EDGAR 10-K Filing

Company CIK: 931182
Filing Year: 2022
Filename: 931182_10-K_2022_0001564590-22-005566.json

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ITEM 1. BUSINESS
Item 1. Business
General
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 affluent 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.
EQR is the general partner of, and as of December 31, 2021 owned an approximate 96.7% ownership interest in, ERPOP. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP. EQR issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, but does not have any indebtedness as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.
The Company’s corporate headquarters is located in Chicago, Illinois and the Company also operates regional property management offices in most of its markets.
Certain capitalized terms used herein are defined in the Notes to Consolidated Financial Statements. See also Note 17 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.
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, our proxy statements and any amendments to any of those reports/statements we file with or furnish to the Securities and Exchange Commission (“SEC”) free of charge on our website, www.equityapartments.com. These reports/statements are made available on our website as soon as reasonably practicable after we file them with or furnish them to 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
Overview
The Company is one of the largest U.S. publicly-traded owners and operators of high quality rental apartment properties, with an established presence in Boston, New York, Washington, D.C., Southern California (including Los Angeles, Orange County and San Diego), San Francisco and Seattle, and an expanding presence in Denver, Atlanta, Dallas/Ft. Worth and Austin. We believe our markets are knowledge centers of the U.S. economy that draw talented workers and employers that drive economic growth in the United States. We believe the locations of our properties in these markets are attractive to these knowledge workers whom we hope to convert into satisfied long-term residents.
Equity Residential is committed to creating communities where people thrive. We carry this, our corporate purpose, through our relationships with our customers, our employees, our shareholders and the communities in which we operate. It drives our commitments to sustainability, diversity and inclusion, the total wellbeing of our employees and being a responsible corporate citizen in the communities in which we operate, which has been especially relevant as we faced unprecedented challenges like the novel coronavirus (“COVID-19”) pandemic.
We believe we have created an industry-leading operating platform and balance sheet to run our properties. Our employees are focused on delivering remarkable customer service to our residents so they will stay with us longer, be willing to pay higher rent for a great experience and will tell others about how much they love living in an Equity Residential property. We utilize technology and other innovative methods of engagement with our residents to foster relationships and community, improve the resident experience and operate our business more efficiently. We pair that with disciplined balance sheet management that enhances returns and value creation while maintaining flexibility to take advantage of future opportunities. We believe that our stakeholders value stability, liquidity, predictability and accountability and that is the mission to which we remain unwaveringly committed.
Despite the challenges we have faced with the COVID-19 pandemic, we believe that the long-term prospects for our business remain strong. Our well-located communities are in and around dynamic cities that we believe will continue to attract affluent long-term renters. With the pandemic subsiding and cities reopening, we are seeing strong demand from our affluent resident base, demonstrating the long-term attractiveness of our communities.
Investment Strategy
The Company’s long-term strategy is to invest in apartment communities located in strategically targeted markets with the goal of maximizing our risk-adjusted total returns and balancing current cash flow generation with long-term capital appreciation. We seek to meet this goal by investing in markets that are characterized by conditions favorable to multifamily property operations over the long-term. The markets we focus on generally feature one or more of the following characteristics that allow us to drive performance:
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Large and diverse economic drivers. Our markets are some of the largest cities in the United States. They are markets that generally attract a variety of large and diverse industries and businesses. They include a number of submarkets that are attractive for long-term multifamily ownership.
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Strong high quality job growth. Our markets attract and create high quality jobs that are often focused in growing areas of the knowledge-based economy. These jobs result in the significant presence and growth in renters that work in the highest earning sectors of the economy, are not rent burdened and are attracted to our type of properties. This creates the ability to raise rents more readily in good economic times and reduces risk during downturns. Many of these workers are employed in the fields of Science, Technology, Engineering and Mathematics, or STEM jobs, which experienced significantly lower job loss during the COVID-19 pandemic.
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Significant apartment demand that meets new apartment supply. We remain focused on owning and operating properties in markets or submarkets where the supply of apartments is balanced with strong demand that supports superior long-term returns.
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Other favorable performance drivers including high and rapidly rising single-family housing prices that support longer term rentership, a balanced regulatory/political environment relating to housing policy and manageable resiliency/environmental risk.
We believe our strategy capitalizes on the preference of renters of all ages to live in the locations where we operate which typically are near transportation (both public transit and convenient highway access), entertainment, employment centers/universities and cultural and outdoor amenities. Furthermore, we believe that demand for rental housing will continue to be driven primarily through household formations from the younger segments of our population, including both Millennials and Generation Z, and to a lesser extent the aging Baby Boomer generation.
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Millennials are comprised of those individuals born between 1981 and 1996, total approximately 72 million people and continue to be a significant portion of the renter population. They also tend to remain renters longer due to societal trends favoring delays in marriage and having children as well as lower savings for home down payments.
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Generation Z is comprised of the approximately 67 million people born between 1997 and 2012. This cohort is just now entering the renter population and is expected to continue to be an important source of demand.
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Baby Boomers, a demographic of more than 71 million people born between 1946 and 1964, also trend toward apartment rentals.
The Company continues to allocate capital in order to optimize performance by balancing current cash flow growth with long-term capital appreciation. Most recently, we have done so by adding expansion markets to our portfolio allocation that meet the same characteristics listed above. Expansion into these markets of Denver, Atlanta, Dallas/Ft. Worth and Austin includes investments in both urban and suburban properties and is generally being funded by reducing exposure in selective established markets. Development also plays an important role in our capital allocation. Development activity is focused on our in-house pipeline, our strategic partnership with Toll Brothers, Inc. and joint ventures with other third-party developers in both established and expansion markets.
Operations and Innovation
We attempt to balance occupancy and rental rates to maximize our revenue while exercising tight cost control to generate the highest possible return to our shareholders. Revenue is maximized through our customized pricing system that uses market data on current and projected demand and availability to create both current and forward pricing daily for each apartment unit we manage. We focus on the resident experience and leveraging operating efficiency which we believe drives our success in renewing our residents. This focus has driven strong occupancy and a high percentage of residents renewing that is in line with pre-pandemic levels while achieving strong renewal rate growth.
Rapidly evolving technology continues to drive innovation in the rental industry. We have been and continue to be a leader in deploying and investing in property technology to serve our customers better and operate more efficiently. Having been a first mover in such important areas as revenue management and online leasing, we are focused on technology that improves our operating margins and customer experience. We use a standardized purchasing system to control our operating expenses and a business intelligence platform that allows all our team members to quickly identify and address issues and opportunities. Our operations benefitted from having many of these initiatives in place during the pandemic, allowing us to interact with our customers in a safe and responsible manner, including self-guided tours, automated responses to customer inquiries and enhanced service and maintenance management. While we believe areas such as “smart home” technology and others will provide the foundation for current and future improvements to how we do business, we will continue to consider the cost and longevity of technology capital investments and their benefits.
Our Commitment to Environmental, Social and Governance (“ESG”)
At Equity Residential, we believe a focus on ESG is a key way to programmatically address stakeholder concerns as part of our corporate purpose. This needs to be a sustainable endeavor, in which we provide resilient properties that will stand the test of time and remain attractive to our customers and the community without negatively impacting the environment. We have a dedicated in-house team that initiates and applies sustainable practices in all aspects of our business, including investment activities, development, property operations and property management activities. Multifamily housing is one of the most environmentally-friendly uses of real estate, as each property provides homes for hundreds of families in a denser shared environment. We consider building locations based on walkability, accessibility, neighborhoods and parks. We also design our communities to support amenities such as fitness centers and we select locations near shops, restaurants, outdoor amenities such as bike/running paths and health clubs, enabling a low carbon footprint lifestyle for our residents to live, work and play.
Equity Residential’s sustainability program actively manages environmental impacts and climate-related risks and opportunities through optimized, financially responsible capital investments and technologies. We methodically focus on energy, water and emissions to advance the program’s policies, targets and resilience outcomes. Together, we believe our program drives long-term asset value, responsibly manages risks and engages our communities, residents, employees and shareholders as part of our broader ESG strategy and commitment to good corporate citizenship and maximizing investment performance.
To further strengthen our commitments to ESG initiatives, we issued two sustainable fixed-income instruments (each a “green bond”) designed to support projects that contribute to environmental sustainability. In 2018, the Company became the first multifamily REIT ever to issue a green bond, with the net proceeds of approximately $396.7 million from the offering allocated to the development of a property in San Francisco certified as LEED Platinum and the acquisition of two properties certified as LEED Silver. In 2021, the Company issued a second green bond, and the net proceeds of approximately $497.5 million from this offering are intended to be allocated to the development or acquisition of green buildings and/or investments in renewable energy, energy efficiency and sustainable water management. Additionally, during 2021, the Company began funding its $10.0 million investment in a new fund focused on early stage sustainability and climate change mitigation technology relevant to the built environment.
We are also intensely focused on the “Social” and “Governance” aspects of ESG. As detailed below, we have a commitment to our employees’ engagement, diversity and inclusion and wellness that is the foundation of our corporate purpose. We also recognize that a successful company must incorporate the best corporate governance practices in order to better serve its stakeholders.
For additional information regarding our ESG efforts, see our 2021 Environmental, Social and Governance Report at our website, www.equityapartments.com. This report, which includes Sustainability Accounting Standards Board disclosures and incorporates recommendations from the Task Force on Climate-related Financial Disclosures, was reviewed and approved by the Corporate Governance Committee of our Board of Trustees, which monitors the Company’s ongoing ESG efforts. We continue to enhance our ESG disclosure efforts, including auditing the results outlined in the above report. Furthermore, our annual proxy statements contain additional information on our ESG efforts, including detailed information regarding our corporate governance practices. Such annual proxy statements and the information contained therein are not part of or incorporated into this report, except as otherwise provided herein.
Human Capital
At Equity Residential, our team of approximately 2,400 employees is the driving force behind our success. We believe that our richly diverse work environment captures top talent, cultivates the best ideas and creates the widest possible platform for this success in line with our corporate purpose of “Creating communities where people thrive”. Our core principles, affectionately named “Ten Ways to Be a Winner”, guide our behavior as individuals and collectively as a team, helping us in our goal to deliver market-leading performance. As part of our Ten Ways to Be a Winner, we encourage our team members to raise questions, take educated risks, offer new ideas and help us make the right decisions. One way we live the “Ten Ways” is by enriching our culture through our core “Equity Values: Diversity & Inclusion, Social Responsibility, Sustainability and Total Wellbeing”. We have assembled a cross-functional employee-led Equity Values Council to lead our efforts on these values by acting as change agents to drive initiatives,
create goals and awareness, and encourage colleagues to participate in community service activities and wellness initiatives. In addition, executive compensation is based, in part, on meeting important Equity Values goals, and our Board of Trustees, primarily through its Compensation Committee, takes an active role in overseeing our efforts in this regard.
Diversity and Inclusion
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Our commitment to diversity and inclusion starts with a highly skilled and diverse Board of Trustees.
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We are committed to hiring a diverse workforce and also fostering a safe, inclusive and productive workplace for all employees. We believe providing a work environment based on respect, trust and collaboration creates an exceptional employee experience where employees can bring their whole selves to work and thrive in their careers. In recent years, we have created dedicated Diversity and Inclusion staffing to oversee this crucial work.
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To further prioritize the importance of our diversity and inclusion efforts, our executives’ annual compensation goals include an evaluation of objective metrics measuring our Company’s progress in this regard.
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We have the benefit of a diverse workforce, of which 62.0% currently identify as ethnically diverse. We also continue to focus on improving our female representation, which is now 36.0% of our workforce.
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A diversity and inclusion lens is embedded in our talent review process. This includes the development of our Overcoming Bias in Performance Review Toolkit designed to provide practical bias interrupters and tweaks to the performance evaluation process that interrupt and correct unconscious bias.
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We strategically identify opportunities to increase the diversity of our talent pipeline at all levels, including by actively seeking to source a pool of diverse candidates for mid-management and above positions in the communities where we serve, such as from Project Destined, Fannie Mae’s Future Housing Leaders, Howard University, Roosevelt University, International Rescue Committee and Evanston Scholars.
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We employ interns from the Development School for Youth and local colleges to provide pathways for students of various backgrounds interested in real estate.
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The Company was named the Gold Nareit 2021 Diversity, Equity and Inclusion award recipient in recognition of the Company’s demonstration of a strong commitment to the advancement of diversity and inclusion both within the Company and in the REIT and publicly traded real estate industry.
