FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the ~~quarterly period ended~~Quarterly Period Ended MARCH 31, 2003~~SEPTEMBER 30, 2002~~
OR
OR

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

~~Commission File Number: 0-24920~~

~~ERP OPERATING LIMITED PARTNERSHIP~~
~~(Exact name of registrant as specified in its charter)~~

~~Illinois~~		~~36-3894853~~

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~~I.R.S. Employer Identification No.)

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

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

http://www.equityapartments.com
(Registrant’s web site)

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

~~http://www.equityapartments.com~~
~~(Registrant's web site)~~

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

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

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)

September 30,
2002
December 31,
2001

ASSETS
Investment in real estate
Land $ 1,854,750 $ 1,840,170
Depreciable property 11,228,526 11,096,847
Construction in progress 124,811 79,166

13,208,087 13,016,183
Accumulated depreciation (2,026,010 ) (1,718,845 )

Investment in real estate, net of accumulated depreciation 11,182,077 11,297,338

Real estate held for disposition

—

3,371

Cash and cash equivalents 21,756 51,603
Investments in unconsolidated entities 435,701 397,237
Rents receivable 2,951 2,400
Deposits — restricted 168,108 218,557
Escrow deposits — mortgage 58,343 76,700
Deferred financing costs, net 32,881 27,011
Rental furniture, net — 20,168
Property and equipment, net — 3,063
Goodwill, net 30,000 47,291
Other assets 66,379 90,886

Total assets $ 11,998,196 $ 12,235,625

LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 3,088,798 $ 3,286,814
Notes, net 2,446,779 2,260,944
Line of credit 35,000 195,000
Accounts payable and accrued expenses 139,268 108,254
Accrued interest payable 67,725 62,360
Rents received in advance and other liabilities 71,037 83,005
Security deposits 46,250 47,644
Distributions payable 143,008 141,832

Total liabilities 6,037,865 6,185,853

Commitments and contingencies
Minority Interests — Partially Owned Properties 10,568 4,078

Partners' capital:
Preference Units 946,544 966,671
Preference Interests 246,000 246,000
Junior Preference Units 5,846 5,846
General Partner 4,464,081 4,506,097
Limited Partners 358,729 379,898
Deferred compensation (26,407 ) (25,778 )
Accumulated other comprehensive loss (45,030 ) (33,040 )

Total partners' capital 5,949,763 6,045,694

Total liabilities and partners' capital $ 11,998,196 $ 12,235,625

March 31,
2003

December 31,
2002

ASSETS

Investment in real estate

Land

$
1,807,226

$
1,803,577

Depreciable property

11,227,980

11,240,245

Construction in progress

2,428

2,441

13,037,634

13,046,263

Accumulated depreciation

(2,194,190
)
(2,112,017
)
Investment in real estate, net of accumulated depreciation

10,843,444

10,934,246

Cash and cash equivalents

310,309

29,875

Investments in unconsolidated entities

515,741

509,789

Rents receivable

1,410

2,926

Deposits – restricted

173,121

141,278

Escrow deposits – mortgage

44,688

50,565

Deferred financing costs, net

33,780

32,144

Goodwill, net

30,000

30,000

Other assets

78,277

80,094

Total assets

$
12,030,770

$
11,810,917

LIABILITIES AND PARTNERS’ CAPITAL

Liabilities:

Mortgage notes payable

$
2,901,117

$
2,927,614

Notes, net

2,854,319

2,456,085

Line of credit

—

140,000

Accounts payable and accrued expenses

66,234

64,369

Accrued interest payable

64,987

63,151

Rents received in advance and other liabilities

167,641

165,095

Security deposits

45,192

45,333

Distributions payable

141,413

140,844

Total liabilities

6,240,903

6,002,491

Commitments and contingencies

Minority Interests – Partially Owned Properties

9,395

9,811

Partners’ capital:

Preference Units

946,076

946,157

Preference Interests

246,000

246,000

Junior Preference Units

5,846

5,846

General Partner

4,288,627

4,306,873

Limited Partners

345,983

349,646

Deferred compensation

(9,832
)
(12,118
)
Accumulated other comprehensive loss

(42,228
)
(43,789
)
Total partners’ capital

5,780,472

5,798,615

Total liabilities and partners’ capital

$
12,030,770

$
11,810,917

See accompanying notes
2

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per OP Unit data)
(Unaudited)

Nine Months Ended
September 30,
Quarter Ended
September 30,

2002
2001
2002
2001

REVENUES
Rental income $ 1,504,274 $ 1,523,723 $ 501,853 $ 518,096
Fee and asset management 6,957 5,805 2,647 1,665
Interest and other income 11,551 17,685 2,235 6,166
Interest income—investment in mortgage notes — 8,786 — 23

Total revenues 1,522,782 1,555,999 506,735 525,950

EXPENSES
Property and maintenance 390,241 411,370 136,104 140,573
Real estate taxes and insurance 153,127 139,827 50,698 45,173
Property management 55,767 56,302 17,565 19,760
Fee and asset management 5,366 5,358 1,702 1,888
Depreciation 348,947 333,041 118,120 113,300
Interest:
Expense incurred, net 255,693 267,572 84,153 89,212
Amortization of deferred financing costs 4,344 4,328 1,362 1,524
General and administrative 33,000 23,604 10,673 9,525
Impairment on corporate housing business 17,122 — 17,122 —
Impairment on technology investments 872 7,968 291 1,193
Amortization of goodwill — 1,862 — 581

Total expenses 1,264,479 1,251,232 437,790 422,729

Income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle 258,303 304,767 68,945 103,221
Allocation to Minority Interests—Partially Owned Properties (1,584 ) (1,523 ) (259 ) (1,285 )
Income (loss) from investments in unconsolidated entities (1,746 ) 1,885 (1,979 ) 925
Net gain (loss) on sales of unconsolidated entities (626 ) 339 (5,872 ) —

Income before discontinued operations, extraordinary items and cumulative effect of change in accounting principle 254,347 305,468 60,835 102,861
Net gain on sales of discontinued operations 61,209 99,793 32,763 53,567
Discontinued operations, net 6,815 (49,241 ) 346 (56,257 )

Income before extraordinary items and cumulative effect of change in accounting principle 322,371 356,020 93,944 100,171
Extraordinary items (468 ) (22 ) — (128 )
Cumulative effect of change in accounting principle — (1,270 ) — —

Net income $ 321,903 $ 354,728 $ 93,944 $ 100,043

ALLOCATION OF NET INCOME:
Preference Units $ 57,568 $ 68,097 $ 19,055 $ 19,425

Preference Interests $ 15,158 $ 13,390 $ 5,052 $ 4,833

Junior Preference Units $ 243 $ 272 $ 81 $ 82

General Partner $ 229,867 $ 250,303 $ 64,473 $ 69,511
Limited Partners 19,067 22,666 5,283 6,192

Net income available to OP Units $ 248,934 $ 272,969 $ 69,756 $ 75,703

Net income per OP Unit—basic $ 0.84 $ 0.94 $ 0.24 $ 0.26

Net income per OP Unit—diluted $ 0.83 $ 0.93 $ 0.23 $ 0.26

Weighted average OP Units outstanding—basic 295,483 290,803 296,519 292,213

Weighted average OP Units outstanding—diluted 298,690 294,661 299,057 296,391

Distributions declared per OP Unit outstanding $ 1.2975 $ 1.2475 $ 0.4325 $ 0.4325

Quarter Ended March 31,

2003

2002

REVENUES

Rental income

$
480,219

$
485,144

Fee and asset management

2,488

1,718

Interest and other income

3,343

4,100

Total revenues

486,050

490,962

EXPENSES

Property and maintenance

132,281

122,578

Real estate taxes and insurance

52,433

49,771

Property management

15,901

19,490

Fee and asset management

1,770

1,862

Depreciation

117,816

110,992

Interest:

Expense incurred, net

80,809

84,331

Amortization of deferred financing costs

1,408

1,385

General and administrative

11,176

10,800

Impairment on technology investments

291

291

Total expenses

413,885

401,500

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

72,165

89,462

Allocation to Minority Interests – Partially Owned Properties

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

107

226

Net gain on sales of unconsolidated entities

1,212

5,657

Income before discontinued operations

73,369

94,539

Net gain on sales of discontinued operations

70,672

2,816

Discontinued operations, net

416

9,964

Net income

$
144,457

$
107,319

ALLOCATION OF NET INCOME:

Preference Units

$
19,046

$
19,391

Preference Interests

$
5,053

$
5,053

Junior Preference Units

$
81

$
81

General Partner

$
111,167

$
76,353

Limited Partners

9,110

6,441

Net income available to OP Units

$
120,277

$
82,794

Net income per OP Unit – basic

$
0.41

$
0.28

Net income per OP Unit – diluted

$
0.41

$
0.28

Weighted average OP Units outstanding – basic

292,949

294,106

Weighted average OP Units outstanding – diluted

297,646

297,229

Distributions declared per OP Unit outstanding

$
0.4325

$
0.4325

See accompanying notes
3

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Amounts in thousands except per OP Unit data)
(Unaudited)

Nine Months Ended
September 30,
Quarter Ended
September 30,

2002
2001
2002
2001

Comprehensive income:
Net income $ 321,903 $ 354,728 $ 93,944 $ 100,043
Other comprehensive income (loss)—derivative instruments:
Cumulative effect of change in accounting principle — (5,334 ) — —
Unrealized holding gains (losses) arising during the period (12,605 ) (20,451 ) (14,595 ) (17,055 )
Losses reclassified into earnings from other comprehensive income 615 397 230 171

Comprehensive income $ 309,913 $ 329,340 $ 79,579 $ 83,159

Quarter Ended March 31,

2003

2002

Comprehensive income:

Net income

$
144,457

$
107,319

Other comprehensive income – derivative instruments:

Unrealized holding gains arising during the period

137

4,176

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

1,194

3,033

Losses reclassified into earnings from other comprehensive income

230

168

Comprehensive income

$
146,018

$
114,696

See accompanying notes
4

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

Nine Months Ended September 30,

2002
2001

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 321,903 $ 354,728
Adjustments to reconcile net income to net cash provided by operating activities:
Allocation to Minority Interests — Partially Owned Properties 1,584 1,523
Cumulative effect of change in accounting principle — 1,270
Depreciation 353,206 349,313
Amortization of deferred financing costs 4,350 4,338
Amortization of discount on investment in mortgage notes — (2,256 )
Amortization of goodwill — 2,852
Amortization of discounts and premiums on debt (589 ) (1,424 )
Amortization of deferred settlements on interest rate protection agreements (238 ) 533
Impairment on corporate housing business 17,122 —
Impairment on furniture rental business — 60,000
Impairment on technology investments 872 7,968
Loss (income) from investments in unconsolidated entities 1,746 (1,885 )
Net gain on sales of discontinued operations (61,209 ) (99,793 )
Net loss (gain) on sales of unconsolidated entities 626 (339 )
Extraordinary items 468 22
Unrealized loss (gain) on interest rate protection agreements 383 (161 )
Book value of furniture sales and rental buyouts — 8,703
Compensation paid with Company Common Shares 15,158 12,298

Changes in assets and liabilities:

(Increase) in rents receivable (551 ) (2,069 )
Decrease in deposits — restricted 8,186 4,538
Additions to rental furniture — (17,827 )
Decrease (increase) in other assets 11,849 (17,124 )
Increase in accounts payable and accrued expenses 32,102 25,535
Increase in accrued interest payable 5,365 25,702
(Decrease) in rents received in advance and other liabilities (579 ) (7,628 )
(Decrease) increase in security deposits (1,037 ) 885

Net cash provided by operating activities 710,717 709,702

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate — acquisitions (232,097 ) (242,366 )
Investment in real estate — development (86,115 ) (54,344 )
Improvements to real estate (110,291 ) (107,263 )
Additions to non-real estate property (5,562 ) (5,210 )
Interest capitalized for real estate under development (6,952 ) (6,651 )
Interest capitalized for unconsolidated entities under development (12,492 ) (14,381 )
Proceeds from disposition of real estate, net 291,368 452,060
Proceeds from disposition of furniture rental business 28,741 —
Proceeds from disposition of unconsolidated entities 34,796 359
Proceeds from refinancing of unconsolidated entities 4,375 5,691
Investments in unconsolidated entities (97,582 ) (69,195 )
Distributions from unconsolidated entities 31,021 26,311
Decrease in deposits on real estate acquisitions, net 42,046 98,582
Decrease (increase) in mortgage deposits 19,605 (4,167 )
Business combinations, net of cash acquired (658 ) (8,231 )
Consolidation of previously Unconsolidated Properties — 52,841
Investment in property and equipment — (2,185 )
Principal receipts on investment in mortgage notes — 61,419
Other investing activities, net 192 (58 )

Net cash (used for) provided by investing activities (99,605 ) 183,212

Quarter Ended March 31,

2003

2002

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$
144,457

$
107,319

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

Allocation to Minority Interests – Partially Owned Properties

115

806

Depreciation

118,918

116,768

Amortization of deferred financing costs

1,408

1,391

Amortization of discounts and premiums on debt

(239
)
(327
)
Amortization of deferred settlements on interest rate protection agreements

(68
)
(101
)
Impairment on technology investments

291

291

(Income) from investments in unconsolidated entities

(107
)
(226
)
Net (gain) on sales of discontinued operations

(70,672
)
(2,816
)
Net (gain) on sales of unconsolidated entities

(1,212
)
(5,657
)
Debt extinguishments – prepayment premiums/fees

183

97

Unrealized (gain) on interest rate protection agreements

(44
)
(62
)
Compensation paid with Company Common Shares

4,445

4,964

Changes in assets and liabilities:

Decrease in rents receivable

1,516

1,045

(Increase) decrease in deposits – restricted

(2,283
)
14,133

Decrease in other assets

322

18,446

Increase (decrease) in accounts payable and accrued expenses

1,865

(7,498
)
Increase in accrued interest payable

1,836

9,963

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

(6,770
)
4,566

(Decrease) increase in security deposits

(141
)
287

Net cash provided by operating activities

193,820

263,389

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in real estate – acquisitions

(76,692
)
(26,100
)
Investment in real estate – development/other

(2,057
)
(24,338
)
Improvements to real estate

(33,602
)
(27,697
)
Additions to non-real estate property

(908
)
(3,004
)
Interest capitalized for real estate under development

—

(2,068
)
Interest capitalized for unconsolidated entities under development

(5,437
)
(3,816
)
Proceeds from disposition of real estate, net

190,906

31,722

Proceeds from disposition of furniture rental business

—

28,741

Proceeds from disposition of unconsolidated entities

1,213

11,317

Investments in unconsolidated entities

(4,227
)
(12,099
)
Distributions from unconsolidated entities

6,041

14,765

(Increase) in deposits on real estate acquisitions, net

(29,560
)
(6,288
)
Decrease in mortgage deposits

5,877

4,105

Business combinations, net of cash acquired

(18
)
(207
)
Other investing activities, net

—

193

Net cash provided by (used for) investing activities

51,536

(14,774
)
See accompanying notes
5

ERP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
(Unaudited)

Nine Months Ended
September 30,

2002
2001

CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs $ (10,495 ) $ (4,383 )
Mortgage notes payable:
Proceeds 104,572 59,312
Lump sum payoffs (283,681 ) (315,302 )
Scheduled principal repayments (24,351 ) (24,210 )
Prepayment premiums/fees (468 ) (201 )
Notes, net:
Proceeds 397,064 299,316
Lump sum payoffs (225,000 ) —
Scheduled principal repayments (4,669 ) (4,649 )
Line of credit:
Proceeds 368,500 436,491
Repayments (528,500 ) (791,953 )
(Payments) from settlement of interest rate protection agreements (1,534 ) (7,360 )
Proceeds from sale of OP Units 8,425 7,277
Proceeds from sale of Preference Interests — 48,500
Proceeds from exercise of EQR options 28,542 56,326
Redemption of Preference Units — (210,500 )
Payment of offering costs (170 ) (1,535 )
Distributions:
OP Units — General Partner (354,683 ) (218,632 )
Preference Units (57,919 ) (69,359 )
Preference Interests (15,185 ) (13,338 )
Junior Preference Units (243 ) (190 )
OP Units — Limited Partners (29,859 ) (19,738 )
Minority Interests — Partially Owned Properties (11,568 ) (31,970 )
Principal receipts on employee notes, net 263 219

Net cash (used for) financing activities (640,959 ) (805,879 )

Net (decrease) increase in cash and cash equivalents (29,847 ) 87,035
Cash and cash equivalents, beginning of period 51,603 23,772

Cash and cash equivalents, end of period $ 21,756 $ 110,807

SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 270,885 $ 270,849

Mortgage loans assumed through real estate acquisitions $ 14,000 $ 45,918

Mortgage loans (assumed) by purchaser in real estate and furniture rental business dispositions $ (8,840 ) $ (28,231 )

Transfers to real estate held for disposition $ — $ 4,102

Mortgage loans recorded as a result of consolidation of previously
Unconsolidated Properties $ — $ 301,502

Net (assets) liabilities recorded as a result of consolidation of previously Unconsolidated Properties $ — $ (20,839 )

Quarter Ended March 31,

2003

2002

CASH FLOWS FROM FINANCING ACTIVITIES:

Loan and bond acquisition costs

$
(3,153
)
$
(3,040
)
Mortgage notes payable:

Proceeds

48,680

20,772

Lump sum payoffs

(101,793
)
(18,267
)
Scheduled principal repayments

(8,285
)
(8,469
)
Prepayment premiums/fees

(183
)
(97
)
Notes, net:

Proceeds

398,816

397,064

Lump sum payoffs

—

(100,000
)
Scheduled principal repayments

(192
)
—

Line of credit:

Proceeds

172,000

245,000

Repayments

(312,000
)
(440,000
)
(Payments on) proceeds from settlement of interest rate protection agreements

(12,999
)
835

Proceeds from sale of OP Units

2,606

4,236

Proceeds from exercise of EQR options

4,270

9,777

Payment of offering costs

(71
)
(141
)
Distributions:

OP Units – General Partner

(117,242
)
(117,338
)
Preference Units

(19,048
)
(16,441
)
Preference Interests

(5,053
)
(5,080
)
Junior Preference Units

(81
)
(81
)
OP Units – Limited Partners

(9,645
)
(10,151
)
Minority Interests – Partially Owned Properties

(1,549
)
(9,120
)
Principal receipts on employee notes, net

—

85

Net cash provided by (used for) financing activities

35,078

(50,456
)

Net increase in cash and cash equivalents

280,434

198,159

Cash and cash equivalents, beginning of period

29,875

51,603

Cash and cash equivalents, end of period

$
310,309

$
249,762

SUPPLEMENTAL INFORMATION:

Cash paid during the period for interest

$
83,579

$
81,566

Mortgage loans assumed through real estate acquisitions

$
34,968

$
—

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

$
—

$
(1,680
)

Transfers to real estate held for disposition

$
—

$
3,505

See accompanying notes
6

ERP OPERATING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.                                      Business of the Company
~~1.    Business~~
ERP Operating Limited Partnership ~~("ERPOP"~~(“ERPOP”), an Illinois limited partnership, was formed in May 1993 to conduct the multifamily residential property business of Equity Residential ~~("EQR"~~(“EQR”). EQR is a Maryland real estate investment trust ~~("REIT"~~(“REIT”) formed onin March ~~31,~~ 1993 and is a fully integrated real estate company engaged in the acquisition, ownership, management and operation of multifamily ~~properties.~~properties.

EQR is the general partner of, and as of ~~September 30, 2002,~~March 31, 2003, owned an approximate 92.4% ownership interest in ERPOP. ~~The Company conducts substantially all of its business and owns substantially all of its assets through ERPOP.~~ ERPOP is, ~~in turn,~~ directly or indirectly, a partner, member or shareholder of numerous partnerships, limited liability companies and corporations which have been established primarily to own fee simple title to multifamily properties or to conduct property management activities and other businesses related to the ownership and operation of multifamily residential real estate. As used herein, the term ~~"Operating Partnership"~~“Operating Partnership” includes ERPOP and those entities owned or controlled by it. As used herein, the term ~~"Company"~~“Company” means EQR and the Operating Partnership.

As of ~~September 30, 2002,~~March 31, 2003, the Operating Partnership owned or had ~~interests~~investments in ~~a portfolio of 1,059 multifamily~~ 1,027properties ~~containing 227,426 apartment units located~~ in 36 states consisting of ~~the following:~~221,249 units. An ownership breakdown includes:

Number of
Properties
Number of
Units
Wholly Owned Properties 934 197,354
Partially Owned Properties (Consolidated) 36 6,931
Unconsolidated Properties 89 23,141

Total Properties 1,059 227,426

Number of
Properties

Number of
Units

Wholly Owned Properties

906

191,875

Partially Owned Properties (Consolidated)

36

6,931

Unconsolidated Properties

85

22,443

Total Properties

1,027

221,249

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 ~~nine~~three months ended ~~September 30, 2002~~March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2002.~~2003.

The balance sheet at December 31, ~~2001~~2002 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.
7

For further information, including definition of capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Operating ~~Partnership's~~Partnership’s annual report on Form 10-K for the year ended December 31, ~~2001.~~2002.
Other
        ~~In June 2001, the FASB issued SFAS No. 141,~~~~Business Combinations~~. SFAS No. 141 requires companies to account for all business combinations using the purchase method of accounting. SFAS No. 141 is effective for fiscal years beginning after December 15, 2001. The Operating Partnership adopted the standard effective January 1, 2002.
        ~~In June 2001, the FASB issued SFAS No. 142,~~~~Goodwill and Other Intangible Assets~~. SFAS No. 142 requires companies to eliminate the amortization of goodwill in favor of a periodic impairment based approach. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Operating Partnership adopted the standard effective January 1, 2002. See Note 16 for further discussion.
In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44 and 64,
7

Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other items, rescinds the automatic classification of costs incurred on debt extinguishment as extraordinary charges. Instead, gains and losses from debt extinguishment should only be classified as extraordinary if they meet the ~~"unusual~~“unusual and infrequently ~~occurring"~~occurring” criteria outlined in APB No. 30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Operating Partnership ~~will adopt~~adopted the standard effective January 1, 2003.
In January 2003, the FASB issued Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003 and apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. The Operating Partnership will adopt FIN No. 46 in the third quarter of 2003 but ~~does~~has not ~~expect it to~~yet determined the effect that adoption will have ~~a material impact~~ on its consolidated financial ~~condition~~position and results of operations.
3.    ~~Partners'~~                                      Partners’ Capital

The following table presents the changes in the Operating ~~Partnership's~~Partnership’s issued and outstanding units of limited partnership interest ("(“OP ~~Units"~~Units”) for the ~~nine months~~quarter ended ~~September 30, 2002:~~March 31, 2003:

~~2002~~2003
Operating ~~Partnership's~~Partnership’s OP Units outstanding at January 1,
~~294,818,566~~
293,396,124

Issued to General ~~Partner:~~Partner:

Conversion of Series E Preference Units
~~892,625~~
3,613
~~Conversion of Series G Preference Units~~ 70
~~Conversion of Series H Preference Units~~ ~~4,050~~
Employee Share Purchase Plan
~~278,655~~
126,273
~~Dividend Reinvestment—DRIP Plan~~ ~~41,407~~
~~Share Purchase—DRIP Plan~~ ~~31,347~~
Exercise of EQR options
~~1,385,584~~
218,980
Restricted EQR share grants, net
~~900,000~~
996,815

~~Issued to Limited Partners:~~

~~Issuance through acquisitions~~ ~~35,600~~
Operating ~~Partnership's~~Partnership’s OP Units outstanding at ~~September 30,~~March 31,
~~298,387,904~~
294,741,805

The limited partners of the Operating Partnership as of ~~September 30, 2002~~March 31, 2003 include various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units (the ~~"Limited Partners"~~“Limited Partners”) and own an approximate 7.6% ownership interest in ERPOP. Subject to applicable securities law restrictions, the Limited Partners may exchange their OP Units for EQR Common Shares on a one-for-one basis.
8

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~~Partnership’s issued and outstanding ~~"Preference Units"~~“Preference Units” as of ~~September 30, 2002~~March 31, 2003 and December 31, ~~2001:~~2002:

Amounts in thousands

Annual
Dividend
Rate per
Unit (1)

September 30,
2002
December 31,
2001
Preference Units:

9¹/8% Series B Cumulative Redeemable Preference Units; liquidation value $250 per unit; 500,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
22.81252

$
125,000

$
125,000

9¹/8% Series C Cumulative Redeemable Preference Units; liquidation value $250 per unit; 460,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
22.81252

115,000

115,000

8.60% Series D Cumulative Redeemable Preference Units; liquidation value $250 per unit; 700,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
21.50000

175,000

175,000

7.00% Series E Cumulative Convertible Preference Units; liquidation value $25 per unit; 2,563,614 and 3,365,794 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively

$
1.75000

64,090

84,145

7¹/4% Series G Convertible Cumulative Preference Units; liquidation value $250 per unit; 1,264,692 and 1,264,700 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively

$
18.12500

316,173

316,175

7.00% Series H Cumulative Convertible Preference Units, liquidation value $25 per unit; 51,228 and 54,027 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively

$
1.75000

1,281

1,351

8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
4.14500

50,000

50,000

7.625% Series L Cumulative Redeemable Preference Units; liquidation value $25 per unit; 4,000,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
1.90625

100,000

100,000

$
946,544

$
966,671

8

Annual
Dividend
Rate per
Unit(1)

Amounts in thousands
March
31, 2003

December
31, 2002
Preference Units:

9 1/8% Series B Cumulative Redeemable Preference Units; liquidation value $250 per unit; 500,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
22.81252

$
125,000

$
125,000

9 1/8% Series C Cumulative Redeemable Preference Units; liquidation value $250 per unit; 460,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
22.81252

115,000

115,000

8.60% Series D Cumulative Redeemable Preference Units; liquidation value $250 per unit; 700,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
21.50000

175,000

175,000

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

$
1.75000

63,622

63,703

7 ¼% Series G Convertible Cumulative Preference Units; liquidation value $250 per unit; 1,264,692 units issued and outstanding at March 31, 2003 and December 31, 2002

$
18.12500

316,173

316,173

7.00% Series H Cumulative Convertible Preference Units; liquidation value $25 per unit; 51,228 units issued and outstanding at March 31, 2003 and December 31, 2002

$
1.75000

1,281

1,281

8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
4.14500

50,000

50,000

7.625% Series L Cumulative Redeemable Preference Units; liquidation value $25 per unit; 4,000,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
1.90625

100,000

100,000

$
946,076

$
946,157

(1)
Dividends on all series of Preference Units are payable quarterly at various pay dates. Dividend rates listed for Series B, C, D and G are Preference Unit rates and the equivalent depositary unit annual dividend rates are $2.281252, $2.281252, $2.15 and $1.8125, respectively.
9
The following table presents the issued and outstanding ~~"Preference Interests"~~“Preference Interests” as of ~~September 30, 2002~~March 31, 2003 and December 31, ~~2001:~~2002:
9

Amounts in thousands

Annual
Dividend
Rate per
Unit (1)

September 30,
2002
December 31,
2001
Preference Interests:

8.00% Series A Cumulative Redeemable Preference Interests; liquidation value $50 per unit; 800,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
4.0000

$
40,000

$
40,000

8.50% Series B Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,100,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
4.2500

55,000

55,000

8.50% Series C Cumulative Redeemable Preference Units; liquidation value $50 per unit; 220,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
4.2500

11,000

11,000

8.375% Series D Cumulative Redeemable Preference Units; liquidation value $50 per unit; 420,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
4.1875

21,000

21,000

8.50% Series E Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
4.2500

50,000

50,000

8.375% Series F Cumulative Redeemable Preference Units; liquidation value $50 per unit; 180,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
4.1875

9,000

9,000

7.875% Series G Cumulative Redeemable Preference Units; liquidation value $50 per unit; 510,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
3.9375

25,500

25,500

7.625% Series H Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 190,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
3.8125

9,500

9,500

7.625% Series I Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 270,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
3.8125

13,500

13,500

7.625% Series J Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 230,000 units issued and outstanding at September 30, 2002 and December 31, 2001

$
3.8125

11,500

11,500

$
246,000

$
246,000

Annual
Dividend
Rate per
Unit(1)

Amounts in thousands
March
31, 2003

December
31, 2002
Preference Interests:

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

$
4.0000

$
40,000

$
40,000

8.50% Series B Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,100,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
4.2500

55,000

55,000

8.50% Series C Cumulative Redeemable Preference Units; liquidation value $50 per unit; 220,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
4.2500

11,000

11,000

8.375% Series D Cumulative Redeemable Preference Units; liquidation value $50 per unit; 420,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
4.1875

21,000

21,000

8.50% Series E Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
4.2500

50,000

50,000

8.375% Series F Cumulative Redeemable Preference Units; liquidation value $50 per unit; 180,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
4.1875

9,000

9,000

7.875% Series G Cumulative Redeemable Preference Units; liquidation value $50 per unit; 510,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
3.9375

25,500

25,500

7.625% Series H Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 190,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
3.8125

9,500

9,500

7.625% Series I Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 270,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
3.8125

13,500

13,500

7.625% Series J Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 230,000 units issued and outstanding at March 31, 2003 and December 31, 2002

$
3.8125

11,500

11,500

$
246,000

$
246,000

(1)
Dividends on all series of Preference Interests are payable quarterly on March 25^th, June 25^th, September 25^th,and December 25^thof each year.
10
The following table presents the Operating ~~Partnership's~~Partnership’s issued and outstanding Junior Convertible Preference Units (the ~~"Junior~~“Junior Preference ~~Units"~~Units”) as of ~~September 30, 2002~~March 31, 2003 and December 31, ~~2001:~~2002:
10

Amounts in thousands

Annual
Dividend
Rate per
Unit (1)

September 30,
2002
December 31,
2001
Junior Preference Units:

Series A Junior Convertible Preference Units; liquidation value $100 per unit; 56,616 units issued and outstanding at September 30, 2002 and December 31, 2001

$
5.46934

$
5,662

$
5,662

Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at September 30, 2002 and December 31, 2001

$
2.00000

184

184

$
5,846

$
5,846

Annual
Dividend
Rate per
Unit(1)

Amounts in thousands
March
31, 2003

December
31, 2002
Junior Preference Units:

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

$
5.46934

$
5,662

$
5,662

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

$
2.00000

184

184

$
5,846

$
5,846

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

4.                                      Real Estate ~~Acquisitions~~

During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the Operating Partnership acquired the entire equity interest in the ~~ten~~three properties listed below from unaffiliated parties ~~and one additional unit at an existing property,~~ for a total purchase price of ~~$245.4~~$111.5 million.
Date Acquired
Property
Location
Number of Units
Acquisition Price
(in thousands)
03/28/02 Isles at Sawgrass Sunrise, FL 368 $ 26,000
04/24/02 Center Pointe Beaverton, OR 264 19,100
04/30/02 Mira Flores Palm Beach Gardens, FL 352 29,250
05/15/02 Gramercy Park Houston, TX 384 26,000
05/31/02 Enclave at Winston Park Coconut Creek, FL 278 25,450
05/31/02 St. Andrews at Winston Park Coconut Creek, FL 284 25,450
06/21/02 Westside Villas VII Los Angeles, CA 53 15,250
07/17/02 Savannah Lakes Boynton Beach, FL 466 37,400
08/01/02 Cove at Fisher's Landing Vancouver, WA 253 17,800
08/08/02 Avon Place (condo unit) Avon, CT 1 69
08/09/02 Montevista Dallas, TX 350 23,675

3,053 $ 245,444

11
Date
Acquired

Property

Location

Number of
Units

Acquisition Price
(in thousands)

01/30/03

The Reserve @ Eisenhower

Alexandria, VA

226

$
41,000

02/14/03

Artisan Square

Northridge, CA

140

27,466

03/05/03

LaSalle

Beaverton, OR

554

43,000

920

$
111,466

5.                                      Real Estate Dispositions

During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the Operating Partnership disposed of the ~~thirty-five~~seventeen properties listed below to unaffiliated parties. The Operating Partnership recognized a net gain on sales of discontinued operations of approximately ~~$61.2~~$70.7 million and a net ~~loss~~gain on sales of unconsolidated entities of approximately ~~$0.6~~$1.2 million.
Date Disposed
Property
Location
Number
of Units
Disposition
Price
(in thousands)
01/17/02 Ravenwood Mauldin, SC 82 $ 2,425
01/24/02 Larkspur I & II Moraine, OH 45 899
01/31/02 Springwood II Austintown, OH 43 900
02/21/02 Scottsdale Courtyards Scottsdale, AZ 274 26,500
04/11/02 Applegate Lordstown, OH 39 723
04/11/02 Applerun Warren, OH 48 1,054
04/11/02 Brunswick Cortland, OH 59 1,424
05/01/02 The Landings Memphis, TN 292 10,300
05/03/02 Waterbury Clarksville, TN 54 1,385
05/09/02 Arboretum Tucson, AZ 496 25,000
05/09/02 Orange Grove Village Tucson, AZ 400 17,400
05/09/02 Village at Tanque Verde Tucson, AZ 217 9,100
05/14/02 Canyon Crest Views Riverside, CA 178 20,450
05/14/02 Merrimac Woods Costa Mesa, CA 123 12,950
05/14/02 Sierra Canyon Santa Clarita, CA 232 23,500
05/15/02 Meadowood Wellsville, OH 40 812
05/23/02 Pine Meadow Greensboro, NC 204 7,550
05/23/02 Palms at South Shore League City, TX 240 12,850
05/31/02 California Gardens Jacksonville, FL 71 1,468
05/31/02 Westcreek Jacksonville, FL 86 2,282
06/19/02 Apple Run Hillsdale, MI 39 1,047
07/02/02 Cedar Ridge Arlington, TX 121 5,500
07/02/02 Fielder Crossing Arlington, TX 119 4,100
07/09/02 Vacant Land Detroit, MI — 10
07/11/02 Stonehenge Tecumseh, MI 48 1,238
07/11/02 Ashgrove Marshall, MI 51 1,314
07/12/02 Mill Village Randolph, MA 311 31,800
07/18/02 Meadowood I Jackson, MI 47 1,450
07/24/02 Mountain Run Albuquerque, NM 472 21,500
07/30/02 Celebration at Westchase Houston, TX 367 16,150
07/30/02 Pleasant Ridge Arlington, TX 63 2,605
07/31/02 Cedargate I & II Bowling Green, KY 117 3,020
08/15/02 The Cedars Charlotte, NC 360 14,800
08/29/02 Bourbon Square (Retail) Palatine, IL — 1,200
09/30/02 River Bend Tampa, FL 296 11,200
Various Four Lakes Condo Units Lisle, IL 77 8,191

Wholly Owned Properties 5,711 304,097

01/31/02 Mount Laurel Crossing* Mt. Laurel, NJ 296 11,317
04/23/02 Foxton* Seymour, IN 39 —
08/13/02 Chase Knolls* Los Angeles, CA — 23,479

Unconsolidated Properties 335 34,796

Total 6,046 $ 338,893

Date
Disposed

Property

Location

Number Of
Units

Disposition
Price
(in thousands)

01/14/03

Strawberry Place

Plant City, FL

55

$
1,400

01/14/03

Smoketree Polo Club

Indio, CA

288

18,900

01/29/03

Amberwood I

Lake City, FL

50

1,175

01/30/03

Emerald Place

Bermuda Dunes, CA

240

20,125

01/30/03

Rolido Parque

Houston, TX

369

14,660

02/27/03

Fox Hill Commons

Vernon, CT

74

4,700

02/27/03

The Landings

Winter Haven, FL

60

1,475

02/27/03

Morningside

Titusville, FL

183

3,980

03/04/03

Colony Woods

Birmingham, AL

414

25,000

03/04/03

Hearthstone

San Antonio, TX

252

7,700

03/04/03

Northgate Village

San Antonio, TX

264

10,150

03/19/03

Lincoln Green I, II & III

San Antonio, TX

680

24,900

03/20/03

Meadows on the Lake

Birmingham, AL

200

10,900

03/20/03

Meadows in the Park

Birmingham, AL

200

10,900

03/20/03

Shoal Run

Birmingham, AL

276

14,350

03/31/03

Colony Place

Fort Myers, FL

300

20,600

Various

Four Lakes Condo Units

Lisle, IL

26

3,161

Wholly Owned Properties

3,931

194,076

02/28/03

Kings Crossing I*

Jacksonville, FL

69

963

Unconsolidated Properties

69

963

Total

4,000

$
195,039

11

*
Represents the Operating ~~Partnership's~~Partnership’s share of the net disposition proceeds.
12
6.                                      Commitments to Acquire/Dispose of Real Estate

As of ~~September 30, 2002,~~March 31, 2003, the Operating Partnership had entered into separate agreements to acquire two multifamily properties containing ~~581~~719 units from unaffiliated parties. The Operating Partnership expects a combined purchase price of approximately ~~$44.5 million, including the assumption of mortgage indebtedness of approximately $18.4~~$114.5 million.

As of ~~September 30, 2002,~~March 31, 2003, in addition to the properties that were subsequently disposed of as discussed in Note ~~18,~~19, the Operating Partnership had entered into separate agreements to dispose of ~~seventeen~~twenty-four multifamily properties containing ~~3,338~~4,079 units to unaffiliated parties. The Operating Partnership expects a combined disposition price of approximately ~~$148.9~~$186.2 million.

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

The Operating Partnership has ~~entered into~~co-invested in various ~~agreements~~properties with unrelated third ~~party companies.~~parties. The following table summarizes the Operating ~~Partnership's~~Partnership’s investments in unconsolidated entities as of ~~September 30, 2002~~March 31, 2003 (amounts in thousands except for project and unit amounts):

Institutional
Joint
Ventures

Stabilized
Development
Projects(1)

Projects
Under
Development

Lexford/
Other

Totals

Total projects

45

12

17

22

96
(2)

Total units

10,846

3,805

4,659

2,704

22,014
(2)

Operating Partnership’s percentage ownership of outstanding debt

25.0
%
100.0
%
100.0
%
11.1
%

Operating Partnership’s share of outstanding debt(4)

$
121,200

$
295,103

$
505,587
(3)
$
5,386

$
927,276

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

Total projects 45 13 15 26 99 (2)

Total units 10,846 4,116 4,445 3,313 22,720 (2)

ERPOP's percentage ownership of outstanding debt 25.0 % 97.4 % 100.0 % 21.1 %
ERPOP's share of outstanding debt (4) $ 121,200 $ 335,810 $ 317,898 (3) $ 14,702 $ 789,610
(1)
The Operating Partnership determines a project to be stabilized once it has maintained an average physical occupancy of 90% or more for a three-month period.

(2)
Includes ~~eleven~~twelve projects under development ~~consisting of 3,216~~containing 3,223 units, which are not included in the
12

Operating ~~Partnership's~~Partnership’s property/unit counts at ~~September 30, 2002.~~March 31, 2003. Totals ~~also~~ exclude Fort Lewis Military Housing consisting of 1one property and ~~3,637 units.~~

3,652 units, which is not accounted for under the equity method of accounting. The Fort Lewis Military Housing is included in the Operating Partnership’s property/unit counts at March 31, 2003.
(3)
A total of ~~$609.4~~$763.5 million is available for funding under this construction debt, of which ~~$317.9~~$505.6 million was funded and outstanding at ~~September 30, 2002.~~

March 31, 2003.
(4)
As of ~~November 4, 2002,~~April 30, 2003, the Operating Partnership has funded ~~$54.5~~$51.0 million as additional collateral on selected debt (see Note 8). All remaining debt is non-recourse to EQR and the Operating Partnership.

Investments in unconsolidated entities include the Unconsolidated Properties as well as various development properties under construction or pending construction. The Operating Partnership does not consolidate these entities as it does not have sole control of the major decisions (such as sale and/or financing/refinancing). The Operating ~~Partnership's~~Partnership’s common equity ownership interests in these entities range from 4.5% to ~~57.0%~~50.0% at ~~September 30, 2002.~~March 31, 2003.

These investments are accounted for utilizing the equity method of accounting. Under the equity method of accounting, the net equity investment of the Operating Partnership is reflected on the consolidated balance sheets and after the project is completed, the consolidated statements of operations include the Operating ~~Partnership's~~Partnership’s share of net income or loss from the unconsolidated
13

entity. Prior to the project being completed, the Operating Partnership capitalizes interest on its equity contribution in accordance with the provisions of SFAS No. 58,Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method. During the ~~nine months~~quarters ended ~~September 30,~~March 31, 2003 and 2002, ~~and 2001,~~ the Operating Partnership capitalized ~~$12.5~~$5.4 million and ~~$14.4~~$3.8 million, respectively, in interest cost related to its unconsolidated development projects (which reduced interest expense incurred in the consolidated statements of operations).

The Operating Partnership generally contributes between 25% and 35% of the project cost of the unconsolidated projects under development, with the remaining cost financed through third-party construction mortgages.
8.    ~~Deposits—~~                                      Deposits - - Restricted

As of ~~September 30, 2002,~~March 31, 2003, deposits-restricted totaled ~~$168.1~~$173.1 million and primarily included the following:
•
~~deposits~~Deposits in the amount of ~~$54.5~~$51.0 million held in third party escrow accounts to provide collateral for third party construction financing in connection with unconsolidated development projects;

•
~~approximately $47.5~~Approximately $55.0 million in tax-deferred (1031) exchange proceeds; and

•
~~approximately $66.1~~Approximately $67.1 million for resident security, utility, and other deposits.
9.                                      Mortgage Notes Payable

As of ~~September 30, 2002,~~March 31, 2003, the Operating Partnership had outstanding mortgage indebtedness of approximately ~~$3.1~~$2.9 billion.

During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the Operating Partnership:
•
~~repaid $308.0~~Repaid $110.1 million of mortgage loans;

•
~~assumed $14.0~~Assumed $35.0 million of mortgage debt on ~~one property~~certain properties in connection with ~~its acquisition;~~

their acquisitions; and
•
~~disposed of $8.8 million of mortgage debt assumed by the purchaser in connection with the disposition of certain properties and the furniture rental business;~~

•
~~obtained $74.6 million in construction loans on certain properties; and~~

•
~~obtained $30.0~~Obtained $48.7 million of mortgage loans on certain properties.

As of ~~September 30, 2002,~~March 31, 2003, scheduled maturities for the Operating ~~Partnership's~~Partnership’s outstanding mortgage
13

indebtedness were at various dates through October 1, 2033. ~~The~~At March 31, 2003, the interest rate range on the Operating ~~Partnership's~~Partnership’s mortgage debt was ~~1.55%~~1.09% to 12.465% ~~at September 30, 2002.~~. During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the weighted average interest rate on the Operating Partnership’s mortgage debt was ~~6.37%~~6.02%.
10.                               Notes

As of ~~September 30, 2002,~~March 31, 2003, the Operating Partnership had outstanding unsecured notes of approximately ~~$2.4 billion.~~$2.9 billion net of a $7.0 million discount and including an $8.3 million premium.

During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the Operating Partnership:
•
~~issued~~                  Issued $400.0 million of ten-year ~~6.625% fixed rate~~5.20% fixed-rate public notes, receiving net proceeds of ~~$394.5 million;~~

•
~~repaid $100.0 million of 9.375% fixed rate public notes at maturity;~~

•
~~repaid $125.0 million of 7.95% fixed rate pubic notes at maturity; and~~
14$397.5 million.
•
~~repaid $4.7 million of other unsecured notes.~~

As of ~~September 30, 2002,~~March 31, 2003, scheduled maturities for the Operating ~~Partnership's~~Partnership’s outstanding notes ~~are~~were at various dates through 2029. ~~The~~At March 31, 2003, the interest rate range on the Operating ~~Partnership's~~Partnership’s notes was 4.75% to 7.75% ~~at September 30, 2002.~~. During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the weighted average interest rate on the Operating Partnership’s notes was ~~6.47%~~5.73%.
11.                               Line of Credit
~~On May 30, 2002, the~~
The Operating Partnership ~~obtained~~has a ~~new three-year $700.0 million unsecured~~ revolving credit facility ~~maturing May 29, 2005. The new line~~with potential borrowings of ~~credit replaced the Operating Partnership's~~up to $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.million. As of ~~September 30, 2002, $35.0 million was~~March 31, 2003, no amounts were outstanding and ~~$83.3~~$53.3 million was restricted (dedicated to support letters of credit and not available for borrowing) on the line of credit. During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the weighted average interest rate ~~on borrowings under~~was 1.85%. EQR has guaranteed the ~~former and new lines~~Operating Partnership’s line of credit ~~was 2.49%.~~up to the maximum amount and for the full term of the facility.
12.                               Derivative Instruments ~~and Hedging Activities~~

The following table summarizes the ~~Operating Partnership's~~ consolidated derivative instruments ~~and hedging activities~~ at ~~September 30, 2002 (amounts~~March 31, 2003 (dollar amounts are in thousands):

Cash Flow
Hedges
Fair Value
Hedges
Forward Starting Swaps
Offsetting
Receive Floating
Swaps/Caps
Offsetting Pay
Floating
Swaps/Caps

Current Notional Balance $ 400,000 $ 220,000 $ 250,000 $ 255,117 $ 255,117
Lowest Possible Notional $ 400,000 $ 220,000 $ 250,000 $ 251,410 $ 251,410
Highest Possible Notional $ 400,000 $ 220,000 $ 250,000 $ 431,444 $ 431,444
Lowest Interest Rate 3.65125 % 5.33250 % 5.06375 % 4.52800 % 4.45800 %
Highest Interest Rate 5.81000 % 7.25000 % 5.42600 % 6.00000 % 6.00000 %
Earliest Maturity Date 2003 2005 2013 2003 2003
Latest Maturity Date 2005 2011 2013 2007 2007
Estimated Asset (Liability)
Fair Value $ (16,244 ) $ 16,567 $ (9,174 ) $ (4,708 ) $ 4,529

Cash Flow
Hedges

Fair Value
Hedges

Interest
Rate
Caps

Offsetting
Receive
Floating
Swaps/Caps

Offsetting
Pay
Floating
Swaps/Caps

Current Notional Balance

$
400,000

$
120,000

$
37,000

$
255,119

$
255,119

Lowest Possible Notional

$
400,000

$
120,000

$
37,000

$
251,410

$
251,410

Highest Possible Notional

$
400,000

$
120,000

$
37,000

$
431,444

$
431,444

Lowest Interest Rate

3.65125
%
7.25000
%
6.5
%
4.52800
%
4.45800
%
Highest Interest Rate

5.81000
%
7.25000
%
6.5
%
6.00000
%
6.00000
%
Earliest Maturity Date

2003

2005

2004

2003

2003

Latest Maturity Date

2005

2005

2004

2007

2007

Estimated Asset (Liability) Fair Value

$
(12,123
)
$
8,851

$
—

$
(2,261
)
$
2,184

During the quarter ended March 31, 2003, the Company paid approximately $13.0 million to terminate eight forward starting interest rate swaps in conjunction with the issuance of $400.0 million of ten-year unsecured notes. The $13.0 million payment will be deferred and recognized as additional interest expense over the ten-year life of the unsecured notes.
At ~~September 30, 2002,~~March 31, 2003, certain unconsolidated development partnerships in which the Operating Partnership invested had entered into swaps to hedge the interest rate risk exposure on unconsolidated floating rate construction mortgage loans. The Operating Partnership has recorded its proportionate share of these hedges on its consolidated balance sheets. These swaps have been designated as cash flow
14

hedges with a current aggregate notional amount of ~~$427.7~~ $363.2million (notional amounts range from ~~$166.5~~ $142.1million to ~~$552.4~~ $456.2million over the terms of the swaps) at interest rates ranging from ~~2.25%~~1.78% to 6.94% maturing at various dates ranging from 2003 to 2005 with a net liability fair value of ~~$15.0~~ $12.1million. During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the Operating Partnership recognized an unrealized ~~loss~~gain of ~~$0.8~~$0.7 million due to ineffectiveness of certain of these unconsolidated development derivatives (included in income ~~(loss)~~ from investments in unconsolidated entities).

On ~~September 30, 2002,~~March 31, 2003, the net derivative instruments were reported at their fair value as other liabilities of approximately ~~$9.0~~$3.3 million and as a reduction to investments in unconsolidated entities of approximately ~~$15.0~~$12.1 million. As of ~~September 30, 2002,~~March 31, 2003, there were approximately ~~$44.2~~$40.9 million in deferred losses, net, included in accumulated other comprehensive loss. Based on the estimated fair values of the net derivative instruments at ~~September 30, 2002,~~March 31, 2003, the Operating Partnership may recognize an estimated ~~$19.3~~$17.4 million of accumulated other comprehensive loss as additional interest expense during the twelve months ending ~~September 30, 2003,~~March 31, 2004, of which ~~$8.0~~$8.1 million is related to the unconsolidated development partnerships.
15
13.                               Calculation of Net Income Per Weighted Average OP Unit

The following tables set forth the computation of net income per OP ~~Unit—~~Unit – basic and net income per OP ~~Unit—~~Unit – diluted:

Nine Months Ended
September 30,
Quarter Ended
September 30,

2002
2001
2002
2001

(Amounts in thousands except per OP Unit amounts)

Numerator:
Income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items, cumulative effect of change in accounting principle and allocation to preference unit/interest distributions $ 258,303 $ 304,767 $ 68,945 $ 103,221

Allocation to Minority Interests—Partially Owned Properties

(1,584
)

(1,523
)

(259
)

(1,285
)
Income (loss) from investments in unconsolidated entities (1,746 ) 1,885 (1,979 ) 925
Allocation to Preference Units (57,568 ) (68,097 ) (19,055 ) (19,425 )
Allocation to Preference Interests (15,158 ) (13,390 ) (5,052 ) (4,833 )
Allocation to Junior Preference Units (243 ) (272 ) (81 ) (82 )

Income before net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle

182,004

223,370

42,519

78,521

Net gain (loss) on sales of unconsolidated entities

(626
)

339

(5,872
)

—

Net gain on sales of discontinued operations 61,209 99,793 32,763 53,567
Discontinued operations, net 6,815 (49,241 ) 346 (56,257 )
Extraordinary items (468 ) (22 ) — (128 )
Cumulative effect of change in accounting principle — (1,270 ) — —

Numerator for net income per OP Unit—basic 248,934 272,969 69,756 75,703

Effect of dilutive securities:

Distributions on convertible preference units/interests — 74 — —

Numerator for net income per OP Unit—diluted $ 248,934 $ 273,043 $ 69,756 $ 75,703

Denominator:

Denominator for net income per OP Unit—basic 295,483 290,803 296,519 292,213

Effect of dilutive securities:

Convertible preference units/interests — 82 — —
Dilution for OP Units issuable upon assumed exercise/vesting of the Company's share options/restricted shares 3,207 3,776 2,538 4,178

Denominator for net income per OP Unit—diluted 298,690 294,661 299,057 296,391

Net income per OP Unit—basic

$
0.84

$
0.94

$
0.24

$
0.26

Net income per OP Unit—diluted

$
0.83

$
0.93

$
0.23

$
0.26

16

Quarter Ended March 31,

2003

2002

(Amounts in thousands except per
OP Unit amounts)

Numerator:

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

$
72,165

$
89,462

Allocation to Minority Interests – Partially Owned Properties

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

107

226

Allocation to Preference Units

(19,046
)
(19,391
)
Allocation to Preference Interests

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

(81
)
(81
)

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

47,977

64,357

Net gain on sales of unconsolidated entities

1,212

5,657

Net gain on sales of discontinued operations

70,672

2,816

Discontinued operations, net

416

9,964

Numerator for net income per OP Unit – basic

120,277

82,794

Effect of dilutive securities:

Distributions on convertible preference units/interests

1,214

—

Numerator for net income per OP Unit – diluted

$
121,491

$
82,794

Denominator:

Denominator for net income per OP Unit – basic

292,949

294,106

Effect of dilutive securities:

Convertible preference units/interests

3,139

—

Dilution for OP Units issuable upon assumed exercise/vesting of EQR’s share options/restricted shares

1,558

3,123

Denominator for net income per OP Unit – diluted

297,646

297,229

Net income per OP Unit – basic

$
0.41

$
0.28

Net income per OP Unit – diluted

$
0.41

$
0.28

15

Quarter Ended March 31,

2003

2002

(Amounts in thousands except per
OP Unit amounts)

Net income per OP Unit – basic:

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

$
0.17

$
0.22

Net gain on sales of unconsolidated entities

—

0.02

Net gain on sales of discontinued operations

0.24

0.01

Discontinued operations, net

—

0.03

Net income per OP Unit – basic

$
0.41

$
0.28

Net income per OP Unit – diluted:

Income before net gain on sales of unconsolidated entities and discontinued operations per OP Unit – diluted

$
0.17

$
0.22

Net gain on sales of unconsolidated entities

—

0.02

Net gain on sales of discontinued operations

0.24

0.01

Discontinued operations, net

—

0.03

Net income per OP Unit – diluted

$
0.41

$
0.28

Nine Months Ended
September 30,
Quarter Ended
September 30,

2002
2001
2002
2001

(Amounts in thousands except per OP Unit amounts)

Net income per OP Unit—basic:
Income before net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle per OP Unit—basic $ 0.61 $ 0.77 $ 0.15 $ 0.27
Net gain (loss) on sales of unconsolidated entities — — (0.02 ) —
Net gain on sales of discontinued operations 0.21 0.34 0.11 0.18
Discontinued operations, net 0.02 (0.17 ) — (0.19 )
Extraordinary items — — — —
Cumulative effect of change in accounting principle — — — —

Net income per OP Unit—basic

$
0.84

$
0.94

$
0.24

$
0.26

Net income per OP Unit—diluted:

Income before net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle per OP Unit—diluted $ 0.61 $ 0.76 $ 0.14 $ 0.27
Net gain (loss) on sales of unconsolidated entities — — (0.02 ) —
Net gain on sales of discontinued operations 0.20 0.34 0.11 0.18
Discontinued operations, net 0.02 (0.17 ) — (0.19 )
Extraordinary items — — — —
Cumulative effect of change in accounting principle — — — —

Net income per OP Unit—diluted

$
0.83

$
0.93

$
0.23

$
0.26

Convertible preference units/interests that could be converted into ~~15,461,855~~11,807,095 and ~~15,322,607~~15,853,687 weighted average Common Shares (which would be contributed to the Operating Partnership in exchange for OP Units) for the ~~nine months ended September 30, 2002 and 2001, respectively, and 15,095,576 and 15,626,902 weighted average Common Shares for the~~ quarters ended ~~September 30,~~March 31, 2003 and 2002, ~~and 2001,~~ respectively, were outstanding but were not included in the computation of diluted earnings per OP Unit because the effects would be anti-dilutive.
On October 11, 2001, the Operating Partnership effected a two-for-one split of its OP Units to unitholders of record as of September 21, 2001. All per OP Unit data and numbers of OP Units have been retroactively adjusted to reflect the OP Unit split.
14.                               Discontinued Operations
        ~~In August 2001, the FASB issued SFAS No. 144,~~~~Accounting for the Impairment or Disposal of Long-Lived Assets~~~~, which is effective for fiscal years beginning after December 15, 2001.~~
The Operating Partnership ~~adopted~~has presented separately as discontinued operations in all periods the ~~standard effective~~results of operations for all wholly owned assets disposed of on or after January 1, 2002 ~~which did not have a material effect on the Operating Partnership's financial condition and results~~(the date of ~~operations.~~
        ~~Under the provisions~~adoption of SFAS No. 144, for long-lived assets to be held and used, the Operating Partnership first determines whether any indicators of impairment exist. If indicators exist, the Operating Partnership compares the expected future undiscounted cash flows for the long-lived asset against the carrying amount of that asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, an impairment loss would be recorded for the difference between the estimated fair value and the carrying amount of the asset.
17

        For long-lived assets to be disposed of, an impairment loss is recognized when the estimated fair value of the asset, less the estimated cost to sell, is less than the carrying amount of the asset measured at the time that the Operating Partnership has determined it will sell the asset. Long-lived assets held for disposition are reported at the lower of their carrying amounts or their estimated fair values, less their costs to sell.144).
~~Goodwill and investments in unconsolidated entities accounted for under the equity method of accounting are specifically excluded from the scope of SFAS No. 144.~~
        On January 11, 2002, the Operating Partnership disposed of its furniture rental business for $30.0 million and received net proceeds of $28.7 million. No gain/loss on sale was recognized as the net book value at the sale date after giving effect to a previously recorded impairment loss approximated the sales price.
The components of discontinued operations ~~for the nine months and quarters ended September 30, 2002 and 2001, respectively,~~ are outlined below and include the results of operations ~~through the date of each respective sale~~ for the ~~nine months~~respective periods that the Operating Partnership owned such assets during each of the quarters ended March 31, 2003 and ~~quarter ended September 30,~~ 2002, ~~and a full nine months and quarter of operations for the nine months and quarter ended September 30, 2001, for~~including the following:
•
~~the sale of~~The Wholly Owned Properties sold during 2003 (see Note 5); and
•The Wholly Owned Properties and the furniture rental ~~business; and~~business sold during 2002.
16

•
~~the~~

Quarter Ended March 31,

2003

2002

(Amounts in thousands)

REVENUES

Rental income

$
5,026

$
25,898

Interest and other income

11

10

Furniture income

—

1,365

Total revenues

5,037

27,273

EXPENSES(1)

Property and maintenance

2,871

6,809

Real estate taxes and insurance

587

2,849

Depreciation

1,102

5,776

Interest expense incurred, net

61

566

Amortization of deferred financing costs

—

6

Furniture expenses

—

1,303

Total expenses

4,621

17,309

Discontinued operations, net

$
416

$
9,964

(1) Includes trailing expenses for Wholly Owned Properties sold in prior periods related to the Operating Partnership’s period of ownership.
15.                               Stock-Based Compensation
Prior to 2003, the Company had chosen to account for its stock-based compensation in accordance with APB No. 25, Accounting for Stock Issued to Employees,which resulted in no compensation expense for options issued with an exercise price equal to or exceeding the market value of EQR’s Common Shares on the date of grant (intrinsic method). The Company has elected to expense its stock-based compensation in accordance with SFAS No. 123 and its amendment (SFAS No. 148), Accounting for Stock Based Compensation, effective in the first ~~nine~~quarter of 2003, which resulted in compensation expense being recorded based on the fair value of the stock compensation granted or modified. Any Common Shares issued pursuant to EQR’s share option/restricted share/ESPP plans will result in the Operating Partnership issuing OP Units to EQR on a one-for-one basis.
SFAS No. 148 provides three transition methods for entities that adopt the fair value recognition provisions of SFAS No. 123. The Company has chosen to use the “Prospective Method”. This method requires that companies apply the recognition provisions of SFAS No. 123 to only employee awards granted or modified after the beginning of the fiscal year in which the recognition provisions are first applied, or January 1, 2003. Compensation expense under all of the Company’s plans is generally recognized over periods ranging from three months to five years. Therefore, the cost related to stock-based employee compensation included in the determination of ~~2002 (see Note 5).~~
net income for the quarter ended March 31, 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.
The following table illustrates the effect on net income and earnings per OP Unit if the fair value based method had been applied to all outstanding and unvested awards in each period presented:
17

Nine Months Ended
September 30,
Quarter Ended
September 30,

2002
2001
2002
2001

(Amounts in thousands)

REVENUES
Rental income $ 19,759 $ 33,089 $ 1,595 $ 11,045
Interest and other income 1 49 (4 ) 17
Furniture income 1,361 45,051 — 15,024

Total revenues 21,121 78,189 1,591 26,086

EXPENSES
Property and maintenance 6,191 8,995 814 3,142
Real estate taxes and insurance 2,001 3,188 134 1,067
Depreciation 4,259 7,973 240 2,608
Interest expense incurred, net 546 884 57 284
Amortization of deferred financing costs 6 10 — 4
Amortization of goodwill — 990 — 347
Impairment on furniture rental business — 60,000 — 60,000
Furniture expenses 1,303 45,390 — 14,891

Total expenses 14,306 127,430 1,245 82,343

Discontinued operations, net

$
6,815

$
(49,241
)
$
346

$
(56,257
)

Quarter Ended March 31,

2003

2002

(Amounts in thousands
except per OP Unit
amounts)

Net income available to OP Units, as reported

$
120,277

$
82,794

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

EQR’s restricted/performance shares

2,334

5,084

EQR’s share options(1)

1,707

—

EQR’s ESPP discount

490

—

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

EQR’s restricted/performance shares

(2,334
)
(5,084
)
EQR’s share options(1)

(2,899
)
(1,527
)
EQR’s ESPP discount

(490
)
(658
)
Pro forma net income available to OP Units

$
119,085

$
80,609

Earnings per OP Unit:

Basic – as reported

$
0.41

$
0.28

Basic – pro forma

$
0.41

$
0.27

Diluted – as reported

$
0.41

$
0.28

Diluted – pro forma

$
0.40

$
0.27

~~15.~~(1)        Share options for the quarter ended March 31, 2003 included $1.4 million of expense recognition related to options granted in the first quarter of 2003 to EQR's former chief executive officer. These options vested immediately upon grant.
16.                               Commitments and Contingencies

The Operating Partnership, as an owner of real estate, is subject to various ~~environmental laws of~~ Federal, state and local ~~governments.~~environmental laws. Compliance by the Operating Partnership with existing laws has not had a material adverse effect on the Operating ~~Partnership's~~Partnership’s financial condition and results of operations. 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.
18

The Operating Partnership does not believe there is any litigation pending or threatened against the Operating Partnership other than routine litigation arising out of the ordinary course of business, some of which is expected to be covered by liability insurance, none of which is expected to have a material adverse effect on the consolidated financial statements of the Operating Partnership.
In regards to the funding of properties in the development stage and the agreements with multifamily residential real estate developers, the Operating Partnership funded a net total of $65.1 million during the nine months ended September 30, 2002. In connection with one development agreement, the Operating Partnership has an obligation to fund up to an additional $9.5 million to guarantee third party construction financing.
As of ~~September 30, 2002,~~March 31, 2003, the Operating Partnership has 17 projects in various stages of development ~~(includes two consolidated projects)~~ with estimated completion dates ranging through June 30, 2004. The Operating Partnership funded a net total of $1.7 million during the quarter ended March 31, 2003 for the development of multifamily properties pursuant to its agreements with developers. The Operating Partnership expects to fund approximately $5.0 million in connection with these properties during the remainder of 2003 and in 2004. The three development agreements currently in place have the following key terms:
~~For one~~
•                  The first development ~~agreement, the Operating Partnership's~~ partner has the right, at any time following completion of a project, to stipulate a value for such project and offer to sell its interest in the project to the Operating
18

Partnership based on such value. If the Operating Partnership chooses not to purchase the interest, it must agree to a sale of the project to an unrelated third party at such value. The Operating ~~Partnership's~~Partnership’s partner must exercise this right as to all projects within five years after the receipt of the final certificate of occupancy on the last developed property. The Operating Partnership has an obligation to fund up to an additional $13.0 million to guarantee third party construction financing, if required.
~~Under a~~
•                  The second development ~~agreement, the Operating Partnership's~~ partner has the right, at any time following completion of a project, to require the Operating Partnership to purchase the ~~partners'~~partners’ interest in that project at a mutually agreeable price. If the Operating Partnership and the partner are unable to agree on a price, both parties will obtain appraisals. If the appraised values vary by more than 10%, both the Operating Partnership and its partner will agree on a third appraiser to determine which original appraisal is closest to its determination of value. The Operating Partnership may elect at that time not to purchase the property and instead, authorize its partner to sell the project at or above the agreed-upon value to an unrelated third party. Five years following the receipt of the final certificate of occupancy on the last developed property, the Operating Partnership must purchase, at the agreed-upon price, any projects remaining ~~unsold must be purchased by~~unsold.
•                  The third development partner has the exclusive right for six months following stabilization (generally defined as having achieved 90% occupancy for three consecutive months following the substantial completion of a project) to market a project for sale. Thereafter, either the Operating Partnership or its development partner may market a project for sale. If the Operating Partnership’s development partner proposes the sale, the Operating Partnership may elect to purchase the project at the price proposed by its partner or defer the sale until two independent appraisers appraise the project. If the two appraised values vary by more than 5%, a third appraiser will be chosen to determine the fair market value of the property. Once a value has been determined, the Operating Partnership may elect to purchase the property or authorize its development partner to sell the project at the agreed-upon ~~price.~~value.
~~The~~
In connection with one of its mergers, the Operating Partnership provided a credit enhancement with respect to certain tax-exempt bonds issued to finance certain public improvements at a multifamily development project. As of ~~September 30, 2002,~~March 31, 2003, this enhancement was still in effect at a commitment amount of $12.7 million.
~~16.~~17.                               Asset Impairment

For both the ~~nine months~~quarters ended ~~September 30,~~March 31, 2003 and 2002, ~~and 2001,~~ the Operating Partnership recorded approximately ~~$0.9~~$0.3 million ~~and $8.0 million, respectively,~~ of asset impairment charges related to its technology investments. These charges were the result of a review of the existing investments reflected on the consolidated balance sheet. These impairment losses are reflected on the ~~statement~~consolidated statements of operations in total expenses and include the write-down of assets classified as other ~~assets and investments in unconsolidated entities.~~assets.
For the nine months ended September 30, 2002, the Operating Partnership recorded approximately $17.1 million of asset impairment charges related to its corporate housing business. Following the guidance in SFAS No. 142, these charges were the result of the Operating Partnership's decision to reduce the carrying value of its corporate housing business to $30.0 million, given the continued weakness in the economy and management's expectations for near-term performance. This impairment loss is reflected on the consolidated statements of operations as impairment on corporate housing business and on the consolidated balance sheets as a reduction in goodwill, net.
18.                               Reportable Segments
As of September 30, 2001, the Operating Partnership recorded $60.0 million of asset impairment charges related to its furniture rental business. These charges were the result of a review of the existing
19

intangible and tangible assets reflected on the consolidated balance sheet as of September 30, 2001. The Operating Partnership reviewed the current net book value taking into consideration existing business and economic conditions as well as projected operating cash flows. The impairment loss is reflected on the income statement in discontinued operations, net, and includes the write-down of the following assets: a) goodwill of approximately $26.0 million; b) rental furniture, net of approximately $28.6 million; c) property and equipment, net of approximately $4.5 million; and d) other assets of approximately $0.9 million.
~~17.  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~~Partnership’s primary business is owning, managing, and operating multifamily residential properties, which includes the generation of rental and other related income through the leasing of apartment units to ~~residents.~~residents and includes ECH. Senior management evaluates the performance of each of our apartment communities on an individual basis, however, each of our apartment communities has similar economic characteristics, residents, and products and services so they have been aggregated into one reportable segment. The Operating ~~Partnership's~~Partnership’s rental real estate segment ~~comprised~~comprises approximately 98.8% ~~and 97.9%~~
19

of total revenues for ~~the nine months ended September 30, 2002, and 2001, respectively, and approximately 99.0% and 98.5% of total revenues for~~both the quarters ended ~~September 30, 2002~~March 31, 2003 and ~~2001, respectively.~~2002. The Operating ~~Partnership's~~Partnership’s rental real estate segment ~~comprised~~comprises approximately ~~99.7%~~99.8% and ~~99.4%~~99.7% of total assets at ~~September 30, 2002~~March 31, 2003 and December 31, ~~2001,~~2002, respectively.

The primary financial measure for the Operating ~~Partnership's~~Partnership’s rental real estate segment is net operating income ~~("NOI"~~(“NOI”), which represents rental income less: 1) property and maintenance expense; 2) real estate taxes and insurance expense; and 3) property management expense (all as reflected in the accompanying statements of operations). Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance. NOI from our rental real estate totaled approximately ~~$905.1~~ $279.6million and ~~$916.2 million for the nine months ended September 30, 2002 and 2001, respectively, and approximately $297.5 million and $312.6~~$293.3 million for the quarters ended ~~September 30,~~March 31, 2003 and 2002, ~~and 2001,~~ respectively.

During the acquisition, development and/or disposition of real estate, the Operating Partnership considers its NOI return on total ~~capitalized costs is~~investment as the primary measure of financial ~~performance the Operating Partnership considers.~~performance.

The Operating ~~Partnership's~~Partnership’s fee and asset management activity is immaterial and does not meet the threshold requirements of a reportable segment as provided for in SFAS No. 131.
All revenues are from external customers and there is no customer who contributed 10% or more of the Operating Partnership’s total revenues during the quarters ended March 31, 2003 or 2002.
~~18.~~  19.Subsequent Events/Other
During the nine months ended September 30, 2002, the Operating Partnership entered into an agreement with the U.S. Army with an initial cash investment of $10.0 million and assumed management of 3,637 multifamily units at Fort Lewis, Washington.
Subsequent to ~~September 30, 2002~~March 31, 2003 and through ~~November 4, 2002,~~April 30, 2003, the Operating Partnership:
•
~~disposed~~                  Disposed of ~~five~~three properties consisting of ~~684~~761 units for approximately ~~$28.7~~$28.5 million;

and
•
~~repaid $53.1~~                  Repaid $12.9 million of mortgage ~~loans;~~

•
~~repaid $40.0 million of 7.25% fixed rate public notes at maturity;~~
debt at/or prior to maturity.
20
•
~~received $3.5 million representing full repayment of an executive's employee notes:~~

•
~~repurchased and retired approximately 5.1 million OP Units for approximately $115.0 million in conjunction with EQR's similar transaction; and~~

•
~~funded $4.3 million related to the development agreements.~~
21

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

For further information including definitions for capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Operating ~~Partnership's~~Partnership’s annual report on Form 10-K for the year ended December 31, ~~2001.~~2002.

Forward-looking statements in this report are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words ~~"believes"~~“believes”, ~~"expects"~~“estimates”, “expects” and ~~"anticipates"~~“anticipates” and other similar expressions that are predictions of or indicate future events and trends and which do not relate solely to historical matters identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results, performance, or achievements of the Operating Partnership to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, the following:
•
~~the~~                  The total number of development units, cost of development and completion dates as well as anticipated capital expenditures for replacements and building improvements all reflect the Operating ~~Partnership's~~Partnership’s best estimates and are subject to uncertainties arising from changing economic conditions (such as the cost of labor and construction materials), competition and local government regulation;

•
~~alternative~~                  Alternative 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~~                  Occupancy levels and market rents may be adversely affected by national and local economic and market conditions including, without limitation, new construction of multifamily housing, continuing decline in employment, ~~and~~ 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~~Partnership’s control; and

•
~~additional~~                  Additional factors as discussed in Part I of the Annual Report on Form 10-K, particularly those under ~~"Risk Factors"~~“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 Note 6 to the Notes to Consolidated Financial Statements in this report.
22

Results of Operations

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

Properties
Units
Purchase /
Sale Price
$ Millions
At December 31, 2000 1,104 227,704
Q1/Q2/Q3 2001 Acquisitions 11 2,657 $ 288.0
Q1/Q2/Q3 2001 Dispositions (38 ) (6,241 ) $ 298.5
Q1/Q2/Q3 2001 Completed Developments 4 1,470

At September 30, 2001 1,081 225,590
Q4 2001 Acquisitions 3 766 $ 100.1
Q4 2001 Dispositions (11 ) (2,566 ) $ 118.4
Q4 2001 Completed Developments 3 1,035
Q4 2001 Unit Configuration Changes — (24 )

At December 31, 2001 1,076 224,801
Q1/Q2/Q3 2002 Acquisitions 10 3,053 $ 245.4
Q2 2002 Fort Lewis 1 3,637
Q1/Q2/Q3 2002 Dispositions (35 ) (6,046 ) $ 338.9
Q1/Q2/Q3 2002 Completed Developments 7 1,966
Q1/Q2/Q3 2002 Unit Configuration Changes — 15

At September 30, 2002 1,059 227,426

~~The Operating Partnership's acquisition and disposition activity has impacted overall results of operations for the nine months and quarters ended September 30, 2002 and 2001.~~
21

Properties

Units

Purchase /
Sale Price
$ Millions

At December 31, 2001

1,076

224,801

Q1 2002 Acquisitions

1

368

$
26.0

Q1 2002 Dispositions

(5
)
(757
)
$
43.7

Q1 2002 Completed Developments

1

588

At March 31, 2002

1,073

225,000

Q2/Q3/Q4 2002 Acquisitions

11

3,266

$
263.9

Ft. Lewis Joint Venture

1

3,652

Q2/Q3/Q4 2002 Dispositions

(53
)
(9,956
)
$
502.5

Q2/Q3/Q4 2002 Completed Developments

7

1,613

Q2/Q3/Q4 2002 Unit Configuration Changes

—

16

At December 31, 2002

1,039

223,591

Q1 2003 Acquisitions

3

920

$
111.5

Q1 2003 Dispositions

(17
)
(4,000
)
$
195.0

Q1 2003 Completed Developments

2

738

At March 31, 2003

1,027

221,249

Significant changes in revenues ~~and expenses~~between the quarters presented have resulted primarily from ~~the consolidation of previously Unconsolidated Properties in July 2001, the disposition of the furniture rental business on January 11, 2002,~~ reduced rental income through increased concessions or reduced apartment rents and occupancy at ~~selected properties as well as the properties acquired and developments completed in 2001 and 2002, which have been partially offset by the properties disposed in 2001 and 2002.~~many of our properties. Significant changes in expenses have ~~also~~ resulted from increases in property and maintenance expenses including payroll, maintenance, building, utilities and leasing and advertising as well as real estate taxes. In addition, the Operating Partnership’s acquisition, disposition and completed development activity has impacted overall results of operations for the quarters ended March 31, 2003 and 2002. These changes ~~in insurance costs, general and administrative costs, impairment charges and variable interest rates. This impact is~~are discussed in greater detail in the following paragraphs.

Properties that the Operating Partnership owned for ~~all~~both of ~~both~~ the ~~nine month periods~~quarters ended ~~September 30,~~March 31, 2003 and March 31, 2002 ~~and September 30, 2001~~ (the ~~"Nine-Month 2002~~“First Quarter 2003 Same Store ~~Properties"~~Properties”), which represented 191,940 units, and properties that the Operating Partnership owned for all of both the quarters ended September 30, 2002 and September 30, 2001 (the "Third Quarter 2002 Same Store Properties"), which represented 197,852191,278 units, also impacted the Operating ~~Partnership's~~Partnership’s results of ~~operations. Both the Nine-Month 2002 Same Store Properties~~operations and ~~Third Quarter 2002 Same Store Properties~~ are discussed as well in the following paragraphs.
Comparison of the ~~nine months~~quarter ended ~~September 30, 2002~~March 31, 2003 to the ~~nine months~~quarter ended ~~September 30, 2001~~March 31, 2002

For the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, income before allocation to Minority Interests, income ~~(loss)~~ from investments in unconsolidated entities, net gain ~~(loss)~~ on sales of unconsolidated entities and discontinued operations ~~extraordinary items and cumulative effect of change in accounting principle~~ decreased by approximately ~~$46.5~~$17.3 million when compared to the ~~nine months~~quarter ended ~~September 30, 2001.~~March 31, 2002.
23

Revenues from the ~~Nine-Month 2002~~First Quarter 2003 Same Store Properties decreased primarily as a result of lower overall physical occupancy, increased concessions and lower rental rates charged to both new and renewal residents. Property operating expenses from the ~~Nine-Month 2002~~First Quarter 2003 Same Store Properties ~~which include property~~increased mainly due to higher utility, maintenance, building and maintenance, real estate taxes and insurance and an allocation of property management expenses, remained relatively stable with increases in real estate taxes and insurance costs offset by a decrease in utilitypayroll costs. The following tables provide comparative revenue, expense, net operating income ~~("NOI"~~(“NOI”) and weighted average occupancy for the ~~Nine-Month 2002~~First Quarter 2003 Same Store ~~Properties:~~Properties (NOI represents rental income less: 1) property and maintenance expense; 2) real estate taxes and insurance expense; and 3) property management expense):
~~September 30, 2002 Year-to-Date "Same Store" Results~~
22
$ in Millions—191,940 "Same Store" Units

Description
Revenues
Expenses
NOI

YTD 2002 $ 1,356.7 $ 506.5 $ 850.2
YTD 2001 $ 1,386.5 $ 503.9 $ 882.6

Change $ (29.8 ) $ 2.6 $ (32.4 )

% Change

(2.1
%)

0.5
%

(3.7
%)

~~"Same Store"~~
First Quarter 2003 vs. First Quarter 2002
Quarter over Quarter Same-Store Results
$ in Millions – 191,278 Same-Store Units
Description

Revenues

Expenses

NOI

Q1 2003

$
448.1

$
176.8

$
271.3

Q1 2002

$
464.3

$
164.2

$
300.1

Change

$
(16.2
)
$
12.6

$
(28.8
)
Change

(3.5
)%
7.7
%
(9.6
)%
Same-Store Occupancy Statistics

~~YTD 2002~~
Q1 2003
~~93.87~~
92.5
%
~~YTD 2001~~
Q1 2002
~~94.59~~
94.0
%
Change
(1.5
~~Change~~ ~~(0.72~~
)%)
~~For properties~~
The Operating Partnership’s primary financial measure for evaluating each of its apartment communities is NOI. 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 acquired prior to January 1, 2001 and expects to continue to own through December 31, 2002, the Operating Partnership anticipates the following operating assumptions for the year ending December 31, 2002:Partnership’s apartment communities.
~~2002 "Same Store" Operating Assumptions~~

~~Physical Occupancy~~ ~~93.0%~~
~~Revenue Change~~ ~~(2.6%)~~
~~Expense Change~~ ~~0.8%~~
~~NOI Change~~ ~~(4.5%)~~
~~Dispositions~~ ~~$450 million~~
For properties that the Operating Partnership acquired prior to January 1, 2002 and expects to continue to own through December 31, 2003, the Operating Partnership anticipates the following operating ~~assumptions~~results for the full year ending December 31, 2003:
2003 ~~"Same Store"~~Same-Store Operating Assumptions

Physical Occupancy
93.0%
Revenue Change
~~(3.9%~~
(3.5%) to ~~(1.4%~~(1.2%)
Expense Change
~~2.1%~~
2.8%) to ~~4.4%~~5.2%
NOI Change
(9.2%) to (3.7%)
Dispositions
$700 million

These ~~2002 and~~ 2003 operating assumptions are based on current expectations and are forward-looking.

Rental income from properties other than ~~Nine-Month 2002~~First Quarter 2003 Same Store Properties increased by approximately ~~$10.4~~$11.3 million primarily as a result of revenue from properties ~~the Operating Partnership~~
24

acquired in ~~2001~~2002 and ~~2002~~2003 and additional Partially Owned Properties ~~that the Operating Partnership~~ consolidated in ~~2001.~~the fourth quarter of 2002.

Interest and other income decreased by approximately ~~$6.1~~$0.8 million, primarily as a result of lower ~~balances available for investment and related~~ interest rates being earned on ~~the Operating Partnership's~~ short-term investment accounts along with lower balances on deposit in tax-deferred exchange accounts.
Interest income—investment in mortgage notes decreased by $8.8 million as a result of the Operating Partnership consolidating previously Unconsolidated Properties in July 2001. No additional interest income will be recognized on such mortgage notes in future years as the Operating Partnership now consolidates the results related to these previously Unconsolidated Properties.
Property management expenses include off-site expenses associated with the self-management of the Operating ~~Partnership's~~Partnership’s properties. These expenses decreased by approximately ~~$0.5~~$3.6 million or ~~0.1%~~18.4%. This decrease is primarily attributable to ~~lower expected levels~~a reversal of ~~employee bonus and~~a profit sharing ~~payments for 2002.~~accrual in the first quarter of 2003 related to the 2002 calendar year as the Operating Partnership didn’t achieve its stated goals and management elected not to make a discretionary contribution to the plan. In addition, the Company recorded lower expense in connection with granting less restricted shares to its employees in the first quarter of 2003.

Fee and asset management revenues, net of fee and asset management expenses, increased by ~~$1.1~~$0.9 million as a result of ~~the Operating Partnership~~ managing an additional ~~3,637~~ units at Fort Lewis, Washington starting in April 2002. As of ~~September 30,~~
23

March 31, 2003 and 2002, ~~and 2001,~~ the Operating Partnership managed ~~20,142~~ 18,896units and ~~15,948~~16,539 units, respectively, for third parties and unconsolidated entities.

The Operating Partnership recorded impairment charges ~~in 2002~~ on ~~its corporate housing business and~~ its technology investments of approximately ~~$17.1~~$0.3 million ~~and $0.9 million, respectively.~~for both quarters presented. See Note 1617 in the Notes to Consolidated Financial Statements for further discussion.

Interest expense, including amortization of deferred financing costs, decreased approximately ~~$11.9~~$3.5 million primarily due to lower variable interest rates. During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the Operating Partnership capitalized interest costs of approximately ~~$19.4~~$5.4 million as compared to ~~$21.0~~$5.9 million for the ~~nine months~~quarter ended ~~September 30, 2001.~~March 31, 2002. This capitalization of interest primarily related to equity investments in unconsolidated entities engaged in development activities. The effective interest cost on all ~~of the Operating Partnership's~~ indebtedness for the ~~nine months~~quarter ended ~~September 30, 2002~~March 31, 2003 was ~~6.60%~~6.39% as compared to ~~7.00%~~6.51% for the ~~nine months~~quarter ended ~~September 30, 2001.~~March 31, 2002.

General and administrative expenses, which include corporate operating expenses, increased approximately ~~$9.4~~$0.4 million between the ~~nine months~~periods under comparison. This increase was primarily due to ~~higher state income taxes~~the Company’s election to begin expensing stock-based compensation effective January 1, 2003 (see Note 15 in ~~Michigan and New Jersey, income taxes incurred at one~~the Notes to Consolidated Financial Statements) partially offset by lower expenses recorded in connection with granting less restricted shares to employees in the first quarter of the Operating Partnership's taxable REIT subsidiaries which has an ownership interest in properties that in prior periods were classified as Unconsolidated Properties, retirement plan expenses for certain key executives, EQR restricted shares/awards granted to key employees and additional compensation charges and costs associated with EQR's new President.2003.

Income ~~(loss)~~ from investments in unconsolidated entities decreased approximately ~~$3.6~~$0.1 million between the periods under comparison. This decrease is primarily the result of increased equity losses ~~and~~partially offset by unrealized ~~losses~~gains on derivative instruments.

Net gain on sales of discontinued operations ~~decreased~~increased approximately ~~$38.6~~$67.9 million between the periods under comparison. This ~~decrease~~increase is primarily the result of ~~approximately 3,200 fewer~~a greater number of ~~units~~properties sold during the ~~nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 (includes approximately 3,000 units sold into a joint venture in February 2001).~~
~~Comparison of the~~ quarter ended ~~September 30, 2002 to~~March 31, 2003, including two California properties, as well as the ~~quarter ended September 30, 2001~~
        For the quarter ended September 30, 2002, income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities,
25
~~discontinued operations, extraordinary items and cumulative effect of change in accounting principle decreased by approximately $34.3 million when compared to the quarter ended September 30, 2001.~~fact that many such sold properties were more fully depreciated.
~~Revenues from~~
Discontinued operations, net, decreased approximately $9.5 million between the Third Quarter 2002 Same Store Properties decreased primarily as a result of lower rental rates charged new residents, increased concessions and lower overall physical occupancy. Property operating expenses from the Third Quarter 2002 Same Store Properties, which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses, increased $3.5 million or 2.0% primarily as a result of increases in real estate taxes, insurance costs and payroll overtime. The following tables provide comparative revenue, expense, NOI and weighted average occupancy for the Third Quarter 2002 Same Store Properties:
~~Third Quarter 2002 "Same Store" Results~~
$ in million—197,852 "Same Store" Units

Description
Revenues
Expenses
NOI

Q3 2002 $ 467.4 $ 182.0 $ 285.4
Q3 2001 $ 485.4 $ 178.5 $ 306.9

Change $ (18.0 ) $ 3.5 $ (21.5 )

% Change (3.7 %) 2.0 % (7.0 %)
~~"Same Store" Occupancy Statistics~~

~~Q3 2002~~ ~~93.67~~ %
~~Q3 2001~~ ~~94.54~~ %
~~Change~~ ~~(0.87~~ %)
        Rental income from properties other than Third Quarter 2002 Same Store Properties increased by approximately $1.8 million primarily as a result of revenue from properties the Operating Partnership acquired in the third and fourth quarters of 2001 and during the nine months ended September 30, 2002.
        Interest and other income decreased by approximately $3.9 million, primarily as a result of lower balances available for investment and related rates being earned on the Operating Partnership's short term investment accounts along with lower balances on deposit in tax-deferred exchange accounts.
        Property management expenses include off-site expenses associated with the self-management of the Operating Partnership's properties. These expenses decreased by approximately $2.2 million or 11.1%. This decrease is primarily attributable to lower expected levels of employee bonus and profit sharing payments for 2002.
        Fee and asset management revenues, net of fee and asset management expenses, increased by $1.2 million as a result of the Operating Partnership managing an additional 3,637 units at Fort Lewis starting in April 2002. As of September 30, 2002 and 2001, the Operating Partnership managed 20,142 units and 15,948 units, respectively, for third parties and unconsolidated entities.
        ~~The Operating Partnership recorded impairment charges in 2002 on its corporate housing business and its technology investments of approximately $17.1 million and $0.3 million, respectively.~~periods under comparison. See Note 1614 in the Notes to Consolidated Financial Statements for further discussion.
Interest expense, including amortization of deferred financing costs, decreased approximately $5.2 million primarily due to lower variable interest rates. During the quarter ended September 30, 2002, the Operating Partnership capitalized interest costs of approximately $7.1 million as compared to $8.2 million for the quarter ended September 30, 2001. This capitalization of interest primarily related to investments in unconsolidated entities engaged in development activities. The effective interest cost on
26

~~all of the Operating Partnership's indebtedness for the quarter ended September 30, 2002 was 6.52% as compared to 6.82% for the quarter ended September 30, 2001.~~
        General and administrative expenses, which include corporate operating expenses, increased approximately $1.1 million between the quarters under comparison. This increase was primarily due to retirement plan expenses for certain key executives, higher state income taxes, EQR restricted shares/awards granted to key employees and additional compensation charges and costs associated with EQR's new President.
        Income (loss) from investments in unconsolidated entities decreased approximately $2.9 million between the periods under comparison. This decrease is primarily the result of increased equity losses and unrealized losses on derivative instruments.
        Net gain (loss) on sales of unconsolidated entities decreased approximately $5.9 million between the periods under comparison. This decrease is the loss associated with the sale in the third quarter of 2002 of one property held in one of our development entities.
        Net gain on sales of discontinued operations decreased approximately $20.8 million between the periods under comparison. This decrease is primarily the result of certain properties sold during the quarter ended September 30, 2001 having a lower net carrying value at sale, which resulted in higher recognition of gain for financial reporting purposes.
Liquidity and Capital Resources

As of January 1, ~~2002,~~2003, the Operating Partnership had approximately ~~$51.6~~$29.9 million of cash and cash equivalents and ~~$505.0~~$499.2 million available under its line of credit (net of $60.8 million which ~~$59.0 million~~ was ~~restricted (not~~restricted/dedicated to support letters of credit and not available for ~~borrowings)~~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~~Partnership’s cash and cash equivalents balance at ~~September 30, 2002~~March 31, 2003 was approximately ~~$21.8~~$310.3 million and the amount available on the Operating ~~Partnership's~~Partnership’s line of credit was ~~$665.0~~$646.7 million (net of $53.3 million which ~~$83.3 million~~ was ~~restricted (not~~restricted/dedicated to support letters of credit and not available for ~~borrowings)~~borrowing).

Part of the Operating ~~Partnership's~~Partnership’s acquisition and development funding strategy and the funding of ~~the Operating Partnership's investment~~investments in various unconsolidated entities is to utilize its line of credit and to subsequently repay the line of credit from the disposition of properties, retained cash flows or the issuance of additional equity or debt securities. Continuing to utilize this strategy during the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the Operating Partnership:
•
~~disposed~~                  Disposed of ~~thirty-five~~seventeen properties (including ~~two~~one Unconsolidated ~~Properties)~~Property) and received net proceeds of approximately ~~$326.2~~$192.1 million;

•
~~disposed of the furniture rental business on January 11, 2002 and received net proceeds of approximately $28.7 million;~~

•
~~issued~~                  Issued $400.0 million of ~~6.625%~~5.20% fixed rate unsecured debt receiving net proceeds of ~~$394.5~~$397.5 million;
24

•
~~issued~~                  Issued approximately ~~1.7~~0.3 million OP Units and received net proceeds of ~~$37.0~~$6.9 million; and

•
~~obtained $104.6~~                  Obtained $48.7 million in new mortgage financing.

All of these proceeds were utilized ~~to either:~~to:
•
~~repay~~                  Purchase additional properties;
•                  Repay the line of credit;

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

•
~~repay public unsecured debt;~~
27
•
~~invest~~                  Invest in ~~consolidated and~~ unconsolidated development projects;

and
•
~~invest~~                  Invest in unconsolidated ~~entities; and~~

•
~~purchase additional properties.~~

entities.

During the ~~nine months~~quarter ended ~~September 30, 2002,~~March 31, 2003, the Operating Partnership:
•
~~repaid $160.0~~                  Acquired three properties utilizing cash of $76.7 million;
•                  Repaid $140.0 million on its line of credit;

•
~~repaid $308.0~~                  Repaid $110.1 million of mortgage loans;

and
•
~~repaid $100.0 million of 9.375% fixed rate public notes at maturity;~~

•
~~repaid $125.0 million of 7.95% fixed rate public notes at maturity;~~

•
~~repaid $4.7 million of other unsecured notes;~~

•
~~funded~~                  Funded a net of ~~$65.1~~$1.7 million ~~in accordance with~~under its development ~~agreements;~~

•
~~funded $10.0~~agreements.
Depending on its analysis of market prices, economic conditions, and other opportunities for the investment of available capital, the Company may repurchase up to an additional $85.0 million ~~in connection with~~of its ~~agreement with~~Common Shares pursuant to its existing share buyback program authorized by the ~~U.S. Army for Fort Lewis military housing; and~~

•
~~acquired ten properties utilizing cash~~Board of ~~$232.1 million.~~

Trustees. The Operating ~~Partnership's~~Partnership, in turn, would repurchase $85.0 million of its OP Units held by EQR. The Company did not repurchase any of its Common Shares during the quarter ended March 31, 2003.
The Operating Partnership’s total debt summary and debt maturity schedule as of ~~September 30, 2002,~~March 31, 2003, are as follows:
Debt Summary as of ~~September 30, 2002~~March 31, 2003

$Millions
Weighted
Average Rate

$ Millions

Weighted
Average Rate

Secured Secured $ 3,089 6.22 %

$
2,901

6.05
%
Unsecured Unsecured 2,482 6.41 %

2,854

6.36
%
Total

$
5,755

6.20
%

Fixed Rate*

$
5,122

6.70
%
Floating Rate*

633

2.23
%
Total*

$
5,755

6.20
%
Total $ 5,571 6.30 %

Fixed Rate *

$
4,807

6.89
%
Floating Rate * 764 2.58 %

Total * $ 5,571 6.30 %

Above Totals Include:

Above Totals Include:

Total Tax Exempt Total Tax Exempt $ 986 3.71 %

$
973

3.63
%
Unsecured Revolving Credit Facility Unsecured Revolving Credit Facility $ 35 2.44 %

$
—

—

* Net of the effect of interest rate protection agreements.

