Erp Operating LTD Partnership 10Q 2008 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, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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,			December 31,
	2008			2007
ASSETS
Investment in real estate
Land	$	3,613,965		$	3,607,305
Depreciable property	13,541,364			13,556,681
Projects under development	811,616			812,339
Land held for development	368,525			357,025
Investment in real estate	18,335,470			18,333,350
Accumulated depreciation	(3,245,919		)	(3,170,125		)
Investment in real estate, net	15,089,551			15,163,225

Cash and cash equivalents	502,649			50,831
Investments in unconsolidated entities	3,429			3,547
Deposits – restricted	216,213			253,276
Escrow deposits – mortgage	19,912			20,174
Deferred financing costs, net	57,325			56,271
Other assets	121,866			142,453
Total assets	$	16,010,945		$	15,689,777

LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Mortgage notes payable	$	4,096,357		$	3,605,971
Notes, net	5,767,075			5,763,762
Lines of credit	—			139,000
Accounts payable and accrued expenses	154,323			109,385
Accrued interest payable	78,697			124,717
Other liabilities	288,234			322,975
Security deposits	63,186			62,159
Distributions payable	141,379			141,244
Total liabilities	10,589,251			10,269,213

Commitments and contingencies
Minority Interests – Partially Owned Properties	24,917			26,236

Partners’ capital:
Preference Units	209,524			209,662
Preference Interests and Junior Preference Units	184			184
General Partner	4,888,337			4,868,738
Limited Partners	323,645			331,626
Accumulated other comprehensive loss	(24,913		)	(15,882		)
Total partners’ capital	5,396,777			5,394,328
Total liabilities and partners’ capital	$	16,010,945		$	15,689,777

See accompanying notes

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per OP Unit data)

(Unaudited)

	Quarter Ended March 31,
	2008			2007
REVENUES
Rental income	$	520,518		$	473,582
Fee and asset management	2,294			2,267
Total revenues	522,812			475,849

EXPENSES
Property and maintenance	137,491			126,781
Real estate taxes and insurance	55,925			52,420
Property management	21,168			24,842
Fee and asset management	2,183			2,341
Depreciation	146,598			138,932
General and administrative	12,481			9,369
Impairment	119			236
Total expenses	375,965			354,921

Operating income	146,847			120,928

Interest and other income	3,368			2,438
Interest:
Expense incurred, net	(117,247		)	(110,656		)
Amortization of deferred financing costs	(2,161		)	(2,221		)

Income before income and other taxes, allocation to Minority Interests, loss from investments in unconsolidated entities and discontinued operations	30,807			10,489
Income and other tax (expense) benefit	(2,898		)	(597		)
Allocation to Minority Interests – Partially Owned Properties	(268		)	(592		)
Loss from investments in unconsolidated entities	(95		)	(229		)
Income from continuing operations	27,546			9,071
Discontinued operations, net	122,232			125,275
Net income	$	149,778		$	134,346

ALLOCATION OF NET INCOME:
Preference Units	$	3,633		$	7,424
Preference Interests and Junior Preference Units	$	4		$	223

General Partner	$	136,849		$	118,813
Limited Partners	9,292			7,886
Net income available to OP Units	$	146,141		$	126,699

Earnings per OP Unit – basic:
Income from continuing operations available to OP Units	$	0.08		$	0.01
Net income available to OP Units	$	0.51		$	0.41
Weighted average OP Units outstanding	287,079			311,697

Earnings per OP Unit – diluted:
Income from continuing operations available to OP Units	$	0.08		$	0.01
Net income available to OP Units	$	0.51		$	0.40
Weighted average OP Units outstanding	289,317			316,265

Distributions declared per OP Unit outstanding	$	0.4825		$	0.4625

See accompanying notes

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Amounts in thousands except per OP Unit data)

(Unaudited)

	Quarter Ended March 31,
	2008			2007

Comprehensive income:

Net income	$	149,778		$	134,346
Other comprehensive income (loss) – derivative and other instruments:
Unrealized holding losses arising during the year	(9,544		)	(121		)
Losses reclassified into earnings from other comprehensive income	513			563
Comprehensive income	$	140,747		$	134,788

See accompanying notes

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Quarter Ended March 31,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	149,778		$	134,346
Adjustments to reconcile net income to net cash provided by operating activities:
Allocation to Minority Interests – Partially Owned Properties	268			592
Depreciation	147,580			154,674
Amortization of deferred financing costs	2,161			2,564
Amortization of discounts and premiums on debt	(1,168		)	(1,396		)
Amortization of deferred settlements on derivative instruments	168			218
Impairment	175			236
Loss from investments in unconsolidated entities	95			229
Distributions from unconsolidated entities – return on capital	23			23
Net (gain) on sales of discontinued operations	(122,517		)	(111,946		)
Loss on debt extinguishments	—			141
Compensation paid with Company Common Shares	5,995			4,902

Changes in assets and liabilities:
(Increase) in deposits – restricted	(656		)	(746		)
Decrease in other assets	12,268			5,381
Increase in accounts payable and accrued expenses	40,778			16,496
(Decrease) in accrued interest payable	(46,020		)	(20,869		)
(Decrease) in other liabilities	(23,480		)	(20,147		)
Increase in security deposits	1,027			2,402
Net cash provided by operating activities	166,475			167,100

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate – acquisitions	(41,907		)	(677,058		)
Investment in real estate – development/other	(125,875		)	(79,926		)
Improvements to real estate	(40,744		)	(57,354		)
Additions to non-real estate property	(1,026		)	(1,738		)
Interest capitalized for real estate under development	(14,714		)	(7,866		)
Proceeds from disposition of real estate, net	284,289			280,592
Proceeds from disposition of unconsolidated entities	2,629			—
Decrease in deposits on real estate acquisitions, net	32,145			218,224
Decrease in mortgage deposits	262			2,102
Acquisition of Minority Interests – Partially Owned Properties	(20		)	—
Net cash provided by (used for) investing activities	95,039			(323,024		)

See accompanying notes

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

	Quarter Ended March 31,
	2008			2007
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs	$	(3,686	)	$	(5,691	)
Mortgage notes payable:
Proceeds	563,101			33,559
Restricted cash	5,574			(14,611		)
Lump sum payoffs	(68,318		)	(135,611		)
Scheduled principal repayments	(6,213		)	(6,046		)
Prepayment premiums/fees	—			(141		)
Lines of credit:
Proceeds	841,000			4,052,000
Repayments	(980,000		)	(3,564,500		)
(Payments on) settlement of derivative instruments	(13,256		)	(29		)
Proceeds from sale of OP Units	2,718			3,347
Proceeds from exercise of EQR options	3,034			7,041
OP Units repurchased and retired	(10,935		)	(142,754		)
Payment of offering costs	(8		)	(64		)
Contributions – Minority Interests – Partially Owned Properties	323			1,337
Distributions:
OP Units – General Partner	(130,113		)	(135,829		)
Preference Units	(3,635		)	(7,431		)
Preference Interests and Junior Preference Units	(4		)	(223		)
OP Units – Limited Partners	(8,888		)	(9,217		)
Minority Interests – Partially Owned Properties	(390		)	(7,748		)
Net cash provided by financing activities	190,304			67,389
Net increase (decrease) in cash and cash equivalents	451,818			(88,535		)
Cash and cash equivalents, beginning of period	50,831			260,277
Cash and cash equivalents, end of period	$	502,649		$	171,742

