Maryland (Equity Residential) | 1-12252 (Equity Residential) | 13-3675988 (Equity Residential) | ||
Illinois (ERP Operating Limited Partnership) | 0-24920 (ERP Operating Limited Partnership) | 36-3894853 (ERP Operating Limited Partnership) | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
Two North Riverside Plaza Chicago, Illinois | 60606 | |
(Address of principal executive offices) | (Zip Code) |
• | The Archstone Portfolio consists of seventy-one wholly owned and two partially owned unconsolidated operating properties consisting of 20,928 apartment units and three master-leased properties consisting of 853 apartment units, located primarily in high barrier to entry markets where the Company already operates. The Archstone Portfolio contains approximately 19.4 million net rentable square feet of residential space and approximately 500,000 square feet of commercial space. The historical and expected future cash flows of the properties are strong and stable and the properties have a collective occupancy percentage equal to 92.6%. The acquisition of the Archstone Portfolio closed on February 27, 2013 for a total purchase price of approximately $9.0 billion, including assumed debt. |
Exhibit Number | Exhibit | |
23.1 | Consent of KPMG LLP - Equity Residential | |
23.2 | Consent of KPMG LLP - ERP Operating Limited Partnership | |
99.1 | Financial Statements of Real Estate Operations Acquired | |
Archstone Portfolio | ||
Independent Auditors' Report | ||
Combined Statement of Revenue and Certain Expenses | ||
Notes to Combined Statement of Revenue and Certain Expenses | ||
99.2 | Pro Forma Financial Information | |
Equity Residential | ||
Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2012 (unaudited) ERP Operating Limited Partnership Pro Forma Condensed C | ||
Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2012 (unaudited) | ||
ERP Operating Limited Partnership | ||
Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2012 (unaudited) ERP Operating Limited Partnership Pro Forma Condensed C | ||
Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2012 (unaudited) | ||
Notes to Pro Forma Condensed Consolidated Balance Sheets and Pro Forma Condensed Consolidated | ||
Statements of Operations for Equity Residential and ERP Operating Limited Partnership. |
EQUITY RESIDENTIAL | |||
Date: March 6, 2013 | By: | /s/ Mark J. Parrell | |
Name: | Mark J. Parrell | ||
Its: | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||
Date: March 6, 2013 | By: | /s/ Ian S. Kaufman | |
Name: | Ian S. Kaufman | ||
Its: | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | ||
ERP OPERATING LIMITED PARTNERSHIP BY: EQUITY RESIDENTIAL ITS GENERAL PARTNER | |||
Date: March 6, 2013 | By: | /s/ Mark J. Parrell | |
Name: | Mark J. Parrell | ||
Its: | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||
Date: March 6, 2013 | By: | /s/ Ian S. Kaufman | |
Name: | Ian S. Kaufman | ||
Its: | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |
Year Ended | |||||||
December 31, | |||||||
2012 | |||||||
Revenue | |||||||
Rental revenue | $ | 533,297,876 | |||||
Other revenue | 78,607,244 | ||||||
Total revenue | 611,905,120 | ||||||
Certain Expenses | |||||||
Operating | 75,289,634 | ||||||
Maintenance | 9,064,144 | ||||||
Utilities | 31,673,343 | ||||||
Real estate taxes and insurance | 72,931,505 | ||||||
Ground lease | 10,728,842 | ||||||
Management fees | 17,998,766 | ||||||
Total certain expenses | 217,686,234 | ||||||
Revenue in excess of certain expenses | $ | 394,218,886 | |||||
See accompanying notes. | |||||||
Year | Amount | ||||
2013 | $ | 5,364,230 | |||
2014 | 5,554,184 | ||||
2015 | 5,648,219 | ||||
2016 | 5,666,174 | ||||
2017 | 5,909,419 | ||||
Thereafter | 245,226,587 | ||||
Total | $ | 273,368,813 | |||
• | the historical Consolidated Balance Sheets of the Company; |
• | the elimination of the Company's dispositions from January 1, 2013 through February 27, 2013; |
• | the carrying value of the Archstone historical working capital; |
• | the Company's ownership interest in the net working capital of the joint ventures with AVB; |
• | the details of the transaction including the financing required and the allocation of the estimated purchase price to the real estate assets acquired; and |
• | the Pro Forma Condensed Consolidated Balance Sheets of the Company. |
• | the historical Consolidated Statements of Operations of the Company; |
• | the elimination of discontinued operations of the Company's dispositions from January 1, 2013 through February 27, 2013; |
• | the historical combined revenues and certain expenses of the properties to be acquired for Archstone's period of ownership; |
• | removal of the historical combined revenues and certain expenses of the properties to be acquired for unconsolidated entities that are included at full ownership in the previous column; |
