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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 SEPTEMBER 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)

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 o

        The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding on October 31, 2002 was 270,855,698.


EQUITY RESIDENTIAL
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
(Unaudited)

 
   September 30,
2002
   December 31,
2001
  
ASSETS              
Investment in real estate              
  Land   $ 1,854,750   $ 1,840,170  
  Depreciable property     11,228,526     11,096,847  
  Construction in progress     124,811     79,166  
   
 
 
      13,208,087     13,016,183  
  Accumulated depreciation     (2,026,010 )   (1,718,845 )
   
 
 
Investment in real estate, net of accumulated depreciation     11,182,077     11,297,338  

Real estate held for disposition
 
 
—
 
 
3,371
 
Cash and cash equivalents     21,756     51,603  
Investments in unconsolidated entities     435,701     397,237  
Rents receivable     2,951     2,400  
Deposits—restricted     168,108     218,557  
Escrow deposits—mortgage     58,343     76,700  
Deferred financing costs, net     32,881     27,011  
Rental furniture, net     —     20,168  
Property and equipment, net     —     3,063  
Goodwill, net     30,000     47,291  
Other assets     66,379     90,886  
   
 
 
    Total assets   $ 11,998,196   $ 12,235,625  
   
 
 

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Liabilities:              
  Mortgage notes payable   $ 3,088,798   $ 3,286,814  
  Notes, net     2,446,779     2,260,944  
  Line of credit     35,000     195,000  
  Accounts payable and accrued expenses     139,268     108,254  
  Accrued interest payable     67,725     62,360  
  Rents received in advance and other liabilities     71,037     83,005  
  Security deposits     46,250     47,644  
  Distributions payable     143,008     141,832  
   
 
 
    Total liabilities     6,037,865     6,185,853  
   
 
 

Commitments and contingencies
 
 
 
 
 
 
 
Minority Interests:              
  Operating Partnership     358,729     379,898  
  Preference Interests     246,000     246,000  
  Junior Preference Units     5,846     5,846  
  Partially Owned Properties     10,568     4,078  
   
 
 
    Total Minority Interests     621,143     635,822  
   
 
 

Shareholders' equity:
 
 
 
 
 
 
 
  Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 10,539,534 shares issued and outstanding as of September 30, 2002 and 11,344,521 shares issued and outstanding as of December 31, 2001     946,544     966,671  
  Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 275,850,003 shares issued and outstanding as of September 30, 2002 and 271,621,374 shares issued and outstanding as of December 31, 2001     2,759     2,716  
  Paid in capital     4,977,195     4,892,744  
  Employee notes     (3,780 )   (4,043 )
  Deferred compensation     (26,407 )   (25,778 )
  Distributions in excess of accumulated earnings     (512,093 )   (385,320 )
  Accumulated other comprehensive loss     (45,030 )   (33,040 )
   
 
 
    Total shareholders' equity     5,339,188     5,413,950  
   
 
 
    Total liabilities and shareholders' equity   $ 11,998,196   $ 12,235,625  
   
 
 

See accompanying notes

2


EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)

 
   Nine Months Ended
September 30,
   Quarter Ended
September 30,
  
 
   2002
   2001
   2002
   2001
  
REVENUES                          
  Rental income   $ 1,504,274   $ 1,523,723   $ 501,853   $ 518,096  
  Fee and asset management     6,957     5,805     2,647     1,665  
  Interest and other income     11,551     17,685     2,235     6,166  
  Interest income—investment in mortgage notes     —     8,786     —     23  
   
 
 
 
 
    Total revenues     1,522,782     1,555,999     506,735     525,950  
   
 
 
 
 
EXPENSES                          
  Property and maintenance     390,241     411,370     136,104     140,573  
  Real estate taxes and insurance     153,127     139,827     50,698     45,173  
  Property management     55,767     56,302     17,565     19,760  
  Fee and asset management     5,366     5,358     1,702     1,888  
  Depreciation     348,947     333,041     118,120     113,300  
  Interest:                          
    Expense incurred, net     255,693     267,572     84,153     89,212  
    Amortization of deferred financing costs     4,344     4,328     1,362     1,524  
  General and administrative     33,000     23,604     10,673     9,525  
  Impairment on corporate housing business     17,122     —     17,122     —  
  Impairment on technology investments     872     7,968     291     1,193  
  Amortization of goodwill     —     1,862     —     581  
   
