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As filed with the Securities and Exchange Commission on August 1, 1996
Registration No. 333-06873
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 36-3877868
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Two North Riverside Plaza, Suite 450
Chicago, Illinois 60606
(312) 474-1300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Douglas Crocker II
President and Chief Executive Officer
Two North Riverside Plaza, Suite 600
Chicago, Illinois 60606
(312) 474-1300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copy to:
Sheli Z. Rosenberg, Esq.
Ruth Pinkham Haring, Esq.
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza, Suite 1515
Chicago, Illinois 60606
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement and from time
to time as determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to distribution or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with distribution or
interest reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS SUPPLEMENT
AND PROSPECTUS. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED AUGUST 1, 1996
SUBJECT TO COMPLETION
PROSPECTUS
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608,665 SHARES
EQUITY RESIDENTIAL PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
This Prospectus relates to (i) the possible issuance by Equity Residential
Properties Trust (the "Company") of up to 608,665 common shares (the "Exchange
Shares") of beneficial interest, $.01 par value per share ("Common Shares"), of
the Company if, and to the extent that (subject to the discretion of the
Company), holders of up to 608,665 outstanding partnership interests ("OP
Units") in ERP Operating Limited Partnership (the "Operating Partnership"), of
which the Company is the sole general partner and owns a controlling interest,
exchange such OP Units for Common Shares; and (ii) the offer and sale from time
to time of up to 608,665 Exchange Shares by the holders thereof following the
potential issuance of such Exchange Shares upon the exchange of up to 608,665 OP
Units to the holders thereof, if and to the extent such holders exchange such OP
Units for the Exchange Shares. The Company is registering the Exchange Shares as
required under the terms of a registration rights and lock-up agreement dated
June 15, 1995 (the "Registration Rights Agreement") between the Company and the
holders of the OP Units exchangeable for the Exchange Shares (collectively, the
"Selling Shareholders"). The registration of the Exchange Shares does not
necessarily mean that any of the Exchange Shares will be offered or sold by the
Selling Shareholders. The Company will receive no part of the proceeds of the
sales of the Exchange Shares. See "Selling Shareholders" and "Plan of
Distribution."
The Common Shares are listed on the New York Stock Exchange (the "NYSE")
under the symbol "EQR." To ensure that the Company maintains its qualification
as a real estate investment trust (a "REIT"), ownership by any person is limited
to 5% of the lesser of the number or value of outstanding Common Shares, with
certain exceptions. See "Description of Shares of Beneficial Interest--Common
Shares--Restrictions on Transfer." The closing sales price of the Common Shares
as reported by the NYSE on July 30, 1996 was $33 5/8 per share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS," BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Selling Shareholders may from time to time offer and sell all or a
portion of the Exchange Shares in transactions on the NYSE, in the over-the-
counter market, on any other national securities exchange on which the Common
Shares are listed or traded, in negotiated transactions or otherwise, at prices
then prevailing or related to the then-current market price or at negotiated
prices. The Exchange Shares may be sold directly or through agents or broker-
dealers acting as principal or agent, or in block trades or pursuant to a
distribution by one or more underwriters on a firm commitment or best-efforts
basis. To the extent required, the names of any agent or broker-dealer and
applicable commissions or discounts and any other required information with
respect to any particular offer will be set forth in this Prospectus under the
caption "Plan of Distribution" or an accompanying Prospectus Supplement. Each of
the Selling Shareholders reserves the right to accept or reject, in whole or in
part, any proposed purchase of the Exchange Shares to be made directly or
through agents. The Selling Shareholders and any agents or broker-dealers
participating in the distribution of the Exchange Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any profit on the sale of Exchange Shares by the Selling
Shareholders and any commissions received by any such agents or broker-dealers
may be deemed to be underwriting commissions or discounts under the Securities
Act. The Company will not receive any of the proceeds from the sale of any
Exchange Shares by the Selling Shareholders.
THE DATE OF THIS PROSPECTUS IS AUGUST , 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Common
Shares are listed on the New York Stock Exchange under the symbol "EQR" and
similar information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the
Commission.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act, with respect to the Exchange Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other documents are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Exchange Shares,
reference is hereby made to the Registration Statement and such exhibits and
schedules which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended December
31, 1995.
b. The Company's Amended and Restated Declaration of Trust (the
"Declaration of Trust") filed as Exhibit 3(i) to the Company's
Quarterly Report on Form 10-Q for the three and six month periods
ended June 30, 1995.
c. The Company's Amended and Restated Bylaws, filed as an exhibit to the
Company's Registration Statement on Form S-11, No. 33-63158 dated July
26, 1993, as amended.
d. The Company's definitive proxy statement dated March 29, 1996 relating
to the annual meeting of shareholders held on May 10, 1996.
e. The description of the Company's Common Shares contained in the
Company's Registration Statement on Form S-11, No. 33-80420, dated
July 20, 1994, as amended.
f. The Company's Quarterly Report on Form 10-Q for the three month period
ended March 31, 1996.
g. The Company's Current Reports on Form 8-K dated September 21, 1995 (as
amended by Forms 8-K/A filed on October 25, 1995 and October 30, 1995,
respectively), January 22, 1996, January 25, 1996, February 5, 1996,
March 1, 1996, May 15, 1996, May 23, 1996 and May 24, 1996 and the
Company's Current Report on Form 8-K/A dated March 1, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of all Exchange Shares to which this
Prospectus relates shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in the
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
applicable Prospectus Supplement relating to a specific offering of Exchange
Shares, or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each
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accompanying Prospectus Supplement is qualified in its entirety by the
information appearing in the documents incorporated by reference.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to Equity Residential Properties Trust, Two North Riverside Plaza,
Chicago, Illinois 60606, Attention: Cynthia McHugh (telephone number: (312) 474-
1300).
As used herein, the term "Company" includes Equity Residential Properties
Trust and those entities owned or controlled by it (collectively, the
"Subsidiaries"), unless the context indicates otherwise.
THE COMPANY
GENERAL
Equity Residential Properties Trust is a self-administered and self-managed
equity REIT. The Company was organized in March 1993 and commenced operations on
August 18, 1993 upon completion of its initial public offering (the "IPO"). The
Company was formed to continue the multifamily residential business objectives
and acquisition strategies of certain affiliated entities controlled by Mr.
Samuel Zell, Chairman of the Board of Trustees of the Company. These entities
had been engaged in the acquisition, ownership and operation of multifamily
residential properties since 1969. The Company's senior executives average over
23 years of experience in the multifamily property business.
The Company is the largest publicly traded REIT owner of multifamily
properties (based on the number of apartment units owned and total revenues
earned). As of June 17, 1996, the Company owned or had interests in a portfolio
of 211 multifamily properties (individually a "Property" and collectively, the
"Properties") containing 63,032 units and managed approximately 14,000
additional units owned by third parties. Since the Company's IPO, at which time
the Company owned 69 Properties, the Company has acquired, directly or
indirectly, interests in an additional 149 Properties containing 44,080 units
for a total purchase price of approximately $2 billion, including the assumption
of $435 million of mortgage indebtedness. Since the IPO, the Company has
disposed of seven of its properties containing 2,773 units for a total sales
price of approximately $58.2 million and the release of mortgage indebtedness in
the amount of $20.5 million. The Company's interest in six of the Properties
consists solely of ownership of the debt collateralized by such Properties and
in 21 of the Properties consists solely of investments in partnership interests
and subordinated mortgages collateralized by such Properties. The Properties are
located throughout the United States in the following 30 states: Arizona,
Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana,
Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Missouri, New Hampshire,
New Jersey, New Mexico, Nevada, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, South Carolina, Tennessee, Texas, Virginia and Washington.
All of the Company's interests in the Properties are held directly or
indirectly by, and substantially all of its operations relating to the
Properties are conducted through, the Operating Partnership. The Operating
Partnership currently has three classes of limited partnership interests
outstanding: OP Units, which may be exchanged by the holders thereof for either
Common Shares on a one-for-one basis or, at the Company's option, cash; 9 3/8%
Cumulative Redeemable Preference Units ("9 3/8% Preference Units") which are
owned by the Company and mirror the payments of distributions, including accrued
and unpaid distributions upon redemption, and the liquidation preference amount
of the Company's 9 3/8% Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest ($.01 par value per share) (liquidation preference $25.00
per share) (the "Series A Preferred Shares"); and 9 1/8% Cumulative Redeemable
Preference Units ("9 1/8% Preference Units") which are owned by the Company and
mirror the payments of distributions, including accrued and unpaid distributions
upon redemption, and the liquidation preference amount of the Company's 9 1/8%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest ($.01 par
value per share) (liquidation preference $250.00 per share) (the "Series B
Preferred Shares"). The Company controls the Operating Partnership as the sole
general partner and, as of May 31, 1996, owned approximately 82.86% of all of
the Operating Partnership's outstanding OP Units.
The Company's corporate headquarters and executive offices are located at
Two North Riverside Plaza, Suite 450, Chicago, Illinois 60606, and its telephone
number is (312) 474-1300. In addition, the Company has regional operations
centers in Chicago, Illinois; Dallas, Texas; Denver, Colorado; Seattle,
Washington; Tampa, Florida and Bethesda, Maryland, and area offices in Atlanta,
Georgia; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; San Antonio,
Texas and Laguna Hills, California.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the issuance of the
Exchange Shares to the selling Shareholders nor from any sales of the Exchange
Shares by the Selling Shareholders. All reasonable costs and expenses incurred
in connection with the registration under the Securities Act of the offering
made hereby will be paid by the Selling Shareholders, excluding compensation of
employees of the Company or expenses incurred in connection with documents
incorporated herein by reference.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below prior to making an investment decision regarding the
Exchange Shares offered hereby.
TAX CONSEQUENCES OF EXCHANGE OF OP UNITS
The exercise by limited partner holders of OP Units (each, a "Limited
Partner") of his or its right to require the exchange of his or its OP Units
will be treated for tax purposes as a sale of the OP Units by the Limited
Partner. Such a sale will be fully taxable to the exchanging Limited Partner and
such exchanging Limited Partner will be treated as realizing for tax purposes an
amount equal to the sum of the cash or the value of the Common Shares received
in the exchange plus the amount of the Operating Partnership nonrecourse
liabilities allocable to the exchanged OP Units at the time of the exchange. It
is possible that the amount of gain recognized (or even the tax liability
resulting from such gain) could exceed the amount of cash and the value of other
property (e.g., Exchange Shares) received upon such disposition. See "Exchange
of OP Units - Tax Consequences of Exchange." In addition, the ability of the
Limited Partner to sell a substantial number of Exchange Shares in order to
raise cash to pay tax liabilities associated with exchange of OP Units may be
restricted due to the Company's relatively low trading volume, and, as a result
of fluctuations in the share price, the price the Limited Partner receives for
such Exchange Shares may not equal the value of his or her OP Units at the time
of exchange.
POTENTIAL CHANGE IN INVESTMENT UPON EXCHANGE OF OP UNITS
If a Limited Partner exercises the right to require the exchange of his or
her OP Units, such Limited Partner may receive cash or Common Shares of the
Company in exchange for the OP Units. If the Limited Partner receives cash, the
Limited Partner will no longer have any interest in the Company and will not
benefit from any subsequent increases in share price and will not receive any
future distributions from the Company (unless the Limited Partner currently owns
or acquires in the future additional Common Shares or OP Units). If the Limited
Partner receives Common Shares, the Limited Partner will become a shareholder of
the Company rather than a holder of OP Units in the Operating Partnership.
Although the nature of an investment in Common Shares is substantially
equivalent economically to an investment in OP Units in the Operating
Partnership, there are some differences between ownership of OP Units and
ownership of Common Shares relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, investor rights and federal income taxation.
These differences, some of which may be material to investors, are discussed in
"Exchange of OP Units - Comparison of Ownership of OP Units and Common Shares."
ADVERSE CONSEQUENCES OF DEBT FINANCING AND PREFERRED SHARES
General Risks. As of May 31, 1996, the Properties were subject to
approximately $573 million of mortgage indebtedness and the Company's total debt
equaled approximately $953 million, $162 million of which was floating rate
debt. In April 1995, the Operating Partnership issued $125 million aggregate
principal amount of 7.95% Notes due April 15, 2002 (the "Fixed Rate Notes")
pursuant to a public debt offering (the "Second Public Debt Offering"). In
addition, in June 1995, the Company issued 6,120,000 Series A Preferred Shares
pursuant to a preferred share offering and in November 1995, the Company issued
5,000,000 Depositary Shares each representing a 1/10 fractional interest in a
Series B Preferred Share pursuant to a depositary share offering (collectively,
the "Preferred Share Offerings"). The Company used the proceeds from the Second
Public Debt Offering and the Preferred Share Offerings to repay indebtedness.
The Company is subject to the risks normally associated with debt or preferred
equity financing, including the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, the risk that
existing indebtedness may not be refinanced or that the terms of such
refinancing will not be as favorable as the terms of current indebtedness and
the risk that necessary capital expenditures for such purposes as renovations
and other improvements may not be financed on favorable terms or at all. If the
Company were unable to refinance its indebtedness on acceptable terms, or at
all, the Company might be forced to dispose of one or more of the Properties on
disadvantageous terms, which might result in losses to the Company and might
adversely affect the cash available for distributions to shareholders. If
interest rates or other factors at the time of the refinancing result in higher
interest rates upon refinancing, the Company's interest expense would increase,
which would affect the Company's ability to make distributions to its
shareholders. Furthermore, if a Property is mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the mortgagee
could foreclose upon the Property, appoint a receiver and receive an assignment
of rents and leases or pursue other remedies, all with a consequent loss of
income and asset value
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to the Company. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby hindering the Company's ability to meet the
REIT distribution requirements of the Internal Revenue Code of 1986, as amended
(the "Code").
Restrictions on the Company's Activities. $350 million of the Company's
debt was issued pursuant to two different indentures (the "Indentures") which
restrict the amount of indebtedness (including acquisition financing) the
Company may incur. Accordingly, in the event that the Company is unable to
raise additional equity or borrow money because of the debt restrictions in the
indentures, the Company's ability to acquire additional properties may be
limited. If the Company is unable to acquire additional properties, its ability
to increase the distributions with respect to Common Shares, as it has done in
the past, will be limited to management's ability to increase funds from
operations, and thereby cash available for distributions, from the existing
Properties in the Company's portfolio.
Bond Compliance Requirements. The Company owns 17 Properties that are
subject to restrictive covenants or deed restrictions relating to current or
previous tax-exempt bond financing and owns the bonds collateralized by six
additional Properties. The Company has retained an independent outside
consultant to monitor compliance with the restrictive covenants and deed
restrictions that affect these Properties. The bond compliance requirements may
have the effect of limiting the Company's income from these Properties in the
event the Company is required to lower its rental rates to attract low or
moderate income tenants, or eligible/qualified tenants.
Control and Influence by Significant Shareholders
As of May 31, 1996, Mr. Zell, certain of the current holders (the "Zell
Holders") of certain OP Units issued at the time of the IPO ("Original OP
Units") to certain affiliates of Mr. Zell which contributed 33 of the Properties
at the time of the IPO (the "Zell Original Owners"), Equity Properties
Management Corp. ("EPMC") and other affiliates of Mr. Zell owned in the
aggregate approximately 8.96% of the Common Shares (assuming that all of the
partnership interests in the Operating Partnership are exchanged for Common
Shares), and certain entities controlled by Starwood Capital Partners L.P.
("Starwood") and its affiliates which contributed 23 of the Properties at the
time of the IPO (the "Starwood Original Owners") owned in the aggregate
approximately 6.58% of the Common Shares (assuming that all of the partnership
interests in the Operating Partnership are exchanged for Common Shares). The
Starwood Original Owners, together with the Zell Original Owners, shall be
referred to collectively as the "Original Owners." The Company has options
outstanding to purchase approximately 2,500,000 Common Shares which it has
granted to certain officers, employees and trustees of the Company and
consultants to the Company, some of whom are affiliated with Mr. Zell,
representing in the aggregate approximately 4.6% of the Common Shares (assuming
that all such options are exercised for Common Shares and all of the outstanding
partnership interests in the Operating Partnership are exchanged for Common
Shares). Further, the consent of affiliates of Mr. Zell who are Zell Holders
and of the Starwood Original Owners is required for certain amendments to the
Operating Partnership's Fourth Amended and Restated ERP Operating Limited
Partnership Agreement of Limited Partnership (the "Partnership Agreement").
Accordingly, Mr. Zell and the Starwood Original Owners may continue to have
substantial influence over the Company, which influence might not be consistent
with the interests of other shareholders, and on the outcome of any matters
submitted to the Company's shareholders for approval. In addition, although
there is no current agreement, understanding or arrangement for these
shareholders to act together on any matter, these shareholders would be in a
position to exercise significant influence over the affairs of the Company if
they were to act together in the future.
