**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**ý****                                ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15 (d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

** **

For the quarterly period ended **MARCH31, 2005**

 

**OR**

 

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15 (d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission File Number: 0-24920**

 

**ERP OPERATING 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)

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  ý  No o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Act).  Yes  ý  No o

 

 

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED BALANCE SHEETS**

**(Amounts in thousands)**

**(Unaudited)**

 
| ** **                                                | ** ** | **March 31,  2005** | ** **     | **December 31,  2004** | ** ** |
|-----------------------------------------------------------|------------|---------------------|----------------|------------------------|------------|
| **ASSETS**                                                |       |                |           |                   |       |
| Investment in real estate                                 |       |                |           |                   |       |
| Land                                                      |       | $                   | 2,144,206      |                   | $          | 2,183,818 |   |
| Depreciable property                                      |       | 12,381,279          |           | 12,350,900             |       |
| Construction in progress (including land)                 |       | 357,826             |           | 317,903                |       |
| Investment in real estate                                 |       | 14,883,311          |           | 14,852,621             |       |
| Accumulated depreciation                                  |       | (2,693,176          | )              | (2,599,827             | )          |
| Investment in real estate, net                            |       | 12,190,135          |           | 12,252,794             |       |
|                                                      |       |                |           |                   |       |
| Cash and cash equivalents                                 |       | 91,068              |           | 83,505                 |       |
| Investments in unconsolidated entities                    |       | 10,743              |           | 11,461                 |       |
| Rents receivable                                          |       | 348                 |           | 1,681                  |       |
| Deposits – restricted                                |       | 185,162             |           | 82,194                 |       |
| Escrow deposits – mortgage                           |       | 36,648              |           | 35,800                 |       |
| Deferred financing costs, net                             |       | 33,352              |           | 34,986                 |       |
| Goodwill, net                                             |       | 30,000              |           | 30,000                 |       |
| Other assets                                              |       | 119,879             |           | 112,854                |       |
| **Total assets**                                          | ** ** | **$**               | **12,697,335** | ** **             | **$**      | **12,645,275** | ** ** |
|                                                      |       |                |           |                   |       |
| **LIABILITIES AND PARTNERS’ CAPITAL**                |       |                |           |                   |       |
| Liabilities:                                              |       |                |           |                   |       |
| Mortgage notes payable                                    |       | $                   | 3,106,010      |                   | $          | 3,166,739 |   |
| Notes, net                                                |       | 3,138,783           |           | 3,143,067              |       |
| Line of credit                                            |       | 163,000             |           | 150,000                |       |
| Accounts payable and accrued expenses                     |       | 94,281              |           | 87,422                 |       |
| Accrued interest payable                                  |       | 63,553              |           | 70,411                 |       |
| Rents received in advance and other  liabilities          |       | 251,817             |           | 227,588                |       |
| Security deposits                                         |       | 49,225              |           | 49,501                 |       |
| Distributions payable                                     |       | 143,166             |           | 142,437                |       |
| **Total liabilities**                                     | ** ** | **7,009,835**       | ** **     | **7,037,165**          | ** ** |
|                                                      |       |                |           |                   |       |
| *Commitments and contingencies*                           |       |                |           |                   |       |
| **Minority Interests – Partially Owned  Properties** | ** ** | **12,496**          | ** **     | **9,557**              | ** ** |
|                                                      |       |                |           |                   |       |
| Partners’ capital:                                   |       |                |           |                   |       |
| Preference Units                                          |       | 633,363             |           | 636,216                |       |
| Preference Interests                                      |       | 140,000             |           | 206,000                |       |
| Junior Preference Units                                   |       | 184                 |           | 184                    |       |
| General Partner                                           |       | 4,585,852           |           | 4,457,700              |       |
| Limited Partners                                          |       | 333,225             |           | 319,841                |       |
| Deferred compensation                                     |       | —              |           | (18                    | )          |
| Accumulated other comprehensive loss                      |       | (17,620             | )              | (21,370                | )          |
| **Total partners’ capital**                          | ** ** | **5,675,004**       | ** **     | **5,598,553**          | ** ** |
| **Total liabilities and partners’ capital**          | ** ** | **$**               | **12,697,335** | ** **             | **$**      | **12,645,275** | ** ** |

 

**See accompanying notes**

 

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(Unaudited)**

 
| ** **                                                                                                                                                                   | ** ** | **Quarter Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **2005**                    | ** ** | **2004** | ** ** |
| **REVENUES**                                                                                                                                                                 |       |                        |       |   |   |
| Rental income                                                                                                                                                                |       | $                           | 486,007    |   | $ | 435,946 |   |
| Fee and asset management                                                                                                                                                     |       | 2,495                       |       | 3,007 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| Total revenues                                                                                                                                                               |       | 488,502                     |       | 438,953 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| **EXPENSES**                                                                                                                                                                 |       |                        |       |   |   |
| Property and maintenance                                                                                                                                                     |       | 135,784                     |       | 118,200 |   |
| Real estate taxes and insurance                                                                                                                                              |       | 53,640                      |       | 49,821 |   |
| Property management                                                                                                                                                          |       | 20,975                      |       | 17,286 |   |
| Fee and asset management                                                                                                                                                     |       | 2,519                       |       | 1,995 |   |
| Depreciation                                                                                                                                                                 |       | 127,568                     |       | 110,110 |   |
| General and administrative                                                                                                                                                   |       | 17,060                      |       | 10,142 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| Total expenses                                                                                                                                                               |       | 357,546                     |       | 307,554 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| Operating income                                                                                                                                                             |       | 130,956                     |       | 131,399 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| Interest and other income                                                                                                                                                    |       | 60,521                      |       | 1,968 |   |
| Interest:                                                                                                                                                                    |       |                        |       |   |   |
| Expense incurred, net                                                                                                                                                        |       | (90,280                     | )          | (78,887 | ) |
| Amortization of deferred financing costs                                                                                                                                     |       | (1,586                      | )          | (1,289 | ) |
|                                                                                                                                                                         |       |                        |       |   |   |
| Income before allocation to Minority  Interests, loss from investments in unconsolidated entities, net gain on  sales of unconsolidated entities and discontinued operations |       | 99,611                      |       | 53,191 |   |
| Allocation to Minority Interests –  Partially Owned Properties                                                                                                          |       | 1,477                       |       | (147 | ) |
| Loss from investments in unconsolidated  entities                                                                                                                            |       | (58                         | )          | (7,406 | ) |
| Net gain on sales of unconsolidated  entities                                                                                                                                |       | 124                         |       | 2,434 |   |
| Income from continuing operations                                                                                                                                            |       | 101,154                     |       | 48,072 |   |
| Net gain on sales of discontinued  operations                                                                                                                                |       | 151,265                     |       | 71,499 |   |
| Discontinued operations, net                                                                                                                                                 |       | (4,139                      | )          | 5,134 |   |
| Net income                                                                                                                                                                   |       | $                           | 248,280    |   | $ | 124,705 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| **ALLLOCATION OF NET INCOME:**                                                                                                                                               |       |                        |       |   |   |
| Preference Units                                                                                                                                                             |       | $                           | 13,025     |   | $ | 13,672 |   |
| Preference Interests                                                                                                                                                         |       | $                           | 3,884      |   | $ | 5,053 |   |
| Junior Preference Units                                                                                                                                                      |       | $                           | 4          |   | $ | 31 |   |
| Premium on redemption of Preference  Interests                                                                                                                               |       | $                           | 1,728      |   | $ | — |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| General Partner                                                                                                                                                              |       | $                           | 214,014    |   | $ | 98,309 |   |
| Limited Partners                                                                                                                                                             |       | 15,625                      |       | 7,640 |   |
| Net income available to OP Units                                                                                                                                             |       | $                           | 229,639    |   | $ | 105,949 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| **Earnings per OP Unit – basic:**                                                                                                                                       |       |                        |       |   |   |
| Income from continuing operations available  to OP Units                                                                                                                     |       | $                           | 0.27       |   | $ | 0.10 |   |
| Net income available to OP Units                                                                                                                                             |       | $                           | 0.75       |   | $ | 0.35 |   |
| Weighted average OP Units outstanding                                                                                                                                        |       | 305,391                     |       | 299,028 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| **Earnings per OP Unit – diluted:**                                                                                                                                     |       |                        |       |   |   |
| Income from continuing operations available  to OP Units                                                                                                                     |       | $                           | 0.27       |   | $ | 0.10 |   |
| Net income available to OP Units                                                                                                                                             |       | $                           | 0.74       |   | $ | 0.35 |   |
| Weighted average OP Units outstanding                                                                                                                                        |       | 308,576                     |       | 301,781 |   |
|                                                                                                                                                                         |       |                        |       |   |   |
| Distributions declared per OP Unit  outstanding                                                                                                                              |       | $                           | 0.4325     |   | $ | 0.4325 |   |

 

**See accompanying notes**

 

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** **

**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)**

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

**(Unaudited)**

 
| ** **                                                                                   | ** ** | **Quarter Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                   | ** ** | **2005**                    | ** ** | **2004** | ** ** |
|                                                                                         |       |                        |       |   |   |
| Comprehensive income:                                                                        |       |                        |       |   |   |
|                                                                                         |       |                        |       |   |   |
| Net income                                                                                   |       | $                           | 248,280    |   | $ | 124,705 |   |
| Other comprehensive income (loss) –  derivative and other instruments:                  |       |                        |       |   |   |
| Unrealized holding gains (losses) arising  during the period                                 |       | 3,168                       |       | (10,154 | ) |
| Equity in unrealized holding gains arising  during the period – unconsolidated entities |       | —                      |       | 3,667 |   |
| Losses reclassified into earnings from  other comprehensive income                           |       | 582                         |       | 482 |   |
| Comprehensive income                                                                         |       | $                           | 252,030    |   | $ | 118,700 |   |

 

**See accompanying notes**

 

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Amounts in thousands)**

**(Unaudited)**

 
| ** **                                                                           | ** ** | **Quarter Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                           | ** ** | **2005**                    | ** ** | **2004** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                            | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Net income                                                                           |       | $                           | 248,280    |   | $ | 124,705 |   |
| *Adjustments to reconcile net income to net  cash provided by operating activities:* |       |                        |       |   |   |
| Allocation to Minority Interests –  Partially Owned Properties                  |       | (1,477                      | )          | 147 |   |
| Depreciation                                                                         |       | 129,068                     |       | 117,185 |   |
| Amortization of deferred financing costs                                             |       | 1,812                       |       | 1,590 |   |
| Amortization of discounts and premiums on  debt                                      |       | (234                        | )          | (216 | ) |
| Amortization of deferred settlements on  derivative instruments                      |       | 236                         |       | 123 |   |
| Loss from investments in unconsolidated entities                                     |       | 58                          |       | 7,406 |   |
| Net (gain) on sales of unconsolidated  entities                                      |       | (124                        | )          | (2,434 | ) |
| Net (gain) on sales of discontinued  operations                                      |       | (151,265                    | )          | (71,499 | ) |
| Debt extinguishments                                                                 |       | 3,337                       |       | 93 |   |
| Unrealized loss on derivative instruments                                            |       | —                      |       | 59 |   |
| Compensation paid with Company Common  Shares                                        |       | 9,935                       |       | 4,335 |   |
| Other operating activities, net                                                      |       | —                      |       | 9 |   |
|                                                                                 |       |                        |       |   |   |
| *Changes in assets and liabilities:*                                                 |       |                        |       |   |   |
| Decrease (increase) in rents receivable                                              |       | 1,334                       |       | (1,534 | ) |
| Decrease (increase) in deposits –  restricted                                   |       | 920                         |       | (1,356 | ) |
| (Increase) in other assets                                                           |       | (450                        | )          | (7,046 | ) |
| Increase in accounts payable and accrued  expenses                                   |       | 6,718                       |       | 5,888 |   |
| (Decrease) increase in accrued interest  payable                                     |       | (6,863                      | )          | 9,159 |   |
| (Decrease) in rents received in advance and  other liabilities                       |       | (6,478                      | )          | (8,902 | ) |
| (Decrease) increase in security deposits                                             |       | (290                        | )          | 287 |   |
| Net cash provided by operating activities                                            |       | 234,517                     |       | 177,999 |   |
|                                                                                 |       |                        |       |   |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                            |       |                        |       |   |   |
| Investment in real estate – acquisitions                                        |       | (267,615                    | )          | (187,996 | ) |
| Investment in real estate –  development/other                                  |       | (51,658                     | )          | (4,722 | ) |
| Improvements to real estate                                                          |       | (38,274                     | )          | (35,712 | ) |
| Additions to non-real estate property                                                |       | (1,488                      | )          | (667 | ) |
| Interest capitalized for real estate under  development                              |       | (2,850                      | )          | (370 | ) |
| Interest capitalized for unconsolidated  entities under development                  |       | —                      |       | (2,282 | ) |
| Proceeds from disposition of real estate,  net                                       |       | 542,056                     |       | 291,527 |   |
| Proceeds from disposition of unconsolidated  entities                                |       | 124                         |       | 4,729 |   |
| Investments in unconsolidated entities                                               |       | (265                        | )          | (406,115 | ) |
| Distributions from unconsolidated entities                                           |       | 330                         |       | 23,416 |   |
| (Increase) decrease in deposits on real  estate acquisitions, net                    |       | (103,888                    | )          | 565 |   |
| (Increase) decrease in mortgage deposits                                             |       | (841                        | )          | 2,653 |   |
| *Consolidation of previously Unconsolidated  Properties:*                            |       |                        |       |   |   |
| Via acquisition (net of cash acquired)                                               |       | (20                         | )          | (49,080 | ) |
| Via FIN 46 (cash consolidated)                                                       |       | —                      |       | 3,628 |   |
| Acquisition of Minority Interests –  Partially Owned Properties                 |       | (1,122                      | )          | (72 | ) |
| Other investing activities, net                                                      |       | —                      |       | 1,392 |   |
| Net cash provided by (used for) investing  activities                                |       | 74,489                      |       | (359,106 | ) |
|                                                                                      |            |                             |            |  |  |  |  |

