Equity Residential 10Q 2002 Q1 Quarterly report

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FORM 10-Q

UNITED STATES
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 MARCH 31, 2002

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

Commission File Number: 1-12252

EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

APPLICABLE ONLY TO CORPORATE USERS:

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

At May 1, 2002, 274,583,528 of the Registrant's Common Shares of Beneficial Interest were outstanding.

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

			March 31, 2002			December 31, 2001
ASSETS
Investment in real estate
	Land		$	1,844,098		$	1,840,170
	Depreciable property			11,135,057			11,096,847
	Construction in progress			104,158			79,166

				13,083,313			13,016,183
	Accumulated depreciation			(1,831,277	)		(1,718,845	)

Investment in real estate, net of accumulated depreciation				11,252,036			11,297,338
Real estate held for disposition				3,505			3,371
Cash and cash equivalents				249,762			51,603
Investments in unconsolidated entities				396,733			397,237
Rents receivable				1,355			2,400
Deposits—restricted				210,496			218,557
Escrow deposits—mortgage				72,595			76,700
Deferred financing costs, net				28,563			27,011
Rental furniture, net				—			20,168
Property and equipment, net				—			3,063
Goodwill, net				47,122			47,291
Other assets				66,086			90,886

		Total assets	$	12,328,253		$	12,235,625

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
	Mortgage notes payable		$	3,279,105		$	3,286,814
	Notes, net			2,556,358			2,260,944
	Line of credit			—			195,000
	Accounts payable and accrued expenses			99,669			108,254
	Accrued interest payable			72,323			62,360
	Rents received in advance and other liabilities			87,219			83,005
	Security deposits			47,574			47,644
	Distributions payable			145,433			141,832

		Total liabilities		6,287,681			6,185,853

*Commitments and contingencies*
Minority Interests:
	Operating Partnership			368,372			379,898
	Preference Interests			246,000			246,000
	Junior Preference Units			5,846			5,846
	Partially Owned Properties			13,953			4,078

		Total Minority Interests		634,171			635,822

Shareholders' equity:
	Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized; 11,307,209 shares issued and outstanding as of March 31, 2002 and 11,344,521 shares issued and outstanding as of December 31, 2001			965,738			966,671
	Common Shares of beneficial interest, $.01 par value; 1,000,000,000 shares authorized; 273,836,367 shares issued and outstanding as of March 31, 2002 and 271,621,374 shares issued and outstanding as of December 31, 2001			2,738			2,716
	Paid in capital			4,931,601			4,892,744
	Employee notes			(3,958	)		(4,043	)
	Deferred compensation			(36,865	)		(25,778	)
	Distributions in excess of accumulated earnings			(427,190	)		(385,320	)
	Accumulated other comprehensive loss			(25,663	)		(33,040	)

		Total shareholders' equity		5,406,401			5,413,950

		Total liabilities and shareholders' equity	$	12,328,253		$	12,235,625

See accompanying notes

EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except for share data)
(Unaudited)

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

		Total revenues			516,201			521,893

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

			Total expenses		416,955			418,024

Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle					99,246			103,869
Allocation to Minority Interests:
	Operating Partnership				(6,441	)		(9,796	)
	Partially Owned Properties				(806	)		(105	)
Income from investments in unconsolidated entities					226			350
Net gain on sales of unconsolidated entities					5,657			—

Income before discontinued operations, extraordinary items and cumulative effect of change in accounting principle					97,882			94,318
Net gain on sales of discontinued operations					2,816			41,778
Discontinued operations, net					277			143

Income before extraordinary items and cumulative effect of change in accounting principle					100,975			136,239
Extraordinary items					(97	)		311
Cumulative effect of change in accounting principle					—			(1,270	)

Net income					100,878			135,280
Preferred distributions					(24,525	)		(28,526	)

Net income available to Common Shares				$	76,353		$	106,754

Net income per share—basic				$	0.28		$	0.40

Net income per share—diluted				$	0.28		$	0.40

Weighted average Common Shares outstanding—basic					271,094			265,198

Weighted average Common Shares outstanding—diluted					297,229			297,184

Distributions declared per Common Share outstanding				$	0.4325		$	0.4075

Comprehensive income:
	Net income			$	100,878		$	135,280
	Other comprehensive income (loss)—derivative instruments:
		Cumulative effect of change in accounting principle			—			(5,334	)
		Unrealized holding gains (losses) arising during the period			7,209			(11,754	)
		Losses reclassified into earnings from other comprehensive income			168			55

