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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JUNE 30, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-12252

EQUITY RESIDENTIAL
(Exact name of registrant as specified in its charter)

EQUITY RESIDENTIAL PROPERTIES TRUST
 (Former name of registrant, if changed since last report)

Maryland   13-3675988
(State or Other Jurisdiction of
Incorporation or Organization)		   (I.R.S. Employer Identification No.)

Two North Riverside Plaza, Chicago, Illinois
 
60606
(Address of Principal Executive Offices)   (Zip Code)

(312) 474-1300
(Registrant's telephone number, including area code)

http://www.equityapartments.com
(Registrant's web site)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No

        The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding on July 31, 2002 was 275,538,420.


EQUITY RESIDENTIAL

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

 
   June 30,
2002
   December 31,
2001
  
ASSETS              
Investment in real estate              
  Land   $ 1,857,497   $ 1,840,170  
  Depreciable property     11,205,307     11,096,847  
  Construction in progress     94,292     79,166  
   
 
 
      13,157,096     13,016,183  
  Accumulated depreciation     (1,929,115 )   (1,718,845 )
   
 
 
Investment in real estate, net of accumulated depreciation     11,227,981     11,297,338  

Real estate held for disposition
 
 
—
 
 
3,371
 
Cash and cash equivalents     88,942     51,603  
Investments in unconsolidated entities     423,529     397,237  
Rents receivable     2,627     2,400  
Deposits—restricted     149,927     218,557  
Escrow deposits—mortgage     62,049     76,700  
Deferred financing costs, net     32,964     27,011  
Rental furniture, net     —     20,168  
Property and equipment, net     —     3,063  
Goodwill, net     47,122     47,291  
Other assets     76,659     90,886  
   
 
 
    Total assets   $ 12,111,800   $ 12,235,625  
   
 
 

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Liabilities:              
  Mortgage notes payable   $ 3,210,510   $ 3,286,814  
  Notes, net     2,438,974     2,260,944  
  Line of credit     —     195,000  
  Accounts payable and accrued expenses     116,192     108,254  
  Accrued interest payable     62,676     62,360  
  Rents received in advance and other liabilities     65,226     83,005  
  Security deposits     47,098     47,644  
  Distributions payable     145,880     141,832  
   
 
 
    Total liabilities     6,086,556     6,185,853  
   
 
 

Commitments and contingencies
 
 
 
 
 
 
 
Minority Interests:              
  Operating Partnership     364,233     379,898  
  Preference Interests     246,000     246,000  
  Junior Preference Units     5,846     5,846  
  Partially Owned Properties     11,503     4,078  
   
 
 
    Total Minority Interests     627,582     635,822  
   
 
 

Shareholders' equity:
 
 
 
 
 
 
 
  Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized; 10,691,940 shares issued and outstanding as of June 30, 2002 and 11,344,521 shares issued and outstanding as of December 31, 2001     950,356     966,671  
  Common Shares of beneficial interest, $.01 par value; 1,000,000,000 shares authorized; 275,467,781 shares issued and outstanding as of June 30, 2002 and 271,621,374 shares issued and outstanding as of December 31, 2001     2,755     2,716  
  Paid in capital     4,967,957     4,892,744  
  Employee notes     (3,870 )   (4,043 )
  Deferred compensation     (31,607 )   (25,778 )
  Distributions in excess of accumulated earnings     (457,264 )   (385,320 )
  Accumulated other comprehensive loss     (30,665 )   (33,040 )
   
 
 
    Total shareholders' equity     5,397,662     5,413,950  
   
 
 
    Total liabilities and shareholders' equity   $ 12,111,800   $ 12,235,625  
   
 
 

See accompanying notes

2


EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per share data)

(Unaudited)

 
   Six Months Ended June 30,
   Quarter Ended June 30,
  
 
   2002
   2001
   2002
   2001
  
REVENUES                          
  Rental income   $ 1,011,823   $ 1,014,813   $ 506,915   $ 509,428  
  Fee and asset management     4,310     4,140     2,592     2,168  
  Interest and other income     9,318     11,525     5,210     5,024  
  Interest income—investment in mortgage notes     —     8,763     —     6,019  
   
 
 
 
 
    Total revenues     1,025,451     1,039,241     514,717     522,639  
   
 
 
 
 
