UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20182019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-12252 (Equity Residential)
Commission File Number: 0-24920 (ERP Operating Limited Partnership)
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland (Equity Residential) |
| 13-3675988 (Equity Residential) |
Illinois (ERP Operating Limited Partnership) |
| 36-3894853 (ERP Operating Limited Partnership) |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
Two North Riverside Plaza, Chicago, Illinois 60606 |
| (312) 474-1300 |
(Address of principal executive offices) (Zip Code) |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Shares of Beneficial Interest, $0.01 Par Value (Equity Residential) | EQR | New York Stock Exchange | ||
7.57% Notes due August 15, 2026 (ERP Operating Limited Partnership) | N/A | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Equity Residential Yes ☒ No ☐ | ERP Operating Limited Partnership Yes ☒ No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Equity Residential Yes ☒ No ☐ | ERP Operating Limited Partnership Yes ☒ No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Equity Residential:
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
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| |||
Non-accelerated filer |
| ☐ |
| Small reporting company |
| ☐ |
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Emerging growth company |
| ☐ |
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ERP Operating Limited Partnership:
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
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| |||
Non-accelerated filer |
| ☒ |
| Small reporting company |
| ☐ |
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|
Emerging growth company |
| ☐ |
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|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Equity Residential ☐ | ERP Operating Limited Partnership ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Equity Residential Yes ☐ No ☒ | ERP Operating Limited Partnership Yes ☐ No ☒ |
The number of EQR Common Shares of Beneficial Interest, $0.01 par value, outstanding on OctoberJuly 26, 20182019 was 368,440,623.370,852,718.
This report combines the reports on Form 10-Q for the quarterly period ended SeptemberJune 30, 20182019 of Equity Residential and ERP Operating Limited Partnership. Unless stated otherwise or the context otherwise requires, references to “EQR” mean Equity Residential, a Maryland real estate investment trust (“REIT”), and references to “ERPOP” mean ERP Operating Limited Partnership, an Illinois limited partnership. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP. The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:
EQR is the general partner of, and as of SeptemberJune 30, 20182019 owned an approximate 96.3%96.4% ownership interest in, ERPOP. The remaining 3.7%3.6% interest is owned by limited partners. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management. Management operates the Company and the Operating Partnership as one business. The management of EQR consists of the same members as the management of ERPOP.
The Company is structured as an umbrella partnership REIT (“UPREIT”) and EQR contributes all net proceeds from its various equity offerings to ERPOP. In return for those contributions, EQR receives a number of OP Units (see definition below) in ERPOP equal to the number of Common Shares it has issued in the equity offering. The Company may acquire properties in transactions that include the issuance of OP Units as consideration for the acquired properties. Such transactions may, in certain circumstances, enable the sellers to defer in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales. This is one of the reasons why the Company is structured in the manner shown above. Based on the terms of ERPOP’s partnership agreement, OP Units can be exchanged with Common Shares on a one-for-one basis because the Company maintains a one-for-one relationship between the OP Units of ERPOP issued to EQR and the outstanding Common Shares.
The Company believes that combining the reports on Form 10-Q of EQR and ERPOP into this single report provides the following benefits:
enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
• | enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business; |
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
• | eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and |
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
• | creates time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
The Company believes it is important to understand the few differences between EQR and ERPOP in the context of how EQR and ERPOP operate as a consolidated company. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR’s primary function is acting as the general partner of ERPOP. EQR also issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, and guarantees certain debt of ERPOP, as disclosed in this report. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, 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. Except for the net proceeds from equity offerings by EQR which(which are contributed to the capital of ERPOP in exchange for additional partnership interests in ERPOP (“OP Units”) (on a one-for-one Common Share per OP Unit basis) or additional preference units in ERPOP (on a one-for-one preferred share per preference unit basis)), the Operating Partnership generates all remaining capital required by the Company’s
business. These sources include the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility and/or commercial paper program, the issuance of secured and unsecured debt and equity securitiespartnership interests, and proceeds received from disposition of certain properties and joint venture interests.
Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in the Company’s financial statements. The noncontrolling interests in the Operating Partnership’s financial statements include the interests of unaffiliated partners in various consolidated partnerships. The noncontrolling interests in the Company’s financial statements include the same noncontrolling interests at the Operating Partnership level and limited partner OP Unit holders of the Operating Partnership. The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.
To help investors understand the differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s debt, noncontrolling interests and shareholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.
This report also includes separate Part I, Item 4. 4, Controls and Procedures, sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership.
As general partner with control of ERPOP, EQR consolidates ERPOP for financial reporting purposes, and EQR essentially has no assets or liabilities other than its investment in ERPOP. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
(Amounts in thousands except for share amounts)
(Unaudited)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2018 |
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| 2017 |
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| 2019 |
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| 2018 |
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ASSETS |
|
|
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Land |
| $ | 5,866,457 |
|
| $ | 5,996,024 |
|
| $ | 5,889,308 |
|
| $ | 5,875,803 |
|
Depreciable property |
|
| 20,336,747 |
|
|
| 19,768,362 |
|
|
| 20,824,053 |
|
|
| 20,435,901 |
|
Projects under development |
|
| 134,961 |
|
|
| 163,547 |
|
|
| 171,869 |
|
|
| 109,409 |
|
Land held for development |
|
| 87,335 |
|
|
| 98,963 |
|
|
| 110,545 |
|
|
| 89,909 |
|
Investment in real estate |
|
| 26,425,500 |
|
|
| 26,026,896 |
|
|
| 26,995,775 |
|
|
| 26,511,022 |
|
Accumulated depreciation |
|
| (6,494,770 | ) |
|
| (6,040,378 | ) |
|
| (7,026,622 | ) |
|
| (6,696,281 | ) |
Investment in real estate, net |
|
| 19,930,730 |
|
|
| 19,986,518 |
|
|
| 19,969,153 |
|
|
| 19,814,741 |
|
Investments in unconsolidated entities |
|
| 57,576 |
|
|
| 58,254 |
|
|
| 52,907 |
|
|
| 58,349 |
|
Cash and cash equivalents |
|
| 32,995 |
|
|
| 50,647 |
|
|
| 251,273 |
|
|
| 47,442 |
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Restricted deposits |
|
| 55,755 |
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|
| 50,115 |
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|
| 58,195 |
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|
| 68,871 |
|
Right-of-use assets |
|
| 431,753 |
|
|
| — |
| ||||||||
Other assets |
|
| 465,094 |
|
|
| 425,065 |
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|
| 227,430 |
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|
| 404,806 |
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Total assets |
| $ | 20,542,150 |
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| $ | 20,570,599 |
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| $ | 20,990,711 |
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| $ | 20,394,209 |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Mortgage notes payable, net |
| $ | 2,789,436 |
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| $ | 3,618,722 |
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| $ | 2,599,013 |
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| $ | 2,385,470 |
|
Notes, net |
|
| 5,534,990 |
|
|
| 5,038,812 |
|
|
| 6,531,408 |
|
|
| 5,933,286 |
|
Line of credit and commercial paper |
|
| 499,367 |
|
|
| 299,757 |
|
|
| — |
|
|
| 499,183 |
|
Accounts payable and accrued expenses |
|
| 182,446 |
|
|
| 114,766 |
|
|
| 108,574 |
|
|
| 102,471 |
|
Accrued interest payable |
|
| 69,132 |
|
|
| 58,035 |
|
|
| 64,158 |
|
|
| 62,622 |
|
Lease liabilities |
|
| 281,620 |
|
|
| — |
| ||||||||
Other liabilities |
|
| 344,373 |
|
|
| 341,852 |
|
|
| 302,628 |
|
|
| 358,563 |
|
Security deposits |
|
| 67,177 |
|
|
| 65,009 |
|
|
| 69,027 |
|
|
| 67,258 |
|
Distributions payable |
|
| 206,899 |
|
|
| 192,828 |
|
|
| 218,697 |
|
|
| 206,601 |
|
Total liabilities |
|
| 9,693,820 |
|
|
| 9,729,781 |
|
|
| 10,175,125 |
|
|
| 9,615,454 |
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|
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Commitments and contingencies |
|
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|
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|
|
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|
Redeemable Noncontrolling Interests – Operating Partnership |
|
| 381,239 |
|
|
| 366,955 |
|
|
| 436,035 |
|
|
| 379,106 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 745,600 shares issued and outstanding as of September 30, 2018 and December 31, 2017 |
|
| 37,280 |
|
|
| 37,280 |
| ||||||||
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 368,409,586 shares issued and outstanding as of September 30, 2018 and 368,018,082 shares issued and outstanding as of December 31, 2017 |
|
| 3,684 |
|
|
| 3,680 |
| ||||||||
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 745,600 shares issued and outstanding as of June 30, 2019 and December 31, 2018 |
|
| 37,280 |
|
|
| 37,280 |
| ||||||||
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 370,838,810 shares issued and outstanding as of June 30, 2019 and 369,405,161 shares issued and outstanding as of December 31, 2018 |
|
| 3,708 |
|
|
| 3,694 |
| ||||||||
Paid in capital |
|
| 8,900,324 |
|
|
| 8,886,586 |
|
|
| 8,949,581 |
|
|
| 8,935,453 |
|
Retained earnings |
|
| 1,344,825 |
|
|
| 1,403,530 |
|
|
| 1,252,809 |
|
|
| 1,261,763 |
|
Accumulated other comprehensive income (loss) |
|
| (50,689 | ) |
|
| (88,612 | ) |
|
| (89,849 | ) |
|
| (64,986 | ) |
Total shareholders’ equity |
|
| 10,235,424 |
|
|
| 10,242,464 |
|
|
| 10,153,529 |
|
|
| 10,173,204 |
|
Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership |
|
| 233,825 |
|
|
| 226,691 |
|
|
| 227,320 |
|
|
| 228,738 |
|
Partially Owned Properties |
|
| (2,158 | ) |
|
| 4,708 |
|
|
| (1,298 | ) |
|
| (2,293 | ) |
Total Noncontrolling Interests |
|
| 231,667 |
|
|
| 231,399 |
|
|
| 226,022 |
|
|
| 226,445 |
|
Total equity |
|
| 10,467,091 |
|
|
| 10,473,863 |
|
|
| 10,379,551 |
|
|
| 10,399,649 |
|
Total liabilities and equity |
| $ | 20,542,150 |
|
| $ | 20,570,599 |
|
| $ | 20,990,711 |
|
| $ | 20,394,209 |
|
See accompanying notes
2
EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per share data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2018 |
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| 2017 |
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| 2018 |
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| 2017 |
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| 2019 |
|
| 2018 |
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| 2019 |
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| 2018 |
| ||||||||
REVENUES |
|
|
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|
|
|
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|
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|
|
|
|
|
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Rental income |
| $ | 1,925,128 |
|
| $ | 1,840,170 |
|
| $ | 652,677 |
|
| $ | 623,951 |
|
| $ | 1,331,676 |
|
| $ | 1,272,451 |
|
| $ | 669,374 |
|
| $ | 639,620 |
|
Fee and asset management |
|
| 563 |
|
|
| 532 |
|
|
| 190 |
|
|
| 171 |
|
|
| 335 |
|
|
| 373 |
|
|
| 143 |
|
|
| 188 |
|
Total revenues |
|
| 1,925,691 |
|
|
| 1,840,702 |
|
|
| 652,867 |
|
|
| 624,122 |
|
|
| 1,332,011 |
|
|
| 1,272,824 |
|
|
| 669,517 |
|
|
| 639,808 |
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and maintenance |
|
| 322,487 |
|
|
| 306,645 |
|
|
| 110,541 |
|
|
| 104,721 |
|
|
| 223,531 |
|
|
| 211,946 |
|
|
| 108,461 |
|
|
| 103,744 |
|
Real estate taxes and insurance |
|
| 268,784 |
|
|
| 253,318 |
|
|
| 87,388 |
|
|
| 84,087 |
|
|
| 182,888 |
|
|
| 181,396 |
|
|
| 91,446 |
|
|
| 89,482 |
|
Property management |
|
| 69,175 |
|
|
| 64,702 |
|
|
| 22,247 |
|
|
| 20,861 |
|
|
| 50,765 |
|
|
| 46,928 |
|
|
| 24,369 |
|
|
| 23,484 |
|
General and administrative |
|
| 41,420 |
|
|
| 40,366 |
|
|
| 12,640 |
|
|
| 12,567 |
|
|
| 29,710 |
|
|
| 28,780 |
|
|
| 14,329 |
|
|
| 12,502 |
|
Depreciation |
|
| 583,869 |
|
|
| 542,964 |
|
|
| 194,618 |
|
|
| 184,100 |
|
|
| 404,723 |
|
|
| 389,251 |
|
|
| 200,508 |
|
|
| 192,942 |
|
Impairment |
|
| 702 |
|
|
| — |
|
|
| 702 |
|
|
| — |
| ||||||||||||||||
Total expenses |
|
| 1,286,437 |
|
|
| 1,207,995 |
|
|
| 428,136 |
|
|
| 406,336 |
|
|
| 891,617 |
|
|
| 858,301 |
|
|
| 439,113 |
|
|
| 422,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net gain (loss) on sales of real estate properties |
|
| 138,835 |
|
|
| 142,162 |
|
|
| 138,856 |
|
|
| (51 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 639,254 |
|
|
| 632,707 |
|
|
| 224,731 |
|
|
| 217,786 |
|
|
| 579,229 |
|
|
| 556,685 |
|
|
| 369,260 |
|
|
| 217,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
| 14,860 |
|
|
| 5,708 |
|
|
| 7,864 |
|
|
| 3,945 |
|
|
| 1,590 |
|
|
| 6,996 |
|
|
| 1,009 |
|
|
| 1,116 |
|
Other expenses |
|
| (14,871 | ) |
|
| (3,160 | ) |
|
| (7,661 | ) |
|
| (1,028 | ) |
|
| (8,392 | ) |
|
| (7,210 | ) |
|
| (5,117 | ) |
|
| (3,769 | ) |
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense incurred, net |
|
| (321,454 | ) |
|
| (288,579 | ) |
|
| (111,219 | ) |
|
| (91,145 | ) |
|
| (203,840 | ) |
|
| (210,235 | ) |
|
| (108,902 | ) |
|
| (94,131 | ) |
Amortization of deferred financing costs |
|
| (9,054 | ) |
|
| (6,447 | ) |
|
| (3,276 | ) |
|
| (2,064 | ) |
|
| (5,783 | ) |
|
| (5,778 | ) |
|
| (3,647 | ) |
|
| (2,099 | ) |
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of real estate properties and land parcels |
|
| 308,735 |
|
|
| 340,229 |
|
|
| 110,439 |
|
|
| 127,494 |
| ||||||||||||||||
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels |
|
| 362,804 |
|
|
| 340,458 |
|
|
| 252,603 |
|
|
| 118,720 |
| ||||||||||||||||
Income and other tax (expense) benefit |
|
| (767 | ) |
|
| (710 | ) |
|
| (280 | ) |
|
| (228 | ) |
|
| (484 | ) |
|
| (487 | ) |
|
| (246 | ) |
|
| (274 | ) |
Income (loss) from investments in unconsolidated entities |
|
| (2,993 | ) |
|
| (2,153 | ) |
|
| (985 | ) |
|
| (398 | ) |
|
| 68,058 |
|
|
| (2,008 | ) |
|
| 68,765 |
|
|
| (1,031 | ) |
Net gain (loss) on sales of real estate properties |
|
| 256,834 |
|
|
| 141,761 |
|
|
| 114,672 |
|
|
| 17,328 |
| ||||||||||||||||
Net gain (loss) on sales of land parcels |
|
| 995 |
|
|
| 19,170 |
|
|
| — |
|
|
| — |
|
|
| 178 |
|
|
| 995 |
|
|
| 177 |
|
|
| 995 |
|
Net income |
|
| 562,804 |
|
|
| 498,297 |
|
|
| 223,846 |
|
|
| 144,196 |
|
|
| 430,556 |
|
|
| 338,958 |
|
|
| 321,299 |
|
|
| 118,410 |
|
Net (income) loss attributable to Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership |
|
| (20,517 | ) |
|
| (17,931 | ) |
|
| (8,159 | ) |
|
| (5,166 | ) |
|
| (15,429 | ) |
|
| (12,358 | ) |
|
| (11,510 | ) |
|
| (4,299 | ) |
Partially Owned Properties |
|
| (1,939 | ) |
|
| (2,354 | ) |
|
| (750 | ) |
|
| (801 | ) |
|
| (1,620 | ) |
|
| (1,189 | ) |
|
| (821 | ) |
|
| (509 | ) |
Net income attributable to controlling interests |
|
| 540,348 |
|
|
| 478,012 |
|
|
| 214,937 |
|
|
| 138,229 |
|
|
| 413,507 |
|
|
| 325,411 |
|
|
| 308,968 |
|
|
| 113,602 |
|
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (772 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Net income available to Common Shares |
| $ | 538,030 |
|
| $ | 475,694 |
|
| $ | 214,164 |
|
| $ | 137,457 |
|
| $ | 411,962 |
|
| $ | 323,866 |
|
| $ | 308,196 |
|
| $ | 112,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Common Shares |
| $ | 1.46 |
|
| $ | 1.30 |
|
| $ | 0.58 |
|
| $ | 0.37 |
|
| $ | 1.11 |
|
| $ | 0.88 |
|
| $ | 0.83 |
|
| $ | 0.31 |
|
Weighted average Common Shares outstanding |
|
| 367,920 |
|
|
| 366,809 |
|
|
| 368,028 |
|
|
| 366,996 |
|
|
| 369,952 |
|
|
| 367,865 |
|
|
| 370,342 |
|
|
| 367,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Common Shares |
| $ | 1.46 |
|
| $ | 1.29 |
|
| $ | 0.58 |
|
| $ | 0.37 |
|
| $ | 1.11 |
|
| $ | 0.88 |
|
| $ | 0.83 |
|
| $ | 0.31 |
|
Weighted average Common Shares outstanding |
|
| 383,433 |
|
|
| 382,640 |
|
|
| 383,884 |
|
|
| 382,945 |
|
|
| 385,644 |
|
|
| 383,224 |
|
|
| 386,107 |
|
|
| 383,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Distributions declared per Common Share outstanding |
| $ | 1.62 |
|
| $ | 1.51125 |
|
| $ | 0.54 |
|
| $ | 0.50375 |
|
See accompanying notes
3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
(Amounts in thousands except per share data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 562,804 |
|
| $ | 498,297 |
|
| $ | 223,846 |
|
| $ | 144,196 |
|
| $ | 430,556 |
|
| $ | 338,958 |
|
| $ | 321,299 |
|
| $ | 118,410 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| 24,021 |
|
|
| 5,216 |
|
|
| 12,026 |
|
|
| 1,709 |
|
|
| (33,765 | ) |
|
| 11,995 |
|
|
| (19,345 | ) |
|
| 5,908 |
|
Losses reclassified into earnings from other comprehensive income |
|
| 13,902 |
|
|
| 14,019 |
|
|
| 4,595 |
|
|
| 4,768 |
|
|
| 8,902 |
|
|
| 9,307 |
|
|
| 4,509 |
|
|
| 4,516 |
|
Other comprehensive income (loss) |
|
| 37,923 |
|
|
| 19,235 |
|
|
| 16,621 |
|
|
| 6,477 |
|
|
| (24,863 | ) |
|
| 21,302 |
|
|
| (14,836 | ) |
|
| 10,424 |
|
Comprehensive income |
|
| 600,727 |
|
|
| 517,532 |
|
|
| 240,467 |
|
|
| 150,673 |
|
|
| 405,693 |
|
|
| 360,260 |
|
|
| 306,463 |
|
|
| 128,834 |
|
Comprehensive (income) attributable to Noncontrolling Interests |
|
| (23,848 | ) |
|
| (20,983 | ) |
|
| (9,519 | ) |
|
| (6,201 | ) |
|
| (16,150 | ) |
|
| (14,329 | ) |
|
| (11,797 | ) |
|
| (5,190 | ) |
Comprehensive income attributable to controlling interests |
| $ | 576,879 |
|
| $ | 496,549 |
|
| $ | 230,948 |
|
| $ | 144,472 |
|
| $ | 389,543 |
|
| $ | 345,931 |
|
| $ | 294,666 |
|
| $ | 123,644 |
|
See accompanying notes
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 562,804 |
|
| $ | 498,297 |
|
| $ | 430,556 |
|
| $ | 338,958 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 583,869 |
|
|
| 542,964 |
|
|
| 404,723 |
|
|
| 389,251 |
|
Amortization of deferred financing costs |
|
| 9,054 |
|
|
| 6,447 |
|
|
| 5,783 |
|
|
| 5,778 |
|
Amortization of above/below market lease intangibles |
|
| 3,294 |
|
|
| 2,729 |
|
|
| (35 | ) |
|
| 2,196 |
|
Amortization of discounts and premiums on debt |
|
| 21,360 |
|
|
| 2,018 |
|
|
| 17,795 |
|
|
| 3,263 |
|
Amortization of deferred settlements on derivative instruments |
|
| 13,893 |
|
|
| 14,010 |
|
|
| 8,896 |
|
|
| 9,302 |
|
Impairment |
|
| 702 |
|
|
| — |
| ||||||||
Amortization of right-of-use assets |
|
| 6,952 |
|
|
| — |
| ||||||||
Write-off of pursuit costs |
|
| 3,125 |
|
|
| 2,329 |
|
|
| 2,987 |
|
|
| 2,066 |
|
(Income) loss from investments in unconsolidated entities |
|
| 2,993 |
|
|
| 2,153 |
|
|
| (68,058 | ) |
|
| 2,008 |
|
Distributions from unconsolidated entities – return on capital |
|
| 1,885 |
|
|
| 2,031 |
|
|
| 2,387 |
|
|
| 1,188 |
|
Net (gain) loss on sales of real estate properties |
|
| (256,834 | ) |
|
| (141,761 | ) |
|
| (138,835 | ) |
|
| (142,162 | ) |
Net (gain) loss on sales of land parcels |
|
| (995 | ) |
|
| (19,170 | ) |
|
| (178 | ) |
|
| (995 | ) |
Net (gain) loss on debt extinguishment |
|
| 22,110 |
|
|
| 12,258 |
|
|
| — |
|
|
| 22,110 |
|
Compensation paid with Company Common Shares |
|
| 22,270 |
|
|
| 19,999 |
|
|
| 16,782 |
|
|
| 17,032 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets |
|
| (18,550 | ) |
|
| (23,024 | ) |
|
| 1,610 |
|
|
| 417 |
|
Increase (decrease) in accounts payable and accrued expenses |
|
| 58,756 |
|
|
| 62,635 |
|
|
| 22,435 |
|
|
| 25,396 |
|
Increase (decrease) in accrued interest payable |
|
| 11,097 |
|
|
| 11,865 |
|
|
| 1,536 |
|
|
| 5,306 |
|
Increase (decrease) in lease liabilities |
|
| (1,171 | ) |
|
| — |
| ||||||||
Increase (decrease) in other liabilities |
|
| 1,190 |
|
|
| (28,250 | ) |
|
| (25,161 | ) |
|
| 2,549 |
|
Increase (decrease) in security deposits |
|
| 2,168 |
|
|
| 2,606 |
|
|
| 1,769 |
|
|
| 1,791 |
|
Net cash provided by operating activities |
|
| 1,044,191 |
|
|
| 970,136 |
|
|
| 690,773 |
|
|
| 685,454 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate – acquisitions |
|
| (708,092 | ) |
|
| (466,395 | ) |
|
| (653,132 | ) |
|
| (200,546 | ) |
Investment in real estate – development/other |
|
| (101,573 | ) |
|
| (227,187 | ) |
|
| (93,210 | ) |
|
| (76,635 | ) |
Capital expenditures to real estate |
|
| (138,119 | ) |
|
| (143,258 | ) |
|
| (81,528 | ) |
|
| (85,987 | ) |
Non-real estate capital additions |
|
| (3,155 | ) |
|
| (776 | ) |
|
| (1,466 | ) |
|
| (2,145 | ) |
Interest capitalized for real estate under development |
|
| (4,547 | ) |
|
| (23,164 | ) |
|
| (2,679 | ) |
|
| (2,937 | ) |
Proceeds from disposition of real estate, net |
|
| 691,526 |
|
|
| 350,000 |
|
|
| 393,439 |
|
|
| 287,173 |
|
Investments in unconsolidated entities |
|
| (4,860 | ) |
|
| (5,324 | ) |
|
| (8,572 | ) |
|
| (3,099 | ) |
Distributions from unconsolidated entities – return of capital |
|
| — |
|
|
| 329 |
|
|
| 78,262 |
|
|
| — |
|
Purchase of investment securities and other investments |
|
| (269 | ) |
|
| — |
| ||||||||
Net cash provided by (used for) investing activities |
|
| (268,820 | ) |
|
| (515,775 | ) |
|
| (369,155 | ) |
|
| (84,176 | ) |
See accompanying notes
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt financing costs |
| $ | (4,355 | ) |
| $ | (6,272 | ) |
| $ | (6,069 | ) |
| $ | (4,354 | ) |
Mortgage notes payable, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 295,620 |
|
|
| — |
| ||||||||
Lump sum payoffs |
|
| (847,939 | ) |
|
| (493,420 | ) |
|
| (95,500 | ) |
|
| (725,639 | ) |
Scheduled principal repayments |
|
| (4,938 | ) |
|
| (8,771 | ) |
|
| (3,110 | ) |
|
| (3,273 | ) |
Net gain (loss) on debt extinguishment |
|
| (22,110 | ) |
|
| (12,258 | ) |
|
| — |
|
|
| (22,110 | ) |
Notes, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 497,010 |
|
|
| 692,466 |
|
|
| 597,480 |
|
|
| 497,010 |
|
Lump sum payoffs |
|
| — |
|
|
| (394,077 | ) | ||||||||
Line of credit and commercial paper: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit proceeds |
|
| 1,635,000 |
|
|
| 1,845,000 |
|
|
| 1,995,000 |
|
|
| 415,000 |
|
Line of credit repayments |
|
| (1,635,000 | ) |
|
| (1,845,000 | ) |
|
| (1,995,000 | ) |
|
| (415,000 | ) |
Commercial paper proceeds |
|
| 9,624,610 |
|
|
| 3,891,596 |
|
|
| 7,775,817 |
|
|
| 4,766,050 |
|
Commercial paper repayments |
|
| (9,425,000 | ) |
|
| (3,681,750 | ) |
|
| (8,275,000 | ) |
|
| (4,720,000 | ) |
Proceeds from (payments on) settlement of derivative instruments |
|
| 1,638 |
|
|
| 1,296 |
|
|
| (41,616 | ) |
|
| 1,638 |
|
Proceeds from Employee Share Purchase Plan (ESPP) |
|
| 3,074 |
|
|
| 2,963 |
|
|
| 1,652 |
|
|
| 2,181 |
|
Proceeds from exercise of options |
|
| 6,000 |
|
|
| 12,967 |
|
|
| 48,487 |
|
|
| 2,617 |
|
Payment of offering costs |
|
| (27 | ) |
|
| (36 | ) |
|
| (155 | ) |
|
| (27 | ) |
Other financing activities, net |
|
| (48 | ) |
|
| (40 | ) |
|
| (49 | ) |
|
| (48 | ) |
Contributions – Noncontrolling Interests – Partially Owned Properties |
|
| 125 |
|
|
| 125 |
|
|
| 4,594 |
|
|
| 125 |
|
Contributions – Noncontrolling Interests – Operating Partnership |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
| (583,184 | ) |
|
| (554,267 | ) |
|
| (409,943 | ) |
|
| (384,315 | ) |
Preferred Shares |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (1,545 | ) |
Noncontrolling Interests – Operating Partnership |
|
| (21,040 | ) |
|
| (20,604 | ) |
|
| (14,728 | ) |
|
| (13,854 | ) |
Noncontrolling Interests – Partially Owned Properties |
|
| (8,882 | ) |
|
| (6,873 | ) |
|
| (5,170 | ) |
|
| (7,620 | ) |
Net cash provided by (used for) financing activities |
|
| (787,383 | ) |
|
| (579,273 | ) |
|
| (128,463 | ) |
|
| (613,163 | ) |
Net increase (decrease) in cash and cash equivalents and restricted deposits |
|
| (12,012 | ) |
|
| (124,912 | ) |
|
| 193,155 |
|
|
| (11,885 | ) |
Cash and cash equivalents and restricted deposits, beginning of period |
|
| 100,762 |
|
|
| 219,088 |
|
|
| 116,313 |
|
|
| 100,762 |
|
Cash and cash equivalents and restricted deposits, end of period |
| $ | 88,750 |
|
| $ | 94,176 |
|
| $ | 309,468 |
|
| $ | 88,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted deposits, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 32,995 |
|
| $ | 46,565 |
|
| $ | 251,273 |
|
| $ | 34,507 |
|
Restricted deposits |
|
| 55,755 |
|
|
| 47,611 |
|
|
| 58,195 |
|
|
| 54,370 |
|
Total cash and cash equivalents and restricted deposits, end of period |
| $ | 88,750 |
|
| $ | 94,176 |
|
| $ | 309,468 |
|
| $ | 88,877 |
|
See accompanying notes
6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
| $ | 268,966 |
|
| $ | 257,805 |
|
| $ | 171,116 |
|
| $ | 188,913 |
|
Net cash paid for income and other taxes |
| $ | 934 |
|
| $ | 964 |
|
| $ | 754 |
|
| $ | 644 |
|
Amortization of deferred financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | 1,809 |
|
| $ | 1,810 |
|
| $ | 1,206 |
|
| $ | 1,206 |
|
Mortgage notes payable, net |
| $ | 4,197 |
|
| $ | 1,943 |
|
| $ | 2,344 |
|
| $ | 2,552 |
|
Notes, net |
| $ | 3,048 |
|
| $ | 2,694 |
|
| $ | 2,233 |
|
| $ | 2,020 |
|
Amortization of discounts and premiums on debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 19,394 |
|
| $ | 247 |
|
| $ | 16,426 |
|
| $ | 1,963 |
|
Notes, net |
| $ | 1,966 |
|
| $ | 1,771 |
|
| $ | 1,369 |
|
| $ | 1,300 |
|
Amortization of deferred settlements on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | (9 | ) |
| $ | (9 | ) |
| $ | (6 | ) |
| $ | (5 | ) |
Accumulated other comprehensive income |
| $ | 13,902 |
|
| $ | 14,019 |
|
| $ | 8,902 |
|
| $ | 9,307 |
|
Write-off of pursuit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | 3,079 |
|
| $ | 2,292 |
|
| $ | 2,947 |
|
| $ | 2,042 |
|
Other assets |
| $ | 13 |
|
| $ | 17 |
|
| $ | 37 |
|
| $ | 10 |
|
Accounts payable and accrued expenses |
| $ | 33 |
|
| $ | 20 |
|
| $ | 3 |
|
| $ | 14 |
|
(Income) loss from investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | 1,973 |
|
| $ | 1,076 |
|
| $ | (68,735 | ) |
| $ | 1,321 |
|
Other liabilities |
| $ | 1,020 |
|
| $ | 1,077 |
|
| $ | 677 |
|
| $ | 687 |
|
Realized/unrealized (gain) loss on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | (24,021 | ) |
| $ | (3,803 | ) |
| $ | 2,002 |
|
| $ | (13,226 | ) |
Notes, net |
| $ | (1,491 | ) |
| $ | (1,413 | ) |
| $ | 2,253 |
|
| $ | (2,151 | ) |
Other liabilities |
| $ | 1,491 |
|
| $ | — |
|
| $ | 29,510 |
|
| $ | 3,382 |
|
Accumulated other comprehensive income |
| $ | 24,021 |
|
| $ | 5,216 |
|
| $ | (33,765 | ) |
| $ | 11,995 |
|
Investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | (3,180 | ) |
| $ | (2,324 | ) |
| $ | (6,472 | ) |
| $ | (2,379 | ) |
Other liabilities |
| $ | (1,680 | ) |
| $ | (3,000 | ) |
| $ | (2,100 | ) |
| $ | (720 | ) |
Debt financing costs: |
|
|
|
|
|
|
|
| ||||||||
Other assets |
| $ | 145 |
|
| $ | — |
| ||||||||
Mortgage notes payable, net |
| $ | (2,237 | ) |
| $ | — |
| ||||||||
Notes, net |
| $ | (5,213 | ) |
| $ | (4,354 | ) | ||||||||
Other liabilities |
| $ | 1,236 |
|
| $ | — |
| ||||||||
Right-of-use assets and lease liabilities initial measurement and reclassifications: |
|
|
|
|
|
|
|
| ||||||||
Right-of-use assets |
| $ | (438,705 | ) |
| $ | — |
| ||||||||
Other assets |
| $ | 184,116 |
|
| $ | — |
| ||||||||
Lease liabilities |
| $ | 282,791 |
|
| $ | — |
| ||||||||
Other liabilities |
| $ | (28,202 | ) |
| $ | — |
|
See accompanying notes
7
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands)thousands except per share data)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||
|
| September 30, 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED SHARES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 37,280 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
| ||||
Balance, end of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
COMMON SHARES, $0.01 PAR VALUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 3,680 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 3,694 |
|
| $ | 3,680 |
|
| $ | 3,705 |
|
| $ | 3,682 |
| ||||
Conversion of OP Units into Common Shares |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||
Exercise of share options |
|
| 2 |
|
|
| 10 |
|
|
| 1 |
|
|
| 3 |
|
|
| — |
|
Employee Share Purchase Plan (ESPP) |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
Balance, end of period |
| $ | 3,684 |
|
| $ | 3,708 |
|
| $ | 3,683 |
|
| $ | 3,708 |
|
| $ | 3,683 |
|
PAID IN CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 8,886,586 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 8,935,453 |
|
| $ | 8,886,586 |
|
| $ | 8,925,882 |
|
| $ | 8,910,306 |
| ||||
Common Share Issuance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of OP Units into Common Shares |
|
| 356 |
|
|
| 4,869 |
|
|
| 331 |
|
|
| 84 |
|
|
| 197 |
|
Exercise of share options |
|
| 5,998 |
|
|
| 48,477 |
|
|
| 2,616 |
|
|
| 18,624 |
|
|
| 1,017 |
|
Employee Share Purchase Plan (ESPP) |
|
| 3,073 |
|
|
| 1,652 |
|
|
| 2,180 |
|
|
| 526 |
|
|
| 499 |
|
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
| 6,803 |
|
|
| 7,980 |
|
|
| 5,162 |
|
|
| 3,404 |
|
|
| 2,540 |
|
Share options |
|
| 9,206 |
|
|
| 1,682 |
|
|
| 8,536 |
|
|
| 889 |
|
|
| 1,198 |
|
ESPP discount |
|
| 604 |
|
|
| 365 |
|
|
| 400 |
|
|
| 98 |
|
|
| 103 |
|
Offering costs |
|
| (27 | ) |
|
| (155 | ) |
|
| (27 | ) |
|
| (155 | ) |
|
| (1 | ) |
Supplemental Executive Retirement Plan (SERP) |
|
| (533 | ) |
|
| (1,539 | ) |
|
| (538 | ) |
|
| (937 | ) |
|
| (621 | ) |
Change in market value of Redeemable Noncontrolling Interests – Operating Partnership |
|
| (14,361 | ) |
|
| (56,974 | ) |
|
| (172 | ) |
|
| (1,953 | ) |
|
| (13,003 | ) |
Adjustment for Noncontrolling Interests ownership in Operating Partnership |
|
| 2,619 |
|
|
| 7,771 |
|
|
| 110 |
|
|
| 3,119 |
|
|
| 2,949 |
|
Balance, end of period |
| $ | 8,900,324 |
|
| $ | 8,949,581 |
|
| $ | 8,905,184 |
|
| $ | 8,949,581 |
|
| $ | 8,905,184 |
|
RETAINED EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 1,403,530 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 1,261,763 |
|
| $ | 1,403,530 |
|
| $ | 1,155,032 |
|
| $ | 1,415,638 |
| ||||
Net income attributable to controlling interests |
|
| 540,348 |
|
|
| 413,507 |
|
|
| 325,411 |
|
|
| 308,968 |
|
|
| 113,602 |
|
Common Share distributions |
|
| (596,735 | ) |
|
| (420,916 | ) |
|
| (397,796 | ) |
|
| (210,419 | ) |
|
| (198,868 | ) |
Preferred Share distributions |
|
| (2,318 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Balance, end of period |
| $ | 1,344,825 |
|
| $ | 1,252,809 |
|
| $ | 1,329,600 |
|
| $ | 1,252,809 |
|
| $ | 1,329,600 |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | (88,612 | ) | ||||||||||||||||
Balance, beginning of period |
| $ | (64,986 | ) |
| $ | (88,612 | ) |
| $ | (75,013 | ) |
| $ | (77,734 | ) | ||||
Accumulated other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| 24,021 |
|
|
| (33,765 | ) |
|
| 11,995 |
|
|
| (19,345 | ) |
|
| 5,908 |
|
Losses reclassified into earnings from other comprehensive income |
|
| 13,902 |
|
|
| 8,902 |
|
|
| 9,307 |
|
|
| 4,509 |
|
|
| 4,516 |
|
Balance, end of period |
| $ | (50,689 | ) |
| $ | (89,849 | ) |
| $ | (67,310 | ) |
| $ | (89,849 | ) |
| $ | (67,310 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
DISTRIBUTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Distributions declared per Common Share outstanding |
| $ | 1.135 |
|
| $ | 1.08 |
|
| $ | 0.5675 |
|
| $ | 0.54 |
|
See accompanying notes
8
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY (Continued)
(Amounts in thousands)thousands except per share data)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||
|
| September 30, 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||
NONCONTROLLING INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING PARTNERSHIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 226,691 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 228,738 |
|
| $ | 226,691 |
|
| $ | 225,081 |
|
| $ | 234,628 |
| ||||
Issuance of restricted units to Noncontrolling Interests |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner |
|
| (356 | ) |
|
| (4,871 | ) |
|
| (331 | ) |
|
| (84 | ) |
|
| (197 | ) |
Equity compensation associated with Noncontrolling Interests |
|
| 11,074 |
|
|
| 10,829 |
|
|
| 8,116 |
|
|
| 2,926 |
|
|
| 3,313 |
|
Net income attributable to Noncontrolling Interests |
|
| 20,517 |
|
|
| 15,429 |
|
|
| 12,358 |
|
|
| 11,510 |
|
|
| 4,299 |
|
Distributions to Noncontrolling Interests |
|
| (21,560 | ) |
|
| (15,079 | ) |
|
| (14,374 | ) |
|
| (7,474 | ) |
|
| (7,186 | ) |
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership |
|
| 77 |
|
|
| 45 |
|
|
| 644 |
|
|
| (1,520 | ) |
|
| 1,087 |
|
Adjustment for Noncontrolling Interests ownership in Operating Partnership |
|
| (2,619 | ) |
|
| (7,771 | ) |
|
| (110 | ) |
|
| (3,119 | ) |
|
| (2,949 | ) |
Balance, end of period |
| $ | 233,825 |
|
| $ | 227,320 |
|
| $ | 232,995 |
|
| $ | 227,320 |
|
| $ | 232,995 |
|
PARTIALLY OWNED PROPERTIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 4,708 |
| ||||||||||||||||
Balance, beginning of period |
| $ | (2,293 | ) |
| $ | 4,708 |
|
| $ | (5,462 | ) |
| $ | 1,293 |
| ||||
Net income attributable to Noncontrolling Interests |
|
| 1,939 |
|
|
| 1,620 |
|
|
| 1,189 |
|
|
| 821 |
|
|
| 509 |
|
Contributions by Noncontrolling Interests |
|
| 125 |
|
|
| 4,594 |
|
|
| 125 |
|
|
| 4,594 |
|
|
| — |
|
Distributions to Noncontrolling Interests |
|
| (8,930 | ) |
|
| (5,219 | ) |
|
| (7,668 | ) |
|
| (1,251 | ) |
|
| (3,448 | ) |
Balance, end of period |
| $ | (2,158 | ) |
| $ | (1,298 | ) |
| $ | (1,646 | ) |
| $ | (1,298 | ) |
| $ | (1,646 | ) |
See accompanying notes
9
ERP OPERATING LIMITEDLIMITED PARTNERSHIP
(Amounts in thousands)
(Unaudited)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 5,866,457 |
|
| $ | 5,996,024 |
|
| $ | 5,889,308 |
|
| $ | 5,875,803 |
|
Depreciable property |
|
| 20,336,747 |
|
|
| 19,768,362 |
|
|
| 20,824,053 |
|
|
| 20,435,901 |
|
Projects under development |
|
| 134,961 |
|
|
| 163,547 |
|
|
| 171,869 |
|
|
| 109,409 |
|
Land held for development |
|
| 87,335 |
|
|
| 98,963 |
|
|
| 110,545 |
|
|
| 89,909 |
|
Investment in real estate |
|
| 26,425,500 |
|
|
| 26,026,896 |
|
|
| 26,995,775 |
|
|
| 26,511,022 |
|
Accumulated depreciation |
|
| (6,494,770 | ) |
|
| (6,040,378 | ) |
|
| (7,026,622 | ) |
|
| (6,696,281 | ) |
Investment in real estate, net |
|
| 19,930,730 |
|
|
| 19,986,518 |
|
|
| 19,969,153 |
|
|
| 19,814,741 |
|
Investments in unconsolidated entities |
|
| 57,576 |
|
|
| 58,254 |
|
|
| 52,907 |
|
|
| 58,349 |
|
Cash and cash equivalents |
|
| 32,995 |
|
|
| 50,647 |
|
|
| 251,273 |
|
|
| 47,442 |
|
Restricted deposits |
|
| 55,755 |
|
|
| 50,115 |
|
|
| 58,195 |
|
|
| 68,871 |
|
Right-of-use assets |
|
| 431,753 |
|
|
| — |
| ||||||||
Other assets |
|
| 465,094 |
|
|
| 425,065 |
|
|
| 227,430 |
|
|
| 404,806 |
|
Total assets |
| $ | 20,542,150 |
|
| $ | 20,570,599 |
|
| $ | 20,990,711 |
|
| $ | 20,394,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 2,789,436 |
|
| $ | 3,618,722 |
|
| $ | 2,599,013 |
|
| $ | 2,385,470 |
|
Notes, net |
|
| 5,534,990 |
|
|
| 5,038,812 |
|
|
| 6,531,408 |
|
|
| 5,933,286 |
|
Line of credit and commercial paper |
|
| 499,367 |
|
|
| 299,757 |
|
|
| — |
|
|
| 499,183 |
|
Accounts payable and accrued expenses |
|
| 182,446 |
|
|
| 114,766 |
|
|
| 108,574 |
|
|
| 102,471 |
|
Accrued interest payable |
|
| 69,132 |
|
|
| 58,035 |
|
|
| 64,158 |
|
|
| 62,622 |
|
Lease liabilities |
|
| 281,620 |
|
|
| — |
| ||||||||
Other liabilities |
|
| 344,373 |
|
|
| 341,852 |
|
|
| 302,628 |
|
|
| 358,563 |
|
Security deposits |
|
| 67,177 |
|
|
| 65,009 |
|
|
| 69,027 |
|
|
| 67,258 |
|
Distributions payable |
|
| 206,899 |
|
|
| 192,828 |
|
|
| 218,697 |
|
|
| 206,601 |
|
Total liabilities |
|
| 9,693,820 |
|
|
| 9,729,781 |
|
|
| 10,175,125 |
|
|
| 9,615,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Limited Partners |
|
| 381,239 |
|
|
| 366,955 |
|
|
| 436,035 |
|
|
| 379,106 |
|
Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference Units |
|
| 37,280 |
|
|
| 37,280 |
|
|
| 37,280 |
|
|
| 37,280 |
|
General Partner |
|
| 10,248,833 |
|
|
| 10,293,796 |
|
|
| 10,206,098 |
|
|
| 10,200,910 |
|
Limited Partners |
|
| 233,825 |
|
|
| 226,691 |
|
|
| 227,320 |
|
|
| 228,738 |
|
Accumulated other comprehensive income (loss) |
|
| (50,689 | ) |
|
| (88,612 | ) |
|
| (89,849 | ) |
|
| (64,986 | ) |
Total partners’ capital |
|
| 10,469,249 |
|
|
| 10,469,155 |
|
|
| 10,380,849 |
|
|
| 10,401,942 |
|
Noncontrolling Interests – Partially Owned Properties |
|
| (2,158 | ) |
|
| 4,708 |
|
|
| (1,298 | ) |
|
| (2,293 | ) |
Total capital |
|
| 10,467,091 |
|
|
| 10,473,863 |
|
|
| 10,379,551 |
|
|
| 10,399,649 |
|
Total liabilities and capital |
| $ | 20,542,150 |
|
| $ | 20,570,599 |
|
| $ | 20,990,711 |
|
| $ | 20,394,209 |
|
See accompanying notes
10
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
| $ | 1,925,128 |
|
| $ | 1,840,170 |
|
| $ | 652,677 |
|
| $ | 623,951 |
|
| $ | 1,331,676 |
|
| $ | 1,272,451 |
|
| $ | 669,374 |
|
| $ | 639,620 |
|
Fee and asset management |
|
| 563 |
|
|
| 532 |
|
|
| 190 |
|
|
| 171 |
|
|
| 335 |
|
|
| 373 |
|
|
| 143 |
|
|
| 188 |
|
Total revenues |
|
| 1,925,691 |
|
|
| 1,840,702 |
|
|
| 652,867 |
|
|
| 624,122 |
|
|
| 1,332,011 |
|
|
| 1,272,824 |
|
|
| 669,517 |
|
|
| 639,808 |
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and maintenance |
|
| 322,487 |
|
|
| 306,645 |
|
|
| 110,541 |
|
|
| 104,721 |
|
|
| 223,531 |
|
|
| 211,946 |
|
|
| 108,461 |
|
|
| 103,744 |
|
Real estate taxes and insurance |
|
| 268,784 |
|
|
| 253,318 |
|
|
| 87,388 |
|
|
| 84,087 |
|
|
| 182,888 |
|
|
| 181,396 |
|
|
| 91,446 |
|
|
| 89,482 |
|
Property management |
|
| 69,175 |
|
|
| 64,702 |
|
|
| 22,247 |
|
|
| 20,861 |
|
|
| 50,765 |
|
|
| 46,928 |
|
|
| 24,369 |
|
|
| 23,484 |
|
General and administrative |
|
| 41,420 |
|
|
| 40,366 |
|
|
| 12,640 |
|
|
| 12,567 |
|
|
| 29,710 |
|
|
| 28,780 |
|
|
| 14,329 |
|
|
| 12,502 |
|
Depreciation |
|
| 583,869 |
|
|
| 542,964 |
|
|
| 194,618 |
|
|
| 184,100 |
|
|
| 404,723 |
|
|
| 389,251 |
|
|
| 200,508 |
|
|
| 192,942 |
|
Impairment |
|
| 702 |
|
|
| — |
|
|
| 702 |
|
|
| — |
| ||||||||||||||||
Total expenses |
|
| 1,286,437 |
|
|
| 1,207,995 |
|
|
| 428,136 |
|
|
| 406,336 |
|
|
| 891,617 |
|
|
| 858,301 |
|
|
| 439,113 |
|
|
| 422,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net gain (loss) on sales of real estate properties |
|
| 138,835 |
|
|
| 142,162 |
|
|
| 138,856 |
|
|
| (51 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 639,254 |
|
|
| 632,707 |
|
|
| 224,731 |
|
|
| 217,786 |
|
|
| 579,229 |
|
|
| 556,685 |
|
|
| 369,260 |
|
|
| 217,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
| 14,860 |
|
|
| 5,708 |
|
|
| 7,864 |
|
|
| 3,945 |
|
|
| 1,590 |
|
|
| 6,996 |
|
|
| 1,009 |
|
|
| 1,116 |
|
Other expenses |
|
| (14,871 | ) |
|
| (3,160 | ) |
|
| (7,661 | ) |
|
| (1,028 | ) |
|
| (8,392 | ) |
|
| (7,210 | ) |
|
| (5,117 | ) |
|
| (3,769 | ) |
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense incurred, net |
|
| (321,454 | ) |
|
| (288,579 | ) |
|
| (111,219 | ) |
|
| (91,145 | ) |
|
| (203,840 | ) |
|
| (210,235 | ) |
|
| (108,902 | ) |
|
| (94,131 | ) |
Amortization of deferred financing costs |
|
| (9,054 | ) |
|
| (6,447 | ) |
|
| (3,276 | ) |
|
| (2,064 | ) |
|
| (5,783 | ) |
|
| (5,778 | ) |
|
| (3,647 | ) |
|
| (2,099 | ) |
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of real estate properties and land parcels |
|
| 308,735 |
|
|
| 340,229 |
|
|
| 110,439 |
|
|
| 127,494 |
| ||||||||||||||||
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels |
|
| 362,804 |
|
|
| 340,458 |
|
|
| 252,603 |
|
|
| 118,720 |
| ||||||||||||||||
Income and other tax (expense) benefit |
|
| (767 | ) |
|
| (710 | ) |
|
| (280 | ) |
|
| (228 | ) |
|
| (484 | ) |
|
| (487 | ) |
|
| (246 | ) |
|
| (274 | ) |
Income (loss) from investments in unconsolidated entities |
|
| (2,993 | ) |
|
| (2,153 | ) |
|
| (985 | ) |
|
| (398 | ) |
|
| 68,058 |
|
|
| (2,008 | ) |
|
| 68,765 |
|
|
| (1,031 | ) |
Net gain (loss) on sales of real estate properties |
|
| 256,834 |
|
|
| 141,761 |
|
|
| 114,672 |
|
|
| 17,328 |
| ||||||||||||||||
Net gain (loss) on sales of land parcels |
|
| 995 |
|
|
| 19,170 |
|
|
| — |
|
|
| — |
|
|
| 178 |
|
|
| 995 |
|
|
| 177 |
|
|
| 995 |
|
Net income |
|
| 562,804 |
|
|
| 498,297 |
|
|
| 223,846 |
|
|
| 144,196 |
|
|
| 430,556 |
|
|
| 338,958 |
|
|
| 321,299 |
|
|
| 118,410 |
|
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (1,939 | ) |
|
| (2,354 | ) |
|
| (750 | ) |
|
| (801 | ) |
|
| (1,620 | ) |
|
| (1,189 | ) |
|
| (821 | ) |
|
| (509 | ) |
Net income attributable to controlling interests |
| $ | 560,865 |
|
| $ | 495,943 |
|
| $ | 223,096 |
|
| $ | 143,395 |
|
| $ | 428,936 |
|
| $ | 337,769 |
|
| $ | 320,478 |
|
| $ | 117,901 |
|
ALLOCATION OF NET INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference Units |
| $ | 2,318 |
|
| $ | 2,318 |
|
| $ | 773 |
|
| $ | 772 |
|
| $ | 1,545 |
|
| $ | 1,545 |
|
| $ | 772 |
|
| $ | 772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner |
| $ | 538,030 |
|
| $ | 475,694 |
|
| $ | 214,164 |
|
| $ | 137,457 |
|
| $ | 411,962 |
|
| $ | 323,866 |
|
| $ | 308,196 |
|
| $ | 112,830 |
|
Limited Partners |
|
| 20,517 |
|
|
| 17,931 |
|
|
| 8,159 |
|
|
| 5,166 |
|
|
| 15,429 |
|
|
| 12,358 |
|
|
| 11,510 |
|
|
| 4,299 |
|
Net income available to Units |
| $ | 558,547 |
|
| $ | 493,625 |
|
| $ | 222,323 |
|
| $ | 142,623 |
|
| $ | 427,391 |
|
| $ | 336,224 |
|
| $ | 319,706 |
|
| $ | 117,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Unit – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Units |
| $ | 1.46 |
|
| $ | 1.30 |
|
| $ | 0.58 |
|
| $ | 0.37 |
|
| $ | 1.11 |
|
| $ | 0.88 |
|
| $ | 0.83 |
|
| $ | 0.31 |
|
Weighted average Units outstanding |
|
| 380,791 |
|
|
| 379,716 |
|
|
| 380,912 |
|
|
| 379,906 |
|
|
| 382,854 |
|
|
| 380,729 |
|
|
| 383,227 |
|
|
| 380,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Unit – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Units |
| $ | 1.46 |
|
| $ | 1.29 |
|
| $ | 0.58 |
|
| $ | 0.37 |
|
| $ | 1.11 |
|
| $ | 0.88 |
|
| $ | 0.83 |
|
| $ | 0.31 |
|
Weighted average Units outstanding |
|
| 383,433 |
|
|
| 382,640 |
|
|
| 383,884 |
|
|
| 382,945 |
|
|
| 385,644 |
|
|
| 383,224 |
|
|
| 386,107 |
|
|
| 383,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Distributions declared per Unit outstanding |
| $ | 1.62 |
|
| $ | 1.51125 |
|
| $ | 0.54 |
|
| $ | 0.50375 |
|
See accompanying notes
11
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
(Amounts in thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 562,804 |
|
| $ | 498,297 |
|
| $ | 223,846 |
|
| $ | 144,196 |
|
| $ | 430,556 |
|
| $ | 338,958 |
|
| $ | 321,299 |
|
| $ | 118,410 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| 24,021 |
|
|
| 5,216 |
|
|
| 12,026 |
|
|
| 1,709 |
|
|
| (33,765 | ) |
|
| 11,995 |
|
|
| (19,345 | ) |
|
| 5,908 |
|
Losses reclassified into earnings from other comprehensive income |
|
| 13,902 |
|
|
| 14,019 |
|
|
| 4,595 |
|
|
| 4,768 |
|
|
| 8,902 |
|
|
| 9,307 |
|
|
| 4,509 |
|
|
| 4,516 |
|
Other comprehensive income (loss) |
|
| 37,923 |
|
|
| 19,235 |
|
|
| 16,621 |
|
|
| 6,477 |
|
|
| (24,863 | ) |
|
| 21,302 |
|
|
| (14,836 | ) |
|
| 10,424 |
|
Comprehensive income |
|
| 600,727 |
|
|
| 517,532 |
|
|
| 240,467 |
|
|
| 150,673 |
|
|
| 405,693 |
|
|
| 360,260 |
|
|
| 306,463 |
|
|
| 128,834 |
|
Comprehensive (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (1,939 | ) |
|
| (2,354 | ) |
|
| (750 | ) |
|
| (801 | ) |
|
| (1,620 | ) |
|
| (1,189 | ) |
|
| (821 | ) |
|
| (509 | ) |
Comprehensive income attributable to controlling interests |
| $ | 598,788 |
|
| $ | 515,178 |
|
| $ | 239,717 |
|
| $ | 149,872 |
|
| $ | 404,073 |
|
| $ | 359,071 |
|
| $ | 305,642 |
|
| $ | 128,325 |
|
See accompanying notes
12
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 562,804 |
|
| $ | 498,297 |
|
| $ | 430,556 |
|
| $ | 338,958 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 583,869 |
|
|
| 542,964 |
|
|
| 404,723 |
|
|
| 389,251 |
|
Amortization of deferred financing costs |
|
| 9,054 |
|
|
| 6,447 |
|
|
| 5,783 |
|
|
| 5,778 |
|
Amortization of above/below market lease intangibles |
|
| 3,294 |
|
|
| 2,729 |
|
|
| (35 | ) |
|
| 2,196 |
|
Amortization of discounts and premiums on debt |
|
| 21,360 |
|
|
| 2,018 |
|
|
| 17,795 |
|
|
| 3,263 |
|
Amortization of deferred settlements on derivative instruments |
|
| 13,893 |
|
|
| 14,010 |
|
|
| 8,896 |
|
|
| 9,302 |
|
Impairment |
|
| 702 |
|
|
| — |
| ||||||||
Amortization of right-of-use assets |
|
| 6,952 |
|
|
| — |
| ||||||||
Write-off of pursuit costs |
|
| 3,125 |
|
|
| 2,329 |
|
|
| 2,987 |
|
|
| 2,066 |
|
(Income) loss from investments in unconsolidated entities |
|
| 2,993 |
|
|
| 2,153 |
|
|
| (68,058 | ) |
|
| 2,008 |
|
Distributions from unconsolidated entities – return on capital |
|
| 1,885 |
|
|
| 2,031 |
|
|
| 2,387 |
|
|
| 1,188 |
|
Net (gain) loss on sales of real estate properties |
|
| (256,834 | ) |
|
| (141,761 | ) |
|
| (138,835 | ) |
|
| (142,162 | ) |
Net (gain) loss on sales of land parcels |
|
| (995 | ) |
|
| (19,170 | ) |
|
| (178 | ) |
|
| (995 | ) |
Net (gain) loss on debt extinguishment |
|
| 22,110 |
|
|
| 12,258 |
|
|
| — |
|
|
| 22,110 |
|
Compensation paid with Company Common Shares |
|
| 22,270 |
|
|
| 19,999 |
|
|
| 16,782 |
|
|
| 17,032 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets |
|
| (18,550 | ) |
|
| (23,024 | ) |
|
| 1,610 |
|
|
| 417 |
|
Increase (decrease) in accounts payable and accrued expenses |
|
| 58,756 |
|
|
| 62,635 |
|
|
| 22,435 |
|
|
| 25,396 |
|
Increase (decrease) in accrued interest payable |
|
| 11,097 |
|
|
| 11,865 |
|
|
| 1,536 |
|
|
| 5,306 |
|
Increase (decrease) in lease liabilities |
|
| (1,171 | ) |
|
| — |
| ||||||||
Increase (decrease) in other liabilities |
|
| 1,190 |
|
|
| (28,250 | ) |
|
| (25,161 | ) |
|
| 2,549 |
|
Increase (decrease) in security deposits |
|
| 2,168 |
|
|
| 2,606 |
|
|
| 1,769 |
|
|
| 1,791 |
|
Net cash provided by operating activities |
|
| 1,044,191 |
|
|
| 970,136 |
|
|
| 690,773 |
|
|
| 685,454 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate – acquisitions |
|
| (708,092 | ) |
|
| (466,395 | ) |
|
| (653,132 | ) |
|
| (200,546 | ) |
Investment in real estate – development/other |
|
| (101,573 | ) |
|
| (227,187 | ) |
|
| (93,210 | ) |
|
| (76,635 | ) |
Capital expenditures to real estate |
|
| (138,119 | ) |
|
| (143,258 | ) |
|
| (81,528 | ) |
|
| (85,987 | ) |
Non-real estate capital additions |
|
| (3,155 | ) |
|
| (776 | ) |
|
| (1,466 | ) |
|
| (2,145 | ) |
Interest capitalized for real estate under development |
|
| (4,547 | ) |
|
| (23,164 | ) |
|
| (2,679 | ) |
|
| (2,937 | ) |
Proceeds from disposition of real estate, net |
|
| 691,526 |
|
|
| 350,000 |
|
|
| 393,439 |
|
|
| 287,173 |
|
Investments in unconsolidated entities |
|
| (4,860 | ) |
|
| (5,324 | ) |
|
| (8,572 | ) |
|
| (3,099 | ) |
Distributions from unconsolidated entities – return of capital |
|
| — |
|
|
| 329 |
|
|
| 78,262 |
|
|
| — |
|
Purchase of investment securities and other investments |
|
| (269 | ) |
|
| — |
| ||||||||
Net cash provided by (used for) investing activities |
|
| (268,820 | ) |
|
| (515,775 | ) |
|
| (369,155 | ) |
|
| (84,176 | ) |
See accompanying notes
13
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt financing costs |
| $ | (4,355 | ) |
| $ | (6,272 | ) |
| $ | (6,069 | ) |
| $ | (4,354 | ) |
Mortgage notes payable, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 295,620 |
|
|
| — |
| ||||||||
Lump sum payoffs |
|
| (847,939 | ) |
|
| (493,420 | ) |
|
| (95,500 | ) |
|
| (725,639 | ) |
Scheduled principal repayments |
|
| (4,938 | ) |
|
| (8,771 | ) |
|
| (3,110 | ) |
|
| (3,273 | ) |
Net gain (loss) on debt extinguishment |
|
| (22,110 | ) |
|
| (12,258 | ) |
|
| — |
|
|
| (22,110 | ) |
Notes, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
| 497,010 |
|
|
| 692,466 |
|
|
| 597,480 |
|
|
| 497,010 |
|
Lump sum payoffs |
|
| — |
|
|
| (394,077 | ) | ||||||||
Line of credit and commercial paper: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit proceeds |
|
| 1,635,000 |
|
|
| 1,845,000 |
|
|
| 1,995,000 |
|
|
| 415,000 |
|
Line of credit repayments |
|
| (1,635,000 | ) |
|
| (1,845,000 | ) |
|
| (1,995,000 | ) |
|
| (415,000 | ) |
Commercial paper proceeds |
|
| 9,624,610 |
|
|
| 3,891,596 |
|
|
| 7,775,817 |
|
|
| 4,766,050 |
|
Commercial paper repayments |
|
| (9,425,000 | ) |
|
| (3,681,750 | ) |
|
| (8,275,000 | ) |
|
| (4,720,000 | ) |
Proceeds from (payments on) settlement of derivative instruments |
|
| 1,638 |
|
|
| 1,296 |
|
|
| (41,616 | ) |
|
| 1,638 |
|
Proceeds from EQR’s Employee Share Purchase Plan (ESPP) |
|
| 3,074 |
|
|
| 2,963 |
|
|
| 1,652 |
|
|
| 2,181 |
|
Proceeds from exercise of EQR options |
|
| 6,000 |
|
|
| 12,967 |
|
|
| 48,487 |
|
|
| 2,617 |
|
Payment of offering costs |
|
| (27 | ) |
|
| (36 | ) |
|
| (155 | ) |
|
| (27 | ) |
Other financing activities, net |
|
| (48 | ) |
|
| (40 | ) |
|
| (49 | ) |
|
| (48 | ) |
Contributions – Noncontrolling Interests – Partially Owned Properties |
|
| 125 |
|
|
| 125 |
|
|
| 4,594 |
|
|
| 125 |
|
Contributions – Limited Partners |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP Units – General Partner |
|
| (583,184 | ) |
|
| (554,267 | ) |
|
| (409,943 | ) |
|
| (384,315 | ) |
Preference Units |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (1,545 | ) |
OP Units – Limited Partners |
|
| (21,040 | ) |
|
| (20,604 | ) |
|
| (14,728 | ) |
|
| (13,854 | ) |
Noncontrolling Interests – Partially Owned Properties |
|
| (8,882 | ) |
|
| (6,873 | ) |
|
| (5,170 | ) |
|
| (7,620 | ) |
Net cash provided by (used for) financing activities |
|
| (787,383 | ) |
|
| (579,273 | ) |
|
| (128,463 | ) |
|
| (613,163 | ) |
Net increase (decrease) in cash and cash equivalents and restricted deposits |
|
| (12,012 | ) |
|
| (124,912 | ) |
|
| 193,155 |
|
|
| (11,885 | ) |
Cash and cash equivalents and restricted deposits, beginning of period |
|
| 100,762 |
|
|
| 219,088 |
|
|
| 116,313 |
|
|
| 100,762 |
|
Cash and cash equivalents and restricted deposits, end of period |
| $ | 88,750 |
|
| $ | 94,176 |
|
| $ | 309,468 |
|
| $ | 88,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted deposits, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 32,995 |
|
| $ | 46,565 |
|
| $ | 251,273 |
|
| $ | 34,507 |
|
Restricted deposits |
|
| 55,755 |
|
|
| 47,611 |
|
|
| 58,195 |
|
|
| 54,370 |
|
Total cash and cash equivalents and restricted deposits, end of period |
| $ | 88,750 |
|
| $ | 94,176 |
|
| $ | 309,468 |
|
| $ | 88,877 |
|
See accompanying notes
14
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
| $ | 268,966 |
|
| $ | 257,805 |
|
| $ | 171,116 |
|
| $ | 188,913 |
|
Net cash paid for income and other taxes |
| $ | 934 |
|
| $ | 964 |
|
| $ | 754 |
|
| $ | 644 |
|
Amortization of deferred financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | 1,809 |
|
| $ | 1,810 |
|
| $ | 1,206 |
|
| $ | 1,206 |
|
Mortgage notes payable, net |
| $ | 4,197 |
|
| $ | 1,943 |
|
| $ | 2,344 |
|
| $ | 2,552 |
|
Notes, net |
| $ | 3,048 |
|
| $ | 2,694 |
|
| $ | 2,233 |
|
| $ | 2,020 |
|
Amortization of discounts and premiums on debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
| $ | 19,394 |
|
| $ | 247 |
|
| $ | 16,426 |
|
| $ | 1,963 |
|
Notes, net |
| $ | 1,966 |
|
| $ | 1,771 |
|
| $ | 1,369 |
|
| $ | 1,300 |
|
Amortization of deferred settlements on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | (9 | ) |
| $ | (9 | ) |
| $ | (6 | ) |
| $ | (5 | ) |
Accumulated other comprehensive income |
| $ | 13,902 |
|
| $ | 14,019 |
|
| $ | 8,902 |
|
| $ | 9,307 |
|
Write-off of pursuit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate, net |
| $ | 3,079 |
|
| $ | 2,292 |
|
| $ | 2,947 |
|
| $ | 2,042 |
|
Other assets |
| $ | 13 |
|
| $ | 17 |
|
| $ | 37 |
|
| $ | 10 |
|
Accounts payable and accrued expenses |
| $ | 33 |
|
| $ | 20 |
|
| $ | 3 |
|
| $ | 14 |
|
(Income) loss from investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | 1,973 |
|
| $ | 1,076 |
|
| $ | (68,735 | ) |
| $ | 1,321 |
|
Other liabilities |
| $ | 1,020 |
|
| $ | 1,077 |
|
| $ | 677 |
|
| $ | 687 |
|
Realized/unrealized (gain) loss on derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
| $ | (24,021 | ) |
| $ | (3,803 | ) |
| $ | 2,002 |
|
| $ | (13,226 | ) |
Notes, net |
| $ | (1,491 | ) |
| $ | (1,413 | ) |
| $ | 2,253 |
|
| $ | (2,151 | ) |
Other liabilities |
| $ | 1,491 |
|
| $ | — |
|
| $ | 29,510 |
|
| $ | 3,382 |
|
Accumulated other comprehensive income |
| $ | 24,021 |
|
| $ | 5,216 |
|
| $ | (33,765 | ) |
| $ | 11,995 |
|
Investments in unconsolidated entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
| $ | (3,180 | ) |
| $ | (2,324 | ) |
| $ | (6,472 | ) |
| $ | (2,379 | ) |
Other liabilities |
| $ | (1,680 | ) |
| $ | (3,000 | ) |
| $ | (2,100 | ) |
| $ | (720 | ) |
Debt financing costs: |
|
|
|
|
|
|
|
| ||||||||
Other assets |
| $ | 145 |
|
| $ | — |
| ||||||||
Mortgage notes payable, net |
| $ | (2,237 | ) |
| $ | — |
| ||||||||
Notes, net |
| $ | (5,213 | ) |
| $ | (4,354 | ) | ||||||||
Other liabilities |
| $ | 1,236 |
|
| $ | — |
| ||||||||
Right-of-use assets and lease liabilities initial measurement and reclassifications: |
|
|
|
|
|
|
|
| ||||||||
Right-of-use assets |
| $ | (438,705 | ) |
| $ | — |
| ||||||||
Other assets |
| $ | 184,116 |
|
| $ | — |
| ||||||||
Lease liabilities |
| $ | 282,791 |
|
| $ | — |
| ||||||||
Other liabilities |
| $ | (28,202 | ) |
| $ | — |
|
See accompanying notes
15
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT STATEMENTS OF CHANGES IN CAPITAL
(Amounts in thousands)thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||
|
| September 30, 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||
PARTNERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERENCE UNITS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 37,280 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
| ||||
Balance, end of period |
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
| $ | 37,280 |
|
GENERAL PARTNER |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 10,293,796 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 10,200,910 |
|
| $ | 10,293,796 |
|
| $ | 10,084,619 |
|
| $ | 10,329,626 |
| ||||
OP Unit Issuance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of OP Units held by Limited Partners into OP Units held by General Partner |
|
| 356 |
|
|
| 4,871 |
|
|
| 331 |
|
|
| 84 |
|
|
| 197 |
|
Exercise of EQR share options |
|
| 6,000 |
|
|
| 48,487 |
|
|
| 2,617 |
|
|
| 18,627 |
|
|
| 1,017 |
|
EQR’s Employee Share Purchase Plan (ESPP) |
|
| 3,074 |
|
|
| 1,652 |
|
|
| 2,181 |
|
|
| 526 |
|
|
| 500 |
|
Share-based employee compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQR restricted shares |
|
| 6,804 |
|
|
| 7,982 |
|
|
| 5,163 |
|
|
| 3,404 |
|
|
| 2,540 |
|
EQR share options |
|
| 9,206 |
|
|
| 1,682 |
|
|
| 8,536 |
|
|
| 889 |
|
|
| 1,198 |
|
EQR ESPP discount |
|
| 604 |
|
|
| 365 |
|
|
| 400 |
|
|
| 98 |
|
|
| 103 |
|
Net income available to Units – General Partner |
|
| 538,030 |
|
|
| 411,962 |
|
|
| 323,866 |
|
|
| 308,196 |
|
|
| 112,830 |
|
OP Units – General Partner distributions |
|
| (596,735 | ) |
|
| (420,916 | ) |
|
| (397,796 | ) |
|
| (210,419 | ) |
|
| (198,868 | ) |
Offering costs |
|
| (27 | ) |
|
| (155 | ) |
|
| (27 | ) |
|
| (155 | ) |
|
| (1 | ) |
Supplemental Executive Retirement Plan (SERP) |
|
| (533 | ) |
|
| (1,539 | ) |
|
| (538 | ) |
|
| (937 | ) |
|
| (621 | ) |
Change in market value of Redeemable Limited Partners |
|
| (14,361 | ) |
|
| (56,974 | ) |
|
| (172 | ) |
|
| (1,953 | ) |
|
| (13,003 | ) |
Adjustment for Limited Partners ownership in Operating Partnership |
|
| 2,619 |
|
|
| 7,771 |
|
|
| 110 |
|
|
| 3,119 |
|
|
| 2,949 |
|
Balance, end of period |
| $ | 10,248,833 |
|
| $ | 10,206,098 |
|
| $ | 10,238,467 |
|
| $ | 10,206,098 |
|
| $ | 10,238,467 |
|
LIMITED PARTNERS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 226,691 |
| ||||||||||||||||
Balance, beginning of period |
| $ | 228,738 |
|
| $ | 226,691 |
|
| $ | 225,081 |
|
| $ | 234,628 |
| ||||
Issuance of restricted units to Limited Partners |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
Conversion of OP Units held by Limited Partners into OP Units held by General Partner |
|
| (356 | ) |
|
| (4,871 | ) |
|
| (331 | ) |
|
| (84 | ) |
|
| (197 | ) |
Equity compensation associated with Units – Limited Partners |
|
| 11,074 |
|
|
| 10,829 |
|
|
| 8,116 |
|
|
| 2,926 |
|
|
| 3,313 |
|
Net income available to Units – Limited Partners |
|
| 20,517 |
|
|
| 15,429 |
|
|
| 12,358 |
|
|
| 11,510 |
|
|
| 4,299 |
|
Units – Limited Partners distributions |
|
| (21,560 | ) |
|
| (15,079 | ) |
|
| (14,374 | ) |
|
| (7,474 | ) |
|
| (7,186 | ) |
Change in carrying value of Redeemable Limited Partners |
|
| 77 |
|
|
| 45 |
|
|
| 644 |
|
|
| (1,520 | ) |
|
| 1,087 |
|
Adjustment for Limited Partners ownership in Operating Partnership |
|
| (2,619 | ) |
|
| (7,771 | ) |
|
| (110 | ) |
|
| (3,119 | ) |
|
| (2,949 | ) |
Balance, end of period |
| $ | 233,825 |
|
| $ | 227,320 |
|
| $ | 232,995 |
|
| $ | 227,320 |
|
| $ | 232,995 |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | (88,612 | ) | ||||||||||||||||
Balance, beginning of period |
| $ | (64,986 | ) |
| $ | (88,612 | ) |
| $ | (75,013 | ) |
| $ | (77,734 | ) | ||||
Accumulated other comprehensive income (loss) – derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period |
|
| 24,021 |
|
|
| (33,765 | ) |
|
| 11,995 |
|
|
| (19,345 | ) |
|
| 5,908 |
|
Losses reclassified into earnings from other comprehensive income |
|
| 13,902 |
|
|
| 8,902 |
|
|
| 9,307 |
|
|
| 4,509 |
|
|
| 4,516 |
|
Balance, end of period |
| $ | (50,689 | ) |
| $ | (89,849 | ) |
| $ | (67,310 | ) |
| $ | (89,849 | ) |
| $ | (67,310 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
DISTRIBUTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Distributions declared per Unit outstanding |
| $ | 1.135 |
|
| $ | 1.08 |
|
| $ | 0.5675 |
|
| $ | 0.54 |
|
See accompanying notes
16
ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATEDSTATEMENTSTATEMENTSOFCHANGESINCAPITAL(Continued)
(Amounts in thousands)thousands except per Unit data)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||
|
| September 30, 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||
NONCONTROLLING INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS – PARTIALLY OWNED PROPERTIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| $ | 4,708 |
| ||||||||||||||||
Balance, beginning of period |
| $ | (2,293 | ) |
| $ | 4,708 |
|
| $ | (5,462 | ) |
| $ | 1,293 |
| ||||
Net income attributable to Noncontrolling Interests |
|
| 1,939 |
|
|
| 1,620 |
|
|
| 1,189 |
|
|
| 821 |
|
|
| 509 |
|
Contributions by Noncontrolling Interests |
|
| 125 |
|
|
| 4,594 |
|
|
| 125 |
|
|
| 4,594 |
|
|
| — |
|
Distributions to Noncontrolling Interests |
|
| (8,930 | ) |
|
| (5,219 | ) |
|
| (7,668 | ) |
|
| (1,251 | ) |
|
| (3,448 | ) |
Balance, end of period |
| $ | (2,158 | ) |
| $ | (1,298 | ) |
| $ | (1,646 | ) |
| $ | (1,298 | ) |
| $ | (1,646 | ) |
See accompanying notes
17
ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity Residential (“EQR”) is an S&P 500 company focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban markets, whicha business that is conducted on its behalf by ERP Operating Limited Partnership (“ERPOP”). EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 and ERPOP is an Illinois limited partnership formed in May 1993.References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP. Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the OperatingPartnership.
