EQUITY RESIDENTIAL 
For further information including definitions for capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company's and theOperating Partnership's Annual Report on Form 10-K for the year endedDecember 31, 2019 . In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Forward-looking statements are intended to be made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
statements are based on current expectations, estimates, projections and
assumptions made by management. While the Company's management believes the
assumptions underlying its forward-looking statements are reasonable, such
information is inherently subject to uncertainties and may involve certain
risks, which could cause actual results, performance or achievements of the
Company to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements. Many of
these uncertainties and risks are difficult to predict and beyond management's
control, such as the current novel coronavirus ("COVID-19") pandemic (see below
for further discussion). Forward-looking statements are not guarantees of future
performance, results or events. The forward-looking statements contained herein
are made as of the date hereof and the Company undertakes no obligation to
update or supplement these forward-looking statements.
In addition, these forward-looking statements are subject to risks related to
the COVID-19 pandemic, many of which are unknown, including the duration and
severity of the pandemic, the extent of the adverse health impact on the general
population and on our residents, customers and employees in particular, its
impact on the employment rate and the economy and the corresponding impact on
our residents' and tenants' ability to pay their rent on time or at all, the
extent and impact of governmental responses and the impact of operational
changes we have implemented and may implement in response to the pandemic.
Factors that might cause such differences are discussed in Part I of the
Company's and the Operating Partnership's Annual Report on Form 10-K for the
year ended December 31, 2019 , particularly those under Item 1A, Risk
Factors. Additional factors are also included in Part II, Item 1A, Risk Factors,
of this Quarterly Report on Form 10-Q.
Forward-looking statements and related uncertainties are also included in the Notes to Consolidated Financial Statements in this report.
Due to the inherent uncertainty surrounding the social and economic disruption resulting from the COVID-19 pandemic, the Company withdrew its full-year 2020 guidance. The Company is also suspending issuing guidance in future periods until there is greater certainty surrounding the impact of the ongoing pandemic. OverviewEquity 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 rental apartment properties located in urban and high-density suburban communities where today's renters want to live, work and play.ERP Operating Limited Partnership ("ERPOP") is focused on conducting the multifamily property business of EQR. EQR is aMaryland real estate investment trust ("REIT") formed inMarch 1993 and ERPOP is anIllinois limited partnership formed inMay 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 ofMarch 31, 2020 owned an approximate 96.4% ownership interest in, ERPOP. All of the Company's property ownership, development and related business operations are conducted through theOperating 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 theOperating 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 inChicago, Illinois and the Company also operates regional property management offices in each of its markets. As ofMarch 31, 2020 , the Company had approximately 2,600 employees who provided real estate operations, leasing, legal, financial, accounting, acquisition, disposition, development and other support functions. 34 --------------------------------------------------------------------------------
Table of Contents OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic. See the COVID-19 Impact section below for a discussion of the impact on our business to date, including operational changes we have implemented, performance indicators and factors that we anticipate will inform our future decisions and actions. The rapid development and fast-changing nature of the COVID-19 pandemic creates many unknowns that could have a future material impact on the Company. Its duration and severity, the extent of the adverse health impact on the general population, our residents and our employees are among the unknowns. These, among other items, will likely impact the economy, the unemployment rate and our operations and could materially affect our future consolidated results of operations, financial condition, liquidity, investments and overall performance. For additional details, see Item 1A, Risk Factors.
Available Information
You may access our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to any of those reports we file with theSecurities and Exchange Commission ("SEC") free of charge on our website, www.equityapartments.com. These reports are made available on our website as soon as reasonably practicable after we file them with theSEC . The information contained on our website, including any information referred to in this report as being available on our website, is not a part of or incorporated into this report.
