Exhibit 99.1
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of the Florida Portfolio for the year ended December 31, 2006. This statement is the responsibility of the management of the Florida Portfolio (the “Properties”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Properties’ internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Properties’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Properties’ revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of the Florida Portfolio for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
|
Chicago, Illinois
December 21, 2007
6
FLORIDA PORTFOLIO
Statement of Revenue and Certain Expenses
|
| Year Ended |
| |
|
| December 31, |
| |
|
| 2006 |
| |
|
|
|
| |
Revenue |
|
|
| |
Rental revenue |
| $ | 35,311,314 |
|
Other revenue |
| 41,904 |
| |
Total revenue |
| 35,353,218 |
| |
|
|
|
| |
Expenses |
|
|
| |
Maintenance |
| 1,889,990 |
| |
Operating |
| 3,401,187 |
| |
Utilities |
| 1,973,607 |
| |
Real estate taxes and insurance |
| 6,154,626 |
| |
Management fees — affiliate |
| 1,152,862 |
| |
Total expenses |
| 14,572,272 |
| |
Revenue in excess of certain expenses |
| $ | 20,780,946 |
|
|
|
|
| |
See accompanying notes. |
|
|
| |
|
|
|
|
7
FLORIDA PORTFOLIO
Notes to Statement of Revenue and Certain Expenses
1. Basis of Presentation
On January 4, 2007, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired a portfolio of apartment buildings in Florida known as the Florida Portfolio (the “Properties”).
The statement of revenue and certain expenses relate to the operations of the Florida Portfolio and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statement of revenue and certain expenses has been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statement of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statement of revenue and certain expenses for the period presented is not representative of the actual operations for the period presented, as certain revenues and expenses which may not be in the proposed future operations of the Florida Portfolio have been excluded in accordance with Rule 3-14 of Regulation S-X.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental income is recognized as it is earned, which is not materially different than on a straight-line basis.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statement in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as operating expenses on the accompanying statement of revenue and certain expenses. Advertising expenses were approximately $124,000 for the year ended December 31, 2006.
3. Related Party Transactions
An affiliate of the Florida Portfolio performed the property management function and charged the Properties total management fees in the amount of approximately $1,153,000 for the year ended December 31, 2006.
An affiliate of the Florida Portfolio allocated insurance expense under a master policy to the Properties and various affiliated properties. Insurance expense for the year ended December 31, 2006 was approximately $1,546,000 and is included in real estate taxes and insurance in the accompanying statement.
8
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of the Berkeley Portfolio for the year ended December 31, 2006. This statement is the responsibility of the management of the Berkeley Portfolio (the “Properties”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Properties’ internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Properties’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Properties’ revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of the Berkeley Portfolio for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
|
Chicago, Illinois
December 21, 2007
9
BERKELEY PORTFOLIO
Statements of Revenue and Certain Expenses
|
| Period from |
|
|
| ||
|
| January 1, 2007 to |
| Year Ended |
| ||
|
| April 18, 2007 |
| December 31, 2006 |
| ||
|
| (Unaudited) |
|
|
| ||
Revenue |
|
|
|
|
| ||
Rental revenue |
| $ | 2,908,021 |
| $ | 9,562,825 |
|
Total revenue |
| 2,908,021 |
| 9,562,825 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Maintenance |
| 121,222 |
| 268,044 |
| ||
Operating |
| 383,136 |
| 1,171,401 |
| ||
Utilities |
| 201,042 |
| 616,273 |
| ||
Real estate taxes and insurance |
| 431,877 |
| 1,381,337 |
| ||
Management fees — affiliate |
| 95,950 |
| 280,246 |
| ||
Total expenses |
| 1,233,227 |
| 3,717,301 |
| ||
|
|
|
|
|
| ||
Revenue in excess of certain expenses |
| $ | 1,674,794 |
| $ | 5,845,524 |
|
|
|
|
|
|
| ||
See accompanying notes. |
|
|
|
|
| ||
|
|
|
|
|
|
10
BERKELEY PORTFOLIO
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On April 18, 2007, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired a portfolio of apartment buildings in Berkeley, California known as the Berkeley Portfolio (the “Properties”).
The statements of revenue and certain expenses relate to the operations of the Berkeley Portfolio and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of the Berkeley Portfolio have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2006. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the revenue in excess of certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental income is recognized as it is earned, which is not materially different than on a straight-line basis.
Rental income from commercial space is recognized as it is earned, which is not materially different than on a straight-line basis. All commercial leases have been accounted for as operating leases with remaining lease terms from one to ten years.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as operating expenses in the accompanying statements of revenue and certain expenses. For the year ended December 31, 2006 and the period from January 1, 2007 to April 18, 2007 (unaudited), advertising expenses were approximately $234,000 and $81,000, respectively.
11
BERKELEY PORTFOLIO
Notes to Statements of Revenue and Certain Expenses (Continued)
3. Related Party Transactions
An affiliate of the Berkeley Portfolio performed the property management function and charged the Properties total management fees in the amount of approximately $280,000 and $96,000 for the year ended December 31, 2006 and the period from January 1, 2007 to April 18, 2007 (unaudited), respectively.
An affiliate of the Berkeley Portfolio allocated insurance expense under a master policy to the Properties and various affiliated properties. Insurance expense for the year ended December 31, 2006 and the period from January 1, 2007 to April 18, 2007 (unaudited) was approximately $179,000 and $71,000, respectively, and is included in real estate taxes and insurance in the accompanying statements.