See accompanying notes

ERP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Amounts in thousands)

(Unaudited)

	Quarter Ended March 31,
	2008			2007
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized	$	164,289		$	134,013

Net cash (received) paid for income and other taxes	$	(526	)	$	77

Real estate acquisitions/dispositions/other:
Mortgage loans assumed	$	—		$	40,672

Mortgage loans (assumed) by purchaser	$	—		$	(4,845	)

Amortization of deferred financing costs:
Investment in real estate, net	$	(471	)	$	(77	)

Deferred financing costs, net	$	2,632		$	2,641

Amortization of discounts and premiums on debt:
Mortgage notes payable	$	(1,574	)	$	(1,563	)

Notes, net	$	406		$	167

Amortization of deferred settlements on derivative instruments:
Other liabilities	$	(345	)	$	(345	)

Accumulated other comprehensive loss	$	513		$	563

Unrealized (gain) loss on derivative instruments:
Other assets	$	(4,935	)	$	67

Mortgage notes payable	$	3,390		$	1,550

Notes, net	$	2,907		$	867

Other liabilities	$	7,786		$	(2,310	)

Accumulated other comprehensive loss	$	(9,148	)	$	(174	)

(Payments on) settlement of derivative instruments:
Other assets	$	(39	)	$	(29	)

Other liabilities	$	(13,217	)	$	—

See accompanying notes

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, 2008 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, 2008, the Operating Partnership, directly or indirectly through investments in title holding entities, owned all or a portion of 565 properties in 24 states and the District of Columbia consisting of 149,769 units. The ownership breakdown includes (table does not include various uncompleted development properties):

	Properties	Units
Wholly Owned Properties	493	130,161
Partially Owned Properties:
Consolidated	27	5,431
Unconsolidated	44	10,446
Military Housing (Fee Managed)	1	3,731
	565	149,769

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, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

In preparation of the Operating Partnership’s financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

The balance sheet at December 31, 2007 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 definitions 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, 2007.

Income and Other 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 and corporate housing activities and as a result, these entities will incur both federal and state income taxes on any taxable income of such entities.

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. The Operating Partnership’s deferred tax assets are generally the result of tax affected amortization of goodwill, differing depreciable lives on capitalized assets and the timing of expense recognition for certain accrued liabilities. As of March 31, 2008, the Operating Partnership has recorded a deferred tax asset of approximately $12.5 million, which was fully offset by a valuation allowance due to the uncertainty in forecasting future TRS taxable income.

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 par 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 5,431 units and various uncompleted development properties having a minority interest book value of $24.9 million at March 31, 2008. 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, 2008, the Operating Partnership estimates

the value of Minority Interest distributions would have been approximately $114.4 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, 2008 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.

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.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosure about fair value measurements. The Operating Partnership adopted SFAS No. 157 as required effective January 1, 2008. The adoption of SFAS No. 157 did not have a material effect on the consolidated results of operations or financial position. See Note 11 in the Notes to Consolidated Financial Statements for further discussion.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 provides a “Fair Value Option” under which a company may irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial instruments. The Fair Value Option will be available on a contract-by-contract basis with changes in fair value recognized in earnings as those changes occur. SFAS No. 159 is effective beginning January 1, 2008, but the Operating Partnership has decided not to adopt this optional standard.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) will significantly change the accounting for business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141(R) will change the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred; (2) valuing noncontrolling interests at fair value at the acquisition date; and (3) expensing restructuring costs associated with an acquired business. SFAS No. 141(R) also includes a substantial number of new disclosure requirements. SFAS No. 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. We expect SFAS No. 141(R) will have an impact on our accounting for future business combinations once adopted, but we are currently assessing the impact it will have on the consolidated results of operations and financial position.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the Consolidated Financial Statements and separate from the parent company’s equity. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the Consolidated Statements of Operations, of the amounts of consolidated

net income attributable to the parent and to the noncontrolling interest. This statement is effective for the Operating Partnership on January 1, 2009. The Operating Partnership is currently evaluating the impact SFAS No. 160 will have on its consolidated results of operations and financial position.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133. SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Among other requirements, entities are required to provide enhanced disclosures about: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for the Operating Partnership on January 1, 2009. The Operating Partnership is currently evaluating the impact SFAS No. 161 will have on its consolidated financial statements.

3. Partners’ Capital

The following tables present the changes in all of the Operating Partnership’s issued and outstanding OP Units, and the changes in limited partners’ OP Units for the quarter ended March 31, 2008:

	2008
General and Limited Partner OP Units
General and Limited Partner OP Units outstanding at January 1,	287,974,981

Issued to General Partner:
Conversion of Series E Preference Units	5,007
Conversion of Series H Preference Units	1,448
Exercise of EQR options	113,758
Employee Share Purchase Plan	83,911
Restricted EQR share grants, net	495,328

OP Units Other:
Repurchased and retired	(171,161	)
General and Limited Partner OP Units outstanding at March 31,	288,503,272

Limited Partner OP Units
Limited Partner OP Units outstanding at January 1,	18,420,320
Conversion of Limited Partner OP Units to EQR Common Shares	(419,297	)
Limited Partner OP Units outstanding at March 31,	18,001,023
Limited Partner OP Units Ownership Interest in Operating Partnership	6.2	%

During the quarter ended March 31, 2008, the Company repurchased 171,161 of its Common Shares at an average price of $36.78 per share for total consideration of $6.3 million. These shares were retired subsequent to the repurchases. Concurrent with these transactions, the Operating Partnership repurchased and retired 171,161 OP Units previously issued to EQR. Of the total shares repurchased, 71,161 shares were repurchased from employees at an average price of $38.25 per share (the average of the then current market prices) to cover the minimum statutory tax withholding obligations related to the vesting of employees’ restricted shares. The remaining 100,000 shares were repurchased in the open market at an average price of $35.74 per share. The Company also funded $4.6 million in January 2008 for the settlement of 125,000 Common Shares that were repurchased in December 2007 and recorded as other liabilities at December 31, 2007. EQR has authorization to repurchase an additional $469.3 million of its shares as of March 31, 2008.

The Limited Partners of the Operating Partnership as of March 31, 2008 include various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units. Subject to

certain 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, 2008 and December 31, 2007:

					Amounts in thousands
			Annual
	Redemption	Conversion	Dividend per		March 31,		December 31,
	Date (1) (2)	Rate (2)	Unit (3)		2008		2007
Preference Units:

7.00% Series E Cumulative Convertible Preference Units; liquidation value $25 per unit; 357,616 and 362,116 units issued and outstanding at March 31, 2008 and December 31, 2007, respectively	11/1/98	1.1128	$	1.75	$	8,940	$	9,053

7.00% Series H Cumulative Convertible Preference Units; liquidation value $25 per unit; 23,359 and 24,359 units issued and outstanding at March 31, 2008 and December 31, 2007, respectively	6/30/98	1.4480	$	1.75	584		609

8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2008 and December 31, 2007	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, 2008 and December 31, 2007 (4)	6/19/08	N/A	$	16.20	150,000		150,000
					$	209,524	$	209,662

(1) On or after the redemption date, redeemable preference units (Series 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. The dividend listed for Series N is a Preference Unit rate and the equivalent depositary unit annual dividend is $1.62 per unit.

