FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the ~~Quarterly Period Ended~~ quarterly period ended MARCH 31, ~~2003~~2004

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

Commission File Number: 1-12252

~~EQUITY RESIDENTIAL~~

~~(Exact Name of Registrant as Specified in its Charter)~~

EQUITY RESIDENTIAL
(Exact Name of Registrant as Specified in its Charter)

Maryland		13-3675988
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Two North Riverside Plaza, Chicago, Illinois		60606
(Address of Principal Executive Offices)		(Zip Code)

(312) 474-1300

(Registrant’s Telephone Number, Including Area Code)

~~(312) 474-1300~~

~~(Registrant’s Telephone Number, Including Area Code)~~

http://www.equityapartments.com

(Registrant’s web site)

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 ý No o

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

The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding on ~~April 30, 2003~~March 31, 2004 was ~~272,540,045.~~280,185,975.

EQUITY RESIDENTIAL
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share amounts)
(Unaudited)

March 31,
2003

December 31,
2002

March 31,
2004

December 31,
2003

ASSETS

Investment in real estate

Land

$
1,807,226

$
1,803,577

$
2,066,965

$
1,845,547

Depreciable property

11,227,980

11,240,245

11,901,855

11,018,326

Construction in progress

2,428

2,441

13,037,634

13,046,263

Construction in progress (including land)

386,655

10,506

Investment in real estate

14,355,475

12,874,379

Accumulated depreciation

(2,194,190
)
(2,112,017
)

(2,337,502
)
(2,296,013
)
Investment in real estate, net of accumulated depreciation

10,843,444

10,934,246

Investment in real estate, net

12,017,973

10,578,366

Cash and cash equivalents

310,309

29,875

71,527

49,579

Investments in unconsolidated entities

515,741

509,789

13,503

473,977

Rents receivable

1,410

2,926

2,584

426

Deposits – restricted

173,121

141,278

135,664

133,752

Escrow deposits – mortgage

44,688

50,565

42,158

41,104

Deferred financing costs, net

33,780

32,144

31,852

31,135

Goodwill, net

30,000

30,000

30,000

30,000

Other assets

78,277

80,094

111,967

128,554

Total assets

$
12,030,770

$
11,810,917

$
12,457,228

$
11,466,893

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Mortgage notes payable

$
2,901,117

$
2,927,614

$
3,221,993

$
2,693,815

Notes, net

2,854,319

2,456,085

2,656,105

2,656,674

Line of credit

—

140,000

420,000

10,000

Accounts payable and accrued expenses

66,234

64,369

90,204

55,463

Accrued interest payable

64,987

63,151

71,914

60,334

Rents received in advance and other liabilities

167,641

165,095

198,625

189,372

Security deposits

45,192

45,333

46,937

44,670

Distributions payable

141,413

140,844

141,231

140,195

Total liabilities

6,240,903

6,002,491

6,847,009

5,850,523

Commitments and contingencies

Minority Interests:

Operating Partnership

345,983

349,646

326,332

342,809

Preference Interests

246,000

246,000

246,000

246,000

Junior Preference Units

5,846

5,846

2,217

2,217

Partially Owned Properties

9,395

9,811

13,582

9,903

Total Minority Interests

607,224

611,303

588,131

600,929

Shareholders’ equity:

Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized;
10,520,784 shares issued and outstanding as of March 31, 2003 and 10,524,034 shares issued and outstanding as of December 31, 2002

946,076

946,157

Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized;
272,488,106 shares issued and outstanding as of March 31, 2003 and 271,095,481 shares issued and outstanding as of December 31, 2002

2,725

2,711

Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 5,450,018 shares issued and outstanding as of March 31, 2004 and 5,496,518 shares issued and outstanding as of December 31, 2003

669,750

670,913

Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 280,185,975 shares issued and outstanding as of March 31, 2004 and 277,643,885 shares issued and outstanding as of December 31, 2003

2,802

2,776

Paid in capital

4,827,623

4,839,218

4,992,448

4,956,712

Deferred compensation

(9,832
)
(12,118
)

(2,641
)
(3,554
)
Distributions in excess of accumulated earnings

(541,721
)
(535,056
)

(610,865
)
(588,005
)
Accumulated other comprehensive loss

(42,228
)
(43,789
)

(29,406
)
(23,401
)
Total shareholders’ equity

5,182,643

5,197,123

5,022,088

5,015,441

Total liabilities and shareholders’ equity

$
12,030,770

$
11,810,917

$
12,457,228

$
11,466,893

See accompanying notes

2

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)

Quarter Ended March 31,

Quarter Ended March 31,

2003

2002

2004

2003

REVENUES

Rental income

$
480,219

$
485,144

$
459,654

$
435,803

Fee and asset management

2,488

1,718

3,007

2,488

Interest and other income

3,343

4,100

Total revenues

486,050

490,962

462,661

438,291

EXPENSES

Property and maintenance

132,281

122,578

125,995

118,422

Real estate taxes and insurance

52,433

49,771

52,471

47,857

Property management

15,901

19,490

17,286

15,851

Fee and asset management

1,770

1,862

1,995

1,770

Depreciation

117,816

110,992

115,610

105,778

Interest:

Expense incurred, net

80,809

84,331

Amortization of deferred financing costs

1,408

1,385

General and administrative

11,176

10,800

9,988

11,176

Impairment on technology investments

291

291

—

291

Total expenses

413,885

401,500

323,345

301,145

Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations

72,165

89,462

Operating income

139,316

137,146

Interest and other income

2,108

3,337

Interest:

Expense incurred, net

(79,858
)
(79,417
)
Amortization of deferred financing costs

(1,426
)
(1,338
)

Income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations

60,140

59,728

Allocation to Minority Interests:

Operating Partnership

(9,110
)
(6,441
)

(7,640
)
(9,110
)
Partially Owned Properties

(115
)
(806
)

(147
)
(115
)
Income from investments in unconsolidated entities

107

226

Income (loss) from investments in unconsolidated entities

(7,406
)
107

Net gain on sales of unconsolidated entities

1,212

5,657

2,434

1,212

Income before discontinued operations

64,259

88,098

Income from continuing operations

47,381

51,822

Net gain on sales of discontinued operations

70,672

2,816

71,499

70,672

Discontinued operations, net

416

9,964

(1,815
)
12,853

Net income

135,347

100,878

117,065

135,347

Preferred distributions

(24,180
)
(24,525
)

(18,756
)
(24,180
)
Net income available to Common Shares

$
111,167

$
76,353

$
98,309

$
111,167

Net income per share – basic

$
0.41

$
0.28

Net income per share – diluted

$
0.41

$
0.28

Weighted average Common Shares outstanding – basic

270,678

271,094

Weighted average Common Shares outstanding – diluted

297,646

297,229

Earnings per share – basic:

Income from continuing operations available to Common Shares

$
0.12

$
0.13

Net income available to Common Shares

$
0.35

$
0.41

Weighted average Common Shares outstanding

277,498

270,678

Earnings per share – diluted:

Income from continuing operations available to Common Shares

$
0.12

$
0.13

Net income available to Common Shares

$
0.35

$
0.41

Weighted average Common Shares outstanding

301,781

294,508

Distributions declared per Common Share outstanding

$
0.4325

$
0.4325

$
0.4325

$
0.4325

See accompanying notes

3

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS ~~(Continued)~~(continued)
(Amounts in thousands except per share data)
(Unaudited)

Quarter Ended March 31,

Quarter ended March 31,

2004

2003

2003

2002

Comprehensive income:

Net income

$
135,347

$
100,878

$
117,065

$
135,347

Other comprehensive income – derivative instruments:

Unrealized holding gains arising during the period

137

4,176

Other comprehensive income (losses) – derivative and other instruments:

Unrealized holding gains (losses) arising during the period

(10,154
)
137

Equity in unrealized holding gains arising during the period – unconsolidated entities

1,194

3,033

3,667

1,194

Losses reclassified into earnings from other comprehensive income

230

168

482

230

Comprehensive income

$
136,908

$
108,255

$
111,060

$
136,908

See accompanying notes

4

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

Quarter Ended March 31,

Quarter Ended March 31,

2003

2002

2004

2003

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$
135,347

$
100,878

$
117,065

$
135,347

Adjustments to reconcile net income to net cash provided by operating activities:

Allocation to Minority Interests:

Operating Partnership

9,110

6,441

7,640

9,110

Partially Owned Properties

115

806

147

115

Depreciation

118,918

116,768

117,185

118,918

Amortization of deferred financing costs

1,408

1,391

1,590

1,408

Amortization of discounts and premiums on debt

(239
)
(327
)

(216
)
(239
)
Amortization of deferred settlements on interest rate protection agreements

(68
)
(101
)
Amortization of deferred settlements on derivative instruments

123

(68
)
Impairment on technology investments

291

291

—

291

(Income) from investments in unconsolidated entities

(107
)
(226
)
Loss (income) from investments in unconsolidated entities

7,406

(107
)
Net (gain) on sales of discontinued operations

(70,672
)
(2,816
)

(71,499
)
(70,672
)
Net (gain) on sales of unconsolidated entities

(1,212
)
(5,657
)

(2,434
)
(1,212
)
Debt extinguishments – prepayment premiums/fees

183

97

Unrealized (gain) on interest rate protection agreements

(44
)
(62
)
Loss on debt extinguishments

93

183

Unrealized loss (gain) on derivative instruments

59

(44
)
Compensation paid with Company Common Shares

4,445

4,964

4,335

4,445

Changes in assets and liabilities:

Decrease in rents receivable

1,516

1,045

(Increase) decrease in deposits – restricted

(2,283
)
14,133

Decrease in other assets

322

18,446

Increase (decrease) in accounts payable and accrued expenses

1,865

(7,498
)
(Increase) decrease in rents receivable

(1,534
)
1,516

(Increase) in deposits – restricted

(1,356
)
(2,283
)
(Increase) decrease in other assets

(7,046
)
322

Increase in accounts payable and accrued expenses

5,888

1,865

Increase in accrued interest payable

1,836

9,963

9,159

1,836

(Decrease) increase in rents received in advance and other liabilities

(6,770
)
4,566

(Decrease) increase in security deposits

(141
)
287

(Decrease) in rents received in advance and other liabilities

(8,902
)
(6,788
)
Increase (decrease) in security deposits

287

(141
)
Net cash provided by operating activities

193,820

263,389

177,990

193,802

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in real estate – acquisitions

(76,692
)
(26,100
)

(187,996
)
(76,692
)
Investment in real estate – development/other

(2,057
)
(24,338
)

(4,722
)
(2,057
)
Improvements to real estate

(33,602
)
(27,697
)

(35,712
)
(33,602
)
Additions to non-real estate property

(908
)
(3,004
)

(667
)
(908
)
Interest capitalized for real estate under development

—

(2,068
)

(370
)
—

Interest capitalized for unconsolidated entities under development

(5,437
)
(3,816
)

(2,282
)
(5,437
)
Proceeds from disposition of real estate, net

190,906

31,722

291,527

190,906

Proceeds from disposition of furniture rental business

—

28,741

Proceeds from disposition of unconsolidated entities

1,213

11,317

4,729

1,213

Investments in unconsolidated entities

(4,227
)
(12,099
)

(406,115
)
(4,227
)
Distributions from unconsolidated entities

6,041

14,765

23,416

6,041

(Increase) in deposits on real estate acquisitions, net

(29,560
)
(6,288
)
Decrease (increase) in deposits on real estate acquisitions, net

565

(29,560
)
Decrease in mortgage deposits

5,877

4,105

2,653

5,877

Business combinations, net of cash acquired

(18
)
(207
)
Consolidation of previously Unconsolidated Properties:

Via acquisition (net of cash acquired)

(49,080
)
—

Via FIN 46 (cash consolidated)

3,628

—

Acquisition of Minority Interests – Partially Owned Properties

(72
)
—

Other investing activities, net

—

193

1,401

—

Net cash provided by (used for) investing activities

51,536

(14,774
)
Net cash (used for) provided by investing activities

(359,097
)
51,554

See accompanying notes

5

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

Quarter Ended March 31,

Quarter Ended March 31,

2003

2002

2004

2003

CASH FLOWS FROM FINANCING ACTIVITIES:

Loan and bond acquisition costs

$
(3,153
)
$
(3,040
)

$
(707
)
$
(3,153
)
Mortgage notes payable:

Proceeds

48,680

20,772

16,450

48,680

Lump sum payoffs

(101,793
)
(18,267
)

(80,692
)
(101,793
)
Scheduled principal repayments

(8,285
)
(8,469
)

(6,145
)
(8,285
)
Prepayment premiums/fees

(183
)
(97
)

(430
)
(183
)
Notes, net:

Proceeds

398,816

397,064

—

398,816

Lump sum payoffs

—

(100,000
)
Scheduled principal repayments

(192
)
—

—

(192
)
Line of credit:

Proceeds

172,000

245,000

549,000

172,000

Repayments

(312,000
)
(440,000
)

(139,000
)
(312,000
)
(Payments on) proceeds from settlement of interest rate protection agreements

(12,999
)
835

(Payments on) settlement of derivative instruments

(3,107
)
(12,999
)
Proceeds from sale of Common Shares

2,606

4,236

3,538

2,606

Proceeds from exercise of options

4,270

9,777

20,923

4,270

Payment of offering costs

(71
)
(141
)

(24
)
(71
)
Distributions:

Common Shares

(117,242
)
(117,338
)

(119,740
)
(117,242
)
Preferred Shares

(19,048
)
(16,441
)

(13,693
)
(19,048
)
Preference Interests

(5,053
)
(5,080
)

(5,053
)
(5,053
)
Junior Preference Units

(81
)
(81
)

(81
)
(81
)
Minority Interests – Operating Partnership

(9,645
)
(10,151
)

(9,411
)
(9,645
)
Minority Interests – Partially Owned Properties

(1,549
)
(9,120
)

(8,773
)
(1,549
)
Principal receipts on employee notes, net

—

85

Net cash provided by (used for) financing activities

35,078

(50,456
)
Net cash provided by financing activities

203,055

35,078

Net increase in cash and cash equivalents

280,434

198,159

21,948

280,434

Cash and cash equivalents, beginning of period

29,875

51,603

49,579

29,875

Cash and cash equivalents, end of period

$
310,309

$
249,762

$
71,527

$
310,309

SUPPLEMENTAL INFORMATION:

Cash paid during the period for interest

$
83,579

$
81,566

$
73,800

$
83,579

Mortgage loans assumed through real estate acquisitions

$
34,968

$
—

Real estate acquisitions/dispositions:

Mortgage loans assumed

$
36,943

$
34,968

Mortgage loans (assumed) by purchaser in real estate and furniture rental business dispositions

$
—

$
(1,680
)
Mortgage loans (assumed) by purchaser

$
(1,338
)
$
—

Transfers to real estate held for disposition

$
—

$
3,505

Consolidation of previously Unconsolidated Properties – Via acquisition:

Investment in real estate

$
(955,073
)
$
—

Mortgage loans assumed

$
270,285

$
—

Minority Interests – Partially Owned Properties

$
309

$
—

Investments in unconsolidated entities

$
608,200

$
—

Net other (assets) liabilities recorded

$
27,199

$
—

Consolidation of previously Unconsolidated Properties – Via FIN 46:

Investment in real estate

$
(548,342
)
$
—

Mortgage loans consolidated

$
294,722

$
—

Minority Interests – Partially Owned Properties

$
3,074

$
—

Investments in unconsolidated entities

$
234,984

$
—

Net other (assets) liabilities recorded

$
19,190

$
—

See accompanying notes

6

EQUITY RESIDENTIAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.                                      Business ~~of the Company~~

Equity Residential (“EQR”), formed in March 1993, is a fully integrated real estate company engaged in the acquisition, development, ownership, management and operation of multifamily properties. EQR has elected to be taxed as a real estate investment trust (“REIT”).