EXPENSES                          
  Property and maintenance     257,727     273,318     129,360     138,747  
  Real estate taxes and insurance     103,415     95,613     51,422     48,165  
  Property management     37,289     36,364     18,256     17,686  
  Fee and asset management     3,577     3,648     1,758     1,764  
  Depreciation     232,721     221,797     117,509     111,296  
  Interest:                          
    Expense incurred, net     171,993     178,660     87,229     88,857  
    Amortization of deferred financing costs     2,988     2,810     1,597     1,413  
  General and administrative     22,327     14,079     11,527     7,325  
  Impairment on technology investments     581     6,775     290     3,772  
  Amortization of goodwill     —     1,281     —     638  
   
 
 
 
 
    Total expenses     832,618     834,345     418,948     419,663  
   
 
 
 
 

Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle
 
 
192,833
 
 
204,896
 
 
95,769
 
 
102,976
 
Allocation to Minority Interests:                          
  Operating Partnership     (13,784 )   (16,474 )   (7,343 )   (6,678 )
  Partially Owned Properties     (1,325 )   (238 )   (519 )   (133 )
Income from investments in unconsolidated entities     233     960     7     610  
Net gain (loss) on sales of unconsolidated entities     5,246     339     (411 )   339  
   
 
 
 
 
Income before discontinued operations, extraordinary items and cumulative effect of change in accounting principle     183,203     189,483     87,503     97,114  
Net gain on sales of discontinued operations     28,446     46,226     25,630     4,448  
Discontinued operations, net     2,994     3,666     535     1,574  
   
 
 
 
 
Income before extraordinary items and cumulative effect of change in accounting principle     214,643     239,375     113,668     103,136  
Extraordinary items     (468 )   106     (371 )   (205 )
Cumulative effect of change in accounting principle     —     (1,270 )   —     —  
   
 
 
 
 
Net income     214,175     238,211     113,297     102,931  
Preferred distributions     (48,781 )   (57,419 )   (24,256 )   (28,893 )
   
 
 
 
 
Net income available to Common Shares   $ 165,394   $ 180,792   $ 89,041   $ 74,038  
   
 
 
 
 
Net income per share—basic   $ 0.61   $ 0.68   $ 0.33   $ 0.28  
   
 
 
 
 
Net income per share—diluted   $ 0.60   $ 0.67   $ 0.32   $ 0.27  
   
 
 
 
 
Weighted average Common Shares outstanding—basic     272,126     265,781     273,146     266,357  
   
 
 
 
 
Weighted average Common Shares outstanding—diluted     298,422     293,817     299,494     293,939  
   
 
 
 
 
Distributions declared per Common Share outstanding   $ 0.8650   $ 0.8150   $ 0.4325   $ 0.4075  
   
 
 
 
 

See accompanying notes

3

 
   Six Months Ended June 30,
   Quarter Ended June 30,
 
   2002
   2001
   2002
   2001
Comprehensive income:                        
  Net income   $ 214,175   $ 238,211   $ 113,297   $ 102,931
    Other comprehensive income (loss)—derivative instruments:                        
      Cumulative effect of change in accounting principle     —     (5,334 )   —     —
      Unrealized holding gains (losses) arising during the period     1,990     (3,396 )   (5,219 )   8,358
      Losses reclassified into earnings from other comprehensive income     385     226     217     171
   
 
 
 
  Comprehensive income   $ 216,550   $ 229,707   $ 108,295   $ 111,460
   
 
 
 

See accompanying notes

4


EQUITY RESIDENTIAL

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 
   Six Months Ended June 30,
  
 
   2002
   2001
  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net income   $ 214,175   $ 238,211  
Adjustments to reconcile net income to net cash provided by operating activities:              
  Allocation to Minority Interests:              
    Operating Partnership     13,784     16,474  
    Partially Owned Properties     1,325     238  
  Cumulative effect of change in accounting principle     —     1,270  
  Depreciation     234,846     230,805  
  Amortization of deferred financing costs     2,988     2,810  
  Amortization of discount on investment in mortgage notes     —     (2,256 )
  Amortization of goodwill     —     1,924  
  Amortization of discounts and premiums on debt     (424 )   (1,007 )
  Amortization of deferred settlements on interest rate protection agreements     (176 )   317  
  Impairment on technology investments     581     6,775  
  Income from investments in unconsolidated entities     (233 )   (960 )
  Net gain on sales of discontinued operations     (28,446 )   (46,226 )
  Net gain on sales of unconsolidated entities     (5,246 )   (339 )
  Extraordinary items     468     (106 )
  Unrealized loss (gain) on interest rate protection agreements     483     (132 )
  Book value of furniture sales and rental buyouts     —     5,497  
  Compensation paid with Company Common Shares     10,061     6,741  

