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FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON,
Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934



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

For the quarterly period ended MARCH 31, 2001 2002

OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-12252


EQUITY RESIDENTIAL PROPERTIES TRUST (Exact
(Exact Name of Registrant as Specified in Its Charter) MARYLAND 13-3675988 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606 (Address of Principal Executive Offices) (Zip Code)

Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
13-3675988
(I.R.S. Employer Identification No.)
Two North Riverside Plaza, Chicago, Illinois
(Address of Principal Executive Offices)
60606
(Zip Code)

(312) 474-1300 (Registrant's
(Registrant's Telephone Number, Including Area Code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Xý    No ------- --------o

        APPLICABLE ONLY TO CORPORATE USERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

At May 1, 2001, 133,593,6032002, 274,583,528 of the Registrant's Common Shares of Beneficial Interest were outstanding.





EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AMOUNTS) (UNAUDITED)
March 31, December 31, 2001 2000 ------------------ -------------------- ASSETS Investment in real estate Land $ 1,769,111 $ 1,770,019 Depreciable property 10,748,240 10,782,311 Construction in progress 43,108 39,130 ------------------ -------------------- 12,560,459 12,591,460 Accumulated depreciation (1,433,394) (1,352,236) ------------------ -------------------- Investment in real estate, net of accumulated depreciation 11,127,065 11,239,224 Real estate held for disposition 21,886 51,637 Cash and cash equivalents 104,831 23,772 Investment in mortgage notes, net 74,347 77,184 Investments in unconsolidated entities 333,170 316,540 Rents receivable 1,980 1,801 Deposits - restricted 254,802 231,639 Escrow deposits - mortgage 69,073 70,470 Deferred financing costs, net 30,456 29,706 Rental furniture, net 61,380 60,183 Property and equipment, net 7,676 7,620 Goodwill, net 70,357 67,589 Other assets 88,472 86,601 ------------------ -------------------- Total assets $ 12,245,495 $ 12,263,966 ================== ==================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $ 3,097,033 $ 3,230,611 Notes, net 2,418,911 2,120,079 Lines of credit - 355,462 Accounts payable and accrued expenses 98,665 107,818 Accrued interest payable 71,629 51,877 Rents received in advance and other liabilities 108,319 100,819 Security deposits 46,595 46,272 Distributions payable 140,210 18,863 ------------------ -------------------- Total liabilities 5,981,362 6,031,801 ------------------ -------------------- COMMITMENTS AND CONTINGENCIES Minority Interests: Operating Partnership 634,411 609,734 Partially Owned Properties 2,881 2,884 ------------------ -------------------- Total Minority Interests 637,292 612,618 ------------------ -------------------- Shareholders' equity: Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized; 19,945,566 shares issued and outstanding as of March 31, 2001 and 20,003,166 shares issued and outstanding as of December 31, 2000 1,181,697 1,183,136 Common Shares of beneficial interest, $.01 par value; 350,000,000 shares authorized; 133,528,115 shares issued and outstanding as of March 31, 2001 and 132,616,375 shares issued and outstanding as of December 31, 2000 1,335 1,326 Paid in capital 4,767,480 4,739,782 Employee notes (4,275) (4,346) Distributions in excess of accumulated earnings (302,363) (300,351) Accumulated other comprehensive income (17,033) - ------------------ -------------------- Total shareholders' equity 5,626,841 5,619,547 ------------------ -------------------- Total liabilities and shareholders' equity $ 12,245,495 $ 12,263,966 ================== ====================
SEE ACCOMPANYING NOTES
(Amounts in thousands except for share amounts)
(Unaudited)

 
 March 31,
2002

 December 31,
2001

 
ASSETS 
Investment in real estate       
 Land $1,844,098 $1,840,170 
 Depreciable property  11,135,057  11,096,847 
 Construction in progress  104,158  79,166 
  
 
 
   13,083,313  13,016,183 
 Accumulated depreciation  (1,831,277) (1,718,845)
  
 
 
Investment in real estate, net of accumulated depreciation  11,252,036  11,297,338 
Real estate held for disposition  3,505  3,371 
Cash and cash equivalents  249,762  51,603 
Investments in unconsolidated entities  396,733  397,237 
Rents receivable  1,355  2,400 
Deposits—restricted  210,496  218,557 
Escrow deposits—mortgage  72,595  76,700 
Deferred financing costs, net  28,563  27,011 
Rental furniture, net    20,168 
Property and equipment, net    3,063 
Goodwill, net  47,122  47,291 
Other assets  66,086  90,886 
  
 
 
  Total assets $12,328,253 $12,235,625 
  
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY 
Liabilities:       
 Mortgage notes payable $3,279,105 $3,286,814 
 Notes, net  2,556,358  2,260,944 
 Line of credit    195,000 
 Accounts payable and accrued expenses  99,669  108,254 
 Accrued interest payable  72,323  62,360 
 Rents received in advance and other liabilities  87,219  83,005 
 Security deposits  47,574  47,644 
 Distributions payable  145,433  141,832 
  
 
 
  Total liabilities  6,287,681  6,185,853 
  
 
 
Commitments and contingencies       
Minority Interests:       
 Operating Partnership  368,372  379,898 
 Preference Interests  246,000  246,000 
 Junior Preference Units  5,846  5,846 
 Partially Owned Properties  13,953  4,078 
  
 
 
  Total Minority Interests  634,171  635,822 
  
 
 
Shareholders' equity:       
 Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized; 11,307,209 shares issued and outstanding as of March 31, 2002 and 11,344,521 shares issued and outstanding as of December 31, 2001  965,738  966,671 
 Common Shares of beneficial interest, $.01 par value; 1,000,000,000 shares authorized; 273,836,367 shares issued and outstanding as of March 31, 2002 and 271,621,374 shares issued and outstanding as of December 31, 2001  2,738  2,716 
 Paid in capital  4,931,601  4,892,744 
 Employee notes  (3,958) (4,043)
 Deferred compensation  (36,865) (25,778)
 Distributions in excess of accumulated earnings  (427,190) (385,320)
 Accumulated other comprehensive loss  (25,663) (33,040)
  
 
 
  Total shareholders' equity  5,406,401  5,413,950 
  
 
 
  Total liabilities and shareholders' equity $12,328,253 $12,235,625 
  
 
 

See accompanying notes

2



EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
QUARTER ENDED MARCH 31, -------------------------------------- 2001 2000 ---------------- ------------------ REVENUES Rental income $ 514,137 $ 473,547 Fee and asset management 1,972 1,400 Interest income - investment in mortgage notes 2,744 2,762 Interest and other income 6,502 3,478 Furniture income 12,546 - ---------------- ------------------ Total revenues 537,901 481,187 ---------------- ------------------ EXPENSES Property and maintenance 141,864 113,868 Real estate taxes and insurance 48,021 48,334 Property management 18,687 18,914 Fee and asset management 1,875 1,066 Depreciation 112,805 111,886 Interest: Expense incurred 95,276 95,111 Amortization of deferred financing costs 1,397 1,341 General and administrative 6,754 6,698 Furniture expenses 9,724 - Amortization of goodwill 933 - ---------------- ------------------ Total expenses 437,336 397,218 ---------------- ------------------ Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle 100,565 83,969 Allocation to Minority Interests: Operating Partnership (9,796) (7,096) Partially Owned Properties (105) 45 Income from investments in unconsolidated entities 3,797 4,223 Net gain on sales of real estate 41,778 19,998 ---------------- ------------------ Income before extraordinary items and cumulative effect of change in accounting principle 136,239 101,139 Extraordinary items 311 - Cumulative effect of change in accounting principle (1,270) - ---------------- ------------------ Net income 135,280 101,139 Preferred distributions (28,526) (28,388) ---------------- ------------------ Net income available to Common Shares $ 106,754 $ 72,751 ================ ================== Net income per share - basic $ 0.81 $ 0.57 ================ ================== Net income per share - diluted $ 0.80 $ 0.57 ================ ================== Weighted average Common Shares outstanding - basic 132,599 127,798 ================ ================== Weighted average Common Shares outstanding - diluted 148,592 140,686 ================ ================== Distributions declared per Common Share outstanding $ 0.815 $ 0.76 ================ ==================
SEE ACCOMPANYING NOTES
(Amounts in thousands except for share data)
(Unaudited)

 
 Quarter Ended March 31,
 
 
 2002
 2001
 
REVENUES       
 Rental income $510,376 $510,675 
 Fee and asset management  1,718  1,972 
 Interest and other income  4,107  6,502 
 Interest income—investment in mortgage notes    2,744 
  
 
 
  Total revenues  516,201  521,893 
  
 
 

EXPENSES

 

 

 

 

 

 

 
 Property and maintenance  129,679  135,985 
 Real estate taxes and insurance  52,560  47,937 
 Property management  19,033  18,687 
 Fee and asset management  1,819  1,875 
 Depreciation  116,587  111,845 
 Interest:       
  Expense incurred, net  84,795  89,898 
  Amortization of deferred financing costs  1,391  1,397 
 General and administrative  10,800  6,754 
 Impairment on technology investments  291  3,003 
 Amortization of goodwill    643 
  
 
 
   Total expenses  416,955  418,024 
  
 
 

Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle

 

 

99,246

 

 

103,869

 
Allocation to Minority Interests:       
 Operating Partnership  (6,441) (9,796)
 Partially Owned Properties  (806) (105)
Income from investments in unconsolidated entities  226  350 
Net gain on sales of unconsolidated entities  5,657   
  
 
 
Income before discontinued operations, extraordinary items and cumulative effect of change in accounting principle  97,882  94,318 
Net gain on sales of discontinued operations  2,816  41,778 
Discontinued operations, net  277  143 
  
 
 
Income before extraordinary items and cumulative effect of change in accounting principle  100,975  136,239 
Extraordinary items  (97) 311 
Cumulative effect of change in accounting principle    (1,270)
  
 
 
Net income  100,878  135,280 
Preferred distributions  (24,525) (28,526)
  
 
 
Net income available to Common Shares $76,353 $106,754 
  
 
 
Net income per share—basic $0.28 $0.40 
  
 
 
Net income per share—diluted $0.28 $0.40 
  
 
 
Weighted average Common Shares outstanding—basic  271,094  265,198 
  
 
 
Weighted average Common Shares outstanding—diluted  297,229  297,184 
  
 
 
Distributions declared per Common Share outstanding $0.4325 $0.4075 
  
 
 
Comprehensive income:       
 Net income $100,878 $135,280 
 Other comprehensive income (loss)—derivative instruments:       
  Cumulative effect of change in accounting principle    (5,334)
  Unrealized holding gains (losses) arising during the period  7,209  (11,754)
  Losses reclassified into earnings from other comprehensive income  168  55 
  
 
 
 Comprehensive income $108,255 $118,247 
  
 
 

See accompanying notes

3



EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

 
 Quarter Ended March 31,
 
 
 2002
 2001
 
CASH FLOWS FROM OPERATING ACTIVITIES:       
Net income $100,878 $135,280 
Adjustments to reconcile net income to net cash provided by operating activities:       
 Allocation to Minority Interests:       
  Operating Partnership  6,441  9,796 
  Partially Owned Properties  806  105 
Cumulative effect of change in accounting principle    1,270 
Depreciation  116,767  115,029 
Amortization of deferred financing costs  1,391  1,397 
Amortization of discount on investment in mortgage notes    (161)
Amortization of goodwill    933 
Amortization of discounts and premiums on debt  (327) (590)
Amortization of deferred settlements on interest rate protection agreements  (101) 101 
Impairment on technology investments  291  3,003 
Income from investments in unconsolidated entities  (226) (350)
Net gain on sales of discontinued operations  (2,816) (41,778)
Net gain on sales of unconsolidated entities  (5,657)  
Extraordinary items  97  (311)
Unrealized gain on interest rate protection agreements  (62) (71)
Book value of furniture sales and rental buyouts    2,851 
Compensation paid with Company Common Shares  4,964  2,867 