Year	$ Millions		% of Total
2003	$	294	5.1	%
2004	656		11.4	%
2005*	617		10.7	%
2006	490		8.5	%
2007	300		5.2	%
2008	489		8.5	%
2009	258		4.5	%
2010	199		3.5	%
2011	691		12.0	%
2012+	1,761		30.6	%
Total	$	5,755	100.0	%

Total Debt			$	5,755,435,646

OP Units	294,741,805
OP Unit Equivalents (see below)	14,944,282
Total Outstanding at quarter-end	309,686,087
EQR Common Share Price at March 31, 2003	$	24.07
			7,454,144,114
Perpetual Preference Units Liquidation Value			565,000,000
Perpetual Preference Interests Liquidation Value			211,500,000
Total Market Capitalization			$	13,986,079,760

Debt/Total Market Capitalization			41.15		%


Total Debt			$	5,570,576,350
OP Units		298,387,904
OP Unit Equivalents (see below)		14,965,147

Total Outstanding at quarter-end		313,353,051
EQR Common Share Price at September 30, 2002	$	23.94

				7,501,672,041
Perpetual Preference Units Liquidation Value				565,000,000
Perpetual Preference Interests Liquidation Value				211,500,000

Total Market Capitalization			$	13,848,748,391
Debt/Total Market Capitalization				40.22	%

			September 30, 2002			December 31, 2001
ASSETS
Investment in real estate
	Land		$	1,854,750		$	1,840,170
	Depreciable property			11,228,526			11,096,847
	Construction in progress			124,811			79,166

				13,208,087			13,016,183
	Accumulated depreciation			(2,026,010	)		(1,718,845	)

Investment in real estate, net of accumulated depreciation				11,182,077			11,297,338
Real estate held for disposition				—			3,371
Cash and cash equivalents				21,756			51,603
Investments in unconsolidated entities				435,701			397,237
Rents receivable				2,951			2,400
Deposits — restricted				168,108			218,557
Escrow deposits — mortgage				58,343			76,700
Deferred financing costs, net				32,881			27,011
Rental furniture, net				—			20,168
Property and equipment, net				—			3,063
Goodwill, net				30,000			47,291
Other assets				66,379			90,886

		Total assets	$	11,998,196		$	12,235,625

LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
	Mortgage notes payable		$	3,088,798		$	3,286,814
	Notes, net			2,446,779			2,260,944
	Line of credit			35,000			195,000
	Accounts payable and accrued expenses			139,268			108,254
	Accrued interest payable			67,725			62,360
	Rents received in advance and other liabilities			71,037			83,005
	Security deposits			46,250			47,644
	Distributions payable			143,008			141,832

		Total liabilities		6,037,865			6,185,853

*Commitments and contingencies*
	Minority Interests — Partially Owned Properties			10,568			4,078

Partners' capital:
	Preference Units			946,544			966,671
	Preference Interests			246,000			246,000
	Junior Preference Units			5,846			5,846
	General Partner			4,464,081			4,506,097
	Limited Partners			358,729			379,898
	Deferred compensation			(26,407	)		(25,778	)
	Accumulated other comprehensive loss			(45,030	)		(33,040	)

		Total partners' capital		5,949,763			6,045,694

		Total liabilities and partners' capital	$	11,998,196		$	12,235,625

	March 31, 2003			December 31, 2002
ASSETS
Investment in real estate
Land	$	1,807,226		$	1,803,577
Depreciable property	11,227,980			11,240,245
Construction in progress	2,428			2,441
	13,037,634			13,046,263
Accumulated depreciation	(2,194,190		)	(2,112,017		)
Investment in real estate, net of accumulated depreciation	10,843,444			10,934,246

Cash and cash equivalents	310,309			29,875
Investments in unconsolidated entities	515,741			509,789
Rents receivable	1,410			2,926
Deposits – restricted	173,121			141,278
Escrow deposits – mortgage	44,688			50,565
Deferred financing costs, net	33,780			32,144
Goodwill, net	30,000			30,000
Other assets	78,277			80,094
Total assets	$	12,030,770		$	11,810,917

LIABILITIES AND PARTNERS’ CAPITAL
Liabilities:
Mortgage notes payable	$	2,901,117		$	2,927,614
Notes, net	2,854,319			2,456,085
Line of credit	—			140,000
Accounts payable and accrued expenses	66,234			64,369
Accrued interest payable	64,987			63,151
Rents received in advance and other liabilities	167,641			165,095
Security deposits	45,192			45,333
Distributions payable	141,413			140,844
Total liabilities	6,240,903			6,002,491

*Commitments and contingencies*
Minority Interests – Partially Owned Properties	9,395			9,811

Partners’ capital:
Preference Units	946,076			946,157
Preference Interests	246,000			246,000
Junior Preference Units	5,846			5,846
General Partner	4,288,627			4,306,873
Limited Partners	345,983			349,646
Deferred compensation	(9,832		)	(12,118		)
Accumulated other comprehensive loss	(42,228		)	(43,789		)
Total partners’ capital	5,780,472			5,798,615
Total liabilities and partners’ capital	$	12,030,770		$	11,810,917

			Nine Months Ended September 30,						Quarter Ended September 30,
			2002			2001			2002			2001
REVENUES
	Rental income		$	1,504,274		$	1,523,723		$	501,853		$	518,096
	Fee and asset management			6,957			5,805			2,647			1,665
	Interest and other income			11,551			17,685			2,235			6,166
	Interest income—investment in mortgage notes			—			8,786			—			23

		Total revenues		1,522,782			1,555,999			506,735			525,950

EXPENSES
	Property and maintenance			390,241			411,370			136,104			140,573
	Real estate taxes and insurance			153,127			139,827			50,698			45,173
	Property management			55,767			56,302			17,565			19,760
	Fee and asset management			5,366			5,358			1,702			1,888
	Depreciation			348,947			333,041			118,120			113,300
	Interest:
		Expense incurred, net		255,693			267,572			84,153			89,212
		Amortization of deferred financing costs		4,344			4,328			1,362			1,524
	General and administrative			33,000			23,604			10,673			9,525
	Impairment on corporate housing business			17,122			—			17,122			—
	Impairment on technology investments			872			7,968			291			1,193
	Amortization of goodwill			—			1,862			—			581

		Total expenses		1,264,479			1,251,232			437,790			422,729

Income before allocation to Minority Interests, income (loss) from investments in unconsolidated entities, net gain (loss) on sales of unconsolidated entities, discontinued operations, extraordinary items and cumulative effect of change in accounting principle				258,303			304,767			68,945			103,221
Allocation to Minority Interests—Partially Owned Properties				(1,584	)		(1,523	)		(259	)		(1,285	)
Income (loss) from investments in unconsolidated entities				(1,746	)		1,885			(1,979	)		925
Net gain (loss) on sales of unconsolidated entities				(626	)		339			(5,872	)		—

Income before discontinued operations, extraordinary items and cumulative effect of change in accounting principle				254,347			305,468			60,835			102,861
Net gain on sales of discontinued operations				61,209			99,793			32,763			53,567
Discontinued operations, net				6,815			(49,241	)		346			(56,257	)

Income before extraordinary items and cumulative effect of change in accounting principle				322,371			356,020			93,944			100,171
Extraordinary items				(468	)		(22	)		—			(128	)
Cumulative effect of change in accounting principle				—			(1,270	)		—			—

Net income			$	321,903		$	354,728		$	93,944		$	100,043

ALLOCATION OF NET INCOME:
Preference Units			$	57,568		$	68,097		$	19,055		$	19,425

Preference Interests			$	15,158		$	13,390		$	5,052		$	4,833

Junior Preference Units			$	243		$	272		$	81		$	82

General Partner			$	229,867		$	250,303		$	64,473		$	69,511
Limited Partners				19,067			22,666			5,283			6,192

Net income available to OP Units			$	248,934		$	272,969		$	69,756		$	75,703

Net income per OP Unit—basic			$	0.84		$	0.94		$	0.24		$	0.26

Net income per OP Unit—diluted			$	0.83		$	0.93		$	0.23		$	0.26

Weighted average OP Units outstanding—basic				295,483			290,803			296,519			292,213

Weighted average OP Units outstanding—diluted				298,690			294,661			299,057			296,391

Distributions declared per OP Unit outstanding			$	1.2975		$	1.2475		$	0.4325		$	0.4325

	Quarter Ended March 31,
	2003				2002
REVENUES
Rental income	$		480,219		$	485,144
Fee and asset management	2,488				1,718
Interest and other income	3,343				4,100
Total revenues	486,050				490,962

EXPENSES
Property and maintenance	132,281				122,578
Real estate taxes and insurance	52,433				49,771
Property management	15,901				19,490
Fee and asset management	1,770				1,862
Depreciation	117,816				110,992
Interest:
Expense incurred, net	80,809				84,331
Amortization of deferred financing costs	1,408				1,385
General and administrative	11,176				10,800
Impairment on technology investments	291				291
Total expenses	413,885				401,500

Income before allocation to Minority Interests, income from investments in unconsolidated entities, net gain on sales of unconsolidated entities and discontinued operations	72,165				89,462
Allocation to Minority Interests – Partially Owned Properties	(115			)	(806		)
Income from investments in unconsolidated entities	107				226
Net gain on sales of unconsolidated entities	1,212				5,657
Income before discontinued operations	73,369				94,539
Net gain on sales of discontinued operations	70,672				2,816
Discontinued operations, net	416				9,964
Net income	$		144,457		$	107,319

ALLOCATION OF NET INCOME:
Preference Units	$	19,046			$	19,391
Preference Interests	$	5,053			$	5,053
Junior Preference Units	$	81			$	81

General Partner	$	111,167			$	76,353
Limited Partners	9,110				6,441
Net income available to OP Units	$		120,277		$	82,794
Net income per OP Unit – basic	$		0.41		$	0.28
Net income per OP Unit – diluted	$		0.41		$	0.28
Weighted average OP Units outstanding – basic	292,949				294,106
Weighted average OP Units outstanding – diluted	297,646				297,229
Distributions declared per OP Unit outstanding	$		0.4325		$	0.4325

	Nine Months Ended September 30,
	2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	321,903		$	354,728
Adjustments to reconcile net income to net cash provided by operating activities:
Allocation to Minority Interests — Partially Owned Properties		1,584			1,523
Cumulative effect of change in accounting principle		—			1,270
Depreciation		353,206			349,313
Amortization of deferred financing costs		4,350			4,338
Amortization of discount on investment in mortgage notes		—			(2,256	)
Amortization of goodwill		—			2,852
Amortization of discounts and premiums on debt		(589	)		(1,424	)
Amortization of deferred settlements on interest rate protection agreements		(238	)		533
Impairment on corporate housing business		17,122			—
Impairment on furniture rental business		—			60,000
Impairment on technology investments		872			7,968
Loss (income) from investments in unconsolidated entities		1,746			(1,885	)
Net gain on sales of discontinued operations		(61,209	)		(99,793	)
Net loss (gain) on sales of unconsolidated entities		626			(339	)
Extraordinary items		468			22
Unrealized loss (gain) on interest rate protection agreements		383			(161	)
Book value of furniture sales and rental buyouts		—			8,703
Compensation paid with Company Common Shares		15,158			12,298
Changes in assets and liabilities:
(Increase) in rents receivable		(551	)		(2,069	)
Decrease in deposits — restricted		8,186			4,538
Additions to rental furniture		—			(17,827	)
Decrease (increase) in other assets		11,849			(17,124	)
Increase in accounts payable and accrued expenses		32,102			25,535
Increase in accrued interest payable		5,365			25,702
(Decrease) in rents received in advance and other liabilities		(579	)		(7,628	)
(Decrease) increase in security deposits		(1,037	)		885

Net cash provided by operating activities		710,717			709,702

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate — acquisitions		(232,097	)		(242,366	)
Investment in real estate — development		(86,115	)		(54,344	)
Improvements to real estate		(110,291	)		(107,263	)
Additions to non-real estate property		(5,562	)		(5,210	)
Interest capitalized for real estate under development		(6,952	)		(6,651	)
Interest capitalized for unconsolidated entities under development		(12,492	)		(14,381	)
Proceeds from disposition of real estate, net		291,368			452,060
Proceeds from disposition of furniture rental business		28,741			—
Proceeds from disposition of unconsolidated entities		34,796			359
Proceeds from refinancing of unconsolidated entities		4,375			5,691
Investments in unconsolidated entities		(97,582	)		(69,195	)
Distributions from unconsolidated entities		31,021			26,311
Decrease in deposits on real estate acquisitions, net		42,046			98,582
Decrease (increase) in mortgage deposits		19,605			(4,167	)
Business combinations, net of cash acquired		(658	)		(8,231	)
Consolidation of previously Unconsolidated Properties		—			52,841
Investment in property and equipment		—			(2,185	)
Principal receipts on investment in mortgage notes		—			61,419
Other investing activities, net		192			(58	)

Net cash (used for) provided by investing activities		(99,605	)		183,212

		Nine Months Ended September 30,
		2002			2001
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs		$	(10,495	)	$	(4,383	)
Mortgage notes payable:
	Proceeds		104,572			59,312
	Lump sum payoffs		(283,681	)		(315,302	)
	Scheduled principal repayments		(24,351	)		(24,210	)
	Prepayment premiums/fees		(468	)		(201	)
Notes, net:
	Proceeds		397,064			299,316
	Lump sum payoffs		(225,000	)		—
	Scheduled principal repayments		(4,669	)		(4,649	)
Line of credit:
	Proceeds		368,500			436,491
	Repayments		(528,500	)		(791,953	)
(Payments) from settlement of interest rate protection agreements			(1,534	)		(7,360	)
Proceeds from sale of OP Units			8,425			7,277
Proceeds from sale of Preference Interests			—			48,500
Proceeds from exercise of EQR options			28,542			56,326
Redemption of Preference Units			—			(210,500	)
Payment of offering costs			(170	)		(1,535	)
Distributions:
	OP Units — General Partner		(354,683	)		(218,632	)
	Preference Units		(57,919	)		(69,359	)
	Preference Interests		(15,185	)		(13,338	)
	Junior Preference Units		(243	)		(190	)
	OP Units — Limited Partners		(29,859	)		(19,738	)
	Minority Interests — Partially Owned Properties		(11,568	)		(31,970	)
Principal receipts on employee notes, net			263			219

Net cash (used for) financing activities			(640,959	)		(805,879	)

Net (decrease) increase in cash and cash equivalents			(29,847	)		87,035
Cash and cash equivalents, beginning of period			51,603			23,772

Cash and cash equivalents, end of period		$	21,756		$	110,807

SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest		$	270,885		$	270,849

Mortgage loans assumed through real estate acquisitions		$	14,000		$	45,918

Mortgage loans (assumed) by purchaser in real estate and furniture rental business dispositions		$	(8,840	)	$	(28,231	)

Transfers to real estate held for disposition		$	—		$	4,102

Mortgage loans recorded as a result of consolidation of previously Unconsolidated Properties		$	—		$	301,502

Net (assets) liabilities recorded as a result of consolidation of previously Unconsolidated Properties		$	—		$	(20,839	)

	Number of Properties	Number of Units
Wholly Owned Properties	934	197,354
Partially Owned Properties (Consolidated)	36	6,931
Unconsolidated Properties	89	23,141

Total Properties	1,059	227,426

	Number of Properties	Number of Units
Wholly Owned Properties	906	191,875
Partially Owned Properties (Consolidated)	36	6,931
Unconsolidated Properties	85	22,443
Total Properties	1,027	221,249

		~~2002~~2003
Operating ~~Partnership's~~Partnership’s OP Units outstanding at January 1,	~~294,818,566~~ 293,396,124

