EQUITY RESIDENTIAL (EQR)
SIC breadcrumb: Finance, Insurance, And Real Estate > Holding And Other Investment Offices > SIC 6798 Real Estate Investment Trusts
SEC company page: https://www.sec.gov/edgar/browse/?CIK=906107. Latest filing source: 0001193125-26-051433.
Informational only - descriptive public-record data, not investment advice.
Selected Fundamentals
| Metric | Value | Unit | FY | Filed |
|---|---|---|---|---|
| Revenue | 3,093,959,000 | USD | 2025 | 2026-02-13 |
| Net income | 1,120,089,000 | USD | 2025 | 2026-02-13 |
| Assets | 20,746,023,000 | USD | 2025 | 2026-02-13 |
Financials
Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-13. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000906107.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.
| Metric | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | 2,700,691,000 | 2,571,705,000 | 2,463,997,000 | 3,093,959,000 | 2,873,964,000 | 2,980,108,000 | 3,093,959,000 | |||||||||
| Net income | 4,292,163,000 | 603,454,000 | 657,535,000 | 970,377,000 | 913,636,000 | 1,332,850,000 | 776,911,000 | 835,438,000 | 1,035,831,000 | 1,120,089,000 | ||||||
| Diluted EPS | 11.68 | 1.63 | 1.77 | 2.60 | 2.45 | 3.54 | 2.05 | 2.20 | 2.72 | 2.94 | ||||||
| Operating cash flow | 1,214,123,000 | 1,265,788,000 | 1,356,295,000 | 1,456,984,000 | 1,265,536,000 | 1,260,184,000 | 1,454,756,000 | 1,532,798,000 | 1,573,607,000 | 1,648,763,000 | ||||||
| Dividends paid | 4,771,725,000 | 739,375,000 | 782,122,000 | 831,111,000 | 883,938,000 | 900,468,000 | 931,783,000 | 990,148,000 | 1,019,050,000 | 1,046,247,000 | ||||||
| Share buybacks | 1,887,000 | 0.00 | 0.00 | 0.00 | 1,777,000 | 0.00 | 0.00 | 49,105,000 | 38,474,000 | 280,720,000 | ||||||
| Assets | 20,704,148,000 | 20,570,599,000 | 20,394,209,000 | 21,172,769,000 | 20,286,891,000 | 21,169,241,000 | 20,218,262,000 | 20,034,564,000 | 20,834,176,000 | 20,746,023,000 | ||||||
| Liabilities | 9,801,072,000 | 9,729,781,000 | 9,615,454,000 | 10,164,843,000 | 9,184,454,000 | 9,483,056,000 | 8,517,310,000 | 8,456,188,000 | 9,249,829,000 | 9,336,889,000 | ||||||
| Stockholders' equity | 10,229,078,000 | 10,242,464,000 | 10,173,204,000 | 10,315,506,000 | 10,525,651,000 | 10,954,948,000 | 11,173,439,000 | 11,085,828,000 | 11,044,560,000 | 11,041,499,000 | ||||||
| Cash and cash equivalents | 77,207,000 | 50,647,000 | 47,442,000 | 45,753,000 | 42,591,000 | 123,832,000 | 53,869,000 | 50,743,000 | 62,302,000 | 55,904,000 |
Ratios
| Metric | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net margin | 35.93% | 35.53% | 54.09% | 25.11% | 29.07% | 34.76% | 36.20% | |||||||||
| Return on equity | 41.96% | 5.89% | 6.46% | 9.41% | 8.68% | 12.17% | 6.95% | 7.54% | 9.38% | 10.14% | ||||||
| Return on assets | 20.73% | 2.93% | 3.22% | 4.58% | 4.50% | 6.30% | 3.84% | 4.17% | 4.97% | 5.40% | ||||||
| Liabilities / equity | 0.96 | 0.95 | 0.95 | 0.99 | 0.87 | 0.87 | 0.76 | 0.76 | 0.84 | 0.85 |
Financial Charts
Quarterly
Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-04-30. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000906107.json.
| Quarter | End Date | Revenue | Net Income | Diluted EPS | Method |
|---|---|---|---|---|---|
| 2022-Q2 | 2022-06-30 | 0.59 | reported discrete quarter | ||
| 2022-Q3 | 2022-09-30 | 0.86 | reported discrete quarter | ||
| 2023-Q1 | 2023-03-31 | 0.56 | reported discrete quarter | ||
| 2023-Q2 | 2023-06-30 | 717,309,000 | 139,203,000 | 0.37 | reported discrete quarter |
| 2023-Q3 | 2023-09-30 | 724,067,000 | 172,508,000 | 0.45 | reported discrete quarter |
| 2023-Q4 | 2023-12-31 | 727,500,000 | 311,692,000 | derived Q4 = FY annual - nine-month YTD | |
| 2024-Q1 | 2024-03-31 | 730,818,000 | 295,787,000 | 0.77 | reported discrete quarter |
| 2024-Q2 | 2024-06-30 | 734,163,000 | 177,483,000 | 0.47 | reported discrete quarter |
| 2024-Q3 | 2024-09-30 | 748,348,000 | 143,446,000 | 0.38 | reported discrete quarter |
| 2024-Q4 | 2024-12-31 | 766,779,000 | 419,115,000 | derived Q4 = FY annual - nine-month YTD | |
| 2025-Q1 | 2025-03-31 | 760,810,000 | 256,592,000 | 0.67 | reported discrete quarter |
| 2025-Q2 | 2025-06-30 | 768,827,000 | 192,356,000 | 0.50 | reported discrete quarter |
| 2025-Q3 | 2025-09-30 | 782,411,000 | 289,051,000 | 0.76 | reported discrete quarter |
| 2025-Q4 | 2025-12-31 | 781,911,000 | 382,090,000 | derived Q4 = FY annual - nine-month YTD | |
| 2026-Q1 | 2026-03-31 | 779,846,000 | 90,079,000 | 0.24 | reported discrete quarter |
Quarterly Charts
Macro Cross-References
- CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
- UNRATE - Unemployment Rate
- FEDFUNDS - Federal Funds Effective Rate
- CES0500000003 - Average Hourly Earnings of All Employees, Total Private
- DFEDTARU - Federal Funds Target Range - Upper Limit
- DFEDTARL - Federal Funds Target Range - Lower Limit
- DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
- DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
- DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
- DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
- T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
- CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
- CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
- CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
- CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
- PCEPI - Personal Consumption Expenditures: Chain-type Price Index
- PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
- PPIACO - Producer Price Index by Commodity: All Commodities
- T10YIE - 10-Year Breakeven Inflation Rate
- U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
- PAYEMS - All Employees, Total Nonfarm
- CIVPART - Labor Force Participation Rate
- EMRATIO - Employment-Population Ratio
- UNEMPLOY - Unemployed
- CE16OV - Employment Level
- ICSA - Initial Claims
- JTSJOL - Job Openings: Total Nonfarm
- JTSQUR - Quits: Total Nonfarm
- GDPC1 - Real Gross Domestic Product
- A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
- INDPRO - Industrial Production: Total Index
- TCU - Capacity Utilization: Total Index
- HOUST - New Privately-Owned Housing Units Started: Total Units
- PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
- RSAFS - Advance Retail Sales: Retail Trade
- PCE - Personal Consumption Expenditures
- DSPIC96 - Real Disposable Personal Income
- PSAVERT - Personal Saving Rate
- M2SL - M2
- BOPGSTB - U.S. International Trade in Goods and Services: Balance
- MSPUS - Median Sales Price of Houses Sold for the United States
- HSN1F - New One Family Houses Sold: United States
- RHORUSQ156N - Homeownership Rate in the United States
- TTLCONS - Total Construction Spending: Total Construction in the United States
- RRVRUSQ156N - Rental Vacancy Rate in the United States
- TOTALSL - Total Consumer Credit Owned and Securitized
- REVOLSL - Revolving Consumer Credit Owned and Securitized
- DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
- GDP - Gross Domestic Product
- GPDI - Gross Private Domestic Investment
- GCE - Government Consumption Expenditures and Gross Investment
- PCEC - Personal Consumption Expenditures
- NETEXP - Net Exports of Goods and Services
- GFDEBTN - Federal Debt: Total Public Debt
- GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
- FYFSD - Federal Surplus or Deficit
- FGRECPT - Federal Government Current Receipts
- FGEXPND - Federal Government: Current Expenditures
- MANEMP - All Employees, Manufacturing
- USCONS - All Employees, Construction
- USTRADE - All Employees, Retail Trade
- USFIRE - All Employees, Financial Activities
- USGOVT - All Employees, Government
- AWHAETP - Average Weekly Hours of All Employees, Total Private
- DGORDER - Manufacturers' New Orders: Durable Goods
- NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
- BUSINV - Total Business Inventories
- EXPGS - Exports of Goods and Services
- IMPGS - Imports of Goods and Services
- IR - Import Price Index (End Use): All Commodities
- PPIFIS - Producer Price Index by Commodity: Final Demand
Latest quarter (10-Q)
Latest 10-Q source: 0001193125-26-197417.
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 Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2025.
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. 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, 2025, 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. 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.
Overview
Equity Residential (“EQR”) is committed to creating communities where people thrive. The Company, a member of the S&P 500, owns and manages rental properties in dynamic metro areas across the U.S. 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, 2026 owned an approximate 97.6% 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.
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, 2025.
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Results of Operations
2026 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, 2026:
Portfolio Rollforward
($ in thousands)
| Properties | Apartment Units | ||||||
|---|---|---|---|---|---|---|---|
| 12/31/2025 | 312 | 85,190 | |||||
| Configuration Changes | — | 21 | |||||
| 3/31/2026 | 312 | 85,211 |
See Notes 4 and 5 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate investments and investments in partially owned entities.
Comparison of the quarter ended March 31, 2026 to the quarter ended March 31, 2025
The following table presents a reconciliation of diluted earnings per share/unit for the quarter ended March 31, 2026 as compared to the same period in 2025:
| Quarter Ended March 31 | ||||
|---|---|---|---|---|
| Diluted earnings per share/unit for period ended 2025 | $ | 0.67 | ||
| Property NOI | 0.02 | |||
| Interest expense | (0.01 | ) | ||
| Net gain/loss on property sales | (0.39 | ) | ||
| Depreciation expense | 0.01 | |||
| Other | (0.06 | ) | ||
| Diluted earnings per share/unit for period ended 2026 | $ | 0.24 |
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.
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The following tables present reconciliations of net 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/other results (amounts in thousands):
| Quarter Ended March 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Net income | $ | 93,101 | $ | 264,798 | $ | (171,697 | ) | (64.8 | )% | |||||||
| Adjustments: | ||||||||||||||||
| Property management | 35,141 | 35,816 | (675 | ) | (1.9 | )% | ||||||||||
| General and administrative | 16,865 | 18,255 | (1,390 | ) | (7.6 | )% | ||||||||||
| Depreciation | 247,496 | 256,746 | (9,250 | ) | (3.6 | )% | ||||||||||
| Net (gain) loss on sales of real estate properties | 32 | (154,152 | ) | 154,184 | (100.0 | )% | ||||||||||
| Interest and other income | (2,238 | ) | (1,692 | ) | (546 | ) | 32.3 | % | ||||||||
| Other expenses | 40,788 | 4,156 | 36,632 | 881.4 | % | |||||||||||
| Interest: | ||||||||||||||||
| Expense incurred, net | 77,370 | 72,114 | 5,256 | 7.3 | % | |||||||||||
| Amortization of deferred financing costs | 2,145 | 2,144 | 1 | 0.0 | % | |||||||||||
| Income and other tax expense (benefit) | 422 | 422 | — | 0.0 | % | |||||||||||
| (Income) loss from investments in unconsolidated entities | 2,042 | 6,411 | (4,369 | ) | (68.1 | )% | ||||||||||
| Net (gain) loss on sales of land parcels | — | 67 | (67 | ) | 100.0 | % | ||||||||||
| Total NOI | $ | 513,164 | $ | 505,085 | $ | 8,079 | 1.6 | % | ||||||||
| Rental income: | ||||||||||||||||
| Same store | $ | 746,478 | $ | 730,628 | $ | 15,850 | 2.2 | % | ||||||||
| Non-same store/other | 33,368 | 30,182 | 3,186 | 10.6 | % | |||||||||||
| Total rental income | 779,846 | 760,810 | 19,036 | 2.5 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Same store | 248,558 | 239,621 | 8,937 | 3.7 | % | |||||||||||
| Non-same store/other | 18,124 | 16,104 | 2,020 | 12.5 | % | |||||||||||
| Total operating expenses | 266,682 | 255,725 | 10,957 | 4.3 | % | |||||||||||
| NOI: | ||||||||||||||||
| Same store | 497,920 | 491,007 | 6,913 | 1.4 | % | |||||||||||
| Non-same store/other | 15,244 | 14,078 | 1,166 | 8.3 | % | |||||||||||
| Total NOI | $ | 513,164 | $ | 505,085 | $ | 8,079 | 1.6 | % |
Properties that the Company owned and were stabilized for all of both of the quarters ended March 31, 2026 and 2025, which represented 78,885 apartment units, drove the Company’s results of operations. Properties are considered “stabilized” when they have achieved 90% Physical Occupancy for three consecutive months.
The following table provides results and statistics related to our Residential same store operations for the quarters ended March 31, 2026 and 2025:
First Quarter 2026 vs. First Quarter 2025
Same Store Residential Results/Statistics by Market
[[GREPCENT_TABLE]]
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[Excerpt truncated for page length; source filing is linked above.]
Latest 10-K MD&A
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the results of operations and financial condition of the Company and the Operating Partnership should be read in connection with the Consolidated Financial Statements and Notes thereto. Due to the Company’s ability to control the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary entity has been consolidated with the Company for financial reporting purposes, except for any unconsolidated properties/entities. Capitalized terms used herein and not defined are as defined elsewhere in this Annual Report on Form 10-K. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 7, 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. Additional factors that might cause such differences are discussed in Part I of this Annual Report on Form 10-K, particularly those under Item 1A, Risk Factors. Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report. 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.
Overview
See Item 1, Business, for discussion regarding the Company’s overview.
Business Objectives and Operating and Investing Strategies
See Item 1, Business, for discussion regarding the Company’s business objectives and operating and investing strategies.
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Results of Operations
2024 and 2025 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 years ended December 31, 2024 and 2025:
Portfolio Rollforward
($ in thousands)
| Properties | Apartment Units | Purchase Price | Acquisition Cap Rate | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12/31/2023 | 302 | 80,191 | ||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 16 | 4,986 | $ | 1,438,250 | 5.1 | % | ||||||||||
| Consolidated Rental Properties – Not Stabilized | 2 | 387 | $ | 153,845 | 5.5 | % | ||||||||||
| Unconsolidated Land Parcels | — | — | $ | 33,394 | ||||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (13 | ) | (2,598 | ) | $ | (975,641 | ) | (5.4 | )% | |||||||
| Completed Developments – Unconsolidated | 4 | 1,262 | ||||||||||||||
| Configuration Changes | — | 21 | ||||||||||||||
| 12/31/2024 | 311 | 84,249 | ||||||||||||||
| Purchase Price | Acquisition Cap Rate | |||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 9 | 2,439 | $ | 636,843 | 5.1 | % | ||||||||||
| Consolidated Land Parcels | — | — | $ | 22,847 | ||||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (11 | ) | (2,468 | ) | $ | (1,122,061 | ) | (5.4 | )% | |||||||
| Consolidated Land Parcels | — | — | $ | (4,300 | ) | |||||||||||
| Unconsolidated Land Parcels | — | — | $ | (8,813 | ) | |||||||||||
| Completed Developments – Consolidated | 2 | 495 | ||||||||||||||
| Completed Developments – Unconsolidated | 1 | 450 | ||||||||||||||
| Configuration Changes | — | 25 | ||||||||||||||
| 12/31/2025 | 312 | 85,190 |
Acquisitions
•
The consolidated properties acquired in 2024 are located in the Atlanta (7), Boston, Dallas/Ft. Worth (5) and Denver (5) markets;
•
Acquired its joint venture partner's 8.0% interest in a 312-unit apartment property in 2024, located in the Washington, D.C. market, for $3.1 million in cash. The property is now wholly owned;
•
The consolidated properties acquired in 2025 are located in the Atlanta (8) and Dallas/Ft. Worth markets; and
•
The consolidated land parcels acquired in 2025 are located in the Atlanta (2) market.
Dispositions
•
The consolidated properties disposed of in 2024 were located in the Boston, Orange County, San Francisco (3), Washington, D.C. (5), Seattle (2) and San Diego markets;
•
The consolidated properties disposed of in 2025 were located in the Boston (2), Los Angeles (2), New York, San Diego,
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Seattle (4) and Washington, D.C. markets; and
•
The consolidated land parcel disposed of in 2025 was located in the New York market.
Developments
•
Consolidated:
•
Completed construction on two wholly owned consolidated apartment properties during 2025, located in the San Francisco and Denver markets, consisting of an aggregate of 495 apartment units totaling approximately $237.8 million of development costs; and
•
Acquired its joint venture partners' interests (ranging from 10% to 25%) in three previously unconsolidated properties, consisting of an aggregate of 966 apartment units, in 2025, located in the Dallas/Ft. Worth (2) and Denver markets, for approximately $16.4 million in cash and also contributed approximately $151.9 million for the respective joint ventures to repay the construction loans encumbering the properties, one of which was held by the Company. The properties are now wholly owned.
•
Unconsolidated:
•
Completed construction on four unconsolidated apartment properties during 2024, located in the Denver and Dallas/Ft. Worth (3) markets, consisting of 1,262 apartment units totaling approximately $338.0 million of development costs;
•
Previously entered into two separate unconsolidated joint ventures for the purpose of developing vacant land parcels in the Boston and Seattle markets. During 2024, the joint ventures acquired their respective land parcels for the total purchase price listed above; and
•
Completed construction on one unconsolidated apartment property during 2025, located in the New York market, consisting of 450 apartment units totaling approximately $201.2 million of development costs.
See Notes 4 and 5 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate investments and investments in partially owned entities.
Comparison of the year ended December 31, 2025 to the year ended December 31, 2024
The following table presents a reconciliation of diluted earnings per share/unit for the year ended December 31, 2025 as compared to the same period in 2024:
| Year Ended December 31 | ||||
|---|---|---|---|---|
| Diluted earnings per share/unit for full year 2024 | $ | 2.72 | ||
| Property NOI | 0.15 | |||
| Interest expense | (0.05 | ) | ||
| Corporate overhead (1) | (0.01 | ) | ||
| Net gain/loss on property sales | 0.21 | |||
| Depreciation expense | (0.17 | ) | ||
| Other | 0.09 | |||
| Diluted earnings per share/unit for full year 2025 | $ | 2.94 |
(1)
Corporate overhead includes property management and general and administrative expenses.
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.
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The following tables present reconciliations of net 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/other results (amounts in thousands):
| Year Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| Net income | $ | 1,151,949 | $ | 1,070,975 | $ | 80,974 | 7.6 | % | ||||||||
| Adjustments: | ||||||||||||||||
| Property management | 133,369 | 132,739 | 630 | 0.5 | % | |||||||||||
| General and administrative | 65,280 | 61,653 | 3,627 | 5.9 | % | |||||||||||
| Depreciation | 1,010,400 | 952,191 | 58,209 | 6.1 | % | |||||||||||
| Net (gain) loss on sales of real estate properties | (626,388 | ) | (546,797 | ) | (79,591 | ) | 14.6 | % | ||||||||
| Interest and other income | (52,440 | ) | (30,329 | ) | (22,111 | ) | 72.9 | % | ||||||||
| Other expenses | 60,485 | 74,051 | (13,566 | ) | (18.3 | )% | ||||||||||
| Interest: | ||||||||||||||||
| Expense incurred, net | 306,798 | 285,735 | 21,063 | 7.4 | % | |||||||||||
| Amortization of deferred financing costs | 8,768 | 7,834 | 934 | 11.9 | % | |||||||||||
| Income and other tax expense (benefit) | 1,585 | 1,256 | 329 | 26.2 | % | |||||||||||
| (Income) loss from investments in unconsolidated entities | 18,915 | 8,974 | 9,941 | 110.8 | % | |||||||||||
| Net (gain) loss on sales of land parcels | 80 | — | 80 | 100.0 | % | |||||||||||
| Total NOI | $ | 2,078,801 | $ | 2,018,282 | $ | 60,519 | 3.0 | % | ||||||||
| Rental income: | ||||||||||||||||
| Same store | $ | 2,821,804 | $ | 2,749,354 | $ | 72,450 | 2.6 | % | ||||||||
| Non-same store/other | 272,155 | 230,754 | 41,401 | 17.9 | % | |||||||||||
| Total rental income | 3,093,959 | 2,980,108 | 113,851 | 3.8 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Same store | 904,887 | 872,799 | 32,088 | 3.7 | % | |||||||||||
| Non-same store/other | 110,271 | 89,027 | 21,244 | 23.9 | % | |||||||||||
| Total operating expenses | 1,015,158 | 961,826 | 53,332 | 5.5 | % | |||||||||||
| NOI: | ||||||||||||||||
| Same store | 1,916,917 | 1,876,555 | 40,362 | 2.2 | % | |||||||||||
| Non-same store/other | 161,884 | 141,727 | 20,157 | 14.2 | % | |||||||||||
| Total NOI | $ | 2,078,801 | $ | 2,018,282 | $ | 60,519 | 3.0 | % |
See Note 16 in the Notes to Consolidated Financial Statements for our disclosure of reportable segments.
The comparison discussions provided below detail the changes in results for the year ended December 31, 2025 as compared to the year ended December 31, 2024.
•
The increase in same store rental income is primarily driven by good demand and modest supply across most of our markets.
•
The increase in same store operating expenses is due primarily to:
•
Real estate taxes – An $8.1 million increase due to escalation in rates and assessed values;
•
Utilities – An $11.3 million increase primarily driven by higher commodity prices, higher sewer and trash rates and higher water usage in Southern California; and
•
Repairs and maintenance – A $6.2 million increase primarily driven by costs associated with the implementation of various resident technology initiatives (including bulk Wi-Fi programs).
•
Non-same store/other NOI results consist primarily of properties acquired in calendar years 2024 and 2025, operations from the Company’s development properties, other corporate operations and operations prior to disposition from 2024 and 2025 sold properties. The increase in NOI is primarily a result of the Company's 2025 and significant second half of 2024 net acquisition activity, which is positively impacting 2025 results.
•
The increase in consolidated total NOI is a result of the Company’s higher NOI from non-same store properties as noted above and higher NOI from same store properties, largely due to improvement in same store revenues and the Company's continued focus
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on same store expense efficiency.
See the Same Store Results section below for additional discussion of those results. See the reconciliation table of net income per the consolidated statements of operations to NOI above for the dollar and percentage changes related to the comparison discussions provided below.
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. The increase during the year ended December 31, 2025 as compared to 2024 is primarily attributable to increases in training and marketing expenses, information technology expenses and legal and professional fees, partially offset by decreases in workforce/contractors costs and payroll-related costs.
General and administrative expenses, which include corporate operating expenses, increased during the year ended December 31, 2025 as compared to 2024, primarily due to increases in payroll-related costs and other public company costs.