EQR is the general partner of, and as of SeptemberJune 30, 20182019 owned an approximate 96.3%96.4% ownership interest in, ERPOP. All of the Company’s property ownership, development and related business operations are conducted through the Operating PartnershipandEQRhasnomaterialassetsorliabilitiesotherthanitsinvestmentinERPOP. EQRissuespublicequityfromtime totime,thenetproceedsofwhichitisobligatedtocontributetoERPOP,butdoesnothaveanyindebtednessasalldebtisincurred 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 tradedequity.
As of SeptemberJune 30, 2018,2019, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 306309 properties located in 1110 states and the District of Columbia consisting of 79,26079,624 apartment units. The ownership breakdown includes (table does not include various uncompleted development properties):
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||
Wholly Owned Properties |
|
| 286 |
|
|
| 74,618 |
|
|
| 291 |
|
|
| 75,927 |
|
Master-Leased Properties – Consolidated |
|
| 1 |
|
|
| 162 |
|
|
| 1 |
|
|
| 162 |
|
Partially Owned Properties – Consolidated |
|
| 17 |
|
|
| 3,535 |
|
|
| 17 |
|
|
| 3,535 |
|
Partially Owned Properties – Unconsolidated |
|
| 2 |
|
|
| 945 |
| ||||||||
|
|
| 306 |
|
|
| 79,260 |
|
|
| 309 |
|
|
| 79,624 |
|
Note: Effective February 1, 2018 and April 2, 2018, the Company took over management of two of its Master-Leased properties containing 94 apartment units and 597 apartment units located in Boston and Los Angeles, respectively.
2.Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation. These reclassifications did not have an impact on net income previously reported. Operating results for the ninesix months ended SeptemberJune 30, 20182019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019.
In preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
The balance sheets at December 31, 20172018 have been derived from the audited financial statements at that date but do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
18
For further information, including definitions of capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Income and Other Taxes
Due to the structure of EQR as a REIT and the nature of the operations of its operating properties, no provision for federal income taxes has been made at the EQR level. In addition, ERPOP generally is not liable for federal income taxes as the partners recognize their proportionate share of income or loss in their tax returns; therefore no provision for federal income taxes has been made at the ERPOP level. Historically, the Company has generally only incurred certain state and local income, excise and franchise taxes. The Company has elected Taxabletaxable REIT Subsidiarysubsidiary (“TRS”) status for certain of its corporate subsidiaries and as a result, these entities willmay incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating losses.
Deferred tax assets and liabilities were recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases in the comparable period. These assets and liabilities were measured using enacted tax rates for which the temporary differences were expected to be recovered or settled. The effects of changes in tax rates on deferred tax assets and liabilities were recognized in earnings in the period enacted. The Company’s deferred tax assets were generally the result of tax affected suspended interest deductions, net operating losses, differing depreciable lives on capitalized assets and the timing of expense recognition for certain accrued liabilities.
In December 2017, the President signed into law H.R. 1, informally titled the Tax Cuts and Jobs Act (the “Tax Act”). The, became law. As of June 30, 2019, the Tax Act isdid not expected to have a material impact on our REIT or subsidiary entities, our ability to continue to qualify as a REIT or on our results of operations. However, the complete impact of the Tax Act is not yet fully known and there can be no assurances that it will have a neutral or favorable impact.
Recently Issued Accounting Pronouncements
In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued a new leases standard which sets out principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessors and lessees). The new standard requires the following:
Lessors – Leases will be accounted for using an approach that is substantially equivalent to existing guidance for operating, sales-type and financing leases, but aligned with the new revenue recognition standard. Lessors will be required to allocate lease payments to separate lease and non-lease components of each lease agreement, with the non-lease components evaluated under the new revenue recognition standard.
Lessees – Leases will be accounted for using a dual approach, classifying leases as either operating or finance based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized on a straight-line basis over the term of the lease (for operating leases) or based on an effective interest method (for finance leases). A lessee is also required to record a right-of-use asset and a lease liability on its balance sheet for all leases with a term of greater than 12 months regardless of their classification as operating or finance leases. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.
The new standard will be effective for the Company beginning on January 1, 2019, with early adoption permitted, though the Company currently anticipates adopting the new standard on the effective date. The new standard must be adopted using a modified retrospective method, which requires application of the new guidance at either the beginning of the earliest comparative period presented or as of the adoption date and provides for certain practical expedients, which the Company currently anticipates electing.
The Company is the lessor for its residential and retail/commercial leases and anticipates that these leases will continue to be accounted for as operating leases under the new standard. Therefore, the Company does not currently anticipate significant changes in the accounting for its lease revenues.
The Company is the lessee under various corporate office and ground leases, which are required to be recognized as right of use assets and related lease liabilities on its consolidated balance sheets upon adoption. The Company currently anticipates that its corporate office leases will continue to be accounted for as operating leases under the new standard. Based on its anticipated election of the practical expedients, the Company would not be required to reassess the classification of existing ground leases and therefore these leases would continue to be accounted for as operating leases. However, in the event we modify existing ground leases and/or
19
enter into new ground leases after adoption of the new standard, such leases will likely be classified as finance leases. The Company expects to record right of use assets and related lease liabilities to its opening balance sheet upon adoption of the new standard on January 1, 2019, which it currently estimates to be an amount not likely to exceed $300.0 million. The ultimate impact on the Company’s consolidated results of operations and financial position will depend on our lease portfolio and other factors as of the adoption date, as we continue to evaluate the new leases standard.
In July 2018, the FASB issued an amendment to the new leases standard, which includes a practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single component under the new leases standard. The amendment also provides a transition option that permits the application of the new guidance as of the adoption date rather than to all periods presented. The Company anticipates electing the practical expedient to account for both its lease and non-lease components as a single component under the leases standard and electing the new transition option.
In June 2016, the FASB issued a new standard which requires companies to adopt a new approach for estimating credit losses on certain types of financial instruments, such as trade and other receivables and loans. The standard will requirerequires entities to estimate a lifetime expected credit loss for most financial instruments, including trade receivables. In November 2018, the FASB issued an amendment excluding operating lease receivables accounted for under the new leases standard from the scope of the new credit losses standard. The new standard will be effective for the Company beginning on January 1, 2020, with early adoption permitted beginning January 1, 2019. TheCompanyiscurrentlyevaluatingtheimpactofadoptingthenewstandardonitsconsolidatedresultsofoperations and financial position.
In August 2017, the FASB issued a final standard which makes changes to the hedge accounting model to enable entities to better portray their risk management activities in the financial statements. The new standard expands an entity’s ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk and eases certain documentation and assessment requirements. The new standard also eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of any hedging instrument to be presented in the same income statement line as the hedged instrument. The new standard will be effective for the Company beginning on January 1, 2019 and early adoption is permitted. The Company is currently evaluating the impact of adopting the new standard on its consolidated results of operations and financial position.
Recently Adopted Accounting Pronouncements
InMay2014,theFASBissuedacomprehensivenewrevenuerecognition standard entitled Revenue from Contracts with Customers that superseded nearly all existing revenue recognition guidance. Thenewstandardspecificallyexcludesleaserevenue. The new standard’s core principle is that a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Companies will likely need to use more judgment and make more estimates than under previous revenue recognition guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration, if any, to include in the transaction price and allocating the transaction price to each separate performance obligation. The new standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect, if any, recognized as of the date of adoption. The Company selected the modified retrospective transition method as of the date of adoption as required effectiveJanuary1,2018. Approximately 94%ofrental income consistsof revenue from leasing arrangements, which is specifically excluded from the standard (included as leasing revenue in the table below).standard. The Company analyzed its remaining revenue streams, inclusive of fee and asset management and gains and losses on sales, and concluded these revenue streams have the same timing and pattern of revenue recognition under the new guidance, and therefore the Company had no changes in revenue recognition with the adoption of the new standard. As such, adoption of the standard did not result in a cumulative adjustment recognized as of January 1, 2018, and the standard did not have a material impact on the Company’s consolidated financial position, results of operations, equity/capital or cash flows.
For the remaining approximately 6% of rental income that is subject to the new revenue recognition standard, the Company’s disaggregated revenue streams are disclosed in the table belowincluded in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the nineyear ended December 31, 2018 and are comparable with the percentage of rental income for the six months and quarter ended SeptemberJune 30, 2018.2019. These revenue streams have the same timing and pattern of revenue recognition across our reportable segments, with consistent allocations between the leasing and revenue recognition standards. The revenue streams and percentages are comparable with the percentage of rental income for the nine months and quarter ended September 30, 2017.
The following table presents the disaggregation of revenue streams of our rental income for the nine months and quarter ended September 30, 2018 (amounts in thousands):
20
|
|
| Nine Months Ended September 30, 2018 |
|
| Quarter Ended September 30, 2018 |
| |||||||||||
Revenue Stream |
| Applicable Standard |
| Amount of Rental Income |
|
| Percentage of Rental Income |
|
| Amount of Rental Income |
|
| Percentage of Rental Income |
| ||||
Leasing revenue |
| Leases |
| $ | 1,803,908 |
|
|
| 93.7 | % |
| $ | 611,119 |
|
|
| 93.6 | % |
Utility recoveries (“RUBS”) |
| Revenue Recognition |
|
| 46,752 |
|
|
| 2.4 | % |
|
| 15,817 |
|
|
| 2.4 | % |
Parking revenue |
| Revenue Recognition |
|
| 20,249 |
|
|
| 1.1 | % |
|
| 6,185 |
|
|
| 1.0 | % |
Other revenue |
| Revenue Recognition |
|
| 54,219 |
|
|
| 2.8 | % |
|
| 19,556 |
|
|
| 3.0 | % |
Rental income |
|
|
| $ | 1,925,128 |
|
|
| 100.0 | % |
| $ | 652,677 |
|
|
| 100.0 | % |
Additionally, as part of the new revenue recognition standard, the FASB issued amendments related to partial sales of real estate (see further discussion below).estate. Adoption of the new partial sales standard did not result in a change of accounting for the Company related to its disposition process. We concluded that the Company’s typical dispositions will continue to meet the criteria for sale and associated profit recognition under both new standards.
In January February2016,the FASB issued a new leases standard which sets out principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessors and lessees). The new standard requires companies to measure all equity securities with readily determinable fair values at fair value on the balance sheet, with changes in fair value recognized in net income. following:
• | Lessors – Leases are accounted for using an approach that is substantially equivalent to existing guidance for operating, |
sales-type and financing leases, but aligned with the new revenue recognition standard. Lessors are required to allocate lease payments to separate lease and non-lease components of each lease agreement, with the non-lease components evaluated under the new revenue recognition standard. |
• | Lessees – Leases are accounted for using a dual approach, classifying leases as either operating or finance based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification determines whether the lease expense is recognized on a straight-line basis over the term of the lease (for operating leases) or based on an effective interest method (for finance leases). A lessee is also required to record a right-of-use asset and a lease liability on its balance sheet for all leases with a term of greater than 12 months regardless of their classification as operating or finance leases. Leases with a term of 12 months or less are accounted for similar to existing guidance for operating leases. |
The Company adopted this new standard as required effective January 1, 2019 using a modified retrospective method and the Company applied the new guidance as of the adoption date and elected certain practical expedients, as described below. The standard impacted our consolidated balance sheets but did not impact our consolidated statements of operations. Right-of-use (“ROU”) assets and lease liabilities where the Company is the lessee were recognized for various corporate office leases and ground leases. The Company recorded ROU assets and related lease liabilities to its opening balance sheet upon adoption on January 1, 2019 of $434.2 million and $278.3 million, respectively. The Company calculated the net present value of the lease liabilities on January 1, 2019 and reclassed the following amounts from other assets and other liabilities to record our initial ROU assets (amounts in thousands):
|
| January 1, 2019 |
|
| Balance Sheet Reclass: | |
Initial lease liabilities |
| $ | 278,287 |
|
|
|
Reclassifications: |
|
|
|
|
|
|
Prepaid ground leases |
|
| 17,886 |
|
| Other Assets |
Ground lease intangibles – below market, net |
|
| 166,230 |
|
| Other Assets |
Ground lease intangibles – above market, net |
|
| (2,110 | ) |
| Other Liabilities |
Straight-line rent liabilities (1) |
|
| (26,092 | ) |
| Other Liabilities |
Initial right-of-use assets |
| $ | 434,201 |
|
|
|
(1) | Straight-line rent liabilities relate to corporate office leases and certain ground leases. |
In July 2018, the FASB issued an amendment to the new leases standard, which includes a practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single component under the new leases standard. The amendment also provides a transition option that permits the application of the new guidance as of the adoption date rather than to all periods presented. The Company elected the practical expedient to account for both its lease and non-lease components as a single component under the leases standard and elected the new transition option as of the date of adoption effective January 1, 2019. See Note 8 for additional discussion regarding the new lease standard.
In August 2017, the FASB issued a final standard which makes changes to the hedge accounting model to enable entities to better portray their risk management activities in the financial statements. The new standard expands an entity’s ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk and eases certain documentation and assessment requirements. The new standard also eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of any hedging instrument to be presented in the same income statement line as the hedged instrument. The Company adopted this new standard as required effective January 1, 2019 and it did not have a material effect on its consolidated results of operations or financial position.
In August 2016 and October 2016, the FASB issued new standards to clarify how specific transactions are classified and presented on the statement of cash flows. Among other clarifications, the new standards specifically provide guidance for the following items within the statement of cash flows which have required significant judgment in the past:
Cash payments related to debt prepayments or extinguishment costs are to be classified within financing activities;
The portion of the cash payment made to settle a zero-coupon bond or a bond with an insignificant cash coupon attributable to accreted interest related to a debt discount is to be classified as a cash outflow within operating activities, and the portion attributable to the principal is to be classified within financing activities;
Insurance settlement proceeds are to be classified based on the nature of the loss;
Companies must elect to classify distributions received from equity method investees using either a cumulative earnings approach or a look-through approach and the election must be disclosed; and
Restricted cash will be included with cash and cash equivalents on the statement of cash flows. Total cash and cash equivalents and restricted cash are to be reconciled to the related line items on the balance sheet.
The new standards must be applied retrospectively to all periods presented in the consolidated financial statements. The Company adopted the new standard in the fourth quarter of 2017 and will continue to apply the look-through approach for distributions received from equity method investees. While overall cash flows did not change, there are changes between cash flow classifications due primarily to the debt prepayment penalties that the Company has incurred in the comparative period. As of September 30, 2017, the following cash flows were reclassified (amounts in thousands):
21
| Nine Months Ended September 30, 2017 |
| ||||||||||
|
| As Originally Presented |
|
| Reclassification Adjustments |
|
| As Presented Herein |
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discounts and premiums on debt |
| $ | 4,939 |
|
| $ | (2,921 | ) |
| $ | 2,018 |
|
Net (gain) loss on debt extinguishment |
| $ | — |
|
| $ | 12,258 |
|
| $ | 12,258 |
|
(Increase) decrease in deposits - restricted |
| $ | 788 |
|
| $ | (788 | ) |
| $ | — |
|
(Increase) decrease in mortgage deposits |
| $ | 1,447 |
|
| $ | (1,447 | ) |
| $ | — |
|
Net cash provided by operating activities |
| $ | 963,034 |
|
| $ | 7,102 |
|
| $ | 970,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in deposits on real estate acquisitions and investments, net |
| $ | 39,519 |
|
| $ | (39,519 | ) |
| $ | — |
|
(Increase) decrease in mortgage deposits |
| $ | (4,541 | ) |
| $ | 4,541 |
|
| $ | — |
|
Net cash provided by (used for) investing activities |
| $ | (480,797 | ) |
| $ | (34,978 | ) |
| $ | (515,775 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage deposits |
| $ | 57,057 |
|
| $ | (57,057 | ) |
| $ | — |
|
Mortgage notes payable, net: Net gain (loss) on debt extinguishment |
| $ | — |
|
| $ | (12,258 | ) |
| $ | (12,258 | ) |
Line of credit and commercial paper: Commercial paper proceeds |
| $ | 3,888,675 |
|
| $ | 2,921 |
|
| $ | 3,891,596 |
|
Net cash (used for) financing activities |
| $ | (512,879 | ) |
| $ | (66,394 | ) |
| $ | (579,273 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
| $ | 77,207 |
|
|
|
|
|
|
|
|
|
(adjustments for restricted deposits, beginning of period) |
|
|
|
|
| $ | 141,881 |
|
|
|
|
|
Cash and cash equivalents and restricted deposits, beginning of period |
|
|
|
|
|
|
|
|
| $ | 219,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
| $ | 46,565 |
|
|
|
|
|
|
|
|
|
(adjustments for restricted deposits, end of period) |
|
|
|
|
| $ | 47,611 |
|
|
|
|
|
Cash and cash equivalents and restricted deposits, end of period |
|
|
|
|
|
|
|
|
| $ | 94,176 |
|
In January 2017, the FASB issued a new standard which clarified the definition of a business. The standard’s objective was to add additional guidance that assists companies in determining whether transactions should be accounted for as an asset acquisition or a business combination. The new standard first requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If this threshold is not met, the entity next evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Among other differences, transaction costs associated with asset acquisitions are capitalized while those associated with business combinations are expensed as incurred. In addition, purchase price in an asset acquisition is allocated on a relative fair value basis while in a business combination it is generally measured at fair value. The new standard will be applied prospectively to any transactions occurring within the period of adoption. The Company early adopted the new standard as allowed effective January 1, 2017. The Company anticipates that substantially all of its transactions will now be accounted for as asset acquisitions, which means transaction costs will largely be capitalized as noted above.
In February 2017, the FASB issued a new standard which clarifies the accounting treatment for partial sales of nonfinancial assets (i.e. real estate). The standard clarifies that partial sales transactions include contributions of nonfinancial assets to a joint venture or other noncontrolled investee. Companies must recognize a full gain or loss on transfers of nonfinancial assets to equity method investees. The standard requires companies to derecognize distinct nonfinancial assets or distinct in substance nonfinancial assets in partial sale transactions when it does not have a controlling financial interest in the legal entity that holds the asset and transfers control of the asset. Once the distinct nonfinancial asset is transferred, the company is required to measure any non-controlling interest it receives or retains at fair value and recognize a full gain or loss on the transaction. If a company transfers ownership interests in a consolidated subsidiary and continues to maintain a controlling financial interest, the company does not derecognize the assets or liabilities, and accounts for the transaction as an equity transaction and no gain or loss is recognized. The Company adopted this new standard concurrently with the new revenue recognition standard as required effective January 1, 2018. The Company has not had a partial sale of nonfinancial assets in the current or comparative periods, therefore the adoption of this standard did not have a material impact on its consolidated results of operations and financial position.
3. | Equity, Capital and OtherInterests |
Equity and Redeemable Noncontrolling Interests of Equity Residential
The following tables present the changes in the Company’s issued and outstanding Common Shares and “Units” (which
22
includes OP Units and restricted units) for the ninesix months ended SeptemberJune 30, 2019 and 2018:
| ||||
| ||||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
|
| ||
|
| |||
|
| |||
|
|
|
|
| 2019 |
|
| 2018 |
| ||
Common Shares |
|
|
|
|
|
|
|
|
Common Shares outstanding at January 1, |
|
| 369,405,161 |
|
|
| 368,018,082 |
|
Common Shares Issued: |
|
|
|
|
|
|
|
|
Conversion of OP Units |
|
| 188,406 |
|
|
| 11,494 |
|
Exercise of share options |
|
| 1,059,674 |
|
|
| 80,875 |
|
Employee Share Purchase Plan (ESPP) |
|
| 27,131 |
|
|
| 44,858 |
|
Restricted share grants, net |
|
| 158,438 |
|
|
| 123,027 |
|
Common Shares outstanding at June 30, |
|
| 370,838,810 |
|
|
| 368,278,336 |
|
Units |
|
|
|
|
|
|
|
|
Units outstanding at January 1, |
|
| 13,904,035 |
|
|
| 13,768,438 |
|
Restricted unit grants, net |
|
| 140,055 |
|
|
| 267,074 |
|
Conversion of OP Units to Common Shares |
|
| (188,406 | ) |
|
| (11,494 | ) |
Units outstanding at June 30, |
|
| 13,855,684 |
|
|
| 14,024,018 |
|
Total Common Shares and Units outstanding at June 30, |
|
| 384,694,494 |
|
|
| 382,302,354 |
|
Units Ownership Interest in Operating Partnership |
|
| 3.6 | % |
|
| 3.7 | % |
The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units, as well as the equity positions of the holders of restricted units, are collectively referred to as the “Noncontrolling Interests – Operating Partnership”. Subject to certain exceptions (including the “book-up” requirements of restricted units), the Noncontrolling Interests – Operating Partnership may exchange their Units with EQR for Common Shares on a one-for-one basis. The carrying value of the Noncontrolling Interests – Operating Partnership (including redeemable interests) is allocated based on the number of Noncontrolling Interests – Operating Partnership Units in total in proportion to the number of Noncontrolling Interests – Operating Partnership Units in total plus the number of Common Shares. Net income is allocated to the Noncontrolling Interests – Operating Partnership based on the weighted average ownership percentage during the period.
The Operating Partnership has the right but not the obligation to make a cash payment instead of issuing Common Shares to any and all holders of Noncontrolling Interests – Operating Partnership Units requesting an exchange of their OP Units with EQR. Once the Operating Partnership elects not to redeem the Noncontrolling Interests – Operating Partnership Units for cash, EQR is obligated to deliver Common Shares to the exchanging holder of the Noncontrolling Interests – Operating Partnership Units.
TheNoncontrollingInterests–OperatingPartnershipUnitsareclassifiedaseithermezzanineequityorpermanentequity. If EQR is required, either by contract or securities law, to deliver registered Common Shares, such Noncontrolling Interests – Operating Partnership are differentiated and referred to as “Redeemable Noncontrolling Interests – Operating Partnership”. Instruments that require settlement in registered shares cannot be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered shares. Therefore, settlement in cash is assumed and that responsibility for settlement in cash is deemed to fall to the Operating Partnership as the primary source of cash for EQR, resulting in presentation in the mezzanine section of the balance sheet. The Redeemable Noncontrolling Interests – Operating Partnership are adjusted to the greater of carrying value or fair market value based on the Common Share price of EQR at the end of each respective reporting period. EQR has the ability to deliver unregistered Common Shares for the remaining portion of the Noncontrolling Interests – Operating Partnership Units that are classified in permanent equity at SeptemberJune 30, 20182019 and December 31, 2017.2018.
ThecarryingvalueoftheRedeemableNoncontrollingInterests–OperatingPartnershipisallocatedbasedonthenumber ofRedeemableNoncontrollingInterests–OperatingPartnershipUnitsinproportiontothenumberofNoncontrollingInterests– Operating Partnership Units in total. Such percentage of the total carrying value of Units which is ascribed to the Redeemable NoncontrollingInterests–OperatingPartnershipisthenadjustedtothegreaterofcarryingvalueorfairmarketvalueasdescribed above. As of SeptemberJune 30, 2019 and 2018, the Redeemable Noncontrolling Interests – Operating Partnership have a redemption value of approximately $381.2 $436.0million and $366.5 million, respectively,whichrepresentsthevalueofCommonSharesthatwouldbeissuedinexchangefortheRedeemable NoncontrollingInterests–OperatingPartnershipUnits.
23
ThefollowingtablepresentsthechangesintheredemptionvalueoftheRedeemableNoncontrollingInterests–Operating Partnership for the ninesix months ended SeptemberJune 30, 2019 and 2018 (amounts inthousands):
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||
Balance at January 1, |
| $ | 366,955 |
|
| $ | 379,106 |
|
| $ | 366,955 |
|
Change in market value |
|
| 14,361 |
|
|
| 56,974 |
|
|
| 172 |
|
Change in carrying value |
|
| (77 | ) |
|
| (45 | ) |
|
| (644 | ) |
Balance at September 30, |
| $ | 381,239 |
| ||||||||
Balance at June 30, |
| $ | 436,035 |
|
| $ | 366,483 |
|
Net proceeds from EQR Common Share and Preferred Share (see definition below) offerings are contributed by EQR to ERPOP. In return for those contributions, EQR receives a number of OP Units in ERPOP equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in ERPOP equal in number and having the same terms as the Preferred Shares issued in the equity offering). As a result, the net offering proceeds from Common Shares and Preferred Shares are allocated between shareholders’ equity and Noncontrolling Interests – Operating Partnership to account for the change in their respective percentage ownership of the underlying equity of ERPOP.
TheCompany’sdeclarationoftrustauthorizesittoissueupto100,000,000preferredsharesofbeneficialinterest, $0.01$0.01 par value per share (the “Preferred Shares”), with specific rights, preferences and other attributes as the Board of Trustees may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Company’s Common Shares.
ThefollowingtablepresentstheCompany’sissuedandoutstandingPreferredSharesasof SeptemberJune 30, 2018 2019andDecember 31, 2017:2018:
|
|
|
|
|
|
|
| Amounts in thousands |
|
|
|
|
|
|
|
| Amounts in thousands |
| ||||||||||
|
|
|
| Annual |
|
|
|
|
|
|
|
|
|
|
|
| Annual |
|
|
|
|
|
|
|
|
| ||
|
| Call |
| Dividend Per |
|
| September 30, |
|
| December 31, |
|
| Call |
| Dividend Per |
|
| June 30, |
|
| December 31, |
| ||||||
|
| Date (1) |
| Share (2) |
|
| 2018 |
|
| 2017 |
|
| Date (1) |
| Share (2) |
|
| 2019 |
|
| 2018 |
| ||||||
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 745,600 shares issued and outstanding as of September 30, 2018 and December 31, 2017 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
| ||||||||||||||
8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 745,600 shares issued and outstanding as of June 30, 2019 and December 31, 2018 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
| ||||||||||||||
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
(1) | On or after the call date, redeemable preferred shares may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price equal to the liquidation price per share, plus accrued and unpaid distributions, if any. |
(2) | Dividends on Preferred Shares are payable quarterly. |
24
Capital and Redeemable Limited Partners of ERP Operating Limited Partnership
The following tables present the changes in the Operating Partnership’s issued and outstanding Units and in the limited partners’ Units for the ninesix months ended SeptemberJune 30, 2019 and 2018:
| ||||
| ||||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
|
| ||
|
| |||
|
|
|
|
| 2019 |
|
| 2018 |
| ||
General and Limited Partner Units |
|
|
|
|
|
|
|
|
General and Limited Partner Units outstanding at January 1, |
|
| 383,309,196 |
|
|
| 381,786,520 |
|
Issued to General Partner: |
|
|
|
|
|
|
|
|
Exercise of EQR share options |
|
| 1,059,674 |
|
|
| 80,875 |
|
EQR’s Employee Share Purchase Plan (ESPP) |
|
| 27,131 |
|
|
| 44,858 |
|
EQR’s restricted share grants, net |
|
| 158,438 |
|
|
| 123,027 |
|
Issued to Limited Partners: |
|
|
|
|
|
|
|
|
Restricted unit grants, net |
|
| 140,055 |
|
|
| 267,074 |
|
General and Limited Partner Units outstanding at June 30, |
|
| 384,694,494 |
|
|
| 382,302,354 |
|
Limited Partner Units |
|
|
|
|
|
|
|
|
Limited Partner Units outstanding at January 1, |
|
| 13,904,035 |
|
|
| 13,768,438 |
|
Limited Partner restricted unit grants, net |
|
| 140,055 |
|
|
| 267,074 |
|
Conversion of Limited Partner OP Units to EQR Common Shares |
|
| (188,406 | ) |
|
| (11,494 | ) |
Limited Partner Units outstanding at June 30, |
|
| 13,855,684 |
|
|
| 14,024,018 |
|
Limited Partner Units Ownership Interest in Operating Partnership |
|
| 3.6 | % |
|
| 3.7 | % |
The Limited Partners of the Operating Partnership as of SeptemberJune 30, 2018 2019 include various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units, as well as the equity positions of the holders of restricted units. Subject to certain exceptions (including the “book-up” requirements of restricted units), Limited Partners may exchange their Units with EQR for Common Shares on a one-for-one basis. The carrying value of the Limited Partner Units (including redeemable interests) is allocated based on the number of Limited Partner Units in total in proportion to the number of Limited Partner Units in total plus the number of General Partner Units. Net income is allocated to the Limited Partner Units based on the weighted average ownership percentage during the period.
The Operating Partnership has the right but not the obligation to make a cash payment instead of issuing Common Shares to any and all holders of Limited Partner Units requesting an exchange of their OP Units with EQR. Once the Operating Partnership elects not to redeem the Limited Partner Units for cash, EQR is obligated to deliver Common Shares to the exchanging limited partner.
The Limited Partner Units are classified as either mezzanine equity or permanent equity. If EQR is required, either by contract or securities law, to deliver registered Common Shares, such Limited Partner Units are differentiated and referred to as “Redeemable Limited Partner Units”. Instruments that require settlement in registered shares cannot be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered shares. Therefore, settlement in cash is assumed and that responsibility for settlement in cash is deemed to fall to the Operating Partnership as the primary source of cash for EQR, resulting in presentation in the mezzanine section of the balance sheet. The Redeemable Limited Partner Units are adjusted to the greater of carrying value or fair market value based on the Common Share price of EQR at the end of each respective reporting period. EQR has the ability to deliver unregistered Common Shares for the remaining portion of the Limited Partner Units that are classified in permanent equity at SeptemberJune 30, 20182019 and December 31, 20172018.
The carrying value of the Redeemable Limited Partner Units is allocated based on the number of Redeemable Limited PartnerUnitsinproportiontothenumberofLimitedPartnerUnitsintotal. SuchpercentageofthetotalcarryingvalueofLimited Partner Units which is ascribed to the Redeemable Limited Partner Units is then adjusted to the greater of carrying value or fair market value as described above. As of SeptemberJune 30, 2019 and 2018, the Redeemable Limited Partner Units have a redemption value of approximately $381.2 $436.0million and $366.5 million, respectively,whichrepresentsthevalueofCommonSharesthatwouldbeissuedinexchangefortheRedeemable Limited PartnerUnits.
25
The following table presents the changes in the redemption value of the Redeemable Limited Partners for the ninesix months ended SeptemberJune 30, 2019 and 2018 (amounts in thousands):
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||
Balance at January 1, |
| $ | 366,955 |
|
| $ | 379,106 |
|
| $ | 366,955 |
|
Change in market value |
|
| 14,361 |
|
|
| 56,974 |
|
|
| 172 |
|
Change in carrying value |
|
| (77 | ) |
|
| (45 | ) |
|
| (644 | ) |
Balance at September 30, |
| $ | 381,239 |
| ||||||||
Balance at June 30, |
| $ | 436,035 |
|
| $ | 366,483 |
|
EQR contributes all net proceeds from its various equity offerings (including proceeds from exercise of options for CommonShares)toERPOP. Inreturnforthosecontributions,EQRreceivesanumberofOPUnitsinERPOPequaltothenumber of OP Units CommonSharesithasissuedin ERPOP equal to theequityoffering(orinthecaseofapreferredequityoffering,anumberof Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preferenceunits in ERPOP equal in number and having the same terms as the preferred shares issued in the equity offering).
ThefollowingtablepresentstheOperatingPartnership’sissuedandoutstanding“PreferenceUnits”asofJune 30, 2019 and outstanding “Preference Units” as of September 30, 2018 and December 31, 20172018:
|
|
|
|
|
|
|
| Amounts in thousands |
|
|
|
|
|
|
|
| Amounts in thousands |
| ||||||||||
|
|
|
| Annual |
|
|
|
|
|
|
|
|
|
|
|
| Annual |
|
|
|
|
|
|
|
|
| ||
|
| Call |
| Dividend Per |
|
| September 30, |
|
| December 31, |
|
| Call |
| Dividend Per |
|
| June 30, |
|
| December 31, |
| ||||||
|
| Date (1) |
| Unit (2) |
|
| 2018 |
|
| 2017 |
|
| Date (1) |
| Unit (2) |
|
| 2019 |
|
| 2018 |
| ||||||
Preference Units: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 745,600 units issued and outstanding as of September 30, 2018 and December 31, 2017 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
| ||||||||||||||
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 745,600 units issued and outstanding as of June 30, 2019 and December 31, 2018 |
| 12/10/26 |
| $ | 4.145 |
|
| $ | 37,280 |
|
| $ | 37,280 |
| ||||||||||||||
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
|
|
|
|
|
|
| $ | 37,280 |
|
| $ | 37,280 |
|
(1) | On or after the call date, redeemable preference units may be redeemed for cash at the option of the Operating Partnership, in whole or in part, at a redemption price equal to the liquidation price per unit, plus accrued and unpaid distributions, if any, in conjunction with the concurrent redemption of the corresponding Company Preferred Shares. |
(2) | Dividends on Preference Units are payable quarterly. |
Other
In September 2009,EQR and ERPOP currently have an active universal shelf registration statement for the Company announcedissuance of equity and debt securities that automatically became effective upon filing with the establishment of an At-The-Market (“ATM”) share offering program which would allow EQR to sell Common Shares from time to time into the existing trading market at current market prices as well as through negotiated transactions.SEC in June 2019 and expires in June 2022. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds fromof 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 currently has awhich allows EQR to sell Common Shares from time to time into the existing trading market at current market prices as wellasthroughnegotiatedtransactions. In June 2019, the Company extended the program maturity ofto June 2019.2022. EQR has the authority to issue 13.0 million shares but has not issued any shares under this program since September 2012.
The Company may repurchase up to 13.0 million Common Shares under its share repurchase program. No shares were repurchased during the nine months ended September 30, 2018.open market repurchases have occurred since 2008, and no repurchases of any kind have occurred since February 2014. As of SeptemberJune 30, 2018,2019, EQR has remaining authorization to repurchase up to 13.0 million of its shares under the repurchase program.
26
The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of SeptemberJune 30, 20182019 and December 31, 20172018 (amounts in thousands):
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Land |
| $ | 5,866,457 |
|
| $ | 5,996,024 |
|
Depreciable property: |
|
|
|
|
|
|
|
|
Buildings and improvements |
|
| 18,174,939 |
|
|
| 17,743,042 |
|
Furniture, fixtures and equipment |
|
| 1,684,794 |
|
|
| 1,548,961 |
|
In-Place lease intangibles |
|
| 477,014 |
|
|
| 476,359 |
|
Projects under development: |
|
|
|
|
|
|
|
|
Land |
|
| 34,689 |
|
|
| 43,226 |
|
Construction-in-progress |
|
| 100,272 |
|
|
| 120,321 |
|
Land held for development: |
|
|
|
|
|
|
|
|
Land |
|
| 61,038 |
|
|
| 62,538 |
|
Construction-in-progress |
|
| 26,297 |
|
|
| 36,425 |
|
Investment in real estate |
|
| 26,425,500 |
|
|
| 26,026,896 |
|
Accumulated depreciation |
|
| (6,494,770 | ) |
|
| (6,040,378 | ) |
Investment in real estate, net |
| $ | 19,930,730 |
|
| $ | 19,986,518 |
|
The following table summarizes the carrying amounts for the Company’s above and below market ground and retail lease intangibles as of September 30, 2018 and December 31, 2017 (amounts in thousands):
Description |
| Balance Sheet Location |
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
Ground lease intangibles – below market |
| Other Assets |
| $ | 191,918 |
|
| $ | 191,918 |
|
Retail lease intangibles – above market |
| Other Assets |
|
| 1,260 |
|
|
| 1,260 |
|
Lease intangible assets |
|
|
|
| 193,178 |
|
|
| 193,178 |
|
Accumulated amortization |
|
|
|
| (25,819 | ) |
|
| (22,434 | ) |
Lease intangible assets, net |
|
|
| $ | 167,359 |
|
| $ | 170,744 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Ground lease intangibles – above market |
| Other Liabilities |
| $ | 2,400 |
|
| $ | 2,400 |
|
Retail lease intangibles – below market |
| Other Liabilities |
|
| 1,710 |
|
|
| 5,270 |
|
Lease intangible liabilities |
|
|
|
| 4,110 |
|
|
| 7,670 |
|
Accumulated amortization |
|
|
|
| (1,674 | ) |
|
| (5,143 | ) |
Lease intangible liabilities, net |
|
|
| $ | 2,436 |
|
| $ | 2,527 |
|
The following table provides a summary of the effect of the amortization for above and below market ground and retail lease intangibles on the Company’s accompanying consolidated statements of operations and comprehensive income for the nine months and quarters ended September 30, 2018 and 2017, respectively (amounts in thousands):
|
|
|
| Nine Months Ended |
|
| Quarter Ended |
| ||||||||||
|
|
|
| September 30, |
|
| September 30, |
| ||||||||||
Description |
| Income Statement Location |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Ground lease intangible amortization |
| Property and Maintenance |
| $ | (3,348 | ) |
| $ | (3,253 | ) |
| $ | (1,116 | ) |
| $ | (1,092 | ) |
Retail lease intangible amortization |
| Rental Income |
|
| 54 |
|
|
| 524 |
|
|
| 18 |
|
|
| 80 |
|
Total amortization of above/below market lease intangibles |
|
|
| $ | (3,294 | ) |
| $ | (2,729 | ) |
| $ | (1,098 | ) |
| $ | (1,012 | ) |
27
The following table provides a summary of the aggregate amortization for above and below market ground and retail lease intangibles for each of the next five years (amounts in thousands):
|
| Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
| ||||||
Ground lease intangibles |
| $ | (1,115 | ) |
| $ | (4,463 | ) |
| $ | (4,463 | ) |
| $ | (4,463 | ) |
| $ | (4,463 | ) |
| $ | (4,463 | ) |
Retail lease intangibles |
|
| 17 |
|
|
| 71 |
|
|
| 71 |
|
|
| 71 |
|
|
| 27 |
|
|
| 19 |
|
Total |
| $ | (1,098 | ) |
| $ | (4,392 | ) |
| $ | (4,392 | ) |
| $ | (4,392 | ) |
| $ | (4,436 | ) |
| $ | (4,444 | ) |
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||
Land |
| $ | 5,889,308 |
|
| $ | 5,875,803 |
|
Depreciable property: |
|
|
|
|
|
|
|
|
Buildings and improvements |
|
| 18,529,097 |
|
|
| 18,232,625 |
|
Furniture, fixtures and equipment |
|
| 1,813,243 |
|
|
| 1,722,231 |
|
In-Place lease intangibles |
|
| 481,713 |
|
|
| 481,045 |
|
Projects under development: |
|
|
|
|
|
|
|
|
Land |
|
| 25,429 |
|
|
| 25,429 |
|
Construction-in-progress |
|
| 146,440 |
|
|
| 83,980 |
|
Land held for development: |
|
|
|
|
|
|
|
|
Land |
|
| 74,187 |
|
|
| 61,038 |
|
Construction-in-progress |
|
| 36,358 |
|
|
| 28,871 |
|
Investment in real estate |
|
| 26,995,775 |
|
|
| 26,511,022 |
|
Accumulated depreciation |
|
| (7,026,622 | ) |
|
| (6,696,281 | ) |
Investment in real estate, net |
| $ | 19,969,153 |
|
| $ | 19,814,741 |
|
During the ninesix months ended SeptemberJune 30, 2018,2019, the Company acquired the entire equity interest in the following from unaffiliated parties (purchase price in thousands):
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
| ||||||
Rental Properties – Consolidated (1) |
|
| 5 |
|
|
| 1,478 |
|
| $ | 707,005 |
|
|
| 6 |
|
|
| 1,644 |
|
| $ | 634,650 |
|
Land Parcels (one) (2) |
|
| — |
|
|
| — |
|
|
| 16,232 |
| ||||||||||||
Total |
|
| 5 |
|
|
| 1,478 |
|
| $ | 707,005 |
|
|
| 6 |
|
|
| 1,644 |
|
| $ | 650,882 |
|
(1) | Purchase price includes an allocation of approximately |
(2) | Purchase price includes an allocation of approximately $13.1 million to vacant land and $3.4 million to construction-in-progress (inclusive of capitalized closing costs). See Note 6 for additional discussion. |
During the ninesix months ended SeptemberJune 30, 2018,2019, the Company disposed of the following to unaffiliated parties (sales price in thousands):
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
| ||||||
Rental Properties – Consolidated |
|
| 5 |
|
|
| 1,292 |
|
| $ | 706,120 |
|
|
| 2 |
|
|
| 561 |
|
| $ | 402,750 |
|
Land Parcels (one) |
|
| — |
|
|
| — |
|
|
| 2,700 |
| ||||||||||||
Rental Properties – Unconsolidated (1) |
|
| 2 |
|
|
| 945 |
|
|
| 394,500 |
| ||||||||||||
Total |
|
| 5 |
|
|
| 1,292 |
|
| $ | 708,820 |
|
|
| 4 |
|
|
| 1,506 |
|
| $ | 797,250 |
|
(1) | The Company owned a 20% interest in both unconsolidated rental properties. Sales price listed is the gross sales price. The Company received net sales proceeds of approximately $78.3 million. |
The Company recognized a net gain on sales of real estate properties of approximately $256.8$138.8 million and a net gain on sales of land parcelsunconsolidated entities of approximately $1.0$69.5 million on the above sales.
Impairment
During the nine months ended September 30, 2018, the Company recorded an approximate $0.7 million non-cash asset impairment charge on a property located in the San Francisco market due to physical property damage as a result of a fire at one of the buildings at the property.
The Company has not entered into anyan agreement to acquire the following (purchase price in thousands):
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
| |||
Rental Properties – Consolidated |
|
| 1 |
|
|
| 398 |
|
| $ | 189,000 |
|
Total |
|
| 1 |
|
|
| 398 |
|
| $ | 189,000 |
|
The Company has entered into separate agreements to acquire or dispose of rentalthe following (sales price in thousands):
|
| Properties |
|
| Apartment Units |
|
| Sales Price |
| |||
Rental Properties – Consolidated |
|
| 7 |
|
|
| 940 |
|
| $ | 336,925 |
|
Land Parcels (one) |
|
| — |
|
|
| — |
|
|
| 4,150 |
|
Total |
|
| 7 |
|
|
| 940 |
|
| $ | 341,075 |
|
The closing of pending transactions is subject to certain conditions and restrictions; therefore, there can be no assurance that the transactions will be consummated or that the final terms will not differ in material respects from any agreements summarized above. See Note 14 for discussion of the properties acquired or land parcels asdisposed of, October 26, 2018.if any, subsequent to June 30, 2019.
6. | Investments in Partially OwnedEntities |
TheCompanyhasco-investedinvariouspropertieswithunrelatedthirdpartieswhichareeitherconsolidatedoraccounted for under the equity method of accounting (unconsolidated).
Consolidated Variable Interest Entities (“VIEs”)
In accordance with accounting standards for consolidation of VIEs, the Company consolidates ERPOP on EQR’s financial statements. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management. The limited partners are not able to exercise substantive kick-out or participating rights. As a result, ERPOP qualifies as a VIE. EQR has a controlling financial interest in ERPOP and, thus, is ERPOP’s primary beneficiary. EQR has the power to direct the activities of ERPOP that most significantly impact ERPOP’s economic performance as well as the obligation to absorb losses or the right to receive benefits from ERPOP that could potentially be significant to ERPOP.
The Company has various equity interests in certain joint ventures owning 17 properties containing 3,535 apartment units. The Company is the general partner or managing member of these joint ventures and is responsible for managing the operations and affairs
28
of the joint ventures as well as making all decisions regarding the businesses of the joint ventures. The limited partners or non-managing members are not able to exercise substantive kick-out or participating rights. As a result, the joint ventures qualify as VIEs. The Company has a controlling financial interest in the VIEs and, thus, is the VIEs’ primary beneficiary. The Company has both the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. As a result, the joint ventures are required to be consolidated on the Company’s financial statements.
During the six months ended June 30, 2019, the Company entered into a consolidated joint venture which is owned 90% by the Company and 10% by its joint venture partner, who is the general partner. The joint venture has been deemed to be a VIE and is consolidated due to the Company being the primary beneficiary. The joint venture owns a land parcel which it intends to develop into a multifamily rental property.
The consolidated assets and liabilities related to the joint venturesVIEs discussed above were approximately $714.4$710.8 million and $315.6$321.3 million, respectively, at SeptemberJune 30, 20182019 and approximately $518.9$713.6 million and $307.0$313.9 million, respectively, at December 31, 2017.2018.
Investments in Unconsolidated Entities
The following table and information summarizes the Company’s investments in unconsolidated entities, which are accounted for under the equity method of accounting as the requirements for consolidation are not met, as of SeptemberJune 30, 20182019 and December 31, 20172018 (amounts in thousands except for ownership percentage):
| September 30, 2018 |
|
| December 31, 2017 |
|
| Ownership Percentage |
| June 30, 2019 |
|
| December 31, 2018 |
|
| Ownership Percentage |
| ||||||
Investments in Unconsolidated Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wisconsin Place Developer (VIE) (1) | $ | 42,964 |
|
| $ | 44,451 |
|
| 33.3% |
| $ | 41,383 |
|
| $ | 42,365 |
|
| 33.3% |
| ||
Operating Properties (Non-VIE) (2) |
| 10,745 |
|
|
| 12,367 |
|
| 20.0% |
|
| — |
|
|
| 10,494 |
|
| 20.0% |
| ||
Other |
| 3,867 |
|
|
| 1,436 |
|
| Varies |
|
| 11,524 |
|
|
| 5,490 |
|
| Varies |
| ||
Investments in Unconsolidated Entities | $ | 57,576 |
|
| $ | 58,254 |
|
|
|
|
| $ | 52,907 |
|
| $ | 58,349 |
|
|
|
|
|
(1) | Represents an unconsolidated interest in an entity that owns the land underlying one of the consolidated joint venture properties noted above and owns and operates a related parking facility. The joint venture, as a limited partner, does not have substantive kick-out or participating rights in the entity. As a result, the entity qualifies as a VIE. The joint venture does not have a controlling financial interest in the VIE and is |
not the VIE’s primary beneficiary. The joint venture does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance or the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. As a result, the entity that owns the land and owns and operates the parking facility is unconsolidated and recorded using the equity method of accounting. |
(2) | Includes two joint ventures under separate agreements with the same partner totaling 945 apartment |
The following table presents the Company’s restricted deposits as of SeptemberJune 30, 20182019 and December 31, 20172018 (amounts in thousands):
|
| September 30, 2018 |
|
| December 31, 2017 |
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||||
Mortgage escrow deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes and insurance |
| $ | 600 |
|
| $ | 845 |
|
| $ | 1,181 |
|
| $ | 876 |
|
Replacement reserves |
|
| 8,478 |
|
|
| 8,347 |
|
|
| 8,599 |
|
|
| 8,641 |
|
Mortgage principal reserves/sinking funds |
|
| 8,363 |
|
|
| 3,167 |
|
|
| 7,898 |
|
|
| 9,754 |
|
Other |
|
| 852 |
|
|
| 852 |
|
|
| 852 |
|
|
| 852 |
|
Mortgage escrow deposits |
|
| 18,293 |
|
|
| 13,211 |
|
|
| 18,530 |
|
|
| 20,123 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnest money on pending acquisitions |
|
| — |
|
|
| 750 |
|
|
| 1,000 |
|
|
| 5,000 |
|
Restricted deposits on real estate investments |
|
| 538 |
|
|
| 58 |
|
|
| 1,493 |
|
|
| 540 |
|
Resident security and utility deposits |
|
| 35,379 |
|
|
| 35,183 |
|
|
| 36,192 |
|
|
| 35,659 |
|
Other |
|
| 1,545 |
|
|
| 913 |
|
|
| 980 |
|
|
| 7,549 |
|
Restricted cash |
|
| 37,462 |
|
|
| 36,904 |
|
|
| 39,665 |
|
|
| 48,748 |
|
Restricted deposits |
| $ | 55,755 |
|
| $ | 50,115 |
|
| $ | 58,195 |
|
| $ | 68,871 |
|
29
8. | Leases |
Lessor Accounting
The Company is the lessor for its residential and retail leases (including commercial leases) and these leases will continue to be accounted for as operating leases under the new standard as described in Note 2. Therefore, the Company did not have significant changes in the accounting for its lease revenues.
For the six months ended June 30, 2019, approximately 97.1% of the Company’s total lease revenue is generated from residential apartment leases that are generally for twelve months or less in length. The residential apartment leases may include lease income related to such items as parking, storage and pet rent that the Company treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. The collection of lease payments at lease commencement is probable and therefore the Company subsequently recognizes lease income over the lease term on a straight-line basis. Residential leases are renewable upon consent of both parties on an annual or monthly basis.
For the six months ended June 30, 2019, approximately 2.9% of the Company’s total lease revenue is generated by retail leases that are generally for terms ranging between 5-10 years. The retail leases generally consist of ground floor retail spaces and master-leased parking garages that serve as additional amenities for our residents. The retail leases may include lease income related to such items as parking and storage rent that the Company treats as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. The collection of lease payments at lease commencement is probable and therefore the Company subsequently recognizes lease income over the lease term on a straight-line basis. Retail leases are renewable with market-based renewal options.
The Company elected the practical expedient to account for both its lease and non-lease components (specifically common area maintenance charges) as a single lease component under the leases standard.
The following table presents the lease income types relating to lease payments for residential and retail leases for the six months and quarter ended June 30, 2019 (amounts in thousands):
|
| Six Months Ended June 30, 2019 |
|
| Quarter Ended June 30, 2019 |
| ||||||||||||||||||
Lease Income Type |
| Residential Leases |
|
| Retail Leases |
|
| Total |
|
| Residential Leases |
|
| Retail Leases |
|
| Total |
| ||||||
Residential and retail rent |
| $ | 1,190,729 |
|
| $ | 36,163 |
|
| $ | 1,226,892 |
|
| $ | 598,209 |
|
| $ | 17,693 |
|
| $ | 615,902 |
|
Parking rent |
|
| 18,469 |
|
|
| 159 |
|
|
| 18,628 |
|
|
| 9,332 |
|
|
| 87 |
|
|
| 9,419 |
|
Storage rent |
|
| 1,856 |
|
|
| 31 |
|
|
| 1,887 |
|
|
| 937 |
|
|
| (13 | ) |
|
| 924 |
|
Pet rent |
|
| 5,798 |
|
|
| — |
|
|
| 5,798 |
|
|
| 2,911 |
|
|
| — |
|
|
| 2,911 |
|
Total lease revenue (1) |
| $ | 1,216,852 |
|
| $ | 36,353 |
|
| $ | 1,253,205 |
|
| $ | 611,389 |
|
| $ | 17,767 |
|
| $ | 629,156 |
|
(1) | Excludes other rental income of $78.5 million for the six months ended June 30, 2019 and $40.2 million for the quarter ended June 30, 2019, which is accounted for under the revenue recognition standard. |
Lessee Accounting
The Company is the lessee under various corporate office and ground leases for which the Company recognized ROU assets and related lease liabilities effective January 1, 2019. The following table presents the Company’s ROU assets and related lease liabilities as of June 30, 2019 (amounts in thousands):
|
| 2019 |
| |
Right-of-use assets: |
|
|
|
|
Corporate office leases (1) |
| $ | 15,381 |
|
Ground leases |
|
| 416,372 |
|
Right-of-use assets |
| $ | 431,753 |
|
Lease liabilities: |
|
|
|
|
Corporate office leases (1) |
| $ | 16,879 |
|
Ground leases |
|
| 264,741 |
|
Lease liabilities |
| $ | 281,620 |
|
(1) | The Company has two corporate office leases that are considered short-term and therefore, there is no balance sheet impact and both leases continue to be expensed on a straight-line basis throughout the year. |
As the standard requires the recognition of a liability for the lease obligation, discount rates are used to determine the net present value of the lease payments. The discount rate for the lease is the rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. As the Company does not know the amount of the lessors’ initial direct costs, it cannot readily determine the rate implicit in the lease and instead must apply the incremental borrowing rate. The Company has estimated the discount rate ranges of 3.3% to 3.9% for corporate office leases and 4.4% to 5.5% for ground leases. Since the Company’s credit backs the corporate office lease obligations and the lease terms are ten years or less, the discount rate range was estimated by using the Company’s borrowing rates for actual pricing. The discount rate range for ground leases takes into account various factors, including the longer life of the ground leases, and was estimated by using the Company’s borrowing rates for actual pricing through 30 years and other long-term market rates.
Corporate office leases
The Company leases nine corporate offices with remaining lease terms of one to ten years. The Company’s corporate office leases continue to be accounted for as operating leases under the new standard. When there is a material lease modification, the Company is required to remeasure the lease liability.
The Company leases its corporate headquarters from an entity affiliated with EQR’s Chairman of the Board of Trustees. The lease terminates on January 31, 2022. The amount incurred for such office space for the six months and quarter ended June 30, 2019 was approximately $1.3 million and $0.7 million, respectively. The Company believes this amount approximates market rates for such rental space.
Ground leases
The Company maintains long-term ground leases for 14 operating properties with lease expiration dates ranging from 2042 through 2113. The Company owns the building and improvements. Based on its election of the package of practical expedients, the Company was not required to reassess the classification of existing ground leases and therefore these leases continue to be accounted for as operating leases. However, in the event we materially modify existing ground leases and/or enter into new ground leases, such leases will likely be classified as finance leases.
Additional disclosures
The following table illustrates the quantitative disclosures for lessees as of and for the six months and quarter ended June 30, 2019 (amounts in thousands):
|
| Six Months Ended June 30, 2019 |
|
| Quarter Ended June 30, 2019 |
| ||
Lease cost: |
|
|
|
|
|
|
|
|
Operating lease cost: |
|
|
|
|
|
|
|
|
Corporate office leases |
| $ | 1,818 |
|
| $ | 900 |
|
Ground leases |
|
| 11,100 |
|
|
| 5,550 |
|
Short-term lease cost: |
|
|
|
|
|
|
|
|
Corporate office leases |
|
| 112 |
|
|
| 56 |
|
Ground leases |
|
| — |
|
|
| — |
|
Variable lease cost: |
|
|
|
|
|
|
|
|
Corporate office leases |
|
| 769 |
|
|
| 508 |
|
Ground leases |
|
| 1,695 |
|
|
| 844 |
|
Total lease cost |
| $ | 15,494 |
|
| $ | 7,858 |
|
The following table illustrates the quantitative disclosures for lessees as of and for the six months ended June 30, 2019 (amounts in thousands):
|
| June 30, 2019 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases: |
|
|
|
|
Corporate office leases |
| $ | 2,776 |
|
Ground leases |
| $ | 8,635 |
|
ROU assets obtained in exchange for new operating lease liabilities: |
|
|
|
|
Corporate office leases |
| $ | 16,687 |
|
Ground leases |
| $ | 422,018 |
|
Weighted-average remaining lease term – operating leases: |
|
|
|
|
Corporate office leases |
| 6.4 years |
| |
Ground leases |
| 56.6 years |
| |
Weighted-average discount rate – operating leases: |
|
|
|
|
Corporate office leases |
|
| 3.7 | % |
Ground leases |
|
| 5.0 | % |
The following table summarizes the Company’s undiscounted cash flows for contractual obligations for minimum rent payments/receipts under operating leases for the next five years and thereafter as of June 30, 2019:
(Payments)/Receipts Due by Year (in thousands) |
| |||||||||||||||||||||||||||||||
|
| Remaining 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
|
| Total |
| ||||||||
Operating Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Rent Payments (a) |
| $ | (8,339 | ) |
| $ | (17,208 | ) |
| $ | (17,148 | ) |
| $ | (14,993 | ) |
| $ | (14,843 | ) |
| $ | (15,101 | ) |
| $ | (938,561 | ) |
| $ | (1,026,193 | ) |
Minimum Rent Receipts (b) |
| $ | 31,779 |
|
| $ | 61,674 |
|
| $ | 57,935 |
|
| $ | 54,099 |
|
| $ | 46,417 |
|
| $ | 39,356 |
|
| $ | 139,599 |
|
| $ | 430,859 |
|
(a) | Minimum basic rent due for corporate office leases and base rent due on ground leases where the Company is the lessee. |
(b) | Minimum basic rent receipts due for various retail space where the Company is the lessor. Excludes residential leases due to their short-term nature. |
The following table provides a reconciliation of lease liabilities from our undiscounted cash flows for minimum rent payments for the six months ended June 30, 2019 (amounts in thousands):
|
| 2019 |
| |
Total minimum rent payments |
| $ | 1,026,193 |
|
Less: Lease discount |
|
| 744,573 |
|
Lease liabilities |
| $ | 281,620 |
|
9. | Debt |
EQRdoesnothaveanyindebtednessasalldebtisincurredbytheOperatingPartnership. EQRguaranteestheOperating
Partnership’srevolvingcreditfacilityuptothemaximumamountandforthefulltermofthefacility. Weighted average interest rates noted below for the ninesix months ended SeptemberJune 30, 2018 are net of2019 include the effect of any derivative instruments. instruments and amortization of premiums/discounts/OCI (other comprehensive income) on debt and derivatives.
Mortgage Notes Payable
As of SeptemberJune 30, 2018,2019, the Company had outstanding mortgage debt of approximately $2.8$2.6 billion.
During the ninesix months ended SeptemberJune 30, 2018,2019, the Company:
Repaid $550.0 million of 6.08% mortgage debt held in a Fannie Mae loan pool maturing in 2020 and incurred a prepayment penalty of approximately $22.1 million;
• | Obtained $288.1 million in 3.94% fixed rate mortgage debt held in a Fannie Mae loan pool maturing on March 1, 2029; |
Repaid $43.7 million of conventional fixed-rate mortgage loans maturing in 2018;
• | Obtained $7.5 million in variable rate construction mortgage debt maturing on June 25, 2022 (total commitment of $67.6 million); |
Repaid $254.2 million of various tax-exempt mortgage bonds maturing in 2028 through 2042; and
• | Repaid $95.5 million of tax-exempt variable rate mortgage bonds maturing in 2036; and |
Repaid $4.9 million of scheduled principal repayments on various mortgage debt.
• | Repaid $3.1 million of scheduled principal repayments on various mortgage debt. |
The Company recorded $2.8$1.5 million of write-offs of unamortized deferred financing costs during the ninesix months ended SeptemberJune 30, 20182019 as additional interest expense related to debt extinguishment of mortgages. The Company also recorded $16.3$15.1 million of write-offs of net unamortized discounts during the ninesix months ended SeptemberJune 30, 20182019 as additional interest expense related to debt extinguishment of mortgages.
As of SeptemberJune 30, 2018,2019, the Company had $440.9$345.0 million of secured debt (primarily tax-exempt bonds) subject to third party credit enhancement.
Asof SeptemberJune 30, 2018, 2019,scheduledmaturitiesfortheCompany’soutstandingmortgageindebtednesswereatvariousdates through May 28, 2061. At SeptemberJune 30, 2018,2019, the interest rate range on the Company’s mortgage debt was 0.10% to 6.90%5.78%. During the ninesix months ended SeptemberJune 30, 2018,2019, the weighted average interest rate on the Company’s mortgage debt was 4.19%4.01%.
Notes
As of SeptemberJune 30, 2018,2019, the Company had outstanding unsecured notes of approximately $5.5$6.5 billion.
During the ninesix months ended SeptemberJune 30, 2018,2019, the Company issued $500.0$600.0 million of ten-year 3.50%3.00% unsecured notes, receiving net proceeds of approximately $497.0$597.5 million before underwriting fees, hedge termination costs and other expenses, at an all-in effective interest rate of 3.61%approximately 3.85%.
Asof September June 30, 20182019,scheduledmaturitiesfortheCompany’soutstandingnoteswereatvariousdatesthroughAugust 1, 2047. At SeptemberJune 30, 2018,2019, the interest rate range on the Company’s notes before the effect of certain fair value hedges was 2.375% to 7.57%. During the ninesix months ended SeptemberJune 30, 2018,2019, the weighted average interest rate on the Company’s notes was 4.25%4.30%.
The Company’s unsecured public debt contains certain financial and operating covenants including, among other things, maintenance of certain financial ratios. The Company was in compliance with its unsecured public debt covenants for the ninesix months ended SeptemberJune 30, 2018.2019.
Line of Credit and Commercial Paper
In November 2016, theThe Company replaced its existing $2.5 billion facility withhas a $2.0 billion unsecured revolving credit facility maturing January 10, 2022. The Company has the ability to increase available borrowings by an additional $750.0 million by adding additional banks to the facility or obtaining the agreement of existing banks to increase their commitments. The interest rate on advances under the facility will generally be LIBOR plus a spread (currently 0.825%), or based on bids received from the lending group, and the Company pays an annual facility fee (currently 12.5 basis points)0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit rating of the Company’s long term debt.rating.
30
InFebruary2015,The Company has an unsecuredcommercialpapernoteprogramintheCompanyenteredintoanunsecuredcommercialpapernoteprogramintheUnitedStates. The Company may borrow up to a maximum of $500.0 million under this program subject to market conditions. The notes will be soldundercustomarytermsintheUnitedStatescommercialpapernotemarketandwillrankparipassuwithalloftheCompany’s otherunsecuredseniorindebtedness. Asof SeptemberJune 30, 2018,2019, there was a balance of$499.4 million outstanding on theno commercialpaperprogram ($500.0 million in principal outstanding net of an unamortized discount of $0.6 million). outstanding. Thenotesbearinterest at various floating rates with a weighted average of 2.23%2.73% for the ninesix months ended SeptemberJune 30, 2018 and a2019. The weighted average maturity of 18 days as of Septemberamount outstanding for the six months ended June 30, 2018.2019 was approximately $348.8 million.
Asof SeptemberJune 30, 2018, the amount available on2019, there were no borrowings outstanding under the revolving credit facility and$6.7millionwas $1.49 billion (netrestricted/dedicatedtosupportlettersofcredit. In addition, the Company limits its utilization of $6.7 million which was restricted/dedicatedthe facility in order to maintain liquidity and to support letters of credit and net ofits $500.0 million in principal outstanding on the commercial paper program).program along with certain other obligations. As a result, the Company had approximately $1.90 billion available under the facility at June 30, 2019. During the ninesix months ended SeptemberJune 30, 2018,2019, the weighted average interest rate on the revolving credit facility was 2.65%3.25%.
Other
On April 24,In 2017, the Company executed a new letter of credit facility with a third party financial institution which is not backed by or collateralized by borrowings on the Company’s unsecured revolving credit facility. As of SeptemberJune 30, 2018,2019, there was $9.0 million in letters of credit outstanding on this facility.
The valuation of financial instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. The Company, where possible, bases the fair values of its financial instruments, including its derivative instruments, on listed market prices and third party quotes. Where these are not available, the Company bases its estimates on current instruments with similar terms and maturities or on other factors relevant to the financial instruments.
In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company seeks to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments. The Company may also use derivatives to manage commodity prices in the daily operations of the business.
Athree-levelvaluationhierarchyexistsfordisclosureoffairvaluemeasurements. Thevaluationhierarchyisbasedupon thetransparencyofinputstothevaluationofanassetorliabilityasofthemeasurementdate. Afinancialinstrument’scategorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined asfollows:
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• | Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• | Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
• | Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair valuemeasurement. |
The Company’s derivative positions are valued using models developed by the respective counterparty as well as models developedapplied internally by the Company that use as their basisinputs readily observable market parameters (such as forward yield curves and credit default swap data). Employee holdings other than Common Shares within the supplemental executive retirement plan (the “SERP”) are valued using quoted market prices for identical assets and are included in other assets and other liabilities on the consolidated balance sheets. Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners are valued using the quoted market price of Common Shares. The fair values disclosed for mortgage notes payable and unsecured debt (including its commercial paper and line of credit, if applicable) were calculated using indicative rates provided by lenders of similar loans in the case of mortgage notes payable and the private unsecured debt (including its commercial paper and line of credit, if applicable) and quoted market prices for each underlying issuance in the case of the public unsecured notes.
31
The fair values of the Company’s financial instruments (other than mortgage notes payable, unsecured notes, commercial paper, line of credit and derivative instruments), including cash and cash equivalents and other financial instruments, approximate their carrying or contract value. Thefollowingtableprovidesasummaryofthe carrying andfairvaluesforthe Company’s mortgage notes payable and unsecured debt (including its commercial paper and line of credit, if applicable) at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively (amounts inthousands):
|
| September 30, 2018 |
|
| December 31, 2017 |
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||||
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
|
| Carrying Value |
|
| Estimated Fair Value (Level 2) |
| ||||||||
Mortgage notes payable, net |
| $ | 2,789,436 |
|
| $ | 2,710,433 |
|
| $ | 3,618,722 |
|
| $ | 3,615,384 |
|
| $ | 2,599,013 |
|
| $ | 2,602,782 |
|
| $ | 2,385,470 |
|
| $ | 2,352,502 |
|
Unsecured debt, net |
|
| 6,034,357 |
|
|
| 6,040,798 |
|
|
| 5,338,569 |
|
|
| 5,619,744 |
|
|
| 6,531,408 |
|
|
| 6,968,724 |
|
|
| 6,432,469 |
|
|
| 6,481,426 |
|
Total debt, net |
| $ | 8,823,793 |
|
| $ | 8,751,231 |
|
| $ | 8,957,291 |
|
| $ | 9,235,128 |
|
| $ | 9,130,421 |
|
| $ | 9,571,506 |
|
| $ | 8,817,939 |
|
| $ | 8,833,928 |
|
ThefollowingtablesummarizestheCompany’sconsolidatedderivativeinstrumentsat September June 30, 2018 2019 (dollaramounts are inthousands):
| Fair Value Hedges (1) |
|
| Forward Starting Swaps (2) |
| Fair Value Hedges (1) |
| |||
Current Notional Balance | $ | 450,000 |
|
| $ | 800,000 |
| $ | 450,000 |
|
Lowest Interest Rate |
| 2.375 | % |
|
| 2.1478 | % |
| 2.375 | % |
Highest Interest Rate |
| 2.375 | % |
|
| 3.1163 | % |
| 2.375 | % |
Earliest Maturity Date |
| 2019 |
|
|
| 2028 |
| |||
Latest Maturity Date |
| 2019 |
|
|
| 2029 |
| |||
Maturity Date |
| 2019 |
|
(1) | Fair Value Hedges – Converts outstanding fixed rate unsecured notes ($450.0 million 2.375% notes due July 1, 2019) to a floating interest rate of 90-Day LIBOR plus 0.61%. |
|
|
32
Table Thefollowingtablesprovideasummaryof Contents
Thefollowingtablesprovideasummarythefairvaluemeasurementsforeachmajorcategoryofthefairvaluemeasurementsforeachmajorcategoryofassetsandliabilities measured at fair value on a recurring basis and the location within the accompanying consolidated balance sheets at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively (amounts inthousands):
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| ||||||||||||||||||
Description |
| Balance Sheet Location |
| 9/30/2018 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Balance Sheet Location |
| 6/30/2019 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Forward Starting Swaps |
| Other Assets |
| $ | 27,526 |
|
| $ | — |
|
| $ | 27,526 |
|
| $ | — |
| ||||||||||||||||||
Supplemental Executive Retirement Plan |
| Other Assets |
|
| 144,561 |
|
|
| 144,561 |
|
|
| — |
|
|
| — |
|
| Other Assets |
| $ | 145,577 |
|
| $ | 145,577 |
|
| $ | — |
|
| $ | — |
|
Total |
|
|
| $ | 172,087 |
|
| $ | 144,561 |
|
| $ | 27,526 |
|
| $ | — |
|
|
|
| $ | 145,577 |
|
| $ | 145,577 |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedges |
| Other Liabilities |
| $ | 3,088 |
|
| $ | — |
|
| $ | 3,088 |
|
| $ | — |
|
| Other Liabilities |
| $ | 24 |
|
| $ | — |
|
| $ | 24 |
|
| $ | — |
|
Supplemental Executive Retirement Plan |
| Other Liabilities |
|
| 144,561 |
|
|
| 144,561 |
|
|
| — |
|
|
| — |
|
| Other Liabilities |
|
| 145,577 |
|
|
| 145,577 |
|
|
| — |
|
|
| — |
|
Total |
|
|
| $ | 147,649 |
|
| $ | 144,561 |
|
| $ | 3,088 |
|
| $ | — |
|
|
|
| $ | 145,601 |
|
| $ | 145,577 |
|
| $ | 24 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership/Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
| Mezzanine |
| $ | 381,239 |
|
| $ | — |
|
| $ | 381,239 |
|
| $ | — |
|
| Mezzanine |
| $ | 436,035 |
|
| $ | — |
|
| $ | 436,035 |
|
| $ | — |
|
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| |||||||||
Description |
| Balance Sheet Location |
| 12/31/2017 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Staring Swaps |
| Other Assets |
| $ | 5,143 |
|
| $ | — |
|
| $ | 5,143 |
|
| $ | — |
|
Supplemental Executive Retirement Plan |
| Other Assets |
|
| 140,159 |
|
|
| 140,159 |
|
|
| — |
|
|
| — |
|
Total |
|
|
| $ | 145,302 |
|
| $ | 140,159 |
|
| $ | 5,143 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedges |
| Other Liabilities |
| $ | 1,597 |
|
| $ | — |
|
| $ | 1,597 |
|
| $ | — |
|
Supplemental Executive Retirement Plan |
| Other Liabilities |
|
| 140,159 |
|
|
| 140,159 |
|
|
| — |
|
|
| — |
|
Total |
|
|
| $ | 141,756 |
|
| $ | 140,159 |
|
| $ | 1,597 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership/Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
| Mezzanine |
| $ | 366,955 |
|
| $ | — |
|
| $ | 366,955 |
|
| $ | — |
|
33
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| |||||||||
Description |
| Balance Sheet Location |
| 12/31/2018 |
|
| Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Starting Swaps |
| Other Assets |
| $ | 2,000 |
|
| $ | — |
|
| $ | 2,000 |
|
| $ | — |
|
Supplemental Executive Retirement Plan |
| Other Assets |
|
| 134,088 |
|
|
| 134,088 |
|
|
| — |
|
|
| — |
|
Total |
|
|
| $ | 136,088 |
|
| $ | 134,088 |
|
| $ | 2,000 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedges |
| Other Liabilities |
| $ | 2,277 |
|
| $ | — |
|
| $ | 2,277 |
|
| $ | — |
|
Forward Starting Swaps |
| Other Liabilities |
|
| 9,851 |
|
|
| — |
|
|
| 9,851 |
|
|
| — |
|
Supplemental Executive Retirement Plan |
| Other Liabilities |
|
| 134,088 |
|
|
| 134,088 |
|
|
| — |
|
|
| — |
|
Total |
|
|
| $ | 146,216 |
|
| $ | 134,088 |
|
| $ | 12,128 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership/Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
| Mezzanine |
| $ | 379,106 |
|
| $ | — |
|
| $ | 379,106 |
|
| $ | — |
|
Thefollowingtablesprovideasummaryoftheeffectoffairvaluehedges ontheCompany’saccompanyingconsolidated statements of operations and comprehensive income for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively (amounts in thousands):
September 30, 2018 Type of Fair Value Hedge |
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Recognized in Income on Derivative |
|
| Hedged Item |
| Income Statement Location of Hedged Item Gain/(Loss) |
| Amount of Gain/(Loss) Recognized in Income on Hedged Item |
| ||||||||||||||||
June 30, 2019 Type of Fair Value Hedge |
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Recognized in Income on Derivative |
|
| Hedged Item |
| Income Statement Location of Hedged Item Gain/(Loss) |
| Amount of Gain/(Loss) Recognized in Income on Hedged Item |
| ||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
| Interest expense |
| $ | (1,491 | ) |
| Fixed rate debt |
| Interest expense |
| $ | 1,491 |
|
| Interest expense |
| $ | 2,253 |
|
| Fixed rate debt |
| Interest expense |
| $ | (2,253 | ) |
Total |
|
|
| $ | (1,491 | ) |
|
|
|
|
| $ | 1,491 |
|
|
|
| $ | 2,253 |
|
|
|
|
|
| $ | (2,253 | ) |
September 30, 2017 Type of Fair Value Hedge |
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Recognized in Income on Derivative |
|
| Hedged Item |
| Income Statement Location of Hedged Item Gain/(Loss) |
| Amount of Gain/(Loss) Recognized in Income on Hedged Item |
| ||||||||||||||||
June 30, 2018 Type of Fair Value Hedge |
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Recognized in Income on Derivative |
|
| Hedged Item |
| Income Statement Location of Hedged Item Gain/(Loss) |
| Amount of Gain/(Loss) Recognized in Income on Hedged Item |
| ||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
| Interest expense |
| $ | (1,413 | ) |
| Fixed rate debt |
| Interest expense |
| $ | 1,413 |
|
| Interest expense |
| $ | (2,151 | ) |
| Fixed rate debt |
| Interest expense |
| $ | 2,151 |
|
Total |
|
|
| $ | (1,413 | ) |
|
|
|
|
| $ | 1,413 |
|
|
|
| $ | (2,151 | ) |
|
|
|
|
| $ | 2,151 |
|
ThefollowingtablesprovideasummaryoftheeffectofcashflowhedgesontheCompany’saccompanyingconsolidated statements of operations and comprehensive income for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively (amounts in thousands):
|
| Effective Portion |
|
| Ineffective Portion |
|
| Effective Portion |
| |||||||||||||||||
September 30, 2018 Type of Cash Flow Hedge |
| Amount of Gain/(Loss) Recognized in OCI on Derivative |
|
| Location of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
|
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| |||||||||||||
June 30, 2019 Type of Cash Flow Hedge |
| Amount of Gain/(Loss) Recognized in OCI on Derivative |
|
| Location of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| ||||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Starting Swaps |
| $ | 24,021 |
|
| Interest expense |
| $ | (13,902 | ) |
| N/A |
| $ | — |
|
| $ | (33,765 | ) |
| Interest expense |
| $ | (8,902 | ) |
Total |
| $ | 24,021 |
|
|
|
| $ | (13,902 | ) |
|
|
| $ | — |
|
| $ | (33,765 | ) |
|
|
| $ | (8,902 | ) |
|
| Effective Portion |
|
| Ineffective Portion |
|
| Effective Portion |
|
| Ineffective Portion |
| ||||||||||||||||||||
September 30, 2017 Type of Cash Flow Hedge |
| Amount of Gain/(Loss) Recognized in OCI on Derivative |
|
| Location of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
|
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| |||||||||||||||||||
June 30, 2018 Type of Cash Flow Hedge |
| Amount of Gain/(Loss) Recognized in OCI on Derivative |
|
| Location of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
|
| Location of Gain/(Loss) Recognized in Income on Derivative |
| Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income |
| |||||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Starting Swaps |
| $ | 5,216 |
|
| Interest expense |
| $ | (14,019 | ) |
| N/A |
| $ | — |
|
| $ | 11,995 |
|
| Interest expense |
| $ | (9,307 | ) |
| N/A |
| $ | — |
|
Total |
| $ | 5,216 |
|
|
|
| $ | (14,019 | ) |
|
|
| $ | — |
|
| $ | 11,995 |
|
|
|
| $ | (9,307 | ) |
|
|
| $ | — |
|
Asof SeptemberJune 30, 20182019 and December 31, 2017, 2018,therewereapproximately $50.7 $89.8millionand $88.6 $65.0millionindeferred losses, net, included in accumulated other comprehensive income (loss), respectively, related to derivative instruments. Based on the estimatedfairvaluesofthenetderivativeinstrumentsat SeptemberJune 30, 2018, 2019,theCompanymayrecognizeanestimated $19.8 $25.7million of accumulated other comprehensive income (loss) as additional interest expense during the twelve months ending SeptemberJune 30, 2019.
2020.
In February 2018,June 2019, the Company receivedpaid approximately $1.6$41.8 million to settle twoten forward starting swaps in conjunction with the issuance of $500.0$600.0 million of ten-year unsecured public notes. The entire $1.6accrued interest of approximately $0.2 million was initiallyrecorded as an increase to interest expense. The remaining $41.6 million will be deferred as a component of accumulated other comprehensive income (loss) and will be recognized as a decreasean increase to interest expense over the ten-year termfirst nine years and eleven months of the notes.
34
Equity Residential
Thefollowingtablessetforththecomputationofnetincomepershare–basicandnetincomepershare–dilutedforthe Company (amounts in thousands except per shareamounts):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Numerator for net income per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 562,804 |
|
| $ | 498,297 |
|
| $ | 223,846 |
|
| $ | 144,196 |
|
| $ | 430,556 |
|
| $ | 338,958 |
|
| $ | 321,299 |
|
| $ | 118,410 |
|
Allocation to Noncontrolling Interests – Operating Partnership |
|
| (20,517 | ) |
|
| (17,931 | ) |
|
| (8,159 | ) |
|
| (5,166 | ) |
|
| (15,429 | ) |
|
| (12,358 | ) |
|
| (11,510 | ) |
|
| (4,299 | ) |
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (1,939 | ) |
|
| (2,354 | ) |
|
| (750 | ) |
|
| (801 | ) |
|
| (1,620 | ) |
|
| (1,189 | ) |
|
| (821 | ) |
|
| (509 | ) |
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (772 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Numerator for net income per share – basic |
| $ | 538,030 |
|
| $ | 475,694 |
|
| $ | 214,164 |
|
| $ | 137,457 |
|
| $ | 411,962 |
|
| $ | 323,866 |
|
| $ | 308,196 |
|
| $ | 112,830 |
|
Numerator for net income per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 562,804 |
|
| $ | 498,297 |
|
| $ | 223,846 |
|
| $ | 144,196 |
|
| $ | 430,556 |
|
| $ | 338,958 |
|
| $ | 321,299 |
|
| $ | 118,410 |
|
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (1,939 | ) |
|
| (2,354 | ) |
|
| (750 | ) |
|
| (801 | ) |
|
| (1,620 | ) |
|
| (1,189 | ) |
|
| (821 | ) |
|
| (509 | ) |
Preferred distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (772 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Numerator for net income per share – diluted |
| $ | 558,547 |
|
| $ | 493,625 |
|
| $ | 222,323 |
|
| $ | 142,623 |
|
| $ | 427,391 |
|
| $ | 336,224 |
|
| $ | 319,706 |
|
| $ | 117,129 |
|
Denominator for net income per share – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income per share – basic |
|
| 367,920 |
|
|
| 366,809 |
|
|
| 368,028 |
|
|
| 366,996 |
|
|
| 369,952 |
|
|
| 367,865 |
|
|
| 370,342 |
|
|
| 367,930 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP Units |
|
| 12,871 |
|
|
| 12,907 |
|
|
| 12,884 |
|
|
| 12,910 |
|
|
| 12,902 |
|
|
| 12,864 |
|
|
| 12,885 |
|
|
| 12,865 |
|
Long-term compensation shares/units |
|
| 2,642 |
|
|
| 2,924 |
|
|
| 2,972 |
|
|
| 3,039 |
|
|
| 2,790 |
|
|
| 2,495 |
|
|
| 2,880 |
|
|
| 2,628 |
|
Denominator for net income per share – diluted |
|
| 383,433 |
|
|
| 382,640 |
|
|
| 383,884 |
|
|
| 382,945 |
|
|
| 385,644 |
|
|
| 383,224 |
|
|
| 386,107 |
|
|
| 383,423 |
|
Net income per share – basic |
| $ | 1.46 |
|
| $ | 1.30 |
|
| $ | 0.58 |
|
| $ | 0.37 |
|
| $ | 1.11 |
|
| $ | 0.88 |
|
| $ | 0.83 |
|
| $ | 0.31 |
|
Net income per share – diluted |
| $ | 1.46 |
|
| $ | 1.29 |
|
| $ | 0.58 |
|
| $ | 0.37 |
|
| $ | 1.11 |
|
| $ | 0.88 |
|
| $ | 0.83 |
|
| $ | 0.31 |
|
ERP Operating Limited Partnership
The following tables set forth the computation of net income per Unit – basic and net income per Unit – diluted for the Operating Partnership (amounts in thousands except per Unit amounts):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Numerator for net income per Unit – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 562,804 |
|
| $ | 498,297 |
|
| $ | 223,846 |
|
| $ | 144,196 |
|
| $ | 430,556 |
|
| $ | 338,958 |
|
| $ | 321,299 |
|
| $ | 118,410 |
|
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (1,939 | ) |
|
| (2,354 | ) |
|
| (750 | ) |
|
| (801 | ) |
|
| (1,620 | ) |
|
| (1,189 | ) |
|
| (821 | ) |
|
| (509 | ) |
Allocation to Preference Units |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (772 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Numerator for net income per Unit – basic and diluted |
| $ | 558,547 |
|
| $ | 493,625 |
|
| $ | 222,323 |
|
| $ | 142,623 |
|
| $ | 427,391 |
|
| $ | 336,224 |
|
| $ | 319,706 |
|
| $ | 117,129 |
|
Denominator for net income per Unit – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income per Unit – basic |
|
| 380,791 |
|
|
| 379,716 |
|
|
| 380,912 |
|
|
| 379,906 |
|
|
| 382,854 |
|
|
| 380,729 |
|
|
| 383,227 |
|
|
| 380,795 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution for Units issuable upon assumed exercise/vesting of the Company’s long-term compensation shares/units |
|
| 2,642 |
|
|
| 2,924 |
|
|
| 2,972 |
|
|
| 3,039 |
|
|
| 2,790 |
|
|
| 2,495 |
|
|
| 2,880 |
|
|
| 2,628 |
|
Denominator for net income per Unit – diluted |
|
| 383,433 |
|
|
| 382,640 |
|
|
| 383,884 |
|
|
| 382,945 |
|
|
| 385,644 |
|
|
| 383,224 |
|
|
| 386,107 |
|
|
| 383,423 |
|
Net income per Unit – basic |
| $ | 1.46 |
|
| $ | 1.30 |
|
| $ | 0.58 |
|
| $ | 0.37 |
|
| $ | 1.11 |
|
| $ | 0.88 |
|
| $ | 0.83 |
|
| $ | 0.31 |
|
Net income per Unit – diluted |
| $ | 1.46 |
|
| $ | 1.29 |
|
| $ | 0.58 |
|
| $ | 0.37 |
|
| $ | 1.11 |
|
| $ | 0.88 |
|
| $ | 0.83 |
|
| $ | 0.31 |
|
35
The Company, as an owner of real estate, is subject to various Federal, state and local environmental laws. Compliance by the Company with existing laws has not had a material adverse effect on the Company. However, the Company cannot predict the impact of new or changed laws or regulations on its current properties or on properties that it may acquire in the future. As of September 30, 2018, the Company does have environmental reserves totaling approximately $5.8 million related to three of its properties.
The Company had established a reserve related to various litigation matters associated with its Massachusetts properties and periodically assessed the adequacy of the reserve and made adjustments as necessary. As of September 30, 2018, the matters were resolved for a total payout of $0.9 million and no reserve remains outstanding.
The Company does not believe there is any litigation pending or threatened against it that, individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company.
As of SeptemberJune 30, 2018,2019, the Company has fourthree wholly owned projects totaling 912691 apartment units in various stages of development with remaining commitments to fund of approximately $444.0$354.7 million and estimated completion dates ranging through September 30, 2021, as well as other completed development projects that are in various stages of lease-up or are stabilized.
As of September 30, 2018, the Company has two unconsolidated operating properties that are owned with the same third party joint venture partner under separate agreements. The joint venture agreements with this partner are primarily deal-specific regarding profit-sharing, equity contributions, returns on investment, buy-sell agreements and other customary provisions. The buy-sell arrangements contain provisions that provide the right, but not the obligation, for the Company to acquire the partner’s interests or sell its interests at any time following the occurrence of certain pre-defined events described in the joint venture agreements.
Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses and about which discrete financial information is available that is evaluated regularly by the chiefoperatingdecisionmaker. Thechiefoperatingdecisionmakerdecideshowresourcesareallocatedandassessesperformance on a recurring basis at leastquarterly.
The Company’s primary business is the acquisition, development and management of multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to residents. The chief operating decision maker evaluates the Company’s operating performance geographically by market and both on a same store and non-same store basis. The Company’s geographic same store operating segments located in urban and high-density suburban markets represent its reportable segments (the tworecently acquired Denver properties acquired inowned by the third quarter of 2018Company are currently included in non-same store). The Company’s operating segments located in its other markets (Phoenix) that are not material have also been included in the tables presented below.
The Company’s fee and asset management and development activities are other business activities that do not constitute an operating segment and as such, have been aggregated in the “Other” category in the tables presented below.
Allrevenuesarefromexternalcustomersandthereisnocustomerwhocontributed10%ormoreoftheCompany’stotal revenues during the ninesix months and quarters ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
The primary financial measure for the Company’s rental real estate segment is net operating income (“NOI”), which representsrentalincomeless:1) propertyandmaintenanceexpenseand2) realestatetaxesandinsuranceexpense (all (allasreflected in the accompanying consolidated statements of operations and comprehensive income). TheCompanybelievesthat 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. Revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
36
Table Thefollowingtablepresentsareconciliationof Contents
ThefollowingtablepresentsareconciliationofNOIfromourrentalrealestateforthe ninesix months and quarters ended SeptemberJune 30, 20182019 and 2017,2018, respectively (amounts inthousands):
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Rental income |
| $ | 1,925,128 |
|
| $ | 1,840,170 |
|
| $ | 652,677 |
|
| $ | 623,951 |
|
| $ | 1,331,676 |
|
| $ | 1,272,451 |
|
| $ | 669,374 |
|
| $ | 639,620 |
|
Property and maintenance expense |
|
| (322,487 | ) |
|
| (306,645 | ) |
|
| (110,541 | ) |
|
| (104,721 | ) |
|
| (223,531 | ) |
|
| (211,946 | ) |
|
| (108,461 | ) |
|
| (103,744 | ) |
Real estate taxes and insurance expense |
|
| (268,784 | ) |
|
| (253,318 | ) |
|
| (87,388 | ) |
|
| (84,087 | ) |
|
| (182,888 | ) |
|
| (181,396 | ) |
|
| (91,446 | ) |
|
| (89,482 | ) |
Total operating expenses |
|
| (591,271 | ) |
|
| (559,963 | ) |
|
| (197,929 | ) |
|
| (188,808 | ) |
|
| (406,419 | ) |
|
| (393,342 | ) |
|
| (199,907 | ) |
|
| (193,226 | ) |
Net operating income |
| $ | 1,333,857 |
|
| $ | 1,280,207 |
|
| $ | 454,748 |
|
| $ | 435,143 |
|
| $ | 925,257 |
|
| $ | 879,109 |
|
| $ | 469,467 |
|
| $ | 446,394 |
|
The following tables present NOI for each segment from our rental real estate for the ninesix months and quarters ended SeptemberJune 30, 20182019 and 2017, 2018,respectively,aswellastotalassetsandcapitalexpendituresat SeptemberJune 30 2018 (amounts, 2019(amounts inthousands):
|
| Nine Months Ended September 30, 2018 |
|
| Nine Months Ended September 30, 2017 |
|
| Six Months Ended June 30, 2019 |
|
| Six Months Ended June 30, 2018 |
| ||||||||||||||||||||||||||||||||||||
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
| ||||||||||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 310,972 |
|
| $ | 89,211 |
|
| $ | 221,761 |
|
| $ | 300,702 |
|
| $ | 85,972 |
|
| $ | 214,730 |
|
| $ | 232,546 |
|
| $ | 68,259 |
|
| $ | 164,287 |
|
| $ | 222,227 |
|
| $ | 63,887 |
|
| $ | 158,340 |
|
Orange County |
|
| 68,513 |
|
|
| 16,706 |
|
|
| 51,807 |
|
|
| 66,082 |
|
|
| 16,330 |
|
|
| 49,752 |
|
|
| 51,886 |
|
|
| 12,201 |
|
|
| 39,685 |
|
|
| 49,996 |
|
|
| 12,231 |
|
|
| 37,765 |
|
San Diego |
|
| 68,640 |
|
|
| 17,984 |
|
|
| 50,656 |
|
|
| 66,052 |
|
|
| 17,415 |
|
|
| 48,637 |
|
|
| 47,023 |
|
|
| 12,084 |
|
|
| 34,939 |
|
|
| 45,425 |
|
|
| 11,754 |
|
|
| 33,671 |
|
Subtotal - Southern California |
|
| 448,125 |
|
|
| 123,901 |
|
|
| 324,224 |
|
|
| 432,836 |
|
|
| 119,717 |
|
|
| 313,119 |
|
|
| 331,455 |
|
|
| 92,544 |
|
|
| 238,911 |
|
|
| 317,648 |
|
|
| 87,872 |
|
|
| 229,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 331,067 |
|
|
| 80,377 |
|
|
| 250,690 |
|
|
| 321,894 |
|
|
| 81,942 |
|
|
| 239,952 |
|
|
| 245,103 |
|
|
| 59,735 |
|
|
| 185,368 |
|
|
| 235,767 |
|
|
| 58,001 |
|
|
| 177,766 |
|
Washington D.C. |
|
| 325,480 |
|
|
| 101,620 |
|
|
| 223,860 |
|
|
| 322,310 |
|
|
| 98,046 |
|
|
| 224,264 |
|
|
| 223,479 |
|
|
| 68,742 |
|
|
| 154,737 |
|
|
| 218,624 |
|
|
| 67,463 |
|
|
| 151,161 |
|
New York |
|
| 343,239 |
|
|
| 135,700 |
|
|
| 207,539 |
|
|
| 341,295 |
|
|
| 128,076 |
|
|
| 213,219 |
|
|
| 225,942 |
|
|
| 94,472 |
|
|
| 131,470 |
|
|
| 220,456 |
|
|
| 88,496 |
|
|
| 131,960 |
|
Boston |
|
| 171,042 |
|
|
| 47,666 |
|
|
| 123,376 |
|
|
| 167,010 |
|
|
| 45,871 |
|
|
| 121,139 |
|
|
| 112,127 |
|
|
| 31,075 |
|
|
| 81,052 |
|
|
| 108,348 |
|
|
| 30,152 |
|
|
| 78,196 |
|
Seattle |
|
| 147,311 |
|
|
| 41,762 |
|
|
| 105,549 |
|
|
| 142,564 |
|
|
| 39,686 |
|
|
| 102,878 |
|
|
| 101,931 |
|
|
| 27,512 |
|
|
| 74,419 |
|
|
| 99,485 |
|
|
| 28,084 |
|
|
| 71,401 |
|
Other Markets |
|
| 1,453 |
|
|
| 506 |
|
|
| 947 |
|
|
| 1,384 |
|
|
| 498 |
|
|
| 886 |
|
|
| 1,040 |
|
|
| 377 |
|
|
| 663 |
|
|
| 968 |
|
|
| 339 |
|
|
| 629 |
|
Total same store |
|
| 1,767,717 |
|
|
| 531,532 |
|
|
| 1,236,185 |
|
|
| 1,729,293 |
|
|
| 513,836 |
|
|
| 1,215,457 |
|
|
| 1,241,077 |
|
|
| 374,457 |
|
|
| 866,620 |
|
|
| 1,201,296 |
|
|
| 360,407 |
|
|
| 840,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 134,308 |
|
|
| 45,997 |
|
|
| 88,311 |
|
|
| 60,446 |
|
|
| 21,096 |
|
|
| 39,350 |
|
|
| 81,933 |
|
|
| 26,738 |
|
|
| 55,195 |
|
|
| 40,438 |
|
|
| 15,393 |
|
|
| 25,045 |
|
Other (3) |
|
| 23,103 |
|
|
| 13,742 |
|
|
| 9,361 |
|
|
| 50,431 |
|
|
| 25,031 |
|
|
| 25,400 |
|
|
| 8,666 |
|
|
| 5,224 |
|
|
| 3,442 |
|
|
| 30,717 |
|
|
| 17,542 |
|
|
| 13,175 |
|
Total non-same store/other |
|
| 157,411 |
|
|
| 59,739 |
|
|
| 97,672 |
|
|
| 110,877 |
|
|
| 46,127 |
|
|
| 64,750 |
|
|
| 90,599 |
|
|
| 31,962 |
|
|
| 58,637 |
|
|
| 71,155 |
|
|
| 32,935 |
|
|
| 38,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 1,925,128 |
|
| $ | 591,271 |
|
| $ | 1,333,857 |
|
| $ | 1,840,170 |
|
| $ | 559,963 |
|
| $ | 1,280,207 |
|
| $ | 1,331,676 |
|
| $ | 406,419 |
|
| $ | 925,257 |
|
| $ | 1,272,451 |
|
| $ | 393,342 |
|
| $ | 879,109 |
|
(1) | For the |
(2) | For the |
(3) |
|
37
|
| Quarter Ended September 30, 2018 |
|
| Quarter Ended September 30, 2017 |
| ||||||||||||||||||
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
| ||||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 108,050 |
|
| $ | 30,848 |
|
| $ | 77,202 |
|
| $ | 104,190 |
|
| $ | 29,470 |
|
| $ | 74,720 |
|
Orange County |
|
| 23,182 |
|
|
| 5,615 |
|
|
| 17,567 |
|
|
| 22,427 |
|
|
| 5,491 |
|
|
| 16,936 |
|
San Diego |
|
| 23,215 |
|
|
| 6,233 |
|
|
| 16,982 |
|
|
| 22,432 |
|
|
| 5,881 |
|
|
| 16,551 |
|
Subtotal - Southern California |
|
| 154,447 |
|
|
| 42,696 |
|
|
| 111,751 |
|
|
| 149,049 |
|
|
| 40,842 |
|
|
| 108,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 116,937 |
|
|
| 29,271 |
|
|
| 87,666 |
|
|
| 113,154 |
|
|
| 29,527 |
|
|
| 83,627 |
|
Washington D.C. |
|
| 109,637 |
|
|
| 34,722 |
|
|
| 74,915 |
|
|
| 108,764 |
|
|
| 33,474 |
|
|
| 75,290 |
|
New York |
|
| 115,757 |
|
|
| 45,156 |
|
|
| 70,601 |
|
|
| 114,799 |
|
|
| 42,620 |
|
|
| 72,179 |
|
Boston |
|
| 57,531 |
|
|
| 16,073 |
|
|
| 41,458 |
|
|
| 56,022 |
|
|
| 15,726 |
|
|
| 40,296 |
|
Seattle |
|
| 50,618 |
|
|
| 14,137 |
|
|
| 36,481 |
|
|
| 49,467 |
|
|
| 13,449 |
|
|
| 36,018 |
|
Other Markets |
|
| 485 |
|
|
| 165 |
|
|
| 320 |
|
|
| 459 |
|
|
| 158 |
|
|
| 301 |
|
Total same store |
|
| 605,412 |
|
|
| 182,220 |
|
|
| 423,192 |
|
|
| 591,714 |
|
|
| 175,796 |
|
|
| 415,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 42,702 |
|
|
| 13,605 |
|
|
| 29,097 |
|
|
| 18,252 |
|
|
| 6,870 |
|
|
| 11,382 |
|
Other (3) |
|
| 4,563 |
|
|
| 2,104 |
|
|
| 2,459 |
|
|
| 13,985 |
|
|
| 6,142 |
|
|
| 7,843 |
|
Total non-same store/other |
|
| 47,265 |
|
|
| 15,709 |
|
|
| 31,556 |
|
|
| 32,237 |
|
|
| 13,012 |
|
|
| 19,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 652,677 |
|
| $ | 197,929 |
|
| $ | 454,748 |
|
| $ | 623,951 |
|
| $ | 188,808 |
|
| $ | 435,143 |
|
|
|
|
|
| Other includes development, other corporate operations and operations prior to disposition for properties sold. |
|
| Nine Months Ended September 30, 2018 |
|
| Quarter Ended June 30, 2019 |
|
| Quarter Ended June 30, 2018 |
| |||||||||||||||||||||||
|
| Total Assets |
|
| Capital Expenditures |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
|
| Rental Income |
|
| Operating Expenses |
|
| NOI |
| ||||||||
Same store (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 2,631,459 |
|
| $ | 21,438 |
|
| $ | 117,147 |
|
| $ | 33,776 |
|
| $ | 83,371 |
|
| $ | 111,230 |
|
| $ | 31,845 |
|
| $ | 79,385 |
|
Orange County |
|
| 321,551 |
|
|
| 6,327 |
|
|
| 26,058 |
|
|
| 5,996 |
|
|
| 20,062 |
|
|
| 25,193 |
|
|
| 6,140 |
|
|
| 19,053 |
|
San Diego |
|
| 410,450 |
|
|
| 3,665 |
|
|
| 23,720 |
|
|
| 5,958 |
|
|
| 17,762 |
|
|
| 22,932 |
|
|
| 5,790 |
|
|
| 17,142 |
|
Subtotal - Southern California |
|
| 3,363,460 |
|
|
| 31,430 |
|
|
| 166,925 |
|
|
| 45,730 |
|
|
| 121,195 |
|
|
| 159,355 |
|
|
| 43,775 |
|
|
| 115,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 2,989,059 |
|
|
| 34,617 |
|
|
| 123,341 |
|
|
| 29,317 |
|
|
| 94,024 |
|
|
| 118,416 |
|
|
| 28,591 |
|
|
| 89,825 |
|
Washington D.C. |
|
| 3,734,007 |
|
|
| 21,722 |
|
|
| 112,694 |
|
|
| 34,066 |
|
|
| 78,628 |
|
|
| 110,096 |
|
|
| 33,553 |
|
|
| 76,543 |
|
New York |
|
| 4,108,581 |
|
|
| 17,217 |
|
|
| 113,579 |
|
|
| 46,304 |
|
|
| 67,275 |
|
|
| 110,691 |
|
|
| 43,683 |
|
|
| 67,008 |
|
Boston |
|
| 1,599,983 |
|
|
| 16,477 |
|
|
| 58,224 |
|
|
| 15,859 |
|
|
| 42,365 |
|
|
| 56,379 |
|
|
| 15,475 |
|
|
| 40,904 |
|
Seattle |
|
| 1,287,733 |
|
|
| 12,085 |
|
|
| 55,288 |
|
|
| 15,053 |
|
|
| 40,235 |
|
|
| 53,854 |
|
|
| 15,236 |
|
|
| 38,618 |
|
Other Markets |
|
| 12,820 |
|
|
| 135 |
|
|
| 518 |
|
|
| 192 |
|
|
| 326 |
|
|
| 481 |
|
|
| 175 |
|
|
| 306 |
|
Total same store |
|
| 17,095,643 |
|
|
| 133,683 |
|
|
| 630,569 |
|
|
| 186,521 |
|
|
| 444,048 |
|
|
| 609,272 |
|
|
| 180,488 |
|
|
| 428,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-same store |
|
| 2,884,686 |
|
|
| 4,171 |
|
|
| 36,712 |
|
|
| 11,676 |
|
|
| 25,036 |
|
|
| 17,393 |
|
|
| 6,465 |
|
|
| 10,928 |
|
Other (3) |
|
| 561,821 |
|
|
| 265 |
|
|
| 2,093 |
|
|
| 1,710 |
|
|
| 383 |
|
|
| 12,955 |
|
|
| 6,273 |
|
|
| 6,682 |
|
Total non-same store/other |
|
| 3,446,507 |
|
|
| 4,436 |
|
|
| 38,805 |
|
|
| 13,386 |
|
|
| 25,419 |
|
|
| 30,348 |
|
|
| 12,738 |
|
|
| 17,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 20,542,150 |
|
| $ | 138,119 |
|
| $ | 669,374 |
|
| $ | 199,907 |
|
| $ | 469,467 |
|
| $ | 639,620 |
|
| $ | 193,226 |
|
| $ | 446,394 |
|
(1) | For the quarters ended June 30, 2019 and 2018, same store primarily includes all properties acquired or completed that were stabilized prior to April 1, 2018, less properties subsequently sold, which represented 74,236 apartmentunits. |
(2) | For the quarters ended June 30, 2019 and 2018, non-same store primarily includes properties acquired after April 1, 2018, plus any properties in lease-up and not stabilized as of April 1,2018. |
(3) | Other includes development, other corporate operations and operations prior to disposition for properties sold. |
|
| Six Months Ended June 30, 2019 |
| |||||
|
| Total Assets |
|
| Capital Expenditures |
| ||
Same store (1) |
|
|
|
|
|
|
|
|
Los Angeles |
| $ | 3,027,063 |
|
| $ | 15,775 |
|
Orange County |
|
| 412,837 |
|
|
| 4,812 |
|
San Diego |
|
| 398,072 |
|
|
| 1,749 |
|
Subtotal - Southern California |
|
| 3,837,972 |
|
|
| 22,336 |
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
| 3,375,932 |
|
|
| 14,222 |
|
Washington D.C. |
|
| 3,716,255 |
|
|
| 9,007 |
|
New York |
|
| 3,917,085 |
|
|
| 10,679 |
|
Boston |
|
| 1,490,866 |
|
|
| 11,924 |
|
Seattle |
|
| 1,313,159 |
|
|
| 7,973 |
|
Other Markets |
|
| 12,887 |
|
|
| 126 |
|
Total same store |
|
| 17,664,156 |
|
|
| 76,267 |
|
|
|
|
|
|
|
|
|
|
Non-same store/other (2) (3) |
|
|
|
|
|
|
|
|
Non-same store |
|
| 2,548,854 |
|
|
| 4,961 |
|
Other (3) |
|
| 777,701 |
|
|
| 300 |
|
Total non-same store/other |
|
| 3,326,555 |
|
|
| 5,261 |
|
|
|
|
|
|
|
|
|
|
Totals |
| $ | 20,990,711 |
|
| $ | 81,528 |
|
(1) | Same store primarily includes all properties acquired or completed that were stabilized prior to January 1, |
38
(2) | Non-same store primarily includes properties acquired after January 1, |
(3) | Other includes development, other corporate operations and capital expenditures for propertiessold. |
Subsequent to SeptemberJune 30, 2018,2019, the Company:
Repaid $500.0 million of 5.19% mortgage debt held in a Freddie Mac loan pool at par prior to the October 1, 2019 maturity date; and
• | Acquired two properties consisting of 549 apartment units for $192.9 million; |
• | Sold one property consisting of 298 apartment units for $117.0 million; |
Reissued $96.9 million of floating rate tax-exempt mortgage bonds which mature on April 1, 2042, remarket weekly and are guaranteed by ERPOP.
• | Acquired one land parcel for $3.6 million and sold one land parcel for $1.9 million; |
• | Repaid $84.5 million of 4.79% mortgage debt prior to the April 1, 2053 maturity date and incurred a prepayment penalty of $3.4 million; |
| • | Repaid $500.0 million of 5.78% mortgage debt held in a Freddie Mac loan pool at par prior to the July 1, 2020 maturity date; and |
• | Repaid $450.0 million of 2.375% unsecured notes at maturity. The fair value interest rate swaps matured in conjunction with the maturity of the notes that converted the fixed rate of 2.375% to a floating interest rate of 90-Day LIBOR plus 0.61%. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For further information including definitions for capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
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. 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. Factors that might cause such differences include, but are not limited to, the following:
We intend to actively acquire, develop and renovate multifamily properties for rental operations as market conditions dictate. We may also acquire multifamily properties that are unoccupied or in the early stages of lease-up. We may be unable to lease these apartment properties on schedule, resulting in decreases in expected rental revenues and/or lower yields due to lower occupancy and rental rates as well as higher than expected concessions or higher than expected operating expenses. We may not be able to achieve rents that are consistent with expectations for acquired, developed or renovated properties. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position, to complete a development property or to complete a renovation. Additionally, we expect that other real estate investors with capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts. This competition (or lack thereof) may increase (or depress) prices for multifamily properties. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms. We have acquired in the past and intend to continue to pursue the acquisition of properties, including large portfolios of properties, that could increase our size and result in alterations to our capital structure. The total number of apartment units under development, costs of development and estimated completion dates are subject to uncertainties arising from changing economic conditions (such as the cost of labor and construction materials), competition, tariffs and other trade disruptions and local government regulation;
• | We intend to actively acquire, develop and renovate multifamily operating properties as market conditions dictate. We may also acquire multifamily properties that are unoccupied or in the early stages of lease-up. We may be unable to lease these apartment properties on schedule, resulting in decreases in expected rental revenues and/or lower yields due to lower occupancy and rental rates as well as higher than expected concessions or higher than expected operating expenses. We may not be able to achieve rents that are consistent with expectations for acquired, developed or renovated properties. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position, to complete a development property or to complete a renovation. Additionally, we expect that other real estate investors with capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts. This competition (or lack thereof) may increase (or depress) prices for multifamily properties. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms. We have acquired in the past and intend to continue to pursue the acquisition of properties, including large portfolios of properties, that could increase our size and result in alterations to our capital structure. The total number of apartment units under development, costs of labor and construction materials and estimated completion dates are subject to uncertainties arising from changing economic conditions, competition, tariffs and other trade disruptions and local government regulation; |
Debt financing and other capital required by the Company may not be available or may only be available on adverse terms;
• | Debt financing and other capital required by the Company may not be available or may only be available on adverse terms; |
Labor and materials required for maintenance, repair, capital expenditure or development may be more expensive than anticipated;
• | Labor and materials required for maintenance, repair, capital expenditure or development may be more expensive than anticipated; |
Occupancy levels and market rents may be adversely affected by national and local political, economic and market conditions including, without limitation, new construction and excess inventory of multifamily and owned housing/ condominiums, increasing portions of owned housing/condominium stock being converted to rental use, rental housing subsidized by the government, other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing, slow or negative employment growth and household formation, the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers, changes in social preferences, governmental regulations including rent control or rent stabilization laws and regulations (California will have a ballot measure in November 2018 that would seek to repeal an existing state law that limits the extent to which local governments can enact rent control) and the potential for geopolitical instability, all of which are beyond the Company’s control; and
• | Occupancy levels, property values and market rents may be adversely affected by national and local political, economic and market conditions including, without limitation, new construction and excess inventory of multifamily and owned housing/ condominiums, increasing portions of owned housing/condominium stock being converted to rental use, rental housing subsidized by the government, other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing, slow or negative employment growth and household formation, the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers, changes in social preferences, governmental regulations including rent control or rent stabilization laws and regulations and the potential for geopolitical instability, all of which are beyond the Company’s control; and |
Additional factors as discussed in Part I of the Company’s and the Operating Partnership’s Annual Report on Form 10-K, particularly those under “Item 1A Risk Factors”.
• | Additional factors as discussed in Part I of the Company’s and the Operating Partnership’s 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.
40
Equity Residential (“EQR”) is an S&P 500 company focused on the acquisition, development and management of rental apartment properties located in urban and high-density suburban markets, whicha business that is conducted on its behalf by ERP Operating Limited Partnership (“ERPOP”). 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 SeptemberJune 30, 20182019 owned an approximate 96.3%96.4% ownership interest in, ERPOP. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, but does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.
The Company’s corporate headquarters is located in Chicago, Illinois and the Company also operates property management offices in each of its markets. As of SeptemberJune 30, 2018,2019, the Company had approximately 2,700 employees who provided real estate operations, leasing, legal, financial, accounting, acquisition, disposition, development and other support functions.
Available Information
You may access our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to any of those reports we file with the SEC free of charge on our website, www.equityapartments.com. These reports are made available on our website as soon as reasonably practicable after we file them with the SEC. The information contained on our website, including any information referred to in this report as being available on our website, is not a part of or incorporated into this report.
Business Objectives and Operating and Investing Strategies
The Company’s and the Operating Partnership’s business objectives and operating and investing strategies have not changed materially from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017. As an extension of that strategy, the Company began in the third quarter to actively invest in rental apartment properties in urban and high-density suburban areas of Denver, a market that shares many characteristics with the Company’s other markets (as noted below, the Company acquired two properties in Denver in the third quarter of 2018). We continue to expect the acquisitions will be funded with proceeds from dispositions of properties in other markets.2018.
Results of Operations
20182019 Transactions
In conjunction with our business objectives and operating strategy, during the nine months ended September 30, 2018 the Company continued to invest in apartment properties located primarily in our urban and high-density suburban markets and sell apartment properties located primarily in the less dense portion of suburban markets and/or properties that we believe will have inferior long-term returns, as follows:
Acquired five consolidated apartment properties, located inreturns. The following table provides a rollforward of the Seattle, New York, Denver (two properties) and Boston markets, consisting of 1,461 apartment units, along withtransactions that occurred during the remaining 17 apartment units of an existing consolidated apartment property located in the Washington D.C. market, for approximately $707.0 million at a weighted average Acquisition Cap Rate (see Definitions section below) of 4.4%;
Sold five consolidated apartment properties, located in the Seattle, Los Angeles and New York (three properties) markets, consisting of 1,292 apartment units for approximately $706.1 million at a weighted average Disposition Yield (see Definitions section below) of 4.1% and generating an Unlevered IRR (see Definitions section below) of 8.7%;
Sold one land parcel located in the Washington D.C. market for a sale price of approximately $2.7 million;
Started construction on one project, located in the Boston market, consisting of 469 apartment units totaling approximately $409.7 million of expected development costs; and
41six months ended June 30, 2019:
Table of ContentsPortfolio Rollforward
($ in thousands)
|
| Properties |
|
| Apartment Units |
|
| Purchase Price |
|
| Acquisition Cap Rate |
| ||||
12/31/2018 |
|
| 307 |
|
|
| 79,482 |
|
|
|
|
|
|
|
|
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Properties |
|
| 4 |
|
|
| 1,058 |
|
| $ | 432,150 |
|
|
| 4.7 | % |
Rental Properties – Not Stabilized (1) |
|
| 2 |
|
|
| 586 |
|
| $ | 202,500 |
|
|
| 4.8 | % |
Land Parcels |
|
| — |
|
|
| — |
|
| $ | 16,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales Price |
|
| Disposition Yield |
| ||
Dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Rental Properties |
|
| (2 | ) |
|
| (561 | ) |
| $ | (402,750 | ) |
|
| (4.4 | )% |
Unconsolidated Rental Properties (2) |
|
| (2 | ) |
|
| (945 | ) |
| $ | (394,500 | ) |
|
| (4.7 | )% |
Configuration Changes |
|
| — |
|
|
| 4 |
|
|
|
|
|
|
|
|
|
6/30/2019 |
|
| 309 |
|
|
| 79,624 |
|
|
|
|
|
|
|
|
|
(1) |
|
The consolidated properties acquired were located in the New York, Seattle, Washington D.C., San Francisco and Denver markets. The consolidated properties disposed of were located in the New York and Boston markets. See the Definitions section below for the definition of Acquisition Cap Rate, Development Yield, Disposition Yield and Unlevered IRR. See also Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.
Same Store Results
Properties that the Company owned and were stabilized (see definition below) for all of both of the ninesix months ended SeptemberJune 30, 2019 and 2018 and 2017 (the “Nine-Month 2018“Six-Month 2019 Same Store Properties”), which represented 71,72173,609 apartment units, and properties that the Company owned and were stabilized for all of both of the quarters ended SeptemberJune 30, 2019 and 2018 and 2017 (the “Third“Second Quarter 20182019 Same Store Properties”), which represented 72,56174,236 apartment units, impacted the Company’s results of operations. Both the Nine-Month 2018Six-Month 2019 Same Store Properties and the ThirdSecond Quarter 20182019 Same Store Properties are discussed in the following paragraphs.
The Company’s primary financial measure for evaluating each of its apartment communities is net operating income (“NOI”). NOI represents rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company’s apartment properties.
The following tables provide a rollforward of the apartment units included in Same Store Properties and a reconciliation of apartment units included in Same Store Properties to those included in Total Properties for the ninesix months and quarter ended SeptemberJune 30, 2018:2019:
| Nine Months Ended |
|
| Quarter Ended |
| Six Months Ended |
|
| Quarter Ended |
| ||||||||||||||||||||
| September 30, 2018 |
|
| September 30, 2018 |
| June 30, 2019 |
|
| June 30, 2019 |
| ||||||||||||||||||||
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||||||
Same Store Properties at Beginning of Period |
| 275 |
|
|
| 70,117 |
|
|
| 284 |
|
|
| 72,629 |
|
| 281 |
|
|
| 71,721 |
|
|
| 290 |
|
|
| 74,166 |
|
2016 acquisitions |
| 4 |
|
|
| 573 |
|
|
| — |
|
|
| — |
| |||||||||||||||
2017 acquisitions |
| — |
|
|
| — |
|
|
| 1 |
|
|
| 136 |
|
| 2 |
|
|
| 437 |
|
|
| 2 |
|
|
| 510 |
|
2018 dispositions |
| (5 | ) |
|
| (1,292 | ) |
|
| (1 | ) |
|
| (506 | ) | |||||||||||||||
2018 acquisitions |
| — |
|
|
| — |
|
|
| 1 |
|
|
| 117 |
| |||||||||||||||
2019 dispositions |
| (2 | ) |
|
| (561 | ) |
|
| (2 | ) |
|
| (561 | ) | |||||||||||||||
Properties added back to same store (1) |
| — |
|
|
| — |
|
|
| 1 |
|
|
| 285 |
|
| 2 |
|
|
| 356 |
|
|
| — |
|
|
| — |
|
Lease-up properties stabilized |
| 7 |
|
|
| 2,292 |
|
|
| — |
|
|
| — |
|
| 5 |
|
|
| 1,652 |
|
|
| — |
|
|
| — |
|
Other |
| — |
|
|
| 31 |
|
|
| — |
|
|
| 17 |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Same Store Properties at September 30, 2018 |
| 281 |
|
|
| 71,721 |
|
|
| 285 |
|
|
| 72,561 |
| |||||||||||||||
Same Store Properties at June 30, 2019 |
| 288 |
|
|
| 73,609 |
|
|
| 291 |
|
|
| 74,236 |
|
|
| Nine Months Ended |
|
| Quarter Ended |
|
| Six Months Ended |
|
| Quarter Ended |
| ||||||||||||||||||||
|
| September 30, 2018 |
|
| September 30, 2018 |
|
| June 30, 2019 |
|
| June 30, 2019 |
| ||||||||||||||||||||
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
|
| Properties |
|
| Apartment Units |
| ||||||||
Same Store |
|
| 281 |
|
|
| 71,721 |
|
|
| 285 |
|
|
| 72,561 |
|
|
| 288 |
|
|
| 73,609 |
|
|
| 291 |
|
|
| 74,236 |
|
Non-Same Store: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 acquisitions |
|
| 6 |
|
|
| 1,644 |
|
| 6 |
|
|
| 1,644 |
| |||||||||||||||||
2018 acquisitions |
|
| 5 |
|
|
| 1,461 |
|
| 5 |
|
|
| 1,461 |
|
|
| 5 |
|
|
| 1,461 |
|
| 4 |
|
|
| 1,344 |
| ||
2017 acquisitions - stabilized |
|
| 2 |
|
|
| 437 |
|
| 1 |
|
|
| 301 |
| |||||||||||||||||
2017 acquisitions - not stabilized |
|
| 2 |
|
|
| 510 |
|
| 2 |
|
|
| 510 |
| |||||||||||||||||
Properties removed from same store (1) |
|
| 2 |
|
|
| 356 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
2017 acquisitions – not stabilized |
|
| 2 |
|
|
| 510 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Master-Leased properties (2) |
|
| 1 |
|
|
| 162 |
|
| 1 |
|
|
| 162 |
|
|
| 1 |
|
|
| 162 |
|
| 1 |
|
|
| 162 |
| ||
Lease-up properties not yet stabilized (3) |
|
| 10 |
|
|
| 3,667 |
|
| 9 |
|
|
| 3,319 |
|
|
| 6 |
|
|
| 2,237 |
|
| 6 |
|
|
| 2,237 |
| ||
Other |
|
| 1 |
|
|
| 1 |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
| 1 |
|
|
| 1 |
| ||
Total Non-Same Store |
|
| 23 |
|
|
| 6,594 |
|
|
| 19 |
|
|
| 5,754 |
|
|
| 21 |
|
|
| 6,015 |
|
|
| 18 |
|
|
| 5,388 |
|
Unconsolidated properties |
|
| 2 |
|
|
| 945 |
|
|
| 2 |
|
|
| 945 |
| ||||||||||||||||
Total Properties and Apartment Units |
|
| 306 |
|
|
| 79,260 |
|
|
| 306 |
|
|
| 79,260 |
|
|
| 309 |
|
|
| 79,624 |
|
|
| 309 |
|
|
| 79,624 |
|
42
Note: Properties are considered “stabilized” when they have achieved 90% occupancy for three consecutive months. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.
Note: During the nine months ended September 30, 2018, the Company closed down a garage (CRP Sports Garage in Boston, Massachusetts) and began its demolition as it starts the development of West End Tower on the site. As a result, the garage was removed from the same store portfolio, which had no impact on the unit or property count for the nine months and quarter ended September 30, 2018.
(1) | Consists of two properties which were |
| a. | Playa Pacifica in Hermosa Beach, California containing 285 apartment units was removed from the same store portfolio in the first quarter of 2015 due to a major renovation in which significant portions of the property were taken offline for extended time periods. |
| b. | Acton Courtyard in Berkeley, California containing 71 apartment units was removed from the same store portfolio in the third quarter of 2016 due to an affordable housing dispute which required significant portions of the property to be vacant for an extended re-leasing period. |
(2) | Consists of one property containing 162 apartment units that is wholly owned by the Company where the entire project is |
(3) | Consists of properties in various stages of lease-up and properties where lease-up has been completed but the properties were not stabilized for the comparable periods presented. Also includes |
The following table provides comparative same store results and statistics for the Nine-Month 2018Six-Month 2019 Same Store Properties:
September
June YTD 20182019 vs. SeptemberJune YTD 20172018
Same Store Results/Statistics for 71,72173,609 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
|
| Results |
|
| Statistics |
|
| Results |
|
| Statistics |
| ||||||||||||||||||||||||||||||||||||
Description |
| Revenues |
|
| Expenses |
|
| NOI |
|
| Average Rental Rate (1) |
|
| Physical Occupancy (2) |
|
| Turnover (3) |
|
| Revenues |
|
| Expenses |
|
| NOI |
|
| Average Rental Rate (1) |
|
| Physical Occupancy (2) |
|
| Turnover (3) |
| ||||||||||||
YTD 2019 |
| $ | 1,241,077 |
|
| $ | 374,457 |
|
| $ | 866,620 |
|
| $ | 2,806 |
|
|
| 96.4 | % |
|
| 22.9 | % | ||||||||||||||||||||||||
YTD 2018 |
| $ | 1,767,717 |
|
| $ | 531,532 |
|
| $ | 1,236,185 |
|
| $ | 2,739 |
|
|
| 96.2 | % |
|
| 40.5 | % |
| $ | 1,201,296 |
|
| $ | 360,407 |
|
| $ | 840,889 |
|
| $ | 2,727 |
|
|
| 96.1 | % |
|
| 24.3 | % |
YTD 2017 |
| $ | 1,729,293 |
|
| $ | 513,836 |
|
| $ | 1,215,457 |
|
| $ | 2,687 |
|
|
| 95.9 | % |
|
| 42.2 | % | ||||||||||||||||||||||||
Change |
| $ | 38,424 |
|
| $ | 17,696 |
|
| $ | 20,728 |
|
| $ | 52 |
|
|
| 0.3 | % |
|
| (1.7 | )% |
| $ | 39,781 |
|
| $ | 14,050 |
|
| $ | 25,731 |
|
| $ | 79 |
|
|
| 0.3 | % |
|
| (1.4 | %) |
Change |
|
| 2.2 | % |
|
| 3.4 | % |
|
| 1.7 | % |
|
| 1.9 | % |
|
|
|
|
|
|
|
|
|
| 3.3 | % |
|
| 3.9 | % |
|
| 3.1 | % |
|
| 2.9 | % |
|
|
|
|
|
|
|
|
Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
(1) | 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. |
(2) | 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. |
(3) | Turnover – Total residential move-outs (including inter-property and intra-property transfers) divided by total residential apartment units. |
43
The following table provides comparative same store operating expenses for the Nine-Month 2018 Same Store Properties:
September YTD 2018 vs. September YTD 2017
Same Store Operating Expenses for 71,721 Same Store Apartment Units
$ in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % of Actual |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD 2018 |
| |
|
| Actual |
|
| Actual |
|
| $ |
|
| % |
|
| Operating |
| |||||
|
| YTD 2018 |
|
| YTD 2017 |
|
| Change |
|
| Change |
|
| Expenses |
| |||||
Real estate taxes |
| $ | 224,909 |
|
| $ | 216,000 |
|
| $ | 8,909 |
|
|
| 4.1 | % |
|
| 42.3 | % |
On-site payroll (1) |
|
| 116,961 |
|
|
| 114,010 |
|
|
| 2,951 |
|
|
| 2.6 | % |
|
| 22.0 | % |
Utilities (2) |
|
| 71,896 |
|
|
| 68,942 |
|
|
| 2,954 |
|
|
| 4.3 | % |
|
| 13.5 | % |
Repairs and maintenance (3) |
|
| 68,619 |
|
|
| 65,498 |
|
|
| 3,121 |
|
|
| 4.8 | % |
|
| 12.9 | % |
Insurance |
|
| 13,704 |
|
|
| 13,019 |
|
|
| 685 |
|
|
| 5.3 | % |
|
| 2.6 | % |
Leasing and advertising |
|
| 7,373 |
|
|
| 7,353 |
|
|
| 20 |
|
|
| 0.3 | % |
|
| 1.4 | % |
Other on-site operating expenses (4) |
|
| 28,070 |
|
|
| 29,014 |
|
|
| (944 | ) |
|
| (3.3 | )% |
|
| 5.3 | % |
Same store operating expenses |
| $ | 531,532 |
|
| $ | 513,836 |
|
| $ | 17,696 |
|
|
| 3.4 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
The following tables present reconciliations of operating income per the consolidated statements of operations to NOI, along with rental income, operating expenses and NOI per the consolidated statements of operations allocated between same store and non-same store results (amounts in thousands):
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
Operating income |
| $ | 639,254 |
|
| $ | 632,707 |
|
| $ | 579,229 |
|
| $ | 556,685 |
|
| $ | 369,260 |
|
| $ | 217,603 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee and asset management revenue |
|
| (563 | ) |
|
| (532 | ) |
|
| (335 | ) |
|
| (373 | ) |
|
| (143 | ) |
|
| (188 | ) |
Property management |
|
| 69,175 |
|
|
| 64,702 |
|
|
| 50,765 |
|
|
| 46,928 |
|
|
| 24,369 |
|
|
| 23,484 |
|
General and administrative |
|
| 41,420 |
|
|
| 40,366 |
|
|
| 29,710 |
|
|
| 28,780 |
|
|
| 14,329 |
|
|
| 12,502 |
|
Depreciation |
|
| 583,869 |
|
|
| 542,964 |
|
|
| 404,723 |
|
|
| 389,251 |
|
|
| 200,508 |
|
|
| 192,942 |
|
Impairment |
|
| 702 |
|
|
| — |
| ||||||||||||||||
Net (gain) loss on sales of real estate properties |
|
| (138,835 | ) |
|
| (142,162 | ) |
|
| (138,856 | ) |
|
| 51 |
| ||||||||
Total NOI |
| $ | 1,333,857 |
|
| $ | 1,280,207 |
|
| $ | 925,257 |
|
| $ | 879,109 |
|
| $ | 469,467 |
|
| $ | 446,394 |
|
Rental income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store |
| $ | 1,767,717 |
|
| $ | 1,729,293 |
|
| $ | 1,241,077 |
|
| $ | 1,201,296 |
|
| $ | 630,569 |
|
| $ | 609,272 |
|
Non-same store/other |
|
| 157,411 |
|
|
| 110,877 |
|
|
| 90,599 |
|
|
| 71,155 |
|
|
| 38,805 |
|
|
| 30,348 |
|
Total rental income |
|
| 1,925,128 |
|
|
| 1,840,170 |
|
|
| 1,331,676 |
|
|
| 1,272,451 |
|
|
| 669,374 |
|
|
| 639,620 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store |
|
| 531,532 |
|
|
| 513,836 |
|
|
| 374,457 |
|
|
| 360,407 |
|
|
| 186,521 |
|
|
| 180,488 |
|
Non-same store/other |
|
| 59,739 |
|
|
| 46,127 |
|
|
| 31,962 |
|
|
| 32,935 |
|
|
| 13,386 |
|
|
| 12,738 |
|
Total operating expenses |
|
| 591,271 |
|
|
| 559,963 |
|
|
| 406,419 |
|
|
| 393,342 |
|
|
| 199,907 |
|
|
| 193,226 |
|
NOI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store |
|
| 1,236,185 |
|
|
| 1,215,457 |
|
|
| 866,620 |
|
|
| 840,889 |
|
|
| 444,048 |
|
|
| 428,784 |
|
Non-same store/other |
|
| 97,672 |
|
|
| 64,750 |
|
|
| 58,637 |
|
|
| 38,220 |
|
|
| 25,419 |
|
|
| 17,610 |
|
Total NOI |
| $ | 1,333,857 |
|
| $ | 1,280,207 |
|
| $ | 925,257 |
|
| $ | 879,109 |
|
| $ | 469,467 |
|
| $ | 446,394 |
|
44
For properties that the Company acquired or completed that were stabilized prior to January 1, 2017 and that the Company expects to continue to own through December 31, 2018, theThe Company anticipates the following same store results for the full year ending December 31, 2018,2019, which assumptions are based on current expectations and are forward looking:forward-looking:
2018 Same Store Assumptions |
| ||||||||||
|
| Revised Full Year |
| Previous Full Year |
|
| Revised 2019 Same Store Assumptions |
|
| Previous 2019 Same Store Assumptions |
|
Physical Occupancy |
| 96.2% |
| 96.1% |
|
| 96.4% |
|
| 96.2% |
|
Revenue change |
| 2.3% |
| 1.9% to 2.3% |
|
| 3.1% to 3.5% |
|
| 2.2% to 3.2% |
|
Expense change |
| 3.7% |
| 3.5% to 4.0% |
|
| 3.5% to 4.0% |
|
| 3.5% to 4.5% |
|
NOI change |
| 1.7% |
| 1.0% to 1.8% |
|
| 2.7% to 3.5% |
|
| 1.5% to 3.0% |
|
Same store revenues increased 2.2% duringThe following table provides the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017, which was at the higher end of our expectations, due to gains in occupancy of 0.3%, continued low turnover and strong renewals. The Company now anticipates full year 2018 same store revenue growth of approximately 2.3% as compared toduring the guidance range of 1.9% to 2.3% that was provided in July 2018. The Company’s primary focus in 2018 is to continue providing exceptional customer service in order to retain existing residents to drive strong occupancy and renewal rate growth, which came in at 4.9% for the ninesix months ended SeptemberJune 30, 20182019 as compared to the same period in 2017. 2018 and our expected same store revenue growth for 2019 as of June 30, 2019:
Markets/Metro Areas |
| Actual YTD 2019 Same Store Revenue Growth |
|
| Revised Projected Full Year 2019 Same Store Revenue Growth |
|
| Previous Projected Full Year 2019 Same Store Revenue Growth |
|
Washington D.C. |
| 2.2% |
|
| 2.6% |
|
| 1.4% |
|
New York |
| 2.5% |
|
| 2.5% |
|
| 1.8% |
|
Boston |
| 3.5% |
|
| 3.5% |
|
| 2.8% |
|
Seattle |
| 2.5% |
|
| 3.2% |
|
| 2.0% |
|
San Francisco |
| 4.0% |
|
| 4.0% |
|
| 3.4% |
|
Los Angeles |
| 4.6% |
|
| 3.9% |
|
| 3.8% |
|
Orange County |
| 3.8% |
|
| 3.6% |
|
| 3.1% |
|
San Diego |
| 3.5% |
|
| 3.4% |
|
| 3.9% |
|
Overall |
| 3.3% |
|
| 3.1% to 3.5% |
|
| 2.2% to 3.2% |
|
Same store revenues, which exceeded our expectations, increased due to continued low turnover, strong occupancy and favorable overall demand. Improving results in our East Coast markets and Seattle and continued strength in California have led us to revise our same store revenue growth expectations for full year 2019. The Company’s primary focus in 2019 is to continue to retain existing residents and maintain strong occupancy.
Washington D.C. continues to performhad a better than expected first half of 2019 with strong occupancy and better new lease change than previously anticipated. The economy, particularly in Northern Virginia, remains strong with gains in the professional and business services sector which are aiding in the absorption of new supply being delivered. However, we remain cautious on targetthis market’s performance due to high occupancy rates and job growth leading to absorption of substantialcontinued pressure from elevated new supply in the market. Same store revenues increased 1.0% in the nine months ended September 30, 2018 as compared to the same period in 2017, which was slightly below our full year expectations. Occupancy of 96.2% for the nine months ended September 30, 2018 was higher than at the same time period last year. We continue to expect same store revenue growth of approximately 1.2% in this market in 2018, as we expect improved results in the fourth quarter.supply.
In theThe New York market performed better than expected with strong occupancy and the beginning of pricing power. Strong demand and new supply that is lower than 2018 in our competitive footprint is driving performance. Due in part to improved new lease pricing, improved occupancy and strong renewals, we anticipatedhave also used very limited concessions. We will continue to monitor the impact of the recently passed rent control regulations. Of the approximately 9,600 apartment units located in our New York market, approximately 3,000 apartment units are not located in New York City and not affected by the new regulations. Of the approximately 6,600 apartment units located in New York City, approximately 3,200 apartment units are “rent stabilized” and therefore impacted by the new regulations. We estimate that elevated deliveriesthe new regulations will have a negative impact on renewal rates for some of these apartment units. Additionally, the new luxury supply wouldregulations will impact our ability to charge certain fees at all of our New York City properties. We expect an approximate $0.8 million annual reduction in fees, of which approximately $0.4 million will impact 2019. Overall, we believe the new rent control regulations will have ana modestly negative impact on our ability to raise rents and would require us to issue meaningful rent concessions. While we were impacted by new supply, stronger demandNew York market results for our well-located properties led to increased same store occupancy levels and fewer rent concessions in the nine months ended September 30, 2018 than we expected. As a result, same store revenues increased 0.6% in the nine months ended September 30, 2018 as compared to the same period in 2017, putting the market on track to exceed our most recent full year expectation of 0.2% provided in July 2018 for this market. These strong demand conditions have led to higher occupancy and renewal rates, leading us to revise our expectation of same store revenue growth to approximately 0.7% for full year 2018.2019.
Boston continuesperformed better than expected with strong demand across the market along with a pause in competitive new supply. Strong occupancy, new lease and renewal pricing increases continue to steadily absorb newdrive performance. Most of the 2019 supply as a result of strong job growthis expected to deliver later in the business services sector. Same store revenues increased 2.4% inyear; therefore, we expect competition to increase towards the nine months ended September 30, 2018 as compared to the same period in 2017, which is trending above our most recent full year expectation due to stronger base rent growth and renewal increases. With Boston’s continued ability to absorb new supply and easing near-term supply pressure, we now expect to produce full year same store revenue growthend of approximately 2.4% in this2019.
The Seattle market in 2018, which isperformed better than our most recent expectation of 2.1% provided in July 2018.
We have a continued cautious outlook for Seattleexpected as the market decelerates as anticipated duecontinues to significant supply. Same store revenues increased 3.3% in the nine months ended September 30, 2018 as compared to the same period in 2017, which made it one of our strongest performing markets. We do expect our ability to raise rents to continue to be muted, however, fromexperience strong demand despite elevated new supply. We continueNotwithstanding this supply, job growth continues to expect Seattle to produce same store revenue growth of approximately 3.0%be very strong, and we experienced improvement in 2018, which is consistent with our most recent expectations provided in July 2018.occupancy and better new lease and renewal pricing than anticipated for the quarter.
San Francisco continues to perform better than expected as a result of strong demand driving occupancy and new lease growth and renewal rates.pricing growth. The overall market continues to show positive trendsgood absorption of new supply. The East and South Bay areas are experiencing temporary pricing pressure due to the impact of new supply, but in the long-term, we expect strong demand to drive a rapid absorption of this supply. Continued economic growth and job expansion is producing wage growth driven by technology company expansions and investments. As a result, same
Although the Los Angeles market continues to experience an increase in supply, overall results were largely in line with expectations. Residential-only same store revenues increased 2.8%4.4% in the ninesix months ended September 30, 20182019 as compared to the same period in 2017. We expect to produce same store revenue growth of approximately 2.9% in this market in 2018, which is consistent with our most recent expectations provided in July 2018.
Los Angeles continues to experience new supply, but the impact of this supply has been somewhat delayed due to labor shortages pushing deliveries of new units into 2019. Strong demand and, to some extent, these delays in deliveries have led to occupancy, renewals and new lease rates that exceeded our original expectations. Same store revenues increased 3.4% in the nine months ended September 30, 2018 as compared to the same period in 2017, which was consistent with our most recent full year expectations. Residential-only same store revenues increased 3.6% in the nine months ended September 30, 2018 as compared to the same period in 2017, while our reported revenue increase of 3.4%4.6% includes the impact of a negative, one-time non-residential income adjustment. We expect to produce same store revenue growth of approximately 3.6%adjustment in this market in 2018, which is better than our most recent expectation of 3.4% provided in July 2018.
45
During the first half of the year, Orange County experienced pressure on average rental rates and occupancy due to supply within the Irvine area. However, demand and occupancy remain strong and we expect to produce some of our best revenue results in this market. Same store revenues increased 3.7% in the nine months ended September 30, 2018 as compared to the same period in 2017, which was slightly higher than our most recent full year expectations. We expect to produce same store revenue growth of approximately 3.6% in this market in 2018, which is slightly higher than our most recent expectation of 3.5% provided in July 2018.comparable period.
In the Orange County market, results have been largely in line with expectations. New lease and renewal pricing were trending stronger, but some of our properties are experiencing pricing pressure due to competitive new supply in Irvine and Newport Beach.
In San Diego, market, we experienced slightly lower than expected renewal pricing driven by supply pressure in the downtown area, but military spending remains strong. To date, the market has performed slightly below expectations.
As of June 30, 2019, the Company owns four apartment properties in Denver. While these properties are not currently within our same store portfolio, they are performing in line with our expectations at the time of acquisition.
The following table provides comparative same store operating expenses for the Six-Month 2019 Same Store Properties:
June YTD 2019 vs. June YTD 2018
Same Store Operating Expenses for 73,609 Same Store Apartment Units
$ in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % of Actual |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| YTD 2019 |
| |
|
| Actual |
|
| Actual |
|
| $ |
|
| % |
|
| Operating |
| |||||
|
| YTD 2019 |
|
| YTD 2018 |
|
| Change (5) |
|
| Change |
|
| Expenses |
| |||||
Real estate taxes |
| $ | 158,984 |
|
| $ | 153,972 |
|
| $ | 5,012 |
|
|
| 3.3 | % |
|
| 42.4 | % |
On-site payroll (1) |
|
| 81,135 |
|
|
| 78,338 |
|
|
| 2,797 |
|
|
| 3.6 | % |
|
| 21.7 | % |
Utilities (2) |
|
| 49,328 |
|
|
| 48,535 |
|
|
| 793 |
|
|
| 1.6 | % |
|
| 13.2 | % |
Repairs and maintenance (3) |
|
| 47,663 |
|
|
| 45,494 |
|
|
| 2,169 |
|
|
| 4.8 | % |
|
| 12.7 | % |
Insurance |
|
| 10,632 |
|
|
| 9,659 |
|
|
| 973 |
|
|
| 10.1 | % |
|
| 2.8 | % |
Leasing and advertising |
|
| 4,771 |
|
|
| 4,864 |
|
|
| (93 | ) |
|
| (1.9 | )% |
|
| 1.3 | % |
Other on-site operating expenses (4) |
|
| 21,944 |
|
|
| 19,545 |
|
|
| 2,399 |
|
|
| 12.3 | % |
|
| 5.9 | % |
Same store operating expenses |
| $ | 374,457 |
|
| $ | 360,407 |
|
| $ | 14,050 |
|
|
| 3.9 | % |
|
| 100.0 | % |
(1) | On-site payroll – Includes payroll and related expenses for on-site personnel including property managers, leasing consultants and maintenance staff. |
(2) | Utilities – Represents gross expenses prior to any recoveries under the Resident Utility Billing System (“RUBS”). Recoveries are reflected in rental income. |
(3) | Repairs and maintenance – Includes general maintenance costs, apartment unit turnover costs including interior painting, routine landscaping, security, exterminating, fire protection, snow removal, elevator, roof and parking lot repairs and other miscellaneous building repair and maintenance costs. |
(4) | Other on-site operating expenses – Includes ground lease costs and administrative costs such as office supplies, telephone and data charges and association and business licensing fees. |
(5) | The changes are due primarily to: |
• | Real estate taxes – Increase below expectations. Continue to experience growth across most markets, particularly New York. Growth rate is lower than original expectations due to lower than anticipated rates in Seattle and modestly favorable appeals activity. |
• | On-site payroll – Increase below expectations. Payroll pressures continue but are somewhat lower than expected. |
• | Utilities – Increase in line with expectations. |
• | Repairs and maintenance – Growth driven primarily by minimum wage pressure on contract labor and higher than anticipated repairs, including weather-related repairs in California in the first quarter of 2019. |
• | Insurance – Increase due to higher premiums on property insurance renewal due to challenging conditions in the insurance market. |
• | Other on-site operating expenses – Increase primarily driven by higher ground lease costs due to a contractual revaluation at one property along with higher association fees. |
Same store revenuesexpenses increased 3.9% induring the ninesix months ended SeptemberJune 30, 20182019 as compared to the same period in 2017. We expect to produce same store revenue growth of approximately 4.0% in this market in 2018, which is consistent with our most recent expectation provided in July 2018.
Same store expenses increased 3.4% during the nine months ended September 30, 2018 as compared to the same period in 2017. The Company now anticipates that full year 20182019 same store expenses will increase 3.7%3.5% to 4.0%.
Same store NOI increased 3.1% during the six months ended June 30, 2019 as compared to the most recent guidance range of 3.5% to 4.0% that was provided in July 2018, primarily due to the following items:
Real estate taxes increased 4.1% during the ninesix months ended SeptemberJune 30, 2018, as compared to the same period in 2017, which is at the low end of our most recent full year expectations, due primarily to better than anticipated appeal results in California. Real estate taxes are estimated to increase approximately 4.0% for the full year 2018 as compared to 2017, which is at the low end of our most recent expectation of 4.0% to 4.5% provided in July 2018.
Payroll costs increased 2.6% during the nine months ended September 30, 2018 as compared to the same period in 2017, which is trending lowerwas higher than our most recent full year expectations of a 3.0% to 4.0% increase, primarily due to a reduction in medical reserve expenses in the comparable period. Payroll costs are now estimated to increase around 3.5% for the full year 2018 as compared to 2017, which is consistent with our most recent expectation provided in July 2018 of a 3.0% to 4.0% increase due to continued wage pressures, particularly with maintenance staff.
Utilities increased 4.3% during the nine months ended September 30, 2018 as compared to the same period in 2017, primarily due to increases in the commodity cost for electricity, natural gas and heating oil after enjoying several years of declining rates, as well as adverse winter weather in the Northeast in the first quarter of 2018. Utilities are now estimated to increase approximately 4.7% for the full year 2018 as compared to 2017, which is an increase to the most recent guidance provided in July 2018 of 4.0%.
Same store NOI increased 1.7% during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017, which was at the higher end of our most recent expectation provided in July 2018.expectations. The Company now anticipates full year 2018 same store NOI growth in the current range of approximately 1.7%2.7% to 3.5% for full year 2019 as compared to the guidance range of 1.0% to 1.8% that was provided in July 2018 as a result of the above same store revenue and expense expectations.
See also Note 1213 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.
Non-Same Store/Other Results
Non-same store/other NOI results for the ninesix months ended SeptemberJune 30, 20182019 increased approximately $32.9$20.4 million compared to the same period of 20172018 and consist primarily of properties acquired in calendar years 20172018 and 2018,2019, operations from the Company’s development properties and operations prior to disposition from 20172018 and 20182019 sold properties. This difference is due primarily to:
A positive impact of higher NOI from development and newly stabilized development properties in lease-up of $29.0 million;
• | A positive impact of higher NOI from development and newly stabilized development properties in lease-up of $8.1 million; |
A positive impact of higher NOI from properties acquired in 2017 and 2018 of $20.2 million;
• | A positive impact of higher NOI from properties primarily acquired in 2018 and 2019 of $21.8 million; |
A positive impact of higher NOI from other non-same store properties (including one current and two former master leased properties) of $1.3 million; and
• | A positive impact of higher NOI from other non-same store properties (including one current and two former master-leased properties) of $0.2 million; and |
A negative impact of lost NOI from 2017 and 2018 dispositions of $21.8 million.
• | A negative impact of lost NOI from 2018 and 2019 dispositions of $15.1 million. |
The Company’s guidance assumes consolidated rental acquisitions of $707.0 million (all of which occurred already)$1.0 billion and consolidated rental dispositions of $706.1 million (all of which occurred already)$1.0 billion and expects that the Acquisition Cap Rate will be 0.30% higher thanequal to the Disposition Yield for the full year ending December 31, 2018.2019. The Company budgeted onecurrently budgets three development start
46
starts during the year ending December 31, 2018, which started in the second quarter of 2018.2019. We currently budget spending approximately $125.0$208.3 million on development costs during the year ending December 31, 2018,2019, primarily for properties currently under construction including the one project started in 2018.construction. We assume that this capital will be primarily sourced with excess operating cash flow, future debt offerings and borrowings on our revolving credit facility and/or commercial paper program. These 20182019 assumptions are based on current expectations and are forward-looking.
Comparison of the ninesix months and quarter ended SeptemberJune 30, 20182019 to the ninesix months and quarter ended SeptemberJune 30, 20172018
For the nine months ended September 30, 2018, the Company reportedThe following table presents a reconciliation of diluted earnings per share/unit of $1.46 compared to $1.29 per share/unit infor the same period of 2017. The difference is primarily due to approximately $0.14 per share/unit in higher property NOIsix months and $0.30 per share/unit in higher gains on property sales in 2018 as compared to 2017, partially offset by $0.13 per share/unit in higher debt extinguishment costs and lower non-operating asset gains on sale and $0.10 per share/unit in higher depreciation expense in 2018 as compared to 2017, as discussed below. For the quarter ended SeptemberJune 30, 2018, the Company reported diluted earnings per share/unit of $0.58 compared to $0.37 per share/unit in the same period of 2017. The difference is primarily due to approximately $0.26 per share/unit in higher gains on property sales and $0.04 per share/unit in higher property NOI in the third quarter of 2018 as compared to 2017, partially offset by $0.04 per share/unit of higher debt extinguishment costs and $0.03 per share/unit of higher depreciation expense in the third quarter of 2018 as2019 compared to the same period of 2017, as discussed below.2018:
For the nine months ended September 30, 2018, consolidated rental income increased 4.6%, consolidated operating expenses (comprised of property and maintenance and real estate taxes and insurance) increased 5.6% and consolidated NOI increased 4.2% when compared to the nine months ended September 30, 2017.
|
| Six Months Ended June 30 |
|
| Quarter Ended June 30 |
| ||
Diluted earnings per share/unit for period ended 2018 |
| $ | 0.88 |
|
| $ | 0.31 |
|
Property NOI |
|
| 0.11 |
|
|
| 0.06 |
|
Corporate overhead (1) |
|
| (0.02 | ) |
|
| (0.01 | ) |
Net gain/loss on property/unconsolidated sales |
|
| 0.17 |
|
|
| 0.54 |
|
Other |
|
| (0.03 | ) |
|
| (0.07 | ) |
Diluted earnings per share/unit for period ended 2019 |
| $ | 1.11 |
|
| $ | 0.83 |
|
(1) | Corporate overhead is comprised of property management and general and administrative expenses. |
The increase in consolidated NOI is primarily a result of the Company’s improved NOI from same store and lease-up properties. Forproperties along with NOI from the Company’s recent transaction activity. The following table presents the changes in the components of consolidated NOI for the six months and quarter ended SeptemberJune 30, 2018, consolidated rental income increased 4.6%, consolidated operating expenses (compromised of property and maintenance and real estate taxes and insurance) increased 4.8% and consolidated NOI increased 4.5% when2019 compared to the quarter ended September 30, 2017. The increase in NOI is primarily a resultsame period of the Company’s improved NOI from same store and lease-up properties.2018:
|
| Six Months Ended June 30, 2019 |
|
| Quarter Ended June 30, 2019 |
| ||
Consolidated rental income |
|
| 4.7 | % |
|
| 4.7 | % |
Consolidated operating expenses (1) |
|
| 3.3 | % |
|
| 3.5 | % |
Consolidated NOI |
|
| 5.2 | % |
|
| 5.2 | % |
(1) | Consolidated operating expenses are comprised of property and maintenance and real estate taxes and insurance. |
Property management expenses include off-site expenses associated with the self-management of the Company’s properties as well as management fees paid to any third party management companies. These expenses increased approximately $4.5$3.8 million or 6.9%8.2% and approximately $1.4$0.9 million or 6.6%3.8% for the ninesix months and quarter ended SeptemberJune 30, 2018,2019, respectively, as compared to the prior year periods. These increases are primarily attributable to increases in payroll-related costs, and legal and professional fees and computer operations costs, partially offset by decreases in education/conference costs. The Company anticipates that property management expenses will approximate $91.5$97.0 million to $99.0 million for the year ending December 31, 2018.2019.
General and administrative expenses, which include corporate operating expenses, increased approximately $1.1$0.9 million or 2.6% for3.2% and approximately $1.8 million or 14.6% for the ninesix months and quarter ended SeptemberJune 30, 20182019, respectively, as compared to the prior year period,periods, primarily due to an increaseincreases in payroll-related costs, office rent and education/conference costs. The Company anticipates that general and administrative expenses will approximate $52.0 million to $54.0 million for the year ending December 31, 2018.2019.
Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $40.9$15.5 million or 7.5%4.0% and approximately $10.5$7.6 million or 5.7%3.9% for the ninesix months and quarter ended SeptemberJune 30, 2018,2019, respectively, as compared to the prior year periods, primarily as a result of additional depreciation expense on properties acquired in 20172018 and 20182019 and development properties placed in service during 20172018, offset by lower depreciation from properties sold in 2018 and 2019.
Net gain on sales of real estate properties decreased approximately $3.3 million or 2.3% for the six months ended June 30, 2019 as compared to the prior year period as a result of the sale of four consolidated apartment properties in 2018 as compared to two consolidated properties in 2019. Net gain on sales of real estate properties increased approximately $138.9 million during the quarter ended June 30, 2019 compared to the prior year period as a result of the sale of two consolidated properties in 2019 as compared to no consolidated property sales in the same period in 2018.
Interest and other income increaseddecreased approximately $9.2$5.4 million and $3.9 millionor 77.3% for the ninesix months and quarter ended SeptemberJune 30, 20182019 as compared to the prior year periodsperiod, primarily due to an $8.6$5.5 million and $3.9 million, respectively, increase in lower insurance/litigation settlement proceeds received during 20182019 as compared to the prior year periods. 2018. The Company anticipates that interest and other income will approximate $1.5$1.8 million for the year ending December 31, 2018,2019, excluding certain non-comparable insurance/litigation settlement proceeds.
Other expenses increased approximately $11.7$1.2 million or 16.4% and $6.6approximately $1.3 million or 35.8% for the ninesix months and quarter ended SeptemberJune 30, 2018,2019, respectively, as compared to the prior year periods,, primarily due to an increase in expenses related to insurance,pursuit costs and various consulting costs partially offset by decreases in litigation and environmental settlements (six months only) and advocacy contributions in 20182019 as compared to 2017.2018.
Interest expense, including amortization of deferred financing costs, decreased approximately $6.4 million or 3.0% for the six months ended June 30, 2019 as compared to the prior year period. The decrease is due primarily to $6.9 million in lower debt extinguishment costs for the six months ended June 30, 2019 as compared to the prior year period. Interest expense, including amortization of deferred financing costs, increased approximately $35.5$16.3 million or 12.0% and approximately $21.3 million or 22.8%17.0% for the nine months and quarter ended SeptemberJune 30, 2018, respectively,2019 as compared to the prior year periods.period. The increase is due primarily to $29.4$16.6 million and $18.3 million, respectively, in higher debt extinguishment costs for the nine months and quarter ended SeptemberJune 30, 20182019 as compared to the prior year periods, as well as lower capitalized interest due to the Company’s decline in development activity for the nine months and quarter ended September 30, 2018, respectively, compared to the prior year periods. The effective interest cost on all indebtedness for the nine months ended September 30, 2018 was 4.36% as
47
compared to 4.47% for the prior year period. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the six months ended June 30, 2019 was 4.34% as compared to 4.40% for the prior year period, and for the quarter ended SeptemberJune 30, 20182019 was 4.30%4.34% as compared to 4.35%4.37% for the prior year period. The Company capitalized interest of approximately $4.5$2.7 million and $23.2$2.9 million during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and $1.6$1.5 million and $6.6$1.2 million during the quarters ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The Company anticipates that interest expense, excluding debt extinguishment costs/prepayment penalties, will approximate $374.0$368.5 million to $378.3$376.7 million and capitalized interest will approximate $6.0$7.0 million to $8.0 million for the year ending December 31, 2018.2019.
The 2018 guidance/projections provided above are based on current projections and are forward-looking.
LossIncome from investments in unconsolidated entities increased approximately $0.8$70.1 million and approximately $0.6$69.8 million forduring the ninesix months and quarter ended SeptemberJune 30, 2018,2019, respectively, as compared to the prior year periods. The increases are primarily due toperiods, as a trailing gain on the liquidationresult of the Archstone Germany portfolio and a trailing$69.5 million gain on the sale of a property interest by the Archstone residual joint venturetwo unconsolidated properties in 2019 that did not occur in the third quarter of 2017, neither of which reoccurredsame periods in the current year.
Net gain on sales of real estate properties increased approximately $115.1 million or 81.2% during the nine months ended September 30, 2018 compared to the prior year period, primarily as a result of the sale of five consolidated apartment properties for a sales price of approximately $706.1 million during the nine months ended September 30, 2018 as compared to four consolidated apartment properties for a sales price of approximately $319.7 million sold during the nine months ended September 30, 2017, all of which did not meet the criteria for reporting discontinued operations. Net gain on sales of real estate properties increased approximately $97.3 million during the quarter ended September 30, 2018 compared to the prior year period as a result of the sale of one consolidated property for a sales price of approximately $416.1 million during the quarter ended September 30, 2018 as compared to the sale of one consolidated property for a sales price of approximately $53.0 million in the prior year period. 2018.
Net gain on sales of land parcels decreased approximately $18.2$0.8 million or 94.8% during82.1% and approximately $0.8 million or 82.2% for the ninesix months and quarter ended SeptemberJune 30, 20182019, respectively, as compared to the prior year periodperiods, due to the gain on sale of one land parcel with a lower basis in the prior year as compared to the trailing gain on sale of one land parceladjustments which occurred in the current year. periods.
The 2019 guidance/projections provided above are based on current projections and are forward-looking.
Liquidity and Capital Resources
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. Under normal operating conditions, the Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.
As of January 1, 2018,2019, the Company had approximately $50.6$47.4 million of cash and cash equivalents, approximately $50.1$68.9 million of restricted deposits and the amount available on its revolving credit facility was $1.69$1.40 billion. After taking into effect the various transactions discussed in the following paragraphs and the net cash provided by operating activities, at SeptemberJune 30, 2018,2019, the Company’s cash and cash equivalents balance was approximately $33.0$251.3 million, the restricted deposits balance was approximately $55.8$58.2 million and the amount available on its revolving credit facility was $1.49$1.90 billion. See Note 9 in the Notes to Consolidated Financial Statements for further discussion of the availability on the Company’s revolving credit facility.
During the ninesix months ended SeptemberJune 30, 2018,2019, the Company generated proceeds from various transactions, which included the following:
Disposed of five consolidated rental properties and one land parcel receiving net proceeds of approximately $691.5 million;
• | Disposed of two consolidated rental properties and two unconsolidated rental properties, receiving combined net proceeds of approximately $471.7 million; |
Issued $500.0 million of ten-year 3.50% unsecured notes, receiving net proceeds of approximately $497.0 million before underwriting fees, hedge termination settlements and other expenses; and
• | Obtained $288.1 million in 3.94% fixed rate mortgage debt held in a Fannie Mae loan pool maturing on March 1, 2029; |
• | Obtained $7.5 million in variable rate of construction mortgage debt maturing on June 25, 2022 (total commitment of $67.6 million); |
Issued approximately 0.3 million Common Shares related to share option exercises and ESPP purchases and received net proceeds of $9.1 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).