4. Leases
Minimum future rental revenues to be received from non-cancelable leases in effect at December 31, 2006 are as follows:
Year |
| Amount |
| |
|
|
|
| |
2007 |
| $ | 5,751,423 |
|
2008 |
| 781,070 |
| |
2009 |
| 498,584 |
| |
2010 |
| 392,456 |
| |
2011 |
| 244,395 |
| |
Thereafter |
| 850,690 |
| |
|
|
|
| |
Total |
| $ | 8,518,618 |
|
|
|
|
|
12
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of Teresina at Lomas Verdes for the year ended December 31, 2006. This statement is the responsibility of the management of Teresina at Lomas Verdes (the “Property”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Property’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Property’s revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Teresina at Lomas Verdes for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
|
Chicago, Illinois
December 21, 2007
13
TERESINA AT LOMAS VERDES
Statements of Revenue and Certain Expenses
|
| Period from |
|
|
| ||
|
| January 1, 2007 to |
| Year Ended |
| ||
|
| April 25, 2007 |
| December 31, 2006 |
| ||
|
| (Unaudited) |
|
|
| ||
Revenue |
|
|
|
|
| ||
Rental revenue |
| $ | 2,165,035 |
| $ | 6,822,891 |
|
Total revenue |
| 2,165,035 |
| 6,822,891 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Maintenance |
| 147,432 |
| 376,388 |
| ||
Operating |
| 285,852 |
| 654,716 |
| ||
Utilities |
| 120,761 |
| 339,099 |
| ||
Real estate taxes and insurance |
| 291,160 |
| 933,045 |
| ||
Management fee - affiliate |
| 70,538 |
| 204,246 |
| ||
Total expenses |
| 915,743 |
| 2,507,494 |
| ||
Revenue in excess of certain expenses |
| $ | 1,249,292 |
| $ | 4,315,397 |
|
|
|
|
|
|
| ||
See accompanying notes. |
|
|
|
|
|
14
TERESINA AT LOMAS VERDES
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On April 25, 2007, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired an apartment building in Chula Vista, California known as Teresina at Lomas Verdes (the “Property”).
The statements of revenue and certain expenses relate to the operations of Teresina at Lomas Verdes and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of Teresina at Lomas Verdes have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2006. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the revenue in excess of certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental income is recognized as it is earned, which is not materially different than on a straight-line basis.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as operating expenses on the accompanying statements of revenue and certain expenses. For the year ended December 31, 2006 and the period from January 1, 2007 to April 25, 2007 (unaudited), advertising expenses were approximately $43,000 and $13,000, respectively.
3. Related Party Transactions
An affiliate of Teresina at Lomas Verdes performed the property management function and charged the Property total management fees in the amount of approximately $204,000 and $71,000 for the year ended December 31, 2006 and the period from January 1, 2007 to April 25, 2007 (unaudited), respectively.
An affiliate of Teresina at Lomas Verdes allocated insurance expense under a master policy to the Property and various affiliated properties. Insurance expense for the year ended December 31, 2006 and the period from January 1, 2007 to April 25, 2007 (unaudited) was approximately $71,000 and $22,000, respectively, and is included in real estate taxes and insurance in the accompanying statements.
15
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of the Upper West Side Portfolio for the year ended December 31, 2006. This statement is the responsibility of the management of the Upper West Side Portfolio (the “Properties”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Properties’ internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Properties’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Properties’ revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of the Upper West Side Portfolio for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
|
Chicago, Illinois
December 21, 2007
16
UPPER WEST SIDE PORTFOLIO
Statements of Revenue and Certain Expenses
| Period from |
|
|
| |||
|
| January 1, 2007 to |
| Year Ended |
| ||
|
| June 12, 2007 |
| December 31, 2006 |
| ||
|
| (Unaudited) |
|
|
| ||
Revenue |
|
|
|
|
| ||
Rental revenue |
| $ | 4,658,010 |
| $ | 9,844,571 |
|
Total revenue |
| 4,658,010 |
| 9,844,571 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Maintenance |
| 217,298 |
| 542,462 |
| ||
Operating |
| 1,523,046 |
| 3,081,716 |
| ||
Utilities |
| 275,326 |
| 621,062 |
| ||
Real estate taxes and insurance |
| 1,071,211 |
| 2,331,705 |
| ||
Total expenses |
| 3,086,881 |
| 6,576,945 |
| ||
|
|
|
|
|
| ||
Revenue in excess of certain expenses |
| $ | 1,571,129 |
| $ | 3,267,626 |
|
|
|
|
|
|
| ||
See accompanying notes. |
|
|
|
|
|
17
UPPER WEST SIDE PORTFOLIO
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On June 12, 2007, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired a portfolio of apartment buildings in New York, New York known as The Upper West Side Portfolio (the “Properties”).
The statements of revenue and certain expenses relate to the operations of The Upper West Side Portfolio and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of the Upper West Side Portfolio have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2006. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the revenue in excess of certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental revenue is recognized as it is earned, which is not materially different than on a straight-line basis.
Rental income from commercial space is generally recognized on a straight-line basis over the life of the lease. All commercial leases have been accounted for as operating leases with remaining lease terms from one to eight years.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as operating expenses on the accompanying statements of revenue and certain expenses. For the year ended December 31, 2006 and the period from January 1, 2007 to June 12, 2007 (unaudited), advertising expenses were approximately $133,000 and $62,000, respectively.
18
UPPER WEST SIDE PORTFOLIO
Notes to Statements of Revenue and Certain Expenses (Continued)
3. Related Party Transactions
An affiliate of The Upper West Side Portfolio allocated insurance expense under a master policy to the Properties and various affiliated properties. Insurance expense for the year ended December 31, 2006 and the period from January 1, 2007 to June 12, 2007 (unaudited) was approximately $258,000 and $110,000, respectively, and is included in real estate taxes and insurance in the accompanying statements.
4. Leases
Minimum future rental revenues to be received from non-cancelable leases in effect at December 31, 2006 are as follows:
Year |
| Amount |
| |
|
|
|
| |
2007 |
| $ | 5,373,305 |
|
2008 |
| 732,618 |
| |
2009 |
| 114,662 |
| |
2010 |
| 108,986 |
| |
2011 |
| 62,424 |
| |
Thereafter |
| 148,152 |
| |
|
|
|
| |
Total |
| $ | 6,540,147 |
|
19
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Equity Residential
The Partners
ERP Operating Limited Partnership
We have audited the accompanying statement of revenue and certain expenses of the Greenwood Properties for the year ended December 31, 2006. This statement is the responsibility of the management of the Greenwood Properties (the “Properties”). Our responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. We were not engaged to perform an audit of the Properties’ internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Properties’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity Residential and ERP Operating Limited Partnership, as described in Note 1, and is not intended to be a complete presentation of the Properties’ revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material respects, the revenue and certain expenses of the Greenwood Properties for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
| /s/ Ernst & Young LLP |
|
| Ernst & Young LLP |
|
Chicago, Illinois
December 21, 2007
20
THE GREENWOOD PROPERTIES
Statements of Revenue and Certain Expenses
|
| Period from |
|
|
| ||
|
| January 1, 2007 to |
| Year Ended |
| ||
|
| July 27, 2007 |
| December 31, 2006 |
| ||
|
| (Unaudited) |
|
|
| ||
Revenue |
|
|
|
|
| ||
Rental revenue |
| $ | 3,512,505 |
| $ | 5,807,494 |
|
Total revenue |
| 3,512,505 |
| 5,807,494 |
| ||
|
|
|
|
|
| ||
Expenses |
|
|
|
|
| ||
Maintenance |
| 231,051 |
| 365,939 |
| ||
Operating |
| 560,157 |
| 914,933 |
| ||
Utilities |
| 174,195 |
| 267,257 |
| ||
Real estate taxes and insurance |
| 383,616 |
| 636,380 |
| ||
Management fees |
| 119,189 |
| 197,841 |
| ||
Total expenses |
| 1,468,208 |
| 2,382,350 |
| ||
Revenue in excess of certain expenses |
| $ | 2,044,297 |
| $ | 3,425,144 |
|
|
|
|
|
|
| ||
See accompanying notes. |
|
|
|
|
|
21
THE GREENWOOD PROPERTIES
Notes to Statements of Revenue and Certain Expenses
1. Basis of Presentation
On July 27, 2007, ERP Operating Limited Partnership (collectively with Equity Residential, its general partner, the “Company”) indirectly acquired two apartment buildings in Centennial, Colorado known as the Greenwood Properties (the “Properties”).