 

**See accompanying notes**

 

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**ERP OPERATING LIMITED PARTNERSHIP**

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

**(Amounts in thousands)**

**(Unaudited)**

 
| ** **                                                                       | ** ** | **Quarter Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                       | ** ** | **2005**                    | ** ** | **2004** | ** ** |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                        |       |                        |       |   |   |
| Loan and bond acquisition costs                                                  |       | $                           | (178       | ) | $ | (707 | ) |
| *Mortgage notes payable:*                                                        |       |                        |       |   |   |
| Proceeds                                                                         |       | 24,715                      |       | 16,450 |   |
| Lump sum payoffs                                                                 |       | (127,177                    | )          | (80,692 | ) |
| Scheduled principal repayments                                                   |       | (7,078                      | )          | (6,145 | ) |
| Prepayment premiums/fees                                                         |       | (3,337                      | )          | (430 | ) |
| *Line of credit:*                                                                |       |                        |       |   |   |
| Proceeds                                                                         |       | 416,000                     |       | 549,000 |   |
| Repayments                                                                       |       | (403,000                    | )          | (139,000 | ) |
| (Payments on) settlement of derivative  instruments                              |       | —                      |       | (3,107 | ) |
| Proceeds from sale of OP Units                                                   |       | 4,462                       |       | 3,538 |   |
| Proceeds from exercise of EQR options                                            |       | 10,352                      |       | 20,923 |   |
| Redemption of Preference Interests                                               |       | (66,000                     | )          | — |   |
| Payment of offering costs                                                        |       | (26                         | )          | (24 | ) |
| Contributions – Minority Interests –  Partially Owned Properties       |       | 20                          |       | — |   |
| *Distributions:*                                                                 |       |                        |       |   |   |
| OP Units – General Partner                                                  |       | (123,238                    | )          | (119,740 | ) |
| Preference Units                                                                 |       | (13,076                     | )          | (13,693 | ) |
| Preference Interests                                                             |       | (3,962                      | )          | (5,053 | ) |
| Junior Preference Units                                                          |       | (4                          | )          | (81 | ) |
| OP Units – Limited Partners                                                 |       | (8,878                      | )          | (9,411 | ) |
| Minority Interests – Partially Owned  Properties                            |       | (1,038                      | )          | (8,773 | ) |
| Net cash (used for) provided by financing  activities                            |       | (301,443                    | )          | 203,055 |   |
| Net increase in cash and cash equivalents                                        |       | 7,563                       |       | 21,948 |   |
| Cash and cash equivalents, beginning of  period                                  |       | 83,505                      |       | 49,579 |   |
| Cash and cash equivalents, end of period                                         |       | $                           | 91,068     |   | $ | 71,527 |   |
|                                                                             |       |                        |       |   |   |
| **SUPPLEMENTAL INFORMATION:**                                                    | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Cash paid during the period for interest                                         |       | $                           | 99,413     |   | $ | 73,800 |   |
| Valuation of OP Units issued – Other  transactions                          |       | $                           | 18,166     |   | $ | — |   |
|                                                                             |       |                        |       |   |   |
| *Real estate acquisitions/dispositions:*                                         |       |                        |       |   |   |
| Mortgage loans assumed                                                           |       | $                           | 47,581     |   | $ | 36,943 |   |
|                                                                             |       |                        |       |   |   |
| Mortgage loans (assumed) by purchaser                                            |       | $                           | —     |   | $ | (1,338 | ) |
|                                                                             |       |                        |       |   |   |
| *Consolidation of previously Unconsolidated  Properties – Via acquisition:* |       |                        |       |   |   |
| Investment in real estate                                                        |       | $                           | (1,748     | ) | $ | (955,073 | ) |
|                                                                             |       |                        |       |   |   |
| Mortgage loans assumed                                                           |       | $                           | 1,084      |   | $ | 270,285 |   |
|                                                                             |       |                        |       |   |   |
| Minority Interests – Partially Owned  Properties                            |       | $                           | 20         |   | $ | 309 |   |
|                                                                             |       |                        |       |   |   |
| Investments in unconsolidated entities                                           |       | $                           | 595        |   | $ | 608,200 |   |
|                                                                             |       |                        |       |   |   |
| Net other liabilities recorded                                                   |       | $                           | 29         |   | $ | 27,199 |   |
|                                                                             |       |                        |       |   |   |
| *Consolidation of previously Unconsolidated  Properties – Via FIN 46:*      |       |                        |       |   |   |
| Investment in real estate                                                        |       | $                           | —     |   | $ | (548,342 | ) |
|                                                                             |       |                        |       |   |   |
| Mortgage loans consolidated                                                      |       | $                           | —     |   | $ | 294,722 |   |
|                                                                             |       |                        |       |   |   |
| Minority Interests – Partially Owned  Properties                            |       | $                           | —     |   | $ | 3,074 |   |
|                                                                             |       |                        |       |   |   |
| Investments in unconsolidated entities                                           |       | $                           | —     |   | $ | 234,984 |   |
|                                                                             |       |                        |       |   |   |
| Net other liabilities recorded                                                   |       | $                           | —     |   | $ | 19,190 |   |

 

**See accompanying notes**

 

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**ERP OPERATING LIMITED PARTNERSHIP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.****                                   ****Business**

 

ERPOperating Limited Partnership (“EPROP”), an Illinois limited partnership, wasformed in May 1993 to conduct the multifamily residential property business ofEquity Residential (“EQR”).  EQR is aMaryland real estate investment trust (“REIT”) formed in March 1993 and is afully integrated real estate company engaged in the acquisition, development,ownership, management and operation of multifamily properties.

 

EQRis the general partner of, and as of March 31, 2005 owned an approximate 93.2%ownership interest in ERPOP.  EQR isstructured as an umbrella partnership REIT (“UPREIT”), under which all propertyownership and business operations are conducted through ERPOP and itssubsidiaries.  As used herein, the term “OperatingPartnership” includes ERPOP and those entities owned or controlled by it.  As used herein, the term “Company” means EQRand the Operating Partnership.

 

Asof March 31, 2005, the Operating Partnership, directly or indirectly throughinvestments in title holding entities, owned all or a portion of 939****properties in 32 states and the Districtof Columbia consisting of 199,510 units. The ownership breakdown includes:

 

| ** **                                | ** ** | **Properties** | ** ** | **Units** | ** ** |
|-------------------------------------------|------------|----------------|------------|-----------|------------|
| Wholly Owned Properties                   |       | 843            |       | 176,423   |       |
| Partially Owned Properties (Consolidated) |       | 39             |       | 6,929     |       |
| Unconsolidated Properties                 |       | 57             |       | 16,158    |       |
|                                      |       | 939            |       | 199,510   |       |

 

**2.****                                   ****Summary of SignificantAccounting Policies**

 

*Basis of Presentation*

 

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 include all of the information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringaccruals) and certain reclassifications considered necessary for a fairpresentation have been included.  Certainreclassifications have been made to the prior period financial statements inorder to conform to the current year presentation.  Operating results for the quarter ended March31, 2005 are not necessarily indicative of the results that may be expected forthe year ending December 31, 2005.

 

Thebalance sheet at December 31, 2004 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 Form 10-K for the yearended December 31, 2004.

 

*Stock-Based Compensation*

 

TheCompany elected to account for its stock-based compensation in accordance withSFAS No. 123 and its amendment (SFAS No. 148), *Accountingfor Stock Based Compensation*, effective in the first quarter of2003, which resulted in compensation expense being recorded based on the fairvalue of the 

 

7

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stock compensation granted.

 

TheCompany elected the “Prospective Method” which requires expensing of employeeawards granted or modified after January 1, 2003.  Compensation expense under all of the Company’splans is generally recognized over periods ranging from three months to fiveyears.

 

AnyCommon Shares issued pursuant to EQR’s incentive equity compensation andemployee share purchase plans will result in the Operating Partnership issuingunits of limited partnership interest (“OP Units”)  to EQR on a one-for-one basis, with theOperating Partnership receiving the net cash proceeds of such issuances.

 

TheCompany will adopt SFAS No. 123(R), Share-Based Payment, as required effectiveJanuary 1, 2006.  The Company does notanticipate that the adoption of SFAS No. 123(R) will have a material effect onits consolidated statements of operations or financial position.

 

Thecost related to stock-based employee compensation included in the determinationof net income for the quarter ended March 31, 2005 is equal to that which wouldhave been recognized if the fair value based method had been applied to allawards since the original effective date of SFAS No. 123.  The cost related to stock-based employeecompensation included in the determination of net income for the quarter endedMarch 31, 2004 is less than that which would have been recognized if the fairvalue based method had been applied to all awards since the original effectivedate of SFAS No. 123.  The followingtable illustrates the effect on net income and earnings per OP Unit if the fairvalue based method had been applied to all outstanding and unvested awards forthe quarter ended March 31, 2004:

 

| ** **                                                                                                  | ** ** | **Quarter Ended  March 31, 2004**                       | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **(Amounts in thousands  except per OP Unit  amounts)** | ** ** |
|                                                                                                        |       |                                                    |       |
| Net income available to OP Units – as  reported                                                        |       | $                                                       | 105,949    |   |
| Add: Stock-based employee compensation  expense included in reported net income:                            |       |                                                    |       |
| EQR’s restricted/performance shares                                                                    |       | 2,882                                                   |       |
| EQR’s share options                                                                                    |       | 789                                                     |       |
| EQR’s ESPP discount                                                                                    |       | 664                                                     |       |
| Deduct: Stock-based employee compensation  expense determined under fair value based method for all awards: |       |                                                    |       |
| EQR’s restricted/performance shares                                                                    |       | (2,882                                                  | )          |
| EQR’s share options                                                                                    |       | (1,558                                                  | )          |
| EQR’s ESPP discount                                                                                    |       | (664                                                    | )          |
| Net income available to OP Units – pro  forma                                                          |       | $                                                       | 105,180    |   |
|                                                                                                        |       |                                                    |       |
| Earnings per OP Unit:                                                                                       |       |                                                    |       |
| Basic – as reported                                                                                    |       | $                                                       | 0.35       |   |
| Basic – pro forma                                                                                      |       | $                                                       | 0.35       |   |
|                                                                                                        |       |                                                    |       |
| Diluted – as reported                                                                                  |       | $                                                       | 0.35       |   |
| Diluted – pro forma                                                                                    |       | $                                                       | 0.35       |   |

 

*Other*

 

TheOperating Partnership adopted FASB Interpretation (“FIN”) No. 46, *Consolidation of Variable*

 

8

----

 

*Interest Entities,*as required, effective March 31, 2004. The adoption required the consolidation of all previously unconsolidateddevelopment projects.  FIN No. 46requires the Operating Partnership to consolidate the assets, liabilities andresults of operations of the activities of a variable interest entity, whichfor the Operating Partnership includes only its development partnerships, ifthe Operating Partnership is entitled to receive a majority of the entity’sresidual returns and/or is subject to a majority of the risk of loss from suchentity’s activities.  As of the originalformation of the respective joint ventures, the Operating Partnership isconsidered to be the primary beneficiary and the fair value of the assets,liabilities and non-controlling interests of these development projectsapproximates carryover basis.  Due to theMarch 31, 2004 effective date, the Operating Partnership has only consolidatedthe results of operations beginning April 1, 2004.  The adoption of FIN No. 46 did not have anyeffect on net income as the aggregate results of operations of thesedevelopment properties were previously included in loss from investments inunconsolidated entities.

 

TheOperating Partnership generally contributes between 25% and 35% of the projectcost of the joint venture projects under development (constituting 100% of theequity), with the remaining cost financed through third-party constructionmortgages.  Voting rights are sharedequally between the Operating Partnership and its respective developmentpartners and accordingly, these projects were accounted for under the equitymethod prior to adoption of FIN No. 46.

 

InMay 2003, the FASB issued SFAS No. 150, *Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity*.  SFAS No. 150establishes standards for classifying and measuring as liabilities certainfinancial instruments that embody obligations of the issuer and havecharacteristics of both liabilities and equity. On November 7, 2003, the FASB issued FSP No. FAS 150-3, which deferredfor an indefinite period the classification and measurement provisions, but notthe disclosure provisions (see discussion below), of SFAS No. 150 as it relatesto noncontrolling interests that are classified as equity in the financialstatements of a subsidiary but would be classified as a liability in the parent’sfinancial statements under SFAS No. 150 (e.g., minority interests inconsolidated limited-life subsidiaries). The Operating Partnership does not have any mandatorily redeemablepreferred shares/units that fall within the scope of SFAS No. 150.

 

Withregards to the aforementioned disclosure provisions, the Operating Partnershipis presently the controlling partner in various consolidated partnershipsconsisting of 39 properties and 6,929 units having a minority interest bookvalue of $12.5 million at March 31, 2005. Some of these partnerships contain provisions that require thepartnerships to be liquidated through the sale of its assets upon reaching adate specified in each respective partnership agreement.  The Operating Partnership, as controllingpartner, has an obligation to cause the property owning partnerships todistribute proceeds of liquidation to the Minority Interests in these PartiallyOwned Properties only to the extent that the net proceeds received by thepartnerships from the sale of its assets warrant a distribution based on thepartnership agreements.  As of March 31,2005, the Operating Partnership estimates the value of Minority Interestdistributions would have been approximately $69.1 million (“Settlement Value”)had the partnerships been liquidated. This Settlement Value is based on estimated third party considerationrealized by the partnerships upon disposition of the Partially Owned Propertiesand is net of all other assets and liabilities, including yield maintenance onthe mortgages encumbering the properties, that would have been due on March 31,2005 had those mortgages been prepaid. Due to, among other things, the inherent uncertainty in the sale of realestate assets, the amount of any potential distribution to the Minority Interestsin the Operating Partnership’s Partially Owned Properties is subject tochange.  To the extent that thepartnerships’ underlying assets are worth less than the underlying liabilities,the Operating Partnership has no obligation to remit any consideration to theMinority Interests in Partially Owned Properties.

 

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

##  

## The followingtable presents the changes in the Operating Partnership’s issued andoutstanding OP Units and the limited partners’ OP Units for the quarter endedMarch 31, 2005:

##  

9

----

 

| ** **                              | ** ** | **2005**    | ** ** |
|-----------------------------------------|------------|-------------|------------|
| OP Units outstanding at January 1,      |       | 305,629,855 |       |
|                                    |       |        |       |
| Issued to General Partner:              |       |        |       |
| Conversion of Series E Preference Units |       | 126,549     |       |
| Conversion of Series H Preference Units |       | 579         |       |
| Employee Share Purchase Plan            |       | 159,987     |       |
| Exercise of EQR options                 |       | 499,659     |       |
| Restricted EQR share grants, net        |       | 555,397     |       |
|                                    |       |        |       |
| Issued to Limited Partners:             |       |        |       |
| Issuance – Other transactions      |       | 551,229     |       |
|                                    |       |        |       |
| OP Units outstanding at March 31,       |       | 307,523,255 |       |

 

| ** **                                                            | ** ** | **2005**   | ** **   |
|-----------------------------------------------------------------------|------------|------------|--------------|
| Limited Partner OP Units outstanding at  January 1,                   |       | 20,552,940 |         |
|                                                                  |       |       |         |
| Limited Partner OP Units Issued:                                      |       |       |         |
| Other transactions                                                    |       | 551,229    |         |
| Conversion of Limited Partner OP Units to  EQR Common Shares          |       | (197,254   | )            |
| Limited Partner OP Units Outstanding at  March 31,                    |       | 20,906,915 |         |
| Limited Partner OP Units Ownership Interest  in Operating Partnership |       | 6.8        | %            |
|                                                                  |       |       |         |
| Limited Partner OP Units Issued:                                      |       |       |         |
| Other transactions – per unit                                    |       | $          | 32.96        |   |
| Other transactions – valuation                                   |       | $          | 18.2 million |   |

 

The limited partners of the Operating Partnershipas of March 31, 2005 include various individuals and entities that contributedtheir properties to the Operating Partnership in exchange for OP Units.  Subject to certain restrictions, the LimitedPartners may exchange their OP Units for EQR Common Shares on a one-for-onebasis. 

 

EQR contributes all net proceeds from itsvarious equity offerings (including proceeds from exercise of options for EQRCommon Shares) to the Operating Partnership. In return for those contributions, EQR receives a number of OP Units inERPOP equal to the number of Common Shares it has issued in the equity offering(or in 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 issued inthe equity offering).  

 

The following table presents the OperatingPartnership's issued and outstanding Preference Units as of March 31, 2005 andDecember 31, 2004:

 

10

----

 
| ** **                                                                                                                                                                                                       | ** ** | ** **                        | ** ** | ** **               | ** ** | **Annual  Dividend**   | ** ** | **Amounts in thousands** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|--------------------------|------------|------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                                                                                       | ** ** | **Redemption  Date (1) (2)** | ** ** | **Conversion  Rate (2)** | ** ** | **Rate per  Unit (3)** | ** ** | **March  31, 2005**      | ** ** | **December  31, 2004** | ** ** |
| Preference Units:                                                                                                                                                                                                |       |                              |       |                     |       |                   |       |                     |       |   |   |
|                                                                                                                                                                                                             |       |                              |       |                     |       |                   |       |                     |       |   |   |
| 9 1/8% Series B Cumulative Redeemable  Preference Units; liquidation value $250 per unit; 500,000 units issued and  outstanding at March 31, 2005 and December 31, 2004 (4)                       |       | 10/15/05                          |       | N/A                      |       | $                      | 22.81252   |                     | $          | 125,000 |   | $ | 125,000 |   |
|                                                                                                                                                                                                             |       |                              |       |                     |       |                   |       |                     |       |   |   |
| 9 1/8% Series C Cumulative Redeemable  Preference Units; liquidation value $250 per unit; 460,000 units issued and  outstanding at March 31, 2005 and December 31, 2004 (4)                       |       | 9/9/06                            |       | N/A                      |       | $                      | 22.81252   |                     | 115,000    |   | 115,000 |   |
|                                                                                                                                                                                                             |       |                              |       |                     |       |                   |       |                     |       |   |   |
| 8.60% Series D Cumulative Redeemable  Preference Units; liquidation value $250 per unit; 700,000 units issued and  outstanding at March 31, 2005 and December 31, 2004 (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; 697,999 and 811,724 units  issued and outstanding at March 31, 2005 and December 31, 2004,  respectively |       | 11/1/98                           |       | 1.1128                   |       | $                      | 1.75       |                     | 17,450     |   | 20,293 |   |
|                                                                                                                                                                                                             |       |                              |       |                     |       |                   |       |                     |       |   |   |
| 7.00% Series H Cumulative Convertible  Preference Units; liquidation value $25 per unit; 36,534 and 36,934 units  issued and outstanding at March 31, 2005 and December 31, 2004,  respectively   |       | 6/30/98                           |       | 1.4480                   |       | $                      | 1.75       |                     | 913        |   | 923 |   |
|                                                                                                                                                                                                             |       |                              |       |                     |       |                   |       |                     |       |   |   |
| 8.29% Series K Cumulative Redeemable  Preference Units; liquidation value $50 per unit; 1,000,000 units issued and  outstanding at March 31, 2005 and December 31, 2004                           |       | 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 March 31, 2005 and December 31, 2004 (4)                        |       | 6/19/08                           |       | N/A                      |       | $                      | 16.20      |                     | 150,000    |   | 150,000 |   |
|                                                                                                                                                                                                             |       |                              |       |                     |       |                   |       | $                        | 633,363    |   | $ | 636,216 |   |

 

----

(1)          On or after theredemption date, redeemable preference units (Series B, C, D, K and N) maybe redeemed for cash at the option of the Operating Partnership, in whole or inpart, at a redemption price equal to the liquidation price per unit, plusaccrued and unpaid distributions, if any, in conjunction with the concurrentredemption of the corresponding EQR Preferred Shares.

 

(2)          On or after theredemption date, convertible preference units (Series E & H) maybe redeemed under certain circumstances at the option of the OperatingPartnership for cash or OP Units, in whole or in part, at various redemptionprices per unit based upon the contractual rate, plus accrued and unpaiddistributions, if any, in conjunction with the concurrent redemption/conversionof the corresponding EQR Preferred Shares.

 

(3)          Dividends on all seriesof Preference Units are payable quarterly at various pay dates.  Dividend rates listed for Series B, C, Dand N are Preference Unit rates and the equivalent depositary unit annualdividend rates are $2.281252, $2.281252, $2.15 and $1.62, respectively.

 

(4)          Series B, C, D andN Preference Units each have a corresponding depositary unit that consists often times the number of units and one-tenth the liquidation value and dividendrate per unit.

 

The followingtable presents the issued and outstanding Preference Interests as of March 31,2005 and December 31, 2004:

 

11

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| ** **                                                                                                                                                                                                  | ** ** | ** **                        | ** ** | ** **               | ** ** | **Annual  Dividend**   | ** **   | **Amounts in thousands** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|--------------------------|------------|------------------------|--------------|--------------------------|------------|
| ** **                                                                                                                                                                                                  | ** ** | **Redemption  Date (1) (2)** | ** ** | **Conversion  Rate (2)** | ** ** | **Rate per  Unit (3)** | ** **   | **March  31, 2005**      | ** ** | **December  31, 2004** | ** ** |
| Preference Interests:                                                                                                                                                                                       |       |                              |       |                     |       |                   |         |                     |       |   |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 8.50% Series B Cumulative Redeemable  Preference Units; liquidation value $50 per unit; 0 and 1,100,000 units  issued and outstanding at March 31, 2005 and December 31, 2004,  respectively |       | 03/03/05                          |       | N/A                      |       | (4                     | )            | $                        | —     |   | $ | 55,000 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 8.50% Series C Cumulative Redeemable  Preference Units; liquidation value $50 per unit; 0 and 220,000 units issued  and outstanding at March 31, 2005 and December 31, 2004,  respectively   |       | 03/23/05                          |       | N/A                      |       | (5                     | )            | —                   |       | 11,000 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 8.375% Series D Cumulative Redeemable  Preference Units; liquidation value $50 per unit; 420,000 units issued and  outstanding at March 31, 2005 and December 31, 2004 (6)                   |       | 05/01/05                          |       | N/A                      |       | $                      | 4.1875       |                     | 21,000     |   | 21,000 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 8.50% Series E Cumulative Redeemable  Preference Units; liquidation value $50 per unit; 1,000,000 units issued and  outstanding at March 31, 2005 and December 31, 2004 (7)                  |       | 08/11/05                          |       | N/A                      |       | $                      | 4.25         |                     | 50,000     |   | 50,000 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 8.375% Series F Cumulative Redeemable  Preference Units; liquidation value $50 per unit; 180,000 units issued and  outstanding at March 31, 2005 and December 31, 2004 (8)                   |       | 05/01/05                          |       | N/A                      |       | $                      | 4.1875       |                     | 9,000      |   | 9,000 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 7.875% Series G Cumulative Redeemable  Preference Units; liquidation value $50 per unit; 510,000 units issued and  outstanding at March 31, 2005 and December 31, 2004                       |       | 03/21/06                          |       | N/A                      |       | $                      | 3.9375       |                     | 25,500     |   | 25,500 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 7.625% Series H Cumulative Convertible  Redeemable Preference Units; liquidation value $50 per unit; 190,000 units  issued and outstanding at March 31, 2005 and December 31, 2004           |       | 03/23/06                          |       | 1.5108                   |       | $                      | 3.8125       |                     | 9,500      |   | 9,500 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 7.625% Series I Cumulative Convertible  Redeemable Preference Units; liquidation value $50 per unit; 270,000 units  issued and outstanding at March 31, 2005 and December 31, 2004           |       | 06/22/06                          |       | 1.4542                   |       | $                      | 3.8125       |                     | 13,500     |   | 13,500 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         |                     |       |   |   |
| 7.625% Series J Cumulative Convertible  Redeemable Preference Units; liquidation value $50 per unit; 230,000 units  issued and outstanding at March 31, 2005 and December 31, 2004           |       | 12/14/06                          |       | 1.4108                   |       | $                      |  3.8125 |                     | 11,500     |   | 11,500 |   |
|                                                                                                                                                                                                        |       |                              |       |                     |       |                   |         | $                        | 140,000    |   | $ | 206,000 |   |

 

----

(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 PreferredShares.  In addition, on or after theConversion Date, the convertible Preference Interests (Series H, I &J) may be converted under certain circumstances at the option of the holder (inwhole but not in part) to Common Shares based upon the contractual conversionrate, plus accrued and unpaid distributions, if any.

 

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

 

(4)          On February 1, 2005, the Operating Partnershipissued an irrevocable notice to redeem for cash on March 3, 2005 all 1.1million units of its 8.50% Series B Cumulative Redeemable PreferenceInterests with a liquidation value of $55.0 million.  The Operating Partnership recorded awrite-off of

 

12

----

 

approximately $1.4 million inoriginal issuance costs as a premium on redemption of Preference Interests inthe accompanying consolidated statements of operations.

 

(5)          On February 7, 2005, the Operating Partnershipissued an irrevocable notice to redeem for cash on March 23, 2005 all220,000 units of its 8.50% Series C Cumulative Redeemable PreferenceInterests with a liquidation value of $11.0 million.  The Operating Partnership recorded awrite-off of approximately $0.3 million in original issuance costs as a premiumon redemption of Preference Interests in the accompanying consolidatedstatements of operations.

 

(6)          On April 1, 2005, the Operating Partnershipissued an irrevocable notice to redeem for cash on May 1, 2005 all 420,000units of its 8.375% Series D Cumulative Redeemable Preference Interestswith a liquidation value of $21.0 million. The Operating Partnership will record a write-off of approximately $0.5million in original issuance costs as a premium on redemption of PreferenceInterests in the second quarter of 2005.

 

(7)          On April 1, 2005, the Operating Partnershiprepurchased for cash all 1.0 million units of its 8.50% Series ECumulative Redeemable Preference Interests with a liquidation value of $50.0million.  The Operating Partnership willrecord a write-off of approximately $1.3 million in original issuance costsalong with a $0.3 million cash early redemption charge as premiums onredemption of Preference Interests in the second quarter of 2005.

 

(8)          On April 1, 2005, the Operating Partnershipissued an irrevocable notice to redeem for cash on May 1, 2005 all 180,000units of its 8.375% Series F Cumulative Redeemable Preference Interestswith a liquidation value of $9.0 million. The Operating Partnership will record a write-off of approximately $0.2million in original issuance costs as a premium on redemption of PreferenceInterests in the second quarter of 2005.

 

The followingtable presents the Operating Partnership’s issued and outstanding JuniorConvertible Preference Units (the “Junior Preference Units”) as of March 31,2005 and December 31, 2004:

 
| ** **                                                                                                                                                                | ** ** | ** **           | ** ** | ** **           | ** ** | **Annual  Dividend**   | ** ** | **Amounts in thousands** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                                                | ** ** | **Redemption  Date** | ** ** | **Conversion  Rate** | ** ** | **Rate per  Unit (1)** | ** ** | **March  31, 2005**      | ** ** | **December  31, 2004** | ** ** |
| Junior Preference Units:                                                                                                                                                  |       |                 |       |                 |       |                   |       |                     |       |   |   |
|                                                                                                                                                                      |       |                 |       |                 |       |                   |       |                     |       |   |   |
| Series B Junior Convertible Preference  Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31,  2005 and December 31, 2004 |       |                 | (2)        |                 | (2)        | $                      | 2.00       |                     | $          | 184 |   | $ | 184 |   |
|                                                                                                                                                                      |       |                 |       |                 |       |                   |       | $                        | 184        |   | $ | 184 |   |
|                                                                                                                                                                           |            |                      |            |                      |            |                        |            |                          |            |  |  |  |  |  |

 

----

(1)          Dividends on the Junior PreferenceUnits are payable quarterly at various pay dates.

 

(2)          On or after the tenthanniversary of the issuance (the “Redemption Date”), the Series B JuniorPreference Units may be converted into OP Units at the option of the OperatingPartnership based on the contractual conversion rate.  Prior to the Redemption Date, the holders mayelect to convert the Series B Junior Preference Units to OP Units undercertain circumstances based on the contractual conversion rate.  The contractual rate is based upon a ratiodependent upon the closing price of EQR’s Common Shares.

 

**4.****                                    RealEstate**

** **

**During thequarter ended March 31, 2005, the**Operating Partnershipacquired the entire equity interest innineproperties containing 2,232 unitsand one vacant land parcel from unaffiliated parties for a total purchase priceof $314.5 million.

 

13

----

 

**During thequarter ended March 31, 2005, the**Operating Partnership acquiredadditional ownership interests in eleven Partially Owned Properties, all ofwhich remain partially owned.  Theacquisition was funded using $18.1 million in cash and through the issuance of551,229 OP Units valued at $18.2 million, with $35.2 million recorded asadditional building basis and $1.1 million recorded as a reduction of MinorityInterests – Partially Owned Properties. The OperatingPartnership also acquired the majority of the remaining third partyequity interests it did not previously own in one property, consisting of 60units. The property was previously accounted for under the equity method ofaccounting and subsequent to the purchase was consolidated.

** **

During thequarter ended March 31, 2005, the Operating Partnership disposed of thefollowing to unaffiliated parties (including two vacant land parcels andvarious individual condominium units) (sales price in thousands):

 
| ** **                                | ** ** | **Properties** | ** ** | **Units** | ** ** | **Sales Price** | ** ** |
|-------------------------------------------|------------|----------------|------------|-----------|------------|-----------------|------------|
| Wholly Owned Properties                   |       | 8              |       | 2,520     |       | $               | 444.2      |   |
| Partially Owned Properties (Consolidated) |       | 2              |       | 492       |       | 109.3           |       |
|                                      |       | 10             |       | 3,012     |       | $               | 553.5      |   |

 

**The Operating Partnership recognized anet gain on sales of discontinued operations of approximately $151.3 million onthe above sales.**

** **

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

 

**As of April 26, 2005, in additionto the property that was subsequently acquired as discussed in Note 16, theOperating Partnership had entered into separate agreements to acquire ninemultifamily properties containing 1,852 units from unaffiliated parties.  The Operating Partnership expects a combinedpurchase price of approximately $264.0 million.**

** **

**As of April 26, 2005, in additionto the properties that were subsequently disposed of as discussed in Note 16,the Operating Partnership had entered into separate agreements to dispose often multifamily properties containing 2,428**units and two vacant land parcels to unaffiliated parties.  The Operating Partnership expects a combineddisposition price of approximately $224.8 million.

** **

The closingsof these pending transactions are subject to certain contingencies andconditions; therefore, there can be no assurance that these transactions willbe consummated or that the final terms thereof will not differ in materialrespects from those summarized in the preceding paragraphs.

 

**6.****                                    Investmentsin Unconsolidated Entities**

 

The OperatingPartnership has co-invested in various properties with unrelated third partieswhich are accounted for under the equity method of accounting.  The following table summarizes the OperatingPartnership’s investments in unconsolidated entities as of March 31, 2005(amounts in thousands except for project and unit amounts):

 

14

----

 
| ** **                                                             | ** ** | **Institutional  Joint  Ventures** | ** ** | **Other**  | ** ** | **Totals** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------|------------|------------|------------|------------|------------|
|                                                                   |       |                               |       |       |       |       |       |
| Total projects                                                         |       | 45                                 |       | 11         |       | 56         | (1)        |
|                                                                   |       |                               |       |       |       |       |       |
| Total units                                                            |       | 10,846                             |       | 1,511      |       | 12,357     | (1)        |
| ** **                                                             | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating Partnership’s ownership  percentage of outstanding debt |       | 25.0                               | %          | 10.7       | %          | ** ** | ** ** |
| ** **                                                             | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating Partnership’s share of  outstanding debt (2)            |       | $                                  | 121,200    |       | $          | 2,983      |       | $ | 124,183 | ** ** |
|                                                                        |            |                                    |            |            |            |            |            |  |  |  |

 

----

(1)                Totals excludeFort Lewis Military Housing consisting of one property and 3,801 units, whichis not accounted for under the equity method of accounting but is included inthe Operating Partnership’s property/unit counts as of March 31, 2005.

 

(2)                All debt isnon-recourse to the Operating Partnership.

 

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

 

The followingtable presents the deposits – restricted as of March 31, 2005 and December 31,2004 (amounts in thousands):

 
| ** **                                                    | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                          |       |                     |       |                        |       |
| Collateral enhancement for partially owned  development loans |       | $                        | 12,000     |                        | $          | 12,000 |   |
| Tax-deferred (1031) exchange proceeds                         |       | 105,624                  |       | —                      |       |
| Resident security, utility and other                          |       | 67,538                   |       | 70,194                      |       |
| Totals                                                        |       | $                        | 185,162    |                        | $          | 82,194 |   |
|                                                               |            |                          |            |                             |            |  |  |  |  |

 

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

 

As of March 31, 2005, the Operating Partnership had outstandingmortgage indebtedness of approximately $3.1 billion.

 

During thequarter ended March 31, 2005, the Operating Partnership:

 

•                  Repaid$134.3 million of mortgage loans;

•                  Assumed/consolidated$48.7 million of mortgage debt on certain properties in connection with theiracquisitions and/or consolidations; and

•                  Obtained$24.7 million of mortgage loans on certain properties.

 

As of March 31,2005, scheduled maturities for the OperatingPartnership’s outstanding mortgageindebtedness were at various dates through December 1, 2034.  At March 31, 2005, the interest raterange on the Operating Partnership’s mortgage debt was 2.17% to 12.465%. During the quarter ended March 31, 2005, the weighted averageinterest rate on the Operating Partnership’s mortgage debt was 5.54%.

 

15

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**9.****                                    Notes**

 

As of March 31,2005, the Operating Partnership had outstanding unsecured notes ofapproximately $3.1 billion.

 

As of March 31,2005, scheduled maturities for the Operating Partnership’s outstanding noteswere at various dates through 2029.  At March 31,2005, the interest rate range on the Operating Partnership’s notes was 4.75% to7.75%.  During the quarter ended March 31,2005, the weighted average interest rate on the Operating Partnership’s noteswas 6.16%.

 

**10.****                             Lineof Credit**

 

As of March 31,2005, $163.0 million was outstanding and $51.0 million was restricted(dedicated to support letters of credit and not available for borrowing) on theOperating Partnership’s revolving credit facility.  During the quarter ended March 31, 2005,the weighted average interest rate under the credit facility was 2.34%.

 

On April 1,2005, the Operating Partnership obtained a new three-year $1.0 billionunsecured revolving credit facility maturing on May 29, 2008, and theOperating Partnership’s $700.0 million credit facility that was scheduled toexpire in May 2005 was terminated. Advances under the new credit facility bear interest at variable ratesbased upon LIBOR at various interest periods plus a spread dependent upon theOperating Partnership’s credit rating or based on bids received from thelending group.  EQR has guaranteed theOperating Partnership’s credit facility up to the maximum amount and for thefull term of the facility.

 

**11.****                             DerivativeInstruments**

 

The following table summarizes the consolidated derivative instrumentsat March 31, 2005 (dollar amounts are in thousands):

 
| ** **                             | ** ** | **Cash Flow  Hedges** | ** ** | **Fair Value  Hedges** | ** ** | **Forward  Starting  Swaps** | ** ** | **Offsetting  Receive  Floating  Swaps/Caps** | ** ** | **Offsetting  Pay  Floating  Swaps/Caps** | ** ** | **Development  Cash Flow  Hedges** | ** ** |
|----------------------------------------|------------|-----------------------|------------|------------------------|------------|------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------|------------|------------------------------------|------------|
| Current Notional Balance               |       | $                     | 150,000    |                   | $          | 490,000                      |       | $                                             | 200,000    |                                      | $          | 255,069                            |       | $ | 255,069 |   | $ | 15,200 |   |
| Lowest Possible Notional               |       | $                     | 150,000    |                   | $          | 490,000                      |       | $                                             | 200,000    |                                      | $          | 91,052                             |       | $ | 91,052 |   | $ | 6,700 |   |
| Highest Possible Notional              |       | $                     | 150,000    |                   | $          | 490,000                      |       | $                                             | 200,000    |                                      | $          | 255,069                            |       | $ | 255,069 |   | $ | 34,625 |   |
| Lowest Interest Rate                   |       | 3.683                 | %          | 3.245                  | %          | 4.582                        | %          | 6.000                                         | %          | 6.000                                     | %          | 3.310                              | %          |
| Highest Interest Rate                  |       | 3.683                 | %          | 7.250                  | %          | 5.179                        | %          | 6.000                                         | %          | 6.000                                     | %          | 3.500                              | %          |
| Earliest Maturity Date                 |       | 2005                  |       | 2005                   |       | 2015                         |       | 2007                                          |       | 2007                                      |       | 2005                               |       |
| Latest Maturity Date                   |       | 2005                  |       | 2009                   |       | 2015                         |       | 2007                                          |       | 2007                                      |       | 2006                               |       |
| Estimated Asset (Liability) Fair Value |       | $                     | (935       | )                      | $          | (14,917                      | )          | $                                             | 2,244      |                                      | $          | 12                                 |       | $ | (12 | ) | $ | 42 |   |

 

**On March 31, 2005, the netderivative instruments were reported at their fair value as other assets ofapproximately $3.9 million and as other liabilities of approximately $17.5million.  As of March 31, 2005,there were approximately $17.3 million in deferred losses, net, included inaccumulated other comprehensive loss. Based on the estimated fair values of the net derivative instruments at March 31,2005, the**OperatingPartnership may recognize an estimated $3.5 million ofaccumulated other comprehensive loss as additional interest expense during thetwelve months ending March 31, 2006.

 

16

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**12.****                             EarningsPer OP Unit**

 

The followingtables set forth the computation of net income per OP Unit – basic and netincome per OP Unit – diluted:

 
| ** **                                                                                                  | ** ** | **Quarter Ended March 31,**                       | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2005**                                               | ** ** | **2004** | ** ** |
| ** **                                                                                                  | ** ** | **(Amounts in thousands except  per OP Unit amounts)** | ** ** |
|                                                                                                        |       |                                                   |       |   |   |
| **Numerator for net income per OP Unit –  basic:**                                                     |       |                                                   |       |   |   |
| Income from continuing operations                                                                           |       | $                                                      | 101,154    |   | $ | 48,072 |   |
| Allocation to Preference Units                                                                              |       | (13,025                                                | )          | (13,672 | ) |
| Allocation to Preference Interests                                                                          |       | (3,884                                                 | )          | (5,053 | ) |
| Allocation to Junior Preference Units                                                                       |       | (4                                                     | )          | (31 | ) |
| Allocation to premium on redemption of  Preference Interests                                                |       | (1,728                                                 | )          | — |   |
|                                                                                                        |       |                                                   |       |   |   |
| Income from continuing operations available  to OP Units                                                    |       | 82,513                                                 |       | 29,316 |   |
| Net gain on sales of discontinued  operations                                                               |       | 151,265                                                |       | 71,499 |   |
| Discontinued operations, net                                                                                |       | (4,139                                                 | )          | 5,134 |   |
|                                                                                                        |       |                                                   |       |   |   |
| Numerator for net income per OP Unit –  basic                                                          |       | $                                                      | 229,639    |   | $ | 105,949 |   |
|                                                                                                        |       |                                                   |       |   |   |
| **Numerator for net income per OP Unit – diluted:**                                                    |       |                                                   |       |   |   |
| Income from continuing operations                                                                           |       | $                                                      | 101,154    |   | $ | 48,072 |   |
| Allocation to Preference Units                                                                              |       | (13,025                                                | )          | (13,672 | ) |
| Allocation to Preference Interests                                                                          |       | (3,884                                                 | )          | (5,053 | ) |
| Allocation to Junior Preference Units                                                                       |       | (4                                                     | )          | (31 | ) |
| Allocation to premium on redemption of  Preference Interests                                                |       | (1,728                                                 | )          | — |   |
|                                                                                                        |       |                                                   |       |   |   |
| Income from continuing operations available  to OP Units                                                    |       | 82,513                                                 |       | 29,316 |   |
| Net gain on sales of discontinued  operations                                                               |       | 151,265                                                |       | 71,499 |   |
| Discontinued operations, net                                                                                |       | (4,139                                                 | )          | 5,134 |   |
|                                                                                                        |       |                                                   |       |   |   |
| Numerator for net income per OP Unit –  diluted                                                        |       | $                                                      | 229,639    |   | $ | 105,949 |   |
|                                                                                                        |       |                                                   |       |   |   |
| **Denominator for net income per OP Unit –  basic and diluted:**                                       |       |                                                   |       |   |   |
| Denominator for net income per OP Unit –  basic                                                        |       | 305,391                                                |       | 299,028 |   |
|                                                                                                        |       |                                                   |       |   |   |
| Effect of dilutive securities:                                                                              |       |                                                   |       |   |   |
| Dilution for OP Units issuable upon assumed  exercise/vesting of EQR’s share options/restricted shares |       | 3,185                                                  |       | 2,753 |   |
|                                                                                                        |       |                                                   |       |   |   |
| Denominator for net income per OP Unit –  diluted                                                      |       | 308,576                                                |       | 301,781 |   |
|                                                                                                        |       |                                                   |       |   |   |
| Net income per OP Unit – basic                                                                         |       | $                                                      | 0.75       |   | $ | 0.35 |   |
|                                                                                                        |       |                                                   |       |   |   |
| Net income per OP Unit – diluted                                                                       |       | $                                                      | 0.74       |   | $ | 0.35 |   |
|                                                                                                             |            |                                                        |            |  |  |  |  |  |

 

17

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| ** **                                               | ** ** | **Quarter Ended March 31,**                       | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                               | ** ** | **2005**                                               | ** ** | **2004** | ** ** |
| ** **                                               | ** ** | **(Amounts in thousands except  per OP Unit amounts)** | ** ** |
|                                                     |       |                                                   |       |   |   |
| **Net income per OP Unit – basic:**                 |       |                                                   |       |   |   |
| Income from continuing operations available  to OP Units |       | $                                                      | 0.27       |   | $ | 0.10 |   |
| Net gain on sales of discontinued  operations            |       | 0.49                                                   |       | 0.24 |   |
| Discontinued operations, net                             |       | (0.01                                                  | )          | 0.01 |   |
|                                                     |       |                                                   |       |   |   |
| Net income per OP Unit – basic                      |       | $                                                      | 0.75       |   | $ | 0.35 |   |
|                                                     |       |                                                   |       |   |   |
| **Net income per OP Unit – diluted:**               |       |                                                   |       |   |   |
| Income from continuing operations available  to OP Units |       | $                                                      | 0.27       |   | $ | 0.10 |   |
| Net gain on sales of discontinued  operations            |       | 0.49                                                   |       | 0.24 |   |
| Discontinued operations, net                             |       | (0.02                                                  | )          | 0.01 |   |
|                                                     |       |                                                   |       |   |   |
| Net income per OP Unit – diluted                    |       | $                                                      | 0.74       |   | $ | 0.35 |   |

 

 

*Convertible preference interests/units that could be converted into1,871,194 and 3,553,977 weighted average Common Shares (which would becontributed to the Operating Partnership in exchange for OP Units) for thequarters ended March 31, 2005 and 2004, respectively, were outstanding butwere not included in the computation of diluted earnings per OP Unit becausethe effects would be anti-dilutive.*

 

**13.****                             DiscontinuedOperations**

 

The OperatingPartnership has presented separately as discontinued operations in all periodsthe results of operations for all consolidated assets disposed of on or after January 1,2002 (the date of adoption of SFAS No. 144).

 

The components of discontinued operations are outlined below andinclude the results of operations for the respective periods that the OperatingPartnership owned such assets during each of the quarters ended March 31,2005 and 2004.

 

18

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| ** **                                | ** ** | **Quarter Ended March 31,** | ** **  |
|-------------------------------------------|------------|----------------------------------|-------------|
| ** **                                | ** ** | **2005**                         | ** **  | **2004** | ** ** |
| ** **                                | ** ** | **(Amounts in thousands)**       | ** **  |
|                                      |       |                             |        |   |   |
| **REVENUES**                              |       |                             |        |   |   |
| Rental  income                            |       | $                                |  8,205 |   | $ |  29,148 |   |
| Total  revenues                           |       | 8,205                            |        | 29,148 |   |
|                                      |       |                             |        |   |   |
| **EXPENSES  (1)**                         |       |                             |        |   |   |
| Property and  maintenance                 |       | 4,476                            |        | 12,118 |   |
| Real estate taxes  and insurance          |       | 2,677                            |        | 3,254 |   |
| Property  management                      |       | 82                               |        | — |   |
| Depreciation                              |       | 1,500                            |        | 7,075 |   |
| Total  expenses                           |       | 8,735                            |        | 22,447 |   |
|                                      |       |                             |        |   |   |
| Discontinued  operating (loss) income     |       | (530                             | )           | 6,701 |   |
|                                      |       |                             |        |   |   |
| Interest and  other income                |       | 35                               |        | 160 |   |
| Interest (2):                             |       |                             |        |   |   |
| Expense  incurred, net                    |       | (3,418                           | )           | (1,426 | ) |
| Amortization  of deferred financing costs |       | (226                             | )           | (301 | ) |
|                                      |       |                             |        |   |   |
| Discontinued  operations, net             |       | $                                | (4,139      | ) | $ | 5,134 |   |
|                                           |            |                                  |             |  |  |  |  |  |  |

 

----

*(1)**             Includes expenses paid in the current periodfor properties sold in prior periods related to the Operating Partnership’speriod of ownership.*

*(2)**             Interest includes only specific amounts fromeach property sold.*

 

For the properties sold during the quarterended March 31, 2005 (excluding condominium conversion properties), theinvestment in real estate, net, and the mortgage notes payable balances at December 31,2004 were $298.2 million and $18.5 million, respectively.

 

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

 

The Operating Partnership, as an owner ofreal estate, is subject to various Federal, state and local environmentallaws.  Compliance by the OperatingPartnership with existing laws has not had a material adverse effect on theOperating Partnership.  However, theOperating Partnership cannot predict the impact of new or changed laws orregulations on its current properties or on properties that it may acquire inthe future.

 

In August 2004, the OperatingPartnership tried a class action lawsuit in Palm Beach County, Floridaregarding certain charges made to residents who terminated their leases earlyor failed to provide sufficient notice of intent to vacate.  In December 2004, the Court issued aFindings of Fact and Conclusions of Law holding those fees legallyuncollectible under Florida law.  Inrecognition of the Findings of Fact and Conclusions of Law, which awardeddamages and interest to the class in the amount of approximately $1.6 million,the Operating Partnership established a reserve of approximately $1.6 millionand correspondingly recorded this as a general and administrative expense in December 2004.  Due to pending appeals, the award is neitherfinal nor enforceable.  Accordingly, itis not possible to determine or predict the ultimate outcome of the case.  While no assurances can be given, theOperating Partnership does not believe that this lawsuit, if the ultimateoutcome is unfavorable, will have a material adverse effect on the OperatingPartnership.

 

The Operating Partnership does not believethere is any other litigation pending or threatened against the Operating Partnershipwhich, individually or in the aggregate, reasonably may be expected to have amaterial adverse effect on the Operating Partnership.

 

19

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During the year ended December 31, 2004,the Operating Partnership established a reserve and recorded a correspondingexpense of $15.2 million for estimated uninsured property damage at certain ofits properties primarily located in Florida caused by Hurricanes Charley,Frances, Ivan and Jeanne.  Of thisamount, approximately $12.9 million had been spent for hurricane relatedrepairs through March 31, 2005.  The$2.3 million remaining reserve is included in rents received in advance andother liabilities on the consolidated balance sheets.

 

**As of March 31, 2005, theOperating Partnership has four projects totaling 1,165 units in various stagesof development with estimated completion dates ranging through December 31,2006.  The three 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 the Operating Partnership chooses not topurchase the interest, it must agree to a sale of the project to an unrelatedthird party at such value.  The OperatingPartnership’s partner must exercise this right as to all projects subject tothe agreement within five years after the receipt of the final certificate ofoccupancy on the last developed property.  In connection 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 April 26, 2005,the Operating Partnership had set-aside $5.0 million towards this creditenhancement.  The Operating Partnershipwould be required to perform under this agreement only if there was a materialdefault under a third party construction mortgage agreement.  This agreement expires no later than December 31,2018.  Notwithstanding the termination ofthe agreement, the Operating Partnership shall have recourse against itsdevelopment 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 agreeableprice.  If the Operating Partnership andthe partner are unable to agree on a price, both parties will obtainappraisals.  If the appraised values varyby more than 10%, both the Operating Partnership and its partner will agree ona third appraiser to determine which original appraisal is closest to itsdetermination of value.  The OperatingPartnership may elect at that time not to purchase the property and instead,authorize its partner to sell the project at or above the agreed-upon value toan unrelated third party.  Five years following the receipt of the final certificate of occupancy onthe last developed property, the Operating Partnership must purchase, at theagreed-upon price, 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 Partnershipor its development partner may market a subject project for sale.  If the Operating Partnership’s developmentpartner proposes the sale, the Operating Partnership may elect to purchase theproject at the price proposed by its partner or defer the sale until twoindependent appraisers appraise the project. If the two appraised values vary by more than 5%, a third appraiser willbe chosen to determine the fair market value of the property.  Once a value has been determined, theOperating Partnership may elect to purchase the property or authorize itsdevelopment partner to sell the project at the agreed-upon value.

 

**In connection with one of its mergers, theOperating Partnership provided a guaranty of a credit enhancement agreementwith respect to certain tax-exempt bonds issued to finance certain publicimprovements at a multifamily development project.  The Operating Partnership had the obligationto provide this guaranty for a period of eight years from the consummation ofthe merger or through May 30, 2005.  TheOperating Partnership would have been required to perform under this agreementonly if there was a draw on the letter of credit issued by the creditenhancement party.  Effective May 2,2005, the tax-exempt bonds were redeemed in full and the letter of credit wascancelled.  As a result, the guaranty wasterminated.**

 

20

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**15.****                               ReportableSegments**

 

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

 

TheOperating Partnership’s primary business is owning,managing, and operating multifamily residential properties, which includes thegeneration of rental and other related income through the leasing of apartmentunits to residents and includes Equity Corporate Housing (“ECH”).  Senior management evaluates the performanceof each of our apartment communities on an individual basis; however, each ofour apartment communities has similar economic characteristics, residents, andproducts and services so they have been aggregated into one reportablesegment.  The Operating Partnership’srental real estate segment comprises approximately 99.5% and 99.3% of totalrevenues for the quarters ended March 31, 2005 and 2004,respectively.  The Operating Partnership’srental real estate segment comprises approximately 99.8% of total assets atboth March 31, 2005 and December 31, 2004.

 

The primaryfinancial measure for the Operating Partnership’s rental real estate segment isnet operating income (“NOI”), which represents rental income less: 1) propertyand maintenance expense; 2) real estate taxes and insurance expense; and 3)property management expense (all as reflected in the accompanying consolidatedstatements of operations).  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.  Current year NOIis compared to prior year NOI and current year budgeted NOI as a measure offinancial performance.  The followingtable presents the NOI from our rental real estate from continuing operationsfor the quarters ended March 31, 2005 and 2004:

 
| ** **                               | ** ** | **Quarter Ended March 31,** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| ** **                               | ** ** | **(Amounts in thousands)**       | ** ** |
| Rental  income                           |       | $                                | 486,007    |   | $ | 435,946 |   |
| Property and  maintenance expense        |       | (135,784                         | )          | (118,200 | ) |
| Real estate  taxes and insurance expense |       | (53,640                          | )          | (49,821 | ) |
| Property  management expense             |       | (20,975                          | )          | (17,286 | ) |
| Net  operating income                    |       | $                                | 275,608    |   | $ | 250,639 |   |

 

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 revenuesare from external customers and there is no customer who contributed 10% ormore of the Operating Partnership’s total revenues during the quarters ended March 31,2005 or 2004.

