Attached files
| file | filename |
|---|---|
| 8-K/A - 8-K/A - EQUITY RESIDENTIAL | d447993d8ka.htm |
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On November 26, 2012, Equity Residential and ERP Operating Limited Partnership (collectively, the “Company”) entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Avalon Bay Communities, Inc. (“AVB”), Archstone Enterprise LP (“Archstone”) and Lehman Brothers Holdings Inc. (“LBHI”) pursuant to which the Company, AVB and certain of their respective subsidiaries have agreed to acquire from Archstone and its affiliates, all of the assets and interests in various entities affiliated with Archstone. In connection with the acquisition, the Company will acquire a portfolio of apartment properties in exchange for (i) cash in the aggregate amount of $2.0 billion, (ii) 34.5 million common shares of beneficial interest of Equity Residential, and (iii) the assumption of liabilities related to the Archstone Portfolio (see definition below). Following consummation of these transactions, the Company will own assets representing approximately 60% of the Archstone Portfolio and AVB will own assets representing approximately 40% of the Archstone Portfolio.
The Company will pay approximately $9.6 billion, inclusive of assumed debt of approximately $5.0 billion, and receive approximately seventy-five wholly owned and five partially owned properties containing approximately 25,000 apartment units located primarily in high barrier to entry markets where the Company already operates. The portfolio contains 22.2 million net rentable square feet of residential space and approximately 475,000 square feet of commercial space. In addition, the Company and AVB will acquire interests in certain assets of Archstone, including Archstone’s interests in certain joint ventures, interests in the Archstone German portfolio and certain development land parcels through one or more unconsolidated joint ventures between the Company and AVB that are expected to be owned 60% by the Company and 40% by AVB (the Company’s collective acquisition is referred to as the “Archstone Portfolio”). The joint ventures between the Company and AVB will consist of assets that do not fit the Company’s or AVB’s core strategy or asset class. As a result, the Company and AVB plan to divest (held for sale) the joint venture assets as promptly as reasonably possible, subject to market and other economic conditions.
The closing of this pending transaction is subject to certain conditions and restrictions, therefore, there can be no assurance that this transaction will be consummated or that the final terms will not differ in material respects from those summarized in the preceding paragraph.
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheets of Equity Residential and ERP Operating Limited Partnership are presented as if the Archstone Portfolio had been acquired on September 30, 2012. The accompanying unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine-month period ended September 30, 2012 and for the year ended December 31, 2011 of Equity Residential and ERP Operating Limited Partnership are presented as if the Archstone Portfolio had been acquired on January 1, 2011. The Archstone Portfolio is expected to be purchased during 2013. The unaudited Pro Forma Condensed Consolidated Balance Sheets are segregated into separate components as follows:
| • | the historical Consolidated Balance Sheets of the Company; |
| • | the carrying value of the Archstone historical working capital; |
| • | the Company’s ownership interest in the net working capital of the joint ventures with AVB; |
| • | the details of the transaction including the issuance of common shares, financing required and the allocation of the estimated purchase price to the real estate assets acquired; and |
| • | the Pro Forma Condensed Consolidated Balance Sheets of the Company. |
The unaudited Pro Forma Condensed Consolidated Statements of Operations are segregated into separate components as follows (with the year ended December 31, 2011 including an additional reclassification for discontinued operations):
| • | the historical Consolidated Statements of Operations of the Company; |
| • | the historical combined revenues and certain expenses of the properties to be acquired for Archstone’s period of ownership; |
S-17
| • | removal of the historical combined revenues and certain expenses of the properties to be acquired for unconsolidated entities that are included at full ownership in the previous column; |
| • | the pro forma loss from investments in unconsolidated entities for Archstone’s period of ownership with respect to the Company’s 60% ownership interest in the unconsolidated joint ventures with AVB; |
| • | the pro forma details of the transaction including the adjusted depreciation and interest expense; and |
| • | the Pro Forma Condensed Consolidated Statements of Operations of the Company. |
These Unaudited Pro Forma Condensed Consolidated Financial Statements should be read in conjunction with:
| • | The Company’s historical consolidated financial statements and notes thereto as of and for the nine-month period ended September 30, 2012, included in the Company’s Combined Form 10-Q filed with the SEC on November 1, 2012; |
| • | The Company’s historical consolidated financial statements and notes thereto as of and for the year ended December 31, 2011, included in the Company’s Combined Form 10-K filed with the SEC on February 24, 2012 and as updated for discontinued operations on the Combined Form 8-K filed with the SEC on June 13, 2012; and |
| • | Financial statements of real estate operations acquired included in the Company’s Form 8-K filed on November 26, 2012. |
In management’s opinion, all adjustments necessary to reflect the transaction including the acquisition of the Archstone Portfolio have been made. The following unaudited Pro Forma Condensed Consolidated Balance Sheets do not purport to represent the future financial position of the Company. The unaudited Pro Forma Condensed Consolidated Statements of Operations are not necessarily indicative of what the actual results of operations would have been for the nine-month period ended September 30, 2012 or for the year ended December 31, 2011 assuming the above transaction had been consummated on January 1, 2011, nor do they purport to represent the future results of operations of the Company.