Depreciation expense increased during the year ended December 31, 2025 as compared to 2024, primarily as a result of additional depreciation expense on properties acquired in 2024 and 2025 and development properties placed in service during 2024 and 2025, partially offset by lower depreciation from properties sold in 2024 and 2025.
Net gain on sales of real estate properties increased during the year ended December 31, 2025 as compared to 2024, primarily as a result of a higher dollar sales volume and the mix of properties sold in 2025 vs. 2024.
Interest and other income increased during the year ended December 31, 2025 as compared to 2024, primarily due to a net increase in realized/unrealized gains on various investment securities, interest income on mortgages receivable and an employment tax refund received in 2025 but not in 2024, partially offset by lower insurance/litigation settlement proceeds received during 2025 as compared to 2024.
Other expenses decreased during the year ended December 31, 2025 as compared to 2024, primarily due to a decrease in advocacy contributions, partially offset by increases in litigation accruals and the write-off of development pursuit costs and overhead.
Interest expense, including amortization of deferred financing costs, increased during the year ended December 31, 2025 as compared to 2024, primarily due to higher overall debt balances outstanding and higher overall rates. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the year ended December 31, 2025 was 3.93% as compared to 3.91% in 2024. The Company capitalized interest of approximately $12.4 million and $14.5 million during the years ended December 31, 2025 and 2024, respectively.
Loss from investments in unconsolidated entities increased during the year ended December 31, 2025 as compared to 2024, primarily as a result of losses incurred on our unconsolidated development properties which recently started lease-up activities as well as those that recently stabilized and on our real estate technology and other real estate fund investments.
For comparison of the year ended December 31, 2024 to the year ended December 31, 2023, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2024.
Same Store Results
Properties that the Company owned and were stabilized for all of both 2025 and 2024, which represented 73,465 apartment units, drove the Company’s results of operations. Properties are considered “stabilized” when they have achieved 90% Physical Occupancy for three consecutive months.
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The following table provides results and statistics related to our Residential same store operations for the years ended December 31, 2025 and 2024:
2025 vs. 2024
Same Store Residential Results/Statistics by Market
| Increase (Decrease) from Prior Year | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Markets/Metro Areas | Apartment Units | 2025 % of Actual NOI | 2025 Average Rental Rate | 2025 Weighted Average Physical Occupancy % | 2025 Turnover | Average Rental Rate | Physical Occupancy | Turnover | ||||||||||||||||||||||||
| Los Angeles | 13,834 | 17.5 | % | $ | 2,976 | 95.8 | % | 40.6 | % | 1.3 | % | 0.2 | % | (2.5 | %) | |||||||||||||||||
| Orange County | 3,718 | 5.4 | % | 2,987 | 96.4 | % | 36.8 | % | 2.1 | % | 0.5 | % | (1.4 | %) | ||||||||||||||||||
| San Diego | 2,217 | 3.6 | % | 3,305 | 96.3 | % | 42.7 | % | 2.2 | % | 0.3 | % | 0.4 | % | ||||||||||||||||||
| Subtotal – Southern California | 19,769 | 26.5 | % | 3,015 | 96.0 | % | 40.1 | % | 1.5 | % | 0.3 | % | (2.0 | %) | ||||||||||||||||||
| San Francisco | 11,111 | 17.0 | % | 3,448 | 96.9 | % | 39.6 | % | 3.8 | % | 0.8 | % | (4.5 | %) | ||||||||||||||||||
| Washington, D.C. | 13,241 | 16.0 | % | 2,837 | 96.6 | % | 39.6 | % | 3.7 | % | (0.2 | %) | (1.1 | %) | ||||||||||||||||||
| New York | 8,235 | 14.6 | % | 4,815 | 97.7 | % | 33.7 | % | 3.6 | % | 0.4 | % | 0.3 | % | ||||||||||||||||||
| Boston | 6,747 | 11.1 | % | 3,721 | 96.2 | % | 39.8 | % | 2.1 | % | 0.2 | % | (1.7 | %) | ||||||||||||||||||
| Seattle | 8,050 | 9.7 | % | 2,697 | 96.4 | % | 40.6 | % | 2.9 | % | 0.2 | % | (4.2 | %) | ||||||||||||||||||
| Denver | 2,792 | 2.8 | % | 2,316 | 95.5 | % | 53.1 | % | (3.6 | %) | (0.7 | %) | (1.2 | %) | ||||||||||||||||||
| Other Expansion Markets | 3,520 | 2.3 | % | 1,875 | 94.9 | % | 49.1 | % | (3.5 | %) | (0.3 | %) | (6.8 | %) | ||||||||||||||||||
| Total | 73,465 | 100.0 | % | $ | 3,203 | 96.4 | % | 40.2 | % | 2.5 | % | 0.2 | % | (2.4 | %) |
Note: The above table reflects Residential same store results only. Residential operations account for more than 96.0% of total revenues for the year ended December 31, 2025.
During the year ended December 31, 2025, the Company's operating business was solid, driven by sustained demand across most of its markets and supported by the Company’s record-high resident retention and continued low levels of unemployment, in addition to wage growth among its target renter demographic. Competitive new supply was modest in most of the Established Markets, but remained elevated in Expansion Markets, resulting in a more challenging new lease pricing environment, although tenant renewal pricing was strong. On a positive note, Atlanta and Dallas are beginning to show indications of improvement as competitive supply declines.
San Francisco and New York were the Company’s best performing markets throughout 2025. Each of these markets has experienced healthy demand as evidenced by strong Physical Occupancy, healthy pricing, low Turnover and modest new supply. The Seattle market improved due to large employers' return to office policies and continued investment from technology companies, though higher supply levels are resulting in a slower recovery than in San Francisco. Washington, D.C. experienced a market slowdown during the second half of 2025, a result of several factors, including uncertainty from government cuts, national guard deployment and the government shutdown. Los Angeles continues to face ongoing challenges as growth from the entertainment industry remains muted, limiting pricing power, despite early signs of an improving quality of life ahead of the World Cup and Olympics in 2026 and 2028, respectively.
Overall, the fundamentals of the Company’s business are solid and remain resilient despite macroeconomic uncertainty. Long-term, expected continued positive secular tailwinds remain due to elevated single family home ownership costs, positive household formation trends, historically low competitive new supply in the Established Markets and moderating competitive new supply in the Expansion Markets. There continues to be an overall deficit in housing across the country, which we believe leaves the Company well positioned for the future as its resident base is more resilient to economic uncertainty, including elevated inflation, due to higher levels of disposable income and lower relative rent-to-income ratios.
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Liquidity and Capital Resources
With approximately $1.9 billion in readily available liquidity, a strong balance sheet, well-staggered debt maturities, very strong credit metrics and ample access to capital markets, the Company believes it is well positioned to meet its future obligations and take advantage of opportunities. See further discussion below.
Statements of Cash Flows
The following table sets forth our sources and uses of cash flows for the years ended December 31, 2025, 2024 and 2023 (amounts in thousands):
| December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2023 | ||||||||||
| Cash flows provided by (used for): | ||||||||||||
| Operating activities | $ | 1,648,763 | $ | 1,573,607 | $ | 1,532,798 | ||||||
| Investing activities | $ | (321,362 | ) | $ | (1,176,484 | ) | $ | (409,504 | ) | |||
| Financing activities | $ | (1,328,713 | ) | $ | (376,952 | ) | $ | (1,120,471 | ) |
The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the year ended December 31, 2025.
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 year ended December 31, 2025 as compared to 2024 increased by approximately $75.2 million primarily as a 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 and capital expenditures. For the year ended December 31, 2025, key drivers were:
•
Acquired nine consolidated rental properties and two consolidated land parcels for approximately $661.6 million;
•
Disposed of eleven consolidated rental properties and one consolidated land parcel, receiving net proceeds of approximately $1.1 billion;
•
Invested $111.8 million primarily in consolidated development projects;
•
Invested $85.8 million primarily in unconsolidated development joint venture entities as well as unconsolidated investments in real estate technology funds/companies for various technology initiatives and the repayment of certain preferred interests in one joint venture;
•
Acquired its joint venture partners' interests (ranging from 10% to 25%) in three previously unconsolidated properties for approximately $16.4 million in cash and also contributed approximately $151.9 million for the respective joint ventures to repay the construction loans encumbering the properties, one of which was held by the Company. See Note 5 in the Notes to Consolidated Financial Statements for further discussion;
•
Advanced $102.3 million as replacement loans to two of its unconsolidated development joint ventures following the Company's repayment of outstanding principal balances on the third-party construction mortgages for these joint ventures. Subsequently, one of the joint ventures repaid the outstanding principal balance of $45.5 million to the Company in connection with the buyout of the partner. See Note 5 in the Notes to Consolidated Financial Statements for further discussion; and
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•
Invested $342.0 million in capital expenditures to real estate presented in the table below.
For the year ended December 31, 2025, our actual capital expenditures to real estate included the following (dollar amounts in thousands):
Capital Expenditures to Real Estate
For the Year Ended December 31, 2025
| Same Store Properties | Non-Same Store Properties | Total Consolidated Properties | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Consolidated Apartment Units | 73,465 | 10,709 | 84,174 | ||||||||
| Total Capital Expenditures to Real Estate | $ | 289,916 | $ | 52,124 | $ | 342,040 |
Financing Activities
Our financing cash flows primarily relate to our borrowing activity (debt proceeds or repayment), distributions/dividends to shareholders/unitholders and repurchase and other Common Share activity. For the year ended December 31, 2025, key drivers were:
•
Repaid $44.7 million on mortgage loans (inclusive of scheduled principal repayments);
•
Repaid $450.0 million of 3.375% unsecured notes;
•
Received net proceeds of $43.0 million from our unsecured commercial paper note program;
•
Paid dividends/distributions on Common Shares, Preferred Shares, Units (including OP Units and restricted units) and noncontrolling interests in partially owned properties totaling approximately $1.1 billion;
•
Issued $500.0 million of seven-year 4.95% unsecured notes, receiving net proceeds of approximately $498.6 million before underwriting fees, hedge termination costs and other expenses; and
•
Repurchased and retired 4,526,740 Common Shares, at a weighted average purchase price of $62.00 per share, for an aggregate purchased amount of approximately $280.7 million. See Note 3 in the Notes to Consolidated Financial Statements for further discussion.
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 December 31, 2025 and 2024 (amounts in thousands):
| December 31, 2025 | December 31, 2024 | ||||||
|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 55,904 | $ | 62,302 | |||
| Restricted deposits | $ | 102,950 | $ | 97,864 | |||
| Unsecured revolving credit facility availability | $ | 1,909,127 | $ | 1,952,067 |
Credit Facility and Commercial Paper Program
The Company has a $2.5 billion unsecured revolving credit facility maturing December 3, 2030. The Company has the ability to increase available borrowings by an additional $1.0 billion 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 Secured Overnight Financing Rate ("SOFR") plus a spread (currently 0.725%), or based on bids received from the lending group,
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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. See Note 8 in the Notes to Consolidated Financial Statements for additional discussion of the Company’s credit facility.
The Company has an unsecured commercial paper note program under which it may borrow up to a maximum of $1.5 billion 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 $1.5 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 February 6, 2026 (amounts in thousands):
| February 6, 2026 | ||||
|---|---|---|---|---|
| Unsecured revolving credit facility commitment | $ | 2,500,000 | ||
| Commercial paper balance outstanding | (594,300 | ) | ||
| Unsecured revolving credit facility balance outstanding | — | |||
| Other restricted amounts | (3,448 | ) | ||
| Unsecured revolving credit facility availability | $ | 1,902,252 |
Dividend Policy
The Company declared a dividend/distribution for each quarter in 2025 of $0.6925 per share/unit, an annualized increase of 2.6% over the amount paid in 2024. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.
Total dividends/distributions paid in January 2026 amounted to $267.5 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended December 31, 2025.
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 $30.5 billion in investment in real estate on the Company’s balance sheet at December 31, 2025, $27.4 billion or 90.1% was unencumbered. However, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise. For additional details, see Item 1A, Risk Factors.
EQR issues equity and guarantees certain debt of the Operating Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
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The Company’s total debt summary schedule as of December 31, 2025 is as follows:
Debt Summary as of December 31, 2025
($ in thousands)
| Debt Balances | % of Total | |||||||
|---|---|---|---|---|---|---|---|---|
| Secured | $ | 1,589,904 | 19.4 | % | ||||
| Unsecured | 6,585,106 | 80.6 | % | |||||
| Total | $ | 8,175,010 | 100.0 | % | ||||
| Fixed Rate Debt: | ||||||||
| Secured – Conventional | $ | 1,403,671 | 17.1 | % | ||||
| Unsecured – Public | 5,998,458 | 73.4 | % | |||||
| Fixed Rate Debt | 7,402,129 | 90.5 | % | |||||
| Floating Rate Debt: | ||||||||
| Secured – Tax Exempt | 186,233 | 2.3 | % | |||||
| Unsecured – Revolving Credit Facility | — | — | ||||||
| Unsecured – Commercial Paper Program | 586,648 | 7.2 | % | |||||
| Floating Rate Debt | 772,881 | 9.5 | % | |||||
| Total | $ | 8,175,010 | 100.0 | % |
The following table summarizes the Company’s debt maturity schedule as of December 31, 2025:
Debt Maturity Schedule as of December 31, 2025
($ in thousands)
| Year | Fixed Rate | Floating Rate | Total | % of Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2026 | $ | 592,025 | $ | 594,825 | (1) | $ | 1,186,850 | 14.4 | % | |||||||
| 2027 | 400,000 | 8,200 | 408,200 | 4.9 | % | |||||||||||
| 2028 | 900,000 | 9,000 | 909,000 | 11.0 | % | |||||||||||
| 2029 | 888,120 | 9,700 | 897,820 | 10.9 | % | |||||||||||
| 2030 | 1,148,462 | 10,800 | 1,159,262 | 14.1 | % | |||||||||||
| 2031 | 528,500 | 37,700 | 566,200 | 6.9 | % | |||||||||||
| 2032 | 500,000 | 26,100 | 526,100 | 6.4 | % | |||||||||||
| 2033 | 550,000 | — | 550,000 | 6.7 | % | |||||||||||
| 2034 | 600,000 | — | 600,000 | 7.3 | % | |||||||||||
| 2035 | — | 25,175 | 25,175 | 0.3 | % | |||||||||||
| 2036+ | 1,350,850 | 61,785 | 1,412,635 | 17.1 | % | |||||||||||
| Subtotal | 7,457,957 | 783,285 | 8,241,242 | 100.0 | % | |||||||||||
| Deferred Financing Costs and Unamortized (Discount) | (55,828 | ) | (10,404 | ) | (66,232 | ) | N/A | |||||||||
| Total | $ | 7,402,129 | $ | 772,881 | $ | 8,175,010 | 100.0 | % |
(1)
Includes $587.4 million in principal outstanding on the Company’s commercial paper program.
Interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2025, inclusive of capitalized interest, approximates $221.9 million annually for the next five years, with total remaining obligations of approximately $2.2 billion. For floating rate debt, the current rate in effect for the most recent payment through December 31, 2025 is assumed to be in effect through the respective maturity date of each instrument.
See Note 8 in the Notes to Consolidated Financial Statements for additional discussion of debt at December 31, 2025. See also Notes 7 and 15 in the Notes to Consolidated Financial Statements for additional discussion of contractual obligations and commitments as of December 31, 2025.
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Capital Structure
The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2025 is presented in the following table. The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preferred shares outstanding.
Equity Residential
Capital Structure as of December 31, 2025
(Amounts in thousands except for share/unit and per share amounts)
| Secured Debt | $ | 1,589,904 | 19.4 | % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 6,585,106 | 80.6 | % | |||||||||||||||
| Total Debt | 8,175,010 | 100.0 | % | 25.1 | % | |||||||||||||
| Common Shares (includes Restricted Shares) | 377,806,173 | 97.6 | % | |||||||||||||||
| Units (includes OP Units and Restricted Units) | 9,325,363 | 2.4 | % | |||||||||||||||
| Total Shares and Units | 387,131,536 | 100.0 | % | |||||||||||||||
| Common Share Price at December 31, 2025 | $ | 63.04 | ||||||||||||||||
| 24,404,772 | 99.9 | % | ||||||||||||||||
| Perpetual Preferred Equity | 17,155 | 0.1 | % | |||||||||||||||
| Total Equity | 24,421,927 | 100.0 | % | 74.9 | % | |||||||||||||
| Total Market Capitalization | $ | 32,596,937 | 100.0 | % |
The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2025 is presented in the following table. The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preference units outstanding.
ERP Operating Limited Partnership
Capital Structure as of December 31, 2025
(Amounts in thousands except for unit and per unit amounts)
| Secured Debt | $ | 1,589,904 | 19.4 | % | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 6,585,106 | 80.6 | % | ||||||||||||||
| Total Debt | 8,175,010 | 100.0 | % | 25.1 | % | ||||||||||||
| Total Outstanding Units | 387,131,536 | ||||||||||||||||
| Common Share Price at December 31, 2025 | $ | 63.04 | |||||||||||||||
| 24,404,772 | 99.9 | % | |||||||||||||||
| Perpetual Preference Units | 17,155 | 0.1 | % | ||||||||||||||
| Total Equity | 24,421,927 | 100.0 | % | 74.9 | % | ||||||||||||
| Total Market Capitalization | $ | 32,596,937 | 100.0 | % |
Financial Flexibility
EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC in May 2025 and expires in May 2028. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).
The Company has an ATM share offering program which allows EQR to issue Common Shares from time to time into the existing trading market at current market prices or through negotiated transactions, including under forward sale arrangements. The current program matures in May 2028 and gives us the authority to issue up to 13.0 million shares, all of which remain available for issuance as of February 6, 2026.
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Forward sale agreements under the ATM program allow the Company, at its election, to settle the agreements by issuing Common Shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the agreements in whole or in part through the delivery or receipt of Common Shares or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted net income per share using the treasury stock method (see Note 10, if applicable, in the Notes to Consolidated Financial Statements). The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s Common Shares over the term of the forward sale agreement.
During the year ended December 31, 2025, the Company repurchased and subsequently retired approximately $280.7 million (4,526,740 shares at a weighted average price per share of $62.00) of its Common Shares in the open market under its share repurchase program. Concurrent with these transactions, ERPOP repurchased and retired the same amount of OP Units previously issued to EQR. The Company's Board of Trustees reauthorized and replenished the share repurchase program in the first quarter of 2025, giving the Company the authority to repurchase up to 13.0 million Common Shares. The Company's Board of Trustees replenished the share repurchase program again on December 11, 2025, giving the Company the authority to repurchase up to 13.0 million Common Shares. As of February 6, 2026, EQR has remaining authorization to repurchase up to 11,305,881 of its shares.
We believe our ability to access the capital markets is enhanced by ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings. As of February 6, 2026, the ratings are as follows:
| Standard & Poor’s | Moody's | |||
|---|---|---|---|---|
| ERPOP's long-term senior debt rating | A- | A3 | ||
| ERPOP's short-term commercial paper rating | A-2 | P-2 | ||
| EQR's long-term preferred equity rating | BBB | Baa1 |
See Note 17 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to December 31, 2025.
Inflation
Inflation primarily impacts our results of operations as a result of wage/payroll pressures, increases in utilities through escalation of commodity costs and increases in repair and maintenance costs through higher contractor costs. In addition, inflation could also impact the interest we pay on our floating rate debt and upon refinancing of fixed rate debt in a high-inflationary environment, our cost of capital and our cost of development, renovation and capital expenditure activities. However, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for inflationary effects by increasing rents on our apartment homes, subject to supply and demand conditions. Although an extreme or sustained escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe inflation had a material impact on our results of operations for the years ended December 31, 2025, 2024 and 2023.
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Definitions
The definition of certain terms described above or below are as follows:
•
Acquisition Capitalization Rate or 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.
•
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 $150-$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.
•
Established Markets – Includes Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California (Los Angeles, Orange County and San Diego).
•
Expansion Markets – Includes Denver, Atlanta, Dallas/Ft. Worth and Austin.
•
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 2024 and 2025, plus any properties in lease-up and not stabilized as of January 1, 2024. Unless otherwise noted, includes both Residential and Non-Residential operations for these properties.
•
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, 2024, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented. Unless otherwise noted, includes both Residential and Non-Residential operations for these properties.
•
% of Stabilized Budgeted NOI – Represents original budgeted 2026 NOI for stabilized properties and projected annual NOI at stabilization (defined as having achieved 90% Physical Occupancy for three consecutive months) for properties that are in lease-up.
•
Total Budgeted Capital Cost – Estimated remaining cost for projects under development and/or developed plus all capitalized costs incurred to date, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, plus any estimates of costs remaining to be funded for all projects, all in accordance with GAAP. Amounts for partially owned consolidated and unconsolidated properties are presented at 100% of the project.
•
Turnover – Total Residential move-outs (including inter-property and intra-property transfers) divided by total Residential apartment units. Retention rate is the opposite of Turnover.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or different presentation of our financial statements.
The Company’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements. These policies were followed in preparing the consolidated financial statements at and for the year ended December 31, 2025.
The Company has identified the significant accounting policies below as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including its investment in real estate, for indicators of impairment at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal, regulatory and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted. Assessing impairment can be complex and involves a high degree of subjectivity in determining if indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset. In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions. Assumptions are primarily subject to property-specific characteristics, especially with respect to our intent and ability to hold the related asset. While these property-specific assumptions can have a significant impact on the undiscounted cash flows or estimated fair value of a particular asset, our evaluation of the reported carrying values of long-lived assets during the current year were not particularly sensitive to external or market assumptions.
Acquisition of Investment Properties
The Company allocates the purchase price of properties that meet the definition of an asset acquisition to net tangible and identified intangible assets acquired based on their relative fair values using assumptions primarily based upon property-specific characteristics. In making estimates of relative fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired or developed and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets/liabilities acquired.