• | the pro forma loss from investments in unconsolidated entities for Archstone's period of ownership with respect to the Company's 60% ownership interest in the unconsolidated joint ventures with AVB; |
• | the pro forma details of the transaction including the adjusted depreciation and interest expense; and |
• | the Pro Forma Condensed Consolidated Statements of Operations of the Company. |
• | The Company's historical consolidated financial statements and notes thereto as of and for the year ended December 31, 2012, included in the Company's Combined Form 10-K filed with the SEC on February 21, 2013; and |
• | Financial statements of real estate operations acquired presented earlier in this filing. |
(1) | (2) | (3) | (4) | (5) | ||||||||||||||||||||
Equity Residential Historical | Equity Residential Dispositions | Archstone Historical | Joint Venture | Transaction | Pro Forma Amounts | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Investment in real estate | ||||||||||||||||||||||||
Land | $ | 4,554,912 | $ | (249,689 | ) | (2a) | $ | — | $ | — | $ | 2,239,000 | (5a) | $ | 6,544,223 | |||||||||
Depreciable property | 15,711,944 | (967,984 | ) | (2a) | — | — | 5,770,110 295,730 (18,865) | (5b) (5c) (5d) | 20,790,935 | |||||||||||||||
Projects under development | 387,750 | — | — | — | 26,478 | (5e) | 414,228 | |||||||||||||||||
Land held for development | 353,823 | — | — | — | 240,000 | (5f) | 593,823 | |||||||||||||||||
Investment in real estate | 21,008,429 | (1,217,673 | ) | — | — | 8,552,453 | 28,343,209 | |||||||||||||||||
Accumulated depreciation | (4,912,221 | ) | 353,700 | (2a) | — | — | — | (4,558,521 | ) | |||||||||||||||
Investment in real estate, net | 16,096,208 | (863,973 | ) | — | — | 8,552,453 | 23,784,688 | |||||||||||||||||
Cash and cash equivalents | 612,590 | 42,420 | (2b) | 47,867 | — | (519,230) 69,808 2,350,000 (2,419,808) | (5g) (5h) (5i) (5j) | 183,647 | ||||||||||||||||
Investments in unconsolidated entities | 17,877 | — | (564 | ) | (195,121 | ) | 103,724 117,913 | (5k) (5l) | 43,829 | |||||||||||||||
Deposits – restricted | 250,442 | (83 | ) | (2a) | 34,124 | — | (1,250,734 | ) | (5m) | 335,522 | ||||||||||||||
1,301,773 | (2b) | |||||||||||||||||||||||
Escrow deposits – mortgage | 9,129 | — | 7,704 | — | — | 16,833 | ||||||||||||||||||
Deferred financing costs, net | 44,382 | — | — | — | 25,600 (7,886) | (5n) (5o) | 62,096 | |||||||||||||||||
Other assets | 170,372 | (514 | ) | (2a) | 17,677 | — | 169,910 | (5p) | 357,445 | |||||||||||||||
Total assets | $ | 17,201,000 | $ | 479,623 | $ | 106,808 | $ | (195,121 | ) | $ | 7,191,750 | $ | 24,784,060 | |||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Mortgage notes payable | $ | 3,898,369 | $ | — | $ | — | $ | — | $ | 2,950,550 | (5q) | $ | 6,848,919 | |||||||||||
Notes, net | 4,630,875 | — | — | — | 750,000 | (5r) | 5,380,875 | |||||||||||||||||
Lines of credit | — | — | — | — | 1,600,000 | (5s) | 1,600,000 | |||||||||||||||||
Accounts payable and accrued expenses | 38,372 | (1,288 | ) | (2a) | 9,258 | — | — | 46,342 | ||||||||||||||||
Accrued interest payable | 76,223 | — | 16,568 | — | — | 92,791 | ||||||||||||||||||
Other liabilities | 304,518 | (285 | ) | (2a) | 11,796 | — | 10,440 104,224 | (5t) (5u) | 430,693 | |||||||||||||||
Security deposits | 66,988 | (2,409 | ) | (2a) | 10,233 | — | — | 74,812 | ||||||||||||||||
Distributions payable | 260,176 | — | — | — | — | 260,176 | ||||||||||||||||||
Total liabilities | 9,275,521 | (3,982 | ) | 47,855 | — | 5,415,214 | 14,734,608 | |||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||
Redeemable Noncontrolling Interests – Operating Partnership | 398,372 | — | — | — | 29 | (5aa) | 398,401 | |||||||||||||||||
Equity: | ||||||||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||||||
Preferred Shares | 50,000 | — | — | — | — | 50,000 | ||||||||||||||||||
Common Shares | 3,251 | — | — | — | 345 | (5v) | 3,596 | |||||||||||||||||
Paid in capital | 6,542,355 | — | 213,409 | (195,121 | ) | 1,929,523 (24,761) (213,973) | (5w) (5aa) (5x) | 8,251,432 | ||||||||||||||||
Retained earnings | 887,355 | 483,605 | (2c) | (154,456 | ) | — | 154,456 (85,929) (7,886) | (5x) (5y) (5z) | 1,277,145 | |||||||||||||||
Accumulated other comprehensive (loss) | (193,148 | ) | — | — | — | — | (193,148 | ) | ||||||||||||||||
Total shareholders’ equity | 7,289,813 | 483,605 | 58,953 | (195,121 | ) | 1,751,775 | 9,389,025 | |||||||||||||||||
Noncontrolling Interests: | ||||||||||||||||||||||||
Operating Partnership | 159,606 | — | — | — | 24,732 | (5aa) | 184,338 | |||||||||||||||||
Partially Owned Properties | 77,688 | — | — | — | — | 77,688 | ||||||||||||||||||
Total Noncontrolling Interests | 237,294 | — | — | — | 24,732 | 262,026 | ||||||||||||||||||
Total equity | 7,527,107 | 483,605 | 58,953 | (195,121 | ) | 1,776,507 | 9,651,051 | |||||||||||||||||
Total liabilities and equity | $ | 17,201,000 | $ | 479,623 | $ | 106,808 | $ | (195,121 | ) | $ | 7,191,750 | $ | 24,784,060 | |||||||||||
See accompanying notes. |
(1) | (2) | (3) | (4) | (5) | (6) | ||||||||||||||||||||||
Equity Residential Historical | Discontinued Operations | Archstone Historical | Unconsolidated Assets | Joint Venture | Transaction | Pro Forma Amounts | |||||||||||||||||||||
REVENUES | |||||||||||||||||||||||||||
Rental income | $ | 2,114,142 | $ | (126,559 | ) | $ | 611,905 | $ | (21,265 | ) | $ | — | $ | 819 | (6a) | $ | 2,579,042 | ||||||||||
Fee and asset management | 9,573 | — | — | — | — | — | 9,573 | ||||||||||||||||||||
Total revenues | 2,123,715 | (126,559 | ) | 611,905 | (21,265 | ) | — | 819 | 2,588,615 | ||||||||||||||||||
EXPENSES | |||||||||||||||||||||||||||
Property and maintenance | 415,986 | (25,328 | ) | 126,756 | (4,226 | ) | — | 4,282 | (6b) | 517,470 | |||||||||||||||||
Real estate taxes and insurance | 241,876 | (13,269 | ) | 72,931 | (1,293 | ) | — | — | 300,245 | ||||||||||||||||||
Property management | 81,902 | — | 17,999 | (822 | ) | — | — | 99,079 | |||||||||||||||||||
Fee and asset management | 4,663 | — | — | — | — | — | 4,663 | ||||||||||||||||||||
Depreciation | 664,082 | (39,384 | ) | — | — | — | 500,597 | (6c) | 1,125,295 | ||||||||||||||||||
General and administrative | 47,248 | (7 | ) | — | — | — | — | 47,241 | |||||||||||||||||||
Total expenses | 1,455,757 | (77,988 | ) | 217,686 | (6,341 | ) | — | 504,879 | 2,093,993 | ||||||||||||||||||
Operating income (loss) | 667,958 | (48,571 | ) | 394,219 | (14,924 | ) | — | (504,060 | ) | 494,622 | |||||||||||||||||
Interest and other income | 150,547 | — | — | — | — | — | 150,547 | ||||||||||||||||||||
Other expenses | (27,361 | ) | — | — | — | — | 5,619 | (6d) | (21,742 | ) | |||||||||||||||||
Interest: | |||||||||||||||||||||||||||
Expense incurred, net | (457,666 | ) | 834 | — | — | — | (128,446 | ) | (6e) | (585,278 | ) | ||||||||||||||||
Amortization of deferred financing costs | (21,370 | ) | 36 | — | — | — | (5,668 | ) | (6f) | (18,638 | ) | ||||||||||||||||
8,364 | (6g) | ||||||||||||||||||||||||||
Income (loss) before income and other taxes, (loss) from investments in unconsolidated entities and discontinued operations | 312,108 | (47,701 | ) | 394,219 | (14,924 | ) | — | (624,191 | ) | 19,511 | |||||||||||||||||
Income and other tax (expense) benefit | (539 | ) | 13 | — | — | — | — | (526 | ) | ||||||||||||||||||
(Loss) from investments in unconsolidated entities | (14 | ) | — | — | (8,586 | ) | (4a) | (59,221 | ) | (5a) | (6,830 | ) | (6h) | (74,651 | ) | ||||||||||||
Income (loss) from continuing operations | 311,555 | (47,688 | ) | 394,219 | (23,510 | ) | (59,221 | ) | (631,021 | ) | (55,666 | ) | |||||||||||||||
Net (income) loss from continuing operations attributable to Noncontrolling Interests: | |||||||||||||||||||||||||||
Operating Partnership, net | (13,178 | ) | 2,132 | (7) | (17,622 | ) | (7) | 1,051 | (7) | 2,647 | (7) | 28,207 | (7) | 3,237 | |||||||||||||
Partially Owned Properties | (844 | ) | — | — | — | — | — | (844 | ) | ||||||||||||||||||
Net income (loss) from continuing operations attributable to controlling interests: | 297,533 | (45,556 | ) | 376,597 | (22,459 | ) | (56,574 | ) | (602,814 | ) | (53,273 | ) | |||||||||||||||
Preferred distributions | (10,355 | ) | — | — | — | — | — | (10,355 | ) | ||||||||||||||||||
Premium on redemption of Preferred Shares | (5,152 | ) | — | — | — | — | — | (5,152 | ) | ||||||||||||||||||
Income (loss) from continuing operations available to Common Shares | $ | 282,026 | $ | (45,556 | ) | $ | 376,597 | $ | (22,459 | ) | $ | (56,574 | ) | $ | (602,814 | ) | $ | (68,780 | ) | ||||||||
Earnings per share - basic: | |||||||||||||||||||||||||||
Income (loss) from continuing operations available to Common Shares | $ | 0.93 | $ | (0.20 | ) | ||||||||||||||||||||||
Weighted average Common Shares outstanding | 302,701 | (6i) | 337,169 | ||||||||||||||||||||||||
Earnings per share – diluted: | |||||||||||||||||||||||||||
Income (loss) from continuing operations available to Common Shares | $ | 0.92 | $ | (0.20 | ) | ||||||||||||||||||||||
Weighted average Common Shares outstanding | 319,766 | (6i) | 337,169 | ||||||||||||||||||||||||
See accompanying notes. |
(1) | (2) | (3) | (4) | (5) | ||||||||||||||||||||
ERP Operating Limited Partnership Historical | ERP Operating Limited Partnership Dispositions | Archstone Historical | Joint Venture | Transaction | Pro Forma Amounts | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Investment in real estate | ||||||||||||||||||||||||
Land | $ | 4,554,912 | $ | (249,689 | ) | (2a) | $ | — | $ | — | $ | 2,239,000 | (5a) | $ | 6,544,223 | |||||||||