Potential Environmental Liability Affecting the Company
Under various Federal, state and local environmental laws, ordinances and
regulations, an owner of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property. These
laws often impose environmental liability without regard to whether the owner
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The presence of such substances, or the failure properly to
remediate such substances, may adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain laws impose liability for release of asbestos-
containing materials ("ACMs") into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
ACMs. In connection with the ownership (direct or indirect), operation,
management and development of real properties, the Company or the Subsidiaries,
as the case may be, may be considered an owner or operator of such properties or
as having arranged for the disposal or treatment of hazardous or toxic
substances and, therefore, potentially liable for removal or remediation costs,
as well as certain other related costs, including governmental fines and
injuries to persons and property.
All of the Properties have been the subject of a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or ground water analysis and generally without radon testing) completed
by qualified independent environmental consultant companies. All of the
environmental assessments were conducted within the last five years and were
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obtained prior to the acquisition by the Company of each of the Properties.
These environmental assessments have not revealed, nor is the Company aware of,
any environmental liability that the Company's management believes would have a
material adverse effect on the Company's business, results of operations,
financial condition or liquidity.
No assurance can be given that existing environmental assessments with
respect to any of the Properties reveal all environmental liabilities, that any
prior owner of a Property did not create any material environmental condition
not known to the Company, or that a material environmental condition does not
otherwise exist as to any one or more Properties.
REAL ESTATE INVESTMENT CONSIDERATIONS
General. Income from real property investments and the Company's resulting
ability to make expected distributions to shareholders may be adversely affected
by the general economic climate, local conditions such as oversupply of
apartment units or a reduction in demand for apartment units in the area, the
attractiveness of the Properties to tenants, zoning or other regulatory
restrictions, the ability of the Company to provide adequate maintenance and
insurance, and increased operating costs (including insurance premiums and real
estate taxes). The Company's income would also be adversely affected if tenants
were unable to pay rent or the Company were unable to rent apartment units on
favorable terms. If the Company were unable to promptly relet or renew the
leases for a significant number of apartment units, or if the rental rates upon
such renewal or reletting were significantly lower than expected rates, then the
Company's funds from operations and ability to make expected distributions to
shareholders may be adversely affected. In addition, certain expenditures
associated with each equity investment (such as real estate taxes and
maintenance costs) generally are not reduced when circumstances cause a
reduction in income from the investment. Furthermore, real estate investments
are relatively illiquid and, therefore, will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions.
Changes in Laws. Increases in real estate taxes and income, service or
other taxes generally are not passed through to tenants under existing leases
and may adversely affect the Company's funds from operations and its ability to
make distributions to shareholders. Similarly, changes in laws increasing the
potential liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures, which would adversely affect the
Company's funds from operations and its ability to make distributions to
shareholders.
OWNERSHIP LIMIT AND LIMITS ON CHANGES IN CONTROL
5% Ownership Limit; Inapplicability to Mr. Zell and Others. In order to
maintain its qualification as a REIT under the Code, not more than 50% of the
value of the outstanding shares of beneficial interest of the Company may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities). Certain beneficial owners of the Zell Holders
affiliated with Mr. Zell and EPMC (i.e., beneficiaries of trusts established for
the benefit of Mr. Zell and his family and trusts established for the benefit of
the family of Mr. Robert Lurie, a deceased partner of Mr. Zell (the "Lurie
Family Trusts")) and of the Starwood Original Owners (through their potential
ownership rights of Common Shares) together constitute four individuals for
purposes of this test and, under the Internal Revenue Service's (the "Service")
rules applicable to determining percentages of ownership, will be deemed to own
approximately 14% of the value of the outstanding shares of beneficial interest
of the Company. Due to such concentration of ownership of the Company, ownership
of more than 5% of the lesser of the number or value of the outstanding shares
of beneficial interest of the Company by any single shareholder has been
restricted, with certain exceptions, for the purpose of maintaining the
Company's qualification as a REIT under the Code. Such restrictions in the
Company's Declaration of Trust do not apply to the ownership of the 7,060,071
Common Shares subject to acquisition by the holders of Original OP Units and
EPMC through the exchange of Original OP Units. Additionally, the Company's
Declaration of Trust allows certain transfers of such Common Shares without the
transferees being subject to the 5% ownership limit, provided such transfers do
not result in an increased concentration in the ownership of the Company. The
Company's Board of Trustees, upon receipt of a ruling from the Service, an
opinion of counsel or other evidence satisfactory to the Board of Trustees and
upon such other conditions as the Board of Trustees may direct, may also exempt
a proposed transferee from this restriction. See "Description of Shares of
Beneficial Interest--Common Shares--Restrictions on Transfer."
The 5% ownership limit, as well as the ability of the Company to issue
additional Common Shares or other shares of beneficial interest (which may have
rights and preferences senior to the Common Shares), may discourage a change of
control of the Company and may also (i) deter tender offers for the Common
Shares, which offers may be advantageous to shareholders, and (ii) limit the
opportunity for shareholders to receive a premium for their Common Shares that
might otherwise exist if an investor were attempting to assemble a block of
Common Shares in excess of 5% of the outstanding shares of beneficial interest
of the Company or otherwise effect a change of control of the Company.
Staggered Board. The Board of Trustees of the Company has been divided into
three classes of trustees. The terms of the current classes will expire in 1997,
1998 and 1999, respectively. As the term of each class expires, trustees for
that class will be
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elected for a three-year term and the trustees in the other two classes will
continue in office. The staggered terms for trustees may impede the
shareholders' ability to change control of the Company even if a change in
control were in the shareholders' interest.
Preferred Shares. The Company's Declaration of Trust authorizes the Board
of Trustees to issue up to 10,000,000 preferred shares of beneficial interest,
$.01 par value per share ("Preferred Shares") and to establish the preferences
and rights (including the right to vote and the right to convert into Common
Shares) of any Preferred Shares issued. The power to issue Preferred Shares
could have the effect of delaying or preventing a change in control of the
Company even if a change in control were in the shareholders' interest. As of
May 31, 1996, 6,620,000 Preferred Shares were issued and outstanding.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Taxation as a Corporation. The Company believes that it has qualified and
will continue to qualify as a REIT under the Code, commencing with its taxable
year ended December 31, 1993. However, no assurance can be given that the
Company was organized and has been operated and will be able to operate in a
manner so as to qualify or remain so qualified. Qualification as a REIT involves
the satisfaction of numerous requirements (some on an annual and quarterly
basis) established under highly technical and complex Code provisions for which
there are only limited judicial or administrative interpretations, and involves
the determination of various factual matters and circumstances not entirely
within the Company's control.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to shareholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to shareholders would no longer be
required to be made. See "Federal Income Tax Considerations."
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be
subject to certain Federal, state and local taxes on its income and property.
See "Federal Income Tax Considerations--Other Tax Considerations--State and
Local Taxes." In addition, the Company's management operations, which are
conducted through Equity Residential Properties Management Limited Partnership
and Equity Residential Properties Management Limited Partnership II
(collectively, the "Management Partnerships") generally will be subject to
Federal income tax at regular corporate rates. See "Federal Income Tax
Considerations--Other Tax Considerations."
Consequences of Failure to Qualify as Partnerships. The Company believes
that the Operating Partnership, the Management Partnerships and each of the
other partnership and limited liability company Subsidiaries have been organized
as partnerships and will qualify for treatment as such under the Code. If any of
such Subsidiaries fails to qualify for such treatment under the Code, the
Company would cease to qualify as a REIT, and such Subsidiary would be subject
to Federal income tax (including any alternative minimum tax) on its income at
corporate rates. See "Federal Income Tax Considerations--Taxation of the
Company--Failure to Qualify" and "--Tax Aspects of the Company's Investments in
Partnerships--General."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers. While
the Company believes that it could find replacements for these key personnel,
the loss of their services could have a temporary adverse effect on the
operations of the Company. None of these officers has entered into employment
agreements with the Company.
DISTRIBUTION REQUIREMENTS POTENTIALLY INCREASING INDEBTEDNESS OF THE COMPANY
The Company may be required from time to time, under certain circumstances,
to accrue as income for tax purposes interest and rent earned but not yet
received. In such event, or upon the repayment by the Company or its
Subsidiaries of principal on debt, the Company could have taxable income without
sufficient cash to enable the Company to meet the distribution requirements of a
REIT. Accordingly, the Company could be required to borrow funds or liquidate
investments on adverse terms in order to meet such distribution requirements.
See "Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements."
EXEMPTIONS FOR MR. ZELL AND OTHERS FROM MARYLAND BUSINESS COMBINATION LAW WHICH
TEND TO INHIBIT TAKEOVERS
Under the Maryland General Corporation Law, as amended ("MGCL"), certain
"business combinations" (including certain issuances of equity securities)
between a Maryland real estate investment trust and any person who beneficially
owns 10% or more of the voting power of the trust's shares of beneficial
interest (an "Interested Shareholder") or an affiliate thereof are prohibited
for
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five years after the most recent date on which the Interested Shareholder
becomes an Interested Shareholder. Thereafter, any such business combination
must be approved by two super-majority shareholder votes unless, among other
conditions, the holders of the common shares of the trust receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its common shares. The Zell Original Owners beneficially own
more than 10% of the Company's voting shares and would, therefore, be subject to
the business combination provisions of the MGCL. However, pursuant to the
statute, the Company has exempted any business combination involving Mr. Zell,
the Zell Original Owners, EPMC and their respective affiliates and associates,
present or future, or any other person acting in concert or as a group with any
of the foregoing persons and, consequently, the five-year prohibition and the
super-majority vote requirements will not apply to a business combination
between any of them and the Company. As a result, Mr. Zell, the Zell Original
Owners, EPMC, any present or future affiliate or associate of theirs or any
other person acting in concert or as a group with any of the foregoing persons
may be able to enter into business combinations with the Company, which may not
be in the best interest of the shareholders, without compliance by the Company
with the super-majority vote requirements and other provisions of the statute.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The summary of the terms of the shares of beneficial interest of the
Company set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the Declaration of Trust and amended
and restated bylaws ("Bylaws") of the Company, a copy of which is an exhibit to
the Company's Registration Statement No. 33-63158 and which is incorporated
herein by reference.
The Declaration of Trust of the Company provides that the Company may issue
up to 110,000,000 shares of beneficial interest, consisting of 100,000,000
Common Shares, $0.01 par value per share, and 10,000,000 Preferred Shares. As of
May 31, 1996, 43,223,307 Common Shares were issued and outstanding. In addition,
as of May 31, 1996, 8,940,036 Common Shares were issuable upon exchange of OP
Units currently held by the holders of the Original OP Units or holders who were
issued OP Units in exchange for the contribution of certain of the Properties.
The OP Units are exchangeable on a one-for-one basis for Common Shares or, at
the Company's option, cash.
Both the Maryland REIT law and the Company's Declaration of Trust provide
that no shareholder of the Company will be liable for any debt or obligation of
the Company solely as a result of his status as a shareholder of the Company.
The Company's bylaws further provide that the Company shall indemnify each
shareholder against any claim or liability to which the shareholder may become
subject by reason of his being or having been a shareholder and that the Company
shall reimburse each shareholder for all reasonable expenses incurred by him in
connection with any such claim or liability. However, with respect to tort
claims, contractual claims where shareholder liability is not so negated, claims
for taxes and certain statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
COMMON SHARES
All Exchange Shares offered hereby are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares of
beneficial interest and to the provisions of the Company's Declaration of Trust
regarding Excess Shares (as defined herein), holders of Common Shares are
entitled to receive distributions if, as and when authorized and declared by the
Board of Trustees out of assets legally available therefor and to share ratably
in the assets of the Company legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company. The Company currently pays regular quarterly distributions.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, each outstanding Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
trustees, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of beneficial interest, the
holders of such Common Shares will possess the exclusive voting power. There is
no cumulative voting in the election of trustees, which means that the holders
of a majority of the outstanding Common Shares can elect all of the trustees
then standing for election and the holders of the remaining shares of beneficial
interest, if any, will not be able to elect any trustees.
Holders of Common Shares have no conversion, sinking fund, redemption or
preemptive rights to subscribe for any securities of the Company. Subject to the
provisions of the Company's Declaration of Trust regarding Excess Shares, Common
Shares have equal distribution, liquidation and other rights, and have no
preference, exchange or, except as expressly required by the Maryland REIT law,
appraisal rights.
Pursuant to the Maryland REIT law, a REIT generally cannot dissolve, amend
its declaration of trust or merge, unless approved by the affirmative vote or
written consent of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the REIT's declaration of trust. The Company's Declaration of Trust does not
provide for a lesser percentage in such situations. A declaration of trust may
permit the Trustees by a two-thirds vote to amend the declaration of trust from
time to time to qualify as a REIT under the Code or the Maryland REIT law
without the affirmative vote or written consent of the shareholders. The
Company's Declaration of Trust permits such action by the Board of Trustees.
The transfer agent and registrar for the Common Shares is The First
National Bank of Boston.
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RESTRICTIONS ON TRANSFER
Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions, provides that no holder may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 5% (the "Ownership Limit") of
the lesser of the number of shares or value of the issued and outstanding shares
of beneficial interest of the Company. The Board of Trustees, upon receipt of a
ruling from the Service, an opinion of counsel or other evidence satisfactory to
the Board of Trustees and upon such other conditions as the Board of Trustees
may direct, may also exempt a proposed transferee from the Ownership Limit. As a
condition of such exemption, the intended transferee must give written notice to
the Company of the proposed transfer no later than the fifteenth day prior to
any transfer which, if consummated, would result in the intended transferee
owning shares in excess of the Ownership Limit. Any transfer of Common or
Preferred Shares that would (i) create a direct or indirect ownership of shares
of beneficial interest in excess of the Ownership Limit, (ii) result in the
shares of beneficial interest being owned by fewer than 100 persons, or (iii)
result in the Company being "closely held" within the meaning of Section 856(h)
of the Code, will be void ab initio, and the intended transferee will acquire no
rights to the shares of beneficial interest. The foregoing restrictions on
transferability and ownership will not apply if the Board of Trustees determines
that it is no longer in the best interests of the Company to attempt to qualify,
or to continue to qualify, as a REIT.
The Company's Declaration of Trust exempts from the Ownership Limit certain
of the beneficial owners of the Original Owners and EPMC, who would exceed the
Ownership Limit as a result of the exchange of the OP Units for Common Shares,
which OP Units were received by them at the time of the formation of the
Company. These persons may also acquire additional shares of beneficial interest
through the Company's Second Amended and Restated 1993 Share Option and Share
Award Plan (the "Option and Award Plan"), but in no event will such persons be
entitled to acquire additional shares of beneficial interest such that the five
largest beneficial owners of the Company's shares of beneficial interest hold
more than 50% in number or value of the total outstanding shares of beneficial
interest.
Any shares of beneficial interest the transfer of which would result in a
person owning shares of beneficial interest in excess of the Ownership Limit or
cause the Company to become "closely held" under Section 856(h) of the Code that
is not otherwise permitted as provided above will constitute excess shares
("Excess Shares"), which will be transferred by operation of law to the Company
as trustee for the exclusive benefit of the person or persons to whom the Excess
Shares are ultimately transferred, until such time as the intended transferee
retransfers the Excess Shares. While these Excess Shares are held in trust, they
will not be entitled to vote or to share in any distributions (except upon
liquidation). Subject to the Ownership Limit, the Excess Shares may be
retransferred by the intended transferee to any person (if the Excess Shares
would not be Excess Shares in the hands of such person) at a price not to exceed
the price paid by the intended transferee or, if the intended transferee did not
give value for such Excess Shares (e.g., a transfer by gift or devise), the fair
market value (as described below) at the time of the purported transfer that
resulted in the Excess Shares, at which point the Excess Shares will
automatically be exchanged for the shares of beneficial interest to which the
Excess Shares are attributable. In addition, such Excess Shares held in trust
are subject to purchase by the Company at a purchase price equal to the lesser
of the price paid for the Excess Shares in the transaction that created such
Excess Shares (or, in the case of a devise or gift, the fair market value at the
time of such devise or gift) and the fair market value of the Preferred Shares
or Common Shares to which such Excess Shares relate on the date the Company
exercises its right to purchase. Fair market value will be the last sales price
of such shares of beneficial interest reported on the NYSE on the trading day
immediately preceding the relevant date, or if not then traded on the NYSE, the
last reported sales price of such shares of beneficial interest on the trading
day immediately preceding the relevant date as reported on any exchange or
quotation system over which such shares of beneficial interest may be traded, or
if not then traded over any exchange or quotation system, then the fair market
value of such shares of beneficial interest on the relevant date as determined
in good faith by the Board of Trustees of the Company. The Company's right to
purchase shall be for a period of 90 days after the later of the date of the
purported transfer which resulted in the Excess Shares and the date the Board of
Trustees determines in good faith that such a transfer has occurred. From and
after the intended transfer to the intended transferee of the Excess Shares, the
intended transferee shall cease to be entitled to distributions (except upon
liquidation), voting rights and other benefits with respect to such shares
except the right to payment of the purchase price for the shares or the
retransfer of shares as provided above. Any distribution paid to a proposed
transferee on Excess Shares prior to the discovery by the Company that such
shares of beneficial interest have been transferred in violation of the
provisions of the Company's Declaration of Trust shall be repaid to the Company
upon demand. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring such
Excess Shares and to hold such Excess Shares on behalf of the Company.