EQR is the general partner of, and as of March 31, ~~2003~~2004 owned an approximate ~~92.4%~~93.0% ownership interest in, ERP Operating Limited Partnership, an Illinois limited partnership (the “Operating Partnership”). The Operating Partnership is, 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 ownership and operation of multifamily residential real estate. References to the “Company” include EQR, the Operating Partnership and each of the partnerships, limited liability companies and corporations controlled by the Operating Partnership and/or EQR.

As of March 31, ~~2003,~~2004, the Company, ~~owned~~directly or ~~had~~indirectly through investments in ~~1,027~~title holding entities, owned all or a portion of 952 properties in 3634 states consisting of ~~221,249~~203,590 units. AnThe ownership breakdown includes:

Number of
Properties

Number of
Units

Properties

Units

Wholly Owned Properties

906

191,875

849

179,115

Partially Owned Properties (Consolidated)

36

6,931

40

7,857

Unconsolidated Properties

85

22,443

63

16,618

Total Properties

1,027

221,249

952

203,590

2.                                      Summary of Significant Accounting Policies
Basis of Presentation

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 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 period financial statements in order to conform to the current year presentation. Operating results for the ~~three months~~quarter ended March 31, ~~2003~~2004 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2003.~~2004.

The balance sheet at December 31, ~~2002~~2003 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, ~~2002.~~2003.

~~Other~~Stock-Based Compensation

~~In April 2002, the FASB issued~~The Company has elected to expense its stock-based compensation in accordance with SFAS No. ~~145,~~123 and its amendment (SFAS No. 148), ~~Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections~~Accounting for Stock Based Compensation~~. SFAS No. 145, among other items,~~, effective in the first

7

~~rescinds~~quarter of 2003, which resulted in compensation expense being recorded based on the ~~automatic classification~~fair value 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.~~stock compensation granted.
The Company has chosen to use the “Prospective Method” which requires the Company to apply the recognition provisions of SFAS No. ~~145~~123 to only employee awards granted or modified after the beginning of the fiscal year in which the recognition provisions are first applied, or January 1, 2003. Compensation expense under all of the Company’s plans is generally recognized over periods ranging from three months to five years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for both the quarters ended March 31, 2004 and 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.
The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period presented:

Quarter Ended March 31,

2004

2003

(Amounts in thousands except
per share amounts)

Net income available to Common Shares – as reported

$
98,309

$
111,167

Add: Stock-based employee compensation expense included in reported net income:

Restricted/performance shares

2,882

2,334

Share options (1)

789

1,707

ESPP discount

664

490

Deduct: Stock-based employee compensation expense determined under fair value based method for all awards:

Restricted/performance shares

(2,882
)
(2,334
)
Share options (1)

(1,558
)
(2,899
)
ESPP discount

(664
)
(490
)
Net income available to Common Shares – pro forma

$
97,540

$
109,975

Earnings per share:

Basic – as reported

$
0.35

$
0.41

Basic – pro forma

$
0.35

$
0.41

Diluted – as reported

$
0.35

$
0.41

Diluted – pro forma

$
0.35

$
0.40

(1)       Share options for ~~fiscal years beginning after May 15, 2002.~~ the quarter ended March 31, 2003 included $1.4 million of expense recognition related to options granted in the first quarter of 2003 to the Company’s former chief executive officer. These options vested immediately upon grant.
8

Other
The Company adopted ~~the standard effective January 1, 2003.~~
~~In January 2003, the~~ FASB ~~issued~~ Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities,. as required, effective March 31, 2004. The adoption required the consolidation of all previously unconsolidated development projects. FIN No. 46 requires the Company to consolidate the assets, liabilities and results of operations of the activities of a variable interest entity, which for the Company includes only its development partnerships, if the Company is entitled to ~~be consolidated by~~receive a ~~company if that company~~majority of the entity’s residual returns or is subject to a majority of the risk of loss from ~~the variable interest~~such entity’s ~~activities or entitled to receive a majority~~activities. As of the ~~entity’s residual returns or both.~~original formation of the respective joint ventures, the Company is considered to be the primary beneficiary and the fair value of the assets, liabilities and non-controlling interests of these development projects approximates carryover basis. Due to the March 31, 2004 effective date, the Company has consolidated only the assets, liabilities and non-controlling interests of these development properties. The ~~consolidation requirements~~results of operations will be consolidated beginning April 1, 2004. The adoption of FIN No. 46 ~~apply immediately~~will not have any effect on net income as the aggregate results of operations of these development properties were previously taken into account in income (loss) from investments in unconsolidated entities. See Note 4 for additional discussion.
The Company generally contributes between 25% and 35% of the project cost of the joint venture projects under development (constituting 100% of the equity), with the remaining cost financed through third-party construction mortgages. Voting rights are shared equally between the Company and its respective development partners and accordingly, these projects were accounted for under the equity method prior to ~~variable~~adoption of FIN No. 46.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. On November 7, 2003, the FASB issued FSP No. FAS 150-3, which deferred for an indefinite period the classification and measurement provisions, but not the disclosure provisions (see discussion below), of SFAS No. 150 as it relates to noncontrolling interests that are classified as equity in the financial statements of a subsidiary but would be classified as a liability in the parent’s financial statements under SFAS No. 150 (e.g., minority interests in consolidated limited-life subsidiaries). The Company does not have any mandatorily redeemable preferred shares/units that fall within the scope of SFAS No. 150.
With regards to the aforementioned disclosure provisions, the Company is presently the controlling partner in various consolidated partnerships consisting of 40 properties and 7,857 units having a minority interest ~~entities created after January~~book value of $13.6 million at March 31, 2004. These partnerships contain provisions that require the partnerships to be liquidated through the sales of their assets upon reaching a date specified in each respective partnership agreement. The Company, as controlling partner, has an obligation to cause the property owning partnerships to distribute proceeds of liquidation to the Minority Interests in these Partially Owned Properties only to the extent that the net proceeds received by the partnerships from the sale of its assets warrant a distribution based on the partnership agreements. As of March 31, 2004, the Company estimates the value of Minority Interest distributions would have been approximately $107 million (“Settlement Value”) had the partnerships been liquidated. This Settlement Value is based on estimated third party consideration realized by the partnerships upon disposition of the Partially Owned Properties and is net of all other assets and liabilities, including yield maintenance on the mortgages encumbering the properties, that would have been due on March 31, 2004 had those mortgages been prepaid. Due to, among other things, the inherent uncertainty in the sale of real estate assets, the amount of any potential distribution to the Minority Interests in the Company’s Partially Owned Properties is subject to change. To the extent that the partnerships’ underlying assets are worth less than the underlying liabilities, the Company has no obligation to remit any consideration to the Minority Interests in Partially Owned Properties.
On July 31, 2003, the SEC clarified its position with respect to Emerging Issues Task Force
9

(“EITF”) Topic D-42, The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock. Under the SEC’s revised interpretation, in connection with the redemption of preferred shares/units, the original issuance costs of these shares/units must be treated in a manner similar to preferred distributions and ~~apply~~deducted from net income in arriving at net income available to ~~older entities~~Common Shares. The clarification of EITF Topic D-42 was required to be adopted effective July 1, 2003 on a retroactive basis by restating prior periods included in the ~~first fiscal year or interim period beginning after June 15, 2003.~~current financial statements. The ~~Company will adopt FIN No. 46 in~~adoption of the ~~third quarter~~clarification of ~~2003 but has~~EITF Topic D-42 did not ~~yet determined~~have any impact on the ~~effect that adoption will have on its~~Company’s consolidated financial position ~~and~~or cash flows nor did it impact the reported consolidated results of ~~operations.~~operations for the periods presented herein.

3.Shareholders’ 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, ~~2003:~~2004:

~~2003~~2004

Common Shares outstanding at January 1,

~~271,095,481~~277,643,885

Common Shares Issued:

Conversion of Series E Preferred Shares

~~3,613~~51,633
Conversion of Series H Preferred Shares
144

Employee Share Purchase Plan

~~126,273~~142,145

Exercise of options

~~218,980~~898,092

Restricted share grants, net

~~996,815~~550,332

Conversion of OP Units

~~46,944~~899,819

Other
(75
)

Common Shares outstanding at March 31,

~~272,488,106~~280,185,975

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 – Operating Partnership”. The Minority Interests – Operating Partnership held ~~22,253,699~~21,007,913 units of limited partnership interest (“OP Units”), representing a ~~7.6%~~7.0% interest in the Operating Partnership, at March 31, ~~2003.~~2004. Assuming conversion of all OP Units into Common Shares, total Common Shares outstanding at March 31, ~~2003~~2004 would have been ~~294,741,805.~~301,193,888. Subject to applicable securities law restrictions, the Minority Interests – Operating Partnership may exchange their OP Units for EQR Common Shares on a one-for-one basis.

Net proceeds from the Company’s Common Share and Preferred Share (see definition below) offerings are contributed by the Company to the Operating Partnership. In return for those contributions, EQR receives a number of OP Units in the Operating Partnership equal to the number of Common Shares it has issued in the equity offering (or in the case of a preferred equity offering, a number of preference units in the Operating Partnership equal in number and having the same terms as the Preferred Shares issued in the equity offering). As a result, the net offering proceeds from Common Shares are allocated between shareholders’ equity and Minority Interests – Operating Partnership to account for the change in their respective percentage ownership of the underlying equity of the Operating Partnership.

The Company’s declaration of trust authorizes the Company to 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 Company’s Common Shares.
The following table presents the Company’s issued and outstanding Preferred Shares as of March 31, ~~2003~~2004 and December 31, ~~2002:~~2003:

810

Annual
Dividend
Rate per
Share (1)

Amounts in thousands

March 31,
2003

December 31,
2002

Preferred Shares of beneficial interest, $0.01 par value;
100,000,000 shares authorized:

9 1/8% Series B Cumulative Redeemable Preferred; liquidation value $250 per share; 500,000 shares issued and outstanding at March 31, 2003 and December 31, 2002

$
22.81252

$
125,000

$
125,000

9 1/8% Series C Cumulative Redeemable Preferred; liquidation value $250 per share; 460,000 shares issued and outstanding at March 31, 2003 and December 31, 2002

$
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, 2003 and December 31, 2002

$
21.50000

175,000

175,000

7.00% Series E Cumulative Convertible Preferred; liquidation value $25 per share; 2,544,864 and 2,548,114 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively

$
1.75000

63,622

63,703

7 ¼% Series G Convertible Cumulative Preferred; liquidation value $250 per share; 1,264,692 shares issued and outstanding at March 31, 2003 and December 31, 2002

$
18.12500

316,173

316,173

7.00% Series H Cumulative Convertible Preferred; liquidation value $25 per share; 51,228 shares issued and outstanding at March 31, 2003 and December 31, 2002

$
1.75000

1,281

1,281

8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 1,000,000 shares issued and outstanding at March 31, 2003 and December 31, 2002

$
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, 2003 and December 31, 2002

$
1.90625

100,000

100,000

$
946,076

$
946,157

Annual

Dividend
Rate per
Share (1)

Amounts in thousands

March
31, 2004

December
31, 2003

Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized:

9 1/8% Series B Cumulative Redeemable Preferred; liquidation value $250 per share; 500,000 shares issued and outstanding at March 31, 2004 and December 31, 2003

$
22.81252

$
125,000

$
125,000

9 1/8% Series C Cumulative Redeemable Preferred; liquidation value $250 per share; 460,000 shares issued and outstanding at March 31, 2004 and December 31, 2003

$
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, 2004 and December 31, 2003

$
21.50

175,000

175,000

7.00% Series E Cumulative Convertible Preferred; liquidation value $25 per share; 2,146,090 and 2,192,490 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively

$
1.75

53,652

54,812

7.00% Series H Cumulative Convertible Preferred; liquidation value $25 per share; 43,928 and 44,028 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively

$
1.75

1,098

1,101

8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 1,000,000 shares issued and outstanding at March 31, 2004 and December 31, 2003

$
4.145

50,000

50,000

6.48% Series N Cumulative Redeemable Preferred; liquidation value $250 per share; 600,000 shares issued and outstanding at March 31, 2004 and December 31, 2003

$
16.20

150,000

150,000

$
669,750

$
670,913

(1)          Dividends on all series of Preferred Shares are payable quarterly at various pay dates. Dividend rates listed for Series B, C, D and GN are Preferred Share rates and the equivalent Depositary Share annual dividend rates are $2.281252, $2.281252, $2.15 and ~~$1.8125,~~$1.62, 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.