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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 each of the three years ended December 31, 2025:
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2023 | ||||||||||
| Net income | $ | 1,151,949 | $ | 1,070,975 | $ | 868,488 | ||||||
| Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties | (4,455 | ) | (6,212 | ) | (6,340 | ) | ||||||
| Preferred/preference distributions | (1,422 | ) | (1,613 | ) | (3,090 | ) | ||||||
| Premium on redemption of Preferred Shares/Preference Units | — | (1,444 | ) | — | ||||||||
| Net income available to Common Shares and Units / Units | 1,146,072 | 1,061,706 | 859,058 | |||||||||
| Adjustments: | ||||||||||||
| Depreciation | 1,010,400 | 952,191 | 888,709 | |||||||||
| Depreciation – Non-real estate additions | (3,600 | ) | (3,791 | ) | (4,268 | ) | ||||||
| Depreciation – Partially Owned Properties | (2,013 | ) | (2,132 | ) | (2,130 | ) | ||||||
| Depreciation – Unconsolidated Properties | 16,890 | 7,191 | 2,860 | |||||||||
| Net (gain) loss on sales of unconsolidated entities - operating assets | (2,781 | ) | (515 | ) | — | |||||||
| Net (gain) loss on sales of real estate properties | (626,388 | ) | (546,797 | ) | (282,539 | ) | ||||||
| Noncontrolling Interests share of gain (loss) on sales of real estate properties | — | 1,857 | 2,336 | |||||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | 1,538,580 | 1,469,710 | 1,464,026 | |||||||||
| Adjustments: | ||||||||||||
| Write-off of pursuit costs | 7,735 | 5,155 | 3,647 | |||||||||
| Debt extinguishment and preferred share/preference unit redemption (gains) losses | 366 | 1,444 | 1,143 | |||||||||
| Non-operating asset (gains) losses | (20,777 | ) | (16,311 | ) | (13,323 | ) | ||||||
| Other miscellaneous items | 32,499 | 61,608 | 21,588 | |||||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,558,403 | $ | 1,521,606 | $ | 1,477,081 | ||||||
| FFO (1) (3) | $ | 1,540,002 | $ | 1,472,767 | $ | 1,467,116 | ||||||
| Preferred/preference distributions | (1,422 | ) | (1,613 | ) | (3,090 | ) | ||||||
| Premium on redemption of Preferred Shares/Preference Units | — | (1,444 | ) | — | ||||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | $ | 1,538,580 | $ | 1,469,710 | $ | 1,464,026 | ||||||
| Normalized FFO (2) (3) | $ | 1,559,825 | $ | 1,523,219 | $ | 1,480,171 | ||||||
| Preferred/preference distributions | (1,422 | ) | (1,613 | ) | (3,090 | ) | ||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,558,403 | $ | 1,521,606 | $ | 1,477,081 |
(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 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 real estate asset impairment;
•
pursuit cost write-offs;
•
gains and losses from early debt extinguishment and preferred share/preference unit redemptions;
•
gains and losses from non-operating assets; and
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•
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 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.
MD&A history
Prior-year 10-K MD&A spans are extracted from SEC filings with the same bounded parser used for the latest filing. The latest 10-K appears above; prior years are below.
FY 2024 10-K MD&A
SEC filing source: 0000950170-25-019894.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the results of operations and financial condition of the Company and the Operating Partnership should be read in connection with the Consolidated Financial Statements and Notes thereto. Due to the Company’s ability to control the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary entity has been consolidated with the Company for financial reporting purposes, except for any unconsolidated properties/entities. Capitalized terms used herein and not defined are as defined elsewhere in this Annual Report on Form 10-K. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 7, 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. Additional factors that might cause such differences are discussed in Part I of this Annual Report on Form 10-K, particularly those under Item 1A, Risk Factors. Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report. 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.
Overview
See Item 1, Business, for discussion regarding the Company’s overview.
Business Objectives and Operating and Investing Strategies
See Item 1, Business, for discussion regarding the Company’s business objectives and operating and investing strategies.
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Results of Operations
2023 and 2024 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 years ended December 31, 2023 and 2024:
Portfolio Rollforward
($ in thousands)
| Properties | Apartment Units | Purchase Price | Acquisition Cap Rate | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12/31/2022 | 308 | 79,597 | ||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 2 | 577 | $ | 189,734 | 5.1 | % | ||||||||||
| Consolidated Rental Properties – Not Stabilized | 2 | 606 | $ | 176,600 | 5.9 | % | ||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (11 | ) | (912 | ) | $ | (379,893 | ) | (5.5 | )% | |||||||
| Completed Developments – Consolidated | 1 | 312 | ||||||||||||||
| Configuration Changes | — | 11 | ||||||||||||||
| 12/31/2023 | 302 | 80,191 | ||||||||||||||
| Purchase Price | Acquisition Cap Rate | |||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 16 | 4,986 | $ | 1,438,250 | 5.1 | % | ||||||||||
| Consolidated Rental Properties – Not Stabilized | 2 | 387 | $ | 153,845 | 5.5 | % | ||||||||||
| Unconsolidated Land Parcels | — | — | $ | 33,394 | ||||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (13 | ) | (2,598 | ) | $ | (975,641 | ) | (5.4 | )% | |||||||
| Completed Developments – Unconsolidated | 4 | 1,262 | ||||||||||||||
| Configuration Changes | — | 21 | ||||||||||||||
| 12/31/2024 | 311 | 84,249 |
Acquisitions
•
The consolidated properties acquired in 2023 are located in the Atlanta (3) and Denver markets;
•
In 2023, the Company acquired its joint venture partner's 10.0% interest in a 200-unit apartment property located in the San Francisco market for $4.6 million, of which the Company paid $3.7 million in cash and ERPOP issued $0.9 million of 3.00% Series Q Preference Units. The property is now wholly owned. The Company also repaid $64.7 million of mortgage debt at par prior to maturity in conjunction with the buyout;
•
The consolidated properties acquired in 2024 are located in the Atlanta (7), Boston, Dallas/Ft. Worth (5) and Denver (5) markets; and
•
In 2024, the Company acquired its joint venture partner's 8.0% interest in a 312-unit apartment property located in the Washington, D.C. market for $3.1 million in cash. The property is now wholly owned. The Company also repaid $67.9 million of the joint venture construction mortgage debt during 2023.
Dispositions
•
The consolidated properties disposed of in 2023 were located in the Los Angeles (8), Seattle (2) and San Francisco markets; and
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•
The consolidated properties disposed of in 2024 were located in the Boston, Orange County, San Francisco (3), Washington, D.C. (5), Seattle (2) and San Diego markets.
Developments
•
Consolidated:
•
The Company stabilized one consolidated apartment property during 2023, located in the San Francisco market, consisting of 200 apartment units totaling approximately $116.4 million of development costs;
•
The Company completed construction on one consolidated apartment property during 2023, located in the Washington, D.C. market, consisting of 312 apartment units totaling approximately $108.0 million of development costs;
•
The Company spent approximately $78.2 million during 2023, primarily for consolidated development projects;
•
The Company commenced construction on one partially owned consolidated apartment property during 2024, located in the Boston market, consisting of 440 apartment units totaling approximately $232.2 million of expected development costs;
•
The Company stabilized one partially owned consolidated apartment property during 2024, located in the Washington, D.C. market, consisting of 312 apartment units totaling approximately $106.0 million of development costs; and
•
The Company spent approximately $129.8 million during 2024, primarily for consolidated development projects.
•
Unconsolidated:
•
The Company entered into two separate unconsolidated joint ventures during 2023 for the purpose of developing vacant land parcels in the Boston and Seattle markets. The Company’s total investment in these two joint ventures was approximately $4.9 million as of December 31, 2023;
•
The Company spent approximately $42.8 million during 2023, primarily for unconsolidated development projects;
•
The Company completed construction on four unconsolidated apartment properties during 2024, located in the Denver and Dallas/Ft. Worth (3) markets, consisting of 1,262 apartment units totaling approximately $338.0 million of development costs;
•
The Company spent approximately $103.8 million during 2024, primarily for unconsolidated development projects; and
•
The Company previously entered into two separate unconsolidated joint ventures for the purpose of developing vacant land parcels in the Boston and Seattle markets. During 2024, the joint ventures acquired their respective land parcels for the total purchase price listed above. The Company commenced construction on these two apartment properties, which are expected to contain 639 total apartment units. Total expected development cost for these projects is $307.2 million, and the Company's total investment in these two joint ventures is approximately $90.9 million as of December 31, 2024.
See Notes 4 and 5 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate investments and investments in partially owned entities.
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Comparison of the year ended December 31, 2024 to the year ended December 31, 2023
The following table presents a reconciliation of diluted earnings per share/unit for the year ended December 31, 2024 as compared to the same period in 2023:
| Year Ended December 31 | ||||
|---|---|---|---|---|
| Diluted earnings per share/unit for full year 2023 | $ | 2.20 | ||
| Property NOI | 0.18 | |||
| Interest expense | (0.04 | ) | ||
| Corporate overhead (1) | (0.04 | ) | ||
| Net gain/loss on property sales | 0.68 | |||
| Depreciation expense | (0.17 | ) | ||
| Other | (0.09 | ) | ||
| Diluted earnings per share/unit for full year 2024 | $ | 2.72 |
(1)
Corporate overhead includes property management and general and administrative expenses.
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 net 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/other results (amounts in thousands):
| Year Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Net income | $ | 1,070,975 | $ | 868,488 | $ | 202,487 | 23.3 | % | ||||||||
| Adjustments: | ||||||||||||||||
| Property management | 132,739 | 119,804 | 12,935 | 10.8 | % | |||||||||||
| General and administrative | 61,653 | 60,716 | 937 | 1.5 | % | |||||||||||
| Depreciation | 952,191 | 888,709 | 63,482 | 7.1 | % | |||||||||||
| Net (gain) loss on sales of real estate properties | (546,797 | ) | (282,539 | ) | (264,258 | ) | 93.5 | % | ||||||||
| Interest and other income | (30,329 | ) | (22,345 | ) | (7,984 | ) | 35.7 | % | ||||||||
| Other expenses | 74,051 | 29,419 | 44,632 | 151.7 | % | |||||||||||
| Interest: | ||||||||||||||||
| Expense incurred, net | 285,735 | 269,556 | 16,179 | 6.0 | % | |||||||||||
| Amortization of deferred financing costs | 7,834 | 8,941 | (1,107 | ) | (12.4 | )% | ||||||||||
| Income and other tax expense (benefit) | 1,256 | 1,148 | 108 | 9.4 | % | |||||||||||
| (Income) loss from investments in unconsolidated entities | 8,974 | 5,378 | 3,596 | 66.9 | % | |||||||||||
| Total NOI | $ | 2,018,282 | $ | 1,947,275 | $ | 71,007 | 3.6 | % | ||||||||
| Rental income: | ||||||||||||||||
| Same store | $ | 2,823,418 | $ | 2,740,193 | $ | 83,225 | 3.0 | % | ||||||||
| Non-same store/other | 156,690 | 133,771 | 22,919 | 17.1 | % | |||||||||||
| Total rental income | 2,980,108 | 2,873,964 | 106,144 | 3.7 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Same store | 894,477 | 869,635 | 24,842 | 2.9 | % | |||||||||||
| Non-same store/other | 67,349 | 57,054 | 10,295 | 18.0 | % | |||||||||||
| Total operating expenses | 961,826 | 926,689 | 35,137 | 3.8 | % | |||||||||||
| NOI: | ||||||||||||||||
| Same store | 1,928,941 | 1,870,558 | 58,383 | 3.1 | % | |||||||||||
| Non-same store/other | 89,341 | 76,717 | 12,624 | 16.5 | % | |||||||||||
| Total NOI | $ | 2,018,282 | $ | 1,947,275 | $ | 71,007 | 3.6 | % |
See Note 16 in the Notes to Consolidated Financial Statements for our disclosure of reportable segments.
•
The increase in same store rental income is primarily driven by good demand and modest supply across most of our markets.
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•
The increase in same store operating expenses is due primarily to:
•
Real estate taxes – An $11.2 million increase due to escalation in rates and assessed values including an approximately one percentage point contribution to growth from 421-a tax abatement burnoffs in New York City. Once the burnoffs are completed, previously rent-restricted apartment units will transition to market;
•
Other on-site operating expenses – A $3.4 million increase primarily driven by higher property-related legal expenses;
•
Insurance – A $3.3 million increase due to higher premiums on property insurance renewal due to conditions in the insurance market that while less difficult than recent years, remain challenging;
•
Utilities – A $3.4 million increase primarily driven by higher water, sewer and trash expense, partially offset by lower commodity prices for gas and electric; and
•
Repairs and maintenance – A $2.3 million increase primarily driven by higher minimum wage on contracted services, partially offset by lower resident Turnover compared to the same period of 2023.
•
Non-same store/other NOI results consist primarily of properties acquired in calendar years 2023 and 2024, operations from the Company’s development properties, other corporate operations and operations prior to disposition from 2023 and 2024 sold properties. The increase in NOI is primarily a result of the Company's net acquisition activity during 2024.
•
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 and the Company's continued focus on same store expense efficiency.
See the Same Store Results section below for additional discussion of those results. See the reconciliation table of net income per the consolidated statements of operations to NOI above for the dollar and percentage changes related to the comparison discussions provided below.
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. The increase during the year ended December 31, 2024 as compared to 2023 is primarily attributable to increases in payroll-related costs, information technology expenses and legal and professional fees.
General and administrative expenses, which include corporate operating expenses, increased during the year ended December 31, 2024 as compared to 2023, primarily due to increases in legal and professional fees and other public company costs, partially offset by decreases in payroll-related costs.
Depreciation expense increased during the year ended December 31, 2024 as compared to 2023, primarily as a result of additional depreciation expense on properties acquired in 2023 and 2024 and development properties placed in service during 2023 and 2024, partially offset by lower depreciation from properties sold in 2023 and 2024.
Net gain on sales of real estate properties increased during the year ended December 31, 2024 as compared to 2023, primarily as a result of a significantly higher dollar sales volume and the mix of properties sold in 2024 vs. 2023.
Interest and other income increased during the year ended December 31, 2024 as compared to 2023, primarily due to a net increase in realized/unrealized gains on various investment securities, short-term investment income on restricted deposit accounts due to a higher rate environment and higher overall invested balances as well as insurance/litigation settlement proceeds received during 2024 that did not occur in 2023.
Other expenses increased during the year ended December 31, 2024 as compared to 2023, primarily due to increases in litigation accruals and advocacy contributions, partially offset by decreases in data transformation project costs that occurred during 2023 but not during 2024.
Interest expense, including amortization of deferred financing costs, increased during the year ended December 31, 2024 as compared to 2023, primarily due to higher overall debt balances outstanding and higher overall rates, partially offset by higher capitalized interest. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the year ended December 31, 2024 was 3.91% as compared to 3.82% in 2023. The Company capitalized interest of approximately $14.5 million and $12.3 million during the years ended December 31, 2024 and 2023, respectively.
Loss from investments in unconsolidated entities increased during the year ended December 31, 2024 as compared to 2023, primarily as a result of losses incurred on our unconsolidated development properties which recently started lease-up activities, partially offset by increases in net income of unconsolidated operating properties and a gain on sale of an unconsolidated operating property.
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For comparison of the year ended December 31, 2023 to the year ended December 31, 2022, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.
Same Store Results
Properties that the Company owned and were stabilized for all of both 2024 and 2023, which represented 75,299 apartment units, drove the Company’s results of operations. Properties are considered “stabilized” when they have achieved 90% Physical Occupancy for three consecutive months.
The following table provides results and statistics related to our Residential same store operations for the years ended December 31, 2024 and 2023:
2024 vs. 2023
Same Store Residential Results/Statistics by Market
| Increase (Decrease) from Prior Year | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Markets/Metro Areas | Apartment Units | 2024 % of Actual NOI | 2024 Average Rental Rate | 2024 Weighted Average Physical Occupancy % | 2024 Turnover | Average Rental Rate | Physical Occupancy | Turnover | ||||||||||||||||||||||||
| Los Angeles | 14,136 | 17.7 | % | $ | 2,933 | 95.6 | % | 43.3 | % | 2.5 | % | 0.3 | % | (1.2 | %) | |||||||||||||||||
| Orange County | 3,718 | 5.3 | % | 2,925 | 95.9 | % | 38.2 | % | 3.7 | % | (0.4 | %) | 0.6 | % | ||||||||||||||||||
| San Diego | 2,649 | 4.1 | % | 3,167 | 95.9 | % | 40.6 | % | 3.5 | % | 0.5 | % | (1.3 | %) | ||||||||||||||||||
| Subtotal – Southern California | 20,503 | 27.1 | % | 2,962 | 95.7 | % | 42.0 | % | 2.9 | % | 0.2 | % | (0.9 | %) | ||||||||||||||||||
| San Francisco | 11,093 | 16.1 | % | 3,326 | 96.1 | % | 44.2 | % | 1.1 | % | 0.5 | % | (0.1 | %) | ||||||||||||||||||
| Washington, D.C. | 13,534 | 15.9 | % | 2,743 | 96.8 | % | 40.7 | % | 4.6 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||
| New York | 8,536 | 14.6 | % | 4,640 | 97.3 | % | 33.6 | % | 3.0 | % | 0.5 | % | (3.6 | %) | ||||||||||||||||||
| Boston | 7,077 | 11.3 | % | 3,615 | 96.0 | % | 41.5 | % | 3.6 | % | 0.0 | % | (2.6 | %) | ||||||||||||||||||
| Seattle | 8,853 | 10.2 | % | 2,607 | 96.2 | % | 45.2 | % | 1.2 | % | 1.0 | % | (3.1 | %) | ||||||||||||||||||
| Denver | 2,505 | 2.6 | % | 2,410 | 96.2 | % | 54.9 | % | 0.2 | % | (0.1 | %) | (3.2 | %) | ||||||||||||||||||
| Other Expansion Markets | 3,198 | 2.2 | % | 1,946 | 95.1 | % | 56.9 | % | (2.2 | %) | 0.3 | % | (1.0 | %) | ||||||||||||||||||
| Total | 75,299 | 100.0 | % | $ | 3,127 | 96.2 | % | 42.5 | % | 2.6 | % | 0.3 | % | (1.5 | %) |
Note: The above table reflects Residential same store results only. Residential operations account for more than 96.0% of total revenues for the year ended December 31, 2024.
During the year ended December 31, 2024, the Company's operating business performed well, with healthy demand across most of our markets supported by a continuing solid job market, high employment levels and high wage growth among our target renter demographic. Competitive new supply was modest in our Established Markets, but has been elevated in our Expansion Markets. As expected, our East Coast markets were our best performers. On the West Coast, Seattle showed improvement, while San Francisco improved but at a more modest pace. Our Southern California markets (namely the city of Los Angeles) showed good demand but greater price sensitivity during the second half of 2024, though pricing started improving later in the year.
We continued to make progress in delinquent resident move-out activity, which reduced delinquencies in our portfolio. However, that progress was slower during 2024 than originally anticipated.
Activity in the transaction market was intermittent in 2024. However, we were able to source attractive opportunities to acquire properties in our Expansion Markets. We are excited to grow our portfolio and create operating scale in these markets as we execute on our strategy to optimize our portfolio allocation.
Overall, the fundamentals of our business are healthy. Long-term, we expect elevated single family home ownership costs, positive household formation trends, manageable competitive new supply in our Established Markets and moderating competitive new supply in our Expansion Markets. With an overall deficit in housing across the country, we believe our business is well positioned for the future. We also see our resident base as being resilient to economic uncertainty, including elevated inflation, due to higher levels of disposable income and lower relative rent-to-income ratios.
Liquidity and Capital Resources
With approximately $2.0 billion in readily available liquidity, a strong balance sheet, limited near-term debt maturities, very strong credit metrics and ample access to capital markets, the Company believes it is well positioned to meet its future obligations and take advantage of 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 years ended December 31, 2024, 2023 and 2022 (amounts in thousands):
| December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||||
| Cash flows provided by (used for): | ||||||||||||
| Operating activities | $ | 1,573,607 | $ | 1,532,798 | $ | 1,454,756 | ||||||
| Investing activities | $ | (1,176,484 | ) | $ | (409,504 | ) | $ | 107,792 | ||||
| Financing activities | $ | (376,952 | ) | $ | (1,120,471 | ) | $ | (1,785,612 | ) |
The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the year ended December 31, 2024.
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 year ended December 31, 2024 as compared to 2023 increased by approximately $40.8 million primarily as a 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 and capital expenditures. For the year ended December 31, 2024, key drivers were:
•
Acquired eighteen consolidated rental properties for approximately $1.6 billion;
•
Disposed of thirteen consolidated rental properties, receiving net proceeds of approximately $960.4 million;
•
Invested $129.8 million primarily in consolidated development projects;
•
Invested $109.7 million primarily in unconsolidated development joint venture entities as well as unconsolidated investments in real estate technology funds/companies for various technology initiatives; and
•
Invested $301.4 million in capital expenditures to real estate presented in the table below.
For the year ended December 31, 2024, 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 Year Ended December 31, 2024
| Same Store Properties | Non-Same Store Properties/Other | Total Consolidated Properties | Same Store Avg. Per Apartment Unit | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Consolidated Apartment Units | 75,299 | 7,688 | 82,987 | ||||||||||||
| Building Improvements | $ | 122,515 | $ | 12,781 | (2) | $ | 135,296 | $ | 1,627 | ||||||
| Renovation Expenditures | 100,456 | (1) | 10,837 | (2) | 111,293 | 1,334 | |||||||||
| Replacements | 51,026 | 3,819 | 54,845 | 678 | |||||||||||
| Total Capital Expenditures to Real Estate | $ | 273,997 | $ | 27,437 | $ | 301,434 | $ | 3,639 |
(1)
Renovation Expenditures – Amounts for 3,353 same store apartment units approximated $30,000 per apartment unit renovated.
(2)
Includes expenditures for two properties that have been removed from same store while undergoing major renovations requiring a significant number of apartment units to be vacated to accommodate the extensive planned improvements. The renovation at one property was substantially completed in the second quarter of 2024, while the renovation of the other is ongoing and expected to continue into 2026.
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Financing Activities
Our financing cash flows primarily relate to our borrowing activity (debt proceeds or repayment), distributions/dividends to shareholders/unitholders and other Common Share activity. For the year ended December 31, 2024, key drivers were:
•
Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $26.5 million;
•
Paid dividends/distributions on Common Shares, Preferred Shares, Units (including OP Units and restricted units) and noncontrolling interests in partially owned properties totaling approximately $1.1 billion;
•
Repurchased and retired 652,452 Common Shares, at a weighted average purchase price of $58.95 per share, for an aggregate purchased amount of approximately $38.5 million. See Note 3 in the Notes to Consolidated Financial Statements for further discussion;
•
Repurchased and retired 402,500 Series K Preferred Shares/Preference Units with a liquidation value of approximately $20.1 million for total cash consideration of approximately $21.8 million, inclusive of premiums and accrued dividends through the redemption date. See Note 3 in the Notes to Consolidated Financial Statements for further discussion; and
•
Issued $600.0 million of ten-year 4.65% unsecured notes, receiving net proceeds of approximately $598.0 million before underwriting fees, hedge termination costs and other expenses. The proceeds from this issuance were used to partially fund the Company’s acquisition activity during 2024.
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 December 31, 2024 and 2023 (amounts in thousands):
| December 31, 2024 | December 31, 2023 | ||||||
|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 62,302 | $ | 50,743 | |||
| Restricted deposits | $ | 97,864 | $ | 89,252 | |||
| Unsecured revolving credit facility availability | $ | 1,952,067 | $ | 2,086,585 |
Credit Facility and Commercial Paper Program
The Company has a $2.5 billion unsecured revolving credit facility maturing on October 26, 2027. 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 Secured Overnight Financing Rate ("SOFR") plus a spread (currently 0.725%), 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 and other terms and conditions per the agreement. See Note 8 in the Notes to Consolidated Financial Statements for additional discussion of the Company’s credit facility.
The Company has an unsecured commercial paper note program under which it may borrow up to a maximum of $1.5 billion (increased from $1.0 billion as of December 18, 2024) 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.
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The Company limits its utilization of the revolving credit facility in order to maintain liquidity to support its $1.5 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 February 6, 2025 (amounts in thousands):
| February 6, 2025 | ||||
|---|---|---|---|---|
| Unsecured revolving credit facility commitment | $ | 2,500,000 | ||
| Commercial paper balance outstanding | (425,000 | ) | ||
| Unsecured revolving credit facility balance outstanding | — | |||
| Other restricted amounts | (3,438 | ) | ||
| Unsecured revolving credit facility availability | $ | 2,071,562 |
Dividend Policy
The Company declared a dividend/distribution for each quarter in 2024 of $0.675 per share/unit, an annualized increase of 2.0% over the amount paid in 2023. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.
