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

FORM 10-Q

	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2007
OR
	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12252

 

EQUITY RESIDENTIAL
(Exact Name of Registrant as Specified in its Charter)

 

 

 

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

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

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

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

The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding on June 30, 2007 was 277,134,550.

 

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

 

		June 30, 2007			December 31, 2006
ASSETS
Investment in real estate
Land		$	3,582,455		$	3,217,672
Depreciable property		13,855,981			13,376,359
Projects under development		392,616			399,131
Land held for development		313,360			242,013
Investment in real estate		18,144,412			17,235,175
Accumulated depreciation		(3,125,555		)	(3,022,480		)
Investment in real estate, net		15,018,857			14,212,695
Cash and cash equivalents		66,266			260,277
Investments in unconsolidated entities		4,225			4,448
Deposits — restricted		350,934			391,825
Escrow deposits — mortgage		21,214			25,528
Deferred financing costs, net		54,889			43,384
Other assets		152,279			124,062
Total assets		$	15,668,664		$	15,062,219
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Mortgage notes payable		$	3,188,395		$	3,178,223
Notes, net		5,363,139			4,419,433
Lines of credit		780,000			460,000
Accounts payable and accrued expenses		111,140			96,699
Accrued interest payable		95,183			91,172
Other liabilities		332,927			311,557
Security deposits		62,812			58,072
Distributions payable		145,112			151,382
Total liabilities		10,078,708			8,766,538
Commitments and contingencies
Minority Interests:
Operating Partnership		333,056			372,961
Preference Interests and Units		184			11,684
Partially Owned Properties		23,392			26,814
Total Minority Interests		356,632			411,459
Shareholders’ equity:
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized; 2,727,250 shares issued and outstanding as of June 30, 2007 and 2,762,950 shares issued and outstanding as of December 31, 2006		385,681			386,574
Common Shares of beneficial interest, $0.01 par value; 1,000,000,000 shares authorized; 277,134,550 shares issued and outstanding as of June 30, 2007 and 293,551,633 shares issued and outstanding as of December 31, 2006		2,771			2,936
Paid in capital		4,563,630			5,349,194
Retained earnings		288,109			159,528
Accumulated other comprehensive loss		(6,867		)	(14,010		)
Total shareholders’ equity		5,233,324			5,884,222
Total liabilities and shareholders’ equity		$	15,668,664		$	15,062,219

 

 

See accompanying notes

 

2

---

 

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)

 

 

		Six Months Ended June 30,						Quarter Ended June 30,
		2007			2006			2007			2006
REVENUES
Rental income		$	1,037,668		$	910,242		$	529,310		$	465,213
Fee and asset management		4,703			4,807			2,436			2,320
Total revenues		1,042,371			915,049			531,746			467,533
EXPENSES
Property and maintenance		273,801			238,594			136,682			120,823
Real estate taxes and insurance		112,017			88,963			55,302			45,132
Property management		47,254			46,661			22,412			23,077
Fee and asset management		4,504			4,326			2,163			2,158
Depreciation		304,052			257,683			155,032			132,771
General and administrative		21,515			22,378			11,549			9,338
Impairment		394			805			158			239
Total expenses		763,537			659,410			383,298			333,538
Operating income		278,834			255,639			148,448			133,995
Interest and other income		6,228			4,246			3,784			1,894
Interest:
Expense incurred, net		(233,075		)	(203,862		)	(122,019		)	(103,120		)
Amortization of deferred financing costs		(6,162		)	(4,383		)	(3,615		)	(1,752		)
Income before allocation to Minority Interests, loss from investments in unconsolidated entities, net gain on sales of unconsolidated entities and land parcels and discontinued operations		45,825			51,640			26,598			31,017
Allocation to Minority Interests:
Operating Partnership, net		(2,097		)	(1,828		)	(1,449		)	(1,317		)
Preference Interests and Units		(434		)	(1,556		)	(211		)	(457		)
Partially Owned Properties		(779		)	(2,068		)	(187		)	(547		)
Premium on redemption of Preference Interests		—			(683		)	—			(9		)
Loss from investments in unconsolidated entities		(363		)	(375		)	(134		)	(145		)
Net gain on sales of unconsolidated entities		—			352			—			23
Net gain on sales of land parcels		4,516			246			4,516			246
Income from continuing operations, net of minority interests		46,668			45,728			29,133			28,811
Discontinued operations, net of minority interests		361,970			492,244			253,268			131,346
Net income		408,638			537,972			282,401			160,157
Preferred distributions		(14,840		)	(20,168		)	(7,416		)	(10,073		)
Net income available to Common Shares		$	393,798		$	517,804		$	274,985		$	150,084
Earnings per share — basic:
Income from continuing operations available to Common Shares		$	0.11		$	0.09		$	0.08		$	0.07
Net income available to Common Shares		$	1.37		$	1.79		$	0.97		$	0.52
Weighted average Common Shares outstanding		288,316			289,172			284,424			289,460
Earnings per share — diluted:
Income from continuing operations available to Common Shares		$	0.11		$	0.09		$	0.08		$	0.06
Net income available to Common Shares		$	1.35		$	1.76		$	0.95		$	0.51
Weighted average Common Shares outstanding		311,963			314,420			307,631			314,698
Distributions declared per Common Share outstanding		$	0.9250		$	0.8850		$	0.4625		$	0.4425

 

See accompanying notes

 

 

3

---

EQUITY RESIDENTIAL
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Amounts in thousands except per share data)
(Unaudited)

 

		Six Months Ended June 30,						Quarter Ended June 30,
		2007			2006			2007			2006
Comprehensive income:
Net income		$	408,638		$	537,972		$	282,401		$	160,157
Other comprehensive income — derivative and other instruments:
Unrealized holding gains arising during the period		6,091			2,409			6,212			886
Losses reclassified into earnings from other comprehensive income		1,052			1,136			489			547
Comprehensive income		$	415,781		$	541,517		$	289,102		$	161,590

 

See accompanying notes

 

4

 

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

 

		Six Months Ended June 30,
		2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	408,638		$	537,972
Adjustments to reconcile net income to net cash provided by operating activities:
Allocation to Minority Interests:
Operating Partnership		26,105			36,499
Preference Interests and Units		434			1,556
Partially Owned Properties		779			2,068
Premium on redemption of Preference Interests		—			683
Depreciation		311,741			297,472
Amortization of deferred financing costs		7,484			5,146
Amortization of discounts and premiums on debt		(2,686		)	(3,644		)
Amortization of deferred settlements on derivative instruments		362			446
Impairment		394			1,156
Loss from investments in unconsolidated entities		363			375
Distributions from unconsolidated entities — return on capital		47			101
Net (gain) on sales of unconsolidated entities		—			(352		)
Net (gain) on sales of land parcels		(4,516		)	(246		)
Net (gain) on sales of discontinued operations		(385,323		)	(502,297		)
Loss on debt extinguishments		3,041			2,892
Unrealized (gain) on derivative instruments		(1		)	—
Compensation paid with Company Common Shares		10,243			10,858
Other operating activities, net		—			(1		)
Changes in assets and liabilities:
(Increase) in deposits — restricted		(837		)	(9,570		)
(Increase) decrease in other assets		(6,741		)	8,525
Increase in accounts payable and accrued expenses		5,828			9,272
Increase in accrued interest payable		4,011			7,931
(Decrease) in other liabilities		(28,313		)	(48,065		)
Increase in security deposits		4,740			4,954
Net cash provided by operating activities		355,793			363,731
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate — acquisitions		(1,142,440		)	(907,963		)
Investment in real estate — development/other		(195,354		)	(122,771		)
Improvements to real estate		(117,845		)	(106,441		)
Additions to non-real estate property		(4,185		)	(4,086		)
Interest capitalized for real estate under development		(17,894		)	(7,780		)
Proceeds from disposition of real estate, net		839,114			1,002,714
Proceeds from disposition of unconsolidated entities		—			355
Investments in unconsolidated entities		(187		)	(1,030		)
Distributions from unconsolidated entities — return of capital		—			92
Decrease in deposits on real estate acquisitions, net		178,246			10,178
Decrease in mortgage deposits		4,314			6,794
Consolidation of previously Unconsolidated Properties:
Via EITF 04-5 (cash consolidated)		—			1,436
Acquisition of Minority Interests — Partially Owned Properties		—			(13		)
Other investing activities, net		—			2
Net cash (used for) investing activities		(456,231		)	(128,513		)

 

See accompanying notes

5

---

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

 

		Six Months Ended June 30,
		2007			2006
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan and bond acquisition costs		$	(19,384	)	$	(4,880	)
Mortgage notes payable:
Proceeds		262,026			208,937
Restricted cash		(139,262		)	(19,196		)
Lump sum payoffs		(310,128		)	(232,532		)
Scheduled principal repayments		(12,507		)	(13,644		)
Prepayment premiums/fees		(3,041		)	(2,892		)
Notes, net:
Proceeds		993,031			398,052
Lump sum payoffs		(50,000		)	—
Lines of credit:
Proceeds		10,703,000			3,207,500
Repayments		(10,383,000		)	(3,429,500		)
Proceeds from settlement of derivative instruments		2,370			10,729
Proceeds from sale of Common Shares		4,520			5,218
Proceeds from exercise of options		9,751			24,159
Common Shares repurchased and retired		(837,334		)	(81,981		)
Redemption of Preference Interests		—			(25,500		)
Premium on redemption of Preference Interests		—			(9		)
Payment of offering costs		(137		)	(23		)
Other financing activities, net		(7		)	—
Contributions — Minority Interests — Partially Owned Properties		6,941			3,327
Distributions:
Common Shares		(271,049		)	(256,591		)
Preferred Shares		(14,856		)	(21,243		)
Preference Interests and Units		(446		)	(1,609		)
Minority Interests — Operating Partnership		(18,149		)	(18,012		)
Minority Interests — Partially Owned Properties		(15,912		)	(2,184		)
Net cash (used for) financing activities		(93,573		)	(251,874		)
Net (decrease) in cash and cash equivalents		(194,011		)	(16,656		)
Cash and cash equivalents, beginning of period		260,277			88,828
Cash and cash equivalents, end of period		$	66,266		$	72,172

 

See accompanying notes

 

6

---

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

		Six Months Ended June 30,
		2007			2006
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest		$	251,180		$	222,774
Net cash paid (received) during the period for income, franchise and excise taxes		$	(733	)	$	7,509
Real estate acquisitions/dispositions/other:
Mortgage loans assumed		$	152,697		$	63,243
Valuation of OP Units issued		$	—		$	46,472
Mortgage loans (assumed) by purchaser		$	(76,744	)	$	(117,949	)
Consolidation of previously Unconsolidated Properties — Via EITF 04-5:
Investment in real estate, net		$	—		$	(24,637	)
Mortgage loans consolidated		$	—		$	22,545
Investments in unconsolidated entities		$	—		$	2,602
Net other liabilities recorded		$	—		$	926

 

See accompanying notes

 

7

EQUITY RESIDENTIAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.             Business

Equity Residential (“EQR”), a Maryland real estate investment trust (“REIT”) formed in March 1993, is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top United States growth markets.  EQR has elected to be taxed as a REIT.

EQR is the general partner of, and as of June 30, 2007 owned an approximate 93.6% ownership interest in, ERP Operating Limited Partnership, an Illinois limited partnership (the “Operating Partnership”).  The Company is structured as an umbrella partnership REIT (“UPREIT”), under which all property ownership and business operations are conducted through the Operating Partnership and its subsidiaries.  References to the “Company” include EQR, the Operating Partnership and those entities owned or controlled by the Operating Partnership and/or EQR.

As of June 30, 2007, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 608 properties in 24 states and the District of Columbia consisting of 162,532 units.   The ownership breakdown includes (table does not include various uncompleted development properties):

 

 

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 six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The balance sheet at December 31, 2006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

For further information, including definitions of capitalized terms not defined herein, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2006.