11

The following table presents the issued and outstanding Preference Interests as of March 31, ~~2003~~2004 and December 31, ~~2002:~~2003:
9

Annual
Dividend
Rate per
Unit (1)

Amounts in thousands

March 31,
2003

December
31, 2002

Preference Interests:

8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at March 31,2003 and December 31, 2002

$
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 31,2003 and December 31, 2002

$
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 31,2003 and December 31, 2002

$
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 31,2003 and December 31, 2002

$
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 31,2003 and December 31, 2002

$
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 31,2003 and December 31, 2002

$
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 31,2003 and December 31, 2002

$
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, 2003 and December 31, 2002

$
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, 2003 and December 31, 2002

$
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, 2003 and December 31, 2002

$
3.8125

11,500

11,500

$
246,000

$
246,000

Annual

Dividend
Rate per
Unit (1)

Amounts in thousands

March
31, 2004

December
31, 2003

Preference Interests:

8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at March 31, 2004 and December 31, 2003

$
4.00

$
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, 2004 and December 31, 2003

$
4.25

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, 2004 and December 31, 2003

$
4.25

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, 2004 and December 31, 2003

$
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, 2004 and December 31, 2003

$
4.25

50,000

50,000

8.375% Series F Cumulative Redeemable Preference Units; liquidation value $50 per unit; 180,000 units issued and outstanding at March 31, 2004 and December 31, 2003

$
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, 2004 and December 31, 2003

$
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, 2004 and December 31, 2003

$
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, 2004 and December 31, 2003

$
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, 2004 and December 31, 2003

$
3.8125

11,500

11,500

$
246,000

$
246,000

(1)          Dividends on all series of Preference Interests are payable quarterly on March 25^th, June 25^th, September 25^th,and December 25^thof each year.
12

The following table presents the Operating Partnership’s issued and outstanding Junior Convertible Preference Units (the “Junior Preference Units”) as of March 31, ~~2003~~2004 and December 31, ~~2002:~~2003:

10

Annual
Dividend
Rate per
Unit(1)

Amounts in thousands

March
31, 2003

December
31, 2002

Junior Preference Units:

Series A Junior Convertible Preference Units; liquidation value $100 per unit; 56,616 units issued and outstanding at March 31, 2003 and December 31, 2002

$
5.46934

$
5,662

$
5,662

Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31, 2003 and December 31, 2002

$
2.00000

184

184

$
5,846

$
5,846

Annual

Dividend
Rate per
Unit (1)

Amounts in thousands

March
31, 2004

December
31, 2003

Junior Preference Units:

Series A Junior Convertible Preference Units; liquidation value $100 per unit; 20,333 units issued and outstanding at March 31, 2004 and December 31, 2003

$
5.46934

$
2,033

$
2,033

Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31, 2004 and December 31, 2003

$
2.00

184

184

$
2,217

$
2,217

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

4.                                      Real Estate

During the quarter ended March 31, ~~2003,~~2004, the Company acquired the entire equity interest in ~~the three~~ fiveproperties ~~listed below~~containing 1,671 units from unaffiliated parties, inclusive of three additional units at an existing property, for a total purchase price of ~~$111.5~~$224.4 million.

Date
Acquired

Property

Location

Number of
Units

Acquisition Price
(in thousands)

01/30/03

The Reserve @ Eisenhower

Alexandria, VA

226

$
41,000

02/14/03

Artisan Square

Northridge, CA

140

27,466

03/05/03

LaSalle

Beaverton, OR

554

43,000

920

$
111,466

5. ~~Real Estate Dispositions~~

During the quarter ended March 31, ~~2003,~~2004, the Company also acquired the majority of the remaining third party equity interests it did not previously own in sixteen properties, consisting of 4,739 completed units, 315 development units to be completed in the second quarter of 2004 and two vacant land parcels. These properties were previously accounted for under the equity method of accounting and subsequent to each purchase were consolidated. The Company recorded $955.1 million in investment in real estate and the following:

• Assumed $270.3 million in mortgage debt;

• Recorded $0.3 million of minority interest in partially owned properties;

• Reduced investments in unconsolidated entities by $608.2 million (inclusive of $339.7 million in mortgage debt paid off prior to closing);

• Assumed $27.2 million of other liabilities net of other assets acquired; and

• Paid cash of $49.1 million (net of cash acquired).

As previously noted, the Company adopted FIN No. 46, as required, effective March 31, 2004. The adoption required the consolidation of all previously unconsolidated development projects. Accordingly, the Company consolidated five completed properties containing 1,360 units, six projects under development which are anticipated to contain 1,592 units upon completion and various other vacant land parcels held for future development. The Company recorded $548.3 million in investment in real estate and the following:

• Consolidated $294.7 million in mortgage debt;

• Recorded $3.0 million of minority interest in partially owned properties;

• Reduced investments in unconsolidated entities by $235.0 million;

• Consolidated $19.2 million of other liabilities net of other assets acquired; and

• Consolidated $3.6 million of cash.

During the quarter ended March 31, 2004, the Company disposed of ~~the seventeen~~twenty-two properties ~~listed below~~containing 5,990 units to unaffiliated ~~parties.~~ parties, inclusive of various individual condominium units, for a total sales price of $301.3 million allocated as follows:

• Wholly Owned Properties – 19 properties containing 5,239 units for a total sales price of $269.4 million;

• Partially Owned Properties – 2 properties containing 487 units for a total sales price of $27.5 million; and

• Unconsolidated Properties – 1 property containing 264 units for a total sales price of $4.4 million (represents the Company’s allocated share of the net disposition proceeds).

The Company recognized a net gain on sales of discontinued operations of approximately ~~$70.7~~$71.5 million and a net gain on sales of unconsolidated entities of approximately ~~$1.2 million.~~$2.4 million on the above sales.

Date
Disposed

Property

Location

Number Of
Units

Disposition
Price
(in thousands)

01/14/03

Strawberry Place

Plant City, FL

55

$
1,400

01/14/03

Smoketree Polo Club

Indio, CA

288

18,900

01/29/03

Amberwood I

Lake City, FL

50

1,175

01/30/03

Emerald Place

Bermuda Dunes, CA

240

20,125

01/30/03

Rolido Parque

Houston, TX

369

14,660

02/27/03

Fox Hill Commons

Vernon, CT

74

4,700

02/27/03

The Landings

Winter Haven, FL

60

1,475

02/27/03

Morningside

Titusville, FL

183

3,980

03/04/03

Colony Woods

Birmingham, AL

414

25,000

03/04/03

Hearthstone

San Antonio, TX

252

7,700

03/04/03

Northgate Village

San Antonio, TX

264

10,150

03/19/03

Lincoln Green I, II & III

San Antonio, TX

680

24,900

03/20/03

Meadows on the Lake

Birmingham, AL

200

10,900

03/20/03

Meadows in the Park

Birmingham, AL

200

10,900

03/20/03

Shoal Run

Birmingham, AL

276

14,350

03/31/03

Colony Place

Fort Myers, FL

300

20,600

Various

Four Lakes Condo Units

Lisle, IL

26

3,161

Wholly Owned Properties

3,931

194,076

02/28/03

Kings Crossing I*

Jacksonville, FL

69

963

Unconsolidated Properties

69

963

Total

4,000

$
195,039

* Represents the Company’s share of the net disposition proceeds.
11

6.5.                                 Commitments to Acquire/Dispose of Real Estate

As of ~~March 31, 2003,~~April 28, 2004, in addition to the properties that were subsequently acquired as discussed in Note 16, the Company had entered into a separate ~~agreements~~agreement to acquire ~~two~~one multifamily ~~properties~~property containing ~~719~~144 units from an unaffiliated ~~parties.~~party. The Company expects a ~~combined~~ purchase price of approximately ~~$114.5~~$16.4 million.

As of ~~March 31, 2003,~~April 28, 2004, in addition to the properties that were subsequently disposed of as discussed in Note ~~19,~~16, the Company had entered into separate agreements to dispose of ~~twenty-four~~eight multifamily properties containing ~~4,079~~2,516 units and one vacant land parcel to unaffiliated parties. The Company expects a combined disposition price of approximately ~~$186.2~~$156.6 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.

7.6.                                      Investments in Unconsolidated Entities

The Company has co-invested in various properties with unrelated third ~~parties.~~parties which are accounted for under the equity method of accounting. The following table summarizes the Company’s investments in unconsolidated entities as of March 31, ~~2003~~2004 (amounts in thousands except for project and unit amounts):

Institutional
Joint
Ventures

Stabilized
Development
Projects (1)

Projects
Under
Development

Lexford/
Other

Totals

Total projects

45

12

17

22

96
(2)

Total units

10,846

3,805

4,659

2,704

22,014
(2)

Company’s percentage ownership of outstanding debt

25.0
%
100.0
%
100.0
%
11.1
%

Company’s share of outstanding debt (4)

$
121,200

$
295,103

$
505,587
(3)
$
5,386

$
927,276

14

Institutional
Joint
Ventures

Lexford/
Other

Totals

Total projects

45

17

62
(1)

Total units

10,846

2,015

12,861
(1)

Company’s ownership percentage of outstanding debt

25.0
%
12.7
%

Company’s share of outstanding debt (2)

$
121,200

$
4,577

$
125,777

(1)          ~~The Company determines a project to be stabilized once it has maintained an average physical occupancy of 90% or more for a three-month period.~~
~~(2)~~          ~~Includes twelve projects under development containing 3,223 units, which are not included in the Company’s property/unit counts at March 31, 2003.~~          Totals exclude Fort Lewis Military Housing consisting of one property and ~~3,652~~3,757 units, which is not accounted for under the equity method of
12

~~accounting. The Fort Lewis Military Housing~~ accounting but is included in the Company’s property/unit counts atas of March 31, ~~2003.~~2004.

~~(3)~~(2)          ~~A total of $763.5 million is available for funding under this construction debt, of which $505.6 million was funded and outstanding at March 31, 2003.~~
~~(4)~~          ~~As of April 30, 2003, the Company has funded $51.0 million as additional collateral on selected debt (see Note 8).~~ All ~~remaining~~ debt is non-recourse to the Company.

Investments in unconsolidated entities include the Unconsolidated Properties as well as various development properties under construction or pending construction. The Company does not consolidate these entities as it does not have sole control of the major decisions (such as sale and/or financing/refinancing). The Company’s common equity ownership interests in these entities range from 4.5% to 50.0% at March 31, 2003.
These investments are accounted for utilizing 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 capitalizes 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, 2003 and 2002, the Company capitalized $5.4 million and $3.8 million, respectively, in interest cost related to its unconsolidated development projects (which reduced interest expense incurred in the consolidated statements of operations).
~~The Company generally contributes between 25% and 35% of the project cost of the unconsolidated projects under development, with the remaining cost financed through third-party construction mortgages.~~
8.7.                                      Deposits - - Restricted

As of March 31, ~~2003,~~2004, deposits-restricted totaled ~~$173.1~~$135.7 million and primarily included the following:

•                  Deposits in the amount of ~~$51.0~~$32.0 million held in third party escrow accounts to provide collateral for third party construction financing in connection with ~~unconsolidated~~partially owned (consolidated) development projects;
•                  Approximately ~~$55.0~~$39.5 million in tax-deferred (1031) exchange proceeds; and
•                  Approximately ~~$67.1~~$64.2 million for resident security, utility, and other deposits.

9.8.                                      Mortgage Notes Payable

As of March 31, ~~2003,~~2004, the Company had outstanding mortgage indebtedness of approximately ~~$2.9~~$3.2 billion.

During the quarter ended March 31, ~~2003,~~2004, the Company:

•                  Repaid ~~$110.1~~$86.8 million of mortgage loans;
•                  ~~Assumed $35.0~~Assumed/consolidated $601.9 million of mortgage debt on certain properties in connection with their ~~acquisitions; and~~acquisition and/or consolidation;
•                  Obtained ~~$48.7~~$16.5 million of mortgage loans on certain properties; and
•                  Was released from $1.3 million of mortgage debt assumed by the purchaser on disposed properties.

As of March 31, ~~2003,~~2004, scheduled maturities for the Company’s outstanding mortgage indebtedness were at various dates through ~~October~~January 1, ~~2033.~~2034. At March 31, ~~2003,~~2004, the interest rate range on the Company’s mortgage debt was ~~1.09%~~0.92% to 12.465%. During the quarter ended March 31, ~~2003,~~2004, the weighted average interest rate on the Company’s mortgage debt was ~~6.02%~~5.59%.

1315

~~10.~~9.                                 Notes

As of March 31, ~~2003,~~2004, the Company had outstanding unsecured notes of approximately ~~$2.9 billion net of a $7.0 million discount and including an $8.3 million premium.~~
~~During the quarter ended March 31, 2003, the Company:~~
•                  ~~Issued $400.0 million of ten-year 5.20% fixed-rate public notes, receiving net proceeds of $397.5 million.~~$2.7 billion.

As of March 31, ~~2003,~~2004, scheduled maturities for the Company’s outstanding notes were at various dates through 2029. At March 31, ~~2003,~~2004, the interest rate range on the Company’s notes was 4.75% to 7.75%. During the quarter ended March 31, ~~2003,~~2004, the weighted average interest rate on the Company’s notes was ~~5.73%~~6.43%.

~~11.~~10.                               Line of Credit

The Company has a revolving credit facility with potential borrowings of up to $700.0 million. As of March 31, ~~2003, no amounts were~~2004, $420.0 million was outstanding and ~~$53.3~~$56.7 million was restricted (dedicated to support letters of credit and not available for borrowing) on the ~~line of credit.~~credit facility. During the quarter ended March 31, ~~2003,~~2004, the weighted average interest rate was ~~1.85%~~1.51%. EQR has guaranteed the Operating Partnership’s ~~line of~~ credit facility up to the maximum amount and for the full term of the facility.

~~12.~~11.                               Derivative Instruments

The following table summarizes the consolidated derivative instruments at March 31, ~~2003~~2004 (dollar amounts are in thousands):

Cash Flow
Hedges

Fair Value
Hedges

Interest
Rate
Caps

Offsetting
Receive
Floating
Swaps/Caps

Offsetting
Pay
Floating
Swaps/Caps

Cash Flow
Hedges

Fair Value
Hedges

Forward
Starting
Swaps

Interest
Rate Caps

Offsetting
Receive
Floating
Swaps/Caps

Offsetting
Pay
Floating
Swaps/Caps

Development
Cash Flow
Hedges

Current Notional Balance

$
400,000

$
120,000

$
37,000

$
255,119

$
255,119

$
150,000

$
320,000

$
250,000

$
37,000

$
255,082

$
255,082

$
137,409

Lowest Possible Notional

$
400,000

$
120,000

$
37,000

$
251,410

$
251,410

$
150,000

$
320,000

$
250,000

$
37,000

$
99,524

$
99,524

$
19,993

Highest Possible Notional

$
400,000

$
120,000

$
37,000

$
431,444

$
431,444

$
150,000

$
320,000

$
250,000

$
37,000

$
264,419

$
264,419

$
137,409

Lowest Interest Rate

3.65125
%
7.25000
%
6.5
%
4.52800
%
4.45800
%

3.68
%
3.25
%
4.34
%
6.50
%
4.90
%
4.83
%
1.93
%
Highest Interest Rate

5.81000
%
7.25000
%
6.5
%
6.00000
%
6.00000
%

3.68
%
7.25
%
4.90
%
6.50
%
6.00
%
6.00
%
5.23
%
Earliest Maturity Date

2003

2005

2004

2003

2003

2005

2005

2014

2004

2004

2004

2004

Latest Maturity Date

2005

2005

2004

2007

2007

2005

2009

2014

2004

2007

2007

2004

Estimated Asset (Liability) Fair Value

$
(12,123
)
$
8,851

$
—

$
(2,261
)
$
2,184

$
(5,652
)
$
3,815

$
(6,543
)
$
—

$
385

$
(385
)
$
(323
)

During the quarter ended March 31, ~~2003,~~2004, the Company paid approximately ~~$13.0~~$3.1 million to terminate ~~eight forward starting~~four development interest rate swaps in conjunction with the ~~issuance of $400.0 million of ten-year unsecured notes. The $13.0 million payment will be deferred and recognized as additional interest expense over the ten-year life~~repayment of the ~~unsecured notes.~~
~~At March 31, 2003, certain unconsolidated development partnerships in which the Company invested had entered into swaps to hedge the interest rate risk exposure on unconsolidated floating rate~~respective construction mortgage loans. The Company ~~has recorded its proportionate share of~~recognized a $1.9 million loss in connection with these ~~hedges on its consolidated balance sheets. These swaps have been designated as cash flow hedges with a current aggregate notional amount of $363.2million (notional amounts range from $142.1million to $456.2million over the terms of the swaps) at interest rates ranging from 1.78% to 6.94% maturing at various dates ranging from 2003 to 2005 with a net liability fair value of $12.1million. During the quarter ended March 31, 2003, the Company recognized an unrealized gain of $0.7 million due to ineffectiveness of~~
14

~~certain of these unconsolidated development derivatives~~terminations (included in ~~income~~loss from investments in unconsolidated ~~entities)~~entities as the losses occurred prior to the acquisition and/or consolidation of the respective development properties – see further discussion in Notes 2 and 4).