 
 
 
 
    Total expenses     1,264,479     1,251,232     437,790     422,729  
   
 
 
 
 

Income before allocation to Minority Interests, income (loss) 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
 
 
258,303
 
 
304,767
 
 
68,945
 
 
103,221
 
Allocation to Minority Interests:                          
  Operating Partnership     (19,067 )   (22,666 )   (5,283 )   (6,192 )
  Partially Owned Properties     (1,584 )   (1,523 )   (259 )   (1,285 )
Income (loss) from investments in unconsolidated entities     (1,746 )   1,885     (1,979 )   925  
Net gain (loss) on sales of unconsolidated entities     (626 )   339     (5,872 )   —  
   
 
 
 
 
Income before discontinued operations, extraordinary items and cumulative effect of change in accounting principle     235,280     282,802     55,552     96,669  
Net gain on sales of discontinued operations     61,209     99,793     32,763     53,567  
Discontinued operations, net     6,815     (49,241 )   346     (56,257 )
   
 
 
 
 
Income before extraordinary items and cumulative effect of change in accounting principle     303,304     333,354     88,661     93,979  
Extraordinary items     (468 )   (22 )   —     (128 )
Cumulative effect of change in accounting principle     —     (1,270 )   —     —  
   
 
 
 
 
Net income     302,836     332,062     88,661     93,851  
Preferred distributions     (72,969 )   (81,759 )   (24,188 )   (24,340 )
   
 
 
 
 
Net income available to Common Shares   $ 229,867   $ 250,303   $ 64,473   $ 69,511  
   
 
 
 
 
Net income per share—basic   $ 0.84   $ 0.94   $ 0.24   $ 0.26  
   
 
 
 
 
Net income per share—diluted   $ 0.83   $ 0.93   $ 0.23   $ 0.26  
   
 
 
 
 
Weighted average Common Shares outstanding—basic     272,738     266,614     273,943     268,253  
   
 
 
 
 
Weighted average Common Shares outstanding—diluted     298,690     294,661     299,057     296,391  
   
 
 
 
 
Distributions declared per Common Share outstanding   $ 1.2975   $ 1.2475   $ 0.4325   $ 0.4325  
   
 
 
 
 

See accompanying notes

3

 
   Nine Months Ended
September 30,
   Quarter Ended
September 30,
  
 
   2002
   2001
   2002
   2001
  
Comprehensive income:                          
  Net income   $ 302,836   $ 332,062   $ 88,661   $ 93,851  
    Other comprehensive income (loss)—derivative instruments:                          
      Cumulative effect of change in accounting principle     —     (5,334 )   —     —  
      Unrealized holding gains (losses) arising during the period     (12,605 )   (20,451 )   (14,595 )   (17,055 )
      Losses reclassified into earnings from other comprehensive income     615     397     230     171  
   
 
 
 
 
Comprehensive income   $ 290,846   $ 306,674   $ 74,296   $ 76,967  
   
 
 
 
 

See accompanying notes

4


EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

 
   Nine Months Ended
September 30,
  
 
   2002
   2001
  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net income   $ 302,836   $ 332,062  
Adjustments to reconcile net income to net cash provided by operating activities:              
  Allocation to Minority Interests:              
    Operating Partnership     19,067     22,666  
    Partially Owned Properties     1,584     1,523  
  Cumulative effect of change in accounting principle     —     1,270  
  Depreciation     353,206     349,313  
  Amortization of deferred financing costs     4,350     4,338  
  Amortization of discount on investment in mortgage notes     —     (2,256 )
  Amortization of goodwill     —     2,852  
  Amortization of discounts and premiums on debt     (589 )   (1,424 )
  Amortization of deferred settlements on interest rate protection agreements     (238 )   533  
  Impairment on corporate housing business     17,122     —  
  Impairment on furniture rental business     —     60,000  
  Impairment on technology investments     872     7,968  
  Loss (income) from investments in unconsolidated entities     1,746     (1,885 )
  Net gain on sales of discontinued operations     (61,209 )   (99,793 )
  Net loss (gain) on sales of unconsolidated entities     626     (339 )
  Extraordinary items     468     22  
  Unrealized loss (gain) on interest rate protection agreements     383     (161 )
  Book value of furniture sales and rental buyouts     —     8,703  
  Compensation paid with Company Common Shares     15,158     12,298  
 