(4) The Series N Preference Units 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 Operating Partnership’s issued and outstanding Junior Convertible Preference Units (the “Junior Preference Units”) as of March 31, 2008 and December 31, 2007:

					Amounts in thousands
			Annual
	Redemption	Conversion	Dividend		March 31,		December 31,
	Date (2)	Rate (2)	per Unit (1)		2008		2007
Junior Preference Units:

Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at March 31, 2008 and December 31, 2007	7/29/09	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, 2008 and December 31, 2007 (amounts in thousands):

	March 31, 2008			December 31, 2007
Land	$	3,613,965		$	3,607,305
Depreciable property:
Buildings and improvements	12,645,555			12,665,706
Furniture, fixtures and equipment	895,809			890,975
Projects under development:
Land	196,554			210,414
Construction-in-progress	615,062			601,925
Land held for development:
Land	313,275			311,675
Construction-in-progress	55,250			45,350
Investment in real estate	18,335,470			18,333,350
Accumulated depreciation	(3,245,919		)	(3,170,125		)
Investment in real estate, net	$	15,089,551		$	15,163,225

During the quarter ended March 31, 2008, the Operating Partnership acquired the entire equity interest in the following from unaffiliated parties (purchase price in thousands):

			Purchase
	Properties	Units	Price
Rental Properties	2	171	$	41,863

The Operating Partnership also acquired all of its partners’ interests in one partially owned property containing 144 units for $5.9 million and two partially owned land parcels for $1.6 million.

During the quarter ended March 31, 2008, the Operating Partnership disposed of the following to unaffiliated parties (sales price in thousands):

	Properties	Units	Sales Price
Rental Properties	15	3,317	$	271,643
Condominium Conversion Properties	2	41	9,445
	17	3,358	$	281,088

The Operating Partnership recognized a net gain on sales of discontinued operations of approximately $122.5 million on the above sales.

5. Commitments to Acquire/Dispose of Real Estate

As of May 1, 2008, the Operating Partnership had entered into separate agreements to acquire the following (purchase price in thousands):

	Properties/ Parcels	Units	Purchase Price
Operating Properties	1	304	$	43,779
Land Parcels	5	—	153,122
Total	6	304	$	196,901

As of May 1, 2008, in addition to the property that was subsequently disposed of as discussed in Note 16, the Operating Partnership had entered into separate agreements to dispose of the following (sales price in thousands):

	Properties/
	Parcels	Units	Sales Price
Operating Properties	16	4,999	$	486,086
Land Parcels	1	—	3,300
Total	17	4,999	$	489,386

The closings of these pending transactions are subject to certain conditions and restrictions, therefore, there can be no assurance that these transactions will be consummated or that the final terms 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, 2008 (amounts in thousands except for project and unit amounts):

	Consolidated										Unconsolidated
	Development Projects
	Held for		Completed,		Completed						Institutional
	and/or Under		Not		and						Joint
	Development		Stabilized (4)		Stabilized		Other		Total		Ventures

Total projects (1)	—		1		5		21		27		44

Total units (1)	—		132		1,405		3,894		5,431		10,446

Debt – Secured (2):
EQR Ownership (3)	$	421,755	$	28,260	$	141,206	$	289,135	$	880,356	$	121,200
Minority Ownership	—		—		—		13,321		13,321		363,600
Total (at 100%)	$	421,755	$	28,260	$	141,206	$	302,456	$	893,677	$	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 $68.7 million in mortgage bonds on various development projects.

(3) Represents the Operating Partnership’s current 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 restricted deposits as of March 31, 2008 and December 31, 2007 (amounts in thousands):

	March 31,		December 31,
	2008		2007

Tax–deferred (1031) exchange proceeds	$	30,200	$	63,795
Earnest money on pending acquisitions	4,500		3,050
Restricted deposits on debt (1)	127,917		133,491
Resident security and utility deposits	39,595		39,889
Other	14,001		13,051

Totals	$	216,213	$	253,276

(1) Primarily represents amounts held in escrow by the lender and released as draw requests are made on fully funded development mortgage loans.

8. Mortgage Notes Payable

As of March 31, 2008, the Operating Partnership had outstanding mortgage debt of approximately $4.1 billion.

During the quarter ended March 31, 2008, the Operating Partnership:

· Repaid $74.5 million of mortgage loans;

· Obtained $500.0 million of mortgage loan proceeds through the issuance of an 11.5 year cross-collateralized loan with a fixed stated interest rate for 10.5 years at 5.19% secured by 13 properties; and

· Obtained an additional $63.1 million of new mortgage loans on certain other properties.

As of March 31, 2008, scheduled maturities for the Operating Partnership’s outstanding mortgage indebtedness were at various dates through September 1, 2045. At March 31, 2008, the interest rate range on the Operating Partnership’s mortgage debt was 1.40% to 12.465%. During the quarter ended March 31, 2008, the weighted average interest rate on the Operating Partnership’s mortgage debt was 5.23%.

9. Notes

As of March 31, 2008, the Operating Partnership had outstanding unsecured notes of approximately $5.8 billion. There were no significant transactions during the quarter ended March 31, 2008.

As of March 31, 2008, scheduled maturities for the Operating Partnership’s outstanding notes were at various dates through 2029. At March 31, 2008, the interest rate range on the Operating Partnership’s notes was 3.85% to 7.57%. During the quarter ended March 31, 2008, the weighted average interest rate on the Operating Partnership’s notes was 5.60%.

10. Lines of Credit

The Operating Partnership has an unsecured revolving credit facility with potential borrowings of up to $1.5 billion maturing on February 28, 2012, with the ability to increase available borrowings by an additional $500.0 million by adding additional banks to the facility or obtaining the agreement of existing banks to increase their commitments. 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.

As of March 31, 2008, no amounts were outstanding and $77.5 million was restricted (dedicated to support letters of credit and not available for borrowing) on the credit facility. During the quarter ended March 31, 2008, the weighted average interest rate under the credit facility was 4.29%.

11. Derivative and Other Fair Value Instruments

The following table summarizes the consolidated derivative instruments at March 31, 2008 (dollar amounts are in thousands):

				Forward			Development
	Fair Value			Starting			Cash Flow
	Hedges (1)			Swaps (2)			Hedges (3)

Current Notional Balance	$	370,000		$	100,000		$	143,707
Lowest Possible Notional	$	370,000		$	100,000		$	45,106
Highest Possible Notional	$	370,000		$	100,000		$	283,664
Lowest Interest Rate	3.245		%	4.573		%	4.928		%
Highest Interest Rate	3.787		%	4.716		%	6.000		%
Earliest Maturity Date	2009			2019			2009
Latest Maturity Date	2009			2019			2010
Estimated Asset (Liability) Fair Value	$	4,982		$	(1,696	)	$	(3,484	)

(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.

On March 31, 2008, the net derivative instruments were reported at their fair value as other liabilities of approximately $5.2 million and other assets of $5.0 million. As of March 31, 2008, there were approximately $25.1 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, 2008, the Operating Partnership may recognize an estimated $5.7 million of accumulated other comprehensive loss as additional interest expense during the twelve months ending March 31, 2009.