On March 31, ~~2003,~~2004, the net derivative instruments were reported at their fair value as other assets of approximately $5.5 million and as other liabilities of approximately ~~$3.3 million and as a reduction to investments in unconsolidated entities of approximately $12.1~~$14.2 million. As of March 31, ~~2003,~~2004, there were approximately ~~$40.9~~$29.3 million in deferred losses, net, included in accumulated other comprehensive loss. Based on the estimated fair values of the net derivative instruments at March 31, ~~2003,~~2004, the Company may recognize an estimated ~~$17.4~~$7.1 million of accumulated other comprehensive loss as additional interest expense during the twelve months ending March 31, ~~2004, of which $8.1 million is related to the unconsolidated development partnerships.~~2005.
16

~~13.~~12.                               ~~Calculation of Net Income~~Earnings Per ~~Weighted Average Common~~ Share

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

Quarter Ended March 31,

Quarter Ended March 31,

2003

2002

2004

2003

(Amounts in thousands except per
share amounts)

(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 and preferred distributions

$
72,165

$
89,462

Allocation to Minority Interests:

Operating Partnership

(9,110
)
(6,441
)
Partially Owned Properties

(115
)
(806
)
Income from investments in unconsolidated entities

107

226

Numerator for net income per share – basic:

Income from continuing operations

$
47,381

$
51,822

Preferred distributions

(24,180
)
(24,525
)

(18,756
)
(24,180
)
Allocation of Minority Interests – Operating Partnership to discontinued operations

5,024

6,323

Income before net gain on sales of unconsolidated entities and discontinued operations

38,867

57,916

Income from continuing operations available to Common Shares, net of allocation of Minority Interests – Operating Partnership

33,649

33,965

Net gain on sales of discontinued operations, net of allocation of Minority Interests – Operating Partnership

66,344

65,322

Discontinued operations, net of allocation of Minority Interests – Operating Partnership

(1,684
)
11,880

Net gain on sales of unconsolidated entities

1,212

5,657

Numerator for net income per share – basic

$
98,309

$
111,167

Numerator for net income per share – diluted:

Income from continuing operations

$
47,381

$
51,822

Preferred distributions

(18,756
)
(24,180
)
Effect of dilutive securities:

Allocation to Minority Interests – Operating Partnership

7,640

9,110

Income from continuing operations available to Common Shares

36,265

36,752

Net gain on sales of discontinued operations

70,672

2,816

71,499

70,672

Discontinued operations, net

416

9,964

(1,815
)
12,853

Numerator for net income per share – basic

111,167

76,353

Effect of dilutive securities:

Allocation to Minority Interests - Operating Partnership

9,110

6,441

Distributions on convertible preferred shares/units

1,214

—

Numerator for net income per share – diluted

$
121,491

$
82,794

$
105,949

$
120,277

Denominator:

Denominator for net income per share – basic and diluted:

Denominator for net income per share – basic

270,678

271,094

277,498

270,678

Effect of dilutive securities:

OP Units

22,271

23,012

21,530

22,272

Convertible preferred shares/units

3,139

—

Share options/restricted shares

1,558

3,123

2,753

1,558

Denominator for net income per share – diluted

297,646

297,229

301,781

294,508

Net income per share – basic

$
0.41

$
0.28

$
0.35

$
0.41

Net income per share – diluted

$
0.41

$
0.28

$
0.35

$
0.41

1517

Quarter Ended March 31,

Quarter Ended March 31,

2004

2003

2003

2002

(Amounts in thousands except
per share amounts)

(Amounts in thousands except per
share amounts)

Net income per share – basic:

Income before net gain on sales of unconsolidated entities and discontinued operations per share – basic

$
0.17

$
0.22

Net gain on sales of unconsolidated entities

—

0.02

Income from continuing operations available to Common Shares

$
0.12

$
0.13

Net gain on sales of discontinued operations

0.24

0.01

0.24

0.24

Discontinued operations, net

—

0.03

(0.01
)
0.04

Net income per share – basic

$
0.41

$
0.28

$
0.35

$
0.41

Net income per share – diluted:

Income before net gain on sales of unconsolidated entities and discontinued operations per share - diluted

$
0.17

$
0.22

Net gain on sales of unconsolidated entities

—

0.02

Income from continuing operations available to Common Shares

$
0.12

$
0.13

Net gain on sales of discontinued operations

0.24

0.01

0.24

0.24

Discontinued operations, net

—

0.03

(0.01
)
0.04

Net income per share – diluted

$
0.41

$
0.28

$
0.35

$
0.41

All net income per share-basic amounts have been calculated prior to considering any allocation for Minority Interests – Operating Partnership due to the ability of the OP Unit holders to exchange their OP Units for Common Shares on a one-for-one basis.
Convertible preferred shares/units that could be converted into ~~11,807,095~~3,553,977 and ~~15,853,687~~14,945,776 weighted average Common Shares for the quarters ended March 31, ~~2003~~2004 and ~~2002,~~2003, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.
~~14.~~13.                               D~~iscontinued~~Discontinued Operations

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

The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Company owned such assets during each of the quarters ended March 31, ~~2003~~2004 and ~~2002, including the following:~~2003.

•~~The Wholly Owned Properties sold during 2003 (see Note 5); and~~
•~~The Wholly Owned Properties and the furniture rental business sold during 2002.~~
1618

Quarter Ended March 31,

Quarter Ended March 31,

2004

2003

2003

2002

(Amounts in thousands)

(Amounts in thousands)

REVENUES

Rental income

$
5,026

$
25,898

$
5,440

$
49,442

Interest and other income

11

10

Furniture income

—

1,365

Total revenues

5,037

27,273

5,440

49,442

EXPENSES (1)

Property and maintenance

2,871

6,809

4,477

16,730

Real estate taxes and insurance

587

2,849

604

5,163

Property management

—

50

Depreciation

1,102

5,776

1,575

13,140

Interest expense incurred, net

61

566

Amortization of deferred financing costs

—

6

Furniture expenses

—

1,303

Total expenses

4,621

17,309

6,656

35,083

Discontinued operating income (loss)

(1,216
)
14,359

Interest and other income

20

17

Interest:

Expense incurred, net

(455
)
(1,453
)
Amortization of deferred financing costs

(164
)
(70
)

Discontinued operations, net

$
416

$
9,964

$
(1,815
)
$
12,853

(1)       Includes ~~trailing~~ expenses paid in the current period for ~~Wholly Owned Properties~~properties sold in prior periods related to the Company’s period of ownership.
For the properties sold during 2004, the investment in real estate, net and the mortgage notes payable balances at December 31, 2003 were $206.7 million and $43.1 million, respectively.

~~15.~~14.                               ~~Stock-Based Compensation~~
~~Prior to 2003, the Company had chosen to account for its stock-based compensation in accordance with APB No. 25,~~ ~~Accounting for Stock Issued to Employees~~,which resulted in no compensation expense for options issued with an exercise price equal to or exceeding the market value of the Company’s Common Shares on the date of grant (intrinsic method). The Company has elected to expense its stock-based compensation in accordance with SFAS No. 123 and its amendment (SFAS No. 148), ~~Accounting for Stock Based Compensation~~~~, effective in the first quarter of 2003, which resulted in compensation expense being recorded based on the fair value of the stock compensation granted or modified.~~
SFAS No. 148 provides three transition methods for entities that adopt the fair value recognition provisions of SFAS No. 123. The Company has chosen to use the “Prospective Method”. This method requires that companies apply the recognition provisions of SFAS No. 123 to only employee awards granted or modified after the beginning of the fiscal year in which the recognition provisions are first applied, or January 1, 2003. Compensation expense under all of the Company’s plans is generally recognized over periods ranging from three months to five years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for the quarter ended March 31, 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.
~~The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period presented:~~
17

Quarter Ended March 31,

2003

2002

(Amounts in thousands
except per share amounts)

Net income available to Common Shares, as reported

$
111,167

$
76,353

Add: Stock-based employee compensation expense included in reported net income:

Restricted/performance shares

2,334

5,084

Share options (1)

1,707

—

ESPP discount

490

—

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards:

Restricted/performance shares

(2,334
)
(5,084
)
Share options (1)

(2,899
)
(1,527
)
ESPP discount

(490
)
(658
)
Pro forma net income available to Common Shares

$
109,975

$
74,168

Earnings per share:

Basic – as reported

$
0.41

$
0.28

Basic – pro forma

$
0.41

$
0.27

Diluted – as reported

$
0.41

$
0.28

Diluted – pro forma

$
0.40

$
0.27

~~(1)~~Share options for the quarter ended March 31, 2003 included $1.4 million of expense recognition related to options granted in the first quarter of 2003 to the Company’s former chief executive officer. These options vested immediately upon grant.
~~16.~~Commitments and Contingencies

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

The Company is a party to a class action lawsuit in Florida state court alleging that several of the types of fees that the Company charged when residents breached their leases were illegal, as were all efforts to collect them. The Company is vigorously contesting the plaintiffs’ claims and has sought immediate appellate review of the 2003 class action certification decision. Due to the uncertainty of many critical factual and legal issues, including the viability of the case as a class action, it is not possible to determine or predict the outcome. While no assurances can be given, the Company does not believe that this lawsuit, if adversely determined, will have a material adverse effect on the Company.
The Company does not believe there is any other litigation pending or threatened against the Company ~~other than routine litigation arising out of~~which, individually or in the ~~ordinary course of business, some of which is expected to~~aggregate, reasonably may be ~~covered by liability insurance, none of which is~~ expected to have a material adverse effect on the ~~consolidated financial statements of the~~ Company.

As of March 31, ~~2003,~~2004, the Company has 17seven projects with joint venture partners in various stages of development with estimated completion dates ranging through ~~June 30, 2004. The Company funded a net total~~December 31, 2005 which are consolidated
19

as of ~~$1.7~~~~million during the quarter ended~~ March 31, ~~2003 for the development~~2004 as a result of multifamily properties pursuant to its agreements with developers. The Company expects to fund approximately $5.0 million in connection with these properties during the remainder of 2003 and in 2004.FIN No. 46. The three development agreements currently in place have the following key terms:

guarantee a portion of the third party construction ~~financing,~~financing. As of April 28, 2004, the Company had set-aside $10.0 million towards this credit enhancement. The Company would be required to perform under this agreement only if ~~required.~~there was a material default under a third party construction mortgage agreement. This agreement expires no later than December 31, 2018. Notwithstanding the termination of the agreement, the Company shall have recourse against its development partner for any losses incurred.

• The second development partner has the right, at any time following completion of a project, to require the Company to purchase the partners’ interest in that project at a mutually agreeable price. If the Company and the partner are unable to agree on a price, both parties will obtain appraisals. If the appraised values vary by more than 10%, both the Company and its 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 its 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, the Company must purchase, at the agreed-upon price, any projects remaining unsold.

• The third development partner has the exclusive right for six months following stabilization, ~~(generally~~as defined, ~~as having achieved 90% occupancy for three consecutive months following the substantial completion of a project)~~ to market a project for sale. Thereafter, either the Company or its development partner may market a project for sale. If the Company’s development partner proposes the sale, the Company may elect to purchase the project at the price proposed by its partner or defer the sale until two independent appraisers appraise the project. If the two appraised values vary by more than 5%, a third appraiser will be chosen to determine the fair market value of the property. Once a value has been determined, the Company may elect to purchase the property or authorize its development partner to sell the project at the agreed-upon value.

In connection with one of its mergers, the Company provided a guaranty of a credit enhancement agreement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. The Company has the obligation to provide this guaranty for a period of eight years from the consummation of the merger or through May 2005. The Company would be required to perform under this agreement only if there was a draw on the letter of credit issued by the credit enhancement party. The counterparty has also indemnified the Company for any losses suffered. As of March 31, ~~2003,~~2004, this ~~enhancement~~guaranty was still in effect at a commitment amount of $12.7 ~~million.~~million and no current outstanding liability.

~~17.~~ ~~Asset Impairment~~

For both the quarters ended March 31, 2003 and 2002, the Company recorded approximately $0.3 million of asset impairment charges related to its technology investments. These charges were the result of a review of the existing investments reflected on the consolidated balance sheet. These impairment losses are reflected on the consolidated statements of operations in total expenses and include the write-down of assets classified as other assets.

~~18.~~15. 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 residents and includes ~~ECH.~~Equity Corporate Housing (“ECH”). Senior management evaluates the performance of each of our apartment

communities on an individual ~~basis,~~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 ~~98.8%~~99.4% of total revenues for both the quarters ended March 31, ~~2003~~2004 and ~~2002.~~2003. The Company’s rental real estate segment comprises approximately 99.8% and 99.7% of total assets at March 31, ~~2003~~2004 and December 31, ~~2002,~~2003, respectively.

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 consolidated statements of operations). The Company believes that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of the Company’s apartment communities. 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 ~~$279.6~~$263.9 million and ~~$293.3~~$253.7 million for the quarters ended March 31, 2004 and 2003, ~~and 2002,~~ respectively.

During the acquisition, development and/or disposition of real estate, the Company considers its NOI return on total investment as the primary measure of financial performance.