Business Objectives and Operating and Investing Strategies
The Company's and theOperating Partnership's overall business objectives and operating and investing strategies have not changed from the information included in the Company's and theOperating Partnership's Annual Report on Form 10-K for the year endedDecember 31, 2019 , though the Company and theOperating Partnership will continue to be focused on its response to the COVID-19 pandemic in the near-term. Results of Operations 2020 Transactions In conjunction with our business objectives and operating strategy, the Company continued to invest in apartment properties located primarily in our urban and high-density suburban communities and sell apartment properties that we believe will have inferior long-term returns. The following table provides a rollforward of the transactions that occurred during the quarter endedMarch 31, 2020 : Portfolio Rollforward ($ in thousands) Apartment Disposition Properties Units Sales Price Yield 12/31/2019 309 79,962 Dispositions: Consolidated Rental Properties (3 ) (897 )$ (370,200 ) (5.0 )% 3/31/2020 306 79,065
The consolidated properties disposed of were located in the
We currently budget spending approximately$250.0 million on development costs during the year endingDecember 31, 2020 , of which approximately$50.0 million was spent in the first quarter of 2020, primarily for properties currently under construction. Certain of these costs will be funded by third party construction mortgages and joint venture partner obligations. Currently our development project inBoston has been halted due to the city issuing a temporary construction moratorium as a result of the COVID-19 pandemic, while our projects inBethesda, MD andAlameda, CA continue under construction. The expected spending noted above could change as a result of theBoston project being halted or other COVID-19 related impacts. 35 --------------------------------------------------------------------------------
Table of Contents Same Store Results Properties that the Company owned and were stabilized (see definition below) for all of both of the quarters endedMarch 31, 2020 and 2019 (the "First Quarter 2020Same Store Properties "), which represented 74,919 apartment units, impacted the Company's results of operations. The First Quarter 2020Same Store Properties are discussed in the following paragraphs. The Company's primary financial measure for evaluating each of its apartment communities is net operating income ("NOI"). NOI represents rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Company's apartment properties. The following tables provide a rollforward of the apartment units included inSame Store Properties and a reconciliation of apartment units included inSame Store Properties to those included inTotal Properties for the quarter endedMarch 31, 2020 : Quarter Ended March 31, 2020 Apartment Properties Units Same Store Properties at December 31, 2019 279 71,830 2017 acquisitions 2 510 2018 acquisitions 5 1,461 2020 dispositions (3 ) (897 ) Lease-up properties stabilized 5
2,015
Same Store Properties at March 31, 2020 288 74,919
Quarter Ended March 31, 2020
Apartment
Properties Units
Same Store 288 74,919
Non-Same Store:
2019 acquisitions 13 3,540
Master-Leased properties (1) 1 162
Lease-up properties not yet stabilized (2) 3 443
Other 1 1
Total Non-Same Store 18 4,146
Total Properties and Apartment Units 306 79,065
Note: Properties are considered "stabilized" when they have achieved 90% occupancy for three consecutive months. Properties are included in same store when they are stabilized for all of the current and comparable periods presented.
(1) Consists of one property containing 162 apartment units that is wholly owned
by the Company where the entire project is master-leased to a third party
corporate housing provider.
(2) Consists of properties in various stages of lease-up and properties where
lease-up has been completed but the properties were not stabilized for the
comparable periods presented.
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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):
Quarter Ended March 31,
2020 2019
Operating income $ 422,109 $ 209,969 Adjustments:
Fee and asset management revenue (24 ) (192 ) Property management 27,709 26,396 General and administrative 14,518 15,381 Depreciation 212,422 204,215
Net (gain) loss on sales of real estate properties (207,977 )
21 Total NOI$ 468,757 $ 455,790 Rental income: Same store$ 648,377 $ 631,099 Non-same store/other 33,928 31,203 Total rental income 682,305 662,302 Operating expenses: Same store 199,937 195,224 Non-same store/other 13,611 11,288 Total operating expenses 213,548 206,512 NOI: Same store 448,440 435,875 Non-same store/other 20,317 19,915 Total NOI$ 468,757 $ 455,790
The following table provides comparative total same store results and statistics
for the First Quarter 2020
First Quarter 2020 vs. First Quarter 2019
Total Same Store Results/Statistics Including 74,919 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
First Quarter 2020 First Quarter 2019
% Non- % % Non-
Residential Change Residential (1) Change Total Change Residential Residential (1) Total
Revenues $ 625,286 2.9 % $ 23,091 (1.4 %) $ 648,377 2.7 % Revenues $ 607,686 $ 23,413 $ 631,099
Expenses $ 194,207 2.3 % $ 5,730 6.3 % $ 199,937 2.4 % Expenses $ 189,836 $ 5,388 $ 195,224
NOI $ 431,079 3.2 % $ 17,361 (3.7 %) $ 448,440 2.9 % NOI $ 417,850 $ 18,025 $ 435,875
Average Rental Rate $ 2,885 2.7 % Average Rental Rate $ 2,809
Physical Occupancy 96.5 % 0.2 % Physical Occupancy 96.3 %
Turnover 9.7 % (0.4 %) Turnover 10.1 %
Note: Same store revenues for all leases are reflected on a straight-line basis in accordance with GAAP for the current and comparable periods.
(1) Non-Residential - Consists of revenues and expenses from retail and public
parking garage operations. Non-Residential same store revenues declined 1.4%
in Q1 2020 as compared to Q1 2019 primarily due to elevated parking income
and lease termination settlement fees in the comparable period.
