**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C.  20549**

**FORM 10-Q**

**x****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15 (d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended JUNE 30, 2006**

**OR**

**o****TRANSITION REPORT PURSUANT TO SECTION13 OR 15 (d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**CommissionFile Number: 0-24920**

**ERPOPERATING LIMITED PARTNERSHIP**(Exact Name 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’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  Large accelerated filer x  Accelerated filer o Non-accelerated filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).  Yes o No x

 

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**ERP OPERATING LIMITED PARTNERSHIPCONSOLIDATED BALANCE SHEETS(Amounts in thousands)(Unaudited)**
| ** **                                                | ** ** | **June 30,  2006** | ** **     | **December 31,  2005** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|----------------|-----------------------------|------------|
| **ASSETS**                                                |       |                    | ** **     | ** **                  | ** ** |
| Investment in real  estate                                |       |                    |           |                        |       |
| Land                                                      |       | $                       | 3,003,791      |                        | $          | 2,848,601 |   |
| Depreciable  property                                     |       | 12,763,817              |           | 13,336,636                  |       |
| Projects under  development                               |       | 242,617                 |           | 240,980                     |       |
| Land held for  development                                |       | 208,437                 |           | 164,153                     |       |
| Investment in real  estate                                |       | 16,218,662              |           | 16,590,370                  |       |
| Accumulated  depreciation                                 |       | (2,772,806              | )              | (2,888,140                  | )          |
| Investment in real  estate, net                           |       | 13,445,856              |           | 13,702,230                  |       |
|                                                      |       |                    |           |                        |       |
| Real estate held for  sale                                |       | 635,270                 |           | —                      |       |
| Cash and cash  equivalents                                |       | 72,172                  |           | 88,828                      |       |
| Investments in  unconsolidated entities                   |       | 4,733                   |           | 6,838                       |       |
| Rents receivable                                          |       | 879                     |           | 789                         |       |
| Deposits – restricted                                |       | 95,855                  |           | 77,093                      |       |
| Escrow deposits –  mortgage                          |       | 28,831                  |           | 35,225                      |       |
| Deferred financing  costs, net                            |       | 40,628                  |           | 40,636                      |       |
| Goodwill, net                                             |       | 30,000                  |           | 30,000                      |       |
| Other assets                                              |       | 103,649                 |           | 117,306                     |       |
| **Total assets**                                          | ** ** | **$**                   | **14,457,873** | ** **                  | **$**      | **14,098,945** | ** ** |
|                                                      |       |                    |           |                        |       |
| **LIABILITIES AND PARTNERS’  CAPITAL**               |       |                    |           |                        |       |
| Liabilities:                                              |       |                    |           |                        |       |
| Mortgage notes  payable                                   |       | $                       | 3,096,427      |                        | $          | 3,379,289 |   |
| Mortgage notes  payable, held for sale                    |       | 207,029                 |           | —                      |       |
| Notes, net                                                |       | 3,838,697               |           | 3,442,784                   |       |
| Lines of credit                                           |       | 547,000                 |           | 769,000                     |       |
| Accounts payable  and accrued expenses                    |       | 113,855                 |           | 108,855                     |       |
| Accrued interest  payable                                 |       | 86,527                  |           | 78,441                      |       |
| Rents received  in advance and other liabilities          |       | 290,205                 |           | 302,418                     |       |
| Security  deposits                                        |       | 60,111                  |           | 54,823                      |       |
| Distributions  payable                                    |       | 145,226                 |           | 145,812                     |       |
| **Total  liabilities**                                    | ** ** | **8,385,077**           | ** **     | **8,281,422**               | ** ** |
| ** **                                                |       |                    |           |                        |       |
| *Commitments and contingencies*                           |       |                    |           |                        |       |
| **Minority Interests – Partially  Owned Properties** | ** ** | **20,163**              | ** **     | **16,965**                  | ** ** |
|                                                      |       |                    |           |                        |       |
| Partners’ capital:                                   |       |                    |           |                        |       |
| Preference Units                                          |       | 502,614                 |           | 504,096                     |       |
| Preference Interests  and Junior Preference Units         |       | 11,684                  |           | 60,184                      |       |
| General Partner                                           |       | 5,182,181               |           | 4,905,716                   |       |
| Limited Partners                                          |       | 367,081                 |           | 345,034                     |       |
| Accumulated other  comprehensive loss                     |       | (10,927                 | )              | (14,472                     | )          |
| **Total  partners’ capital**                         | ** ** | **6,052,633**           | ** **     | **5,800,558**               | ** ** |
| **Total liabilities and partners’  capital**         | ** ** | **$**                   | **14,457,873** | ** **                  | **$**      | **14,098,945** | ** ** |

**See accompanying notes**

2

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Amounts in thousands except per OP Unit data)**

**(Unaudited)**
| ** **                                                                                                                                                                                            | ** ** | **Six Months Ended June 30,** | ** ** | **Quarter Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                                                                                            | ** ** | **2006**                                          | ** ** | **2005**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| **REVENUES**                                                                                                                                                                                          |       |                                              |       |                                      |       |   |   |   |   |
| Rental income                                                                                                                                                                                         |       | $                                                 | 958,911    |                                      | $          | 808,922 |   | $ | 489,619 |   | $ | 412,207 |   |
| Fee and asset management                                                                                                                                                                              |       | 4,807                                             |       | 5,362                                     |       | 2,320 |   | 3,023 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| Total revenues                                                                                                                                                                                        |       | 963,718                                           |       | 814,284                                   |       | 491,939 |   | 415,230 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| **EXPENSES**                                                                                                                                                                                          |       |                                              |       |                                      |       |   |   |   |   |
| Property and maintenance                                                                                                                                                                              |       | 252,447                                           |       | 217,248                                   |       | 127,549 |   | 111,134 |   |
| Real estate taxes and insurance                                                                                                                                                                       |       | 97,079                                            |       | 86,632                                    |       | 49,354 |   | 43,371 |   |
| Property management                                                                                                                                                                                   |       | 46,664                                            |       | 41,407                                    |       | 23,067 |   | 20,796 |   |
| Fee and asset management                                                                                                                                                                              |       | 4,326                                             |       | 4,176                                     |       | 2,158 |   | 2,076 |   |
| Depreciation                                                                                                                                                                                          |       | 271,924                                           |       | 212,238                                   |       | 139,906 |   | 107,832 |   |
| General and administrative                                                                                                                                                                            |       | 23,190                                            |       | 31,502                                    |       | 9,584 |   | 13,758 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| Total expenses                                                                                                                                                                                        |       | 695,630                                           |       | 593,203                                   |       | 351,618 |   | 298,967 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| Operating income                                                                                                                                                                                      |       | 268,088                                           |       | 221,081                                   |       | 140,321 |   | 116,263 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| Interest and other income                                                                                                                                                                             |       | 4,365                                             |       | 62,270                                    |       | 2,011 |   | 2,790 |   |
| Interest:                                                                                                                                                                                             |       |                                              |       |                                      |       |   |   |   |   |
| Expense incurred, net                                                                                                                                                                                 |       | (209,049                                          | )          | (173,728                                  | )          | (104,117 | ) | (89,167 | ) |
| Amortization of deferred financing costs                                                                                                                                                              |       | (4,513                                            | )          | (3,230                                    | )          | (1,770 | ) | (1,566 | ) |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| Income before  allocation to Minority Interests, loss from investments in unconsolidated  entities, net gain (loss) on sales of unconsolidated entities and land  parcels and discontinued operations |       | 58,891                                            |       | 106,393                                   |       | 36,445 |   | 28,320 |   |
| Allocation to  Minority Interests – Partially Owned Properties                                                                                                                                   |       | (2,068                                            | )          | 2,296                                     |       | (547 | ) | 819 |   |
| Loss from  investments in unconsolidated entities                                                                                                                                                     |       | (375                                              | )          | (215                                      | )          | (145 | ) | (157 | ) |
| Net gain on  sales of unconsolidated entities                                                                                                                                                         |       | 352                                               |       | 124                                       |       | 23 |   | — |   |
| Net gain (loss)  on sales of land parcels                                                                                                                                                             |       | 246                                               |       | 10,366                                    |       | 246 |   | (2 | ) |
| Income from  continuing operations                                                                                                                                                                    |       | 57,046                                            |       | 118,964                                   |       | 36,022 |   | 28,980 |   |
| Discontinued  operations, net                                                                                                                                                                         |       | 519,664                                           |       | 283,792                                   |       | 135,140 |   | 125,496 |   |
| Net income                                                                                                                                                                                            |       | $                                                 | 576,710    |                                      | $          | 402,756 |   | $ | 171,162 |   | $ | 154,476 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| **ALLOCATION  OF NET INCOME:**                                                                                                                                                                        |       |                                              |       |                                      |       |   |   |   |   |
| Preference Units                                                                                                                                                                                      |       | $                                                 | 20,168     |                                      | $          | 26,043 |   | $ | 10,073 |   | $ | 13,018 |   |
| Preference  Interests and Junior Preference Units                                                                                                                                                     |       | $                                                 | 1,556      |                                      | $          | 5,279 |   | $ | 457 |   | $ | 1,391 |   |
| Premium on  redemption of Preference Interests                                                                                                                                                        |       | $                                                 | 683        |                                      | $          | 4,112 |   | $ | 9 |   | $ | 2,384 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| General Partner                                                                                                                                                                                       |       | $                                                 | 517,804    |                                      | $          | 342,340 |   | $ | 150,084 |   | $ | 128,326 |   |
| Limited Partners                                                                                                                                                                                      |       | 36,499                                            |       | 24,982                                    |       | 10,539 |   | 9,357 |   |
| Net income  available to OP Units                                                                                                                                                                     |       | $                                                 | 554,303    |                                      | $          | 367,322 |   | $ | 160,623 |   | $ | 137,683 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| **Earnings  per OP Unit – basic:**                                                                                                                                                               |       |                                              |       |                                      |       |   |   |   |   |
| Income from  continuing operations available to OP Units                                                                                                                                              |       | $                                                 | 0.11       |                                      | $          | 0.27 |   | $ | 0.08 |   | $ | 0.04 |   |
| Net income  available to OP Units                                                                                                                                                                     |       | $                                                 | 1.79       |                                      | $          | 1.20 |   | $ | 0.52 |   | $ | 0.45 |   |
| Weighted average  OP Units outstanding                                                                                                                                                                |       | 309,678                                           |       | 305,793                                   |       | 310,017 |   | 306,190 |   |
| ** **                                                                                                                                                                                            |       |                                              |       |                                      |       |   |   |   |   |
| **Earnings  per OP Unit – diluted:**                                                                                                                                                             |       |                                              |       |                                      |       |   |   |   |   |
| Income from  continuing operations available to OP Units                                                                                                                                              |       | $                                                 | 0.11       |                                      | $          | 0.27 |   | $ | 0.08 |   | $ | 0.04 |   |
| Net income  available to OP Units                                                                                                                                                                     |       | $                                                 | 1.76       |                                      | $          | 1.19 |   | $ | 0.51 |   | $ | 0.44 |   |
| Weighted average  OP Units outstanding                                                                                                                                                                |       | 314,420                                           |       | 309,362                                   |       | 314,698 |   | 309,979 |   |
|                                                                                                                                                                                                  |       |                                              |       |                                      |       |   |   |   |   |
| Distributions declared  per OP Unit outstanding                                                                                                                                                       |       | $                                                 | 0.8850     |                                      | $          | 0.8650 |   | $ | 0.4425 |   | $ | 0.4325 |   |

**See accompanying notes**

3

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| ** **                                                           | ** ** | **Six Months Ended June 30,** | ** ** | **Quarter Ended June 30,** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                          | ** ** | **2005**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                 |       |                                              |       |                                      |       |   |   |   |   |
| Comprehensive  income:                                               |       |                                              |       |                                      |       |   |   |   |   |
|                                                                 |       |                                              |       |                                      |       |   |   |   |   |
| Net income                                                           |       | $                                                 | 576,710    |                                      | $          | 402,756 |   | $ | 171,162 |   | $ | 154,476 |   |
| Other comprehensive income – derivative and other  instruments: |       |                                              |       |                                      |       |   |   |   |   |
| Unrealized holding gains (losses) arising during the  period         |       | 2,409                                             |       | (11,674                                   | )          | 886 |   | (14,842 | ) |
| Losses reclassified into earnings from other  comprehensive income   |       | 1,136                                             |       | 1,168                                     |       | 547 |   | 586 |   |
|                                                                 |       |                                              |       |                                      |       |   |   |   |   |
| Comprehensive income                                                 |       | $                                                 | 580,255    |                                      | $          | 392,250 |   | $ | 172,595 |   | $ | 140,220 |   |

**See accompanying notes**

4

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Amounts in thousands)**

**(Unaudited)**
| ** **                                                                           | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                           | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net income                                                                           |       | $                                                 | 576,710    |   | $ | 402,756 |   |
| *Adjustments  to reconcile net income to net cash provided by operating activities:* |       |                                              |       |   |   |
| Allocation to Minority Interests – Partially Owned  Properties                  |       | 2,068                                             |       | (2,296 | ) |
| Depreciation                                                                         |       | 297,472                                           |       | 259,268 |   |
| Amortization of deferred financing costs                                             |       | 5,146                                             |       | 3,503 |   |
| Amortization of discounts and premiums on debt                                       |       | (3,644                                            | )          | (813 | ) |
| Amortization of deferred settlements on derivative  instruments                      |       | 446                                               |       | 478 |   |
| (Income) from technology investments                                                 |       | —                                            |       | (57,054 | ) |
| Loss from investments in unconsolidated entities                                     |       | 375                                               |       | 215 |   |
| Distributions from  unconsolidated entities – return on capital                 |       | 101                                               |       | — |   |
| Net (gain) on sales of  unconsolidated entities                                      |       | (352                                              | )          | (124 | ) |
| Net (gain) on sales of land  parcels                                                 |       | (246                                              | )          | (10,366 | ) |
| Net (gain) on sales of discontinued operations                                       |       | (502,297                                          | )          | (248,875 | ) |
| Loss on debt extinguishments                                                         |       | 2,892                                             |       | 5,307 |   |
| Unrealized loss on derivative instruments                                            |       | —                                            |       | 3 |   |
| Compensation paid with Company  Common Shares                                        |       | 10,858                                            |       | 18,069 |   |
| Other operating activities, net                                                      |       | 1,155                                             |       | 1 |   |
| * *                                                                             |       |                                              |       |   |   |
| *Changes  in assets and liabilities:*                                                |       |                                              |       |   |   |
| (Increase) decrease in rents receivable                                              |       | (83                                               | )          | 760 |   |
| Increase in deposits – restricted                                               |       | (9,570                                            | )          | (1,094 | ) |
| Decrease (increase) in other assets                                                  |       | 8,608                                             |       | (3,923 | ) |
| Increase (decrease) in accounts payable and accrued  expenses                        |       | 9,272                                             |       | (1,156 | ) |
| Increase in accrued interest payable                                                 |       | 7,931                                             |       | 828 |   |
| (Decrease) in rents received in advance and other  liabilities                       |       | (48,065                                           | )          | (8,958 | ) |
| Increase in security deposits                                                        |       | 4,954                                             |       | 469 |   |
| Net cash provided by operating activities                                            |       | 363,731                                           |       | 356,998 |   |
|                                                                                 |       |                                              |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                           |       |                                              |       |   |   |
| Investment in real estate – acquisitions                                        |       | (907,963                                          | )          | (642,332 | ) |
| Investment in real estate – development/other                                   |       | (122,771                                          | )          | (82,375 | ) |
| Improvements to real estate                                                          |       | (106,441                                          | )          | (93,431 | ) |
| Additions to non-real estate property                                                |       | (4,086                                            | )          | (4,109 | ) |
| Interest capitalized for real estate under  development                              |       | (7,780                                            | )          | (5,761 | ) |
| Proceeds from disposition of real estate, net                                        |       | 1,002,714                                         |       | 835,703 |   |
| Proceeds from disposition of unconsolidated entities                                 |       | 355                                               |       | 124 |   |
| Proceeds from technology investments                                                 |       | —                                            |       | 82,054 |   |
| Investments in unconsolidated entities                                               |       | (1,030                                            | )          | (410 | ) |
| Distributions from unconsolidated entities – return  of capital                 |       | 92                                                |       | 330 |   |
| Decrease (increase) in deposits on real estate  acquisitions, net                    |       | 10,178                                            |       | (88,818 | ) |
| Decrease in mortgage deposits                                                        |       | 6,794                                             |       | 1,238 |   |
| *Consolidation of previously Unconsolidated  Properties:*                            |       |                                              |       |   |   |
| Via acquisition (net of cash acquired)                                               |       | —                                            |       | (65 | ) |
| Via EITF 04-05 (cash consolidated)                                                   |       | 1,436                                             |       | — |   |
| Acquisition of Minority Interests – Partially Owned  Properties                 |       | (13                                               | )          | (1,143 | ) |
| Other investing activities, net                                                      |       | 2                                                 |       | — |   |
| Net cash (used  for) provided by investing activities                                |       | (128,513                                          | )          | 1,005 |   |
|                                                                                      |            |                                                   |            |  |  |  |  |

**See accompanying notes**

5

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASHFLOWS (Continued)**

**(Amounts in thousands)**

**(Unaudited)**
| ** **                                                                 | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                 |       |                                              |       |   |   |
| Loan and bond  acquisition costs                                           |       | $                                                 | (4,880     | ) | $ | (6,759 | ) |
| *Mortgage  notes payable:*                                                 |       |                                              |       |   |   |
| Proceeds                                                                   |       | 208,937                                           |       | 149,129 |   |
| Restricted cash                                                            |       | (19,196                                           | )          | — |   |
| Lump sum payoffs                                                           |       | (232,532                                          | )          | (197,886 | ) |
| Scheduled principal repayments                                             |       | (13,644                                           | )          | (14,392 | ) |
| Prepayment premiums/fees                                                   |       | (2,892                                            | )          | (5,307 | ) |
| *Notes,  net:*                                                             |       |                                              |       |   |   |
|   Proceeds                                                       |       | 398,052                                           |       | — |   |
|   Lump sum payoffs                                               |       | —                                            |       | (120,000 | ) |
| *Lines  of credit:*                                                        |       |                                              |       |   |   |
| Proceeds                                                                   |       | 3,207,500                                         |       | 2,037,800 |   |
| Repayments                                                                 |       | (3,429,500                                        | )          | (1,759,800 | ) |
| Proceeds from  settlement of derivative instruments                        |       | 10,729                                            |       | — |   |
| Proceeds from  sale of OP Units                                            |       | 5,218                                             |       | 6,155 |   |
| Proceeds from  exercise of EQR options                                     |       | 24,159                                            |       | 20,781 |   |
| OP Units  repurchased and retired                                          |       | (81,981                                           | )          | — |   |
| Redemption of  Preference Interests                                        |       | (25,500                                           | )          | (146,000 | ) |
| Premium on  redemption of Preference Interests                             |       | (9                                                | )          | (300 | ) |
| Payment of  offering costs                                                 |       | (23                                               | )          | (26 | ) |
| Contributions –  Minority Interests – Partially Owned Properties |       | 3,327                                             |       | 1,756 |   |
| *Distributions:*                                                           |       |                                              |       |   |   |
| OP Units – General Partner                                            |       | (256,591                                          | )          | (247,193 | ) |
| Preference Units                                                           |       | (21,243                                           | )          | (26,101 | ) |
| Preference Interests and Junior Preference Units                           |       | (1,609                                            | )          | (5,451 | ) |
| OP Units – Limited Partners                                           |       | (18,012                                           | )          | (17,897 | ) |
| Minority Interests – Partially Owned Properties                       |       | (2,184                                            | )          | (7,265 | ) |
| Net cash (used for) financing activities                                   |       | (251,874                                          | )          | (338,756 | ) |
| Net (decrease)  increase in cash and cash equivalents                      |       | (16,656                                           | )          | 19,247 |   |
| Cash and cash  equivalents, beginning of period                            |       | 88,828                                            |       | 83,505 |   |
| Cash and cash  equivalents, end of period                                  |       | $                                                 | 72,172     |   | $ | 102,752 |   |

**See accompanying notes**

6

----

 
| ** **                                                                       | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
|                                                                             |       |                                              |       |   |   |
| **SUPPLEMENTAL  INFORMATION:**                                                   | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Cash paid during  the period for interest                                        |       | $                                                 | 222,774    |   | $ | 192,691 |   |
| Cash paid during  the period for income, franchise and excise taxes              |       | $                                                 | 7,509      |   | $ | 3,789 |   |
|                                                                             |       |                                              |       |   |   |
| *Real  estate acquisitions/dispositions/other:*                                  |       |                                              |       |   |   |
| Mortgage loans assumed                                                           |       | $                                                 | 63,243     |   | $ | 122,267 |   |
| Valuation of OP Units issued                                                     |       | $                                                 | 46,472     |   | $ | 19,990 |   |
| Mortgage loans (assumed) by purchaser                                            |       | $                                                 | (117,949   | ) | $ | (24,999 | ) |
|                                                                             |       |                                              |       |   |   |
| *Consolidation  of previously Unconsolidated Properties – Via acquisition:* |       |                                              |       |   |   |
| Investment in real estate                                                        |       | $                                                 | —     |   | $ | (2,892 | ) |
| Mortgage loans assumed                                                           |       | $                                                 | —     |   | $ | 2,012 |   |
| Minority Interests – Partially Owned Properties                             |       | $                                                 | —     |   | $ | 59 |   |
| Investments in unconsolidated entities                                           |       | $                                                 | —     |   | $ | 668 |   |
| Net other liabilities recorded                                                   |       | $                                                 | —     |   | $ | 88 |   |
|                                                                             |       |                                              |       |   |   |
| *Consolidation  of previously Unconsolidated Properties – Via EITF 04-05:*  |       |                                              |       |   |   |
| 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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** **

**ERP OPERATING LIMITED PARTNERSHIP**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

**1.             Business**

ERPOperating Limited Partnership (“ERPOP”), a limited partnership, was formed inMay 1993 to conduct the multifamily residential property business of EquityResidential (“EQR”). EQR is a real estate investment trust (“REIT”) formed inMarch 1993 and is a fully integrated real estate company primarily engaged inthe acquisition, development, ownership, management and operation ofmultifamily properties. In addition, ERPOP may acquire or develop multifamilyproperties specifically to convert directly into condominiums as well asupgrade and sell existing properties as individual condominiums. ERPOP may alsoacquire land parcels to hold and/or sell based on market opportunities. EQR haselected to be taxed as a REIT.

EQR isthe general partner of, and as of June 30, 2006 owned an approximate 93.4%ownership interest in, ERPOP. EQR is structured as an umbrella partnership REIT(“UPREIT”), under which all property ownership and business operations areconducted through ERPOP and its subsidiaries. As used herein, the term “OperatingPartnership” includes ERPOP and those entities owned or controlled by it. Asused herein, the term “Company” means EQR and the Operating Partnership.

As ofJune 30, 2006, the Operating Partnership, directly or indirectly throughinvestments in title holding entities, owned all or a portion of 898****properties in 31 states and the District of Columbiaconsisting of 191,582 units (table does not include various uncompleteddevelopment properties). The ownership breakdown includes:

|                                 | ** ** | **Properties** | ** ** | **Units** | ** ** |
|---------------------------------|------------|----------------|------------|-----------|------------|
| Wholly Owned  Properties        |       | 810            |       | 170,221   |       |
| Partially Owned  Properties:    |       |           |       |      |       |
| Consolidated                    |       | 42             |       | 6,872     |       |
| Unconsolidated                  |       | 45             |       | 10,846    |       |
| Military Housing  (Fee Managed) |       | 1              |       | 3,643     |       |
|                            |       | 898            |       | 191,582   |       |

**2.**              Summary of Significant Accounting Policies

*Basis ofPresentation*

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States for interim financial information and with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements. Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) and certain reclassifications considered necessary for a fairpresentation have been included. Certain reclassifications have been made tothe prior period financial statements in order to conform to the current yearpresentation. Operating results for the quarter ended June 30, 2006 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2006.

Thebalance sheet at December 31, 2005 has been derived from the audited financialstatements at that date but does not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements.

Forfurther information, including definition of capitalized terms not definedherein, refer to the consolidated financial statements and footnotes theretoincluded in the Operating Partnership’s annual report on 

8

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Form 10-K for theyear ended December 31, 2005.

*Other*

The Company adopted SFAS No. 123(R), *Share-Based Payment*, as required effective January 1, 2006. SFASNo. 123(R) requires all companies to expense stock-based compensation (such asstock options), as well as making other revisions to SFAS No. 123. As theCompany began expensing all stock-based compensation effective January 1, 2003,the adoption of SFAS No. 123(R) did not have a material effect on itsconsolidated statements of operations or financial position.

Any Common Shares issued pursuant to EQR’s incentiveequity compensation and employee share purchase plans will result in theOperating Partnership issuing units of limited partnership interest (“OP Units”)to EQR on a one-for-one basis, with the Operating Partnership receiving the netcash 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 FSP No. FAS 150-3 require the OperatingPartnership to make certain disclosures regarding noncontrolling interests thatare classified as equity in the financial statements of a subsidiary but wouldbe classified as a liability in the parent’s financial statements under SFASNo. 150 (e.g., minority interests in consolidated limited-life subsidiaries). TheOperating Partnership is presently the controlling partner in variousconsolidated partnerships consisting of 42 properties and 6,872 units andvarious uncompleted development properties having a minority interest bookvalue of $20.2 million at June 30, 2006. Some of these partnerships containprovisions that require the partnerships to be liquidated through the sale ofits assets upon reaching a date specified in each respective partnershipagreement. The Operating Partnership, as controlling partner, has an obligationto cause the property owning partnerships to distribute proceeds of liquidationto the Minority Interests in these Partially Owned Properties only to theextent that the net proceeds received by the partnerships from the sale of itsassets warrant a distribution based on the partnership agreements. As of June30, 2006, the Operating Partnership estimates the value of Minority Interestdistributions would have been approximately $96.4 million (“Settlement Value”)had the partnerships been liquidated. This Settlement Value is based onestimated third party consideration realized by the partnerships upondisposition of the Partially Owned Properties and is net of all other assetsand liabilities, including yield maintenance on the mortgages encumbering theproperties, that would have been due on June 30, 2006 had those mortgages beenprepaid. Due to, among other things, the inherent uncertainty in the sale ofreal estate 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 the partnerships’ underlying assets are worthless than the underlying liabilities, the Operating Partnership has noobligation to remit any consideration to the Minority Interests in PartiallyOwned Properties.

TheOperating Partnership adopted EITF Issue No. 04-05, *DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity When the Limited Partners Have CertainRights* (“Issue 04-05”), effective January 1, 2006. Issue 04-05provides guidance in determining whether a general partner controls a limitedpartnership. The Operating Partnership consolidated its Lexford syndicatedportfolio consisting of 20 separate partnerships (10 properties) containing1,272 units, all of which are included as held for sale at June 30, 2006. Theadoption did not have a material effect on the results of operations orfinancial position. See Note 4 for further discussion of the adoption of EITFIssue No. 04-05.

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

## The following tables present the changes inthe Operating Partnership’s issued and outstanding OP Units and the limitedpartners’ OP Units for the six months ended June 30, 2006:

9

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|                                                    | ** ** | **2006**        | ** ** |
|----------------------------------------------------|------------|-----------------|------------|
| OP Units outstanding at  January 1,                |       | 309,960,589     |       |
|                                               |       |            |       |
| Issued to General  Partner:                        |       |            |       |
| Conversion of Series E  Preference Units           |       | 61,510          |       |
| Conversion of Series H  Preference Units           |       | 5,791           |       |
| Conversion of Series H  and I Preference Interests |       | 679,686         |       |
| Employee Share Purchase  Plan                      |       | 145,758         |       |
| Exercise of EQR options                            |       | 911,767         |       |
| Restricted EQR share  grants, net                  |       | 637,057         |       |
|                                               |       |            |       |
| Issued to Limited  Partners:                       |       |            |       |
| Issuance – Acquisitions                       |       | 1,079,001       |       |
|                                               |       |            |       |
| OP Units Other:                                    |       |            |       |
| Repurchased and retired                            |       | (1,871,883      | )          |
| **OP Units outstanding at June 30,**               | ** ** | **311,609,276** | ** ** |

 
|                                                                       | ** ** | **2006**       | ** **   |
|-----------------------------------------------------------------------|------------|----------------|--------------|
| Limited Partner OP  Units outstanding at January 1,                   |       | 20,424,245     |         |
|                                                                  |       |           |         |
| Limited Partner OP  Units Issued:                                     |       |           |         |
| Acquisitions                                                          |       | 1,079,001      |         |
| Conversion of Limited  Partner OP Units to EQR Common Shares          |       | (849,798       | )            |
| **Limited Partner OP Units  Outstanding at June 30,**                 | ** ** | **20,653,448** | ** **   |
| Limited Partner OP  Units Ownership Interest in Operating Partnership |       | 6.6            | %            |
|                                                                  |       |           |         |
| Limited Partner OP  Units Issued:                                     |       |           |         |
| Acquisitions –  per unit                                         |       | $              | 43.07        |   |
| Acquisitions –  valuation                                        |       | $              | 46.5 million |   |

**During the sixmonths ended June 30, 2006, the Company repurchased 1,871,883 of its CommonShares on the open market at an average price of $43.80 per share. The Companypaid approximately $82.0 million for these shares, which were retiredsubsequent to the repurchase. Concurrent with this transaction, the OperatingPartnership repurchased and retired 1,871,883 OP Units previously issued toEQR.**

**The LimitedPartners of the Operating Partnership as of June 30, 2006 include variousindividuals and entities that contributed their properties to the OperatingPartnership in exchange for OP Units.**Subject to certainrestrictions, the Limited Partners may exchange their OP Units for EQR CommonShares on a one-for-one basis.

**EQR contributesall net proceeds from its various equity offerings (including proceeds fromexercise of options for EQR Common Shares) to the Operating Partnership. Inreturn for those contributions, EQR receives a number of OP Units in ERPOPequal to the number of Common Shares it has issued in the equity offering (orin the case of a preferred equity offering, a number of preference units inERPOP equal in number and having the same terms as the preferred shares issuedin the equity offering).**

Thefollowing table presents the Operating Partnership’s issued and outstanding “PreferenceUnits” as of June 30, 2006 and December 31, 2005:

10

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| ** **                                                                                                                                                                                       | ** ** | ** **                             | ** ** | ** **                    | ** ** | **Annual**                                 | ** ** | **Amounts in thousands** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                                                                                                       | ** ** | **Redemption  Date (1) (2)** | ** ** | **Conversion  Rate (2)** | ** ** | **Dividend per   Unit (3)** | ** ** | **June  30, 2006**            | ** ** | **December  31, 2005** | ** ** |
| Preference Units:                                                                                                                                                                                |       |                                   |       |                          |       |                                       |       |                               |       |   |   |
|                                                                                                                                                                                             |       |                                   |       |                          |       |                                       |       |                               |       |   |   |
| 9  1/8% Series C Cumulative Redeemable Preference Units; liquidation value $250  per unit; 460,000 units issued and outstanding at June 30, 2006 and December  31, 2005 (4)                      |       | 9/9/06                                 |       | N/A                           |       | $                                          | 22.8125    |                               | $          | 115,000 |   | $ | 115,000 |   |
|                                                                                                                                                                                             |       |                                   |       |                          |       |                                       |       |                               |       |   |   |
| 8.60%  Series D Cumulative Redeemable Preference Units; liquidation value $250 per  unit; 700,000 units issued and outstanding at June 30, 2006 and December 31,  2005 (4)                       |       | 7/15/07                                |       | N/A                           |       | $                                          | 21.50      |                               | 175,000    |   | 175,000 |   |
|                                                                                                                                                                                             |       |                                   |       |                          |       |                                       |       |                               |       |   |   |
| 7.00%  Series E Cumulative Convertible Preference Units; liquidation value $25 per  unit; 473,816 and 529,096 units issued and outstanding at June 30, 2006 and  December 31, 2005, respectively |       | 11/1/98                                |       | 1.1128                        |       | $                                          | 1.75       |                               | 11,846     |   | 13,228 |   |
|                                                                                                                                                                                             |       |                                   |       |                          |       |                                       |       |                               |       |   |   |
| 7.00%  Series H Cumulative Convertible Preference Units; liquidation value $25 per  unit; 30,734 and 34,734 units issued and outstanding at June 30, 2006 and  December 31, 2005, respectively   |       | 6/30/98                                |       | 1.4480                        |       | $                                          | 1.75       |                               | 768        |   | 868 |   |
|                                                                                                                                                                                             |       |                                   |       |                          |       |                                       |       | ** **                         |       |   |   |
| 8.29%  Series K Cumulative Redeemable Preference Units; liquidation value $50 per  unit; 1,000,000 units issued and outstanding at June 30, 2006 and December  31, 2005                          |       | 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 June 30, 2006 and December 31,  2005 (4)                       |       | 6/19/08                                |       | N/A                           |       | $                                          | 16.20      |                               | 150,000    |   | 150,000 |   |
|                                                                                                                                                                                             |       |                                   |       |                          |       |                                       |       | $                                  | 502,614    |   | $ | 504,096 |   |

 

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(1)          On or after the redemption date, redeemable preference units (Series C,D, K and N) may be redeemed for cash at the option of the OperatingPartnership, in whole or in part, at a redemption price equal to theliquidation price per unit, plus accrued and unpaid distributions, if any, inconjunction with the concurrent redemption of the corresponding EQR PreferredShares.

(2)          On or after the redemption date, convertible preference units (Series E& H) may be redeemed under certain circumstances at the option of theOperating Partnership for cash (in the case of Series E) or OP Units (in thecase of Series H), in whole or in part, at various redemption prices per unitbased upon the contractual conversion rate, plus accrued and unpaiddistributions, if any, in conjunction with the concurrent redemption/conversionof the corresponding EQR Preferred Shares.

(3)          Dividends on all series of Preference Units are payable quarterly atvarious pay dates. Dividends listed for Series C, D and N are Preference Unitrates and the equivalent Depositary Unit annual dividends are $2.28125, $2.15and $1.62 per unit, respectively.

(4)          Series C, D and N Preference Units each have a corresponding depositaryunit that consists of ten times the number of units and one-tenth theliquidation value and dividend per unit.

Thefollowing table presents the issued and outstanding Preference Interests as ofJune 30, 2006 and December 31, 2005:

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| ** **                                                                                                                                                                                             | ** ** | ** **                             | ** ** | ** **                    | ** ** | ** **                                       | ** ** | **Amounts in thousands** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------|------------|--------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                                                                                                             | ** ** | **Redemption  Date (1) (2)** | ** ** | **Conversion  Rate (2)** | ** ** | **Annual  Dividend per Unit (3)** | ** ** | **June  30, 2006**            | ** ** | **December  31, 2005** | ** ** |
|   Preference Interests:                                                                                                                                                                      |       |                                   |       |                          |       |                                             |       |                               |       |   |   |
|                                                                                                                                                                                                   |       |                                   |       |                          |       |                                             |       |                               |       |   |   |
| 7.875% Series G  Cumulative Redeemable Preference Units; liquidation value $50 per unit; 0 and  510,000 units issued and outstanding at June 30, 2006 and December 31, 2005,  respectively             |       | 03/21/06                               |       | N/A                           |       | (4                                               | )          | $                                  | —     |   | $ | 25,500 |   |
|                                                                                                                                                                                                   |       |                                   |       |                          |       |                                             |       |                               |       |   |   |
| 7.625% Series H  Cumulative Convertible Redeemable Preference Units; liquidation value $50 per  unit; 0 and 190,000 units issued and outstanding at June 30, 2006 and  December 31, 2005, respectively |       | 03/23/06                               |       | 1.5108                        |       | (5                                               | )          | —                             |       | 9,500 |   |
|                                                                                                                                                                                                   |       |                                   |       |                          |       |                                             |       |                               |       |   |   |
| 7.625% Series I  Cumulative Convertible Redeemable Preference Units; liquidation value $50 per  unit; 0 and 270,000 units issued and outstandingat June 30, 2006 and December  31, 2005, respectively  |       | 06/22/06                               |       | 1.4542                        |       | (6                                               | )          | —                             |       | 13,500 |   |
|                                                                                                                                                                                                   |       |                                   |       |                          |       |                                             |       |                               |       |   |   |
| 7.625% Series J  Cumulative Convertible Redeemable Preference Units; liquidation value $50 per  unit; 230,000 units issued and outstanding at June 30, 2006 and December 31,  2005                     |       | 12/14/06                               |       | 1.4108                        |       | $                                                | 3.8125     |                               | 11,500     |   | 11,500 |   |
|                                                                                                                                                                                                   |       |                                   |       |                          |       |                                             |       |                               |       |   |   |
|                                                                                                                                                                                                   |       |                                   |       |                          |       |                                             |       | $                                  | 11,500     |   | $ | 60,000 |   |
|                                                                                                                                                                                                        |            |                                        |            |                               |            |                                                  |            |                                    |            |  |  |  |  |  |

 

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(1)          On or after the fifth anniversary of the respectiveissuance (the “Redemption Date”), all of the Preference Interests may beredeemed for cash at the option of the Operating Partnership, in whole or inpart, at any time or from time to time, at a redemption price equal to theliquidation preference of $50.00 per unit plus the cumulative amount of accruedand unpaid distributions, if any.

(2)          On or after the tenth anniversary of the respectiveissuance (the “Conversion Date”), all of the Preference Interests areexchangeable at the option of the holder (in whole but not in part) on aone-for-one basis for a respective reserved series of EQR Preferred Shares. Inaddition, on or after the Conversion Date, the convertible Preference Interestsmay be converted under certain circumstances at the option of the holder (in wholebut not in part) to EQR Common Shares based upon the contractual conversionrate, plus accrued and unpaid distributions, if any. Prior to the ConversionDate, the convertible Preference Interests may be converted under certaincircumstances at the option of the holder (in whole but not in part) to EQRCommon Shares based upon the contractual conversion rate, plus accrued andunpaid distributions, if any, if the issuer has called the series forredemption (the “Accelerated Conversion Right”).

(3)          Dividends on all series of Preference Interests are payablequarterly on March 25th, June 25th, September 25th and December 25th of each year.

(4)          On February 10, 2006, the Operating Partnership issued anirrevocable notice to redeem for cash on March 21, 2006 all 510,000 units ofits 7.875% Series G Preference Interests with a liquidation value of $25.5million. The Operating Partnership recorded approximately $0.7 million aspremiums on redemption of Preference Interests in the accompanying consolidatedstatements of operations.

(5)          On February 10, 2006, the Operating Partnership issued anirrevocable notice to redeem for cash on March 23, 2006 all 190,000 units ofits 7.625% Series H Preference Interests with a liquidation value of $9.5million. This notice triggered the holders’ Accelerated Conversion Right, whichthey exercised. As a result, effective March 23, 2006, the 190,000 units wereconverted to 287,052 EQR Common Shares.

(6)          On May 16, 2006, the Operating Partnership issued anirrevocable notice to redeem for cash on June 22, 2006 all 270,000 units of its7.625% Series I Preference Interests with a liquidation value of $13.5 million.This notice triggered the holder’s Accelerated Conversion Right, which theyexercised. As a result, effective June 22, 2006, the 270,000 units wereconverted to 392,634 EQR Common Shares.

Thefollowing table presents the Operating Partnership’s issued and outstandingJunior Convertible Preference Units (the “Junior Preference Units”) as of June30, 2006 and December 31, 2005:

12

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| ** **                                                                                                                                                | ** ** | ** **                          | ** ** | ** **                          | ** ** | ** **                                   | ** ** | **Amounts in thousands** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|----------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                                                                | ** ** | **Redemption   Date (2)** | ** ** | **Conversion   Rate (2)** | ** ** | **Annual  Dividend  per Unit (1)** | ** ** | **June  30, 2006**            | ** ** | **December  31, 2005** | ** ** |
| Junior Preference  Units:                                                                                                                                 |       |                                |       |                                |       |                                         |       |                               |       |   |   |
|                                                                                                                                                      |       |                                |       |                                |       |                                         |       |                               |       |   |   |
| Series B Junior  Convertible Preference Units; liquidation value $25 per unit; 7,367 units  issued and outstanding at June 30, 2006 and December 31, 2005 |       | 07/29/09                            |       | 1.020408                            |       | $                                            | 2.00       |                               | $          | 184 |   | $ | 184 |   |
|                                                                                                                                                      |       |                                |       |                                |       |                                         |       | $                                  | 184        |   | $ | 184 |   |
|                                                                                                                                                           |            |                                     |            |                                     |            |                                              |            |                                    |            |  |  |  |  |  |

 

----

(1)          Dividends on the Junior Preference Units are payable quarterly atvarious pay dates.

(2)          On or after the tenth anniversary of the issuance (the “Redemption Date”),the Series B Junior Preference Units may be converted into OP Units at theoption of the Operating Partnership based on the contractual conversion rate. Priorto the Redemption Date, the holders may elect to convert the Series B JuniorPreference Units to OP Units under certain circumstances based on thecontractual conversion rate. The contractual rate is based upon a ratiodependent upon the closing price of EQR’s Common Shares.

**4.**              Real Estate

**During the six months ended June 30, 2006, the OperatingPartnership acquired the entire equity interest in eighteen**properties containing 4,922 units andfive land parcels from unaffiliated parties for a total purchase price of $1.0billion. The Operating Partnership also acquired the majority of its partners’interests in four partially owned properties containing 566 units for $32.2million, partially funded through the issuance of 417,039 OP Units valued at$18.6 million.

**The Operating Partnership adopted EITF Issue No. 04-05, asrequired for existing limited partnership arrangements, effective January 1,2006. The adoption required the consolidation of the Lexford syndicatedportfolio consisting of 20 separate partnerships (10 properties) containing1,272 units, all of which are included as held for sale at June 30, 2006. TheOperating Partnership recorded $24.6 million in investment in real estate andthe following:**

·                  Consolidated $22.5 million inmortgage debt;

·                  Reduced investments in unconsolidatedentities by $2.6 million;

·                  Consolidated $0.9 million of otherliabilities net of other assets acquired; and

·                  Consolidated$1.4 million of cash.

Duringthe six months ended June 30, 2006, the Operating Partnership disposed of thefollowing to unaffiliated parties (sales price in thousands):
|                    | ** ** | **Properties** | ** ** | **Units** | ** ** | **Sales Price** | ** ** |
|--------------------|------------|----------------|------------|-----------|------------|-----------------|------------|
| Rental Properties  |       | 38             |       | 10,528    |       | $1,029,459      |       |
| Condominium Units  |       | 4              |       | 525       |       | 107,156         |       |
| Land Parcels (one) |       | —         |       | —    |       | 900             |       |
|               |       | 42             |       | 11,053    |       | $1,137,515      |       |

**On June 28, 2006, the OperatingPartnership announced that it agreed to sell its Lexford Housing Division for acash purchase price of $1.086 billion. EQR’s Board of Trustees has approved thesale, which is expected to close in the fourth quarter of 2006. The LexfordHousing Division properties and related mortgage notes payable are classifiedas held for sale on the accompanying consolidated balance sheets as of June 30,2006 and the operations have been reclassified to discontinued operations, neton the accompanying statements of operations for all periods presented. TheOperating Partnership plans to payoff $207.0 million of mortgage notes payablesecured by the properties and expects to incur approximately $6.4 million inprepayment penalties upon extinguishment. See Note 13 for additionalinformation.**

13

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**The OperatingPartnership recognized a net gain on sales of discontinued operations ofapproximately $502.3 million (amount is net of $8.1 million of income taxesincurred on condominium sales**– see additional discussion in Note 13), a net gain onsales of land parcels of $0.2 million and a net gain on sales of unconsolidatedentities of $0.4 million on the above sales.

**5.****              Commitments toAcquire/Dispose of Real Estate**

**As of August 2,2006, in addition to the properties that were subsequently acquired asdiscussed in Note 16, the Operating Partnership had entered into separateagreements to acquire the following (purchase price in thousands):**
|                      | ** ** | **Properties/  Parcels** | ** ** | **Units** | ** ** | **Purchase  Price** | ** ** |
|----------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Operating Properties |       | 6                        |       | 1,178     |       | $240,450            |       |
| Land Parcels         |       | 2                        |       | —    |       | 70,065              |       |
| Total                |       | 8                        |       | 1,178     |       | $310,515            |       |

**As of August 2, 2006, the OperatingPartnership had entered into separate agreements (including option rights) todispose of the following (sales price in thousands):**
|                        | ** ** | **Properties/  Parcels** | ** ** | **Units** | ** ** | **Sales Price** | ** ** |
|------------------------|------------|--------------------------|------------|-----------|------------|-----------------|------------|
| Operating Properties   |       | 3                        |       | 397       |       | $20,100         |       |
| Development Properties |       | 1                        |       | 278       |       | 116,000         |       |
| Land Parcels           |       | 2                        |       | —    |       | 88,000          |       |
| Total                  |       | 6                        |       | 675       |       | $224,100        |       |

The closings of thesepending transactions are subject to certain contingencies and conditions;therefore, there can be no assurance that these transactions will beconsummated or that the final terms thereof will not differ in materialrespects from those summarized in the preceding paragraphs.

**6.****              Investments inPartially Owned Entities**

TheOperating Partnership has co-invested in various properties with unrelatedthird parties which are either consolidated or accounted for under the equitymethod of accounting (unconsolidated). The following table summarizes theOperating Partnership’s investments in partially owned entities as of June 30,2006 (amounts in thousands except for project and unit amounts):

14

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| ** **               | ** ** | **Consolidated**                                  | ** ** | **Unconsolidated**                 | ** ** |
|--------------------------|------------|---------------------------------------------------|------------|------------------------------------|------------|
| ** **               | ** ** | **Development Projects**                     | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Held for  and/or Under  Development** | ** ** | **Completed and  Stabilized** | ** ** | **Lexford** | ** ** | **Other** | ** ** | **Total** | ** ** | **Institutional  Joint Ventures** | ** ** |
|                     |       |                                              |       |                               |       |   |   |   |   |   |   |   |   |
| Total projects           | (1)        | —                                            |       | 4                                  |       | 17 |   | 21 |   | 42 |   | 45 |   |
|                     |       |                                              |       |                               |       |   |   |   |   |   |   |   |   |
| Total units              | (1)        | —                                            |       | 977                                |       | 1,999 |   | 3,896 |   | 6,872 |   | 10,846 |   |
|                     |       |                                              |       |                               |       |   |   |   |   |   |   |   |   |
| Debt – Secured (2): |       |                                              |       |                               |       |   |   |   |   |   |   |   |   |
|  EQR Ownership (3)  |       | $                                                 | 127,444    |                               | $          | 61,000 |   | $ | 27,730 |   | $ | 287,149 |   | $ | 503,323 |   | $ | 121,200 |   |
| Minority  Ownership      |       | —                                            |       | —                             |       | 4,531 |   | 13,321 |   | 17,852 |   | 363,600 |   |
| Total (at 100%)          |       | $                                                 | 127,444    |                               | $          | 61,000 |   | $ | 32,261 |   | $ | 300,470 |   | $ | 521,175 |   | $ | 484,800 |   |

 

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(1)          Project and unit counts exclude alluncompleted development projects until those projects are completed.

(2)          All debt is non-recourse to the OperatingPartnership with the exception of $28.3 million in mortgage bonds on onedevelopment project.

(3)          Represents the Operating Partnership’seconomic ownership interest.

 

**7.****                                      Deposits– Restricted**

Thefollowing table presents the deposits – restricted as of June 30, 2006 andDecember 31, 2005 (amounts in thousands):

|                                        | ** ** | **June  30, 2006** | ** ** | **December  31, 2005** | ** ** |
|----------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                   |       |                    |       |                        |       |
| Tax-deferred  (1031) exchange proceeds |       | $                       | —     |                        | $          | 853 |   |
| Earnest money on  pending acquisitions |       | 5,795                   |       | 15,120                      |       |
| Resident  security, utility and other  |       | 90,060                  |       | 61,120                      |       |
| Totals                                 |       | $                       | 95,855     |                        | $          | 77,093 |   |

**8.****                                      MortgageNotes Payable**

As ofJune 30, 2006, the Operating Partnership had outstanding mortgage indebtednessof approximately $3.3 billion of which $207.0 million is classified as held forsale.

Duringthe six months ended June 30, 2006, the Operating Partnership:

·                  Repaid$246.2 million of mortgage loans;

·                  Assumed/consolidated$85.8 million of mortgage debt on certain properties in connection with theiracquisitions and/or consolidations;

·                  Obtained$208.9 million of new mortgage loans on certain properties; and

·                  Wasreleased from $117.9 million of mortgage debt assumed by the purchaser ondisposed properties.

As ofJune 30, 2006, scheduled maturities forthe Operating Partnership’s outstanding mortgage indebtedness were at variousdates through February 1, 2041. At June 30, 2006, the interest rate range on theOperating Partnership’s mortgage debt was 3.85% to 12.465%. During the quarterended June 30, 2006, the weighted average interest rate on the OperatingPartnership’s mortgage debt was 5.80%.

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**9.****              Notes**

As ofJune 30, 2006, the Operating Partnership had outstanding unsecured notes ofapproximately $3.8 billion.

Duringthe six months ended June 30, 2006, the Operating Partnership:

·                  Issued$400.0 million of ten and one-half year 5.375% fixed rate public notes,receiving net proceeds of $395.5 million.

As ofJune 30, 2006, scheduled maturities for the Operating Partnership’s outstandingnotes were at various dates through 2029. At June 30, 2006, the interest raterange on the Operating Partnership’s notes was 4.75% to 7.625%. During the sixmonths ended June 30, 2006, the weighted average interest rate on the OperatingPartnership’s notes was 6.05%.

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

TheOperating Partnership has an unsecured revolving credit facility with potentialborrowings of up to $1.0 billion maturing on May 29, 2008, with the ability toincrease available borrowings up to $500.0 million under certain circumstances.Advances under the credit facility bear interest at variable rates based uponLIBOR at various interest periods plus a spread dependent upon the OperatingPartnership’s credit rating or based on bids received from the lending group. EQRhas guaranteed the Operating Partnership’s credit facility up to the maximumamount and for the full term of the facility.

OnAugust 30, 2005, the Operating Partnership obtained a new one-year $600.0million unsecured revolving credit facility maturing on August 29, 2006. Thiscredit facility was repaid in full and terminated on January 20, 2006.

On July 6, 2006, the Operating Partnership obtaineda new one-year $500.0 million unsecured revolving credit facility maturing onJuly 6, 2007. Advances under this facility bear interest at variable ratesbased on LIBOR at various interest periods plus a spread dependent upon theOperating Partnership’s credit rating. EQR guarantees this credit facility upto the maximum amount and for its full term.

As of June 30, 2006, $547.0 million was outstandingand $95.7 million was restricted (dedicated to support letters of credit and not availablefor borrowing) on the $1.0 billion revolving credit facility. During thesix months ended June 30, 2006, the weighted average interest rate under such creditfacility was 5.02%.

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

The following table summarizes the consolidatedderivative instruments at June 30, 2006 (dollar amounts are in thousands):

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|                                         | ** ** | **Fair Value  Hedges (1)** | ** ** | **Forward Starting  Swaps (2)** | ** ** | **Development  Cash Flow  Hedges (3)** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|-------------------------------------------|------------|--------------------------------------------------|------------|
| Current Notional  Balance               |       | $                                    | 370,000    |                                      | $          | 100,000                                          |       | $ | 23,825 |   |
| Lowest Possible  Notional               |       | $                                    | 370,000    |                                      | $          | 100,000                                          |       | $ | 13,925 |   |
| Highest Possible  Notional              |       | $                                    | 370,000    |                                      | $          | 100,000                                          |       | $ | 46,296 |   |
| Lowest Interest  Rate                   |       | 3.245                                | %          | 5.596                                     | %          | 4.530                                            | %          |
| Highest Interest  Rate                  |       | 3.787                                | %          | 5.596                                     | %          | 4.530                                            | %          |
| Earliest  Maturity Date                 |       | 2009                                 |       | 2017                                      |       | 2007                                             |       |
| Latest Maturity  Date                   |       | 2009                                 |       | 2017                                      |       | 2007                                             |       |
| Estimated Asset  (Liability) Fair Value |       | $                                    | (20,659    | )                                         | $          | 981                                              |       | $ | 223 |   |

 

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(1)          Fair Value Hedges –Converts outstanding fixed rate debt to a floating interest rate.

(2)          Forward Starting Swaps –Designed to partially fix the interest rate in advance of a future debtissuance.

(3)          Development Cash FlowHedges – Converts outstanding floating rate debt to a fixed interest rate.

**On June 30, 2006, the netderivative instruments were reported at their fair value as other assets ofapproximately $1.2 million and as other liabilities of approximately $20.7million. As of June 30, 2006, there were approximately $11.5 million indeferred losses, net, included in accumulated other comprehensive loss. Basedon the estimated fair values of the net derivative instruments at June 30,2006, the Operating Partnership may recognize an estimated $2.2 million ofaccumulated other comprehensive loss as additional interest expense during thetwelve months ending June 30, 2007.**

**In January 2006, the Operating Partnership receivedapproximately $10.7 million to terminate six forward starting swaps inconjunction with the issuance of $400.0 million of ten and one-half yearunsecured notes. The $10.7 million has been deferred as a component ofaccumulated other comprehensive loss and will be recognized as a reduction ofinterest expense over the life of the unsecured notes.**

**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):
|                                                                     | ** ** | **Six Months Ended June 30,** | ** ** | **Quarter Ended June 30,** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                          | ** ** | **2006**                                          | ** ** | **2005**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Numerator  for net income per OP Unit – basic and diluted:** | ** ** | ** **                                        | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from  continuing operations                                  |       | $                                                 | 57,046     |                                      | $          | 118,964 |   | $ | 36,022 |   | $ | 28,980 |   |
| Allocation to  Preference Units                                     |       | (20,168                                           | )          | (26,043                                   | )          | (10,073 | ) | (13,018 | ) |
| Allocation to  Preference Interests and Junior Preference Units     |       | (1,556                                            | )          | (5,279                                    | )          | (457 | ) | (1,391 | ) |
| Allocation to  premium on redemption of Preference Interests        |       | (683                                              | )          | (4,112                                    | )          | (9 | ) | (2,384 | ) |
|                                                                |       |                                              |       |                                      |       |   |   |   |   |
| Income from  continuing operations available to OP Units            |       | 34,639                                            |       | 83,530                                    |       | 25,483 |   | 12,187 |   |
| Discontinued  operations, net                                       |       | 519,664                                           |       | 283,792                                   |       | 135,140 |   | 125,496 |   |
|                                                                |       |                                              |       |                                      |       |   |   |   |   |
| Numerator for net  income per OP Unit – basic and diluted      |       | $                                                 | 554,303    |                                      | $          | 367,322 |   | $ | 160,623 |   | $ | 137,683 |   |

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|                                                                                                             | ** ** | **Six Months Ended June 30,** | ** ** | **Quarter Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2006**                                          | ** ** | **2005**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Denominator  for net income per OP Unit – basic and diluted:**                                       | ** ** | ** **                                        | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Denominator for  net income per OP Unit – basic                                                        |       | 309,678                                           |       | 305,793                                   |       | 310,017 |   | 306,190 |   |
| Effect of  dilutive securities:                                                                             |       |                                              |       |                                      |       |   |   |   |   |
| Dilution for OP Units issuable upon assumed  exercise/vesting of EQR’s share options/restricted shares |       | 4,742                                             |       | 3,569                                     |       | 4,681 |   | 3,789 |   |
|                                                                                                        |       |                                              |       |                                      |       |   |   |   |   |
| Denominator for  net income per OP Unit – diluted                                                      |       | 314,420                                           |       | 309,362                                   |       | 314,698 |   | 309,979 |   |
|                                                                                                        |       |                                              |       |                                      |       |   |   |   |   |
| Net income per  OP Unit – basic                                                                        |       | $                                                 | 1.79       |                                      | $          | 1.20 |   | $ | 0.52 |   | $ | 0.45 |   |
|                                                                                                        |       |                                              |       |                                      |       |   |   |   |   |
| Net income per  OP Unit – diluted                                                                      |       | $                                                 | 1.76       |                                      | $          | 1.19 |   | $ | 0.51 |   | $ | 0.44 |   |
|                                                                                                        |       |                                              |       |                                      |       |   |   |   |   |
| **Net  income per OP Unit – basic:**                                                                   |       | ** **                                        | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** |   |
| Income from  continuing operations available to OP Units                                                    |       | $                                                 | 0.112      |                                      | $          | 0.273 |   | $ | 0.082 |   | $ | 0.040 |   |
| Discontinued  operations, net                                                                               |       | 1.679                                             |       | 0.928                                     |       | 0.436 |   | 0.410 |   |
|                                                                                                        |       |                                              |       |                                      |       |   |   |   |   |
| Net income per  OP Unit – basic                                                                        |       | $                                                 | 1.791      |                                      | $          | 1.201 |   | $ | 0.518 |   | $ | 0.450 |   |
|                                                                                                        |       |                                              |       |                                      |       |   |   |   |   |
| **Net  income per OP Unit – diluted:**                                                                 |       | ** **                                        | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** |   |
| Income from  continuing operations available to OP Units                                                    |       | $                                                 | 0.110      |                                      | $          | 0.270 |   | $ | 0.081 |   | $ | 0.039 |   |
| Discontinued  operations, net                                                                               |       | 1.653                                             |       | 0.917                                     |       | 0.429 |   | 0.405 |   |
|                                                                                                        |       |                                              |       |                                      |       |   |   |   |   |
| Net income per OP Unit –  diluted                                                                      |       | $                                                 | 1.763      |                                      | $          | 1.187 |   | $ | 0.510 |   | $ | 0.444 |   |

*Convertible preference units/interests that could beconverted into 1,443,935 and 1,851,982 weighted average Common Shares (whichwould be contributed to the Operating Partnership in exchange for OP Units) forthe six months ended June 30, 2006 and 2005, respectively, and 1,274,295 and1,832,986 weighted average Common Shares for the quarters ended June 30, 2006and 2005, respectively, were outstanding but were not included in thecomputation of diluted earnings per OP Unit because the effects would beanti-dilutive.*

**13.****                               Discontinued Operations**

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), alloperations related to condominium conversion properties effective upon theirrespective transfer into a TRS and all properties held for sale.

The components of discontinued operations areoutlined below and include the results of operations for the respective periodsthat the Operating Partnership owned such assets during the six months andquarters ended June 30, 2006 and 2005 (amounts in thousands).

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|                                               | ** ** | **Six Months Ended June 30,** | ** ** | **Quarter Ended June 30,** | ** ** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|------------|
| ** **                                    | ** ** | **2006**                                          | ** ** | **2005**                                  | ** ** | **2006**   | ** ** | **2005** | ** ** | ** ** |
| **REVENUES**                                  |       |                                              |       |                                      |       |       |   |   |   |   |
| Rental income                                 |       | $                                                 | 116,323    |                                      | $          | 190,537    |   | $ | 50,855 |   | $ | 92,071 |   |   |
| Fee and asset  management                     |       | —                                            |       | 464                                       |       | —     |   | 231 |   |   |
| Total revenues                                |       | 116,323                                           |       | 191,001                                   |       | 50,855     |   | 92,302 |   |   |
|                                          |       |                                              |       |                                      |       |       |   |   |   |   |
| **EXPENSES  (1)**                             |       |                                              |       |                                      |       |       |   |   |   |   |
| Property and  maintenance                     |       | 42,469                                            |       | 62,075                                    |       | 19,845     |   | 30,900 |   |   |
| Real estate  taxes and insurance              |       | 13,884                                            |       | 23,650                                    |       | 5,792      |   | 10,594 |   |   |
| Property  management                          |       | 5,934                                             |       | 5,118                                     |       | 3,156      |   | 2,581 |   |   |
| Depreciation                                  |       | 25,548                                            |       | 47,030                                    |       | 10,795     |   | 22,368 |   |   |
| General and  administrative                   |       | 826                                               |       | 706                                       |       | 389        |   | 284 |   |   |
| Total expenses                                |       | 88,661                                            |       | 138,579                                   |       | 39,977     |   | 66,727 |   |   |
|                                          |       |                                              |       |                                      |       |       |   |   |   |   |
| Discontinued  operating income                |       | 27,662                                            |       | 52,422                                    |       | 10,878     |   | 25,575 |   |   |
|                                          |       |                                              |       |                                      |       |       |   |   |   |   |
| Interest and  other income                    |       | 1,015                                             |       | 469                                       |       | 37         |   | 439 |   |   |
| Interest (2):                                 |       |                                              |       |                                      |       |       |   |   |   |   |
| Expense incurred, net                         |       | (10,677                                           | )          | (17,701                                   | )          | (4,985     | ) | (8,564 | ) |   |
| Amortization of deferred financing costs      |       | (633                                              | )          | (273                                      | )          | (586       | ) | (125 | ) |   |
|                                          |       |                                              |       |                                      |       |       |   |   |   |   |
| Discontinued  operations                      |       | 17,367                                            |       | 34,917                                    |       | 5,344      |   | 17,325 |   |   |
| Net gain on  sales of discontinued operations |       | 502,297                                           |       | 248,875                                   |       | 129,796    |   | 108,171 |   |   |
|                                          |       |                                              |       |                                      |       |       |   |   |   |   |
| Discontinued  operations, net                 |       | $                                                 | 519,664    |                                      | $          | 283,792    |   | $ | 135,140 |   | $ | 125,496 |   |   |

 

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*(1)**            **Includesexpenses paid in the current period for properties sold or held for sale in priorperiods related to the Operating Partnership’s period of ownership.*

*(2)**            **Includesonly interest expense specific to secured mortgage notes payable for propertiessold and/or held for sale.*

Forthe properties sold during the six months ended June 30, 2006 (excludingcondominium conversion properties), the investment in real estate, net ofaccumulated depreciation, and the mortgage notes payable balances at December31, 2005 were $544.9 million and $137.0 million, respectively.

Forthe properties held for sale at June 30, 2006 (Lexford Housing Division), theinvestment in real estate, net of accumulated depreciation, and the mortgagenotes payable balances at December 31, 2005 were $620.2 million and $205.2million, respectively. These amounts exclude the Lexford syndicated portfolioas those properties were not consolidated until January 1, 2006.

TheOperating Partnership generally is not liable for Federal income taxes as thepartners recognize their proportionate share of the Operating Partnership’s incomeor loss in their tax returns; therefore no provision for Federal income taxeshas been made at the ERPOP level. Due to the structure of the Company as a REITand the nature of the operations of its operating properties, no provision forfederal income taxes has been made at the EQR level. Historically, theOperating Partnership has generally only incurred certain state and localincome, excise and franchise taxes.

TheOperating Partnership has elected Taxable REIT Subsidiary (“TRS”) status forcertain of its corporate subsidiaries, primarily those entities engaged incondominium conversion and sale activities. The Operating Partnershiprecognized provisions for income taxes of $8.1 million and $0.6 million for thesix months ended June 30, 2006 and 2005, respectively, and $5.4 million and$0.4 million for the quarters ended June 30, 2006 and 2005, respectively. Theseamounts were classified as reductions of discontinued operations, net in theaccompanying consolidated statements of operations. In addition, the aggregateresults of operations (primarily net operating income) of the OperatingPartnership’s condominium conversion properties are included in discontinuedoperations, net in the accompanying consolidated statements of 

19

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operations.

Thenet real estate basis of the Operating Partnership’s condominium conversionproperties and land parcels owned by the TRS and included in discontinuedoperations, which were included in investment in real estate, net in theconsolidated balance sheets, was $281.4 million and $292.4 million at June 30,2006 and December 31, 2005, respectively.

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

TheOperating Partnership, as an owner of real estate, is subject to variousFederal, state and local environmental laws. Compliance by the OperatingPartnership with existing laws has not had a material adverse effect on theOperating Partnership. However, the Operating Partnership cannot predict theimpact of new or changed laws or regulations on its current properties or onproperties that it may acquire in the future.

TheOperating Partnership is party to a housing discrimination lawsuit brought inApril of 2006 in the United States District Court for the District of Maryland.The suit alleges that the Operating Partnership designed and built approximately300 of the Operating Partnership’s properties in violation of the accessibilityrequirements of the Fair Housing Act and Americans With Disabilities Act. Thesuit seeks actual and punitive damages, injunctive relief (includingmodification of non-compliant properties), costs and attorneys’ fees. TheOperating Partnership believes it has a number of viable defenses, includingthat a majority of the named properties were completed before the operativedates of the statutes in question and/or were not designed or built by theOperating Partnership. Accordingly, the Operating Partnership is defending thesuit vigorously. Due to the pendency of the Operating Partnership’s defensesand the uncertainty of many other critical factual and legal issues, it is notpossible to determine or predict the outcome of the suit and as a result, noamounts have been accrued at June 30, 2006. While no assurances can begiven, the Operating Partnership does not believe that the suit, if adverselydetermined, will have a material adverse effect on the Operating Partnership.

TheOperating Partnership does not believe there is any other litigation pending orthreatened against the Operating Partnership which, individually or in theaggregate, reasonably may be expected to have a material adverse effect on theOperating 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 sixmonths ended June 30, 2006, the Operating Partnership received $9.1 million ininsurance proceeds and recorded an additional $3.8 million of receivables inanticipation of proceeds expected. As of June 30, 2006, a receivable of $5.8million and reserve of $8.5 million are included in other assets and rentsreceived in advance and other liabilities, respectively, on the consolidatedbalance sheets.

**As of June 30, 2006, the Operating Partnership has ten projectstotaling 2,973 units in various stages of development with estimated completiondates ranging through September 30, 2008. The primary development agreementscurrently in place have the following key terms:**

**·**                  The first development partner hasthe right, at any time following completion of a project subject to theagreement, to stipulate a value for such project and offer to sell its interestin the project to the Operating Partnership based on such value. If theOperating Partnership chooses not to purchase the interest, the OperatingPartnership must agree to a sale of the project to an unrelated third party atsuch value. The Operating Partnership’s partner must exercise this right as toall projects subject to the agreement within five years after the receipt ofthe final certificate of occupancy on the last developed property. Inconnection with this development agreement, the Operating Partnership has an obligation to provide up to $40.0 millionin credit enhancements to guarantee a portion of the third party constructionfinancing. As of August 2, 2006, the Operating Partnership did not have anyamounts outstanding related to this credit enhancement. The OperatingPartnership would be required to 

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**perform under this agreement only ifthere was a material default under a third party construction mortgageagreement. This agreement expires no later than December 31, 2018. Notwithstandingthe termination of the agreement, the Operating Partnership shall have recourseagainst its development partner for any losses incurred.**

**·**                        The seconddevelopment partner has the right, at any time following completion of aproject subject to the agreement, to require the Operating Partnership topurchase the partners’ interest in that project at a mutually agreeable price. Ifthe Operating Partnership and the partner are unable to agree on a price, bothparties will obtain appraisals. If the appraised values vary by more than 10%,both the Operating Partnership and its partner will agree on a third appraiserto determine which original appraisal is closest to its determination of value.The Operating Partnership may elect at that time not to purchase the propertyand instead, authorize its partner to sell the project at or above theagreed-upon value to an unrelated third party. Fiveyears following the receipt of the final certificate of occupancy on the lastdeveloped property, the Operating Partnership must purchase, at the agreed-uponprice, any projects remaining unsold.

·                  Thethird development partner has the exclusive right for six months followingstabilization, as defined, to market a subject project for sale. Thereafter,either the Operating Partnership or its development partner may market asubject project for sale. If the Operating Partnership’s development partnerproposes the sale, the Operating Partnership may elect to purchase the projectat the price proposed by its partner or defer the sale until two independentappraisers appraise the project. If the two appraised values vary by more than5%, a third appraiser will be chosen to determine the fair market value of theproperty. Once a value has been determined, the Operating Partnership may electto purchase the property or authorize its development partner to sell theproject at the agreed-upon value.

**In addition, the Operating Partnership has various deal-specificdevelopment agreements with partners, the overall terms of which are similar innature to those described above.**

**15.****                               ReportableSegments**

Operating segments are defined as components of anenterprise about which separate financial information is available that isevaluated regularly by senior management. Senior management decides howresources are allocated and assesses performance on a monthly basis.

The Operating Partnership’s primary business isowning, managing, and operating multifamily residential properties, whichincludes the generation of rental and other related income through the leasingof apartment units to residents and includes Equity Corporate Housing (“ECH”). Seniormanagement evaluates the performance of each of our apartment communities on anindividual basis; however, each of our apartment communities has similareconomic characteristics, residents, and products and services so they havebeen aggregated into one reportable segment. The Operating Partnership’s rentalreal estate segment comprises approximately 99.5% and 99.3% of total revenuesfrom continuing operations for the six months ended June 30, 2006 and 2005,respectively, and approximately 99.5% and 99.3% of total revenues for thequarters ended June 30, 2006 and 2005, respectively. The Operating Partnership’srental real estate segment comprises approximately 99.8% of total assets atboth June 30, 2006 and December 31, 2005.

The primary financial measure for the OperatingPartnership’s rental real estate segment is net operating income (“NOI”), whichrepresents rental income less: 1) property and maintenance expense; 2) realestate taxes and insurance expense; and 3) property management expense (asreflected in the accompanying consolidated statements of operations). TheOperating Partnership believes that NOI is helpful to investors as asupplemental measure of the operating performance of a real estate company becauseit is a direct measure of the actual operating results of the OperatingPartnership’s apartment communities. Current year NOI is compared to prior yearNOI and current year budgeted NOI as a measure of financial performance. The 

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following table presents the NOI from our rental real estate specific tocontinuing operations for the six months and quarters ended June 30, 2006 and2005, respectively (amounts in thousands):
|                                          | ** ** | **Six Months Ended June 30,** | ** ** | **Quarter Ended June 30,** | ** ** |
|------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                          | ** ** | **2005**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| Rental income                            |       | $                                                 | 958,911    |                                      | $          | 808,922 |   | $ | 489,619 |   | $ | 412,207 |   |
| Property and  maintenance expense        |       | (252,447                                          | )          | (217,248                                  | )          | (127,549 | ) | (111,134 | ) |
| Real estate  taxes and insurance expense |       | (97,079                                           | )          | (86,632                                   | )          | (49,354 | ) | (43,371 | ) |
| Property management  expense             |       | (46,664                                           | )          | (41,407                                   | )          | (23,067 | ) | (20,796 | ) |
| Net operating income                     |       | $                                                 | 562,721    |                                      | $          | 463,635 |   | $ | 289,649 |   | $ | 236,906 |   |

TheOperating Partnership’s fee and asset management activity is immaterial anddoes not meet the threshold requirements of a reportable segment as providedfor in SFAS No. 131.

All revenues are from external customers and thereis no customer who contributed 10% or more of the Operating Partnership’s totalrevenues during the six months ended June 30, 2006 or 2005.

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

Subsequentto June 30, 2006 and through August 2, 2006, the Operating Partnership:

·                  Acquired$113.6 million of apartment properties consisting of three properties and 625units, assumed $26.9 million of mortgage debt on one property and issued limitedpartner OP Units valued at $3.1 million on one property;

·                  Obtaineda new one year $500.0 million revolving credit facility maturing on July 6,2007;

·                  Had$10.0 million of a 7.57% $150.0 million unsecured note issuance put back to iteffective August 15, 2006;

·                  Acquiredthe remaining ownership interest in eleven previously partially ownedproperties for $5.7 million; and

·                  Repaid$8.6 million of mortgage loans.

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**Item 2. Management’sDiscussion and Analysis of Financial 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, 2005.

Forward-lookingstatements in this report are intended to be made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995. Thesestatements are based on current expectations, estimates, projections andassumptions 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 of these uncertainties and risks are difficultto predict and beyond management’s control. Forward-looking statements are notguarantees of future performance, results or events. The Operating Partnershipassumes no obligation to update or supplement forward-looking statementsbecause of subsequent events. Factors that might cause such differencesinclude, but are not limited to the following:

·                  Weintend to actively acquire and develop multifamily properties for rentaloperations and/or conversion into condominiums, as well as upgrade and sellexisting properties as individual condominiums. We may underestimate the costsnecessary to bring an acquired or condominium conversion property up to standardsestablished for its intended market position or to otherwise develop a property.Additionally, we expect that other major real estate investors with significantcapital will compete with us for attractive investment opportunities or mayalso develop properties in markets where we focus our development efforts. Thiscompetition may increase prices for multifamily properties or decrease theprice at which we expect to sell individual condominiums. Upon conversion ofproperties to condominiums, we have increased our risk related to constructionperformed during the conversion. Condominium associations may assert that theconstruction performed was defective, resulting in litigation and/or settlementdiscussions. We may not be in a position or have the opportunity in the futureto make suitable property acquisitions on favorable terms. We also plan todevelop more properties ourselves in addition to co-investing with ourdevelopment partners for either the rental or condominium market, depending onopportunities in each sub-market. This may increase the overall level of riskassociated 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.

·                  Sourcesof capital 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 noobligation to publicly release any revisions to these forward-lookingstatements, which may be made to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events. Forward-lookingstatements and related 

23

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uncertainties arealso included in Notes 4, 5 and 11 to the Notes to Consolidated FinancialStatements in this report.

**Resultsof Operations**

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 six months ended June 30, 2006. Insummary, we:

·                  Acquired $937.2 million of propertiesconsisting of eighteen properties and 4,922 units and $76.5 million of landparcels, all of which we deem to be in our strategic targeted markets; and

·                  Sold $1.0 billion of apartment propertiesconsisting of 38 properties and 10,528 units as well as 525 condominium unitsfor $107.2 million and one land parcel for $0.9 million.

The Operating Partnership’s primary financial measure for evaluatingeach of its apartment communities is net operating income (“NOI”). NOIrepresents rental income less property and maintenance expense, real estate taxand insurance expense, and property management expense. The OperatingPartnership believes that NOI is helpful to investors as a supplemental measureof the operating performance of a real estate company because it is a directmeasure of the actual operating results of the Operating Partnership’sapartment communities.

Propertiesthat the Operating Partnership owned for all of both of the six months endedJune 30, 2006 and 2005 (the “Six-Month 2006 Same Store Properties”), whichrepresented 129,965 units and properties that the Operating Partnership ownedfor all of both of the quarters ended June 30, 2006 and 2005 (the “SecondQuarter 2006 Same Store Properties”), which represented 132,093 units, alsoimpacted the Operating Partnership’s results of operations. Both the Six-Month2006 Same Store Properties and Second Quarter 2006 Same Store Properties arediscussed in the following paragraphs.

TheOperating Partnership’s acquisition, disposition, completed development andconsolidation of previously unconsolidated property activities also impactedoverall results of operations for the six months and quarters ended June 30,2006 and 2005. The impacts of these activities are also discussed in greaterdetail in the following paragraphs.

***Comparison of the six months ended June 30, 2006 to thesix months ended June 30, 2005***

For the six months ended June 30, 2006, income from continuingoperations decreased by approximately $61.9 million when compared to the sixmonths ended June 30, 2005. This decrease is primarily attributable toapproximately $57.1 million of other income recognized in 2005 related to eBay,Inc’s acquisition of the Operating Partnership’s interest in Rent.com.

**Revenues fromthe Six-Month 2006 Same Store Properties increased $45.3 million primarily as aresult of higher rental rates charged to residents. Expenses from the Six-Month2006 Same Store Properties increased $13.5 million primarily due to higherutilities, insurance and real estate taxes. All same store results exclude theLexford Housing Division. See Note 4 in the Notes to Consolidated FinancialStatements for further discussion. The following tables provide comparativerevenue, expense, NOI and occupancy/turnover statistics for the Six-Month 2006Same Store Properties:**

24

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**June YTD 2006 vs. June YTD 2005**

**YTD over YTD Same-Store Results**

** **

**$ in Millions – 129,965 Same-Store Units(excludes Lexford)**

 

| Description | ** ** | **Revenues** | ** ** | **Expenses** | ** ** | **NOI** | ** ** |
|-------------|------------|--------------|------------|--------------|------------|---------|------------|
|        |       |         |       |         |       |    |       |
| YTD 2006    |       | $            | 802.5      |         | $          | 314.3   |       | $ | 488.2 |   |
| YTD 2005    |       | $            | 757.2      |         | $          | 300.8   |       | $ | 456.4 |   |
| Change      |       | $            | 45.3       |         | $          | 13.5    |       | $ | 31.8 |   |
| Change      |       | 6.0          | %          | 4.5          | %          | 7.0     | %          |

 

**Same Store Statistics (excludes Lexford)**

 

|          | ** ** | **Occupancy** | ** ** | **Turnover** | ** ** |
|----------|------------|---------------|------------|--------------|------------|
|     |       |          |       |         |       |
| YTD 2006 |       | 94.6          | %          | 30.5         | %          |
| YTD 2005 |       | 94.4          | %          | 31.7         | %          |
| Change   |       | 0.2           | %          | (1.2         | )%         |

**The following table presentsa reconciliation of operating income per the consolidated statements ofoperations to NOI for the Six-Month 2006 Same Store Properties:**
|                                  | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------|------------|---------------------------------------------------|------------|
| ** **                       | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **(Amounts in millions)**               | ** ** |
| ** **                       | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Operating income                 |       | $                                                 | 268.1      |   | $ | 221.1 |   |
| Adjustments:                     |       |                                              |       |   |   |
| Insurance (1)                    |       | (4.9                                              | )          | — |   |
| Non-same store operating results |       | (69.6                                             | )          | (7.2 | ) |
| Fee and asset management revenue |       | (4.8                                              | )          | (5.4 | ) |
| Fee and asset management expense |       | 4.3                                               |       | 4.2 |   |
| Depreciation                     |       | 271.9                                             |       | 212.2 |   |
| General and administrative       |       | 23.2                                              |       | 31.5 |   |
| Same store NOI                   |       | $                                                 | 488.2      |   | $ | 456.4 |   |

 

----

**(1) Amount represents additional insurance reimbursements.**

**For propertiesthat the Operating Partnership acquired prior to January 1, 2005 and expects tocontinue to own through December 31, 2006, the Operating Partnershipanticipates the following same store results for the full year ending December31, 2006:**

**2006 Same Store Assumptions**

 
| Physical Occupancy |   | 94.5%          |   |
|--------------------|--------|----------------|--------|
| Revenue Change     |   | 5.25% to 5.75% |   |
| Expense Change     |   | 2.50% to 3.50% |   |
| NOI Change         |   | 6.50% to 8.00% |   |

**These 2006 assumptions arebased on current expectations and are forward-looking.**

**Non-same storeoperating results increased $62.4**million and consist primarily of properties acquired in calendar years2006 and 2005 as well as our corporate housing business.

25

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Fee and asset management revenues, net of fee and asset managementexpenses decreased $0.7 million primarily as a result of lower income earnedfrom managing fewer properties for third parties and unconsolidated entities. Asof June 30, 2006 and 2005, the Operating Partnership managed 14,784 units and17,539 units, respectively, for third parties and unconsolidated entities.

**Propertymanagement expenses from continuing operations include off-site expensesassociated with the self-management of the Operating Partnership’s propertiesas well as management fees paid to any third party management companies. Theseexpenses increased by approximately $5.3 million or 12.7%. This increase isprimarily attributable to higher overall payroll costs, temporary contractingcosts and training costs specific to the Operating Partnership’s rollout of anew property management system.**

Depreciation expense from continuing operations, which includesdepreciation on non-real estate assets, increased $59.7 million primarily as aresult of additional depreciation expense on newly acquired properties andcapital expenditures for all properties owned.

General and administrative expenses, which include corporate operatingexpenses, decreased approximately $8.3 million between the periods undercomparison. This decrease was primarily due to lower executive compensationexpense due to severance costs for several executive officers incurred duringthe six months ended June 30, 2005 and a $2.8 million reimbursement of legalexpenses during the quarter ended June 30, 2006. The Operating Partnershipanticipates that general and administrative expenses will approximate $48.0million for the year ending December 31, 2006. This above assumption is basedon current expectations and is forward-looking.

**Interest and otherincome from continuing operations decreased by approximately $57.9 million,primarily as a result of the $57.1 million in cash received during the sixmonths ended June 30, 2005 for the Operating Partnership’s ownership interestin Rent.com, which was acquired by eBay, Inc.**

Interest expense from continuing operations, including amortization ofdeferred financing costs, increased approximately $36.6****million primarily as a result of highervariable interest rates and overall debt levels outstanding. During the sixmonths ended June 30, 2006, the Operating Partnership capitalized interestcosts of approximately $7.8 million as compared to $5.8 million for the sixmonths ended June 30, 2005. This capitalization of interest primarily relatesto projects under development. The effective interest cost on all indebtednessfor the six months ended June 30, 2006 was 6.19% as compared to 6.18% for thesix months ended June 30, 2005.

Loss from investments in unconsolidated entities increasedapproximately $0.2 million between the periods under comparison. This increaseis primarily the result of consolidating previously unconsolidated propertiesas of January 1, 2006 as the result of EITF Issue No. 04-05. See Note 4 in the Notes to ConsolidatedFinancial Statements for further discussion.

Net gain on sales of land parcels decreased $10.1 million, due to alarge gain recorded on the sale of one land parcel during the six months endedJune 30, 2005.

Discontinued operations, net, increased approximately $235.9 million betweenthe periods under comparison. This increase is primarily the result of higherper unit sales prices and lower real estate net book values for properties soldduring the six months ended June 30, 2006 as compared to the same period in2005. Discontinued operations, net includes our Lexford Housing Division, whichis held for sale as of June 30, 2006. See Note 13 in the Notes to ConsolidatedFinancial Statements for further discussion.

***Comparison of the quarter ended June 30, 2006 to thequarter ended June 30, 2005***

For the quarter ended June 30, 2006, income from continuing operationsincreased by approximately $7.0 million when compared to the quarter ended June30, 2005.

26

----

 

**Revenues fromthe Second Quarter 2006 Same Store Properties increased $23.1 million primarilyas a result of higher rental rates charged to residents. Expenses from theSecond Quarter 2006 Same Store Properties increased $5.3 million primarily dueto higher utilities, insurance and real estate taxes. The following tablesprovide comparative revenue, expense, NOI and occupancy/turnover statistics forthe Second Quarter 2006 Same Store Properties:**

**Second Quarter 2006 vs. Second Quarter2005**

**Quarter over Quarter Same-Store Results**

 

**$ in Millions – 132,093 Same-Store Units(excludes Lexford)**

 

| Description | ** ** | **Revenues** | ** ** | **Expenses** | ** ** | **NOI** | ** ** |
|-------------|------------|--------------|------------|--------------|------------|---------|------------|
|        |       |         |       |         |       |    |       |
| Q2 2006     |       | $            | 411.6      |         | $          | 158.8   |       | $ | 252.8 |   |
| Q2 2005     |       | $            | 388.5      |         | $          | 153.5   |       | $ | 235.0 |   |
| Change      |       | $            | 23.1       |         | $          | 5.3     |       | $ | 17.8 |   |
| Change      |       | 5.9          | %          | 3.5          | %          | 7.6     | %          |

 

**Same Store Statistics (excludes Lexford)**

 

|         | ** ** | **Occupancy** | ** ** | **Turnover** | ** ** |
|---------|------------|---------------|------------|--------------|------------|
|    |       |          |       |         |       |
| Q2 2006 |       | 94.6          | %          | 16.6         | %          |
| Q2 2005 |       | 94.6          | %          | 17.3         | %          |
| Change  |       | 0.0           | %          | (0.7         | )%         |

 

**The following table presentsa reconciliation of operating income per the consolidated statements ofoperations to NOI for the Second Quarter 2006 Same Store Properties:**

 
| ** **                       | ** ** | **Quarter Ended June 30,** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **2006**                                  | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **(Amounts in millions)**       | ** ** |
| ** **                       | ** ** | ** **                                | ** ** | ** ** | ** ** |
| Operating income                 |       | $                                         | 140.3      |   | $ | 116.3 |   |
| Adjustments:                     |       |                                      |       |   |   |
| Insurance (1)                    |       | (2.0                                      | )          | — |   |
| Non-same store operating results |       | (34.9                                     | )          | (2.0 | ) |
| Fee and asset management revenue |       | (2.3                                      | )          | (3.0 | ) |
| Fee and asset management expense |       | 2.2                                       |       | 2.1 |   |
| Depreciation                     |       | 139.9                                     |       | 107.8 |   |
| General and administrative       |       | 9.6                                       |       | 13.8 |   |
| Same store NOI                   |       | $                                         | 252.8      |   | $ | 235.0 |   |

 

----

**(1) Amount represents additional insurance reimbursements.**

**Non-same storeoperating results increased $32.9**million and consist primarily of properties acquired in calendar years2006 and 2005 as well as our corporate housing business.

Fee and asset management revenues, net of fee and asset managementexpenses decreased $0.8 million primarily as a result of lower income earnedfrom managing fewer properties for third parties and unconsolidated entities.

**Propertymanagement expenses from continuing operations include off-site expensesassociated with the self-management of the Operating Partnership’s propertiesas well as management fees paid to any third party management companies. Theseexpenses increased by approximately $2.3 million or 10.9%. This increase isprimarily attributable to higher overall payroll costs and training costsspecific to the Operating**

27

----

 

**Partnership’s rollout of anew property management system.**

Depreciation expense from continuing operations, which includesdepreciation on non-real estate assets, increased $32.1 million primarily as aresult of additional depreciation expense on newly acquired properties andcapital expenditures for all properties owned.

General and administrative expenses, which include corporate operatingexpenses, decreased approximately $4.2 million between the periods undercomparison. This decrease was primarily due to lower executive compensationexpense due to severance costs for several executive officers incurred duringthe quarter ended June 30, 2005 and a $2.8 million reimbursement of legalexpenses during the quarter ended June 30, 2006.

**Interest andother income from continuing operations decreased by approximately $0.8**million, primarily as a result of lowerinterest income on mortgages receivable and profit participation income fromjoint venture partners.

Interest expense from continuing operations, including amortization ofdeferred financing costs, increased approximately $15.2****million primarily as a result of highervariable interest rates and overall debt levels outstanding. During the quarterended June 30, 2006, the Operating Partnership capitalized interest costs ofapproximately $3.8 million as compared to $2.9 million for the quarter endedJune 30, 2005. This capitalization of interest primarily relates to projectsunder development. The effective interest cost on all indebtedness for thequarter ended June 30, 2006 was 6.14% as compared to 6.20% for the quarterended June 30, 2005.

Loss from investments in unconsolidated entities was consistent betweenthe periods under comparison. See Note4 in the Notes to Consolidated Financial Statements for further discussion.

Net gain (loss) on sales of land parcels was consistent between theperiods under comparison.

Discontinued operations, net, increased approximately $9.6 millionbetween the periods under comparison. This increase is primarily the result ofhigher per unit sales prices and lower real estate net book values forproperties sold during the quarter ended June 30, 2006 as compared to the sameperiod in 2005.

**Liquidityand Capital Resources**

As of January 1, 2006, the Operating Partnership had approximately$88.8 million of cash and cash equivalents and $780.8 million available underits revolving credit facilities (net of $50.2 million which wasrestricted/dedicated to support letters of credit and not available forborrowing). After taking into effect the various transactions discussed in thefollowing paragraphs and the net cash provided by operating activities, theOperating Partnership’s cash and cash equivalents balance at June 30, 2006 wasapproximately $72.2 million and the amount available on the OperatingPartnership’s revolving credit facility was $357.3 million (net of $95.7million which was restricted/dedicated to support letters of credit and notavailable for borrowing).

During the six months ended June 30, 2006, the Operating Partnershipgenerated proceeds from various transactions, which included the following:

·                  Disposedof 42 properties and various individual condominium units, receiving netproceeds of approximately $1.0 billion;

·                  Obtained$395.5 million in net proceeds from the issuance of $400.0 million of ten andone-half year 5.375% fixed rate public notes and terminated six forwardstarting swaps designated to hedge the note issuance, receiving net proceeds of$10.7 million;

·                  Obtained$208.9 million in new mortgage financing; and

·                  Issuedapproximately 1.1 million OP Units and received net proceeds of $29.4 million.

28

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**During the sixmonths ended June 30, 2006, the above proceeds were primarily utilized to:**

·                  Invest$122.8 million primarily in development projects;

·      Acquire 18 properties and five landparcels, utilizing cash of $908.0 million;

·      Repurchase 1.9 million OP Units utilizingcash of $82.0 million;

·                  Repay$246.2 million of mortgage loans; and

·                  Redeemthe Series G Preference Interests at a liquidation value of $25.5 million.

**Depending on itsanalysis of market prices, economic conditions, and other opportunities for theinvestment of available capital, the Company may repurchase its Common Sharespursuant to its existing share buyback program authorized by the Board ofTrustees. EQR repurchased $82.0 million (1,871,883 shares at an average priceper share of $43.80) of its Common Shares during the six months ended June 30,2006 to offset the issuance of 1,079,001 OP Units to limited partners inconnection with two property acquisitions and to offset EQR restricted sharesgranted and ESPP shares purchased during the six months ended June 30, 2006. Concurrentwith this transaction, the Operating Partnership repurchased and retired1,871,883 OP Units previously issued to EQR. EQR is authorized to repurchaseapproximately $503.0 million of additional Common Shares. The OperatingPartnership in turn would repurchase $503.0 million of its OP Units held byEQR.**

**The OperatingPartnership’s total debt summary and debt maturity schedules as of June 30,2006, are as follows:**

**Debt Summary as of June 30, 2006**

(Amountsin thousands)

 
| ** **                                   | ** ** | **Amounts (1)** | ** ** | **%  of Total** | ** ** | **Weighted  Average  Rates (1)** | ** ** | **Weighted  Average  Maturities  (years)** | ** ** |
|----------------------------------------------|------------|----------------------|------------|----------------------|------------|---------------------------------------|------------|--------------------------------------------|------------|
| Secured                                      |       | $                    | 3,303,456  |                 | 43.0       | %                                     | 5.80       | %                                          | 6.4        |   |
| Unsecured                                    |       | 4,385,697            |       | 57.0                 | %          | 5.96                                  | %          | 7.2                                        |       |
| Total                                        |       | $                    | 7,689,153  |                 | 100.0      | %                                     | 5.89       | %                                          | 6.8        |   |
|                                         |       |                 |       |                 |       |                                  |       |                                       |       |
| Fixed Rate Debt:                             |       |                 |       |                 |       |                                  |       |                                       |       |
| Secured – Conventional                  |       | $                    | 2,455,981  |                 | 32.0       | %                                     | 6.34       | %                                          | 4.3        |   |
| Secured – Tax Exempt                    |       | 18,317               |       | 0.2                  | %          | 6.49                                  | %          | 18.8                                       |       |
| Unsecured – Public/Private              |       | 3,577,307            |       | 46.5                 | %          | 6.09                                  | %          | 7.7                                        |       |
| Unsecured – Tax Exempt                  |       | 111,390              |       | 1.5                  | %          | 5.10                                  | %          | 22.8                                       |       |
| Fixed Rate Debt                              |       | 6,162,995            |       | 80.2                 | %          | 6.17                                  | %          | 6.6                                        |       |
|                                         |       |                 |       |                 |       |                                  |       |                                       |       |
| Floating Rate  Debt:                         |       |                 |       |                 |       |                                  |       |                                       |       |
| Secured – Conventional                  |       | 293,998              |       | 3.8                  | %          | 5.99                                  | %          | 2.2                                        |       |
| Secured – Tax Exempt                    |       | 535,160              |       | 7.0                  | %          | 3.45                                  | %          | 17.9                                       |       |
| Unsecured – Public                      |       | 150,000              |       | 1.9                  | %          | 5.85                                  | %          | 2.9                                        |       |
| Unsecured – Revolving Credit Facilities |       | 547,000              |       | 7.1                  | %          | 5.02                                  | %          | 1.9                                        |       |
| Floating Rate Debt                           |       | 1,526,158            |       | 19.8                 | %          | 4.65                                  | %          | 7.6                                        |       |
|                                         |       |                 |       |                 |       |                                  |       |                                       |       |
| Total                                        |       | $                    | 7,689,153  |                 | 100.0      | %                                     | 5.89       | %                                          | 6.8        |   |

 

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(1) Net of theeffect of any derivative instruments. Weighted average rates are for the sixmonths ended June 30, 2006.

29

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**DebtMaturity Schedule as of June 30, 2006**

**(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)** | ** ** |
|----------|------------|------------|------------|--------------------------|------------|-----------------------------|------------|-----------|------------|--------------------------|------------|--------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| 2006     |       | (2)        |       | $                        | 258,177    |                        | $          | 53,838    |       | $                        | 312,015    |                                                                     | 4.1        | %                                                              | 7.12       | % | 7.12 | % |
| 2007     |       |       |       | 326,805                  |       | 42,073                      |       | 368,878   |       | 4.8                      | %          | 6.88                                                                     | %          | 6.82                                                           | %          |
| 2008     |       | (3)        |       | 548,086                  |       | 576,334                     |       | 1,124,420 |       | 14.6                     | %          | 6.71                                                                     | %          | 6.05                                                           | %          |
| 2009     |       |       |       | 477,726                  |       | 377,890                     |       | 855,616   |       | 11.1                     | %          | 6.44                                                                     | %          | 5.35                                                           | %          |
| 2010     |       |       |       | 279,986                  |       | —                      |       | 279,986   |       | 3.6                      | %          | 7.05                                                                     | %          | 7.05                                                           | %          |
| 2011     |       |       |       | 806,265                  |       | 24,150                      |       | 830,415   |       | 10.8                     | %          | 6.86                                                                     | %          | 6.75                                                           | %          |
| 2012     |       |       |       | 535,042                  |       | —                      |       | 535,042   |       | 7.0                      | %          | 6.51                                                                     | %          | 6.51                                                           | %          |
| 2013     |       |       |       | 567,282                  |       | —                      |       | 567,282   |       | 7.4                      | %          | 5.93                                                                     | %          | 5.93                                                           | %          |
| 2014     |       |       |       | 504,085                  |       | —                      |       | 504,085   |       | 6.6                      | %          | 5.27                                                                     | %          | 5.27                                                           | %          |
| 2015     |       |       |       | 316,432                  |       | —                      |       | 316,432   |       | 4.1                      | %          | 6.54                                                                     | %          | 6.54                                                           | %          |
| 2016+    |       | (2)        |       | 1,543,109                |       | 451,873                     |       | 1,994,982 |       | 25.9                     | %          | 5.74                                                                     | %          | 5.45                                                           | %          |
| Total    |       |       |       | $                        | 6,162,995  |                        | $          | 1,526,158 |       | $                        | 7,689,153  |                                                                     | 100.0      | %                                                              | 6.29       | % | 6.00 | % |

 

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(1)          Net of the effect of anyderivative instruments. Weighted average rates are as of June 30, 2006.

 

(2)          2006 includes $10.0million of 7.57% unsecured debt with a final maturity of 2026 that has been putback to the Operating Partnership effective August 15, 2006. 2016+ includes$140.0 million of 7.57% unsecured debt with a final maturity of 2026 that wasnot put back to the Operating Partnership.

 

(3)          Includes $547.0 millionoutstanding on the Operating Partnership’s unsecured revolving credit facility,which matures on May 29, 2008.

 

**The following table provides a summary of the OperatingPartnership’s unsecured debt as of June 30, 2006:**

30

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**UnsecuredDebt Summary as of June 30, 2006**

(Amounts in thousands)

 
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Unamortized** | ** ** | ** **  | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|-----------------|------------|-------------|------------|
| ** **                       | ** ** | **Coupon** | ** ** | **Due**    | ** ** | ** ** | ** ** | **Face**   | ** ** | **Premium/**    | ** ** | **Net**     | ** ** |
| ** **                       | ** ** | **Rate**   | ** ** | **Date**   | ** ** | ** ** | ** ** | **Amount** | ** ** | **(Discount)**  | ** ** | **Balance** | ** ** |
| ** **                       |       |       |       |       |       |       |       |       |       |            |       |        |       |
| **Fixed Rate Notes:**            | ** ** | ** ** |       |       |       |       |       |       |       |            |       |        |       |
|                             |       | 6.690      | %          | 11/01/06   |       |       |       | $          | 50,000     |            | $          | (17         | )          | $ | 49,983 |   |
|                             |       | 7.625      | %          | 04/15/07   |       |       |       | 50,000     |       | 137             |       | 50,137      |       |
|                             |       | 6.900      | %          | 08/01/07   |       |       |       | 50,000     |       | (27             | )          | 49,973      |       |
|                             |       | 7.540      | %          | 09/01/07   |       | (1)        |       | 8,571      |       | —          |       | 8,571       |       |
|                             |       | 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    |       | (811            | )          | 299,189     |       |
|                             |       | 6.950      | %          | 03/02/11   |       |       |       | 300,000    |       | 3,999           |       | 303,999     |       |
|                             |       | 6.625      | %          | 03/15/12   |       |       |       | 400,000    |       | (1,676          | )          | 398,324     |       |
|                             |       | 5.200      | %          | 04/01/13   |       |       |       | 400,000    |       | (799            | )          | 399,201     |       |
|                             |       | 5.250      | %          | 09/15/14   |       |       |       | 500,000    |       | (505            | )          | 499,495     |       |
|                             |       | 6.584      | %          | 04/13/15   |       |       |       | 300,000    |       | (974            | )          | 299,026     |       |
|                             |       | 5.125      | %          | 03/15/16   |       |       |       | 500,000    |       | (520            | )          | 499,480     |       |
|                             |       | 5.375      | %          | 08/01/16   |       |       |       | 400,000    |       | (1,871          | )          | 398,129     |       |
|                             |       | 7.125      | %          | 10/15/17   |       |       |       | 150,000    |       | (732            | )          | 149,268     |       |
|                             |       | 7.570      | %          | 08/15/26   |       | (3)        |       | 150,000    |       | —          |       | 150,000     |       |
| Floating Rate  Adjustments       |       |       |       |       |       | (2)        |       | (150,000   | )          | —          |       | (150,000    | )          |
| FAS 133 Adjustments -  net       |       |       |       |       |       | (2)        |       | (7,468     | )          | —          |       | (7,468      | )          |
|                             |       |       |       |       |       |       |       | 3,581,103  |       | (3,796          | )          | 3,577,307   |       |
| **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     |       |
|                             |       |       |       |       |       |       |       |       |       |            |       |        |       |
| **Revolving Credit Facility:**   | ** ** |       |       |       |       |       |       | 547,000    |       | —          |       | 547,000     |       |
|                             |       |       |       |       |       |       |       |       |       |            |       |        |       |
| **Total Unsecured Debt**         | ** ** |       |       | 05/29/08   |       |       |       | $          | 4,389,493  |            | $          | (3,796      | )          | $ | 4,385,697 |   |

 

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(1)          Notes are private.  All other unsecured debt is public.

(2)          $150.0 million in fairvalue interest rate swaps converts 50% of the 4.750% Notes due June 15, 2009 toa floating interest rate.

(3)          Put period expired July15, 2006 with $10.0 million put back to the Operating Partnership effectiveAugust 15, 2006.

**As of August 2, 2006, 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, the registration statement automatically expireson June 29, 2009 and does not contain a maximum issuance amount) and $956.5million in equity securities remains available for issuance by EQR under aregistration statement the SEC declared effective in February 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).**

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**TheOperating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio”as of June 30, 2006 is presented in the following table.  The Operating Partnership calculates theequity component of its market capitalization as the sum of (i) the totaloutstanding OP Units at the equivalent market value of the closing price of EQR’sCommon Shares on the New York Stock Exchange; (ii) the “OP Unit Equivalent” ofall convertible preference units/interests; and (iii) the liquidation value ofall perpetual preference units outstanding.**

Capital Structure as ofJune 30, 2006

(Amounts in thousandsexcept for unit and per unit amounts)

 
| Secured Debt                                 |       |        |       | $              | 3,096,427      |       | 40         | %          |    |   |
|----------------------------------------------|------------|-------------|------------|----------------|----------------|------------|------------|------------|---------|--------|
| Secured Debt – Held for Sale            |       |        |       | 207,029        |           | 3          | %          |       |    |
| Unsecured Debt                               |       |        |       | 3,838,697      |           | 50         | %          |       |    |
| Lines of Credit                              |       |        |       | 547,000        |           | 7          | %          |       |    |
| **Total  Debt**                              | ** ** | ** **  | ** ** | **7,689,153**  | ** **     | **100**    | **%**      | **35**     | **%**   |
|                                         |       |        |       |           |           |       |       |       |    |
| OP Units                                     |       | 311,609,276 |       |           |           |       |       |       |    |
| OP Unit  Equivalents (see below)             |       | 903,766     |       |           |           |       |       |       |    |
| Total  outstanding at quarter-end            |       | 312,513,042 |       |           |           |       |       |       |    |
| EQR Common Share  Price at June 30, 2006     |       | $           | 44.73      |           |           |       |       |       |    |   |
|                                         |       |        |       | 13,978,708     |           | 97         | %          |       |    |
| Perpetual  Preference Units (see below) |       |        |       | 490,000        |           | 3          | %          |       |    |
| **Total  Equity**                            | ** ** | ** **  | ** ** | **14,468,708** | ** **     | **100**    | **%**      | **65**     | %       |
| ** **                                   | ** ** | ** **  | ** ** | ** **     | ** **     | ** ** | ** ** | ** ** |    |
| **Total Market Capitalization**              | ** ** | ** **  | ** ** | **$**          | **22,157,861** | ** ** | ** ** | ** ** | **100** | **%**  |
|                                              |            |             |            |                |                |            |            |            |         |        |  |

 

**Convertible Preference Units/Interests as of June 30, 2006**

**(Amounts in thousands except for unit/interest and perunit/interest amounts)**

 
| **Series**                                    | ** ** | **Redemption  Date** | ** ** | **Outstanding  Units/Interests** | ** ** | **Liquidation  Value** | ** ** | **Annual  Dividend Per  Unit/Interest** | ** ** | **Annual  Dividend  Amount** | ** ** | **Weighted  Average  Rate** | ** ** | **Conversion  Ratio** | ** ** | **OP Unit  Equivalents** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|----------------------------------|------------|------------------------|------------|----------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|-----------------------|------------|-------------------------------|------------|
| Preference Units:                             |       |                 |       |                             |       |                   |       |                                         |       |                         |       |                        |       |                  |       |                          |       |
| 7.00% Series E                                |       | 11/1/98              |       | 473,816                          |       | $                      | 11,846     |                                         | $          | 1.75                         |       | $                           | 829        |                  |       |                          | 1.1128     |   | 527,262 |   |
| 7.00% Series H                                |       | 6/30/98              |       | 30,734                           |       | 768                    |       | 1.75                                         |       | 54                           |       |                        |       | 1.4480                |       | 44,503                        |       |
| Preference  Interests:                        |       |                 |       |                             |       |                   |       |                                         |       |                         |       |                        |       |                  |       |                          |       |
| 7.625% Series J                               |       | 12/14/06             |       | 230,000                          |       | 11,500                 |       | 3.8125                                       |       | 877                          |       |                        |       | 1.4108                |       | 324,484                       |       |
| Junior Preference  Units:                     |       |                 |       |                             |       |                   |       |                                         |       |                         |       |                        |       |                  |       |                          |       |
| 8.00% Series B                                |       | 7/29/09              |       | 7,367                            |       | 184                    |       | 2.00                                         |       | 15                           |       |                        |       | 1.020408              |       | 7,517                         |       |
| Total Convertible  Preference Units/Interests |       |                 |       | 741,917                          |       | $                      | 24,298     |                                         |       |                         | $          | 1,775                       |       | 7.31                  | %          |                          |       | 903,766 |   |
|                                               |            |                      |            |                                  |            |                        |            |                                              |            |                              |            |                             |            |                       |            |                               |            |  |  |  |

 

**Perpetual Preference Units as of June 30, 2006**

**(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:                |       |                 |       |                   |       |                   |       |                                |       |                         |       |                        |       |
| 9 1/8% Series C                   |       | 9/9/06               |       | 460,000                |       | $                      | 115,000    |                                | $          | 22.8125                      |       | $                           | 10,494     |   |   |   |
| 8.60% Series D                    |       | 7/15/07              |       | 700,000                |       | 175,000                |       | 21.50                               |       | 15,050                       |       |                        |       |
| 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 |       |                 |       | 2,760,000              |       | $                      | 490,000    |                                |       |                         | $          | 39,409                      |       | 8.04 | % |
|                                   |            |                      |            |                        |            |                        |            |                                     |            |                              |            |                             |            |  |  |  |

 

The OperatingPartnership expects to meet its short-term liquidity requirements, includingcapital expenditures related to maintaining its existing properties and certainscheduled unsecured note and mortgage note repayments, generally through itsworking capital, net cash provided by operating activities and borrowings underits revolving credit facilities.  TheOperating Partnership considers its cash provided 

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by operating activitiesto be adequate to meet operating/capital requirements and payments ofdistributions.  The Operating Partnershipalso expects to meet its long-term liquidity requirements, such as scheduledunsecured note and mortgage debt maturities, property acquisitions andfinancing of construction and development activities 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 $17.1billion in investment in real estate on the Operating Partnership’s balancesheet at June 30, 2006 (including gross Lexford real estate held for sale),$11.3 billion or 66.1%, was unencumbered.

The OperatingPartnership has a long-term revolving credit facility with potential borrowingsof up to $1.0 billion which matures in May 2008 and a short-term revolvingcredit facility with potential borrowings of up to $500.0 million which maturesin July 2007.  These facilities may,among other potential uses, be used to fund property acquisitions, costs for certainproperties under development and short term liquidity requirements.  As of August 2, 2006, $735.0 million wasoutstanding under these facilities.

See Note 16 in theNotes to Consolidated Financial Statements for discussion of the events whichoccurred subsequent to June 30, 2006.

***Capitalizationof Fixed Assets and Improvements to Real Estate***

**Our policy with respect to capital expenditures isgenerally to capitalize expenditures that improve the value of the property orextend the useful life of the component asset of the property.  We track improvements to real estate in twomajor categories and several subcategories:**

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

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

**·**                  appliances;

**·**                  mechanical equipment suchas individual furnace/air units, hot water heaters, etc;

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

**·**                  blinds/shades.

**All replacements are depreciated over a five-yearestimated useful life.  We expense asincurred all make-ready maintenance and turnover costs such as cleaning,interior painting of individual units and the repair of any replacement itemnoted above.**

**·**             Building improvements (*outside the unit*).  These include:

**·**                  roof replacement and majorrepairs;

**·**                  paving or majorresurfacing of parking lots, curbs and sidewalks;

**·**                  amenities and common areassuch as pools, exterior sports and playground equipment, lobbies, clubhouses,laundry rooms, alarm and security systems and offices;

**·**                  major building mechanicalequipment systems;

**·**                  interior and exteriorstructural repair and exterior painting and siding;

**·**                  major landscaping andgrounds improvement; and

**·**                  vehicles and office andmaintenance equipment.

**All building improvements are depreciated over afive to ten-year estimated useful life. We capitalize building improvements and upgrades only if the item: (i)exceeds $2,500 (selected projects must exceed $10,000); (ii) extends the usefullife of the asset; and (iii) improves the value of the asset.**

**For the six months ended June 30, 2006, our actualimprovements to real estate totaled approximately**

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$106.4 million.  This includes the following detail (amountsin thousands except for unit and per unit amounts):

 

Capitalized Improvementsto Real Estate

For the Six Months EndedJune 30, 2006

 
| ** **                       | ** ** | **Total Units  (1)** | ** ** | **Replacements** | ** ** | **Avg. Per  Unit** | ** ** | **Building  Improvements** | ** ** | **Avg. Per  Unit** | ** ** | **Total** | ** ** | **Avg. Per  Unit** | ** ** |
|----------------------------------|------------|---------------------------|------------|------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|-----------|------------|-------------------------|------------|
|                             |       |                      |       |             |       |                    |       |                       |       |                    |       |      |       |                    |       |
| Established   Properties (2)     |       | 116,680                   |       | $                | 21,180     |                    | $          | 181                        |       | $                       | 36,854     |      | $          | 316                     |       | $ | 58,034 |   | $ | 497 |   |
| New Acquisition   Properties (3) |       | 25,874                    |       | 4,191            |       | 179                     |       | 10,886                     |       | 465                     |       | 15,077    |       | 644                     |       |
| Properties Held  for   Sale (4)  |       | 27,248                    |       | 5,495            |       | 202                     |       | 3,457                      |       | 127                     |       | 8,952     |       | 329                     |       |
| Other (5)                        |       | 7,291                     |       | 10,006           |       |                    |       | 14,372                     |       |                    |       | 24,378    |       |                    |       |
| Total                            |       | 177,093                   |       | $                | 40,872     |                    |       |                       | $          | 65,569                  |       |      |       | $                       | 106,441    |   |   |   |
|                                  |            |                           |            |                  |            |                         |            |                            |            |                         |            |           |            |                         |            |  |  |  |  |  |  |

 

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(1)          Total units exclude 10,846 unconsolidated units and 3,643 militaryhousing (fee managed) units.

(2)          Wholly Owned Properties acquired prior to January 1, 2004.

(3)          Wholly Owned Properties acquired during 2004, 2005 and 2006.  Per unit amounts are based on a weightedaverage of 23,422 units.

(4)          Properties held for sale include the entire Lexford Portfolio; 27,115units under contract as previously disclosed and 133 miscellaneous units to besold separately.

(5)          Includes properties either Partially Owned or sold during the period,commercial space, condominium conversions and $3.4 million included in buildingimprovements spent on seven specific assets related to major renovations andrepositioning of these assets.

**The Operating Partnership expects to fundapproximately $60.0**million for capital expenditures for replacementsand building improvements for all consolidated properties, exclusive ofcondominium conversion properties, for the remainder of 2006.  This includes an average of approximately$1,000 per unit for capital improvements for established properties.

**During the six months ended June 30, 2006, theOperating Partnership’s total non-real estate capital additions, such ascomputer software, computer equipment, and furniture and fixtures and leaseholdimprovements to the Operating Partnership’s property management offices and itscorporate offices, were approximately $4.1**million.  The Operating Partnership expects to fundapproximately $6.2 million in total additions to non-real estate property forthe remainder of 2006.

**Improvements to real estate and additions tonon-real estate property were funded from net cash provided by operatingactivities.**

***DerivativeInstruments***

In the normal course of business, the Operating Partnership is exposed tothe effect of interest rate changes.  TheOperating Partnership limits these risks by following established riskmanagement policies and procedures including the use of derivatives to hedgeinterest rate risk on debt instruments.

