Erp Operating LTD Partnership 10-Q 2007 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended MARCH 31, 2007

OR

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

Commission File Number: 0-24920

ERP OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)

Illinois	36-3894853
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

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

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

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 x  No o

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

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

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

	March 31, 2007			December 31, 2006
ASSETS
Investment in real estate
Land	$	3,391,105		$	3,217,672
Depreciable property	13,784,447			13,376,359
Projects under development	384,534			399,131
Land held for development	296,990			242,013
Investment in real estate	17,857,076			17,235,175
Accumulated depreciation	(3,103,329		)	(3,022,480		)
Investment in real estate, net	14,753,747			14,212,695
Cash and cash equivalents	171,742			260,277
Investments in unconsolidated entities	4,196			4,448
Deposits – restricted	188,958			391,825
Escrow deposits – mortgage	23,426			25,528
Deferred financing costs, net	46,434			43,384
Other assets	133,391			124,062
Total assets	$	15,321,894		$	15,062,219
LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Mortgage notes payable	$	3,105,938		$	3,178,223
Notes, net	4,420,467			4,419,433
Lines of credit	947,500			460,000
Accounts payable and accrued expenses	118,319			96,699
Accrued interest payable	70,303			91,172
Other liabilities	367,567			311,557
Security deposits	60,474			58,072
Distributions payable	150,577			151,382
Total liabilities	9,241,145			8,766,538
Commitments and contingencies
Minority Interests – Partially Owned Properties	20,995			26,814
Partners’ capital:
Preference Units	386,171			386,574
Preference Interests and Junior Preference Units	11,684			11,684
General Partner	5,322,828			5,511,658
Limited Partners	352,639			372,961
Accumulated other comprehensive loss	(13,568		)	(14,010		)
Total partners’ capital	6,059,754			6,268,867
Total liabilities and partners’ capital	$	15,321,894		$	15,062,219

See accompanying notes

2

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per OP Unit data)

(Unaudited)

	Quarter Ended March 31,
	2007			2006
REVENUES
Rental income	$	523,898		$	459,971
Fee and asset management	2,267			2,487
Total revenues	526,165			462,458
EXPENSES
Property and maintenance	141,581			122,061
Real estate taxes and insurance	58,977			46,071
Property management	24,904			23,642
Fee and asset management	2,341			2,168
Depreciation	152,821			128,676
General and administrative	9,966			13,040
Impairment	236			566
Total expenses	390,826			336,224
Operating income	135,339			126,234
Interest and other income	2,444			2,352
Interest:
Expense incurred, net	(111,660		)	(104,555		)
Amortization of deferred financing costs	(2,564		)	(2,738		)
Income before allocation to Minority Interests, loss from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations	23,559			21,293
Allocation to Minority Interests – Partially Owned Properties	(592		)	(1,521		)
Loss from investments in unconsolidated entities	(229		)	(230		)
Net gain on sales of unconsolidated entities	—			329
Income from continuing operations	22,738			19,871
Discontinued operations, net	111,608			385,677
Net income	$	134,346		$	405,548
ALLOCATION OF NET INCOME:
Preference Units	$	7,424		$	10,095
Preference Interests and Junior Preference Units	$	223		$	1,099
Premium on redemption of Preference Interests	$	—		$	674
General Partner	$	118,813		$	367,720
Limited Partners	7,886			25,960
Net Income available to OP Units	$	126,699		$	393,680
Earnings per OP Unit – basic:
Income from continuing operations available to OP Units	$	0.05		$	0.03
Net income available to OP Units	$	0.41		$	1.27
Weighted average OP Units outstanding	311,697			309,334
Earnings per OP Unit – diluted:
Income from continuing operations available to OP Units	$	0.05		$	0.03
Net income available to OP Units	$	0.40		$	1.25
Weighted average OP Units outstanding	316,265			314,049
Distributions declared per OP Unit outstanding	$	0.4625		$	0.4425

See accompanying notes

3

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Amounts in thousands except per OP Unit data)

(Unaudited)

	Quarter Ended March 31,
	2007			2006
Comprehensive income:
Net income	$	134,346		$	405,548
Other comprehensive income (loss) – derivative and other instruments:
Unrealized holding (losses) gains arising during the period	(121		)	1,523
Losses reclassified into earnings from other comprehensive income	563			589
Comprehensive income	$	134,788		$	407,660

See accompanying notes

4

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Quarter Ended March 31,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	134,346		$	405,548
Adjustments to reconcile net income to net cash provided by operating activities:
Allocation to Minority Interests – Partially Owned Properties	592			1,521
Depreciation	154,674			146,771
Amortization of deferred financing costs	2,564			2,790
Amortization of discounts and premiums on debt	(1,396		)	(1,894		)
Amortization of deferred settlements on derivative instruments	218			244
Impairment	236			792
Loss from investments in unconsolidated entities	229			230
Distributions from unconsolidated entities – return on capital	23			68
Net (gain) on sales of unconsolidated entities	—			(329		)
Net (gain) on sales of discontinued operations	(111,767		)	(372,501		)
Loss on debt extinguishments	141			2,867
Compensation paid with Company Common Shares	4,902			6,294
Other operating activities, net	—			(1		)
Changes in assets and liabilities:
(Increase) in deposits – restricted	(746		)	(2,303		)
Decrease in other assets	5,381			2,664
Increase in accounts payable and accrued expenses	16,317			4,627
(Decrease) in accrued interest payable	(20,869		)	(8,580		)
(Decrease) in other liabilities	(20,147		)	(29,290		)
Increase in security deposits	2,402			1,559
Net cash provided by operating activities	167,100			161,077
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions	(677,058		)	(444,901		)
Investment in real estate – development/other	(79,926		)	(34,831		)
Improvements to real estate	(57,354		)	(51,414		)
Additions to non-real estate property	(1,738		)	(1,620		)
Interest capitalized for real estate under development	(7,866		)	(4,016		)
Proceeds from disposition of real estate, net	280,592			810,898
Proceeds from disposition of unconsolidated entities	—			333
Investments in unconsolidated entities	—			(1,010		)
Distributions from unconsolidated entities – return of capital	—			92
Decrease (increase) in deposits on real estate acquisitions, net	218,224			(46,090		)
Decrease in mortgage deposits	2,102			3,391
Consolidation of previously Unconsolidated Properties:
Via EITF 04-5 (cash consolidated)	—			1,436
Acquisition of Minority Interests – Partially Owned Properties	—			(1		)
Other investing activities, net	—			2
Net cash (used for) provided by investing activities	(323,024		)	232,269

See accompanying notes

5

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

	Quarter Ended March 31,
	2007			2006
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs	$	(5,691	)	$	(4,464	)
Mortgage notes payable:
Proceeds	33,559			168,787
Restricted cash	(14,611		)	—
Lump sum payoffs	(135,611		)	(141,183		)
Scheduled principal repayments	(6,046		)	(6,810		)
Prepayment premiums/fees	(141		)	(2,867		)
Notes, net:
Proceeds	—			398,052
Lines of credit:
Proceeds	4,052,000			1,884,500
Repayments	(3,564,500		)	(2,508,500		)
(Payments on) proceeds from settlement of derivative instruments	(29		)	10,729
Proceeds from sale of OP Units	3,347			3,308
Proceeds from exercise of EQR options	7,041			22,155
OP Units repurchased and retired	(142,754		)	(44,758		)
Redemption of Preference Interests	—			(25,500		)
Payment of offering costs	(64		)	(16		)
Contributions – Minority Interests – Partially Owned Properties	1,337			815
Distributions:
OP Units – General Partner	(135,829		)	(127,911		)
Preference Units	(7,431		)	(11,150		)
Preference Interests and Junior Preference Units	(223		)	(1,137		)
OP Units – Limited Partners	(9,217		)	(9,181		)
Minority Interests – Partially Owned Properties	(7,748		)	(266		)
Net cash provided by (used for) financing activities	67,389			(395,397		)
Net (decrease) in cash and cash equivalents	(88,535		)	(2,051		)
Cash and cash equivalents, beginning of period	260,277			88,828
Cash and cash equivalents, end of period	$	171,742		$	86,777

See accompanying notes

6

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

	Quarter Ended March 31,
	2007			2006
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest	$	141,879		$	124,870
Cash paid during the period for income, franchise and excise taxes	$	77		$	899
Real estate acquisitions/dispositions/other:
Mortgage loans assumed	$	40,672		$	50,604
Valuation of OP Units issued	$	—		$	27,855
Mortgage loans (assumed) by purchaser	$	(4,845	)	$	(14,205	)
Consolidation of previously Unconsolidated Properties – Via EITF 04-5:
Investment in real estate, net	$	—		$	(24,637	)
Mortgage loans consolidated	$	—		$	22,545
Investments in unconsolidated entities	$	—		$	2,602
Net other liabilities recorded	$	—		$	926

See accompanying notes

7

ERP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Business

ERP Operating Limited Partnership (“ERPOP”), an Illinois limited partnership, was formed in May 1993 to conduct the multifamily residential property business of Equity Residential (“EQR”).  EQR, a Maryland real estate investment trust (“REIT”) formed in March 1993, is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top United States growth markets.  EQR has elected to be taxed as a REIT.

EQR is the general partner of, and as of March 31, 2007 owned an approximate 93.8% ownership interest in, ERPOP.  EQR is structured as an umbrella partnership REIT (“UPREIT”), under which all property ownership and business operations are conducted through ERPOP and its subsidiaries.  References to the “Operating Partnership” include ERPOP and those entities owned or controlled by it.  References to the “Company” mean EQR and the Operating Partnership.

