EQUITY RESIDENTIAL - Quarter Report: 2020 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 September 30, 2020

☐	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:

ERP Operating Limited Partnership:

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 October 27, 2020 was 372,253,249.

Table of Contents

EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended September 30, 2020 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 September 30, 2020 owned an approximate 96.4% ownership interest in, ERPOP. The remaining 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;

•

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.

Table of Contents

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

Table of Contents

TABLE OF CONTENTS

	PAGE

PART I.

Item 1. Financial Statements of Equity Residential:

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	2

Consolidated Statements of Operations and Comprehensive Income for the nine months and quarters ended September 30, 2020 and 2019	3

Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	5

Consolidated Statements of Changes in Equity for the nine months and quarters ended September 30, 2020 and 2019	8

Financial Statements of ERP Operating Limited Partnership:

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	10

Consolidated Statements of Operations and Comprehensive Income for the nine months and quarters ended September 30, 2020 and 2019	11

Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	13

Consolidated Statements of Changes in Capital for the nine months and quarters ended September 30, 2020 and 2019	16

Notes to Consolidated Financial Statements of Equity Residential and ERP Operating Limited Partnership	18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3. Quantitative and Qualitative Disclosures about Market Risk	54

Item 4. Controls and Procedures	54

PART II.

Item 1. Legal Proceedings	55

Item 1A. Risk Factors	55

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	56

Item 3. Defaults Upon Senior Securities	57

Item 4. Mine Safety Disclosures	57

Item 5. Other Information	57

Item 6. Exhibits	57

Table of Contents

EQUITY RESIDENTIAL

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except for share amounts)

(Unaudited)

	September 30,			December 31,
	2020			2019
ASSETS
Land	$	5,794,771		$	5,936,188
Depreciable property		21,076,222			21,319,101
Projects under development		337,696			181,630
Land held for development		103,900			96,688
Investment in real estate		27,312,589			27,533,607
Accumulated depreciation		(7,738,318	)		(7,276,786	)
Investment in real estate, net		19,574,271			20,256,821
Investments in unconsolidated entities		54,828			52,238
Cash and cash equivalents		178,333			45,753
Restricted deposits		56,881			71,246
Right-of-use assets		502,184			512,774
Other assets		257,481			233,937
Total assets	$	20,623,978		$	21,172,769

LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net	$	2,313,833		$	1,941,610
Notes, net		6,082,897			6,077,513
Line of credit and commercial paper		—			1,017,833
Accounts payable and accrued expenses		158,611			94,350
Accrued interest payable		65,669			66,852
Lease liabilities		329,684			331,334
Other liabilities		331,522			346,963
Security deposits		61,453			70,062
Distributions payable		232,237			218,326
Total liabilities		9,575,906			10,164,843

Commitments and contingencies

Redeemable Noncontrolling Interests – Operating Partnership		293,706			463,400
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, 2020 and December 31, 2019		37,280			37,280
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 372,239,249 shares issued and outstanding as of September 30, 2020 and 371,670,884 shares issued and outstanding as of December 31, 2019		3,722			3,717
Paid in capital		9,166,018			8,965,577
Retained earnings		1,371,938			1,386,495
Accumulated other comprehensive income (loss)		(61,478	)		(77,563	)
Total shareholders’ equity		10,517,480			10,315,506
Noncontrolling Interests:
Operating Partnership		232,516			227,837
Partially Owned Properties		4,370			1,183
Total Noncontrolling Interests		236,886			229,020
Total equity		10,754,366			10,544,526
Total liabilities and equity	$	20,623,978		$	21,172,769

See accompanying notes

Table of Contents

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,
	2020			2019			2020			2019
REVENUES
Rental income	$	1,958,270		$	2,016,796		$	622,433		$	685,120

EXPENSES
Property and maintenance		333,333			338,497			113,065			114,966
Real estate taxes and insurance		288,043			270,434			95,273			87,546
Property management		71,513			72,705			20,196			21,940
General and administrative		37,212			41,127			10,859			11,417
Depreciation		619,003			616,201			200,605			211,478
Total expenses		1,349,104			1,338,964			439,998			447,347

Net gain (loss) on sales of real estate properties		352,218			269,400			(25	)		130,565

Operating income		961,384			947,232			182,410			368,338

Interest and other income		4,006			2,581			535			656
Other expenses		(8,324	)		(11,205	)		(4,097	)		(2,813	)
Interest:
Expense incurred, net		(248,349	)		(289,776	)		(80,874	)		(85,936	)
Amortization of deferred financing costs		(6,253	)		(8,664	)		(2,101	)		(2,881	)
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels		702,464			640,168			95,873			277,364
Income and other tax (expense) benefit		(502	)		(749	)		(262	)		(265	)
Income (loss) from investments in unconsolidated entities		(2,445	)		66,906			(246	)		(1,152	)
Net gain (loss) on sales of land parcels		—			2,077			—			1,899
Net income		699,517			708,402			95,365			277,846
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership		(24,624	)		(25,339	)		(3,376	)		(9,910	)
Partially Owned Properties		(14,113	)		(2,450	)		(703	)		(830	)
Net income attributable to controlling interests		660,780			680,613			91,286			267,106
Preferred distributions		(2,318	)		(2,318	)		(773	)		(773	)
Net income available to Common Shares	$	658,462		$	678,295		$	90,513		$	266,333

Earnings per share – basic:
Net income available to Common Shares	$	1.77		$	1.83		$	0.24		$	0.72
Weighted average Common Shares outstanding		371,749			370,227			371,869			370,768

Earnings per share – diluted:
Net income available to Common Shares	$	1.77		$	1.82		$	0.24		$	0.71
Weighted average Common Shares outstanding		385,973			386,177			385,652			386,896

See accompanying notes

Table of Contents

EQUITY RESIDENTIAL

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,
	2020			2019			2020			2019
Comprehensive income:
Net income	$	699,517		$	708,402		$	95,365		$	277,846
Other comprehensive income (loss):
Other comprehensive income (loss) – derivative instruments:
Unrealized holding gains (losses) arising during the period		(1,190	)		(33,765	)		—			—
Losses reclassified into earnings from other comprehensive income		17,275			14,659			5,877			5,757
Other comprehensive income (loss)		16,085			(19,106	)		5,877			5,757
Comprehensive income		715,602			689,296			101,242			283,603
Comprehensive (income) attributable to Noncontrolling Interests		(39,316	)		(27,096	)		(4,290	)		(10,946	)
Comprehensive income attributable to controlling interests	$	676,286		$	662,200		$	96,952		$	272,657

See accompanying notes

Table of Contents

EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	699,517		$	708,402
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		619,003			616,201
Amortization of deferred financing costs		6,253			8,664
Amortization of above/below market lease intangibles		(53	)		(53	)
Amortization of discounts and premiums on debt		3,834			10,137
Amortization of deferred settlements on derivative instruments		17,266			14,650
Amortization of right-of-use assets		8,785			9,966
Write-off of pursuit costs		4,864			4,098
(Income) loss from investments in unconsolidated entities		2,445			(66,906	)
Distributions from unconsolidated entities – return on capital		100			2,486
Net (gain) loss on sales of real estate properties		(352,218	)		(269,400	)
Net (gain) loss on sales of land parcels		—			(2,077	)
Net (gain) loss on debt extinguishment		—			3,381
Realized/unrealized (gain) loss on derivative instruments		50			—
Compensation paid with Company Common Shares		18,275			20,777
Other operating activities, net		1,805			—
Changes in assets and liabilities:
(Increase) decrease in other assets		(30,197	)		(20,871	)
Increase (decrease) in accounts payable and accrued expenses		54,418			57,822
Increase (decrease) in accrued interest payable		(1,183	)		11,125
Increase (decrease) in lease liabilities		(1,650	)		(1,784	)
Increase (decrease) in other liabilities		(8,381	)		(15,578	)
Increase (decrease) in security deposits		(8,609	)		3,140
Net cash provided by operating activities		1,034,324			1,094,180
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions		(48,898	)		(1,147,236	)
Investment in real estate – development/other		(157,778	)		(137,238	)
Capital expenditures to real estate		(92,123	)		(128,335	)
Non-real estate capital additions		(19,290	)		(2,139	)
Interest capitalized for real estate under development		(6,880	)		(4,801	)
Proceeds from disposition of real estate, net		747,600			692,649
Investments in unconsolidated entities		(6,664	)		(9,073	)
Distributions from unconsolidated entities – return of capital		1,000			78,262
Purchase of investment securities and other investments		(509	)		(269	)
Net cash provided by (used for) investing activities		416,458			(658,180	)

See accompanying notes

Table of Contents

EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs	$	(2,923	)	$	(12,025	)
Mortgage notes payable, net:
Proceeds		505,375			295,713
Lump sum payoffs		(127,767	)		(723,021	)
Scheduled principal repayments		(5,821	)		(4,883	)
Net gain (loss) on debt extinguishment		—			(3,381	)
Notes, net:
Proceeds		—			1,194,468
Lump sum payoffs		—			(450,000	)
Line of credit and commercial paper:
Line of credit proceeds		1,870,000			5,850,000
Line of credit repayments		(1,890,000	)		(5,850,000	)
Commercial paper proceeds		6,726,167			13,341,198
Commercial paper repayments		(7,724,000	)		(13,486,000	)
Proceeds from (payments on) settlement of derivative instruments		(1,240	)		(41,616	)
Proceeds from Employee Share Purchase Plan (ESPP)		3,556			2,323
Proceeds from exercise of options		11,426			67,066
Payment of offering costs		—			(789	)
Other financing activities, net		(31	)		(49	)
Contributions – Noncontrolling Interests – Partially Owned Properties		417			4,594
Contributions – Noncontrolling Interests – Operating Partnership		12			—
Distributions:
Common Shares		(659,668	)		(620,391	)
Preferred Shares		(2,318	)		(2,318	)
Noncontrolling Interests – Operating Partnership		(24,440	)		(22,202	)
Noncontrolling Interests – Partially Owned Properties		(11,312	)		(6,404	)
Net cash provided by (used for) financing activities		(1,332,567	)		(467,717	)
Net increase (decrease) in cash and cash equivalents and restricted deposits		118,215			(31,717	)
Cash and cash equivalents and restricted deposits, beginning of period		116,999			116,313
Cash and cash equivalents and restricted deposits, end of period	$	235,214		$	84,596

Cash and cash equivalents and restricted deposits, end of period
Cash and cash equivalents	$	178,333		$	28,777
Restricted deposits		56,881			55,819
Total cash and cash equivalents and restricted deposits, end of period	$	235,214		$	84,596

See accompanying notes

Table of Contents

EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized	$	223,703		$	246,410
Net cash paid (received) for income and other taxes	$	(1,092	)	$	918
Amortization of deferred financing costs:
Investment in real estate, net	$	(180	)	$	(60	)
Other assets	$	1,755		$	1,808
Mortgage notes payable, net	$	1,337		$	3,529
Notes, net	$	3,341		$	3,387
Amortization of discounts and premiums on debt:
Mortgage notes payable, net	$	1,791		$	8,017
Notes, net	$	2,043		$	2,120
Amortization of deferred settlements on derivative instruments:
Other liabilities	$	(9	)	$	(9	)
Accumulated other comprehensive income	$	17,275		$	14,659
Write-off of pursuit costs:
Investment in real estate, net	$	4,621		$	4,042
Other assets	$	219		$	48
Accounts payable and accrued expenses	$	24		$	8
(Income) loss from investments in unconsolidated entities:
Investments in unconsolidated entities	$	1,474		$	(67,900	)
Other liabilities	$	971		$	994
Realized/unrealized (gain) loss on derivative instruments:
Other assets	$	—		$	2,002
Notes, net	$	—		$	2,277
Other liabilities	$	1,240		$	29,486
Accumulated other comprehensive income	$	(1,190	)	$	(33,765	)
Investments in unconsolidated entities:
Investments in unconsolidated entities	$	(5,164	)	$	(6,973	)
Other liabilities	$	(1,500	)	$	(2,100	)
Debt financing costs:
Other assets	$	(231	)	$	145
Mortgage notes payable, net	$	(2,692	)	$	(2,354	)
Notes, net	$	—		$	(10,454	)
Other liabilities	$	—		$	638
Right-of-use assets and lease liabilities initial measurement and reclassifications:
Right-of-use assets	$	—		$	(491,010	)
Other assets	$	—		$	184,116
Lease liabilities	$	—		$	335,096
Other liabilities	$	—		$	(28,202	)

See accompanying notes

Table of Contents

EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands except per share data)

(Unaudited)

	Nine Months Ended September 30,						Quarter Ended September 30,
	2020			2019			2020			2019
SHAREHOLDERS’ EQUITY
PREFERRED SHARES
Balance, beginning of period	$	37,280		$	37,280		$	37,280		$	37,280
Balance, end of period	$	37,280		$	37,280		$	37,280		$	37,280
COMMON SHARES, $0.01 PAR VALUE
Balance, beginning of period	$	3,717		$	3,694		$	3,722		$	3,708
Conversion of OP Units into Common Shares		1			3			—			1
Exercise of share options		2			14			—			4
Share-based employee compensation expense:
Restricted shares		2			2			—			—
Balance, end of period	$	3,722		$	3,713		$	3,722		$	3,713
PAID IN CAPITAL
Balance, beginning of period	$	8,965,577		$	8,935,453		$	9,118,332		$	8,949,581
Common Share Issuance:
Conversion of OP Units into Common Shares		3,912			9,840			57			4,971
Exercise of share options		11,424			67,052			104			18,575
Employee Share Purchase Plan (ESPP)		3,556			2,323			1,197			671
Share-based employee compensation expense:
Restricted shares		9,236			10,302			1,984			2,322
Share options		1,819			2,185			526			503
ESPP discount		626			502			210			137
Offering costs		—			(789	)		—			(634	)
Supplemental Executive Retirement Plan (SERP)		(395	)		(1,539	)		111			—
Change in market value of Redeemable Noncontrolling Interests – Operating Partnership		169,825			(114,936	)		41,072			(57,962	)
Adjustment for Noncontrolling Interests ownership in Operating Partnership		438			6,919			2,425			(852	)
Balance, end of period	$	9,166,018		$	8,917,312		$	9,166,018		$	8,917,312
RETAINED EARNINGS
Balance, beginning of period	$	1,386,495		$	1,261,763		$	1,505,694		$	1,252,809
Net income attributable to controlling interests		660,780			680,613			91,286			267,106
Common Share distributions		(673,019	)		(631,635	)		(224,269	)		(210,719	)
Preferred Share distributions		(2,318	)		(2,318	)		(773	)		(773	)
Balance, end of period	$	1,371,938		$	1,308,423		$	1,371,938		$	1,308,423
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period	$	(77,563	)	$	(64,986	)	$	(67,355	)	$	(89,849	)
Accumulated other comprehensive income (loss) – derivative instruments:
Unrealized holding gains (losses) arising during the period		(1,190	)		(33,765	)		—			—
Losses reclassified into earnings from other comprehensive income		17,275			14,659			5,877			5,757
Balance, end of period	$	(61,478	)	$	(84,092	)	$	(61,478	)	$	(84,092	)