Depreciable property | 15,711,944 | (967,984 | ) | (2a) | — | — | 5,770,110 | (5b) | 20,790,935 | |||||||||||||||
295,730 | (5c) | |||||||||||||||||||||||
(18,865 | ) | (5d) | ||||||||||||||||||||||
Projects under development | 387,750 | — | — | — | 26,478 | (5e) | 414,228 | |||||||||||||||||
Land held for development | 353,823 | — | — | — | 240,000 | (5f) | 593,823 | |||||||||||||||||
Investment in real estate | 21,008,429 | (1,217,673 | ) | — | — | 8,552,453 | 28,343,209 | |||||||||||||||||
Accumulated depreciation | (4,912,221 | ) | 353,700 | (2a) | — | — | — | (4,558,521 | ) | |||||||||||||||
Investment in real estate, net | 16,096,208 | (863,973 | ) | — | — | 8,552,453 | 23,784,688 | |||||||||||||||||
Cash and cash equivalents | 612,590 | 42,420 | (2b) | 47,867 | — | (519,230 | ) | (5g) | 183,647 | |||||||||||||||
69,808 | (5h) | |||||||||||||||||||||||
2,350,000 | (5i) | |||||||||||||||||||||||
(2,419,808 | ) | (5j) | ||||||||||||||||||||||
Investments in unconsolidated entities | 17,877 | — | (564 | ) | (195,121 | ) | 103,724 | (5k) | 43,829 | |||||||||||||||
117,913 | (5l) | |||||||||||||||||||||||
Deposits – restricted | 250,442 | (83 | ) | (2a) | 34,124 | — | (1,250,734 | ) | (5m) | 335,522 | ||||||||||||||
1,301,773 | (2b) | |||||||||||||||||||||||
Escrow deposits – mortgage | 9,129 | — | 7,704 | — | — | 16,833 | ||||||||||||||||||
Deferred financing costs, net | 44,382 | — | — | — | 25,600 | (5n) | 62,096 | |||||||||||||||||
(7,886 | ) | (5o) | ||||||||||||||||||||||
Other assets | 170,372 | (514 | ) | (2a) | 17,677 | — | 169,910 | (5p) | 357,445 | |||||||||||||||
Total assets | $ | 17,201,000 | $ | 479,623 | $ | 106,808 | $ | (195,121 | ) | $ | 7,191,750 | $ | 24,784,060 | |||||||||||
LIABILITIES AND CAPITAL | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Mortgage notes payable | $ | 3,898,369 | $ | — | $ | — | $ | — | $ | 2,950,550 | (5q) | $ | 6,848,919 | |||||||||||
Notes, net | 4,630,875 | — | — | — | 750,000 | (5r) | 5,380,875 | |||||||||||||||||
Lines of credit | — | — | — | — | 1,600,000 | (5s) | 1,600,000 | |||||||||||||||||
Accounts payable and accrued expenses | 38,372 | (1,288 | ) | (2a) | 9,258 | — | — | 46,342 | ||||||||||||||||
Accrued interest payable | 76,223 | 0 | 16,568 | — | — | 92,791 | ||||||||||||||||||
Other liabilities | 304,518 | (285 | ) | (2a) | 11,796 | — | 10,440 | (5t) | 430,693 | |||||||||||||||
104,224 | (5u) | |||||||||||||||||||||||
Security deposits | 66,988 | (2,409 | ) | (2a) | 10,233 | — | — | 74,812 | ||||||||||||||||
Distributions payable | 260,176 | — | — | — | — | 260,176 | ||||||||||||||||||
Total liabilities | 9,275,521 | (3,982 | ) | 47,855 | — | 5,415,214 | 14,734,608 | |||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||
Redeemable Limited Partners | 398,372 | — | — | — | 29 | (5aa) | 398,401 | |||||||||||||||||
Capital: | ||||||||||||||||||||||||
Partners’ Capital: | ||||||||||||||||||||||||
Preference Units | 50,000 | — | — | — | — | 50,000 | ||||||||||||||||||
General Partner | 7,432,961 | 483,605 | (2c) | 58,953 | (195,121 | ) | 345 | (5v) | 9,532,173 | |||||||||||||||
1,929,523 | (5w) | |||||||||||||||||||||||
(24,761 | ) | (5aa) | ||||||||||||||||||||||
(213,973 | ) | (5x) | ||||||||||||||||||||||
154,456 | (5x) | |||||||||||||||||||||||
(85,929 | ) | (5y) | ||||||||||||||||||||||
(7,886 | ) | (5z) | ||||||||||||||||||||||
Limited Partners | 159,606 | — | — | — | 24,732 | (5aa) | 184,338 | |||||||||||||||||
Accumulated other comprehensive (loss) | (193,148 | ) | — | — | — | — | (193,148 | ) | ||||||||||||||||
Total partners’ capital | 7,449,419 | 483,605 | 58,953 | (195,121 | ) | 1,776,507 | 9,573,363 | |||||||||||||||||
Noncontrolling Interests – Partially Owned Properties | 77,688 | — | — | — | — | 77,688 | ||||||||||||||||||
Total capital | 7,527,107 | 483,605 | 58,953 | (195,121 | ) | 1,776,507 | 9,651,051 | |||||||||||||||||
Total liabilities and capital | $ | 17,201,000 | $ | 479,623 | $ | 106,808 | $ | (195,121 | ) | $ | 7,191,750 | $ | 24,784,060 | |||||||||||
See accompanying notes. |
(1) | (2) | (3) | (4) | (5) | (6) | |||||||||||||||||||||||
ERP Operating Limited Partnership Historical | Discontinued Operations | Archstone Historical | Unconsolidated Assets | Joint Venture | Transaction | Pro Forma Amounts | ||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||||||
Rental income | $ | 2,114,142 | $ | (126,559 | ) | $ | 611,905 | $ | (21,265 | ) | $ | — | $ | 819 | (6a) | $ | 2,579,042 | |||||||||||
Fee and asset management | 9,573 | — | — | — | — | — | 9,573 | |||||||||||||||||||||
Total revenues | 2,123,715 | (126,559 | ) | 611,905 | (21,265 | ) | — | 819 | 2,588,615 | |||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||||||
Property and maintenance | 415,986 | (25,328 | ) | 126,756 | (4,226 | ) | — | 4,282 | (6b) | 517,470 | ||||||||||||||||||