S-18
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2012
(Amounts in thousands)
(Unaudited)
| (1) Equity Residential Historical |
(2) Archstone Historical |
(3) Joint Venture |
(4) Transaction |
Pro Forma Amounts |
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| ASSETS |
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| Investment in real estate |
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| Land |
$ | 4,609,337 | $ | — | $ | — | $ | 2,372,000 | (4a) | $ | 6,981,337 | |||||||||
| Depreciable property |
15,943,139 | — | — | 6,156,689 | (4b) | 22,415,646 | ||||||||||||||
| 316,870 | (4c) | |||||||||||||||||||
| (1,052 | )(4d) | |||||||||||||||||||
| Projects under development |
194,254 | — | — | 22,638 | (4e) | 216,892 | ||||||||||||||
| Land held for development |
404,846 | — | — | 242,240 | (4f) | 647,086 | ||||||||||||||
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| Investment in real estate |
21,151,576 | — | — | 9,109,385 | 30,260,961 | |||||||||||||||
| Accumulated depreciation |
(4,880,808 | ) | — | — | — | (4,880,808 | ) | |||||||||||||
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| Investment in real estate, net |
16,270,768 | — | — | 9,109,385 | 25,380,153 | |||||||||||||||
| Cash and cash equivalents |
45,623 | 64,393 | — | 16,178 | (4g) | 126,194 | ||||||||||||||
| 1,008,443 | (4h) | |||||||||||||||||||
| 123,706 | (4i) | |||||||||||||||||||
| 1,580,000 | (4j) | |||||||||||||||||||
| (2,712,149 | )(4k) | |||||||||||||||||||
| Investments in unconsolidated entities |
17,906 | (3,795 | ) | (56,090 | ) | 164,548 | (4l) | 191,000 | ||||||||||||
| 68,431 | (4m) | |||||||||||||||||||
| Deposits – restricted |
120,440 | 5,473 | — | — | 125,913 | |||||||||||||||
| Escrow deposits – mortgage |
10,462 | 40,596 | — | — | 51,058 | |||||||||||||||
| Deferred financing costs, net |
38,823 | — | — | 72,848 | (4n) | 111,671 | ||||||||||||||
| Other assets |
164,523 | 16,986 | — | 169,910 | (4o) | 351,419 | ||||||||||||||
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| Total assets |
$ | 16,668,545 | $ | 123,653 | $ | (56,090 | ) | $ | 9,601,300 | $ | 26,337,408 | |||||||||
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| LIABILITIES AND EQUITY |
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| Liabilities: |
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| Mortgage notes payable |
$ | 3,948,115 | $ | — | $ | — | $ | 5,047,859 | (4p) | $ | 8,995,974 | |||||||||
| Notes, net |
5,354,038 | — | — | 830,000 | (4q) | 6,184,038 | ||||||||||||||
| Lines of credit |
7,000 | — | — | 750,000 | (4r) | 757,000 | ||||||||||||||
| Accounts payable and accrued expenses |
105,602 | 12,035 | — | — | 117,637 | |||||||||||||||
| Accrued interest payable |
78,869 | 17,737 | — | — | 96,606 | |||||||||||||||
| Other liabilities |
370,046 | 21,504 | — | 11,410 | (4s) | 600,963 | ||||||||||||||
| 198,003 | (4t) | |||||||||||||||||||
| Security deposits |
68,758 | 10,908 | — | — | 79,666 | |||||||||||||||
| Distributions payable |
108,048 | — | — | — | 108,048 | |||||||||||||||
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| Total liabilities |
10,040,476 | 62,184 | — | 6,837,272 | 16,939,932 | |||||||||||||||
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| Commitments and contingencies |
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| Redeemable Noncontrolling Interests – Operating Partnership |
414,219 | — | — | 34 | (4aa) | 414,253 | ||||||||||||||
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| Equity: |
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| Shareholders’ equity: |
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| Preferred Shares |
50,000 | — | — | — | 50,000 | |||||||||||||||
| Common Shares |
3,027 | — | — | 345 | (4u) | 3,562 | ||||||||||||||
| 190 | (4v) | |||||||||||||||||||
| Paid in capital |
5,364,802 | 183,486 | (56,090 | ) | 1,901,604 | (4w) | 8,182,237 | |||||||||||||
| 1,008,253 | (4x) | |||||||||||||||||||
| (187,281 | )(4y) | |||||||||||||||||||
| (32,537 | )(4aa) | |||||||||||||||||||
| Retained earnings |
770,697 | (122,017 | ) | — | 122,017 | (4y) | 689,597 | |||||||||||||
| (81,100 | )(4z) | |||||||||||||||||||
| Accumulated other comprehensive (loss) |
(197,754 | ) | — | — | — | (197,754 | ) | |||||||||||||
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| Total shareholders’ equity |
5,990,772 | 61,469 | (56,090 | ) | 2,731,491 | 8,727,642 | ||||||||||||||
| Noncontrolling Interests: |
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| Operating Partnership |
147,650 | — | — | 32,503 | (4aa) | 180,153 | ||||||||||||||
| Partially Owned Properties |
75,428 | — | — | — | 75,428 | |||||||||||||||
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| Total Noncontrolling Interests |
223,078 | — | — | 32,503 | 255,581 | |||||||||||||||
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| Total equity |
6,213,850 | 61,469 | (56,090 | ) | 2,763,994 | 8,983,223 | ||||||||||||||
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| Total liabilities and equity |
$ | 16,668,545 | $ | 123,653 | $ | (56,090 | ) | $ | 9,601,300 | $ | 26,337,408 | |||||||||
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See accompanying notes.
S-19
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2012
(Amounts in thousands except per share data)
(Unaudited)
| (1) Equity Residential Historical |
(2) Archstone Historical |
(3) Unconsolidated Assets |
(4) Joint Venture |
(5) Transaction |
Pro Forma Amounts |
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| REVENUES |
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| Rental income |
$ | 1,602,635 | $ | 516,064 | $ | (43,359 | ) | $ | — | $ | 718 | (5a) | $ | 2,076,058 | ||||||||||
| Fee and asset management |
7,328 | — | — | — | — | 7,328 | ||||||||||||||||||
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| Total revenues |
1,609,963 | 516,064 | (43,359 | ) | — | 718 | 2,083,386 | |||||||||||||||||
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| EXPENSES |
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| Property and maintenance |
325,071 | 107,118 | (8,189 | ) | — | 3,198 | (5b) | 427,198 | ||||||||||||||||
| Real estate taxes and insurance |
182,222 | 62,335 | (3,497 | ) | — | — | 241,060 | |||||||||||||||||
| Property management |
62,769 | 18,557 | (4,878 | ) | — | — | 76,448 | |||||||||||||||||
| Fee and asset management |
3,595 | — | — | — | — | 3,595 | ||||||||||||||||||
| Depreciation |
509,338 | — | — | 164,075 | (5c) | 673,413 | ||||||||||||||||||
| General and administrative |
37,178 | — | — | — | — | 37,178 | ||||||||||||||||||
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| Total expenses |
1,120,173 | 188,010 | (16,564 | ) | — | 167,273 | 1,458,892 | |||||||||||||||||
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| Operating income (loss) |
489,790 | 328,054 | (26,795 | ) | — | (166,555 | ) | 624,494 | ||||||||||||||||
| Interest and other income |
70,516 | — | — | — | — | 70,516 | ||||||||||||||||||
| Other expenses |
(20,678 | ) | — | — | — | 1,921 | (5d) | (18,757 | ) | |||||||||||||||
| Interest: |
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| Expense incurred, net |
(347,452 | ) | — | — | — | (144,620 | )(5e) | (492,072 | ) | |||||||||||||||
| Amortization of deferred financing costs |
(10,319 | ) | — | — | — | (11,607 | )(5f) | (21,926 | ) | |||||||||||||||
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| Income before income and other taxes, (loss) from investments in unconsolidated entities and discontinued operations |
181,857 | 328,054 | (26,795 | ) | — | (320,861 | ) | 162,255 | ||||||||||||||||
| Income and other tax (expense) benefit |
(627 | ) | — | — | — | — | (627 | ) | ||||||||||||||||
| (Loss) from investments in unconsolidated entities |
(3 | ) | — | (290 | )(3a) | (44,265 | )(4a) | (9,403 | )(5g) | (53,961 | ) | |||||||||||||
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| Income (loss) from continuing operations |
181,227 | 328,054 | (27,085 | ) | (44,265 | ) | (330,264 | ) | 107,667 | |||||||||||||||
| Net (income) loss from continuing operations attributable to Noncontrolling Interests: |
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| Operating Partnership, net |
(7,477 | ) | (14,730 | )(6) | 1,216 | (6) | 1,987 | (6) | 14,829 | (6) | (4,175 | ) | ||||||||||||
| Partially Owned Properties |
(457 | ) | — | — | — | — | (457 | ) | ||||||||||||||||
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| Net income (loss) from continuing operations attributable to controlling interests: |
173,293 | 313,324 | (25,869 | ) | (42,278 | ) | (315,435 | ) | 103,035 | |||||||||||||||
| Preferred distributions |
(9,319 | ) | — | — | — | — | (9,319 | ) | ||||||||||||||||
| Premium on redemption of Preferred Shares |
(5,150 | ) | — | — | — | — | (5,150 | ) | ||||||||||||||||
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| Income (loss) from continuing operations available to Common Shares |
$ | 158,824 | $ | 313,324 | $ | (25,869 | ) | $ | (42,278 | ) | $ | (315,435 | ) | $ | 88,566 | |||||||||
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| Earnings per share - basic: |
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| Income from continuing operations available to Common Shares |
$ | 0.53 | $ | 0.25 | ||||||||||||||||||||
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| Weighted average Common Shares outstanding |
300,116 | (5h) | 353,584 | |||||||||||||||||||||
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| Earnings per share - diluted: |
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| Income from continuing operations available to Common Shares |
$ | 0.52 | $ | 0.25 | ||||||||||||||||||||
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| Weighted average Common Shares outstanding |
317,265 | (5h) | 370,733 | |||||||||||||||||||||
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See accompanying notes.