The statements of revenue and certain expenses relate to the operations of the Greenwood Properties and were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, including Rule 3-14 of Regulation S-X. Accordingly, the accompanying statements of revenue and certain expenses have been prepared using the accrual method of accounting, and certain expenses such as depreciation, amortization, income taxes, mortgage interest expense and entity expenses are not reflected in the statements of revenue and certain expenses, as required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Consequently, the statements of revenue and certain expenses for the periods presented are not representative of the actual operations for the periods presented, as certain revenues and expenses which may not be in the proposed future operations of the Greenwood Properties have been excluded in accordance with Rule 3-14 of Regulation S-X.
The accompanying unaudited interim statement of revenue and certain expenses has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the statement of revenue and certain expenses for the year ended December 31, 2006. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information for this interim period have been made. The revenue in excess of certain expenses for such interim period is not necessarily indicative of the revenue in excess of certain expenses for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
The residential apartments are leased under operating leases with terms of generally one year or less. Rental income is recognized as it is earned, which is not materially different than on a straight-line basis.
Repairs and Maintenance
Repairs and maintenance costs are expensed as incurred, while significant improvements, renovations and replacements are capitalized.
Estimates
The preparation of the statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising Costs
All advertising costs are expensed as incurred and included as operating expenses on the accompanying statements of revenue and certain expenses. For the year ended December 31, 2006 and the period from January 1, 2007 to July 27, 2007 (unaudited), advertising expenses were approximately $108,000 and $53,000, respectively.
22
THE GREENWOOD PROPERTIES
Notes to Statements of Revenue and Certain Expenses (Continued)
3. Related Party Transactions
An affiliate of the Greenwood Properties allocated insurance expense under a master policy to the Properties and various affiliated properties. Insurance expense for the year ended December 31, 2006 and the period from January 1, 2007 to July 27, 2007 (unaudited) was approximately $217,000 and $126,000, respectively, and is included in real estate taxes and insurance in the accompanying statements.
23
Pro Forma Condensed Consolidated Balance Sheets
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheets of Equity Residential and ERP Operating Limited Partnership (collectively, the “Company”) are presented as if the properties had been acquired on September 30, 2007. The Florida Portfolio, Berkeley Portfolio, Teresina at Lomas Verdes, Upper West Side Portfolio and Greenwood Properties were previously acquired on January 4, 2007, April 18, 2007, April 25, 2007, June 12, 2007, and July 27, 2007, respectively, and as a result, these acquisitions are already reflected in the historical amounts as of September 30, 2007. These Pro Forma Condensed Consolidated Balance Sheets should be read in conjunction with the Pro Forma Condensed Consolidated Statements of Operations for the nine-month period ended September 30, 2007 and for the year ended December 31, 2006 and the historical consolidated financial statements and notes thereto of the Company reported on Forms 10-Q for the nine-month period ended September 30, 2007 and on Forms 10-K for the year ended December 31, 2006, as updated on Forms 8-K dated August 28, 2007. In management’s opinion, all adjustments necessary to reflect the acquisitions of the Florida Portfolio, Berkeley Portfolio, Teresina at Lomas Verdes, Upper West Side Portfolio and Greenwood Properties have been made. The following Pro Forma Condensed Consolidated Balance Sheets do not purport to represent the future financial position of the Company.
24
Pro Forma Condensed Consolidated Statements of Operations
The accompanying unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine-month period ended September 30, 2007 and for the year ended December 31, 2006 of Equity Residential and ERP Operating Limited Partnership (collectively, the “Company”) are presented as if the Florida Portfolio, Berkeley Portfolio, Teresina at Lomas Verdes, Upper West Side Portfolio and Greenwood Properties had been acquired on January 1, 2006. The Florida Portfolio was purchased on January 4, 2007 and any operations related to the previous owner’s period of ownership related to the nine months ended September 30, 2007 are immaterial. Therefore, no pro forma adjustment is presented for the Florida Portfolio for the Pro Forma Condensed Consolidated Statements of Operations for the nine-month period ended September 30, 2007.
These Pro Forma Condensed Consolidated Statements of Operations should be read in conjunction with the historical consolidated financial statements included in the Company’s previous filings with the Securities and Exchange Commission.
The unaudited Pro Forma Condensed Consolidated Statements of Operations are not necessarily indicative of what the actual results of operations would have been for the nine-month period ended September 30, 2007 or for the year ended December 31, 2006 assuming the above transactions had been consummated on January 1, 2006, nor do they purport to represent the future results of operations of the Company.