As of March 31, 2007, the Operating Partnership, directly or indirectly through investments in title holding entities, owned all or a portion of 618 properties in 25 states and the District of Columbia consisting of 166,324 units.   The ownership breakdown includes (table does not include various uncompleted development properties):

	Properties	Units
Wholly Owned Properties	545	146,473
Partially Owned Properties:
Consolidated	27	5,445
Unconsolidated	45	10,846
Military Housing (Fee Managed)	1	3,560
	618	166,324

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 quarter ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The balance sheet at December 31, 2006 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 Operating Partnership’s annual report on Form 10-K for the year ended December 31, 2006.

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Income Taxes

The Operating Partnership generally is not liable for federal income taxes as the partners recognize their proportionate share of the Operating Partnership’s income or loss in their tax returns; therefore no provision for federal income taxes has been made at the ERPOP level.  Historically, the Operating Partnership has generally only incurred certain state and local income, excise and franchise taxes.  The Operating Partnership has elected Taxable REIT Subsidiary (“TRS”) status for certain of its corporate subsidiaries, primarily those entities engaged in condominium conversion, corporate housing and sale activities and as a result, these entities incurred both federal and state income taxes.

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  These assets and liabilities are measured using enacted tax rates for which the temporary differences are expected to be recovered or settled.  The effect of deferred tax assets and liabilities are recognized in earnings in the period enacted.  As of March 31, 2007, the Operating Partnership has recorded a deferred tax asset which was fully offset by a valuation allowance.

Other

The Company adopted SFAS No. 123(R), Share-Based Payment, as required effective January 1, 2006.  SFAS No. 123(R) requires all companies to expense share-based compensation (such as share options), as well as making other revisions to SFAS No. 123.  As the Company began expensing all share-based compensation effective January 1, 2003, the adoption of SFAS No. 123(R) did not have a material effect on its consolidated statements of operations or financial position.

Any EQR common share of beneficial interest, $0.01 per value per share (the “Common Shares”) issued pursuant to EQR’s incentive equity compensation and employee share purchase plans will result in the Operating Partnership issuing units of limited partnership interest (“OP Units”) to EQR on a one-for-one basis, with the Operating Partnership receiving the net cash proceeds of such issuances.

The Operating Partnership adopted the disclosure provisions of SFAS No. 150 and FSP No. FAS 150-3, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, effective December 31, 2003.  SFAS No. 150 and FSP No. FAS 150-3 require the Operating Partnership to make certain disclosures regarding 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 Operating Partnership is presently the controlling partner in various consolidated partnerships consisting of 27 properties and 5,445 units and various uncompleted development properties having a minority interest book value of $21.0 million at March 31, 2007.  Some of these partnerships contain provisions that require the partnerships to be liquidated through the sale of its assets upon reaching a date specified in each respective partnership agreement.  The Operating Partnership, 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, 2007, the Operating Partnership estimates the value of Minority Interest distributions would have been approximately $102.8 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, 2007 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 Operating Partnership’s Partially Owned Properties is subject to change.  To the extent that the partnerships’ underlying assets are worth less than the underlying liabilities, the Operating Partnership has no obligation to remit any consideration to the Minority Interests in Partially Owned Properties.

The Operating Partnership adopted EITF Issue No. 04-5, Determining Whether a General Partner, or

9

the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (“Issue 04-5”), effective January 1, 2006.  Issue 04-5 provides guidance in determining whether a general partner controls a limited partnership.  The Operating Partnership consolidated its Lexford syndicated portfolio consisting of 20 separate partnerships (10 properties) containing 1,272 units, all of which were sold October 5, 2006.  The adoption did not have a material effect on the results of operations or financial position.

In July 2006, the FASB ratified the consensus in FIN No. 48, Accounting for Uncertainty in Income Taxes.  FIN No. 48 creates a single model to address uncertainty in income tax positions and prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition, and clearly scopes income taxes out of SFAS No. 5, Accounting for Contingencies.  The Operating Partnership adopted FIN No. 48 as required effective January 1, 2007.  The adoption of FIN No. 48 did not have a material effect on the consolidated results of operations or financial position.

3.Partners’ Capital

The following tables present the changes in the Operating Partnership’s issued and outstanding OP Units and the limited partners’ OP Units for the quarter ended March 31, 2007:

	2007
OP Units outstanding at January 1,	313,466,216
Issued to General Partner:
Conversion of Series E Preference Units	17,358
Conversion of Series H Preference Units	724
Exercise of EQR options	217,165
Employee Share Purchase Plan	77,537
Restricted EQR share grants, net	419,539
OP Units Other:
Repurchased and retired	(4,140,254	)
OP Units outstanding at March 31,	310,058,285

	2007
Limited Partner OP Units outstanding at January 1,	19,914,583
Conversion of Limited Partner OP Units to EQR Common Shares	(603,298	)
Limited Partner OP Units Outstanding at March 31,	19,311,285
Limited Partner OP Units Ownership Interest in Operating Partnership	6.2	%

During the quarter ended March 31, 2007, the Company repurchased 4,140,254 of its Common Shares at an average price of $48.76 per share for total consideration of $201.9 million, of which $142.8 million was paid in cash during the first quarter of 2007 and $59.1 million was accrued for at March 31, 2007 (see below).  These shares were retired subsequent to the repurchase.  Concurrent with these transactions, the Operating Partnership repurchased and retired 4,140,254 OP Units previously issued to EQR.  Of the total shares repurchased, 80,054 shares were repurchased at an average price of $54.37 per share to cover the minimum statutory tax withholding obligations related to the vesting of employees’ restricted shares.  The remaining 4,060,200 shares were repurchased in the open market at an average price of $48.65 per share.  As of March 31, 2007, transactions to repurchase 1,245,100 of the 4,140,254 Common Shares had not yet settled.  As of March 31, 2007, the Operating Partnership has reduced the number of OP Units issued and outstanding by this amount and recorded a liability of $59.1 million included in other liabilities on the consolidated balance sheets.

The Limited Partners of the Operating Partnership as of March 31, 2007 include various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units.  Subject to certain

10

restrictions, the Limited Partners may exchange their OP Units for EQR Common Shares on a one-for-one basis.

EQR contributes all net proceeds from its various equity offerings (including proceeds from exercise of options for EQR Common Shares) to the Operating Partnership.  In return for those contributions, EQR receives a number of OP Units in ERPOP 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 ERPOP equal in number and having the same terms as the preferred shares issued in the equity offering).

The following table presents the Operating Partnership’s issued and outstanding “Preference Units” as of March 31, 2007 and December 31, 2006:

			Annual		Amounts in thousands
	Redemption Date (1) (2)	Conversion Rate (2)	Dividend per Unit (3)		March 31, 2007		December 31, 2006
Preference Units:
8.60% Series D Cumulative Redeemable Preference Units; liquidation value $250 per unit; 700,000 units issued and outstanding at March 31, 2007 and December 31, 2006 (4)	7/15/07	N/A	$	21.50	$	175,000	$	175,000
7.00% Series E Cumulative Convertible Preference Units; liquidation value $25 per unit; 419,216 and 434,816 units issued and outstanding at March 31, 2007 and December 31, 2006, respectively	11/1/98	1.1128	$	1.75	10,480		10,871
7.00% Series H Cumulative Convertible Preference Units; liquidation value $25 per unit; 27,634 and 28,134 units issued and outstanding at March 31, 2007 and December 31, 2006, respectively	6/30/98	1.4480	$	1.75	691		703
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2007 and December 31, 2006	12/10/26	N/A	$	4.145	50,000		50,000
6.48% Series N Cumulative Redeemable Preference Units; liquidation value $250 per unit; 600,000 units issued and outstanding at March 31, 2007 and December 31, 2006 (4)	6/19/08	N/A	$	16.20	150,000		150,000
					$	386,171	$	386,574

(1)On or after the redemption date, redeemable preference units (Series D, K and N) may be redeemed for cash at the option of the Operating Partnership, in whole or in part, at a redemption price equal to the liquidation price per unit, plus accrued and unpaid distributions, if any, in conjunction with the concurrent redemption of the corresponding EQR Preferred Shares.

(2)On or after the redemption date, convertible preference units (Series E & H) may be redeemed under certain circumstances at the option of the Operating Partnership for cash (in the case of Series E) or OP Units (in the case of Series H), in whole or in part, at various redemption prices per unit based upon the contractual conversion rate, plus accrued and unpaid distributions, if any, in conjunction with the concurrent redemption/conversion of the corresponding EQR Preferred Shares.

(3)Dividends on all series of Preference Units are payable quarterly at various pay dates.  Dividends listed for Series D and N are Preference Unit rates and the equivalent depositary unit annual dividends are $2.15 and $1.62 per unit, respectively.

(4)Series D and N Preference Units each have a corresponding depositary unit that consists of ten times the number of units and one-tenth the liquidation value and dividend per unit.