S-20
EQUITY RESIDENTIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2011
(Amounts in thousands except per share data)
(Unaudited)
| (1) Equity Residential Historical |
(2) Discontinued Operations |
(3) Archstone Historical |
(4) Unconsolidated Assets |
(5) Joint Venture |
(6) Transaction |
Pro Forma Amounts |
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| REVENUES |
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| Rental income |
$ | 1,960,243 | $ | (41,995 | ) | $ | 645,062 | $ | (52,015 | ) | $ | — | $ | 957 | (6a) | $ | 2,512,252 | |||||||||||
| Fee and asset management |
9,026 | — | — | — | — | — | 9,026 | |||||||||||||||||||||
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| Total revenues |
1,969,269 | (41,995 | ) | 645,062 | (52,015 | ) | — | 957 | 2,521,278 | |||||||||||||||||||
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| EXPENSES |
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| Property and maintenance |
412,233 | (12,652 | ) | 137,194 | (9,433 | ) | — | 4,264 | (6b) | 531,606 | ||||||||||||||||||
| Real estate taxes and insurance |
219,743 | (3,954 | ) | 75,944 | (3,822 | ) | — | — | 287,911 | |||||||||||||||||||
| Property management |
82,133 | (266 | ) | 23,096 | (6,298 | ) | — | — | 98,665 | |||||||||||||||||||
| Fee and asset management |
4,279 | — | — | — | — | — | 4,279 | |||||||||||||||||||||
| Depreciation |
642,415 | (12,367 | ) | — | — | — | 535,637 | (6c) | 1,165,685 | |||||||||||||||||||
| General and administrative |
43,606 | — | — | — | — | — | 43,606 | |||||||||||||||||||||
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| Total expenses |
1,404,409 | (29,239 | ) | 236,234 | (19,553 | ) | — | 539,901 | 2,131,752 | |||||||||||||||||||
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| Operating income (loss) |
564,860 | (12,756 | ) | 408,828 | (32,462 | ) | — | (538,944 | ) | 389,526 | ||||||||||||||||||
| Interest and other income |
7,977 | (11 | ) | — | — | — | — | 7,966 | ||||||||||||||||||||
| Other expenses |
(14,557 | ) | — | — | — | — | 1,736 | (6d) | (12,821 | ) | ||||||||||||||||||
| Interest: |
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| Expense incurred, net |
(468,320 | ) | 3,838 | — | — | — | (198,527 | )(6e) | (663,009 | ) | ||||||||||||||||||
| Amortization of deferred financing costs |
(17,006 | ) | 399 | — | — | — | (42,397 | )(6f) | (59,004 | ) | ||||||||||||||||||
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| Income before income and other taxes, (loss) from investments in unconsolidated entities, net gain on sales of land parcels and discontinued operations |
72,954 | (8,530 | ) | 408,828 | (32,462 | ) | — | (778,132 | ) | (337,342 | ) | |||||||||||||||||
| Income and other tax (expense) benefit |
(728 | ) | — | — | — | — | — | (728 | ) | |||||||||||||||||||
| (Loss) from investments in unconsolidated entities |
— | — | — | (11,884 | )(4a) | (78,146 | )(5a) | (12,537 | )(6g) | (102,567 | ) | |||||||||||||||||
| Net gain on sales of land parcels |
4,217 | — | — | — | — | — | 4,217 | |||||||||||||||||||||
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| Income (loss) from continuing operations |
76,443 | (8,530 | ) | 408,828 | (44,346 | ) | (78,146 | ) | (790,669 | ) | (436,420 | ) | ||||||||||||||||
| Net (income) loss from continuing operations attributable to Noncontrolling Interests: |
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| Operating Partnership, net |
(2,738 | ) | 378 | (7) | (18,111 | )(7) | 1,965 | (7) | 3,462 | (7) | 35,027 | (7) | 19,983 | |||||||||||||||
| Partially Owned Properties |
(832 | ) | — | — | — | — | — | (832 | ) | |||||||||||||||||||
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| Net income (loss) from continuing operations attributable to controlling interests |
72,873 | (8,152 | ) | 390,717 | (42,381 | ) | (74,684 | ) | (755,642 | ) | (417,269 | ) | ||||||||||||||||
| Preferred distributions |
(13,865 | ) | — | — | — | — | — | (13,865 | ) | |||||||||||||||||||
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| Income (loss) from continuing operations available to Common Shares |
$ | 59,008 | $ | (8,152 | ) | $ | 390,717 | $ | (42,381 | ) | $ | (74,684 | ) | $ | (755,642 | ) | $ | (431,134 | ) | |||||||||
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|
|
|
|
|||||||||||||||
| Earnings per share - basic: |
||||||||||||||||||||||||||||
| Income (loss) from continuing operations available to Common Shares |
$ | 0.20 | $ | (1.24 | ) | |||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
| Weighted average Common Shares outstanding |
294,856 | (6h) | 348,324 | |||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
| Earnings per share - diluted: |
||||||||||||||||||||||||||||
| Income (loss) from continuing operations available to Common Shares |
$ | 0.20 | $ | (1.24 | ) | |||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
| Weighted average Common Shares outstanding |
312,065 | (6h) | 348,324 | |||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
See accompanying notes.