25
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2007
(Amounts in thousands)
(Unaudited)
|
| Historical and |
| |
ASSETS |
|
|
| |
Investment in real estate |
|
|
| |
Land |
| $ | 3,610,743 |
|
Depreciable property |
| 13,557,202 |
| |
Projects under development |
| 539,009 |
| |
Land held for development |
| 395,550 |
| |
Investment in real estate |
| 18,102,504 |
| |
Accumulated depreciation |
| (3,064,347 | ) | |
Investment in real estate, net |
| 15,038,157 |
| |
|
|
|
| |
Cash and cash equivalents |
| 62,734 |
| |
Investments in unconsolidated entities |
| 3,535 |
| |
Deposits — restricted |
| 449,672 |
| |
Escrow deposits — mortgage |
| 23,042 |
| |
Deferred financing costs, net |
| 56,227 |
| |
Other assets |
| 156,218 |
| |
Total assets |
| $ | 15,789,585 |
|
|
|
|
| |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
| |
Liabilities: |
|
|
| |
Mortgage notes payable |
| $ | 3,576,301 |
|
Notes, net |
| 5,311,232 |
| |
Lines of credit |
| 640,000 |
| |
Accounts payable and accrued expenses |
| 154,363 |
| |
Accrued interest payable |
| 89,922 |
| |
Other liabilities |
| 314,696 |
| |
Security deposits |
| 62,196 |
| |
Distributions payable |
| 137,259 |
| |
Total liabilities |
| 10,285,969 |
| |
|
|
|
| |
Commitments and contingencies |
|
|
| |
Total Minority Interests |
| 364,676 |
| |
|
|
|
| |
Total shareholders’ equity |
| 5,138,940 |
| |
Total liabilities and shareholders’ equity |
| $ | 15,789,585 |
|
|
|
|
| |
See accompanying notes. |
|
|
|
26
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2007
(Amounts in thousands except per share data)
(Unaudited)
|
| HISTORICAL AMOUNTS |
| PRO |
| PRO |
| PRO |
| PRO |
| PRO |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental income |
| $ | 1,517,357 |
| $ | 2,908 |
| $ | 2,165 |
| $ | 4,658 |
| $ | 3,513 |
| $ | 1,530,601 |
|
Fee and asset management |
| 6,937 |
| — |
| — |
| — |
| — |
| 6,937 |
| ||||||
Total revenues |
| 1,524,294 |
| 2,908 |
| 2,165 |
| 4,658 |
| 3,513 |
| 1,537,538 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property and maintenance |
| 399,863 |
| 705 |
| 554 |
| 2,016 |
| 965 |
| 404,103 |
| ||||||
Real estate taxes and insurance |
| 160,458 |
| 432 |
| 291 |
| 1,071 |
| 384 |
| 162,636 |
| ||||||
Property management |
| 68,956 |
| 96 |
| 71 |
| 116 |
| 119 |
| 69,358 |
| ||||||
Fee and asset management |
| 6,604 |
| — |
| — |
| — |
| — |
| 6,604 |
| ||||||
Depreciation |
| 441,517 |
| 1,570 |
| 985 |
| 937 |
| 1,848 |
| 446,857 |
| ||||||
General and administrative |
| 34,651 |
| — |
| — |
| — |
| — |
| 34,651 |
| ||||||
Impairment |
| 1,020 |
| — |
| — |
| — |
| — |
| 1,020 |
| ||||||
Total expenses |
| 1,113,069 |
| 2,803 |
| 1,901 |
| 4,140 |
| 3,316 |
| 1,125,229 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income (loss) |
| 411,225 |
| 105 |
| 264 |
| 518 |
| 197 |
| 412,309 |
| ||||||
Interest and other income |
| 12,350 |
| — |
| — |
| — |
| — |
| 12,350 |
| ||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Expense incurred, net |
| (361,879 | ) | (2,096 | ) | (1,591 | ) | (4,679 | ) | (2,716 | ) | (372,961 | ) | ||||||
Amortization of deferred financing costs |
| (8,191 | ) | — |
| — |
| — |
| — |
| (8,191 | ) | ||||||
Income (loss) before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities and land parcels and discontinued operations |
| 53,505 |
| (1,991 | ) | (1,327 | ) | (4,161 | ) | (2,519 | ) | 43,507 |
| ||||||
Allocation to Minority Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating Partnership, net |
| (2,246 | ) | 126 |
| 84 |
| 264 |
| 160 |
| (1,612 | ) | ||||||
Preference Interests and Units |
| (437 | ) | — |
| — |
| — |
| — |
| (437 | ) | ||||||
Partially Owned Properties |
| (997 | ) | — |
| — |
| — |
| — |
| (997 | ) | ||||||
Income from investments in unconsolidated entities |
| 185 |
| — |
| — |
| — |
| — |
| 185 |
| ||||||
Net gain on sales of unconsolidated entities |
| 2,629 |
| — |
| — |
| — |
| — |
| 2,629 |
| ||||||
Net gain on sales of land parcels |
| 5,230 |
| — |
| — |
| — |
| — |
| 5,230 |
| ||||||
Income (loss) from continuing operations, net of minority interests |
| 57,869 |
| (1,865 | ) | (1,243 | ) | (3,897 | ) | (2,359 | ) | 48,505 |
| ||||||
Preferred distributions |
| (19,157 | ) | — |
| — |
| — |
| — |
| (19,157 | ) | ||||||
Premium on redemption of Preferred Shares |
| (6,144 | ) | — |
| — |
| — |
| — |
| (6,144 | ) | ||||||
Income (loss) from continuing operations available to Common Shares |
| $ | 32,568 |
| $ | (1,865 | ) | $ | (1,243 | ) | $ | (3,897 | ) | $ | (2,359 | ) | $ | 23,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to Common Shares |
| $ | 0.12 |
|
|
|
|
|
|
|
|
| $ | 0.08 |
| ||||
Weighted average Common Shares outstanding |
| 282,847 |
|
|
|
|
|
|
|
|
| 282,847 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to Common Shares |
| $ | 0.11 |
|
|
|
|
|
|
|
|
| $ | 0.08 |
| ||||
Weighted average Common Shares outstanding |
| 306,052 |
|
|
|
|
|
|
|
|
| 306,052 |
| ||||||
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006
(Amounts in thousands except per share data)
(Unaudited)
|
| HISTORICAL AMOUNTS |
| PRO |
| PRO |
| PRO |
| PRO |
| PRO |
| PRO |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Rental income |
| $ | 1,888,297 |
| $ | 35,353 |
| $ | 9,563 |
| $ | 6,823 |
| $ | 9,845 |
| $ | 5,807 |
| $ | 1,955,688 |
|
Fee and asset management |
| 9,101 |
| — |
| — |
| — |
| — |
| — |
| 9,101 |
| |||||||
Total revenues |
| 1,897,398 |
| 35,353 |
| 9,563 |
| 6,823 |
| 9,845 |
| 5,807 |
| 1,964,789 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Property and maintenance |
| 500,074 |
| 7,265 |
| 2,056 |
| 1,370 |
| 4,245 |
| 1,548 |
| 516,558 |
| |||||||
Real estate taxes and insurance |
| 185,651 |
| 6,155 |
| 1,381 |
| 933 |
| 2,332 |
| 636 |
| 197,088 |
| |||||||
Property management |