The following table provides results/statistics related to our residential same
store operations for both the quarters ended
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First Quarter 2020 vs. First Quarter 2019
Same Store Residential Results/Statistics by Market
Increase(Decrease) from Prior Year's Quarter
Q1 2020
Q1 2020 Q1 2020 Weighted
% of Average Average Average
Apartment Actual Rental Physical Q1 2020 Rental Physical
Markets/Metro Areas Units NOI Rate
Occupancy % Turnover Revenues Expenses NOI Rate Occupancy Turnover
Los Angeles 15,968 19.6 % $ 2,633 96.0 % 11.3 % 2.1 % 1.3 % 2.4 % 2.2 % (0.2 %) (0.3 %)
Orange County 4,028 4.7 % 2,280 96.8 % 9.0 % 3.4 % 0.6 % 4.3 % 2.8 % 0.5 % (1.5 %)
San Diego 3,385 4.1 % 2,443 96.8 % 12.0 % 3.5 % 2.4 % 3.9 % 2.8 % 0.7 % (0.1 %)
Subtotal - Southern California 23,381 28.4 % 2,544 96.2 % 11.0 % 2.5 % 1.3 % 2.9 % 2.4 % 0.0 % (0.5 %)
San Francisco 12,321 20.8 % 3,353 96.8 % 9.6 % 3.1 % 3.9 % 2.8 % 2.9 % 0.2 % (0.1 %)
Washington DC 14,228 16.3 % 2,485 96.3 % 8.4 % 2.6 % 1.5 % 3.1 % 2.8 % (0.2 %) 0.0 %
New York 9,475 13.8 % 3,947 96.7 % 7.2 % 2.1 % 3.9 % 0.7 % 1.8 % 0.3 % (0.8 %)
Seattle 8,442 10.3 % 2,470 97.2 % 11.2 % 5.4 % 2.3 % 6.7 % 4.4 % 0.9 % (1.7 %)
Boston 6,346 9.6 % 3,181 95.8 % 9.1 % 3.3 % (0.7 %) 5.0 % 3.2 % (0.1 %) 0.0 %
Denver 726 0.8 % 2,122 96.2 % 12.1 % (0.1 %) 2.8 % (1.1 %) 0.3 % (0.5 %) (0.6 %)
Total 74,919 100.0 % $ 2,885 96.5 % 9.7 % 2.9 % 2.3 % 3.2 % 2.7 % 0.2 % (0.4 %)
Note: The above table reflects Residential same store results only, which historically account for approximately 96.0% of total revenues.
The following table provides comparative total same store operating expenses for
the First Quarter 2020
First Quarter 2020 vs. First Quarter 2019
Total Same Store Operating Expenses Including 74,919 Same Store Apartment Units
$ in thousands
% of Actual
Q1 2020
Actual Actual $ % Operating
Q1 2020 Q1 2019 Change (5) Change Expenses
Real estate taxes $ 86,274 $ 82,699 $ 3,575 4.3 % 43.1 %
On-site payroll (1) 42,125 41,736 389 0.9 % 21.1 %
Utilities (2) 27,225 26,558 667 2.5 % 13.6 %
Repairs and maintenance (3) 22,918 23,832 (914 ) (3.8 )% 11.5 %
Insurance 6,143 5,225 918 17.6 % 3.1 %
Leasing and advertising 2,297 2,524 (227 ) (9.0 )% 1.1 %
Other on-site operating expenses
(4) 12,955 12,650 305 2.4 % 6.5 %
Total Same Store Operating Expenses
(includes Residential and
Non-Residential) $ 199,937 $ 195,224 $ 4,713 2.4 % 100.0 %
(1) On-site payroll - Includes payroll and related expenses for on-site personnel
including property managers, leasing consultants and maintenance staff.
(2) Utilities - Represents gross expenses prior to any recoveries under the
Resident Utility Billing System ("RUBS"). Recoveries are reflected in rental
income.
(3) Repairs and maintenance - Includes general maintenance costs, apartment unit
turnover costs including interior painting, routine landscaping, security,
exterminating, fire protection, snow removal, elevator, roof and parking lot
repairs and other miscellaneous building repair and maintenance costs.
(4) Other on-site operating expenses - Includes ground lease costs and
administrative costs such as office supplies, telephone and data charges and
association and business licensing fees.
(5) The changes are due primarily to:
• Real estate taxes - Increase in line with expectations. Continued real
estate tax growth affected most markets, particularly
continued burn-off of 421-a tax abatement benefits drove the increase.
• On-site payroll - Increase slightly below expectations due in part to
faster than anticipated progress in transition to enhanced operating
platform.
• Utilities - Increase generally in line with expectations for the year.
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• Repairs and maintenance - Decrease primarily driven by lower snow removaland weather-related expense in the Northeast during the current period and
elevated weather-related expense in
period.
• Insurance - Increase due to higher premiums on property insurance renewal
due to challenging conditions in the insurance market.
• Leasing and advertising - Decrease greater than expectations due to lower
than anticipated online advertising spend during the period.
See also Note 13 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company's segment disclosures.
Non-same store/other NOI results for the quarter endedMarch 31, 2020 increased approximately$0.4 million compared to the same period of 2019 and consist primarily of properties acquired in calendar year 2019, operations from the Company's development properties and operations prior to disposition from 2019 and 2020 sold properties. This difference is due primarily to:
• A positive impact of higher NOI from development and newly stabilized
development properties in lease-up of
• A positive impact of higher NOI from properties acquired in 2019 of
million; and
• A negative impact of lost NOI from 2019 and 2020 dispositions of
million.
Comparison of the quarter ended
The following table presents a reconciliation of diluted earnings per share/unit
for the quarter ended
Quarter Ended
March 31 Diluted earnings per share/unit for period ended 2019 $ 0.28 Property NOI
0.04
Interest expense 0.02
Net gain/loss on property sales 0.51
Other (0.02 )
Diluted earnings per share/unit for period ended 2020 $ 0.83
The increase in consolidated NOI is primarily a result of the Company's improved NOI from same store and lease-up properties. The following table presents the changes in the components of consolidated NOI for the quarter endedMarch 31, 2020 as compared to the same period in 2019:
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