**UNITEDSTATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**x  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15 (d) OF**

**THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period endedSEPTEMBER 30, 2007**

 

**OR**

 

**o  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15 (d) OF**

**THESECURITIES EXCHANGE ACT OF 1934**

 

**Commission File Number: 0-24920**

 

**ERP OPERATING LIMITED PARTNERSHIP**

(ExactName of Registrant as Specified in its Charter)

 

| **Illinois**                                                   | ** ** | **36-3894853**                       |
|----------------------------------------------------------------|------------|--------------------------------------|
| (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’sTelephone Number, Including Area Code)

 

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes  x      No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct.  Large accelerated filer  x      Accelerated filer  o       Non-accelerated filer  o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes  o      No  x

 

 

 

----

** **

**ERPOPERATING LIMITED PARTNERSHIP**

**CONSOLIDATEDBALANCE SHEETS**

**(Amountsin thousands)**

**(Unaudited)**

 

 
| ** **                                               | ** ** | **September 30,  2007** | ** **     | **December 31,  2006** | ** ** |
|----------------------------------------------------------|------------|-------------------------|----------------|------------------------|------------|
| **ASSETS**                                               | ** ** | ** **              | ** **     | ** **             | ** ** |
| Investment in real estate                                |       |                    |           |                   |       |
| Land                                                     |       | $                       | 3,610,743      |                   | $          | 3,217,672 |   |
| Depreciable property                                     |       | 13,557,202              |           | 13,376,359             |       |
| Projects under development                               |       | 539,009                 |           | 403,216                |       |
| Land held for development                                |       | 395,550                 |           | 237,928                |       |
| Investment in real estate                                |       | 18,102,504              |           | 17,235,175             |       |
| Accumulated depreciation                                 |       | (3,064,347              | )              | (3,022,480             | )          |
| Investment in real estate, net                           |       | 15,038,157              |           | 14,212,695             |       |
|                                                     |       |                    |           |                   |       |
| Cash and cash equivalents                                |       | 62,734                  |           | 260,277                |       |
| Investments in unconsolidated entities                   |       | 3,535                   |           | 4,448                  |       |
| Deposits — restricted                               |       | 449,672                 |           | 391,825                |       |
| Escrow deposits — mortgage                          |       | 23,042                  |           | 25,528                 |       |
| Deferred financing costs, net                            |       | 56,227                  |           | 43,384                 |       |
| Other assets                                             |       | 156,218                 |           | 124,062                |       |
| **Total assets**                                         | ** ** | **$**                   | **15,789,585** | ** **             | **$**      | **15,062,219** | ** ** |
|                                                     |       |                    |           |                   |       |
| **LIABILITIES AND PARTNERS’ CAPITAL**               | ** ** | ** **              | ** **     | ** **             | ** ** |
| Liabilities:                                             |       |                    |           |                   |       |
| Mortgage notes payable                                   |       | $                       | 3,576,301      |                   | $          | 3,178,223 |   |
| Notes, net                                               |       | 5,311,232               |           | 4,419,433              |       |
| Lines of credit                                          |       | 640,000                 |           | 460,000                |       |
| Accounts payable and accrued expenses                    |       | 154,363                 |           | 96,699                 |       |
| Accrued interest payable                                 |       | 89,922                  |           | 91,172                 |       |
| Other liabilities                                        |       | 314,696                 |           | 311,557                |       |
| Security deposits                                        |       | 62,196                  |           | 58,072                 |       |
| Distributions payable                                    |       | 137,259                 |           | 151,382                |       |
| **Total liabilities**                                    | ** ** | **10,285,969**          | ** **     | **8,766,538**          | ** ** |
| ** **                                               | ** ** | ** **              | ** **     | ** **             | ** ** |
| *Commitments and contingencies*                          | * *   | * *                | * *       | * *               | * *   |
| **Minority Interests — Partially Owned Properties** | ** ** | **26,879**              | ** **     | **26,814**             | ** ** |
|                                                     |       |                    |           |                   |       |
| Partners’ capital:                                  |       |                    |           |                   |       |
| Preference Units                                         |       | 210,357                 |           | 386,574                |       |
| Preference Interests and Junior Preference Units         |       | 184                     |           | 11,684                 |       |
| General Partner                                          |       | 4,937,243               |           | 5,511,658              |       |
| Limited Partners                                         |       | 337,613                 |           | 372,961                |       |
| Accumulated other comprehensive loss                     |       | (8,660                  | )              | (14,010                | )          |
| **Total partners’ capital**                         | ** ** | **5,476,737**           | ** **     | **6,268,867**          | ** ** |
| **Total liabilities and partners’ capital**         | ** ** | **$**                   | **15,789,585** | ** **             | **$**      | **15,062,219** | ** ** |

 

 

**See accompanying notes**

 

2

----

 

**ERPOPERATING LIMITED PARTNERSHIP**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Amountsin thousands except per OP Unit data)**

**(Unaudited)**

 
| ** **                                                                                                                                                                                             | ** ** | **Nine Months Ended September 30,** | ** ** | **Quarter Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                             | ** ** | **2007**                            | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| **REVENUES**                                                                                                                                                                                           | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental income                                                                                                                                                                                          |       | $                                   | 1,517,357  |                            | $          | 1,329,578 |   | $ | 525,222 |   | $ | 463,279 |   |
| Fee and asset management                                                                                                                                                                               |       | 6,937                               |       | 6,878                           |       | 2,234 |   | 2,071 |   |
|                                                                                                                                                                                                   |       |                                |       |                            |       |   |   |   |   |
| Total revenues                                                                                                                                                                                         |       | 1,524,294                           |       | 1,336,456                       |       | 527,456 |   | 465,350 |   |
|                                                                                                                                                                                                   |       |                                |       |                            |       |   |   |   |   |
| **EXPENSES**                                                                                                                                                                                           | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property and maintenance                                                                                                                                                                               |       | 399,863                             |       | 350,752                         |       | 139,363 |   | 124,877 |   |
| Real estate taxes and insurance                                                                                                                                                                        |       | 160,458                             |       | 129,648                         |       | 53,452 |   | 46,006 |   |
| Property management                                                                                                                                                                                    |       | 68,956                              |       | 70,079                          |       | 21,694 |   | 23,418 |   |
| Fee and asset management                                                                                                                                                                               |       | 6,604                               |       | 6,477                           |       | 2,100 |   | 2,151 |   |
| Depreciation                                                                                                                                                                                           |       | 441,517                             |       | 374,007                         |       | 151,103 |   | 129,467 |   |
| General and administrative                                                                                                                                                                             |       | 34,651                              |       | 35,875                          |       | 13,137 |   | 13,522 |   |
| Impairment                                                                                                                                                                                             |       | 1,020                               |       | 1,718                           |       | 626 |   | 913 |   |
| Total expenses                                                                                                                                                                                         |       | 1,113,069                           |       | 968,556                         |       | 381,475 |   | 340,354 |   |
| Operating income                                                                                                                                                                                       |       | 411,225                             |       | 367,900                         |       | 145,981 |   | 124,996 |   |
| Interest and other income                                                                                                                                                                              |       | 12,350                              |       | 11,538                          |       | 6,125 |   | 7,299 |   |
| Interest:                                                                                                                                                                                              |       |                                |       |                            |       |   |   |   |   |
| Expense incurred, net                                                                                                                                                                                  |       | (361,879                            | )          | (312,206                        | )          | (128,964 | ) | (108,968 | ) |
| Amortization of deferred financing costs                                                                                                                                                               |       | (8,191                              | )          | (6,254                          | )          | (2,036 | ) | (1,882 | ) |
| Income before allocation to Minority Interests, income (loss) from  investments in unconsolidated entities, net gain on sales of unconsolidated  entities and land parcels and discontinued operations |       | 53,505                              |       | 60,978                          |       | 21,106 |   | 21,445 |   |
| Allocation to Minority Interests — Partially Owned Properties                                                                                                                                     |       | (997                                | )          | (2,550                          | )          | (218 | ) | (482 | ) |
| Income (loss) from investments in unconsolidated entities                                                                                                                                              |       | 185                                 |       | (565                            | )          | 548 |   | (190 | ) |
| Net gain on sales of unconsolidated entities                                                                                                                                                           |       | 2,629                               |       | 370                             |       | 2,629 |   | 18 |   |
| Net gain on sales of land parcels                                                                                                                                                                      |       | 5,230                               |       | 3,183                           |       | 714 |   | 2,937 |   |
| Income from continuing operations                                                                                                                                                                      |       | 60,552                              |       | 61,416                          |       | 24,779 |   | 23,728 |   |
| Discontinued operations, net                                                                                                                                                                           |       | 863,204                             |       | 589,323                         |       | 463,800 |   | 50,301 |   |
| Net income                                                                                                                                                                                             |       | $                                   | 923,756    |                            | $          | 650,739 |   | $ | 488,579 |   | $ | 74,029 |   |
| ** **                                                                                                                                                                                             | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **ALLOCATION OF NET INCOME:**                                                                                                                                                                          | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Preference Units                                                                                                                                                                                       |       | $                                   | 19,157     |                            | $          | 29,682 |   | $ | 4,317 |   | $ | 9,514 |   |
| Preference Interests and Junior Preference Units                                                                                                                                                       |       | $                                   | 437        |                            | $          | 1,779 |   | $ | 3 |   | $ | 223 |   |
| Premium on redemption of Preference Units                                                                                                                                                              |       | $                                   | 6,144      |                            | $          | 3,941 |   | $ | 6,144 |   | $ | 3,941 |   |
| Premium on redemption of Preference Interests                                                                                                                                                          |       | $                                   | —     |                            | $          | 684 |   | $ | — |   | $ | 1 |   |
| ** **                                                                                                                                                                                             | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| General Partner                                                                                                                                                                                        |       | $                                   | 841,044    |                            | $          | 574,160 |   | $ | 447,246 |   | $ | 56,356 |   |
| Limited Partners                                                                                                                                                                                       |       | 56,974                              |       | 40,493                          |       | 30,869 |   | 3,994 |   |
| Net income available to OP Units                                                                                                                                                                       |       | $                                   | 898,018    |                            | $          | 614,653 |   | $ | 478,115 |   | $ | 60,350 |   |
| ** **                                                                                                                                                                                             | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Earnings per OP Unit — basic:**                                                                                                                                                                 | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from continuing operations available to OP Units                                                                                                                                                |       | $                                   | 0.12       |                            | $          | 0.08 |   | $ | 0.05 |   | $ | 0.03 |   |
| Net income available to OP Units                                                                                                                                                                       |       | $                                   | 2.97       |                            | $          | 1.98 |   | $ | 1.64 |   | $ | 0.19 |   |
| Weighted average OP Units outstanding                                                                                                                                                                  |       | 301,987                             |       | 310,012                         |       | 290,977 |   | 310,671 |   |
| ** **                                                                                                                                                                                             | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Earnings per OP Unit — diluted:**                                                                                                                                                               | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from continuing operations available to OP Units                                                                                                                                                |       | $                                   | 0.11       |                            | $          | 0.08 |   | $ | 0.05 |   | $ | 0.03 |   |
| Net income available to OP Units                                                                                                                                                                       |       | $                                   | 2.93       |                            | $          | 1.95 |   | $ | 1.62 |   | $ | 0.19 |   |
| Weighted average OP Units outstanding                                                                                                                                                                  |       | 306,052                             |       | 314,982                         |       | 294,331 |   | 315,886 |   |
|                                                                                                                                                                                                   |       |                                |       |                            |       |   |   |   |   |
| Distributions declared per OP Unit outstanding                                                                                                                                                         |       | $                                   | 1.3875     |                            | $          | 1.3275 |   | $ | 0.4625 |   | $ | 0.4425 |   |

 

**See accompanying notes**

 

 

3

----

 

**ERPOPERATING LIMITED PARTNERSHIP**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS (Continued)**

**(Amountsin thousands except per OP Unit data)**

**(Unaudited)**

 
| ** **                                                                 | ** ** | **Nine Months Ended September 30,** | ** ** | **Quarter Ended September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                            | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                       |       |                                |       |                            |       |   |   |   |   |
| Comprehensive income:                                                      |       |                                |       |                            |       |   |   |   |   |
| Net income                                                                 |       | $                                   | 923,756    |                            | $          | 650,739 |   | $ | 488,579 |   | $ | 74,029 |   |
| Other comprehensive income (loss) — derivative and other instruments: |       |                                |       |                            |       |   |   |   |   |
| Unrealized holding gains (losses) arising during the period                |       | 3,849                               |       | (1,843                          | )          | (2,242 | ) | (4,252 | ) |
| Losses reclassified into earnings from other comprehensive income          |       | 1,501                               |       | 1,689                           |       | 449 |   | 553 |   |
| Comprehensive income                                                       |       | $                                   | 929,106    |                            | $          | 650,585 |   | $ | 486,786 |   | $ | 70,330 |   |

 

 

**See accompanying notes**

 

4

----

 

**ERPOPERATING LIMITED PARTNERSHIP**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Amountsin thousands)**

**(Unaudited)**

 

 
| ** **                                                                           | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                           | ** ** | **2007**                            | ** ** | **2006** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                            | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Net income                                                                           |       | $                                   | 923,756    |   | $ | 650,739 |   |
| *Adjustments to reconcile net income to net cash  provided by operating activities:* | * *   | * *                            | * *   | * * | * * |
| Allocation to Minority Interests — Partially Owned Properties                   |       | 997                                 |       | 2,550 |   |
| Depreciation                                                                         |       | 466,035                             |       | 440,727 |   |
| Amortization of deferred financing costs                                             |       | 9,520                               |       | 7,092 |   |
| Amortization of discounts and premiums on debt                                       |       | (3,835                              | )          | (5,100 | ) |
| Amortization of deferred settlements on derivative instruments                       |       | 466                                 |       | 628 |   |
| Impairment                                                                           |       | 1,020                               |       | 2,069 |   |
| (Income) from technology investments                                                 |       | —                              |       | (3,736 | ) |
| (Income) loss from investments in unconsolidated entities                            |       | (185                                | )          | 565 |   |
| Distributions from unconsolidated entities — return on capital                  |       | 76                                  |       | 138 |   |
| Net (gain) on sales of unconsolidated entities                                       |       | (2,629                              | )          | (370 | ) |
| Net (gain) on sales of land parcels                                                  |       | (5,230                              | )          | (3,183 | ) |
| Net (gain) on sales of discontinued operations                                       |       | (848,495                            | )          | (522,328 | ) |
| Loss on debt extinguishments                                                         |       | 3,339                               |       | 2,901 |   |
| Unrealized (gain) on derivative instruments                                          |       | (1                                  | )          | (12 | ) |
| Compensation paid with EQR Common Shares                                             |       | 14,963                              |       | 18,401 |   |
| Other operating activities, net                                                      |       | 164                                 |       | 554 |   |
| * *                                                                             | * *   | * *                            | * *   | * * | * * |
| *Changes in assets and liabilities:*                                                 | * *   | * *                            | * *   | * * | * * |
| Decrease (increase) in deposits — restricted                                    |       | 1,509                               |       | (10,441 | ) |
| (Increase) decrease in other assets                                                  |       | (2,176                              | )          | 10,568 |   |
| Increase in accounts payable and accrued expenses                                    |       | 41,691                              |       | 35,659 |   |
| (Decrease) in accrued interest payable                                               |       | (1,250                              | )          | (5,422 | ) |
| (Decrease) in other liabilities                                                      |       | (15,023                             | )          | (45,453 | ) |
| Increase in security deposits                                                        |       | 4,124                               |       | 8,743 |   |
| Net cash provided by operating activities                                            |       | 588,836                             |       | 585,289 |   |
|                                                                                 |       |                                |       |   |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                            | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Investment in real estate — acquisitions                                        |       | (1,575,814                          | )          | (1,399,339 | ) |
| Investment in real estate — development/other                                   |       | (327,936                            | )          | (193,601 | ) |
| Improvements to real estate                                                          |       | (185,301                            | )          | (181,226 | ) |
| Additions to non-real estate property                                                |       | (5,962                              | )          | (7,278 | ) |
| Interest capitalized for real estate under development                               |       | (30,753                             | )          | (13,176 | ) |
| Proceeds from disposition of real estate, net                                        |       | 1,824,979                           |       | 1,066,894 |   |
| Proceeds from disposition of unconsolidated entities                                 |       | —                              |       | 373 |   |
| Proceeds from technology investments                                                 |       | —                              |       | 3,736 |   |
| Investments in unconsolidated entities                                               |       | (191                                | )          | (1,052 | ) |
| Distributions from unconsolidated entities — return of capital                  |       | 13                                  |       | 92 |   |
| Decrease in deposits on real estate acquisitions, net                                |       | 62,674                              |       | 10,303 |   |
| Decrease in mortgage deposits                                                        |       | 2,486                               |       | 3,215 |   |
| *Consolidation of previously Unconsolidated  Properties:*                            | * *   | * *                            | * *   | * * | * * |
| Via EITF 04-5 (cash consolidated)                                                    |       | —                              |       | 1,436 |   |
| Acquisition of Minority Interests — Partially Owned Properties                  |       | —                              |       | (71 | ) |
| Other investing activities, net                                                      |       | 1,200                               |       | 2 |   |
| Net cash (used for) investing activities                                             |       | (234,605                            | )          | (709,692 | ) |
|                                                                                      |            |                                     |            |  |  |  |  |

 

**See accompanying notes**

 

 

5

----

 

**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**

**(Amounts in thousands)**

**(Unaudited)**

 
| ** **                                                                | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                | ** ** | **2007**                            | ** ** | **2006** | ** ** |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                 | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Loan and bond acquisition costs                                           |       | $                                   | (23,118    | ) | $ | (10,159 | ) |
| *Mortgage notes payable:*                                                 | * *   | * *                            | * *   | * * | * * |
| Proceeds                                                                  |       | 646,930                             |       | 247,833 |   |
| Restricted cash                                                           |       | (124,774                            | )          | (19,160 | ) |
| Lump sum payoffs                                                          |       | (348,270                            | )          | (245,895 | ) |
| Scheduled principal repayments                                            |       | (18,536                             | )          | (21,067 | ) |
| Prepayment premiums/fees                                                  |       | (3,339                              | )          | (2,901 | ) |
| *Notes, net:*                                                             | * *   | * *                            | * *   | * * | * * |
| Proceeds                                                                  |       | 993,031                             |       | 1,039,927 |   |
| Lump sum payoffs                                                          |       | (100,000                            | )          | (10,000 | ) |
| Scheduled principal repayments                                            |       | (4,286                              | )          | (4,286 | ) |
| *Lines of credit:*                                                        | * *   | * *                            | * *   | * * | * * |
| Proceeds                                                                  |       | 15,543,000                          |       | 5,351,500 |   |
| Repayments                                                                |       | (15,363,000                         | )          | (5,614,500 | ) |
| Proceeds from settlement of derivative instruments                        |       | 2,370                               |       | 10,729 |   |
| Proceeds from sale of OP Units                                            |       | 5,715                               |       | 6,631 |   |
| Proceeds from exercise of EQR options                                     |       | 10,870                              |       | 50,413 |   |
| OP Units repurchased and retired                                          |       | (1,136,844                          | )          | (83,230 | ) |
| Redemption of Preference Units                                            |       | (175,000                            | )          | (115,000 | ) |
| Redemption of Preference Interests                                        |       | —                              |       | (25,500 | ) |
| Premium on redemption of Preference Units                                 |       | (14                                 | )          | (4 | ) |
| Premium on redemption of Preference Interests                             |       | —                              |       | (10 | ) |
| Payment of offering costs                                                 |       | (175                                | )          | (83 | ) |
| Other financing activities, net                                           |       | (7                                  | )          | — |   |
| Contributions — Minority Interests — Partially Owned Properties |       | 10,600                              |       | 5,830 |   |
| *Distributions:*                                                          | * *   | * *                            | * *   | * * | * * |
| OP Units — General Partner                                           |       | (400,907                            | )          | (384,901 | ) |
| Preference Units                                                          |       | (22,313                             | )          | (31,899 | ) |
| Preference Interests and Junior Preference Units                          |       | (450                                | )          | (1,832 | ) |
| OP Units — Limited Partners                                          |       | (26,955                             | )          | (27,106 | ) |
| Minority Interests — Partially Owned Properties                      |       | (16,302                             | )          | (3,431 | ) |
| Net cash (used for) provided by financing activities                      |       | (551,774                            | )          | 111,899 |   |
| Net (decrease) in cash and cash equivalents                               |       | (197,543                            | )          | (12,504 | ) |
| Cash and cash equivalents, beginning of period                            |       | 260,277                             |       | 88,828 |   |
| Cash and cash equivalents, end of period                                  |       | $                                   | 62,734     |   | $ | 76,324 |   |

 

**See accompanying notes**

** **

 

6

----

 

**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**

**(Amounts in thousands)**

**(Unaudited)**

 

 
| ** **                                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                            | ** ** | **2006** | ** ** |
| ** **                                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| **SUPPLEMENTAL INFORMATION:**                                                      | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Cash paid during the period for interest                                           |       | $                                   | 399,298    |   | $ | 357,109 |   |
| Net cash (received) paid during the period for income, franchise and  excise taxes |       | $                                   | (266       | ) | $ | 11,967 |   |
|                                                                               |       |                                |       |   |   |
| *Real estate acquisitions/dispositions/other:*                                     | * *   | * *                            | * *   | * * | * * |
| Mortgage loans assumed                                                             |       | $                                   | 197,801    |   | $ | 92,528 |   |
| Valuation of OP Units issued                                                       |       | $                                   | —     |   | $ | 49,591 |   |
| Mortgage loans (assumed) by purchaser                                              |       | $                                   | (76,744    | ) | $ | (117,949 | ) |
|                                                                               |       |                                |       |   |   |
| *Consolidation of previously Unconsolidated  Properties — Via EITF 04-5:*     | * *   | * *                            | * *   | * * | * * |
| Investment in real estate, net                                                     |       | $                                   | —     |   | $ | (24,637 | ) |
| Mortgage loans consolidated                                                        |       | $                                   | —     |   | $ | 22,545 |   |
| Investments in unconsolidated entities                                             |       | $                                   | —     |   | $ | 2,602 |   |
| Net other liabilities recorded                                                     |       | $                                   | —     |   | $ | 926 |   |

 

**See accompanying notes**

 

 

7

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** **

**ERPOPERATING LIMITED PARTNERSHIP**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**1.             Business**

 

                ERPOperating Limited Partnership (“ERPOP”), an Illinois limited partnership, wasformed in May 1993 to conduct the multifamily residential property business ofEquity Residential (“EQR”).  EQR, aMaryland real estate investment trust (“REIT”) formed in March 1993, is anS&P 500 company focused on the acquisition, development and management ofhigh quality apartment properties in top United States growth markets.  EQR has elected to be taxed as a REIT.

 

                EQR is the general partner of, and as of September30, 2007 owned an approximate 93.6% ownership interest in, ERPOP.  EQR is structured as an umbrella partnershipREIT (“UPREIT”), under which all property ownership and business operations areconducted through ERPOP and its subsidiaries. References to the “Operating Partnership” include ERPOP and thoseentities owned or controlled by it. References to the “Company” mean EQR and the Operating Partnership.

 

                Asof September 30, 2007, the Operating Partnership, directly or indirectlythrough investments in title holding entities, owned all or a portion of 584****properties in 24 states and the District of Columbiaconsisting of 154,152 units.  Theownership breakdown includes (table does not include various uncompleteddevelopment properties):

 

|                            |   | **Properties** | ** ** | **Units** |
|---------------------------------|--------|----------------|------------|-----------|
| Wholly  Owned Properties        |   | 512            |       | 134,589   |
| Partially  Owned Properties:    |   |           |       |      |
| Consolidated                    |   | 27             |       | 5,455     |
| Unconsolidated                  |   | 44             |       | 10,446    |
| Military  Housing (Fee Managed) |   | 1              |       | 3,662     |
|                            |   | 584            |       | 154,152   |

 

**2.****            ****Summary****of Significant Accounting Policies**

** **

*        Basis of Presentation*

 

                The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation and with the instructions to Form 10-Q and Article 10 of RegulationS-X.  Accordingly, they do not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments(consisting of normal recurring accruals) and certain reclassificationsconsidered necessary for a fair presentation have been included.  Certain reclassifications have been made tothe prior period financial statements in order to conform to the current yearpresentation.  Operating results for thenine months ended September 30, 2007 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2007.

 

                The balance sheet at December 31, 2006 has beenderived from the audited financial statements at that date but does not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements.

 

                For further information, including definitions ofcapitalized terms not defined herein, refer to the consolidated financialstatements and footnotes thereto included in the Operating Partnership’s annualreport on Form 10-K for the year ended December 31, 2006.

 

 

8

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*        Income Taxes*

 

                TheOperating Partnership generally is not liable for federal income taxes as thepartners recognize their proportionate share of the Operating Partnership’sincome or loss in their tax returns; therefore no provision for federal incometaxes has been made at the ERPOP level. Historically, the Operating Partnership has generally only incurredcertain state and local income, excise and franchise taxes.  The Operating Partnership has elected TaxableREIT Subsidiary (“TRS”) status for certain of its corporate subsidiaries,primarily those entities engaged in condominium conversion and corporatehousing activities and as a result, these entities will incur both federal andstate income taxes on any taxable income of such entities.

 

                Deferredtax assets and liabilities are recognized for future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases.  These assets and liabilities are measuredusing enacted tax rates for which the temporary differences are expected to berecovered or settled.  The effect ofdeferred tax assets and liabilities are recognized in earnings in the periodenacted.  As of September 30, 2007, theOperating Partnership has recorded a deferred tax asset, which was fully offsetby a valuation allowance.

 

*       **Other*

 

**               **The Company adopted SFAS No. 123(R), *Share-Based Payment*,as required effective January 1, 2006, which requires all companies to expenseshare-based compensation, such as share options.  As the Company began expensing allshare-based compensation effective January 1, 2003, the adoption of SFAS No.123(R) did not have a material effect on its consolidated statements ofoperations or financial position.

 

                AnyEQR common share of beneficial interest, $0.01 par value per share (the “CommonShares”) issued pursuant to EQR’s incentive equity compensation and employeeshare purchase plans will result in the Operating Partnership issuing units oflimited partnership interest (“OP Units”) to EQR on a one-for-one basis, withthe Operating Partnership receiving the net cash proceeds of such issuances.

 

                TheOperating Partnership adopted the disclosure provisions of SFAS No. 150 and FSPNo. FAS 150-3, *Accounting for Certain Financial Instrumentswith Characteristics of both Liabilities and Equity,* effectiveDecember 31, 2003.  SFAS No. 150 and FSPNo. FAS 150-3 require the Operating Partnership to make certain disclosuresregarding noncontrolling interests that are classified as equity in thefinancial statements of a subsidiary but would be classified as a liability inthe parent’s financial statements under SFAS No. 150 (e.g., minority interestsin consolidated limited-life subsidiaries). The Operating Partnership is presently the controlling partner invarious consolidated partnerships consisting of 27 properties and 5,455 unitsand various uncompleted development properties having a minority interest bookvalue of $26.9 million at September 30, 2007. Some of these partnerships contain provisions that require thepartnerships to be liquidated through the sale of its assets upon reaching adate specified in each respective partnership agreement.  The Operating Partnership, as controllingpartner, has an obligation to cause the property owning partnerships todistribute proceeds of liquidation to the Minority Interests in these PartiallyOwned Properties only to the extent that the net proceeds received by thepartnerships from the sale of its assets warrant a distribution based on thepartnership agreements.  As of September30, 2007, the Operating Partnership estimates the value of Minority Interestdistributions would have been approximately $112.5 million (“Settlement Value”)had the partnerships been liquidated. This Settlement Value is based on estimated third party considerationrealized by the partnerships upon disposition of the Partially Owned Propertiesand is net of all other assets and liabilities, including yield maintenance onthe mortgages encumbering the properties, that would have been due on September30, 2007 had those mortgages been prepaid. Due to, among other things, the inherent uncertainty in the sale of realestate assets, the amount of any potential distribution to the MinorityInterests in the Operating Partnership’s Partially Owned Properties is subjectto change.  To the extent that thepartnerships’ underlying assets are worth less than the underlying liabilities,the Operating Partnership has no obligation to remit any consideration to theMinority Interests in Partially Owned 

 

 

9

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Properties.

 

                TheOperating Partnership adopted EITF Issue No. 04-5, *DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity When the Limited Partners Have CertainRights* (“Issue 04-5”), effective January 1, 2006.  Issue 04-5 provides guidance in determiningwhether a general partner controls a limited partnership.  The Operating Partnership consolidated itsLexford syndicated portfolio consisting of 20 separate partnerships (10properties) containing 1,272 units, all of which were sold October 5,2006.  The adoption did not have amaterial effect on the consolidated results of operations or financialposition.

 

                InJuly 2006, the FASB ratified the consensus in FIN No. 48, *Accountingfor Uncertainty in Income Taxes*. FIN No. 48 creates a single model to address uncertainty in income taxpositions and prescribes a minimum recognition threshold a tax position isrequired to meet before being recognized in the financial statements.  It also provides guidance on derecognition,measurement, classification, interest and penalties, accounting in interimperiods, disclosure and transition, and clearly scopes income taxes out of SFASNo. 5, *Accounting for Contingencies*.  The Operating Partnership adopted FIN No. 48as required effective January 1, 2007. The adoption of FIN No. 48 did not have a material effect on theconsolidated results of operations or financial position.

 

                InSeptember 2006, the FASB issued SFAS No. 157, *Fair ValueMeasurements*.  SFAS No. 157defines fair value, establishes a framework for measuring fair value inaccordance with accounting principles generally accepted in the United Statesand expands disclosure about fair value measurements.  The Operating Partnership will adopt SFAS No.157 as required effective January 1, 2008. While still under review, adoption is not expected to have a materialeffect on the consolidated results of operations or financial position.

 

                InFebruary 2007, the FASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities*.  SFAS No. 159 provides a “Fair Value Option”under which a company may irrevocably elect fair value as the initial andsubsequent measurement attribute for certain financial instruments.  The Fair Value Option will be available on acontract-by-contract basis with changes in fair value recognized in earnings asthose changes occur.  SFAS No. 159 iseffective beginning January 1, 2008, but the Operating Partnership has not yetdecided whether it will adopt this optional standard.

 

**3.****            ****Partners’ Capital**

** **

## ***                The following tables present thechanges in all of the Operating Partnership’s issued and outstanding OP Units,and the changes in the limited partners’ OP Units for the nine months endedSeptember 30, 2007:***

 

 

10

----

 

 

| *** ***                                                         | *** *** | **2007**        | *** *** |
|----------------------------------------------------------------------|--------------|-----------------|--------------|
| OP Units outstanding at January 1,                                   |         | 313,466,216     |         |
|                                                                 |         |            |         |
| Issued to General Partner:                                           |         |            |         |
| Conversion of Series E Preference Units                              |         | 51,074          |         |
| Conversion of Series H Preference Units                              |         | 4,016           |         |
| Conversion of Series J Preference Interests                          |         | 324,484         |         |
| Exercise of EQR options                                              |         | 356,802         |         |
| Employee Share Purchase Plan                                         |         | 144,683         |         |
| Restricted EQR share grants, net                                     |         | 375,991         |         |
|                                                                 |         |            |         |
| OP Units Other:                                                      |         |            |         |
| Repurchased and retired                                              |         | (25,094,346     | )            |
| **OP Units outstanding at September 30,**                            | ** **   | **289,628,920** | ** **   |
| ** **                                                           | ** **   | ** **      | ** **   |
| * *                                                             | *** *** | **2007**        | *** *** |
| Limited Partner OP Units outstanding at January 1,                   |         | 19,914,583      |         |
| Conversion of Limited Partner OP Units to EQR Common Shares          |         | (1,346,609      | )            |
| **Limited Partner OP Units Outstanding at  September 30,**           | ** **   | **18,567,974**  | ** **   |
| Limited Partner OP Units Ownership Interest in Operating Partnership |         | 6.4             | %            |

** **

**                OnApril 27 and May 24, 2007, EQR’s Board of Trustees approved an increase of$200.1 million and an additional $500.0 million, respectively, to the Company’sauthorized share repurchase program. Considering the above additional authorizations and the repurchaseactivity for the nine months ended September 30, 2007, EQR has authorization torepurchase an additional $65.0 million of its shares as of September 30, 2007.**

** **

**                Duringthe nine months ended September 30, 2007, the Company repurchased 25,094,346 ofits Common Shares at an average price of $45.30 per share for totalconsideration of $1.1 billion.  Theseshares were retired subsequent to the repurchase.  Concurrent with these transactions, theOperating Partnership repurchased and retired 25,094,346 OP Units previouslyissued to EQR.  Of the total sharesrepurchased, 84,046 shares were repurchased from employees at an average priceof $53.85 per share (the average of the then current market prices) to coverthe minimum statutory tax withholding obligations related to the vesting ofemployees’ restricted shares.  Theremaining 25,010,300 shares were repurchased in the open market at an averageprice of $45.27 per share.**

** **

**                The Limited Partners of theOperating Partnership as of September 30, 2007 include various individuals andentities that contributed their properties to the Operating Partnership inexchange for OP Units.  Subject tocertain restrictions, the Limited Partners may exchange their OP Units for EQRCommon Shares on a one-for-one basis.**

** **

**                EQRcontributes all net proceeds from its various equity offerings (includingproceeds from exercise of options for EQR Common Shares) to the OperatingPartnership.  In return for thosecontributions, EQR receives a number of OP Units in ERPOP equal to the numberof Common Shares it has issued in the equity offering (or in the case of apreferred equity offering, a number of preference units in ERPOP equal innumber and having the same terms as the preferred shares issued in the equityoffering).**

 

                The following table presentsthe Operating Partnership’s issued and outstanding “Preference Units” as ofSeptember 30, 2007 and December 31, 2006:

 

 

11

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| ** **                                                                                                                                                                                           | ** ** | ** **                   | ** ** | ** **               | ** ** | ** **                         | ** ** | **Amounts in thousands** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|------------------------------------|------------|--------------------------|------------|
|                                                                                                                                                                                                 |       | **Redemption  Date (1) (2)** | ** ** | **Conversion  Rate (2)** | ** ** | **Annual  Dividend per  Unit (3)** |       | **September  30, 2007**  | ** ** | **December  31, 2006** |   |
| Preference Units:                                                                                                                                                                                    |       |                         |       |                     |       |                               |       |                     |       |   |   |
|                                                                                                                                                                                                 |       |                         |       |                     |       |                               |       |                     |       |   |   |
| 8.60% Series D Cumulative Redeemable Preference Units; liquidation value  $250 per unit; 0 and 700,000 units issued and outstanding at September 30,  2007 and December 31, 2006, respectively       |       | 7/15/07                      |       | N/A                      |       | (5)                                |       | $                        | —     |   | $ | 175,000 |   |
|                                                                                                                                                                                                 |       |                         |       |                     |       |                               |       |                     |       |   |   |
| 7.00% Series E Cumulative Convertible Preference Units; liquidation  value $25 per unit; 388,916 and 434,816 units issued and outstanding at  September 30, 2007 and December 31, 2006, respectively |       | 11/1/98                      |       | 1.1128                   |       | $                                  | 1.75       |                     | 9,723      |   | 10,871 |   |
|                                                                                                                                                                                                 |       |                         |       |                     |       |                               |       |                     |       |   |   |
| 7.00% Series H Cumulative Convertible Preference Units; liquidation value  $25 per unit; 25,359 and 28,134 units issued andoutstanding at September 30,  2007 and December 31, 2006, respectively    |       | 6/30/98                      |       | 1.4480                   |       | $                                  | 1.75       |                     | 634        |   | 703 |   |
|                                                                                                                                                                                                 |       |                         |       |                     |       |                               |       |                     |       |   |   |
| 8.29% Series K Cumulative Redeemable Preference Units; liquidation value  $50 per unit; 1,000,000 units issued and outstanding at September 30, 2007  and December 31, 2006                          |       | 12/10/26                     |       | N/A                      |       | $                                  | 4.145      |                     | 50,000     |   | 50,000 |   |
|                                                                                                                                                                                                 |       |                         |       |                     |       |                               |       |                     |       |   |   |
| 6.48% Series N Cumulative Redeemable Preference Units; liquidation value  $250 per unit; 600,000 units issued and outstanding at September 30, 2007 and  December 31, 2006 (4)                       |       | 6/19/08                      |       | N/A                      |       | $                                  | 16.20      |                     | 150,000    |   | 150,000 |   |
|                                                                                                                                                                                                 |       |                         |       |                     |       |                               |       | $                        | 210,357    |   | $ | 386,574 |   |

 

----

(1)          On or after theredemption date, redeemable preference units (Series K and N) may be redeemedfor cash at the option of the Operating Partnership, in whole or in part, at aredemption price equal to the liquidation price per unit, plus accrued andunpaid distributions, if any, in conjunction with the concurrent redemption ofthe corresponding EQR Preferred Shares.

 

(2)          On or after theredemption date, convertible preference units (Series E & H) may beredeemed under certain circumstances at the option of the Operating Partnershipfor cash (in the case of Series E) or OP Units (in the case of Series H), inwhole or in part, at various redemption prices per unit based upon thecontractual conversion rate, plus accrued and unpaid distributions, if any, inconjunction with the concurrent redemption/conversion of the corresponding EQRPreferred Shares.

 

(3)          Dividends on allseries of Preference Units are payable quarterly at various pay dates.  The dividend listed for Series N is aPreference Unit rate and the equivalent depository unit annual dividend is$1.62 per unit.

 

(4)          The Series NPreference Units have a corresponding depositary unit that consists of tentimes the number of units and one-tenth the liquidation value and dividend perunit.

 

(5)          On May 25, 2007,the Operating Partnership issued an irrevocable notice to redeem for cash onJuly 16, 2007 all 700,000 units of its Series D Preference Units in conjunctionwith the concurrent redemption of the corresponding EQR Preferred Shares.  The Operating Partnership recorded thewrite-off of approximately $6.1 million in original issuance costs as a premiumon redemption of Preference Units in the accompanying consolidated statementsof operations.

 

        Thefollowing table presents the issued and outstanding Preference Interests as ofSeptember 30, 2007 and December 31, 2006:

 

 

12

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| *** ***                                                                                                                                                                                                | *** *** | ** **                   | ** ** | ** **               | ** ** | ** **                         | ** ** | **Amounts in thousands** | *** *** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------|------------|--------------------------|------------|------------------------------------|------------|--------------------------|--------------|
| *** ***                                                                                                                                                                                                | *** *** | **Redemption  Date (1) (2)** | ** ** | **Conversion  Rate (2)** | ** ** | **Annual  Dividend per  Unit (3)** | ** ** | **September  30, 2007**  | ** **   | **December  31, 2006** | *** *** |
| Preference Interests:                                                                                                                                                                                       |         |                         |       |                     |       |                               |       |                     |         |   |   |
|                                                                                                                                                                                                        |         |                         |       |                     |       |                               |       |                     |         |   |   |
| 7.625% Series J Cumulative Convertible Redeemable Preference Units;  liquidation value $50 per unit; 0 and 230,000 units issued and outstanding at  September 30, 2007 and December 31, 2006,  respectively |         | 12/14/06                     |       | 1.4108                   |       | (4)                                |       | $                        | —       |   | $ | 11,500 |   |
|                                                                                                                                                                                                        |         |                         |       |                     |       |                               |       | $                        | —       |   | $ | 11,500 |   |

 

----

(1)          On or after the fifthanniversary of the issuance (the “Redemption Date”), the Series J PreferenceInterests were redeemable for cash at the option of the Operating Partnership,in whole or in part, at any time or from time to time, at a redemption priceequal to the liquidation preference of $50.00 per unit plus the cumulativeamount of accrued and unpaid distributions, if any.

 

(2)          On or after the tenthanniversary of the issuance (the “Conversion Date”), the Series J PreferenceInterests were exchangeable at the option of the holder (in whole but not inpart) on a one-for-one basis for a respective reserved series of EQR PreferredShare. In addition, on or after the Conversion Date, the Series J PreferenceInterests were convertible under certain circumstances at the option of theholder (in whole but not in part) to Common Shares based upon the contractualconversion rate, plus accrued and unpaid distributions, if any.  Prior to the Conversion Date, the Series J PreferenceInterests were convertible under certain circumstances at the option of theholder (in whole but not in part) to Common Shares based upon the contractualconversion rate, plus accrued and unpaid distributions, if any, if the issuercalled the series for redemption (the “Accelerated Conversion Right”).

 

(3)          Dividends on the Series JPreference Interests were payable quarterly on March 25th, June 25th,September 25th and December 25th of each year.

 

(4)          On May 24, 2007, theOperating Partnership issued an irrevocable notice to redeem for cash on June25, 2007 all 230,000 units of its 7.625% Series J Preference Interests with aliquidation value of $11.5 million.  Thisnotice triggered the holder’s Accelerated Conversion Right, which theyexercised.  As a result, effective June25, 2007, the 230,000 units were converted into 324,484 EQR Common Shares.

 

**        Thefollowing table presents the Operating Partnership’s issued and outstandingJunior Convertible Preference Units (the “Junior Preference Units”) as ofSeptember 30, 2007 and December 31, 2006:**

 
| ** **                                                                                                                                                     | ** ** | ** **               | ** ** | ** **               | ** ** | ** **                         | ** ** | **Amounts in thousands** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|------------------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                                     | ** ** | **Redemption  Date (2)** | ** ** | **Conversion  Rate (2)** | ** ** | **Annual  Dividend per  Unit (1)** | ** ** | **September  30, 2007**  | ** ** | **December  31, 2006** | ** ** |
| Junior Preference Units:                                                                                                                                       |       |                     |       |                     |       |                               |       |                     |       |   |   |
|                                                                                                                                                           |       |                     |       |                     |       |                               |       |                     |       |   |   |
| Series B Junior Convertible Preference Units;  liquidation value $25 per unit; 7,367 units issued and  outstanding at September 30, 2007 and December 31, 2006 |       | 7/29/09                  |       | 1.020408                 |       | $                                  | 2.00       |                     | $          | 184 |   | $ | 184 |   |
|                                                                                                                                                           |       |                     |       |                     |       |                               |       | $                        | 184        |   | $ | 184 |   |
|                                                                                                                                                                |            |                          |            |                          |            |                                    |            |                          |            |  |  |  |  |  |

 

----

(1)          Dividendson the Junior Preference Units are payable quarterly at various pay dates.

 

(2)          On orafter the tenth anniversary of the issuance (the “Redemption Date”), the SeriesB Junior Preference Units may be converted into OP Units at the option of theOperating Partnership based on the contractual conversion rate.  Prior to the Redemption Date, the holders mayelect to convert the Series B Junior Preference Units to OP Units under certaincircumstances based on the contractual conversion rate.  The contractual rate is based upon a ratiodependent upon the closing price of EQR’s Common Shares.

 

**4.****            ****Real Estate**

 

**                Thefollowing table summarizes the carrying amounts for investment in real estate(at cost) as of September 30, 2007 and December 31, 2006 (amounts inthousands):**

** **

** **

**13**

----

** **

| ** **                        | ** ** | **September 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------|------------|------------------------|------------|-----------------------|------------|
| Land                              |       | $                      | 3,610,743  |                  | $          | 3,217,672 |   |
| Depreciable property:             |       |                   |       |                  |       |
| Buildings and improvements        |       | 12,685,221             |       | 12,563,807            |       |
| Furniture, fixtures and equipment |       | 871,981                |       | 812,552               |       |
| Projects under development:       |       |                   |       |                  |       |
| Land                              |       | 120,032                |       | 139,713               |       |
| Construction-in-progress          |       | 418,977                |       | 263,503               |       |
| Land held for development:        |       |                   |       |                  |       |
| Land                              |       | 337,998                |       | 200,487               |       |
| Construction-in-progress          |       | 57,552                 |       | 37,441                |       |
| Investment in real estate         |       | 18,102,504             |       | 17,235,175            |       |
| Accumulated depreciation          |       | (3,064,347             | )          | (3,022,480            | )          |
| Investment in real estate, net    |       | $                      | 15,038,157 |                  | $          | 14,212,695 |   |

** **

**               **During the nine months ended September 30, 2007, the OperatingPartnership acquired the following from unaffiliated parties (purchase price inthousands):

** **

| ** **           | ** ** | **Properties** | ** ** | **Units** | ** ** | **Purchase  Price** | ** ** |
|----------------------|------------|----------------|------------|-----------|------------|---------------------|------------|
| Rental Properties    |       | 34             |       | 7,620     |       | $                   | 1,619,465  |   |
| Land Parcels (seven) |       | —         |       | —    |       | 148,847             |       |
|                 |       | 34             |       | 7,620     |       | $                   | 1,768,312  |   |

 

                During the nine months ended September 30, 2007, theOperating Partnership disposed of the following to unaffiliated parties (salesprice in thousands):

 

|               |   | **Properties** | ** ** | **Units** | ** ** | **Sales  Price** |      |
|--------------------|--------|----------------|------------|-----------|------------|------------------|-----------|
| Rental Properties  |   | 66             |       | 19,681    |       | $                | 1,748,434 |   |
| Condominium Units  |   | 5              |       | 552       |       | 148,237          |      |
| Land Parcels (two) |   | —         |       | —    |       | 45,662           |      |
|               |   | 71             |       | 20,233    |       | $                | 1,942,333 |   |

** **

**               **The Operating Partnershiprecognized a net gain on sales of discontinued operations, a net gain on salesof unconsolidated entities and a net gain on sales of land parcels ofapproximately $848.5 million, $2.6 million and $5.2 million, respectively, onthe above sales.  Of the 66 rentalproperties sold during the nine months ended September 30, 2007, one propertysold during the quarter ended September 30, 2007 consisting of 400 units was apartially owned unconsolidated property.

 

**5.****            ****Commitmentsto Acquire/Dispose of Real Estate**

 

**                As ofOctober 31, 2007, the Operating Partnership had entered into separateagreements to acquire the following (purchase price in thousands):**

** **

| ** **           | ** ** | **Properties/  Parcels** | ** ** | **Units** | ** ** | **Purchase  Price** | ** ** |
|----------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Operating Properties |       | 2                        |       | 480       |       | $                   | 53,630     |   |
| Land Parcels         |       | 5                        |       | —    |       | 139,313             |       |
| Total                |       | 7                        |       | 480       |       | $                   | 192,943    |   |

** **

**                As of October 31, 2007, inaddition to the parcel that was subsequently disposed as discussed in Note 16,the Operating Partnership had entered into separate agreements to dispose ofthe following (sales price in**

** **

** **

**14**

----

** **

**thousands):**

 

| ** **           | ** ** | **Properties/  Parcels** | ** ** | **Units** | ** ** | **Sales Price** | ** ** |
|----------------------|------------|--------------------------|------------|-----------|------------|-----------------|------------|
| Operating Properties |       | 7                        |       | 2,182     |       | $               | 205,550    |   |
| Land Parcels         |       | 1                        |       | —    |       | 3,200           |       |
| Total                |       | 8                        |       | 2,182     |       | $               | 208,750    |   |

 

                The closings of these pending transactions aresubject to certain contingencies and conditions; therefore, there can be noassurance that these transactions will be consummated or that the final termsthereof will not differ in material respects from those summarized in thepreceding paragraphs.

 

**6.****            ****Investments in Partially Owned Entities**

 

                The Operating Partnership hasco-invested in various properties with unrelated third parties which are eitherconsolidated or accounted for under the equity method of accounting (unconsolidated).  The following table summarizes the OperatingPartnership’s investments in partially owned entities as of September 30, 2007(amounts in thousands except for project and unit amounts):

                
| ** **               | ** ** | **Consolidated**                       | ** ** | **Unconsolidated**                 | ** ** |
|--------------------------|------------|----------------------------------------|------------|------------------------------------|------------|
| ** **               | ** ** | **Development Projects**               | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Held for  and/or Under Development** | ** ** | **Completed, Not  Stabilized (4)** | ** ** | **Completed and Stabilized** | ** ** | **Other** | ** ** | **Total** | ** ** | **Institutional  Joint Ventures** | ** ** |
|                     |       |                                   |       |                               |       |   |   |   |   |   |   |   |   |
| Total projects (1)       |       | —                                 |       | 2                                  |       | 4 |   | 21 |   | 27 |   | 44 |   |
|                     |       |                                   |       |                               |       |   |   |   |   |   |   |   |   |
| Total units (1)          |       | —                                 |       | 572                                |       | 977 |   | 3,906 |   | 5,455 |   | 10,446 |   |
|                     |       |                                   |       |                               |       |   |   |   |   |   |   |   |   |
| Debt — Secured (2): |       |                                   |       |                               |       |   |   |   |   |   |   |   |   |
| EQR Ownership (3)        |       | $                                      | 336,037    |                               | $          | 98,141 |   | $ | 61,000 |   | $ | 286,823 |   | $ | 782,001 |   | $ | 121,200 |   |
| Minority Ownership       |       | —                                 |       | —                             |       | — |   | 13,321 |   | 13,321 |   | 363,600 |   |
| Total (at 100%)          |       | $                                      | 336,037    |                               | $          | 98,141 |   | $ | 61,000 |   | $ | 300,144 |   | $ | 795,322 |   | $ | 484,800 |   |

 

----

(1)          Project and unitcounts exclude all uncompleted development projects until those projects aresubstantially completed.

(2)          All debt isnon-recourse to the Operating Partnership with the exception of $28.3 millionin mortgage bonds on one development project.

(3)          Represents theOperating Partnership’s current economic ownership interest.

(4)          Projectsincluded here are substantially complete. However, they may still require additional exterior and interior workfor all units to be available forleasing.

 

**7.****            ****Deposits — Restricted**

 

                The following table presents thedeposits — restricted as of September 30, 2007 and December 31, 2006 (amountsin thousands):

 

| ** **                             | ** ** | **September  30, 2007** | ** ** | **December  31, 2006** | ** ** |
|----------------------------------------|------------|-------------------------|------------|------------------------|------------|
| Tax-deferred (1031) exchange proceeds  |       | $                       | 242,569    |                   | $          | 299,393 |   |
| Earnest money on pending acquisitions  |       | 7,320                   |       | 13,170                 |       |
| Restricted deposits on debt (1)        |       | 144,946                 |       | 22,916                 |       |
| Resident security and utility deposits |       | 40,308                  |       | 36,260                 |       |
| Other                                  |       | 14,529                  |       | 20,086                 |       |
| Total                                  |       | $                       | 449,672    |                   | $          | 391,825 |   |

 

 

15

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----

(1) Primarily represents amounts held in escrow by the lender and releasedas draw requests are made on fully-fundeddevelopment mortgage loans.

 

**8.****            ****Mortgage Notes Payable**

 

                As of September 30, 2007, the Operating Partnershiphad outstanding mortgage debt of approximately $3.6 billion.

 

                During the nine months endedSeptember 30, 2007, the Operating Partnership:

 

•      Repaid$366.8 million of mortgage loans;

•      Assumed$197.8 million of mortgage debt on certain properties in connection with theiracquisitions;

•      Obtained$646.9 million of new mortgage loans on certain properties; and

•      Wasreleased from $76.7 million of mortgage debt assumed by the purchaser ondisposed properties.

 

The Operating Partnership recorded approximately $3.3million and $3.4 million of prepayment penalties and write-offs of unamortizeddeferred financing costs, respectively, as additional interest related to debtextinguishment of mortgages during the nine months ended September 30, 2007.

 

        Asof September 30, 2007, scheduledmaturities for the Operating Partnership’s outstanding mortgage indebtednesswere at various dates through September 1, 2045.  At September 30, 2007, the interest raterange on the Operating Partnership’s mortgage debt was 3.32% to 12.465%.  During the nine months ended September 30,2007, the weighted average interest rate on the Operating Partnership’smortgage debt was 5.75%.

 

**9.****            ****Notes**

 

                Asof September 30, 2007, the Operating Partnership had outstanding unsecurednotes of approximately $5.3 billion.

 

                Duringthe nine months ended September 30, 2007, the Operating Partnership:

 

•      Issued$350.0 million of five-year 5.50% fixed rate public notes, receiving netproceeds of $346.1 million;

•                  Issued $650.0 million of ten-year 5.75% fixed rate public notes,receiving net proceeds of $640.6 million;

•                  Repaid $50.0 million of 7.625% fixed rate public notes at maturity;

•                  Repaid $50.0 million of 6.90% fixed rate public notes at maturity; and

•                  Repaid $4.3 million of 7.54% fixed rate senior unsecured notes.

 

                Asof September 30, 2007, scheduled maturities for the Operating Partnership’soutstanding notes were at various dates through 2029.  At September 30, 2007, the interest raterange on the Operating Partnership’s notes was 3.85% to 7.57%.  During the nine months ended September 30,2007, the weighted average interest rate on the Operating Partnership’s noteswas 5.66%.

 

**10.****         ****Lines of Credit**

 

                On February 28, 2007, the Operating Partnership entered into anunsecured revolving credit facility with potential borrowings of up to $1.5billion maturing on February 28, 2012. The Operating Partnership has the ability to increase availableborrowings by an additional $500.0 million by adding additional banks to thefacility or obtaining the agreement of existing banks to increase theircommitments.  Advances under the creditfacility bear interest at variable rates based upon LIBOR at various interestperiods plus a spread dependent upon the Operating Partnership’s credit ratingor based on bids received from the lending group.  EQR has guaranteed the Operating Partnership’scredit facility up to the maximum amount and for the full term of the 

 

 

16

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facility.

 

                On April 1, 2005, the OperatingPartnership obtained a three-year $1.0 billion unsecured revolving creditfacility maturing on May 29, 2008. Advances under the credit facility bore interest at variable rates basedupon LIBOR at various interest periods plus a spread dependent upon theOperating Partnership’s credit rating or based on bids received from thelending group.  EQR guaranteed theOperating Partnership’s credit facility up to the maximum amount and for thefull term of the facility.  This creditfacility was repaid in full and terminated on February 28, 2007.  The Operating Partnership recorded $0.4million of write-offs of unamortized deferred financing costs as additionalinterest in connection with this termination.

 

                On May 7, 2007, the OperatingPartnership obtained a one-year $500.0 million unsecured revolving creditfacility maturing on May 5, 2008. Advances under this facility bore interest at variable rates based onLIBOR at various interest periods plus a spread dependent upon the OperatingPartnership’s credit rating.  EQRguaranteed this credit facility up to the maximum amount and for its fullterm.  This credit facility was repaid infull and terminated on June 4, 2007.

 

                As ofSeptember 30, 2007, $640.0 million was outstanding and $86.1 million wasrestricted (dedicated to support letters of credit and not available forborrowing) on the $1.5 billion revolving credit facility.  During the nine months ended September 30,2007, the weighted average interest rate under the credit facilities was 5.69%.

 

**11.****         ****Derivative Instruments**

 

                Thefollowing table summarizes the consolidated derivative instruments at September 30, 2007 (dollaramounts are in thousands):

 

| ** **                     | ** ** | **Fair Value  Hedges (1)** | ** ** | **Forward Starting  Swaps (2)** | ** ** | **Development  Cash Flow  Hedges (3)** | ** ** |
|--------------------------------|------------|----------------------------|------------|---------------------------------|------------|----------------------------------------|------------|
| Current Notional Balance       |       | $                          | 370,000    |                            | $          | 150,000                                |       | $ | 43,907 |   |
| Lowest Possible Notional       |       | $                          | 370,000    |                            | $          | 150,000                                |       | $ | 17,942 |   |
| Highest Possible Notional      |       | $                          | 370,000    |                            | $          | 150,000                                |       | $ | 157,715 |   |
| Lowest Interest Rate           |       | 3.245                      | %          | 5.263                           | %          | 4.928                                  | %          |
| Highest Interest Rate          |       | 3.787                      | %          | 5.408                           | %          | 5.850                                  | %          |
| Earliest Maturity Date         |       | 2009                       |       | 2018                            |       | 2009                                   |       |
| Latest Maturity Date           |       | 2009                       |       | 2018                            |       | 2009                                   |       |
| Estimated Liability Fair Value |       | $                          | (6,599     | )                               | $          | (882                                   | )          | $ | (685 | ) |

 

----

(1)  Fair Value Hedges — Converts outstanding fixedrate debt to a floating interest rate.

(2)  Forward Starting Swaps — Designed to partiallyfix the interest rate in advance of a future debt issuance.

(3)  Development Cash Flow Hedges — Convertsoutstanding floating rate debt to a fixed interest rate (swaps) and/or locks-ina maximum interest rate (caps).

 

 

**                On**September30, 2007, the net derivative instruments were reported at their fair value asother liabilities of approximately $8.2 million and other assets of$3,800.  As of September 30, 2007, there were approximately $9.2 million in deferred losses, net,included in accumulated other comprehensive loss.  Based on the estimated fair values of the netderivative instruments at September 30, 2007,the Operating Partnership may recognize an estimated $2.4 million ofaccumulated other comprehensive loss as additional interest expense during thetwelve months ending September 30, 2008.

** **

**                InJune 2007, the Operating Partnership received approximately $2.4 million toterminate five forward starting swaps in conjunction with the issuance of$650.0 million of ten-year unsecured notes. The majority of the $2.4 million has been deferred as a component ofaccumulated other comprehensive loss and will be recognized as a reduction of interestexpense over the life of the unsecured notes.**

 

 

17

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** **

**12.          Earnings per OP Unit**

 

**               **Thefollowing tables set forth the computation of net income per OP Unit — basicand net income per OP Unit — diluted (amounts in thousands except per OP Unitamounts):

 
| ** **                                                                                                  | ** ** | **Nine Months Ended  September 30,** | ** ** | **Quarter Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                  | ** ** | **2007**                             | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Numerator for net income per OP Unit — basic and  diluted:**                                         | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from continuing operations                                                                           |       | $                                    | 60,552     |                             | $          | 61,416 |   | $ | 24,779 |   | $ | 23,728 |   |
| Allocation to Preference Units                                                                              |       | (19,157                              | )          | (29,682                          | )          | (4,317 | ) | (9,514 | ) |
| Allocation to Preference Interests and Junior Preference Units                                              |       | (437                                 | )          | (1,779                           | )          | (3 | ) | (223 | ) |
| Allocation to premium on redemption of Preference Units                                                     |       | (6,144                               | )          | (3,941                           | )          | (6,144 | ) | (3,941 | ) |
| Allocation to premium on redemption of Preference Interests                                                 |       | —                               |       | (684                             | )          | — |   | (1 | ) |
|                                                                                                        |       |                                 |       |                             |       |   |   |   |   |
| Income from continuing operations available to OP Units                                                     |       | 34,814                               |       | 25,330                           |       | 14,315 |   | 10,049 |   |
| Discontinued operations, net                                                                                |       | 863,204                              |       | 589,323                          |       | 463,800 |   | 50,301 |   |
| Numerator for net income per OP Unit — basic and diluted                                               |       | $                                    | 898,018    |                             | $          | 614,653 |   | $ | 478,115 |   | $ | 60,350 |   |
| ** **                                                                                                  | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Denominator for net income per OP Unit — basic  and diluted:**                                       | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Denominator for net income OP Unit — basic                                                             |       | 301,987                              |       | 310,012                          |       | 290,977 |   | 310,671 |   |
| Effect of dilutive securities:                                                                              |       |                                 |       |                             |       |   |   |   |   |
| Dilution for OP Units issuable upon assumed exercise/vesting of EQR’s  share options/restricted shares |       | 4,065                                |       | 4,970                            |       | 3,354 |   | 5,215 |   |
|                                                                                                        |       |                                 |       |                             |       |   |   |   |   |
| Denominator for net income per OP Unit — diluted                                                       |       | 306,052                              |       | 314,982                          |       | 294,331 |   | 315,886 |   |
|                                                                                                        |       |                                 |       |                             |       |   |   |   |   |
| Net income per OP Unit — basic                                                                         |       | $                                    | 2.97       |                             | $          | 1.98 |   | $ | 1.64 |   | $ | 0.19 |   |
| Net income per OP Unit — diluted                                                                       |       | $                                    | 2.93       |                             | $          | 1.95 |   | $ | 1.62 |   | $ | 0.19 |   |
|                                                                                                        |       |                                 |       |                             |       |   |   |   |   |
| **Net income per OP Unit — basic:**                                                                    | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from continuing operations available to OP Units                                                     |       | $                                    | 0.115      |                             | $          | 0.082 |   | $ | 0.049 |   | $ | 0.032 |   |
| Discontinued operations, net                                                                                |       | 2.858                                |       | 1.901                            |       | 1.595 |   | 0.162 |   |
| Net income per OP Unit — basic                                                                         |       | $                                    | 2.973      |                             | $          | 1.983 |   | $ | 1.644 |   | $ | 0.194 |   |
|                                                                                                        |       |                                 |       |                             |       |   |   |   |   |
| **Net income per OP Unit — diluted:**                                                                  | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from continuing operations available to OP Units                                                     |       | $                                    | 0.114      |                             | $          | 0.080 |   | $ | 0.048 |   | $ | 0.032 |   |
| Discontinued operations, net                                                                                |       | 2.820                                |       | 1.871                            |       | 1.576 |   | 0.159 |   |
| Net income per OP Unit — diluted                                                                       |       | $                                    | 2.934      |                             | $          | 1.951 |   | $ | 1.624 |   | $ | 0.191 |   |

 

*Convertiblepreference interests/units that could be converted into 713,604 and 1,260,905weighted average Common Shares (which would be contributed to the OperatingPartnership in exchange for OP Units) for the nine months ended September 30,2007 and 2006, respectively, and 488,324 and 900,802 weighted average CommonShares for the quarters ended September 30, 2007 and 2006, respectively, wereoutstanding but were not included in the computation of diluted earnings per OPUnit because the effects would be anti-dilutive.  In addition, the effect of the CommonShares/OP Units that could ultimately be issued upon the conversion/exchange ofthe Operating Partnership’s $650.0 million exchangeable senior notes was notincluded in the computation of diluted earnings per OP Unit because the effectswould be anti-dilutive.*

 

**13.****         ****DiscontinuedOperations**

 

                TheOperating Partnership has presented separately as discontinued operations inall periods the results of operations for all consolidated assets disposed ofon or after January 1, 2002 (the date of adoption of SFAS No. 144) and alloperations related to condominium conversion properties effective upon their 

 

 

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respective transfer into a TRS.

 

                The components ofdiscontinued operations are outlined below and include the results ofoperations for the respective periods that the Operating Partnership owned suchassets during the nine months and quarters ended September 30, 2007 and 2006(amounts in thousands).

 
| ** **                                   | ** ** | **Nine Months Ended  September 30,** | ** ** | **Quarter Ended  September 30,** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | **2007**                             | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| **REVENUES**                                 | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental income                                |       | $                                    | 90,916     |                             | $          | 304,160 |   | $ | 13,503 |   | $ | 95,225 |   |
| Total revenues                               |       | 90,916                               |       | 304,160                          |       | 13,503 |   | 95,225 |   |
|                                         |       |                                 |       |                             |       |   |   |   |   |
| **EXPENSES (1)**                             | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property and maintenance                     |       | 36,881                               |       | 101,064                          |       | 8,111 |   | 32,023 |   |
| Real estate taxes and insurance              |       | 11,271                               |       | 38,408                           |       | 1,565 |   | 11,087 |   |
| Property management                          |       | 291                                  |       | 8,896                            |       | 27 |   | 2,959 |   |
| Depreciation                                 |       | 24,518                               |       | 66,720                           |       | 3,191 |   | 13,788 |   |
| General and administrative                   |       | 34                                   |       | 704                              |       | 22 |   | 197 |   |
| Impairment                                   |       | —                               |       | 351                              |       | — |   | — |   |
| Total expenses                               |       | 72,995                               |       | 216,143                          |       | 12,916 |   | 60,054 |   |
| Discontinued operating income                |       | 17,921                               |       | 88,017                           |       | 587 |   | 35,171 |   |
| Interest and other income                    |       | 170                                  |       | 1,649                            |       | 37 |   | 508 |   |
| Interest (2):                                |       |                                 |       |                             |       |   |   |   |   |
| Expense incurred, net                        |       | (2,053                               | )          | (21,833                          | )          | 4 |   | (5,345 | ) |
| Amortization of deferred financing costs     |       | (1,329                               | )          | (838                             | )          | — |   | (64 | ) |
| Discontinued operations                      |       | 14,709                               |       | 66,995                           |       | 628 |   | 30,270 |   |
| Net gain on sales of discontinued operations |       | 848,495                              |       | 522,328                          |       | 463,172 |   | 20,031 |   |
| Discontinued operations, net                 |       | $                                    | 863,204    |                             | $          | 589,323 |   | $ | 463,800 |   | $ | 50,301 |   |

 

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*(1)**            **Includes expenses paid in thecurrent period for properties sold or held for sale in prior periods related tothe Operating Partnership’s period of ownership.*

*(2)**            **Includes only interest expensespecific to secured mortgage notes payable for properties sold and/or held forsale.*

 

                Forthe properties sold during the nine months ended September 30, 2007 (excludingcondominium conversion properties), the investment in real estate, net ofaccumulated depreciation, and the mortgage notes payable balances at December31, 2006 were $964.6 million and $91.7 million, respectively.

 

                Thenet real estate basis of the Operating Partnership’s condominium conversionproperties owned by the TRS and included in discontinued operations (excludesthe Operating Partnership’s six halted conversions as they are now held foruse), which were included in investment in real estate, net in the consolidatedbalance sheets, was $82.8 million and $107.8 million at September 30, 2007 andDecember 31, 2006, respectively.

 

**14.****         ****Commitmentsand Contingencies**

 

                The Operating Partnership, as an owner of realestate, is subject to various Federal, state and local environmental laws.  Compliance by the Operating Partnership withexisting laws has not had a material adverse effect on the OperatingPartnership.  However, the OperatingPartnership cannot predict the impact of new or changed laws or regulations onits current properties or on properties that it may acquire in the future.

 

                The Operating Partnership is party to a housingdiscrimination lawsuit brought by a non-profit civil 

 

 

19

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rights organization inApril 2006 in the U.S. District Court for the District of Maryland.  The suit alleges that the OperatingPartnership designed and built approximately 300 of its properties in violationof the accessibility requirements of the Fair Housing Act and Americans withDisabilities Act.  The suit seeks actualand punitive damages, injunctive relief (including modification ofnon-compliant properties), costs and attorneys’ fees.  The Operating Partnership believes it has anumber of viable defenses, including that a majority of the named propertieswere completed before the operative dates of the statutes in question and/orwere not designed or built by the Operating Partnership.  Accordingly, the Operating Partnership isdefending the suit vigorously.  Due tothe pendency of the Operating Partnership’s defenses and the uncertainty ofmany other critical factual and legal issues, it is not possible to determineor predict the outcome of the suit and as a result, no amounts have beenaccrued at September 30, 2007.  While noassurances can be given, the Operating Partnership does not believe that thesuit, if adversely determined, will have a material adverse effect on theOperating Partnership.

 

                The Operating Partnership does not believe there isany other litigation pending or threatened against it that, individually or inthe aggregate, reasonably may be expected to have a material adverse effect onthe Operating Partnership.

 

                Duringthe years ended December 31, 2005 and 2004, the Operating Partnershipestablished a reserve and recorded a corresponding expense, net of insurancereceivables, for estimated uninsured property damage at certain of itsproperties caused by various hurricanes in each respective year.  During the nine months ended September 30,2007, the Operating Partnership received $5.6 million in insurance proceeds andrecorded an additional $3.9 million of receivables in anticipation of proceedsexpected.  As of September 30, 2007, areceivable of $3.4 million and a liability of $1.4 million are included inother assets and other liabilities, respectively, on the consolidated balancesheets.

 

**                As ofSeptember 30, 2007, the Operating Partnership has eleven projects totaling3,289 units in various stages of development with estimated completion datesranging through June 30, 2010.  Some ofthe projects are developed solely by the Operating Partnership, while othersare co-developed with various third party development partners. The developmentventure agreements with partners are primarily deal-specific, with differingterms regarding profit-sharing, equity contributions, returns on investment,buy-sell agreements and other customary provisions. The partner is most oftenthe “general” or “managing” partner of the development venture.  The typical buy-sell arrangements containappraisal rights and provisions that provide the right, but not the obligation,for the Operating Partnership to acquire the partner’s interest in the projectat fair market value upon the expiration of a negotiated time period (typicallytwo to five years after substantial completion of the project).  However, the buy-sell provisions with onepartner covering three projects does require the Operating Partnership topurchase the partner’s interest in the projects at fair market value five yearsfollowing the receipt of the final certificate of occupancy on the lastdeveloped property.**

** **

**15.****         ****ReportableSegments**

 

                Operatingsegments are defined as components of an enterprise about which separatefinancial information is available that is evaluated regularly by seniormanagement.  Senior management decideshow resources are allocated and assesses performance on a monthly basis.

 

                The OperatingPartnership’s primary business is owning, managing, and operating multifamilyresidential properties, which includes the generation of rental and other relatedincome through the leasing of apartment units to residents.  Senior management evaluates the performanceof each of our apartment communities individually and geographically, and bothon a same store and non-same store basis; however, each of our apartmentcommunities generally has similar economic characteristics, residents, andproducts and services.  The OperatingPartnership’s operating segments have been aggregated by geography in a manneridentical to that which is provided to its chief operating decision maker.

 

 

20

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                The OperatingPartnership’s fee and asset management, development (including FIN No. 46partially owned properties), condominium conversion and corporate housing(Equity Corporate Housing or “ECH”) activities are immaterial and do notindividually meet the threshold requirements of a reportable segment asprovided for in SFAS No. 131 and as such, have been aggregated in the tablespresented below.

 

                All revenues arefrom external customers and there is no customer who contributed 10% or more ofthe Operating Partnership’s total revenues during the nine months and quartersended September 30, 2007 and 2006, respectively.

 

                 Theprimary financial measure for the Operating Partnership’s rental real estatesegment is net operating income (“NOI”), which represents rental income less:1) property and maintenance expense; 2) real estate taxes and insuranceexpense; and 3) property management expense (all as reflected in theaccompanying consolidated statements of operations).  The Operating Partnership believes that NOIis helpful to investors as a supplemental measure of the operating performanceof a real estate company because it is a direct measure of the actual operatingresults of the Operating Partnership’s apartment communities.  Current year NOI is compared to prior yearNOI and current year budgeted NOI as a measure of financial performance.  The following tables present NOI for eachsegment from our rental real estate specific to continuing operations for thenine months ended September 30, 2007 and 2006, respectively, as well as totalassets at September 30, 2007 (amounts in thousands):

 
| ** **                   | ** ** | **Nine Months Ended September 30, 2007** | ** ** |
|------------------------------|------------|------------------------------------------|------------|
| ** **                   | ** ** | **Northeast**                            | ** ** | **South** | ** ** | **West** | ** ** | **Other (3)** | ** ** | **Total** | ** ** |
| Rental income:               |       |                                     |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | $                                        | 353,956    |   | $ | 411,103 |   | $ | 478,229 |   | $ | — |   | $ | 1,243,288 |   |
| Non-same store/other (2) (3) |       | 57,052                                   |       | 77,438 |   | 60,718 |   | 78,861 |   | 274,069 |   |
| Total rental income          |       | 411,008                                  |       | 488,541 |   | 538,947 |   | 78,861 |   | 1,517,357 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |
| Operating expenses:          |       |                                     |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | 131,220                                  |       | 167,539 |   | 165,159 |   | — |   | 463,918 |   |
| Non-same store/other (2) (3) |       | 24,805                                   |       | 31,882 |   | 24,495 |   | 84,177 |   | 165,359 |   |
| Total operating expenses     |       | 156,025                                  |       | 199,421 |   | 189,654 |   | 84,177 |   | 629,277 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |
| NOI:                         |       |                                     |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | 222,736                                  |       | 243,564 |   | 313,070 |   | — |   | 779,370 |   |
| Non-same store/other (2) (3) |       | 32,247                                   |       | 45,556 |   | 36,223 |   | (5,316 | ) | 108,710 |   |
| Total NOI                    |       | $                                        | 254,983    |   | $ | 289,120 |   | $ | 349,293 |   | $ | (5,316 | ) | $ | 888,080 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |
| Total assets                 |       | $                                        | 4,610,436  |   | $ | 4,256,791 |   | $ | 4,921,177 |   | $ | 2,001,181 |   | $ | 15,789,585 |   |

 

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(1)          Properties owned for all ofboth periods ending September 30, 2007 and September 30, 2006 which represented118,029 units.

(2)          Properties acquired after January1, 2006.

(3)          Other includes ECH,development, condominium conversion overhead of $3.7 million and othercorporate operations.  Also reflects the$13.0 million elimination of rental income recorded in Northeast, South andWest operating segments related to ECH.

 

 

21

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| ** **                   | ** ** | **Nine Months Ended September 30, 2006** | ** ** |
|------------------------------|------------|------------------------------------------|------------|
| ** **                   | ** ** | **Northeast**                            | ** ** | **South** | ** ** | **West** | ** ** | **Other (3)** | ** ** | **Total** | ** ** |
| Rental income:               |       |                                     |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | $                                        | 339,700    |   | $ | 398,229 |   | $ | 452,690 |   | $ | — |   | $ | 1,190,619 |   |
| Non-same store/other (2) (3) |       | 33,475                                   |       | 21,556 |   | 19,366 |   | 64,562 |   | 138,959 |   |
| Total rental income          |       | 373,175                                  |       | 419,785 |   | 472,056 |   | 64,562 |   | 1,329,578 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |
| Operating expenses:          |       |                                     |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | 127,063                                  |       | 163,019 |   | 161,605 |   | — |   | 451,687 |   |
| Non-same store/other (2) (3) |       | 14,473                                   |       | 10,091 |   | 8,479 |   | 65,749 |   | 98,792 |   |
| Total operating expenses     |       | 141,536                                  |       | 173,110 |   | 170,084 |   | 65,749 |   | 550,479 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |
| NOI:                         |       |                                     |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | 212,637                                  |       | 235,210 |   | 291,085 |   | — |   | 738,932 |   |
| Non-same store/other (2) (3) |       | 19,002                                   |       | 11,465 |   | 10,887 |   | (1,187 | ) | 40,167 |   |
| Total NOI                    |       | $                                        | 231,639    |   | $ | 246,675 |   | $ | 301,972 |   | $ | (1,187 | ) | $ | 779,099 |   |
|                         |       |                                     |       |   |   |   |   |   |   |   |   |

 

----

(1)          Properties owned for all ofboth periods ending September 30, 2007 and September 30, 2006 which represented118,029 units.

(2)          Propertiesacquired after January 1, 2006.

(3)          Other includes ECH,condominium conversion overhead of $4.2 million, hurricane related propertydamage net of reimbursement from insurance companies and other corporateoperations.  Also reflects the $11.6million elimination of rental income recorded in Northeast, South and Westoperating segments related to ECH.

 

                Thefollowing tables present NOI for each segment from our rental real estatespecific to continuing operations for the quarters ended September 30, 2007 and2006, respectively (amounts in thousands):

 
|                         | ** ** | **Quarter  Ended September 30, 2007** | ** ** |
|------------------------------|------------|---------------------------------------|------------|
|                         | ** ** | **Northeast**                         | ** ** | **South** | ** ** | **West** | ** ** | **Other (3)** | ** ** | **Total** | ** ** |
| Rental income:               |       |                                  |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | $                                     | 124,446    |   | $ | 146,436 |   | $ | 168,588 |   | $ | — |   | $ | 439,470 |   |
| Non-same store/other (2) (3) |       | 17,820                                |       | 18,201 |   | 18,582 |   | 31,149 |   | 85,752 |   |
| Total rental income          |       | 142,266                               |       | 164,637 |   | 187,170 |   | 31,149 |   | 525,222 |   |
|                         |       |                                  |       |   |   |   |   |   |   |   |   |
| Operating expenses:          |       |                                  |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | 44,106                                |       | 60,667 |   | 58,689 |   | — |   | 163,462 |   |
| Non-same store/other (2) (3) |       | 7,291                                 |       | 7,393 |   | 7,619 |   | 28,744 |   | 51,047 |   |
| Total operating expenses     |       | 51,397                                |       | 68,060 |   | 66,308 |   | 28,744 |   | 214,509 |   |
|                         |       |                                  |       |   |   |   |   |   |   |   |   |
| NOI:                         |       |                                  |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | 80,340                                |       | 85,769 |   | 109,899 |   | — |   | 276,008 |   |
| Non-same store/other (2) (3) |       | 10,529                                |       | 10,808 |   | 10,963 |   | 2,405 |   | 34,705 |   |
| Total NOI                    |       | $                                     | 90,869     |   | $ | 96,577 |   | $ | 120,862 |   | $ | 2,405 |   | $ | 310,713 |   |

 

----

(1)          Properties owned for all ofboth quarters ending September 30, 2007 and September 30, 2006 whichrepresented 123,139 units.

(2)          Properties acquired afterJuly 1, 2006.

(3)          Other includes ECH,development, condominium conversion overhead of $1.3 million and othercorporate operations.  Also reflects the$4.4 million elimination of rental income recorded in Northeast, South and Westoperating segments related to ECH.

 

 

22

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| ** **                   | ** ** | **Quarter Ended September 30, 2006** | ** ** |
|------------------------------|------------|--------------------------------------|------------|
| ** **                   | ** ** | **Northeast**                        | ** ** | **South** | ** ** | **West** | ** ** | **Other (3)** | ** ** | **Total** | ** ** |
| Rental income:               |       |                                 |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | $                                    | 120,332    |   | $ | 143,738 |   | $ | 159,582 |   | $ | — |   | $ | 423,652 |   |
| Non-same store/other (2) (3) |       | 8,723                                |       | 1,634 |   | 4,431 |   | 24,839 |   | 39,627 |   |
| Total rental income          |       | 129,055                              |       | 145,372 |   | 164,013 |   | 24,839 |   | 463,279 |   |
|                         |       |                                 |       |   |   |   |   |   |   |   |   |
| Operating expenses:          |       |                                 |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | 42,877                               |       | 61,073 |   | 57,708 |   | — |   | 161,658 |   |
| Non-same store/other (2) (3) |       | 4,073                                |       | 1,078 |   | 1,981 |   | 25,511 |   | 32,643 |   |
| Total operating expenses     |       | 46,950                               |       | 62,151 |   | 59,689 |   | 25,511 |   | 194,301 |   |
|                         |       |                                 |       |   |   |   |   |   |   |   |   |
| NOI:                         |       |                                 |       |   |   |   |   |   |   |   |   |
| Same store (1)               |       | 77,455                               |       | 82,665 |   | 101,874 |   | — |   | 261,994 |   |
| Non-same store/other (2) (3) |       | 4,650                                |       | 556 |   | 2,450 |   | (672 | ) | 6,984 |   |
| Total NOI                    |       | $                                    | 82,105     |   | $ | 83,221 |   | $ | 104,324 |   | $ | (672 | ) | $ | 268,978 |   |

 

----

(1)          Properties owned for all ofboth quarters ending September 30, 2007 and September 30, 2006 whichrepresented 123,139 units.

(2)          Properties acquired afterJuly 1, 2006.

(3)          Other includes ECH,condominium conversion overhead of $1.3 million, hurricane related propertydamage net of reimbursement from insurance companies and other corporateoperations.  Also reflects the $4.5million elimination of rental income recorded in Northeast, South and Westoperating segments related to ECH.

 

Note:  Markets included in the above geographicsegments are as follows:

(a)          Northeast — NewEngland (excluding Boston), Boston, New York Metro, DC Northern Virginia,Suburban Maryland, Chicago, Milwaukee and Minneapolis/St. Paul.

(b)         South —Charlotte, Raleigh/Durham, Atlanta, Jacksonville, Orlando, Tampa/Ft. Myers,South Florida, Nashville, Tulsa, Austin, Houston, Dallas/Ft. Worth, Albuquerqueand Phoenix.

(c)          West —Seattle/Tacoma, Portland, Central Valley, San Francisco Bay Area, InlandEmpire, Los Angeles, Orange County, San Diego and Denver.

 

                The following tablepresents a reconciliation of NOI from our rental real estate specific tocontinuing operations for the nine months and quarters ended September 30, 2007 and 2006,respectively (amounts in thousands):

 
| ** **                              | ** ** | **Nine Months Ended  September 30,** | ** ** | **Quarter Ended  September 30,** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|----------------------------------|------------|
| ** **                              | ** ** | **2007**                             | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                    |       |                                 |       |                             |       |   |   |   |   |
| Rental income                           |       | $                                    | 1,517,357  |                             | $          | 1,329,578 |   | $ | 525,222 |   | $ | 463,279 |   |
| Property and maintenance expense        |       | (399,863                             | )          | (350,752                         | )          | (139,363 | ) | (124,877 | ) |
| Real estate taxes and insurance expense |       | (160,458                             | )          | (129,648                         | )          | (53,452 | ) | (46,006 | ) |
| Property management expense             |       | (68,956                              | )          | (70,079                          | )          | (21,694 | ) | (23,418 | ) |
| Total operating expenses                |       | (629,277                             | )          | (550,479                         | )          | (214,509 | ) | (194,301 | ) |
| Net operating income                    |       | $                                    | 888,080    |                             | $          | 779,099 |   | $ | 310,713 |   | $ | 268,978 |   |

 

**16.****         ****SubsequentEvents/Other**

 

                *Subsequent Events*

 

                Subsequent to September 30, 2007 and through October 31, 2007, the Operating Partnership:

 

 

23

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•                  Acquired 10,000square feet of floor area rights for $1.9 million associated with a land parcelsold during the quarter ended June 30, 2007 that was held by the OperatingPartnership and a third-party joint venture partner.  The floor area rights were sold on the sameday for $4.3 million;

•                  Obtained athree-year (subject to two one-year extension options) $500.0 million seniorunsecured credit facility (term loan) which generally pays a variable interestrate of LIBOR plus a spread dependent upon the current credit rating on theOperating Partnership’s long-term senior unsecured debt; and

•                  Repaid $22.9million in mortgage loans in conjunction with the closing of $116.9 million inconstruction loans on partially owned (consolidated) development properties.

** **

*                Other*

 

                TheOperating Partnership incurred impairment losses of approximately $1.0 millionand $2.1 million (including discontinued operations) for the nine months endedSeptember 30, 2007 and 2006, respectively, as a result of the write-off ofvarious pursuit and out-of-pocket costs for terminated acquisition, disposition(including halted condominium conversions) and development transactions.

 

                TheOperating Partnership recorded a reduction to general and administrativeexpense of approximately $1.7 million during the nine months ended September30, 2007 due to the successful resolution of a certain lawsuit in Florida,resulting in the reversal of the majority of a previously establishedlitigation reserve.  The OperatingPartnership had previously recorded a reduction to general and administrativeexpense of approximately $2.8 million during the nine months ended September30, 2006 due to the recovery of insurance proceeds related to the same lawsuit.

** **

**                TheOperating Partnership received $1.2 million related to its 7.075% ownershipinterest in Wellsford Park Highlands Corporation (“WPHC”), an entity which ownsa condominium development in Denver, Colorado. The Operating Partnership recorded a gain of approximately $0.7 millionas income from investments in unconsolidated entities and has no furtherownership interest in WPHC.**

** **

**                OnSeptember 5, 2007, the Company and Donna Brandin, EQR’s former Chief FinancialOfficer (“CFO”), entered into a Resignation Agreement reflecting Ms. Brandin’sresignation effective September 14, 2007. The Company recorded approximately $0.9 million of additional general andadministrative expense during the quarter ended September 30, 2007 related tocash severance and accelerated vesting of EQR share options andrestricted/performance shares.**

** **

** **

**24**

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** **

**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

** **

**Overview**

 

                Forfurther information including definitions for capitalized terms not definedherein, refer to the consolidated financial statements and footnotes theretoincluded in the Operating Partnership’s annual report on Form 10-K for the yearended December 31, 2006.

 

                Forward-lookingstatements in this report are intended to be made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.  These statements are based on currentexpectations, estimates, projections and assumptions made by management.  While the Operating Partnership’s managementbelieves the assumptions underlying its forward-looking statements arereasonable, such information is inherently subject to uncertainties and mayinvolve certain risks, which could cause actual results, performance, orachievements of the Operating Partnership to differ materially from anticipatedfuture results, performance or achievements expressed or implied by suchforward-looking statements.  Many ofthese uncertainties and risks are difficult to predict and beyond management’scontrol.  Forward-looking statements arenot guarantees of future performance, results or events.  The Operating Partnership assumes noobligation to update or supplement forward-looking statements because ofsubsequent events.   Factors that mightcause such differences include, but are not limited to the following:

 

            •                  We intend toactively acquire and develop multifamily properties for rental operationsand/or conversion into condominiums, as well as upgrade and sell existingproperties as individual condominiums. We may underestimate the costs necessary to bring an acquired ordevelopment property up to standards established for its intended marketposition.  Additionally, we expect thatother major real estate investors with significant capital will compete with usfor attractive investment opportunities or may also develop properties inmarkets where we focus our development efforts. This competition may increase prices for multifamily properties ordecrease the price at which we expect to sell individual properties.  We may not be in a position or have theopportunity in the future to make suitable property acquisitions on favorableterms.  We also plan to develop moreproperties ourselves in addition to co-investing with our development partnersfor either the rental or condominium market, depending on opportunities in eachsub-market.  This may increase theoverall level of risk associated with our developments.  The total number of development units, costof development and estimated completion dates are subject to uncertaintiesarising from changing economic conditions (such as the cost of labor andconstruction materials), competition and local government regulation;

            •                  Sources ofcapital to the Operating Partnership or labor and materials required formaintenance, repair, capital expenditure or development are more expensive thananticipated;

            •                  Occupancylevels and market rents may be adversely affected by national and localeconomic and market conditions including, without limitation, new constructionof multifamily housing, slow employment growth, availability of low interestmortgages for single-family home buyers and the potential for geopoliticalinstability, all of which are beyond the Operating Partnership’s control; and

            •      Additionalfactors as discussed in Part I of the Annual Report on Form 10-K, particularlythose under “Risk Factors”.

 

                Readersare cautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof. The Operating Partnership undertakes no obligation to publicly releaseany revisions to these forward-looking statements, which may be made to reflectevents or circumstances after the date hereof or to reflect the occurrence ofunanticipated events.  Forward-lookingstatements and related uncertainties are also included in Notes 5 and 11 in theNotes to Consolidated Financial Statements in this report.

 

 

25

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**Results ofOperations**

 

*               *In conjunction with our business objectivesand operating strategy, the Operating Partnership has continued to invest orrecycle its capital investment in apartment communities located instrategically targeted markets during the nine months ended September 30, 2007.  In summary, we:

 

            •      Acquired $1.6 billion of properties consisting of 34properties and 7,620 units and $148.8 million of land parcels, all of which wedeem to be in our strategic targeted markets; and

            •      Sold $1.7 billion of properties consisting of 66properties and 19,681 units, $45.7 million of land parcels and 552 condominiumunits for $148.2 million.

 

                The OperatingPartnership’s primary financial measure for evaluating each of its apartmentcommunities is net operating income (“NOI”). NOI represents rental income less property and maintenance expense, realestate tax and insurance expense, and property management expense.  The Operating Partnership believes that NOIis helpful to investors as a supplemental measure of the operating performanceof a real estate company because it is a direct measure of the actual operatingresults of the Operating Partnership’s apartment communities.

 

                Propertiesthat the Operating Partnership owned for all of both of the nine months endedSeptember 30, 2007 and 2006 (the “Nine-Month 2007 Same Store Properties”),which represented 118,029 units, and properties that the Operating Partnershipowned for all of both of the quarters ended September 30, 2007 and 2006 (the “ThirdQuarter 2007 Same Store Properties”), which represented 123,139 units, impactedthe Operating Partnership’s results of operations.  Both the Nine-Month 2007 Same StoreProperties and the Third Quarter 2007 Same Store Properties are discussed inthe following paragraphs.

 

                TheOperating Partnership’s acquisition, disposition, completed development andconsolidation of previously unconsolidated property activities also impactedoverall results of operations for the nine months and quarters ended September 30, 2007 and2006.  The impacts of these activitiesare also discussed in greater detail in the following paragraphs.

 

                ***Comparison of the nine monthsended September 30, 2007 to the nine months ended September 30, 2006***

 

                For the nine months ended September 30, 2007, incomefrom continuing operations decreased by approximately $0.9 million whencompared to the nine months ended September 30, 2006.  The decrease in continuing operations isdiscussed below.

 

                Revenues from the Nine-Month 2007 Same StoreProperties increased $52.7 million primarily as a result of higher rental ratescharged to residents.  Expenses from theNine-Month 2007 Same Store Properties increased $12.2 million primarily due tohigher payroll, building/maintenance and real estate taxes.  The following tables provide comparative samestore results and statistics for the Nine-Month 2007 Same Store Properties:

 

 

26

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| September YTD 2007 vs.  September YTD 2006

YTD over YTD Same Store  Results/Statistics | ** ** |
|-----------------------------------------------------------------------------------------|------------|
| $ in Thousands (except for Average Rental  Rate) — 118,029 Same Store Units   | ** ** |
| ** **                                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                              | ** ** | **Results** | ** ** | **Statistics** | ** ** |
| **Description**                                                                         | ** ** | **Revenues** | ** ** | **Expenses** | ** ** | **NOI** | ** ** | **Average  Rental  Rate (1)** | ** ** | **Occupancy** | ** ** | **Turnover** | ** ** |
| YTD 2007                                                                                |       | $ | 1,243,288 |   | $ | 463,918 |   | $ | 779,370 |   | $ | 1,237 |   | 94.7 | % | (48.6 | )% |
| YTD 2006                                                                                |       | $ | 1,190,619 |   | $ | 451,687 |   | $ | 738,932 |   | $ | 1,185 |   | 94.7 | % | (49.5 | )% |
| Change                                                                                  |       | $ | 52,669 |   | $ | 12,231 |   | $ | 40,438 |   | $ | 52 |   | 0.0 | % | 0.9 | % |
| Change                                                                                  |       | 4.4 | % | 2.7 | % | 5.5 | % | 4.4 | % |   |   |   |   |

 

----

**(1)**          Average rental rate is defined astotal rental revenues divided by the weighted average occupied units for theperiod.

 

                The following table presents a reconciliation ofoperating income per the consolidated statements of operations to NOI for theNine-Month 2007 Same Store Properties:

 

| ** **                       | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **2007**                             | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(Amounts in thousands)**           | ** ** |
| ** **                       | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Operating income                 |       | $                                    | 411,225    |   | $ | 367,900 |   |
| Adjustments:                     |       |                                 |       |   |   |
| Non-same store operating results |       | (108,710                             | )          | (40,167 | ) |
| Fee and asset management revenue |       | (6,937                               | )          | (6,878 | ) |
| Fee and asset management expense |       | 6,604                                |       | 6,477 |   |
| Depreciation                     |       | 441,517                              |       | 374,007 |   |
| General and administrative       |       | 34,651                               |       | 35,875 |   |
| Impairment                       |       | 1,020                                |       | 1,718 |   |
| Same store NOI                   |       | $                                    | 779,370    |   | $ | 738,932 |   |

 

**                Forproperties that the Operating Partnership acquired prior to January 1, 2006 andexpects to continue to own through December 31, 2007, the Operating Partnershipanticipates the following same store results for the full year ending December 31,2007:**

** **

| **2007 Same Store Assumptions** |
|---------------------------------|
| **Physical Occupancy**          | ** ** | **94.5%** |
| **Revenue Change**              | ** ** | **4.25%** |
| **Expense Change**              | ** ** | **2.50%** |
| **NOI Change**                  | ** ** | **5.25%** |

** **

**                These 2007 assumptions are based on currentexpectations and are forward-looking.**

** **

**                Non-same store operating results increased $68.5million and consist primarily of properties acquired in calendar years 2007 and2006 as well as our corporate housing business.**

** **

**                See also Note 15 in the Notes to ConsolidatedFinancial Statements for additional discussion regarding the OperatingPartnership’s segment disclosures.**

 

                Fee and asset management revenues, net of fee and asset managementexpenses, decreased $0.1 million 

 

 

 

27

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primarilyas a result of lower income earned from our military housing at Ft. Lewis.  As of September 30, 2007 and 2006, the Operating Partnershipmanaged 14,403 and 14,784 units, respectively, for third parties andunconsolidated entities.

** **

**               **Property management expenses from continuingoperations include off-site expenses associated with the self-management of theOperating Partnership’s properties as well as management fees paid to any thirdparty management companies.  Theseexpenses decreased by approximately $1.1 million or 1.6%.  This decrease is primarily attributable tolower overall computer and training costs associated with the majoritycompletion of the rollout of a new property management system and theexpiration of third party management contracts, partially offset by higherpayroll costs.

 

                Depreciation expense fromcontinuing operations, which includes depreciation on non-real estate assets,increased $67.5 million primarily as a result of additional depreciationexpense on newly acquired properties and capital expenditures for allproperties owned.

 

                General and administrativeexpenses, which include corporate operating expenses, decreased $1.2 millionprimarily as a result of a decrease in performance share expenses and lowerstate and franchise taxes, partially offset by an increase in restricted shareexpense, charges associated with the resignation of the Company’s CFO and lessexpense recovery related to a certain lawsuit in Florida (see Note 16).  TheOperating Partnership anticipates that general and administrative expenses willapproximate $46.0 million to $48.0 million for the year ending December 31,2007. The above assumption is based on current expectations and isforward-looking.

 

                Impairment from continuing operationsdecreased $0.7 million primarily as a result of fewer write-offs for developmentand other properties during the nine months ended September 30, 2007.

 

**                Interest and other income from continuing operationsincreased $0.8 million primarily as a result of interest earned on 1031exchange and earnest money deposits and other short term investments, partiallyoffset by a decrease in forfeited deposits, a one-time debt extinguishment gainand $3.7 million in proceeds from eBay’s acquisition of Rent.com received inthe third quarter of 2006.  The OperatingPartnership anticipates that interest and other income will approximate $13.5million to $15.5 million for the year ending December 31, 2007.  The above assumption is based on currentexpectations and is forward-looking.**

 

                Interest expense from continuingoperations, including amortization of deferred financing costs, increasedapproximately $51.6****millionprimarily as a result of higher overall debt levels outstanding due to theCompany’s share repurchase activity as well as the timing of acquisitions anddispositions, partially offset by lower overall effective interest rates.  During the nine months ended September 30, 2007, the Operating Partnership capitalizedinterest costs related to development activity of approximately $30.8 millionas compared to $13.2 million for the nine months ended September 30, 2006. The effective interest cost on all indebtedness for the nine monthsended September 30, 2007 was 5.99%as compared to 6.14% for the nine months ended September 30, 2006. The Operating Partnership anticipates that interest expense (includingdiscontinued operations) will approximate $484.0 million to $494.0 million forthe year ending December 31, 2007. The above assumption is based on currentexpectations and is forward-looking.

 

                Income (loss) from investments in unconsolidatedentities increased $0.8 million primarily due to the sale of the OperatingPartnership’s 7.075% ownership interest in Wellsford Park HighlandsCorporation, an entity which owns a condominium development in Denver,Colorado.

 

                Net gain on sales of unconsolidated entitiesincreased $2.3 million between the periods under comparison as the OperatingPartnership recognized a $2.6 million gain on the sale of an unconsolidatedinstitutional joint venture property during the nine months ended September 30,2007.  See also Note 4 in the Notes toConsolidated Financial Statements for additional discussion regarding the saleof this property.

 

 

28

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                Net gain on sales of land parcels increased $2.0million primarily as a result of higher net gains realized in 2007 on the saleof land parcels compared to the net gains realized in 2006.

 

                Discontinued operations, netincreased approximately $273.9 million between the periods undercomparison.  This increase is primarilydue to the mix of properties sold during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006.  See Note 13 in the Notesto Consolidated Financial Statements for further discussion.

 

***                Comparison of the quarter endedSeptember 30, 2007 to the quarter ended September 30, 2006***

 

                Forthe quarter ended September 30,2007, income from continuing operations increased by approximately $1.1 millionwhen compared to the quarter ended September 30, 2006.  The increase in continuingoperations is discussed below.

 

**                Revenuesfrom the Third Quarter 2007 Same Store Properties increased $15.8 millionprimarily as a result of higher rental rates charged to residents.  Expenses from the Third Quarter 2007 SameStore Properties increased $1.8 million primarily due to higher payroll,utilities and real estate taxes.  Thefollowing tables provide comparative same store results and statistics for theThird Quarter 2007 Same Store Properties:**

** **

** **
| Third Quarter 2007 vs.  Third Quarter 2006  Quarter over Quarter Same Store Results/Statistics | ** ** |
|------------------------------------------------------------------------------------------------|------------|
| $ in Thousands (except for Average Rental  Rate) — 123,139 Same Store Units          | ** ** |
| ** **                                                                                     | ** ** |
| ** **                                                                                     | ** ** | **Results** | ** ** | **Statistics** | ** ** |
| **Description**                                                                                | ** ** | **Revenues** | ** ** | **Expenses** | ** ** | **NOI** | ** ** | **Average  Rental Rate (1)** | ** ** | **Occupancy** | ** ** | **Turnover** | ** ** |
| Q3 2007                                                                                        |       | $ | 439,470 |   | $ | 163,462 |   | $ | 276,008 |   | $ | 1,259 |   | 94.6 | % | (18.8 | )% |
| Q3 2006                                                                                        |       | $ | 423,652 |   | $ | 161,658 |   | $ | 261,994 |   | $ | 1,214 |   | 94.6 | % | (18.9 | )% |
| Change                                                                                         |       | $ | 15,818 |   | $ | 1,804 |   | $ | 14,014 |   | $ | 45 |   | 0.0 | % | 0.1 | % |
| Change                                                                                         |       | 3.7 | % | 1.1 | % | 5.3 | % | 3.7 | % |   |   |   |   |

 

----

**(1) Average rental rate is defined as total rental revenuesdivided by the weighted average occupied units for the period.**

** **

**                Thefollowing table presents a reconciliation of operating income per theconsolidated statements of operations to NOI for the Third Quarter 2007 Same StoreProperties:**

** **

| ** **                       | ** ** | **Quarter Ended September 30,** | ** ** |
|----------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **2007**                        | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(Amounts in thousands)**      | ** ** |
| ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Operating income                 |       | $                               | 145,981    |   | $ | 124,996 |   |
| Adjustments:                     |       |                            |       |   |   |
| Non-same store operating results |       | (34,705                         | )          | (6,984 | ) |
| Fee and asset management revenue |       | (2,234                          | )          | (2,071 | ) |
| Fee and asset management expense |       | 2,100                           |       | 2,151 |   |
| Depreciation                     |       | 151,103                         |       | 129,467 |   |
| General and administrative       |       | 13,137                          |       | 13,522 |   |
| Impairment                       |       | 626                             |       | 913 |   |
|                             |       |                            |       |   |   |
| Same store NOI                   |       | $                               | 276,008    |   | $ | 261,994 |   |

** **

**                Non-same store operating results increased $27.7million and consist primarily of properties acquired in calendar years 2007 and2006 as well as our corporate housing business.**

** **

** **

**29**

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** **

**                See also Note 15 in the Notes to ConsolidatedFinancial Statements for additional discussion regarding the OperatingPartnership’s segment disclosures.**

 

                Fee and asset management revenues, net of fee and asset managementexpenses, increased $0.2 million during the quarter ended September 30, 2007compared to the quarter ended September 30, 2006 primarily due to an increasein condominium Home Owner’s Association management fees and revenue earned onthe management of the unconsolidated institutional joint ventures.

** **

**               **Property management expenses from continuingoperations include off-site expenses associated with the self-management of theOperating Partnership’s properties as well as management fees paid to any thirdparty management companies.  Theseexpenses decreased by approximately $1.7 million or 7.4%.  This decrease is primarily attributable tolower overall computer and training costs associated with the majoritycompletion of the rollout of a new property management system and theexpiration of third party management contracts, partially offset by higherpayroll costs.

 

                Depreciation expense fromcontinuing operations, which includes depreciation on non-real estate assets,increased $21.6 million primarily as a result of additional depreciationexpense on newly acquired properties and capital expenditures for allproperties owned.

 

                General and administrativeexpenses, which include corporate operating expenses, decreased $0.4 millionprimarily as a result of a decrease in performance share expenses and lowerstate and franchise taxes, partially offset by an increase in restricted shareexpense and charges associated with the resignation of EQR’s CFO.

 

                Impairment from continuing operationsdecreased $0.3 million primarily as a result of the write-off of an investmentin a limited partnership investment during the quarter ended September 30,2006.

 

**                Interest and other income from continuing operationsdecreased $1.2 million primarily as a result of $3.7 million in proceeds fromeBay’s acquisition of Rent.com received in the third quarter of 2006 as well asa $2.0 million forfeited deposit on a partially-owned property received in thethird quarter of 2006, partially offset by an increase in interest earned on1031 exchange and earnest money deposits and other short term investments inthe third quarter of 2007.**

 

                Interest expense from continuingoperations, including amortization of deferred financing costs, increasedapproximately $20.2****millionprimarily as a result of higher overall debt levels outstanding due to theCompany’s share repurchase activity as well as the timing of acquisitions anddispositions, partially offset by lower overall effective interest rates.  During the quarter ended September 30, 2007, the Operating Partnership capitalizedinterest costs related to development activity of approximately $12.9 millionas compared to $5.4 million for the quarter ended September 30, 2006. The effective interest cost on all indebtedness for the quarter ended September30, 2007 was 5.94% as compared to 6.03% forthe quarter ended September 30,2006.

 

                Income (loss) from investments in unconsolidatedentities increased $0.7 million as compared to the quarter ended September 30,2006 due to the sale of the Operating Partnership’s 7.075% ownership interestin Wellsford Park Highlands Corporation, an entity which owns a condominiumdevelopment in Denver, Colorado.

 

                Net gain on sales of unconsolidated entitiesincreased $2.6 million between the periods under comparison as the OperatingPartnership recognized a $2.6 million gain on the sale of an unconsolidated institutionaljoint venture property during the quarter ended September 30, 2007.  See also Note 4 in the Notes to ConsolidatedFinancial Statements for additional discussion regarding the sale of thisproperty.

 

                Net gain on sales of land parcels decreased $2.2million primarily as a result of a higher net gain 

 

 

30

----

 

realized in 2006 on the saleof one land parcel during the quarter ended September 30, 2006.

 

                Discontinued operations, netincreased approximately $413.5 million between the periods undercomparison.  This increase is primarilydue to an increase in the number of properties sold and the mix of thoseproperties sold during the quarter ended September 30, 2007 as compared to the quarter ended September 30, 2006.  See Note 13 in the Notesto Consolidated Financial Statements for further discussion.

 

**Liquidity and Capital Resources**

 

                As of January 1,2007, the Operating Partnership had approximately $260.3 million of cash andcash equivalents and $470.7 million available under its revolving creditfacilities (net of $69.3 million which was restricted/dedicated to supportletters of credit and not available for borrowing).  After taking into effect the various transactionsdiscussed in the following paragraphs and the net cash provided by operatingactivities, the Operating Partnership’s cash and cash equivalents balance at September 30, 2007 wasapproximately $62.7 million and the amount available on the OperatingPartnership’s revolving credit facilities was $773.9 million (net of $86.1million which was restricted/dedicated to support letters of credit and notavailable for borrowing).  EffectiveFebruary 28, 2007, the Operating Partnership increased its capacity on itsrevolving credit facility to $1.5 billion. See Note 10 in the Notes toConsolidated Financial Statements for further discussion.

 

                During the nine months ended September 30, 2007, theOperating Partnership generated proceeds from various transactions, whichincluded the following:

 

•                  Disposed of 71properties, various individual condominium units and two land parcels,receiving net proceeds of approximately $1.8 billion;

•                  Obtained $346.1million in net proceeds from the issuance of $350.0 million of five-year 5.50%fixed rate public notes;

•                  Obtained $640.6million in net proceeds from the issuance of $650.0 million of ten-year 5.75%fixed rate public notes and terminated five forward starting swaps designatedto hedge the note issuance, receiving net proceeds of $2.4 million;

•                  Obtained $646.9million in new mortgage financing; and

•                  Issuedapproximately 0.5 million OP Units and received net proceeds of $16.6 million.

 

**                During the nine months ended**September 30,2007, the above proceeds were primarily utilized to:

** **

•                  Invest $327.9 million primarily indevelopment projects;

•                  Acquire 34 properties and seven landparcels, utilizing cash of $1.6 billion;

•                  Repurchase 25.1 million OP Units,utilizing cash of $1.1 billion (see Note 3);

•                  Repay $366.8 million of mortgage loans;

•                  Repay $100.0 million of fixed rate publicnotes; and

•                  Redeem the Series D Preference Units at aliquidation value of $175.0 million.

** **

**                Depending on its analysis ofmarket prices, economic conditions, and other opportunities for the investmentof available capital, the Company may repurchase its Common Shares pursuant toits existing share buyback program authorized by the Board of Trustees.  On April 27 and May 24, 2007, the Board ofTrustees approved an increase of $200.1 million and an additional $500.0million, respectively, to the Company’s authorized share repurchaseprogram.  As of September 30, 2007 andafter giving effect to the above increases, EQR had authorization to repurchasean additional $65.0 million of its shares. EQR repurchased $1.1 billion (25,094,346 shares at an average price pershare of $45.30) of its Common Shares during the nine months ended**September 30, 2007.  Concurrentwith these transactions, the Operating Partnership repurchased and retired25,094,346 OP Units previously issued by EQR. See Note 3 in the Notes to Consolidated Financial Statements for furtherdiscussion.

** **

** **

**31**

----

** **

**                TheOperating Partnership’s total debt summary and debt maturity schedules as of**September 30, 2007 are as follows:

** **
| **Debt Summary as of September 30, 2007**(Amounts in thousands) | ** ** |
|-----------------------------------------------------------------|------------|
| ** **                                                      | ** ** |
| ** **                                                      | ** ** | **Amounts (1)** | ** ** | **% of Total** | ** ** | **Weighted**

**Average**

**Rates (1)** | ** ** | **Weighted**

**Average**

**Maturities**

**(years)** | ** ** |
| Secured                                                         |       | $ | 3,576,301 |   | 37.5 | % | 5.75 | % | 7.7 |   |
| Unsecured                                                       |       | 5,951,232 |   | 62.5 | % | 5.66 | % | 6.6 |   |
| Total                                                           |       | $ | 9,527,533 |   | 100.0 | % | 5.70 | % | 7.0 |   |
|                                                            |       |   |   |   |   |   |   |   |   |
| Fixed Rate Debt:                                                |       |   |   |   |   |   |   |   |   |
| Secured — Conventional                                     |       | $ | 2,426,424 |   | 25.4 | % | 6.14 | % | 4.8 |   |
| Unsecured — Public/Private                                 |       | 5,052,255 |   | 53.0 | % | 5.64 | % | 6.6 |   |
| Unsecured — Tax Exempt                                     |       | 111,390 |   | 1.2 | % | 5.06 | % | 21.6 |   |
| Fixed Rate Debt                                                 |       | 7,590,069 |   | 79.6 | % | 5.79 | % | 6.3 |   |
|                                                            |       |   |   |   |   |   |   |   |   |
| Floating Rate Debt:                                             |       |   |   |   |   |   |   |   |   |
| Secured — Conventional                                     |       | 494,942 |   | 5.2 | % | 7.48 | % | 5.4 |   |
| Secured — Tax Exempt                                       |       | 654,935 |   | 6.9 | % | 3.06 | % | 20.3 |   |
| Unsecured — Public                                         |       | 147,587 |   | 1.6 | % | 6.61 | % | 1.7 |   |
| Unsecured — Revolving Credit Facility                      |       | 640,000 |   | 6.7 | % | 5.69 | % | 4.4 |   |
| Floating Rate Debt                                              |       | 1,937,464 |   | 20.4 | % | 5.37 | % | 9.6 |   |
| Total                                                           |       | $ | 9,527,533 |   | 100.0 | % | 5.70 | % | 7.0 |   |

 

----

(1) Net of the effect of any derivativeinstruments.  Weighted average rates arefor the nine months ended September 30, 2007.

 

Note: The Operating Partnership capitalized interest of approximately $30.8million and $13.2 million for the nine months ended September 30, 2007 and2006, respectively.  The OperatingPartnership capitalized interest of approximately $12.9 million and $5.4million for the quarters ended September 30, 2007 and 2006, respectively.

 

 

32

----

 
| **Debt Maturity Schedule  as of September 30, 2007**

(Amounts  in thousands) |       |
|-------------------------------------------------------------------------------|------------|
| ** **                                                                    |       |
| **Year**                                                                      | ** ** | **Fixed  Rate (1)** | ** ** | **Floating  Rate (1)** | ** ** | **Total** | ** ** | **% of Total** | ** ** | **Weighted  Average Rates  on Fixed Rate  Debt (1)** | ** ** | **Weighted  Average Rates  on Total Debt  (1)** |   |
| 2007                                                                          |       | $ | 69,011 |   | $ | 37,678 |   | $ | 106,689 |   | 1.1 | % | 5.60 | % | 6.19 | % |
| 2008                                                                          |       | 465,027 |   | 137,016 |   | 602,043 |   | 6.3 | % | 6.65 | % | 6.58 | % |
| 2009                                                                          |       | 457,861 |   | 426,641 |   | 884,502 |   | 9.3 | % | 6.35 | % | 5.42 | % |
| 2010                                                                          |       | 279,947 |   | 26,236 |   | 306,183 |   | 3.2 | % | 7.05 | % | 7.11 | % |
| 2011   (2)                                                     |       | 1,488,370 |   | 24,150 |   | 1,512,520 |   | 15.9 | % | 5.55 | % | 5.52 | % |
| 2012   (3)                                                     |       | 907,448 |   | 640,000 |   | 1,547,448 |   | 16.3 | % | 6.08 | % | 5.81 | % |
| 2013                                                                          |       | 565,757 |   | — |   | 565,757 |   | 5.9 | % | 5.93 | % | 5.93 | % |
| 2014                                                                          |       | 504,809 |   | — |   | 504,809 |   | 5.3 | % | 5.27 | % | 5.27 | % |
| 2015                                                                          |       | 355,314 |   | — |   | 355,314 |   | 3.7 | % | 6.41 | % | 6.41 | % |
| 2016                                                                          |       | 1,089,046 |   | — |   | 1,089,046 |   | 11.4 | % | 5.32 | % | 5.32 | % |
| 2017+                                                                         |       | 1,407,479 |   | 645,743 |   | 2,053,222 |   | 21.6 | % | 6.11 | % | 5.68 | % |
| Total                                                                         |       | $ | 7,590,069 |   | $ | 1,937,464 |   | $ | 9,527,533 |   | 100.0 | % | 5.91 | % | 5.74 | % |

** **

----

**(1)**          Net of the effect of any derivativeinstruments.  Weighted average rates areas of September 30, 2007.

** **

**(2)**          Includes $650.0 million of 3.85%convertible unsecured debt with a final maturity of 2026.  The notes are callable by the Operating Partnershipon or after August 18, 2011.  The notesare putable by the holders on August 18, 2011, August 15, 2016 and August 15, 2021.

** **

**(3)**          Includes $640.0 million outstandingon the Operating Partnership’s $1.5 billion unsecured revolving credit facility,which matures on February 28, 2012.

** **

**         **Thefollowing table provides a summary of the Operating Partnership’s unsecureddebt as of September 30, 2007:

** **

** **

**33**

----

** **

** **
| **Unsecured Debt Summary as of September 30, 2007**(Amounts in thousands) | ** ** |
|---------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                | ** ** | **Coupon  Rate** | ** ** | **Due  Date** | ** ** | **Face  Amount** | ** ** | **Unamortized  Premium/  (Discount)** | ** ** | **Net  Balance** | ** ** |
| ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Fixed Rate Notes:**                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                      |       |   |   | 4.861% |   | 11/30/07 |   | $ | 50,000 |   | $ | — |   | $ | 50,000 |   |
|                                                                      |       |   |   | 7.500% |   | 08/15/08 | (1) | 130,000 |   | — |   | 130,000 |   |
|                                                                      |       |   |   | 4.750% |   | 06/15/09 | (2) | 300,000 |   | (468 | ) | 299,532 |   |
|                                                                      |       |   |   | 6.950% |   | 03/02/11 |   | 300,000 |   | 3,061 |   | 303,061 |   |
|                                                                      |       |   |   | 6.625% |   | 03/15/12 |   | 400,000 |   | (1,309 | ) | 398,691 |   |
|                                                                      |       |   |   | 5.500% |   | 10/01/12 |   | 350,000 |   | (1,726 | ) | 348,274 |   |
|                                                                      |       |   |   | 5.200% |   | 04/01/13 |   | 400,000 |   | (651 | ) | 399,349 |   |
|                                                                      |       |   |   | 5.250% |   | 09/15/14 |   | 500,000 |   | (428 | ) | 499,572 |   |
|                                                                      |       |   |   | 6.584% |   | 04/13/15 |   | 300,000 |   | (837 | ) | 299,163 |   |
|                                                                      |       |   |   | 5.125% |   | 03/15/16 |   | 500,000 |   | (453 | ) | 499,547 |   |
|                                                                      |       |   |   | 5.375% |   | 08/01/16 |   | 400,000 |   | (1,639 | ) | 398,361 |   |
|                                                                      |       |   |   | 5.750% |   | 06/15/17 |   | 650,000 |   | (4,959 | ) | 645,041 |   |
|                                                                      |       |   |   | 7.125% |   | 10/15/17 |   | 150,000 |   | (651 | ) | 149,349 |   |
|                                                                      |       |   |   | 7.570% |   | 08/15/26 |   | 140,000 |   | — |   | 140,000 |   |
|                                                                      |       |   |   | 3.850% |   | 08/15/26 | (3) | 650,000 |   | (7,685 | ) | 642,315 |   |
| Floating Rate Adjustments                                                 |       |   |   |   | (2) | (150,000 | ) | — |   | (150,000 | ) |
|                                                                      |       |   |   |   |   |   |   | 5,070,000 |   | (17,745 | ) | 5,052,255 |   |
| **Fixed Rate Tax Exempt Notes:**                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                      |       |   |   | 4.750% |   | 12/15/28 | (1) | 35,600 |   | — |   | 35,600 |   |
|                                                                      |       |   |   | 5.200% |   | 06/15/29 | (1) | 75,790 |   | — |   | 75,790 |   |
|                                                                      |       |   |   |   |   |   |   | 111,390 |   | — |   | 111,390 |   |
|                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Floating Rate Notes:**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                      |       |   |   |   |   | 06/15/09 | (2) | 150,000 |   | — |   | 150,000 |   |
| FAS 133 Adjustments - net                                                 |       |   |   |   | (2) | (2,413 | ) | — |   | (2,413 | ) |
|                                                                      |       |   |   |   |   |   |   | 147,587 |   | — |   | 147,587 |   |
|                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revolving Credit Facility:**                                            |       |   |   | 02/28/12 | (4) | 640,000 |   | — |   | 640,000 |   |
| **Total Unsecured Debt**                                                  |       |   |   |   |   | $ | 5,968,977 |   | $ | (17,745 | ) | $ | 5,951,232 |   |

 

----

(1)          Notes areprivate.  All other unsecured debt ispublic.

(2)          $150.0 millionin fair value interest rate swaps converts 50% of the 4.750% Notes due June 15,2009 to a floating interest rate.

(3)          Convertiblenotes mature on August 15, 2026.  Thenotes are callable by the Operating Partnership on or after August 18, 2011.The notes are putable by the holders on August 18, 2011, August 15, 2016 andAugust 15, 2021.

(4)          Representsamount outstanding on the Operating Partnership’s $1.5 billion unsecuredrevolving credit facility which matures on February 28, 2012.

** **

**         **As of October 31, 2007, an unlimited amount of debt securities remainsavailable for issuance by the Operating Partnership under a registrationstatement that became automatically effective upon filing with the SEC in June2006 (under SEC regulations enacted in 2005, the registration statement automaticallyexpires on June 29, 2009 and does not contain a maximum issuance amount) and$956.5 million in equity securities remains available for issuance by EQR undera registration statement the SEC declared effective in February 

** **

** **

**34**

----

** **

**1998.  Per the terms of ERPOP’s partnershipagreement, EQR contributes the net proceeds of all equity offerings to thecapital of the Operating Partnership in exchange for additional OP Units (on aone-for-one Common Share per OP Unit basis) or preference units (on aone-for-one preferred share per preference unit basis).**

** **

**               **TheOperating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio”as of September 30, 2007 ispresented in the following table.  TheOperating Partnership calculates the equity component of its marketcapitalization as the sum of (i) the total outstanding OP Units at theequivalent market value of the closing price of EQR’s Common Shares on the NewYork Stock Exchange; (ii) the “OP Unit Equivalent” of all convertiblepreference units; and (iii) the liquidation value of all perpetual preferenceunits outstanding.

** **
| Capital Structure as of  September 30, 2007  (Amounts in thousands except for unit and per unit amounts) |       |
|----------------------------------------------------------------------------------------------------------|------------|
|                                                                                                     |       |
| Secured Debt                                                                                             |       |   | ** ** | $ | 3,576,301 |   | 37.5 | % |   |   |
| Unsecured Debt                                                                                           |       |   | ** ** | 5,311,232 |   | 55.8 | % | ** ** | ** ** |
| Revolving Credit Facility                                                                                |       |   |   | 640,000 |   | 6.7 | % |   |   |
| **Total Debt**                                                                                           | ** ** | ** ** | ** ** | **9,527,533** | ** ** | **100.0** | **%** | **43.3** | **%** |
|                                                                                                     |       |   |   |   |   |   |   |   |   |
| OP Units                                                                                                 | ** ** | 289,628,920 |   |   |   |   |   |   |   |
| OP Unit Equivalents (see below)                                                                          | ** ** | 477,023 |   |   |   |   |   |   |   |
| Total outstanding at quarter-end                                                                         | ** ** | 290,105,943 |   |   |   |   |   |   |   |
| EQR Common Share Price at September 30, 2007                                                             | ** ** | $ | 42.36 |   |   |   |   |   |   |   |
|                                                                                                     |       |   | ** ** | 12,288,888 |   | 98.4 | % | ** ** | ** ** |
| Perpetual Preference Units (see below)                                                              |       |   | ** ** | 200,000 |   | 1.6 | % | ** ** | ** ** |
| **Total Equity**                                                                                         | ** ** | ** ** | ** ** | **12,488,888** | ** ** | **100.0** | **%** | **56.7** | **%** |
|                                                                                                     |       |   |   |   |   |   |   |   |   |
| **Total Market Capitalization**                                                                          | ** ** | ** ** | ** ** | **$** | **22,016,421** | ** ** | ** ** | ** ** | **100.0** | **%** |
|                                                                                                          |            |  |  |  |  |  |  |  |  |  |  |

 

 
| Convertible  Preference Units as of September 30, 2007  (Amounts in thousands except for unit and per unit amounts) | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                          | ** ** |
| **Series**                                                                                                          | ** ** | **Redemption  Date** | ** ** | **Outstanding**

**Units** | ** ** | **Liquidation  Value** | ** ** | **Annual  Dividend Per  Unit** | ** ** | **Annual  Dividend  Amount** | ** ** | **Weighted  Average  Rate** | ** ** | **Conversion  Ratio** | ** ** | **OP Unit  Equivalents** | ** ** |
| Preference Units:                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 7.00% Series E                                                                                                      |       | 11/1/98 |   | 388,916 |   | $ |  9,723 |   | $ |  1.75 |   | $ |  681 |   |   |   | 1.1128 |   | 432,786 |   |
| 7.00% Series H                                                                                                      |       | 6/30/98 |   | 25,359 |   | 634 |   | 1.75 |   | 44 |   |   |   | 1.4480 |   | 36,720 |   |
| Junior Preference  Units:                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 8.00% Series B                                                                                                      |       | 7/29/09 |   | 7,367 |   | 184 |   | 2.00 |   | 15 |   |   |   | 1.020408 |   | 7,517 |   |
| Total Convertible  Preference Units                                                                                 |       |   |   | 421,642 |   | $ |  10,541 |   |   |   | $ |  740 |   | 7.02 | % |   |   | 477,023 |   |
|                                                                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 
| Perpetual  Preference Units as of September 30, 2007  (Amounts in thousands except for unit and per unit amounts) | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                        | ** ** |
| **Series**                                                                                                        | ** ** | **Redemption  Date** | ** ** | **Outstanding  Units** | ** ** | **Liquidation Value** | ** ** | **Annual Dividend  Per Unit** | ** ** | **Annual Dividend Amount** | ** ** | **Weighted Average Rate** | ** ** |
| Preference Units:                                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 8.29% Series K                                                                                                    |       | 12/10/26 |   | 1,000,000 |   | $ | 50,000 |   | $ | 4.145 |   | $ | 4,145 |   |   |   |
| 6.48% Series N                                                                                                    |       | 6/19/08 |   | 600,000 |   | 150,000 |   | 16.20 |   | 9,720 |   |   |   |
| Total Perpetual Preference Units                                                                                  |       |   |   | 1,600,000 |   | $ | 200,000 |   |   |   | $ | 13,865 |   | 6.93 | % |
|                                                                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

** **

 

                TheOperating Partnership expects to meet its short-term liquidity requirements,including capital expenditures related to maintaining its existing propertiesand certain scheduled unsecured note and mortgage note repayments, generallythrough its working capital, net cash provided by operating activities andborrowings under its revolving credit facilities.  The Operating Partnership considers its cashprovided 

 

 

35

----

 

by operating activities to be adequate tomeet operating requirements and payments of distributions.  The Operating Partnership also expects tomeet its long-term liquidity requirements, such as scheduled unsecured note andmortgage debt maturities, property acquisitions, financing of construction anddevelopment activities and capital improvements through the issuance ofunsecured notes and equity securities, including additional OP Units, andproceeds received from the disposition of certain properties.  In addition, the Operating Partnership hassignificant unencumbered properties available to secure additional mortgageborrowings in the event that the public capital markets are unavailable or thecost of alternative sources of capital is too high.  The fair value of and cash flow from theseunencumbered properties are in excess of the requirements the OperatingPartnership must maintain in order to comply with covenants under its unsecurednotes and line of credit.  Of the $18.1billion in investment in real estate on the Operating Partnership’s balancesheet at September 30, 2007, $11.8 billion or 64.9%, was unencumbered.

 

                TheOperating Partnership’s senior debt credit ratings from Standard & Poors (“S&P”),Moody’s and Fitch are A-, Baa1 and A-, respectively.  EQR’s preferred equity ratings from S&P,Moody’s and Fitch are BBB+, Baa2 and BBB+, respectively.

 

                TheOperating Partnership has a long-term revolving credit facility with potentialborrowings of up to $1.5 billion which matures in February 2012.  This facility may, among other potentialuses, be used to fund property acquisitions, costs for certain properties underdevelopment and short term liquidity requirements.  As of October 31, 2007, $55.0 million wasoutstanding under this facility.

 

                SeeNote 16 in the Notes to Consolidated Financial Statements for discussion of theevents which occurred subsequent to September 30, 2007.

 

***         ****Capitalization of FixedAssets and Improvements to Real Estate*

** **

**                Ourpolicy with respect to capital expenditures is generally to capitalizeexpenditures that improve the value of the property or extend the useful lifeof the component asset of the property. We track improvements to real estate in two major categories and severalsubcategories:**

** **

**•**             Replacements*(inside the unit)*.  These include:

**•**                  flooring such as carpets, hardwood, vinyl, linoleum or tile;

**•**                  appliances;

**•**                  mechanical equipment such as individual furnace/air units, hot waterheaters, etc;

**•**                  furniture and fixtures such as kitchen/bath cabinets, light fixtures,ceiling fans, sinks, tubs, toilets, mirrors, countertops, etc; and

**•**                  blinds/shades.

** **

**                All replacements are depreciatedover a five-year estimated useful life. We expense as incurred all make-ready maintenance and turnover costssuch as cleaning, interior painting of individual units and the repair of anyreplacement item noted above.**

** **

**•**             Buildingimprovements (*outside the unit*).  These include:

**•**                  roof replacement and major repairs;

**•**                  paving or major resurfacing of parking lots, curbs and sidewalks;

**•**                  amenities and common areas such as pools, exterior sports and playgroundequipment, lobbies, clubhouses, laundry rooms, alarm and security systems andoffices;

**•**                  major building mechanical equipment systems;

**•**                  interior and exterior structural repair and exterior painting and siding;

**•**                  major landscaping and grounds improvement; and

**•**                  vehicles and office and maintenance equipment.

** **

**                All building improvements aredepreciated over a five to ten-year estimated useful life.  We capitalize**

** **

** **

**36**

----

** **

**buildingimprovements and upgrades only if the item: (i) exceeds $2,500 (selectedprojects must exceed $10,000); (ii) extends the useful life of the asset; and(iii) improves the value of the asset.**

** **

**                For the nine months ended**September 30, 2007, our actual improvements to real estate totaled approximately$185.3 million.  This includes thefollowing (amounts in thousands except for unit and per unit amounts):

** **
| Capitalized  Improvements to Real Estate  For the Nine Months Ended September 30,   2007 | ** ** |
|-----------------------------------------------------------------------------------------------|------------|
| ** **                                                                                    | ** ** |
| ** **                                                                                    | ** ** | **Total Units  (1)** | ** ** | **Replacements** | ** ** | **Avg. Per  Unit** | ** ** | **Building  Improvements** | ** ** | **Avg. Per  Unit** | ** ** | **Total** | ** ** | **Avg. Per  Unit** | ** ** |
| Established Properties (2)                                                                    |       | 105,442 |   | $ | 28,795 |   | $ | 273 |   | $ | 53,747 |   | $ | 510 |   | $ | 82,542 |   | $ | 783 |   |
| New Acquisition Properties (3)                                                                |       | 27,216 |   | 7,115 |   | 287 |   | 46,013 |   | 1,857 |   | 53,128 |   | 2,144 |   |
| Other (4)                                                                                     |       | 7,386 |   | 14,364 |   |   |   | 35,267 |   |   |   | 49,631 |   |   |   |
| Total                                                                                         |       | 140,044 |   | $ | 50,274 |   |   |   | $ | 135,027 |   |   |   | $ | 185,301 |   |   |   |
|                                                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Total unitsexclude 10,446 unconsolidated units and 3,662 military housing (fee managed)units.

(2)          Wholly OwnedProperties acquired prior to January 1, 2005.

(3)          Wholly OwnedProperties acquired during 2005, 2006 and 2007. Per unit amounts are based on a weighted average of 24,776 units.

(4)          Includesproperties either partially owned or sold during the period, commercial space,corporate housing, condominium conversions and $16.8 million included inbuilding improvements spent on eighteen specific assets related to majorrenovations and repositioning of these assets.

** **

**                The Operating Partnershipexpects to fund approximately $22.9**million for capitalexpenditures for replacements and building improvements for all establishedproperties for the remainder of 2007. This includes an average of approximately $1,000 per unit for capital improvementsfor established properties.

** **

**                During the nine months ended**September 30, 2007, the Operating Partnership’s total non-real estate capitaladditions, such as computer software, computer equipment, and furniture andfixtures and leasehold improvements to the Operating Partnership’s propertymanagement offices and its corporate offices, were approximately $6.0million.  The Operating Partnership expects to fundapproximately $1.3 million in total additions to non-real estate property forthe remainder of 2007.

**                Improvements to realestate and additions to non-real estate property were funded from net cashprovided by operating activities.**

** **

**          *DerivativeInstruments***

 

                In the normal course ofbusiness, the Operating Partnership is exposed to the effect of interest ratechanges.  The Operating Partnershiplimits these risks by following established risk management policies andprocedures including the use of derivatives to hedge interest rate risk on debtinstruments.

 

                The Operating Partnership has apolicy of only entering into contracts with major financial institutions basedupon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposurethat the derivatives are designed to hedge, the Operating Partnership has notsustained a material loss from those instruments nor does it anticipate anymaterial adverse effect on its net income or financial position in the futurefrom the use of derivatives.

 

                See Note 11 in the Notes toConsolidated Financial Statements for additional discussion of derivativeinstruments at September 30, 2007.

 

 

37

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** **

***          Other***

** **

**                Totaldistributions paid in October 2007 amounted to $137.7 million (excludingdistributions on Partially Owned Properties), which included certaindistributions declared during the quarter ended**September 30, 2007.

 

**Off-Balance Sheet Arrangements and Contractual Obligations**

 

**               **The Operating Partnership has co-invested in various properties thatare unconsolidated and accounted for under the equity method ofaccounting.  Management does not believethese investments have a materially different impact upon the OperatingPartnership’s liquidity, capital resources, credit or market risk than itsproperty management and ownership activities. During2000 and 2001, the Operating Partnership entered into institutional ventureswith an unaffiliated partner.  At therespective closing dates, the Operating Partnership sold and/or contributed 45properties containing 10,846 units to these ventures and retained a 25%ownership interest in the ventures.  TheOperating Partnership’s joint venture partner contributed cash equal to 75% ofthe agreed-upon equity value of the properties comprising the ventures, whichwas then distributed to the Operating Partnership.  The Operating Partnership’s strategy withrespect to these ventures was to reduce its concentration of properties in avariety of markets.  See also Note 4 inthe Notes to Consolidated Financial Statements for additional discussionregarding the sale of one of these properties containing 400 units.

** **

**                As of**September 30, 2007, the Operating Partnership has eleven projects totaling 3,289units in various stages of development with estimated completion dates rangingthrough June 30, 2010.  See Note 14 inthe Notes to Consolidated Financial Statements for additional discussion.

** **

**                See also Notes 2 and 6 in the Notesto Consolidated Financial Statements for additional discussion regarding theOperating Partnership’s investments in partially owned entities.**

** **

**                The Operating Partnership’scontractual obligations for the next five years and thereafter have not changedmaterially from the amounts and disclosures included in its annual report onForm 10-K, other than as it relates to scheduled debt maturities.  See the updated debt maturity scheduleincluded in Liquidity and Capital Resources for further discussion.**

** **

**CriticalAccounting Policies and Estimates**

** **

**                The Operating Partnership hasidentified six significant accounting policies as critical accountingpolicies.  These critical accountingpolicies are those that have the most impact on the reporting of our financialcondition and those requiring significant judgments and estimates.  With respect to these critical accountingpolicies, management believes that the application of judgments and assessmentsis consistently applied and produces financial information that fairly presentsthe results of operations for all periods presented.  The six critical accounting policies are:**

 

*                Impairmentof Long-Lived Assets, Including Goodwill*

 

**               **The Operating Partnershipperiodically evaluates its long-lived assets, including its investments in realestate and goodwill, for indicators of permanent impairment.  The judgments regarding the existence ofimpairment indicators are based on factors such as operational performance,market conditions, expected holding period of each asset and legal andenvironmental concerns.  Future eventscould occur which would cause the Operating Partnership to conclude thatimpairment indicators exist and an impairment loss is warranted.

 

 

38

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*                Depreciationof Investment in Real Estate*

 

*               *The OperatingPartnership depreciates the building component of its investment in real estateover a 30-year estimated useful life, building improvements over a 5-year to10-year estimated useful life and both the furniture, fixtures and equipmentand replacements components over a 5-year estimated useful life, all of whichare judgmental determinations.

 

*                CostCapitalization*

 

                See the *Capitalization of Fixed Assets and Improvements toReal Estate* section for discussion of the policy with respect tocapitalization vs. expensing of fixed asset/repair and maintenance costs.  In addition, the Operating Partnershipcapitalizes the payroll and associated costs of employees directly responsiblefor and who spend all of their time on the supervision of major capital and/orrenovation projects.  These costs arereflected on the balance sheet as an increase to depreciable property.

 

                The OperatingPartnership follows the guidance in SFAS No. 67, *Accounting for Costs and Initial Rental Operations of Real EstateProjects*, for all development projects and uses its professionaljudgment in determining whether such costs meet the criteria for capitalizationor must be expensed as incurred.  TheOperating Partnership capitalizes interest, real estate taxes and insurance andpayroll and associated costs for those individuals directly responsible for andwho spend all of their time on development activities, with capitalizationceasing no later than 90 days following issuance of the certificate ofoccupancy.  These costs are reflected onthe balance sheet as construction in progress for each specific property.  The Operating Partnership expenses asincurred all payroll costs of on-site employees working directly at ourproperties, except as noted above on our development properties prior tocertificate of occupancy issuance and on specific major renovation at selectedproperties when additional incremental employees are hired.

 

*                FairValue of Financial Instruments, Including Derivative Instruments*

 

*               *The valuationof financial instruments under SFAS No. 107 and SFAS No. 133 and its amendments(SFAS Nos. 137/138/149) requires the Operating Partnership to make estimatesand judgments that affect the fair value of the instruments.  The Operating Partnership, where possible,bases the fair values of its financial instruments, including its derivativeinstruments, on listed market prices and third party quotes. Where these arenot available, the Operating Partnership bases its estimates on current instrumentswith similar terms and maturities or on other factors relevant to the financialstatements.

 

*                RevenueRecognition*

 

                Rental incomeattributable to leases is recorded when due from residents and is recognizedmonthly as it is earned, which is not materially different than on astraight-line basis.  Leases entered intobetween a resident and a property for the rental of an apartment unit aregenerally year-to-year, renewable upon consent of both parties on an annual ormonthly basis.  Fee and asset managementrevenue and interest income are recorded on an accrual basis.

 

*                Share-BasedCompensation*

 

**               **The Companyaccounts for its share-based compensation in accordance with SFAS No.123(R),  * Share-Based Payment*, effectiveJanuary 1, 2006, which results in compensation expense being recorded based onthe fair value of the share compensation granted.

 

                AnyCommon Shares issued pursuant to EQR’s incentive equity compensation andemployee share purchase plans will result in the Operating Partnership issuingOP Units to EQR on a one-for-one basis, with the Operating Partnershipreceiving the net cash proceeds of such issuances.

 

 

39

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                TheBlack-Scholes option valuation model was developed for use in estimating thefair value of traded options that have no vesting restrictions and are fullytransferable.  This model is only onemethod of valuing options and the Company’s use of this model should not beinterpreted as an endorsement of its accuracy. Because the Company’s share options have characteristics significantlydifferent from those of traded options, and because changes in the subjectiveinput assumptions can materially affect the fair value estimate, in management’sopinion, the existing models do not necessarily provide a reliable singlemeasure of the fair value of its share options and the actual value of theoptions may be significantly different.

 

**Funds From Operations**

** **

**                Forthe nine months ended September 30, 2007, Funds From Operations (“FFO”)available to OP Units decreased by $32.0 million or 5.7%, as compared to thenine months ended September 30, 2006.**

** **

**                Forthe quarter ended**September 30, 2007,FFO available to OP Units decreased $23.2 million, or 11.9%, as compared to thequarter ended September 30, 2006.

** **

                The following is areconciliation of net income to FFO available to OP Units for the nine monthsand quarters ended September30, 2007 and 2006:

 
| **Funds From Operations***(Amounts in thousands)  (Unaudited)* | ** ** |
|----------------------------------------------------------------|------------|

 
| ** **                                                         | ** ** | **Nine Months Ended  September 30,** | ** ** | **Quarter Ended  September 30,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------------|------------|
| ** **                                                         | ** ** | **2007**                             | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income                                                         |       | $                                    | 923,756    |                             | $          | 650,739 |   | $ | 488,579 |   | $ | 74,029 |   |
| Adjustments:                                                       |       |                                 |       |                             |       |   |   |   |   |
| Depreciation                                                       |       | 441,517                              |       | 374,007                          |       | 151,103 |   | 129,467 |   |
| Depreciation —  Non-real estate additions                     |       | (6,137                               | )          | (5,615                           | )          | (1,964 | ) | (1,933 | ) |
| Depreciation —  Partially Owned and Unconsolidated Properties |       | 3,262                                |       | 3,473                            |       | 1,181 |   | 910 |   |
| Net gain on  sales of unconsolidated entities                      |       | (2,629                               | )          | (370                             | )          | (2,629 | ) | (18 | ) |
| Discontinued  operations:                                          |       |                                 |       |                             |       |   |   |   |   |
| Depreciation                                                       |       | 24,518                               |       | 66,601                           |       | 3,191 |   | 13,788 |   |
| Net gain on  sales of discontinued operations                      |       | (848,495                             | )          | (522,328                         | )          | (463,172 | ) | (20,031 | ) |
| Net incremental  gain on sales of condominium units                |       | 19,965                               |       | 31,431                           |       | 6,371 |   | 12,878 |   |
| Provision for  income taxes — Non-condo sales                 |       | (187                                 | )          | —                           |       | — |   | — |   |
|                                                               |       |                                 |       |                             |       |   |   |   |   |
| FFO (1)(2)                                                         |       | 555,570                              |       | 597,938                          |       | 182,660 |   | 209,090 |   |
| Preferred  distributions                                           |       | (19,594                              | )          | (31,461                          | )          | (4,320 | ) | (9,737 | ) |
| Premium on  redemption of Preference Units/Interests               |       | (6,144                               | )          | (4,625                           | )          | (6,144 | ) | (3,942 | ) |
| FFO available to  OP Units (1) (2)                                 |       | $                                    | 529,832    |                             | $          | 561,852 |   | $ | 172,196 |   | $ | 195,411 |   |

 

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***(1)****      **The National Association of Real Estate InvestmentTrusts (“NAREIT”) defines funds from operations (“FFO”) (April 2002 WhitePaper) as net income (computed in accordance with accounting principlesgenerally accepted in the United States (“GAAP”)), excluding gains (or losses)from sales of depreciable property, plus depreciation and amortization, andafter adjustments for unconsolidated partnerships and joint ventures.  Adjustments for unconsolidated partnershipsand joint ventures will be calculated to reflect funds from operations on thesame basis.  The April 2002 White Paperstates that gain or loss on sales of property is excluded from FFO forpreviously depreciated operating properties only.  Once the Operating Partnership commences theconversion of units to condominiums, it simultaneously discontinuesdepreciation of such property. FFO available to OP Units is calculated on abasis consistent with net income available to OP Units and reflects adjustmentsto net income for preferred distributions and premiums on redemption ofpreference units/interests in accordance with accounting principles generallyaccepted in the United States.*

** **

***(2)****      **The Operating Partnership believesthat FFO and FFO available to OP Units are helpful to investors as supplementalmeasures of the operating performance of a real estate company, because theyare recognized measures of performance by*

*** ***

** **

**40**

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** **

***the real estateindustry and by excluding gains or losses related to dispositions ofdepreciable property and excluding real estate depreciation (which can varyamong owners of identical assets in similar condition based on historical costaccounting and useful life estimates), FFO and FFO available to OP Units canhelp compare the operating performance of a company’s real estate betweenperiods or as compared to different companies. FFO and FFO available to OP Units do not represent net income, netincome available to OP Units or net cash flows from operating activities inaccordance with GAAP.  Therefore, FFO andFFO available to OP Units should not be exclusively considered as alternativesto net income, net income available to OP Units or net cash flows fromoperating activities as determined by GAAP or as measures of liquidity.  The Operating Partnership’s calculation ofFFO and FFO available to OP Units may differ from other real estate companiesdue to, among other items, variations in cost capitalization policies forcapital expenditures and, accordingly, may not be comparable to such other realestate companies.***

** **

**Item 3. Quantitative andQualitative Disclosures About Market Risk**

** **

**                TheOperating Partnership’s market risk has not changed materially from the amountsand information reported in Item 7A, *Quantitativeand Qualitative Disclosures About Market Risk*, to the OperatingPartnership’s Form 10-K for the year ended December 31, 2006.  See also Note 11 in the Notes to ConsolidatedFinancial Statements for additional discussion of derivative instruments.**

** **

**Item 4. Controls andProcedures**

** **

**                (a) Evaluation of Disclosure Controls and Procedures:**

**                Effectiveas of September 30, 2007, the Operating Partnership carried out an evaluation,under the supervision and with the participation of the Operating Partnership’smanagement, including the Chief Executive Officer and Chief Financial Officerof EQR, of the effectiveness of the Operating Partnership’s disclosure controlsand procedures pursuant to Exchange Act Rules 13a-15 and 15d-15.  Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that the disclosure controls andprocedures are effective to ensure that information required to be disclosed bythe Operating Partnership in its Exchange Act filings is recorded, processed,summarized and reported within the periods specified in the SEC’s rules andforms.**

** **

**               **(b) Changes in Internal Control over Financial Reporting:

**               **Therewere no changes to the internal control over financial reporting of the OperatingPartnership identified in connection with the Operating Partnership’sevaluation referred to above that occurred during the third quarter of 2007that have materially affected, or are reasonably likely to materially affect,the Operating Partnership’s internal control over financial reporting.

** **

**PART II.        OTHERINFORMATION**

** **

**Item 1.  LegalProceedings**

 

**               **The Operating Partnership****is party to a housing discrimination lawsuitbrought by a non-profit civil rights organization in April 2006 in the U.S.District Court for the District of Maryland. The suit alleges that the Operating Partnership designed and builtapproximately 300 of its properties in violation of the accessibilityrequirements of the Fair Housing Act and Americans with Disabilities Act.  The suit seeks actual and punitive damages,injunctive relief (including modification of non-compliant properties), costsand attorneys’ fees.  The OperatingPartnership believes it has a number of viable defenses, including that amajority of the named properties were completed before the operative dates ofthe statutes in question and/or were not designed or built by the OperatingPartnership.  Accordingly, the OperatingPartnership is defending the suit vigorously. Due to the pendency of the Operating Partnership’s defenses and theuncertainty of many other critical factual and legal issues, it is not possibleto determine or predict the outcome of the suit and as a result, no amountshave been accrued at September 30, 2007. While no assurances can be given, the Operating Partnership does notbelieve that the suit, if adversely determined, will have a material adverseeffect on the Operating Partnership.

 

                TheOperating Partnership does not believe there is any other litigation pending orthreatened against it 

 

 

41

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that, individually or in the aggregate,reasonably may be expected to have a material adverse effect on the OperatingPartnership.

** **

**Item 1A.  RiskFactors**

** **

**                There have been no materialchanges related to the risk factors that were discussed in Part I, Item 1A ofthe Operating Partnership’s Form 10-K for the year ended December 31, 2006.**

** **

**Item 2.    UnregisteredSales of Equity Securities and Use of Proceeds**

** **

                (c)  *OP Units Repurchased inthe Quarter Ended September 30, 2007*

 

                The OperatingPartnership repurchased the following OP Units during the quarter endedSeptember 30, 2007:

 

 
| **Period**          | ** ** | **Total  Number**

**of OP  Units**

**Purchased  (1)** | ** ** | **Average  Price**

**Paid Per  Unit (1)** | ** ** | **Total  Number of OP**

**Units  Purchased as Part of Publicly Announced**

**Plans or  Programs (1)** | ** ** | **Dollar  Value of OP**

**Units  that May Yet**

**Be  Purchased**

**Under  the Plans or**

**Programs  (1)** | ** ** |
|---------------------|------------|---------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|
|                |       |                                                    |       |                                       |       |                                                                                                    |       |                                                                                                            |       |
| July 2007           |       | 1,137,900                                               |       | $                                          | 45.35      |                                                                                                    | 1,137,900  |                                                                                                            | $          | 284,247,935 |   |
| August 2007         |       | 5,256,037                                               |       | $                                          | 39.88      |                                                                                                    | 5,256,037  |                                                                                                            | $          | 74,615,282 |   |
| September 2007      |       | 240,203                                                 |       | $                                          | 39.84      |                                                                                                    | 240,203    |                                                                                                            | $          | 65,045,391 |   |
| Third Quarter  2007 |       | 6,634,140                                               |       | $                                          | 40.82      |                                                                                                    | 6,634,140  |                                                                                                            |       |   |

 

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**(1)**          The OP Units repurchased during thequarter ended September 30, 2007 represent OP Units redeemed in response to repurchasesof Common Shares under the Company’s publicly announced share repurchaseprogram approved by its Board of Trustees. Of the total shares repurchased, 2,940 shares were repurchased fromemployees at an average price of $40.61 per share (the average of the thencurrent market prices) to cover the minimum statutory tax withholdingobligations related to the vesting of employees’ restricted shares.  The remaining 6,631,200 shares wererepurchased in the open market at an average price of $40.82 per share.   On April 27 and May 24, 2007, the Board ofTrustees approved an increase of $200.1 million and an additional $500.0million, respectively, to the Company’s authorized share repurchase program.Considering the above additional authorizations and the repurchase activity forthe quarter, EQR has authorization to repurchase an additional $65.0 million ofits shares as of September 30, 2007.

** **

**Item 6.    Exhibits—**See the Exhibit Index

** **

** **

**42**

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** **

** **

**SIGNATURES**

 

 

              Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |             |   | ERP OPERATING LIMITED PARTNERSHIP |
|--------|------------------|--------|-----------------------------------|
|   |             |   | BY: EQUITY RESIDENTIAL            |
|   |             |   | ITS GENERAL PARTNER               |
|   |             |   |                              |   |
| Date:  | November 7, 2007 |   | By: /s/                           | Mark J. Parrell |
|   |             |   |                              | Mark J. Parrell |
|   |             |   |                              | Executive Vice President and |
|   |             |   |                              | Chief Financial Officer |
|   |             |   |                              |   |
| Date:  | November 7, 2007 |   | By: /s/                           | Ian S. Kaufman |
|   |             |   |                              | Ian S. Kaufman |
|   |             |   |                              | First Vice President and |
|   |             |   |                              | Chief Accounting Officer |

 

 

43

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**EXHIBIT INDEX**

 

     The exhibitslisted below are filed as part of this report. References to exhibits or otherfilings under the caption “Location” indicate that the exhibit or other filinghas been filed, that the indexed exhibit and the exhibit referred to are thesame and that the exhibit referred to is incorporated by reference.  The Commission file number for our ExchangeAct filings referenced below is 0-24920.

 
| Exhibit  |       | Description                                                                                                                                                                                                      |       | Location                                                                                                                     |
|----------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|
| 10.1     |       | Resignation Agreement  dated September 5, 2007 by and between Equity Residential and Donna Brandin.                                                                                                              |       | Included  as Exhibit 10.1 to the Operating Partnership’s Form 8-K dated September 5,  2007, filed on September 6, 2007. |
|     |       |                                                                                                                                                                                                             |       |                                                                                                                         |
| 31.1     |       | Certification of David J.  Neithercut, Chief Executive Officer of Registrant’s General Partner.                                                                                                             |       | Attached  herein.                                                                                                            |
|     |       |                                                                                                                                                                                                             |       |                                                                                                                         |
| 31.2     |       | Certification of Mark J.  Parrell, Chief Financial Officer of Registrant’s General Partner.                                                                                                                 |       | Attached  herein.                                                                                                            |
|     |       |                                                                                                                                                                                                             |       |                                                                                                                         |
| 32.1     |       | Certification pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, of David J. Neithercut, Chief Executive Officer  of Registrant’s General Partner. |       | Attached  herein.                                                                                                            |
|     |       |                                                                                                                                                                                                             |       |                                                                                                                         |
| **32.2** | ** ** | **Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Mark J.  Parrell, Chief Financial Officer of Registrant’s General Partner.**  | ** ** | **Attached herein.**                                                                                                         |

 

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