
4.	Real Estate, Real Estate Held for Sale and Lease Intangibles

The following table summarizes the carrying amounts for the Company’s investment in real estate (at cost) as of December 31, 2015 and 2014 (amounts in thousands):



	2015			2014
Land	$	5,864,046		$	6,295,404
Depreciable property:
Buildings and improvements	16,336,829			17,974,337
Furniture, fixtures and equipment	1,207,098			1,365,276
In-Place lease intangibles	483,160			511,891
Projects under development:
Land	284,995			466,764
Construction-in-progress	837,381			877,155
Land held for development:
Land	120,007			145,366
Construction-in-progress	48,836			39,190
Investment in real estate	25,182,352			27,675,383
Accumulated depreciation	(4,905,406		)	(5,432,805		)
Investment in real estate, net	$	20,276,946		$	22,242,578

The following table summarizes the carrying amounts for the Company's above and below market ground and retail lease intangibles as of December 31, 2015 and 2014 (amounts in thousands):



Description	Balance Sheet Location	2015			2014
Assets
Ground lease intangibles – below market	Other Assets	$	178,251		$	178,251
Retail lease intangibles – above market	Other Assets	1,260			1,260
Lease intangible assets		179,511			179,511
Accumulated amortization		(13,451		)	(8,913		)
Lease intangible assets, net		$	166,060		$	170,598

Liabilities
Ground lease intangibles – above market	Other Liabilities	$	2,400		$	2,400
Retail lease intangibles – below market	Other Liabilities	5,270			5,270
Lease intangible liabilities		7,670			7,670
Accumulated amortization		(3,414		)	(2,258		)
Lease intangible liabilities, net		$	4,256		$	5,412

During the years ended December 31, 2015, 2014 and 2013, the Company amortized approximately $4.3 million, $4.3 million and $3.6 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 comprehensive income and approximately $0.9 million, $1.1 million and $2.7 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 and comprehensive income.

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):



	2016			2017			2018			2019			2020

Ground lease intangibles	$	4,321		$	4,321		$	4,321		$	4,321		$	4,321
Retail lease intangibles	(896		)	(540		)	(71		)	(71		)	(71		)
Total	$	3,425		$	3,781		$	4,250		$	4,250		$	4,250

Acquisitions and Dispositions

During the year ended December 31, 2015, 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)	4	625	$	296,037
Land Parcels (2)	—	—	27,800
Total	4	625	$	323,837


(1)	Purchase price includes an allocation of approximately $44.7 million to land and $251.3 million to depreciable property.


(2)	The Company acquired three contiguous land parcels in San Francisco during 2015 which will be combined for future development.

During the year ended December 31, 2014, 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)	6	1,353	$	469,850
Land Parcels	—	—	28,790
Total	6	1,353	$	498,640


(1)	Purchase price includes an allocation of approximately $95.3 million to land and $374.6 million to depreciable property.

The Company also acquired the 95% equity interest it did not previously own in one unconsolidated development project with a stabilized real estate value of $87.5 million and an adjusted purchase price of $64.2 million. The Company paid cash of approximately $44.8 million and issued the Series P Preference Units with a liquidation value of approximately $18.4 million to complete the buyout (see Note 3). The Company recognized a revaluation loss of approximately $3.5 million, which is included in income (loss) from investments in unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income, in conjunction with this buyout.

During the year ended December 31, 2015, the Company disposed of the following to unaffiliated parties (sales price in thousands):



	Properties	Apartment Units	Sales Price
Consolidated:
Rental Properties (1)	8	1,857	$	513,312
Total	8	1,857	$	513,312


(1)	Includes a 193,230 square foot medical office building adjacent to our Longfellow Place property in Boston with a sales price of approximately $123.3 million which is not included in the Company's property and apartment unit counts.

The Company recognized a net gain on sales of real estate properties of approximately $335.1 million on the above sales.

During the year ended December 31, 2014, the Company disposed of the following to unaffiliated parties (sales price in thousands):



	Properties	Apartment Units	Sales Price
Consolidated:
Rental Properties	10	3,092	$	466,968
Land Parcels (three)	—	—	62,602
Unconsolidated:
Rental Properties (1)	1	388	62,500
Total	11	3,480	$	592,070


(1)	The Company owned an 85% interest in this unconsolidated rental property. Sale price listed is the gross sale price.

The Company recognized a net gain on sales of real estate properties of approximately $212.7 million, a net gain on sales of unconsolidated entities of approximately $4.9 million (included in income (loss) from investments in unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income) and a net gain on sales of land parcels of approximately $5.3 million on the above sales.

Starwood Disposition

Following the approval by the Company's Board of Trustees, the Company executed an agreement with controlled affiliates of Starwood Capital Group ("Starwood") on October 23, 2015 to sell a portfolio of 72 operating properties consisting of 23,262 apartment units located in five markets across the United States for $5.365 billion (the "Starwood Transaction"). As of December 31, 2015, Starwood had deposited $250.0 million in cash into escrow as earnest money, which was non-refundable unless the Company defaulted on the sales agreement. On January 26 and 27, 2016, the Company closed on the sale of all of the portfolio described above. As a result, the Starwood Transaction meets the held for sale criteria at December 31, 2015. In accordance with this classification, the Company ceased depreciation on all assets in the Starwood portfolio as of November 1, 2015 and the following assets are classified as held for sale in the accompanying consolidated balance sheets at December 31, 2015 (amounts in thousands):



	2015
Land	$	602,737
Depreciable property:
Buildings and improvements	2,386,489
Furniture, fixtures and equipment	335,565
In-Place lease intangibles	35,554
Real estate held for sale before accumulated depreciation	3,360,345
Accumulated depreciation	(1,179,210		)
Real estate held for sale	$	2,181,135

The following table provides the operating segments/locations of the properties and apartment units sold in the Starwood Transaction, which represents substantially all of the assets in the Company's non-core South Florida and Denver markets and certain non-core assets in the Washington D.C., Seattle and other (Inland Empire, CA) markets. The sale of these properties represents the continuation of the Company's long-term strategy of investing in high barrier to entry/core urban markets. See Notes 11 and 18 for further discussion.



Markets/Metro Areas	Properties	Apartment Units
Non-core – South Florida	33	10,742
Non-core – Denver	18	6,635
Washington D.C.	10	3,020
Seattle	8	1,721
Non-core – other (Inland Empire, CA)	3	1,144
Total	72	23,262

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" or the "Archstone Transaction") from Archstone Enterprise LP ("Archstone" or “Enterprise”) (which subsequently changed its name to Jupiter Enterprise LP), an affiliate of Lehman Brothers Holdings Inc. (“Lehman”) 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) consisting of 964 apartment units and fourteen land sites for approximately $9.0 billion. During the year ended December 31, 2013, the Company recorded revenues and net operating income ("NOI") of $514.7 million and $352.8 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 issuance of 21,850,000 Common Shares (which shares had a total value of approximately $1.2 billion based on a price of $54.75 per share) in the November/December 2012 public equity offering, asset sales of approximately $4.5 billion that were completed during the year ended December 31, 2013, the Company's $750.0 million unsecured term loan facility (which was subsequently paid off in the second quarter of 2014) 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 accounted for the acquisition under the acquisition method in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations (“ASC 805”), and the accounting for this business combination was complete and final as of February 28, 2014. 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	5,765,538
Furniture, fixtures and equipment	61,470
In-Place lease intangibles	304,830
Projects under development	36,583
Land held for development	244,097
Investments in unconsolidated entities	230,608
Other assets	195,260
Other liabilities	(108,997		)
Net assets acquired	$	8,968,389

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 used 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 an affiliate of 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	1,260

Ground lease intangibles – above market	Other Liabilities	2,400
Retail lease intangibles – below market	Other Liabilities	8,040

As of December 31, 2015, the Company has incurred cumulative Archstone-related expenses of approximately $83.1 million, of which approximately $13.5 million of this total was financing-related and approximately $69.6 million was merger costs. During the years ended December 31, 2015 and 2014, the Company expensed nominal amounts of direct merger costs. During the year ended December 31, 2013, the Company expensed $19.9 million of direct merger costs primarily related to investment banking and legal/accounting fees, which were included in other expenses in the accompanying consolidated statements of operations and comprehensive income. During the years ended December 31, 2015, 2014 and 2013, the Company also expensed $2.7 million, $4.3 million and $54.0 million, respectively, of indirect merger costs primarily related to severance and retention obligations, office leases and German operations/sales that were incurred through our 60% interest in unconsolidated joint ventures with AVB, which were included in income (loss) from investments in unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income. The indirect merger costs expensed during the year ended December 31, 2015 were offset by $18.6 million received related to the favorable settlement of a lawsuit, which reduced income (loss) from investments in unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income. Finally, during the year ended December 31, 2013, the Company expensed $2.5 million of financing-related costs, which were included in interest expense in the accompanying consolidated statements of operations and comprehensive income.

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 (amounts in thousands, except per share amounts):



	Year Ended December 31, 2013
Total revenues	$	2,485,438
Income from continuing operations	203,286
Discontinued operations, net	2,074,072
Net income	2,277,358
Net income available to Common Shares	2,183,756
Earnings per share - basic:
Net income available to Common Shares	$	6.07
Weighted average Common Shares outstanding (1)	359,688
Earnings per share - diluted:
Net income available to Common Shares	$	6.05
Weighted average Common Shares outstanding (1)	375,861


(1)	Includes an adjustment for Common Shares issued to the public in November/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 (amounts in thousands, except per Unit amounts):



	Year Ended December 31, 2013
Total revenues	$	2,485,438
Income from continuing operations	203,286
Discontinued operations, net	2,074,072
Net income	2,277,358
Net income available to Units	2,273,798
Earnings per Unit - basic:
Net income available to Units	$	6.07
Weighted average Units outstanding (1)	373,421
Earnings per Unit - diluted:
Net income available to Units	$	6.05
Weighted average Units outstanding (1)	375,861


(1)	Includes an adjustment for Common Shares issued to the public in November/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 year ended December 31, 2013, acquisition costs of $19.9 million and severance/retention and other costs of $54.1 million 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 November/December 2012 which proceeds were used for the Archstone Acquisition) that the Company completed during the period 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 period presented, nor are they necessarily indicative of future operating results.

Other

In December 2011, the Company and Toll Brothers (NYSE: TOL) jointly acquired a vacant land parcel at 400 Park Avenue South in New York City. The Company's and Toll Brothers' allocated portions of the purchase price were approximately $76.1 million and $57.9 million, respectively. The acquisition was financed through contributions by the Company and Toll Brothers of approximately $102.5 million and $75.7 million, respectively, which included the land purchase noted above, restricted deposits and taxes and fees. Until the core and shell of the building were complete, the building and land were owned jointly and were required to be consolidated on the Company's balance sheet as the Company was the managing member and Toll Brothers did not have substantive kick-out or participating rights. In July 2015, the Company recorded the master condominium declaration for this development project and as a result, the Toll Brothers’ portion of the property was deconsolidated from the Company's balance sheet. The Company now solely owns the rental portion of the building (floors 2-22) and the ground floor retail and Toll Brothers solely owns the for sale portion of the building (floors 23-40). The joint venture no longer owns any real property. In conjunction with this transaction, the Company reduced investment in real estate by $116.7 million, noncontrolling interest by $117.3 million and accrued retainage by $1.1 million and increased other liabilities by $1.7 million (to account for Toll Brothers' restricted cash still held by the Company). The deconsolidation of the Toll Brothers' portion of the project had no impact on the consolidated results of operations and comprehensive income.