The Operating Partnership has a policy of only entering into contractswith major financial institutions based upon their credit ratings and otherfactors.  When viewed in conjunction withthe underlying and offsetting exposure that the derivatives are designed tohedge, the Operating Partnership has not sustained a material loss from thoseinstruments nor does it anticipate any material adverse effect on its netincome or financial position in the future from the use of derivatives.

See Note 11 in the Notes to ConsolidatedFinancial Statements for additional discussion of derivative instruments atJune 30, 2006.

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***Other***

**Totaldistributions paid in July 2006 amounted to $146.7 million (excludingdistributions on Partially Owned Properties), which included certain distributionsdeclared during the second quarter ended June 30, 2006.**

On June 28, 2006, the Operating Partnershipannounced that it agreed to sell its Lexford Housing Division for a cashpurchase price of $1.086 billion.  EQR’sBoard of Trustees has approved the sale, which is expected to close in thefourth quarter of 2006.  Lexford resultsare classified as discontinued operations, net, in the consolidated statementsof operations for all periods presented and Lexford investment in real estateand mortgage notes payable balances are classified as held for sale in theconsolidated balance sheets as of June 30, 2006.

**Off-Balance Sheet Arrangements and ContractualObligations**

The OperatingPartnership has co-invested in various properties that are unconsolidated andaccounted for under the equity method of accounting.  Management does not believe these investmentshave a materially different impact upon the Operating Partnership’s liquidity,capital resources, credit or market risk than its property management andownership activities.  The nature andbusiness purpose of these ventures are as follows:

**·**                  Institutional Ventures – During 2000 and 2001, theOperating Partnership entered into ventures with an unaffiliated partner.   At the respective closing dates, theOperating Partnership sold and/or contributed 45 properties containing 10,846units to these ventures and retained a 25% ownership interest in theventures.  The Operating Partnership’sjoint venture partner contributed cash equal to 75% of the agreed-upon equityvalue of the properties comprising the ventures, which was then distributed tothe Operating Partnership.  The OperatingPartnership’s strategy with respect to these ventures was to reduce itsconcentration of properties in a variety of markets.

**As of June 30, 2006, the Operating Partnership hasten projects totaling 2,973 units in various stages of development withestimated completion dates ranging through September 30, 2008.  The development agreements currently in placeare discussed in detail in Note 14 of the Operating Partnership’s ConsolidatedFinancial Statements.**

**See also Notes 2 and 6 in the Notes to ConsolidatedFinancial Statements for additional discussion regarding the OperatingPartnership’s investments in partially owned entities.**

**The Operating Partnership’s contractual obligations for thenext five years and thereafter have not changed materially from the amounts anddisclosures included in its annual report on Form 10-K, other than as itrelates to scheduled debt maturities.  Seethe updated debt maturity schedule included in Liquidity and Capital Resourcesfor further discussion.**

**Critical Accounting Policies and Estimates**

**The Operating Partnership has identified six significantaccounting policies as critical accounting policies.  These critical accounting policies are thosethat have the most impact on the reporting of our financial condition and thoserequiring significant judgments and estimates. With respect to these critical accounting policies, management believesthat the application of judgments and assessments is consistently applied andproduces financial information that fairly presents the results of operationsfor all periods presented.  The sixcritical accounting policies are:**

35

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*Impairment of Long-Lived Assets, Including Goodwill*

The Operating Partnership periodically evaluates its long-lived assets,including its investments in real estate and goodwill, for indicators ofpermanent impairment.  The judgmentsregarding the existence of impairment indicators are based on factors such asoperational performance, market conditions, expected holding period of eachasset and legal and environmental concerns. Future events could occur which would cause the Operating Partnership toconclude that impairment indicators exist and an impairment loss is warranted.

*Depreciation of Investment in Real Estate*

The Operating Partnership depreciates the building component of itsinvestment in real estate over a 30-year estimated useful life, buildingimprovements over a 5-year to 10-year estimated useful life and both thefurniture, fixtures and equipment and replacements components over a 5-yearestimated useful life, all of which are judgmental determinations.

*Cost Capitalization*

See the *Capitalization of Fixed Assetsand Improvements to Real Estate* section for discussion of the policywith respect to capitalization vs. expensing of fixed asset/repair andmaintenance costs.  In addition, theOperating Partnership capitalizes the payroll and associated costs of employeesdirectly responsible for and who spend all of their time on the supervision ofmajor capital and/or renovation projects. These costs are reflected on the balance sheet as an increase todepreciable property.

The Operating Partnership follows the guidance in SFAS No. 67, *Accounting for Costs and Initial Rental Operations ofReal Estate Projects*, for all development projects and uses itsprofessional judgment in determining whether such costs meet the criteria forcapitalization or must be expensed as incurred. The Operating Partnership capitalizes interest, real estate taxes andinsurance and payroll and associated costs for those individuals directlyresponsible for and who spend all of their time on development activities, withcapitalization ceasing no later than 90 days following issuance of thecertificate of occupancy.  These costsare reflected on the balance sheet as construction in progress for eachspecific property.  The Operating Partnershipexpenses as incurred all payroll costs of on-site employees working directly atour properties, 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.

*Fair Value of Financial Instruments, IncludingDerivative Instruments*

The valuation of financial instruments under SFAS No. 107 and SFAS No.133 and its amendments (SFAS Nos. 137/138/149) requires the OperatingPartnership to make estimates and judgments that affect the fair value of theinstruments.  The Operating Partnership,where possible, bases the fair values of its financial instruments, includingits derivative instruments, on listed market prices and third party quotes.Where these are not available, the Operating Partnership bases its estimates oncurrent instruments with similar terms and maturities or on other factorsrelevant to the financial statements.

*Revenue Recognition*

Rental income attributable to leases is recorded when due from residentsand is recognized monthly as it is earned, which is not materially differentthan on a straight-line basis.  Leasesentered into between a resident and a property for the rental of an apartmentunit are generally year-to-year, renewable upon consent of both parties on anannual or monthly basis.  Fee and assetmanagement revenue and interest income are recorded on an accrual basis.

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*Stock-Based Compensation*

The Company accounts for its stock-based compensation in accordance withSFAS No. 123(R),  * Share-BasedPayment*, effective January 1, 2006, which results in compensationexpense being recorded based on the fair value of the stock compensationgranted.

Any Common Shares issued pursuant to EQR’s incentive equity compensationand employee share purchase plans will result in the Operating Partnershipissuing OP Units to EQR on a one-for-one basis, with the Operating Partnershipreceiving the net cash proceeds of such issuances.

**Funds From Operations**

**For thesix months ended June 30, 2006, Funds From Operations (“FFO”) available to OPUnits decreased $36.9 million, or 9.1%, as compared to the six months endedJune 30, 2005.  This decrease isprimarily attributable to approximately $57.1 million of other incomerecognized in 2005 related to eBay, Inc’s acquisition of the OperatingPartnership’s interest in Rent.com.**

**For thequarter ended June 30, 2006, FFO available to OP Units increased $18.5 million,or 10.7%, as compared to the quarter ended June 30, 2005.**

The following is a reconciliation of net income to FFO available to OPUnits for the six months and quarters ended June 30, 2006 and 2005:

**FundsFrom Operations**

*(Amountsin thousands)*

*(Unaudited)*

 
| ** **                                                         | ** ** | **Six Months Ended June 30,** | ** ** | **Quarter Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                          | ** ** | **2005**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income                                                         |       | $                                                 | 576,710    |                                      | $          | 402,756 |   | $ | 171,162 |   | $ | 154,476 |   |
| Adjustments:                                                       |       |                                              |       |                                      |       |   |   |   |   |
| Depreciation                                                       |       | 271,924                                           |       | 212,238                                   |       | 139,906 |   | 107,832 |   |
| Depreciation – Non-real estate additions                      |       | (3,682                                            | )          | (2,685                                    | )          | (1,886 | ) | (1,391 | ) |
| Depreciation – Partially Owned and Unconsolidated  Properties |       | 2,563                                             |       | (638                                      | )          | 1,013 |   | (387 | ) |
| Net gain on sales of unconsolidated entities                       |       | (352                                              | )          | (124                                      | )          | (23 | ) | — |   |
| Discontinued operations:                                           |       |                                              |       |                                      |       |   |   |   |   |
| Depreciation                                                       |       | 25,429                                            |       | 47,030                                    |       | 10,724 |   | 22,368 |   |
| Net gain on sales of discontinued operations                       |       | (502,297                                          | )          | (248,875                                  | )          | (129,796 | ) | (108,171 | ) |
| Net incremental gain on sales of condominium units                 |       | 18,553                                            |       | 29,036                                    |       | 11,426 |   | 15,554 |   |
|                                                               |       |                                              |       |                                      |       |   |   |   |   |
| FFO (1)(2)                                                         |       | 388,848                                           |       | 438,738                                   |       | 202,526 |   | 190,281 |   |
| Preferred  distributions                                           |       | (21,724                                           | )          | (31,322                                   | )          | (10,530 | ) | (14,409 | ) |
| Premium on  redemption of Preference Interests                     |       | (683                                              | )          | (4,112                                    | )          | (9 | ) | (2,384 | ) |
| FFO available to OP  Units                                         |       | $                                                 | 366,441    |                                      | $          | 403,304 |   | $ | 191,987 |   | $ | 173,488 |   |

 

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***(1****           **The National Association of Real Estate Investment Trusts (“NAREIT”)defines funds from operations (“FFO”) (April 2002 White Paper) as net income(computed in accordance with accounting principles generally accepted in theUnited States (“GAAP”)), excluding gains (or losses) from sales of depreciableproperty, plus depreciation and amortization, and after adjustments forunconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will becalculated to reflect funds from operations on the same basis.  The April 2002 White Paper states that gainor loss on sales of property is excluded from FFO for previously depreciatedoperating properties only.  Once theOperating Partnership commences the conversion of units to condominiums, itsimultaneously discontinues depreciation of such property.*

***(2)****      **The Operating Partnership believes that FFO is helpful toinvestors as a supplemental measure of the operating performance*

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***of a real estate company, because it is a recognizedmeasure of performance by the real estate industry and by excluding gains orlosses related to dispositions of depreciable property and excluding realestate depreciation (which can vary among owners of identical assets in similarcondition based on historical cost accounting and useful life estimates), FFOcan help compare the operating performance of a company’s real estate betweenperiods or as compared to different companies. FFO in and of itself does not represent net income or net cash flowsfrom operating activities in accordance with GAAP.  Therefore, FFO should not be exclusively consideredas an alternative to net income or to net cash flows from operating activitiesas determined by GAAP or as a measure of liquidity.  The Operating Partnership’s calculation ofFFO may differ from other real estate companies due to, among other items,variations in cost capitalization policies for capital expenditures and, accordingly,may not be comparable to such other real estate companies.***

**Item3. Quantitative and Qualitative 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, 2005.  See also Note 11 in the Notes to ConsolidatedFinancial Statements for additional discussion of derivative instruments.**

**Item4. Controls and Procedures**

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

**Effectiveas of June 30, 2006, the Operating Partnership carried out an evaluation, underthe 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 inInternal Control over Financial Reporting:**

**There were no changes to the internal control overfinancial reporting of the Operating Partnership identified in connection withthe Operating Partnership’s evaluation referred to above that occurred duringthe second quarter of 2006 that have materially affected, or are reasonablylikely to affect, the Operating Partnership’s internal control over financialreporting.**

**PART II.        OTHER INFORMATION**

**Item 1.  Legal Proceedings**

**TheOperating Partnership is party to a housing discrimination lawsuit brought inApril of 2006 in the United States District Court for the District ofMaryland.  The suit alleges that theOperating Partnership designed and built approximately 300 of the OperatingPartnership’s properties in violation of the accessibility requirements of theFair 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 June 30, 2006. 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 the Operating Partnership which, individually or in theaggregate, reasonably may be expected to have a material adverse effect on theOperating Partnership.**

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**Item 1A.  Risk Factors**

**Therehave been no material changes related to the risk factors that were discussedin Part I, Item 1A of the Operating Partnership’s Form 10-K for the year endedDecember 31, 2005.**

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

**(a)** *OPUnits Issued in the Quarter Ended June 30, 2006*

**The Operating Partnership issued417,039 OP Units having a value of $18.6 million to its limited partners duringthe quarter ended June 30, 2006.**

**These OP Units were issued inexchange for direct or indirect interests in multifamily properties in privateplacement transactions under section 4(2) of the Securities Act of 1933, asamended (the “Securities Act”) and the rules and regulations promulgatedthereunder.  In light of the manner ofsale and information obtained by the Operating Partnership from personsreceiving OP Units in connection with these transactions, the OperatingPartnership believes it may rely on this exemption.  OP Units are generally exchangeable intoCommon Shares of EQR on a one-for-one basis or, at the option of EQR and theOperating Partnership, the cash equivalent thereof, at any time one year afterthe date of issuance.**

(c)  *OP UnitsRepurchased in the Quarter Ended June 30, 2006*

The Operating Partnership repurchased the following OP Units during thequarter ended June 30, 2006:

| 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)** | ** ** |
|---------------------|------------|------------------------------------------------------------------|------------|----------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                |       |                                                             |       |                                                     |       |                                                                                                                                                 |       |                                                                                                                                              |       |
| May 2006            |       | 852,083                                                          |       | $                                                        | 43.68      |                                                                                                                                                 | 852,083    |                                                                                                                                              | $          | 503,019,002 |   |
| Second Quarter 2006 |       | 852,083                                                          |       | $                                                        | 43.68      |                                                                                                                                                 | 852,083    |                                                                                                                                              |       |   |
|                     |            |                                                                  |            |                                                          |            |                                                                                                                                                      |            |                                                                                                                                                   |            |  |  |

 

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**(1)**          The OP Units repurchased during the quarter ended June 30, 2006represent OP Units redeemed in response to repurchases of Common Shares in theopen market under the Company’s publicly announced share repurchase programapproved by its Board of Trustees.  Underthis program, the Company may repurchase in open market or privately negotiatedtransactions up to $585.0 million of its Common Shares, with $503.0 millionremaining following the above purchases.

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**Item 6.    Exhibits**

**10.1***                    Formof Lexford Housing Division Sale Agreement.

**31.1**                           Certification of David J. Neithercut, Chief Executive Officer ofRegistrant’s General Partner.

**31.2**                           Certification of Donna Brandin, Chief Financial Officer of Registrant’sGeneral Partner.

**32.1**                           Certification pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of David J.Neithercut, Chief Executive Officer of Registrant’s General Partner.

**32.2**                           Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002, of Donna Brandin, ChiefFinancial Officer of Registrant’s General Partner.

 

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*** Included as an exhibit to EQR’sForm 10-Q for the quarter ended June 30, 2006.**

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##### **EXHIBIT INDEX**

| Exhibit | ** ** | **Document**                                                                                                                                                                                                    |
|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                                                                            |
| 31.1    |       | Certification of David J. Neithercut, Chief  Executive Officer of Registrant’s General Partner.                                                                                                            |
| 31.2    |       | Certification of Donna Brandin, Chief Financial  Officer of Registrant’s General Partner.                                                                                                                  |
| 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. |
| 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 Donna  Brandin, Chief Financial Officer of Registrant’s General Partner.       |

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on behalf by theundersigned thereunto duly authorized.

 

 
|        |           | ERP OPERATING LIMITED PARTNERSHIP |
|--------|----------------|-----------------------------------|
|   |           | BY: EQUITY RESIDENTIAL            |
|   |           | ITS GENERAL PARTNER               |
|   |           |                              |   |   |
|   |           |                              |   |   |
| Date:  | August 7, 2006 |                              |   | By: /s/ | Donna Brandin |   |
|   |           |                              | Donna Brandin |   |
|   |           |                              | Executive Vice  President and |   |
|   |           |                              | Chief Financial  Officer |   |
|   |           |                              |   |   |
|   |           |                              |   |   |
| Date:  | August 7, 2006 |                              |   | By: /s/ | Mark L. Wetzel |   |
|   |           |                              | Mark L. Wetzel |   |
|   |           |                              | Senior Vice  President and |   |
|   |           |                              | Chief Accounting  Officer |   |
|        |                |                                   |  |  |  |  |  |  |

 

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