In February 2008, the Operating Partnership paid approximately $13.2 million to terminate three forward starting swaps in conjunction with the issuance of a $500.0 million 11.5 year mortgage loan. The entire amount has been deferred as a component of accumulated other comprehensive loss and will be recognized as an increase to interest expense over the first ten years of the mortgage loan.

SFAS No. 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

· Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

· Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Operating Partnership’s derivative positions are valued using models developed by the respective counterparty as well as models developed internally by the Operating Partnership that use as their basis readily observable market parameters (such as forward yield curves and credit default swap data) and are classified within Level 2 of the valuation hierarchy. In addition, employee holdings other than EQR Common Shares within the supplemental executive retirement plan (the “SERP”) have a fair value of $54.7 million as of March 31, 2008 and are included in other assets and other liabilities on the consolidated balance sheet. These SERP investments are valued using quoted market prices for identical assets and are classified within Level 1 of the valuation hierarchy.

12. Earnings Per OP Unit

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

	Quarter Ended March 31,
	2008			2007
Numerator for net income per OP Unit – basic and diluted:
Income from continuing operations	$	27,546		$	9,071
Allocation to Preference Units	(3,633		)	(7,424		)
Allocation to Preference Interests and Junior Preference Units	(4		)	(223		)

Income from continuing operations available to OP Units	23,909			1,424
Discontinued operations, net	122,232			125,275

Numerator for net income per OP Unit – basic and diluted	$	146,141		$	126,699

Denominator for net income per OP Unit – basic and diluted:
Denominator for net income per OP Unit – basic	287,079			311,697
Effect of dilutive securities:
Dilution for OP Units issuable upon assumed exercise/vesting of EQR’s share options/restricted shares	2,238			4,568

Denominator for net income per share – diluted	289,317			316,265

Net income per share – basic	$	0.51		$	0.41

Net income per share – diluted	$	0.51		$	0.40

Net income per OP Unit – basic:
Income from continuing operations available to OP Units	$	0.083		$	0.005
Discontinued operations, net	0.426			0.402

Net income per OP Unit – basic	$	0.509		$	0.407

Net income per OP Unit – diluted:
Income from continuing operations available to OP Units	$	0.083		$	0.005
Discontinued operations, net	0.422			0.396

Net income per OP Unit – diluted	$	0.505		$	0.401

Convertible preference interests/units that could be converted into 444,474 and 853,151 weighted average Common Shares (which would be contributed to the Operating Partnership in exchange for OP Units) for the quarters ended March 31, 2008 and 2007, 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 was 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), all operations related to condominium conversion properties effective upon their respective transfer into a TRS and all properties held for sale, if any.

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, 2008 and 2007 (amounts in thousands).

	Quarter Ended March 31,
	2008			2007
REVENUES
Rental income	$	5,330		$	58,065
Total revenues	5,330			58,065

EXPENSES (1)
Property and maintenance	4,124			19,284
Real estate taxes and insurance	637			7,766
Property management	(26		)	203
Depreciation	982			15,742
General and administrative	3			2
Impairment	56			—
Total expenses	5,776			42,997

Discontinued operating (loss) income	(446		)	15,068

Interest and other income	(17		)	93
Interest (2):
Expense incurred, net	(22		)	(1,310		)
Amortization of deferred financing costs	—			(343		)
Income and other tax benefit (expense)	200			(179		)

Discontinued operations	(285		)	13,329
Net gain on sales of discontinued operations	122,517			111,946

Discontinued operations, net	$	122,232		$	125,275

(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, 2008 (excluding condominium conversion properties), the investment in real estate, net of accumulated depreciation balance at December 31, 2007 was $147.9 million.

The net real estate basis of the Operating Partnership’s condominium conversion properties owned by the TRS and included in discontinued operations (excludes one of the Operating Partnership’s halted conversions as it is now held for use), which were included in investment in real estate, net in the consolidated balance sheets, was $108.0 million and $87.2 million at March 31, 2008 and December 31, 2007, 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 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, 2008. While no assurances can be given, the Operating Partnership does not believe that the suit, if adversely determined, would 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, 2008, the Operating Partnership received the remaining accrued receivable of $1.8 million. As of March 31, 2008, the remaining reserve balance is $0.7 million and is included in other liabilities on the consolidated balance sheets.

As of March 31, 2008, the Operating Partnership has 13 projects totaling 4,484 units in various stages of development with estimated completion dates ranging through June 30, 2011. Some of the projects are developed solely by the Operating Partnership, while others are co-developed with various third party development partners. The development venture agreements with partners are primarily deal-specific, with differing terms regarding profit-sharing, equity contributions, returns on investment, buy-sell agreements and other customary provisions. The partner is most often the “general” or “managing” partner of the development venture. The typical buy-sell arrangements contain appraisal rights and provisions that provide the right, but not the obligation, for the Operating Partnership to acquire the partner’s interest in the project at fair market value upon the expiration of a negotiated time period (typically two to five years after substantial completion of the project). However, the buy-sell provisions with one partner covering three projects does require the Operating Partnership to purchase the partner’s interest in the projects at fair market value five years following the receipt of the final certificate of occupancy on the last developed property (in Q1 2009).

15. Reportable Segments

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

The Operating Partnership’s primary business is owning, managing, and operating multifamily residential properties, which include 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, 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, 2008 and 2007, 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 segment from our rental real estate specific to continuing operations for the quarters ended March 31, 2008 and 2007, respectively, as well as total assets for the quarter ended March 31, 2008 (amounts in thousands):

	Quarter Ended March 31, 2008
	Northeast		Northwest		Southeast		Southwest		Other (3)			Total
Rental income:
Same store (1)	$	128,955	$	95,320	$	97,753	$	126,484	$	—		$	448,512
Non-same store/other (2) (3)	16,764		7,684		14,238		7,659		25,661			72,006
Total rental income	145,719		103,004		111,991		134,143		25,661			520,518

Operating expenses:
Same store (1)	50,017		33,616		40,118		44,140		—			167,891
Non-same store/other (2) (3)	7,369		3,571		6,140		3,589		26,024			46,693
Total operating expenses	57,386		37,187		46,258		47,729		26,024			214,584

NOI:
Same store (1)	78,938		61,704		57,635		82,344		—			280,621
Non-same store/other (2) (3)	9,395		4,113		8,098		4,070		(363		)	25,313
Total NOI	$	88,333	$	65,817	$	65,733	$	86,414	$	(363	)	$	305,934

Total assets	$	4,581,924	$	2,748,192	$	3,015,852	$	3,185,010	$	2,479,967		$	16,010,945

(1) Same store includes properties owned for all of both periods ending March 31, 2008 and March 31, 2007 which represented 121,826 units.

(2) Non-same store includes properties acquired after January 1, 2007.

(3) Other includes ECH, development, condominium conversion overhead of $0.7 million and other corporate operations. Also reflects a $3.2 million elimination of rental income recorded in Northeast, Northwest, Southeast and Southwest operating segments related to ECH.