Pay Equity
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In order to attract and retain the best employees, we are committed to providing a total compensation package which is market-based, performance driven, fair and internally equitable.
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Our goal is to be competitive both within the general employment market as well as with our competitors in the real estate industry, with our strongest performers being paid more.
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Base pay is reviewed annually, as is Equity Residential’s compensation framework, by partnering with managers to create and update job descriptions that reflect the duties, skills, experience and education required to perform the role, and then benchmarking our jobs against third-party compensation surveys to determine the market value of the job.
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During the year-end evaluation process, managers review and calibrate compensation for all employees on their team, in an effort to ensure equity around our pay practices and allow us to retain and reward our top talent.
Employee Engagement
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Employee engagement and experience are extremely important at Equity Residential. In 2021, we transitioned to a new Employee Experience (EX) Survey, measuring employee engagement and diversity & inclusion, among other components of the employee experience.
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Our 2021 engagement score of 79% favorability is very strong, especially given the pandemic and uncertainty surrounding it. Our Diversity & Inclusion Index score of 83% demonstrated an increase in employee favorability for the initiatives taking place and a greater sense of belonging.
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Senior leaders are assessed annually on their leadership results, which for 2021 were measured by a pulse survey score, employee retention and diversity and inclusion efforts.
Training and Development
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We believe a successful workplace is one where employees constantly learn and grow. Our internal Organization and Talent Development (“OTD”) team is interspersed throughout our markets and works regularly with employees to expand their knowledge and skills. OTD develops and delivers a wide range of training and development opportunities, from tactical to strategic, face-to-face to virtual, social learning to self-directed learning, and more. In 2021, each employee
completed an average of approximately 15 hours of dedicated learning at a Company expenditure of approximately $1,200 per employee.
Health, Safety and Wellness
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Equity Residential is committed to providing the tools and resources to help our employees achieve total wellbeing. Whether physical, financial, career, social or community wellbeing, Equity Residential offers benefits to help meet our employee needs.
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Physical Wellbeing: Equity Residential is focused on providing benefits that help our employees achieve balance and address good health proactively, with coverage for emergencies and ongoing needs that can arise as well. Long before healthcare reform, Equity Residential made a commitment to cover 100% of employee preventive care. This commitment-and our robust and highly popular wellness program-has made proactive personal healthcare more accessible and manageable for employees, while encouraging ongoing healthy behaviors and rewarding employees for taking a proactive approach to their health. During the COVID-19 pandemic, we held 2020 healthcare premiums flat for employees in 2021 in support of a holistic total rewards strategy.
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Financial Wellbeing: These benefits and resources help our employees manage their money better today, while preparing for financial milestones and retirement in the future. Financial peace of mind is at the core of these offerings, whether it’s our generous 401(k) match, basic and supplemental insurance to ensure our loved ones and possessions are cared for, rent discounts at our properties or additional savings and investment options like our employee share purchase plan.
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Career Wellbeing: When employees move up in skill and experience, so does Equity Residential. We encourage our employees to Test their Limits, push the boundaries of their comfort zones and seek new challenges through several learning resources and courses, in addition to tuition reimbursement. We actively promote from within, and many senior corporate and property leaders have risen from entry level or junior positions.
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Social and Community Wellbeing: We offer a number of benefits that foster social and community wellbeing, including paid time off to volunteer in our communities.
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Throughout the COVID-19 pandemic, we have communicated regularly with employees and also released a comprehensive guide designed as a single place for employees to access information on critical benefits and resources. A key focus included mental wellbeing to help employees better cope with the challenges to our work routines, our home routines and how we interact with our family, friends and community. We also continued to ensure that our employees had access to personal protective equipment and cleaning supplies as needed throughout the pandemic.
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In October 2021, as an effort to do our part in the prevention and severity of the COVID-19 pandemic, we introduced our COVID-19 Health & Safety Requirement Policy requiring all employees to be fully vaccinated (or receive an approved accommodation) by January 13, 2022. When implementing this new policy, we took great care by supporting each employee in their decision-making process and providing additional resources, including access to medical professionals. Our efforts resulted in a compliance and employee retention rate of 99%.
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For nearly three years, we have partnered with Employees1st to provide financial relief via a crisis fund for employees struck by personal hardships or unforeseen disasters. The Company contributed additional funds to the Employees1st crisis fund to further support employees who experienced hardship as a result of the ongoing COVID-19 pandemic. We are proud that this program allows yet another avenue for us to tangibly demonstrate our One Team culture by ensuring that employees are safe and secure, especially during extreme or catastrophic circumstances.
Competition
All of the Company’s properties are located in developed areas with multiple housing choices, including other multifamily properties. The number of competitive housing choices or multifamily properties in a particular area could have a material effect on the Company’s ability to lease apartment units at its properties and on the rents charged. The Company may be competing with other housing providers that have greater resources than the Company and whose managers have more experience than the Company’s managers. In addition, other forms of rental properties and single-family housing provide housing alternatives to potential residents of multifamily properties. See Item 1A, Risk Factors, for additional information with respect to competition.
Regulatory Considerations
See Item 1A, Risk Factors, for information concerning the potential effects of governmental regulations, including environmental regulations, on our operations.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
General
This Item 1A includes forward-looking statements. You should refer to our discussion of the qualifications and limitations on forward-looking statements included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The occurrence of the events discussed in the following risk factors could adversely affect, possibly in a material manner, our business, financial condition or results of operations, which could affect the value of our common shares of beneficial interest or preferred shares of beneficial interest (which we refer to collectively as “Shares”), Preference Units, OP Units, restricted units and our public unsecured debt. In this section, we refer to the Shares, Preference Units, OP Units, restricted units and public unsecured debt together as our “securities” and the investors who own such securities as our “security holders.”
Risks Related to the ongoing COVID-19 Pandemic
The ongoing COVID-19 pandemic and the pace and degree of recovery, as well as the emergence of new variants, could have a material adverse effect on our business, results of operations, cash flows and financial condition.
During the early stages of the COVID-19 pandemic, governments and other authorities around the world, including federal, state and local authorities in the United States, imposed 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. While many of the most stringent restrictions have been removed throughout our markets, the ongoing COVID-19 pandemic has caused, and could continue to cause, severe economic, market and other disruptions worldwide. There can be no assurance that conditions will not deteriorate as a result of the pandemic.
The impact of the COVID-19 pandemic could materially negatively impact our business, results of operations, financial condition and liquidity in a number of ways, including:
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A decrease in our rental revenues or increase in related reserves and write-offs as a potential result of:
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The deterioration of global economic conditions as a result of the pandemic, which could ultimately decrease occupancy levels and pricing across our portfolio, reduce or defer our residents’ spending, or negatively impact our residents’ and tenants’ ability to pay their rent on time or at all;
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Reductions in the demand for multifamily properties within our markets due to changes in resident preferences (including changes resulting from increased employer flexibility to work from home), economic disruptions due to delays in business re-openings or required re-closures, and other factors impacting demand;
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Elevated costs or concessions required to attract or retain new and existing residents/tenants, release units due to resident or tenant nonpayment, default, or bankruptcy, or other incentives that may be less favorable to us than those that are currently in place;
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Local and national authorities expanding or extending certain measures that impose restrictions on our ability to enforce residents’ or tenants’ contractual rental obligations (such as eviction moratoriums or rental forgiveness) and limit our ability to raise rents or charge certain fees;
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Failure by local and national authorities to extend, adequately fund or administer government stimulus and relief programs which may be providing or would provide benefits to our residents (or employers of our residents) and tenants; and
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Restrictions inhibiting our employees’ ability to meet with existing and potential residents, which has disrupted and could in the future further disrupt our ability to lease apartments and could adversely impact our rental rate and occupancy levels.
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Our properties may also incur additional operating expenses related to the ongoing pandemic, such as higher cleaning or other related costs;
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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 and more severe deterioration in our operations due to the pandemic;
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The risk of a prolonged outbreak and/or multiple waves of an outbreak of the pandemic:
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could cause 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; and,
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could cause an adverse impact on our future financial results, cash flows and financial condition and therefore our ability to pay dividends;
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A general decline in the real estate market or demand for real estate transactions could hinder our ability to acquire or dispose of properties, or obtain financing to develop properties, including through our joint ventures;
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The risk of delays in our development and renovation projects due to construction moratoriums, governmental movement restrictions, social distancing requirements, the closure of many permitting and inspection agencies and disruptions in the supply of labor or the supply of construction materials or other products due to problems in the broader supply chain or otherwise;
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A possible decline in the price of our common shares due to a prolonged economic recession or other impacts described herein;
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Increased risks of potential cyber attacks due to an increased reliance on remote working and other electronic interactions with our current and prospective residents; and
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Potential inability to maintain adequate staffing at our properties and corporate/regional offices due to 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 ongoing COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of COVID-19 and its variants; the distribution, effectiveness and acceptance of vaccines and testing; and the pace and degree of recovery from the pandemic, 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 continue to heighten many of the other risks described below.
Risks Related to our Business Strategy
Investing in real estate is inherently subject to risks that could negatively impact our business.
Investing in real estate is subject to varying degrees and types of risk. While we seek to mitigate these risks through various strategies, including geographic diversification, market research and proactive asset management, among other techniques, these risks cannot be eliminated. Factors that may impact cash flows and real estate values include, but are not limited to:
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Local economic conditions, particularly oversupply or reductions in demand;
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National, regional and local political and regulatory climates, governmental fiscal health and governmental policies;
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The inability or unwillingness of residents to pay rent increases;
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Increases in our operating expenses due to inflationary or other pressures;
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Cost and availability of labor and materials required to maintain our properties at acceptable standards;
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Availability of attractive financing opportunities;
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Changes in social preferences; and
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Additional risks that are discussed below.
The geographic concentration of our properties could have an adverse effect on our operations.
While the Company continues to diversify its portfolio with the addition of the expansion markets, the Company’s properties are still predominantly concentrated in our established coastal markets. If one or more of these markets is unfavorably impacted by specific economic conditions, local real estate conditions, increases in social unrest, increases in real estate and other taxes, reduced quality of life, deterioration of local or state government health, rent control or stabilization laws, localized environmental issues or natural/man-made disasters, the impact of such conditions may have a more negative impact on our results of operations than if our properties were more geographically diverse.
Within its markets, the Company is also predominantly concentrated in certain dense urban and suburban submarkets. To the extent that these markets or submarkets within these markets become less desirable to operate in, including changes in multifamily housing supply and demand, our results of operations could be more negatively impacted than if we were more diversified within our markets or invested in a greater number of markets.
Competition in multifamily housing may negatively affect operations and demand for the Company’s properties or residents.
Our properties face competition for residents from other existing or new multifamily properties, condominiums, single family homes and other living arrangements, whether owned or rental, that may attract residents from our properties or prospective residents that would otherwise choose to live with us. As a result, we may not be able to renew existing resident leases or enter into new resident leases, or if we are able to renew or enter into new leases, they may be at rates or terms that are less favorable than our current rates or terms, resulting in a material impact on our results of operations.
Additionally, our properties face competition for residents as a result of technology innovation. Therefore, we may not be able to retain residents or attract new residents if we are unable to identify and cost effectively implement new, relevant technologies and keep up with constantly changing resident demand for the latest innovations.
The short-term nature of apartment leases exposes us more quickly to the effects of declining market rents, potentially making our results of operations and cash flows more volatile.
Generally, our residential apartment leases are for twelve months or less. If the terms of the renewal or releasing are less favorable than current terms, then the Company’s results of operations and financial condition could be negatively affected. Given our generally shorter-term lease structure, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms. In addition, operating expenses associated with each property, such as real estate taxes, insurance, utilities, maintenance costs and employee wages and benefits, may not decline as quickly or at the same rate as revenues when circumstances might cause a reduction of those revenues at our properties.
Competition for acquisitions may prevent us from acquiring properties on favorable terms.
We may not be successful in pursuing acquisition and development opportunities. We expect that other real estate investors will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.
Operations from new acquisitions, development projects and renovations may fail to perform as expected.
We intend to actively acquire, develop and renovate multifamily operating properties as part of our business strategy. Newly acquired, developed or renovated properties may not perform as we expect. We may overestimate the revenue (or underestimate the expenses) that these new or repositioned properties may generate. The occupancy rates and rents at these properties may also fail to meet our expectations for these investments. We may also underestimate the costs necessary to operate an acquired or developed property to the standards established for its intended market position. Land parcels acquired for development may lose significant value prior to the start of construction. Development and renovations are subject to even greater uncertainties and risks due to the complexities and lead time to build or complete these projects. We may also underestimate the costs to complete a development property or to complete a renovation.
Construction risks on our development projects could affect our profitability.
We intend to continue to develop multifamily properties through both wholly owned and joint venture arrangements as part of our business strategy. Development often includes long planning and entitlement timelines, subjecting the project to changes in market conditions. It can involve complex and costly activities, including significant environmental remediation or construction work in our markets. We may also experience an increase in costs due to general disruptions that affect the cost of labor and/or materials, such as supply chain disruptions, trade disputes, tariffs, labor unrest, geopolitical conflicts or other factors that create inflationary pressures. We may abandon opportunities that we have already begun to explore for a number of reasons, and as a result, we may fail to recover expenses or option payments already incurred in exploring those opportunities. We may also be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third-party permits and authorizations. These and other risks inherent in development projects, including the joint venture risks noted below. could result in increased costs or the delay or abandonment of opportunities.
Because real estate investments are illiquid, we may not be able to sell properties when appropriate.
Real estate investments often cannot be sold quickly due to regulatory constraints, market conditions or otherwise. As a result, we may not be able to reconfigure our portfolio, including the diversification of our portfolio into the expansion markets, as promptly as planned or in response to changing economic or other conditions. We may also be unable to consummate dispositions in a timely manner, on attractive terms, or at all. The capitalization rates/disposition yields at which properties may be sold could also be higher than historic rates, thereby reducing our potential proceeds from sale. In some cases, we may also determine that we will not recover the carrying amount of the property upon disposition. This inability to reallocate our capital promptly could negatively affect our financial condition, including our ability to make distributions to our security holders.
We are subject to risks involved in real estate activity through joint ventures.
We currently, and may continue to in the future, develop and acquire properties in joint ventures with unrelated third parties. Joint ventures create risks including the following:
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The possibility that our partners might refuse or be financially unable to make capital contributions when due or may fail to meet contractual obligations to cover development cost overruns and therefore we may be forced to make contributions to protect our investments;
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These projects generally use mortgage debt to finance their activities at a higher leverage level than how we finance the Company as a whole;
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We may be responsible to our partners for indemnifiable losses;
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Our partners might at any time have business or economic goals that are inconsistent with ours; and
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Our partners may be in a position to take action or withhold consent contrary to our recommendations, instructions or requests.
At times we have entered into agreements providing for joint and several liability with our partners. We also have in the past and could choose in the future to guarantee part of or all of certain joint venture debt. We and our respective joint venture partners may each have the right to trigger a buy-sell arrangement that could cause us to sell our interest, or acquire our partner's interest, at a time or price that is unfavorable to us. To the extent we have commitments to, on behalf of or are dependent on any such off-balance sheet commitments, or if those commitments or their properties or leases are subject to material contingencies, our liquidity and financial condition could be adversely affected.
In some instances, our joint venture partners may also have competing interests or objectives that could create conflicts of interest similar to those noted above. These objectives may be contrary to our compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures do not operate in compliance with those requirements. To the extent our partners do not meet their obligations to us or our joint ventures, or they take actions inconsistent with the interests of the joint venture, it could have a negative effect on our results of operations and financial condition, including distributions to our security holders.
The Company’s real estate assets may be subject to impairment charges.
A decline in the fair value of our assets may require us to recognize an impairment against our assets under accounting principles generally accepted in the United States (“GAAP”) if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets for a period of time sufficient to allow for recovery of the depreciated cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write-down the depreciated cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize material asset impairment charges in the future, these charges could adversely affect our financial condition and results of operations.
Corporate social responsibility, specifically related to ESG, may impose additional costs and expose us to new risks.
Environmental sustainability, social and governance evaluations remain highly important to some investors and other stakeholders. Certain organizations that provide corporate governance and other corporate risk advisory services to investors have developed scores and ratings to evaluate companies and investment funds based upon ESG metrics. Many investors focus on positive ESG-related business practices and scores when choosing to allocate their capital and may consider a company's score as a reputational or other factor in making an investment decision. Investors' increased focus and activism related to ESG and similar matters may constrain our business operations or increase expenses or capital expenditures. In addition, investors may decide to
refrain from investing in us as a result of their assessment of our approach to and consideration of ESG factors. We may face reputational damage in the event our corporate responsibility procedures or standards do not meet the standards set by various constituencies. Although we have generally scored highly in these metrics to date, there can be no assurance that we will continue to score highly in the future. In addition, the criteria by which companies are rated for ESG efforts may change, which could cause us to receive lower scores than in previous years. A low ESG score could result in a negative perception of the Company, exclusion of our securities from consideration by certain investors who may elect to invest with our competition instead and/or cause investors to reallocate their capital away from the Company, all of which could have an adverse impact on the price of our securities.
Risks Related to our Financing Strategy and Capital Structure
Disruptions in the financial markets could hinder our ability to obtain debt and equity financing and impact our acquisitions and dispositions.
Dislocations and disruptions in capital markets could result in increased costs or lack of availability of debt financing (including under our commercial paper program) and equity financing. Such events may affect our ability to refinance existing debt, require us to utilize higher cost alternatives and/or impair our ability to adjust to changing economic and business conditions. Capital market disruptions could negatively impact our ability to make acquisitions or make it more difficult or not possible for us to sell properties or may unfavorably affect the price we receive for properties that we do sell. Such disruptions could cause the price of our securities to decline.
Changes in market conditions and volatility of share prices could decrease the market price of our Common Shares.
The stock markets, including the New York Stock Exchange on which we list our Common Shares, have experienced significant price and volume fluctuations over time. As a result, the market price of our Common Shares could be similarly volatile. Investors in our Common Shares consequently may experience a decrease in the value of their shares, including decreases due to this volatility and not necessarily related to our operating performance or prospects. Additionally, the market price of our Common Shares may decline or fluctuate significantly in response to the sale of substantial amounts of our Common Shares, or the anticipation of the sale of such shares, by large holders of our securities, as well as our inclusion or exclusion from stock indices. The issuance of additional Common Shares by the Company, or the perception that such issuances might occur, could also cause significant volatility and decreases in the value of our shares.
Our financial counterparties may not perform their obligations.
Although we have not experienced any material counterparty non-performance, disruptions in financial and credit markets or other events could impair the ability of our counterparties to perform under their contractual obligations to us. There are multiple financial institutions that are individually committed to provide borrowings under our revolving credit facility. Should any of these institutions fail to perform their obligations when contractually required, our financial condition could be adversely affected.
Rising interest rates can increase costs and impact the value of the Company’s assets.
The Company is exposed to market risk from financial instruments primarily from changes in market interest rates. Such risks derive from the refinancing of debt, exposure to interest rate fluctuations in floating rate debt and from derivative instruments utilized to swap fixed rate debt to floating rates or to hedge rates in anticipation of future debt issuances. Increases in interest rates would increase our interest expense and the costs of refinancing existing debt. Higher interest rates could also result in increased capitalization rates, which may lead to reduced valuations of the Company’s assets.
Insufficient cash flow could affect our ability to service existing debt and create refinancing risk.
We are subject to risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments. We may not be able to refinance existing debt and if we can, the terms of such refinancing may be less favorable than the terms of existing indebtedness. Our inability to refinance, extend or repay debt with proceeds from other capital market transactions would negatively impact our financial condition. If the debt is secured, the mortgage holder may also foreclose on the property.
A significant downgrade in our credit ratings could adversely affect our performance.
A significant downgrade in our credit ratings, while not affecting our ability to draw proceeds under the Company’s revolving credit facility, would cause the corresponding borrowing costs to increase, impact our ability to borrow secured and unsecured debt, and potentially impair our ability to access the commercial paper market or otherwise limit our access to capital. In addition, a
downgrade below investment grade would likely cause us to lose access to the commercial paper markets and would require us to post cash collateral and/or letters of credit in favor of some of our secured lenders to cover our self-insured property and liability insurance deductibles or to obtain lower deductible insurance compliant with the lenders’ requirements at the lower ratings level.
Financial covenants could limit operational flexibility and affect our overall financial position.
The terms of our credit agreements, including our revolving credit facility and the indentures under which a substantial portion of our unsecured debt was issued, require us to comply with a number of financial covenants. These covenants may limit our flexibility to run our business and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness and trigger a cross default of other debt.
Some of our properties are financed with tax-exempt bonds or otherwise contain restrictive covenants or deed restrictions, including affordability requirements, which limit income from certain properties. The Company monitors compliance with the restrictive covenants and deed restrictions that affect these properties. While we generally believe that the interest rate benefit from financing properties with tax-exempt bonds more than outweighs any loss of income due to restrictive covenants or deed restrictions, this may not always be the case. Some of these requirements are complex, and our failure to comply with them may subject us to material fines or liabilities.
We may change the dividend policy for our securities in the future.
The decision to declare and pay dividends on our securities, as well as the timing, amount and composition of any such future dividends, is at the discretion of the Board of Trustees and will depend 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 Board of Trustees may modify our dividend policy from time to time and any change in our dividend policy could negatively impact the market price of our securities.
Issuances or sales of our Common Shares or Units may be dilutive.
Any additional issuance of Common Shares or Units would reduce the percentage of our Common Shares and Units owned by existing investors. In most circumstances, shareholders and unitholders will not be entitled to vote on whether or not we issue additional Common Shares or Units. In addition, depending on the terms and pricing of additional offerings of our Common Shares or Units along with the value of our properties, our shareholders and unitholders could experience dilution in both the book value and fair value of their Common Shares or Units, as well as dilution in our actual and expected earnings per share, funds from operations (“FFO”) per share and Normalized FFO per share.
Regulatory and Tax Risks
The adoption of, or changes in, rent control or rent stabilization regulations and eviction regulations in our markets could have an adverse effect on our operations and property values.
A growing number of state and local governments have enacted and may continue to consider enacting and/or expanding rent control, rent stabilization or other regulations, which limit or could continue to limit our ability to raise rents or charge certain fees, either of which could have a retroactive effect. We continue to see increases in governmental entities considering or being urged by advocacy groups to consider rent forgiveness, rent control or rent stabilization regulations or expand coverage of existing regulations in our markets. These regulations may also make changes to and/or expand eviction and other tenants’ rights regulations that may limit our ability to enforce residents’ or tenants’ contractual rental obligations (such as eviction moratoriums), pursue collections or charge certain fees, which could have an adverse impact on our operations and property values.
Compliance or failure to comply with regulatory requirements could result in substantial costs.
Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements, building and zoning codes, environmental and other ESG regulations, and federal, state and local accessibility requirements, including and in addition to those imposed by the Americans with Disabilities Act and the Fair Housing Act. Noncompliance could result in fines, subject us to lawsuits and require us to remediate or repair the noncompliance. Existing requirements could change and compliance with future requirements may require significant unanticipated expenditures that could adversely affect our financial condition or results of operations.
Environmental problems are possible and can be costly.
Federal, state and local laws and regulations relating to the protection of the environment may require current or previous owners or operators of real estate to investigate and clean up hazardous or toxic substances at such properties. The owner or operator
may have to pay a governmental entity or third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. Third parties may also sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site. We cannot be assured that existing environmental assessments of our properties reveal all environmental liabilities, that any prior owner of any of our properties did not create a material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to any of our properties.
Changes in U.S. accounting standards may materially and adversely affect the reporting of our operations.
The Company follows GAAP, which is established by the Financial Accounting Standards Board (“FASB”), an independent body whose standards are recognized by the Securities and Exchange Commission (“SEC”) as authoritative for publicly held companies. The FASB and the SEC create and interpret accounting standards and may issue new accounting pronouncements or change the interpretation and application of these standards that govern the preparation of our financial statements. These changes could have a material impact on our reported consolidated results of operations and financial position.
Any weaknesses identified in our internal control over financial reporting could result in a decrease of our share price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. If we identify one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have a negative impact on our share price.
Our failure to qualify as a REIT would have serious adverse consequences to our security holders.
We plan to continue to meet the requirements for taxation as a REIT. Many of these requirements, for which there is limited judicial and administrative interpretation, however, are highly technical and complex. Therefore, we cannot guarantee that we have qualified or will qualify as a REIT in the future. The determination that we are a REIT requires an analysis of various factual matters that may not be totally within our control. To qualify as a REIT, our assets must be substantially comprised of real estate assets as defined in the Internal Revenue Code of 1986, as amended (the “Code”), and related guidance and our gross income must generally come from rental and other real estate or passive related sources that are itemized in the REIT tax laws. We are also required to distribute to security holders at least 90% of our REIT taxable income excluding net capital gains.
If we fail to qualify as a REIT, we would be subject to U.S. federal income tax at regular corporate rates and would have to pay significant income taxes unless the Internal Revenue Service (“IRS”) granted us relief under certain statutory provisions. In addition, we would remain disqualified from taxation as a REIT for four years following the year in which we failed to qualify as a REIT. We would therefore have less money available for investments or for distributions to security holders and would no longer be required to make distributions to security holders. This would likely have a significant negative impact on the value of our securities.
In addition, certain of our subsidiary entities have elected to be taxed as REITs. As such, each must separately satisfy all of the requirements to qualify for REIT status. If a subsidiary REIT did not satisfy such requirements, and certain relief provisions did not apply, it would be taxed as a regular corporation and its income would be subject to U.S. federal income taxation. Failure to comply with these complex REIT rules at the subsidiary REIT level can have a material and detrimental impact to EQR’s REIT status.
Gain on disposition of assets held for sale in the ordinary course of business is subject to 100% tax.
Any gain resulting from transfers of properties we hold as inventory or primarily for sale to customers in the ordinary course of business is treated as income from a prohibited transaction subject to a 100% penalty tax unless certain safe harbor exceptions set forth in the Code apply. We do not believe that our transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question that depends on all the facts and circumstances surrounding the particular transaction. The IRS may contend that certain transfers or dispositions of properties by us or contributions of properties are prohibited transactions. While we believe the IRS would not prevail in any such dispute, if the IRS were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT.
We may be subject to legislative or regulatory tax changes that could negatively impact our financial condition.
At any time, U.S. federal income tax laws governing REITs or impacting real estate or the administrative interpretations of those laws may be enacted or amended. We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, IRS and U.S. Department of Treasury regulations or other administrative guidance, will be adopted or become effective and any such law, regulation or interpretation may take effect retroactively. The Company and our shareholders could be negatively impacted by any such change in, or any new, U.S. federal income tax law, regulations or administrative guidance.
Distribution requirements may limit our flexibility to manage our portfolio.
In order to maintain qualification as a REIT under the Code, a REIT must annually distribute to its shareholders at least 90% of its REIT taxable income, excluding the dividends paid deduction and net capital gains. To the extent the REIT does not distribute all its net capital gain, or distributes at least 90%, but less than 100% of its REIT taxable income, it will be required to pay regular U.S. federal income tax on the undistributed amount at corporate rates. In addition, we will be subject to a 4% nondeductible excise tax on amounts, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our net capital gains and 100% of our undistributed income from prior years. We may not have sufficient cash or other liquid assets to meet the 90% distribution requirement. We may be required from time to time, under certain circumstances, to accrue as income for tax purposes interest and rent earned but not yet received. We may incur a reduction in tax depreciation without a reduction in capital expenditures. Difficulties in meeting the 90% distribution requirement might arise due to competing demands for our funds or due to timing differences between tax reporting and cash distributions, because deductions may be disallowed, income may be reported before cash is received, expenses may have to be paid before a deduction is allowed or because the IRS may make a determination that adjusts reported income. In addition, gain from the sale of property may exceed the amount of cash received on a leverage-neutral basis. A substantial increase to our taxable income may reduce the flexibility of the Company to manage its portfolio through dispositions of properties other than through tax deferred transactions, such as Section 1031 exchanges, or cause the Company to borrow funds or liquidate investments on unfavorable terms in order to meet these distribution requirements. If we do not dispose of our properties through tax deferred transactions, we may be required to distribute the gain proceeds to shareholders or pay income tax. If we fail to satisfy the 90% distribution requirement and are unable to cure the deficiency, we would cease to be taxed as a REIT, resulting in substantial tax-related liabilities.
We have a share ownership limit for REIT tax purposes.
To remain qualified as a REIT for U.S. federal income tax purposes, not more than 50% in value of our outstanding Shares may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any year. To facilitate maintenance of our REIT qualification, our Declaration of Trust, subject to certain exceptions, prohibits ownership by any single shareholder of more than five percent of the lesser of the number or value of any outstanding class of common or preferred shares (the “Ownership Limit”). Absent an exemption or waiver granted by our Board of Trustees, securities acquired or held in violation of the Ownership Limit will be transferred to a trust for the exclusive benefit of a designated charitable beneficiary, and the security holder’s rights to distributions and to vote would terminate. A transfer of Shares may automatically be deemed void if it causes a person to violate the Ownership Limit. The Ownership Limit could delay or prevent a change in control and, therefore, could affect our security holders’ ability to realize a premium over the then-prevailing market price for their Shares. To reduce the ability of the Board to use the Ownership Limit as an anti-takeover device, the Company’s Ownership Limit requires, rather than permits, the Board to grant a waiver of the Ownership Limit if the individual seeking a waiver demonstrates that such ownership would not jeopardize the Company’s status as a REIT.
Tax elections regarding distributions may impact future liquidity of the Company or our shareholders.
Under certain circumstances we have made and/or may consider making in the future, a tax election to treat certain distributions to shareholders made after the close of a taxable year as having been distributed during such closed taxable year. This election, which is provided for in the Code, may allow us to avoid increasing our dividends or paying additional income taxes in the current year. However, this could result in a constraint on our ability to decrease our dividends in future years without creating risk of either violating the REIT distribution requirements or generating additional income tax liability. In addition, the Company may be required to pay interest to the IRS based on such a distribution.
In order to retain liquidity and continue to satisfy the REIT distribution requirements, the Company could issue shares rather than pay a dividend entirely in cash to shareholders. The IRS has published several rulings which have allowed REITs to offer shareholders the choice between shares or cash as a form of payment of a dividend (an “elective stock dividend”). However, REITs are generally required to structure the cash component to be no less than 20% of the total dividend paid. Therefore, it is possible that the total tax burden to shareholders resulting from an elective stock dividend may exceed the amount of cash received by the shareholder.
Inapplicability of Maryland law limiting certain changes in control.
Certain provisions of Maryland law applicable to REITs prohibit “business combinations” (including certain issuances of equity securities) with any person who beneficially owns ten percent or more of the voting power of outstanding securities, or with an
affiliate who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the Company’s outstanding voting securities (an “Interested Shareholder”), or with an affiliate of an Interested Shareholder. These prohibitions last for five years after the most recent date on which the Interested Shareholder became an Interested Shareholder. After the five-year period, a business combination with an Interested Shareholder must be approved by two super-majority shareholder votes unless, among other conditions, holders of common shares receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Shareholder for its common shares. As permitted by Maryland law, however, the Board of Trustees of the Company has opted out of these restrictions with respect to any business combination involving Sam Zell and certain of his affiliates and persons acting in concert with them. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to a business combination involving us and/or any of them. Such business combinations may not be in the best interest of our security holders.
General Risk Factors
Risk of Pandemics or Other Health Crisis.
A pandemic, epidemic or other health crisis, similar to the ongoing 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 occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our reputation and business relationships, all of which could negatively impact our financial results.
A cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt payment collections and operations, corrupt data or steal confidential information, including information regarding our residents, prospective residents, employees and employees’ dependents.
Despite system redundancy, the implementation of security measures, required employee awareness training and the existence of a disaster recovery plan for our internal information technology systems, our systems and systems maintained by third-party vendors with which we do business are vulnerable to damage from any number of sources. We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, phishing attempts, ransomware or other scams, persons inside our organization or persons/vendors with access to our systems and other significant disruptions of our information technology networks and related systems, including property infrastructure. Our information technology networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.
We may periodically collect and store personally identifiable information of our residents and prospective residents in connection with our leasing activities, and we may collect and store personally identifiable information of our employees and their dependents. In addition, we often engage third-party service providers that may have access to such personally identifiable information in connection with providing necessary information technology, security and other business services to us. The systems of these third-party service providers may contain defects in design or other problems that could unexpectedly compromise personally identifiable information. Although we make efforts to maintain the security and integrity of our information technology networks and those of our third-party providers and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
We address potential breaches or disclosure of this confidential personally identifiable information by implementing a variety of security measures intended to protect the confidentiality and security of this information including (among others): (a) engaging reputable, recognized firms to help us design and maintain our information technology and data security systems; (b) conducting periodic testing and verification of information and data security systems, including performing ethical hacks of our systems to discover where any vulnerabilities may exist; (c) providing periodic employee awareness training around phishing and other scams, malware and other cyber risks; and (d) systematically deleting personally identifiable information that no longer is required. The Company also has a cyber liability insurance policy to provide some coverage for certain risks arising out of data and network breaches and data privacy regulations which provides a policy aggregate limit and a per occurrence deductible. Cyber liability insurance generally covers, among other things, costs associated with the wrongful release, through inadvertent breach or network
attack, of personally identifiable information. However, there can be no assurance that these measures will prevent a cyber incident or that our cyber liability insurance coverage will be sufficient to cover our losses in the event of a cyber incident.
A breach or significant and extended disruption in the function of our systems, including our primary website, could damage our reputation and cause us to lose residents and revenues, result in a violation of applicable privacy and other laws, generate third-party claims, result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personally identifiable and confidential information and require us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues. We may not be able to recover these expenses in whole or in any part from our service providers, our insurers or any other responsible parties. As a result, there can be no assurance that our financial results would not be negatively impacted.
We are also subject to laws, rules, and regulations in the United States, such as the California Consumer Privacy Act (“CCPA”), relating to the collection, use, and security of resident, customer, employee and other data. Evolving compliance and operational requirements under the CCPA and the privacy laws of other jurisdictions in which we operate may impose significant costs that are likely to increase over time. Our failure to comply with laws, rules, and regulations related to privacy and data protection could harm our business or reputation or subject us to fines and penalties.
The Audit Committee is primarily responsible for oversight of the risk management process related to cybersecurity and typically meets no less often than annually with Company information technology personnel to discuss recent trends in cyber risks and the Company’s strategy to defend its business systems and information against cyber attacks as well as the Company’s efforts to comply with data privacy laws such as the CCPA.
Our business and operations rely on specialized information technology systems, the failure of or inadequacy of which could impact our business.
Our ability to identify, implement and maintain appropriate information technology systems differentiates and creates competitive advantages for us in the operations of our business. These systems often are developed and hosted by third-party vendors whom we rely upon for ongoing maintenance, upgrades and enhancements. While we maintain a rigorous process around selecting appropriate information technology systems and partnering with vendors, our failure to adequately do so could negatively impact our operations and competitive position.
We depend on our key personnel.
We depend on the efforts of our trustees and executive officers. If one or more of them resign or otherwise cease to be employed by us, our business and results of operations and financial condition could be adversely affected.
Litigation risk could affect our business.
We may become involved in legal proceedings, claims, actions, inquiries and investigations in the ordinary course of business. These legal proceedings may include, but are not limited to, proceedings related to consumer, shareholder, securities, employment, environmental, development, condominium conversion, tort, eviction and commercial legal issues. Litigation can be lengthy and expensive, and it can divert management's attention and resources. Results cannot be predicted with certainty, and an unfavorable outcome in litigation could result in liability material to our financial condition or results of operations.
Insurance policies can be costly and may not cover all losses, which may adversely affect our financial condition or results of operations.
The Company’s property, general liability and workers compensation insurance policies provide coverage with substantial per occurrence deductibles and/or self-insured retentions. These self-insurance retentions can be a material portion of insurance losses in excess of the base deductibles. While the Company has previously purchased incremental insurance coverage in the event of multiple non-catastrophic occurrences within the same policy year, these substantial deductible and self-insured retention amounts do expose the Company to greater potential for uninsured losses and this additional multiple occurrences coverage may not be available at all or on commercially reasonable terms in the future. We believe the policy specifications and insured limits of these policies are adequate and appropriate; however, there are certain types of extraordinary losses which may not be adequately covered under our insurance program. As a result, our financial results could be adversely affected and may vary significantly from period to period.
The Company relies on third-party insurance providers for its property, general liability, workers compensation and other insurance, and should any of them experience liquidity issues or other financial distress, it could negatively impact their ability to pay claims under the Company’s policies.