• | Issued $600.0 million of ten-year 3.00% unsecured notes, receiving net proceeds of approximately $597.5 million before underwriting fees, hedge termination costs and other expenses; and |
• | Issued approximately 1.1 million Common Shares related to share option exercises and ESPP purchases and received net proceeds of $50.1 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). |
During the ninesix months ended SeptemberJune 30, 2018,2019, the above proceeds along with net cash flow from operations and borrowings from the Company’s revolving line of credit and commercial paper program were primarily utilized to:
48
| • | Acquire |
Invest $101.6 million primarily in development projects; and
• | Invest $93.2 million primarily in development projects; |
• | Repay $95.5 million of tax-exempt variable rate mortgage bonds maturing in 2036; and |
Repay $852.9 million of mortgage loans (inclusive of scheduled principal repayments) and incur prepayment penalties of approximately $22.1 million.
• | Repay $3.1 million of mortgage loans (inclusive of scheduled principal repayments). |
Credit Facility and Commercial Paper Program
In November 2016, theThe Company replaced its existing $2.5 billion facility withhas a $2.0 billion unsecured revolving credit facility maturing January 10, 2022. The Company has the ability to increase available borrowings by an additional $750.0 million by adding additional banks to the facility or obtaining the agreement of existing banks to increase their commitments. The interest rate on advances under the facility will generally be LIBOR plus a spread (currently 0.825%), or based on bids received from the lending group, and the Company pays an annual facility fee (currently 12.5 basis points)0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit rating of the Company’s long-term debt.rating.
In February 2015, theThe Company entered intohas an unsecured commercial paper note program in the United States. The Company may borrow up to a maximum of $500.0 million under this 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. As of OctoberJuly 26, 2018,2019, there was a balance of $500.0$490.0 million in principal outstanding on the commercial paper program.
As of OctoberJuly 26, 2018, the amount available on2019, $465.0 million was outstanding under the revolving credit facility was $901.4and $6.7 million net of:
$500.0 million in principal outstanding on the commercial paper program;
$495.0 million in principal outstanding on the revolving line of credit;
$96.9 million of floating rate tax-exempt mortgage bonds which mature on April 1, 2042 and are guaranteed by ERPOP; and
$6.7 million which was restricted/dedicated to support letters of credit.
In addition, the Company limits its utilization of the facility in order to maintain liquidity to support its $500.0 million commercial paper program along with certain other obligations. As a result, the Company had approximately $941.3 million available under the facility at July 26, 2019. This facility may, among other potential uses, be used to fund property acquisitions, costs for certain properties under development and short-term liquidity requirements.
Dividend Policy
Beginning in 2018, theThe Company no longer determines its dividends/distributions as a fixed percentage of estimated Normalized FFO but instead adopted a more conventional policy based on actual and projected financial conditions, the Company’s actual and projected liquidity and operating results, the Company’s projected cash needs for capital expenditures and other investment activities and such other factors as the Company’s Board of Trustees deems relevant. The Company declared a dividend/distribution for the first second and thirdsecond quarters of 20182019 of $0.54$0.5675 per share/unit in each quarter, an annualized increase of 7.2%5.1% over the amount paid in 2017.2018. This policy changeincrease is supported by the Company’s strong growth in property operations since the recent economic downturn and a significant reduction in its development activity resulting in a material increase in available cash flow. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees. The Company believes that its expected 20182019 operating cash flow will be sufficient to cover capital expenditures and regular dividends/distributions.
Total dividends/distributions paid in October 2018July 2019 amounted to $206.9$218.7 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the third quarter ended SeptemberJune 30, 2018.2019.
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 construction and 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 and cash generated from operations after all distributions. In addition, the Company has significant unencumbered properties available to secure additional mortgage borrowings in the event that the publicunsecured capital markets areis unavailable or the cost of alternative sources of capital is too high. The fair 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 and commercial paper program. credit. Of the $26.4$27.0 billion in investment in real estate on the Company’s balance sheet at SeptemberJune 30, 2018, $21.62019, $22.4 billion
49
or 81.7%83.0% was unencumbered. However, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise.
EQR issues public equity from time to time and guarantees certain debt of the Operating Partnership. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
The Company’s total debt summary and debt maturity schedules as of SeptemberJune 30, 20182019 are as follows:
Debt Summary as of SeptemberJune 30, 20182019
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| ||
|
|
|
|
|
|
|
|
|
| Weighted |
|
| Average |
|
|
|
|
|
|
|
|
|
| Weighted |
|
| Average |
| ||||
|
|
|
|
|
|
|
|
|
| Average |
|
| Maturities |
|
|
|
|
|
|
|
|
|
| Average |
|
| Maturities |
| ||||
|
| Amounts (1) |
|
| % of Total |
|
| Rates (1) |
|
| (years) |
|
| Amounts (1) |
|
| % of Total |
|
| Rates (1) |
|
| (years) |
| ||||||||
Secured |
| $ | 2,789,436 |
|
|
| 31.6 | % |
|
| 4.19 | % |
|
| 5.4 |
|
| $ | 2,599,013 |
|
|
| 28.5 | % |
|
| 4.01 | % |
|
| 6.4 |
|
Unsecured |
|
| 6,034,357 |
|
|
| 68.4 | % |
|
| 4.12 | % |
|
| 9.5 |
|
|
| 6,531,408 |
|
|
| 71.5 | % |
|
| 4.20 | % |
|
| 9.7 |
|
Total |
| $ | 8,823,793 |
|
|
| 100.0 | % |
|
| 4.14 | % |
|
| 8.2 |
|
| $ | 9,130,421 |
|
|
| 100.0 | % |
|
| 4.15 | % |
|
| 8.7 |
|
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
| $ | 2,386,165 |
|
|
| 27.0 | % |
|
| 4.66 | % |
|
| 3.8 |
|
| $ | 2,170,114 |
|
|
| 23.8 | % |
|
| 4.44 | % |
|
| 4.6 |
|
Unsecured – Public |
|
| 5,088,560 |
|
|
| 57.7 | % |
|
| 4.39 | % |
|
| 11.2 |
|
|
| 6,081,432 |
|
|
| 66.6 | % |
|
| 4.38 | % |
|
| 10.4 |
|
Fixed Rate Debt |
|
| 7,474,725 |
|
|
| 84.7 | % |
|
| 4.48 | % |
|
| 8.9 |
|
|
| 8,251,546 |
|
|
| 90.4 | % |
|
| 4.40 | % |
|
| 8.9 |
|
Floating Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured – Conventional |
|
| 6,554 |
|
|
| 0.1 | % |
|
| 1.82 | % |
|
| 6.4 |
|
|
| 13,057 |
|
|
| 0.1 | % |
|
| 2.42 | % |
|
| 5.3 |
|
Secured – Tax Exempt |
|
| 396,717 |
|
|
| 4.5 | % |
|
| 2.09 | % |
|
| 13.6 |
|
|
| 415,842 |
|
|
| 4.6 | % |
|
| 2.09 | % |
|
| 15.5 |
|
Unsecured – Public (2) |
|
| 446,430 |
|
|
| 5.1 | % |
|
| 2.76 | % |
|
| 0.7 |
|
|
| 449,976 |
|
|
| 4.9 | % |
|
| 3.34 | % |
|
| — |
|
Unsecured – Revolving Credit Facility |
|
| — |
|
|
| — |
|
|
| 2.65 | % |
|
| 3.2 |
|
|
| — |
|
|
| — |
|
|
| 3.25 | % |
|
| 2.5 |
|
Unsecured – Commercial Paper Program |
|
| 499,367 |
|
|
| 5.6 | % |
|
| 2.23 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.73 | % |
|
| — |
|
Floating Rate Debt |
|
| 1,349,068 |
|
|
| 15.3 | % |
|
| 2.35 | % |
|
| 4.6 |
|
|
| 878,875 |
|
|
| 9.6 | % |
|
| 2.74 | % |
|
| 7.6 |
|
Total |
| $ | 8,823,793 |
|
|
| 100.0 | % |
|
| 4.14 | % |
|
| 8.2 |
|
| $ | 9,130,421 |
|
|
| 100.0 | % |
|
| 4.15 | % |
|
| 8.7 |
|
(1) |
|
(2) | Fair value interest rate swaps convert the $450.0 million 2.375% notes |
Debt Maturity Schedule as of SeptemberJune 30, 20182019
($ in thousands)
Year |
| Fixed Rate (1) |
|
| Floating Rate (1) |
|
| Total |
|
| % of Total |
|
| Weighted Average Rates on Fixed Rate Debt (1) |
|
| Weighted Average Rates on Total Debt (1) |
|
| Fixed Rate (1) |
|
| Floating Rate (1) |
|
| Total |
|
| % of Total |
|
| Weighted Average Coupons on Fixed Rate Debt (1) |
|
| Weighted Average Coupons on Total Debt (1) |
| ||||||||||||
2018 |
| $ | 1,493 |
|
| $ | 450,200 |
| (2) | $ | 451,693 |
|
|
| 5.1 | % |
|
| 4.01 | % |
|
| 2.39 | % | ||||||||||||||||||||||||
2019 |
|
| 506,731 |
| (3) |
| 517,412 |
| (2) |
| 1,024,143 |
|
|
| 11.5 | % |
|
| 5.17 | % |
|
| 4.02 | % |
| $ | 3,821 |
|
| $ | 470,276 |
| (2) | $ | 474,097 |
|
|
| 5.1 | % |
|
| 3.61 | % |
|
| 3.14 | % |
2020 |
|
| 1,128,592 |
| (4) |
| 700 |
|
|
| 1,129,292 |
|
|
| 12.7 | % |
|
| 5.20 | % |
|
| 5.20 | % |
|
| 1,128,592 |
| (3) |
| 700 |
|
|
| 1,129,292 |
|
|
| 12.3 | % |
|
| 5.20 | % |
|
| 5.20 | % |
2021 |
|
| 927,506 |
|
|
| 600 |
|
|
| 928,106 |
|
|
| 10.4 | % |
|
| 4.64 | % |
|
| 4.64 | % |
|
| 927,506 |
|
|
| 600 |
|
|
| 928,106 |
|
|
| 10.1 | % |
|
| 4.64 | % |
|
| 4.64 | % |
2022 |
|
| 265,341 |
|
|
| 800 |
|
|
| 266,141 |
|
|
| 3.0 | % |
|
| 3.26 | % |
|
| 3.26 | % |
|
| 265,341 |
|
|
| 8,300 |
|
|
| 273,641 |
|
|
| 3.0 | % |
|
| 3.26 | % |
|
| 3.26 | % |
2023 |
|
| 1,326,800 |
|
|
| 4,800 |
|
|
| 1,331,600 |
|
|
| 14.9 | % |
|
| 3.74 | % |
|
| 3.73 | % |
|
| 1,326,800 |
|
| �� | 4,300 |
|
|
| 1,331,100 |
|
|
| 14.4 | % |
|
| 3.74 | % |
|
| 3.73 | % |
2024 |
|
| 1,272 |
|
|
| 10,900 |
|
|
| 12,172 |
|
|
| 0.1 | % |
|
| 4.79 | % |
|
| 1.98 | % |
|
| 1,272 |
|
|
| 6,900 |
|
|
| 8,172 |
|
|
| 0.1 | % |
|
| 4.79 | % |
|
| 2.40 | % |
2025 |
|
| 451,334 |
|
|
| 13,200 |
|
|
| 464,534 |
|
|
| 5.2 | % |
|
| 3.38 | % |
|
| 3.33 | % |
|
| 451,334 |
|
|
| 9,000 |
|
|
| 460,334 |
|
|
| 5.0 | % |
|
| 3.38 | % |
|
| 3.35 | % |
2026 |
|
| 593,424 |
|
|
| 14,500 |
|
|
| 607,924 |
|
|
| 6.8 | % |
|
| 3.59 | % |
|
| 3.54 | % |
|
| 593,424 |
|
|
| 10,000 |
|
|
| 603,424 |
|
|
| 6.5 | % |
|
| 3.59 | % |
|
| 3.56 | % |
2027 |
|
| 401,468 |
|
|
| 15,600 |
|
|
| 417,068 |
|
|
| 4.7 | % |
|
| 3.26 | % |
|
| 3.19 | % |
|
| 401,468 |
|
|
| 10,700 |
|
|
| 412,168 |
|
|
| 4.5 | % |
|
| 3.26 | % |
|
| 3.22 | % |
2028+ |
|
| 1,924,969 |
|
|
| 359,065 |
|
|
| 2,284,034 |
|
|
| 25.6 | % |
|
| 4.17 | % |
|
| 3.76 | % | ||||||||||||||||||||||||
2028 |
|
| 901,540 |
|
|
| 43,380 |
|
|
| 944,920 |
|
|
| 10.3 | % |
|
| 3.79 | % |
|
| 3.70 | % | ||||||||||||||||||||||||
2029+ |
|
| 2,311,549 |
|
|
| 335,220 |
|
|
| 2,646,769 |
|
|
| 28.7 | % |
|
| 3.98 | % |
|
| 3.63 | % | ||||||||||||||||||||||||
Subtotal |
|
| 7,528,930 |
|
|
| 1,387,777 |
|
|
| 8,916,707 |
|
|
| 100.0 | % |
|
| 4.23 | % |
|
| 3.91 | % |
|
| 8,312,647 |
|
|
| 899,376 |
|
|
| 9,212,023 |
|
|
| 100.0 | % |
|
| 4.01 | % |
|
| 3.87 | % |
Deferred Financing Costs and Unamortized (Discount) |
|
| (54,205 | ) |
|
| (38,709 | ) |
|
| (92,914 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (61,101 | ) |
|
| (20,501 | ) |
|
| (81,602 | ) |
| N/A |
|
| N/A |
|
| N/A |
| ||||||
Total |
| $ | 7,474,725 |
|
| $ | 1,349,068 |
|
| $ | 8,823,793 |
|
|
| 100.0 | % |
|
| 4.23 | % |
|
| 3.91 | % |
| $ | 8,251,546 |
|
| $ | 878,875 |
|
| $ | 9,130,421 |
|
|
| 100.0 | % |
|
| 4.01 | % |
|
| 3.87 | % |
50
(1) |
|
|
|
| Includes |
| Includes a $500.0 million 5.78% mortgage loan with a maturity date of July 1, 2020 that |
See Note 89 in the Notes to Consolidated Financial Statements for additional discussion of debt at SeptemberJune 30, 2018.2019.
ERPOP’s long-term senior debt ratings and short-term commercial paper ratings as well as EQR’s long-term preferred equity ratings, which all have a stable outlook, as of OctoberJuly 26, 20182019 are as follows:
|
| Standard & Poor’s |
| Moody’s |
| Fitch |
ERPOP’s long-term senior debt rating |
| A- |
| A3 |
| A |
ERPOP’s short-term commercial paper rating |
| A-2 |
| P-2 |
| F-1 |
EQR’s long-term preferred equity rating |
| BBB |
| Baa1 |
| BBB+ |
See Note 1314 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to SeptemberJune 30, 2018.2019.
Capitalization of Fixed Assets and Improvements to Real Estate
The Company’s and the Operating Partnership’s capital expenditures policy has not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
For the ninesix months ended SeptemberJune 30, 2018,2019, 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 NineSix Months Ended SeptemberJune 30, 20182019
|
| Same Stores Properties (5) |
|
| Non-Same Store Properties/Other (6) |
|
| Total |
|
| Same Store Avg. Per Apartment Unit |
|
| Same Store Properties (4) |
|
| Non-Same Store Properties/Other (5) |
|
| Total |
|
| Same Store Avg. Per Apartment Unit |
| ||||||||
Total Apartment Units |
|
| 71,721 |
|
|
| 6,594 |
|
|
| 78,315 |
|
|
|
|
|
|
| 73,609 |
|
|
| 6,015 |
|
|
| 79,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Improvements |
| $ | 69,956 |
|
| $ | 2,328 |
|
| $ | 72,284 |
|
| $ | 976 |
|
| $ | 42,506 |
|
| $ | 3,110 |
|
| $ | 45,616 |
|
| $ | 578 |
|
Renovation Expenditures |
|
| 30,079 |
|
|
| 1,183 |
|
|
| 31,262 |
|
|
| 419 |
|
|
| 17,536 |
|
|
| 1,589 |
|
|
| 19,125 |
|
|
| 238 |
|
Replacements |
|
| 33,648 |
|
|
| 925 |
|
|
| 34,573 |
|
|
| 469 |
|
|
| 16,225 |
|
|
| 562 |
|
|
| 16,787 |
|
|
| 220 |
|
Total Capital Expenditures |
| $ | 133,683 |
|
| $ | 4,436 |
|
| $ | 138,119 |
|
| $ | 1,864 |
|
| $ | 76,267 |
|
| $ | 5,261 |
|
| $ | 81,528 |
|
| $ | 1,036 |
|
(1) |
|
| Building Improvements – Includes roof replacement, paving, building mechanical equipment systems, exterior siding and painting, major landscaping, furniture, fixtures and equipment for amenities and common areas, vehicles and office and maintenance equipment. |
| Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets. Amounts for |
| Replacements – Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting). |
| Same Store Properties – Primarily includes all properties acquired or completed that are stabilized prior to January 1, |
| Non-Same Store Properties/Other – Primarily includes all properties acquired during |
The Company estimates that during 20182019 it will spend approximately $2,800$2,600 per same store apartment unit or $200.0$190.0 million of total capital expenditures to real estate for same store properties. During 2018,2019, the Company expects to spend approximately $41.0
51
$46.4 million for apartment unit renovation expenditures on approximately 3,0002,900 same store apartment units at an average cost of approximately $13,700$16,000 per apartment unit renovated. The anticipated total capital expenditures to real estate for same store properties represent approximately the same percentage of same store revenues and a slightly higher cost per unit and absolute dollar amountsamount as compared to 2017.2018. The Company plans to continue the elevated capital expenditures for investment in customer-facing building improvements (leasing offices, fitness centers, common areas, etc.) to enhance the quality of our properties and to protect our competitive position given the new luxury supply opening in many of our markets. We also expect to maintain our elevated spending oncontinue to commit capital to sustainability projects and renovation expenditures during 2018.2019. The above assumptions are based on current expectations and are forward-looking.
During the nine months ended September 30, 2018, the Company’s total non-real estate capital additions, such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Company’s property management offices and its corporate offices, were approximately $3.2 million. The Company expects to fund approximately $1.8 million in total non-real estate capital additions for the remainder of 2018. These anticipated fundings represent an increase over 2017, which is primarily driven by anticipated hardware and software upgrades to various existing systems during 2018. The above assumption is based on current expectations and is forward-looking.
Capital expenditures to real estate and non-real estate capital additions are generally funded from net cash provided by operating activities and from investment cash flow.
Derivative Instruments
In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company seeks to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments. The Company may also use derivatives to manage commodity prices in the daily operations of the business.
The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from these instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives it currently has in place.
See Note 910 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments at SeptemberJune 30, 2018.2019.
52
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.
• | 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. |
Development Yield – NOI that the Company anticipates receiving in the next 12 months following stabilization less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $50-$150 per apartment unit depending on the type of asset) divided by the total budgeted capital cost of the asset. The weighted average Development Yield for development properties is weighted based on the projected NOI streams and the relative total budgeted capital cost for each respective property.
Disposition Yield – NOI that the Company anticipates giving up in the next 12 months less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross sale 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.
• | Development Yield – NOI that the Company anticipates receiving in the next 12 months following stabilization less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $50-$150 per apartment unit depending on the type of asset) divided by the Total Budgeted Capital Cost of the asset. The weighted average Development Yield for development properties is weighted based on the projected NOI streams and the relative Total Budgeted Capital Cost for each respective property. |
• | Disposition Yield – NOI that the Company anticipates giving up in the next 12 months less an estimate of property management costs/management fees allocated to the project (generally ranging from 2.0% to 4.0% of revenues depending on the size and income streams of the asset) and less an estimate for in-the-unit replacement capital expenditures (generally ranging from $100-$450 per apartment unit depending on the age and condition of the asset) divided by the gross sales price of the asset. The weighted average Disposition Yield for sold properties is weighted based on the projected NOI streams and the relative sales price for each respective property. |
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.
• | 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. |
Off-Balance Sheet Arrangements and Contractual Obligations
The Company has various unconsolidated interests in certain joint ventures. The Company does not believe that these unconsolidated investments have a materially different impact on its liquidity, cash flows, capital resources, credit or market risk than its consolidated operating and/or other activities. See Note 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s investments in partially owned entities. See also Note 1112 in the Notes to Consolidated Financial Statements for discussion regarding the Company’s development projects.
The Company’s contractual obligations for the next five years and thereafter have not changed materially from the amounts and disclosures included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017.2018. See the updated contractual obligations for minimum rent payments schedule included in Note 8 in the Notes to Consolidated Financial Statements and the updated debt maturity schedule included in Liquidity and Capital Resources for further discussion.
Critical Accounting Policies and Estimates
The Company’s and the Operating Partnership’s critical accounting policies and estimates have not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
53
Funds From Operations and Normalized Funds From Operations
The following is the Company’s and the Operating Partnership’s reconciliation of net income to FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units for the ninesix months and quarters ended SeptemberJune 30, 20182019 and 2017:2018:
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
|
| Nine Months Ended September 30, |
|
| Quarter Ended September 30, |
|
| Six Months Ended June 30, |
|
| Quarter Ended June 30, |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Net income |
| $ | 562,804 |
|
| $ | 498,297 |
|
| $ | 223,846 |
|
| $ | 144,196 |
|
| $ | 430,556 |
|
| $ | 338,958 |
|
| $ | 321,299 |
|
| $ | 118,410 |
|
Net (income) attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (1,939 | ) |
|
| (2,354 | ) |
|
| (750 | ) |
|
| (801 | ) | ||||||||||||||||
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties |
|
| (1,620 | ) |
|
| (1,189 | ) |
|
| (821 | ) |
|
| (509 | ) | ||||||||||||||||
Preferred/preference distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (772 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Net income available to Common Shares and Units / Units |
|
| 558,547 |
|
|
| 493,625 |
|
|
| 222,323 |
|
|
| 142,623 |
|
|
| 427,391 |
|
|
| 336,224 |
|
|
| 319,706 |
|
|
| 117,129 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 583,869 |
|
|
| 542,964 |
|
|
| 194,618 |
|
|
| 184,100 |
|
|
| 404,723 |
|
|
| 389,251 |
|
|
| 200,508 |
|
|
| 192,942 |
|
Depreciation – Non-real estate additions |
|
| (3,397 | ) |
|
| (3,808 | ) |
|
| (1,137 | ) |
|
| (1,228 | ) |
|
| (2,303 | ) |
|
| (2,260 | ) |
|
| (1,121 | ) |
|
| (1,115 | ) |
Depreciation – Partially Owned Properties |
|
| (2,837 | ) |
|
| (2,500 | ) |
|
| (904 | ) |
|
| (834 | ) |
|
| (1,802 | ) |
|
| (1,933 | ) |
|
| (899 | ) |
|
| (901 | ) |
Depreciation – Unconsolidated Properties |
|
| 3,447 |
|
|
| 3,430 |
|
|
| 1,150 |
|
|
| 1,145 |
|
|
| 1,772 |
|
|
| 2,297 |
|
|
| 850 |
|
|
| 1,149 |
|
Net (gain) loss on sales of unconsolidated entities – operating assets |
|
| — |
|
|
| (68 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||
Net (gain) loss on sales of unconsolidated entities - operating assets |
|
| (69,522 | ) |
|
| — |
|
|
| (69,522 | ) |
|
| — |
| ||||||||||||||||
Net (gain) loss on sales of real estate properties |
|
| (256,834 | ) |
|
| (141,761 | ) |
|
| (114,672 | ) |
|
| (17,328 | ) |
|
| (138,835 | ) |
|
| (142,162 | ) |
|
| (138,856 | ) |
|
| 51 |
|
Noncontrolling Interests share of gain (loss) on sales of real estate properties |
|
| (284 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (284 | ) |
|
| — |
|
|
| (284 | ) |
Impairment – operating assets |
|
| 702 |
|
|
| — |
|
|
| 702 |
|
|
| — |
| ||||||||||||||||
FFO available to Common Shares and Units / Units (1) (3) (4) |
|
| 883,213 |
|
|
| 891,882 |
|
|
| 302,080 |
|
|
| 308,478 |
|
|
| 621,424 |
|
|
| 581,133 |
|
|
| 310,666 |
|
|
| 308,971 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment – non-operating assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Write-off of pursuit costs |
|
| 3,125 |
|
|
| 2,329 |
|
|
| 1,059 |
|
|
| 783 |
|
|
| 2,987 |
|
|
| 2,066 |
|
|
| 1,539 |
|
|
| 1,135 |
|
Debt extinguishment and preferred share redemption (gains) losses |
|
| 41,142 |
|
|
| 11,789 |
|
|
| 17,603 |
|
|
| (613 | ) |
|
| 16,647 |
|
|
| 23,539 |
|
|
| 16,647 |
|
|
| — |
|
Non-operating asset (gains) losses |
|
| (255 | ) |
|
| (19,355 | ) |
|
| 223 |
|
|
| (405 | ) |
|
| 252 |
|
|
| (478 | ) |
|
| 23 |
|
|
| (691 | ) |
Other miscellaneous items |
|
| (2,608 | ) |
|
| (4,195 | ) |
|
| (1,138 | ) |
|
| (3,405 | ) |
|
| 4,418 |
|
|
| (1,470 | ) |
|
| 2,843 |
|
|
| 1,769 |
|
Normalized FFO available to Common Shares and Units / Units (2) (3) (4) |
| $ | 924,617 |
|
| $ | 882,450 |
|
| $ | 319,827 |
|
| $ | 304,838 |
|
| $ | 645,728 |
|
| $ | 604,790 |
|
| $ | 331,718 |
|
| $ | 311,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO (1) (3) |
| $ | 885,531 |
|
| $ | 894,200 |
|
| $ | 302,853 |
|
| $ | 309,250 |
|
| $ | 622,969 |
|
| $ | 582,678 |
|
| $ | 311,438 |
|
| $ | 309,743 |
|
Preferred/preference distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (772 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
FFO available to Common Shares and Units / Units (1) (3) (4) |
| $ | 883,213 |
|
| $ | 891,882 |
|
| $ | 302,080 |
|
| $ | 308,478 |
|
| $ | 621,424 |
|
| $ | 581,133 |
|
| $ | 310,666 |
|
| $ | 308,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normalized FFO (2) (3) |
| $ | 926,935 |
|
| $ | 884,768 |
|
| $ | 320,600 |
|
| $ | 305,610 |
|
| $ | 647,273 |
|
| $ | 606,335 |
|
| $ | 332,490 |
|
| $ | 311,956 |
|
Preferred/preference distributions |
|
| (2,318 | ) |
|
| (2,318 | ) |
|
| (773 | ) |
|
| (772 | ) |
|
| (1,545 | ) |
|
| (1,545 | ) |
|
| (772 | ) |
|
| (772 | ) |
Normalized FFO available to Common Shares and Units / Units (2) (3) (4) |
| $ | 924,617 |
|
| $ | 882,450 |
|
| $ | 319,827 |
|
| $ | 304,838 |
|
| $ | 645,728 |
|
| $ | 604,790 |
|
| $ | 331,718 |
|
| $ | 311,184 |
|
(1) | The National Association of Real Estate Investment Trusts (“Nareit”) defines funds from operations (“FFO”) |
(2) | Normalized funds from operations (“Normalized FFO”) begins with FFO and excludes: |
the impact of any expenses relating to non-operating asset impairment;
pursuit cost write-offs;
gains and losses from early debt extinguishment and preferred share redemptions;
gains and losses from non-operating assets; and
other miscellaneous items.
54
| • | the impact of any expenses relating to non-operating asset impairment; |
• | pursuit cost write-offs; |
• | gains and losses from early debt extinguishment and preferred share redemptions; |
• | gains and losses from non-operating assets; and |
• | other miscellaneous items. |
(4) | FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units are calculated on a basis consistent with net income available to Common Shares / Units and reflects adjustments to net income for preferred distributions and premiums on redemption of preferred shares/preference units in accordance with GAAP. The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the “Noncontrolling Interests – Operating Partnership”. Subject to certain restrictions, the Noncontrolling Interests – Operating Partnership may exchange their OP Units for Common Shares on a one-for-one basis. |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s and the Operating Partnership’s market risk has not changed materially from the amounts and information reported in Part II, Item 7A. 7A, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017.2018. See Note 910 in the Notes to Consolidated Financial Statements for additional discussion of derivative and other fair value instruments.
Item 4. Controls and Procedures
Equity Residential
| (a) | Evaluation of Disclosure Controls and Procedures: |
Effective as of SeptemberJune 30, 2018,2019, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
| (b) | Changes in Internal Control over Financial Reporting: |
There were no changes to the internal control over financial reporting of the Company identified in connection with the Company’s evaluation referred to above that occurred during the thirdsecond quarter of 20182019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ERP Operating Limited Partnership
| (a) | Evaluation of Disclosure Controls and Procedures: |
Effective as of SeptemberJune 30, 2018,2019, the Operating Partnership carried out an evaluation, under the supervision and with the participation of the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of EQR, of the effectiveness of the Operating Partnership’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Operating Partnership in its Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
55
There were no changes to the internal control over financial reporting of the Operating Partnership identified in connection with the Operating Partnership’s evaluation referred to above that occurred during the thirdsecond quarter of 20182019 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
As of SeptemberJune 30, 2018,2019, the Company does not believe there is any litigation pending or threatened against it that, individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company.
Therehavebeennomaterialchangestotheriskfactors thatwerediscussedinPartI,Item1AoftheCompany’sandthe OperatingPartnership’sAnnualReportonForm10-Kfortheyearended December 31, 2017.2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Common Shares Issued in the Quarter Ended SeptemberJune 30, 20182019 - Equity Residential
During the quarter ended SeptemberJune 30, 2018,2019, EQR issued 1,0163,528 Common Shares in exchange for 1,0163,528 OP Units held by various limited partners of ERPOP. OP Units are generally exchangeable into Common Shares on a one-for-one basis or, at the optionofERPOP,thecashequivalentthereof,atanytimeoneyearafterthedateofissuance. Theseshareswereeitherregistered undertheSecuritiesActof1933,asamended (the “Securities (the“SecuritiesAct”),orissuedinrelianceonanexemptionfromregistrationunder Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder, as these were transactions by an issuer not involving a public offering. In light of the manner of the sale and information obtained by EQR from the limited partners in connection with these transactions, EQR believes it may rely on theseexemptions.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Item 6. Exhibits – See the Exhibit Index.
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Theexhibitslistedbelowarefiledaspartofthisreport. Referencestoexhibitsorotherfilingsunderthecaption “Location” “Location”indicate thattheexhibitorotherfilinghasbeenfiled,thattheindexedexhibitandtheexhibitreferredtoarethesameandthattheexhibit referredto are the same and that the exhibit referred to isincorporatedbyreference. TheCommissionfilenumbersforourExchangeActfilingsreferencedbeloware1-12252 (Equity Residential) and 0-24920 (ERP Operating LimitedPartnership).
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10.2 | Included as Exhibit 1.1 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated and filed on June 6, 2019. | |||
10.3 | Included as Exhibit 1.2 to Equity Residential's and ERP Operating Limited Partnership's Form 8-K dated and filed on June 6, 2019. | |||
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31.1 |
| Equity Residential – Certification of |
| Attached herein. |
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31.2 |
| Equity Residential – Certification of Robert A. Garechana, Chief Financial Officer. |
| Attached herein. |
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31.3 |
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| Attached herein. | |
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31.4 |
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32.1 |
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32.2 |
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32.3 |
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32.4 |
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101 |
| XBRL (Extensible Business Reporting Language). The following materials from Equity Residential’s and ERP Operating Limited Partnership’s Quarterly Report on Form 10-Q for the period ended |
| Attached herein. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| EQUITY RESIDENTIAL | ||
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Date: |
| By: |
| /s/ Robert A. Garechana |
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| Robert A. Garechana |
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| Executive Vice President and Chief Financial Officer |
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| (Principal Financial Officer) |
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Date: |
| By: |
| /s/ Ian S. Kaufman |
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| Ian S. Kaufman |
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| Senior Vice President and Chief Accounting Officer |
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| (Principal Accounting Officer) |
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| ERP OPERATING LIMITED PARTNERSHIP ITS GENERAL PARTNER | ||
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Date: |
| By: |
| /s/ Robert A. Garechana |
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| Robert A. Garechana |
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| Executive Vice President and Chief Financial Officer |
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| (Principal Financial Officer) |
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Date: |
| By: |
| /s/ Ian S. Kaufman |
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| Ian S. Kaufman |
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| Senior Vice President and Chief Accounting Officer |
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| (Principal Accounting Officer) |