	Quarter Ended March 31, 2007
	Northeast		Northwest		Southeast		Southwest		Other (3)			Total
Rental income:
Same store (1)	$	124,047	$	89,030	$	97,699	$	122,575	$	—		$	433,351
Non-same store/other (2) (3)	6,702		874		9,565		3,280		19,810			40,231
Total rental income	130,749		89,904		107,264		125,855		19,810			473,582

Operating expenses:
Same store (1)	47,741		33,580		39,714		44,184		—			165,219
Non-same store/other (2) (3)	4,279		405		3,307		1,920		28,913			38,824
Total operating expenses	52,020		33,985		43,021		46,104		28,913			204,043

NOI:
Same store (1)	76,306		55,450		57,985		78,391		—			268,132
Non-same store/other (2) (3)	2,423		469		6,258		1,360		(9,103		)	1,407
Total NOI	$	78,729	$	55,919	$	64,243	$	79,751	$	(9,103	)	$	269,539

(1) Same store includes properties owned for all of both periods ending March 31, 2008 and March 31, 2007 which represented 121,826 units.

(2) Non-same store includes properties acquired after January 1, 2007.

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

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

(a) Northeast – New England (excluding Boston), Boston, New York Metro, DC Northern Virginia and Suburban Maryland.

(b) Northwest – Central Valley, Denver, Portland, San Francisco Bay Area and Seattle/Tacoma.

(d) Southwest – Albuquerque, Austin, Dallas/Ft. Worth, Inland Empire, Los Angeles, Minneapolis/St. Paul, Orange County, Phoenix, San Diego and Tulsa.

The following table presents a reconciliation of NOI from our rental real estate specific to continuing operations for the quarters ended March 31, 2008 and 2007, respectively (amounts in thousands):

	Quarter Ended March 31,
	2008			2007
Rental income	$	520,518		$	473,582
Property and maintenance expense	(137,491		)	(126,781		)
Real estate taxes and insurance expense	(55,925		)	(52,420		)
Property management expense	(21,168		)	(24,842		)
Total operating expenses	(214,584		)	(204,043		)
Net operating income	$	305,934		$	269,539

16. Subsequent Events/Other

Subsequent Events

Subsequent to March 31, 2008 and through May 1, 2008, the Operating Partnership sold one apartment property consisting of 115 units for $12.3 million (excluding condominium units).

Other

The Operating Partnership incurred impairment losses of approximately $0.2 million (including discontinued operations) for both the quarters ended March 31, 2008 and 2007 related to the write-off of

various pursuit and out-of-pocket costs for terminated acquisition, disposition (including halted condominium conversions) and development transactions.

During the quarter ended March 31, 2008, the Operating Partnership received $0.4 million for the settlement of insurance litigation claims from 2000 through 2002 and $0.2 million for a breach of contract claim against the former owner of a property, both of which were recorded as interest and other income. In addition, the Operating Partnership recognized $0.3 million of forfeited deposits for various terminated transactions, which are included in interest and other income.

During the quarter ended March 31, 2008, the Operating Partnership recorded approximately $0.2 million and $1.7 million of additional property management expense and general and administrative expense, respectively, related to cash severance for various employees.

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

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 December31, 2007.

Forward-looking Statements

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 submarket. 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 in the Notes to Consolidated Financial Statements in this report.

Overview

EQR is one of the largest publicly traded real estate companies and is the largest publicly traded owner of multifamily properties (based on the aggregate market value of its outstanding Common Shares, the number of apartment units wholly owned and total revenues earned). The Operating Partnership’s corporate headquarters are located in Chicago, Illinois and the Operating Partnership also operates approximately 35 property management offices throughout the United States. The Operating Partnership has approximately 4,700 employees who provide real estate operations, leasing, legal, financial, accounting, acquisition, disposition, development and other support functions.

Business Objectives and Operating Strategies

The Operating Partnership seeks to maximize current income, capital appreciation of each property and the total return for its shareholders. The Operating Partnership’s strategy for accomplishing these objectives includes:

· Leveraging our size and scale in four critical ways:

· Investing in apartment communities located in strategically targeted markets, to maximize our total return on an enterprise level;

· Meeting the needs of our residents by offering a wide array of product choices and a commitment to service;

· Engaging, retaining, and attracting the best employees by providing them with the education, resources and opportunities to succeed; and

· Sharing resources, customers and best practices in property management and across the enterprise.

· Owning a highly diversified portfolio by investing in target markets defined by a combination of the following criteria:

· High barrier-to-entry (low supply);

· Strong economic predictors (high demand); and

· Attractive quality of life (high demand and retention).

· Giving residents reasons to stay with the Operating Partnership by providing a range of product options available in our diversified portfolio and by enhancing their experience through our employees and our services.

· Being open and responsive to market realities to take advantage of investment opportunities that align with our long-term vision.

Acquisition, Development and Disposition Strategies

The Operating Partnership anticipates that future property acquisitions, developments and dispositions will occur within the United States. Acquisitions and developments may be financed from various sources of capital, which may include retained cash flow, issuance of additional equity and debt securities, sales of properties, joint venture agreements and collateralized and uncollateralized borrowings. In addition, the

Operating Partnership may acquire properties in transactions that include the issuance of limited partnership interests in the Operating Partnership (“OP Units”) as consideration for the acquired properties. Such transactions may, in certain circumstances, enable the sellers to defer, in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales. In addition, ERPOP may acquire or develop multifamily properties specifically to convert directly into condominiums as well as upgrade and sell existing properties as individual condominiums. ERPOP may also acquire land parcels to hold and/or sell based on market opportunities.

When evaluating potential acquisitions, developments and dispositions, the Operating Partnership generally considers the following factors:

· strategically targeted markets;

· income levels and employment growth trends in the relevant market;

· employment and household growth and net migration of the relevant market’s population;

· barriers to entry that would limit competition (zoning laws, building permit availability, supply of undeveloped or developable real estate, local building costs and construction costs, among other factors);

· the location, construction quality, condition and design of the property;

· the current and projected cash flow of the property and the ability to increase cash flow;

· the potential for capital appreciation of the property;

· the terms of resident leases, including the potential for rent increases;

· the potential for economic growth and the tax and regulatory environment of the community in which the property is located;

· the occupancy and demand by residents for properties of a similar type in the vicinity (the overall market and submarket);

· the prospects for liquidity through sale, financing or refinancing of the property;

· the benefits of integration into existing operations;

· purchase prices and yields of available existing stabilized properties, if any;

· competition from existing multifamily properties, residential properties under development and the potential for the construction of new multifamily properties in the area; and

· opportunistic selling based on demand and price of high quality assets, including condominium conversions.

The Operating Partnership generally reinvests the proceeds received from property dispositions primarily to achieve its acquisition and development strategies and at times to fund its share repurchase activities. In addition, when feasible, the Operating Partnership may structure these transactions as tax-deferred exchanges.

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, 2008. In summary, we:

· Acquired $41.9 million of properties consisting of 2 properties and 171 units, both of which we deem to be in our strategic targeted markets; and

· Sold $271.6 million of properties consisting of 15 properties and 3,317 units, as well as 41 condominium units for $9.4 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, 2008 and 2007 (the “First Quarter 2008 Same Store Properties”), which represented 121,826 units, impacted the Operating Partnership’s results of operations. The First Quarter 2008 Same Store Properties are discussed in the following paragraphs.

The Operating Partnership’s acquisition, disposition and completed development activities also impacted overall results of operations for the quarters ended March 31, 2008 and 2007. The impacts of these activities are discussed in greater detail in the following paragraphs.

