**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

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

**For the quarterly period ended MARCH 31,2006**

**OR**

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

**Commission File Number: 0-24920**

**ERP OPERATING LIMITED PARTNERSHIP**

(Exact Name ofRegistrant as Specified in its Charter)
| **Illinois**                                                    | ** ** | **36-3894853**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **Two  North Riverside Plaza, Chicago, Illinois**               | ** ** | **60606**                             |
| (Address of  Principal Executive Offices)                       |       | (Zip Code)                            |

 

**(312) 474-1300**

(Registrant’sTelephone Number, Including Area Code)

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

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

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes  o   No  x

 

 

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED BALANCE SHEETS**

**(Amounts in thousands)**

**(Unaudited)**

 
| ** **                                                | ** ** | **March 31,  2006** | ** **     | **December 31,  2005** | ** ** |
|-----------------------------------------------------------|------------|--------------------------|----------------|-----------------------------|------------|
| **ASSETS**                                                |       |                     | ** **     | ** **                  | ** ** |
| Investment in real  estate                                |       |                     |           |                        |       |
| Land                                                      |       | $                        | 2,980,663      |                        | $          | 2,848,601 |   |
| Depreciable property                                      |       | 13,339,890               |           | 13,336,636                  |       |
| Construction in progress (including land)                 |       | 336,822                  |           | 405,133                     |       |
| Investment in  real estate                                |       | 16,657,375               |           | 16,590,370                  |       |
| Accumulated depreciation                                  |       | (2,908,508               | )              | (2,888,140                  | )          |
| Investment in  real estate, net                           |       | 13,748,867               |           | 13,702,230                  |       |
|                                                      |       |                     |           |                        |       |
| Cash and cash equivalents                                 |       | 86,777                   |           | 88,828                      |       |
| Investments in  unconsolidated entities                   |       | 4,891                    |           | 6,838                       |       |
| Rents receivable                                          |       | 1,364                    |           | 789                         |       |
| Deposits —  restricted                               |       | 125,662                  |           | 77,093                      |       |
| Escrow deposits  — mortgage                          |       | 32,234                   |           | 35,225                      |       |
| Deferred  financing costs, net                            |       | 42,575                   |           | 40,636                      |       |
| Goodwill, net                                             |       | 30,000                   |           | 30,000                      |       |
| Other assets                                              |       | 108,537                  |           | 117,306                     |       |
| **Total assets**                                          | ** ** | **$**                    | **14,180,907** | ** **                  | **$**      | **14,098,945** | ** ** |
|                                                      |       |                     |           |                        |       |
| **LIABILITIES AND PARTNERS’  CAPITAL**               |       |                     |           |                        |       |
| Liabilities:                                              |       |                     |           |                        |       |
| Mortgage notes payable                                    |       | $                        | 3,455,316      |                        | $          | 3,379,289 |   |
| Notes, net                                                |       | 3,839,475                |           | 3,442,784                   |       |
| Lines of credit                                           |       | 145,000                  |           | 769,000                     |       |
| Accounts payable and accrued expenses                     |       | 105,108                  |           | 108,855                     |       |
| Accrued interest payable                                  |       | 70,016                   |           | 78,441                      |       |
| Rents received in advance and other liabilities           |       | 306,209                  |           | 302,418                     |       |
| Security deposits                                         |       | 56,716                   |           | 54,823                      |       |
| Distributions payable                                     |       | 145,116                  |           | 145,812                     |       |
| **Total liabilities**                                     | ** ** | **8,122,956**            | ** **     | **8,281,422**               | ** ** |
| ** **                                                |       |                     |           |                        |       |
| *Commitments and contingencies*                           |       |                     |           |                        |       |
| **Minority  Interests — Partially Owned Properties** | ** ** | **19,034**               | ** **     | **16,965**                  | ** ** |
|                                                      |       |                     |           |                        |       |
| Partners’ capital:                                   |       |                     |           |                        |       |
| Preference Units                                          |       | 503,106                  |           | 504,096                     |       |
| Preference  Interests                                     |       | 25,000                   |           | 60,000                      |       |
| Junior  Preference Units                                  |       | 184                      |           | 184                         |       |
| General Partner                                           |       | 5,164,361                |           | 4,905,716                   |       |
| Limited Partners                                          |       | 358,626                  |           | 345,034                     |       |
| Accumulated  other comprehensive loss                     |       | (12,360                  | )              | (14,472                     | )          |
| **Total partners’ capital**                          | ** ** | **6,038,917**            | ** **     | **5,800,558**               | ** ** |
| **Total liabilities and partners’ capital**          | ** ** | **$**                    | **14,180,907** | ** **                  | **$**      | **14,098,945** | ** ** |
| ** **                                                | ** ** | ** **               | ** **     | ** **                  | ** ** |

 

**See accompanying notes**

 

2

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Amounts in thousands except perOP Unit data)**

**(Unaudited)**

 
| ** **                                                                                                                                                                                     | ** ** | **Quarter Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                     | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| **REVENUES**                                                                                                                                                                                   |       |                                       |       |   |   |
| Rental income                                                                                                                                                                                  |       | $                                          | 518,492    |   | $ | 441,392 |   |
| Fee and asset management                                                                                                                                                                       |       | 2,487                                      |       | 2,572 |   |
| Total revenues                                                                                                                                                                                 |       | 520,979                                    |       | 443,964 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| **EXPENSES**                                                                                                                                                                                   |       |                                       |       |   |   |
| Property and maintenance                                                                                                                                                                       |       | 140,030                                    |       | 119,464 |   |
| Real estate taxes and insurance                                                                                                                                                                |       | 53,070                                     |       | 47,933 |   |
| Property management                                                                                                                                                                            |       | 26,384                                     |       | 22,943 |   |
| Fee and asset management                                                                                                                                                                       |       | 2,069                                      |       | 2,187 |   |
| Depreciation                                                                                                                                                                                   |       | 143,590                                    |       | 115,231 |   |
| General and administrative                                                                                                                                                                     |       | 13,817                                     |       | 18,070 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| Total expenses                                                                                                                                                                                 |       | 378,960                                    |       | 325,828 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| Operating income                                                                                                                                                                               |       | 142,019                                    |       | 118,136 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| Interest and other income                                                                                                                                                                      |       | 2,328                                      |       | 59,454 |   |
| Interest:                                                                                                                                                                                      |       |                                       |       |   |   |
| Expense incurred, net                                                                                                                                                                          |       | (110,292                                   | )          | (89,522 | ) |
| Amortization of deferred financing costs                                                                                                                                                       |       | (2,790                                     | )          | (1,676 | ) |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| Income before  allocation to Minority Interests, loss from investments in unconsolidated  entities, net gain on sales of unconsolidated entities and land parcels and  discontinued operations |       | 31,265                                     |       | 86,392 |   |
| Allocation to  Minority Interests — Partially Owned Properties                                                                                                                            |       | (1,521                                     | )          | 1,477 |   |
| Loss from investments  in unconsolidated entities                                                                                                                                              |       | (230                                       | )          | (58 | ) |
| Net gain on  sales of unconsolidated entities                                                                                                                                                  |       | 329                                        |       | 124 |   |
| Net gain on  sales of land parcels                                                                                                                                                             |       | —                                     |       | 10,368 |   |
| Income from  continuing operations                                                                                                                                                             |       | 29,843                                     |       | 98,303 |   |
| Net gain on  sales of discontinued operations                                                                                                                                                  |       | 372,501                                    |       | 140,704 |   |
| Discontinued  operations, net                                                                                                                                                                  |       | 3,204                                      |       | 9,273 |   |
| Net income                                                                                                                                                                                     |       | $                                          | 405,548    |   | $ | 248,280 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| **ALLOCATION OF NET INCOME:**                                                                                                                                                                  |       |                                       |       |   |   |
| Preference Units                                                                                                                                                                               |       | $                                          | 10,095     |   | $ | 13,025 |   |
| Preference  Interests                                                                                                                                                                          |       | $                                          | 1,095      |   | $ | 3,884 |   |
| Junior  Preference Units                                                                                                                                                                       |       | $                                          | 4          |   | $ | 4 |   |
| Premium on  redemption of Preference Interests                                                                                                                                                 |       | $                                          | 674        |   | $ | 1,728 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| General Partner                                                                                                                                                                                |       | $                                          | 367,720    |   | $ | 214,014 |   |
| Limited Partners                                                                                                                                                                               |       | 25,960                                     |       | 15,625 |   |
| Net income  available to OP Units                                                                                                                                                              |       | $                                          | 393,680    |   | $ | 229,639 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| **Earnings per OP Unit — basic:**                                                                                                                                                         |       |                                       |       |   |   |
| Net Income from  continuing operations available to OP Units                                                                                                                                   |       | $                                          | 0.06       |   | $ | 0.26 |   |
| Net income  available to OP Units                                                                                                                                                              |       | $                                          | 1.27       |   | $ | 0.75 |   |
| Weighted average  OP Units outstanding                                                                                                                                                         |       | 309,334                                    |       | 305,391 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| **Earnings per OP Unit — diluted:**                                                                                                                                                       |       |                                       |       |   |   |
| Income from  continuing operations available to OP Units                                                                                                                                       |       | $                                          | 0.06       |   | $ | 0.26 |   |
| Net income  available to OP Units                                                                                                                                                              |       | $                                          | 1.25       |   | $ | 0.74 |   |
| Weighted average  OP Units outstanding                                                                                                                                                         |       | 314,049                                    |       | 308,576 |   |
|                                                                                                                                                                                           |       |                                       |       |   |   |
| Distributions declared  per OP Unit outstanding                                                                                                                                                |       | $                                          | 0.4425     |   | $ | 0.4325 |   |

 

**Seeaccompanying notes**

3

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OFOPERATIONS (Continued)**

**(Amounts in thousands except perOP Unit data)**

**(Unaudited)**

 
| ** **                                                           | ** ** | **Quarter Ended March 31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
|                                                                 |       |                                       |       |   |   |
| Comprehensive income:                                                |       |                                       |       |   |   |
|                                                                 |       |                                       |       |   |   |
| Net income                                                           |       | $                                          | 405,548    |   | $ | 248,280 |   |
| Other  comprehensive income — derivative and other instruments: |       |                                       |       |   |   |
| Unrealized holding gains arising during the period                   |       | 1,523                                      |       | 3,168 |   |
| Losses reclassified into earnings from other  comprehensive income   |       | 589                                        |       | 582 |   |
| Comprehensive income                                                 |       | $                                          | 407,660    |   | $ | 252,030 |   |

 

**Seeaccompanying notes**

4

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Amounts in thousands)**

**(Unaudited)**

 
| ** **                                                                           | ** ** | **Quarter Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Net income                                                                           |       | $                                          | 405,548    |   | $ | 248,280 |   |
| *Adjustments to reconcile net  income to net cash provided by operating activities:* |       |                                       |       |   |   |
| Allocation to Minority Interests — Partially Owned  Properties                  |       | 1,521                                      |       | (1,477 | ) |
| Depreciation                                                                         |       | 146,771                                    |       | 129,068 |   |
| Amortization of deferred financing costs                                             |       | 2,790                                      |       | 1,812 |   |
| Amortization of discounts and premiums on debt                                       |       | (1,894                                     | )          | (234 | ) |
| Amortization of deferred settlements on derivative  instruments                      |       | 244                                        |       | 236 |   |
| (Income) from technology investments                                                 |       | —                                     |       | (57,054 | ) |
| Loss from investments in unconsolidated entities                                     |       | 230                                        |       | 58 |   |
| Distributions from  unconsolidated entities — return on capital                 |       | 68                                         |       | — |   |
| Net (gain) on sales of  unconsolidated entities                                      |       | (329                                       | )          | (124 | ) |
| Net (gain) on sales of land  parcels                                                 |       | —                                     |       | (10,368 | ) |
| Net (gain) on sales of discontinued operations                                       |       | (372,501                                   | )          | (140,704 | ) |
| Loss on debt extinguishments                                                         |       | 2,867                                      |       | 3,337 |   |
| Compensation paid with Company  Common Shares                                        |       | 6,294                                      |       | 9,935 |   |
| Other operating activities, net                                                      |       | 791                                        |       | — |   |
| * *                                                                             |       |                                       |       |   |   |
| *Changes in assets and  liabilities:*                                                |       |                                       |       |   |   |
| (Increase) decrease in rents receivable                                              |       | (569                                       | )          | 1,334 |   |
| (Increase) decrease in deposits — restricted                                    |       | (2,303                                     | )          | 920 |   |
| Decrease (increase) in other assets                                                  |       | 3,233                                      |       | (450 | ) |
| Increase in accounts payable and accrued expenses                                    |       | 4,627                                      |       | 5,973 |   |
| (Decrease) in accrued interest payable                                               |       | (8,580                                     | )          | (6,863 | ) |
| (Decrease) in rents received in advance and other  liabilities                       |       | (29,290                                    | )          | (6,478 | ) |
| Increase (decrease) in security deposits                                             |       | 1,559                                      |       | (290 | ) |
| Net cash provided by operating activities                                            |       | 161,077                                    |       | 176,911 |   |
|                                                                                 |       |                                       |       |   |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                           |       |                                       |       |   |   |
| Investment in real estate — acquisitions                                        |       | (444,901                                   | )          | (267,615 | ) |
| Investment in real estate — development/other                                   |       | (34,831                                    | )          | (51,106 | ) |
| Improvements to real estate                                                          |       | (51,414                                    | )          | (38,274 | ) |
| Additions to non-real estate property                                                |       | (1,620                                     | )          | (1,488 | ) |
| Interest capitalized for real estate under  development                              |       | (4,016                                     | )          | (2,850 | ) |
| Proceeds from disposition of real estate, net                                        |       | 810,898                                    |       | 542,056 |   |
| Proceeds from disposition of unconsolidated entities                                 |       | 333                                        |       | 124 |   |
| Proceeds from technology investments                                                 |       | —                                     |       | 57,054 |   |
| Investments in unconsolidated entities                                               |       | (1,010                                     | )          | (265 | ) |
| Distributions from unconsolidated entities — return  of capital                 |       | 92                                         |       | 330 |   |
| (Increase) in deposits on real estate acquisitions,  net                             |       | (46,090                                    | )          | (103,888 | ) |
| Decrease (increase) in mortgage deposits                                             |       | 3,391                                      |       | (841 | ) |
| *Consolidation  of previously Unconsolidated Properties:*                            |       |                                       |       |   |   |
| Via acquisition (net of cash acquired)                                               |       | —                                     |       | (20 | ) |
| Via EITF 04-05 (cash consolidated)                                                   |       | 1,436                                      |       | — |   |
| Acquisition of Minority Interests — Partially Owned  Properties                 |       | (1                                         | )          | (1,122 | ) |
| Other investing activities, net                                                      |       | 2                                          |       | — |   |
| Net cash  provided by investing activities                                           |       | 232,269                                    |       | 132,095 |   |
|                                                                                      |            |                                            |            |  |  |  |  |

** **

**Seeaccompanying notes**

5

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASHFLOWS (Continued)**

**(Amounts in thousands)**

**(Unaudited)**

 
| ** **                                                                 | ** ** | **Quarter Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                 |       |                                       |       |   |   |
| Loan and bond  acquisition costs                                           |       | $                                          | (4,464     | ) | $ | (178 | ) |
| *Mortgage notes payable:*                                                  |       |                                       |       |   |   |
| Proceeds                                                                   |       | 168,787                                    |       | 24,715 |   |
| Lump sum payoffs                                                           |       | (141,183                                   | )          | (127,177 | ) |
| Scheduled principal repayments                                             |       | (6,810                                     | )          | (7,078 | ) |
| Prepayment premiums/fees                                                   |       | (2,867                                     | )          | (3,337 | ) |
| *Notes, net:*                                                              |       |                                       |       |   |   |
| Proceeds                                                                   |       | 398,052                                    |       | — |   |
| *Lines of credit:*                                                         |       |                                       |       |   |   |
| Proceeds                                                                   |       | 1,884,500                                  |       | 416,000 |   |
| Repayments                                                                 |       | (2,508,500                                 | )          | (403,000 | ) |
| Proceeds from  settlement of derivative instruments                        |       | 10,729                                     |       | — |   |
| Proceeds from  sale of OP Units                                            |       | 3,308                                      |       | 4,462 |   |
| Proceeds from  exercise of EQR options                                     |       | 22,155                                     |       | 10,352 |   |
| OP Units  repurchased and retired                                          |       | (44,758                                    | )          | — |   |
| Redemption of  Preference Interests                                        |       | (25,500                                    | )          | (66,000 | ) |
| Payment of  offering costs                                                 |       | (16                                        | )          | (26 | ) |
| Contributions —  Minority Interests — Partially Owned Properties |       | 815                                        |       | 20 |   |
| *Distributions:*                                                           |       |                                       |       |   |   |
| OP Units — General Partner                                            |       | (127,911                                   | )          | (123,238 | ) |
| Preference Units                                                           |       | (11,150                                    | )          | (13,076 | ) |
| Preference Interests                                                       |       | (1,133                                     | )          | (3,962 | ) |
| Junior Preference Units                                                    |       | (4                                         | )          | (4 | ) |
| OP Units — Limited Partners                                           |       | (9,181                                     | )          | (8,878 | ) |
| Minority Interests — Partially Owned Properties                       |       | (266                                       | )          | (1,038 | ) |
| Net cash (used for) financing activities                                   |       | (395,397                                   | )          | (301,443 | ) |
| Net (decrease)  increase in cash and cash equivalents                      |       | (2,051                                     | )          | 7,563 |   |
| Cash and cash  equivalents, beginning of period                            |       | 88,828                                     |       | 83,505 |   |
| Cash and cash  equivalents, end of period                                  |       | $                                          | 86,777     |   | $ | 91,068 |   |
|                                                                       |       |                                       |       |   |   |

 

**Seeaccompanying notes**

6

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**ERP OPERATING LIMITED PARTNERSHIP**

**CONSOLIDATED STATEMENTS OF CASHFLOWS (Continued)**

**(Amounts in thousands)**

**(Unaudited)**

 
| ** **                                                                       | ** ** | **Quarter Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
|                                                                             |       |                                       |       |   |   |
| **SUPPLEMENTAL  INFORMATION:**                                                   | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Cash paid during  the period for interest                                        |       | $                                          | 124,870    |   | $ | 99,413 |   |
| Cash paid during  the period for income, franchise and excise taxes              |       | $                                          | 899        |   | $ | 1,855 |   |
|                                                                             |       |                                       |       |   |   |
| *Real  estate acquisitions/dispositions/other:*                                  |       |                                       |       |   |   |
| Mortgage loans assumed                                                           |       | $                                          | 50,604     |   | $ | 47,581 |   |
| Valuation of OP Units issued                                                     |       | $                                          | 27,855     |   | $ | 18,166 |   |
| Mortgage loans (assumed) by purchaser                                            |       | $                                          | (14,205    | ) | $ | — |   |
|                                                                             |       |                                       |       |   |   |
| *Consolidation  of previously Unconsolidated Properties — Via acquisition:* |       |                                       |       |   |   |
| Investment in real estate                                                        |       | $                                          | —     |   | $ | (1,748 | ) |
| Mortgage loans assumed                                                           |       | $                                          | —     |   | $ | 1,084 |   |
| Minority Interests — Partially Owned Properties                             |       | $                                          | —     |   | $ | 20 |   |
| Investments in unconsolidated entities                                           |       | $                                          | —     |   | $ | 595 |   |
| Net other liabilities recorded                                                   |       | $                                          | —     |   | $ | 29 |   |
|                                                                             |       |                                       |       |   |   |
| *Consolidation  of previously Unconsolidated Properties — Via EITF 04-05:*  |       |                                       |       |   |   |
| Investment in real estate, net                                                   |       | $                                          | (24,637    | ) | $ | — |   |
| Mortgage loans consolidated                                                      |       | $                                          | 22,545     |   | $ | — |   |
| Investments in unconsolidated entities                                           |       | $                                          | 2,602      |   | $ | — |   |
| Net other liabilities recorded                                                   |       | $                                          | 926        |   | $ | — |   |
|                                                                             |       |                                       |       |   |   |

 

**Seeaccompanying notes**

 

7

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**ERP OPERATINGLIMITED PARTNERSHIPNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

**1.**                 Business

ERP Operating Limited Partnership (“ERPOP”), anIllinois limited partnership, was formed in May 1993 to conduct themultifamily residential property business of Equity Residential (“EQR”). EQR isa Maryland real estate investment trust (“REIT”) formed in March 1993 andis a fully integrated real estate company primarily engaged in the acquisition,development, ownership, management and operation of multifamily properties. Inaddition, ERPOP may acquire or develop multifamily properties specifically toconvert directly into condominiums as well as upgrade and sell existingproperties as individual condominiums. ERPOP may also acquire land parcels tohold and/or sell based on market opportunities. EQR has elected to be taxed asa REIT.

EQR is the general partner of, and as of March 31,2006 owned an approximate 93.5% ownership interest in, ERPOP. EQR is structuredas an umbrella partnership REIT (“UPREIT”), under which all property ownershipand business operations are conducted through ERPOP and its subsidiaries. Asused herein, the term “Operating Partnership” includes ERPOP and those entitiesowned or controlled by it. As used herein, the term “Company” means EQR and theOperating Partnership.

As of March 31, 2006, the Operating Partnership,directly or indirectly through investments in title holding entities, owned allor a portion of 911****properties in31 states and the District of Columbia consisting of 192,240 units (table doesnot include various uncompleted development properties). The ownershipbreakdown includes:

|                                 | ** ** | **Properties** | ** ** | **Units** | ** ** |
|---------------------------------|------------|----------------|------------|-----------|------------|
| Wholly Owned  Properties        |       | 820            |       | 170,356   |       |
| Partially Owned  Properties:    |       |           |       |      |       |
| Consolidated                    |       | 45             |       | 7,366     |       |
| Unconsolidated                  |       | 45             |       | 10,846    |       |
| Military Housing  (Fee Managed) |       | 1              |       | 3,672     |       |
|                            |       | 911            |       | 192,240   |       |

** **

**2.**                 Summary of Significant AccountingPolicies

*Basis of Presentation*

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation and with the instructions to Form 10-Q and Article 10of Regulation S-X. Accordingly, they do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring accruals) and certainreclassifications considered necessary for a fair presentation have beenincluded. Certain reclassifications have been made to the prior periodfinancial statements in order to conform to the current year presentation. Operatingresults for the quarter ended March 31, 2006 are not necessarily indicativeof the results that may be expected for the year ending December 31, 2006.

The balance sheet at December 31, 2005 has beenderived from the audited financial statements at that date but does not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements.

For further information, including definition ofcapitalized terms not defined herein, refer to the consolidated financialstatements and footnotes thereto included in the Operating Partnership’s annualreport on Form 10-K for the year ended December 31, 2005.

8

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*Other*

The Company adopted SFAS No. 123(R), *Share-Based Payment*, as required effective January 1,2006. SFAS No. 123(R) requires all companies to expense stock-basedcompensation (such as stock options), as well as making other revisions to SFASNo. 123. As the Company began expensing all stock-based compensationeffective January 1, 2003, the adoption of SFAS No. 123(R) didnot have a material effect on its consolidated statements of operations orfinancial position.

Any Common Shares issued pursuant to EQR’s incentiveequity compensation and employee share purchase plans will result in theOperating Partnership issuing units of limited partnership interest (“OP Units”)to EQR on a one-for-one basis, with the Operating Partnership receiving the netcash proceeds of such issuances.

The Operating Partnership adopted the disclosureprovisions of SFAS No. 150 and FSP No. FAS 150-3, *Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity,* effective December 31, 2003. SFAS No. 150and FSP No. FAS 150-3 require the Operating Partnership to makecertain disclosures regarding noncontrolling interests that are classified asequity in the financial statements of a subsidiary but would be classified as aliability in the parent’s financial statements under SFAS No. 150 (e.g.,minority interests in consolidated limited-life subsidiaries). The OperatingPartnership is presently the controlling partner in various consolidatedpartnerships consisting of 45 properties and 7,366 units and variousuncompleted development properties having a minority interest book value of$19.0 million at March 31, 2006. Some of these partnerships contain provisionsthat require the partnerships to be liquidated through the sale of its assetsupon reaching a date specified in each respective partnership agreement. TheOperating Partnership, as controlling partner, has an obligation to cause theproperty owning partnerships to distribute proceeds of liquidation to theMinority Interests in these Partially Owned Properties only to the extent thatthe net proceeds received by the partnerships from the sale of its assetswarrant a distribution based on the partnership agreements. As of March 31,2006, the Operating Partnership estimates the value of Minority Interestdistributions would have been approximately $87.1 million (“Settlement Value”)had the partnerships been liquidated. This Settlement Value is based onestimated third party consideration realized by the partnerships upondisposition of the Partially Owned Properties and is net of all other assetsand liabilities, including yield maintenance on the mortgages encumbering theproperties, that would have been due on March 31, 2006 had those mortgagesbeen prepaid. Due to, among other things, the inherent uncertainty in the saleof real estate assets, the amount of any potential distribution to the MinorityInterests in the Operating Partnership’s Partially Owned Properties is subjectto change. To the extent that the partnerships’ underlying assets are worthless than the underlying liabilities, the Operating Partnership has noobligation to remit any consideration to the Minority Interests in PartiallyOwned Properties.

In June 2005, the FASB ratified the consensus inEITF Issue No. 04-05, *Determining Whether aGeneral Partner, or the General Partners as a Group, Controls a LimitedPartnership or Similar Entity When the Limited Partners Have Certain Rights*(“Issue 04-05”), which provides guidance in determining whether a generalpartner controls a limited partnership. Issue 04-05 states that thegeneral partner in a limited partnership is presumed to control that limitedpartnership. The presumption may be overcome if the limited partners haveeither (1) the substantive ability to dissolve the limited partnership orotherwise remove the general partner without cause or (2) substantiveparticipating rights, which provide the limited partners with the ability toeffectively participate in significant decisions that would be expected to bemade in the ordinary course of the limited partnership’s business and therebypreclude the general partner from exercising unilateral control over thepartnership. The adoption of Issue 04-05 by the Operating Partnership wasrequired for new or modified limited partnership arrangements effective June 30,2005 and existing limited partnership arrangements effective January 1,2006. Effective January 1, 2006, the Operating Partnership consolidatedits Lexford syndicated portfolio consisting of 20 separate partnerships (10properties) containing 1,272 units. The adoption did not have a material effecton the results of operations or financial position. See Note 4 for furtherdiscussion of the adoption of EITF Issue No. 04-05.

9

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**3.**                 Partners’ Capital

***The following tables present the changesin the Operating Partnership’s issued and outstanding OP Units and the limitedpartners’ OP Units for the quarter ended March 31, 2006:***

|                                                                       | ** **   | **2006**        | ** **   |
|-----------------------------------------------------------------------|--------------|-----------------|--------------|
| OP Units  outstanding at January 1,                              |         | 309,960,589     |         |
|                                                                  |         |            |         |
| Issued to  General Partner:                                           |         |            |         |
| Conversion of  Series E Preference Units                         |         | 41,816          |         |
| Conversion of  Series H Preference Units                         |         | 2,895           |         |
| Conversion of  Series H Preference Interests                     |         | 287,052         |         |
| Employee Share  Purchase Plan                                         |         | 93,375          |         |
| Exercise of EQR  options                                              |         | 836,499         |         |
| Restricted EQR  share grants, net                                     |         | 653,072         |         |
|                                                                  |         |            |         |
| Issued to  Limited Partners:                                          |         |            |         |
| Issuance —  Acquisitions                                         |         | 661,962         |         |
|                                                                  |         |            |         |
| OP Units Other:                                                       |         |            |         |
| Repurchased and  retired                                              |         | (1,019,800      | )            |
| **OP  Units outstanding at March 31,**                           | ** **   | **311,517,460** | ** **   |
| ** **                                                            | ** **   | ** **      | ** **   |
| *** ***                                                          | *** *** | **2006**        | *** *** |
| Limited Partner  OP Units outstanding at January 1,              |         | 20,424,245      |         |
|                                                                  |         |            |         |
| Limited Partner  OP Units Issued:                                     |         |            |         |
| Acquisitions                                                          |         | 661,962         |         |
| Conversion of  Limited Partner OP Units to EQR Common Shares          |         | (812,973        | )            |
| **Limited  Partner OP Units Outstanding at March 31,**           | ** **   | **20,273,234**  | ** **   |
| Limited Partner  OP Units Ownership Interest in Operating Partnership |         | 6.5             | %            |
|                                                                  |         |            |         |
| Limited Partner  OP Units Issued:                                     |         |            |         |
| Acquisitions — per unit                                          |         | $               | 42.08        |   |
| Acquisitions —  valuation                                        |         | $               | 27.9 million |   |

** **

During the quarter ended March 31, 2006, theCompany repurchased 1,019,800 of its Common Shares on the open market at anaverage price of $43.89 per share. The Company paid approximately $44.8 millionfor these shares, which were retired subsequent to the repurchase. Concurrentwith this transaction, the Operating Partnership repurchased and retired1,019,800 OP Units previously issued to EQR.

The Limited Partners of the Operating Partnership asof March 31, 2006 include various individuals and entities thatcontributed their properties to the Operating Partnership in exchange for OPUnits. Subject to certain restrictions, the Limited Partners may exchange theirOP Units for EQR Common Shares on a one-for-one basis.

EQR contributes all net proceeds from its variousequity offerings (including proceeds from exercise of options for EQR CommonShares) to the Operating Partnership. In return for those contributions, EQRreceives a number of OP Units in ERPOP equal to the number of Common Shares ithas issued in the equity offering (or in the case of a preferred equityoffering, a number of preference units in ERPOP equal in number and having thesame terms as the preferred shares issued in the equity offering).

10

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The following table presents the Operating Partnership’sissued and outstanding “Preference Units” as of March 31, 2006 and December 31,2005:

|                                                                                                                                                                                                                  | ** ** | ** **                             | ** ** | ** **                    | ** ** | **Annual**                           | ** ** | **Amounts in thousands** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                                                                                                                       | ** ** | **Redemption  Date (1) (2)** | ** ** | **Conversion  Rate (2)** | ** ** | **Dividend per  Unit (3)** | ** ** | **March 31,  2006**           | ** ** | **December 31,  2005** | ** ** |
| Preference Units:                                                                                                                                                                                                |       |                                   |       |                          |       |                                 |       |                               |       |   |   |
|                                                                                                                                                                                                             |       |                                   |       |                          |       |                                 |       |                               |       |   |   |
| 9 1/8%  Series C Cumulative Redeemable Preference Units; liquidation value $250  per unit; 460,000 units issued and outstanding at March 31, 2006 and  December 31, 2005 (4)                      |       | 9/9/06                                 |       | N/A                           |       | $                                    | 22.8125    |                               | $          | 115,000 |   | $ | 115,000 |   |
|                                                                                                                                                                                                             |       |                                   |       |                          |       |                                 |       |                               |       |   |   |
| 8.60%  Series D Cumulative Redeemable Preference Units; liquidation value $250  per unit; 700,000 units issued and outstanding at March 31, 2006 and  December 31, 2005 (4)                       |       | 7/15/07                                |       | N/A                           |       | $                                    | 21.50      |                               | 175,000    |   | 175,000 |   |
|                                                                                                                                                                                                             |       |                                   |       |                          |       |                                 |       |                               |       |   |   |
| 7.00%  Series E Cumulative Convertible Preference Units; liquidation value $25  per unit; 491,516 and 529,096 units issued and outstanding at March 31,  2006 and December 31, 2005, respectively |       | 11/1/98                                |       | 1.1128                        |       | $                                    | 1.75       |                               | 12,288     |   | 13,228 |   |
|                                                                                                                                                                                                             |       |                                   |       |                          |       |                                 |       |                               |       |   |   |
| 7.00%  Series H Cumulative Convertible Preference Units; liquidation value $25  per unit; 32,734 and 34,734 units issued andoutstanding at March 31,  2006 and December 31, 2005, respectively    |       | 6/30/98                                |       | 1.4480                        |       | $                                    | 1.75       |                               | 818        |   | 868 |   |
|                                                                                                                                                                                                             |       |                                   |       |                          |       |                                 |       |                               |       |   |   |
| 8.29%  Series K Cumulative Redeemable Preference Units; liquidation value $50  per unit; 1,000,000 units issued and outstanding at March 31, 2006 and  December 31, 2005                          |       | 12/10/26                               |       | N/A                           |       | $                                    | 4.145      |                               | 50,000     |   | 50,000 |   |
|                                                                                                                                                                                                             |       |                                   |       |                          |       |                                 |       |                               |       |   |   |
| 6.48%  Series N Cumulative Redeemable Preference Units; liquidation value $250  per unit; 600,000 units issued and outstanding at March 31, 2006 and  December 31, 2005 (4)                       |       | 6/19/08                                |       | N/A                           |       | $                                    | 16.20      |                               | 150,000    |   | 150,000 |   |
|                                                                                                                                                                                                             |       |                                   |       |                          |       |                                 |       |                               |       |   |   |
|                                                                                                                                                                                                             |       |                                   |       |                          |       |                                 |       | $                                  | 503,106    |   | $ | 504,096 |   |

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(1)            On or after theredemption date, redeemable preference units (Series C, D, K and N) may beredeemed 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 (in the case of Series E) or OP Units (in the case ofSeries H), in whole or in part, at various redemption prices per unitbased upon the contractual conversion rate, plus accrued and unpaiddistributions, if any, in conjunction with the concurrent redemption/conversionof the corresponding EQR Preferred Shares.

(3)            Dividends on allseries of Preference Units are payable quarterly at various pay dates. Dividendslisted for Series C, D and N are Preference Unit rates and the equivalentDepositary Unit annual dividends are $2.28125, $2.15 and $1.62 per unit,respectively.

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

The following table presents the issued andoutstanding Preference Interests as of March 31, 2006 andDecember 31, 2005:

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

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(1)            Onor after the fifth anniversary of the respective issuance (the “Redemption Date”),all of the Preference Interests may be redeemed for cash at the option of theOperating Partnership, in whole or in part, at any time or from time to time,at a redemption price equal to the liquidation preference of $50.00 per unitplus the cumulative amount of accrued and unpaid distributions, if any.

(2)            Onor after the tenth anniversary of the respective issuance (the “Conversion Date”),all of the Preference Interests are exchangeable at the option of the holder(in whole but not in part) on a one-for-one basis for a respective reservedseries of EQR Preferred Shares. In addition, on or after the Conversion Date,the convertible Preference Interests (Series I & J) may beconverted under certain circumstances at the option of the holder (in whole butnot in part) to EQR Common Shares based upon the contractual conversion rate,plus accrued and unpaid distributions, if any. Prior to the Conversion Date,the convertible Preference Interests (Series I & J) may beconverted under certain circumstances at the option of the holder (in whole butnot in part) to EQR Common Shares based upon the contractual conversion rate,plus accrued and unpaid distributions, if any, if the issuer has called theseries for redemption (the “Accelerated Conversion Right”).

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

(4)            OnFebruary 10, 2006, the Operating Partnership issued an irrevocable noticeto redeem for cash on March 21, 2006 all 510,000 units of its 7.875% Series GPreference Interests with a liquidation value of $25.5 million. The OperatingPartnership recorded approximately $0.7 million as premiums on redemption ofPreference Interests in the accompanying consolidated statements of operations.

(5)            OnFebruary 10, 2006, the Operating Partnership issued an irrevocable noticeto redeem for cash on March 23, 2006 all 190,000 units of its 7.625% Series HPreference Interests with a liquidation value of $9.5 million. This noticetriggered the holders’ Accelerated Conversion Right, which they exercised. As aresult, effective March 23, 2006, the 190,000 units were converted to287,052 EQR Common Shares.

The following table presents the OperatingPartnership’s issued and outstanding Junior Convertible Preference Units (the“Junior Preference Units”) as of March 31, 2006 and December 31,2005:

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

----

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

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

**4.**                 Real Estate

During the quarter ended March 31, 2006, theOperating Partnership acquired the entire equity interest in eleven properties containing 2,779 units andtwo land parcels from unaffiliated parties for a total purchase price of $520.8million.

As previously noted, the Operating Partnership adoptedEITF Issue No. 04-05, as required for existing limited partnershiparrangements, effective January 1, 2006. The adoption required theconsolidation of the Lexford syndicated portfolio consisting of 20 separatepartnerships (10 properties) containing 1,272 units. The Operating Partnershiprecorded $24.6 million in investment in real estate and the following:

·          Consolidated $22.5 million in mortgage debt;

·          Reduced investments in unconsolidated entities by$2.6 million;

·          Consolidated $0.9 million of other liabilitiesnet of other assets acquired; and

·          Consolidated $1.4 million of cash.

During the quarter ended March 31, 2006, theOperating Partnership disposed of the following to unaffiliated parties (salesprice in thousands):

|                    | ** ** | **Properties** | ** ** | **Units** | ** ** | **Sales Price** | ** ** |
|--------------------|------------|----------------|------------|-----------|------------|----------------------|------------|
| Rental  Properties |       | 25             |       | 8,110     |       | $                    | 799,881    |   |
| Condominium  Units |       | 2              |       | 171       |       | 35,015               |       |
|               |       | 27             |       | 8,281     |       | $                    | 834,896    |   |

** **

The Operating Partnership recognized a net gain onsales of discontinued operations of approximately $372.5 million (amount is netof $2.7 million of income taxes incurred on condominium sales — see additionaldiscussion in Note 13) and a net gain on sales of unconsolidated entities of$0.3 million on the above sales.

**5.**                 Commitments to Acquire/Dispose of RealEstate

As of May 3, 2006, in addition to the propertiesthat were subsequently acquired as discussed in Note 16, the OperatingPartnership had entered into separate agreements to acquire the following(purchase price in thousands):

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|                       | ** ** | **Properties/  Parcels** | ** ** | **Units** | ** ** | **Purchase  Price** | ** ** |
|-----------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Operating  Properties |       | 6                        |       | 1,233     |       | $                   | 277,010    |   |
| Land Parcels          |       | 4                        |       | —    |       | 103,465             |       |
| Total                 |       | 10                       |       | 1,233     |       | $380,475            |       |
|                       |            |                          |            |           |            |                     |            |  |

** **

**As of May 3, 2006, in additionto the properties that were subsequently disposed of as discussed in Note 16,the Operating Partnership had entered into separate agreements (includingoption rights) to dispose of the following (sales price in thousands):**

|                         | ** ** | **Properties/  Parcels** | ** ** | **Units** | ** ** | **Sales Price** | ** ** |
|-------------------------|------------|--------------------------|------------|-----------|------------|----------------------|------------|
| Operating  Properties   |       | 12                       |       | 2,329     |       | $                    | 222,210    |   |
| Development  Properties |       | 1                        |       | 278       |       | 116,000              |       |
| Land Parcels            |       | 1                        |       | —    |       | 84,000               |       |
| Total                   |       | 14                       |       | 2,607     |       | $                    | 422,210    |   |

 

The closings of these pending transactions are subjectto certain contingencies and conditions; therefore, there can be no assurancethat these transactions will be consummated or that the final terms thereofwill not differ in material respects from those summarized in the precedingparagraphs.

**6.**                 Investments in Partially OwnedEntities

The Operating Partnership has co-invested in variousproperties with unrelated third parties which are either consolidated oraccounted for under the equity method of accounting (unconsolidated). Thefollowing table summarizes the Operating Partnership’s investments in partiallyowned entities as of March 31, 2006 (amounts in thousands except forproject and unit amounts):
| ** **                                                  | ** ** | **Consolidated** | ** ** | **Unconsolidated**                  | ** ** |
|-------------------------------------------------------------|------------|------------------|------------|-------------------------------------|------------|
| ** **                                                  | ** ** | **Lexford**      | ** ** | **FIN 46 /  Development** | ** ** | **Other** | ** ** | **Total** | ** ** | **Institutional  Joint Ventures** | ** ** |
|                                                        |       |             |       |                                |       |   | ** ** | ** ** |   |   |   |
| Total projects                                              |       | 18               |       | 6                                   | (2)        | 21 |   | 45 |   | 45 |   |
|                                                        |       |             |       |                                |       |   |   |   |   |   |   |
| Total units                                                 |       | 2,133            |       | 1,337                               | (2)        | 3,896 |   | 7,366 |   | 10,846 |   |
|                                                        |       |             |       |                                |       |   |   |   |   |   |   |
| Operating  Partnership’s ownership percentage          |       | 44.9             | %          | 100.0                               | %          | 66.6 | % |   |   | 25.0 | % |
|                                                        |       |             |       |                                |       |   |   |   |   |   |   |
| Operating Partnership’s  share of outstanding debt (1) |       | $                | 15,764     |                                | $          | 229,317 |   | $ | 200,168 |   | $ | 445,249 |   | $ | 121,200 |   |
|                                                             |            |                  |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |

----

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

(2)             Amountsexclude various uncompleted development projects.

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

**The following table presents the deposits— restricted as of March 31, 2006 and December 31, 2005 (amounts inthousands):**

14

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** **

|                                        | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                   |       |                     |       |                        |       |
| Tax-deferred  (1031) exchange proceeds |       | $                        | 58,247     |                        | $          | 853 |   |
| Earnest money on  pending acquisitions |       | 3,816                    |       | 15,120                      |       |
| Resident  security, utility and other  |       | 63,599                   |       | 61,120                      |       |
| Totals                                 |       | $                        | 125,662    |                        | $          | 77,093 |   |

 

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

As of March 31, 2006, the Operating Partnershiphad outstanding mortgage indebtedness of approximately $3.5 billion.

During the quarter ended March 31, 2006, theOperating Partnership:

·       Repaid $148.0 million of mortgage loans;

·       Assumed/consolidated $73.1 million of mortgagedebt on certain properties in connection with their acquisitions and/or consolidations;

·       Obtained $168.8 million of new mortgage loans on certain properties; and

·       Was released from $14.2 millionof mortgage debt assumed by the purchaser on one disposed property.

As of March 31, 2006, scheduled maturities forthe Operating Partnership’s outstanding mortgage indebtedness were at variousdates through February 1, 2041. At March 31, 2006, the interest raterange on the Operating Partnership’s mortgage debt was 3.05% to 12.465%. Duringthe quarter ended March 31, 2006, the weighted average interest rate onthe Operating Partnership’s mortgage debt was 5.74%

**9.**                 Notes

As of March 31, 2006, the Operating Partnershiphad outstanding unsecured notes of approximately $3.8 billion.

During the quarter ended March 31, 2006, theOperating Partnership:

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

As of March 31, 2006, scheduled maturities forthe Operating Partnership’s outstanding notes were at various dates through2029. At March 31, 2006, the interest rate range on the OperatingPartnership’s notes was 4.75% to 7.625%. During the quarter ended March 31,2006, the weighted average interest rate on the Operating Partnership’s noteswas 6.08%.

**10.**          Lines ofCredit

The Operating Partnership has an unsecured revolvingcredit facility with potential borrowings of up to $1.0 billion maturing on May 29,2008. The Operating Partnership has the ability to increase availableborrowings up to $500.0 million under certain circumstances. Advances under thecredit facility bear interest at variable rates based upon LIBOR at variousinterest periods plus a spread dependent upon the Operating Partnership’scredit rating or based on bids received from the lending group. EQR hasguaranteed the Operating Partnership’s credit facility up to the maximum amountand for the full term of the facility.

15

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On August 30, 2005, the Operating Partnershipobtained a new one-year $600.0 million unsecured revolving credit facilitymaturing on August 29, 2006. Advances under this facility bore interest atvariable rates based on LIBOR at various interest periods plus a spreaddependent upon the Operating Partnership’s credit rating. EQR guaranteed thiscredit facility up to the maximum amount and for its full term. This creditfacility was repaid in full and terminated on January 20, 2006.

As of March 31, 2006, $145.0 million wasoutstanding and $64.5 million was restricted (dedicated to support letters ofcredit and not available for borrowing) on the revolving credit facility.During the quarter ended March 31, 2006, the weighted average interestrate under the credit facility was 4.81%.

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

The following table summarizes theconsolidated derivative instruments at March 31, 2006 (dollar amounts arein thousands):
| ** **                              | ** ** | **Fair Value  Hedges (1)** | ** ** | **Development  Cash Flow  Hedges (2)** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------|------------|
| Current Notional  Balance               |       | $                                    | 370,000    |                                             | $          | 19,417 |   |
| Lowest Possible  Notional               |       | $                                    | 370,000    |                                             | $          | 13,925 |   |
| Highest Possible  Notional              |       | $                                    | 370,000    |                                             | $          | 46,296 |   |
| Lowest Interest  Rate                   |       | 3.245                                | %          | 4.530                                            | %          |
| Highest Interest  Rate                  |       | 3.787                                | %          | 4.530                                            | %          |
| Earliest  Maturity Date                 |       | 2009                                 |       | 2007                                             |       |
| Latest Maturity  Date                   |       | 2009                                 |       | 2007                                             |       |
| Estimated Asset  (Liability) Fair Value |       | $                                    | (18,908    | )                                                | $          | 177 |   |
|                                    |       |                                 |       |                                             |       |

----

(1) FairValue Hedges — Converts outstanding fixed rate debt to a floating interestrate.

(2) DevelopmentCash Flow Hedges — Converts outstanding floating rate debt to a fixed interestrate.

**On March 31,2006, the net derivative instruments were reported at their fair value as otherassets of approximately $0.2 million and as other liabilities of approximately$18.9 million. As of March 31, 2006, there were approximately $13.0million in deferred losses, net, included in accumulated other comprehensiveloss. Based on the estimated fair values of the net derivative instruments at March 31,2006, the Operating Partnership may recognize an estimated $2.3 million ofaccumulated other comprehensive loss as additional interest expense during thetwelve months ending March 31, 2007.**

**In January 2006,the Operating Partnership received approximately $10.7 million to terminate sixforward starting swaps in conjunction with the issuance of $400.0 million often and one-half year unsecured notes. The $10.7 million has been deferred as acomponent of accumulated other comprehensive loss and will be recognized as areduction of interest expense over the life of the unsecured notes.**

**12.**       Earnings Per OP Unit

The following tables set forth the computation of net income per OPUnit — basic and net income per OP Unit — diluted (amounts in thousands exceptper OP Unit amounts):

16

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| ** **                                                                                                              | ** ** | **Quarter Ended March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                              | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| **Numerator for net income per OP  Unit — basic:**                                                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Income from  continuing operations                                                                                      |       | $                                          | 29,843     |   | $ | 98,303 |   |
| Allocation to  Preference Units                                                                                         |       | (10,095                                    | )          | (13,025 | ) |
| Allocation to  Preference Interests                                                                                     |       | (1,095                                     | )          | (3,884 | ) |
| Allocation to  Junior Preference Units                                                                                  |       | (4                                         | )          | (4 | ) |
| Allocation to  premium on redemption of Preference Interests                                                            |       | (674                                       | )          | (1,728 | ) |
|                                                                                                                    |       |                                       |       |   |   |
| Income from  continuing operations available to OP Units                                                                |       | 17,975                                     |       | 79,662 |   |
| Net gain on  sales of discontinued operations                                                                           |       | 372,501                                    |       | 140,704 |   |
| Discontinued  operations, net                                                                                           |       | 3,204                                      |       | 9,273 |   |
|                                                                                                                    |       |                                       |       |   |   |
| Numerator for  net income per OP Unit — basic                                                                      |       | $                                          | 393,680    |   | $ | 229,639 |   |
|                                                                                                                    |       |                                       |       |   |   |
| **Numerator for net income per OP  Unit — diluted:**                                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Income from  continuing Operations                                                                                      |       | $                                          | 29,843     |   | $ | 98,303 |   |
| Allocation to  Preference Units                                                                                         |       | (10,095                                    | )          | (13,025 | ) |
| Allocation to  Preference Interests                                                                                     |       | (1,095                                     | )          | (3,884 | ) |
| Allocation to  Junior Preference Units                                                                                  |       | (4                                         | )          | (4 | ) |
| Allocation to  premium on redemption of Preference Interests                                                            |       | (674                                       | )          | (1,728 | ) |
|                                                                                                                    |       |                                       |       |   |   |
| Income from  continuing operations available to OP Units                                                                |       | 17,975                                     |       | 79,662 |   |
| Net gain on  sales of discontinued operations                                                                           |       | 372,501                                    |       | 140,704 |   |
| Discontinued  operations, net                                                                                           |       | 3,204                                      |       | 9,273 |   |
|                                                                                                                    |       |                                       |       |   |   |
| Numerator for  net income per OP Unit — diluted                                                                    |       | $                                          | 393,680    |   | $ | 229,639 |   |
| ** **                                                                                                              | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| **Denominator for net income per  OP Unit — basic and diluted:**                                                   | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Denominator for  net income per OP Unit — basic                                                                    |       | 309,334                                    |       | 305,391 |   |
| Effect of dilutive  securities:                                                                                         |       |                                       |       |   |   |
| Dilution for OP Units issuable upon assumed  exercise/vesting of EQR’s share options/restricted shares   |       | 4,715                                      |       | 3,185 |   |
|                                                                                                                    |       |                                       |       |   |   |
| Denominator for  net income per OP Unit — diluted                                                                  |       | 314,049                                    |       | 308,576 |   |
|                                                                                                                    |       |                                       |       |   |   |
| Net income per  OP Unit — basic                                                                                    |       | $                                          | 1.27       |   | $ | 0.75 |   |
|                                                                                                                    |       |                                       |       |   |   |
| Net income per  OP Unit — diluted                                                                                  |       | $                                          | 1.25       |   | $ | 0.74 |   |
|                                                                                                                    |       |                                       |       |   |   |
| **Net income per OP Unit — basic:**                                                                                | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Income from  continuing operations available to OP Units                                                                |       | $                                          | 0.058      |   | $ | 0.261 |   |
| Net gain on  sales of discontinued operations                                                                           |       | 1.204                                      |       | 0.461 |   |
| Discontinued  operations, net                                                                                           |       | 0.010                                      |       | 0.030 |   |
|                                                                                                                    |       |                                       |       |   |   |
| Net income per  OP Unit — basic                                                                                    |       | $                                          | 1.272      |   | $ | 0.752 |   |
| ** **                                                                                                              | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| **Net income per OP Unit —  diluted:**                                                                             | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Income from  continuing operations available to OP Units                                                                |       | $                                          | 0.057      |   | $ | 0.258 |   |
| Net gain on  sales of discontinued operations                                                                           |       | 1.186                                      |       | 0.456 |   |
| Discontinued  operations, net                                                                                           |       | 0.010                                      |       | 0.030 |   |
|                                                                                                                    |       |                                       |       |   |   |
| Net income per  OP Unit — diluted                                                                                  |       | $                                          | 1.253      |   | $ | 0.744 |   |
|                                                                                                                    |       |                                       |       |   |   |

 

17

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*Convertible preference units/interests that could beconverted into 1,615,465 and 1,871,194 weighted average Common Shares (whichwould be contributed to the Operating Partnership in exchange for OP Units) forthe quarters ended March 31, 2006 and 2005, respectively, were outstandingbut were not included in the computation of diluted earnings per OP Unitbecause the effects would be anti-dilutive.*

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

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) and all operations related tocondominium conversion properties effective upon their respective transfer intoa TRS.

The components of discontinued operations areoutlined below and include the results of operations for the respective periodsthat the Operating Partnership owned such assets during the quarters ended March 31,2006 and 2005 (amounts in thousands).

 
| ** **                               | ** ** | **Quarter Ended March 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| **REVENUES**                             | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Rental income                            |       | $                                          | 16,268     |   | $ | 53,789 |   |
| Total revenues                           |       | 16,268                                     |       | 53,789 |   |
|                                     |       |                                       |       |   |   |
| **EXPENSES (1)**                         | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Property and  maintenance                |       | 7,492                                      |       | 17,825 |   |
| Real estate  taxes and insurance         |       | 2,747                                      |       | 8,384 |   |
| Property  management                     |       | 90                                         |       | 118 |   |
| Depreciation                             |       | 3,181                                      |       | 13,837 |   |
| General and  administrative              |       | 226                                        |       | 96 |   |
| Total expenses                           |       | 13,736                                     |       | 40,260 |   |
|                                     |       |                                       |       |   |   |
| Discontinued  operating income           |       | 2,532                                      |       | 13,529 |   |
|                                     |       |                                       |       |   |   |
| Interest and  other income               |       | 1,004                                      |       | 56 |   |
| Interest (2):                            |       |                                       |       |   |   |
| Expense incurred, net                    |       | (332                                       | )          | (4,176 | ) |
| Amortization of deferred financing costs |       |                                       |       | (136 | ) |
|                                     |       |                                       |       |   |   |
| Discontinued  operations, net            |       | $                                          | 3,204      |   | $ | 9,273 |   |
|                                     |       |                                       |       |   |   |

----

*(1)**            **Includesexpenses paid in the current period for properties sold in prior periods relatedto the Operating Partnership’s period of ownership.*

*(2)**            **Includesonly interest expense specific to secured mortgage notes payable for propertiessold.*

For the properties sold duringthe quarter ended March 31, 2006 (excluding condominium conversion properties),the investment in real estate, net of accumulated depreciation, and themortgage notes payable balances at December 31, 2005 were $422.5 millionand $32.5 million, respectively.

The Operating Partnership generallyis not liable for Federal income taxes as the partners recognize theirproportionate share of the Operating Partnership’s income or loss in their taxreturns; therefore no provision for Federal income taxes has been made at theERPOP level. Due to the structure of the Company as a REIT and the nature ofthe operations of its operating properties, no provision for federal incometaxes has been made at the EQR level. Historically, the Operating Partnershiphas generally only incurred certain state and local income, excise andfranchise taxes.

18

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The Operating Partnership has elected Taxable REITSubsidiary (“TRS”) status for certain of its corporate subsidiaries, primarilythose entities engaged in condominium conversion and sale activities. TheOperating Partnership recognized provisions for income taxes of $2.7 millionand $0.2 million for the quarters ended March 31, 2006 and 2005,respectively. These amounts were classified as reductions of the net gain onsales of discontinued operations in the accompanying consolidated statements ofoperations. In addition, the aggregate results of operations (primarily netoperating income) of the Operating Partnership’s condominium conversionproperties are included in discontinued operations, net, in the accompanyingconsolidated statements of operations.

The net real estate basis of the Operating Partnership’scondominium conversion properties and land parcels owned by the TRS, which wereincluded in investment in real estate, net in the consolidated balance sheets,was $277.9 million and $276.8 million at March 31, 2006 and December 31,2005, respectively.

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

The Operating Partnership, as an owner of real estate, is subject tovarious Federal, state and local environmental laws. Compliance by theOperating Partnership with existing laws has not had a material adverse effecton the Operating Partnership. However, the Operating Partnership cannot predictthe impact of new or changed laws or regulations on its current properties oron properties that it may acquire in the future.

The Operating Partnership does not believe there is any litigationpending or threatened against the Operating Partnership which, individually orin the aggregate, reasonably may be expected to have a material adverse effecton the Operating Partnership.

During the yearsended December 31, 2005 and 2004, the Operating Partnership established areserve and recorded a corresponding expense, net of insurance receivables, forestimated uninsured property damage at certain of its properties caused by varioushurricanes in each respective year. During the quarter ended March 31,2006, the Operating Partnership received $4.0 million in insurance proceeds andrecorded an additional $2.9 million of receivables in anticipation of proceedsexpected. As of March 31, 2006, a receivable of $10.0 million and reserveof $13.4 million are included in other assets and rents received in advance andother liabilities, respectively, on the consolidated balance sheets.

As of March 31, 2006, theOperating Partnership has six projects totaling 1,711 units in various stagesof development with estimated completion dates ranging through June 30,2008. The primary development agreements currently in place have the followingkey terms:

**·**                        The first development partner has the right, at anytime following completion of a project subject to the agreement, to stipulate avalue for such project and offer to sell its interest in the project to theOperating Partnership based on such value. If the Operating Partnership choosesnot to purchase the interest, the Operating Partnership must agree to a sale ofthe project to an unrelated third 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 obligationto provide up to $40.0 million in credit enhancements to guarantee a portion ofthe third party construction financing. As of May 3, 2006, the OperatingPartnership did not have any amounts outstanding related to this creditenhancement. The Operating Partnership would be required to perform under thisagreement only if there was a material default under a third party constructionmortgage agreement. This agreement expires no later than December 31, 2018.Notwithstanding the termination of the agreement, the Operating Partnershipshall have recourse against its development partner for any losses incurred.

**·**                        The second development partnerhas the right, at any time following completion of a project subject to theagreement, to require the Operating Partnership to purchase the partners’interest in that project 

19

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**at a mutuallyagreeable price. If the Operating Partnership and the partner are unable toagree on a price, both parties will obtain appraisals. If the appraised valuesvary by more than 10%, both the Operating Partnership and its partner willagree on a third appraiser to determine which original appraisal is closest toits determination of value. The Operating Partnership may elect at that timenot to purchase the property and instead, authorize its partner to sell theproject at or above the agreed-upon value to an unrelated third party.**Fiveyears following the receipt of the final certificate of occupancy on the lastdeveloped property, the Operating Partnership must purchase, at the agreed-uponprice, any projects remaining unsold.

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

**In addition, the OperatingPartnership has various deal-specific development agreements with partners, theoverall terms of which are similar in nature to those described above.**

**15.****       ReportableSegments**

**Operating segments are defined ascomponents of an enterprise about which separate financial information isavailable that is evaluated regularly by senior management. Senior managementdecides how resources are allocated and assesses performance on a monthlybasis.**

**The Operating Partnership’s primarybusiness is owning, managing, and operating multifamily residential properties,which includes the generation of rental and other related income through theleasing of apartment units to residents and includes Equity Corporate Housing (“ECH”).Senior management evaluates the performance of each of our apartmentcommunities on an individual basis; however, each of our apartment communitieshas similar economic characteristics, residents, and products and services sothey have been aggregated into one reportable segment. The OperatingPartnership’s rental real estate segment comprises approximately 99.5% and99.4% of total revenues from continuing operations for the quarters ended March 31,2006 and 2005, respectively. The Operating Partnership’s rental real estatesegment comprises approximately 99.8% of total assets at both March 31,2006 and December 31, 2005.**

**The primary financial measure for theOperating Partnership’s rental real estate segment is net operating income (“NOI”),which represents rental income less: 1) property and maintenance expense; 2)real estate taxes and insurance expense; and 3) property management expense (asreflected in the accompanying consolidated statements of operations). TheOperating Partnership believes that NOI is helpful to investors as asupplemental measure of the operating performance of a real estate companybecause it is a direct measure of the actual operating results of the OperatingPartnership’s apartment communities. Current year NOI is compared to prior yearNOI and current year budgeted NOI as a measure of financial performance. Thefollowing table presents the NOI from our rental real estate specific tocontinuing operations for the quarters ended March 31, 2006 and 2005,respectively (amounts in thousands):**

20

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|                                          | ** ** | **Quarter Ended March 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Rental income                            |       | $                                          | 518,492    |   | $ | 441,392 |   |
| Property and  maintenance expense        |       | (140,030                                   | )          | (119,464 | ) |
| Real estate  taxes and insurance expense |       | (53,070                                    | )          | (47,933 | ) |
| Property  management expense             |       | (26,384                                    | )          | (22,943 | ) |
| Net operating income                     |       | $                                          | 299,008    |   | $ | 251,052 |   |

 

The Operating Partnership’s fee and assetmanagement activity is immaterial and does not meet the threshold requirementsof a reportable segment as provided for in SFAS No. 131.

All revenues are from external customers andthere is no customer who contributed 10% or more of the Operating Partnership’stotal revenues during the quarters ended March 31, 2006 or 2005.

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

Subsequent to March 31, 2006 and through May 3, 2006, the OperatingPartnership:

·                  Acquired$47.9 million of apartment properties consisting of two properties and 315units;

·                  Acquiredfor $29.6 million its partner’s interest in one development property containing359 units, issuing 419,031 limited partner OP Units valued at $18.7 million andpaying $10.9 million in cash;

·                  Sold$64.5 million of apartment properties consisting of two properties and 688units (excluding condominium units) and $0.9 million of land parcels;

·                  Assumed$12.0 million of mortgage debt in connection with the acquisition of oneproperty; and

·                  Repaid $3.1million of mortgage loans.

21

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**Item2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

**Overview**

For furtherinformation including definitions for capitalized terms not defined herein,refer to the consolidated financial statements and footnotes thereto includedin the Operating Partnership’s annual report on Form 10-K for theyear ended December 31, 2005.

Forward-lookingstatements in this report are intended to be made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995. Thesestatements are based on current expectations, estimates, projections andassumptions made by management. While the Operating Partnership’s managementbelieves the assumptions underlying its forward-looking statements arereasonable, such information is inherently subject to uncertainties and mayinvolve certain risks, which could cause actual results, performance, orachievements of the Operating Partnership to differ materially from anticipatedfuture results, performance or achievements expressed or implied by suchforward-looking statements. Many of these uncertainties and risks are difficultto predict and beyond management’s control. Forward-looking statements are notguarantees of future performance, results or events. The Operating Partnershipassumes no obligation to update or supplement forward-looking statementsbecause of subsequent events. Factors that might cause such differences include,but are not limited to the following:

·                  We intend toactively acquire and develop multifamily properties for rental operationsand/or conversion into condominiums, as well as upgrade and sell existingproperties as individual condominiums. We may underestimate the costs necessaryto bring an acquired or condominium conversion property up to standardsestablished for its intended market position or to otherwise develop a property.Additionally, we expect that other major real estate investors with significantcapital will compete with us for attractive investment opportunities or mayalso develop properties in markets where we focus our development efforts. Thiscompetition may increase prices for multifamily properties or decrease theprice at which we expect to sell individual condominiums. Upon conversion ofproperties to condominiums, we have increased our risk related to constructionperformed during the conversion. Condominium associations may assert that theconstruction performed was defective, resulting in litigation and/or settlementdiscussions. We may not be in a position or have the opportunity in the futureto make suitable property acquisitions on favorable terms. We also plan todevelop more properties ourselves in addition to co-investing with ourdevelopment partners for either the rental or condominium market, depending onopportunities in each sub-market. This may increase the overall level of riskassociated with our developments. The total number of development units, costof development and estimated completion dates are subject to uncertaintiesarising from changing economic conditions (such as the cost of labor andconstruction materials), competition and local government regulation.

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

·                  Occupancy levelsand market rents may be adversely affected by national and local economic andmarket conditions including, without limitation, new construction ofmultifamily 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,particularly those under “Risk Factors”.

Readers arecautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof. The Operating Partnership undertakes noobligation to publicly release any revisions to these forward-lookingstatements, which may be made to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events. Forward-lookingstatements and 

22

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

**Results ofOperations**

In conjunction with ourbusiness objectives and operating strategy, the Operating Partnership hascontinued to invest or recycle its capital investment in apartment communitieslocated in strategically targeted markets during the quarter ended March 31,2006. In summary, we:

·                  Acquired $506.6million of apartment properties consisting of eleven properties and 2,779 unitsand $14.2 million of land parcels, all of which we deem to be in our strategictargeted markets; and

·                  Sold $799.9million of apartment properties consisting of 25 properties and 8,110 units aswell as 171 condominium units for $35.0 million.

TheOperating Partnership’s primary financial measure for evaluating each of itsapartment communities is net operating income (“NOI”). NOI represents rentalincome less property and maintenance expense, real estate tax and insuranceexpense, and property management expense. The Operating Partnership believesthat NOI is helpful to investors as a supplemental measure of the operatingperformance of a real estate company because it is a direct measure of theactual operating results of the Operating Partnership’s apartment communities.

Properties thatthe Operating Partnership owned for both of the quarters ended March 31,2006 and March 31, 2005 (the “First Quarter 2006 Same Store Properties”),which represented 158,398 units, impacted the Operating Partnership’s resultsof operations and are discussed in the following paragraphs.

The Operating Partnership’sacquisition, disposition, completed development and consolidation of previouslyunconsolidated property activities also impacted overall results of operationsfor the quarters ended March 31, 2006 and 2005. The impacts of theseactivities are also discussed in greater detail in the following paragraphs.

***Comparison of the quarter ended March 31, 2006 to thequarter ended March 31, 2005***

For the quarter ended March 31, 2006, income fromcontinuing operations decreased by approximately $68.5 million when compared tothe quarter ended March 31, 2005. This decrease is primarily attributableto approximately $57.1 million of other income recognized in 2005 related toeBay, Inc’s acquisition of the Operating Partnership’s interest in Rent.com.

Revenuesfrom the First Quarter 2006 Same Store Properties increased $25.3 millionprimarily as a result of higher rental rates charged to residents, increasedoccupancy and lower concessions. Expenses from the First Quarter 2006 SameStore Properties increased $9.7 million primarily due to higher utilities,insurance and real estate taxes. The following tables provide comparativerevenue, expense, NOI and occupancy/turnover statistics for the First Quarter2006 Same Store Properties:

** **

| First Quarter 2006 vs. First Quarter 2005  Quarter over Quarter Same-Store Results | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **$ in Millions — 158,398 Same-Store Units**                                                      | ** ** |
| ** **                                                                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Description**                                                                                                                      | ** ** | **Revenues** | ** ** | **Expenses** | ** ** | **NOI** | ** ** |
|                                                                                                                                 |       |   |   |   |   |   |   |
| Q1 2006                                                                                                                              |       | $ | 444.9 |   | $ | 180.5 |   | $ | 264.4 |   |
| Q1 2005                                                                                                                              |       | $ | 419.6 |   | $ | 170.8 |   | $ | 248.8 |   |
| Change                                                                                                                               |       | $ | 25.3 |   | $ | 9.7 |   | $ | 15.6 |   |
| Change                                                                                                                               |       | 6.0 | % | 5.7 | % | 6.3 | % |

 

23

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Same Store Statistics

 
| ** ** | ** ** | **Occupancy** | ** ** | **Turnover** | ** ** |
|------------|------------|---------------|------------|--------------|------------|
|       |       |          |       |         |       |
| Q1 2006    |       | 94.5          | %          | 13.5         | %          |
| Q1 2005    |       | 93.7          | %          | 14.4         | %          |
| Change     |       | 0.8           | %          | (0.9         | %)         |

** **

**The following table presents a reconciliation ofoperating income per the consolidated statements of operations to NOI for the FirstQuarter 2006 Same Store Properties:**

|                                  | ** ** | **Quarter Ended March 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **(Amounts in millions)**        | ** ** |
| ** **                       | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Operating income                 |       | $                                          | 142.0      |   | $ | 118.1 |   |
| Adjustments:                     |       |                                       |       |   |   |
| Insurance (1)                    |       | (2.9                                       | )          | — |   |
| Non-same store operating results |       | (31.7                                      | )          | (2.2 | ) |
| Fee and asset management revenue |       | (2.5                                       | )          | (2.6 | ) |
| Fee and asset management expense |       | 2.1                                        |       | 2.2 |   |
| Depreciation                     |       | 143.6                                      |       | 115.2 |   |
| General and administrative       |       | 13.8                                       |       | 18.1 |   |
|                             |       |                                       |       |   |   |
| Same store NOI                   |       | $                                          | 264.4      |   | $ | 248.8 |   |

----

(1)             Amountrepresents additional hurricane insurance reimbursements.

**For properties that the Operating Partnershipacquired prior to January 1, 2005 and expects to continue to own through December 31,2006, the Operating Partnership anticipates the following same store resultsfor the full year ending December 31, 2006:**

2006 Same Store Assumptions
| Physical  Occupancy |   | 94.5%          |   |
|---------------------|--------|----------------|--------|
| Revenue Change      |   | 4.75% to 5.75% |   |
| Expense Change      |   | 4.25% to 5.25% |   |
| NOI Change          |   | 4.50% to 6.50% |   |

** **

**These 2006 assumptions are based on currentexpectations and are forward-looking.**

**Non-same store operating results increased $29.5**million and consistprimarily of properties acquired in calendar years 2006 and 2005 as well as ourcorporate housing business.

**Fee and asset management revenues, net of fee and assetmanagement expenses were consistent between the periods under comparison. As ofMarch 31, 2006 and 2005, the Operating Partnership managed 14,888 unitsand 17,928 units, respectively, for third parties and unconsolidated entities.**

**Property management expenses from continuingoperations include off-site expenses associated with the self-management of theOperating Partnership’s properties as well as management fees paid to any thirdparty management companies. These expenses increased by approximately $3.4million or 15.0%. This increase is primarily attributable to higher overallpayroll costs, temporary contracting costs and training costs specific to theOperating Partnership’s rollout of a new property management system.**

**Depreciation expense from continuing operations,which includes depreciation on non-real estate**

24

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assets, increased $28.4 million primarily as a resultof additional depreciation expense on newly acquired properties and capitalexpenditures for all properties owned.

Generaland administrative expenses, which include corporate operating expenses,decreased approximately $4.3 million between the periods under comparison. Thisdecrease was primarily due to lower executive compensation expense due toseverance costs for several EQR executive officers incurred during the quarterended March 31, 2005. The Operating Partnership anticipates that generaland administrative expenses will approximate $50.0 million for the year ending December 31,2006. This above assumption is based on current expectations and isforward-looking.

Interest and other income from continuing operationsdecreased by approximately $57.1 million, primarily as a result of the $57.1million in cash received in the quarter ended March 31, 2005 for theOperating Partnership’s ownership interest in Rent.com, which was acquired byeBay, Inc.

Interest expense from continuing operations, includingamortization of deferred financing costs, increased approximately $21.9****million primarily as a result of highervariable interest rates. During the quarter ended March 31, 2006, theOperating Partnership capitalized interest costs of approximately $4.0 millionas compared to $2.9 million for the quarter ended March 31, 2005. Thiscapitalization of interest primarily relates to consolidated projects underdevelopment. The effective interest cost on all indebtedness for the quarterended March 31, 2006 was 6.25% as compared to 6.18% for the quarter ended March 31,2005.

Lossfrom investments in unconsolidated entities increased approximately $0.2million between the periods under comparison. This increase is primarily theresult of consolidating previously unconsolidated properties as of January 1,2006 as the result of EITF Issue No. 04-05. See also Note 4 in the Notes to Consolidated Financial Statements forfurther discussion.

Netgain on sales of land parcels decreased $10.4 million, due to a large gainrecorded on the sale of one land parcel during the quarter ended March 31,2005.

Net gain on sales of discontinued operations increasedapproximately $231.8 million between the periods under comparison. Thisincrease is primarily the result of higher per unit sales prices and lower realestate net book values for properties sold during the quarter ended March 31,2006 as compared to the same period in 2005.

Discontinued operations, net decreased approximately$6.1 million between the periods under comparison. The decrease in revenues andexpenses between periods results from the timing, size and number of propertiessold. Any property sold after March 31, 2005 will include a full period’sresults in the first quarter of 2005 but minimal to no results in the firstquarter of 2006. See Note 13 in the Notes to Consolidated Financial Statementsfor further discussion.

**Liquidity and Capital Resources**

As of January 1, 2006, the OperatingPartnership had approximately $88.8 million of cash and cash equivalents and$780.8 million available under its revolving credit facilities (net of $50.2million which was restricted/dedicated to support letters of credit and notavailable for borrowing). After taking into effect the various transactionsdiscussed in the following paragraphs and the net cash provided by operatingactivities, the Operating Partnership’s cash and cash equivalents balance at March 31,2006 was approximately $86.8 million and the amount available on the OperatingPartnership’s revolving credit facility was $790.5 million (net of $64.5million which was restricted/dedicated to support letters of credit and notavailable for borrowing).

During the quarter ended March 31, 2006, theOperating Partnership generated proceeds from various transactions, whichincluded the following:

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·                  Disposedof 25 properties and various individual condominium units, receiving netproceeds of approximately $811.2 million;

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

·                  Obtained$168.8 million in new mortgage financing; and

·                  Issuedapproximately 0.9 million OP Units and received net proceeds of $25.5 million.

**During the quarter ended March 31, 2006, the aboveproceeds were primarily utilized to:**

·                  Invest$34.8 million primarily in development projects;

·      Acquire11 properties and two land parcels, utilizing cash of $444.9 million;

·      Repurchase1.0 million OP Units utilizing cash of $44.8 million;

·                  Repay$148.0 million of mortgage loans; and

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

**Depending on its analysis of market prices, economicconditions, and other opportunities for the investment of available capital,the Company may repurchase its Common Shares pursuant to its existing sharebuyback program authorized by the Board of Trustees. EQR repurchased $44.8million (1,019,800 shares at an average price per share of $43.89) of itsCommon Shares during the quarter ended March 31, 2006 to offset theissuance of 661,962 OP Units to limited partners in connection with a propertyacquisition and to partially offset EQR restricted shares granted in February 2006.Concurrent with this transaction, the Operating Partnership repurchased andretired 1,019,800 OP Units previously issued to EQR. EQR is authorized torepurchase approximately $540.2 million of additional Common Shares. TheOperating Partnership in turn would repurchase $540.2 million of its OP Unitsheld by EQR.**

**TheOperating Partnership’s total debt summary and debt maturity schedule as of March 31,2006, are as follows:**

 
| **Debt Summary**                  | ** ** |
|----------------------------------------|------------|
| ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **$ Millions (1)** | ** ** | **Weighted Average  Rate (1)** | ** ** |
| Secured                                |       | $ | 3,455 |   | 5.74 | % |
| Unsecured                              |       | 3,985 |   | 5.95 | % |
| Total                                  |       | $ | 7,440 |   | 5.86 | % |
|                                   |       |   |   |   |   |
| Fixed Rate                             |       | $ | 6,237 |   | 6.21 | % |
| Floating Rate                          |       | 1,203 |   | 4.47 | % |
| Total                                  |       | $ | 7,440 |   | 5.86 | % |
|                                   |       |   |   |   |   |
| Above Totals Include:                  |       |   |   |   |   |
| Tax Exempt:                            |       |   |   |   |   |
| Fixed                                  |       | $ | 130 |   | 5.35 | % |
| Floating                               |       | 611 |   | 3.29 | % |
| Total                                  |       | $ | 741 |   | 3.65 | % |
|                                   |       |   |   |   |   |
| Unsecured Revolving  Credit Facilities |       | $ | 145 |   | 4.81 | % |

----

*(1) Net of the effect of anyderivative instruments.*

26

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| **Debt Maturity Schedule as of March 31, 2006** | ** ** |
|------------------------------------------------------------------------------------|------------|
| ** **                                                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Year**                                                                           | ** ** | **$ Millions** | ** ** | **% of Total** | ** ** |
| 2006 (1)                                                                           |       | $ | 533 |   | 7.2 | % |
| 2007                                                                               |       | 358 |   | 4.8 | % |
| 2008 (2)                                                                           |       | 725 |   | 9.7 | % |
| 2009                                                                               |       | 859 |   | 11.6 | % |
| 2010                                                                               |       | 278 |   | 3.7 | % |
| 2011                                                                               |       | 818 |   | 11.0 | % |
| 2012                                                                               |       | 535 |   | 7.2 | % |
| 2013                                                                               |       | 567 |   | 7.6 | % |
| 2014                                                                               |       | 504 |   | 6.8 | % |
| 2015+                                                                              |       | 2,263 |   | 30.4 | % |
| Total                                                                              |       | $ | 7,440 |   | 100.0 | % |

----

*(1) Includes$150 million of 7.57% unsecured debt with a finalmaturity of 2026 that isputable effective August 15, 2006.*

*(2) Includes $145.0 million outstanding on the Operating Partnership’s unsecuredrevolving credit facility which matures on May 29, 2008.*

**As of May 3, 2006, $580.0million in debt securities remains available for issuance by the OperatingPartnership under a registration statement the SEC declared effective in June 2003and $956.5 million in equity securities remains available for issuance by EQRunder a registration statement the SEC declared effective in February 1998.Per the terms of ERPOP’s partnership agreement, EQR contributes the netproceeds of all equity offerings to the capital of the Operating Partnership inexchange for additional OP Units (on a one-for-one Common Share per OP Unitbasis) or preference units (on a one-for-one preferred share per preferenceunit basis).**

**TheOperating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio”as of March 31, 2006 is presented in the following table. The OperatingPartnership calculates the equity component of its market capitalization as thesum of (i) the total outstanding OP Units at the equivalent market valueof the closing price of EQR’s Common Shares on the New York Stock Exchange; (ii) the“OP Unit Equivalent” of all convertible preference units/interests; and (iii) theliquidation value of all perpetual preference units outstanding.**
| Capital Structure as of March 31, 2006  (Amounts in thousands except for unit and per unit amounts) |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                           |       |   |   |   |   |   |   |   |   |
| Secured Debt                                                                                                                                                                   |       |   |   | $ | 3,455,316 |   | 46 | % |   |   |
| Unsecured Debt                                                                                                                                                                 |       |   |   | 3,839,475 |   | 52 | % |   |   |
| Lines of Credit                                                                                                                                                                |       |   |   | 145,000 |   | 2 | % |   |   |
| **Total  Debt**                                                                                                                                                                | ** ** | ** ** | ** ** | **$** | **7,439,791** | ** ** | **100** | **%** | **33** | **%** |
|                                                                                                                                                                           |       |   |   |   |   |   |   |   |   |
| OP Units                                                                                                                                                                       |       | 311,517,460 |   |   |   |   |   |   |   |
| OP Unit Equivalents (see below)                                                                                                                                                |       | 1,318,993 |   |   |   |   |   |   |   |
| Total  outstanding at quarter-end                                                                                                                                              |       | 312,836,453 |   |   |   |   |   |   |   |
| EQR Common Share  Price at March 31, 2006                                                                                                                                 |       | $ | 46.79 |   |   |   |   |   |   |   |
|                                                                                                                                                                           |       |   |   | 14,637,618 |   | 97 | % |   |   |
| Perpetual  Preference Units (see below)                                                                                                                                   |       |   |   | 490,000 |   | 3 | % |   |   |
| **Total  Equity**                                                                                                                                                              | ** ** | ** ** | ** ** | **15,127,618** | ** ** | **100** | **%** | **67** | **%** |
|                                                                                                                                                                           |       |   |   |   |   |   |   |   |   |
| **Total Market Capitalization**                                                                                                                                                | ** ** | ** ** | ** ** | **$** | **22,567,409** | ** ** | ** ** | ** ** | **100** | **%** |
|                                                                                                                                                                                |            |  |  |  |  |  |  |  |  |  |  |

 

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ConvertiblePreference Units/Interests as of March 31, 2006(Amounts in thousands except for unit/interest and per unit/interest amounts)
| **Series**                                    | ** ** | **Redemption  Date** | ** ** | **Outstanding  Units/Interests** | ** ** | **Liquidation  Value** | ** ** | **Annual  Dividend Per  Unit/Interest** | ** ** | **Annual  Dividend  Amount** | ** ** | **Weighted  Average  Rate** | ** ** | **Conversion  Ratio** | ** ** | **OP Unit  Equivalents** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|----------------------------------|------------|------------------------|------------|----------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|-----------------------|------------|-------------------------------|------------|
| Preference Units:                             |       |                 |       |                             |       |                   |       |                                         |       |                         |       |                        |       |                  |       |                          |       |
| 7.00% Series E                           |       | 11/1/98              |       | 491,516                          |       | $                      | 12,288     |                                         | $          | 1.75                         |       | $                           | 860        |                  |       |                          | 1.1128     |   | 546,959 |   |
| 7.00% Series H                           |       | 6/30/98              |       | 32,734                           |       | 818                    |       | 1.75                                         |       | 57                           |       |                        |       | 1.4480                |       | 47,399                        |       |
| Preference Interests:                         |       |                 |       |                             |       |                   |       |                                         |       |                         |       |                        |       |                  |       |                          |       |
| 7.625% Series I                          |       | 6/22/06              |       | 270,000                          |       | 13,500                 |       | 3.8125                                       |       | 1,029                        |       |                        |       | 1.4542                |       | 392,634                       |       |
| 7.625% Series J                          |       | 12/14/06             |       | 230,000                          |       | 11,500                 |       | 3.8125                                       |       | 877                          |       |                        |       | 1.4108                |       | 324,484                       |       |
| Junior Preference Units:                      |       |                 |       |                             |       |                   |       |                                         |       |                         |       |                        |       |                  |       |                          |       |
| 8.00% Series B                           |       | 7/29/09              |       | 7,367                            |       | 184                    |       | 2.00                                         |       | 15                           |       |                        |       | 1.020408              |       | 7,517                         |       |
| Total Convertible  Preference Units/Interests |       |                 |       | 1,031,617                        |       | $                      | 38,290     |                                         |       |                         | $          | 2,838                       |       | 7.41                  | %          |                          |       | 1,318,993 |   |
|                                               |            |                      |            |                                  |            |                        |            |                                              |            |                              |            |                             |            |                       |            |                               |            |  |  |  |

 

PerpetualPreference Units as of March 31, 2006(Amounts in thousands except for unit and per unit amounts)
| **Series**                        | ** ** | **Redemption  Date** | ** ** | **Outstanding  Units** | ** ** | **Liquidation  Value** | ** ** | **Annual  Dividend  Per Unit** | ** ** | **Annual  Dividend  Amount** | ** ** | **Weighted  Average  Rate** | ** ** |
|-----------------------------------|------------|----------------------|------------|------------------------|------------|------------------------|------------|-------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Preference Units:                 |       |                 |       |                   |       |                   |       |                                |       |                         |       |                        |       |
| 9 1/8% Series C              |       | 9/9/06               |       | 460,000                |       | $                      | 115,000    |                                | $          | 22.8125                      |       | $                           | 10,494     |   |   |   |
| 8.60% Series D               |       | 7/15/07              |       | 700,000                |       | 175,000                |       | 21.50                               |       | 15,050                       |       |                        |       |
| 8.29% Series K               |       | 12/10/26             |       | 1,000,000              |       | 50,000                 |       | 4.145                               |       | 4,145                        |       |                        |       |
| 6.48% Series N               |       | 6/19/08              |       | 600,000                |       | 150,000                |       | 16.20                               |       | 9,720                        |       |                        |       |
| Total Perpetual  Preference Units |       |                 |       | 2,760,000              |       | $                      | 490,000    |                                |       |                         | $          | 39,409                      |       | 8.04 | % |
|                                   |            |                      |            |                        |            |                        |            |                                     |            |                              |            |                             |            |  |  |  |

 

**The Operating Partnership expects to meet itsshort-term liquidity requirements, including capital expenditures related tomaintaining its existing properties and certain scheduled unsecured note andmortgage note repayments, generally through its working capital, net cashprovided by operating activities and borrowings under its revolving creditfacilities. The Operating Partnership considers its cash provided by operatingactivities to be adequate to meet operating/capital requirements and paymentsof distributions. The Operating Partnership also expects to meet its long-termliquidity requirements, such as scheduled unsecured note and mortgage debtmaturities, property acquisitions and financing of construction and developmentactivities through the issuance of unsecured notes and equity securities,including additional OP Units, and proceeds received from the disposition ofcertain properties. In addition, the Operating Partnership has significantunencumbered properties available to secure additional mortgage borrowings inthe event that the public capital markets are unavailable or the cost ofalternative sources of capital is too high. The fair value of and cash flowfrom these unencumbered properties are in excess of the requirements theOperating Partnership must maintain in order to comply with covenants under itsunsecured notes and line of credit. Of the $16.7 billion in investment in realestate on the Operating Partnership’s balance sheet at March 31, 2006,$10.7 billion or 64.1%, was unencumbered.**

**The Operating Partnership has a revolving creditfacility with potential borrowings for up to $1.0 billion. This facilitymatures in May 2008 and may, among other potential uses, be used to fundproperty acquisitions, costs for certain properties under development and shortterm liquidity requirements. As of May 3, 2006, $220.0 million was outstandingunder this facility.**

**See Note 16 in the Notes to Consolidated FinancialStatements for discussion of the events which occurred subsequent to March 31,2006.**

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

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

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

**·**                  carpets and hardwoodfloors;

**·**                  appliances;

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

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

**·**                  flooring such as vinyl,linoleum or tile; and

**·**                  blinds/shades.

**All replacements are depreciated over a five-yearestimated useful life. We expense as incurred all make-ready maintenance andturnover costs such as cleaning, interior painting of individual units and therepair of any replacement item noted above.**

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

**·**                  roof replacement and majorrepairs;

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

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

**·**                  major building mechanicalequipment systems;

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

**·**                  major landscaping andgrounds improvement; and

**·**                  vehicles and office andmaintenance equipment.

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

**For the quarter ended March 31, 2006, ouractual improvements to real estate totaled approximately $51.4 million. Thisincludes the following detail (amounts in thousands except for unit and perunit amounts):**

 
| **Capitalized Improvements to Real Estate  For the Quarter Ended March 31, 2006** | ** ** |
|----------------------------------------------------------------------------------------|------------|
| ** **                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                             | ** ** | **Total  Units (1)** | ** ** | **Replacements** | ** ** | **Avg. Per  Unit** | ** ** | **Building  Improvements** | ** ** | **Avg. Per  Unit** | ** ** | **Total** | ** ** | **Avg. Per  Unit** | ** ** |
|                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Established  Properties (2)                                                            |       | 144,257 |   | $ | 13,090 |   | $ | 91 |   | $ | 20,042 |   | $ | 139 |   | $ | 33,132 |   | $ | 230 |   |
| New Acquisition  Properties (3)                                                        |       | 23,738 |   | 1,900 |   | 85 |   | 4,828 |   | 217 |   | 6,728 |   | 302 |   |
| Other (4)                                                                              |       | 9,727 |   | 4,308 |   |   |   | 7,246 |   |   |   | 11,554 |   |   |   |
| Total                                                                                  |       | 177,722 |   | $ | 19,298 |   |   |   | $ | 32,116 |   |   |   | $ | 51,414 |   |   |   |
|                                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             Total units exclude10,846 unconsolidated units and 3,672 military housing (fee managed) units.

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

(3)             Wholly OwnedProperties acquired during 2004, 2005 and 2006. Per unit amounts are based on aweighted average of 22,237 units.

(4)             Includesproperties either Partially Owned or sold during the period, commercial space,condominium conversions and $2.2 million included in building improvementsspent on eight specific assets related to major renovations and repositioningof these assets.

**The Operating Partnership expects to fundapproximately $127.0**million for capital expenditures for replacementsand building improvements for all consolidated properties, exclusive ofcondominium conversion properties, for the remainder of 2006. This includes anaverage of approximately $1,000 per unit for capital improvements forestablished properties.

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**During the quarter ended March 31, 2006, theOperating Partnership’s total non-real estate capital additions, such ascomputer software, computer equipment, and furniture and fixtures and leaseholdimprovements to the Operating Partnership’s property management offices and itscorporate offices, were approximately $1.6**million. The OperatingPartnership expects to fund approximately $9.2 million in total additions tonon-real estate property for the remainder of 2006.

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

***DerivativeInstruments***

In the normal course of business, the Operating Partnership is exposed tothe effect of interest rate changes. The Operating Partnership limits theserisks by following established risk management policies and proceduresincluding the use of derivatives to hedge interest rate risk on debtinstruments.

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

See Note 11 in the Notes to Consolidated Financial Statements foradditional discussion of derivative instruments at March 31, 2006.

***Other***

**Totaldistributions paid in April 2006 amounted to $146.6 million (excludingdistributions on Partially Owned Properties), which included certaindistributions declared during the first quarter ended March 31, 2006.**

**On March 2,2006, the Operating Partnership announced that it has retained JP Morgan toassist in the possible sale of its Lexford Housing division. As of May 3,2006, the division is currently comprised of 289 properties consisting of26,118 apartment units located in ten states and a property management businesslocated in Columbus, Ohio. Exploration of a sale does not mandate that a saleor other transaction will follow. EQR’s Board of Trustees has not approved anyspecific transaction.**

**Off-Balance Sheet Arrangements and ContractualObligations**

The OperatingPartnership has co-invested in various properties that are unconsolidated andaccounted for under the equity method of accounting. Management does notbelieve these investments have a materially different impact upon the OperatingPartnership’s liquidity, capital resources, credit or market risk than itsproperty management and ownership activities. The nature and business purposeof these ventures are as follows:

**·**              Institutional Ventures —During 2000 and 2001, the Operating Partnership entered into ventures with anunaffiliated partner.  At the respectiveclosing dates, the Operating Partnership sold and/or contributed 45 propertiescontaining 10,846 units to these ventures and retained a 25% ownership interestin the ventures. The Operating Partnership’s joint venture partner contributedcash equal to 75% of the agreed-upon equity value of the properties comprisingthe ventures, which was then distributed to the Operating Partnership. TheOperating Partnership’s strategy with respect to these ventures was to reduceits concentration of properties in a variety of markets.

As of March 31,2006, the Operating Partnership has six projects totaling 1,711 units invarious stages****

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of development with estimated completion dates rangingthrough June 30, 2008. The development agreements currently in place arediscussed in detail in Note 14 of the Operating Partnership’s ConsolidatedFinancial Statements.

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

**The Operating Partnership’s contractual obligations for thenext five years and thereafter have not changed materially from the amounts anddisclosures included in its annual report on Form 10-K, other thanas it relates to scheduled debt maturities. See the updated debt maturityschedule included in Liquidity and Capital Resources for further discussion.**

**Critical Accounting Policies and Estimates**

**The Operating Partnership has identified six significantaccounting policies as critical accounting policies. These critical accountingpolicies are those that have the most impact on the reporting of our financialcondition and those requiring significant judgments and estimates. With respectto these critical accounting policies, management believes that the applicationof judgments and assessments is consistently applied and produces financialinformation that fairly presents the results of operations for all periodspresented. The six critical accounting policies are:**

*Impairment of Long-Lived Assets, Including Goodwill*

The Operating Partnership periodically evaluates its long-lived assets,including its investments in real estate and goodwill, for indicators ofpermanent impairment. The judgments regarding the existence of impairmentindicators are based on factors such as operational performance, marketconditions, expected holding period of each asset and legal and environmentalconcerns. Future events could occur which would cause the Operating Partnershipto conclude that impairment indicators exist and an impairment loss iswarranted.

*Depreciation of Investment in Real Estate*

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

*Cost Capitalization*

See the *Capitalization of Fixed Assetsand Improvements to Real Estate* section for discussion of the policywith respect to capitalization vs. expensing of fixed asset/repair and maintenancecosts. In addition, the Operating Partnership capitalizes the payroll andassociated costs of employees directly responsible for and who spend all oftheir time on the supervision of major capital and/or renovation projects. Thesecosts are reflected on the balance sheet as an increase to depreciableproperty.

The Operating Partnership follows the guidance in SFAS No. 67, Accountingfor Costs and Initial Rental Operations of Real Estate Projects, for alldevelopment projects and uses its professional judgment in determining whethersuch costs meet the criteria for capitalization 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 on the balance sheet as construction inprogress for each specific property. The Operating Partnership expenses asincurred all payroll costs of on-site employees working directly at our 

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properties, except as noted above on our developmentproperties prior to certificate of occupancy issuance and on specific majorrenovation at selected properties when additional incremental employees arehired.

*Fair Value of Financial Instruments, Including Derivative Instruments*

The valuation of financial instruments under SFAS No. 107 and SFAS No. 133and its amendments (SFAS Nos. 137/138/149) requires the Operating Partnershipto make estimates and judgments that affect the fair value of the instruments. TheOperating Partnership, where possible, bases the fair values of its financialinstruments, including its derivative instruments, on listed market prices andthird party quotes. Where these are not available, the Operating Partnershipbases its estimates on current instruments with similar terms and maturities oron other factors relevant to the financial statements.

*Revenue Recognition*

Rental income attributable to leases is recorded when due from residentsand is recognized monthly as it is earned, which is not materially differentthan on a straight-line basis. Leases entered into between a resident and aproperty for the rental of an apartment unit are generally year-to-year,renewable upon consent of both parties on an annual or monthly basis. Fee andasset management revenue and interest income are recorded on an accrual basis.

*Stock-Based Compensation*

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

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

**Funds From Operations**

For the quarter ended March 31, 2006, Funds From Operations (“FFO”)available to OP Units decreased $55.4 million, or 24.1%, as compared to thequarter ended March 31, 2005. This decrease is primarily attributable toapproximately $57.1 million of other income recognized in 2005 related to eBay,Inc’s acquisition of the Operating Partnership’s interest in Rent.com.

The following is a reconciliation of net income to FFO available to OPUnits for the quarters ended March 31, 2006 and 2005:

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**FundsFrom Operations***(Amounts in thousands)(Unaudited)*
| ** **                                                         | ** ** | **Quarter Ended March 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Net income                                                         |       | $                                          | 405,548    |   | $ | 248,280 |   |
| Adjustments:                                                       |       |                                       |       |   |   |
| Depreciation                                                       |       | 143,590                                    |       | 115,231 |   |
| Depreciation — Non-real estate additions                      |       | (1,844                                     | )          | (1,294 | ) |
| Depreciation — Partially Owned and Unconsolidated  Properties |       | 1,550                                      |       | (250 | ) |
| Net gain on sales of unconsolidated entities                       |       | (329                                       | )          | (124 | ) |
| Discontinued  operations:                                          |       |                                       |       |   |   |
| Depreciation                                                       |       | 3,181                                      |       | 13,837 |   |
| Net gain on sales of discontinued operations                       |       | (372,501                                   | )          | (140,704 | ) |
| Net incremental gain on sales of condominium units                 |       | 7,127                                      |       | 13,482 |   |
|                                                               |       |                                       |       |   |   |
| FFO (1)(2)                                                         |       | 186,322                                    |       | 248,458 |   |
| Preferred  distributions                                           |       | (11,194                                    | )          | (16,913 | ) |
| Premium on  redemption of Preference Interests                     |       | (674                                       | )          | (1,728 | ) |
| FFO available to OP  Units                                         |       | $                                          | 174,454    |   | $ | 229,817 |   |

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*(1)**          TheNational Association of Real Estate Investment Trusts (“NAREIT”) defines fundsfrom operations (“FFO”) (April 2002 White Paper) as net income (computedin accordance with accounting principles generally accepted in the UnitedStates (“GAAP”)), excluding gains (or losses) from sales of depreciableproperty, plus depreciation and amortization, and after adjustments forunconsolidated partnerships and joint ventures. Adjustments for unconsolidatedpartnerships and joint ventures will be calculated to reflect funds fromoperations on the same basis. The April 2002 White Paper states that gainor loss on sales of property is excluded from FFO for previously depreciatedoperating properties only. Once the Operating Partnership commences theconversion of units to condominiums, it simultaneously discontinuesdepreciation of such property.*

*(2)**          TheOperating Partnership believes that FFO is helpful to investors as asupplemental measure of the operating performance of a real estate company,because it is a recognized measure of performance by the real estate industryand by excluding gains or losses related to dispositions of depreciableproperty and excluding real estate depreciation (which can vary among owners ofidentical assets in similar condition based on historical cost accounting anduseful life estimates), FFO can help compare the operating performance of acompany’s real estate between periods or as compared to different companies. FFOin and of itself does not represent net income or net cash flows from operatingactivities in accordance with GAAP. Therefore, FFO should not be exclusivelyconsidered as an alternative to net income or to net cash flows from operatingactivities as determined by GAAP or as a measure of liquidity. The OperatingPartnership’s calculation of FFO may differ from other real estate companiesdue to, among other items, variations in cost capitalization policies forcapital expenditures and, accordingly, may not be comparable to such other realestate companies.*

**Item3. Quantitative and Qualitative Disclosures About Market Risk**

**TheOperating Partnership’s market risk has not changed materially from the amountsand information reported in Item 7A, *Quantitativeand Qualitative Disclosures About Market Risk*, to the OperatingPartnership’s Form 10-K for the year ended December 31, 2005. Seealso Note 11 in the Notes to Consolidated Financial Statements for additionaldiscussion of derivative instruments.**

**Item4. Controls and Procedures**

**(a) Evaluationof Disclosure Controls and Procedures:**

Effective as of March 31, 2006, the OperatingPartnership carried out an evaluation, under the supervision and with theparticipation of the Operating Partnership’s management, including the Chief

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Executive Officer and Chief Financial Officer of EQR,of the effectiveness of the Operating Partnership’s disclosure controls andprocedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Basedon that evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the disclosure controls and procedures are effective to ensurethat information required to be disclosed by the Operating Partnership in itsExchange Act filings is recorded, processed, summarized and reported within theperiods specified in the SEC’s rules and forms.

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

**There were nochanges to the internal control over financial reporting of the OperatingPartnership identified in connection with the Operating Partnership’sevaluation referred to above that occurred during the first quarter of 2006that have materially affected, or are reasonably likely to affect, theOperating Partnership’s internal control over financial reporting.**

**PART II.        OTHER INFORMATION**

**Item 1. LegalProceedings**

**Therehave been no new or significant developments related to the legal proceedingsthat were discussed in Part I, Item 3 of the Operating Partnership’s Form 10-Kfor the year ended December 31, 2005.**

**Item 1A. RiskFactors**

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

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

***(a) OP Units Issued in theQuarter Ended March 31, 2006***

**The Operating Partnership issued661,962 OP Units having a value of $27.9 million to its limited partners duringthe first quarter ended March 31, 2006.**

**These OPUnits were issued in exchange for direct or indirect interests in multifamilyproperties in private placement transactions under section 4(2) of theSecurities Act of 1933, as amended (the “Securities Act”) and the rules andregulations promulgated thereunder. In light of the manner of sale andinformation obtained by the Operating Partnership from persons receiving OPUnits in connection with these transactions, the Operating Partnership believesit may rely on this exemption. OP Units are generally exchangeable intoCommon Shares of EQR on a one-for-one basis or, at the option of EQR and theOperating Partnership, the cash equivalent thereof, at any time one year afterthe date of issuance.**

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*(c)OP Units Repurchased in the Quarter Ended March 31, 2006                 *

 

The Operating Partnershiprepurchased the following OP Units during the first quarter ended March 31,2006:

 
| **Period**         | ** ** | **Total Number  of OP Units  Purchased (1)** | ** ** | **Average Price  Paid Per  Unit (1)** | ** ** | **Total Number of  OP Units  Purchased as Part  of Publicly  Announced Plans  or Programs (1)** | ** ** | **Dollar Value of  OP Units that  May Yet Be  Purchased Under  the Plans or  Programs (1)** | ** ** |
|--------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| February 2006      |       | 719,800                                                          |       | $                                                    | 43.76      |                                                                                                                                         | 719,800    |                                                                                                                                          | $          | 553,499,067 |   |
| March 2006         |       | 300,000                                                          |       | 44.19                                                |       | 300,000                                                                                                                                      |       | 540,242,127                                                                                                                                   |       |
| First Quarter 2006 |       | 1,019,800                                                        |       | $                                                    | 43.89      |                                                                                                                                         | 1,019,800  |                                                                                                                                          |       |   |
|                    |            |                                                                  |            |                                                      |            |                                                                                                                                              |            |                                                                                                                                               |            |  |  |

 

(1)             The OP Units repurchasedduring the first quarter 2006 represent OP Units redeemed in response torepurchases of Common Shares in the open market under the Company’s publiclyannounced share repurchase program approved by its Board of Trustees.  Under this program, the Company mayrepurchase in open market or privately negotiated transactions up to $585.0million of its Common Shares, with $540.2 million remaining following the abovepurchases.  

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**Item 6.    Exhibits**
| 10.1* |   | Fourth amendment to Equity Residential 2002 Share  Incentive Plan.                                                                                                                                                         |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1  |   | Certification of David J. Neithercut, Chief  Executive Officer of Registrant’s General Partner.                                                                                                                       |
| 31.2  |   | Certification of Donna Brandin, Chief Financial  Officer of Registrant’s General Partner.                                                                                                                             |
| 32.1  |   | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, of David J. Neithercut, Chief Executive Officer  of Registrant’s General Partner. |
| 32.2  |   | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, of Donna Brandin, Chief Financial Officer of  Registrant’s General Partner.       |

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*** Included as an exhibit to EQR’s Form 10-K for the year ended December 31,2005.**

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon behalf by the undersigned thereunto duly authorized.
|        |             |   |   | ERP OPERATING LIMITED PARTNERSHIP  BY: EQUITY RESIDENTIAL  ITS GENERAL PARTNER |
|--------|------------------|--------|--------|--------------------------------------------------------------------------------|
|   |             |   |   |                                                                           |   |   |
| Date:  | May 8, 2006 |   |   | By:                                                                            |   | /s/ Donna Brandin |
|   |             |   |   |                                                                           |   | Donna Brandin

Executive Vice President and  Chief Financial Officer |
|   |             |   |   |                                                                           |   |   |
| Date:  | May 8, 2006 |   |   | By:                                                                            |   | /s/ Mark L. Wetzel |
|   |             |   |   |                                                                           |   | Mark  L. Wetzel

Senior Vice President andChief Accounting Officer |

 

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##### **EXHIBIT INDEX**

| Exhibit | ** ** | **Document**                                                                                                                                                                                                               |
|---------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1    |       | Certification of David J. Neithercut, Chief  Executive Officer of Registrant’s General Partner.                                                                                                                       |
| 31.2    |       | Certification of Donna Brandin, Chief Financial  Officer of Registrant’s General Partner.                                                                                                                             |
| 32.1    |       | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, of David J. Neithercut, Chief Executive Officer  of Registrant’s General Partner. |
| 32.2    |       | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, of Donna Brandin, Chief Financial Officer of  Registrant’s General Partner.       |

 

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