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, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number: 1-12252 (Equity Residential)

Commission File Number: 0-24920 (ERP Operating Limited Partnership)

EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

Maryland (Equity Residential)	13-3675988 (Equity Residential)
Illinois (ERP Operating Limited Partnership)	36-3894853 (ERP Operating Limited Partnership)
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Two North Riverside Plaza, Chicago, Illinois 60606	(312) 474-1300
(Address of principal executive offices) (Zip Code)	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares of Beneficial Interest, $0.01 Par Value (Equity Residential)	EQR	New York Stock Exchange
7.57% Notes due August 15, 2026 (ERP Operating Limited Partnership)	N/A	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Equity Residential Yes ☒  No ☐ ERP Operating Limited Partnership Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Equity Residential Yes ☒  No ☐ ERP Operating Limited Partnership Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Equity Residential:

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

l

ERP Operating Limited Partnership:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☐

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 21, 2022 was 377,918,920.

EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended September 30, 2022 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, 2022 owned an approximate 96.7% ownership interest in, ERPOP. The remaining 3.3% 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.

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

	PAGE
PART I.
Item 1. Financial Statements of Equity Residential:
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	2
Consolidated Statements of Operations and Comprehensive Income for the nine months and quarters ended September 30, 2022 and 2021	3
Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	5
Consolidated Statements of Changes in Equity for the nine months and quarters ended September 30, 2022 and 2021	8
Financial Statements of ERP Operating Limited Partnership:
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	10
Consolidated Statements of Operations and Comprehensive Income for the nine months and quarters ended September 30, 2022 and 2021	11
Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	13
Consolidated Statements of Changes in Capital for the nine months and quarters ended September 30, 2022 and 2021	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	35
Item 3. Quantitative and Qualitative Disclosures about Market Risk	46
Item 4. Controls and Procedures	46
PART II.
Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3. Defaults Upon Senior Securities	47
Item 4. Mine Safety Disclosures	47
Item 5. Other Information	47
Item 6. Exhibits	47

1

EQUITY RESIDENTIAL

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except for share amounts)

(Unaudited)

	September 30,			December 31,
	2022			2021
ASSETS
Land	$	5,580,878		$	5,814,790
Depreciable property		22,251,673			22,370,811
Projects under development		89,347			24,307
Land held for development		60,165			62,998
Investment in real estate		27,982,063			28,272,906
Accumulated depreciation		(8,813,578	)		(8,354,282	)
Investment in real estate, net		19,168,485			19,918,624
Investments in unconsolidated entities		256,311			127,448
Cash and cash equivalents		44,788			123,832
Restricted deposits		76,679			236,404
Right-of-use assets		465,814			474,713
Other assets		253,328			288,220
Total assets	$	20,265,405		$	21,169,241
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net	$	1,967,827		$	2,191,201
Notes, net		5,340,807			5,835,222
Line of credit and commercial paper		189,557			315,030
Accounts payable and accrued expenses		175,843			107,013
Accrued interest payable		49,652			69,510
Lease liabilities		309,548			312,335
Other liabilities		287,955			353,102
Security deposits		69,247			66,141
Distributions payable		242,695			233,502
Total liabilities		8,633,131			9,483,056
Commitments and contingencies
Redeemable Noncontrolling Interests – Operating Partnership		370,537			498,977
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, 2022 and December 31, 2021		37,280			37,280
Common Shares of beneficial interest, $0.01 par value;    1,000,000,000 shares authorized; 376,169,253 shares issued    and outstanding as of September 30, 2022 and 375,527,195    shares issued and outstanding as of December 31, 2021		3,762			3,755
Paid in capital		9,267,450			9,121,122
Retained earnings		1,737,107			1,827,063
Accumulated other comprehensive income (loss)		(872	)		(34,272	)
Total shareholders’ equity		11,044,727			10,954,948
Noncontrolling Interests:
Operating Partnership		218,577			214,094
Partially Owned Properties		(1,567	)		18,166
Total Noncontrolling Interests		217,010			232,260
Total equity		11,261,737			11,187,208
Total liabilities and equity	$	20,265,405		$	21,169,241

See accompanying notes

2

EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands except per share data)

(Unaudited)

	Nine Months Ended September 30,						Quarter Ended September 30,
	2022			2021			2022			2021
REVENUES
Rental income	$	2,035,477		$	1,818,867		$	695,099		$	623,206
EXPENSES
Property and maintenance		365,277			341,261			124,048			116,461
Real estate taxes and insurance		302,899			297,780			100,361			96,909
Property management		83,035			74,357			25,729			23,772
General and administrative		47,033			43,102			13,372			13,041
Depreciation		667,896			616,032			214,129			215,397
Total expenses		1,466,140			1,372,532			477,639			465,580
Net gain (loss) on sales of real estate properties		304,346			587,623			196,551			363,928
Operating income		873,683			1,033,958			414,011			521,554
Interest and other income		4,844			25,293			720			973
Other expenses		(9,191	)		(10,908	)		(3,755	)		(3,456	)
Interest:
Expense incurred, net		(217,093	)		(202,733	)		(72,412	)		(68,251	)
Amortization of deferred financing costs		(6,421	)		(6,172	)		(2,220	)		(2,048	)
Income before income and other taxes, income (loss) from    investments in unconsolidated entities and net gain (loss)    on sales of land parcels		645,822			839,438			336,344			448,772
Income and other tax (expense) benefit		(725	)		(679	)		(152	)		(284	)
Income (loss) from investments in unconsolidated entities		(3,456	)		(3,028	)		(1,027	)		(1,156	)
Net gain (loss) on sales of land parcels		—			5			—			—
Net income		641,641			835,736			335,165			447,332
Net (income) loss attributable to Noncontrolling Interests:
Operating Partnership		(21,024	)		(27,903	)		(10,997	)		(14,847	)
Partially Owned Properties		(2,726	)		(1,957	)		(1,143	)		(534	)
Net income attributable to controlling interests		617,891			805,876			323,025			431,951
Preferred distributions		(2,318	)		(2,318	)		(773	)		(773	)
Net income available to Common Shares	$	615,573		$	803,558		$	322,252		$	431,178
Earnings per share – basic:
Net income available to Common Shares	$	1.64		$	2.15		$	0.86		$	1.15
Weighted average Common Shares outstanding		375,710			373,474			375,850			374,308
Earnings per share – diluted:
Net income available to Common Shares	$	1.63		$	2.14		$	0.86		$	1.15
Weighted average Common Shares outstanding		389,394			387,642			389,300			388,374

See accompanying notes

3

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,
	2022			2021			2022			2021
Comprehensive income:
Net income	$	641,641		$	835,736		$	335,165		$	447,332
Other comprehensive income (loss):
Other comprehensive income (loss) – derivative instruments:
Unrealized holding gains (losses) arising during the period		23,413			—			24,672			—
Losses reclassified into earnings from other comprehensive    income		9,987			7,000			5,106			2,363
Other comprehensive income (loss)		33,400			7,000			29,778			2,363
Comprehensive income		675,041			842,736			364,943			449,695
Comprehensive (income) attributable to Noncontrolling Interests		(24,853	)		(30,100	)		(13,123	)		(15,459	)
Comprehensive income attributable to controlling interests	$	650,188		$	812,636		$	351,820		$	434,236

See accompanying notes

4

EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	641,641	$	835,736
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		667,896		616,032
Amortization of deferred financing costs		6,421		6,172
Amortization of above/below market lease intangibles		—		(154	)
Amortization of discounts and premiums on debt		4,123		3,934
Amortization of deferred settlements on derivative instruments		9,978		6,991
Amortization of right-of-use assets		9,123		10,286
Write-off of pursuit costs		3,296		3,557
(Income) loss from investments in unconsolidated entities		3,456