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 September 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 x No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

On October 31, 2002, 462,166,220 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
	NOTE 12 -- SEGMENT INFORMATION
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Comparison of the three months ended September 30, 2002 to September 30, 2001
	Property Dispositions
	Unsecured Notes
	Restrictions and Covenants under Unsecured Indebtedness
	Cash Flows
	Nine Months Ended September 30, 2002
	Additional Items
	Tenant and Other Receivables
	Deferred Rent Receivables
	Escrow Deposits and Restricted Cash
	Market Risk
	Quantitative Information About Market Risk
	Interest Rate Risk -- Debt
	Interest Rate Risk -- Derivatives
	Capital Improvements, Tenant Improvements and Leasing Commissions
	Capital Improvements
	Tenant Improvements and Leasing Commissions
	Impact of New Accounting Standards
	Inflation
	Funds From Operations (“FFO”)
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
	ITEM 4. Controls and Procedures.
PART II. OTHER INFORMATION
	ITEM 2. Changes in Securities and Use of Proceeds.
	ITEM 6. Exhibits and Reports on Form 8-K.
SIGNATURES
EXHIBIT INDEX
1st Amend to 3rd Amend & Rstd Agmt of Ltd Prtnshp
Statement of Earnings to Combined Fixed Charges

PART I.

FINANCIAL INFORMATION

ITEM 1. Financial Statements.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS


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

				(Unaudited)
Assets:
	Investment in real estate			$	24,512,514		$	24,399,658
	Developments in process				171,983			164,997
	Land available for development				243,110			251,696
	Accumulated depreciation				(1,939,147	)		(1,494,301	)

		Investment in real estate, net of accumulated depreciation			22,988,460			23,322,050
	Cash and cash equivalents				455,534			61,121
	Tenant and other receivables (net of allowance for doubtful accounts of $13,436 and $7,794, respectively)				73,043			120,425
	Deferred rent receivable				319,542			269,796
	Escrow deposits and restricted cash				37,062			196,289
	Investment in unconsolidated joint ventures				1,269,512			1,321,127
	Deferred financing costs (net of accumulated amortization of $45,078 and $36,198, respectively)				70,738			77,880
	Deferred leasing costs (net of accumulated amortization of $106,095 and $78,600, respectively)				215,107			187,336
	Prepaid expenses and other assets (net of discounts of $66,646 and $67,413, respectively)				277,957			252,398

			Total Assets	$	25,706,955		$	25,808,422

Liabilities, Minority Interests and Partners’ Capital:
	Mortgage debt (including a net discount of $(12,377) and $(11,761), respectively)			$	2,626,835		$	2,650,338
	Unsecured notes (including a net premium of $48,282 and $17,487, respectively)				9,174,782			9,093,987
	Line of credit				—			244,300
	Accounts payable and accrued expenses				542,704			570,744
	Distribution payable				239,613			6,060
	Other liabilities				362,545			330,277

			Total Liabilities		12,946,479			12,895,706

	Commitments and contingencies				—			—
	Minority interest — partially owned properties				180,748			181,017

	Preferred Units, 100,000,000 authorized:
		8.98% Series A Cumulative Redeemable Preferred Units, liquidation preference $25.00 per unit, 0 and 7,994,000 issued and outstanding, respectively			—			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
		7.75% Series G Cumulative Redeemable Preferred Units, liquidation preference $25.00 per unit, 8,500,000 and 0 issued and outstanding, respectively			212,500			—
	General Partners Capital				91,550			93,010
	Limited Partners Capital				11,630,194			11,795,204
	Deferred compensation				(18,402	)		(19,822	)
	Accumulated other comprehensive income (loss)				313			(116	)

			Total Partners Capital		12,579,728			12,731,699

			Total Liabilities, Minority Interests and Partners’ Capital	$	25,706,955		$	25,808,422

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



				For the three months ended
				September 30,

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

Revenues:
	Rental			$	682,900		$	695,180
	Tenant reimbursements				127,717			124,468
	Parking				28,689			33,108
	Other				35,653			14,817
	Fee income				3,699			3,768
	Interest/dividends				2,792			12,382

			Total revenues		881,450			883,723

Expenses:
	Interest:
		Expense incurred			199,259			205,970
		Amortization of deferred financing costs			1,271			2,761
	Depreciation				158,319			144,331
	Amortization				13,914			9,844
	Real estate taxes				99,910			93,589
	Insurance				12,032			6,306
	Repairs and maintenance				83,178			81,671
	Property operating				91,508			91,975
	Ground rent				4,986			5,082
	General and administrative				30,950			30,328

			Total expenses		695,327			671,857

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures and net gain on sales of real estate					186,123			211,866
Income taxes					(155	)		(1,286	)
Minority interests — partially owned properties					(2,736	)		(2,006	)
Income from investment in unconsolidated joint ventures					12,218			16,434
Net gain on sales of real estate					—			14,854

Income from continuing operations					195,450			239,862
Discontinued operations (including net gain on disposal of $6,382 and $0, respectively)					8,445			5,216

Net income					203,895			245,078
Put option settlement					—			2,655
Preferred distributions					(15,451	)		(18,250	)

Net income available for Units				$	188,444		$	229,483

Net income available per weighted average Unit outstanding — basic				$	0.40		$	0.49

Weighted average Units outstanding — basic					468,263,813			467,350,655

Net income available per weighted average Unit and unit equivalent outstanding — diluted				$	0.40		$	0.49

Weighted average Units and unit equivalents outstanding — diluted					469,764,728			471,009,101

Distributions declared per Unit outstanding				$	0.50		$	0.50

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



				For the nine months ended
				September 30,

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

Revenues:
	Rental			$	2,065,615		$	1,710,550
	Tenant reimbursements				379,202			320,681
	Parking				87,366			94,139
	Other				79,000			39,322
	Fee income				11,754			10,305
	Interest/dividends				17,148			33,036

			Total revenues		2,640,085			2,208,033

Expenses:
	Interest:
		Expense incurred			606,788			520,684
		Amortization of deferred financing costs			3,650			6,790
	Depreciation				476,022			372,130
	Amortization				38,519			27,733
	Real estate taxes				293,732			249,042
	Insurance				32,026			13,899
	Repairs and maintenance				253,166			212,452
	Property operating				262,226			224,536
	Ground rent				15,844			11,481
	General and administrative				102,067			78,151
	Impairment on securities and other investments				—			8,499

			Total expenses		2,084,040			1,725,397

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures and net gain on sale of real estate					556,045			482,636
Income taxes					(8,986	)		(5,849	)
Minority interests — partially owned properties					(5,137	)		(6,612	)
Income from investment in unconsolidated joint ventures					92,143			49,724
Net gain on sales of real estate					—			14,854

Income from continuing operations					634,065			534,753
Discontinued operations (including net gain on disposal of $8,872 and $0, respectively)					17,777			9,749

Income before cumulative effect of a change in accounting principle					651,842			544,502
Cumulative effect of change in accounting principle					—			(1,142	)

Net income					651,842			543,360
Put option settlement					—			2,655
Preferred distributions					(47,112	)		(40,011	)

Net income available for Units				$	604,730		$	506,004

Net income available per weighted average Unit outstanding — basic				$	1.29		$	1.30

Weighted average Units outstanding — basic					469,485,606			388,543,114

Net income available per weighted average Unit and unit equivalent outstanding — diluted				$	1.28		$	1.29

Weighted average Units and unit equivalents outstanding — diluted					471,703,728			391,620,822

Distributions declared per Unit outstanding				$	1.50		$	1.40

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF NET COMPREHENSIVE INCOME

(Unaudited)



		For the three months					For the nine months
		ended September 30,					ended September 30,

(Dollars in thousands)		2002		2001			2002		2001

Net income		$	203,895	$	245,078		$	651,842	$	543,360
Other comprehensive income (loss):
	Unrealized holding gains/losses arising during the period		204		(1,268	)		313		(2,684	)
	Reclassification adjustment for realized gains included in net income		—		—			116		—
	Recognition of permanent impairment on marketable securities		—		—			—		29,671

Net comprehensive income		$	204,099	$	243,810		$	652,271	$	570,347

See accompanying notes.

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



					For the nine months
					ended September 30,

(Dollars in thousands)					2002			2001

Operating Activities:
	Net income				$	651,842		$	543,360
	Adjustments to reconcile net income to net cash provided by operating activities:
		Interest/dividend income accrued but not received				—			(9,852	)
		Amortization of discounts included in interest/dividend income				(767	)		(2,665	)
		Amortization of deferred revenue included in other income				—			(3,073	)
		Depreciation and amortization (including discontinued operations)				520,874			410,148
		Amortization of premiums/discounts on unsecured notes and terminated interest rate protection agreements included in interest expense				(2,331	)		3,648
		Impairment on securities and other investments				—			8,499
		Compensation related to restricted shares issued to employees by Equity Office				12,060			7,803
		Income from unconsolidated joint ventures				(92,143	)		(49,724	)
		Net gain on sales of real estate				(8,872	)		(14,854	)
		Cumulative effect of a change in accounting principle				—			1,142
		Provision for doubtful accounts				19,578			13,036
		Income allocation to minority interests				5,137			6,612
		Changes in assets and liabilities:
			Decrease/(increase) in rents receivable			38,084			(5,500	)
			(Increase) in deferred rent receivable			(59,738	)		(59,865	)
			(Increase) in prepaid expenses and other assets			(12,153	)		(11,109	)
			(Decrease)/increase in accounts payable and accrued expenses			(27,637	)		191
			Increase/(decrease) in other liabilities			4,774			(35,561	)

