EOP OPERATING LTD PARTNERSHIP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

COMMISSION FILE NUMBER: 1-13625

EOP OPERATING LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		36-4156801 (I.R.S. Employer Identification No.)

Two North Riverside Plaza, Suite 2100, Chicago, Illinois (Address of principal executive offices)		60606 (Zip code)

(312) 466-3300

(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 þ No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

On July 31, 2002, 469,524,465 Units were outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. Financial Statements.
EOP OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
EOP OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
EOP OPERATING LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
	NOTE 8 -- SEGMENT INFORMATION
	NOTE 9 -- COMMITMENTS AND CONTINGENCIES
	Concentration of Credit Risk
	Environmental
	Litigation
	Contingencies
	Insurance
	Commitments
	NOTE 10 -- SUBSEQUENT EVENTS
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Critical Accounting Policies and Estimates
	Results of Operations
	General
	Comparison of the three months ended June 30, 2002 to June 30, 2001
	Property Dispositions
	Liquidity and Capital Resources
	Liquidity
	Unsecured Notes
	Restrictions and Covenants under Unsecured Indebtedness
	Equity Securities
	Cash Flows
	Six Months Ended June 30, 2002
	Additional Items
	Deferred Rent Receivable
	Escrow Deposits and Restricted Cash
	Market Risk
	Interest Rate Risk -- Derivatives
	Capital Improvements, Tenant Improvements and Leasing Commissions
	Capital Improvements
	Tenant Improvements and Leasing Commissions
	Developments
	Consolidated Developments:
	Impact of New Accounting Standards
	Inflation
	Funds From Operations (“FFO”)
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
PART II. OTHER INFORMATION
	ITEM 6. Exhibits and Reports on Form 8-K.
SIGNATURES
EXHIBIT INDEX
Statement of Earnings

PART I.

FINANCIAL INFORMATION

ITEM 1. Financial Statements.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS


				June 30,			December 31,
(Dollars in thousands, except per unit amounts)				2002			2001

				(Unaudited)
Assets:
	Investment in real estate			$	24,518,241		$	24,399,658
	Developments in process				159,646			164,997
	Land available for development				244,810			251,696
	Accumulated depreciation				(1,785,737	)		(1,494,301	)

		Investment in real estate, net of accumulated depreciation			23,136,960			23,322,050
	Cash and cash equivalents				300,240			61,121
	Tenant and other receivables (net of allowance for doubtful accounts of $12,299 and $7,794, respectively)				102,964			120,425
	Deferred rent receivable				305,756			269,796
	Escrow deposits and restricted cash				45,579			196,289
	Investment in unconsolidated joint ventures				1,237,095			1,321,127
	Deferred financing costs (net of accumulated amortization of $41,323 and $36,198, respectively)				74,465			77,880
	Deferred leasing costs (net of accumulated amortization of $95,364 and $78,600, respectively)				201,807			187,336
	Prepaid expenses and other assets (net of discounts of $67,220 and $67,413, respectively)				276,984			252,398

			Total Assets	$	25,681,850		$	25,808,422

Liabilities, Minority Interests and Partners’ Capital:
	Mortgage debt (including a net discount of $(12,172) and $(11,761), respectively)			$	2,624,361		$	2,650,338
	Unsecured notes (including a net premium of $22,645 and $17,487, respectively)				9,149,145			9,093,987
	Line of credit				—			244,300
	Accounts payable and accrued expenses				530,641			570,744
	Distribution payable				242,381			6,060
	Other liabilities				315,830			330,277

			Total Liabilities		12,862,358			12,895,706

	Commitments and contingencies				—			—
	Minority interest — partially owned properties				180,425			181,017

	Preferred Units, 100,000,000 authorized:
		8.98% Series A Cumulative Redeemable Preferred Units, liquidation preference $25.00 per unit, 7,994,000 issued and outstanding			199,850			199,850
		5.25% Series B Convertible, Cumulative Redeemable Preferred Units, liquidation preference $50.00 per unit, 5,990,000 issued and outstanding			299,500			299,500
		8.625% Series C Cumulative Redeemable Preferred Units, liquidation preference $25.00 per unit, 4,562,900 issued and outstanding			114,073			114,073
		7.875% Series E Cumulative Redeemable Preferred Units, liquidation preference $25.00 per unit, 6,000,000 issued and outstanding			150,000			150,000
		8.0% Series F Cumulative Redeemable Preferred Units, liquidation preference $25.00 per unit, 4,000,000 issued and outstanding			100,000			100,000
	General Partners Capital				92,285			93,010
	Limited Partners Capital				11,704,332			11,795,204
	Deferred compensation				(21,082	)		(19,822	)
	Accumulated other comprehensive income (loss)				109			(116	)

			Total Partners’ Capital		12,639,067			12,731,699

			Total Liabilities, Minority Interests and Partners’ Capital	$	25,681,850		$	25,808,422

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



				For the three months ended
				June 30,

(Dollars in thousands, except per unit amounts)				2002			2001

Revenues:
	Rental			$	695,764		$	511,156
	Tenant reimbursements				128,847			99,448
	Parking				29,355			30,806
	Other				18,509			8,444
	Fee income				3,977			4,365
	Interest/ dividends				7,513			9,820

			Total revenues		883,965			664,039

Expenses:
	Interest:
		Expense incurred			202,683			156,848
		Amortization of deferred financing costs			1,097			2,703
	Depreciation				161,330			114,068
	Amortization				12,635			8,879
	Real estate taxes				96,716			79,277
	Insurance				11,625			4,329
	Repairs and maintenance				87,935			65,988
	Property operating				87,963			64,583
	Ground rent				5,317			3,347
	General and administrative				38,163			23,701
	Impairment on securities and other investments				—			5,499

			Total expenses		705,464			529,222

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures and discontinued operations					178,501			134,817
Income taxes					(1,926	)		(3,056	)
Minority interests — partially owned properties					(995	)		(1,353	)
Income from investment in unconsolidated joint ventures					22,297			17,864

Income from continuing operations					197,877			148,272
Discontinued operations (including net gain on disposal of $5,499 and $0, respectively)					5,606			1,988

Net income					203,483			150,260
Preferred distributions					(15,831	)		(10,877	)

Net income available for Units				$	187,652		$	139,383

Net income available per weighted average Unit outstanding — basic				$	0.40		$	0.40

Weighted average Units outstanding — basic					470,109,997			348,782,348

Net income available per weighted average Unit and unit equivalent outstanding — diluted				$	0.40		$	0.40

Weighted average Units and unit equivalents outstanding — diluted					472,610,590			351,519,782

Distributions declared per Unit outstanding				$	0.50		$	0.45

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



				For the six months ended
				June 30,

(Dollars in thousands, except per unit amounts)				2002			2001

Revenues:
	Rental			$	1,391,287		$	1,016,603
	Tenant reimbursements				252,606			196,514
	Parking				58,677			61,032
	Other				43,428			24,562
	Fee income				8,055			6,537
	Interest/ dividends				14,356			20,653

			Total revenues		1,768,409			1,325,901

Expenses:
	Interest:
		Expense incurred			407,529			314,715
		Amortization of deferred financing costs			2,379			4,029
	Depreciation				319,223			227,805
	Amortization				24,620			17,889
	Real estate taxes				194,688			155,571
	Insurance				20,159			7,602
	Repairs and maintenance				170,756			130,985
	Property operating				171,382			132,884
	Ground rent				10,858			6,399
	General and administrative				71,117			47,823
	Impairment on securities and other investments				—			8,499

			Total expenses		1,392,711			1,054,201

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, discontinued operations and cumulative effect of a change in accounting principle					375,698			271,700
Income taxes					(8,932	)		(4,573	)
Minority interests — partially owned properties					(2,401	)		(4,606	)
Income from investment in unconsolidated joint ventures					79,925			33,290

Income from continuing operations					444,290			295,811
Discontinued operations (including net gain on disposal of $2,490 and $0, respectively)					3,657			3,613

Income before cumulative effect of a change in accounting principle					447,947			299,424
Cumulative effect of change in accounting principle					—			(1,142	)

Net income					447,947			298,282
Preferred distributions					(31,661	)		(21,761	)

Net income available for Units				$	416,286		$	276,521

Net income available per weighted average Unit outstanding — basic				$	0.89		$	0.79

Weighted average Units outstanding — basic					470,132,017			348,630,252

Net income available per weighted average Unit and unit equivalent outstanding — diluted				$	0.88		$	0.79

Weighted average Units and unit equivalents outstanding — diluted					472,726,956			351,452,397

Distributions declared per Unit outstanding				$	1.00		$	0.90

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF NET COMPREHENSIVE INCOME

(Unaudited)



		For the three months					For the six months
		ended June 30,					ended June 30,

(Dollars in thousands)		2002			2001		2002		2001

Net income		$	203,483		$	150,260	$	447,947	$	298,282
Other comprehensive income (loss):
	Unrealized holding gains/losses arising during the period		(152	)		—		109		(1,416	)
	Reclassification adjustment for realized gains/ losses included in net income		—			—		116		—
	Recognition of permanent impairment on marketable securities		—			5,587		—		29,671

Net comprehensive income		$	203,331		$	155,847	$	448,172	$	326,537

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



					For the six months
					ended June 30,

(Dollars in thousands)					2002			2001

Operating Activities:
	Net income				$	447,947		$	298,282
	Adjustments to reconcile net income to net cash provided by operating activities:
		Interest/dividend income accrued but not received				—			(7,856	)
		Amortization of discounts included in interest / dividend income				(193	)		(1,034	)
		Amortization of deferred revenue included in other income				—			(3,073	)
		Depreciation and amortization (including discontinued operations)				346,824			251,583
		Amortization of premiums / discounts on unsecured notes and terminated interest rate protection agreements included in interest expense				(744	)		2,343
		Impairment on securities and other investments				—			8,499
		Compensation related to restricted shares issued to employees by Equity Office				9,154			4,958
		Income from unconsolidated joint ventures				(79,925	)		(33,290	)
		Net gain on sales of real estate (included in discontinued operations)				(2,490	)		—
		Cumulative effect of a change in accounting principle				—			1,142
		Provision for doubtful accounts				13,558			8,031
		Income allocation to minority interests				2,401			4,606
		Changes in assets and liabilities:
			Decrease in rents receivable			11,509			14,114
			(Increase) in deferred rent receivables			(43,278	)		(34,259	)
			(Increase) decrease in prepaid expenses and other assets			(5,779	)		2,490
			(Decrease) in accounts payable and accrued expenses			(41,026	)		(74,031	)
			(Decrease) increase in other liabilities			(15,738	)		13,947

				Net cash provided by operating activities		642,220			456,452

Investing Activities:
	Property acquisitions					(16,458	)		(35,699	)
	Property dispositions					121,632			8,600
	Payments for capital and tenant improvements					(130,441	)		(128,745	)
	Payments of lease acquisition costs					(41,723	)		(33,144	)
	Decrease (increase) in escrow deposits and restricted cash					150,710			(3,502	)
	Distributions from unconsolidated joint ventures					140,674			69,008
	Investments in unconsolidated joint ventures					(80,902	)		(56,246	)
	Investment in securities					—			(683	)
	Repayments of notes receivable					1,488			4,382

		Net cash provided by (used for) investing activities				144,980			(176,029	)

Financing Activities:
	Principal payments on mortgage debt					(25,566	)		(186,764	)
	Proceeds from unsecured notes					239,127			—
	Repayment of unsecured notes					(200,000	)		—
	Proceeds from lines of credit					805,050			2,928,250
	Principal payments on lines of credit					(1,049,350	)		(2,979,250	)
	Payment of offering costs					—			(34	)
	Proceeds from mortgage debt					—			140,000
	Payments of loan costs					(3,906	)		(553	)
	Termination of interest rate swap agreement					3,193			—
	Distributions to minority interests in partially owned properties					(2,993	)		(3,365	)
	Proceeds from exercise of share options					36,611			27,778
	Redemption of Units					(84,852	)		—
	Distributions to unitholders					(235,734	)		(157,901	)
	Payment of preferred distributions					(29,661	)		(21,761	)

		Net cash (used for) financing activities				(548,081	)		(253,600	)

	Net increase in cash and cash equivalents					239,119			26,823
	Cash and cash equivalents at the beginning of the period					61,121			53,256

	Cash and cash equivalents at the end of the period				$	300,240		$	80,079

Supplemental Information:
	Interest paid during the period, including capitalized interest of $10,385 and $9,658, respectively				$	420,923		$	324,436

Non-Cash Investing and Financing Activities:
	Escrow deposits used for property acquisition				$	21,269			—

	Escrow deposits provided by property acquisition				$	(21,269	)		—

	Note receivable and accrued interest receivable contributed for investment in real estate					—		$	23,797

	Issuance of unsecured notes at a discount of $10,048 in exchange for $250 million MandatOry Par Put Remarketed Securities^SM				$	(254,631	)		—

	Exchange of $250 million MandatOry Par Put Remarketed Securities^SM, including an unamortized premium of $4,631, for $264,679 notes due 2012 issued in February 2002				$	254,631			—

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The consolidated financial statements of EOP Partnership have been prepared pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations. The following notes, which present interim disclosures as required by the SEC, highlight significant changes to the notes to the December 31, 2001 audited consolidated financial statements of EOP Partnership and should be read together with the financial statements and notes thereto included in the Form 10-K.

NOTE 1 — BUSINESS AND FORMATION OF EOP PARTNERSHIP

As used herein, “EOP Partnership” means EOP Operating Limited Partnership, a Delaware limited partnership, together with its subsidiaries, and the predecessors thereof (“EOP Partnership Predecessors”). EOP Partnership is a subsidiary of Equity Office Properties Trust (“Equity Office”), a Maryland real estate investment trust. EOP Partnership was organized in 1996 to continue and expand the national office property business organized by Mr. Samuel Zell, President, Chief Executive Officer and Chairman of the Board of Trustees of Equity Office, and to complete the consolidation of the EOP Partnership Predecessors (the “Consolidation”). Equity Office completed its initial public offering (the “IPO”) on July 11, 1997, having sold its common shares of beneficial interest, $0.01 par value per share (“Common Shares”). The net proceeds from the IPO were contributed to EOP Partnership in exchange for units of partnership interest (“Units”). EOP Partnership is a fully integrated, self-administered and self-managed real estate company principally engaged in acquiring, owning, managing, developing and leasing office properties. Equity Office has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes and generally will not be subject to federal income tax if it distributes 100% of its taxable income and complies with a number of organizational and operational requirements. At June 30, 2002, EOP Partnership owned or had an interest in 766 office properties (the “Office Properties”) comprising approximately 127.5 million rentable square feet of office space and 79 industrial properties (the “Industrial Properties”) comprising approximately 6.0 million rentable square feet of industrial space (together with the Office Properties, the “Properties”). The Office Properties were, on a weighted average basis, 90.0% occupied at June 30, 2002, and are located in 146 submarkets in 34 markets in 21 states and the District of Columbia. The Office Properties, by rentable square feet, are located approximately 40.3% in central business districts (“CBDs”) and approximately 59.7% in suburban markets.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements represent the financial condition and results of EOP Partnership and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Unaudited Interim Statements

The consolidated financial statements as of and for the three and six months ended June 30, 2002 and 2001 and related footnote disclosures are unaudited. In the opinion of management, such financial statements reflect all adjustments necessary for a fair presentation of the results of the interim periods. All such adjustments are of a normal, recurring nature.

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Reclassifications

Certain reclassifications have been made to the previously reported 2001 statements in order to provide comparability with the 2002 statements reported herein. These reclassifications have not changed the 2001 results or partners’ capital.

NOTE 3 — ACQUISITIONS

In May 2002, EOP Partnership acquired the Army and Navy Club office building for approximately $37.4 million in cash from an unaffiliated party. The property is located in Washington, D.C., and consists of approximately 170,000 square feet of which 102,822 square feet is office space.

NOTE 4 — DISPOSITIONS

During the three months ended June 30, 2002, EOP Partnership sold three office properties and two vacant land parcels in separate transactions to various unaffiliated parties for approximately $36.6 million. The total gain on the sale of the wholly owned properties was approximately $5.5 million. The two office properties and two vacant land parcels sold were:


			Building		Total Square
Property	Location		Count		Footage

Calais Office Center I and II		Anchorage, AK		2		190,599
Airport Service Center		Burlingame, CA		1		36,310
Carlsbad Land		Carlsbad, CA		—		—
Wilsonville Land		Wilsonville, OR		—		—

		Total		3		226,909

In accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long Lived Assets,” effective for financial statements issued for fiscal years beginning after December 15, 2001, net income and gain/(loss) on sales of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated statements of operations as “Discontinued operations” for both periods presented. Below is a summary of the results of operations of these properties through their respective disposition dates:



		For the three				For the six
		months ended				months ended
		June 30,				June 30,

(Dollars in thousands)		2002		2001		2002			2001

Property revenues		$	585	$	4,856	$	3,505		$	9,208
Interest income			—		2		—			4

	Total revenues		585		4,858		3,505			9,212

Interest expense			—		73		(25	)		146
Depreciation and amortization			26		959		602			1,860
Property operating expenses			463		1,809		1,743			3,535
Ground rent			14		29		43			58

	Total expenses		503		2,870		2,363			5,599

Income before taxes and net gain on sales of real estate			82		1,988		1,142			3,613
Income taxes			25		—		25			—
Net gain on sales of real estate			5,499		—		2,490			—

Net income		$	5,606	$	1,988	$	3,657		$	3,613

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

NOTE 5 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

EOP Partnership has several investments in unconsolidated joint ventures consisting of Office Properties and property management and development companies and two companies that provide fully furnished office space to tenants. Combined summarized financial information of the unconsolidated joint ventures is as follows:


(Dollars in thousands)			June 30, 2002		December 31, 2001

Balance Sheets:
	Real estate, net		$	3,022,096	$	3,135,250
	Other assets			239,884		276,322

		Total Assets	$	3,261,980	$	3,411,572

	Mortgage debt		$	1,309,037	$	1,370,025
	Other liabilities			149,442		169,987
	Partners’ and shareholders’ equity			1,803,501		1,871,560

		Total Liabilities and Partners’ and Shareholders’ Equity	$	3,261,980	$	3,411,572

EOP Partnership’s share of equity			$	1,113,049	$	1,194,441
Net excess of cost of investments over the net book value of underlying net assets, net of accumulated depreciation of $18,616 and $17,517, respectively				124,046		126,686

Carrying value of investments in unconsolidated joint ventures			$	1,237,095	$	1,321,127

EOP Partnership’s share of unconsolidated non-recourse mortgage debt			$	817,656	$	848,944



				For the three months ended				For the six months ended
				June 30,				June 30,

(Dollars in thousands)				2002		2001		2002		2001

Statements of Operations:
	Revenues			$	126,730	$	119,836	$	336,572	$	250,655

	Expenses:
		Interest expense			19,390		24,906		38,907		50,216
		Depreciation and amortization			20,683		20,208		41,801		41,188
		Operating expenses			44,659		48,173		101,177		103,816

			Total expenses		84,732		93,287		181,885		195,220

	Net income before gain on sale of real estate and cumulative effect of a change in accounting principle				41,998		26,549		154,687		55,435
	Gain on sale of real estate				140		—		3,693		—
	Cumulative effect of a change in accounting principle				—		—		—		(2,279	)

	Net income			$	42,138	$	26,549	$	158,380	$	53,156

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)



		For the three months ended				For the six months ended
		June 30,				June 30,

(Dollars in thousands)		2002		2001		2002		2001

EOP Partnership’s share of:
	Net income	$	22,297	$	17,864	$	79,925	$	33,290

	Interest expense and loan cost amortization	$	13,407	$	15,406	$	26,661	$	31,821

	Depreciation and amortization (real estate related)	$	12,138	$	12,593	$	24,948	$	25,270

NOTE 6 — PARTNERS’ CAPITAL

Units

The following table presents the changes in the issued and outstanding Units since March 31, 2002:


Outstanding at March 31, 2002		472,586,361
	Issued to Equity Office related to Common Shares issued for share option exercises	553,599
	Units redeemed for cash	(2,948,453	)
	Restricted shares issued / cancelled, net	(8,000	)
	Units issued to Equity Office for Common Shares issued through dividend reinvestments	25,751

Outstanding at June 30, 2002.		470,209,258

Distributions

Quarterly

Distribution

Amount

Unitholder

Per Unit

Date Paid

Record Date

Units

$.50

July 15, 2002

June 28, 2002

Series A Preferred Units

.56125

June 17, 2002

June 3, 2002

Series B Preferred Units

.65625

May 15, 2002

May 1, 2002

Series C Preferred Units

.5390625

June 17, 2002

June 3, 2002

Series E Preferred Units

.4921875

April 30, 2002

April 15, 2002

Series F Preferred Units

.50

July 1, 2002

June 14, 2002

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

NOTE 7 — EARNINGS PER UNIT

The following table sets forth the computation of basic and diluted earnings per Unit and unit equivalent:



			For the three months ended June 30,				For the six months ended June 30,

(Dollars in thousands, except per unit data)			2002		2001		2002		2001

Numerator:
	Net income available for Units before discontinued operations and cumulative effect of a change in accounting principle		$	182,046	$	137,395	$	412,629	$	274,050
	Discontinued operations			5,606		1,988		3,657		3,613
	Cumulative effect of a change in accounting principle			—		—		—		(1,142	)

	Numerator for basic earnings per Unit — net income available for Units and unit equivalents		$	187,652	$	139,383	$	416,286	$	276,521

Denominator:
	Denominator for net income available per weighted average Unit outstanding — basic			470,109,997		348,782,348		470,132,017		348,630,252
	Effect of dilutive securities:
		Units issued upon exercise of Equity Office share options, put options and restricted shares		2,500,593		2,737,434		2,594,939		2,822,145

	Denominator for net income available per weighted average Unit and unit equivalent outstanding — diluted			472,610,590		351,519,782		472,726,956		351,452,397

Net income available per weighted average Unit outstanding — basic:
	Net income before discontinued operations and cumulative effect of a change in accounting principle		$	0.39	$	0.39	$	0.88	$	0.79
	Discontinued operations			0.01		0.01		0.01		0.01
	Cumulative effect of a change in accounting principle			—		—		—		(0.01	)

	Net income available per weighted average Unit outstanding — basic		$	0.40	$	0.40	$	0.89	$	0.79

Net income available per weighted average Unit and unit equivalent outstanding — diluted:
	Net income before discontinued operations and cumulative effect of a change in accounting principle		$	0.39	$	0.39	$	0.87	$	0.78
	Discontinued operations			0.01		0.01		0.01		0.01
	Cumulative effect of a change in accounting principle			—		—		—		—

	Net income available per weighted average Unit and unit equivalent outstanding — diluted		$	0.40	$	0.40	$	0.88	$	0.79

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following securities on a weighted average basis were not included in the computation of net income available per weighted average Unit and unit equivalent outstanding since they would have an antidilutive effect:



				For the three months ended				For the six months ended
				June 30,				June 30,
		Weighted Average
Antidilutive Securities		Exercise Price		2002		2001		2002		2001

Share options		$	30.320		5,107,942		—		5,190,424		—
Share options		$	30.100		—		7,717,882		—		6,560,240
Series B Preferred Units		$	35.700		5,990,000		5,990,000		5,990,000		5,994,807
Warrants		$	39.375		5,000,000		5,000,000		5,000,000		5,000,000

	Total				16,097,942		18,707,882		16,180,424		17,555,047

NOTE 8 — SEGMENT INFORMATION

As discussed in Note 1, EOP Partnership’s primary business is the ownership and operation of the Office Properties. Management operates each Office Property as an individual operating segment and has aggregated these operating segments into a single operating segment for financial reporting purposes due to the fact that the individual operating segments have similar economic characteristics. EOP Partnership’s long-term tenants are in a variety of businesses, and no single tenant is significant to EOP Partnership’s business. The property operating revenues generated at the “Corporate and Other” segment consists primarily of revenues earned by the Industrial Properties and stand-alone parking facilities. The “Other revenues” generated at the “Corporate and Other” segment consist primarily of fee income from the management of office properties owned by third parties and interest and dividend income on various investments.

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)



		For the three months ended June 30,


		2002									2001

		Office			Corporate						Office			Corporate
(Dollars in thousands)		Properties			and Other			Consolidated			Properties			and Other			Consolidated

Property operating revenues		$	858,731		$	13,744		$	872,475		$	645,919		$	3,935		$	649,854
Property operating expenses			(281,667	)		(2,572	)		(284,239	)		(212,914	)		(1,263	)		(214,177	)

	Net operating income		577,064			11,172			588,236			433,005			2,672			435,677

Adjustments to arrive at net income:
	Other revenues		816			10,674			11,490			1,395			12,790			14,185
	Interest expense (1)		(48,706	)		(153,977	)		(202,683	)		(51,258	)		(105,590	)		(156,848	)
	Depreciation and amortization		(168,888	)		(6,174	)		(175,062	)		(120,798	)		(4,852	)		(125,650	)
	Ground rent		(5,317	)		—			(5,317	)		(3,347	)		—			(3,347	)
	General and administrative		—			(38,163	)		(38,163	)		37			(23,738	)		(23,701	)
	Impairment on securities and other investments		—			—			—			—			(5,499	)		(5,499	)

	Total adjustments to arrive at net income		(222,095	)		(187,640	)		(409,735	)		(173,971	)		(126,889	)		(300,860	)

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures and discontinued operations			354,969			(176,468	)		178,501			259,034			(124,217	)		134,817
Income taxes			(2,152	)		226			(1,926	)		(1,216	)		(1,840	)		(3,056	)
Minority interests			(975	)		(20	)		(995	)		(1,353	)		—			(1,353	)
Income from investment in unconsolidated joint ventures			21,520			777			22,297			16,341			1,523			17,864
Discontinued operations (including net gain on disposal of $5,499 and $0, respectively)			5,606			—			5,606			1,988			—			1,988

Net income		$	378,968		$	(175,485	)	$	203,483		$	274,794		$	(124,534	)	$	150,260

Capital and tenant improvements		$	70,792		$	1,434		$	72,226		$	59,115		$	15,720		$	74,835

Investment in unconsolidated joint ventures		$	1,212,438		$	24,657		$	1,237,095

	Total Assets	$	24,470,909		$	1,210,941		$	25,681,850


(1)	Interest expense for the Office Properties does not include allocation of interest expense on the unsecured notes or the line of credit.

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)



		For the six months ended June 30,


		2002									2001

		Office			Corporate						Office			Corporate
(Dollars in thousands)		Properties			and Other			Consolidated			Properties			and Other			Consolidated

Property operating revenues		$	1,717,538		$	28,460		$	1,745,998		$	1,290,029		$	8,682		$	1,298,711
Property operating expenses			(551,422	)		(5,563	)		(556,985	)		(424,603	)		(2,439	)		(427,042	)

	Net operating income		1,166,116			22,897			1,189,013			865,426			6,243			871,669

Adjustments to arrive at net income:
	Other revenues		1,337			21,074			22,411			2,526			24,664			27,190
	Interest expense (1)		(97,071	)		(310,458	)		(407,529	)		(103,786	)		(210,929	)		(314,715	)
	Depreciation and amortization		(333,461	)		(12,761	)		(346,222	)		(240,278	)		(9,445	)		(249,723	)
	Ground rent		(10,858	)		—			(10,858	)		(6,399	)		—			(6,399	)
	General and administrative		—			(71,117	)		(71,117	)		—			(47,823	)		(47,823	)
	Impairment on securities and other investments		—			—			—			—			(8,499	)		(8,499	)

	Total adjustments to arrive at net income		(440,053	)		(373,262	)		(813,315	)		(347,937	)		(252,032	)		(599,969	)

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, discontinued operations and cumulative effect of a change in accounting principle			726,063			(350,365	)		375,698			517,489			(245,789	)		271,700
Income taxes			(2,197	)		(6,735	)		(8,932	)		(1,226	)		(3,347	)		(4,573	)
Minority interests			(2,361	)		(40	)		(2,401	)		(4,606	)		—			(4,606	)
Income from investment in unconsolidated joint ventures			81,218			(1,293	)		79,925			31,456			1,834			33,290
Discontinued operations (including net gain on disposal of $2,490 and $0, respectively)			3,657			—			3,657			3,613			—			3,613
Cumulative effect of a change in accounting principle			—			—			—			(1,142	)		—			(1,142	)

Net income		$	806,380		$	(358,433	)	$	447,947		$	545,584		$	(247,302	)	$	298,282

Capital and tenant improvements		$	127,757		$	2,684		$	130,441		$	106,861		$	21,884		$	128,745

Investment in unconsolidated joint ventures		$	1,212,438		$	24,657		$	1,237,095

	Total Assets	$	24,470,909		$	1,210,941		$	25,681,850


(1)	Interest expense for the Office Properties does not include allocation of interest expense on the unsecured notes or the line of credit.

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Concentration of Credit Risk

EOP Partnership maintains its cash and cash equivalents at financial institutions. The combined account balances at each institution typically exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management of EOP Partnership believes that the risk is not significant.

Environmental

EOP Partnership, as an owner of real estate, is subject to various environmental laws of federal and local governments. Compliance by EOP Partnership with existing laws has not had a material adverse effect on EOP Partnership’s financial condition and results of operations, and management does not believe it will have such an impact in the future. However, EOP Partnership cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on its current Properties or on properties that it may acquire in the future.

Litigation

EOP Partnership is not presently subject to material litigation nor, to EOP Partnership’s knowledge, is any litigation threatened against EOP Partnership, other than routine actions for negligence and other claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on the liquidity, results of operations, or business or financial condition of EOP Partnership.

Contingencies

Certain Properties owned in joint ventures with unaffiliated parties have buy/sell options that may be exercised to acquire the other partner’s interest by either EOP Partnership or its joint venture partner if certain conditions are met as set forth in the respective joint venture agreement.

In connection with the acquisition of certain Properties, EOP Partnership has agreed not to sell such Properties in a taxable transaction for a period of time as defined in their respective agreements or EOP Partnership may be obligated to make additional payments to the respective sellers.

Insurance

EOP Partnership has deductible amounts on insurance policies related to property damage, business interruption, workers compensation, auto liability and general liability losses that may be incurred at the Properties and is insured through third-party carriers for losses in excess of the deductible amounts subject to certain limits. Should an uninsured or underinsured loss occur, EOP Partnership could lose its investment in, and anticipated income and cash flows from, one or more of the Properties. In addition, there can be no

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

assurance that third party insurers will be able to maintain reinsurance sufficient to cover any losses that may be incurred. The following summarizes EOP Partnership’s insurance coverage:


	EOP Partnership’s
	Per Occurrence		Third Party Insurance
Insurance Coverage	Deductible Limit		Carrier Coverage

Property damage and business interruption		$50,000 for property damage		$ 50,000 - $1 billion
		5% of building value for earthquake		$300 million
Workers compensation		$250,000		$250,000 - $300 million
Automobile liability		$250,000		$250,000 - $300 million
General liability		$500,000		$500,000 - $300 million
Acts of terrorism		2% of building value		$200 million

The commercial insurance coverage with third party insurance carriers includes coverage for acts of terrorism for up to $200 million in the aggregate for all of the Properties. EOP Partnership’s current coverage for terrorist insurance excludes nuclear, chemical or biological acts of terrorism. There can be no assurance, however, that insurance coverage for acts of terrorism will be available in the future. It is also possible that the lenders under our unsecured credit facility and our secured mortgage indebtedness could declare a default based on the absence of insurance coverage for terrorist acts of the type and amount in place before September 11, 2001. If one or more of our lenders were to declare such a default, we would challenge such conclusion as not being commercially reasonable in the context of the current marketplace.

EOP Partnership carries earthquake insurance on all the Properties, including those in California and Washington, subject to coverage limitations, which EOP Partnership believes are commercially reasonable. There can be no assurance that earthquakes may not seriously damage the Properties or that the recoverable amount of insurance proceeds will be sufficient to fully cover reconstruction costs and other losses suffered.

Commitments

In accordance with the agreement governing the investment in Wright Runstad Associates Limited Partnership (“WRALP”), EOP Partnership agreed, for a period generally continuing until December 31, 2007, to make available to WRALP up to $20.0 million in additional financing or credit support for future development. As of June 30, 2002, no amounts have been funded pursuant to this agreement. However, EOP Partnership has guaranteed WRALP’s line of credit, which has an outstanding balance of approximately $12.9 million as of June 30, 2002. WRALP’s current line of credit matures in July 2003.

EOP Partnership has agreed to loan up to $25 million to Wilson Investors (“WI”) for its required contribution to Wilson/Equity Office (“W/ EO”) at a 15% return per annum. W/ EO is owned 49.9% by EOP Partnership and 50.1% by WI. William Wilson III, a trustee of Equity Office, through his ownership of WI, owns approximately 22% of W/ EO (and approximately 30% of any promote to which WI is entitled under the joint venture agreement). As of June 30, 2002, all amounts lent to WI were repaid and the remaining commitment amount is $13 million. As a result of the recently enacted Sarbanes-Oxley Act of 2002, it is possible (depending on the scope of the regulations to be adopted by the SEC) that EOP Partnership could be prohibited from lending further amounts to WI under this arrangement or from modifying or renewing this arrangement.

NOTE 10 — SUBSEQUENT EVENTS

1. In July, Equity Office redeemed its 7,994,000 outstanding 8.98% Series A Cumulative Redeemable Preferred Shares and EOP Partnership cancelled a corresponding number of 8.98% Series A Cumulative Redeemable Preferred Units. On the same date, Equity Office issued 8,500,000 7.75% Series G Cumulative Redeemable Preferred Shares and EOP Partnership issued a corresponding

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

number of Series G Cumulative Redeemable Preferred Units. Substantially all of the net proceeds from the issuance of the Series G preferred shares totaling approximately $206 million were used to redeem the Series A preferred shares.

2. In July, Equity Office announced approval of a common share repurchase program under which Equity Office may purchase up to $200 million of Common Shares over the next 12 months, at the discretion of management. Management intends to initially execute $100 million of this share repurchase program, as market conditions warrant, and will evaluate the balance of the program at a later date. The Common Shares may be repurchased in the open market or privately negotiated transactions. For each Common Share purchased in this program EOP Partnership will cancel a corresponding Unit.


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

Overview

The following discussion and analysis of the consolidated financial condition and consolidated results of operations should be read together with the consolidated financial statements of EOP Partnership and notes thereto contained in this Form 10-Q. Terms employed herein as defined terms, but without definition, shall have the meaning set forth in the notes to the financial statements. Statements contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including, without limitation, the “Market Risk” and “Developments” disclosures, and elsewhere in this Form 10-Q, which are not historical fact may be forward-looking statements. Such statements (none of which is intended as a guarantee of performance) are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, the risks described in our Current Reports on Form 8-K filed with the Securities and Exchange Commission on February 12, 2002 and June 27, 2002. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the SEC. Among the factors about which EOP Partnership has made assumptions are the following:

• Future economic conditions which may impact the demand for office space as well as current or prospective tenants’ abilities or willingness to pay rent, either at current or increased levels;

• The extent of any tenant bankruptcies or defaults that may occur;

• The availability of new competitive supply, including competitive supply which may be available by way of sublease;

• The extent of future demand for high-rise and other office space in the markets in which EOP Partnership has a presence;

• The costs to complete and lease-up pending developments at anticipated rents;

• Future demand for EOP Partnership’s debt and equity securities;

• EOP Partnership’s continued access to adequate credit facilities or other debt financing on acceptable terms;

• EOP Partnership’s ability to achieve economies of scale over time;

• EOP Partnership’s ability to attract and retain high quality personnel at a reasonable cost;

• Changes in interest rates;

• Changes in operating expenses, including utility, insurance and security costs;

• EOP Partnership’s continuing ability to pay amounts due to its noteholders and preferred noteholders before any distribution to holders of Units; and

• EOP Partnership’s ability to secure adequate insurance for occurrences such as terrorist acts and earthquakes.

During the six months ended June 30, 2002, we completed the following key transactions:

• Issued $500 million of unsecured notes due February 2012 at an all-in cost of 7.0% and exchanged approximately $260.0 million of these notes for the previously outstanding $250.0 million MandatOry Par Put Remarketed Securities^SM which were subject to mandatory redemption;

• Sold ten office properties, two vacant land parcels and a 50% interest in four parking facilities for approximately $193.4 million;

• Received a lease termination fee of approximately $40 million in connection with a previously proposed office building development;

• Acquired the Army and Navy Club office building for approximately $37.4 million. The property is located in Washington, D.C., and consists of approximately 170,000 square feet of which 102,822 square feet is office space; and

• Equity Office called for redemption its 7,994,000 outstanding 8.98% Series A Cumulative Redeemable Preferred Shares. The redemption date was July 29, 20002.

Critical Accounting Policies and Estimates

Refer to our 2001 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include revenue recognition, allowance for doubtful accounts, impairment of long-lived assets, depreciation and fair value of financial instruments. During the second quarter of 2002, there were no material changes to these policies.

Results of Operations

General

The following discussion is based primarily on the consolidated financial statements as of June 30, 2002 and for the three and six months ended June 30, 2002 and 2001.

Income is received primarily from rental revenue from the Office Properties, including reimbursements from tenants for certain operating costs and from parking revenue from Office Properties. As a result of the current slowdown in economic activity, there has been a decrease in our occupancy rates and a general decline in overall market rental rates for the Office Properties in most major markets. Below is a summary of our gross leasing activity (excluding lease expirations) in our current top 5 markets, top 10 markets and our total portfolio for our Office Properties. Our top 10 markets in terms of square footage in order from greatest to least are Boston, Chicago, San Francisco, Seattle, San Jose, Atlanta, Los Angeles, Orange County, Washington, DC and New York.


Office Property Data:		Top 5 Markets			Top 10 Markets			Total Portfolio

For the six months ended June 30, 2002:
	Portion of total portfolio based on square feet at end of period		42.2	%		67.3	%		100.0	%
	Weighted average occupancy at end of period		90.1	%		90.4	%		90.0	%
	Gross square footage leased during the period		4,073,843			6,595,362			10,120,219
	Weighted average annual rent per square foot leased during the period(a)		$38.10			$34.82			$30.77
For the six months ended June 30, 2001:
	Portion of total portfolio based on square feet at end of period(b)		40.6	%		66.2	%		100.0	%
	Weighted average occupancy at end of period(b)		96.5	%		95.7	%		94.7	%
	Gross square footage leased during the period		2,695,490			4,501,389			7,220,082
	Weighted average annual rent per square foot leased during the period(a)		$51.94			$45.96			$37.40
For the year ended December 31, 2001:
	Portion of total portfolio based on square feet at end of period		42.0	%		66.9	%		100.0	%
	Weighted average occupancy at end of period		92.5	%		92.7	%		91.8	%
	Gross square footage leased during the period		5,288,539			8,944,907			14,711,018
	Weighted average annual rent per square foot leased during the period(a)		$46.36			$41.48			$34.17


(a)		Average annual rent per square foot for new office leases for which the tenants have occupied the space during the relevant period may lag behind market rents because leasing decisions typically are made anywhere from one month to 12 or more months prior to taking occupancy.


(b)		These amounts include the Office Properties acquired in the Spieker Merger on July 2, 2001.

As of June 30, 2002, approximately 68,548,754 occupied square feet (approximately 53.8% of the total office portfolio) is expiring through 2006. The average annual rent per square foot for these leases is presented in the table below. Upon expiration, we may be unable to release this space at rents at or above the current rent or be able to re-lease all of this space within a reasonable time period.


	Square Feet of		Average Annual Rent
Year	Expiring Leases		per Square Foot

2002		9,190,904	$	26.62
2003		15,528,558		28.50
2004		13,762,386		27.61
2005		15,620,888		29.39
2006		14,446,018		29.07

Total		68,548,754	$	28.39

We believe that it is not currently possible to draw any conclusions about where occupancy levels or market rents ultimately will stabilize. Further decreases in occupancy rates and/ or declines in rents could adversely affect our revenues and results of operations in subsequent periods.

In addition to the downward trend in occupancy, we have experienced an increase in the amount of uncollectible receivables relating to tenants in bankruptcy and tenants that are having financial difficulties. For the three and six months ended June 30, 2002, bad debt expense was approximately $6.7 million and $13.6 million, respectively, as compared to $4.1 million and $8.0 million for the same periods in 2001. Although we have substantial collateral from many of our tenants, additional write-offs may occur in subsequent periods. Future rental income may also be affected by early lease terminations. In either of these circumstances, we may not be able to collect the full amount that was due under the leases and would incur additional cost in re-leasing the space.

As a result of the terrorist acts on September 11, 2001, we have realized increased costs for property insurance and safety and security. We believe that these increased costs will remain higher than similar costs incurred in previous periods for the foreseeable future. Substantially all of the office leases require the tenant to pay, as additional rent, a portion of any increases in these operating expenses over a base amount. We believe a significant portion of any increase in these operating expenses will be offset by expense reimbursements from tenants.

Below is a summary of our acquisition and disposition activity since January 1, 2001. The buildings and total square feet shown include properties we own in joint ventures with other partners and reflects the total

square feet of the properties. Excluding the joint venture partners’ share of the square feet of these properties, we effectively owned 121.4 million square feet of office space as of June 30, 2002.



		Office Properties						Industrial Properties						Parking Facilities

					Total						Total
		Buildings			Square Feet			Buildings			Square Feet			Garages			Spaces

Properties owned as of:
January 1, 2001			381			98,995,994			—			—			9			14,244
	Spieker Merger		293			26,080,670			100			12,306,053			—			—
	Acquisitions		1			259,441			—			—			—			—
	Developments placed in service		9			1,497,014			—			—			—			—
	Dispositions		(8	)		(879,388	)		(19	)		(4,052,476	)		(4	)		(3,721	)
	Reclass from industrial to office		44			2,208,837			(44	)		(2,208,837	)		—			—
	Building remeasurements(a)		54			71,419			42			91			—			242

December 31, 2001			774			128,233,987			79			6,044,831			5			10,765
	Dispositions		(7	)		(804,590	)		—			—			(4	)		(7,464	)
	Building remeasurements		—			47,216			—			—			—			—

March 31, 2002			767			127,476,613			79			6,044,831			1			3,301
	Acquisitions		1			102,822			—			—			—			—
	Developments placed in service		1			125,646			—			—			—			—
	Dispositions		(3	)		(226,909	)		—			—			—			—
	Building remeasurements		—			42,100			—			—			—			—

June 30, 2002 (“Total Portfolio”)			766			127,520,272			79			6,044,831			1			3,301


(a)		Building remeasurements during 2001 relate to the Office Properties and Industrial Properties acquired in the Spieker Merger. The initial property count was based on a count prepared prior to the Spieker Merger by the former management of Spieker. We count our properties based on the actual number of buildings at the property, which is different than the method used by the former management of Spieker.

Primarily as a result of the Spieker Merger in July 2001 and the acquisition and disposition of certain properties, the financial data presented show significant changes in revenues and expenses from period-to-period. Therefore, we do not believe our period-to-period financial data are necessarily comparable. The following analysis shows changes attributable to the Properties that were held during the entire period for the period being compared (the “Core Portfolio”) and the changes in our aggregate total portfolio of Properties (the “Total Portfolio”).

As reflected in the tables below, property revenues include rental revenues, reimbursements from tenants for certain expenses, parking revenue and other property operating revenues. Property operating expenses include real estate taxes, insurance, repairs and maintenance and other property operating expenses.

Comparison of the three months ended June 30, 2002 to June 30, 2001

The table below represents selected operating information for the Total Portfolio and for the Core Portfolio consisting of 381 Office Properties acquired or placed in service on or prior to January 1, 2001.



		Total Portfolio												Core Portfolio

								Increase/			%									Increase/			%
(Dollars in thousands)		2002			2001			(Decrease)			Change			2002			2001			(Decrease)			Change

Property revenues		$	872,475		$	649,854		$	222,621			34.3	%	$	629,554		$	641,778		$	(12,224	)		(1.9	)%
Fee income			3,977			4,365			(388	)		(8.9	)		—			—			—			—
Interest/dividend income			7,513			9,820			(2,307	)		(23.5	)		1,016			1,475			(459	)		(31.1	)

	Total revenues		883,965			664,039			219,926			33.1			630,570			643,253			(12,683	)		(2.0	)

Interest expense			202,683			156,848			45,835			29.2			49,144			52,821			(3,677	)		(7.0	)
Depreciation and amortization			175,062			125,650			49,412			39.3			128,807			120,224			8,583			7.1
Property operating expenses			284,239			214,177			70,062			32.7			218,277			211,840			6,437			3.0
Ground rent			5,317			3,347			1,970			58.9			3,099			3,347			(248	)		(7.4	)
General and administrative			38,163			23,701			14,462			61.0			—			(37	)		37			(100.0	)
Impairment on securities and other investments			—			5,499			(5,499	)		(100.0	)		—			—			—			—

	Total expenses		705,464			529,222			176,242			33.3			399,327			388,195			11,132			2.9

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures and discontinued operations			178,501			134,817			43,684			32.4			231,243			255,058			(23,815	)		(9.3	)
Income taxes			(1,926	)		(3,056	)		1,130			(37.0	)		(748	)		(1,073	)		325			(30.3	)
Minority interests			(995	)		(1,353	)		358			(26.5	)		(966	)		(1,353	)		387			(28.6	)
Income from investment in unconsolidated joint ventures			22,297			17,864			4,433			24.8			21,877			16,341			5,536			33.9

Income from continuing operations			197,877			148,272			49,605			33.5			251,406			268,973			(17,567	)		(6.5	)
Discontinued operations			5,606			1,988			3,618			182.0			—			—			—			—

Net income		$	203,483		$	150,260		$	53,223			35.4	%	$	251,406		$	268,973		$	(17,567	)		(6.5	)%

Property revenues less property operating expenses before interest, depreciation and amortization, ground rent and general and administrative expense (a)		$	588,358		$	438,724		$	149,634			34.1	%	$	411,277		$	429,938		$	(18,661	)		(4.3	)%

Deferred rental revenue (a)		$	19,413		$	12,045		$	7,368			61.2	%	$	6,909		$	11,893		$	(4,984	)		(41.9	)%

Lease termination fees (a)		$	12,238		$	1,814		$	10,424			574.6	%	$	9,997		$	1,748		$	8,249			471.9	%


(a)		These amounts include the properties sold in 2002.

Property Revenues

The increase in property revenues in the Total Portfolio is primarily due to the properties acquired in the Spieker Merger in 2001. As a result of the current slowdown in economic activity, we have experienced an increase in the amount of lease termination fees and uncollectible receivables relating to tenants in bankruptcy and tenants that are having financial difficulties. The amount of bad debts written off in the Total Portfolio for the three months ended June 30, 2002 was approximately $6.7 million as compared to $4.1 million for the prior period. Although we have substantial collateral from many of our tenants, additional write-offs may occur in subsequent periods. Included in property revenues are approximately $12.2 million of lease termination fees representing an increase of approximately $10.4 million from the prior period. These fees relate to specific tenants, each of whom has paid a fee to terminate its lease obligations before the end of the contractual term of the lease. Although we have historically received such termination fees, there is no way of predicting the timing or amounts of future lease termination fees. The decrease in property revenues in the Core Portfolio resulted primarily from a decrease in occupancy and an increase in bad debt expense, partially

offset by a slight increase in rental rates and an increase in lease termination fees. The weighted average occupancy of the Core Portfolio decreased from 94.2% at April 1, 2001 to 90.6% at June 30, 2002, mainly due to tenant rollover and early lease terminations at various properties where the space was not re-leased due to the current slowdown in economic activity.

Interest Expense

Total Portfolio interest expense increased from the prior period as a result of having a higher average outstanding debt balance as compared to the prior period, mainly as a result of the Spieker Merger. This increase was partially offset by interest rate swap agreements which converted the fixed interest rate to a variable rate for a portion of the unsecured notes. In addition, set forth below are additional statistics for the Total Portfolio relating to our interest expense during the periods:

• Total debt to total assets decreased to 45.8% as of June 30, 2002 from 46.4% as of June 30, 2001;

• Interest coverage ratio (calculated as EBITDA divided by interest expense, including our share of interest expense of unconsolidated joint ventures) increased to 2.8 times from 2.7 times; and

• Weighted average interest rate decreased to 7.0% from 7.5%.

Interest expense on unsecured notes and the line of credit are not reflected in the Core Portfolio.

Depreciation and Amortization

Total Portfolio depreciation and amortization expense increased from the prior period primarily as a result of the Spieker Merger and capital and tenant improvements made during the periods. Core Portfolio depreciation and amortization expense increased as a result of capital and tenant improvements made during the periods.

Property Operating Expenses

Total Portfolio property operating expenses increased mainly as a result of the Spieker Merger in 2001. Core Portfolio property operating expenses increased as a result of increases in repairs and maintenance of approximately $4.3 million primarily due to higher safety and security expense, increases in insurance expense of approximately $1.0 million due to higher premiums, partially offset by a decrease in utilities of $0.9 million. Substantially all of the office leases require the tenant to pay, as additional rent, a portion of any increases in operating expenses over a base amount. We believe a substantial portion of any future increase in operating expenses will be offset by expense reimbursements from tenants, which are included in property revenues.

General and Administrative Expenses

General and administrative expenses increased by approximately $14.5 million due to an increase in the number of employees at the corporate and regional offices as a result of the Spieker Merger, consulting fees of approximately $3.2 million relating to a review of our property operations structure and severance expense of approximately $4.3 million for a former executive vice president and the former president and chief executive officer. Approximately $0.9 million of this amount related to the severance for the former president and chief executive officer. The total severance of $4.3 million consists of the acceleration of vesting of share options and restricted shares and severance payments.

Income from Investment in Unconsolidated Joint Ventures

Income from investment in unconsolidated joint ventures increased for the Total Portfolio and the Core Portfolio primarily due to our share of a lease termination at a property of approximately $5.6 million during the three months ended June 30, 2002.

Discontinued Operations

In accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long Lived Assets,” effective for financial statements issued for fiscal years beginning after December 15, 2001, net income and gain/(loss) on sales of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated statements of operations as “Discontinued operations” for both periods presented. The increase in discontinued operations is primarily due to the gain on the sale of the properties sold in 2002.

Comparison of the six months ended June 30, 2002 to June 30, 2001



		Total Portfolio												Core Portfolio

								Increase/			%									Increase/			%
(Dollars in thousands)		2002			2001			(Decrease)			Change			2002			2001			(Decrease)			Change

Property revenues		$	1,745,998		$	1,298,711		$	447,287			34.4	%	$	1,268,347		$	1,281,589		$	(13,242	)		(1.0	)%
Fee income			8,055			6,537			1,518			23.2			—			—			—			—
Interest/dividend income			14,356			20,653			(6,297	)		(30.5	)		1,959			2,866			(907	)		(31.6	)

	Total revenues		1,768,409			1,325,901			442,508			33.4			1,270,306			1,284,455			(14,149	)		(1.1	)

Interest expense			407,529			314,715			92,814			29.5			98,217			107,000			(8,783	)		(8.2	)
Depreciation and amortization			346,222			249,723			96,499			38.6			257,470			239,147			18,323			7.7
Property operating expenses			556,985			427,042			129,943			30.4			428,699			421,831			6,868			1.6
Ground rent			10,858			6,399			4,459			69.7			6,192			6,399			(207	)		(3.2	)
General and administrative			71,117			47,823			23,294			48.7			—			—			—			—
Impairment on securities and other investments			—			8,499			(8,499	)		(100.0	)		—			—			—			—

	Total expenses		1,392,711			1,054,201			338,510			32.1			790,578			774,377			16,201			2.1

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, discontinued operations and cumulative effect of a change in accounting principle			375,698			271,700			103,998			38.3			479,728			510,078			(30,350	)		(6.0	)
Income taxes			(8,932	)		(4,573	)		(4,359	)		95.3			(793	)		(1,078	)		285			(26.4	)
Minority interests			(2,401	)		(4,606	)		2,205			(47.9	)		(2,344	)		(4,606	)		2,262			(49.1	)
Income from investment in unconsolidated joint ventures			79,925			33,290			46,635			140.1			40,445			31,455			8,990			28.6

Income from continuing operations			444,290			295,811			148,479			50.2			517,036			535,849			(18,813	)		(3.5	)
Discontinued operations			3,657			3,613			44			1.2			—			—			—			—

Income before cumulative effect of a change in accounting principle			447,947			299,424			148,523			49.6			517,036			535,849			(18,813	)		(3.5	)
Cumulative effect of a change in accounting principle			—			(1,142	)		1,142			(100	)		—			(1,142	)		1,142			(100.0	)

Net income		$	447,947		$	298,282		$	149,665			50.2	%	$	517,036		$	534,707		$	(17,671	)		(3.3	)%

Property revenues less property operating expenses before interest, depreciation and amortization, ground rent and general and administrative expense (a)		$	1,190,775		$	877,342		$	313,433			35.7	%	$	839,648		$	859,758		$	(20,110	)		(2.3	)%

Deferred rental revenue (a)		$	39,841		$	27,030		$	12,811			47.4	%	$	16,056		$	26,755		$	(10,699	)		(40.0	)%

Lease termination fees (a)		$	30,486		$	8,564		$	21,922			256.0	%	$	26,952		$	8,497		$	18,455			217.2	%


(a)		These amounts include the properties sold in 2002.

Property Revenues

The increase in property revenues in the Total Portfolio is primarily due to the properties acquired in the Spieker Merger in 2001. As a result of the current slowdown in economic activity, we have experienced an increase in the amount of lease termination fees and uncollectible receivables relating to tenants in bankruptcy and tenants that are having financial difficulties. The amount of bad debts written off in the Total Portfolio for the six months ended June 30, 2002 was approximately $13.6 million as compared to $8.0 million for the prior period. Although we have substantial collateral from many of our tenants, additional write-offs may occur in subsequent periods. Included in property revenues are approximately $30.5 million of lease termination fees representing an increase of approximately $21.9 million from the prior period. These fees relate to specific tenants, each of whom has paid a fee to terminate its lease obligations before the end of the contractual term of the lease. Although we have historically received such termination fees, there is no way of predicting the timing or amounts of future lease termination fees. The decrease in property revenues in the Core Portfolio resulted primarily from a decrease in occupancy and an increase in bad debt expense, partially offset by a slight increase in rental rates and an increase in lease termination fees. The weighted average occupancy of the Core Portfolio decreased from 94.7% at January 1, 2001 to 90.6% at June 30, 2002, mainly due to tenant rollover and early lease terminations at various properties where the space was not re-leased due to the current slowdown in economic activity.

Interest Expense

• Total debt to total assets decreased to 45.8% as of June 30, 2002 from 46.4% as of June 30, 2001;

• Interest coverage ratio (calculated as EBITDA divided by interest expense, including our share of interest expense of unconsolidated joint ventures) increased to 2.9 times from 2.7 times; and

• Weighted average interest rate decreased to 7.0% from 7.5%.

Interest expense on unsecured notes and the line of credit are not reflected in the Core Portfolio.

Depreciation and Amortization

Property Operating Expenses

Total Portfolio property operating expenses increased mainly as a result of the Spieker Merger in 2001. Core Portfolio property operating expenses increased as a result of increases in repairs and maintenance of approximately $5.2 million primarily due to higher safety and security expense, increases in insurance expenses of approximately $2.0 million due to higher premiums, an increase in real estate taxes of approximately $2.1 million partially offset by a decrease in utilities of $4.3 million. Substantially all of the office leases require the tenant to pay, as additional rent, a portion of any increases in operating expenses over a base amount. We believe a substantial portion of any future increase in operating expenses will be offset by expense reimbursements from tenants, which are included in property revenues.

General and Administrative Expenses

General and administrative expenses increased by approximately $23.3 million due to an increase in the number of employees at the corporate and regional offices as a result of the Spieker Merger, consulting fees of approximately $6.5 million relating to a review of our property operations structure and severance expense of approximately $7.4 million for two executive vice presidents and the former president and chief executive officer. Approximately $0.9 million of this amount related to the severance for the former president and chief executive officer. The total severance of $7.4 million consists of the acceleration of vesting of share options and restricted shares and severance payments.

Income Taxes

A corporate subsidiary of ours had an indirect interest in the Foundry Square I joint venture and will incur income taxes as a result of this transaction of approximately $5.1 million. See “Income from Investment in Unconsolidated Joint Ventures” below.

Income from Investment in Unconsolidated Joint Ventures

Income from investment in unconsolidated joint ventures increased for the Total Portfolio primarily due to a $40.0 million lease termination fee at Foundry Square I and a lease termination fee of $5.6 million at another property during the six months ended June 30, 2002. Foundry Square I was a planned 327,000 square foot office building project that was scheduled to be completed in the third quarter of 2003. The project was 94% preleased to a single tenant which terminated its lease in March 2002. The development site is now classified as land available for development.

Discontinued Operations

In accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long Lived Assets,” effective for financial statements issued for fiscal years beginning after December 15, 2001, net income and gain/(loss) on sales of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated statements of operations as “Discontinued operations” for both periods presented. The increase in discontinued operations is primarily due to the gain on the sale of the properties sold in 2002.

Property Dispositions

EOP Partnership has disposed or partially disposed of the following office properties consisting of approximately 1.9 million square feet, industrial properties consisting of approximately 4.1 million square feet and eight parking facilities since January 1, 2001:


Year		Office Properties	Industrial Properties(1)	Parking Facilities

	2002	Park Place Shopping Center		St. Louis parking garages(2)
		Dominion Tower
		One Park Square(3)
		Santa Monica Gateway
		Calais Office Center I and II(4)
		Airport Service Center
	2001	Warner Park Center	Nelson Business Center	Theatre District Parking
		Transpotomac Plaza 5(4)	Vasco Business Center	203 N. LaSalle
		11 Canal Center Plaza	Marine Drive Distribution Center I,	Adams Wabash
		Port Plaza	II and III	Rand Tower Garage
		99 Canal Center Plaza	Kelley Point I & II
		Biltmore Apartments(5)	Wilsonville Business Center I-IV
		1600 Duke Street	158th Commerce Park
		Bank of America Plaza	Columbia Commerce Park I and IV
			Striker Avenue
			Airway Business Center
			360 Industrial Court
			363 Industrial Way
			437 Industrial Way


(1)	The industrial properties were all acquired in the Spieker Merger.

(2)	Sold our remaining interest in these four garages.

(3)	Consists of four office properties.

(4)	Consists of two office properties.

(5)	Biltmore Apartments is a residential property which is part of the 177 Broad Street Office Property.

summary of the results of operations of these properties along with those properties sold prior to 2002 through their respective disposition dates:



		For the three months							For the six months
		ended June 30,							ended June 30,


		2002		2001					2002			2001

		Sold in		Sold in		Sold prior			Sold in			Sold in		Sold prior
(Dollars in thousands)		2002		2002		to 2002			2002			2002		to 2002

Property revenues		$	585	$	4,856	$	9,228		$	3,505		$	9,208	$	19,166
Interest income			—		2		(2	)		—			4		14

	Total revenues		585		4,858		9,226			3,505			9,212		19,180

Interest expense			—		73		532			(25	)		146		1,059
Depreciation and amortization			26		959		1,449			602			1,860		2,698
Property operating expenses			463		1,809		3,002			1,743			3,535		5,856
Ground rent			14		29		—			43			58		—

	Total expenses		503		2,870		4,983			2,363			5,599		9,613

Income before income taxes, income from investment in unconsolidated joint ventures and net gain on sales of real estate			82		1,988		4,243			1,142			3,613		9,567
Income taxes			25		—		(350	)		25			—		(353	)
Income from investment in unconsolidated joint ventures			—		—		468			—			—		742
Net gain on sales of real estate			5,499		—		—			2,490			—		—

Net income		$	5,606	$	1,988	$	4,361		$	3,657		$	3,613	$	9,956

Property revenues less property operating expenses before interest, depreciation and amortization		$	122	$	3,047	$	6,226		$	1,762		$	5,673	$	13,310

Liquidity and Capital Resources

Liquidity

Net cash flow from operations represents the primary source of liquidity to fund distributions, debt service, capital improvements and non-revenue enhancing tenant improvements. We expect that our line of credit will provide for funding of working capital and revenue enhancing tenant improvements, unanticipated cash needs as well as acquisitions and development costs. Our net cash flow from operations is dependent upon the occupancy level of our properties, the collectibility of rent from our tenants, the level of operating and other expenses, and other factors. Material changes in these factors may adversely affect our net cash flow from operations. Such changes, in turn, would adversely affect our ability to fund distributions, debt service, capital improvements and non-revenue enhancing tenant improvements. In addition, a material adverse change in our net cash flow from operations may affect the financial performance covenants under our line of credit and unsecured notes. If we fail to meet any of our financial performance covenants our line of credit may become unavailable to us, or the interest charged on the line of credit may increase. Either of these circumstances could adversely affect our ability to fund working capital and revenue enhancing tenant improvements, unanticipated cash needs, acquisitions and development costs. In order to qualify as a REIT for federal income tax purposes, Equity Office must distribute at least 90% of its REIT taxable income (excluding capital gains). Our partnership agreement generally requires us to distribute substantially all of the net cash from operations each quarter and to make reasonable efforts to distribute to Equity Office enough cash for it to meet the 90% distribution requirement. Accordingly, we currently intend to continue to make

regular quarterly distributions to holders of Units and preferred units. Subject to the foregoing, we have established quarterly distribution amounts which, if annualized, would be as follows:


		Annualized Distribution
Security		Per Unit

Units		$	2.00
Preferred Unit Series:
	A	$	2.245	(a)
	B	$	2.625
	C	$	2.15625
	E	$	1.96875
	F	$	2.00
	G	$	1.9375	(a)


(a)		In July, Equity Office redeemed its 7,994,000 outstanding 8.98% Series A Cumulative Redeemable Preferred Shares and EOP Partnership cancelled a corresponding number of 8.98% Series A Cumulative Redeemable Preferred Units. On the same date, Equity Office issued 8,500,000 7.75% Series G Cumulative Redeemable Preferred Shares and EOP Partnership issued a corresponding number of Series G Cumulative Redeemable Preferred Units. Substantially all of the net proceeds from the issuance and sale of the Series G preferred shares totaling approximately $206 million were used to redeem the Series A preferred shares.

Since our anticipated distributions will not allow us to retain sufficient cash to repay all of our debt as it comes due using only cash from operations, we will be required to repay maturing debt with proceeds from debt and/or equity offerings. There can be no assurance that such financing will be available on acceptable terms or at all.

Contractual Obligations

As of June 30, 2002, we were subject to the following contractual payment obligations:



			Payments Due by Period

						Through
Contractual Obligations:			Total			2002			2003			2004			2005			2006			Thereafter


			(Dollars in thousands)
Long-term debt:
	Mortgage debt (1)		$	2,636,533		$	103,982		$	202,520		$	447,538		$	583,372		$	342,628		$	956,493
	Unsecured notes (2)			9,126,500			110,000			700,000			880,000			675,000			650,000			6,111,500
	Line of credit			—			—			—			—			—			—			—
Share of mortgage debt of unconsolidated joint ventures				817,656			110,874			5,345			116,022			520,249			50,074			15,092
Operating leases (ground leases)				1,075,113			9,422			18,853			16,353			15,996			15,793			998,696

		Total Contractual Obligations	$	13,655,802		$	334,278		$	926,718		$	1,459,913		$	1,794,617		$	1,058,495		$	8,081,781


Weighted Average Interest Rates on Maturing Debt:

Mortgage debt				7.67	%		7.88	%		7.40	%		7.19	%		7.88	%		7.15	%		7.96	%
Unsecured notes (2)				6.85	%		5.37	%		7.21	%		4.93	%		5.09	%		6.55	%		7.33	%
Line of credit				—			—			—			—			—			—			—
Share of mortgage debt of unconsolidated joint ventures				6.28	%		5.74	%		—			2.97	%		6.92	%		7.67	%		6.92	%

		Total Weighted Average Interest Rates		6.98	%		6.20	%		7.25	%		5.46	%		6.53	%		6.81	%		7.42	%

(1) Balance excludes net discount of $(12.2) million, net of accumulated amortization of approximately $(5.7) million.

(2) Balance excludes net premium of $22.6 million, net of accumulated amortization of approximately $(6.8) million. As of June 30, 2002, $1.2 billion of unsecured notes were converted to a variable interest rate based on a spread over the 6-month LIBOR rate through several interest rate swap agreements.

Commitments

In accordance with the agreement governing the investment in Wright Runstad Associates Limited Partnership (“WRALP”), we agreed, for a period generally continuing until December 31, 2007, to make available to WRALP up to $20.0 million in additional financing or credit support for future development. As of June 30, 2002, no amounts have been funded pursuant to this agreement. However, EOP Partnership has guaranteed WRALP’s current line of credit, which has an outstanding balance of approximately $12.9 million as of June 30, 2002. WRALP’s current line of credit matures in July 2003.

We have agreed to loan amounts in connection with certain development projects as described in “Developments” subfootnote (b) later in this section.

Debt Financing

The table below summarizes our consolidated mortgage debt, unsecured notes and line of credit indebtedness at June 30, 2002 and December 31, 2001, including a net unamortized discount on mortgage debt of approximately $(12.2) million and $(11.8) million, respectively, and a net unamortized premium on unsecured notes of approximately $22.6 million and $17.5 million, respectively, recorded in connection with property acquisitions, mergers and the issuance of unsecured notes.


(Dollars in thousands)			June 30, 2002		December 31, 2001

Balance
	Fixed rate		$	10,537,506	$	10,891,325
	Variable rate (1)			1,236,000		1,097,300

		Total	$	11,773,506	$	11,988,625

Percent of total debt:
	Fixed rate			89.5%		90.8%
	Variable rate (1)			10.5%		9.2%

		Total		100.0%		100.0%

Effective interest rate at end of period:
	Fixed rate			7.36%		7.37%
	Variable rate (1)(2)			4.27%		3.31%

		Effective interest rate		7.03%		7.00%


(1)	The variable rate debt as of June 30, 2002 and December 31, 2001 includes $1.2 billion and $817 million, respectively, of fixed rate unsecured notes that were converted to a variable rate based on various spreads over LIBOR through several interest rate swap agreements.

(2)	The variable rate debt bears interest at a rate based on various spreads over LIBOR.

Mortgage Debt

As of June 30, 2002, total mortgage debt (excluding our share of unconsolidated debt of approximately $817.7 million) consisted of approximately $2.6 billion of fixed rate debt with a weighted average interest rate of approximately 7.74% and $36.0 million of variable rate debt based on LIBOR plus 55 basis points (as of June 30, 2002 the variable rate was approximately 2.39%). See “Liquidity and Capital Resources — Contractual Obligations” for annual payment obligations under our mortgage debt.

The instruments encumbering the properties restrict transfer of the respective properties subject to the terms of the mortgage, prohibit additional liens, require payment of real estate taxes on the properties, maintenance of the properties in good condition, maintenance of insurance on the properties and a requirement to obtain lender consent to enter into material tenant leases.

Line of Credit

We have a $1.0 billion revolving credit facility that was obtained in May 2000. The line of credit bears interest at LIBOR plus 60 basis points and matures on June 19, 2003. There is also an annual facility fee of $2.0 million payable quarterly. In addition, a competitive bid option, whereby the lenders participating in the credit facility bid on the interest to be charged, is available for up to $350 million of the borrowings under the credit facility. Equity Office has guaranteed the outstanding obligation under the line of credit. At June 30, 2002 no amounts were outstanding under the revolving credit facility.

Unsecured Notes

Unsecured notes increased by $50 million from December 31, 2001 to June 30, 2002 as a result of the issuance of $500 million notes in February and the exchange of the $250 million MandatOry Par Put Remarketed Securities^SM and repayment of $200 million notes upon maturity. The table below summarizes EOP Partnership’s unsecured notes outstanding as of June 30, 2002:


		Coupon/			All-in
		Stated			Effective			Face		Maturity
Original Term (in years)		Rate			Rate(a)			Amount		Date


		(Dollars in thousands)
Fixed interest rate:
	7		6.95	%		5.37	%	$	110,000		12/15/02
	5		6.38	%		6.76	%		300,000		2/15/03
	3		7.38	%		7.55	%		400,000		11/15/03
	5		6.80	%		6.10	%		200,000		5/01/04
	7		7.24	%		7.26	%		30,000		9/01/04
	9		6.90	%		6.27	%		100,000		1/15/04
	8		6.88	%		6.40	%		125,000		2/01/05
	7		6.63	%		5.89	%		100,000		2/15/05
	7		8.00	%		6.49	%		100,000		7/19/05
	8		7.36	%		7.69	%		50,000		9/1/05
	6		8.38	%		8.59	%		150,000		3/15/06
	9		7.44	%		7.74	%		50,000		9/1/06
	10		7.13	%		6.74	%		100,000		12/1/06
	9		7.00	%		6.80	%		1,500		2/02/07
	9		6.88	%		6.83	%		25,000		4/30/07
	9		6.76	%		6.76	%		300,000		6/15/07
	10		7.41	%		7.70	%		50,000		9/01/07
	7		7.75	%		7.91	%		600,000		11/15/07
	10		6.75	%		6.97	%		150,000		1/15/08
	10		6.75	%		7.01	%		300,000		2/15/08
	8(b)		7.25	%		7.64	%		325,000		11/15/08
	10		6.80	%		6.94	%		500,000		1/15/09
	10		7.25	%		7.14	%		200,000		5/01/09
	11		7.13	%		6.97	%		150,000		7/01/09
	10		8.10	%		8.22	%		360,000		8/01/10
	10		7.65	%		7.20	%		200,000		12/15/10
	10		7.00	%		6.83	%		1,100,000		7/15/11
	10		6.75	%		7.02	%		500,000		2/15/12
	20		7.88	%		8.08	%		25,000		12/01/16
	20		7.35	%		8.08	%		200,000		12/01/17
	20		7.25	%		7.54	%		250,000		2/15/18
	30		7.50	%		8.24	%		150,000		10/01/27
	30		7.25	%		7.31	%		225,000		6/15/28


			Coupon/			All-in
			Stated			Effective			Face		Maturity
Original Term (in years)			Rate			Rate(a)			Amount		Date


			(Dollars in thousands)
	30			7.50	%		7.55	%		200,000		4/19/29
	30			7.88	%		7.94	%		300,000		7/15/31

		Weighted Average/ Subtotal		7.20	%		7.23	%		7,926,500

Variable-interest rate (c):
	5			6.50	%		3.91	%		300,000		1/15/04
	6			6.50	%		4.41	%		150,000		6/15/04
	6			6.50	%		4.38	%		100,000		6/15/04
	7			6.63	%		3.38	%		300,000		2/15/05
	6			8.38	%		5.44	%		150,000		3/15/06
	6			8.38	%		5.45	%		200,000		3/15/06

		Weighted Average/ Subtotal		7.08	%		4.33	%		1,200,000

		Weighted Average/ Subtotal		7.19	%		6.85	%		9,126,500

Net premium (net of accumulated amortization of approximately $(6,812))										22,645

Total									$	9,149,145


(a)		Includes the cost of terminated interest rate protection and swap agreements, offering and transaction costs and premiums and discounts on certain unsecured notes.

(b)		The notes are exchangeable into Equity Office Common Shares at an exchange rate of $34.00 per share. If the closing price at the time a holder exercises its exchange right is less than the exchange price of $34.00, the holder will receive, in lieu of Common Shares, cash in an amount equal to 97% of the product of the number of Common Shares into which the principal amount of notes subject to such exercise would otherwise be exchangeable and the current market price per Common Share. Upon exchange of a $1,000 note for Common Shares of Equity Office, EOP Partnership would issue a corresponding number of Units to Equity Office on a one-for-one basis.

(c)		As of June 30, 2002, $1.2 billion of unsecured notes were converted to a variable interest rate based on a spread over the 6-month LIBOR rate through several interest rate swap arrangements.

As of June 30, 2002, $2.1 billion of unsecured debt securities and related guarantees were available for issuance under a shelf registration statement.

Restrictions and Covenants under Unsecured Indebtedness

Agreements or instruments relating to the unsecured notes and the line of credit contain certain financial restrictions and requirements described below. As of June 30, 2002, we were in compliance with each of these financial restrictions and requirements.

Set forth below are the financial restrictions and requirements to which we are subject under our line of credit agreement:

• total liabilities to total asset value may not exceed 0.55:1 at any time;

• EBITDA to interest expense may not be less than 2.00:1;

• cash flow to fixed charges may not be less than 1.5:1;

• secured debt to total asset value may not exceed 0.40:1;

• unsecured debt to unencumbered asset value may not exceed 0.55:1;

• unencumbered net operating income to unsecured debt service may not be less than 2.0:1;

• consolidated tangible net worth may not be less than the sum of $7.8 billion and 70% of all net offering proceeds received by Equity Office or EOP Partnership after February 29, 2000;

• we may not pay any distributions on Common Shares and Units in excess of 90% of annual FFO; and

• our investments in unimproved assets, interest in taxable REIT subsidiaries, developments, unconsolidated joint ventures, mortgages and securities, in the aggregate, may not exceed 25% of our total asset value.

Set forth below are the financial restrictions and requirements to which we are subject under our unsecured note indentures:

• debt to adjusted total assets may not exceed 0.60:1;

• secured debt to adjusted total assets may not exceed 0.40:1;

• consolidated income available for debt service to annual debt service charge may not be less than 1.50:1; and

• total unencumbered assets to unsecured debt may not be less than 1.50:1.

Equity Securities

A summary of the activity of Equity Office’s Common Shares and EOP Partnership’s Units (exclusive of Units owned by Equity Office) during the three months ended June 30, 2002 is as follows:


		Common Shares			Units			Total

Outstanding at March 31, 2002			416,545,021			56,041,340			472,586,361
	Share options exercised		553,599			—			553,599
	Units redeemed for Common Shares		1,919,583			(1,919,583	)		—
	Units redeemed for cash		—			(2,948,453	)		(2,948,453	)
	Restricted shares issued/cancelled, net		(8,000	)		—			(8,000	)
	Issued through dividend reinvestments		25,751			—			25,751

Outstanding at June 30, 2002			419,035,954			51,173,304			470,209,258

Cash Flows

The following summary discussion of our cash flows is based on the consolidated statements of cash flows in “Item 1. — Financial Statements” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

Six Months Ended June 30, 2002

Cash and cash equivalents increased by approximately $239.1 million to approximately $300.2 million at June 30, 2002, compared to $61.1 million at December 31, 2001. This increase was the net result of the receipt of approximately $642.2 million from operating activities, approximately $145.0 million from investing activities, which consisted primarily of approximately $121.6 million from property dispositions and $150.7 million released from escrows, less approximately $172.2 million used for capital and tenant improvements and lease acquisition costs, and approximately $548.1 million used for financing activities.

Additional Items

Deferred Rent Receivable

Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments increase during the term of the lease. We record rental income for the full term of each lease on a straight-line basis. Accordingly, a receivable is recorded from tenants for the current difference between the straight-line rent and the rent that is actually due from the tenant. This receivable amount is included in the consolidated balance sheets as “deferred rent receivable.” The deferred rent receivable increased approximately $36.0 million to $305.8 million at June 30, 2002, from $269.8 million at December 31, 2001. The increase was due to a net increase in the difference between the straight-line rent and the rent that is actually

due from tenants primarily from the acquisition of the Properties acquired in the Spieker Merger on July 2, 2001 and certain development properties that were placed in service.

Escrow Deposits and Restricted Cash

Escrow deposits primarily consist of amounts held by lenders to provide for future real estate tax expenditures and tenant improvements, earnest money deposits on acquisitions and net proceeds from tax-deferred dispositions. Restricted cash represents amounts committed for various utility deposits and security deposits. Certain of these amounts may be reduced upon the fulfillment of certain obligations. The escrow deposits and restricted cash decreased approximately $150.7 million to $45.6 million at June 30, 2002, from $196.3 million at December 31, 2001. The decrease was primarily due to the disbursement of approximately $162.0 million of proceeds from the sale of certain parking facilities in 2001 that were deposited into a tax-deferred escrow account.

Market Risk

Since December 31, 2001 there were no material changes in the information regarding market risk that was provided in the Form 10-K for the year ended December 31, 2001, except as noted below.

Interest Rate Risk — Derivatives

As of June 30, 2002, we have several interest rate swap agreements in place to hedge certain unsecured notes as summarized below. In each case, we are the variable rate payer and the counterparty is the fixed rate payer. The variable interest rate is based on various spreads over LIBOR. The settlement dates correspond to the interest payment dates of the respective unsecured notes being hedged. Each of the interest rate swap agreements terminates on the maturity date of the respective unsecured notes being hedged.


			Estimated		Fixed		Maturity Date
	Amount		Value		Interest		of Unsecured
Swap Effective Date	Hedged		(1)		Rate		Notes/Swaps


	(Dollars in thousands)
March 2002	$	300 million	$	4,480		6.50%		1/15/04
October 2001	$	150 million		577		6.50%		6/15/04
October 2001	$	100 million		438		6.50%		6/15/04
October 2001	$	300 million		511		6.63%		2/15/05
May 2002	$	150 million		1,764		8.38%		3/15/06
May 2002	$	200 million		2,342		8.38%		3/15/06

			$	10,112


(1)	Values are as of June 30, 2002, and may fluctuate based on market interest rates.

In accordance with FAS 133, Accounting for Derivative Instruments and Hedging Activities, the above interest rate swap agreements and the respective unsecured notes are reflected at market value. Any market adjustment on the swap agreements will be reflected in other assets or other liabilities, and the corresponding market adjustment on the unsecured notes will be reflected as either a discount or premium on unsecured notes. Because the swap agreements are considered a perfectly effective fair value hedge, there will be no effect on net income from the mark to market adjustments.

