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, 2020 . In addition, please refer to the Definitions section below for various capitalized terms not immediately defined in this Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Forward-looking statements are intended to be made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
statements are based on current expectations, estimates, projections and
assumptions made by management. While the Company's management believes the
assumptions underlying its forward-looking statements are reasonable, such
information is inherently subject to uncertainties and may involve certain
risks, which could cause actual results, performance or achievements of the
Company to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements. Many of
these uncertainties and risks are difficult to predict and beyond management's
control, such as the current novel coronavirus ("COVID-19") pandemic (see below
for further discussion). Forward-looking statements are not guarantees of future
performance, results or events. The forward-looking statements contained herein
are made as of the date hereof and the Company undertakes no obligation to
update or supplement these forward-looking statements.
In addition, these forward-looking statements are subject to risks related to
the COVID-19 pandemic, many of which are unknown, including the duration and
severity of the pandemic, the extent of the adverse health impact on the general
population and on our residents, customers and employees in particular, its
impact on the employment rate and the economy and the corresponding impact on
our residents' and tenants' ability to pay their rent on time or at all, the
impact on resident housing preferences especially for urban apartment living,
the extent and impact of governmental responses, the rollout and effectiveness
of vaccines 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
the Company's and the Operating Partnership's Annual Report on Form 10-K for the
year ended December 31, 2020 , 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. The 2021 guidance
assumptions disclosed throughout this Item 2 are based on current expectations
and are forward-looking.
Overview
Equity Residential ("EQR") is committed to creating communities where people
thrive. The Company, a member of the S&P 500, is focused on the acquisition,
development and management of residential properties located in and around
dynamic cities that attract high quality long-term renters. ERP Operating
Limited Partnership ("ERPOP") is focused on conducting the multifamily property
business of EQR. EQR is a Maryland real estate investment trust ("REIT") formed
in March 1993 and ERPOP is an Illinois limited partnership formed in May
1993 . References to the "Company," "we," "us" or "our" mean collectively EQR,
ERPOP and those entities/subsidiaries owned or controlled by EQR and/or
ERPOP. References to the "Operating Partnership" mean collectively ERPOP and
those entities/subsidiaries owned or controlled by ERPOP.
EQR is the general partner of, and as of March 31, 2021 owned an approximate
96.4% ownership interest in, ERPOP. All of the Company's property ownership,
development and related business operations are conducted through the Operating
Partnership and EQR has no material assets or liabilities other than its
investment in ERPOP. EQR issues equity from time to time, the net proceeds of
which it is obligated to contribute to ERPOP, but does not have any indebtedness
as all debt is incurred by the Operating Partnership . The Operating Partnership
holds substantially all of the assets of the Company, including the Company's
ownership interests in its joint ventures. The Operating Partnership conducts
the operations of the business and is structured as a partnership with no
publicly traded equity.
The Company's corporate headquarters is located in
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--------------------------------------------------------------------------------Table of Contents 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 theSecurities 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 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, 2020 . As more fully discussed in the Company's and theOperating Partnership's Annual Report on Form 10-K, it continues to be the Company's intention over time to further diversify its portfolio into select new markets that share similar characteristics as its current markets and to optimize the mix of the Company's properties located in urban vs. dense suburban submarkets within its existing markets.
COVID-19 Impact
The Company's and theOperating Partnership's overall impact from the COVID-19 pandemic has not changed materially from the information included in the Company's and theOperating Partnership's Annual Report on Form 10-K for the year endedDecember 31, 2020 . As more fully discussed in the Company's and theOperating Partnership's Annual Report on Form 10-K, despite the impact of COVID-19, we continue to believe that the long-term prospects for our business remain strong. See the Results of Operations discussion below for additional information on how the COVID-19 pandemic is currently impacting our markets and operations. Results of Operations 2021 Transactions
The Company did not acquire or sell any assets during the first quarter of 2021. See Note 4 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company's real estate transactions.
The Company's guidance assumes consolidated rental acquisitions will be approximately equal to consolidated rental dispositions for the full year endingDecember 31, 2021 . We currently anticipate spending approximately$240.0 million on development costs during the year endingDecember 31, 2021 , of which approximately$64.6 million was spent during the quarter endedMarch 31, 2021 , primarily for properties currently under construction. Certain of these costs are expected to be funded by third-party construction mortgages and joint venture partner obligations. Work at all of our development projects continues with no material delays notwithstanding some brief disruptions from governmental construction moratoriums due to COVID-19.