				Net cash provided by operating activities		1,048,708			802,236

Investing Activities:
	Property acquisitions					(23,947	)		(35,885	)
	Acquisition of Spieker Properties LP					—			(1,048,585	)
	Property dispositions					218,239			255,146
	Capital and tenant improvements					(223,299	)		(242,473	)
	Lease acquisition costs					(69,188	)		(49,617	)
	Decrease in escrow deposits and restricted cash					159,222			140
	Distributions from unconsolidated joint ventures					163,470			96,970
	Investments in unconsolidated joint ventures					(123,897	)		(214,281	)
	Redemption of CT Convertible Trust I preferred stock					20,086			—
	Investment in securities					—			(683	)
	Repayments of note receivables					1,886			382

		Net cash provided by (used for) investing activities				122,572			(1,238,886	)

EOP OPERATING LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)



				For the nine months
				ended September 30,

(Dollars in thousands)				2002			2001

Financing Activities:
	Proceeds from mortgage debt				13,342			140,000
	Principal payments on mortgage debt				(36,229	)		(219,876	)
	Proceeds from unsecured notes				239,127			1,386,598
	Repayment of unsecured notes				(200,000	)		—
	Proceeds from lines of credit				805,050			2,945,050
	Principal payments on lines of credit				(1,049,350	)		(3,135,336	)
	Payment of offering costs				(29	)		(44	)
	Payments of loan costs				(4,047	)		(10,482	)
	Settlement of interest rate swap agreements				42,810			—
	Distributions to minority interests in partially owned properties				(5,406	)		(4,552	)
	Redemption of Series A Preferred Units				(199,850	)		—
	Issuance of Series G Preferred Units				205,645			—
	Repurchase of Units				(4,947	)		—
	Proceeds from exercise of share options				38,882			67,818
	Redemption of Units				(104,165	)		(1,245	)
	Distributions to unitholders				(470,406	)		(371,822	)
	Put option settlement				—			(1,467	)
	Payment of preferred distributions				(47,294	)		(33,698	)

			Net cash (used for) provided by financing activities		(776,867	)		760,944

	Net increase in cash and cash equivalents				394,413			324,294
	Cash and cash equivalents at the beginning of the period				61,121			53,256

	Cash and cash equivalents at the end of the period			$	455,534		$	377,550

Supplemental Information:
	Interest paid during the period, including capitalized interest of $16,467 and $17,607, respectively			$	658,841		$	489,486

Non-Cash Investing and Financing Activities:
	Escrow deposits used for property acquisitions			$	70,030			—

	Escrow deposits provided by property dispositions			$	(70,025	)	$	(23,241	)

	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			—

	Mortgage loans, unsecured notes and line of credit assumed in the Spieker merger				—		$	2,125,686

	Net liabilities assumed in the Spieker merger				—		$	109,699

	Preferred units issued in the Spieker merger				—		$	356,250

	Common Shares, options and Units issued in the Spieker merger				—		$	3,483,236

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. 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 September 30, 2002, EOP Partnership owned or had an interest in 744 office properties (the “Office Properties”) comprising approximately 126.8 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, 89.2% occupied at September 30, 2002, and are located in 142 submarkets in 34 markets in 21 states and the District of Columbia. The Office Properties, by rentable square feet, are located approximately 40.7% in central business districts and approximately 59.3% 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 nine months ended September 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 — ACQUISITION

In September, EOP Partnership acquired Liberty Place, a 157,550 square foot office building in Washington, D.C., for approximately $54.9 million.

NOTE 4 — DISPOSITIONS

During the three months ended September 30, 2002, EOP Partnership sold 23 office properties and one vacant land parcel in separate transactions to various unaffiliated parties for approximately $148.2 million. The total gain on the sale of the wholly owned properties was approximately $6.4 million. The 23 office properties and one vacant land parcel sold were:


			Building		Total Square
Property	Location		Count		Footage

Governor Executive Center		San Diego, CA		1		52,195
Crossroads		San Diego, CA		1		137,120
Dubuque Business Center		San Francisco, CA		3		112,384
Lot 3 Phase II Tri-State International Land		Chicago, IL		—		—
Carmel Valley Centre I & II		San Diego, CA		2		107,184
Carmel View Office Plaza		San Diego, CA		1		77,460
Centerpark Plaza I		San Diego, CA		4		85,051
Centerpark Plaza II		San Diego, CA		5		115,347
Pacific Point		San Diego, CA		3		140,921
Sorrento Tech I, II & III		San Diego, CA		3		93,460

		Total		23		921,122

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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 nine
		months ended				months ended
		September 30,				September 30,

(Dollars in thousands)		2002		2001		2002			2001

Property revenues		$	3,629	$	9,930	$	16,908		$	20,730
Interest income			—		2		—			5

	Total revenues		3,629		9,932		16,908			20,735

Interest expense			1		72		(24	)		219
Depreciation and amortization			546		1,629		2,683			3,495
Property operating expenses			1,019		2,986		5,225			7,175
Ground rent			—		29		43			87

	Total expenses		1,566		4,716		7,927			10,976

Income before income taxes and net gain on sales of real estate			2,063		5,216		8,981			9,759
Income taxes			—		—		(76	)		(10	)
Net gain on sales of real estate			6,382		—		8,872			—

Net income		$	8,445	$	5,216	$	17,777		$	9,749

NOTE 5 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

EOP Partnership has several investments in unconsolidated joint ventures consisting of Office Properties, 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)			September 30, 2002		December 31, 2001

Balance Sheets:
	Real estate, net of accumulated depreciation		$	3,047,834	$	3,135,250
	Other assets			244,066		276,322

		Total Assets	$	3,291,900	$	3,411,572

	Mortgage debt		$	1,306,928	$	1,370,025
	Other liabilities			152,444		169,987
	Partners’ and shareholders’ equity			1,832,528		1,871,560

		Total Liabilities and Partners’ and Shareholders’ Equity	$	3,291,900	$	3,411,572

EOP Partnership’s share of equity			$	1,137,829	$	1,194,441
Net excess of cost of investments over the net book value of underlying net assets, net of accumulated depreciation of $19,808 and $17,517, respectively				131,683		126,686

Carrying value of investments in unconsolidated joint ventures			$	1,269,512	$	1,321,127

EOP Partnership’s share of unconsolidated non-recourse mortgage debt			$	816,118	$	848,944

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)



				For the three months ended				For the nine months ended
				September 30,				September 30,

(Dollars in thousands)				2002		2001		2002		2001

Statements of Operations:
	Revenues			$	114,358	$	127,503	$	450,930	$	378,158

	Expenses:
		Interest expense			19,404		24,384		58,311		74,600
		Depreciation and amortization			20,919		22,991		62,720		64,179
		Operating expenses			47,236		53,473		148,413		157,289

			Total expenses		87,559		100,848		269,444		296,068

	Net income before gain on sale of real estate and cumulative effect of a change in accounting principle				26,799		26,655		181,486		82,090
	Gain on sale of real estate				10		—		3,703		—
	Cumulative effect of a change in accounting principle				—		—		—		(2,279	)

	Net income			$	26,809	$	26,655	$	185,189	$	79,811

EOP Partnership’s share of:
	Net income			$	12,218	$	16,434	$	92,143	$	49,724

	Interest expense and loan cost amortization			$	13,458	$	16,273	$	40,119	$	48,794

	Depreciation and amortization (real estate related)			$	11,551	$	12,756	$	36,499	$	38,026

NOTE 6 — INVESTMENT IN PREFERRED SECURITIES

On September 30, 2002, CT Convertible Trust I, an investment management and real estate finance company, redeemed the non-convertible amount of its preferred securities at par, including accrued dividends. EOP Partnership received approximately $20.1 million upon the redemption. EOP Partnership still has an approximate $29.2 million investment in the convertible portion of the preferred securities of CT Convertible Trust I which is included in prepaid expenses and other assets on the consolidated balance sheets.

NOTE 7 — MORTGAGE DEBT

In July 2002, the existing $26.8 million 8.04% mortgage note secured by Wilshire Palisades matured. The note was refinanced with a $40 million mortgage note that has an interest rate of 6.45% and a maturity date of July 1, 2008.

In September 2002, the mortgage loans secured by Fremont Bayside and Industrial Drive Warehouse matured and were extended for one year under the same terms. The mortgage balances were approximately $5.6 million and $2.1 million, respectively, with an interest rate of 7.6%.

NOTE 8 — UNSECURED NOTES

In September 2002, EOP Partnership terminated several interest rate swap agreements that had effectively converted $1.2 billion of fixed-rate debt to a variable rate. Total proceeds resulting from the termination of approximately $39.6 million will be amortized ratably over the remaining term of the respective unsecured notes as a reduction to interest expense. The remaining terms range from 16 to 42 months.

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

NOTE 9 — PARTNERS’ CAPITAL

Units

The following table presents the changes in the issued and outstanding Units since June 30, 2002:


Outstanding at June 30, 2002		470,209,258
	Issued to Equity Office related to Common Shares issued for share option exercises	102,633
	Units retired upon repurchase and retirement of a corresponding number of Common Shares by Equity Office(a)	(216,854	)
	Restricted shares issued/cancelled, net	(268,339	)
	Units redeemed for cash(b)	(677,216	)
	Units issued to Equity Office for Common Shares issued through dividend reinvestments	16,641

Outstanding at September 30, 2002		469,166,123

(a) In July, Equity Office announced a Common Share repurchase program allowing for the repurchase of up to $200 million of Common Shares over the next 12 months, at the discretion of management. The Common Shares may be repurchased in the open market or privately negotiated transactions. During the third quarter 2002, 197,900 Common Shares were repurchased and retired at an average share price of $25.06 for approximately $5.0 million in the aggregate. As of October 28, 2002, 7,200,600 Common Shares were repurchased and retired at an average price of $24.98 for approximately $179.9 million in the aggregate. In connection with the repurchases, EOP Partnership purchased from Equity Office and retired a corresponding number of Units for an aggregate purchase price equal to the aggregate purchase price for all Common Share repurchases.

(b) During the three months ended September 30, 2002, EOP Partnership redeemed 677,216 Units for cash at an average price of $28.52 for a total of approximately $19.3 million.