	Comprehensive income			$	108,255		$	118,247

See accompanying notes

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

			Quarter Ended March 31,
			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	100,878		$	135,280
Adjustments to reconcile net income to net cash provided by operating activities:
	Allocation to Minority Interests:
		Operating Partnership		6,441			9,796
		Partially Owned Properties		806			105
Cumulative effect of change in accounting principle				—			1,270
Depreciation				116,767			115,029
Amortization of deferred financing costs				1,391			1,397
Amortization of discount on investment in mortgage notes				—			(161	)
Amortization of goodwill				—			933
Amortization of discounts and premiums on debt				(327	)		(590	)
Amortization of deferred settlements on interest rate protection agreements				(101	)		101
Impairment on technology investments				291			3,003
Income from investments in unconsolidated entities				(226	)		(350	)
Net gain on sales of discontinued operations				(2,816	)		(41,778	)
Net gain on sales of unconsolidated entities				(5,657	)		—
Extraordinary items				97			(311	)
Unrealized gain on interest rate protection agreements				(62	)		(71	)
Book value of furniture sales and rental buyouts				—			2,851
Compensation paid with Company Common Shares				4,964			2,867
Changes in assets and liabilities:
	Decrease (increase) in rents receivable			1,045			(188	)
	Decrease in deposits—restricted			14,133			5,343
	Additions to rental furniture			—			(6,272	)
	Decrease (increase) in other assets			18,446			(3,002	)
	(Decrease) in accounts payable and accrued expenses			(7,498	)		(9,153	)
	Increase in accrued interest payable			9,963			19,752
	Increase in rents received in advance and other liabilities			2,852			219
	Increase in security deposits			287			343

	Net cash provided by operating activities			261,674			236,413

CASH FLOWS FROM INVESTING ACTIVITIES:
	Investment in real estate—acquisitions			(26,100	)		(143,399	)
	Investment in real estate—development			(24,338	)		(13,758	)
	Improvements to real estate			(27,697	)		(28,166	)
	Additions to non-real estate property			(3,004	)		(1,830	)
	Interest capitalized for real estate under development			(5,884	)		(5,987	)
	Proceeds from disposition of real estate, net			31,722			280,448
	Proceeds from disposition of partial interest in real estate			1,715			—
	Proceeds from disposition of furniture rental business			28,741			—
	Investment in property and equipment			—			(673	)
	Principal receipts on investment in mortgage notes			—			2,998
	Investments in unconsolidated entities			(12,099	)		(16,613	)
	Distributions from unconsolidated entities			14,765			8,364
	Proceeds from disposition of unconsolidated entities			11,317			—
	(Increase) in deposits on real estate acquisitions, net			(6,288	)		(28,506	)
	Decrease in mortgage deposits			4,105			870
	Business combinations, net of cash acquired			(207	)		(5,538	)
	Other investing activities, net			193			(48	)

	Net cash (used for) provided by investing activities			(13,059	)		48,162

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

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

Net cash (used for) financing activities			(50,456	)		(203,516	)

Net increase in cash and cash equivalents			198,159			81,059
Cash and cash equivalents, beginning of period			51,603			23,772

Cash and cash equivalents, end of period		$	249,762		$	104,831

SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest		$	81,566		$	76,777

Mortgage loans assumed through real estate acquisitions		$	—		$	45,918

Mortgage loans (assumed) by purchaser in real estate and furniture rental business dispositions		$	(1,680	)	$	(22,815	)

Transfers to real estate held for disposition		$	3,505		$	21,886

See accompanying notes

EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Business

Equity Residential Properties Trust ("EQR"), formed in March 1993, is a fully integrated real estate company engaged in the acquisition, ownership, management and operation of multifamily properties. As used herein, the term "Company" means EQR, and its subsidiaries. The Company has elected to be taxed as a real estate investment trust ("REIT").

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

As of March 31, 2002, the Company owned or had interests in a portfolio of 1,073 multifamily properties containing 225,000 apartment units located in 36 states consisting of the following:

	Number of Properties	Number of Units
Wholly Owned Properties	951	199,305
Partially Owned Properties	37	7,231
Unconsolidated Properties	85	18,464

Total Properties	1,073	225,000

2. Summary of Significant Accounting Policies

Basis of 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 the Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002.

The balance sheet at December 31, 2001 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, 2001.

Derivative Instruments and Hedging Activities

At March 31, 2002, the Company had entered into swaps which have been designated as cash flow hedges with a current aggregate notional amount of $614.7 million (notional amounts range from $610.4 million to $626.4 million over the terms of the swaps) at interest rates ranging from 3.65% to 6.15% maturing at various dates ranging from 2003 to 2007 with a net liability fair value of $19.0 million; and swaps which have been designated as fair value hedges with a current aggregate notional amount of $384.7 million (notional amounts range from $380.4 million to $396.4 million over the terms of the swaps) at interest rates ranging from 4.46% to 7.25% maturing at various dates ranging from 2003 to 2011 with a net asset fair value of $2.0 million.