| 96,178 |
| 1,153 |
| 280 |
| 204 |
| 246 |
| 198 |
| 98,259 |
| |||||||
Fee and asset management |
| 8,934 |
| — |
| — |
| — |
| — |
| — |
| 8,934 |
| |||||||
Depreciation |
| 538,763 |
| 22,320 |
| 6,836 |
| 4,583 |
| 4,820 |
| 4,610 |
| 581,932 |
| |||||||
General and administrative |
| 48,457 |
| — |
| — |
| — |
| — |
| — |
| 48,457 |
| |||||||
Impairment |
| 34,002 |
| — |
| — |
| — |
| — |
| — |
| 34,002 |
| |||||||
Total expenses |
| 1,412,059 |
| 36,893 |
| 10,553 |
| 7,090 |
| 11,643 |
| 6,992 |
| 1,485,230 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Operating income (loss) |
| 485,339 |
| (1,540 | ) | (990 | ) | (267 | ) | (1,798 | ) | (1,185 | ) | 479,559 |
| |||||||
Interest and other income |
| 30,995 |
| — |
| — |
| — |
| — |
| — |
| 30,995 |
| |||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Expense incurred, net |
| (420,894 | ) | (21,820 | ) | (6,748 | ) | (4,848 | ) | (9,795 | ) | (4,455 | ) | (468,560 | ) | |||||||
Amortization of deferred financing costs |
| (8,140 | ) | — |
| — |
| — |
| — |
| — |
| (8,140 | ) | |||||||
Income (loss) before allocation to Minority Interests, (loss) from investments in unconsolidated entities, net gain on sales of unconsolidated entities and land parcels and discontinued operations |
| 87,300 |
| (23,360 | ) | (7,738 | ) | (5,115 | ) | (11,593 | ) | (5,640 | ) | 33,854 |
| |||||||
Allocation to Minority Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Operating Partnership, net |
| (2,840 | ) | 1,535 |
| 508 |
| 336 |
| 762 |
| 371 |
| 672 |
| |||||||
Preference Interests and Units |
| (2,002 | ) | — |
| — |
| — |
| — |
| — |
| (2,002 | ) | |||||||
Partially Owned Properties |
| (3,132 | ) | — |
| — |
| — |
| — |
| — |
| (3,132 | ) | |||||||
Premium on redemption of Preference Interests |
| (684 | ) | — |
| — |
| — |
| — |
| — |
| (684 | ) | |||||||
(Loss) from investments in unconsolidated entities |
| (631 | ) | — |
| — |
| — |
| — |
| — |
| (631 | ) | |||||||
Net gain on sales of unconsolidated entities |
| 370 |
| — |
| — |
| — |
| — |
| — |
| 370 |
| |||||||
Net gain on sales of land parcels |
| 2,792 |
| — |
| — |
| — |
| — |
| — |
| 2,792 |
| |||||||
Income (loss) from continuing operations, net of minority interests |
| 81,173 |
| (21,825 | ) | (7,230 | ) | (4,779 | ) | (10,831 | ) | (5,269 | ) | 31,239 |
| |||||||
Preferred distributions |
| (37,113 | ) | — |
| — |
| — |
| — |
| — |
| (37,113 | ) | |||||||
Premium on redemption of Preferred Shares |
| (3,965 | ) | — |
| — |
| — |
| — |
| — |
| (3,965 | ) | |||||||
Income (loss) from continuing operations available to Common Shares |
| $ | 40,095 |
| $ | (21,825 | ) | $ | (7,230 | ) | $ | (4,779 | ) | $ | (10,831 | ) | $ | (5,269 | ) | $ | (9,839 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Earnings per share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Income (loss) from continuing operations available to Common Shares |
| $ | 0.14 |
|
|
|
|
|
|
|
|
|
|
| $ | (0.03 | ) | |||||
Weighted average Common Shares outstanding |
| 290,019 |
|
|
|
|
|
|
|
|
|
|
| 290,019 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Earnings per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Income (loss) from continuing operations available to Common Shares |
| $ | 0.14 |
|
|
|
|
|
|
|
|
|
|
| $ | (0.03 | ) | |||||
Weighted average Common Shares outstanding |
| 315,579 |
|
|
|
|
|
|
|
|
|
|
| 290,019 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2007
(Amounts in thousands)
(Unaudited)
|
| Historical and |
| |
ASSETS |
|
|
| |
Investment in real estate |
|
|
| |
Land |
| $ | 3,610,743 |
|
Depreciable property |
| 13,557,202 |
| |
Projects under development |
| 539,009 |
| |
Land held for development |
| 395,550 |
| |
Investment in real estate |
| 18,102,504 |
| |
Accumulated depreciation |
| (3,064,347 | ) | |
Investment in real estate, net |
| 15,038,157 |
| |
|
|
|
| |
Cash and cash equivalents |
| 62,734 |
| |
Investments in unconsolidated entities |
| 3,535 |
| |
Deposits — restricted |
| 449,672 |
| |
Escrow deposits — mortgage |
| 23,042 |
| |
Deferred financing costs, net |
| 56,227 |
| |
Other assets |
| 156,218 |
| |
Total assets |
| $ | 15,789,585 |
|
|
|
|
| |
LIABILITIES AND PARTNERS’ CAPITAL |
|
|
| |
Liabilities: |
|
|
| |
Mortgage notes payable |
| $ | 3,576,301 |
|
Notes, net |
| 5,311,232 |
| |
Lines of credit |
| 640,000 |
| |
Accounts payable and accrued expenses |
| 154,363 |
| |
Accrued interest payable |
| 89,922 |
| |
Other liabilities |
| 314,696 |
| |
Security deposits |
| 62,196 |
| |
Distributions payable |
| 137,259 |
| |
Total liabilities |
| 10,285,969 |
| |
|
|
|
| |
Commitments and contingencies |
|
|
| |
Minority Interests — Partially Owned Properties |
| 26,879 |
| |
|
|
|
| |
Total partners’ capital |
| 5,476,737 |
| |
Total liabilities and partners’ capital |
| $ | 15,789,585 |
|
See accompanying notes. |
|
|
|
29
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2007
(Amounts in thousands except per OP Unit data)
(Unaudited)
|
| HISTORICAL |
| PRO |
| PRO |
| PRO |
| PRO |
| PRO |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental income |
| $ | 1,517,357 |
| $ | 2,908 |
| $ | 2,165 |
| $ | 4,658 |
| $ | 3,513 |
| $ | 1,530,601 |
|
Fee and asset management |
| 6,937 |
| — |
| — |
| — |
| — |
| 6,937 |
| ||||||
Total revenues |
| 1,524,294 |
| 2,908 |
| 2,165 |
| 4,658 |
| 3,513 |
| 1,537,538 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property and maintenance |
| 399,863 |
| 705 |
| 554 |
| 2,016 |
| 965 |
| 404,103 |
| ||||||
Real estate taxes and insurance |
| 160,458 |
| 432 |
| 291 |
| 1,071 |
| 384 |
| 162,636 |
| ||||||
Property management |
| 68,956 |
| 96 |
| 71 |
| 116 |
| 119 |
| 69,358 |
| ||||||
Fee and asset management |
| 6,604 |
| — |
| — |
| — |
| — |
| 6,604 |
| ||||||