All certificates representing shares of beneficial interest shall bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5% as
provided in the rules and regulations promulgated under the Code) of the lesser
of the number or value of the outstanding shares of beneficial interest of the
Company must give a written notice to the Company by
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January 31 of each year. In addition, each shareholder will upon demand be
required to disclose to the Company in writing such information with respect to
the direct, indirect and constructive ownership of shares of beneficial interest
as the Board of Trustees deems reasonably necessary to comply with the
provisions of the Code applicable to a REIT, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
For the Company to qualify as a REIT under the Code, shares of beneficial
interest must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. Also, not more than 50% of the
value of the issued and outstanding shares of beneficial interest may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain tax-exempt entities) during the last half of a taxable year
(other than the first year) or during a proportionate part of a shorter taxable
year. Certain beneficial owners of the Zell Original Owners (i.e., beneficiaries
of trusts established for the benefit of Mr. Zell and his family and the family
of Mr. Robert Lurie, a deceased partner of Mr. Zell) and EPMC, together with the
Starwood Original Owners (through their potential ownership of shares of
beneficial interest) together constitute four individuals for purposes of this
test and, under the Service's rules applicable to determining percentages of
ownership, are deemed to own approximately 14% of the value of the outstanding
shares of beneficial interest of the Company.
These ownership limitations could have the effect of delaying, deferring or
preventing a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
DESCRIPTION OF OP UNITS
All of the Company's assets are held by or through, and all of its
operations are conducted by or through, the Operating Partnership. The Company
is the sole general partner of the Operating Partnership and, as of May 31,
1996, held approximately 82.86% of the outstanding OP Units. The material terms
of the OP Units, including a summary of certain provisions of the Partnership
Agreement, are set forth below. The following description of the terms and
provisions of the OP Units and the Partnership Agreement does not purport to be
complete and is subject to and qualified in its entirety by reference to
applicable provisions of Illinois law and the terms of the Partnership
Agreement. For a comparison of the voting and other rights of holders of OP
Units and holders of Common Shares, see "Exchange of OP Units--Comparison of
Ownership of OP Units and Common Shares."
GENERAL
Holders of OP Units (other than the Company in its capacity as general
partner) hold limited partnership interests in the Operating Partnership, and
all holders of OP Units (including the Company in its capacity as general
partner) are entitled to share in cash distributions from, and in the profits
and losses of, the Operating Partnership. Each OP Unit generally receives
distributions in the same amount as paid by the Company on each Common Share.
The OP Units are not registered pursuant to federal or state securities laws,
and they are not listed on the NYSE or any other exchange or quoted on any
national market system.
The Operating Partnership was formed as a limited partnership under the
Illinois Revised Uniform Limited Partnership Act (the "Partnership Act").
Holders of OP Units (other than the Company in its capacity as general partner)
have the rights to which Limited Partners are entitled under the Partnership
Agreement and the Partnership Act. The form of the Partnership Agreement is
included as an exhibit to the Registration Statement of which this Prospectus is
a part. The Partnership Agreement imposes certain restrictions on the transfer
of OP Units, as described below.
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership is, in general, to acquire,
purchase, own, operate, manage, develop, redevelop, invest in, finance,
refinance, sell, lease and otherwise deal with multifamily properties and assets
related thereto, and interests therein.
The Company, as general partner of the Operating Partnership, is the sole
manager of the business of the Operating Partnership and has the right to make
all decisions and take all actions with respect thereto. No Limited Partner may
take part in the conduct or control of the business or affairs of the Operating
Partnership by virtue of being a holder of OP Units.
The Company intends to make decisions in its capacity as general partner of
the Operating Partnership so as to maximize the profitability of the Company and
the Operating Partnership as a whole, independent of the tax effects on the
Limited Partners. Limited Partners have no right or authority to act for or to
bind the Operating Partnership.
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ENGAGING IN OTHER BUSINESSES; CONFLICTS OF INTEREST
The Company, as the general partner of the Operating Partnership, is
required to devote its full time and efforts to the conduct of the business of
the Operating Partnership and to conduct all of its activities with respect to
the multifamily property business exclusively through the Operating Partnership
or the other Subsidiaries and not conduct or engage in any other business.
Except as may otherwise be agreed to in writing, each Limited Partner, and its
affiliates, is free to engage in any business or activity, even if such business
or activity competes with or is enhanced by the business of the Operating
Partnership. Mr. Zell and certain of the other executive officers of the Company
have entered into noncompetition agreements with the Company. The Company, in
the exercise of its power and authority under the Partnership Agreement, may
contract and otherwise deal with or otherwise obligate the Operating Partnership
to entities in which the Company or any one or more of the officers, trustees or
shareholders of the Company may have an ownership or other financial interest,
whether direct or indirect.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides for the distribution of "Operating Cash
Flow" to the Company and the Limited Partners of the Operating Partnership in
proportion to their percentage interests in the Operating Partnership.
"Operating Cash Flow" is generally defined as cash receipts for the period in
question (excluding capital contributions and proceeds of sales, financing and
proceeds of insurance and condemnation and other items of "Capital Cash Flow" as
hereinafter described) in excess of Operating Partnership expenses (excluding
depreciation and other non-cash expenses) and cash needs, including debt
service, capital expenditures and any reserves (as determined by the Company and
which may include cash held for future acquisitions). The Partnership Agreement
provides that Operating Cash Flow will be distributed to partners of the
Operating Partnership not less frequently than annually in accordance with such
partners' respective percentage interest in the Operating Partnership. The
Partnership Agreement provides for the distribution of "Capital Cash Flow", not
less frequently than annually, to the Company and the Limited Partners in
proportion to their percentage interest in the Operating Partnership. "Capital
Cash Flow" includes proceeds from the sale of assets of the Operating
Partnership, gross financing or refinancing proceeds, gross condemnation or
insurance proceeds (excluding such proceeds to be applied to restoration) less
the sum of closing costs, the cost to discharge any partnership financing
encumbering or otherwise associated with the asset in question, the
establishment of reserves (as determined by the Company, and which may include
cash held for future acquisitions) and other expenses of the Operating
Partnership.
BORROWING BY THE OPERATING PARTNERSHIP
The Company is authorized to cause the Operating Partnership to borrow
money and finance and refinance the assets of the Operating Partnership.
REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS AFFILIATES
The Company, as a partner in the Operating Partnership, has the same right
to allocations and distributions as other partners of the Operating Partnership.
In addition, the Operating Partnership will reimburse the Company for all
expenses it incurs relating to its activities as general partner, its continued
existence and qualification as a REIT and all other liabilities incurred by the
Company in connection with the pursuit of its business and affairs (unless paid
by the Company in connection with the issuance of shares). The Company may
retain such persons or entities as it shall determine (including itself, any
entity in which the Company has an interest, or any entity with which it is
affiliated) to provide services to or on behalf of the Operating Partnership.
The Company is entitled to reimbursement from the Operating Partnership for its
out of pocket expenses (including, without limitation, amounts paid or payable
to the Company or any entity in which the Company has an interest or with which
it is affiliated) incurred in connection with Operating Partnership business.
Such expenses include those incurred in connection with the administration and
activities of the Operating Partnership, such as the maintenance of the
Operating Partnership books and records, management of the Operating Partnership
property and assets, and preparation of information respecting the Operating
Partnership provided to the partners in the preparation of their individual tax
returns.
LIABILITY OF THE COMPANY AND LIMITED PARTNERS
The Company, as general partner of the Operating Partnership, will be
liable for all general recourse obligations of the Operating Partnership to the
extent not paid by the Operating Partnership. The Company will not be liable for
the nonrecourse obligations of the Operating Partnership.
No partner of the Operating Partnership will be required to make additional
capital contributions to the Operating Partnership, except that the Company is
generally required to contribute net proceeds of the sale of shares of
beneficial interest
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of the Company to the Operating Partnership. No limited or general partner will
be required to pay to the Operating Partnership any deficit or negative balance
which may exist in his or its account. Assuming that a Limited Partner (in his
or its capacity as limited partner) does not take part in the control of the
business of the Operating Partnership, and otherwise acts in conformity with the
provisions of the Partnership Agreement, the liability of the Limited Partner
for obligations of the Operating Partnership under the Partnership Agreement and
the Partnership Act will generally be limited, subject to certain possible
exceptions, to the loss of the Limited Partner's investment in the Operating
Partnership represented by his or its OP Units. Under the Partnership Act, the
Operating Partnership may not make a distribution to a partner if, at the time
of the distribution, after giving effect thereto, the liabilities of the
Operating Partnership, other than liabilities to partners on account of their
partnership interest, exceed the fair value of the Operating Partnership's
assets, except that the fair value of any property subject to nonrecourse
liabilities of the Operating Partnership will be included in the assets of the
Operating Partnership to the extent that the fair value of such property exceeds
such liability. The Partnership Act provides that a Limited Partner who receives
a distribution in violation of the foregoing prohibition is liable to the
Operating Partnership for the amount of the distribution.
The Operating Partnership is qualified to conduct business in Illinois,
Arizona, Arkansas, California, Florida, Georgia, Idaho, Michigan, North
Carolina, Ohio, Oregon, South Carolina, Texas and Washington. Maintenance of
limited liability may require compliance with certain legal requirements of
those jurisdictions and certain other jurisdiction. Limitations on the liability
of a limited partner for the obligations of a limited partnership have not been
clearly established in many jurisdictions. Accordingly, if it were determined
that the exercise by the Limited Partners of any right granted to them, to make
certain amendments to the Partnership Agreement or to take other action pursuant
to the Partnership Agreement, constituted "control" of the Operating
Partnership's business for the purposes of the statutes of any relevant
jurisdiction, the Limited Partners might be held personally liable for the
Operating Partnership's obligations.
EXCULPATION AND INDEMNIFICATION OF THE COMPANY
The Partnership Agreement generally provides that the Company, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any Limited Partner for losses sustained or liabilities incurred
as a result of errors in judgment or for any mistakes of fact or law or for
anything which it may do or refrain from doing in connection with the business
and affairs of the Operating Partnership except in the case of fraud, willful
misconduct, or gross negligence or for other breaches of the Partnership
Agreement. With respect to liability arising from the Company's breach of the
Partnership Agreement, the Company's liability is limited to its interest in the
Operating Partnership. The Company has no liability for the loss of any Limited
Partner's capital. In addition, the Company is not responsible for any
misconduct, negligent acts or omissions of any consultant or contractor of the
Operating Partnership or of the Company and has no obligation other than to use
due care in the selection of all such contractors and consultants. The Company
may consult with counsel, accountants, appraisers, management consultants,
investment bankers and other consultants selected by it. An opinion by any
consultant on a matter which the Company believes to be within such consultant's
professional or expert competence is complete protection as to any action taken
or omitted by the Company based on such opinion and taken in good faith.
The Partnership Agreement also requires the Operating Partnership to indemnify
the Company, and the trustees and officers of the Company, against any loss or
damage, including reasonable legal fees and court costs incurred by such person
by reason of anything he or it may do or refrain from doing for or on behalf of
the Operating Partnership or in connection with its business or affairs;
provided, however, that the Operating Partnership is not required to indemnify
the Company for any loss or damage resulting from the Company's fraud, willful
misconduct or gross negligence in the performance of its duties and provided,
further, that the indemnification does not relieve the Company, as a general
partner, of its proportionate share of the obligations of the Operating
Partnership. The Operating Partnership will reimburse the Company for out-of-
pocket expenses incurred in connection with partnership business. In addition,
the Company is entitled to reimbursement by the Operating Partnership for any
amounts paid by it in satisfaction of indemnification obligations owed by the
Company to present or former trustees or directors of the Company or its
predecessors. Any such indemnification claims must be satisfied solely out of
the assets of the Operating Partnership.
SALES OF ASSETS
Under the Partnership Agreement, the Company has the exclusive authority to
determine whether, when and on what terms the assets of the Operating
Partnership (including the Properties) will be sold.
TRANSFER OF THE COMPANY'S INTEREST
The Company may not transfer its interest in the Operating Partnership except
by operation of law.
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<PAGE>
RESTRICTIONS ON TRANSFER OF OP UNITS BY LIMITED PARTNERS
The Partnership Agreement provides that no Limited Partner shall, without the
prior written consent of the Company (which may be withheld in the sole
discretion of the Company), sell, assign, distribute or otherwise transfer all
or any part of his or its interest in the Operating Partnership except by
operation of law, gift (outright or in trust) or by sale, in each case to or for
the benefit of his spouse or descendants, except for pledges or other collateral
transfers effected by a Limited Partner to secure the repayment of a loan, the
exchange of OP Units for Common Shares in accordance with the Partnership
Agreement, and the distribution of OP Units by a Limited Partner to any of its
partners in compliance with any lock-up restrictions and/or applicable
securities laws.
An assignee, legatee, distributes or other transferee ("Transferee") of all or
any portion of a partner's interest in the Operating Partnership shall be
entitled to receive profits, losses and distributions under the Partnership
Agreement attributable to such interest, from and after the effective date of
the transfer of such interest; provided, however, (i) no transfer by a Limited
Partner shall be effective until such transfer has been consented to by the
Company, (ii) no Transferee shall be considered a substituted Limited Partner,
and (iii) the Operating Partnership and the Company shall be entitled to treat
the transferor of such interest as the absolute owner thereof in all respects,
and shall incur no liability for the allocation of profits, losses or
distributions which are made to such transferor until such time as the written
instrument of transfer has been received by the Company and the effective date
of the transfer is passed. The Company shall have the right to require any such
transferor to exchange the OP Units to which such interest relates into Common
Shares pursuant to the Partnership Agreement. The "effective date" of any
transfer shall be the last day of the month set forth on the written instrument
of transfer or such other date consented to in writing by the Company as the
"effective date." Notwithstanding the foregoing, (x) in the event a Limited
Partner dissolves and liquidates, the partners receiving any portion of the
Limited Partner's interest in the Operating Partnership will become substitute
Limited Partners and shall succeed to the rights and obligations of such Limited
Partner in the Operating Partnership in proportion to their respective interests
in the dissolving or liquidating Limited Partner and (y) no transfer shall be
effective to the extent it would, by treating the OP Units so transferred as if
they had been exchanged for Common Shares, violate the limitations on ownership
set forth in the Declaration of Trust in order to protect and preserve the
Company's status as a REIT. See "Description of Shares of Beneficial Interest--
Restrictions on Transfer."
EXCHANGE OF OP UNITS
Subject to certain limitations of the Partnership Agreement and applicable
registration rights agreements, holders of OP Units other than the Company have
the right to request an exchange of any or all of such OP Units for Common
Shares, with one OP Unit being exchangeable for one Common Share, by notifying
the Company at least 10 days prior to the date of exchange. Upon receipt of such
a request, the Company may, in its discretion, in lieu of issuing Common Shares,
cause the Operating Partnership to pay to such Limited Partner cash in an amount
equal to the product arrived at by multiplying (i) the number of OP Units
requested to be exchanged by such Limited Partner, multiplied by (ii) the market
price per share of the Common Shares as determined in accordance with the
Partnership Agreement (generally the ten-day average of the last reported sale
price per share of the Common Shares at the close of trading). The Company will
at all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the exchange of OP Units for
Common Shares, a sufficient number of shares as shall from time to time be
sufficient for the conversion of all outstanding OP Units not owned by the
Company. No Limited Partner, by virtue of being the holder of one or more OP
Units, will be deemed to be a shareholder of or have any other interests in the
Company. In the event of any change in the outstanding shares by reason of any
share dividend, split, recapitalization, merger, consolidation, combination,
exchange of shares or other similar change, the number of OP Units held by each
partner shall be proportionately adjusted so that one OP Unit remains
exchangeable for one share without dilution. A Limited Partner shall not have
the right to request an exchange of OP Units for Common Shares if (i) in the
opinion of counsel for the Company, the Company would, as a result thereof, no
longer qualify (or it would be likely that the Company no longer would qualify)
as a REIT under the Code; or (ii) such exchange would, in the opinion of counsel
for the Company, constitute or be likely to constitute a violation of applicable
securities laws.
NO WITHDRAWAL BY LIMITED PARTNERS
No Limited Partner has the right to withdraw from or reduce his or its capital
contribution to the Operating Partnership, except as a result of the transfer of
OP Units in accordance with the Partnership Agreement.
