March 31, 2022.

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 $28.4 billion in investment in real estate on the Company’s balance sheet at March 31, 2022, $24.6 billion or 86.4% 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.


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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 schedule as of March 31, 2022 is as follows:

Debt Summary as of March 31, 2022

($ in thousands)

	Debt Balances
Secured	$	2,193,199	26.9	%
Unsecured		5,966,952	73.1	%
Total	$	8,160,151	100.0	%
Fixed Rate Debt:
Secured – Conventional	$	1,895,251	23.2	%
Unsecured – Public		5,836,957	71.5	%
Fixed Rate Debt		7,732,208	94.7	%
Floating Rate Debt:
Secured – Conventional		62,767	0.8	%
Secured – Tax Exempt		235,181	2.9	%
Unsecured – Revolving Credit Facility		—	—
Unsecured – Commercial Paper Program		129,995	1.6	%
Floating Rate Debt		427,943	5.3	%
Total	$	8,160,151	100.0	%

The Company’s long-term financing and capital needs have 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, 2021.

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.

	•	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.

	•	Non-Same Store Properties – For annual comparisons, primarily includes all properties acquired during 2021 and 2022, plus any properties in lease-up and not stabilized as of January 1, 2021.

	•	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.

	•	Residential – Consists of multifamily apartment revenues and expenses.

	•	Same Store Properties – For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2021, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.


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	•	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.

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

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, 2021.


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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 quarters ended March 31, 2022 and 2021:

Funds From Operations and Normalized Funds From Operations

(Amounts in thousands)

	Quarter Ended March 31,
	2022			2021
Net income	$	73,798		$	60,364
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties		(639	)		(682	)
Preferred/preference distributions		(772	)		(773	)
Net income available to Common Shares and Units / Units		72,387			58,909
Adjustments:
Depreciation		229,961			199,962
Depreciation – Non-real estate additions		(1,052	)		(1,100	)
Depreciation – Partially Owned Properties		(893	)		(828	)
Depreciation – Unconsolidated Properties		620			617
Net (gain) loss on sales of unconsolidated entities - operating assets		(9	)		(4	)
Net (gain) loss on sales of real estate properties		102			43
FFO available to Common Shares and Units / Units (1) (3) (4)		301,116			257,599
Adjustments:
Impairment – non-operating assets		—			—
Write-off of pursuit costs		1,463			1,331
Debt extinguishment and preferred share redemption (gains) losses		—			264
Non-operating asset (gains) losses		(1,642	)		854
Other miscellaneous items		(371	)		2,242
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)	$	300,566		$	262,290

FFO (1) (3)	$	301,888		$	258,372
Preferred/preference distributions		(772	)		(773	)
FFO available to Common Shares and Units / Units (1) (3) (4)	$	301,116		$	257,599

Normalized FFO (2) (3)	$	301,338		$	263,063
Preferred/preference distributions		(772	)		(773	)
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)	$	300,566		$	262,290

(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 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


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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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s and the Operating Partnership’s market risk has not changed materially from the amounts and information reported in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021. See Note 10 in the Notes to Consolidated Financial Statements for additional discussion of fair value measurements.

Item 4. Controls and Procedures

Equity Residential

	(a)	Evaluation of Disclosure Controls and Procedures:

Effective as of March 31, 2022, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

	(b)	Changes in Internal Control over Financial Reporting:

There were no changes to the internal control over financial reporting of the Company identified in connection with the Company’s evaluation referred to above that occurred during the first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ERP Operating Limited Partnership

	(a)	Evaluation of Disclosure Controls and Procedures:

Effective as of March 31, 2022, the Operating Partnership carried out an evaluation, under the supervision and with the participation of the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of EQR, of the effectiveness of the Operating Partnership’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Operating Partnership in its Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

	(b)	Changes in Internal Control over Financial Reporting:

There were no changes to the internal control over financial reporting of the Operating Partnership identified in connection with the Operating Partnership’s evaluation referred to above that occurred during the first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.


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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As of March 31, 2022, the Company does not believe there is any litigation pending or threatened against it that, individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company.

Item 1A. Risk Factors

There have been no material changes to the risk factors that were discussed in Part I, Item 1A of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended March 31, 2022, EQR issued 6,756 Common Shares in exchange for 6,756 OP Units held by various limited partners of ERPOP. OP Units are generally exchangeable into Common Shares on a one-for-one basis or, at the option of ERPOP, the cash equivalent thereof, at any time one year after the date of issuance. These shares were either registered under the Securities Act of 1933, as amended (the “Securities Act”), or issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder, as these were transactions by an issuer not involving a public offering. In light of the manner of the sale and information obtained by EQR from the limited partners in connection with these transactions, EQR believes it may rely on these exemptions.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits – See the Exhibit Index.


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EXHIBIT INDEX

The exhibits listed below are filed as part of this report. References to exhibits or other filings under the caption “Location” indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference. The Commission file numbers for our Exchange Act filings referenced below are 1-12252 (Equity Residential) and 0-24920 (ERP Operating Limited Partnership).

Exhibit	Description	Location
10.1	Form of 2022 Long-Term Incentive Plan Award Agreement.	Attached herein.

31.1	Equity Residential – Certification of Mark J. Parrell, Chief Executive Officer.	Attached herein.

31.2	Equity Residential – Certification of Robert A. Garechana, Chief Financial Officer.	Attached herein.

31.3	ERP Operating Limited Partnership – Certification of Mark J. Parrell, Chief Executive Officer of Registrant’s General Partner.	Attached herein.

31.4	ERP Operating Limited Partnership – Certification of Robert A. Garechana, Chief Financial Officer of Registrant’s General Partner.	Attached herein.

32.1	Equity Residential – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Mark J. Parrell, Chief Executive Officer of the Company.	Attached herein.

32.2	Equity Residential – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Robert A. Garechana, Chief Financial Officer of the Company.	Attached herein.

32.3	ERP Operating Limited Partnership – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Mark J. Parrell, Chief Executive Officer of Registrant’s General Partner.	Attached herein.

32.4	ERP Operating Limited Partnership – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Robert A. Garechana, Chief Financial Officer of Registrant’s General Partner.	Attached herein.

101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema Document.

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104	Cover Page Interactive Data File (embedded within the Inline XBRL document).


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		EQUITY RESIDENTIAL

Date:	April 29, 2022	By:	/s/ Robert A. Garechana
			Robert A. Garechana
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

Date:	April 29, 2022	By:	/s/ Ian S. Kaufman
			Ian S. Kaufman
			Senior Vice President and Chief Accounting Officer
			(Principal Accounting Officer)

		ERP OPERATING LIMITED PARTNERSHIP BY: EQUITY RESIDENTIAL ITS GENERAL PARTNER

Date:	April 29, 2022	By:	/s/ Robert A. Garechana
			Robert A. Garechana
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

Date:	April 29, 2022	By:	/s/ Ian S. Kaufman
			Ian S. Kaufman
			Senior Vice President and Chief Accounting Officer
			(Principal Accounting Officer)