Depreciation |
| 441,517 |
| 1,570 |
| 985 |
| 937 |
| 1,848 |
| 446,857 |
| ||||||
General and administrative |
| 34,651 |
| — |
| — |
| — |
| — |
| 34,651 |
| ||||||
Impairment |
| 1,020 |
| — |
| — |
| — |
| — |
| 1,020 |
| ||||||
Total expenses |
| 1,113,069 |
| 2,803 |
| 1,901 |
| 4,140 |
| 3,316 |
| 1,125,229 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income (loss) |
| 411,225 |
| 105 |
| 264 |
| 518 |
| 197 |
| 412,309 |
| ||||||
Interest and other income |
| 12,350 |
| — |
| — |
| — |
| — |
| 12,350 |
| ||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Expense incurred, net |
| (361,879 | ) | (2,096 | ) | (1,591 | ) | (4,679 | ) | (2,716 | ) | (372,961 | ) | ||||||
Amortization of deferred financing costs |
| (8,191 | ) | — |
| — |
| — |
| — |
| (8,191 | ) | ||||||
Income (loss) before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities and land parcels and discontinued operations |
| 53,505 |
| (1,991 | ) | (1,327 | ) | (4,161 | ) | (2,519 | ) | 43,507 |
| ||||||
Allocation to Minority Interests - Partially Owned Properties |
| (997 | ) | — |
| — |
| — |
| — |
| (997 | ) | ||||||
Income from investments in unconsolidated entities |
| 185 |
| — |
| — |
| — |
| — |
| 185 |
| ||||||
Net gain on sales of unconsolidated entities |
| 2,629 |
| — |
| — |
| — |
| — |
| 2,629 |
| ||||||
Net gain on sales of land parcels |
| 5,230 |
| — |
| — |
| — |
| — |
| 5,230 |
| ||||||
Income (loss) from continuing operations |
| $ | 60,552 |
| $ | (1,991 | ) | $ | (1,327 | ) | $ | (4,161 | ) | $ | (2,519 | ) | $ | 50,554 |
|
ALLOCATION OF INCOME FROM CONTINUING OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Preference Units |
| $ | 19,157 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 19,157 |
|
Preference Interests and Junior Preference Units |
| $ | 437 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 437 |
|
Premium on redemption of Preference Units |
| $ | 6,144 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 6,144 |
|
Income (loss) from continuing operations available to OP Units |
| $ | 34,814 |
| $ | (1,991 | ) | $ | (1,327 | ) | $ | (4,161 | ) | $ | (2,519 | ) | $ | 24,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per OP Unit - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to OP Units |
| $ | 0.12 |
|
|
|
|
|
|
|
|
| $ | 0.08 |
| ||||
Weighted average OP Units outstanding |
| 301,987 |
|
|
|
|
|
|
|
|
| 301,987 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per OP Unit - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations available to OP Units |
| $ | 0.11 |
|
|
|
|
|
|
|
|
| $ | 0.08 |
| ||||
Weighted average OP Units outstanding |
| 306,052 |
|
|
|
|
|
|
|
|
| 306,052 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
30
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006
(Amounts in thousands except per OP Unit data)
(Unaudited)
|
| HISTORICAL |
| PRO |
| PRO |
| PRO |
| PRO |
| PRO |
| PRO |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Rental income |
| $ | 1,888,297 |
| $ | 35,353 |
| $ | 9,563 |
| $ | 6,823 |
| $ | 9,845 |
| $ | 5,807 |
| $ | 1,955,688 |
|
Fee and asset management |
| 9,101 |
| — |
| — |
| — |
| — |
| — |
| 9,101 |
| |||||||
Total revenues |
| 1,897,398 |
| 35,353 |
| 9,563 |
| 6,823 |
| 9,845 |
| 5,807 |
| 1,964,789 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Property and maintenance |
| 500,074 |
| 7,265 |
| 2,056 |
| 1,370 |
| 4,245 |
| 1,548 |
| 516,558 |
| |||||||
Real estate taxes and insurance |
| 185,651 |
| 6,155 |
| 1,381 |
| 933 |
| 2,332 |
| 636 |
| 197,088 |
| |||||||
Property management |
| 96,178 |
| 1,153 |
| 280 |
| 204 |
| 246 |
| 198 |
| 98,259 |
| |||||||
Fee and asset management |
| 8,934 |
| — |
| — |
| — |
| — |
| — |
| 8,934 |
| |||||||
Depreciation |
| 538,763 |
| 22,320 |
| 6,836 |
| 4,583 |
| 4,820 |
| 4,610 |
| 581,932 |
| |||||||
General and administrative |
| 48,457 |
| — |
| — |
| — |
| — |
| — |
| 48,457 |
| |||||||
Impairment |
| 34,002 |
| — |
| — |
| — |
| — |
| — |
| 34,002 |
| |||||||
Total expenses |
| 1,412,059 |
| 36,893 |
| 10,553 |
| 7,090 |
| 11,643 |
| 6,992 |
| 1,485,230 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Operating income (loss) |
| 485,339 |
| (1,540 | ) | (990 | ) | (267 | ) | (1,798 | ) | (1,185 | ) | 479,559 |
| |||||||
Interest and other income |
| 30,995 |
| — |
| — |
| — |
| — |
| — |
| 30,995 |
| |||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Expense incurred, net |
| (420,894 | ) | (21,820 | ) | (6,748 | ) | (4,848 | ) | (9,795 | ) | (4,455 | ) | (468,560 | ) | |||||||
Amortization of deferred financing costs |
| (8,140 | ) | — |
| — |
| — |
| — |
| — |
| (8,140 | ) | |||||||
Income (loss) before allocation to Minority Interests, (loss) from investments in unconsolidated entities, net gain on sales of unconsolidated entities and land parcels and discontinued operations |
| 87,300 |
| (23,360 | ) | (7,738 | ) | (5,115 | ) | (11,593 | ) | (5,640 | ) | 33,854 |
| |||||||
Allocation to Minority Interests - Partially Owned Properties |
| (3,132 | ) | — |
| — |
| — |
| — |
| — |
| (3,132 | ) | |||||||
(Loss) from investments in unconsolidated entities |
| (631 | ) | — |
| — |
| — |
| — |
| — |
| (631 | ) | |||||||
Net gain on sales of unconsolidated entities |
| 370 |
| — |
| — |
| — |
| — |
| — |
| 370 |
| |||||||
Net gain on sales of land parcels |
| 2,792 |
| — |
| — |
| — |
| — |
| — |
| 2,792 |
| |||||||
Income (loss) from continuing operations |
| $ | 86,699 |
| $ | (23,360 | ) | $ | (7,738 | ) | $ | (5,115 | ) | $ | (11,593 | ) | $ | (5,640 | ) | $ | 33,253 |
|
ALLOCATION OF INCOME FROM CONTINUING OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Preference Units |
| $ | 37,113 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 37,113 |
|
Preference Interests and Junior Preference Units |