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

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

Other

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

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

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

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, 2002:

		2002
Common Shares outstanding at January 1,		271,621,374
Common Shares Issued:
Conversion of Series E Preferred Shares		40,710
Conversion of Series H Preferred Shares		1,036
Employee Share Purchase Plan		153,825
Dividend Reinvestment—DRIP Plan		14,069
Share Purchase—DRIP Plan		11,691
Exercise of options		595,081
Restricted share grants, net		922,280
Conversion of OP Units		476,301

Common Shares outstanding at March 31,		273,836,367

The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for a partnership interest are collectively referred to as the "Minority Interests—Operating Partnership". The Minority Interests—Operating Partnership held 22,720,891 OP Units representing a 7.66% interest in the Operating Partnership at March 31, 2002. Assuming conversion of all OP Units into Common Shares, total Common Shares outstanding at March 31, 2002 would have been 296,557,258.

Net proceeds from the Company's Common Share and Preferred Share offerings are contributed by the Company to the Operating Partnership in return for an increased ownership percentage and are treated as capital transactions in the Company's consolidated financial statements. 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, 2002 and December 31, 2001:

			Amounts in thousands
	Annual Dividend Rate per Share(1)		Amounts in thousands
	Annual Dividend Rate per Share(1)		March 31, 2002		December 31, 2001
Preferred Shares of beneficial interest, $.01 par value; 100,000,000 shares authorized:
9¹/8% Series B Cumulative Redeemable Preferred; liquidation value $250 per share; 500,000 shares issued and outstanding at March 31, 2002 and December 31, 2001	$	22.81252	$	125,000	$	125,000
9¹/8% Series C Cumulative Redeemable Preferred; liquidation value $250 per share; 460,000 shares issued and outstanding at March 31, 2002 and December 31, 2001	$	22.81252		115,000		115,000
8.60% Series D Cumulative Redeemable Preferred; liquidation value $250 per share; 700,000 shares issued and outstanding at March 31, 2002 and December 31, 2001	$	21.50000		175,000		175,000
Series E Cumulative Convertible Preferred; liquidation value $25 per share; 3,329,198 and 3,365,794 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively	$	1.75000		83,230		84,145
7¹/4% Series G Convertible Cumulative Preferred; liquidation value $250 per share; 1,264,700 shares issued and outstanding at March 31, 2002 and December 31, 2001	$	18.12500		316,175		316,175
7.00% Series H Cumulative Convertible Preferred; liquidation value $25 per share; 53,311 and 54,027 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively	$	1.75000		1,333		1,351
8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 1,000,000 shares issued and outstanding at March 31, 2002 and December 31, 2001	$	4.14500		50,000		50,000
7.625% Series L Cumulative Redeemable Preferred; liquidation value $25 per share; 4,000,000 shares issued and outstanding at March 31, 2002 and December 31, 2001	$	1.90625		100,000		100,000

			$	965,738	$	966,671

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

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

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

			Amounts in thousands
	Annual Dividend Rate per Unit(1)		Amounts in thousands
	Annual Dividend Rate per Unit(1)		March 31, 2002		December 31, 2001
Preference Interests:
8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	4.0000	$	40,000	$	40,000
8.50% Series B Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,100,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	4.2500		55,000		55,000
8.50% Series C Cumulative Redeemable Preference Units; liquidation value $50 per unit; 220,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	4.2500		11,000		11,000
8.375% Series D Cumulative Redeemable Preference Units; liquidation value $50 per unit; 420,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	4.1875		21,000		21,000
8.50% Series E Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	4.2500		50,000		50,000
8.375% Series F Cumulative Redeemable Preference Units; liquidation value $50 per unit; 180,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	4.1875		9,000		9,000
7.875% Series G Cumulative Redeemable Preference Units; liquidation value $50 per unit; 510,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	3.9375		25,500		25,500
7.625% Series H Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 190,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	3.8125		9,500		9,500
7.625% Series I Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 270,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	3.8125		13,500		13,500
7.625% Series J Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 230,000 units issued and outstanding at March 31, 2002 and December 31, 2001	$	3.8125		11,500		11,500

			$	246,000	$	246,000

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

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

			Amounts in thousands
	Annual Dividend Rate per Unit(1)		Amounts in thousands
	Annual Dividend Rate per Unit(1)		March 31, 2002		December 31, 2001
Junior Preference Units:
Series A Junior Convertible Preference Units; liquidation value $100 per unit; 56,616 units issued and outstanding at March 31, 2002 and December 31, 2001	$	5.469344	$	5,662	$	5,662
Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31, 2002 and December 31, 2001	$	2.000000		184		184

			$	5,846	$	5,846

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

4. Real Estate Acquisitions

During the quarter ended March 31, 2002, the Company acquired one property located in Sunrise, Florida from an unaffiliated party, consisting of 368 units for a purchase price of approximately $26.0 million.

5. Real Estate Dispositions

During the quarter ended March 31, 2002, the Company disposed of the four properties listed below to unaffiliated parties and recognized a net gain on sales of discontinued operations of approximately $2.8 million on these sales.