Same Store Results
Properties that the Company owned and were stabilized (see definition below) for all of both of the quarters endedMarch 31, 2021 and 2020 (the "First Quarter 2021Same Store Properties "), which represented 77,060 apartment units, drove the Company's results of operations. The First Quarter 2021Same 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. 35 --------------------------------------------------------------------------------
Table of Contents 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, 2021 : Quarter EndedMarch 31, 2021 Apartment Properties UnitsSame Store Properties atDecember 31, 2020 285
73,585
2019 acquisitions stabilized 12
3,323
Lease-up properties stabilized 1
222
Properties removed from same store (1) (1 ) (70 )
Same Store Properties at March 31, 2021 297 77,060
Quarter Ended March 31, 2021
Apartment
Properties Units
Same Store 297 77,060
Non-Same Store:
2020 acquisitions 1 158
2019 acquisitions not yet stabilized 1 217
Properties removed from same store (1) 1
70
Master-Leased properties (2) 1
162
Lease-up properties not yet stabilized (3) 2 221 Other 1 1Total Non-Same Store 7 829Total Properties and Apartment Units 304 77,889
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) Citrus Suites in
removed from the same store portfolio in the first quarter of 2021. The
property was sold on
allowed the property's Physical Occupancy to decline to 35.7% at
2021 in order to facilitate the purchaser's ability to immediately begin an
extensive renovation post-sale.
(2) 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.
(3) 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,
2021 2020
Operating income $ 135,560 $ 422,085
Adjustments:
Property management 26,130 27,709
General and administrative 15,383 14,518
Depreciation 199,962 212,422
Net (gain) loss on sales of real estate properties 43 (207,977 )
Total NOI $ 377,078 $ 468,757
Rental income:
Same store $ 592,788 $ 662,021
Non-same store/other 4,814 20,284
Total rental income 597,602 682,305
Operating expenses:
Same store 212,052 204,201
Non-same store/other 8,472 9,347
Total operating expenses 220,524 213,548
NOI:
Same store 380,736 457,820
Non-same store/other (3,658 ) 10,937
Total NOI $ 377,078 $ 468,757 The following table provides comparative total same store results and statistics
for the First Quarter 2021
First Quarter 2021 vs. First Quarter 2020
Same Store Results/Statistics Including 77,060 Same Store Apartment Units
$ in thousands (except for Average Rental Rate)
First Quarter 2021 First Quarter 2020
% Non- % % Non-
Residential Change Residential Change Total Change Residential Residential Total
Revenues
Expenses
3.4 %
NOI $ 364,968 (17.1 %) $ 15,768 (9.6 %) $ 380,736 (16.8 %) NOI $ 440,377 Average Rental Rate$ 2,601 (9.3 %) Average Rental Rate$ 2,867 Physical Occupancy 95.0 % (1.4 %) Physical Occupancy 96.4 % Turnover 9.9 % 0.2 % Turnover 9.7 %
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
deferral/abatement of rents, higher bad debt and lower parking income.
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The following table provides results and statistics related to our Residential
same store operations for the quarters ended
First Quarter 2021 vs. First Quarter 2020
Same Store Residential Results/Statistics by Market
Increase(Decrease) from Prior Year's Quarter
Q1 2021
Q1 2021 Q1 2021 Weighted
% of Average Average Average
Apartment Actual Rental Physical Q1 2021 Rental Physical
Markets/Metro Areas Units NOI Rate Occupancy % Turnover Revenues Expenses NOI Rate Occupancy Turnover
Los Angeles 16,533 20.9 % $ 2,423 95.8 % 10.1 % (8.1 %) 1.1 % (12.2 %) (7.9 %) (0.2 %) (1.0 %)
Orange County 4,028 5.3 % 2,205 97.0 % 7.8 % (3.2 %) 2.7 % (4.9 %) (3.3 %) 0.2 % (1.2 %)
San Diego 2,706 3.9 % 2,376 97.2 % 10.5 % (0.2 %) 1.2 % (0.6 %) (0.6 %) 0.4 % (0.8 %)
Subtotal - Southern California 23,267 30.1 % 2,380 96.2 % 9.7 % (6.5 %) 1.3 % (9.6 %) (6.4 %) (0.1 %) (1.1 %)
San Francisco 12,707 19.5 % 2,903 93.8 % 11.4 % (15.7 %) 4.7 % (22.6 %) (13.1 %) (2.9 %) 1.7 %
Washington D.C. 14,569 17.6 % 2,325 95.9 % 9.7 % (5.5 %) 4.0 % (9.6 %) (5.2 %) (0.3 %) 1.1 %
New York 9,606 11.0 % 3,464 91.4 % 8.3 % (16.9 %) 4.4 % (34.0 %) (12.2 %) (5.3 %) 1.1 %
Seattle 8,941 10.7 % 2,258 95.7 % 11.1 % (10.3 %) 6.0 % (16.5 %) (9.0 %) (1.4 %) 0.0 %
Boston 6,346 9.4 % 2,852 95.3 % 8.9 % (10.8 %) 4.9 % (17.2 %) (10.3 %) (0.5 %) (0.2 %)
Denver 1,624 1.7 % 1,984 96.1 % 12.3 % (2.7 %) 9.5 % (7.7 %) (3.4 %) 0.6 % (2.1 %)
Total 77,060 100.0 % $ 2,601 95.0 % 9.9 % (10.6 %) 3.9 % (17.1 %) (9.3 %) (1.4 %) 0.2 %
Note: The above table reflects Residential same store results only. Residential
operations account for approximately 96.2% of total revenues for the quarter
ended March 31, 2021 .
The following table includes select operating metrics for Residential Same Store
Properties :
Q4 2020 Q1 2021 April 2021 (1)
Physical Occupancy (2) 94.4 % 95.6 % 96.0 %
Percentage of Residents Renewing by
quarter/month 51.0 % 53.0 % 56.0 %
New Lease Change (20.5 %) (17.7 %) (11.4 %)
Renewal Rate Achieved (3.4 %) (5.1 %) (2.1 %)
Blended Rate (13.0 %) (12.1 %) (7.2 %)
(1)
(2) Physical Occupancy is as of month-end December for Q4 2020, month-end March
for Q1 2021 and as of
The following table provides guidance for our expected full year 2021 same store operating performance (includes Residential and Non-Residential):
Revised Full Year 2021 Previous Full Year 2021
Physical Occupancy 95.0% to 96.0% 94.8% to 95.8%
Revenue change (8.0%) to (6.0%) (9.0%) to (7.0%)
Expense change 3.0% to 4.0% 3.0% to 4.0%
NOI change (13.0%) to (11.0%) (15.0%) to (12.0%)
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Table of Contents Although the results for the first quarter of 2021 reflect the significant impact of the pandemic on our business, we continue to see substantial signs of improvement as cities begin to reopen and affluent renters return. Operating performance has improved ahead of expectations across our portfolio. Strong demand is driving improved Physical Occupancy in all of our markets and as a result we see the return of pricing power and the continued decline of Leasing Concessions across the portfolio. Non-Residential revenues also continue to benefit from reopening activities and have shown improvement driven by fewer rent abatements and less bad debt than originally anticipated. For these reasons, we believe our results will improve earlier in 2021 than previously anticipated. The Company remains focused on the following key operating drivers:
• Demand and Physical Occupancy - Strong demand through both the winter
season and early spring characterized by elevated applications and move-in
activity above the seasonal norms has fueled better-than-expected Physical
Occupancy. Physical Occupancy of 96.0% on April 22, 2021 exceeded April
2020 levels for the first time since the beginning of the pandemic and is
beginning to approach April 2019 levels. This strength in Physical
Occupancy is contributing to our ability to focus on improving pricing.
• Renewal Rates and Percentage of Residents Renewing - We continue toexperience negotiation pressure on Renewal Rate Achieved as we are still
renewing residents who signed leases pre-pandemic. Outside of Southern
below prior year levels which puts pressure on renewal negotiations. This
situation is improving weekly and we currently expect most of the markets
to be positive by the end of May 2021 . In terms of the quantity of
renewals, the Percentage of Residents Renewing their leases stands at
approximately 56% into April 2021 . These levels remain below ourhistorical average for this time of year, but they continue to steadily
improve.
