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Real Estate | 6 Months Ended
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Jun. 30, 2014
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, 2014 and December 31, 2013 (amounts in thousands):
|  | June 30, 2014 |  | December 31, 2013
Land |  | $ | 6,296,735 |  |  | $ | 6,192,512 |
Depreciable property: |  |  |  |
Buildings and improvements |  | 17,920,222 |  |  | 17,509,609 |
Furniture, fixtures and equipment |  | 1,302,882 |  |  | 1,214,220 |
In-Place lease intangibles |  | 507,633 |  |  | 502,218 |
Projects under development: |  |  |  |
Land |  | 391,156 |  |  | 353,574 |
Construction-in-progress |  | 615,836 |  |  | 635,293 |
Land held for development: |  |  |  |
Land |  | 256,536 |  |  | 341,389 |
Construction-in-progress |  | 50,089 |  |  | 52,133 |
Investment in real estate |  | 27,341,089 |  |  | 26,800,948 |
Accumulated depreciation |  | (5,170,438 | ) |  | (4,807,709 | )
Investment in real estate, net |  | $ | 22,170,651 |  |  | $ | 21,993,239 |
The following table summarizes the carrying amounts for the Company's above and below market ground and retail lease intangibles as of June 30, 2014 and December 31, 2013 (amounts in thousands):
Description |  | Balance Sheet Location |  | June 30, 2014 |  | December 31, 2013
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 |  |  |  | (6,641 | ) |  | (4,364 | )
Lease intangible assets, net |  |  |  | $ | 172,870 |  |  | $ | 175,147 |
Liabilities |  |  |  |  |  |
Ground lease intangibles – above market |  | Other Liabilities |  | $ | 2,400 |  |  | $ | 2,400 |
Retail lease intangibles – below market |  | Other Liabilities |  | 5,270 |  |  | 5,500 |
Lease intangible liabilities |  |  |  | 7,670 |  |  | 7,900 |
Accumulated amortization |  |  |  | (1,678 | ) |  | (1,161 | )
Lease intangible liabilities, net |  |  |  | $ | 5,992 |  |  | $ | 6,739 |
During the six months ended June 30, 2014 and 2013, the Company amortized approximately $2.2 million and $1.4 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 $0.6 million and $0.2 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. During the quarters ended June 30, 2014 and 2013, the Company amortized approximately $1.1 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 comprehensive income and approximately $0.3 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 and comprehensive income. The weighted average amortization period for above and below market ground lease intangibles and retail lease intangibles is 49.8 years and 2.8 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 |  |  |  |  |  |  |  |  |  |
|  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019
Ground lease intangibles |  | $ | 2,161 |  |  | $ | 4,321 |  |  | $ | 4,321 |  |  | $ | 4,321 |  |  | $ | 4,321 |  |  | $ | 4,321 |
Retail lease intangibles |  | (469 | ) |  | (939 | ) |  | (896 | ) |  | (540 | ) |  | (71 | ) |  | (71 | )
Total |  | $ | 1,692 |  |  | $ | 3,382 |  |  | $ | 3,425 |  |  | $ | 3,781 |  |  | $ | 4,250 |  |  | $ | 4,250 |
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 (“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) 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 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 is complete and final. 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 allocation of fair values of the assets acquired and liabilities assumed has changed from the allocation reported in “Note 4 – Real Estate and Lease Intangibles” in the Notes to Consolidated Financial Statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014. The changes to our valuation assumptions were based on more accurate information concerning the subject assets and liabilities and resulted from information not readily available at the acquisition date, final purchase price settlement with our partner in accordance with the terms of the purchase agreement and reclassification adjustments for presentation. None of these changes had a material impact on our Consolidated Financial Statements. The Company's assessment of the fair values and the allocation of the purchase price to the identified tangible and intangible assets/liabilities at March 31, 2014 was its final and best estimate of fair value. As a result, the Company did not make any changes to its allocation of fair values of the assets acquired and liabilities assumed subsequent to the allocation reported in "Note 4 – Real Estate and Lease Intangibles" 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, 2014 filed with the SEC on May 8, 2014. 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 June 30, 2014, the Company has incurred cumulative Archstone-related expenses of approximately $100.9 million, of which approximately $13.5 million of this total was financing-related and approximately $87.4 million was merger costs. During the six months ended June 30, 2014, the Company expensed nominal amounts of direct 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 other expenses in the accompanying consolidated statements of operations and comprehensive income. During the six months ended June 30, 2014 and 2013, the Company also expensed $6.2 million and $53.0 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 (loss) from investments in unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income. Finally, during the six months ended June 30, 2013, the Company also 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):
|  | Six Months Ended |  | Quarter Ended
|  | June 30, 2013 |  | June 30, 2013
Total revenues |  | $ | 1,256,088 |  |  | $ | 635,078 |
Income from continuing operations |  | 60,541 |  |  | 96,585 |
Discontinued operations, net |  | 1,608,374 |  |  | 389,329 |
Net income |  | 1,668,915 |  |  | 485,914 |
Net income available to Common Shares |  | 1,601,368 |  |  | 467,237 |
Earnings per share - basic: |  |  |  |
Net income available to Common Shares |  | $ | 4.45 |  |  | $ | 1.30 |
Weighted average Common Shares outstanding (1) |  | 359,509 |  |  | 359,653 |
Earnings per share - diluted: |  |  |  |
Net income available to Common Shares |  | $ | 4.44 |  |  | $ | 1.29 |
Weighted average Common Shares outstanding (1) |  | 375,722 |  |  | 375,910 |
(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):
|  | Six Months Ended |  | Quarter Ended
|  | June 30, 2013 |  | June 30, 2013
Total revenues |  | $ | 1,256,088 |  |  | $ | 635,078 |
Income from continuing operations |  | 60,541 |  |  | 96,585 |
Discontinued operations, net |  | 1,608,374 |  |  | 389,329 |
Net income |  | 1,668,915 |  |  | 485,914 |
Net income available to Units |  | 1,668,439 |  |  | 485,693 |
Earnings per Unit - basic: |  |  |  |
Net income available to Units |  | $ | 4.45 |  |  | $ | 1.30 |
Weighted average Units outstanding (1) |  | 373,245 |  |  | 373,403 |
Earnings per Unit - diluted: |  |  |  |
Net income available to Units |  | $ | 4.44 |  |  | $ | 1.29 |
Weighted average Units outstanding (1) |  | 375,722 |  |  | 375,910 |
(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 six months ended June 30, 2013, acquisition costs of $19.6 million and severance/retention and other costs of $50.9 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 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 During the six months ended June 30, 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 |  | 3 |  |  | 772 |  |  | $ | 249,610 |
Land Parcels – Consolidated |  | — |  |  | — |  |  | 15,790 |
Total |  | 3 |  |  | 772 |  |  | $ | 265,400 |
During the six months ended June 30, 2014, the Company disposed of the following to unaffiliated parties (sales price in thousands):
|  | Properties |  | Apartment Units |  | Sales Price
Rental Properties |  | 1 |  |  | 336 |  |  | $ | 40,850 |
Land Parcel |  | — |  |  | — |  |  | 8,200 |
Total |  | 1 |  |  | 336 |  |  | $ | 49,050 |
The Company recognized a net gain on sales of real estate properties of approximately $14.9 million and a net gain on sales of land parcels of approximately $0.8 million on the above sales.

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- Definition The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 6 -Subparagraph a -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 970 -SubTopic 360 -Section S99 -Paragraph 1 -Subparagraph (SX 210.12-28) -URI http://asc.fasb.org/extlink&oid=6590653&loc=d3e638233-123024 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 28 -Article 12 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Paragraph c -Subparagraph Schedule III -Article 5 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 10 -Subparagraph 4 -Article 9 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 11 -Article 9 + Details
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