Date Disposed	Property	Location	Number Of Units	Disposition Price (in thousands)
01/17/02	Ravenwood	Mauldin, SC	82	$	2,425
01/24/02	Larkspur I & II	Moraine, OH	45		899
01/31/02	Springwood II	Austintown, OH	43		900
02/21/02	Scottsdale Courtyards	Scottsdale, AZ	274		26,500

			444	$	30,724

In addition, during the quarter ended March 31, 2002, the Company:

•: sold its entire interest in one Unconsolidated Property containing 296 units for approximately $11.3 million and recognized a gain on sale of $5.7 million.

6. Commitments to Acquire/Dispose of Real Estate

As of March 31, 2002, in addition to the property that was subsequently acquired as discussed in Note 17, the Company had entered into separate agreements to acquire two multifamily properties containing 736 units from unaffiliated parties. The Company expects a combined purchase price of approximately $55.3 million, including the assumption of mortgage indebtedness of approximately $14.0 million.

As of March 31, 2002, in addition to the properties that were subsequently disposed of as discussed in Note 17, the Company entered into separate agreements to dispose of twenty-four multifamily properties containing 4,564 units to unaffiliated parties. The Company expects a combined disposition price of approximately $244.0 million.

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

7. Investments in Unconsolidated Entities

The Company has entered into various joint venture agreements with third party companies. The following table summarizes the Company's investments in unconsolidated entities as of March 31, 2002 (amounts in thousands except for project and unit amounts):

	Institutional Joint Ventures			Stabilized Development Joint Ventures(1)			Joint Venture Projects Under Development			Lexford/ Other			Totals
Total projects		45			10			16	(2)		27			98

Total units		10,846			3,038			5,179	(2)		3,348			22,411

EQR's percentage ownership of mortgage notes payable		25.0	%		85.4	%		100.0	%		15.6	%
EQR's share of mortgage notes payable(4)	$	121,200		$	214,615		$	285,655	(3)	$	10,509		$	631,979

(1): The Company 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 three projects consisting of 1,232 units, which are completed and not yet stabilized, but are included in the Company's property/unit counts at March 31, 2002. The remaining 13 properties containing 3,947 units are not included in the Company's property/unit counts at March 31, 2002.
(3): A total of $658,602 is available for funding under these construction loans, of which $285,655 was funded and outstanding at March 31, 2002.
(4): As of April 30, 2002, EQR has funded $54.5 million as additional collateral for certain of these loans (see Note 8). All remaining debt is non-recourse to EQR.

Investments in unconsolidated entities includes the Unconsolidated Properties as well as various uncompleted development joint venture properties. The Company does not consolidate these entities, as it does not have sole control of major decisions (such as sale and/or financing/refinancing). The Company's common equity ownership interests in these entities range from 1.5% to 57.0% at March 31, 2002.

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 capitalized interest on its equity contribution in accordance with the provisions of SFAS No. 58,Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method. During the quarters ended March 31, 2002 and 2001, the Company capitalized $3.8 million and $4.3 million, respectively, in interest cost related to its

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

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

8. Deposits—Restricted

As of March 31, 2002, deposits-restricted totaled $210.5 million and primarily included the following:

•: deposits in the amount of $57.5 million held in third party escrow accounts to provide collateral for third party construction financing in connection with unconsolidated development joint venture agreements ($3.0 million was returned to the Company in April 2002);
•: approximately $92.0 million in tax-deferred (1031) exchange proceeds; and
•: approximately $61.0 million for resident security, utility, and other deposits.

9. Mortgage Notes Payable

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

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

•: repaid $26.7 million of mortgage loans;
•: disposed of $1.7 million of mortgage debt assumed by the purchaser in connection with the disposition of certain properties and the furniture rental business; and
•: received $20.8 million in construction loan draw proceeds on certain properties.

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

10. Notes

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

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

•: issued $400.0 million of ten-year 6.625% fixed-rate public notes, receiving net proceeds of $394.5 million; and
•: repaid $100.0 million of 9.375% fixed rate public notes at maturity.

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

11. Line of Credit

The Company has a revolving credit facility with potential borrowings of up to $700.0 million. As of March 31, 2002, no amounts were outstanding and $57.4 million was restricted (dedicated to support

letters of credit and not available for borrowing) on the line of credit. During the quarter ended March 31, 2002, the weighted average interest rate was 2.50%.