Total dividends/distributions paid in January 2025 amounted to $263.5 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended December 31, 2024.
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 $30.0 billion in investment in real estate on the Company’s balance sheet at December 31, 2024, $26.8 billion or 89.4% was unencumbered. However, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise. For additional details, see Item 1A, Risk Factors.
EQR issues equity and guarantees certain debt of the Operating Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
The Company’s total debt summary schedule as of December 31, 2024 is as follows:
Debt Summary as of December 31, 2024
($ in thousands)
| Debt Balances | % of Total | |||||||
|---|---|---|---|---|---|---|---|---|
| Secured | $ | 1,630,690 | 20.1 | % | ||||
| Unsecured | 6,491,055 | 79.9 | % | |||||
| Total | $ | 8,121,745 | 100.0 | % | ||||
| Fixed Rate Debt: | ||||||||
| Secured – Conventional | $ | 1,401,099 | 17.3 | % | ||||
| Unsecured – Public | 5,947,376 | 73.2 | % | |||||
| Fixed Rate Debt | 7,348,475 | 90.5 | % | |||||
| Floating Rate Debt: | ||||||||
| Secured – Tax Exempt | 229,591 | 2.8 | % | |||||
| Unsecured – Revolving Credit Facility | — | — | ||||||
| Unsecured – Commercial Paper Program | 543,679 | 6.7 | % | |||||
| Floating Rate Debt | 773,270 | 9.5 | % | |||||
| Total | $ | 8,121,745 | 100.0 | % |
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The following table summarizes the Company’s debt maturity schedule as of December 31, 2024:
Debt Maturity Schedule as of December 31, 2024
($ in thousands)
| Year | Fixed Rate | Floating Rate | Total | % of Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | $ | 450,000 | $ | 552,595 | (1) | $ | 1,002,595 | 12.2 | % | |||||||
| 2026 | 592,025 | 9,000 | 601,025 | 7.3 | % | |||||||||||
| 2027 | 400,000 | 9,800 | 409,800 | 5.0 | % | |||||||||||
| 2028 | 900,000 | 10,700 | 910,700 | 11.1 | % | |||||||||||
| 2029 | 888,120 | 11,500 | 899,620 | 11.0 | % | |||||||||||
| 2030 | 1,148,462 | 12,700 | 1,161,162 | 14.2 | % | |||||||||||
| 2031 | 528,500 | 39,800 | 568,300 | 6.9 | % | |||||||||||
| 2032 | — | 28,100 | 28,100 | 0.4 | % | |||||||||||
| 2033 | 550,000 | 2,300 | 552,300 | 6.7 | % | |||||||||||
| 2034 | 600,000 | 2,400 | 602,400 | 7.4 | % | |||||||||||
| 2035+ | 1,350,850 | 106,200 | 1,457,050 | 17.8 | % | |||||||||||
| Subtotal | 7,407,957 | 785,095 | 8,193,052 | 100.0 | % | |||||||||||
| Deferred Financing Costs and Unamortized (Discount) | (59,482 | ) | (11,825 | ) | (71,307 | ) | N/A | |||||||||
| Total | $ | 7,348,475 | $ | 773,270 | $ | 8,121,745 | 100.0 | % |
(1)
Includes $544.5 million in principal outstanding on the Company’s commercial paper program.
Interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2024, inclusive of capitalized interest, approximates $225.4 million annually for the next five years, with total remaining obligations of approximately $2.3 billion. For floating rate debt, the current rate in effect for the most recent payment through December 31, 2024 is assumed to be in effect through the respective maturity date of each instrument.
See Note 8 in the Notes to Consolidated Financial Statements for additional discussion of debt at December 31, 2024. See also Notes 7 and 15 in the Notes to Consolidated Financial Statements for additional discussion of contractual obligations and commitments as of December 31, 2024.
Capital Structure
The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2024 is presented in the following table. The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preferred shares outstanding.
Equity Residential
Capital Structure as of December 31, 2024
(Amounts in thousands except for share/unit and per share amounts)
| Secured Debt | $ | 1,630,690 | 20.1 | % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 6,491,055 | 79.9 | % | |||||||||||||||
| Total Debt | 8,121,745 | 100.0 | % | 22.4 | % | |||||||||||||
| Common Shares (includes Restricted Shares) | 379,475,383 | 97.0 | % | |||||||||||||||
| Units (includes OP Units and Restricted Units) | 11,543,773 | 3.0 | % | |||||||||||||||
| Total Shares and Units | 391,019,156 | 100.0 | % | |||||||||||||||
| Common Share Price at December 31, 2024 | $ | 71.76 | ||||||||||||||||
| 28,059,535 | 99.9 | % | ||||||||||||||||
| Perpetual Preferred Equity | 17,155 | 0.1 | % | |||||||||||||||
| Total Equity | 28,076,690 | 100.0 | % | 77.6 | % | |||||||||||||
| Total Market Capitalization | $ | 36,198,435 | 100.0 | % |
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The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2024 is presented in the following table. The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preference units outstanding.
ERP Operating Limited Partnership
Capital Structure as of December 31, 2024
(Amounts in thousands except for unit and per unit amounts)
| Secured Debt | $ | 1,630,690 | 20.1 | % | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 6,491,055 | 79.9 | % | ||||||||||||||
| Total Debt | 8,121,745 | 100.0 | % | 22.4 | % | ||||||||||||
| Total Outstanding Units | 391,019,156 | ||||||||||||||||
| Common Share Price at December 31, 2024 | $ | 71.76 | |||||||||||||||
| 28,059,535 | 99.9 | % | |||||||||||||||
| Perpetual Preference Units | 17,155 | 0.1 | % | ||||||||||||||
| Total Equity | 28,076,690 | 100.0 | % | 77.6 | % | ||||||||||||
| Total Market Capitalization | $ | 36,198,435 | 100.0 | % |
Financial Flexibility
EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC in May 2022 and expires in May 2025. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).
The Company has an ATM share offering program which allows EQR to issue Common Shares from time to time into the existing trading market at current market prices or through negotiated transactions, including under forward sale arrangements. The current program matures in May 2025 and gives us the authority to issue up to 13.0 million shares, all of which remain available for issuance as of February 6, 2025.
Forward sale agreements under the ATM program allow the Company, at its election, to settle the agreements by issuing Common Shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the agreements in whole or in part through the delivery or receipt of Common Shares or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted net income per share using the treasury stock method (see Note 10 in the Notes to Consolidated Financial Statements). The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s Common Shares over the term of the forward sale agreement.
During the year ended December 31, 2024, the Company repurchased and subsequently retired approximately $38.5 million (652,452 shares at a weighted average price per share of $58.95) of its Common Shares in the open market under its share repurchase program. Concurrent with these transactions, ERPOP repurchased and retired the same amount of OP Units previously issued to EQR. Prior to the share repurchase activity during the year ended December 31, 2024, the Company had the authority to repurchase up to 13.0 million Common Shares under its share repurchase program. As of February 6, 2025, EQR has remaining authorization to repurchase up to 12,347,548 of its shares.
We believe our ability to access the capital markets is enhanced by ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings. As of February 6, 2025, the ratings are as follows:
| Standard & Poor’s | Moody's | |||
|---|---|---|---|---|
| ERPOP's long-term senior debt rating | A- | A3 | ||
| ERPOP's short-term commercial paper rating | A-2 | P-2 | ||
| EQR's long-term preferred equity rating | BBB | Baa1 |
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See Note 17 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to December 31, 2024.
Inflation
Inflation primarily impacts our results of operations as a result of wage/payroll pressures, increases in utilities through escalation of commodity costs and increases in repair and maintenance costs through higher contractor costs. In addition, inflation could also impact the interest we pay on our floating rate debt and upon refinancing of fixed rate debt in a high-inflationary environment, our cost of capital and our cost of development, renovation and capital expenditure activities. However, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for inflationary effects by increasing rents on our apartment homes, subject to supply and demand conditions. Although an extreme or sustained escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe inflation had a material impact on our results of operations for the years ended December 31, 2024, 2023 and 2022.
Definitions
The definition of certain terms described above or below are as follows:
•
Acquisition Capitalization Rate or 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.
•
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.
•
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 $150-$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.
•
Established Markets – Includes Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California (Los Angeles, Orange County and San Diego).
•
Expansion Markets – Includes Denver, Atlanta, Dallas/Ft. Worth and Austin.
•
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 2023 and 2024, plus any properties in lease-up and not stabilized as of January 1, 2023. Unless otherwise noted, includes both Residential and Non-Residential operations for these properties.
•
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.
•
Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets.
•
Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting).
•
Residential – Consists of multifamily apartment revenues and expenses.
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•
Same Store Properties – For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2023, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented. Unless otherwise noted, includes both Residential and Non-Residential operations for these properties.
•
% of Stabilized Budgeted NOI – Represents original budgeted 2025 NOI for stabilized properties and projected annual NOI at stabilization (defined as having achieved 90% Physical Occupancy for three consecutive months) for properties that are in lease-up.
•
Total Budgeted Capital Cost – Estimated remaining cost for projects under development and/or developed plus all capitalized costs incurred to date, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, plus any estimates of costs remaining to be funded for all projects, all in accordance with GAAP. Amounts for partially owned consolidated and unconsolidated properties are presented at 100% of the project.
•
Turnover – Total Residential move-outs (including inter-property and intra-property transfers) divided by total Residential apartment units.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or different presentation of our financial statements.
The Company’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements. These policies were followed in preparing the consolidated financial statements at and for the year ended December 31, 2024.
The Company has identified the significant accounting policies below as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including its investment in real estate, for indicators of impairment at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal, regulatory and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted. Assessing impairment can be complex and involves a high degree of subjectivity in determining if indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset. In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions. Assumptions are primarily subject to property-specific characteristics, especially with respect to our intent and ability to hold the related asset. While these property-specific assumptions can have a significant impact on the undiscounted cash flows or estimated fair value of a particular asset, our evaluation of the reported carrying values of long-lived assets during the current year were not particularly sensitive to external or market assumptions.
Acquisition of Investment Properties
The Company allocates the purchase price of properties that meet the definition of an asset acquisition to net tangible and identified intangible assets acquired based on their relative fair values using assumptions primarily based upon property-specific characteristics. In making estimates of relative fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired or developed and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets/liabilities acquired.
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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 each of the three years ended December 31, 2024:
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||||
| Net income | $ | 1,070,975 | $ | 868,488 | $ | 806,995 | ||||||
| Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties | (6,212 | ) | (6,340 | ) | (3,774 | ) | ||||||
| Preferred/preference distributions | (1,613 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Premium on redemption of Preferred Shares/Preference Units | (1,444 | ) | — | — | ||||||||
| Net income available to Common Shares and Units / Units | 1,061,706 | 859,058 | 800,131 | |||||||||
| Adjustments: | ||||||||||||
| Depreciation | 952,191 | 888,709 | 882,168 | |||||||||
| Depreciation – Non-real estate additions | (3,791 | ) | (4,268 | ) | (4,306 | ) | ||||||
| Depreciation – Partially Owned Properties | (2,132 | ) | (2,130 | ) | (2,640 | ) | ||||||
| Depreciation – Unconsolidated Properties | 7,191 | 2,860 | 2,898 | |||||||||
| Net (gain) loss on sales of unconsolidated entities - operating assets | (515 | ) | — | (9 | ) | |||||||
| Net (gain) loss on sales of real estate properties | (546,797 | ) | (282,539 | ) | (304,325 | ) | ||||||
| Noncontrolling Interests share of gain (loss) on sales of real estate properties | 1,857 | 2,336 | — | |||||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | 1,469,710 | 1,464,026 | 1,373,917 | |||||||||
| Adjustments: | ||||||||||||
| Write-off of pursuit costs | 5,155 | 3,647 | 4,780 | |||||||||
| Debt extinguishment and preferred share/preference unit redemption (gains) losses | 1,444 | 1,143 | 4,664 | |||||||||
| Non-operating asset (gains) losses | (16,311 | ) | (13,323 | ) | 2,368 | |||||||
| Other miscellaneous items | 61,608 | 21,588 | (13,901 | ) | ||||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,521,606 | $ | 1,477,081 | $ | 1,371,828 | ||||||
| FFO (1) (3) | $ | 1,472,767 | $ | 1,467,116 | $ | 1,377,007 | ||||||
| Preferred/preference distributions | (1,613 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Premium on redemption of Preferred Shares/Preference Units | (1,444 | ) | — | — | ||||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | $ | 1,469,710 | $ | 1,464,026 | $ | 1,373,917 | ||||||
| Normalized FFO (2) (3) | $ | 1,523,219 | $ | 1,480,171 | $ | 1,374,918 | ||||||
| Preferred/preference distributions | (1,613 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,521,606 | $ | 1,477,081 | $ | 1,371,828 |
(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 real estate asset impairment;
•
pursuit cost write-offs;
•
gains and losses from early debt extinguishment and preferred share/preference unit redemptions;
•
gains and losses from non-operating assets; and
•
other miscellaneous items.
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(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 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.
FY 2023 10-K MD&A
SEC filing source: 0000950170-24-015907.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the results of operations and financial condition of the Company and the Operating Partnership should be read in connection with the Consolidated Financial Statements and Notes thereto. Due to the Company’s ability to control the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary entity has been consolidated with the Company for financial reporting purposes, except for any unconsolidated properties/entities. Capitalized terms used herein and not defined are as defined elsewhere in this Annual Report on Form 10-K. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 7, 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. Additional factors that might cause such differences are discussed in Part I of this Annual Report on Form 10-K, particularly those under Item 1A, Risk Factors. Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report. 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.
Overview
See Item 1, Business, for discussion regarding the Company’s overview.
Business Objectives and Operating and Investing Strategies
See Item 1, Business, for discussion regarding the Company’s business objectives and operating and investing strategies.
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Results of Operations
2022 and 2023 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 years ended December 31, 2022 and 2023:
Portfolio Rollforward
($ in thousands)
| Properties | Apartment Units | Purchase Price | Acquisition Cap Rate | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12/31/2021 | 310 | 80,407 | ||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 1 | 172 | $ | 113,000 | 3.5 | % | ||||||||||
| Unconsolidated Land Parcels (1) | — | — | $ | 56,886 | ||||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (3 | ) | (945 | ) | $ | (746,150 | ) | (3.4 | )% | |||||||
| Configuration Changes | — | (37 | ) | |||||||||||||
| 12/31/2022 | 308 | 79,597 | ||||||||||||||
| Purchase Price | Acquisition Cap Rate | |||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 2 | 577 | $ | 189,734 | (3) | 5.1 | % | |||||||||
| Consolidated Rental Properties – Not Stabilized (2) | 2 | 606 | $ | 176,600 | 5.9 | % | ||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (11 | ) | (912 | ) | $ | (379,893 | ) | (5.5 | )% | |||||||
| Completed Developments – Consolidated | 1 | 312 | ||||||||||||||
| Configuration Changes | — | 11 | ||||||||||||||
| 12/31/2023 | 302 | 80,191 |
(1)
The purchase price listed represents the total consideration for the closing of the respective joint ventures.
(2)
The Company acquired two properties in the Atlanta market during the year ended December 31, 2023 that are in lease-up and are expected to stabilize in their second year of ownership at the weighted average Acquisition Cap Rate listed above.
(3)
Purchase price is net of a mark-to-market discount of approximately $11.2 million on a mortgage assumed in connection with the purchase of a property.
Acquisitions
•
The consolidated property acquired in 2022 is located in the San Diego market;
•
In 2022, the Company acquired its joint venture partner’s 25% interest in a 432-unit apartment property located in the Washington, D.C. market for $32.2 million, and the property is now wholly owned;
•
The consolidated properties acquired in 2023 are located in the Atlanta (3) and Denver markets; and
•
In 2023, the Company acquired its joint venture partner's 10% interest in a 200-unit apartment property located in the San Francisco market for $4.6 million, of which the Company paid $3.7 million in cash and ERPOP issued $0.9 million of 3.00% Series Q Preference Units. The property is now wholly owned. The Company also repaid $64.7 million of mortgage debt at par prior to maturity in conjunction with the buyout.
Dispositions
•
The consolidated properties disposed of in 2022 were located in the New York (2) and Washington, D.C. markets and the sales generated an Unlevered IRR of 5.3%; and
•
The consolidated properties disposed of in 2023 were located in the Los Angeles (8), Seattle (2) and San Francisco markets
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and the sales generated an Unlevered IRR of 11.4%.
Developments
•
The Company commenced construction on one consolidated and three unconsolidated apartment properties during 2022, located in the San Francisco and Dallas/Ft. Worth (3) markets, consisting of 1,278 apartment units totaling approximately $417.7 million of expected development costs;
•
The Company stabilized two consolidated apartment properties during 2022, located in the Washington, D.C. and Boston markets, consisting of 624 apartment units totaling approximately $482.1 million of development costs;
•
The Company spent approximately $203.6 million during 2022, primarily for consolidated and unconsolidated development projects;
•
The Company stabilized one consolidated apartment property during 2023, located in the San Francisco market, consisting of 200 apartment units totaling approximately $116.4 million of development costs;
•
The Company completed construction on one consolidated apartment property during 2023, located in the Washington, D.C. market, consisting of 312 apartment units totaling approximately $108.0 million of development costs; and
•
The Company spent approximately $118.2 million during 2023, primarily for consolidated and unconsolidated development projects.
Investments in Unconsolidated Entities
•
The Company entered into three separate unconsolidated joint ventures during 2022 for the purpose of developing vacant land parcels in the Dallas/Ft. Worth and Boston (2) markets. The Company’s total investment in these three joint ventures was approximately $66.8 million as of December 31, 2022. One of the projects is related to the Company’s joint venture development program with Toll Brothers, Inc. ("Toll"), which commenced construction during the first quarter of 2022 prior to our entrance into the joint venture; and
•
The Company entered into two separate unconsolidated joint ventures during 2023 for the purpose of developing vacant land parcels in the Boston and Seattle markets. The Company’s total investment in these two joint ventures was approximately $4.9 million as of December 31, 2023.
See Notes 4 and 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate investments and investments in partially owned entities.
Comparison of the year ended December 31, 2023 to the year ended December 31, 2022
The following table presents a reconciliation of diluted earnings per share/unit for the year ended December 31, 2023 as compared to the same period in 2022:
| Year Ended December 31 | ||||
|---|---|---|---|---|
| Diluted earnings per share/unit for full year 2022 | $ | 2.05 | ||
| Property NOI | 0.29 | |||
| Interest expense | 0.02 | |||
| Corporate overhead (1) | (0.03 | ) | ||
| Net gain/loss on property sales | (0.06 | ) | ||
| Non-operating asset gains/losses | 0.04 | |||
| Depreciation expense | (0.01 | ) | ||
| Other | (0.10 | ) | ||
| Diluted earnings per share/unit for full year 2023 | $ | 2.20 |
(1)
Corporate overhead includes property management and general and administrative expenses.
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.
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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/other results (amounts in thousands):
| Year Ended December 31, | 2023 vs. 2022 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Operating income | $ | 1,160,585 | $ | 1,116,046 | $ | 44,539 | 4.0 | % | ||||||||
| Adjustments: | ||||||||||||||||
| Property management | 119,804 | 110,304 | 9,500 | 8.6 | % | |||||||||||
| General and administrative | 60,716 | 58,710 | 2,006 | 3.4 | % | |||||||||||
| Depreciation | 888,709 | 882,168 | 6,541 | 0.7 | % | |||||||||||
| Net (gain) loss on sales of real estate properties | (282,539 | ) | (304,325 | ) | 21,786 | (7.2 | )% | |||||||||
| Total NOI | $ | 1,947,275 | $ | 1,862,903 | $ | 84,372 | 4.5 | % | ||||||||
| Rental income: | ||||||||||||||||
| Same store | $ | 2,754,711 | $ | 2,609,766 | $ | 144,945 | 5.6 | % | ||||||||
| Non-same store/other | 119,253 | 125,414 | (6,161 | ) | (4.9 | )% | ||||||||||
| Total rental income | 2,873,964 | 2,735,180 | 138,784 | 5.1 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Same store | 873,448 | 837,602 | 35,846 | 4.3 | % | |||||||||||
| Non-same store/other | 53,241 | 34,675 | 18,566 | 53.5 | % | |||||||||||
| Total operating expenses | 926,689 | 872,277 | 54,412 | 6.2 | % | |||||||||||
| NOI: | ||||||||||||||||
| Same store | 1,881,263 | 1,772,164 | 109,099 | 6.2 | % | |||||||||||
| Non-same store/other | 66,012 | 90,739 | (24,727 | ) | (27.3 | )% | ||||||||||
| Total NOI | $ | 1,947,275 | $ | 1,862,903 | $ | 84,372 | 4.5 | % |
Note: See Note 17 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 2022 and 2023, operations from the Company’s development properties, other corporate operations and operations prior to disposition from 2022 and 2023 sold properties.
•
The increase in same store rental income is primarily driven by strong demand and limited new supply, partially offset by a non-cash write-off of approximately $1.5 million in straight-line receivables due to the bankruptcy of Rite Aid.
•
The increase in same store operating expenses is due primarily to:
•
Repairs and maintenance – A $9.9 million increase primarily driven by greater outsourcing due to higher internal staffing utilization to address issues from California rain storms that occurred earlier in 2023;
•
Real estate taxes – A $5.8 million increase due to modest escalation in rates and assessed values; and
•
On-site payroll – An $8.0 million increase due primarily to fewer staffing vacancies as compared to 2022 and elevated employee benefit costs, partially offset by the impact of innovation initiatives.
•
The decrease in non-same store/other NOI is due primarily to:
•
A negative impact of lost NOI from 2022 and 2023 dispositions of $20.2 million;
•
A negative impact of $2.8 million in lower NOI from two properties that have been removed from same store while undergoing major renovations;
•
A negative impact of $18.1 million from a real estate tax transaction adjustment in 2022 that did not reoccur in 2023; and
•
A positive impact of higher NOI from non-stabilized properties acquired during 2021, 2022 and 2023 of $11.2 million and higher NOI from development and other properties in lease-up of $10.9 million.
•
The increase in consolidated total NOI is a result of the Company’s higher NOI from same store properties, largely due to improvement in same store revenues as noted above.
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 $9.5 million or 8.6% during the year ended December 31, 2023 as compared to 2022. This increase is primarily attributable to increases in payroll-related costs, workforce/contractors costs and information technology expenses, partially offset by decreases in training/marketing costs and third-party management fees.
General and administrative expenses, which include corporate operating expenses, increased approximately $2.0 million or 3.4% during the year ended December 31, 2023 as compared to 2022, primarily due to increases in payroll-related costs and public company expenses, partially offset by decreases in legal and professional fees and training/marketing costs.
Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $6.5 million or 0.7% during the year ended December 31, 2023 as compared to 2022, primarily as a result of additional depreciation expense on properties acquired in 2023 and 2022, partially offset by lower depreciation from properties sold in 2022 and 2023.