ISSUANCE OF ADDITIONAL OP UNITS AND/OR PREFERENCE UNITS
The Company is authorized at any time, without the consent of the Limited
Partners, to cause the Operating Partnership to issue additional OP Units to (i)
existing or newly admitted partners (including itself) in exchange for
additional capital
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<PAGE>
contributions by a partner ("Capital Contributions") to the Operating
Partnership, (ii) the Company in connection with the issuance by the Company of
additional Common Shares in exchange for OP Units as provided in the Partnership
Agreement or (iii) to the Company upon the issuance by the Company of additional
Common Shares not in connection with the exchange of OP Units as provided in the
Partnership Agreement, provided that any net proceeds received by the Company as
a result of the issuance of additional shares are contributed to the Operating
Partnership as additional Capital Contributions in accordance with the
Partnership Agreement (except that the Company may issue Common Shares in
connection with the Option and Award Plan, restricted share plans or other
employee benefits plans without receiving any proceeds and that the issuance of
such shares shall nonetheless entitle the Company to additional OP Units). Upon
the issuance of additional OP Units, the percentage interest of all the partners
in the Operating Partnership would be diluted so that the percentage interest of
each partner will equal the quotient (expressed as a percentage) arrived at by
dividing the number of OP Units held by a partner by the total number of OP
Units then outstanding. In addition, the Partnership Agreement provides that the
Operating Partnership may also issue preferred units ("Preference Units") having
such rights, preferences and other privileges, variations and designations as
may be determined by the Company. Any such Preference Units may have terms,
provisions and rights which are preferential to the terms, provisions and rights
of the OP Units.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Each Limited Partner, by execution of the Partnership Agreement, irrevocably
appoints the Chairman of the Board of Trustees of the Company, with power of
substitution, as his or its true and lawful attorney coupled with an interest,
in his or its name, place and stead to amend the Partnership Agreement in any
respect other than: (i) to enlarge the obligation of any partner to make
contributions to the capital of the Operating Partnership, (ii) except as
otherwise provided for in the Partnership Agreement or as required by law, to
modify the allocation of profits or losses or distributions among the partners
as provided for in the Partnership Agreement, or (iii) to amend certain
provisions of the Partnership Agreement dealing with issuance and conversion of
OP Units, limitations on the power and authority of partners, transfer of
partnership interests or amendments to the Partnership Agreement. With respect
to matters related to the aforementioned exceptions, the Partnership Agreement
may be amended by the consent of each of the Original Owners, so long as such
Original Owners remain Limited Partners, and the consent of those Limited
Partners holding not less than 67% of the aggregate of Percentage Interests held
by all Limited Partners.
BOOKS AND REPORTS
The Operating Partnership's books and records are maintained at the principal
office of the Operating Partnership which is located at Two North Riverside
Plaza, Suite 450, Chicago, Illinois 60606. All elections and options available
to the Operating Partnership for federal or state income tax purposes may be
taken or rejected by the Operating Partnership in the sole discretion of the
Company.
POWER OF ATTORNEY
Pursuant to the Partnership Agreement, each Limited Partner appoints the
Chairman of the Board of Trustees of the Company with full power of
substitution, his or its true and lawful attorney to sign, swear to,
acknowledge, file and record, among other things, the Partnership Agreement (and
amendments thereto as described above under "Description of OP Units--Amendment
of the Partnership Agreement"), any certificates or instruments required by or
appropriate in connection with the Operating Partnership's conduct of business,
or to effect the contribution of properties of the Operating Partnership or the
admission of partners. The Partnership Agreement provides that such power of
attorney is irrevocable, will survive the incapacity of any Limited Partner or
the transfer of any of such Limited Partner's OP Units and will extend to such
Limited Partner's or assignee's heirs, successors, assigns and personal
representatives.
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will be dissolved and its affairs wound up upon the
earliest of (i) December 31, 2080; (ii) the agreement of partners holding at
least ninety percent (90%) of the percentage interests of all of the partners
that the Operating Partnership should be dissolved; or (iii) the entry of a
final judgment, order or decree of a court of competent jurisdiction
adjudicating as bankrupt either the Operating Partnership or the Company, and
the expiration without appeal of the period, if any, allowed by applicable law
to appeal therefrom. Any proceeds from liquidation of the Operating Partnership
shall be applied in the following order of priority: (a) to pay debts of the
Operating Partnership, including repayment of principal and interest on loans
and advances made by the Company; (b) to the establishment of any reserves
deemed necessary or appropriate by the Company, or by the person winding up the
affairs of the Operating Partnership in the event there is no remaining general
partner of the Operating Partnership, for any contingent or unforeseen
liabilities or obligations of the Operating Partnership; and then (c) to the
partners of the Operating Partnership in accordance with their respective
capital account balances, after giving
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<PAGE>
effect to all contributions, distributions and allocation for all periods. The
Operating Partnership shall be terminated when all notes received in connection
with such disposition have been paid and all of the cash or property available
for application and distribution under the Partnership Agreement have been
applied and distributed in accordance with the Partnership Agreement.
SHARES AVAILABLE FOR FUTURE SALE
As of May 31, 1996, the Company had outstanding 43,223,307 Common Shares,
all of which are tradable without restriction under the Securities Act. The
608,665 Exchange Shares to be issued upon exchange of the OP Units pursuant to
this Prospectus and any applicable Prospectus Supplement will be tradable
without restriction under the Securities Act pursuant to the Registration
Statement of which this Prospectus is a part. In addition, as of May 31, 1996,
8,940,036 Common Shares were issuable upon the exchange of OP Units currently
held by the holders of OP Units or holders who were issued OP Units in exchange
for certain of the Properties, all of which Common Shares currently would be or
may be, upon the exercise of registration rights, tradable without restriction
under the Securities Act.
The holders of Exchange Shares may also be able to sell their shares without
registration in accordance with the exemptions provided by Rule 144 under the
Securities Act. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated in accordance with the Rule) who has
beneficially owned his shares for at least two years, as well as any persons who
may be deemed "affiliates" of the Company (as defined in the Securities Act),
would be entitled to sell within any three month period a number of Common
Shares that does not exceed the greater of 1% of the then outstanding number of
shares or the average weekly trading volume of the shares during the four
calendar weeks preceding each such sale. After shares are held for three years,
a person who is not deemed an "affiliate" of the Company is entitled to sell
such shares under Rule 144 without regard to the volume limitations described
above. Sales of shares by affiliates will continue to be subject to the volume
limitations. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly, through the use of one or more intermediaries,
controls, or is controlled by, or is under common control with, such issuer.
The Company has adopted the Option and Award Plan for the purpose of
attracting and retaining officers, other key employees and directors. The
Company has reserved 3,600,000 Common Shares for future issuance under the
Option and Award Plan. The Company has granted options to purchase approximately
2,500,000 Common Shares to certain officers, trustees and employees of the
Company and consultants to the Company. The Company has also adopted its 1996
Non-Qualified Employee Share Purchase Plan (the "Employee Share Purchase Plan")
and pursuant thereto has reserved 1,000,000 Common Shares for future issuance
under such plan. As of June 26, 1996, the Company has not issued any Common
Shares under the Employee Share Purchase Plan. The Company has filed Form S-8
Registration Statements with respect to the Common Shares issuable under each of
the Option and Award Plan and the Employee Share Purchase Plan, which Common
Shares may be resold without restriction, unless held by affiliates.
No prediction can be made as to the effect, if any, that future sales of
Common Shares, or the availability of shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Shares (including Common Shares issued upon the exercise of Options), or
the perception that such sales could occur, could adversely affect prevailing
market price of the shares.
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this Prospectus is a
part pursuant to its obligations under the terms of the Registration Rights
Agreement among the Company, the Operating Partnership and each of the Beauchamp
Investors, as defined therein. The following summary does not purport to be
complete and is qualified in its entirety by reference to the Registration
Rights Agreement.
Under the Registration Rights Agreement, the Company is obligated to (a) use
its best efforts to cause a registration statement filed pursuant to request as
provided in the Registration Rights Agreement to become effective, and (b) to
file such amendments, post-effective amendments and supplements to such
registration statement as may be necessary to keep such registration statement
continuously effective for the period required by the intended method of
disposition or to describe the terms of any offering made pursuant to a "shelf
registration" pursuant to Rule 415 of Regulation C promulgated under the
Securities Act. The Company is registering the Exchange Shares pursuant to such
a shelf registration. Any Exchange Shares or Common Shares sold to the public
pursuant to this offering or another offering registered under the Securities
Act or sold to the public in compliance with Rule 144 under the Securities Act
(or any similar rule then in force) will cease to be "Registrable Securities"
within the meaning of the Registration Rights Agreement.
The Beauchamp Investors have agreed to pay all reasonable expenses of the
Company incident to its performance and compliance under the Registration Rights
Agreement, including all legal fees of the Company, registration expenses, and
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<PAGE>
qualification and filing fees associated with the registration of the Exchange
Shares but excluding compensation of employees of the Company or expenses
incurred in connection with documents incorporated herein by reference. The
Company also has agreed to indemnify the Selling Shareholders and their
respective partners, officers and directors and each person who controls (within
the meaning of the Securities Act) each of the Selling Shareholders against
certain losses, claims, damages and expenses arising under the securities laws
in connection with this offering. Each Selling Shareholder has agreed to
indemnify the Company, its trustees, shareholders and officers and each person
who controls (within the meaning of the Securities Act) the Company against
other losses, claims, damages and expense arising under the securities laws in
connection with this offering with respect to written information furnished to
the Company by such Selling Shareholder, provided, however, that the
indemnification obligation is individual to each Selling Shareholder and is
limited to the net amount of proceeds from the sale of such Selling
Shareholder's Exchange Shares.
SELLING SHAREHOLDERS
As described elsewhere herein, the "Selling Shareholders" are holders of OP
Units that were issued such OP Units in exchange for the contribution of certain
Properties to the Company. The following table provides the names of each
Selling Shareholder and, as of the date hereof, the number of Common Shares to
be owned upon exchange of OP Units by each Selling Shareholder, which is equal
to the maximum number of Exchange Shares to be sold in the offering:
<TABLE>
<CAPTION>
MAXIMUM NUMBER
OF COMMON SHARES TO
BE SOLD IN
NAME OF SELLING SHAREHOLDER THE OFFERING (1)(2)
- --------------------------------------- -------------------
<S> <C>
James B. Beauchamp...................... 34,331
Robert F. Beauchamp, Sr., Trustee of
the Beauchamp Trust.................... 294,765
Midlands Company(3)..................... 170,811
Real American Properties(4)............. 23,524
Allayn J. Stevens....................... 40,487
Timothy S. Wagner, Trustee of the
Timothy S. Wagner Revocable Trust...... 44,747
-------
Total............................... 608,665
=======
</TABLE>
-----------------
(1) Assuming the exchange of all OP Units held by each Selling Shareholder,
the number of Common Shares set forth in this column is also the number
of Common Shares owned by each Selling Shareholder prior to the offering.
Each Selling Shareholder has claimed sole voting and investment power
concerning their Exchange Shares.
(2) There is no assurance that the Selling Shareholders will sell any or all
of the Exchange Shares. If all of the Exchange Shares are sold, however,
none of the Selling Shareholders would own any securities of the Company
after completion of the offering.
(3) The beneficial owners of Midlands Company, a California corporation, are
as follows: Robert Beauchamp, Jr. (20%), Dorothy Riechers (20%), David T.
and Tracy Beauchamp, husband and wife (20%), Beverly and John Grimstad,
husband and wife (20%), Richard Lee Beauchamp Trust, an irrevocable trust
(5%), David Charles Beauchamp Trust, an irrevocable trust (5%), Stacy
Lynn Beauchamp Trust, an irrevocable trust (5%), and Christy Ann
Beauchamp Trust, an irrevocable trust (5%).
(4) Real American Properties is a public limited partnership that is
controlled by its general partner, National Partnerships Investments
Corp.
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<PAGE>
EXCHANGE OF OP UNITS
GENERAL
Each Limited Partner may, subject to certain limitations, transfer to the
Company all or a portion of his or its OP Units at any time, by delivering a
notice to the Company. In exchange, such Limited Partner may receive one Common
Share from the Company for each OP Unit so transferred. In the alternative,
such Limited Partner may, at the Company's option, receive cash in an amount
equal to the product arrived at by multiplying (i) the number of OP Units
requested to be exchanged by such Limited Partner, by (ii) the market price per
share of the Common Shares as determined in accordance with the Partnership
Agreement (generally the ten-day average of the last reported sale price per
share of the Common Shares at the close of trading).
Such an exchange will be treated as a sale of the OP Units to the Company
for federal income tax purposes. See "Exchange of OP Units--Tax Consequences of
Exchange." Upon exchange, such Limited Partner's right to receive distributions
with respect to the OP Units exchanged will cease, although the Limited Partner
will have rights as a shareholder of the Company from the time of his or its
acquisition of the Exchange Shares.
A Limited Partner must give the Company ten days' prior notice of his or
its desire to exchange OP Units by sending a written notice, a copy of which is
available from the Company. Unless the Company determines to pay such Limited
Partner cash, the exchange of OP Units for Common Shares generally will occur on
the tenth business day after the notice is delivered by the Limited Partner,
except that no exchange can occur if the delivery of Exchange Shares would be
prohibited under the provisions of the Declaration of Trust designed to protect
the Company's qualification as a REIT or such exchange would, in the opinion of
counsel to the Company, constitute or be likely to constitute a violation of
applicable securities laws.
TAX CONSEQUENCES OF EXCHANGE
The following discussion summarizes all material federal income tax
considerations to a Limited Partner which exercises its right to request the
exchange of OP Units. THIS DISCUSSION IS SUMMARY IN NATURE AND DOES NOT
CONSTITUTE A COMPLETE DISCUSSION OF THESE MATTERS, AND HOLDERS OF OP UNITS
SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS, THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND ANY APPLICABLE PROSPECTUS
SUPPLEMENT FOR ADDITIONAL IMPORTANT INFORMATION ABOUT THE COMPANY.
Tax Treatment of Exchange of OP Units. If the Company satisfies a Limited
Partner's exercise of its Exchange Right (as defined below) by delivering Common
Shares, such exchange will be treated by the Company, the Operating Partnership
and the exchanging Limited Partner for federal income tax purposes as a sale of
OP Units by such Limited Partner to the Company at the time of such exchange. (A
Limited Partner's right to request the exchange of OP Units is referred to as
the "Exchange Right."). Such an exchange will be fully taxable to the exchanging
Limited Partner. The amount of taxable gain or loss to an exchanging Limited
Partner will equal the difference between the amount realized for tax purposes
and the tax basis in the OP Units exchanged. See "Basis of OP Units" below. Such
exchanging Limited Partner will be treated as realizing an amount equal to the
value of the Common Shares received in the exchange plus the amount of any
Operating Partnership liabilities allocable to the exchanged OP Units at the
time of the exchange. It is possible that the amount of gain recognized or even
the tax liability resulting from such gain could exceed the value of any Common
Shares received upon such an exchange.
If the Company elects not to satisfy the exercise of an Exchange Right by a
Limited Partner by delivering Common Shares, but instead causes the Operating
Partnership to transfer to the Limited Partner, in exchange for its OP Units,
either cash or Common Shares contributed by the Company for that purpose, then
although the matter is not free from doubt, the transaction would likely be
treated for federal income tax purposes as a sale of such OP Units to the
Company in a fully taxable transaction (with the consequences to the Limited
Partner as described in the preceding paragraph). In that event, the exchanging
Limited Partner would be treated as realizing an amount equal to the sum of the
cash or the value of the Common Shares received in the exchange plus the amount
of any Operating Partnership liabilities allocable to the exchanged OP Units at
the time of the transaction.
If the Operating Partnership satisfies a Limited Partner's Exchange Right
using cash that is not contributed by the Company to effect the exchange, the
tax consequences to the Limited Partner would generally be the same as for a
taxable sale as described in the preceding two paragraphs. If, however, the
Operating Partnership redeems less than all of a Limited Partner's OP Units, the
Limited Partner would not be permitted to recognize any loss on the transaction
and would recognize taxable gain only to the extent that the cash received in
the exchange, plus the amount of any Operating Partnership liabilities allocable
to the OP Units exchanged, exceeded the Limited Partner's basis in all of such
Limited Partner's OP Units immediately before the exchange.
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<PAGE>
Except as described below, any gain recognized upon a sale or other
disposition of OP Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of an OP Unit attributable to a Limited Partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section 751
of the Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, among other things,
amounts that would be subject to depreciation recapture as ordinary income if
the Operating Partnership had sold its assets at their fair market value at the
time of the transfer of an OP Unit (including the recapture of any depreciation
on real property held for one year or less).
Basis of OP Units. In general, a Limited Partner which contributed a
partnership interest or other property in exchange for its OP Units (the
"Initial Transactions") has an initial tax basis in its OP Units equal to its
basis in the contributed partnership interest or other property ("Initial
Basis"). A Limited Partner's Initial Basis in its OP Units generally is
increased by (i) such Limited Partner's share of the Operating Partnership's
taxable income and (ii) increases in its share of liabilities of the Operating
Partnership (including any increase in its share of liabilities occurring in
connection with the Initial Transactions). Generally, such Limited Partner's
basis in its OP Units is decreased (but not below zero) by (A) its share of
Operating Partnership distributions, (B) decreases in its share of liabilities
of the Operating Partnership (including any decrease in its share of liabilities
of the Operating Partnership occurring in connection with the Initial
Transactions), (C) its share of losses of the Operating Partnership, and (D) its
share of nondeductible expenditures of the Operating Partnership that are not
chargeable to capital.
