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EQUITY RESIDENTIAL 10-Q 2012
Q2' 12 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JUNE 30, 2012

OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                

Commission File Number: 1-12252 (Equity Residential)
Commission File Number: 0-24920 (ERP Operating Limited Partnership)


EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Its Charter)

Maryland (Equity Residential)
13-3675988 (Equity Residential)
Illinois (ERP Operating Limited Partnership)
36-3894853 (ERP Operating Limited Partnership)
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
 
Two North Riverside Plaza, Chicago, Illinois 60606
(312) 474-1300
 (Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code)

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 x    No ¨
ERP Operating Limited Partnership Yes x      No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Equity Residential Yes x    No ¨
ERP Operating Limited Partnership Yes x      No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Equity Residential:
 
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company ¨
ERP Operating Limited Partnership:
 
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)
Smaller reporting company ¨

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 x
ERP Operating Limited Partnership Yes ¨      No x 
The number of EQR Common Shares of Beneficial Interest, $0.01 par value, outstanding on July 26, 2012 was 301,014,635.





EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended June 30, 2012 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 June 30, 2012 owned an approximate 95.4% ownership interest in, ERPOP. The remaining 4.6% interest is owned by limited partners. As the sole general partner of ERPOP, EQR has exclusive control of ERPOP's day-to-day management.

The Company is structured as an umbrella partnership REIT (“UPREIT”) and contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, the Company receives a number of OP Units (see definition below) in the Operating Partnership equal to the number of Common Shares it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership, which 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. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to EQR and the Common Shares issued to the public.
    
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.

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 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 public equity from time to time and guarantees certain debt of ERPOP, as disclosed in this report. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company's ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a




partnership with no publicly traded equity. Except for the net proceeds from equity offerings by the Company, which are contributed to the capital of the Operating Partnership in exchange for additional limited partnership interests in the Operating Partnership (“OP Units”) (on a one-for-one Common Share per OP 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, the issuance of secured and unsecured debt and equity securities, including additional OP Units, and proceeds received from disposition of certain properties and joint ventures.

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 and development joint venture partners. 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 significant 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 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 the Operating Partnership, the Company consolidates the Operating Partnership 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
 
 
 
PAGE
 
 
 
 
 
 
2
 
 
3 to 4
 
 
5 to 7
 
 
8 to 9
 
 
 
 
 
10
 
 
11 to 12
 
 
13 to 15
 
 
16 to 17
 
 
18 to 40
 
 
                      and Results of Operations
41 to 62
 
 
62
 
 
62 to 63
 
 
 
 
 
64
 
 
64
 
 
64
 
 
64
 
 
64
 
 
64
 
 
64




EQUITY RESIDENTIAL
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
(Unaudited)
 
 
June 30,
2012
 
December 31,
2011
ASSETS
 
 
 
 
Investment in real estate
 
 
 
 
Land
 
$
4,565,646

 
$
4,367,816

Depreciable property
 
15,886,832

 
15,554,740

Projects under development
 
198,912

 
160,190

Land held for development
 
372,108

 
325,200

Investment in real estate
 
21,023,498

 
20,407,946

Accumulated depreciation
 
(4,777,887
)
 
(4,539,583
)
Investment in real estate, net
 
16,245,611

 
15,868,363

Cash and cash equivalents
 
44,585

 
383,921

Investments in unconsolidated entities
 
17,886

 
12,327

Deposits – restricted
 
193,892

 
152,237

Escrow deposits – mortgage
 
9,139

 
10,692

Deferred financing costs, net
 
41,854

 
44,608

Other assets
 
161,445

 
187,155

Total assets
 
$
16,714,412

 
$
16,659,303

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Mortgage notes payable
 
$
4,004,496

 
$
4,111,487

Notes, net
 
5,354,768

 
5,609,574

Lines of credit
 
35,000

 

Accounts payable and accrued expenses
 
72,647

 
35,206

Accrued interest payable
 
82,695

 
88,121

Other liabilities
 
430,650

 
291,289

Security deposits
 
68,265

 
65,286

Distributions payable
 
109,463

 
179,079

Total liabilities
 
10,157,984

 
10,380,042

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Redeemable Noncontrolling Interests – Operating Partnership
 
452,203

 
416,404

Equity:
 
 
 
 
Shareholders’ equity:
 
 
 
 
Preferred Shares of beneficial interest, $0.01 par value;
     100,000,000 shares authorized; 1,600,000 shares issued and outstanding as of
     June 30, 2012 and December 31, 2011
 
200,000

 
200,000

Common Shares of beneficial interest, $0.01 par value;
     1,000,000,000 shares authorized; 300,961,645 shares issued and outstanding as of
     June 30, 2012 and 297,508,185 shares issued and outstanding as of December 31, 2011
 
3,010

 
2,975

Paid in capital
 
5,226,088

 
5,047,186

Retained earnings
 
654,235

 
615,572

Accumulated other comprehensive (loss)
 
(198,075
)
 
(196,718
)
Total shareholders’ equity
 
5,885,258

 
5,669,015

Noncontrolling Interests:
 
 
 
 
Operating Partnership
 
144,521

 
119,536

Partially Owned Properties
 
74,446

 
74,306

Total Noncontrolling Interests
 
218,967

 
193,842

Total equity
 
6,104,225

 
5,862,857

Total liabilities and equity
 
$
16,714,412

 
$
16,659,303


See accompanying notes
2


EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
Quarter Ended June 30,
 
 
2012
 
2011
 
2012
 
2011
REVENUES
 
 
 
 
 
 
 
 
Rental income
 
$
1,063,162

 
$
939,121

 
$
541,569

 
$
478,419

Fee and asset management
 
4,276

 
3,754

 
2,212

 
1,948

Total revenues
 
1,067,438

 
942,875

 
543,781

 
480,367

 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
Property and maintenance
 
218,004

 
202,157

 
107,024

 
98,571

Real estate taxes and insurance
 
118,768

 
106,610

 
63,126

 
54,803

Property management
 
44,417

 
43,148

 
21,008

 
20,767

Fee and asset management
 
2,487

 
1,957

 
1,180

 
1,009

Depreciation
 
346,079

 
311,891

 
172,338

 
154,452

General and administrative
 
27,082

 
22,341

 
13,394

 
10,908

Total expenses
 
756,837

 
688,104

 
378,070

 
340,510

 
 
 
 
 
 
 
 
 
Operating income
 
310,601

 
254,771

 
165,711

 
139,857

 
 
 
 
 
 
 
 
 
Interest and other income
 
431

 
1,288

 
259

 
277

Other expenses
 
(16,584
)
 
(6,790
)
 
(9,517
)
 
(4,630
)
Interest:
 
 
 
 
 
 
 
 
Expense incurred, net
 
(234,247
)
 
(240,443
)
 
(115,618
)
 
(119,997
)
Amortization of deferred financing costs
 
(7,037
)
 
(7,401
)
 
(4,063
)
 
(4,396
)
Income before income and other taxes, net gain on sales
   of land parcels and discontinued operations
 
53,164

 
1,425

 
36,772

 
11,111

Income and other tax (expense) benefit
 
(405
)
 
(386
)
 
(214
)
 
(202
)
Net gain on sales of land parcels
 

 
4,217

 

 
4,217

Income from continuing operations
 
52,759

 
5,256

 
36,558

 
15,126

Discontinued operations, net
 
207,723

 
709,563

 
71,757

 
566,627

Net income
 
260,482

 
714,819

 
108,315

 
581,753

Net (income) attributable to Noncontrolling Interests:
 
 
 
 
 
 
 
 
Operating Partnership
 
(11,150
)
 
(31,533
)
 
(4,732
)
 
(25,758
)
Partially Owned Properties
 
(769
)
 
(31
)
 
(319
)
 
(71
)
Net income attributable to controlling interests
 
248,563

 
683,255

 
103,264

 
555,924

Preferred distributions
 
(6,933
)
 
(6,933
)
 
(3,467
)
 
(3,467
)
Net income available to Common Shares
 
$
241,630

 
$
676,322

 
$
99,797

 
$
552,457

 
 
 
 
 
 
 
 
 
Earnings per share – basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Common
   Shares
 
$
0.14

 
$
(0.01
)
 
$
0.10

 
$
0.04

Net income available to Common Shares
 
$
0.81

 
$
2.30

 
$
0.33

 
$
1.88

Weighted average Common Shares outstanding
 
299,499

 
293,784

 
300,193

 
294,663

 
 
 
 
 
 
 
 
 
Earnings per share – diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Common
   Shares
 
$
0.14

 
$
(0.01
)
 
$
0.10

 
$
0.04

Net income available to Common Shares
 
$
0.80

 
$
2.30

 
$
0.33

 
$
1.85

Weighted average Common Shares outstanding
 
316,457

 
293,784

 
317,648

 
312,199

 
 
 
 
 
 
 
 
 
Distributions declared per Common Share outstanding
 
$
0.6750

 
$
0.6750

 
$
0.3375

 
$
0.3375





See accompanying notes
3




EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Amounts in thousands except per share data)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
Quarter Ended June 30,
 
 
2012
 
2011
 
2012
 
2011
Comprehensive income:
 
 
 
 
 
 
 
 
Net income
 
$
260,482

 
$
714,819

 
$
108,315

 
$
581,753

Other comprehensive (loss):
 
 
 
 
 
 
 
 
Other comprehensive (loss) – derivative instruments:
 
 
 
 
 
 
 
 
Unrealized holding (losses) arising during the period
 
(8,642
)
 
(25,119
)
 
(11,860
)
 
(31,201
)
Losses reclassified into earnings from other
   comprehensive income
 
7,203

 
1,891

 
3,640

 
935

Other comprehensive income – other instruments:
 

 

 

 

Unrealized holding gains arising during the period
 
82

 
493

 
118

 
347

Other comprehensive (loss)
 
(1,357
)
 
(22,735
)
 
(8,102
)
 
(29,919
)
Comprehensive income
 
259,125

 
692,084

 
100,213

 
551,834

Comprehensive (income) attributable to Noncontrolling
   Interests
 
(11,919
)
 
(31,564
)
 
(5,051
)
 
(25,829
)
Comprehensive income attributable to controlling interests
 
$
247,206

 
$
660,520

 
$
95,162

 
$
526,005



See accompanying notes
4


EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

 
 
Six Months Ended June 30,
 
 
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
260,482

 
$
714,819

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
348,106

 
330,930

Amortization of deferred financing costs
 
7,037

 
8,048

Amortization of discounts and premiums on debt
 
(3,538
)
 
851

Amortization of deferred settlements on derivative instruments
 
6,935

 
1,624

Write-off of pursuit costs
 
3,565

 
3,038

Distributions from unconsolidated entities – return on capital
 
240

 
42

Net (gain) on sales of land parcels
 

 
(4,217
)
Net (gain) on sales of discontinued operations
 
(204,053
)
 
(682,236
)
Loss on debt extinguishments
 
272

 

Unrealized (gain) loss on derivative instruments
 
(1
)
 
2,569

Compensation paid with Company Common Shares
 
16,878

 
12,389

Changes in assets and liabilities:
 
 
 
 
(Increase) decrease in deposits – restricted
 
(1,330
)
 
1,971

(Increase) in other assets
 
(23,017
)
 
(4,456
)
Increase in accounts payable and accrued expenses
 
35,794

 
35,165

(Decrease) in accrued interest payable
 
(5,426
)
 
(6,047
)
Increase (decrease) in other liabilities
 
141,090

 
(21,980
)
Increase (decrease) in security deposits
 
2,979

 
(33
)
Net cash provided by operating activities
 
586,013

 
392,477

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Investment in real estate – acquisitions
 
(520,775
)
 
(475,397
)
Investment in real estate – development/other
 
(78,210
)
 
(63,558
)
Improvements to real estate
 
(68,319
)
 
(64,863
)
Additions to non-real estate property
 
(4,700
)
 
(3,987
)
Interest capitalized for real estate and unconsolidated entities under development
 
(10,055
)
 
(3,683
)
Proceeds from disposition of real estate, net
 
333,015

 
1,194,005

Investments in unconsolidated entities
 
(5,420
)
 
(412
)
(Increase) in deposits on real estate acquisitions and investments, net
 
(40,539
)
 
(171,152
)
Decrease in mortgage deposits
 
1,553

 
1,688

Acquisition of Noncontrolling Interests – Partially Owned Properties
 
(87
)
 
(8,575
)
Net cash (used for) provided by investing activities
 
(393,537
)
 
404,066













See accompanying notes
5


EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
2012
 
2011
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Loan and bond acquisition costs
 
$
(4,283
)
 
$
(1,466
)
Mortgage notes payable:
 
 
 
 
Proceeds
 

 
135,230

Restricted cash
 
214

 
(11,663
)
Lump sum payoffs
 
(198,763
)
 
(632,477
)
Scheduled principal repayments
 
(7,575
)
 
(8,366
)
Loss on debt extinguishments
 
(272
)
 

Notes, net:
 
 
 
 
Lump sum payoffs
 
(253,858
)
 
(93,096
)
Lines of credit:
 
 
 
 
Proceeds
 
105,000

 

Repayments
 
(70,000
)
 

Proceeds from sale of Common Shares
 
152,058

 
154,508

Proceeds from Employee Share Purchase Plan (ESPP)
 
4,523

 
3,501

Proceeds from exercise of options
 
31,281

 
83,534

Payment of offering costs
 
(1,907
)
 
(2,611
)
Other financing activities, net
 
(33
)
 
(33
)
Contributions – Noncontrolling Interests – Partially Owned Properties
 
2,935

 

Contributions – Noncontrolling Interests – Operating Partnership
 
5

 

Distributions:
 
 
 
 
Common Shares
 
(269,755
)
 
(231,995
)
Preferred Shares
 
(6,933
)
 
(6,933
)
Noncontrolling Interests – Operating Partnership
 
(12,224
)
 
(10,866
)
Noncontrolling Interests – Partially Owned Properties
 
(2,225
)
 
(454
)
Net cash (used for) financing activities
 
(531,812
)
 
(623,187
)
Net (decrease) increase in cash and cash equivalents
 
(339,336
)
 
173,356

Cash and cash equivalents, beginning of period
 
383,921

 
431,408

Cash and cash equivalents, end of period
 
$
44,585

 
$
604,764

 

















See accompanying notes
6


EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
2012
 
2011
SUPPLEMENTAL INFORMATION:
 
 
 
 
Cash paid for interest, net of amounts capitalized
 
$
236,600

 
$
242,655

Net cash paid for income and other taxes
 
$
454

 
$
628

Real estate acquisitions/dispositions/other:
 
 
 
 
Mortgage loans assumed
 
$
106,600

 
$
99,131

Valuation of OP Units issued
 
$
66,606

 
$

Amortization of discounts and premiums on debt:
 
 
 
 
Mortgage notes payable
 
$
(4,664
)
 
$
(3,816
)
Notes, net
 
$
1,126

 
$
4,667

Amortization of deferred settlements on derivative instruments:
 
 
 
 
Other liabilities
 
$
(268
)
 
$
(267
)
Accumulated other comprehensive income
 
$
7,203

 
$
1,891

Unrealized (gain) loss on derivative instruments:
 
 
 
 
Other assets
 
$
4,663

 
$
1,975

Mortgage notes payable
 
$
(2,589
)
 
$
(226
)
Notes, net
 
$
(2,074
)
 
$
(501
)
Other liabilities
 
$
8,641

 
$
26,440

Accumulated other comprehensive income
 
$
(8,642
)
 
$
(25,119
)
Interest capitalized for real estate and unconsolidated entities under development:
 
 
 
 
Investment in real estate, net
 
$
(9,676
)
 
$
(3,597
)
Investments in unconsolidated entities
 
$
(379
)
 
$
(86
)
Other:
 
 
 
 
Receivable on sale of Common Shares
 
$
28,457

 
$


See accompanying notes
7


EQUITY RESIDENTIAL
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Amounts in thousands)
(Unaudited)
 
 
 
 
Six Months Ended
 
June 30, 2012
SHAREHOLDERS’ EQUITY
 
 
 
PREFERRED SHARES
 
Balance, beginning of year
$
200,000

Balance, end of period
$
200,000

 
 
COMMON SHARES, $0.01 PAR VALUE
 
Balance, beginning of year
$
2,975

Conversion of OP Units into Common Shares
2

Issuance of Common Shares
21

Exercise of share options
10

Employee Share Purchase Plan (ESPP)
1

Share-based employee compensation expense:
 
Restricted shares
1

Balance, end of period
$
3,010

 
 
PAID IN CAPITAL
 
Balance, beginning of year
$
5,047,186

Common Share Issuance:
 
Conversion of OP Units into Common Shares
4,752

Issuance of Common Shares
123,580

Exercise of share options
31,271

Employee Share Purchase Plan (ESPP)
4,522

Share-based employee compensation expense:
 
Restricted shares
5,115

Share options
7,976

ESPP discount
809

Offering costs
(1,907
)
Supplemental Executive Retirement Plan (SERP)
(5,473
)
Acquisition of Noncontrolling Interests – Partially Owned Properties
1,219

Change in market value of Redeemable Noncontrolling Interests – Operating Partnership
(32,391
)
Adjustment for Noncontrolling Interests ownership in Operating Partnership
39,429

Balance, end of period
$
5,226,088

 
 
RETAINED EARNINGS
 
Balance, beginning of year
$
615,572

Net income attributable to controlling interests
248,563

Common Share distributions
(202,967
)
Preferred Share distributions
(6,933
)
Balance, end of period
$
654,235

 







See accompanying notes
8


EQUITY RESIDENTIAL
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)
(Amounts in thousands)
(Unaudited)
 
 
Six Months Ended
 
June 30, 2012
SHAREHOLDERS' EQUITY (continued)
 
ACCUMULATED OTHER COMPREHENSIVE (LOSS)
 
Balance, beginning of year
$
(196,718
)
Accumulated other comprehensive (loss) – derivative instruments:
 
Unrealized holding (losses) arising during the period
(8,642
)
Losses reclassified into earnings from other comprehensive income
7,203

Accumulated other comprehensive income – other instruments:
 
Unrealized holding gains arising during the period
82

Balance, end of period
$
(198,075
)
 
 
NONCONTROLLING INTERESTS
 
 
 
OPERATING PARTNERSHIP
 
Balance, beginning of year
$
119,536

Issuance of OP Units to Noncontrolling Interests
66,606

Issuance of LTIP Units to Noncontrolling Interests
5

Conversion of OP Units held by Noncontrolling Interests into OP Units held by General Partner
(4,754
)
Equity compensation associated with Noncontrolling Interests
4,211

Net income attributable to Noncontrolling Interests
11,150

Distributions to Noncontrolling Interests
(9,396
)
Change in carrying value of Redeemable Noncontrolling Interests – Operating Partnership
(3,408
)
Adjustment for Noncontrolling Interests ownership in Operating Partnership
(39,429
)
Balance, end of period
$
144,521

 
 
PARTIALLY OWNED PROPERTIES
 
Balance, beginning of year
$
74,306

Net income attributable to Noncontrolling Interests
769

Contributions by Noncontrolling Interests
2,935

Distributions to Noncontrolling Interests
(2,258
)
Acquisition of Noncontrolling Interests – Partially Owned Properties
(1,306
)
Balance, end of period
$
74,446


See accompanying notes
9


ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
 
 
 
June 30,
2012
 
December 31,
2011
ASSETS
 
 
 
 
Investment in real estate
 
 
 
 
Land
 
$
4,565,646

 
$
4,367,816

Depreciable property
 
15,886,832

 
15,554,740

Projects under development
 
198,912

 
160,190

Land held for development
 
372,108

 
325,200

Investment in real estate
 
21,023,498

 
20,407,946

Accumulated depreciation
 
(4,777,887
)
 
(4,539,583
)
Investment in real estate, net
 
16,245,611

 
15,868,363

Cash and cash equivalents
 
44,585

 
383,921

Investments in unconsolidated entities
 
17,886

 
12,327

Deposits – restricted
 
193,892

 
152,237

Escrow deposits – mortgage
 
9,139

 
10,692

Deferred financing costs, net
 
41,854

 
44,608

Other assets
 
161,445

 
187,155

Total assets
 
$
16,714,412

 
$
16,659,303

 
 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
 
Liabilities:
 
 
 
 
Mortgage notes payable
 
$
4,004,496

 
$
4,111,487

Notes, net
 
5,354,768

 
5,609,574

Lines of credit
 
35,000

 

Accounts payable and accrued expenses
 
72,647

 
35,206

Accrued interest payable
 
82,695

 
88,121

Other liabilities
 
430,650

 
291,289

Security deposits
 
68,265

 
65,286

Distributions payable
 
109,463

 
179,079

Total liabilities
 
10,157,984

 
10,380,042

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Redeemable Limited Partners
 
452,203

 
416,404

Capital:
 
 
 
 
Partners’ Capital:
 
 
 
 
Preference Units
 
200,000

 
200,000

General Partner
 
5,883,333

 
5,665,733

Limited Partners
 
144,521

 
119,536

Accumulated other comprehensive (loss)
 
(198,075
)
 
(196,718
)
Total partners’ capital
 
6,029,779

 
5,788,551

Noncontrolling Interests – Partially Owned Properties
 
74,446

 
74,306

Total capital
 
6,104,225

 
5,862,857

Total liabilities and capital
 
$
16,714,412

 
$
16,659,303



See accompanying notes
10


ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per Unit data)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
Quarter Ended June 30,
 
 
2012
 
2011
 
2012
 
2011
REVENUES
 
 
 
 
 
 
 
 
Rental income
 
$
1,063,162

 
$
939,121

 
$
541,569

 
$
478,419

Fee and asset management
 
4,276

 
3,754

 
2,212

 
1,948

Total revenues
 
1,067,438

 
942,875

 
543,781

 
480,367

 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
Property and maintenance
 
218,004

 
202,157

 
107,024

 
98,571

Real estate taxes and insurance
 
118,768

 
106,610

 
63,126

 
54,803

Property management
 
44,417

 
43,148

 
21,008

 
20,767

Fee and asset management
 
2,487

 
1,957

 
1,180

 
1,009

Depreciation
 
346,079

 
311,891

 
172,338

 
154,452

General and administrative
 
27,082

 
22,341

 
13,394

 
10,908

Total expenses
 
756,837

 
688,104

 
378,070

 
340,510

 
 
 
 
 
 
 
 
 
Operating income
 
310,601

 
254,771

 
165,711

 
139,857

 
 
 
 
 
 
 
 
 
Interest and other income
 
431

 
1,288

 
259

 
277

Other expenses
 
(16,584
)
 
(6,790
)
 
(9,517
)
 
(4,630
)
Interest:
 
 
 
 
 
 
 
 
Expense incurred, net
 
(234,247
)
 
(240,443
)
 
(115,618
)
 
(119,997
)
Amortization of deferred financing costs
 
(7,037
)
 
(7,401
)
 
(4,063
)
 
(4,396
)
Income before income and other taxes, net gain on sales
   of land parcels and discontinued operations
 
53,164

 
1,425

 
36,772

 
11,111

Income and other tax (expense) benefit
 
(405
)
 
(386
)
 
(214
)
 
(202
)
Net gain on sales of land parcels
 

 
4,217

 

 
4,217

Income from continuing operations
 
52,759

 
5,256

 
36,558

 
15,126

Discontinued operations, net
 
207,723

 
709,563

 
71,757

 
566,627

Net income
 
260,482

 
714,819

 
108,315

 
581,753

Net (income) attributable to Noncontrolling Interests –
   Partially Owned Properties
 
(769
)
 
(31
)
 
(319
)
 
(71
)
Net income attributable to controlling interests
 
$
259,713

 
$
714,788

 
$
107,996

 
$
581,682

 
 
 
 
 
 
 
 
 
ALLOCATION OF NET INCOME:
 
 
 
 
 
 
 
 
Preference Units
 
$
6,933

 
$
6,933

 
$
3,467

 
$
3,467

 
 
 
 
 
 
 
 
 
General Partner
 
$
241,630

 
$
676,322

 
$
99,797

 
$
552,457

Limited Partners
 
11,150

 
31,533

 
4,732

 
25,758

Net income available to Units
 
$
252,780

 
$
707,855

 
$
104,529

 
$
578,215

 
 
 
 
 
 
 
 
 
Earnings per Unit – basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Units
 
$
0.14

 
$
(0.01
)
 
$
0.10

 
$
0.04

Net income available to Units
 
$
0.81

 
$
2.30

 
$
0.33

 
$
1.88

Weighted average Units outstanding
 
313,133

 
307,106

 
314,255

 
307,954

 
 
 
 
 
 
 
 
 
Earnings per Unit – diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Units
 
$
0.14

 
$
(0.01
)
 
$
0.10

 
$
0.04

Net income available to Units
 
$
0.80

 
$
2.30

 
$
0.33

 
$
1.85

Weighted average Units outstanding
 
316,457

 
307,106

 
317,648

 
312,199

 
 
 
 
 
 
 
 
 
Distributions declared per Unit outstanding
 
$
0.6750

 
$
0.6750

 
$
0.3375

 
$
0.3375

 


See accompanying notes
11


ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Amounts in thousands except per Unit data)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
Quarter Ended June 30,
 
 
2012
 
2011
 
2012
 
2011
Comprehensive income:
 
 
 
 
 
 
 
 
Net income
 
$
260,482

 
$
714,819

 
$
108,315

 
$
581,753

Other comprehensive (loss):
 
 
 
 
 
 
 
 
Other comprehensive (loss) – derivative instruments:
 
 
 
 
 
 
 
 
Unrealized holding (losses) arising during the period
 
(8,642
)
 
(25,119
)
 
(11,860
)
 
(31,201
)
Losses reclassified into earnings from other
   comprehensive income
 
7,203

 
1,891

 
3,640

 
935

Other comprehensive income – other instruments:
 

 

 

 

Unrealized holding gains arising during the period
 
82

 
493

 
118

 
347

Other comprehensive (loss)
 
(1,357
)
 
(22,735
)
 
(8,102
)
 
(29,919
)
Comprehensive income
 
259,125

 
692,084

 
100,213

 
551,834

Comprehensive (income) attributable to Noncontrolling
   Interests – Partially Owned Properties
 
(769
)
 
(31
)
 
(319
)
 
(71
)
Comprehensive income attributable to controlling interests
 
$
258,356

 
$
692,053

 
$
99,894

 
$
551,763


See accompanying notes
12


ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
260,482

 
$
714,819

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
348,106

 
330,930

Amortization of deferred financing costs
 
7,037

 
8,048

Amortization of discounts and premiums on debt
 
(3,538
)
 
851

Amortization of deferred settlements on derivative instruments
 
6,935

 
1,624

Write-off of pursuit costs
 
3,565

 
3,038

Distributions from unconsolidated entities – return on capital
 
240

 
42

Net (gain) on sales of land parcels
 

 
(4,217
)
Net (gain) on sales of discontinued operations
 
(204,053
)
 
(682,236
)