Changes in assets and liabilities:

 

 

 

 

 

 

 
 Decrease (increase) in rents receivable  1,045  (188)
 Decrease in deposits—restricted  14,133  5,343 
 Additions to rental furniture    (6,272)
 Decrease (increase) in other assets  18,446  (3,002)
 (Decrease) in accounts payable and accrued expenses  (7,498) (9,153)
 Increase in accrued interest payable  9,963  19,752 
 Increase in rents received in advance and other liabilities  2,852  219 
 Increase in security deposits  287  343 
  
 
 
 Net cash provided by operating activities  261,674  236,413 
  
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:       
 Investment in real estate—acquisitions  (26,100) (143,399)
 Investment in real estate—development  (24,338) (13,758)
 Improvements to real estate  (27,697) (28,166)
 Additions to non-real estate property  (3,004) (1,830)
 Interest capitalized for real estate under development  (5,884) (5,987)
 Proceeds from disposition of real estate, net  31,722  280,448 
 Proceeds from disposition of partial interest in real estate  1,715   
 Proceeds from disposition of furniture rental business  28,741   
 Investment in property and equipment    (673)
 Principal receipts on investment in mortgage notes    2,998 
 Investments in unconsolidated entities  (12,099) (16,613)
 Distributions from unconsolidated entities  14,765  8,364 
 Proceeds from disposition of unconsolidated entities  11,317   
 (Increase) in deposits on real estate acquisitions, net  (6,288) (28,506)
 Decrease in mortgage deposits  4,105  870 
 Business combinations, net of cash acquired  (207) (5,538)
 Other investing activities, net  193  (48)
  
 
 
 Net cash (used for) provided by investing activities  (13,059) 48,162 
  
 
 

4



EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
QUARTER ENDED MARCH 31, ---------------------------------- 2001 2000 --------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 135,280 $ 101,139 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: ALLOCATION TO MINORITY INTERESTS: Operating Partnership 9,796 7,096 Partially Owned Properties 105 (45) Cumulative effect of change in accounting principle 1,270 - Depreciation 115,029 111,886 Amortization of deferred financing costs 1,397 1,341 Amortization of discount on investment in mortgage notes (161) - Amortization of goodwill 933 - Amortization of discounts and premiums on debt (590) (576) Amortization of deferred settlements on interest rate protection agreements 101 201 Income from investments in unconsolidated entities (3,797) (4,223) Net gain on sales of real estate (41,778) (19,998) Extraordinary items (311) - Unrealized gain on interest rate protection agreements (71) - Book value of furniture sales and rental buy outs 2,851 - Compensation paid with Company Common Shares 2,867 1,422 CHANGES IN ASSETS AND LIABILITIES: (Increase) decrease in rents receivable (188) 723 Decrease (increase) in deposits - restricted 5,343 (2,802) Additions to rental furniture (6,272) - (Increase) in other assets (1,872) (2,025) (Decrease) increase in accounts payable and accrued expenses (9,153) 1,944 Increase in accrued interest payable 19,752 16,683 Increase (decrease) in rents received in advance and other liabilities 219 (2,652) Increase in security deposits 343 80 --------------- ----------------- Net cash provided by operating activities 231,093 210,194 --------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in real estate, net (157,157) (18,307) Improvements to real estate (28,166) (27,193) Additions to non-real estate property (1,830) (1,038) Interest capitalized for real estate under construction (667) (236) Proceeds from disposition of real estate, net 280,448 92,241 Investment in property and equipment (673) - Principal receipts on investment in mortgage notes 2,998 1,687 Investments in unconsolidated entities, net (16,613) (47,315) Distributions from unconsolidated entities, net 8,364 4,801 Proceeds from disposition of unconsolidated entities, net - 4,400 (Increase) in deposits on real estate acquisitions, net (28,506) (51,948) Decrease in mortgage deposits 870 4,596 Purchase of management contract rights - (779) Business combinations, net of cash acquired (5,538) (3,472) Other investing activities, net (48) (772) --------------- ----------------- Net cash provided by (used for) investing activities 53,482 (43,335) --------------- -----------------
SEE ACCOMPANYING NOTES 4 (Continued)
(Amounts in thousands)
(Unaudited)

 
 Quarter Ended March 31,
 
 
 2002
 2001
 
CASH FLOWS FROM FINANCING ACTIVITIES:       
Loan and bond acquisition costs $(3,040)$(3,390)
Mortgage notes payable:       
 Proceeds, net  20,772  29,052 
 Lump sum payoffs  (18,267) (176,746)
 Scheduled principal repayments  (8,469) (8,451)
 Prepayment premiums/fees  (97)  
Notes, net:       
 Proceeds  397,064  299,316 
 Lump sum payoffs  (100,000)  
 Scheduled principal repayments    (119)
Lines of credit:       
 Proceeds  245,000  176,686 
 Repayments  (440,000) (532,148)
Proceeds (payments) from settlement of interest rate protection agreements  835  (7,360)
Proceeds from sale of Common Shares  4,236  3,266 
Proceeds from sale of Preference Interests    35,000 
Proceeds from exercise of options  9,777  8,210 
Payment of offering costs  (141) (938)
Distributions:       
 Common Shares  (117,338) (416)
 Preferred Shares  (16,441) (21,516)
 Preference Interests  (5,080) (3,916)
 Junior Preference Units  (81)  
 Minority Interests—Operating Partnership  (10,151) (9)
 Minority Interests—Partially Owned Properties  (9,120) (108)
Principal receipts on employee notes, net  85  71 
  
 
 
Net cash (used for) financing activities  (50,456) (203,516)
  
 
 
Net increase in cash and cash equivalents  198,159  81,059 
Cash and cash equivalents, beginning of period  51,603  23,772 
  
 
 
Cash and cash equivalents, end of period $249,762 $104,831 
  
 
 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

 
Cash paid during the period for interest $81,566 $76,777 
  
 
 
Mortgage loans assumed through real estate acquisitions $ $45,918 
  
 
 
Mortgage loans (assumed) by purchaser in real estate and furniture rental business dispositions $(1,680)$(22,815)
  
 
 
Transfers to real estate held for disposition $3,505 $21,886 
  
 
 

See accompanying notes

5



EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (AMOUNTS IN THOUSANDS) (UNAUDITED)
QUARTER ENDED MARCH 31, --------------------------------- 2001 2000 --------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Loan and bond acquisition costs $ (3,390) $ (574) MORTGAGE NOTES PAYABLE: Proceeds, net 29,052 147,683 Lump sum payoffs (176,746) (12,801) Scheduled principal repayments (8,451) (7,509) NOTES, NET: Proceeds, net 299,316 - Scheduled principal repayments (119) - LINES OF CREDIT: Proceeds 176,686 48,000 Repayments (532,148) (348,000) (Payments) proceeds from settlement of interest rate protection agreements (7,360) 7,055 Proceeds from sale of Common Shares 3,266 2,900 Proceeds from sale of Preferred Shares/Units, net 34,125 64,350 Proceeds from exercise of options 8,210 4,000 Payment of offering costs (63) (32) DISTRIBUTIONS: Common Shares (416) (257) Preferred Shares/Units (25,432) (28,197) Minority Interests - Operating Partnership (9) (143) Minority Interests - Partially Owned Properties (108) - Principal receipts on employee notes, net 71 59 --------------- ---------------- Net cash (used for) financing activities (203,516) (123,466) --------------- ---------------- Net increase in cash and cash equivalents 81,059 43,393 Cash and cash equivalents, beginning of period 23,772 29,117 --------------- ---------------- Cash and cash equivalents, end of period $ 104,831 $ 72,510 SUPPLEMENTAL INFORMATION: =============== ================ Cash paid during the period for interest $ 76,777 $ 78,961 =============== ================ Mortgage loans assumed and/or entered into through acquisitions of real estate $ 45,918 $ - =============== ================ Net real estate contributed in exchange for OP Units or Preference Units $ - $ 636 =============== ================ Mortgage loans assumed by purchaser in real estate dispositions $ (22,815) $ - =============== ================ Transfers to real estate held for disposition $ 21,886 $ 29,183 =============== ================ Mortgage loans recorded as a result of consolidation of previously Unconsolidated Properties $ - $ 65,095 =============== ================ Net liabilities recorded as a result of consolidation of previously Unconsolidated Properties $ - $ 792 =============== ================
5 EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unaudited)

1.    BUSINESSBusiness

        Equity Residential Properties Trust ("EQR"), formed in March 1993, ("EQR"), is a self-administered and self-managed equityfully integrated real estate investment trust ("REIT").company engaged in the acquisition, ownership, management and operation of multifamily properties. As used herein, the term "Company" means EQR, and its subsidiaries, as the survivor of the mergers between EQR and each of Wellsford Residential Property Trust ("Wellsford") (the "Wellsford Merger"), Evans Withycombe Residential, Inc. ("EWR") (the "EWR Merger"), Merry Land & Investment Company, Inc. ("MRY") (the "MRY Merger") and Lexford Residential Trust ("LFT") ("the LFT Merger") (collectively, the "Mergers"). The Company also includes Globe Business Resources, Inc. ("Globe"), Temporary Quarters, Inc. ("TQ") and Grove Property Trust ("Grove").subsidiaries. The Company has elected to be taxed as a REIT under Section 856(c)real estate investment trust ("REIT").

        EQR is the general partner of, the Internal Revenue Code 1986,and as amendedof March 31, 2002, owned an approximate 92.3% ownership interest in, ERP Operating Limited Partnership (the "Code""Operating Partnership"). The Company conducts substantially all of its business and owns substantially all of its assets through the Operating Partnership. The Operating Partnership is, engaged in turn, directly or indirectly, a partner, member or shareholder of numerous partnerships, limited liability companies and corporations which have been established primarily to own fee simple title to multifamily properties or to conduct property management activities and other businesses related to the acquisition, disposition, ownership management and operation of multifamily properties.residential real estate. References to the Company include the Operating Partnership and each of the partnerships, limited liability companies and corporations controlled by the Operating Partnership or EQR.

        As of March 31, 2001,2002, the Company owned or had interests in a portfolio of 1,0961,073 multifamily properties containing 227,153225,000 apartment units (individually a "Property" and collectively the "Properties")located in 36 states consisting of the following:
Number of Number Properties of Units ----------- -------- Wholly Owned Properties 979 204,048 Partially Owned Properties 15 3,067 Unconsolidated Properties 102 20,038 ----------- -------- Total Properties 1,096 227,153 ============ =========

 
 Number of
Properties

 Number of
Units

Wholly Owned Properties 951 199,305
Partially Owned Properties 37 7,231
Unconsolidated Properties 85 18,464
  
 
Total Properties 1,073 225,000
  
 

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATIONSummary of Significant Accounting Policies

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of the Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior periodsperiod financial statements in order to conform to the current year presentation. Operating results for the three months ended March 31, 20012002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001.2002.

        The balance sheet at December 31, 20002001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

        For further information, including definition of capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. 2001.