Changes in assets and liabilities:
 
 
 
 
 
 
 
  (Increase) in rents receivable     (227 )   (705 )
  Decrease (increase) in deposits—restricted     12,108     (12,574 )
  Additions to rental furniture     —     (14,532 )
  Decrease (increase) in other assets     3,898     (20,327 )
  Increase in accounts payable and accrued expenses     9,026     597  
  Increase in accrued interest payable     316     11,626  
  (Decrease) in rents received in advance and other liabilities     (9,972 )   (4 )
  (Decrease) increase in security deposits     (189 )   522  
   
 
 
  Net cash provided by operating activities     459,146     424,639  
   
 
 

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
  Investment in real estate—acquisitions     (153,034 )   (187,059 )
  Investment in real estate—development     (57,066 )   (31,472 )
  Improvements to real estate     (66,509 )   (63,269 )
  Additions to non-real estate property     (4,602 )   (3,520 )
  Interest capitalized for real estate under development     (4,369 )   (3,501 )
  Interest capitalized for unconsolidated entities under development     (7,954 )   (9,316 )
  Proceeds from disposition of real estate, net     183,494     345,039  
  Proceeds from disposition of furniture rental business     28,741     —  
  Investment in property and equipment     —     (1,626 )
  Principal receipts on investment in mortgage notes     —     5,675  
  Investments in unconsolidated entities     (42,441 )   (43,167 )
  Distributions from unconsolidated entities     21,483     16,711  
  Proceeds from disposition of unconsolidated entities     11,317     359  
  Proceeds from refinancing of unconsolidated entities     —     4,450  
  Decrease in deposits on real estate acquisitions, net     56,305     8,594  
  Decrease (increase) in mortgage deposits     14,651     (2,344 )
  Business combinations, net of cash acquired     (461 )   (7,603 )
  Other investing activities, net     192     (29 )
   
 
 
  Net cash (used for) provided by investing activities     (20,253 )   27,922  
   
 
 

See accompanying notes

5

 
   Six Months Ended June 30,
  
 
   2002
   2001
  
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Loan and bond acquisition costs   $ (9,124 ) $ (3,948 )
  Mortgage notes payable:              
    Proceeds     47,213     45,118  
    Lump sum payoffs     (119,386 )   (237,040 )
    Scheduled principal repayments     (16,322 )   (16,367 )
    Prepayment premiums/fees     (468 )   (202 )
  Notes, net:              
    Proceeds     397,064     299,316  
    Lump sum payoffs     (225,000 )   —  
    Scheduled principal repayments     (253 )   (147 )
  Lines of credit:              
    Proceeds     292,000     316,491  
    Repayments     (487,000 )   (538,953 )
  (Payments) from settlement of interest rate protection agreements     (1,533 )   (7,360 )
  Proceeds from sale of Common Shares     6,354     5,383  
  Proceeds from sale of Preference Interests     —     48,500  
  Proceeds from exercise of options     27,030     29,468  
  Redemption of Preferred Shares     —     (210,500 )
  Payment of offering costs     (158 )   (1,317 )
  Distributions:              
    Common Shares     (235,548 )   (109,189 )
    Preferred Shares     (35,832 )   (49,898 )
    Preference Interests     (10,132 )   (8,496 )
    Junior Preference Units     (162 )   (109 )
    Minority Interests—Operating Partnership     (20,095 )   (9,949 )
    Minority Interests—Partially Owned Properties     (10,375 )   (665 )
  Principal receipts on employee notes, net     173     145  
   
 
 
  Net cash (used for) financing activities     (401,554 )   (449,719 )
   
 
 

Net increase in cash and cash equivalents
 
 
37,339
 
 
2,842
 
Cash and cash equivalents, beginning of period     51,603     23,772  
   
 
 
Cash and cash equivalents, end of period   $ 88,942   $ 26,614  
   
 
 

SUPPLEMENTAL INFORMATION: