Item 1.1.  Business

General

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 is a Maryland real estate investment trust (“REIT”) formed in March 1993 and, is a fully integrated real estate company engaged in the acquisition, development, ownership, management and operation of multifamily properties.

EQR is one of the largest publicly traded REIT’sreal estate companies and is the largest publicly traded REIT owner of multifamily properties (based on the aggregate market value of EQR’sits 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 leases (under operating leases) approximately thirty-five divisional, regional and area property management offices throughout the United States.

EQR is the general partner of, and as of December 31, 2003,2004 owned an approximate 92.7%93.3% ownership interest in ERPOP.  ERPOPEQR is directly or indirectly, a partner, member or shareholder of numerous partnerships, limited liability companies and corporationsstructured as an umbrella partnership REIT (“UPREIT”), under which have been established primarily to own fee simple title to multifamily properties or to conductall property management activities and other businesses related to the ownership and operation of multifamily residential real estate.business operations are conducted through ERPOP and its various subsidiaries.  As used herein, the term “Operating Partnership” includes ERPOP and those entities owned or controlled by it.  As used herein, the term “Company” means EQR and the Operating Partnership.

As of December 31, 2003,2004, the Operating Partnership, owneddirectly or hadindirectly through investments in 968title holding entities, owned all or a portion of 939 properties in 3432 states and the District of Columbia consisting of 207,506200,149 units.  The ownership breakdown includes:

The Operating Partnership’s strategiesstrategy for accomplishing these objectives are:include:

•                  maintainingLeveraging our size and increasing property occupancy while increasing rental rates;scale in four critical ways:

•                  controlling expenses, providing regular preventive maintenance, making periodic renovations and enhancing amenities;Investing or “recycling” capital investments in apartment communities located in strategically targeted markets, to maximize our total return on an enterprise level;

•                  maintainingMeeting the needs of our customers by offering a ratiowide array of consolidated debt-to-total market capitalizationproduct choices and a commitment to service;

•                  Engaging, retaining, and attracting the best people 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 less than 50%the following criteria:

•                  High barrier-to-entry (low supply);

•                  strategically acquiring and disposing of properties, with an emphasis on acquiring attractive properties in high barrier to entry markets and on selling properties in low barrier to entry markets;

•                  purchasing newly developed, as well as co-investing in the development of, multifamily communities;

•                  entering into joint ventures related to the ownership of established properties;Strong economic predictors (high demand); and

•                  strategically investing in various businesses that will enhance services for the properties.Attractive quality of life (high demand and retention).

The Operating Partnership is committed•                  Giving customers reasons to resident satisfactionstay with Equity by strivingproviding 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 anticipate industry trends and implementing strategies and policies consistentmarket realities to take advantage of investment opportunities that align with providing quality resident services.  In addition, the Operating Partnership continuously surveys rental rates of competing properties and conducts resident satisfaction surveys to determine the factors they consider most important in choosing a particular apartment unit and/or property.our long-term vision.

Acquisition and Development Strategies

The Operating Partnership anticipates that future property acquisitions and developments will occur within the United States.  Management will continue to use market information to evaluate opportunities.  The Operating Partnership’s market database allows it to review the primary economic indicators of the markets where the Operating Partnership currently owns properties and where it expects to expand its operations.  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 additional properties in transactions that include the issuance of OP Units as consideration for the acquired properties. Such transactions may, in certain circumstances, enable the sellers to defer, in part, the recognition of taxable income or gain, which might otherwise result from the sales.

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

•                  the geographic area and type of community;

•                  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;

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

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

•                  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;

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•                  the benefits of integration into existing operations;

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

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•                  purchase prices and yields of available existing stabilized communities, if any; and

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

Disposition Strategies

Management uses market information to evaluate dispositions.  Factors When evaluating potential dispositions,the Operating Partnership generally considers in deciding whether to dispose of its properties include the following:following factors:

•                  potential increases in new construction;low barrier-to-entry (high supply);

•                  submarkets that will underperform the average performance of the portfolio in the mid and long-term;weak economic predictors (low demand);

•                  markets where the Operating Partnership does not intend to establish long-term concentrations; and

•                  age or location of a particular property.property; and

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

The Operating Partnership will reinvestgenerally reinvests the proceeds received from property dispositions primarily to fund property acquisitions as well as fundachieve its acquisition and development activities.strategies.  In addition, when feasible, the Operating Partnership may structure these transactions as tax deferred exchanges.