Changes in assets and liabilities:
 
 
 
 
 
 
 
    (Increase) in rents receivable     (551 )   (2,069 )
    Decrease in deposits—restricted     8,186     4,538  
    Additions to rental furniture     —     (17,827 )
    Decrease (increase) in other assets     11,849     (17,124 )
    Increase in accounts payable and accrued expenses     32,102     25,535  
    Increase in accrued interest payable     5,365     25,702  
    (Decrease) in rents received in advance and other liabilities     (579 )   (7,628 )
    (Decrease) increase in security deposits     (1,037 )   885  
   
 
 
    Net cash provided by operating activities     710,717     709,702  
   
 
 

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
  Investment in real estate—acquisitions     (232,097 )   (242,366 )
  Investment in real estate—development     (86,115 )   (54,344 )
  Improvements to real estate     (110,291 )   (107,263 )
  Additions to non-real estate property     (5,562 )   (5,210 )
  Interest capitalized for real estate under development     (6,952 )   (6,651 )
  Interest capitalized for unconsolidated entities under development     (12,492 )   (14,381 )
  Proceeds from disposition of real estate, net     291,368     452,060  
  Proceeds from disposition of furniture rental business     28,741     —  
  Proceeds from disposition of unconsolidated entities     34,796     359  
  Proceeds from refinancing of unconsolidated entities     4,375     5,691  
  Investments in unconsolidated entities     (97,582 )   (69,195 )
  Distributions from unconsolidated entities     31,021     26,311  
  Decrease in deposits on real estate acquisitions, net     42,046     98,582  
  Decrease (increase) in mortgage deposits     19,605     (4,167 )
  Business combinations, net of cash acquired     (658 )   (8,231 )
  Consolidation of previously Unconsolidated Properties     —     52,841  
  Investment in property and equipment     —     (2,185 )
  Principal receipts on investment in mortgage notes     —     61,419  
  Other investing activities, net     192     (58 )
   
 
 
  Net cash (used for) provided by investing activities     (99,605 )   183,212  
   
 
 

See accompanying notes

5

 
   Nine Months Ended
September 30,
  
 
   2002
   2001
  
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Loan and bond acquisition costs   $ (10,495 ) $ (4,383 )
  Mortgage notes payable:              
    Proceeds     104,572     59,312  
    Lump sum payoffs     (283,681 )   (315,302 )
    Scheduled principal repayments     (24,351 )   (24,210 )
    Prepayment premiums/fees     (468 )   (201 )
  Notes, net:              
    Proceeds     397,064     299,316  
    Lump sum payoffs     (225,000 )   —  
    Scheduled principal repayments     (4,669 )   (4,649 )
  Line of credit:              
    Proceeds     368,500     436,491  
    Repayments     (528,500 )   (791,953 )
  (Payments) from settlement of interest rate protection agreements     (1,534 )   (7,360 )
  Proceeds from sale of Common Shares     8,425     7,277  
  Proceeds from sale of Preference Interests     —     48,500  
  Proceeds from exercise of options     28,542     56,326  
  Redemption of Preferred Shares     —     (210,500 )
  Payment of offering costs     (170 )   (1,535 )
  Distributions:              
    Common Shares     (354,683 )   (218,632 )
    Preferred Shares     (57,919 )   (69,359 )
    Preference Interests     (15,185 )   (13,338 )
    Junior Preference Units     (243 )   (190 )
    Minority Interests—Operating Partnership     (29,859 )   (19,738 )
    Minority Interests—Partially Owned Properties     (11,568 )   (31,970 )
  Principal receipts on employee notes, net     263     219  
   
 
 
    Net cash (used for) financing activities     (640,959 )   (805,879