Earthquake risk: Our policies insuring against earthquake losses have substantial deductibles which are applied to the values of the buildings involved in the loss. With the geographic concentration of our properties, a single earthquake affecting a market may have a significant negative effect on our financial condition and results of operations. We cannot assure that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property or market, as well as anticipated future revenue.
Terrorism risk: The Company has terrorism insurance coverage which excludes losses from nuclear, biological and chemical attacks. In the event of a terrorist attack impacting one or more of our properties, we could lose the revenues from the property, our capital investment in the property and possibly face liability claims from residents or others suffering injuries or losses.
Catastrophic weather and natural disaster risk: Our properties may be located in areas that could experience catastrophic weather and other natural disasters from time to time, including wildfires, snow or ice storms, hail, windstorms or hurricanes, drought, flooding or other severe disasters. These severe weather and natural disasters could cause substantial damages or losses to our properties which may not be covered or could exceed our insurance coverage. Exposure to this risk could also result in a decrease in demand for properties located in these areas or affected by these conditions.
Climate change risk: To the extent that significant changes in the climate occur in areas where our properties are located, we may experience severe weather, which may result in physical damage to or decrease the demand for properties located in these areas or affected by these conditions. Should the impact of climate change be material in nature, significant property damage or destruction of our properties could result. In addition, climate change could cause a significant increase in insurance premiums and deductibles or a decrease in the availability of coverage, either of which could expose the Company to even greater uninsured losses. Our financial condition or results of operations may be adversely affected. In addition, changes in federal, state and local legislation and regulation based on concerns about climate change could adversely impact the value of our properties or result in increased capital expenditures on our existing properties and our new development properties.
Provisions of our Declaration of Trust and Bylaws could inhibit changes in control.
Certain provisions of our Declaration of Trust and Bylaws may delay or prevent a change in control of the Company or other transactions that could provide the security holders with a premium over the then-prevailing market price of their securities or which might otherwise be in the best interest of our security holders. This includes the Ownership Limit described above. While our existing preferred shares/preference units do not have all of these provisions, any future series of preferred shares/preference units may have certain voting provisions that could delay or prevent a change in control or other transactions that might otherwise be in the interest of our security holders. Our Bylaws require certain information to be provided by any security holder, or persons acting in concert with such security holder, who proposes business or a nominee at an annual meeting of shareholders, including disclosure of information related to hedging activities and investment strategies with respect to our securities. These requirements could delay or prevent a change in control or other transactions that might otherwise be in the interest of our security holders. The Board of Trustees may use its powers to issue preferred shares and to set the terms of such securities to delay or prevent a change in control of the Company even if a change in control were in the interest of the security holders.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
As of December 31, 2021, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 310 properties located in 10 states and the District of Columbia consisting of 80,407 apartment units. See Item 1, Business, for additional information regarding the Company’s properties and the markets/metro areas upon which we are focused. The Company’s properties are summarized by building type in the following table:
Type
Properties
Apartment Units
Average
Apartment Units
Garden
24,489
Mid/High-Rise
55,918
80,407
Garden-style are generally defined as properties with two and/or three story buildings while mid-rise/high-rise are generally defined as properties with greater than three story buildings. These two property types typically provide residents with amenities, such as rooftop decks and swimming pools, fitness centers and community rooms. In addition, many of our urban properties have non-residential components, such as parking garages and/or retail spaces.
The Company’s properties are summarized by ownership type in the following table:
Properties
Apartment Units
Wholly Owned Properties
76,861
Partially Owned Properties - Consolidated
3,546
80,407
The following table sets forth certain information by market relating to the Company’s properties at December 31, 2021:
Portfolio Summary
Markets/Metro Areas
Properties
Apartment
Units
% of
Stabilized
Budgeted
NOI (1)
Average
Rental
Rate (2)
Established Markets:
Los Angeles
15,259
18.6
%
$
2,673
Orange County
4,028
5.3
%
2,427
San Diego
2,706
3.7
%
2,598
Subtotal - Southern California
21,993
27.6
%
2,619
San Francisco
11,830
16.0
%
2,957
Washington D.C.
14,851
15.5
%
2,358
New York
9,343
13.7
%
3,597
Boston
7,170
11.4
%
3,049
Seattle
9,525
11.0
%
2,332
Expansion Markets:
Denver
2,498
2.6
%
2,197
Atlanta
1,215
1.0
%
1,935
Dallas/Ft. Worth
1,241
0.8
%
1,868
Austin
0.4
%
1,694
Total
80,407
100.0
%
$
2,696
Note: Projects under development are not included in the Portfolio Summary until construction has been completed.
(1)
% of Stabilized Budgeted NOI - Represents original budgeted 2022 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.
(2)
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.
The following tables provide a rollforward of the apartment units included in Same Store Properties (please refer to the Definitions section in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations) and a reconciliation of apartment units included in Same Store Properties to those included in Total Properties for the year ended December 31, 2021:
Year Ended December 31, 2021
Properties
Apartment
Units
Same Store Properties at December 31, 2020
73,585
2019 acquisitions stabilized
3,323
2021 dispositions
(14
)
(3,053
)
Lease-up properties stabilized
Same Store Properties at December 31, 2021
74,077
Year Ended December 31, 2021
Properties
Apartment
Units
Same Store
74,077
Non-Same Store:
2021 acquisitions
4,747
2020 acquisitions
2019 acquisitions not yet stabilized
Lease-up properties not yet stabilized (1)
1,207
Other
Total Non-Same Store
6,330
Total Properties and Apartment Units
80,407
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 properties in various stages of lease-up and properties where lease-up has been completed but the properties were not stabilized for the comparable periods presented. Also includes one former third-party master-leased property that was not stabilized.
As of December 31, 2021, the Company’s same store occupancy was 96.4% and its total portfolio-wide occupancy, which includes completed development properties in various stages of lease-up, was 95.7%. Certain of the Company’s properties are encumbered by mortgages and additional detail can be found on Schedule III - Real Estate and Accumulated Depreciation.
The properties in various stages of development and lease-up at December 31, 2021 are included in the following table:
Development and Lease-Up Projects as of December 31, 2021
(Amounts in thousands except for project and apartment unit amounts)
Total
Total
No. of
Budgeted
Book
Estimated/Actual
Percentage
Ownership
Apartment
Capital
Value
Total
Percentage
Start
Initial
Completion
Stabilization
Leased /
Projects
Location
Percentage
Units
Cost (1)
to Date
Debt (2)
Completed
Date
Occupancy
Date
Date
Occupied
CONSOLIDATED:
Projects Under Development:
9th and W (3)
Washington, DC
92%
$
108,027
$
24,307
$
-
16%
Q3 2021
Q2 2023
Q3 2023
Q3 2024
- / -
Projects Under Development -
Consolidated
108,027
24,307
-
Projects Completed Not Stabilized:
The Edge (fka 4885 Edgemoor
Lane) (3)
Bethesda, MD
100%
75,271
73,091
-
100%
Q3 2019
Q3 2021
Q3 2021
Q3 2022
62% / 54%
Aero Apartments
Alameda, CA
90%
117,794
113,361
61,662
100%
Q3 2019
Q2 2021
Q2 2021
Q2 2022
71% / 70%
Alcott Apartments (fka West End
Tower)
Boston, MA
100%
409,749
398,138
-
98%
Q2 2018
Q3 2021
Q4 2021
Q1 2023
52% / 43%
Projects Completed Not Stabilized -
Consolidated
602,814
584,590
61,662
UNCONSOLIDATED: (4)
Projects Under Development:
Alloy Sunnyside
Denver, CO
80%
66,004
15,554
-
12%
Q3 2021
Q2 2023
Q4 2023
Q3 2024
- / -
Alexan Harrison
Harrison, NY
62%
198,664
52,041
-
4%
Q3 2021
Q3 2023
Q2 2024
Q4 2025
- / -
Solana Beeler Park
Denver, CO
90%
79,956
12,739
-
1%
Q4 2021
Q4 2023
Q2 2024
Q1 2025
- / -
Projects Under Development -
Unconsolidated
344,624
80,334
-
Total Development Projects -
Consolidated
1,136
710,841
608,897
61,662
Total Development Projects -
Unconsolidated
344,624
80,334
-
Total Development Projects
2,065
$
1,055,465
$
689,231
$
61,662
(1)
Total Budgeted Capital Cost - Estimated remaining cost for projects under development and/or developed plus all capitalized costs incurred to date, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, plus any estimates of costs remaining to be funded for all projects, all in accordance with GAAP. Amounts for partially owned consolidated and unconsolidated properties are presented at 100% of the project.
(2)
All non-wholly owned projects are being partially funded with project-specific construction loans. None of these loans are recourse to the Company. As of December 31, 2021, no draws have been made on the construction loans for 9th and W, Alloy Sunnyside, Alexan Harrison or Solana Beeler Park.
(3)
The land under these projects are subject to long-term ground leases.
(4)
The Company has six unconsolidated development joint ventures as of December 31, 2021. In addition to the three projects disclosed in “Projects Under Development - Unconsolidated” above, the Company has three additional unconsolidated joint venture projects that have not yet started but are expected to do so in 2022 and eventually deliver approximately 1,005 apartment units.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
As of December 31, 2021, 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 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Share/Unit Information (Equity Residential and ERP Operating Limited Partnership)
The Company’s Common Shares trade on the New York Stock Exchange under the trading symbol EQR. There is no established public market for the Operating Partnership’s Units (OP Units and restricted units). At February 11, 2022, the number of record holders of Common Shares was approximately 1,850 and 375,917,242 Common Shares were outstanding. At February 11, 2022, the number of record holders of Units in the Operating Partnership was approximately 475 and 388,789,846 Units were outstanding.
Unregistered Common Shares Issued in the Quarter Ended December 31, 2021 (Equity Residential)
During the quarter ended December 31, 2021, EQR issued 200,245 Common Shares in exchange for 200,245 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 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.
Equity Compensation Plan Information
The following table provides information as of December 31, 2021 with respect to the Company’s Common Shares that may be issued under its existing equity compensation plans.
Plan Category
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
in column (a))
(a) (1)
(b) (1)
(c) (2)
Equity compensation plans approved by shareholders
4,387,833
$
60.65
12,092,912
Equity compensation plans not approved by shareholders
N/A
N/A
N/A
(1)
The amounts shown in columns (a) and (b) of the above table do not include 309,876 outstanding Common Shares (all of which are restricted and subject to vesting requirements) that were granted under the Company’s 2011 Share Incentive Plan, as amended (the “2011 Plan”), and 2019 Share Incentive Plan, as amended (the “2019 Plan”), and outstanding Common Shares that have been purchased by employees and trustees under the Company’s ESPP.
(2)
Includes 9,539,478 Common Shares that may be issued under the 2019 Plan and 2,553,434 Common Shares that may be sold to employees and trustees under the ESPP.
On June 27, 2019, the shareholders of EQR approved the Company's 2019 Plan and the Company filed a Form S-8 registration statement to register 11,331,958 Common Shares under this plan. As of December 31, 2021, 9,539,478 shares were available for future issuance. In conjunction with the approval of the 2019 Plan, no further awards may be granted under the 2011 Plan. The 2019 Plan expires on June 27, 2029.
Any Common Shares issued pursuant to EQR’s incentive equity compensation and employee share purchase plans will result in ERPOP issuing OP Units to EQR on a one-for-one basis, with ERPOP receiving the net cash proceeds of such issuances.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the results of operations and financial condition of the Company and the Operating Partnership should be read in connection with the Consolidated Financial Statements and Notes thereto. Due to the Company’s ability to control the Operating Partnership and its subsidiaries, the Operating Partnership and each such subsidiary entity has been consolidated with the Company for financial reporting purposes, except for any unconsolidated properties/entities. Capitalized terms used herein and not defined are as defined elsewhere in this Annual Report on Form 10-K. In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 7, 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 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 and its accompanying variants, many of which are unknown, including the duration, severity and the extent of the adverse health impact on the general population, our residents and employees, the distribution, effectiveness and acceptance of vaccines and testing, the overall reopening progress in the cities in which we operate, the potential long-term changes in customer preferences for living in our communities and the impact of operational changes we have implemented and may implement in response to the pandemic.
Additional factors that might cause such differences are discussed in Part I of this Annual Report on Form 10-K, particularly those under Item 1A, Risk Factors.
Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report.
Overview
See Item 1, Business, for discussion regarding the Company’s overview.