Distributions

Quarterly

Distribution

Amount

Per Unit

Date Paid

Unitholder Record Date

Units

$.50

October 15, 2002

September 30, 2002

Series A Preferred Units

.2619167(a)

July 29, 2002

June 28, 2002

Series B Preferred Units

.65625

August 15, 2002

August 1, 2002

Series C Preferred Units

.5390625

September 16, 2002

September 3, 2002

Series E Preferred Units

.4921875

July 31, 2002

July 17, 2002

Series F Preferred Units

.50

September 30, 2002

September 16, 2002

Series G Preferred Units

.2583333(b)

September 16, 2002

September 3, 2002

(a) The distribution amount represents a prorated distribution from and including June 17, 2002 to, but excluding, July 29, 2002, the Series A redemption date. See “Preferred Units” below.

(b) The distribution amount represents a prorated distribution from and including July 29, 2002, the date of issuance of the Series G Preferred Units, to, but excluding, September 16, 2002.

Preferred Units

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

On the same date, substantially all of the net proceeds from the issuance of the Series G Preferred Units, totaling approximately $206.1 million were used to redeem the Series A Preferred Units from Equity Office and, in turn, Equity Office used the proceeds to redeem its 7,994,000 outstanding 8.98% Series A Cumulative Redeemable Preferred Shares.

NOTE 10 — LEASE TERMINATION FEE

In September 2002, a single tenant at Parkside Towers that leased the entire Property terminated its lease agreement. The total lease termination fee was approximately $49.8 million, of which approximately $3.8 million was applied to a deferred rent receivable due from the tenant. Approximately $14.2 million of the total lease termination fee was recognized in the third quarter 2002. The remaining amount of approximately $31.8 million is anticipated to be recognized in the fourth quarter 2002.

The $31.8 million anticipated to be recognized in the fourth quarter 2002 consists of a cash payment of approximately $10.3 million and a $21.5 million promissory note, of which $5.0 million was repaid in October 2002. The remaining $16.5 million due under the promissory note is payable on the earlier of January 21, 2003 or the sale by the tenant of its interest in an office building that secures the note. As part of the transaction, EOP Partnership agreed, at the tenant’s election if made between November 1, 2002 and January 21, 2003, to purchase the office building for $37.5 million. The $16.5 million still owed to EOP Partnership would be applied to the purchase price. EOP Partnership has been advised that the tenant has received bids for this property that exceed $37.5 million.

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

NOTE 11 — 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				For the nine months ended
			September 30,				September 30,

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

Numerator:
	Net income available for Units before net gain on sales of real estate, discontinued operations and cumulative effect of a change in accounting principle		$	179,999	$	209,413	$	586,953	$	482,543
	Net gain on sales of real estate			—		14,854		—		14,854
	Discontinued operations			8,445		5,216		17,777		9,749
	Cumulative effect of a change in accounting principle			—		—		—		(1,142	)

	Numerator for basic and diluted earnings per Unit — net income available for Units and unit equivalents		$	188,444	$	229,483	$	604,730	$	506,004

Denominator:
	Denominator for net income available per weighted average Unit outstanding — basic			468,263,813		467,350,655		469,485,606		388,543,114
	Effect of dilutive securities:
		Units issuable upon exercise of Equity Office share options, put options and restricted shares		1,500,915		3,658,446		2,218,122		3,077,708

	Denominator for net income available per weighted average Unit and unit equivalent outstanding — diluted			469,764,728		471,009,101		471,703,728		391,620,822

Net income available per weighted average Unit outstanding — basic:
	Net income before net gain on sales of real estate, discontinued operations and cumulative effect of a change in accounting principle		$	0.38	$	0.45	$	1.25	$	1.24
	Net gain on sales or real estate			—		0.03		—		0.04
	Discontinued operations			0.02		0.01		0.04		0.03
	Cumulative effect of a change in accounting principle			—		—		—		(0.01	)

	Net income available per weighted average Unit outstanding — basic		$	0.40	$	0.49	$	1.29	$	1.30

Net income available per weighted average Unit and unit equivalent outstanding — diluted:
	Net income before net gain on sales of real estate, discontinued operations and cumulative effect of a change in accounting principle		$	0.38	$	0.45	$	1.24	$	1.23
	Net gain on sales of real estate			—		0.03		—		0.04
	Discontinued operations			0.02		0.01		0.04		0.02
	Cumulative effect of a change in accounting principle			—		—		—		—

	Net income available per weighted average Unit and unit equivalent outstanding — diluted		$	0.40	$	0.49	$	1.28	$	1.29

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 because they would have an antidilutive effect:



				For the three months ended				For the nine months ended
				September 30,				September 30,
		Weighted Average
Antidilutive Securities		Exercise Price		2002		2001		2002		2001

Share options		$	29.230		14,004,138		—		—		—
Share options		$	30.060		—		—		7,293,181		—
Share options		$	32.930		—		660,000		—		—
Share options		$	30.350		—		—		—		4,657,781
Series B Preferred Units		$	35.700		5,990,000		5,990,000		5,990,000		5,993,187
Warrants		$	39.375		5,000,000		5,000,000		5,000,000		5,000,000

	Total				24,994,138		11,650,000		18,283,181		15,650,968

NOTE 12 — 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 September 30,


		2002									2001

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

Property operating revenues		$	861,663		$	13,296		$	874,959		$	846,203		$	21,370		$	867,573
Property operating expenses			(284,071	)		(2,557	)		(286,628	)		(270,371	)		(3,170	)		(273,541	)

	Net operating income		577,592			10,739			588,331			575,832			18,200			594,032

Adjustments to arrive at net income:
	Other revenues		756			5,735			6,491			863			15,287			16,150
	Interest expense (a)		(48,447	)		(150,812	)		(199,259	)		(48,524	)		(157,446	)		(205,970	)
	Depreciation and amortization		(167,078	)		(6,426	)		(173,504	)		(149,594	)		(7,342	)		(156,936	)
	Ground rent		(4,986	)		—			(4,986	)		(5,103	)		21			(5,082	)
	General and administrative		(831	)		(30,119	)		(30,950	)		—			(30,328	)		(30,328	)

	Total adjustments to arrive at net income		(220,586	)		(181,622	)		(402,208	)		(202,358	)		(179,808	)		(382,166	)

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, net gain on sales of real estate and discontinued operations			357,006			(170,883	)		186,123			373,474			(161,608	)		211,866
Income taxes			32			(187	)		(155	)		(257	)		(1,029	)		(1,286	)
Minority interests			(2,716	)		(20	)		(2,736	)		(2,006	)		—			(2,006	)
Income from investment in unconsolidated joint ventures			14,135			(1,917	)		12,218			16,745			(311	)		16,434
Net gain on sales of real estate			—			—			—			14,854			—			14,854
Discontinued operations (including net gain on disposal of $6,382 and $0, respectively)			8,445			—			8,445			5,216			—			5,216

Net income		$	376,902		$	(173,007	)	$	203,895		$	408,026		$	(162,948	)	$	245,078

Capital and tenant improvements		$	90,913		$	1,945		$	92,858		$	108,901		$	4,827		$	113,728

Investment in unconsolidated joint ventures		$	1,241,192		$	28,320		$	1,269,512

Total Assets		$	24,297,681		$	1,409,274		$	25,706,955


(a)	Interest expense for the Office Properties does not include an 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 nine months ended September 30,


		2002									2001

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

Property operating revenues		$	2,569,427		$	41,756		$	2,611,183		$	2,134,640		$	30,052		$	2,164,692
Property operating expenses			(833,029	)		(8,121	)		(841,150	)		(694,320	)		(5,609	)		(699,929	)

	Net operating income		1,736,398			33,635			1,770,033			1,440,320			24,443			1,464,763

Adjustments to arrive at net income:
	Other revenues		2,093			26,809			28,902			3,022			40,319			43,341
	Interest expense (a)		(145,613	)		(461,175	)		(606,788	)		(152,308	)		(368,376	)		(520,684	)
	Depreciation and amortization		(499,002	)		(19,189	)		(518,191	)		(389,867	)		(16,786	)		(406,653	)
	Ground rent		(15,844	)		—			(15,844	)		(11,481	)		—			(11,481	)
	General and administrative		(832	)		(101,235	)		(102,067	)		—			(78,151	)		(78,151	)
	Impairment on securities and other investments		—			—			—			—			(8,499	)		(8,499	)

	Total adjustments to arrive at net income		(659,198	)		(554,790	)		(1,213,988	)		(550,634	)		(431,493	)		(982,127	)

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, net gain on sales of real estate, discontinued operations and cumulative effect of a change in accounting principle			1,077,200			(521,155	)		556,045			889,686			(407,050	)		482,636
Income taxes			(2,064	)		(6,922	)		(8,986	)		(1,472	)		(4,377	)		(5,849	)
Minority interests			(5,078	)		(59	)		(5,137	)		(6,612	)		—			(6,612	)
Income from investment in unconsolidated joint ventures			94,307			(2,164	)		92,143			48,169			1,555			49,724
Net gain on sales of real estate			—			—			—			14,854			—			14,854
Discontinued operations (including net gain on disposal of $8,872 and $0, respectively)			17,777			—			17,777			9,749			—			9,749
Cumulative effect of a change in accounting principle			—			—			—			(1,142	)		—			(1,142	)

Net income		$	1,182,142		$	(530,300	)	$	651,842		$	953,232		$	(409,872	)	$	543,360

Capital and tenant improvements		$	218,670		$	4,629		$	223,299		$	215,762		$	26,711		$	242,473

Investment in unconsolidated joint ventures		$	1,241,192		$	28,320		$	1,269,512

Total Assets		$	24,297,681		$	1,409,274		$	25,706,955


(a)	Interest expense for the Office Properties does not include an 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 13 — 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 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 addition, Equity Office has granted options to a tenant to purchase two of its Office Properties.

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

Property Damage, Business Interruption, Earthquake and Terrorism: The insurance coverage provided through third-party insurance carriers is subject to coverage limitations. For each type of insurance coverage described below, should an uninsured or underinsured loss occur, EOP Partnership could lose all or a portion of its investment in, and anticipated cash flows from, one or more of the Properties. In addition, there can be

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

no assurance that third-party insurance carriers will be able to maintain reinsurance sufficient to cover any losses that may be incurred.


Type of Insurance	EOP Partnership	Third-Party
Coverage	Loss Exposure/ Deductible	Coverage Limitation

Property damage and business interruption(a)	$75 million in the aggregate (inclusive of retention amounts paid for earthquake loss), plus $1 million per occurrence deductible	$1.0 billion per occurrence(c)
Earthquake(a)(b)	$75 million in the aggregate (inclusive of retention amounts paid for property damage and business interruption loss) per year, plus $1 million per occurrence deductible	$325 million in the aggregate per year(c)
Acts of terrorism(d)	$1 million or 2% of total insurable value, whichever is greater, per occurrence deductible; and 30 day waiting period for loss of rent	$270 million in the aggregate per year(e)

(a) In September 2002, EOP Partnership began retaining up to $75 million of such loss calculated throughout the EOP Partnership portfolio. In the event of a loss in excess of these retention limits, the third-party insurance carriers would be obligated to cover the losses up to the stated coverage amounts in the above table.

(b) The amount of the third-party insurance relating to earthquakes is based on maximum probable loss studies performed by independent third parties. The maximum annual aggregate payment amount for earthquake loss is $325 million, inclusive of EOP Partnership’s loss exposure/deductible amount of $76 million. There can be no assurance that these actuarial studies have correctly estimated any losses that may occur.

(c) These amounts include EOP Partnership’s loss exposure/deductible amount.

(d) The third-party insurance coverage excludes nuclear, chemical or biological acts of terrorism. There can be no assurance 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 seek to declare a default based on the absence of insurance coverage for terrorist acts for 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.

(e) This amount is in excess of EOP Partnerships deductible amounts.

Workers Compensation, Automobile Liability and General Liability: EOP Partnership has per occurrence deductible amounts on workers compensation of $500,000, auto liability of $250,000 and general liability of $1,000,000.


	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 September 30, 2002, no amounts have been funded pursuant to this agreement. However,

EOP OPERATING LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

EOP Partnership has guaranteed WRALP’s line of credit, which has an outstanding balance of approximately $12.9 million as of September 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% interest rate 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 September 30, 2002, no amounts were outstanding on the loan 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 14 — SUBSEQUENT EVENTS

1. In October 2002, EOP Partnership entered into $1.1 billion of forward-starting interest rate swaps to effectively fix the 10-year Treasury rate at approximately 3.7% for future note offerings anticipated to occur in 2003 and 2004. The forward-starting interest rate swaps were entered into at current market rates and, therefore, had no initial cost. The terms of the forward-starting interest rate swaps require EOP Partnership to pay a fixed-interest rate to the counterparties and to receive a variable rate from the counterparties. The swaps settle at six-month intervals beginning in 2003 and 2004. EOP Partnership anticipates settling the swap agreements prior to the anticipated issuance of additional unsecured notes. Upon settlement of the swaps, EOP Partnership may be obligated to pay the counterparties a settlement payment, or alternatively to receive settlement proceeds from the counterparties. Any monies paid or received will be amortized to interest expense over the term of the respective note offering.

2. In October 2002, the mortgage note encumbering 75-101 Federal Street was refinanced upon its maturity. The new mortgage note is for $125 million, bears interest at 5.05% and matures in November 2012. EOP Partnership has a 51.61% equity interest in 75-101 Federal Street and reflects its interest under the equity method.

3. In October 2002, EOP Partnership prepaid the mortgage note secured by Wellesley Office Park for approximately $52.6 million, including accrued interest. The mortgage note was scheduled to mature in February 2003 and had an interest rate of 7.23%.

4. In November 2002, EOP Partnership prepaid the mortgage note secured by Center Plaza for approximately $57.4 million, including accrued interest. The mortgage note was scheduled to mature in March 2003 and had an interest rate of 7.23%.

5. The maturity date of the mortgage note secured by Key Center was extended for one year to November 2003. EOP Partnership has an 80% equity interest in Key Center and reflects its interest under the equity method.


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 tenant’s ability 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 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 ability to pay amounts due to its noteholders and preferred shareholders 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 nine months ended September 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 33 office properties, three vacant land parcels and a 50% interest in four parking facilities for approximately $341.7 million;

• received a lease termination fee of approximately $40 million in connection with a previously proposed office building development which was recorded as income from unconsolidated joint ventures during the first quarter 2002;

• received approximately $50 million from a tenant for terminating their lease at Parkside Towers. Approximately $14.2 million of the lease termination fee was recognized in the third quarter and approximately $31.8 million is anticipated to be recognized in the fourth quarter of 2002. Approximately $3.8 million of the lease termination fee was applied to a deferred rent receivable balance;

• acquired two office buildings for approximately $92.3 million. The properties are located in Washington, D.C., and consist of approximately 327,550 square feet of which 260,372 square feet is office space;

• redeemed the 7,994,000 outstanding 8.98% Series A Cumulative Redeemable Preferred Shares at an aggregate redemption price of approximately $201.9 million including accrued distributions;

• issued 8,500,000 7.75% Series G Cumulative Redeemable Preferred Units for approximately $206.1 million;

• Equity Office initiated a Common Share repurchase program allowing for the repurchase of up to $200 million of Common Shares over the next 12 months and repurchased 197,900 Common Shares at an average price of $25.06 per share for a total of approximately $5.0 million in the aggregate;

• redeemed 677,216 Units for cash at an average price of $28.52 per Unit for a total of approximately $19.3 million; and

• received approximately $20.1 million from CT Convertible Trust I in connection with its redemption of the non-convertible preferred securities.

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 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 September 30, 2002 and for the three and nine months ended September 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 leasing activity (excluding lease expirations) in our 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, D.C. and New York.


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

For the nine months ended September 30, 2002:
	Portion of total portfolio based on square feet at end of period		42.4	%		67.8	%		100.0	%
	Weighted average occupancy at end of period		87.9	%		89.3	%		89.2	%
	Gross square footage leased during the period		6,367,393			10,387,311			15,733,706
	Weighted average annual rent per square foot leased during the period(a)		$34.77			$32.35			$29.21
For the nine months ended September 30, 2001:
	Portion of total portfolio based on square feet at end of period		40.7	%		66.1	%		100.0	%
	Weighted average occupancy at end of period		94.9	%		94.4	%		93.7	%
	Gross square footage leased during the period		3,813,457			6,270,276			10,187,997
	Weighted average annual rent per square foot leased during the period(a)		$49.23			$43.49			$35.52
For the year ended December 31, 2001:
	Portion of total portfolio based on square feet at end of year		42.0	%		66.9	%		100.0	%
	Weighted average occupancy at end of year		92.5	%		92.7	%		91.8	%
	Gross square footage leased during the year		5,288,539			8,944,907			14,711,018
	Weighted average annual rent per square foot leased during the year(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.

As of September 30, 2002, approximately 63,865,688 occupied square feet (approximately 50.4% of the total 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		5,283,384	$	25.96
2003		14,971,354		28.17
2004		13,689,055		27.81
2005		15,413,400		29.33
2006		14,508,495		29.79

Total		63,865,688	$	28.56

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 and market rents, 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 nine months ended September 30, 2002, bad debt expense was approximately $6.0 million and $19.6 million, respectively, as compared to $5.0 million and $13.0 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 reflect the total square feet of the properties. Excluding the joint venture partners’ share of the square feet of these properties, we effectively owned 120.6 million square feet of office space as of September 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			766			127,520,272			79			6,044,831			1			3,301
	Acquisitions		1			157,550			—			—			—			—
	Dispositions		(23	)		(921,122	)		—			—			—			—
	Building remeasurements		—			41,057			—			—			—			—

September 30, 2002 (“Total Portfolio”)			744			126,797,757			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 acquisition and disposition of certain properties, the financial data presented show significant changes in revenues and expenses from period-to-period. In addition, the results of the Spieker merger on July 2, 2001 are reflected for only the last three months of the nine month period ended September 30, 2001. 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 September 30, 2002 to September 30, 2001

The table below represents selected operating information for the Total Portfolio and for the Core Portfolio consisting of 731 Office Properties acquired or placed in service on or prior to July 1, 2001. The Core Portfolio analysis for the three months ended September 30, 2002 compared to the three months ended September 30, 2001 includes the properties acquired in the Spieker merger on July 2, 2001, that are still owned as of September 30, 2002.