Real estate taxes and insurance | 241,876 | (13,269 | ) | 72,931 | (1,293 | ) | — | — | 300,245 | |||||||||||||||||||
Property management | 81,902 | — | 17,999 | (822 | ) | — | — | 99,079 | ||||||||||||||||||||
Fee and asset management | 4,663 | — | — | — | — | — | 4,663 | |||||||||||||||||||||
Depreciation | 664,082 | (39,384 | ) | — | — | — | 500,597 | (6c) | 1,125,295 | |||||||||||||||||||
General and administrative | 47,248 | (7 | ) | — | — | — | — | 47,241 | ||||||||||||||||||||
Total expenses | 1,455,757 | (77,988 | ) | 217,686 | (6,341 | ) | — | 504,879 | 2,093,993 | |||||||||||||||||||
Operating income (loss) | 667,958 | (48,571 | ) | 394,219 | (14,924 | ) | — | (504,060 | ) | 494,622 | ||||||||||||||||||
Interest and other income | 150,547 | — | — | — | — | — | 150,547 | |||||||||||||||||||||
Other expenses | (27,361 | ) | — | — | — | — | 5,619 | (6d) | (21,742 | ) | ||||||||||||||||||
Interest: | ||||||||||||||||||||||||||||
Expense incurred, net | (457,666 | ) | 834 | — | — | — | (128,446 | ) | (6e) | (585,278 | ) | |||||||||||||||||
Amortization of deferred financing costs | (21,370 | ) | 36 | — | — | — | (5,668 | ) | (6f) | (18,638 | ) | |||||||||||||||||
— | 8,364 | (6g) | ||||||||||||||||||||||||||
Income (loss) before income and other taxes, (loss) from investments in unconsolidated entities and discontinued operations | 312,108 | (47,701 | ) | 394,219 | (14,924 | ) | — | (624,191 | ) | 19,511 | ||||||||||||||||||
Income and other tax (expense) benefit | (539 | ) | 13 | — | — | — | — | (526 | ) | |||||||||||||||||||
(Loss) from investments in unconsolidated entities | (14 | ) | — | — | (8,586 | ) | (4a) | (59,221 | ) | (5a) | (6,830 | ) | (6h) | (74,651 | ) | |||||||||||||
Income (loss) from continuing operations | 311,555 | (47,688 | ) | 394,219 | (23,510 | ) | (59,221 | ) | (631,021 | ) | (55,666 | ) | ||||||||||||||||
Net (income) loss from continuing operations attributable to Noncontrolling Interests – Partially Owned Properties | (844 | ) | — | — | — | — | — | (844 | ) | |||||||||||||||||||
Net income (loss) from continuing operations attributable to controlling interests | $ | 310,711 | $ | (47,688 | ) | $ | 394,219 | $ | (23,510 | ) | $ | (59,221 | ) | $ | (631,021 | ) | $ | (56,510 | ) | |||||||||
ALLOCATION OF INCOME FROM CONTINUING OPERATIONS: | ||||||||||||||||||||||||||||
Preference Units | $ | 10,355 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 10,355 | ||||||||||||||
Premium on redemption of Preference Units | $ | 5,152 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 5,152 | ||||||||||||||
Income (loss) from continuing operations available to Units | $ | 295,204 | $ | (47,688 | ) | $ | 394,219 | $ | (23,510 | ) | $ | (59,221 | ) | $ | (631,021 | ) | $ | (72,017 | ) | |||||||||
Earnings per Unit - basic: | ||||||||||||||||||||||||||||
Income (loss) from continuing operations available to Units | $ | 0.93 | $ | (0.20 | ) | |||||||||||||||||||||||
Weighted average Units outstanding | 316,554 | (6i) | 351,022 | |||||||||||||||||||||||||
Earnings per Unit - diluted: | ||||||||||||||||||||||||||||
Income (loss) from continuing operations available to Units | $ | 0.92 | $ | (0.20 | ) | |||||||||||||||||||||||
Weighted average Units outstanding | 319,766 | (6i) | 351,022 | |||||||||||||||||||||||||
See accompanying notes. |
(1) | Historical Balances - Reflects the consolidated balance sheet of the Company as contained in its historical consolidated financial statements included in the Form 10-K as of and for the year ended December 31, 2012 previously filed with the Securities and Exchange Commission. |
(2) | Dispositions - Reflects the balance sheet impact of the disposition of 33 operating properties sold by the Company in multiple separate transactions from January 1, 2013 through February 27, 2013 to partially fund the transaction. |
a) | Reflects the removal of real estate, accumulated depreciation and working capital from the historical balances. |
b) | Reflects $1.3 billion in tax deferred section 1031 exchange proceeds and $42.4 million in cash proceeds. |
c) | Reflects the $483.6 million estimated gain on sale. |
(3) | Archstone Historical - Reflects the carrying value of Archstone's historical net working capital (which approximates fair value) for the properties purchased by the Company as of December 31, 2012. Additionally, reclassifications were made to conform to the Company's presentation. |
(4) | Joint Venture - Reflects the Company's 60% ownership interest in the net working capital of the joint ventures with AVB as of December 31, 2012. The joint ventures consist of approximately 14,000 apartment units in Germany, six domestic operating properties and various development pursuit deals, with ownership interests ranging from 5.0% - 100%. See note (5l) below. |