 

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

 

Subsequent to March 31, 2005 and throughApril 26, 2005, in addition to the subsequent events disclosed in Notes 3,10 and 14, the Operating Partnership:

 

•                  Acquiredone property consisting of 467 units for approximately $88.8 million;

•                  Disposedof three properties consisting of 770 units (excluding condominium units) forapproximately $31.5 million;

 

21

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•                  Repaid$7.7 million of mortgage loans;

•                  Had$300.0 million in unsecured notes remarketed as originally contemplated in aremarketing agreement entered into in connection with the original issuance ofthe notes, with the interest rate changing from 6.63% to 6.584% effective April 14,2005 (these notes still mature on April 13, 2015); and

•                  Received$25.0 million in full redemption of its 1,000,000 shares of 8.25% ConvertibleTrust Preferred Securities of WRP Convertible Trust I, an affiliate ofWellsford Real Properties, Inc. (“WRP”).

 

During the quarter ended March 31, 2005,the Operating Partnership received $57.1 million in cash for its ownershipinterest in Rent.com in connection with the acquisition of Rent.com by eBay,Inc.  The $57.1 million was recorded asinterest and other income in the accompanying consolidated statements ofoperations.

 

On March 28, 2005, the Company and Bruce W.Duncan, the Company’s President and Chief Executive Officer (“CEO”), enteredinto an Amended and Restated Employment Agreement (the “Amendment”) to reflectchanges required in view of Mr. Duncan’s planned retirement as President,CEO and trustee to be effective January 2, 2006.  The Amendment also amended Mr. Duncan’sDeferred Compensation Agreement entered into in January 2003.  The Company recorded approximately $2.9million of additional general and administrative expense during the quarterended March 31, 2005, and expects to record approximately $7.0 million duringthe remainder of 2005, primarily related to accelerated vesting of shareoptions and restricted/performance shares.

 

Effective February 28, 2005, the Company andEdward Geraghty, the President of the Company’s Eastern Division, entered intoa Separation Agreement and General Release reflecting Mr. Geraghty’sresignation effective February 28, 2005. The Company recorded approximately $3.3 million of severance as additionalgeneral and administrative expense during the quarter ended March 31,2005.

 

22

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

 

**Overview**

 

For further information including definitionsfor capitalized terms not defined herein, refer to the consolidated financialstatements and footnotes thereto included in the Operating Partnership’s annualreport on Form 10-K for the year ended December 31, 2004.

 

Forward-looking statements in this report areintended to be made pursuant to the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. The words “believes”, “estimates”, “expects” and “anticipates” and othersimilar expressions that are predictions of or indicate future events andtrends and which do not relate solely to historical matters identifyforward-looking statements.  Suchforward-looking statements are subject to risks and uncertainties, which couldcause actual results, performance, or achievements of the Operating Partnershipto differ materially from anticipated future results, performance orachievements expressed or implied by such forward-looking statements.  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 costs necessary to bring an acquired orcondominium conversion property up to standards established for its intendedmarket position or to otherwise develop a property.  Additionally, we expect that other major realestate investors with significant capital will compete with us for attractiveinvestment opportunities or may also develop properties in markets where wefocus our development efforts.  Thiscompetition may increase prices for multifamily properties or decrease theprice at which we expect to sell individual condominiums.  We may not be in a position or have theopportunity in the future to make suitable property acquisitions on favorableterms.  We also plan to develop moreproperties ourselves over the next few years in addition to co-investing withour development partners for either the rental or condominium market, dependingon opportunities in each sub-market. This may increase the overall level of risk associated with ourdevelopments.  The total number ofdevelopment units, cost of development and estimated completion dates aresubject to uncertainties arising from changing economic conditions (such as thecost of labor and construction materials), competition and local governmentregulation.

•                  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”.

 

Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the datehereof.  The Operating Partnershipundertakes no obligation to publicly release any revisions to theseforward-looking statements, which may be made to reflect events orcircumstances after the date hereof or to reflect the occurrence ofunanticipated events.  Forward-lookingstatements and related uncertainties are also included in Notes 5, 11 and 16 tothe Notes to Consolidated Financial Statements in this report.

 

23

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**Results of Operations**

 

Inconjunction with our business objectives and operating strategy, the OperatingPartnership has continued to invest or recycle its capital investment inapartment communities located in strategically targeted markets during thequarter ended March 31, 2005.  Insummary, we acquired nine properties, consisting of 2,232 units, for anaggregate purchase price of $284.2 million and a vacant land parcel for $30.3million, all of which we deem to be in high barrier to entry markets.  The Operating Partnership sold tenproperties, consisting of 2,674 units, for an aggregate sales price of $425.3million as well as 338 condominium units for $92.0 million and two vacant landparcels for $36.3 million during the quarter ended March 31, 2005.

 

The Operating Partnership’sprimary financial measure for evaluating each of its apartment communities isnet operating income (“NOI”).  TheOperating Partnership believes that NOI is helpful to investors as asupplemental measure of the operating performance of a real estate companybecause it is a direct measure of the actual operating results of the OperatingPartnership’s apartment communities.  TheOperating Partnership defines NOI as rental income less: 1) property andmaintenance expense; 2) real estate taxes and insurance expense; and 3) propertymanagement expense.

 

Properties that the Operating Partnershipowned for both of the quarters ended March 31, 2005 and March 31,2004 (the “First Quarter 2005 Same Store Properties”), which represented166,350 units, impacted the Operating Partnership’s results of operations andare discussed in the following paragraphs.

 

The Operating Partnership’s acquisition,disposition, completed development and consolidation of previouslyunconsolidated property activities also impacted overall results of operationsfor the quarters ended March 31, 2005 and 2004.  The impacts of these activities are alsodiscussed in greater detail in the following paragraphs.

 

***Comparison of the quarter ended March 31, 2005 to thequarter ended March 31, 2004***

 

For the quarter ended March 31,2005, income before allocation to Minority Interests, loss from investments inunconsolidated entities, net gain on sales of unconsolidated entities anddiscontinued operations increased by approximately $46.4 million when comparedto the quarter ended March 31, 2004.

 

**First Quarter 2005 Same Store Propertiesrevenues increased primarily as a result of higher rental rates charged toresidents, increased occupancy and lower concessions.  First Quarter 2005 Same Store Properties expensesincreased primarily due to higher payroll, utility costs and real estatetaxes.  The following tables providecomparative revenue, expense, NOI and weighted average occupancy for the FirstQuarter 2005 Same Store Properties:**

 
| **First Quarter 2005 vs. First  Quarter 2004  Quarter over Quarter Same-Store Results** | ** ** |
|-----------------------------------------------------------------------------------------|------------|
| **$ in Millions – 166,350  Same-Store Units**                                 | ** ** |
| **Description**                                                                         | ** ** | **Revenues** | ** ** | **Expenses** | ** ** | **NOI** | ** ** |
|                                                                                    |       |   |   |   |   |   |   |
| Q1 2005                                                                                 |       | $ | 428.3 |   | $ | 176.7 |   | $ | 251.6 |   |
| Q1 2004                                                                                 |       | $ | 418.2 |   | $ | 168.6 |   | $ | 249.6 |   |
| Change                                                                                  |       | $ | 10.1 |   | $ | 8.1 |   | $ | 2.0 |   |
| Change                                                                                  |       | 2.4 | % | 4.8 | % | 0.8 | % |

 

24

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| **Same Store Occupancy Statistics** | ** ** |
|-------------------------------------|------------|
|                                |       |   |   |
| Q1 2005                             |       | 93.5 | % |
| Q1 2004                             |       | 92.9 | % |
| Change                              |       | 0.6 | % |

 

**The following table presentsa reconciliation of operating income per the consolidated statements ofoperations to NOI for the First Quarter 2005 Same Store Properties:**

 
| ** **                        | ** ** | **Quarter Ended March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| ** **                        | ** ** | **(Amounts in millions)**        | ** ** |
| ** **                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Operating  income                 |       | $                                | 131.0      |   | $ | 131.4 |   |
| Adjustments:                      |       |                             |       |   |   |
| Non-same  store operating results |       | (24.1                            | )          | (1.0 | ) |
| Fee and  asset management revenue |       | (2.5                             | )          | (3.0 | ) |
| Fee and  asset management expense |       | 2.5                              |       | 2.0 |   |
| Depreciation                      |       | 127.6                            |       | 110.1 |   |
| General and  administrative       |       | 17.1                             |       | 10.1 |   |
|                              |       |                             |       |   |   |
| Same store  NOI                   |       | $                                | 251.6      |   | $ | 249.6 |   |

 

**For properties that the OperatingPartnership acquired prior to January 1, 2004 and expects to continue toown through December 31, 2005, the Operating Partnership anticipates thefollowing same store results for the full year ending December 31, 2005:**

 
| **2005 Same Store Assumptions** | ** ** |
|---------------------------------|------------|
| Physical  Occupancy             |       | 94.0% |   |
| Revenue  Change                 |       | 2.00% to  3.25% |   |
| Expense  Change                 |       | 3.6% to 5.0% |   |
| NOI Change                      |       | 0.0% to 3.0% |   |
| Acquisitions                    |       | $1.0 billion |   |
| Dispositions                    |       | $1.0 billion |   |

 

**These 2005 assumptions arebased on current expectations and are forward-looking.**

 

**Rental income from propertiesother than First Quarter 2005 Same Store Properties increased by approximately$40.0**millionprimarily as a result of new properties acquired/consolidated in 2004 and thefirst quarter of 2005.

 

Fee and asset managementrevenues, net of fee and asset management expenses, decreased by $1.0 millionprimarily as a result of lower income earned from Ft. Lewis and managing fewerproperties for third parties and unconsolidated entities.  As of March 31, 2005 and 2004, the OperatingPartnership managed 17,928 units and 18,040 units, respectively, for thirdparties and unconsolidated entities.

 

**Property management expenses include off-site expenses associated withthe self-management of the Operating Partnership’s properties as well asmanagement fees paid to third party management companies.  These expenses increased by approximately$3.7 million.  This increase is primarilyattributable to higher payroll costs, including bonus and long-termcompensation costs.**

 

Depreciation expense, whichincludes depreciation on non-real estate assets, increased $17.5 millionprimarily as a result of additional depreciation expense on newly acquiredproperties and capital expenditures 

 

25

----

 

for allproperties owned.

 

General and administrativeexpenses, which include corporate operating expenses, increased approximately$6.9 million between the periods under comparison.  This increase is primarily attributable tohigher executive compensation expense due to the previously announced January 2006planned retirement of Bruce W. Duncan, EQR’s President and Chief ExecutiveOfficer, and the March 2005 resignation of Edward Geraghty, EQR’s formerEastern Division President, and additional accruals for certain managementincentive programs as a result of the Rent.com gain (see discussionbelow).  The Operating Partnershipanticipates that general and administrative expenses will approximate $53.0million for the year ending December 31, 2005.  This above assumption is based on currentexpectations and is forward-looking.

 

**Interest and other incomeincreased by approximately $58.6**million, primarily as a result of the $57.1 million in cash received forthe Operating Partnership’s ownership interest in Rent.com, which was acquiredby eBay, Inc.

 

Interest expense, includingamortization of deferred financing costs, increased approximately $11.7****million primarily as a result of higheroverall debt balances due to the consolidation of previously unconsolidated developmentproperties on March 31, 2004. During the quarter ended March 31, 2005, the Operating Partnershipcapitalized interest costs of approximately $2.9 million as compared to $2.7million for the quarter ended March 31, 2004.  This capitalization of interest primarilyrelated to investments in Partially Owned Properties (consolidated) engaged indevelopment activities.  The effectiveinterest cost on all indebtedness for the quarter ended March 31, 2005 was6.18% as compared to 6.14% forthe quarter ended March 31, 2004.

 

Loss from investments inunconsolidated entities decreased approximately $7.3 million between theperiods under comparison.  This decreaseis primarily the result of the consolidation of properties that were previouslyunconsolidated in the first quarter of 2004.

 

Net gain on sales ofdiscontinued operations increased approximately $79.8 million between theperiods under comparison primarily due to the previously announced sale ofWater Terrace, a 450-unit high rise luxury apartment building in Marina del Rey, California.

 

Discontinued operations, net,decreased approximately $9.3 million between the periods under comparison.  The decrease in revenues and expenses betweenperiods results from the timing, size and number of properties sold.  Any property sold after March 31, 2004will include a full quarter’s results in the first quarter of 2004 but minimalto no results in the first quarter of 2005. See Note 13 in the Notes to Consolidated Financial Statements forfurther discussion.

 

**Liquidity and Capital Resources**

 

As of January 1, 2005, theOperating Partnership had approximately $83.5 million of cash and cashequivalents and $484.6 million available under its revolving credit facility(net of $65.4 million which was restricted/dedicated to support letters ofcredit and not available for borrowing). 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 March 31,2005 was approximately $91.1 million and the amount available on the OperatingPartnership’s revolving credit facility was $486.0 million (net of $51.0million which was restricted/dedicated to support letters of credit and notavailable for borrowing).

 

During the quarter ended March 31,2005, the Operating Partnership generated and/or obtained cash from varioustransactions, which included the following:

 

•                  Disposedof ten properties, two vacant land parcels and various individual condominiumunits 

 

26

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receivingnet proceeds of approximately $542.2 million;

•                  Obtained$24.7 million in new mortgage financing;

•                  Obtained$57.1 million for its ownership interest in Rent.com; and

•                  Issuedapproximately 0.7 million OP Units and received net proceeds of $14.8 million.