Comparison of the quarter ended March 31, 2008 to the quarter ended March 31, 2007

For the quarter ended March 31, 2008, income from continuing operations increased by approximately $18.5 million when compared to the quarter ended March 31, 2007. The increase in continuing operations is discussed below.

Revenues from the First Quarter 2008 Same Store Properties increased $15.2 million primarily as a result of higher rental rates charged to residents. Expenses from the First Quarter 2008 Same Store Properties increased $2.7 million primarily due to higher utilities, payroll and real estate taxes. The following tables provide comparative same store results and statistics for the First Quarter 2008 Same Store Properties:

First Quarter 2008 vs. First Quarter 2007

Quarter over Quarter Same Store Results/Statistics

$ in Thousands (except for Average Rental Rate) – 121,826 Same Store Units

	Results									Statistics
Description	Revenues			Expenses			NOI			Average Rental Rate (1)			Occupancy		Turnover
Q1 2008	$	448,512		$	167,891		$	280,621		$	1,302		94.4	%	13.7	%
Q1 2007	$	433,351		$	165,219		$	268,132		$	1,253		94.8	%	13.5	%
Change	$	15,161		$	2,672		$	12,489		$	49		(0.4	)%	0.2	%
Change	3.5		%	1.6		%	4.7		%	3.9		%

(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 operations to NOI for the First Quarter 2008 Same Store Properties:

	Quarter Ended March 31,
	2008			2007
	(Amounts in thousands)

Operating income	$	146,847		$	120,928
Adjustments:
Non-same store operating results	(25,313		)	(1,407		)
Fee and asset management revenue	(2,294		)	(2,267		)
Fee and asset management expense	2,183			2,341
Depreciation	146,598			138,932
General and administrative	12,481			9,369
Impairment	119			236

Same store NOI	$	280,621		$	268,132

For properties that the Operating Partnership acquired prior to January 1, 2007 and expects to continue to own through December 31, 2008, the Operating Partnership anticipates the following same store results for the full year ending December 31, 2008:

2008 Same Store Assumptions
Physical occupancy		94.5%
Revenue change		3.00% to 4.00%
Expense change		2.50% to 3.25%
NOI change		3.00% to 4.75%

These 2008 assumptions are based on current expectations and are forward-looking.

Non-same store operating results increased $23.9 million and consist primarily of properties acquired in calendar years 2008 and 2007 as well as operations from completed development properties and 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, increased $0.2 million primarily due to an increase in revenue earned on the management of our military housing venture at Fort Lewis as well as a decrease in asset management expenses from managing fewer properties for third parties and unconsolidated entities. As of March 31, 2008 and 2007, the Operating Partnership managed 14,472 and 15,025 units, respectively, primarily for unconsolidated entities and our military housing venture at Fort Lewis.

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 decreased by approximately $3.7 million or 14.8%. This decrease is primarily attributable to lower overall payroll-related costs as a result of a decrease in the number of properties in the Operating Partnership’s portfolio, as well as a decrease in third party management fees.

Depreciation expense from continuing operations, which includes depreciation on non-real estate assets, increased $7.7 million primarily as a result of additional depreciation expense on properties acquired in 2007 and capital expenditures for all properties owned.

General and administrative expenses from continuing operations, which include corporate operating expenses, increased $3.1 million primarily as a result of a $1.7 million increase in severance related costs in 2008 (see Note 16) as well as a $1.6 million expense recovery recorded for the quarter ended March 31, 2007 related to a certain lawsuit in Florida. The Operating Partnership anticipates that general and administrative expenses will approximate $48.0 million to $50.0 million for the year ending December 31, 2008. The above assumption is based on current expectations and is forward-looking.

Impairment from continuing operations decreased $0.1 million primarily as a result of the write-off of various pursuit and out-of-pocket costs for a terminated development transaction during the quarter ended March 31, 2007, partially offset by the write-off of various deferred sales costs on halted condominium conversions during the quarter ended March 31, 2008

Interest and other income from continuing operations increased $0.9 million primarily as a result of an increase in forfeited deposits and litigation settlement proceeds, partially offset by a decrease in interest on cash and restricted deposits. The Operating Partnership anticipates that interest and other income will approximate $5.0 million to $10.0 million for the year ending December 31, 2008. 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 $6.5 million primarily as a result of higher overall debt levels outstanding due to the Company’s 2007 share repurchase activity and its pre-funding of its 2008 debt maturities, partially offset by lower overall effective interest rates. During the quarter ended March 31, 2008, the Operating Partnership capitalized interest costs of approximately $14.7 million as compared to $7.9 million for the quarter ended March 31, 2007. This capitalization of interest primarily relates to consolidated projects under development. The effective interest cost on all indebtedness for the quarter ended March 31, 2008 was 5.61% as compared to 5.93% for the quarter ended March 31, 2007. The Operating Partnership anticipates that interest expense (including discontinued operations) will approximate $470.0 million to $490.0 million for the year ending December 31, 2008. The above assumption is based on current expectations and is forward-looking.

Income and other tax expense from continuing operations increased $2.3 million primarily due to a change in the estimate for Texas state taxes. The Operating Partnership anticipates that income and other tax expense will approximate $5.0 million to $6.0 million for the year ending December 31, 2008. The above assumption is based on current expectations and is forward-looking.

Loss from investments in unconsolidated entities decreased $0.1 million as compared to the quarter ended March 31, 2007 due to improved operating performance at the Operating Partnership’s partially owned unconsolidated entities.

Discontinued operations, net decreased approximately $3.0 million between the periods under comparison. This decrease is primarily due to the mix of those properties sold during the quarter ended March 31, 2008 as compared to the same period in 2007 and the operations of those properties. See Note 13 in the Notes to Consolidated Financial Statements for further discussion.

Liquidity and Capital Resources

As of January 1, 2008, the Operating Partnership had approximately $50.8 million of cash and cash equivalents and $1.3 billion available under its revolving credit facility (net of $80.8 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, 2008 was approximately $502.6 million and the amount available on the Operating Partnership’s revolving credit facility was $1.4 billion (net of $77.5 million which was restricted/dedicated to support letters of credit and not available for borrowing). The significant increase in the Operating Partnership’s cash and cash equivalents balance since December 31, 2007 is a direct result of its decision to pre-fund its 2008 debt maturities with the closing of a $500.0 million secured mortgage pool in March 2008. See Note 10 in the Notes to Consolidated Financial Statements for further discussion.

During the quarter ended March 31, 2008, the Operating Partnership generated proceeds from various transactions, which included the following:

· Disposed of 17 properties and various individual condominium units, receiving net proceeds of approximately $284.3 million;

· Obtained $563.1 million in new mortgage financing and terminated three forward starting swaps designated to hedge the first $150.0 million of one of the loan issuances, making payments of $13.2 million; and

· Issued approximately 0.2 million OP Units and received net proceeds of $5.8 million.

During the quarter ended March 31, 2008, the above proceeds were primarily utilized to:

· Invest $125.9 million primarily in development projects;

· Acquire two properties, utilizing cash of $41.9 million;

· Repurchase 0.2 million OP Units and settle 0.1 million OP Units, utilizing cash of $10.9 million (see Note 3); and

· Repay $74.5 million of mortgage loans.