(5) | Transaction - In connection with completing the transaction, the following adjustments were made to account for the assumption of existing debt, issuance of common shares to the seller, additional financing required and the allocation of the estimated purchase price to the real estate assets acquired, all at fair value based on an analysis of current market conditions. The major components of the transaction funding and the purchase price include the following (amounts in thousands): |
Funding Source | Amount | Asset | Allocated Purchase Price | |||||||
Cash on Hand | $ | 519,230 | Land | $ | 2,239,000 | |||||
Common Share Issuance to Seller | 1,929,868 | Building | 5,635,180 | |||||||
Line of Credit Draw | 1,600,000 | Site Improvements | 74,690 | |||||||
Term Loan | 750,000 | FF&E | 60,240 | |||||||
Debt Assumed | 2,790,050 | In-Place Leases | 295,730 | |||||||
Mark to Market of Debt Assumed | 160,500 | Projects Under Development | 26,478 | |||||||
Assumption of Preferred Shares | 104,224 | Land Held for Development | 240,000 | |||||||
Transaction Costs | (85,929 | ) | Investment in Unconsolidated Entities | 221,637 | ||||||
Working Capital | (59,517 | ) | Ground/Retail Leases above/below market | 159,470 | ||||||
1031 Exchange Proceeds | 1,250,734 | Mark to Market of Debt Assumed | 160,500 | |||||||
Common Share FMV Adjustment | (95,132 | ) | ||||||||
Cash and Working Capital Adjustment | (84,233 | ) | ||||||||
Deferred Financing Fees | 25,600 | |||||||||
Total | $ | 8,959,160 | Total | $ | 8,959,160 |
a) | Reflects the estimated purchase price allocation to land. |
b) | Reflects the estimated purchase price allocation to depreciable property (building, site improvements and FF&E). |
c) | Reflects the estimated purchase price allocation to the intangible value of the existing in place leases. |
d) | Reflects purchase price adjustments including: |
• | Fair market value of the debt assumed which resulted in an increase of $160.5 million; |
• | Market adjustment on the common share issuance to the seller reflecting the difference in the share price of our common shares used for determining the number of shares issued to affiliates of LBHI ($58.75) and the actual price as of February 27, 2013 ($55.99), resulting in a decrease of $95.1 million; |
• | corporate cash assumed from Archstone resulting in a decrease of $24.8 million net of a debt extinguishment fee paid in conjunction with closing; and |
• | elimination of historical net equity of Archstone, resulting in a decrease of $59.5 million (see note (5x) below). |
e) | Reflects the reclassification of a portion of land and construction-in-progress acquired consistent with the Company's classification. |
f) | Reflects the reclassification of a portion of land and construction-in-progress acquired consistent with the Company's classification. |
g) | Reflects the use of the company's corporate cash on hand to fund the transaction. |
h) | Reflects the assumption of an estimated $69.8 million in Archstone corporate cash net of cash used to purchase two land parcels prior to close. |
i) | Reflects the aggregate loan proceeds of $2.35 billion resulting from a $750.0 million draw on the new senior unsecured delayed draw term loan facility discussed below in note (5r) and drawing on the new line of credit in the amount of $1.6 billion discussed below in note (5s). |
j) | Reflects the use of cash raised or acquired noted above in notes (5h and 5i) for the acquisition. |
k) | Reflects the fair value of the real estate, lease intangibles and debt assumed for the Company's ownership interest in five unconsolidated properties (including development), at varying ownership percentages. |
l) | Reflects the fair value of the real estate, lease intangibles and debt assumed for the Company's 60% unconsolidated ownership interest in the joint ventures with AVB. These amounts take into account a 20% interest in a domestic fund containing 1,902 apartment units, 807 wholly owned German apartment units and 16.5% and 5.0% interests, respectively, in two separate German funds owning over 13,000 additional apartment units. |
m) | Reflects the use of $1.25 billion in tax deferred section 1031 exchange proceeds. Of this amount, $152.2 million related to properties disposed of prior to December 31, 2012 and are included in the Company's historical balances. The remaining $1.1 billion resulted from the dispositions that occurred subsequent to year end (see note (2b) above). |
n) | Reflects the estimated $25.6 million of financing costs associated with the assumption of existing debt discussed in note (5q) and the $2.35 billion in proceeds discussed in notes (5r and 5s) which will be amortized over a weighted average of 8.1 years. |
o) | Reflects the write off of $7.9 million of unamortized loan costs included in the Company's historical balances associated with the termination of the bridge loan facility commitment in 2013 which the Company obtained in preparation for the transaction. |