Business Objectives and Operating and Investing Strategies
See Item 1, Business, for discussion regarding the Company’s business objectives and operating and investing strategies.
COVID-19 Impact
The Company continues to monitor and respond to the ongoing effects of the COVID-19 pandemic. Its duration, severity and the extent of its adverse health impact on the general population, our residents and employees, along with the distribution, effectiveness and acceptance of vaccines and testing and pace and degree of recovery from the pandemic are among the many unknowns that have had or could continue to have a significant impact on the Company. 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. Despite the impact of COVID-19, we continue to believe that the long-term prospects for our business remain strong. For additional details, see Item 1A, Risk Factors.
Results of Operations
2020 and 2021 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 years ended December 31, 2020 and 2021:
Portfolio Rollforward
($ in thousands)
Properties
Apartment
Units
Purchase Price
Acquisition
Cap Rate
12/31/2019
79,962
Acquisitions:
Consolidated Rental Properties - Not Stabilized (1)
$
48,860
4.7
%
Sales Price
Disposition
Yield
Dispositions:
Consolidated Rental Properties
(6
)
(2,231
)
$
(1,066,861
)
(4.5
)%
12/31/2020
77,889
Purchase Price
Acquisition
Cap Rate
Acquisitions:
Consolidated Rental Properties
3,533
$
1,249,679
3.7
%
Consolidated Rental Properties - Not Stabilized (2)
1,214
$
459,700
4.0
%
Sales Price
Disposition
Yield
Dispositions:
Consolidated Rental Properties
(14
)
(3,053
)
$
(1,716,775
)
(3.7
)%
Completed Developments - Consolidated
12/31/2021
80,407
(1)
The Company acquired one property during the year ended December 31, 2020 in the Seattle market that was in lease-up and is expected to stabilize in its second year of ownership.
(2)
The Company acquired four properties during the year ended December 31, 2021, one each in the Denver, Atlanta, Seattle and Dallas/Ft. Worth markets, that are in lease-up and are expected to stabilize in their second year of ownership at the combined Acquisition Cap Rate listed above.
Acquisitions
•
The consolidated property acquired in 2020 was located in the Seattle market;
•
The consolidated properties acquired in 2021 are located in the Atlanta (4), Austin (3), Boston, Dallas/Ft. Worth (4), Denver (3), Seattle and Washington D.C. markets. The Atlanta, Austin and Dallas/Ft. Worth acquisitions marked the Company’s re-entry into these markets;
•
Approximately $1.4 billion, or 82.0% of all acquisition activity in 2021, was in expansion markets; and
•
The Company funded the 2021 acquisitions by selling older assets located within established markets that no longer met our long-term investment criteria.
Dispositions
•
The consolidated properties disposed of in 2020 were located in the Phoenix, San Diego, San Francisco (3) and Washington D.C. markets and the sales generated an Unlevered IRR of 10.2%; and
•
The consolidated properties disposed of in 2021 were located in the Los Angeles (6), New York, San Francisco (5), Seattle and Washington D.C. markets and the sales generated an Unlevered IRR of 10.4%.
Developments
•
The Company completed construction on three consolidated apartment properties during 2021, located in the San Francisco, Washington D.C. and Boston markets, consisting of 824 apartment units totaling approximately $602.8 million of development costs; and
•
The Company commenced construction on one consolidated and three unconsolidated apartment properties during 2021, located in the Denver (2), New York and Washington D.C. markets, consisting of 1,241 apartment units totaling approximately $452.7 million of expected development costs.
Investments in Unconsolidated Entities
•
The Company entered into six separate unconsolidated joint ventures during 2021 for the purpose of developing vacant land parcels in Texas (3), Colorado (2) and New York. The Company’s total investment in these six joint ventures is approximately $72.2 million as of December 31, 2021. Three of the projects are related to the Company’s joint venture development program with Toll Brothers, Inc. (“Toll”) discussed below; and
•
Pursuant to our strategic partnership with Toll, the Company and Toll entered into three separate joint venture agreements during 2021. The projects have not yet started but are expected to do so in 2022. Toll will act as managing member of each project overseeing approvals, design and construction. See Notes 6 and 16 in the Notes to Consolidated Financial Statements for additional discussion.
See Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s real estate transactions.
Future Outlook
•
The Company’s guidance assumes consolidated rental acquisitions of approximately $2.0 billion and consolidated rental dispositions of approximately $2.0 billion during the year ending December 31, 2022; and
•
We currently anticipate spending approximately $200.0 million on development costs during the year ending December 31, 2022, primarily for consolidated and unconsolidated properties currently under construction (amount only includes our share of development costs).
The above 2022 guidance assumptions are based on current expectations and are forward-looking.
Comparison of the year ended December 31, 2021 to the year ended December 31, 2020
The following table presents a reconciliation of diluted earnings per share/unit for the year ended December 31, 2021 as compared to the same period in 2020:
Year Ended
December 31
Diluted earnings per share/unit for full year 2020
$
2.45
Property NOI
(0.35
)
Interest expense
0.14
Debt extinguishment costs
0.10
Corporate overhead (1)
(0.03
)
Net gain/loss on property sales
1.38
Non-operating asset gains/losses
(0.02
)
Impairment - non-operating assets
(0.04
)
Depreciation expense
(0.04
)
Other
(0.05
)
Diluted earnings per share/unit for full year 2021
$
3.54
(1)
Corporate overhead includes property management and general and administrative expenses.
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 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):
Year Ended December 31,
2021 vs. 2020
$ Change
% Change
Operating income
$
1,675,841
$
1,317,990
$
357,851
27.2
%
Adjustments:
Property management
98,155
93,825
4,330
4.6
%
General and administrative
56,506
48,305
8,201
17.0
%
Depreciation
838,272
820,832
17,440
2.1
%
Net (gain) loss on sales of real estate properties
(1,072,183
)
(531,807
)
(540,376
)
101.6
%
Impairment
16,769
-
16,769
-
Total NOI
$
1,613,360
$
1,749,145
$
(135,785
)
(7.8
)%
Rental income:
Same store
$
2,342,257
$
2,425,025
$
(82,768
)
(3.4
)%
Non-same store/other
121,740
146,680
(24,940
)
(17.0
)%
Total rental income
2,463,997
2,571,705
(107,708
)
(4.2
)%
Operating expenses:
Same store
803,995
780,381
23,614
3.0
%
Non-same store/other
46,642
42,179
4,463
10.6
%
Total operating expenses
850,637
822,560
28,077
3.4
%
NOI:
Same store
1,538,262
1,644,644
(106,382
)
(6.5
)%
Non-same store/other
75,098
104,501
(29,403
)
(28.1
)%
Total NOI
$
1,613,360
$
1,749,145
$
(135,785
)
(7.8
)%
Note: See Note 17 in the Notes to Consolidated Financial Statements for detail by reportable segment/market. Non-same store/other NOI results consist primarily of properties acquired in calendar years 2020 and 2021, operations from the Company’s development properties and operations prior to disposition from 2020 and 2021 sold properties.
•
The decrease in same store rental income is due primarily to the negative cumulative impact of leasing activity at lower Average Rental Rates, particularly in late 2020 and early 2021.
•
The increase in same store operating expenses is due primarily to:
•
Utilities - A $10.2 million increase due to water, sewer and trash charges (approximately 65% of total) increasing as a result of both higher usage and rate, as well as increases in natural gas and electric charges (approximately 35% of total) due to higher commodity prices;
•
Real estate taxes - A $5.2 million increase due to modest rate growth, partially offset by reduced assessed values in certain locations; and
•
Repairs and maintenance - A $5.2 million increase primarily driven by low comparable period expense growth due to the pandemic along with increases in minimum wage on contract services and maintenance repairs in 2021.
•
The decrease in non-same store/other NOI is due primarily to a negative impact of lost NOI from 2020 and 2021 dispositions of $50.2 million, partially offset by a positive impact of higher NOI from non-stabilized properties acquired between 2019 and 2021 of $21.1 million.
•
The decrease in consolidated total 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.
See the Same Store Results section below for additional discussion of those results.
Property management expenses include off-site expenses associated with the self-management of the Company’s properties as well as management fees paid to any third-party management companies. These expenses increased approximately $4.3 million or 4.6% during the year ended December 31, 2021 as compared to 2020. This increase is primarily attributable to increases in payroll-related costs, legal and professional fees and information technology-related costs specifically for various operating initiatives such as sales-focused improvements and service enhancements. The expenses in 2020 were lower than normal due to the impact of COVID-19.
General and administrative expenses, which include corporate operating expenses, increased approximately $8.2 million or 17.0% during the year ended December 31, 2021 as compared to 2020, primarily due to increases in payroll-related costs, partially offset by decreases in office rent as a result of the consolidation of space at the Company’s corporate headquarters. The expenses in 2020 were lower than normal due to the impact of COVID-19.
Depreciation expense, which includes depreciation on non-real estate assets, increased approximately $17.4 million or 2.1% during the year ended December 31, 2021 as compared to 2020, primarily as a result of additional depreciation expense on properties acquired in 2020 and 2021 and development properties placed in service during 2021, partially offset by in-place leases for 2019 acquisitions being fully depreciated as of December 31, 2020 and the Company being a net seller during 2020, which resulted in lower depreciation in the current period.
Net gain on sales of real estate properties increased approximately $540.4 million or 101.6% during the year ended December 31, 2021 as compared to 2020, primarily as a result of a higher sales volume with the sale of fourteen consolidated apartment properties in 2021 as compared to the sale of six consolidated apartment properties in the same period in 2020.
Impairment increased approximately $16.8 million during the year ended December 31, 2021 as compared to 2020, due to an impairment charge in 2021 on one land parcel held for development compared to no impairment charges taken during 2020.
Interest and other income increased approximately $19.7 million during the year ended December 31, 2021 as compared to 2020. The increase is primarily due to a gain of $23.4 million on the sale of various investment securities that occurred during 2021 but not during 2020, partially offset by decreases in insurance/litigation settlement proceeds and other non-comparable items that occurred during 2020 but not during 2021.
Other expenses increased approximately $1.8 million or 10.1% during the year ended December 31, 2021 as compared to 2020, primarily due to an increase in various litigation and environmental reserves/settlements and an increase in ground lease finance charges, partially offset by a decrease in advocacy contributions.
Interest expense, including amortization of deferred financing costs, decreased approximately $92.8 million or 24.8% during the year ended December 31, 2021 as compared to 2020. The decrease is primarily due to lower debt extinguishment costs as well as lower overall interest rates and debt balances in 2021 as compared to 2020. The effective interest cost on all indebtedness, excluding debt extinguishment costs/prepayment penalties, for the year ended December 31, 2021 was 3.52% as compared to 3.94% in 2020. The Company capitalized interest of approximately $15.9 million and $10.2 million during the years ended December 31, 2021 and 2020, respectively.
Net gain on sales of land parcels decreased approximately $34.2 million during the year ended December 31, 2021 as compared to 2020, primarily as a result of the sale of two land parcels in 2020 as compared to no sales in 2021.
Net (income) loss attributable to Noncontrolling Interests in partially owned properties increased approximately $3.1 million or 20.9% during the year ended December 31, 2021 as compared to 2020, primarily as a result of higher noncontrolling interest allocations from higher gains on the sale of one partially owned apartment property in 2021 as compared to the sale of one partially owned apartment property in 2020.
For comparison of the year ended December 31, 2020 to the year ended December 31, 2019, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020.
Same Store Results
Properties that the Company owned and were stabilized for all of both 2021 and 2020 (the “2021 Same Store Properties”), which represented 74,077 apartment units, drove the Company’s results of operations. 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.
The following table provides comparative total same store results and statistics for the 2021 Same Store Properties:
2021 vs. 2020
Same Store Results/Statistics Including 74,077 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
Residential
%
Change
Non-
Residential
%
Change
Total
%
Change
Residential
Non-
Residential
Total
Revenues
$
2,253,068
(4.6
%)
$
89,189
(1)
40.1
%
$
2,342,257
(3.4
%)
Revenues
$
2,361,359
$
63,666
$
2,425,025
Expenses
$
779,729
2.8
%
$
24,266
9.7
%
$
803,995
3.0
%
Expenses
$
758,257
$
22,124
$
780,381
NOI
$
1,473,339
(8.1
%)
$
64,923
56.3
%
$
1,538,262
(6.5
%)
NOI
$
1,603,102
$
41,542
$
1,644,644
Average Rental Rate
$
2,640
(5.6
%)
Average Rental Rate
$
2,797
Physical Occupancy
96.1
%
1.1
%
Physical Occupancy
95.0
%
Turnover
44.4
%
(8.5
%)
Turnover
52.9
%
Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
(1)
Changes in same store Non-Residential revenues are primarily driven by the write-off of Non-Residential straight-line lease receivables in 2020 and lower bad debt in 2021.