The Company’s fee and asset management activity is immaterial and does not meet the threshold requirements of a reportable segment as provided for in SFAS No. 131.

All revenues are from external customers and there is no customer who contributed 10% or more of the Company’s total revenues during the ~~quarters~~quarter ended March 31, ~~2003~~2004 or ~~2002.~~2003.

~~19.~~16. Subsequent Events/Other

Subsequent to March 31, ~~2003~~2004 and through April ~~30, 2003,~~28, 2004, the Company:

• Acquired four properties consisting of 814 units for approximately $98.8 million;

• Assumed $14.0 million of mortgage debt on one property in connection with its acquisition;

• Disposed of three properties and various individual condominium units consisting of ~~761~~839 units for approximately ~~$28.5~~$53.7 million;

• Obtained $220.0 million in new mortgage debt;

• Repaid $82.5 million of mortgage debt; and

• Repaid ~~$12.9~~$75.0 million of ~~mortgage debt at/or prior to~~7.5% fixed rate notes at maturity.

2021

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

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, ~~2002.~~2003.

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”, “estimates”, “expects” and “anticipates” and other similar expressions that 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:

• The total number of development units, cost of development and completion dates as well as anticipated capital expenditures for replacements and building improvements all reflect the Company’s best estimates and are subject to uncertainties arising from changing economic conditions (such as the cost of labor and construction materials), competition and local government regulation;

• ~~Alternative sources~~Sources of capital to the Company or labor and materials required for maintenance, repair, capital expenditure or development are more expensive than anticipated;

• Occupancy levels and market rents may be adversely affected by national and local economic and market conditions including, without limitation, new construction of multifamily housing, ~~continuing decline in~~slow employment growth, availability of low interest mortgages for single-family home buyers and the potential for geopolitical instability, all of which are beyond the Company’s control; and

• Additional factors as discussed in Part I of the Annual Report on Form 10-K, particularly those under “Risk Factors”.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes 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. Forward-looking statements and related uncertainties are also included in ~~Note 6~~Notes 5 and 11 to the Notes to Consolidated Financial Statements in this report.

Results of Operations

The following table summarizes the number of properties and related units for the periods presented:

Properties

Units

Purchase /
Sale Price
$ Millions

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

Q2/Q3/Q4 2002 Acquisitions

11

3,266

$
263.9

Ft. Lewis Joint Venture

1

3,652

Q2/Q3/Q4 2002 Dispositions

(53
)
(9,956
)
$
502.5

Q2/Q3/Q4 2002 Completed Developments

7

1,613

Q2/Q3/Q4 2002 Unit Configuration Changes

—

16

At December 31, 2002

1,039

223,591

Q1 2003 Acquisitions

3

920

$
111.5

Q1 2003 Dispositions

(17
)
(4,000
)
$
195.0

Q1 2003 Completed Developments

2

738

At March 31, 2003

1,027

221,249

Significant changes in revenues between the quarters presented have resulted primarily from reduced rental income through increased concessions or reduced apartment rents and occupancy at many of our properties. Significant changes in expenses have resulted from increases in property and maintenance expenses including payroll, maintenance, building, utilities and leasing and advertising as well as real estate taxes. In addition, the Company’s acquisition, disposition and completed development activity has impacted overall results of operations for the quarters ended March 31, 2003 and 2002. These changes are discussed in greater detail in the following paragraphs.

	Properties		Units		Purchase / Sale Price $Millions
At December 31, 2002	1,039		223,591
Q1 2003 Acquisitions	3		920		$	111.5
Q1 2003 Dispositions	(17	)	(4,000	)	$	195.0
Q1 2003 Completed Developments	2		738
At March 31, 2003	1,027		221,249
Q2/Q3/Q4 2003 Acquisitions	14		4,280		$	572.6
Q2/Q3/Q4 2003 Dispositions	(79	)	(19,486	)	$	1,022.9
Q2/Q3/Q4 2003 Completed Developments	6		1,374
Q2/Q3/Q4 2003 Unit Configuration Changes	—		89
At December 31, 2003	968		207,506
Q1 2004 Acquisitions	5		1,671		$	224.4
Q1 2004 Dispositions	(22	)	(5,990	)	$	301.3
Q1 2004 Completed Developments	1		403
At March 31, 2004	952		203,590

Properties that the Company owned for both of the quarters ended March 31, ~~2003~~2004 and March 31, ~~2002~~2003 (the “First Quarter ~~2003~~2004 Same Store Properties”), which represented ~~191,278~~170,836 units, ~~also~~ impacted the Company’s results of operations and are discussed ~~as well~~in the following paragraphs.

The Company’s acquisition, disposition and completed development activities also impacted overall results of operations for the quarters ended March 31, 2004 and 2003. The impacts of these activities are also discussed in greater detail in the following paragraphs.

Comparison of the quarter ended March 31, ~~2003~~2004 to the quarter ended March 31, ~~2002~~2003

For the quarter ended March 31, ~~2003,~~2004, income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations ~~decreased~~increased by approximately ~~$17.3~~$0.4 million when compared to the quarter ended March 31, ~~2002.~~2003.

~~Revenues from the~~ First Quarter ~~2003~~2004 Same Store Properties revenues decreased primarily as a result of lower ~~overall physical occupancy, increased concessions and lower~~ rental rates charged to ~~both new~~residents and ~~renewal residents. Property~~property operating expenses ~~from the First Quarter 2003 Same Store Properties~~ increased ~~mainly~~primarily due to higher payroll, utility ~~maintenance, building~~ and ~~payroll~~real estate tax costs. The following tables provide comparative revenue, expense, net operating income (“NOI”) and weighted average occupancy for the First Quarter ~~2003~~2004 Same Store Properties (NOI represents rental income less: 1) property and maintenance expense; 2) real estate taxes and insurance expense; and 3) property management expense):

2223

First Quarter ~~2003~~2004 vs. First Quarter ~~2002~~
2003

Quarter over Quarter Same-Store Results

$ in Millions – ~~191,278~~170,836 Same-Store Units

Description	Revenues			Expenses		NOI			Revenues			Expenses			NOI

Q1 2004									$	415.9		$	168.7		$	247.2
Q1 2003	$	448.1		$	176.8	$	271.3		$	416.9		$	163.8		$	253.1
Q1 2002	$	464.3		$	164.2	$	300.1
Change	$	(16.2	)	$	12.6	$	(28.8	)	$	(1.0	)	$	4.9		$	(5.9	)
Change	(3.5)%			7.7%		(9.6)%			(0.2		)%	3.0		%	(2.3		)%

~~Same-Store~~Same Store Occupancy Statistics

Q1 ~~2003~~2004	~~92.5~~92.9	%
Q1 ~~2002~~2003	~~94.0~~92.6	%
Change	~~(1.5~~0.3	)%

The Company’s primary financial measure for evaluating each of its apartment communities is NOI. The Company believes that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of the Company’s apartment communities.

For properties that the Company acquired prior to January 1, ~~2002~~2003 and expects to continue to own through December 31, ~~2003,~~2004, the Company anticipates the following ~~operating~~same store results for the full year ending December 31, ~~2003:~~2004:

~~2003 Same-Store Operating~~2004 Same Store Assumptions

Physical Occupancy		93.0%
Revenue Change		~~(3.5%~~(0.75%) to ~~(1.2%)~~1.50%
Expense Change		~~2.8%~~3.0% to ~~5.2%~~4.0%
NOI Change		~~(9.2%~~(4.0%) to ~~(3.7%)~~0.5%
~~Dispositions~~Acquisitions		$~~700~~800 million
Dispositions		$800 million

These ~~2003 operating~~2004 assumptions are based on current expectations and are forward-looking.

Rental income from properties other than First Quarter ~~2003~~2004 Same Store Properties increased by approximately ~~$11.3~~ $24.9million primarily as a result of ~~revenue from~~new properties acquired in ~~2002 and~~ 2003 and ~~additional Partially Owned Properties consolidated in~~ the ~~fourth~~first quarter of ~~2002.~~2004.

~~Interest~~Fee and ~~other income decreased~~asset management revenues, net of fee and asset management expenses, increased by ~~approximately $0.8~~$0.3 million primarily as a result of ~~lower interest rates being earned on short-term investment accounts along with lower balances on deposit in tax-deferred exchange accounts.~~additional income allocated from Ft. Lewis. As of March 31, 2004 and 2003, the Company managed 18,040 units and 18,896 units, respectively, for third parties and unconsolidated entities.

Property management expenses include off-site expenses associated with the self-management of the Company’s ~~properties.~~properties as well as management fees paid to third party management companies. These expenses ~~decreased~~increased by approximately ~~$3.6~~$1.4 million or ~~18.4%~~9.1%. This ~~decrease~~increase is primarily attributable to higher payroll costs and increased expenses for additional restricted shares and stock options granted.

Depreciation expense, which includes depreciation on non-real estate assets, increased $9.8 million primarily as a ~~reversal~~result of ~~a profit sharing accrual~~properties acquired after March 31, 2003, many of which had significantly higher per unit acquisition costs than properties previously acquired, and additional depreciation on capital expenditures for all properties owned.

General and administrative expenses, which include corporate operating expenses, decreased approximately $1.2 million between the periods under comparison. This decrease was primarily due to $1.4 million of immediate expense recognition related to options granted in the first quarter of 2003 ~~related~~ to the ~~2002 calendar~~Company’s former chief executive officer. The Company anticipates that general and administrative expenses could approximate up to $48.0 million for the full year ~~as the Company didn’t achieve its stated goals and management elected not~~ending December 31, 2004 (an increase of approximately $9.0 million compared to ~~make a discretionary contribution to the plan. In addition, the Company recorded lower expense in connection with granting less restricted shares to its employees in the first quarter of 2003.~~

~~Fee and asset management revenues, net of fee and asset management expenses, increased by $0.9 million~~2003) as a result of ~~managing~~consulting services contracted to enhance resident satisfaction/retention, unit pricing and expense procurement/reduction. The Company believes that these additional ~~units at Fort Lewis, Washington starting~~expenditures may be more than offset by increased rental revenues and/or reduced operating expenses in ~~April 2002. As of March 31, 2003~~future years. The above assumptions are based on current expectations and ~~2002, the Company managed 18,896units and 16,539 units, respectively, for third~~

~~parties and unconsolidated entities.~~are forward-looking.

~~The Company recorded impairment charges on its technology~~Interest and other income decreased by approximately $1.2million, primarily as a result of lower balances available for investments ~~of approximately $0.3 million for both quarters presented. See Note 17~~including deposits in ~~the Notes~~tax deferred exchange accounts and collateral agreements related to ~~Consolidated Financial Statements for further discussion.~~development projects.

Interest expense, including amortization of deferred financing costs, ~~decreased~~increased approximately ~~$3.5 million primarily due to lower variable interest rates.~~$0.5million. During the quarter ended March 31, ~~2003,~~2004, the Company capitalized interest costs of approximately ~~$5.4~~$2.7 million as compared to ~~$5.9~~$5.4 million for the quarter ended March 31, ~~2002.~~2003. This capitalization of interest primarily related to equity investments in unconsolidated entities engaged in development activities. The effective interest cost on all indebtedness for the quarter ended March 31, ~~2003~~2004 was ~~6.39%~~6.14% as compared to ~~6.51%~~6.39% for the quarter ended March 31, ~~2002.~~2003.

~~General and administrative expenses, which include corporate operating expenses,~~Loss from investments in unconsolidated entities increased approximately ~~$0.4~~$7.5 million between the periods under comparison. This increase ~~was~~is primarily ~~due to~~ the ~~Company’s election to begin expensing stock-based compensation effective January 1, 2003~~result of increased operating losses from equity investments and realized losses on the settlement of derivative instruments (see Note 1511 in the Notes to Consolidated Financial Statements) ~~partially offset by lower expenses recorded in connection with granting less restricted shares to employees in the first quarter of 2003.~~

Income from investments in unconsolidated entities decreased approximately $0.1 million between the periods under comparison. This decrease is primarily the result of increased equity losses partially offset by unrealized gains on derivative instruments..

Net gain on sales of discontinued operations increased approximately ~~$67.9~~$0.8 million between the periods under comparison. This increase is primarily the result of a greater number of properties sold during the quarter ended March 31, ~~2003, including two California properties,~~2004, as well as the fact that ~~many such sold~~several properties were more fully depreciated.

Discontinued operations, net, decreased approximately ~~$9.5~~$14.7 million between the periods under comparison. The decrease in revenues and expenses between periods results from the timing and size of the properties sold. Any property sold after April 1, 2003 will include a full quarter’s results in the first quarter of 2003 but minimal to no results in the first quarter of 2004. See Note 1413 in the Notes to Consolidated Financial Statements for further discussion.

The Company adopted FIN No. 46, as required, effective March 31, 2004. See Notes 2 and 4 in the Notes to Consolidated Financial Statements for further discussion.

Liquidity and Capital Resources

As of January 1, ~~2003,~~2004, the Company had approximately ~~$29.9~~$49.6 million of cash and cash equivalents and ~~$499.2~~$633.3 million available under its ~~line of~~revolving credit facility (net of ~~$60.8~~$56.7 million which was restricted/dedicated to support letters of credit and not available for borrowing). After taking into effect the various transactions discussed in the following paragraphs and the net cash provided by operating activities, the Company’s cash and cash equivalents balance at March 31, ~~2003~~2004 was approximately ~~$310.3~~$71.5 million and the amount available on the Company’s ~~line of~~revolving credit facility was ~~$646.7~~$223.3 million (net of ~~$53.3~~$56.7 million which was restricted/dedicated to support letters of credit and not available for borrowing).

Part of the Company’s acquisition and development funding strategy and the funding of investments in various unconsolidated entities is to utilize its line of credit and to subsequently repay the line of credit from the disposition of properties, retained cash flows or the issuance of additional equity or debt securities. Continuing to utilize this strategy duringDuring the quarter ended March 31, ~~2003,~~2004, the ~~Company:~~Company generated and/or obtained cash from

various transactions, which included the following:

• Increased borrowings by the net amount of $410.0 million on its revolving credit facility;

• Disposed of ~~seventeen~~twenty-two properties (including one Unconsolidated Property) and received net proceeds of approximately ~~$192.1~~$296.3 million;

• ~~Issued $400.0~~Obtained $16.5 million ~~of 5.20% fixed rate unsecured debt receiving net proceeds of $397.5 million;~~in new mortgage financing; and

• Issued approximately ~~0.3~~1.0 million Common Shares and received net proceeds of ~~$6.9 million; and~~

• ~~Obtained $48.7 million in new mortgage financing.~~

~~All of these proceeds were utilized to:~~

• ~~Purchase additional properties;~~

• ~~Repay the line of credit;~~

• ~~Repay mortgage indebtedness on selected properties;~~

• ~~Invest in unconsolidated development projects; and~~

• ~~Invest in unconsolidated entities.~~$24.5 million.

During the quarter ended March 31, ~~2003,~~2004, the ~~Company:~~above proceeds were utilized to:

• ~~Acquired~~Acquire the minority interests in fifteen previously unconsolidated development properties, two vacant land parcels and two other properties for $53.3 million in cash (prior to consideration of cash acquired of $4.2 million and the repayment of $339.7 million in mortgage debt prior to closing);

• Invest $406.1 million primarily in previously unconsolidated development projects prior to their consolidation (inclusive of $339.7 million in mortgage debt paid off prior to consolidation);

• Acquire five properties, and three ~~properties~~additional units at an existing property, utilizing cash of ~~$76.7~~$188.0 million;

• ~~Repaid $140.0~~Pay Common Share and OP Unit dividends of $129.2 million ~~on its line of credit;~~($0.4325 per share/unit);

• ~~Repaid $110.1~~Pay preferred share and preference interest/unit dividends of $18.8 million; and

• Repay $86.8 million of mortgage ~~loans; and~~loans.

•~~Funded a net of $1.7 million under its development agreements.~~

Depending on its analysis of market prices, economic conditions, and other opportunities for the investment of available capital, the Company may repurchase up to an additional $85.0 million of its Common Shares pursuant to its existing share buyback program authorized by the Board of Trustees. The Company did not repurchase any of its Common Shares during the quarter ended March 31, ~~2003.~~2004.

The Company’s total debt summary and debt maturity schedule as of March 31, ~~2003,~~2004, are as follows:

Debt Summary ~~as of March 31, 2003~~

	$ Millions		Weighted Average Rate		$Millions (1)		Weighted Average Rate (1)
Secured	$	2,901	6.05	%	$	3,222	5.59	%
Unsecured	2,854		6.36	%	3,076		6.12	%
Total	$	5,755	6.20	%	$	6,298	5.86	%

Fixed Rate*	$	5,122	6.70	%
Floating Rate*	633		2.23	%
Total*	$	5,755	6.20	%
Fixed Rate					$	4,965	6.71	%
Floating Rate					1,333		1.61	%
Total					$	6,298	5.86	%

Above Totals Include:
Total Tax Exempt	$	973	3.63	%
Above Totals Include:
Tax Exempt:
Fixed					$	327	4.40	%
Floating					573		1.38	%
Total					$	900	2.47	%

Unsecured Revolving Credit Facility	$	—	—		$	420	1.51	%

* (1)Net of the effect of any ~~interest rate protection agreements.~~derivative instruments.

2526

Debt Maturity Schedule as of March 31, ~~2003~~2004

Year	$ Millions		% of Total		$Millions		% of Total
2003	$	294	5.1	%
2004	656		11.4	%	$	787	12.5	%
2005*	617		10.7	%
2006	490		8.5	%
2005 (1)(2)					1,065		16.9	%
2006 (3)					480		7.6	%
2007	300		5.2	%	355		5.6	%
2008	489		8.5	%	624		9.9	%
2009	258		4.5	%	291		4.6	%
2010	199		3.5	%	196		3.1	%
2011	691		12.0	%	704		11.2	%
2012+	1,761		30.6	%
2012					460		7.3	%
2013+					1,336		21.2	%
Total	$	5,755	100.0	%	$	6,298	100.0	%

* (1)Includes $300 million of unsecured debt with a final maturity of 2015 that is putable/callable in 2005.

(2)Includes $420 million outstanding on the Company’s unsecured revolving credit facility.

(3)Includes $150 million of unsecured debt with a final maturity of 2026 that is putable in 2006.

In June 2003, the Operating Partnership filed and the SEC declared effective a Form S-3 registration statement to register $2.0 billion of debt securities. In addition, the Operating Partnership carried over $280.0 million related to a prior registration statement. As of April 28, 2004, $2.28 billion in debt securities remained available for issuance under this registration statement.

In February 1998, the Company filed and the SEC declared effective a Form S-3 registration statement to register $1.0 billion of equity securities. In addition, the Company carried over $272.4 million related to a prior registration statement. As of April 28, 2004, $956.5 million in equity securities remained available for issuance under this registration statement.

The Company’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of March 31, ~~2003~~2004 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 preference interests/units; and (iii) the liquidation value of all perpetual preferred shares and preference interests outstanding.

Capitalization as of March 31, ~~2003~~2004

Total Debt			$	5,755,435,646				$	6,298,098,129

Common Shares & OP Units	294,741,805					301,193,888
Common Share Equivalents (see below)	14,944,282					3,546,455
Total Outstanding at quarter-end	309,686,087					304,740,343
Common Share Price at March 31, 2003	$	24.07
Common Share Price at March 31, 2004						$	29.85
			7,454,144,114					9,096,499,239
Perpetual Preferred Shares Liquidation Value			565,000,000					615,000,000
Perpetual Preference Interests Liquidation Value			211,500,000					211,500,000
Total Market Capitalization			$	13,986,079,760				$	16,221,097,368

Debt/Total Market Capitalization			41.15		%			39		%

Convertible Preferred Shares, Preference Interests

and Junior Preference Units

as of March 31, ~~2003~~2004

	Shares/Units	Conversion Ratio	Common Share Equivalents	Shares/Units	Conversion Ratio	Common Share Equivalents
Preferred Shares:
Series E	2,544,864	1.1128	2,831,925	2,146,090	1.1128	2,388,169
Series G	1,264,692	8.5360	10,795,408
Series H	51,228	1.4480	74,178	43,928	1.4480	63,608
Preference Interests:
Series H	190,000	1.5108	287,052	190,000	1.5108	287,052
Series I	270,000	1.4542	392,634	270,000	1.4542	392,634
Series J	230,000	1.4108	324,484	230,000	1.4108	324,484
Junior Preference Units:
Series A	56,616	4.081600	231,084	20,333	4.081600	82,991
Series B	7,367	1.020408	7,517	7,367	1.020408	7,517

Total			14,944,282			3,546,455

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

From April 1, ~~2003~~2004 through April ~~30, 2003,~~28, 2004, the Company:

• Acquired four properties consisting of 814 units for approximately $98.8 million;

• Assumed $14.0 million of mortgage debt on one property in connection with its acquisition;

•Disposed of three properties and various individual condominium units consisting of ~~761~~839 units for approximately ~~$28.5~~$53.7 million;

• Obtained $220.0 million in new mortgage debt;

• Repaid $82.5 million of mortgage debt; and

• Repaid $75.0 million of 7.5% fixed rate notes at maturity.

Capitalization of Fixed Assets and Improvements to Real Estate

Our policy with respect to capital expenditures is generally to capitalize expenditures that improve the value of the property or extend the useful life of the component asset of the property. We track improvements to real estate in two major categories and several subcategories:

•Replacements (inside the unit). These include:

•carpets and hardwood floors;

•appliances;

•mechanical equipment such as individual furnace/air units, hot water heaters, etc;

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

•flooring such as vinyl, linoleum or tile; and

• ~~Repaid $12.9 million~~blinds/shades.

All replacements are depreciated over a five-year estimated useful life. We expense as incurred all maintenance and turnover costs such as cleaning, interior painting of ~~mortgage debt at/~~individual units and the repair of any replacement item noted above.

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

•roof replacement and major repairs;

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

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

•major building mechanical equipment systems;

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

•major landscaping and grounds improvement; and

•vehicles and office and maintenance equipment.

All building improvements are depreciated over a five to ten-year estimated useful life. We expense as incurred all recurring expenditures that do not improve the value of the asset or extend its useful life.

For the quarter ended March 31, 2004, our actual improvements to real estate totaled approximately $35.7 million. This includes the following detail (amounts in thousands except for unit and per unit amounts):

Capitalized Improvements to Real Estate

For the Quarter Ended March 31, 2004

	Total Units (1)	Replacements		Avg. Per Unit		Building Improvements		Avg. Per Unit		Total		Avg. Per Unit

Established Properties (2)	161,070	$	12,308	$	76	$	16,584	$	103	$	28,892	$	179
New Acquisition Properties (3)	16,539	583		48		1,440		117		2,023		165
Other (4)	9,363	2,580				2,217				4,797
Total	186,972	$	15,471			$	20,241			$	35,712

(1) Total units exclude 16,618 unconsolidated units.

(2) Wholly Owned Properties acquired prior to ~~maturity.~~January 1, 2002.

(3) Wholly Owned Properties acquired during 2002, 2003 and 2004. Per unit amounts are based on a weighted average of 12,260 units.

(4) Includes properties either Partially Owned or sold during the period, commercial space and, condominium conversions.

The Company expects to fund approximately $125.0million for capital expenditures for replacements and building improvements for all consolidated properties for the remainder of 2004.

During the quarter ended March 31, 2004, the Company’s total 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, was approximately $0.7million. The Company expects to fund approximately $5.8 million in total additions to non-real estate property for the remainder of 2004.

Improvements to real estate and additions to non-real estate property were funded from net cash provided by operating activities.

~~Off-Balance Sheet Arrangements~~Derivative Instruments

In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and ~~Contractual Obligations~~procedures including the use of derivatives to hedge interest rate risk on debt instruments.

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.

See Note 11 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments at March 31, 2004.

Other

Minority Interests as of March 31, 2004 decreased by $12.8 million when compared to December 31, 2003. The primary factors that impacted this account in the Company’s consolidated statements of operations and balance sheets during the quarter ended March 31, 2004 were:

•Distributions declared to Minority Interests, which amounted to $9.1 million (excluding Junior Preference Unit and Preference Interest distributions);

•The allocation of income from operations to holders of OP Units in the amount of $7.6 million;

•The issuance of Common Shares; and

•The conversion of OP Units into Common Shares.

Total distributions paid in April 2004 amounted to $142.9 million (excluding distributions on Partially Owned Properties), which included certain distributions declared during the first quarter ended March 31, 2004.

The Company expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing properties and certain scheduled unsecured note and mortgage note repayments, generally through its working capital, net cash provided by operating activities and borrowings under its revolving credit facility. 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, and proceeds received from the disposition of certain properties. In addition, the Company has certain unencumbered properties available

to secure additional mortgage borrowings in the event that the public capital markets are unavailable or the cost of alternative sources of capital is too high. The fair value of and cash flow from these unencumbered properties are in excess of the requirements the Company must maintain in order to comply with covenants under its unsecured notes and line of credit. Of the $12.0 billion in net investment in real estate on the Company’s balance sheet at March 31, 2004, $7.2 billion (or 60.2%) was unencumbered.

The Company has a revolving credit facility with potential borrowings of up to $700.0 million. This facility matures in May 2005 and may, among other potential uses, be used to fund property acquisitions, costs for certain properties under development and short term liquidity requirements. As of April 28, 2004, $455.0 million was outstanding under this facility (and $63.7 million was restricted and dedicated to support letters of credit).

As of March 31, ~~2003,~~2004, the Company has 17seven projects with joint venture partners in various stages of development with estimated completion dates ranging through ~~June 30, 2004.~~December 31, 2005 which are consolidated as of March 31, 2004 as a result of FIN No. 46. The three development agreements currently in place have the following key terms:

• The first development partner has the right, at any time following completion of a project, to stipulate 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 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. ~~The~~In connection with this development partner, the Company has an obligation to ~~fund~~provide up to ~~an additional $13.0~~$40.0 million in credit enhancements to guarantee a portion of the third party construction ~~financing,~~financing. As of April 28, 2004, the Company had set-aside $10.0 million towards this credit enhancement. The Company would be required to perform under this agreement only if ~~required.~~there was a material default under a third party construction mortgage agreement. This agreement expires no later than December 31, 2018. Notwithstanding the termination of the agreement, the Company shall have recourse against its development partner for any losses incurred.

• The third development partner has the exclusive right for six months following stabilization, ~~(generally~~as defined, ~~as having achieved 90% occupancy for three consecutive months following~~

~~the substantial completion of a project)~~ to market a project for sale. Thereafter, either the Company or its development partner may market a project for sale. If the Company’s development partner proposes the sale, the Company may elect to purchase the project at the price proposed by its partner or defer the sale until two independent appraisers appraise the project. If the two appraised values vary by more than 5%, a third appraiser will be chosen to determine the fair market value of the property. Once a value has been determined, the Company may elect to purchase the property or authorize its development partner to sell the project at the agreed-upon value.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company has co-invested in various properties that are unconsolidated and accounted for under the equity method of accounting. Management does not believe these investments have a materially different impact upon the Company’s liquidity, capital resources, credit or market risk than its property management and ownership activities. The nature and business purpose of these ventures are as follows:

•Institutional Ventures – During 2000 and 2001, the Company entered into ventures with an unaffiliated partner. At the respective closing dates, the Company sold and/or contributed 45 properties containing 10,846 units to these ventures and retained a 25% ownership interest in the ventures. The Company’s joint venture partner contributed cash equal to 75% of the agreed-upon equity value of the properties comprising the ventures, which was then distributed to the Company. The Company’s strategy with respect to these ventures was to reduce its concentration of properties in a variety of markets.

•Lexford/Other – As of March 31, 2004, the Company has ownership interests in seventeen properties containing 2,015 units acquired in a prior merger. The current weighted average ownership percentage is 12.7%. The Company’s strategy with respect to these interests is either to acquire a majority ownership or sell the Company’s interest.

In connection with one of its mergers, the Company provided a guaranty of a credit enhancement agreement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. The Company has the obligation to provide this guaranty for a period of eight years from the consummation of the merger or through May 2005. The Company would be required to perform under this guaranty only if there was a draw on the letter of credit issued by the credit enhancement party. The counterparty has also indemnified the Company for any losses suffered. As of April ~~30, 2003,~~28, 2004, this ~~enhancement~~guaranty was still in effect at a commitment amount of $12.7 ~~million.~~

~~As of April 30, 2003, the Company has a commitment to fund $6.1~~ million ~~to Constellation Real Technologies, LLC, a real estate technology company.~~and no outstanding liability.

See also ~~Note 7~~Notes 2 and ~~the third paragraph of Note 16~~6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s investments in unconsolidated entities.

~~Capitalization of Fixed Assets and Improvements to Real Estate~~

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

•~~carpets and hardwood floors;~~

•~~appliances;~~

•~~mechanical equipment such as individual furnace/air units, hot water heaters, etc;~~

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

•~~flooring such as vinyl, linoleum or tile; and~~

•~~blinds/shades.~~

We typically capitalize for established properties approximately $260 to $290 per unit annually for inside the unit replacements. All replacements are depreciated over a five-year estimated useful life. We expense as incurred all maintenance and turnover costs such as cleaning, interior painting of individual units and the repair of any replacement item noted above.

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

•~~roof replacement and major repairs;~~

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

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

•~~major building mechanical equipment systems;~~

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

•~~major landscaping and grounds improvement; and~~

•~~vehicles and office and maintenance equipment.~~

We typically capitalize for established properties approximately $380 to $390 per unit annually for outside the unit building improvements. All building improvements are depreciated over a five to ten-year estimated useful life. We expense as incurred all recurring expenditures that do not improve the value of the asset or extend its useful life.

For the quarter ended March 31, 2003, our actual improvements to real estate totaled approximately $33.6 million. This includes the following detail (amounts in thousands except for unit and per unit amounts):

~~Capitalized Improvements to Real Estate~~
~~For the Three Months Ended March 31, 2003~~

Total Units
(1)

Replacements

Avg.
Per
Unit

Building
Improvements

Avg.
Per
Unit

Total

Avg.
Per
Unit

Established Properties (2)

181,447

$
12,693

$
70

$
15,276

$
84

$
27,969

$
154

New Acquisition Properties (3)

9,443

432

48

1,567

176

1,999

224

Other (4)

7,916

1,466

2,168

3,634

Total

198,806

$
14,591

$
19,011

$
33,602

~~(1)~~ ~~Total units exclude 22,443 unconsolidated units.~~

~~(2)~~ ~~Wholly Owned Properties acquired prior to January 1, 2001.~~

~~(3)~~ ~~Wholly Owned Properties acquired during 2001, 2002 and 2003. Per unit amounts are based on a weighted average of 8,914 units.~~

~~(4)~~ ~~Includes properties either Partially Owned or sold during the period, commercial space and condominium conversions.~~

~~We anticipate capitalizing annually an average of approximately $640 to $680 per unit for inside and outside the unit capital expenditures to our established properties.~~ The ~~Company expects to fund approximately $110.0 million for capital expenditures for replacements and building improvements for all consolidated properties~~Company’s contractual obligations for the ~~remainder of 2003.~~

~~During~~next five years and thereafter have not changed materially from the ~~quarter ended March 31, 2003, the Company’s total non-real estate capital additions, such~~amounts and disclosures included in its annual report on Form 10-K, other than as ~~computer software, computer equipment, and furniture and fixtures and leasehold improvements~~it relates to scheduled debt maturities due to the ~~Company’s property management offices~~assumption or consolidation of mortgages on various completed and ~~its corporate offices, was approximately $0.9 million. The Company expects to fund approximately $4.0 million~~uncompleted development properties. See the updated debt maturity schedule included in ~~total additions to non-real estate property for the remainder of 2003.~~

~~Improvements to real estate~~Liquidity and ~~additions to non-real estate property were funded from net cash provided by operating activities.~~

~~Derivative Instruments~~

~~In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies~~Capital Resources and ~~procedures including the use of derivatives to hedge interest rate risk on debt instruments.~~

~~See~~ Note 124 in the Notes to Consolidated Financial Statements for ~~additional discussion of derivative instruments at March 31, 2003.~~

~~Other~~further discussion.

Minority Interests as of March 31, 2003 decreased by $4.1 million when compared to December 31, 2002. The primary factors that impacted this account in the Company’s consolidated statements of operations and balance sheets during the quarter were:

• ~~Distributions declared to Minority Interests, which amounted to $9.6 million for the first quarter of 2003 (excluding Junior Preference Unit and Preference Interest distributions);~~

• ~~The allocation of income from operations to holders of OP Units in the amount of $9.1 million;~~

• ~~The allocation of income from operations to Partially Owned Properties in the amount of $0.1 million;~~

• ~~The conversion of OP Units into Common Shares; and~~

• ~~The issuance of Common Shares during the first quarter of 2003.~~

~~Total distributions paid in April 2003 amounted to $143.6 million (excluding distributions on Partially Owned Properties), which included certain distributions declared in the first quarter of 2003.~~

The Company expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing properties and certain scheduled unsecured note and mortgage note repayments, generally through its working capital, net cash provided by operating activities and borrowings under its line 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, and proceeds received from the disposition of certain properties. In addition, the Company has certain unencumbered properties available to secure additional mortgage borrowings in the event that the public capital markets are unavailable or the cost of alternative sources of capital is too high. The fair value of these unencumbered properties are in excess of the required value 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 potential borrowings of up to $700.0 million.~~ This facility matures in May 2005 and will be used to fund property acquisitions, costs for certain properties under development and short term liquidity requirements. As of April 30, 2003, no amounts were outstanding under this facility.

Critical Accounting Policies and Estimates

The Company has identified six significant accounting policies as critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant judgments and estimates. With respect to these critical accounting policies, management believes that the application of judgments and assessments is consistently applied and produces financial information that fairly presents the results of operations for all periods presented. The six critical accounting policies are:

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.~~indicators of permanent impairment. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each asset and legal and environmental concerns. 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.

Cost Capitalization

See the Capitalization of Fixed Assets and Improvements to Real Estate section for discussion of the policy with respect to capitalization vs. expensing of fixed asset/repair and maintenance costs. In addition, the Company capitalizes the payroll and associated costs of employees directly responsible for and who spend all of their time on the supervision of major capital projects. These costs are reflected on the balance sheet as an increase to depreciable property.

The Company follows the guidance in SFAS No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, for all development projects and uses its professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. The Company capitalizes interest, real estate taxes and insurance and payroll and associated costs for those individuals directly responsible for and who spend all of their time on development activities. The Company expenses as incurred all payroll costs of employees working directly at our properties, except for costs that are incurred during the initial lease-up phase on a development project. An allocated portion of payroll costs is capitalized based upon the occupancy of the project until ~~stabilized occupancy is achieved. Stabilized occupancy is always deemed to have occurred no later than one year from cessation of major development activities.~~the project becomes substantially complete and ready for its intended use. The incremental payroll and associated costs are capitalized to the projects under development based upon the effort directly identifiable with such projects. These costs are reflected on the balance sheet as ~~either~~ construction in ~~progress or a separate component of investments in unconsolidated entities.~~progress. The Company ceases the capitalization of such costs as the property becomes substantially complete and ready for its intended use.

Fair Value of Financial Instruments, Including Derivative Instruments

The valuation of financial instruments under SFAS No. 107 and SFAS No. 133 and its amendments (SFAS Nos. ~~137 and 138)~~137/138/149) 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.

Revenue Recognition

Rental income attributable to leases is recorded when due from residents and is recognized monthly as it is earned, which is not materially different than on a straight-line basis. Leases entered into between a resident and a property for the rental of an apartment unit are generally year-to-year, renewable upon consent of both parties on an annual or monthly basis. Interest income is recorded on an accrual basis.

Stock-Based Compensation

~~Prior to 2003, the Company had chosen to account for its stock-based compensation in accordance with APB No. 25,~~ ~~Accounting for Stock Issued to Employees~~,~~which resulted in no compensation expense for options issued with an exercise price equal to or exceeding the market value of the Company’s Common Shares on the date of grant (intrinsic method).~~ The Company has elected to expense its stock-based compensation in accordance with SFAS No. 123 and its amendment (SFAS No. 148), Accounting for Stock Based Compensation, effective in the first quarter of 2003, which resulted in

compensation expense being recorded based on the fair value of the ~~stock compensation granted or modified.~~

~~SFAS No. 148 provides three transition methods for entities that adopt the fair value recognition provisions of SFAS No. 123.~~ 33

stock compensation granted.

The Company has chosen to use the “Prospective Method”~~. This method~~ which requires ~~that companies~~the Company to apply the recognition provisions of SFAS No. 123 to only employee awards granted or modified after the beginning of the fiscal year in which the recognition provisions are first applied, or January 1, 2003. Compensation expense under all of the Company’s plans is generally recognized over periods ranging from three months to five years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for both the ~~quarter~~quarters ended March 31, 2004 and 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123. See Note 152 in the Notes to Consolidated Financial Statements for further ~~discussion.~~discussion and comparative information regarding application of the fair value method to all outstanding employee awards.

Funds From Operations

For the quarter ended March 31, ~~2003,~~2004, Funds From Operations (“FFO”) available to Common Shares and OP Units decreased ~~$23.4~~$12.5 million, or ~~12.2%~~7.4%, as compared to the quarter ended March 31, ~~2002.~~2003.

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, ~~2003~~2004 and ~~2002:~~2003:

Funds From Operations

(Amounts in thousands)

(Unaudited)

	Quarter Ended March 31,						Quarter Ended March 31,
	2003			2002			2004			2003

Net income available to Common Shares	$	111,167		$	76,353
Net income							$	117,065		$	135,347
Net income allocation to Minority Interests – Operating Partnership	9,110			6,441			7,640			9,110
Adjustments:
Depreciation	117,816			110,992			115,610			105,778
Depreciation – Non-real estate additions	(2,275		)	(1,977		)	(1,300		)	(2,275		)
Depreciation – Partially Owned Properties	(2,039		)	(1,871		)	(2,096		)	(2,039		)
Depreciation – Unconsolidated Properties	5,195			4,490			6,763			5,195
Net gain on sales of unconsolidated entities	(1,212		)	(5,657		)
Net (gain) on sales of unconsolidated entities							(2,434		)	(1,212		)
Discontinued operations:
Depreciation	1,102			5,776			1,575			13,140
Net gain on sales of depreciable property	(70,229		)	(2,477		)
FFO available to Common Shares and OP Units – basic (1)(2)	$	168,635		$	192,070
Net (gain) on sales of discontinued operations							(71,499		)	(70,672		)
Net incremental gain on sales of condominium units							3,524			443
Net gain on sales of vacant land							15			—

FFO (1)(2)							174,863			192,815

Preferred distributions							(18,756		)	(24,180		)

FFO available to Common Shares and OP Units							$	156,107		$	168,635

(1) The National Association of Real Estate Investment Trusts (“NAREIT”) defines funds from operations (“FFO”) (April 2002 White Paper) as net income (computed in accordance with accounting principles generally accepted in the United States), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis. The April 2002 White Paper states that gain or loss on sales of

property is excluded from FFO for previously depreciated operating properties only. Once the Company commences the conversion of units to condominiums, it simultaneously discontinues depreciation of such property. Accordingly, the Company included in FFO its incremental gains or losses from the sale of condominium units to third parties, which represented net gains of $443 and $339 for the quarters ended March 31, 2003 and 2002, respectively.

(2) 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 net income or net cash ~~generated~~flows from operating activities in accordance with ~~GAAP and therefore~~GAAP. Therefore, FFO should not be exclusively considered as 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 or as a measure of ~~liquidity and is not necessarily indicative of cash available to fund cash needs.~~liquidity. The Company’s calculation of FFO may differ from other real estate companies due to, among other items, variations ~~among the Company’s and other real estate companies’ accounting~~in cost capitalization policies for ~~replacement type items~~capital expenditures and, accordingly, may not be comparable to such other real estate companies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk has not changed materially from the amounts and information reported in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, to the Company’s Form 10-K for the year ended December 31, ~~2002.~~2003. See also Note ~~12 to~~11 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments.

Item 4. Disclosure Controls and Procedures

~~Within 90 days prior to the filing date~~Effective as of ~~this quarterly report on Form 10-Q,~~March 31, 2004, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules ~~13a-14~~13a-15 and ~~15d-14.~~15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in timely alerting them to material information. ~~There have been~~During the fiscal quarter ended March 31, 2004, there were no ~~significant~~ changes to the internal controls over financial reporting of the Company identified in connection with the Company’s evaluation or ~~in other factors~~otherwise that ~~could significantly~~has materially affected, or is reasonably likely to materially affect, the Company’s internal controls ~~subsequent to the completion of this evaluation.~~over financial reporting.

PART II.OTHER INFORMATION

Item 1.Legal Proceedings

The Company is a party to a class action lawsuit in Florida state court alleging that several of the types of fees that the Company charged when residents breached their leases were illegal, as were all efforts to collect them. The Company is vigorously contesting the plaintiffs’ claims and has sought immediate appellate review of the 2003 class action certification decision. Due to the uncertainty of many critical factual and legal issues, including the viability of the case as a class action, it is not possible to determine or predict the outcome. While no assurances can be given, the Company does not believe that this lawsuit, if adversely determined, will have a material adverse effect on the Company.

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, ~~2002.~~2003.

Item 6.Exhibits and Reports on Form 8-K

(A)Exhibits:

~~10.1 First Amendment to Equity Residential 2002 Share Incentive Plan.~~

12Computation of Ratio of Earnings to Combined Fixed Charges.

~~99.1~~31.1Certification of Bruce W. Duncan, Chief Executive Officer.

31.2Certification of David J. Neithercut, Chief Financial Officer.

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Bruce W. Duncan, Chief Executive Officer of ~~Registrant.~~the Company.

~~99.2~~32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of David J. Neithercut, Chief Financial Officer of ~~Registrant.~~the Company.

(B) Reports Filed on Form 8-K:

None.

3336

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 behalf by the undersigned thereunto duly authorized.

			EQUITY RESIDENTIAL


Date:	May ~~13, 2003~~7, 2004	By:	/s/	David J. Neithercut
				David J. Neithercut
				Executive Vice President,
				Corporate Strategy and
				Chief Financial Officer


Date:	May ~~13, 2003~~7, 2004	By:	/s/	Michael J. McHugh
				Michael J. McHugh
				Executive Vice President,
				Chief Accounting Officer
				and Treasurer

3437

CERTIFICATIONS

~~I, Bruce W. Duncan, Chief Executive Officer of Equity Residential, certify that:~~

1. ~~I have reviewed this quarterly report on Form 10-Q of Equity Residential;~~

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) ~~Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and~~

c) ~~Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) ~~Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and~~

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

~~Date: May 13, 2003~~


		~~/s/ Bruce W. Duncan~~
		~~Bruce W. Duncan~~
		~~Chief Executive Officer~~

~~CERTIFICATIONS~~

~~I, David J. Neithercut, Chief Financial Officer of Equity Residential, certify that:~~

1. ~~I have reviewed this quarterly report on Form 10-Q of Equity Residential;~~

c) ~~Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

b) ~~Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and~~

~~Date: May 13, 2003~~


		~~/s/ David J. Neithercut~~
		~~David J. Neithercut~~
		~~Chief Financial Officer~~

EXHIBIT INDEX

Exhibit		Document

~~10.1~~		~~First Amendment to Equity Residential 2002 Share Incentive Plan~~

12		Computation of Ratio of Earnings to Combined Fixed Charges.

~~99.1~~31.1		Certification of Bruce W. Duncan, Chief Executive Officer.

