Real Estate

6 Months Ended

Jun. 30, 2013

Real Estate [Abstract]

Real Estate Disclosure [Text Block]

4. Real Estate and Lease Intangibles

The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of June 30, 2013 and December 31, 2012 (amounts in thousands):

	June 30, 2013			December 31, 2012
Land	$	6,264,787		$	4,554,912
Depreciable property:
Buildings and improvements	17,862,440			14,135,740
Furniture, fixtures and equipment	1,201,868			1,343,765
In-Place lease intangibles	504,665			232,439
Projects under development:
Land	224,561			210,632
Construction-in-progress	361,188			177,118
Land held for development:
Land	506,380			294,868
Construction-in-progress	63,018			58,955
Investment in real estate	26,988,907			21,008,429
Accumulated depreciation	(4,547,327		)	(4,912,221		)
Investment in real estate, net	$	22,441,580		$	16,096,208

The following table summarizes the carrying amounts for the Company's above and below market ground and retail lease intangibles as of June 30, 2013 (amounts in thousands):

Description	Balance Sheet Location	Fair Value
Assets
Ground lease intangibles – below market	Other Assets	$	178,251
Retail lease intangibles – above market	Other Assets	2,310
Lease intangible assets		180,561
Accumulated amortization		(1,841		)
Lease intangible assets, net		$	178,720
Liabilities
Ground lease intangibles – above market	Other Liabilities	$	2,400
Retail lease intangibles – below market	Other Liabilities	7,790
Lease intangible liabilities		10,190
Accumulated amortization		(610		)
Lease intangible liabilities, net		$	9,580

During the six months and quarter ended June 30, 2013, the Company amortized approximately $1.4 million and $1.0 million, respectively, of above and below market ground lease intangibles which is included (net increase) in property and maintenance expense in the accompanying consolidated statements of operations and approximately $0.2 million and $0.1 million, respectively, of above and below market retail lease intangibles which is included (net increase) in rental income in the accompanying consolidated statements of operations.

The weighted average amortization period for above and below market ground lease intangibles and retail lease intangibles is 49.8 years and 5.3 years, respectively.

The following table provides a summary of the aggregate amortization expense for above and below market ground lease intangibles and retail lease intangibles for each of the next five years (amounts in thousands):

	Remaining
	2013			2014			2015			2016			2017			2018
Ground lease intangibles	$	2,161		$	4,321		$	4,321		$	4,321		$	4,321		$	4,321
Retail lease intangibles	(300		)	(1,144		)	(1,150		)	(1,042		)	(674		)	(205		)
Total	$	1,861		$	3,177		$	3,171		$	3,279		$	3,647		$	4,116

Archstone Acquisition

On February 27, 2013, the Company, AvalonBay Communities, Inc. (“AVB”) and certain of their respective subsidiaries completed their previously announced acquisition (the “Archstone Acquisition”) from Archstone Enterprise LP (“Enterprise”) (which subsequently changed its name to Jupiter Enterprise LP) and its affiliates, of all of the assets of Enterprise (including interests in various entities affiliated with Enterprise), constituting a portfolio of apartment properties and other assets (the “Archstone Portfolio”).

The Company acquired assets representing approximately 60% of the Archstone Portfolio which consisted principally of high-quality apartment properties in major markets in the United States. The acquisition allowed the Company to accelerate the completion of its strategic shift into coastal apartment markets. Pursuant to the Archstone transaction, the Company acquired directly or indirectly, 71 wholly owned, stabilized properties consisting of 20,160 apartment units, one partially owned and consolidated stabilized property consisting of 432 apartment units, one partially owned and unconsolidated stabilized property consisting of 336 apartment units, three consolidated master-leased properties consisting of 853 apartment units, four projects in various stages of construction (two consolidated and two unconsolidated) for 964 apartment units and fourteen land sites for approximately $9.0 billion. During the six months ended June 30, 2013, the Company recorded revenues and net operating income ("NOI") of $204.5 million and $140.0 million, respectively, from the acquired assets. During the quarter ended June 30, 2013, the Company recorded revenues and NOI of $151.9 million and $103.9 million, respectively, from the acquired assets.

The consideration paid by the Company in connection with the Archstone Acquisition consisted of cash of approximately $4.0 billion (inclusive of $2.0 billion of Archstone secured mortgage principal paid off in conjunction with the closing), 34,468,085 Common Shares (which shares had a total value of $1.9 billion based on the February 27, 2013 closing price of EQR common shares of $55.99 per share) issued to the seller and the assumption of approximately $3.1 billion of mortgage debt (inclusive of a net mark-to-market premium of $127.9 million) and approximately 60% of all of the other assets and liabilities related to the Archstone Portfolio. The cash consideration was funded with proceeds from the November 2012 public equity offering, the asset sales discussed below, the Company's new $750.0 million senior unsecured delayed draw term loan facility and the Company's revolving credit facility.