The following table presents the issued and outstanding Preference Interests as of March 31, 2007 and December 31, 2006:

11

			Annual		Amounts in thousands
	Redemption Date (1) (2)	Conversion Rate (2)	Dividend per Unit (3)		March 31, 2007		December 31, 2006
Preference Interests:
7.625% Series J Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 230,000 units issued and outstanding at March 31, 2007 and December 31, 2006	12/14/06	1.4108	$	3.8125	$	11,500	$	11,500
					$	11,500	$	11,500

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

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

(3)Dividends on the Series J Preference Interests are payable quarterly on March 25th, June 25th, September 25th and December 25th 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, 2007 and December 31, 2006:

			Annual		Amounts in thousands
	Redemption Date (2)	Conversion Rate (2)	Dividend per Unit (1)		March 31, 2007		December 31, 2006
Junior Preference Units:
Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31, 2007 and December 31, 2006	07/29/09	1.020408	$	2.00	$	184	$	184
					$	184	$	184

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

(2)On or after the tenth anniversary of the issuance (the “Redemption Date”), the Series B Junior Preference Units may be converted into OP Units at the option of the Operating Partnership based on the contractual conversion rate.  Prior to the Redemption Date, the holders may elect to convert the Series B Junior Preference Units to OP Units under certain circumstances based on the contractual conversion rate.  The contractual rate is based upon a ratio dependent upon the closing price of EQR’s Common Shares.

4.Real Estate

The following table summarizes the carrying amounts for investment in real estate (at cost) as of March 31, 2007 and December 31, 2006 (Amounts in thousands):

12

	March 31, 2007			December 31, 2006
Land	$	3,391,105		$	3,217,672
Depreciable property:
Buildings and improvements	12,918,797			12,563,807
Furniture, fixtures and equipment	865,650			812,552
Projects under development:
Land	125,006			137,505
Construction-in-progress	259,528			261,626
Land held for development:
Land	246,114			202,695
Construction-in-progress	50,876			39,318
Investment in real estate	17,857,076			17,235,175
Accumulated depreciation	(3,103,329		)	(3,022,480		)
Investment in real estate, net	$	14,753,747		$	14,212,695

During the quarter ended March 31, 2007, the Operating Partnership acquired the following from unaffiliated parties (purchase price in thousands):

	Properties	Units	Purchase Price
Rental Properties	13	3,899	$	674,156
Land Parcels (three)	—	—	42,450
	13	3,899	$	716,606

During the quarter ended March 31, 2007, the Operating Partnership disposed of the following to unaffiliated parties (sales price in thousands):

	Properties	Units	Sales Price
Rental Properties	12	3,711	$	253,930
Condominium Units	2	157	37,280
	14	3,868	$	291,210

The Operating Partnership recognized a net gain on sales of discontinued operations of approximately $111.8 million on the above sales.

5.Commitments to Acquire/Dispose of Real Estate

As of May 2, 2007, in addition to the properties that were subsequently acquired as discussed in Note 16, the Operating Partnership had entered into separate agreements to acquire the following (purchase price in thousands):

	Properties/ Parcels	Units	Purchase Price
Operating Properties	6	1,528	$	361,200
Land Parcels	1	—	53,052
Total	7	1,528	$	414,252

As of May 2, 2007, in addition to the properties that were subsequently disposed as discussed in Note 16, the Operating Partnership had entered into separate agreements to dispose of the following (sales price in thousands):

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	Properties/ Parcels	Units	Sales Price
Operating Properties	19	4,635	$	397,429
Development Properties	1	—	44,700
Land Parcels	1	—	3,000
Total	21	4,635	$	445,129

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.

6.Investments in Partially Owned Entities

The Operating Partnership has co-invested in various properties with unrelated third parties which are either consolidated or accounted for under the equity method of accounting (unconsolidated).  The following table summarizes the Operating Partnership’s investments in partially owned entities as of March 31, 2007 (amounts in thousands except for project and unit amounts):

	Consolidated																Unconsolidated
	Development Projects
	Held for and/or Under Development		Completed, Not Stabilized (4)			Completed and Stabilized				Other				Total			Institutional Joint Ventures
Total projects (1)	—		2			4				21				27			45
Total units (1)	—		572			977				3,896				5,445			10,846
Debt – Secured (2):
EQR Ownership (3)	$	98,860	$		90,237	$		61,000	$			286,957	$			537,054	$		121,200
Minority Ownership	—		—			—			13,321				13,321				363,600
Total (at 100%)	$	98,860	$	90,237		$	61,000		$		300,278		$		550,375		$	484,800

(1)Project and unit counts exclude all uncompleted development projects until those projects are substantially completed.

(2)All debt is non-recourse to the Operating Partnership with the exception of $28.3 million in mortgage bonds on one development project.

(3)Represents the Operating Partnership’s economic ownership interest.

(4)Projects included here are substantially complete. However, they may still require additional exterior and interior work for all units to be available for leasing.

7.Deposits – Restricted

The following table presents the deposits – restricted as of March 31, 2007 and December 31, 2006 (amounts in thousands):

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	March 31, 2007		December 31, 2006
Tax-deferred (1031) exchange proceeds	$	81,468	$	299,392
Earnest money on pending acquisitions	12,870		13,170
Resident security and utility deposits	37,727		36,260
Restricted deposits on debt	34,805		20,194
Other	22,088		22,809
Totals	$	188,958	$	391,825

8.Mortgage Notes Payable

As of March 31, 2007, the Operating Partnership had outstanding mortgage debt of approximately $3.1 billion.

During the quarter ended March 31, 2007, the Operating Partnership:

·Repaid $141.7 million of mortgage loans;

·Assumed $40.7 million of mortgage debt on certain properties in connection with their acquisitions;

·Obtained $33.6 million of new mortgage loans on certain properties; and

·Was released from $4.8 million of mortgage debt assumed by the purchaser on disposed properties.

The Operating Partnership recorded approximately $0.1 million and $0.3 million of prepayment penalties and write-offs of unamortized deferred financing costs, respectively, as additional interest related to debt extinguishment of mortgages during the quarter ended March 31, 2007.

As of March 31, 2007, scheduled maturities for the Operating Partnership’s outstanding mortgage indebtedness were at various dates through September 1, 2045.  At March 31, 2007, the interest rate range on the Operating Partnership’s mortgage debt was 3.32% to 12.465%.  During the quarter ended March 31, 2007, the weighted average interest rate on the Operating Partnership’s mortgage debt was 5.73%.

9.Notes

As of March 31, 2007, the Operating Partnership had outstanding unsecured notes of approximately $4.4 billion.  There were no significant transactions during the quarter ended March 31, 2007.

As of March 31, 2007, scheduled maturities for the Operating Partnership’s outstanding notes were at various dates through 2029.  At March 31, 2007, the interest rate range on the Operating Partnership’s notes was 3.85% to 7.625%.  During the quarter ended March 31, 2007, the weighted average interest rate on the Operating Partnership’s notes was 5.70%.

10.Lines of Credit

On February 28, 2007, the Operating Partnership entered into an unsecured revolving credit facility with potential borrowings of up to $1.5 billion maturing on February 28, 2012.  Advances under the credit facility bear interest at variable rates based upon LIBOR at various interest periods plus a spread dependent upon the Operating Partnership’s credit rating or based on bids received from the lending group.  EQR has guaranteed the Operating Partnership’s credit facility up to the maximum amount and for the full term of the facility.

On April 1, 2005, the Operating Partnership obtained a three-year $1.0 billion unsecured revolving credit facility maturing on May 29, 2008.  Advances under the credit facility bore interest at variable rates based upon LIBOR at various interest periods plus a spread dependent upon the Operating Partnership’s credit rating or based on bids received from the lending group.  EQR guaranteed the Operating Partnership’s credit facility up to the

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maximum amount and for the full term of the facility.  This credit facility was repaid in full and terminated on February 28, 2007.  The Operating Partnership recorded $0.4 million of write-offs of unamortized deferred financing costs as additional interest in connection with this termination.

As of March 31, 2007, $947.5 million was outstanding and $70.8 million was restricted (dedicated to support letters of credit and not available for borrowing) on the $1.5 billion revolving credit facility.  During the quarter ended March 31, 2007, the weighted average interest rate under the credit facilities was 5.63%.

11.Derivative Instruments

The following table summarizes the consolidated derivative instruments at March 31, 2007 (dollar amounts are in thousands):

	Fair Value Hedges (1)			Forward Starting Swaps (2)			Development Cash Flow Hedges (3)
Current Notional Balance	$	370,000		$	100,000		$	—
Lowest Possible Notional	$	370,000		$	100,000		$	—
Highest Possible Notional	$	370,000		$	100,000		$	54,947
Lowest Interest Rate	3.245		%	5.596		%	N/A
Highest Interest Rate	3.787		%	5.596		%	5.850		%
Earliest Maturity Date	2009			2017			2009
Latest Maturity Date	2009			2017			2009
Estimated Asset (Liability) Fair Value	$	(10,713	)	$	(3,230	)	$	19

(1)Fair Value Hedges – Converts outstanding fixed rate debt to a floating interest rate.

(2)Forward Starting Swaps – Designed to partially fix the interest rate in advance of a planned future debt issuance.

(3)Development Cash Flow Hedges – Converts outstanding floating rate debt to a fixed interest rate (swaps) and/or locks-in a maximum interest rate (caps).

On March 31, 2007, the net derivative instruments were reported at their fair value as other liabilities of approximately $13.9 million and other assets of $19,000.  As of March 31, 2007, there were approximately $14.2 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, 2007, the Operating Partnership may recognize an estimated $2.5 million of accumulated other comprehensive loss as additional interest expense during the twelve months ending March 31, 2008.