Potential Application of the Disguised Sale Regulations to an Exchange of
OP Units. There is a risk that an exchange of OP Units issued in the Initial
Transactions may cause the original transfer of property to the Operating
Partnership in exchange for OP Units in connection with the Initial Transactions
to be treated as a "disguised sale" of property as of the time of the Initial
Transactions. The Code and the Treasury Regulations thereunder (the "Disguised
Sale Regulations") generally provide that, unless one of the prescribed
exceptions is applicable, a partner's contribution of property to a partnership
and a simultaneous or subsequent transfer of money or other consideration
(including the assumption of or taking subject to a liability) from the
partnership to the partner will be presumed to be a sale, in whole or in part,
of such property by the partner to the partnership or to another partner (such
as the Company). Further, the Disguised Sale Regulations provide generally that,
in the absence of an applicable exception, if money or other consideration is
transferred by a partnership to a partner within two years of the partner's
contribution of property, the transactions are presumed to be a sale of the
contributed property unless the facts and circumstances clearly establish that
the transfers do not constitute a sale. The Disguised Sale Regulations also
provide that if two years have passed between the transfer of money or other
consideration and the contribution of property, the transactions are presumed
not to be a sale unless the facts and circumstances clearly establish that the
transfers constitute a sale.
Accordingly, if an OP Unit is exchanged within two years following the
Initial Transactions, the Service could contend that the Disguised Sale
Regulations apply because, as a result of the exchange, a Limited Partner
receives Common Shares subsequent to the Limited Partner's previous contribution
of property to the Operating Partnership. In that event, the Service could
contend that the Initial Transactions themselves were taxable, in whole or in
part, as a disguised sale under the Disguised Sale Regulations. Any gain
recognized thereby may be eligible for installment sale reporting under Section
453 of the Code, subject to certain limitations.
COMPARISON OF OWNERSHIP OF OP UNITS AND COMMON SHARES
Generally, the nature of any investment in Common Shares of the Company is
substantially equivalent economically to an investment in OP Units in the
Operating Partnership. A holder of Common Shares receives the same distribution
that a holder of OP Units receives and shareholders and OP Unit holders
generally share in the risks and rewards of ownership in the enterprise being
conducted by the Company (through the Operating Partnership). However, there are
some differences between ownership of OP Units and ownership of Common Shares,
some of which may be material to investors.
The information below highlights a number of the significant differences
between the Operating Partnership and the Company relating to, among other
things, form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees, investor rights and federal income
taxation, and compares certain legal rights associated with the ownership of OP
Units and Common Shares, respectively. These comparisons are intended to assist
Limited Partners in understanding how their investment will be changed if their
OP Units are exchanged for Common Shares. THIS DISCUSSION IS SUMMARY IN NATURE
AND DOES NOT CONSTITUTE A COMPLETE DISCUSSION OF THESE MATTERS, AND HOLDERS OF
OP UNITS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS, THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND ANY APPLICABLE
PROSPECTUS SUPPLEMENT FOR ADDITIONAL IMPORTANT INFORMATION ABOUT THE COMPANY.
Form of Organization and Assets Owned. The Operating Partnership. The
Operating Partnership is organized as an Illinois limited partnership. The
Operating Partnership owns interests (directly and through subsidiary
partnerships) in the Properties and, as general partner of the Management
Partnerships, controls the management of the Properties.
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<PAGE>
The Company. The Company is a Maryland real estate investment trust. The
Company has elected to be taxed as a REIT under the Code commencing with its
taxable year ended December 31, 1993, and intends to maintain its qualification
as a REIT. The Company's primary asset is its interest in the Operating
Partnership, which gives the Company an indirect investment in the Properties
and other assets owned by the Operating Partnership.
Length of Investment. The Operating Partnership. The Operating
Partnership has a stated termination date of December 31, 2080, although it may
be terminated earlier under certain circumstances.
The Company. The Company has a perpetual term and intends to continue its
operations for an indefinite time period.
Purpose and Permitted Investments. The Operating Partnership. The purpose
of the Operating Partnership is to acquire, purchase, own, operate, manage,
develop, redevelop, invest in, finance, refinance, sell, lease or otherwise deal
with multifamily residential properties and assets related thereto and interests
therein. The Operating Partnership may invest in or enter into partnerships,
joint ventures or similar arrangements and may own interests in any other
entity.
The Company. The Company's fundamental investment policy, as set forth in
its Declaration of Trust, is to make investments in such manner as to comply
with the REIT provisions of the Code and with the provisions of Maryland REIT
law. Under the Partnership Agreement the Company, as general partner, may not
conduct any business other than the business of the Operating Partnership and
generally cannot own any assets other than its interest in the Operating
Partnership and other assets necessary to carry out its responsibilities under
the Partnership Agreement.
Additional Equity. The Operating Partnership. The Operating Partnership
is authorized to issue OP Units to the partners or to other persons for such
consideration and on such terms and conditions set forth in the Partnership
Agreement. In addition, the general partner may cause the Operating Partnership
to issue to the Company additional OP Units in conjunction with the offering of
Common Shares of the Company, in which the net proceeds thereof are contributed
to the Operating Partnership. Also, the Operating Partnership may issue
preference units, having such rights, preferences and other privileges,
variations and designations as may be determined by the general partner in its
sole and absolute discretion and otherwise in accordance with the Partnership
Agreement. Consideration for additional partnership interests may be cash or
other property or other assets permitted by the Partnership Agreement and the
Partnership Act.
The Company. The Board of Trustees of the Company may issue, in its sole
discretion, additional equity securities consisting of Common Shares or
Preferred Shares; provided, that the total number of shares issued does not
exceed the authorized number of shares of beneficial interest set forth in the
Company's Declaration of Trust. As long as the Operating Partnership is in
existence, the net proceeds of all Common Shares raised by the Company will be
contributed to the Operating Partnership in exchange for OP Units in the
Operating Partnership.
Borrowing Policies. The Operating Partnership. The Operating Partnership
is restricted under the Indentures to which it is a party from incurring
borrowings beyond a certain level and the Company as general partner has full
power and authority to borrow money on behalf of the Operating Partnership
within said restrictions. In addition, the Operating Partnership may become
subject to certain restrictions in connection with its currently registered debt
shelf offering. The Company (as general partner), through its Board of
Trustees, has adopted a policy that currently limits total borrowings to 50% of
the total market capitalization of the Company and the Operating Partnership
(the market value of issued and outstanding Common Shares and OP Units plus
total debt), but this policy may be altered at any time by the Board of
Trustees.
The Company. The Company is restricted under the Indentures from incurring
borrowings beyond a certain level but is not otherwise subject to any
restrictions as to borrowings except as described in the preceding sentence.
Other Investment Restrictions. The Operating Partnership. There are no
restrictions upon the Operating Partnership's authority to enter into
transactions such as making investments (except as restricted by Code and the
regulations related to qualifying as a REIT), lending Operating Partnership
funds, or reinvesting the Operating Partnership's cash flow and net sale or
refinancing proceeds.
The Company. Neither the Company's Declaration of Trust nor its bylaws
impose any restrictions upon the types of investments made by the Company except
that under the Declaration of Trust the Board of Trustees is obligated to use
its best efforts to cause the Company to qualify for federal income tax purposes
as a REIT; provided, however, that if the Board of Trustees determines that it
is no longer in the best interests of the Company for it to continue to qualify
as a REIT, the Board may revoke or otherwise terminate the Company's REIT
election.
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Management Control. The Operating Partnership. All management powers over
the business and affairs of the Operating Partnership are vested in the general
partner of the Operating Partnership, and no Limited Partner of the Operating
Partnership has any right to participate in or exercise control or management
power over the business and affairs of the Operating Partnership. Each Limited
Partner, by execution of the Partnership Agreement, irrevocably appointed the
Chairman of the Board of Trustees of the Company, with full power of
substitution, as the Limited Partner's attorney for purposes of amending the
Partnership Agreement in any respect other than (i) to enlarge the obligation of
any partner to make contributions to the capital of the Operating Partnership,
(ii) except as otherwise provided for in the Partnership Agreement or as
required by law, to modify the allocation of profits or losses or distributions
among the partners as provided for in the Partnership Agreement, or (iii) to
amend certain provisions of the Partnership Agreement dealing with issuance and
conversion of OP Units, limitations on the power and authority of partners,
transfer of partnership interests or amendments to the Partnership Agreement.
With respect to matters related to the aforementioned exceptions, the
Partnership Agreement may be amended by unanimous written consent of the
partners.
The Company. All management powers over the business and affairs of the
Company are vested in the Board of Trustees of the Company. Shareholders of the
Company are entitled to vote for, among other things, the election of trustees.
See "Description of Shares of Beneficial Interest--Common Shares."
Anti-takeover Provisions. The Operating Partnership. Except in limited
circumstances, the general partner of the Operating Partnership has exclusive
management power over the business and affairs of the Operating Partnership.
The general partner may not be removed by the Limited Partners regardless of
cause. Under the Partnership Agreement, the general partner may, in its sole
discretion, prevent a Limited Partner from transferring his or its interest or
any rights as a Limited Partner except in certain limited circumstances. See
"Description of OP Units." The general partner may exercise this right of
approval to deter, delay or hamper attempts by persons to acquire a controlling
interest in the Operating Partnership.
The Company. The Declaration of Trust and Bylaws of the Company contain a
number of provisions that may have the effect of delaying or discouraging an
unsolicited proposal for the acquisition of the Company or the removal of
incumbent management. These provisions include, among others: (i) a staggered
board of trustees; (ii) authorized capital stock that may be issued as Preferred
Shares in the discretion of the board of trustees with superior voting rights to
the Common Shares; and (iii) provisions designed to avoid concentration of share
ownership in a manner that would jeopardize the Company's status as a REIT under
the Code. See "Description of Shares of Beneficial Interest."
Voting Rights. The Operating Partnership. Under the Partnership Agreement,
the Limited Partners have voting rights only as to certain amendments of the
Partnership Agreement, as described more fully under "Exchange of OP Units-
Management Control" above. Otherwise, all decisions relating to the operation
and management of the Operating Partnership are made by the Company, as the sole
general partner of the Operating Partnership. See "Description of OP Units." As
of May 31, 1996, the Company held approximately 82.86% of the outstanding OP
Units. As OP Units are exchanged by Limited Partners, the Company's percentage
ownership of the Operating Partnership will increase. If additional OP Units or
other interests in the Operating Partnership are issued to third parties, the
Company's percentage ownership of the outstanding OP Units will decrease.
The Company. Shareholders of the Company have the right to vote on, among
other things, a merger or sale of substantially all of the assets of the
Company, certain amendments to the Declaration of Trust and dissolution of the
Company. Such action must be taken by not less than two-thirds of all shares
then outstanding and entitled to vote on the matter. The Company is managed and
controlled by a Board of Trustees consisting of three classes having staggered
terms of office. Each class is to be elected by the shareholders at annual
meetings of the Company. All Common Shares have one vote, and the Declaration
of Trust permits the Board of Trustees to classify and issue Preferred Shares in
one or more series having voting power which may differ from that of the Common
Shares.
Amendment of the Partnership Agreement or the Declaration of Trust. The
Operating Partnership. Certain amendments that affect the fundamental rights of
a Limited Partner must be approved by each affected Limited Partner. See
"Exchange of OP Units-Management Control." In addition, the Company, as the sole
general partner, may, without the consent of the Limited Partners, amend the
Partnership Agreement as to certain matters.
The Company. Amendments to the Company's Declaration of Trust must be
approved by the Board of Trustees and, except for amendments to enable the
Company to quality as a REIT under the Code or under Maryland REIT law (in which
event the Board may amend by two-thirds vote), by the vote of not less than two-
thirds of all shares then outstanding and entitled to vote on the matter. Under
Maryland REIT law, the Board of Trustees must obtain approval of holders of not
less than two-thirds of all shares then outstanding and entitled to vote on the
matter in order to voluntarily dissolve the Company or merge. Under Maryland
REIT law, and pursuant to the Company's Declaration of Trust, the sale of all or
substantially all of the assets of
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the Company or any merger or consolidation of the Company requires the approval
of the Board of Trustees and holders of not less than two-thirds of all shares
then outstanding and entitled to vote on the matter. No approval of the
shareholders is required for the sale of less than all or substantially all of
the Company's assets.
Compensation, Fees and Distributions. The Operating Partnership. The
Company does not receive any compensation for its services as general partner of
the Operating Partnership. As a partner in the Operating Partnership, however,
the Company has the same right to allocations and distributions as other
partners of the Operating Partnership. In addition, the Operating Partnership
will reimburse the Company for all expenses incurred relating to the ongoing
operation of the Company and any offering of partnership interests in the
Operating Partnership or shares of beneficial interest of the Company.
The Company. The trustees and officers of the Company receive compensation
for their services.
Liability of Investors. The Operating Partnership. Under the Partnership
Agreement and applicable state law, the liability of the Limited Partners for
the Operating Partnership's debts and obligations is generally limited to the
amount of their investment in the Operating Partnership.
The Company. Under Maryland law, shareholders are not personally liable
for the debts or obligations of the Company.
Nature of Investment. The Operating Partnership. The OP Units constitute
equity interests entitling each Limited Partner to his or its pro rata share of
cash distributions made to the Limited Partners of the Operating Partnership.
The Operating Partnership generally intends to retain and reinvest proceeds of
the sale of property or excess refinancing proceeds in its business.
The Company. The Common Shares constitute equity interests in the Company.
The Company is entitled to receive its pro rata share of distributions made by
the Operating Partnership with respect to the OP Units, and each shareholder
will be entitled to his or its pro rata share of any distributions paid with
respect to the Common Shares. The distributions payable to the shareholders are
not fixed in amount and are only paid if, when and as declared by the Board of
Trustees. In order to qualify as a REIT, the Company must distribute at least
95% of its taxable income (excluding capital gains), and any taxable income
(including capital gains) not distributed will be subject to corporate income
tax.
Potential Dilution of Rights. The Operating Partnership. The general
partner of the Operating Partnership is authorized, in its sole discretion and
without Limited Partner approval, to cause the Operating Partnership to issue
additional OP Units or other limited partnership interests in the Operating
Partnership for any partnership purpose at any time to the Limited Partners or
to other persons on terms established by the general partner within the
boundaries established by the Partnership Agreement.
The Company. The Board of Trustees of the Company may issue, in its
discretion, additional Common Shares and has the authority to issue from the
authorized shares of beneficial interest a variety of other equity securities of
the Company with such powers, preferences and rights as the Board of Trustees
may designate at the time. The issuance of either additional Common Shares or
other similar equity securities may result in the dilution of the interests of
the shareholders.
Liquidity. The Operating Partnership. The OP Units are not freely
transferable and, since no market for the OP Units currently exists, are
illiquid. See "Description of OP Units-Restrictions on Transfer of OP Units by
Limited Partners" for a discussion of the limitations on the transferability of
the OP Units.
The Company. The Exchange Shares will be freely transferable as registered
securities under the Securities Act subject to the 5% ownership limitations
established in the Company's Declaration of Trust to protect the Company's
status as a REIT. The Common Shares are listed on the NYSE. The breadth and
strength of this market will depend, among other things, upon the number of
shares outstanding, the Company's financial results and prospects, the general
interest in the Company and other real estate investments, and the Company's
dividend yield compared to that of other debt and equity securities.
Federal Income Taxation. The Operating Partnership. The Operating
Partnership is not subject to federal income taxes. Instead, each holder of OP
Units includes his or its allocable share of the Operating Partnership's taxable
income or loss in determining his or its individual federal income tax
liability. The maximum federal income tax rate for individuals is currently
39.6%. Income and loss from the Operating Partnership generally is subject to
the "passive activity" limitation. Under the "passive activity" rules, income
and loss from the Operating Partnership that is considered "passive" income or
loss generally can be offset against income and loss (including passive loss
carryforwards from prior years) from other investments that constitute "passive
activities" (unless the Operating Partnership is considered a "publicly traded
partnership," in which case
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income and loss from the Operating Partnership can only be offset against other
income and loss from the Operating Partnership). Income of the Operating
Partnership, however, attributable to dividends from Equity Residential
Properties Management Corp., Equity Residential Properties Management Corp. II
and Equity Residential Properties Management Corp. III (collectively, the
"Management Corps."), or interest paid by the limited partnerships and limited
liability companies (the "Financing Partnerships") that own the beneficial
interest of certain Properties encumbered by mortgage financing, does not
qualify as passive income and cannot be offset with losses and deductions from a
"passive activity." Cash distributions from the Operating Partnership are not
taxable to a holder of OP Units except to the extent they exceed such holder's
basis in his or its interest in the Operating Partnership (which will include
such holder's allocable share of the Operating Partnership's nonrecourse debt).
Each year, holders of OP Units will receive a Schedule K-I tax form containing
detailed tax information for inclusion in preparing their federal and state
income tax returns. Holders of OP Units are required, in some cases, to file
state income tax returns and/or pay state income taxes in the states in which
the Operating Partnership owns property, even if they are not residents of those
states, and in some such states, including Illinois, the Operating Partnership
is required to remit a withholding tax with respect to such nonresidents.