Financing Strategies

The Operating Partnership’s “Consolidated Debt-to-Total Market Capitalization Ratio” as of December 31, 20032004 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 interests/units; and (iii) the liquidation value of all perpetual preference interests/units outstanding.

Capitalization as of December 31, 20036

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Convertible Preference Units, Preference Interests
and Junior Preference Units
as of December 31, 2003

$150.0 million and received net proceeds of approximately $145.3 million.

•                  EQR issued 3,249,555 Common Shares pursuant to its Share Incentive Plans and received net proceeds of approximately $68.4 million.

•                  EQR issued 289,274 Common Shares pursuant to its Employee Share Purchase Plan and received net proceeds of approximately $6.3 million.

During 2002, EQR contributed all of the net proceeds, as discussed below, to the Operating Partnership in exchange for OP Units:

•                  EQR issued 1,435,115 Common Shares pursuant to its Share Incentive Plans and received net proceeds of approximately $29.6 million.

•                  EQR issued 324,238 Common Shares pursuant to its Employee Share Purchase Plan and received net proceeds of approximately $7.4 million.

•                  EQR issued 31,354 Common Shares pursuant to its Share Purchase -– DRIP Plan and received net proceeds of approximately $0.9 million.

•                  EQR issued 41,407 Common Shares pursuant to its Dividend Reinvestment – DRIP Plan and received net proceeds of approximately $1.2 million.

•                  EQR repurchased 5,092,300 of its Common Shares on the open market at an average price of $22.58 per share.  The purchases were made between October 1 and October 22, 2002.  EQR paid approximately $115.0 million in connection therewith.  These shares were subsequently retired.  Concurrent with this transaction, the Operating Partnership repurchased and retired 5,092,300 OP Units previously issued to EQR.

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During 2001, EQR contributed all of the net proceeds, as discussed below, to the Operating Partnership in exchange for OP Units:

•EQR issued 3,187,217 Common Shares pursuant to its Share Incentive Plans and received net proceeds of approximately $65.4 million.

•EQR issued 310,261 Common Shares pursuant to its Employee Share Purchase Plan and received net proceeds of approximately $6.9 million.

•EQR issued 33,106 Common Shares pursuant to its Share Purchase - DRIP Plan and received net proceeds of approximately $0.9 million.

•EQR issued 42,649 Common Shares pursuant to its Dividend Reinvestment – DRIP Plan and received net proceeds of approximately $1.2 million.

In February 1998, EQR filed and the SEC declared effective a Form S-3 Registration Statement to register $1.0 billion of equity securities.  In addition, EQR carried over $272.4 million related to a prior registration statement.  As of February 4, 2004,2, 2005, $956.5 million in equity securities remained available for issuance under this registration statement.  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).

Cumulative through December 31, 2003,2004, a subsidiary of ERPOP issued and has outstanding various series of Preference Interests (the “Preference Interests”) with an equity value of $246.0$206.0 million receiving net proceeds of $239.9$200.9 million.

Debt Offerings For the Years Ended December 31, 2004, 2003 2002 and 20012002

During 2004:

•The Operating Partnership issued $300.0 million of five-year 4.75% redeemable unsecured fixed rate notes (the “June 2009 Notes”) in a public debt offering in June 2004.  The June 2009 Notes were issued at a discount, which is being amortized over the life of the notes on a straight-line basis.  The June 2009 Notes are due June 15, 2009 with interest payable semiannually in arrears on June 1 and December 1, commencing December 1, 2004.The Operating Partnership received net proceeds of approximately $296.8 million in connection with this issuance.

•The Operating Partnership issued $500.0 million of ten-year 5.25% redeemable unsecured fixed rate notes (the “September 2014 Notes”) in a public debt offering in September 2004.  The September 2014 Notes were issued at a discount, which is being amortized over the life of the notes on a straight-line basis.  The September 2014 Notes are due September 15, 2014 with interest payable semiannually in arrears on September 1 and March 1, commencing March 1, 2005.The Operating Partnership received net proceeds of approximately $496.1 million in connection with this issuance.

•The Operating Partnership received $100.0 million as an initial draw on a $300.0 million floating rate loan in July 2004.  The loan was paid off in full and terminated in September 2004.

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During 2003:

•                  The Operating Partnership issued $400.0 million of ten-year 5.20% redeemable unsecured fixed rate notes (the “April 2013 Notes”) in a public debt offering in March 2003.  The April 2013 Notes were issued at a discount, which is being amortized over the life of the notes on a straight-line basis.  The April 2013 Notes are due April 1, 2013.  The annual2013 with interest rate on the April 2013 Notes is 5.20%, which is payable semiannually in arrears on April 1 and October 1, commencing October 1, 2003.  The Operating Partnership received net proceeds of approximately $397.5 million in connection with this issuance.

During 2002:

•                  The Operating Partnership issued $400.0 million of ten-year 6.625% redeemable unsecured fixed rate notes (the “March 2012 Notes”) in a public debt offering in March 2002.  The March 2012 Notes were issued at a discount, which is being amortized over the life of the notes on a straight-line basis.  The March 2012 Notes are due March 15, 2012.  The annual2012 with interest rate on the March2012 Notes is 6.625%, which is payable semiannually in arrears on September 15 and March 15, commencing September 15, 2002.  The Operating Partnership received net proceeds of approximately $394.5 million in connection with this issuance.

•                  The Operating Partnership issued $50.0 million of five-year 4.861% redeemable unsecured fixed rate notes (the “November 2007 Notes”) in a public debt offering in November 2002.  The November 2007 Notes are due November 30, 2007.  The annual2007 with interest rate on the November2007 Notes is 4.861%, which is payable semiannually in arrears on May 30 and November 30, commencing May 30, 2003.  The Operating Partnership received net proceeds of approximately $49.9 million in connection with this issuance.

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During 2001:

•The Operating Partnership issued $300.0 million of redeemable unsecured fixed rate notes (the “March 2011 Notes”) in a public debt offering in March 2001.  The March 2011 Notes were issued at a discount, which is being amortized over the life of the notes on a straight-line basis.  The March 2011 Notes are due March 2, 2011.  The annual interest rate on the March2011 Notes is 6.95%, which is payable semiannually in arrears on September 2 and March 2, commencing September 2, 2001.The Operating Partnership received net proceeds of approximately $297.4 million in connection with this issuance.

In June 2003, the Operating Partnership filed and the SEC declared effective a Form S-3 registration statement to register $2.0 billion of debt securities.  In addition, the Operating Partnership carried over $280.0 million related to a prior registration statement.  As of February 4, 2004, $2.282, 2005, $1.48 billion in debt securities remained available for issuance under this registration statement.

Credit Facilities

In May 2002, the Operating Partnership obtained a new three-year $700.0 million unsecured revolving credit facility maturing May 29, 2005.  The new line of credit replaced the $700.0 million unsecured revolving credit facility that was scheduled to expire in August 2002.  The prior existing revolving credit facility was terminated upon the closing of the new facility.  Advances under the new 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 upon bids received from the lending group.  As of December 31, 2003, $10.02004, $150.0 million was outstanding and $56.7$65.4 million was restricted (dedicated to support letters of credit and not available for borrowing) on the line of credit.credit facility.  During the year ended December 31, 2003,2004, the weighted average interest rate on borrowings under the line of credit was 1.85%1.73%.

The Operating Partnership is currently negotiating a new credit facility to replace or expand its existing facility and fully expects to obtain this at current or improved terms in March or April 2005.

Business Combinations

In January 2002, the Company sold the former Globe Business Resources, Inc. (“Globe”) furniture rental business it acquired in July 2000 for approximately $30.0 million in cash, which approximated the net book value at the sale date.  The Company has retained ownership of the former Globe short-term furnished housing business, which is now known as Equity Corporate Housing (“ECH”).

For the year ended December 31, 2002, the Company recorded approximately $17.1 million of asset impairment charges related to ECH.  Following the guidance in SFAS No. 142, these charges were the result of the Company’s decision to reduce the carrying value of ECH to $30.0 million, given the continued weakness in the economy and management’s expectations for near-term performance and were determined based upon a discounted cash flow analysis of the business.  This impairment loss is reflected on the consolidated statements of operations as impairment on corporate housing business and on the consolidated balance

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Item 2.2.  The Properties

As of December 31, 2003,2004, the Operating Partnership, owneddirectly or hadindirectly through investments in 968title holding entities, owned all or a portion of 939 properties in 3432 states and the District of Columbia consisting of 207,506200,149 units.  The Operating Partnership’s properties are more fully described as follows:

The properties currently in various stages of development at December 31, 20032004 are included in the following table.

CONSOLIDATED DEVELOPMENT PROJECTS as of December 31, 20032004

(Amounts in millionsthousands except for project and unit amounts)