The following table provides results and statistics related to our Residential same store operations for the years ended December 31, 2021 and 2020:
2021 vs. 2020
Same Store Residential Results/Statistics by Market
Increase (Decrease) from Prior Year
Markets/Metro Areas
Apartment
Units
% of
Actual
NOI
Average
Rental
Rate
Weighted
Average
Physical
Occupancy %
Turnover
Average
Rental
Rate
Physical
Occupancy
Turnover
Los Angeles
15,259
20.5
%
$
2,501
96.6
%
41.5
%
(0.7
%)
1.0
%
(10.4
%)
Orange County
4,028
5.7
%
2,318
97.7
%
34.6
%
2.9
%
1.0
%
(10.7
%)
San Diego
2,706
4.1
%
2,484
97.6
%
43.1
%
4.6
%
0.6
%
(5.9
%)
Subtotal - Southern California
21,993
30.3
%
2,465
96.9
%
40.4
%
0.5
%
0.9
%
(9.9
%)
San Francisco
11,630
18.0
%
2,900
95.1
%
48.2
%
(11.3
%)
0.6
%
(8.7
%)
Washington D.C.
14,322
17.5
%
2,332
96.5
%
45.3
%
(4.3
%)
0.9
%
(5.0
%)
New York
9,343
12.1
%
3,497
95.2
%
37.5
%
(9.6
%)
2.4
%
(13.8
%)
Seattle
8,819
10.6
%
2,274
95.6
%
50.6
%
(7.1
%)
0.2
%
(4.0
%)
Boston
6,346
9.6
%
2,883
95.7
%
47.0
%
(7.0
%)
1.5
%
(9.3
%)
Denver
1,624
1.9
%
2,066
96.6
%
60.2
%
1.4
%
1.7
%
(9.8
%)
Total
74,077
100.0
%
$
2,640
96.1
%
44.4
%
(5.6
%)
1.1
%
(8.5
%)
Note: The above table reflects Residential same store results only. Residential operations account for approximately 96.1% of total revenues for the year ended December 31, 2021.
Despite the significant impact from the pandemic on our business, which is reflected in the results for the year ended December 31, 2021, a strong recovery continues across our portfolio. Robust economic growth coupled with reopening of cities drove our operations to recover rapidly with significant demand for our apartments in all of our markets. This has led to high Physical Occupancy, increased pricing power and a material reduction in Leasing Concessions. Key operating drivers for this performance during 2021 include:
•
Pricing - There has been significant improvement in pricing (net of Leasing Concessions) since the end of the fourth quarter of 2020, with pricing reaching or exceeding pre-pandemic levels. Monthly Residential Leasing Concessions granted have also declined significantly from their peak of $6.1 million per month in February 2021 and have now returned to more normalized pre-pandemic levels.
•
Physical Occupancy - Physical Occupancy was 96.6% for the fourth quarter of 2021 and remained strong for the year ended December 31, 2021 at 96.1%.
•
Percentage of Residents Renewing and Turnover - Our strategy of focusing on resident renewals continued to deliver strong results. We reported the lowest Turnover in our history for both the fourth quarter of 2021 (9.4%) and the full year of 2021 (44.4%), which we believe reaffirms the demand and desirability for our product. Results have been positive to date as the Percentage of Residents Renewing continues to improve with the fourth quarter of 2021 above 60%, which is higher than 2019 levels.
Despite strong rent collections throughout the pandemic, the financial impact from a small subset of our residents and Non-Residential tenants not paying has led to higher levels of bad debt than we have historically experienced. We continue to work with our residents and Non-Residential tenants on meeting their financial obligations. During the year ended December 31, 2021, the Company received governmental rental assistance payments paid on behalf of residents of approximately $34.7 million with approximately $16.3 million of that received in the fourth quarter of 2021. Despite receipt of these payments, our reserves and bad debt remained elevated in 2021. Our bad debt allowance policies remain consistent with those in place before the pandemic.
Liquidity and Capital Resources
With approximately $2.2 billion in readily available liquidity, a strong balance sheet, limited near-term maturities, very strong credit metrics and ample access to capital markets, the Company believes it is well positioned to meet its future obligations and opportunities. See further discussion below.
Statements of Cash Flows
The following table sets forth our sources and uses of cash flows for the years ended December 31, 2021, 2020 and 2019 (amounts in thousands):
Year Ended December 31,
Cash flow provided by (used for):
Operating activities
$
1,260,184
$
1,265,536
$
1,456,984
Investing activities
$
(434,620
)
$
663,586
$
(771,824
)
Financing activities
$
(565,056
)
$
(1,946,393
)
$
(684,474
)
The following provides information regarding the Company’s cash flows from operating, investing and financing activities for the year ended December 31, 2021.
Operating Activities
Our operating cash flows are primarily impacted by NOI and its components, such as Average Rental Rates, Physical Occupancy levels and operating expenses related to our properties. Cash provided by operating activities for the year ended December 31, 2021 as compared to 2020, declined by approximately $5.4 million as a direct result of the NOI and other changes discussed above in Results of Operations.
Investing Activities
Our investing cash flows are primarily impacted by our transaction activity (acquisitions/dispositions), development spend and capital expenditures. For 2021, key drivers were:
•
Acquired seventeen consolidated rental properties for approximately $1.7 billion in cash;
•
Disposed of fourteen consolidated rental properties, receiving net proceeds of approximately $1.7 billion;
•
Invested in six separate unconsolidated development joint ventures for approximately $48.5 million in cash;
•
Invested $206.4 million primarily in development projects;
•
Purchased $168.3 million of various investment securities and other investments;
•
Sold various investment securities, receiving net proceeds of $191.4 million; and
•
Invested $151.0 million in capital expenditures to real estate presented in the table below.
For the year ended December 31, 2021, 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 Year Ended December 31, 2021
Same Store
Properties
Non-Same Store
Properties/Other
Total
Same Store Avg. Per
Apartment Unit
Total Apartment Units
74,077
6,330
80,407
Building Improvements
$
87,456
$
1,570
$
89,026
$
1,181
Renovation Expenditures (1)
28,558
28,855
Replacements
31,374
1,764
33,138
Total Capital Expenditures to Real Estate
$
147,388
$
3,631
$
151,019
$
1,990
(1)
Renovation Expenditures - Amounts for 1,347 same store apartment units approximated $21,201 per apartment unit renovated.
Financing Activities
Our financing cash flows primarily relate to our borrowing activity (debt proceeds or repayment), distributions/dividends to shareholders and other Common Share activity. In 2021, key drivers were:
•
Obtained $28.5 million in 3.58% fixed rate mortgage debt maturing on March 1, 2031;
•
Obtained $29.9 million in variable rate construction mortgage debt that is non-recourse to the Company maturing on June 25, 2022;
•
Issued $500.0 million of ten-year 1.85% unsecured notes due 2031, receiving net proceeds of approximately $497.5 million before underwriting fees and other expenses. This was the Company’s second ever green bond offering;
•
Repaid $164.3 million of mortgage loans (inclusive of scheduled principal repayments);
•
Issued Common Shares related to share option exercises and ESPP purchases and received net proceeds of $89.7 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); and
•
Paid dividends/distributions on Common Shares, Preferred Shares, Units (including OP Units and restricted units) and noncontrolling interests in partially owned properties totaling approximately $940.7 million.
Short-Term Liquidity and Cash Proceeds
The Company generally expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing properties and scheduled unsecured note and mortgage note repayments, through its working capital, net cash provided by operating activities and borrowings under the Company’s revolving credit facility and commercial paper program. 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 December 31, 2021 and 2020 (amounts in thousands):
December 31, 2021
December 31, 2020
Cash and cash equivalents
$
123,832
$
42,591
Restricted deposits
$
236,404
$
57,137
Unsecured revolving credit facility availability
$
2,181,372
$
1,984,051
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 the London Interbank Offered Rate (“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. See Item 7A for additional information with respect to the LIBOR transition.
The Company may borrow up to a maximum of $1.0 billion under its commercial paper 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.
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 February 11, 2022 (amounts in thousands):
February 11, 2022
Unsecured revolving credit facility commitment
$
2,500,000
Commercial paper balance outstanding
(300,000
)
Unsecured revolving credit facility balance outstanding
-
Other restricted amounts
(3,507
)
Unsecured revolving credit facility availability
$
2,196,493
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 each quarter in 2021 of $0.6025 per share/unit, consistent with the amount paid in 2020. All future dividends/distributions remain subject to the discretion of the Company’s Board of Trustees.
Total dividends/distributions paid in January 2022 amounted to $233.5 million (excluding distributions on Partially Owned Properties), which consisted of certain distributions declared during the quarter ended December 31, 2021.
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 $28.3 billion in investment in real estate on the Company’s balance sheet at December 31, 2021, $24.5 billion or 86.7% was unencumbered. However, there can be no assurances that these sources of capital will be available to the Company in the future on acceptable terms or otherwise.
EQR issues equity and guarantees certain debt of the Operating Partnership from time to time. EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.
The Company’s total debt summary schedule as of December 31, 2021 is as follows:
Debt Summary as of December 31, 2021
($ in thousands)
Debt
Balances
% of Total
Secured
$
2,191,201
26.3
%
Unsecured
6,150,252
73.7
%
Total
$
8,341,453
100.0
%
Fixed Rate Debt:
Secured - Conventional
$
1,896,472
22.8
%
Unsecured - Public
5,835,222
69.9
%
Fixed Rate Debt
7,731,694
92.7
%
Floating Rate Debt:
Secured - Conventional
59,890
0.7
%
Secured - Tax Exempt
234,839
2.8
%
Unsecured - Revolving Credit Facility
-
-
Unsecured - Commercial Paper Program
315,030
3.8
%
Floating Rate Debt
609,759
7.3
%
Total
$
8,341,453
100.0
%
The following table summarizes the Company’s debt maturity schedule as of December 31, 2021:
Debt Maturity Schedule as of December 31, 2021
($ in thousands)
Year
Fixed
Rate
Floating
Rate
Total
% of Total
$
264,185
$
376,904
(1)
$
641,089
7.6
%
1,325,588
3,500
1,329,088
15.8
%
-
6,100
6,100
0.1
%
450,000
8,200
458,200
5.4
%
592,025
9,000
601,025
7.1
%
400,000
9,800
409,800
4.9
%
900,000
10,700
910,700
10.8
%
888,120
11,500
899,620
10.7
%
1,095,000
12,600
1,107,600
13.2
%
528,500
39,700
568,200
6.7
%
2032+
1,350,850
138,900
1,489,750
17.7
%
Subtotal
7,794,268
626,904
8,421,172
100.0
%
Deferred Financing Costs and
Unamortized (Discount)
(62,574
)
(17,145
)
(79,719
)
N/A
Total
$
7,731,694
$
609,759
$
8,341,453
100.0
%
(1)
Includes $315.1 million in principal outstanding on the Company’s commercial paper program.
Interest expected to be incurred on the Company’s secured and unsecured debt based on obligations outstanding at December 31, 2021, inclusive of capitalized interest, approximates $225.0 million annually for the next five years, with total remaining obligations of approximately $2.5 billion. For floating rate debt, the current rate in effect for the most recent payment through December 31, 2021 is assumed to be in effect through the respective maturity date of each instrument.
See Note 9 in the Notes to Consolidated Financial Statements for additional discussion of debt at December 31, 2021. See also Notes 8 and 16 in the Notes to Consolidated Financial Statements for additional discussion of contractual obligations and commitments as of December 31, 2021.
Capital Structure
The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2021 is presented in the following table. The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preferred shares outstanding.