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 repurchase program authorized by the Board of Trustees. EQR repurchased $6.3 million (171,161 shares at an average price per share of $36.78) of its Common Shares during the quarter ended March 31, 2008. Concurrent with these transactions, the Operating Partnership repurchased and retired 171,161 OP Units previously issued to EQR. As of March 31, 2008, EQR had authorization to repurchase an additional $469.3 million of its shares. See Note 3 in the Notes to Consolidated Financial Statements for further discussion.

The Operating Partnership’s total debt summary and debt maturity schedules as of March 31, 2008 are as follows:

Debt Summary as of March 31, 2008

(Amounts in thousands)

	Amounts (1)		% of Total		Weighted Average Rates (1)		Weighted Average Maturities (years)
Secured	$	4,096,357	41.5	%	5.23	%	7.9
Unsecured	5,767,075		58.5	%	5.59	%	6.0
Total	$	9,863,432	100.0	%	5.45	%	6.8

Fixed Rate Debt:
Secured – Conventional	$	2,935,779	29.7	%	6.06	%	5.8
Unsecured – Public/Private	5,003,070		50.7	%	5.68	%	6.2
Unsecured – Tax Exempt	111,390		1.2	%	5.06	%	21.1
Fixed Rate Debt	8,050,239		81.6	%	5.80	%	6.3

Floating Rate Debt:
Secured – Conventional	533,665		5.4	%	4.01	%	5.0
Secured – Tax Exempt	626,913		6.4	%	2.86	%	20.8
Unsecured – Public/Private	652,615		6.6	%	5.10	%	2.2
Unsecured – Revolving Credit Facility	—		—		4.29	%	3.9
Floating Rate Debt	1,813,193		18.4	%	4.01	%	9.2

Total	$	9,863,432	100.0	%	5.45	%	6.8

(1) Net of the effect of any derivative instruments. Weighted average rates are for the quarter ended March 31, 2008.

Note: The Operating Partnership capitalized interest of approximately $14.7 million and $7.9 million for the quarters ended March 31, 2008 and 2007, respectively.

Debt Maturity Schedule as of March 31, 2008

(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)
2008	$	399,695	$	67,392	$	467,087	4.7	%	6.62	%	6.32	%
2009	458,419		476,246		934,665		9.5	%	6.35	%	5.28	%
2010 (2)	282,829		580,960		863,789		8.8	%	7.02	%	5.21	%
2011 (3)	1,519,782		41,537		1,561,319		15.8	%	5.57	%	5.50	%
2012	907,993		—		907,993		9.2	%	6.08	%	6.08	%
2013	566,295		—		566,295		5.7	%	5.93	%	5.93	%
2014	517,454		—		517,454		5.3	%	5.28	%	5.28	%
2015	355,622		—		355,622		3.6	%	6.41	%	6.41	%
2016	1,089,323		—		1,089,323		11.0	%	5.32	%	5.32	%
2017	803,653		456		804,109		8.2	%	6.01	%	6.01	%
2018+	1,149,174		646,602		1,795,776		18.2	%	5.76	%	5.10	%
Total	$	8,050,239	$	1,813,193	$	9,863,432	100.0	%	5.86	%	5.54	%

(1) Net of the effect of any derivative instruments. Weighted average rates are as of March 31, 2008.

(2) Includes the Operating Partnership’s $500.0 million floating rate term loan facility, which matures on October 5, 2010, subject to two one-year extension options exercisable by the Operating Partnership.

(3) 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.

The following table provides a summary of the Operating Partnership’s unsecured debt as of March 31, 2008:

Unsecured Debt Summary as of March 31, 2008

(Amounts in thousands)

	Coupon Rate	Due Date		Face Amount			Unamortized Premium/ (Discount)			Net Balance
Fixed Rate Notes:
	7.500%	08/15/08	(1)	$	130,000		$	—		$	130,000
	4.750%	06/15/09	(2)	300,000			(331		)	299,669
	6.950%	03/02/11		300,000			2,665			302,665
	6.625%	03/15/12		400,000			(1,162		)	398,838
	5.500%	10/01/12		350,000			(1,553		)	348,447
	5.200%	04/01/13		400,000			(592		)	399,408
	5.250%	09/15/14		500,000			(397		)	499,603
	6.584%	04/13/15		300,000			(782		)	299,218
	5.125%	03/15/16		500,000			(426		)	499,574
	5.375%	08/01/16		400,000			(1,546		)	398,454
	5.750%	06/15/17		650,000			(4,705		)	645,295
	7.125%	10/15/17		150,000			(619		)	149,381
	7.570%	08/15/26		140,000			—			140,000
	3.850%	08/15/26	(3)	650,000			(7,482		)	642,518
Floating Rate Adjustments			(2)	(150,000		)	—			(150,000		)
				5,020,000			(16,930		)	5,003,070

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)	2,615			—			2,615
Term Loan Facility		10/05/10	(4)	500,000			—			500,000
				652,615			—			652,615

Revolving Credit Facility:		02/28/12	(5)	—			—			—

Total Unsecured Debt				$	5,784,005		$	(16,930	)	$	5,767,075

(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 the Operating Partnership’s $500.0 million term loan facility, which matures on October 5, 2010, subject to two one-year extension options exercisable by the Operating Partnership.

(5) As of March 31, 2008, there was no amount outstanding on the Operating Partnership’s $1.5 billion unsecured revolving credit facility which matures on February 28, 2012.

As of May 1, 2008, 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). As of May 1, 2008, $956.5 million in equity securities remains available for issuance by EQR under a registration statement the SEC declared effective in February 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, 2008 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; and (iii) the liquidation value of all perpetual preference units outstanding.

Capital Structure as of March 31, 2008

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

Secured Debt			$	4,096,357	41.5	%
Unsecured Debt			5,767,075		58.5	%
Total Debt			9,863,432		100.0	%	44.7	%

OP Units	288,503,272
OP Unit Equivalents (see below)	439,296
Total outstanding at quarter-end	288,942,568
EQR Common Share Price at March 31, 2008	$	41.49
			11,988,227		98.4	%
Perpetual Preference Units (see below)			200,000		1.6	%
Total Equity			12,188,227		100.0	%	55.3	%

Total Market Capitalization			$	22,051,659			100.0	%

Convertible Preference Units as of March 31, 2008

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

Series	Redemption Date	Outstanding Units	Liquidation Value		Annual Dividend Per Unit		Annual Dividend Amount		Weighted Average Rate		Conversion Ratio	OP Unit Equivalents
Preference Units
7.00% Series E	11/1/98	357,616	$	8,940	$	1.75	$	626			1.1128	397,955
7.00% Series H	6/30/98	23,359	584		1.75		41				1.4480	33,824
Junior Preference Units:
8.00% Series B	7/29/09	7,367	184		2.00		15				1.020408	7,517
Total Convertible Preference Units		388,342	$	9,708			$	682	7.03	%		439,296

Perpetual Preference Units as of March 31, 2008

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

Series	Redemption Date	Outstanding Units	Liquidation Value		Annual Dividend Per Unit		Annual Dividend Amount		Weighted Average Rate
Preference Units:
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		1,600,000	$	200,000			$	13,865	6.93	%

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 note repayments, generally through its working capital, net cash provided by operating activities and borrowings under its revolving credit facility. 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 as well as joint ventures. 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 $18.3 billion in investment in real estate on the Operating Partnership’s balance sheet at March 31, 2008, $11.3 billion or 61.5%, was unencumbered.