12.Earnings Per OP Unit

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

	Quarter Ended March 31,
	2007			2006
Numerator for net income per OP Unit – basic and diluted:
Income from continuing operations	$	22,738		$	19,871
Allocation to Preference Units	(7,424		)	(10,095		)
Allocation to Preference Interests and Junior Preference Units	(223		)	(1,099		)
Allocation to premium on redemption of Preference Interests	—			(674		)
Income from continuing operations available to OP Units	15,091			8,003
Discontinued operations, net	111,608			385,677
Numerator for net income per OP Unit – basic and diluted	$	126,699		$	393,680

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	Quarter Ended March 31,
	2007		2006
Denominator for net income per OP Unit – basic and diluted:
Denominator for net income per OP Unit – basic	311,697		309,334
Effect of dilutive securities:
Dilution for OP Units issuable upon assumed exercise/vesting of EQR’s share options/restricted shares	4,568		4,715
Denominator for net income per OP Unit – diluted	316,265		314,049
Net income per OP Unit – basic	$	0.41	$	1.27
Net income per OP Unit – diluted	$	0.40	$	1.25
Net income per OP Unit – basic:
Income from continuing operations available to OP Units	$	0.048	$	0.026
Discontinued operations, net	0.358		1.247
Net income per OP Unit – basic	$	0.406	$	1.273
Net income per OP Unit – diluted:
Income from continuing operations available to OP Units	$	0.048	$	0.025
Discontinued operations, net	0.353		1.228
Net income per OP Unit – diluted	$	0.401	$	1.253

Convertible preference interests/units that could be converted into 853,151 and 1,615,465 weighted average Common Shares (which would be contributed to the Operating Partnership in exchange for OP Units) for the quarters ended March 31, 2007 and 2006, respectively, were outstanding but were not included in the computation of diluted earnings per OP Unit because the effects would be anti-dilutive.  In addition, the effect of the Common Shares/OP Units that could ultimately be issued upon the conversion/exchange of the Operating Partnership’s $650.0 million exchangeable senior notes were not included in the computation of diluted earnings per OP Unit because the effects would be anti-dilutive.

13.Discontinued Operations

The Operating Partnership has presented separately as discontinued operations in all periods the results of operations for all consolidated assets disposed of on or after January 1, 2002 (the date of adoption of SFAS No. 144) and all operations related to condominium conversion properties effective upon their respective transfer into a TRS.

The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Operating Partnership owned such assets during the quarters ended March 31, 2007 and 2006 (amounts in thousands).

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	Quarter Ended March 31,
	2007			2006
REVENUES
Rental income	$	7,749		$	74,789
Total revenues	7,749			74,789
EXPENSES (1)
Property and maintenance	4,484			25,461
Real estate taxes and insurance	1,209			9,746
Property management	141			2,733
Depreciation	1,853			18,095
General and administrative	2			211
Impairment	—			226
Total expenses	7,689			56,472
Discontinued operating income	60			18,317
Interest and other income	87			980
Interest (2):
Expense incurred, net	(306		)	(6,069		)
Amortization of deferred financing costs	—			(52		)
Discontinued operations	(159		)	13,176
Net gain on sales of discontinued operations	111,767			372,501
Discontinued operations, net	$	111,608		$	385,677

(1)Includes expenses paid in the current period for properties sold or held for sale in prior periods related to the Operating Partnership’s period of ownership.

(2)Includes only interest expense specific to secured mortgage notes payable for properties sold and/or held for sale.

For the properties sold during the quarter ended March 31, 2007 (excluding condominium conversion properties), the investment in real estate, net of accumulated depreciation, and the mortgage notes payable balances at December 31, 2006 were $152.1 million and $11.9 million, respectively.

The net real estate basis of the Operating Partnership’s condominium conversion properties owned by the TRS and included in discontinued operations (excludes the Operating Partnership’s five halted conversions as they are now held for use), which were included in investment in real estate, net in the consolidated balance sheets, was $98.1 million and $95.4 million at March 31, 2007 and December 31, 2006, respectively.

14.Commitments and Contingencies

The Operating Partnership, as an owner of real estate, is subject to various Federal, state and local environmental laws.  Compliance by the Operating Partnership with existing laws has not had a material adverse effect on the Operating Partnership.  However, the Operating Partnership 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 Operating Partnership is party to a housing discrimination lawsuit brought by a non-profit civil rights organization in April 2006 in the U.S. District Court for the District of Maryland.  The suit alleges that the Operating Partnership designed and built approximately 300 of its properties in violation of the accessibility requirements of the Fair Housing Act and Americans With Disabilities Act.  The suit seeks actual and punitive damages, injunctive relief (including modification of non-compliant properties), costs and attorneys’ fees.  The Operating Partnership believes it has a number of viable defenses, including that a majority of the named properties were completed before the operative dates of the statutes in question and/or were not designed or built by the Operating Partnership.  Accordingly, the Operating Partnership is defending the suit vigorously.  Due to the

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pendency of the Operating Partnership’s defenses and the uncertainty of many other critical factual and legal issues, it is not possible to determine or predict the outcome of the suit and as a result, no amounts have been accrued at March 31, 2007. While no assurances can be given, the Operating Partnership does not believe that the suit, if adversely determined, will have a material adverse effect on the Operating Partnership.

The Operating Partnership does not believe there is any other litigation pending or threatened against it that, individually or in the aggregate, reasonably may be expected to have a material adverse effect on the Operating Partnership.

During the years ended December 31, 2005 and 2004, the Operating Partnership established a reserve and recorded a corresponding expense, net of insurance receivables, for estimated uninsured property damage at certain of its properties caused by various hurricanes in each respective year.  During the quarter ended March 31, 2007, the Operating Partnership received $3.8 million in insurance proceeds and recorded an additional $2.8 million of receivables in anticipation of proceeds expected.  As of March 31, 2007, a receivable of $4.1 million and a liability of $2.5 million are included in other assets and other liabilities, respectively, on the consolidated balance sheets.

As of March 31, 2007, the Operating Partnership has ten projects totaling 3,228 units in various stages of development with estimated completion dates ranging through June 30, 2009.  The primary 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 Operating Partnership based on such value.  If the Operating Partnership chooses not to purchase the interest, the Operating Partnership must agree to a sale of the project to an unrelated third party at such value.  The Operating Partnership’s partner must exercise this right as to all projects subject to the agreement within five years after the receipt of the final certificate of occupancy on the last developed property.

·The second development partner has the right, at any time following completion of a project, to require the Operating Partnership to purchase the partners’ interest in that project at a mutually agreeable price.  If the Operating Partnership 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 Operating Partnership and its partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value.  The Operating Partnership 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 Operating Partnership must purchase, at the agreed-upon price, any projects remaining unsold.

·The third development partner has the exclusive right for six months following stabilization, as defined, to market a subject project for sale.  Thereafter, either the Operating Partnership or its development partner may market a subject project for sale.  If the Operating Partnership’s development partner proposes the sale, the Operating Partnership 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 Operating Partnership may elect to purchase the property or authorize its development partner to sell the project at the agreed-upon value.

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

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.

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The Operating Partnership’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 individually and geographically, and both on a same store and non-same store basis; however, each of our apartment communities generally has similar economic characteristics, residents, and products and services.  The Operating Partnership’s operating segments have been aggregated by geography in a manner identical to that which is provided to its chief operating decision maker.

The Operating Partnership’s fee and asset management, development (including FIN No. 46 partially owned properties), condominium conversion and corporate housing (Equity Corporate Housing or “ECH”) activities are immaterial and do not individually meet the threshold requirements of a reportable segment as provided for in SFAS No. 131 and as such, have been aggregated in the tables presented below.

All revenues are from external customers and there is no customer who contributed 10% or more of the Operating Partnership’s total revenues during the quarters ended March 31, 2007 and 2006, respectively.

The primary financial measure for the Operating Partnership’s rental real estate segment is net operating income (“NOI”), which represents rental income less: 1) property and maintenance expense; 2) real estate taxes and insurance expense; and 3) property management expense (all as reflected in the accompanying consolidated statements of operations).  The Operating Partnership 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 Operating Partnership’s apartment communities.  Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance.  The following table presents NOI for each segement from our rental real estate specific to continuing operations as well as total assets for the quarters ended March 31, 2007 and 2006, respectively (amounts in thousands):

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	Quarter Ended March 31, 2007
	Northeast		South		West		Other (3)			Total
Rental income:
Same store (1)	$	127,100	$	161,334	$	159,967	$	—		$	448,401
Non-same store/other (2) (3)	15,688		23,805		15,443		20,561			75,497
Total rental income	142,788		185,139		175,410		20,561			523,898
Operating expenses:
Same store (1)	50,709		67,313		56,818		—			174,840
Non-same store/other (2) (3)	8,111		10,447		6,871		25,193			50,622
Total operating expenses	58,820		77,760		63,689		25,193		��	225,462
NOI:
Same store (1)	76,391		94,021		103,149		—			273,561
Non-same store/other (2) (3)	7,577		13,358		8,572		(4,632		)	24,875
Total NOI	$	83,968	$	107,379	$	111,721	$	(4,632	)	$	298,436
Total assets	$	4,429,632	$	4,647,198	$	4,642,573	$	1,602,491		$	15,321,894

(1)Properties owned for all of both periods ending March 31, 2007 and March 31, 2006 which represented 133,703 units.

(2)Properties acquired after January 1, 2006.

(3)Other includes ECH, development, condominium conversion overhead of $1.2 million and other corporate operations.  Also reflects the $4.2 million elimination of rental income recorded in Northeast, South and West operating segments related to ECH.