Equity Residential
Capital Structure as of December 31, 2021
(Amounts in thousands except for share/unit and per share amounts)
Secured Debt
$
2,191,201
26.3
%
Unsecured Debt
6,150,252
73.7
%
Total Debt
8,341,453
100.0
%
19.2
%
Common Shares (includes Restricted Shares)
375,527,195
96.7
%
Units (includes OP Units and Restricted Units)
12,659,027
3.3
%
Total Shares and Units
388,186,222
100.0
%
Common Share Price at December 31, 2021
$
90.50
35,130,853
99.9
%
Perpetual Preferred Equity
37,280
0.1
%
Total Equity
35,168,133
100.0
%
80.8
%
Total Market Capitalization
$
43,509,586
100.0
%
The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 2021 is presented in the following table. The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding Units at the equivalent market value of the closing price of the Company’s Common Shares on the New York Stock Exchange and (ii) the liquidation value of all perpetual preference units outstanding.
ERP Operating Limited Partnership
Capital Structure as of December 31, 2021
(Amounts in thousands except for unit and per unit amounts)
Secured Debt
$
2,191,201
26.3
%
Unsecured Debt
6,150,252
73.7
%
Total Debt
8,341,453
100.0
%
19.2
%
Total Outstanding Units
388,186,222
Common Share Price at December 31, 2021
$
90.50
35,130,853
99.9
%
Perpetual Preference Units
37,280
0.1
%
Total Equity
35,168,133
100.0
%
80.8
%
Total Market Capitalization
$
43,509,586
100.0
%
Financial Flexibility
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 issue Common Shares from time to time into the existing trading market at current market prices or through negotiated transactions, including under forward sale arrangements. The current program matures in June 2022 and gives EQR the authority to issue up to 13.0 million shares, all of which remain outstanding as of December 31, 2021, pending the settlement of the outstanding forward sale agreements. These forward sale agreements allow the Company, at its election, to settle the agreements by issuing Common Shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement or, alternatively, to settle the agreements in whole or in part through the delivery or receipt of Common Shares or cash. Issuances of shares under these forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements are recorded in the consolidated financial statements
until settlement occurs. Prior to any settlements, the only impact to the consolidated financial statements is the inclusion of incremental shares, if any, within the calculation of diluted net income per share using the treasury stock method (see Note 11 in the Notes to Consolidated Financial Statements for additional discussion). The actual forward price per share to be received by the Company upon settlement will be determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current overnight federal funds rate and the amount of dividends paid to holders of the Company’s Common Shares over the term of the forward sale agreement.
As of February 11, 2022, the Company had entered into such forward sale agreements under this program for a total of approximately 1.7 million Common Shares at a weighted average initial forward price per share of $83.25. As of February 11, 2022, no shares under the forward sale agreements had been settled. These forward sale agreements must be settled by March 2023.
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 February 11, 2022, EQR has remaining authorization to repurchase up to 13.0 million of its shares.
We believe our ability to access capital markets is enhanced by ERPOP’s long-term senior debt ratings and short-term commercial paper ratings, as well as EQR’s long-term preferred equity ratings. As of February 11, 2022, the ratings are as follows:
Standard & Poor’s
Moody's
ERPOP's long-term senior debt rating
A-
A3
ERPOP's short-term commercial paper rating
A-2
P-2
EQR's long-term preferred equity rating
BBB
Baa1
See Note 18 in the Notes to Consolidated Financial Statements for discussion of the events, if any, which occurred subsequent to December 31, 2021.
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.
•
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.
•
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.
•
Non-Residential - Consists of revenues and expenses from retail and public parking garage operations.
•
Non-Same Store Properties - For annual comparisons, primarily includes all properties acquired during 2020 and 2021, plus any properties in lease-up and not stabilized as of January 1, 2020.
•
Percentage of Residents Renewing - Leases renewed expressed as a percentage of total renewal offers extended during the reporting period.
•
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.
•
Renovation Expenditures - Apartment unit renovation costs (primarily kitchens and baths) designed to reposition these units for higher rental levels in their respective markets.
•
Replacements - Includes appliances, mechanical equipment, fixtures and flooring (including hardwood and carpeting).
•
Residential - Consists of multifamily apartment revenues and expenses.
•
Same Store Properties - For annual comparisons, primarily includes all properties acquired or completed that are stabilized prior to January 1, 2020, less properties subsequently sold. Properties are included in Same Store when they are stabilized for all of the current and comparable periods presented.
•
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 2022 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.
•
Total Budgeted Capital Cost - Estimated remaining cost for projects under development and/or developed plus all capitalized costs incurred to date, including land acquisition costs, construction costs, capitalized real estate taxes and insurance, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, plus any estimates of costs remaining to be funded for all projects, all in accordance with GAAP. Amounts for partially owned consolidated and unconsolidated properties are presented at 100% of the project.
•
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.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or different presentation of our financial statements.
The Company’s significant accounting policies are described in Note 2 in the Notes to Consolidated Financial Statements. These policies were followed in preparing the consolidated financial statements at and for the year ended December 31, 2021.
The Company has identified the significant accounting policies below as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including its investment in real estate, for indicators of impairment at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal, regulatory and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted. Assessing impairment can be complex and involves a high degree of subjectivity in determining if indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset. In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions. Assumptions are primarily subject to property-specific characteristics, especially with respect to our intent and ability to hold the related asset. While these property-specific assumptions can have a significant impact on the undiscounted cash flows or estimated fair value of a particular asset, our evaluation of the reported carrying values of long-lived assets during the current year were not particularly sensitive to external or market assumptions.
Acquisition of Investment Properties
The Company allocates the purchase price of properties that meet the definition of an asset acquisition to net tangible and identified intangible assets acquired based on their relative fair values using assumptions primarily based upon property-specific characteristics. In making estimates of relative fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired or developed and existing comparable properties in our portfolio and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets/liabilities acquired.
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 each of the three years ended December 31, 2021:
Funds From Operations and Normalized Funds From Operations
(Amounts in thousands)
Year Ended December 31,
Net income
$
1,396,714
$
962,501
$
1,009,708
Net (income) loss attributable to Noncontrolling
Interests - Partially Owned Properties
(17,964
)
(14,855
)
(3,297
)
Preferred/preference distributions
(3,090
)
(3,090
)
(3,090
)
Net income available to Common Shares and Units / Units
1,375,660
944,556
1,003,321
Adjustments:
Depreciation
838,272
820,832
831,083
Depreciation - Non-real estate additions
(4,277
)
(4,564
)
(5,585
)
Depreciation - Partially Owned Properties
(3,673
)
(3,345
)
(3,599
)
Depreciation - Unconsolidated Properties
2,487
2,454
2,997
Net (gain) loss on sales of unconsolidated entities - operating assets
(1,304
)
(1,636
)
(69,522
)
Net (gain) loss on sales of real estate properties
(1,072,183
)
(531,807
)
(447,637
)
Noncontrolling Interests share of gain (loss) on sales
of real estate properties
15,650
11,655
-
FFO available to Common Shares and Units / Units (1) (3) (4)
1,150,632
1,238,145
1,311,058
Adjustments:
Impairment - non-operating assets
16,769
-
-
Write-off of pursuit costs
6,526
6,869
5,529
Debt extinguishment and preferred share redemption (gains) losses
39,292
23,991
Non-operating asset (gains) losses
(22,283
)
(32,590
)
(940
)
Other miscellaneous items
8,976
4,652
8,430
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)
$
1,161,364
$
1,256,368
$
1,348,068
FFO (1) (3)
$
1,153,722
$
1,241,235
$
1,314,148
Preferred/preference distributions
(3,090
)
(3,090
)
(3,090
)
FFO available to Common Shares and Units / Units (1) (3) (4)
$
1,150,632
$
1,238,145
$
1,311,058
Normalized FFO (2) (3)
$
1,164,454
$
1,259,458
$
1,351,158
Preferred/preference distributions
(3,090
)
(3,090
)
(3,090
)
Normalized FFO available to Common Shares and Units / Units (2) (3) (4)
$
1,161,364
$
1,256,368
$
1,348,068
(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.
(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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from financial instruments primarily from changes in interest rates. Such risks derive from the refinancing of debt maturities, from exposure to interest rate fluctuations on floating rate debt and from derivative instruments utilized to swap fixed rate debt to floating or to hedge rates in anticipation of future debt issuances. Our operating results are, therefore, affected by changes in short-term interest rates, primarily LIBOR and Securities Industry and Financial Markets Association (“SIFMA”) indices, which directly impact borrowings under our revolving credit facility and interest on secured and unsecured borrowings contractually tied to such rates. Short-term interest rates also indirectly affect the discount on notes issued under our commercial paper program. Additionally, we have exposure to long-term interest rates, particularly U.S. Treasuries as they are utilized to price our long-term borrowings and therefore affect the cost of refinancing existing debt or incurring additional debt.
In the U.S., the Alternative Rates Reference Committee (the “ARRC”), a group of market participants convened in 2014 to help ensure a successful transition away from USD LIBOR, has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate. As part of the transition process that is now under way, LIBOR is no longer published for certain tenors and key USD settings are expected to be discontinued by June 2023. LIBOR is the primary basis for determining interest payments on borrowings on the Company’s $2.5 billion revolving credit facility. This facility contains provisions that establish a process for entering into an amendment to replace LIBOR under certain circumstances. We are closely monitoring the evolution of practices in the credit market and we do not expect such transition to have a material impact on the Company’s financial position or cash flows.
The Company monitors and manages interest rates as part of its risk management process, by targeting adequate levels of floating rate exposure and an appropriate debt maturity profile. From time to time, we may utilize derivative instruments to manage interest rate exposure and to comply with the requirements of certain lenders, but not for trading or speculative purposes.
The Company had total variable rate debt of $0.6 billion, representing 7.3% of total debt, and $0.8 billion, representing 10.0% of total debt, as of December 31, 2021 and 2020, respectively. If interest rates had been 100 basis points higher in 2021 and 2020 and average balances coincided with year end balances, our annual interest expense would have been $6.1 million and $8.1 million higher, respectively. Unsecured notes issued under the Company’s commercial paper program are treated as variable rate debt for the purposes of this calculation even though they do not have a stated interest rate, given their short-term nature. The effect of derivatives, if applicable, is also considered when computing the total amount of variable rate debt.
Changes in interest rates also affect the estimated fair market value of our fixed rate debt, computed using a discounted cash flow model. As of December 31, 2021, the Company had total outstanding fixed rate debt of $7.7 billion, or 92.7% of total debt, with an estimated fair market value of $8.4 billion. If interest rates had been 100 basis points lower as of December 31, 2021, the estimated fair market value would have increased by approximately $637.2 million. As of December 31, 2020, the Company had total outstanding fixed rate debt of $7.2 billion, or 90.0% of total debt, with an estimated fair market value of $8.2 billion. If interest rates had been 100 basis points lower as of December 31, 2020, the estimated fair market value would have increased by approximately $686.6 million.
These amounts were determined by considering the impact of hypothetical interest rates on the Company’s financial instruments. These analyses do not consider the effects of the changes in overall economic activity that could exist in such an environment. Further, in the event of changes of such magnitude, management would likely take actions to further mitigate its exposure to these changes. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in the Company’s financial structure or results.
The Company cannot predict the effect of adverse changes in interest rates on its debt and derivative instruments and, therefore, its exposure to market risk, nor can there be any assurance that long-term debt will be available at advantageous pricing. Consequently, future results may differ materially from the estimated adverse changes discussed above.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements and Schedule on page of this Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Equity Residential
(a) Evaluation of Disclosure Controls and Procedures:
Effective as of December 31, 2021, 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) Management’s Report on Internal Control over Financial Reporting:
Equity Residential’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.
Based on the Company’s evaluation under the framework in Internal Control - Integrated Framework, management concluded that its internal control over financial reporting was effective as of December 31, 2021. Our internal control over financial reporting has been audited as of December 31, 2021 by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
(c) 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 fourth quarter of 2021 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 December 31, 2021, 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.
(b) Management’s Report on Internal Control over Financial Reporting:
ERP Operating Limited Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of EQR, management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.
Based on the Operating Partnership’s evaluation under the framework in Internal Control - Integrated Framework, management concluded that its internal control over financial reporting was effective as of December 31, 2021. Our internal control over financial reporting has been audited as of December 31, 2021 by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
(c) 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 fourth quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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ITEM 11. EXECUTIVE COMPENSATION

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibit and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
(1)
Financial Statements: See Index to Consolidated Financial Statements and Schedule on page of this Form 10-K.
(2)
Exhibits: See the Exhibit Index.
(3)
Financial Statement Schedules: See Index to Consolidated Financial Statements and Schedule on page of this Form 10-K.