12. Calculation of Net Income 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,
		2002			2001
		(Amounts in thousands except per share amounts)
Numerator:
Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities, discontinued operations, extraordinary items, cumulative effect of change in accounting principle and preferred distributions		$	99,246		$	103,869
Allocation to Minority Interests:
	Operating Partnership		(6,441	)		(9,796	)
	Partially Owned Properties		(806	)		(105	)
Income from investments in unconsolidated entities			226			350
Preferred distributions			(24,525	)		(28,526	)

Income before net gain on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle			67,700			65,792
Net gain on sales of unconsolidated entities			5,657			—
Net gain on sales of discontinued operations			2,816			41,778
Discontinued operations, net			277			143
Extraordinary items			(97	)		311
Cumulative effect of change in accounting principle			—			(1,270	)

Numerator for net income per share—basic			76,353			106,754
Effect of dilutive securities:
	Allocation to Minority Interests—Operating Partnership		6,441			9,796
	Distributions on convertible preferred shares/units		—			1,692

Numerator for net income per share—diluted		$	82,794		$	118,242

Denominator:
Denominator for net income per share—basic			271,094			265,198
Effect of dilutive securities:
	OP Units		23,012			24,461
	Convertible preferred shares/units		—			4,370
	Share options/restricted shares		3,123			3,155

Denominator for net income per share—diluted			297,229			297,184

Net income per share—basic		$	0.28		$	0.40

Net income per share—diluted		$	0.28		$	0.40

	Quarter Ended March 31,
	2002		2001
	(Amounts in thousands except per share amounts)
Net income per share—basic:
Income before net gain on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle per share—basic	$	0.25	$	0.26
Net gain on sales of unconsolidated entities		0.02		—
Net gain on sales of discontinued operations		0.01		0.14
Discontinued operations, net		—		—
Extraordinary items		—		—
Cumulative effect of change in accounting principle		—		—

Net income per share—basic	$	0.28	$	0.40

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

Net income per share—diluted	$	0.28	$	0.40

Convertible preferred shares/units that could be converted into 15,853,687 and 10,831,704 weighted average Common Shares for the quarters ended March 31, 2002 and 2001, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

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

13. Discontinued Operations

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

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

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

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

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

The components of discontinued operations for the quarters ended March 31, 2002 and 2001 are outlined below and include the results of operations through the date of each respective sale for the quarter ended March 31, 2002 and a full quarter of operations for the quarter ended March 31, 2001, for the following:

•: the sale of the furniture rental business;
•: the four properties sold (see Note 5); and
•: the three properties held for sale at March 31, 2002.

			Quarter Ended March 31,
			2002		2001
			(Amounts in thousands)
REVENUES
	Rental income		$	666	$	1,136
	Interest and other income			3		—
	Furniture income			1,365		14,872

		Total revenues		2,034		16,008

EXPENSES
	Property and maintenance			208		301
	Real estate taxes and insurance			60		84
	Depreciation			181		303
	Interest expense incurred, net			5		58
	Furniture expenses			1,303		14,829
	Amortization of goodwill			—		290

		Total expenses		1,757		15,865

Discontinued operations, net			$	277	$	143

14. Commitments and Contingencies

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

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

In regards to the funding of properties in the development and/or earnout stage and the joint venture agreements with multifamily residential real estate developers, the Company funded a net total of $5.6 million during the quarter ended March 31, 2002. The Company expects to fund approximately

$22.7 million in connection with these properties during the remainder of 2002. In connection with one joint venture agreement, the Company has an obligation to fund up to an additional $6.5 million to guarantee third party construction financing. As of March 31, 2002, the Company has 20 projects under development with estimated completion dates ranging from June 30, 2002 through March 31, 2004.

For one development joint venture agreement, the Company's joint venture 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 joint venture partner must exercise this right as to all projects within five years after the receipt of the final certificate of occupancy on the last developed property.

Under a second development joint venture agreement, the Company's joint venture partner has the right, at any time following completion of a project, to require the Company to purchase the joint venture partners' interest in that project at a mutually agreeable price. If the Company and the joint venture 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 the joint venture partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. The Company may elect at that time not to purchase the property and instead, authorize the joint venture partner to sell the project at or above the agreed-upon value to an unrelated third party. Five years following the receipt of the final certificate of occupancy on the last developed property, any projects remaining unsold must be purchased by the Company at the agreed-upon price.

The Company provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of March 31, 2002, this enhancement was still in effect at a commitment amount of $12.7 million.

15. Asset Impairment

For the quarters ended March 31, 2002 and 2001, the Company recorded approximately $0.3 million and $3.0 million, respectively, of asset impairment charges related to its technology investments. These charges were the result of review of the existing investments reflected on the consolidated balance sheet. The Company reviewed the current relative value of each investment based on existing economic conditions and current events. These impairment losses are reflected on the statement of operations in total expenses and include the write-down of assets classified as other assets and investments in unconsolidated entities.

16. Reportable Segments

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

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

The primary financial measure for the Company's rental real estate segment is net operating income ("NOI"), which represents rental income less: 1) property and maintenance expense; 2) real estate taxes and insurance expense; and 3) property management expense (all as reflected in the accompanying statements of operations). Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance. NOI from our rental real estate totaled approximately $309.1 million and $308.1 million for the quarters ended March 31, 2002, and 2001, respectively.

During the acquisition, development and/or disposition of real estate, the NOI return on total capitalized costs is the primary measure of financial performance (capitalization rate) the Company considers.

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

17. Subsequent Events

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

•: entered into a joint venture with the U.S. Army with an initial cash equity investment of $10.0 million and assumed management of 3,637 multifamily units at Fort Lewis, Washington;
•: acquired one property consisting of 264 units for approximately $19.1 million;
•: disposed of four properties (including one Unconsolidated Property) consisting of 188 units for approximately $3.5 million;
•: repaid $65.2 million of mortgage loans;
•: repaid $125.0 million of 7.95% fixed rate public notes at maturity; and
•: funded $1.7 million related to the development, earnout and joint venture agreements.

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, 2001.

Forward-looking statements in this report are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believes", "expects" and "anticipates" and other similar expressions 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:

•: alternative sources of capital to the Company are more expensive than anticipated;
•: occupancy levels and market rents may be adversely affected by national and local economic and market conditions, 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.

Results of Operations

The following table summarizes the number of properties and related units for the year-to-date periods presented:

		Properties		Units		Purchase/ Sale Price $ Millions
	At December 31, 2000	1,104		227,704
Q1 2001 Acquisitions		7		1,721		$	189.2
Q1 2001 Dispositions		(15	)	(2,272	)	$	117.7

	At March 31, 2001	1,096		227,153
Q2/Q3/Q4 2001 Acquisitions		7		1,702		$	198.9
Q2/Q3/Q4 2001 Dispositions		(34	)	(6,535	)	$	299.2
Q2/Q3/Q4 2001 Completed Developments		7		2,505
Q4 2001 Unit Configuration Changes		—		(24	)

	At December 31, 2001	1,076		224,801
Q1 2002 Acquisitions		1		368		$	26.0
Q1 2002 Dispositions		(5	)	(757	)	$	43.7
Q1 2002 Completed Developments		1		588

	At March 31, 2002	1,073		225,000

The Company's acquisition and disposition activity has impacted overall results of operations for the quarters ended March 31, 2002 and 2001. Significant changes in revenues and expenses have resulted primarily from the consolidation of previously Unconsolidated Properties in July 2001, the disposition of the Globe furniture rental business on January 11, 2002, as well as the 2001 Acquisitions and Completed Development properties, which have been partially offset by the disposition of the 2002 and the 2001 Disposed properties. Significant change in expenses has also resulted from an increase in insurance costs and general and administrative costs and reductions in variable interest rates, impairment charges and goodwill amortization. This impact is discussed in greater detail in the following paragraphs.

Properties that the Company owned for all of the quarters ended March 31, 2002 and March 31, 2001 (the "First Quarter 2002 Same Store Properties"), which represented 197,305 units, also impacted the Company's results of operations and are discussed as well in the following paragraphs.

Comparison of the quarter ended March 31, 2002 to the quarter ended March 31, 2001

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

Revenues from the First Quarter 2002 Same Store Properties decreased primarily as a result of lower rental rates charged new residents, increased concessions and lower occupancy at certain properties. Property operating expenses from the First Quarter 2002 Same Store Properties, which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses, remained relatively stable with increases in real estate taxes and insurance costs offset by decreases in utility costs. The following tables provide comparative revenue, expenses, net operating income and weighted average occupancy for the First Quarter 2002 Same Store Properties:

Same Store Net Operating Income ("NOI")

$ in Millions—197,305 Same Store Units

Description	Revenues			Expenses			NOI
Q1 2002	$	466.0		$	168.7		$	297.3
Q1 2001	$	467.7		$	168.9		$	298.8

Change	$	(1.7	)	$	(0.2	)	$	(1.5	)

% Change		(0.4	)%		(0.1	)%		(0.5	)%

Same Store Occupancy Rates

Q1 2002	94.24	%
Q1 2001	94.60	%

Change	(0.36	)%

For 2002 properties that the Company acquired prior to December 31, 2000 and will continue to own through December 31, 2002, the Company anticipates for the year ended December 31, 2002 to see the following operating assumptions:

2002 Operating Assumptions

Physical Occupancy		93.0%
Revenue Growth		(1.25%) to 0.1%
Expense Growth		1.0% to 1.5%
NOI Growth		(2.9%) to (0.7%)
Dispositions		$500 million
Refinancing		$200 million at 7.0%

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

Rental income from properties other than First Quarter 2002 Same Store Properties increased by approximately $1.4 million primarily as a result of revenue from the Company's 2001 Acquired Properties and additional 2001 Partially Owned Properties.

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

Interest income—investment in mortgage notes decreased by $2.7 million as a result of the Company consolidating these previously Unconsolidated Properties in July 2001. No additional interest income will be recognized on the mortgage notes in future years as the Company now consolidates the results related to these previously Unconsolidated Properties.

Property management expenses include off-site expenses associated with the self-management of the Company's properties. These expenses increased by approximately $0.3 million or less than 2%. The Company continues to acquire properties in major metropolitan areas and dispose of assets in smaller multi-family rental markets where the Company does not have a significant management presence. As a result, the Company was able to maintain off-site management expenses at a constant level between the two reporting periods.