p) | Reflects the estimated purchase price allocation at fair value to the intangible value of below market ground and above market retail lease intangibles of $167.6 million and $2.3 million, respectively. |
q) | Reflects the assumption of $3.0 billion in mortgage debt. Total principal assumed consisted of the following components: $2.4 billion of fixed rate mortgages, $373.6 million of variable rate tax exempt bonds and conventional |
r) | Reflects the estimated loan proceeds of funding the new senior unsecured delayed draw term loan facility in the amount of $750.0 million. On January 11, 2013, the company entered into the new facility, which matures January 11, 2015 and is subject to a one year extension option exercisable by the Company. The facility has a current interest rate of LIBOR plus 1.20%. |
s) | Reflects the estimated loan proceeds of a $1.6 billion draw on the new revolving line of credit. On January 11, 2013, the company entered into a new line of credit agreement with a total capacity of $2.5 billion. The new facility matures on April 1, 2018 and has a current interest rate of LIBOR plus 1.05%. The facility is also subject to an annual facility fee of 0.15% of capacity. |
t) | Reflects the estimated purchase price allocation at fair value to the intangible value of above market ground and below market retail leases of $2.4 million and $8.0 million, respectively. |
u) | Reflects the assumption of the Company's obligation related to the $104.2 million liquidation value of preferred shares assumed as part of this transaction in a 60% owned unconsolidated joint venture with AVB which is reflected in other liabilities. The stated dividend rates range from 6.00% to 7.66%. |
v) | Reflects the issuance of 34.5 million shares of the Company's common shares at par value of $0.01 per share. See note (5w) below. |
w) | Reflects the $1.9 billion recording of additional paid in capital as a result of the issuance of 34.5 million shares of the Company's common shares directly to affiliates of LBHI as partial consideration in this transaction. The shares were valued using the closing share price of $55.99 as of February 27, 2013. See also note (5d) above. |
x) | Reflects an adjustment to eliminate the historical equity balance of the Archstone properties with the net offset of $59.5 million noted above in (5d). |
y) | Reflects $85.9 million of estimated transaction costs the Company will incur in order to complete the acquisition. The estimated transaction costs are not included in the pro forma condensed consolidated statements of operations for the year ended December 31, 2012 as they represent a non-recurring charge that results directly from the acquisition and will be included in the consolidated financial results of the Company within twelve months of the transaction. |
z) | Reflects the $7.9 million write off of unamortized loan costs included in the Company's historical balances related to the $2.5 billion bridge loan facility commitment in 2013 that was obtained in preparation for the transaction. The facility was canceled on January 11, 2013 with the completion of the new unsecured revolving credit agreement discussed in note (5s) and the new senior unsecured delayed draw term loan discussed in note (5r). The write off of unamortized loan costs is not included in the pro forma condensed consolidated statements of operations for the year ended December 31, 2012 as they represent a non-recurring charge that results directly from the acquisition and will be included in the consolidated financial results of the Company within twelve months of the transaction. |
1) | Historical Amounts - Represents the consolidated statement of operations of the Company as contained in the historical consolidated financial statements included in its Form 10-K as of and for the year ended December 31, 2012 previously filed with the Securities and Exchange Commission. |
2) | Discontinued Operations - Represents the discontinued operations for the year ended December 31, 2012 attributable to properties sold by the Company in multiple separate transactions from January 1, 2013 through February 27, 2013. |
3) | Archstone Historical - Represents the historical combined revenues and certain expenses of the properties acquired for Archstone's period of ownership during the year ended December 31, 2012 attributable to the acquisition of the Archstone Portfolio as if the acquisition had occurred on January 1, 2012. |