The Company. The Company has elected to be taxed as a REIT. So long as it
qualifies as a REIT, the Company will be permitted to deduct distributions paid
to its shareholders, which effectively will reduce (or eliminate) the "double
taxation" that typically results when a corporation earns income and distributes
that income to its shareholders in the form of dividends. A REIT, however, is
subject to federal income tax on income that is not distributed and also may be
subject to federal income and excise taxes in certain circumstances. The maximum
federal income tax rate for corporations is currently 35%. Dividends paid by the
Company will be treated as "portfolio" income and cannot be offset with losses
from "passive activities." The maximum federal income tax rate for individuals
is currently 39.6%. Distributions made by the Company to its taxable domestic
shareholders out of current or accumulated earnings and profits will be taken
into account by them as ordinary income. Distributions that are designated as
capital gain dividends generally will be taxed as long-term capital gain,
subject to certain limitations. Distributions in excess of current or
accumulated earnings and profits will be treated as a non-taxable return of
basis to the extent of a shareholder's adjusted basis in his or its Common
Shares, with the excess taxed as capital gain. Each year, shareholders of the
Company will receive IRS Forms 1099 used by corporations to report dividends
paid to their shareholders. Shareholders who are individuals generally should
not be required to file state income tax returns and/or pay state income taxes
outside of their state of residence with respect to the Company's operations and
distributions. The Company may be required to pay state income taxes in certain
states.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes all material federal income tax
considerations to a holder of Common Shares. The following discussion, which is
not exhaustive of all possible tax considerations, does not give a detailed
discussion of any state, local or foreign tax considerations. Nor does it
discuss all of the aspects of federal income taxation that may be relevant to a
prospective shareholder in light of his or her particular circumstances or to
certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws. As used in this section,
the term "Company" refers solely to Equity Residential Properties Trust.
EACH PROSPECTIVE PURCHASER OF EXCHANGE SHARES IS ADVISED TO CONSULT WITH
HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM, IN
LIGHT OF HIS SPECIFIC OR UNIQUE CIRCUMSTANCES, OF THE PURCHASE, OWNERSHIP AND
SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company elected REIT status commencing with its taxable year
ended December 31, 1993. In the opinion of Hogan & Hartson L.L.P., which has
acted as special tax counsel to the Company, the Company was organized and has
operated in conformity with the requirements for qualification and taxation as a
REIT under the Code for its taxable years ended December 31, 1993, December 31,
1994 and December 31, 1995, and the Company's current organization and method of
operation will enable it to continue to meet the requirements for qualification
and taxation as a REIT. It must be emphasized that this opinion is based on
various assumptions relating to the organization and operation of the Company,
the Operating Partnership, the Management Partnerships, the Management Corps.,
the Financing Partnerships, and various qualified REIT subsidiaries wholly owned
by the Company (each a "QRS Corporation") (collectively, the Management
Partnerships, the Management Corps., the Financing Partnerships and the QRS
Corporations may be referred to as the "Subsidiary Entities"), and is
conditioned upon certain representations made by the Company and the Operating
Partnership as to certain relevant factual matters, including matters related
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to the organization, expected operation, and assets of the Company, the
Operating Partnership and the Subsidiary Entities. The Company's qualification
and taxation as a REIT depend upon the Company's ability to meet on a continuing
basis, through actual annual operating and other results, the various
requirements under the Code and described in the Prospectus with regard to,
among other things, the sources of its gross income, the composition of its
assets, the level of its dividends to shareholders, and the diversity of its
share ownership. Hogan & Hartson L.L.P. will not review the Company's compliance
with these requirements on a continuing basis. No assurance can be given that
the actual results of the operations of the Company, the Operating Partnership,
and the Subsidiary Entities, the sources of their income, the nature of their
assets, the level of the Company's dividends to shareholders and the diversity
of its share ownership for any given taxable year will satisfy the requirements
under the Code for qualification and taxation as a REIT.
In any year in which the Company qualifies as a REIT, generally it will not
be subject to Federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. This treatment substantially
eliminates the "double taxation" (at both the corporate and shareholder levels)
that generally results from the use of corporate investment vehicles. The
Company may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed.
If the Company should fail to satisfy either the 75% or the 95% gross
income test (as discussed below), and nonetheless maintains its qualification as
a REIT because certain other requirements are met, it will be subject to a 100%
tax on the greater of the amount by which it fails the 75% or the 95% test,
multiplied by a fraction intended to reflect its profitability. The Company will
also be subject to a tax of 100% on net income from any "prohibited
transaction," as described below. In addition, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior years, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Company may also be
subject to the corporate "alternative minimum tax," as well as tax in certain
situations and on certain transactions not presently contemplated. The Company
will use the calendar year both for Federal income tax purposes and for
financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Test. Shares of beneficial interest of the Company must be
held by a minimum of 100 persons for at least, approximately, 92% of the days in
each taxable year subsequent to 1993. In addition, at all times during the
second half of each taxable year subsequent to 1993, no more than 50% in value
of the shares of beneficial interest of the Company may be owned, directly or
indirectly and by applying certain constructive ownership rules, by five or
fewer individuals. The Company believes that it has satisfied both of these
tests, and it believes it will continue to do so. In order to help comply with
the second of these tests, the Company has placed certain restrictions on the
transfer of the Common Shares and Preferred Shares that are intended to prevent
further concentration of share ownership.
Asset Tests. At the close of each quarter of the Company's taxable year,
the Company must satisfy two tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
any combination of interests in real property, interests in mortgages on real
property, shares in other REITs, cash, cash items and certain government
securities. Second, although the remaining 25% of the Company's assets generally
may be invested without restriction, securities in this class may not exceed
either (i) 5% of the value of the Company's total assets as to any one issuer
(other than an interest in a partnership), or (ii) 10% of the outstanding voting
securities of any one issuer (other than an interest in a partnership or shares
of a qualified REIT subsidiary or another REIT). Where the Company invests in a
partnership, it will be deemed to own a proportionate share of the partnership's
assets. The Company's investment in the Properties through its interest in the
Operating Partnership will constitute qualified assets for purposes of the 75%
asset test.
The Operating Partnership owns none of the voting stock, but owns 100% of
the non-voting stock of each of the Management Corps. By virtue of its
partnership interest in the Operating Partnership, the Company is deemed to own
its pro rata share of the assets of the Operating Partnership, including the
stock of the Management Corps. as described above. The Operating Partnership has
not and will not own more than 10% of the voting securities of the Management
Corps. In addition, based upon its analysis of the estimated value of the stock
of the Management Corps. owned by the Operating Partnership relative to the
estimated value of the other assets owned by the Operating Partnership, the
Company believes that its pro rata share of the stock of each Management Corp.
held by the Operating Partnership has not exceeded and will not exceed 5% of the
total value of the Company's assets. No independent appraisals, however, have
been obtained to support this conclusion. This 5% limitation must be satisfied
not only on the date that the Company first acquired stock of a Management
Corp., but also at the end of each quarter in which the Company increases its
interest in either of the Management Corps. (including as a result of increasing
its interest in the Operating Partnership as the holders of OP Units exercise
their exchange rights). Although the Company plans to take steps to ensure that
it satisfies the 5% value test for any quarter with respect to which retesting
is to occur, there can be no assurance that such steps will always be successful
or will not require a reduction in the Operating Partnership's overall interest
in the Management Corps.
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The Company's indirect interests as a general partner in the Financing
Partnerships are held through the QRS Corporations, each of which is organized
and operated as a "qualified REIT subsidiary" within the meaning of the Code.
Qualified REIT subsidiaries are not treated as separate entities from their
parent REIT. Instead, all assets, liabilities and items of income, deduction and
credit of each QRS Corporation will be treated as assets, liabilities and items
of the Company. Each QRS Corporation therefore will not be subject to Federal
corporate income taxation, although it may be subject to state or local
taxation. In addition, the Company's ownership of the voting stock of each QRS
Corporation will not violate the general restriction against ownership of more
than 10% of the voting securities of any issuer.
Gross Income Tests. There are three separate percentage tests relating to
the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the income
and loss of the partnership, and the gross income of the partnership will retain
the same character in the hands of the Company as it has in the hands of the
partnership.
1. The 75% Test. At least 75% of the Company's gross income for each
taxable year must be "qualifying income." Qualifying income generally includes
(i) rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of the Company's trade or business ("dealer
property"); (iv) distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); (vii) commitment fees received for agreeing to make
loans collateralized by mortgages on real property or to purchase or lease real
property; and (viii) certain qualified temporary investment income attributable
to the investment of new capital received by the Company in exchange for its
shares during the one-year period following the receipt of such new capital.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person. Finally, for rents received to qualify as rents from
real property, the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent that the services
provided by the Company are "usually or customarily rendered" in connection with
the rental of space for occupancy only, and are not otherwise considered
"rendered to the occupant."
The Company, through the Management Partnerships, provides certain services
with respect to the Properties and any newly acquired multifamily residential
properties. The Company believes that the services provided by the Management
Partnerships are usually or customarily rendered in connection with the rental
of space for occupancy only, and therefore that the provision of such services
has not caused, and will not in the future cause the rents received with respect
to the Properties to fail to qualify as rents from real property for purposes of
the 75% and 95% gross income tests.
2. The 95% Test. At least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends (including the Company's
share of dividends paid by the Management Corps.) and interest on any
obligations not collateralized by an interest in real property and any payments
made on behalf of the Company by a financial institution pursuant to a rate
protection agreement will be included as qualifying income for purposes of the
95% gross income test, but not for purposes of the 75% test. For purposes of
determining whether the Company complies with the 75% and 95% income tests,
gross income does not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property, excluding certain dealer property
held by the Company for at least four years and excluding foreclosure property.
The Company's investment in the Properties, through the Operating
Partnership, in major part gives rise to rental income qualifying under the 75%
and 95% gross income tests. Gains on sales of the Properties or of the Company's
interest in the Operating Partnership will generally qualify under the 75% and
95% gross income tests. The Company believes that the income on its other
investments, including its indirect investment in the Management Corps., has not
resulted in the Company failing the 75% or 95% gross income test for any year,
and the Company anticipates that this will continue to be the case.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally
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be available if: (i) the Company's failure to comply was due to reasonable cause
and not to willful neglect; (ii) the Company reports the nature and amount of
each item of its income included in the tests on a schedule attached to its tax
return; and (iii) any incorrect information on this schedule is not due to fraud
with intent to evade tax. If these relief provisions apply, the Company,
however, will still be subject to a 100% tax based upon the greater of the
amount by which it fails either the 75% or 95% gross income test for that year,
less certain adjustments.
3. The 30% Test. The Company must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. The Company has not had and does not
anticipate that it will have any substantial difficulty in complying with this
test.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to make dividend distributions (other than capital gain
distributions) to its shareholders each year in an amount at least equal to (A)
the sum of (i) 95% of the Company's REIT taxable income (computed without regard
to the dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. To the extent
that the Company does not distribute all of its net capital gain or distributes
at least 95%, but less than 100%, of its REIT taxable income, as adjusted, it
will be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be.
The Company has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
partnership agreement of the Operating Partnership authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that the Company
may not have sufficient cash or other liquid assets to meet the 95% distribution
requirement, due to the payment of principal on debt or to timing differences
between the actual receipt of income and actual payment of expenses on the one
hand, and the inclusion of such income and deduction of such expenses in
computing the Company's REIT taxable income on the other hand. To avoid any
problem with the 95% distribution requirement, the Company will closely monitor
the relationship between its REIT taxable income and cash flow and, if
necessary, will borrow funds (or cause the Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be required and, if made, will not
be deductible by the Company. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be ineligible for qualification as a REIT for the four taxable years
following the year during which qualification was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company holds direct or indirect interests in the Operating
Partnership, the Management Partnerships and certain Financing Partnerships
(each individually a "Partnership" and, collectively, the "Partnerships"). The
Company believes that each of the Partnerships qualifies as a partnership (as
opposed to an association taxable as a corporation) for Federal income tax
purposes. If any of the Partnerships were to be treated as an association, it
would be taxable as a corporation and therefore subject to an entity-level tax
on its income. In such a situation, the character of the Company's assets and
items of gross income would change, which would preclude the Company from
satisfying the asset tests and possibly the income tests (see "Federal Income
Tax Considerations--Taxation of the Company--Asset Tests" and "--Gross Income
Tests"), and in turn would prevent the Company from qualifying as a REIT.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the 69 Properties contributed at
the time of the IPO (the "Initial Properties")) must be allocated in a manner
such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value and the adjusted tax basis of contributed property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property (including certain of the
Initial Properties). Consequently, the Operating Partnership agreement (as well
as the Financing
26
<PAGE>
Partnerships agreements) requires such allocations to be made in a manner
consistent with Section 704(c). As a result, certain limited partners of the
Operating Partnership will be allocated lower amounts of depreciation deductions
for tax purposes and increased taxable income and gain on sale by the
Partnerships of the contributed assets (including certain of the Initial
Properties). These allocations will tend to eliminate the Book-Tax Difference
over the life of the Partnerships. However, the special allocation rules of
Section 704(c) as applied by the Company do not always entirely rectify the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed assets
in the hands of the Partnerships will cause the Company to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "Federal Income Tax Considerations--Taxation of the Company--
Annual Distribution Requirements."
Sale of the Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Federal Income Tax Considerations--Taxation of the Company--
Gross Income Tests--The 95% Test." Under existing law, whether property is
dealer property is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Partnerships have
held and intend to continue to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning and operating the Properties and other multifamily residential properties
and to make such occasional sales of the Properties as are consistent with the
Company's investment objectives. Based upon such investment objectives, the
Company believes that in general the Properties should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
will not be material.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
General. As long as the Company qualifies as a REIT, distributions made to
the Company's taxable domestic shareholders, with respect to their Exchange
Shares out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary income
and will not be eligible for the dividends received deduction for shareholders
that are corporations. For purposes of determining whether distributions on the
Exchange Shares are out of current or accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Preferred
Shares and second to the Common Shares. There can be no assurance, however, that
the Company will have sufficient earnings and profits to cover distributions on
the Preferred Shares. Dividends that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent that they do not exceed
the Company's actual net capital gain for the taxable year) without regard to
the period for which the shareholder has held its Shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. To the extent that the Company makes distributions
in excess of current and accumulated earnings and profits, these distributions
are treated first as a tax-free return of capital to the shareholder, reducing
the tax basis of a shareholder's Exchange Shares by the amount of such
distribution (but not below zero), with distributions in excess of the
shareholder's tax basis taxable as capital gains (if the Exchange Shares are
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a shareholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the shareholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Shareholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of Exchange Shares by a
shareholder who has held such Exchange Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions from the Company received by such
shareholder are required to be treated by such shareholder as long-term capital
gains.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Most tax-exempt employees' pension trusts are not subject to Federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the Company
to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
Exchange Shares with "acquisition indebtedness" within the meaning of the Code
and the Exchange Shares are not otherwise used in an unrelated trade or business
of the tax-exempt entity. In addition, for taxable years beginning on or after
January 1, 1994, certain pension trusts that own more than 10% of a "pension-
held REIT" must report a portion of the distribution that they receive from such
a REIT as UBTI. The Company has not been and does not expect to be treated as a
pension-held REIT for purposes of this rule.
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<PAGE>
TAXATION OF FOREIGN SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income
tax consequences of the ownership and disposition of Exchange Shares applicable
to Non-U.S. Holders of such Exchange Shares. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof, or (iii) an estate or trust whose income
is includable in gross income for U.S. Federal income tax purposes regardless of
its source. The discussion is based on current law and is for general
information only.
DISTRIBUTIONS FROM THE COMPANY
1. Ordinary Dividends. The portion of dividends received by Non-U.S.
Holders payable out of the Company's earnings and profits which are not
attributable to capital gains of the Company or of the Operating Partnership and
which are not effectively connected with a U.S. trade or business of the Non-
U.S. Holder will be subject to U.S. withholding tax at the rate of 30% (unless
reduced by an applicable treaty). In general, Non-U.S. Holders will not be
considered engaged in a U.S. trade or business solely as a result of their
ownership of Exchange Shares. In cases where the dividend income from a Non-U.S.
Holder's investment in Exchange Shares is (or is treated as) effectively
connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the
Non-U.S. Holder generally will be subject to U.S. tax at graduated rates, in the
same manner as U.S. shareholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax in the case of a Non-U.S.
Holder that is a foreign corporation).
2. Non-Dividend Distributions. Distributions by the Company which are not
dividends out of the earnings and profits of the Company will not be subject to
U.S. income or withholding tax. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of the
Company's current and accumulated earnings and profits, the entire distribution
will be subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Holder may seek a refund of such amounts from the Service if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of United States
Real Property Interests ("USRPIs") such as the Properties beneficially owned by
the Company ("USRPI Capital Gains"), will be considered effectively connected
with a U.S. trade or business of the Non-U.S. Holder and subject to U.S. income
tax at the rate applicable to U.S. individuals or corporations, without regard
to whether such distribution is designated as a capital gain dividend. In
addition, the Company will be required to withhold tax equal to 35% of the
amount of dividends to the extent such dividends constitute USRPI Capital Gains.
Distributions subject to FIRPTA may also be subject to a 30% branch profits tax
in the hands of a foreign corporate shareholder that is not entitled to treaty
exemption.