	Quarter Ended March 31, 2006
	Northeast		South		West		Other (3)			Total
Rental income:
Same store (1)	$	121,135	$	154,085	$	151,016	$	—		$	426,236
Non-same store/other (2) (3)	9,056		3,725		3,024		17,930			33,735
Total rental income	130,191		157,810		154,040		17,930			459,971
Operating expenses:
Same store (1)	48,453		63,524		54,156		—			166,133
Non-same store/other (2) (3)	4,468		1,525		1,496		18,152			25,641
Total operating expenses	52,921		65,049		55,652		18,152			191,774
NOI:
Same store (1)	72,682		90,561		96,860		—			260,103
Non-same store/other (2) (3)	4,588		2,200		1,528		(222		)	8,094
Total NOI	$	77,270	$	92,761	$	98,388	$	(222	)	$	268,197

(1)Properties owned for all of both periods ending March 31, 2007 and March 31, 2006 which represented 133,703 units.

(2)Properties acquired after January 1, 2006.

(3)Other includes ECH, condominium conversion overhead of $1.7 million, hurricane related property damage net of reimbursement from insurance companies and other corporate operations. Also reflects the $3.4 million elimination of rental income recorded in Northeast, South and West operating segments related to ECH.

Note:  Markets included in the above geographic segments are as follows:

(a)Northeast – New England (excl Boston), Boston, New York Metro, DC Northern Virginia, Suburban Maryland, Chicago, Milwaukee and Minneapolis/St. Paul.

(b)South – Charlotte, Raleigh/Durham, Atlanta, Jacksonville, Orlando, Tampa/Ft. Myers, South Florida, Nashville, Tulsa, Austin, Houston, Dallas/Ft. Worth, Albuquerque and Phoenix.

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(c)West – Seattle/Tacoma, Portland, Central Valley, San Francisco Bay Area, Inland Empire, Los Angeles, Orange County, San Diego and Denver.

The following table presents a reconciliation of NOI from our rental real estate specific to continuing operations for the quarters ended March 31, 2007 and 2006, respectively.

	Quarter Ended March 31,
	2007			2006
	(Amounts in thousands)
Rental income	$	523,898		$	459,971
Property and maintenance expense	(141,581		)	(122,061		)
Real estate taxes and insurance expense	(58,977		)	(46,071		)
Property management expense	(24,904		)	(23,642		)
Total operating expenses	(225,462		)	(191,774		)
Net operating income	$	298,436		$	268,197

16.Subsequent Events/Other

Subsequent Events

Subsequent to March 31, 2007 and through May 2, 2007, the Operating Partnership:

·Acquired $314.1 million of residential properties consisting of ten properties and 1,380 units and one land parcel;

·Sold ten residential properties consisting of 2,198 units for $205.5 million (excluding condominium units);

·Assumed $111.7 million of mortgage debt in connection with the acquisition of eight properties;

·Repaid $69.6 million of mortgage loans and $50.0 million of unsecured notes; and

·Was released from $54.5 million of mortgage debt assumed by the purchaser on disposed properties.

On April 27, 2007, the Board of Trustees approved an increase of $200.1 million to the Company’s authorized share repurchase program.  As of April 27, 2007 and after giving effect to the above increase, the Company was authorized to repurchase $500.0 million of additional Common Shares.  Following the increased authorization (from May 2, 2007 through May 4, 2007), the Company repurchased an additional 1,296,000 of its Common Shares at an average price of $46.00 per share for total consideration of $59.6 million.  As a result, the Company is now authorized to repurchase $440.4 million of additional Common Shares as of May 4, 2007.

Other

The Operating Partnership incurred impairment losses of approximately $0.2 million and $0.8 million (including discontinued operations) for the quarters ended March 31, 2007 and 2006, respectively, as a result of the write-off of various pursuit and out-of-pocket costs for terminated acquisition, disposition (including halted condominium conversions) and development transactions.

The Operating Partnership recorded a reduction to general and administrative expense of approximately $1.6 million in the first quarter of 2007 due to the successful resolution of a certain lawsuit in Florida, resulting in the reversal of the majority of a previously established litigation reserve.

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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 Operating Partnership’s annual report on Form 10-K for the year ended December 31, 2006.

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.  These statements are based on current expectations, estimates, projections and assumptions made by management.  While the Operating Partnership’s management believes the assumptions underlying its forward-looking statements are reasonable, such information is inherently subject to uncertainties and may involve certain risks, which could cause actual results, performance, or achievements of the Operating Partnership to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.  Many of these uncertainties and risks are difficult to predict and beyond management’s control.  Forward-looking statements are not guarantees of future performance, results or events.  The Operating Partnership assumes no obligation to update or supplement forward-looking statements because of subsequent events.   Factors that might cause such differences include, but are not limited to the following:

·We intend to actively acquire and develop multifamily properties for rental operations and/or conversion into condominiums, as well as upgrade and sell existing properties as individual condominiums.  We may underestimate the costs necessary to bring an acquired or development property up to standards established for its intended market position.  Additionally, we expect that other major real estate investors with significant capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development efforts.  This competition may increase prices for multifamily properties or decrease the price at which we expect to sell individual properties.  We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.  We also plan to develop more properties ourselves in addition to co-investing with our development partners for either the rental or condominium market, depending on opportunities in each sub-market.  This may increase the overall level of risk associated with our developments.  The total number of development units, cost of development and estimated completion dates are subject to uncertainties arising from changing economic conditions (such as the cost of labor and construction materials), competition and local government regulation;

·Sources of capital to the Operating Partnership 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, 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 Operating Partnership’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 Operating Partnership 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 Notes 5 and 11 to the Notes to Consolidated Financial Statements in this report.

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Results of Operations

In conjunction with our business objectives and operating strategy, the Operating Partnership has continued to invest or recycle its capital investment in apartment communities located in strategically targeted markets during the quarter ended March 31, 2007.  In summary, we:

·Acquired $674.2 million of properties consisting of 13 properties and 3,899 units and $42.5 million of land parcels, all of which we deem to be in our strategic targeted markets; and

·Sold $253.9 million of apartment properties consisting of 12 properties and 3,711 units as well as 157 condominium units for $37.3 million.

The Operating Partnership’s primary financial measure for evaluating each of its apartment communities is net operating income (“NOI”).  NOI represents rental income less property and maintenance expense, real estate tax and insurance expense, and property management expense.  The Operating Partnership 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 Operating Partnership’s apartment communities.

Properties that the Operating Partnership owned for all of both of the quarters ended March 31, 2007 and 2006 (the “First Quarter 2007 Same Store Properties”), which represented 133,703 units, impacted the Operating Partnership’s results of operations.  The First Quarter 2007 Same Store Properties are discussed in the following paragraphs.

The Operating Partnership’s acquisition, disposition, completed development and consolidation of previously unconsolidated property activities also impacted overall results of operations for the quarters ended March 31, 2007 and 2006.  The impacts of these activities are also discussed in greater detail in the following paragraphs.

Comparison of the quarter ended March 31, 2007 to the quarter ended March 31, 2006

For the quarter ended March 31, 2007, income from continuing operations increased by approximately $2.9 million when compared to the quarter ended March 31, 2006.  The increase in continuing operations is discussed below.

Revenues from the First Quarter 2007 Same-Store Properties increased $22.2 million primarily as a result of higher rental rates charged to residents.  Expenses from the First Quarter 2007 Same-Store Properties increased $8.7 million primarily due to higher payroll, building/maintenance and real estate taxes.  The following tables provide comparative same-store results and statistics for the First Quarter 2007 Same-Store Properties:

First Quarter 2007 vs. First Quarter 2006

Quarter over Quarter Same-Store Results/Statistics

$ in Thousands (except for Average Rental Rate) – 133,703 Same-Store Units

	Results									Statistics
Description	Revenues			Expenses			NOI			Average Rental Rate (1)			Occupancy		Turnover
Q1 2007	$	448,401		$	174,840		$	273,561		$	1,181		94.8	%	(13.5	%)
Q1 2006	$	426,236		$	166,133		$	260,103		$	1,124		94.6	%	(13.9	%)
Change	$	22,165		$	8,707		$	13,458		$	57		0.2	%	0.4	%
Change	5.2		%	5.2		%	5.2		%	5.1		%

(1) Average rental rate is defined as total rental revenues divided by the weighted average occupied units for the period.

The following table presents a reconciliation of operating income per the consolidated statements of

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operations to NOI for the First Quarter 2007 Same-Store Properties:

	Quarter Ended March 31,
	2007			2006
	(Amounts in thousands)
Operating income	$	135,339		$	126,234
Adjustments:
Non-same-store operating results	(24,875		)	(8,094		)
Fee and asset management revenue	(2,267		)	(2,487		)
Fee and asset management expense	2,341			2,168
Depreciation	152,821			128,676
General and administrative	9,966			13,040
Impairment	236			566
Same-store NOI	$	273,561		$	260,103

For properties that the Operating Partnership acquired prior to January 1, 2006 and expects to continue to own through December 31, 2007, the Operating Partnership anticipates the following same store results for the full year ending December 31, 2007:

2007 Same-Store Assumptions

Physical Occupancy	95.0%
Revenue Change	5.00% to 6.00%
Expense Change	3.50% to 4.50%
NOI Change	5.50% to 7.50%

These 2007 assumptions are based on current expectations and are forward-looking.

Non-same-store operating results increased $16.8 million and consist primarily of properties acquired in calendar years 2007 and 2006 as well as our corporate housing business.

See also Note 15 in the Notes to Consolidated Financial Statements for additional discussion regarding the Operating Partnership’s segment disclosures.

