EQUITY RESIDENTIAL (EQR)

Fee and asset management revenues, net of fee and asset management expenses decreased $1.0 million primarily as a result of lower income earned from managing fewer properties for third parties and

25

unconsolidated entities.  As of September 30, 2006 and 2005, the Company managed 14,784 units and 17,148 units, respectively, for third parties and unconsolidated entities.

Property management expenses from continuing operations include off-site expenses associated with the self-management of the Company’s properties as well as management fees paid to any third party management companies.  These expenses increased by approximately $6.7 million or 10.6%.  This increase is primarily attributable to higher overall payroll costs and higher overall computer and training costs specific to the Company’s rollout of a new property management system.

Depreciation expense from continuing operations, which includes depreciation on non-real estate assets, increased $91.6 million primarily as a result of additional depreciation expense on newly acquired properties and capital expenditures for all properties owned.

General and administrative expenses, which include corporate operating expenses, decreased approximately $8.3 million between the periods under comparison.  This decrease was primarily due to lower executive compensation expense due to severance costs for several executive officers incurred during the nine months ended September 30, 2005 and a $2.8 million reimbursement of legal expenses during the nine months ended September 30, 2006.  The Company anticipates that general and administrative expenses will approximate $50.0 million for the year ending December 31, 2006.  This above assumption is based on current expectations and is forward-looking.

Interest and other income from continuing operations decreased by approximately $53.2 million, primarily as a result of the $57.1 million in cash received during the nine months ended September 30, 2005, partially offset by the $3.7 million in additional proceeds received during the nine months ended September 30, 2006, all for the Company’s ownership interest in Rent.com, which was acquired by eBay, Inc.

Interest expense from continuing operations, including amortization of deferred financing costs, increased approximately $54.8 million primarily as a result of higher variable interest rates and overall debt levels outstanding.  During the nine months ended September 30, 2006, the Company capitalized interest costs of approximately $13.2 million as compared to $9.1 million for the nine months ended September 30, 2005.  This capitalization of interest primarily relates to projects under development.  The effective interest cost on all indebtedness for the nine months ended September 30, 2006 was 6.14% as compared to 6.23% for the nine months ended September 30, 2005.

Loss from investments in unconsolidated entities increased approximately $0.1 million between the periods under comparison.  This increase is primarily the result of consolidating previously unconsolidated properties as of January 1, 2006 as the result of EITF Issue No. 04-05.  See Note 4 in the Notes to Consolidated Financial Statements for further discussion.

Net gain on sales of land parcels decreased $7.2 million, due to a large gain recorded on the sale of one land parcel during the nine months ended September 30, 2005.

Discontinued operations, net of minority interests, increased approximately $1.6 million between the periods under comparison.  This increase is primarily the result of higher per unit sales prices and lower real estate net book values for properties sold during the nine months ended September 30, 2006 as compared to the same period in 2005.  Discontinued operations, net of minority interests includes our Lexford Housing Division, which is held for sale as of September 30, 2006.  See Note 13 in the Notes to Consolidated Financial Statements for further discussion.