 

**During the quarter ended March 31,2005, the above proceeds were primarily utilized to:**

 

•                  Invest$51.7 million primarily in development projects;

•                  Acquirenine properties and a vacant land parcel, utilizing cash of $267.6 million;

•                  Repay$134.3 million of mortgage loans; and

•                  RedeemtheSeries B and C Preference Interests at a liquidation value of $66.0 million.

 

**Depending on its analysis of marketprices, economic conditions, and other opportunities for the investment ofavailable capital, the Company may repurchase up to an additional $85.0 millionof its Common Shares pursuant to its existing share buyback program authorizedby the Board of Trustees.  The OperatingPartnership in turn would repurchase $85.0 million of its OP Units held byEQR.  EQR did not repurchase any of itsCommon Shares during the quarter ended March 31, 2005.**

 

**The Operating Partnership’s total debt summary and debtmaturity schedule as of March 31, 2005, are as follows:**

 

| **Debt Summary**                     | ** ** |
|--------------------------------------|------------|
| ** **                           | ** ** | **$ Millions (1)** | ** ** | **Weighted Average  Rate (1)** | ** ** |
| Secured                              |       | $ | 3,106 |   | 5.54 | % |
| Unsecured                            |       | 3,302 |   | 5.98 | % |
| Total                                |       | $ | 6,408 |   | 5.77 | % |
|                                 |       |   |   |   |   |
| Fixed Rate                           |       | $ | 5,071 |   | 6.46 | % |
| Floating  Rate                       |       | 1,337 |   | 3.18 | % |
| Total                                |       | $ | 6,408 |   | 5.77 | % |
|                                 |       |   |   |   |   |
| Above Totals  Include:               |       |   |   |   |   |
| Tax Exempt:                          |       |   |   |   |   |
| Fixed                                |       | $ | 286 |   | 3.68 | % |
| Floating                             |       | 508 |   | 2.40 | % |
| Total                                |       | $ | 794 |   | 2.84 | % |
|                                 |       |   |   |   |   |
| Unsecured  Revolving Credit Facility |       | $ | 163 |   | 2.34 | % |

 

----

*(1) Net of the effect of any derivativeinstruments.*

 

27

----

 
| **Debt Maturity Schedule as  of March 31, 2005** | ** ** |
|------------------------------------------------------------|------------|
| **Year**                                                   | ** ** | **$ Millions** | ** ** | **% of Total** | ** ** |
| 2005                                                       |       | $ | 324 |   | 5.1 | % |
| 2006 (1)                                                   |       | 476 |   | 7.4 | % |
| 2007                                                       |       | 423 |   | 6.6 | % |
| 2008 (2)                                                   |       | 780 |   | 12.2 | % |
| 2009                                                       |       | 831 |   | 13.0 | % |
| 2010                                                       |       | 233 |   | 3.6 | % |
| 2011                                                       |       | 717 |   | 11.2 | % |
| 2012                                                       |       | 470 |   | 7.3 | % |
| 2013                                                       |       | 429 |   | 6.7 | % |
| 2014+ (3)                                                  |       | 1,725 |   | 26.9 | % |
| Total                                                      |       | $ | 6,408 |   | 100.0 | % |
|                                                            |            |  |  |  |  |  |  |

 

----

*(1) Includes $150 million of unsecured debt with a final maturity of2026 that is putable in 2006.*

 

*(2) Includes $163 million outstanding on the Operating Partnership’sunsecured revolving credit facility. The Operating Partnership entered into anew credit facility on April 1, 2005 that matures on May 29, 2008.*

 

*(3) Includes $300 million of unsecured debt with a final maturity of2015 that was putable/callable on April 13, 2005.Debt was remarketed on April 13, 2005 and remains outstanding until April 13,2015.*

 

As of the date of this filing, $1.48 billionin debt securities remains available for issuance by the Operating Partnershipunder a registration statement the SEC declared effective in June 2003 and$956.5 million in equity securities remains available for issuance by theCompany under a registration statement the SEC declared effective in February 1998.  Per the terms of ERPOP’s partnership agreement,EQR contributes the net proceeds of all equity offerings to the capital of theOperating Partnership in exchange for additional OP Units (on a one-for-oneCommon Share per OP Unit basis) or preference units (on a one-for-one preferredshare per preference unit basis).

 

**The Operating Partnership’s “Consolidated Debt-to-Total MarketCapitalization Ratio” as of March 31, 2005 is presented in the followingtable.  The Operating Partnershipcalculates the equity component of its market capitalization as the sum of (i)the total outstanding OP Units at the equivalent market value of the closingprice of EQR’s Common Shares on the New York Stock Exchange; (ii) the “OP UnitEquivalent” of all convertible preference interests/units; and (iii) theliquidation value of all perpetual preference interests/units outstanding.**

** **

**28**

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| **Market Capitalization as of March 31,  2005** | ** ** |
|------------------------------------------------------|------------|
| Total Debt                                           |       |   |   | $ | 6,407,793,619 |   |
|                                                 |       |   |   |   |   |
| OP Units                                             |       | 307,523,255 |   |   |   |
| OP Unit  Equivalents (see below)                     |       | 1,841,321 |   |   |   |
| Total  outstanding at quarter-end                    |       | 309,364,576 |   |   |   |
| EQR Common  Share Price at March 31, 2005       |       | $ | 32.21 |   |   |   |
|                                                 |       |   |   | 9,964,632,993 |   |
| Perpetual  Preference Units Liquidation Value        |       |   |   | 615,000,000 |   |
| Perpetual  Preference Interests Liquidation Value    |       |   |   | 105,500,000 |   |
| Total Market  Capitalization                         |       |   |   | $ | 17,092,926,612 |   |
|                                                 |       |   |   |   |   |
| Total  Debt/Total Market Capitalization              |       |   |   | 37 | % |
|                                                      |            |  |  |  |  |  |  |

 

 

| **Convertible Preference Units,  Preference Interests  and Junior Preference Units  as of March 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Units** | ** ** | **Conversion  Ratio** | ** ** | **OP Unit  Equivalents** | ** ** |
| Preference  Units:                                                                                              |       |   |   |   |   |   |   |
| Series E                                                                                                        |       | 697,999 |   | 1.1128 |   | 776,733 |   |
| Series H                                                                                                        |       | 36,534 |   | 1.4480 |   | 52,901 |   |
| Preference  Interests:                                                                                          |       |   |   |   |   |   |   |
| Series H                                                                                                        |       | 190,000 |   | 1.5108 |   | 287,052 |   |
| Series I                                                                                                        |       | 270,000 |   | 1.4542 |   | 392,634 |   |
| Series J                                                                                                        |       | 230,000 |   | 1.4108 |   | 324,484 |   |
| Junior  Preference Units:                                                                                       |       |   |   |   |   |   |   |
| Series B                                                                                                        |       | 7,367 |   | 1.020408 |   | 7,517 |   |
| Total                                                                                                           |       |   |   |   |   | 1,841,321 |   |

 

**The Operating Partnership’s policy is to maintain a ratio of consolidateddebt-to-total market capitalization of less than 50%.**

 

See Note 16 in the Notes to ConsolidatedFinancial Statements for discussion of the events which occurred subsequent to March 31,2005.

 

***Capitalization of Fixed Assets and Improvements to RealEstate***

 

**Our policy with respect tocapital expenditures is generally to capitalize expenditures that improve thevalue of the property or extend the useful life of the component asset of theproperty.  We track improvements to realestate in two major categories and several subcategories:**

 

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

**•**                  carpets andhardwood floors;

**•**                  appliances;

**•**                  mechanicalequipment such as individual furnace/air units, hot water heaters, etc;

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

**•**                  flooring suchas vinyl, linoleum or tile; and

**•**                  blinds/shades.

 

29

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

 

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

**•**                  roofreplacement and major repairs;

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

**•**                  amenities andcommon areas such as pools, exterior sports and playground equipment, lobbies,clubhouses, laundry rooms, alarm and security systems and offices;

**•**                  majorbuilding mechanical equipment systems;

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

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

**•**                  vehicles andoffice and maintenance equipment.

 

**All building improvements aredepreciated over a five to ten-year estimated useful life.  We expense as incurred all recurringexpenditures that do not improve the value of the asset or extend its usefullife.**

 

**For the quarter ended March 31,2005, our actual improvements to real estate totaled approximately $38.3million.  This includes the followingdetail (amounts in thousands except for unit and per unit amounts):**

 
| **Capitalized Improvements to  Real Estate  For the Quarter Ended March 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                              | ** ** | **Total Units  (1)** | ** ** | **Replacements** | ** ** | **Avg. Per  Unit** | ** ** | **Building  Improvements** | ** ** | **Avg. Per  Unit** | ** ** | **Total** | ** ** | **Avg. Per  Unit** | ** ** |
|                                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Established  Properties (2)                                                             |       | 155,625 |   | $ | 11,664 |   | $ | 75 |   | $ | 14,015 |   | $ | 90 |   | $ | 25,679 |   | $ | 165 |   |
| New  Acquisition Properties (3)                                                         |       | 19,034 |   | 942 |   | 53 |   | 2,552 |   | 144 |   | 3,494 |   | 197 |   |
| Other (4)                                                                               |       | 8,693 |   | 4,274 |   |   |   | 4,827 |   |   |   | 9,101 |   |   |   |
| Total                                                                                   |       | 183,352 |   | $ | 16,880 |   |   |   | $ | 21,394 |   |   |   | $ | 38,274 |   |   |   |
|                                                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Total units exclude 16,158 unconsolidated units.

(2)          Wholly Owned Properties acquired prior to January 1, 2003.

(3)          Wholly Owned Properties acquired during 2003, 2004 and 2005.  Per unit amounts are based on a weightedaverage of 17,748 units.

(4)          Includes properties either Partially Owned or sold during the period,commercial space, condominium conversions and $0.8 million included in buildingimprovements spent on four specific assets related to major renovations andrepositioning of these assets.

 

**The Operating Partnership expectsto fund approximately $122.0**million for capital expenditures for replacements and buildingimprovements for all consolidated properties, exclusive of condominiumconversion properties, for the remainder of 2005.

 

**During the quarter ended March 31,2005, the Operating Partnership’s total non-real estate capital additions, suchas computer software, computer equipment, and furniture and fixtures andleasehold improvements to the Operating Partnership’s property managementoffices and its corporate offices, were approximately $1.5**million. The Operating Partnership expects to fund approximately $11.3 million intotal additions to non-real estate property for the remainder of 2005.

 

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

 

30

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***Derivative Instruments***

 

In thenormal course of business, the Operating Partnership is exposed to the effectof interest rate changes.  The OperatingPartnership limits these risks by following established risk managementpolicies and procedures including the use of derivatives to hedge interest raterisk on debt instruments.

 

TheOperating Partnership has a policy of only entering into contracts with majorfinancial institutions based upon their credit ratings and other factors.  When viewed in conjunction with theunderlying and offsetting exposure that the derivatives are designed to hedge,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 11in the Notes to Consolidated Financial Statements for additional discussion ofderivative instruments at March 31, 2005.

 

***Other***

 

**Total distributions paid in April 2005amounted to $145.0 million (excluding distributions on Partially OwnedProperties), which included certain distributions declared during the firstquarter ended March 31, 2005.**

 

**The Operating Partnership expectsto meet its short-term liquidity requirements, including capital expendituresrelated to maintaining its existing properties and certain scheduled unsecurednote and mortgage note repayments, generally through its working capital, netcash provided by operating activities and borrowings under its revolving creditfacility.  The Operating Partnership considersits cash provided by operating activities to be adequate to meet operatingrequirements and payments of distributions. The Operating Partnership also expects to meet its long-term liquidityrequirements, such as scheduled unsecured note and mortgage debt maturities,property acquisitions, financing of construction and development activities andcapital improvements through the issuance of unsecured notes and equitysecurities, including additional OP Units, and proceeds received from thedisposition of certain properties.  Inaddition, the Operating Partnership has significant unencumbered propertiesavailable to secure additional mortgage borrowings in the event that the publiccapital markets are unavailable or the cost of alternative sources of capitalis too high.  The fair value of and cashflow from these unencumbered properties are in excess of the requirements theOperating Partnership must maintain in order to comply with covenants under itsunsecured notes and revolving credit facility. Of t**he$14.9 billion in investment in real estate on the Operating Partnership’sbalance sheet at March 31, 2005, $9.6 billion or 64.2%,was unencumbered.

 

The Operating Partnership has a revolvingcredit facility with potential borrowings of up to $1.0 billion as of April 1,2005.    This facility matures in May2008 and may, among other potential uses, be used to fund propertyacquisitions, costs for certain properties under development and short termliquidity requirements.  As of April 30,2005, $327.0 million wasoutstanding under this facility (and $63.1 million was restricted and dedicatedto support letters of credit).

 

**Off-Balance Sheet Arrangements andContractual Obligations**

 

The Operating Partnershiphas co-invested in various properties that are unconsolidated and accounted forunder the equity method of accounting. Management does not believe these investments have a materiallydifferent impact upon the Operating Partnership’s liquidity, capital resources,credit or market risk than its property management and ownershipactivities.  The nature and businesspurpose of these ventures are as follows:

 

**•**                  Institutional Ventures – During 2000 and 2001, the OperatingPartnership 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 

 

31

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**interest** in the ventures.  The Operating Partnership’s joint venturepartner contributed cash equal to 75% of the agreed-upon equity value of theproperties comprising the ventures, which was then distributed to the OperatingPartnership.  The Operating Partnership’sstrategy with respect to these ventures was to reduce its concentration ofproperties in a variety of markets.