31.2		Certification of David J. Neithercut, Chief Financial Officer.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Bruce W. Duncan, Chief Executive Officer of ~~Registrant.~~the Company.

~~99.2~~32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of David J. Neithercut, Chief Financial Officer of ~~Registrant.~~the Company.

	March 31, 2003			December 31, 2002			March 31, 2004			December 31, 2003
ASSETS
Investment in real estate
Land	$	1,807,226		$	1,803,577		$	2,066,965		$	1,845,547
Depreciable property	11,227,980			11,240,245			11,901,855			11,018,326
Construction in progress	2,428			2,441
	13,037,634			13,046,263
Construction in progress (including land)							386,655			10,506
Investment in real estate							14,355,475			12,874,379
Accumulated depreciation	(2,194,190		)	(2,112,017		)	(2,337,502		)	(2,296,013		)
Investment in real estate, net of accumulated depreciation	10,843,444			10,934,246
Investment in real estate, net							12,017,973			10,578,366

Cash and cash equivalents	310,309			29,875			71,527			49,579
Investments in unconsolidated entities	515,741			509,789			13,503			473,977
Rents receivable	1,410			2,926			2,584			426
Deposits – restricted	173,121			141,278			135,664			133,752
Escrow deposits – mortgage	44,688			50,565			42,158			41,104
Deferred financing costs, net	33,780			32,144			31,852			31,135
Goodwill, net	30,000			30,000			30,000			30,000
Other assets	78,277			80,094			111,967			128,554
Total assets	$	12,030,770		$	11,810,917		$	12,457,228		$	11,466,893

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Mortgage notes payable	$	2,901,117		$	2,927,614		$	3,221,993		$	2,693,815
Notes, net	2,854,319			2,456,085			2,656,105			2,656,674
Line of credit	—			140,000			420,000			10,000
Accounts payable and accrued expenses	66,234			64,369			90,204			55,463
Accrued interest payable	64,987			63,151			71,914			60,334
Rents received in advance and other liabilities	167,641			165,095			198,625			189,372
Security deposits	45,192			45,333			46,937			44,670
Distributions payable	141,413			140,844			141,231			140,195
Total liabilities	6,240,903			6,002,491			6,847,009			5,850,523

*Commitments and contingencies*
Minority Interests:
Operating Partnership	345,983			349,646			326,332			342,809
Preference Interests	246,000			246,000			246,000			246,000
Junior Preference Units	5,846			5,846			2,217			2,217
Partially Owned Properties	9,395			9,811			13,582			9,903
Total Minority Interests	607,224			611,303			588,131			600,929

Shareholders’ equity:
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 10,520,784 shares issued and outstanding as of March 31, 2003 and 10,524,034 shares issued and outstanding as of December 31, 2002	946,076			946,157
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 272,488,106 shares issued and outstanding as of March 31, 2003 and 271,095,481 shares issued and outstanding as of December 31, 2002	2,725			2,711
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 5,450,018 shares issued and outstanding as of March 31, 2004 and 5,496,518 shares issued and outstanding as of December 31, 2003							669,750			670,913
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 280,185,975 shares issued and outstanding as of March 31, 2004 and 277,643,885 shares issued and outstanding as of December 31, 2003							2,802			2,776
Paid in capital	4,827,623			4,839,218			4,992,448			4,956,712
Deferred compensation	(9,832		)	(12,118		)	(2,641		)	(3,554		)
Distributions in excess of accumulated earnings	(541,721		)	(535,056		)	(610,865		)	(588,005		)
Accumulated other comprehensive loss	(42,228		)	(43,789		)	(29,406		)	(23,401		)
Total shareholders’ equity	5,182,643			5,197,123			5,022,088			5,015,441
Total liabilities and shareholders’ equity	$	12,030,770		$	11,810,917		$	12,457,228		$	11,466,893

	Number of Properties	Number of Units	Properties	Units
Wholly Owned Properties	906	191,875	849	179,115
Partially Owned Properties (Consolidated)	36	6,931	40	7,857
Unconsolidated Properties	85	22,443	63	16,618
Total Properties	1,027	221,249
			952	203,590

	~~2003~~2004

Common Shares outstanding at January 1,	~~271,095,481~~277,643,885

Common Shares Issued:
Conversion of Series E Preferred Shares	~~3,613~~51,633
Conversion of Series H Preferred Shares	144
Employee Share Purchase Plan	~~126,273~~142,145
Exercise of options	~~218,980~~898,092
Restricted share grants, net	~~996,815~~550,332
Conversion of OP Units	~~46,944~~899,819
Other	(75	)

Common Shares outstanding at March 31,	~~272,488,106~~280,185,975

	Annual Dividend Rate per Share (1)		Amounts in thousands
	Annual Dividend Rate per Share (1)		March 31, 2003		December 31, 2002
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized:

9 1/8% Series B Cumulative Redeemable Preferred; liquidation value $250 per share; 500,000 shares issued and outstanding at March 31, 2003 and December 31, 2002	$	22.81252	$	125,000	$	125,000

9 1/8% Series C Cumulative Redeemable Preferred; liquidation value $250 per share; 460,000 shares issued and outstanding at March 31, 2003 and December 31, 2002	$	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, 2003 and December 31, 2002	$	21.50000	175,000		175,000

7.00% Series E Cumulative Convertible Preferred; liquidation value $25 per share; 2,544,864 and 2,548,114 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively	$	1.75000	63,622		63,703

7 ¼% Series G Convertible Cumulative Preferred; liquidation value $250 per share; 1,264,692 shares issued and outstanding at March 31, 2003 and December 31, 2002	$	18.12500	316,173		316,173

7.00% Series H Cumulative Convertible Preferred; liquidation value $25 per share; 51,228 shares issued and outstanding at March 31, 2003 and December 31, 2002	$	1.75000	1,281		1,281

8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 1,000,000 shares issued and outstanding at March 31, 2003 and December 31, 2002	$	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, 2003 and December 31, 2002	$	1.90625	100,000		100,000

			$	946,076	$	946,157

	Annual
	Dividend Rate per Share (1)		Amounts in thousands
	Dividend Rate per Share (1)		March 31, 2004		December 31, 2003
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized:

9 1/8% Series B Cumulative Redeemable Preferred; liquidation value $250 per share; 500,000 shares issued and outstanding at March 31, 2004 and December 31, 2003	$	22.81252	$	125,000	$	125,000

9 1/8% Series C Cumulative Redeemable Preferred; liquidation value $250 per share; 460,000 shares issued and outstanding at March 31, 2004 and December 31, 2003	$	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, 2004 and December 31, 2003	$	21.50	175,000		175,000

7.00% Series E Cumulative Convertible Preferred; liquidation value $25 per share; 2,146,090 and 2,192,490 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively	$	1.75	53,652		54,812

7.00% Series H Cumulative Convertible Preferred; liquidation value $25 per share; 43,928 and 44,028 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively	$	1.75	1,098		1,101

8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 1,000,000 shares issued and outstanding at March 31, 2004 and December 31, 2003	$	4.145	50,000		50,000

6.48% Series N Cumulative Redeemable Preferred; liquidation value $250 per share; 600,000 shares issued and outstanding at March 31, 2004 and December 31, 2003	$	16.20	150,000		150,000

			$	669,750	$	670,913

	Annual Dividend Rate per Unit (1)		Amounts in thousands
	Annual Dividend Rate per Unit (1)		March 31, 2003		December 31, 2002
Preference Interests:

8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at March 31,2003 and December 31, 2002	$	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 31,2003 and December 31, 2002	$	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 31,2003 and December 31, 2002	$	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 31,2003 and December 31, 2002	$	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 31,2003 and December 31, 2002	$	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 31,2003 and December 31, 2002	$	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 31,2003 and December 31, 2002	$	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, 2003 and December 31, 2002	$	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, 2003 and December 31, 2002	$	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, 2003 and December 31, 2002	$	3.8125	11,500		11,500

			$	246,000	$	246,000

	Annual
	Dividend Rate per Unit (1)		Amounts in thousands
	Dividend Rate per Unit (1)		March 31, 2004		December 31, 2003
Preference Interests:

8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at March 31, 2004 and December 31, 2003	$	4.00	$	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, 2004 and December 31, 2003	$	4.25	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, 2004 and December 31, 2003	$	4.25	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, 2004 and December 31, 2003	$	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, 2004 and December 31, 2003	$	4.25	50,000		50,000

8.375% Series F Cumulative Redeemable Preference Units; liquidation value $50 per unit; 180,000 units issued and outstanding at March 31, 2004 and December 31, 2003	$	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, 2004 and December 31, 2003	$	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, 2004 and December 31, 2003	$	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, 2004 and December 31, 2003	$	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, 2004 and December 31, 2003	$	3.8125	11,500		11,500
			$	246,000	$	246,000

	Annual Dividend Rate per Unit(1)		Amounts in thousands
	Annual Dividend Rate per Unit(1)		March 31, 2003		December 31, 2002
Junior Preference Units:

Series A Junior Convertible Preference Units; liquidation value $100 per unit; 56,616 units issued and outstanding at March 31, 2003 and December 31, 2002	$	5.46934	$	5,662	$	5,662

Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31, 2003 and December 31, 2002	$	2.00000	184		184

			$	5,846	$	5,846

Date Acquired	Property	Location	Number of Units	Acquisition Price (in thousands)
01/30/03	The Reserve @ Eisenhower	Alexandria, VA	226	$	41,000
02/14/03	Artisan Square	Northridge, CA	140	27,466
03/05/03	LaSalle	Beaverton, OR	554	43,000
			920	$	111,466

Date Disposed	Property	Location	Number Of Units	Disposition Price (in thousands)
01/14/03	Strawberry Place	Plant City, FL	55	$	1,400
01/14/03	Smoketree Polo Club	Indio, CA	288	18,900
01/29/03	Amberwood I	Lake City, FL	50	1,175
01/30/03	Emerald Place	Bermuda Dunes, CA	240	20,125
01/30/03	Rolido Parque	Houston, TX	369	14,660
02/27/03	Fox Hill Commons	Vernon, CT	74	4,700
02/27/03	The Landings	Winter Haven, FL	60	1,475
02/27/03	Morningside	Titusville, FL	183	3,980
03/04/03	Colony Woods	Birmingham, AL	414	25,000
03/04/03	Hearthstone	San Antonio, TX	252	7,700
03/04/03	Northgate Village	San Antonio, TX	264	10,150
03/19/03	Lincoln Green I, II & III	San Antonio, TX	680	24,900
03/20/03	Meadows on the Lake	Birmingham, AL	200	10,900
03/20/03	Meadows in the Park	Birmingham, AL	200	10,900
03/20/03	Shoal Run	Birmingham, AL	276	14,350
03/31/03	Colony Place	Fort Myers, FL	300	20,600
Various	Four Lakes Condo Units	Lisle, IL	26	3,161
	Wholly Owned Properties		3,931		194,076
02/28/03	Kings Crossing I*	Jacksonville, FL	69	963
	Unconsolidated Properties		69	963
Total			4,000	$	195,039

	Institutional Joint Ventures			Stabilized Development Projects (1)			Projects Under Development			Lexford/ Other			Totals

Total projects	45			12			17			22			96		(2)

Total units	10,846			3,805			4,659			2,704			22,014		(2)

Company’s percentage ownership of outstanding debt	25.0		%	100.0		%	100.0		%	11.1		%

Company’s share of outstanding debt (4)	$	121,200		$	295,103		$	505,587	(3)	$	5,386		$	927,276

	Cash Flow Hedges			Fair Value Hedges			Interest Rate Caps			Offsetting Receive Floating Swaps/Caps			Offsetting Pay Floating Swaps/Caps			Cash Flow Hedges			Fair Value Hedges			Forward Starting Swaps			Interest Rate Caps			Offsetting Receive Floating Swaps/Caps			Offsetting Pay Floating Swaps/Caps			Development Cash Flow Hedges
Current Notional Balance	$	400,000		$	120,000		$	37,000		$	255,119		$	255,119		$	150,000		$	320,000		$	250,000		$	37,000		$	255,082		$	255,082		$	137,409
Lowest Possible Notional	$	400,000		$	120,000		$	37,000		$	251,410		$	251,410		$	150,000		$	320,000		$	250,000		$	37,000		$	99,524		$	99,524		$	19,993
Highest Possible Notional	$	400,000		$	120,000		$	37,000		$	431,444		$	431,444		$	150,000		$	320,000		$	250,000		$	37,000		$	264,419		$	264,419		$	137,409
Lowest Interest Rate	3.65125		%	7.25000		%	6.5		%	4.52800		%	4.45800		%	3.68		%	3.25		%	4.34		%	6.50		%	4.90		%	4.83		%	1.93		%
Highest Interest Rate	5.81000		%	7.25000		%	6.5		%	6.00000		%	6.00000		%	3.68		%	7.25		%	4.90		%	6.50		%	6.00		%	6.00		%	5.23		%
Earliest Maturity Date	2003			2005			2004			2003			2003			2005			2005			2014			2004			2004			2004			2004
Latest Maturity Date	2005			2005			2004			2007			2007			2005			2009			2014			2004			2007			2007			2004
Estimated Asset (Liability) Fair Value	$	(12,123	)	$	8,851		$	—		$	(2,261	)	$	2,184		$	(5,652	)	$	3,815		$	(6,543	)	$	—		$	385		$	(385	)	$	(323	)

	Properties		Units		Purchase / Sale Price $ Millions
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
Q2/Q3/Q4 2002 Acquisitions	11		3,266		$	263.9
Ft. Lewis Joint Venture	1		3,652
Q2/Q3/Q4 2002 Dispositions	(53	)	(9,956	)	$	502.5
Q2/Q3/Q4 2002 Completed Developments	7		1,613
Q2/Q3/Q4 2002 Unit Configuration Changes	—		16
At December 31, 2002	1,039		223,591
Q1 2003 Acquisitions	3		920		$	111.5
Q1 2003 Dispositions	(17	)	(4,000	)	$	195.0
Q1 2003 Completed Developments	2		738
At March 31, 2003	1,027		221,249

	Total Units (1)	Replacements		Avg. Per Unit		Building Improvements		Avg. Per Unit		Total		Avg. Per Unit

Established Properties (2)	181,447	$	12,693	$	70	$	15,276	$	84	$	27,969	$	154
New Acquisition Properties (3)	9,443	432		48		1,567		176		1,999		224
Other (4)	7,916	1,466				2,168				3,634
Total	198,806	$	14,591			$	19,011			$	33,602

3.Shareholders’ 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, 2003:2004:

CERTIFICATIONS

EXHIBIT INDEX