		Total Portfolio												Core Portfolio

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

Property revenues		$	874,959		$	867,573		$	7,386			0.9	%	$	834,061		$	853,805		$	(19,744	)		(2.3	)%
Fee income			3,699			3,768			(69	)		(1.8	)		—			—			—			—
Interest/dividend income			2,792			12,382			(9,590	)		(77.5	)		898			997			(99	)		(9.9	)

	Total revenues		881,450			883,723			(2,273	)		(0.3	)		834,959			854,802			(19,843	)		(2.3	)

Interest expense (a)			199,259			205,970			(6,711	)		(3.3	)		49,636			54,229			(4,593	)		(8.5	)
Depreciation and amortization			173,504			156,936			16,568			10.6			162,732			150,992			11,740			7.8
Property operating expenses			286,628			273,541			13,087			4.8			279,472			267,557			11,915			4.5
Ground rent			4,986			5,082			(96	)		(1.9	)		5,160			5,040			120			2.4
General and administrative			30,950			30,328			622			2.1			831			(2	)		833			(41,650.0	)

	Total expenses		695,327			671,857			23,470			3.5			497,831			477,816			20,015			4.2

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures and net gain on sales of real estate			186,123			211,866			(25,743	)		(12.2	)		337,128			376,986			(39,858	)		(10.6	)
Income taxes			(155	)		(1,286	)		1,131			(87.9	)		(3	)		(257	)		254			(98.8	)
Minority interests			(2,736	)		(2,006	)		(730	)		36.4			(2,736	)		(2,006	)		(730	)		36.4
Income from investment in unconsolidated joint ventures			12,218			16,434			(4,216	)		(25.7	)		17,242			15,522			1,720			11.1
Net gain on sales of real estate			—			14,854			(14,854	)		(100.0	)		—			—			—			—

Income from continuing operations			195,450			239,862			(44,412	)		(18.5	)		351,631			390,245			(38,614	)		(9.9	)
Discontinued operations			8,445			5,216			3,229			61.9			—			—			—			—

Net income		$	203,895		$	245,078		$	(41,183	)		(16.8	)%	$	351,631		$	390,245		$	(38,614	)		(9.9	)%

Property revenues less property operating expenses before interest, depreciation and amortization, ground rent and general and administrative expense (b)		$	590,941		$	600,976		$	(10,035	)		(1.7	)%	$	554,589		$	586,248		$	(31,659	)		(5.4	)%

Deferred rental revenue (b)		$	18,482		$	21,827		$	(3,345	)		(15.3	)%	$	15,608		$	21,349		$	(5,741	)		(26.9	)%

Lease termination fees (b)		$	30,640		$	7,390		$	23,250			314.6	%	$	16,368		$	7,372		$	8,996			122.0	%


(a)		Interest expense on unsecured notes and the line of credit are not allocated to the Core Portfolio.

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

Property Revenues

The increase in property revenues in the Total Portfolio is primarily due to a $20.8 million increase in other property revenues and a $3.2 million increase in tenant reimbursements offset, in part, by a $12.3 million decrease in rental revenue and a $4.4 million decrease in parking revenues. 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. Included in other property revenues are approximately $30.6 million of lease termination fees representing an increase of approximately $23.3 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 there is no way of predicting the precise timing or amounts of future lease termination fees, we

currently anticipate that lease termination fees will be significantly lower in 2003. Approximately $14.2 million of the lease termination fees recognized in the third quarter relate to a lease termination at Parkside Towers from a single tenant that leased the entire Property. An additional $31.8 million relating to the lease termination at Parkside Towers is anticipated to be recognized in the fourth quarter of 2002. Rental revenues in the Total Portfolio decreased primarily due to a decrease in occupancy in the Core Portfolio as discussed below and an increase in bad debt expense. The amount of bad debts written off in the Total Portfolio for the three months ended September 30, 2002 was approximately $6.0 million as compared to $5.0 million for the prior period. Although we have substantial collateral from many of our tenants, additional write-offs may occur in subsequent periods. Parking revenues decreased primarily as a result of the disposition of parking garages in prior periods.

The decrease in property revenues in the Core Portfolio resulted primarily from a decrease in occupancy from 94.9% at July 1, 2001 to 89.7% at September 30, 2002 partially offset by an increase in lease termination fees of approximately $9.0 million. The weighted average occupancy decreased 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/Dividend Income

Interest/dividend income decreased for the Total Portfolio as a result of the write-off in 2001 of the $90.6 million investment in HQ Global Workplaces, Inc. (“HQ Global”) Series A Convertible Cumulative Preferred Stock and a reduction in interest income on notes receivable. In addition, in September 2002, CT Convertible Trust I redeemed the non-convertible amount of its preferred securities at par including accrued dividends of approximately $20.1 million. EOP Partnership still has an approximate $29.2 million investment in the convertible portion of the preferred securities of CT Convertible Trust I.

Interest Expense

Total Portfolio interest expense decreased from the prior period primarily due to interest rate swap agreements which converted the fixed interest rate to a variable rate for a portion of the unsecured notes effective through September 6, 2002, when the swap agreements were terminated. Total proceeds resulting from the termination of approximately $39.6 million will be amortized ratably over the remaining terms of the respective unsecured notes as a reduction to interest expense. The remaining terms range from 16 to 42 months. Core Portfolio interest expense decreased from the prior period as a result of the repayment of certain mortgage notes.

Depreciation and Amortization

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

Property Operating Expenses

Property operating expenses increased mainly as a result of increases in real estate taxes of approximately $6.3 million for the Total Portfolio and $8.3 million for the Core Portfolio primarily due to increased assessed valuations, increases in insurance expense of approximately $5.7 million for the Total Portfolio and $5.3 million for the Core Portfolio due to higher premiums, an increase in safety and security costs of approximately $2.1 million for the Total Portfolio and $1.9 million for the Core Portfolio, partially offset by a decrease in utility expense of approximately $2.3 million for the Total Portfolio and $2.0 million for the Core Portfolio, respectively. 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.

Net Gain on Sales of Real Estate and Discontinued Operations

Net gain on sales of real estate for the Total Portfolio decreased from the prior period as a result of a presentation change for sold properties. Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which became effective for financial statements issued for fiscal years beginning after December 15, 2001, requires the net income and gain / loss on sales of real estate for properties sold subsequent to December 31, 2001 to be reflected in the consolidated statements of operations as “discontinued operations”. Therefore, gains and losses from properties sold prior to 2002 are reflected as “net gain on sales of real estate” and gains and losses from properties sold in 2002 are reflected in “discontinued operations”. The increase in discontinued operations is primarily due to the gain on the sale of the properties sold in 2002.

Income from Investment in Unconsolidated Joint Ventures

Income from investment in unconsolidated joint ventures decreased for the Total Portfolio due to a partial write-off of an investment in a vacant land purchase option. Income from investment in unconsolidated joint ventures increased for the Core Portfolio primarily due to a decrease in interest expense of approximately $1.6 million. Interest expense decreased primarily as a result of lower interest rates on variable rate mortgage notes during the current period.

Comparison of the nine months ended September 30, 2002 to September 30, 2001

The table below represents selected operating information for the Total Portfolio and for the Core Portfolio consisting of 380 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		$	2,611,183		$	2,164,692		$	446,491			20.6	%	$	1,897,551		$	1,928,287		$	(30,736	)		(1.6	)%
Fee income			11,754			10,305			1,449			14.1			—			—			—			—
Interest/dividend income			17,148			33,036			(15,888	)		(48.1	)		2,820			3,863			(1,043	)		(27.0	)

	Total revenues		2,640,085			2,208,033			432,052			19.6			1,900,371			1,932,150			(31,779	)		(1.6	)

Interest expense (a)			606,788			520,684			86,104			16.5			147,713			160,256			(12,543	)		(7.8	)
Depreciation and amortization			518,191			406,653			111,538			27.4			382,597			361,671			20,926			5.8
Property operating expenses			841,150			699,929			141,221			20.2			648,106			636,414			11,692			1.8
Ground rent			15,844			11,481			4,363			38.0			9,188			9,565			(377	)		(3.9	)
General and administrative			102,067			78,151			23,916			30.6			831			—			831			100.0
Impairment on securities and other investments			—			8,499			(8,499	)		(100.0	)		—			—			—			—

	Total expenses		2,084,040			1,725,397			358,643			20.8			1,188,435			1,167,906			20,529			1.8

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, and net gain on sales of real estate			556,045			482,636			73,409			15.2			711,936			764,244			(52,308	)		(6.8	)
Income taxes			(8,986	)		(5,849	)		(3,137	)		53.6			(796	)		(1,323	)		527			(39.8	)
Minority interests			(5,137	)		(6,612	)		1,475			(22.3	)		(5,057	)		(6,612	)		1,555			(23.5	)
Income from investment in unconsolidated joint ventures			92,143			49,724			42,419			85.3			56,941			46,946			9,995			21.3
Net gain on sales of real estate			—			14,854			(14,854	)		(100.0	)		—			—			—			—

Income from continuing operations			634,065			534,753			99,312			18.6			763,024			803,255			(40,231	)		(5.0	)
Discontinued operations			17,777			9,749			8,028			82.3			—			—			—			—

Income before cumulative effect of a change in accounting principle			651,842			544,502			107,340			19.7			763,024			803,255			(40,231	)		(4.9	)
Cumulative effect of a change in accounting principle			—			(1,142	)		1,142			(100.0	)		—			(1,142	)		1,142			(100.0	)

Net income		$	651,842		$	543,360		$	108,482			20.0	%	$	763,024		$	802,113		$	(39,089	)		(4.9	)%

Property revenues less property operating expenses before interest, depreciation and amortization, ground rent and general and administrative expense (b)		$	1,781,716		$	1,469,819		$	311,897			21.2	%	$	1,249,445		$	1,291,873		$	(42,428	)		(3.3	)%

Deferred rental revenue (b)		$	58,323		$	48,857		$	9,466			19.4	%	$	24,601		$	39,107		$	(14,506	)		(37.1	)%

Lease termination fees (b)		$	61,125		$	15,954		$	45,171			283.1	%	$	39,513		$	14,384		$	25,129			174.7	%


(a)		Interest expense on unsecured notes and the line of credit are not allocated to the Core Portfolio.

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

Property Revenues

The increase in property revenues in the Total Portfolio is primarily due to the fact that property revenues from the Spieker merger are reflected in the entire nine month period ended September 30, 2002 but only in the last three months of the period ended September 30, 2001 as Spieker was acquired on July 2, 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. Included in other property revenues are approximately $61.1 million of lease termination fees representing an increase of approximately $45.2 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 there is no way of predicting the precise timing or amounts of future lease termination fees, we currently anticipate that lease termination fees will be significantly lower in 2003. Approximately $14.2 million of the lease termination fees recognized in the third quarter relate to a lease termination at Parkside Towers from a single tenant that leased the entire Property. An additional $31.8 million relating to the lease termination at Parkside Towers is anticipated to be recognized in the fourth quarter of 2002. The amount of bad debts written off in the Total Portfolio for the nine months ended September 30, 2002 was approximately $19.6 million as compared to $13.0 million for the prior period. Although we have substantial collateral from many of our tenants, additional write-offs may occur in subsequent periods.

The decrease in property revenues in the Core Portfolio resulted primarily from a decrease in occupancy from 94.7% at January 1, 2001 to 90.5% at September 30, 2002 partially offset by $25.1 million increase in lease termination fees. The weighted average occupancy of the Core Portfolio decreased primarily 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/Dividend Income

Interest/ dividend income decreased for the Total Portfolio as a result of the write-off in 2001 of the investment in HQ Global Series A Convertible Cumulative Preferred Stock and a reduction in interest income on notes receivable. In addition, in September 2002, CT Convertible Trust I redeemed the non-convertible amount of its preferred securities at par including accrued dividends of approximately $20.1 million. EOP Partnership still has an approximate $29.2 million investment in the convertible portion of the preferred securities of CT Convertible Trust I.

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. The swap agreements were terminated on September 6, 2002. Total proceeds resulting from the termination of approximately $39.6 million will be amortized ratably over the remaining terms of the respective unsecured notes as a reduction to interest expense. The remaining terms range from 16 to 42 months. Core Portfolio interest expense decreased from the prior period as a result of the repayment of certain mortgage notes.

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 primarily due to an increase of approximately $4.2 million for safety and security expense, increases in insurance expense of approximately $4.6 million due to higher premiums and an increase in real estate taxes of approximately $4.7 million partially offset by a decrease in utilities of approximately $5.2 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.

Ground Rent

Ground rent for the Total Portfolio increased from the prior period as a result of the Spieker merger. Several properties acquired in the Spieker merger are subject to ground leases.

General and Administrative Expenses

General and administrative expenses increased by approximately $23.9 million primarily due to an increase in professional and consulting fees of approximately $13.0 million and severance expense of approximately $7.3 million for two executive vice presidents and the former president and chief executive officer. The total severance consists of the vesting acceleration of share options, 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).

Net Gain on Sales of Real Estate and Discontinued Operations

Net gain on sales of real estate for the Total Portfolio decreased from the prior period as a result of a presentation change for sold properties. Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which became effective for financial statements issued for fiscal years beginning after December 15, 2001, requires the net income and gain/loss on sales of real estate for properties sold subsequent to December 31, 2001 to be reflected in the consolidated statements of operations as “discontinued operations”. Therefore, gains and losses from properties sold prior to 2002 are reflected as “net gain on sales of real estate” and gains and losses from properties sold in 2002 are reflected in “discontinued operations”. The increase in discontinued operations is primarily due to the gain on the sale of the properties sold in 2002.

Income from Investment in Unconsolidated Joint Ventures

Income from investment in unconsolidated joint ventures increased for the Total Portfolio primarily due to an increase in lease termination fees of approximately $45.2 million. Approximately $40 million of this amount was from the Foundry Square I project where a single tenant terminated their lease in March 2002. The development site is now classified as land available for development. Income from investment in unconsolidated joint ventures increased for the Core Portfolio primarily due to an increase in lease termination fees of approximately $5.1 million and a $6.8 million decrease in interest expense. Interest expense decreased primarily as a result of lower interest rates on variable rate mortgage notes during the current period.

Property Dispositions

EOP Partnership has disposed or partially disposed of the following 41 office properties consisting of approximately 2.8 million square feet, 19 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 Dominion Tower One Park Square(3) Santa Monica Gateway Calais Office Center I and II(4) Airport Service Center Governor Executive Centre Crossroads Dubuque Business Center(5) Carmel Valley Centre I & II(4) Carmel View Office Plaza Centerpark Plaza One(3) Centerpark Plaza Two(6) Pacific Point(5) Sorrento Tech I, II, III		St. Louis parking garages(2)
2001	Warner Park Center Transpotomac Plaza 5(4) 11 Canal Center Plaza Port Plaza 99 Canal Center Plaza Biltmore Apartments(7) 1600 Duke Street Bank of America Plaza	Nelson Business Center Vasco Business Center Marine Drive Distribution Center I, II and III Kelley Point I & II Wilsonville Business Center I-IV 158th Commerce Park Columbia Commerce Park I and IV Striker Avenue Airway Business Center 360 Industrial Court 363 Industrial Way 437 Industrial Way	Theatre District Parking 203 N. LaSalle Adams Wabash Rand Tower Garage


(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)	Consists of three office properties.

(6)	Consists of five office properties.

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

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 along with those properties sold prior to 2002 through their respective disposition dates:



		For the three months ended						For the nine months ended
		September 30,						September 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		$	3,629	$	9,930	$	10,575	$	16,908		$	20,730		$	30,254
Interest income			—		2		10		—			5			25

	Total revenues		3,629		9,932		10,585		16,908			20,735			30,279

Interest expense			1		72		537		(24	)		219			1,595
Depreciation and amortization			546		1,629		1,042		2,683			3,495			3,915
Property operating expenses			1,019		2,986		2,633		5,225			7,175			8,585
Ground rent			—		29		—		43			87			—

	Total expenses		1,566		4,716		4,212		7,927			10,976			14,095

Income before income taxes, income from investment in unconsolidated joint ventures and net gain on sales of real estate			2,063		5,216		6,373		8,981			9,759			16,184
Income taxes			—		—		—		(76	)		(10	)		(353	)
Income from investment in unconsolidated joint ventures			—		—		475		—			—			1,218
Net gain on sales of real estate			6,382		—		14,854		8,872			—			14,854

Net income		$	8,445	$	5,216	$	21,702	$	17,777		$	9,749		$	31,903

Property revenues less property operating expenses before interest, depreciation and amortization and ground rent		$	2,610	$	6,944	$	7,942	$	11,683		$	13,555		$	21,669

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 $1.0 billion 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 rates which, if annualized, would be as follows:


		Annualized Distribution
Security		Per Unit

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


(a)		On July 29, 2002, EOP Partnership issued 8,500,000 7.75% Series G Cumulative Redeemable Preferred Units to Equity Office in exchange for Equity Office’s contribution of the proceeds of its issuance and sale of 8,500,000 7.75% Series G Cumulative Redeemable Preferred Shares in an offering that closed July 29, 2002. On the same date, substantially all of the net proceeds from the issuance of the Series G Preferred Units, totaling approximately $206.1 million were used to redeem the Series A Preferred Units from Equity Office and, in turn, Equity Office used the proceeds to redeem its 7,994,000 outstanding 8.98% Series A Cumulative Redeemable 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 September 30, 2002, we were subject to the following contractual payment obligations:



			Payments Due by Period

Contractual Obligations:						Through
(Dollars in thousands)			Total			2002			2003			2004			2005			2006			Thereafter

Long-term debt:
	Mortgage debt (1)		$	2,639,212		$	59,222		$	210,569		$	448,008		$	583,883		$	343,188		$	994,342
	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				816,118			109,213			5,345			116,022			520,357			50,074			15,107
Operating leases (ground leases)				1,070,402			4,711			18,853			16,353			15,996			15,793			998,696

		Total Contractual Obligations	$	13,652,232		$	283,146		$	934,767		$	1,460,383		$	1,795,236		$	1,059,055		$	8,119,645


Weighted Average Interest Rates on Maturing Debt:

Mortgage debt				7.65	%		7.88	%		7.41	%		7.18	%		7.88	%		7.15	%		7.90	%
Unsecured notes (2)				7.01	%		5.37	%		7.21	%		5.42	%		5.67	%		7.52	%		7.33	%
Line of credit				—			—			—			—			—			—			—
Share of mortgage debt of unconsolidated joint ventures				6.26	%		5.70	%		—			2.94	%		6.91	%		7.67	%		6.92	%

		Total Weighted Average Interest Rates		7.09	%		5.96	%		7.25	%		5.76	%		6.75	%		7.40	%		7.42	%

(1) Balance excludes net discount of $(12.4) million, net of accumulated amortization of approximately $(5.9) million.

(2) Balance excludes net premium of $48.3 million, net of accumulated amortization of approximately $(10.7) million.

In October 2002, EOP Partnership entered into $1.1 billion of forward-starting interest rate swaps to effectively fix the 10-year Treasury rate at approximately 3.7% for future note offerings anticipated to occur in 2003 and 2004. The forward-starting interest rate swaps were entered into at current market rates and, therefore, had no initial cost. The terms of the forward-starting interest rate swaps require EOP Partnership to pay a fixed-interest rate to the counterparties and to receive a variable rate from the counterparties. The swaps settle at six-month intervals beginning in 2003 and 2004. EOP Partnership anticipates settling the swap agreements prior to the anticipated issuance of additional unsecured notes. Upon settlement of the swaps, EOP Partnership may be obligated to pay the counterparties a settlement payment, or alternatively to receive settlement proceeds from the counterparties. Any monies paid or received will be amortized to interest expense over the term of the respective note offering.

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 September 30, 2002, no amounts have been funded pursuant to this agreement. However, we have guaranteed WRALP’s current line of credit, which has an outstanding balance of approximately $12.9 million as of September 30, 2002.

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 September 30, 2002 and December 31, 2001, including a net unamortized discount on mortgage debt of $(12.4) million and $(11.8) million, respectively, and a net unamortized premium on unsecured notes of $48.3 million and $17.5 million, respectively, recorded in connection with property acquisitions, mergers, issuance of unsecured notes and interest rate swap terminations.


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

Balance
	Fixed rate		$	11,765,617	$	10,891,325
	Variable rate (1)			36,000		1,097,300

		Total	$	11,801,617	$	11,988,625

Percent of total debt:
	Fixed rate			99.7%		90.8%
	Variable rate (1)			0.3%		9.2%

		Total		100.0%		100.0%

Effective interest rate at end of period:
	Fixed rate			7.17%		7.37%
	Variable rate (1)(2)			2.36%		3.31%

		Effective interest rate		7.15%		7.00%


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

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

Mortgage Debt

As of September 30, 2002, total mortgage debt (excluding our share of unconsolidated debt of approximately $816.1 million) consisted of approximately $2.6 billion of fixed rate debt with a weighted average interest rate of approximately 7.72% and $36.0 million of variable rate debt based on LIBOR plus 55 basis points (as of September 30, 2002 the variable rate was approximately 2.36%). See “Liquidity and Capital Resources — Contractual Obligations” for annual payment of 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

EOP Partnership has 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 September 30, 2002, no amounts were outstanding under the revolving credit facility.