*Issued to General ~~Partner:~~Partner*:
Conversion of Series E Preference Units	~~892,625~~ 3,613
~~Conversion of Series G Preference Units~~	70
~~Conversion of Series H Preference Units~~	~~4,050~~
Employee Share Purchase Plan	~~278,655~~ 126,273
~~Dividend Reinvestment—DRIP Plan~~	~~41,407~~
~~Share Purchase—DRIP Plan~~	~~31,347~~
Exercise of EQR options	~~1,385,584~~ 218,980
Restricted EQR share grants, net	~~900,000~~ 996,815
*~~Issued to Limited Partners:~~*
~~Issuance through acquisitions~~	~~35,600~~

Operating ~~Partnership's~~Partnership’s OP Units outstanding at ~~September 30,~~March 31,	~~298,387,904~~
294,741,805

			Amounts in thousands
	Annual Dividend Rate per Unit (1)		Amounts in thousands
	Annual Dividend Rate per Unit (1)		September 30, 2002		December 31, 2001
Preference Units:
9¹/8% Series B Cumulative Redeemable Preference Units; liquidation value $250 per unit; 500,000 units issued and outstanding at September 30, 2002 and December 31, 2001	$	22.81252	$	125,000	$	125,000
9¹/8% Series C Cumulative Redeemable Preference Units; liquidation value $250 per unit; 460,000 units issued and outstanding at September 30, 2002 and December 31, 2001	$	22.81252		115,000		115,000
8.60% Series D Cumulative Redeemable Preference Units; liquidation value $250 per unit; 700,000 units issued and outstanding at September 30, 2002 and December 31, 2001	$	21.50000		175,000		175,000
7.00% Series E Cumulative Convertible Preference Units; liquidation value $25 per unit; 2,563,614 and 3,365,794 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively	$	1.75000		64,090		84,145
7¹/4% Series G Convertible Cumulative Preference Units; liquidation value $250 per unit; 1,264,692 and 1,264,700 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively	$	18.12500		316,173		316,175
7.00% Series H Cumulative Convertible Preference Units, liquidation value $25 per unit; 51,228 and 54,027 units issued and outstanding at September 30, 2002 and December 31, 2001, respectively	$	1.75000		1,281		1,351
8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at September 30, 2002 and December 31, 2001	$	4.14500		50,000		50,000
7.625% Series L Cumulative Redeemable Preference Units; liquidation value $25 per unit; 4,000,000 units issued and outstanding at September 30, 2002 and December 31, 2001	$	1.90625		100,000		100,000

			$	946,544	$	966,671

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

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

9 1/8% Series C Cumulative Redeemable Preference Units; liquidation value $250 per unit; 460,000 units issued and outstanding at March 31, 2003 and December 31, 2002	$	22.81252	115,000		115,000

8.60% Series D Cumulative Redeemable Preference Units; liquidation value $250 per unit; 700,000 units issued and outstanding at March 31, 2003 and December 31, 2002	$	21.50000	175,000		175,000

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

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

7.00% Series H Cumulative Convertible Preference Units; liquidation value $25 per unit; 51,228 units issued and outstanding at March 31, 2003 and December 31, 2002	$	1.75000	1,281		1,281

8.29% Series K Cumulative Redeemable Preference Units; liquidation value $50 per unit; 1,000,000 units issued and outstanding at March 31, 2003 and December 31, 2002	$	4.14500	50,000		50,000

7.625% Series L Cumulative Redeemable Preference Units; liquidation value $25 per unit; 4,000,000 units issued and outstanding at March 31, 2003 and December 31, 2002	$	1.90625	100,000		100,000

			$	946,076	$	946,157

Date Acquired	Property	Location	Number of Units	Acquisition Price (in thousands)
03/28/02	Isles at Sawgrass	Sunrise, FL	368	$	26,000
04/24/02	Center Pointe	Beaverton, OR	264		19,100
04/30/02	Mira Flores	Palm Beach Gardens, FL	352		29,250
05/15/02	Gramercy Park	Houston, TX	384		26,000
05/31/02	Enclave at Winston Park	Coconut Creek, FL	278		25,450
05/31/02	St. Andrews at Winston Park	Coconut Creek, FL	284		25,450
06/21/02	Westside Villas VII	Los Angeles, CA	53		15,250
07/17/02	Savannah Lakes	Boynton Beach, FL	466		37,400
08/01/02	Cove at Fisher's Landing	Vancouver, WA	253		17,800
08/08/02	Avon Place (condo unit)	Avon, CT	1		69
08/09/02	Montevista	Dallas, TX	350		23,675

			3,053	$	245,444

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

Date Disposed	Property	Location	Number of Units	Disposition Price (in thousands)
01/17/02	Ravenwood	Mauldin, SC	82	$	2,425
01/24/02	Larkspur I & II	Moraine, OH	45		899
01/31/02	Springwood II	Austintown, OH	43		900
02/21/02	Scottsdale Courtyards	Scottsdale, AZ	274		26,500
04/11/02	Applegate	Lordstown, OH	39		723
04/11/02	Applerun	Warren, OH	48		1,054
04/11/02	Brunswick	Cortland, OH	59		1,424
05/01/02	The Landings	Memphis, TN	292		10,300
05/03/02	Waterbury	Clarksville, TN	54		1,385
05/09/02	Arboretum	Tucson, AZ	496		25,000
05/09/02	Orange Grove Village	Tucson, AZ	400		17,400
05/09/02	Village at Tanque Verde	Tucson, AZ	217		9,100
05/14/02	Canyon Crest Views	Riverside, CA	178		20,450
05/14/02	Merrimac Woods	Costa Mesa, CA	123		12,950
05/14/02	Sierra Canyon	Santa Clarita, CA	232		23,500
05/15/02	Meadowood	Wellsville, OH	40		812
05/23/02	Pine Meadow	Greensboro, NC	204		7,550
05/23/02	Palms at South Shore	League City, TX	240		12,850
05/31/02	California Gardens	Jacksonville, FL	71		1,468
05/31/02	Westcreek	Jacksonville, FL	86		2,282
06/19/02	Apple Run	Hillsdale, MI	39		1,047
07/02/02	Cedar Ridge	Arlington, TX	121		5,500
07/02/02	Fielder Crossing	Arlington, TX	119		4,100
07/09/02	Vacant Land	Detroit, MI	—		10
07/11/02	Stonehenge	Tecumseh, MI	48		1,238
07/11/02	Ashgrove	Marshall, MI	51		1,314
07/12/02	Mill Village	Randolph, MA	311		31,800
07/18/02	Meadowood I	Jackson, MI	47		1,450
07/24/02	Mountain Run	Albuquerque, NM	472		21,500
07/30/02	Celebration at Westchase	Houston, TX	367		16,150
07/30/02	Pleasant Ridge	Arlington, TX	63		2,605
07/31/02	Cedargate I & II	Bowling Green, KY	117		3,020
08/15/02	The Cedars	Charlotte, NC	360		14,800
08/29/02	Bourbon Square (Retail)	Palatine, IL	—		1,200
09/30/02	River Bend	Tampa, FL	296		11,200
Various	Four Lakes Condo Units	Lisle, IL	77		8,191

	Wholly Owned Properties		5,711		304,097

01/31/02	Mount Laurel Crossing*	Mt. Laurel, NJ	296		11,317
04/23/02	Foxton*	Seymour, IN	39		—
08/13/02	Chase Knolls*	Los Angeles, CA	—		23,479

	Unconsolidated Properties		335		34,796

Total			6,046	$	338,893

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

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

Total projects	45			12			17			22			96		(2)

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

Operating Partnership’s percentage ownership of outstanding debt	25.0		%	100.0		%	100.0		%	11.1		%

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

	Cash Flow Hedges			Fair Value Hedges			Forward Starting Swaps			Offsetting Receive Floating Swaps/Caps			Offsetting Pay Floating Swaps/Caps
Current Notional Balance	$	400,000		$	220,000		$	250,000		$	255,117		$	255,117
Lowest Possible Notional	$	400,000		$	220,000		$	250,000		$	251,410		$	251,410
Highest Possible Notional	$	400,000		$	220,000		$	250,000		$	431,444		$	431,444
Lowest Interest Rate		3.65125	%		5.33250	%		5.06375	%		4.52800	%		4.45800	%
Highest Interest Rate		5.81000	%		7.25000	%		5.42600	%		6.00000	%		6.00000	%
Earliest Maturity Date		2003			2005			2013			2003			2003
Latest Maturity Date		2005			2011			2013			2007			2007
Estimated Asset (Liability)
Fair Value	$	(16,244	)	$	16,567		$	(9,174	)	$	(4,708	)	$	4,529

	Cash Flow Hedges			Fair Value Hedges			Interest Rate Caps			Offsetting Receive Floating Swaps/Caps			Offsetting Pay Floating Swaps/Caps
Current Notional Balance	$	400,000		$	120,000		$	37,000		$	255,119		$	255,119
Lowest Possible Notional	$	400,000		$	120,000		$	37,000		$	251,410		$	251,410
Highest Possible Notional	$	400,000		$	120,000		$	37,000		$	431,444		$	431,444
Lowest Interest Rate	3.65125		%	7.25000		%	6.5		%	4.52800		%	4.45800		%
Highest Interest Rate	5.81000		%	7.25000		%	6.5		%	6.00000		%	6.00000		%
Earliest Maturity Date	2003			2005			2004			2003			2003
Latest Maturity Date	2005			2005			2004			2007			2007
Estimated Asset (Liability) Fair Value	$	(12,123	)	$	8,851		$	—		$	(2,261	)	$	2,184

		Properties		Units		Purchase / Sale Price $ Millions
	At December 31, 2000	1,104		227,704
Q1/Q2/Q3 2001 Acquisitions		11		2,657		$	288.0
Q1/Q2/Q3 2001 Dispositions		(38	)	(6,241	)	$	298.5
Q1/Q2/Q3 2001 Completed Developments		4		1,470

	At September 30, 2001	1,081		225,590
Q4 2001 Acquisitions		3		766		$	100.1
Q4 2001 Dispositions		(11	)	(2,566	)	$	118.4
Q4 2001 Completed Developments		3		1,035
Q4 2001 Unit Configuration Changes		—		(24	)

	At December 31, 2001	1,076		224,801
Q1/Q2/Q3 2002 Acquisitions		10		3,053		$	245.4
Q2 2002 Fort Lewis		1		3,637
Q1/Q2/Q3 2002 Dispositions		(35	)	(6,046	)	$	338.9
Q1/Q2/Q3 2002 Completed Developments		7		1,966
Q1/Q2/Q3 2002 Unit Configuration Changes		—		15

	At September 30, 2002	1,059		227,426

	Properties		Units		Purchase / Sale Price $ Millions
At December 31, 2001	1,076		224,801
Q1 2002 Acquisitions	1		368		$	26.0
Q1 2002 Dispositions	(5	)	(757	)	$	43.7
Q1 2002 Completed Developments	1		588
At March 31, 2002	1,073		225,000
Q2/Q3/Q4 2002 Acquisitions	11		3,266		$	263.9
Ft. Lewis Joint Venture	1		3,652
Q2/Q3/Q4 2002 Dispositions	(53	)	(9,956	)	$	502.5
Q2/Q3/Q4 2002 Completed Developments	7		1,613
Q2/Q3/Q4 2002 Unit Configuration Changes	—		16
At December 31, 2002	1,039		223,591
Q1 2003 Acquisitions	3		920		$	111.5
Q1 2003 Dispositions	(17	)	(4,000	)	$	195.0
Q1 2003 Completed Developments	2		738
At March 31, 2003	1,027		221,249

EXHIBIT INDEX

$ in Millions—191,940 "Same Store" Units
Description		Revenues			Expenses			NOI
YTD 2002		$	1,356.7		$	506.5		$	850.2
YTD 2001		$	1,386.5		$	503.9		$	882.6

	Change	$	(29.8	)	$	2.6		$	(32.4	)

% Change			(2.1	%)		0.5	%		(3.7	%)

Description	Revenues			Expenses			NOI

Q1 2003	$	448.1		$	176.8		$	271.3
Q1 2002	$	464.3		$	164.2		$	300.1
Change	$	(16.2	)	$	12.6		$	(28.8	)
Change	(3.5		)%	7.7		%	(9.6		)%


~~YTD 2002~~ Q1 2003		~~93.87~~ 92.5	%
~~YTD 2001~~ Q1 2002		~~94.59~~ 94.0	%
Change		(1.5
	~~Change~~		~~(0.72~~	)%)


~~Physical Occupancy~~		~~93.0%~~
~~Revenue Change~~		~~(2.6%)~~
~~Expense Change~~		~~0.8%~~
~~NOI Change~~		~~(4.5%)~~
~~Dispositions~~		~~$450 million~~


Physical Occupancy		93.0%
Revenue Change		~~(3.9%~~ (3.5%) to ~~(1.4%~~(1.2%)
Expense Change		~~2.1%~~ 2.8%) to ~~4.4%~~5.2%
NOI Change		(9.2%) to (3.7%)
Dispositions		$700 million


~~Q3 2002~~	~~93.67~~	%
~~Q3 2001~~	~~94.54~~	%

~~Change~~	~~(0.87~~	%)

		$Millions		Weighted Average Rate		$ Millions		Weighted Average Rate
Secured	Secured	$	3,089	6.22	%	$	2,901	6.05	%
Unsecured	Unsecured		2,482	6.41	%	2,854		6.36	%
Total						$	5,755	6.20	%

Fixed Rate*						$	5,122	6.70	%
Floating Rate*						633		2.23	%
Total*						$	5,755	6.20	%
	Total	$	5,571	6.30	%
Fixed Rate *		$	4,807	6.89	%
Floating Rate *			764	2.58	%

	Total *	$	5,571	6.30	%
Above Totals Include:
Above Totals Include:
Total Tax Exempt	Total Tax Exempt	$	986	3.71	%	$	973	3.63	%
Unsecured Revolving Credit Facility	Unsecured Revolving Credit Facility	$	35	2.44	%	$	—	—

* Net of the effect of interest rate protection agreements.

		Units	Conversion Ratio	OP Unit Equivalents
Preference Units:
	Series E	2,563,614	1.1128	2,852,790
	Series G	1,264,692	8.5360	10,795,408
	Series H	51,228	1.4480	74,178
Preference Interests:
	Series H	190,000	1.5108	287,052
	Series I	270,000	1.4542	392,634
	Series J	230,000	1.4108	324,484
Junior Preference Units:
	Series A	56,616	4.081600	231,084
	Series B	7,367	1.020408	7,517

Total				14,965,147

	Units	Conversion Ratio	OP Unit Equivalents
Preference Units:
Series E	2,544,864	1.1128	2,831,925
Series G	1,264,692	8.5360	10,795,408
Series H	51,228	1.4480	74,178
Preference Interests:
Series H	190,000	1.5108	287,052
Series I	270,000	1.4542	392,634
Series J	230,000	1.4108	324,484
Junior Preference Units:
Series A	56,616	4.081600	231,084
Series B	7,367	1.020408	7,517

Total			14,944,282

•	Replacements (inside the unit). These include:
	•	carpets and hardwood floors;
	•	appliances;
	•	mechanical equipment such as individual furnace/air units, hot water heaters, etc;
	•	furniture and fixtures such as kitchen/bath cabinets, light fixtures, ceiling fans, sinks, tubs, toilets, mirrors, countertops, etc;
	•	flooring such as vinyl, linoleum or tile; and
	•	blinds/shades