The Company owns the building and improvements and leases the land underlying the improvements under long-term ground leases that expire beginning in 2042 and running through 2103 for nine of the operating properties acquired and discussed above. These properties are consolidated and reflected as real estate assets while the ground leases are accounted for as operating leases. The Company also leases the three master-leased properties discussed above to third party operators and earns monthly net rental income.

The Company is accounting for the acquisition under the acquisition method in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations (“ASC 805”), and the initial accounting for this business combination is substantially complete but subject to further adjustment as certain information becomes available (see further discussion below). The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed, which the Company determined using Level 1, Level 2 and Level 3 inputs (amounts in thousands):

Land	$	2,239,000
Depreciable property:
Buildings and improvements	5,836,010
Furniture, fixtures and equipment	61,470
In-Place lease intangibles	304,830
Projects under development	36,583
Land held for development	239,418
Investments in unconsolidated entities	185,723
Other assets	196,310
Other liabilities	(112,369		)
Net assets acquired	$	8,986,975

The allocation of fair values of the assets acquired and liabilities assumed has changed from the allocation reported in “Note 4 – Real Estate” in the Notes to Consolidated Financial Statements included in Part I of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 9, 2013. The changes to our valuation assumptions were based on more accurate information concerning the subject assets and liabilities. None of these changes had a material impact on our Consolidated Financial Statements. This allocation is subject to further adjustment due primarily to information not readily available at the acquisition date, final purchase price settlement with our partner in accordance with the terms of the purchase agreement, reclassification adjustments for presentation and adjustments to our valuation assumptions. The Company's assessment of the fair values and the allocation of the purchase price to the identified tangible and intangible assets is its current best estimate of fair value.

The fair values of investment in real estate were determined using internally developed models that were based on market assumptions and comparable sales data as well as external valuations performed by unrelated third parties. The market assumptions used as inputs to the Company’s fair value model include construction costs, leasing assumptions, growth rates, discount rates, terminal capitalization rates and development yields. The Company uses data on its existing portfolio of properties and its recent acquisition and development properties, as well as similar market data from third party sources, when available, in determining these inputs (Level 2 and 3). The fair value of Noncontrolling Interests was calculated similar to the investment in real estate described above. The fair value of mortgage debt was calculated using indicative rates, leverage and coverage provided by lenders of similar loans (Level 2). The Common Shares issued to Lehman Brothers Holdings Inc. were valued using the quoted market price of Common Shares (Level 1).

The following table summarizes the acquisition date fair values of the above and below market ground and retail lease intangibles, which we determined using Level 2 and Level 3 inputs (amounts in thousands):

Description	Balance Sheet Location	Fair Value
Ground lease intangibles – below market	Other Assets	$	178,251
Retail lease intangibles – above market	Other Assets	2,310
Ground lease intangibles – above market	Other Liabilities	2,400
Retail lease intangibles – below market	Other Liabilities	8,040

As of June 30, 2013, the Company has incurred Archstone-related expenses of approximately $93.5 million, of which approximately $13.5 million of this total was financing-related and approximately $80.0 million was merger costs. During the six months ended June 30, 2013, the Company expensed $19.6 million of direct merger costs primarily related to investment banking and legal/accounting fees, which were included in merger expenses in the accompanying consolidated statements of operations, and $53.0 million of indirect merger costs related to severance obligations and retention bonuses through our 60% interest in an unconsolidated joint venture with AVB, which were included in (loss) from investments in unconsolidated entities due to merger expenses in the accompanying consolidated statements of operations. The Company also expensed $2.5 million of financing-related costs, which were included in interest expense in the accompanying consolidated statements of operations.

Unaudited Pro Forma Financial Information

Equity Residential

The following table illustrates the effect on net income, earnings per share – basic and earnings per share – diluted as if the Company had consummated the Archstone Acquisition as of January 1, 2012:

	Six Months Ended June 30,					Quarter Ended June 30,
	2013		2012			2013		2012
	(Amounts in thousands, except per share amounts)
Total revenues	$	1,256,088	$	1,158,374		$	635,078	$	589,929
Income (loss) from continuing operations (1)	60,541		(275,698		)	96,585		(126,424		)
Discontinued operations, net	1,608,374		277,844			389,329		107,841
Net income (loss)	1,668,915		(2,146		)	485,914		(18,583		)
Net income (loss) available to Common Shares	1,601,368		(2,989		)	467,237		(20,191		)
Earnings (loss) per share - basic:
Net income (loss) available to Common Shares	$	4.45	$	(0.01	)	$	1.30	$	(0.06	)
Weighted average Common Shares outstanding (2)	359,509		355,817			359,653		356,511
Earnings (loss) per share - diluted (1):
Net income (loss) available to Common Shares	$	4.44	$	(0.01	)	$	1.29	$	(0.06	)
Weighted average Common Shares outstanding (2)	375,722		355,817			375,910		356,511

(1) Potential common shares issuable from the assumed conversion of OP Units and the exercise/vesting of long-term compensation shares/units are automatically anti-dilutive and therefore excluded from the diluted earnings per share calculation as the Company had a pro forma loss from continuing operations for the six months and quarters ended June 30, 2012.

(2) Includes a weighted average adjustment for Common Shares issued to the public in December 2012 and to an affiliate of Lehman Brothers Holdings Inc. in February 2013 as partial consideration for the Archstone Acquisition.

ERP Operating Limited Partnership

The following table illustrates the effect on net income, earnings per Unit – basic and earnings per Unit – diluted as if the Operating Partnership had consummated the Archstone Acquisition as of January 1, 2012:

	Six Months Ended June 30,					Quarter Ended June 30,
	2013		2012			2013		2012
	(Amounts in thousands, except per Unit amounts)
Total revenues	$	1,256,088	$	1,158,374		$	635,078	$	589,929
Income (loss) from continuing operations (1)	60,541		(275,698		)	96,585		(126,424		)
Discontinued operations, net	1,608,374		277,844			389,329		107,841
Net income (loss)	1,668,915		(2,146		)	485,914		(18,583		)
Net income (loss) available to Units	1,668,439		(3,127		)	485,693		(21,149		)
Earnings (loss) per Unit - basic:
Net income (loss) available to Units	$	4.45	$	(0.01	)	$	1.30	$	(0.06	)
Weighted average Units outstanding (2)	373,245		369,451			373,403		370,573
Earnings (loss) per Unit - diluted (1):
Net income (loss) available to Units	$	4.44	$	(0.01	)	$	1.29	$	(0.06	)
Weighted average Units outstanding (2)	375,722		369,451			375,910		370,573

(1) Potential Units issuable from the assumed exercise/vesting of the Company's long-term compensation shares/units are automatically anti-dilutive and therefore excluded from the diluted earnings per Unit calculation as the Operating Partnership had a pro forma loss from continuing operations for the six months and quarters ended June 30, 2012.

(2) Includes a weighted average adjustment for Common Shares issued to the public in December 2012 and to an affiliate of Lehman Brothers Holdings Inc. in February 2013 as partial consideration for the Archstone Acquisition. Concurrent with these transactions, ERPOP issued the same number of OP Units to EQR.

For the six months ended June 30, 2013 and 2012, acquisition costs of $19.6 million and $1.8 million, respectively, and severance/retention and other costs of $50.9 million and none, respectively, related to the Archstone Acquisition are not expected to have a continuing impact on the Company's financial results and therefore have been excluded from these pro forma results. The pro forma results also do not include the impact of any synergies or lower borrowing costs that the Company has or may achieve as a result of the acquisition or any strategies that management has or may consider in order to more efficiently manage the Company's operations, nor do they give pro forma effect to any other acquisitions, dispositions or capital markets transactions (excluding the equity offering in December 2012 which proceeds were used for the Archstone Acquisition) that the Company completed during the periods presented. These pro forma results are not necessarily indicative of the operating results that would have been obtained had the Archstone Acquisition occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

Other

In addition to the Archstone acquisition described above, during the six months ended June 30, 2013, the Company acquired the entire equity interest in the following from unaffiliated parties (purchase price in thousands):

	Properties	Apartment Units	Purchase Price
Rental Properties – Consolidated	1	322	$	91,500
Land Parcel (one)	—	—	16,500
Total	1	322	$	108,000

During the six months ended June 30, 2013, the Company disposed of the following to unaffiliated parties (sales price in thousands):

	Properties	Apartment Units	Sales Price
Rental Properties – Consolidated	82	24,197	$	3,705,082
Land Parcels (five)	—	—	59,750
Other (1)	—	—	30,734
Total	82	24,197	$	3,795,566

(1) Represents a 97,000 square foot commercial building adjacent to our Harbor Steps apartment property in downtown Seattle that was acquired in 2011.

The Company recognized a net gain on sales of discontinued operations of approximately $1.6 billion and a net gain on sales of land parcels of approximately $14.6 million on the above sales.