Unsecured Notes

Unsecured notes increased by $50 million from December 31, 2001 to September 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 September 30, 2002:


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


	(Dollars in thousands)
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		6.50	%		4.59	%		300,000		1/15/04
9		6.90	%		6.27	%		100,000		1/15/04
5		6.80	%		6.10	%		200,000		5/01/04
6		6.50	%		5.31	%		250,000		6/15/04
7		7.24	%		7.26	%		30,000		9/01/04
8		6.88	%		6.40	%		125,000		2/01/05
7		6.63	%		4.99	%		400,000		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	%		7.65	%		500,000		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


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


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

		Weighted Average/ Subtotal		7.19	%		7.01	%		9,126,500

Net premium (net of accumulated amortization of approximately $(10,680))										48,282

Total									$	9,174,782


(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.

As of September 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 September 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;

• earnings before interest, taxes, depreciation and amortization 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 September 30, 2002 is as follows:


		Common Shares			Units			Total

Outstanding at June 30, 2002			419,035,954			51,173,304			470,209,258
	Share options exercised		102,633			—			102,633
	Common Shares repurchased/retired(a)		(216,854	)		—			(216,854	)
	Units redeemed for cash (b)		—			(677,216	)		(677,216	)
	Restricted shares issued/cancelled, net		(268,339	)		—			(268,339	)
	Issued through dividend reinvestments		16,641			—			16,641

Outstanding at September 30, 2002			418,670,035			50,496,088			469,166,123


(a)		In July 2002, Equity Office announced a Common Share repurchase program allowing for the repurchase of up to $200 million of Common Shares over the next 12 months at the discretion of management. The Common Shares may be repurchased in the open market or privately negotiated transactions. During the third quarter 2002, 197,900 Common Shares were repurchased at an average price of $25.06 for approximately $5.0 million in the aggregate. As of October 28, 2002, 7,200,600 Common Shares were repurchased at an average price of $24.98 for approximately $179.9 million in the aggregate. In connection with the repurchases, EOP Partnership purchased from Equity Office and retired a corresponding number of units for an aggregate purchase price equal to the aggregate purchase price for all Common Shares repurchases.

(b)		During the three months ended September 30, 2002, EOP Partnership redeemed 677,216 Units for cash at an average price of $28.52 for a total of approximately $19.3 million.

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.

Nine Months Ended September 30, 2002

Cash and cash equivalents increased by approximately $394.4 million to approximately $455.5 million at September 30, 2002, compared to $61.1 million at December 31, 2001. This increase was the net result of the receipt of:

• approximately $1,048.7 million from operating activities;

• approximately $122.6 million from investing activities, which consisted primarily of approximately $218.2 million from property dispositions and $159.2 million released from escrows;

• less approximately $292.5 million used for capital and tenant improvements and lease acquisition costs and approximately $776.9 million used for financing activities.

Subsequent to September 30, 2002, approximately $234.0 million was used to pay distributions on Units and approximately $174.9 million was used to purchase Units from Equity Office to enable Equity Office to repurchase Common Shares as part of the Common Share repurchase plan.

Additional Items

Tenant and Other Receivables

Tenant and other receivables decreased from approximately $120.4 million at December 31, 2001 to approximately $73.0 million at September 30, 2002 primarily due to the collection of receivables from tenants during 2002 relating to reimbursable expenses. In the fourth quarter 2001, receivables from tenants for reimbursable expenses were increased based on an analysis of actual reimbursable expenses compared to the amount billed to the tenants during 2001.

Deferred Rent Receivables

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 $49.7 million to $319.5 million at September 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 $159.2 million to $37.1 million at September 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.

Quantitative Information About Market Risk

Interest Rate Risk — Debt

As of September 30, 2002, total outstanding debt was approximately $11,801.6 million, of which $36.0 million, or less than 1% is variable rate debt. Since December 31, 2001, the fair value of our debt has increased approximately $900 million primarily due to the general decrease in market interest rates on secured and unsecured debt. A hypothetical increase or decrease in interest rates of 10% would change the fair value of our debt by approximately $200 million.

Interest risk amounts were determined by considering the impact of hypothetical interest rates on our debt. This analysis does not reflect the impact that a changing interest rate environment could have on the overall level of economic activity. Further, in the event of a changing interest rate environment, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no change in our financial structure.

Interest Rate Risk — Derivatives

In September 2002, EOP Partnership terminated several interest rate swap agreements that effectively converted $1.2 billion of fixed rate debt to a variable rate. Total proceeds resulting from the termination of approximately $39.6 million will be amortized ratably over the remaining term of the respective unsecured notes as a reduction to interest expense. The remaining terms range from 16 to 42 months.

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 nine months ended
		September 30, 2002				September 30, 2002

				Unconsolidated				Unconsolidated
		Consolidated		Properties (EOP		Consolidated		Properties (EOP
		Properties		Partnership’s share)		Properties		Partnership’s share)
(Dollars in thousands)
Capital Improvements
Capital improvements		$	11,418	$	1,729	$	26,395	$	2,372
Development costs			30,668		36,438		85,929		101,891
Redevelopment costs(a)			8,198		—		26,688		—

	Total capital improvements	$	50,284	$	38,167	$	139,012	$	104,263


(a)		Properties included in redevelopment costs are Tabor Center, Polk and Taylor Buildings, Worldwide Plaza 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 ended				For the nine months ended
		September 30, 2002				September 30, 2002

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

*Consolidated Properties:*
Office Properties:
Revenue enhancing		$	15,299	$	23.52	$	37,339	$	23.25

Non-revenue enhancing:
	Renewals	$	16,189	$	7.17	$	46,402	$	6.86
	Retenanted		42,206		19.48		91,381		16.74

Total/ Weighted Average Non-revenue enhancing		$	58,395	$	13.20	$	137,783	$	11.27

Industrial Properties:
Revenue enhancing		$	159	$	8.54	$	159	$	8.54

Non-revenue enhancing:
	Renewals	$	845	$	4.06	$	1,116	$	1.29
	Retenanted		68		0.66		308		1.85

Total/ Weighted Average Non-revenue enhancing		$	913	$	2.94	$	1,424	$	1.38

*Unconsolidated Properties(a):*
Revenue enhancing		$	857	$	32.16	$	1,488	$	21.97

Non-revenue enhancing:
	Renewals	$	754	$	15.77	$	1,677	$	6.82
	Retenanted		839		11.92		1,869		10.48

Total/ Weighted Average Non-revenue enhancing		$	1,593	$	13.48	$	3,546	$	8.36


(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 periods shown. The amounts included in the consolidated statements of cash flows represent the cash expenditures made during the nine months ended September 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 nine months
(Dollars in thousands)	ended September 30, 2002

Total capital improvements, tenant improvements and leasing commissions	$	315,717
Timing differences		(27,074	)
Expenditures for corporate furniture, fixtures and equipment, software, leasehold improvements and other		3,844

Total capital improvements, tenant improvements and leasing commissions on the consolidated statements of cash flows	$	292,487

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 September 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)
Towers @ Shores Center	4Q/2001	Redwood Shores, CA		2		334,800		100	%	$	107,620	$	116,500	$	116,500		33	%
Kruse Woods V	3Q/2003	Lake Oswego, OR		1		184,000		100	%		7,669		33,900		33,900		0	%
Douglas Corporate Center II	3Q/2003	Roseville, CA		1		108,000		100	%		1,717		16,800		16,800		0	%

				4		626,800					117,006		167,200		167,200		18	%


Joint Venture

Water’s Edge Phase I	3Q/2002	Los Angeles, CA		2		240,000		87.5	%		52,881		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	%		39,555		48,100		60,100		16	%
Foundry Square II and IV(c)	3Q/2002- 1Q/2003	San Francisco, CA		2		734,800		(c)			124,403		150,600		259,500		38	%
Ferry Building(d)	3Q/2002	San Francisco, CA		1		242,000		(d)			52,444		66,700		107,100		0	%
Concar(e)	4Q/2002	San Mateo, CA		2		207,000		80	%		36,818		55,200		68,500		99	%

				7		1,341,500					253,220		320,600		495,200		38	%

	Grand Total/ Weighted Average			13		2,208,300				$	423,107	$	562,100	$	738,900		28	%

Balance Sheet Reconciliation of Developments:


Consolidated developments — costs incurred as reflected above:
	Wholly-owned		$	117,006
	Joint venture			52,881
Minority interests portion of consolidated development				2,096

		Total developments in process on the consolidated balance sheet	$	171,983


(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% interest rate per annum. As of September 30, 2002, no amounts were outstanding on the loan and the remaining commitment amount was $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 any such financing would generally be capped at 70% of budgeted construction costs (76% in the case of Concar). At September 30, 2002, EOP Partnership had committed to make mortgage loans totaling approximately $317 million, of which approximately $199 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 and Site III is under option.

(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; 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 table reflects the calculation of FFO for the three and nine months ended September 30, 2002 and 2001, respectively:



		For the three months ended
		September 30,

(Dollars in thousands)		2002			2001

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, net gain on sales of real estate and discontinued operations		$	186,123		$	211,866
Add (deduct):
	Income taxes		(155	)		(1,286	)
	Income allocated to minority interests for partially owned properties		(2,736	)		(2,006	)
	Income from investment in unconsolidated joint ventures		12,218			16,434
	Depreciation and amortization (real estate related)(including EOP Partnership’s share of unconsolidated joint ventures)		179,692			163,479
	Discontinued operations (excluding depreciation, amortization and net gains on sale)		2,609			6,845
	Put option settlement		—			2,655
	Preferred distributions		(15,451	)		(18,250	)

Funds from Operations		$	362,300		$	379,737

Cash flow provided by (used for):
	Operating Activities	$	406,488		$	345,784
	Investing Activities	$	(22,408	)	$	(1,062,857	)
	Financing Activities	$	(228,786	)	$	1,014,544
Ratio of earnings to combined fixed charges and preferred share distributions			1.9			1.8



		For the nine months ended
		September 30,

(Dollars in thousands)		2002			2001

Income before income taxes, allocation to minority interests, income from investment in unconsolidated joint ventures, net gain on sales of real estate, discontinued operations and cumulative effect of a change in accounting principle		$	556,045		$	482,636
Add (deduct):
	Income taxes		(8,986	)		(5,849	)
	Income allocated to minority interests for partially owned properties		(5,137	)		(6,612	)
	Income from investment in unconsolidated joint ventures (excluding gain on sale of $429 for the nine months ended September 30, 2002)		91,714			49,724
	Depreciation and amortization (real estate related)(including EOP Partnership’s share of unconsolidated joint ventures)		541,146			429,225
	Discontinued operations (excluding depreciation, amortization and net gains on sale)		11,588			13,244
	Put option settlement					2,655
	Preferred distributions		(47,112	)		(40,011	)

Funds from Operations		$	1,139,258		$	925,012

Cash flow provided by (used for):
	Operating Activities	$	1,048,708		$	802,236
	Investing Activities	$	122,572		$	(1,238,886	)
	Financing Activities	$	(776,867	)	$	760,944
Ratio of earnings to combined fixed charges and preferred share distributions			1.9			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.


ITEM 4.	*Controls and Procedures.*

Evaluation of Disclosure Controls and Procedures

Within 90 days prior to the filing of this Form 10-Q, Samuel Zell, the principal executive officer of Equity Office, our general partner, and Marsha C. Williams, the principal financial officer of Equity Office, evaluated the effectiveness of the design and operation of our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As a result of this evaluation, these executive officers have concluded that, as of such date, the design and operation of our disclosure controls and procedures were effective.

Changes in Internal Controls

Since the date of the evaluation of our disclosure controls and procedures by Mr. Zell and Ms. Williams described above, there have been no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures.

PART II. OTHER INFORMATION


ITEM 2.	*Changes in Securities and Use of Proceeds.*

On July 29, 2002, EOP Partnership issued 8,500,000 7.75% Series G Cumulative Redeemable Preferred Units to Equity Office in exchange for Equity Office’s contribution of the proceeds of its issuance and sale of 8,500,000 7.75% Series G Cumulative Redeemable Preferred Shares in an offering that closed July 29, 2002. On the same date, substantially all of the net proceeds from the issuance of the Series G Preferred Units, totaling approximately $206.1 million were used to redeem the Series A Preferred Units from Equity Office and, in turn, Equity Office used the proceeds to redeem its 7,994,000 outstanding 8.98% Series A Cumulative Redeemable Preferred Shares.

The Series G Preferred Units rank equal to our other outstanding series of preferred units and prior to our Units as to distributions and amounts payable upon liquidation, dissolution or winding up. The liquidation preference of the Series G Preferred Units is $25.00 per unit, plus any accumulated but unpaid distributions. In connection with any redemption by Equity Office of any or all of the Equity Office Series G Preferred Shares, we would be required to provide cash to Equity Office for such purpose equal to the redemption price of the Series G Preferred Shares to be redeemed and one Series G Preferred Unit would be canceled with respect to each Series G Preferred Share so redeemed.


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 September 30, 2002, as follows:


Date of Event		Items Reported/Financial Statements Filed

July 8, 2002		Item 5, Other Events
August 14, 2002		Item 9, Regulation FD Disclosure

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: November 14, 2002

By: /s/ SAMUEL ZELL

Samuel Zell

President and Chief Executive Officer

Date: November 14, 2002

By: /s/ MARSHA C. WILLIAMS

Marsha C. Williams

Executive Vice President

and Chief Financial Officer

CERTIFICATIONS

I, Samuel Zell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of EOP Operating Limited Partnership;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

By: /s/ SAMUEL ZELL

Samuel Zell

President and Chief Executive Officer of

Equity Office Properties Trust, the general partner of

of EOP Operating Limited Partnership

I, Marsha C. Williams, certify that:

1. I have reviewed this quarterly report on Form 10-Q of EOP Operating Limited Partnership;

Date: November 14, 2002

By: /s/ MARSHA C. WILLIAMS

Marsha C. Williams

Executive Vice President and Chief Financial Officer of

Equity Office Properties Trust, the general partner

of EOP Operating Limited Partnership

EXHIBIT INDEX


Exhibit No.	Description	Page No.

4.1	First Amendment to Third Amended and Restated Agreement of Limited Partnership of EOP Operating Limited Partnership
10.1†	Assumption and Amendment to Change in Control Agreement entered into effective as of May 22, 2002 by and between Equity Office Properties Management Corp., Equity Office, EOP Partnership and Richard D. Kincaid (incorporated herein by reference to Exhibit 10.1 to Equity Office’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002)
10.2†	Assumption and Amendment to Change in Control Agreement entered into effective as of May 22, 2002 by and between Equity Office Properties Management Corp., Equity Office, EOP Partnership and Peter H. Adams (incorporated herein by reference to Exhibit 10.2 to Equity Office’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002)
10.3†	Assumption and Amendment to Change in Control Agreement entered into effective as of May 22, 2002 by and between Equity Office Properties Management Corp., Equity Office, EOP Partnership and David A. Helfand (incorporated herein by reference to Exhibit 10.3 to Equity Office’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002)
10.4†	Assumption and Amendment to Change in Control Agreement entered into effective as of May 22, 2002 by and between Equity Office Properties Management Corp., Equity Office, EOP Partnership and Stanley M. Stevens (incorporated herein by reference to Exhibit 10.4 to Equity Office’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002)
12.1	Statement of Earnings to Combined Fixed Charges and Preferred Distributions

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


(a)	The distribution amount represents a prorated distribution from and including June 17, 2002 to, but excluding, July 29, 2002, the Series A redemption date. See “Preferred Units” below.

(b)	The distribution amount represents a prorated distribution from and including July 29, 2002, the date of issuance of the Series G Preferred Units, to, but excluding, September 16, 2002.


(a)	In September 2002, EOP Partnership began retaining up to $75 million of such loss calculated throughout the EOP Partnership portfolio. In the event of a loss in excess of these retention limits, the third-party insurance carriers would be obligated to cover the losses up to the stated coverage amounts in the above table.

(b)	The amount of the third-party insurance relating to earthquakes is based on maximum probable loss studies performed by independent third parties. The maximum annual aggregate payment amount for earthquake loss is $325 million, inclusive of EOP Partnership’s loss exposure/deductible amount of $76 million. There can be no assurance that these actuarial studies have correctly estimated any losses that may occur.

(c)	These amounts include EOP Partnership’s loss exposure/deductible amount.

(d)	The third-party insurance coverage excludes nuclear, chemical or biological acts of terrorism. There can be no assurance 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 seek to declare a default based on the absence of insurance coverage for terrorist acts for 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.

(e)	This amount is in excess of EOP Partnerships deductible amounts.


	•	future economic conditions which may impact the demand for office space as well as current or prospective tenant’s ability 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 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 ability to pay amounts due to its noteholders and preferred shareholders 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 33 office properties, three vacant land parcels and a 50% interest in four parking facilities for approximately $341.7 million;

	•	received a lease termination fee of approximately $40 million in connection with a previously proposed office building development which was recorded as income from unconsolidated joint ventures during the first quarter 2002;


	•	received approximately $50 million from a tenant for terminating their lease at Parkside Towers. Approximately $14.2 million of the lease termination fee was recognized in the third quarter and approximately $31.8 million is anticipated to be recognized in the fourth quarter of 2002. Approximately $3.8 million of the lease termination fee was applied to a deferred rent receivable balance;

	•	acquired two office buildings for approximately $92.3 million. The properties are located in Washington, D.C., and consist of approximately 327,550 square feet of which 260,372 square feet is office space;

	•	redeemed the 7,994,000 outstanding 8.98% Series A Cumulative Redeemable Preferred Shares at an aggregate redemption price of approximately $201.9 million including accrued distributions;

	•	issued 8,500,000 7.75% Series G Cumulative Redeemable Preferred Units for approximately $206.1 million;

	•	Equity Office initiated a Common Share repurchase program allowing for the repurchase of up to $200 million of Common Shares over the next 12 months and repurchased 197,900 Common Shares at an average price of $25.06 per share for a total of approximately $5.0 million in the aggregate;

	•	redeemed 677,216 Units for cash at an average price of $28.52 per Unit for a total of approximately $19.3 million; and

	•	received approximately $20.1 million from CT Convertible Trust I in connection with its redemption of the non-convertible preferred securities.


(1)	Balance excludes net discount of $(12.4) million, net of accumulated amortization of approximately $(5.9) million.

(2)	Balance excludes net premium of $48.3 million, net of accumulated amortization of approximately $(10.7) million.


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


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

	•	earnings before interest, taxes, depreciation and amortization 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.


	•	approximately $1,048.7 million from operating activities;

	•	approximately $122.6 million from investing activities, which consisted primarily of approximately $218.2 million from property dispositions and $159.2 million released from escrows;

	•	less approximately $292.5 million used for capital and tenant improvements and lease acquisition costs and approximately $776.9 million used for financing activities.


	•	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.


		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.



	Marsha C. Williams
	Executive Vice President
	and Chief Financial Officer


	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and



	Samuel Zell
	President and Chief Executive Officer of
	Equity Office Properties Trust, the general partner of
	of EOP Operating Limited Partnership



	Marsha C. Williams
	Executive Vice President and Chief Financial Officer of
	Equity Office Properties Trust, the general partner
	of EOP Operating Limited Partnership


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