 

**•**                  Other – As of March 31, 2005, the Operating Partnership hasownership interests in eleven properties containing 1,511 units acquired in aprior merger.  The current weightedaverage ownership percentage is 10.7%. The Operating Partnership’s strategy with respect to these interests iseither to acquire a majority ownership or sell the Operating Partnership’sinterest.

 

**As of March 31, 2005, theOperating Partnership has four projects totaling 1,165 units in various stagesof development with estimated completion dates ranging through December 31,2006.  The three development agreementscurrently in place are discussed in detail in Note 14 of the OperatingPartnership’s Consolidated Financial Statements.**

 

**See also Notes 2 and 6 in theNotes to Consolidated Financial Statements for additional discussion regardingthe Operating Partnership’s investments in unconsolidated entities.**

 

**Inconnection with one of its mergers, the Operating Partnership provided aguaranty of a credit enhancement agreement with respect to certain tax-exemptbonds issued to finance certain public improvements at a multifamilydevelopment project.  The OperatingPartnership had the obligation to provide this guaranty for a period of eightyears from the consummation of the merger or through May 30, 2005.  The Operating Partnership would have beenrequired to perform under this guaranty only if there was a draw on the letterof credit issued by the credit enhancement party.   Effective May 2, 2005, the tax-exempt bondswere redeemed in full and the letter of credit was cancelled.  As a result, the guaranty was terminated.**

 

**The Operating Partnership’s contractualobligations for the next five years and thereafter have not changed materiallyfrom the amounts and disclosures included in its annual report on Form 10-K,other than as it relates to scheduled debt maturities.  See the updated debt maturity schedule includedin Liquidity and Capital Resources for further discussion.**

 

**Critical Accounting Policies and Estimates**

 

**The Operating Partnership has identifiedsix significant accounting 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:**

 

*Impairment of Long-Lived Assets, Including Goodwill*

 

TheOperating Partnership periodically evaluates its long-lived assets, includingits investments in real estate and goodwill, for indicators of permanentimpairment.  The judgments regarding theexistence of impairment indicators are based on factors such as operationalperformance, market conditions, expected holding period of each asset and legaland environmental concerns.  Futureevents could occur which would cause the Operating Partnership to conclude thatimpairment indicators exist and an impairment loss is warranted.

 

*Depreciation of Investment in Real Estate*

 

TheOperating Partnership depreciates the building component of its investment inreal estate over a 30-year estimated useful life, building improvements over a5-year to 10-year estimated useful life and 

 

32

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both the furniture,fixtures and equipment and replacements components over a 5-year estimateduseful life, all of which are judgmental determinations.

 

*Cost Capitalization*

 

See the *Capitalization of Fixed Assets and Improvements toReal Estate* section for discussion of the policy with respectto capitalization vs. expensing of fixed asset/repair and maintenancecosts.  In addition, the OperatingPartnership capitalizes the payroll and associated costs of employees directlyresponsible for and who spend all of their time on the supervision of majorcapital projects.  These costs arereflected on the balance sheet as an increase to depreciable property.

 

TheOperating 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 and insuranceand payroll and associated costs for those individuals directly responsible forand who spend all of their time on development activities, with capitalizationceasing no later than 90 days following issuance of the certificate ofoccupancy.  These costs are reflected onthe balance sheet as construction in progress for each specific property.  The Operating Partnership expenses asincurred all payroll costs of on-site employees working directly at our properties,except as noted above on our development properties prior to certificate ofoccupancy issuance and on specific major renovation at selected properties whenadditional incremental employees are hired.

 

*Fair Value of Financial Instruments, Including Derivative Instruments*

 

Thevaluation of financial instruments under SFAS No. 107 and SFAS No. 133 and itsamendments (SFAS Nos. 137/138/149) requires the Operating Partnership to makeestimates and judgments that affect the fair value of the instruments.  The Operating Partnership, where possible,bases the fair values of its financial instruments, including its derivativeinstruments, on listed market prices and third party quotes. Where these arenot available, the Operating Partnership bases its estimates on other factorsrelevant to the financial instruments.

 

*Revenue Recognition*

 

Rentalincome attributable to leases is recorded when due from residents and isrecognized monthly as it is earned, which is not materially different than on astraight-line basis.  Leases entered intobetween a resident and a property for the rental of anapartment unit are generally year-to-year, renewable upon consent ofboth parties on an annual or monthly basis. Fee and asset management revenue and interest income are recorded on anaccrual basis.

 

*Stock-Based Compensation*

 

The Companyelected to account for its stock-based compensation in accordance with SFAS No.123 and its amendment (SFAS No. 148), *Accountingfor Stock Based Compensation*, effective in the first quarter of2003, which resulted in compensation expense being recorded based on the fairvalue of the stock compensation granted.

 

The Companyelected the “Prospective Method” which requires expensing of employee awardsgranted or modified after January 1, 2003. Compensation expense under all of the Company’s plans is generallyrecognized over periods ranging from three months to five years.  See Note 2 in the Notes to ConsolidatedFinancial Statements for further discussion and comparative informationregarding application of the fair value method to all outstanding employeeawards.

 

Any CommonShares issued pursuant to EQR’s incentive equity compensation and employeeshare purchase plans will result in the Operating Partnership issuing OP Unitsto EQR on a one-for-one basis, 

 

33

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with theOperating Partnership receiving the net cash proceeds of such issuances.

 

**Funds FromOperations**

 

**For the quarter ended March 31,2005, Funds From Operations (“FFO”) available to OPUnits increased $73.7 million, or 47.2%, as compared to the quarter ended March 31,2004.**

 

The following is a reconciliation of netincome to FFO available to OP Units for the quarters ended March 31, 2005and 2004:

 

| **Funds  From Operations***(Amounts in thousands)  (Unaudited)* | *** *** |
|-----------------------------------------------------------------|--------------|
| ** **                                                      | ** **   | **Quarter Ended March 31,** | ** ** |
| ** **                                                      | ** **   | **2005** | ** ** | **2004** | ** ** |
| Net income                                                      |         | $ | 248,280 |   | $ | 124,705 |   |
| Adjustments:                                                    |         |   |   |   |   |
| Depreciation                                                    |         | 127,568 |   | 110,110 |   |
| Depreciation  – Non-real estate additions                  |         | (1,294 | ) | (1,300 | ) |
| Depreciation  – Partially Owned Properties                 |         | (1,323 | ) | (2,096 | ) |
| Depreciation  – Unconsolidated Properties                  |         | 1,072 |   | 6,763 |   |
| Net (gain)  on sales of unconsolidated entities                 |         | (124 | ) | (2,434 | ) |
| Discontinued  operations:                                       |         |   |   |   |   |
| Depreciation                                                    |         | 1,501 |   | 7,075 |   |
| Net (gain)  on sales of discontinued operations                 |         | (151,265 | ) | (71,499 | ) |
| Net  incremental gain on sales of condominium units             |         | 13,675 |   | 3,524 |   |
| Net gain on  sales of vacant land                               |         | 10,368 |   | 15 |   |
|                                                            |         |   |   |   |   |
| FFO (1)(2)                                                      |         | 248,458 |   | 174,863 |   |
| Preferred  distributions                                        |         | (16,913 | ) | (18,756 | ) |
| Premium on  redemption of Preference Interests                  |         | (1,728 | ) | — |   |
|                                                            |         |   |   |   |   |
| FFO  available to OP Units                                      |         | $ | 229,817 |   | $ | 156,107 |   |

 

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***(1)****      **The NationalAssociation of Real Estate Investment Trusts (“NAREIT”) defines funds fromoperations (“FFO”) (April 2002 White Paper) as net income (computed inaccordance with accounting principles generally accepted in the United States (“GAAP”)),excluding gains (or losses) from sales of depreciable property, plusdepreciation and amortization, and after adjustments for unconsolidatedpartnerships 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 thatgain or loss on sales of property is excluded from FFO for previouslydepreciated operating properties only. Once the Operating Partnership commences the conversion of units tocondominiums, it simultaneously discontinues depreciation of such property.*

 

***(2)****      **The OperatingPartnership believes that FFO is helpful to investors as a supplemental measureof the operating performance of a real estate company, because it is arecognized measure of performance by the real estate industry and by excludinggains or losses related to dispositions of depreciable property and excludingreal estate depreciation (which can vary among owners of identical assets insimilar condition based on historical cost accounting and useful lifeestimates), FFO can help compare the operating performance of a company’s realestate between periods or as compared to different companies.  FFO in and of itself does not represent netincome or net cash flows from operating activities in accordance withGAAP.  Therefore, FFO should not beexclusively considered as an alternative to net income or to net cash*

 

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***flows****from operatingactivities as 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 andQualitative Disclosures About Market Risk

 

**The Operating Partnership’smarket risk has not changed materially from the amounts and informationreported in Item 7A, *Quantitative andQualitative Disclosures About Market Risk*,to the Operating Partnership’s Form 10-K for the year ended December 31,2004.  See also Note 11 in the Notes toConsolidated Financial Statements for additional discussion of derivativeinstruments.**

 

**Item4.** Controls andProcedures

 

**Effective as of March 31, 2005, theOperating Partnership carried out an evaluation, under the supervision and withthe participation of the Operating Partnership’s management, including theChief Executive Officer and Chief Financial Officer of EQR, of theeffectiveness of the Operating Partnership’s disclosure controls and procedurespursuant 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 in timely alerting them to material information.  During the fiscal quarter ended March 31,2005, there were no changes to the internal controls over financial reportingof the Operating Partnership identified in connection with the OperatingPartnership’s evaluation or otherwise that has materially affected, or isreasonably likely to materially affect, the Operating Partnership’s internalcontrols over financial reporting.**

 

**PARTII.**   OTHER INFORMATION

 

**Item1.**           Legal Proceedings

 

In August 2004, the OperatingPartnership tried a class action lawsuit in Palm Beach County, Floridaregarding certain charges made to residents who terminated their leases earlyor failed to provide sufficient notice of intent to vacate.  In December 2004, the Court issued aFindings of Fact and Conclusions of Law holding those fees legallyuncollectible under Florida law.  Inrecognition of the Findings of Fact and Conclusions of Law, which awardeddamages and interest to the class in the amount of approximately $1.6 million,the Operating Partnership established a reserve of approximately $1.6 millionand correspondingly recorded this as a general and administrative expense in December 2004.  Due to pending appeals, the award is neitherfinal nor enforceable.  Accordingly, itis not possible to determine or predict the ultimate outcome of the case.  While no assurances can be given, theOperating Partnership does not believe that this lawsuit, if the ultimateoutcome is unfavorable, will have a material adverse effect on the OperatingPartnership.

 

**There have been no new or significantdevelopments related to the legal proceedings that were discussed in Part I,Item III of the Operating Partnership’s Form 10-K for the year ended December 31,2004.**

 

**Item2.**           Unregistered Sales of Equity Securities and Use ofProceeds

 

***OP Units Issued in 2005***

 

**The Operating Partnership issued 551,229OP Units having a value of $18.2 million during the first quarter of 2005.**

 

**These OP Units were issued in exchangefor direct or indirect interests in multifamily properties in private placementtransactions under section 4(2) of the Securities Act of 1933, as amended(the “Securities Act”).  OP Units aregenerally exchangeable into Common Shares of EQR on a one-for-one basis or, atthe option of EQR and the Operating Partnership, the cash equivalent thereof atany time one year after the date of**

 

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issuance.

 

**Item6.**           Exhibits

 
| **10.1*** | ** ** | **Third Amendment to Equity Residential 2002 Share  Incentive Plan.**                                                                                                                                                     |
|-----------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |       |                                                                                                                                                                                                                      |
| **10.2*** | ** ** | **Second Amendment to Amended and Restated Compensation  Agreement between Equity Residential and Samuel Zell dated April 25,  2005.**                                                                               |
|      |       |                                                                                                                                                                                                                      |
| **31.1**  | ** ** | **Certification of Bruce W. Duncan, 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  Bruce W. Duncan, 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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* Included as an exhibit to Equity Residential’sForm 10-Q for the quarterly period ended March 31, 2005.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on behalf by the undersigned thereunto dulyauthorized.

 

 
|   | ERP OPERATING LIMITED PARTNERSHIP |
|--------|-----------------------------------|
|   | BY:                               | EQUITY RESIDENTIAL |
|   |                              | ITS GENERAL PARTNER |
|   |                              |   |
|   |                              |   |
| Date:  | May 9, 2005                       |   | By: | /s/ | Donna  Brandin |   |
|   |                              |   | Donna  Brandin |
|   |                              |   | Executive Vice President and  Chief Financial Officer |
|   |                              |   |
|   |                              |   |
| Date:  | May 9, 2005                       |   | By: | /s/ | Mark L.  Wetzel |   |
|   |                              |   | Mark L.  Wetzel |
|   |                              |   | Senior Vice President and  Chief Accounting Officer |

 

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##### **EXHIBIT INDEX**

 
| **Exhibit** | ** ** | **Document**                                                                                                                                                                                                              |
|-------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                      |
| **31.1**    | ** ** | **Certification of Bruce W. Duncan, 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  Bruce W. Duncan, 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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