4) | Unconsolidated Assets - Represents removal of the historical combined revenues and certain expenses acquired for unconsolidated entities included in the Archstone Portfolio at full ownership for Archstone's period of ownership with respect to the Company's anticipated 60% ownership interest in the unconsolidated joint ventures with AVB during the year ended December 31, 2012. The amounts removed and the loss (income) from investments in unconsolidated entities recorded are attributable to the acquisition of the interests in the Unconsolidated Assets as if the acquisition had occurred on January 1, 2012. The loss (income) from investments in unconsolidated entities is based on the Company's share of earnings and reflects its actual ownership in the unconsolidated entities. |
a) | Reflects the $(8.6) million (loss) from investments in unconsolidated entities. |
5) | Joint Venture - The Company has an unconsolidated 60% interest in joint ventures with AVB. These joint ventures hold certain assets neither partner intends to own and these assets are held for sale. Represents the pro forma (loss) income from investments in unconsolidated entities for Archstone's period of ownership during the year ended December 31, 2012. |
a) | Reflects the $(59.2) million (loss) from investments in unconsolidated entities. |
6) | Transaction - In connection with the transaction, we have made the following adjustments for the year ended December 31, 2012: |
a) | Rental income of $0.8 million relates to the amortization of $5.7 million in net below market retail leases to be assumed in the transaction. The below market retail leases are amortized over a weighted average life of seven years. |
b) | Property and maintenance expense of $4.3 million relates to the amortization of $165.2 million in net below market ground leases to be assumed in the transaction. The below market ground leases are amortized over the term of the respective ground leases to which they relate having expirations ranging from 2042 - 2092. |
c) | Depreciation expense of $500.6 million is calculated based on the fair value of the real estate related assets purchased as detailed below (amounts in thousands except for depreciable lives): |
Year | |||||||
Weighted Average | Ended 12/31/12 | ||||||
Asset | Basis | Depreciable Life | Expense | ||||
Building | $ | 5,635,180 | 30 Years | $ | 187,840 | ||
Site Improvements | 74,690 | 15 Years | 4,979 | ||||
FF&E | 60,240 | 5 Years | 12,048 | ||||
In-Place Leases | 295,730 | 6 Months | 295,730 | ||||
Total | $ | 6,065,840 | $ | 500,597 |
d) | Other expenses of $5.6 million reflect the elimination of historical charges related to this transaction that are not expected to recur. |
e) | Reflects the $128.4 million of interest expense related to debt that will be assumed or incurred as a result of or to finance this transaction. The components of interest expense are detailed below (amounts in thousands except for interest rates): |
Year | |||||||
Debt Type | Principal | Interest Rate Range | Ended 12/31/12 Expense | ||||
Fixed Rate Mortgages Assumed | $ | 2,416,450 | 0.10% - 6.26% | $ | 143,433 | ||
Variable Rate Mortgages Assumed | 373,600 | SIFMA + 0.874% -1.495% | 4,883 | ||||
LIBOR + 1.75% | |||||||
FMV Mortgages Assumed | 160,500 | n/a | (52,462 | ) | |||
Line of Credit | 1,600,000 | LIBOR +1.05% | 22,190 | ||||
Delayed Draw Term Loan | 750,000 | LIBOR + 1.20% | 10,402 | ||||
Total | $ | 5,300,550 | $ | 128,446 |
f) | Reflects $5.7 million of amortization of estimated financing costs applicable to assuming mortgages and draws on the revolving line of credit and delayed draw term loan. Financing costs are amortized to interest expense over the expected life of the respective loan agreements (weighted average of 8.1 years) using the straight-line method, which approximates the effective interest method. |
g) | Amortization of deferred financing costs of $8.4 million reflects the elimination of 2012 unamortized loan costs written off in the historical financial statements related to a $2.5 billion bridge loan facility commitment that was obtained in preparation for the transaction that has been canceled in 2013 and is not expected to recur. |
h) | Reflects $6.8 million of accrued but unpaid distributions related to preferred shares assumed as part of this transaction in a 60% owned unconsolidated joint venture. |
i) | Historical basic and diluted weighted average common shares outstanding of 302.7 million and 319.8 million, respectively, for Equity Residential should be adjusted to include the 34.5 million shares issued to affiliates of LBHI in order to complete the transaction (see note (5v) on the Pro Forma Balance Sheet). We did not adjust the number of diluted shares outstanding as it would be antidilutive. |
7) | Reflects the allocation of results between the controlling interests and the Noncontrolling Interests - Operating Partnership based on the Noncontrolling Interests - Operating Partnership weighted average ownership of 4.47% of Equity Residential for the year ended December 31, 2012. |