S-21
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2012
(Amounts in thousands)
(Unaudited)
| (1) ERP Operating Limited Partnership Historical |
(2) Archstone Historical |
(3) Joint Venture |
(4) Transaction |
Pro Forma Amounts |
||||||||||||||||
| ASSETS |
||||||||||||||||||||
| Investment in real estate |
||||||||||||||||||||
| Land |
$ | 4,609,337 | $ | — | $ | — | $ | 2,372,000 | (4a) | $ | 6,981,337 | |||||||||
| Depreciable property |
15,943,139 | — | — | 6,156,689 | (4b) | 22,415,646 | ||||||||||||||
| 316,870 | (4c) | |||||||||||||||||||
| (1,052 | )(4d) | |||||||||||||||||||
| Projects under development |
194,254 | — | — | 22,638 | (4e) | 216,892 | ||||||||||||||
| Land held for development |
404,846 | — | — | 242,240 | (4f) | 647,086 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Investment in real estate |
21,151,576 | — | — | 9,109,385 | 30,260,961 | |||||||||||||||
| Accumulated depreciation |
(4,880,808 | ) | — | — | — | (4,880,808 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Investment in real estate, net |
16,270,768 | — | — | 9,109,385 | 25,380,153 | |||||||||||||||
| Cash and cash equivalents |
45,623 | 64,393 | — | 16,178 | (4g) | 126,194 | ||||||||||||||
| 1,008,443 | (4h) | |||||||||||||||||||
| 123,706 | (4i) | |||||||||||||||||||
| 1,580,000 | (4j) | |||||||||||||||||||
| (2,712,149 | )(4k) | |||||||||||||||||||
| Investments in unconsolidated entities |
17,906 | (3,795 | ) | (56,090 | ) | 164,548 | (4l) | 191,000 | ||||||||||||
| 68,431 | (4m) | |||||||||||||||||||
| Deposits – restricted |
120,440 | 5,473 | — | — | 125,913 | |||||||||||||||
| Escrow deposits – mortgage |
10,462 | 40,596 | — | — | 51,058 | |||||||||||||||
| Deferred financing costs, net |
38,823 | — | — | 72,848 | (4n) | 111,671 | ||||||||||||||
| Other assets |
164,523 | 16,986 | — | 169,910 | (4o) | 351,419 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
$ | 16,668,545 | $ | 123,653 | $ | (56,090 | ) | $ | 9,601,300 | $ | 26,337,408 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| LIABILITIES AND CAPITAL |
||||||||||||||||||||
| Liabilities: |
||||||||||||||||||||
| Mortgage notes payable |
$ | 3,948,115 | $ | — | $ | — | $ | 5,047,859 | (4p) | $ | 8,995,974 | |||||||||
| Notes, net |
5,354,038 | — | — | 830,000 | (4q) | 6,184,038 | ||||||||||||||
| Lines of credit |
7,000 | — | — | 750,000 | (4r) | 757,000 | ||||||||||||||
| Accounts payable and accrued expenses |
105,602 | 12,035 | — | — | 117,637 | |||||||||||||||
| Accrued interest payable |
78,869 | 17,737 | — | — | 96,606 | |||||||||||||||
| Other liabilities |
370,046 | 21,504 | — | 11,410 | (4s) | 600,963 | ||||||||||||||
| 198,003 | (4t) | |||||||||||||||||||
| Security deposits |
68,758 | 10,908 | — | — | 79,666 | |||||||||||||||
| Distributions payable |
108,048 | — | — | — | 108,048 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
10,040,476 | 62,184 | — | 6,837,272 | 16,939,932 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Commitments and contingencies |
||||||||||||||||||||
| Redeemable Limited Partners |
414,219 | — | — | 34 | (4aa) | 414,253 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Capital: |
||||||||||||||||||||
| Partners’ Capital: |
||||||||||||||||||||
| Preference Units |
50,000 | — | — | — | 50,000 | |||||||||||||||
| General Partner |
6,138,526 | 61,469 | (56,090 | ) | 345 | (4u) | 8,875,396 | |||||||||||||
| 190 | (4v) | |||||||||||||||||||
| 1,901,604 | (4w) | |||||||||||||||||||
| 1,008,253 | (4x) | |||||||||||||||||||
| (187,281 | )(4y) | |||||||||||||||||||
| 122,017 | (4y) | |||||||||||||||||||
| (81,100 | )(4z) | |||||||||||||||||||
| (32,537 | )(4aa) | |||||||||||||||||||
| Limited Partners |
147,650 | — | — | 32,503 | (4aa) | 180,153 | ||||||||||||||
| Accumulated other comprehensive (loss) |
(197,754 | ) | — | — | — | (197,754 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total partners’ capital |
6,138,422 | 61,469 | (56,090 | ) | 2,763,994 | 8,907,795 | ||||||||||||||
| Noncontrolling Interests – Partially Owned Properties |
75,428 | — | — | — | 75,428 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total capital |
6,213,850 | 61,469 | (56,090 | ) | 2,763,994 | 8,983,223 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities and capital |
$ | 16,668,545 | $ | 123,653 | $ | (56,090 | ) | $ | 9,601,300 | $ | 26,337,408 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
See accompanying notes.
S-22
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2012
(Amounts in thousands except per Unit data)
(Unaudited)
| (1) ERP Operating Limited Partnership Historical |
(2) Archstone Historical |
(3) Unconsolidated Assets |
(4) Joint Venture |
(5) Transaction |
Pro Forma Amounts |
|||||||||||||||||||
| REVENUES |
||||||||||||||||||||||||
| Rental income |
$ | 1,602,635 | $ | 516,064 | $ | (43,359 | ) | $ | — | $ | 718 | (5a) | $ | 2,076,058 | ||||||||||
| Fee and asset management |
7,328 | — | — | — | — | 7,328 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total revenues |
1,609,963 | 516,064 | (43,359 | ) | — | 718 | 2,083,386 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| EXPENSES |
||||||||||||||||||||||||
| Property and maintenance |
325,071 | 107,118 | (8,189 | ) | — | 3,198 | (5b) | 427,198 | ||||||||||||||||
| Real estate taxes and insurance |
182,222 | 62,335 | (3,497 | ) | — | 241,060 | ||||||||||||||||||
| Property management |
62,769 | 18,557 | (4,878 | ) | — | 76,448 | ||||||||||||||||||
| Fee and asset management |
3,595 | — | — | — | 3,595 | |||||||||||||||||||
| Depreciation |
509,338 | — | — | — | 164,075 | (5c) | 673,413 | |||||||||||||||||
| General and administrative |
37,178 | — | — | — | 37,178 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total expenses |
1,120,173 | 188,010 | (16,564 | ) | — | 167,273 | 1,458,892 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income (loss) |
489,790 | 328,054 | (26,795 | ) | — | (166,555 | ) | 624,494 | ||||||||||||||||
| Interest and other income |
70,516 | — | — | — | 70,516 | |||||||||||||||||||
| Other expenses |
(20,678 | ) | — | — | — | 1,921 | (5d) | (18,757 | ) | |||||||||||||||
| Interest: |
||||||||||||||||||||||||
| Expense incurred, net |
(347,452 | ) | — | — | — | (144,620 | )(5e) | (492,072 | ) | |||||||||||||||
| Amortization of deferred financing costs |
(10,319 | ) | — | — | — | (11,607 | )(5f) | (21,926 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income before income and other taxes, (loss) from investments in unconsolidated entities and discontinued operations |
181,857 | 328,054 | (26,795 | ) | — | (320,861 | ) | 162,255 | ||||||||||||||||
| Income and other tax (expense) benefit |
(627 | ) | — | — | — | (627 | ) | |||||||||||||||||
| (Loss) from investments in unconsolidated entities |
(3 | ) | — | (290 | )(3a) | (44,265 | )(4a) | (9,403 | )(5g) | (53,961 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations |
181,227 | 328,054 | (27,085 | ) | (44,265 | ) | (330,264 | ) | 107,667 | |||||||||||||||
| Net (income) loss from continuing operations attributable to Noncontrolling Interests – Partially Owned Properties |
(457 | ) | — | (457 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) from continuing operations attributable to controlling interests |
$ | 180,770 | $ | 328,054 | $ | (27,085 | ) | $ | (44,265 | ) | $ | (330,264 | ) | $ | 107,210 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| ALLOCATION OF INCOME FROM CONTINUING OPERATIONS: |
||||||||||||||||||||||||
| Preference Units |
$ | 9,319 | $ | — | $ | — | $ | — | $ | — | $ | 9,319 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Premium on redemption of Preference Units |
$ | 5,150 | $ | — | $ | — | $ | — | $ | — | $ | 5,150 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations available to Units |
$ | 166,301 | $ | 328,054 | $ | (27,085 | ) | $ | (44,265 | ) | $ | (330,264 | ) | $ | 92,741 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Earnings per Unit - basic: |
||||||||||||||||||||||||
| Income from continuing operations available to Units |
$ | 0.53 | $ | 0.25 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Weighted average Units outstanding |
313,932 | (5h) | 367,400 | |||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Earnings per Unit - diluted: |
||||||||||||||||||||||||
| Income from continuing operations available to Units |
$ | 0.52 | $ | 0.25 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Weighted average Units outstanding |
317,265 | (5h) | 370,733 | |||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
See accompanying notes.
S-23
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2011
(Amounts in thousands except per Unit data)
(Unaudited)
| (1) ERP Operating Limited Partnership Historical |
(2) Discontinued Operations |
(3) Archstone Historical |
(4) Unconsolidated Assets |
(5) Joint Venture |
(6) Transaction |
Pro Forma Amounts |
||||||||||||||||||||||
| REVENUES |
||||||||||||||||||||||||||||
| Rental income |
$ | 1,960,243 | $ | (41,995 | ) | $ | 645,062 | $ | (52,015 | ) | $ | — | $ | 957 | (6a) | $ | 2,512,252 | |||||||||||
| Fee and asset management |
9,026 | — | — | — | — | — | 9,026 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total revenues |
1,969,269 | (41,995 | ) | 645,062 | (52,015 | ) | — | 957 | 2,521,278 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| EXPENSES |
||||||||||||||||||||||||||||
| Property and maintenance |
412,233 | (12,652 | ) | 137,194 | (9,433 | ) | — | 4,264 | (6b) | 531,606 | ||||||||||||||||||
| Real estate taxes and insurance |
219,743 | (3,954 | ) | 75,944 | (3,822 | ) | — | — | 287,911 | |||||||||||||||||||
| Property management |
82,133 | (266 | ) | 23,096 | (6,298 | ) | — | — | 98,665 | |||||||||||||||||||
| Fee and asset management |
4,279 | — | — | — | — | — | 4,279 | |||||||||||||||||||||
| Depreciation |
642,415 | (12,367 | ) | — | — | — | 535,637 | (6c) | 1,165,685 | |||||||||||||||||||
| General and administrative |
43,606 | — | — | — | — | — | 43,606 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total expenses |
1,404,409 | (29,239 | ) | 236,234 | (19,553 | ) | — | 539,901 | 2,131,752 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Operating income (loss) |
564,860 | (12,756 | ) | 408,828 | (32,462 | ) | — | (538,944 | ) | 389,526 | ||||||||||||||||||
| Interest and other income |
7,977 | (11 | ) | — | — | — | — | 7,966 | ||||||||||||||||||||
| Other expenses |
(14,557 | ) | — | — | — | — | 1,736 | (6d) | (12,821 | ) | ||||||||||||||||||
| Interest: |
||||||||||||||||||||||||||||
| Expense incurred, net |
(468,320 | ) | 3,838 | — | — | — | (198,527 | )(6e) | (663,009 | ) | ||||||||||||||||||
| Amortization of deferred financing costs |
(17,006 | ) | 399 | — | — | — | (42,397 | )(6f) | (59,004 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Income before income and other taxes, (loss) from investments in unconsolidated entities, net gain on sales of land parcels and discontinued operations |
72,954 | (8,530 | ) | 408,828 | (32,462 | ) | — | (778,132 | ) | (337,342 | ) | |||||||||||||||||
| Income and other tax (expense) benefit |
(728 | ) | — | — | — | — | — | (728 | ) | |||||||||||||||||||
| (Loss) from investments in unconsolidated entities |
— | — | — | (11,884 | )(4a) | (78,146 | )(5a) | (12,537 | )(6g) | (102,567 | ) | |||||||||||||||||
| Net gain on sales of land parcels |
4,217 | — | — | — | — | — | 4,217 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Income (loss) from continuing operations |
76,443 | (8,530 | ) | 408,828 | (44,346 | ) | (78,146 | ) | (790,669 | ) | (436,420 | ) | ||||||||||||||||
| Net (income) loss from continuing operations attributable to Noncontrolling Interests – Partially Owned Properties |
(832 | ) | — | — | — | — | — | (832 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net income (loss) from continuing operations attributable to controlling interests |
$ | 75,611 | $ | (8,530 | ) | $ | 408,828 | $ | (44,346 | ) | $ | (78,146 | ) | $ | (790,669 | ) | $ | (437,252 | ) | |||||||||
| ALLOCATION OF INCOME FROM CONTINUING OPERATIONS: |
||||||||||||||||||||||||||||
| Preference Units |
$ | 13,865 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 13,865 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Income (loss) from continuing operations available to Units |
$ | 61,746 | $ | (8,530 | ) | $ | 408,828 | $ | (44,346 | ) | $ | (78,146 | ) | $ | (790,669 | ) | $ | (451,117 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Earnings per Unit - basic: |
||||||||||||||||||||||||||||
| Income (loss) from continuing operations available to Units |
$ | 0.20 | $ | (1.24 | ) | |||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
| Weighted average Units outstanding |
308,062 | (6h) | 361,530 | |||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
| Earnings per Unit - diluted: |
||||||||||||||||||||||||||||
| Income (loss) from continuing operations available to Units |
$ | 0.20 | $ | (1.24 | ) | |||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
| Weighted average Units outstanding |
312,065 | (6h) | 361,530 | |||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
See accompanying notes.
S-24
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(Unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheets
| (1) | Historical Balances – Reflects the consolidated balance sheet of the Company as contained in its historical consolidated financial statements included in the Form 10-Q as of and for the nine months ended September 30, 2012 previously filed with the Securities and Exchange Commission. |
| (2) | Archstone Historical – Reflects the carrying value of Archstone’s historical net working capital (which approximates fair value) for the properties to be purchased by the Company as of September 30, 2012. Additionally, reclassifications were made to conform to the Company’s presentation. |
| (3) | Joint Venture – Reflects the Company’s 60% ownership interest in the net working capital of the anticipated joint ventures with AVB as of September 30, 2012. The joint ventures are expected to consist of over 13,000 apartment units in Germany and approximately 20 domestic properties, with ownership interests ranging from 10% - 20%. See note (4m) below. |
| (4) | Transaction – In connection with completing the transaction, the following adjustments were made to account for the assumption of existing debt, issuance of common shares, additional financing required and the allocation of the estimated purchase price to the real estate assets to be acquired, all at fair value based on an analysis of current market conditions. The major components of the transaction funding and the purchase price include the following (amounts in thousands): |
| Funding Source |
Amount | Asset |
Allocated Purchase Price |
|||||||
| Equity Offering |
$ | 1,008,443 | Land |
$ | 2,372,000 | |||||
| Common Share Issuance to Seller |
1,901,949 | Building |
5,999,639 | |||||||
| Line of Credit draw |
750,000 | Site Improvements |
94,730 | |||||||
| Bridge Loan |
830,000 | FF&E |
62,320 | |||||||
| Debt Assumed |
4,736,890 | In-Place Leases |
316,870 | |||||||
| Mark to Market of Debt Assumed |
310,969 | Projects Under Development |
22,638 | |||||||
| Assumption of Preferred Shares |
198,003 | Land Held for Development |
242,240 | |||||||
| Transaction Costs |
(81,100 | ) | Investment in Unconsolidated Entities |
232,979 | ||||||
| Working Capital |
(65,264 | ) | Ground/Retail Leases above/below market |
158,500 | ||||||
| Mark to Market of Debt Assumed |
310,969 | |||||||||
| Common Share FMV Adjustment |
(123,051 | ) | ||||||||
| Cash and Working Capital Adjustment |
(188,970 | ) | ||||||||
| Other Transaction Costs |
89,026 | |||||||||
|
|
|
|
|
|||||||
| Total |
$ | 9,589,890 | Total |
$ | 9,589,890 | |||||
|
|
|
|
|
|||||||
| a. | Reflects the estimated purchase price allocation to land. |
| b. | Reflects the estimated purchase price allocation to depreciable property (building, site improvements and FF&E). |
| c. | Reflects the estimated purchase price allocation to the intangible value of the existing in place leases. |
| d. | Reflects purchase price adjustments including: |
| • | Fair market value of the debt assumed which resulted in an increase of $311.0 million; |
S-25
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(Unaudited)
| • | Market adjustment on the common share issuance to the seller reflecting the difference in the share price of our common shares used for determining the number of shares issued to LBHI ($58.75) and the actual price as of November 28, 2012 ($55.18), resulting in a decrease of $123.1 million; |
| • | corporate cash assumed from Archstone resulting in a decrease of $123.7 million; and |
| • | historical net equity value with respect to the working capital assumed resulting in a decrease of $65.3 million. |
| e. | Reflects the reclassification of a portion of land and construction-in-progress acquired consistent with the Company’s classification. |
| f. | Reflects the reclassification of a portion of land and construction-in-progress acquired consistent with the Company’s classification. |
| g. | Reflects the excess cash drawn from the bridge loan for miscellaneous transaction closing costs. |
| h. | Reflects proceeds from a $1.04 billion equity offering by the Company as part of the financing for the transaction. In conjunction with the equity offering, underwriting and other fees are estimated at $31.8 million which will reduce the proceeds received. |
| i. | Reflects the assumption of an estimated $123.7 million in Archstone corporate cash. |
| j. | Reflects the aggregate loan proceeds of $1.58 billion resulting from a $750.0 million draw on the existing line of credit and funding from the bridge loan in the amount of $830.0 million which terminates 364 days after funding. Loan fundings may not materialize or could be reduced by asset sales completed prior to close of this transaction. The Company is currently marketing a significant number of assets for sale which could reduce the need for debt financing. |
| k. | Reflects the use of cash raised noted above in notes (4h, i, j) for the acquisition. |
| l. | Reflects the fair value of the real estate, lease intangibles and debt assumed for the Company’s ownership interest in 9 unconsolidated properties (including development), at varying ownership percentages. |
| m. | Reflects the fair value of the real estate, lease intangibles and debt assumed for the Company’s 60% ownership interest in the joint ventures with AVB. These amounts take into account 807 wholly owned German apartment units and a 16.5% interest in a German Fund owning over 12,000 additional apartment units. |
| n. | Reflects the estimated $72.8 million of financing costs associated with the assumption of existing debt discussed in note (4p) and the $1.58 billion in proceeds discussed in note (4q and r) which will be amortized over a weighted average of 5.1 years. The bridge loan is for a term of 364 days. |
| o. | Reflects the estimated purchase price allocation at fair value to the intangible value of below market ground and above market retail lease intangibles of $167.6 million and $2.3 million, respectively. |
S-26
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(Unaudited)
| p. | Reflects the assumption of $5.0 billion in mortgage debt. Total principal assumed consisted of the following components: $2.9 billion of fixed rate mortgages, $1.8 billion of variable rate tax exempt bonds and mortgages and the fair market value adjustment of $311.0 million. The fixed rate mortgages have interest rates ranging from 3.12% to 6.26%. The variable rate tax exempt bonds have interest rates ranging from SIFMA + 0.81% to SIFMA + 1.517%. The variable rate mortgages have interest rates ranging from LIBOR + 2.95% to LIBOR + 3.50%. |
| q. | Reflects the estimated loan proceeds of funding the bridge loan in the amount of $830.0 million which terminates 364 days after funding. |
| r. | Reflects the estimated loan proceeds of a $750.0 million draw on the existing line of credit. |
| s. | Reflects the estimated purchase price allocation at fair value to the intangible value of above market ground and below market retail leases of $2.4 million and $9.0 million, respectively. |
| t. | Reflects the assumption of $198.0 million liquidation value of preferred shares assumed as part of this transaction in a 60% owned unconsolidated joint venture with AVB. The stated dividend rates range from 6.00% to 7.66%. |
| u. | Reflects the issuance of 34.5 million shares of the Company’s common shares at par value of $0.01 per share. See note (4w) below. |
| v. | Reflects the assumed issuance of 19.0 million shares of the Company’s common shares at par value of $0.01 per share. See note (4x) below. |
| w. | Reflects the $1.9 billion recording of additional paid in capital as a result of the issuance of 34.5 million shares of the Company’s common shares directly to LBHI as partial consideration in this transaction. The shares were valued using the closing share price of $55.18 as of November 28, 2012. See also note (4d) above. A change of $5 in the price of our common shares impacts the value recorded by $172.3 million. |
| x. | Reflects the $1.008 billion (net of fees) recording of additional paid in capital as a result of the assumed $1.04 billion equity offering planned as part of the transaction. We used the issue price of $54.75 for our valuation. |
| y. | Reflects adjustment to eliminate the historical equity balance of the Archstone properties with the net offset of $65.3 million noted above in (4d). |
| z. | Reflects $81.1 million of estimated transaction costs the Company will incur in order to complete the acquisition. The estimated transaction costs are not included in the pro forma condensed consolidated statement of operations for the year ended December 31, 2011 as they represent a non-recurring charge that results directly from the acquisition and will be included in the consolidated financial results of the Company within twelve months of the transaction. |
| aa. | Reflects the reallocation of total equity and Noncontrolling Interests – Operating Partnership based on the Noncontrolling Interests – Operating Partnership ownership of Equity Residential. |
Reflects the reallocation of total capital and limited partners interest based on the limited partners ownership of ERP Operating Limited Partnership.
S-27
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2012
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations
Pursuant to the Archstone Portfolio acquisition there are certain transaction costs that will be paid at or near closing. These costs are not included in the pro forma condensed consolidated statement of operations for the nine months ended September 30, 2012 because they represent non-recurring charges that result directly from the transaction and will be included in the consolidated financial results of the Company within twelve months of the transaction.
| 1) | Historical Amounts – Represents the consolidated statements of operations of the Company as contained in the historical consolidated financial statements included in its Form 10-Q as of and for the nine months ended September 30, 2012 previously filed with the Securities and Exchange Commission. |
| 2) | Archstone Historical – Represents the historical combined revenues and certain expenses of the properties to be acquired for Archstone’s period of ownership during the nine months ended September 30, 2012 attributable to the acquisition of the Archstone Portfolio as if the acquisition had occurred on January 1, 2011. |
| 3) | Unconsolidated Assets – Represents removal of the historical combined revenues and certain expenses acquired for unconsolidated entities included in the Archstone Portfolio at full ownership for Archstone’s period of ownership with respect to the Company’s anticipated 60% ownership interest in the unconsolidated joint ventures with AVB during the nine months ended September 30, 2012. The amounts removed and the loss (income) from investments in unconsolidated entities recorded are attributable to the acquisition of the interests in the Unconsolidated Assets as if the acquisition had occurred on January 1, 2011. The loss (income) from investments in unconsolidated entities is based on the Company’s share of earnings and reflects its actual ownership in the unconsolidated entities. |
| a) | Reflects the $(0.3) million (loss) from investments in unconsolidated entities. |
| 4) | Joint Venture – The Company will have an unconsolidated 60% interest in joint ventures with AVB. These joint ventures will hold certain assets neither partner intends to own and these assets are held for sale. Represents the pro forma loss (income) from investments in unconsolidated entities for Archstone’s period of ownership during the nine months ended September 30, 2012. |
| a) | Reflects the $(44.3) million (loss) from investments in unconsolidated entities. |
| 5) | Transaction – in connection with the transaction, we have made the following adjustments for the nine months ended September 30, 2012: |
| a) | Rental income of $0.7 million relates to the amortization of $6.7 million in net below market retail leases to be assumed in the transaction. The below market retail leases are amortized over a weighted average life of seven years. |
| b) | Property and maintenance expense of $3.2 million relates to the amortization of $165.2 million in net below market ground leases to be assumed in the transaction. The below market ground leases are amortized over the term of the respective ground leases to which they relate having expirations ranging from 2042 – 2092. |
S-28
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2012
(Unaudited)
| c) | Depreciation expense of $164.1 million is calculated based on the fair value of the real estate related assets purchased as detailed below (amounts in thousands except for depreciable lives): |
| Asset |
Basis | Weighted Average Depreciable Life |
Nine Months Ended 9/30/12 Expense |
|||||||
| Building |
$ | 5,999,639 | 30 Years | $ | 149,991 | |||||
| Site Improvements |
94,730 | 15 Years | 4,736 | |||||||
| FF&E |
62,320 | 5 Years | 9,348 | |||||||
| In-Place Leases |
316,870 | 6 Months | — | |||||||
|
|
|
|
|
|||||||
| Total |
$ | 6,473,559 | $ | 164,075 | ||||||
|
|
|
|
|
|||||||
| d) | Other expenses of $1.9 million reflects the elimination of historical charges related to this transaction that are not expected to recur. |
| e) | Reflects the $144.6 million of interest expense related to debt that will be assumed or incurred as a result of or to finance this transaction. The components of interest expense are detailed below (amounts in thousands except for interest rates): |
| Debt Type |
Principal | Interest Rate Range | Interest Ended 9/30/12 Expense |
|||||||
| Fixed Rate Mortgages Assumed |
$ | 2,901,756 | 3.12% - 6.26% | $ | 130,067 | |||||
| Variable Rate Mortgages Assumed |
1,835,134 | SIFMA + 0.81% - 1.517% LIBOR + 2.95% - 3.50% |
43,240 | |||||||
| FMV Mortgages Assumed |
310,969 | n/a | (46,524 | ) | ||||||
| Line of Credit |
1,500,000 | LIBOR + 1.15% | 16,969 | |||||||
| Term Loan |
80,000 | LIBOR + 1.15% | 868 | |||||||
|
|
|
|
|
|||||||
| Total |
$ | 6,627,859 | $ | 144,620 | ||||||
|
|
|
|
|
|||||||
For purposes of calculating the estimated 2012 interest, we assumed a LIBOR rate of 0.30% and a SIFMA rate of 0.20%. If the above-mentioned benchmark rates were to fluctuate by 1/8%, our year to date interest expense with respect to this transaction would vary by approximately $1.7 million. The fair market value adjustment on the assumed debt was amortized using the straight line method over the respective maturity dates with an average life of 8.5 years.
With the bridge loan expiring as of December 31, 2011, the Company replaced the borrowing utilizing two sources: $750.0 million on the line of credit after an expected increase in the capacity, bringing the total commitment on the line of credit to $2.5 billion, and $80.0 million on a new Term Loan with a four year maturity. We assumed the same interest rate of LIBOR + 1.15% for both the line of credit upsizing and the term loan. If the above-mentioned benchmark rates were to fluctuate by 1/8%, our year to date interest expense would vary by approximately $1.5 million.
S-29
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2012
(Unaudited)
| f) | Reflects $11.6 million of amortization of estimated financing costs applicable to assuming mortgages and increasing the revolver availability and the term loan. Financing costs are amortized to interest expense over the expected life of the new loan agreements (weighted average of 4.7 years) using the straight-line method, which approximates the effective interest method. |
| g) | Reflects $9.4 million of accrued but unpaid distributions related to preferred shares assumed as part of this transaction in a 60% owned unconsolidated joint venture. |
| h) | Historical basic and diluted weighted average common shares outstanding of 300.1 million and 317.3 million, respectively, for Equity Residential should be adjusted to include the 34.5 million shares issued to LBHI in order to complete the transaction (see note (4u) on the Pro Forma Balance Sheet) and the 19.0 million shares issued to the public due to the equity offering (see note (4v) on the Pro Forma Balance Sheet). |
Historical basic and diluted weighted average units outstanding of 313.9 million and 317.3 million, respectively, for ERP Operating Liming Partnership should be adjusted to include the 34.5 million shares issued to LBHI in order to complete the transaction (see note (4u) on the Pro Forma Balance Sheet) and the 19.0 million shares issued to the public due to the equity offering (see note (4v) on the Pro Forma Balance Sheet). ERP Operating Limited Partnership will issue one unit to Equity Residential for each common share issued by Equity Residential to maintain the one-for-one relationship between common shares and units.
| (6) | Reflects the allocation of results between the controlling interests and the Noncontrolling Interests – Operating Partnership based on the Noncontrolling Interests – Operating Partnership weighted average ownership of 4.49% of Equity Residential for the nine months ended September 30, 2012. |
S-30
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2011
(Unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Operations
Pursuant to the Archstone Portfolio acquisition there are certain transaction costs that will be paid at or near closing. These costs are not included in the pro forma condensed consolidated statement of operations for the year ended December 31, 2011 because they represent non-recurring charges that result directly from the transaction and will be included in the consolidated financial results of the Company within twelve months of the transaction.
| 1) | Historical Amounts – Represents the consolidated statements of operations of the Company as contained in the historical consolidated financial statements included in its Form 8-K filed on June 13, 2012 with the Securities and Exchange Commission. |
| 2) | Discontinued Operations – Represents the discontinued operations for the year ended December 31, 2011 attributable to properties sold by the Company in the second and third quarters of 2012. |
| 3) | Archstone Historical – Represents the historical combined revenues and certain expenses of the properties to be acquired for Archstone’s period of ownership for the year ended December 31, 2011 attributable to the acquisition of the Archstone Portfolio as if the acquisition had occurred on January 1, 2011. |
| 4) | Unconsolidated Assets – Represents removal of the historical combined revenues and certain expenses acquired for unconsolidated entities included in the Archstone Portfolio at full ownership for Archstone’s period of ownership with respect to the Company’s anticipated 60% ownership interest in the unconsolidated joint ventures with AVB for the year ended December 31, 2011. The amounts removed and the loss (income) from investments in unconsolidated entities recorded are attributable to the acquisition of the interests in the Unconsolidated Assets as if the acquisition had occurred on January 1, 2011. The loss (income) from investments in unconsolidated entities is based on the Company’s share of earnings and reflects its actual ownership in the unconsolidated entities. |
| a) | Reflects the $(11.9) million (loss) from investments in unconsolidated entities. |
| 5) | Joint Venture – The Company will have an unconsolidated 60% interest in joint ventures with AVB. These joint ventures will hold certain assets neither partner intends to own and these assets are held for sale. Represents the pro forma loss (income) from investments in unconsolidated entities for Archstone’s period of ownership for the year ended December 31, 2011. |
| a) | Reflects the $(78.1) million (loss) from investments in unconsolidated entities. |
| 6) | Transaction – in connection with the transaction, we have made the following adjustments for the year ended December 31, 2011: |
| a) | Rental income of $1.0 million relates to the amortization of $6.7 million in net below market retail leases to be assumed in the transaction. The below market retail leases are amortized over a weighted average life of seven years. |
| b) | Property and maintenance expense of $4.3 million relates to the amortization of $165.2 million in net below market ground leases to be assumed in the transaction. The below market ground leases are amortized over the term of the respective ground leases to which they relate having expirations ranging from 2042 – 2092. |
S-31
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2011
(Unaudited)
| c) | Depreciation expense of $535.6 million is calculated based on the fair value of the real estate related assets purchased as detailed below (amounts in thousands except for depreciable lives): |
| Asset |
Basis | Weighted Average Depreciable Life |
Year Ended 12/31/11 Expense |
|||||||
| Building |
$ | 5,999,639 | 30 Years | $ | 199,988 | |||||
| Site Improvements |
94,730 | 15 Years | 6,315 | |||||||
| FF&E |
62,320 | 5 Years | 12,464 | |||||||
| In-Place Leases |
316,870 | 6 Months | 316,870 | |||||||
|
|
|
|
|
|||||||
| Total |
$ | 6,473,559 | $ | 535,637 | ||||||
|
|
|
|
|
|||||||
| d) | Other expenses of $1.7 million reflects the elimination of historical charges related to this transaction that are not expected to recur. |
| e) | Reflects the $198.5 million of interest expense related to debt that will be assumed or incurred as a result of or to finance this transaction. The components of interest expense are detailed below (amounts in thousands except for interest rates): |
| Debt Type |
Principal | Interest Rate Range | Interest Ended 12/31/11 Expense |
|||||||
| Fixed Rate Mortgages Assumed |
$ | 2,901,756 | 3.12% - 6.26% | $ | 173,423 | |||||
| Variable Rate Mortgages Assumed |
1,835,134 | SIFMA + 0.81% - 1.517% LIBOR + 2.95% - 3.50% |
57,172 | |||||||
| FMV Mortgages Assumed |
310,969 | n/a | (62,893 | ) | ||||||
| Line of Credit |
750,000 | LIBOR + 1.15% | 10,845 | |||||||
| Bridge |
830,000 | LIBOR + 1.15% | 19,980 | |||||||
|
|
|
|
|
|||||||
| Total |
$ | 6,627,859 | $ | 198,527 | ||||||
|
|
|
|
|
|||||||
For purposes of calculating the estimated 2011 interest, we assumed a LIBOR rate of 0.30% and a SIFMA rate of 0.20%. If the above-mentioned benchmark rates were to fluctuate by 1/8%, our year to date interest expense with respect to this transaction would vary by approximately $2.28 million. The fair market value adjustment on the assumed debt was amortized using the straight line method over the respective maturity dates with an average life of 8.5 years.
The financing to complete the transaction was achieved using a $750.0 million draw on the existing line of credit and funding the bridge loan in the amount of $830.0 million which terminates 364 days after funding. We used the current interest rate of LIBOR + 1.15% on the line of credit and the bridge loan to calculate estimated interest. If the above-mentioned benchmark rates were to fluctuate by 1/8%, our year to date interest expense would vary by approximately $2.0 million.
| f) | Reflects $42.4 million of amortization of estimated financing costs applicable to assuming mortgages and draws on the existing line of credit and bridge loan. Financing costs are amortized to interest expense over the expected life of the new loan agreements (weighted average of 4.7 years) using the straight-line method, which approximates the effective interest method. |
S-32
EQUITY RESIDENTIAL
ERP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2011
(Unaudited)
| g) | Reflects $12.5 million of accrued but unpaid distributions related to preferred shares assumed as part of this transaction in a 60% owned unconsolidated joint venture. |
| h) | Historical basic weighted average common shares outstanding of 294.9 million for Equity Residential should be adjusted to include the 34.5 million shares issued to LBHI in order to complete the transaction (see note (4u) on the Pro Forma Balance Sheet) and the 19.0 million shares issued to the public due to the equity offering (see note (4v) on the Pro Forma Balance Sheet). We did not adjust the number of diluted shares outstanding as it would be antidilutive. |
Historical basic weighted average units outstanding of 308.1 million for ERP Operating Limited Partnership should be adjusted to include the 34.5 million shares issued to LBHI in order to complete the transaction (see note (4u) on the Pro Forma Balance Sheet) and the 19.0 million shares issued to the public due to the equity offering (see note (4v) on the Pro Forma Balance Sheet). We did not adjust the number of diluted units outstanding as it would be antidilutive. ERP Operating Limited Partnership will issue one unit to Equity Residential for each common share issued by Equity Residential to maintain the one-for-one relationship between common shares and units.
| (7) | Reflects the allocation of results between the controlling interests and the Noncontrolling Interests – Operating Partnership based on the Noncontrolling Interests – Operating Partnership weighted average ownership of 4.43% of Equity Residential for the year ended December 31, 2011. |
S-33