8

---

Income Taxes

Due to the structure of the Company as a REIT and the nature of the operations of its operating properties, no provision for federal income taxes has been made at the EQR level.  Historically, the Company has generally only incurred certain state and local income, excise and franchise taxes.  The Company has elected Taxable REIT Subsidiary (“TRS”) status for certain of its corporate subsidiaries, primarily those entities engaged in condominium conversion and corporate housing activities and as a result, these entities will incur both federal and state income taxes on any income of such entities.

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  These assets and liabilities are measured using enacted tax rates for which the temporary differences are expected to be recovered or settled.  The effect of deferred tax assets and liabilities are recognized in earnings in the period enacted.  As of June 30, 2007, the Company has recorded a deferred tax asset which was fully offset by a valuation allowance.

Other

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

The Company adopted the disclosure provisions of SFAS No. 150 and FSP No. FAS 150-3, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, effective December 31, 2003.  SFAS No. 150 and FSP No. FAS 150-3 require the Company to make certain disclosures regarding noncontrolling interests that are classified as equity in the financial statements of a subsidiary but would be classified as a liability in the parent’s financial statements under SFAS No. 150 (e.g., minority interests in consolidated limited-life subsidiaries).  The Company is presently the controlling partner in various consolidated partnerships consisting of 27 properties and 5,445 units and various uncompleted development properties having a minority interest book value of $23.4 million at June 30, 2007.  Some of these partnerships contain provisions that require the partnerships to be liquidated through the sale of its assets upon reaching a date specified in each respective partnership agreement.  The Company, as controlling partner, has an obligation to cause the property owning partnerships to distribute proceeds of liquidation to the Minority Interests in these Partially Owned Properties only to the extent that the net proceeds received by the partnerships from the sale of its assets warrant a distribution based on the partnership agreements.  As of June 30, 2007, the Company estimates the value of Minority Interest distributions would have been approximately $110.5 million (“Settlement Value”) had the partnerships been liquidated.  This Settlement Value is based on estimated third party consideration realized by the partnerships upon disposition of the Partially Owned Properties and is net of all other assets and liabilities, including yield maintenance on the mortgages encumbering the properties, that would have been due on June 30, 2007 had those mortgages been prepaid.  Due to, among other things, the inherent uncertainty in the sale of real estate assets, the amount of any potential distribution to the Minority Interests in the Company’s Partially Owned Properties is subject to change.  To the extent that the partnerships’ underlying assets are worth less than the underlying liabilities, the Company has no obligation to remit any consideration to the Minority Interests in Partially Owned Properties.

The Company adopted EITF Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (“Issue 04-5”), effective January 1, 2006.  Issue 04-5 provides guidance in determining whether a general partner controls a limited partnership.  The Company consolidated its Lexford syndicated portfolio consisting of 20 separate partnerships (10 properties) containing 1,272 units, all of which were sold

9

---

October 5, 2006.  The adoption did not have a material effect on the results of operations or financial position.

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

3.                                      Shareholders’ Equity and Minority Interests

The following tables present the changes in the Company’s issued and outstanding Common Shares and OP Units for the six months ended June 30, 2007:

 

 

 

On April 27, 2007, the Board of Trustees approved an increase of $200.1 million to the Company’s authorized share repurchase program.  On May 24, 2007, the Board of Trustees approved an additional $500.0 million share repurchase program.  Considering the above additional authorizations and the repurchase activity for the six months ended June 30, 2007, EQR has $335.8 million remaining available for share repurchases as of June 30, 2007.

During the six months ended June 30, 2007, the Company repurchased 18,460,206 of its Common Shares at an average price of $46.91 per share for total consideration of $866.0 million, of which $837.3 million was paid in cash during the six months ended June 30, 2007 and $28.7 million was accrued for at June 30, 2007 (see below).  These shares were retired subsequent to the repurchase.  Of the total shares repurchased, 81,106 shares were repurchased at an average price of $54.33 per share to cover the minimum statutory tax withholding obligations related to the vesting of employees’ restricted shares.  The remaining 18,379,100 shares were repurchased in the open market at an average price of $46.88 per share.  As of June 30, 2007, transactions to repurchase 627,300 of the 18,460,206 Common Shares had not yet settled.  As of June 30, 2007, the Company

10

---

has reduced the number of Common Shares issued and outstanding by this amount and recorded a liability of $28.7 million included in other liabilities on the consolidated balance sheets.

The equity positions of various individuals and entities that contributed their properties to the Operating Partnership in exchange for OP Units are collectively referred to as the “Minority Interests — Operating Partnership”.  Subject to certain restrictions, the Minority Interests — Operating Partnership may exchange their OP Units for EQR Common Shares on a one-for-one basis.

Net proceeds from the Company’s Common Share and Preferred Share (see definition below) offerings are contributed by the Company to the Operating Partnership.  In return for those contributions, EQR receives a number of OP Units in the Operating Partnership 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 the Operating Partnership equal in number and having the same terms as the Preferred Shares issued in the equity offering).  As a result, the net offering proceeds from Common Shares and Preferred Shares are allocated between shareholders’ equity and Minority Interests — Operating Partnership to account for the change in their respective percentage ownership of the underlying equity of the Operating Partnership.

The Company’s declaration of trust authorizes the Company to issue up to 100,000,000 preferred shares of beneficial interest, $0.01 par value per share (the “Preferred Shares”), with specific rights, preferences and other attributes as the Board of Trustees may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Company’s Common Shares.

The following table presents the Company’s issued and outstanding Preferred Shares as of June 30, 2007 and December 31, 2006:

 

						Annual			Amounts in thousands
		Redemption Date (1) (2)		Conversion Rate (2)		Dividend per Share (3)			June 30, 2007			December 31, 2006
Preferred Shares of beneficial interest, $0.01 par value; 100,000,000 shares authorized:
8.60% Series D Cumulative Redeemable Preferred; liquidation value $250 per share; 700,000 shares issued and outstanding at June 30, 2007 and December 31, 2006		7/15/07		N/A		(5		)	$	175,000		$	175,000
7.00% Series E Cumulative Convertible Preferred; liquidation value $25 per share; 401,716 and 434,816 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively		11/1/98		1.1128		$	1.75		10,043			10,871
7.00% Series H Cumulative Convertible Preferred; liquidation value $25 per share; 25,534 and 28,134 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively		6/30/98		1.4480		$	1.75		638			703
8.29% Series K Cumulative Redeemable Preferred; liquidation value $50 per share; 1,000,000 shares issued and outstanding at June 30, 2007 and December 31, 2006		12/10/26		N/A		$	4.145		50,000			50,000
6.48% Series N Cumulative Redeemable Preferred; liquidation value $250 per share; 600,000 shares issued and outstanding at June 30, 2007 and December 31, 2006 (4)		6/19/08		N/A		$	16.20		150,000			150,000
									$	385,681		$	386,574

 

11

---

 

(1)          On or after the redemption date, redeemable preferred shares (Series K and N) may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price equal to the liquidation price per share, plus accrued and unpaid distributions, if any.

(2)          On or after the redemption date, convertible preferred shares (Series E & H) may be redeemed under certain circumstances at the option of the Company for cash (in the case of Series E) or Common Shares (in the case of Series H), in whole or in part, at various redemption prices per share based upon the contractual conversion rate, plus accrued and unpaid distributions, if any.

(3)          Dividends on all series of Preferred Shares are payable quarterly at various pay dates.  The dividend listed for Series N is a Preferred Share rate and the equivalent Depositary Share annual dividend is $1.62 per share.

(4)          The Series N Preferred Shares have a corresponding depositary share that consists of ten times the number of shares and one-tenth the liquidation value and dividend per share.

(5)          On May 25, 2007, the Company issued an irrevocable notice to redeem for cash on July 16, 2007 all 700,000 shares of its Series D Preferred Shares.   The Company will record the write-off of approximately $6.1 million in original costs as a premium on redemption of Preferred Shares in the third quarter of 2007.

The following table presents the issued and outstanding Preference Interests as of June 30, 2007 and December 31, 2006:

 

								Annual			Amounts in thousands
		Redemption Date (1) (2)			Conversion Rate (2)			Dividend per Unit (3)			June 30, 2007				December 31, 2006
Preference Interests:
7.625% Series J Cumulative Convertible Redeemable Preference Units; liquidation value $50 per unit; 0 and 230,000 units issued and outstanding at June 30, 2007 and December 31, 2006, respectively			12/14/06			1.4108			(4	)		$	—		$	11,500
												$	—		$	11,500

 

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

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

(3)          Dividends on the Series J Preference Interests were payable quarterly on March 25th, June 25th, September 25th and December 25th of each year.

(4)          On May 24, 2007, the Company issued an irrevocable notice to redeem for cash on June 25, 2007 all 230,000 units of its 7.625% Series J Preference Interests with a liquidation value of $11.5 million.  This notice triggered the holder’s Accelerated Conversion Right, which they exercised.  As a result, effective June 25, 2007, the 230,000 units were converted into 324,484 Common Shares.

The following table presents the Operating Partnership’s issued and outstanding Junior Convertible Preference Units (the “Junior Preference Units”) as of June 30, 2007 and December 31, 2006:

 

12

 

							Annual				Amounts in thousands
		Redemption Date (2)			Conversion Rate (2)		Dividend per Unit (1)				June 30, 2007				December 31, 2006
Junior Preference Units:
Series B Junior Convertible Preference Units; liquidation value $25 per unit; 7,367 units issued and outstanding at June 30, 2007 and December 31, 2006			07/29/09		1.020408			$	2.00			$	184			$	184
												$	184			$	184

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

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

4.              Real Estate

The following table summarizes the carrying amounts for investment in real estate (at cost) as of June 30, 2007 and December 31, 2006 (Amounts in thousands):

 

During the six months ended June 30, 2007, the Company acquired the following from unaffiliated parties (purchase price in thousands):

 

During the six months ended June 30, 2007, the Company disposed of the following to unaffiliated parties (sales price in thousands):

 

13

---

 

 

The Company recognized a net gain on sales of discontinued operations and a net gain on sales of land parcels of approximately $385.3 million and $4.5 million, respectively, on the above sales.

5.              Commitments to Acquire/Dispose of Real Estate

As of August 1, 2007, in addition to the properties that were subsequently acquired as discussed in Note 16, the Company had entered into separate agreements to acquire the following (purchase price in thousands):

 

 

As of August 1, 2007, in addition to the properties that were subsequently disposed as discussed in Note 16, the Company had entered into separate agreements to dispose of the following (sales price in thousands):

 

 

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

6.              Investments in Partially Owned Entities

The Company has co-invested in various properties with unrelated third parties which are either consolidated or accounted for under the equity method of accounting (unconsolidated).  The following table summarizes the Company’s investments in partially owned entities as of June 30, 2007 (amounts in thousands except for project and unit amounts):

 

14

---

 

		Consolidated																		Unconsolidated
		Development Projects
		Held for and/or Under Development				Completed, Not Stabilized (4)				Completed and Stabilized				Other			Total			Institutional Joint Ventures
Total projects (1)			—				2				4			21			27				45
Total units (1)			—				572				977			3,896			5,445				10,846
Debt — Secured (2):
EQR Ownership (3)			$	262,878			$	97,596			$	61,000		$	286,891		$	708,365			$	121,200
Minority Ownership			—				—				—			13,321			13,321				363,600
Total (at 100%)			$	262,878			$	97,596			$	61,000		$	300,212		$	721,686			$	484,800

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

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

(3)          Represents the Company’s current economic ownership interest.

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

7.                                     Deposits — Restricted

The following table presents the deposits — restricted as of June 30, 2007 and December 31, 2006 (amounts in thousands):

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

8.                                     Mortgage Notes Payable

As of June 30, 2007, the Company had outstanding mortgage debt of approximately $3.2 billion.

During the six months ended June 30, 2007, the Company:

·                  Repaid $322.6 million of mortgage loans;

·                  Assumed $152.7 million of mortgage debt on certain properties in connection with their acquisitions;

·                  Obtained $262.0 million of new mortgage loans on certain properties; and

·                  Was released from $76.7 million of mortgage debt assumed by the purchaser on disposed properties.

The Company recorded approximately $3.0 million and $3.4 million of prepayment penalties and write-offs of unamortized deferred financing costs, respectively, as additional interest related to debt extinguishment of mortgages during the six months ended June 30, 2007.

 

15