DISTRIBUTIONS
Distributions declared per Common Share outstanding	$	1.8075		$	1.7025		$	0.6025		$	0.5675

See accompanying notes

Table of Contents

EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)

(Amounts in thousands except per share data)

(Unaudited)

	Nine Months Ended September 30,						Quarter Ended September 30,
	2020			2019			2020			2019
NONCONTROLLING INTERESTS
OPERATING PARTNERSHIP
Balance, beginning of period	$	227,837		$	228,738		$	235,169		$	227,320
Issuance of restricted units to Noncontrolling Interests		12			—			—			—
Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner		(3,913	)		(9,843	)		(57	)		(4,972	)
Equity compensation associated with Noncontrolling Interests		9,525			12,200			2,499			1,371
Net income attributable to Noncontrolling Interests		24,624			25,339			3,376			9,910
Distributions to Noncontrolling Interests		(25,000	)		(22,493	)		(7,963	)		(7,414	)
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership		(131	)		(957	)		1,917			(1,002	)
Adjustment for Noncontrolling Interests ownership in Operating Partnership		(438	)		(6,919	)		(2,425	)		852
Balance, end of period	$	232,516		$	226,065		$	232,516		$	226,065
PARTIALLY OWNED PROPERTIES
Balance, beginning of period	$	1,183		$	(2,293	)	$	4,634		$	(1,298	)
Net income attributable to Noncontrolling Interests		14,113			2,450			703			830
Contributions by Noncontrolling Interests		417			4,594			76			—
Distributions to Noncontrolling Interests		(11,343	)		(6,453	)		(1,043	)		(1,234	)
Balance, end of period	$	4,370		$	(1,702	)	$	4,370		$	(1,702	)

See accompanying notes

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

	September 30,			December 31,
	2020			2019
ASSETS
Land	$	5,794,771		$	5,936,188
Depreciable property		21,076,222			21,319,101
Projects under development		337,696			181,630
Land held for development		103,900			96,688
Investment in real estate		27,312,589			27,533,607
Accumulated depreciation		(7,738,318	)		(7,276,786	)
Investment in real estate, net		19,574,271			20,256,821
Investments in unconsolidated entities		54,828			52,238
Cash and cash equivalents		178,333			45,753
Restricted deposits		56,881			71,246
Right-of-use assets		502,184			512,774
Other assets		257,481			233,937
Total assets	$	20,623,978		$	21,172,769

LIABILITIES AND CAPITAL
Liabilities:
Mortgage notes payable, net	$	2,313,833		$	1,941,610
Notes, net		6,082,897			6,077,513
Line of credit and commercial paper		—			1,017,833
Accounts payable and accrued expenses		158,611			94,350
Accrued interest payable		65,669			66,852
Lease liabilities		329,684			331,334
Other liabilities		331,522			346,963
Security deposits		61,453			70,062
Distributions payable		232,237			218,326
Total liabilities		9,575,906			10,164,843

Commitments and contingencies

Redeemable Limited Partners		293,706			463,400
Capital:
Partners’ Capital:
Preference Units		37,280			37,280
General Partner		10,541,678			10,355,789
Limited Partners		232,516			227,837
Accumulated other comprehensive income (loss)		(61,478	)		(77,563	)
Total partners’ capital		10,749,996			10,543,343
Noncontrolling Interests – Partially Owned Properties		4,370			1,183
Total capital		10,754,366			10,544,526
Total liabilities and capital	$	20,623,978		$	21,172,769

See accompanying notes

Table of Contents

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,
	2020			2019			2020			2019
REVENUES
Rental income	$	1,958,270		$	2,016,796		$	622,433		$	685,120

EXPENSES
Property and maintenance		333,333			338,497			113,065			114,966
Real estate taxes and insurance		288,043			270,434			95,273			87,546
Property management		71,513			72,705			20,196			21,940
General and administrative		37,212			41,127			10,859			11,417
Depreciation		619,003			616,201			200,605			211,478
Total expenses		1,349,104			1,338,964			439,998			447,347

Net gain (loss) on sales of real estate properties		352,218			269,400			(25	)		130,565

Operating income		961,384			947,232			182,410			368,338

Interest and other income		4,006			2,581			535			656
Other expenses		(8,324	)		(11,205	)		(4,097	)		(2,813	)
Interest:
Expense incurred, net		(248,349	)		(289,776	)		(80,874	)		(85,936	)
Amortization of deferred financing costs		(6,253	)		(8,664	)		(2,101	)		(2,881	)
Income before income and other taxes, income (loss) from investments in unconsolidated entities and net gain (loss) on sales of land parcels		702,464			640,168			95,873			277,364
Income and other tax (expense) benefit		(502	)		(749	)		(262	)		(265	)
Income (loss) from investments in unconsolidated entities		(2,445	)		66,906			(246	)		(1,152	)
Net gain (loss) on sales of land parcels		—			2,077			—			1,899
Net income		699,517			708,402			95,365			277,846
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties		(14,113	)		(2,450	)		(703	)		(830	)
Net income attributable to controlling interests	$	685,404		$	705,952		$	94,662		$	277,016
ALLOCATION OF NET INCOME:
Preference Units	$	2,318		$	2,318		$	773		$	773

General Partner	$	658,462		$	678,295		$	90,513		$	266,333
Limited Partners		24,624			25,339			3,376			9,910
Net income available to Units	$	683,086		$	703,634		$	93,889		$	276,243

Earnings per Unit – basic:
Net income available to Units	$	1.77		$	1.83		$	0.24		$	0.72
Weighted average Units outstanding		384,759			383,142			384,871			383,709

Earnings per Unit – diluted:
Net income available to Units	$	1.77		$	1.82		$	0.24		$	0.71
Weighted average Units outstanding		385,973			386,177			385,652			386,896

See accompanying notes

Table of Contents

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,
	2020			2019			2020			2019
Comprehensive income:
Net income	$	699,517		$	708,402		$	95,365		$	277,846
Other comprehensive income (loss):
Other comprehensive income (loss) – derivative instruments:
Unrealized holding gains (losses) arising during the period		(1,190	)		(33,765	)		—			—
Losses reclassified into earnings from other comprehensive income		17,275			14,659			5,877			5,757
Other comprehensive income (loss)		16,085			(19,106	)		5,877			5,757
Comprehensive income		715,602			689,296			101,242			283,603
Comprehensive (income) attributable to Noncontrolling Interests – Partially Owned Properties		(14,113	)		(2,450	)		(703	)		(830	)
Comprehensive income attributable to controlling interests	$	701,489		$	686,846		$	100,539		$	282,773

See accompanying notes

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	699,517		$	708,402
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		619,003			616,201
Amortization of deferred financing costs		6,253			8,664
Amortization of above/below market lease intangibles		(53	)		(53	)
Amortization of discounts and premiums on debt		3,834			10,137
Amortization of deferred settlements on derivative instruments		17,266			14,650
Amortization of right-of-use assets		8,785			9,966
Write-off of pursuit costs		4,864			4,098
(Income) loss from investments in unconsolidated entities		2,445			(66,906	)
Distributions from unconsolidated entities – return on capital		100			2,486
Net (gain) loss on sales of real estate properties		(352,218	)		(269,400	)
Net (gain) loss on sales of land parcels		—			(2,077	)
Net (gain) loss on debt extinguishment		—			3,381
Realized/unrealized (gain) loss on derivative instruments		50			—
Compensation paid with Company Common Shares		18,275			20,777
Other operating activities, net		1,805			—
Changes in assets and liabilities:
(Increase) decrease in other assets		(30,197	)		(20,871	)
Increase (decrease) in accounts payable and accrued expenses		54,418			57,822
Increase (decrease) in accrued interest payable		(1,183	)		11,125
Increase (decrease) in lease liabilities		(1,650	)		(1,784	)
Increase (decrease) in other liabilities		(8,381	)		(15,578	)
Increase (decrease) in security deposits		(8,609	)		3,140
Net cash provided by operating activities		1,034,324			1,094,180
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions		(48,898	)		(1,147,236	)
Investment in real estate – development/other		(157,778	)		(137,238	)
Capital expenditures to real estate		(92,123	)		(128,335	)
Non-real estate capital additions		(19,290	)		(2,139	)
Interest capitalized for real estate under development		(6,880	)		(4,801	)
Proceeds from disposition of real estate, net		747,600			692,649
Investments in unconsolidated entities		(6,664	)		(9,073	)
Distributions from unconsolidated entities – return of capital		1,000			78,262
Purchase of investment securities and other investments		(509	)		(269	)
Net cash provided by (used for) investing activities		416,458			(658,180	)

See accompanying notes

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs	$	(2,923	)	$	(12,025	)
Mortgage notes payable, net:
Proceeds		505,375			295,713
Lump sum payoffs		(127,767	)		(723,021	)
Scheduled principal repayments		(5,821	)		(4,883	)
Net gain (loss) on debt extinguishment		—			(3,381	)
Notes, net:
Proceeds		—			1,194,468
Lump sum payoffs		—			(450,000	)
Line of credit and commercial paper:
Line of credit proceeds		1,870,000			5,850,000
Line of credit repayments		(1,890,000	)		(5,850,000	)
Commercial paper proceeds		6,726,167			13,341,198
Commercial paper repayments		(7,724,000	)		(13,486,000	)
Proceeds from (payments on) settlement of derivative instruments		(1,240	)		(41,616	)
Proceeds from EQR’s Employee Share Purchase Plan (ESPP)		3,556			2,323
Proceeds from exercise of EQR options		11,426			67,066
Payment of offering costs		—			(789	)
Other financing activities, net		(31	)		(49	)
Contributions – Noncontrolling Interests – Partially Owned Properties		417			4,594
Contributions – Limited Partners		12			—
Distributions:
OP Units – General Partner		(659,668	)		(620,391	)
Preference Units		(2,318	)		(2,318	)
OP Units – Limited Partners		(24,440	)		(22,202	)
Noncontrolling Interests – Partially Owned Properties		(11,312	)		(6,404	)
Net cash provided by (used for) financing activities		(1,332,567	)		(467,717	)
Net increase (decrease) in cash and cash equivalents and restricted deposits		118,215			(31,717	)
Cash and cash equivalents and restricted deposits, beginning of period		116,999			116,313
Cash and cash equivalents and restricted deposits, end of period	$	235,214		$	84,596

Cash and cash equivalents and restricted deposits, end of period
Cash and cash equivalents	$	178,333		$	28,777
Restricted deposits		56,881			55,819
Total cash and cash equivalents and restricted deposits, end of period	$	235,214		$	84,596

See accompanying notes

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized	$	223,703		$	246,410
Net cash paid (received) for income and other taxes	$	(1,092	)	$	918
Amortization of deferred financing costs:
Investment in real estate, net	$	(180	)	$	(60	)
Other assets	$	1,755		$	1,808
Mortgage notes payable, net	$	1,337		$	3,529
Notes, net	$	3,341		$	3,387
Amortization of discounts and premiums on debt:
Mortgage notes payable, net	$	1,791		$	8,017
Notes, net	$	2,043		$	2,120
Amortization of deferred settlements on derivative instruments:
Other liabilities	$	(9	)	$	(9	)
Accumulated other comprehensive income	$	17,275		$	14,659
Write-off of pursuit costs:
Investment in real estate, net	$	4,621		$	4,042
Other assets	$	219		$	48
Accounts payable and accrued expenses	$	24		$	8
(Income) loss from investments in unconsolidated entities:
Investments in unconsolidated entities	$	1,474		$	(67,900	)
Other liabilities	$	971		$	994
Realized/unrealized (gain) loss on derivative instruments:
Other assets	$	—		$	2,002
Notes, net	$	—		$	2,277
Other liabilities	$	1,240		$	29,486
Accumulated other comprehensive income	$	(1,190	)	$	(33,765	)
Investments in unconsolidated entities:
Investments in unconsolidated entities	$	(5,164	)	$	(6,973	)
Other liabilities	$	(1,500	)	$	(2,100	)
Debt financing costs:
Other assets	$	(231	)	$	145
Mortgage notes payable, net	$	(2,692	)	$	(2,354	)
Notes, net	$	—		$	(10,454	)
Other liabilities	$	—		$	638
Right-of-use assets and lease liabilities initial measurement and reclassifications:
Right-of-use assets	$	—		$	(491,010	)
Other assets	$	—		$	184,116
Lease liabilities	$	—		$	335,096
Other liabilities	$	—		$	(28,202	)

See accompanying notes

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL

(Amounts in thousands except per Unit data)

(Unaudited)

	Nine Months Ended September 30,						Quarter Ended September 30,
	2020			2019			2020			2019
PARTNERS’ CAPITAL
PREFERENCE UNITS
Balance, beginning of period	$	37,280		$	37,280		$	37,280		$	37,280
Balance, end of period	$	37,280		$	37,280		$	37,280		$	37,280
GENERAL PARTNER
Balance, beginning of period	$	10,355,789		$	10,200,910		$	10,627,748		$	10,206,098
OP Unit Issuance:
Conversion of OP Units held by Limited Partners into OP Units held by General Partner		3,913			9,843			57			4,972
Exercise of EQR share options		11,426			67,066			104			18,579
EQR’s Employee Share Purchase Plan (ESPP)		3,556			2,323			1,197			671
Share-based employee compensation expense:
EQR restricted shares		9,238			10,304			1,984			2,322
EQR share options		1,819			2,185			526			503
EQR ESPP discount		626			502			210			137
Net income available to Units – General Partner		658,462			678,295			90,513			266,333
OP Units – General Partner distributions		(673,019	)		(631,635	)		(224,269	)		(210,719	)
Offering costs		—			(789	)		—			(634	)
Supplemental Executive Retirement Plan (SERP)		(395	)		(1,539	)		111			—
Change in market value of Redeemable Limited Partners		169,825			(114,936	)		41,072			(57,962	)
Adjustment for Limited Partners ownership in Operating Partnership		438			6,919			2,425			(852	)
Balance, end of period	$	10,541,678		$	10,229,448		$	10,541,678		$	10,229,448
LIMITED PARTNERS
Balance, beginning of period	$	227,837		$	228,738		$	235,169		$	227,320
Issuance of restricted units to Limited Partners		12			—			—			—
Conversion of OP Units held by Limited Partners into OP Units held by General Partner		(3,913	)		(9,843	)		(57	)		(4,972	)
Equity compensation associated with Units – Limited Partners		9,525			12,200			2,499			1,371
Net income available to Units – Limited Partners		24,624			25,339			3,376			9,910
Units – Limited Partners distributions		(25,000	)		(22,493	)		(7,963	)		(7,414	)
Change in carrying value of Redeemable Limited Partners		(131	)		(957	)		1,917			(1,002	)
Adjustment for Limited Partners ownership in Operating Partnership		(438	)		(6,919	)		(2,425	)		852
Balance, end of period	$	232,516		$	226,065		$	232,516		$	226,065
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period	$	(77,563	)	$	(64,986	)	$	(67,355	)	$	(89,849	)
Accumulated other comprehensive income (loss) – derivative instruments:
Unrealized holding gains (losses) arising during the period		(1,190	)		(33,765	)		—			—
Losses reclassified into earnings from other comprehensive income		17,275			14,659			5,877			5,757
Balance, end of period	$	(61,478	)	$	(84,092	)	$	(61,478	)	$	(84,092	)

DISTRIBUTIONS
Distributions declared per Unit outstanding	$	1.8075		$	1.7025		$	0.6025		$	0.5675

See accompanying notes

Table of Contents

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (Continued)

(Amounts in thousands except per Unit data)

(Unaudited)

	Nine Months Ended September 30,						Quarter Ended September 30,
	2020			2019			2020			2019
NONCONTROLLING INTERESTS
NONCONTROLLING INTERESTS – PARTIALLY OWNED PROPERTIES
Balance, beginning of period	$	1,183		$	(2,293	)	$	4,634		$	(1,298	)
Net income attributable to Noncontrolling Interests		14,113			2,450			703			830
Contributions by Noncontrolling Interests		417			4,594			76			—
Distributions to Noncontrolling Interests		(11,343	)		(6,453	)		(1,043	)		(1,234	)
Balance, end of period	$	4,370		$	(1,702	)	$	4,370		$	(1,702	)

See accompanying notes

Table of Contents

EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Business

Equity Residential (“EQR”) is an S&P 500 company focused on the acquisition, development and management of residential properties located in and around dynamic cities that attract high quality long-term renters, a 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 Operating Partnership.

EQR is the general partner of, and as of September 30, 2020 owned an approximate 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.

As of September 30, 2020, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 305 properties located in 9 states and the District of Columbia consisting of 78,568 apartment units. The ownership breakdown includes (table does not include various uncompleted development properties):

	Properties		Apartment Units
Wholly Owned Properties		288		75,007
Master-Leased Property – Consolidated		1		162
Partially Owned Properties – Consolidated		16		3,399
		305		78,568

COVID-19 Pandemic

The continued rapid development and fast-changing nature of the novel coronavirus (“COVID-19”) pandemic creates many unknowns that have had and could continue to have a future significant impact on the Company. Its duration, severity and the extent of the adverse health impact on the general population, our residents and employees, and the potential changes in customer preferences for living in our communities, are among the many unknowns. These, among other items, have impacted the economy, the unemployment rate and our operations and could materially affect our future consolidated results of operations, financial condition, liquidity, investments and overall performance.

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. Operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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. In response to the COVID-19 pandemic, management

Table of Contents

evaluated whether its estimates, such as lease collectibility (see discussion below) and impairment, required revised approaches and generally concluded that no revisions were necessary at this time.

The balance sheets at December 31, 2019 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.

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, 2019.

Income and Other Taxes

EQR has elected to be taxed as a REIT. This, along with the nature of the operations of its operating properties, resulted in no provision for federal income taxes at the EQR level. In addition, ERPOP generally is not liable for federal income taxes as the partners recognize their allocable 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 taxable REIT subsidiary (“TRS”) status for certain of its corporate subsidiaries and, as a result, these entities will incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating losses.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-19 pandemic. Included in the CARES Act are tax provisions which increase allowable interest expense deductions for 2019 and 2020 and increase the ability for taxpayers to use net operating losses. While we do not expect these provisions to result in a material impact to the Company’s taxable income or tax liabilities, the Company will continue to analyze the provisions of the CARES Act and related guidance as it is published.

The CARES Act also allows corporations to request accelerated refunds of their alternative minimum tax (“AMT”) credit. Prior to enactment of this provision, the remaining credits would have been refunded in installments in 2020, 2021 and 2022. We received a refund of our remaining $1.6 million in AMT credits during the quarter ended September 30, 2020.

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued an amendment to the debt and equity financial instruments standards which simplifies the accounting for convertible instruments and accounting for contracts in an entity’s own equity. Instead of being required to assess whether an equity contract permits settlement in unregistered shares, which may require a legal analysis under the securities laws, entities will only analyze whether cash settlements are explicitly required when registered shares are unavailable. As a result, such contracts may be classified in permanent rather than mezzanine equity, which may affect the way the Company’s OP Units are presented on its financial statements. The update is effective for the Company beginning on January 1, 2022, but early adoption is allowed beginning January 1, 2021. The Company is currently evaluating the impact of adopting the new standard on its consolidated results of operations and financial position.

In March 2020, the FASB issued an amendment to the reference rate reform standard which provides the option for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on contract modifications and hedge accounting. An example of such reform is the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. Entities that make this optional expedient election would not have to remeasure the contracts at the modification date or reassess the accounting treatment if certain criteria are met and would continue applying hedge accounting for relationships affected by reference rate reform. The new standard was effective for the Company upon issuance and elections can be made through December 31, 2022. The Company is currently evaluating its options with regards to existing contracts and hedging relationships and the impact of adopting this update on its consolidated results of operations and financial position.

Table of Contents

Recently Adopted Accounting Pronouncements

In April 2020, a FASB staff question and answer document was issued which intended to reduce the challenges of evaluating the enforceable rights and obligations of leases for concessions granted to lessees in response to the COVID-19 pandemic. We elected not to evaluate whether qualifying concessions provided by the Company in response to the COVID-19 pandemic are a lease modification, subject to the criteria that the total payments under the amended lease cannot result in a substantial increase in the rights of the lessor or obligations of the lessee. We also elected to treat the concessions as though they were contemplated as part of the existing contracts and therefore will not apply lease modification rules to the qualifying lease concession amendments. As such, deferrals deemed collectible are recorded as rental receivables with no change to timing of rental revenues and deferrals deemed non-collectible and abatements reduce rental revenues in the deferral/abatement period and cause rental revenues to effectively follow a cash basis related to the changes. The accounting elections provided by the FASB mainly apply to the Company’s non-residential leases and the majority of the amendments will not require a straight-line adjustment. See Note 8 for additional discussion.

In June 2016, the FASB issued a 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 requires 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 leases standard from the scope of the credit losses standard. The Company adopted this standard as required effective January 1, 2020 and it did not have a material effect on its consolidated results of operations and financial position.

In February 2016, the FASB issued a lease 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 Company adopted this standard as required effective January 1, 2019 using a modified retrospective method and the Company applied the 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 elected the practical expedient to not reassess the classification of existing operating leases. As of January 1, 2019, any new or modified ground leases may be classified as financing leases unless they meet certain conditions. When there is a material lease modification, the Company is required to reassess the classification and remeasure the lease liability. The Company also elected the practical expedient to account for both its lease and non-lease components as a single component under the leases standard. See Note 8 for additional discussion regarding the 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 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 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 standard as required effective January 1, 2019 and it did not have a material effect on its consolidated results of operations and financial position.

3.	Equity, Capital and Other Interests

The Company refers to “Common Shares” and “Units” (which refer to both OP Units and restricted units) as equity securities for EQR and “General Partner Units” and “Limited Partner Units” as equity securities for ERPOP. To provide a streamlined and more readable presentation of the disclosures for the Company and the Operating Partnership, several sections below refer to the respective terminology for each with the same financial information and separate sections are provided, where needed, to further distinguish any differences in financial information and terminology.

Table of Contents

The following table presents the changes in the Company’s issued and outstanding Common Shares and Units for the nine months ended September 30, 2020 and 2019:

	2020			2019
Common Shares
Common Shares outstanding at January 1,		371,670,884			369,405,161
Common Shares Issued:
Conversion of OP Units		99,737			294,400
Exercise of share options		219,922			1,430,048
Employee Share Purchase Plan (ESPP)		69,986			37,263
Restricted share grants, net		178,720			160,460
Common Shares outstanding at September 30,		372,239,249			371,327,332
Units
Units outstanding at January 1,		13,731,315			13,904,035
Restricted unit grants, net		247,822			140,055
Conversion of OP Units to Common Shares		(99,737	)		(294,400	)
Units outstanding at September 30,		13,879,400			13,749,690
Total Common Shares and Units outstanding at September 30,		386,118,649			385,077,022
Units Ownership Interest in Operating Partnership		3.6	%		3.6	%

The following table presents the changes in the Operating Partnership’s issued and outstanding General Partner Units and Limited Partner Units for the nine months ended September 30, 2020 and 2019:

	2020			2019
General and Limited Partner Units
General and Limited Partner Units outstanding at January 1,		385,402,199			383,309,196
Issued to General Partner:
Exercise of EQR share options		219,922			1,430,048
EQR’s Employee Share Purchase Plan (ESPP)		69,986			37,263
EQR’s restricted share grants, net		178,720			160,460
Issued to Limited Partners:
Restricted unit grants, net		247,822			140,055
General and Limited Partner Units outstanding at September 30,		386,118,649			385,077,022
Limited Partner Units
Limited Partner Units outstanding at January 1,		13,731,315			13,904,035
Limited Partner restricted unit grants, net		247,822			140,055
Conversion of Limited Partner OP Units to EQR Common Shares		(99,737	)		(294,400	)
Limited Partner Units outstanding at September 30,		13,879,400			13,749,690
Limited Partner Units Ownership Interest in Operating Partnership		3.6	%		3.6	%

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” and “Limited Partners Capital,” respectively, for the Company and the Operating Partnership. Subject to certain exceptions (including the “book-up” requirements of restricted units), the Noncontrolling Interests – Operating Partnership/Limited Partners Capital may exchange their Units with EQR for Common Shares on a one-for-one basis. The carrying value of the Noncontrolling Interests – Operating Partnership/Limited Partners Capital (including redeemable interests) is allocated based on the number of Noncontrolling Interests – Operating Partnership/Limited Partners Capital in total in proportion to the number of Noncontrolling Interests – Operating Partnership/Limited Partners Capital in total plus the total number of Common Shares/General Partner Units. Net income is allocated to the Noncontrolling Interests – Operating Partnership/Limited Partners Capital 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/Limited Partners Capital requesting an exchange of their Noncontrolling Interests – Operating Partnership/Limited Partners Capital with EQR. Once the Operating Partnership elects not to redeem the Noncontrolling Interests – Operating Partnership/Limited Partners Capital for cash, EQR is obligated to deliver Common Shares to the exchanging holder of the Noncontrolling Interests – Operating Partnership/Limited Partners Capital.

Table of Contents

The Noncontrolling Interests – Operating Partnership/Limited Partners Capital 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 Noncontrolling Interests – Operating Partnership/Limited Partners Capital are differentiated and referred to as “Redeemable Noncontrolling Interests – Operating Partnership” and “Redeemable Limited Partners,” respectively. 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/Redeemable Limited Partners 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/Limited Partners Capital that are classified in permanent equity at September 30, 2020 and December 31, 2019.

The carrying value of the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners is allocated based on the number of Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners in proportion to the number of Noncontrolling Interests – Operating Partnership/Limited Partners Capital in total. Such percentage of the total carrying value of Units/Limited Partner Units which is ascribed to the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners is then adjusted to the greater of carrying value or fair market value as described above. As of September 30, 2020 and 2019, the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners have a redemption value of approximately $293.7 million and $495.0 million, respectively, which represents the value of Common Shares that would be issued in exchange for the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners.

The following table presents the changes in the redemption value of the Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners for the nine months ended September 30, 2020 and 2019 (amounts in thousands):

	2020			2019
Balance at January 1,	$	463,400		$	379,106
Change in market value		(169,825	)		114,936
Change in carrying value		131			957
Balance at September 30,	$	293,706		$	494,999

Net proceeds from EQR Common Share and Preferred Share (see definition below) offerings and proceeds from exercise of options for Common Shares 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 proceeds from Common Shares and Preferred Shares are allocated for the Company between shareholders’ equity and Noncontrolling Interests – Operating Partnership and for the Operating Partnership between General Partner’s Capital and Limited Partners Capital to account for the change in their respective percentage ownership of the underlying equity.

The Company’s declaration of trust authorizes it to issue up to 100,000,000 preferred shares of beneficial interest, $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.

The following table presents the Company’s issued and outstanding Preferred Shares/Preference Units as of September 30, 2020 and December 31, 2019:

				Amounts in thousands
		Annual
	Call	Dividend Per		September 30,		December 31,
	Date (1)	Share/Unit (2)		2020		2019
Preferred Shares/Preference Units of beneficial interest, $0.01 par value; 100,000,000 shares authorized:
8.29% Series K Cumulative Redeemable Preferred Shares/Preference Units; liquidation value $50 per share/unit; 745,600 shares/units issued and outstanding as of September 30, 2020 and December 31, 2019	12/10/26	$	4.145	$	37,280	$	37,280
				$	37,280	$	37,280

Table of Contents

(1)

On or after the call date, redeemable Preferred Shares/Preference Units may be redeemed for cash at the option of the Company or the Operating Partnership, respectively, in whole or in part, at a redemption price equal to the liquidation price per share/unit, plus accrued and unpaid distributions, if any.

(2)	Dividends on Preferred Shares/Preference Units are payable quarterly.

Other

EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC in June 2019 and expires in June 2022. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).

The Company has an At-The-Market (“ATM”) share offering program which allows EQR to sell Common Shares from time to time into the existing trading market at current market prices as well as through negotiated transactions. In June 2019, the Company extended the program maturity to June 2022. In connection with the extension, the Company may now also sell Common Shares under forward sale agreements. The use of a forward sale agreement would allow the Company to lock in a price on the sale of Common Shares at the time the agreement is executed, but defer receiving the proceeds from the sale until a later date. 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 open market repurchases have occurred since 2008, and no repurchases of any kind have occurred since February 2014. As of September 30, 2020, EQR has remaining authorization to repurchase up to 13.0 million of its shares.

4.	Real Estate

The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of September 30, 2020 and December 31, 2019 (amounts in thousands):

	September 30, 2020			December 31, 2019
Land	$	5,794,771		$	5,936,188
Depreciable property:
Buildings and improvements		18,626,029			18,904,686
Furniture, fixtures and equipment		1,962,223			1,916,458
In-Place lease intangibles		487,970			497,957
Projects under development:
Land		23,531			23,531
Construction-in-progress		314,165			158,099
Land held for development:
Land		64,490			64,460
Construction-in-progress		39,410			32,228
Investment in real estate		27,312,589			27,533,607
Accumulated depreciation		(7,738,318	)		(7,276,786	)
Investment in real estate, net	$	19,574,271		$	20,256,821

During the nine months ended September 30, 2020, the Company acquired the following from unaffiliated parties (purchase price in thousands):

	Properties		Apartment Units		Purchase Price
Rental Properties – Consolidated (1)		1		158	$	48,860
Total		1		158	$	48,860

(1)	Purchase price includes an allocation of approximately $5.5 million to land and $43.4 million to depreciable property (inclusive of capitalized closing costs).

Table of Contents

During the nine months ended September 30, 2020, the Company disposed of the following to unaffiliated parties (sales price in thousands):

	Properties		Apartment Units		Sales Price
Rental Properties – Consolidated		5		1,552	$	754,361
Total		5		1,552	$	754,361

The Company recognized a net gain on sales of real estate properties of approximately $352.2 million on the above sales.

5.	Commitments to Acquire/Dispose of Real Estate

The Company has not entered into any agreements to acquire rental properties or land parcels as of the date of filing.

The Company has entered into separate agreements to dispose of the following (sales price and net book value in thousands):

	Properties		Apartment Units		Sales Price		Net Book Value
Land Parcels (two)		—		—	$	55,710	$	19,475
Total		—		—	$	55,710	$	19,475

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 disposed of, if any, subsequent to September 30, 2020.

6.	Investments in Partially Owned Entities

The Company has invested in various properties with unrelated third parties which are either consolidated or accounted 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 16 properties containing 3,399 apartment units. The Company is the general partner or managing member of these joint ventures and is responsible for managing the operations and affairs 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.

The Company also has entered into two separate consolidated joint ventures which each own land parcels that are being/will be developed into multifamily rental properties. These joint ventures have been deemed to be VIEs and are consolidated due to the Company being the primary beneficiary.

The consolidated assets and liabilities related to the VIEs discussed above were approximately $764.2 million and $210.2 million, respectively, at September 30, 2020 and approximately $754.7 million and $323.1 million, respectively, at December 31, 2019.

Table of Contents

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 September 30, 2020 and December 31, 2019 (amounts in thousands except for ownership percentage):

	September 30, 2020			December 31, 2019			Ownership Percentage
Investments in Unconsolidated Entities:
Operating Property (VIE) (1)	$	38,820		$	40,361		33.3%
Real Estate Technology (2)		16,246			12,318		Varies
Other		(238	)		(441	)	Varies
Investments in Unconsolidated Entities	$	54,828		$	52,238

(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)	Represents unconsolidated investments in five separate real estate technology funds/companies.

7.	Restricted Deposits

The following table presents the Company’s restricted deposits as of September 30, 2020 and December 31, 2019 (amounts in thousands):

	September 30, 2020		December 31, 2019
Mortgage escrow deposits:
Replacement reserves	$	9,558	$	8,543
Mortgage principal reserves/sinking funds		13,013		9,689
Mortgage escrow deposits		22,571		18,232
Restricted cash:
Tax-deferred (1031) exchange proceeds		—		14,232
Restricted deposits on real estate investments		722		658
Resident security and utility deposits		32,215		37,140
Other		1,373		984
Restricted cash		34,310		53,014
Restricted deposits	$	56,881	$	71,246

Leases

Lessor Accounting

The Company is the lessor for its residential and non-residential leases and these leases will continue to be accounted for as operating leases under the standard as described in Note 2.

For the nine months ended September 30, 2020, approximately 98% of the Company’s total lease revenue is generated from residential apartment leases that are generally twelve months or less in length. The residential apartment leases may include lease income related to such items as utility recoveries, 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 nine months ended September 30, 2020, approximately 2% of the Company’s total lease revenue is generated by non-residential leases that are generally for terms ranging between five to ten years. The non-residential leases generally consist of ground floor retail spaces and master-leased parking garages that serve as additional amenities for our residents. The non-residential leases may include lease income related to such items as utility recoveries, parking rent 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.

Table of Contents

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. Non-residential leases are renewable with market-based renewal options.

The following table presents the lease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the nine months ended September 30, 2020 and 2019 (amounts in thousands):

	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
Income Type	Residential Leases		Non-Residential Leases		Total		Residential Leases		Non-Residential Leases		Total
Residential and non-residential rent	$	1,783,298	$	36,263	$	1,819,561	$	1,801,749	$	54,616	$	1,856,365
Utility recoveries (RUBS income) (1)		52,538		509		53,047		50,290		650		50,940
Parking rent		29,052		324		29,376		27,874		259		28,133
Storage rent		2,814		60		2,874		2,796		51		2,847
Pet rent		8,583		—		8,583		8,714		—		8,714
Total lease revenue	$	1,876,285	$	37,156		1,913,441	$	1,891,423	$	55,576		1,946,999
Total other rental income (2)						44,829						69,797
Rental income					$	1,958,270					$	2,016,796

(1)	RUBS income primarily consists of variable payments representing the recovery of utility costs from residents.

(2)	Other rental income is accounted for under the revenue recognition standard.

The following table presents the lease income types relating to lease payments for residential and non-residential leases along with the total other rental income for the quarters ended September 30, 2020 and 2019 (amounts in thousands):

	Quarter Ended September 30, 2020						Quarter Ended September 30, 2019
Income Type	Residential Leases		Non-Residential Leases		Total		Residential Leases		Non-Residential Leases		Total
Residential and non-residential rent	$	576,192	$	6,042	$	582,234	$	611,020	$	18,453	$	629,473
Utility recoveries (RUBS income) (1)		17,306		134		17,440		16,987		238		17,225
Parking rent		9,592		101		9,693		9,405		100		9,505
Storage rent		901		20		921		940		19		959
Pet rent		2,843		—		2,843		2,916		—		2,916
Total lease revenue	$	606,834	$	6,297		613,131	$	641,268	$	18,810		660,078
Total other rental income (2)						9,302						25,042
Rental income					$	622,433					$	685,120

(1)	RUBS income primarily consists of variable payments representing the recovery of utility costs from residents.

(2)	Other rental income is accounted for under the revenue recognition standard.

The following table presents residential and non-residential accounts receivable and straight-line receivable balances for the Company’s properties as of September 30, 2020 and December 31, 2019 (amounts in thousands):

	Residential							Non-Residential
Balance Sheet (Other assets):	September 30, 2020				December 31, 2019			September 30, 2020			December 31, 2019
Resident/tenant accounts receivable balances	$	24,298			$	4,040		$	7,839		$	1,766
Allowance for doubtful accounts		(16,286	)			(1,190	)		(6,595	)		(1,412	)
Net receivable balances	$	8,012		(1)	$	2,850		$	1,244		$	354

Straight-line receivable balances	$	11,618			$	1,841		$	13,816		$	26,450

(1)	The Company held residential security deposits approximating 31.3% of the net receivable balance at September 30, 2020.

Table of Contents

The following table presents residential bad debt for the Company’s properties for the nine months ended September 30, 2020 and 2019 (amounts in thousands):

	Nine Months Ended September 30,
Income Statement (Rental income):		2020			2019
Bad debt, net	$	29,419		$	9,021
% of rental income		1.5	%		0.5	%

Due to the impact of COVID-19 and the resulting economic impact on our non-residential tenants, we recognized a non-cash write-off of non-residential straight-line lease receivables of $12.9 million during the nine months ended September 30, 2020. In addition, we also reduced rental revenues by $5.6 million during the nine months ended September 30, 2020 as a result of rent payment deferrals/abatements granted to our non-residential tenants.

Debt

EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. Weighted average interest rates noted below for the nine months ended September 30, 2020 include the effect of any derivative instruments and amortization of premiums/discounts/OCI (other comprehensive income) on debt and derivatives.

Mortgage Notes Payable

The following table summarizes the Company’s mortgage notes payable activity for the nine months ended September 30, 2020 (amounts in thousands):

	Mortgage notes payable, net as of December 31, 2019		Proceeds			Lump sum payoffs			Scheduled principal repayments			Amortization of premiums/ discounts		Amortization of deferred financing costs, net (1)			Mortgage notes payable, net as of September 30, 2020
Fixed Rate Debt:
Secured – Conventional	$	1,574,699	$	495,000	(2)	$	(127,767	)	$	(5,821	)	$	858	$	(1,683	)	$	1,935,286
Floating Rate Debt:
Secured – Conventional		7,050		10,375			—			—			—		180			17,605
Secured – Tax Exempt		359,861		—			—			—			933		148			360,942
Floating Rate Debt		366,911		10,375			—			—			933		328			378,547
Total	$	1,941,610	$	505,375		$	(127,767	)	$	(5,821	)	$	1,791	$	(1,355	)	$	2,313,833

(1)	Represents amortization of deferred financing costs, net of debt financing costs.

(2)	Obtained a 2.60% fixed rate mortgage loan pool maturing on May 1, 2030.

The following table summarizes the Company’s debt extinguishment costs on mortgages recorded as additional interest expense during the nine months ended September 30, 2020 (amounts in thousands):

Description		Amount
Write-offs of unamortized deferred financing costs		$	37

The following table summarizes certain interest rate and maturity date information as of and for the nine months ended September 30, 2020:

		September 30, 2020
Interest Rate Ranges		0.10% - 4.88%
Weighted Average Interest Rate		3.39%
Maturity Date Ranges		2021-2061

As of September 30, 2020, the Company had $281.7 million of secured debt (primarily tax-exempt bonds) subject to third party credit enhancement.

Table of Contents

Notes

The following table summarizes the Company’s notes activity for the nine months ended September 30, 2020 (amounts in thousands):

Notes, net as of

December 31, 2019

Proceeds

Lump sum

payoffs

Amortization

of premiums/

discounts

Amortization

of deferred

financing

costs, net (1)

Notes, net as of

September 30, 2020

Fixed Rate Debt:

Unsecured – Public

6,077,513

—

2,043

3,341

6,082,897

(1)	Represents amortization of deferred financing costs, net of debt financing costs.

The following table summarizes certain interest rate and maturity date information as of and for the nine months ended September 30, 2020:

		September 30, 2020
Interest Rate Ranges		2.50% - 7.57%
Weighted Average Interest Rate		4.04%
Maturity Date Ranges		2021-2047

The Company’s unsecured public notes contain 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 nine months ended September 30, 2020.

Line of Credit and Commercial Paper

On November 1, 2019, the Company replaced its existing $2.0 billion facility with a $2.5 billion unsecured revolving credit facility maturing November 1, 2024. The Company has the ability to increase available borrowings by an additional $750.0 million by adding lenders to the facility, obtaining the agreement of existing lenders to increase their commitments or incurring one or more term loans. The interest rate on advances under the facility will generally be LIBOR plus a spread (currently 0.775%), or based on bids received from the lending group, and the Company pays an annual facility fee (currently 0.125%). Both the spread and the facility fee are dependent on the Company’s senior unsecured credit rating. The weighted average interest rate on the revolving credit facility was 1.47% for the nine months ended September 30, 2020.

The Company has an unsecured commercial paper note program in the United States. On November 4, 2019, the Company increased the maximum aggregate amount outstanding for the commercial paper program from $500.0 million to $1.0 billion. The notes will be sold under customary terms in the United States commercial paper note market subject to market conditions and will rank pari passu with all of the Company’s other unsecured senior indebtedness. The notes bear interest at various floating rates with a weighted average interest rate of 1.81% for the nine months ended September 30, 2020. The weighted average amount outstanding for the nine months ended September 30, 2020 was approximately $347.2 million.

The Company limits its utilization of the revolving credit facility in order to maintain liquidity to support its $1.0 billion commercial paper program along with certain other obligations. The following table presents the availability on the Company’s unsecured revolving credit facility as of September 30, 2020 (amounts in thousands):

	September 30, 2020
Unsecured revolving credit facility commitment	$	2,500,000
Commercial paper balance outstanding		—
Unsecured revolving credit facility balance outstanding		—
Other restricted amounts		(100,949	)
Unsecured revolving credit facility availability	$	2,399,051

Table of Contents

10.	Derivative and Other Fair Value Instruments

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 may seek 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.

A three-level valuation hierarchy exists for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization 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 as follows:

•

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 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company’s derivative positions are valued using models developed by the respective counterparty as well as models applied internally by the Company that use as their inputs 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.

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. The following table provides a summary of the carrying and fair values for the Company’s mortgage notes payable and unsecured debt (including its commercial paper and line of credit, if applicable) at September 30, 2020 and December 31, 2019, respectively (amounts in thousands):

	September 30, 2020				December 31, 2019
	Carrying Value		Estimated Fair Value (Level 2)		Carrying Value		Estimated Fair Value (Level 2)
Mortgage notes payable, net	$	2,313,833	$	2,346,248	$	1,941,610	$	1,930,710
Unsecured debt, net		6,082,897		6,990,690		7,095,346		7,677,289
Total debt, net	$	8,396,730	$	9,336,938	$	9,036,956	$	9,607,999

Table of Contents

The following tables provide a summary of the fair value measurements for each major category of assets and liabilities measured at fair value on a recurring basis and the location within the accompanying consolidated balance sheets at September 30, 2020 and December 31, 2019, respectively (amounts in thousands):

				Fair Value Measurements at Reporting Date Using
Description	Balance Sheet Location	9/30/2020		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Supplemental Executive Retirement Plan	Other Assets	$	146,679	$	146,679	$	—	$	—

Liabilities
Supplemental Executive Retirement Plan	Other Liabilities	$	146,679	$	146,679	$	—	$	—

Redeemable Noncontrolling Interests –
Operating Partnership/Redeemable
Limited Partners	Mezzanine	$	293,706	$	—	$	293,706	$	—

				Fair Value Measurements at Reporting Date Using
Description	Balance Sheet Location	12/31/2019		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Supplemental Executive Retirement Plan	Other Assets	$	151,889	$	151,889	$	—	$	—

Liabilities
Supplemental Executive Retirement Plan	Other Liabilities	$	151,889	$	151,889	$	—	$	—

Redeemable Noncontrolling Interests –
Operating Partnership/Redeemable
Limited Partners	Mezzanine	$	463,400	$	—	$	463,400	$	—

The following tables provide a summary of the effect of fair value hedges on the Company’s accompanying consolidated statements of operations and comprehensive income for the nine months ended September 30, 2020 and 2019, respectively (amounts in thousands):

September 30, 2020

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

N/A

—

N/A

—

Total

—

September 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	$	2,277	Fixed rate debt	Interest expense	$	(2,277	)
Total		$	2,277			$	(2,277	)

Table of Contents

The following tables provide a summary of the effect of cash flow hedges on the Company’s accompanying consolidated statements of operations and comprehensive income for the nine months ended September 30, 2020 and 2019, respectively (amounts in thousands):

	Effective Portion
September 30, 2020 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	$	(1,190	)	Interest expense	$	(17,275	)
Total	$	(1,190	)		$	(17,275	)

	Effective Portion
September 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	$	(33,765	)	Interest expense	$	(14,659	)
Total	$	(33,765	)		$	(14,659	)

As of September 30, 2020 and December 31, 2019, there were approximately $61.5 million and $77.6 million in deferred losses, net, included in accumulated other comprehensive income (loss), respectively, related to derivative instruments, of which an estimated $24.3 million may be recognized as additional interest expense during the twelve months ending September 30, 2021.

In April 2020, the Company paid approximately $1.2 million to settle two forward starting swaps in conjunction with the issuance of $495.0 million of ten-year secured conventional mortgage notes. The entire $1.2 million was initially deferred as a component of accumulated other comprehensive income (loss) and will be recognized as an increase to interest expense over the first five years of the mortgage notes.