6 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In the normal course of business,


        At March 31, 2002, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives. On January 1, 2001, the Company adopted SFAS No. 133/138, which requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instruments qualify as a hedge for accounting purposes and, if so, the nature of the hedging activity. When the terms of an underlying transaction are modified, or when the underlying transaction is terminated or completed, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market each period. As of January 1, 2001, the adoption of the new standard resulted in derivative instruments reported on the balance sheet as liabilities of approximately $6.6 million; an adjustment of approximately $5.3 million to "Accumulated Other Comprehensive Income", which are gains and losses not affecting retained earnings in the Consolidated Statement of Shareholders' Equity; and a charge of approximately $1.3 million as a cumulative effect of change in accounting principle in the Consolidated Statement of Operations. The Company employs derivative financial instruments to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the underlying transaction occurs, expires or is otherwise terminated. As of March 31, 2001, there were approximately $17.0 million in deferred losses, net, included in accumulated other comprehensive income. As of March 31, 2001, the Company hashad entered into swaps which have been designated as cash flow hedges with ana current aggregate notional amount of $614.7 million (notional amounts range from $610.4 million to $626.4 million over the terms of the swaps) at interest rates ranging from 3.65125%3.65% to 6.15% maturing at various dates ranging from 2003 to 2007 with a net liability fair value of $16.5$19.0 million; and swaps which have been designated as fair value hedges with ana current aggregate notional amount of $176.4$384.7 million (notional amounts range from $380.4 million to $396.4 million over the terms of the swaps) at interest rates ranging from 4.458%4.46% to 4.830%7.25% maturing at various dates ranging from 2003 to 20042011 with a net asset fair value of $5.6$2.0 million.

        At March 31, 2002, certain joint venture development partnerships in which the Company invested had entered into swaps to hedge the interest rate risk exposure on unconsolidated floating rate construction mortgage loans. The Company has recorded its proportionate share of these qualifying hedges on its consolidated balance sheets. These swaps have been designated as cash flow hedges with a current aggregate notional amount of $329.4 million (notional amounts range from $120.0 million to $538.1 million over the terms of the swaps) at interest rates ranging from 2.28% to 6.94% maturing at various dates ranging from 2002 to 2005 with a net liability fair value of $7.3 million.

        As of March 31, 2002, there were approximately $25.5 million in deferred losses, net, included in accumulated other comprehensive loss. On March 31, 2001,2002, the net derivative instruments were reported at their fair value as other liabilities of approximately $10.9$17.0 million and as a reduction to investment in unconsolidated entities of approximately $7.3 million. Within the next twelve months theThe Company expects to recognize an estimated $4.0$12.1 million of accumulated other comprehensive incomeloss as additional interest expense. expense during the twelve months ending March 31, 2003, of which $4.6 million is related to the development joint venture swaps.

        In June 2001, the FASB issued SFAS No. 141,Business Combinations. SFAS No. 141 requires companies to account for all business combinations using the purchase method of accounting. SFAS No. 141 is effective for fiscal years beginning after December 15, 2001. The Company adopted the standard effective January 1, 2002, but it has not had any impact on the Company's financial condition and results of operations.

        In June 2001, the FASB issued SFAS No. 142,Goodwill and Other Intangible Assets. SFAS No. 142 requires companies to eliminate the amortization of goodwill in favor of a periodic impairment based approach. SFAS No. 142 is effective for the fiscal years beginning after December 15, 2001. The Company adopted the standard effective January 1, 2002, but it has not had a material impact on the Company's financial condition and results of operations.

        In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other items, rescinds the automatic classification of costs incurred on debt extinguishment as extraordinary charges. Instead, gains and losses from debt extinguishment should only be classified as extraordinary if they meet the "unusual and infrequently occurring" criteria outlined in APB No. 30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Company will adopt the standard effective January 1, 2003, but does not expect it to have a material impact on its financial condition and results of operations.

7



3.    SHAREHOLDERS' EQUITY AND MINORITY INTERESTSShareholders' Equity and Minority Interests

        The following table presents the changes in the Company's issued and outstanding Common Shares for the quarter ended March 31, 2001: 2002:

2001 -----------

2002
Common Shares outstanding at January 1, 132,616,375 COMMON SHARES ISSUED: 271,621,374

Common Shares Issued:


Conversion of Series E Preferred Shares 31,532 40,710
Conversion of Series H Preferred Shares 650 1,036
Employee Share Purchase Plan 71,142 153,825
Dividend Reinvestment - Reinvestment—DRIP Plan 76 14,069
Share Purchase - Purchase—DRIP Plan 3,183 11,691
Exercise of options 189,502 595,081
Restricted share grants, net 339,053 922,280
Conversion of OP Units 276,602 ----------- 476,301

Common Shares outstanding at March 31, 133,528,115 ----------- 273,836,367

        The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for a partnership interest are collectively referred to as the "Minority Interests - -OperatingInterests—Operating Partnership". As of March 31, 2001, theThe Minority Interests - Interests—Operating Partnership held 12,186,86522,720,891 OP Units. AsUnits representing a result, the Minority Interests -Operating Partnership had an 8.36%7.66% interest in the Operating Partnership at March 31, 2001.2002. Assuming conversion of all OP Units into Common Shares, total Common Shares outstanding at March 31, 20012002 would have been 145,714,980.296,557,258.

        Net proceeds from the Company's Common Share and Preferred Share offerings are contributed by the Company to the Operating Partnership in return for an increased ownership percentage and are treated as capital transactions in the Company's Consolidated Financial Statements.consolidated financial statements. As a result, the net offering proceeds from Common Shares are allocated between shareholders' equity and Minority Interests - Interests—Operating Partnership to account for the change in their respective percentage ownership of the underlying equity of the Operating Partnership. During the quarter ended March 31, 2001,

        The Company's declaration of trust authorizes the Company through a subsidiaryto issue up to 100,000,000 preferred shares of beneficial interest, $0.01 par value per share (the "Preferred Shares"), with specific rights, preferences and other attributes as the Board of Trustees may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Operating Partnership, issued preference units with an equity value of $35 million, receiving net proceeds of $34.1 million: - - 510,000 7.875% Series G Cumulative Redeemable Preference Units (known as "Preference Interests") with an equity value of $25.5 million. The liquidation value of these units is $50 per unit. The 510,000 units are exchangeable into 510,000 shares of 7.875% Series M-4 Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company. Dividends for the Series G Preference Interests or the Series M-4 Preferred Shares are payable quarterly at the rate of $3.9375 per unit/share per year. - - 190,000 7.625% Series H Cumulative Convertible Redeemable Preference Units with an equity value of $9.5 million. The liquidation value of these units is $50 per unit. The 190,000 units are exchangeable into 190,000 shares of 7.625% Series M-5 Convertible Cumulative Redeemable Preferred Shares of Beneficial Interest of the Company or 143,526Company's Common Shares beginning March 2011. Dividends for the Series H Preference Interests or the Series M-5 Preferred Shares are payable quarterly at the rate of $3.8125 per unit/share per year. Shares.

8 The value of the Preference Interests are included in Minority Interests - Operating Partnership in the Consolidated Balance Sheets and the distributions incurred are included in preferred distributions in the Consolidated Statements of Operations. The Series M-4 Preferred Shares are not convertible into EQR Common Shares. The Series H Preference Interests and the Series M-5 Preferred Shares are convertible into EQR Common Shares at a conversion price ratio of 0.7554 common shares (equal to a conversion price of $66.19 per share) beginning in March 2011.



        The following table presents the Company's issued and outstanding Preferred Shares as of March 31, 20012002 and December 31, 2000:
AMOUNTS ARE IN THOUSANDS ------------------------------- ANNUAL DIVIDEND RATE PER MARCH DECEMBER SHARE (1) 31, 2001 31, 2000 --------- ------------- ---------------- Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized: 9 3/8% Series A Cumulative Redeemable Preferred; liquidation $2.34375 $ 153,000 $ 153,000 value $25 per share; 6,120,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 9 1/8% Series B Cumulative Redeemable Preferred; liquidation $22.81252 125,000 125,000 value $250 per share; 500,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 9 1/8% Series C Cumulative Redeemable Preferred; liquidation $22.81252 115,000 115,000 value $250 per share; 460,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 8.60% Series D Cumulative Redeemable Preferred; liquidation $21.50000 175,000 175,000 value $250 per share; 700,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 Series E Cumulative Convertible Preferred; liquidation value $1.75000 88,573 89,990 $25 per share; 3,542,915 and 3,599,615 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 9.65% Series F Cumulative Redeemable Preferred; liquidation $2.41250 57,500 57,500 value $25 per share; 2,300,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 7 1/4% Series G Convertible Cumulative Preferred; liquidation $18.12500 316,175 316,175 value $250 per share; 1,264,700 shares issued and outstanding at March 31, 2001 and December 31, 2000 7.00% Series H Cumulative Convertible Preferred; liquidation $1.75000 1,449 1,471 value $25 per share; 57,951 and 58,851 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 8.29% Series K Cumulative Redeemable Preferred; liquidation $4.14500 50,000 50,000 value $50 per share; 1,000,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 7.625% Series L Cumulative Redeemable Preferred; liquidation $1.90625 100,000 100,000 value $25 per share; 4,000,000 shares issued and outstanding at March 31, 2001 and December 31, 2000 --------- ------------- ---------------- $ 1,181,697 $ 1,183,136 ------------- ----------------
9 2001:

 
  
 Amounts in thousands
 
 Annual
Dividend
Rate per
Share(1)

 
 March 31,
2002

 December 31,
2001

Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized:         

91/8% Series B Cumulative Redeemable Preferred; liquidation value $250 per share; 500,000 shares issued and outstanding at March 31, 2002 and December 31, 2001

 

$

22.81252

 

$

125,000

 

$

125,000

91/8% Series C Cumulative Redeemable Preferred; liquidation value $250 per share; 460,000 shares issued and outstanding at March 31, 2002 and December 31, 2001

 

$

22.81252

 

 

115,000

 

 

115,000

8.60% Series D Cumulative Redeemable Preferred; liquidation value $250 per share; 700,000 shares issued and outstanding at March 31, 2002 and December 31, 2001

 

$

21.50000

 

 

175,000

 

 

175,000

Series E Cumulative Convertible Preferred; liquidation value $25 per share; 3,329,198 and 3,365,794 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively

 

$

1.75000

 

 

83,230

 

 

84,145

71/4% Series G Convertible Cumulative Preferred; liquidation value $250 per share; 1,264,700 shares issued and outstanding at March 31, 2002 and December 31, 2001

 

$

18.12500

 

 

316,175

 

 

316,175

7.00% Series H Cumulative Convertible Preferred; liquidation value $25 per share; 53,311 and 54,027 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively

 

$

1.75000

 

 

1,333

 

 

1,351

8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 1,000,000 shares issued and outstanding at March 31, 2002 and December 31, 2001

 

$

4.14500

 

 

50,000

 

 

50,000

7.625% Series L Cumulative Redeemable Preferred; liquidation value $25 per share; 4,000,000 shares issued and outstanding at March 31, 2002 and December 31, 2001

 

$

1.90625

 

 

100,000

 

 

100,000
     
 
     $965,738 $966,671
     
 

(1)
Dividends on all series of Preferred Shares are payable quarterly at various pay dates. Dividend rates listed for Series B, C, D and G are Preferred Share rates and the equivalent Depositary Share annual dividend rates are $2.281252, $2.281252, $2.15 and $1.8125, respectively.

        The liquidation value of the Preference Interests and the Junior Preference Units (both as defined below) are included as separate components of Minority Interests in the consolidated balance sheets and the distributions incurred are included in preferred distributions in the consolidated statements of operations.

9



        The following table presents the issued and outstanding Preference Interests as of March 31, 2002 and December 31, 2001:

 
  
 Amounts in thousands
 
 Annual
Dividend
Rate per
Unit(1)

 
 March 31,
2002

 December 31,
2001

Preference Interests:         

8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

4.0000

 

$

40,000

 

$

40,000

8.50% Series B Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,100,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

4.2500

 

 

55,000

 

 

55,000

8.50% Series C Cumulative Redeemable Preference Units; liquidation value $50 per unit; 220,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

4.2500

 

 

11,000

 

 

11,000

8.375% Series D Cumulative Redeemable Preference Units; liquidation value $50 per unit; 420,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

4.1875

 

 

21,000

 

 

21,000

8.50% Series E Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

4.2500

 

 

50,000

 

 

50,000

8.375% Series F Cumulative Redeemable Preference Units; liquidation value $50 per unit; 180,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

4.1875

 

 

9,000

 

 

9,000

7.875% Series G Cumulative Redeemable Preference Units; liquidation value $50 per unit; 510,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

3.9375

 

 

25,500

 

 

25,500

7.625% Series H Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 190,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

3.8125

 

 

9,500

 

 

9,500

7.625% Series I Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 270,000 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

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, 2002 and December 31, 2001

 

$

3.8125

 

 

11,500

 

 

11,500

 

 

 

 

 



 



 

 

 

 

 

$

246,000

 

$

246,000
     
 

(1)
Dividends on all series of Preference Interests are payable quarterly on March 25th, June 25th, September 25th, and December 25th of each year.

10


        The following table presents the Operating Partnership's issued and outstanding Junior Convertible Preference Units (the "Junior Preference Units") as of March 31, 2002 and December 31, 2001:

 
  
 Amounts in thousands
 
 Annual
Dividend
Rate per
Unit(1)

 
 March 31,
2002

 December 31,
2001

Junior Preference Units:         

Series A Junior Convertible Preference Units; liquidation value $100 per unit; 56,616 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

5.469344

 

$

5,662

 

$

5,662

Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31, 2002 and December 31, 2001

 

$

2.000000

 

 

184

 

 

184
     
 
     $5,846 $5,846
     
 

(1)
Dividends on both series of Junior Preference Units are payable quarterly at various dates.

4.    Real Estate Acquisitions

        During the quarter ended March 31, 2001,2002, the Company acquired the seven properties listed belowone property located in Sunrise, Florida from an unaffiliated partiesparty, consisting of 368 units for a total purchase price of $189.1approximately $26.0 million.
ACQUISITION DATE NUMBER PRICE ACQUIRED PROPERTY LOCATION OF UNITS (IN THOUSANDS) -------- ------------------------------ ---------------- -------- -------------- 01/04/01 Suerte San Diego, CA 272 $ 37,500 02/08/01 Westside Villas VI Los Angeles, CA 18 4,550 02/15/01 Riverview Norwalk, CT 92 9,600 03/15/01 Grand Reserve at Eagle Valley Woodbury, MN 394 54,250 03/22/01 Legends at Preston Morrisville, NC 382 30,200 03/30/01 Mission Hills Oceanside, CA 282 26,750 03/30/01 River Oaks Oceanside, CA 280 26,250 -------- -------------- 1,720 $ 189,100 -------- --------------

5.    Real Estate Dispositions

        During the quarter ended March 31, 2001,2002, the Company disposed of the fifteenfour properties listed below to unaffiliated parties. Including the joint ventureparties and land sale discussed below, the Company recognized a net gain on sales of discontinued operations of approximately $41.8$2.8 million on these sales.
DISPOSITION DATE NUMBER PRICE DISPOSED PROPERTY LOCATION OF UNITS (IN THOUSANDS) -------- ------------------------ ------------------- -------- -------------- 01/17/01 Meadowood II Indianapolis, IN 74 $ 1,300 01/31/01 Concorde Bridge Overland Park, KS 248 15,600 02/01/01 Springs of Country Woods Salt Lake City, UT 590 31,000 02/22/01 Riverview Estates Napoleon, OH 90 1,750 02/26/01 Chelsea Court Sandusky, OH 62 1,600 02/27/01 Concord Square Lawrenceburg, IN 48 1,200 02/28/01 Canyon Creek Tucson, AZ 242 9,220 03/06/01 Gentian Oaks Columbus, GA 62 1,620 03/06/01 Holly Park Columbus, GA 66 1,730 03/06/01 Stratford Lane I Columbus, GA 67 1,750 03/07/01 Estate on Quarry Lake Austin, TX 302 25,232 03/08/01 Meadowood Crawfordsville, IN 64 1,300 03/14/01 Mill Run Statesboro, GA 88 2,350 03/15/01 Laurel Court Fremont, OH 69 1,450 03/15/01 Regency Woods West Des Moines, IA 200 9,350 -------- -------------- 2,272 $106,452 -------- --------------
10 On February 23, 2001, the Company entered into a joint venture with an unaffiliated joint venture partner ("JVP"). At closing, the Company sold and/or contributed eleven wholly owned properties containing 3,011 units valued at $202.5 million to the joint venture encumbered with $20.2 million in mortgage loans obtained on February 16, 2001. An additional $123.6 million of mortgage loans was obtained by the joint venture. The JVP contributed cash in an amount equal to 75% of the equity in the joint venture, which was then distributed to the Company. The Company retained a 25% interest in the joint venture along with the right to manage the properties. In accordance with the respective joint venture organization documents, the Company and the JVP both shall have the right, but not the obligation, to infuse additional cash into the joint venture. There are no other agreements that require the Company or the JVP to infuse cash into each joint venture. In addition, the Company and the JVP have not guaranteed the mortgage indebtedness of the joint venture. As a result, the Company recognized 75% of the gain on the sales and/or contributions of property to the joint venture, which totaled approximately $36.5 million. The Company has classified its initial $3.4 million 25% interest in the joint venture (at carryover basis) as investments in unconsolidated entities and accounted for it under the equity method of accounting.

Date
Disposed

 Property
 Location
 Number Of
Units

 Disposition Price
(in thousands)

01/17/02 Ravenwood Mauldin, SC 82 $2,425

01/24/02

 

Larkspur I & II

 

Moraine, OH

 

45

 

 

899

01/31/02

 

Springwood II

 

Austintown, OH

 

43

 

 

900

02/21/02

 

Scottsdale Courtyards

 

Scottsdale, AZ

 

274

 

 

26,500
      
 
      444 $30,724
      
 

        In addition, during the three monthsquarter ended March 31, 2001,2002, the Company Company:

6.    Commitments to Acquire/Dispose of Real Estate

        As of March 31, 2001,2002, in addition to the property that was subsequently acquired as discussed in Note 17, the Company had entered into a separate agreementagreements to acquire onetwo multifamily propertyproperties containing 125736 units from an unaffiliated party.parties. The Company expects a combined purchase price of approximately $13.5$55.3 million, including the assumption of mortgage indebtedness of approximately $14.0 million.

11



        As of March 31, 2001,2002, in addition to the Propertiesproperties that were subsequently disposed of as discussed in Note 15 of the Notes to Consolidated Financial Statements,17, the Company entered into separate agreements to dispose of seventeentwenty-four multifamily properties containing 3,1614,564 units to unaffiliated parties. The Company expects a combined disposition price of approximately $137.2$244.0 million.

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

7.    INVESTMENTS IN UNCONSOLIDATED ENTITIESInvestments in Unconsolidated Entities

        The Company has entered into two separatevarious joint venture agreements with third party development companies whereby the Company contributes 25% to 30% of the development cost to the joint venture in return for preferential returns of 9.0% per annum.companies. The basis offollowing table summarizes the Company's equity investments in these two joint ventures was $252.4 million and $235.9 millionunconsolidated entities as of March 31, 20012002 (amounts in thousands except for project and December 31, 2000, respectively. unit amounts):

 
 Institutional
Joint
Ventures

 Stabilized
Development
Joint Ventures(1)

 Joint Venture
Projects
Under
Development

 Lexford/
Other

 Totals
Total projects  45  10  16(2) 27  98
  
 
 
 
 
Total units  10,846  3,038  5,179(2) 3,348  22,411
  
 
 
 
 
EQR's percentage ownership of mortgage notes payable  25.0% 85.4% 100.0% 15.6%  
EQR's share of mortgage notes payable(4) $121,200 $214,615 $285,655(3)$10,509 $631,979
  
 
 
 
 

(1)
The Company alsodetermines a project to be stabilized once it has various other investmentsmaintained an average physical occupancy of 90% or more for a three-month period.

(2)
Includes three projects consisting of 1,232 units, which are completed and not yet stabilized, but are included in the Company's property/unit counts at March 31, 2002. The remaining 13 properties containing 3,947 units are not included in the Company's property/unit counts at March 31, 2002.

(3)
A total of $658,602 is available for funding under these construction loans, of which $285,655 was funded and outstanding at March 31, 2002.

(4)
As of April 30, 2002, EQR has funded $54.5 million as additional collateral for certain of these loans (see Note 8). All remaining debt is non-recourse to EQR.

        Investments in unconsolidated entities withincludes the Unconsolidated Properties as well as various uncompleted development joint venture properties. The Company does not consolidate these entities, as it does not have sole control of major decisions (such as sale and/or financing/refinancing). The Company's common equity ownership interests rangingin these entities range from 1.5% to 50.0%. The basis of these equity investments was $80.8 million and $80.6 million as of57.0% at March 31, 2001 and December 31, 2000, respectively.2002.

        These investments are accounted for underutilizing the equity method of accounting. Under the equity method of accounting, the net equity investment of the Company is reflected on the consolidated balance sheets and after the project is completed, the consolidated statements of operations include the Company's share of net income or loss from the unconsolidated entity. Prior to the project being completed, the Company capitalized interest on its equity contribution in accordance with the provisions of SFAS No. 58,Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method. During the quarters ended March 31, 2002 and 2001, the Company capitalized $3.8 million and $4.3 million, respectively, in interest cost related to its

12



unconsolidated joint venture development projects (which reduced interest expense incurred in the consolidated statements of operations).

        The Company generally contributes between 25% and 30% of the project cost of the joint ventures under development, with the remaining cost financed through third-party construction mortgages.

8.    DEPOSITS - RESTRICTED Deposits-restricted asDeposits—Restricted

        As of March 31, 20012002, deposits-restricted totaled $210.5 million and primarily included the following: 11 -

9.    MORTGAGE NOTES PAYABLEMortgage Notes Payable

        As of March 31, 2001,2002, the Company had outstanding mortgage indebtedness of approximately $3.1$3.3 billion.

        During the quarter ended March 31, 20012002, the Company: -

        As of March 31, 2001,2002, scheduled maturities for the Company's outstanding mortgage indebtedness arewere at various dates through October 1, 2033. The interest rate range on the Company's mortgage debt was 2.65%1.30% to 12.465% at March 31, 2001.2002. During the quarter ended March 31, 2001,2002, the weighted average interest rate on the Company's mortgage debt was 6.62%6.42%.

10.  NOTESNotes

        As of March 31, 2001,2002, the Company had outstanding unsecured notes of approximately $2.4$2.6 billion.

        During the quarter ended March 31, 2001,2002, the Company Company:

        As of March 31, 2001,2002, scheduled maturities for the Company's outstanding notes are at various dates through 2029. The interest rate range on the Company's notes was 4.75% to 9.375 %7.95% at March 31, 2001.2002. During the quarter ended March 31, 2001,2002, the weighted average interest rate on the Company's notes was 7.04%6.39%.

11.  LINES OF CREDITLine of Credit

        The Company has a revolving credit facility to provide the Operating Partnership with potential borrowings of up to $700.0 million. As of March 31, 20012002, no amounts were outstanding under this facility and $54.9$57.4 million was restricted (dedicated to support

13


letters of credit and not available for borrowing) on the line of credit. In connection with the Globe acquisition, the Company assumed a revolving credit facility with potential borrowings of up to $55.0 million. As of March 31, 2001, no amounts were outstanding under this facility. During the quarter ended March 31, 2001,2002, the weighted average interest rate on the Company's lineswas 2.50%.

12.  Calculation of credit was 6.65%. 12 12. CALCULATION OF NET INCOME PER WEIGHTED AVERAGE COMMON SHARENet Income Per Weighted Average Common Share

        The following tables set forth the computation of net income per share - share—basic and net income per share—diluted:

 
 Quarter Ended March 31,
 
 
 2002
 2001
 
 
 (Amounts in thousands except
per share amounts)

 
Numerator:       
Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities, discontinued operations, extraordinary items, cumulative effect of change in accounting principle and preferred distributions $99,246 $103,869 

Allocation to Minority Interests:

 

 

 

 

 

 

 
 Operating Partnership  (6,441) (9,796)
 Partially Owned Properties  (806) (105)
Income from investments in unconsolidated entities  226  350 
Preferred distributions  (24,525) (28,526)
  
 
 
Income before net gain on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle  67,700  65,792 
Net gain on sales of unconsolidated entities  5,657   
Net gain on sales of discontinued operations  2,816  41,778 
Discontinued operations, net  277  143 
Extraordinary items  (97) 311 
Cumulative effect of change in accounting principle    (1,270)
  
 
 
Numerator for net income per share—basic  76,353  106,754 

Effect of dilutive securities:

 

 

 

 

 

 

 
 Allocation to Minority Interests—Operating Partnership  6,441  9,796 
 Distributions on convertible preferred shares/units    1,692 
  
 
 
Numerator for net income per share—diluted $82,794 $118,242 
  
 
 
Denominator:       
Denominator for net income per share—basic  271,094  265,198 
Effect of dilutive securities:       
 OP Units  23,012  24,461 
 Convertible preferred shares/units    4,370 
 Share options/restricted shares  3,123  3,155 
  
 
 
Denominator for net income per share—diluted  297,229  297,184 
  
 
 
Net income per share—basic $0.28 $0.40 
  
 
 
Net income per share—diluted $0.28 $0.40 
  
 
 

14



 


 

Quarter Ended March 31,

 
 2002
 2001
 
 (Amounts in thousands except
per share amounts)

Net income per share—basic:      
Income before net gain on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle per share—basic $0.25 $0.26
Net gain on sales of unconsolidated entities  0.02  
Net gain on sales of discontinued operations  0.01  0.14
Discontinued operations, net    
Extraordinary items    
Cumulative effect of change in accounting principle    
  
 
Net income per share—basic $0.28 $0.40
  
 
Net income per share—diluted:      
Income before net gain on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle per share—diluted $0.25 $0.26
Net gain on sales of unconsolidated entities  0.02  
Net gain on sales of discontinued operations  0.01  0.14
Discontinued operations, net    
Extraordinary items    
Cumulative effect of change in accounting principle    
  
 
Net income per share—diluted $0.28 $0.40
  
 

Convertible preferred shares/units that could be converted into 15,853,687 and 10,831,704 weighted average Common Shares for the quarters ended March 31, 2002 and 2001, respectively, were outstanding but were not included in the computation of diluted earnings per share - diluted.
QUARTER ENDED MARCH 31, --------------------------------- 2001 2000 ---------------- ------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NUMERATOR: Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate, extraordinary items, cumulative effect of change in accounting principle and preferred distributions $ 100,565 $ 83,969 Allocation to Minority Interests: Operating Partnership (9,796) (7,096) Partially Owned Properties (105) 45 Income from investments in unconsolidated entities 3,797 4,223 Preferred distributions (28,526) (28,388) ---------------- ------------ Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting 65,935 52,753 principle Net gain on sales of real estate 41,778 19,998 Extraordinary items 311 - Cumulative effect of change in accounting principle (1,270) - ---------------- ------------ Numerator for net income per share - basic 106,754 72,751 Effect of dilutive securities: Allocation to Minority Interests - Operating Partnership 9,796 7,096 Distributions on convertible preferred shares/units 1,692 - ---------------- ------------ Numerator for net income per share - diluted $ 118,242 $ 79,847 ================ ============= DENOMINATOR: Denominator for net income per share - basic 132,599 127,798 Effect of dilutive securities: Stock options/restricted shares 1,577 422 OP Units 12,231 12,466 Convertible preferred shares/units 2,185 - ---------------- ------------ Denominator for net income per share - diluted 148,592 140,686 ================ ============= Net income per share - basic $ 0.81 $ 0.57 ================ ============= Net income per share - diluted $ 0.80 $ 0.57 ================ =============
13
QUARTER ENDED MARCH 31, -------------------------------- 2001 2000 --------------- --------------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NET INCOME PER SHARE - BASIC: Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle per share - basic $ 0.53 $ 0.43 Net gain on sales of real estate 0.29 0.14 Extraordinary items - - Cumulative effect of change in accounting principle (0.01) - --------------- --------------- Net income per share - basic $ 0.81 $ 0.57 =============== =============== NET INCOME PER SHARE - DILUTED: Income before net gain on sales of real estate, extraordinary items and cumulative effect of change in accounting principle per share - diluted $ 0.52 $ 0.43 Net gain on sales of real estate 0.29 0.14 Extraordinary items - - Cumulative effect of change in accounting principle (0.01) - --------------- --------------- Net income per share - diluted $ 0.80 $ 0.57 =============== ===============
CONVERTIBLE PREFERRED SHARES/UNITS THAT COULD BE CONVERTED INTO 5,415,852 AND 10,643,083 WEIGHTED AVERAGE COMMON SHARES FOR THE QUARTERS ENDED MARCHbecause the effects would be anti-dilutive.

On October 11, 2001, the Company effected a two-for-one split of its Common Shares and OP Units to shareholders and unitholders of record as of September 21, 2001. All per share and OP Unit data and numbers of Common Shares and OP Units have been retroactively adjusted to reflect the Common Share and OP Unit split.

13.  Discontinued Operations

        In August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. The Company adopted the standard effective January 1, 2002, which did not have a material effect on the Company's financial condition and results of operations.

        Under the provisions of SFAS No. 144, for long-lived assets to be held and used, the Company first determines whether any indicators of impairment exist. If indicators exist, the Company compares the expected future undiscounted cash flows for the long-lived asset against the carrying amount of that asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, an impairment loss would be recorded for the difference between the estimated fair value and the carrying amount of the asset.

        For long-lived assets to be disposed of, an impairment loss is recognized when the estimated fair value of the asset, less the estimated cost to sell, is less than the carrying amount of the asset measured at the time that the Company has determined it will sell the asset. Long-lived assets held for disposition are reported at the lower or their carrying amounts or their estimated fair values, less their costs to sell.

15



        Goodwill and investments in unconsolidated entities accounted for under the equity method of accounting are specifically excluded from the scope of SFAS No. 144.

        On January 11, 2002, the Company disposed of its furniture rental business for $30.0 million and received net proceeds of $28.7 million. No gain/loss on sale was recognized as the net book value at the sale date after giving effect to a previously recorded impairment loss approximated the sales price.

        The components of discontinued operations for the quarters ended March 31, 2002 and 2001 are outlined below and include the results of operations through the date of each respective sale for the quarter ended March 31, 2002 and a full quarter of operations for the quarter ended March 31, 2001, AND 2000, RESPECTIVELY, WERE OUTSTANDING BUT WERE NOT INCLUDED IN THE COMPUTATION OF DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WOULD BE ANTI-DILUTIVE. 13. COMMITMENTS AND CONTINGENCIESfor the following:


 
 Quarter Ended March 31,
 
 2002
 2001
 
 (Amounts in thousands)

REVENUES      
 Rental income $666 $1,136
 Interest and other income  3  
 Furniture income  1,365  14,872
  
 
  Total revenues  2,034  16,008
  
 
EXPENSES      
 Property and maintenance  208  301
 Real estate taxes and insurance  60  84
 Depreciation  181  303
 Interest expense incurred, net  5  58
 Furniture expenses  1,303  14,829
 Amortization of goodwill    290
  
 
  Total expenses  1,757  15,865
  
 
Discontinued operations, net $277 $143
  
 

14.  Commitments and Contingencies

        The Company, as an owner of real estate, is subject to various environmental laws of Federal and local governments. Compliance by the Company with existing laws has not had a material adverse effect on the Company's financial condition and results of operations. However, the Company cannot predict the impact of new or changed laws or regulations on its current Propertiesproperties or on properties that it may acquire in the future.

        The Company does not believe there is any litigation threatened against the Company other than routine litigation arising out of the ordinary course of business, some of which is expected to be covered by liability insurance, none of which is expected to have a material adverse effect on the consolidated financial statements of the Company.

        In regards to the funding of Propertiesproperties in the development and/or earnout stage and the joint venture agreements with two multifamily residential real estate developers, the Company funded a net total of $26.4$5.6 million during the quarter ended March 31, 2001. During the remainder of 2001, the2002. The Company expects to fund approximately $70.2

16



$22.7 million in connection with these Properties.properties during the remainder of 2002. In connection with one joint venture agreement, the Company has an obligation to fund up to an additional $17.5$6.5 million to guarantee third party construction financing. As of March 31, 2001,2002, the Company has 1920 projects under development with estimated completion dates ranging from June 30, 20012002 through March 31, 2003. At any time following the completion of construction of any2004.

        For one development property,joint venture agreement, the Company's joint venture partners havepartner has the right, at any time following completion of a project, to causestipulate a value for such project and offer to sell its interest in the project to the Company based on such value. If the Company chooses not to purchase the interest, it must agree to a sale of the project to an unrelated third party at such value. The Company's joint venture partner must exercise this right as to all projects within five years after the receipt of the final certificate of occupancy on the last developed property.

        Under a second development joint venture agreement, the Company's joint venture partner has the right, at any time following completion of a project, to require the Company to acquire their respective interestspurchase the joint venture partners' interest in the completed projectsthat project at a mutually agreeable price. If the Company and the joint venture partner are unable to agree on a price, appraisalsboth parties will be obtained by both parties.obtain appraisals. If the appraised values vary by more than 10%, both the Company and the joint venture partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. 14 In connection withThe Company may elect at that time not to purchase the Wellsford Merger,property and instead, authorize the joint venture partner to sell the project at or above the agreed-upon value to an unrelated third party. Five years following the receipt of the final certificate of occupancy on the last developed property, any projects remaining unsold must be purchased by the Company at the agreed-upon price.

        The Company provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of March 31, 2001,2002, this enhancement was still in effect at a commitment amount of $12.7 million. 14. REPORTABLE SEGMENTS The following tables set forth the reconciliation of net income and total assets for the Company's reportable segments for

15.  Asset Impairment

        For the quarters ended March 31, 2002 and 2001, the Company recorded approximately $0.3 million and 2000.
RENTAL REAL CORPORATE/ MARCH 31, 2001 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED -------------------------------------------------------- ------------- ---------- -------------- Rental income $ 514,137 $ - $ 514,137 Fee and asset management income - 1,972 1,972 Furniture income - 12,546 12,546 Property and maintenance expense (141,864) - (141,864) Real estate tax and insurance expense (48,021) - (48,021) Property management expense (18,687) - (18,687) Fee and asset management expense - (1,875) (1,875) Furniture expenses - (9,724) (9,724) ------------- ---------- -------------- Net operating income 305,565 2,919 308,484 Interest income - investment in mortgage notes - 2,744 2,744 Interest and other income - 6,502 6,502 Depreciation expense on non-real estate assets - (2,259) (2,259) Interest expense: Expense incurred - (95,276) (95,276) Amortization of deferred financing costs - (1,397) (1,397) General and administrative expense - (6,754) (6,754) Allocation to Minority Interests - Partially Owned Properties - (105) (105) Income from investments in unconsolidated entities - 3,797 3,797 Preferred distributions - (28,526) (28,526) Adjustment for loss on investment in technology segment - 3,003 3,003 Adjustment for depreciation expense related to Unconsolidated and Partially Owned Properties - 1,995 1,995 ------------- ---------- -------------- Funds from operations available to Common Shares and OP Units 305,565 (113,357) 192,208 Depreciation/amortization (110,546) (933) (111,479) Net gain on sales of real estate 41,778 - 41,778 Extraordinary items - 311 311 Cumulative effect of change in accounting principle - (1,270) (1,270) Allocation to Minority Interests - Operating Partnership - (9,796) (9,796) Adjustment for loss on investment in technology segment - (3,003) (3,003) Adjustment for depreciation expense related to Unconsolidated and Partially - (1,995) (1,995) Owned Properties ------------- ---------- -------------- Net income available to Common Shares $ 236,797 $(130,043) $ 106,754 ============= ========== ============== Investment in real estate, net of accumulated depreciation $ 11,110,846 $ 16,219 $ 11,127,065 ============= ========== ============== Total assets $ 11,132,732 $1,112,763 $ 12,245,495 ============= ========== ==============
15
RENTAL REAL CORPORATE/ MARCH 31, 2000 (AMOUNTS IN THOUSANDS) ESTATE (1) OTHER (2) CONSOLIDATED ------------------------------------------------------ ------------ ----------- ------------- Rental income $ 473,547 $ - $ 473,547 Fee and asset management income - 1,400 1,400 Property and maintenance expense (113,868) - (113,868) Real estate tax and insurance expense (48,334) - (48,334) Property management expense (18,914) - (18,914) Fee and asset management expense - (1,066) (1,066) ------------ ----------- ------------- Net operating income 292,431 334 292,765 Interest income - investment in mortgage notes - 2,762 2,762 Interest and other income - 3,478 3,478 Depreciation expense on non-real estate assets - (1,567) (1,567) Interest expense: Expense incurred - (95,111) (95,111) Amortization of deferred financing costs - (1,341) (1,341) General and administrative expense - (6,698) (6,698) Allocation to Minority Interests - Partially Owned Properties - 45 45 Income from investments in unconsolidated entities - 4,223 4,223 Preferred distributions - (28,388) (28,388) Adjustment for depreciation expense related to Unconsolidated and Partially Owned Properties - (238) (238) ------------ ----------- ------------- Funds from operations available to Common Shares and OP Units 292,431 (122,501) 169,930 Depreciation expense on real estate assets (110,319) - (110,319) Net gain on sales of real estate 19,998 - 19,998 Allocation to Minority Interests - Operating Partnership - (7,096) (7,096) Adjustment for depreciation expense related to Unconsolidated and Partially Owned Properties 238 238 ------------ ----------- ------------- Net income available to Common Shares $ 202,110 $(129,359) $ 72,751 ============ =========== =============
(1)$3.0 million, respectively, of asset impairment charges related to its technology investments. These charges were the result of review of the existing investments reflected on the consolidated balance sheet. The Company reviewed the current relative value of each investment based on existing economic conditions and current events. These impairment losses are reflected on the statement of operations in total expenses and include the write-down of assets classified as other assets and investments in unconsolidated entities.

16.  Reportable Segments

        Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by senior management. Senior management decides how resources are allocated and assesses performance on a monthly basis.

        The Company's primary business is owning, managing, and operating multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to tenants. (2)residents. Senior management evaluates the performance of each of our apartment communities on an individual basis, however, each of our apartment communities has similar economic characteristics, residents, and products and services so they have been aggregated into one reportable segment. The Company's rental real estate segment comprises approximately 98.9% and 97.9% of total revenues for the quarters ended March 31, 2002 and 2001, respectively. The Company's rental real estate segment comprises approximately 99.6% and 99.4% of total assets at March 31, 2002 and December 31, 2001, respectively.

17



        The primary financial measure for the Company'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 (all as reflected in the accompanying statements of operations). Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance. NOI from our rental real estate totaled approximately $309.1 million and $308.1 million for the quarters ended March 31, 2002, and 2001, respectively.

        During the acquisition, development and/or disposition of real estate, the NOI return on total capitalized costs is the primary measure of financial performance (capitalization rate) the Company has a segment for corporate level activity including such items as fee and asset management activity, furniture rental/sales activity, interest income earned on short-term investments and investment in mortgage notes, investment in technology entities, income earned from investments in unconsolidated entities, general and administrative expenses, and interest expense on mortgage notes payable, unsecured note issuances and lines of credit.considers.

        The Company's fee and asset management activity and furniture rental/sales activities are immaterial and do not meet the threshold requirements of a reportable segment as provided for in SFAS No. 131. Interest expense on debt is not allocated to individual Properties, even if the Properties secure such debt. Further, income allocated to Minority Interests is not allocated to the Properties. 16 15. SUBSEQUENT EVENTS

17.  Subsequent Events

        Subsequent to March 31, 2001,2002 and through April 26, 2002, the Company has: - - Company:

18



Item 2.    Management's Discussion and - - disposedAnalysis of $0.9 millionFinancial Condition and Results of mortgage debt assumed by the purchaser in connection with the disposition of one property. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEWOperations

Overview

        For further information including definitions for capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000.2001.

        Forward-looking statements in this report are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believes", "expects" and "anticipates" and other similar expressions whichthat are predictions of or indicate future events and trends and which do not relate solely to historical matters identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results, performance, or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, the following: - -

        Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumesundertakes no obligation to publicly release any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. RESULTS OF OPERATIONS

Results of Operations

        The following table summarizes the number of Propertiesproperties and related units for the year-to-date periods presented:
PORTFOLIO SUMMARY --------------------------------------------------------------------------------- QUARTER ENDED MARCH 31, --------------------------------------------------------------------------------- 2001 2000 ---- ---- PROPERTIES UNITS PROPERTIES UNITS ------------ --------- ------------ --------- Beginning of period 1,104 227,704 1,062 225,708 Acquisitions 7 1,721 1 178 Dispositions (15) (2,272) (11) (2,162) ------------ --------- ------------ --------- End of period 1,096 227,153 1,052 223,724 ------------ --------- ------------ ---------
In addition, the Company sold and/or contributed eleven wholly owned Properties containing 3,011 units to a joint venture entity during the quarter ended March 31, 2001.

 
 Properties
 Units
 Purchase/
Sale Price
$ Millions

 At December 31, 2000 1,104 227,704   
Q1 2001 Acquisitions 7 1,721 $189.2
Q1 2001 Dispositions (15)(2,272)$117.7
  
 
   
 At March 31, 2001 1,096 227,153   
Q2/Q3/Q4 2001 Acquisitions 7 1,702 $198.9
Q2/Q3/Q4 2001 Dispositions (34)(6,535)$299.2
Q2/Q3/Q4 2001 Completed Developments 7 2,505   
Q4 2001 Unit Configuration Changes  (24)  
  
 
   
 At December 31, 2001 1,076 224,801   
Q1 2002 Acquisitions 1 368 $26.0
Q1 2002 Dispositions (5)(757)$43.7
Q1 2002 Completed Developments 1 588   
  
 
   
 At March 31, 2002 1,073 225,000   
  
 
   

19


        The Company retained a 25% interest along with the rights to manage the joint venture Properties. 18 The Company's acquisition and disposition activity has impacted overall results of operations for the quarters ended March 31, 20012002 and 2000 have been significantly impacted by the Company's acquisition and disposition activity. The significant2001. Significant changes in revenues and expenses canhave resulted primarily be attributed tofrom the acquisitionconsolidation of previously Unconsolidated Properties in July 2001, the disposition of the Globe furniture rental business on January 11, 2002, as well as the 2001 Acquisitions and the 2000 Acquired Properties,Completed Development properties, which have been partially offset by the disposition of the 20012002 and the 20002001 Disposed Properties.properties. Significant change in expenses has also resulted from an increase in insurance costs and general and administrative costs and reductions in variable interest rates, impairment charges and goodwill amortization. This impact is discussed in greater detail in the following paragraphs.

        Properties that the Company owned for all of the quarterquarters ended March 31, 20012002 and March 31, 20002001 (the "First Quarter 20012002 Same Store Properties"), which represented 188,220197,305 units, also impacted the Company's results of operations and are discussed as well in the following paragraphs. COMPARISON OF QUARTER ENDED MARCH

Comparison of the quarter ended March 31, 2001 TO QUARTER ENDED MARCH2002 to the quarter ended March 31, 20002001

        For the quarter ended March 31, 2001,2002, income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of real estate,unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle increaseddecreased by approximately $16.6$4.6 million when compared to the quarter ended March 31, 2000. Rental income2001.

        Revenues from the First Quarter 20012002 Same Store Properties increased by approximately $22.8 million to $439.9 million or 5.46%decreased primarily as a result of higherlower rental rates charged to new tenantsresidents, increased concessions and tenant renewals and an increase in income from billing tenants for their share of utility costs as well as other ancillary services provided to tenants. For the remainder of 2001, the Company expects to achieve rental income increases of 4.5% to 5.0% from Same Store Properties. These estimated increases are subject tolower occupancy at certain risks and uncertainties including, but not limited to, maintaining an overall average occupancy rate of 95%.properties. Property operating expenses from the First Quarter 20012002 Same Store Properties, which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses, increased approximately $8.9 million or 5.97%.remained relatively stable with increases in real estate taxes and insurance costs offset by decreases in utility costs. The increasefollowing tables provide comparative revenue, expenses, net operating income and weighted average occupancy for the First Quarter 2002 Same Store Properties:

Same Store Net Operating Income ("NOI")

$ in "same store" expenses is primarily attributable to a $3.6 million, or 14.8% increase in utilities and a $2.1 million, or 5.7% increase in payroll.Millions—197,305 Same Store Units

Description

 Revenues
 Expenses
 NOI
 
Q1 2002 $466.0 $168.7 $297.3 
Q1 2001 $467.7 $168.9 $298.8 
  
 
 
 
Change $(1.7)$(0.2)$(1.5)
  
 
 
 
% Change  (0.4)% (0.1)% (0.5)%

Same Store Occupancy Rates

Q1 200294.24%
Q1 200194.60%

Change(0.36)%

20


        For the remainder of 2001,2002 properties that the Company expectsacquired prior to maintain expense growth at no more than 4.25%December 31, 2000 and will continue to 4.75%.own through December 31, 2002, the Company anticipates for the year ended December 31, 2002 to see the following operating assumptions:

2002 Operating Assumptions

Physical Occupancy93.0%
Revenue Growth(1.25%) to 0.1%
Expense Growth1.0% to 1.5%
NOI Growth(2.9%) to (0.7%)
Dispositions$500 million
Refinancing$200 million at 7.0%

        These 2002 operating assumptions are based on current expectations and are forward-looking.

        Rental income from non-Firstproperties other than First Quarter 20012002 Same Store Properties increased by approximately $17.8$1.4 million primarily as a result of revenue from the Globe corporate housing businessCompany's 2001 Acquired Properties and the acquisition of Properties during the periods presented. The Company expects similar trends in the future subject to certain risks and uncertainties including that any new acquisitions perform at the Company's pro forma expectations.additional 2001 Partially Owned Properties.

        Interest and other income increaseddecreased by approximately $3.0$2.4 million, primarily as a result of disposition proceeds earninglower balances available for investment and related interest rates being earned on the Company's short-term investment accounts.

        Interest income—investment in various tax deferred 1031 exchange accounts. These proceeds are invested in money market investments untilmortgage notes decreased by $2.7 million as a result of the Company purchasesconsolidating these previously Unconsolidated Properties in July 2001. No additional multi-family properties.interest income will be recognized on the mortgage notes in future years as the Company now consolidates the results related to these previously Unconsolidated Properties.

        Property management representsexpenses include off-site expenses associated with the self-management of the Company's Properties.properties. These expenses decreasedincreased by approximately $0.2 million.$0.3 million or less than 2%. The Company continues to acquire properties in major metropolitan areas and dispose of assets in smaller multi-family rental markets where the Company does not have a significant management presence. As a result, the Company iswas able to achieve economies of scale by not increasingmaintain off-site management expenses as it acquires additional properties.at a constant level between the two reporting periods.

        Fee and asset management revenues and fee and asset management expenses increaseddecreased as a result of the Company continuing to manage Properties that were sold and/or contributed to various joint venturemanaging fewer units quarter over quarter for outside owners and unconsolidated entities. As of March 31, 2002 and 2001, the Company currently managesmanaged 16,539 units and 20,300 units, respectively, for third parties and the unconsolidated joint venture entities. 19 Furniture income and furniture expenses are associated with

        The Company recorded impairment charges in 2002 totaling approximately $0.3 million, which is related to one investment in a technology entity. See Note 15 in the operation ofNotes to the furniture rental business assumed in connection with the Globe acquisition, which occurred in July 2000. Furniture expenses include a depreciation charge on furniture held in inventory.Consolidated Financial Statements for further discussion.

        Interest expense, including amortization of deferred financing costs, increaseddecreased approximately $0.2 million.$5.1 million primarily due to lower variable interest rates. During the quarter ended March 31, 2002, the Company capitalized interest costs of approximately $5.9 million as compared to $6.0 million for the quarter ended March 31, 2001. This capitalization of interest primarily related to equity investments in unconsolidated entities engaged in development activities. The effective interest cost on all of the Company's indebtedness for the quarter endingended March 31, 20012002 was 7.07%6.51% as compared to 7.17%7.07% for the quarter ended March 31, 2000. For the remainder of 2001, the Company expects interest rates to decrease slightly due to lower variable rates. In connection with the refinancing of $280 million of indebtedness, the Company expects to incur interest costs approximating 7.5% per annum.2001.

        General and administrative expenses, which include corporate operating expenses, increased approximately $0.1$4.0 million between the periodsquarters under comparison. However, by gaining This increase was primarily due to the addition of income taxes from previously Unconsolidated Properties, retirement plan expenses for

21



certain economies of scalekey executives, and higher overall compensation expenses including a current expense associated with a much larger operation, these expenses as a percentage of total revenues were 1.26% for the quarter ended March 31, 2001 comparedrestricted shares/awards granted to 1.39% of total revenues for the quarter ended March 31, 2000.key employees.

        Net gain on sales of real estateunconsolidated entities increased by $5.7 million as a result of the sale of one stabilized development joint venture property (296 units).

        Net gain on sales of discontinued operations decreased approximately $21.8$39.0 million between the periods under comparison. This increasedecrease is primarily the result of additional Propertiesa fewer number of units sold during the quarter ended March 31, 2001, which included fifteen wholly owned Properties; eleven joint venture Properties (75% gain recognition) and one land sale2002 (461 units) as compared to eleven wholly owned Properties sold in the quarter ended March 31, 2000. LIQUIDITY AND CAPITAL RESOURCES2001 (5,283 units including interests in properties sold into institutional joint ventures).

Liquidity and Capital Resources

        As of January 1, 2001,2002, the Company had approximately $23.8$51.6 million of cash and cash equivalents and the amounts$505.0 million available on the Company's linesunder its line of credit, was $400 million, of which $53.5$59 million was restricted.restricted (not available for borrowings). After taking into effect the various transactions discussed in the following paragraphs and for borrowings the net cash provided by operating activities, the Company's cash and cash equivalents balance at March 31, 20012002 was approximately $104.8$249.8 million and the amountsamount available on the Company's linesline of credit was $755$700.0 million, of which $54.9$57.4 million was restricted.restricted (not available for borrowings).

        Part of the Company's strategy inacquisition and development funding the purchase of multifamily properties, funding its Properties in the development and/or earnout stagestrategy and the funding of the Company's investment in twovarious joint ventures with multifamily real estate developers is to utilize its linesline of credit and to subsequently repay the linesline of credit from the disposition of Propertiesproperties, retained cash flows or the issuance of additional equity or debt securities. UtilizingContinuing to utilize this strategy during the first three months of 2001,quarter ended March 31, 2002, the Company: - -

        All of these proceeds were utilized to either: - -

22


        During the quarter ended March 31, 2001,2002, the Company: - -

        The Company's total debt summary and debt maturity schedule, as of March 31, 2001, included:
DEBT SUMMARY AS OF 3/31/01 - -------------------------------------------------------------------------------- WEIGHTED $ MILLIONS AVERAGE RATE ------------- ------------ Secured $ 3,097 6.72% Unsecured $ 2,419 7.04% ------------- ------------ Total $ 5,516 6.86% Fixed Rate $ 5,048 7.06% Floating Rate $ 468 4.72% ------------- ------------ Total $ 5,516 6.86% ABOVE TOTALS INCLUDE: Total Tax Exempt $ 959 4.80% Unsecured Revolving Credit Facility $ - N/A
Subsequent to2002, are as follows:

Debt Summary as of March 31, 20012002

 
 $ Millions
 Weighted
Average Rate

Secured $3,279 6.29%
Unsecured  2,556 6.62%
  
 
 Total $5,835 6.44%
Fixed Rate $5,130 6.94%
Floating Rate  705 2.79%
  
 
 Total $5,835 6.44%
Above Totals Include:     

Total Tax Exempt

 

$

974

 

3.82%
Unsecured Revolving Credit Facility $ 

Debt Maturity Schedule as of March 31, 2002

Year

 $ Millions
 % of Total
 2002* $387 6.6%
 2003  306 5.2%
 2004  596 10.2%
 2005  717 12.3%
 2006  440 7.5%
 2007  277 4.7%
 2008  496 8.5%
 2009  411 7.0%
 2010  262 4.5%
 2011+  1,943 33.3%
  
 
Total $5,835 100.0%

*
for the period April 1, 2002 through December 31, 2002.

        The Company's "Consolidated Debt-to-Total Market Capitalization Ratio" as of March 31, 2002 is presented in the following table. The Company calculates the equity component of its market capitalization as the sum of (i) the total outstanding Common Shares and assumed conversion of all OP Units at the equivalent market value of the closing price of the Company's Common Shares on the New York Stock Exchange; (ii) the "Common Share Equivalent" of all convertible preferred shares and

23



preference interests/units; and (iii) the liquidation value of all perpetual preferred shares and preference interests outstanding.

Capitalization as of March 31, 2002

Total Debt    $5,835,463,307 
Common Shares & OP Units  296,557,258    
Common Share Equivalents (see below)  15,820,176    
  
    
Total Outstanding at quarter-end  312,377,434    
Price at March 28, 2002 $28.74    
  
    
      8,977,727,453 
Perpetual Preferred Shares Liquidation Value     565,000,000 
Perpetual Preference Interests Liquidation Value     211,500,000 
     
 
Total Market Capitalization    $15,589,690,760 
Debt/Total Market Capitalization     37.43%

Convertible Preferred Shares, Preference Interests and Junior Preference Units
As of March 31, 2002

 
 Shares/Units
 Conversion
Ratio

 Common
Share
Equivalents

Preferred Shares:      
 Series E 3,329,198 1.1128 3,704,732
 Series G 1,264,700 8.5360 10,795,479
 Series H 53,311 1.4480 77,194
Preference Interests:      
 Series H 190,000 1.5108 287,052
 Series I 270,000 1.4542 392,634
 Series J 230,000 1.4108 324,484
Junior Preference Units:      
 Series A 56,616 4.081600 231,084
 Series B 7,367 1.020408 7,517
  
   
Total Convertible 5,401,192   15,820,176

        The Company's policy is to maintain a ratio of consolidated debt-to-total market capitalization of less than 50%.

        From April 1, 2002 through May 1, 2001,April 26, 2002, the Company: - -

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        During the remainder of 2001,2002, the Company expects to fund approximately $70.2$22.7 million related to the development, earnoutwholly owned developments and joint venture agreements.projects under development. In connection with one joint venture agreement, the Company has an obligation to fund up to an additional $17.5$6.5 million to guarantee third party construction financing. As of March 31, 2001,2002, the Company has 1920 projects under development with estimated completion dates ranging from June 30, 20012002 through March 31, 2003. At any time following the completion of construction of any2004.

        For one development property,joint venture agreement, the Company's joint venture partners havepartner has the right, at any time following completion of a project, to causestipulate a value for such project and offer to sell its interest in the project to the Company based on such value. If the Company chooses not to purchase the interest, it must agree to a sale of the project to an unrelated third party at such value. The Company's joint venture partner must exercise this right as to all projects within five years after the receipt of the final certificate of occupancy on the last developed property.

        Under a second development joint venture agreement, the Company's joint venture partner has the right, at any time following completion of a project, to require the Company to acquire their respective interestspurchase the joint venture partners' interest in the completed projectsthat project at a mutually agreeable price. If the Company and the joint venture partner are unable to agree on a price, appraisalsboth parties will be obtained by both parties.obtain appraisals. If the appraised values vary by more than 10%, both the Company and the joint venture partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. The Company may elect at that time not to purchase the property and instead, authorize the joint venture partner to sell the project at or above the agreed-upon value to an unrelated third party. Five years following the receipt of the final certificate of occupancy on the last developed property, any projects remaining unsold must be purchased by the Company at the agreed-upon price.

During the quarter ended March 31, 2001,2002, the Company's total improvements to real estate approximated $28.2$27.7 million. Of this amount, approximately $4.5Replacements, which include new carpeting, appliances, mechanical equipment, fixtures, vinyl floors and blinds inside the unit approximated $10.9 million, or $55 per unit. Building improvements for the 2000, 2001 and 2002 Acquired Properties approximated $1.5 million, or $89 per unit, related to capitalunit. Building improvements and major repairs for the 1999, 2000 and 2001 Acquired Properties. Capital improvements and major repairs for all of the Company's pre-1999pre-2000 Acquired Properties approximated $9.9$12.5 million or $64 per unit. Capital spent for replacement-type items approximated $11.4 million, or $56$69 per unit. In addition, approximately $1.7$1.1 million was spent on sevenone specific assetsasset related to major 21 renovations and repositioning of these assets.this asset. Also included in total improvements to real estate was approximately $0.7$1.7 million on commercial/other assets and Partially Owned Properties. Such improvements to real estate were primarily funded from net cash provided by operating activities. Total improvements to real estate budgeted for the remainder of 20012002 are estimated to be approximately $110.0at $100.0 million. Also included in

        During the quarter ended March 31, 2002, the Company's total capital expenditures for the Company was approximately $1.8 million for non-real estate capital additions, such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Company's property management offices and its corporate offices.offices, was approximately $3.0 million. Such additions to non-real estate property were primarily funded from net cash provided by operating activities. Total additions to non-real estate property budgeted for the remainder of 20012002 are estimated to be approximately $4.2at $3.8 million. The Company, through its Globe subsidiary, has a policy of capitalizing expenditures made for rental furniture and property and equipment. Globe purchases furniture to replace furniture that has been sold and to maintain adequate levels of rental furniture to meet existing and new customer needs. Expenditures for property and equipment that significantly enhance the value of existing assets or substantially extend the useful life of an asset are also capitalized. Expenditures for ordinary maintenance and repairs related to property and equipment are expensed as incurred. For the quarter ended March 31, 2001, total additions to rental furniture approximated $6.3 million and property and equipment approximated $0.7 million. Total additions to rental furniture and property and equipment budgeted for the remainder of 2001 are estimated to be approximately $18.0 million.

        Minority Interests as of March 31, 2001 increased2002 decreased by $24.7$1.7 million when compared to December 31, 2000.2001. The primary factors that impacted this account in the Company's consolidated statements of operations and balance sheets during the quarter were: - -

25


        Total distributions paid in April 2002 amounted to $147.3 million (excluding distributions on Partially Owned Properties), which included certain distributions declared during the quarter ended March 31, 2001. Total distributions paid in April 2001 amounted to approximately $143.3 million, which included distributions declared for the quarter ended March 31, 2001.2002.

        The Company expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing Propertiesproperties and certain scheduled unsecured note and mortgage note repayments, generally through its working capital, net cash provided by operating activities and borrowings under its linesline of credit. The Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions. The Company also expects to meet its long-term liquidity requirements, such as scheduled unsecured note and mortgage debt maturities, property acquisitions, financing of construction and development activities and capital improvements through the issuance of unsecured notes and equity securities, including additional OP Units, as well as from undistributed FFO and proceeds received from the disposition of certain Properties.properties. In addition, the Company has certain uncollateralized Propertiesunencumbered properties available forto secure additional mortgage borrowings in the event that the public capital markets are unavailable to the Company or the cost of alternative sources of capital to the Company is too high. These unencumbered properties are in excess of the value of unencumbered properties the Company must maintain in order to comply with covenants under its unsecured notes and line of credit.

The Company has a revolving credit facility with Bank of America Securities LLC and Chase Securities Inc. acting as joint lead arrangers to provide the Operating Partnership with potential borrowings of up to $700$700.0 million. As of May 1, 2001,7, 2002, no amounts were outstanding under this facility. 22 In connection with the Globe Acquisition,This credit facility is scheduled to expire in August 2002 and the Company assumedhas begun the process of replacing its line of credit with a revolvingnew line of credit, facility with Fifth Third Bank with potential borrowings of up to $55.0 million. As of May 1, 2001, no amounts were outstanding under this facility. In connection with the Wellsford Merger, thewhich it believes will be on at least as favorable terms.

        The Company provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of May 1, 2001,2002, this enhancement was still in effect at a commitment amount of $12.7 million. FUNDS FROM OPERATIONS

Critical Accounting Policies and Estimates

        The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and the related disclosures. The Company believes that the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Impairment of Long-Lived Assets, Including Goodwill

        The Company periodically evaluates its long-lived assets, including its investments in real estate and goodwill, for impairment indicators. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions and legal factors. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted.

Depreciation of Investment in Real Estate

        The Company depreciates the building component of its investment in real estate over a 30-year estimated useful life, building improvements over a 5-year to 10-year estimated useful life and both the furniture, fixtures and equipment and replacements components over a 5-year estimated useful life, all of which are judgmental determinations.

26



Fair Value of Financial Instruments, Including Derivative Instruments

        The valuation of financial instruments under SFAS No. 107 and SFAS No. 133 requires the Company to make estimates and judgments that affect the fair value of the instruments. The Company, where possible, bases the fair values of its financial instruments, including its derivative instruments, on listed market prices and third party quotes. Where these are not available, the Company bases its estimates on other factors relevant to the financial instruments.

Stock Option Compensation

        The Company has chosen to account for its stock option compensation in accordance with APB No. 25, which results in no compensation expense for options issued with an exercise price equal to or exceeding market value of the Company's Common Shares on the date of grant, instead of Statement No. 123, which would result in compensation expense being recorded based on the fair value of the stock option compensation issued.

Adjusted Net Income

        For the quarter ended March 31, 2002, Adjusted Net Income ("ANI") available to Common Shares and OP units decreased $10.6 million as compared to the quarter ended March 31, 2001.

        The following is a reconciliation of net income available to Common Shares to ANI available to Common Shares and OP Units for the quarters ended March 31, 2002 and 2001:

Adjusted Net Income
(Amounts in thousands)
(Unaudited)

 
 Quarter Ended March 31
 
 
 2002
 2001
 
Net income available to Common Shares $76,353 $106,754 
Net income allocation to Minority Interests—Operating Partnership  6,441  9,796 
Adjustments:       
 Acquisition cost depreciation*  96,158  93,473 
 Amortization of goodwill    933 
 Acquisition cost depreciation accumulated on sold properties  (3,944) (26,199)
 Extraordinary items  97  (311)
 Cumulative effect of change in accounting principle    1,270 
  
 
 
ANI available to Common Shares and OP Units—basic** $175,105 $185,716 
  
 
 
Depreciation for replacements and capital improvements $21,252 $19,068 
  
 
 

*
Acquisition cost depreciation represents depreciation for the initial cost of the property, including buildings and furniture, fixtures and equipment and depreciation on capital improvements identified in the acquisition underwriting and incurred in the first twenty-four months of ownership when the total cost exceeds $2,000 per unit.
**
ANI represents net income (loss) (computed in accordance with accounting principles generally accepted in the United States ("GAAP")), including gains or losses from sales of real estate, plus acquisition cost depreciation, plus amortization of goodwill, minus the accumulated acquisition cost depreciation on sold properties, plus/minus extraordinary items and plus the cumulative effect of change in accounting principle. Depreciation associated with replacements and capital improvements is deducted in calculating ANI.

        The Company believes that ANI is helpful to investors as a supplemental measure of the operating performance of a real estate company because, along with cash flows from operating activities, financing activities and investing activities, it provides investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. ANI in and of itself does not represent cash generated from operating activities in accordance with GAAP and therefore should not

27


be considered an alternative to net income as an indication of the Company's performance or to net cash flows from operating activities as determined by GAAP as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. The Company's calculation of ANI may differ from the methodology for calculating ANI utilized by other real estate companies and may differ, for example, due to variations among the Company's and other real estate companies' accounting policies for replacement type items and, accordingly, may not be comparable to such other real estate companies.

Funds From Operations

        For the quarter ended March 31, 2002, Funds From Operations ("FFO") available to Common Shares and OP Units decreased $0.1 million as compared to the quarter ended March 31, 2001.

        The following is a reconciliation of net income available to Common Shares to FFO available to Common Shares and OP Units for the quarters ended March 31, 2002 and 2001:

Funds from Operations ("FFO")
(Amounts in thousands)
(Unaudited)

 
 Quarter Ended March 31,
 
 
 2002
 2001
 
Net income available to Common Shares $76,353 $106,754 
Net income allocation to Minority Interests—Operating Partnership  6,441  9,796 
Adjustments:       
 Depreciation/amortization  117,410  113,474 
 Net gain on sales of discontinued operations  (2,816) (41,778)
 Net gain on sales of unconsolidated entities  (5,657)  
 Extraordinary items  97  (311)
 Cumulative effect of change in accounting principle    1,270 
 Impairment on technology investments  291  3,003 
  
 
 
 FFO available to Common Shares and OP Units—basic* $192,119 $192,208 
  
 
 

*
FFO represents net income (loss) (computed in accordance with accounting principles generally accepted in the United States ("GAAP")), excluding gains or losses from sales of property, and investments in technology segments, plus depreciation and amortization and after(after adjustments for unconsolidated partnershipsPartially Owned Properties and joint ventures.Unconsolidated Properties), plus/minus extraordinary items, and plus the cumulative effect of change in accounting principle and impairment charges. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operationsFFO on the same basis.

        The Company believes that FFO is helpful to investors as a supplemental measure of the operating performance of a real estate company because, along with cash flows from operating activities, financing activities and investing activities, it provides investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. FFO in and of itself does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indication of the Company's performance or to net cash flows from operating activities as determined by GAAP as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. The Company's calculation of FFO may differ from the methodology for calculating FFO utilized by other real estate companies and may differ, as a result of differences betweenfor example, due to variations among the Company's and other real estate company'scompanies' accounting policies for replacement type items and, accordingly, may not be comparable to such other real estate companies. For the quarter ended March 31, 2001, FFO available to Common Shares and OP Units-basic increased by $22.3 million, or 13.1% when compared to the quarter ended March 31, 2000. 23 The following is a reconciliation of net income to FFO available to Common Shares and OP Units for the quarters ended March 31, 2001 and 2000 (amounts in thousands except per share and OP Unit amounts):
QUARTER ENDED MARCH 31, --------------------------------- 2001 2000 --------------- ---------------- STATEMENTS OF FUNDS FROM OPERATIONS Net income $ 135,280 $ 101,139 Adjustments: Depreciation/amortization 113,474 110,081 Allocation to Minority Interests - Operating Partnership 9,796 7,096 Net gain on sales of real estate (41,778) (19,998) Extraordinary items (311) - Cumulative effect of change in accounting principle* 1,270 - Loss on investment in technology segment** 3,003 - --------------- ---------------- FFO 220,734 198,318 Preferred distributions (28,526) (28,388) --------------- ---------------- FFO available to Common Shares and OP Units - basic $ 192,208 $ 169,930 --------------- ---------------- FFO available to Common Shares and OP Units - diluted $ 199,653 $ 180,012 =============== ================ Weighted average Common Shares and OP Units outstanding - basic 144,829 140,264 --------------- ---------------- Weighted average Common Shares and OP Units outstanding - diluted 154,008 151,329 --------------- ----------------
* Represents the effect related to the Company's adoption of SFAS No. 133/138 on January 1, 2001. ** Represents the Company's portion of losses related to its investments in four technology companies. 24

28



PART II.    OTHER INFORMATION ITEM

Item 1.    LEGAL PROCEEDINGSLegal Proceedings

        There have been no new or significant developments related to the legal proceedings that were discussed in Part I, Item III of the Company's Form 10-K for the year ended December 31, 2000. ITEM2001.


Item 6.    EXHIBITS AND REPORTS ON FORMExhibits and Reports on Form 8-K

(A)
Exhibits:

10.1
Compensation agreement between Bruce Duncan and the Company dated March 14, 2002.

10.2
Compensation agreement between Douglas Crocker II and the Company dated April 10, 2002, but effective as of January 16, 2002.

12
Computation of Ratio of Earnings to Combined Fixed Charges
(B)
Reports on Form 8-K: A Report on Form 8-K dated March 2, 2001, regarding additional information on the prospectus supplement for the Company's $300 million unsecured note offering. 25

        None



SIGNATURES

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

EQUITY RESIDENTIAL PROPERTIES TRUST
Date: May 13, 2002By:/s/  BRUCE C. STROHM      
Bruce C. Strohm
Executive Vice President, General Counsel and Secretary
Date: May 13, 2002By:/s/  MICHAEL J. MCHUGH      
Michael J. McHugh
Executive Vice President, Chief Accounting Officer and Treasurer


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EQUITY RESIDENTIAL PROPERTIES TRUST Date: May 11, 2001 By: /s/ Bruce C. Strohm ------------ -------------------------------------------- Bruce C. Strohm Executive Vice President, General CounselCONSOLIDATED BALANCE SHEETS (Amounts in thousands except for share amounts) (Unaudited)
EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except for share data) (Unaudited)
EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)
EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Amounts in thousands) (Unaudited)
EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Results of Operations
SIGNATURES