Net gain on sales of real estate properties decreased approximately $21.8 million or 7.2% during the year ended December 31, 2023 as compared to 2022, primarily as a result of the sale of eleven consolidated apartment properties for a lower gain in 2023 as compared to the sale of three consolidated apartment properties in the same period in 2022.
Interest and other income increased approximately $20.2 million during the year ended December 31, 2023 as compared to 2022. The increase is primarily due to an increase in unrealized gains of $13.5 million and realized gains of $2.7 million on various investment securities as well as short-term investment income on cash and restricted deposit accounts due to a higher rate environment and higher overall invested balances, partially offset by decreases in insurance/litigation settlement proceeds received during 2022 that did not occur in 2023.
Other expenses increased approximately $15.8 million during the year ended December 31, 2023 as compared to 2022, primarily due to increases in litigation reserves and data transformation project costs.
Interest expense, including amortization of deferred financing costs, decreased approximately $13.2 million or 4.5% during the year ended December 31, 2023 as compared to 2022. The decrease is primarily due to lower overall debt balances outstanding as compared to the prior year period and higher capitalized interest, partially offset by higher rates on floating debt. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the year ended December 31, 2023 was 3.82% as compared to 3.68% in 2022. The Company capitalized interest of approximately $12.3 million and $7.1 million during the years ended December 31, 2023 and 2022, respectively.
For comparison of the year ended December 31, 2022 to the year ended December 31, 2021, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022.
Same Store Results
Properties that the Company owned and were stabilized for all of both 2023 and 2022 (the “2023 Same Store Properties”), which represented 76,297 apartment units, drove the Company’s results of operations. Properties are considered “stabilized” when they have achieved 90% occupancy for three consecutive months. Properties are included in same store when they are stabilized for all of the current and comparable periods presented.
The following table provides comparative total same store results and statistics for the 2023 Same Store Properties:
2023 vs. 2022
Same Store Results/Statistics Including 76,297 Same Store Apartment Units
($ in thousands except for Average Rental Rate)
| 2023 | 2022 | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Residential | % Change | Non- Residential | % Change | Total | % Change | Residential | Non- Residential | Total | |||||||||||||||||||||
| Revenues | $ | 2,657,868 | 5.7 | % | $ | 96,843 | (1) | 1.9 | % | $ | 2,754,711 | 5.6 | % | Revenues | $ | 2,514,711 | $ | 95,055 | $ | 2,609,766 | |||||||||
| Expenses | $ | 846,546 | 4.1 | % | $ | 26,902 | 8.9 | % | $ | 873,448 | 4.3 | % | Expenses | $ | 812,894 | $ | 24,708 | $ | 837,602 | ||||||||||
| NOI | $ | 1,811,322 | 6.4 | % | $ | 69,941 | (0.6 | %) | $ | 1,881,263 | 6.2 | % | NOI | $ | 1,701,817 | $ | 70,347 | $ | 1,772,164 | ||||||||||
| Average Rental Rate | $ | 3,029 | 6.2 | % | Average Rental Rate | $ | 2,853 | ||||||||||||||||||||||
| Physical Occupancy | 95.9 | % | (0.4 | %) | Physical Occupancy | 96.3 | % | ||||||||||||||||||||||
| Turnover | 43.7 | % | 0.1 | % | Turnover | 43.6 | % |
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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)
Includes the negative impact from the non-cash write-off of approximately $1.5 million in straight-line receivables during the year ended December 31, 2023 due to the bankruptcy of Rite Aid.
The following table provides results and statistics related to our Residential same store operations for the years ended December 31, 2023 and 2022:
2023 vs. 2022
Same Store Residential Results/Statistics by Market
| Increase (Decrease) from Prior Year | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Markets/Metro Areas | Apartment Units | 2023 % of Actual NOI | 2023 Average Rental Rate | 2023 Weighted Average Physical Occupancy % | 2023 Turnover | Average Rental Rate | Physical Occupancy | Turnover | ||||||||||||||||||||||||
| Los Angeles | 14,135 | 17.6 | % | $ | 2,861 | 95.3 | % | 44.5 | % | 5.1 | % | (1.3 | %) | 5.8 | % | |||||||||||||||||
| Orange County | 4,028 | 5.6 | % | 2,801 | 96.3 | % | 37.4 | % | 7.1 | % | (0.7 | %) | 2.9 | % | ||||||||||||||||||
| San Diego | 2,706 | 4.0 | % | 2,993 | 95.4 | % | 42.3 | % | 8.2 | % | (1.3 | %) | 4.2 | % | ||||||||||||||||||
| Subtotal – Southern California | 20,869 | 27.2 | % | 2,867 | 95.5 | % | 42.9 | % | 5.9 | % | (1.2 | %) | 5.1 | % | ||||||||||||||||||
| San Francisco | 11,245 | 16.4 | % | 3,290 | 95.6 | % | 44.1 | % | 4.2 | % | (0.6 | %) | 2.4 | % | ||||||||||||||||||
| Washington, D.C. | 14,400 | 16.3 | % | 2,597 | 96.8 | % | 40.5 | % | 5.9 | % | 0.0 | % | (2.6 | %) | ||||||||||||||||||
| New York | 8,536 | 14.4 | % | 4,504 | 96.8 | % | 37.2 | % | 10.7 | % | (0.1 | %) | (5.2 | %) | ||||||||||||||||||
| Seattle | 9,266 | 10.8 | % | 2,579 | 95.2 | % | 48.0 | % | 2.9 | % | 0.1 | % | (3.6 | %) | ||||||||||||||||||
| Boston | 6,700 | 10.3 | % | 3,422 | 96.0 | % | 43.9 | % | 7.4 | % | (0.1 | %) | (1.5 | %) | ||||||||||||||||||
| Denver | 2,505 | 2.7 | % | 2,404 | 96.3 | % | 58.1 | % | 4.6 | % | 0.0 | % | (2.2 | %) | ||||||||||||||||||
| Other Expansion Markets | 2,776 | 1.9 | % | 1,987 | 94.7 | % | 57.1 | % | 5.1 | % | (0.6 | %) | 1.8 | % | ||||||||||||||||||
| Total | 76,297 | 100.0 | % | $ | 3,029 | 95.9 | % | 43.7 | % | 6.2 | % | (0.4 | %) | 0.1 | % |
Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.4% of total revenues for the year ended December 31, 2023.
During 2023, demand to live in our apartment communities remained healthy, which our financial results reflected. This steady demand for our apartments supported healthy Physical Occupancy with pricing that was largely in-line with our expectations, with the exceptions of the San Francisco and Seattle markets where pricing pressure during the second half of the year led to a greater than originally anticipated seasonal deceleration. The East Coast markets outperformed our West Coast markets, as we expected. Key operating drivers for this performance during 2023 included:
•
Pricing – Pricing (net of Leasing Concessions) generally continued to be healthy and consistent with expectations in most of our major markets except San Francisco and Seattle. In most of our markets, pricing peaked in early August 2023, which was typical pre-pandemic, and began to moderate thereafter through the fourth quarter of 2023.
•
Physical Occupancy – Physical Occupancy was 95.9% for the year ended December 31, 2023, which remained strong despite some increased move-out activity (see further discussion below).
•
Percentage of Residents Renewing and Turnover – We continued to see a high Percentage of Residents Renewing in our portfolio, which we believe reflects both the strength of demand and quality of our product and team. The Percentage of Residents Renewing was strong at 59.0% for the fourth quarter of 2023. Turnover remained at some of the lowest levels in the Company's history at 43.7% for the full year of 2023, reflecting a healthy and consistent trend of historically high resident retention.
The Company continued to have increased move-out activity related to delinquent residents during the year ended December 31, 2023, which put modest pressure on Physical Occupancy, especially in our Los Angeles market. While we have made significant progress in reducing delinquency in our portfolio, the backlog and slow pace of the eviction process led to slower improvement during the year ended December 31, 2023 than we had hoped for.
Overall, the fundamentals of our business remain healthy. Long-term, we expect elevated single family home ownership costs, positive household formation trends, manageable competitive new supply in our established coastal markets and the overall deficit in housing across the country to buffer the impact on our business from the risks of potential economic weakness. We also see our affluent
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resident base as being resilient to economic uncertainty, including elevated inflation, due to higher levels of disposable income and lower relative rent-to-income ratios.
Liquidity and Capital Resources
With approximately $2.1 billion in readily available liquidity, a strong balance sheet, limited near-term debt maturities, very strong credit metrics and ample access to capital markets, the Company believes it is well positioned to meet its future obligations and take advantage of opportunities. See further discussion below.
Statements of Cash Flows
The following table sets forth our sources and uses of cash flows for the years ended December 31, 2023, 2022 and 2021 (amounts in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | ||||||||||
| Cash flows provided by (used for): | ||||||||||||
| Operating activities | $ | 1,532,798 | $ | 1,454,756 | $ | 1,260,184 | ||||||
| Investing activities | $ | (409,504 | ) | $ | 107,792 | $ | (434,620 | ) | ||||
| Financing activities | $ | (1,120,471 | ) | $ | (1,785,612 | ) | $ | (565,056 | ) |
The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the year ended December 31, 2023.
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 year ended December 31, 2023 as compared to 2022, increased by approximately $78.0 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 and capital expenditures. For the year ended December 31, 2023, key drivers were:
•
Acquired four consolidated rental properties for approximately $324.5 million in cash, inclusive of $53.5 million in assumed mortgage debt with a discount of approximately $11.2 million on one acquired property;
•
Disposed of eleven consolidated rental properties, receiving net proceeds of approximately $374.0 million;
•
Invested $78.2 million primarily in consolidated development projects;
•
Invested $50.0 million primarily in unconsolidated development joint venture entities as well as unconsolidated investments in real estate technology funds/companies for various technology initiatives; and
•
Invested $319.3 million in capital expenditures to real estate presented in the table below.
For the year ended December 31, 2023, our actual capital expenditures to real estate included the following (amounts in thousands except for apartment unit and per apartment unit amounts):
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Capital Expenditures to Real Estate
For the Year Ended December 31, 2023
| Same Store Properties | Non-Same Store Properties/Other | Total | Same Store Avg. Per Apartment Unit | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Apartment Units | 76,297 | 3,894 | 80,191 | ||||||||||||
| Building Improvements | $ | 137,058 | $ | 11,907 | (2) | $ | 148,965 | $ | 1,796 | ||||||
| Renovation Expenditures | 79,291 | (1) | 22,863 | (2) | 102,154 | 1,039 | |||||||||
| Replacements | 66,496 | 1,727 | 68,223 | 872 | |||||||||||
| Total Capital Expenditures to Real Estate | $ | 282,845 | $ | 36,497 | $ | 319,342 | $ | 3,707 |
(1)
Renovation Expenditures – Amounts for 2,799 same store apartment units approximated $28,328 per apartment unit renovated.
(2)
Includes expenditures for two properties that have been removed from same store while undergoing major renovations requiring a significant number of apartment units to be vacated to accommodate the extensive planned improvements. The renovation at one property is expected to continue through the second quarter of 2024 with the other continuing into 2025.
Financing Activities
Our financing cash flows primarily relate to our borrowing activity (debt proceeds or repayment), distributions/dividends to shareholders/unitholders and other Common Share activity. For the year ended December 31, 2023, key drivers were:
•
Obtained $550.0 million in fixed rate mortgage debt;
•
Obtained $22.9 million in variable rate construction mortgage debt;
•
Repaid $936.0 million on mortgage loans (inclusive of scheduled principal repayments);
•
Received $25.2 million to settle nine forward starting swaps in conjunction with an interest rate lock of $530.0 million of secured notes;
•
Acquired our joint venture partner’s 10% interest in an apartment property for $3.7 million in cash (remaining $0.9 million was funded by ERPOP's issuance of 3.00% Series Q Preference Units);
•
Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $27.1 million;
•
Paid dividends/distributions on Common Shares, Preferred Shares, Units (including OP Units and restricted units) and noncontrolling interests in partially owned properties totaling approximately $1.0 billion; and
•
Repurchased and retired 864,386 Common Shares, at a weighted average purchase price of $56.79 per share, for an aggregate purchased amount of approximately $49.1 million. See Note 3 in the Notes to Consolidated Financial Statements for further discussion.
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 December 31, 2023 and 2022 (amounts in thousands):
| December 31, 2023 | December 31, 2022 | ||||||
|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 50,743 | $ | 53,869 | |||
| Restricted deposits | $ | 89,252 | $ | 83,303 | |||
| Unsecured revolving credit facility availability | $ | 2,086,585 | $ | 2,366,537 |
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Credit Facility and Commercial Paper Program
The Company has a $2.5 billion unsecured revolving credit facility maturing October 26, 2027. 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 Secured Overnight Financing Rate ("SOFR") plus a spread (currently 0.725%), 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. See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of the Company’s credit facility.
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 February 8, 2024 (amounts in thousands):
| February 8, 2024 | ||||
|---|---|---|---|---|
| Unsecured revolving credit facility commitment | $ | 2,500,000 | ||
| Commercial paper balance outstanding | (354,000 | ) | ||
| Unsecured revolving credit facility balance outstanding | — | |||
| Other restricted amounts | (3,438 | ) | ||
| Unsecured revolving credit facility availability | $ | 2,142,562 |
Dividend Policy
The Company declared a dividend/distribution for each quarter in 2023 of $0.6625 per share/unit, an annualized increase of 6.0% over the amount paid in 2022. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.
Total dividends/distributions paid in January 2024 amounted to $259.2 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended December 31, 2023.
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 $28.7 billion in investment in real estate on the Company’s balance sheet at December 31, 2023, $25.6 billion or 89.1% was unencumbered. However, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise. For additional details, see Item 1A, Risk Factors.
EQR issues equity and guarantees certain debt of the Operating Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
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The Company’s total debt summary schedule as of December 31, 2023 is as follows:
Debt Summary as of December 31, 2023
($ in thousands)
| Debt Balances | % of Total | |||||||
|---|---|---|---|---|---|---|---|---|
| Secured | $ | 1,632,902 | 22.1 | % | ||||
| Unsecured | 5,757,548 | 77.9 | % | |||||
| Total | $ | 7,390,450 | 100.0 | % | ||||
| Fixed Rate Debt: | ||||||||
| Secured – Conventional | $ | 1,398,598 | 18.9 | % | ||||
| Unsecured – Public | 5,348,417 | 72.4 | % | |||||
| Fixed Rate Debt | 6,747,015 | 91.3 | % | |||||
| Floating Rate Debt: | ||||||||
| Secured – Conventional | — | — | ||||||
| Secured – Tax Exempt | 234,304 | 3.2 | % | |||||
| Unsecured – Revolving Credit Facility | — | — | ||||||
| Unsecured – Commercial Paper Program | 409,131 | 5.5 | % | |||||
| Floating Rate Debt | 643,435 | 8.7 | % | |||||
| Total | $ | 7,390,450 | 100.0 | % |
The following table summarizes the Company’s debt maturity schedule as of December 31, 2023:
Debt Maturity Schedule as of December 31, 2023
($ in thousands)
| Year | Fixed Rate | Floating Rate | Total | % of Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | $ | — | $ | 416,200 | (1) | $ | 416,200 | 5.6 | % | |||||||
| 2025 | 450,000 | 8,100 | 458,100 | 6.1 | % | |||||||||||
| 2026 | 592,025 | 9,000 | 601,025 | 8.0 | % | |||||||||||
| 2027 | 400,000 | 9,800 | 409,800 | 5.5 | % | |||||||||||
| 2028 | 900,000 | 10,700 | 910,700 | 12.2 | % | |||||||||||
| 2029 | 888,120 | 11,500 | 899,620 | 12.1 | % | |||||||||||
| 2030 | 1,148,462 | 12,700 | 1,161,162 | 15.6 | % | |||||||||||
| 2031 | 528,500 | 39,800 | 568,300 | 7.6 | % | |||||||||||
| 2032 | — | 28,000 | 28,000 | 0.4 | % | |||||||||||
| 2033 | 550,000 | 2,300 | 552,300 | 7.4 | % | |||||||||||
| 2034+ | 1,350,850 | 108,600 | 1,459,450 | 19.5 | % | |||||||||||
| Subtotal | 6,807,957 | 656,700 | 7,464,657 | 100.0 | % | |||||||||||
| Deferred Financing Costs and Unamortized (Discount) | (60,942 | ) | (13,265 | ) | (74,207 | ) | N/A | |||||||||
| Total | $ | 6,747,015 | $ | 643,435 | $ | 7,390,450 | 100.0 | % |
(1)
Includes $410.0 million in principal outstanding on the Company’s commercial paper program.
Interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2023, inclusive of capitalized interest, approximates $223.0 million annually for the next five years, with total remaining obligations of approximately $2.4 billion. For floating rate debt, the current rate in effect for the most recent payment through December 31, 2023 is assumed to be in effect through the respective maturity date of each instrument.
See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at December 31, 2023. See also Notes 8 and 16 in the Notes to Consolidated Financial Statements for additional discussion of contractual obligations and commitments as of December 31, 2023.
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Capital Structure
The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2023 is presented in the following table. The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preferred shares outstanding.
Equity Residential
Capital Structure as of December 31, 2023
(Amounts in thousands except for share/unit and per share amounts)
| Secured Debt | $ | 1,632,902 | 22.1 | % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 5,757,548 | 77.9 | % | |||||||||||||||
| Total Debt | 7,390,450 | 100.0 | % | 23.6 | % | |||||||||||||
| Common Shares (includes Restricted Shares) | 379,291,417 | 97.0 | % | |||||||||||||||
| Units (includes OP Units and Restricted Units) | 11,581,306 | 3.0 | % | |||||||||||||||
| Total Shares and Units | 390,872,723 | 100.0 | % | |||||||||||||||
| Common Share Price at December 31, 2023 | $ | 61.16 | ||||||||||||||||
| 23,905,776 | 99.8 | % | ||||||||||||||||
| Perpetual Preferred Equity | 37,280 | 0.2 | % | |||||||||||||||
| Total Equity | 23,943,056 | 100.0 | % | 76.4 | % | |||||||||||||
| Total Market Capitalization | $ | 31,333,506 | 100.0 | % |
The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2023 is presented in the following table. The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preference units outstanding.
ERP Operating Limited Partnership
Capital Structure as of December 31, 2023
(Amounts in thousands except for unit and per unit amounts)
| Secured Debt | $ | 1,632,902 | 22.1 | % | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 5,757,548 | 77.9 | % | ||||||||||||||
| Total Debt | 7,390,450 | 100.0 | % | 23.6 | % | ||||||||||||
| Total Outstanding Units | 390,872,723 | ||||||||||||||||
| Common Share Price at December 31, 2023 | $ | 61.16 | |||||||||||||||
| 23,905,776 | 99.8 | % | |||||||||||||||
| Perpetual Preference Units | 37,280 | 0.2 | % | ||||||||||||||
| Total Equity | 23,943,056 | 100.0 | % | 76.4 | % | ||||||||||||
| Total Market Capitalization | $ | 31,333,506 | 100.0 | % |
Financial Flexibility
EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC in May 2022 and expires in May 2025. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).
The Company has an ATM share offering program which allows EQR to issue Common Shares from time to time into the existing trading market at current market prices or through negotiated transactions, including under forward sale arrangements. The current program matures in May 2025 and gives us the authority to issue up to 13.0 million shares, all of which remain available for issuance as of February 8, 2024.
Forward sale agreements under the ATM program allow the Company, at its election, to settle the agreements by issuing Common Shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the
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agreements in whole or in part through the delivery or receipt of Common Shares or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted net income per share using the treasury stock method (see Note 11 in the Notes to Consolidated Financial Statements for additional discussion). The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s Common Shares over the term of the forward sale agreement.
During the year ended December 31, 2021 and part of the year ended December 31, 2022, the Company had forward sale agreements outstanding for approximately 1.7 million Common Shares at a weighted average initial forward price per share of $83.25. During the quarter ended December 31, 2022, the Company settled all of the outstanding forward sale agreements, at a weighted average forward price per share of $80.22, which is inclusive of adjustments made to reflect the then-current federal funds rate and the amount of dividends paid to holders of the Company's Common Shares, for net proceeds of approximately $139.6 million. Concurrent with this transaction, ERPOP issued the same amount of OP Units to EQR in exchange for the net proceeds.
During the year ended December 31, 2023, the Company repurchased and subsequently retired approximately $49.1 million (864,386 shares at a weighted average price per share of $56.79) of its Common Shares in the open market under its share repurchase program. Concurrent with these transactions, ERPOP repurchased and retired the same amount of OP Units previously issued to EQR. In January 2024, the Company’s Board of Trustees approved replenishing the Company’s share repurchase program authorization back to its original 13.0 million shares. As of February 8, 2024, EQR has remaining authorization to repurchase up to 13.0 million of its shares.
We believe our ability to access capital markets is enhanced by ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings. As of February 8, 2024, the ratings are as follows:
| Standard & Poor’s | Moody's | |||
|---|---|---|---|---|
| ERPOP's long-term senior debt rating | A- | A3 | ||
| ERPOP's short-term commercial paper rating | A-2 | P-2 | ||
| EQR's long-term preferred equity rating | BBB | Baa1 |
See Note 18 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to December 31, 2023.
Inflation
Inflation primarily impacts our results of operations as a result of wage/payroll pressures, increases in utilities through escalation of commodity costs and increases in repair and maintenance costs through higher contractor costs. In addition, inflation could also impact the interest we pay on our floating rate debt and upon refinancing of fixed rate debt in a high-inflationary environment, our cost of capital and our cost of development, renovation and capital expenditure activities. However, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for inflationary effects by increasing rents on our apartment homes, subject to supply and demand conditions. Although an extreme or sustained escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this had a material impact on our results of operations for the years ended December 31, 2023, 2022 and 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.
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•
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.
•
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 $150-$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.
•
Non-Same Store Properties – For annual comparisons, primarily includes all properties acquired during 2022 and 2023, plus any properties in lease-up and not stabilized as of January 1, 2022.
•
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.
•
Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets.
•
Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting).
•
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, 2022, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.
•
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 2024 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.
•
Total Budgeted Capital Cost – Estimated remaining cost for projects under development and/or developed plus all capitalized costs incurred to date, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, plus any estimates of costs remaining to be funded for all projects, all in accordance with GAAP. Amounts for partially owned consolidated and unconsolidated properties are presented at 100% of the project.
•
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.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or different presentation of our financial statements.
The Company’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements. These policies were followed in preparing the consolidated financial statements at and for the year ended December 31, 2023.
The Company has identified the significant accounting policies below as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including its investment in real estate, for indicators of impairment at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal, regulatory and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted. Assessing impairment can be complex and involves a high degree of subjectivity in determining if indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset. In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions. Assumptions are primarily subject to property-specific characteristics, especially with respect to our intent and ability to hold the related asset. While these property-specific assumptions can have a significant impact on the undiscounted cash flows or estimated fair value of a particular asset, our evaluation of the reported carrying values of long-lived assets during the current year were not particularly sensitive to external or market assumptions.
Acquisition of Investment Properties
The Company allocates the purchase price of properties that meet the definition of an asset acquisition to net tangible and identified intangible assets acquired based on their relative fair values using assumptions primarily based upon property-specific characteristics. In making estimates of relative fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired or developed and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets/liabilities acquired.