As of May 1, 2008, the Operating Partnership’s senior debt credit ratings from Standard & Poors (“S&P”), Moody’s and Fitch are BBB+, Baa1 and A-, respectively. As of May 1, 2008, EQR’s preferred equity ratings from S&P, Moody’s and Fitch are BBB, Baa2 and BBB+, 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 1, 2008, no amounts were 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, 2008.

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 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, 2008, our actual improvements to real estate totaled approximately $40.7 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, 2008

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

Established Properties (2)	111,463	$	8,925	$	80	$	13,214	$	119	$	22,139	$	199

New Acquisition Properties (3)	17,879	1,154		65		5,096		285		6,250		350

Other (4)	6,250	9,391				2,964				12,355

Total	135,592	$	19,470			$	21,274			$	40,744

(1) Total units – Excludes 10,446 unconsolidated units and 3,731 military housing (fee managed) units, for which capitalized improvements to real estate are self-funded and do not consolidate into the Operating Partnership’s results.

(2) Established Properties – Wholly Owned Properties acquired prior to January 1, 2006.

(3) New Acquisition Properties – Wholly Owned Properties acquired during 2006, 2007 and 2008.

(4) Other – Includes properties either partially owned or sold during the period, commercial space, corporate housing and condominium conversions. Also includes $7.5 million included in replacements spent on various assets related to major renovations and repositioning of these assets.

For 2008, the Operating Partnership estimates an annual stabilized run rate of approximately $1,100 per unit of capital expenditures for its established properties. The above assumption is based on current expectations and is forward-looking.

During the quarter ended March 31, 2008, 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 $1.0 million. The Operating Partnership expects to fund approximately $2.7 million in total additions to non-real estate property for the remainder of 2008. The above assumption is based on current expectations and is forward-looking.

Improvements to real estate and additions to non-real estate property are generally 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, 2008.

Other

Total distributions paid in April 2008 amounted to $141.8 million (excluding distributions on Partially Owned Properties), which included certain distributions declared during the first quarter ended March 31, 2008.

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, cash flows, 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. The Operating Partnership sold one property consisting of 400 units during the year ended December 31, 2007.

As of March 31, 2008, the Operating Partnership has 13 projects totaling 4,484 units in various stages of development with estimated completion dates ranging through June 30, 2011. 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 estimates 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 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 Operating Partnership follows the guidance under SFAS No. 157 when valuing its financial instruments. The valuation of financial instruments under SFAS No. 107 and SFAS No. 133, as amended, 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 EQR 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 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, 2008, Funds From Operations (“FFO”) available to OP Units decreased by $2.5 million or 1.4%, as compared to the quarter ended March 31, 2007.

The following is a reconciliation of net income to FFO available to OP Units for the quarters ended March 31, 2008 and 2007:

Funds From Operations

(Amounts in thousands)

(Unaudited)

	Quarter Ended March 31,
	2008			2007
Net income	$	149,778		$	134,346
Adjustments:
Depreciation	146,598			138,932
Depreciation – Non-real estate additions	(2,051		)	(2,035		)
Depreciation – Partially Owned and Unconsolidated Properties	1,034			943
Discontinued operations:
Depreciation	982			15,742
Net (gain) on sales of discontinued operations	(122,517		)	(111,946		)
Net incremental gain on sales of condominium units	366			4,684

FFO (1) (2)	174,190			180,666
Preferred distributions	(3,637		)	(7,647		)

FFO available to OP Units (1) (2)	$	170,553		$	173,019

(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. FFO available to OP Units is calculated on a basis consistent with net income available to OP Units and reflects adjustments to net income for preferred distributions and premiums on redemption of preference units/interests in accordance with accounting principles generally accepted in the United States.

(2) The Operating Partnership believes that FFO and FFO available to OP Units are helpful to investors as supplemental measures of the operating performance of a real estate company, because they are recognized measures 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 and FFO available to OP Units can help compare the operating performance of a company’s real estate between periods or as compared to different companies. FFO and FFO available to OP Units do not represent net income, net income available

to OP Units or net cash flows from operating activities in accordance with GAAP. Therefore, FFO and FFO available to OP Units should not be exclusively considered as alternatives to net income, net income available to OP Units or net cash flows from operating activities as determined by GAAP or as measures of liquidity. The Operating Partnership’s calculation of FFO and FFO available to OP Units 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.

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, 2007. 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, 2008, 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:

During the first quarter of 2008, the Operating Partnership completed the implementation of a new general ledger and accounts payable system designed to integrate its financial and operating platforms. The Operating Partnership believes this implementation constitutes an improvement to its internal control over financial reporting.

Except for the preceding change, 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 2008 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, 2008. 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.

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, 2007.

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

The Operating Partnership repurchased the following OP Units during the quarter ended March 31, 2008:

					Dollar Value of OP
				Total Number of OP	Units that May
	Total Number	Average Price		Units Purchased as Part	Yet Be Purchased
	of OP Units	Paid Per		of Publicly Announced	Under the Plans
Period	Purchased (1)	Unit (1)		Plans or Programs (1)	or Programs (1)

January 2008	100,000	$	35.74	100,000	$	471,995,345
February 2008	71,161	$	38.25	71,161	$	469,273,467
March 2008	—	$	—	—	$	469,273,467
First Quarter 2008	171,161	$	36.78	171,161

(1) The OP Units repurchased during the quarter ended March 31, 2008 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, 71,161 shares were repurchased from employees at an average price of $38.25 per share (the average of the then current market prices) to cover the minimum statutory tax withholding obligations related to the vesting of employees’ restricted shares. The remaining 100,000 shares were repurchased in the open market at an average price of $35.74 per share. EQR has authorization to repurchase an additional $469.3 million of its shares as of March 31, 2008.

Item 6. Exhibits – See the Exhibit Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ERP OPERATING LIMITED PARTNERSHIP
		BY: EQUITY RESIDENTIAL
		ITS GENERAL PARTNER


Date:	May 8, 2008	By: /s/	Mark J. Parrell
			Mark J. Parrell
			Executive Vice President and
			Chief Financial Officer


Date:	May 8, 2008	By: /s/	Ian S. Kaufman
			Ian S. Kaufman
			First Vice President and
			Chief Accounting Officer

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	The Equity Residential Supplemental Executive Retirement Plan as Amended and Restated Effective January 1, 2008.	Included as Exhibit 10.1 to EQR’s Form 10-Q for the quarterly period ended March 31, 2008.

10.2	The Equity Residential Grandfathered Supplemental Executive Retirement Plan as Amended and Restated Effective January 1, 2005.	Included as Exhibit 10.2 to EQR’s Form 10-Q for the quarterly period ended March 31, 2008.

31.1	Certification of David J. Neithercut, Chief Executive Officer of Registrant’s General Partner.	Attached herein.

31.2	Certification of Mark J. Parrell, 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 Mark J. Parrell, Chief Financial Officer of Registrant’s General Partner.	Attached herein.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

Erp Operating LTD Partnership 10-Q2008 Q1 Quarterly report

Content analysis

The following tables present the changes in all of the Operating Partnership’s issued and outstanding OP Units, and the changes in limited partners’ OP Units for the quarter ended March 31, 2008: