Sep. 30, 2009 (Business Wire) -- Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) and outstanding credit ratings of Equity Residential (NYSE: EQR) and ERP Operating Limited Partnership, EQR's principal operating subsidiary, as follows:

Equity Residential

-- IDR at 'A-';

-- $200 million preferred stock at 'BBB+';

-- $9 million convertible preferred stock at 'BBB+'.

ERP Operating Limited Partnership

-- IDR at 'A-';

-- $4.4 billion senior unsecured notes at 'A-';

-- $531 million exchangeable senior notes at 'A-'.

The Rating Outlook has been revised to Negative from Stable.

The rating affirmations center on EQR's solid franchise, consistent cash flow coverage metrics and strong liquidity management. Franchise strength is evident in EQR's broad geographic diversification, focus on longer-term high growth markets, demonstrated access to multiple forms of capital, consistent operating strategy and an adequate level of unencumbered assets.

The Negative Outlook reflects that leverage, measured by net debt / recurring operating EBITDA, and fixed charge coverage are likely to worsen given continued weakness in property-level fundamentals over the next 18 months. Absent deleveraging, fixed charge coverage will likely trend below 2.0 times (x) and leverage will likely increase above 8.0x, metrics which are more appropriate for an IDR below 'A-'.

EQR's ratings are indicative of cash flow granularity, as each of EQR's top 10 markets generated net operating income (NOI) between 4.5% and 10.1% of total second quarter 2009 (2Q '09) NOI. Fitch views EQR's operating strategy of focusing on owning assets in supply-constrained, coastal destination markets, particularly given the slowdown in multifamily fundamentals, as a credit positive. These markets tend to exhibit relatively strong and consistent demand, a dearth of buildable land and high construction costs, curtailing substantial supply growth.

For the 12 months ended June 30, 2009, EQR maintained solid and consistent coverage, as reflected by its fixed charge coverage (recurring operating EBITDA less capital improvements divided by interest incurred and preferred distributions) ratio of 2.0x, as compared with 1.9x for the year ended Dec. 31, 2008. Fitch anticipates that this ratio will likely decline below 2.0x by the end of 2009 and into 2010 absent the company deleveraging.

EQR continues to maintain an adequate level of unencumbered assets that provides solid coverage of unsecured debt for the rating category. Per the company's bank covenant calculations, EQR's unencumbered assets covered unsecured debt by 2.4x and 2.2x as of June 30, 2009 and Dec. 31, 2008, respectively, up from 2.1x as of Dec. 31, 2007.

Fitch notes that EQR's net debt to recurring operating EBITDA as of June 30, 2009 was 7.4x, down from 7.7x and 8.0x as of Dec.