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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 each of the three years ended December 31, 2023:
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | ||||||||||
| Net income | $ | 868,488 | $ | 806,995 | $ | 1,396,714 | ||||||
| Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties | (6,340 | ) | (3,774 | ) | (17,964 | ) | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Net income available to Common Shares and Units / Units | 859,058 | 800,131 | 1,375,660 | |||||||||
| Adjustments: | ||||||||||||
| Depreciation | 888,709 | 882,168 | 838,272 | |||||||||
| Depreciation – Non-real estate additions | (4,268 | ) | (4,306 | ) | (4,277 | ) | ||||||
| Depreciation – Partially Owned Properties | (2,130 | ) | (2,640 | ) | (3,673 | ) | ||||||
| Depreciation – Unconsolidated Properties | 2,860 | 2,898 | 2,487 | |||||||||
| Net (gain) loss on sales of unconsolidated entities - operating assets | — | (9 | ) | (1,304 | ) | |||||||
| Net (gain) loss on sales of real estate properties | (282,539 | ) | (304,325 | ) | (1,072,183 | ) | ||||||
| Noncontrolling Interests share of gain (loss) on sales of real estate properties | 2,336 | — | 15,650 | |||||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | 1,464,026 | 1,373,917 | 1,150,632 | |||||||||
| Adjustments: | ||||||||||||
| Impairment – non-operating real estate assets | — | — | 16,769 | |||||||||
| Write-off of pursuit costs | 3,647 | 4,780 | 6,526 | |||||||||
| Debt extinguishment and preferred share redemption (gains) losses | 1,143 | 4,664 | 744 | |||||||||
| Non-operating asset (gains) losses | (13,323 | ) | 2,368 | (22,283 | ) | |||||||
| Other miscellaneous items | 21,588 | (13,901 | ) | 8,976 | ||||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,477,081 | $ | 1,371,828 | $ | 1,161,364 | ||||||
| FFO (1) (3) | $ | 1,467,116 | $ | 1,377,007 | $ | 1,153,722 | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | $ | 1,464,026 | $ | 1,373,917 | $ | 1,150,632 | ||||||
| Normalized FFO (2) (3) | $ | 1,480,171 | $ | 1,374,918 | $ | 1,164,454 | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,477,081 | $ | 1,371,828 | $ | 1,161,364 |
(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 real estate 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.
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(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 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.
FY 2022 10-K MD&A
SEC filing source: 0000950170-23-003060.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the results of operations and financial condition of the Company and the Operating Partnership should be read in connection with the Consolidated Financial Statements and Notes thereto. Due to the Company’s ability to control the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary entity has been consolidated with the Company for financial reporting purposes, except for any unconsolidated properties/entities. Capitalized terms used herein and not defined are as defined elsewhere in this Annual Report on Form 10-K. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 7, 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. Additional factors that might cause such differences are discussed in Part I of this Annual Report on Form 10-K, particularly those under Item 1A, Risk Factors. Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report. 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.
Overview
See Item 1, Business, for discussion regarding the Company’s overview.
Business Objectives and Operating and Investing Strategies
See Item 1, Business, for discussion regarding the Company’s business objectives and operating and investing strategies.
COVID-19 Impact
The Company continues to monitor and respond to the ongoing effects of the COVID-19 pandemic. For additional details, see Item 1A, Risk Factors.
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Results of Operations
2021 and 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 years ended December 31, 2021 and 2022:
Portfolio Rollforward
($ in thousands)
| Properties | Apartment Units | Purchase Price | Acquisition Cap Rate | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12/31/2020 | 304 | 77,889 | ||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 13 | 3,533 | $ | 1,249,679 | 3.7 | % | ||||||||||
| Consolidated Rental Properties – Not Stabilized (1) | 4 | 1,214 | $ | 459,700 | 4.0 | % | ||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (14 | ) | (3,053 | ) | $ | (1,716,775 | ) | (3.7 | )% | |||||||
| Completed Developments – Consolidated | 3 | 824 | ||||||||||||||
| 12/31/2021 | 310 | 80,407 | ||||||||||||||
| Purchase Price | Acquisition Cap Rate | |||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 1 | 172 | $ | 113,000 | 3.5 | % | ||||||||||
| Unconsolidated Land Parcels (2) | — | — | $ | 56,886 | ||||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (3 | ) | (945 | ) | $ | (746,150 | ) | (3.4 | )% | |||||||
| Configuration Changes | — | (37 | ) | |||||||||||||
| 12/31/2022 | 308 | 79,597 |
(1)
The Company acquired four properties during the year ended December 31, 2021, one each in the Denver, Atlanta, Seattle and Dallas/Ft. Worth markets, that were in lease-up and are expected to stabilize in their second year of ownership at the combined Acquisition Cap Rate listed above.
(2)
The purchase price listed represents the total consideration for the closing of the respective joint ventures.
Acquisitions
•
The consolidated properties acquired in 2021 are located in the Atlanta (4), Austin (3), Boston, Dallas/Ft. Worth (4), Denver (3), Seattle and Washington, D.C. markets. The Atlanta, Austin and Dallas/Ft. Worth acquisitions marked the Company’s re-entry into these markets;
•
Approximately $1.4 billion, or 82.0% of all acquisition activity in 2021, was in expansion markets;
•
The Company funded the 2021 acquisitions by selling older assets located within established markets that no longer met our long-term investment criteria;
•
The consolidated property acquired in 2022 is located in the San Diego market; and
•
In 2022, the Company acquired its joint venture partner’s 25% interest in a 432-unit apartment property located in the Washington, D.C. market for $32.2 million, and the property is now wholly owned.
Dispositions
•
The consolidated properties disposed of in 2021 were located in the Los Angeles (6), New York, San Francisco (5), Seattle and Washington, D.C. markets and the sales generated an Unlevered IRR of 10.4%; and
•
The consolidated properties disposed of in 2022 were located in the New York (2) and Washington, D.C. markets and the sales generated an Unlevered IRR of 5.3%.
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Developments
•
The Company completed construction on three consolidated apartment properties during 2021, located in the San Francisco, Washington, D.C. and Boston markets, consisting of 824 apartment units totaling approximately $602.8 million of development costs;
•
The Company commenced construction on one consolidated and three unconsolidated apartment properties during 2021, located in the Denver (2), New York and Washington, D.C. markets, consisting of 1,241 apartment units totaling approximately $452.7 million of expected development costs;
•
The Company commenced construction on one consolidated and three unconsolidated apartment properties during 2022, located in the San Francisco and Dallas/Ft. Worth (3) markets, consisting of 1,278 apartment units totaling approximately $417.7 million of expected development costs;
•
The Company stabilized two consolidated apartment properties during 2022, located in the Washington, D.C. and Boston markets, consisting of 624 apartment units totaling approximately $482.1 million of development costs; and
•
The Company spent approximately $203.6 million during 2022, primarily for consolidated and unconsolidated development projects.
Investments in Unconsolidated Entities
•
The Company entered into six separate unconsolidated joint ventures during 2021 for the purpose of developing vacant land parcels in Texas (3), Colorado (2) and New York. The Company’s total investment in these six joint ventures was approximately $72.2 million and $150.4 million as of December 31, 2021 and 2022, respectively. Three of the projects are related to the Company’s joint venture development program with Toll, two of which commenced construction during the second and third quarters of 2022; and
•
The Company entered into three separate unconsolidated joint ventures during 2022 for the purpose of developing vacant land parcels in the Dallas/Ft. Worth and Boston (2) markets. The Company’s total investment in these three joint ventures was approximately $66.8 million as of December 31, 2022. One of the projects is related to the Company’s joint venture development program with Toll, which commenced construction during the first quarter of 2022 prior to our entrance into the joint venture.
See Notes 4 and 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate investments and investments in partially owned entities.
Comparison of the year ended December 31, 2022 to the year ended December 31, 2021
The following table presents a reconciliation of diluted earnings per share/unit for the year ended December 31, 2022 as compared to the same period in 2021:
| Year Ended December 31 | ||||
|---|---|---|---|---|
| Diluted earnings per share/unit for full year 2021 | $ | 3.54 | ||
| Property NOI | 0.60 | |||
| Interest expense | (0.02 | ) | ||
| Corporate overhead (1) | (0.03 | ) | ||
| Net gain/loss on property sales | (1.95 | ) | ||
| Non-operating asset gains/losses | (0.07 | ) | ||
| Impairment – non-operating real estate assets | 0.04 | |||
| Depreciation expense | (0.11 | ) | ||
| Other | 0.05 | |||
| Diluted earnings per share/unit for full year 2022 | $ | 2.05 |
(1)
Corporate overhead includes property management and general and administrative expenses.
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.
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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/other results (amounts in thousands):
| Year Ended December 31, | 2022 vs. 2021 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Operating income | $ | 1,116,046 | $ | 1,675,841 | $ | (559,795 | ) | (33.4 | )% | |||||||
| Adjustments: | ||||||||||||||||
| Property management | 110,304 | 98,155 | 12,149 | 12.4 | % | |||||||||||
| General and administrative | 58,710 | 56,506 | 2,204 | 3.9 | % | |||||||||||
| Depreciation | 882,168 | 838,272 | 43,896 | 5.2 | % | |||||||||||
| Net (gain) loss on sales of real estate properties | (304,325 | ) | (1,072,183 | ) | 767,858 | (71.6 | )% | |||||||||
| Impairment | — | 16,769 | (16,769 | ) | (100.0 | )% | ||||||||||
| Total NOI | $ | 1,862,903 | $ | 1,613,360 | $ | 249,543 | 15.5 | % | ||||||||
| Rental income: | ||||||||||||||||
| Same store | $ | 2,533,577 | $ | 2,291,604 | $ | 241,973 | 10.6 | % | ||||||||
| Non-same store/other | 201,603 | 172,393 | 29,210 | 16.9 | % | |||||||||||
| Total rental income | 2,735,180 | 2,463,997 | 271,183 | 11.0 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Same store | 802,291 | 774,504 | 27,787 | 3.6 | % | |||||||||||
| Non-same store/other | 69,986 | 76,133 | (6,147 | ) | (8.1 | )% | ||||||||||
| Total operating expenses | 872,277 | 850,637 | 21,640 | 2.5 | % | |||||||||||
| NOI: | ||||||||||||||||
| Same store | 1,731,286 | 1,517,100 | 214,186 | 14.1 | % | |||||||||||
| Non-same store/other | 131,617 | 96,260 | 35,357 | 36.7 | % | |||||||||||
| Total NOI | $ | 1,862,903 | $ | 1,613,360 | $ | 249,543 | 15.5 | % |
Note: See Note 17 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 and 2022 sold properties.
•
The increase in same store rental income is primarily driven by strong Physical Occupancy and continued growth in pricing.
•
The increase in same store operating expenses is due primarily to:
•
Utilities – A $13.9 million increase from gas and electric, primarily driven by higher commodity prices; and
•
Repairs and maintenance – A $9.8 million increase primarily driven by volume and timing of maintenance and repairs along with increases in minimum wage on contracted services.
•
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 $54.5 million and higher NOI from development properties in lease-up of $20.6 million, partially offset by a negative impact of lost NOI from 2021 and 2022 dispositions of $52.2 million and a negative impact of $1.2 million in lower NOI from one former master-leased property and two properties that have been removed from same store while undergoing major renovations.
•
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, favorable growth in real estate tax expense (increased by only $3.2 million) and declines in payroll expense (decreased by $3.1 million) primarily due to the Company's various innovation and centralization initiatives, leading to 14.1% same store NOI growth for the year ended December 31, 2022 as compared to the prior year period.
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 $12.1 million or 12.4% during the year ended December 31, 2022 as compared to 2021. This increase is primarily attributable to increases in payroll-related costs, training/conference costs, temporary help/contractors costs and third-party management fees.
General and administrative expenses, which include corporate operating expenses, increased approximately $2.2 million or 3.9% during the year ended December 31, 2022 as compared to 2021, 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 $43.9 million or 5.2% during the year ended December 31, 2022 as compared to 2021, 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 and 2022.
Net gain on sales of real estate properties decreased approximately $767.9 million or 71.6% during the year ended December 31, 2022 as compared to 2021, primarily as a result of a lower sales volume with the sale of three consolidated apartment properties in 2022 as compared to the sale of fourteen consolidated apartment properties in the same period in 2021.
Impairment decreased approximately $16.8 million during the year ended December 31, 2022 as compared to 2021, due to an impairment charge in 2021 on one land parcel held for development compared to no impairment charges taken during 2022.
Interest and other income decreased approximately $23.5 million or 91.5% during the year ended December 31, 2022 as compared to 2021. The decrease is primarily due to a gain of $23.6 million on the sale of various investment securities that occurred during 2021 but not during 2022.
Other expenses decreased approximately $5.6 million or 29.1% during the year ended December 31, 2022 as compared to 2021, primarily due to a decline in construction defect and litigation reserves and pursuit costs recorded between 2022 and 2021, partially offset by increases in advocacy contributions, demolition/abatement costs and data transformation project costs.
Interest expense, including amortization of deferred financing costs, increased approximately $10.4 million or 3.7% during the year ended December 31, 2022 as compared to 2021. The increase is primarily due to higher overall interest rates and lower capitalized interest. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the year ended December 31, 2022 was 3.68% as compared to 3.52% in 2021. The Company capitalized interest of approximately $7.1 million and $15.9 million during the years ended December 31, 2022 and 2021, respectively.
Net (income) loss attributable to Noncontrolling Interests in partially owned properties decreased approximately $14.2 million or 79.0% during the year ended December 31, 2022 as compared to 2021, primarily as a result of noncontrolling interest allocations related to the sale of one partially owned apartment property in 2021 as compared to no sales in 2022.
For comparison of the year ended December 31, 2021 to the year ended December 31, 2020, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021.
Same Store Results
Properties that the Company owned and were stabilized for all of both 2022 and 2021 (the “2022 Same Store Properties”), which represented 72,872 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.
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The following table provides comparative total same store results and statistics for the 2022 Same Store Properties:
2022 vs. 2021
Same Store Results/Statistics Including 72,872 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
| 2022 | 2021 | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Residential | % Change | Non- Residential | % Change | Total | % Change | Residential | Non- Residential | Total | ||||||||||||||||||||
| Revenues | $ | 2,441,522 | 10.7 | % | $ | 92,055 | 5.8 | % | $ | 2,533,577 | 10.6 | % | Revenues | $ | 2,204,625 | $ | 86,979 | $ | 2,291,604 | |||||||||
| Expenses | $ | 778,206 | 3.6 | % | $ | 24,085 | 3.6 | % | $ | 802,291 | 3.6 | % | Expenses | $ | 751,250 | $ | 23,254 | $ | 774,504 | |||||||||
| NOI | $ | 1,663,316 | 14.4 | % | $ | 67,970 | 6.7 | % | $ | 1,731,286 | 14.1 | % | NOI | $ | 1,453,375 | $ | 63,725 | $ | 1,517,100 | |||||||||
| Average Rental Rate | $ | 2,898 | 10.4 | % | Average Rental Rate | $ | 2,625 | |||||||||||||||||||||
| Physical Occupancy | 96.4 | % | 0.3 | % | Physical Occupancy | 96.1 | % | |||||||||||||||||||||
| Turnover | 42.8 | % | (1.9 | %) | Turnover | 44.7 | % |
Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
The following table provides results and statistics related to our Residential same store operations for the years ended December 31, 2022 and 2021:
2022 vs. 2021
Same Store Residential Results/Statistics by Market
| Increase (Decrease) from Prior Year | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Markets/Metro Areas | Apartment Units | 2022 % of Actual NOI | 2022 Average Rental Rate | 2022 Weighted Average Physical Occupancy % | 2022 Turnover | Average Rental Rate | Physical Occupancy | Turnover | ||||||||||||||||||||||||
| Los Angeles | 14,662 | 19.8 | % | $ | 2,733 | 96.6 | % | 38.4 | % | 9.0 | % | (0.2 | %) | (3.1 | %) | |||||||||||||||||
| Orange County | 4,028 | 5.8 | % | 2,614 | 97.0 | % | 34.5 | % | 12.8 | % | (0.7 | %) | (0.1 | %) | ||||||||||||||||||
| San Diego | 2,706 | 4.0 | % | 2,766 | 96.7 | % | 38.1 | % | 11.4 | % | (0.9 | %) | (5.0 | %) | ||||||||||||||||||
| Subtotal – Southern California | 21,396 | 29.6 | % | 2,715 | 96.7 | % | 37.6 | % | 10.0 | % | (0.4 | %) | (2.8 | %) | ||||||||||||||||||
| San Francisco | 11,368 | 17.4 | % | 3,152 | 96.1 | % | 41.5 | % | 8.3 | % | 0.9 | % | (6.5 | %) | ||||||||||||||||||
| Washington, D.C. | 14,187 | 16.2 | % | 2,456 | 96.8 | % | 43.1 | % | 5.5 | % | 0.3 | % | (2.2 | %) | ||||||||||||||||||
| New York | 8,536 | 13.5 | % | 4,068 | 96.9 | % | 42.4 | % | 17.6 | % | 1.8 | % | 4.2 | % | ||||||||||||||||||
| Seattle | 9,331 | 11.4 | % | 2,497 | 95.1 | % | 51.6 | % | 10.7 | % | (0.5 | %) | 0.7 | % | ||||||||||||||||||
| Boston | 6,430 | 10.0 | % | 3,208 | 96.2 | % | 45.3 | % | 11.2 | % | 0.5 | % | (1.8 | %) | ||||||||||||||||||
| Denver | 1,624 | 1.9 | % | 2,299 | 96.7 | % | 60.3 | % | 11.3 | % | 0.1 | % | 0.1 | % | ||||||||||||||||||
| Total | 72,872 | 100.0 | % | $ | 2,898 | 96.4 | % | 42.8 | % | 10.4 | % | 0.3 | % | (1.9 | %) |
Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.3% of total revenues for the year ended December 31, 2022.
Despite geopolitical and economic uncertainties, demand to live in our apartment communities remained healthy, which our financial results reflected, as we continued to capture the gap between in-place rent levels and market rent levels. Demand for our apartments continues to support strong Physical Occupancy with pricing that is largely in-line with expectations, including modest use of Leasing Concessions. Key operating drivers for this performance during 2022 include:
•
Pricing – Pricing (net of Leasing Concessions) in 2022 was strong, driven by continued improvement across the portfolio, especially in New York. After unprecedented growth earlier in the year, pricing began to moderate in late August 2022, which is typical, but slightly more pronounced than we had expected. Regardless, pricing remained positive during the fourth quarter of 2022 which is stronger than historical trends.
•
Physical Occupancy – Physical Occupancy of 96.4% for the year ended December 31, 2022 remained strong, contributing to growth in Same Store Residential Revenues.
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•
Percentage of Residents Renewing and Turnover – We continue to see a high Percentage of Residents Renewing in our portfolio, which we believe reflects both the strength of demand and quality of our product. The Percentage of Residents Renewing has been strong at 56.5% for the fourth quarter of 2022. Turnover has been the lowest in the Company’s history at 42.8% for the full year of 2022, reflecting a healthy and consistent trend of historically high resident retention.
In addition to these stronger fundamentals, bad debt, net moderated during the first half of 2022 with improvement in resident collections primarily driven by receipt of governmental rental assistance payments on behalf of our residents. Bad debt, net increased in the second half of 2022 primarily due to the governmental rental assistance programs winding down.
Transaction activity has slowed as buyers and sellers adjust their expectations to a volatile economic climate and rising interest rates. While this type of environment can be challenging, the Company has traditionally found investment opportunities during periods of market dislocation as our ability to move quickly and our relatively low cost of capital creates flexibility that can provide us a competitive advantage.
Overall, the fundamentals of our business remain strong. Long-term, we expect elevated single family home ownership costs, positive household formation trends and the overall deficit in housing across the country to buffer the impact on our business from the risks of potential economic weakness. We also see our affluent resident base as being more resilient to rising inflation due to higher levels of disposable income and lower relative rent-to-income ratios.
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.
Statements of Cash Flows
The following table sets forth our sources and uses of cash flows for the years ended December 31, 2022, 2021 and 2020 (amounts in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2020 | ||||||||||
| Cash flows provided by (used for): | ||||||||||||
| Operating activities | $ | 1,454,756 | $ | 1,260,184 | $ | 1,265,536 | ||||||
| Investing activities | $ | 107,792 | $ | (434,620 | ) | $ | 663,586 | |||||
| Financing activities | $ | (1,785,612 | ) | $ | (565,056 | ) | $ | (1,946,393 | ) |
The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the year ended December 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 year ended December 31, 2022 as compared to 2021, increased by approximately $194.6 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 and capital expenditures. For 2022, key drivers were:
•
Acquired one consolidated rental property for approximately $113.0 million in cash;
•
Disposed of three consolidated rental properties, receiving net proceeds of approximately $720.3 million;
•
Invested $109.3 million primarily in development projects;
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•
Invested $159.7 million primarily in unconsolidated development joint venture entities as well as unconsolidated investments in real estate technology funds/companies for various technology initiatives; and
•
Invested $221.1 million in capital expenditures to real estate presented in the table below.
For the year ended December 31, 2022, 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 Year Ended December 31, 2022
| Same Store Properties | Non-Same Store Properties/Other | Total | Same Store Avg. Per Apartment Unit | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Apartment Units | 72,872 | 6,725 | 79,597 | ||||||||||||
| Building Improvements | $ | 102,079 | $ | 16,335 | (2) | $ | 118,414 | $ | 1,401 | ||||||
| Renovation Expenditures | 43,197 | (1) | 6,730 | (2) | 49,927 | 592 | |||||||||
| Replacements | 49,834 | 2,911 | 52,745 | 684 | |||||||||||
| Total Capital Expenditures to Real Estate | $ | 195,110 | $ | 25,976 | $ | 221,086 | $ | 2,677 |
(1)
Renovation Expenditures – Amounts for 1,794 same store apartment units approximated $24,079 per apartment unit renovated.
(2)
Includes expenditures for two properties that have been removed from same store while undergoing major renovations requiring a significant number of apartment units to be vacated to accommodate the extensive planned improvements. The renovations are expected to continue through at least the end of 2023 at both properties.
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 2022, key drivers were:
•
Obtained $48.1 million in variable rate construction mortgage debt that is non-recourse to the Company;
•
Repaid $289.9 million of mortgage loans (inclusive of scheduled principal repayments);
•
Repaid $500.0 million of unsecured notes by using disposition proceeds;
•
Settled all 1.7 million Common Shares under the ATM forward sale agreements for cash proceeds of $139.6 million;
•
Acquired our joint venture partner’s 25% interest in an apartment property for $32.2 million;
•
Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $29.2 million; 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 $982.8 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.
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 December 31, 2022 and 2021 (amounts in thousands):
| December 31, 2022 | December 31, 2021 | ||||||
|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 53,869 | $ | 123,832 | |||
| Restricted deposits | $ | 83,303 | $ | 236,404 | |||
| Unsecured revolving credit facility availability | $ | 2,366,537 | $ | 2,181,372 |
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Credit Facility and Commercial Paper Program
The Company has a $2.5 billion unsecured revolving credit facility maturing October 26, 2027. 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 Secured Overnight Financing Rate ("SOFR") plus a spread (currently 0.725%), 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 Revolving Credit Agreement also contains a sustainability-linked pricing component which provides for interest rate margin reductions upon achieving certain sustainability ratings. See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of the Company’s credit facility.
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 February 10, 2023 (amounts in thousands):
| February 10, 2023 | ||||
|---|---|---|---|---|
| Unsecured revolving credit facility commitment | $ | 2,500,000 | ||
| Commercial paper balance outstanding | (130,000 | ) | ||
| Unsecured revolving credit facility balance outstanding | — | |||
| Other restricted amounts | (3,484 | ) | ||
| Unsecured revolving credit facility availability | $ | 2,366,516 |
Dividend Policy
The Company declared a dividend/distribution for each quarter in 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 January 2023 amounted to $244.6 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended December 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 $28.1 billion in investment in real estate on the Company’s balance sheet at December 31, 2022, $24.5 billion or 87.1% was unencumbered. However, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise. For additional details, see Item 1A, Risk Factors.
EQR issues equity and guarantees certain debt of the Operating Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
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The Company’s total debt summary schedule as of December 31, 2022 is as follows:
Debt Summary as of December 31, 2022
($ in thousands)
| Debt Balances | % of Total | |||||||
|---|---|---|---|---|---|---|---|---|
| Secured | $ | 1,953,438 | 26.3 | % | ||||
| Unsecured | 5,472,284 | 73.7 | % | |||||
| Total | $ | 7,425,722 | 100.0 | % | ||||
| Fixed Rate Debt: | ||||||||
| Secured – Conventional | $ | 1,608,838 | 21.7 | % | ||||
| Unsecured – Public | 5,342,329 | 71.9 | % | |||||
| Fixed Rate Debt | 6,951,167 | 93.6 | % | |||||
| Floating Rate Debt: | ||||||||
| Secured – Conventional | 108,378 | 1.4 | % | |||||
| Secured – Tax Exempt | 236,222 | 3.2 | % | |||||
| Unsecured – Revolving Credit Facility | — | — | ||||||
| Unsecured – Commercial Paper Program | 129,955 | 1.8 | % | |||||
| Floating Rate Debt | 474,555 | 6.4 | % | |||||
| Total | $ | 7,425,722 | 100.0 | % |
The following table summarizes the Company’s debt maturity schedule as of December 31, 2022:
Debt Maturity Schedule as of December 31, 2022
($ in thousands)
| Year | Fixed Rate | Floating Rate | Total | % of Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 (2) | $ | 800,000 | $ | 198,275 | (1) | $ | 998,275 | 13.3 | % | |||||||
| 2024 | — | 6,100 | 6,100 | 0.1 | % | |||||||||||
| 2025 | 450,000 | 53,180 | 503,180 | 6.7 | % | |||||||||||
| 2026 | 592,025 | 9,000 | 601,025 | 8.0 | % | |||||||||||
| 2027 | 400,000 | 9,800 | 409,800 | 5.5 | % | |||||||||||
| 2028 | 900,000 | 10,700 | 910,700 | 12.1 | % | |||||||||||
| 2029 | 888,120 | 11,500 | 899,620 | 12.0 | % | |||||||||||
| 2030 | 1,095,000 | 12,600 | 1,107,600 | 14.8 | % | |||||||||||
| 2031 | 528,500 | 39,700 | 568,200 | 7.6 | % | |||||||||||
| 2032 | — | 28,000 | 28,000 | 0.4 | % | |||||||||||
| 2033+ | 1,350,850 | 110,900 | 1,461,750 | 19.5 | % | |||||||||||
| Subtotal | 7,004,495 | 489,755 | 7,494,250 | 100.0 | % | |||||||||||
| Deferred Financing Costs and Unamortized (Discount) | (53,328 | ) | (15,200 | ) | (68,528 | ) | N/A | |||||||||
| Total | $ | 6,951,167 | $ | 474,555 | $ | 7,425,722 | 100.0 | % |
(1)
Includes $130.0 million in principal outstanding on the Company’s commercial paper program.
(2)
During 2022, the Company entered into $450.0 million of ten-year forward starting SOFR swaps at a weighted average rate of 2.90% (currently equivalent to a ten-year U.S. Treasury of approximately 3.23%) to hedge the U.S. Treasury risk for the refinancing of 2023 maturities.
Interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2022, inclusive of capitalized interest, approximates $210.0 million annually for the next five years, with total remaining obligations of approximately $2.3 billion. For floating rate debt, the current rate in effect for the most recent payment through December 31, 2022 is assumed to be in effect through the respective maturity date of each instrument.
See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at December 31, 2022. See also Notes 8 and 16 in the Notes to Consolidated Financial Statements for additional discussion of contractual obligations and commitments as of December 31, 2022.
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Capital Structure
The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2022 is presented in the following table. The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preferred shares outstanding.
Equity Residential
Capital Structure as of December 31, 2022
(Amounts in thousands except for share/unit and per share amounts)
| Secured Debt | $ | 1,953,438 | 26.3 | % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 5,472,284 | 73.7 | % | |||||||||||||||
| Total Debt | 7,425,722 | 100.0 | % | 24.3 | % | |||||||||||||
| Common Shares (includes Restricted Shares) | 378,429,708 | 96.8 | % | |||||||||||||||
| Units (includes OP Units and Restricted Units) | 12,429,737 | 3.2 | % | |||||||||||||||
| Total Shares and Units | 390,859,445 | 100.0 | % | |||||||||||||||
| Common Share Price at December 31, 2022 | $ | 59.00 | ||||||||||||||||
| 23,060,707 | 99.8 | % | ||||||||||||||||
| Perpetual Preferred Equity | 37,280 | 0.2 | % | |||||||||||||||
| Total Equity | 23,097,987 | 100.0 | % | 75.7 | % | |||||||||||||
| Total Market Capitalization | $ | 30,523,709 | 100.0 | % |
The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2022 is presented in the following table. The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preference units outstanding.
ERP Operating Limited Partnership
Capital Structure as of December 31, 2022
(Amounts in thousands except for unit and per unit amounts)
| Secured Debt | $ | 1,953,438 | 26.3 | % | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 5,472,284 | 73.7 | % | ||||||||||||||
| Total Debt | 7,425,722 | 100.0 | % | 24.3 | % | ||||||||||||
| Total Outstanding Units | 390,859,445 | ||||||||||||||||
| Common Share Price at December 31, 2022 | $ | 59.00 | |||||||||||||||
| 23,060,707 | 99.8 | % | |||||||||||||||
| Perpetual Preference Units | 37,280 | 0.2 | % | ||||||||||||||
| Total Equity | 23,097,987 | 100.0 | % | 75.7 | % | ||||||||||||
| Total Market Capitalization | $ | 30,523,709 | 100.0 | % |
Financial Flexibility
EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC in May 2022 and expires in May 2025. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).
The Company has an ATM share offering program which allows EQR to issue Common Shares from time to time into the existing trading market at current market prices or through negotiated transactions, including under forward sale arrangements. In May 2022, the Company replaced the prior program with a new program which extended the maturity to May 2025 and gives us the authority to issue up to 13.0 million shares, all of which remain available for issuance as of December 31, 2022.
Forward sale agreements under the ATM program allow the Company, at its election, to settle the agreements by issuing Common Shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the
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agreements in whole or in part through the delivery or receipt of Common Shares or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted net income per share using the treasury stock method (see Note 11 in the Notes to Consolidated Financial Statements for additional discussion). The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s Common Shares over the term of the forward sale agreement.
During the quarter ended September 30, 2021, the Company entered into forward sale agreements under the prior program for a total of approximately 1.7 million Common Shares at a weighted average initial forward price per share of $83.25. During the quarter ended December 31, 2022, the Company settled all of the outstanding forward sale agreements, at a weighted average forward price per share of $80.22, which is inclusive of adjustments made to reflect the then-current federal funds rate and the amount of dividends paid to holders of the Company's Common Shares, for net proceeds of approximately $139.6 million. Concurrent with this transaction, ERPOP issued the same amount of OP Units to EQR in exchange for the net proceeds.
The Company may repurchase up to 13.0 million Common Shares under its share repurchase program. No open market repurchases have occurred since 2008. As of February 10, 2023, EQR has remaining authorization to repurchase up to 13.0 million of its shares.
We believe our ability to access capital markets is enhanced by ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings. As of February 10, 2023, the ratings are as follows:
| Standard & Poor’s | Moody's | |||
|---|---|---|---|---|
| ERPOP's long-term senior debt rating | A- | A3 | ||
| ERPOP's short-term commercial paper rating | A-2 | P-2 | ||
| EQR's long-term preferred equity rating | BBB | Baa1 |
See Note 18 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to December 31, 2022.
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.
•
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.
•
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 $150-$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.
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•
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.
•
Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets.
•
Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting).
•
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.
•
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 2023 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.
•
Total Budgeted Capital Cost – Estimated remaining cost for projects under development and/or developed plus all capitalized costs incurred to date, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, plus any estimates of costs remaining to be funded for all projects, all in accordance with GAAP. Amounts for partially owned consolidated and unconsolidated properties are presented at 100% of the project.
•
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.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or different presentation of our financial statements.
The Company’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements. These policies were followed in preparing the consolidated financial statements at and for the year ended December 31, 2022.
The Company has identified the significant accounting policies below as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including its investment in real estate, for indicators of impairment at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal, regulatory and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted. Assessing impairment can be complex and involves a high degree of subjectivity in determining if indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset. In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions. Assumptions are primarily subject to property-specific characteristics, especially with respect to our intent and ability to hold the related asset. While these property-specific assumptions can have a significant impact on the undiscounted cash flows or estimated fair value of a particular asset, our evaluation of the reported carrying values of long-lived assets during the current year were not particularly sensitive to external or market assumptions.
Acquisition of Investment Properties
The Company allocates the purchase price of properties that meet the definition of an asset acquisition to net tangible and identified intangible assets acquired based on their relative fair values using assumptions primarily based upon property-specific characteristics. In making estimates of relative fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired or developed and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets/liabilities acquired.
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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 each of the three years ended December 31, 2022:
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2020 | ||||||||||
| Net income | $ | 806,995 | $ | 1,396,714 | $ | 962,501 | ||||||
| Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties | (3,774 | ) | (17,964 | ) | (14,855 | ) | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Net income available to Common Shares and Units / Units | 800,131 | 1,375,660 | 944,556 | |||||||||
| Adjustments: | ||||||||||||
| Depreciation | 882,168 | 838,272 | 820,832 | |||||||||
| Depreciation – Non-real estate additions | (4,306 | ) | (4,277 | ) | (4,564 | ) | ||||||
| Depreciation – Partially Owned Properties | (2,640 | ) | (3,673 | ) | (3,345 | ) | ||||||
| Depreciation – Unconsolidated Properties | 2,898 | 2,487 | 2,454 | |||||||||
| Net (gain) loss on sales of unconsolidated entities - operating assets | (9 | ) | (1,304 | ) | (1,636 | ) | ||||||
| Net (gain) loss on sales of real estate properties | (304,325 | ) | (1,072,183 | ) | (531,807 | ) | ||||||
| Noncontrolling Interests share of gain (loss) on sales of real estate properties | — | 15,650 | 11,655 | |||||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | 1,373,917 | 1,150,632 | 1,238,145 | |||||||||
| Adjustments: | ||||||||||||
| Impairment – non-operating real estate assets | — | 16,769 | — | |||||||||
| Write-off of pursuit costs | 4,780 | 6,526 | 6,869 | |||||||||
| Debt extinguishment and preferred share redemption (gains) losses | 4,664 | 744 | 39,292 | |||||||||
| Non-operating asset (gains) losses | 2,368 | (22,283 | ) | (32,590 | ) | |||||||
| Other miscellaneous items | (13,901 | ) | 8,976 | 4,652 | ||||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,371,828 | $ | 1,161,364 | $ | 1,256,368 | ||||||
| FFO (1) (3) | $ | 1,377,007 | $ | 1,153,722 | $ | 1,241,235 | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | $ | 1,373,917 | $ | 1,150,632 | $ | 1,238,145 | ||||||
| Normalized FFO (2) (3) | $ | 1,374,918 | $ | 1,164,454 | $ | 1,259,458 | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,371,828 | $ | 1,161,364 | $ | 1,256,368 |
(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 real estate 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.
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(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 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.
FY 2021 10-K MD&A
SEC filing source: 0001564590-22-005566.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the results of operations and financial condition of the Company and the Operating Partnership should be read in connection with the Consolidated Financial Statements and Notes thereto. Due to the Company’s ability to control the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary entity has been consolidated with the Company for financial reporting purposes, except for any unconsolidated properties/entities. Capitalized terms used herein and not defined are as defined elsewhere in this Annual Report on Form 10-K. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 7, 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 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 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 this Annual Report on Form 10-K, particularly those under Item 1A, Risk Factors.
Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report.
Overview
See Item 1, Business, for discussion regarding the Company’s overview.
Business Objectives and Operating and Investing Strategies
See Item 1, Business, for discussion regarding the Company’s business objectives and operating and investing strategies.
COVID-19 Impact
The Company continues to monitor and respond to the ongoing effects of the COVID-19 pandemic. Its duration, severity and the extent of its adverse health impact on the general population, our residents and employees, along with the distribution, effectiveness and acceptance of vaccines and testing and pace and degree of recovery from the pandemic are among the many unknowns that have had or could continue to have a significant impact on the Company. These, among other items, have impacted the economy, the unemployment rate and our operations and could materially affect our future consolidated results of operations, financial condition, liquidity, investments and overall performance. Despite the impact of COVID-19, we continue to believe that the long-term prospects for our business remain strong. For additional details, see Item 1A, Risk Factors.
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Results of Operations
2020 and 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 years ended December 31, 2020 and 2021:
Portfolio Rollforward
($ in thousands)
| Properties | Apartment Units | Purchase Price | Acquisition Cap Rate | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12/31/2019 | 309 | 79,962 | ||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties – Not Stabilized (1) | 1 | 158 | $ | 48,860 | 4.7 | % | ||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (6 | ) | (2,231 | ) | $ | (1,066,861 | ) | (4.5 | )% | |||||||
| 12/31/2020 | 304 | 77,889 | ||||||||||||||
| Purchase Price | Acquisition Cap Rate | |||||||||||||||
| Acquisitions: | ||||||||||||||||
| Consolidated Rental Properties | 13 | 3,533 | $ | 1,249,679 | 3.7 | % | ||||||||||
| Consolidated Rental Properties – Not Stabilized (2) | 4 | 1,214 | $ | 459,700 | 4.0 | % | ||||||||||
| Sales Price | Disposition Yield | |||||||||||||||
| Dispositions: | ||||||||||||||||
| Consolidated Rental Properties | (14 | ) | (3,053 | ) | $ | (1,716,775 | ) | (3.7 | )% | |||||||
| Completed Developments – Consolidated | 3 | 824 | ||||||||||||||
| 12/31/2021 | 310 | 80,407 |
| Column 1 | Column 2 |
|---|---|
| (1) | The Company acquired one property during the year ended December 31, 2020 in the Seattle market that was in lease-up and is expected to stabilize in its second year of ownership. |
| Column 1 | Column 2 |
|---|---|
| (2) | The Company acquired four properties during the year ended December 31, 2021, one each in the Denver, Atlanta, Seattle and Dallas/Ft. Worth 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. |
Acquisitions
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The consolidated property acquired in 2020 was located in the Seattle market; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The consolidated properties acquired in 2021 are located in the Atlanta (4), Austin (3), Boston, Dallas/Ft. Worth (4), Denver (3), Seattle and Washington D.C. markets. The Atlanta, Austin and Dallas/Ft. Worth acquisitions marked the Company’s re-entry into these markets; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Approximately $1.4 billion, or 82.0% of all acquisition activity in 2021, was in expansion markets; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The Company funded the 2021 acquisitions by selling older assets located within established markets that no longer met our long-term investment criteria. |
Dispositions
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The consolidated properties disposed of in 2020 were located in the Phoenix, San Diego, San Francisco (3) and Washington D.C. markets and the sales generated an Unlevered IRR of 10.2%; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The consolidated properties disposed of in 2021 were located in the Los Angeles (6), New York, San Francisco (5), Seattle and Washington D.C. markets and the sales generated an Unlevered IRR of 10.4%. |
Developments
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The Company completed construction on three consolidated apartment properties during 2021, located in the San Francisco, Washington D.C. and Boston markets, consisting of 824 apartment units totaling approximately $602.8 million of development costs; and |
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| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The Company commenced construction on one consolidated and three unconsolidated apartment properties during 2021, located in the Denver (2), New York and Washington D.C. markets, consisting of 1,241 apartment units totaling approximately $452.7 million of expected development costs. |
Investments in Unconsolidated Entities
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The Company entered into six separate unconsolidated joint ventures during 2021 for the purpose of developing vacant land parcels in Texas (3), Colorado (2) and New York. The Company’s total investment in these six joint ventures is approximately $72.2 million as of December 31, 2021. Three of the projects are related to the Company’s joint venture development program with Toll Brothers, Inc. (“Toll”) discussed below; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Pursuant to our strategic partnership with Toll, the Company and Toll entered into three separate joint venture agreements during 2021. The projects have not yet started but are expected to do so in 2022. Toll will act as managing member of each project overseeing approvals, design and construction. See Notes 6 and 16 in the Notes to Consolidated Financial Statements for additional discussion. |
See Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.
Future Outlook
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | The Company’s guidance assumes consolidated rental acquisitions of approximately $2.0 billion and consolidated rental dispositions of approximately $2.0 billion during the year ending December 31, 2022; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | We currently anticipate spending approximately $200.0 million on development costs during the year ending December 31, 2022, primarily for consolidated and unconsolidated properties currently under construction (amount only includes our share of development costs). |
The above 2022 guidance assumptions are based on current expectations and are forward-looking.
Comparison of the year ended December 31, 2021 to the year ended December 31, 2020
The following table presents a reconciliation of diluted earnings per share/unit for the year ended December 31, 2021 as compared to the same period in 2020:
| Year Ended December 31 | ||||
|---|---|---|---|---|
| Diluted earnings per share/unit for full year 2020 | $ | 2.45 | ||
| Property NOI | (0.35 | ) | ||
| Interest expense | 0.14 | |||
| Debt extinguishment costs | 0.10 | |||
| Corporate overhead (1) | (0.03 | ) | ||
| Net gain/loss on property sales | 1.38 | |||
| Non-operating asset gains/losses | (0.02 | ) | ||
| Impairment – non-operating assets | (0.04 | ) | ||
| Depreciation expense | (0.04 | ) | ||
| Other | (0.05 | ) | ||
| Diluted earnings per share/unit for full year 2021 | $ | 3.54 |
| Column 1 | Column 2 |
|---|---|
| (1) | Corporate overhead includes property management and general and administrative expenses. |
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.
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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):
| Year Ended December 31, | 2021 vs. 2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | $ Change | % Change | |||||||||||||
| Operating income | $ | 1,675,841 | $ | 1,317,990 | $ | 357,851 | 27.2 | % | ||||||||
| Adjustments: | ||||||||||||||||
| Property management | 98,155 | 93,825 | 4,330 | 4.6 | % | |||||||||||
| General and administrative | 56,506 | 48,305 | 8,201 | 17.0 | % | |||||||||||
| Depreciation | 838,272 | 820,832 | 17,440 | 2.1 | % | |||||||||||
| Net (gain) loss on sales of real estate properties | (1,072,183 | ) | (531,807 | ) | (540,376 | ) | 101.6 | % | ||||||||
| Impairment | 16,769 | — | 16,769 | — | ||||||||||||
| Total NOI | $ | 1,613,360 | $ | 1,749,145 | $ | (135,785 | ) | (7.8 | )% | |||||||
| Rental income: | ||||||||||||||||
| Same store | $ | 2,342,257 | $ | 2,425,025 | $ | (82,768 | ) | (3.4 | )% | |||||||
| Non-same store/other | 121,740 | 146,680 | (24,940 | ) | (17.0 | )% | ||||||||||
| Total rental income | 2,463,997 | 2,571,705 | (107,708 | ) | (4.2 | )% | ||||||||||
| Operating expenses: | ||||||||||||||||
| Same store | 803,995 | 780,381 | 23,614 | 3.0 | % | |||||||||||
| Non-same store/other | 46,642 | 42,179 | 4,463 | 10.6 | % | |||||||||||
| Total operating expenses | 850,637 | 822,560 | 28,077 | 3.4 | % | |||||||||||
| NOI: | ||||||||||||||||
| Same store | 1,538,262 | 1,644,644 | (106,382 | ) | (6.5 | )% | ||||||||||
| Non-same store/other | 75,098 | 104,501 | (29,403 | ) | (28.1 | )% | ||||||||||
| Total NOI | $ | 1,613,360 | $ | 1,749,145 | $ | (135,785 | ) | (7.8 | )% |
Note: See Note 17 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 2020 and 2021, operations from the Company’s development properties and operations prior to disposition from 2020 and 2021 sold properties.
| Column 1 | Column 2 |
|---|---|
| • | The decrease in same store rental income is due primarily to the negative cumulative impact of leasing activity at lower Average Rental Rates, particularly in late 2020 and early 2021. |
| Column 1 | Column 2 |
|---|---|
| • | The increase in same store operating expenses is due primarily to: |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Utilities – A $10.2 million increase due to water, sewer and trash charges (approximately 65% of total) increasing as a result of both higher usage and rate, as well as increases in natural gas and electric charges (approximately 35% of total) due to higher commodity prices; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Real estate taxes – A $5.2 million increase due to modest rate growth, partially offset by reduced assessed values in certain locations; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Repairs and maintenance – A $5.2 million increase primarily driven by low comparable period expense growth due to the pandemic along with increases in minimum wage on contract services and maintenance repairs in 2021. |
| Column 1 | Column 2 |
|---|---|
| • | The decrease in non-same store/other NOI is due primarily to a negative impact of lost NOI from 2020 and 2021 dispositions of $50.2 million, partially offset by a positive impact of higher NOI from non-stabilized properties acquired between 2019 and 2021 of $21.1 million. |
| Column 1 | Column 2 |
|---|---|
| • | The decrease in consolidated total 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. |
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 $4.3 million or 4.6% during the year ended December 31, 2021 as compared to 2020. This increase is 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. The expenses in 2020 were lower than normal due to the impact of COVID-19.
General and administrative expenses, which include corporate operating expenses, increased approximately $8.2 million or 17.0% during the year ended December 31, 2021 as compared to 2020, 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 2020 were lower than normal due to the impact of COVID-19.
Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $17.4 million or 2.1% during the year ended December 31, 2021 as compared to 2020, primarily as a result of additional depreciation expense on properties acquired in 2020 and 2021 and development properties placed in service during 2021, partially offset by 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.
Net gain on sales of real estate properties increased approximately $540.4 million or 101.6% during the year ended December 31, 2021 as compared to 2020, primarily as a result of a higher sales volume with the sale of fourteen consolidated apartment properties in 2021 as compared to the sale of six consolidated apartment properties in the same period in 2020.
Impairment increased approximately $16.8 million during the year ended December 31, 2021 as compared to 2020, due to an impairment charge in 2021 on one land parcel held for development compared to no impairment charges taken during 2020.
Interest and other income increased approximately $19.7 million during the year ended December 31, 2021 as compared to 2020. 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 $1.8 million or 10.1% during the year ended December 31, 2021 as compared to 2020, primarily due to an increase in various litigation and environmental reserves/settlements and an increase in ground lease finance charges, partially offset by a decrease in advocacy contributions.
Interest expense, including amortization of deferred financing costs, decreased approximately $92.8 million or 24.8% during the year ended December 31, 2021 as compared to 2020. The decrease is primarily due to lower debt extinguishment costs as well as lower overall interest rates and debt balances in 2021 as compared to 2020. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the year ended December 31, 2021 was 3.52% as compared to 3.94% in 2020. The Company capitalized interest of approximately $15.9 million and $10.2 million during the years ended December 31, 2021 and 2020, respectively.
Net gain on sales of land parcels decreased approximately $34.2 million during the year ended December 31, 2021 as compared to 2020, primarily as a result of the sale of two land parcels in 2020 as compared to no sales in 2021.
Net (income) loss attributable to Noncontrolling Interests in partially owned properties increased approximately $3.1 million or 20.9% during the year ended December 31, 2021 as compared to 2020, primarily as a result of higher noncontrolling interest allocations from higher gains on the sale of one partially owned apartment property in 2021 as compared to the sale of one partially owned apartment property in 2020.
For comparison of the year ended December 31, 2020 to the year ended December 31, 2019, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020.
Same Store Results
Properties that the Company owned and were stabilized for all of both 2021 and 2020 (the “2021 Same Store Properties”), which represented 74,077 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.
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The following table provides comparative total same store results and statistics for the 2021 Same Store Properties:
2021 vs. 2020
Same Store Results/Statistics Including 74,077 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Residential | % Change | Non- Residential | % Change | Total | % Change | Residential | Non- Residential | Total | |||||||||||||||||||||||||||||
| Revenues | $ | 2,253,068 | (4.6 | %) | $ | 89,189 | (1) | 40.1 | % | $ | 2,342,257 | (3.4 | %) | Revenues | $ | 2,361,359 | $ | 63,666 | $ | 2,425,025 | |||||||||||||||||
| Expenses | $ | 779,729 | 2.8 | % | $ | 24,266 | 9.7 | % | $ | 803,995 | 3.0 | % | Expenses | $ | 758,257 | $ | 22,124 | $ | 780,381 | ||||||||||||||||||
| NOI | $ | 1,473,339 | (8.1 | %) | $ | 64,923 | 56.3 | % | $ | 1,538,262 | (6.5 | %) | NOI | $ | 1,603,102 | $ | 41,542 | $ | 1,644,644 | ||||||||||||||||||
| Average Rental Rate | $ | 2,640 | (5.6 | %) | Average Rental Rate | $ | 2,797 | ||||||||||||||||||||||||||||||
| Physical Occupancy | 96.1 | % | 1.1 | % | Physical Occupancy | 95.0 | % | ||||||||||||||||||||||||||||||
| Turnover | 44.4 | % | (8.5 | %) | Turnover | 52.9 | % |
Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
| Column 1 | Column 2 |
|---|---|
| (1) | Changes in same store Non-Residential revenues are primarily driven by the write-off of Non-Residential straight-line lease receivables in 2020 and lower bad debt in 2021. |
The following table provides results and statistics related to our Residential same store operations for the years ended December 31, 2021 and 2020:
2021 vs. 2020
Same Store Residential Results/Statistics by Market
| Increase (Decrease) from Prior Year | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Markets/Metro Areas | Apartment Units | 2021 % of Actual NOI | 2021 Average Rental Rate | 2021 Weighted Average Physical Occupancy % | 2021 Turnover | Average Rental Rate | Physical Occupancy | Turnover | ||||||||||||||||||||||||
| Los Angeles | 15,259 | 20.5 | % | $ | 2,501 | 96.6 | % | 41.5 | % | (0.7 | %) | 1.0 | % | (10.4 | %) | |||||||||||||||||
| Orange County | 4,028 | 5.7 | % | 2,318 | 97.7 | % | 34.6 | % | 2.9 | % | 1.0 | % | (10.7 | %) | ||||||||||||||||||
| San Diego | 2,706 | 4.1 | % | 2,484 | 97.6 | % | 43.1 | % | 4.6 | % | 0.6 | % | (5.9 | %) | ||||||||||||||||||
| Subtotal – Southern California | 21,993 | 30.3 | % | 2,465 | 96.9 | % | 40.4 | % | 0.5 | % | 0.9 | % | (9.9 | %) | ||||||||||||||||||
| San Francisco | 11,630 | 18.0 | % | 2,900 | 95.1 | % | 48.2 | % | (11.3 | %) | 0.6 | % | (8.7 | %) | ||||||||||||||||||
| Washington D.C. | 14,322 | 17.5 | % | 2,332 | 96.5 | % | 45.3 | % | (4.3 | %) | 0.9 | % | (5.0 | %) | ||||||||||||||||||
| New York | 9,343 | 12.1 | % | 3,497 | 95.2 | % | 37.5 | % | (9.6 | %) | 2.4 | % | (13.8 | %) | ||||||||||||||||||
| Seattle | 8,819 | 10.6 | % | 2,274 | 95.6 | % | 50.6 | % | (7.1 | %) | 0.2 | % | (4.0 | %) | ||||||||||||||||||
| Boston | 6,346 | 9.6 | % | 2,883 | 95.7 | % | 47.0 | % | (7.0 | %) | 1.5 | % | (9.3 | %) | ||||||||||||||||||
| Denver | 1,624 | 1.9 | % | 2,066 | 96.6 | % | 60.2 | % | 1.4 | % | 1.7 | % | (9.8 | %) | ||||||||||||||||||
| Total | 74,077 | 100.0 | % | $ | 2,640 | 96.1 | % | 44.4 | % | (5.6 | %) | 1.1 | % | (8.5 | %) |
Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.1% of total revenues for the year ended December 31, 2021.
Despite the significant impact from the pandemic on our business, which is reflected in the results for the year ended December 31, 2021, a strong recovery continues across our portfolio. Robust economic growth coupled with reopening of cities drove our operations to recover rapidly with significant demand for our apartments in all of 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 during 2021 include:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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. Monthly Residential Leasing Concessions granted have also declined significantly from their peak of $6.1 million per month in February 2021 and have now returned to more normalized pre-pandemic levels. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Physical Occupancy – Physical Occupancy was 96.6% for the fourth quarter of 2021 and remained strong for the year ended December 31, 2021 at 96.1%. |
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| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Percentage of Residents Renewing and Turnover – Our strategy of focusing on resident renewals continued to deliver strong results. We reported the lowest Turnover in our history for both the fourth quarter of 2021 (9.4%) and the full year of 2021 (44.4%), which we believe reaffirms the demand and desirability for our product. Results have been positive to date as the Percentage of Residents Renewing continues to improve with the fourth quarter of 2021 above 60%, which is higher than 2019 levels. |
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 year ended December 31, 2021, the Company received governmental rental assistance payments paid on behalf of residents of approximately $34.7 million with approximately $16.3 million of that received in the fourth quarter of 2021. Despite receipt of these payments, our reserves and bad debt remained elevated in 2021. Our bad debt allowance policies remain consistent with those in place before the pandemic.
Liquidity and Capital Resources
With approximately $2.2 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.
Statements of Cash Flows
The following table sets forth our sources and uses of cash flows for the years ended December 31, 2021, 2020 and 2019 (amounts in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||
| Cash flow provided by (used for): | ||||||||||||
| Operating activities | $ | 1,260,184 | $ | 1,265,536 | $ | 1,456,984 | ||||||
| Investing activities | $ | (434,620 | ) | $ | 663,586 | $ | (771,824 | ) | ||||
| Financing activities | $ | (565,056 | ) | $ | (1,946,393 | ) | $ | (684,474 | ) |
The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the year ended December 31, 2021.
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 year ended December 31, 2021 as compared to 2020, declined by approximately $5.4 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 and capital expenditures. For 2021, key drivers were:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Acquired seventeen consolidated rental properties for approximately $1.7 billion in cash; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Disposed of fourteen consolidated rental properties, receiving net proceeds of approximately $1.7 billion; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Invested in six separate unconsolidated development joint ventures for approximately $48.5 million in cash; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Invested $206.4 million primarily in development projects; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Purchased $168.3 million of various investment securities and other investments; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Sold various investment securities, receiving net proceeds of $191.4 million; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Invested $151.0 million in capital expenditures to real estate presented in the table below. |
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For the year ended December 31, 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 Year Ended December 31, 2021
| Same Store Properties | Non-Same Store Properties/Other | Total | Same Store Avg. Per Apartment Unit | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Apartment Units | 74,077 | 6,330 | 80,407 | ||||||||||||
| Building Improvements | $ | 87,456 | $ | 1,570 | $ | 89,026 | $ | 1,181 | |||||||
| Renovation Expenditures (1) | 28,558 | 297 | 28,855 | 385 | |||||||||||
| Replacements | 31,374 | 1,764 | 33,138 | 424 | |||||||||||
| Total Capital Expenditures to Real Estate | $ | 147,388 | $ | 3,631 | $ | 151,019 | $ | 1,990 |
| Column 1 | Column 2 |
|---|---|
| (1) | Renovation Expenditures – Amounts for 1,347 same store apartment units approximated $21,201 per apartment unit renovated. |
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. In 2021, key drivers were:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Obtained $28.5 million in 3.58% fixed rate mortgage debt maturing on March 1, 2031; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Obtained $29.9 million in variable rate construction mortgage debt that is non-recourse to the Company maturing on June 25, 2022; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Issued $500.0 million of ten-year 1.85% unsecured notes due 2031, receiving net proceeds of approximately $497.5 million before underwriting fees and other expenses. This was the Company’s second ever green bond offering; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Repaid $164.3 million of mortgage loans (inclusive of scheduled principal repayments); |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $89.7 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 |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Paid dividends/distributions on Common Shares, Preferred Shares, Units (including OP Units and restricted units) and noncontrolling interests in partially owned properties totaling approximately $940.7 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.
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 December 31, 2021 and 2020 (amounts in thousands):
| December 31, 2021 | December 31, 2020 | ||||||
|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 123,832 | $ | 42,591 | |||
| Restricted deposits | $ | 236,404 | $ | 57,137 | |||
| Unsecured revolving credit facility availability | $ | 2,181,372 | $ | 1,984,051 |
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
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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. See Item 7A for additional information with respect to the LIBOR transition.
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 February 11, 2022 (amounts in thousands):
| February 11, 2022 | ||||
|---|---|---|---|---|
| Unsecured revolving credit facility commitment | $ | 2,500,000 | ||
| Commercial paper balance outstanding | (300,000 | ) | ||
| Unsecured revolving credit facility balance outstanding | — | |||
| Other restricted amounts | (3,507 | ) | ||
| Unsecured revolving credit facility availability | $ | 2,196,493 |
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 each quarter in 2021 of $0.6025 per share/unit, 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 January 2022 amounted to $233.5 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended December 31, 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 $28.3 billion in investment in real estate on the Company’s balance sheet at December 31, 2021, $24.5 billion or 86.7% was unencumbered. However, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise.
EQR issues equity and guarantees certain debt of the Operating Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
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The Company’s total debt summary schedule as of December 31, 2021 is as follows:
Debt Summary as of December 31, 2021
($ in thousands)
| Debt Balances | % of Total | |||||||
|---|---|---|---|---|---|---|---|---|
| Secured | $ | 2,191,201 | 26.3 | % | ||||
| Unsecured | 6,150,252 | 73.7 | % | |||||
| Total | $ | 8,341,453 | 100.0 | % | ||||
| Fixed Rate Debt: | ||||||||
| Secured – Conventional | $ | 1,896,472 | 22.8 | % | ||||
| Unsecured – Public | 5,835,222 | 69.9 | % | |||||
| Fixed Rate Debt | 7,731,694 | 92.7 | % | |||||
| Floating Rate Debt: | ||||||||
| Secured – Conventional | 59,890 | 0.7 | % | |||||
| Secured – Tax Exempt | 234,839 | 2.8 | % | |||||
| Unsecured – Revolving Credit Facility | — | — | ||||||
| Unsecured – Commercial Paper Program | 315,030 | 3.8 | % | |||||
| Floating Rate Debt | 609,759 | 7.3 | % | |||||
| Total | $ | 8,341,453 | 100.0 | % |
The following table summarizes the Company’s debt maturity schedule as of December 31, 2021:
Debt Maturity Schedule as of December 31, 2021
($ in thousands)
| Year | Fixed Rate | Floating Rate | Total | % of Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | $ | 264,185 | $ | 376,904 | (1) | $ | 641,089 | 7.6 | % | |||||||
| 2023 | 1,325,588 | 3,500 | 1,329,088 | 15.8 | % | |||||||||||
| 2024 | — | 6,100 | 6,100 | 0.1 | % | |||||||||||
| 2025 | 450,000 | 8,200 | 458,200 | 5.4 | % | |||||||||||
| 2026 | 592,025 | 9,000 | 601,025 | 7.1 | % | |||||||||||
| 2027 | 400,000 | 9,800 | 409,800 | 4.9 | % | |||||||||||
| 2028 | 900,000 | 10,700 | 910,700 | 10.8 | % | |||||||||||
| 2029 | 888,120 | 11,500 | 899,620 | 10.7 | % | |||||||||||
| 2030 | 1,095,000 | 12,600 | 1,107,600 | 13.2 | % | |||||||||||
| 2031 | 528,500 | 39,700 | 568,200 | 6.7 | % | |||||||||||
| 2032+ | 1,350,850 | 138,900 | 1,489,750 | 17.7 | % | |||||||||||
| Subtotal | 7,794,268 | 626,904 | 8,421,172 | 100.0 | % | |||||||||||
| Deferred Financing Costs and Unamortized (Discount) | (62,574 | ) | (17,145 | ) | (79,719 | ) | N/A | |||||||||
| Total | $ | 7,731,694 | $ | 609,759 | $ | 8,341,453 | 100.0 | % |
| Column 1 | Column 2 |
|---|---|
| (1) | Includes $315.1 million in principal outstanding on the Company’s commercial paper program. |
Interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2021, inclusive of capitalized interest, approximates $225.0 million annually for the next five years, with total remaining obligations of approximately $2.5 billion. For floating rate debt, the current rate in effect for the most recent payment through December 31, 2021 is assumed to be in effect through the respective maturity date of each instrument.
See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at December 31, 2021. See also Notes 8 and 16 in the Notes to Consolidated Financial Statements for additional discussion of contractual obligations and commitments as of December 31, 2021.
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Capital Structure
The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2021 is presented in the following table. The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preferred shares outstanding.
Equity Residential
Capital Structure as of December 31, 2021
(Amounts in thousands except for share/unit and per share amounts)
| Secured Debt | $ | 2,191,201 | 26.3 | % | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 6,150,252 | 73.7 | % | |||||||||||||||||
| Total Debt | 8,341,453 | 100.0 | % | 19.2 | % | |||||||||||||||
| Common Shares (includes Restricted Shares) | 375,527,195 | 96.7 | % | |||||||||||||||||
| Units (includes OP Units and Restricted Units) | 12,659,027 | 3.3 | % | |||||||||||||||||
| Total Shares and Units | 388,186,222 | 100.0 | % | |||||||||||||||||
| Common Share Price at December 31, 2021 | $ | 90.50 | ||||||||||||||||||
| 35,130,853 | 99.9 | % | ||||||||||||||||||
| Perpetual Preferred Equity | 37,280 | 0.1 | % | |||||||||||||||||
| Total Equity | 35,168,133 | 100.0 | % | 80.8 | % | |||||||||||||||
| Total Market Capitalization | $ | 43,509,586 | 100.0 | % |
The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2021 is presented in the following table. The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preference units outstanding.
ERP Operating Limited Partnership
Capital Structure as of December 31, 2021
(Amounts in thousands except for unit and per unit amounts)
| Secured Debt | $ | 2,191,201 | 26.3 | % | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsecured Debt | 6,150,252 | 73.7 | % | |||||||||||||||
| Total Debt | 8,341,453 | 100.0 | % | 19.2 | % | |||||||||||||
| Total Outstanding Units | 388,186,222 | |||||||||||||||||
| Common Share Price at December 31, 2021 | $ | 90.50 | ||||||||||||||||
| 35,130,853 | 99.9 | % | ||||||||||||||||
| Perpetual Preference Units | 37,280 | 0.1 | % | |||||||||||||||
| Total Equity | 35,168,133 | 100.0 | % | 80.8 | % | |||||||||||||
| Total Market Capitalization | $ | 43,509,586 | 100.0 | % |
Financial Flexibility
EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC in June 2019 and expires in June 2022. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).
The Company has an At-The-Market (“ATM”) share offering program which allows EQR to issue Common Shares from time to time into the existing trading market at current market prices or through negotiated transactions, including under forward sale arrangements. The current program matures in June 2022 and gives EQR the authority to issue up to 13.0 million shares, all of which remain outstanding as of December 31, 2021, pending the settlement of the outstanding forward sale agreements. These forward sale agreements allow the Company, at its election, to settle the agreements by issuing Common Shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the agreements in whole or in part through the delivery or receipt of Common Shares or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements
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until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted net income per share using the treasury stock method (see Note 11 in the Notes to Consolidated Financial Statements for additional discussion). The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s Common Shares over the term of the forward sale agreement.
As of February 11, 2022, the Company had entered into such forward sale agreements under this program for a total of approximately 1.7 million Common Shares at a weighted average initial forward price per share of $83.25. As of February 11, 2022, no shares under the forward sale agreements had been settled. These forward sale agreements must be settled by March 2023.
The Company may repurchase up to 13.0 million Common Shares under its share repurchase program. No open market repurchases have occurred since 2008, and no repurchases of any kind have occurred since February 2014. As of February 11, 2022, EQR has remaining authorization to repurchase up to 13.0 million of its shares.
We believe our ability to access capital markets is enhanced by ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings. As of February 11, 2022, the ratings are as follows:
| Standard & Poor’s | Moody's | |||
|---|---|---|---|---|
| ERPOP's long-term senior debt rating | A- | A3 | ||
| ERPOP's short-term commercial paper rating | A-2 | P-2 | ||
| EQR's long-term preferred equity rating | BBB | Baa1 |
See Note 18 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to December 31, 2021.
Definitions
The definition of certain terms described above or below are as follows:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Leasing Concessions – Reflects upfront discounts on both new move-in and renewal leases on a straight-line basis. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Non-Residential – Consists of revenues and expenses from retail and public parking garage operations. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Non-Same Store Properties – For annual comparisons, primarily includes all properties acquired during 2020 and 2021, plus any properties in lease-up and not stabilized as of January 1, 2020. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Percentage of Residents Renewing – Leases renewed expressed as a percentage of total renewal offers extended during the reporting period. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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. |
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| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting). |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Residential – Consists of multifamily apartment revenues and expenses. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Same Store Properties – For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2020, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | % of Stabilized Budgeted NOI – Represents original budgeted 2022 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Total Budgeted Capital Cost – Estimated remaining cost for projects under development and/or developed plus all capitalized costs incurred to date, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, plus any estimates of costs remaining to be funded for all projects, all in accordance with GAAP. Amounts for partially owned consolidated and unconsolidated properties are presented at 100% of the project. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Turnover – Total Residential move-outs (including inter-property and intra-property transfers) divided by total Residential apartment units. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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. |
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or different presentation of our financial statements.
The Company’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements. These policies were followed in preparing the consolidated financial statements at and for the year ended December 31, 2021.
The Company has identified the significant accounting policies below as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including its investment in real estate, for indicators of impairment at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal, regulatory and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted. Assessing impairment can be complex and involves a high degree of subjectivity in determining if indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset. In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions. Assumptions are primarily subject to property-specific characteristics, especially with respect to our intent and ability to hold the related asset. While these property-specific assumptions can have a significant impact on the undiscounted cash flows or estimated fair value of a particular asset, our evaluation of the reported carrying values of long-lived assets during the current year were not particularly sensitive to external or market assumptions.
Acquisition of Investment Properties
The Company allocates the purchase price of properties that meet the definition of an asset acquisition to net tangible and identified intangible assets acquired based on their relative fair values using assumptions primarily based upon property-specific characteristics. In making estimates of relative fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired or developed and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets/liabilities acquired.
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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 each of the three years ended December 31, 2021:
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||
| Net income | $ | 1,396,714 | $ | 962,501 | $ | 1,009,708 | ||||||
| Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties | (17,964 | ) | (14,855 | ) | (3,297 | ) | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Net income available to Common Shares and Units / Units | 1,375,660 | 944,556 | 1,003,321 | |||||||||
| Adjustments: | ||||||||||||
| Depreciation | 838,272 | 820,832 | 831,083 | |||||||||
| Depreciation – Non-real estate additions | (4,277 | ) | (4,564 | ) | (5,585 | ) | ||||||
| Depreciation – Partially Owned Properties | (3,673 | ) | (3,345 | ) | (3,599 | ) | ||||||
| Depreciation – Unconsolidated Properties | 2,487 | 2,454 | 2,997 | |||||||||
| Net (gain) loss on sales of unconsolidated entities - operating assets | (1,304 | ) | (1,636 | ) | (69,522 | ) | ||||||
| Net (gain) loss on sales of real estate properties | (1,072,183 | ) | (531,807 | ) | (447,637 | ) | ||||||
| Noncontrolling Interests share of gain (loss) on sales of real estate properties | 15,650 | 11,655 | — | |||||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | 1,150,632 | 1,238,145 | 1,311,058 | |||||||||
| Adjustments: | ||||||||||||
| Impairment – non-operating assets | 16,769 | — | — | |||||||||
| Write-off of pursuit costs | 6,526 | 6,869 | 5,529 | |||||||||
| Debt extinguishment and preferred share redemption (gains) losses | 744 | 39,292 | 23,991 | |||||||||
| Non-operating asset (gains) losses | (22,283 | ) | (32,590 | ) | (940 | ) | ||||||
| Other miscellaneous items | 8,976 | 4,652 | 8,430 | |||||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,161,364 | $ | 1,256,368 | $ | 1,348,068 | ||||||
| FFO (1) (3) | $ | 1,153,722 | $ | 1,241,235 | $ | 1,314,148 | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| FFO available to Common Shares and Units / Units (1) (3) (4) | $ | 1,150,632 | $ | 1,238,145 | $ | 1,311,058 | ||||||
| Normalized FFO (2) (3) | $ | 1,164,454 | $ | 1,259,458 | $ | 1,351,158 | ||||||
| Preferred/preference distributions | (3,090 | ) | (3,090 | ) | (3,090 | ) | ||||||
| Normalized FFO available to Common Shares and Units / Units (2) (3) (4) | $ | 1,161,364 | $ | 1,256,368 | $ | 1,348,068 |
| Column 1 | Column 2 |
|---|---|
| (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. |
| Column 1 | Column 2 |
|---|---|
| (2) | Normalized funds from operations (“Normalized FFO”) begins with FFO and excludes: |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | the impact of any expenses relating to non-operating asset impairment; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | pursuit cost write-offs; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | gains and losses from early debt extinguishment and preferred share redemptions; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | gains and losses from non-operating assets; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | other miscellaneous items. |
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| Column 1 | Column 2 |
|---|---|
| (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 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. |
| Column 1 | Column 2 |
|---|---|
| (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. |
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