| $ | 2,002 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 2,002 |
|
Premium on redemption of Preference Units |
| $ | 3,965 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 3,965 |
|
Premium on redemption of Preference Interests |
| $ | 684 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 684 |
|
Income (loss) from continuing operations available to OP Units |
| $ | 42,935 |
| $ | (23,360 | ) | $ | (7,738 | ) | $ | (5,115 | ) | $ | (11,593 | ) | $ | (5,640 | ) | $ | (10,511 | ) |
Earnings per OP Unit - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Income (loss) from continuing operations available to OP Units |
| $ | 0.14 |
|
|
|
|
|
|
|
|
|
|
| $ | (0.03 | ) | |||||
Weighted average OP Units outstanding |
| 310,452 |
|
|
|
|
|
|
|
|
|
|
| 310,452 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Earnings per OP Unit - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Income (loss) from continuing operations available to OP Units |
| $ | 0.14 |
|
|
|
|
|
|
|
|
|
|
| $ | (0.03 | ) | |||||
Weighted average OP Units outstanding |
| 315,579 |
|
|
|
|
|
|
|
|
|
|
| 310,452 |
| |||||||
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2007
(Unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheets
(A)Represents the consolidated balance sheets of Equity Residential and ERP Operating Limited Partnership (collectively, the “Company”) as of September 30, 2007, as contained in the unaudited historical consolidated financial statements and notes thereto filed on their respective Form 10-Q’s. The Florida Portfolio, Berkeley Portfolio, Teresina at Lomas Verdes, Upper West Side Portfolio and Greenwood Properties were previously acquired on January 4, 2007, April 18, 2007, April 25, 2007, June 12, 2007, and July 27, 2007, respectively, and as a result, these acquisitions are already reflected in the historical amounts as of September 30, 2007. The Florida Portfolio was acquired for a total purchase price of $404.0 million plus closing costs of $0.2 million and was financed through the use of $4.0 million of earnest money deposits and the revolving lines of credit. The Berkeley Portfolio was acquired for a total purchase price of $145.9 million plus closing costs of $1.2 million and was financed through the use of $3.0 million of earnest money deposits, assumption of debt of $66.7 million and the revolving lines of credit. Teresina at Lomas Verdes was acquired for a total purchase price of $90.3 million and was financed through the use of $1.3 million of earnest money deposits, assumption of debt of $45.4 million and the revolving lines of credit. The Upper West Side Portfolio was acquired for a total purchase price of $180.0 million plus closing costs of $1.5 million and was financed through the use $171.1 million of tax-deferred 1031 exchange proceeds from dispositions and the revolving line of credit. The Greenwood Properties were acquired for a total purchase price of $82.5 million plus closing costs of $0.1 million and was financed through the use $81.7 million of tax-deferred 1031 exchange proceeds from dispositions and the revolving lines of credit.
32
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations
(A)Represents the historical consolidated statements of operations of Equity Residential and ERP Operating Limited Partnership (collectively, the “Company”) as contained in the historical consolidated financial statements included in previous filings with the Securities and Exchange Commission.
(B)Represents the pro forma revenues and expenses for the previous owner’s period of ownership during the nine months ended September 30, 2007 attributable to the acquisition of the Berkeley Portfolio as if the acquisition had occurred on January 1, 2006. Results of operations from the date of acquisition, April 18, 2007, and forward are included in the historical amounts column in the Pro Forma Condensed Consolidated Statements of Operations. Interest expense incurred of $2.1 million includes $0.7 million related to interest of the assumption of $66.7 million of mortgage debt and $1.4 million is attributable to draws under the lines of credit calculated using a weighted average interest rate of 5.6955%. Although these Pro Forma Condensed Consolidated Statements of Operations assume the acquisition of the Berkeley Portfolio would be primarily financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions. Depreciation expense of $1.6 million relates to the aggregate purchase price of $145.9 million less an allocation to land of $32.7 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Nine Months |
| ||
|
|
|
| Weighted Average |
| Ended 9/30/07 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 106,659 |
| 30 Years |
| $ | 1,185 |
|
F,F&E |
| 5,434 |
| 5 Years |
| 362 |
| ||
In-Place Leases — Residential |
| 2,124 |
| 6 Months |
| — |
| ||
In-Place Leases — Retail |
| 177 |
| Various |
| 23 |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 114,394 |
|
|
| $ | 1,570 |
|
(C)Represents the pro forma revenues and expenses for the previous owner’s period of ownership during the nine months ended September 30, 2007 attributable to the acquisition of Teresina at Lomas Verdes as if the acquisition had occurred on January 1, 2006. Results of operations from the date of acquisition, April 25, 2007, and forward are included in the historical amounts column in the Pro Forma Condensed Consolidated Statements of Operations. Interest expense incurred of $1.6 million includes $0.8 million related to interest on the assumption of $45.4 million of mortgage debt and $0.8 million is attributable to draws under the lines of credit calculated using a weighted average interest rate of 5.6955%. Although these Pro Forma Condensed Consolidated Statements of Operations assume the acquisition of Teresina at Lomas Verdes would be primarily financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions. Depreciation expense of $1.0 million relates to the aggregate purchase price of $90.3 million less an allocation to land of $28.6 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Nine Months |