Dispositions of Exchange Shares. Unless Exchange Shares constitute a USRPI,
a sale of Exchange Shares by a Non-U.S. Holder generally will not be subject to
U.S. taxation under FIRPTA. The Exchange Shares will not constitute a USRPI if
the Company is a "domestically controlled REIT." A domestically controlled REIT
is a REIT in which, at all times during a specified testing period, less than
50% in value of its Exchange Shares is held directly or indirectly by Non-U.S.
Holders. The Company believes that it has been and anticipates that it will
continue to be a domestically controlled REIT, and therefore that the sale of
Exchange Shares will not be subject to taxation under FIRPTA. Because the
Exchange Shares will be publicly traded, however, no assurance can be given the
Company will continue to be a domestically controlled REIT. If the Company does
not constitute a domestically controlled REIT, a Non-U.S. Holder's sale of
Exchange Shares generally will still not be subject to tax under FIRPTA as a
sale of a USRPI provided that (i) the Exchange Shares are "regularly traded" (as
defined by applicable Treasury regulations) on an established securities market
and (ii) the selling Non-U.S. Holder held 5% or less of the Company's
outstanding Common Shares and Preferred Shares at all times during a specified
testing period.
If gain on the sale of Exchange Shares were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
shareholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of Exchange Shares could be required to withhold
10% of the purchase price and remit such amount to the Service. Capital gains
not subject to FIRPTA will nonetheless be taxable in the United States to a Non-
U.S. Holder in two cases: (i) if the Non-U.S. Holder's investment in Exchange
Shares is effectively connected with a U.S. trade or business conducted by such
Non-U.S. Holder, the Non-U.S. Holder will be subject to the same treatment as a
U.S. shareholder with respect to such gain, or (ii) if the Non-U.S. Holder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
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<PAGE>
OTHER TAX CONSIDERATIONS
The Management Corps. A portion of the cash to be used by the Operating
Partnership to fund distributions to its partners, including the Company, is
expected to come from the Management Corps. through payments of dividends on the
non-voting stock of the Management Corps. held by the Operating Partnership. The
Management Corps. pay Federal and state income tax at the full applicable
corporate rates. The Management Corps. will attempt to minimize the amount of
such taxes, but there can be no assurance whether or the extent to which
measures taken to minimize taxes will be successful. To the extent that the
Management Corps. are required to pay Federal, state or local taxes, the cash
available for distribution by the Company to shareholders will be reduced
accordingly.
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the Federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the shares of the Company.
29
<PAGE>
PLAN OF DISTRIBUTION
Any of the Selling Shareholders may from time to time, in one or more
transactions, sell all or a portion of the Exchange Shares on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
Common Shares are listed or traded, in negotiated transactions, in underwritten
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The offering price of the
Exchange Shares from time to time will be determined by the Selling Shareholders
and, at the time of such determination, may be higher or lower than the market
price of the Common Shares on the NYSE. In connection with an underwritten
offering, underwriters or agents may receive compensation in the form of
discounts, concessions or commissions from a Selling Shareholder or from
purchasers of Exchange Shares for whom they may act as agents, and underwriters
may sell Exchange Shares to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Under agreements that may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of Exchange Shares may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such underwriters, dealers or agents may be required to make
in respect thereof. The Exchange Shares may be sold directly or through broker-
dealers acting as principal or agent, or pursuant to a distribution by one or
more underwriters on a firm commitment or best-efforts basis. The methods by
which the Exchange Shares may be sold include (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Exchange Shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(d) an exchange distribution in accordance with the rules of the NYSE; (e)
privately-negotiated transactions; and (f) underwritten transactions. The
Selling Shareholders and any underwriters, dealers or agents participating in
the distribution of the Exchange Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any profit on the sale of the
Exchange Shares by the Selling Shareholder sand any commissions received by an
such broker-dealers may be deemed to be underwriting commissions under the
Securities Act.
When a Selling Shareholder elects to make a particular offer of Exchange
Shares, a prospectus supplement, if required, will be distributed that will
identify any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from such Selling Shareholder and any
other required information.
In order to comply with the securities laws of certain states, if
applicable, the Exchange Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Exchange Shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.
The Selling Shareholders have agreed to pay all reasonable costs and
expenses incurred in connection with the registration under the Securities Act
of the Exchange Shares, including, without limitation, all registration and
filing fees, printing expenses and fees and disbursements of counsel and
accountants for the Company but excluding compensation of employees of the
Company or expenses incurred in connection with documents incorporated herein by
reference. The Selling Shareholders also will pay any brokerage fees and
commissions, fees and disbursements of legal counsel for the Selling
Shareholders and stock transfer and other taxes attributable to the sale of the
Exchange Shares. The Company also has agreed to indemnify each of the Selling
Shareholders and their respective partners, officers and directors and each
person who controls (within the meaning of the Securities Act) such Selling
Shareholder against certain losses, claims, damages and expenses arising under
the securities laws in connection with this offering. Each of the Selling
Shareholders has agreed to indemnify the Company, its officers, trustees and
shareholders and each person who controls (within the meaning of the Securities
Act) the Company against other losses, claims, damages and expenses arising
under the securities laws in connection with this offering with respect to
written information furnished to the Company by such Selling Shareholder;
provided, however, that the indemnification obligation is several, not joint, as
to each Selling Shareholder and is limited to the net amount of proceeds from
the sale of each Selling Shareholder's Exchange Shares.
There is no assurance that the Selling Shareholders will sell any or all of
the Exchange Shares.
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<PAGE>
EXPERTS
The Consolidated and Combined Financial Statements incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 1995 have been so incorporated in reliance on the reports of Grant
Thornton LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting. The Combined Statement of Revenue and
Certain Expenses of the 1996 Acquired Properties and Probable Properties for the
year ended December 31, 1995, as set forth in the Company's Current Report on
Form 8-K, dated May 23, 1996, has been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
in this Prospectus by reference. Such combined financial statement is
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the Exchange Shares offered hereby will be passed upon for
the Company by Rosenberg & Liebentritt, P.C., Chicago, Illinois. Rosenberg &
Liebentritt, P.C. will rely on Hogan & Hartson L.L.P., Washington, D.C., as to
certain matters of Maryland law. Certain tax matters will be passed upon by
Hogan & Hartson L.L.P.
Sheli Z. Rosenberg, the Chairman of the Board of Rosenberg & Liebentritt,
P.C., is a trustee of the Company. The Company incurred legal fees to Rosenberg
& Liebentritt, P.C. of approximately $1.031 million in 1995 and, through May 31,
1996, approximately $250,000 in 1996. Attorneys of Rosenberg & Liebentritt,
P.C. beneficially own less than 1% of the outstanding Common Shares, either
directly or upon the exercise of options.
31
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================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE
SHARES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS PROSPECTUS OR ANY
OFFER OR SALE MADE HEREUNDER SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
__________________
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................................................ 2
Incorporation of Certain Documents by Reference...................... 2
The Company.......................................................... 3
Use of Proceeds...................................................... 4
Risk Factors......................................................... 4
Description of Shares of Beneficial Interest......................... 9
Description of OP Units.............................................. 11
Shares Available for Future Sale..................................... 16
Registration Rights.................................................. 16
Selling Shareholders................................................. 17
Exchange of OP Units................................................. 18
Federal Income Tax Considerations.................................... 23
Plan of Distribution................................................. 30
Experts.............................................................. 31
Legal Matters........................................................ 31
</TABLE>
================================================================================
================================================================================
608,665 SHARES
EQUITY RESIDENTIAL
PROPERTIES TRUST
COMMON SHARES
OF
BENEFICIAL INTEREST
PROSPECTUS
AUGUST , 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth those expenses for distribution to be
incurred in connection with the issuance and distribution of the securities
being registered.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee.............................................. $ 6,900
Printing and Duplicating Expenses............................. 2,500
Legal Fees and Expenses....................................... 25,000
Accounting Fees and Expenses.................................. 3,000
Blue Sky Fees and Expenses.................................... 5,000
Miscellaneous................................................. 2,600
-------
Total...................................................... $45,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
Under Maryland law, a real estate investment trust formed in Maryland is
permitted to eliminate, by provision in its Declaration of Trust, the liability
of trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) acts or omissions established by a
final judgment as involving active and deliberate dishonesty and being material
to the matter giving rise to the proceeding. The Company's Declaration of Trust
includes such a provision eliminating such liability to the maximum extent
permitted by Maryland law.
The Maryland REIT law, effective October 1, 1994, permits a Maryland real
estate investment trust to indemnify and advance expenses to its trustees,
officers, employees and agents to the same extent as permitted by the MGCL for
directors and officers of Maryland corporations. In accordance with the MGCL,
the Company's bylaws require it to indemnify (a) any present or former trustee,
officer or shareholder or any individual who, while a trustee, officer or
shareholder, served or is serving as a trustee, officer, director, shareholder
or partner of another entity at the Company's express request who has been
successful, on the merits or otherwise, in the defense of a proceeding to which
he was made a party by reason of service in such capacity, against reasonable
expenses incurred by him in connection with the proceeding, (b) any present or
former trustee or officer or any individual who, while a trustee or officer
served or is serving as a trustee, officer, director, shareholder or partner of
another entity at the Company's express request against any claim or liability
to which he may become subject by reason of service in such capacity unless it
is established that (i) his act or omission was material to the matter giving
rise to the proceeding and was committed in bad faith or was the result of
active and deliberate dishonesty, (ii) he actually received an improper personal
benefit in money, property or services or (iii) in the case of a criminal
proceeding, he had reasonable cause to believe that his act or omission was
unlawful and (c) any present or former shareholder against any claim or
liability to which he may become subject by reason of such status. In addition,
the Company's bylaws require it to pay or reimburse, in advance of final
disposition of a proceeding, reasonable expenses incurred by a present or former
trustee, officer or shareholder or any individual who, while a trustee, officer
or shareholder, served or is serving as a trustee, officer, director,
shareholder or partner of another entity at the Company's express request made a
party to a proceeding by reason of such status, provided that, in the case of a
trustee or officer, the Company shall have received (1) a written affirmation by
such person of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the bylaws and (2)
a written undertaking by or on his behalf to repay the amount paid or reimbursed
by the Company if it shall ultimately be determined that the applicable standard
of conduct was not met. The Company's bylaws also (x) permit the Company to
provide indemnification and payment or reimbursement of expenses to a present or
former trustee, officer or shareholder who served a predecessor of the Company
or to any employee or agent of the Company or a predecessor of the Company, (y)
provide that any indemnification and payment or reimbursement of the expenses
permitted by the bylaws shall be furnished in accordance with the procedures
provided for indemnification and payment or reimbursement of expenses under
Section 2-418 of the MGCL for directors of Maryland corporations and (z) permit
the Company to provide to the trustees and officers such other and further
indemnification or payment or reimbursement of expenses to the fullest extent
permitted by Section 2-418 of the MGCL for directors of Maryland corporations.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees and officers of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that, although
the validity and scope of the governing statute have not been tested in court,
in the opinion of the Securities and Exchange Commission, such indemnification
II-1
<PAGE>
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.
The partnership agreements of the Operating Partnership and the Management
Partnerships also provide for indemnification of the Company and its officers
and trustees to the same extent that indemnification is provided to officers and
trustees of the Company in its Declaration of Trust, and limit the liability of
the Company and its officers and trustees to the Operating Partnership and the
Management Partnerships and their respective partners to the same extent that
the liability of the officers and trustees of the Company to the Company and its
shareholders is limited under the Company's Declaration of Trust.
ITEM 16. EXHIBITS
4.1 * - Amended and Restated Declaration of Trust, as amended
4.2 ** - Amended and Restated Bylaws
4.3*** - Form of Fourth Amended and Restated ERP Operating
Limited Partnership Agreement of Limited Partnership
5 - Opinion of Rosenberg & Liebentritt, P.C.
8 - Opinion of Hogan & Hartson L.L.P. regarding
certain tax matters.
23.1 - Consent of Grant Thornton LLP
23.2 - Consent of Ernst & Young LLP
23.3 - Consent of Rosenberg & Liebentritt, P.C. (included in
Exhibit 5)
23.4 - Consent of Hogan & Hartson L.L.P. (included in
Exhibit 8)
24*** - Power of Attorney (filed as part of the
signature page to the Registration Statement)
----------
* Included as an exhibit to the Company's Form 10-Q for the three months
ended June 30, 1995, and incorporated herein by reference.
** Included as an exhibit to the Company's Form S-11 Registration
Statement, File No. 33-63158, and incorporated herein by reference.
*** Filed previously.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of Exchange Shares (if the total
dollar value of Exchange Shares would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in this registration
statement;
provided, however, that subparagraphs (i) and (ii) above do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in the periodic reports filed with or furnished to the Commission by
the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this registration
statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the Exchange Shares offered herein, and the
offering of such Exchange Shares at that time shall be deemed to be the initial
bona fide offering thereof.
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<PAGE>
(3) To remove from registration by means of a post-effective amendment any of
the Exchange Shares being registered which remain unsold at the termination the
offering.
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Exchange Shares offered herein, and the offering of such
Exchange Shares at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to existing provisions or arrangements whereby the
registrant may indemnify a trustee, officer or controlling person of the
registrant against liabilities arising under the Securities Act of 1933, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of Illinois, on August
1, 1996.
EQUITY RESIDENTIAL PROPERTIES TRUST
By: /s/ Douglas Crocker II
----------------------------------------------
Douglas Crocker II, President, Chief Executive
Officer and Trustee
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
* Chairman of the Board of Trustees August 1, 1996
- ---------------------------
Samuel Zell
* President, Chief Executive Officer August 1, 1996
- --------------------------- and Trustee
Douglas Crocker II
* Executive Vice President and Chief August 1, 1996
- --------------------------- Financial Officer
David J. Neithercut
* Senior Vice President, Chief August 1, 1996
- --------------------------- Accounting Officer and Treasurer
Michael J. McHugh
* Trustee August 1, 1996
- ---------------------------
Gerald A. Spector
Trustee August 1, 1996
- ---------------------------
Sheli Z. Rosenberg
* Trustee August 1, 1996
- ---------------------------
James D. Harper, Jr.
* Trustee August 1, 1996
- ---------------------------
Errol R. Halperin
* Trustee August 1, 1996
- ---------------------------
John Alexander
* Trustee August 1, 1996
- ---------------------------
Barry S. Sternlicht
* Trustee August 1, 1996
- ---------------------------
B. Joseph White
* Trustee August 1, 1996
- ---------------------------
Henry H. Goldberg
*/s/ Douglas Crocker II
- ---------------------------
By: Douglas Crocker II, as attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
--------------
Exhibit Exhibit
Number Description
------- -----------
4.1 * Amended and Restated Declaration of Trust, as amended
4.2 ** Amended and Restated Bylaws
4.3 *** Form of Fourth Amended and Restated ERP Operating Limited
Partnership Agreement of Limited Partnership
5 Opinion of Rosenberg & Liebentritt, P.C.
8 Opinion of Hogan & Hartson L.L.P. regarding certain tax
matters
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Rosenberg & Liebentritt, P.C. (included in
Exhibit 5)
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8)
24 *** Power of Attorney (filed as part of the signature page to the
Registration Statement)
____________
*Included as an exhibit to the Company's Form 10-Q for the three months ended
June 30, 1995, and incorporated herein by reference.
**Included as an exhibit to the Company's Form S-11 Registration Statement, File
No. 33-63158, and incorporated herein by reference.
***Filed previously.
II-5
<PAGE>
[Letterhead of Rosenberg & Liebentritt, P.C.]
August 1, 1996
Board of Trustees
Equity Residential Properties Trust
Two North Riverside Plaza
Suite 450
Chicago, Illinois 60606
Ladies and Gentlemen:
We are acting as counsel to Equity Residential Properties Trust, a Maryland
real estate investment trust (the "Company"), in connection with its
registration statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission relating to (i) the possible issuance by the
Company of up to 608,665 common shares (the "Exchange Shares") of beneficial
interest, $.01 par value per share ("Common Shares"), of the Company if, and to
the extent that (subject to the discretion of the Company), holders of up to
608,665 outstanding partnership interests ("OP Units") in ERP Operating Limited
Partnership (the "Operating Partnership"), of which the Company is the sole
general partner and owns a controlling interest, exchange such OP Units for
Common Shares; and (ii) the offer and sale from time to time of up to 608,665
Exchange Shares by the holders set forth in the Prospectus which is a part of
the Registration Statement (the "Selling Shareholders") thereof following the
potential issuance of such Exchange Shares, upon the exchange of up to 608,665
OP Units, to the Selling Shareholders, if and to the extent such Selling
Shareholders exchange such OP Units for the Exchange Shares. This opinion
letter is furnished to you at your request to enable the Company to fulfill the
requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. (S) 229.601(b)(5),
in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents;
1. An executed copy of the Registration Statement.
2. Copies of that certain Agreement for Contribution of Real Estate and
Related Property dated as of June 15, 1995 (the "Contribution Agreement"),
pursuant to which the
<PAGE>
Board of Trustees
Equity Residential Properties Trust
August 1, 1996
Page 2
Beauchamp Investors (as defined therein) received OP Units in exchange for
interests in certain multifamily properties.