• Pricing - We have seen significant improvement in pricing (net of Leasing
Concessions) since the end of the fourth quarter of 2020. This trend has
been pervasive across our portfolio even in some of the harder hit markets
like
every market by raising rents and reducing both the value and quantity of
Leasing Concessions being granted. Monthly Leasing Concessions granted
began to decline in
March and April (preliminary) 2021 are
million, respectively. New Lease Change continues to improve as do Renewal
Rates Achieved, which will contribute to improved Blended Rates.
The following table provides Physical Occupancy by geographic market for the
First Quarter 2021
Markets/Metro Areas December 31, 2020 March 31, 2021 April 22, 2021 Boston 94.7 % 95.5 % 96.3 % New York 89.7 % 93.9 % 94.8 % Washington D.C. 95.9 % 95.9 % 96.3 % Seattle 95.4 % 95.5 % 95.4 % San Francisco 93.0 % 95.0 % 95.3 % Los Angeles 95.3 % 96.1 % 96.4 % Orange County 96.6 % 97.6 % 97.8 % San Diego 97.2 % 97.7 % 97.9 % Denver 96.0 % 96.5 % 96.6 % Total 94.4 % 95.6 % 96.0 % In summary, the pace of recovery is exceeding our prior expectations and early gains in both Physical Occupancy and pricing has positioned our portfolio well leading us to raise our same store revenue and NOI guidance for the full year 2021. See below for specific discussion on operating performance by geographic market:
•
Leasing Concession use. Physical Occupancy and pricing continued to
significantly improve during the first quarter of 2021. We are also
beginning to see early signs of students returning to this market which
should continue to aid demand. The market is expected to experience some
headwinds from new supply, particularly in the urban core where we are
still dealing with non-stabilized lease-ups from last year as well as a
few newly constructed properties expected to begin lease-up in the back
half of 2021.
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• New York - New York has seen improvement during the first quarter of 2021
which has continued into
elevated. Leasing Concessions have started to decline but remain a
prevalent part of the marketing strategy in this market even while we are
raising rents. Physical Occupancy and pricing have significantly improved
during the first quarter of 2021. Percentage of Residents Renewing for
Physical Occupancy and rate while lowering, or eliminating, Leasing
Concessions.
• Washington, D.C. - Washington, D.C. has shown relatively steadyperformance throughout the pandemic and shows good momentum heading into
peak leasing season. Physical Occupancy held up better in this market than
in any of our other East Coast markets and pricing has continued to
improve. Thus far, despite the pandemic, absorption of new supply has
generally remained healthy but continued absorption of additional newsupply will be a determining factor of performance for the remainder of
2021.
•
significantly during the first quarter of 2021, though the market has
experienced temporary periods of price resistance.
• San Francisco - San Francisco's pace of recovery is ahead of
expectations. Leasing activity remains elevated and demand is
strong. Leasing Concession use has pulled back notably with pricingimproving significantly since the end of 2020. Physical Occupancy is now
over 95%, 2.3 percentage points higher since the end of 2020.
•
as Physical Occupancy and pricing have been relatively stable throughout
the pandemic. Leasing Concession use is limited. Bad debt in
remains the most elevated in our portfolio. We continue to work with our
residents to apply for federally sponsored rental assistance.
•
of performance. Physical Occupancy and pricing have remained strong during
the pandemic and continue to improve. Percentage of Residents Renewing in
Leasing Concession usage in both of these markets.
•
portfolio is delivering solid and steady performance. Demand remains
strong across the market although pricing pressure and widespread Leasing
Concession use are common due to competition from new supply in the urban
center. New supply will be elevated from 2020 levels but improved job
growth should help drive absorption.
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As we head into our primary leasing season, we see considerable positive momentum in our operations and we expect to further reduce Leasing Concessions and increase rental rates in light of the strong demand we see across our markets.
Despite strong rent collections throughout the pandemic, the financial impact of 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, including assisting them in applying for federally sponsored rental assistance, and Non-Residential tenants on meeting their financial obligations and our bad debt allowance policies remain consistent with those in place before the pandemic. We expect our reserves and bad debt expense to remain elevated in 2021. See Note 8 in the Notes to Consolidated Financial Statements for additional discussion of leases atMarch 31, 2021 .