Table of Contents

11.	Earnings Per Share and Earnings Per Unit

Equity Residential

The following tables set forth the computation of net income per share – basic and net income per share – diluted for the Company (amounts in thousands except per share amounts):

	Nine Months Ended September 30,						Quarter Ended September 30,
	2020			2019			2020			2019
Numerator for net income per share – basic:
Net income	$	699,517		$	708,402		$	95,365		$	277,846
Allocation to Noncontrolling Interests – Operating Partnership		(24,624	)		(25,339	)		(3,376	)		(9,910	)
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties		(14,113	)		(2,450	)		(703	)		(830	)
Preferred distributions		(2,318	)		(2,318	)		(773	)		(773	)
Numerator for net income per share – basic	$	658,462		$	678,295		$	90,513		$	266,333
Numerator for net income per share – diluted:
Net income	$	699,517		$	708,402		$	95,365		$	277,846
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties		(14,113	)		(2,450	)		(703	)		(830	)
Preferred distributions		(2,318	)		(2,318	)		(773	)		(773	)
Numerator for net income per share – diluted	$	683,086		$	703,634		$	93,889		$	276,243
Denominator for net income per share – basic and diluted:
Denominator for net income per share – basic		371,749			370,227			371,869			370,768
Effect of dilutive securities:
OP Units		13,010			12,915			13,002			12,941
Long-term compensation shares/units		1,214			3,035			781			3,187
Denominator for net income per share – diluted		385,973			386,177			385,652			386,896
Net income per share – basic	$	1.77		$	1.83		$	0.24		$	0.72
Net income per share – diluted	$	1.77		$	1.82		$	0.24		$	0.71

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,
	2020			2019			2020			2019
Numerator for net income per Unit – basic and diluted:
Net income	$	699,517		$	708,402		$	95,365		$	277,846
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties		(14,113	)		(2,450	)		(703	)		(830	)
Allocation to Preference Units		(2,318	)		(2,318	)		(773	)		(773	)
Numerator for net income per Unit – basic and diluted	$	683,086		$	703,634		$	93,889		$	276,243
Denominator for net income per Unit – basic and diluted:
Denominator for net income per Unit – basic		384,759			383,142			384,871			383,709
Effect of dilutive securities:
Dilution for Units issuable upon assumed exercise/vesting of the Company’s long-term compensation shares/units		1,214			3,035			781			3,187
Denominator for net income per Unit – diluted		385,973			386,177			385,652			386,896
Net income per Unit – basic	$	1.77		$	1.83		$	0.24		$	0.72
Net income per Unit – diluted	$	1.77		$	1.82		$	0.24		$	0.71

Table of Contents

12.	Commitments and Contingencies

The Company, as an owner of real estate, is subject to various Federal, state and local laws, including, but not limited to, rent regulations and 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, whether related to COVID-19 or otherwise, on its current properties or on properties that it may acquire in the future.

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 September 30, 2020, the Company has two wholly owned projects and one partially owned project totaling 824 apartment units in various stages of development with remaining commitments to fund of approximately $265.1 million (inclusive of applicable construction mortgage and joint venture partner obligations) and estimated completion dates ranging through September 30, 2021. The Company completed and stabilized two projects during the nine months ended September 30, 2020.

As of September 30, 2020, the Company has two joint venture agreements with third party partners for the consolidated development of multifamily rental properties, one of which is currently under construction as noted above. The development commitment to fund the project under construction is included in the development funding totals above for the one joint venture project where construction has started. The joint venture agreements with each partner include a buy-sell provision that provides the right, but not the obligation, for the Company to acquire each respective partner’s interests or sell its interests at any time following the occurrence of certain pre-defined events described in the joint venture agreements. See Note 6 for additional discussion.

13.	Reportable Segments

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 chief operating decision maker. The chief operating decision maker decides how resources are allocated and assesses performance on a recurring basis at least quarterly.

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. While the Company does maintain a non-residential presence, it accounts for approximately 2% of total revenues and is designed as an amenity for our residential residents. The chief operating decision maker evaluates the performance of each property on a consolidated residential and non-residential basis. The Company’s geographic same store operating segments represent its reportable segments.

The Company’s 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.

All revenues are from external customers and there is no customer who contributed 10% or more of the Company’s total revenues during the nine months and quarters ended September 30, 2020 and 2019, respectively.

The primary financial measure for the Company’s rental real estate segment is net operating income (“NOI”), which represents rental income less: 1) property and maintenance expense and 2) real estate taxes and insurance expense (all as reflected in the accompanying consolidated statements of operations and comprehensive income). 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. Revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.

Table of Contents

The following table presents a reconciliation of NOI from our rental real estate for the nine months and quarters ended September 30, 2020 and 2019, respectively (amounts in thousands):

	Nine Months Ended September 30,						Quarter Ended September 30,
	2020			2019			2020			2019
Rental income	$	1,958,270		$	2,016,796		$	622,433		$	685,120
Property and maintenance expense		(333,333	)		(338,497	)		(113,065	)		(114,966	)
Real estate taxes and insurance expense		(288,043	)		(270,434	)		(95,273	)		(87,546	)
Total operating expenses		(621,376	)		(608,931	)		(208,338	)		(202,512	)
Net operating income	$	1,336,894		$	1,407,865		$	414,095		$	482,608

The following tables present NOI for each segment from our rental real estate for the nine months and quarters ended September 30, 2020 and 2019, respectively, as well as total assets and capital expenditures at September 30, 2020 (amounts in thousands):

	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Rental Income		Operating Expenses		NOI		Rental Income		Operating Expenses		NOI
Same store (1)
Los Angeles	$	355,122	$	108,953	$	246,169	$	363,258	$	108,606	$	254,652
Orange County		79,241		18,702		60,539		78,522		18,493		60,029
San Diego		71,430		18,776		52,654		71,088		18,595		52,493
Subtotal - Southern California		505,793		146,431		359,362		512,868		145,694		367,174

San Francisco		346,766		89,557		257,209		354,142		87,117		267,025
Washington D.C.		294,029		90,974		203,055		295,107		90,124		204,983
New York		325,920		148,306		177,614		348,190		144,197		203,993
Seattle		186,030		54,125		131,905		188,093		51,884		136,209
Boston		182,502		53,603		128,899		188,710		53,478		135,232
Denver		13,343		3,711		9,632		13,710		3,576		10,134
Total same store		1,854,383		586,707		1,267,676		1,900,820		576,070		1,324,750

Non-same store/other (2) (3)
Non-same store		87,404		27,122		60,282		33,683		10,351		23,332
Other (3)		16,483		7,547		8,936		82,293		22,510		59,783
Total non-same store/other		103,887		34,669		69,218		115,976		32,861		83,115

Totals	$	1,958,270	$	621,376	$	1,336,894	$	2,016,796	$	608,931	$	1,407,865

(1)	For the nine months ended September 30, 2020 and 2019, same store primarily includes all properties acquired or completed that were stabilized prior to January 1, 2019, less properties subsequently sold, which represented 74,264 apartment units.

(2)	For the nine months ended September 30, 2020 and 2019, non-same store primarily includes properties acquired after January 1, 2019, plus any properties in lease-up and not stabilized as of January 1, 2019.

(3)	Other includes development, other corporate operations and operations prior to disposition for properties sold.

Table of Contents

	Quarter Ended September 30, 2020							Quarter Ended September 30, 2019
	Rental Income		Operating Expenses			NOI		Rental Income		Operating Expenses		NOI
Same store (1)
Los Angeles	$	115,208	$	37,023		$	78,185	$	122,506	$	36,461	$	86,045
Orange County		26,229		6,535			19,694		26,635		6,351		20,284
San Diego		23,581		6,358			17,223		24,064		6,468		17,596
Subtotal - Southern California		165,018		49,916			115,102		173,205		49,280		123,925

San Francisco		113,246		31,349			81,897		122,706		30,453		92,253
Washington D.C.		99,569		32,253			67,316		101,771		31,347		70,424
New York		100,076		50,179			49,897		118,803		48,614		70,189
Seattle		60,216		19,073			41,143		65,370		17,569		47,801
Boston		58,830		18,461			40,369		64,039		17,840		46,199
Denver		6,142		1,927			4,215		6,436		1,760		4,676
Total same store		603,097		203,158			399,939		652,330		196,863		455,467

Non-same store/other (2) (3)
Non-same store		19,236		6,136			13,100		9,538		2,856		6,682
Other (3)		100		(956	)		1,056		23,252		2,793		20,459
Total non-same store/other		19,336		5,180			14,156		32,790		5,649		27,141

Totals	$	622,433	$	208,338		$	414,095	$	685,120	$	202,512	$	482,608

(1)	For the quarters ended September 30, 2020 and 2019, same store primarily includes all properties acquired or completed that were stabilized prior to July 1, 2019, less properties subsequently sold, which represented 75,596 apartment units.

(2)	For the quarters ended September 30, 2020 and 2019, non-same store primarily includes properties acquired after July 1, 2019, plus any properties in lease-up and not stabilized as of July 1, 2019.

(3)	Other includes development, other corporate operations and operations prior to disposition for properties sold.

	Nine Months Ended September 30, 2020
	Total Assets		Capital Expenditures
Same store (1)
Los Angeles	$	3,034,765	$	17,008
Orange County		392,632		5,056
San Diego		377,663		2,834
Subtotal - Southern California		3,805,060		24,898

San Francisco		3,259,452		11,789
Washington D.C.		3,092,477		15,890
New York		3,948,417		16,571
Seattle		1,818,213		7,010
Boston		1,774,255		13,137
Denver		249,306		512
Total same store		17,947,180		89,807

Non-same store/other (2) (3)
Non-same store		1,679,594		1,811
Other (3)		997,204		505
Total non-same store/other		2,676,798		2,316

Totals	$	20,623,978	$	92,123

(1)	Same store primarily includes all properties acquired or completed that were stabilized prior to January 1, 2019, less properties subsequently sold, which represented 74,264 apartment units.

Table of Contents

(2)	Non-same store primarily includes properties acquired after January 1, 2019, plus any properties in lease-up and not stabilized as of January 1, 2019.

(3)	Other includes development, other corporate operations and capital expenditures for properties sold.

14.	Subsequent Events

There have been no material subsequent events occurring since September 30, 2020.

Table of Contents

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, 2019. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Forward-looking statements are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, projections and assumptions made by management. While the Company’s management believes the assumptions underlying its forward-looking statements are reasonable, such information is inherently subject to uncertainties and may involve certain risks, which could cause actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Many of these uncertainties and risks are difficult to predict and beyond management’s control, such as the current novel coronavirus (“COVID-19”) pandemic (see below for further discussion). Forward-looking statements are not guarantees of future performance, results or events. The forward-looking statements contained herein are made as of the date hereof and the Company undertakes no obligation to update or supplement these forward-looking statements.

In addition, these forward-looking statements are subject to risks related to the COVID-19 pandemic, many of which are unknown, including the duration and severity of the pandemic, the extent of the adverse health impact on the general population and on our residents, customers and employees in particular, its impact on the employment rate and the economy and the corresponding impact on our residents’ and tenants’ ability to pay their rent on time or at all, the impact on resident housing preferences especially for urban apartment living, the extent and impact of governmental responses and the impact of operational changes we have implemented and may implement in response to the pandemic.

Factors that might cause such differences are discussed in Part I of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019, particularly those under Item 1A, Risk Factors. Additional factors are also included in Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q.

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

Due to the inherent uncertainty surrounding the social and economic disruption resulting from the COVID-19 pandemic, the Company withdrew its full-year 2020 guidance earlier this year. The Company is also suspending issuing guidance in future periods until there is greater certainty surrounding the impact of the ongoing pandemic.

Overview

Equity Residential (“EQR”) is committed to creating communities where people thrive. The Company, a member of the S&P 500, is focused on the acquisition, development and management of residential properties located in and around dynamic cities that attract high quality long-term renters. ERP Operating Limited Partnership (“ERPOP”) is focused on conducting the multifamily property business of EQR. EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 and ERPOP is an Illinois limited partnership formed in May 1993. References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP. References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP.

Table of Contents

The Company’s corporate headquarters is located in Chicago, Illinois and the Company also operates regional property management offices in each of its markets. As of September 30, 2020, the Company had approximately 2,600 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 Securities and Exchange Commission (“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 overall business objectives and operating and investing strategies have not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019, though the Company and the Operating Partnership will continue to be focused on its response to the COVID-19 pandemic in the near-term. As more fully discussed in the Company’s and the Operating Partnership’s Annual Report on Form 10-K, it continues to be the Company’s intention over time to diversify its portfolio into new markets that have characteristics similar to its current markets and to optimize the mix of the Company’s properties located in urban vs. dense suburban submarkets.

COVID-19 Impact

General Impact

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The continued rapid development and fast-changing nature of the COVID-19 pandemic creates many unknowns that have had and could continue to have a future significant impact on the Company. Its duration, severity and the extent of the adverse health impact on the general population, our residents and employees, and the potential changes in customer preferences for living in our communities, are among the many unknowns. These, among other items, have impacted the economy, the unemployment rate and our operations and could materially affect our future consolidated results of operations, financial condition, liquidity, investments and overall performance. For additional details, see Item 1A, Risk Factors.

We have been supporting our residents and employees during the COVID-19 pandemic by:

•

Utilizing technology to allow our property teams to interact remotely with current and prospective residents, including a touchless new leasing process and a service process designed to limit contact;

•

Successfully implementing changes to the physical layout of our properties and remaining focused on further enhancing our existing commitment to health and safety during the pandemic;

•

Continuing to provide additional paid leave for employees impacted by the pandemic and paid special bonuses to certain on-site employees during the second quarter of 2020 in recognition of their significant efforts;

•

Continuing to support our corporate and regional employees by allowing them to work remotely during the pandemic; and

•

Offering an extensive outreach process for residents financially impacted by the pandemic and creating payment plans to assist them, among other resident support efforts.

Table of Contents

Operational Impact

Operating results in the third quarter were challenging and widely varied. Our suburban portfolio continues to fare relatively well with occupancy similar to last year, rates down more modestly and recovery under way in some markets. Our portfolio located in the urban cores of New York, San Francisco and Boston, however, continue to struggle with pandemic-related reductions in economic activity, which have led to declines in occupancy, lower resident renewal levels and a related drop in rental rates. While we have seen recent improvements in renewals and application volume, pricing pressures continue and headwinds remain. We anticipate that our financial results will weaken over subsequent quarters as the full effect of the pandemic is felt on our business. Looking longer term, we expect that positive developments relating to the pandemic will eventually re-energize the urban centers which have persevered and thrived through many decades and in similarly challenging circumstances. We continue to see the urban locations in our markets as centers of our country’s knowledge industries and expect them to again attract disproportionate numbers of affluent renters once the pandemic ends.

During the nine months ended September 30, 2020, the Company also:

•

Collected approximately 97% of its expected Residential revenues in both the second and third quarters of 2020; and

•

Reduced its total debt by over $600.0 million during 2020 using proceeds from property dispositions.

Results of Operations

2020 Transactions

In conjunction with our business objectives and operating and investing strategies, the following table provides a rollforward of the transactions that occurred during the nine months ended September 30, 2020:

Portfolio Rollforward

($ in thousands)

	Properties			Apartment Units			Purchase Price			Acquisition Cap Rate
12/31/2019		309			79,962
Acquisitions:
Consolidated Rental Properties – Not Stabilized (1)		1			158		$	48,860			4.7	%
							Sales Price			Disposition Yield
Dispositions:
Consolidated Rental Properties		(5	)		(1,552	)	$	(754,361	)		(4.7	)%
9/30/2020		305			78,568

(1)	The Company acquired one property in the third quarter of 2020 that is in lease-up and is expected to stabilize in its second year of ownership.

The consolidated property acquired was located in the Seattle market. The consolidated properties disposed of were located in the Phoenix, San Francisco and Washington D.C. markets and the sales generated an Unlevered IRR of 10.8%. See Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.

We currently budget spending approximately $220.0 million on development costs during the year ending December 31, 2020, of which approximately $157.8 million was spent during the nine months ended September 30, 2020, primarily for properties currently under construction. Certain of these costs will be funded by third party construction mortgages and joint venture partner obligations. Work at all of our development projects continues with no material delays after some construction disruptions due to COVID-19.

Same Store Results

Properties that the Company owned and were stabilized (see definition below) for all of both of the nine months ended September 30, 2020 and 2019 (the “Nine-Month 2020 Same Store Properties”), which represented 74,264 apartment units, impacted the Company’s results of operations. The Nine-Month 2020 Same Store Properties are discussed in the following paragraphs.

Table of Contents

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

The following tables provide a rollforward of the apartment units included in Same Store Properties and a reconciliation of apartment units included in Same Store Properties to those included in Total Properties for the nine months ended September 30, 2020:

	Nine Months Ended September 30, 2020
	Properties			Apartment Units
Same Store Properties at December 31, 2019		279			71,830
2017 acquisitions		2			510
2018 acquisitions		5			1,461
2020 dispositions		(5	)		(1,552	)
Lease-up properties stabilized		5			2,015
Same Store Properties at September 30, 2020		286			74,264

	Nine Months Ended September 30, 2020
	Properties		Apartment Units
Same Store		286		74,264
Non-Same Store:
2020 acquisitions		1		158
2019 acquisitions		13		3,540
Master-Leased properties (1)		1		162
Lease-up properties not yet stabilized (2)		3		443
Other		1		1
Total Non-Same Store		19		4,304
Total Properties and Apartment Units		305		78,568

Note: Properties are considered “stabilized” when they have achieved 90% occupancy for three consecutive months. Properties are included in same store when they are stabilized for all of the current and comparable periods presented.

(1)	Consists of one property containing 162 apartment units that is wholly owned by the Company where the entire project is master-leased to a third party corporate housing provider.

(2)	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.

Table of Contents

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,
	2020			2019
Operating income	$	961,384		$	947,232
Adjustments:
Property management		71,513			72,705
General and administrative		37,212			41,127
Depreciation		619,003			616,201
Net (gain) loss on sales of real estate properties		(352,218	)		(269,400	)
Total NOI	$	1,336,894		$	1,407,865
Rental income:
Same store	$	1,854,383		$	1,900,820
Non-same store/other		103,887			115,976
Total rental income		1,958,270			2,016,796
Operating expenses:
Same store		586,707			576,070
Non-same store/other		34,669			32,861
Total operating expenses		621,376			608,931
NOI:
Same store		1,267,676			1,324,750
Non-same store/other		69,218			83,115
Total NOI	$	1,336,894		$	1,407,865

The following table provides comparative total same store results and statistics for the Nine-Month 2020 Same Store Properties:

September YTD 2020 vs. September YTD 2019

Same Store Results/Statistics Including 74,264 Same Store Apartment Units

$ in thousands (except for Average Rental Rate)

September YTD 2020																		September YTD 2019
	Residential			% Change			Non- Residential			% Change			Total		% Change				Residential			Non- Residential		Total
Revenues	$	1,811,101			(1.0	%)	$	43,282	(1)		(39.0	%)	$	1,854,383		(2.4	%)	Revenues	$	1,829,896		$	70,924	$	1,900,820
Expenses	$	569,970			1.7	%	$	16,737			5.6	%	$	586,707		1.8	%	Expenses	$	560,225		$	15,845	$	576,070
NOI	$	1,241,131			(2.2	%)	$	26,545			(51.8	%)	$	1,267,676		(4.3	%)	NOI	$	1,269,671		$	55,079	$	1,324,750

Average Rental Rate	$	2,843			0.1	%												Average Rental Rate	$	2,841
Physical Occupancy		95.4	%		(1.0	%)												Physical Occupancy		96.4	%
Turnover		39.1	%		(0.3	%)												Turnover		39.4	%

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

(1)

Non-Residential operations for the nine months ended September 30, 2020 include a $12.9 million non-cash write-off of Non-Residential straight-line lease receivables. The decline in Non-Residential revenues is primarily driven by the deferral/abatement of rent, higher bad debt (inclusive of the Non-Residential straight-line write-off), and to a lesser extent, lower public parking income.

Table of Contents

The following table provides results and statistics related to our Residential same store operations for the nine months ended September 30, 2020 and 2019:

September YTD 2020 vs. September YTD 2019

Same Store Residential Results/Statistics by Market

														Increase (Decrease) from Prior Year
Markets/Metro Areas	Apartment Units		September YTD 2020 % of Actual NOI			September YTD 2020 Average Rental Rate		September YTD 2020 Weighted Average Physical Occupancy %			September YTD 2020 Turnover			Revenues			Expenses			NOI			Average Rental Rate			Physical Occupancy			Turnover
Los Angeles		15,968		19.8	%	$	2,575		95.5	%		38.2	%		(1.8	%)		0.3	%		(2.8	%)		(1.0	%)		(0.8	%)		(4.3	%)
Orange County		4,028		4.9	%		2,262		96.6	%		34.7	%		1.0	%		1.1	%		0.9	%		0.7	%		0.2	%		(6.7	%)
San Diego		3,385		4.2	%		2,425		96.5	%		41.2	%		0.8	%		0.7	%		0.9	%		0.8	%		0.0	%		(3.6	%)
Subtotal – Southern California		23,381		28.9	%		2,499		95.9	%		38.0	%		(1.0	%)		0.5	%		(1.6	%)		(0.5	%)		(0.5	%)		(4.6	%)

San Francisco		12,183		20.6	%		3,292		95.4	%		39.7	%		(1.3	%)		2.8	%		(2.6	%)		(0.3	%)		(0.9	%)		0.7	%
Washington DC		13,711		16.2	%		2,461		95.8	%		37.4	%		0.4	%		0.9	%		0.2	%		1.4	%		(0.8	%)		0.1	%
New York		9,475		13.6	%		3,891		94.0	%		39.1	%		(3.3	%)		2.5	%		(7.7	%)		(0.5	%)		(2.8	%)		7.6	%
Seattle		8,442		10.2	%		2,456		95.8	%		40.0	%		1.6	%		4.7	%		0.3	%		2.3	%		(0.7	%)		(3.2	%)
Boston		6,346		9.7	%		3,145		94.3	%		43.3	%		(1.3	%)		(0.2	%)		(1.7	%)		0.7	%		(1.9	%)		5.3	%
Denver		726		0.8	%		2,123		94.5	%		54.5	%		(1.8	%)		3.7	%		(3.7	%)		(0.1	%)		(1.8	%)		3.3	%

Total		74,264		100.0	%	$	2,843		95.4	%		39.1	%		(1.0	%)		1.7	%		(2.2	%)		0.1	%		(1.0	%)		(0.3	%)

Note: The above table reflects Residential same store results only, which account for approximately 97.6% of total revenues.

The following table includes select statistics for Residential same store properties presented on a suburban and urban basis. Statistics for October 2020 are preliminary and Blended Rate is inclusive of Leasing Concessions. The impact the COVID-19 pandemic is having on the operating performance in our markets and submarkets varies with urban markets more challenged than suburban markets as presented below.

	% of Same Store Residential Revenues			Physical Occupancy on:									Renewal %									Blended Rate									Change in Applications
	Sep YTD 2020			Jun 30, 2020			Sep 30, 2020			Oct 22, 2020			Oct 2019			Sep 2020			Oct 2020 (4)			Q3 2020			Sep 2020			Oct 2020 (4)			Q3 2020 vs. Q3 2019			Oct 2020 (4) vs. Oct 2019
Suburban (1)		44	%		96.4	%		95.9	%		95.8	%		59	%		54	%		57	%		(4.8	%)		(5.8	%)		(6.0	%)		10	%		32	%
Urban (1)(2)		33	%		94.7	%		94.4	%		94.4	%		50	%		46	%		50	%		(6.5	%)		(8.4	%)		(10.7	%)		21	%		47	%
Urban Core (1)(3)		23	%		92.5	%		89.2	%		88.9	%		58	%		43	%		46	%		(14.7	%)		(17.9	%)		(21.4	%)		48	%		108	%
Total		100	%		95.1	%		94.2	%		94.1	%		56	%		50	%		53	%		(7.9	%)		(9.5	%)		(10.6	%)		20	%		46	%

(1)	The Company defines Urban submarkets as those with 3,500 or more households per square mile with the remainder defined as Suburban.

(2)	Includes all other Urban properties excluding Urban Core.

(3)	Includes Urban properties in Manhattan/Brooklyn, Downtown Boston/Cambridge and Downtown San Francisco.

(4)	October 2020 results are preliminary.

•

Suburban – Our suburban properties have been more resilient during the pandemic. Concession use is more limited and Average Rental Rates have been fairly stable during the quarter ended September 30, 2020 with a few Southern California submarkets beginning to show year-over-year growth. The suburban portfolio is expected to continue to perform better than the rest of the portfolio, with some potential improvement in pricing and relatively stable Physical Occupancy.

•

Urban – Urban properties in markets (excluding the urban core properties discussed below) such as Washington D.C., Seattle and Southern California, have not performed as well as suburban markets but have shown some signs of resiliency. Average Rental Rates have been stable since the middle of May 2020 through late July 2020 and concession use was moderate. Extended work from home announcements in late July and August, however, began impacting our performance in these markets. We believe this group of properties will likely continue to see slight moderation in both Average Rental Rates and Physical Occupancy, with potentially more pressure in Seattle where some signs of weakness have appeared lately.

Table of Contents

•

Urban Core – Our urban core properties located in New York City, downtown San Francisco and downtown Boston/Cambridge, MA are the most challenged. This group of properties has the highest use of concessions (approximately 70% of portfolio wide concessions) and the most pressure on Average Rental Rates. These urban core properties are producing lower retention, leading to decreased Average Rental Rates, increased use of concessions and lower Physical Occupancy. We believe these properties have the highest risk of volatility in operations for the balance of the year as they will likely continue to be challenged by increased turnover and a highly concessionary operating environment.

In addition to the discussion above, operating performance by geographic market is discussed below.

In Boston, delivery of new supply and elevated vacancy levels due to lack of international students and workers is expected to continue to challenge the near-term performance. Concessions remain elevated, especially in downtown Boston and Cambridge, but consistent since July 2020. Currently, we have seen some very early signs of stability with no incremental declines in Average Rental Rates for the last several weeks and marginal improvement in Physical Occupancy. For the market to fully stabilize, we believe it will require continued improvement in demand drivers to aid in the absorption of the new supply that is being delivered currently and anticipated in early 2021.

In New York, pandemic-related reductions in economic activity and residents continuing to leave the city makes this one of our most challenged markets. The elevated move-outs continued with most of our residents moving to surrounding states with suburban New Jersey capturing the largest share. Although overall economic activity in the city remains meaningfully suppressed, there are early signs of the city trying to re-energize, bringing some brief periods of stability in late September and through October. The broader recovery in this market is expected to be fueled by a lack of competitive new supply and the continued growth of technology employers in the market. Many of these technology firms continue to expand their investments in this market, even during the pandemic, supporting the view that the city will continue to thrive, as it has in the past, post-pandemic. Currently, we are defying the usual seasonal drop-off in applications and are achieving outsized growth in the weekly application counts. We have also recently seen a slowing in the pace of move-outs. However, we will continue to feel pressure on Physical Occupancy until move-outs fully normalize.

Washington, D.C. is holding up better than our other East Coast markets but performance did moderate during the quarter due to slowing Class A multifamily absorption. The market continues to benefit from federal government employment, which has actually seen a net increase over the last twelve months, but overall job growth has declined. Concession use was relatively low in the third quarter but we are starting to see some pricing pressure in this market and expect performance to moderate through the remainder of 2020, partly due to normal seasonality, but also due to continued competitive pressure from new supply.

Seattle began the year with strong expectations based on elevated job growth and a favorable competitive supply landscape in the downtown area for the second consecutive year. While Seattle was initially impacted in March 2020 by COVID-19, its performance through late July 2020 was very stable. Social unrest in the city and extended work from home announcements in late July and August, however, began impacting our performance. Concessions which were hardly used previously, are now starting to be seen in stabilized assets in some submarkets. Overall, we believe this market will quickly bounce back post-pandemic.

San Francisco is our most challenged market due to lower Physical Occupancy downtown, escalating concession use, pressure on Average Rental Rates and new supply. Supply in 2021 is expected to continue to be concentrated in Oakland and the South Bay, which may challenge operations even further unless the technology workers resume living in closer proximity to their offices. Suburban submarkets, such as the East Bay, are performing better than the urban core. We believe this market should recover when there is more clarity on technology companies’ long-term plans regarding office versus work from home policies and an improved quality of life in the downtown area.

In Los Angeles, overall pricing including the use of concessions has been stable since mid-September 2020 while application activity has continued to grow. The suburban submarkets are experiencing modest year-over-year revenue gains. We believe the overall portfolio will modestly improve through the remainder of 2020 primarily driven by continued Average Rental Rate improvement in the suburban submarkets.

Finally, Orange County and San Diego stand out for their resilience throughout the pandemic. Our portfolio in these markets consists primarily of suburban assets, which were certainly impacted by the pandemic, but they have consistently sustained Physical Occupancy above 96.5% collectively while also improving the percentage of residents renewing their leases. Both markets have experienced year-over-year revenue gains and are expected to sustain or strengthen their performance through the remainder of 2020.

Table of Contents

The economic impact of the pandemic on a subset of our residents and tenants has led to elevated levels of bad debt. We continue to work with our residents and tenants on payment plans and collections and our bad debt allowance policies remain consistent. We expect our reserves and bad debt charge-offs to remain elevated for the remainder of this year. See Note 8 in the Notes to Consolidated Financial Statements for additional discussion of leases at September 30, 2020.

While the economic uncertainty and extended impact of the pandemic have made it difficult to predict what a recovery will look like and when it may occur, we remain optimistic on a number of fronts including the ability to grow Average Rental Rates in our suburban portfolio, continued demand for our product regardless of location and solid collection performance. Our ongoing efforts will continue to focus on creating opportunities to improve performance while ensuring the wellbeing of our employees and residents.

The following table provides comparative total same store operating expenses for the Nine-Month 2020 Same Store Properties:

September YTD 2020 vs. September YTD 2019

Total Same Store Operating Expenses Including 74,264 Same Store Apartment Units

$ in thousands

	September YTD 2020		September YTD 2019		$ Change (5)			% Change			% of September YTD 2020 Operating Expenses
Real estate taxes	$	256,320	$	246,112	$	10,208			4.1	%		43.7	%
On-site payroll (1)		123,061		123,653		(592	)		(0.5	)%		21.0	%
Utilities (2)		77,545		76,183		1,362			1.8	%		13.2	%
Repairs and maintenance (3)		70,635		73,079		(2,444	)		(3.3	)%		12.0	%
Insurance		18,345		15,547		2,798			18.0	%		3.1	%
Leasing and advertising		7,366		7,649		(283	)		(3.7	)%		1.3	%
Other on-site operating expenses (4)		33,435		33,847		(412	)		(1.2	)%		5.7	%
Total Same Store Operating Expenses (includes Residential and Non-Residential)	$	586,707	$	576,070	$	10,637			1.8	%		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 year-to-date over year-to-date changes are due primarily to:

•

Real estate taxes – Higher rates and assessed values continue to drive real estate tax growth across most markets. Lower than anticipated appeals activity also impacted growth.

•

On-site payroll – Year over year decrease driven by the transition to an enhanced operating platform, lower employee benefit-related costs and less overtime, partially offset by one-time frontline worker bonuses.

•

Repairs and maintenance – Year over year decrease primarily driven by deferral and cancellation of some projects as a result of COVID-19-related delays.

•

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

•

Leasing and advertising – Year over year decrease primarily due to suspension of in-person resident social activities sponsored by the Company.

Table of Contents

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

Non-Same Store/Other Results

Non-same store/other NOI results for the nine months ended September 30, 2020 decreased approximately $13.9 million compared to the same period of 2019 and consist primarily of properties acquired in calendar years 2019 and 2020, operations from the Company’s development properties and operations prior to disposition from 2019 and 2020 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 $4.6 million;

•

A positive impact of higher NOI from properties acquired in 2019 and 2020 of $32.6 million; and

•

A negative impact of lost NOI from 2019 and 2020 dispositions of $45.2 million.

Comparison of the nine months and quarter ended September 30, 2020 to the nine months and quarter ended September 30, 2019

The following table presents a reconciliation of diluted earnings per share/unit for the nine months and quarter ended September 30, 2020 as compared to the same periods in 2019:

	Nine Months Ended September 30			Quarter Ended September 30
Diluted earnings per share/unit for period ended 2019	$	1.82		$	0.71
Property NOI		(0.16	)		(0.17	)
Interest expense		0.08			0.03
Debt extinguishment costs		0.03			(0.01	)
Net gain/loss on property sales		—			(0.33	)
Other		—			0.01
Diluted earnings per share/unit for period ended 2020	$	1.77		$	0.24

The decrease in consolidated NOI is primarily a result of the Company’s lower NOI from same store properties, largely due to the economic impact from the COVID-19 pandemic. The following table presents the changes in the components of consolidated NOI for the nine months and quarter ended September 30, 2020 as compared to the same periods in 2019:

	Nine Months Ended September 30, 2020			Quarter Ended September 30, 2020
Consolidated rental income		(2.9	%)		(9.1	%)
Consolidated operating expenses (1)		2.0	%		2.9	%
Consolidated NOI		(5.0	%)		(14.2	%)

(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 decreased approximately $1.2 million or 1.6% and approximately $1.7 million or 7.9% for the nine months and quarter ended September 30, 2020, respectively, as compared to the prior year periods. These decreases are primarily attributable to decreases in payroll-related costs, travel costs and training/conference costs, partially offset by increases in information technology related costs specifically for various operating initiatives such as sales-focused improvements and service enhancements. The Company suspended the majority of all travel and training/conference activities as a result of the COVID-19 pandemic.

General and administrative expenses, which include corporate operating expenses, decreased approximately $3.9 million or 9.5% and approximately $0.6 million or 4.9% for the nine months and quarter ended September 30, 2020, respectively, as compared to the prior year periods. These decreases are primarily due to decreases in payroll-related costs as a result of the Company’s executive succession program during the past two years, along with declines in travel costs and training/conference activities which were mostly suspended as a result of the COVID-19 pandemic.

Table of Contents

Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $2.8 million or 0.5% for the nine months ended September 30, 2020 as compared to the prior year period, primarily as a result of additional depreciation expense on properties acquired in 2019 and 2020 and development properties placed in service during 2019, offset by lower depreciation from properties sold in 2019 and 2020. Depreciation expense decreased approximately $10.9 million or 5.1% for the quarter ended September 30, 2020 as compared to the prior year period, primarily as a result of no property sales in the third quarter of 2020 as compared to the sale of seven consolidated properties in the same period in 2019 and lower depreciation on properties acquired in the same period in 2019, partially offset by additional depreciation expense on development properties placed in service during the third quarter of 2019 and a property acquired in the same period in 2020.

Net gain on sales of real estate properties increased approximately $82.8 million or 30.7% for the nine months ended September 30, 2020 as compared to the prior year period, primarily as a result of the sale of five consolidated apartment properties sold for a higher gain in 2020 as compared to the sale of nine consolidated properties in the same period in 2019. Net gain on sales of real estate properties decreased approximately $130.6 million for the quarter ended September 30, 2020 as compared to the prior year period, primarily as a result of the sale of seven consolidated properties in the third quarter of 2019 as compared to no consolidated property sales in the same period in 2020.

Interest and other income increased approximately $1.4 million or 55.2% for the nine months ended September 30, 2020 as compared to the prior year period. The increase is primarily due to higher insurance/litigation settlement proceeds and other non-comparable items that occurred during 2020 but not during 2019, partially offset by decreases in short-term investment income on cash and restricted deposit accounts in 2020 as compared to 2019 due to a lower rate environment and lower overall invested balances.

Other expenses decreased approximately $2.9 million or 25.7% for the nine months ended September 30, 2020 as compared to the prior year period, primarily due to a decrease in various consulting costs related to a data analytics project which was completed last year and litigation and environmental settlements, partially offset by increases in advocacy contributions in 2020 as compared to 2019. Other expenses increased approximately $1.3 million or 45.6% for the quarter ended September 30, 2020 as compared to the prior year period, primarily due to an increase in advocacy contributions and litigation and environmental settlements, partially offset by a decrease in various consulting costs related to a data analytics project which was completed last year.

Interest expense, including amortization of deferred financing costs, decreased approximately $43.8 million or 14.7% and approximately $5.8 million or 6.6% for the nine months and quarter ended September 30, 2020, respectively, as compared to the prior year periods. These decreases are due primarily to lower overall debt balances outstanding between the periods as a result of deploying disposition proceeds to repay debt, as well as lower overall interest rates. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the nine months ended September 30, 2020 was 3.96% as compared to 4.27% for the prior year period, and for the quarter ended September 30, 2020 was 3.97% as compared to 4.11% for the prior year period. The Company capitalized interest of approximately $6.9 million and $4.8 million during the nine months ended September 30, 2020 and 2019, respectively, and $2.8 million and $2.1 million during the quarters ended September 30, 2020 and 2019, respectively.

Income from investments in unconsolidated entities decreased approximately $69.4 million for the nine months ended September 30, 2020 as compared to the prior year period, primarily as a result of a $69.5 million gain on the sale of two unconsolidated properties in 2019 that did not occur in the same period in 2020.

Net (income) loss attributable to Noncontrolling Interests in partially owned properties decreased approximately $11.7 million for the nine months ended September 30, 2020 as compared to the prior year period, primarily as a result of noncontrolling interest allocations related to the sale of one partially owned apartment property in 2020 as compared to no sales in the same period in 2019.

Liquidity and Capital Resources

The Company believes its current liquidity position is strong despite the impact of the COVID-19 pandemic. With approximately $2.4 billion in readily available liquidity, limited near-term maturities, very strong credit metrics and ample access to capital markets at historically low rates, the Company believes it is well positioned to meet its future obligations. See further discussion below.

Short-Term Liquidity and Cash Proceeds

The Company generally expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing properties and scheduled unsecured note and mortgage note repayments, through its working capital, net cash

Table of Contents

provided by operating activities and borrowings under the Company’s revolving credit facility and commercial paper program. Currently, the Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.

The following table presents the Company’s balances for cash and cash equivalents, restricted deposits and the available borrowing capacity on its revolving credit facility as of September 30, 2020 and December 31, 2019 (amounts in thousands):

	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	178,333	$	45,753
Restricted deposits	$	56,881	$	71,246
Unsecured revolving credit facility availability	$	2,399,051	$	1,379,071

During the nine months ended September 30, 2020, the Company generated proceeds from various transactions, which included the following:

•

Disposed of five consolidated rental properties, receiving net proceeds of approximately $747.6 million;

•

Obtained $495.0 million in a 2.60% fixed rate mortgage loan pool maturing on May 1, 2030; and

•

Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $15.0 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 nine months ended September 30, 2020, the above proceeds along with net cash flow from operations and borrowings from the Company’s revolving line of credit and commercial paper program were primarily utilized to:

•

Acquire one consolidated rental property for approximately $48.9 million in cash;

•

Invest $157.8 million primarily in development projects; and

•

Repay $133.6 million of mortgage loans (inclusive of scheduled principal repayments).

Credit Facility and Commercial Paper Program

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

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

The Company has an unsecured commercial paper note program in the United States. The Company may borrow up to a maximum of $1.0 billion 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. While the COVID-19 pandemic caused a temporary disruption in the commercial paper market in March 2020, the Company has maintained access to such market and expects to continue to be able to do so in the future.

Table of Contents

	October 27, 2020
Unsecured revolving credit facility commitment	$	2,500,000
Commercial paper balance outstanding		—
Unsecured revolving credit facility balance outstanding		—
Other restricted amounts		(100,949	)
Unsecured revolving credit facility availability	$	2,399,051

Dividend Policy

The Company determines its dividends/distributions based on actual and projected financial conditions, the Company’s actual and projected liquidity and operating results, the Company’s projected cash needs for capital expenditures and other investment activities and such other factors as the Company’s Board of Trustees deems relevant. The Company declared a dividend/distribution for the first, second and third quarters of 2020 of $0.6025 per share/unit in each quarter, an annualized increase of 6.2% over the amount paid in 2019. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.

Total dividends/distributions paid in October 2020 amounted to $232.2 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended September 30, 2020.

Long-Term Financing and Capital Needs

The Company expects to meet its long-term liquidity requirements, such as lump sum unsecured note and mortgage debt maturities, property acquisitions and financing of development activities, through the issuance of secured and unsecured debt and equity securities (including additional OP Units), proceeds received from the disposition of certain properties and joint ventures, along with cash generated from operations after all distributions. The Company has a significant number of unencumbered properties available to secure additional mortgage borrowings should unsecured capital be unavailable or the cost of alternative sources of capital be too high. The value of and cash flow from these unencumbered properties are in excess of the requirements the Company must maintain in order to comply with covenants under its unsecured notes and line of credit. Of the $27.3 billion in investment in real estate on the Company’s balance sheet at September 30, 2020, $23.2 billion or 85.0% 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 equity and guarantees certain debt of the Operating Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.

The Company’s total debt summary and debt maturity schedules as of September 30, 2020 are as follows:

Debt Summary as of September 30, 2020

($ in thousands)

									Weighted
						Weighted			Average
	Debt					Average			Maturities
	Balances		% of Total			Rates			(years)
Secured	$	2,313,833		27.6	%		3.39	%		6.9
Unsecured		6,082,897		72.4	%		3.91	%		10.1
Total	$	8,396,730		100.0	%		3.78	%		9.2
Fixed Rate Debt:
Secured – Conventional	$	1,935,286		23.1	%		3.84	%		5.3
Unsecured – Public		6,082,897		72.4	%		4.04	%		10.1
Fixed Rate Debt		8,018,183		95.5	%		4.00	%		8.9
Floating Rate Debt:
Secured – Conventional		17,605		0.2	%		3.02	%		1.7
Secured – Tax Exempt		360,942		4.3	%		1.17	%		15.2
Unsecured – Revolving Credit Facility		—		—			1.47	%		4.1
Unsecured – Commercial Paper Program		—		—			1.81	%		—
Floating Rate Debt		378,547		4.5	%		1.50	%		14.6
Total	$	8,396,730		100.0	%		3.78	%		9.2

Table of Contents

Debt Maturity Schedule as of September 30, 2020

($ in thousands)

Year	Fixed Rate				Floating Rate			Total			% of Total			Weighted Average Coupons on Fixed Rate Debt			Weighted Average Coupons on Total Debt
2020	$	1,991			$	—		$	1,991			—			3.40	%		3.40	%
2021		818,366		(1)		—			818,366			9.7	%		4.62	%		4.62	%
2022		264,185				18,026			282,211			3.3	%		3.25	%		3.19	%
2023		1,325,588				3,500			1,329,088			15.7	%		3.74	%		3.73	%
2024		—				6,100			6,100			0.1	%	N/A				0.13	%
2025		450,000				8,200			458,200			5.4	%		3.38	%		3.32	%
2026		592,025				9,000			601,025			7.1	%		3.58	%		3.53	%
2027		400,000				9,800			409,800			4.8	%		3.25	%		3.18	%
2028		900,000				42,380			942,380			11.1	%		3.79	%		3.62	%
2029		888,120				11,500			899,620			10.6	%		3.30	%		3.26	%
2030+		2,445,850				288,135			2,733,985			32.2	%		3.56	%		3.21	%
Subtotal		8,086,125				396,641			8,482,766			100.0	%		3.66	%		3.50	%
Deferred Financing Costs and Unamortized (Discount)		(67,942	)			(18,094	)		(86,036	)	N/A			N/A			N/A
Total	$	8,018,183			$	378,547		$	8,396,730			100.0	%		3.66	%		3.50	%

(1)	$750.0 million of 4.625% unsecured notes will mature on December 15, 2021.

See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at September 30, 2020.

ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings, have recently been reaffirmed during the COVID-19 pandemic by all three rating agencies listed below and all continue to maintain a stable outlook. As of October 27, 2020, the ratings are as follows:

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

See Note 14 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to September 30, 2020.

Debt Covenants

The Company’s unsecured debt includes certain financial and operating covenants including, among other things, maintenance of certain financial ratios. These provisions are contained in the indentures applicable to each note payable or the credit agreement for our line of credit. The Company was in compliance with its unsecured debt covenants for all periods presented. The following table presents the Company’s selected unsecured public debt covenants as of September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
Debt to Adjusted Total Assets (not to exceed 60%)	31.6%		33.8%
Secured Debt to Adjusted Total Assets (not to exceed 40%)	9.6%		8.2%
Consolidated Income Available for Debt Service to Maximum Annual Service Charges (must be at least 1.5 to 1)		4.99	5.07
Total Unencumbered Assets to Unsecured Debt (must be at least 125%)	437.4%		386.1%

Table of Contents

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

Capitalization of Fixed Assets and Improvements to Real Estate

The Company’s and the Operating Partnership’s capital expenditures policy has not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019.

For the nine months ended September 30, 2020, our actual capital expenditures to real estate included the following (amounts in thousands except for apartment unit and per apartment unit amounts):

Capital Expenditures to Real Estate

For the Nine Months Ended September 30, 2020

	Same Store Properties (4)		Non-Same Store Properties/Other (5)		Total		Same Store Avg. Per Apartment Unit
Total Apartment Units		74,264		4,304		78,568

Building Improvements (1)	$	47,977	$	1,977	$	49,954	$	646
Renovation Expenditures (2)		17,682		6		17,688		238
Replacements (3)		24,148		333		24,481		325
Total Capital Expenditures to Real Estate	$	89,807	$	2,316	$	92,123	$	1,209

(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.

(2)	Renovation Expenditures – Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets. Amounts for 782 same store apartment units approximated $22,612 per apartment unit renovated.

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

(4)	Same Store Properties – Primarily includes all properties acquired or completed that are stabilized prior to January 1, 2019, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.

(5)	Non-Same Store Properties/Other – Primarily includes all properties acquired during 2019 and 2020, plus any properties in lease-up and not stabilized as of January 1, 2019. Also includes capital expenditures for properties sold.

The COVID-19 pandemic has led us to temporarily slow our capital expenditures, including our renovation activities, to those deemed essential. Governmental movement restrictions, social distancing requirements, and in some cases, difficulty in procuring materials and labor make continuing these activities more difficult.

During the nine months ended September 30, 2020, 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 $19.3 million. The Company expects to fund approximately $0.9 million in total non-real estate capital additions for the remainder of 2020. These year-to-date fundings are significantly higher than 2019 and are primarily driven by corporate office renovations during 2020.

Table of Contents

Derivative Instruments

The Company has a policy of only entering into derivative 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 10 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments at September 30, 2020.

Definitions

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

•

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

•

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

•

Blended Rate – The weighted average of New Lease Change and Renewal Rate Achieved.

•

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

•

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

•

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

•

New Lease Change – The net effective change in rent (inclusive of Leasing Concessions) for a lease with a new or transferring resident compared to the rent for the prior lease of the identical apartment unit, regardless of lease term.

•

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

•

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.

•

Renewal % – Leases renewed expressed as a percentage of total renewal offers extended during the reporting period.

•

Renewal Rate Achieved – The net effective change in rent (inclusive of Leasing Concessions) for a new lease on an apartment unit where the lease has been renewed as compared to the rent for the prior lease of the identical apartment unit, regardless of lease term.

•

Residential – Consists of multifamily apartment revenues and expenses.

Table of Contents

•

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

•

% of Stabilized Budgeted NOI – Represents original budgeted 2020 NOI for stabilized properties and projected annual NOI at stabilization (defined as having achieved 90% occupancy for three consecutive months) for properties that are in lease-up.

•

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

•

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

•

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

•

Weighted Average Coupons – Contractual interest rate for each debt instrument weighted by principal balances as of September 30, 2020. In case of debt for which fair value hedges are in place, the rate payable under the corresponding derivatives is used in lieu of the contractual interest rate.

•

Weighted Average Rates – Interest expense for each debt instrument for the nine months ended September 30, 2020 weighted by its average principal balance for the same period. Interest expense includes amortization of premiums, discounts and other comprehensive income on debt and related derivative instruments. In case of debt for which derivatives are in place, the income or expense recognized under the corresponding derivatives is included in the total interest expense for the period.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company has various unconsolidated interests in certain joint ventures. The Company does not believe that these unconsolidated investments have a materially different impact on its liquidity, cash flows, capital resources, credit or market risk than its consolidated operating and/or other activities. See Note 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s investments in partially owned entities. See also Note 12 in the Notes to Consolidated Financial Statements for discussion regarding the Company’s development projects.

The Company’s contractual obligations for the next five years and thereafter have not changed materially from the amounts and disclosures included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019. See the updated debt maturity schedule included in Liquidity and Capital Resources for further discussion.

Critical Accounting Policies and Estimates

The Company’s and the Operating Partnership’s critical accounting policies and estimates have not changed from the information included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019.

Table of Contents

Funds From Operations and Normalized Funds From Operations

The following is the Company’s and the Operating Partnership’s reconciliation of net income to FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units for the nine months and quarters ended September 30, 2020 and 2019:

Funds From Operations and Normalized Funds From Operations

(Amounts in thousands)

	Nine Months Ended September 30,						Quarter Ended September 30,
	2020			2019			2020			2019
Net income	$	699,517		$	708,402		$	95,365		$	277,846
Net (income) loss attributable to Noncontrolling Interests – Partially Owned Properties		(14,113	)		(2,450	)		(703	)		(830	)
Preferred/preference distributions		(2,318	)		(2,318	)		(773	)		(773	)
Net income available to Common Shares and Units / Units		683,086			703,634			93,889			276,243
Adjustments:
Depreciation		619,003			616,201			200,605			211,478
Depreciation – Non-real estate additions		(3,433	)		(4,235	)		(1,126	)		(1,932	)
Depreciation – Partially Owned Properties		(2,514	)		(2,700	)		(828	)		(898	)
Depreciation – Unconsolidated Properties		1,838			2,385			614			613
Net (gain) loss on sales of unconsolidated entities - operating assets		(1,000	)		(69,522	)		(1,000	)		—
Net (gain) loss on sales of real estate properties		(352,218	)		(269,400	)		25			(130,565	)
Noncontrolling Interests share of gain (loss) on sales of real estate properties		11,655			—			—			—
FFO available to Common Shares and Units / Units (1) (3) (4)		956,417			976,363			292,179			354,939
Adjustments:
Impairment – non-operating assets		—			—			—			—
Write-off of pursuit costs		4,864			4,098			1,586			1,111
Debt extinguishment and preferred share redemption (gains) losses		37			11,807			5			(4,840	)
Non-operating asset (gains) losses		1,022			(1,200	)		352			(1,452	)
Other miscellaneous items		(514	)		6,539			1,796			2,121
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)	$	961,826		$	997,607		$	295,918		$	351,879

FFO (1) (3)	$	958,735		$	978,681		$	292,952		$	355,712
Preferred/preference distributions		(2,318	)		(2,318	)		(773	)		(773	)
FFO available to Common Shares and Units / Units (1) (3) (4)	$	956,417		$	976,363		$	292,179		$	354,939

Normalized FFO (2) (3)	$	964,144		$	999,925		$	296,691		$	352,652
Preferred/preference distributions		(2,318	)		(2,318	)		(773	)		(773	)
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)	$	961,826		$	997,607		$	295,918		$	351,879

(1)

The National Association of Real Estate Investment Trusts (“Nareit”) defines funds from operations (“FFO”) (December 2018 White Paper) as net income (computed in accordance with accounting principles generally accepted in the United States (“GAAP”)), excluding gains or losses from sales and impairment write-downs of depreciable real estate and land when connected to the main business of a REIT, impairment write-downs of investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and depreciation and amortization related to real estate. Adjustments for partially owned consolidated and unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis.

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

•

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

•

pursuit cost write-offs;

•

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

•

gains and losses from non-operating assets; and

•

other miscellaneous items.

Table of Contents

(3)

The Company believes that FFO and FFO available to Common Shares and Units / Units are helpful to investors as supplemental measures of the operating performance of a real estate company, because they are recognized measures of performance by the real estate industry and by excluding gains or losses from sales and impairment write-downs of depreciable real estate and excluding depreciation related to real estate (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO available to Common Shares and Units / Units can help compare the operating performance of a company’s real estate between periods or as compared to different companies. The Company also believes that Normalized FFO and Normalized FFO available to Common Shares and Units / Units are helpful to investors as supplemental measures of the operating performance of a real estate company because they allow investors to compare the Company’s operating performance to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units do not represent net income, net income available to Common Shares / Units or net cash flows from operating activities in accordance with GAAP. Therefore, FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units should not be exclusively considered as alternatives to net income, net income available to Common Shares / Units or net cash flows from operating activities as determined by GAAP or as a measure of liquidity. The Company’s calculation of FFO, FFO available to Common Shares and Units / Units, Normalized FFO and Normalized FFO available to Common Shares and Units / Units may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.

(4)

FFO available to Common Shares and Units / Units and Normalized FFO available to Common Shares and Units / Units are calculated on a basis consistent with net income available to Common Shares / Units and reflects adjustments to net income for preferred distributions and premiums on redemption of preferred shares/preference units in accordance with GAAP. The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the “Noncontrolling Interests – Operating Partnership”. Subject to certain restrictions, the Noncontrolling Interests – Operating Partnership may exchange their OP Units for Common Shares on a one-for-one basis.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s and the Operating Partnership’s market risk has not changed materially from the amounts and information reported in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019. See Note 10 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 September 30, 2020, 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 third quarter of 2020 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 September 30, 2020, 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.

Table of Contents

(b)

Changes in Internal Control over Financial Reporting:

There were no changes to the internal control over financial reporting of the Operating Partnership identified in connection with the Operating Partnership’s evaluation referred to above that occurred during the third quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As of September 30, 2020, the Company does not believe there is any litigation pending or threatened against it that, individually or in the aggregate, may reasonably be expected to have a material adverse effect on the Company.

Item 1A. Risk Factors

The Company’s risk factor disclosures in Part I, Item 1A of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019 are hereby supplemented as follows:

Risk of Pandemics or Other Health Crisis.

A pandemic, epidemic or other health crisis, similar to the recent outbreak of COVID-19, affecting areas where our properties, corporate/regional offices or major service providers are located could have an adverse effect on our business, results of operations, cash flows and financial condition.

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.

In December 2019, COVID-19 was first reported in Wuhan, China, and in March 2020, the World Health Organization declared COVID-19 a pandemic. The outbreak has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on movement and business operations such as travel bans, border closings, business closures, quarantines, social distancing and shelter-in-place orders. The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. We cannot assure you conditions will not continue to deteriorate as a result of the pandemic.

The impact of the COVID-19 pandemic and measures to prevent its spread could materially negatively impact our business, results of operations, financial condition and liquidity in a number of ways, including:

•

A decrease in our rental revenues or increase in related reserves and write-offs as a potential result of:

•

Our residents’ and tenants’ ability to pay their rent on time or at all and the demand for multifamily properties within our markets;

•

Our geographic concentrations, especially in our dense urban submarkets which often makes social distancing more difficult, may experience longer periods of economic disruption due to delays in business re-openings and/or required re-closures, as a result of which we may be more susceptible to the impact of COVID-19;

•

Changes in resident preferences, including changes due to increased employer flexibility to work from home, making them less likely to want to live in dense urban centers where we own many of our properties or to want to live in denser forms of multifamily housing like the high-rise or mid-rise housing the Company owns;

•

The concessions made, and those that continue to be made, to residents’ rent obligations, which may not be on terms as favorable to us as those currently in place;

•

The deterioration of global economic conditions as a result of the pandemic may ultimately decrease occupancy levels and pricing across our portfolio as residents reduce or defer their spending;

•

Resident or tenant nonpayment, default or bankruptcy, as a result of which we may incur costs in protecting our investment and releasing our property;

•

The risk that local and national authorities may expand or extend certain measures imposing restrictions on our ability to enforce residents’ or tenants’ contractual rental obligations (such as eviction moratoriums) and limit our ability to raise rents or charge certain fees;

Table of Contents

•

The risk that local and national authorities may not extend or may reduce the government stimulus and relief programs which may be providing benefits to our residents (or employers of our residents) and tenants;

•

Restrictions inhibiting our employees’ ability to meet with existing and potential residents has disrupted and could in the future further disrupt our ability to lease apartments which could adversely impact our rental rate and occupancy levels; and

•

Ground floor retail and parking garage operations in our apartment buildings are vulnerable to the effects from the COVID-19 pandemic, which we expect may adversely impact their operations and, in turn, could result in an increase in tenant/garage operator defaults, rent deferrals/abatements and rent reductions.

•

Our properties may also incur significant operating expenses related to shelter-in-place orders, quarantines and social distancing requirements, such as higher cleaning or other related costs;

•

The risk that our access to capital at attractive terms may be diminished due to, among other factors: (i) potential disruptions in the long-term debt and commercial paper markets; (ii) the risk that a prolonged economic slowdown or recession could negatively impact our lending counterparties; and (iii) reductions in the Company’s credit ratings as a result of a protracted increase in unemployment or reduced income of our residents and tenants;

•

The risk that we may lose our ability to borrow under our commercial paper program if our credit ratings were to fall below investment grade;

•

The risk of a prolonged outbreak and/or multiple waves of an outbreak causing long-term damage to economic conditions, which in turn could cause material declines in the fair value of our assets, leading to asset impairment charges;

•

A general decline in the real estate market or demand for real estate transactions could hinder our ability to acquire or dispose of properties, including through our joint ventures. Also, a possible increase in distressed sales of real estate due to the impact of COVID-19 could decrease real estate values in our markets and limit our ability to sell our properties at advantageous prices or at all;

•

The risk of delays in our development and renovation projects due to construction moratoriums (such as what occurred with our Boston development project), governmental movement restrictions, social distancing requirements, the closure of many permitting and inspection agencies and disruptions in the supply of construction materials due to problems in the supply chain or otherwise;

•

A possible further decline in the price of our common shares due to a prolonged economic recession or other impacts described herein;

•

The risk of a prolonged outbreak which could cause an adverse impact on our future financial results, cash flows and financial condition and therefore our ability to pay dividends;

•

Increased risks of potential cyber attacks due to an increased reliance on remote working and other interactions with our current and prospective residents; and

•

Potential inability to maintain adequate staffing at our properties and corporate/regional offices due to shelter-in-place orders, an outbreak at one or more of our properties or corporate/regional offices and/or the continued duration or expansion of the pandemic.

The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. To the extent the COVID-19 pandemic adversely affects our business, results of operations, cash flows and financial condition, it may also have the effect of heightening many of the other risks described in the risk factors section of the Company's and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2019. Due to the speed with which the situation is continuing to develop, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, cash flows and financial condition could be material.

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

(a) Unregistered Common Shares Issued in the Quarter Ended September 30, 2020 - Equity Residential

During the quarter ended September 30, 2020, EQR issued 2,374 Common Shares in exchange for 2,374 OP Units held by various limited partners of ERPOP. OP Units are generally exchangeable into Common Shares on a one-for-one basis or, at the option of ERPOP, the cash equivalent thereof, at any time one year after the date of issuance. These shares were either registered under the Securities Act of 1933, as amended (the “Securities Act”), or issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder, as these were transactions by an issuer not involving a

Table of Contents

public offering. In light of the manner of the sale and information obtained by EQR from the limited partners in connection with these transactions, EQR believes it may rely on these exemptions.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits – See the Exhibit Index.

Table of Contents

EXHIBIT INDEX

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

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

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

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

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

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

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

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

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

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

101.SCH	Inline XBRL Taxonomy Extension Schema Document.

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

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

Table of Contents

SIGNATURES

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

		EQUITY RESIDENTIAL

Date:	October 30, 2020	By:	/s/ Robert A. Garechana
			Robert A. Garechana
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

Date:	October 30, 2020	By:	/s/ Ian S. Kaufman
			Ian S. Kaufman
			Senior Vice President and Chief Accounting Officer
			(Principal Accounting Officer)

		ERP OPERATING LIMITED PARTNERSHIP BY: EQUITY RESIDENTIAL ITS GENERAL PARTNER

Date:	October 30, 2020	By:	/s/ Robert A. Garechana
			Robert A. Garechana
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

Date:	October 30, 2020	By:	/s/ Ian S. Kaufman
			Ian S. Kaufman
			Senior Vice President and Chief Accounting Officer
			(Principal Accounting Officer)