Fee and asset management revenues, net of fee and asset management expenses decreased $0.4 million primarily as a result of lower income earned from Ft. Lewis.  As of March 31, 2007 and 2006, the Operating Partnership managed 15,025 and 14,888 units, respectively, for third parties and unconsolidated entities.

Property management expenses from continuing operations include off-site expenses associated with the self-management of the Operating Partnership’s properties as well as management fees paid to any third party management companies.  These expenses increased by approximately $1.3 million or 5.3%.  This increase is primarily attributable to higher overall payroll-related costs.

Depreciation expense from continuing operations, which includes depreciation on non-real estate assets, increased $24.1 million primarily as a result of additional depreciation expense on newly acquired properties and capital expenditures for all properties owned.

General and administrative expenses, which include corporate operating expenses, decreased $3.1 million primarily as a result of a decrease of $1.4 million in performance share expenses and a reduction of $1.6 million in legal expenses due to the successful resolution of a certain lawsuit in Florida resulting in the reversal of the majority of a previously established litigation reserve.  The Operating Partnership anticipates that general and administrative expenses will approximate $48.0 million to $51.0 million for the year ending December 31, 2007.  The above assumption is based on current expectations and is forward-looking.

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Impairment from continuing operations decreased $0.3 million primarily as a result of fewer write-offs for development properties during the quarter ended March 31, 2007.

Interest and other income from continuing operations was consistent between the periods under comparison.  The Operating Partnership anticipates that interest and other income will approximate $5.0 million to $7.0 million for the year ending December 31, 2007.  The above assumption is based on current expectations and is forward-looking.

Interest expense from continuing operations, including amortization of deferred financing costs, increased approximately $6.9 million primarily as a result of higher overall debt levels outstanding, partially offset by lower overall effective interest rates.  During the quarter ended March 31, 2007, the Operating Partnership capitalized interest costs of approximately $7.9 million as compared to $4.0 million for the quarter ended March 31, 2006.  This capitalization of interest primarily relates to projects under development.  The effective interest cost on all indebtedness for the quarter ended March 31, 2007 was 5.93% as compared to 6.25% for the quarter ended March 31, 2006.  The Operating Partnership anticipates that interest expense (including discontinued operations) will approximate $465.0 million to $490.0 million for the year ending December 31, 2007.  The above assumption is based on current expectations and is forward-looking.

Loss from investments in unconsolidated entities was consistent between the periods under comparison.

Net gain on sales of unconsolidated entities decreased $0.3 million between the periods under comparison as the Operating Partnership recognized a gain on one unconsolidated property sold in 2006.

Discontinued operations, net decreased approximately $274.1 million between the periods under comparison.  This decrease is primarily due to a decrease in the number of properties sold during the quarter ended March 31, 2007 as compared to the quarter ended March 31, 2006.  See Note 13 in the Notes to Consolidated Financial Statements for further discussion.

Liquidity and Capital Resources

As of January 1, 2007, the Operating Partnership had approximately $260.3 million of cash and cash equivalents and $470.7 million available under its revolving credit facilities (net of $69.3 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 Operating Partnership’s cash and cash equivalents balance at March 31, 2007 was approximately $171.7 million and the amount available on the Operating Partnership’s revolving credit facilities was $481.7 million (net of $70.8 million which was restricted/dedicated to support letters of credit and not available for borrowing).  Effective February 28, 2007, the Operating Partnership increased its capacity on its revolving credit facility to $1.5 billion.  See Note 10 for further discussion.

During the quarter ended March 31, 2007, the Operating Partnership generated proceeds from various transactions, which included the following:

·Disposed of 14 properties and various individual condominium units, receiving net proceeds of approximately $280.6 million;

·Obtained $33.6 million in new mortgage financing; and

·Issued approximately 0.3 million OP Units and received net proceeds of $10.4 million.

During the quarter ended March 31, 2007, the above proceeds were primarily utilized to:

·Invest $79.9 million primarily in development projects;

·Acquire 13 properties and three land parcels, utilizing cash of $677.1 million;

·Repurchase 2.9 million OP Units utilizing cash of $142.8 million (see Note 3); and

·Repay $141.7 million of mortgage loans.

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Depending on its analysis of market prices, economic conditions, and other opportunities for the investment of available capital, the Company may repurchase its Common Shares pursuant to its existing share buyback program authorized by the Board of Trustees.  On April 27, 2007, the Board of Trustees approved an increase of $200.1 million to the Company’s authorized share repurchase program.  As of April 27, 2007 and after giving effect to the above increase, the Company was authorized to repurchase $500.0 million of additional Common Shares.  EQR repurchased $201.9 million (4,140,254 shares at an average price per share of $48.76) of its Common Shares during the quarter ended March 31, 2007.  Concurrent with these transactions, the Operating Partnership repurchased and retired 4,140,254 OP Units previously issued to EQR.  See Notes 3 and 16 for further discussion.

The Operating Partnership’s total debt summary and debt maturity schedules as of March 31, 2007, are as follows:

Debt Summary as of March 31, 2007

(Amounts in thousands)

	Amounts (1)		% of Total		Weighted Average Rates (1)		Weighted Average Maturities (years)
Secured	$	3,105,938	36.7	%	5.73	%	6.3
Unsecured	5,367,967		63.3	%	5.69	%	6.5
Total	$	8,473,905	100.0	%	5.71	%	6.4
Fixed Rate Debt:
Secured – Conventional	$	2,158,687	25.5	%	6.23	%	4.5
Secured – Tax Exempt	11,200		0.1	%	6.46	%	19.7
Unsecured – Public/Private	4,162,825		49.1	%	5.69	%	6.6
Unsecured – Tax Exempt	111,390		1.3	%	5.06	%	22.1
Fixed Rate Debt	6,444,102		76.0	%	5.86	%	6.2
Floating Rate Debt:
Secured – Conventional	414,162		4.9	%	6.04	%	2.0
Secured – Tax Exempt	521,889		6.2	%	3.44	%	16.9
Unsecured – Public	146,252		1.7	%	6.53	%	2.2
Unsecured – Revolving Credit Facility	947,500		11.2	%	5.63	%	4.9
Floating Rate Debt	2,029,803		24.0	%	5.13	%	7.2
Total	$	8,473,905	100.0	%	5.71	%	6.4

(1) Net of the effect of any derivative instruments.  Weighted average rates are for the quarter ended March 31, 2007.

Note:  The Operating Partnership capitalized interest of approximately $7.9 million and $4.0 million for the quarters ended March 31, 2007 and 2006, respectively.

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Debt Maturity Schedule as of March 31, 2007

(Amounts in thousands)

Year	Fixed Rate (1)		Floating Rate (1)		Total		% of Total		Weighted Average Rates on Fixed Rate Debt (1)		Weighted Average Rates on Total Debt (1)
2007	$	237,777	$	85,147	$	322,924	3.8	%	6.60	%	6.67	%
2008	479,938		119,571		599,509		7.1	%	6.65	%	6.61	%
2009	457,821		380,367		838,188		9.9	%	6.35	%	5.35	%
2010	279,576		—		279,576		3.3	%	7.05	%	7.05	%
2011 (2)	1,448,748		24,150		1,472,898		17.4	%	5.52	%	5.49	%
2012 (3)	555,380		947,500		1,502,880		17.7	%	6.49	%	5.94	%
2013	567,010		—		567,010		6.7	%	5.93	%	5.93	%
2014	503,771		34,460		538,231		6.4	%	5.27	%	5.26	%
2015	357,579		—		357,579		4.2	%	6.40	%	6.40	%
2016	1,088,845		—		1,088,845		12.8	%	5.32	%	5.32	%
2017+	467,657		438,608		906,265		10.7	%	6.70	%	5.55	%
Total	$	6,444,102	$	2,029,803	$	8,473,905	100.0	%	5.97	%	5.77	%

(1)Net of the effect of any derivative instruments.  Weighted average rates are as of March 31, 2007.

(2)Includes $650.0 million of 3.85% convertible unsecured debt with a final maturity of 2026.  The notes are callable by the Operating Partnership on or after August 18, 2011.  The notes are putable by the holders on August 18, 2011, August 15, 2016 and August 15, 2021.

(3)Includes $947.5 million outstanding on the Operating Partnership’s $1.5 billion unsecured revolving credit facility, which matures on February 28, 2012.

The following table provides a summary of the Operating Partnership’s unsecured debt as of March 31, 2007:

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Unsecured Debt Summary as of March 31, 2007

(Amounts in thousands)

								Unamortized
	Coupon		Due		Face			Premium/				Net
	Rate		Date		Amount			(Discount)				Balance
Fixed Rate Notes:
	7.625	%	04/15/07		$	50,000		$		7		$		50,007
	6.900	%	08/01/07		50,000			(8			)	49,992
	7.540	%	09/01/07	(1)	4,286			—				4,286
	4.861	%	11/30/07		50,000			—				50,000
	7.500	%	08/15/08	(1)	130,000			—				130,000
	4.750	%	06/15/09	(2)	300,000			(605			)	299,395
	6.950	%	03/02/11		300,000			3,445				303,445
	6.625	%	03/15/12		400,000			(1,456			)	398,544
	5.200	%	04/01/13		400,000			(710			)	399,290
	5.250	%	09/15/14		500,000			(458			)	499,542
	6.584	%	04/13/15		300,000			(892			)	299,108
	5.125	%	03/15/16		500,000			(480			)	499,520
	5.375	%	08/01/16		400,000			(1,732			)	398,268
	7.125	%	10/15/17		150,000			(684			)	149,316
	7.570	%	08/15/26		140,000			—				140,000
	3.850	%	08/15/26	(3)	650,000			(7,888			)	642,112
Floating Rate Adjustments				(2)	(150,000		)	—				(150,000			)
					4,174,286			(11,461			)	4,162,825
Fixed Rate Tax Exempt Notes:
	4.750	%	12/15/28	(1)	35,600			—				35,600
	5.200	%	06/15/29	(1)	75,790			—				75,790
					111,390			—				111,390
Floating Rate Notes:
			06/15/09	(2)	150,000			—				150,000
FAS 133 Adjustments - net				(2)	(3,748		)	—				(3,748			)
					146,252			—				146,252
Revolving Credit Facility:			02/28/12	(4)	947,500			—				947,500
Total Unsecured Debt					$	5,379,428		$	(11,461		)	$	5,367,967

(1)Notes are private.  All other unsecured debt is public.

(2)$150.0 million in fair value interest rate swaps converts 50% of the 4.750% Notes due June 15, 2009 to a floating interest rate.

(3)Convertible notes mature on August 15, 2026.  The notes are callable by the Operating Partnership on or after August 18, 2011. The notes are putable by the holders on August 18, 2011, August 15, 2016 and August 15, 2021.

(4)Represents amount outstanding on the Operating Partnership’s $1.5 billion unsecured revolving credit facility which matures on February 28, 2012.

As of May 9, 2007, an unlimited amount of debt securities remains available for issuance by the Operating Partnership under a registration statement that became automatically effective upon filing with the SEC in June 2006 (under SEC regulations enacted in 2005, the registration statement automatically expires on June 29, 2009 and does not contain a maximum issuance amount) and $956.5 million in equity securities remains available for issuance by EQR under a registration statement the SEC declared effective in February

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1998.  Per the terms of ERPOP’s partnership agreement, EQR contributes the net proceeds of all equity offerings to the capital of the Operating Partnership in exchange for additional OP Units (on a one-for-one Common Share per OP Unit basis) or preference units (on a one-for-one preferred share per preference unit basis).

The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of March 31, 2007 is presented in the following table.  The Operating Partnership calculates the equity component of its market capitalization as the sum of (i) the total outstanding OP Units at the equivalent market value of the closing price of EQR’s Common Shares on the New York Stock Exchange; (ii) the “OP Unit Equivalent” of all convertible preference units/interests; and (iii) the liquidation value of all perpetual preference units outstanding.

Capital Structure as of March 31, 2007

(Amounts in thousands except for unit and per unit amounts)

Secured Debt			$	3,105,938	36.7	%
Unsecured Debt			4,420,467		52.1	%
Revolving Credit Facility			947,500		11.2	%
Total Debt			8,473,905		100.0	%	35.5	%
OP Units	310,058,285
OP Unit Equivalents (see below)	838,519
Total outstanding at quarter-end	310,896,804
EQR Common Share Price at March 31, 2007	$	48.23
			14,994,553		97.6	%
Perpetual Preference Units (see below)			375,000		2.4	%
Total Equity			15,369,553		100.0	%	64.5	%
Total Market Capitalization			$	23,843,458			100.0	%

Convertible Preference Units/Interests as of March 31, 2007

(Amounts in thousands except for unit/interest and per unit/interest amounts)

Series	Redemption Date	Outstanding Units/Interests	Liquidation Value		Annual Dividend Per Unit/Interest		Annual Dividend Amount		Weighted Average Rate		Conversion Ratio	OP Unit Equivalents
Preference Units:
7.00% Series E	11/1/98	419,216	$	10,480	$	1.75	$	734			1.1128	466,504
7.00% Series H	6/30/98	27,634	691		1.75		48				1.4480	40,014
Preference Interests:
7.625% Series J	12/14/06	230,000	11,500		3.8125		877				1.4108	324,484
Junior Preference Units:
8.00% Series B	7/29/09	7,367	184		2.00		15				1.020408	7,517
Total Convertible Preference Units/Interests		684,217	$	22,855			$	1,674	7.32	%		838,519

Perpetual Preference Units as of March 31, 2007

(Amounts in thousands except for unit and per unit amounts)

Series	Redemption Date	Outstanding Units	Liquidation Value		Annual Dividend PerUnit		Annual Dividend Amount		Weighted Average Rate
Preference Units:
8.60% Series D	7/15/07	700,000	$	175,000	$	21.50	$	15,050
8.29% Series K	12/10/26	1,000,000	50,000		4.145		4,145
6.48% Series N	6/19/08	600,000	150,000		16.20		9,720
Total Perpetual Preference Units		2,300,000	$	375,000			$	28,915	7.71	%

The Operating Partnership expects to meet its short-term liquidity requirements, including capital expenditures related to maintaining its existing properties and certain scheduled unsecured note and mortgage

30

note repayments, generally through its working capital, net cash provided by operating activities and borrowings under its revolving credit facilities.  The Operating Partnership considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions.  The Operating Partnership 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 Operating Partnership has significant 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 Operating Partnership must maintain in order to comply with covenants under its unsecured notes and line of credit.  Of the $17.9 billion in investment in real estate on the Operating Partnership’s balance sheet at March 31, 2007, $12.3 billion or 69.1%, was unencumbered.

The Operating Partnership’s senior debt credit ratings from Standard & Poors (“S&P”), Moody’s and Fitch are A-, Baa1 (positive outlook) and A, respectively.  EQR’s preferred equity ratings from S&P, Moody’s and Fitch are BBB+, Baa2 (positive outlook) and A-, respectively.

The Operating Partnership has a long-term revolving credit facility with potential borrowings of up to $1.5 billion which matures in February 2012.  This facility may, among other potential uses, be used to fund property acquisitions, costs for certain properties under development and short term liquidity requirements.  As of May 4, 2007, $1.26 billion was outstanding under this facility.

See Note 16 in the Notes to Consolidated Financial Statements for discussion of the events which occurred subsequent to March 31, 2007.

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:

·flooring such as carpets, hardwood, vinyl, linoleum or tile;

·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; and

·blinds/shades.

All replacements are depreciated over a five-year estimated useful life.  We expense as incurred all make-ready 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.

All building improvements are depreciated over a five to ten-year estimated useful life.  We capitalize

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building improvements and upgrades only if the item: (i) exceeds $2,500 (selected projects must exceed $10,000); (ii) extends the useful life of the asset; and (iii) improves the value of the asset.

For the quarter ended March 31, 2007, our actual improvements to real estate totaled approximately $57.4 million.  This includes the following (amounts in thousands except for unit and per unit amounts):

Capitalized Improvements to Real Estate

For the Quarter Ended March 31, 2007

	Total Units (1)	Replacements		Avg. Per Unit		Building Improvements		Avg. Per Unit		Total		Avg. Per Unit
Established Properties (2)	121,126	$	10,093	$	83	$	17,230	$	142	$	27,323	$	225
New Acquisition Properties (3)	23,596	1,328		58		15,080		660		16,408		718
Other (4)	7,196	4,028				9,595				13,623
Total	151,918	$	15,449			$	41,905			$	57,354

(1)Total units exclude 10,846 unconsolidated units and 3,560 military housing (fee managed) units.

(2)Wholly Owned Properties acquired prior to January 1, 2005.

(3)Wholly Owned Properties acquired during 2005, 2006 and 2007.  Per unit amounts are based on a weighted average of 22,845 units.

(4)Includes properties either partially owned or sold during the period, commercial space, corporate housing, condominium conversions and $4.7 million included in building improvements spent on thirteen specific assets related to major renovations and repositioning of these assets.

The Operating Partnership expects to fund approximately $94.0 million for capital expenditures for replacements and building improvements for all established properties for the remainder of 2007.  This includes an average of approximately $1,000 per unit for capital improvements for established properties.

During the quarter ended March 31, 2007, the Operating Partnership’s total non-real estate capital additions, such as computer software, computer equipment, and furniture and fixtures and leasehold improvements to the Operating Partnership’s property management offices and its corporate offices, were approximately $1.7 million.  The Operating Partnership expects to fund approximately $5.3 million in total additions to non-real estate property for the remainder of 2007.

Improvements to real estate 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 Operating Partnership is exposed to the effect of interest rate changes.  The Operating Partnership limits these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments.

The Operating Partnership 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 Operating Partnership 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, 2007.

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Other

Total distributions paid in April 2007 amounted to $151.6 million (excluding distributions on Partially Owned Properties), which included certain distributions declared during the first quarter ended March 31, 2007.

Off-Balance Sheet Arrangements and Contractual Obligations

The Operating Partnership 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 Operating Partnership’s liquidity, capital resources, credit or market risk than its property management and ownership activities.  During 2000 and 2001, the Operating Partnership entered into institutional ventures with an unaffiliated partner.   At the respective closing dates, the Operating Partnership sold and/or contributed 45 properties containing 10,846 units to these ventures and retained a 25% ownership interest in the ventures.  The Operating Partnership’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 Operating Partnership.  The Operating Partnership’s strategy with respect to these ventures was to reduce its concentration of properties in a variety of markets.

As of March 31, 2007, the Operating Partnership has ten projects totaling 3,228 units in various stages of development with estimated completion dates ranging through June 30, 2009.  The development agreements currently in place are discussed in detail in Note 14 of the Operating Partnership’s Consolidated Financial Statements.

See also Notes 2 and 6 in the Notes to Consolidated Financial Statements for additional discussion regarding the Operating Partnership’s investments in partially owned entities.