3. Copies of that certain Registration Rights and Lock-Up Agreement dated
as of June 15, 1995 (the "Registration Rights Agreement"), pursuant to which the
Beauchamp Investors and their successors and assigns were granted demand
registration rights as to the Exchange Shares.
4. The Amended and Restated Declaration of Trust, as amended, of the
Company, as certified by the Secretary of the Company as being complete,
accurate and in effect as of the date hereof.
5. The Amended and Restated Bylaws of the Company, as certified by the
Secretary of the Company on the date hereof as being complete, accurate and in
effect as of the date hereof and as of the respective dates of the Contribution
Agreement and the Registration Rights Agreement.
6. Resolutions of the Board of Trustees of the Company adopted on July 17,
1995 and June 26, 1996, as certified by the Secretary of the Company on the date
hereof as then being complete, accurate and in effect, relating to the
authorization of the Contribution Agreement and the Registration Rights
Agreement, and the authorization and filing of the Registration Statement, and
arrangements in connection therewith, respectively.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
We call your attention to the fact that our firm only requires lawyers to
be qualified to practice law in the State of Illinois and, in rendering the
opinions set forth herein, we express no opinion with respect to any laws
relevant to this opinion other than the laws and regulations identified herein.
With respect to the opinion below that relates to the laws of the State of
Maryland, with your consent, we rely solely on the opinion of Hogan & Hartson
L.L.P., a copy of which is attached hereto as Exhibit A.
<PAGE>
Board of Trustees
Equity Residential Properties Trust
August 1, 1996
Page 3
Based upon, subject to and limited by the foregoing, we are of the opinion
that following effectiveness of the Registration Statement, the Exchange Shares,
if and when issued upon the exchange of the OP Units, will be validly issued,
fully paid and nonassessable under Title 8 of the Corporation and Associations
Article of the Annotated Code of Maryland.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent (i) to be named in the Registration Statement, and in the
Prospectus, as attorneys who will pass upon the legality of the Securities to be
sold thereunder and (ii) to the filing of this opinion as an Exhibit to the
Registration Statement.
Very truly yours,
ROSENBERG & LIEBENTRITT, P.C.
By: /s/ Ruth Pinkham Haring
------------------------------------
Vice President
<PAGE>
EXHIBIT A
August 1, 1996
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza
Suite 1515
Chicago, Illinois 60606
Ladies and Gentlemen:
We are acting as special Maryland counsel to Equity Residential Properties
Trust, a Maryland real estate investment trust (the "Company"), in connection
with its registration statement on Form S-3 (the "Registration Statement") filed
with the Securities and Exchange Commission relating to (i) the proposed public
offering of up to 608,665 common shares (the "Exchange Shares") of beneficial
interest, $.01 par value per share (the "Common Shares"), that may be issued by
the Company if, and to the extent that, holders of up to 608,665 outstanding
partnership interests ("OP Units") in ERP Operating Limited Partnership (the
"Operating Partnership"), of which the Company is the sole general partner,
exchange such OP Units for Common Shares; and (ii) the offer and sale from time
to time of up to 608,665 Exchange Shares by the holders thereof following the
potential issuance of such Exchange Shares, upon the exchange of up to 608,665
OP Units, to the holders thereof, if and to the extent that such holders
exchange such OP Units for the Exchange Shares. This opinion letter is
furnished to you at your request to enable the Company to continue to fulfill
the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R.
(S) 229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Amended and Restated Declaration of Trust, as amended, of the
Company (the "Declaration of Trust"), as certified by the
<PAGE>
Rosenberg & Liebentritt, P.C.
August 1, 1996
Page 2
Maryland State Department of Assessments and Taxation on May 20, 1996
and the Secretary of the Company on the date hereof as being complete,
accurate and in effect.
3. The Amended and Restated Bylaws of the Company, as certified by the
Secretary of the Company on the date hereof as being complete,
accurate and in effect.
4. Resolutions of the Board of Trustees of the Company adopted on June
26, 1996, relating to the filing of the Registration Statement and
related matters, as certified by the Secretary of the Company on the
date hereof as being complete, accurate and in effect.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on Title 8 of the
Corporation and Associations Article of the Annotated Code of Maryland (the
"Maryland REIT Statute"). We express no opinion herein as to any other laws,
statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the opinion
that following issuance of the Exchange Shares in exchange for OP Units as
described in the prospectus included in the Registration Statement and as
specified in the resolutions of the Board of Trustees referred to above, the
Exchange Shares will be validly issued, fully paid and nonassessable under the
Maryland REIT Statute.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing by the Company of the
Registration Statement on the date of this opinion letter and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity, without the
prior written consent of this firm.
<PAGE>
Rosenberg & Liebentritt, P.C.
August 1, 1996
Page 3
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the prospectus constituting a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are an "expert" within the
meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE>
August 1, 1996
Equity Residential Properties Trust
Two North Riverside Plaza
Suite 450
Chicago, Illinois 60606
Ladies and Gentlemen:
We have acted as counsel to Equity Residential Properties Trust, a Maryland
real estate investment trust (the "Company"), in connection with the
registration of up to 608,665 shares of the Company's common shares of
beneficial interest, par value $.01 per share (the "Common Shares"), as more
fully described in the Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on the date hereof (the "Registration
Statement," which includes the "Prospectus"). In connection with the
registration of the Common Shares, we have been asked to provide an opinion
regarding certain federal income tax matters related to the Company. Capitalized
terms used in this letter and not otherwise defined herein have the meaning set
forth in the Prospectus.
The opinion set forth in this letter is based on relevant provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
thereunder (including proposed and temporary Regulations), and interpretations
of the foregoing as expressed in court decisions, the legislative history, and
existing administrative rulings and practices of the Internal Revenue Service
(including its practices and policies in issuing private letter rulings, which
are not binding on the Internal Revenue Service except with respect to a
taxpayer that receives such a ruling), all as of the date hereof. These
provisions and interpretations are subject to change, which may or may not be
retroactive in effect, that might result in modifications of our opinion. Our
opinion does not foreclose the possibility of a contrary determination by the
Internal Revenue Service or a court of competent jurisdiction, or of a contrary
position by the Internal Revenue Service or the Treasury Department in
regulations or rulings issued in the future.
In rendering our opinion, we have examined such statutes, regulations,
records, certificates and other documents as we have considered necessary or
appropriate as a basis for such opinion, including the following: (1) the
Registration Statement (including the exhibits thereto and all amendments made
through the date hereof); (2) the Amended and Restated Declaration of Trust of
the Company (the "Declaration of Trust") as in effect on the date hereof;
<PAGE>
Equity Residential Properties Trust
August 1, 1996
Page 2
(3) the Fourth Amended and Restated ERP Operating Limited Partnership Agreement
of Limited Partnership, dated September 30, 1995; (4) the Equity Residential
Properties Management Limited Partnership Agreement of Limited Partnership,
dated July 23, 1993 and the Equity Residential Properties Management Limited
Partnership II Agreement of Limited Partnership, dated November 3, 1994
(collectively, these two partnerships will be referred to as the "Management
Partnerships"); (5) the articles of incorporation, by-laws and stock ownership
information of the three Management Corps.; (6) the partnership agreements or
limited liability company agreements of the Financing Partnerships and all other
partnerships or limited liability companies in which the Operating Partnership
has an interest (collectively, the "Subsidiary Partnerships") (for a list of the
Subsidiary Partnerships, see Exhibit A); and (7) the articles of incorporation,
by-laws and stock ownership information of the QRS Corporations (for a list of
the QRS Corporations, see Exhibit B). The opinion set forth in this letter also
is premised on certain representations of the Company and the Operating
Partnership.
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents we reviewed are true
and correct, and all of the obligations imposed by any such documents on the
parties thereto have been and will be performed or satisfied in accordance with
their terms. Moreover, we have assumed that the Company, the Operating
Partnership, and the Subsidiary Entities (as defined in the Prospectus) each
have been and will continue to be operated in the manner described in the
relevant partnership agreement, limited liability company agreement, articles of
incorporation or other organizational documents and in the Prospectus. We also
have assumed the genuineness of all signatures, the proper execution of all
documents, the authenticity of all documents submitted to us as originals, the
conformity to originals of documents submitted to us as copies, and the
authenticity of the originals from which any copies were made.
For the purposes of our opinion, we have not made an independent
investigation of the facts set forth in the documents we reviewed. We
consequently have assumed that the information presented in such documents or
otherwise furnished to us accurately and completely describes all material facts
relevant to our opinion. No facts have come to our attention, however, that
would cause us to question the accuracy and completeness of such facts or
documents in a material way.
We assume for the purposes of this opinion that the Company is a validly
organized and duly incorporated real estate investment trust under the laws of
the State of Maryland, that the Management Corps. and the QRS Corporations are
validly organized and duly incorporated corporations under the laws of the
states in which they are incorporated, and that the Operating Partnership, the
Management Partnerships, and the Financing Partnerships are duly
<PAGE>
Equity Residential Properties Trust
August 1, 1996
Page 3
organized and validly existing partnerships or limited liability companies under
the laws of the states in which they are organized.
Based upon, and subject to, the foregoing and the next paragraph below, we
are of the opinion that:
1. The Company was organized and has operated in conformity with the
requirements for qualification and taxation as a REIT under the Code
for its taxable years ended December 31, 1993, December 31, 1994, and
December 31, 1995, and the Company's current organization and method of
operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT; and
2. The discussion in the Prospectus under the heading "Federal Income
Tax Considerations," to the extent that it constitutes matters of law
or legal conclusions, is correct in all material respects.
The Company's qualification and taxation as a REIT depend upon the
Company's ability to meet on a continuing basis, through actual annual operating
and other results, the various requirements under the Code and described in the
Prospectus with regard to, among other things, the sources of its gross income,
the composition of its assets, the level of its distributions to stockholders,
and the diversity of its share ownership. Hogan & Hartson L.L.P. will not review
the Company's compliance with these requirements on a continuing basis. No
assurance can be given that the actual results of the operations of the Company,
the Operating Partnership, and the Subsidiary Entities, the sources of their
income, the nature of their assets, the level of the Company's distributions to
shareholders and the diversity of its share ownership for any given taxable year
will satisfy the requirements under the Code for qualification and taxation as a
REIT.
For a discussion relating the law to the facts and the legal analysis
underlying the opinion set forth in this letter, we incorporate by reference the
discussion of federal income tax issues, which we assisted in preparing, in the
section of the Prospectus under the heading "Federal Income Tax Considerations".
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein.
Very truly yours,
Hogan & Hartson L.L.P.
<PAGE>
Exhibit A
SUBSIDIARY PARTNERSHIPS
1. EQR-Emerald Place Financing Limited Partnership;
2. EQR-Essex Place Financing Limited Partnership;
3. EQR-Tanasbourne Terrace Financing Limited Partnership;
4. EQR-Reserve Square Limited Partnership;
5. Country Club Associates Limited Partnership;
6. Second Country Club Associates Limited Partnership;
7. Second Georgian Woods Limited Partnership;
8. Greenwich Woods Associates Limited Partnership;
9. Artery Northampton Limited Partnership;
10. Third Towne Centre Limited Partnership;
11. Fourth Towne Centre Limited Partnership;
12. EQR-BS Financing Limited Partnership;
13. EQR-Chaparral Creek GP Limited Partnership;
14. E-Chaparral Associates Limited Partnership;
15. EQR-Lincoln Green I and II GP Limited Partnership;
16. E-G One Associates;
17. E-G Two Associates;
18. EQR-Lodge (OK) GP Limited Partnership;
19. E-Lodge Associates;
20. EQR-Stonebrook GP Limited Partnership;
21. E-Stonebrook Associates;
22. EQR-Sleepy Hollow Financing Limited Partnership;
23. EQR-EOI Financing Limited Partnership;
24. EQR-Continental Villas Financing Limited Partnership;
25. EQR-Doral Financing Limited Partnership;
26. EQR-Governor's Place Financing Limited Partnership;
<PAGE>
Exhibit A
27. EQR-Plantation Financing Limited Partnership;
28. EQR-Valley Park South Financing Limited Partnership;
29. EQR-Yorktowne Financing Limited Partnership;
30. EQR-SWN Line Financing Limited Partnership;
31. EQR-Arbors Financing Limited Partnership;
32. EQR-Breton Hammocks Financing Limited Partnership;
33. EQR-Met Financing Limited Partnership;
34. EQR-Met CA Financing Limited Partnership;
35. EQR-Wellington Hill Financing Limited Partnership;
36. Equity-Chaparral Venture Limited Partnership;
37. Equity-Green I Venture;
38. Equity-Green II Venture;
39. Equity-Lodge Venture Limited Partnership;
40. Equity-Stonebrook Venture Limited Partnership;
41. EQR-Fountainhead I Financing General Partnership;
42. EQR-Fountainhead II Financing General Partnership;
43. EQR-Fountainhead III Financing General Partnership;
44. Georgian Woods Annex Associates;
45. EQR-Keystone, L.L.C.;
46. EQR-Camellero Financing Limited Partnership;
47. EQR-Arizona, L.L.C.;
48. EQR-Washington, L.L.C.;
49. EQR-Wellington, L.L.C.;
50. EQR-Oregon, L.L.C.;
51. EQR-Waterfall, L.L.C.;
52. Multifamily Portfolio LP Limited Partnership;
53. EQR-California, L.C.C.;
54. EQR-Georgia, L.L.C.;
55. EQR-Plantation, L.L.C.;
-2-
<PAGE>
Exhibit A
56. EQR-ArtBHolder, L.L.C.; and
57. EQR-ArtCapLoan, L.L.C.
58. EQR-Keystone Financing G.P.;
59. Country Ridge General Partentnership;
60. Rosehill Pointe General Partnership;
61. EQR-Canter Chase General Partnership;
62. Hunter's Glen General Partnership;
63. Sunny Oak Village General Partnership; and
64. EQR-Pine Meadows Garden General Partnership.
-3-
<PAGE>
Exhibit B
QRS CORPORATIONS
1. ERP-QRS BS, Inc.;
2. ERP-QRS Chaparral Creek, Inc.;
3. ERP-QRS Lincoln Green, Inc.;
4. ERP-QRS Lodge (OK), Inc.;
5. ERP-QRS Stonebrook, Inc.;
6. ERP-QRS Sleepy Hollow, Inc.;
7. ERP-QRS EOI, Inc.;
8. ERP-QRS Continental Villas, Inc.;
9. ERP-QRS Doral, Inc.;
10. ERP-QRS Governor's Place, Inc.;
11. ERP-QRS Plantation, Inc.;
12. ERP-QRS Valley Park South, Inc.;
13. ERP-QRS Yorktowne, Inc.;
14. ERP-QRS SWN Line, Inc.;
15. ERP-QRS Arbors, Inc.;
16. ERP-QRS Breton Hammocks, Inc.;
17. ERP-QRS Emerald Place, Inc.;
18. ERP-QRS Essex Place, Inc.;
19. ERP-QRS Met, Inc.;
20. ERP-QRS Met CA, Inc.;
21. ERP-QRS Wellington Hill, Inc.;
22. ERP-QRS Tanasbourne Terrace, Inc.;
23. ERP-QRS Reserve Square, Inc.;
24. ERP-QRS Camellero, Inc.;
25. QRS-LLC, Inc.;
<PAGE>
Exhibit B
26. QRS-Waterfall, Inc.;
27. QRS-ArtBHolder, Inc.; and
28. QRS-ArtCapLoan, Inc.;
29. ERP-QRS Rosehill Pointe, Inc.;
30. ERP-QRS Country Ridge, Inc.;
31. ERP-QRS Lakeville Resort, Inc.;
32. ERP-QRS Park Place I, Inc.;
33. ERP-QRS Park Place II, Inc.;
34. ERP-QRS Sunny Oak Village, Inc.;
35. ERP-QRS Pine Meadows Garden, Inc.;
36. ERP-QRS Hunter's Glen, Inc.; and
37. ERP-QRS Canter Chase, Inc.
-2-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our reports dated February 14, 1996 (except for Note 20, as to
which the date is March 14, 1996) accompanying the consolidated and combined
financial statements and schedule of Equity Residential Properties Trust and
Predecessor Business as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995. We have also issued our report
dated October 4, 1995 accompanying the Combined Statement of Revenue and Certain
Expenses of the 1995 Most Recent Acquired Properties for the year ended December
31, 1994 included in the Current Report of Equity Residential Properties Trust
on Form 8-K/A, as amended, dated September 21, 1995. We consent to the
incorporation by reference of the above reports in the Registration Statement of
Equity Residential Properties Trust on Form S-3, and to the use of our name as
it appears under the caption "Experts".
GRANT THORNTON LLP
Chicago, Illinois
August 1, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form S-3 and related Prospectus of Equity Residential
Properties Trust for the registration of 608,665 common shares of beneficial
interest and to the incorporation by reference therein of our report dated May
17, 1996 with respect to the Combined Statement of Revenue and Certain Expenses
of the 1996 Acquired Properties and Probable Properties for the year ended
December 31, 1995, included in the Current Report of Equity Residential
Properties Trust on Form 8-K, dated May 23, 1996, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Chicago, Illinois
August 1, 1996