The following table provides comparative same store operating expenses for the
First Quarter 2021
First Quarter 2021 vs. First Quarter 2020
Total Same Store Operating Expenses Including 77,060 Same Store Apartment Units
$ in thousands
% of
Q1 2021
$ % Operating
Q1 2021 Q1 2020 Change (5) Change Expenses
Real estate taxes $ 90,767 $ 88,323 $ 2,444 2.8 % 42.8 %
On-site payroll (1) 42,993 43,009 (16 ) 0.0 % 20.3 %
Utilities (2) 29,945 27,674 2,271 8.2 % 14.1 %
Repairs and maintenance (3) 25,835 23,439 2,396 10.2 % 12.2 %
Insurance 7,040 6,321 719 11.4 % 3.3 %
Leasing and advertising 2,803 2,337 466 19.9 % 1.3 %
Other on-site operating expenses
(4) 12,669 13,098 (429 ) (3.3 )% 6.0 %
Total Same Store Operating Expenses
(includes Residential and
Non-Residential) $ 212,052 $ 204,201 $ 7,851 3.8 % 100.0 %
(1) On-site payroll - Includes payroll and related expenses for on-site personnel
including property managers, leasing consultants and maintenance staff.
(2) Utilities - Represents gross expenses prior to any recoveries under the
Resident Utility Billing System ("RUBS"). Recoveries are reflected in rental
income.
(3) Repairs and maintenance - Includes general maintenance costs, apartment unit
turnover costs including interior painting, routine landscaping, security,
exterminating, fire protection, snow removal, elevator, roof and parking lot
repairs and other miscellaneous building repair and maintenance costs.
(4) Other on-site operating expenses - Includes ground lease costs and
administrative costs such as office supplies, telephone and data charges and
association and business licensing fees.
(5) The quarter-over-quarter changes were primarily affected by the following
factors:
• Real estate taxes - Increase is lower than prior expectations due to lower
rates and assessed values.
• On-site payroll - Improved sales and service staff utilization from
various technology initiatives offset other general payroll pressures.
• Utilities - Increase driven by higher usage of water, sewer and trash.
• Repairs and maintenance - Increase primarily driven by non-comparable
items like greater snowfall on the
from accelerated leasing as well as increases in minimum wage on contract
services.
• Insurance - Increase due to higher premiums on property insurance renewal
due to challenging conditions in the insurance market.
• Leasing and advertising - Increase due primarily to increased digital
advertising and selective use of outside broker fees on targeted leasing
activity.
• Other on-site operating expenses - Decrease primarily driven by lower
ground lease costs due to a lease modification at one property.
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Table of Contents The Company now anticipates same store NOI to decline for the full year 2021 by approximately 13.0% to 11.0% (previously was anticipated to decline by approximately 15.0% to 12.0%) primarily driven by the expected improvement in same store revenues discussed above. We continue to anticipate same store expenses to increase between 3.0% to 4.0% for 2021 as compared to 2020. Given the continued uncertainty resulting from the COVID-19 pandemic, we anticipate the possibility of greater variability around the midpoint, up or down, within these ranges than we would typically experience.
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, 2021 decreased approximately$14.6 million compared to the same period of 2020. These results consist primarily of properties acquired in calendar year 2020, operations from the Company's development properties and operations prior to disposition from 2020 sold properties. This difference is due primarily to:
• A negative impact of lower NOI from development and newly stabilized
development properties in lease-up of
• A positive impact of higher NOI from non-stabilized properties acquired in
2019 and 2020 of
• A negative impact of lower NOI from other non-same store properties
(including one master-leased property) of
• A negative impact of lost NOI from 2020 dispositions of
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 2020 $ 0.83 Property NOI
(0.23 )
Interest expense 0.05
Net gain/loss on property sales (0.51 )
Other 0.01
Diluted earnings per share/unit for period ended 2021 $ 0.15
The decrease in consolidated NOI is primarily a result of the Company's lower NOI from same store properties, largely due to the economic impact from the COVID-19 pandemic. The following table presents the changes in the components of consolidated NOI for the quarter endedMarch 31, 2021 as compared to the same period in 2020:
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