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

Critical Accounting Policies and Estimates

The Operating Partnership 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 Operating Partnership periodically evaluates its long-lived assets, including its investments in real estate and goodwill, for 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 Operating Partnership to conclude that impairment indicators exist and an impairment loss is warranted.

Depreciation of Investment in Real Estate

The Operating Partnership 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

33

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 Operating Partnership capitalizes the payroll and associated costs of employees directly responsible for and who spend all of their time on the supervision of major capital and/or renovation projects.  These costs are reflected on the balance sheet as an increase to depreciable property.

The Operating Partnership 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 Operating Partnership 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, with capitalization ceasing no later than 90 days following issuance of the certificate of occupancy.  These costs are reflected on the balance sheet as construction in progress for each specific property.  The Operating Partnership expenses as incurred all payroll costs of on-site employees working directly at our properties, except as noted above on our development properties prior to certificate of occupancy issuance and on specific major renovation at selected properties when additional incremental employees are hired.

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. 137/138/149) requires the Operating Partnership to make estimates and judgments that affect the fair value of the instruments.  The Operating Partnership, where possible, bases the fair values of its financial instruments, including its derivative instruments, on listed market prices and third party quotes. Where these are not available, the Operating Partnership bases its estimates on current instruments with similar terms and maturities or on other factors relevant to the financial statements.

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.  Fee and asset management revenue and interest income are recorded on an accrual basis.

Share-Based Compensation

The Company accounts for its share-based compensation in accordance with SFAS No. 123(R),   Share-Based Payment, effective January 1, 2006, which results in compensation expense being recorded based on the fair value of the share compensation granted.

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

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable.  This model is only one method of valuing options and the Company’s use of this model should not be interpreted as an endorsement of its accuracy.  Because the Company’s share options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure

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of the fair value of its share options and the actual value of the options may be significantly different.

Funds From Operations

For the quarter ended March 31, 2007, Funds From Operations (“FFO”) available to OP Units decreased $1.4 million, or 0.8%, as compared to the quarter ended March 31, 2006.

The following is a reconciliation of net income to FFO available to OP Units for the quarters ended March 31, 2007 and 2006:

	Quarter Ended March 31,
	2007			2006
Net income	$	134,346		$	405,548
Adjustments:
Depreciation	152,821			128,676
Depreciation – Non-real estate additions	(2,035		)	(1,796		)
Depreciation – Partially Owned and Unconsolidated Properties	943			1,550
Net gain on sales of unconsolidated entities	—			(329		)
Discontinued operations:
Depreciation	1,853			18,047
Net (gain) on sales of discontinued operations	(111,767		)	(372,501		)
Net incremental gain on sales of condominium units	4,692			7,127
Provision for income taxes – Non-condo sales	(187		)	—
FFO (1)(2)	180,666			186,322
Preferred distributions	(7,647		)	(11,194		)
Premium on redemption of Preference Interests	—			(674		)
FFO available to OP Units	$	173,019		$	174,454

(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 (“GAAP”)), 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 Operating Partnership commences the conversion of units to condominiums, it simultaneously discontinues depreciation of such property.

(2)The Operating Partnership believes that FFO is helpful to investors as a supplemental measure of the operating performance of a real estate company, because it is a recognized measure of performance by the real estate industry and by excluding gains or losses related to dispositions of depreciable property and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help compare the operating performance of a company’s real estate between periods or as compared to different companies.  FFO does not represent net income or net cash flows from operating activities in accordance with GAAP.  Therefore, FFO should not be exclusively considered as an alternative to net income or to net cash flows from operating activities as determined by GAAP or as a measure of liquidity.  The Operating Partnership’s calculation of FFO may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Operating Partnership’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 Operating Partnership’s Form 10-K for the year ended December 31, 2006.  See also Note 11 in the Notes to Consolidated Financial Statements for additional discussion of derivative instruments.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures:

Effective as of March 31, 2007, the Operating Partnership carried out an evaluation, under the supervision and with the participation of the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of EQR, of the effectiveness of the Operating Partnership’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Operating Partnership in its Exchange Act filings is recorded, processed, summarized and reported within the periods specified in the SEC’s rules and forms.

(b)  Changes in Internal Control over Financial Reporting:

There were no changes to the internal control over financial reporting of the Operating Partnership identified in connection with the Operating Partnership’s evaluation referred to above that occurred during the first quarter of 2007 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

PART II.        OTHER INFORMATION

Item 1.  Legal Proceedings

The Operating Partnership is party to a housing discrimination lawsuit brought by a non-profit civil rights organization in April 2006 in the U.S. District Court for the District of Maryland.  The suit alleges that the Operating Partnership designed and built approximately 300 of its properties in violation of the accessibility requirements of the Fair Housing Act and Americans With Disabilities Act.  The suit seeks actual and punitive damages, injunctive relief (including modification of non-compliant properties), costs and attorneys’ fees.  The Operating Partnership believes it has a number of viable defenses, including that a majority of the named properties were completed before the operative dates of the statutes in question and/or were not designed or built by the Operating Partnership.  Accordingly, the Operating Partnership is defending the suit vigorously.  Due to the pendency of the Operating Partnership’s defenses and the uncertainty of many other critical factual and legal issues, it is not possible to determine or predict the outcome of the suit and as a result, no amounts have been accrued at March 31, 2007. While no assurances can be given, the Operating Partnership does not believe that the suit, if adversely determined, will have a material adverse effect on the Operating Partnership.

The Operating Partnership does not believe there is any other litigation pending or threatened against it that, individually or in the aggregate, reasonably may be expected to have a material adverse effect on the Operating Partnership.

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Item 1A.  Risk Factors

There have been no material changes related to the risk factors that were discussed in Part I, Item 1A of the Operating Partnership’s Form 10-K for the year ended December 31, 2006.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(c)  OP Units Repurchased in the Quarter Ended March 31, 2007

The Operating Partnership repurchased the following OP Units during the quarter ended March 31, 2007:

Period	Total Number of OP Units Purchased (1)	Average Price Paid Per Unit (1)		Total Number of OP Units Purchased as Part of Publicly Announced Plans or Programs (1)	Dollar Value of OP Units that May Yet Be Purchased Under the Plans or Programs (1)
February 2007	786,254	$	50.80	786,254	$	461,831,676
March 2007	3,354,000	$	48.29	3,354,000	$	299,881,328
First Quarter 2007	4,140,254	$	48.76	4,140,254

(1)The OP Units repurchased during the quarter ended March 31, 2007 represent OP Units redeemed in response to repurchases of Common Shares under the Company’s publicly announced share repurchase program approved by its Board of Trustees.  Of the total shares repurchased, 80,054 shares were repurchased at an average price of $54.37 per share to cover the minimum statutory tax withholding obligations related to the vesting of employees’ restricted shares.  The remaining 4,060,200 shares were repurchased in the open market at an average price of $48.65 per share.  As of March 31, 2007, transactions to repurchase 1,245,100 of the 4,140,254 Common Shares had not yet settled.  On April 27, 2007, the Board of Trustees approved an increase of $200.1 million to the Company’s authorized share repurchase program.  As a result under this program, the Company may repurchase in open market or privately negotiated transactions up to $500.0 million of its Common Shares, of which the same amount remains available at April 27, 2007 ($299.9 million was remaining at March 31, 2007 prior to the authorization increase).

Item 6.    Exhibits – See the Exhibit Index

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SIGNATURES

Pursuant to the requirements 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.

		ERP OPERATING LIMITED PARTNERSHIP
		BY: EQUITY RESIDENTIAL
		ITS GENERAL PARTNER
Date:	May 9, 2007	By:			/s/ Donna Brandin
					Donna Brandin
			Executive Vice President and
			Chief Financial Officer
Date:	May 9, 2007	By:			/s/ Ian S. Kaufman
					Ian S. Kaufman
				First Vice President and
				Chief Accounting Officer

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EXHIBIT INDEX

The exhibits listed below are filed as part of this report. References to exhibits or other filings under the caption “Location” indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference.  The Commission file number for our Exchange Act filings referenced below is 0-24920.

Exhibit	Description	Location
10.1	Amendment to Revolving Credit Agreement.	Included as Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended March 31, 2007.
10.2	Revolving Credit Agreement dated as of February 28, 2007 among ERP Operating Limited Partnership, Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, Banc of America Securities LLC and J.P. Morgan Securities Inc., as joint lead arrangers and joint book runners, Suntrust Bank, Wachovia Bank, National Association, Wells Fargo Bank, N.A., LaSalle Bank National Association, The Royal Bank of Scotland plc, and US Bank National Association, as co-documentation agent, and a syndicate of other banks (the “Credit Agreement”).	Included as Exhibit 10.1 to the Company’s Form 8-K dated February 28, 2007, filed on March 5, 2007.
10.3	Guaranty of Payment made as of February 28, 2007 between Equity Residential and Bank of America, N.A., as administrative agent for the banks party to the Credit Agreement.	Included as Exhibit 10.2 to the Company’s Form 8-K dated February 28, 2007, filed on March 5, 2007.
31.1	Certification of David J. Neithercut, Chief Executive Officer of Registrant’s General Partner.	Attached herein.
31.2	Certification of Donna Brandin, Chief Financial Officer of Registrant’s General Partner.	Attached herein.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of David J. Neithercut, Chief Executive Officer of Registrant’s General Partner.	Attached herein.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Donna Brandin, Chief Financial Officer of Registrant’s General Partner.	Attached herein.