| ||
|
|
|
| Weighted Average |
| Ended 9/30/07 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 54,392 |
| 30 Years |
| $ | 604 |
|
F,F&E |
| 5,720 |
| 5 Years |
| 381 |
| ||
In-Place Leases — Residential |
| 1,626 |
| 6 Months |
| — |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 61,738 |
|
|
| $ | 985 |
|
33
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)
(D) Represents the pro forma revenues and expenses for the previous owner’s period of ownership during the nine months ended September 30, 2007 attributable to the acquisition of the Upper West Side Portfolio as if the acquisition had occurred on January 1, 2006. Results of operations from the date of acquisition, June 12, 2007, and forward are included in the historical amounts column in the Pro Forma Condensed Consolidated Statements of Operations. A management fee of 2.5% of revenues has been assumed for purposes of these pro forma statements. Interest expense incurred of $4.7 million is attributable to draws under the lines of credit calculated using a weighted average interest rate of 5.6955%. Although these Pro Forma Condensed Consolidated Statements of Operations assume the acquisition of the Upper West Side Portfolio would be primarily financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions. Depreciation expense of $0.9 million relates to the aggregate purchase price of $180.0 million less an allocation to land of $130.8 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Nine Months |
| ||
|
|
|
| Weighted Average |
| Ended 9/30/07 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 44,247 |
| 30 Years |
| $ | 615 |
|
F,F&E |
| 3,832 |
| 5 Years |
| 319 |
| ||
In-Place Leases — Residential |
| 2,438 |
| 6 Months |
| — |
| ||
In-Place Leases — Retail |
| 160 |
| Various |
| 3 |
| ||
|
|
|
|
|
|
|
| ||
Total |
| $ | 50,677 |
|
|
| $ | 937 |
|
(E) Represents the pro forma revenues and expenses for the previous owner’s period of ownership during the nine months ended September 30, 2007 attributable to the acquisition of the Greenwood Properties as if the acquisition had occurred on January 1, 2006. Results of operations from the date of acquisition, July 27, 2007, and forward are included in the historical amounts column in the Pro Forma Condensed Consolidated Statements of Operations. Interest expense incurred of $2.7 million is attributable to draws under the lines of credit calculated using a weighted average interest rate of 5.6955%. Although these Pro Forma Condensed Consolidated Statements of Operations assume the acquisition of the Greenwood Properties would be primarily financed initially by the revolving lines of credit, the Company’s near-term intention is to finance the acquisition through the use of tax-deferred 1031 exchange proceeds from dispositions. Depreciation expense of $1.8 million relates to the aggregate purchase price of $82.5 million less an allocation to land of $8.4 million and is calculated as follows (amounts in thousands except for depreciable lives):
|
|
|
|
|
| Nine Months |
| ||
|
|
|
| Weighted Average |
| Ended 9/30/07 |
| ||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| ||
Building |
| $ | 68,273 |
| 30 Years |
| $ | 1,328 |
|
F,F&E |
| 4,456 |
| 5 Years |
| 520 |
| ||
In-Place Leases — Residential |
| 1,443 |
| 6 Months |
| — |
| ||
|
|
|
|
|
|
|
| ||
Total | �� | $ | 74,172 |
|
|
| $ | 1,848 |
|
34
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations
|
|
|
|
|
| Year |
| |||
|
|
|
| Weighted Average |
| Ended 12/31/06 |
| |||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| |||
Building |
| $ | 255,032 |
| 30 Years |
| $ | 8,501 |
| |
F,F&E |
| 27,074 |
| 5 Years |
| 5,415 |
| |||
In-Place Leases — Residential |
| 8,404 |
| 6 Months |
| 8,404 |
| |||
|
|
|
|
|
|
|
| |||
Total |
| $ | 290,510 |
|
|
|
| $ | 22,320 |
|
|
|
|
|
|
| Year |
| |||
|
|
|
| Weighted Average |
| Ended 12/31/06 |
| |||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| |||
Building |
| $ | 106,659 |
| 30 Years |
| $ | 3,555 |
| |
F,F&E |
| 5,434 |
| 5 Years |
| 1,087 |
| |||
In-Place Leases — Residential |
| 2,124 |
| 6 Months |
| 2,124 |
| |||
In-Place Leases — Retail |
| 177 |
| Various |
| 70 |
| |||
|
|
|
|
|
|
|
| |||
Total |
| $ | 114,394 |
|
|
|
| $ | 6,836 |
|
|
|
|
|
|
| Year |
| |||
|
|
|
| Weighted Average |
| Ended 12/31/06 |
| |||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| |||
Building |
| $ | 54,392 |
| 30 Years |
| $ | 1,813 |
| |
F,F&E |
| 5,720 |
| 5 Years |
| 1,144 |
| |||
In-Place Leases — Residential |
| 1,626 |
| 6 Months |
| 1,626 |
| |||
|
|
|
|
|
|
|
| |||
Total |
| $ | 61,738 |
|
|
|
| $ | 4,583 |
|
35
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)
|
|
|
|
|
| Year |
| |||
|
|
|
| Weighted Average |
| Ended 12/31/06 |
| |||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| |||
Building |
| $ | 44,247 |
| 30 Years |
| $ | 1,475 |
| |
F,F&E |
| 3,832 |
| 5 Years |
| 766 |
| |||
In-Place Leases — Residential |
| 2,438 |
| 6 Months |
| 2,438 |
| |||
In-Place Leases — Retail |
| 160 |
| Various |
| 141 |
| |||
|
|
|
|
|
|
|
| |||
Total |
| $ | 50,677 |
|
|
|
| $ | 4,820 |
|
|
|
|
|
|
| Year |
| |||
|
|
|
| Weighted Average |
| Ended 12/31/06 |
| |||
Asset |
| Basis |
| Depreciable Life |
| Expense |
| |||
Building |
| $ | 68,273 |
| 30 Years |
| $ | 2,276 |
| |
F,F&E |
| 4,456 |
| 5 Years |
| 891 |
| |||
In-Place Leases — Residential |
| 1,443 |
| 6 Months |
| 1,443 |
| |||
|
|
|
|
|
|
|
| |||
Total |
| $ | 74,172 |
|
|
|
| $ | 4,610 |
|
36