Fee and asset management revenues and fee and asset management expenses decreased as a result of the Company managing fewer units quarter over quarter for outside owners and unconsolidated entities. As of March 31, 2002 and 2001, the Company managed 16,539 units and 20,300 units, respectively, for third parties and the unconsolidated joint venture entities.

The Company recorded impairment charges in 2002 totaling approximately $0.3 million, which is related to one investment in a technology entity. See Note 15 in the Notes to the Consolidated Financial Statements for further discussion.

Interest expense, including amortization of deferred financing costs, decreased approximately $5.1 million primarily due to lower variable interest rates. During the quarter ended March 31, 2002, the Company capitalized interest costs of approximately $5.9 million as compared to $6.0 million for the quarter ended March 31, 2001. This capitalization of interest primarily related to equity investments in unconsolidated entities engaged in development activities. The effective interest cost on all of the Company's indebtedness for the quarter ended March 31, 2002 was 6.51% as compared to 7.07% for the quarter ended March 31, 2001.

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

certain key executives, and higher overall compensation expenses including a current expense associated with restricted shares/awards granted to key employees.

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

Net gain on sales of discontinued operations decreased approximately $39.0 million between the periods under comparison. This decrease is primarily the result of a fewer number of units sold during the quarter ended March 31, 2002 (461 units) as compared to the quarter ended March 31, 2001 (5,283 units including interests in properties sold into institutional joint ventures).

Liquidity and Capital Resources

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

Part of the Company's acquisition and development funding strategy and the funding of the Company's investment in various joint ventures 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 during the quarter ended March 31, 2002, the Company:

•: disposed of five properties (including one Unconsolidated Property) and received net proceeds of approximately $43.0 million;
•: sold a partial interest in one property and received net proceeds of approximately $1.7 million;
•: disposed of the furniture rental business on January 11, 2002 and received net proceeds of approximately $28.7 million;
•: issued $400.0 million of unsecured debt receiving net proceeds of $394.5 million;
•: issued approximately 0.8 million Common Shares and received net proceeds of $14.0 million; and
•: obtained $20.8 million in new mortgage financing.

All of these proceeds were utilized to either:

•: repay the line of credit;
•: repay mortgage indebtedness on selected properties;
•: repay public unsecured debt;
•: invest in unconsolidated entities; and
•: purchase additional properties.

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

•: repaid $195.0 million on its line of credit;
•: repaid $26.7 million of mortgage loans;
•: repaid $100.0 million of 9.375% fixed rate public notes at maturity;
•: funded a net of $5.6 million in accordance with its development and joint venture agreements; and
•: acquired one property utilizing cash of $26.1 million.

The Company's total debt summary and debt maturity schedule, as of March 31, 2002, are as follows:

Debt Summary as of March 31, 2002

		$ Millions		Weighted Average Rate
Secured		$	3,279	6.29%
Unsecured			2,556	6.62%

	Total	$	5,835	6.44%
Fixed Rate		$	5,130	6.94%
Floating Rate			705	2.79%

	Total	$	5,835	6.44%
Above Totals Include:
Total Tax Exempt		$	974	3.82%
Unsecured Revolving Credit Facility		$	—	—

Debt Maturity Schedule as of March 31, 2002

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

Total		$	5,835	100.0%

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

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

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

Capitalization as of March 31, 2002

Total Debt			$	5,835,463,307
Common Shares & OP Units		296,557,258
Common Share Equivalents (see below)		15,820,176

Total Outstanding at quarter-end		312,377,434
Price at March 28, 2002	$	28.74

				8,977,727,453
Perpetual Preferred Shares Liquidation Value				565,000,000
Perpetual Preference Interests Liquidation Value				211,500,000

Total Market Capitalization			$	15,589,690,760
Debt/Total Market Capitalization				37.43	%

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

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

Total Convertible		5,401,192		15,820,176

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

From April 1, 2002 through April 26, 2002, the Company:

•: entered into a joint venture with the U.S. Army with an initial cash equity investment of $10.0 million and assumed management of 3,637 multifamily units at Fort Lewis, Washington;
•: acquired one property consisting of 264 units for approximately $19.1 million;
•: disposed of four properties (including one Unconsolidated Property) consisting of 188 units for approximately $3.5 million;
•: repaid $65.2 million of mortgage loans;
•: repaid $125.0 million of 7.95% fixed rate public notes at maturity;
•: funded $1.7 million related to the development, earnout and joint venture agreements; and
•: received $3.0 million related to the collateral on one joint venture agreement (see Note 8).

During the remainder of 2002, the Company expects to fund approximately $22.7 million related to wholly owned developments and joint venture projects under development. In connection with one joint venture agreement, the Company has an obligation to fund up to an additional $6.5 million to guarantee third party construction financing. As of March 31, 2002, the Company has 20 projects under development with estimated completion dates ranging from June 30, 2002 through March 31, 2004.

During the quarter ended March 31, 2002, the Company's total improvements to real estate approximated $27.7 million. Replacements, which include new carpeting, appliances, mechanical equipment, fixtures, vinyl floors and blinds inside the unit approximated $10.9 million, or $55 per unit. Building improvements for the 2000, 2001 and 2002 Acquired Properties approximated $1.5 million, or $89 per unit. Building improvements for all of the Company's pre-2000 Acquired Properties approximated $12.5 million or $69 per unit. In addition, approximately $1.1 million was spent on one specific asset related to major renovations and repositioning of this asset. Also included in total improvements to real estate was approximately $1.7 million on commercial/other assets and Partially Owned Properties. Such improvements to real estate were primarily funded from net cash provided by operating activities. Total improvements to real estate for the remainder of 2002 are estimated at $100.0 million.

During the quarter ended March 31, 2002, 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 $3.0 million. Such additions to non-real estate property were funded from net cash provided by operating activities. Total additions to non-real estate property for the remainder of 2002 are estimated at $3.8 million.

Minority Interests as of March 31, 2002 decreased by $1.7 million when compared to December 31, 2001. 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 $9.9 million for the three months ending March 31, 2002 (excluding Junior Preference Unit and Preference Interest distributions);
•: the allocation of income from operations in the amount of $6.4 million;
•: the allocation of Minority Interests from Partially Owned Properties in the amount of $0.8 million;

•: the conversion of OP Units into Common Shares; and
•: the issuance of Common Shares during the three months ended March 31, 2002.

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

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 to the Company or the cost of alternative sources of capital to the Company is too high. These unencumbered properties are in excess of the value of unencumbered properties the Company must maintain in order to comply with covenants under its unsecured notes and line of credit.

The Company has a revolving credit facility with potential borrowings of up to $700.0 million. As of May 7, 2002, no amounts were outstanding under this facility. This credit facility is scheduled to expire in August 2002 and the Company has begun the process of replacing its line of credit with a new line of credit, which it believes will be on at least as favorable terms.

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

Critical Accounting Policies and Estimates

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

Impairment of Long-Lived Assets, Including Goodwill

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

Depreciation of Investment in Real Estate

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

Fair Value of Financial Instruments, Including Derivative Instruments

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

Stock Option Compensation

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

Adjusted Net Income

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

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

Adjusted Net Income
(Amounts in thousands)
(Unaudited)

		Quarter Ended March 31
		2002			2001
Net income available to Common Shares		$	76,353		$	106,754
Net income allocation to Minority Interests—Operating Partnership			6,441			9,796
Adjustments:
	Acquisition cost depreciation*		96,158			93,473
	Amortization of goodwill		—			933
	Acquisition cost depreciation accumulated on sold properties		(3,944	)		(26,199	)
	Extraordinary items		97			(311	)
	Cumulative effect of change in accounting principle		—			1,270

ANI available to Common Shares and OP Units—basic**		$	175,105		$	185,716

Depreciation for replacements and capital improvements		$	21,252		$	19,068

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

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

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

Funds From Operations

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

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

Funds from Operations
(Amounts in thousands)
(Unaudited)

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

	FFO available to Common Shares and OP Units—basic*	$	192,119		$	192,208

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

The Company believes that FFO is helpful to investors as a supplemental measure of the operating performance of a real estate company because, along with cash flows from operating activities, financing activities and investing activities, it provides investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. FFO in and of itself does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indication of the Company's performance or to net cash flows from operating activities as determined by GAAP as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. The Company's calculation of FFO may differ from the methodology for calculating FFO utilized by other real estate companies and may differ, for example, due to variations among the Company's and other real estate companies' accounting policies for replacement type items and, accordingly, may not be comparable to such other real estate companies.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no new or significant developments related to the legal proceedings that were discussed in Part I, Item III of the Company's Form 10-K for the year ended December 31, 2001.

Item 6. Exhibits and Reports on Form 8-K

(A)

Exhibits:

10.1: Compensation agreement between Bruce Duncan and the Company dated March 14, 2002.
10.2: Compensation agreement between Douglas Crocker II and the Company dated April 10, 2002, but effective as of January 16, 2002.
12: Computation of Ratio of Earnings to Combined Fixed Charges

(B): Reports on Form 8-K:

None

SIGNATURES

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


	EQUITY RESIDENTIAL PROPERTIES TRUST

Date: May 13, 2002	By:	/s/ BRUCE C. STROHM Bruce C. Strohm Executive Vice President, General Counsel and Secretary


Date: May 13, 2002	By:	/s/ MICHAEL J. MCHUGH Michael J. McHugh Executive Vice President, Chief Accounting Officer and Treasurer

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EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS (Amounts in thousands except for share amounts) (Unaudited)
EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except for share data) (Unaudited)
EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)
EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Amounts in thousands) (Unaudited)
EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 6. Exhibits and Reports on Form 8-K

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Equity Residential (EQR) 10-Q2002 Q1 Quarterly report

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