3.	Equity, Capital and Other Interests

Equity and Redeemable Noncontrolling Interests of Equity Residential

The following tables present the changes in the Company’s issued and outstanding Common Shares and “Units” (which includes OP Units and restricted units) for the years ended December 31, 2017, 2016 and 2015:

	2017			2016			2015
Common Shares
Common Shares outstanding at January 1,		365,870,924			364,755,444			362,855,454
Common Shares Issued:
Conversion of OP Units		1,149,284			88,838			208,307
Exercise of share options		846,137			815,044			1,456,363
Employee Share Purchase Plan (ESPP)		68,286			63,909			68,462
Restricted share grants, net		83,451			147,689			168,142
Common Shares Other:
Conversion of restricted shares to restricted units		—			—			(1,284	)
Common Shares outstanding at December 31,		368,018,082			365,870,924			364,755,444
Units
Units outstanding at January 1,		14,626,075			14,427,164			14,298,691
Restricted unit grants, net		291,647			287,749			335,496
Conversion of restricted shares to restricted units		—			—			1,284
Conversion of OP Units to Common Shares		(1,149,284	)		(88,838	)		(208,307	)
Units outstanding at December 31,		13,768,438			14,626,075			14,427,164
Total Common Shares and Units outstanding at December 31,		381,786,520			380,496,999			379,182,608
Units Ownership Interest in Operating Partnership		3.6	%		3.8	%		3.8	%

The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units, as well as the equity positions of the holders of restricted units, are collectively referred to as the “Noncontrolling Interests – Operating Partnership”. Subject to certain exceptions (including the “book-up” requirements of restricted units), the Noncontrolling Interests – Operating Partnership may exchange their Units with EQR for Common Shares on a one-for-one basis. The carrying value of the Noncontrolling Interests – Operating Partnership (including redeemable interests) is allocated based on the number of Noncontrolling Interests – Operating Partnership Units in total in proportion to the number of Noncontrolling Interests – Operating Partnership Units in total plus the number of Common Shares. Net income is allocated to the Noncontrolling Interests – Operating Partnership based on the weighted average ownership percentage during the period.

The Operating Partnership has the right but not the obligation to make a cash payment instead of issuing Common Shares to any and all holders of Noncontrolling Interests – Operating Partnership Units requesting an exchange of their OP Units with EQR. Once the Operating Partnership elects not to redeem the Noncontrolling Interests – Operating Partnership Units for cash, EQR is obligated to deliver Common Shares to the exchanging holder of the Noncontrolling Interests – Operating Partnership Units.

The Noncontrolling Interests – Operating Partnership Units are classified as either mezzanine equity or permanent equity. If EQR is required, either by contract or securities law, to deliver registered Common Shares, such Noncontrolling Interests – Operating Partnership are differentiated and referred to as “Redeemable Noncontrolling Interests – Operating Partnership”. Instruments that require settlement in registered shares cannot be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered shares. Therefore, settlement in cash is assumed and that responsibility for settlement in cash is deemed to fall to the Operating Partnership as the primary source of cash for EQR, resulting in presentation in the mezzanine section of the balance sheet. The Redeemable Noncontrolling Interests – Operating Partnership are adjusted to the greater of carrying value or fair market value based on the Common Share price of EQR at the end of each respective reporting period. EQR has the ability to deliver unregistered Common Shares for the remaining portion of the Noncontrolling Interests – Operating Partnership Units that are classified in permanent equity at December 31, 2017 and 2016.

The carrying value of the Redeemable Noncontrolling Interests – Operating Partnership is allocated based on the number of Redeemable Noncontrolling Interests – Operating Partnership Units in proportion to the number of Noncontrolling Interests – Operating Partnership Units in total. Such percentage of the total carrying value of Units which is ascribed to the Redeemable Noncontrolling Interests – Operating Partnership is then adjusted to the greater of carrying value or fair market value as described above. As of December 31, 2017, the Redeemable Noncontrolling Interests – Operating Partnership have a redemption value of approximately $367.0 million, which represents the value of Common Shares that would be issued in exchange for the Redeemable Noncontrolling Interests – Operating Partnership Units.

The following table presents the changes in the redemption value of the Redeemable Noncontrolling Interests – Operating Partnership for the years ended December 31, 2017, 2016 and 2015, respectively (amounts in thousands):

	2017			2016			2015
Balance at January 1,	$	442,092		$	566,783		$	500,733
Change in market value		(41,916	)		(115,093	)		64,378
Change in carrying value		(33,221	)		(9,598	)		1,672
Balance at December 31,	$	366,955		$	442,092		$	566,783

Net proceeds from EQR Common Share and Preferred Share (see definition below) offerings are contributed by EQR to ERPOP. In return for those contributions, EQR receives a number of OP Units in ERPOP equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in ERPOP equal in number and having the same terms as the Preferred Shares issued in the equity offering). As a result, the net offering proceeds from Common Shares and Preferred Shares are allocated between shareholders’ equity and Noncontrolling Interests – Operating Partnership to account for the change in their respective percentage ownership of the underlying equity of ERPOP.

The Company’s declaration of trust authorizes it to issue up to 100,000,000 preferred shares of beneficial interest, $0.01 par value per share (the “Preferred Shares”), with specific rights, preferences and other attributes as the Board of Trustees may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Company’s Common Shares.

The following table presents the Company’s issued and outstanding Preferred Shares as of December 31, 2017 and 2016:

				Amounts in thousands
		Annual
	Call	Dividend Per		December 31,		December 31,
	Date (1)	Share (2)		2017		2016
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized:
8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 745,600 shares issued and outstanding as of December 31, 2017 and 2016	12/10/26	$	4.145	$	37,280	$	37,280
				$	37,280	$	37,280

(1)	On or after the call date, redeemable preferred shares may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price equal to the liquidation price per share, plus accrued and unpaid distributions, if any.

(2)	Dividends on Preferred Shares are payable quarterly.

During 2015, the Company repurchased and retired 254,400 Series K Preferred Shares with a par value of $12.7 million for total cash consideration of approximately $16.3 million. As a result of this partial redemption, the Company incurred a cash charge of approximately $3.5 million which was recorded as a premium on the redemption of Preferred Shares.

Capital and Redeemable Limited Partners of ERP Operating Limited Partnership

The following tables present the changes in the Operating Partnership’s issued and outstanding Units and in the limited partners’ Units for the years ended December 31, 2017, 2016 and 2015:

	2017			2016			2015
General and Limited Partner Units
General and Limited Partner Units outstanding at January 1,		380,496,999			379,182,608			377,154,145
Issued to General Partner:
Exercise of EQR share options		846,137			815,044			1,456,363
EQR’s Employee Share Purchase Plan (ESPP)		68,286			63,909			68,462
EQR’s restricted share grants, net		83,451			147,689			168,142
Issued to Limited Partners:
Restricted unit grants, net		291,647			287,749			335,496
General and Limited Partner Units outstanding at December 31,		381,786,520			380,496,999			379,182,608
Limited Partner Units
Limited Partner Units outstanding at January 1,		14,626,075			14,427,164			14,298,691
Limited Partner restricted unit grants, net		291,647			287,749			335,496
Conversion of EQR restricted shares to restricted units		—			—			1,284
Conversion of Limited Partner OP Units to EQR Common Shares		(1,149,284	)		(88,838	)		(208,307	)
Limited Partner Units outstanding at December 31,		13,768,438			14,626,075			14,427,164
Limited Partner Units Ownership Interest in Operating Partnership		3.6	%		3.8	%		3.8	%

The Limited Partners of the Operating Partnership as of December 31, 2017 include various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units, as well as the equity positions of the holders of restricted units. Subject to certain exceptions (including the “book-up” requirements of restricted units), Limited Partners may exchange their Units with EQR for Common Shares on a one-for-one basis. The carrying value of the Limited Partner Units (including redeemable interests) is allocated based on the number of Limited Partner Units in total in proportion to the number of Limited Partner Units in total plus the number of General Partner Units. Net income is allocated to the Limited Partner Units based on the weighted average ownership percentage during the period.

The Operating Partnership has the right but not the obligation to make a cash payment instead of issuing Common Shares to any and all holders of Limited Partner Units requesting an exchange of their OP Units with EQR. Once the Operating Partnership elects not to redeem the Limited Partner Units for cash, EQR is obligated to deliver Common Shares to the exchanging limited partner.

The Limited Partner Units are classified as either mezzanine equity or permanent equity. If EQR is required, either by contract or securities law, to deliver registered Common Shares, such Limited Partner Units are differentiated and referred to as “Redeemable Limited Partner Units”. Instruments that require settlement in registered shares cannot be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered shares. Therefore, settlement in cash is assumed and that responsibility for settlement in cash is deemed to fall to the Operating Partnership as the primary source of cash for EQR, resulting in presentation in the mezzanine section of the balance sheet. The Redeemable Limited Partner Units are adjusted to the greater of carrying value or fair market value based on the Common Share price of EQR at the end of each respective reporting period. EQR has the ability to deliver unregistered Common Shares for the remaining portion of the Limited Partner Units that are classified in permanent equity at December 31, 2017 and 2016.

The carrying value of the Redeemable Limited Partner Units is allocated based on the number of Redeemable Limited Partner Units in proportion to the number of Limited Partner Units in total. Such percentage of the total carrying value of Limited Partner Units which is ascribed to the Redeemable Limited Partner Units is then adjusted to the greater of carrying value or fair market value as described above. As of December 31, 2017, the Redeemable Limited Partner Units have a redemption value of approximately $367.0 million, which represents the value of Common Shares that would be issued in exchange for the Redeemable Limited Partner Units.

The following table presents the changes in the redemption value of the Redeemable Limited Partners for the years ended December 31, 2017, 2016 and 2015, respectively (amounts in thousands):

	2017			2016			2015
Balance at January 1,	$	442,092		$	566,783		$	500,733
Change in market value		(41,916	)		(115,093	)		64,378
Change in carrying value		(33,221	)		(9,598	)		1,672
Balance at December 31,	$	366,955		$	442,092		$	566,783

EQR contributes all net proceeds from its various equity offerings (including proceeds from exercise of options for Common Shares) to ERPOP. In return for those contributions, EQR receives a number of OP Units in ERPOP equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in ERPOP equal in number and having the same terms as the preferred shares issued in the equity offering).

The following table presents the Operating Partnership’s issued and outstanding “Preference Units” as of December 31, 2017 and 2016:

				Amounts in thousands
		Annual
	Call	Dividend Per		December 31,		December 31,
	Date (1)	Unit (2)		2017		2016
Preference Units:
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 745,600 units issued and outstanding as of December 31, 2017 and 2016	12/10/26	$	4.145	$	37,280	$	37,280
				$	37,280	$	37,280

(1)

On or after the call date, redeemable preference units may be redeemed for cash at the option of the Operating Partnership, in whole or in part, at a redemption price equal to the liquidation price per unit, plus accrued and unpaid distributions, if any, in conjunction with the concurrent redemption of the corresponding Company Preferred Shares.

(2)	Dividends on Preference Units are payable quarterly.

During 2015, the Operating Partnership repurchased and retired 254,400 Series K Preference Units with a par value of $12.7 million for total cash consideration of approximately $16.3 million, in conjunction with the concurrent redemption of the corresponding Company Preferred Shares. As a result of this partial redemption, the Operating Partnership incurred a cash charge of approximately $3.5 million which was recorded as a premium of the redemption of Preference Units.

Other

EQR and ERPOP currently have an active universal shelf registration statement for the issuance of equity and debt securities that automatically became effective upon filing with the SEC on June 28, 2016 and expires on June 28, 2019. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).

In September 2009, the Company announced the establishment of an At-The-Market (“ATM”) share offering program which would allow EQR to sell Common Shares from time to time into the existing trading market at current market prices as well as through negotiated transactions. Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds from all equity offerings to the capital of ERPOP in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis). The program currently has a maturity of June 2019. EQR has the authority to issue 13.0 million shares but has not issued any shares under this program since September 2012.

The Company may repurchase up to 13.0 million Common Shares under its share repurchase program. No shares were repurchased during the years ended December 31, 2017 and 2016. As of December 31, 2017, EQR has remaining authorization to repurchase up to 13.0 million of its shares under the repurchase program.