Capital Improvements, Tenant Improvements and Leasing Commissions

Capital Improvements

Significant renovations and improvements which improve or extend the useful life of our Properties are capitalized. We categorize these capital expenditures as follows:

• Capital Improvements — improvements that enhance the value of the property such as lobby renovations, roof replacement, significant renovations for Americans with Disabilities Act compliance, chiller replacement and elevator upgrades.

• Development and Redevelopment Costs — include costs associated with the development or redevelopment of a property including tenant improvements, leasing commissions, capitalized interest and operating costs incurred during completion of the property and incurred while the property is made ready for its intended use.

The table below details the costs incurred for each type of improvement:



			For the three months ended				For the six months ended
			June 30, 2002				June 30, 2002

					Unconsolidated				Unconsolidated
					Properties (EOP				Properties (EOP
			Consolidated		Partnership’s		Consolidated		Partnership’s
			Properties		share)		Properties		share)


			(Dollars in thousands)
Capital Improvements
	Capital improvements		$	4,660	$	269	$	14,978	$	643
	Development costs			30,339		35,580		55,261		65,453
	Redevelopment costs(a)			10,001		—		18,490		—

		Total capital improvements	$	45,000	$	35,849	$	88,729	$	66,096


(a)		Redevelopment properties are Tabor Center, Polk and Taylor Buildings and 500-600 City Parkway.

Tenant Improvements and Leasing Commissions

Costs related to the renovation, alteration or build-out of existing second-generation space, as well as related leasing commissions, are capitalized. These tenant improvements may include, but are not limited to, floor coverings, ceilings, walls, HVAC, mechanical, electrical, plumbing and fire protection systems. We categorize tenant improvements and leasing commissions as follows:

• Revenue enhancing — costs incurred on space which is vacant at the time of acquisition or has been vacant for nine months or more.

• Non-revenue enhancing — costs incurred in connection with the renewal or retenanting of currently leased space to maintain the revenue being generated by such space.

The amounts shown below represent the total tenant improvement and leasing commissions for leases which commenced during the period, regardless of when such costs were actually paid, which is a more useful measure of the total tenant improvement and leasing commission costs for the periods presented.



		For the three months				For the six months
		ended June 30, 2002				ended June 30, 2002

				Cost/square foot				Cost/square foot
(Dollars in thousands except per square foot amounts)		Total Costs		Leased		Total Costs		Leased

*Consolidated Properties:*
Office Properties:
Revenue enhancing		$	13,882	$	23.49	$	22,040	$	23.06

Non-revenue enhancing:
	Renewals	$	18,491	$	6.79	$	30,213	$	6.70
	Retenanted		26,345		15.00		49,175		14.95

Total/ Weighted Average Non-revenue enhancing		$	44,836	$	10.01	$	79,388	$	10.18

Industrial Properties:
Revenue enhancing			—		—		—		—

Non-revenue enhancing:
	Renewals	$	271	$	0.42	$	271	$	0.41
	Retenanted		240		3.74		240		3.74

Total/ Weighted Average Non-revenue enhancing		$	511	$	0.72	$	511	$	0.71

*Unconsolidated Properties (a):*
Revenue enhancing		$	107	$	5.97	$	631	$	15.36

Non-revenue enhancing:
	Renewals	$	436	$	3.09	$	923	$	4.66
	Retenanted		348		6.50		1,031		9.54

Total/ Weighted Average Non-revenue enhancing		$	784	$	4.02	$	1,954	$	6.38


(a)		Represents EOP Partnership’s share of unconsolidated joint venture leasing costs. All joint ventures are Office Properties.

The above information includes actual capital improvements incurred and tenant improvements and leasing commissions for leases which commenced during the year for the periods shown. The amounts included in the consolidated statements of cash flows represent the cash expenditures made during the six months ended June 30, 2002. The differences between these amounts represent timing differences between the lease commencement dates and the actual cash expenditures as well as expenditures for corporate furniture, fixtures and equipment, software, leasehold improvements and other. The reconciliation between the amounts

above for the consolidated properties and the amounts disclosed in the consolidated statements of cash flows is as follows:


	For the six months
(Dollars in thousands)	ended June 30, 2002

Total capital improvements, tenant improvements and leasing commissions	$	190,668
Timing differences		(20,810	)
Expenditures for corporate furniture, fixtures and equipment, software, leasehold improvements and other		2,306

Total capital improvements, tenant improvements and leasing commissions on the consolidated statements of cash flows	$	172,164

Developments

We currently own directly and through joint ventures several properties in various stages of development or pre-development. These developments are funded with proceeds from working capital and the line of credit. Specifically identifiable direct acquisition, development and construction costs are capitalized, including, where applicable, salaries and related costs, real estate taxes and interest essential to the development of a property. The properties under development and all figures stated below are as of June 30, 2002.

Consolidated Developments:



							EOP Partnership’s

	Estimated						Effective							Total
	Placed in						Ownership			Costs		Total		Project		Current
	Service		Number of		Square		Percentage			Incurred		Estimated		Estimated		Percentage
Wholly-Owned	Date(a)	Location	Buildings		Feet		(a)			(a)		Costs(a)		Costs(a)		Leased


							(Dollars in thousands)
Tower @ Shores Center	4Q/2001	Redwood Shores, CA		2		334,800		100	%	$	107,628	$	116,500	$	116,500		32	%
Kruse Woods V	3Q/2003	Lake Oswego, OR		1		184,000		100	%		5,698		33,900		33,900		0	%

				3		518,800					113,326		150,400		150,400		21	%


Joint Venture

Water’s Edge Phase I	3Q/2002	Los Angeles, CA		2		240,000		87.5	%		44,188		74,300		76,500		0	%

*Unconsolidated Developments:*

Wilson/Equity Office Developments(b)

San Rafael Corporate Center	4Q/2001	San Rafael, CA		2		157,700		80	%		38,759		48,100		60,100		12	%
Foundry Square II and IV(c)	3Q/2002 -
	1Q/2003	San Francisco, CA		2		734,800		(c)			103,423		150,600		259,500		31	%
Ferry Building(d)	3Q/2002	San Francisco, CA		1		242,000		(d)			42,775		60,900		99,900		0	%
Concar(e)	4Q/2002	San Mateo, CA		2		207,000		80	%		32,432		55,200		68,500		99	%

				7		1,341,500					217,389		314,800		488,000		33	%

	Grand Total/ Weighted Average			12		2,100,300				$	374,903	$	539,500	$	714,900		27	%

Balance Sheet Reconciliation of Developments:


Consolidated developments — costs incurred as reflected above:
	Wholly-owned		$	113,326
	Joint venture			44,188
Minority interests portion of consolidated development				2,132

		Total developments in process on the consolidated balance sheet	$	159,646


(a)		The Estimated Placed in Service Date represents the date the certificate of occupancy was or is currently anticipated to be obtained. Subsequent to obtaining the certificate of occupancy, the property is expected to undergo a lease-up period.

		For consolidated developments, EOP Partnership’s Costs Incurred and the Total Estimated Costs are based on EOP Partnership’s Effective Ownership Percentage. The Total Project Estimated Costs represent 100% of the estimated costs including any unaffiliated party’s portion.

		For unconsolidated developments, the Effective Ownership Percentage represents EOP Partnership’s direct interest in the development and its indirect interest through its 49.9% interest in Wilson/ Equity Office (“W/ EO”). EOP Partnership’s Costs Incurred and Total Estimated Costs are based on EOP Partnership’s Effective Ownership Percentage. The Total Project Estimated Costs represent 100% of the estimated costs including those of EOP Partnership, Wilson Investors (“WI”) and any unaffiliated party’s portions.

		The Total Estimated Costs and the Total Project Estimated Costs are subject to change upon, or prior to, the completion of the development and include amounts required to lease the property.

(b)		EOP Partnership and WI entered into a joint venture agreement to form W/EO for the purpose of developing, constructing, leasing and managing developments in northern California. W/EO is owned 49.9% by EOP Partnership and 50.1% by WI. William Wilson III, a trustee of Equity Office, through his ownership of WI, owns approximately 22% of W/EO (and approximately 30% of any promote to which WI is entitled under the joint venture agreement). EOP Partnership has agreed to loan up to $25 million to WI for its required contribution to W/EO at a 15% return per annum. As of June 30, 2002, all amounts lent to WI were repaid and the remaining commitment amount is $13 million. As a result of the recently enacted Sarbanes-Oxley Act of 2002, it is possible (depending on the scope of the regulations to be adopted by the SEC) that EOP Partnership could be prohibited from lending further amounts to WI under this arrangement or from modifying or renewing this arrangement.

		EOP Partnership has created joint ventures with W/EO and, in certain cases, unaffiliated parties for the development of various office properties. The costs for these developments are expected to be funded by EOP Partnership and W/EO in a 60%/40% ratio and in some cases by third parties as described within each development’s operating agreement. EOP Partnership has agreed to provide first mortgage financing to the ownership entities of each of these developments (subject, in the case of Concar, to final agreed documentation) at the greater of 6.5% or LIBOR plus 3.25%, generally maturing 36 months after initial funding (or earlier at the option of EOP Partnership in the event alternative financing sources are available on terms reasonably acceptable to WI and any unaffiliated party). The aggregate amount of such financing is generally capped at 70% of budgeted construction costs (76% in the case of Concar). At June 30, 2002, EOP Partnership had committed to make mortgage loans totalling approximately $317 million, of which approximately $163 million was outstanding. In accordance with the W/EO operating agreement, EOP Partnership is entitled, but not required, to purchase the W/EO interest in each development subsequent to project stabilization.

(c)		Foundry Square is a project with two sites currently under development, each of which has a separate joint venture structure. EOP Partnership’s Effective Ownership Percentages are approximately 70% and 40%, for Sites II and IV, respectively. Site I is currently held as land available for development.

(d)		In 2001, a joint venture between EOP Partnership, W/EO, and other unaffiliated parties leased the Ferry Building from the City and County of San Francisco, through its Port Commission (the “Port”). Under this lease, the Port is paid a stated base rent. In addition, once the lessee has received from the project a

cumulative preferred return of 8% (prior to stabilization) and 11% (after stabilization), then 50% of the proceeds from the operation and ownership of the project are paid to the Port as percentage rent.

The joint venture is redeveloping the Ferry Building in a manner to permit the use of federal rehabilitation tax credits (“Historic Tax Credits”). Since the original members of the joint venture could not take full advantage of the Historic Tax Credits, the joint venture admitted a new member who could do so. This investor member will contribute approximately $23.5 million in equity to fund a portion of the Total Project Estimated Costs for the project, and will receive a preferred return with an effective annual rate of approximately 3% on its capital investment. The investor member’s interest in the joint venture is subject to put/call rights during the sixth and seventh years after the Ferry Building is placed in service. Upon the purchase of the investor member’s interest pursuant to the put/call, it is estimated that the joint venture will retain approximately $11 million of the capital contributed by the investor member, based on a formula to determine the purchase price for the investor member’s interest and after taking into account the preferred return that will have been paid to the investor member by such time. Through the creation of a master lease, EOP Partnership’s Effective Ownership Percentage in the net cash flow of the Ferry Building project is approximately 80%, after the distribution of preferred returns.

(e) Under the terms of the ground lease, the ground lessor is entitled to share, in addition to ground rent, in proceeds from the operation and ownership of this development after a 10% return to the lessee.

In addition to the developments described above, we own or have under option various land parcels available for development. These sites represent possible future development of up to approximately 12 million square feet of office space. The development of these sites will be impacted by the timing and likelihood of success of the entitlement process, both of which are uncertain. These sites include, among others : Russia Wharf, Boston, MA; Reston Town Center, Reston, VA; Prominence in Buckhead, Atlanta, GA; Perimeter Center, Atlanta, GA; Tabor Center, Denver, CO; Bridge Pointe, San Diego, CA; La Jolla Centre, San Diego, CA; Orange Center, Orange, CA; Waters Edge, Los Angeles, CA; Skyport Plaza, San Jose, CA; Foundry Square, San Francisco, CA; Larkspur Landing, Larkspur, CA; San Rafael Corporate Center, San Rafael, CA; Station Oaks, Walnut Creek, CA; Parkshore Plaza, Folsom, CA; Douglas Corporate Center, Roseville, CA; Southport, Renton, WA; City Center Bellevue; Bellevue, WA; and 8th Street, Bellevue, WA.

Impact of New Accounting Standards

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective for financial statements issued for fiscal years beginning after December 15, 2001, the net income and gain/ (loss) on sales of real estate for properties sold subsequent to December 31, 2001 is reflected in the consolidated statements of operations as “Discontinued operations” for both periods presented.

In accordance with Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4,44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections, effective for financial statements issued for fiscal years beginning after May 15, 2002, gains and losses on extinguishments of debt are classified as income from continuing operations rather than as extraordinary items as previously required under Statement 4.

Inflation

Substantially all of our office leases require the tenant to pay, as additional rent, a portion of any increases in real estate taxes (except in the case of certain California leases, which limit the ability of the landlord to pass through to the tenants the effect of increased real estate taxes attributable to a sale of real property interests) and operating expenses over a base amount. In addition, many of our office leases provide for fixed increases in base rent or indexed escalations (based on the Consumer Price Index or other measures). We believe that the majority of inflationary increases in expenses will be offset, in part, by the expense reimbursements and contractual rent increases described above.

Funds From Operations (“FFO”)

We believe FFO, as defined by NAREIT, to be an appropriate measure of performance for a real estate company. While FFO is a relevant and widely used measure of operating performance of a real estate company, it does not represent cash flow from operations or net income as defined by GAAP, and it should not be considered as an alternative to these indicators in evaluating liquidity or operating performance.

The following tables reflect the calculation of FFO for the three and six months ended June 30, 2002 and 2001, respectively:



		For the three months ended
		June 30,

(Dollars in thousands)		2002			2001

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures and discontinued operations		$	178,501		$	134,817
Add (deduct):
	Income taxes		(1,926	)		(3,056	)
	Income allocated to minority interests for partially owned properties		(995	)		(1,353	)
	Income from investment in unconsolidated joint ventures (excluding gain on sale of $150 for the three months ended June 30, 2002)		22,148			17,864
	Depreciation and amortization (real estate related) (including EOP Partnership’s share of unconsolidated joint ventures)		184,290			132,342
	Discontinued operations (excluding depreciation, amortization and net gain on sale)		133			2,947
	Preferred distributions		(15,831	)		(10,877	)

Funds from Operations		$	366,320		$	272,684

Cash flow provided by (used for):
	Operating Activities	$	363,639		$	263,651
	Investing Activities	$	(32,250	)	$	(112,357	)
	Financing Activities	$	(334,987	)	$	(108,825	)
Ratio of earnings to combined fixed charges and preferred share distributions			2.0			1.8



		For the six months ended
		June 30,

(Dollars in thousands)		2002			2001

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, discontinued operations and cumulative effect of a change in accounting principle		$	375,698		$	271,700
Add (deduct):
	Income taxes		(8,932	)		(4,573	)
	Income allocated to minority interests for partially owned properties		(2,401	)		(4,606	)
	Income from investment in unconsolidated joint ventures (excluding gain on sale of $429 for the six months ended June 30, 2002)		79,497			33,290
	Depreciation and amortization (real estate related) (including EOP Partnership’s share of unconsolidated joint ventures)		362,989			265,752
	Discontinued operations (excluding depreciation, amortization and net gain on sale)		1,769			5,473
	Preferred distributions		(31,661	)		(21,761	)

Funds from Operations		$	776,959		$	545,275



		For the six months ended
		June 30,

(Dollars in thousands)		2002			2001

Cash flow provided by (used for):
	Operating Activities	$	642,220		$	456,452
	Investing Activities	$	144,980		$	(176,029	)
	Financing Activities	$	(548,081	)	$	(253,600	)
Ratio of earnings to combined fixed charges and preferred share distributions			2.0			1.8

The White Paper on FFO approved by NAREIT in March 1995 defines FFO as net income, computed in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of properties (which EOP Partnership believes includes impairments on properties held for sale), plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. In November 1999, NAREIT issued a National Policy Bulletin effective January 1, 2000 clarifying the definition of FFO to include all operating results, both recurring and non-recurring, except those defined as extraordinary under GAAP. We believe that FFO is helpful to investors as a measure of the performance of a real estate company because, along with cash flow from operating activities, investing activities and financing activities, it provides investors with an indication of the ability of a company to incur and service debt, to make capital expenditures and to fund other cash needs. We compute FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than us. FFO does not represent cash generated from operating activities in accordance with GAAP, nor does it represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance or to cash flow from operating activities determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.


ITEM 3.	*Quantitative and Qualitative Disclosures About Market Risk.*

Quantitative and qualitative disclosures about market risk are incorporated herein by reference from “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the “Market Risk” section.

PART II. OTHER INFORMATION


ITEM 6.	*Exhibits and Reports on Form 8-K.*

(a) Exhibits

The exhibits required by this item are set forth on the Exhibit Index attached hereto.

(b) Reports on Form 8-K

Two reports on Form 8-K were filed during the quarter ended June 30, 2002, as follows:


Date of Event		Items Reported/Financial Statements Filed

April 19, 2002		Item 5, Other Events

SIGNATURES

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

EOP OPERATING LIMITED PARTNERSHIP

By: EQUITY OFFICE PROPERTIES TRUST

Its general partner

Date: August 14, 2002

By: /s/ STANLEY M. STEVENS

Stanley M. Stevens

Executive Vice President,

Chief Legal Counsel and Secretary

Date: August 14, 2002

By: /s/ RICHARD D. KINCAID

Richard D. Kincaid

Executive Vice President,

Chief Operating Officer and

Chief Financial Officer

EXHIBIT INDEX


Exhibit No.	Description	Page No.

10.1†	Severance Agreement, dated June 24, 2002, with Timothy H. Callahan (incorporated by reference to Exhibit 10.1 of Equity Office Properties Trust’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2002)
10.2	Construction Loan Agreement, dated as of March 12, 2002, between San Rafael Corporate Center, LLC, a Delaware limited liability company, as Borrower and Riverside Finance Company, L.L.C., a Delaware limited liability company, as Lender (incorporated by reference to Exhibit 10.2 of Equity Office Properties Trust’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2002)
10.3	Construction Loan Agreement, dated as of December 31, 2001, between Ferry Building Investors, LLC, a California limited liability company, as Borrower and Riverside Finance Company, L.L.C., a Delaware limited liability company, as Lender (incorporated by reference to Exhibit 10.3 of Equity Office Properties Trust’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2002)
10.4	First Amendment to Construction Loan Agreement, Deed of Trust and Other Loan Documents, dated April 25, 2002 (incorporated by reference to Exhibit 10.4 of Equity Office Properties Trust’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2002)
10.5	Construction Loan Agreement, dated as of April 25, 2002, between Foundry Square Associates II, LLC, a California limited liability company, as Borrower and Riverside Finance Company, L.L.C., a Delaware limited liability company, as Lender (incorporated by reference to Exhibit 10.5 of Equity Office Properties Trust’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2002)
10.6	Construction Loan Agreement, dated as of April 30, 2002, between Foundry Square Associates IV, LLC, a California limited liability company, as Borrower and Riverside Finance Company, L.L.C., a Delaware limited liability company, as Lender (incorporated by reference to Exhibit 10.6 of Equity Office Properties Trust’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2002)
12.1	Statement of Earnings to Combined Fixed Charges and Preferred Distributions

† Represents a management contract or compensatory plan, contract or agreement.


		number of Series G Cumulative Redeemable Preferred Units. Substantially all of the net proceeds from the issuance of the Series G preferred shares totaling approximately $206 million were used to redeem the Series A preferred shares.

	2.	In July, Equity Office announced approval of a common share repurchase program under which Equity Office may purchase up to $200 million of Common Shares over the next 12 months, at the discretion of management. Management intends to initially execute $100 million of this share repurchase program, as market conditions warrant, and will evaluate the balance of the program at a later date. The Common Shares may be repurchased in the open market or privately negotiated transactions. For each Common Share purchased in this program EOP Partnership will cancel a corresponding Unit.


	•	Future economic conditions which may impact the demand for office space as well as current or prospective tenants’ abilities or willingness to pay rent, either at current or increased levels;

	•	The extent of any tenant bankruptcies or defaults that may occur;

	•	The availability of new competitive supply, including competitive supply which may be available by way of sublease;

	•	The extent of future demand for high-rise and other office space in the markets in which EOP Partnership has a presence;

	•	The costs to complete and lease-up pending developments at anticipated rents;

	•	Future demand for EOP Partnership’s debt and equity securities;

	•	EOP Partnership’s continued access to adequate credit facilities or other debt financing on acceptable terms;

	•	EOP Partnership’s ability to achieve economies of scale over time;

	•	EOP Partnership’s ability to attract and retain high quality personnel at a reasonable cost;

	•	Changes in interest rates;

	•	Changes in operating expenses, including utility, insurance and security costs;

	•	EOP Partnership’s continuing ability to pay amounts due to its noteholders and preferred noteholders before any distribution to holders of Units; and

	•	EOP Partnership’s ability to secure adequate insurance for occurrences such as terrorist acts and earthquakes.


	•	Issued $500 million of unsecured notes due February 2012 at an all-in cost of 7.0% and exchanged approximately $260.0 million of these notes for the previously outstanding $250.0 million MandatOry Par Put Remarketed Securities^SM which were subject to mandatory redemption;

	•	Sold ten office properties, two vacant land parcels and a 50% interest in four parking facilities for approximately $193.4 million;

	•	Received a lease termination fee of approximately $40 million in connection with a previously proposed office building development;


	•	Acquired the Army and Navy Club office building for approximately $37.4 million. The property is located in Washington, D.C., and consists of approximately 170,000 square feet of which 102,822 square feet is office space; and

	•	Equity Office called for redemption its 7,994,000 outstanding 8.98% Series A Cumulative Redeemable Preferred Shares. The redemption date was July 29, 20002.


	•	Total debt to total assets decreased to 45.8% as of June 30, 2002 from 46.4% as of June 30, 2001;

	•	Interest coverage ratio (calculated as EBITDA divided by interest expense, including our share of interest expense of unconsolidated joint ventures) increased to 2.8 times from 2.7 times; and

	•	Weighted average interest rate decreased to 7.0% from 7.5%.


(1)	Balance excludes net discount of $(12.2) million, net of accumulated amortization of approximately $(5.7) million.

(2)	Balance excludes net premium of $22.6 million, net of accumulated amortization of approximately $(6.8) million. As of June 30, 2002, $1.2 billion of unsecured notes were converted to a variable interest rate based on a spread over the 6-month LIBOR rate through several interest rate swap agreements.


	•	total liabilities to total asset value may not exceed 0.55:1 at any time;

	•	EBITDA to interest expense may not be less than 2.00:1;

	•	cash flow to fixed charges may not be less than 1.5:1;

	•	secured debt to total asset value may not exceed 0.40:1;

	•	unsecured debt to unencumbered asset value may not exceed 0.55:1;

	•	unencumbered net operating income to unsecured debt service may not be less than 2.0:1;

	•	consolidated tangible net worth may not be less than the sum of $7.8 billion and 70% of all net offering proceeds received by Equity Office or EOP Partnership after February 29, 2000;

	•	we may not pay any distributions on Common Shares and Units in excess of 90% of annual FFO; and


	•	our investments in unimproved assets, interest in taxable REIT subsidiaries, developments, unconsolidated joint ventures, mortgages and securities, in the aggregate, may not exceed 25% of our total asset value.


	•	debt to adjusted total assets may not exceed 0.60:1;

	•	secured debt to adjusted total assets may not exceed 0.40:1;

	•	consolidated income available for debt service to annual debt service charge may not be less than 1.50:1; and

	•	total unencumbered assets to unsecured debt may not be less than 1.50:1.


	•	Capital Improvements — improvements that enhance the value of the property such as lobby renovations, roof replacement, significant renovations for Americans with Disabilities Act compliance, chiller replacement and elevator upgrades.

	•	Development and Redevelopment Costs — include costs associated with the development or redevelopment of a property including tenant improvements, leasing commissions, capitalized interest and operating costs incurred during completion of the property and incurred while the property is made ready for its intended use.


	•	Revenue enhancing — costs incurred on space which is vacant at the time of acquisition or has been vacant for nine months or more.

	•	Non-revenue enhancing — costs incurred in connection with the renewal or retenanting of currently leased space to maintain the revenue being generated by such space.


		cumulative preferred return of 8% (prior to stabilization) and 11% (after stabilization), then 50% of the proceeds from the operation and ownership of the project are paid to the Port as percentage rent.

		The joint venture is redeveloping the Ferry Building in a manner to permit the use of federal rehabilitation tax credits (“Historic Tax Credits”). Since the original members of the joint venture could not take full advantage of the Historic Tax Credits, the joint venture admitted a new member who could do so. This investor member will contribute approximately $23.5 million in equity to fund a portion of the Total Project Estimated Costs for the project, and will receive a preferred return with an effective annual rate of approximately 3% on its capital investment. The investor member’s interest in the joint venture is subject to put/call rights during the sixth and seventh years after the Ferry Building is placed in service. Upon the purchase of the investor member’s interest pursuant to the put/call, it is estimated that the joint venture will retain approximately $11 million of the capital contributed by the investor member, based on a formula to determine the purchase price for the investor member’s interest and after taking into account the preferred return that will have been paid to the investor member by such time. Through the creation of a master lease, EOP Partnership’s Effective Ownership Percentage in the net cash flow of the Ferry Building project is approximately 80%, after the distribution of preferred returns.

(e)		Under the terms of the ground lease, the ground lessor is entitled to share, in addition to ground rent, in proceeds from the operation and ownership of this development after a 10% return to the lessee.



	Stanley M. Stevens
	Executive Vice President,
	Chief Legal Counsel and Secretary



	Richard D. Kincaid
	Executive Vice President,
	Chief Operating Officer and
	Chief Financial Officer


†	Represents a management contract or compensatory plan, contract or agreement.